2021 (1) TMI 874 - AT - Income Tax

Disallowance u/s 40A(2)(b) - diversion of income by the appellant to CCCPL and from CCCPL to CCCPL s directors - HELD THAT - As the documents placed by the Ld. AR reveals the receipt of professional fees of CCCPL to the doctors for carrying out research work and non-research work to particularly being part of the annual accounts which was somehow missed out by the Hon ble Bench while deciding the issue which is an error apparent on the face of the records and thus further consideration on this issue is required. It was obviously not open to disregard a Co-ordinate Bench decision said to be directly on the issue particularly when Bench s attention was specifically drawn to the same. We, thus, find substance in the argument advance by the Ld. Senior Counsel appearing for the assessee and the miscellaneous application is, therefore, allowed to that extent. Ground therefore, have to be adjudicated afresh.

Issues Involved:
1. Disallowance of ?2,65,40,195/- under Section 40A(2)(b) of the Income Tax Act, 1961.
2. Error apparent on the face of the records regarding the Tribunal's previous order.
3. Validity of delayed pronouncement of the order due to COVID-19 pandemic.

Issue-wise Detailed Analysis:

1. Disallowance of ?2,65,40,195/- under Section 40A(2)(b):

The core issue revolves around the disallowance of ?2,65,40,195/- under Section 40A(2)(b) of the Income Tax Act, 1961, which the Learned Commissioner (Appeal) confirmed. The appellant argued that the payment to CCCPL was for research services rendered, but the authorities found no documentary proof that CCCPL had the manpower or infrastructure to conduct such research. The MOU did not specify the type of research work, and CCCPL showed no assets for research equipment in their balance sheet. The Tribunal upheld the CIT(A)'s decision, treating the expenditure as a paper entry or bogus, and dismissed the appellant's ground of appeal.

2. Error Apparent on the Face of the Records:

The appellant contended that the Tribunal did not consider the submissions made by the Senior Counsel rebutting the Revenue's contentions. The Senior Counsel argued that CCCPL did not need machinery or equipment for research as the professional doctors at CIMS had adequate infrastructure. Payments to CCCPL's doctors were for professional fees, reflecting in CCCPL's Profit and Loss account. The appellant also had significant carry-forward losses, negating the notion of income diversion. The Tribunal acknowledged that documents showing CCCPL's professional fees were missed, constituting an error apparent on the face of the records. Thus, the Tribunal allowed the miscellaneous application to reconsider Ground No. 2 afresh.

3. Validity of Delayed Pronouncement Due to COVID-19:

The Tribunal addressed the procedural issue of delayed pronouncement of the order due to the COVID-19 pandemic. Citing the Co-ordinate Bench's decision in DCIT vs. JSW Ltd., the Tribunal noted that Rule 34(5) of the Appellate Tribunal Rules, 1963, allows for extensions under extraordinary circumstances. The nationwide lockdown imposed on 24th March 2020 and subsequent extensions caused unprecedented disruption in judicial work. The Tribunal emphasized that the period of lockdown should be excluded when computing the 90-day limit for pronouncement of orders, aligning with the pragmatic approach required during a disaster. Consequently, the order was pronounced within the extended timeframe, considering the lockdown as an extraordinary circumstance.

Conclusion:

The Tribunal allowed the miscellaneous application, directing a fresh adjudication of Ground No. 2. The delay in pronouncement of the order was justified due to the COVID-19 pandemic, and the period of lockdown was excluded from the 90-day limit for pronouncement. The Registry was instructed to place the matter on board for hearing with due notice to the respective parties. The order was pronounced in open court on 14/12/2020.

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