Case Law Details
Infrastructure Leasing and Financial Services Ltd Vs Addl./Joint/Deputy/Assistant Commissioner of Income Tax, National e-Assessment Centre (ITAT Mumbai)
In a recent case before the Income Tax Appellate Tribunal (ITAT) Mumbai between Infrastructure Leasing and Financial Services Ltd. (IL&FS) and the Assessing Officer (AO), the appellant sought to challenge the order passed by the AO in line with the orders by the Dispute Resolution Panel/Transfer Pricing Officer under section 143(3) read with section 144C of the Income-tax Act, 1961 for the assessment year 2016-17.
The appellant contested several grounds, including the determination of total income, the applicability of specified domestic transaction (SDT) provisions, and the addition of advisory service charges and payments to executive directors. However, during the proceedings, it was highlighted that the National Company Law Tribunal (NCLT) had initiated a resolution process in relation to IL&FS and its group companies.
The NCLT order restrained the institution or continuation of suits or proceedings against IL&FS and its group companies, as well as actions to enforce security interests or financial obligations. In light of this, the ITAT noted that when the resolution process has already been initiated, all proceedings against the corporate debtor, including court actions, are not maintainable.
Since the appellant hadn’t filed the appeal through the Interim Resolution Professional (IRP) as required under the resolution process, the ITAT deemed the appeal not maintainable and dismissed it. However, the appellant was granted liberty to file a fresh appeal in the proper format or to seek restoration of the present appeal through an application.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The appellant, M/s. Infrastructure Leasing and Financial Services Ltd. (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 31.10.2019 passed by the Assessing Officer (AO) in consonance with the orders passed by the ld. Dispute Resolution Panel (DRP)/Transfer Pricing Officer (TPO) under section 143 (3) read with section 144C of the Income-tax Act, 1961 (for short ‘the Act’) qua the assessment year 2016-17 on the grounds inter-alia that :-
“1 . The Learned Assessing Officer being Additional / Joint / Deputy / Assistant Commissioner of Income Tax/ Income-tax Officer, National e-Assessment Centre. Delhi [hereinafter referred to as ‘the AO’] erred in determining the total income of the appellant at INR 754,40,54,389.
Non-applicability of Specified Domestic Transaction (‘SDT’) provisions due to omission .of Sectlon J)2BAfli of the Income-tax Act. 1961 (‘the. Act’)
2. On the facts and in the circumstances of the case and in law. the AO/ TPO grossly erred in making transfer pricing adjustments on SDT when the provisions of SDT are not applicable due to omission of Section 92BA(i) from the Act vide Finance Act. 2017.
3. The AO/ TPO/ DRP erred in not appreciating that once any particular provision of section is omitted from the statue, it shall be deemed to be omitted from its inception which was also adjudicated in case of Texport Overseas Private Limited [ITA No. 392 of 2018] by Hon’ble Karnataka High Court.
4. The AO/ TPO/ DRP grossly erred in not appreciating that the transactions entered into by IL&FS are with its domestic related parties which are tax neutral transactions and there is no erosion of tax base.
Addition of INR 2,76,73,916/- on account of advisory service charges paid to its related party i.e. IL&FS Infrastructure Development Corporation Limited (‘IIDC’)
5. The AO/ TPO/ DRP grossly erred in disallowing the payment made to IIDC on account of advisory services amounting to INR 2,76,73,916.
6. The AO/ TPO/ DRP erred in considering the arm’s length price of project fees paid to IIDC by IL&FS at nil, alleging that no benefit is derived by the Appellant from advisory services rendered by IIDC.
7. The AO/ TPO/ DRP erred in rejecting TNMM and adopting Other Method as the most appropriate method without providing cogent rea-sons.
8. The AO/ TPO/ DRP erred in not accepting the evidences furnished by the company in support of the rendition of services.
Addition of INR64,00,000/- on account of pay-ment executive directors
9. The AO/ TPO/ DRP grossly erred in disallowing the commission to non-executive directors amounting to INR 1,64,00,000/- by alleging that the direc-tors are regularly remunerated and that no benefit is derived from the same.
10. The AO/ TPO/ DRP has erred in ignoring the fact that the said payments were within the limits prescribed by Companies Act, 2013 and hence, at arm’s length.
11. The AO/ TPO/ DRP erred in not accepting the evidences furnished by the company in support of the rendition of services.
12. The AO/ TPO/ DRP has erred in staling that the Board Resolution does not cover any additional remuneration or commission to be paid to the directors.
13. The AO/ TPO/ DRP erred in ignoring ‘e fact that the similar amounts paid in the earlier previous year, i.e. AY 2015-16 have nm seen disallowed by the AO and thereby based on the principles of consistency, these amounts should be considered as allowable expenditure.
14. The TPO/ DRP has erred in rejecting the transfer pricing analysis undertaken by the appellant without providing cogent reasons and without providing any information for determining the arm’s length price at nil.
15. The TPO/ DRP erred in questioning the commercial expediency of the payment made to the directors.
Non-transfer pricing grounds of appeal
16. The AO/ DRP erred in disallowing an amount of INR 593,63.45,000/- under section 14A of the Act, whereas the disallowance should be restricted to INR 32,79,46,888/-.
17. The AO/ DRP erred in adding an amount of INR 592,90,63.345/- under section 14A of the Act to the book profits under section 115JB of the Act.
18. The AO/ DRP erred in adding income from toll road of INR 77,64,000/- without considering that the same Is only notional and has not accrued to the Appellant.
19. The AO erred In disallowing depreciation of INR 59,32,663/- on printers, routers, scanners and computer software purchased which are eligible for depreciation at 60 percent, inspite of the DRP directions for the said year being in favour of the Ap-pellant.
20. The AO/ DRP erred in not allowing brought forward business losses and unabsorbed depreciation of INR 27,77,31,728/- pertaining to earlier years.
21. The AO/DRP erred in not allowing the set-off of MAT credit available to the Company from earlier years as per section 115JAA of the Act.
22. The AO ought to allow a deduction of education cess and secondary and higher education cess of INR 6,55,87,421 under the provisions of the Act.”
2. Briefly stated facts necessary for adjudication of the issues at hand are: Infrastructure Leasing and Financial Services Ltd. (IL&FS) (assessee company) is one of India’s leading infrastructure devel-opment and finance companies. IL&FS has a significant focus on investment banking, asset management and infrastructure financing. IL&FS has carved a niche for itself in infrastructure projects. The infrastructure services of IL&FS cover expertise across a variety of sectors like transportation, power, ports, water and wastewater, urban infrastructure, environment and educa-tion. Assessee company has filed the return of income declaring total income at Rs.1,68,17,44,880/- and book profit at Rs.52,98,21,445/-which was subsequently revised by declaring total income of Rs.3,38,67,10,750/- and book profit at Rs.17,55,89,445/-, which was subjected to scrutiny. Pursu-ant to the order passed by Transfer Pricing Officer(TPO)/Dispute Resolution Panel(DRP), Assessing Officer (AO) made adjustment of Rs.4,40,73,916/- on account of transfer pricing valuation of the international transaction. The AO also made addition of Rs.593.6345 crore minus Rs.211,45,48,825/-suo-moto disallowance made by the assessee under section 14A read with rule 8D of the Act. The AO also made disallowance of Rs.54,67,588/- claimed by the assessee on account of depreciation on computers. The AO also made addition of Rs.27,77,31,728/- on account of loss/unabsorbed depreciation claimed by the assessee and thereby framed the assessment under section 143(3) read with section 147C(13) of the Act. Feeling aggrieved assessee has come up be-fore the Tribunal by way of filing present appeal.
3. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the or-ders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.
4. At the very outset it is brought to the notice of the Bench that National Company Law Tribunal (NCLT), New Delhi Bench vide order dated 15.10.2018 order in case of the assessee and 348 group companies in Company Appeal (AT) No.346 of 2018 & 347 of 2018 passed interim by return-ing following findings:
“(i) The institution or continuation of suits or any other proceedings by any party or person or Bank or Company, etc. against 1L&FS’ and its 348 group companies in any Court of Law/Tribunal/Arbitration Panel or Arbitration Au-thority; and
(ii) Any action by any party or person or Bank or Com-pany, etc. to foreclose, recover or enforce any security interest created over the assets of 1L&FS’ and its 348 group companies including any action under the Securitization and Recon-struction of Financial Assets and Enforcement of Security Interest Act, 2002;
(iii) The acceleration, premature withdrawal or other withdrawal, invocation of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits, guarantees, letter of support, commitment or comfort and other financial facilities or obligations vailed by 1L&FS’ and its 348 group companies whether in respect of the principal or interest or hedge liability or any other amount contained therein.
(iv) Suspension of temporarily the acceleration of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits and any other financial facility by the TL&FS’ and its 348 group companies by any party or person or Bank or Company, etc. as of the date of first default.
(v) Any and all banks, financial institutions from exer-cising the right to set off or lien against any amounts lying with any creditor against any dues whether principal or interest or otherwise against the balance lying in any bank accounts and deposits, whether current or savings or otherwise of the ‘IL&FS’ and its 348 group compa-nies.”
5. At the very outset, it is brought to the notice of the Bench that resolution process has already been initiated in respect of more than 50 companies and assessee along with 302 group companies apart from IL & FS are already into litigation before National Company Law Tribunal appeal (80) No.364 of 2018 as per order brought on record by the assessee. When the resolution process has already been initiated all the proceedings against the corporate debtor including execution of judgment decree or order in any court of law, Tribunal, arbitration panel or other authority, present appeals in the present format are not maintainable, being not filed by the Interim Resolution Professional who is empowered to file appeal on approval of the committee of creditor. Hence, this appeal is liable to be dismissed being not maintainable at this stage.
6. Consequently, appeal filed by the assessee is hereby dismissed with liberty to file the fresh one in proper format duly verified the person authorized or to get the present appeal restored by moving an application, if need be.
Order pronounced in the open court on 20.10.2022.
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