Bhagwati Banquets & Hotels Ltd., Ahmedabad V. The CIT, A'bad-1, Ahmedabad

ITA 1279/AHD/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9449 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 15-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 01-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIBHA BHALLA
• Assessee Lawyers: S N DIVETIA
• Keywords: Proportionate interest
• Section: 143(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER) ITA. NO: 1279/AHD/2014 (ASSESSMENT YEAR: 2009-10) BHAGWATI BANQUETS & HOTELS LTD. 301, CIRCLE-P, PRAHALDNAGAR GARDEN ROAD S.G. HIGHWAY, AHMEDABAD V/S THE COMMISSIONER OF INCOME TAX AHMEDABAD-1, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABCB 6825A APPELLANT BY : SHRI S. N. DIVETIA , AR RESPONDENT BY : SMT. VIBHA BHALLA, CIT/DR ( )/ ORDER DATE OF HEARING :15 -02-2016 DATE OF PRONOUNCEMENT : 19 -02-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. WITH THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE C ORRECTNESS OF THE ORDER OF THE LD. CIT-I, AHMEDABAD DATED 14.03.2014 PERTAINING TO A.Y. 2009-10 MADE U/S. 263 OF THE ACT. ITA NO. 1279 /AHD/2014 . A.Y. 2009-20 10 2 2. THE ASSESSEE CONTENTS THAT THE ORDER PASSED U/S. 26 3 OF THE ACT BY THE LD. CIT IS ILLEGAL AND UNLAWFUL AND WITHOUT JURISDI CTION IN AS MUCH AS THE ORDER OF ORIGINAL ASSESSMENT PASSED BY THE A.O U/S. 143(3) OF THE ACT IS NEITHER ERRONEOUS NOR PRE-JUDICIAL TO THE IN TEREST OF THE REVENUE. 3. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHEMEN TLY SUBMITTED THAT COMMISSIONER HAS INVOKED THE POWERS CONFERRED UPON HIM BY SECTION 263 OF THE ACT HOLDING THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PRE- JUDICIAL TO THE INTEREST OF THE REVENUE ON THE FOLL OWING GROUNDS:- 1. THE ASSESSEE HAD CLAIMED CAPITAL EXPENSES (IPO EXPE NSE) OF RS. 1,17,14,943/- BEING 1/5 TH OF RS. 5,85,74,716/- AS PRELIMINARY EXPENSES U/S. 35D AFTER COMMENCEMENT OF BUSINESS. AS PER THE APPLICABLE PROVISIONS OF SECTI ON 35D(1)(II) FOR A.Y. 2009-10 THE ASSESSEE WAS NOT ELIGIBLE TO CLAIM THE SAME AS THE ASSESSEE IS NOT AN INDUSTRIAL UNDERTAKING. 2. THE ASSESSEE HAD EARNED EXEMPT DIVIDEND INCOME OF R S. 1,15,10,060/-. THE A.O HAD INVOKED THE PROVISIONS OF SECTION 14A BUT DID NOT D ISALLOW PROPORTIONATE INTEREST EXPENSES UNDER RULE 8D(2)(II) OF I.T. RULES 1962. 4. THE LD. COUNSEL CONTINUED TO STATE THAT FOR THE AFO RESAID REASONS, THE COMMISSIONER ISSUED NOTICE CALLING UPON THE ASSESSE E TO SHOW CAUSE WHY APPROPRIATE ORDER U/S. 263 OF THE ACT SHOULD NO T BE PASSED. A DETAILED REPLY WAS FILED QUESTIONING THE JURISDICTI ON FOR THE IMPUGNED ACTION. 5. IT IS THE SAY OF THE LD. COUNSEL THAT BOTH THE ISSU ES CONSIDERED BY THE COMMISSIONER FOR INVOKING JURISDICTION HAVE BEEN TH OROUGHLY SCRUTINIZED/EXAMINED BY THE A.O DURING THE COURSE O F THE ASSESSMENT PROCEEDINGS ITSELF. THEREFORE IT CANNOT BE SAID THA T THE ASSESSMENT ORDER IS BAD IN LAW IN AS SUCH IT IS ERRONEOUS AND PRE-JUDICIAL TO THE INTEREST OF THE REVENUE. ITA NO. 1279 /AHD/2014 . A.Y. 2009-20 10 3 6. PER CONTRA, THE D.R. STRONGLY SUPPORTED THE FINDING S OF THE COMMISSIONER. IT IS THE SAY OF THE LD. D.R. THAT TH E ASSESSMENT ORDER IS ERRONEOUS AND PRE-JUDICIAL TO THE INTEREST OF TH E REVENUE. THE COMMISSIONER HAS RIGHTLY AND CORRECTLY INVOKED THE POWERS CONFERRED UPON HIM BY SECTION 263 OF THE ACT AND THERE IS NO ERROR IN THE ORDER OF THE COMMISSIONER. WE HAVE GIVEN A THOUGHTFUL CON SIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. THE FIRST THING WHICH HAS TO BE CONSIDERED IS WHETHER THE LD. COMMI SSIONER HAS RIGHTLY ASSUMED THE POWER U/S. 263 OF THE ACT. THE HONBLE SUPREME COURT IN MALABAR INDUSTRIAL CO. LTD. 243 ITR 83 HAS LAID DOW N THE FOLLOWING RATIO:- 'A BARE READING OF SECTION. 263 OF THE INCOME-TAX A CT, 1961, MAKES IT CLEAR THAT THE PREREQUISITE FOR THE EXERCISE OF JURISDICTION B Y THE COMMISSIONER SUO MOTU UNDER II, IS THAT THE ORDER OF THE INCOME-TAX OFFIC ER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE CO MMISSIONER HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE AS SESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENTIF THE ORDER OF THE INCOME-TA X OFFICER IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRO NEOUS HUT IS PREJUDICIAL TO THE REVENUE RECOURSE CANNOT BE HAD TO SECTION 263(1) O F THE ACT. THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR A N INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERR ONEOUS' 8. NOW, LET US SEE IN THE LIGHT OF THE ABOVE RATIO WHE THER THE ASSESSMENT HAS BEEN MADE ON AN INCORRECT ASSUMPTION OF FACTS O R AN INCORRECT APPLICATION OF LAW. THE FIRST OBSERVATION OF THE LD . CIT RELATES TO THE ITA NO. 1279 /AHD/2014 . A.Y. 2009-20 10 4 CLAIM OF 1/5 TH OF IPO EXPENSES U/S. 35D OF THE ACT. THE LD. CIT I S OF THE FIRM BELIEF THAT SINCE THE ASSESSEE IS NOT AN INDUS TRIAL UNDERTAKING SUCH CAPITAL EXPENSES CANNOT BE CLAIMED U/S. 35D AF TER COMMENCEMENT OF BUSINESS AS PER PROVISIONS APPLICAB LE FOR A.Y. 2009- 10. WE FIND THAT THE GUJARAT POLLUTION CONTROL BOAR D HAS GIVEN CONSENT AND AUTHORIZATION TREATING THE ASSESSEE AN INDUSTRI AL UNDERTAKING. FURTHER WE FIND THAT THIS VIEW IS ALSO SUPPORTED BY THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF P.ALIKUNJU , M.A. NAZEER CASHEW INDUSTRIES 166 ITR 804. IT WOULD BE PERTINEN T TO MENTION HERE, THE OBSERVATIONS OF THE HONBLE BOMBAY HIGH COURT I N THE CASE OF SHIP SCRAP TRADERS 251 ITR 806 WHEREIN THE HONBLE HIGH COURT HAS OBSERVED AS UNDER:- THE CONCEPT OF INDUSTRIAL UNDERTAKING NEED NOT NEC ESSARILY BE CONFINED TO MANUFACTURE AND PRODUCTION OF ARTICLES AND EVEN IN THE ABSENCE OF EITHER OF THEM THERE COULD BE AN IND USTRIAL UNDERTAKING. 9. IN OUR UNDERSTANDING OF THE LAW, THIS IS THE REASO N FOR WHICH THE HONBLE KERALA HIGH COURT (SUPRA) HAS HELD THE BUSI NESS OF LODGE TO BE AN INDUSTRIAL UNDERTAKING. THE FINDING OF THE COMMI SSIONER THAT THE A.O HAS NOT ENQUIRED INTO THIS IS INCORRECT. WE FIN D THAT THE A.O HAS THOROUGHLY EXAMINED THIS ISSUE AT LENGTH WHICH IS E VIDENT FROM THE OBSERVATIONS/FINDINGS GIVEN AT PARA 3 OF THE ASSESS MENT ORDER. 10. SINCE THE CLAIM OF THE ASSESSEE IS BACKED BY JUDICI AL PRONOUNCEMENT IN FAVOUR OF THE ASSESSEE. IT CANNOT BE SAID THAT THERE WAS A WRONG ASSUMPTION OF LAW. ITA NO. 1279 /AHD/2014 . A.Y. 2009-20 10 5 11. THE SECOND OBSERVATION OF THE COMMISSIONER IS THAT NO DISALLOWANCE HAS BEEN MADE BY THE A.O U/S. 14A OF T HE ACT. THE COMMISSIONER FURTHER OBSERVED THAT THE A.O HAS PROC EEDED ON A WRONG ASSUMPTION OF FACTS THAT THE INVESTMENTS MADE BY THE ASSESSEE ARE OUT OF NON INTEREST BEARING FUNDS WHEREAS THE C ORRECT FACTS ARE THAT THE INVESTMENTS HAVE BEEN MADE OUT OF INTEREST BEARING FUNDS. 12. THIS OBSERVATION OF THE COMMISSIONER IS ALSO AGAINS T THE TRUE FACTS OF THE CASE, THE FOLLOWING OBSERVATIONS/FINDI NGS OF THE A.O WOULD EXPLAIN THE POSITION. THE SUBMISSION OF THE ASSESS EE HAS BEEN CONSIDERED. REGARDING INVESTMENTS, THE ASSESSEE HAS PUT ON RECORDS FROM ITS ACCOUNTS EVIDENCE TO DEMONSTRATE THAT THE SOURCE OF INVESTMENT IS OUT OF INTEREST FREE FUNDS. FURTHER R EGARDING ADMINISTRATIVE EXPENSES, THE ASSESSEE HAS OFFERED 0 .5% OF THE AVERAGE INVESTMENTS AS DISALLOWANCE U/S. 14A AMOUNT ING TO RS. 8,80,758/-. CONSIDERING THE DETAILS, THE DISALLOWAN CE OFFERED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS IS ACCEP TED AND A DISALLOWANCE OF RS. 8,80, 758/- IS MADE U/S. 14A . FROM THE ABOVE, IT CAN BE SEEN THAT THAT THE A.O. HAS THOROUGHLY EXAMI NED THE SOURCE OF INVESTMENT AND AFTER EXAMINATION/VERIFICATION , THE A.O WAS CONVINCED THAT THE INVESTMENT IS OUT OF INTEREST FREE FUNDS. 13. IN THE LIGHT OF THE ABOVE, IT CANNOT BE SAID THAT T HERE IS ANY WRONG ASSUMPTION OF FACT. 14. HAVING SAID ALL THAT, IN OUR CONSIDERED OPINION NEI THER THERE IS ANY WRONG ASSUMPTION OF LAW NOR THERE ISANY WRONG A SSUMPTION OF FACTS TO MAKE THE ASSESSMENT ORDER ERRONEOUS AND PR E-JUDICIAL TO THE INTEREST OF THE REVENUE. ITA NO. 1279 /AHD/2014 . A.Y. 2009-20 10 6 15. THE AO HAS TAKEN A VIEW WHICH MAY BE DIFFERENT FROM THE VIEW OF THE LD. COMMISSIONER AND ASSUMING THAT THE VIEW TAKEN BY THE AO IS A LOSS TO THE REVENUE BUT THE HON'BLE SUPREME CO URT IN MALABAR INDUSTRIAL CO. LTD. (SUPRA) HAS HELD THAT ' EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE AO CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE,' FOR E.G. WHEN AN INCOME TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND I T HAS RESULTED IN LOSS OF REVENUE OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE LD. COMMI SSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ORDER WHICH IS ER RONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE UNLESS THE V IEW TAKEN BY THE INCOME TAX OFFICER IS UNSUSTAINABLE IN LAW. 16. THE BOMBAY HIGH COURT IN CIT VS GABRIAL INDIA LTD., (1993) 203 ITR 108 HAS HELD THAT 'THE DECISION OF THE INCOME TAX OFFICER COULD NOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER , HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD'. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF THE JUDICIAL DECISIONS DISCUSSED HE REINABOVE, IN OUR UNDERSTANDING OF LAW, THE ASSESSMENT ORDER IS NEITH ER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE, THE REFORE, SET ASIDE THE IMPUGNED ORDER PASSED BY THE LD. COMMISSIONER U/S. 263 AND RESTORE THAT OF THE ASSESSING OFFICER PASSED U/S. 143(3) OF THE ACT. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 19 - 02 - 2016 . SD/- SD/- (S. S. GODARA) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY