PARADIGM GEOPHYSICAL (I) P.LTD, NAVI MUMBAI V. DCIT 9(2), MUMBAI

ITA 6444/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1916 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 20-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Avoidance of tax; Reason to believe
• Section: 143(3); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C , MUMBAI BEFORE SHRI R.C.SHARMA ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.6444 MUM/2014 FOR A Y : 2008-09 M/S PARADIGM GEOPHYSICAL (I) PRIVATE LIMITED, 614, B- WING RUPA SOLITIRE, SECTOR NO.1, MILLENNIUM BUSINESS PARK, THANE BALLAPUR ROAD, MAHAPE, NAVI MUMBAI -400710 PAN: AACCP8903C VS. DEPUTY COMMISSIONER OF INCOME TAX 9(2), ROOM NO. 218, SECOND FLOOR,) AYAKAR BHAWAN, M.K. ROAD, MUMBAI- 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY SH. MAYUR KISHANDWALA AND MS KHUSBOO - AR REVENUE BY SH. M.C. OM NAGESHEN DR DATE OF HEARING 25.08.2016 DATE OF PRONOUNCEMENT 23.11.2016 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH JUDICIAL MEMBER : 1. THIS APPEAL U/S 253 OF INCOME TAX ACT (ACT) IS DI RECTED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER (APPEALS) 31, MUMBAI, DAT ED 11 JULY 2014 26 FOR AY 2008-09. THE ASSESSEE HAS RAISED FOLLOWING GROUND S OF APPEAL: (I) THE LEARNED CIT(A) ERRED IN CONCLUDING THAT LIABILI TY OF RS. 6,34,12,696/- DUE TO PARADIGM GEOPHYSICAL SDN BHD MALAYSIA HAS C EASED TO EXIST ON 31 MARCH 2008 AND HENCE CONFIRMING THE ADDITION OF AO OF THIS AMOUNT TO THE TOTAL INCOME OF ASSESSEE IN THE RELEVANT ASSESSMENT YEAR. (II) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMMISS IONER (APPEAL) ERRED IN CONFIRMING THE ACTION OF AO IN NOT ALLOWING A DEDUC TION UNDER SECTION 10A ON THE AMOUNT OF RS. 6,34,126,96/- ADDED BY HIM WIT HOUT APPRECIATING THAT THE REMISSION OF LIABILITY FORM PART OF SECTION 41( 1) AND HENCE THE SAME IS REQUIRED TO BE CONSIDERED IN COMPUTING DEDUCTION UN DER SECTION 10A. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE RETURN OF INCOME WAS FILED BY ASSESSEE ON 30 SEPTEMBER 2008 DECLARING TOTAL INCOME AT NILL UNDER THE NORMAL PROVISION AND M/S PARADIGM GGEOPHYSICAL (I) PRIVATE LIMI TED ITA NO.6444/M/2014 AY 2008-09 2 TAXABLE INCOME AT RS. 28,85,008/-UNDER THE COMPUTAT ION OF BOOK PROFIT. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 31 ST OF JANUARY 2012. WHILE FRAMING ASSESSMENT THE AO BESIDES THE OTHER ADDITIO N MADE THE DISALLOWANCE ON ACCOUNT OF CESSATION OF LIABILITY OF RS. 8,44,05,21 8/-. AGGRIEVED BY THE ORDER OF AO ASSESSEE FILED APPEAL BEFORE COMMISSIONER (APPEA LS). THE COMMISSIONER (APPEALS) AFTER CONSIDERING THE CONTENTION OF THE A SSESSEE RESTRICTED THE DISALLOWANCE AT RS. 6,34,12,696/- HOLDING THAT AN A MOUNT OF RS. 2,09,92,522/- HAS ALREADY DISALLOWED BY THE ASSESSEE UNDER SECTION 40 (A) IN A Y 2007-08, AND DIRECTED THE AO TO VERIFY THE FACTS FROM THE RECORD AND IN CASE THE SAME IS FOUND CORRECT THE APPROPRIATELY RELIEF MAY BE ALLOWED TO THE ASSESSEE AFTER VERIFICATION OF FACT. FURTHER AGGRIEVED BY THE ORDER OF COMMISSIONE R (APPEAL) THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE LD AR OF THE ASSESSEE THE LD DR F OR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LEARNED AR OF THE ASSESSEE ARGUED THAT THE REMISSION LETTER FROM PARADIGM GEOPHYSICAL SDN BHD MALAYSIA CONFIRMING THE CRYSTALLIZATION OF REMISSION CLEARLY SHOWS THAT THE CESSATION OCCURRED ONLY IN THE FINANCIAL YEAR 2008-09. THE INCOME ARISING OF CES SATION OF LIABILITY WOULD ARISE ONLY IN THE FINANCIAL YEAR 2008-09 (ASSESSMENT YEAR (2009-10) AND NOT IN THE YEAR UNDER CONSIDERATION. THE LD AR FOR ASSESSEE FURTHER ARGUED THAT THE DECISION OF REMISSION WAS TAKEN ONLY AFTER THE MANAGEMENT DISCU SSION IN JUNE/ JULY 2008, WHICH IS DULY DISCLOSED IN THE LETTER DATED 21 ST AUGUST 2008. IT WAS FURTHER ARGUED THAT IN THE LETTER DATED 21 AUGUST 2008 IT IS CLEAR LY DEMONSTRATED THAT THE DEBT WAS EXISTING IN THE BOOKS OF CREDITOR AS ON 31 ST MARK 2008 AND WAS WAIVED ONLY IN JUNE/JULY 2008. THIS LETTER WAS SUBMITTED BEFORE AO DURING THE ASSESSMENT PROCEEDINGS AS WELL AS BEFORE LD COMMISSIONER (APPE ALS) AND THE SAME WAS NOT CONSIDERED BY THEM. WITH REGARD TO THE NOTES OF ACC OUNT THE LD AR OF THE ASSESSEE ARGUED THAT THE CONTENTION REGARDING THE AS REQUIRE MENT UNDER THE COMPANIES ACT WAS NOT DISPUTED BY THE REVENUE AUTHORITIES. ON THE OTHER HAND LD DR FOR REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW AND WOULD ARGUE THAT THE REMISSION LETTER M/S PARADIGM GGEOPHYSICAL (I) PRIVATE LIMI TED ITA NO.6444/M/2014 AY 2008-09 3 SUBMITTED BY THE ASSESSEE DOES NOT CONTAIN ANY DATE . THE ASSESSEE HAS USED THIS DOCUMENT AS PER THEIR CONVENIENCE. THE REMISSION OF LIABILITY/TRANSACTION IS BETWEEN THE ASSOCIATED ENTERPRISE WHO HAD A JOINT E CONOMIC INTEREST. THE ASSESSEE HAS ADOPTED A DEVICE BY TAKING THE LIABILITY EASILY TO SUBSEQUENT ASSESSMENT YEAR WITH A VIEW TO AVOID THE TAX. 4. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE AO WHILE FRAMING ASSESSME NT NOTICED THAT ASSESSEE BOOK MANAGEMENT FEES AND OTHER EXPENSES CHARGED BY PARAD IGM GEOPHYSICAL MALAYSIA (PMG) (GROUP COMPANY) PRIOR TO FINANCIAL YEAR 2007- 08 AMOUNTING TO RS. 8,44,05,218/-WHICH WAS OUTSTANDING AS ON 31 MARCH 2 008. IN AUGUST 2008 PGM ALLEGEDLY INFORMED THE ASSESSEE THAT OUTSTANDING AM OUNT IS NO LONGER PAYABLE AND IT HAS BEEN WAIVED OFF. THE AFFECT HAS BEEN GIVEN T O THE FINANCIAL STATEMENT FOR THE YEAR ENDED ON 31 MARCH 2008 FOR THIS EVENT AND THE INCOME AND PROFIT BEFORE TAX WOULD HAVE BEEN HIGHER BY RS. 8,44,05,218/-. THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THIS INCOME SHOULD NOT BE TA XED DURING THE CURRENT YEAR AS LIABILITY CEASED TO EXIST DURING THE ONGOING YEAR I TSELF. THE ASSESSEE SUBMITTED ITS REPLY AND CONTENDED THAT REMISSION LETTER FROM PARA DIGM GEOPHYSICAL MALAYSIA CONFIRMING THAT CRYSTALLIZATION ON REMISSION OCCURR ED ONLY IN FINANCIAL YEAR 2008- 09, THE SAME WOULD BE AND HAS BEEN CONSIDERED AS IN COME ONLY FOR FINANCIAL YEAR 2008-09. THE CONTENTION OF THE ASSESSEE WAS NOT ACC EPTED BY AO CONCLUDING THAT IT IS A TRANSACTION BETWEEN ASSOCIATED ENTERPRISES WHO WOULD HAVE JOINT ECONOMIC INTEREST. THE AO ALSO CONCLUDED THAT BY SHIFTING TH E INCOME TO THE SUBSEQUENT ASSESSMENT YEAR IN WHICH THE ASSESSEE HAS RETURNED A LOSS OF RS. 10,59,90,776/- THUS THE ASSESSEE HAS MANAGED TO GET OFF WITHOUT PA YING ANY TAX. BEFORE THE COMMISSIONER (APPEALS) THE ASSESSEE CONTENDED THAT THE ASSESSEE OUT OF THE MANAGEMENT FEES OF RS.8,44,05,218 /- AN AMOUNT OF R S. 2,09,92,522 /-HAS ALREADY DISALLOWED IN AY 2007-08 AND THE ADDITION HAVE BEEN ERRONEOUSLY. THE ASSESSEE IN ALTERNATIVE CONTENDED THAT AO NOT ALLOWED THE DE DUCTION UNDER SECTION 10A TO THE EXTENT OF RS. 1,76,70,396/-. DURING THE FIRST A PPELLATE PROCEEDING IT WAS ALSO M/S PARADIGM GGEOPHYSICAL (I) PRIVATE LIMI TED ITA NO.6444/M/2014 AY 2008-09 4 CONTENDED THAT AO MADE THE ADDITION ON ACCOUNT OF C ESSATION OF LIABILITY BY ADOPTING COLORABLE DEVICE HOLDING THAT LIABILITY NO LONGER PAYABLE IN THE SUBSEQUENT ASSESSMENT YEAR I.E. 2009-10. THE LD COM MISSIONER (APPEALS) AFTER CONSIDERING THE CONTENTION OF THE ASSESSEE CONCLUDE D AS UNDER: 7.3. I HAVE CONSIDERED THE FACTS OF THE CASE, SUB MISSION OF THE APPELLANT VIS-A-VIS IS THE OBSERVATION OF AO, IN THE ORDER UNDER SECTION 1 43(3) OF THE ACT. THE CONTENTION AND THE SUBMISSION OF THE APPELLANT ARE BEING DISCUSSED AND DECIDED AS UNDER: I. THE APPELLANT HAS RELIED UPON AS4 AND IS STATED THA T THE AUDITOR HAS EVEN THE INFORMATION RELATING TO THE WAIVER OF LIABILITY IN COMPLIANCE THEREOF. IN THIS REGARD AT IT IS MENTIONED THAT AS PER PARA 8.2 OF AS2(WHIC H HAS BEEN REPRODUCED BY THE APPELLANT IN ITS SUBMISSION AS ABOVE), ADJUSTMENT T O THE ASSET AND LIABILITY ARE REQUIRED FOR EVENTS OCCURRING AFTER THE BALANCE-SHE ET THAT PROVIDE ADDITIONAL INFORMATION MATERIALLY AFFECTING THE DETERMINATION OF AMOUNTS RELATING TO CONDITIONS EXISTING AT THE BALANCE-SHEET DATE. IN V IEW OF THIS SPECIFIC PROVISION IN THE ACCOUNTING STANDARD ITSELF, EVEN IF THE CONTENT ION OF THE APPELLANT THAT WAIVER TOOK PLACE AFTER BALANCE-SHEET, THE ADJUSTMENT WAS REQUIRED TO BE MADE BY FILING COMPUTATION OF INCOME ALONG WITH THE RETURN. CONTEN TION OF THE APPELLANT IS THEREFORE NOT ACCEPTABLE. II. THE APPELLANT FURTHER STATED THAT IT HAS PROVIDED D OCUMENTS WHICH PROVE THE LIABILITIES STOOD AS ON 31.03.2008 AND THE SAME WAS WAIVED IN AUGUST 2008. IN THIS REGARD IT IS MENTIONED THAT ASSESSING OFFICER ON PAGE 3 OF HIS ORDER HAS REFERRED TO THE UNDATED LETTER WHICH IS BEING RELIE D UPON BY THE APPELLANT. A COPY OF THIS LETTER HAS BEEN PRODUCED BEFORE ME DURING T HE COURSE OF APPELLATE PROCEEDINGS. ON PERUSAL OF THE SAME IT IS NOTED THA T THIS LETTER DOES NOT BEAR THE DATE AND HENCE CANNOT BE ENTERTAINED AS EVIDENCE TH AT THE WAIVER TOOK PLACE AFTER 31.03.2008. FURTHER, IN THE SAID LETTER THERE IS NO REFERENCE OF MEETING HELD IN JUNE/JULY 2008. DESPITE AFFORDING OPPORTUNITY TO TH E APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDING AND ALSO DURING THE APPEAL PROCEEDING BEFORE ME, IT FAILED TO PROVIDE COPY OF MINUTES OF SO-CALLED MEET ING HELD IN JUNE/JULY 2008 AND ACCORDINGLY, THE CONTENTION OF THE APPELLANT THAT T HE WAIVER TOOK PLACE AFTER 31.03.2008 REMAINS UNSUBSTANTIATED. THE CASE LAW R ELIED UPON BY THE APPELLANT ARE BASED ON THE FACTS DISTINGUISHABLE TO THAT OF T HE APPELLANT AND HENCE THE RATIO IS NOT APPLICABLE ON THE FACTS OF THE APPELLANTS C ASE. CONTENTION OF THE APPELLANT IS THEREFORE NOT ACCEPTABLE. III. THE APPELLANT HAS CONTENDED THAT THE AO HAS NOTHING ON RECORD TO PROVE THAT THE REMISSION OF LIABILITY TOOK PLACE IN THE CURRENT YE AR. IN THIS REGARD IT IS MENTIONED THAT THE ONUS IS ON THE APPELLANT TO PROVE THAT IT S CLAIM OF THE LIABILITY BEING WRITTEN OFF IN THE NEXT FINANCIAL YEAR IS CORRECT. AS MENTIONED EARLIER, THE APPELLANT HAS FAILED TO PROVE THE SAME WITH DOCUMEN TARY EVIDENCE AND HENCE THIS CONTENTION OF THE APPELLANT IS NOT ACCEPTABLE. IV. THE APPELLANT HAD STATED THAT IT HAS NO COLORABLE D EVICE TO AVOID TAX AS CLAIMED BY THE AO. IN THIS REGARD, IT IS MENTIONED THAT THE RE FERENCE HAS BEEN DRAWN BY THE AO OBSERVING THAT BY SHIFTING THE TAXABILITY OF THE AMOUNT WAIVED TO NEXT YEAR M/S PARADIGM GGEOPHYSICAL (I) PRIVATE LIMI TED ITA NO.6444/M/2014 AY 2008-09 5 WHEN THERE IS A LOSS, THE ASSESSEE HAS MADE AN ATTE MPT TO AVOID THE TAX IN THIS YEAR. THIS INFERENCE HAS ALSO BEEN DRAWN BY AO OBSE RVING THAT THE TRANSACTION IS BETWEEN ASSOCIATED ENTERPRISES WHO WOULD HAVE A AC TUAL ECONOMIC INTEREST, THE ASSESSEE HAS NOT SUBMITTED ANY PROOF FOR ANY MEANIN GFUL NEGOTIATION FOR HAVING TAKEN PLACE WHICH RESULTED IN CRYSTALLIZATION OF RE MISSION OF LIABILITY, AND ALSO BASED ON ACCOUNT OF THE INABILITY OF THE APPELLANT TO PROVE THAT THE WAIVER DID NOT TAKE PLACE IN THE CURRENT FINANCIAL YEAR. HONBLE B OMBAY HIGH COURT IN CASE OF KILLICK NIXON LTD VERSUS DCIT 81 CCH 066 ON SIMILAR FACTS OBSERVED THAT WHENEVER THERE IS REASON TO BELIEVE THAT THE APPELL ANT IS NOT REAL, THEN THEY TAXING AUTHORITIES ARE ENTITLED TO LOOK INTO SURROUNDING C IRCUMSTANCES TO FIND OUT THE REALITY AND APPLY THE TEST OF HUMAN PROBABILITIES. THE JUDGMENT OF HONBLE SUPREME COURT IN VODAFONE INTERNATIONAL VERSUS UNIO N OF INDIA MAKES IT CLEAR THAT A COLORABLE DEVICE CANNOT BE PART OF TAX PLANN ING. SUCH TRANSACTION CANNOT BE CONSIDERED TO BE A PART OF TAX PLANNING OR LEGITIMA TE AVOIDANCE OF TAX LIABILITY. THE CASE LAW RELIED UPON BY THE APPELLANT ARE NOT W ITH THE REFERENCE TO SECTION 41(1) AND HENCE NOT APPLICABLE TO THE FACTS OF THE APPELLANTS CASE. IN VIEW OF THESE FACTS AND LEGAL POSITION, CONTENTION OF THE A PPELLANT IS REJECTED. V. THE APPELLANT WITHOUT PREJUDICE SUBMITTED THAT OUT OF THE MANAGEMENT FEES OF RS. 8,44,85,218/-AN AMOUNT OF RS. 2 099 2522/-WAS ALREA DY DISALLOWED BY THE ASSESSEE UNDER SECTION 40(A) IN AY 2007-08 ON ACCOU NT OF NON-DEDUCTION OF TDS AND HENCE SAME HAS RESULTED INTO DOUBLE DISALLOWANC E. THE AO IS DIRECTED TO VERIFY THIS FACT FROM RECORDS AND IN CASE THE SAME IS FOUND CORRECT, APPROPRIATE RELIEF MAY BE ALLOWED TO THE APPELLANT AFTER DUE VE RIFICATION OF FACTS. 