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

ITA 68/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92691 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 01-06-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 05-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Assessee Lawyers: SIDDHARTH DUGE
• Keywords: Opportunity of being heard; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148; 139

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO. 68/MUM/2011 ( / ASSESSMENT YEAR : 2002 - 03 THE ITO - 10(1)(1), AAYAKAR BHAVAN, MUMBAI - 400 020 / VS. M/S. GRID CONSULTANTS PVT. LTD., 502 - 505, SAI CHAMBERS, NEXT TO BUS DEPOT, SANTACRUZ(E), MUMBAI - 400 055 C.O. NO. 253/MUM/2012 (ARISING OUT OF I .T.A. NO. 68/MUM/2011 ( / ASSESSMENT YEAR : 2002 - 03 M/S. GRID CONSULTANTS PVT. LTD., 502 - 505, SAI CHAMBERS, NEXT TO BUS DEPOT, SANTACRUZ(E), MUMBAI - 400 055 / VS. THE ITO - 10(1)(1), AAYAKAR BHAVAN, MUMBAI - 400 020 / I .T.A. NO. 4918/MUM/2011 ( / ASSESSMENT YEAR : 2007 - 08 THE ITO - 10(1)(1), AAYAKAR BHAVAN, MUMBAI - 400 020 / VS. M/S. GRID CONSULTANTS PVT. LTD., 502 - 505, SAI CHAMBERS, NEXT TO BUS DEPOT, SANTACRUZ(E), MUMBAI - 400 055 C.O. NO. 53/M/2012 (ARISING OUT OF I .T.A. NO . 4918/MUM/2011 ( / ASSESSMENT YEAR : 2007 - 08 GRID CONSULTANTS PVT. LTD. 2 M/S. GRID CONSULTANTS PVT. LTD., 502 - 505, SAI CHAMBERS, NEXT TO BUS DEPOT, SANTACRUZ(E), MUMBAI - 400 055 / VS. THE ITO - 10(1)(1), AAYAKAR BHAVAN, MUMBAI - 400 020 ./ ./ PAN/GIR NO. : AABCG 4132F ( / APPELLANT ) .. ( / RESPONDENT ) / REVENUE BY: SHRI PREMANAND J / ASSESSEE BY : SHRI SIDDHARTH DUGE / DATE OF HEARING : 01 . 0 6 .2015 / DATE OF PRONOUNCEMENT : 01 .0 6 .2015 / O R D E R PER N.K. BILLAIYA, AM: TH ESE APPEALS BY THE REVENUE AND THE CROSS OBJECTIONS BY THE ASSESSEE ARE FOR ASSESSMENT YEARS 2002 - 03 AND 2007 - 08 RESPECTIVELY. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE A ND BREVITY. ITA NO. 68/MUM/2011 - A.Y. 2002 - 03 - REVENUES APPEAL 2. THIS APPEAL BY THE REVENUE PREFERRED AGAINST THE ORDER OF THE LD. CIT(A) - 21 MUMBAI DT. 10.11.2010 PERTAINING TO ASSESSMENT YEAR 2002 - 03. 3. THE SOLE GRIEVANCE OF THE REVENUE IS THAT TH E LD. CIT(A) ERRED IN HOLDING THAT THE REOPENING OF THE ASSESSMENT WAS MADE ON THE BASIS OF CHANGE OF OPINION AND HENCE REOPENING MADE BY THE AO WAS BAD IN LAW. GRID CONSULTANTS PVT. LTD. 3 3.1. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF CONSULTA NCY SERVICES. THE ORIGINAL RETURN OF INCOME DECLARING TOTAL INCOME AT RS. 65,705/ - WAS FILED ON 30.10.2002. THE RETURN WAS PROCESSED U/S. 143(1)(A) OF THE ACT ON 11.12.2002. THEREAFTER, THE RETURN WAS TAKEN UP FOR SCRUTINY ASSESSMENT. THE ASSESSMENT WA S MADE U/S. 143(3) OF THE ACT ON 31.1.2005 DETERMINING THE TOTAL INCOME AT RS. 1,45,190/ - . THIS ASSESSMENT WAS SOUGHT TO BE REOPENED BY ISSUING NOTICE U/S. 148 OF THE ACT. THE REASONS RECORDED FOR THE REOPENING OF THE ASSESSMENT READ AS UNDER: ON VER IFICATION OF RECORDS IT IS SEEN THAT THE ASSESSEE HAS DEBITED TO THE PROFIT AND LOSS ACCOUNT, AN AMOUNT OF RS. 17,69,083/ - TOWARDS PAYMENT OF ROYALTY UNDER THE HEAD OPENING EXPENSES. FURTHER, INCOME FROM SALE OF GRID MATERIAL IS SHOWN AT RS. 27,99,371/ - . CONSIDERING THE ROYALTY PAYMENT @ 26% OF THE LIST PRICE OF THE GRID MATERIAL AND IN VIEW OF THE ROYALTY PAYMENT OF RS. 17,69,083/ - THE ACTUAL SALE PROCEEDS FROM THE SALE OF GRID MATERIAL SHOULD AMOUNT TO RS. 68,04,165/ - AS AGAINST A TOTAL SALE PROCEEDS OF RS. 32,66,664/ - SHOWN BY THE ASSESSEE. BY NOT DISCLOSING THE FULL SALE PROCEEDS OF GRID MATERIAL THE ASSESSEE COMPANY HAS FAILED TO DISCLOSURE FULL AND TRUE INCOME IN THE RETURN OF INCOME FILED U/S. 139 OF THE ACT. THIS CLEARLY SHOWS THAT INCOME TO TH E EXTENT OF RS. 35,37,501/ - HAS ESCAPED ASSESSMENT. 3.2. AFTER COMMUNICATING THE REASONS, THE AO PROCEEDED WITH THE REASSESSMENT PROCEEDINGS. THE ASSESSEE WAS ASKED TO JUSTIFY THE ROYALTY PAYMENT VIS - - VIS THE SALE OF GRID MATERIAL. THE ASSESSEE FILED A DETAILED REPLY EXPLAINING THE BASIS OF THE PAYMENT OF ROY ALTY. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE, THE AO WAS OF THE OPINION THAT THE SALE HAS TO BE CONSIDERED IN THE LIGHT OF THE ROYALTY EXPENDITURE CLAIMED BY THE ASSESSEE. THE AO PROCEEDED BY COMPUTING THE SALES BASED ON THE PAYMENT OF ROY ALTY AND COMPUTED THE SALES AT RS. 68,04,165/ - . THE ASSESSEE HAD SHOWN SALE OF RS. 32,66,664/ - . ACCORDING TO THE AO, THE GRID CONSULTANTS PVT. LTD. 4 ASSESSEE HAS SUPPRESS SALES TO THE TUNE OF RS. 35,37,501/ - AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND STRONGLY OBJECTING TO THE REASSESSMENT , I T WAS STRONGLY CONTENDED THAT THE AO HAS REOPENED THE COMPLETE D ASSESSMENT AFTER 4 YEARS THEREFORE PROVISO TO SEC. 147 IS CLEARLY APPLICABLE. IT WAS EXPLAI NED TO THE LD. CIT(A) THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE FOR DISCLOSING FULLY AND TRULY ALL RELEVANT MATERIAL FOR ASSESSMENT. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF KELVINATOR OF INDIA LTD. 256 ITR 01, THE LD. CIT(A) OBSERVED THAT IN THE ORIGINAL ASSESSMENT PROCEEDINGS, THE ASSESSEE HA D GIVEN ALL THE NECESSARY DETAILS PERTAINING TO PAYMENT OF ROYALTY , T HE BREAK - UP OF SALES WHICH WERE DULY CONSIDERED BY THE AO. THE LD. CIT(A) WAS CONVINCED THAT SINCE ALL THE DETAILS/INFORMATIONS/MATERIAL WERE ALREADY FILED BY THE ASSESSEE DURING ORIGINAL ASSESSMENT PROCEEDINGS, THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS R ELEVANT FOR ASSESSMENT. THE LD. CIT(A) FINALLY HELD THAT THE REOPENING MADE BY THE AO WAS BAD IN LAW SINCE THE SAME WAS ON THE BASIS OF CHANGE OF OPINION. 5. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY S UBMITTED THAT THE AO HAS NOT FORM ED ANY OPINION SINCE NO MATERIAL EVIDENCE WAS PLACED BEFORE THE AO. THE LD. DR FURTHER SUBMITTED THAT MERELY BECAUSE AUDITED STATEMENT OF ACCOUNTS WERE EXAMINED BY THE AO IN THE ORIGINAL ASSESSMENT PROCEEDINGS WOULD NOT AM OUNT TO FULL AND TRUE DISCLOSURE BY THE ASSESSEE. GRID CONSULTANTS PVT. LTD. 5 7. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 8. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE LOWER AUTHORITIES AND TH E RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECORD. VIDE LETTER DT. 3.12.2003, WE FIND THAT THE ASSESSEE HAS FURNISHED BREAK - UP OF SALES AND ROYALTY AGREEMENT INTER ALIA WITH OTHER DETAILS DURING THE COURSE OF THE ORIGINAL ASSESSMENT PROCEEDINGS. VIDE LE TTER DT. 4.12.2003 WHICH WAS SUBMITTED ON 11.12.2003 ONCE AGAIN THE ASSESSEE HAS FURNISHED THE DETAILS OF ROYALTY PAYMENT ALONGWITH OTHER DETAILS. THUS, IT CAN BE SEEN THAT THE PAYMENT OF ROYALTY HAS BEEN DULY EXAMINED BY THE AO BEFORE MAKING THE ASSESSME NT U/S. 143(3) OF THE ACT. AFTER 4 YEARS OF MAKING THE ASSESSMENT , REOPENING OF THE ASSESSMENT TO VERIFY ONCE AGAIN THE PAYMENT OF ROYALTY VIS - - VIS SALES IS NOTHING BUT CHANGE OF OPINION AND AGAINST THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA (SUPRA). WE, THEREFORE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). THE APPEAL FILED BY THE REVENUE IS DISMISSED. C.O. NO. 253/M/12 A.Y. 2002 - 03 ASSESSEES APPEAL 9. THIS C.O. BY THE ASSESSEE IS BARRED BY LI MITATION BY 82 DAYS. SINCE WE HAVE DISMISSED REVENUES APPEAL, WE DO NOT FIND IT NECESSARY TO DECIDE THIS C.O WHICH IS BARRED BY LIMITATION. ITA NO. 4918/MUM/2011 A.Y. 2007 - 08 ASSESSEES APPEAL 10. THIS APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) 21 MUMBAI DT. 7.4.2011 PERTAINING TO A.Y. 2007 - 08. GRID CONSULTANTS PVT. LTD. 6 11. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITIONS MADE ON ACCOUNT OF RECALCULATED SALES . 11.1. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF CONSULTANCY SERVICES. WHILE SCRUTINISING THE RETURN OF INCOME, THE AO HAS MADE REFERENCE TO THE ASSESSMENT MADE FOR ASSESSMENT YEAR 2002 - 03 AND HAS GIVEN A CATEGORIC AL FINDING THAT THE FACTS ARE SIMILAR TO THAT OF A.Y. 2002 - 03. BASED ON THE FACTS OF A.Y. 2002 - 03, THE AO PROCEEDED BY RECALCULATING THE SALES BASED ON THE PAYMENT OF ROYALTY @ 26% ON THE GRID MATERIAL SOLD BY THE ASSESSEE COMPANY. THE SALES WERE RECOMP UTED AT RS. 37,62,719/ - . THE ASSESSEE HAS SHOWS SALES AT RS. 15,89,448/ - . THE AO ACCORDINGLY ADDED RS. 21,73,271/ - AS SUPPRESSED SALES. 11.2. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). IT WAS STRONGLY CONTENDED THAT AS P ER THE AGREEMENT, THE ASSESSEE HAD TO PAY ROYALTY @ 26% OF THE US LIST PRICE OF THE PATENTED MATERIALS SOLD BY THE ASSESSEE IN INDIA. IT WAS EXPLAINED THAT THE SALE PROCEEDS OF PATENTED GRID MATERIAL SOLD BY THE ASSESSEE IN INDIA WERE DEPOSITED IN THE BAN K ACCOUNTS IN INDIA. THE BOOKS OF ACCOUNTS WERE MAINTAINED AS PER MERCANTILE SYSTEM OF ACCOUNTING. IT WAS FURTHER EXPLAINED THAT THE SALE S OF THE ASSESSEE COULD NOT BE ESTIMATED SINCE THERE WAS NO NEXUS BETWEEN THE SALES IN INDIA OF GRID MATERIAL AND THE PAYMENT OF ROYALTY TO GRID INTERNATIONAL INC. TEXAS. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) OBSERVED THAT THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THE ASSESSEE HAS MADE ANY UNACCOUNTED SALES, THE AO WAS NOT JUSTIFIED IN REJECT ING APPELLANTS BOOK RESULTS AND MAKING ESTIMATION OF SALES. THE LD. CIT(A) ACCORDINGLY DELETED THE ADDITION MADE ON ACCOUNT OF SUPPRESS SALES. GRID CONSULTANTS PVT. LTD. 7 12. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 13. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUBMITTED THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS TO SUGGEST THAT HE HAS MADE THE SALES AT DISCOUNTED PRICE. THE LD. DR FURTHER SUBMITTED THAT EVEN BEFORE THE LD. CIT(A) NO SUCH DETAILS WERE FURNISHED AND THEREFORE THE LD. CIT(A) GROSSLY ERRED IN DELETING THE ADDITION WITHOUT ANY BASIS. 14. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 15. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT IS THAT THERE IS A R OYALTY 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 WHATSOEVER HAS BEEN BROUGHT ON RECORD NEITHER BEFORE THE FIR ST 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 THE 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. THE ASSESSEE IS DIRECTED TO FILE NECESSARY DETAILS ALONGWITH SUPPORTING DOCUMENTARY EVIDENCES TO JUSTIFY THAT IT HAS MAD E SALES AT DISCOUNTED PRICE, TO JUSTIFY THAT THERE IS NO NEXUS BETWEEN SALES IN INDIA OF GRID MATERIAL AND THE PAYMENT OF ROYALTY TO GRID INTERNATIONAL INC TEXAS USA. THE ASSESSEE IS FURTHER DIRECTED TO SUBSTANTIATE ITS CLAIM BY BRINGING COGENT MATERIAL E VIDENCE ON RECORD TO SHOW THAT SALES IN INDIA OF GRID MATERIAL IS NOT BASED ON US LIST PRICE. THE AO IS DIRECTED TO EXAMINE AND VERIFY THE DETAILS FURNISHED BY THE GRID CONSULTANTS PVT. LTD. 8 ASSESSEE AND DECIDE THE ISSUE AFRESH AFTER GIVING REASONABLE AND SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. C.O. NO. 53/M/12 A.Y. 2007 - 08 17 . FOR OUR DETAILED REASON GIVEN IN ITA NO. 4918/M/11, THIS C.O. FILED BY THE ASSESSEE IS ALSO SET ASIDE TO THE FILE OF THE AO AND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 18. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN A.Y. 2002 - 03 IS DISMISSED AND A.Y. 2007 - 08 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE AND THE C.O. FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. OR DER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON 1 ST JUNE , 2015 SD/ - SD/ - ( JOGINDER SING H ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 1 ST JUNE , 2015 . . ./ RJ , SR. PS GRID CONSULTANTS PVT. LTD. 9 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI