M/s. Rasna Pvt. Ltd., Ahmedabad V. The CIT,A'bad-III, Ahmedabad

ITA 1761/AHD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57336 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 07-03-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 25-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B K
• Assessee Lawyers: PF JAIN
• Keywords: Audit objection; Earning of tax free income; Wholly owned subsidiary
• Section: 143(3); 14A; 263

Judgement Text

-1- IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' BEFORE SHRI D K TYAGI JUDICIAL MEMBER AND SHRI T R MEENA ACCOUNTANT MEMBER ITA NO.1761/AHD/2010 (ASSESSMENT YEAR:-2005-06) RASNA PVT. LTD., RASNA HOUSE, OPP. SHEARS TOWER, GULBAY TEKRA ROAD, AHMEDABAD V/S THE COMMISSIONER OF INCOME-TAX, AHMEDABAD- III, AHMEDABAD PAN: AABCR 5577 P [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI P F JAIN, AR REVENUE BY:- SHRI B K S PANDYA, CIT DR DATE OF HEARING:- 07-03-2012 DATE OF PRONOUNCEMENT:- 30-03-2012 O R D E R PER D K TYAGI (JM) :- THIS APPEAL FILED BY ASSESSEE IS DIRECTED AGAINST AN ORDER DATED 24-03-2010 PASSED U /S 263 OF THE INCOME-TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME- TAX, AHMEDABAD-III [HEREINAFTER REFERRED TO AS THE CIT] FOR ASSESSMENT YEAR 2005-06. 2 THE BRIEF FACTS OF THE CASE ARE THAT ASSESSMENT U /S 143(3) OF THE ACT WAS FINALIZED DETERMINING THE LOSSES OF RS. 4,38,16,860/-. SUBSEQUENTLY, THE LEARNED CIT WAS OF THE VIEW THAT THIS ORDER PASSED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO TH E INTERESTS OF REVENUE AND THEREFORE, INITIATED PROCEEDINGS U/S 26 3 OF THE ACT BY ISSUING FOLLOWING NOTICE:- 2 SIR, SUB: INITIATION OF ACTION U/S.263 OF THE I.T. ACT, 1961, IN THE CASE OF RASNA PVT. LTD.-A.Y.2005-06 REF: ORDER U/S. 143' (3) OF THE I.T. ACT, 1961 DATE D 28/12/2007 PASSED BY THE DCIT CIRCLE-5 AHMEDABAD. PAN: AABCR5577R PLEASE REFER TO THE ABOVE. 1 ON AN EXAMINATION OF CASE RECORDS FOR THE A.Y. 20 05-06, IT IS SEEN THAT THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) BY THE DCI' CIRCLE-5, AHMEDABAD ON 28/12/2007 APPEARS TO BE ERR ONEOUS AN PREJUDICIAL TO THE INTEREST OF REVENUE FOR THE REAS ONS MENTIONED IN THE SUBSEQUENT PARAGRAPHS. 2 THE DCIT CIRCLE-5, AHMEDABAD HAD FINALIZED THE OR DER U/S. 143(: DETERMINED THE TOTAL LOSSES OF RS.4,38,16,860 /-. THE ASSESSEE COMPANY IS MAINLY DEALING IN DISTRIBUTION OF SOFT D RINK CONCENTRATE. ON VERIFICATION OF RECORDS, IT IS NOTICED THAT THE ASSESSEE HAS SHOWN TAX FREE DIVIDEND RS.49,70,355/-. THE ASSESSEE COMPANY HAS INCURRED LOSS IN THE REDEMPTION OF THE FOLLOWING SECURITIES. 81. NO. NAME PURCHASE AMOUNT & DATE SALE AMOUNT & DATE LOSS (RS.) 1. KOTAK MUTUAL FUND K-30 RS.19,98,850/- 08/05/2004 RS.19,37,370/- 11/10/2004 RS.61.480/- 2. RELIANCE VISION FUND RS.20,00,000/- 04/11/2004 RS.18,73,306/- 08/11/2004 RS.1,26,694/- 3. TEMPLETON BLUE CHIP MUTUAL FUND RS.20,00,000/- 06/05/2004 RS.19,54,104/- 03/11/2004 RS.45,896/- TOTAL RS.2,34,070/- 3 THE ABOVE TRANSACTIONS HAVE BEEN DONE WITHIN 9 MONT HS OF THE PURCHASE OF UNITS AND, HENCE, THE PROVISIONS OF SEC TION 94(7)(B).(II) ARE APPLICABLE AND THE LOSS SHOULD HAVE BEEN, PRIMA-FAC IE, DISALLOWED. THE ASSESSEE HAS EARNED THE FOLLOWING TAX FREE INCO MES. A INTEREST ON TAX FREE BONDS- RS.6.71 LAKHS B DIVIDENDS- RS.49,70 LAKHS C LONG TERM CAPITAL GAIN EXEMPTED U/S. 10(36) RS.4.54 LAKHS ------------------- TOTAL RS.60.95 LAKHS THE ASSESSEE HAS INCURRED INTEREST EXPENSES OF RS.6 .16 LAKHS DURING THE YEAR. IT IS ALSO RELEVANT THAT INTEREST FREE LO ANS HAVE BEEN GIVEN TO A WHOLLY OWNED SUBSIDIARY TO THE TUNE OF RS.132.20 LA KHS. THEREFORE THE PROVISION OF SECTION 14A SHOULD HAVE BEEN INVOKED T O DISALLOWED THE INTEREST EXPENSES INCURRED TO EARN TAX FREE INCOMES LIKE DIVIDEND, INTEREST ON TAX FREE BONDS ETC. 3 CONSIDERING THE FACTS MENTIONED ABOVE, THE ORDER DATED 28/12/2007 PASSED BY THE DCIT CIRCLE-5, AHMEDABAD U NDER SECTION 143(3) FOR THE A.Y. 2005-06 APPEARS TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 1, THEREFORE, INTEND TO MODIFY THE SAID ORDER AND ISSUE SUITABLE DIRECTIONS IN THIS REGARD TO THE ASSESSING OFFICER IN EXERCISE OF POWERS CONFERRED ON ME UNDER THE PROVISIONS OF SECTION 263. 4 YOU ARE THEREFORE, REQUESTED TO SHOW CAUSE AS TO WHY SUCH AN ORDER UNDER SECTION 263 OF THE I.T. ACT 1961, SHOUL D NOT BE MADE IN YOU: CASE. FOR THIS PURPOSE, YOU MAY APPEAR BEFORE THE UNDERSIGNED EITHER II PERSON OR THROUGH YOUR AUTHORIZED REPRESE NTATIVE ON 18/03/2010 A 3.00 P.M. IN MY OFFICE AT THE ABOVE ME NTIONED ADDRESS. IF YOU DO NOT WISH TO APPEAR IN PERSON OR THROUGH YOUR AUTHORIZED REPRESENTATIVE, YOU MAY MAKE YOUR SUBMISSION IN WRI TING SO AS TO REACH THE UNDERSIGNED ON OR BEFORE THE APPOINTED DA TE. 3 AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS O F THE ASSESSEE, THE LEARNED CIT PASSED THE ORDER HOLDING AS UNDER:- 4 6 IN THE LIGHT OF THE FOREGOING DISCUSSION: (A) THE AO IS DIRECTED TO MODIFY THE ASSESSMENT ORDER D ATED 28-12-07 BY ADDING A SUM OF RS.1,26,694/-. (B) THE AO IS FURTHER DIRECTED TO ADD THE SUM OF RS.4,54,322/- WRONGLY CLAIMED EXEMPT U/S 10(36) / 10(38). (C) LASTLY, THE AO IS DIRECTED TO WORK OUT THE DISALLOW ANCE U/S 14A IN RESPECT OF EXEMPT INCOME. THE ASSESSMENT ORDER IS SET-ASIDE TO THIS LIMITED EXTENT. 4 AGGRIEVED BY THIS ORDER, THE ASSESSEE IS IN APPEA L BEFORE US. AT THE TIME OF HEARING, THE LEARNED COUNSEL OF THE ASSESSEE, AT THE OUTSET, CHALLENGED THE JURISDICTION OF THE LEARNED CIT INVOKING THE PROVISIONS OF SECTION 263 IN ASSESSEES CASE. H IS CONTENTION WAS THAT THE LEARNED CIT HAS INITIATED REVISIONARY PROCEEDINGS U/S 263 ON THE BASIS OF OBJECTION RAISED BY THE INTERNA L AUDIT OF THE DEPARTMENT WHICH CANNOT BE THE GROUND FOR INITIATIN G THESE PROCEEDINGS IN VIEW OF THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF JEEWANLAL (1929) LTD. VS. ADDL . CIT (1977) 108 ITR 407 (CAL) AND THEREFORE, THE ORDER PASSED B Y THE LEARNED CIT DESERVES TO BE QUASHED. 5 THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THAT THERE IS NO BASIS FOR SUBMISSIONS MADE BY THE LEARNED COUNSE L OF THE ASSESSEE THAT THE REVISIONARY PROCEEDINGS IN THIS C ASE HAVE BEEN INITIATED BY THE LEARNED CIT ON THE BASIS OF AUDIT OBJECTION, THEREFORE, THIS GROUND OF THE ASSESSEE IS DEVOID OF ANY MERIT. 6 WE FIND FORCE IN THE CONTENTION OF THE LEARNED DR AS THERE IS NO MENTION OF AUDIT OBJECTION IN THE NOTICE ISSU ED BY THE 5 LEARNED CIT FOR INITIATING 263 PROCEEDINGS, THEREFO RE, WE ARE NOT INCLINED TO ACCEPT THE CONTENTION OF THE ASSESSEES COUNSEL, AND THE ASSUMPTION OF JURISDICTION BY THE LEARNED CIT I S UPHELD FOR 263 PROCEEDINGS. 7 ON MERITS, THE LEARNED COUNSEL OF THE ASSESSEE WA S FAIR ENOUGH TO CONCEDE THAT THE LEARNED CITS DIRECTION TO MODIFY THE ASSESSMENT ORDER BY ADDING A SUM OF RS.1,26,694/-, DOES NOT REQUIRE ANY INTERFERENCE AND SO TO THIS EXTENT THE LEARNED CITS ORDER IS UPHELD. 8 IN RESPECT OF OTHER DIRECTIONS TO ADD THE SUM OF RS.4,54,322/- WRONGLY CLAIMED EXEMPTION U/S 10(36) / 10(38), THE ASSESSEE CONTENTION WAS THAT THIS ISSUE WAS NOT ME NTIONED IN THE NOTICE ISSUED BY THE LEARNED CIT WHILE INITIATING 2 63 PROCEEDINGS AND, THEREFORE, THE LEARNED CIT HAS TRAVELED BEYOND HIS JURISDICTION TO GIVE SUCH DIRECTION TO THE AO AND, THEREFORE, TO THIS EXTENT, THE ORDER OF THE LEARNED CIT IS NOT JU STIFIED. THE LEARNED DR DID NOT OBJECT TO THIS CONTENTION OF THE ASSESSEE AND THEREFORE, WE AGREE WITH THE LEARNED COUNSEL OF THE ASSESSEE THAT THE LEARNED CIT WAS NOT JUSTIFIED IN GIVING SUCH DI RECTION TO THE AO. THIS CONTENTION OF THE ASSESSEE IS ALLOWED. 9 NOW COMING TO THE LAST ISSUE ABOUT WORKING OUT TH E DISALLOWANCE U/S 14A IN RESPECT OF EXEMPT INCOME, T HE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THIS ISSUE W AS LOOKED INTO BY THE AO DURING THE ASSESSMENT PROCEEDINGS AND THE REFORE, THE LEARNED CIT SHOULD NOT HAVE SET-ASIDE THE ORDER PAS SED BY THE AO 6 ON THIS ISSUE FOR WORKING OUT THE DISALLOWANCE AFRE SH. IN SUPPORT OF THIS CONTENTION, THE LEARNED COUNSEL RELIED ON T HE QUESTIONNAIRE ISSUED BY THE AO AT THE TIME OF ASSESSMENT PROCEEDI NGS IN WHICH THE QUERY WAS RAISED IN RESPECT OF DISALLOWANCE U/S 14A WHICH IS AVAILABLE IN THE PAPER BOOK. THE LEARNED DR RELIED ON THE ORDER OF THE AO. 10 AFTER GOING THROUGH THE RECORD, WE FIND THAT THO UGH THE CONTENTION OF THE LEARNED COUNSEL OF THE ASSESSEE I S CORRECT THAT THE AO DID RAISE THE QUERY ABOUT THE DISALLOWANCE U /S 14A BUT THERE IS NOTHING ON RECORD TO SHOW THAT ANY DETAILS OR REPLY WAS FILED BY THE ASSESSEE BEFORE THE AO. WE FURTHER FIN D THAT THE LEARNED CIT HAS SIMPLY SET-ASIDE THE MATTER BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION AND HAS NOT QUANTIFIED TH E ADDITION TO BE MADE BY HIM. WE FEEL NO NEED TO INTERFERE WITH T HE ORDER PASSED BY HIM AND THE SAME IS HEREBY UPHELD ON THIS ISSUE. 11 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT TODAY ON 30-03-2012 SD/- SD/- (T R MEENA) ACCOUNTANT MEMBER (D K TYAGI) JUDICIAL MEMBER DATE : 30-03-2012 7 COPY OF THE ORDER FORWARDED TO: 1. RASNA PVT. LTD., RASNA HOUSE, OPP. SHEARS TOWER, GULBAY TEKRA ROAD, AHMEDABAD 2. THE COMMISSIONER OF INCOME-TAX, AHMEDABAD-III, AHMEDABAD 3. CIT CONCERNED 4. CIT(A) 5. DR, ITAT, AHMEDABAD BENCH-B, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD