ITO 10(1)(1), MUMBAI V. GRID CONSULTANTS P.LTD, MUMBAI

ITA 6101/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100530 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 04-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 30-09-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Royalty expenses

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (ACCOUNTANT MEMBER . . , ./ I.T.A. NO 6101/ MUM/20 14 ( / ASSESSMENT YEAR : 20 10 - 11 ) INCOME TAX OFFICER, 10(1)(1), ROOM NO.453, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 / VS. M/S GRID CONSULTANTS PVT.LTD., 502 - 505, SAI CHAMBERS, NE XT TO BUS DEPORT, SANTACRUZ(E), MUMBAI - 400055 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AABC G 4132F / APPELLANT BY SHRI K P R R MURTY / RSPONDENT BY SHRI SIDHARTH DU GE / DATE OF HEARING : 4 .8 . 201 5 / DATE OF PRONOUNCEMENT : 4 . 8. 201 5 / O R D E R PER B ENCH: THIS APPEAL IS DIRECTED BY THE REVENUE AGAINST THE ORDER DATED 10.07.2014 PASSED BY THE CIT(A) - 21, MUMBAI , IN RESPECT OF ASSESSMENT YEAR (AY) 2010 - 11 ON THE FOLLOWING GROUNDS: 1.N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF RECALCULATED SALES, BY IGNORING THE FACT THAT THE ASSESSEE COMPANYS PRODUCT HAS HUGE MARKET POT ENTIAL AND THE CORPORATE THEMSELVES APPROACH THE ASSESSEE COMPANY FOR GRID SEMINARS, HENCE THE COMPANY NEED NOT OFFER ANY DISCOUNT AND THE FACT THAT ASSESSEE HAS SOLE RIGHTS OVER SUCH PRODUCTS IN INDIA. ITA NO. 6101 / MUM/20 14 2 2. THE APPELLANTS PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRAINING PEOPLE IN THE FIELD OF HUMAN RESOURCES MANAGEMENT INCLUDING CONDUCTING OF GRID SEMINAR S AND CERTIFYING INSTRUCTORS OF GRID INTERNATIONAL INC. THE ASSESSEE HAS FILED HIS RETURN OF INCOME ON 13.09.2010 FOR AY 2010 - 11 DECLARING HIS TOTAL INCOME AT RS. NIL. THE ASSESSEE - COMPANY SHOWN HIS INCOME FROM OPERATIONS OF RS 52,63,772/ - AND OTHER INCOME OF RS. 11,272/ - AND EXPENSES AMOUN TING TO RS 53,42,629/ - AND IN P & L ACCOUNT A LOSS OF RS. 14,959/ - WAS SHOWN. 3. THE CASE WAS SELECTED FOR SCRUTINY, A NOTICE U/S. 143(2) DATED 26.09.2011 WAS ISSUED TO THE ASSESSEE WHICH WAS DULY RECEIVED AND THE REPRESENTATIVE OF ASSESSEE ATTENDED THE P ROCEEDING BEFORE THE AO AND MADE HIS SUBMISSI ON . 4. IN THE EARLIER YEAR S , THE GROSS SALES OF THE ASSESSEE HAD BEEN ESTIMATED ON THE BASIS OF ROYALTY AMOUNT PAID BY THE ASSESSEE, HENCE THE AO FOLLOWED THE SAME METHOD DURING THE INSTANT YEAR ALSO WITH THE FOLLOWING OBSERVATION: THAT FOR THE A.Y. 2002 - 03 AS ALSO FOR A.Y. 2007 - 08, THE CIT(A) VIDE ORDER DATED 10.11.2007 & 07.04.2011 RESPECTIVELY HAS DECIDED THE ABOVE SAID ISSUE IN FAVOUR OF THE ASSESSEE. BUT, AS AGAINST THIS, THE DEPT . I S IN APPEAL BEFORE TH E HONBLE I.T.A.T, MUMBAI, ON THIS ISSUE. HENCE, TO CONTINUE WITH THE STAND OF THE DEPT., THE DISALLOWANCE IS CALLED FOR, FOR THE CURRENT YEAR UNDER CONSIDERATION ALSO. ITA NO. 6101 / MUM/20 14 3 IN VIEW OF THE ABOVE DISCUSSION, ON THE SIMILAR LINE OF AY.2002 - 03, AY.2007 - 08 & A.Y. 2009 - 10 THE WORKING OF THE SALES FOR THE YEAR UNDER CONSIDERATION IS WORKED OUT ON THE BASIS OF DETAILS GIVEN IN THE BOOKS OF ACCOUNTS AS UNDER: ACCORDINGLY THE AO ARRIVED AT THE AMOUNT OF ADDITION AS UNDER TOTAL SALES PROCEEDS = RS.52,63,772 / - TOTAL ROYALTY PAYMENT = RS.19,42,346/ - RATE OF ROYALTY PAYMENT = 26% THE WORKING OF SALES FOR THE CURRENT YEAR = 19,42,346 X 100 26 SALES DETERMINED ON THE BASIS OF RO YALTY CLAIMED = RS.74,70,562/ - IN THE RESULT, THE CONCEALED SALES ( RS. 74,70,562 MINUS RS. 52,63,772 ) WAS DETERMINED AT RS.22,06,790/ - AND THE SAME WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. 5 . AGAINST THE OR DER OF AO, THE ASSESSEE FILED APPE AL BEFORE THE CIT(A) ON THE GROUND THAT AO WAS NOT JUSTIFIED IN REJECTING THE RESULT SHOWN IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND GROSSLY ERRED IN ESTIMATING THE ADDITIONAL SALE OF RS.22,06,790/ - BY APPLYING ADHOC RATE OF 26% ON ROYALTY EXPENSES OF RS .19,42,346/ - . THE LD. CIT(A) IN PARAGRAPH 2.3 OF ITS ORDER HAS OBSERVED AS UNDER: I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE. THIS ISSUE HAS COME INTO CONSIDERATION OF CIT(A) IN A.Y.2009 - 10 WHEREIN IT IS HELD AS UNDER: 'THIS ISSUE WAS ALSO THERE IN APPELLANT'S CASE IN A Y.2002 - 03, 2007 - 08. IN THE YEAR UNDER CONSIDERATION THE A O. HAS FOLLOWED THE ASSESSMENT ORDERS OF THESE TWO YEARS AND ON THAT BASIS THE A. O. HAS CALC ULATED SUPPRESSED SALE OF RS.3,8 5,341/ - ITA NO. 6101 / MUM/20 14 4 IN A Y.2002 - 03 AND 2007 - 0 8 , T HE ADDITION OF SUPPRESSED/ CONCEALED SALE MADE BY A O. WAS DELETED BY CIT(A). IN THE ASSESSMENT ORDER THE A.O. HAS MENTIONED THAT THE CIT(A)'S ORDER FOR A. Y.2002 - 03 AND 2007 - 08 HAVE NOT BEEN ACCEPTED BY DEPARTMENT FOR WHICH SECOND APPEAL HAVE BEEN FILED I N ITAT. IN VIEW OF THE FACT FOR A Y.2002 - 03 AND 2007 - 08 , THE AO HAS MADE ADDITION IN THE YEAR UNDER CONSIDERATION. IN APPEAL ORDER OF A Y.2007 - 08 THE UNDERSIGNED HAS DECIDED THIS ISSUE AS UNDER: '2.3 I HAVE CONSIDERED THE FACTS OF THE CASE. THE APPELLA NT WAS SELLING IN INDIA THE PATENTED GRID MATERIAL OF US COMPANY GRID INTERNATIONAL INC. TEXAS FOR WHICH THE APPELLANT WAS REQUIRED TO PAY ROYALTY AT THE RATE OF 26% OF US LIST PRICE. ON THIS BASIS OF PAYMENT OF ROYALTY AT 26%, THE AO CALCULATED THE SALES OF THE APPELLANT AT RS.37,62,719/ - AS AGAINST SALES SHOWN BY THE APPELLANT AT RS.15, 89,448/ - . THE APPELLANT DURING ASSESSMENT PROCEEDINGS AS WELL AS DURING APPELLATE PROCEEDINGS HAS EXPLAINED THAT THE PATENTED GRID MATERIAL HAS NOT BEEN SOLD IN INDIA AT THE US LIST PRICE. THE APPELLANT HAD TO SALE THE SAME IN INDIA AT THE RATE BELOW THE US LIST PRICE AFTER GIVING DISCOUNT ETC. KEEPING IN VIEW THE FACTS OF THE CASE, IN MY CONSIDERED VIEW, THE AO WAS NOT JUSTIFIED IN RECALCULATING APPELLANT'S SALE AT RS. 37 ,62,719/ - ON THE BASIS OF PAYMENT OF ROYALTY AT 26% BY APPELLANT TO US COMPANY GRID INTERNATIONAL INC. TEXAS. THERE IS NO EVIDENCE ON RECORD THAT THE APPELLANT HAD SOLD THE PATENTED GRID MATERIAL OF US COMPANY IN INDIA AT THE RATE OF US LIST PRICE. THE AO HAS ESTIMATED APPELLANT'S SALES AT RS.37,62,719/ - AS AGAINST SALES SHOWN BY APPELLANT AT RS.15,89,448/ - . THIS MEANS THAT THE APPELLANT MADE SALES OF RS.21,73,271/ - WHICH WERE NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. HOWEVER, THERE IS NO EVIDENCE ON RECO RD THAT THE APPELLANT MADE ANY UNACCOUNTED SALES. IN THE FACTS AND CIRCUMSTANCES, THE AO WAS NOT JUSTIFIED IN REJECTING APPELLANT'S BOOK RESULT AND MAKING ESTIMATION OF SALES. THE ADDITION MADE BY AO AT RS.21,73,271/ - ON ACCOUNT OF ADDITIONAL SALES (UNACCO UNTED SALES) WAS WITHOUT ANY BASIS/JUSTIFICATION AND THEREFORE, IS, HEREBY DELETED. THIS GROUND OF APPEAL IS ALLOWED. FOLLOWING THE APPEAL ORDER OF A.Y.2007 - 08, THE ADDITION OF SUPPRESSED/CONCEALED SALE OF RS.3,85,341/ - MADE BY A.O. IS DELETED. THIS GROUN D OF APPEAL IS ALLOWED.' ITA NO. 6101 / MUM/20 14 5 THE CIT(A) ON THE BASIS OF ABOVE OBSERVATION, DELETED THE ADDITION MADE BY THE AO. AGAINST THE IMPUGNED ORDER OF LD. CIT(A) DATED 10.08.2 014 THE PRESENT APPEAL CAME TO BE FILED BY THE REVENUE. 6 . I HAVE HEARD THE LD. DR AND THE REPRESENTATIVE OF THE ASSESSEE AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE LD. AR OF THE ASSESSEE HAS BROUGHT ON THE RECORD THE ORDER OF ITAT, CO - ORDINATE G BENCH OF THIS TRIBUNAL PASSED IN ASSESSEES OWN CASE IN ITA NO. 4918 /MUM/2011 ON THE V ERY SAME ISSUE IN RESPECT OF AY - 2007 - 08 AND SUBMITTED THAT THE TRIBUNAL, VIDE ITS ORDER DATED 01 - 06 - 2015, HAS RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVATIONS: - 15. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. THE UNDISPUTED FACT IS THAT THERE IS A ROYALTY AGREEMENT BETWEEN THE ASSESSEE AND THE TEXAS BASED COMPANY. IT IS ALSO AN UNDISPUTED FACT THAT THE PAYMENT OF ROYALTY IS BASED ON SALES OF GRID MATERIAL. WE FURTHER FIND THAT NO EVIDENCE WHAT SOEVER HAS BEEN BROUGHT ON RECORD NEITHER BEFORE THE FIRST APPELLATE AUTHORITY NOR BEFORE US TO SHOW THAT THE ASSESSEE HAS MADE SALES ON DISCOUNTED PRICE. WE ALSO FIND THAT NO SUCH DOCUMENTARY EVIDENCES HAVE BEEN VERIFIED BY THE AO DURING THE COURSE OF TH E ASSESSMENT PROCEEDINGS. THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE SET ASIDE THE FINDINGS OF THE LD CIT(A) AND RESTORE THIS ISSUE TO THE FILE OF THE AO FOR DENOVO ASSESSMENT.. 7 . THE LD A.R SUBMITTED THAT THE ISSUE URGED IN THE YEAR UND ER CONSIDERATION IS IDENTICAL IN NATURE AND HENCE IT MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER AS DONE IN AY 2007 - 08. THE LD D.R DID NOT OBJECT TO THE SAME. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND RESTORE THE MATTER TO THE FILE O F THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE ITA NO. 6101 / MUM/20 14 6 THIS ISSUE AFRESH AS PER THE DIRECTIONS ISSUED BY THE DIVISION BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR AY 2007 - 08 IN ITS ORDER, REFERRED SUPRA. 8 . AS A RESULT, APPEAL FILED BY THE REVENUE I S TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 4 TH AUGUST 2015. 4TH AUGUST, 2015 SD ( . . / B.R. BASKARAN) / ACCOUNTANT MEMBER MUMBAI: 4TH AUG , 2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RE SPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE CO PY (ASSTT. REGISTRAR) , /ITAT, MUMBAI