M/S. PGS PREMIERE CONFERENCING PRIVATE LIMITED,BENGALURU vs. INCOME TAX OFFICER, WARD-5(1)(3), BENGALURU

"The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his powers is conterminous with that of the Income-tax Officer. He can do what the Income- tax Officer can do and can also direct him to do what he has failed to do." Jute Corporation of India Ltd. 187 ITR 688 (SC) In this case, relying on its decision in the case of Kanpur Coal Syndicate (Supra), the Hon'ble Apex Court observed as under at Page 693: "The above observations are squarely applicable in the interpretation of section 251(1)(a) of the Act. The declaration of law is clear that the power of the Appellate Assistant Commissioner is co-terminous with that of the Income-tax Officer, and if that is so, there appears to be no reason ( as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income-tax Officer. No exception could be taken to this view, as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise, an appellate authority while hearing the appeal against the order of a subordinate authority, has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers, which the subordinate authority may have in the matter" Ahmedabad Electricity Co. Ltd. and Godavari Sugar Mills Ltd. vs. CIT [199 ITR 351 (Born)]

In the aforesaid case, the Hon'ble Mumbai High Court at page 369, has observed as under: "We do not find anything in section 254(1) of the Income-tax Act which limits the jurisdiction of the Appellate Tribunal in any manner. For reasons which we have set out earlier, the phrase "pass such order thereon" does not in any way restrict the jurisdiction of the Tribunal but, on the contrary, confers the widest possible jurisdiction of the appellate Tribunal including jurisdiction to permit any additional ground of appeal if, in its discretion, and for good reason, it thinks it necessary or permissible to do so." It, therefore held as under: "it is quite clear that the Appellate Tribunal has jurisdiction to permit additional grounds to be raised before it even though these may not arise from the order of the Appellate Assistant Commissioner, so long as these grounds are in respect of the subject-matter of the entire tax proceedings." New India Industries Limited 207 ITR 1010 (Guj.)

The decision of the Hon'ble Apex Court in the case of Jute Corporation of India Ltd. (supra) was followed by the Hon'ble Gujarat High Court in the case of New India Industries (Supra). In doing so, the Court observed as under at Page 1010: "The power of the Appellate Assistant Commissioner is coterminous with that of the Income-tax Officer and there is no reason why the appellate authority cannot modify the assessment order on an additional ground even if it is not raised before the Income-tax Officer. No exception could be taken to this view as the Income-tax Act does not place any restriction or limitation on the exercise of the appellate power. Even otherwise, an appellate authority, while hearing the appeal against the order of a subordinate authority, has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitation, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter." Union Coal Co. Ltd. 70 ITR 45 (Cal) In this case, the Hon'ble Calcutta High Court observed as under: "There is nothing to debar an assessee from making a new claim for deduction in appeal before the Appellate Assistant Commissioner, and nothing to prevent the Appellate Assistant Commissioner, prima facie, to examine the force of such a claim, and if he is satisfied about the maintainability of such a claim the Appellate Assistant Commissioner may remand the matter to the Income Tax Officer for consideration of the new claim for deduction. For, the right of appeal conferred by section 30 of the Act includes right of appeal against 'the assessment' of income and the assessee is entitled to challenge the assessment in appeal and argue that the assessment should be reduced by allowing a claim or deduction even though he had not made the claim in his return of income or before the Income Tax Officer.

National Thermal Power Co. Ltd. vs. CIT 229 ITR 383 (SC) In the above case, the Hon'ble Apex Court, following its decision in the case of Jute Corporation of India Ltd. (supra) observed at page 387 as under: "The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income Tax (Appeals) takes too narrow view of the powers of the Appellate Tribunal. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee." Ashok Vardhan Birla vs. CWT [208 ITR 958 (Born)] In this case, following its decision in case of Ahmedabad Electricity Co. Ltd. (supra) and the decision of the Apex Court in case of Jute Corporation of India Ltd. (supra), the Hon'ble Mumbai High Court, in the context of the Wealth-tax Act, 1957, observed that the powers of the appellate authorities are the same as the powers of the assessing authority and hence additional grounds can be entertained so long as they relate to the subject-matter of the proceedings which were before the assessing officer or the appellate authority. It further held that, the Tribunal had jurisdiction to permit additional grounds to be raised even though these did not arise out of the order of the Appellate Assistant Commissioner.

Controller of Estate Duty Vs. R.Brahadeeswaran 163 ITR 68o (Mad) In this case, the Hon'ble Madras High Court held as under at Page 68o: "The real function of an appeal against an assessment must be considered to be the same as the function of the assessment itself and not in any way different from it. That function is to adjust the taxpayer's liability, as far as it is humanly possible, to the correct pie and make it accord with the relevant taxing provisions. If an assessing authority for any reason, either owing to ignorance or overzealousness or sheer devilment, makes an over- assessment and an appeal is carried from its order, the function of the appellate authority in that appeal is to set right the assessment and adjust the taxpayer's liability in accordance with the statutory provisions. In the appeal, as in the assessment, the task is one of adjustment of the taxpayer's liability. The function of a tax appeal is thus precisely the same as that of a tax assessment. A taxpayer who carries the assessment in appeal is not to be regarded as being engaged in a us with the taxing department. He is only interested in ensuring that he is not burdened with payment of an amount, which is more than what is due from him as tax. In this sense, an appeal is merely a reconsideration of the assessment by a higher authority. Such an appeal is not to be regarded as a forensic controversy between two parties ranged on opposite sides as adversaries. It must always be common ground between an assessee and the assessing officer that the assessment must be in accordance with the statute". Inaroo Ltd. vs. CIT [204 ITR 312 (Born)] Following its decision in case of Ahmedabad Electricity Co. Ltd. (supra), the Hon'ble Mumbai High Court in the aforesaid case has held that the Tribunal has jurisdiction to entertain the assessee's additional ground, even though the claim has not been made before either the Income Tax Officer or the Appellate Assistant Commissioner. CIT vs. Govindram Bros. P. Ltd. 1141 ITR 626 (Born)] In the aforesaid case also the Hon'ble Mumbai High Court has held that the rules of the Income- tax Tribunal are wide enough to permit additional grounds to be raised and that it was justified in allowing the assessee to raise the additional grounds and giving necessary directions. In light of the foregoing and in the interest of substantial justice, we request your Honours to admit the additional ground and duly adjudicate the same for which we shall be most grateful.

“Additional Grounds of Appeal On the facts and in the circumstances of the case and in law: 2.6 That, the learned Commissioner of Income- tax (Appeals) ["CIT(A)"] erred in not appreciating that the Transfer Pricing Officer has accepted the nature of transaction as 'reimbursement of expense' and therefore the Assessing Officer cannot re-characterise the said transaction as 'Fee for technical services'.

The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”

4. The contention of the ld AR that the TPO in the course of Transfer Pricing Proceedings has accepted the financial statements and has made a reference to the profit and loss account on reimbursement of expenses. The ld AR emphasized that the AO has treated the re-imbursement of expenditure as Fee for Technical Services (FTS) and due to non deduction of tax at source, and can applying the provisions of sec. 40a(ia), made an addition. The ld AR referred to the paper books on the issue of admission of additional ground, whereas the ld DR has objected to the submissions of the assessee. The DR submitted that there is no reimbursement of expenses and by the assessee to its parent company PGS Ireland, therefore, and the provisions of sec. 9(1)(vii)(b) Explanation II shall apply.

2.3 That, on the facts and the circumstances of the case, the learned CIT(A) erred in not adjudicating on Appellant's contention that payments to PGS Ireland be regarded as 'reimbursement of expenses' and hence, not subject to withholding tax in India. 6. We are of the opinion that the additional grounds raised by the assessee are merged with the ground raised by the assessee in para 2.3 and accordingly we shall proved to hear the submissions.

“1. That, the order of the learned Commissioner of Income-tax (Appeals) - 5, Bangalore ['CIT(A)'], to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. 2.1 That, on the facts and the circumstances of the case, the learned CIT(A) erred in disregarding the business transaction between the Appellant, its parent company - Premiere Conferencing Ireland Limited ('PGS Ireland') and Tata Communications Limited ('Tata India') of INR 9,25,38,873 (nomenclated as commission in the books) and concluded that the transaction be considered as between the Appellant and Tata India. 2.2 That, on the facts and the circumstances of the case, the learned CIT(A) erred in disregarding Appellant's contention that the agreement with Tata India was for sharing of revenue and Tata India provided services to customers and not to the Appellant. The learned CIT(A) erred in not following the decision of the jurisdictional High Court in this regard. 2.3 That, on the facts and the circumstances of the case, the learned CIT(A) erred in not adjudicating on Appellant's contention that payments to PGS Ireland be regarded as 'reimbursement of expenses' and hence, not subject to withholding tax in India. 2.4 That, on the facts and the circumstances of the case and law applicable, the learned CIT(A) erred in not appreciating that the nomenclature of payment to PGS Ireland as commission is not decisive in determining the nature of the transaction. 2.5 That, on the facts and the circumstances of the case, the learned CIT(A) erred in concluding that payments by the Appellant to PGS Ireland be considered as 'Fee for Technical Services' without adjudicating on merits and by distinguishing the jurisprudence relied upon by the Appellant on functional dissimilarity. The learned CIT(A) erred in not following the decision of the jurisdictional Tribunal in this regard.

3. That, on the facts and the circumstances of the case, the learned CIT(A) erred in characterising the same transaction as fee for technical services to a resident (Tata India) as well as payment to a non-resident (PGS Ireland).

5. That, on the facts and the circumstances of the case, the learned CIT(A) erred in not accepting Appellant's contention that once Tata India has offered to tax the amounts received in its income tax return, no disallowance is warranted under the second proviso to section 40(a)(ia) of the Act in the hands of the Appellant.

7. That on the facts and circumstances of the case and in law, the learned CIT(A) erred in levying consequential interest under section 234B of the Act. The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal.” 9. The brief facts are that the assessee is in the business of Audio web Conferencing services and filed the Return of income electronically on 28/11/2013 disclosing total income of Rs.4,51,350/-. Subsequently this case was selected for scrutiny under CASS and AO has issued notices u/s 143(2) and 142 (1) of the Act and correspondence was made through email. The AO found that the assessee has international transactions as per the Audit report 3CEB and with the prior approval of the Principal Commissioner of Income-tax. The matter was referred to the TPO and whereas the TPO after considering the submission based on this records of the assessee and also perused the financial statements and passed the order on 28/10/2016 under the provisions of sec. 92CA without any adjustment to the arms length price (ALP) determined by the assessee in respect of international transactions.