Income Tax Appellate Tribunal - Mumbai
Piramal Enterprises Ltd , vs Assessee on 15 July, 2016
आयकर अपील य अ
धकरण "C"
यायपीठ मुंबई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI
BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER
AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
SA No. 216/Mum/2016
Arising out of ITA No. 3536/Mum/2016
Assessment Year 2011-12
M/s Piramal Enterprises Income Tax Officer - 7(1)(2),
Limited, Mumbai.
(As successors to PHL Holdings
Pvt. Ltd.,-PAN AABCP6125D), v.
Piramal Tower,
Ganpatrao Kadam Marg,
Lower Parel (West),
Mumbai - 400 013.
PAN AAACN4538P
Applicant Respondent
Applicant by Shri Madhur Agarwal
Respondent by Shri Ajay Pandey
Date of Hearing : 15-07-2016
Date of Pronouncement : 15-07-2016
ORDER
Per Ramit Kochar, Accountant Member :
By this Stay Application vide SA No. 216/Mum/2016 arising out of ITA No. 3536/Mum/2016 for the assessment year 2011-12, the assessee company (as successor to PHL Holdings Private Limited) has sought stay of operations of the order u/s 263 of the Income Tax Act, 1961(hereinafter called "the Act") passed by the learned Principal Commissioner of Income Tax-7,Mumbai dated 30th March, 2016 against M/s PHL Holding Private Limited ( now known as Piramal Enterprises Limited ) so as to restrain the learned assessing officer (hereinafter called "the AO") till the disposal of appeal by the Income Tax 2 SA No.216/Mum/2016 (Arising out of ITA No. 3536/Mum/2016) Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") from passing any assessment order u/s 143(3) read with Section 263 of the Act based on the directions given by the learned Principal Commissioner of Income Tax-7 , Mumbai in the said order dated 30-03-2016 passed u/s 263 of the Act , or in the alternate the early hearing before the Tribunal be fixed and appeal filed by the assessee company (as successor to PHL Holdings Private Limited) in ITA No.3536/Mum/2016 against the orders of learned Principal Commissioner of Income Tax-7,Mumbai dated 30th March, 2016 u/s 263 of the Act be disposed off at the earlier convenience of the Tribunal.
2. It is the say of the learned counsel for the assessee company that the assessee company has already filed an appeal with the Tribunal on 20th May, 2016 against the order u/s 263 of the Act passed by the ld. Principal CIT dated 30th March, 2016 declaring the assessment order passed by the AO dated 31- 01-2014 u/s 143(3) of the Act as erroneous and prejudicial to the interest of the Revenue and directing the A.O. to revise his assessment order passed u/s 143(3) of the Act dated 31st January, 2014 on the issues discussed in the order dated 30-03-2016 passed by the ld. Principal CIT u/s. 263 of the Act. It was submitted by the learned counsel for the assessee company that if the A.O. is not restrained from passing the assessment order u/s 143(3) r.w.s. 263 of the Act, it would lead to unjust harassment to the assessee company as high pitched assessment and consequently tax demands are likely to be raised by the A.O. and there will be multiplicity of proceedings which the assessee company will have to face in consequence thereof. It is the say of the learned counsel of the assessee company that M/s PHL Holding Private Limited ( now known as Piramal Enterprises Limited ) had filed the return of income u/s. 139(1) of the Act on 30th September, 2011 declaring total income of Rs. 94,400/-, which were accepted by the Revenue vide assessment framed u/s 143(3) of the Act vide assessment order u/s. 143(3) of the Act dated 31-01- 2014 . It is further submitted by the learned counsel for the assessee company in stay application that show cause notices were issued u/s 263 of 3 SA No.216/Mum/2016 (Arising out of ITA No. 3536/Mum/2016) the Act proposing to revise the order dated 31-01-2014 of the A.O. passed u/s 143(3) of the Act on the following issues:-
"1. Irregular allowance by the AO of interest income amounting to Rs. 1,36,24,110/- by netting off interest income against the interest expenses for the purpose of section 14A r.w.r 8D of the Income Tax Rules, 1962 ("the Rules");
2. Non examination by the AO of the value of investment in shares of M/s. Piramal Life Sciences Limited ("PLSL") reflecting in the balance sheet as on March 31, 2011 as against the value of shares of PLSL reflecting in the balance sheet before amalgamation as on March 31, 2010;
3. Non examination by the AO of non-reflection of shares in certain companies, which are also not reflected in the computation of income as sold during the previous year, which according to the Id. Pr. CIT, should have appeared in the investment schedule to the balance sheet as on March 31, 2011; and
4. Irregular allowance by the AO of the amount of Rs. 3556,33,88,851/- being directly credited to general reserve instead of profit or loss account resulting in lower amount of book profit for the purpose of section 115JB of the Act and thereby underassessment of income to that extent."
It is the say of the learned counsel for the assessee company that the learned Principal Commissioner of Income Tax-7,Mumbai vide orders u/s 263 of the Act dated 30th March, 2016 has passed an order by holding as under :-
"As regards Point 1 of SCN:
• The AO has not examined the nature of the interest expenses and sources of the interest income.
• The AO has not examined the allowance of netting off interest and the nature and nexus of netting off interest properly for disallowance u/s 14A of the Act.
• The AO is directed to examine the allowability of netting off interest for disallowance u/s l4A r.w.r. 8D of the Rules. As regards Point 2 and Point 3 of SCN:4 SA No.216/Mum/2016
(Arising out of ITA No. 3536/Mum/2016) • The AO has not examined and compared the balance sheet before and after amalgamation, thereby not taking cognizance of the investments and assets transferred as at 1.4.2010 and 31.03.2011.
• The AO has not caused the necessary enquiries which were warranted on the various items in the relevant investment schedule of the balance sheets of the concerned companies.
• The AO is directed to examine the balance sheets before and after amalgamation, chart submitted by the Applicant during the revision proceedings and is directed to examine the assets/investments have been transferred and duly accounted for as per the scheme of amalgamation / arrangement sanctioned by the Hon'ble High Court effective from 01.04.2010.
As regards Point 4 of SCN:
• The AO has not examined the credit of revaluation of shares to the general reserve at all and its impact of the book profits as per provisions of section 115JB of the Act.
• The AO is directed to ensure that the above accounting treatment is keeping with the requirements of clause (viii)(a) of part Il of Schedule VI of the Companies Act, 1956.
• The AO is directed to examine the issue of determination of book profit u/s 115JB of the Act".
It was submitted by the learned counsel for the assessee company that the operations of the order u/s 263 of the Act dated 30th March, 2016 passed by the ld. Principal CIT may be stayed otherwise if the A.O. passes an assessment order u/s 143(3) read with Section 263 of the Act in line with the directions of the ld. Principal CIT as contained in her orders dated 30-03-2016 passed u/s 263 of the Act, a high pitched assessment and consequently tax demands may be raised against the assessee company(as successor to M/s PHL Holding Private Limited) which will lead to un-necessary harassment of the assessee company and also lead to multiplicity of proceedings as already orders u/s 263 passed by learned Principal Commissioner of Income Tax-7,Mumbai vide orders dated 30th March, 2016 holding AO assessment order dated 31-01-2014 u/s 143(3) of the Act to be erroneous and prejudicial to the interest of Revenue 5 SA No.216/Mum/2016 (Arising out of ITA No. 3536/Mum/2016) and directions contained therein to the AO are under challenge before the Tribunal and if the Tribunal quashes the order dated 30-03-2016 passed u/s 263 of the Act, the assessment order u/s 143(3) read with Section 263 of the Act will not survive. It is stated before us by the learned counsel for the assessee company that as per the amended provisions of section 153(3) of the Act , the time barring for framing assessment u/s 143(3 )read with Section 263 of the Act by the AO in the instant case is latest by 31st December, 2016. Thus, it was prayed to grant stay against the operation of the order dated 30- 03-2016 passed u/s 263 of the Act by the ld. Principal CIT. The ld. Counsel submitted that the Tribunal has powers u/s 254(2A) of the Act to grant stay on the proceedings as held by the Hon'ble AP High Court in the case of ITO v. Khalid Mehdi Khan, [1977] 110 ITR 79 (Andhra Pradesh) as well as Hon'ble Delhi High Court in the case of CIT v. Income Tax Appellate Tribunal, [2013] 31 taxmann. Com 369 (Delhi).
3. The ld. D.R. submitted that the two above decisions of the Hon'ble High Courts cited by the assessee company are not binding on the Tribunal as these are not jurisdictional High Court decisions by referring to decision of Hon'ble Bombay High Court in the case of CIT v. Thane Electricity Supply Limited (1994) 206 ITR 727(Bom.).
4. We have heard the rival contentions and also perused the material available on record. We have observed that the assessment u/s 143(3) of the Act was framed by the A.O. on 31st January, 2014 against M/s PHL Holding Private Limited( now known as Piramal Enterprises Limited) . The ld. Principal CIT invoked the provisions of section 263 of the Act and passed the orders u/s 263 of the Act dated 30th March, 2016 by holding as under :
" 16. I am , therefore, of the considered view that in the light of the facts of the case and the judicial precedents as discussed above, the assessment order passed by the AO is erroneous and prejudicial to the interest of revenue. I, thus, set aside the assessment order and direct the AO 6 SA No.216/Mum/2016 (Arising out of ITA No. 3536/Mum/2016) examine and verify the netting off interest for the purposes of calculation of disallowance u/s. 14A read with rule 8D, non-reflection of investments and gain/income thereof as a consequence of scheme of amalgamation and Crediting of reserves directly to the general reserves in the balance sheet without routing through the profit and loss account created upon amalgamation for the computation of book profits u/s. 115JB of the Act. In the light of the observations made above, the AO is directed to examine the facts of the case and arrive at the income of the assessee in accordance with provisions of law. The AO should pass the order after according reasonable opportunity of being heard to the assessee."
The assessee company (as successors to PHL Holdings Private Limited) has filed an appeal with the Tribunal against the order dated 30-03-2016 passed u/s 263 of the Act by the learned Principal Commissioner of Income Tax- 7,Mumbai , being ITA No. 3536/Mum/2016 whereby the assessee company has raised as many as six grounds challenging legality and validity of the afore- stated order dated 30-03-2016 passed u/s 263 of the Act , which are as under:-
"GROUND NO. I: ORDER U/S 263 OF THE ACT IS BAD IN LAW BEING CONTRARY TO THE PRINCIPLES OF NATURAL JUSTICE:
1. On the facts and circumstances of the case and in law, the Id. Pr.
CIT erred in passing the impugned order u/s 263 of the Act without giving any opportunity of hearing to the Appellant and thereby violating the principles of natural justice.
2. The Appellant prays that the order passed u/s 263 of the Act in violation of principles of natural justice be quashed as bad in law.
WITHOUT PREJUDICE TO GROUND NO. I GROUND NO. II : ORDER U/S 263 OF THE ACT IS VOID AB INITIO AND BAD IN LAW:
7 SA No.216/Mum/2016(Arising out of ITA No. 3536/Mum/2016)
1. On the facts and circumstances of the case and in law, the Id. Pr.
CIT erred in invoking the provisions of section 263 of the Act and setting aside the order u/s 143(3) of the Act passed by the Income - tax Officer -7(1)(2), Mumbai (' the AO") and directing the AO to pass a fresh order after examination of the facts of the case.
2. Ld. Pr. CIT failed to appreciate that:
i. both the pre-requisites i.e. (a) the assessment order being erroneous and (b) the assessment order being prejudicial to the interest of the revenue, are not satisfied in the facts of the present case;
ii. The AO has made adequate enquiries on issues in respect of which impugned order has been passed;
iii. In any case, mere inadequate enquiry is not a sufficient ground for revision u/s. 263 of the Act; and iv. where the view of the AO is a possible view, revision u/s. 263 is bad in law.
3. The Appellant prays that it be held that the assessment order passed by the AO is not erroneous and prejudicial to the interest of revenue and accordingly the action of the Id. Pr. CIT of invoking provisions of section 263 of the Act and directing the AO to verify and examine the facts of the case and to pass a fresh assessment order be held void and bad in law.
WITHOUT PREJUDICE TO GROUND NO. I AND II:
GROUND NO. III: NETTING OFF INTEREST FOR THE PURPOSE OF DISALLOWANCE U/S 14A OF THE ACT:
1. On the facts and circumstances of the case and in law, the Id. Pr. CIT erred in exercising jurisdiction u/s 263 of the Act and directing the AO to examine the allowability of netting of interest for disallowance u/s 14A of the Act r.w.r 8D of the Income Tax Rules, 1962 ("the Rules").
2. Ld. Pr. CIT failed to appreciate that:
i. the AO had called for the working of disallowance u/s 14A of the Act during assessment proceedings and passed the assessment order after application of mind;8 SA No.216/Mum/2016
(Arising out of ITA No. 3536/Mum/2016) ii. the working has been consistently accepted by the AO from AY 2009-10 to AY 2013-14; and iii. the netting of interest is in computing the disallowance u/s 14A r.w.r. 8D of the Rules is in consonance with the decisions of the Tribunals.
3. The Appellant prays that the direction to AO to examine the allowability of netting interest for disallowance u/s 14A of the Act r.w.r 8D of the Rules be deleted.
WITHOUT PREJUDICE TO GROUND NO. I AND II:
GROUND NO. IV: NON REFLECTION OF INVESTMENTS AND INCOME/GAIN THEREOF:
I. On the facts and circumstances of the case and in law, the Id. Pr. CIT erred in exercising jurisdiction u/s 263 of the Act and directing the AO to examine the balance sheets before and after amalgamation on the alleged ground that the AO has not examined the investments and assets transferred as at April 1,2010 and March 31, 2011.
2. Ld. Pr. CIT failed to appreciate and ought to have held that the AO has duly examined the said issue during the course of assessment proceedings.
3. Ld. Pr. CIT erred in not appreciating that investments have been reflected in the books as per the Order of the Hon'ble Bombay High Court approving the Scheme of amalgamation.
4. Ld. Pr. CIT failed to appreciate that these items have no bearing on the income of current year and, hence, in any view of the matter, the AO's order cannot be said to be erroneous and prejudicial to the interest of the revenue.
5. The Appellant prays that the direction to examine the balance sheets before and after amalgamation be deleted.
WITHOUT PREJUDICE TO GROUND NO. I AND 11:
GROUND NO. V: COMPUTATION OF BOOK PROFITS U/S. 115JB OF THE ACT:9 SA No.216/Mum/2016
(Arising out of ITA No. 3536/Mum/2016) I. On the facts and circumstances of the case and in law, the Id. Pr. CIT erred in directing the AO to examine the credit of revaluation of shares to the general reserve and its impact on the book profits as per provisions of section 115JB of the Act and to ensure that the above treatment meets requirement of clause (viii)(a) of part II of Schedule VI of the Companies Act, 1956.
2. Ld. Pr. CIT failed to appreciate that:
I. the creation of general reserve by virtue of the accounting treatment prescribed in the Scheme of amalgamation sanctioned by the Hon'ble Bombay High Court do not have any impact on book profit as it was created by debiting the Asset accounts and not by way of debit to Profit and Loss Account;
11. the accounts are prepared in accordance with the provisions of the Companies Act, 1956 and has been approved by the Statutory Auditor and therefore the AO has no jurisdiction to make any addition/subtraction to the book profit other than items mentioned in the Explanation to section 115JB of the Act;
Ill. Clause (viii)(a) of Part II of Schedule VI of the Companies Act, 1956 is not applicable and has no relevance in respect of revaluation of shares on amalgamation; and IV. the AO has taken one of the possible view, and hence revision u/s 263 of the Act is not warranted.
3. The Appellant prays that the direction to examine the general reserve and its impact on the book profits as per provisions of section 115JB of the Act be deleted.' It has been stated by the ld. Counsel for the assessee company before us that the AO has already initiated action and commenced proceedings in order to frame assessment u/s 143(3) r.w.s. 263 of the Act in pursuance of directions contained in orders dated 30-03-2016 passed u/s 263 of the Act by the learned Principal Commissioner of Income Tax-7,Mumbai . The learned counsel for the assessee company stated that as per section 153(3) of the Act as amended by Finance Act, 2016, the assessment order has to be 10 SA No.216/Mum/2016 (Arising out of ITA No. 3536/Mum/2016) passed by the A.O. u/s 143(3) read with Section 263 of the Act latest by 31st December, 2016. It was submitted that high pitched assessment is likely to be framed by the Revenue against the assessee company u/s 143(3) r.w.s. 263 of the Act which will lead to harassment of the assessee company as well multiplicity of the proceedings as already the assessee company has challenged before the Tribunal vide ITA no. 3536/Mum/2016 , the orders dated 30-03-2016 passed u/s 263 of the Act by the learned Principal Commissioner of Income Tax-7,Mumbai , whereby the assessee company has challenged the legality and validity of the order dated 30-03-2016 passed u/s 263 of the Act vide grounds of appeals raised in memo of appeal filed with the Tribunal which are also set out above in preceding para's of this order. It was submitted that if the orders dated 30-03-2016 u/s 263 of the Act passed by the learned Principal Commissioner of Income Tax- 7,Mumbai are quashed by the Tribunal , then the assessment order u/s 143(3) read with Section 263 of the Act passed by the AO will not survive and it will be a futile and multiple litigations which the assessee company will have to undergo and hence the stay application be allowed.
On the other hand perusal of the assessment order dated 31-01-2014 passed by the AO u/s 143(3) of the Act reveals that it is an cryptic order whereby there is no discussions on the issues which were subsequently covered by the learned Principal Commissioner of Income Tax-7,Mumbai in her orders u/s 263 of the Act dated 30th March, 2016. No paper book has so far been filed by the assessee company to lead evidences with respect thereto related to the original assessment proceedings. Further , perusal of the orders u/s 263 of the Act dated 30-03-2016 reveals that at para 11 and 12 it is recorded by the learned Principal Commissioner of Income Tax-7,Mumbai as under:
" 11. In this regard , I have perused the case records of the assessee company and found that the AO has not made enquiries which are 11 SA No.216/Mum/2016 (Arising out of ITA No. 3536/Mum/2016) warranted for the facts of the case of the assessee company. The AO has not sought for the details which are required while verifying the issues. In view of the above, I am of the considered view that the order of the AO is erroneous and prejudicial to the interest of revenue.
12. It may be noted that the Finance Bill, 2015 has amended the section 263 of the Act by way of insertion 2 to Section 263 of the Act which is declaratory and clarificatory in nature . The said explanation has been inserted to provide clarity on the issue as to which orders passed by the AO shall constitute erroneous and prejudicial to the interest of Revenue, it is , inter-alia, provided that if the order is passed without making inquiries or verification by AO which, should have been made or other order shall be deemed to be erroneous and prejudicial to the interest of Revenue. Since, the same is clarificatory in the nature, therefore, as held by the Jurisdictional High Court in the case of CIT-vs-Glenmark Pharmaceuticals Ltd. 324 ITR 199(Bom.) , the said amendment will be applied retrospectively and also for the current A.Y."
In the above stated circumstances surrounding the instant case and keeping in view the factual matrix of the case as emerging from the records as also in the interest of justice and without commenting on the merits of the case, we are of the considered view that the assessment proceedings u/s 143(3) read with Section 263 of the Act initiated by the AO in pursuance and in consequence of the orders dated 30-03-2016 passed u/s 263 of the Act by the learned Principal Commissioner of Income Tax-7,Mumbai , cannot be stayed at this stage by us, however, we are of the considered view that interest of justice will be best served if directions for out of turn fixation of the appeal on priority basis of ITA No. 3536/Mum/2016 filed with the Tribunal by the assessee company against the order passed u/s 263 of the Act by the ld. Principal CIT-7,Mumbai vide orders dated 30th March, 2016 be 12 SA No.216/Mum/2016 (Arising out of ITA No. 3536/Mum/2016) issued for fixation of the said appeal on 31st August, 2016 . Thus, in view of our above directions , the registry is directed to fix the afore-stated appeal in ITA no 3536/Mum/2016 out of turn on 31st August, 2016. This order regarding fixation of hearing of the appeal in ITA no. 3536/Mum/2012 on 31-08-2016 was pronounced in the open court in the presence of both the parties which has been taken note of by both the parties. The assessment proceedings which are being carried on by the AO u/s 143(3) read with Section 263 of the Act is getting time barred by 31st December, 2016 keeping in view the amended provisions of Section 153(3) of the Act with respect to the passing of the assessment order by the AO u/s 143(3) read with Section 263 of the Act in pursuance and consequence of the directions as contained in the orders u/s 263 of the Act dated 30-03-2016 passed by the learned Principal Commissioner of Income Tax-7,Mumbai, we consider it appropriate that the A.O. be directed not to pass any assessment order u/s 143(3) read with Section 263 of the Act on or before 30th November, 2016, while we would like to once again clarify at the cost of repetition that there will be no stay on the proceedings of assessment being conducted by the Revenue u/s 143(3) read with Section 263 of the Act including but not limited to collection of relevant information, enquiries to be made, examinations to be conducted, verifications to be made and/or taking of all other related and relevant actions by the Revenue in connection with the afore-stated proceedings of assessment including framing of the assessment order etc. which shall be carried out by the Revenue in accordance with law whereby there will be no stay whatsoever on conducting of all such proceedings relating to assessment u/s 143(3) read with Section 263 of the Act, while the stay is granted by us limited only to the passing of the assessment orders u/s 143(3) read with Section 263 of the Act and that too on or before 30th November 2016 , as in view of the amended provisions of Section 153(3) of the Act, the assessment proceedings u/s 143(3) read with Section 263 of the Act has to be concluded on or before 31st December 2016, thus in view of the 13 SA No.216/Mum/2016 (Arising out of ITA No. 3536/Mum/2016) above , the AO will thereby get window of full one month of December 2016 to pass the assessment order u/s 143(3) read with Section 263 of the Act. The assessee company is directed to fully co-operate with the Tribunal in early disposal of the appeal. We would like to clarify at this stage that in case the assessee company seeks any adjournment before the Tribunal with respect to the proceedings in appeal in ITA No. 3536/Mum/2016 before the Tribunal or adopt any other dilatory measures to delay the early disposal of the appeal before the Tribunal, the above stay granted by us shall stand automatically vacated and cancelled. The Revenue is also directed to fully co-operate in early disposal of appeal in ITA no. 3536/Mum/2016 . The above order was pronounced in the open court in the presence of both the parties which has been taken note of by both the parties. We order accordingly.
5. In the result, the Stay Application filed by the assessee company is allowed as indicated above.
Order pronounced in the open court on 15th July, 2016.
Sd/- sd/-
(MAHAVIR SINGH) (RAMIT KOCHAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, 15-07.2016.
RK
14 SA No.216/Mum/2016
(Arising out of ITA No. 3536/Mum/2016)
copy to...
1. The appellant
2. The Respondent
3. The CIT(A) - Concerned, Mumbai
4. The CIT- Concerned, Mumbai
5. The DR Bench, L
6. Master File
// Tue copy//
BY ORDER
DY/ASSTT. REGISTRAR
ITAT, MUMBAI