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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA
आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M.: This appeal is filed by M/s. Nipro Medical India Pvt. Ltd. (“the assessee”), feeling aggrieved by the order passed by the Learned Pr. Commissioner of Income Tax-4, Hyderabad (“Ld. PCIT”), dated 25.03.2024 for the A.Y. 2018-19.
The assessee has raised the following grounds :
1. “ 1. Learned PCIT - 4, Hyderabad erred in law and on facts in treating the Assessment Order u/s 143(3) as erroneous & thereby prejudicial to the revenue u/s 263 by holding that appellant had no obligation to bring into its books the Trade Receivables from Nipro India Corporation Pvt. Ltd. and thus appellant had no right to write off trade receivables of Rs. 4,04,17,614 in its books.
2. Learned PCIT - 4, Hyderabad erred in law and on facts in assuming jurisdiction u/s 263 to hold the assessment Order u/s 143(3) is erroneous & prejudicial to the revenue by passing revisionary order u/s 263 on a ground not mentioned in the show cause notice issued and for which no opportunity of being heard was provided to the appellant.
3. Learned PCIT - 4, Hyderabad erred in law and on facts in assuming jurisdiction u/s 263 to hold the assessment Order u/s 143(3) is erroneous & prejudicial to the revenue by challenging the transaction of transfer of business and relevant assets & liabilities concluded in previous year/s forming part of appellant's books of accounts.
4. Learned PCIT - 4, Hyderabad erred in law and on facts in alleging that transfer of trading business between appellant and fellow group company viz. Nipro India Corporation Pvt. Ltd. as a "colourable in nature" and that "an arrangement of entering into MOU and Sales Agreement assuming to have done for tax avoidance to conceal the true nature of the transaction". Appellant contends that claim of loss on account of bad debts does not lead to any undue tax advantage.
5. Learned PCIT - 4, Hyderabad erred in law and on facts in treating the Assessment Order u/s 143(3) being erroneous & thereby prejudicial to the revenue without appreciating that absence of specific comment by the learned AO in the assessment order cannot be the ground for revisionary proceedings u/s 263.
6. The appellant craves leave to add, alter, clarify, explain, modify, delete any of the grounds of appeal
, and to seek any just and fair relief.”
3. The facts of the case, in brief are that, the assessee is a private limited company engaged in the business of trading of various medical equipment and consumables. The assessee filed its return of income for the A.Y. 2018-19 on 29.11.2018 declaring total income of Rs.Nil after set-off of the losses of earlier years against income from business and income from other sources. The case of the assessee was selected for complete scrutiny under CASS to verify the following issues: -
1. Verification of Genuineness of Expenses 2. Claim of any other amount allowable as deduction in schedule BP 3. Default in TDS & Disallowance for such default. 4. Duty Drawback
5. Expenditure by way of Penalty or Fine for Violation of any law Accordingly, notices u/s 143(2)/142(1) of the Income Tax Act, 1961 (“the Act”) were issued to the assessee by the Learned Assessing Officer (“Ld. AO”). After considering the submissions of the assessee, the Ld. AO completed the assessment u/s 143(3) r.w.s. 144B of the Act on 11.05.2021 by making addition for Rs. 29,75,736/- u/s.36(1) (va) of the Act under normal provisions of the Act and adjusted the same against the brought forward losses. The Book Profit u/s 115JB of the Act of Rs. 1,49,77,211/- as computed by the assessee in its Return of Income was accepted. Subsequently, the Ld. PCIT assumed jurisdiction u/s.263 of the Act, treating the order of the Ld. AO as erroneous so as to prejudicial to the interest of revenue for the reason which is reproduced as under :
“ From the computation statement submitted by the assessee company while computing Book Profit u/s 115JB of IT Act, an amount of Rs. 4,04,17,615/- was reduced as bad debts written off. The above deduction claimed and allowed to the assessee was not covered by the prescribed adjustments to Book Profit as per the above said provisions of Sec 115JB of the IT Act. The omission to do so resulted in under assessment of Income of Rs. 4,04,17,615/- with a short demand of MAT of Rs. 1,13,72,148.”
After considering the submission of the assessee, the Ld. PCIT set aside the order to the file of Ld. AO. The relevant portion of the order of Ld. PCIT in this regard are contained at para nos. 7 & 8 of his order which are to the following effect :
“ 7. During the course of Revisionary Proceedings under Section 263 of the Act, M/s NMI, in its submission mentioned that CIT(Appeals) and Hon'ble ITAT, already accepted the transfer of trading business of the assessee. The assessee cited its own case for the AY 2016-17, which came for hearing before CIT(Appeals) and later before Hon'ble ITAT, Hyderabad Bench. The assessee made available the orders for the AY 2016-17. On perusal of the same, it was seen that the orders of CIT(Appeals) and Hon'ble ITAT are on a different issue such as allowability of contractual breach as a business expenditure u/s 37 and the issue of legitimacy of the transfer of asset was not discussed in any of the orders nor was it a ground taken up before the Appellate Authorities. Therefore, the ground raised by the assessee is not admissible.
8. In view of the above, I am satisfied that the order under Section 143(3) r.w.s. 144B of the Income Tax Act dated 11/05/2021 passed by the Assessing Officer, National e-Assessment Centre, Delhi was erroneous in so far as it is prejudicial to the interest of revenue. Accordingly, as the issues discussed above, the above Assessment Order is set aside with a direction to verify the same and pass consequential order accordingly after affording reasonable opportunity to the assessee.”
4. Aggrieved with the order of Ld. PCIT, the assessee is in appeal before us. The ground no.1 is regarding wrong assumption of jurisdiction by Ld. PCIT u/s.263 of the Act. The Learned Authorised Representative (“Ld. AR”) submitted that, the assessee is a 100% subsidiary company of Nipro Corporation, Japan. During the F.Y. 2006-07, Nipro Corporation established and formed a 100% subsidiary company in India i.e. Nipro India Corporation (“NIC”). Thus from F.Y. 2006-07 onwards, NIC started marketing and supply of Nipro products in India. During the F.Y. 2014-15, NIC started full fledged manufacturing facility of medical equipment and transfer the trading business to the assessee along with all the corresponding assets and liabilities in accordance with the Memorandum of Understanding dated 30.03.2015 (“MOU”). The assessee also entered a sales agreement dated 1.4.2015 (“sales agreement”) with M/s. NIC to finalise the consideration qua fixed assets only. The Article 7 of the sales agreement which is related to the fixed assets only is misinterpreted by the Ld. PCIT, which is reproduced as under :
“ Article 7 – Entire Agreement This Agreement shall constitute the sole agreement between the parties superseding all prior agreements oral or written. This agreement cannot be amended or modified except in a writing agreed to and agreed by the parties.” The Ld. PCIT thought that, by entering into sales agreement, the assessee had cancelled the terms of MOU and the assessee had to acquire only the fixed assets and not the other assets / liabilities. Therefore, the Ld. PCIT made a view that, taking over of debtors of M/s. NIC and then subsequently claiming bad debts against the same debtors by the assessee is not allowable as deduction. In this regard, the Ld. AR clarified that, the title of sales agreement i.e. “fixed assets sales agreement” makes it clear that, it was an agreement for sale of fixed assets only. Further the Ld. AR drew our attention to page nos.104 & 105 of paper book containing the copy of MOU, wherein at para no.1, it has been mentioned that a separate agreement shall be entered to decide the consideration of fixed assets. Hence, the sales agreement was only a part of MOU and not an independent agreement. The conclusion drawn by the Ld. PCIT, that there was no agreement to take over the book debts and subsequent write off of the same as bad debts is not allowable to the assessee is not true. Therefore, the Ld. AR submitted that, the assumption of jurisdiction u/s.263 of the Act by Ld. PCIT is on the basis of wrong facts. Hence, the order passed by the Ld. PCIT is liable to be quashed.
With regard to ground no.2, the Ld. AR submitted that, the show cause notice was issued by Ld. PCIT u/s.263 of the Act on following reasons :
“ From the computation statement submitted by the assessee company while computing Book Profit u/s 115JB of IT Act, an amount of Rs. 4,04,17,615/- was reduced as bad debts written off. The above deduction claimed and allowed to the assessee was not covered by The above deduction claimed and allowed to the the prescribed adjustments to Book Profit as per the above said provisions of Sec 115JB of the IT Act. The omission to do so resulted in under assessment of Income of Rs. 4,04,17,615/- with a short demand of MAT of Rs. 1,13,72,148.”
