LUMINOUS TELEINFRA LTD. (NOW MERGED WITH LUMINOUS POWER TECHNOLOGIES PVT. LTD.),NEW DELHI vs. ADDL.CIT, SPECIAL RANGE- 05, NEW DELHI
Facts
The assessee, M/s Luminous Teleinfra Ltd, filed an application for admission of additional evidence (a certified segmental financial statement) in an appeal against a DRP order. The DRP had previously rejected the original statement, which was intended to substantiate arm's length pricing for transactions with an AE (LPTPL) under Section 80-IA(10), on the grounds that it was unaudited and unreliable. The assessee now seeks to admit the same statement, but certified by an independent accountant.
Held
The Tribunal held that the additional evidence, a now certified segmental financial statement, has a direct and important bearing on deciding the appropriate method to determine the Arm's Length Price for the specified domestic transaction. Citing judicial precedents, the Tribunal found that admitting the evidence was necessary for proper adjudication and in the interest of natural justice, as rejecting it would not adhere to the principles of natural justice.
Key Issues
Whether a certified segmental financial statement, previously rejected by the DRP as unaudited, should be admitted as additional evidence under Rule 29 of the ITAT Rules to determine the Arm's Length Price of specified domestic transactions and ordinary profits under Section 80-IA(10).
Sections Cited
Income Tax Act, 1961: Section 80-IA(10), Income Tax (Appellate Tribunal) Rules, 1963: Rule 29, Code of Civil Procedure, 1908: Order 41 Rule 27
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI ‘I’ BENCH,
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI NAVEEN CHANDRA
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:-
This application for admission of additional evidence by the
assessee is preferred in the ITA No. 6997/DEL/2017 against the order
of the DRP-2, New Delhi dated 31.08.2017 pertaining to A.Y. 2013-14.
At the very outset, the ld. counsel for the assessee drew our
attention to an application under Rule 29 of the Income Tax (Appellate
Tribunal) Rules, 1963 dated NIL filed for admission of additional
evidence in connection with Ground No. 5, 6 and 7 of the Grounds of
appeal.
The provisions contained in Rule 29 of the Income Tax (Appellate
Tribunal) Rules, 1963, provides that the parties to the appeal shall not
be entitled to produce additional evidence either oral or documentary
before the Tribunal. The provisions contained in the said rule are pari
materia with the Order 41 Rule 27 of the Code of Civil Procedure,
1908, which also does not allow the party to the appeal to adduce any
additional evidence unless and until such exceptional circumstances
are set out. We are therefore required to examine whether we require
the evidence in deciding the issues at hand in the instant case.
In this application, the assessee has prayed for admission of
additional evidence with reference to Ground Nos. 4, 5 and 6 which
reads as under:
“With respect to Grounds Nos 4, 5 and 6 of the said appeal pertaining to enhancing the income of the Appellant by INR 19,79,87,266 on the contention that the Appellant has produced more than ordinary profits in under Section 80- IA(l 0) of the Income Tax Act, 1961 ('the Act') from sale of goods through tax holiday unit to LPTPL, the Appellant wish to respectfully submit that during the course of proceedings before the Hon'ble DRP, the Appellant had filed segmental financial statement before the Hon'ble DRP to substantiate that transaction with respect to sale of goods to LPTPL was undertaken at arm's length price.
However, the Hon'ble DRP rejected the segmental financial statement on account of not being reliable in nature. In this regard, it is humbly submitted that to address such rejection, the Appellant now wishes to respectfully submit the segmental financial statement before your Honour which is certified by an independent accountant as additional evidence under Rule 29 of the Rules, for proper adjudication of the captioned case. It may be appreciated that said additional evidence is vital and essential for the proper disposal of above-referred grounds of appeal and hence the Appellant humbly requests the Hon'ble Bench to kindly consider them in the interest of substantial justice.”
The ld. counsel for the assessee placed strong reliance on the
decisions of the following High Court cases:
i) CIT v. Kum. Satya Setia, [1983] 15 Taxman 345 (MP)
ii) Anaikar Trades &Estates (P). Ltd v. CIT, [1991] 56 Taxman 170 (Mad)
iii) R.S.S. Shanmugam Pillai & Sons v . CIT, [1974] 95 ITR 109 (Mad.)
iv) CIT Vs Text Hundred India Pvt Ltd 351 ITR 57 (Del)
The ld. counsel for the assessee argued that the segmental
financial statement produced as additional evidence along with the
present application is necessary and pertinent for adjudication of the
issue of production of ordinary profits u/s 80-IA(10) of the Act from
sale of goods through tax holiday unit to LPTPL. The segmental
financial statement was not audited, hence was not reliable.
Per contra, the ld. DR opposed the admission of additional
evidence and submitted that the CA’s report dated 27.10.2021 is
different from the earlier report. He further argued that the additional
evidence in the form of CA’s report is being filed at such a belated
stage in 2022, after a gap of nine years from FY 2012-13, and hence
same should not be admitted. The ld DR relied on the decision of
Hon’ble Supreme Court in the case of Sanjay Kumar Singh in Civil
Appeal no 1760 of 2022dated 10.03.2022 and UOI Vs Ibrahim Uddin in
Civil appeal no 1374 of 2008 dated 17.07.2012 for the proposition that
the appellate court should not travel outside the record of the lower
court and cannot take any evidence in appeal.
The ld DR also relied on the Hon’ble Bombay High Court decision
in the case of Smt Kamal C Mahboobbani (1995) 214 ITR 15 (Bom) for
the proposition that where order could be passed on the basis of
materials on record, Tribunal can refuse to admit additional evidence.
Alternatively, it was stated that if these are to be admitted, then an
opportunity needs to be given to the Assessing Officer.
The ld. AR in his rebuttal countered the ld DR argument of
belated filing of additional evidence by stating that appeal before ITAT
was filed in November 2017 and the need for filing additional evidence
was realized subsequently. The ld AR also pointed out that the
decisions of Hon’ble Supreme Court (supra) relied on by the DR is
actually in favour of the assessee as it permits the admission of
additional evidence where the additional evidence have a direct
bearing on pronouncing the judgement or for any other substantial
cause.
The ld AR of the assessee also relied on the decision of the
Hon'ble Jurisdictional High Court in the case of Text Hundred India Pvt
Ltd 351 ITR 57(Del) for the proposition that it is the discretion of the
Tribunal to admit evidence in the interest of justice once the Tribunal
affirms the opinion that doing so would be necessary for proper
adjudication of the matter.
The representatives of both the sides were heard at length, the
case records carefully perused and with the assistance of the ld.
Counsels, we have considered the documentary evidences brought on
record in the form of a letter from the CA dated 27.10.2021 in light of
Rule 29 of ITAT Rules and have also perused the judicial decisions
relied upon by both the sides.
Having heard the rival submissions, we find that in the instant
case, the assessee, for benchmarking the specified domestic
transaction of purchase of goods by the assessee to its AE, Luminous
Power Technologies Pvt Ltd (LPTPL), has considered internal TNMM as
most appropriate method. The assessee has taken the operating
profitability on cost for sale made to the third party Amar Raja
Batteries Ltd (ARBL) for comparison. On the basis of the TPO report,
the DRP held that the products sold by LPTPL to ARBL and to itself are
different and that the segmental accounts of LPTPL is not reliable as it
is not audited. Accordingly, the DRP rejected the application of
internal TNMM method.
It therefore emerges that the segmental financial statement
being presented before us as additional evidence, was furnished by the
assessee during the proceedings before the DRP. The DRP had rejected
the same on the ground that the segmental accounts of LPTPL with
regard to ARBL segment and the assessee segment were not audited,
and hence not reliable. This segmental financial statement has now
been certified by an independent accountant and being produced
before the Tribunal as additional evidence. We are of considered
opinion that the segmental financial statement will facilitate proper
appreciation and comparison of the transactions entered into with
ARBL and itself.
As regards to the admission of the additional evidence, it is
fruitful to refer to the Hon'ble Madhya Pradesh High Court in the case
of Commissioner of Income-tax v. Kum. Satya Setia, [1983] 15 Taxman
345 (MP) wherein it has been held as under:
"The learned standing counsel for the revenue invited our attention to rule 29 of the Income- tax (Appellate Tribunal) Rules, 1963. This rule is in pari materia with Order XLI, rule 27, of the Code of Civil Procedure. It is within the discretion of the appellate authority to allow production of additional evidence if the said authority requires any document to enable it to pass orders or for any other substantial cause. Therefore, even if the assessee had failed to file the said agreement before the ITA and the AAC, the Tribunal had the jurisdiction in the interest of justice to allow production of a crucial document. In Kali Charan Ram Chander v. CIT [197 8] 112 ITR 405 , the Calcutta High Court held that where the Tribunal is of the opinion that the appeal cannot be properly decided without taking into account further evidence, it has jurisdiction to admit further evidence and either to decide the appeal itself or to remand it to the authorities below for deciding the matter afresh after taking into account the additional evidence produced before it.”
The above decision of the Hon'ble Madhya Pradesh High Court was reiterated in the case of Anaikar Trades &Estates (P). Ltd v.
Commissioner of Income-Tax, [1991] 56 Taxman 170 (Madras) wherein
it has been held as under:
"We may also refer to Kum. Satya Setia's case (supra) where it has been laid down that under rule 29, it was within the discretion of the Tribunal to allow the production of additional evidence and even if there was a failure to produce the documents before the ITO and the AAC, the Tribunal had the jurisdiction in the interest of justice to allow the production of such vital documents. "
The decision of the Hon'ble Madras high Court in the case of R.S.S. Shanmugam Pillai & Sons v. Commissioner of Income-tax, [1974]
95 ITR 109 (MAD.) similarly was held as under:
“It is no doubt true that the Tribunal has got a discretion either to admit the documents as additional evidence or to reject the same at the stage of the appeal. But he said discretion cannot be exercised in an arbitrary manner. If the Tribunal finds that the documents filed are quite relevant for the purpose of deciding the issue before it, it would be well within its powers to admit the evidence, consider the same or remit the matter to the lower authorities for the purpose of finding out the genuineness of the letters and considering the relevancy of the same. But if the Tribunal finds that the evidence adduced at the stage of the appeal is not quite relevant or that it is not necessary for the proper disposal of the appeal before it, in that case, the Tribunal could straightaway reject the evidence, which was sought to be produced for the first time at the stage of the appeal. "
In the case of Text Hundred India Pvt Ltd (supra), the Hon’ble
Delhi High Court, in the context of Rule 29 of ITAT Rules, held that the
“it is the discretion of the Tribunal to admit evidence in the interest of justice once the Tribunal affirms the opinion that doing so would be necessary for proper adjudication of the matter…..the aforesaid
rule is made enabling the Tribunal to admit the additional evidence in its discretion if the Tribunal holds the view that such additional evidence would be necessary to do substantial justice. It is well settled that the procedure is handmade of justice and justice should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence at the appropriate stage.”
The Hon’ble Supreme Court in the case of Sanjay Kumar Singh in
Civil Appeal no 1760 of 2022 dated 10.03.2022 and UOI Vs Ibrahim
Uddin in Civil appeal no 1374 of 2008 dated 17.07.2012, in the context
of Order XLI, Rule 27, of the Code of Civil Procedure which is pari
materia with Rule 29 of ITAT Rules, has laid down that “where the
additional evidence sought to be adduced removes the cloud of
doubt over the case and the evidence has a direct and important
bearing on the main issue in the suit and interest of justice clearly
renders it imperative that it may be allowed to be permitted on
record, such application may be allowed.”
Having heard the rival submissions, and the legal position culled
out from various judgments as cited above with respect to the Rule 29
of the ITAT Rules, we are of the opinion that this segmental financial
statement has direct bearing on the issue of deciding the method to be
adopted to determine the Arms Length Price. Without considering the
segmental analysis of the transaction for comparison of operating
profitability on cost of sale made by company to LPTPL vis a vis third
party ARBL, the rejection of internal TNMM method may not adhere to
the principals of natural justice. We are therefore, of considered view
that the additional evidence, now being furnished, has a direct and
important bearing to adjudicate the present controversy and hence
admitted keeping in view the principles of natural justice.
In the result, the application of the assessee for limited purpose
of admitting the additional evidence in ITA No. 6997/DEL/2017 is
allowed for statistical purposes.
The order is pronounced in the open court on 31.05.2024.
Sd/- Sd/- [CHALLA NAGENDRA PRASAD] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 31st MAY, 2024.
VL/