5. WITH THE ABOVE OBSERVATION, WE HAVE NOTICED THAT TH E LD COMMISSIONER (APPEAL) CONSIDER ALL RELEVANT MATERIAL AND GRANTED ADEQUATE RELIEF AVAILABLE TO THE ASSESSEE. THE VARIOUS DECISIONS PLACED ON RECOR D BY LD AR OF THE ASSESSEE ARE FACTUALLY DIFFERENT, RATIO OF WHICH ARE NOT APP LICABLE ON THE PECULIARITIES ON THE FACTS OF THE PRESENT CASE. HENCE, WE DO NOT FIN D ANY INFIRMITY IN THE ORDER FOR OUR INTERFERENCE. 6. THE ASSESSEE IN ALTERNATIVE RAISED GROUND NO. 2 IN THE PRESENT APPEAL THAT LD COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE ACTI ON OF AO IN NOT ALLOWING PROPORTIONATE DEDUCTION UNDER SECTION 10A. 7. THE LD AR OF ASSESSEE HAS NOT ARGUED ANYTHING IN SU PPORT OF THIS GROUND OF APPEAL EXCEPT FILING A WRITTEN NOTE. THUS THE LD DR HAS NO OPTION TO CONTROVERT THE SUBMISSION OF ASSESSEE. 8. WE HAVE PERUSED THE ORDER OF AUTHORITIES BELOW. THE ASSESSING OFFICER IN PARA 5 OF HIS ORDER HAS CONSIDERED THE APPLICABILITY OF SE CTION 10A AND DISALLOWED HOLDING THAT SECTION 10A WOULD APPLY ONLY TO THE IN COME THAT HAS BEEN BROUGHT M/S PARADIGM GGEOPHYSICAL (I) PRIVATE LIMI TED ITA NO.6444/M/2014 AY 2008-09 6 INTO INDIA BY WAY OF CONVERTIBLE FOREIGN EXCHANGE AS NO FOREIGN EXCHANGE HAD BEEN BROUGHT INTO INDIA NO DEDUCTION WAS GRANTE D UNDER SECTION 10A. THE LEARNED COMMISSIONER (APPEALS) WHILE CONSIDERING TH IS GROUND OF APPEAL CONCLUDED THAT NO ADDITIONAL FACT HAVE BEEN BROUGHT ON RECORD BY THE ASSESSEE DURING APPELLATE STAGE THUS HE HAD NO REASON TO DEV IATE FROM THE FINDING OF THE ASSESSING OFFICER. HOWEVER, WE ARE OF THE CONSIREDE RED VIEW THAT NO MATERIAL HAD BEEN PLACED ON RECORD BY LD AR FOR ASSESSEE MUC H THE LESS A WORKING IN SUPPORT OF ITS CLAIM TOWARD CLAIM OF DEDUCTION U/S 10A, PURSUANT TO DISALLOWANCE CARRIED OUT BY AO UNDER SECTION 41(1) OF THE ACT. STILL FURTHER NO CONCRETE MATERIAL HAD BEEN PLACED ON RECORD BY LD A R TO SUPPORT THE AVERMENTS SO RAISED, WE THEREFORE IN ALL FAIRNESS RESTORED TH E MATTER TO THE FILE OF AO FOR FRESH ADJUDICATION ON THIS ISSUE WITH REGARD TO THE ENTITLEMENT OF ASSESSEE UNDER SECTION 10A OF THE ACT AS PER LAW. NEEDLESS TO SAY DURING THE COURSE OF SET- ASIDE PROCEEDINGS THE AO SHALL AFFORD REASONABLE OP PORTUNITY TO THE ASSESSEE TO PRODUCE ALL NECESSARY DOCUMENTARY EVIDENCE IN SUPPO RT OF ITS CLAIM UNDER SECTION 10 A. THUS THIS GROUND OF APPEAL RAISED BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT APPEAL FILED BY ASSESSEE PARTLY ALLOW ED. ORDER PRONOUNCED IN OPEN COURT ON THIS 23 RD DAY OF NOVEMBER 2016. SD/- SD/- (R.C.SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 23/11/2016 COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5 . DR, ITAT, MUMBAI 6. GUARD FILE.