However, during proceedings u/s.263 of the Act, the Ld. PCIT did not find any infirmity qua the aforesaid reasons. Subsequently, the Ld. PCIT started verification on some other ground, which was not a part of the reason of the show cause notice issued qua section 263 of the Act. Further, no opportunity of being heard was provided to the assessee qua such other ground. Relying on the decision of Hon'ble Supreme Court in the case of CIT Vs. Amitabh Bachchan, 384 ITR 200 (2016), the Ld. AR submitted that, the Ld. PCIT should have given proper opportunity before deciding on other grounds. Therefore, the Ld. AR prayed before the bench to quash the order of Ld. PCIT.
With regard to ground nos.3 to 5, the Ld. AR submitted that, MOU was entered on 30.03.2015 i.e. in A.Y. 2015-16. The contention of the Ld. PCIT, that the genuineness of the MOU was not verified by the Ld. AO is not correct, as it was a subject matter of verification for A.Y. 2015-16. If anything had to be verified, then it would have been in A.Y. 2015-16. Therefore, the allegation of Ld. PCIT is not correct that no verification has been made with regard to MOU in the year under consideration. Further, the contention of the Ld. PCIT that the write off of bad debts have not been verified by the Ld. AO only due to the reason that no findings with that regard has been given by the Ld. AO in his assessment order, is also not correct. The Ld. AR further submitted that, the case of the assessee for A.Y. 2016-17 was subject to scrutiny and everything was verified by the Ld. AO during that scrutiny proceedings. Finally the Ld. AR submitted that, there was no error in the order of Ld. AO which is prejudicial to the interest of revenue, hence the assumption of jurisdiction by Ld. PCIT u/s.263 of the Act is not correct and is liable to be quashed.
Per contra, the Learned Department Representative (“Ld. DR”) relied on the order of Ld. PCIT and prayed before the bench to dismiss the appeal of the assessee.
We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. As far as the submission of the Ld. AR under ground no.1 is concerned, we have gone through the MOU and sales agreement and we are of the considered opinion that the sales agreement is a part of MOU and not an isolated agreement. Therefore, without commenting upon the genuinity of both the documents, we hold that, the contention of the Ld. PCIT that, the assessee had no obligation to bring into his book the trade debtors from M/s. NIC and had no right to write off the same, is not correct. Hence, ground no.1 of the assessee is allowed.
With regard to ground no.2 the Ld. AR submitted that, the show cause notice was issued on one issue and final conclusion was drawn by the Ld. PCIT on different issue without issuing any show cause notice nor providing any opportunity to the assessee. We have gone through the provisions contained in section 263 of the Act. As per the provisions contained under 263, no show cause notice is required to be given to the assessee, however, as per the mandate of the section, an opportunity of being heard must be given to the assessee. We have also gone through the page nos.265 to 268 of the paper book, which is related to the submissions made by the assessee before the Ld. PCIT on 20.03.2024, wherein the assessee has filed his submissions with regard to the other issue of the Ld. PCIT on the basis of which conclusion has been drawn by the Ld. PCIT. The submission has been made by the assessee on 20.03.2024 and the date of order of the Ld. PCIT is 25.03.2024 i.e. after the date of the submission made by the assessee. Hence, the objection raised by the assessee that no opportunity of being heard is given to the assessee is rejected. Therefore, we dismiss the ground no.2 of the assessee.
As far as the objection of the assessee under ground nos. 3 to 5 with regard to the verification of MOU qua write off of bad debts is concerned, it is important to note that, the first two reasons for selection of the scrutiny was related to verification of genuineness of expenses and claim of any other amount allowable as deduction in Schedule BP. During the year under consideration, the assessee has claimed a major amount of Rs.4,04,17,615/- as bad debt, which was required to be verified and scrutinized by the Ld. AO as per the reason recorded for selection of the case for scrutiny. Further, the debt which had been written off during the year under consideration were taken over through the MOU. Therefore, in our considered opinion, although the MOU had been executed in A.Y. 2015-16, the Ld. AO should have verified the reasonability of taking over of such book debt through MOU. We have gone through the order of Ld. AO, however, we did not find any recording of satisfaction by the Ld. AO qua verification / examination of writing off of bad debts. Hence, we are of the considered opinion that, there was a major fault on the part of the Ld. AO that he did not verify the write off of bad debts. Non-verification of the same by the Ld. AO make the order of the Ld. AO erroneous in so far as it is prejudicial to the interest of revenue as per the provisions contained under Explanation 2 to section 263 of the Act. Hence, in our considered opinion, we do not find any infirmity in the assumption of jurisdiction u/s.263 of the Act by the Ld. PCIT. Accordingly, we dismiss the ground nos.3 to 5 of the assessee.
In the result, the appeal of the assessee is dismissed.