DCIT, Panchkula V. M/s Haryana State Electronics Development Corporation Ltd., Chandigarh

ITA 1048/CHANDI/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6678 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 03-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDRA KANTA
• Assessee Lawyers: B K NAHARIA
• Keywords: Audit objection; Source of fund; Tangible material; Difference of opinion; Assessment record; Tax effect; Revised return; Change of opinion
• Section: 143(3); 234B; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.1043/CHD/2016 ASSESSMENT YEARS: 2009-10 M/S HARYANA STATE ELECTRONICS VS. ASSISTANT COMMI SSIONER DEVELOPMENT CORPORATION LTD. OF INCOME TAX SCO 111-13 SECTOR 17-B PANCHKULA CIRCLE CHANDIGARH SECTOR 2, PANCHKULA PAN NO. AABCH1532Q & ITA NO.1048/CHD/2016 ASSESSMENT YEARS: 2009-10 THE DCIT VS. M/S HARYANA STATE ELECTRONICS CIRCLE, PANCHKULA DEVELOPMENT CORPORATION LTD. SCO-111-113, SECTOR-17B CHANDIGARH (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI. B.K. NAHARIA DEPARTMENT BY : SMT. CHANDRAKANTA DATE OF HEARING : 30/08/2017 DATE OF PRONOUNCEMENT : 30/10/2017 ORDER PER BENCH THE PRESENT APPEAL HAVE BEEN FILED BY THE ASSESSEE AND CROSS APPEAL FILED BY THE REVENUE AGAINST THE COMMON ORDER OF LD . CIT(A)-PANCHKULA, DT. 31/08/2016. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) PANCHKULA HAS ERRED IN LAW AND FACTS IN UPHOLDING T HE WRONG INITIATION BY THE LEARNED A 0 OF THE PROCEEDINGS U/S 148 OF THE ACT O N THE BASIS OF THE AUDIT OBJECTION LYING IN THE ASSESSMENT FILE AND IGNORING THE JUDGMENT OF HON'BLE SUPREME COURT RAISING PRELIMINARY OBJECTION. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) PANCHKULA HAS ERRED IN LAW AND FACTS IN UPHOLDING T HE WRONG INITIATION BY THE 2 LEARNED A 0 OF THE PROCEEDINGS U/S 148 AS THE PROCE EDINGS CANNOT BE INITIATED IN CASE OF CHANGE OF OPINION U/S 147 OF THE ACT. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) PANCHKULA HAS ERRED IN LAW AND FACTS IN UPHOLDING T HE WRONG INITIATION BY THE LEARNED A O WITHOUT PROVIDING ANY TANGIBLE MATERIAL WHICH REQUIRES REOPENING OF THE ASSESSMENT AS PER JUDGMENT OF THE HON'BLE SUPRE ME COURT CITED AS 320 ITR 561 THAT THE REASONS MUST HAVE A LINK WITH THE FORM ATION OF THE BELIEF. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) PANCHKULA HAS ERRED IN LAW AND FACTS IN UPHOLDING T HE REOPENING U/S 147 OF THE ACT INSPITE OF THE NOTICE U/S 148 OF THE INCOME TAX ACT, 1961 DATED 22.07.2014 WAS ISSUED AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR AS PER FIRST PROVISO TO SECTION 147 AS THE ORIGINAL AS SESSMENT HAS BEEN FRAMED U/S 143(3) OF THE ACT WITHOUT ANY ALLEGATION FOR FAILUR E ON THE PART OF THE APPELLANT TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) PANCHKULA HAS ERRED IN LAW AND FACTS IN UPHOLDING T HAT THE LEARNED A O HAS DISPOSED THE PRELIMINARY OBJECTION DATED 03.07.2015 FULLY WHICH IS AGAINST THE JUDGMENT OF THE HON'BLE SUPREME COURT CITED AS GKN DRIVESHAFTS (INDIA) LTD VS. INCOME TAX OFFICE & ANOTHER (2003) 259 ITR 19 (SC) AND THE LEARNED A O CAN PROCEED FURTHER WITHOUT DISPOSING OFF THE PRELIMINA RY OBJECTIONS. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) PANCHKULA HAS ERRED IN LAW AND FACTS IN UPHOLDING T HAT THE WRONG ADDITION OF RS.3,50,12,788/- BY THE LEARNED A O BY RESTRICTING THE SAME TO THE EXTENT OF 40% OF THE TOTAL ARREAR ON PAYMENT BASIS INSPITE OF THE FI NDING THAT THE APPELLANT IS MAINTAINING ITS ACCOUNTS ON MERCANTILE SYSTEM OF AC COUNTING AND THE APPELLANT HAS ACCEPTED THE EXPENDITURE ON ACCOUNT OF ARREAR O F SALARY ON 26.03.2009 WHICH RELATES TO THE YEAR UNDER CONSIDERATION AND C OVERED BY JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF BHARAT EARTHMO VERS VS COMMISSIONER OF INCOME TAX CITED AS 245 ITR 428. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED TO ALLOWED THE APPEAL OF THE ASSESSEE AND RES TRICTED THE ADDITION OF RS. 3,50,12,788/- TO RS. 2,10,07,673/- WHICH IS NOT COR RECT BECAUSE THE ASSESSEE HAS FOLLOWED THE MERCANTILE SYSTEM AND IN MERCANTILE SY STEM THE PRIOR PERIOD EXPENSES IS NOT ALLOWED. 2. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF THE A.O. BE RESTORED . 4. THE GROUND NO. 1 TO 5 DEALS WITH REOPENING OF TH E CASE U/S 147. 5. AFTER HEARING BOTH THE PARTIES WE HAVE PERUSED T HE MATERIAL PLACED BEFORE US. 6. REASONS RECORDED FOR ISSUE OF NOTICE U/S 148 OF THE I.T. ACT, 1961 IN THE CASE OF M/S HARYANA STATE ELECTRONICS DEVELOPMENT C ORPORATION LTD., SCO-111- 113, SECTOR 17B, CHANDIGARH, AY 2009-10 ARE AS UN DER: 3 27/06/2017 THE ASSESSEE FILED ITS RETURN OF INCOME ON 30/09/2 009 DECLARING INCOME OF RS. 13,91,58,690/- AND FILED REVISED RETURN ON 04/04/20 11 DECLARING INCOME OF RS. 17,36,73,00/-. THE ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED ON 15.12.2011 AT INCOME OF RS. 17,37,73,700/-. AS PER PROVISIONS OF INCOME TAX ACT, ANY EXPENDITUR E (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTION 30 TO 36) AND NOT B EING IN THE NATURE OF CAPITAL OR PERSONAL EXPENSES, LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE ACT FURTHER P ROVIDES THAT A PROVISION MADE IN THE ACCOUNTS FOR AN ACCRUED OR KNOWN LIABILITY AS A N ALLOWABLE EXPENDITURE WHEREAS OTHER PROVISIONS NO QUALIFY FOR DEDUCTIONS. ON PERUSAL OF THE ASSESSMENT RECORDS IT WAS OBSERVE D THAT AS PER ITEM 33 AND 34 OF NOTES ON ACCOUNTS THE ASSESSEE HAD MADE A PROV ISION OF RS. 350.13 LAKH TOWARDS SALARY PAYABLE DUE TO REVISION PAY SCALES A ND CONSIDERED THE SAME AS ALLOWABLE EXPENDITURE BY DEBITING IT UNDER SALARIES , JOB WORK, WAGES EXPENSES UNDER THE HEAD ADMINISTRATIVE, SELLING AND OTHER EX PENSES AND ALSO SHOWN UNDER THE CURRENT LIABILITIES UNDER HEADING OTHER LIABILI TIES. SINCE, IT WAS MERELY A PROVISION AND NOT PAID DURIN G THE PREVIOUS YEAR, THE SAME WAS REQUIRED TO BE DISALLOWED. FROM THE FACTS GIVEN ABOVE, I HAVE REASON TO BELIEV E THAT AN INCOME OF RS. 350.13 LAKH IS ESCAPED ASSESSMENT IN THIS CASE. ISSUE NOTI CE UNDER SECTION 148 FOR THE ASSESSMENT YEAR 2009-10. 7. THE REASONS WERE BASED ON THE AUDIT OBSERVATION DATED 13/05/2014 OF SAO (DP). THE LETTER OF THE AUDIT PARTY IS AS UN DER: PARA-1(A) INCORRECT ALLOWANCE OF BUSINESS EXPENDIT URE NAME OF ASSESSEE: M/S HARYANA STATE ELECTRONICS DEV ELOPMENT CORPORATION LTD. SCO 111-113 SECTOR 17-B CHANDIGARH PAN: AABCH1532Q STATUS: COMPANY A.Y. D.O.A A.INCOME A.TAX U/S SAP 2009-10 15.12.2011 17,37,73,700/- 6,02,45 ,178 143(3) YES UNDER THE PROVISIONS OF INCOME TAX ACT, ANY EXPENDI TURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTION 30 TO 36) AND NO T BEING IN THE NATURE OF CAPITAL OR PERSONAL EXPENSES, LAID OUT WHOLLY AND EXCLUSIVE LY FOR THE PURPOSE OF BUSINESS SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE ACT FURTH ER PROVIDES THAT A PROVISION MADE IN THE ACCOUNTS FOR AN ACCRUED OR KNOWN LIABIL ITY IS AN ALLOWABLE EXPENDITURE WHEREAS OTHER PROVISIONS NOT QUALIFY FO R DEDUCTIONS. DURING SCRUTINY OF ASSESSMENTS RECORDS AUDIT OBSERV ED THAT AS PER ITEM 33 AND 34 OF NOTES ON ACCOUNTS THE ASSESSEE HAD MADE A PROV ISION OF RS. 350.13 LAKH TOWARDS SALARY PAYABLE DUE TO REVISION PAY SCALES A ND CONSIDERED THE SAME AS ALLOWABLE EXPENDITURE BY DEBITING IT UNDER SALARIES , JOB WORK, WAGES EXPENSES UNDER THE HEAD ADMINISTRATIVE, SELLING AND OTHER EX PENSES AND ALSO SHOWN UNDER THE CURRENT LIABILITIES UNDER HEADING OTHER LIABILI TIES. SINCE, IT WAS MERELY A PROVISION AND NOT PAID DURING THE PREVIOUS YEAR, TH E SAME WAS REQUIRED TO BE DISALLOWED IN ANOTHER CASE OF M/S HARYANA STATE SEEDS CERTIFICAT ION AGENCY FOR THE ASSESSMENT YEAR 2009-10 AND CONFIRMED IN CIT(AP PEAL) ORDER NO. 374/PKL/11- 12 DT. 28/09/2012 THE INCOME WAS THUS UNDER ASSESSE D BY LIKE AMOUNT INVOLVING TAX EFFECT OF RS. 1,19,00,918/- PLUS INTEREST OF RS . 39,27,303 UNDER SECTION 234B FOR 33 MONTHS. 4 AUDIT MEMO NO. 03 WAS ISSUED TO THE DEPARTMENT ON 0 6/09/2013 IN REPLY TO WHICH THE ASSESSING OFFICER HAS PROMISED TO LOOK INTO THE MATTER. FINALLY REPLY WOULD BE AWAITED IN AUDIT. FINAL REPLY WAS STILL AWAITED IN AUDIT WHICH MAY PLEASE BE EXPEDITED. 8. FROM THE READING OF THE REASONS RECORDED AND THE PARA OF THE AUDIT IT CAN BE OBSERVED THAT THE REASONS WERE IN TOTO AS PER THE A UDIT OBJECTION. 9. THUS IT CAN BE OBSERVED FROM THE ABOVE THAT THE REASONS WERE SOLELY BASED ONT THE AUDIT OBJECTION AND THE AUDIT OBJECTION AND THE REASONS HAVE BEEN EMANATED FROM THE ITEM 33 & 34 OF NOTES ON ACCOUNT OF THE ASSESSEES AUDIT REPORT ITSELF WHICH WAS BEFORE THE ASSESSING OFFICER DURING THE PROCEED INGS U/S 143(3). 10. THE NOTICE WAS ISSUED ON 28/07/2014 FOR THE AY 2009-10. THERE IS NO AVERMENT OR ALLEGATION EITHER IN THE REASONS RECORDED OR IN THE ASSESSMENT PROCEEDINGS THAT THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT BECAU SE OF THE REASONS OF ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND T RULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. WE FIND FROM THE RECORD THAT THE ASSESS EE HAD FULLY AND TRULY DISCLOSED ALL THE SOURCES OF INCOME. UNDER SUCH CIRCUMSTANCES, TH E REOPENING OF THE ASSESSMENT IS HIT BY THE PROVISO TO SECTION 147(1) OF THE INCOME TAX ACT. SINCE THERE IS NO ALLEGATION THAT THERE WAS ANY FAILURE ON THE PART OF THE ASSES SEE TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS RELATING TO THE ASSESSMENT, HENCE, T HE REOPENING OF THE ASSESSMENT BEYOND FOUR YEARS IN THIS CASE IS BAD IN THE EYES O F LAW AND, AS SUCH, THE SAME IS NOT SUSTAINABLE. THE REOPENING OF THE ASSESSMENT IN THI S CASE IS, THEREFORE ANNULLED. 11. SINCE THE ORDER CANNOT STAND ON LEGAL GROUNDS D UE TO NON ADHERENCE TO PROVISIONS OF 147(1), THE GROUND NO. 6 OF THE ASSES SEE AND THE GROUNDS OF THE REVENUE NEEDS NO ADJUDICATION. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D AND THAT OF THE REVENUE STANDS DISMISSED. THE ORDER IS PRONOUNCED ON 30/10/2017 IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (DR. B.R.R. KUM AR) JUDICIAL MEMBER ACCOUNTANT MEMBER 30/10/2017 AG COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DEPARTMENTAL REPRESENTATIVE