M/s Krishna Creative, RAJKOT-GUJARAT V. The Pr. CIT-2, RAJKOT-GUJARAT

ITA 127/RJT/2017

• Counselvise Citation: [2019] 113 COUNSELVISE.COM (IT) 6407 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 20-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SINHA
• Assessee Lawyers: DM RINDANI
• Keywords: Business expenditure; Opportunity of being heard; Period of limitation; Set aside
• Section: 40(b); 263

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT [CONDUCTED THROUGH E COURT AT AHMEDABAD] BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA.NO.127/RJT/2017 / ASSTT. YEAR: 2012-13 M/S.KRISHNA CREATIVE C/O. SANJAY H. VYAS 30, DR.RADHAKRISHNA SOCIETY BH. KISHAN PARA, RJKOT. VS PR.CIT, RAJKOT - 2 RAJKOT. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI D.M. RINDANI, AR REVENUE BY : SHRI R.K. SINHA, CIT-DR / DATE OF HEARING : 11/09/2019 / DATE OF PRONOUNCEMENT: 20 /11/2019 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF THE LD.PR.COMMISSIONER OF INCOME TAX-2, RAJKOT DATED 30 .3.2017 PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 FOR THE ASS ESSMENT YEAR 2012-13. 2. ASSESSEE HAS TAKEN TWO GROUNDS OF APPEAL, WHEREB Y IT HAS PLEADED THAT ACTION TAKEN UNDER SECTION 263 OF THE ACT BY THE LD .PR.CIT IS AGAINST THE LAW AND ON THE FACTS. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 8.9.2012 DECLARING TOTAL INCOME AT NIL. THE ASS ESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80-IB(10) OF THE ACT AT RS. 3,07,97,466/-. THE AO HAS PASSED THE ASSESSMENT ORDER UNDER SECTION 143(3 ) ON 18.2.2015 AND HE ITA NO.127/RJT/2017 2 ALLOWED THIS DEDUCTION. HENCE, ULTIMATELY, THE ASS ESSEES INCOME WAS DETERMINED AT NIL. THE LD.CIT HAS GONE THROUGH T HE RECORD CAREFULLY, AND OBSERVED THAT AS PER PARTNERSHIP DEED, PARTNERS ARE ENTITLED FOR REMUNERATION AS PER SECTION 40(B) OF THE ACT, AS WELL AS INTEREST O N THE CAPITAL CONTRIBUTION. THE AO HAS NOT CALCULATED THE INTEREST ON THE CAPIT AL CONTRIBUTION OF THE PARTNERS, AND ALSO NOT REMUNERATION PAYABLE TO THE PARTNERS. HENCE, HE HAS GRANTED EXCESS DEDUCTION UNDER SECTION 80IB(10) OF THE ACT, AND IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVEN UE. IN RESPONSE TO THE QUERY OF THE PR.CIT, IT CONTENDED THAT A SUPPLEMENTARY PA RTNERSHIP DEED WAS EXECUTED ON 28.7.2008 WHEREBY IT WAS PROVIDED THAT PARTNERS WILL BE ELIGIBLE FOR REMUNERATION AS PER SECTION 40(B)(I) OF THE ACT UPTO 31.3.2008. THEREFORE, FROM 1.4.2009, ALL THE PARTNERS HAVE DECIDED THAT I NTEREST AND REMUNERATION WOULD NOT BE PAYABLE TO THEM. ACCORDINGLY, FIRM HA S NOT DEBITED THIS EXPENDITURE. THIS FACT BROUGHT THE NOTICE OF THE A O DURING THE COURSE OF HEARING AND SUPPLEMENTARY PARTNERSHIP DEED WAS PLAC ED ON RECORD. APART FROM THE ABOVE, IT WAS CONTENDED THAT ACTION UNDER SECTION 263 IS SOUGHT TO BE TAKEN ON THE GROUND THAT SECTION 80IA(10) CONTEMPLA TES THAT IF BUSINESS BETWEEN TWO CONCERN IS TRANSACTED IN SUCH MANNER OR ARRANGED IN SUCH A WAY THAT IT HAS GIVEN RISE TO EXCESS PROFIT TO CONCERN, WHICH IS ELIGIBLE FOR GRANT OF DEDUCTION UNDER SECTION 80IB, THEN THE AO WILL BE R EASONABLY MODIFY THE PROFIT ATTRIBUTABLE TO THE ACTIVITY, WHICH IS ELIGI BLE FOR GRANT OF DEDUCTION UNDER CHAPTER VI OF THE INCOME TAX ACT. THE ASSESS EE CONTENDED THAT THERE IS NO BUSINESS TRANSACTION BETWEEN THE PARTNERS AND THE ASSESSEE. NO ARRANGEMENT, WHICH HAS GIVEN RISE TO THE PROFIT TO THE ASSESSEE. THUS, NO ACTION UNDER SECTION 263 OF THE ACT WAS REQUIRED. THE LD.CIT WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. HE SET ASIDE THE ASSESSMENT ORDER WITH A DIRECTION FOR PASSING ASSESSMENT ORDER DE NOVO AFTER PROVIDING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NO.127/RJT/2017 3 4. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE AT TH E VERY OUTSET SUBMITTED THAT THE ACTION UNDER SECTION 263 CAN BE TAKEN IF B OTH LIMBS CONTEMPLATED IN SECTION 263 ARE AVAILABLE I.E. ORDER OF THE AO SHOU LD BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ABSEN CE OF ANY LIMB WILL NOT AUTHORISE CIT TO TAKE ACTION UNDER SECTION 263. HE POINTED OUT; LET US TAKE FOR THE SAKE OF ARGUMENTS, THE REASON ASSIGNED BY HIM I S TAKEN INTO CONSIDERATION THAT THE ASSESSEE OUGHT TO HAVE GIVEN REMUNERATION TO THE PARTNERS AS WELL AS INTEREST TO THE PARTNERS ON THEIR CREDIT BALANCE, I N THAT SITUATION, THE EXPENSES WILL BE ALLOWED TO THE ASSESSEE AS A DEDUCTION. IT IS A BUSINESS EXPENDITURE, AND ON THE NET INCOME AGAIN DEDUCTION UNDER SECTION 80IB(10) WILL BE GIVEN TO THE ASSESSEE. THE INCOME OF THE ASSESSEE WILL B E DETERMINED AT NIL. THERE IS NO ESCAPEMENT OF TAX. THEREFORE, THERE COULD NO T BE ANY ACTION UNDER SECTION 263 OF THE INCOME TAX ACT. THE LD.DR RELIE D UPON THE ORDER OF LD.PR.CIT. 5. ON DUE CONSIDERATION OF THE ABOVE FACTS AND CIRC UMSTANCES, WE FIND THAT SECTION 263 HAS A DIRECT BEARING ON THE CONTROVERSY , THEREFORE, IT IS PERTINENT TO TAKE NOTE OF THIS SECTION. IT READS AS UNDER:- 263(1) THE COMMISSIONER MAY CALL FOR AND EXAMINE T HE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MA KING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SU CH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSM ENT AND DIRECTING A FRESH ASSESSMENT. [EXPLANATION.- FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT, FOR THE PURPOSES OF THIS SUB-SECTION,- (A) AN ORDER PASSED ON OR BEFORE OR AFTER THE 1ST DAY O F JUNE, 1988 BY THE ASSESSING OFFICER SHALL INCLUDE- ITA NO.127/RJT/2017 4 (I) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT COMMISSIONER OR DEPUTY COMMISSIONER OR THE INCOME-T AX OFFICER ON THE BASIS OF THE DIRECTIONS ISSUED BY TH E JOINT COMMISSIONER UNDER SECTION 144A; (II) AN ORDER MADE BY THE JOINT COMMISSIONER IN EXE RCISE OF THE POWERS OR IN THE PERFORMANCE OF THE FUNCTIONS O F AN ASSESSING OFFICER CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTIONS ISSUED BY THE BOARD OR BY THE CHIEF COMMISSIONER OR DIRECTOR GENERAL OR COMMISSIONER AUTHORIZED BY THE BOARD IN THIS BEHALF UNDER SECTIO N 120; (B) RECORD SHALL INCLUDE AND SHALL BE DEEMED ALWAYS TO HAVE INCLUDED ALL RECORDS RELATING TO ANY PROCEEDING UND ER THIS ACT AVAILABLE AT THE TIME OF EXAMINATION BY THE COMMISS IONER; (C) WHERE ANY ORDER REFERRED TO IN THIS SUB-SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTER O F ANY APPEAL FILED ON OR BEFORE OR AFTER THE 1ST DAY OF J UNE, 1988, THE POWERS OF THE COMMISSIONER UNDER THIS SUB-SECTI ON SHALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN S UCH APPEAL. (2) NO ORDER SHALL BE MADE UNDER SUB-SECTION (1) AF TER THE EXPIRY OF TWO YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE ORDER SOUGHT TO BE REVISED WAS PASSED. (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (2), AN ORDER IN REVISION UNDER THIS SECTION MAY BE PASSED AT ANY TIME IN THE CASE OF AN ORDER WHICH HAS BEEN PASSED IN CONSE QUENCE OF, OR TO GIVE EFFECT TO, ANY FINDING OR DIRECTION CONTAIN ED IN AN ORDER OF THE APPELLATE TRIBUNAL, NATIONAL TAX TRIBUNAL, THE HIGH COURT OR THE SUPREME COURT. EXPLANATION.- IN COMPUTING THE PERIOD OF LIMITATION FOR THE PURPOSES OF SUB-SECTION (2), THE TIME TAKEN IN GIVI NG AN OPPORTUNITY TO THE ASSESSEE TO BE REHEARD UNDER THE PROVISO TO SECTION 129 AND ANY PERIOD DURING WHICH ANY PROCEED ING UNDER THIS SECTION IS STAYED BY AN ORDER OR INJUNCTION OF ANY COURT SHALL BE EXCLUDED. ITA NO.127/RJT/2017 5 6. ON A BARE PERUSAL OF THE SUB SECTION-1 WOULD REV EAL THAT POWERS OF REVISION GRANTED BY SECTION 263 TO THE LEARNED COMM ISSIONER HAVE FOUR COMPARTMENTS. IN THE FIRST PLACE, THE LEARNED COMMI SSIONER MAY CALL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDINGS UNDER THIS A CT. FOR CALLING OF THE RECORD AND EXAMINATION, THE LEARNED COMMISSIONER WA S NOT REQUIRED TO SHOW ANY REASON. IT IS A PART OF HIS ADMINISTRATIVE CONT ROL TO CALL FOR THE RECORDS AND EXAMINE THEM. THE SECOND FEATURE WOULD COME WHEN HE WILL JUDGE AN ORDER PASSED BY AN ASSESSING OFFICER ON CULMINATION OF AN Y PROCEEDINGS OR DURING THE PENDENCY OF THOSE PROCEEDINGS. ON AN ANALYSIS O F THE RECORD AND OF THE ORDER PASSED BY THE ASSESSING OFFICER, HE FORMED AN OPINION THAT SUCH AN ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL T O THE INTERESTS OF THE REVENUE. BY THIS STAGE THE LEARNED COMMISSIONER WAS NOT REQU IRED THE ASSISTANCE OF THE ASSESSEE. THEREAFTER THE THIRD STAGE WOULD COME. TH E LEARNED COMMISSIONER WOULD ISSUE A SHOW CAUSE NOTICE POINTING OUT THE RE ASONS FOR THE FORMATION OF HIS BELIEF THAT ACTION U/S 263 IS REQUIRED ON A PAR TICULAR ORDER OF THE ASSESSING OFFICER. AT THIS STAGE THE OPPORTUNITY TO THE ASSES SEE WOULD BE GIVEN. THE LEARNED COMMISSIONER HAS TO CONDUCT AN INQUIRY AS H E MAY DEEM FIT. AFTER HEARING THE ASSESSEE, HE WILL PASS THE ORDER. THIS IS THE 4TH COMPARTMENT OF THIS SECTION. THE LEARNED COMMISSIONER MAY ANNUL TH E ORDER OF THE ASSESSING OFFICER. HE MAY ENHANCE THE ASSESSED INCOME BY MODI FYING THE ORDER. AT THIS STAGE, BEFORE CONSIDERING THE MULTI-FOLD CONTENTION S OF THE LD. REPRESENTATIVES, WE DEEM IT PERTINENT TO TAKE NOTE OF THE FUNDAMENTA L TESTS PROPOUNDED IN VARIOUS JUDGMENTS RELEVANT FOR JUDGING THE ACTION O F THE CIT TAKEN U/S 263. THE ITAT IN THE CASE OF MRS. KHATIZA S. OOMERBHOY V S. ITO, MUMBAI, 101 TTJ 1095, ANALYZED IN DETAIL VARIOUS AUTHORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F MALABAR INDUSTRIES 243 ITR 83 AND HAS PROPOUNDED THE FOLLOWING BROADER PRI NCIPLE TO JUDGE THE ACTION OF CIT TAKEN UNDER SECTION 263. ITA NO.127/RJT/2017 6 (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. (II) SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AND EVER Y TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORD ER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDIC IAL TO THE INTERESTS OF THE REVENUE AND IF THE AO HAS ADOP TED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO V IEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHI CH THE CIT DOES NOT AGREE. IF CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE UNDER LAW (VI) IF WHILE MAKING THE ASSESSMENT, THE AO EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INC OME, THE CIT, WHILE EXERCISING HIS POWER UNDER S 263 IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN P LACE OF THE INCOME ESTIMATED BY THE AO. (VII) THE AO EXERCISES QUASI-JUDICIAL POWER VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVE AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED T O BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEE STRAT IFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER S . 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFA CTION. (IX) IF THE AO HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND T HE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE AO ALLOWS THE CLAIM ON BEING SATISF IED WITH THE EXPLANATION OF THE ASSESSEE, THE DECISION OF THE ITA NO.127/RJT/2017 7 AO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN T HAT REGARD. 7. IN THE LIGHT OF THE ABOVE, LET US EXAMINE THE FA CTS OF THE PRESENT CASE. A PERUSAL OF THE IMPUGNED ORDER WOULD INDICATE THE LD .CIT WAS OF THE VIEW THAT REMUNERATION AND INTEREST ON THE CREDIT BALANCE OF THE PARTNER SHOULD BE THRUST UPON THEM BY THE ASSESSEE-FIRM WHICH WILL REDUCE TH E COMPUTATION OF DEDUCTION ADMISSIBLE UNDER SECTION 80IB(10). BUT, THE LD.CIT LOST SIGHT THAT THIS DEDUCTION WILL NOT ENHANCE THE TAX LIABILITY O F THE ASSESSEE. THE AMOUNT OF INTEREST AS WELL AS REMUNERATION IS AN ADMISSIBL E EXPENDITURE TO THE ASSESSEE. EVEN IF IT IS THRUST UPON THE PARTNERS BY THE ASSESSEE, THEN ALSO NET INCOME WHICH IS TO BE ASSESSED WILL BE NIL ONLY, AN D THEREFORE, THERE IS NO PREJUDICE TO THE REVENUE. THUS, THE LD.PR.CIT IS N OT JUSTIFIED IN TAKING ACTION UNDER SECTION 263 OF THE INCOME TAX ACT. WE ALLOW APPEAL OF THE ASSESSEE, AND QUASH THE IMPUGNED ORDER. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 20 TH NOVEMBER, 2019 AT AHMEDABAD. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 20/11/2019