Income Tax Appellate Tribunal - Mumbai
Knight Frank (India) P.Ltd, Mumbai vs Assessee on 4 July, 2013
आयकर अपील य अ धकरण "ए" यायपीठ मंुबई म।
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "A", MUMBAI
ी बी. रामकोट य, लेखा सद य एवं ी ववेक वमा, या यक सद य के सम ।
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
आयकर अपील सं. : 2021/मम ु /2011
नधारण वष A.Y. 2007-08
ITA No. : 2021/Mum/2011
(Assessment year: 2007-08)
आयकर अपील सं. : 6286/मम ु /2011
नधारण वष A.Y. 2008-09
ITA No. : 6286/Mum/2011
(Assessment year: 2008-09)
M/s. Knight Frank (India) Pvt. vs Addl. CIT, Range 2(2),
Ltd., Aayakar Bhavan,
C/o. Kalyaniwalla & Mistry, M.K. Marg,
Army & Navy Building, Mumbai
3rd Floor, 148, M.G. Road,
Fort, Mumbai -400 001
थयी लेखा सं.:PAN: AAACK 1544 J
अपीलाथ (Appellant) यथ (Respondent)
Appellant by : Shri M.M. Golvala
Respondent by : Shri Kalik Singh
सनवाई
ु क तार ख /Date of Hearing : 04-07-2013
घोषणा क तार ख /Date of Pronouncement : 10-07-2013
आ दे श
ORDER
ववेक वमा, या स:
PER VIVEK VARMA, JM:
The two appeals are filed by the assessee against the orders of the CIT(A)15, dated 16.12.2010 and 13.07.2011 respectively. As the grounds no.1 to 5 taken are common in both the appeals, they are being taken up together for the sake of convenience and brevity.
2 M/s. Knight Frank (India) Pvt. Ltd.
ITAs 2021 & 6286/Mum/2011 Assessment year 2007-08:
2. Ground no. 1 to 4 pertain to issue of treating service tax as part of trading receipts and had to be included as per the provisions of section 145A.
3. In the assessment proceedings, the AO enquired from the assessee for the reasons as to why service tax is not to be included as per the provisions of section 145A. The assessee gave reasons for non inclusion of service tax in the cost of the components. The reasons did not find favour with the AO, who, enhanced the trading profit by Rs.
69,20,599/- and added the same to the income of the assessee.
4. The assessee approached the CIT(A), who sustained the order of the AO on the point of inclusion of service tax, invoking the provision of section 145A. It was submitted before the CIT(A) that provisions of section 145A does not apply to service industry.
5. The CIT(A) disregarded the arguments of the assessee, held, " ... clause(b) of the section very clearly brings within its ambit all taxes, duties, cess or fee by whatever name called. In the process of laying down the principles of determining the income chargeable under the head "Profits and Gains of Business or Profession, the clause stipulates that the Profit and Gains of Business or Profession, shall be "further adjusted to indicate the amount of any tax, duty, cess or fee (by whatsoever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation". The highlighted expression will make the legislative intention to include all taxes and levied within the ambit of sec. 145A eloquently clear in that by inserting the expression "by whatever name called", the section brings within its ambit all payments in the nature of tax, duty, cess or fee. In this light, there is no logic why service tax being a levy by way of tax will not be intended to be included in section 145A. In view of this, the Appellant's argument that service tax is not mentioned in sec. 145A is misplaced and immaterial. In this respect, the Assessing Officer has also rightly pointed out that the excise duty, VAT and other taxes are also not specifically mentioned but includible in sec. 145A. Further, the Appellant's argument that section 145A applies only to manufacturing and trading accompany is also off the mark as it is the taxes and leives which are central to section 145A and not the sector which collects and pays these taxes and levies. In this context, service tax stands on the same footing as excise duty, sales tax and 3 M/s. Knight Frank (India) Pvt. Ltd.
ITAs 2021 & 6286/Mum/2011 such other taxes which are collected to be paid to the Government".
6. Aggrieve, the assessee in now before the ITAT.
7. Before us, the AR pointed out that the issue has been dealt with by the Hon'ble Delhi High Court in the case of CIT vs Noble & Hewitt (I) Pvt. Ltd., reported in 305 ITR 324 and ACIT vs Real Image Media Technologies Pvt. Ltd. reported in 306 ITR 106 (AT-Chennai). In this case, the coordinate Bench held, "that service provider was merely acting as an agent of the Government and was not entitled to claim deduction on account of service tax. Since service tax was not payable by the assessee, rigour of section 43B of the Act could not be applied to the case of the assessee...". In effect, the mischief of sections 145A and 43B, does not hit the assessee, therefore the addition ought to be deleted.
8. The DR relied on the decisions of the revenue authorities.
9. We have heard the arguments and have perused the orders of the revenue authorities. The fact is that the assessee is a service provider company and patently, provisions of section 145A cannot be made applicable, because the provision was specifically introduced for the purposes of manufacture segment of business because section 145A(a)(ii) submitted before the CIT(A) mentions " ... by the assessee being goods to the place of location & conditions as on the date of valuation are required to be included".
10. In any case the issue is now covered by the decisions relied upon by the assessee.
11. Respectfully following the decisions, we set aside the order of the CIT(A) and direct the AO to delete the addition.
4 M/s. Knight Frank (India) Pvt. Ltd.
ITAs 2021 & 6286/Mum/2011
12. As a consequence thereof the addition made u/s 43B would also be deleted, because no liability arises as such or on the last day of the account period and is also covered by the decisions as mentioned above. The AO is also directed to delete the addition of Rs. 22,00,808/- as made u/s 43B. As a result grounds 1 to 5 are allowed.
13. Ground no. 6 pertains to addition of Rs. 1,20,583/- u/s 41(1) of the Act.
14. Aggrieved the assessee is now before the ITAT.
15. Before us, the AR submitted that in the assessment proceedings the AO had required the parties to send the balance verifications. The AO found differences in balances in respect to certain parties, which according to him reduced the liability of the assessee vis-à-vis those parties. The AO, therefore, invoked the provision of section 41(1) and added the difference of liabilities due to those parties to the income of the assessee.
16. The assessee approached the CIT(A), who sustained the order of the AO. While coming to such a decision, CIT(A) brings fore following facts, taking into consideration the decision arrived at by the AO and submissions made by the assessee, "6.2 During the course of assessment proceedings, notices u/s 133(6) of the ITA were issued to several parties for verification of expenses and confirmation of balances. After going through the details collected, an amount of Rs. 1,20,583/- was treated as Appellant's income in respect of various liabilities which have ceased to exist in view of reconciliation of accounts. This was treated as Appellant's income u/s 41(1) of the ITAT. In appeal, the following submissions were made:
"During the course of the assessment proceedings, the AO issued notices u/s 133(6) to several parties, and called for ledger accounts of the appellant and confirmation of balances from them. Thereafter the AO handed the ledger accounts to the appellant and asked the appellant to reconcile the balances as appearing in the books of the parties. The Appellant vide letters dated 7th December 2009, furnished the relevant reconciliations (Pages 28 to 79 of compilation) Thereafter, the Officer has unilaterally drawn inference that certain differences represented income for the appellant u/s 41(1). The additions have been made on sheer conjecture.
5 M/s. Knight Frank (India) Pvt. Ltd.
ITAs 2021 & 6286/Mum/2011 It is relevant to point out that no opportunity whatsoever was given by the Assessing Officer at the time of assessment proceedings to rebut the presumptions & conjectures drawn by him. At no time during the assessment proceedings did the officer call for an explanation for the differences. Had the Assessing Officer granted the Appellant adequate opportunity to justify the differences, it would have been explained to him that the conjectures drawn by him, and consequential additions are erroneous. Further, the appellant could have, in relevant cases, requested for cross-examination of the parties concerned".
6.3 I have considered the assessment order and the submissions of the Appellant. Looking into the nature of the liability and facts brought on record by the Assessing Officer, I agree with the Assessing Officer. To this end, I find that there were distinct discrepancies in the amount of the liability as booked by the Appellant and the other parties. These discrepancies have been clearly brought out by the Assessing Officer in para 7.1 of his order. They were not reconciled satisfactorily. As against this, the Appellant's explanation is too general. Accordingly, I find that for the reasons mentioned by the Assessing Officer, the liabilities have ceased to exist. The ratio of the decision in the case of CIT vs. Modern Farm Services 207 CTR 466 supports the Assessing Officer's case. Further, I find that the Assessing Officer had asked the Appellant to furnish the reconciliation and accordingly, it is incorrect to hold that no opportunity was given. In lines with the foregoing, the addition u/s 41(1) is confirmed and the ground of appeal is dismissed".
17. According to the AR, if the AO found difference in accounts, the AO should have confronted the assessee, this was not done and thus, the addition was in violation of natural justice.
18. We have heard the arguments, since the grievance of the assessee that the AO did not allow the cross examination of the parties, to the assessee, the prayer of the AR, to restore the issue to the AO, was not objected to by the DR.
19. In these circumstances, in the interests of justice, we restore the issue to the file of the AO, who shall re-examine the applicability of section 41(1) with respect to the parties named in the assessment order.
20. Ground no. 7 is consequential.
21. Ground no. 8 is not pressed, hence dismissed.
22. Appeal is, therefore, partly allowed 6 M/s. Knight Frank (India) Pvt. Ltd.
ITAs 2021 & 6286/Mum/2011 Assessment year 2008-09:
23. Grounds no. 1 to 5 of this appeal are identical as in assessment year 2007-08 and as dealt with by us in this order. Following the logical conclusion drawn and decision taken for assessment year 2007-08, we direct the AO to delete the addition.
24. As a result, grounds no. 1 to 5 of the assessee's appeal are allowed.
26. Appeal, is therefore allowed.
In the result Appeal filed by the assessee in assessment year 2007-08 is partly allowed and Appeal filed by the assessee in assessment year 2008-09 is allowed.
Order pronounced in the open Court on 10th July, 2013.
Sd/- Sd/-
(बी. रामकोट य) ( ववेक वमा)
लेखा सद य याईक सद य
(B. RAMAKOTAIAH) (VIVEK VARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 10th July, 2013
त/Copy to:-
7 M/s. Knight Frank (India) Pvt. Ltd.
ITAs 2021 & 6286/Mum/2011
1) अपीलाथ /The Appellant.
2) यथ /The Respondent.
3) The CIT (A)-1, Mumbai.
4) आयकर आयु त - DIT(E)/Concerned ... , Mumbai /The DIT(E)/Concerned.., Mumbai.
5) वभागीय त न ध "ए" , आयकर अपील य अ धकरण, मंुबई/ The D.R. "A" Bench, Mumbai.
6) गाड फाईल Copy to Guard File.
आदे शानसार ु /By Order [ उप/सहायक पंजीकार आयकर अपील य अ धकरण, मंुबई Dy./Asstt. Registrar I.T.A.T., Mumbai *च हान व. न.स *Chavan, Sr. PS