M/s. Unicity Health Private Limited, Bangalore V. The Income Tax Officer, Ward- 7(2)(1), Bangalore

ITA 713/BANG/2020

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6393 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 20-11-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B R SUDHEENDRA
• Keywords: Opportunity of being heard; Reasonable cause; Set aside
• Section: 271(1)(c); 142(1); 263

Judgement Text

ITA NO.713/BANG/2020 M/S. UNICITY HEALTH PRIVATE LIMITED, BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL ABENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.713/BANG/2020 ASSESSMENTYEAR:2014-15 UNICITY HEALTH PRIVATE LIMITED NO.9/1, ULSOOR ROAD BANGALORE 560 042 PAN NO : AABCU2096E VS. ITO WARD 15(3)(4) MUMBAI JURISDICTIONAL AO : ITO WARD-7(2)(1), BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI B.R. SUDHEENDRA, A.R. RESPONDENT BY : SHRI KANNAN NARAYANAN, D.R. DATE OF HEARING : 30.03.2021 DATE OF PRONOUNCEMENT : 20.04.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 13.9.2019 PASSED BY LD. CIT(A)-7, BENGALURU A ND IT RELATES TO THE ASSESSMENT YEAR 2014-15. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF BUSINESS PROMOTION E XPENSES OF RS.4.04 CRORES CLAIMED BY THE ASSESSEE. 3. THE APPEAL OF THE ASSESSEE IS BARRED BY LIMITATI ON BY 363 DAYS. THE ASSESSEE HAS FILED A PETITION BEFORE THE BENCH PRAYING FOR CONDONATION OF DELAY. IN THE PETITION, IT IS STATE D THAT THE ASSESSEE ITA NO.713/BANG/2020 M/S. UNICITY HEALTH PRIVATE LIMITED, BANGALORE PAGE 2 OF 6 IS HAVING ACCUMULATED LOSS OF RS.13.75 CRORES AND L OSSES INCURRED DURING THE YEAR UNDER CONSIDERATION WAS RS.7.99 CRO RES. FURTHER, IT WAS IN ITS INITIAL YEARS OF OPERATION. HENCE, EFFE CTIVELY, THERE WAS NO TAX LIABILITY ON ACCOUNT OF DISALLOWANCE OF BUSINES S PROMOTION EXPENSES. HENCE, THE ASSESSEE DID NOT FILE APPEAL A GAINST THE ORDER PASSED BY LD. CIT(A). HOWEVER, SUBSEQUENTLY, THE A SSESSEE WAS ADVISED THAT IT WOULD BE LIABLE FOR PENAL ACTION U/ S 271(1)(C) OF THE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT] DESPITE T HERE BEING NO TAX LIABILITY ON THE TOTAL INCOME. ACCORDINGLY, IT WAS ADVISED TO FILE THE APPEAL CHALLENGING THE ORDER PASSED BY LD CIT(A). A CCORDINGLY, THE ASSESSEE HAS FILED THIS APPEAL BELATEDLY. THE LD. A.R. SUBMITTED THAT THE ASSESSEE DID NOT PREFER APPEAL ON ACCOUNT OF WRONG NOTION AND LACK OF PROPER PROFESSIONAL ADVICE. ACCORDINGL Y, HE PRAYED THAT THE DELAY MAY KINDLY BE CONDONED. THE LD A.R PLACE D HIS RELIANCE ON THE DECISION RENDERED BY HONBLE JURISDICTIONAL KARNATAKA HIGH COURT IN THE CASE OF CIT VS. PRAKASH B. NICHANI. (I TA NO.399/2009 DATED 18-08-2015). IN THE ABOVE SAID CASE, THE ASS ESSEE FILED APPEAL AGAINST ORIGINAL ASSESSMENT ORDER BELATEDLY, I.E., ONLY AFTER THE REVISION ORDER PASSED BY COMMISSIONER U/S 263 O F THE ACT. THE SAME HAS RESULTED IN A DELAY OF 331 DAYS. THE TRIB UNAL CONDONED THE DELAY AND THE ORDER OF TRIBUNAL WAS CHALLENGED BY THE REVENUE BEFORE HONBLE HIGH COURT OF KARNATAKA. THE JURISD ICTIONAL HIGH COURT UPHELD THE VIEW TAKEN BY THE TRIBUNAL. HE FU RTHER SUBMITTED THAT THE HONBLE HIGH COURT OF KARNATAKA HAS OBSERV ED IN THE CASE OF SHRI C. GANESH MALLYA (ITA NO.1009 OF 2017 DATED 08 TH APRIL, 2019) THAT MERELY HOLDING TECHNICALITIES AGAINST THE ASSESSEE IS NOT JUSTIFIED AND FAIR. THE REASON FOR DELAY WOULD ALS O HAVE TO BE CONSIDERED. HE ALSO PLACED HIS RELIANCE ON THE DECISION RENDERE D BY HONBLE SUPREME COURT IN THE CASE OF COLLECTOR L AND ACQUISITION VS. MST. KATIJI & ORS.(1987 AIR 1353). THE LD. A.R . FURTHER SUBMITTED THAT THE ASSESSEE WOULD NOT STAND TO GAIN BY NOT FILING ITA NO.713/BANG/2020 M/S. UNICITY HEALTH PRIVATE LIMITED, BANGALORE PAGE 3 OF 6 APPEAL WANTONLY. ACCORDINGLY, HE SUBMITTED THAT TH ERE WAS REASONABLE CAUSE FOR THE ASSESSEE IN NOT FILING APP EAL IN TIME. ACCORDINGLY, HE PRAYED THAT THE DELAY MAY KINDLY BE CONDONED. 4. ON THE CONTRARY, THE LD. D.R. STRONGLY OPPOSED T HE PETITION FILED BY THE ASSESSEE. HE SUBMITTED THAT THE ASSES SEE HAS NOT GIVEN ANY VALID REASON TO SHOW THAT THE DELAY WAS ON ACCO UNT OF REASONABLE CAUSE. 5. WE HEARD THE PARTIES ON THIS PRELIMINARY ISSUE A ND PERUSED THE RECORD. HAVING REGARD TO THE SUBMISSIONS MADE BY THE ASSESSEE IN THE PETITION AND CONSIDERING THE FACTS PREVAILIN G IN THE PRESENT CASE, WE ARE OF THE VIEW THAT THERE IS SUFFICIENT C AUSE FOR THE ASSESSEE IN NOT FILING APPEAL BEFORE THE TRIBUNAL I N TIME. ACCORDINGLY, WE CONDONE THE DELAY AND ADMIT THE APP EAL FOR HEARING. 6. THE FACTS RELATING TO THE ISSUE BEFORE US ARE DI SCUSSED IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSI NESS OF SELLING HEALTH BASED WELLNESS PRODUCTS THROUGH MULTI-LEVEL MARKETING. THE ASSESSEE IS A GROUP COMPANY OF UNICITY GROUP, USA. DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE A.O. NOTICED TH AT THE ASSESSEE HAS CLAIMED BUSINESS PROMOTION EXPENSES OF RS.4.04 CRORES. ON QUESTIONED, THE ASSESSEE EXPLAINED THAT ITS BUSINES S HAS STARTED PICKING UP IN 2013-14 ONWARDS AND HENCE, IN ORDER T O IMPROVE THE BUSINESS FURTHER, SEVERAL INCENTIVE SCHEMES LIKE DU BAI REWARD TRIP, BONGKOK REWARD TRIP, GOA REWARD TRIP WERE ORGANIZED IN 2014. THE A.O. WANTED TO APPLY BRIGHT LINE TEST. HE ALSO OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY DOCUMENTARY EVIDENCE EXCEPT A CHART GIVING THE BREAKUP DETAILS OF BUSINESS PROMOT ION EXPENSES AND CERTAIN COMMENTS. THE A.O. ALSO OBSERVED THAT THE ASSESSEE ITA NO.713/BANG/2020 M/S. UNICITY HEALTH PRIVATE LIMITED, BANGALORE PAGE 4 OF 6 HAS FAILED TO FURNISH COPIES OF INVOICES OR ACTUAL NATURE OF EXPENSES. FURTHER, THIS EXPENDITURE HAS NOT HELPED THE CAUSE OF BUSINESS ALSO BY WAY OF INCREASE IN SALES. ACCORDINGLY, THE A.O. EXPRESSED THE VIEW THAT IT IS NOT CLEAR AS TO WHETHER THESE EXPEN SES HAVE HELPED THE ASSESSEE TO IMPROVE ITS BUSINESS. ACCORDINGLY, THE A.O. DISALLOWED THE ENTIRE CLAIM OF RS.4.04 CRORES. THE LD. CIT(A) ALSO CONFIRMED THE SAME. 7. THE LD. A.R. SUBMITTED THAT THE A.O. HAS PASSED THE IMPUGNED ASSESSMENT ORDER ON 30.12.2016. THE ASSES SEE RECEIVED NOTICE U/S 142(1) OF THE ACT THROUGH E-MAIL ONLY ON 19.12.2016. THE ASSESSEE FURNISHED THE REPLY THROUGH E-MAIL ON 21.12.2016 AND ALSO ANOTHER REPLY WAS SENT ON 28.12.2016. IN BETWEEN THE ASSESSEE APPEARED PERSONALLY BEFORE THE A.O. ON 26. 12.2016 ALSO. THE ASSESSEE HAS FURNISHED THE DETAILS OF BREAKUP O F BUSINESS PROMOTION EXPENSES IN ITS REPLY DATED 21.12.2016. THE ASSESSEE HAS ALSO FURNISHED SAMPLE INVOICES OF BUSINESS PROM OTION EXPENSES IN ITS REPLY MAILED ON 28.12.2016. HOWEVER, IT IS NOT CLEAR AS TO WHETHER THE A.O. HAS EXAMINED ALL THESE DETAILS BEF ORE COMING TO THE CONCLUSION OF DISALLOWANCE OF EXPENSES. THE LD . A.R. FURTHER SUBMITTED THAT THE FACT REMAINED THAT THESE EXPENSE S HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND HENCE, THE QUESTION OF APPLYING BRIGHT LINE TEST WILL NOT ARISE. FURTHER, IT IS NOT THE REQUIREMENT OF LAW THAT THE EXPENSES SHOULD COMPULS ORILY HELP THE ASSESSEE TO ACHIEVE HIGHER SALES. HE SUBMITTED THA T THE ASSESSEE WOULD BE INCURRING BUSINESS PROMOTION EXPENSES ONLY ON EXPECTATION OF HIGHER SALES. IF THE EXPECTATION FA ILS, IT WOULD NOT LEAD TO DISALLOWANCE OF EXPENSES. ACCORDINGLY, HE SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE. ITA NO.713/BANG/2020 M/S. UNICITY HEALTH PRIVATE LIMITED, BANGALORE PAGE 5 OF 6 8. THE LD. D.R., ON THE CONTRARY SUBMITTED THAT THE ASSESSEE HAS FAILED TO FURNISH VARIOUS DETAILS CALLED FOR BY THE ASSESSEE. HE SUBMITTED THAT IT IS THE RESPONSIBILITY OF THE ASSE SSEE TO PROVE THE EXPENSES. 9. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE R ECORD. WE NOTICE THAT THE ASSESSEE HAS FURNISHED THE DETAILS OF EXPENSES IN ITS REPLY SENT THROUGH E-MAIL ON 21.12.2016. IT HAS AL SO FURNISHED COPIES OF SAMPLE INVOICES IN ITS E-MAIL SENT ON 28. 12.2016. AS NOTICED EARLIER, THE A.O. HAS COMPLETED THE ASSESSM ENT ON 30.12.2016. IT IS PERTINENT TO NOTE THAT THE ENTIR E EXERCISE OF ASKING QUERIES HAVE STARTED ONLY ON 19.12.2016. FROM THE ASSESSMENT ORDER, IT IS NOT CLEAR AS TO WHETHER THE A.O. HAS P ROPERLY EXAMINED THE REPLIES FURNISHED BY THE ASSESSEE. 10. ADMITTEDLY, THE BUSINESS PROMOTION EXPENSES HAV E BEEN INCURRED FOR THE PURPOSE OF IMPROVING SALES OF THE ASSESSEE. THERE IS MERIT IN THE SUBMISSION OF LD. A.R. THAT THE QUE STION OF APPLYING BRIGHT LINE TEST DOES NOT ARISE IN THE FACTS OF THE PRESENT CASE. EVERY BUSINESSMAN WOULD BE INCURRING ADVERTISEMENT AND BU SINESS PROMOTION EXPENSES IN ANTICIPATION OF HIGHER SALES IN ACCORDANCE WITH HIS SALES PROMOTION STRATEGY. TO HIS BAD LUCK , IF THE ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES DO NO T FRUCTIFY, THE SAME SHOULD NOT LEAD TO DISALLOWANCE OF EXPENSES, W HICH HAVE OTHERWISE BEEN GENUINELY INCURRED BY THE ASSESSEE, I.E. THE SAID EXPENSES WOULD CONTINUE TO BE CONSIDERED AS EXPENSE S INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 11. IN ANY CASE, IN THE INSTANT CASE, THE A.O. HAS NOT EXAMINED THE DETAILS FURNISHED BY THE ASSESSEE. ACCORDINGLY , WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE ITA NO.713/BANG/2020 M/S. UNICITY HEALTH PRIVATE LIMITED, BANGALORE PAGE 6 OF 6 A.O. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) AND RESTORE THIS ISSUE TO THE FILE OF THE A.O. FOR EXAMINING IT AFRESH BY DULY CONSIDERING THE INFORMATION AND EXPLANATION S FURNISHED/THAT MAY BE FURNISHED BY THE ASSESSEE. A FTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE , THE A.O. MAY TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH APR, 2021 SD/- (GEORGE GEORGE K.) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 20 TH APR, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.