NEW BALANCE IT SERVICES INDIA PVT. LTD.,PUNE vs. INCOME TAX OFFICER(1)- CIRCLE 2, PUNE, PUNE
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Income Tax Appellate Tribunal, PUNE ‘A’ BENCH, PUNE
Before: HON’BLE SHRI S. S. GODARA & SHRI G. D. PADMAHSHALI
IN THE INCOME TAX APPELLATE TRIBUNAL, PUNE ‘A’ BENCH, PUNE BEFORE HON’BLE SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI G. D. PADMAHSHALI, ACCOUNTANT MEMBER आयकर अपऩल सं. / ITA No. 0245 & 0246/PUN/2024 निर्धारण वषा / Assessment Year : 2020-21 & 2022-23 New Balance IT Services India Pvt. Ltd. Level-1, Wing-A, Tower-06, Cybercity, Magarpatta, Pune-411013. PAN : AACCN5091R . . . . . . . अपीलार्थी / Appellant बिधम / V/s. Income Tax Officer-1, Circle-2, Pune . . . . . . . प्रत्यर्थी / Respondent द्वधरध / Appearances Assessee by : Mr Rajendra Agiwal [‘Ld. AR’] Revenue by : Mr Ramnath Murkunde [‘Ld. DR’] सुनवाई की तारीख / Date of conclusive Hearing : 28/05/2024 घोषणा की तारीख / Date of Pronouncement : 05/06/2024 आदेश / ORDER Per G. D. Padmahshali, AM; This twin appeals are instituted u/s 253(1)(aa) of the Income Tax Act [‘the Act’] by the assessee challenging the respective first appellate orders dt. 19/12/2023 passed u/s 250 of the Act by the Commissioner of Income Tax Appels [‘CIT(A)’] for the assessment years 2020-21 & 2022-23 [‘AY’] which in turn arisen out of separate orders of intimation passed u/s 143(1) of the Act.
Since the facts and solitary issue involved in this bunch of appeals are identical, on the request of rival parties, for the sake of brevity these appeals are heard together for a common and consolidated order.
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New Balance IT Services India Pvt. Ltd. Vs ITO ITA No.245 & 246/PUN/2024 3. Tersely stated facts of the case are that; the assessee company was in receipt of refund of Goods & Service Tax [‘GST’] ₹2,01,95,946/- for AY 2020-21 and ₹1,61,65,450/- for AY 2022-23. These receipts/refunds according to the Tax Audit Report [‘TAR’] were not routed through profit & loss account [‘P&L’]. The return of income [‘ITR’] filed by the assessee company u/s 139(1) of the Act was summarily proceed u/s 143(1) of the Act wherein an upward adjustment u/s 143(1)(a)(iv) of the Act was proposed on the basis of clause 16(b) of TAR which reported the amount of GST refund were not credited to P&L. Upon the assessee’s effective failure to establish the compliance of provisions of section 145 of the Act and coupled with non-compliance of applicable income computation and disclosure standards [‘ICDS’] issued on ‘Inventory Valuation’ & ‘Revenue Recognition’ the said amounts of GST refund were added to total income and accordingly brought to tax in the respective assessment years under consideration. 4. Aggrieved assessee unsuccessfully contested the aforestated uphill adjustments in separate appeals before Ld. CIT(A). Further aggrieved thereby the assessee came in present appeals on as many as twelve argumentative grounds laid in appeal memo. 5. At the outset of physical hearing, the Ld. AR solidifying the facts that the twelve grounds raised in twin appeals are not in consonance with rule 8 of ITAT- Rules, 1963 has professed that, these grounds are collective directed towards sole & substantive issue of addition of GST Refund. In disentailing the addition from taxability the Ld. AR raised three bullet contentions viz; (a) addition of GST refund in summary assessment u/s 143(1)(a)(iv) is impermissible (b) exclusive method of accounting followed by the assessee as against the mandate of section 145(2) of the
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New Balance IT Services India Pvt. Ltd. Vs ITO ITA No.245 & 246/PUN/2024 Act is indeed tax-neutral and lastly (c) the invocation provisions of section 28(iiic) of the Act by the Ld. CIT(E) without putting assessee to notice suffered from principle of natural justice. In asserting reversal of aforestated addition on former three contentions the Ld. AR further for the sake of clarity reiterated that; the assessee is engaged in the business of exporting IT/ITeS services. The assessee’s exports are not liable for GST payment [‘Output-GST-liability’], therefore the amount of GST paid [‘Input-GST-credit’] on procurement of services like rent, travel, and communication etc., were remained to offset in absence of output GST liability. In the event of NIL output GST liability, the assessee was entitled to refund of entire Input GST credit which was allowed by the GST Department. Since the expenses on which input GST was paid were debited to P&L on net basis, the resultant refund did also not pass through P&L as is inexigible to tax. In summation, the input GST paid to the service providers along with the net expenses were neither debited to P&L as and when incurred nor credited to P&L upon their refund. It is further avowed that, although section 145 of the Act r.w. provisions of ICDS-II mandates the assessee to follow ‘inclusive method’ [‘Gross basis, inclusive of taxes’] for the purpose of recording transactions & inventory valuations, the exclusive method followed by the assessee is tax-neutral. In support of this contention & a prayer for remand the appellant placed a certificate [UDIN: 24163322BKCTVO1038] dt. 05/02/2024 from a chartered accountant showcasing tax-neutrality irrespective of method followed. 6. Per contra objecting the prayer of the assessee for remand, the Ld. DR Mr Murkunde averred that, insofar as the first contention is concerned, the Ld. CPC/AO by binding judicial precedents well within its jurisdiction in carrying out impugned
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New Balance IT Services India Pvt. Ltd. Vs ITO ITA No.245 & 246/PUN/2024 adjustment on the basis of TAR u/c (iv) of s/s (1) of section 143 of the Act. For the purpose of assessment of correct income, the assessee in terms of section 145 of the Act was under obligation to maintain & record all its transactions on mercantile basis following ‘inclusive method’ for accounting taxes/levies etc., irrespective of fact as to whether other method i.e. exclusive method leads to tax neutrality or not. Insofar as the merit of the case is concerned, the assessee company not only failed to comply with the mandate of section 145 of the Act but also defaulted in computing the taxable income in accordance with the applicable ICDS-II, IV & V. The assessee however faulted the same by it adopting exclusive method, which in turn triggered the impugned addition. It is a trite law as laid down by Hon’ble Supreme Court in case ‘Chandra Kishore Jha Vs Mahavir Prasad’ reported in 8 SCC 266 (SC), that ‘if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner’. It is also contended that, the certificate from chartered accountant placed to showcase the application of either method is tax- neutral requires factual exercise and is subject matter of in-depth verification which unfortunately cannot be entertained at this stage of second appellate proceedings. The Ld. DR finally rests Revenue’s argument by reinforcing co-terminus powers of the Ld. CIT(A) in bringing the impugned addition u/s 28(iiic) of the Act i.e. within the same head income from PGBP stating that, the statute prescribes no such requirement of serving separate notice or opportunity to the assessee. 7. Heard the rival contentions; and subject to rule 18 of ITAT-Rules perused the material placed on records & considered the facts of the case/s in the light of settled legal position which are also forewarned to the rival parties for their rebuttal.
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New Balance IT Services India Pvt. Ltd. Vs ITO ITA No.245 & 246/PUN/2024 8. The issue under challenge necessitate to first deal with provisions of section 145 of the Act and applicable ICDS-II, IV & V. Without reproducing section 145 of the Act in verbatim it shall purposive to state here that, s/s (1) thereof prescribes two methods of accounting for arriving at taxability of income under the head ‘Profits and Gains of Business or Profession’ [‘PGBP’] or ‘Income from other Sources’ [‘IOS’] namely; (a) ‘Cash system’, where all transactions are recorded as & when they are paid & received irrespective of year in which they are incurred and unlike (b) ‘accrual or mercantile system’, where all transactions are recorded as & when they are incurred as against the former. Whereas s/s (2) of section 145 of the Act prescribes that, the assessee maintaining books of accounts on accrual or mercantile system of accounting in relation to any income taxable under the head ‘PGBP or IOS or both’ is required to compute its taxable income in accordance with notified ICDS. 9. For the purpose the Central Board of Direct Taxes [‘CBDT’] has notified ten ICDS initially in the year 2015 which are then revised vide notification no. 87/2016 dt 29/09/2016 whereby these ICDS are made applicable from AY 2017-18 to all assessee (other than Individual or HUF who is not covered by the provisions of tax audit u/s 44AB of the Act) following mercantile system of accounting, for the purposes of computation of income chargeable to income-tax under the head ‘PGBP or IOS or both’. The compliance with applicable ICDSs has been mandated u/s 145(2) of the Act to bring uniformity in the accounting policies governing computation of income for taxability under the Act and to reduce litigations.
ICDS-II, IV & V issued on ‘Inventory valuation’, ‘Tangible Fixed Assets and ‘Revenue Recognition’ respective mandates the assessee to follow inclusive method
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New Balance IT Services India Pvt. Ltd. Vs ITO ITA No.245 & 246/PUN/2024 of accounting. This inclusive method suggests that, all transactions whether revenue/income or capital should be accounted alongwith applicable indirect taxes/levies such as GST, Customs duty etc., (earlier excise, customs, service tax, excise, sales tax/VAT etc.) levied & paid/payable thereon. In in accounting terminology this method is also conveniently referred as ‘Gross Basis’ where all items of expenses are debited to P&L including taxes levied thereon (irrespective of paid or payable) and all items income/revenue are credited to P&L including levy of taxes thereon (irrespective of whether received or receivable) and all capital outlay transactions also recorded on gross basis. This treatment ensures the balance effect (if any) on all revenue transactions is either deductible as expense or taxable as income on year on year basis in line with the method mercantile system of accounting employed by the assessee, and thus uniformity in taxability.
Having sufficiently discussed the provision and ICDS, now returning to present case we note that, there is much less dispute that the assessee company for the year under consideration has (a) maintained its books of account following mercantile system of accounting (b) followed exclusive method of accounting in recording all the transactions that is to say all transactions are recorded on net basis i.e. net of indirect taxes/levies etc., as against the mandate of s/s (2) of section 145 of the Act i.e. sidestepping from applicable ICDS (c) was receipt of GST refund which was not routed through or credit to P&L (d) and the tax auditor of the assessee has certified the aforestated facts in the Tax Audit Report [‘TAR’] u/c 16A of Form 3CD on the basis of which the tax authorities below made/sustained the addition while assessing taxable income in the hands of the assessee.
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New Balance IT Services India Pvt. Ltd. Vs ITO ITA No.245 & 246/PUN/2024 12. The appellant assertion that, the impugned addition by way of prima-facie adjustment in terms of section 143(1)(a)(iv) of the Act is impermissible in law finds negated by the decision of Hon’ble Jurisdictional Bombay High Court rendered in ‘Khatau Junkar Ltd. Vs DCIT’ [1992, 196 ITR 55 (Bom)], wherein their Hon'ble Lordships have held that, the prima-facie adjustment u/s 143(1) is permissible where on the face of the return and the documents/accounts accompanying it, the claim is found inadmissible. Going a step further in ‘Rohan Korgaonkar Vs DCIT’ [2024, 159 taxmann.com 321] their Hon’ble lordships have recently held that, once the principle involved in matter of claim i.e. taxability, non-taxability of income, allowability & non-allowability of deduction is settled by binding judicial precedents, the circumstance that the adjustment is carried out u/s 143(1)(a) through prima-facie adjustment makes no difference. The principle that once impugned item is exigible to tax is settled by judicial precedents, then addition thereof carried out u/s 143(1)(a)(iv) of the Act on the basis of TAR in view of ‘Rohan Korgaonkar’ (supra) cannot be faulted with. In view thereof we find no infirmity with the orders of tax authorities below in bringing to tax GST refund through prima-facie adjustment u/c (iv) of section 143(1)(a) of the Act. The grounds representing first contentions accordingly stands dismissed as meritless. 13. The appellant’s third contention alleging the violation of principle of natural justice by the first appellate authority for not according an opportunity before treating the impugned item as falling u/c (iiic) of section 28 of the Act could hardly displaced/dismantled by the Ld. DR. In result we see no cogent reason in not treating the impugned order as irregular on very terms, thus deserving to be set-aside.
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New Balance IT Services India Pvt. Ltd. Vs ITO ITA No.245 & 246/PUN/2024
The appellant’s argument that difference of income arisen followed through consistent incorrect method of accounting/valuation etc., is tax-neutral cannot in view of Hon’ble Apex Court in CIT Vs British Paint India Ltd. [1991, 188 ITR 44 (SC)] pass the test of acceptability as it violates the clear provision of section 145(2) of the Act. However this per-se in our considered view cannot saddle the assessee unless factual exercise as to whether non-adherence to applicable ICDS-II, IV & V etc., by has resulted into loss to the Revenue. Therefore the appellant request/prayer for an opportunity to showcase the non-adherence to the provisions of section 145(2) of the Act is tax-neutral in our considered view requires profound verification from audited books of accounts/records, audited financial statements, respective tax returns filed by the assessee under applicable fiscal laws and cannot merely be established on the basis of certificate filed on record. In view thereof without offering any comments on merits, we deem fit to set-aside the impugned order and remit the matter back to the Ld. NFAC with a direction deal therewith de-nova in accordance with law and pass a speaking order in terms of section 250(6) of the Act on the basis of appellant’s fresh representation preferably in three effective opportunities, ergo ordered accordingly.
The appeal in result is ALLOWED FOR STATISTICAL PURPOSES. U/r 34 of ITAT Rules, the order pronounced in the open court on this Wednesday 05th day of June, 2024.
-S/d- -S/d- S. S. GODARA G. D. PADMAHSHALI JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / PUNE ; ददनाांक / Dated : 05th day of June, 2024. आदेश की प्रनिनलनप अग्रेनषि / Copy of the Order forwarded to : 1. अपीलाथी / The Appellant. 2. प्रत्यथी / The Respondent. 3. The CIT(A)-NFAC, Delhi (India) 4. The Concerned CIT (MH-India) 5. DR, ITAT, Bench ‘A’, Pune 6. गार्डफ़ाइल / Guard File. आदेशानुसार / By Order, वररष्ठ दनजी सदिव / Sr. Private Secretary आयकर अपीलीय न्यायादधकरण, पुणे / ITAT, Pune.
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