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Gujarat High Court

The Principal Commissioner Of Income ... vs A. Menarini India Pvt. Ltd. on 27 January, 2020

Author: Bhargav D. Karia

Bench: J.B.Pardiwala, Bhargav D. Karia

         C/TAXAP/17/2020                                          ORDER




          IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                           R/TAX APPEAL NO. 17 of 2020

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          THE PRINCIPAL COMMISSIONER OF INCOME TAX-1
                             Versus
                   A. MENARINI INDIA PVT. LTD.
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Appearance:
MRS MAUNA M BHATT(174) for the Appellant(s) No. 1
for the Opponent(s) No. 1
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 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
        and
        HONOURABLE MR. JUSTICE BHARGAV D. KARIA

                               Date : 27/01/2020

                      ORAL ORDER

(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

1. This tax appeal filed under Section 260A of the Income Tax Act, 1961 [for short 'The Act, 1961'] is at the instance of the Revenue and is directed against the order dated 07th August, 2019 passed by the Income Tax Appellate Tribunal, 'A' Bench, Ahmedabad in ITA No.1441/AHD/ 2016 for A.Y 2011­12.

2. The following questions of law are proposed by the Revenue as the substantial questions of law in the appeal memo:­ [A] Whether Appellate Tribunal has right in law and on facts by quashing the order passed by the CIT u/s.263 of the Act even though it has clearly been brought out that the order of the Assessing Officer is erroneous in so far as prejudicial to the interest of revenue?

[B] Whether Appellate Tribunal has right in law and on facts by quashing the order passed u/s.263 of the Act holding that the issue has been examined at the original assessment stage without Page 1 of 6 Downloaded on : Mon Jun 15 09:19:14 IST 2020 C/TAXAP/17/2020 ORDER appreciating that the issue(s) was never examined by the Assessing Officer during the original assessment proceedings stage?

3. The facts giving rise to this appeal may be summarized as under:­ 3.1 The respondent - assessee Company was engaged in the business of pharmaceutical products. It filed its return of income for the assessment year 2011­2012 on 30th September, 2010 declaring total income at Rs.(­)3,99,18,901/­. The Assessing Officer passed the assessment order under Section 143(3) of the Act, 1961 on 25th March, 2014 determining the total income as under:

"10. Subject to above, total income of the assessee is determined as under:­ Total income as per intimation Rs.(-)3,99,18,901/­ u/s.143(1) of the Act. Dated:

      Add: (i)      Upward   Adjustment     as Rs.2,18,43,574/­
      discussed*
      (ii) Disallowance as per PARA­9           Rs.22,74,380/­
      Total Assessed Loss                       Rs.1,58,00,947/­

* Disallowance of Rs.48,78,986/­ of Royalty payment has not taken for computation and in the way for taxation to avoid the double taxation being the upward adjustment of Rs.2,18,43,575/­ includes the same."

3.2 However, the Principal Commissioner of Income­tax ("PCIT" for short) found such assessment order erroneous and prejudicial to the interest of Revenue. He therefore, issued show cause notice dated 8th March, 2016 under section 263(1) of the Act. PCIT invoked jurisdiction under section 263 of the Act in respect of the following three issues:

"(i) Total Service Income on the basis of TDS Rs.3,00,08,514/­ would be Rs.30,00,85,140/­ against which the assessee has declared service income of Rs.23,97,76,136/­ and thus there is an under assessment service income of Rs.6,03,09,004/­ (30,00,85,140 -

23,97,76,136).

C/TAXAP/17/2020 ORDER

(ii) Provision of Rs.19,94,560/­ for non achievement of targets and needs to be disallowed.

(iii) Sum of Rs.14,52,503/­ needs to be disallowed u/s.40(a)(i) since assessee fail to deduct tax at source u/s.195 of the Act."

3.3 In response to the show cause notice, respondent assessee filed reply on 28th March, 2016 explaining that the presumption of the Revenue that income should also be in direct proportion to the amount of TDS is not correct because at times there are some timing difference between Revenue recognition and deduction of tax at source. It was submitted by the assessee that deductor has effected TDS on account of service tax to the tune of Rs.2,46,96,942/­ which is included in the invoice whereas service tax collected by the service provider is not the income of the assessee and hence, the same was not reflected in the Profit and Loss account. It was further submitted by the assessee that the deductor has also effected TDS on "reimbursement" expenses of Rs. 1,46,78,806/­ which is also not the income of the assessee and therefore, not reflected in the Profit and Loss account. Apart from that the difference on account of timing difference was of Rs. 2,32,16,538/­. The respondent assessee also furnished reconciliation statement of difference between service income as per Profit and Loss account and as worked out based on tax deducted at source before PCIT. Learned CIT however, without considering the explanation offered by the respondent assessee passed the order under section 263 of the Act, 1961 directing the Assessing Officer to make fresh assessment of the total income in respect of three issues on which the show cause notice was issued under section 263 of the Act.

3.4 The respondent - assessee, thereafter, carried the matter before the Tribunal. The Tribunal after considering the explanation offered by Page 3 of 6 Downloaded on : Mon Jun 15 09:19:14 IST 2020 C/TAXAP/17/2020 ORDER the respondent - assessee with regard to the Issue No.1 for short­fall in the taxable service income calculated on the basis of the Tax Deducted at Source by the PCIT, the Tribunal held that such tax deducted at source is qua the reimbursement of expenses, which is not the income and hence, rightly not reflected in the Profit & Loss Account of the respondent - assessee. The Tribunal observed as under:­

4. Heard the respective parties and perused the relevant materials available on record. It appears from the records that the case of the assessee is this that the service tax calculated by the service provider since not the income of the assessee it is not been reflected in the P&L account. Similarly, TDS effected on "reimbursement" of expenses of Rs.1,46,78,806/­ is neither the income of the assessee, hence not reflected in P&L account. So far as the difference on account of timing difference of Rs.2,32,16,538/­ is concerned, we find that reconciliation statement of difference between service income as per P&L account and as worked out on the basis of the TDS was also furnished before the appellate authority but the same was not taken into consideration in its proper prospective. Merely, because there was some difference in the service income as per P&L account and as worked out based on TDS the assessment order cannot be said to be erroneous and prejudicial to the interest of the Revenue. Further that while framing assessment u/s.143(3) by an order dated 25.03.2014, the Learned AO specifically mentioned in para­11 that the credit for "prepaid tax" (i.e.TDS) has been given after verification and its calculation as per ITNS 150. Thus the issue was already examined by the learned AP. Apart from that, the legal point being fulfillment of twin conditions that the order of the AO be erroneous and also prejudicial to the interest of Revenue has not been satisfied before invoking jurisdiction u/s.263 of the Act. In this regard we have gone through the judgment passed by the Hon'ble Supreme Court in the matter of Malabar Industrial Co. Ltd. So far as the issue regarding provision of non­achievement of target is concerned, the same was examined at the original assessment stage as submitted by the Learned AR before us is also reflected from the records before us. Further that, the assessee has not deducted tax at source on payment of Rs.14,52,503/­. Though the details in respect of the same was provided to the earned CIT(A) the same was not considered. The issue has been duly examined by the Assessing Officer during the original assessment proceeding but in the absence of any reflection of the same in the order passed by the Assessing Officer would not lead to a conclusion that the order of Learned AO calls for interference by the Learned CIT u/s.263 of the Act. The alternative submission made by the Learned assessee's counsel is this respect that when two views are possible as regards a particular issue and the AO Page 4 of 6 Downloaded on : Mon Jun 15 09:19:14 IST 2020 C/TAXAP/17/2020 ORDER adopts either of two such views then jurisdiction u/s.263 cannot be invoked by the Learned CIT is also acceptable. We take inspiration from the judgment passed in the matter of Malabar Industrial Co. Ltd. as been relied upon in this respect. Hence, we find that order impugned u/s.263 of Act cannot satisfy any of the conditions envisaged in the provision of law as discussed above. Fulfillment of two conditions so as to the claim of the order being erroneous or prejudicial to the interest of Revenue also fails as already been discussed by us herein­above. Thus, the order impugned does not justify/fulfill any of the conditions within the four corners of law and hence, liable to be quashed. Resultantly, the impugned addition upon invocation of jurisdiction u/s.263 of the Act by the learned CIT is deleted."

4. The learned senior counsel for the appellant Mr. Bhatt submitted that the appeal is filed only for the issue of difference between the amount of service income on which tax is deducted by the service provider and income which is shown in the Profit and Loss account by the respondent assessee. It was submitted that the Assessing Officer while framing the assessment under section 143(3) of the Act did not verify this aspect and therefore, the assessment order is erroneous and prejudicial to the interest of Revenue and the PCIT was justified in invoking the provisions of revision under section 263 of the Act

5. Having heard the learned senior counsel appearing for the appellant, it appears that the PCIT has not considered the submissions made by the respondent - assessee and has arrived at conclusion with regard to the issue of less income as stated by him in the show­cause notice. However, the Tribunal after considering the submissions made by the respondent - assessee and on the basis of material on record has arrived at finding that because there was some difference in the service income as per the Profit & Loss account and as worked out based on TDS, the assessment order cannot be said to be erroneous and prejudicial to the interest of the Revenue.

C/TAXAP/17/2020 ORDER

6. In view of the aforesaid finding of fact arrived at by the Tribunal, none of the questions of law proposed can be said to be substantial questions of law arising from the order of the Tribunal. The appeal, therefore, fails and stands dismissed. No order as to costs.

(J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) aruna Page 6 of 6 Downloaded on : Mon Jun 15 09:19:14 IST 2020