ICICI LOMBARD GENERAL INSURANCE CO. LTD., MUMBAI V. ADDL.C.I.T. -10(1), MUMBAI

ITA 5777/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84225 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 11-11-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 12-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KUMAR
• Keywords: Business income; Transfer pricing; Deemed to accrue or arise in india
• Section: 143(3); 142(1); 115JB; 263; 63

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L BE NCH, MUMBAI . , !' , #$ %&'( , #) *+ # ' BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./I .T.A. NO. 5777/MUM/2011 ( , , , , / ASSESSMENT YEAR : 2005-06 ICICI LOMBARD GENERAL INSURANCE CO. LTD., LOMBARD HOUSE, 2 ND FLOOR, 414 SEER SAVARKAR MARG, NEAR SIDDHI VINAYAK TEMPLE MAIN GATE, PRABHADEVI, MUMBAI-400 025 / VS. THE ACIT, RANGER 10(1), AAYAKAR BHAVAN, 4 TH FLOOR MUMBAI-400 020 +- #) ./ ./ ./ PAN/GIR NO. : AAACI 7904G ( -0 / APPELLANT ) .. ( 12-0 / RESPONDENT ) -0 3 # / APPELLANT BY: MS. ARATI VISSANJI 12-0 4 3 # / RESPONDENT BY: SHRI NARENDRA KUMAR 4 5) / DATE OF HEARING :11.11.2014 6, 4 5) / DATE OF PRONOUNCEMENT :14.11.2014 *#7 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE LD. CIT-10, MUMBAI DT.29.3.2011 PERTAINING TO A.Y.2005- 06. ITA NO. 5777/M/2011 2 2. THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CI T ERRED IN PASSING AN ORDER U/S. 263 ON THE GROUND THAT THE ORDER PASS ED BY THE AO U/S. 143(3) OF THE ACT IS ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF THE REVENUE. THE ASSESSEE IS FURTHER AGGRIEVED BY THE DIRECTION OF THE CIT TO THE AO TO REFRAME THE ASSESSMENT TO DISALLOW THE EX PENDITURE FOR PAYMENT OF REINSURANCE PREMIUM TO ASSOCIATED ENTERP RISES U/S. 40(A)(I) OF THE ACT. 3. THE ASSESSEE IS ENGAGED IN GENERAL INSURANCE BUS INESS. THE ASSESSEE OFFERS INSURANCE IN THE FORM OF FIRE, ENGI NEERING, HEALTH, MOTOR, TRAVEL, MARINE AND LIABILITY INSURANCE POLICIES. T HE RETURN OF INCOME FOR THE YEAR WAS FILED ON 18.10.2005 DECLARING TOTAL IN COME AT RS. 14.70 CRORES. THE BOOK PROFIT WAS COMPUTED U/S. 115JB OF THE ACT AT RS. 44.03. CRORES. THE ASSESSMENT WAS COMPLETED U/S. 1 43(3) OF THE ACT. THE ASSESSED INCOME WAS COMPUTED AT RS. 46.29 CRORES. SINCE THE TAX PAYABLE ON THE TOTAL INCOME COMPUTED UNDER THE NORMAL PROVI SION OF THE ACT WAS GREATER THAN THE TAX PAYABLE ON THE BOOK PROFIT U/S . 115JB, THE TOTAL INCOME COMPUTED UNDER THE NORMAL PROVISION WAS TAKE N AS THE TOTAL INCOME OF THE ASSESSEE. 3.1. INVOKING THE POWERS CONFERRED UPON HIM VIDE S EC. 263 OF THE ACT, THE CIT WAS OF THE FIRM BELIEF THAT THE ASSESSEE HA S MADE PAYMENT OF RS. 16,85,47,839/- WITHOUT DEDUCTING TAX AT SOURCE TO I TS ASSOCIATED ENTERPRISES M/S. ODYSSEY AMERICA REINSURANCE CORPOR ATION, SINGAPORE FOR PROVIDING REINSURANCE BUSINESS. ACCORDING TO T HE CIT, THIS PAYMENT WAS NOT CONSIDERED AND EXAMINED BY THE AO FOR DISAL LOWANCE U/S. 40(A)(I) OF THE ACT. ITA NO. 5777/M/2011 3 3.2. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE ORDE R U/S. 143(3) DT. 12.12.2008 SHOULD NOT BE TREATED AS ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF THE REVENUE. THE ASSESSEE FILED A DETA ILED REPLY QUESTIONING THE CIT FOR INVOKING PROVISIONS OF SEC. 263 OF THE ACT. IT WAS EXPLAINED THAT NO TAX WAS DEDUCTED AT SOURCE ON THE PAYMENT O F RS. 16.85 CRORES TO ITS ASSOCIATED ENTERPRISES AS NO INCOME ACCRUED OR ARISEN OR IS DEEMED TO ACCRUE OR ARISE IN INDIA AND PROVISIONS OF SEC. 9 O F THE ACT ARE NOT APPLICABLE. IT WAS FURTHER EXPLAINED THAT THE SAID PAYMENT WAS EXEMPT UNDER ARTICLE 7 OF THE DOUBLE TAXATION AVOIDANCE AG REEMENT BETWEEN INDIA AND SINGAPORE. IT WAS FURTHER EXPLAINED THA T THE PAYMENT TO ASSOCIATED ENTERPRISE WAS MADE IN ACCORDANCE WITH T HE CBDT CIRCULAR NO. 759 DT. 18.11.1997 AND CBDT CIRCULAR NO. 10 DT. 9.10.2002. IT WAS BROUGHT TO THE NOTICE OF THE CIT THAT THE ASSESSEE HAS OBTAINED A DECLARATION FROM M/S. ODYSSEY AMERICA REINSURANCE C ORPORATION, SINGAPORE THAT IT IS A NON RESIDENT ENGAGED IN THE BUSINESS OF REINSURANCE OUTSIDE INDIA AND IT DOES NOT HAVE AN OFFICE OR PER MANENT ESTABLISHMENT OR A FIXED BASE IN INDIA. FOR THIS, THE ASSESSEE D REW SUPPORT FROM THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F TOSHUKA LTD. 126 ITR 525 WHEREIN IT HAS BEEN HELD BY THE HONBLE SUP REME COURT THAT IF NO OPERATIONS ARE CARRIED OUT IN TAXABLE TERRITORIE S, IT FOLLOWS THAT INCOME ACCRUING OR ARISING ABROAD THROUGH OR FORM ANY BUSI NESS CONNECTION IN INDIA CANNOT BE DEEMED TO ACCRUE OR ARISE IN INDIA. 3.3. THE SUBMISSIONS MADE BY THE ASSESSEE DID NOT F IND ANY FAVOUR WITH THE CIT. RELYING UPON CERTAIN JUDICIAL DECISIONS, THE CIT CAME TO THE CONCLUSION THAT THE ORDER DT. 12.12.2008 IS ERRONEO US IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CI T PROCEEDED BY CANCELLING THE SAID ORDER WITH A DIRECTION TO THE A O TO FRAME A FRESH ASSESSMENT. ITA NO. 5777/M/2011 4 4. AGGRIEVED BY THIS THE ASSESSEE IS BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENT ION TO THE NOTICE ISSUED BY THE AO U/S. 142(1) OF THE ACT DT. 18 TH AUGUST, 2008. IT IS THE SAY OF THE LD. COUNSEL THAT DURING THE COURSE OF TH E SCRUTINY ASSESSMENT PROCEEDINGS, THE AO HAD MADE SPECIFIC ENQUIRIES IN RELATION TO PAYMENTS/EXPENSES ON WHICH TAX WAS DEDUCTIBLE AT SO URCE, DETAILS OF AMOUNT REMITTED/SENT ABROAD AND DETAILED ENQUIRIES WERE MADE IN CONNECTION WITH THE TRANSACTIONS REPORTED IN THE FO RM 3CEB. THE LD. COUNSEL CONTINUED BY SAYING THAT NECESSARY ENQUIRIE S WERE MADE BY THE AO AGAINST WHICH THE ASSESSEE FILED DETAILED REPLY WHICH HAS BEEN CONSIDERED BY THE AO BEFORE FRAMING THE ASSESSMENT U/S. 143(3) OF THE ACT. THEREFORE, THE ORDER PASSED BY THE CIT U/S. 2 63 IS AGAINST THE FACTS OF THE CASE. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDER OF THE CIT. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE ASSESSMENT ORDER AND THE ORDER OF THE LEARNED C OMMISSIONER. THE FIRST THING WHICH HAS TO BE CONSIDERED IS WHETHER T HE LEARNED COMMISSIONER HAS RIGHTLY ASSUMED THE POWER UNDER SE CTION 263 OF THE ACT. THE HONBLE SUPREME COURT IN MALABAR INDUSTR IAL CO. LTD. 243 ITR 83 HAS LAID DOWN THE FOLLOWING RATIO:- A BARE READING OF SECTION 263 OF THE INCOME-TAX AC T, 1961, MAKES IT CLEAR THAT THE PREREQUISITE FOR THE EXERCI SE OF JURISDICTION BY THE COMMISSIONER SUO MOTU UNDER IT, IS THAT THE ORDER OF THE INCOME-TAX OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER HAS TO B E SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSES SING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS ; AND (II) IT IS PREJUDICIAL TO THE ITA NO. 5777/M/2011 5 INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENT IF THE ORDER OF THE INCOME-TAX OFFICER IS ERRONEOUS BUT IS NOT PREJ UDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIA L TO THE REVENUE RECOURSE CANNOT BE HAD TO SECTION 263(1) OF THE ACT . THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONL Y WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS 9. NOW, LET US SEE IN THE LIGHT OF THE ABOVE RATIO WHETHER THE ASSESSMENT HAS BEEN MADE ON AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW. THE FIRST OBSERVATIO N OF THE CIT THAT THE ASSESSEE HAD MADE PAYMENT OF RS. 16.85 CRORES TO IT S ASSOCIATED ENTERPRISES M/S. ODYSSEY AMERICA REINSURANCE CORPOR ATION, SINGAPORE WITHOUT DEDUCTING TAX AT SOURCE IS HIT BY THE PROVI SIONS OF SEC. 40(A)(I) OF THE ACT. ON IDENTICAL ISSUE IN THE IMMEDIATELY PRE CEDING ASSESSMENT YEAR I.E. 2004-05, THE MATTER TRAVELLED UPTO THE TRIBUNA L AND THE TRIBUNAL DECIDED THE ISSUE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE VIDE ITA NO. 2769/M/2011 DT. 30.8.2013. AT PARA 2.3 OF I TS ORDER THE TRIBUNAL INTER ALIA HELD AS UNDER: THE ASSESSEE IN THIS CASE HAD OBTAINED REINSURANCE COVERED FROM SINGAPORE COMPANY WHICH WAS ENGAGED IN THE BUS INESS OF REINSURANCE OUTSIDE INDIA. THE PAYMENT MADE BY THE ASSESSEE TO THE SINGAPORE COMPANY WAS NOT FOR OBTAI NING ANY TECHNICAL/MANAGERIAL SERVICES OR FOR USE OF ANY PROPERTY OR ASSET. THEREFORE THE PAYMENT COULD NOT BE CONSI DERED AS ROYALTY OR FTS. THE PAYMENT COULD ONLY BE CONSIDER ED AS BUSINESS INCOME IN THE HANDS OF THE SINGAPORE COMPA NY WHICH COULD BE TAXED IN INDIA ONLY IF THE SAID COMP ANY HAD PE IN INDIA. THE CLAIM OF THE ASSESSEE THAT THE SI NGAPORE COMPANY DID NOT HAVE ANY ESTABLISHMENT OR EMPLOYEE IN INDIA HAS NOT BEEN CONTROVERTED BEFORE US. THEREFO RE, IN OUR VIEW THE PAYMENT TO THE SINGAPORE COMPANY WAS NOT T AXABLE IN INDIA. ITA NO. 5777/M/2011 6 THE TRIBUNAL FINALLY CONCLUDED BY CONFIRMING THE O RDER OF THE CIT(A) DIRECTING THE AO TO DELETE THE ADDITION. 10. CONSIDERING THE DECISION OF THE CO ORDINATE BEN CH ON IDENTICAL ISSUE, IT CAN BE SAFELY CONCLUDED THAT THE ASSESSME NT ORDER HAS NOT BEEN MADE ON AN INCORRECT APPLICATION OF LAW. ON FACTS, A PERUSAL OF THE QUESTIONNAIRE ISSUED ALONGWITH THE NOTICE U/S. 142( 1) OF THE ACT DT. 18 TH AUGUST, 2008 SHOWS THAT VIDE QUESTION NO. 29 THE AO HAD SOUGHT DETAILS OF ALL PAYMENTS/EXPENSES ON WHICH TAX WAS DEDUCTIBL E AT SOURCE AS PER THE PROVISIONS OF THE ACT. QUESTION NO. 35 WAS WITH RE SPECT TO DETAILS OF AMOUNT REMITTED/SENT ABROAD SUPPORTED BY RBI PRESCR IBED CERTIFICATE ISSUED BY C.A U/S. 195 OF THE ACT, 1961 AND QUESTIO N NO. 37 WAS IN CONNECTION WITH THE TRANSACTIONS REPORTED IN THE FO RM 3CEB. THE ASSESSEE HAD FILED A DETAILED REPLY IN RESPECT OF T HESE QUERIES RAISED DURING THE ASSESSMENT PROCEEDINGS. THUS THE OBSERVATION O F THE CIT THAT THE PAYMENT OF RS. 16.85 CRORES TO ITS ASSOCIATED ENTER PRISE HAS NOT BEEN CONSIDERED AND EXAMINED BY THE AO FOR DISALLOWANCE U/S. 40(A)(I) OF THE ACT IS INCORRECT IN THE LIGHT OF THE FACTS STATED HEREINABOVE. 10.1. THE AO HAS TAKEN A VIEW WHICH MAY BE DIFFEREN T FROM THE VIEW OF THE LD. COMMISSIONER AND ASSUMING THAT THE VIEW TAK EN BY THE AO IS A LOSS TO THE REVENUE BUT THE HONBLE SUPREME COURT I N MALABAR INDUSTRIAL CO. LTD. (SUPRA) HAS HELD THAT EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE AO CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE, FOR E.G. WHEN AN INCOME TAX OFFICER ADOPTED ONE O F THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN L OSS OF REVENUE OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME TAX OFFICER H AS TAKEN ONE VIEW WITH WHICH THE LD. COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS ITA NO. 5777/M/2011 7 AN ORDER WHICH IS ERRONEOUS OR PREJUDICIAL TO THE I NTEREST OF REVENUE UNLESS THE VIEW TAKEN BY THE INCOME TAX OFFICER IS UNSUSTAINABLE IN LAW. 10. THE BOMBAY HIGH COURT IN CIT VS GABRIAL INDIA LTD., (1993) 203 ITR 108 HAS HELD THAT THE DECISION OF THE INCOME TAX OFFICER COULD NOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER , HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF THE JUDICIAL DECISIONS DISCUSSED HEREI NABOVE, IN OUR UNDERSTANDING OF LAW, THE ASSESSMENT ORDER IS NEITH ER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE, TH EREFORE, SET ASIDE THE IMPUGNED ORDER PASSED BY THE LD. COMMISSIONER U/S. 263 AND RESTORE THAT OF THE ASSESSING OFFICER PASSED U/S. 143(3) OF THE ACT. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH NOVEMBER, 2014 SD/- SD/- (D. MANMOHAN ) (N.K. BILLAIYA) !' / VICE PRESIDENT #) *+ / ACCOUNTANT MEMBER MUMBAI; 8* DATED : . . ./ RJ , SR. PS ITA NO. 5777/M/2011 8 *#7 *#7 *#7 *#7 4 44 4 15% 15% 15% 15% 9#%,5 9#%,5 9#%,5 9#%,5 / COPY OF THE ORDER FORWARDED TO : 1. -0 / THE APPELLANT 2. 12-0 / THE RESPONDENT. 3. : ( ) / THE CIT(A)- 4. : / CIT 5. %;< 15 , , / DR, ITAT, MUMBAI 6. < = / GUARD FILE. *#7 *#7 *#7 *#7 / BY ORDER, 2%5 15 //TRUE COPY// / . . . . (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI