Gati Ltd. V. The Additional Commissioner of Income-tax, Range-2, Hyderabad

ITTA/280/2013

AI Insights

The case involves M/s. Gati Ltd., Secunderabad, appealing against the order of the Additional Commissioner of Income-tax, Range-2, Hyderabad, which exercised revisional powers under Section 263 of the Income Tax Act, 1961. The primary issues pertained to the disallowance of gratuity and issue expenses related to foreign currency convertible bonds (FCCB). The Tribunal found that the Assessing Officer had not applied his mind adequately to these issues initially, leading to a non-speaking order, which was prejudicial to the interest of the Revenue. Consequently, the Tribunal remitted these issues back to the Assessing Officer for a detailed examination.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 810554 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 23-07-2013
• Assessment Year: misc
• Other Referred Cases: Dredging Corporation of India Ltd. in I.T.A.Nos.6 to 8/Vizag/2011
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Keywords: Assessment Year 2007-08; Foreign Currency Convertible Bonds; Revisionary jurisdiction; Disallowance of gratuity; Disallowance of issue expenses
• Section: 263; 43B

Judgement Text

"HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND HON’BLE SRI JUSTICE K.C. BHANU I.T.T.A.No.280 of 2013 Date: 23-07-2013 Between: M/s. Gati Ltd., Secunderabad. … Appellant And 1. The Additional Commissioner of Income-tax, Range-2, Hyderabad. … Respondent HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND HON’BLE SRI JUSTICE K.C. BHANU I.T.T.A.No.280 of 2013 JUDGMENT: (Per Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) This appeal is preferred against the judgment and order passed by the learned Tribunal in I.T.A.No.749/H/2012, dated 12-01-2013, in relation to the assessment year 2007-08 and is sought to be admitted on the following substantial questions of law: i) Whether on the facts and in the circumstances of the case, the Commissioner of Income Tax is justified in exercising the jurisdiction u/s 263 of the I.T. Act in respect of disallowance of gratuity aggregating to Rs.1,32,95,577/- and disallowance of issue expenses aggregating to Rs.2,64,26,757/- for issuing foreign currency convertible bonds. ii) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is justified in upholding the power of the Commissioner of Income Tax to exercise revisionary jurisdiction u/s 263 of the I.T. Act in respect of disallowance of gratuity aggregating to Rs.1,32,95,577/- and disallowance of issue of expenses aggregating to Rs.2,64,26,757/- for issuing foreign currency convertible bonds, when the said two items were enquired into by the Assessing Officer, questionnaire was issued calling for information, the information supplied was perused and also making an endorsement in the order sheet about the discussion of these two items before making the assessment. iii) Whether on the facts and in the circumstances of the case, the issue relating to the disallowance of issue expenses aggregating to Rs.2,64,26,757/- can be said to be a matter on which there could be two views and debatable and as such cannot be a subject matter of revision u/s 263 of the I.T. Act. iv) Whether on the facts and in the circumstances of the case, on the issue relating to the disallowance of gratuity aggregating to Rs.1,32,95,577/- is it open to the Commissioner of Income tax to exercise revisionary jurisdiction u/s 263 of the I.T Act based on suspicion, doubts and presumptions. v) Whether on the facts and in the circumstances of the case, the Income tax Appellate Tribunal is justified in remitting the above two issues viz., disallowance of gratuity aggregating to Rs.1,32,95,577 and disallowance of issue expenses aggregating to Rs.2,64,26,757/- for issuing foreign currency convertible bonds to the Assessing Officer for enquiry afresh as directed by the Income tax Appellate Tribunal in its impugned order. 2. We have heard the learned counsel for the appellant and perused the impugned judgment and order of the learned Tribunal. 3. It appears that the assessee challenged the order of the Commissioner of Income Tax, who made the order for re-assessment, in exercise of the revisional powers under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). It was contended that the Commissioner of Income Tax ought not to have exercised the jurisdiction under Section 263 of the Act. According to the learned counsel for the appellant, the preconditions for exercise of the jurisdiction under Section 263 of the Act in this matter have not been fulfilled. Therefore, he urges that the appeal should be admitted on the aforesaid questions of law. 4. The learned Tribunal, on perusal of the record, came to a fact finding that the Assessing Officer did not pass any speaking order in relation to any issues agitated and raised before him. It has been further found by the learned Tribunal that the impugned order of assessment passed by the Assessing Officer initially was on total non- application of mind. In view of the aforesaid fact finding, we hold that passing a non-speaking order and further without application of mind are prejudicial to the interest of the party. According to us, had there been any proper application of mind, the opinion of the Assessing Officer would have been otherwise and he would have taken different view. Therefore, the Assessing Officer, by not applying his mind, acted prejudicial to the interest of the Revenue. We are unable to accept the contention of the learned counsel for the appellant that the preconditions for exercise of the jurisdiction under Section 263 of the Act have not been fulfilled in this case. 5. Now coming to the merits of the case, it appears that three issues are involved in this matter. The first issue relates to the assessment of difference in foreign exchange of Rs.15,46,428/- as income from other sources. It appears that, while deciding the above issue, the learned Tribunal has followed the decision of the Visakhapatnam Bench in case of Dredging Corporation of India Ltd. in I.T.A.Nos.6 to 8/Vizag/2011, dated 25-07-2011, as the issue was squarely covered by the above judgment. Learned Tribunal thereafter held that the amount of Rs.15,46,428/-, being the gain on account of foreign exchange fluctuation, is related to the activity of operating qualifying ships and therefore, it has to be taxed under the Tonnage Tax Scheme as provided under Chapter XIIG of the Act. Accordingly, the order of the Commissioner of Income Tax was reversed on this issue. 6. So far as the second issue is concerned, the same relates to the directions for disallowance of gratuity of Rs.1,32,95,577/-. The learned Tribunal, on fact, found as follows: “It is seen from the certificate of the actuary which is at page 117 of the paper-book, that the assessee has gratuity liability of Rs.2,47,52,069/- as on 31.3.2007. It is the claim of the assessee that over and above the amount of Rs.90,23,315 debited to the Profit & Loss Account of the relevant previous year, the assessee has paid further amount of Rs.1,32,95,577/- towards the gratuity liability, by directly debiting the General Reserve Account, without affecting the Profit & Loss Account.” It was further found, on fact, as follows: “An examination of the aforesaid bank account which is at pages 20 and 21 of the written submissions, it appears that amounts of Rs.1 crore and Rs.32,95,577/- have been deposited into the aforesaid Gratuity Fund Account in March, 2007 and October, 2007 respectively.” After coming to the above fact findings, the learned Tribunal passed the impugned order in the manner as follows: “We, therefore, direct the Assessing Officer to verify the bank account, and examine the matter in the light of such other evidence as may be called for by the Assessing Officer, or produced by the assessee in support of its claim of having made the payments in question within the period specified in S. 43B, and accordingly determine the issue of allowability of the claim of the assessee.” 7. The learned Tribunal, therefore, modified the order of the Commissioner of Income Tax to the above extent, and directed the Assessing Officer to decide the issue. We do not find any infirmity or illegality in remanding the matter in the manner as above. 8. So far as the third issue is concerned, the same relates to disallowance of expenses of Rs.2,64,26,757/- for issuing Foreign Currency Convertible Bonds (FCCB). It appears that the learned Tribunal has also remanded the matter on this issue. We just quote the relevant portion of the judgment and order of the learned Tribunal as follows: “In this view of the matter, we modify the directions of the Commissioner of Income-tax and direct the Assessing Officer to examine the issue of allowability or otherwise of the expenses incurred by the assessee in connection with the issue of FCCBs, keeping in view the ratio of the various decisions on this aspect, in accordance with law and after giving reasonable opportunity of hearing to the assessee.” 9. On this issue also, we do not find any illegality or infirmity in the judgment and order of the learned Tribunal. We hold that there is no element of law involved in this matter. 10. Accordingly, the appeal is dismissed. There will be no order as to costs. Miscellaneous Petitions pending, if any, shall stand closed. _________________ K.J. SENGUPTA, CJ _________________ K.C. BHANU, J Date: 23-07-2013 YCR "