Income Tax Appellate Tribunal - Ahmedabad
A. Menarini India Pvt. Ltd. ( Formerly ... vs Assessee on 31 August, 2016
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'बी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" B " BENCH, AHMEDABAD
सव ी राजपाल यादव, या यक सद य एवं अ नल चतव
ु द , लेखा सद य के सम ।
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
And SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No.1461/Ahd/2015
( नधा रण वष / Assessment Year : 2010-11)
A.Menarini India Pvt.Ltd. बनाम/ The Principal
( Formerly known as M/s.Invida Vs. Commissioner of
India Pvt.Ltd. ) Income Tax-1
B-801, Safal Pegasus Ahmedabad
Prahalad Nagar Road
Anandnagar Road
Ahmedabad-380 015
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAACI 9822 K
(अपीलाथ& /Appellant) .. ('(यथ& / Respondent)
अपीलाथ& ओर से / Appellant by : Shri N.B. Shah, AR
'(यथ& क* ओर से/Respondent by : Shri James Kurian, Sr.DR
ु वाई क* तार ख /
सन Date of Hearing 29/07/2016
घोषणा क* तार ख /Date of Pronounce ment 31/08/2016
आदे श / O R D E R
PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER :
This appeal by the Assessee is directed against the order of the Principal Commissioner of Income Tax-1, Ahmedabad dated 31/03/2015 for the Assessment Year (AY) 2010-11 passed u/s.263 of the Act.
ITA No.1461/Ahd/2015A. Menarini India Pvt.Ltd. vs. The Pr.CIT Asst.Year - 2010-11 -2-
2. The relevant facts as culled out from the materials on record are as under:-
2.1. Assessee is a company stated to be engaged in the business of trading in pharmaceutical products on wholesale basis. Assessee filed its return of income for AY 2010-11 on 30/09/2010 declaring total income of Rs.7,66,12,650/-. The case was finalized u/s.143(3) vide order dated 28/03/2013 and the total income was determined at Rs.10,68,65,351/-.
Thereafter, on examination of the assessment records, ld.CIT noticed that as per computation of income assessee had claimed TDS of Rs.3,16,99,286/- as against the professional income of Rs.29,19,49,163/- shown by the assessee in the Profit & Loss A/c. (P&L A/c.). As per ld.CIT, on the basis of TDS certificates, the gross income should have been Rs.31,69,92,860/- and thus according to ld.CIT assessee had shown less income to the extent of Rs.2,50,43,697/- (Rs.31,69,92,860 - Rs.29,19,49,163). He accordingly issued notice to the assessee asking to show-cause as to why appropriate order u/s.263 of the Act be not passed. In response to notice, assessee inter-alia submitted that the inference drawn by ld.CIT of showing less income to the extent of Rs.2.5 crores (rounded off) is factually incorrect because the TDS was deducted on the amount of bill including service tax. Since service tax was not the income of the assessee, assessee was not crediting or debiting service tax to its P&L A/c. Assessee also inter-alia objected to the initiation of ITA No.1461/Ahd/2015 A. Menarini India Pvt.Ltd. vs. The Pr.CIT Asst.Year - 2010-11 -3- proceedings u/s.263 of the Act. The submission of the assessee was not found acceptable to ld.CIT. He held that assessee had not disclosed the income corresponding to the amount of TDS claim of Rs.3,32,94,191/-. He also held that AO while computing the assessment had not charged interest u/s.220(2) to the tune of Rs.6,59,919/- and therefore the order of AO was prejudicial to the interest of the Revenue. He accordingly cancelled the order passed u/s.143(3) of the Act by the AO dated 28/03/2013 and directed the AO to make fresh assessment of the total income. Aggrieved by the order of ld.CIT, assessee is now in appeal before us and has raised following grounds:-
1. a) The learned Principal Commissioner of Income Tax-1, Ahmedabad has erred in law and on facts of the case in assuming jurisdiction u /s. 263 of the Income Tax Act and passing the order under that Section whereby by he has cancelled the assessment order u/s. 143(3) dated 28/03/2013 passed by the Deputy Commissioner of Income Tax, Circle 4, Ahmedabad by capriciously holding that the assessment order is erroneous and prejudicial to the interest of the revenue.
b) The learned Principal Commissioner of Income Tax-1, Ahmedabad has erred in law and on facts of the case in passing the impugned order on the premises of assumption, presumption, surmises and conjectures that since the appellant assessee has claimed credit for TDS amounting to Rs.3,16,99,286/- the corresponding income relating to such TDS should be Rs.31,69,92,860/- against which the appellant has disclosed receipts of Rs.29,19,49,163/- and thus the appellant assessee has understated its income to the extent of Rs.2,50,43,697/-.
ITA No.1461/Ahd/2015A. Menarini India Pvt.Ltd. vs. The Pr.CIT Asst.Year - 2010-11 -4- The learned Principal Commissioner of Income Tax-1, Ahmedabad has erred in law and on facts of the case in passing the impugned order without appreciating the fact that while making the payments to the appellant assessee towards the professional fees, the deductor company has also made TDS from the service tax charged by the appellant on the invoices of the deductor company and that the service tax so collected by the appellant is not revenue receipt or income chargeable to tax in the hands of the appellant company and therefore the same is not includible in the income of the appellant company. Thus, in reality, there is no understatement of income of Rs.2,50,43,697/- as alleged in the impugned order.
The learned Principal Commissioner of Income Tax-1, Ahmedabad has erred in law and on facts of the case in passing the impugned order in utter disregard to the fact that the service tax totaling to Rs.3,00,70,763/- from which the payer has deducted tax at source is not includible in the total income of the appellant company and that the appellant company has not included the same in the receipts and also that the appellant has not separately claimed deduction for the service tax by separately debiting it to the Profit & Loss Account.
The learned Principal Commissioner of Income Tax-1, Ahmedabad has erred in law and on facts of the case in passing the impugned order without appreciating the fact that in the course of assessment proceedings for A.Y. 2010-11, the AO has made detailed enquiries and the issue with respect to the income from all operations were called for by the AO along with necessary evidence.
The learned Principal Commissioner of Income Tax-1, Ahmedabad has erred in law and on facts of the case in passing the impugned order ignoring the fact that as per Sr. No. 37 of the questionnaire, the AO has asked the appellant "to furnish the details in respect of income from all operations along with necessary evidence" and incompliance therefore the appellant had vide written submission dated 27/11/2012 furnished the requisite information. Thus, the issue with respect to the professional receipts from which TDS of Rs.3,16,99,286/- was made has ITA No.1461/Ahd/2015 A. Menarini India Pvt.Ltd. vs. The Pr.CIT Asst.Year - 2010-11 -5- also been duly considered and verified by the Assessing Officer in the course of assessment proceedings.
It is therefore prayed that the impugned order may please be cancelled.
2. a) The learned Principal Commissioner of Income Tax-1, Ahmedabad has erred in law and on facts of the case in passing the impugned order on the ground that while completing the assessment, the AO has not charged interest u/s. 220(2) of the I.T. Act to the tune of Rs.6,59,919/-.
b) The learned Principal Commissioner of Income Tax-1, Ahmedabad has erred in law and on facts of the case in passing the impugned order in 1 utter disregard to the fact that interest u/s. 220 (2) is chargeable only if and when the demand specified in the notice u/s. 156 is not paid within the specified time of 30 days. The Pr. CIT failed to appreciate that the issue of charging interest u/s. 220(2) does not arise at the stage of passing the assessment order u/s. 143(3) but arises only when the assessee fails to pay the demand raised as per the assessment order within the stipulated time. There is no provision in the Income Tax Act for charging interest u/s. 220(2) before the demand has fallen due for payment. Therefore, there is no error in the assessment order u/s. 143(3) dated 28/03/2013 in so far as the issue of charging the interest u/s. 220(2) is concerned.
c) The learned Principal Commissioner of Income Tax-1, Ahmedabad has erred in law and on facts of the case in passing the impugned order for not charging the interest u/s. 220(2) in the assessment order itself in utter disregard to the fact that as a result of the appellate order passed by the CIT(A) dated 20/02/2015, the entire demand raised as per the assessment order has been reduced to nil.
It is therefore prayed that the impugned order may please be cancelled.
3. a) The learned Principal Commissioner of Income Tax-1, Ahmedabad has erred in law and on facts of the case in passing the impugned order holding that the assessment order was made without ITA No.1461/Ahd/2015 A. Menarini India Pvt.Ltd. vs. The Pr.CIT Asst.Year - 2010-11 -6- appreciating the provisions of law correctly and the income of the assessee was assessed after allowing in admissible deductions without pinpointing in the impugned order any item of deduction that is inadmissible but has been allowed by the AO. In point of fact, against the returned income of Rs.7,66,12,650/-, the Assessing Officer has made assessment on total income of Rs.10,68,65,351/- after making addition/disallowance of Rs.3,02,52,701/-.
b) The learned Principal Commissioner of Income Tax-1, Ahmedabad has erred in law and on facts of the case in passing the impugned order without appreciating the fact that the Assessing Officer had made proper enquiries before passing the assessment order u/s. 143(3) dated 28/03/2013, notice u/s. 143(2) was issued on 24/08/2011 and detailed questionnaire and notice u/s. 142(1) were issued and the Assessing Officer had made enquiries in accordance with the provisions of the Income Tax Act. The claim of credit for tax deducted at source and the corresponding income relating to such TDS was also examined by the AO in the course of assessment proceedings.
It is therefore prayed that the impugned order may please be cancelled.
4. The learned Principal Commissioner of Income Tax-1, Ahmedabad has erred in law and on facts of the case in passing the impugned order in utter disregard to the fact that the issue with respect to quantification of total income for A.Y. 2010-11 was a subject matter of appeal before the CIT (Appeals), who has passed appellate order dated 25/02/2015. Thus, the issue relating to quantification of the total income of the appellant assessee for A.Y. 2010-11 has already merged with the appellate order passed by the CIT(A) and therefore the Pr. Commissioner of Income Tax is not justified in exercising revisionary power u/s. 263 in respect of an assessment order which has already merged with an appellate order passed by the CIT(Appeals) which included the issue relating to determination of the total income.
3. At the time of hearing it was pointed to ld.AR that the grounds raised by the assessee are not in consonance with Rule 8 of the Income ITA No.1461/Ahd/2015 A. Menarini India Pvt.Ltd. vs. The Pr.CIT Asst.Year - 2010-11 -7- Tax (Appellate Tribunal) Rules 1963 as they are descriptive and argumentative in nature to which ld.AR submitted that though the assessee has raised various grounds, the sole controversy which is to be decided is about the invocation of the revisionary powers vested u/s.263 of the Act. Considering the submission of ld.AR, we proceed to dispose of the appeal.
3.1. Before us, ld.AR submitted that in the present case the prerequisite conditions specified u/s.263 of the Act were not satisfied and therefore the proceedings u/s.263 lacks jurisdiction and are bad in law. He further submitted that the initiation of revisionary proceedings has been initiated at the instance of audit party objections. He further submitted that the assessment order has been passed after proper verification of the facts and the evidences produced by the AO and there is no loss of Revenue to the exchequer as alleged by ld.CIT in the order passed u/s.263 of the Act. He further submitted that before passing the order u/s.143(3), the AO had issued detailed notice and questionnaire and called for the details and the assessee had also replied to the queries raised in questionnaire and after verifying the contention of the assessee, the income was accepted by the AO. On the merits, ld.AR reiterated the submissions made before the ld.CIT and further submitted that with respect to the service income, the assessee was charging service tax @10.3% on the bills raised by it. The assessee was also raising debit notes for reimbursement of expenses. The ITA No.1461/Ahd/2015 A. Menarini India Pvt.Ltd. vs. The Pr.CIT Asst.Year - 2010-11 -8- recipient of the services were deducting TDS on the gross amount which included service tax and were also deducting TDS on the reimbursement of expenses. He submitted that assessee was following mercantile system of accounting wherein on the basis of invoices raised, the income was booked at the time of raising of invoice itself and the payments was received later on and in such situation the question of not recognizing the revenue did not arise. He further submitted that the service tax collected by the assessee does not constitute income chargeable to tax and therefore the amount of service tax was rightly excluded by the assessee in its Profit & Loss A/c. while crediting the professional service income. He submitted that the assessee was consistently following the same accounting method even in earlier years and no addition was made to the professional income in earlier years. With respect to charging of interest u/s.220(2) of the Act he submitted that section 220(2) comes into play only in a case where there is failure on the part of the assessee to pay the amount specified as tax payable in a notice of demand issued u/s.156 of the Act. In the present case for AY 2010-11, at the time of passing the assessment order u/s.143(3) of the Act there was no tax payable by the assessee pursuant to notice of demand issued u/s.156 of the Act or an intimation issued u/s.143(1) for that year and therefore the question of charging of any interest u/s.220(2) at the time of passing of order u/s.143(3) does not arise. He therefore, submitted that the order passed by the ld.CIT needs to be set aside both on the ground of jurisdiction and ITA No.1461/Ahd/2015 A. Menarini India Pvt.Ltd. vs. The Pr.CIT Asst.Year - 2010-11 -9- even on merits. Ld.Sr.DR, on the other hand supported the order of AO and ld.CIT.
4. We have heard the rival submissions and perused the material on record. The issue in the present case is about the invoking of provisions of Section 263 by ld. CIT.
4.1. Section 263(1) of the Act, the powers under which ld. CIT has assumed power for revision reads as under:
"The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the ITO is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment."
4.2. The reading of the above provisions makes it very clear that the power of suo motu revision u/s 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision u/s 263, namely (i) the order is erroneous (ii) by virtue of being erroneous prejudice has been caused to the interests of the Revenue.
4.3. In the present case, it is seen that Section 263 has been invoked by ld.CIT on two grounds namely assessee had not offered the income ITA No.1461/Ahd/2015 A. Menarini India Pvt.Ltd. vs. The Pr.CIT Asst.Year - 2010-11
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corresponding to the claim of TDS made by Assessee and AO had not charged interest u/s.220(2) of the Act.
4.4. In the present case, we find that during the course of assessment proceedings AO had raised a specific query wherein the assessee was asked to furnish the details of income from all operations alongwith the necessary evidences. The query was replied by the assessee . It is seen that on receipt of reply from Assessee, no adjustment to the sales was made by AO meaning thereby that the AO was satisfied with the reply of assessee. Thus, it can be seen that the issue of not offering the sales income to tax on which ld. CIT has resorted to revisionary proceedings u/s. 263 of the Act, had been examined by the AO.
4.5. As far as the 2nd issue namely charging of interest u/s.220(2) is concerned, there is nothing on record to demonstrate that at the time of passing of order u/s.143(3) of the Act, there was any tax that was payable by the assessee pursuant to the notice u/s.156 of the Act and that there was failure on the part of assessee to pay the tax.
4.6. On the issue of what orders can be termed as erroneous and prejudicial to the interest of Revenue, we would like to refer to the decision of Hon'ble Bombay High Court in the case of CIT vs. Gabrial India Ltd (1993) 203 ITR 108 (Bom) where the Hon'ble Bombay High Court has held as under:-
"An order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because according to him the order should have been written more elaborately. This ITA No.1461/Ahd/2015 A. Menarini India Pvt.Ltd. vs. The Pr.CIT Asst.Year - 2010-11
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section does not visualise a case of substitution of judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and, left to the Commissioner, he would have estimated the income at a higher figure than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interest of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interest of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be subject-matter of revision because the second requirement also must be fulfilled."
4.7. We also find that Hon'ble Apex Court in the case of CIT vs. Max India Ltd. 295 ITR 282 (SC) had held that where two views are possible and ITO has taken one view which ld. CIT does not agree the order of A.O cannot be treated as erroneous order prejudicial to the interest of Revenue unless the view taken by the A.O is unsustainable in law. 4.8 Before us, Revenue has not brought any material on record to demonstrate that the view taken by the A.O was an impermissible view, or was contrary to law or was upon wrong application of legal principles which required initiating the exercising of revisionary powers u/s. 263 of ITA No.1461/Ahd/2015 A. Menarini India Pvt.Ltd. vs. The Pr.CIT Asst.Year - 2010-11
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the Act. In view of the aforesaid facts and in the light of the decisions cited hereinabove, we are of the view that in the present case Ld. CIT was not justified in resorting to revisionary powers u/s. 263 of the Act, we therefore set aside the order of CIT cancelling the order dated 28/03/2013 passed u/s. 143(3) of the Act. Thus, the grounds of the Assessee are allowed.
5. In the result, the appeal of Assessee is allowed.
This Order pronounced in Open Court on 31/08/2016
Sd/- Sd/-
राजपाल यादव अ नल चतव
ु द
( या यक सद य) (लेख ा सद य)
(RAJPAL YADAV) ( ANIL CHATURVEDI )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 31/ 08 /2016
ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS
आदे श क त"ल#प अ$े#षत/Copy of the Order forwarded to :
1. अपीलाथ& / The Appellant
2. '(यथ& / The Respondent.
3. संब5ं धत आयकर आय7
ु त / Concerned CIT-2, Ahmedabad
4. Pr.आयकर आय7
ु त / The Pr.CIT-1, Ahmedabad
5. 8वभागीय ' त न5ध, आयकर अपील य अ5धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स(या8पत ' त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad