Panasonic Industrial Asia Pte Ltd, New Delhi v. Deputy Director of Income Tax, New Delhi

ITA 1726/DEL/2009 | 2003-2004
Pronouncement Date: 27-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 172620114 RSA 2009
Assessee PAN AACCP7345J
Bench Delhi
Appeal Number ITA 1726/DEL/2009
Duration Of Justice 1 year(s) 7 month(s) 29 day(s)
Appellant Panasonic Industrial Asia Pte Ltd, New Delhi
Respondent Deputy Director of Income Tax, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 27-12-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted F
Tribunal Order Date 27-12-2010
Assessment Year 2003-2004
Appeal Filed On 28-04-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F : NEW DELHI DELHI BENCH F : NEW DELHI DELHI BENCH F : NEW DELHI DELHI BENCH F : NEW DELHI BEFORE SHRI C.L.SETHI JM AND SHRI A.K.GARODIA AM BEFORE SHRI C.L.SETHI JM AND SHRI A.K.GARODIA AM BEFORE SHRI C.L.SETHI JM AND SHRI A.K.GARODIA AM BEFORE SHRI C.L.SETHI JM AND SHRI A.K.GARODIA AM ITA NOS.1725/DEL/2009 1726/DEL/2009 & 1727/DEL/200 9 ITA NOS.1725/DEL/2009 1726/DEL/2009 & 1727/DEL/200 9 ITA NOS.1725/DEL/2009 1726/DEL/2009 & 1727/DEL/200 9 ITA NOS.1725/DEL/2009 1726/DEL/2009 & 1727/DEL/200 9 ASSESSMENT YEARS : 2002 ASSESSMENT YEARS : 2002 ASSESSMENT YEARS : 2002 ASSESSMENT YEARS : 2002- -- -03 2003 03 2003 03 2003 03 2003- -- -04 & 2004 04 & 2004 04 & 2004 04 & 2004- -- -05 0505 05 M/S PANASONIC INDUSTRIAL ASIA M/S PANASONIC INDUSTRIAL ASIA M/S PANASONIC INDUSTRIAL ASIA M/S PANASONIC INDUSTRIAL ASIA PTE PTE PTE PTE LIMITED LIMITED LIMITED LIMITED 510 E 510 E 510 E 510 E- -- -BLOCK BLOCK BLOCK BLOCK INTERNATIONAL TRADE TOWER INTERNATIONAL TRADE TOWER INTERNATIONAL TRADE TOWER INTERNATIONAL TRADE TOWER NEHRU PLACE NEHRU PLACE NEHRU PLACE NEHRU PLACE NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 019. 110 019. 110 019. 110 019. PAN NO.AACCP7345J. PAN NO.AACCP7345J. PAN NO.AACCP7345J. PAN NO.AACCP7345J. VS. VS. VS. VS. DEPUTY DIRECTOR OF INCOME TAX DEPUTY DIRECTOR OF INCOME TAX DEPUTY DIRECTOR OF INCOME TAX DEPUTY DIRECTOR OF INCOME TAX CIRCLE CIRCLE CIRCLE CIRCLE- -- -2(1) 2(1) 2(1) 2(1) INTERNATIONAL TAXATION INTERNATIONAL TAXATION INTERNATIONAL TAXATION INTERNATIONAL TAXATION NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJAN R.VOHRA AR. RESPONDENT BY : SHRI ASHWANI KUMAR MAHAJAN CIT- DR. ORDER ORDER ORDER ORDER PER A.K.GARODIA AM : PER A.K.GARODIA AM : PER A.K.GARODIA AM : PER A.K.GARODIA AM : ALL THESE APPEALS ARE FILED BY THE ASSESSEE WHICH ARE DIRECTED AGAINST THE SEPARATE ORDERS OF LEARNED CIT(A)-XXIX NEW DELHI ALL DATED 30.1.2009 FOR THE AY 2002-03 03-04 & 2004-05. SIN CE COMMON ISSUE IS INVOLVED ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. 2. IN AY 2002-03 SOME TECHNICAL ISSUES ARE RAISED BY THE ASSESSEE AS PER GROUND NOS.1 2 & 3 WHICH ARE AS UNDER:- 1. THAT THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS)-XXIX (HONBLE CIT(A)) HAS ERRED IN UPHO LDING THE VALIDITY OF THE NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT 1961 (ACT) ISSUED TO PANASONIC INDUSTRIA L ASIA PTE LIMITED (THE APPELLANT) WHEN THE DEPUTY DIRECTOR OF ITA-1725 TO 1727/D/2009 2 INCOME TAX CIRCLE 2(1) INTERNATIONAL TAXATION NE W DELHI (LEARNED ASSESSING OFFICER) HAD NO REASON TO BELI EVE THAT INCOME HAD ESCAPED ASSESSMENT. 1.1 THE HONBLE CIT(A) GROSSLY ERRED IN LAW IN STAT ING THAT AS THE APPELLANT HAS OPENED A BRANCH OFFICE IN INDI A IN THE FOLLOWING ASSESSMENT YEAR 2003-2004 (FOR WHICH THE APPELLANT SUO-MOTO FILED A RETURN OF INCOME) THERE IS SUFFICIENT REASON FOR THE LEARNED ASSESSING OFFICER TO BELIEVE THAT INCOME HAD ESCAPED TAX IN EARLIER YEAR S. 2. THE HONBLE CIT(A) HAS ERRED IN UPHOLDING PASSIN G OF ASSESSMENT ORDER UNDER SECTION 144 OF THE ACT FOR T HE SUBJECT ASSESSMENT YEAR. 2.1 THAT THE HONBLE CIT(A) HAS GROSSLY ERRED IN LA W AND FACTS IN STATING THAT APPELLANT HAS FAILED TO AVAIL THE O PPORTUNITY OF FURNISHING DETAILS BEFORE THE HONBLE CIT(A) WHE N ALL DETAILS AS REQUIRED BY THE HONBLE CIT(A) WERE DU LY FILED DURING THE COURSE OF APPELLATE PROCEEDINGS. 3. THAT THE HONBLE CIT(A) HAS ERRED IN FACTS AND I N LAW IN : 3.1 UPHOLDING CONTENTION OF THE LEARNED ASSESSING O FFICER THAT THE APPELLANT HAS A PERMANENT ESTABLISHMENT AS PER ARTICLE 5 OF THE AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION BETWEEN INDIA AND SINGAPORE IN THE FORM OF INDUSTRI AL SALES DIVISION (ISD) OF NATIONAL PANASONIC INDIA LIMITE D (NPIL) AS HE ASSUMED WITHOUT FACTS THAT ALL ACTIVITIES I N THE SALES PROCESS ARE CARRIED OUT BY ISD OF NPIL. THE HONBL E CIT(A) IGNORED REPEATED PLEA OF THE APPELLANT THAT THERE A RE NO FACTS TO SUPPORT SUCH ASSUMPTIONS WHEN EVEN THE L EARNED ASSESSING OFFICER DID NOT REFUTE CONTENTIONS OF THE APPELLANT IN HIS REMAND REPORT. 3.2 IN HOLDING THAT APPELLANTS CORE BUSINESS ACTIV ITIES WERE CARRIED OUT BY ISD DIVISION OF NPIL. 3. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY IS A C OMPANY INCORPORATED IN SINGAPORE ON 14.8.2001. THE ASSESS EE IS PRIMARILY ENGAGED IN THE BUSINESS OF TRADING OF INDUSTRIAL PR ODUCES SUCH AS COMPRESSORS SEMI-CONDUCTORS MACHINERY AND BATTERI ES. THE ASSESSEE ESTABLISHED A BRANCH OFFICE IN INDIA WHICH RECEIVED THE NECESSARY ITA-1725 TO 1727/D/2009 3 APPROVAL FROM RBI ON 7.9.2002. A CERTIFICATE OF ES TABLISHMENT OF PLACE OF BUSINESS IN INDIA WAS GRANTED BY THE REGISTRAR O F COMPANIES ON 26.9.2002. REASSESSMENT PROCEEDINGS WERE INITIATED BY THE AO AGAINST THE ASSESSEE FOR THIS ASSESSMENT YEAR ALONG WITH THREE EARLIER ASSESSMENT YEARS I.E. AY 1999-2000 2000-01 & 2001- 02. THE AO ASKED THE ASSESSEE TO FILE THE RETURN OF INCOME FOR THE PRESENT ASSESSMENT YEAR AS WELL AS THE EARLIER THREE YEARS. IN REPLY THE ASSESSEE SUBMITTED BEFORE THE AO THAT IT CANNOT FIL E ANY RETURN OF INCOME SINCE THE ASSESSEE COMPANY WAS NOT IN EXISTE NCE DURING AY 1999-2000 2000-01 & 2001-02 AND REGARDING AY 2002- 03 I.E. THE PRESENT ASSESSMENT YEAR IT WAS SUBMITTED THAT THE ASSESSEE WAS IN EXISTENCE IN SINGAPORE BUT IT DID NOT HAVE A TAXABL E PRESENCE IN INDIA AND CONSEQUENTLY THERE WAS NO REQUIREMENT FOR IT T O FILE RETURN OF INCOME. DISREGARDING THE ASSESSEES RESPONSE THE AO PASSED ASSESSMENT ORDER U/S 144 FOR THE PRESENT YEAR WHIC H WAS RECEIVED BY THE ASSESSEE ON 29.9.2007. THERE IS NO DISPUTE BEF ORE US REGARDING AY 1999-2000 2000-01 & 2001-02 BUT REGARDING THE PRES ENT ASSESSMENT YEAR THE ASSESSEE HAS RAISED TECHNICAL OBJECTIONS BEFORE US ALSO ALTHOUGH THESE OBJECTIONS WERE REJECTED BY THE CIT( A). 4. REGARDING THE VALIDITY OF THE REASSESSMENT PROCE EDINGS IN AY 2002-03 THE MAIN OBJECTION OF THE ASSESSEE IS THAT REASSESSMENT PROCEEDINGS ARE NOT VALID BECAUSE THE AO HAD NO REA SON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. THIS OBJECTION IS BASED ON THIS FACTUAL POSITION THAT THE ASSESSEE COMPANY WAS INCO RPORATED IN SINGAPORE ON 14.8.2001 AND THEREAFTER THE ASSESSEE COMPANY WAS ESTABLISHED IN INDIA AFTER RBI APPROVAL OBTAINED ON 7.9.2002 AND HENCE THE ASSESSEE HAD NO PRESENCE IN INDIA DURING THIS YEAR. THE SECOND OBJECTION OF THE ASSESSEE IS THAT THE REASON S RECORDED BY THE AO FOR ISSUANCE OF NOTICE U/S 148 WERE NOT PROVIDED TO THE ASSESSEE AS HAD BEEN HELD BY THE HONBLE APEX COURT IN THE CASE OF GKN DRIVE SHAFTS 259 ITR 19. THE THIRD OBJECTION OF THE AS SESSEE IS THAT WHEN ITA-1725 TO 1727/D/2009 4 THE REASSESSMENT PROCEEDINGS ARE INITIATED U/S 148 THE AO CANNOT PASS AN ASSESSMENT ORDER U/S 144 AND THIS IS THE FO URTH OBJECTION OF THE ASSESSEE THAT SUCH AN ORDER PASSED BY THE AO U/ S 144 IS BARRED BY LIMITATION BECAUSE THE ASSESSMENT ORDER WAS PASSED IN THE PRESENT CASE ON 27.9.2006 WHEREAS THE TIME LIMIT FOR PASSIN G SUCH AN ORDER EXPIRED ON 31.3.2005 I.E. ON THE EXPIRY OF TWO YEAR S FROM THE END OF THE ASSESSMENT YEAR I.E. AY 2002-03. LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE A UTHORITIES BELOW. REGARDING THE FIRST AND MAIN OBJECTION OF THE ASSES SEE IN CONNECTION WITH VALIDITY OF REASSESSMENT PROCEEDINGS WE FIND THAT THIS ASPECT HAS BEEN DECIDED BY THE CIT(A) AGAINST THE ASSESSEE BY MAKING FOLLOWING OBSERVATIONS ON PAGE 4 & 5 OF HIS ORDER IN ADDITION TO OTHER OBSERVATIONS AND BY FOLLOWING CERTAIN JUDGMENTS. T HESE OBSERVATIONS OF CIT(A) FROM PAGE 4 & 5 OF HIS ORDER ARE REPRODUC ED BELOW:- IT WILL BE SEEN THAT FROM THE APPELLANTS OWN ADMI SSION THAT INITIALLY AO FRAMED AN ASSESSMENT FOR AY 2003- 04 AND CAME TO THE CONCLUSION THAT THE APPELLANT HAD A PE IN INDIA AND ACCORDINGLY HE BROUGHT INCOME TO TAX IN TERMS O F THE PROVISIONS OF THE INDO-SINGAPORE DTAA. THE RELEVAN T OBSERVATIONS OF THE AO WITH REGARD TO EXISTENCE OF PE AS WELL AS THE ATTRIBUTION OF PROFITS ARE AS UNDER: TAXABILITY UNDER THE INCOME TAX ACT THE BRANCH OFFICE OF THE ASSESSEE IS BUSINESS CONNE CTION OF MEI GROUP IN INDIA AS THIS OFFICE IS RESPONSIBLE FO R IDENTIFYING THE CUSTOMERS OF THE GROUP MAKING PRESENTATION TO THEM UNDERTAKING NEGOTIATION AND FINALISATION OF DEAL. SUPERVISION OF SUPPLIES TO B E MADE FROM OVERSEAS SUPPORT IN CUSTOM CLEARANCE