Herbalife International India Pvt Ltd vs The Commissioner Of Income Tax
2025 Latest Caselaw 5904 Kant

basis of an objection raised by the Audit Department

and without application of mind by the Respondent No.1

himself. He contested the revisional proceedings by

stating that the same were without appreciating that,

the order of the Assessing Officer was neither erroneous

nor prejudicial to the interest of the Revenue. That

apart, without prejudice it was his submission that the

Tribunal erred in not considering the rectification

proceedings initiated by the Assessing Officer on the

issue of claim of depreciation on Leasehold

Improvements, when the same were initiated by the

Assessing Officer and the Assessing Officer had allowed

the claim after verification of the evidence.

11. According to Mr. Pardiwala, the Tribunal

erred in not appreciating that the Assessing Officer had

not made any rectification to the assessment order and

as such admitted that the issue of claim of depreciation

on Leasehold Iprovements was a debatable issue and

was not a mistake apparent on record. He also stated

that the Tribunal failed to appreciate the material in

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relation to the rectification proceedings on the very

same issue and instead erred in brushing aside the

same for the reason that the rectification proceedings

were not before it. The Tribunal also erred in merely

relying on the admission of the authorized

representative as highlighted in the revisional order

passed by the Respondent No.1 in coming to a

conclusion that no enquiry was conducted by the

Assessing Officer without appreciating the facts that the

relevant data was available before the Assessing

Officer. In substance, it is his submission that the

Tribunal erred in not looking at the issue in a holistic

manner and examining other factors placed before it in

deciding whether or not an enquiry was conducted by

the Assessing Officer on the said issue. He stated that

the impugned order of the Tribunal is liable to the set

aside.

12. Mr. Pardiwala, in support of his submissions,

has relied upon the following judgments:

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i) The Commissioner of Income Tax, Bengaluru Vs. Sun Mictrosystems India Pvt. Ltd. [ITA No.203/2009 decided on 06.04.2015]

ii) Commissioner of Income-tax (Central), Ludhiana Vs. Max India Ltd. [(2009) 166 Taxman 188 (SC)]

iii) CIT-III, Bengaluru Vs. NCR Corporation Pvt.

Limited [(2020) 117 Taxman.Com 252]

iv) CIT Vs. Excel Industries Limited [(2013) 38 Taxman.Com 100 (SC)]

v) Herbalife International India Pvt. Ltd. Vs. Additional C.I.T., Range-12, New Delhi (ITA 3098 & 2664/Del/2004 dated 30.08.2005)

vi) CIT Vs. Infosys Technologies Ltd. [(2012) 21 Taxmann.com 532 (Karnataka)]

13. On the other hand, Mr. Y.V. Raviraj, the

counsel for the Respondent-Assessee would justify the

order of the CIT (Appeals) and the Tribunal. According

to him, perusal of both the order of assessment and the

submissions put-forth by the assessee, vide letter dated

15.07.2011 in the course of assessment proceedings, on

the basis of the details/documents called for by the

Assessing Officer would go to show that, neither the

details were called for by the Assessing Officer in

respect to the issue of the assessee's claim for 100%

depreciation nor there was even a whisper of this issue

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in the order of assessment for the AY:2008-09 dated

29.10.2012. In other words, it is his submission that in

the order dated 29.10.2012, various other issues were

considered, such as capitalization of 25% of royalty paid

to Herbalife International Inc., Transfer Pricing

Adjustment of ALP, Doubtful Debts Written Off,

Administrative Fees. According to him, no enquiry in

the matter of Assessee's claim for 100% depreciation

on leasehold improvements was conducted by the

Assessing Officer is established by the admission of the

AR of the Assessee before the learned CIT on

13.12.2014 in the course of revisionary proceedings.

14. According to Mr. Raviraj, it was held that, no

enquiry whatsoever was conducted by the Assessing

Officer on this issue and therefore since the learned CIT

had correctly invoked the revisionary proceedings, the

impugned order under Section 263 of the Act dated

17.03.2014 for AY: 2008-09 is to be upheld. He placed

reliance on the judgment of this Court in the case of

CIT Vs. Infosys Technologies Limited [(2012) 341

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ITR 293] wherein the issue in question was the

claim of deduction under the DTAA with Canada and

Thailand were not examined by the Assessing Officer, as

in the issue before us, in the case on hand. He stated, in

such circumstances, the conclusion drawn by the

Tribunal and CIT (Appeals) cannot be interfered and the

present petition is without any merit and is liable to be

dismissed.

15. Having heard the counsel for the parties, at

the outset, it may be stated here that the appeal was

admitted on 18.10.2019 on the following substantial

question of law:-

"Whether on the facts and circumstances of the case, the Tribunal was correct in upholding the revisonary proceedings initiated by the respondent No.1 under Section 263 of the Act on the basis that the AO had not examined the issue of claim of depreciation on leasehold improvements when the details of the depreciation claimed in respect of the leasehold improvements were appropriately disclosed by the appellant in the tax audit report, financial statements and in assessment submissions?"

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16. The submission of Mr. Pardiwala is primarily

that the Tribunal has erred in upholding the order of the

CIT (Appeals)(Respondent No.1), which held that, the

Assessing Officer has not examined the issue of claim of

depreciation on leasehold improvements, which

according to him is, by not appreciating the details of

the depreciation claimed in respect of the leasehold

improvements, which were appropriately disclosed by

the appellant in Tax Audit Report and Financial

Statements. His other submission was that, the

Tribunal has also erred in not appreciating that the

matter regarding leasehold improvements was at

litigation in the appellant's own case in the past and no

adjustment being made by the Assessing Officer in the

regular Assessment Proceedings amounted to the

Assessing Officer having taken a conscious view on the

subject matter. It was also stated that the favourable

order by the ITAT in the appellant's own case of the

AY:2000-01 and AY:2001-02 on the matter pertaining to

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leasehold improvements and as such, there was no

reason for not to allow the depreciation @100%.

17. We are not in agreement with the

submissions made by Mr. Pardiwala. This we say so in

view of the appellant's own case through its authorized

representative, which has been noted by the CIT

(Appeals), wherein the CIT (Appeals) has in unequivocal

terms stated that, wherein the authorized representative

of the assessee in the course of reviosional proceedings

before the CIT (Appeals), vide order sheet dated

13.03.1994 admitted that, no enquiry was conducted by

the Assessing Officer in the Assessment Proceedings in

respect of the issue of depreciation on leasehold

improvements. In fact, such a submission was not

controverted by the Appellant-Assessee before the

Tribunal also. So, the issue is, when the issue of

depreciation at 100% was a non-issue before the

Assessing Officer, which means, the Assessing Officer

has not examined nor applied his mind in respect of the

available rate of depreciation on leasehold

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improvements and granting the same in terms of the

order of assessment for AY:2008-09 dated 29.10.2012

is erroneous prejudicial to the interest of the Revenue.

18. Though Mr. Pardiwala has sought to challenge

the revisional proceedings, the fact that the Assessing

Officer has considered an aspect which was a non-issue,

any determination in that regard, surely will be

erroneous and prejudicial to the interest of Revenue.

19. In this regard, we may highlight the findings

of the CIT (Appeals) in Paragraphs 5, 5.1, 5.2 and 5.3,

till pages 72 and 73, which we re-produced as under:-

5. The assessee's contentions are carefully considered and are not acceptable for the following reasons:

5.1 On perusal of the assessment records it is noticed that the Assessing Officer has not examined and not applied his mind in respect of allowability of rate of depreciation on lease hold improvements.

5.2 Even though in the written submissions it has been stated that the AO has examined and applied his mind in allowing depreciation at the rate of 100% but vide order sheet noting dated

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13.03.2014 it was admitted by the Authorised Representatives of the assessee that this issue was not examined by the AO during the assessment proceedings. By not examining or by non application of mind on the part of the AO, I hold that the assessment order dated 29.10.2012 is not only erroneous but also prejudicial to the interest of revenue. In this connection, reliance is placed on Supreme Court decision in the case of Malabar Industrial Co. vs. CIT reported in 243 ITR 83 wherein the Hon'ble Apex Court has held as under:

".........An incorrect assumption of facts and an incorrect application of law will satisfy the requirement of the order being "erroneous". In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of vide import and is not confined to loss of tax. The scheme of Act is to levy and collect tax.

5.3 The assessee's reliance on ITAT decision in its own case is of no consequence as the nature of expenditure on lease hold improvements may be different in each year and the same was not examined by the assessing

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officer. Similarly, the other decisions relied upon by the assessee will also be of no consequence as the facts of each case have to be considered separately."

xxx xxx xxx xxx

20. Similarly, even we highlight the findings in

the order of the Tribunal from Paragraph 6.1 onwards,

which reads as under:-

xxx xxx xxx xxx "6.1. We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. The CIT, Bangalore-I, on an examination of the order of assessment passed under Section 143(3) r.w.s. 144C of the Act dt.29.12.2012 and records of assessment, was of the view that the Assessing Officer, while passing the order of assessment, neither made any enquiry nor applied his mind while allowing the assessee's claim for 100% depreciation on leasehold improvements thereby resulting in the order passed being erroneous and prejudicial to the interests of Revenue. Further, we also observe that the statement of the Id. CIT, that the AR of the assessee in the course of revisionary proceedings before him vide order sheet noting on 13.3.2014 admitted that no enquiry was conducted by the Assessing Officer in assessment proceedings in respect of the issue of depreciation

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on leasehold improvements, has not been controverted before us.

6.2. In the above context, it would be relevant to extract hereunder the letter dt.15.7.2011 filed by the assessee before the Assessing Officer, to show the details filed in response to the Assessing Officer; requirements during scrutiny proceedings:-.

"July 15, 2011 The Deputy Commissioner of Income Tax, Circle 11(4), Nrupathunga Road, Bangalore.

Dear Sir, Sub: Herbalife International India Pvt.

             Ltd. -     Asst. Proceedings u/s.
             143(2) of the Income Tax Act,
             1961.

       Ref:      1) PAN: AAACH 8025R
                 2) Assessment Year 2008-09.

This has reference to the on-going assessment proceedings in the case of Herbalife International India Pvt. Ltd. initiated by your goodself under Section 143(2) of the Income Tax Act, 1961. We refer to the discussion our authorized representative had with your goodself on June 20, 2011. In this regard, we wish to submit the following documents sought by your goodself.

1. Agreement with Litaka Pharmaceutical Pvt. Ltd.

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The copy of agreement with Litaka Pharmaceutical Pvt. Ltd. entered into with the company is enclosed herewith in Annexure-1.

2. Details of Centre wise sales

Particulars of sales made by all the sales centre of the company during the FY 2007-08 detailing the name of the sales centre, quantity sold and the amount of sales is enclosed herewith in Annexure 2.

3. Additions to Fixed Assets.

During the FY 2007-08 additions aggregating to Rs.2,67,99,626 have been made to the Fixed Assets. Details of additions so made during the FY 2007-08, along with sample copy of invoices (high value items above Rs.1 lac) is enclosed herewith in Annexure - 3, for your perusal.

4. Details of Remittance in transit.

A details break up remittances in transit of Rs.15,55,934 appearing in Schedule 6 to Balance Sheet as on March 31, 2008 is enclosed herewith in Annexure-4.

5. Details of Deposits

Party wise details of deposit s amounting Rs.2,47,36,714 appearing in Schedule 7 to Balance Sheet as on March 31, 2008 is enclosed herewith Annexure-5.

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6. Rent Agreements

Copy of major rent agreements in respect of rent paid by the company during the FY 2007- 08 are enclosed herewith in Annexure-6, for your reference.

7. Employee stock compensation expenses

The company has participated in the Employee Stock Option (ESOP) scheme of the Herbalife Group and has offered ESOP to its employees. As per the arrangement of the company with its parent company, the compensation expense relatable to the stock compensation grants had to be reimbursed by the company to its parent company on exercise of such options by the employees.

The company during the relevant year has recorded an compensation expense of Rs.1,29,540 on account of exercise of ESOPs by the employee. The said amount has been cross charged by the parent company to the company.

We are in the process of collating the balance information / details sought by your goodself and would submit the same in the next hearing. We request your goodself to grant us two weeks time to furnish the same. Should your goodself require any further information/documents, we shall be glad to provide the same upon hearing from you.

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Yours faithfully, For Herbalife International India Private Limited.

Sd/-

Authrised Signatory Enclosure: As above."

6.3 A perusal of the assessee's letter dt.15.7.2011 to the Assessing Officer (supra) establishes that the assessee filed reply / details in respect of the 7 issues listed therein. It is also apparent from a perusal thereof that the seven items on which details were admittedly called for were certainly not with respect to an examination on enquiry with regard to the assessee's claim for 100% depreciation on leasehold improvements. We find that the order of assessment for Assessment Year 2008-09 dt.29.10.2012 is also completely silent on this issue. Therefore, in our considered view, it is amply clear that the Assessing Officer has neither made any enquiry nor applied his mind in respect of the issue before us. All the averments to the contrary by the learned Authorised Representative of the assessee are mere claims which are bereft of any corroborative evidence whatsoever. The averments of the learned Authorised Representative to rectificatory proceedings are not material as the same is not before us, as the records of the subject matter before us are the

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order of assessment dt.27.10.2012 for Assessment Year 2008-09 and the impugned order under Section 263 of the Act dt.17.3.2014.

6.3 We, therefore, concur with the views and finding of the Id. CIT that the Assessing Officer did not cause any enquiry to be made in the course of assessment proceedings in respect of the assessee's claim for 100% depreciation on leasehold improvements as there is neither whisper nor mention of this issue either in the assessee's submissions before the Assessing Officer vide letter dt.15.7.2011 nor in the order of assessment dt.27.10.2012 for Assessment Year 2008-09. In this context, it is pertinent to note that passing of an order of assessment is the prerogative of the Assessing Officer. The assessee has no control over the Assessing Officer for passing the order of assessment in a particular / specific manner, but if the discussion is not discernible from the order of assessment, then in order to ascertain whether the Assessing Officer has applied his mind or not, the higher forums can go through the show cause notice; if issued by the Assessing Officer and the reply given by the assessee. That would indicate that though the order of assessment is silent, but the issue must have been discussed and considered in the course of assessment proceedings. In our considered view, the factual matrix of the case clearly established that there is no such material on records to show that either such material was

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called for and examined by the Assessing Officer or filed vide assessee's letter dt.15.7.2011 and therefore the order of the Assessing Officer on this issue is both erroneous and prejudicial to the interests of revenue. As observed by the Id. CIT, the assessee's reliance on the decision of the Delhi Bench, ITAT for Assessment Year 2000-01 lays down the principle on this issue, but the actual nature of the items of expenditure on leasehold improvements may be different in each year and the factual aspects of this issue, whether the expenditure falls in the capital or revenue field have definitely not been examined by the Assessing Officer in this year i.e.; Assessment Year 2008-09. Drawing support from the ratio of the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Infosys Technologies Ltd. (supra), we uphold the impugned order of the Id. CIT who has considered all factual aspects of the matter before taking action under Section 263 of the Act on the grounds that there was no enquiry or application of mind by the Assessing Officer while allowing the assessee 100% depreciation on leasehold improvements. Consequently, finding no merit in the grounds raised by the assessee, the same are dismissed.

7. In the result, the assessee's appeal for Assessment Year 2008-09 is dismissed

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21. The conclusion drawn both by the CIT (Appeals)

and the Tribunal are justified. In fact the submissions of

Mr. Pardiwala before us are reiteration of the submissions as

advanced before the Authorities below, which we have not

accepted. In view of our finding that, depreciation was a

non-issue before the Assessing Officer, the reliance placed

by Mr. Pardiwala on the aforesaid judgments have no

relevancy as they are not applicable to the facts of this case.

22. In view our above discussion, we dismiss the

appeal, as no substantial question of law arises in this appeal

against the appellant and in favour of the Revenue.

No costs.

Sd/-

(V KAMESWAR RAO) JUDGE

Sd/-

(S RACHAIAH) JUDGE

KGR*