M/s Jyotsana Engg. Works, Kanpur V. Dy. Commissioner of Income Tax-3, Kanpur

ITA 241/LKW/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100478 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-10-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 28-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Reopening of assessment
• Section: 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.241 &242/LKW/2014 ASSESSMENT YEAR:2006-07 & 2007-08 M/S JYOTSANA ENGG. WORKS KANPUR V. DCIT-3 KANPUR TAN/PAN:AACFJ7009A (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. ABHINAV MEHROTRA, ADVOCATE RESPONDENT BY: SHRI. RAJNISH YADAV, D.R. DATE OF HEARING: 15 10 2015 DATE OF PRONOUNCEMENT: 20 11 2015 O R D E R PER SUNIL KUMAR YADAV: THESE APPEALS ARE PREFERRED BY THE ASSESSEE AGAINST THE RESPECTIVE ORDERS OF THE LD. CIT(A) FOR ASSESSMENT YEARS 2006-07 AND 2007-08. 2. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. WE, HOWEVER, PREFER TO ADJUDICATE THEM ONE AFTER THE OTHER. I.T.A. NO. 241/LKW/2014: A.Y. 2006-07: 3. IN THIS APPEAL, THE ASSESSEE HAS ASSAILED THE ORDER OF THE LD. CIT(A), INTER ALIA, ON THE FOLLOWING GROUNDS:- 1. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN INVOKING THE PROVISIONS OF SECTION 250(4) OF INCOME TAX ACT IN THE INSTANT CASE WHICH ACT HAS BECOME BARRED BY LIMITATION AS ON 31.03.2013 AND HENCE LIABLE TO BE QUASHED. :- 2 -: 2. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW BY INVOKING PROVISIONS OF SECTION 250(4) ON A SETTLED ISSUE AT THE TIME OF ASSESSMENT, BEYOND THE PERMISSIBLE PERIOD OF RE-ASSESSMENT. 3. THAT THE LD. CIT(A) HAS TRAVELLED BEYOND JURISDICTION IN EXCRETING THE POWERS VESTED BY SECTION 250(4) ON AN ISSUE WHICH WAS CONSIDERED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND CATEGORICALLY DISCUSSED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, ESPECIALLY WHEN THE POINT IN ISSUE WAS NOT SUBJECT MATTER OF APPEAL. 4. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN RESTRICTING THE EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT TOWARDS TRIAL RUN BY SUBSTITUTING HIS OPINION FOR THAT OF THE BUSINESS ACUMEN ASSESSEE, CITING IRRELEVANT AND EXTRANEOUS CONSIDERATIONS. 5. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 96000/- PAID BY THE APPELLANT FOR RENT OF THE PREMISES USED BY THE ASSESSEE FOR RUNNING OF THE WORKSHOP WITHOUT APPRECIATING THE FACTS PLACED BEFORE HIM. 6. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADHOC DISALLOWANCE OF RS.10,000/- MADE BY THE ASSESSING OFFICER OUT OF REPAIR AND MAINTENANCE ACCOUNT CLAIMED IN THE PROFIT & LOSS ACCOUNT. 7. THAT THE LD. CIT(A) DT. 27.01.2014 IS ARBITRARY, LEGAL AND EXCESSIVE NOT BASED ON PROPER APPRECIATING OF THE FACTS OF THE CASE AND IS LIABLE TO BE QUASHED TO THE EXTENT OF DISALLOWANCE OF RS.96,000/-. 4. APROPOS GROUND NO.3, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE LD. CIT(A) HAS NO POWER UNDER SECTION 250(4) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT') TO MAKE ENHANCEMENT OF INCOME OF THE ASSESSEE ON A NEW FACT WHICH WAS NOT EVEN TOUCHED BY THE ASSESSING OFFICER, AFTER THE PERIOD PRESCRIBED FOR :- 3 -: REOPENING OF THE ASSESSMENT UNDER SECTION 147 OF THE ACT. IN SUPPORT OF THIS CONTENTION, THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE UPON THE JUDGMENT OF THE HON'BLE HIGH COURT OF LAHORE IN THE CASE OF NAWAL KIOSHORE KHARAITILAL VS. CIT, 4 ITR 287 (LA). 5. THE LD. D.R., ON THE OTHER HAND, HAS CONTENDED THAT THE POWERS CONFERRED ON THE LD. CIT(A) ARE UNDER SECTION 251 OF THE ACT AND AS PER SUB-SECTION (2) OF SECTION 251 OF THE ACT, THE LD. CIT(A) SHALL ENHANCE AN ASSESSMENT, BUT BEFORE DOING SO THE LD. CIT(A) HAS TO OFFER A REASONABLE OPPORTUNITY OF SHOWING CAUSE AGAINST SUCH ENHANCEMENT TO THE ASSESSEE. THE LD. D.R. HAS FURTHER CONTENDED THAT THE JUDGMENT RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE RELATES TO THE OLD LAWS AND MORE SO ON DIFFERENT FACTS. THEREFORE, THE SAME CAN ONLY BE RELIED ON FOR ADJUDICATING THE LEGAL PROPOSITION. 6. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES AND THE RELEVANT PROVISIONS OF SECTIONS 250 AND 251 OF THE ACT IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT AS PER SUB-SECTION (4) OF SECTION 250 OF THE ACT, THE LD. CIT(A) HAS ALL POWERS TO MAKE SUCH FURTHER ENQUIRY AS HE THINKS FIT OR MAY DIRECT THE ASSESSING OFFICER TO MAKE FURTHER ENQUIRY AND REPORT RESULT OF THE SAME TO HIM. 7. AS PER SUB-SECTION (2) OF THE ACT SECTION 251 OF THE ACT, THE LD. CIT(A) HAS BEEN CONFERRED WITH POWERS TO ENHANCE ASSESSMENT, BUT BEFORE DOING SO HE HAS TO AFFORD REASONABLE OPPORTUNITY OF SHOWING CAUSE AGAINST SUCH ENHANCEMENT TO THE ASSESSEE. IT HAS BEEN REPEATEDLY HELD THROUGH VARIOUS JUDICIAL PRONOUNCEMENTS BY THE DIFFERENT HIGH COURTS AND APEX COURT THAT THE APPELLATE PROCEEDINGS ARE EXTENDING PROCEEDINGS OF THE ASSESSMENT AND THE LD. CIT(A) HAS BEEN ARMED WITH CO-TERMINUS POWERS OF THAT OF THE ASSESSING OFFICER. THEREFORE, DURING THE COURSE OF APPELLATE PROCEEDINGS AN ISSUE WHICH GERMAINE FROM THE FACTS OF THE RELEVANT ASSESSMENT YEAR, CAN BE :- 4 -: EXAMINED. THEREFORE, WE ARE OF THE VIEW THAT SINCE THE APPEAL IS A CONTINUOUS PROCEEDINGS OF THE ASSESSMENT PROCEEDINGS AND THE LD. CIT(A) IS ARMED WITH CO-TERMINUS POWERS OF THAT OF THE ASSESSING OFFICER AND ALSO SPECIFICALLY CONFERRED WITH THE POWER OF ENHANCEMENT OF INCOME, THE LD. CIT(A) CAN EXAMINE A NEW ISSUE THOUGH IT MAY RESULT IN ENHANCEMENT OF INCOME, FOR WHICH THERE IS NO TIME LIMIT PRESCRIBED UNDER THE ACT. THE PROVISIONS OF SECTION 147 OF THE ACT AND THE APPEAL PROCEEDINGS UNDER SECTION 250 OF THE ACT ARE ENTIRELY DIFFERENT. THE PROVISIONS OF SECTION 147 OF THE ACT CAN ONLY BE INVOKED WHEN THE ASSESSMENT IS COMPLETED AND THE ASSESSING OFFICER HAS TO MAKE OUT A CASE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. BUT IN CASE OF APPELLATE PROCEEDINGS, WHERE THE LD. CIT(A) IS ARMED WITH COTERMINOUS POWERS OF THE ASSESSING OFFICER AND HAS POWER TO MAKE ENHANCEMENT OF INCOME, HE IS NOT SUPPOSED TO RECORD FINDINGS BEFORE MAKING THE ENHANCEMENT OF INCOME THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPEMENT OF INCOME. IN THE LIGHT OF THIS LEGAL PROPOSITION, WE DO NOT FIND ANY FORCE IN THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ORDER FOR ENHANCEMENT CANNOT BE MADE BY THE LD. CIT(A) AFTER THE PERIOD PRESCRIBED FOR REOPENING OF ASSESSMENT. ACCORDINGLY WE FIND NO INFIRMITY IN THE ORDER OF ENHANCEMENT MADE BY THE LD. CIT(A). 8. SO FAR AS ADDITION ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE, FOR WHICH ENHANCEMENT WAS MADE, IS CONCERNED, THE FACTS BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE HAS INCOME FROM SALE, HIRING OF DREDGERS AND WORK CONTRACT AND HAS FILED ITS RETURN OF INCOME SHOWING LOSS OF RS.25,20,838/- ON A TOTAL SALE OF RS.41,72,211/-. THE REASONS FOR LOSS WAS EXPLAINED TO BE UNSUCCESSFUL TRIAL RUN AMOUNTING TO RS.23,06,411/- ON ACCOUNT OF COST OF CONSTRUCTION OF DREDGER, WHICH HAS BEEN EXPORTED TO RIYADH AND WHICH HAS ULTIMATELY FAILED. IT WAS FURTHER EXPLAINED THAT THE DREDGER HAS BEEN MANUFACTURED AS PER THE SPECIFICATIONS OF THE BUYER, M/S BIN SAMMAR OF KINGDOM OF SAUDI ARABIA, :- 5 -: RIYADH, BUT AFTER EXPORT TO RIYADH, THE DREDGER WAS NOT ACCEPTED AND MR. GOKHLEY, THE PARTNER OF THE ASSESSEE FIRM WAS MADE HOSTAGE BY THE BUYER. THEREFORE, THERE WAS NO OTHER ALTERNATIVE BUT TO RETURN THE ADVANCE TAKEN. SINCE THE DREDGER WAS NOT TAKEN BACK TO INDIA, THE ASSESSEE HAD NO OTHER ALTERNATIVE BUT TO DEBIT THE BUSINESS LOSS TO THE PROFIT AND LOSS ACCOUNT. DURING THE COURSE OF HEARING, THE LD. CIT(A) HAS AFFORDED OPPORTUNITY TO PLACE RELEVANT EVIDENCE IN SUPPORT OF THESE CONTENTIONS AND THE ASSESSEE HAS FURNISHED EXPLANATIONS, AGREEMENT AND AGREEMENT FOR CANCELLATION OF CONTRACT AND OTHER DOCUMENTS, BUT THE LD. CIT(A) WAS NOT CONVINCED WITH IT AND HE RESTRICTED THE DISALLOWANCE TO 50% AFTER TAKING THE RESIDUAL VALUE OF THE DREDGER INTO ACCOUNT AND ENHANCED THE INCOME BY 11.5%. 9. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AND REITERATED ITS CONTENTIONS. IN SUPPORT OF HIS CONTENTION, THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE WRITTEN SUBMISSIONS FILED BEFORE THE LD. CIT(A), COPY OF THE MINUTES OF THE MEETING BETWEEN THE ASSESSEE AND BUYER, M/S BIN SAMMAR OF KINGDOM FOR SUPPLY OF DREDGER, SPECIFICATION OF DREDGER, TERMINATION CONTRACT, INVOICE OF THE DREDGER, ETC. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER CONTENDED THAT THE REVENUE HAS NOT RAISED ANY DISPUTE WITH REGARD TO THE EXPORT OF DREDGER TO RIYADH. FROM THE TERMINATION AGREEMENT APPEARING AT PAGES 30 TO 38 OF THE COMPILATION OF THE ASSESSEE, THE ASSESSEE WAS FORCED TO AGREE TO REFUND THE ADVANCE AMOUNT RECEIVED BY IT. THOUGH IT WAS AGREED THAT THE ASSESSEE WOULD BE FREE TO TAKE POSSESSION OF THE DREDGER AND DISPOSE IT OFF AFTER REFUND OF ADVANCE MONEY, BUT IT WAS NOT VIABLE OPTION FOR THE ASSESSEE, AS HE COULD NOT FIND ANY BUYER IN RIYADH FOR DREDGER. THEREFORE, AS A PRUDENT BUSINESSMAN, THE ASSESSEE HAS TAKEN A DECISION TO DEBIT THE COST OF THE DREDGER AS BUSINESS LOSS. 10. THE LD. D.R., ON THE OTHER HAND, HAS PLACED RELIANCE UPON THE ORDER OF THE LD. CIT(A). :- 6 -: 11. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF DREDGERS, ETC AND DREDGER WAS EXPORTED TO RIYADH AGAINST THE ORDER PLACED BY THE BUYER AND WHILE PLACING THE ORDER, THE ASSESSEE HAS RECEIVED ADVANCE OF RS.45 LAKHS. BUT FROM THE TERMINATION OF AGREEMENT, IT IS EVIDENT THAT THAT BUYER WAS NOT SATISFIED WITH THE PERFORMANCE OF THE DREDGER AND THE ASSESSEE WAS FORCED TO REFUND THE ENTIRE ADVANCE MONEY. THIS TERMINATION OF AGREEMENT WAS EXECUTED ON 5.2.2006 AND IS AVAILABLE AT PAGES 37 & 38 OF THE COMPILATION OF THE ASSESSEE WHEREFROM IT IS EVIDENT THAT THE ASSESSEE WAS ALLOWED TO TAKE POSSESSION OF THE DREDGER AND DISPOSE IT OFF WITH NO EXTRA CHARGE AFTER REFUND OF THE ADVANCE MONEY. THE ASSESSEE HAS BROUGHT THESE FACTS TO THE NOTICE OF THE INDIAN EMBASSY ALSO BUT OF NO RESULT. COPY OF THE STATEMENT OF FACTS IN THIS REGARD SUBMITTED TO THE INDIAN EMBASSY IS ALSO APPEARING AT PAGES 42 AND 43 OF THE COMPILATION OF THE ASSESSEE. THE CONTENTIONS OF THE ASSESSEE THAT SINCE IT WAS NOT A VIABLE PROPOSITION TO BRING THIS DREDGER BACK TO INDIA, AS IT INVOLVES COST ETC., THE ASSESSEE HAS DECIDED THE LEAVE THE DREDGER THERE AND CLAIM COST OF DREDGER AS A BUSINESS LOSS, CANNOT BE DOUBTED AS BUSINESSMAN IS FREE TO TAKE A DECISION IN THE INTEREST OF HIS BUSINESS. IT IS FOR THE ASSESSEE TO TAKE INTO ACCOUNT ALL THE RELEVANT FACTS WHETHER IT IS VIABLE PROPOSITION TO BRING THE DREDGER BACK TO INDIA OR LEAVE IT THERE. BUT THESE FACTS ARE NOT DISPUTED. IN THE LIGHT OF THESE FACTS, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN REDUCING THE DISALLOWANCE TO 50% AFTER TAKING THE RESIDUAL VALUE OF DREDGER AT 11.5%, AS THERE IS NO EVIDENCE ON RECORD WITH REGARD TO THE RESIDUAL VALUE OF THE DREDGER WHICH MIGHT HAVE BEEN EARNED BY THE ASSESSEE ON ITS SALE. THEREFORE, WE FIND NO MERIT IN THIS ADDITION MADE BY THE LD. CIT(A) AND WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) IN THIS REGARD AND DELETE THE ADDITION. :- 7 -: 12. APROPOS GROUND NOL.5, IT IS NOTICED THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RENT OF RS.96,000/- PAID BY THE ASSESSEE TO ITS PARTNER FOR THE SIMPLE REASON THAT IN EARLIER YEARS ASSESSEE HAS NOT PAID ANY RENT TO ITS PARTNER. 13. FROM A CAREFUL PERUSAL OF THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE HAS EXPLAINED WITH EVIDENCE THAT IN EARLIER YEARS HE WAS NOT REQUIRED TO PAY ANY TAX TO THE MUNICIPALITY, THEREFORE, HE COULD NOT CHARGE ANY RENT FROM THE ASSESSEE. BUT IN THE IMPUGNED ASSESSMENT YEAR THE MUNICIPALITY HAS CHARGED MUNICIPAL TAX FROM THE PARTNERS AT RS.21,450/- PER YEAR HAVING NOTED THAT THE PROPERTY WAS USED AS WORKSHOP FOR BUSINESS ACTIVITIES AND FOR THIS REASON THE PARTNER HAS CHARGED RENT OF RS.8,000/- PER MONTH FROM THE ASSESSEE. COPY OF THE LEASE DEED EXECUTED BETWEEN THE PARTNER, SHRI. UDAYAN V. GOKHALE AND THE ASSESSEE WAS ALSO PLACED ON RECORD. THE REVENUE HAS NOT BROUGHT OUT ANYTHING ON RECORD TO DISPUTE THE CONTENTIONS OF THE ASSESSEE; WHEREAS PROPER EXPLANATION WAS FILED FOR THE PAYMENT OF RENT DURING THE IMPUGNED ASSESSMENT YEAR. WE, THEREFORE, FIND NO MERIT THIS ADDITION. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DELETE THE ADDITION. 14. SO FAR AS GROUND NO.6 RELATING TO DISALLOWANCE OF RS.10,000/- IS CONCERNED, WE FIND THAT THIS DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER ON AD HOC BASIS WITHOUT POINTING OUT ANY DEFECT IN THE BILLS AND VOUCHERS MAINTAINED BY THE ASSESSEE; WHEREAS THE ASSESSEE HAS CONTENDED THAT HE HAS PLACED ALL BILLS AND VOUCHERS BEFORE THE ASSESSING OFFICER AND THE LD. CIT(A) AND IF THEY HAD ANY DOUBT THEREIN, THEY COULD HAVE POINTED OUT THE DEFECT THEREIN, BUT THE ASSESSING OFFICER HAS MADE A GENERAL OBSERVATION THAT BILLS AND VOUCHERS WERE NOT OPEN FOR VERIFICATION AND HE MADE AD HOC DISALLOWANCE. :- 8 -: 15. THE LD. D.R., ON THE OTHER HAND, PLACED RELIANCE UPON THE ORDER OF THE LD. CIT(A). 16. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT THE ASSESSING OFFICER HAS MADE AD HOC ADDITION OF RS.10,000/- BY MAKING GENERAL OBSERVATION. SINCE AD HOC ADDITION IS NOT PERMISSIBLE UNDER THE EYES OF LAW, WE FIND NO MERIT IN THE ADDITION. WE ACCORDINGLY DELETE THE SAME. I.T.A. NO. 242/LKW/2014: A.Y. 2007-08: 17. IN THIS APPEAL, THE ONLY GROUND IS WITH REGARD TO THE DISALLOWANCE OF RENT PAID BY THE ASSESSEE HAS BEEN RAISED. THIS GROUND HAS ALREADY BEEN ADJUDICATED BY US IN THE FOREGOING APPEAL AND FOLLOWING THE SAME, WE DELETE THE ADDITION AFTER SETTING ASIDE THE ORDER OF THE LD. CIT(A). 18. IN THE RESULT, APPEAL IN I.T.A. NO. 241/LKW/2014 IS PARTLY ALLOWED AND I.T.A. NO. 242/LKW/2014 IS ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTIONED PAGE. SD/- SD/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20 TH NOVEMBER, 2015 JJ:0411 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR