S.P.Apparels Ltd., Avanashi V. DCIT, Tiruppur

CO 36/CHNY/2016

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2319 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 29-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N V BALAJI
• Assessee Lawyers: PATHLAVATH PEERYA
• Keywords: Reopening of assessment; Reasonable cause; Competent authority; Reassessment proceedings
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2349/MDS/2015 & C.O. NO.36/MDS/2016 ( / ASSESSMENT YEAR: 2006-07) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, TIRUPUR. VS M/S. S.P.APPARELS, 39A, EXTENSION STREET, AVINASHI-641 654. PAN: AAKFS5064J ( /APPELLANT) ( / RESPONDENT / CROSS OBJECTOR) / APPELLANT BY : MR. PATHLAVATH PEERYA, CIT /RESPONDENT BY : MR.N.V.BALAJI, ADVOCATE /DATE OF HEARING : 11 TH APRIL, 2016 /DATE OF PRONOUNCEMENT : 30 TH MAY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM: THIS APPEAL AND THE CROSS OBJECTION ARE FILED BY T HE REVENUE AND ASSESSEE RESPECTIVELY AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -3, COIMBATORE DATED 30.09.2015 IN ITA NO.93/2013-14 PASSED UNDER SECTION 143(3) R.W.S. 147 & 250(6) OF THE ACT . 2. THE APPEAL FILED BY THE REVENUE IS BARRED BY LIM ITATION OF 4 DAYS AND THE REVENUE HAS FILED AN AFFIDAVIT EX PLAINING THE REASON FOR THE DELAY IN FILING THE APPEAL STATI NG THAT THE RECORDS SENT BY POST WAS RECEIVED LATE. IT WAS FURT HER 2 ITA NO.2349/MDS/2015 & C.O. NO.36/MDS/2016 SUBMITTED THAT THE DELAY IN FILING THE APPEAL WAS N EITHER WANTON NOR WILLFUL AND THEREFORE PRAYED FOR CONDONA TION OF DELAY. CONSIDERING THE SUBMISSIONS OF THE REVENUE, WE ARE SATISFIED THAT THERE WAS REASONABLE CAUSE FOR THE D ELAY IN FILING THE APPEAL. HENCE IN THE INTEREST OF JUSTICE , WE HEREBY CONDONE THE DELAY IN FILING THIS APPEAL AND ADMIT T HE SAME FOR ADJUDICATION. 3. THE REVENUE HAS RAISED SEVEN GROUNDS IN ITS APPE AL, HOWEVER THE CRUX OF THE ISSUE IS AS FOLLOWS:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITIONS MADE BY THE LEARNED ASSESSING OFFICER INVOKING THE PROVISIO NS OF SECTION 47(XIII) OF THE ACT . II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN HOLDING THAT THE CONTRIBUTIO N TO PENSION FUND MADE BY THE ASSESSEE DOES NOT REQUIRE THE APPROVAL OF THE COMPETENT AUTHORITY IN ORDER TO CLAIM IT AS AN ALLOWABLE EXPENDITURE. 4. THE ASSESSEE IN ITS CROSS OBJECTION HAS RAISED S EVERAL GROUNDS AND THEY ARE AGAINST REOPENING OF THE ASSES SMENT INVOKING THE PROVISIONS OF SECTION 147 OF THE ACT A ND ALSO IN SUPPORT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON MERIT. 3 ITA NO.2349/MDS/2015 & C.O. NO.36/MDS/2016 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A FIRM ENGAGED IN THE BUSINESS OF EXPORTING GARMENTS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON 31.10. 2006 ADMITTING INCOME OF RS.4,01,84,950/- AND THE SAME WAS PROCESSED UNDER SECTION 143(1)OF THE ACT . SUBSEQUE NTLY, THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT W AS COMPLETED UNDER SECTION 143(3) R.W.S.147 OF THE ACT VIDE ORDER DATED 28.3.2013, WHEREIN THE LEARNED ASSESSIN G OFFICER INVOKING THE PROVISION OF SECTION 47(XIII)(C) OF TH E ACT MADE ADDITION OF RS.31,45,80,301/- ALONG WITH ANOTHER A DDITION OF RS.17,00,116/- TOWARDS DISALLOWANCE OF PENSION FUND CONTRIBUTION WHERE APPROVAL FROM THE COMPETENT AUTH ORITY WAS NOT OBTAINED. 6. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) ALLOWED THE DEDUCTION ON ACCOUNT OF CONTR IBUTION MADE TO PROVIDENT FUND AND ALSO DELETED THE ADDITIO N MADE BY THE LEARNED ASSESSING OFFICER FOR RS. 31,45,80,3 01/- INVOKING THE PROVISIONS OF SECTION 47(XIII) OF THE ACT. 4 ITA NO.2349/MDS/2015 & C.O. NO.36/MDS/2016 GROUND NO.1: DELETION OF ADDITION MADE BY INVOKING SECTION 47(XIII) OF THE ACT: 7. THE LEARNED ASSESSING OFFICER HAD MADE ADDITION OF RS. 31,45,80,301/- FOR NOT COMPLYING WITH THE CONDITIO NS STIPULATED IN THE PROVISIONS OF SECTION 47(XIII) OF THE ACT WITH RESPECT TO THE TRANSFER OF ASSETS BY THE FIRM TO TH E COMPANY IN THE PROCESS OF CONVERSION UNDER PART IX OF THE COMP ANYS ACT. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER AFTER OBTAINING REMAND REPORT FRO M THE LEARNED ASSESSING OFFICER. WHILE DOING SO, HE OBSER VED AS FOLLOWS:- 8. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER , WRITTEN SUBMISSIONS OF THE ASSESSEE AS WELL AS THE REMAND REPORT SUBMITTED BY THE NEW ASSESSING OFFICE R. 8.1 A PERUSAL OF THE REMAND REPORT INDICATES THAT THE ASSESSING OFFICER HAS ADMITTED THAT THE TRANSACTION DOES NOT FALL WITHIN THE PURVIEW OF TERM TRANSFER AND AC CORDINGLY THE ASSESSEE IS NOT LIABLE FOR CAPITAL GAIN TAX. FU RTHER THE REMAND REPORT ALSO INDICATES THAT EVEN ASSUMING THE SAID TRANSACTION FALLS WITHIN THE AMBIT OF THE TERM TRAN SFER, THE ASSESSEE HAS COMPLIED WITH THE STIPULATION OF THE P ROVISION CONTAINED IN SECTION 47(XIII). IN VIEW OF THE ACCEP TANCE OF THE FACT THAT THE ASSESSEE WILL NOT BE HIT BY PROVI SIONS OF SECTION 47(XIII)C IN THE REMAND REPORT, THE ADDITIO N IN THE HANDS OF THE ASSESSEE WILL BE DELETED. 5 ITA NO.2349/MDS/2015 & C.O. NO.36/MDS/2016 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY ARGUED STATING THAT THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) HAS SIMPLY ALLOWED THE APPEAL OF THE ASSE SSEE BASED ON THE REMAND REPORT WHICH DOES NOT CLEARLY B RING OUT THE RELEVANT FACTS OF THE CASE. THEREFORE, IT WAS PRAYED THAT THE ORDER OF THE LEARNED ASSESSING OFFICER MAY BE C ONFIRMED. 9. THE LEARNED AUTHORIZED REPRESENTATIVE ON THE OTH ER HAND VEHEMENTLY ARGUED BY STATING THAT WHEN THE ASS ESSING OFFICER HIMSELF DOES NOT HAVE ANY GRIEVANCE AND ACC EPTED THE CLAIM OF THE ASSESSEE CONSIDERING THE FACTS OF THE CASE, WHICH THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) VERIFIED AND DECIDED THE ISSUE IN FAVOUR OF THE ASS ESSEE, THE REVENUE CANNOT HAVE ANY GRIEVANCE. IT WAS THEREFORE PLEADED THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) MAY BE CONFIRMED. 10. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. IN THE RELEVANT CASE BEFORE US, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS RIGHTLY OBTAINED THE REMAND REPORT FROM THE LEARNED 6 ITA NO.2349/MDS/2015 & C.O. NO.36/MDS/2016 ASSESSING OFFICER BEFORE ALLOWING THE APPEAL OF THE ASSESSEE. THE REMAND REPORT OF THE LEARNED ASSESSING OFFICER IS REPRODUCED HEREIN BELOW FOR REFERENCE: WITH REFERENCE TO YOUR LETTER CITED ABOVE CALLING FOR REMAND REPORT IN THE ABOVE MENTIONED CASE, I GIVE HEREUNDER MY SUBMISSIONS IN RESPECT OF THE ABOVE CASE: 1. THE ASSESSMENT WAS MADE IN THE HANDS OF THE FIRM ONLY SINCE IT IS THE TRANSFEROR COMPANY APPARENTLY THERE HAS BEEN A TYPOGRAPHICAL ERROR WHEREBY NAME WAS TYPED AS SP APPARELS LTD.; 2. THE ADDITION WAS MADE TO THE TUNE OF RS. 31.45 CRORES ON THE GROUND THAT THERE WAS NON- COMPLIANCE TO SECTION 47(XIII)C OF THE INCOME TAX ACT. IN FACT, THERE WAS NO PROPER REPRESENTATION ON THE PART OF THE ASSESSEE TO SATISFY COMPLIANCE TO THE SAID SECTION AT THE TIME OF ASSESSMENT AND HENCE THE ADDITION. 3. NOW, LOOKING AT THE SUBMISSIONS MADE BY THE ASSESSEE IN THE COURSE OF APPEAL PROCEEDINGS BEFORE THE LD CIT (A), THE FOLLOWING FACTS EMERGE: A) THERE HAS BEEN A CONVERSION OF PARTNERSHIP FIRM INTO A COMPANY UNDER PART IX OF THE COMPANIES ACT WHEREBY ALL THE ASSETS AND LIABILITIES OF THE ERSTWHILE FIRM 'VESTS' WITH THE COMPANY. AS PER SEVERAL CASE LAWS QUOTED BY THE ASSESSEE, THIS TRANSACTION DOESN'T FALL WITHIN THE PURVIEW OF THE TERM 'TRANSFER' AND ACCORDINGLY IS NOT LIABLE FOR CAPITAL GAINS TAXATION; B) EVEN ASSUMING THAT THE SAID TRANSACTION FALLS WITHIN THE AMBIT OF THE TERM 'TRANSFER', AS MAY BE SEEN 7 ITA NO.2349/MDS/2015 & C.O. NO.36/MDS/2016 FROM THE REPRESENTATION OF THE ASSESSEE, THE ASSESSEE HAS COMPLIED WITH THE STIPULATIONS OF SECTION 47(XIII) IN AS MUCH AS THE ALLOTMENT OF SHARES TO THE PARTNERS OF THE ERSTWHILE FIRM AND OTHER STIPULATED CONDITIONS ARE CONCERNED; C) THE MERE FACT THAT THE CURRENT ACCOUNT OF PARTNERS IN THE BOOKS OF THE ERSTWHILE FIRM WAS; TRANSFERRED TO THE COMPANY'S BOOKS AS AN UNSECURED LOAN ITSELF CANNOT BE CONSTRUED AS RESULTING IN ANY INDIRECT BENEFIT TO THE PARTNERS OF THE FIRM. IT HAS BEEN A NORMAL PRACTICE THAT SHARES WERE ALLOTTED TO THE EXTENT OF THE CAPITAL ACCOUNT IN THE BOOKS OF THE FIRM - WHILE THE CURRENT ACCOUNT IS TRANSFERRED AS AN UNSECURED LOAN IN THE BOOKS OF THE RESULTANT COMPANY. D) THE CONTENTION OF THE ASSESSEE THAT NOTICE U/S 143(2) WAS NOT SERVED IS WITHOUT ANY MERIT. HAVING PARTICIPATED IN THE COMPLETE REASSESSMENT PROCEEDINGS, THE STAND TAKEN BY THE ASSESSEE AT PRESENT BEFORE THE LD.CIT(A) IS UNTENABLE. TAKING INTO ACCOUNT THE ABOVE FACTS PRESENTED BY THE ASSESSEE IN THE COURSE OF APPEAL PROCEEDINGS, I FIND THAT THERE IS MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND ACCORDINGLY THE APPEAL MAY BE DECIDED IN FAVOUR OF THE ASSESSEE. 11. BASED ON THE ABOVE REMAND REPORT EXTRACTED HERE IN ABOVE AND THE MATERIALS AVAILABLE ON RECORD BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), HE HA S DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THEREF ORE IT IS 8 ITA NO.2349/MDS/2015 & C.O. NO.36/MDS/2016 APPARENT THAT BOTH THE LEARNED ASSESSING OFFICER AN D THE LEARNED CIT(A) AFTER EXAMINING THE ISSUE HAS HELD T HE ISSUE IN FAVOUR OF THE ASSESSEE. THE MISHAP IN THE ORIGIN AL ASSESSMENT WAS DUE TO THE FACT THAT THE ASSESSEE HA D NOT REPRESENTED THE MATTER PROPERLY AS POINTED OUT BY T HE LEARNED ASSESSING OFFICER IN THE REMAND REPORT. IN THIS SITUATION, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) ON THIS ISSUE. GROUND NO.2: DISALLOWANCE OF CONTRIBUTION MADE TO P ROVIDENT FUND AS ALLOWABLE: 12. THE LEARNED ASSESSING OFFICER DISALLOWED THE CONTRIBUTION MADE TO PENSION FUND OF RS.17,00,116/- BECAUSE THE ASSESSEE HAS NOT OBTAINED THE APPROVAL OF THE C OMPETENT AUTHORITY WITH RESPECT TO SUCH FUND. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HELD THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE ASSESSEE HAS MADE THE AFORESAID PAYMENT IN ACCOUNT NO.10 OF PEN SION FUND OF THE EMPLOYEES PROVIDENT FUND ACT AND HENCE THERE IS NO REQUIREMENT OF OBTAINING SPECIFIC APPROVAL FR OM THE 9 ITA NO.2349/MDS/2015 & C.O. NO.36/MDS/2016 COMPETENT AUTHORITY AS THIS FORMS PART OF THE CONTR IBUTION TO THE PROVIDENT FUND. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE BECAUSE THE CONTRIBUTION MADE BY THE ASSESSEE IS TO THE FUND ESTABLISHED UNDER THE SCHEME FRAMED UNDER EMPLOYEES PROVIDENT FUND ACT, 1952. SECTION 2(38) D EFINES THE FUND ESTABLISHED UNDER THE SCHEME FRAMED UNDER THE EMPLOYEES PROVIDENT FUND ACT AS A RECOGNIZED PROVID ENT FUND. A COMPONENT OF THE SAID SCHEME IS A PENSION F UND. THEREFORE, THE CONTRIBUTION MADE BY THE ASSESSEE IS NOT TOWARDS A FUND WHICH REQUIRES APPROVAL. ACCORDINGLY , WE HEREBY CONFIRM THE ORDER OF THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) ON THIS ISSUE. CROSS OBJECTION NO.36/MDS/2016: 13. SINCE WE HAVE DECIDED THE APPEAL OF THE REVENUE ON MERITS, THE ISSUE OF REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE ACT RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION BECOMES ACADEMIC AND ACCORDINGLY WE DISMISS THE SAM E. 10 ITA NO.2349/MDS/2015 & C.O. NO.36/MDS/2016 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30 TH MAY, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 30 TH MAY, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF .