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Income Tax Appellate Tribunal, “C” Bench, Mumbai
Before: Shri Ravish Sood & Shri N.K.Pradhan
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the Assessing Officer (for short „A.O‟) under Sec. 153A/143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (for short „I-T Act‟), dated 31.10.2011. The assessee being aggrieved with the order passed by the A.O has raised before us the following grounds of appeal: “This Appeal is against the Order u/s.143(3)/153A r.w.s.144C(13) of the Act dated October 31, 2011, of the Deputy Commissioner of Income Tax, Central Range 7, OSD II, Mumbai, in pursuance of the directions of the Hon‟ble Dispute Resolution Panel II, Mumbai (DRP) and relates to the Assessment Year 2005-2006.
1. The Assessing Officer and the learned DRP erred in making an adhoc disallowance of 5% of the total staff welfare expenses, aggregating to Rs.4,79,537/-, incurred by the Appellant. Having regard to the facts and P a g e | Ingram Micro India Pvt. Ltd Vs. Deputy Commissioner of Income Tax, OSD- II circumstances of the case, the Appellant submits that the disallowance is unwarranted and requires to be deleted.
2. The Assessing Officer and the learned DRP erred in disallowing commission payments, aggregating to Rs. 1,62,05,703/- on the ground that confirmations had not been filed by the Appellant before the Assessing Officer and that the confirmations filed before the DRP were not relevant or material. Having regard to the facts and circumstances of the case, the Appellant submits that the commission paid he allowed as a deduction as claimed by the Appellant in its Return of Income.
3. The Assessing Officer erred in observing that the process of amalgamation of the Appellant Company with Tech Pacific (India) Ltd. was not completed and in holding that the Appellant Company had not filed its returns of income for Assessment Year 2006-07 onwards.
4. The Assessing Officer erred in not granting credit for tax deducted at source aggregating to Rs.15,34,052/-, without assigning any reasons for the non-grant of such credit.
5. The Appellant submits that the Assessing Officer erred in calculating interest under Section 234A(3) of the Act. Having regard to the facts and circumstances of the case, and the provisions of law, the Appellant submits that the Assessing Officer be directed to recalculate the said interest.
6. The Appellant submits that the Assessing Officer erred in calculating interest under Section 234B of the Act. Having regard to the facts and circumstances of the case, and the provisions of law, the Appellant submits that the Assessing Officer be directed to recalculate the said interest.
7. The Appellant submits that the Assessing Officer erred in calculating interest under Section 234C of the Act. Having regard to the facts and circumstances of the case, and the provisions of law, the Appellant submits that the Assessing Officer be directed to recalculate the said interest.
8. The Appellant objects to the action of the Assessing Officer in initiating penalty proceedings under section 271(1)(c) of the Act. The Appellant craves leave to add to, alter or amend the above Grounds of Appeal as and when advised.” Apart there from, the assessee has also assailed the validity of the assessment order passed by the A.O under Sec. 153A/143(3) r.w.s. 144C(13) by raising the following „additional ground of appeal‟:
The Assessing Officer and the learned Dispute Resolution Panel erred in passing the assessment order under Sec. 143(3) and the Directions under Sec. 144C(5) of the Act respectively on a non-existent entity. The action of the Assessing Officer and the learned Dispute Resolution Panel is therefore bad in law and requires to be quashed.
We shall first advert to the admissibility of the „additional ground of appeal
‟ raised by the assessee before us. As is discernible from the P a g e | Ingram Micro India Pvt. Ltd Vs. Deputy Commissioner of Income Tax, OSD- II aforesaid ground raised by the assessee before us, we find that the validity of the assessment framed by the A.O and, the directions issued by the Dispute Resolution Panel-1, Mumbai (for short „DRP‟) has been assailed before us, on the ground, that as the same has been passed on a non-existent entity, therefore, the same are bad in law and requires to be quashed. The ld. Departmental representative (for short „D.R‟) objected to the application filed by the assessee for admission of the aforesaid additional ground of appeal. As the aforesaid additional ground of appeal raised by the assessee involves purely a question of law based on the facts available on record, therefore, the same pursuant to the judgement of the Hon’ble Supreme Court in the case of National Thermal Power Company Ltd. Vs. CIT (1996) 229 ITR 383 (SC) is admitted.
3. Briefly stated, the assessee viz. M/s Ingram Micro India Pvt. Ltd. (hereinafter referred to as „IMIPL‟) was during the year under consideration engaged in trading of computer software and computer peripherals both domestically and abroad. The assessee had filed its return of income on 30.06.2006, declaring its total income at Rs.15,68,26,750/-. Subsequently, as per the scheme of amalgamation sanctioned by the Hon‟ble High Court‟s of Bombay and Karnataka, the assessee company was amalgamated into Tech Pacific (India) Limited w.e.f 01.01.2005. Thereafter, the assessee filed a revised return of income for a period of 9 months ended 31.12.2004 on 14.10.2008, declaring its total income at Rs.12,36,75,606/-.
4. Search and seizure/survey action under Sec. 132/133A were carried out at the business premises of the assessee on 06.09.2007. As is discernible from the assessment order, in the course of the search and survey proceedings certain incriminating documents were impounded/seized, which revealed that the foreign associates of the P a g e | 4 AY. 2005-06 Ingram Micro India Pvt. Ltd Vs. Deputy Commissioner of Income Tax, OSD- II assessee having Permanent Establishment (for short „PE‟) in India, were though earning substantial taxable income, however, no taxes were being paid by them. Apart there from, the said incriminating documents revealed that the assessee had claimed bogus purchase expenses by resorting to accommodation entries. It was also established from the seized/impounded papers that M/s Ingram Micro, USA had acquired shares of Tech Pacific Holdings Ltd. for 730 million Australian dollars on 10.11.2004. Accordingly, the A.O was of the view that as the takeover of Tech Pacific Holding India Ltd. by M/s Ingram Micro Inc. USA involved takeover of Tech Pacific Holding India Ltd., which was a company registered in India, therefore, the same had resulted into a transfer of assets of an Indian company and, as a result thereof, the capital gains arising there from was taxable in India by treating M/s Tech Pacific (India) Ltd. as an agent of Tech Pacific Holding Ltd., i.e the transferor.
5. The assessee in response to the notice issued under Sec. 153A filed its return of income on 14.10.2008, declaring its total income at Rs.12,36,75,606/- as per the normal provisions of the I.T Act. The A.O while framing the assessment made a reference to the Transfer Pricing Officer (for short „TPO‟) under Sec. 92CA(1) of the I-T Act. The TPO vide his order passed under Sec. 92CA(3), dated 26.10.2010 proposed certain adjustments viz. (i) adjustment towards „Arms Length Price‟ (for short „ALP‟) of the corporate guarantee given by the assessee for the benefit of its Associate Enterprise (for short „AE‟) viz. Tech Pacific (India) Exports Pte. Ltd. (for short „TPIEPL‟): Rs. 44,02,635/-; and (ii) adjustment towards mark-up @ 1% as regards value addition in respect of reimbursement of expenses: Rs.79,613/-. Accordingly, the TPO proposed an upward adjustment of Rs. 44,82,248/-.
P a g e | Ingram Micro India Pvt. Ltd Vs. Deputy Commissioner of Income Tax, OSD- II 6. The A.O after receiving the order passed by the TPO under Sec. 92CA(3), dated 26.10.2010 passed a draft assessment order under Sec. 153A/143(3) r.w.s. 144C(1), dated 30.12.2010. The A.O while passing the aforesaid order inter alia made certain disallowance of expenses viz. (i) disallowance out of staff welfare and other welfare expenses of Rs. 9,59,074/-; and (ii) disallowance of commission expenditure of Rs.2,25,96,858/-. Accordingly, the A.O after making the aforesaid disallowance proposed to assess the income of the assessee company at Rs.15,63,35,670/-.
