HERBALIFE INTERNATIONAL INDIA PRIVATE LIMITED vs. THE DEPUTY COMMISSIONER OF INCOME-TAX

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ITA/630/2017HC KarnatakaKAHC01051822201711 July 2023Bench: P.S.DINESH KUMAR,T.G. SHIVASHANKARE GOWDA5 pages
AI SummaryRemanded

What did the High Court hold?

The High Court allowed the appeal. It noted that questions 1 and 2 were to be reconsidered by the ITAT, as decided in a related appeal (ITA No. 629/2017). The Court observed that the assessee did not press questions 3, 4, and 5 due to a subsequent order by the JCIT regarding written-off excise duty. Similarly, question 6 was not pressed. Consequently, the High Court set aside the ITAT's order dated April 17, 2017, and remitted the matter back to the ITAT, 'A' Bench, for reconsideration of questions 1 and 2 in accordance with the law. All contentions of the parties were kept open. The principle derived is that when specific issues are remitted for reconsideration by a lower appellate authority, the higher court's order reflects this procedural step, keeping all other arguments open.

What were the facts?

The assessee, Herbalife International India Private Limited, filed an appeal before the High Court of Karnataka against an order dated April 17, 2017, passed by the Income Tax Appellate Tribunal (ITAT) in IT(TP)A No. 924/Bang/2012 for the Assessment Year 2007-2008. The appeal was admitted to consider six substantial questions of law. During the proceedings, the assessee's counsel submitted that questions 1 and 2 were covered by a related appeal (ITA No. 629/2017). Regarding questions 3, 4, and 5, the counsel stated that due to a subsequent order dated February 8, 2023, by the JCIT concerning excise duty written off, these questions were not pressed. Question 6 was also not pressed. The High Court noted that for the related appeal (ITA No. 629/2017), questions 1 and 2 were remitted back to the ITAT for reconsideration.

What were the issues?

The High Court had to decide the following substantial questions of law: 1. Whether the Tribunal erred in drawing a presumption based on the Indian Evidence Act without considering that the assessee filed evidence to prove the receipt of technical know-how. 2. Whether the Tribunal erred in not appreciating that transactions approved by the FIPB and RBI can be considered at arm's length as per the Income-Tax Act. 3. Whether the ITAT was wrong in stating that the amount of doubtful advances written off did not form part of total income in earlier years. 4. Whether the ITAT erred in not appreciating that it is sufficient for the assessee to write off bad debt as irrevocable in its accounts, without needing to establish it has become irrevocable. 5. Whether the ITAT erred in not appreciating that doubtful advances written off is a business loss allowable under Section 28 of the Act. 6. Whether the Tribunal's order, passed without adjudicating all grounds raised by the Appellant, was in compliance with principles of natural justice. Assessee's contentions: For questions 1 and 2, the assessee argued they were covered by a related appeal. For questions 3, 4, and 5, the assessee stated that a subsequent JCIT order rendered these points not pressable. Question 6 was also not pressed. The assessee relied on the fact that evidence for technical know-how was filed (Question 1) and that FIPB/RBI approvals imply arm's length transactions (Question 2). The assessee also argued that writing off bad debts as irrevocable in accounts is sufficient (Question 4) and that doubtful advances written off constitute an allowable business loss (Question 5). Revenue's contentions: The judgment records no specific contentions for the revenue on these issues.

Which sections of the Income-tax Act were involved?

Section 28

AI-generated summary — verify with the full judgment below

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NC: 2023:KHC:24015-DB ITA No. 630 of 2017

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 11TH DAY OF JULY, 2023 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE T.G. SHIVASHANKARE GOWDA INCOME TAX APPEAL NO. 630 OF 2017 BETWEEN : HERBALIFE INTERNATIONAL INDIA PRIVATE LIMITED RMZ PINNACLE, NO.15 COMMISSARIAT ROAD BENGALURU-560 025 REPRESENTED HEREIN BY ITS HEAD OF TAXATION MR. SHANKAR M.S PAN NO.AAACH 8025R …APPELLANT

(BY SHRI. PERCY PARDIWALLA, SENIOR ADVOCATE FOR MS. TANMAYEE RAJKUMAR, ADVOCATE)

AND :

1.

THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 11 (4) BANGALORE BMTC BUILDING 80 FT ROAD KORAMANGALA BANGALORE-560 095

2.

THE COMMISSIONER OF INCOME-TAX BANGALORE BMTC BUILDING, 80 FT ROAD

Digitally signed by ANUSHA V Location: HIGH COURT OF KARNATAKA

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NC: 2023:KHC:24015-DB ITA No. 630 of 2017

KORAMANGALA BANGALORE-560 095 …RESPONDENTS

(BY SHRI. M. DILIP, STANDING COUNSEL FOR SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL) . . . .

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 17.04.2017 PASSED IN IT(TP)A NO.924/BANG/2012, FOR THE ASSESSMENT YEAR 2007-2008, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET-ASIDE THE ORDER DATED 17.04.2017 (ANNEXURE-K) PASSED BY THE TRIBUNAL IN IT(TP)A NO.924/BANG/2012 TO THE EXTENT QUESTIONED HEREIN AND ETC.

THIS ITA, COMING ON FOR HEARING, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING:

JUDGMENT

This appeal by the assessee challenging the order dated April 17, 2017 in IT(TP)A Nos.924/Bang/2012 has been admitted to consider following questions: 1. Whether in the facts and circumstances of the case and in law, the Tribunal erred in drawing a presumption based on provisions of the Indian Evidence Act, without taking cognizance of the fact that evidence to prove the receipt of Technical know-how were filed and relied by the appellant?

2.

Whether the Tribunal erred in not appreciating that transaction approved by the FIPB and RBI can be considered to be at arm’s length as per the requirement of the Income-Tax Act?

3.

Whether the ITAT is wrong in stating that the amount of doubtful advances written off is not forming part of total income in the earlier years?

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NC: 2023:KHC:24015-DB ITA No. 630 of 2017

4.

Whether the ITAT erred in not appreciating that it is not necessary for the assessee to establish that the debt, in fact, has become irrevocable and it is enough if the bad debt is written off as irrevocable in the accounts of the assessee?

5.

Whether the ITAT erred in not appreciating that doubtful advances written off is a loss which has been incurred in the normal course of business and is allowable as business loss under Section 28 of the Act?

6.

Whether on the facts and in the circumstances of the case, the Tribunal’s order in so far it is passed without adjudicating all the grounds raised by the Appellant, is not in compliance with principles of natural justice and liable to be set-aside?

2.

Heard Shri. Percy Pardiwalla, learned Senior Advocate for the assessee and Shri. M. Dilip, learned Standing Counsel for the Revenue.

3.

At the outset, Shri. Pardiwalla submitted that questions No. 1 and 2 are covered by the order of even date in ITA No.629/2017 considered simultaneously with this appeal. With regard to questions No.3, 4 and 5, he submitted that for the year relevant to A.Y. 2002-03, assessee had incurred excise duty of Rs.1,25,20,839/-. The goods manufactured were subsequently exported and assessee became eligible to claim rebate on the excise duty as duty

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NC: 2023:KHC:24015-DB ITA No. 630 of 2017

draw back, as assessee accounted the same as ‘receivables’ under the head ‘Loans and Advances’ in the Balance Sheet dated 31.03.2002. It had also voluntarily disallowed the provision so created. In substance, assessee had not claimed deduction of excise duty payment. Subsequently, vide order dated 08.02.2023, the JCIT1 has passed an order holding that the assessee had subsequently written-off a sum of Rs.1,20,16,395/- out of the aforementioned amount during the financial year relevant to A.Y.2007-08 and claimed the same as deduction in the computation of income of the said assessment year. In view of JCIT’s order dated 08.02.2023, Shri. Pardiwalla does not press questions No.3, 4 and 5. He does not press question No.6 as well.

4.

We may record that for the reasons recorded therein, we have held in ITA No.629/2017 that questions No. 1 and 2 require reconsideration by the ITAT and remitted the matter to the file of the ITAT.

1 Joint Commissioner of Income Tax

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NC: 2023:KHC:24015-DB ITA No. 630 of 2017

5.

Hence, the following: ORDER (a) Appeal is allowed. (b) Order dated April 17, 2017 in IT(TP)A No. 924/Bang/2012 passed by the ITAT is set-aside. (c) Matter is remitted to the file of ITAT, ‘A’ Bench for reconsideration with regard to questions No.1 and 2, in accordance with law.

All contentions of parties are kept open.

No costs.

Sd/- JUDGE

Sd/- JUDGE

SPS List No.: 1 Sl No.: 36

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