OSG India Private Limited, Haryana V. DCIT, CHENNAI

ITA 605/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6024 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 10-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN
• Assessee Lawyers: N V BALAJI
• Keywords: Rejection of books of accounts

Judgement Text

, .. , IN THE INCOME TAX APPELLATE TRIBUNAL , SMC A BENCH, CHENNAI . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.605/MDS/2017 ( / ASSESSMENT YEAR: 2008-09) M/S. OSG INDIA PRIVATE LIMITED SECTOR 8, PLOT NO.6, IMT MANESAR, GURGAON, HARYANA - 122050 VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5, CHENNAI. PAN: AAACO7558E ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI N.V. BALAJI, ADVOCATE /RESPONDENT BY : SHRI B. SAGADEVAN, JCIT /DATE OF HEARING : 05.09.2017 ! /DATE OF PRONOUNCEMENT : 04.10.2017 / O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS)- 3, CHENNAI DATED 30.11.2016 IN ITA NO.15/2010-11/CIT(A )-3 FOR THE ASSESSMENT YEAR 2008-09 PASSED U/S.250(6) R.W.S.143 (3) OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS A PPEAL, HOWEVER THE CRUX OF THE ISSUE IS THAT THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE LD.CIT(A) WHO HAD UPHELD THE OR DER OF THE 2 ITA NO.605/MDS/2017 LD.AO, WHEREIN THE LD.AO ESTIMATED THE INCOME OF TH E ASSESSEE AT 5% OF THE EXPENSES OF RS.85,85,735/- WHICH WORKS OUT TO RS.4,29,286/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A 100% SUBSIDY OF SINGAPORE BASE COMPANY M/S. OSG ASIA PTE . LIMITED, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 ON 26.08.2008 DECLARING LOSS OF RS.40,38,366/-. THE C ASE WAS SELECTED FOR SCRUTINY AND FINALLY ASSESSMENT ORDER WAS PASSED U/S.143(3) OF THE ACT ON 22.12.2010, WHEREIN THE LD .AO REJECTED THE CLAIM OF LOSS MADE BY THE COMPANY AND ESTIMATED THE INCOME OF THE COMPANY AT 5% OF THE AGGREGATE EXPEND ITURE INCURRED BY THE COMPANY WHICH WORKED OUT TO RS.4,29 ,286/-. THE LD.AO ARRIVED AT THE ABOVE DECISION BECAUSE HE OPINED THAT THE ASSESSEE COMPANY HAD ARTIFICIALLY ARRIVED AT TH E LOSS BY ADJUSTING THE COMMISSION INCOME RECEIVABLE FROM THE PARENT COMPANY. 4. ON APPEAL, THE LD.CIT(A) CONFIRMED THE ORDER OF THE LD.AO BY OBSERVING AS UNDER: 3 ITA NO.605/MDS/2017 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD.AR AND FINDINGS OF THE AO. THE SUM AND SUBSTANCE OF THE LD.ARS AR GUMENTS ARE THAT AO HAS NOT INVOKED SEC.145(1) AND NOT REJE CTED THE BOOKS OF ACCOUNT, ESTIMATED THE INCOME@ 5% OF THE EXPENDITURE INCURRED WITHOUT REJECTING THE BOOKS OF ACCOUNT, AO HAS NOT FOUND IT AS A SHAM TRANSACTION, ETC, ETC . ON THE OTHER HAND, AO HAD EXAMINED THE APPELLANTS BOOKS OF ACCOUNT, COMMISSION AGREEMENT, AFTER WHICH, AN OPPORTUNITY OF BEING WAS GIVEN BY WAY OF ISSUE OF S HOW-CAUSE NOTICE TO THE APPELLANT. IN THE SHOW-CAUSE NOTICE, IT WAS CLEARLY MENTIONED AS TO WHY NET PROFIT @ 5% OF THE EXPENSES SHOULD NOT BE TAKEN, ETC., ETC. IT MEANS THAT AO W AS NOT SATISFIED ABOUT THE CORRECTNESS OF COMPLETENESS OF THE ACCOUNTS OF THE APPELLANT. IT IS THE FACT FINDING OF THE AO THAT THE TRANSACTIONS RELATED TO THE PARENT COMPANY ARE COLLUSIVE IN NATURE SO AS TO CREATE ARTIFICIAL LOSS. IT IS A LSO THE FINDING OF THE AO THAT APPELLANT COMPANY IS A COMMISSION AG ENT AND RECEIVES COMMISSION @ 15% ON THE SALE PRICE OF THE BUSINESS DEVELOPED BY IT AND @ 5% ON THE SALE PRICE OF THE B USINESS CARRIED OUT BY OTHERS INCLUDING PARENT COMPANY. IN VIEW OF THE FACTS, AO HAS HELD THAT COMMISSION INCOME SHOUL D BE BROUGHT TO TAX AND ALSO WORKED OUT AT RS.4,29,286/- . ON CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM INCLINED TO AGREE WITH THE FINDINGS OF THE AO. O N THE OTHER HAND, I FOUND THE ARGUMENTS OF THE LD. AR ARE DEVOI D OF MERITS. THEREFORE, I HAVE NO HESITATION TO UPHOLD THE ACTION OF THE ASSESSING OFFICER. ACCORDINGLY, THE ADDITION MADE BY THE AO AMOUNTING TO RS.4,29,286/- IS CONFIRMED AND ALL THE GROUNDS TAKEN IN THIS APPEAL ARE DISMISSED. 5. BEFORE US THE LD.AR SUBMITTED THAT THE LD.REVENU E AUTHORITIES HAD GROSSLY ERRED IN ESTIMATING THE INC OME OF THE ASSESSEE @ 5% OF EXPENDITURE. HE FURTHER SUBMITTED THAT THE 4 ITA NO.605/MDS/2017 ASSESSEE COMPANY WAS IN ITS INITIAL YEARS OF BUSINE SS AND THEREFORE INCURRED SUBSTANTIAL EXPENDITURE WHICH CO ULD NOT BE RECOUPED DUE TO POOR SALES. HE FURTHER ARGUED BY S TATING THAT THE ASSESSEE COMPANY HAD MADE PROFITS IN THE SUBSEQ UENT YEARS AND THEREFORE IT HAD NOT ARRANGED IN A MANNER TO IN CUR LOSS BY SHOWING POOR RECEIPTS FROM THE PARENT COMPANY. IT WAS THEREFORE PLEADED THAT THE LOSS MADE BY THE ASSESSEE COMPANY MAY BE ACCEPTED AS GENUINE LOSS. THE LD.DR ON THE OTHER HA ND PLEADED FOR SUSTAINING THE ORDER OF THE LD.REVENUE AUTHORIT IES. 6. I HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. ON EXAMINING THE PROFIT A ND LOSS ACCOUNT OF THE ASSESSEE, I FIND THAT THE ASSESSEE C OMPANY HAD RECEIVED INCOME FROM OPERATIONS TO THE TUNE OF RS.7 9,30,230/- DURING THE RELEVANT ASSESSMENT YEAR. HOWEVER, SINCE THERE WAS HUGE EXPENDITURE BY WAY OF REMUNERATION TO EMPLOYEE S OF RS.47,21,303/- AND ADMINISTRATIVE EXPENSES OF RS.38 ,29,706/-, THE ASSESSEE WAS NOT ABLE TO GENERATE PROFIT FROM I TS OPERATIONS. I AM OF THE VIEW THAT THE LD.AO OUGHT TO HAVE EXAMI NED THE GENUINENESS OF THESE EXPENDITURES BEFORE ARRIVING A T SUCH CONCLUSION. FURTHER FROM THE FACTS OF THE CASE, IT IS APPARENT THAT THE LD.AO HAS NOT REJECTED THE BOOKS OF ACCOUNTS IN STEAD HE HAD 5 ITA NO.605/MDS/2017 SIMPLY ESTIMATED THE INCOME BASED ON THE EXPENSES W HICH IM OF THE OPINION IS NOT APPROPRIATE. THE LD.CIT(A) HAS ALSO SIMPLY FOLLOWED THE DECISION OF THE LD.AO. CONSIDERING TH ESE FACTS, IN THE INTEREST OF JUSTICE I HEREBY REMIT BACK THE MAT TER TO THE FILE OF LD.AO TO CONSIDER THE ISSUE AFRESH BASED ON THE FIN ANCIAL ACTIVITIES OF THE ASSESSEE AND ALSO THE CREDIBILITY OF THE AGREEMENTS BETWEEN THE ASSESSEE AND ITS PARENT COMP ANY. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 04 TH OCTOBER, 2017 AT CHENNAI. SD/- ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER '# /CHENNAI, $% /DATED 04 TH OCTOBER, 2017 RSR % '( )( /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. , ( )/CIT(A) 4. , /CIT 5. (-. / /DR 6. .0 /GF