Income Tax Appellate Tribunal - Ahmedabad
Akzo Noble Non-Stick Coatings Ltd.,, ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C" AHMEDABAD
Before Shri D.K. Tyagi, Hon'ble Judicial Member and
Shri A.N.Phauja, Hon'ble Accountant Member
ITA No.1916/ Ahd/2009
Assessment Year:2003-04
Date of hearing:4.4.11 Drafted:10.5.11
Akzo Noble Non-stick V/s. Asstt. Commissioner of
Coatings Ltd. 16/10, Income-tax, Circle-1,
Devendra SocietAkzo Ahmedabad
Noble Non-stick
Coatings Ltd. 16/10,
Devendra Societ y Nr.
Naranpura, Ahmedabad
PAN No. AAACC4767F
(Appellant) .. (Respondent)
Appellant by :- Shri S.N.Agarwal, AR
Respondent by:- Shri Rajib Jain, SR-DR
ORDER
PER D.K. Tyagi, Judicial Member:-
This is assessee's appeal against the order of Commissioner of Income-tax(Appeals)-VI, Ahmedabad in appeal No. CIT(A)-VI/ACIT, Cir.1/ 141 /07-08 for the assessment year 2003-04.
2. The brief facts of the case are that assessee in this case filed delayed appeal before Ld. CIT(Appeals) and following application for condonation of delay was submitted before him:-
"Your appellant presents an appeal u/s.246A against the order passed by the learned Assistant Commissioner of Income-tax, Circle-1, Ahmedabad for Assessment year 2003-04 on 28-02-2006 ITA No.1916/Ahd/2009 A.Y. 2003-04 Akzo Noble Non-stick Coatings Ltd. v. ACIT Cir-1, A'bd Page 2
2. The said order was served on the appellant on 1-04-2006 and contained the disallowance (of Royalty expenses of Rs.50,76,207 assessing the appellant at Rs.1,23,73,900/- and raising a demand of Rs.25,01,745/-.
On going through the assessment order, the appellant found that the learned Assessing Officer has made two apparent mistakes while framing the assessment, viz.
(i) He has not granted corresponding deduction u/s.80IB on the increased amount of profits of the business after making disallowance of Rs.50,76,210/-.
(ii) He has also correspondingly not granted the increased deduction u/s.80IB after making disallowance and increasing the gross total income.
3. The appellant on receipt of this assessment order and on finding that the above two mistakes have crept in the computation of total income (and thereby the quantum of demand raised against the appellant) filed immediately an application u/s.154 of the Act vide its letter dated 4-04- 2006 which was filed with the Department on 5-04-2006, a copy of which is also attached herew2ith. The appellant thereafter pursued the matter with the learned Assistant Commissioner of Income-tax requesting him to rectify the above apparent mistakes. However, till this date, the learned Assessing Officer has not taken up the same for disposal.
4. The appellant was under bonafide belief that because the assessment order is carrying such patent mistakes of law and facts, the same would be rectified immediately andd therefore, was of the bonafide belief that it can file the appeal against the assessment order thereafter.
However, since the learned ACIT had not taken up any proceedings in respect of rectification application u/s.154 filed by the appellant, the hopes of thee assessee were belied and the appellant now files appeal against the original order u/s.143(3) passed by the learned Assessing on 28.2.2006 which was served on it on 1-4-2006 after5 the delay of nearly 130 days.
5. The appellant requests your honour that looking to the facts and circumstances mentioned above and looking to the bonafide belief, the appellant entertained that it can file appeal against the original order after his application u/s.154 is disposed off, its request for condonation of delay in filing present appeal should be sympathetically considered and this appeal may please be admitted for hearing.
And for this act of kindness, your appellant shall for ever remain, grateful to your honour."
ITA No.1916/Ahd/2009 A.Y. 2003-04Akzo Noble Non-stick Coatings Ltd. v. ACIT Cir-1, A'bd Page 3 During the appellate proceedings, the assessee further made following submissions before Ld. CIT(A) :-
"The appeal filed by the appellant is late by 130 days. The appellant has already submitted its application for condonation of such delay along with appeal paper before Your Honour laying down therein the reasons for such delay in filing the appeal and requests your honour that looking to the facts and circumstances narrated therein the delay in filing the appeal, may please be condoned and this appeal be admitted for hearing.
1.2 The main reason for such delay was the pendency of the rectification application filed u/s.154 of the Act before learned AO which was filed within 5 days of service of the impugned assessment order before the learned A.O A copy of such application u/s.154 is attached herewith at page No.1&2.
On perusal of the said application. Your Honour would find that the mistakes committed by the learned A.O are obvious and patent one in the sense that after considering additions to the returned income and assessing them under business income, he has not granted corresponding deduction din respect of such enhanced income to which appellant is entitled u/s.10-IB as well as u/s.80-IB.
The said mistake being glaring one, your appellant was under genuine and bona fide belief that the rectification application would be disposed off favourably in a very short time and that the appellant then can file the appeal against such modified order so as to reduce the area of dispute.
1.3 Unfortunately, even after constant follow up by personal visits, such rectification application remained undisposed off. It is indeed noteworthy to mention that though the provisions of section 154 except the learned A.O to dispose off such rectification application within six months of the date of filing, such application has remained undisposed off even today after lapse of almost nine months. The appellant once again vide its letter dated 5-9-2006, a copy of which is attached at Page-3 of this compilation remained learned A.O about the pendency of such rectification application but to no avail.
Ultimately, therefore, the appellant filed appeal against assessment order which due to above fact was delayed by nearly 130 days.
2.0 Law and precedents in relation to condonation of delay in filing appeal.ITA No.1916/Ahd/2009 A.Y. 2003-04
Akzo Noble Non-stick Coatings Ltd. v. ACIT Cir-1, A'bd Page 4 2.1 Your appellant submits that similar situation was there in a recent case decided by Allahabad High Court in the case of Bharat Auto Centre Vs. CIT 282 ITR 366 a copy of which is attached herewith at pages 58 to 60.
On perusal of the said decision Your Honour will find that facts of that case are identical to the facts of the appellant. In that case also the appellant had preferred rectification application and was thus pursuing alternative namely and on account of non-decision in respect of such application, his filing of final appeal got delayed. There also the delay was of nearly 158 days. Both the CIT(A) and Tribunal therein refused to condone the delay and ultimately matter went to Allahabad High Court which reversed the view taken by lower authorities and directed them to condone the delay. In that case the court observed as under:-
'the Commissioner of Income-tax (Appeals) as well as the Tribunal have taken a pedantic view while considering the application for condonation of delay. It has been consistently held by the apex court that in the matte of condonation of delay, a liberal and pragmatic view should be taken. The reasons given by the appellant for the delay appears to be sufficient cause and accordingly, the delay is liable to be condoned.' He also placed reliance on various case laws for condonation of delay before Ld. CIT(A).
3. Ld. CIT(Appeals) after taking into consideration the submission of assessee and the judicial pronouncement on the issue dismissed the appeal of assessee by not condoning the delay in filing of appeal by observing as under:-
"Keeping in view the aforesaid facts; circumstances and various judicial pronouncements, it is quite clear that according to section 249(2), appeal before CIT(Appeals) shall be presented within thirty days of the following date:
a) Where the appeal relates to any tax deducted under sub-section 1 of Section 195, the date of payment of the tax or
b) Where the appeal relates to any assessment or penalty, the date of service of the notice of demand relating to the assessment or penalty;
c) In any other case the date of information of the order sought to be appealed against, is served.ITA No.1916/Ahd/2009 A.Y. 2003-04
Akzo Noble Non-stick Coatings Ltd. v. ACIT Cir-1, A'bd Page 5 The appellant must have "sufficient cause" for not presenting the appeal within that period.
When the aforesaid is considered vis-à-vis the facts and circumstances of the appeal under consideration, the fact is abundantly clear that principal contention (i.e. main ground of appeal) is against the addition made by disallowing royalty expenses of Rs.50,76,210/- and not u/s.10B and U/ 80IB, for which the appellant has submitted the rectification application u/s.154 of the I.T. Act, 1961. This fact is crystal clear from the assessment order passed by the Assessing Officer u/s.143(3) of the I.T. Act, 1961 on 28.2.2006, which is reproduced as under:-
'The return of income was filed on 28.11.2003 declaring total income of Rs.7297690/- along with computation of income, profit and loss account, balance sheet, tax audit report in form 3CD etc. The return was processed u/s.143(1) on 18.12.2003.' The case was selected for scrutiny and notice u/s/.143(2) was issued on 13.10.2004, which was served on the assessee on 30.10.2004.
Thereafter notices u/s.143(2) and 142(1) were issued along with a detailed questionnaire on 17.8.2005, which were served on the assessee on 22.05.2005. In response to notices issued u/s.143(2) and 142(1), Shir Narelwala, CA attended in the company of Shri H Modi from time to time and the case was discussed with them.
2. The assessee carries on the business of manufacturing of Non-stick coatings/paints.
3. During the year, the assessee has claimed Royalty expenses of Rs.50,76,210/- as against Rs. NIL claimed in the immediately preceding year. Therefore vide letter dtd. 17.8.2005, the assessee was required to furnish supporting details and justify the claim. In response thereto, the assessee vide its letter dtd. 15.9.2005 furnished the details. On perusal of the same it is seen that as per the letter dtd. 17.5.2003 issued by the RBI, Exchange Control Department, Ahmedabad the approval to enter into the technical collaboration with foreign company was accorded only on 17.5.2003 i.e. after the end of the financial year relevant to A.Y 2003-04. Therefore, during the course of hearing the assessee was required to explain the allowability of Royalty payment of Rs.50,76,210/- during the year with supporting evidence. In response thereto, the assessment vide letter dtd. 21.12.2005 contended hat the effective date as per the agreement is 1.4.2002 and is valid for indefinite period unless terminated by the parties. However, the assessee had no explanation about the allowability of the claim in view of the approval by the Exchange Control Authorities i.e RBI for entering into the technical ITA No.1916/Ahd/2009 A.Y. 2003-04 Akzo Noble Non-stick Coatings Ltd. v. ACIT Cir-1, A'bd Page 6 collaboration with the foreign company. Therefore, the Royalty claim of Rs.50,76,210/- is disallowed and added to the total income.
4. With the above remarks, the total income of the assessee is computed as under;-
Total income as per return Rs. 72,97,690 Add: Addition/disallowance as discussed in the order
1) Royalty as per para 3 Rs.50,76,210 Rs. 50,76,210 Total Income Rs.1,23,73,900 Assessed u/s.143(3) issue DN & Challan/RO as the case may be. Give credit for prepaid taxes, if any, after verification. Charge interest u/s.234A/234B/234C/234D as applicable. Issued penalty notice u/s.271(1)© for concealment/furnishing of inaccurate particulars of income."
The appellant itself admitted in its submission dated 1.9.2008 that its principal contention (i.e. main ground) "is against the addition made by disallowing royalty expenses of Rs.50,76,201/-. Rest of the grounds (i.e. pertaining to deduction u/s.10B and u/s.80IB) are alternative contentions. The relevant portion of appellant's submissions dated 1.9.2008 is reproduced as under:-
'1 In continuation with our earlier submission dated 12-12-2006, we have to inform your honour that the learned Assessing Officer has passed on order u/s.154 of the Act granting deduction u/s.80IB to the appellant for a sum of Rs.34,88,508/- and also u/s.10-B for a sum of Rs.3,74,35,205/-. Copy of the said order is attached herewith at Page Nos. 1 & 2. Therefore, the learned A/.O has in principle accepted the stand of the appellant that deduction u/s.10-B and u/s.80-IB are to be worked out on the assessed income. Therefore, the appellant's alternative contention as raised in the Grounds of appeal at Sl. Nos. 2 & 3 are allowed by the learned A.O. However, the appellant would like to argue on the principal stand that the addition made by disallowing royalty expenses of rs.50,76,210/- has been wrongly made by learned A.O for the reasons and for the detailed submissions made in our earlier submission dated 12.12.2006.
2. Since the alternative contentions of allowing deduction u/s.10-B & us.80-IB would be dependent on our principal stand mentioned above being rejected, we submit to your honour that if we succeed on the principal contention that royalty expenses are not disallowable, the alternative contentions at Ground Nos.2 & 3 become infructuous and may be dealt with accordingly.
ITA No.1916/Ahd/2009 A.Y. 2003-04Akzo Noble Non-stick Coatings Ltd. v. ACIT Cir-1, A'bd Page 7
3. If on the other hand, our principal contention of royalty expenses being not disallowable comes to be rejected, then already in view of the subsequent order passed by the learned A.O u/s.154 of the Act dated 200-02-2007, the Grounds at Sr. Nos. 2 & 3 would also become infructuous for the limited purposes of present appeal but subject to our right of challenging them in further proceedings."
Keeping in view the aforesaid facts and circumstances, it is abundantly clear that principal contention (i.e. the main ground) is against the addition made by disallowing royalty expenses of Rs.50,76,210/- and not u/s.10B and 80IB thereby, the appellant must have filed the appeal there and then.
The appellant relies upon certain case laws but all the case laws referred stress upon the 'sufficient cause' and 'bona fide belief' but the facts and circumstances of the appeal under consideration clearly prove the fact that application for rectification has been found to be purely on misconceived grounds on account of mistake of counsel.
Further, keeping in view the aforesaid facts and circumstances, the fact is crystal clear that though the Assessing Officer has passed the order u/s.154 of the I.T. Act, 1961; duly granting deduction u/s.80IB to the appellant for a sum of Rs.34,88,508/- and also u/s.10B of I.T. Act 1961 for a sum of Rs.3,74,35,205/-; even then the appellant likes to argue on the addition made by disallowing royalty expenses of Rs.50,76,210/-; does not present the appeal within stipulated period; prays for condoning the delay; ironically terming the same "sufficient cause", "bona fide mistake of the appellant as well as counsel" "diligence", "prompt action" not at all mala fide; not at all resorting to dilatory strategy or inaction; in the name of "liberal approach": and "miscarriage of justice".
Keeping in view the aforesaid facts; circumstances and various judicial pronouncements, it is crystal clear that the appellant has services of Chartered Accountant and Tax Consultants of its disposal. Consequently, it has proper legal guidance. In the given facts and circumstances, praying for condonation of delay on the basis of reasons furnished by the appellant are not at all sufficient cause for condoning the delay in question (M.S.Nulon India v. CIT (1996) 219 ITR 736 (Del). Mistake must be bona fide and not merely a device to cover the ulterior purpose, namely, latches of the litigant or attempt to save limitation in a underhand way. The explanation must not smack of mala fides and it must not be put forth as part of a dilatory strategy. Delay must not be attributable for want of diligence or inaction. The delay must not be ITA No.1916/Ahd/2009 A.Y. 2003-04 Akzo Noble Non-stick Coatings Ltd. v. ACIT Cir-1, A'bd Page 8 deliberate. [N. Balakrishnan vs. M. Krishnamurthy 1998 (7) Supreme Court 123; Collector, Land Acquisition v. Mst. Katiji & Ors. (1987) 62 CTR (SC) 23; 1987 913) ALR 306 (SC); Brijinder Singh v. Kanshi Ram AIR 1917 PC 156; Shakuntala devi Jain v. Kuntal Kumari AIR 1969 SC 575; O.P. Kathpalia v. Lokhmir Singh AIR 1984 Supreme Court 1744; State of Haryaa v. Chantdra Mani AIR 1996 SC 1623; State of Maharashtra v. Kamla Mills Ltd 91994) 94 STC 220 (SC); Nebha & Co. v. State of Gujarat AIR 1986 SC 987; Shankar Rao vs. Chandrasenkunwar AIR 1987 SC 1726; Dy. Collector v. Communidade of Bambolin AIR 1996 SC 148; State of Kerala v. Krishna Kurup Madhava Kurup, AIR 1971 (Kerala) 21 and Nihalkaran v. CWT (1989) 175 ITR 14 (MPP)] Keeping in view the facts and circumstances of appeal under consideration, it is abundantly clear that application for rectification has been found to be purely on misconceived grounds on account of mistake of counsel, thereby, the delay cannot be condoned. (Raja Ramchandra Bhangde v. CIT (1984) 148 ITR 391 (Mumbai). With the result, the delay in question is not condoned."
Further aggrieved by this order assessee is now appeal before us.
4. At the time of hearing Ld. Counsel for the assessee reiterated the same submission as made before Ld. CIT(A) which has been reproduced by us in para-2 & 3 of this order. He further placed reliance on the recent decision of Hon'ble jurisdictional High Court in Civil Appeal No.456 of 2010 in the case of CIT v. Prima Fruit Products in which delay of 654 days of filing of appeal was condoned by the Hon'ble jurisdictional High Court.
5. On the other hand Ld. SR-DR relied on the order of Ld. CIT(Appeals) .
6. After hearing both the parties and perusing record we find that assessee is engaged in the business of manufacturing of non-stick coatings/paints. For the year under appeal assessee filed return of income showing income of Rs.72,92,609/- claiming royalty expenses of Rs.50,76,210/-. This claim was disallowed by Assessing Officer and assessment was completed at the figure of Rs.1,23,73,210/-. Against this order an application for rectification u/s.154 was filed by assessee before AO which reads as under:-
ITA No.1916/Ahd/2009 A.Y. 2003-04Akzo Noble Non-stick Coatings Ltd. v. ACIT Cir-1, A'bd Page 9 "To The Asst Commissioner of Income Tax, Circle-1, Ahmedabad Sir, Sub: Application for Rectification of mistake apparent on record u/s.154 of the income Tax Act in case of Akzo Nobel Non-Stick Coatings Ltd. for A.Y.2003-04.
Our above referred client is in receipt of your order u/s.143(3) of the Act for A.Y. 2003-04 alongwith the Income Tax Computation form and a Demand Notice for Rs.25,01,745/-.
On perusal of the said order we have noticed certain apparent mistakes in calculation of taxable income and the resultant tax liability, details of which are given here under:-
You have disallowed claim of the assessee i.r.o. Royalty expense to the tune of Rs.50,76,210/- and added the same to the total income as per the return of income and determined the assessed income at Rs.1,23,73,900/-. In this connection, we have to submit that since the assessee is entitled to deduction u/s.10B as well as u/s.80-1B of the Act, the assessed total income should be calculated as under in the said order:
Total Business Income before allowance 4,39,87,355 of deduction u/s.10B (As per the return filed) Add:
Royalty exp. disallowed as per your order 50,76,210 4,90,63,565 Less:
Income exempt u/s.10B 3,74,35,205 (33562087/43987355*49063565) __________ Gross Total Income 1,16,28,360 Less: Deduction u/s.80IB 34,88,508 (30% of Gross Total Income) __________ NET TAXABLE INCOME 81,39,852 SAY Rs. 81,39,850
Hence, the correct figure of assessed income in the order should be Rs.81,39,850/- as against Rs.1,23,73,900/-. The resultant tax working is also erroneous and needs rectification. Calculation of interest u/s 234B ITA No.1916/Ahd/2009 A.Y. 2003-04 Akzo Noble Non-stick Coatings Ltd. v. ACIT Cir-1, A'bd Page 10 & C needs rectification and also the amount of tax credit allowed in the computation sheet is wrong.
This being a mistake apparent on record, we request you to rectify the same by passing an order u/s.154 of the Income Tax Act and oblige.
In case you require further clarification in the matter, please let us know. For your reference, we enclose herewith a copy of assessment order u/s.143(3) tax calculation sheet and the demand notice for your perusal.
Please do the needful in the matter.
Thanking you, Yours faithfully, FOR SHAH NARIELWALA & CO.
CHARTERED ACCOUNTANTS Sd/-
PARTNER Encl.: As above."
It is clear from the above that disallowance of royalty expense of Rs.50,76,210/- was not the issue in the rectification application. The assessee's contention was that since assessee is entitled to deduction u/s 80- IB and Section 10B the total tax liability of the assessee may be re-calculated as per his application for rectification.
7. We further find that before Ld. CIT(Appeals) following grounds of appeal were taken when appeal was filed late by 130 days:
"(1) The learned Assessing Officer erred in law and on facts in disallowing Royalty expenses of Rs.50,76,210/- on the ground that the approval by the Exchange Control Authorities i.e RBI for entering into the technical collaboration with the foreign company was received subsequent to the year end. Your appellant submits that since the expense was incurred pursuant to the agreement with the foreign parties wherein the effective date of agreement was 1-04-2002, the expenses are accrued during the year under consideration and it is liable to be allowed from the computation of profits of the business. It is submitted that it be so held now.
(2) Without prejudice to the above, the learned Assessing Officer further erred in law and on facts in not granting deduction u/s.10B on the ITA No.1916/Ahd/2009 A.Y. 2003-04 Akzo Noble Non-stick Coatings Ltd. v. ACIT Cir-1, A'bd Page 11 increased income pursuant to the above disallowance of Rs.50,76,210/-
in respect of payment of Royalty. It is submitted that deduction/exemption u/s.10B is to be allowed on the basis of profits of the business as computed under the head, "Business income" and hence, corresponding deduction u/s.10B also should have been granted to the appellant; Your appellant submits that it be so held now.
(3) Without prejudice to Ground Nos. 1 & 2, the learned Assessing Officer also erred in law and on facts in not granting deduction u/s.80IB on the increased amount of gross total income after making is of Royalty expenses of Rs.50,76,210/-. Your appellant submits that it be so held now and the increased deduction as is eligible u/s.80-IB be granted to the appellant.
(4) The learned Assessing Officer erred in law and on facts in charging interest u/s/.234B for Rs.6,14,360/- and U/s.234D for Rs.21,879/-. It is submitted that in the facts and circumstances of the case, such interest is not chargeable. The appellant denies its liability to be assessed to such interest as the disallowance made by the learned Assessing Officer could not have been anticipated. It is submitted that it be so held now and the interest charged as mentioned above be deleted."
It is clear from the above that main issue before Ld. CIT(Appeals) was the disallowance of royalty expenses of Rs.50,76,210/- and the deduction u/s.80- IB and Section 10B were only alternative grounds. In view of this, it cannot be said that delay in filing the appeal was due to non-disposal of rectification application of the assessee by the Assessing Officer and therefore Ld. CIT(A) has rightly not condoned the delay in filing of appeal before him. Due to this factual position the case laws relied by the assessee are also of no help to him. In the case of Prima Fruit Products (supra) the Tribunal decided the appeal in question with regard to disallowance of deduction u/s.80-IB of the Income-tax Act, 1961. The assessee was granted relief for a sum of Rs.92,85,082/-, the issue in respect of Rs.14,57,906/- was set aside and addition of Rs.1,21,152/- was confirmed. Against this order, Revenue filed Miscellaneous Application (MA for short) before Tribunal praying that matter may be re-adjudicated as several documents of the Revenue have not been considered by Tribunal. This MA was dismissed by the Tribunal. Thereafter the Revenue went in appeal before Hon'ble jurisdictional High Court which ITA No.1916/Ahd/2009 A.Y. 2003-04 Akzo Noble Non-stick Coatings Ltd. v. ACIT Cir-1, A'bd Page 12 was late by 654 days by then. The condonation of delay was prayed on the ground that Revenue was under bona fide belief that MA filed before the Tribunal may be allowed and till then no appeal was presented before the Hon'ble High Court. This explanation of the Revenue was accepted by Hon'ble High Court and delay in filing of appeal was condoned. Since the issue before the Hon'ble High Court and before the Tribunal in MA was same the delay was condoned by the Hon'ble High Court. But in the instant case, as we have already pointed out the issue before Ld. CIT(Appeals) and issue in the rectification application before the A.O. having not been same, the ratio as laid down by the Hon'ble High Court in the case of Prima Fruit Products (supra) is not applicable to the facts of the case. In view of the above and also in view of various case laws relied by Ld. CIT(Appeals) we find no need to interfere with the order passed by him and the same is hereby upheld.
8. In the result, assessee's appeal is dismissed.
Order pronounced in Open Court on 27/05/2011
Sd/- Sd/-
(A.N.Phauja) (D.K. Tyagi)
(Accountant Member) (Judicial Member)
Ahmedabad,
Dated : 27/05/2011
*Dkp
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)-VI, Ahmedabad
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad