Vision Comptech Integrators Ltd, Kolkata V. CIT, CIR-47, KOLKATA, Kolkata

ITA 998/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4185 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 26-09-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 15-05-2014
• Court: TRIBUNAL
• Department Lawyers: NIRAJ KUMAR
• Keywords: Tangible material
• Section: 143(3); 263

Judgement Text

1 ITA NO. 998/KOL/2014 VISION COMPTECH INTEGRATORS LTD. AY 2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI P. M. JAGTAP, AM & SHRI K. NARASIMHA CHARY, JM] I.T.A NO. 998/KOL/2014 ASSESSMENT YEAR: 2009-10 VISION COMPTECH INTEGRATORS LTD. VS. COMMISSION ER OF INCOME-TAX, (PAN:AABCV1677Q) KOL-III, KOLKATA ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 09.11.2016 DATE OF PRONOUNCEMENT: 18.11.2016 FOR THE APPELLANT: SHRI SUBASH AGARWAL, ADVOCATE FOR THE RESPONDENT: SHRI NIRAJ KUMAR, CIT, DR ORDER PER SHRI K. NARASIMHA CHARY, JM: THIS APPEAL BY ASSESSEE IS ARISING OUT OF REVISION ORDER OF CIT, KOLKATA VIDE APPEAL NO. CIT-III/DC(HQ)-3/KOL/278/U/S.263/2013-14/7242-4 4 DATED 27.03.2014. ASSESSMENT WAS FRAMED BY DCIT, OSD TO CIT-III, KOLKATA U/S. 14 3(3) OF THE INCOME-TAX ACT, 1961(HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2 009-10 VIDE HIS ORDER DATED 02.12.2011. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY TRADING IN COMPUTER HARDWARE, SOFTWARE DEVELOPMENT, IT ENABLED SERVICES , LEASE RENT, FIT OUT RENT AND BANK FD INTEREST BUSINESS. ONE VISION COMPONENTS PVT. LTD. (VCPL) IS A SUBSIDIARY OF THE ASSESSEE COMPANY. THE ASSESSEE GAVE A BUILDING WITH AN AREA OF 023217 SFT. OF SUPER BUILT UP AREA ON RENT TO M/S. TATA CONSULTANCY SERVICES LTD. (TCS) A T RS.28/- PER SFT. PER MONTH FROM 01.06.2006. THE SAID BUILDING HAD TO BE FITTED WIT H AIR CONDITIONING SYSTEM, DG SETS, SPRINKLER SYSTEM, ELECTRICAL EQUIPMENTS AND VARIOUS OTHER GADGETS, NETWORKING GADGET/FIT OUTS ETC. ASSESSEE FELT IT DESIRABLE TO SUPPORT TH E SUB LEASE OF THE BUILDING AND THE RENTING OF THE OUTFITS WHICH INCLUDES GADGETS ETC. TO AVOID C OMPLICATION. THE SUBSIDIARY OF THE ASSESSEE VIZ. VCPL AGREED SEPARATELY WITH TCS TO PR OVIDE SUCH SERVICES AND OUTFITS. A FACILITY PROVIDER AGREEMENT WAS ENTERED INTO BETWEE N THE ASSESSEE M/S. TCS AND VCPL FOR RENTING OF OUTFITS AND FACILITIES ON A MONTHLY RENT OF RS.24/- PER SFT. ON THE SERVICEABLE AREA OF 203217 SFT. ASSESSEE LET OUT SUCH OUTFITS TO IT S SUBSIDIARY VCPL ON A MONTHLY RENT OF RS.17/- PER SFT. VIDE CLAUSE 4.6 OF THE FACILITY P ROVIDER AGREEMENT BETWEEN ALL THE THREE PARTIES IT WAS STATED THAT IF THE FACILITY PROVIDER AT ANY TIME DURING THE TENURE OF THE 2 ITA NO. 998/KOL/2014 VISION COMPTECH INTEGRATORS LTD. AY 2009-10 AGREEMENT SALES OR TRANSFERS ITS RIGHTS IN THE ASSE TS AS A WHOLE OR IN PART TO ANY OTHER PERSON, M/S. TCS SHALL ATTORN TO SUCH TRANSFEREE ON THE SAM E TERMS AND CONDITIONS AS ARE CONTAINED IN SUCH AGREEMENT AND THE FACILITY PROVIDER SHALL G IVE PRIOR WRITTEN NOTICE TO M/S. TCS BEFORE ANY SUCH TRANSACTION TAKES PLACE. IT FURTHE R PROVIDED THAT A LETTER SHALL BE ISSUED JOINTLY BY THE PROSPECTIVE NEW TRANSFEREE AND THE F ACILITY PROVIDER IN FAVOUR OF M/S. TCS CONFIRMING THAT THE TERMS AND CONDITIONS OF THE AGR EEMENT WILL BE BINDING ON THE NEW TRANSFEREE AND THE BENEFIT AND OBLIGATION OF THE AG REEMENT SHALL BE TRANSFERRED TO THEM. THE ASSESSEE CLAIMS THAT PURSUANT TO THIS CLAUSE, BOTH THE ASSESSEE AND THE VCPL HAVE ISSUED A JOINT LETTER DATED 22.05.2008 TO M/S. TCS INFORMING THE TRANSFER OF THE BENEFITS AND OBLIGATIONS OF M/S. VCPL IN THE TRIPARTITE AGREEMEN T TO THE ASSESSEE W.E.F. 01.06.2008. PURSUANT TO THESE LETTERS M/S. TCS STARTED PAYING T HE RENT FOR THE OUTFITS AT RS.24/- PER SFT. TO THE ASSESSEE FROM 01.06.2008. 3. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2009-10 ON 22.09.2009 SHOWING A TOTAL INCOME OF RS.25,33,745/-. ORDER U/S. 143(3) OF THE ACT WAS PASSED ON 02.12.2011 ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT RS.30 ,08,318/-. HOWEVER, ON A PERUSAL OF THE ASSESSMENT, THE LD. CIT FOUND THAT THERE WAS AN UND ERSTATEMENT OF INCOME TO THE TUNE OF RS.28,45,038/- WHILE COMPUTING THE ANNUAL FIT OUT R ENT AS SUCH, AFTER ISSUING NOTICE OF HEARING TO THE PARTIES HE PASSED AN ORDER U/S. 263 OF THE ACT SETTING ASIDE THE ORDER U/S. 143(3) OF THE ACT DIRECTING THE AO TO FRAME DE NOVO ASSESSMENT AS PER LAW. 4. CHALLENGING THE SAID ORDER U/S. 263 OF THE ACT, THE ASSESSEE PREFERRED THIS APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 1) THAT THE LD. COMMISSIONER OF INCOME TAX, KOLKA TA- III WAS GROSSLY ERRED IN PASSING ORDER U/S 263 OF THE INCOME TAX ACT, 1961 AND THE ORDER P ASSED U/S 263 IS BAD IN LAW AS WELL AS ON FACTS. 2) THAT THE LD. COMMISSIONER OF INCOME TAX, KOLKATA - III WAS WRONG IN INFERRING THAT THE ASSESSMENT ORDER MADE BY LD. ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 3) THAT WHEN THE PROPER INCOME ON ACCOUNT OF FIT OU T RENT WAS DULY CONSIDERED AND TAKEN BY LD. ASSESSING OFFICER IN THE ASSESSMENT, THE ORDER OF L D. COMMISSIONER OF INCOME TAX, KOLKATA - ILL, SETTING ASIDE THE ASSESSMENT U/S 263 OF I.T. ACT IS ARBITRARY, UNJUSTIFIED AND UNWARRANTED TO THE FACTS OF THE CASE. 4) THAT LD. COMMISSIONER OF INCOME TAX, KOLKATA ERR ED IN LAW AS WELL AS ON FACTS IN SETTING ASIDE THE ASSESSMENT COMPLETED U/S 143(3) O N 02-12-2011. 3 ITA NO. 998/KOL/2014 VISION COMPTECH INTEGRATORS LTD. AY 2009-10 5) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED U/S 263 OF THE ACT IS LIABLE TO BE QUASHED. 5. IT IS THE ARGUMENT OF THE LD. AR THAT IN THIS MA TTER WHILE PASSING THE ORDER U/S. 143(3) OF THE ACT THE AO HAS WELL CONSIDERED ALL TH E DOCUMENTS AND DETAILS FURNISHED BEFORE HIM AND HE ALSO CONSIDERED THE RENT FOR THE PREMISE S AS WELL AS FIT OUTS RECEIVED BY THE ASSESSEE BOTH FROM TCS AND VCPL AS SUCH, ORDER OF T HE AO CANNOT BE TERMED AS THE RESULT OF ANY NON-CONSIDERATION OF THE MATERIAL ASPECTS. HE FURTHER SUBMITTED THAT VIDE PARA 5 OF THE ORDER UNDER CHALLENGE IT IS ONLY ON THE BASIS O F SUSPICION, SURMISES AND CONJECTURES THE CIT RESORTED TO INVOKE JURISDICTION U/S. 263 OF THE ACT WHICH IS NOT PERMISSIBLE UNDER LAW. FOR THESE REASONS, THE LD. AR PRAYED TO QUASH THE O RDER PASSED U/S. 263 OF THE ACT AND TO RESTORE THE ORDER PASSED BY THE AO. 6. PER CONTRA, WHILE HEAVILY AND VEHEMENTLY RELYING UPON THE IMPUGNED ORDER, THE LD. DR SUBMITTED THAT THERE IS NOTHING WRONG IN THE ORD ER OF THE LD. CIT DIRECTING THE AO TO VERIFY THE CIRCUMSTANCES GIVING RISE TO REASONABLE SUSPICION THAT THERE IS UNDERSTATEMENT OF INCOME AS SUCH, THERE ARE NO VALID GROUNDS TO ANNUL THE ORDER OF THE LD. CIT PASSED U/S. 263 OF THE ACT. 7. INSOFAR AS THE FACTS ARE CONSIDERED ABSOLUTELY THERE IS NO DISPUTE. AS A MATTER OF FACT, LD. CIT IN HIS ORDER DID NOT DISPUTE ANYTHING ABOUT THE RENT RECEIVED BY THE ASSESSEE FOR THE PREMISES. THE ENTIRE DISPUTE REVOLVES AROUND T HE RENT THAT WAS RECEIVED BY THE ASSESSEE FOR FIT OUTS EITHER FROM ITS SUBSIDIARY VCPL AND TC S. THE BASIS FOR THE LD. CIT TO SET ASIDE THE ASSESSMENT ORDER IS SPELT OUT IN THE LATER PART OF THE 5 TH PARAGRAPH WHICH IS TO THE FOLLOWING EFFECT: IT IS DIFFICULT TO UNDERSTAND WHEN THE INITIAL AG REEMENT WAS MADE BETWEEN THREE PARTIES I.E. FACILITATOR, CUSTOMER & THE ASSESSEE BEING THE CONF IRMING PARTY, HOW THE ASSIGNMENT CAN BE MADE BY TWO PARTIES LEAVING OUT THE CUSTOMER. SECO NDLY, THE ASSESSEE HOLDS THE PROPERTY AS A SUB LESSOR WHICH IS GIVEN ON LEASE TO THE SUB-LES SEE M/S. VISION COMPONENTS PVT. LTD., THEN WHAT IS THE PURPOSE OF REASSIGNING BACK THE FACILIT Y TO THE ASSESSEE. THIS MATTER SHOULD HAVE BEEN ENQUIRED INTO AND EXAMINED BY THE AO BOTH IN R ESPECT OF FACTUAL AS WELL AS LEGAL ASPECTS IN DETAIL. 8. IT IS, THEREFORE CLEAR THAT THE LD. CIT ENTERTAI NED A DOUBT THAT WHEN THE INITIAL AGREEMENT WAS MADE BETWEEN THE ASSESSEE, ITS SUBSID IARY COMPANY AND M/S. TCS AND THE ASSESSEE WAS A CONFIRMING PARTY, THERE CANNOT BE A NY ASSIGNMENT OF THE RIGHTS OF THE 4 ITA NO. 998/KOL/2014 VISION COMPTECH INTEGRATORS LTD. AY 2009-10 SUBSIDIARY COMPANY IN FAVOUR OF THE ASSESSEE WITHOU T THE PRESENCE OF TCS. THE FURTHER GROUND MADE OUT BY THE LD. CIT IS THAT WHEN THE ASS ESSEE PURCHASED THE PROPERTY AS A SUB LESSOR WHICH HAS GIVEN ON LEASE TO VCPL THERE IS NO PURPOSE OF REASSIGNING THE FACILITY TO THE ASSESSEE. 9. ON THIS ASPECT, WE HAVE CAREFULLY GONE THROUGH T HE RECORDS INCLUDING THE PAPER BOOK I.E. FURNISHED BY THE ASSESSEE. PAGE NOS. 99 TO 11 3 OF THE PAPER BOOK IS THE AGREEMENT BETWEEN THE ASSESSEE AND ITS SUBSIDIARY WHEREUNDER IT WAS AGREED THAT THE SUBSIDIARY WOULD PAY A RENT OF RS.17/- PER SFT. PER MONTH TO THE ASS ESSEE FOR THE OUTFITS. PAGES 114 TO 129 OF THE PAPER BOOK ARE THE COPY OF AGREEMENT BETWEEN VC PL AND TCS WHEREUNDER TCS AGREED TO PAY A MONTHLY RENT OF RS.24/- PER SFT. PER MONT H TO VCPL. UNDER THIS AGREEMENT, THE ASSESSEE IS ALSO A SIGNATORY IN THE CAPACITY OF A C ONFIRMING PARTY. CLAUSE 4.6 OF THE AGREEMENT IS VERY CLEAR IN ITS WORDS THAT ALL THE T HREE PARTIES AGREED THAT IN CASE OF VCPL TRANSFERS THESE ASSETS TO ANY OTHER PARTY, BY WAY O F A NOTICE OR A JOINT LETTER BY BOTH VCPL AND THE TRANSFEREE, ALL THE BENEFITS AND OBLIGATION S UNDER THE AGREEMENT WILL BIND THE NEW TRANSFEREE AND ALSO TCS. THIS CLAUSE 4.6 OF THE AG REEMENT DOES NOT SPEAK OR CONTEMPLATE THE CONTINGENCY OF VCPL TRANSFERRING THE ASSETS BAC K TO ASSESSEE ALONE. A READING OF THESE TWO AGREEMENTS TOGETHER INDICATES THAT IT WAS AGREE ABLE FOR THE ASSESSEE TO RECEIVE RS. 17/- PER SFT. FROM ITS SUBSIDIARY OR ITS TRANSFEREE AND AT THE SAME TIME, IT WAS AGREEABLE FOR TCS TO PAY RS.24/- PER SQ. FT. PER MONTH EITHER TO VCPL O R ITS TRANSFEREE. THIS FACTUAL POSITION IS BORNE OUT FROM RECORDS. 10. AS PERMITTED BY CLAUSE 4.6 OF THE SAID AGREEMEN T VCPL TRANSFERRED ITS RIGHTS IN THE AGREEMENT TO THE ASSESSEE AND IN DUE COMPLIANCE THE REOF THEY HAVE ADDRESSED A LETTER DATED 22.05.2008 TO TCS. ON THIS COMPLIANCE WITH CLAUSE 4.6 OF THE TRIPARTITE AGREEMENT, TCS WAS UNDER AN OBLIGATION TO PAY THE RENT FOR FIT OUT S AT RS.24/- PER SQ. FT. PER MONTH AND ACCORDINGLY THEY STARTED PAYING SO FROM 01.06.2008. FOR THE PRECEDING TWO MONTHS THEREOF ASSESSEE RECEIVED RS.17/- PER SQ. FT. PER MONTH FRO M VCPL UNDER THE AGREEMENT INCORPORATED VIDE PAGE NOS. 99 TO 139 OF THE PAPER BOOK. NOWHERE IN HIS ORDER THE LD. CIT COULD SAY THAT EITHER OF THE PARTIES COMMITTED ANY ILLEGALITY OR IRREGULARITY IN THIS PROCESS. LD. CIT ERRED IN UNDERSTANDING THE DIFFERENCE BETWE EN THE RIGHTS IN THE PROPERTY OF FIT OUTS THAT WERE LET OUT BY THE ASSESSEE TO ITS SUBSIDIARY AND THE RIGHTS OF THE SUBSIDIARY UNDER THE AGREEMENT ENTERED WITH TCS. WHAT IS ATTORNED, ARE THE RIGHTS OF THE SUBSIDIARY VIS.A.VIS. 5 ITA NO. 998/KOL/2014 VISION COMPTECH INTEGRATORS LTD. AY 2009-10 TCS, THEREFORE, THE DOUBT ENTERTAINED BY THE LD. CI T VIDE PARA 5 IN HIS ORDER ARE NOT BASED ON SOUND FOOTING. 11. WHEN WE TURN TO THE ASSESSMENT ORDER, IT IS EVI DENT THAT THE AO CONSIDERED THE ASPECTS OF FIT OUT RENT AND LEASE RENT IN EXTENSO A ND AFTER A CONSIDERABLE DISCUSSION, HE CONCLUDED THE ASSESSMENT. IN VIEW OF OUR DISCUSSIO N IN THE PRECEDING PARAGRAPH AND IN VIEW OF THE SETTLED PRINCIPLES OF LAW CITED BY THE LD. A R, WE ARE OF THE CONSIDERED OPINION THAT THE ASSUMPTION OF JURISDICTION U/S. 263 OF THE ACT BY THE LD. CIT DOES NOT HOLD ANY MERIT AND THE ORDER OF THE LD. CIT IS MERELY BASED ON SUR MISES, CONJECTURES AND SUSPICION. SUSPICION HOWEVER, GRAVE IT IS, CAN NEVER BE EQUATE D TO ANY TANGIBLE MATERIAL. WE, THEREFORE, FIND IT DIFFICULT TO SUSTAIN THE ORDER O F THE LD. CIT AND ACCORDINGLY, QUASH THE SAME. APPEAL OF ASSESSEE IS ALLOWED. 12. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 18.11.201 6 SD/- SD/- (P. M. JAGTAP) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 18TH NOVEMBER, 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT VISION COMPTECH INTEGRATORS LTD., 21A, SHAKESPEARE SARANI, 3 RD FLOOR, KOLKATA-700 017. 2 RESPONDENT CIT, KOL.III, KOLKATA . 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .