M/s M.Krishna Mohan, Rajahmundry V. THE ITO, WARD - 3, Rajahmundry

ITA 185/VIZ/2014

• Counselvise Citation: 18525314 RSA 2014
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 02-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Assessee Lawyers: C SUBRAMANYAM
• Keywords: Right to appeal
• Section: 143(3); 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH , VISAKHAPATNAM BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 185/VIZ/2014 ASSESSMENT YEAR : 2009-10 M/S KRISHNA MOHAN, RAJAHMUNDRY PAN AALFM3556C) INCOME-TAX OFFICER, WARD 3, RAJAHMUNDRY. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI C. SUBRAMANYAM REVENUE BY SHRI K.V.N. CHARYA DATE OF HEARING 09-07-2014 DATE OF PRONOUNCEMENT 09-07-2014 O R D E R PER BENCH: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT, RAJAHMUNDRY, PASSED U/S 263 OF THE IT ACT, 1961 DAT ED 21/03/2014 FOR THE ASSESSMENT YEAR 2009-10. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE DERIVES INCOME FROM CIVIL CONTRACTS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR, ELECTRONICALLY ON 24/09/2009 DECLARING TOTAL INCOME AT RS. 2,69,070/-. THE AO PASSED THE ORDER U/S 143(3) ON 26/09/20121 ASSES SING THE TOTAL INCOME AT RS. 7,35,470/-. THE CIT, RAJAHMUNDRY INVO KED HIS POWERS U/S 263 BY HOLDING THAT THE ORDER OF THE AO IS ERRONEOU S AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HE, INTER-ALIA, DIRECTED THE AO TO A) NOT TO ALLOW SEPARATE DEDUCTION ON ACCOUNT OF INTEREST ON CAPITA LS AND REMUNERATION TO PARTNERS, FROM INCOME THAT HAS BEEN ESTIMATED FROM CONTRACT RECEIPTS, B) TO ADD RS. 34,760/-, WHICH IS INTEREST ON INCOME-TA X REFUND AND RS. 369/-, WHICH IS BANK INTEREST, TO THE TOTAL INCOME ESTIMAT ED ON CONTRACT RECEIPTS, 2 ITA NO. 185/VIZ/2014 M/S KRISHNA MOHAN C) TO VERIFY THE ASSESSMENT DETAILS OF ALL THE PART NERS AND TO TAKE APPROPRIATE ACTION IN THOSE MATTERS, AND D) TO VERI FY WHETHER INCOME ADMITTED BY THE ASSESSEE IS PROPER OR NOT AND TO EX AMINE THE SOURCES OF THE DEPOSITS AND DESTINATION OF THE WITHDRAWALS. TH E AO WAS DIRECTED TO REVISE THE ASSESSMENT ON THE LINES DISCUSSED IN THE ORDER PASSED U/S 263 BY THE LEARNED CIT, RAJAHMUNDRY. AGGRIEVED, THE AS SESSEE IS IN APPEAL ON THE FOLLOWING GROUNDS: 1.0 THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE ORDER PASSED U/S.263 OF THE I.T. ACT IS AGAINST THE PRO VISIONS OF LAW. 1.1 INVOKING THE REVISIONARY POWERS U/S.263 OF THE I.T. ACT IS UNWARRANTED, IN AS MUCH AS, THE FINDINGS BASING ON WHICH THE ORDER OF THE AO WAS CONSIDERED AS 'ERRONEOUS' A ND 'PREJUDICIAL' ARE PURELY HYPOTHETICAL, AGAINST THE FACTS OF THE CASE AND CANNOT STAND THE TEST OF LAW. 1.2 THE DIRECTION GIVEN BY THE LEARNED COMMISSIONER OF INCOME TAX (IN SHORT 'CIT') TO CONSIDER THE JUDGMENT OF HON'BL E AP HIGH COURT IN THE CASE OF INDWELL CONSTRUCTION VS. CIT, TO DISALLOW DEDUCTIONS U/S.40(B) OF THE ACT WHEN PROFIT WAS ESTIMATED, \1 CANNOT STAND THE TEST OF LAW IN AS MU CH AS THE JUDGMENT OF AP HIGH COURT IS ON DIFFERENT SET OF FACTS AND LAW. 1.3 THE DIRECTIONS OF THE LEARNED CIT TO CONSIDER AND M AKE ADDITION OF INTEREST EARNED ON BANK DEPOSITS, UNDER THE HEAD 'INCOME FROM OTHER SOURCES', IS NOT CORRECT IN AS MUCH AS THE INTEREST INCOME HAS NEXUS WITH THE BUSINESS OF THE ASSESSEE, THEREFORE, THE INTEREST EARNED IS BUSINES S INCOME. 1.4 THE LEARNED CIT OUGHT TO HAVE KNOWN THAT HE CAN EXE RCISE HIS JURISDICTION U/S.263 OF THE ACT, IF ONLY, THE TWIN CONDITIONS MENTIONED IN THE STATUTE ARE SATISFIED WHICH IS NOT THE CASE HERE. THEREFORE, THE ORDERS PASSED U/S.263 OF THE ACT CAN NOT STAND THE TEST OF JUDICIAL SCRUTINY. 1.5 FOR THESE AND OTHER REASONS THAT ARE TO BE URGED AT THE TIME OF HEARING OF THE CASE THE APPELLANT PRAYS THAT THE ORDERS PASSED UNDER THE PROVISIONS OF SECTION 263 OF THE I.T.ACT ARE CONTRARY TO THE PROVISIONS OF LAW, ARE WITHOUT JURISDICTION, 3 ITA NO. 185/VIZ/2014 M/S KRISHNA MOHAN THEREFORE, THE SAME NEEDS TO BE SET ASIDE IN THE INTEREST OF JUSTICE. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI C. SUB RAMANYAM ASSAILED THE ORDER OF CIT, RAJAHMUNDRY PASSED U/S 2 63 AND SUBMITTED THAT THERE IS NEITHER AN ERROR NOR PREJUDICE THAT IS CAU SED TO THE REVENUE BY THE ORDER OF THE AO PASSED U/S 143(3) OF THE ACT. HE SU BMITTED THAT THE AO ESTIMATED THE INCOME AND THE CIT SEEKS TO DISTURB S UCH ESTIMATE BY REPLACING THE OPINION OF THE AO WITH HIS OPINION. H E SUBMITTED THAT SUCH AN EXERCISE IS BAD IN LAW. 4. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE IS SUE OF INTEREST ON INCOME-TAX REFUND OF RS. 34,760/- AND BANK INTEREST OF RS. 369/-, NOT BEING ADDED TO THE ESTIMATED INCOME FROM THE CONTRACT REC EIPTS BY THE AO IN HIS ORDER U/S 143(3), ADMITTED THAT THIS WAS AN ERROR, WHICH IS CAUSED PREJUDICE TO THE REVENUE. ON THE OTHER DIRECTIONS O F THE LEARNED CIT, HE SUBMITTED THAT DIRECTION TO SEPARATELY ADD PARTNERS SALARY AND INTEREST IS CONTRARY TO THE DECISION OF THE JURISDICTIONAL TRIB UNAL IN THE CASE OF M/S VIJAYALAKSHMI ENTERPRISES VS. ACIT IN ITA NO. 3/VIZ /2013 ORDER DATED 13/12/2013. ON THE DIRECTION TO VERIFY THE PARTNERS ASSESSMENT PARTICULARS AND BANK ACCOUNTS OF THE FIRM, HE SUBMITTED THAT SE CTION 263 CANNOT BE A TOOL FOR CONDUCTING ROAMING ENQUIRIES. FOR THIS PRO POSITION, HE RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ITO VS. D.G. HOUSING PROJECTS, [2012] 343 ITR 329 (DEL.) 5. THE LEARNED DR SHRI K.V.N. CHARYA, ON THE OTHER HAND, OPPOSED THE CONTENTIONS OF THE ASSESSEE AND SUBMITTED THAT THE VERY FACT THAT THE ASSESSEES COUNSEL ADMITS THAT THERE IS A MISTAKE A PPARENT ON RECORD AND IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, AS FAR AS THE TAXABILITY OF INTEREST ON INCOME-TAX REFUND AND BANK INTEREST ARE CONCERNED, TAKES US TO CONCLUSIONS THAT THE ORDER PASSED U/S 263 BY THE CI T HAS TO BE UPHELD. AS REGARDS THE OTHER DIRECTIONS OF THE LEARNED CIT, HE SUBMITTED THAT THIS IS AN OPEN REMAND IT IS OPEN FOR THE ASSESSEE TO CANVA SS LEGAL PROPOSITIONS BEFORE THE AO. 4 ITA NO. 185/VIZ/2014 M/S KRISHNA MOHAN 6. AFTER HEARING THE RIVAL CONTENTIONS AND PERUSING THE MATERIAL ON RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BEL OW, WE ARE INCLINED TO UPHOLD THE CONTENTIONS OF THE LEARNED DR THAT THE IMPUGNED ORDER PASSED U/S 263 HAS TO BE UPHELD FOR THE REASON THAT THE LE ARNED COUNSEL FOR THE ASSESSEE ACCEPTED THAT INTEREST INCOME ON TAX REFUN D AND BANK INTEREST SHOULD HAVE BEEN ADDED BY THE AO TO THE INCOME ESTI MATED FROM CONTRACT RECEIPTS AND NOT MAKING SUCH AN ADDITION IS NOT ONL Y ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE. WHEN A N ORDER IS LEGALLY VALID ON ONE COUNT, WE ARE BOUND TO UPHOLD THAT ORDER. 7. COMING TO THE DIRECTIONS OF THE LEARNED CIT, RAJ AHMUNDRY ON THE ISSUE OF DEDUCTABILITY OF INTEREST ON CAPITAL AND R EMUNERATION OF PARTNERS OF ESTIMATED INCOME, WE FIND THAT THE JURISDICTIONAL T RIBUNAL IN THE CASE OF M/S VIJAYALAKSHMI ENTERPRISES (SUPRA) HAS AT PARA 5 DIRECTED THAT THE AO SHOULD ALLOW INTEREST AND REMUNERATION FROM INCOME ESTIMATED FROM CONTRACT RECEIPTS. THE TRIBUNAL FOLLOWED THE COORDI NATE BENCH ORDER IN THE CASE OF PRECISION FABRICATORS, KHAMMAM IN ITA NO. 3 84/HYD/2012, DATED 08/01/2013 AS WELL AS THE DECISION IN THE CASE OF P . EASWHAR REDDY AND COMPANY IN ITA NO. 668/HYD/2009, DATED 31/01/2011. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE VACATE THIS SPECIFIC DIRECTI ON OF THE LEARNED CIT, RAJAHMUNDRY. ON THE DIRECTIONS BY THE LEARNED CIT, RAJAHMUNDRY TO VERIFY THE ASSESSMENT DETAILS OF THE PARTNERS AND TO VERIF Y THE DETAILS OF BANK ACCOUNTS, WE ARE OF THE CONSIDERED OPINION THAT THE SE DIRECTIONS ARE WITHOUT JURISDICTION. THE HONBLE DELHI HIGH COURT IN THE CASE OF ITO VS. DG HOUSING PROJECTS (SUPRA) HELD AS FOLLOWS: REVENUE DOES NOT HAVE ANY RIGHT TO APPEAL TO THE F IRST APPELLATE AUTHORITY AGAINST AN ORDER PASSED BY THE ASSESSING OFFICER. S . 263 HAS BEEN ENACTED TO EMPOWER THE CIT TO EXERCISE POWER OF REVISION AND R EVISE ANY ORDER PASSED BY THE ASSESSING OFFICER, IF TWO CUMULATIVE CONDITIONS ARE SATISFIED. FIRSTLY, THE ORDER SOUGHT TO BE REVISED SHOULD BE ERRONEOUS AND SECOND LY, IT SHOULD BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE EXPRESSION 'PREJUD ICIAL TO THE INTEREST OF THE REVENUE' IS OF WIDE IMPORT AND IS NOT CONFINED TO M ERELY LOSS OF TAX. THE TERM 'ERRONEOUS' MEANS A WRONG/INCORRECT DECISION DEVIAT ING FROM LAW. THIS EXPRESSION POSTULATES AN ERROR WHICH MAKES AN ORDER UNSUSTAINA BLE IN LAW. THE ASSESSING OFFICER IS BOTH AN INVESTIGATOR AND A N ADJUDICATOR. IF THE ASSESSING OFFICER AS AN ADJUDICATOR DECIDES A QUESTION OR ASP ECT AND MAKES A WRONG 5 ITA NO. 185/VIZ/2014 M/S KRISHNA MOHAN ASSESSMENT WHICH IS UNSUSTAINABLE IN LAW, IT CAN BE CORRECTED BY THE COMMISSIONER IN EXERCISE OF REVISIONARY POWER. AS A N INVESTIGATOR, IT IS INCUMBENT UPON THE ASSESSING OFFICER TO INVESTIGATE THE FACTS REQUIRED TO BE EXAMINED AND VERIFIED TO COMPUTE THE TAXABLE INCOME. IF THE ASSE SSING OFFICER FAILS TO CONDUCT THE SAID INVESTIGATION, HE COMMITS AN ERROR AND THE WORD 'ERRONEOUS' INCLUDES FAILURE TO MAKE THE ENQUIRY. IN SUCH CASES, THE ORD ER BECOMES ERRONEOUS BECAUSE ENQUIRY OR VERIFICATION HAS NOT BEEN MADE AND NOT B ECAUSE A WRONG ORDER HAS BEEN PASSED ON MERITS. THUS, IN CASES OF WRONG OPINION OR FINDING ON MERIT S, THE CIT HAS TO COME TO THE CONCLUSION AND HIMSELF DECIDE THAT THE ORDER IS ERR ONEOUS, BY CONDUCTING NECESSARY ENQUIRY, IF REQUIRED AND NECESSARY, BEFOR E THE ORDER UNDER S. 263 IS PASSED. IN SUCH CASES, THE ORDER OF THE ASSESSING O FFICER WILL BE ERRONEOUS BECAUSE THE ORDER PASSED IS NOT SUSTAINABLE IN LAW AND THE SAID FINDING MUST BE RECORDED. CIT CANNOT REMAND THE MATTER TO THE ASSES SING OFFICER TO DECIDE WHETHER THE FINDINGS RECORDED ARE ERRONEOUS. IN CAS ES WHERE THERE IS INADEQUATE ENQUIRY BUT NOT LACK OF ENQUIRY, AGAIN THE CIT MUST GIVE AND RECORD A FINDING THAT THE ORDER/INQUIRY MADE IS ERRONEOUS. THIS CAN HAPPE N IF AN ENQUIRY AND VERIFICATION IS CONDUCTED BY THE CIT AND HE IS ABLE TO ESTABLISH AND SHOW THE ERROR OR MISTAKE MADE BY THE ASSESSING OFFICER, MAKING TH E ORDER UNSUSTAINABLE IN LAW. IN SOME CASES POSSIBLY THOUGH RARELY, THE CIT CAN ALSO SHOW AND ESTABLISH THAT THE FACTS ON RECORD OR INFERENCES DRAWN FROM F ACTS ON RECORD PER SE JUSTIFIED AND MANDATED FURTHER ENQUIRY OR INVESTIGATION BUT T HE ASSESSING OFFICER HAD ERRONEOUSLY NOT UNDERTAKEN THE SAME. HOWEVER, THE S AID FINDING MUST BE CLEAR, UNAMBIGUOUS AND NOT DEBATABLE. THE MATTER CANNOT BE REMITTED FOR A FRESH DECISION TO THE ASSESSING OFFICER TO CONDUCT FURTHE R ENQUIRIES WITHOUT A FINDING THAT THE ORDER IS ERRONEOUS. FINDING THAT THE ORDER IS ERRONEOUS IS A CONDITION OR REQUIREMENT WHICH MUST BE SATISFIED FOR EXERCISE OF JURISDICTION UNDER S. 263 OF THE ACT. IN SUCH MATTERS, TO REMAND THE MATTER/ISSU E TO THE ASSESSING OFFICER WOULD IMPLY AND MEAN THE CIT HAS NOT EXAMINED AND D ECIDED WHETHER OR NOT THE ORDER IS ERRONEOUS BUT HAS DIRECTED THE ASSESSING O FFICER TO DECIDE THE ASPECT/QUESTION. THIS DISTINCTION MUST BE KEPT IN MIND BY THE CIT WH ILE EXERCISING JURISDICTION UNDER S. 263 OF THE ACT AND IN THE ABSENCE OF THE F INDING THAT THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E, EXERCISE OF JURISDICTION UNDER THE SAID SECTION IS NOT SUSTAINABLE. IN MOST CASES OF ALLEGED 'INADEQUATE INVESTIGATION', IT WILL BE DIFFICULT TO HOLD THAT T HE ORDER OF THE ASSESSING OFFICER, WHO HAD CONDUCTED ENQUIRIES AND HAD ACTED AS AN INV ESTIGATOR, IS ERRONEOUS, WITHOUT CIT CONDUCTING VERIFICATION/INQUIRY. THE ORDER OF THE ASSESSING OFFICER MAY BE OR MAY NOT BE WRONG. CIT CANNOT DIRECT RECON SIDERATION ON THIS GROUND BUT ONLY WHEN THE ORDER IS ERRONEOUS. AN ORDER OF R EMIT CANNOT BE PASSED BY THE CIT TO ASK THE ASSESSING OFFICER TO DECIDE WHETHER THE ORDER WAS ERRONEOUS. THIS IS NOT PERMISSIBLE. AN ORDER IS NOT ERRONEOUS, UNLE SS THE CIT HOLD AND RECORDS REASONS WHY IT IS ERRONEOUS. AN ORDER WILL NOT BECO ME ERRONEOUS BECAUSE ON REMIT, THE ASSESSING OFFICER MAY DECIDE THAT THE OR DER IS ERRONEOUS. THEREFORE CIT MUST AFTER RECORDING REASONS HOLD THAT THE ORDE R IS ERRONEOUS. THE JURISDICTIONAL PRECONDITION STIPULATED IS THAT THE CIT MUST COME TO THE CONCLUSION THAT THE ORDER IS ERRONEOUS AND IS UNSUSTAINABLE IN LAW. IT MAY BE NOTICED THAT THE MATERIAL WHICH THE CIT CAN RELY INCLUDES NOT ONLY T HE RECORD AS IT STANDS AT THE TIME WHEN THE ORDER IN QUESTION WAS PASSED BY THE A SSESSING OFFICER BUT ALSO THE RECORD AS IT STANDS AT THE TIME OF EXAMINATION BY T HE CIT. NOTHING BARS/PROHIBITS THE CIT FROM COLLECTING AND RELYING UPON NEW/ADDITI ONAL MATERIAL/EVIDENCE TO SHOW AND STATE THAT THE ORDER OF THE ASSESSING OFFI CER IS ERRONEOUS. (EMPHASIS OURS) 6 ITA NO. 185/VIZ/2014 M/S KRISHNA MOHAN 8. NON-EXAMINATION OF THE ASSESSMENT PARTICULARS OF THE PARTNERS DOES NOT CONSTITUTE AN ERROR IN AN ORDER U/S 143(3) IN T HE CASE OF PARTNERSHIP FIRM. SIMILARLY, IN OUR VIEW, WHEN THE INCOME OF TH E ASSESSEE IS ESTIMATED, THE QUESTION OF SPECIFIC ENQUIRY AS DIRECTED BY THE LEARNED CIT, RAJAHMUNDRY IS NOT WARRANTED. THUS, THESE TWO DIREC TIONS GIVEN BY THE LEARNED CIT, RAJAHMUNDRY ARE HERE BY VACATED. IN V IEW OF THE ABOVE DISCUSSION, WE ALLOW THE APPEAL OF THE ASSESSEE IN PART. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 09/07/2014. SD/- SD/- (SAKTIJIT DEY) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER VISAKHAPATNAM, DATED: 9 TH JULY, 2014 KV COPY TO:- 1) M/SKRISHNA MOHAN, D.NO. 1-194B, JALIMUDI, SEETHA NAGARAM MANDAL, RAJAHMUNDRY. 2) ITO, WARD 3, RAJAHMUNDRY 3) CIT, RAJAHMUNDRY 4)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., V IZAG.