PANCH TATVA REALITY, MUMBAI V. PR. CIT -27, MUMBAI

MA 216/MUM/2022

AI Insights

The case involves Panch Tatva Reality, the appellant, seeking a recall of an order from the Income Tax Appellate Tribunal (ITAT) Mumbai, which had previously ruled on an appeal against an order passed under section 263 of the Income Tax Act, 1961. The appellant argued that the ITAT had inadvertently failed to consider whether the order in question was prejudicial to the interest of the revenue, even if it was considered erroneous. The Tribunal, however, found that the interest payments in question, made to a member of the AOP and capitalized to work-in-progress, were not allowable as they did not meet the criteria for deduction under the relevant tax provisions.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123280 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 17 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 02-02-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-11-2022
• Assessment Year: 2015-2016
• Appeal Filed On: 16-08-2022
• Other Referred Cases: Punjab Wool Syndicate vs. ITO, Sony Pictures Networks India Pvt. Ltd. Vs. Income Tax Appellate Tribunal, Mumbai, Honda Siel Power Products Ltd. Vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Tax effect
• Section: 263; 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI BEFORE SHRI AMIT SHUKLA, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER MA.No. 216/MUM/2022 [ARISING OUT OF ITA NO. 679/MUM/2021 (A.Y: 2015-16)] Panch Tatva Reality 5 th Floor, B-Wing, Shrikant Chambers Sion Trombay Road, Near R.K. Studio Chembur, Mumbai – 400071 PAN: AAAAP8500D v. Pr.CIT – 27 Room No. 401, 4 th Floor Vashi Railway Station Commercial Complex Vashi, Navi Mumbai-400703 (Appellant) (Respondent) Assessee Represented by : Shri Tanmay Phadke Department Represented by : Shri Raghuver Madanappa Date of Hearing : 11.11.2022 Date of Pronouncement : 03.02.2023 O R D E R PER S. RIFAUR RAHMAN (AM) 1. Through this Miscellaneous Application assessee is seeking for recall of the order passed by the Tribunal in ITA.No. 679/Mum/2021 dated 18.04.2022 for the A.Y. 2015-16. 2. At the time of hearing, Ld. AR of the assessee relied on the submissions made in the Miscellaneous Application. For the sake of 2 MA.No. 216/MUM/2022 Panch Tatva Reality clarity, submissions made by the assessee in the Miscellaneous Application are reproduced below:- “1. The above-mentioned appeal was disposed off by the Hon'ble Income Tax Appellate Tribunal, Mumbai, Bench - 'C' (Hereinafter referred to as "the Hon'ble ITAT) in ITA No. 679/Mum/2021 vide order dated 18.04.2022. The Applicant is moving a present Miscellaneous Application under section 254(2) of the Income Tax Act, 1961 ["the Act"] before the Hon'ble ITAT with a prayer to rectify the below mentioned mistakes that have crept in the said order in the Applicant's humble view and are rectifiable under section 254(2) of the Act. 2. The Applicant submits that the said appeal was preferred against the order passed by the learned Respondent under section 263 of the Act. It was the contention of the Applicant before the Hon'ble ITAT that the order passed by the learned was neither erroneous nor prejudicial to the interest of the revenue. The Applicant at this juncture mentions that the Hon'ble ITAT considered and adjudicated on the one of the jurisdictional aspects of section 263 of the Act and reached the conclusion that the order passed by the learned Respondent was erroneous. 3. The Applicant submits that the Hon'ble ITAT inadvertently failed to consider the other jurisdictional condition of section 263 of the Act (.e. whether there was any prejudice to the interest of the revenue). The Applicant submits that it was categorically pointed out to the Hon'ble ITAT that even for the sake of argument without any presumption it is held for the moment that the Applicant ought to have reduced the interest expenditure of Rs. 3,54,00,000/- as held by the learned Respondent, there would be no impact on the assessed income of the Applicant for the year under consideration and the contemplated adjustment would not have any tax effect for the present assessment year. In other words, the Applicant humbly submitted to the Hon'ble ITAT that even if the order is considered to be erroneous, there would be no prejudice to the interest of the revenue since in such a scenario, the quantum of work in progress would reduce to the extent of Rs. 3,54,00,000/- having no impact on the assessed income for the year under consideration and the second jurisdictional condition was not satisfied in the present case vitiating the jurisdiction assumed by the learned Respondent under section 263 of the Act. In order to support the contention, the Applicant relied on the decision of a co-ordinate bench in the case of "Punjab Wool Syndicate vs. ITO" [2012] 27 taxmann.com 110 (Chandigarh). 3 MA.No. 216/MUM/2022 Panch Tatva Reality 4. The Applicant submits that the Hon'ble ITAT has not adjudicated the existence of the jurisdictional aspect as to whether the order passed by the learned Respondent under section 263 of the Act was prejudicial to the interest of the revenue even if it was considered as erroneous. The Applicant humbly submits that though the Hon'ble ITAT has merely reproduced the aforesaid decision of the coordinate bench in paragraph 5 of its order dated 18.04.2022, the Hon'ble ITAT has nowhere in the said order recorded an observation as to how the ratio of the said decision would not apply to the facts under consideration. 5. In the aforesaid backdrop, the Applicant with folded hands submits that the following two apparent errors have crept in the order dated 18.04.2022 which the Applicant humbly requests the Hon'ble ITAT to rectify: 6. The Applicant submits that non-adjudication of the vital issue going to the root of the matter is mistake apparent from record requiring rectification under section 254(2) of the Act. It is well settled that in order to assume jurisdiction under section 263 of the Act, an order must be erroneous as well as prejudicial to the interest of the revenue. It is also well settled that every error in an order cannot be considered as prejudice to the revenue. Thus, the Applicant submits that an inadvertent failure on the part of the Hon'ble ITAT to consider as to whether the order passed by the learned Respondent was prejudicial to the interest of the revenue or not which is one of the jurisdictional aspects going to the root of the matter is a mistake apparent from record in the present case requiring rectification. The Applicant strongly relies on the decision of the Hon'ble jurisdictional High Court in the case of "Sony Pictures Networks India Pvt. Ltd. Vs. Income Tax Appellate Tribunal, Mumbai Writ Petition No: 3508 of 2018". The relevant observations are as under: "9. The submission on the part of the revenue that no prejudice is caused as the entire issue has been restored to the assessing officer, who would also consider the character of the distribution fee is not correct. It is not the case of the revenue nor the order of the Tribunal that before the characterization of the fee can be decided, certain facts are to be ascertained. Thus, all facts to decide on the question of law was available with the Tribunal. In the above circumstances, the Tribunal ought to have dealt with the issue itself. By not dealing with an issue which is otherwise ripe for consideration and instead remanding to the TPO, the Tribunal has ensured further litigation and continued uncertainty for both the Revenue and the assessee. This 4 MA.No. 216/MUM/2022 Panch Tatva Reality observation of ours with regard to conduct of the Tribunal finds support in the decision of this Court in Coca-Cola India (P) Ltd Vs. Assistant Registrar representing Income Tax Appellate Tribunal, [2014] 368 ITR 487. The reliance upon an observation in the decision of this Court in Ramesh Electrical (supra) (without consideration of the context) to conclude that in every case, where a submission/ argument is not considered, rectification will not be the remedy available. The Tribunal ignored the fact that the above observation of this Court in Ramesh Electrical (supra) was on the basis that for a rectification application to be maintainable, the mistake should be apparent from the record. In this case, the mistake/error in not dealing with the fundamental submission in appeal is apparent from the record, as the submission that the distribution fee was not royalty was recorded and yet not dealt with in the order. Thus the decision of this Court in the case of Ramesh Electrical (supra), turned on its own peculiar facts and as held by the Supreme Court that a Judgment of the Court is not to be read as a statute. The factual background of the case is to be considered while applying the judgment and holding oneself bound by the rule of precedents. (Please see CCE, Calcutta Vs. Alnoori Tobacco Products1 and Escorts Ltd Vs. CCE, Delhi-112) 10. In view of the above position in facts and law, the Tribunal ought to have decided the issue of the character of distribution fees is royalty or not, as all facts were available before it and submissions also made, rather than remanding the issue to TPO Besides non consideration of the above basic submission made at the hearing as recorded, is clearly a mistake apparent from the record. The Tribunal ought to have allowed the rectification application dated 5.10.2017 and recalled the order dated 26.7.2017 for fresh consideration of the appeal." 7. The Applicant further submits that the Hon'ble ITAT did not deal with the decision of the coordinate bench in the case of "Punjab Wool Syndicate vs. ITO" [2012] 27 taxmann.com 110 (Chandigarh). During the course of the hearing, it was submitted that said decision holds that even if the order is considered to be erroneous, if there is no tax effect, the order cannot be considered to be prejudicial to the interest of the revenue. Though the said decision was relied upon before the Hon'ble ITAT for the aforesaid ratio, the Hon'ble ITAT has inadvertently failed to consider the same. The order dated 18.04.2022 nowhere mentions as to how the aforesaid decision relied upon by the Applicant was not 5 MA.No. 216/MUM/2022 Panch Tatva Reality applicable to the present case. The Applicant submits that it is well settled law that non- consideration of the binding decision of the co-ordinate bench results in a mistake apparent from record requiring rectification u/s 254(2) of the Act ("Honda Siel Power Products Ltd. Vs. CIT" [2007] 295 ITR 466 (SC)"). The Applicant requests the Hon'ble bench to rectify the said mistakes and oblige. 8. The Applicant submits that the said order dated 18.04.2022 came to the knowledge of the Applicant on 09.06.2022 and thus, the present miscellaneous application is well within time as per the provisions of section 254(2) of the Act. In light of the aforesaid facts and submissions, the Applicant therefore prays the Hon'ble ITAT to rectify the aforesaid mistakes and recall the order dated 18.04.2022 on a limited aspect for the adjudication of the applicability of the second jurisdictional condition as to whether the order passed by the learned Respondent was prejudicial to the interest of the revenue or not in the facts under consideration.” 3. On the other hand, Ld. DR objected to the submissions made by the assessee in the Miscellaneous Application and submitted that the ITAT has clearly brought on record that the interest payments made by the assessee were charged to the work-in-progress, however, the payment was made to its own related party. Therefore, ITAT has given a clear finding at Para No. 8 of the order and he submitted that the accepting the submissions of the assessee will lead to review of the order. 4. Considered the rival submissions and material placed on record, we observe that the assessee has capitalised the interest payment and charged the same to capital work-in-progress, however, it is fact on record that the interest payment was made to one of its members and 6 MA.No. 216/MUM/2022 Panch Tatva Reality even though assessee has not claimed any expenditure during this year. However, prima-facie it is evident on record that assessee has made the payment to one of the members of the AOP and it is not an allowable expenditure. Assessee is aware of the above fact and still capitalised the same to capital work-in-progress. No doubt assessee has not claimed any expenditure during the year, however, there will be an impact in the future Assessment Years wherein assessee will claim the above expenditure as an allowable expenditure. This fact is clearly brought in the order and there is no mistake apparent on record. Accordingly, Miscellaneous Application filed by the assessee is dismissed. 5. In the result, Miscellaneous Application filed by the assessee is dismissed. Order pronounced in the open court on 03 rd February, 2023. Sd/- Sd/- (AMIT SHUKLA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 03/02/2023 Giridhar, Sr.PS 7 MA.No. 216/MUM/2022 Panch Tatva Reality Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum