2013 (9) TMI 236 - AT - Income Tax

Tribunal sets aside non-speaking order, directs re-evaluation, emphasizes need for detailed, reasoned orders

Starwood Asia Pacific Hotel and Resorts (P.) Ltd. Versus Additional Commissioner of Income-tax, Range -3, International Taxation

The Tribunal allowed the assessee's appeals for statistical purposes, setting aside the Dispute Resolution Panel's non-speaking order. The Tribunal ... Disallowance of Revenue expenditure - Business not set up - Transfer pricing - ALP - Reasons for decision - Held that:- it is obligatory, for the DRP on its part to ascribe cogent and germane reasons for arriving at a conclusion. The reasons are heart and soul of the matter and they facilitate appreciation when the order is called in question before a Superior forum or an appellate forum. Since the detailed findings supported by the reasons of the DRP are not before us it would not be appropriate to considers the grounds raised by the assessee before us and it is necessary to hold that the matter deserves to be remitted back to the DRP for proper adjudication on all the objections in the grounds raised by the assessee. Needless to say, that the DRP after affording reasonable opportunity of being heard to both the parties shall deliver a speaking order as per the requirements of law and procedure accepted by the Courts - Decided in favour of assessee. Issues Involved:1. Disallowance of revenue expenses due to the claim that the business had not been set up.2. Determination of the commencement date of business operations.3. Evaluation of the Dispute Resolution Panel's (DRP) non-speaking order.Issue-wise Detailed Analysis:1. Disallowance of Revenue Expenses:The assessee's appeals centered on the disallowance of revenue expenses by the Assessing Officer (AO) for the assessment years 2007-08, 2008-09, and 2009-10. The AO disallowed the expenses on the grounds that the business had not been set up during the relevant assessment years. The AO argued that the business could only be considered set up when the appellant's customers constructed the hotels where the appellant had agreed to provide services. The assessee contended that the business was set up on 1 February 2006, and the expenses incurred after that date should be allowable as revenue deductions.2. Determination of the Commencement Date of Business Operations:The AO analyzed the nature of the services to be provided by the assessee, which included operating hotels under various agreements. The AO noted several crucial points from the agreements, including that the hotels had not yet been constructed, and the appellant was not required to render any services until the construction was completed. The AO concluded that the business could not be considered set up as the hotels were not operational, and thus, the expenses incurred could not be allowed as deductions. The AO relied on various case laws, including Sarabhai Management Corpn. Ltd. v. CIT and Western India Vegetables Products Ltd. v. CIT, to support this view.3. Evaluation of the DRP's Non-Speaking Order:The assessee argued that the DRP dismissed their claim without providing a detailed, reasoned order. The Tribunal noted that the DRP's order lacked a detailed analysis and did not address the specific objections raised by the assessee. The Tribunal emphasized that a judicial or quasi-judicial authority must set out the points for determination and provide reasons for agreeing or disagreeing with the objections posed. The Tribunal referred to Section 144C of the Income Tax Act, which outlines the DRP's obligations to consider the draft order, objections filed by the assessee, evidence furnished, and any reports or evidence collected.Tribunal's Decision:The Tribunal set aside the DRP's order and remitted the matter back to the DRP for proper adjudication on all objections raised by the assessee. The Tribunal instructed the DRP to deliver a speaking order, addressing the objections with cogent and germane reasons. The Tribunal restored the issues in ITA 5481/Delhi/2010 and, due to the identical nature of the subsequent years' facts and circumstances, also restored ITA 4887/Delhi/2011 and ITA 1921/Delhi/2012 with identical directions.Conclusion:The appeals filed by the assessee were allowed for statistical purposes, with directions for the DRP to re-evaluate the objections and provide a detailed, reasoned order. The Tribunal emphasized the necessity for a judicial or quasi-judicial authority to provide a reasoned order to facilitate appreciation by a superior or appellate forum.