Appeal details
Counselvise Citation
[2012] 140 COUNSELVISE.COM (IT) 58071 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
10 month(s) 3 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
21-03-2012
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
21-03-2012
Assessment Year
2005-2006
Appeal Filed On
18-05-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT ME MBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NOS.912 & 913/MDS/2011 (ASSESSMENT YEARS: 2005-06 & 2006-07) M/S. ABAN OFFSHORE LIMITED (FORMERLY KNOWN AS ABAN LOYD CHILES OFFSHORE LTD.), 113, PANTHEON ROAD, EGMORE, JANPRIYA CHEST, CHENNAI-600 008. PAN:AAACA3012H VS. ADDL. COMMISSIONER OF INCOME TAX, COMPANY RANGE 1, CHENNAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. R.VIJAYARAGHAVAN, ADVOCA TE RESPONDENT BY : MR. NAGE NDRA PRASAD, CIT DR DATE OF HEARING : 21 ST MARCH, 2012 DATE OF PRONOUNCEMENT : 21 ST MARCH, 2012 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE PRESENT TWO SET OF APPEALS I.E. ITA NO.912/MDS/2011 RELEVANT TO THE ASSESSMENT YEAR 200 5-06 AND ITA NO.913/MDS/2011 RELEVANT TO THE ASSESSMENT YEAR 2006-07 HAVE BEEN FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 17.03.2011 UNDER SECTION 263 OF THE INCOME TA X ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) PASSED BY CIT, CHENNAI-I. ITA NO.912 & 913/MDS/201 1 2 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF DRILLING AND OTHER OIL FIELD SERVICES, HYDROCARBON EXPLORATION AND PRODUCTION. THE ASSESSEE ALSO CARRIES ON THE BU SINESS OF POWER GENERATION THROUGH RENEWABLE ENERGY. THE ASSE SSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 ON 28.10.2005. THE RETURN OF INCOME WAS PROCESSED UNDE R SECTION 143(1) AND SELECTED FOR SCRUTINY. NOTICE UN DER SECTION 143(2) AND 142(1)(II) WERE ISSUED. A REFERENCE UND ER SECTION 92CA(1) OF THE ACT WAS MADE TO TRANSFER PRICING OF FICER FOR DETERMINATION OF ARMS LENGTH PRICE WITH REFERENCE TO THE VALUE OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE A SSESSEE COMPANY WITH THE ASSOCIATE ENTERPRISES. THE TRANSF ER PRICING OFFICER VIDE ORDER NO.A-402/TPO-IV/A.Y. 2005-06 DAT ED 06.10.2008 HELD THAT NO ADJUSTMENT IS NECESSARY TO THE VALUE OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE A SSESSEE FOR ASSESSMENT YEAR 2005-06. ON THE OTHER ISSUES INVOLV ED, THE ASSESSING OFFICER MADE CERTAIN ADDITIONS/DISALLOWAN CES IN THE CASE OF THE ASSESSEE. AFTER THE ADJUSTMENTS WERE MA DE BY THE ASSESSING OFFICER A DEMAND OF ` 3,87,95,863/- WAS RAISED BY THE ASSESSING OFFICER. THE ASSESSEE PREFERRED APPEAL ITA NO.912 & 913/MDS/201 1 3 BEFORE THE CIT(A) AGAINST THE ORDER OF THE ASSESSIN G OFFICER. THE CIT(A) VIDE ORDER DATED 23.06.2010 ALLOWED THE APPEAL OF THE ASSESSEE . THEREAFTER, THE CIT, CHENNAI-I ISSU ED SHOW CAUSE NOTICE DATED 20.10.2010 UNDER SECTION 263 ON THE FOLLOWING GROUNDS:- IT IS SEEN THAT YOU HAVE MADE PAYMENTS TO NON- RESIDENTS IN RESPECT OF ITEMS VIZ. TECHNICAL MANAGEMENT FEES, RENTAL & REPAIRS TO MACHINERY AND DRILLING SERVICES, ETC. YOU HAVE DEDUCTED TAX A T SOURCE U/S.195 @ 4% AS AGAINST 40%. PROPORTIONATE DISALLOWANCE TO THE EXTENT OF ` 2,11,02,509/- WAS MADE IN THE ASSESSMENT ORDER IN RESPECT OF THE TECHNICAL MANAGEMENT FEES. AS PER THE NOTES ON ACCOUNTS THE EXPENSES IN FOREIGN CURRENCY PAID TO DURING THE YEAR WAS ` 18,78,34,141/- UNDER THE HEAD STORAGE AND TANKER CHANGES AND TAX OF ` 79,31 ,788/- ONLY HAD BEEN DEDUCTED. THE PROPORTIONATE AMOUNT OF ` 4,11,53,891/- HAS TO BE DISALLOWED U/S.40(A)(IA) OF THE INCOME TAX ACT, 1961. FURTHER AN AMOUNT TO THE EXTENT OF ` 4.30 CRORES HAS TO BE DISALLOWED. 1. PAYMENT MADE TO ITM. FRANCE AS MANAGEMENT FEES IN RESPECT OF OFFSHORE DRILLING CONTRACT IN IRAN WATERS RS. 33,03,139 : ` 3,19,94,494 2. CONSULTANCY CHARGES PAID OUTSIDE INDIA 3. REPAIRS TO MACHINERY 4. OTHER CONSULTANCY CHARGES PAID : ` 1,63,09,684 ITA NO.912 & 913/MDS/201 1 4 3. SIMILARLY, FOR THE ASSESSMENT YEAR 2006-07, THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 9.11.200 6 AND THE CASE OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS ISSUED ON 4.10.2007. THE ASSESSING OFFICER AFTER MAKING CERTAIN ADDITIONS/DISALLOWANCES RAISED DEMAND OF ` 4,57,74,188/-. THE ASSESSEE CHALLENGED THE ORDER DATED 30.12.2008 PASS ED BY THE ASSESSING OFFICER BEFORE THE CIT(A). THE CIT(A ) ALLOWED THE APPEAL OF THE ASSESSEE VIDE ORDER DATED 23.06.2 010. AFTER PASSING OF THE ORDER BY THE CIT(A), THE CIT HAD ISS UED SHOW CAUSE NOTICE DATED 20.10.2010 RELEVANT TO THE ASSES SMENT YEAR 2006-07 UNDER SECTION 263 ON THE FOLLOWING GRO UNDS:- IT IS SEEN THAT YOU HAVE MADE PAYMENTS TO NON- RESIDENTS IN RESPECT OF ITEMS VIZ. TECHNICAL MANAGEMENT FEES, RENTAL & REPAIRS TO MACHINERY AND DRILLING SERVICES, ETC. YOU HAVE DEDUCTED TAX A T SOURCE U/S.195 @ 4% AS AGAINST 40%. PROPORTIONATE DISALLOWANCE TO THE EXTENT OF ` 92,02,269/- WAS MADE IN THE ASSESSMENT ORDER IN RESPECT OF THE TECHNICAL MANAGEMENT FEES. AS PER THE NOTES ON ACCOUNTS THE EXPENSES IN FOREIGN CURRENCY PAID TO DURING THE YEAR WAS ` 14,82,81,481/- UNDER THE HEAD STORAGE AND TANKER CHANGES AND TAX OF ` 5,93,12,593/- ONLY HAD BEEN DEDUCTED. THE PROPORTIONATE AMOUNT OF ` 8,89,68,888/- HAS TO BE ITA NO.912 & 913/MDS/201 1 5 DISALLOWED U/S.40(A)(IA) OF THE INCOME TAX ACT, 1961. SIMILARLY, IN RESPECT OF PAYMENT RELATING TO DRILLI NG SERVICES, MANAGEMENT FEES, CONSULTANCY AND PROFESSIONAL CHARGES AND REPAIRS TO MACHINERY AMOUNTING TO ` 10.76 CRORES HAS TO BE DISALLOWED U/S.40(A)(IA). AGAIN THE DISALLOWANCE U/S.40(A)(I) ON MANAGEMENT FEES IS SHORT BY ` 1.28 CRORES. THE SAME HAS TO BE DISALLOWED. 4. MR. R.VIJAYARAGHAVAN, COUNSEL APPEARING ON BEHAL F OF THE ASSESSEE SUBMITTED THAT THE CIT HAS WRONGLY ISS UED SHOW CAUSE NOTICE UNDER SECTION 263 RELEVANT TO THE ASS ESSMENT YEARS 2005-06 AND 2006-07 TO THE ASSESSEE. HE SU BMITTED THAT THE OBSERVATION OF THE COMMISSIONER THAT THE A SSESSING OFFICER DID NOT MAKE SPECIFIC ENQUIRIES AND DID NOT VERIFY THE DETAILS FURNISHED BY THE ASSESSEE WITH RESPECT TO P AYMENTS MADE TO PARTIES IS UNJUSTIFIED, ARBITRARY AND BASEL ESS. HE CONTENDED THAT SHOW CAUSE NOTICE ISSUED UNDER SECTI ON 263 IS NOT SUSTAINABLE AS THE ASSESSEE/APPELLANT HAD AL READY FILED APPEALS AGAINST THE ORDER OF THE ASSESSING OFFICER FOR RESPECTIVE ASSESSMENT YEARS BEFORE THE CIT(A). THE CIT(A) AFTER TAKING INTO CONSIDERATION ALL THE RELEVANT FA CTS, DOCUMENTS ON RECORD AND THE SUBMISSIONS OF THE PART IES HAS ITA NO.912 & 913/MDS/201 1 6 ALLOWED BOTH THE APPEALS RELEVANT TO THE ASSESSMENT YEARS 2005-06 AND 2006-07 OF THE ASSESSEE. THE ISSUES WIT H REGARD TO PAYMENT RELATING TO DRILLING SERVICES ETC. RAISE D BY THE CIT IN NOTICE UNDER SECTION 263 WHERE SPECIFICALLY TAK EN IN THE GROUNDS OF APPEAL BEFORE CIT(A) AND THE SAME HAVE B EEN DECIDED IN FAVOUR OF THE ASSESSEE. MOREOVER, THE PA YMENTS WERE MADE TO ITM FRANCE AS MANAGEMENT FEES BY THE OVERSEAS (DUBAI) BRANCH OF THE ASSESSEE. THE EXPENS ES OF THE OVERSEAS BRANCH WERE CONSOLIDATED FOR ACCOUNTIN G PURPOSES ONLY. THE EXPENSES OF THE OVERSEAS BRANCH CANNOT GIVE RISE TO INCOME IN THE HANDS OF NON-RESIDENT PA YEES IN INDIA ON ACTUAL OR ACCRUAL BASIS. IN RESPECT OF CON SULTANCY CHARGES PAID TO ANDREW JOHN SHRIMPTON, MAURITS JOHA NNES JOSEPH LAPORTE AND PANALPINA GULF LIC AND PAYMENT TOWARDS REPAIRS TO MACHINERY, NO TDS WAS DEDUCTED O N SUCH PAYMENTS TO NON-RESIDENTS AS SUCH PAYMENTS ARE COVE RED UNDER THE PROVISIONS OF SECTION 195 OF THE ACT WHER EIN INCOME IN HANDS OF NON-RESIDENT PAYEES IS NOT CHARGEABLE T O TAX. SIMILARLY IN RESPECT OF PAYMENT OF ` 2.62 CRORES MADE IN THE ASSESSMENT YEAR 2006-07 TOWARDS CONTRACT MANAGEMENT FEES ITA NO.912 & 913/MDS/201 1 7 AND EXPENDITURE TOWARDS REPAIRS TO MACHINERY ` 1.75 CRORES, THE PAYMENTS WERE MADE BY THE OVERSEAS BRANCH OF TH E ASSESSEE AND THUS IT DOES NOT GIVE RISE TO INCOME I N THE HANDS OF NON-RESIDENT PAYEES IN INDIA ON ACTUAL OR ACCRUAL BASIS. THEREFORE THE SHOW CAUSE NOTICE UNDER SECT ION 263 AND PROCEEDINGS ARISING THEREFROM ARE NOT SUSTAINAB LE AND ARE THUS BAD IN LAW. HE SUBMITTED THAT THIS FACT WA S BROUGHT TO THE NOTICE OF CIT IN THE REPLY TO SHOW CAUSE NOTICE S. THE REPLY TO SHOW CAUSE NOTICES DATED 11.11.2010 RELEVANT TO ASSESSMENT YEARS 2005-06 AND 2006-07 ARE AT PAGES 7 6 TO 91 AND 92 TO 105 OF THE PAPER BOOK RESPECTIVELY. W ITH REGARD TO CERTAIN PAYMENTS MADE TO FOREIGN CONSULTANTS AND SHORT DEDUCTIONS OF TAX, HE SUBMITTED THAT SUCH PAYMENTS AND CHARGES WERE SPECIFICALLY COVERED UNDER SECTION 44B B OF THE ACT. 5. ON THE OTHER HAND, LEARNED D.R. SUBMITTED THAT S HOW CAUSE NOTICE ISSUED BY THE CIT IS PERFECTLY VALID AND THE ORDER OF THE ASSESSING OFFICER WAS ERRONEOUS AND PR EJUDICIAL TO THE INTEREST OF THE REVENUE. HE STRONGLY SUPPORT ED THE ORDER DATED 17.03.2011 RELEVANT TO THE ASSESSMENT YEARS 2005-06 ITA NO.912 & 913/MDS/201 1 8 AND 2006-07 PASSED BY THE COMMISSIONER. IN ORDER TO SUPPORT HIS CASE, HE RELIED ON THE JUDGEMENTS OF HO NBLE MADRAS HIGH COURT IN THE CASE OF ASHOK LEYLAND LD. VS. CIT., REPORTED AS 260 ITR 599 AND JAI BHARATH TANN ERS VS. CIT., REPORTED AS 264 ITR 673. 6. WE HAVE HEARD SUBMISSIONS MADE BY THE PARTIES AN D HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BEL OW. A PERUSAL OF SHOW CAUSE NOTICE DATED 20.10.2010 ISSUE D UNDER SECTION 263 OF THE ACT RELEVANT TO THE ASSESSMENT YEARS 2005-06 AND 2006-07 SHOWS THAT THE SAME HAVE BEEN I SSUED AFTER THE APPEALS OF THE ASSESSEE RELEVANT TO THE A SSESSMENT YEARS 2005-06 AND 2006-07 HAVE BEEN DECIDED BY THE CIT(A) IN ITS FAVOUR. THE ASSESSEE HAD FILED A COPY OF TH E ORDER OF TRIBUNAL IN ITA NO. 1542 & 1543/MDS/2010 AND ITA NO . 1381 & 1382 /MDS/2010 IN THE ASSESSEES OWN CASE RELEVA NT TO THE ASSESSMENT YEARS 2005-06 & 2006-07, WHICH IS PLACED AT PAGES 38 TO 71 OF THE PAPER BOOK, WHEREIN THE APPEA LS OF THE REVENUE WERE PARTLY ALLOWED FOR STATISTICAL PURPOSE S AND THE APPEALS OF THE ASSESSEE WERE DISMISSED. DURING THE PROCEEDINGS BEFORE THE TRIBUNAL, THE QUESTION WITH REGARD TO ITA NO.912 & 913/MDS/201 1 9 THE PAYMENTS TO NON-RESIDENTS FOR THE RELEVANT ASSE SSMENT YEAR ALSO CAME UP. THE TRIBUNAL HELD THAT THE SERV ICES RENDERED BY NON-RESIDENT FOR REPAIRS IN OIL DRILLIN G AND ALSO FOR DRILLING SERVICES CAN ONLY BE CONSIDERED AS SERVICE S OR FACILITIES IN CONNECTION WITH PROSPECTING FOR OR EX TRACTION OF PRODUCTION OF MINERAL OIL. HENCE THE ASSESSEE HAD S UFFICIENT REASONS TO HAVE BONAFIDE BELIEF THAT SECTION 44BB O F THE ACT WOULD APPLY TO SUCH PAYMENTS. THE TRIBUNAL HELD TH AT THE ASSESSEE WAS RIGHT IN EFFECTING DEDUCTION OF TDS CO NSIDERING SECTION 44BB OF THE ACT. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. PRASAD PRODUCTION LTD. REPORTED AS 3 ITR (TRIB) 58 HAS HELD THAT IN CASE OF A BONAFIDE BE LIEF BY THE PAYER THAT NO PART OF THE PAYMENT BEARS INCOME CHAR ACTER, IT IS NOT MANDATORY FOR HIM TO UNDERGO THE PROCEDURE OF S ECTION 195(2) BEFORE MAKING ANY PAYMENT TO A NON-RESIDENT . HOWEVER, IF THE DEPARTMENT IS OF THE VIEW THAT PAYE R OUGHT TO HAVE DEDUCTED TAX AT SOURCE, IT WILL HAVE RECOURSE UNDER SECTION 201 OF THE ACT. THUS IN ALL POSSIBLE SITUA TIONS THE INTERESTS OF THE PARTIES ARE PROTECTED. IF THE PAY ER IS UNDER A BONA FIDE BELIEF THAT NO PART OF THE PAYMENT IS CHA RGEABLE TO ITA NO.912 & 913/MDS/201 1 10 TAX, HE WILL HAVE THE RIGHT TO DEFEND THAT BELIEF I N THE PROCEEDINGS UNDER SECTION 201 OF THE ACT. WE HAVE A LSO GONE THROUGH THE JUDGEMENTS CITED BY THE D.R. WE ARE OF THE CONSIDERED OPINION THAT THE JUDGEMENTS OF THE HONB LE MADRAS HIGH COURT RELIED ON BY THE D.R. IN THE CASE S OF ASHOK LEYLAND LTD.(SUPRA) AND JAI BHARATH TANNERS ( SUPRA) DO NOT SUPPORT THE CASE OF THE REVENUE. 7. BE THAT AS IT MAY, THE ASSESSEE CANNOT BE CHARGE D TO TAX ONCE IT HAS BEEN EXPLAINED/SHOWN BY HIM THAT TH E PAYMENTS WERE MADE TO NON-RESIDENTS EITHER IN COMPL IANCE OF THE PROVISIONS OF SECTION 44BB OR ARE COVERED BY TH E PROVISIONS OF SECTION 195. THE CIT HAS GONE OVERBOA RD TO INITIATE PROCEEDINGS UNDER SECTION 263 OF THE ACT. THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF MALABAR INDUS TRIAL CO.LTD., VS. CIT., REPORTED AS 243 ITR 83 HAS HELD THAT TO INITIATE THE PROCEEDINGS UNDER SECTION 263 THE COMMISSIONER HAS TO BE SATISFIED OF TWIN CONDITIONS NAMELY (I) T HE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS ERRON EOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVE NUE. IF ONE OF THEM IS ABSENT IF THE ORDER OF THE ITO IS ERRONEOUS BUT IS NOT ITA NO.912 & 913/MDS/201 1 11 PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOU S BUT IS PREJUDICIAL TO THE REVENUE-RECOURSE CANNOT BE HAD T O SECTION 263(1) OF THE ACT. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS PASSED BY THE ASSESSING OFFICER . EVERY LOSS OF REV ENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CA NNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVE NUE, FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN L OSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE IT O HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDIC IAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY T HE ITO IS UNSUSTAINABLE IN LAW. 8. IN THE INSTANT CASE, THE CIT HAS FAILED TO MAKE OUT A CASE TO SHOW THAT THE ORDER OF THE ASSESSING OFFICE R IS ERRONEOUS. THE PROVISIONS OF SECTION 263 CANNOT BE INVOKED ON THE GROUND THAT A DIFFERENT VIEW CAN BE TAKEN IN ORDER TO GENERATE MORE REVENUE. ITA NO.912 & 913/MDS/201 1 12 9. IN VIEW OF OUR ABOVE FINDINGS, WE SET ASIDE THE IMPUGNED ORDERS OF THE CIT FOR THE ASSESSMENT YEARS 2005- 06 AND 2006-07 AND ALLOW THE APPEALS OF THE ASSESSE E. 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON WEDNESDAY, THE 21 ST OF MARCH, 2012. SD/- SD/- (ABRAHAM P.GEORGE) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 21 ST MARCH, 2012. SOMU COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6 ) G.F .
