Shri Dyandeo Ninu Patil, Akola V. Commissioner of Income Tax-I, Nagpur

ITA 103/NAG/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9574 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 24-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR MILIND BHUSARI
• Assessee Lawyers: C T THAK; S C THAK
• Keywords: Opportunity of being heard; Earning of tax free income; Assessment record
• Section: 143(3); 14A; 263; 10

Judgement Text

ITA NO.103/NAG/2011 DYANDEO NINU PATIL, AKOLA IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH , NAGPUR BEFORE: SHRI P.K. BANSAL, ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, JUDICIAL MEMBER ITA NO. 103 / NAGPUR / 20 11 ASSESSMENT YEAR : 2008 - 09 DYANDEO NINU PATIL AKOLA VS. CIT - 1 N AGPUR (APPELLANT) (RESPONDENT) PAN NO. ADPPP 0651A APPELLANT BY: SHRI C.T. THAK A R, ADVOCATE & SHRI S.C. THAK A R, ADVOCATE RESPONDENT BY: DR. MILIND BHUSARI, CIT(DR) DATE OF HEARING: 08.10.2012 DATE OF PRONOUNCEMENT: 10.10.2012 ORDER PER BENCH: THIS APPEAL HAS BEEN FILED AGAINST THE ORDER OF THE CIT DATED 27.4.2011 PASSED U/S 263 OF THE INCOME TAX ACT (HEREINAFTER CALLED AS AN ACT), SETTING ASIDE THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) DATED 29.12.2009 WITH THE DIRECTION TO MAKE IT AFRESH DE - NOVO AFTER MAKING DUE AND PROPER ENQUIRY AND IN ACCORDANCE WITH THE PROVISIONS OF LAW AND AFTER ALLOWING THE DUE OPPORTUNITY OF BEING HEARD ON THE VARIOUS ADDITIONS/DISALLOWANCES PROPOSED TO BE MADE WHILE COMPLETING THE ASSESSMENT AFRESH. THE NUMBER OF FACTS OF THE CASE ARE THAT THE ASSESSEE SUBMITTED THE RETURN ON AN INCOME OF RS.16,20,72,930/ - WHICH WAS ASSESSED AT RS.16,20,79,988/ - . THE CIT ON EXAMINATION OF THE ASSESSMENT RECORD WAS OF THE VIEW THAT THE ORDER PASSED BY THE ASSESSING OFFIC ER U/S 143(3) WAS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE ACCORDINGLY ISSUED SHOW CAUSE NOTICE ON THE FOLLOWING REASONS: I. (A) THE ASSESSING OFFICER HAD NOT LOOKED INTO THE DISALLOWANCE TO BE MADE U/S 14A IN RESPECT OF INTEREST PAID TO THE BANK OF RS.20,70,439/ - . THE RECORDS INDICATE THAT THE ITA NO.103/NAG/2011 DYANDEO NINU PATIL, AKOLA 2 BORROWED FUNDS FROM THE BANK WERE INTRODUCED AS CAPITAL IN THE PARTNERSHIP FIRM AND SHARE OF PROFIT DERIVED FROM PARTNERSHIP FIRM WAS CLAIMED AS EXEMPT U/S 10(2A) OF THE I.T. ACT 1961. THI S NECESSITATED THE DISALLOWANCE OF THE INTEREST AS PER THE PROVISIONS OF SEC. 14A OF THE I.T. ACT, 1961. (B) THE ASSESSING OFFICER HAD NOT PROPERLY LOOKED INTO AND EXAMINED THE UTILITY OF THE BORROWED FUNDS AND HAS ALSO NOT EXAMINED WHETHER THE INTEREST LIABILITY AS ABOVE WAS DEDUCTIBLE U/S 36(1)(III)/57(III) OR NOT. II. THE ASSESSING OFFICER HAD NOT ENQUIRED INTO THE DETAILS OF THE PERSONAL/HOUSEHOLD EXPENSES INCURRED DURING THE YEAR AND THE SOURCES OF SUCH EXPENDITURE INCURRED AS WELL AS ADEQUACY THEREOF. III. THE ASSESSING OFFICER HAD NOT PROPERLY ENQUIRED INTO THE REASONS AS TO HOW THE SALE CONSIDERATION OF RS.48 CRORE WAS REALIZED IN RESPECT OF PROPERTY VALUED AT RS.9.01 CRORE ON THE DATE OF SALE. IV. THE ASSESSING OFFICER HAD ALSO NOT LOOKED INTO ALL OTHER FIN ANCIAL AFFAIRS OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 2. THE ASSESSEE IN REPLY THERETO CONTENDED THAT PROPOSED ACTION U/S 263 OF THE ACT IS UNWARRANTED AND NOT JUSTIFIED. THE CIT DID NOT AGREE WITH THE ASSESSEE AND RELYING ON THE FOLLOWING DECISIONS, TOOK THE VIEW THAT THE ASSESSING OFFICER HAS NOT MADE PROPER ENQUIRIES AND ACCORDINGLY SET ASIDE THE ASSESSMENT TO BE MADE DE - NOVO: 1. RAMPYARI DEVI SARAOGI 67 ITR 84 SC 2. CIT VS. PUSHPADEVI 164 ITR 639 (PATNA) 3. GEE VEE ENTERPRISES VS. ADD ITIONAL CIT (1975) 99 ITR 375(DELHI) 4. SWARUP VEGETABLE PRODUCTS VS. CIT 187 ITR 412 (ALL) 3. THE ASSESSEE HAS COME IN APPEAL AND CHALLENGED THE ACTION OF THE CIT ON THE ISSUE OF THE ALLOWABILITY OF INTEREST ON LOAN AGAINST THE FDR, ON THE ISSUE OF TRAN SACTION OF SALE OF LAND, ON THE ISSUE OF HOUSEHOLD EXPENSES. THE LD. A.R. BEFORE US REFERRED TO SECTION 14 A AS WELL AS THE COMPUTATION OF INCOME AS FILED BY THE ASSESSEE, THE COPY OF WHICH IS AVAILABLE FROM PAGE 1 TO 5 OF THE PAPER BOOK. HE DID NOT DENY THAT OUT OF THE FUNDS BORROWED ON FDR, THE ASSESSEE HAS UTILIZED RS.9.47 CRORES FOR THE PURPOSE OF INTRODUCTION ITA NO.103/NAG/2011 DYANDEO NINU PATIL, AKOLA 3 AS CAPITAL IN PARTNERSHIP FIRM. THE ASSESSEE HAS MADE THE FDR WITH IDBI BANK AND HAS TAKEN THE LOAN ON FDR . THE INTEREST INCOME FROM THE BANK WAS SHOWN UNDER THAT INCOME FROM OTHER SOURCES . OUT OF THE INTEREST INCOME, THE ASSESSEE PAID INTEREST TO THE BANK ON THE AMOUNT BORROWED AND THE NET INTEREST ALONG WITH OTHER INCOME WAS SHOWN AS INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER HAS DU LY ACCEPTED THE SAME INCOME AS INCOME FROM OTHER SOURCES BY ALLOWING THE DEDUCTION OF INTEREST PAID TO THE BANK. ACCORDING TO HIM, IF THE ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIEW, THERE CANNOT BE ANY ERROR IN THE ORDER OF THE ASSESSING OFFICER . THE INTEREST PAID ON BORROWING WAS ALLOWABLE DEDUCTION OUT OF THE INTEREST EARNED ON FDR. IN FACT THE AMOUNT BORROWED REPRESENT THE WITHDRAWAL OF ASSESSEE S O WN MONEY FOR EARNING THE EXEMPT INCOME AND THEREFORE NO QUESTION OF ANY DISALLOWANCE ARISE. H E RELIED ON THE DECISION OF THE CIT VS. HERO CYCLES LIMITED 323 ITR 518 (PUNJAB & HARYANA). THE LD. D.R. ON THE OTHER HAND CONTENDED THAT THE ASSESSEE HAS BORROWED THE FUNDS AGAINST THE FDR AND PART OF FUNDS WERE INVESTED AS CAPITAL IN THE PARTNERSHIP FIR M. THE ASSESSEE HAS DULY PAID INTEREST FOR MAKING INVESTMENT IN THE PARTNERSHIP FIRM. THUS THE EXPENSES HAS BEEN INCURRED BY THE ASSESSEE FOR EARNING THE SHARE INCOME FROM THE FIRM. THE ASSESSING OFFICER HAS NOT EXAMINED THIS ISSUE AT ALL BUT ALLOWED TH E DEDUCTION OF INTEREST PAID OUT OF THE INTEREST EARNED FROM FDR, WHICH IS NOT PERMISSIBLE UNDER THE LAW. HE RELIED ON THE FOLLOWING DECISIONS: 1) 115 ITR 34 (ALL.) ACIT LUCKNOW VS. SARAYA DISTILLERY 2) 164 ITR 639 (PATNA) CIT VS. PUSHPA DEVI 3) 88 IT R 323 (SC) SMT. TARADEVI AGGARWAL VS. CIT, WEST BENGAL 4. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. THIS IS A FACT THAT THE ASSESSEE HAD GOT THE FDR IN IDBI A ND HAS EARNED INTEREST INCOME ON SUCH FDR. THE ASSESSEE BORROWED THE FUNDS AGAINST THE FDR AND PART OF THE FUNDS WERE INVESTED AS CAPITAL IN THE PARTNERSHIP FIRM FROM WHERE THE ASSESSEE GOT THE SHARE INCOME EXEMPT U/S 10 OF THE ACT. THE ASSESSEE ITA NO.103/NAG/2011 DYANDEO NINU PATIL, AKOLA 4 HAS CLAI MED THE DEDUCTION IN RESPECT OF THE INTEREST PAID TO THE BANK UNDER THE HEAD INCOME FROM OTHER SOURCES OUT OF THE INTEREST EARNED ON FDR. THIS INTEREST IN OUR OPINION WILL NOT BE DEDUCTIBLE U/S 57 OF THE ACT AS THE INTEREST WAS PAID TO THE BANKER HAS NOT BEEN INCURRED FOR EARNING THE INTEREST ON FDR. OUR VIEW IS SUPPORTED BY THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. V.P. GOPINATHAN 248 ITR 449. WE HAVE GONE THROUGH THE PROVISION OF SECTION 263 OF THE INCOME - TAX ACT. FROM THE PERUSAL OF AF ORESAID SECTION, IT IS APPARENT THAT THE CIT CAN EXERCISE THE REVISION AL JURISDICTION, IF BOTH THE CONDITION S THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND THAT IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE ARE FULFILLED. THE FOUNDAT ION FOR EXERCISE OF POWER BEING THE FORMATION OF AN OPINION OR CONCLUSION, THERE IS NO ESCAPE FROM THE VIEW THAT THE COMMISSIONER OF INCOME - TAX MUST RECORD HIS CONCLUSIONS IN THE CASE BEFORE SETTING ASIDE AN ORDER OF THE ASSESSMENT IN EXERCISE OF THE POWER U/S 263 OF THE ACT. WHAT WOULD BE NECESSARY IS TO TAKE NOTE OF THE FACT THAT THERE HAS TO BE AN OPINION THAT THE ASSESSMENT WHICH HAS BEEN SET ASIDE IS INDEED ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. AN INCORRECT ASSUMPTION OF FACT OR A N INCORRECT APPLICATION OF LAW WOULD SATISFY REQUIREMENT OF ORDER BEING ERRONEOUS U/S 263 OF THE ACT. EXPRESSION PREJUDICIAL TO THE INTEREST OF REVENUE AS UNDERSTOOD IN ITS ORDINARY MEANING IS OF WIDE IMPORT AND NOT CONFINED TO LOSS OF TAX ALONE. IF DUE TO AN ERRONEOUS ORDER OF ASSESSING OFFICER, REVENUE IS LOOSING TAX LAWFULLY PAYABLE BY A PERSON, IT SHOULD BE CERTAINLY PREJUDICIAL TO THE INTEREST OF THE REVENUE. THIS IS A FACT THAT THE ASSESSING OFFICER WHILE PASSING AN ORDER PERFORMS JUDICIAL FUNCTION , AN APPEAL LIES AGAINST HIS ORDER BEFORE THE APPELLATE AUTHORITY, A REVISION APPLICATION WOULD ALSO LIE BEFORE THE COMMISSIONER. THE POWER TO EXERCISE SUO MOTO REVISION U/S 263(1) IS IN THE NATURE OF SUPERVISORY JURISDICTION AND SAME CAN BE EXERCISED ONL Y IF CIRCUMSTANCES SPECIFIED THEREIN WHICH (1) THE ORDER IS ERRONEOUS AND (2) BY OVERDUE OF ORDER BEING ERRONEOUS, PREJUDICE HAS BEEN CAUSED TO THE INTEREST OF REVENUE EXIST. AN ORDER OF ASSESSMENT PASSED BY A.O., THEREFORE, SHOULD NOT BE INTERFERED WITH, ONLY BECAUSE ANOTHER VIEW IS ITA NO.103/NAG/2011 DYANDEO NINU PATIL, AKOLA 5 POSSIBLE. NOW THE QUESTION ARISE WHETHER THE ASSESSING OFFICER HAS TAKEN A POSSIBLE VIEW? IF THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW, THE ORDER CAN BE REGARDED TO BE ERRONEOUS. DELHI HIGH COURT IN TH E CASE OF G.V. ENTERPRISES VS. ADDITIONAL CIT 99 ITR 375 TOOK THE VIEW THAT OMISSION TO MAKE FURTHER ENQUIRIES IS AN ERROR. PATNA HIGH COURT IN THE CASE OF CIT VS. PUSHPA DEVI 164 ITR 639 TOOK THE VIEW THAT NON - ENQUIRY INTO THE SOURCE OF CAPITAL IS AN ERR OR. SIMILARLY, KARNATAKA HIGH COURT IN THE CASE OF THALIBHAI F. JAIN VS. ITO 101 ITR 1, TOOK THE VIEW, ASSESSMENT MADE IN UNDUE HASTE OR WITHOUT ENQUIRY ARE PREJUDICIAL. HON BLE SUPREME COURT IN THE CASE OF SMT. TARADEVI AGGRAWAL VS. CIT (SUPRA) TOOK THE VIEW, WHEN THE INCOME ASSESSED IN THE HANDS OF THE ASSESSEE, BUT IT WAS TO BE ASSESSED IN SOME OTHER HAND THAT THE CANCELLATION OF THE ASSESSMENT IN REVISION PROCEEDINGS IS VALID. WE HAVE GONE THROUGH THE PUNJAB & HARYANA HIGH COURT AS WAS VEHEMENTLY REL IED ON BY THE LD. A.R. IN THE CASE OF CIT VS. HERO CYCLES LIMITED 323 ITR 518. THIS CASE RELATE TO THE ASSESSMENT YEAR 2004 - 05. IN THIS CASE, HON BLE PUNJAB & HARYANA HIGH COURT HELD WHETHER IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HA S BEEN INCURRED, DISALLOWANCE U/S 14A CANNOT BE HELD . THIS CASE, IN OUR OPINION, WILL NOT APPLY IN THE CASE OF ASSESSEE AS IN THE CASE OF THE ASSESSEE, THE ASSESSEE HAS BORROWED FUNDS FROM THE BANKER, MAY BE AGAINST THE FDR AND ASSESSEE HAS PAID INTEREST ON SUCH BORROWING. APART ALL THESE VERY BORROWINGS WERE INVESTED BY THE ASSESSEE AS CAPITAL IN THE PARTNERSHIP FIRM , FROM WHERE THE ASSESSEE GOT SHARE INCOME. THUS, THIS IS NOT A CASE WHERE THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR INVESTING THE CAPITAL IN THE PARTNERSHIP FIRM. 5. ON THE BASIS OF THE FIRST ISSUE, WE NOTED THAT THERE IS AN ERROR IN THE ORDER OF THE ASSESSING OFFICER AND ORDER PASSED BY THE ASSESSING OFFICER AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THIS IS A SETTLED LAW TH AT IF ATLEAST I N RESPECT OF AN ITEM, THE ITO S ORDER IS FOUND TO BE PREJUDICIAL TO THE REVENUE, THE INITIATION OF THE PROCEEDINGS U/S 263 CANNOT BE QUESTIONED. ITA NO.103/NAG/2011 DYANDEO NINU PATIL, AKOLA 6 THEREFORE, WE NEED NOT TO EXAMINE THE OTHER ISSUE. WE ACCORDINGLY CONFIRM THE ORDER OF THE CIT PASSED U/S 263 OF THE ACT. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 10.10 .20 1 2 SD/ - SD/ - ( D.T. GARASIA ) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT M EMBER VG/SPS NAGPUR DATED 10 TH OCTOBER , 20 1 2 COPY TO 1 DYANDEO NINU PATIL, C/O ELITE UDYOG, NEAR RADHA KISAN CINEMA, MURTIZAPUR ROAD, AKOLA 2 THE CIT - 1 , NAGPUR 4 THE CIT (A) , NAGPUR 5 THE DR, ITAT, NAGPUR 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY I NCOME TAX APPELLATE TRIBUNAL NAGPUR