The assessee being aggrieved with the aforesaid disallowances proposed by the A.O, vide his draft assessment order, therein filed objections before the DRP. As regards the adhoc disallowance of Rs.9,59,074/- i.e 10% of the aggregate staff welfare expenses, as was proposed by the A.O, it was observed by the DRP, that the A.O had sought to carry out the said disallowance because the assessee could not support the same on the basis of any documentary evidence. In the backdrop of the fact, that the A.O had failed to place on record sufficient material which would justify disallowance of 10% of the total staff welfare expenses, the DRP followed the view taken by the CIT(A) in the assesses own case for the preceding years and directed the A.O to restrict the disallowance to 5% of the total staff welfare expenses. Insofar, the disallowance of commission expenditure of Rs.2,25,96,858/- was concerned, it was observed by the DRP, that though the assessee had filed names and addresses of the respective parties to whom the commission was paid, however, as it had failed to substantiate the authenticity of the said expenditure by furnishing the confirmations or PAN numbers of the said parties, therefore, the A.O had disallowed the aforesaid expenditure in entirety. The DRP after considering the observations of the A.O in the backdrop of the details which were submitted by the assessee in support of its aforesaid claim P a g e | Ingram Micro India Pvt. Ltd Vs. Deputy Commissioner of Income Tax, OSD- II of expenditure observed, viz. (i) that, the commission expenditure was incurred by the assessee wholly and exclusively for the purpose of its business which was dictated by business needs and was allowable; (ii) that, the fact that the assessee had deducted tax at source on the aforesaid commission payments substantiated the genuineness of the said expenditure; (iii) that, the commission paid by the assessee was not high in relation to the sales made during the year; (iv) that, the names and addresses of the parties to whom commission was claimed by the assessee to have been paid was furnished with the A.O; and (v) that, the details along with the PAN numbers of the dealers to whom commission in excess of Rs.1 lac was paid were furnished by the assessee in the course of the DRP proceedings. Accordingly, in the totality of the facts and circumstances of the case, it was observed by the DRP, that there was no scope to make any adhoc disallowance of the commission expenditure, as was so done by the A.O. However, at the same time, the DRP directed the assessee to furnish with the A.O within a weeks time from the date of its order the confirmations from all the parties to whom commission of Rs.1 lac and above was paid during the year. Accordingly, the DRP on the basis of his aforesaid observations directed the A.O to disallow the commission expenditure of Rs. 1 lac and above, in respect of which no confirmation was furnished by the assessee.
The A.O after receiving the order passed by the DRP under Sec. 144C(5), dated 23.09.2011 passed the assessment order under Sec.153A/143(3) r.w.s 144C(13), dated 31.10.2011. On the basis of the directions of the DRP, the A.O inter alia carried out certain disallowances viz. (i) disallowance of 5% of staff welfare expenses : Rs.4,79,537/-; and (ii) disallowance out of commission expenditure :Rs.1,62,05,703/- and assessed the income at Rs.14,03,60,850/-.
P a g e | Ingram Micro India Pvt. Ltd Vs. Deputy Commissioner of Income Tax, OSD- II 9. The assessee being aggrieved with the order passed by the A.O has carried the matter in appeal before us. The ld Authorized Representative (for short „A.R‟) for the assessee, at the very outset of the hearing of the appeal adverted to the „additional ground of appeal‟, wherein the assessee had assailed the validity of the assessment order passed by the A.O and also, the directions given by the DRP vide its order passed under Sec.144C(5), dated 23.09.2011. It was averred by the ld. A.R, that as the aforesaid order/directions were passed/given in the name of the assessee viz. M/s Ingram Micro India Pvt. Ltd., which was non-existent at the time of passing of the said respective orders, thus, the same being unsustainable in law were liable to be quashed on the said count itself. It was submitted by the ld. A.R, that based on the scheme of amalgamation sanctioned by the Hon‟ble High Court‟s of Bombay and Karnataka the assessee company viz. M/s Ingram Micro India Pvt. ltd. was amalgamated into M/s Tech Pacific (India) Ltd. w.e.f 01.01.2005. It was submitted by him that the Hon‟ble High Court of Bombay had, vide its order dated 10.03.2006, and the Hon‟ble High Court of Karnataka had, vide its order dated 24.09.2008 approved the scheme of amalgamation, which as per the aforesaid orders was effective w.e.f 01.01.2005. Further, it was submitted by the ld. A.R, that the aforesaid scheme of amalgamation was filed with the