Itxa/876/2018 Of The Pr. Commissioner Of Income Tax - 4 v. Tetra Pak India Pvt Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.876 OF 2018 The Pr. Commissioner of Income Tax-4.. Appellant v/s. Tetra Pak India Pvt. Ltd. .. Respondent … Mr. Suresh Kumar for the Appellant. Ms. Fereshte Sethna a/w Mr. Mrunal Parekh i/b. DMD Advocates for theRespondent. … CORAM : K. R. SHRIRAM & KAMAL KHATA, JJ.DATED : 27TH SEPTEMBER 2023. P.C. : 1. Assessee is engaged in the business of manufacturing and sale ofpackaging machines and systems. Assessee also leases packagingmachinery and spare parts. During the period relevant to theAssessment Year under Appeal, viz., A.Y 2002-03, Assesseeentered into various international transactions with its AssociatedEnterprises (“AEs”). 2. The case was referred to the Transfer Pricing Officer (“TPO”) who passed an order under Section 92CA(3) of the Income Tax Act(“the Act”) proposing an upward adjustment of Rs.9,44,58,219/-comprising of TP adjustment on account of internationaltransactions made on account of import of paper, aluminum foil,K Film, purchase return of imported paper, etc. 3. The Assessing Officer (“AO”) passed an Assessment Order underSection 143(3) after receipt of TPO’s order. In addition to thetransfer and pricing adjustment, the Assessing Officer made otheradditions. Aggrieved by the Assessment Order passed by the AO,the Assessee filed an Appeal before the Commissioner of IncomeTax (Appeals) [“CIT (A)]. The Appeal was allowed by the CIT(A)by an order dated 25th May 2014. Aggrieved by the said, theRevenue preferred an Appeal before the Income Tax AppellateTribunal (“ITAT”) which dismissed the Appeal of Revenue. TheAssessee had also preferred an Appeal against certain proportionsof the order of CIT(A). The Assessee’s Appeal also came to bedismissed. 4. Following two substantial questions of law are proposed: “A.Whether on the facts and in thecircumstances of the case and in law, the Hon’ble ITAT was justified in including Liability writtenback and Doubtful debt written back as part of theoperating income without even adjudicating theground of the department that the assesseecompany was not justified in its stand as theassessee company itself has treated them as non-operating in later Ays i.e A.Y 2010-11 and A. Y2011-12? B. Whether on the facts and in thecircumstances of the case and in law, the Hon’bleITAT erred n including Liability written back andDoubtful debt written back as part of theoperating income without appreciating the factthat both these items represents provisions madein earlier years which have been reversed in AY2002-03 and do not constitute income from theoperations of the assessee for the relevant financialyear?” 5. The Assessee in its return of income declared a loss ofRs.8,79,49,514/-. The operating profits of the Assessee was 7.5%and the transfer pricing study of the Assessee supported that thesame was within Arm’s length. The TPO made certainadjustments to the operating profit by excluding certain items ofincome from the scope of operating profit of the Assessee. TheTPO held that out of the operating profits of the Assessee asdeclared in the books of accounts, six items should not constitute the operating profits and hence were excluded. These six itemsare: 6. Thus, the amount of Rs.11,22,43,919/- was excluded from thescope of operating profits. The TPO/AO therefore made anaddition of Rs.9,44,58,212/-.scope of operating profits. The TPO/AO therefore made anaddition of Rs.9,44,58,212/-. 7. The CIT (A) held that the receipts on account of interest of FixedDeposit, interest on income tax refund and profit on sale of assetDeposit, interest on income tax refund and profit on sale of asset the operating profits and hence were excluded. These six itemsare: 6. Thus, the amount of Rs.11,22,43,919/- was excluded from thescope of operating profits. The TPO/AO therefore made anaddition of Rs.9,44,58,212/-.scope of operating profits. The TPO/AO therefore made anaddition of Rs.9,44,58,212/-. 7. The CIT (A) held that the receipts on account of interest of FixedDeposit, interest on income tax refund and profit on sale of assetDeposit, interest on income tax refund and profit on sale of asset (non-business income) do not constitute an operating income.The CIT(A) held that a part of the miscellaneous income (otherthan design income and services income) also would notconstitute an operating income. Therefore, on these items theCIT(A) confirmed the opinion of the TPO and against the Assessee.The CIT(A), however, confirmed the inclusion of liability written back amounting to Rs.6,15,59,011/-, doubtful debts written backamounting to Rs.1,48,74,096/- and miscellaneous income (designincome and services income) for the purpose of computing theoperating profits of the Assessee and accepted the Assessee’saverments on these items. Therefore, to the extent the CIT (A)held against the Assessee on interest on Fixed Deposit income tax,refund and profit on sale of assets etc., the Assessee had preferredan Appeal and to the extent CIT(A) accepted the submissions ofthe Assessee, the Revenue had preferred an Appeal. 8. As regard the credit to profit and loss account on account ofliabilities written back amounting to Rs.6,15,59,011/-, the detailsof the liabilities written back were made available to CIT(A) aswell as ITAT. Both, on facts, and having considered those details,have come to conclusion accepting the Assessee’s contention thatthose liabilities belong to earlier years and are directly relatable tothe regular business operations of the Assessee and since theseliabilities were no longer payable to business creditors should beallowed to be written back in the Assessment Year underconsideration and the same was rightly offered to tax as businessincome under Section 41(1) of the Act. Therefore, on facts it wasaccepted that these liabilities written back were arising out of5/6 normal business operations and hence form part of operatingincome of the Assessee. 9. As regards the writing back of doubtful debts amounting toRs.1,48,74,096/-, the CIT(A) came to a factual finding which hasalso been accepted by the ITAT that those doubtful debts wereinextricably linked with the business operations and hence shouldbe considered as operating income. 10.Therefore, there are factual findings to that effect and bothCIT(A) and ITAT have accepted the details submitted by theAssessee.CIT(A) and ITAT have accepted the details submitted by theAssessee. 11.In the circumstances, in our view no substantial question oflaw arises. 12.Appeal dismissed. (KAMAL KHATA, J.) (K.R. SHRIRAM, J.)