M/S.IAL INDIA LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX

The department conducted survey operations at the premises of IAL Shipping Agencies (Kochi) Ltd Group on 24.08.2007, wherein it was found that the assessee before us is also one of the companies belonging to that group. From the report of survey, several facts came to light and the relevant fact was that assessee company also had an agreement dated 01.04.2001 entered with another company by name IAL Container Line UK Ltd which was also engaged in the same line of business as that of assessee company. Though assessee company was collecting freight and terminal handling charges, such amounts or charges were not reflected in the income from such business activity in the returns filed by them. Hence Assessing Officer issued notice under Section 148 of the Act. Several details were sought from the assessee. Ultimately, the Assessing Officer completed the assessment on the best judgment method under Section 144 of the Act.

Aggrieved by the same, company preferred appeal before the Commissioner of Income Tax (Appeals), Kochi (hereinafter referred to as CIT(Appeals) for short) challenging the additions made by the Assessing Officer on various grounds. CIT (Appeals), placing reliance on the decision of Mumbai Bench of the ITAT and also by referring some of the material placed before it by the assessee. The Appellate authority opined that the assessee was acting as an agent of the UK company and while opining so, deleted the additions made by the Assessing Officer.

Aggrieved by the same, the Revenue approached the Tribunal. The Tribunal, after referring to various observations of the Assessing Officer as well as CIT(Appeals), opined that orders of CIT(Appeals) deserves to be set aside and further restored all the issues to the file of the Assessing Officer with a direction to proceed with the assessments de novo without being influenced by the “Annual No Objection Certificate” dated 16.04.2001 issued by the Deputy Commissioner of Income tax, Circle-I, Mattancherry to examine all the issues afresh. Aggrieved by the same the assessee company is before us.

Learned counsel appearing for the appellant assessee strenuously argues that once there is acceptance of relationship of principal and agent between the UK company and the Indian company, as found in the orders of ITAT, Mumbai which has reached finality, there was no necessity to go into the said issue again so far as Cochin Circle is concerned. According to him, on account of certain material during the survey proceedings at Mumbai, there was an assessment under Section 144 of the Act, so far as Cochin circle is concerned and additions were also made on account of said materials found during the survey. Therefore, there was nothing wrong in placing reliance on the opinion of the Mumbai Tribunal by the CIT(Appeals) at Cochin.

He further substantiates his arguments contending that the opinion of ITAT at Mumbai was confirmed by the High Court of Mumbai, therefore there is finality and Revenue at Cochin Circle cannot hold de novo enquiry as per directions of Tribunal. According to him, the only relevant consideration in the entire material is, whether the appellant-assessee is an agent or principal and consequently the 2nd issue would be whether there is a certificate issued by the concerned authority as required under Section 172 of the Act. If the nature of business at Mumbai and Cochin are similar, there was justification for CIT (Appeals) to refer to judgment of the High court, Mumbai which has reached finality. Therefore, nothing else need to be done by the Assessing Officer, as CIT(Appeals), apart from referring to Mumbai proceedings, has also independently considered the material placed before the CIT(Appeals) and has opined that the certificate issued by Deputy Commissioner under Section 172 of the Act deserves to be taken into consideration. Therefore, nothing else remains for consideration of Assessing Officer.

We have gone through the papers as well as the order of CIT(Appeals) and impugned orders by the Tribunal. Tribunal has in detail referred to the material noticed by the Assessing Officer during proceedings under Section 144 of the Act. At paragraph 5 it also refers to the material pertaining to the assessment of Mumbai Company. The main reason for directing a de novo enquiry was that there are de-centralized companies. In the subsequent orders in the name of M/s.IAL which is nothing but M/s.IAL UK Company. The name of UK Company is changed to M/s.IAL Container Line India Ltd. In order to understand reasoning of the Tribunal, it is just and proper to reproduce paragraphs 4 and 5 of the Tribunal's order which reveal the material facts considered by the Assessing Officer. Paragraphs 4 and 5 read as under:

Paragraph 9 refers to the reasoning why the Tribunal felt in the interest of justice de novo enquiry would clearly established what exactly is the nature of operations conducted by the Cochin Company. It is also glaring and relevant to mention that certain money transactions were noticed between Cochin Company and branch of UK Company at Dubai. This was not taken into consideration at all by CIT (Appeals), though a reference is made. If de novo assessment is done, in the light of the observations at paragraphs 4, 5 and 9 of the orders of the Tribunal independently, without being influenced by any of the observations of the Tribunal, it would give an opportunity to the assessee to put forth all the contentions in support of their stand that Cochin Company is nothing but an agent of the UK based Company and it has no independent status of its own. In other words, it is not a principal; but only acting as an agent.

However, the appellant is also entitled to place further material, if any, in support of their case to clarify the doubts expressed in the above paragraphs of the orders of the Tribunal and the Assessing Officer, without being influenced by any of the observations of the Tribunal, shall proceed with the matter as directed by the Tribunal which would meet ends of justice.