ACIT - 13(3), MUMBAI v. M/s. EDROOS SAYED MOHAMED ZAKIR, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J : MUMBAI BEFORE SHRI D.K. AGARWAL (JM) AND SHRI PRAMOD KUMAR ( AM ) ITA NO. 107/MUM/2008 ASSESSMENT YEAR : 2004 - 05 ASSTT. COMMISSIONER OF INCOME TAX - 13(3) ROOM NO.430 4 TH FLOOR AAY AKAR BHAVAN M.K. ROAD NEW MARINE LINES MUMBAI - 400 020 . ..( APPELLANT ) VS. SHRI EDROOS SAYED MOHAMED ZAKIR 13 M.A. SARANG MARG 1 ST FLOOR DONGRI MUMBAI - 400 0 0 9. ..( RESPONDENT ) P.A. NO. ( AADPE 2591 D ) APPELLANT BY : SHRI L.K. AGRAWAL RESPONDENT BY : SHRI PRAKASH PANDIT O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE REVENUE IS DIRECT ED AGAINST THE ORDER DATED 31.10.2007 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2004 - 05. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE AN INDIVIDUAL IS ENGAGED IN THE ACTIVITY OF SENDING STUDENTS TO LONDON INSTITUTE OF TECHNOLOGY AN D RESEARCH LONDON. THE RETURN WAS FILED DECLARING TOTAL INCOME OF RS.4 40 330/ - . DURING THE COURSE OF ITA NO. 107/M/08 A.Y: 04 - 05 2 ASSESSMENT IT WAS INTERALIA OBSERVED BY THE AO THAT THE ASSESSEE DEBITED A SUM OF RS.2 32 00 000/ - PAYABLE TO FOREIGN PARTY AGAINST THE TOTAL COLLECTIO N OF FEES RECEIVED BY THE ASSESSEE. HOWEVER ON EXAMINING THE RELEVANT CLAUSE (3) OF THE MEMORANDUM OF UNDERSTANDING ( MOU ) DATED 13.1.2004 FILED BY THE ASSESSEE THE ASSESSEE WAS LIABLE TO PAY 50% OF THE FEES I.E. RS.1 36 65 000/ - HENCE THE AO DISALLOW ED THE DIFFERENCE OF R S.95 35 000/ - AND ADDED TO THE INCOME OF THE ASSESSEE ON THE GROUND THAT THE SAID EXPENDITURE HAS NO NEXUS WITH THE BUSINESS OBLIGATION OF THE ASSESSEE U/S.37(1) OF THE I NCOME T AX ACT 1961 (THE ACT). THE AO AFTER MAKING SOME OTHER DI SALLOWANCES COMPLETED THE ASSESSMENT AT AN INCOME OF RS.1 04 25 510/ - VIDE ORDER DATED 28.12.2006 PASSED U/S.143(3) OF THE ACT. 3. ON APPEAL BEFORE THE LD. CIT(A) IT WAS CONTENDED THAT THE MOU DATED 13.01.2004 GOVERNED FEES PAYABLE AFTER 13.01.2004 AND NO T FEES PAYABLE BEFORE 13.01.2004. IT WAS FURTHER CONTENDED THAT TOTAL FEES OF RS.2.32 CRORES CONSISTS OF RS.1.78 CRORES PAYABLE BEFORE 13.01.2004. THIS FEE WAS REMITTED @ 70% OF GROSS FEES. IT WAS FURTHER CONTENDED THAT THE FEES TO BE REMITTED WAS GO VERNED BY AN MOU DATED 05.03.2003. CLAUSE 3 OF THIS MOU PROVIDES THAT 70% GROSS FEES RECEIVED TO BE REMITTED TO LONDON INSTITUTE . THIS AGREEMENT WAS AMENDED AFTER REPEATED REQUEST TO THE LONDON PARTY. IT WAS FURTHER ITA NO. 107/M/08 A.Y: 04 - 05 3 CONTENDED THAT THE MOU DATED 05.03.2003 WAS OPERATIVE TILL 13.01.2004. IT WAS FURTHER CONTENDED THAT THE SAID LONDON INSTITUTE HAD CONFIRMED RECEIPT OF PAYMENT OF RS.2.32 CRORES. IT WAS FURTHER CONTENDED THAT THE PAYMENTS WERE REMITTED THROUGH PROPER CHANNEL AND THERE IS NO DISPUTE ABOUT AC TUAL REMITTANCE. THE ASSESSEE ALSO FILED A COPY OF MOU DATED 05.03.2003 TO SUPPORT ITS CLAIM. THE SE DOCUMENT S WERE NEVER PRESENTED BEFORE THE ASSESSING OFFICER. IT WAS CLAIMED THAT THE ASSESSEE PROCEEDED ON HAJ PILGRIMAGE ON 07.12.2006 AND ARRIVED IN IND IA MUCH AFTER THE ASSESSMENT ORDER WAS PASSED. THAT IS WHY THE SAID MOU COULD NOT BE PRODUCED. IT WAS OBSERVED BY LEARNED CIT(A) THAT AS THIS IS A PIECE OF ADDITIONAL EVIDENCE THE MATTER WAS SENT TO THE ASSESSING OFFICER TO JUSTIFY AS TO WHY THE EVIDENCE SHOULD NOT BE ADMITTED. THE ASSESSING OFFICER WAS ALSO DIRECTED TO EXAMINE THE EVIDENCE ON MERIT S ALSO . T HE ASSESSING OFFICER IN HER REPORT SUBMITTED THAT AMPLE OPPORTUNIT Y WAS GIVEN TO THE ASSESSEE DURING THE ASSESSMENT PROCEEDING TO SUBSTANTIATE HIS CLA IM . SHE FURTHER SUBMITTED THAT THE ASSESSEE LEFT THE COUNTRY ON 07.12.2006 S UFFICIENT TIME WAS THERE BEFORE THAT TO SUBMIT THE DOCUMENT. SHE FURTHER SUBMITTED THAT THE MOU DATED 13.01.2004 WAS SUBMITTED ON 14.08.2006 AND IF THE MOU DATED 05.03.2003 WAS AP PLICABLE THE SAME SHOULD HAVE FILED ON THAT DATE RATHER THAN FILLING A MOU DATED 13.01.2004. THE ASSESSING OFFICER WAS THEREFORE OF THE OPINION THAT ITA NO. 107/M/08 A.Y: 04 - 05 4 ASSESSEE DID NOT FULFILL CONDITIONS LAID DOWN UNDER RULE 46A OF I.T. RULES AND OBJECTED TO ADMISSION OF A DDITIONAL EVIDENCE. IN THE COUNTER REPLY IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE WAS ASKED TO FURNISH THE FRESH SET OF INFORMATION ONLY ON 20.12.2006 WHEN THE ASSESSEE WAS OUT OF INDIA. IT WAS CONTENDED THAT THERE WAS NO OCCASION TO SUBMIT AN Y CLARIFICATION ON THE MOU IN EARLIER HEARINGS FIXED. IT WAS ALSO CONTENDED THAT MOU GIVEN TO THE ASSESSING OFFICER CLEARLY STATES THAT TERMS OF MOU APPLIES ONLY TO PAYMENTS AFTER 13.01.2004. THIS CLEARLY SHOWS THAT THE MOU WAS NOT APPLICABLE TO PAYMENTS M ADE EARLIER TO 13.01.2004. IN THAT SENSE THE MOU DATED 05.03.2003 PRESENTED BEFORE THE CIT(A) IS MERELY CLARIFICATORY IN NATURE. THE ASSESSEE FURTHER SUBMIT TED THAT THE SAID DOCUMENTS CLARIFIES THE CONTROVERSY REGARDING FEE - SHARING AND THE SAME HAS TO BE CONSIDERED IN THE TEST OF FAIRNESS AND JUDICIOUSNESS. THE ASSESSEE ALSO CONTENDED THAT THE ASSESSING OFFICER S REPORT IS SILENT ON THE MERIT OF THE ADDITIONAL EVIDENCE. IT WAS ALSO CONTENDED THAT CIT(A) CAN ADMIT ADDITIONAL EVIDENCE IF IN THE INTEREST OF N ATURAL JUSTICE THE SAME IS NECESSARY. THE ASSESSEE CONTEND ED THAT THE ASSESSING OFFICER S OBSERVATION SHOULD NOT BE ACCEPTED IN THE INTEREST OF JUSTICE. 4. THE LD. CIT(A) OBSERV ED THAT THE ADDITIONAL EVIDENCE SUBMITTED BY THE ASSESSEE WAS CLARIFICATORY I N NATURE AND THERE WAS GENUINE REASON FOR WHICH THE SAME COULD NOT BE PRODUCED BEFORE THE AO AND ITA NO. 107/M/08 A.Y: 04 - 05 5 FURTHER OBSERVED THAT THE LONDON INSTITUTE HAS CONFIRMED THE RECEIPT AND THE PAYMENTS WERE THROUGH BANKING CHANNELS AND VERIFIABLE DELETED THE DISALLOWANCE MA DE BY THE AO. 5. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US TAKING FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN ADMITTING NEW EVIDENCE BY HOLDING THAT THE MOU SUBMITTED BEFORE THE CIT(A) IS CLARIFICATORY IN NATURE AND CANNOT BE HELD AS ADDITIONAL EVIDENCE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.95 35 000/ - PAYABLE TO LONDON INSTITUTE OF TECHNOLOGY AND RESEARCH LONDON UK WITHOUT APPRECIATING THE FACT THAT THE MOU DATED 13.01.2004 DOES NOT REFER TO THE MOU DATED 05.03.2003 AND ON THE OTHER HAND THERE IS A REFERENCE TO MOU DATED 25.11.2003 WHICH HAS NOT BEEN CONSIDERED IN TH E ASSESSMENT AND APPELLATE ORDERS. 3. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RETORED. 6. AT THE TIME OF HEARING THE LD. DR SUBMITS THAT FOR THE REASONS AS DISCUSSED IN THE ASSE SSMENT ORDER AND THE PLEA TAKEN IN THE GROUNDS OF APPEAL THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO. HE THEREFORE SUBMITS THAT THE ORDER PASSED BY THE AO IN THIS REGARD BE RESTORED. ITA NO. 107/M/08 A.Y: 04 - 05 6 7. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE FOR THE ASSESSEE SUPPORTS THE ORDER OF THE LD. CIT(A). 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE. WE FURTHER FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS FILED COPY OF MOU DATED 5.3.2003 TO SUPPORT HIS CLAIM OF FEE SHARING BEFORE THE LD. CIT(A) AND HAS EXPLAINED THAT THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING THE SAME BEFORE THE AO. THE LD. CIT(A) AFTE R GIVING OPPORTUNITY TO THE AO AND AFTER CONSIDERING THE REMAND REPORT OF THE AO HAS ADMITTED THE SAME IN TERMS OF RULE 46A OF THE IT RULES 1962 VIDE FINDING RECORDED IN PARA 4.3 OF HIS ORDER AS UNDER : 4.3 I HAVE CONSIDERED THE CONTENTION OF THE APPELL ANT . IT IS TRUE THAT THE MOU DATED 13.01.2004 WAS FILED ON 14.08.2006. BUT THE ISSUE CAME UP FOR DISCUSSION ONLY IN DECEMBER 2006. AT THIS TIME THE APPELLANT WAS OUT OF INDIA. THE FACT THAT THE APPELLANT WAS GIVEN SEVERAL HEARINGS BEFORE DECEMBER 2006 TH EREFORE CANNOT BE HELD AGAINST THE APPELLANT . THE MOU SPEAKS OF FEES PAYABLE AFTER 13.01.2004. THIS OBVIOUSLY MEANS THERE WAS ANOTHER AGREEMENT GOVERNING THE FEES RECEIVED BEFORE 13.01.2004. THE TOTAL AMOUNT OF FEE WAS NEVER IN DISPUTE. THE LONDON INSTITUT E HAD ALSO CONFIRMED OF THE REMITTANCE. IF THE FEES REMITTED ARE BIFURCATED BETWEEN THOSE BEFORE AND AFTER 13.01.2004 THE SAME TALLIES WITH THE CONTENTION OF THE APPELLANT . IN THAT SENSE I AGREE THAT THE MOU DATED 05.03.2003 HAS TO BE TREATED AS CLARIFICA TORY IN NATURE AND NOT ON ADDITIONAL EVIDENCE AND THAT THERE WAS GENUINE REASON FOR WHICH THE SAME COULD NOT BE PRODUCED BEFORE THE ASSESSING OFFICER. HENCE ASSESSING OFFICER S OBJECTIONS ARE NOT ACCEPTABLE. THE ASSESSING OFFICER DID NOT CHALLENGE THE GE NUINENESS OF ITA NO. 107/M/08 A.Y: 04 - 05 7 THIS MOU DATED 05.03.2003. THE LONDON INSTITUTE HAS CONFIRMED THE RECEIPT. THE PAYMENTS WERE THROUGH BANKING CHANNELS AND VERIFIABLE. HENCE THERE IS NO REASON NOT TO ACCEPT THE CONTENTION OF THE APPELLANT THAT PAYMENTS MADE FOR FEES RECEIVE D BEFORE 13.01.2004 WAS GOVERNED BY THE MOU DATED 05.03.2003. THE ASSESSING OFFICER S DISALLOWANCES OF RS.95.35 LAKHS CANNOT BE SUSTAINED. THE ASSESSING OFFICER IS DIRECTED TO DELETE THE SAME. THE APPELLANT GETS RELIEF OF RS.95 35 000/ - . THE GROUNDS SUCCEE DS. IN THE ABSENCE OF ANY CONTRARY MATERIAL PLACED ON RECORD BY THE REVENUE AGAINST THE FINDING OF THE LD. CIT(A) AND KEEPING IN VIEW THAT THE FEE SHARING WAS MADE AS PER MOU DATED 5.3.2003 AND 13.1.2004 THROUGH BANKING CHANNELS CONFIRMED BY THE LOND ON INSTITUTE OF TECHNOLOGY AND RESEARCH LONDON HENCE WE ARE INCLINED TO UPHOLD THE FINDING OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.95.35 LACS MADE BY THE AO. THE GROUNDS TAKEN BY THE REVEUE ARE THEREFORE REJECTED. 9 . IN THE RESULT REVENUE S APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.4.2010. SD/ - SD/ - ( PRAMOD KUMAR ) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED: 20.4. 20 10 . JV. ITA NO. 107/M/08 A.Y: 04 - 05 8 COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI.