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Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is against the order passed by Commissioner of Income Tax, Kolkata-IV dated 03.11.2014 u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). Assessment was framed by ITO Ward-12(4), Kolkata u/s 143(3) of the Act vide his order dated 21.03.2014 for assessment year 2011-12. Assessee has raised the following grounds:- “
1. For that the order of the Ld. Commissioner of Income Tax (CIT) is arbitrary, illegal and bad in Law.
2. That the assumption of jurisdiction under section 263 by Ld. CIT is erroneous and bad at Law.
3. That the passing of order by Assessing Officer is neither erroneous nor prejudicial to Revenue.
A.Y. 2011-12 M/s Thiess India Pvt. Ltd. v. ITO Wd-12(4), Kol. Page 2
4. For that the Ld. CIT erred in writing the nature of expense as “Personal Recruitment Cost” instead of “Personal Recruitment Cost” meaning – employee recruitment expense. The expenses were primarily paid to two consultants for the purpose of recruiting personnel 5. For the Ld. CIT erred in confirming the inter company loan to Thiess mines amounting to Rs.42,79,700/- when the said amount is not intercompany loan but security deposit lying with M/s RDB Two Thousand Plus Limited Kolkata for occupation of office premises since 24th June, 2007. 6. For the Ld. CIT erred in confirming non availability of MAT calculation even if Book Profit of Rs.23,41,956/- when the assessee company has bought forward business loss and unabsorbed depreciation. The lower of the two as per clause iii of explanting 1 to 115JB (2) is Rs.108.39 lacs which is much higher than the stated book profit. 7. For the Ld. CIT erred in attraction of section 40A(2)(b) for huge remuneration amounting to Rs.124.12 lacs paid to key management personnel when an amount was paid to senior mining professionals and other full time employees of the Company having sound business knowledge and profound experience in the field and having no shareholding in the company. The salary paid is considered reasonable commensurate to the specialized qualification, skill, and rich experience of the concerned employees.”
The facts in brief are that assessee is private limited company and engaged in the business of mining as contractor. During the course of assessment proceedings, Assessing Officer framed assessment for the year under consideration after making certain addition to the total income of assessee. However, Ld. CIT found the order of AO is erroneous in so far as it is prejudicial to the interest of revenue as the AO failed to conduct the necessary enquiry in respect of the following expenses :
1) The assessee claimed personnel recruitment expenses in the profit & loss account for Rs. 22,87,960.00 and the last year such expense was Rs. 1410.00 only. 2) The assessee provided interest free loan of Rs. 42,79,700.00 to its associated concern, namely, M/s Thaiess Mines without charging any charges thereon. On the other hand, the Company has paid interest A.Y. 2011-12 M/s Thiess India Pvt. Ltd. v. ITO Wd-12(4), Kol. Page 3 amounting to Rs.1.85 crores on the money borrowed from the bank for an amount of Rs.16.94 crores. 3) While framing the assessment u/s 143(3) of the Act the provisions of MAT have not been considered on its book profit of Rs.23,41,956/-. 4) No justification was enquired for making the payment of Rs. 124.12 lacs to the key management personnel in the light of the provisions of section 40A(2)(b) of the Act.
Accordingly, Ld. CIT issued notice u/s 263 of the Act for clarification on the above subject-matter. The reply of the assessee stand as under : 1) Personnel Recruitment Cost – Rs.22,87,960/-. It is submitted that the nature of expense is not “personal” as mentioned in the Notice. It is “Personnel” meaning employee recruitment expenses. The expenses were primarily paid to two consultants – ABC Consultants P. Ltd. a renowned Pan India manpower recruitment / placement consultant Rs.16.67 lacs and Info Edge India P Ltd. (naukri.com) a popular employment website – Rs.6 lacs.
2) Inter – Company Loan to M/s Thiess mines Rs.42,79,700/-. It is most humbly submitted that the said amount is not inter-company loan but is a security deposit lying with the landlord- M/s RDB Two Thousand Plus Ltd., Kolkata, for having the occupation of office premises since 24th June 2007. 3) Calculation for MAT IT is submitted that there is no MAT liability as the assessee-company has brought forward business loss as well as unabsorbed depreciation. The lower of the two as per clause iii of Explanation 1 to 115JB (2) is Rs.108.39 lacs which is much higher that the stated book profit. Therefore the provisions for MAT do not apply in the instant case.
A.Y. 2011-12 M/s Thiess India Pvt. Ltd. v. ITO Wd-12(4), Kol. Page 4 4) Remuneration paid to Key managerial Personnel (KMP)-Rs.124.12 lacs. It is submitted that specified KMP are Mr. Christian Fosterling and Dr. Raman Srikant. Assessee-company is in the business of undertaking Mining contract Both the persons are senior mining professionals and employees of the company. Mr. Christian Fosterling is an internationally expert engineer from Australia and is having more than 25 years of experience. He is also County manager of the Company during the said period. Dr. Raman Srikanth is a mining engineer from Indian school of Mining (ISM), M.S. in Mining Engineering and dual PHD in Mining Engineering and Operations Research from the Pennsylvania State University, USA with 20 years’ experience. He was earlier employed in Tata Steel as General Manager. He is the CEO of the company and Country head of Thiess. It is contended that an employer fixing the remuneration is entitled to consider the extent of business, the nature of duties to be performed, roles and responsibility, the qualification, special aptitude and experience of the employee, future prospects of extension of the business and a host of other related circumstances. The company has paid salary as per the terms of employment contract. The salary paid is considered reasonable commensurate to the specialized skill and rich experience of the concerned employees. In the light of above section 40A(2)(b) is not attracted. The said persons further do not have any shareholding in the assessee-company. During proceeding under section 143(2) of the Act, details of employee expenses were duly furnished including TDS deducted and paid. It is submitted that AO has dutifully enquired into the aspects during the scrutiny proceedings. The assessee-company also places reliance on following case in this regard- DCIT v. Spark Hotels (P) Ltd. in ITA No. 4631/Del/2011. A.Y. 2011-12 M/s Thiess India Pvt. Ltd. v. ITO Wd-12(4), Kol. Page 5 Besides the above, assessee also submitted the assessment proceedings u/s 143(3) of the Act before the ld.CIT that assessment was framed u/s 143(3) of the Act is made by the AO after detailed and proper enquiry and after consideration of various documents and records filed by the assessee- company from time to time in response to the requirements of the AO. During the course of assessment proceedings, AO verified and responses to notice issued u/s. 133(6) and after being satisfied about genuineness of transactions, passed the order without making any addition except as discussed in the assessment order. Hence there is no justification in further issuing notice u/s. 263 of the Act in respect of the said order which was passed u/s. 143(3) and in which AO has considered all the aspects of the facts of the present case.
However, the Ld. CIT has disregarded the claim of assessee by observing as under : “After going through the facts of the case, written submission of the assessee and as per discussion I am of the view that the assessment required reconsideration therefore, the assessment order passed by the AO is set aside DENEVO, directing AO to make a fresh assessment after providing adequate opportunity of being heard to the assessee.”
Being aggrieved by this order of Ld. CIT assessee preferred an appeal before us. Shri R.R. Modi, Ld. Authorized Representative appearing on behalf of assessee and Shri S.Srivastava, Ld. Departmental Representative appearing on behalf of Revenue.
We have heard rival contentions of both the parties and have also gone through the materials available on record. Before us the ld. AR has submitted a paper book which is running pages 1 to 69 and contended that the AO has made detailed enquiry for the above stated expenses at the time of assessment proceedings u/s. 143(3) of the Act. Regarding the personnel recruitment expenses, Ld. AR drew our attention at pages No. 36 to 39 of the paper book where the invoice of ABC Consultants Pvt. Ltd. was placed which was also produced before the AO. Our attention A.Y. 2011-12 M/s Thiess India Pvt. Ltd. v. ITO Wd-12(4), Kol. Page 6 was drawn to page No. 42 of the paper book where the invoice of INFO EDGE (India) Ltd. was placed. Ld. AR further submitted that a notice was issued to M/s ABC Consultants Pvt. Ltd. u/s. 133(6) of the Act for the confirmation. In this connection, Ld. AR submitted the address vide letter dated 07.02.2014, which is placed on page No. 58 of the paper book. The reply of ABC Consultants Pvt. Ltd. to the ITO is placed on at page 68 of the paper book. Regarding the issue of inter-company loan, to M/s Thiess Mines for Rs.42,79,700/-, Ld. AR drew our attention at page No.41 of the paper book, where the details of security deposits for an amount of Rs.42,79,700/- was placed. The assessee also submitted the address of Landlord-RDB Two Thousand Plus Ltd. at the time of assessment u/s. 143(3) of the Act. The necessary detail is placed on page No. 58 of the paper book. In this regards, the reconciliation statement between the assessee and the landlord for the rent and provision for municipal tax was furnished which is placed on pages 62 to 65 of the paper book. Regarding the issue of MAT calculation Ld. AR drew our attention on page No.40 of the paper book where the computation of MAT was duly furnished for the consideration of ITO at the time of assessment. Regarding the issue of remuneration paid to three managerial personnel, it was submitted that the remuneration paid to the employees is considered reasonable and commensurate to the specialized skilled and rich experience.
On the other hand the ld. DR vehemently relied on the order of ld. CIT.
Now from the aforesaid discussion we find that the ld. CIT treated the order of the AO erroneous in so far as it is prejudicial to the interest of revenue. It is because that the AO has not made required enquiry at the time of framing assessment proceedings u/s. 143(3) of the Act. Therefore, the ld. CIT held the order erroneous in so far prejudicial to the interest of Revenue. Now to arrive at the correct conclusion of the case, we deem it necessary to reproduce the relevant provisions of section 263 of the Act. A.Y. 2011-12 M/s Thiess India Pvt. Ltd. v. ITO Wd-12(4), Kol. Page 7 (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the [Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, my, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment….”
6.1 The sum and substance of the above reproduced section 263(1) can be summarized in the following points:-: 1) The commissioner may call for an examine the record of any proceeding under the Act; 2) If he considers that the order passed by the AO is (i) Erroneous; and (ii) Is prejudicial to the interest of Revenue; 3) He has to give an opportunity of hearing in this respect to the assessee; and 4) He has to make or cause to make such enquiry as he deems necessary; 5) He may pass such order thereon as the circumstances of the case justify including, (i) An order enhancing or, (ii) Modifying the assessment or (iii) Cancelling the assessment and directing a fresh assessment. 6.2 Now in the light of above words, we have to examine as to whether the order of the ld. CIT is a valid order in the light of the above stated points/ provisions of section 263 of the Act. In the case in hand, we find from the submissions of the assessee that sufficient enquiries have been made by AO at the time of assessment u/s 143(3) of the Act. Therefore to hold the order of Ld. CIT is erroneous and prejudicial to the interest of revenue on the ground that the AO failed to make necessary enquiry at the time of assessment stage does not hold any merit.
ITA No.2290/Kol/2014 A.Y. 2011-12 M/s Thiess India Pvt. Ltd. v. ITO Wd-12(4), Kol. Page 8 We find that when necessary enquiries have been made by AO at the time of assessment then it is inappropriate to hold the order erroneous and prejudicial to the interest to revenue. We also find that the Hon’ble courts have quashed the proceedings u/s/. 263 of the Act where the necessary enquiries have been made by AO at the time of assessment further we find support from the order of However, we find from decision of Hon’ble Allahabad High Court in the case of Principal Commissioner of Income Tax vs. M/s Ashok Handloom Factory Pvt. Ltd. in of 2016 dated 01.02.2016 wherein the Hon’ble High Court has held that it is settled law that the commissioner of income tax can exercise his jurisdiction u/s 263 of the Act only in cases where no enquiry is made by the Assessing Officer. In the instant case, it is admitted by the Income Tax Department that the Assessing Officer had made some enquiries though according to them it was not a proper enquiry. In our view of the fat that some enquiry was made is sufficient to debar the authorities from exercising the powers u/s 263 of the Act. The Tribunal was accordingly justified in setting aside the order passed u/s 263 of the Act. We do not find any substantial question of law arising for consideration the appeal is accordingly dismissed. In the case one hand, the AO has made an addition by disallowing the commission expenses after making the necessary enquiry. The instant case is duly covered with the decision of Hon’ble Allahabad High Court M/s Ashok Handloom Factory Pvt. Ltd. (supra) as discussed above, therefore relying on the same, we reverse the order of Ld. CIT for u/s 263 of the Act. We are also putting our reliance in the decision of Hon’ble Delhi High Court in the case of CIT v. Sunbeam Auto Ltd. 332 ITR 167 and CIT v. Anil Kumar Sharma 335 ITR 83 (Del) held that the fact as to whether the AO has applied his mind or not need not necessarily be determined from what has been stated in the assessment order alone, it has to be examined as to whether any inquiry was at all conducted by the AO. There exists a difference between lack of inquiry and inadequate inquiry. If there were any inquiry, even inadequate that would not give an occasion to exercise jurisdiction u/s 263 of ITA No.2290/Kol/2014 A.Y. 2011-12 M/s Thiess India Pvt. Ltd. v. ITO Wd-12(4), Kol. Page 9 the said Act. Accordingly, order passed by Ld. CIT u/s 263 of the Act is reversed hence, ground No. 1 to 6 raised by assessee is allowed.
6.3 Now regarding the issue of remuneration paid to the employees for an amount of Rs.124.12 lakhs, Ld. CIT found that necessary enquiries were not made by AO at the time of assessment as required u/s. 40A(2)(b) of the Act. However we find that the provisions of section 40A(2)(b) does not apply in the instant case as the payment has not been made to the persons referred in the said section. Besides the ld. AR submitted that the necessary enquiry has been made by the AO at the time of assessment. On the other hand the ld. DR failed to controvert the arguments of the ld. AR. In view of we reverse the order of the ld. CIT(A) under section 263 of the Act.