Ford Business Services Center Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 1070/CHNY/2008

• Counselvise Citation: 107021714 RSA 2008
• Duration Of Justice: 4 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-08-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 14-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: T BANUSEKAR
• Keywords: Depreciation; Opportunity of being heard; Principle of natural justice; Unabsorbed depreciation; Capital expenditure
• Section: 143(3); 115JB; 10B; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NO.1543/MDS/2007 & 1070/MDS/2008 ASST. YEAR : 2002-03 & 2003-04 FORD BUSINESS SERVICES CENTER PRIVATE LIMITED, BLOCK 1B, RMZ MILLENIA, NO.143, MGR ROAD (NORTH VEERANAM SALAI), PERUNGUDI, CHENNAI 600 096. PAN : AAACF-5984-H. (APPELLANT) V. THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(1), CHENNAI. (RESPONDENT) APPELLANT BY : SHRI T. BANUSEKAR, CA RESPONDENT BY : SHRI SHAJI P. JACOB, ADDL. CIT DATE OF HEARING : 23 AUGUST 2012 DATE OF PRONOUNCEMENT : 5 TH SEPTEMBER 2012 O R D E R PER BENCH : : THESE APPEALS HAVE BEEN PREFERRED BY THE ASSESSEE AGAINST SEPARATE ORDERS OF CIT, CHENNAII DATED 30.3.2007 A ND DATED 20.3.2008 RESPECTIVELY IN CASE NO.218(1)/CIT-I/263/2006-07 AN D IN CASE NO. 218(1)/CIT- I/263/2006-07 FOR THE ITA 1543/MDS/07 & 1070/MDS/08 2 ASST. YEAR 2002-03 AND 2003-04, IN PROCEEDINGS UNDE R SEC.263 OF THE INCOME TAX ACT 1961, IN SHORT 'THE ACT'. 2. IN ITA NO.1543/MDS/2007, THE ASSESSEE HAS RAISE D THE FOLLOWING GROUNDS:- GROUNDS OF APPEAL 1. THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX IS BARRED BY LIMITATION, IS WITHOUT JURISDICTION, CONTRARY TO LA W FACTS AND CIRCUMSTANCES OF THE CASE AND AT ANY RATE IS OPPOSE D TO THE PRINCIPLES OF EQUITY, NATURAL JUSTICE AND FAIR PLAY . 2. THE LEARNED COMMISSIONER OF INCOME TAX FAILED TO AP PRECIATE THAT THE ORDER OF THE ASSESSING OFFICER PASSED U/S. 143(3) WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST O F THE REVENUE, MUCH LESS BOTH TO WARRANT THE INVOCATION OF POWERS U/S.263 OF THE ACT. 3. THE LEARNED COMMISSIONER OUGHT TO HAVE GRANTED SUFF ICIENT TIME TO THE APPELLANT FOR PRESENTING FACTS OF THE CASE. 4. THE LEARNED CIT ERRED IN DIRECTING THE ASSESSING OF FICER TO VERIFY THE CAPITAL EXPENDITURE AND PRIOR PERIOD EXPENSES I N RELATION TO HIRING OF BUILDING. 5. THE LEARNED CIT HAS FAILED TO GIVE ADEQUATE NOTICE FOR RAISING THE ISSUE RELATING TO THE VERIFICATION OF CAPITAL E XPENDITURE AND PRIOR PERIOD EXPENSE IN RELATION TO HIRING OF BUILD ING THROUGH THE SHOW CAUSE NOTICE AND HENCE COULD NOT HAVE CONSIDER ED THE SAME IN THE ORDER U/S.263 MORE PARTICULARLY WHILE A CCEPTING THE ITA 1543/MDS/07 & 1070/MDS/08 3 APPELLANTS CONTENTION THAT THE RENT PAID WAS FOR TH E BUSINESS PURPOSES. 6. THE CIT HAS ERRED IN DIRECTING THE ASSESSING OFFICE R NOT TO SET OFF THE NORMAL BUSINESS LOSS INCURRED IN ONE UNDERT AKING (FORD INFORMATION TECHNOLOGY SERVICES INDIA FITSI) BELO NGING TO THE APPELLANT AGAINST THE INCOME OF ANOTHER UNDERTAKING (ACCOUNTING SERVICES DIVISION ASD) OF THE APPELLA NT. THE CIT HAS FAILED TO APPRECIATE THAT THE FITSI HAS OPTED O UT TO CLAIM DEDUCTION U/S.10A FROM THE EARLIER ASST. YEARS. 7. THE CIT HAS ERRED IN DIRECTING THE ASSESSING OFFICE R TO RE- COMPUTE BOOK PROFIT U/S.115JB IGNORING THE FACT TH AT THE APPELLANT HAD OPTED OUT FROM CLAIMING DEDUCTION U/S . 10A IN THE CASE OF THE FITSI. HE HAS FAILED TO APPRECIATE THA T THE EXPLANATION TO SEC.115JB IS TO CLARIFY THE MEANING OF BOOK PROFITS WHICH IS TO BE INCREASED OR DECREASED ONLY ON ACTUAL OPERATION OF CIRCUMSTANCES REFERRED TO IN CLAUSES ( A) TO (F) I.E. ONLY WHEN THE ASSESSEE ACCOUNTS FOR SUCH TRANSACTIO NS OR CLAIM SUCH DEDUCTIONS AND NOT TO APPLY NOTIONALLY. 8. THE CIT HAS ERRED IN CONCLUDING THAT THERE IS A DIS CREPANCY IN CLAIM OF INTEREST BY APPELLANT WITHOUT ASCERTAINING FULL FACTS. THE CIT HAS ALSO ERRED IN DIRECTING THE ASSESSING O FFICER TO ALLOCATE THE INTEREST ON REASONABLE BASIS WHILE THE CLAIM OF INTEREST BY APPELLANT ARISES ON BORROWINGS BY RESPE CTIVE DIVISIONS, WHICH THE CIT HAS FAILED TO RECOGNIZE. 9. FOR THESE GROUNDS AND SUCH OTHER GROUNDS THAT MAY B E URGED BEFORE OR DURING THE HEARING OF THE APPEAL IT IS MO ST HUMBLY PRAYED THAT THE HONBLE TRIBUNAL MAY BE PLEASED TO ITA 1543/MDS/07 & 1070/MDS/08 4 A. ANNUL THE ORDER OF THE LEARNED COMMISSIONER OF INCO ME TAX PASSED UNDER SEC 263. B. DIRECT THAT ONE OR MORE OF THE ISSUES SET ASIDE BY THE CIT OUGHT NOT TO HAVE BEEN SET ASIDE FOR REEXAMINAT ION BY THE ASSESSING OFFICER. C. PASS SUCH OTHER ORDER AS THE HONBLE TRIBUNAL MAY DEEM FIT. 3. SIMALARLY, IN ITA NO.1070/MDS/2008, THE ASSESSE ES GROUNDS READ AS FOLLOWS :- 1. THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX IS BARRED BY LIMITATION, IS WITHOUT JURISDICTION, CONTRARY TO LA W FACTS AND CIRCUMSTANCES OF THE CASE AND AT ANY RATE IS OPPOSE D TO THE PRINCIPLES OF EQUITY, NATURAL JUSTICE AND FAIR PLAY . 2. THE LEARNED CIT HAS FAILED TO GIVE AN OPPORTUNITY O F BEING HEARD IN SPITE OF THE APPELLANT REQUESTING FOR SAME. WHI LE THE NOTICE U/S 263 DT. 10.3.08 WAS RECEIVED BY THE APPELLANT O N 14.3.08 AND RESPONDED ON 20.3.08, THE ORDER WAS PASSED ON 2 0.03.08 WITHOUT HEARING THE APPELLANT WHICH IS AGAINST ALL PRINCIPLES OF NATURAL LAW AND JUSTICE. 3. THE LEARNED CIT HAS FAILED TO APPRECIATE THAT THE O RDER OF THE ASSESSING OFFICER PASSED U/S.143(3) WAS NEITHER ERR ONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE, MUCH LE SS BOTH TO WARRANT THE INVOCATION OF POWERS U/S.263 OF THE ACT . ITA 1543/MDS/07 & 1070/MDS/08 5 4. THE CIT HAS ERRED IN DIRECTING THE ASSESSING OFFICE R TO RE- COMPUTE BOOK PROFIT UNDER SECTION 115JB. THE CIT H AS FAILED TO PROVIDE AN OPPORTUNITY TO THE ASSESSEE AND IN NOT P OINTING OUT EXACT ERROR IN HIS NOTICE, NAMELY, THE ISSUE RELATI NG TO QUANTIFICATION OF FOREIGN EXCHANGE EARNED FROM EXP ORT TURNOVER SUBJECT TO DEDUCTION U/S 10A AND 10B. 5. THE CIT HAS ERRED IN COMPARING APPELLANTS COMPUTAT ION UNDER SECTION 115JB FOR THE RELEVANT ASST. YEAR (A.Y) WIT H THAT OF A.Y. 2002-03. THE CIT HAS FAILED TO CONSIDER THE FACT T HAT THE APPELLANT HAD OPTED OUT OF S.10A IN A.Y. 2002-03 WH EREAS NO SUCH OPTION WAS EXERCISED IN A.Y. 2003-04. THE APP ELLANTS COMPUTATION HAS BEEN DULY CERTIFIED IN FORM 29B AS REQUIRED UNDER SUB SECTION (4) OF SECTION 115JB AND HENCE TH E CITS CONTENTION THAT THE ORDER IS ERRONEOUS AND PREJUDIC IAL TO THE INTERESTS OF REVENUE IS WRONG IN FACTS. 6. THE CIT HAS ERRED IN DIRECTING THE ASSESSING OFFICE R TO SET OFF THE BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DE PRECIATION BEFORE ALLOWING FOR DEDUCTION UNDER SECTIONS 10A AN D 10B. 7. THE CIT HAS INCORRECTLY APPLIED THE DECISION OF HON . KARNATAKA HIGH COURT IN THE CASE OF CIT VS HIMATASINGIKE SEI DE LTD IN 286 ITR 555. REFERENCE IS DRAWN TO THE DECISION BY TH E HONBLE TRIBUNAL FOR THE ASST. YEAR 2001-02 (ITA NO.308 & 5 72/MDS/05) IN THE CASE OF THE ASSESSEE WHEREIN THE APPELLANT C LAIM WAS ALLOWED ON SIMILAR GROUND. 8. THE CONCLUSION OF CIT THAT THE CREATION OF INVESTME NT DIVISION IS ONLY TO DIVERT THE INTEREST EXPENDITURE TO UNITS OT HER THAN THOSE ELIGIBLE FOR DEDUCTIONS UNDER SEC.10A AND SEC.10B I S WRONG. ITA 1543/MDS/07 & 1070/MDS/08 6 9. THE CIT HAS ERRED IN CONCLUDING THAT THERE IS A DIS CREPANCY IN CLAIM OF INTEREST BY APPELLANT WITHOUT ASCERTAINING FULL FACTS. THE CIT HAS ALSO ERRED IN DIRECTING THE ASSESSING O FFICER TO ALLOCATE THE INTEREST ON REASONABLE BASIS WHILE THE CLAIM OF INTEREST BY APPELLANT ARISES ON BORROWINGS BY RESPE CTIVE DIVISIONS WHICH THE CIT HAS FAILED TO RECOGNIZE. 4. THE AUTHORISED REPRESENTATIVE BEFORE US HAS SUB MITTED THAT REGARDING ASST. YEAR 2002-03, APART FROM CHALLENGIN G THE APPLICABILITY OF SEC.263 OF THE ACT IN EXERCISING REVISIONAL JURISDICTION BY THE CIT HE IS ONLY PRESSING GROUND NOS.6 AND 7 IE. REST OF THE GROUNDS ARE NOT PRESSED. IN THE SAME TUNE, HE HAS SUBMITTED THAT REGARDING ASST. YEAR 2003-04 AS WELL APART FROM CHALLENGING THE APPLICABILITY OF SEC.263PROCEEDINGS, THE ASSESS EE IS PRESSING GROUND NOS.2 TO 7. REGARDING GROUND NO.8, HE HAS SUBMITTED THAT KE EPING IN VIEW THE SMALLNESS OF THE AMOUNT INVOLVED IE. ONLY M.6 LAKHS TOWARDS C REATION OF INVESTMENT DIVISION, THE SAME IS NOT SERIOUSLY CONTESTED. IN VIEW OF THIS, THE AUTHORISED REPRESENTATIVE HAS PLEADED THAT APART FROM THE FACT THAT THE CIT HAS WRONGLY INVOKE D JURISDICTION U/S.263 OF THE ACT, ON MERITS TWO IDENTICAL ISSUES ARE INVOLVED IN BOTH CASES IE. DEDUCTION UNDER SEC.10A AND 10B OF THE ACT AS WELL AS COMPUTATION O F BOOK PROFIT UNDER SEC.115JB OF THE ACT. ITA 1543/MDS/07 & 1070/MDS/08 7 5. BESIDES THIS, QUA ASST. YEAR 2003-04 THE AUTHOR ISED REPRESENTATIVE HAS SUBMITTED THAT THERE IS NO ADJUDICATION BY CIT REGARDING ASSESSEES SUBMISSIONS IN RESPONSE TO NOTICE ISSUED UNDER SEC. 263 OF THE ACT. BY DRAWING OUR ATTENTION TO THE CONCLUDING PARA OF CITS ORDER , HE HAS SUBMITTED THAT IN ADDITION TO ASSESSEES PLEAS RAISED QUA BOTH THE AB OVE ISSUES IN THE APPEALS, HE WOULD HAVE NO OBJECTION IF BOTH APPEALS ARE REMITTE D BACK TO CIT FOR AFRESH ADJUDICATION IN ACCORDANCE WITH LAW. 6. ON BEHALF OF THE REVENUE, THE ASSESSEES PLEA F OR REMITTING THE CASE BACK TO CIT UNDER SEC.263 ORDER PERTAINING TO ASST. YEAR 2003-04 ONLY HAS NOT BEEN CONTESTED. HOWEVER, A SUBMISSION HAS BEEN MAD E BY THE DEPARTMENTAL REPRESENTATIVE THAT SINCE CITS ORDER PERTAINING TO ASST. YEAR 2002-03 IS SELF- SPEAKING, IT DOES NOT CALL FOR ANY INTERFERENCE EIT HER ON THE GROUND OF NON- APPLICATION OF MIND OR ON MERITS. SO, HE HAS PREFE RRED TO SUPPORT CITS ORDER FOR ASST. YEAR 2002-03. 7. WE HAVE HEARD BOTH PARTIES AT LENGTH AND ALSO P ERUSED THE RELEVANT FINDINGS AS REFERRED. IT TRANSPIRES THAT REGARDING BOTH ASST. YEARS IN QUESTION THE ASSESSING OFFICER HAD FINALIZED THE ASSESSMENTS UND ER SEC.143(3) ON 28.5.2005 AND 23.2.2006 RESPECTIVELY. REGARDING ASST. YEA R 2003-04, WE OBSERVE THAT THE ITA 1543/MDS/07 & 1070/MDS/08 8 CIT HAD ISSUED NOTICE TO THE ASSESSEE FOR REVISING THE ASSESSEE FINALIZED BY ASSESSING OFFICER ON 10.3.2008. ON 19.3.2008, THE ASSESSEE SUBMITTED A REPLY TO THE SAID NOTICE AND PRAYED FOR OPPORTUNITY OF HEARI NG. AS IT IS EVIDENT FROM THE CITS ORDER, IT IS CLEAR THAT THE ASSESSEES SUBMI SSION HAVE NOT EVEN BEEN CONSIDERED AND IN CASUAL FASHION, THE CIT HAS REVIS ED THE AAESSMENT AS UNDER:- THE ASSESSEE IN WRITTEN SUBMISSION DATED 19.02.200 8 HAS SOUGHT PERSONAL HEARING. THE PERSONAL HEARING COUL D HAVE BEEN SOUGHT AND GRANTED WHILE FILING THE REPLY. I HAVE DULY CONSIDERED THE ASSESSEES WRITTEN SUBMISSIONS. THE ISSUES ARE ALSO COMMON TO THE ASST. YEAR 2002-03. I HAVE ALSO ONLY SET ASIDE THE ASSESSMENT WITH THE DIRECTION TO EXAMINE THE CORRECTNESS OF ASSESSEES COMPUTATION OF BOOK PROFI T UNDER SECTION 115JB AND COMPUTATION OF TOTAL INCOME UNDER NORMAL PROVISIONS CONSIDERING WHETHER THE BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION SHOULD BE DEDUCTED BEFORE THE DEDUCTION UNDER SECTION 10B/10A. A.O. SHALL AF FORD FULL OPPORTUNITY TO THE ASSESSEE BEFORE FINALIZING THE A SSESSMENT CONSEQUENT TO THIS ORDER. A PERUSAL OF THE OPERATIVE PART REPRODUCED HEREIN A BOVE MAKES IT AMPLY CLEAR THAT WHILE REVISING ASSESSMENT FINALIZED BY THE ASSESSIN G OFFICER UNDER SEC.143(3) OF THE ACT, THE CIT HAS NOT EVEN CONSIDERED THE ASSESS EES PLEA OF HEARING ON MERITS MERELY BY OBSERVING THAT THE ASSESSMENT HAS ONLY BEEN SET ASIDE. WE ARE NOT ITA 1543/MDS/07 & 1070/MDS/08 9 CONVINCED WITH THE CITS ABOVE SAID CONCLUSIONS. I T IS SETTLED LAW THAT UNDER SEC.263 OF THE ACT, THE CIT CONCERNED CAN PROCEED O NLY AFTER AFFORDING THE ASSESSEE OPPORTUNITY OF BEING HEARD. ONCE THE ASSE SSEE HAS SOUGHT OPPORTUNITY OF HEARING BEFORE CIT SO AS TO EXPLAIN ITS SUBMISSI ON IN DETAIL, IT WAS NOT APPROPRIATE FOR THE CIT TO CONCLUDE THAT SINCE THE ASSESSMENT WAS ONLY SET ASIDE ON THE ISSUES OF ASSESSEES COMPUTATION OF BOOK PRO FITS UNDER SEC.115JB AND THAT OF DEDUCTION UNDER SEC.10A AND 10B, THE ASSESSE E DID NOT REQUIRE ANY OPPORTUNITY OF FURTHER HEARING. WE HOLD THAT U/S. 263 OF THE ACT, THE CIT HAS GOT JURISDICTION TO REVISE ANY ASSESSMENT IF IT SUFFERS FROM AN ERROR PREJUDICIAL TO THE REVENUE. BUT THE SAID JURISDICTION IS NOT ABSOLUTE . THE LEGISLATURE IN ITS WISDOM HAS ALSO PROVIDED OPPORTUNITY OF HEARING TO THE ASS ESSEE AS THE REVISION OF ASSESSMENT ALREADY FINALIZED MAY ENTAIL CIVIL CONSE QUENCES FOR THE ASSESSEE. IN THE CASE IN HAND, WE NOTICE THAT THERE IS NEITHER E FFECTIVE OPPORTUNITY OF HEARING NOR PROPER APPLICATION OF MIND BY CIT. IN THIS V IEW OF THE MATTER, WE FEEL THAT SINCE CIT HAS NOT ACTED IN ACCORDANCE WITH LAW WHIL ST OBSERVING THAT THE ASSESSEE DID NOT REQUIRE ANY OPPORTUNITY OF HEARING AS ASSES SMENT WAS ONLY SET ASIDE TO THE ASSESSING OFFICER. ALTHOUGH THE DEPARTMENTAL R EPRESENTATIVE HAS STOUTLY SUPPORTED THE CITS ORDER QUO ASST. YEAR 2002-03, B UT IN ORDER TO AVOID MULTIPLICITY OF LIS AND IN THE LARGER INTEREST OF J USTICE AS WELL AS IN VIEW OF THE FACT THAT THE CIT HIMSELF HAS OBSERVED THAT BOTH THE ISS UES (SUPRA) ARE COMMON IN BOTH ASST. YEARS, WE DEEM IT APPROPRIATE TO RESTOR E THE CASE BACK TO THE FILE OF ITA 1543/MDS/07 & 1070/MDS/08 10 CIT FOR DECISION AFRESH IN ACCORDANCE WITH LAW AFTE R AFFORDING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. 8. AS ALREADY STATED HEREIN ABOVE, THE AUTHORISED REPRESENTATIVE HAS NOT SERIOUSLY CONTESTED GROUND NO.8(SUPRA) RAISED I N APPEAL PERTAINING TO ASST. YEAR 2003-04. HENCE KEEPING IN MIND THE FAIR SUBM ISSION OF AUTHORISED REPRESENTATIVE AS WELL AS BEING CONSCIOUS OF THE SM ALLNESS OF AMOUNT INVOLVED, WE DO NOT DEEM IT PROPER TO INTERFERE QUA THE CITS ORDER. CONSEQUENTLY, IN VIEW OF OUR ABOVE DISCUSSION, BOTH THE APPEALS STAN D PARTLY ALLOWED FOR STATISTICAL PURPOSE. 9. ORDER PRONOUNCED IN OPEN COURT ON WEDNESDAY , T HE 5TH DAY OF SEPTEMBER 2012. SD/- SD/- ( N.S. SAINI ) (S.S. GODARA ) ACCOUNTAT MEMBER JUDICIAL MEMBER CHENNAI, DATED : 05 TH SEPTEMBER 2012 JLS. COPY TO:- (1) APPLICANT (2) RESPONDENT (3) CIT(A)-II, COIMBATORE (4) CIT-III, COIMBATORE (5) D.R. (6) GUARD FILE