Harrisons Malayalam Ltd, Cochin V. DCIT, Ernakulam

ITA 257/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61545 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 07-06-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 09-04-2010
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Assessee Lawyers: DILIP S DAMLE
• Keywords: Business income; Principle of natural justice; Proportionate interest; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO.257/COCH/2010 ASSESSMENT YEAR : 2005-06 M/S. HARRISONS MALAYALAM LTD., BRISTOW ROAD, WILLINGDON ISLAND, KOCHI-682 003. [PAN: AAACH 6769C] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX,CIRCLE-1(1),RANGE-1, ERNAKULAM. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI DILIP S.DAMLE, FCA REVENUE BY SHRI S.R. SENAPATI SR.DR DATE OF HEARING 07/06/2012 DATE OF PRONOUNCEMENT 29/06/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 16-03-2010 PASSED BY THE LD. CIT, KOCHI U/S. 263 OF THE ACT AN D IT RELATES TO THE ASSESSMENT YEAR 2005-06. THE ASSESSEE IS CHALLENGING THE VALIDITY OF SAID ORDER BEFORE US. 2. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSMENT IN THE HANDS OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 WAS OR IGINALLY COMPLETED U/S. 143(3) OF THE ACT ON 27-12-2007. THE ASSESSEE CHALLENGED THE SAID ASSESSMENT ORDER BEFORE THE LD. CIT(A), WHO PASSED THE APPELLATE ORDER ON 28-11 -2008. AGGRIEVED BY THE ORDER OF THE FIRST APPELLATE AUTHORITY, BOTH THE ASSESSEE AN D THE REVENUE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL AND THE ITAT PASSED ITS ORDER ON 12-05-2009. AFTER THE RECEIPT OF ORDER PASSED BY LD CIT(A), THE AO PASSED A CONSEQUENTIAL ORDER ON 13.3.2009. THE ADMINISTRATIVE COMMISSION PROCEEDED TO REVISE THE ORIGINAL ASSESSMENT ORDER PASSED ON 27.12.2007 AND ALSO THE CONSEQUENTI AL ORDER PASSED ON 13.3.2009 IN THE IMPUGNED REVISION PROCEEDING. I.T.A.NO.257 /COCH/2010 2 3. THE ADMINISTRATIVE COMMISSIONER INITIATED REVISI ON PROCEEDINGS U/S. 263 OF THE ACT IN RESPECT OF THE FOLLOWING ISSUES:- A) INCOME FROM SALE OF OLD RUBBER TREES B) INDEXATION ALLOWED IN THE CASE OF SALE PROCEEDS OF GREVILLEA TREES. C) PROPORTIONATE INTEREST RELATABLE TO THE INVESTME NT MADE IN SUBSIDIARY COMPANIES TO BE DISALLOWED U/S 14A OF THE ACT. D) DISALLOWANCE OF EXPENSES CLAIMED UNDER THE HEAD SHARE TRANSFER EXPENSES AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSES SEE, THE LD. CIT HELD THAT THE ORIGINAL ASSESSMENT ORDER PASSED U/S. 143(3) ON 27- 12-2007 AS WELL AS THE CONSEQUENTIAL ORDER DATED 13-03-2009 PASSED TO GIVE EFFECT TO THE APPELLATE ORDER OF THE LD CIT(A), ARE ERRONEOUS IN SO FAR AS THEY ARE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE LD. CIT SET ASIDE THE ORDERS WITH THE DIRECTION TO THE ASSESSING OFFICER TO RE-DO THE SAME AFRESH. THOUGH THE LD CIT HAS GIVEN A GENERAL DIRECTION, APPARENTLY, THE ORDERS ARE SET ASIDE ONLY TO CONSIDER THE FOUR ISSUES STATED ABOVE. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFU LLY PERUSED THE RECORD. BEFORE GOING INTO THE MERITS OF THE ISSUES, WE WOULD LIKE TO DIS CUSS ABOUT THE LEGAL POSITION WITH REGARD TO THE POWER OF LEARNED CIT TO INVOKE REVISI ON PROCEEDINGS UNDER SECTION 263 OF THE ACT. THE SCOPE OF REVISION PROCEEDINGS INITIAT ED UNDER SECTION 263 OF THE ACT WAS CONSIDERED BY HON'BLE BOMBAY HIGH COURT, IN THE CAS E OF GRASIM INDUSTRIES LTD. V CIT (321 ITR 92) BY TAKING INTO ACCOUNT THE LAW LAID DO WN BY THE HON'BLE SUPREME COURT. THE RELEVANT OBSERVATIONS ARE EXTRACTED BELOW: SECTION 263 OF THE INCOME-TAX ACT, 1961 EMPOWERS TH E COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDINGS UNDER THE ACT AND, IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN, BY THE ASS ESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE, TO PASS AN ORDER UPON HEARING THE ASSESSEE AND AFTER A N ENQUIRY AS IS NECESSARY, ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. THE KE Y WORDS THAT ARE USED BY SECTION 263 ARE THAT THE ORDER MUST BE CONSIDERE D BY THE COMMISSIONER TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THIS PROVISION HAS BEEN INTERPRETED BY THE SUPREME COURT IN SEVERAL JUDGMENTS TO WHICH IT IS NOW NECESSARY TO TURN. IN MALABAR INDUSTRIAL CO. LTD. V. CIT [2000] 243 ITR 83, THE SUPREME COURT HELD THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR I.T.A.NO.257 /COCH/2010 3 COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. THE SUPREME COURT HELD THAT AN INCORRECT ASSUMPTION OF FACT OR AN INCORRECT APP LICATION OF LAW, WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. AN ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APP LICATION OF MIND, WOULD BE AN ORDER FALLING IN THAT CATEGORY. THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE SUPREME COURT HELD, IT IS OF W IDE IMPORT AND IS NOT CONFINED TO A LOSS OF TAX. WHAT IS PREJUDICIAL TO T HE INTEREST OF THE REVENUE IS EXPLAINED IN THE JUDGMENT OF THE SUPREME COURT (HEA DNOTE) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE A SSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER, CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS O F THE REVENUE, FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF T HE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. THE PRINCIPLE WHICH HAS BEEN LAID DOWN IN MALABAR I NDUSTRIAL CO. LTD. [2000] 243 ITR 83 (SC) HAS BEEN FOLLOWED AND EXPLAI NED IN A SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN CIT V. MAX INDIA L TD. [2007] 295 ITR 282. 5. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUNBEAM AUTO LTD. (2011)(332 ITR 167) HAS DISCUSSED THE JUDICIAL PRECEDENTS IN T HIS REGARD. THE RELEVANT OBSERVATIONS OF THE HON'BLE DELHI HIGH COURT ARE EXTRACTED BELOW :- WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE CO UNSEL ON THE OTHER SIDE AND HAVE GONE THROUGH THE RECORDS. THE FIRST ISSUE THAT ARISES FOR OUR CONSIDERATION IS ABOUT THE EXERCISE OF POWER BY THE COMMISSIONER OF INCOME-TAX UNDER SECTION 263 OF THE INCOME-TAX ACT. AS NOTED ABOVE, THE SUBMISSION OF LEARNED COUNSEL FOR THE REVENUE WAS T HAT WHILE PASSING THE ASSESSMENT ORDER, THE ASSESSING OFFICER DID NOT CON SIDER THIS ASPECT SPECIFICALLY WHETHER THE EXPENDITURE IN QUESTION WA S REVENUE OR CAPITAL EXPENDITURE. THIS ARGUMENT PREDICATES ON THE ASSESS MENT ORDER, WHICH APPARENTLY DOES NOT GIVE ANY REASONS WHILE ALLOWING THE ENTIRE EXPENDITURE AS REVENUE EXPENDITURE. HOWEVER, THAT BY ITSELF WOU LD NOT BE INDICATIVE OF THE FACT THAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND ON THE ISSUE. THERE ARE JUDGMENTS GALORE LAYING DOWN THE PRINCIPL E THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS NOT REQUIRED TO GIVE DETAILED REASON IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTION, ETC. THEREFORE, ONE HAS TO SEE FROM THE RECORD AS TO WHETHER THERE WAS APPLI CATION OF MIND I.T.A.NO.257 /COCH/2010 4 BEFORE ALLOWING THE EXPENDITURE IN QUESTION AS REVE NUE EXPENDITURE. LEARNED COUNSEL FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINCTION BETWEEN LACK OF INQUI RY AND INADEQUATE INQUIRY. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 OF THE ACT, MERELY BECAUSE HE HAS A DIFFERENT OPINION IN T HE MATTER. IT IS ONLY IN CASES OF LACK OF INQUIRY THAT SUCH A COURSE OF A CTION WOULD BE OPEN. IN GABRIEL INDIA LTD. [1993] 203 ITR 108 (BOM), LAW ON THIS ASPECT WAS DISCUSSED IN THE FOLLOWING MANNER (PAGE 113) : . . . FROM A READING OF SUB-SECTION (1) OF SECTIO N 263, IT IS CLEAR THAT THE POWER OF SUO MOTU REVISION CAN BE EXERCISED BY THE COMMISSIONER ONLY IF, ON EXAMINATION OF THE RECORDS OF ANY PROCE EDINGS UNDER THIS ACT, HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE INCOME-TAX OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIA L TO THE INTERESTS OF THE REVENUE . IT IS NOT AN ARBITRARY OR UNCHARTERED PO WER, IT CAN BE EXERCISED ONLY ON FULFILMENT OF THE REQUIREMENTS LA ID DOWN IN SUB- SECTION (1). THE CONSIDERATION OF THE COMMISSIONER AS TO WHETHER AN ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL T O THE INTERESTS OF THE REVENUE, MUST BE BASED ON MATERIALS ON THE RECORD O F THE PROCEEDINGS CALLED FOR BY HIM. IF THERE ARE NO MATE RIALS ON RECORD ON THE BASIS OF WHICH IT CAN BE SAID THAT THE COMMISSI ONER ACTING IN A REASONABLE MANNER COULD HAVE COME TO SUCH A CONCLUS ION, THE VERY INITIATION OF PROCEEDINGS BY HIM WILL BE ILLEGAL AN D WITHOUT JURISDICTION. THE COMMISSIONER CANNOT INITIATE PROCEEDINGS WITH A VIEW TO STARTING FISHING AND ROVING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE ALREADY CONCLUDED. SUCH ACTION WILL BE AGAINST THE WELL-ACCEPTED POLICY OF LAW THAT THERE MUST BE A PO INT OF FINALITY IN ALL LEGAL PROCEEDINGS, THAT STALE ISSUES SHOULD NOT BE REACTIVATED BEYOND A PARTICULAR STAGE AND THAT LAPSE OF TIME MUST INDU CE REPOSE IN AND SET AT REST JUDICIAL AND QUASI-JUDICIAL CONTROVERSI ES AS IT MUST IN OTHER SPHERES OF HUMAN ACTIVITY. (SEE PARASHURAM POTTERY WORKS CO. LTD. V. ITO [1977] 106 ITR 1 (SC) AT PAGE 10) . . . 6. THE PRINCIPLES LAID DOWN BY THE COURTS ARE T HAT THE LEARNED CIT CANNOT INVOKE HIS POWERS OF REVISION UNDER SECTION 263 IF THE ASSESSI NG OFFICER HAS APPLIED HIS MIND WHILE PASSING THE ASSESSMENT ORDER ON THE ISSUES SOUGHT T O BE REVISED BY THE LD CIT. IF THERE WAS ANY ENQUIRY, EVEN INADEQUATE WOULD NOT BY ITSEL F GIVE OCCASION TO THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 OF THE ACT, MERELY BECAUSE HE HAS A DIFFERENT OPINION IN THE MATTER. THE CONSIDERATION OF THE COMMISSION ER AS TO WHETHER AN ORDER IS ERRONEOUS IN SO FAR IT IS PREJUDICIAL TO THE INTERE STS OF REVENUE MUST BE BASED ON MATERIALS ON RECORD OF THE PROCEEDINGS CALLED FOR B Y HIM. IF THERE ARE NO MATERIALS ON I.T.A.NO.257 /COCH/2010 5 RECORD ON THE BASIS OF WHICH IT CAN BE SAID THAT TH E COMMISSIONER ACTING IN A REASONABLE MANNER COULD HAVE COME TO SUCH A CONCLUSION, THE VE RY INITIATION OF PROCEEDINGS BY HIM WILL BE ILLEGAL AND WITHOUT JURISDICTION. THE COMM ISSIONER CANNOT INITIATE PROCEEDINGS WITH A VIEW TO START FISHING AND ROVING ENQUIRIES I N MATTERS OR ORDERS WHICH ARE ALREADY CONCLUDED. 7. SINCE THE REVISION ORDER HAS BEEN PASSED BY THE ADMINISTRATIVE COMMISSIONER AFTER THE RECEIPT OF ORDER OF FIRST APPELLATE AUTHO RITY, WE HAVE TO KEEP IN MIND CLAUSE (C) OF EXPLANATION TO SUB SEC. (1) OF SEC. 263, WHICH RE ADS AS UNDER:- (C) WHERE ANY ORDER REFERRED TO IN THIS SUB-SECTI ON AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTER OF AN Y APPEAL FILED ON OR BEFORE OR AFTER THE 1 ST DAY OF JUNE, 1988, THE POWERS OF THE COMMISSIONER UNDER THIS SUB- SECTION SHALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN S UCH APPEAL. 8. THE FIRST ISSUE SOUGHT TO BE REVISED BY LD C IT RELATES TO THE INCOME FROM THE SALE OF OLD RUBBER TREES. DURING THE YEAR UNDER CONSID ERATION, THE ASSESSEE-COMPANY RECEIVED RS. 5.42 CRORES ON SALE OF OLD RUBBER TREE S. THE ASSESSEE DID NOT OFFER THE SAID AMOUNT AS INCOME BY FOLLOWING THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF KALPETTA ESTATES LTD. VS. CIT, 221 ITR 601, WHERE IN THE APEX COURT HAD HELD THAT NO CAPITAL GAIN ARISES ON TRANSFER/SALE OF OLE & UNYIE LDING RUBBER TREES. THE ASSESSING OFFICER ALSO ACCEPTED THE SAID CLAIM OF THE ASSESSE E WHILE CONSIDERING THE ISSUE OF REPLANTING EXPENSES IN PARAGRAPH 5 OF THE ASSESSMEN T ORDER. HOWEVER, THE LD. CIT TOOK THE VIEW THAT THE VALUE ADDED RUBBER IS SUBJEC TED TO CENTRAL INCOME TAX AFTER THE INTRODUCTION OF RULE 7A TO THE INCOME TAX RULES AND ACCORDINGLY, TOOK THE VIEW THAT THE INCOME ON SALE OF OLD RUBBER TREES HAS TO BE TAKEN AS INCOME FROM DISPOSAL OF AN EXHAUSTED STOCK AND INCLUDED IN THE TOTAL INCOME OF THE RUBBER ESTATES AND SUBJECTED TO TAX BY APPLYING RULE 7A OF THE INCOME TAX RULES. 9. AS ALREADY NOTICED THAT THE AO HAS ALREADY CONSI DERED THE TAXABILITY OF INCOME FROM SALE OF OLD RUBBER TREES WHILE CONSIDERING THE ISSUE OF REPLANTING ISSUES AND HAS ACCEPTED THE CLAIM OF THE ASSESSEE THAT THE INCOME FROM SALE OF OLD RUBBER TREES IS NOT I.T.A.NO.257 /COCH/2010 6 LIABLE FOR CAPITAL GAIN TAX, APPARENTLY BY FOLLOWIN G THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF KALPETTA ESTATES LTD., SUPRA. NOW, THE LD CIT(A) HAS TAKEN THE VIEW THAT THE SAID INCOME BECOMES TAXABLE AFTER THE INTRODUCTION OF RULE 7A TO THE INCOME TAX RULES. IN MALABAR INDUSTRIAL CO. LTD. V . CIT [2000] 243 ITR 83, THE SUPREME COURT HAS HELD THAT THE PROVISION OF SEC. 2 63 CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED B Y THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WI LL BE ATTRACTED. THE SUPREME COURT HELD THAT AN INCORRECT ASSUMPTION OF FACT OR AN INC ORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. NOW THE QUESTION THAT ARISES IS WHETHER THE VIEW OF THE AO THAT THE SALE OF OLD RUBBER TREE S CANNOT BE CONSIDERED AS CAPITAL GAIN WOULD FIT IN THE CATEGORY OF INCORRECT APPLIC ATION OF LAW AFTER THE INTRODUCTION OF RULE 7A AS PRESUMED BY LD CIT(A). 10. WE HAVE GONE THROUGH RULE 7A OF INCOME TAX RULES AND FOR THE SAKE OF CONVENIENCE, WE EXTRACT THE SAME BELOW:- INCOME FROM THE MANUFACTURE OF RUBBER 7A (1) INCOME DERIVED FROM THE SALE OF CENTRIFUGED LATEX OR CENEX OR LATEX BASED CREPES (SUCH AS PALE LATEX CREPE) OR B ROWN CREPES (SUCH AS ESTATE BROWN CREPE, REMILLED CREPE, SMOKED BLANKET CREPE OR FLAT BARK CREPE) OR TECHNICALLY SPECIFIED BLOCK RUBBERS MANUF ACTURED OR PROCESSED FROM FIELD LATEX OR COAGULUM OBTAINED F ROM RUBBER PLANTS GROWN BY THE SELLER IN INDIA SHALL BE COMPUTED AS I F IT WERE INCOME DERIVED FROM BUSINESS, AND THIRTY-FIVE PER CENT OF SUCH INCOME SHALL BE DEEMED TO BE INCOME LIABLE TO TAX. ON A CAREFUL PERUSAL OF RULE 7A, WE NOTICE THAT THE SAID RULE TALKS ABOUT COMPUTATION OF INCOME DERIVED FROM SALE OF CENTRIFUGED LATEX OR CE NEX OR LATEX BASED CREPES (SUCH AS PALE LATEX CREPE) OR BROWN CREPES ETC . THE SAID RULE DOES NOT TALK ABOUT THE TAXABILITY OF INCOME FROM SALE OF OLD RUBBER TR EES. ACCORDING TO LD A.R, THE RULE 7A PROVIDES FOR ASCERTAINMENT OF BUSINESS INCOME OBTAI NED ON SALE OF CENTRIFUGED LATEX ETC. WHEN MANUFACTURED OR PROCESSED FROM FIELD LATEX OR COAGULUM OBTAINED FROM RUBBER PLANTS GROWN BY THE SELLER IN INDIA , I.E., WHEN THERE IS A COMBINED ACTIVITY OF GROWING RUBBER TREES AND ALSO MANUFACTURING OR PROC ESSING OF FIELD LATEX OR COAGULUM OBTAINED FROM RUBBER PLANTS, RULE 7A PROVIDES FOR S EGREGATION AND ASCERTAINMENT OF I.T.A.NO.257 /COCH/2010 7 AGRICULTURAL INCOME AND THE BUSINESS INCOME. ON A PLAIN READING OF RULE 7A, WE ARE INCLINED TO ACCEPT THE CONTENTIONS OF LD A.R. THUS , THE SAID RULE 7A DOES NOT TAKE IN ITS AMBIT THE QUESTION OF SALE OF OLD RUBBER TREES AND ACCORDINGLY, IN OUR VIEW, THE LD. CIT HAS PLACED INCORRECT INTERPRETATION ON RULE 7A AND HAS TAKEN THE VIEW THAT THE SAID RULE 7A SHALL APPLY TO THE SALE PROCEEDS OF OLD RUBBER T REES. HENCE, IT CANNOT BE SAID THAT THERE IS INCORRECT APPLICATION OF LAW ON THE PART O F THE AO. ACCORDINGLY, WE ARE OF THE VIEW THAT THE LD. CIT WAS NOT CORRECT IN ASSUMING J URISDICTION OVER THIS ISSUE BY MAKING INCORRECT INTERPRETATION OF LAW. 11. THE NEXT ISSUE CONSIDERED BY THE LD. CIT RELATE S TO THE INDEXATION BENEFIT ALLOWED IN THE CASE OF THE SALE PROCEEDS OF GREVILL EA TREES. THOUGH THE ASSESSEE ORIGINALLY CLAIMED LOSS ON THE SALE OF GREVILLEA TR EES, THE ASSESSING OFFICER DECLINED TO ASSESS THE SAME BY FOLLOWING THE DECISION OF THE HO NBLE SUPREME COURT IN THE CASE OF KALPETTA ESTATES LTD. (SUPRA). THE ASSESSEE CHALLEN GED THE SAID DECISION OF THE AO BEFORE THE LD. CIT(A) BUT DID NOT PRESS THE SAME. HENCE THE SAID GROUND WAS DISMISSED BY THE LD. CIT(A). THE LD. CIT(A) TOOK T HE VIEW THAT THE AO HAD CONVERTED THE CAPITAL LOSS CLAIMED IN RESPECT OF GREVILLEA TR EES INTO LONG TERM CAPITAL GAIN OF EQUIVALENT AMOUNT. ACCORDINGLY, THE HELD THAT THE AO IS NOT JUSTIFIED IN TREATING THE ABOVE SAID AMOUNT AS CAPITAL GAIN. THE REVENUE CHA LLENGED THE SAID DECISION OF THE LD. CIT(A) BEFORE THE ITAT AND THE TRIBUNAL VIDE ITS OR DER DATED 12-05-2009 DISMISSED THE GROUND RAISED BY THE REVENUE. ALL THESE DISCUSSION S SHOW THAT THE ISSUE OF THE TAXABILITY OF INCOME ON SALE OF GREVILLEA TREES HAS BEEN CONSIDERED AND DECIDED BY THE LD. CIT(A) AS WELL AS THE TRIBUNAL. HENCE, IN VIEW OF THE SPECIFIC PROVISIONS IN CLAUSE (C) OF EXPLANATION TO SEC. 263(1), THE SAID ISSUE FA LLS OUTSIDE THE SCOPE OF REVISIONARY PROCEEDINGS U/S. 263. ACCORDINGLY, THE LD CIT WAS NOT LEGALLY CORRECT IN ASSUMING JURISDICTION OVER THIS ISSUE. 12. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF P ROPORTIONATE INTEREST RELATABLE TO INVESTMENTS MADE IN SUBSIDIARY COMPANIES. THE LD. CIT NOTICED THAT THE ASSESSEE INVESTED IN SHARES OF OTHER COMPANIES AND SINCE THE DIVIDEND INCOME IS NOT TAXABLE, THE INTEREST PAYMENT RELATABLE TO SUCH INVESTMENTS IS D ISALLOWABLE U/S. 14A OF THE ACT. THE I.T.A.NO.257 /COCH/2010 8 LD CIT TOOK THE VIEW THAT THE ASSESSING OFFICER HAS NOT MADE PROPER VERIFICATION OF FULL FACTS OF THE CASE WITH REGARD TO THE ADMISSIBILITY OF INTEREST EXPENSES WITH REFERENCE TO THE PROVISIONS OF SEC. 14A OF THE ACT. IT IS THE C ONTENTION OF THE ASSESSEE THAT THE AO HAS CONSIDERED AND DECIDED THE ISSUE OF DISALLOWANC E TO BE MADE U/S. 14A OF THE ACT IN RESPECT OF RE-PLANTATION EXPENSES CLAIMED BY THE AS SESSEE IN THE ASSESSMENT PROCEEDINGS. IT WAS FURTHER SUBMITTED THAT WHEN TH E ASSESSING OFFICER INVOKED SEC. 14A FOR MAKING DISALLOWANCES AND EXAMINES THE ACCOUNTS OF THE ASSESSEE, IT HAS TO BE PRESUMED THAT HE HAS EXAMINED ALL THE EXPENSES VIS- A-VIS SEC.14A OF THE ACT. IT WAS FURTHER SUBMITTED THAT THERE IS NO INCREASE IN THE COST OF INVESTMENT DURING THE YEAR UNDER CONSIDERATION AND THE INVESTMENTS ACCOUNT IS BEING CARRIED FORWARD FROM EARLIER YEARS. THE LD. AR FURTHER SUBMITTED THAT THE ASSESS EE IS HAVING SUFFICIENT INTEREST FREE FUNDS IN ITS POSSESSION AND IT CANNOT BE PRESUMED T HAT THE INVESTMENT MADE IN THE EARLIER YEARS HAS BEEN MADE OUT OF THE INTEREST BEA RING FUNDS. THE LD A.R, BY PLACING RELIANCE ON THE DECISION OF BOMBAY HIGH COURT IN TH E CASE OF CIT VS. RELIANCE & POWER UTILITY LTD. (313 ITR 340) AND ALSO THE DECISION OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES LTD, SUBMITTED THAT DISALLOWANCE U/S 14A COULD NOT BE MADE WHEN THE ASSESSEE IS IN POSSESSION OF BOTH OWN FUNDS AND LOAN FUNDS. ACCORDINGLY, IT WAS SUBMITTED THAT THE VIEW TAKEN B Y THE AO IN NOT MAKING ANY DISALLOWANCE U/S 14A OF THE INTEREST EXPENDITURE IS ONE OF THE POSSIBLE VIEWS. 13. WE FIND MERIT IN THE CONTENTIONS OF THE ASS ESSEE. IT IS NOT A CASE THAT THE AO HAS COMPLETELY FAILED TO EXAMINE THE ISSUE OF APPLI CABILITY OF PROVISIONS OF SEC. 14A TO THE CASE OF THE ASSESSEE. THE AO HAS CONSIDERED TH E APPLICATION OF SEC. 14A IN RESPECT OF RE-PLANTATION EXPENSES, WHICH MEANS THAT THE AO HAS EXAMINED THE APPLICABILITY OF SEC. 14A TO THE CASE OF THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER DID NOT MAKE ANY DISALLOWANCE OF INTEREST RELATABLE TO THE INVESTMEN TS MADE IN SHARES. THUS, IT IS NOT A CASE WHERE THE AO HAS COMPLETELY FAILED TO APPLY HI S MIND. SINCE THE AO HAS CONSIDERED THE APPLICABILITY OF SEC. 14A TO THE FAC TS OF THE ASSESSEE, IT HAS TO BE HELD THAT THE AO HAS TAKEN ONE OF THE POSSIBLE VIEWS IN NOT MAKING ANY DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A OF THE ACT. IT IS A W ELL SETTLED PROPOSITION OF LAW THAT IF THE ASSESSING OFFICER HAS TAKEN ONE PLAUSIBLE VIEW, WIT H WHICH THE LD. CIT DOES NOT AGREE; I.T.A.NO.257 /COCH/2010 9 REVISIONARY PROCEEDINGS U/S. 263 SHALL NOT LIE IN R ESPECT OF THE SAME. THE KOLKATA BENCH OF THE ITAT IN THE CASE OF BENGAL AMBUJA HOUS ING DEVELOPMENT LTD. VS. ACIT IN I.T.A. NO. 1001/KOL/2004 DATED 20-12-2004 HAS TAKEN THE VIEW THAT THE LD. CIT HAVING FAILED TO POINT OUT A SINGLE ITEM OF EXPENDITURE AS HAVING DIRECT NEXUS WITH THE DIVIDEND INCOME, IT CANNOT BE SAID THAT THE VIEW TAKEN BY TH E AO IS UNSUSTAINABLE IN LAW. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VI EW THAT THE ISSUE OF DISALLOWANCE OF INTEREST RELATABLE TO DIVIDEND INCOME ALSO FALLS OU TSIDE THE SCOPE OF REVISIONARY PROCEEDINGS U/S. 263 OF THE ACT. 14. THE LAST ISSUE RELATES TO THE ISSUE OF DISALLOW ANCE OF SHARE TRANSFER EXPENSES. THE LD. CIT HAS TAKEN THE VIEW THAT THE ASSESSEE HA S INCURRED A SUM OF RS. 1,24,664/- IN CONNECTION WITH THE TRANSFER OF SHARES WHERE A S THE FACT REMAINS THAT THE SAID EXPENSES HAVE BEEN INCURRED IN CONNECTION WITH THE MAINTENANCE OF SHARE HOLDERS REGISTER. THE CBDT VIDE ITS INSTRUCTION NO. F. NO. 10/25/63-IT(A.A) DATED 18-06-1964 CLARIFIED THAT THE REMUNERATION PAID BY THE COMPANY TO ITS REGISTRAR FOR PERFORMING DUTIES IN CONNECTION WITH THE COMPANYS LEGAL OBLIG ATIONS TO BE DISCHARGED UNDER THE COMPANY LAW, SHOULD BE REGARDED AS REVENUE EXPENDIT URE. HENCE WE ARE OF THE VIEW THAT THE LD CIT HAS ENTERTAINED THE VIEW IN RESPECT OF SHARE TRANSFER EXPENSES WITHOUT PROPERLY APPRECIATING THE FACTS RELATING TO THE SAM E. THE WRONG VIEW TAKEN BY THE LD CIT ON THE FACTS OF A PARTICULAR EXPENSE, IN OUR VI EW, CANNOT BE A GROUND TO INITIATE REVISION PROCEEDINGS. ACCORDINGLY FIND THAT DECISI ON OF THE LD. CIT ON THIS ISSUE IS NOT IN ACCORDANCE WITH LAW AND HENCE FALLS OUTSIDE THE SCO PE OF REVISION PROCEEDINGS. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED ACCORDINGLY ON 2 9-06-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 29TH JUNE, 2012 GJ COPY TO: I.T.A.NO.257 /COCH/2010 10 1. M/S. HARRISONS MALAYALAM LTD., BRISTOW ROAD, WIL LINGDON ISLAND, KOCHI-682 003. 2.THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(1 ), RANGE-1, ERNAKULAM. 3.THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCHI 4.THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN