MCAFEE SOFTWARE INDIA PRIVATE LIMITED,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(1), BENGALURU
Facts
The assessee filed its return of income for AY 2017-18. The return was processed under section 143(1) with an addition of Rs. 6,12,81,302 under section 43B. The assessee appealed against the Final Assessment Order (FAO) to the ITAT, which dismissed the appeal stating the cause of action arose from the intimation under section 143(1). The assessee then filed an appeal before the CIT(A) against the intimation, but it was dismissed in limine due to delay.
Held
The Tribunal held that the assessee's appeal against the FAO was not maintainable as the cause of action arose from the section 143(1) intimation. However, it allowed Ground 2 regarding the AO's incorrect computation in the FAO. The present Tribunal decided to condone the delay in filing the appeal before the CIT(A) based on bonafide mistake and principles of substantial justice.
Key Issues
Whether the delay in filing the appeal before the CIT(A) should be condoned? Whether the CIT(A) should decide the issue on merits?
Sections Cited
143(1), 43B, 36(1)(va), 40(a)(ia), 143(2), 5 of the Limitation Act, 1963
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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K & SHRI WASEEM AHMED
THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE
BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER
IT(TP)A No.110/Bang/2024 Assessment Year : 2017-18
M/s. McAfee Software (India) Pvt. Ltd., Vs. DCIT, Embassy Golf Links Business Park, Circle – 4(1)(1), Pine Valley, 2nd Floor, I.R.R.Road, Bengaluru – Bengaluru. 560 071. PAN : AABCN 3175 H APPELLANT RESPONDENT
Assessee by : Shri. Aliasgar Rampurawala, CA Revenue by : Shri. Satish Meriga, CIT(DR)(ITAT), Bengaluru.
Date of hearing : 08.05.2024 Date of Pronouncement : 10.05.2024
O R D E R Per George George K, Vice President :
This appeal at the instance of assessee is directed against CIT(A)’s Order dated 24.11.2023, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2017-18.
The grounds raised read as follows:
On the facts and circumstances of the case and in law, the order passed under section 25o of the Income-tax Act, 1961 (`the Act') dated November 24, 2023, by the Additional Commissioner of Income Tax (Appeals) — 10, National Faceless Appeal Centre (`Ld. CIT(A)') is prejudicial to the Appellant, bad in law and liable to quashed. 2. On the facts and circumstances of the case and in law, the Ld. CIT (A) has dismissed the appeal of the Appellant without
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appreciating the facts and thereby the merits of the case without affording an opportunity of being heard, thereby violating the principles of natural justice and rendering the order of the Ld. CIT(A) as infructuous. 3. On the facts and in the circumstances of the case and in law, the net disallowance under section 43B of the Act reported by the Appellant in the tax return is in accordance with that disclosed by the tax auditor in Form No. 3CD and hence, the adjustment of INR 6,12,81,302 is liable to be deleted. 4. That the confirmation by the Ld. CIT(A) of the disallowance of Rs 6,12,81,302 under section 43B of the Act, results in double disallowance given that such disallowance is already made by the Appellant in the tax return for AY 2 017-18.
Brief facts of the case are as follows:
The assessee is a company engaged in the business of rendering software development services to its group companies. For the assessment year 2017-18, the return of income was filed on 29.11.2017 declaring total income of Rs.108,32,16,980/-. The return was processed u/s 143(1) of the Act on 01.03.2019, wherein the total income was determined at Rs.114,48,71,340/- instead of Rs.108,32,16,980/- declared in the return of income. In the intimation issued u/s 143(1) of the Act, following adjustments were made to the returned income:-
(i) Addition of Rs.6,12,81,302 u/s 43B of the Act (ii) Addition of Rs.3,73,057 u/s 36(1)(va) of the Act
Later, the Draft Assessment Order (DAO) was passed on 30.09.2021, wherein the adjustment made u/s 143(1) of the Act was not incorporated. In the draft assessment order, the A.O. had incorporated the T.P. adjustment
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proposed by the Transfer Pricing Officer (TPO) and disallowance u/s 40(a)(ia) of the Act.
The assessee, being aggrieved by the DAO, filed objections before the Dispute Resolution Panel (DRP). The DRP vide its directions dated 16.06.2022 disposed of the assessee's objections. Pursuant to the DRP's directions, Final Assessment Order (FAO) was passed, accepting the returned income. Therefore, the TP adjustment and the disallowance under section 40(a)(ia) of the Act, was deleted. Though the TP adjustment and the disallowance under section 40(a)(ia) of the Act was deleted in the FAO, assessee preferred appeal before the ITAT in ITA No.912/Bang/2022 against the FAO raising contentions against the adjustment made under section 143(1) of the Act. The argument of the learned AR during the hearing before ITAT in ITA No.912/Bang/2022 was that the computation sheet attached to the final assessment order, the AO has taken into account not the returned income but the total income computed as per the intimation under section 143(1) of the Act. Therefore, it was submitted that the assessee is aggrieved by the final assessment order. The Tribunal however rejected the contentions of the assessee and dismissed the appeal. The Tribunal held that cause of action arises from the intimation issued under section 143(1) of the Act as against the addition of Rs.6,12,81,302/- under section 43B of the Act and not from the FAO dated 28.07.2022. The relevant findings of the Tribunal in ITA No.912/Bang/2022 (order dated 03.11.2022) reads as follows:
“8. We have heard rival submissions and perused the material on record. From the grounds raised in the memorandum of appeal, it is clear that the assessee is aggrieved by the additions / disallowances made in the intimation issued u/s 143(1) of the I.T.Act. The intimation u/s 143(1) of the I.T.Act is dated 01.03.2019. The assessee being aggrieved by the additions / disallowances made in the said intimation ought to have filed appeal before the CIT(A). The draft assessment
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order, DRP's directions nor the final assessment order has touched upon the issues of adjustment made u/s 143(1) of the I.T.Act. Therefore, the issue of addition u/s 43B and disallowance u/s 36(1)(va) of the I.T.Act arise out of the intimation issued u/s 143(1) of the I.T.Act dated 01.03.2019 and not from the final assessment order dated 28.07.2022. Therefore, since the cause of action stems out of intimation u/s 143(1) of the I.T.Act, this appeal filed by the assessee as against the final assessment order needs to be rejected. Therefore, grounds 3 & 4 as regards the merits of addition u/s 43B and disallowance u/s 36(1)(va) respectively are rejected.
In the final assessment order, the A.O. had included in the computation statement the figures from the intimation u/s 143(1) of the I.T.Act instead of the returned income (which are not subject matter of adjudication in draft assessment order and DRP's directions). In other words, the A.O. has adopted figure of Rs.114,48,71,340 (computation as per intimation u/s 143(1) of the I.T.Act) instead of Rs.108,32,16,980 (as per return of income). In ground 2, the assessee challenges the above action of the A.O. We are of the view that in the final assessment order, the A.O. can only include those figures, which are subject matter of dispute in the draft assessment order and the DRP's direction. Therefore, the final assessment order by the A.O., by taking figures from intimation u/s 143(1) of the I.T.Act, has indirectly upheld addition of Rs.6,16,54,359, which is not correct. However, needles to state that demand raised u/s 143(1) of the I.T.Act will have to be sustained unless and until the assessee challenges the same. Therefore, we allow ground 2 raised by the assessee.”
Pursuant to the order of the Tribunal dated 03.11.2022, assessee filed appeal before the CIT(A) as against the intimation passed under section 143(1) of the Act (appeal before the CIT(A) against section 143(1) of the Act was instituted on 12.12.2022). Before the CIT(A), assessee had also filed a petition for condonation of delay. Assessee had stated before the CIT(A) that although the additions were made under section 43B of the Act in an intimation under section 143(1) of the Act, it was of bonafide view that the proposed addition under section 43B of the Act would be taken up for discussion during the scrutiny assessment proceedings. However, the AO in the scrutiny assessment proceedings did not issue any notice or discussed the
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proposed adjustment that was made in the intimation issued under section 143(1) of the Act. In the condonation application, it was submitted that assessee by a bonafide mistake filed appeal as against the addition under section 43B of the Act from the Final Assessment Order since in the computation statement, the income adopted was the figures from the intimation under section 143(1) of the Act and not the returned income. The assessee also relied on various case laws in support of its contention that the delay in filing the appeal before the CIT(A) may be condoned for substantial justice and equity. The CIT(A) however, dismissed the appeal of the assessee in limine without condoning the delay in filing the appeal.
Aggrieved by the Order of the CIT(A), assessee has filed the present appeal before the Tribunal. The learned AR relied on the contentions raised before the CIT(A).
The learned DR supported the orders of the Income Tax authorities.
We have heard the rival submissions and perused the material on record. In the instant case, the solitary issue raised on merits is regarding the addition of Rs.6,12,81,302/- under section 43B of the Act. The above addition was made by way of adjustment in the intimation issued under section 143(1) of the Act on 01.03.2019. Assessee, although aggrieved by the addition made under section 43B of the Act, did not file appeal against the said intimation issued under section 143(1) of the Act (probably under the bonafide belief that the addition under section 43B of the Act would be discussed in the scrutiny assessment, since notice under section 143(2) of the Act was already issued on 05.09.2018 i.e., prior to the date of intimation). The FAO was passed on 28.07.2022 pursuant to the notice issued under section 143(2) of the Act wherein the AO accepted the income returned by the assessee. However, in
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the computation sheet annexed to the FAO, the AO had considered the income as per the intimation issued under section 143(1) of the Act, instead of the income as per the returned income. This prompted the assessee to file an appeal against the FAO before the ITAT. As mentioned earlier, ITAT dismissed the appeal of the assessee vide its order dated 03.11.2022. The ITAT held that the company ought to have filed an appeal before the CIT(A) as against the intimation issued under section 143(1) of the Act. The ITAT further held that action of AO in taking the figure from intimation issued under section 143(1) of the Act where the same was not discussed in the DAO or the FAO is incorrect as same has indirectly upheld the addition of Rs.6,16,54,359/-. It is in this factual background the assessee had filed appeal before the CIT(A) with a petition to condone the delay in filing the appeal by 1351 days.
Admittedly, the assessee has filed appeal before the CIT(A) within a reasonable time from the date of the ITAT Order dated 03.11.2022. The only question now is to explain the delay in filing the appeal before the CIT(A) from the date of intimation issued under section 143(1) of the Act, up to the date of the FAO (since the assessee has already preferred appeal as against the FAO before ITAT) which was dismissed vide ITAT Order dated 03.11.2022). As mentioned earlier, assessee was under bonafide belief that the addition under section 43B of the Act made in the intimation under section 143(1) of the Act, would be discussed / mentioned in the scrutiny assessment since notice under section 143(2) of the Act was already issued on 05.09.2018 i.e., prior to the date of intimation (the date of intimation is 01.03.2019).
The Hon’ble Supreme Court in the case of Collector, Land & Acquisition v/s Mst . Katiji & Others (1987) 167 ITR 471 (SC) has interpreted the term “sufficient cause” in the context of condoning the delay under section
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5 of the Limitation Act, 1963. The Hon’ble Apex Court held the expression “sufficient cause” employed by the Legislature is adequately elastic to enable the Courts to apply the law in a meaningful manner which sub-serves the ends of justice, that being the life-purpose of the existence of the institution of Courts. The Hon’ble Apex Court in the aforesaid judgment had laid down the following broad principle while considering the delay condonation application :
i. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. ii. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. iii. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk. iv. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.
Furthermore, the Hon’ble Apex Court in the case of United Bank of India Vs. Naresh Kumar and Others reported in (1996) 6 SCC 660 had observed that the procedural defects which do not go the root of the matter should not be permitted to defeat a just cause. It further held that as far as possible, a substantive right should not be allowed to be defeated on account of a procedural irregularity which is curable.
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The Hon’ble Allahabad High Court in the case of Bharat Auto Centre Vs. CIT reported in (2005) 49 Taxmann 288 (All) held that in the matter of condonation of delay, a liberal and pragmatic view should be taken. It was further held that the rules of limitation as per section 5 of Limitation Act are not meant to destroy the rights of parties, rather the idea that every legal remedy must be kept alive for legislatively fixed period of time.
In the instant case, the Revenue does not plead that there was malafide intention on the part of the assessee in preferring the appeal with a delay. The assessee does not stand to gain by preferring appeal with a delay. When technicalities are pitted against substantial justice, the former must give way to the latter. There is no reason not to accept the explanation offered by the assessee that it is only due to bonafide mistake that the appeal has not been preferred against the intimation issued against section 143(1) of the Act at the first instance. The Revenue has not pleaded any rights to have been crystalized due to efflux of time. By condoning the delay, the highest that could happen is that a cause could be decided on merits which would go in the interest of justice. In view of this matter, we are of the opinion that delay in preferring the appeal before the CIT(A) is to be condoned. Since we have condoned the delay in filing the appeal before the CIT(A), the issue on merits needs to be adjudicated by the CIT(A). For the aforesaid purpose, the matter is remanded to the CIT(A) to take a decision on merits in accordance with law. It is ordered accordingly.
In the result, appeal of the assessee is allowed for statistical purposes.
Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (WASEEM AHMED) (GEORGE GEORGE K)
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Accountant Member Vice President Bangalore. Dated: 10.05.2024. /NS/*
Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard file By order
Assistant Registrar, ITAT, Bangalore.
