Revenue fails to consider submissions, Violating Principles of Natural Justice: ITAT Restores Case for De Novo Adjudication [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) allowed the appeal for statistical purposes and restored the case for de novo adjudication.

In this case, the assessee is a 50:50 joint venture (JV) between Amalgamations Limited, India, and Valeo France, established under a JV agreement dated 31st January 1997. The appellant manufactures clutch systems, including clutch-driven plates, cover assemblies, disc assemblies, and diaphragm springs.

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The assessee claimed Rs. 93.70 lakhs as Shared Service Center cost (SSC) under an agreement with M/s Valeo India Private Limited (VIPL). The assessing officer (AO) disallowed the sum of Rs. 72.68 lacs under Section 37(1) of the Income Tax Act, 1961, as it was claimed under legal and professional expenses, and the AO was of the opinion that it was not supported by documentary evidence. On verification carried out by the AO, it was found that no capital expenditure was incurred for service costs.

The counsel on behalf of the assessee contended that the AO made an addition without issuing a show cause notice or considering the assessee's submissions. The Commissioner of Income Tax (Appeals) [CIT(A)] also upheld the same, and thus there has been a major violation of the principles of natural justice on the part of the department.

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It was further submitted by the counsel that the assessee being a JV entity could not unilaterally divert profits through SSC payments without the JV partner's approval, which would only be given upon receipt of appropriate services.

It was observed by the ITAT bench that although the assessee provided documentary evidence, the AO made no specific findings, and the services were generalized. The bench directed to restore the case for de novo adjudication .

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It was further observed by the ITAT bench, comprising of Aby T Varkey and Manoj Kumar Agarwal, that by considering the principle of natural justice, the file is to be restored back for fresh adjudication. For statistical purposes, the appeal stands allowed.

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