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Income Tax Appellate Tribunal, BANGALORE BENCH ‘ C ’
Before: SHRI SUNIL KUMAR YADAV & SHRI JASON P BOAZ
Per Shri Jason P Boaz, A.M. : This appeal by the assessee is directed against the order of Commissioner of Income Tax, Bangalore-I passed under Section 263 of the Income Tax Act, 1961 (in short 'the Act') vide order dt.17.3.2014 for Assessment Year 2008-09. 2. Briefly stated, the facts of the case are as under :-
2.1 The assessee, a company engaged in the business of production, through contract manufacturing, and sale of nutritional and dietary supplements for weight management and personal care, filed its return of income for Assessment Year 2008-09 on 30.09.2008 declaring total loss of Rs.3,03,76,816. The assessee ;subsequently filed a revised return on 31.3.2010 declaring total loss of Rs.3,67,17,524. The assessment was concluded under Section 143(3) r.w.s. 144C of the Act vide order dt.29.12.2012 wherein the assessee's income was determined at Rs.4,42,53,130 in view of the following additions / disallowances :- i) Capitalisation of 25% of Royalty Rs.47,64,201 ii) Doubtful debts written off Rs.1,14,05,413 iii) Transfer Pricing Adjustment Rs.5,84,60,332
Subsequently, the CIT, Bangalore-I; on examination of the records of assessment, initiated revisionary proceedings under Section 263 of the Act for Assessment Year 2008-09 by issue of show cause notice dt.26.2.2014 as he was of the view that the assessee's claim for 100% depreciation on leasehold improvements, being allowed by Assessing Officer was erroneous and prejudicial to the interest of revenue, as the assessee was entitled to depreciation thereon only at 10% as per Depreciation Rules. The assessee filed its reply to the aforesaid show cause notice vide letter dt.11.3.2014. According to the learned CIT, the Assessing Officer has neither examined nor applied his mind in respect of the allowability of the rate of depreciation on leasehold improvements. The learned CIT further observed that even though in the written Assessing Officer had examined and applied his mind to the issue at hand, it was admitted by the learned Authorised Representative vide order sheet noting dt.13.3.2014 before him that his issue was not examined by the Assessing Officer during assessment proceedings. Therefore, the learned CIT held that the order of assessment for Assessment Year 2008-09 dt.29.10.2012 is erroneous and prejudicial to the interest of revenue. 4.1 Before us, the learned Authorised Representative for the assessee submitted that the assessee furnished details called for by the Assessing Officer vide letter dt.15.7.2011; which included details of leasehold improvements carried out, invoices of interior and other related work carried out at some of the locations; sample copies of lease agreements entered into by the assessee company for some of the locations, etc. It is submitted that it is only after consideration of all these relevant details that the Assessing Officer passed the order of assessment dt.29.12.2012 for Assessment Year 2008-09. 4.2 The learned Authorised Representative further submitted that the Assessing Officer subsequently vide notice under Section 154 of the Act dt.19.8.2013 sought to rectify the order of assessment for Assessment Year 2008-09 on the ground that excess depreciation on leasehold improvements was allowed to the assessee. It is submitted that after considering the assessee's reply thereto vide letter dt.5.11.2013 challenging the validity of proceedings under Section 154 of the Act for examining an issue that was debatable and not a mistake apparent from record that no rectification under Section 154 of the Act was carried out Assessing Officer. It is contended by the learned Authorised Representative that since in rectificatory proceedings the Assessing Officer had examined the issue of allowability of depreciation on leasehold improvements, it cannot be said that the Assessing Officer has not examined the issue. 4.3 It is contended by the learned Authorised Representative that in these circumstances, it is evident that the Assessing Officer has made proper enquiries, applied his mind to the facts of the case and formed an opinion that the assessee is entitled to depreciation on leasehold improvements @ 100% and allowed the same and therefore it cannot be held that the Assessing Officer has not examined or applied his mind to the issue as observed by the ld. CIT. Therefore the assessment order of the Assessing Officer cannot be held to be prejudicial to the interests of Revenue. In support of this proposition the learned Authorised Representative placed reliance, inter alia, on the decision of the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. (2000) 243 ITR 83 (SC). It was prayed that in the light of the above submission of facts and in law, the order under Section 263 of the Act be set aside / cancelled. 5.1 Per contra, the learned Departmental Representative for Revenue supported the impugned order of the ld. CIT. According to the learned Departmental Representative, a perusal of both the order of assessment and the submissions put forth by the assessee vide letter dt.15.7.2011 filed in the course of assessment proceedings, on the basis of details / documents called for by the Assessing Officer, would go to show that neither were any details called for by the Assessing Officer in respect to 100% depreciation nor was there even a whisper of this issue in the order of assessment for Assessment Year 2008-09 dt.29.10.2012, consisting17 pages, where various other issues were considered; such as capitalization of 25% of Royalty paid to Herbalife International Inc., Transfer Pricing Adjustment of ALP, Doubtful Debts written off, administrative fees. It was further pointed out that the fact that no enquiry in the matter, of the assessee's claim for 100% depreciation on leasehold improvements, was conducted by Assessing Officer is established by the admission of the AR of the assessee before the ld. CIT on 13.12.2014 in the course of revisionary proceedings. In these circumstances, it has been established beyond doubt that no enquiry whatsoever was conducted by the Assessing Officer on this issue and therefore since the ld. CIT had correctly invoked the revisionary proceedings, the impugned order under Section 263 of the Act dt.17.3.2014 for Assessment Year 2008-09 is to be upheld. Reliance in this context was placed on the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Infosys Technologies Limited (2012) 341 ITR 293 wherein the issue in question i.e. claim of deduction under the DTAA with Canada and Thailand were not examined by the Assessing Officer, as in the issue before us in the case on hand. 6.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. The CIT, Bangalore-I, on an examination of the order of assessment passed under Section 143(3) r.w.s. 144C of the Act dt.29.12.2012 and records of assessment, was of the view that the Assessing Officer, while passing the order of assessment, neither made any enquiry nor applied his mind while allowing the assessee's claim for 100% depreciation on leasehold improvements thereby resulting in the order passed being erroneous and prejudicial to the interests of Revenue. Further, we also observe that the statement of the ld. CIT, that the AR of the assessee in the course of revisionary proceedings before him vide order sheet noting on 13.3.2014 admitted that no enquiry was conducted by the Assessing Officer in assessment proceedings in respect of the issue of depreciation on leasehold improvements, has not been controverted before us. 6.2 In the above context, it would be relevant to extract hereunder the letter dt.15.7.2011 filed by the assessee before the Assessing Officer, to show the details filed in response to the Assessing Officer; requirements during scrutiny proceedings.
“ July 15, 2011 The Deputy Commissioner of Income Tax, Circle 11(4), Nrupathunga Road, Bangalore. Dear Sir, Sub : Herbalife International India Pvt. Ltd. – Asst. Proceedings u/s. 143(2) of the Income Tax Act, 1961. Ref : 1) PAN : AAACH 8025R 2) Assessment Year 2008-09. This has reference to the on-going assessment proceedings in the case of Herbalife International India Pvt. Ltd. initiated by your goodself under Section 143(2) of the Income Tax Act, 1961. We refer to the discussion June 20, 2011. In this regard, we wish to submit the following documents sought by your goodself.
Agreement with Litaka Pharmaceutical Pvt. Ltd. The copy of agreement with Litaka Pharmaceutical Pvt. Ltd. entered into with the company is enclosed herewith in Annexure-
1. 1.
2. Details of Centre wise sales Particulars of sales made by all the sales centre of the company during the F Y 2007-08 detailing the name of the sales centre, quantity sold and the amount of sales is enclosed herewith in Annexure – 2.
3. Additions to Fixed Assets. During the FY 2007-08 additions aggregating to Rs.2,67,99,626 have been made to the Fixed Assets. Details of additions so made during the FY 2007-08, along with sample copy of invoices (high value items above Rs.1 lac) is enclosed herewith in Annexure – 3, for your perusal.
4. Details of Remittance in transit. A details break up remittances in transit of Rs.15,55,934 appearing in Schedule 6 to Balance Sheet as on March 31, 2008 is enclosed herewith in Annexure-4.
5. Details of Deposits Party wise details of deposit s amounting Rs.2,47,36,714 appearing in Schedule 7 to Balance Sheet as on March 31, 2008 is enclosed herewith n Annexure-5.
6. Rent Agreements Copy of major rent agreements in respect of rent paid by the company during the FY 2007-08 are enclosed herewith in Annexure-6, for your reference.
7. Employee stock compensation expenses The company has participated in the Employee Stock Option (ESOP) scheme of the Herbalife Group and has offered ESOP to its employees. As per the arrangement of the company with its parent company, the compensation expense relatable to the stock compensation grants had to be reimbursed by the company to its parent company on exercise of such options by the employees. The company during the relevant year has recorded an compensation expense of Rs.1,29,540 on account of exercise of ESOPs by the employee. The said amount has been cross charged by the parent company to the company. We are in the process of collating the balance information / details sought by your goodself and would submit the same in the next hearing. We request your goodself to grant us two weeks time to furnish the same. Should your goodself require any further information / documents, we shall be glad to provide the same upon hearing from you.
Yours faithfully, For Herbalife International India Private Limited Sd/- Authrised Signatory Enclosure : As above.” 6.3 A perusal of the assessee's letter dt.15.7.2011 to the Assessing Officer (supra) establishes that the assessee filed reply / details in respect of the 7 issues listed therein. It is also apparent from a perusal thereof that the seven items on which details were admittedly called for were certainly not with respect to an examination on enquiry with regard to the assessee's claim for 100% depreciation on leasehold improvements. We find that the order of assessment for Assessment Year 2008-09 dt.29.10.2012 is also completely silent on this issue. Therefore, in our considered view, it is amply clear that the Assessing Officer has neither made any enquiry nor applied his mind in respect of the issue before us. All the averments to the contrary by the learned Authorised Representative of the assessee are mere claims which are bereft of any corroborative evidence whatsoever. The averments of the learned Authorised Representative to rectificatory proceedings are not material as the same is not before us, as the records of the subject matter before us are the order of assessment dt.27.10.2012 for Assessment Year 2008-09 and the impugned order under Section 263 of the Act dt.17.3.2014. 6.3 We, therefore, concur with the views and finding of the ld. CIT that the Assessing Officer did not cause any enquiry to be made in the course 100% depreciation on leasehold improvements as there is neither whisper nor mention of this issue either in the assessee's submissions before the Assessing Officer vide letter dt.15.7.2011 nor in the order of assessment dt.27.10.2012 for Assessment Year 2008-09. In this context, it is pertinent to note that passing of an order of assessment is the prerogative of the Assessing Officer. The assessee has no control over the Assessing Officer for passing the order of assessment in a particular / specific manner, but if the discussion is not discernible from the order of assessment, then in order to ascertain whether the Assessing Officer has applied his mind or not, the higher forums can go through the show cause notice; if issued by the Assessing Officer and the reply given by the assessee. That would indicate that though the order of assessment is silent, but the issue must have been discussed and considered in the course of assessment proceedings. In our considered view, the factual matrix of the case clearly established that there is no such material on records to show that either such material was called for and examined by the Assessing Officer or filed vide assessee's letter dt.15.7.2011 and therefore the order of the Assessing Officer on this issue is both erroneous and prejudicial to the interests of revenue. As observed by the ld. CIT, the assessee's reliance on the decision of the Delhi Bench, ITAT for Assessment Year 2000-01 lays down the principle on this issue, but the actual nature of the items of expenditure on leasehold improvements may be different in each year and the factual aspects of this issue, whether the expenditure falls in the capital or revenue field Assessing Officer in this year i.e. ;Assessment Year 2008-09. Drawing support from the ratio of the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Infosys Technologies Ltd. (supra), we uphold the impugned order of the ld. CIT who has considered all factual aspects of the matter before taking action under Section 263 of the Act on the grounds that there was no enquiry or application of mind by the Assessing Officer while allowing the assessee 100% depreciation on leasehold improvements. Consequently, finding no merit in the grounds raised by the assessee, the same are dismissed.
7. In the result, the assessee's appeal for Assessment Year 2008-09 is dismissed. Order pronounced in the open court on the 2nd day of Feb.,2018.