AFTER-S ALES SERVICES RECEIPT OF PAYMENT ARE UNDERTAKEN BY THE BRANCH IN INDIA. THERE WAS NO DISPUTE WITH REGARD TO THE FACT THAT THE BRANCH OFFICE OF THE ASSESSEE IS BUSINESS CONNE CTION OF THE GROUP THOUGH WHICH THE GROUP IS IN RECEIPT OF I NCOME ITA-1725 TO 1727/D/2009 5 FROM INDIA. THEREFORE IT IS HELD THAT THE BRANCH OF THE ASSESSEE IN INDIA DOES CONSTITUTE BUSINESS CONNECT ION WITHIN THE MEANING OF SECTION 9 OF THE INCOME TAX A CT 1961 AND ACCORDINGLY PROFIT OF THE ASSESSEE ATTRIBU TABLE IT SHALL BE LIABLE TO TAX IN INDIA. THESE FINDINGS OF THE AO ARE ADEQUATE REASONS TO HA VE FORMED TO BELIEF THAT INCOME IN THE YEARS HAD ESCAP ED ASSESSMENT. IT IS ALSO TO BE KEPT IN MIND THAT THE AO AS TO ONLY FORM PRIMA-FACIE REASONS ON THE BASIS INFORMAT ION GATHERED BY HIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR AY 2003-04. IT IS A WELL ESTABLISH ED PRINCIPLE THAT WHILE RECORDING REASONS FOR THE REOP ENING THE ASSESSMENT IT IS NOT NECESSARY TO COMPUTE THE INCOM E. PRIMA FACIE REASON TO BELIEF THAT INCOME HAS ESCAPE D ASSESSMENT WILL BE SUFFICIENT TO FORM HIS BELIEF AS LAID DOWN BY THE HON'BLE SUPREME COURT OF INDIA IN THE CASE O F RAYMONDS LTD. ONLY DISTINCTION THAT HAS TO BE MAD E IS THAT WHILE RECORDING REASONS IT IS ONLY A REASON TO BELIEVE NOT A REASON TO SUSPECT AND AT THE SAME TIME AND NO T NECESSARILY COMPUTATION OF INCOME. IN VIEW OF THIS THE AO CANNOT BE FAULTED WITH FOR HAVING ISSUE NOTICE U/S 148 ON THE BASIS OF INFORMATION WHICH CAME INTO HIS POSSES SION WHILE FRAMING THE ASSESSMENT FOR AY 2003-04. SO FA R AS THE LEGALITY OF THE ISSUE FOR ASSUMING JURISDICTION U/S 147 IS THAT THERE SHOULD BE A REASON TO BELIEVE THAT INCOM E CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THUS WHE RE THERE IS INFORMATION AFTER THE ASSESSMENT IS MADE OR EVEN WHERE TIME FOR FILING RETURN HAS PASSED REASSESSME NT IS UNAVOIDABLE IF THE AO ACTS ON THE INFORMATION. HOW EVER THE INFORMATION SHOULD BE DEFINITE AND NOT VAGUE AN D MAY NOT BE IN THE NATURE OF CHANGE OF OPINION. ON THE BASIS OF THE INFORMATION REASONS HAVE TO BE RECORDED PRIOR T O ISSUE OF NOTICE. IT IS IMPORTANT TO KEEP IN MIND THAT AO HAS IN COMPLIANCE TO THE RATIO OF SUPREME COURT DECISION I N CASE OF GKN DRIVESHAFT (INDIA) LTD. VS. ITO (2003) 215 I TR 19 (SC) ISSUED AN ORDER INDICATING THE REASONS AND ATT ENDED TO THE OBJECTIONS RAISED BY THE APPELLANT. IN SHOR T FOLLOWING PRINCIPLE HAS BEEN LAID DOWN BY THE SUPREME COURT. 6. FROM THESE OBSERVATIONS OF CIT(A) IT IS SEEN TH AT IT IS HELD BY LEARNED CIT(A) THAT ADEQUATE REASONS WERE THERE ON THE BASIS OF WHICH THE AO FORMED A BELIEF THAT INCOME IN THIS YEAR HAS ESCAPED ASSESSMENT. THIS IS BY NOW A SETTLED LEGAL POSITIO N THAT THE AO HAS TO ONLY FORM PRIMA-FACIE BELIEF ON THE BASIS OF INFORM ATION AVAILABLE WITH ITA-1725 TO 1727/D/2009 6 HIM THAT INCOME HAS ESCAPED ASSESSMENT AND IT IS SU FFICIENT FOR THE PURPOSE OF REOPENING OF ASSESSMENT. CONSIDERING TH ESE FACTS WE ARE OF THE CONSIDERED OPINION THAT THE REOPENING IN THE PRESENT CASE IS VALID. 7. REGARDING THIS OBJECTION OF THE ASSESSEE THAT CO PY OF REASONS RECORDED BY THE AO HAVE NOT BEEN PROVIDED TO THE AS SESSEE WE FIND THAT AS PER THE JUDGMENT OF HONBLE APEX COURT REND ERED IN THE CASE OF GKN DRIVE SHAFTS (SUPRA) THE ASSESSEE CAN ASK FOR REASONS ONLY AFTER FILING THE RETURN OF INCOME U/S 148 AND SINCE IN TH E PRESENT CASE THE ASSESSEE HAD NOT FILED HIS RETURN OF INCOME AS REQU IRED BY THE AO AS PER NOTICE U/S 148 THE ASSESSEE CANNOT CLAIM COPY OF REASONS RECORDED BY THE AO AND THIS CANNOT BE THE BASIS TO ALLEGE THAT THE REOPENING IS NOT VALID. 8. THE THIRD OBJECTION OF THE ASSESSEE IS THAT NO S UCH ORDER CAN BE PASSED U/S 144 WHERE THE ASSESSMENT HAS BEEN REOPEN ED BY THE AO U/S 148. WE ARE NOT IN AGREEMENT WITH THE LEARNED AR OF THE ASSESSEE ON THIS ASPECT BECAUSE AS PER PROVISIONS OF SECTION 144 BEST JUDGEMENT ASSESSMENT U/S 144 CAN BE RESORTED TO BY THE AO IF THE ASSESSEE FAILS TO FILE RETURN OF INCOME U/S 139. A S PER THE PROVISIONS OF SECTION 148 THE RETURN FILED OR TO BE FILED IN RES PONSE TO NOTICE U/S 148 IS TO BE TREATED AS RETURN FILED OR TO BE FILED U/S 139(1). THE RETURN FILED OR TO BE FILED IN RESPONSE TO NOTICE U/S 148 IS TO BE TREATED AS RETURN FILED OR TO BE FILED U/S 139(1) AND HENCE THE ACT OF THE ASSESSEE FOR NOT FILING THE RETURN U/S 148 IS EQUIVALENT TO THE FAIL URE OF THE ASSESSEE TO FILE RETURN OF INCOME U/S 139(1) AND BECAUSE OF THI S FAILURE OF THE ASSESSEE THE AO IS EMPOWERED TO RESORT TO SECTION 144 FOR MAKING BEST JUDGEMENT ASSESSMENT. HENCE THIS OBJECTION I S ALSO REJECTED. 9. REGARDING THE FOURTH OBJECTION OF THE ASSESSEE T HAT THE ASSESSMENT ORDER PASSED BY THE AO IS TIME BARRED W E ARE NOT SATISFIED ITA-1725 TO 1727/D/2009 7 BECAUSE WE FIND THAT THE REASSESSMENT PROCEEDINGS W ERE INITIATED BY THE AO ON 3.7.2006 BY WAY OF ISSUING NOTICE U/S 148 AND HENCE AS PER THE PROVISIONS OF SECTION 153(2) THE ORDER OF ASSESSMENT/REASSESSMENT CAN BE PASSED UPTO THE EXPI RY OF ONE YEAR FROM THE END OF THE FINANCIAL YEAR IN WHICH THE NOT ICE U/S 148 WAS SERVED. HENCE THE REASSESSMENT IN THE PRESENT CAS E COULD HAVE BEEN COMPLETED UPTO 31.3.2008 BECAUSE THE REASSESSMENT P ROCEEDINGS WERE INITIATED IN THE FY 2006-07 BY WAY OF ISSUING NOTICE U/S 148 ON 3.7.2006. SIMPLY BECAUSE THE AO HAS MENTIONED IN T HE ASSESSMENT ORDER THAT THE ASSESSMENT ORDER IS BEING PASSED U/S 144 AND HE HAS OMITTED TO MENTION SECTION 144/148 IT CANNOT BE HE LD THAT THE ASSESSMENT IS TIME BARRED BECAUSE ADMITTEDLY THE P ROCEEDINGS ITSELF WERE INITIATED BY ISSUING NOTICE U/S 148 AND THEREF ORE THE PROVISIONS OF SECTION 153(2) ARE APPLICABLE AND NOT 153(1). THIS OBJECTION IS ALSO REJECTED. 10. HENCE WE HAVE SEEN THAT ALL THE OBJECTIONS RAI SED BY THE ASSESSEE ARE NOT VALID AND HENCE THE SAME ARE REJE CTED. THESE GROUNDS OF THE ASSESSEE ARE REJECTED. 11. REGARDING MERIT OF THE CASE IN ALL THE THREE YE ARS IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT AS PER THE APPEAL EFFECT ORDER PASSED BY THE AO THE ASSESSED INCOME OF THE ASSESSEE HAS BEEN QUANTIFIED AT ` 5 38 731/- FOR AY 2002-03 AT ` 12 33 302/- FOR AY 2003-04 AND AT ` 18 22 735/- FOR AY 2004-05. IT IS SUBMITTED BY HIM THAT SINCE THE REVENUE IS NOT IN APPEAL THE INCOME ASSESSED AS PER THE APPEAL EFFECT ORDER IS THE MAXIMUM AND IT CANNO T BE FURTHER ENHANCED. IT WAS SUBMITTED BY HIM THAT UNDER THIS FACTUAL POSITION THE ASSESSEE WILL BE SATISFIED IF ONLY ONE RELIEF I S ALLOWED I.E. REGARDING CLAIM FOR EXPENSES AGAINST COMMISSION INCOME FROM O THER GROUP COMPANIES AND OTHER INCOME BECAUSE THESE TWO INCOME S HAVE BEEN ASSESSED BY THE AO ON GROSS BASIS AND DEDUCTION OF EXPENSES AGAINST ITA-1725 TO 1727/D/2009 8 THESE INCOMES WAS NOT ALLOWED. HE SUBMITTED A WORK ING AS PER WHICH THE ASSESSEE IS ELIGIBLE FOR DEDUCTION ON ACCOUNT O F EXPENSES TO THE EXTENT OF ` 63 09 531/- IN AY 2003-04 AND ` 2 01 70 190/- IN RESPECT OF AY 2004-05 AFTER WHICH THE TAXABLE INCOME WILL COME DOWN TO ` 19 85 596/- IN AY 2003-04 AND ` 46 18 078/- IN AY 2 004-05 AS AGAINST THE RETURNED INCOME OF ` 14 21 810/- AND ` 48 37 18 0/-0 RESPECTIVELY. IT IS ALSO SUBMITTED THAT SINCE IN AY 2004-05 THE RETURNED INCOME IS MORE THE FINAL INCOME MAY BE DETERMINED AS PER RET URNED INCOME. IT IS SUBMITTED BY HIM THAT FOR THE PURPOSE OF FACTUAL VERIFICATION REGARDING QUANTIFICATION OF ALLOWABILITY OF THESE E XPENSES THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE AO FOR FRES H DECISION. LEARNED DR OF THE REVENUE ALSO AGREED TO THIS BROAD PROPOSI TION PUT FORWARD BY THE LEARNED AR OF THE ASSESSEE AND HE ALSO REQUESTE D THAT THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE AO FOR FRES H DECISION AFTER ALLOWING DEDUCTION OF EXPENSES WHICH ARE INCURRED I N CONNECTION WITH OR IN RELATION TO THE EARNING OF INCOME IF ANY. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE A UTHORITIES BELOW. THE RELEVANT CHART SUBMITTED BY THE ASSESSEE FOR AL LOWING DEDUCTION ON ACCOUNT OF EXPENSES IS AS UNDER:- RELIEF SOUGHT FROM YOUR HONORS S.NO. PARTICULARS ASSESSMENT YEAR 2002- 2003 (FROM 14 AUGUST 2001 TO 31 MARCH 2002) ASSESSMENT YEAR 2003- 2004 (FROM 1 APRIL 2002 TO 31 MARCH 2003) ASSESSMENT YEAR 2004- 05 (FROM 1 APRIL 2003 TO 31 MARCH 2004) 1 COMMISSION INCOME FROM PIA SINGAPORE (BASED ON REVISED COMPUTATION) (REFER 538 731* 1 233 302 1 822 735 ITA-1725 TO 1727/D/2009 9 PAGE 2 OF PAPER BOOK) 2 COMMISSION INCOME FROM GROUP COMPANIES (BASED ON APPEAL EFFECT ORDER IT IS ACTUAL INCOME AS REPORTED IN FINANCIAL STATEMENTS) (REFER PAGE 17 AND PAGE 18 OF PAPER BOOK) 0 5 216 507 15 588 357 3 OTHER INCOME (THIS INCLUDES REVENUE ON SALE OF CERTAIN SPARE PARTS AND SUBSIDY RECEIVED WHICH IS ACTUALLY REIMBURSEMENT OF CERTAIN EXPENSES INCURRED BY BRANCH OFFICE) (REFER PAGE 3 OF PAPER BOOK) 0 1 845 318 7 377 175 4 TOTAL INCOME 538 731 8 295 127 24 788 267 5 LESS : CLAIM FOR EXPENSES (REFER PAGE 5 OF PAPER BOOK)** 0 (6 309 531) (20 170 190) 6 BALANCE INCOME WHICH MAY BE SUBJECT TO TAX 538 731 1 985 596 4 618 078 7 TOTAL INCOME AS PER RETURN OF INCOME*** NOT APPLICABLE 1 421 810 4 837 180 *THE FIGURE IS BASED ON APPEAL EFFECT ORDER PASSED BY LEARNED ADIT FOR ASSESSMENT YEAR 2002-2003. **TOTAL EXPENSES CLAIMED ABOVE ARE OUT OF TOTAL EXP ENSES OF RS.12 665 590 FOR ASSESSMENT YEAR 2003-2004 AND RS.32 154 525 FOR ASS ESSMENT YEAR 2004-2005. ***WE UNDERSTAND THAT RELIEF UNDER ASSESSMENT YEAR 2004-2005 WOULD BE RESTRICTED TO RETURNED INCOME. 13. WE FIND THAT THE AO HAS MADE ADDITION OF THE GR OSS AMOUNT OF INCOME ON ACCOUNT OF COMMISSION INCOME FROM GROUP C OMPANIES AND OTHER INCOME WITHOUT ALLOWING ANY DEDUCTION OF EXPE NSES AGAINST THESE INCOMES. WITH THIS WE ARE NOT SATISFIED BEC AUSE GROSS INCOME CANNOT BE BROUGHT TO TAX AND ONLY NET INCOME AFTER ALLOWING DEDUCTION ITA-1725 TO 1727/D/2009 10 OF EXPENSES IF ANY ONLY CAN BE BROUGHT TO TAX. D EDUCTION HAS BEEN WORKED OUT BY THE ASSESSEE ON THIS BASIS THAT DIREC T EXPENSES ON ACCOUNT OF SALE OF SPARE PARTS TO THE EXTENT OF ` 1 6 24 519/- SHOULD BE CONSIDERED FOR ALLOWING DEDUCTION AGAINST INCOME ON ACCOUNT OF SALE OF GOODS OF ` 24 93 372/- IN AY 2004-05. IT IS ALSO C ONTENDED THAT INCOME CONSIDERED ON ACCOUNT OF SUBSIDY OF ` 14 17 132/- I N AY 2003-04 AND ` 32 53 654/- IN AY 2004-05 ARE ACTUALLY REIMBURSEMEN T OF EXPENSES INCURRED BY PIA SINGAPORE TO BRANCH OFFICE ON TRAI NING OF EMPLOYEES. IF THE SAME IS CONSIDERED AS INCOME THEN ACTUAL EXPEN SES INCURRED ON THAT ACCOUNT HAVE TO BE ALLOWED AS EXPENSES AFTER V ERIFYING THE DETAILS AND EVIDENCES REGARDING INCURRING OF THOSE EXPENSES . IN ADDITION TO THIS THE ASSESSEE HAS CLAIMED DEDUCTION OF ` 63 09 531/- IN AY 2003- 04 AND ` 2 01 70 190/- IN AY 2004-05 BEING PROPORTI ONATE ALLOCATION OF INDIRECT EXPENSES. SUCH ALLOCATION HAS BEEN MADE A FTER DEDUCTING THE DIRECT EXPENSES FROM TOTAL EXPENSES AND THEN ALLOCA TING THE SAME IN PROPORTION TO RECEIPT CONSIDERED AS INCOME IN INDIA . THE WORKING REGARDING SUCH ALLOCATION OF EXPENSES IS AVAILABLE ON PAGES 4 & 5 OF THE SUBMISSIONS OF THE ASSESSEE BEFORE US DATED 1.1 1.2010 AND FOR THE SAKE OF READY REFERENCE THESE WORKINGS ARE REPRODU CED HEREINBELOW:- DETAILS OF EXPENSES S.NO. PARTICULARS ASSESSMENT YEAR 2002- 2003 (FROM 14 AUGUST 2001 TO 31 MARCH 2002) ASSESSMENT YEAR 2003- 2004 (FROM 1 APRIL 2002 TO 31 MARCH 2003) ASSESSMENT YEAR 2004- 2005 (FROM 1 APRIL 2003 TO 31 MARCH 2004) 1 TOTAL EXPENSES INCURRED (AS PER FINANCIAL STATEMENTS) (REFER PAGE 15 OF PAPER BOOK) NOT APPLICABLE* 12 665 590 32 154 525 LESS : EXPENSES DIRECTLY ALLOCATED 2 AMOUNT OF REIMBURSEMENTS (AS PER FINANCIAL STATEMENTS) (REFER PAGE 14 OF PAPER BOOK) AS MENTIONED IN THE DETAILS OF OTHER INCOME REIMBURSEMENT OF EXPENSES BY PIA SINGAPORE HAVE ALREADY BEEN CONSIDERED AS PART OF PIA SINGAPORES PROFITS ATTRIBUTED TO INDIA AND HENCE SHOULD NOT BE ADDED SEPARATELY. SINCE THESE ARE BEING EXCLUDED NOT APPLICABLE (1 417 132) (3 253 654) ITA-1725 TO 1727/D/2009 11 FROM TOTAL INCOME THEY HAVE SIMULTANEOUSLY BEEN EXCLUDED FROM EXPENSES AS WELL. 3 ACTUAL EXPENSES IN RELATION TO SALE OF SPARE PARTS COST OF SPARE PARTS PURCHASED (REFER PAGE 16 OF PAPER BOOK) NOT APPLICABLE 0 (1 624 519) 4 BALANCE INDIRECT EXPENSES (4=1- (2+3) NOT APPLICABLE 11 248 458 27 276 352 ALLOCATION OF INDIRECT EXPENSES 5 EXPENSES ALLOCATED AGAINST INCOME EARNED FROM GROUP COMPANIES EXCLUDING REIMBURSEMENTS AND REVENUE FROM SALE OF SPARES (REFER PAGE 7 OF PAPER BOOK) NOT APPLICABLE 4 521 280 13 844 256 6 EXPENSES ALLOCATED AGAINST OTHER INCOME EXCLUDING REIMBURSEMENTS AND REVENUE FROM SALE OF SPARES (REFER PAGE 7 OF PAPER BOOK) NOT APPLICABLE 371 120 1 447 760 7 TOTAL EXPENSES CLAIMED (9=(2+3+5+6) 6 309 531 20 170 190 * PANASONIC INDUSTRIAL ASIA PTE LIMITED CAME INTO EXI STENCE ON 14 AUGUST 2001 WHEN IT WAS INCORPORATED IN SINGAPORE. NO RETURN OF INC OME WAS FILED BY THE APPELLANT FOR THIS ASSESSMENT YEAR AS IT DID NOT HAVE ANY TAXABLE PRESENCE IN INDIA. 14. SINCE IT IS NOT POSSIBLE FOR US TO VERIFY THE C ORRECTNESS OF THIS WORKING WE RESTORE THIS MATTER BACK TO THE FILE OF THE AO FOR THIS PURPOSE. WE SET ASIDE THE ORDER OF CIT(A) ON THIS ISSUE IN AY 2003-04 & 2004-05 AND DIRECT THE AO TO ALLOW DEDUCTION TO T HE ASSESSEE ON ACCOUNT OF EXPENSES INCURRED BY IT IN CONNECTION WI TH EARNING OF COMMISSION INCOME FROM GROUP COMPANIES AND OTHER IN COMES WHICH ARE BROUGHT TO TAX ON GROSS BASIS. THE WORKING OF THE ASSESSEE SHOULD BE VERIFIED AND EXPENSES SHOULD BE ALLOWED AS DEDUC TION TO THE EXTENT IT IS FOUND THAT THE EXPENSES ARE ALLOCABLE TOWARDS EARNING OF THESE TWO INCOMES. IF THE NET INCOME AFTER ALLOWING DEDU CTION OF EXPENSES IS LOWER THAN RETURNED INCOME IN ANY YEAR THEN THE FI NAL ASSESSED INCOME SHOULD BE THE RETURNED INCOME WHICH MEANS TH AT DEDUCTION ON ACCOUNT OF EXPENSES SHOULD BE RESTRICTED TO THAT EX TENT WHICH RESULT INTO NET INCOME TO THE EXTENT OF RETURNED INCOME. THE AO SHOULD PASS NECESSARY ORDER AS PER LAW AS PER ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN AY 2003-04 AND 2004-05. REGARDING AY 2002-03 IT HAS BEEN SUB MITTED BY THE ITA-1725 TO 1727/D/2009 12 ASSESSEE THAT NO WORKING CAN BE MADE AVAILABLE REGA RDING EXPENSES OF THIS YEAR. HENCE FOR AY 2002-03 WE CONFIRM THE O RDER OF CIT(A) BECAUSE IN THIS YEAR ONLY COMMISSION FROM PIA SING APORE HAS BEEN BROUGHT TO TAX AND NO INCOME ON ACCOUNT OF COMMISSI ON FROM GROUP COMPANIES AND OTHER INCOME HAS BEEN BROUGHT TO TAX IN THIS YEAR AND THEREFORE NO DEDUCTION IS TO BE ALLOWED IN THIS YE AR ON ACCOUNT OF EXPENSES. AS A RESULT THE APPEAL OF THE ASSESSEE FOR AY 2002-03 IS DISMISSED WHEREAS THE REMAINING TWO APPEALS FOR AY 2003-04 & 2004- 05 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 27 TH DECEMBER 2010. SD/- SD/- (C.L.SE (C.L.SE (C.L.SE (C.L.SETHI) THI) THI) THI) (A.K.GARODIA) (A.K.GARODIA) (A.K.GARODIA) (A.K.GARODIA) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATED : 27.12.2010 VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT ASSISTANT REGISTRAR ITA-1725 TO 1727/D/2009 13