BRISTAL INVESTMENT MANAGEMANT ASSOCIATION, Jaipur V. CIT-2, Jaipur

ITA 190/JPR/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74874 (ITAT-JAIPUR)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 27-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Keywords: Rejection of books of accounts; Business expenditure; Charitable institution; Audit objection; Bonafide belief
• Section: 143(3); 263; 10

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JAIPUR BENCH : JAIPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 190/JP/2013 (A.Y. 2008-09) M/S. BRISTOL INVESTMENT MANAGEMENT VS. CIT, JAIPU R-II, ASSOCIATION, 2 ND FLOOR, O-12, JAIPUR. PARIJAT, ASHOK MARG, C-SCHEME, JAIPUR - 302005 PAN NO. AAIFB 2313 H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SHRAWAN KUMAR GUPTA DEPARTMENT BY : SHRI SUBHASH CHANDRA - D.R. DATE OF HEARING : 20/01/2014. DATE OF PRONOUNCEMENT : 11/03/2014. O R D E R PER N.K. SAINI, A.M THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 09/01/2013 OF LD. CIT-II, JAIPUR. THE FOLLOWING GR OUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THAT THE LD. CIT-II, JAIPUR ERRED IN PASSING TH E ORDER U/S 263 BY INVOKING OF REVISION JURISDICTION & SETTING ASIDE, THE ORDER OF AO PASSED U/S 143(3), HENCE, THE SAME MAY BE QUASHED. 2 2. THAT THE LD. CIT-II, JAIPUR IS ERRED IN LAW AS W ELL AS ON THE FACTS OF THE CASE IN TAKING THE ACTION U/S 263 OF THE ACT ON THE ALLEGATION THAT THE PASS BACK OF PREMIUM GIVEN BY THE ASSESSEE ON INSUR ANCE POLICIES IS COMMISSIONS NOT PASS-BACK/DISCOUNT, HENCE WAS LIABL E TO DEDUCT THE TDS, THE AO HAS NOT EXAMINED THE APPLICABILITY OF T DS PROVISIONS OF S. 194D & 194H AND NO PROPER INQUIRES OR SCRUTINY HAVE BEEN MADE REGARDING THE APPLICABILITY OF TDS PROVISIONS, WHIC H IS CONTRARY TO THE FACTS AND SUCH A FINDING BEING PERVERSE, THE IMPUGN ED ACTION IS BAD IN LAW WITHOUT JURISDICTION AND BEING VOID AB INITIO, THE IMPUGNED ORDER U/S 263 OF THE ACT KINDLY BE QUASHED. 3. THAT RESPONDENT ERRED IN PASSING THE ORDER U/S. 263 BY DIRECTING TO AO TO PASS A FRESH ORDER ON LIMITED ISSUE, WHEREAS THE FACTS & FIGURES WERE MADE AVAILABLE WITH THE LD. CIT BASED ON WHICH THE MATTER MAY BE DECIDED BY ITSELF, THEREFORE, THE IMPUGNED ORDER U/S 263 OF THE ACT KINDLY BE QUASHED. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT, JAIPURII, ERRED IN PASSING THE ORDER U/S 263 BY WA Y OF NOT APPRECIATING THE TRUE IMPORTANCE OF THE PROVISIONS OF SECTION 40(A)(IA), WHICH ARE NOT APPLICABLE TO THE ASSESSEE S CASE. THE APPELLANT PRAYS THAT THE ORDER PASSED U/S 263 OF THE I.T. ACT BY CIT II, JAIPUR DATED 09/01/2013, TO BE VACATING AND ORDER P ASSED BY LD. AO U/S 143(3) DATED 27/12/2010 TO BE RESTORED. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER VAR Y AND/OR WITHDRAW ANY OR ALL THE ABOVE GROUNDS OF APPEAL. 2 THE ONLY GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO THE ACTION OF THE LD. CIT, WHO BY INVOKING THE PROVISIO NS OF SECTION 263 OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHORT) SET ASIDE THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UN DER SECTION 143(3) OF THE ACT. 3 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 31/03/2010 DECLARING A LOSS OF RS. 2,68,7 81//-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE FILED VA RIOUS DETAILS WHICH REVEALED THAT THE ASSESSEE HAD SHOWN COMMISSION REC EIPTS OF RS. 42,80,148/-; DISCOUNT EXPENSES OF RS. 29,70,502 /- AND COMMISSION EXPENSES OF RS. 8,62,955/-. THE ASSESSING OFFICER NOTED THAT THE DISCOUNT EXPENSES WERE NOT FULLY VOUCHED, HE MADE DISALLOWAN CE OF RS. 7,42,625/- @ 20%. THE ASSESSING OFFICER ALSO NOTICED THAT THE ASSESSEE HAD NOT DEDUCTED TDS ON THE PAYMENT OF RS. 2,25,700/- MADE TO TWO PARTIES. HE DISALLOWED RS. 2,25,700/- UNDER SECTION 40(A)(IA) O F THE ACT AND ALSO MADE THE ADDITION OF RS. 30,582/- ON ACCOUNT OF LES S RECEIPTS. ACCORDINGLY, THE ASSESSMENT WAS COMPLETED AT AN INC OME OF RS. 9,45,870/- AS AGAINST LOSS OF RS. 2,68,000/- CL AIMED BY THE ASSESSEE VIDE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) O F THE ACT DATED 27/12/2010. THEREAFTER, THE LD. CIT-II, JAIPUR, IN VOKED THE PROVISIONS OF SECTION 263 OF THE ACT OBSERVED THAT NO EVIDENCE/DE TAILS TO SUBSTANTIATE THE CLAIM OF DISCOUNT ALLOWED TO CUSTOMERS WAS FURN ISHED, EXCEPT THE LIST, WITHOUT GIVING THE COMPLETE NAMES AND ADDRESSES OF THE PERSONS TO WHOM DISCOUNT WAS GIVEN. THEREFORE, IN ABSENCE OF THE D ETAILS, THE CLAIM OF DISCOUNT WAS NOT VERIFIABLE. HE FURTHER OBSERVED T HAT DURING THE COURSE 4 OF ASSESSMENT PROCEEDINGS, IT WAS SUBMITTED BY THE ASSESSEE THAT DISCOUNT WAS GIVEN TO THE CUSTOMERS WHO HAD TAKEN I NSURANCE POLICY FROM HIM BUT THERE WAS NO EVIDENCE ON RECORD THAT ALLEGE D DISCOUNT WAS PAID ONLY TO THE CUSTOMERS WHO TOOK THE POLICY FROM THE ASSESSEE. THE LD. CIT OBSERVED THAT BIFURCATION BETWEEN COMMISSION AN D DISCOUNT, GIVEN BY A LETTER WHICH WAS AT COMPLETE VARIANCE WITH THE AUDIT REPORT HAD BEEN ACCEPTED BY THE ASSESSING OFFICER ON THE FACE OF LETTER WITHOUT MAKING ANY WORTHWHILE SCRUTINY. THE LD. CIT(A) AL SO OBSERVED THAT THE ASSESSING OFFICER, WHILE ACCEPTING THE CLAIM OF THE ASSESSEE, HAD NOT EXAMINED THE APPLICABILITY OF TDS PROVISIONS AND SI NCE NO TDS WAS DEDUCTED, THE AMOUNT WAS LIABLE TO BE DISALLOWED UN DER SECTION 40(A)(IA) OF THE ACT. THE ASSESSEE SUBMITTED TO THE LD. CIT AS UNDER:- I. PASS - BACK OF COMMISSION IS THE GENERAL TRADE IN INSURANCE AND MUTUAL FUND INDUSTRIES AND MOST OF THE INSURANCE AG ENTS ARE ALLOWING THE SAME BY DISCOUNTING THE PREMIUM OR PASS-BACK THE CO MMISSION ON RECEIPTS OF COMMISSION FROM INSURANCE COMPANIES. IN THE CASE OF THE ASSESSEE, THE -BACK OF COMMISSION HAS BEEN ALLOWED TO VARIOUS COSTUMERS AND PARTIES, WHICH ARE NOT THE AGENTS OF THE ASSESSEE. THE ALLOWANCE OF DISCOUNT OR REBATE OR P AYMENT OF PASS-BACK OF COMMISSION IS IN ACCORDANCE OF LAW AND NOT LIABLE FOR TDS. IN THIS CONNECTION, THE A.R. PLACED RELIAN CE ON SOME CASE LAWS. II. AMOUNT OF RS.2970502/- HAS BEEN CLAIMED AS DIS COUNT OR PASS- BACK OF COMMISSION TO THE CUSTOMERS AND WHICH HAD F ULLY BEEN PAID DURING THE SAME YEAR AND THERE WAS NO OUTSTAND ING AMOUNT PAYABLE AT THE END OF THE YEAR I.E. ON THE BALANCE SHEET DATE. SECTION 40(A)(IA) OF THE ACT HAS TO BE SUBJECTED TO STRICT INTERPRETATION AND IT IS APPLICABLE TO THE AMOUNTS PAYABLE AND NOT APPLICABLE WHERE EXPENDITURE HAVE BEEN PAID. 5 III. INCOME TAX IS CHARGEABLE ON INCOME, NOT ON EX PENDITURE. BONAFIDE BUSINESS EXPENDITURE, LEGITIMATE AND GENUI NE CANNOT BE DEEMED TO BE INCOME, WHICH CAN BE SAID TO BE RECEIV ED OR ACCRUED OR AROSE TO THE ASSESSEE. IV. THE AO DISALLOWED 20% OF DISCOUNT EXPENSES OF RS.29,70,502/-. IT MEANS THAT AO HAD ESTIMATED THE INCOME BY REJECTING THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. WHEN THE INCOM E HAD BEEN DETERMINED, ALL THE DEDUCTIONS, EXPENDITURES, DISAL LOWANCE ETC ARE ALREADY DEEMED TO BE CONSIDERED THEREIN AND THEREAF TER NO FURTHER DISALLOWANCE CAN BE MADE. V. SINCE THE TAXABLE INCOME AS DETERMINED BY THE A O IS MORE THAN 20% OF COMMISSION RECEIPTS, DISALLOWANCE OF DISCOUN T AMOUNT WILL LEAD TO AN ABSURD OR UNINTENDED RESULT. VI. THE ASSESSEE WAS HAVING BONAFIDE BELIEF THAT N O TDS HAD TO BE DEDUCTED ON THE AMOUNT OF PASS-BACK OF COMMISSION A ND WAS NOT HAVING ANY INTENTION OF IGNORING THE LAW. VII. THE ASSESSEE IS DEALING IN INSURANCE BUSINESS . HE IS THE AGENT AND BROKER OF VARIOUS INSURANCE COMPANIES AND YEAR UNDE R CONSIDERATION, THE ASSESSEE HAS CARRIED OUT THE INS URANCE BUSINESS ONLY. THE PASS-BACK OF COMMISSION WAS IN THE NATURE OF INSURANCE COMMISSION U/S 194D AND PROVISIONS OF SECTION 40(A) (IA) ARE NOT APPLICABLE ON INSURANCE COMMISSION U/S 194D. 4. THE LEARNED CIT, AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE, OBSERVED THAT THE ASSESSING OFFICER WHILE ACCEPTING THE CLAIM OF THE ASSESSEE ON ACCOUNT OF DISCOUNT, HAS NOT EXAMINED T HE APPLICABILITY OF THE TDS PROVISIONS AND THE SAID DISCOUNT AMOUNT WAS SHOWN AS COMMISSION IN THE AUDITED ACCOUNTS. THEREFORE, THE ASSESSING OFFICER SHOULD HAVE MADE PROPER AND DETAILED SCRUTINY BEFOR E ACCEPTING THE CLAIM WHICH HE HAD SINGULARLY FAILED. ACCORDINGLY, LD. CIT ON THIS LIMITED 6 ISSUE, SET ASIDE THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER AND DIRECTED HIM TO PASS THE ORDER AFRESH AFTER MAKING PROPER INVESTIGATION. NOW THE ASSESSEE IS IN APPEAL. 5. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SU BMISSIONS MADE BEFORE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE PROCEEDINGS UNDER SECTION 263 OF THE ACT IN THE PRESENT CASE IT SELF WAS INVALID BECAUSE AS PER THE INFORMATION PROVIDED BY THE ASSESSEE, TH E ACTION UNDER SECTION 263 OF THE ACT HAD BEEN TAKEN ON THE OBJECTION RAIS ED BY THE AUDIT PARTY AND NO ERROR WAS FOUND BY THE LD. CIT IN THE ASSESS MENT ORDER. THEREFORE, THE ACTION OF THE LD. CIT ON THE BASIS O F AUDIT OBJECTION ITSELF WAS INVALID. IT WAS STATED THAT THE ASSESSING OFFI CER WHILE COMPLETING THE ASSESSMENT HAD FOUND SOME DEFICIENCY IN THE DETAILS AND IF THE ASSESSING OFFICER HAD NOT EXAMINED THE ISSUE REGARDING THE DI SCOUNT AND APPLICABILITY OF TDS PROVISIONS, HE COULD NOT HAVE MADE THE ADDITION OF RS. 2,25,700/- UNDER SECTION 40(A)(IA) OF THE ACT O N ACCOUNT OF NON- DEDUCTION OF TDS AND THE ADDITION OF RS. 30,582/- O N ACCOUNT OF LESS RECEIPTS. THEREFORE, THE LD. CIT WAS NOT JUSTIFIED IN HOLDING THAT IF THE NECESSARY ENQUIRY WAS NOT DONE BY THE ASSESSING OFF ICER, THE ORDER BECAME ERRONEOUS AND AUTOMATICALLY, IT SHALL ALSO B E PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT WAS FURTHER STATED THA T THE LD. CIT WAS OF THE 7 VIEW THAT THE ASSESSING OFFICER HAD NOT MADE PROPER AND DETAILED ENQUIRY I.E. DEEP ENQUIRY ON THE ISSUE, BUT HE COULD NOT PR OVE OR BRING ANY MATERIAL OR CIRCUMSTANTIAL EVIDENCE ON RECORD THAT THE CLAIM OF THE ASSESSEE ON THOSE ISSUES WAS NOT GENUINE, BOGUS, NO T VERIFIABLE AND NOT CORRECT. IT WAS FURTHER STATED THAT THERE IS NO ST RAIGHT JACKET FORMULA OR PARAMETER TO MAKE ENQUIRY IN THE ASSESSMENT PROCEED INGS. WHAT IS REQUIRED IS THAT THE ASSESSING OFFICER SHOULD FRAME THE ASSESSMENT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AS INTERP RETED AND IN THE LIGHT OF THE RELEVANT JUDICIAL PRONOUNCEMENTS AS AVAILABL E ON THE DATE OF FRAMING THE ASSESSMENT OR MATERIAL AVAILABLE BEFORE HIM. THE ASSESSING OFFICER COULD NOT BE DIRECTED TO MAKE AN ASSESSMENT IN A PARTICULAR MANNER AS SPECIFICALLY PROHIBITED BY SECTION 119 OF THE ACT. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- 1. JHEENDU RAM VS. CIT 130 TTJ 82 (LUCK.) 2. RAJEEV ARORA VS. CIT 135 TTJ 01 (JP.) 3. SMT. LEELA CHOUDHARY VS. CIT 289 ITR 226 (GAU.) 4. SAW PIPES LTD. VS. ACIT 94 TTJ 1036 (DEL) 5. MALABAR INDUSTRIAL CO. LTD. VS. CIT 159 CTR (1) (SC). 6. CIT VS. RAYN SILK MILLS 221 ITR 155 (GUJ.) 7. SH. GYAN CHAND JAIN VS. CIT 50 TW 109 (JP.) 8. CHORMA BUSINESS LTD. VS. DCIT 82 TTJ 540 (CAL) 9. SUBRATA KUMAR NAG VS. CIT 127 TTJ 238 (KOL.) 8 10. ARVIND BHARTIYA VIDHYALAYA SAMITI VS. ITO 94 T TJ 614 (JP.) 11. GABERIAL INDIA LTD. 203 ITR 108. 12. GYAN CHAND GUPTA VS. CIT 135 TTJ 01 (JP) 13. CIT VS. JAIN CONSTRUCTION 257 CTR 336 (RAJ.) 14. CIT VS. PARAS COTTON CO. 288 ITR 211 (RAJ.) 15. CIT VS. ANUPAM CHARITABLE TRUST 164 ITR 129 (R AJ.) 16. RISHI KUMAR GUPTA VS. CIT (2004) 90 TTJ (AGRA- TRIB) 645. 17. CIT VS. GIRDHARI LAL 258 ITR 331 (RAJ.) 18. HARYANA STATE CO-OP SUPPLIER & MARKETING FEDERA TION LTD. VS. DCIT (2004) 90 ITD 551 (CHD-TRIB.) 6 . IN HIS RIVAL SUBMISSIONS, LEARNED CIT D.R. SUPPOR TED THE ORDER OF THE LD. CIT. 7 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE LD. CIT CONSIDERED THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER AS ERRONEOUS AND PR EJUDICIAL TO THE INTEREST OF THE REVENUE ONLY ON TWO COUNTS VIZ. (I) ASSESSING OFFICER HAS NOT EXAMINED THE PAYMENT OF COMMISSION AND DISCOUNT (II) ASSESSING OFFICER HAS NOT EXAMINED THE APPLICABILITY OF THE P ROVISION OF TDS. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAD NOT DEDUC TED TDS ON THE COMMISSION PAYMENTS, SO THE DISALLOWANCE IS TO BE M ADE UNDER SECTION 9 40(A)(IA) OF THE ACT. ON THE CONTRARY, IT IS NOTIC ED THAT THE ASSESSING OFFICER MADE A PROPER ENQUIRY AND DISALLOWED 20% OF THE DISCOUNT EXPENSES CONSIDERING THE SAME AS WERE NOT FULLY VOU CHED AND VERIFIABLE. HE MADE THE DISALLOWANCE OF RS. 2,25,700/- UNDER SE CTION 40(A)(IA) OF THE ACT ON ACCOUNT OF NON-DEDUCTION OF TDS AND ALSO MA DE THE ADDITION OF RS. 30,582/- ON ACCOUNT LESS RECEIPTS. SO, IT CANN OT BE SAID THAT THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT UNDE R SECTION 143(3) OF THE ACT, HAD NOT APPLIED HIS MIND OR EXAMINED THE C ASE PROPERLY. IN THE PRESENT CASE, THE LD. CIT, ALTHOUGH, STATED THAT TH E ASSESSING OFFICER DID NOT MAKE PROPER ENQUIRY, BUT NOWHERE HE QUANTIFIED THE AMOUNT WHICH WAS TO BE DISALLOWED ON WHICH TDS WAS NOT DEDUCTED. ON THE CONTRARY, THE ASSESSING OFFICER MADE THE ADDITION UNDER SECTI ON 40(A)(IA) OF THE ACT ON THOSE AMOUNTS WHICH WERE LIABLE TO THE TDS AND T HE ASSESSEE FAILED TO DEDUCT THE TDS. THE ASSESSING OFFICER ALSO MADE TH E ADDITION ON ACCOUNT OF EXPENSES CLAIMED BY THE ASSESSEE WHICH WERE NOT FULLY VERIFIABLE. SO, IT CANNOT BE SAID THAT ASSESSMENT ORDER PASSED BY T HE ASSESSING OFFICER WAS WITHOUT APPLYING HIS MIND OR WITHOUT EXAMINING THE CASE IN DETAIL. WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACT S AS DISCUSSED HEREINABOVE ARE OF THE ABOVE THAT THE LD. CIT WAS N OT JUSTIFIED IN HOLDING THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICE R UNDER SECTION 143(3) 10 OF THE ACT ON 27/12/2010 AS ERRONEOUS AND PREJUDICI AL TO THE INTEREST OF THE REVENUE. ACCORDINGLY, THE SAME IS SET ASIDE AN D THE ASSESSMENT ORDER DATED 27/12/2010 PASSED BY THE ASSESSING OFFICER IS RESTORED. 8 . FOR THE AFORESAID VIEW, WE ARE FORTIFIED BY THE R ATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. GIRDHARI LAL 258 ITR 331 (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER:- WHEN THE ASSESSING OFFICER AFTER GOING THROUGH TH E MATERIAL ON RECORD AND AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE, MADE SOME ADDITIONS AND REJECTED THE BOOKS OF ACCOUNTS, IT COULD NOT BE SAID THAT HE HAD NOT APPLIED HIS MIND. IT IS NOT A LWAYS NECESSARY THAT EVERY ASSESSEE IN THE LINE OF BUSINESS SHOULD HAVE THE SAME RATE OF PROFIT. THE TRIBUNAL WAS CORRECT IN CANCELLING THE ORDER UNDER SECTION 2563 OF THE INCOME TAX ACT. 9 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. (ORDER PRONOUNCED IN THE COURT ON 11 TH MARCH, 2014). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 11 TH MARCH, 2014. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JAIPUR.