CITI FINANCIAL INSURANCE SERVICE INDIA LTD, MUMBAI V. DCIT RG 6(2), MUMBAI

ITA 8742/MUM/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6567 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 20-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 15-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS PARMINDER
• Assessee Lawyers: ARVIND SONDE
• Keywords: Transfer pricing; Wholly owned subsidiary
• Section: 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . . , , , BEFORE SHRI N.K. BILLAIYA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER . / ITA NO. 8742 / MUM./ 2010 ( / ASSESSMENT YEAR : 20 0 6 07 ) . / ITA NO. 8743 / MUM./ 2010 ( / ASSESSMENT YEAR : 200 7 08 ) M/S. CITI FINANCIAL INSURANCE SERVICES INDIA LIMITED , AMALGAMATED WITH CITI FIN ANCIAL RETAIL SERVICES INDIA LTD. C 61, G BLOCK, 1 ST FLOOR, BANDRA KURLA COMPLEX, BARODA (E), MUMBAI 400 051 .. / APPELLANT V/S DY. COMMISSIONER OF INCOME TAX RANGE 6(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AABCC8249F / ASSESSEE BY : MR. ARVIND SONDE / REVENUE BY : MRS. PARMINDER / DATE OF HEARING 0 7 . 0 5 .201 4 / DATE OF ORDER 07.05.2014 / ORDER . . , / PER N.K. BILLAIYA , A .M. THE APPEAL IN ITA NO.8742/MUM./2010 HAS BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 11 TH OCTOBER 2010, M/S. CITI FINANCIAL INSURANCE SERVICES INDIA LIMITED 2 PASSED BY THE LEARNED COMMISSIONER (APPEALS) XII, MUMBAI, FOR THE ASSESSMENT YEAR 2006 07 AND THE APPEAL IN ITA NO.8742/MUM./2010, HAS BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 12 TH OCTOBER 2010, PASSED BY THE LEARNED COMMISSIONER (APPEALS) XXII, MUMBAI, FOR THE ASSESSMENT YEAR 2007 08 RESPECTIVELY. SINCE THE ISSUES INVOLVED IN THESE TWO APPEALS ARE COMMON , WHICH ARE ARISING OUT OF IDENTICAL SET OF FACTS AND CIRCUMSTANCES, THEREFORE, AS A MATTER OF CONVENIENCE AND BREVITY , THESE AP PEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. WE FIRST TAKE UP ASSESSEES APPEAL IN ITA NO. 8742/MUM./ 2010 , FOR THE ASSESSMENT YEAR 2006 07 . THE ASSESSEE, IN THIS APPEAL, IS AGGRIEVED BY THE ACTION OF THE LEARNE D COMMISSIONER (APPEALS) IN CONFIRMING TWO ADDITIONS I.E., (I) ADDITION OF ` 16,82,282 WHICH RELATES TO THE EXPENDITURE INCURRED ON ACCOUNT OF REFERRAL FEES AND (II) ADDITION OF ` 11,18,748, BEING THE DIFFERENCE IN AIR INFORMATION. 2 . FACTS IN BRIEF : THE A SSESSEE IS ENGAGED IN THE BUSINESS OF INSURANCE AND IS WHOLLY OWNED SUBSIDIARY OF CITY FINANCIAL RETAIL SERVICES INDIA LTD., WHICH IN TURN, IS A SUBSIDIARY OF CITICORP FINANCE INDIA LTD., WHICH AGAIN IS WHOLLY OWNED SUBSIDIARY OF CITICORP OVERSEAS INVESTME NT CORPORATION. THE ASSESSING OFFICER, WHILE SCRUTINIZING THE RETURN OF INCOME, NOTICED THAT THE ASSESSEE HAS PAID A SUM OF ` 16,82,282, AS PAYMENT TO CITY BANK N.A., FOR USING THEIR DATA BASE TO SELL THE INSURANCE POLICIES WHICH THE ASSESSEE CALLED AS R EFERRAL FEES AGAINST THE PREMIUM COLLECTED. IT WAS EXPLAINED THAT THIS PAYMENT WAS MADE ON THE BASIS OF AN AGREEMENT ENTERED INTO WITH THE CITI BANK N.A. THE ASSESSING OFFICER OBSERVED THAT IN THE ASSESSMENT YEAR 2003 04, THE CLAIM FOR PAYMENT OF ` 2.58 C RORES AS REFERRAL FEES WAS M/S. CITI FINANCIAL INSURANCE SERVICES INDIA LIMITED 3 DISALLOWED BY THE ASSESSING OFFICER WHICH WAS LATER CONFIRMED BY THE LEARNED COMMISSIONER (APPEALS). THE ASSESSING OFFICER FURTHER OBSERVED THAT ON THE VERY BASIS OF THE SAME AGREEMENT, THE ASSESSEE HAS CLAIMED ` 16,82,282, FOR THE YEAR UNDER CONSIDERATION. RELYING UPON THE FINDINGS IN THE ASSESSMENT YEAR 2003 04, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF REFERRAL FEES AND ADDED IT TO THE RETURNED INCOME OF THE ASSESSEE. THE ASSESSING OFFICER, ON FURTHER SCRUTINY OF THE RETUR N OF INCOME, NOTICED THAT THE ASSESSEE HAS RECEIVED INTEREST COMMISSION FROM BIRLA SUNRISE INSURANCE CO. LTD. AT ` 1,94,42,535. THE ASSESSEE WAS GIVEN COPY OF THE AIR INFORMATION FOR NECESSARY RECONCILIATION. ON A PERUSAL OF THE PROFIT & LOSS ACCOUNT, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DECLARED ` 1,83,23,787, AS RECEIPT OF INSURANCE COMMISSION IN ITS RETURN OF INCOME. ON RECEIVING NO RECONCILIATION FROM THE ASSESSEE, THE ASSESSING OFFICER ADDED A SUM OF ` 11,18,748, AS UN RECONCILED AMOUNT IN RESPECT OF INSURANCE COMMISSION. 3 . AGGRIEVED BY THE AFORESAID TWO ADDITIONS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED COMMISSIONER (APPEALS), WHEREIN, THE CLAIM W AS REITERATED ON THE BASIS OF THE AGREEMENT WITH THE CITI BANK N.A. THE LEARNED CO MMISSIONER (APPEALS), ON A PERUSAL OF THE RECORDS, OBSERVED THAT HIS PREDECESSOR IN OFFICE, IN THE ASSESSMENT YEAR 2003 04, HAS UPHELD A SIMILAR ADDITION . D RAWING SUPPORT FROM THE FINDINGS OF HIS PREDECESSOR IN OFFICE , T HE LEARNED COMMISSIONER (APPEALS) CO NFIRMED THE ADDITION ON ACCOUNT OF REFERRAL FEES AMOUNTING TO ` 16,82,282. 4 . WITH REGARD TO THE SECOND ADDITION OF ` 11,18,748, THE LEARNED COMMISSIONER (APPEALS) OBSERVED THAT THE ASSESSEE HAS MADE NO EFFORTS TO RECONCILE ITS ACCOUNT TO PROVE THAT THE AIR INFORMATION WAS M/S. CITI FINANCIAL INSURANCE SERVICES INDIA LIMITED 4 WRONG AND ACCORDINGLY, CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 5 . THE LEARNED COUNSEL, BEFORE US, ON BEHALF OF THE ASSESSEE, STATED THAT BOTH THE AUTHORITIES BELOW HA VE FOLLOWED THE FINDINGS OF THE ASSESSMENT YEAR 2003 04 IN MAKING THE ADDITION OF ` 16,82,282, ON ACCOUNT OF REFERRAL FEES. THE LEARNED COUNSEL DREW OUR ATTENTION TO THE DECISION OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2003 04 IN ITA NO.1916/MUM./2007. IT IS THE SAY OF THE LEARNED COUNSEL THAT THE TRIBUNAL HAS RESTORED THIS ISSUE TO THE RECORDS OF THE LEARNED COMMISSIONER (APPEALS) TO ADJUDICATE THE MATTER AFRESH. THE LEARNED COUNSEL CONCLUDED BY SAYING THAT SINCE THE ASSESSMENT ORDER AND THE FIRST APPELLAT E ORDER ARE BASED ON THE FINDINGS OF THE ASSESSMENT YEAR 2003 04. THEREFORE , THE FINDINGS OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 203 04 DESERVE TO BE FOLLOWED. 6 . T HE LEARNED DEPARTMENTAL REPRESENTATIVE AGREED WITH THE AFORESAID PROPOSITION. 7 . WE HAVE CAREF ULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND ALSO GONE THROUGH THE DECISION OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 203 04 IN ITA NO.1916/MUM./2007. WE FIND FORCE IN THE SUBMISSION OF THE LEARNED COUNSEL. ON IDENTICAL FACTS, THE TRIBUNAL, VIDE PARA 8 OF ITS ORDER, HELD AS UNDER: 8. IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDERED VIEW THAT THE ENTIRE ISSUE IS REQUIRED TO BE CONSIDERED AFRESH REGARDING THE FINDING ON THE ASPECT OF RENDERING OF SERVICES BY THE CITI BANK, NA AND THE NATURE OF SERVICES. WE NOTE THAT THE ASSESSEE FILED CERTAIN DETAILS REGARDING TOP 25 CASES WHICH WERE REFERRED BY THE CITI BANK, NA BUT THE AUTHORITIES BELOW DID NOT EXAMINE THE RELEVANT RECORD. ACCORDINGLY, IN THE INTEREST OF JUSTICE WE SET ASIDE THIS ISSUE TO THE RECORD OF THE M/S. CITI FINANCIAL INSURANCE SERVICES INDIA LIMITED 5 CIT(A) TO ADJUDICATE THE MATTER AFRESH BY CONSIDERING WHETHER ANY SERVICES HAS BEEN RENDERED BY THE CITI BANK, NA, IRRESPECTIVE OF AGREEMENT IN QUESTION FOR ALLOWING THE CLAIM U/S 37 AND FURTHER THE ISSUE OF TRANSFER PRICING TO BE ADJUDICATED BY TAKING INTO CONSIDERATION THE SUITABLE COMPARABLES AND MOST APPROPRIATE METHOD. 8 . SINCE THE ISSUE BEFORE US IS IDENTICAL TO THE AFORESAID ISSUE DECIDED BY THE TRIBUNAL, THEREFORE, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COM MISSIONER (APPEALS) AND RESTORE THE ISSUE BACK TO THE RECORD OF THE LEARNED COMMISSIONER (APPEALS) AND DIRECT HIM TO ADJUDICATE THE MATTER FOR AFRESH IN THE LIGHT OF THE FINDINGS GIVEN BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2003 04 CITED SUPRA. THUS, THE FIST GRIEVANCE OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9 . INSOFAR AS THE SECOND ADDITION OF ` 11,18,748 BEING THE DIFFERENCE IN AIR INFORMATION IS CONCERNED, THE LEARNED COUNSEL DREW OUT ATTENTION TO THE ORDER DATED 28 TH JANUARY 2014, PASSED BY THE LEARNED COMMISSIONER (APPEALS), WHICH RELATES TO THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT . IT IS THE SAY OF THE LEARNED COUNSEL THAT DURING THE COURSE OF PENAL PROCEEDINGS, THE ASSESSEE HAD FILED A RECONCILIATION STATEMENT WHICH HAS BEEN DULY CO NSIDERED BY THE LEARNED COMMISSIONER (APPEALS) WHEREIN THE ASSESSEE HAS RECONCILED UP TO ` 7,33,360. THE LEARNED COUNSEL CONCLUDED BY SAYING THAT ON THIS ACCOUNT, THE PENALTY HAS BEEN LEVIED ONLY ON THE UNRECONCILED AMOUNT OF ` 3,85,388. 10 . PER CONTRA, THE L EARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER PASSED BY THE AUTHORITIES BELOW. M/S. CITI FINANCIAL INSURANCE SERVICES INDIA LIMITED 6 11 . WE HAVE CAREFULLY PERUSED THE MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT THE ADDITION HAS BEEN MADE ON ACCOUNT OF DIFFERENCE BETWEEN THE INSURANCE COMMISSION SHOW N BY THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT AND THE AIR INFORMATION RECEIVED BY THE ASSESSING OFFICER. WE HAVE ALSO PERUSED THE ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) IN RESPECT OF THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT AND FOUND THA T IN THE PENALTY PROCEEDINGS, THE ASSESSEE HAS SUCCESSFULLY RECONCILED UP TO ` 7,33,360. HOWEVER, IN THE INTEREST OF JUSTICE, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESS ING OFFICER . THE ASSESSEE IS DIRECTED TO FURNISH THE RECONCILIATION STATEMENT BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECTED TO VERIFY, RE EXAMINE THE ISSUE & RECONCILE THE STATEMENT AND DECIDE THE ISSUE AFRESH AFTER GIVING ADEQUATE OPPORT UNITY OF HEARING TO THE ASSESSEE. THUS, THE SECOND GRIEVANCE OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 12 . 12 . IN THE RESULT, ASSESSEE S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES . WE NOW TAKE UP ASSESSEE S APPEAL IN ITA NO. 8743 /MUM./201 0 , FOR THE ASSESSMENT YEAR 200 7 08 , VIDE WHICH, THE SOLE GRIEVANCE RAISED B Y THE ASSESSEE IS THAT THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE ADDITION OF ` 17,01,792, ON ACCOUNT OF REFER RAL FEES MADE BY THE ASSESSING OFFICER. 13 . ON A PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT IN THIS YEAR ALSO, THE ADDITIONS HAVE BEEN MADE FOLLOWING THE FINDINGS IN THE ASSESSMENT YEAR 2003 04. WE HAVE DISCUSSED AT LENGTH THE FINDINGS OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2003 04 IN ITA M/S. CITI FINANCIAL INSURANCE SERVICES INDIA LIMITED 7 NO.8742/MUM./2010 CITED SUPRA. SINCE THE ISSUE BEFORE US IS IDENTICAL TO THE ISS UE DECIDED BY THE TRIBUNAL, FOLLOWING THE SAME, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND RESTORE THE ISSUE BACK TO HIS RECORDS AND DIRECT HIM TO ADJUDICATE THE ISSUE DENOVO IN THE LIGHT OF THE FINDINGS GIVEN , FOLLOW ING THE DIRECTIONS OF THE TRIBUNAL IN ITA NO.1916/MUM./2007. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 14 . 14 . IN THE RESULT, ASSESSEE S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 15 . , 20 06 07 200 7 08 15 . TO SUM UP, ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2006 07 , AND ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2 007 08 IS ALLOWED FOR STATISTICAL PURPOSES . 7 TH MAY 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH MAY 2014 SD / - SANJAY GARG JUDICIAL MEMBER SD / - . . N.K. BILLAIYA ACCOUNTANT MEMBER MUMBAI, DATE D : 7 TH MAY 2014 M/S. CITI FINANCIAL INSURANCE SERVICES INDIA LIMITED 8 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI