M/s Furture Tech Industries Limited, Hyderabad V. Dy.CIT., Cir-1(3), Hyderabad

ITA 1099/HYD/2013

• Counselvise Citation: 109922514 RSA 2013
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 25-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Principle of natural justice
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.1099/HYD/2013 ASSESSMENT YEAR 2008-2009 M/S. FUTURE TECH INDUSTRIES LTD. HYDERABAD PAN AAACF 4493Q VS. DCIT, CIRCLE-1(3) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. P. MURALI MOHAN RAO CA FOR REVENUE : MR. D. SUDHAKAR RAO CIT(DR) DATE OF HEARING : 12.03.2014 DATE OF PRONOUNCEMENT : 26.03.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS AGAINST THE ORDER OF T HE CIT(A), HYDERABAD DATED 18.02.2013 PASSED UNDER SEC TION 263 OF THE INCOME TAX ACT, 1961. 2. ON EXAMINATION OF THE MATERIAL FILED BEFORE THE A.O. DURING THE SCRUTINY PROCEEDINGS, THE LD. CIT-I , HYDERABAD ISSUED A NOTICE TO ASSESSEE STATING THAT THE INVOIC ES FILED BEFORE THE A.O. WHICH WERE ISSUED BY BANK OF INDIA APPEARS TO HAVE BEEN MANIPULATED BY ASSESSEE THEREBY, INVOICES ISSU ED IN THE NAME OF M/S. MBB TRANSACTIONS WERE STRUCK AND THE N AME OF ASSESSEE IE, M/S. SUJANA UNIVERSAL INDUSTRIES LTD.( FORMER NAME) WAS WRITTEN IN HAND. AS THE DETAILS OF ADVANC ES GIVEN, THEIR IMPLICATIONS WERE NOT EXAMINED BY THE A.O., P ROCEEDINGS UNDER SECTION 263 ARE INITIATED BY CIT. AFTER CONSI DERING THE 2 ITA.NO.1099/HYD/2013 M/S. FUTURE TECH INDUSTRIES LTD. HYD SUBMISSIONS OF ASSESSEE, LD. CIT SET ASIDE THE ORDE R UNDER SECTION 143(3) WITH A DIRECTION TO A.O. TO EXAMINE ALL THE ASPECTS RELATING TO GENUINENESS AND RELIEF OF THE C LAIM OF FINANCE CHARGES MADE BY ASSESSEE AND PASS FRESH ASS ESSMENT ORDER, AFTER AFFORDING A REASONABLE OPPORTUNITY TO ASSESSEE. ASSESSEE IS AGGRIEVED BY THE ORDER OF THE LD. CIT. 3. LD. COUNSEL SUBMITTED THAT ORDER OF THE CIT ITS ELF IS WRONG AS A.O. HAS EXAMINED THE ENTIRE ISSUE AND MADE SPECIFIC DISALLOWANCE OF RS.3,07,808/- ON THE REASO N THAT ASSESSEE DID NOT FURNISH EVIDENCE WITH REFERENCE TO THE TRANSACTION. THEREFORE, HAVING EXAMINED THE ISSUE O F FINANCE CHARGES CLAIM, BY THE A.O., THE LD. CIT ORDER FOR F RESH EXAMINATION IS NOT CORRECT AND THE LD. COUNSEL RELI ED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MA LABAR INDUSTRIES COMPANY LIMITED VS. CIT 243 ITR 83 (SC). 4. FURTHER WITH REFERENCE TO THE SO-CALLED MBB TRANSACTIONS STATED TO HAVE BEEN PERTAINING TO THIR D PARTY AS CONSIDERED BY CIT, IT WAS THE CONTENTION OF THE LD. COUNSEL THAT MBB TRANSACTIONS MENTIONED IN THE INVOICES I S NOTHING BUT MULTI-BRANCH BANK TRANSACTIONS, AS ASSESSEE WAS DEALING WITH SAME BANK BUT IN DIFFERENT LOCATIONS. HE PLACE D ON RECORD COPIES OF INVOICE ISSUED BY THE BANK, WHEREIN THIS MBB TRANSACTIONS WAS MENTIONED AND FURTHER HE ALSO GAV E THE DOCUMENT- CREDIT NOTE ISSUED- BY BANK OF INDIA FOR THE SAME TRANSACTION TO SUPPORT THAT MBB TRANSACTION IS NOTH ING BUT MULTI BRANCH BANK CODE WORD USED BY THE BANK INTE RNALLY. HE ALSO PLACED ON RECORD COPY OF WEBSITE INDICATING TH E FACILITY PROVIDED BY KARNATAKA BANK LIMITED UNDER THE HEAD MULTI BRANCH BANKING TRANSACTIONS TO JUSTIFY THAT MBB TRANSACTIONS ARE NOTHING BUT INTERNAL CODE USED BY THE BANK 3 ITA.NO.1099/HYD/2013 M/S. FUTURE TECH INDUSTRIES LTD. HYD BUT THE TRANSACTIONS DID PERTAIN TO ASSESSEE, WHICH WERE ACCEPTED BY AO IN SCRUTINY AFTER EXAMINATION. 5. LEARNED D.R. FURTHER RELIED ON THE ORDERS OF TH E CIT. 6. AFTER CONSIDERING THE RIVAL CONTENTIONS AND EXAMINING THE RECORD, WE ARE OF THE OPINION THAT OR DER OF THE CIT CANNOT BE JUSTIFIED. THE A.O. IN THE COURSE OF ASSESSMENT SPECIFICALLY EXAMINED THE CLAIM OF FINANCE CHARGES TO AN EXTENT OF RS.1,59,94,969/-. PARA 3 PERTAINING TO THIS ISSU E IS AS UNDER: 3. IN THE P & L ACCOUNT, UNDER THE HEAD FINANCE CHARGES ASSESSEE COMPANY DEBITED AN AMOUNT OF RS.1,59,94,969/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE COMPANY WAS REQUIRED TO FURNI SH COMPLETE DETAILS IN THIS REGARD. IN RESPONSE, ASSES SEE FURNISHED RELEVANT DETAILS AND IT IS OBSERVED THAT MAJORITY OF THESE FINANCE CHARGES ARE INCURRED TOWARDS DISCOUNT ING CHARGES. HOWEVER, AN AMOUNT OF RS.3,07,808/- WAS AL SO INCLUDED UNDER THESE DISCOUNTING CHARGES PAID TO M/ S. DPJ VINIYOG PVT. LTD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE WAS REQUIRED TO EXPLAIN THE TRANSACTION I.E., THE PURPOSE OR THE UTILITY OF THE LOAN OBTAINED FROM M/S. DPJ VINIYOG PVT. LTD. AND CLAIM OF SUCH FINANCE CHARGES ON SUCH LOAN. HOWEVER, ASSESSEE COU LD NOT FURNISH ANY PLAUSIBLE EXPLANATION. IN THE LIGHT OF THIS POSITION, THE CLAIM OF ASSESSEE TOWARDS FINANCE CHA RGES IS DISALLOWED TO EXTENT OF RS.3,07,808/- AS NOT PERTAI NING TO BUSINESS PURPOSES AND ADDED TO THE INCOME RETURNED. 7. LD. CIT ALSO RELIED ON THE DOCUMENTS FURNISHED BY ASSESSEE BEFORE THE A.O. DURING THE SCRUTINY PROCEE DINGS WHICH INDICATE THAT ENTIRE DETAILS FURNISHED BEFORE THE A .O. WERE EXAMINED. IN OUR OPINION, LEARNED CIT MISTOOK THE E NTRY UNDER THE HEAD MBB TRANSACTIONS AS PERTAINING TO THIRD PARTY WHEREAS, IT IS INTERNAL CODE GIVEN BY THE BANK FOR THE MULTI BRANCH BANKING TRANSACTIONS. SINCE IT IS MISUNDERST ANDING OF 4 ITA.NO.1099/HYD/2013 M/S. FUTURE TECH INDUSTRIES LTD. HYD UNDERSTANDING THE WORD MBB TRANSACTIONS LEAD TO T HE PROCEEDINGS UNDER SECTION 263, WE ARE OF THE OPINIO N THAT ORDER OF THE LD. CIT CANNOT BE JUSTIFIED ON ANY REA SON. SINCE THE ENTIRE CLAIM OF FINANCE CHARGES HAS BEEN EXAMIN ED BY THE A.O. AND AS HE HAS DISALLOWED THE AMOUNT TO THE EXT ENT ASSESSEE COULD NOT FURNISH THE DETAILS, ANY OTHER O PINION BY THE LD. CIT CANNOT BE JUSTIFIED FOLLOWING THE PRINC IPLES LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF MA LABAR INDUSTRIES COMPANY LTD. VS. CIT (SUPRA) ON THE ISSU E. HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES COM PANY LIMITED VS. CIT 243 ITR 83 (SC) HAS HELD AS UNDER : A BARE READING OF PROVISIONS OF S. 263 MAKES IT CL EAR THAT THE PREREQUISITE TO EXERCISE OF JURISDICTION B Y THE CIT SUO MOTU UNDER IT, IS THAT THE ORDER OF THE ITO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTER ESTS OF THE REVENUE. THE CIT HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE AO SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENT IF THE ORDER OF THE ITO IS ERRONEOUS BUT IS NOT PREJUD ICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUERECOURSE CANNOT BE HAD TO S. 263(1). THERE CAN BE NO DOUBT THAT THE PROVIS ION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO; IT IS ONLY WH EN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SA ME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATIO N OF 5 ITA.NO.1099/HYD/2013 M/S. FUTURE TECH INDUSTRIES LTD. HYD MIND. THE PHRASE PREJUDICIAL TO THE INTERESTS OF T HE REVENUE IS NOT AN EXPRESSION OF ART AND IS NOT DEFINED IN THE ACT. UNDERSTOOD IN ITS ORDINARY MEANING IT IS OF WIDE IMPORT AND IS NOT CONFINED TO LOSS OF TAX. THE SCHEME OF THE ACT IS TO LEVY AND COLLECT TAX IN ACCORDANCE WITH THE PROVISIONS OF TH E ACT AND THIS TASK IS ENTRUSTED TO THE REVENUE. IF D UE TO AN ERRONEOUS ORDER OF THE ITO, THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE PHRASE PREJUDICIAL TO THE INTERESTS O F THE REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE AO. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF AO CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN ITO ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AN D THE ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORD ER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. CONSIDERING THE PRINCIPLES ON THE ISSUE WE ARE OF T HE OPINION THAT LD. CIT WAS NOT CORRECT IN INVOKING TH E PROCEEDINGS UNDER SEC 263 . 8. NOT ONLY THAT THERE IS NOTHING ELSE TO DIRE CT THE A.O. TO EXAMINE AGAIN WHEN THE CLAIM ITSELF WAS EXAMINED IN THE COURSE OF SCRUTINY AND A.O. HAS CAME TO A CONCLUSIO N BY DISALLOWING PART OF THE AMOUNT. NO FURTHER PURPOSE WOULD BE SERVED BY SETTING ASIDE THE ORDER TO A.O. TO EXAMIN E AFRESH, 6 ITA.NO.1099/HYD/2013 M/S. FUTURE TECH INDUSTRIES LTD. HYD WHEN LD. CIT ORDER DID NOT INDICATE THAT THERE ARE ANY ISSUES ON WHICH A.O. HAS NOT EXAMINED. JUST BECAUSE THE IN VOICES FURNISHED BY ASSESSEE CONTAIN THE CODE OF MBB TRAN SACTION, IT DOES NOT ESTABLISH THAT THESE ARE THIRD PARTY TRANS ACTIONS. FOR THESE REASONS, WE ARE UNABLE TO UPHOLD THE ORDER UN DER 263 PASSED BY LD. CIT AS THE ORDER OF THE A.O. IS NOT PREJUDICIAL TO THE INTERESTS OF REVENUE NOR IT IS ERRONEOUS ON FAC TS. IN VIEW OF THIS, WE HAVE NO HESITATION IN CANCELLING THE ORDER OF LD. CIT. ASSESSEES GROUNDS ARE ALLOWED. 8. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 6.03.2014. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMBER HYDERABAD, DATED 26 TH MARCH, 2014 VBP/- COPY TO : 1. M/S. FUTURE TECH INDUSTRIES LTD. HYDERABAD C/O. P. MURALI & CO. CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 82. 2. DCIT, CIRCLE 1(3), HYDERABAD. 3. CIT-I, 3 RD FLOOR, ANNEXE, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 500 004. 4. D.R. ITAT, B BENCH, HYDERABAD. 5. GUARD FILE