Kuttukaran Trading Ventures, Cochin V. DCIT, Ernakulam

ITA 286/COCH/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52247 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 26-04-2010
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Assessee Lawyers: A S NARAYANAMOORTHY FCAAR
• Keywords: Business income; Search and seizure; Assessment record
• Section: 43B; 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A NO.286/COCH/2010 ASSESSMENT YEAR: 2005-06 KUTTUKKARAN TRADING VENTURES, KUTTUKKARAN CENTRE, MAMAMGALAM, KOCHI-682025 [PAN:AAEFP 2173K] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(2), ERNAKULAM. (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY SHRI A.S.NARAYANAMOORTHY, FCA-AR REVENUE BY SHRI S.R.SENAPATI, SR.DR DATE OF HEARING 27/09/2011 DATE OF PRONOUNCEMENT 04/10/2011 O R D E R PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE, CONTESTING THE ORDER U/S. 263 OF THE INCOME-TAX ACT, 1961 ('THE ACT', HEREINAFTER) BY THE COMMISSIO NER OF INCOME-TAX, KOCHI (CIT FOR SHORT) DATED 04.3.2010, AND THE ASSESSMENT YEAR UND ER REFERENCE IS A.Y. 2005-06. 2.1 OPENING THE ARGUMENTS ON BEHALF OF THE ASSESSEE , IT WAS SUBMITTED BY THE LD. AR, ITS COUNSEL, THAT THE ASSESSEE IS A PARTNERSHIP FIR M, FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. ITS ASSESSMENT FOR THE RELEVANT YEAR W AS COMPLETED AFTER HEARING ON DIFFERENT DATES, U/S. 143(3) OF THE ACT VIDE ORDER DATED 26.1 2.2008, ASSESSING A LOSS OF ` 19,93,612. VIDE THE STATEMENT OF TAXABLE INCOME, FORMING PART OF ITS RETURN FOR THE RELEVANT YEAR (PB PG. 1), THE ASSESSEE HAD CLAIMED DEDUCTION QUA PAYMENTS OF SALES-TAX IN THE SUM OF ` 39,22,628/- IN THE COMPUTATION OF ITS BUSINESS INCO ME, AND WHICH STOOD ALLOWED IN ASSESSMENT. THE SAID PAYMENT, HOWEVER, HAD NOT BEEN CHARGED TO THE PROFIT AND LOSS I.T.A. NO.286/COCH/2010 (ASSTT. YEAR: 2005-06) 2 (P&L) ACCOUNT, BUT REFLECTED IN ITS BALANCE-SHEET A S AT THE YEAR-END (31.3.2005) AS AN ASSET, UNDER THE HEAD LOANS AND ADVANCES, BY WAY OF DISPUTED SALES TAX. THIS FACT WAS OBSERVED BY THE LD. CIT ON EXAMINING THE ASSESSEES ASSESSMENT RECORD, AND THE ASSESSEE ENQUIRED IN ITS RESPECT U/S. 263. IT WAS EXPLAINED THAT AS THE SALES-TAX LIABILITY WAS BEING CONTESTED WITH THE SALES-TAX AUTHORITIES, IT HAD AC COUNTED FOR THE SAID PAYMENT/S THUS, WHICH, HOWEVER, WOULD NOT IMPACT ITS CLAIM IN ITS R ESPECT U/S. 37(1) R.W.S. 43B OF THE ACT. THE DETAILS OF THE REMITTANCES DATE-WISE, AS WELL A S THE PRIOR ASSESSMENT YEARS TO WHICH THE DEMANDS RAISED PERTAINED, WERE ALSO SUBMITTED, AND RELIANCE ON THE DECISION IN THE CASE OF KEDARNATH JUTE MANUFACTURING CO. LTD. VS. CIT (1971) 82 ITR 363 (SC), PLACED. SO, HOWEVER, THE LD. CIT SOUGHT TO DISTINGUISH THE SAID CASE, THE FACTS AS WELL AS THE RATIO OF WHICH IS SQUARELY APPLICABLE IN THE FACT-SETTING OF THE INSTANT CASE. THE ASSESSEES CLAIM IS IN ACCORDANCE WITH LAW, AND THERE IS NOTHING ERR ONEOUS ABOUT THE ASSESSMENT ORDER. ADVERTING TO THE DECISION IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT (2000) 243 ITR 83 (SC), IT WAS FURTHER SUBMITTED THAT IT IS O NLY AN ORDER WHICH IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, WHICH C OULD BE SUBJECT TO REVISION U/S. 263 OF THE ACT. THERE HAS BEEN DUE APPLICATION OF MIND BY THE ASSESSING OFFICER (AO) IN THE MATTER. FINALLY, THE LD. CIT HAS DIRECTED THE AO T O RE-DO THE ASSESSMENT AFRESH ON THE AFORESAID LINES. THIS SPECIFIC DIRECTION BY THE LD. CIT IS NOT PERMISSIBLE, AND HAVING FOUND A LACK OF PROPER ENQUIRY, THE ONLY COURSE AVAILABLE FOR HER WAS TO DIRECT THE AO TO FRAME THE ASSESSMENT IN ACCORDANCE WITH LAW. RELIANCE FOR THE SAME WAS PLACED BY HIM ON THE DECISION IN THE CASE OF BONGAIGAON REFINERY AND PETRO CHEMICALS LTD. VS. UN ION OF INDIA , 287 ITR 120 (GAUHATI). 2.2 THE LD. DR, ON THE OTHER HAND, WOULD SUBMIT THA T THE PROVISION OF S. 263 OF THE ACT, WHICH STANDS INVOKED BY THE LD. CIT, IS TO PRO TECT AND SAFEGUARD THE INTEREST OF THE REVENUE, I.E., AS PER THE SCHEME OF THE ACT, AND NO T OF THE ASSESSEE, AND FOR WHICH THERE IS A SPECIFIC PROVISION IN THE FORM OF SEC. 264. BOTH THE PRINCIPAL FACTS FORMING PART OF THE ASSESSEES EXPLANATION, I.E., THAT IT HAD INCURRED A LIABILITY TOWARD SALES-TAX, AND THAT THE SAME IS DISPUTED, ARE NOT BORNE OUT BY THE ASSESSME NT ORDER. A MERE BROWSE OF THE ASSESSMENT ORDER WOULD SHOW THAT THERE HAS BEEN NO ENQUIRY WHATSOEVER IN THE MATTER BY I.T.A. NO.286/COCH/2010 (ASSTT. YEAR: 2005-06) 3 THE AO, AND HIS ORDER, OR THE ASSESSMENT OF THE ASS ESSEES BUSINESS INCOME, IS DE HORS ANY REFERENCE TO THE ASSESSEES SAID CLAIM. AS SUCH, AB SENCE OF PROPER ENQUIRY IN THE MATTER, AND WHICH PER SE MAKES AN ORDER ERRONEOUS AND PREJUDICIAL TO THE IN TEREST OF THE REVENUE, IS PATENT. THE SAME STANDS DISCUSSED BY THE LD. CIT VIDE PARA 7 OF HER ORDER, WITH REFERENCE TO A HOST OF CASE LAW, INCLUDING BY THE H ONBLE JURISDICTIONAL HIGH COURT. FURTHER RELIANCE WAS PLACED BY HIM ON THE DECISION IN THE C ASE OF RAMPYARI DEVI SAROGI V. CIT (1968) 67 ITR 84 (SC); CIT V. MCMILLAN & CO . (1958) 33 ITR 182 (SC); JAI BHARAT TANNERS V. CIT , 264 ITR 673 (MAD.); AND ASHOK LEYLAND LTD. V. CIT , 260 ITR 599 (MAD.) IN SUPPORT OF THE SAID PROPOSITION. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 WITHOUT DOUBT, THERE HAS BEEN NO ENQUIRY BY THE AO IN THE MATTER. THIS IS ALSO BORNE OUT BY THE FACT THAT THE ASSESSEE NEITHER BEF ORE US NOR BEFORE THE LD. CIT HAS REFERRED TO ANY ENQUIRY IN THE MATTER BY THE AO OR TO THE ASSESSEES REPLY THERE-TO. SO, HOWEVER, BEFORE ARRIVING AT A CONCLUSION AS TO A LA CK OF APPLICATION OF MIND, WHICH, IT IS TRITE LAW, WOULD PER SE MAKE AN ORDER ERRONEOUS AND PREJUDICIAL TO THE INT EREST OF THE REVENUE (AND TOWARD WHICH IT CITES SEVERAL DECISION S), IT IS FIRST TO BE DETERMINED IF THERE WERE CIRCUMSTANCES AS WOULD PROVOKE ANY ENQUIRY IN THE MATTER BY THE AO. IN THE PRESENT CASE, THE ABSENCE OF THE CHARGE TO THE P&L ACCOUNT FOR THE RELEVANT YEAR HAD BEEN FOUND BY THE LD. CIT AS THE RELEVANT CIRCUMSTANCE. WE, H OWEVER, DO NOT CONSIDER IT AS SO, IN VIEW OF THE BALANCE-SHEET REFLECTING A SUM OF ` 52.90 LAKHS UNDER THE ACCOUNT HEAD `LOANS AND ADVANCES BY WAY OF `DISPUTED SALES-TAX. THE A SSESSEE HAS CLARIFIED THE SAID ACCOUNTING TREATMENT, I.E., OF THE SAME BEING DISPU TED WITH THE SALES-TAX AUTHORITIES, AND WHICH IS ONLY IN AGREEMENT WITH THE REFLECTION OF T HE SAID AMOUNT/S AS MADE PER ITS AUDITED FINAL ACCOUNTS. SALES-TAX, NEVERTHELESS, BE ING A STATUTORY LIABILITY WOULD STAND TO BE ALLOWED FOR THE YEAR OF ITS PAYMENT, IRRESPECTIV E OF THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE, I.E., WHERE THE LIABILITY HAS ACTU ALLY ARISEN IN TERMS OF THE METHOD OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE. IN VIEW OF THE SETTLED POSITION, AND FOR WHICH THE ASSESSEE HAS REFERRED TO THE JUDGMENT IN THE CA SE OF KEDARNATH JUTE MANUFACTURING CO. LTD. VS. CIT (SUPRA), A STATUTORY LIABILITY CRYSTALLISES ON A D EMAND BEING VALIDLY RAISED, I.T.A. NO.286/COCH/2010 (ASSTT. YEAR: 2005-06) 4 IRRESPECTIVE OF IT BEING CONTESTED AND/OR DISPUTED BY THE ASSESSEE. SEC. 43B CASTS A FURTHER OBLIGATION OF PAYMENT, AGAIN, IRRESPECTIVE OF IT BE ING DISPUTED OR NOT, FOR CLAIMING IT AS A BUSINESS REDUCTION, SO THAT THE TWIN CONDITIONS FOR THE CLAIM OF A LIABILITY SPECIFIED U/S. 43B ARE THAT THE LIABILITY SHOULD HAVE ARISEN (AS P ER METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE) AND, FURTHER, ACTUALLY PA ID DURING THE RELEVANT YEAR. IN FACT, SEC. 43B BECOMES RELEVANT ONLY WHERE MERCANTILE METHOD O F ACCOUNTING IS EMPLOYED, AS UNDER THE CASH METHOD OF ACCOUNTING, EXPENDITURE (O R INCOME) IS RECOGNISED AS SUCH ONLY ON ITS PAYMENT (OR RECEIPT), I.E., THE ADDITIONAL C ONDITION SPECIFIED PER SEC. 43B. THAT SALES TAX IS A STATUTORY LIABILITY, GOVERNED BY S. 43B, IS ADMITTED. SO WHAT IS THE DISPUTE OR THE CONTROVERSY ? DOES IT MEAN THAT IF THE ASSESSEE HAD, INSTEAD OF ACCOUNTING THE DISPUTED LIABILITY SEPARATELY IN ITS BALANCE-SHEET, CHARGED IT TO THE P&L ACCOUNT, IT WOULD BE ENTITLED TO A DEDUCTION IN ITS RESPECT. DEDUCTION, AND MORE PARTICULARLY OF A SEC. 43B LIABILITY, DOES NOT FOLLOW OR IS NOT GOVERNED BY IT S TREATMENT IN ACCOUNTS BY THE ASSESSEE, WHICH IS AT BEST SUPPORTIVE. IN FACT, THE SAME (ACC OUNTING TREATMENT) IS IN FULL AGREEMENT AND CONSONANCE WITH THE ASSESSEES STAND OF HAVING DISPUTED THE LIABILITY, SO THAT THERE IS NO INCONSISTENCY BETWEEN THE TWO. OR IS IT THAT THE FACT OF IT BEING DISPUTED WORKING TO ITS DISADVANTAGE ? AGAIN, THE ISSUE STANDS SETTLED BY THE APEX COURT PER THE SAID DECISION, AND WHICH IS ONLY IN TERMS OF THE SETTLED LEGAL POSITIO N, THAT IT IS NOT THE VIEW THAT THE PARTIES MAY TAKE OF THEIR RIGHTS, BUT THE CORRECT LEGAL POS ITION THAT WOULD HOLD, AND BE DETERMINATIVE OF THE MATTER [ALSO REFER: CIT V. C. PARAKH & CO. (INDIA ) LTD . (1956) 29 ITR 661 (SC)]. WITH REGARD TO A STATUTORY LIABILITY , WHICH ARISE ONLY ON THE BASIS OF A LEGAL PROCESS, THE SAME WOULD HOLD, UNLESS SET ASID E OR CANCELLED OR ANNULLED, AGAIN BY OBSERVING A LEGAL PROCESS. FURTHER, THE PRESUMPTION IN LAW IS ALWAYS THAT THE ACTION TAKEN HAS BEEN IN ACCORDANCE WITH THE LAW. 3.2 IN FACT, WE THINK THAT, IT WOULD GIVE RISE TO A GENUINE DOUBT AND, THUS, CAUSE FOR INQUIRY, WHERE THE AMOUNT PAID DOES NOT FIND REFLEC TION EITHER IN THE `OPERATING STATEMENT (P&L A/C) OR IN THE `STATEMENT OF AFFAIRS (BALANCE -SHEET AS AT THE YEAR-END). WHERE-FROM HAS THE AMOUNT BEING CLAIMED BEEN PAID, WOULD BE A NATURAL QUERY THAT WOULD ARISE IN THAT CASE. IS IT PAID OUT OF THE BOOKS ? HOWEVER, CLEARLY, THERE IS NO SCOPE FOR ANY SUCH ENQUIRY I.T.A. NO.286/COCH/2010 (ASSTT. YEAR: 2005-06) 5 IN THE INSTANT CASE. WITHOUT DOUBT, IT WOULD BE DEC IDEDLY DESIRABLE AND, RATHER, PREFERABLE FOR THE ASSESSEE TO HAVE APPENDED A NOTE TO ITS COM PUTATION OF INCOME, OR IN ITS FINAL ACCOUNTS, OR BOTH, EXPLAINING THE ACCOUNTING TREATM ENT BEING FOLLOWED IN VIEW OF THE LIABILITY BEING CONTESTED. EQUALLY, IT WAS DESIRABL E FOR THE AO TO HAVE ENQUIRED OF THE SAME, BRINGING THE PRIMARY DETAILS ON RECORD, EVEN AS HE MAY NOT NECESSARILY MAKE A MENTION OF ALL HIS ENQUIRIES, MORE SO THOSE ACCEPTE D, IN HIS ORDER. HOWEVER, WOULD THAT BY ITSELF LEAD TO AN ASSUMPTION OF JURISDICTION U/S . 263 ? AS NOTED EARLIER, ABSENCE OR LACK OF PROPER ENQUIRY IS DEFINITELY RELEVANT AND DEBILI TATING, BUT ONLY WHERE THERE ARE CIRCUMSTANCES THAT IMPEL OR PROVOKE SUCH AN ENQUIRY . THIS IS AS OTHERWISE THE POWER U/S. 263 COULD BE EXERCISED, OR THE PROVISION WOULD BECO ME INVOCABLE, FOR EACH AND EVERY ENQUIRY OR QUERY THAT THE REVISIONARY AUTHORITY CON SIDERS OUGHT TO HAVE BEEN MADE BY THE ASSESSING AUTHORITY. THE POWER OF REVISION U/S. 263 IS A QUASI-JUDICIAL POWER, FAIRLY CIRCUMSCRIBED BY LAW, SO THAT THOUGH WIDE IN AMPLIT UDE, ITS LIMITS ARE IMPLICIT THEREIN, AND IS EXERCISABLE ONLY WHERE THE ORDER UNDER REVIS ION IS CLEARLY ONE WHICH COULD NOT BE SUSTAINED AS SUCH, OR IN CASE OF LACK OF PROPER ENQ UIRY, WITHOUT FURTHER VERIFICATION. IN THE PRESENT CASE, WE HAVE FOUND NO SUCH CIRCUMSTANCE. E VEN IF A BETTER PRESENTATION OF FACTS WAS POSSIBLE, AS INDEED IT WAS, THIS STANDS ACHIEVE D BY PROVIDING THE BASIS OF ITS CLAIMS BY THE ASSESSEE, CONSISTENT WITH ITS RETURN OF INCOME. 3.3 IT IS, WE ARE AFRAID, THE IMPUGNED ORDER THAT I S NOT SUSTAINABLE IN LAW. AFTER OBSERVING AN APPARENT INCONSISTENCY IN THE ASSESSEE S CLAIM IN VIEW OF THE NON-CHARGE TO THE P&L A/C, PER PARA 5 OF HER ORDER, THE LD. CIT G OES ON TO, WITHOUT ISSUING ANY FINDING/S OF FACT, DISTINGUISH THE DECISION RELIED UPON BY TH E ASSESSEE ( KEDARNATH JUTE MANUFACTURING CO. LTD. VS. CIT (SUPRA)) AT PARA 6 OF HER ORDER. DOES IT MEAN THAT THE RELEVANT FACTS HAVE BEEN DETERMINED ? VIDE PARA 7, SHE CLAIMS THAT THE AO HAS NOT MADE PROPER ENQUIRY IN THE MATTER. VIDE PARA 8 (MISTYPED AS 3), SHE DIRECTS THE AO TO FRAME A FRESH ASSESSMENT ON THE ABOVE LINES. WHEN THE ENQUI RY HAS NOT BEEN PROPERLY MADE, SO THAT THE FACTS HAVE NOT BEEN ASCERTAINED AND VERIFI ED, THE PROPER COURSE WAS TO REQUIRE THE AO TO DETERMINE THE SAME AND ADJUDICATE IN ACCORDAN CE WITH THE LAW IN THE MATTER, WHICH STANDS ABUNDANTLY CLARIFIED BY THE HIGHER COURTS OF LAW. IF, HOWEVER, LACK OF PROPER I.T.A. NO.286/COCH/2010 (ASSTT. YEAR: 2005-06) 6 ENQUIRY, SUGGESTING NON-APPLICATION OF MIND, IS THE REASON FOR ASSUMPTION OF JURISDICTION UNDER SECTION 263, THE LD. CIT COULD AS WELL PROCEE D TO DETERMINE THE ISSUE, BOTH FACTUALLY AND LEGALLY, HIS THE POWER OF REVIEW BEING VAST, IN CLUDING DETERMINATION OF AN ISSUE NOT EXAMINED BY THE AO, SO THAT ALL THAT THE ASSESSING AUTHORITY IS REQUIRED TO DO SUBSEQUENTLY IS TO PASS A CONSEQUENTIAL ORDER. HOWEVER, SHE DOES NEITHER, AND ISSUES AN INFLEXIBLE DIRECTION, EFFECTIVELY DETERMINING THE ISSUE, WITHO UT ISSUING ANY FINDING OF FACT - QUA BOTH THE PRINCIPAL ASPECTS DEEMED RELEVANT, ALSO POINTED OUT BY THE LD. DR AND, FURTHER, WITHOUT SHOWING AS TO HOW THE FACTS OF THE CASE ARE DISTING UISHABLE FROM THAT OF THE CASE BEING RELIED UPON BY THE ASSESSEE, SO THAT ITS CLAIM IS N OT MAINTAINABLE U/S. 37(1) R.W.S. 43B. ISSUING SUCH A DIRECTION; THE SAME BEING BINDING ON HIM, PRECLUDES AN APPLICATION OF MIND BY THE AO, I.E., PERPETUATES THE SAME INFIRMITY THA T HIS ORDER WAS OSTENSIBLY FOUND TO HAVE BEEN INFLICTED WITH, AND ONLY TO CORRECT WHICH THE POWER OF REVIEW STANDS CONFERRED AND OSTENSIBLY INVOKED. AS AFORE-STATED, WE DO NOT FIND ANYTHING AMISS IN THE ASSESSEES CLAIM AS PREFERRED, OR ANYTHING CONTRARY TO THE SETTLED P OSITION OF LAW, MORE SO ON THE BASIS OF THE SUBSEQUENT CLARIFICATION/S ISSUED BY THE ASSESS EE UNDER SEC. 263 PROCEEDINGS, BRINGING THE RELEVANT FACTS ON RECORD. NEITHER HAVE THE FACT S AS DISCLOSED BEING DOUBTED NOR IS THERE ANY REASON TO DOUBT THE SAME. ACCORDINGLY, WE FIND NO JUSTIFICATION IN SUSTAINING THE IMPUGNED ORDER, EITHER AS SUCH OR IN A MODIFIED FOR M. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. SD/- SD/- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 4TH OCTOBER, 2011 GJ COPY TO: 1. KUTTUKKARAN TRADING VENTURES, KUTTUKKARAN CENTRE , MAMAMGALAM, KOCHI-682025 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2( 2), ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX, KOCHI. 4. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 5. GUARD FILE .