M/s S. Kanhaiyalal Bidi Company, Bhopal V. The CIT, Bhopal

ITA 284/IND/2012

• Counselvise Citation: 28422714 RSA 2012
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 14-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KESHAV SAXENA
• Assessee Lawyers: R N GUPTA
• Keywords: Opportunity of being heard; Proportionate interest; Accommodation entries
• Section: 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO. 284/IND/2012 A.Y. 2007-08 M/S KANHAIYALAL BIDI COMPANY BHOPAL PAN AANFS 0337D :: APPELLANT VS COMMISSIONER OF INCOME TAX BHOPAL :: RESPONDENT APPELLANT BY SHRI R.N. GUPTA RESPONDENT BY SHRI KESHAV SAXENA DATE OF HEARING 26.07.2012 DATE OF PRONOUNCEMENT 06.08.2012 O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DA TED 27 TH MARCH, 2012 PASSED U/S 263 OF THE ACT BY THE LEARNE D COMMISSIONER OF INCOME TAX, BHOPAL, ON THE GROUND T HAT THE 2 ASSESSMENT ORDER WAS FRAMED IN ACCORDANCE WITH LAW, AFTER FULL APPLICATION OF MIND, INQUIRY, THEREFORE, INVOCATION OF SECTION 263 OF THE ACT DESERVES TO BE QUASHED ESPECIALLY WHEN T HE ASSESSMENT ORDER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE I NTEREST OF REVENUE. 2. DURING HEARING, WE HAVE HEARD SHRI R.N. GUPTA, L EARNED COUNSEL FOR THE ASSESSEE AND SHRI KESHAV SAXENA, LE ARNED CIT DR. THE CRUX OF ARGUMENTS ON BEHALF OF THE ASSESSEE IS IDENTICAL TO THE GROUND RAISED BY FURTHER SUBMITTING THAT 31 QUESTIONS WERE ASKED BY THE AO BEFORE FRAMING THE ASSESSMENT ORDER AND EACH QUESTION WAS DULY REPLIED FOR WHICH OUR ATTENT ION WAS INVITED TO VARIOUS PAGES OF THE PAPER BOOK. THE LEA RNED COUNSEL FURTHER CONTENDED THAT THE ASSESSMENT ORDER WAS FRA MED AFTER DUE INQUIRY, THEREFORE, PLACED RELIANCE ON THE DECI SION IN THE CASE OF CIT VS. ASHISH RAJPAL (2010) 320 ITR 674 (DEL), CIT VS. ALOK PAPER INDUSTRIES; 138 ITR 729 (MP) WITH REGARD TO I NTEREST CREDITED ON CREDIT BALANCE OF PARTNERS, CIT VS. SHR EEDEV ENTERPRISES (59 TAXMAN) 439 (KARN.) REGARDING INTER -RELATION AND BUSINESS CONNECTIONS OF THE PARTNERS AS NO INTEREST WAS CHARGED FROM THE FIRM. ON THE OTHER HAND, THE LEARNED CIT D R STRONGLY DEFENDED THE IMPUGNED ORDER BY SUBMITTING THAT NO Q UERY WAS 3 RAISED BY THE AO ON SOME OF THE ISSUES, THERE WAS N O APPLICATION OF MIND BY THE AO, THERE WAS INTEREST ON CREDIT BAL ANCE BUT NOTHING FROM DEBIT BALANCES. THE LEARNED COUNSEL RE LIED ON THE DECISION IN MALABAR INDUSTRY LIMITED; 243 ITR 83 (S C) AND THE DECISION OF THE INDORE BENCH OF THE TRIBUNAL IN THE CASE OF D&H SECHERON ELECTRODES LIMITED VS. DCIT (1999) 70 ITD 214 (INDORE). 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND IS IN THE BUSINE SS OF MANUFACTURING AND SALE OF BEEDIES. THE TOTAL INCOM E OF RS.8,64,380/- WAS FURNISHED IN ITS RETURN ON 31.10. 2007. THE CASE WAS SELECTED FOR SCRUTINY, THEREFORE, NOTICE U /S 143(2) OF THE ACT WAS ISSUED ON 29.8.2008 AND THEREAFTER ON OTHER DATES. THE ASSESSEE ALSO FILED TAX AUDIT REPORT ON 8.10.2007 U /S 44AB OF THE ACT. THE ASSESSEE ATTENDED ASSESSMENT PROCEEDINGS, FURNISHED WRITTEN SUBMISSIONS ALONG WITH SUPPORTING DOCUMENTS . DUE TO NON-VERIFIABILITY OF EXPENSES DEBITED UNDER VARIOUS HEADS, THE DISALLOWANCE OF RS.1 LAC WAS MADE AND THUS THE TOTA L INCOME WAS ASSESSED AT RS.9,64,380/- AGAINST THE DECLARED INCO ME OF RS.8,64,380/-. 4 4. THE LEARNED CIT INVOKED REVISIONAL JURISDICTION U/S 263 OF THE ACT ON THE PLEAT THAT TWO PARTNERS OF THE ASSES SEE FIRM, SHRI AVINASH PARITA AND SHRI ABHISHEK PARITA, WERE HAVIN G DEBIT BALANCE OF RS.27,04,534/- AND RS.1,92,295/-, RESPEC TIVELY AND NO INTEREST WAS CHARGED BY THE FIRM ON THESE DEBIT BALANCES OF THE PARTNERS WHEREAS THE ASSESSEE FIRM PAID INTERES T AMOUNTING TO RS.5,40,975/- TO THE REMAINING PARTNERS. THE ASS ESSEE FIRM ALSO PAID INTEREST AMOUNTING TO RS.10,08,000/- AT T HE RATE OF 18% ON LOAN TAKEN FROM THE FAMILY MEMBERS OF THE PA RTNERS. THE LEARNED CIT WAS OF THE VIEW THAT THE INTEREST PAID ON LOAN TO THE EXTENT OF RS.5,21,429/- SHOULD HAVE BEEN ADDED BACK TO THE INCOME OF THE ASSESSEE. FURTHER, OUTSTANDING CREDIT ORS AMOUNTING TO RS.41,09,304/- PRIOR TO 1.4.2003 SHOUL D HAVE BEEN TREATED AS CESSATION OF UNPAID LIABILITY AS NO CONF IRMATION WAS FOUND ON RECORD. AFTER ISSUING SHOW CAUSE NOTICE U/ S 263(1) OF THE ACT, THE CASE WAS FIXED FOR HEARING AND THE LD. CIT WAS OF THE VIEW THAT TO THE EXTENT OF REASONS STATED IN THE IM PUGNED ORDER, THE ASSESSMENT ORDER IS PREJUDICIAL TO THE INTEREST OF REVENUE. THE AO WAS DIRECTED TO REFRAME THE ASSESSMENT AFTER EXA MINING THE ISSUES STATED IN THE IMPUNGED ORDER AND THAT TOO AF TER PROVIDING SUFFICIENT OPPORTUNITIES TO THE ASSESSEE. 5 4.1 WE HAVE PERUSED THE RECORD, PAPER BOOK OF THE A SSESSEE AND ALSO CONSIDERED THE CASE LAWS CITED BY THE LEARNED RESPECTIVE COUNSEL. THE DECISIONS FROM HONBLE APEX COURT IN M ALABAR INDUSTRIAL COMPANY LIMITED (SUPRA) IS A LAND MARK D ECISION DULY EXPLAINING THE MEANING OF THE WORD PREJUDICIAL TO REVENUE. THE LANGUAGE OF SECTION 263 OF THE ACT MAKES IT CLEAR T HAT BEFORE SECTION 263 OF THE ACT IS INVOKED, THE LEARNED CIT SHOULD BE SATISFIED THAT THE ASSESSMENT ORDER IS ERRONEOUS IN SOFAR AS PREJUDICIAL TO THE INTEREST OF REVENUE, MEANING THE REBY THAT THE LEARNED CIT HAS TO BE SATISFY HIMSELF THAT THE TWIN CONDITIONS I.E. (A) THE ASSESSMENT ORDER, SOUGHT TO BE REVISED, IS ERRONEOUS AND (B) IT IS PREJUDICIAL TO THE INTEREST OF THE REVENU E, EXIST. IF ONE OF THEM IS ABSENT, I.E IF THE ASSESSMENT ORDER IS ERRO NEOUS BUT NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE OR IF IT IS NOT ERRONEOUS BUT STILL PREJUDICIAL TO THE INTEREST OF THE REVENU E, RECOURSE CANNOT BE HAD TO SECTION 263(1) OF THE ACT. IF DUE TO AN ERRONEOUS ORDER OF THE AO, THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY AN ASSESSEE, IT WILL BE PREJUDICIAL TO THE INTEREST OF REVENUE. IF THE TOTALITY OF FACTS IS ANALYSED, DEFINITELY THERE ARE CERTAIN DISCREPANCIES IN THE ASSESSMENT ORDER LEADING TO TH E CONCLUSION FIRSTLY THE AO HAS NOT APPLIED ITS MIND WHILE FRAMI NG THE 6 ASSESSMENT AND SECONDLY THE INTEREST OF REVENUE IS JEOPARDISED AS WE HAVE DISCUSSED THE FACTS HEREINABOVE. AN INCORRE CT ASSUMPTION OF FACT OR AN INCORRECT APPLICATION OF L AW WOULD SATISFY THE REQUIREMENT OF ORDER BEING ERRONEOUS U/ S 263 OF THE ACT. THE EXPRESSION PREJUDICIAL TO THE INTEREST O F REVENUE AS UNDERSTOOD IN ITS ORDINARY MEANING IS OF WIDE IMPOR T AND NOT MERELY CONFINED TO LOSS OF TAX ALONE. IF DUE TO AN ERRONEOUS ORDER OF THE AO, THE REVENUE IS LOSING TAX LAWFULLY PAYAB LE BY A PERSON, SUCH ORDER CERTAINLY SHOULD BE PREJUDICIAL TO THE I NTEREST OF REVENUE. IF THE PROCEDURE ADOPTED HAS BROUGHT LESS ER REVENUE, THE ORDER IS PREJUDICIAL. THE FOLLOWING JUDICIAL PR ONOUNCEMENTS AND RATIO LAID DOWN THEREIN, SUPPORT OUR VIEW :- (A) CIT V. H.P. FINANCIAL CORPN. (2010) 186 TAXMAN 105(HP) (B) CIT VS. PUSHPADEVI; 164 ITR 639 (PAT) (C) BISMILLAH TRADING COMPANY; 248 ITR 292 (KER) (D) SMT. TARADEVI AGRAWAL VS. CIT; 88 ITR 323 (SC) (E) MALABAR INDUSTRIAL CO. LTD.; 243 ITR 83 (SC) (F) CIT VS. SHRIRAM DEV. COMPANY; 159 ITR 812 (MP) (G) INDIAN TEXTILE VS. CIT; 157 ITR 112 (MAD) (H) VENKATA KRISHNA RICE COMPANY; 163 ITR 129 (MAD .) (I) THALIBAI F. JAIN VS. ITO; 101 ITR 1 (KARN.) (J) GEE VEE ENTERPRISES; 99 ITR 375 (DEL) 7 4.2 ADMITTEDLY, WHAT CONSTITUTES PREJUDICE TO REV ENUE HAD BEEN THE SUBJECT MATTER OF A JUDICIAL DEBATE. O NE VIEW WAS THAT PREJUDICIAL TO THE INTEREST OF REVENUE DOES NOT NECESSARILY MEAN LOSS OF REVENUE. THE EXPRESSION IS NOT TO BE C ONSTRUED IN A PETTY FOGGING MANNER BUT MUST BE GIVEN A DIGNIFIED CONSTRUCTION. THE INTEREST OF REVENUE CANNOT BE EQUATED TO RUPEES AND PAISE MERELY RATHER THERE MUST BE GRIEVOUS ERROR IN THE O RDER PASSED BY THE ITO WHICH MIGHT SET A BAD TREND OR PATTERN FOR SIMILAR ASSESSMENT WHICH, ON A BROAD RECKONING, THE COMMISS IONER MIGHT THINK TO BE PREJUDICIAL TO THE REVENUE ADMINI STRATION. ADMITTEDLY, WHERE ANOTHER VIEW IS POSSIBLE, REVISIO N IS NOT PERMISSIBLE. HOWEVER, THE CIT MUST POINT OUT THE E XACT ERROR AND AFFORD OPPORTUNITY TO THE ASSESSEE QUA SUCH ERROR. THE HON'BLE GUJRAT HIGH COURT IN RAMDEV EXPORTS V. CIT; 120 TAX MAN 315 EVEN WENT TO THE EXTENT THAT REVISIONAL JURISDICTIO N CAN BE EXERCISED EVEN IF THE RETURN FILED BY THE ASSESSEE IS ACCEPTED BY THE ASSESSING OFFICER, THEREFORE, WE ARE OF THE CON SIDERED OPINION THAT THE LEARNED AO HAS INADVERTENTLY LOST SIGHT OF SOME OF THE ISSUES LIKE LIABILITY OF OUTSTANDING CREDITORS, PAY MENT OF INTEREST TO THE REMAINING PARTNERS, PAYMENT OF INTEREST AT T HE RATE OF 18% ON THE LOAN TAKEN FROM FAMILY MEMBERS AND NOT CHARG ING OF 8 INTEREST ON THE LOANS AND ADVANCES GIVEN TO THE PAR TNERS AND ITS CONSEQUENT EFFECT ON THE TAXABILITY, NON CONSIDERAT ION OF CLAUSE 6 OF PARTNERSHIP DEED DATED 1.4.1999 TO THE EFFECT TH AT NO INTEREST SHALL BE PAID TO OR CHARGED BY THE FIRM ON THE DEBI T BALANCES OF THE PARTNERS, CONSEQUENTLY, WE ARE OF THE CONSIDERE D OPINION THAT THE ASSESSMENT ORDER IS ERRONEOUS AS WELL AS PREJUD ICIAL TO THE INTEREST OF REVENUE. IT IS PERTINENT TO MENTION HE RE THAT EVEN THE LEARNED CIT HAS REMANDED THE ISSUES TO THE FILE OF THE AO FOR REFRAMING THE ASSESSMENT AFTER EXAMINING THE POINTS MENTIONED IN THE REVISIONAL ORDER AND THAT TOO AFTER PROVIDIN G SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. SO FAR AS THE RELIANCE BY THE ASSESSEE ON THE DECISION IN THE CASE OF ALO K PAPER INDUSTRIES; 138 ITR 729 (MP) IS CONCERNED, IN THAT CASE, THE ASSESSEE FIRM CREDITED INTEREST ON CREDIT BALANCE O F ALL THE PARTNERS EXCEPT FOR WHO HAD DEBIT BALANCE IN THEIR CAPITAL ACCOUNTS. NO INTEREST WAS CHARGED ON THE SAID DEBIT BALANCE. THE ITO INFERRED THAT THE BORROWINGS TO THE EXTENT OF D EBIT BALANCE IN THE PARTNERS ACCOUNT HAD NOT BEEN UTILISED FOR BUSI NESS PURPOSES AND THUS DISALLOWED THE PROPORTIONATE INTEREST. HO WEVER, THE TRIBUNAL FOUND THAT THE INTEREST THAT WAS PAID TO T HE PARTNERS HAD ALREADY BEEN ADDED TO THE TOTAL INCOME, THEREFO RE, THE 9 INTEREST AMOUNT WAS NOT DISALLOWABLE FROM AND OUT O F THE ASSESSEES CLAIM OF INTEREST PAYMENT IN RESPECT OF ITS BORROWINGS, THEREFORE, THE FACTS ARE DISTINGUISHABLE. MOREOVER, THE ISSUE IN CASE OF ALOK PAPERS INDUSTRIES (SUPRA) PERTAINS TO DISALLOWANCE OF INTEREST U/S 36(1)(III) WHEREAS ISSUE BEFORE US PER TAINS TO EXERCISE OF REVISIONARY POWERS BY THE CIT U/S 263 WHERE THE AO HAS NOT APPLIED HIS MIND TO THE FACTS CLEARLY AVAILABLE ON RECORD. EVEN OTHERWISE, THE FACTS OF EACH CASE HAVE TO BE CONSID ERED INDEPENDENTLY. SO FAR AS THE RELIANCE ON THE DECISI ON FROM HONBLE GAUHATI HIGH COURT IN THE CASE OF CIT VS. SHRI JAWA HAR BHATTARJI (ITA NO. 2 OF 2008) ORDER DATED 7 TH FEBRUARY, 2012 IS CONCERNED, THE DECISION WAS ARRIVED AT ON THE FACTS OF THOSE C ASES. THE HONBLE HIGH COURT HAS DULY CONSIDERED THE DECISION IN DAGA ENTRADE P LIMITED WHEREIN THE AO DID NOT MAKE ANY I NQUIRY WITH REGARD TO APPRAISAL REPORT AVAILABLE WITH HIM, ON T HE BASIS OF SEARCH CONDUCTED, SHOWING THAT THE ASSESSEE WAS PRO VIDING ACCOMMODATION ENTRIES. ON THIS GROUND, THE LEARNED CIT EXERCISED SUO MOTU REVISIONAL JURISDICTION U/S 263 WHICH WAS HELD TO BE NOT PERMISSIBLE ON THE GROUND THAT THE C IT HAD NOT DISCUSSED CONTENTS OF THE APPRAISAL REPORT. THE D ECISIONS IN THE CASES OF SHYAM SUNDER AGRAWAL AND BONGAIGAON REFINE RY & PETRO 10 CHEMICALS LIMITED (SUPRA) WERE ALSO DISCUSSED WHERE IN IT WAS HELD THAT IF THE ORDER OF THE AO WAS PASSED IGNORIN G RELEVANT MATERIAL, CAUSING PREJUDICE TO THE INTEREST OF REVE NUE, SUO MOTU, REVISIONAL JURISDICTION COULD BE EXERCISED BY THE L EARNED CIT, MEANING THEREBY, OUR VIEW IS RATHER SUPPORTED BY TH E AFORESAID ORDER AND MAY NOT HELP THE ASSESSEE. WE, THEREFORE, FIND NO JUSTIFICATION TO INTERFERE WITH THE IMPUGNED ORDER. THE SAME IS UPHELD. FINALLY, THE APPEAL OF THE ASSESSEE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 6.8.2012. SD SD (R.C.SHARMA) (JOGINDER SINGH ) ACCOUNTANT MEMBER JUDICIAL ME MBER DATED: 06.08.2012 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE DN/-2627.7 AND 6.8. 11