KREDA INVESTMENT P. LTD, MUMBAI V. CIT-III, MUMBAI

ITA 2876/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3078 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 12-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY SINGH
• Section: 143(3); 263; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO. 2876/MUM/2013 (ASSESSMENT YEAR : 2009-10) M/S.KREDA INVESTMENT PVT. LTD. 44-A, MITTAL TOWER, NARIMAN POINT, MUMBAI 400021 PAN: AAACK 3296R ... APPELLANT VS. THE CIT-3, MUMBAI 400 038 .... RESPONDENT APPELLANT BY : SHRI NITESH JOSHI RESPONDENT BY : SHRI SANJAY SINGH DATE OF HEARING : 23/07/2015 DATE OF PRONOUNCEMENT : 23/10/2015 ORDER PER G.S. PANNU,AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE IS DI RECTED AGAINST THE ORDER OF THE CIT-3, MUMBAI DATED 23/03/2013 PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT), IN RELATION TO AN ORDER PASSED BY THE ASSESSING OFFICER DATED 25/11/20 10 UNDER SECTION 143(3) OF THE ACT PERTAINING TO THE ASSESSMENT Y EAR 2009-10. 2 ITA NO. 2876/MUM/2013 (ASSESSMENT YEAR : 2009-10) 2. IN THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE COMMISSIONER OF INCOME TAX (IN SHORT CIT) PASSED UNDER SECTION 263 OF THE ACT, WHEREBY THE ASSESSMENT ORDER DATED 25/1 1/2010(SUPRA) HAS BEEN SET ASIDE WITH A DIRECTION TO PASS A FRESH ASS ESSMENT ORDER AS PER LAW. 3. IN BRIEF, THE RELEVANT FACTS ARE THAT THE APPELL ANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER-ALIA, ENGAGED IN THE BUSINESS OF TRADING AND INVESTMENT IN SHARES AND SECURITIES. FOR THE ASSESSMENT YEAR 2008-09, I T FILED A RETURN OF INCOME DECLARING A LOSS OF RS.1,47,242/-, WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE ACT, WHEREBY THE TOTAL LOSS HAS BEEN ASSESSED AT RS.77,002/- AFTER MAKING A DISALLO WANCE OF RS.70,240/- OUT OF DIRECTORS MEDICAL EXPENSES. SUBSEQUENTLY, THE CIT ISSUED A NOTICE UNDER SECTION 263 OF THE ACT, WHICH WAS RECE IVED BY THE ASSESSEE ON 28/02/2013, REQUIRING THE ASSESSEE TO EXPLAIN AS TO WHY THE ASSESSMENT ORDER DATED 25/11/2010 BE NOT CONSIDERED AS ERRONEOUS, IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE ACT. IN THE SAID SHO W CAUSE NOTICE, A COPY OF WHICH HAS BEEN PLACED AT PAGE-3 OF THE PAPE R BOOK, THE CIT NOTED THAT TWO DISCREPANCIES HAD CREPT INTO THE AS SESSMENT ORDER DATED 25/11/2010. FIRSTLY, THE CIT NOTICED THAT TH E ASSESSING OFFICER HAD ALLOWED DEDUCTION ON ACCOUNT OF 50% OF DIRECT ORS FOREIGN TRAVEL EXPENSES AMOUNTING TO RS.4,59,130/-, WHICH WERE DIS ALLOWABLE BECAUSE SUCH EXPENSES DID NOT HAVE ANY BUSINESS CONNECTION WITH THE AFFAIRS OF THE ASSESSEE COMPANY. SECONDLY, THE CIT NOTICED T HAT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, 3 ITA NO. 2876/MUM/2013 (ASSESSMENT YEAR : 2009-10) ASSESSEE HAD ADVANCED RS.23,80,000/- AND RS. 61,21 ,000/- TO M/S. ORIENTAL SALES PVT. LTD. AND M/S.B.P. AGARWALLA & S ONS LTD., RESPECTIVELY, WHERE THE DIRECTORS AND THEIR RELATIVES ARE SHAREH OLDERS AND HAVE INTEREST. AS PER THE CIT, IN THIS BACKGROUND, THE APPLICABILITY OF SECTION 2(22)(E) OF THE ACT WAS NOT VERIFIED BY THE ASSESSI NG OFFICER. 4, ON BOTH THESE ASPECTS, ASSESSEE HAS RESISTED THE ACTION OF THE CIT. FIRSTLY, THE ASSESSEE POINTED OUT THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS THE DETAILS OF TRAVEL EXPENSES OF THE D IRECTORS WAS APPROPRIATELY ENQUIRED BY THE ASSESSING OFFICER AND IT IS ONLY AFTER SUCH ENQUIRY THAT THE ASSESSING OFFICER ALLOWED THE EXPE NSES. SECONDLY, WITH REGARD TO THE ADVANCES GIVEN TO THE TWO CONCERNS, W HEREIN SHAREHOLDERS WERE SAID TO BE INTERESTED, THERE WAS NO RELEVANCE OF SECTION 2(22)(E) OF THE ACT BECAUSE THE SAME WOULD BE ASSESSABLE IN THE HANDS OF THE RESPECTIVE SHAREHOLDERS AND NOT IN THE HANDS OF THE ASSESSEE. 5. BOTH THE AFORESAID STANDS OF THE ASSESSEE WERE N OTED BY THE CIT, BUT HE WAS NOT SATISFIED AND, THEREFORE, HE PROCEED ED TO HOLD THE ASSESSMENT ORDER DATED 25/11/2010 AS ERRONEOUS IN S O FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHIN T HE MEANING OF SECTION 263 OF THE ACT. THE CIT HAS SET ASIDE THE ASSESSME NT ORDER DATED 25/11/2010 AND DIRECTED THE ASSESSING OFFICER TO COMPLETE THE FRESH ASSESSMENT PROCEEDINGS AS PER LAW. 6. AGAINST THE SAID BACKGROUND, THE LD. REPRESENTAT IVE FOR THE ASSESSEE VEHEMENTLY POINTED OUT THAT THE ORDER PAS SED BY THE CIT WAS WITHOUT CONSIDERING THE FACTS BROUGHT OUT BY THE AS SESSEE IN AS MUCH AS THERE WAS NO RELEVANCE OF TAXING ANY AMOUNT IN THE HANDS OF THE 4 ITA NO. 2876/MUM/2013 (ASSESSMENT YEAR : 2009-10) ASSESSEE ON AN APPLICATION OF SECTION 2(22)(E) OF T HE ACT, BECAUSE THE ASSESSEE HAD GIVEN ADVANCES AND WAS NOT A RECIPIEN T OF ADVANCES FROM ANY OF THE ENTITIES SPECIFIED IN SECTION 2(22)(E) O F THE ACT. FURTHER, HE REFERRED TO THE ENQUIRY LETTER ISSUED BY THE ASSESS ING OFFICER DURING THE ASSESSMENT PROCEEDINGS WHICH SHOWS THAT THE DETAIL OF EXPENSES ON TRAVEL OF THE DIRECTORS WAS CALLED FOR AND EXAMINED . LD. REPRESENTATIVE FOR THE ASSESSEE ALSO REFERRED TO THE DETAILS FU RNISHED BEFORE THE ASSESSING OFFICER TO POINT OUT THAT WHETHER OR NOT SUCH EXPENSES AS ALLOWABLE IS A SUBJECTIVE ISSUE AND THE ASSESSING O FFICER HAVING FORMED AN OPINION AFTER CALLING FOR THE RELEVANT DETAILS, WHICH WOULD NOT JUSTIFY INVOKING OF SECTION 263 OF THE ACT. 7. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATI VE APPEARING FOR THE REVENUE POINTED OUT THAT IN THE PRESENT CAS E THE RELEVANT ENQUIRIES HAVE NOT BEEN CARRIED OUT BY THE ASSESSIN G OFFICER DURING THE ASSESSMENT PROCEEDINGS, WHICH RENDERED THE ASSESSME NT ORDER DATED 25/11/2010 ERRONEOUS IN SO FAR AS IT WAS PREJUDIC IAL TO THE INTEREST OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF TH E ACT. ACCORDINGLY, THE LD. DEPARTMENTAL REPRESENTATIVE HAS JUSTIFIED THE INVOKING OF SECTION 263 OF THE ACT BY THE CIT. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. SECTION 263 OF THE ACT POSTULATES SUPERVISORY JURISDICTION WITH THE CIT WHICH CAN BE EXERCISED ONLY IF THE CIRCUMSTANCES PRESCRIBED THER EIN EXISTS. IT IS QUITE WELL SETTLED THAT THE TWO CONDITIONS PRESCRIBED IN SECTION 263 OF THE ACT IN ORDER TO ENABLE THE CIT TO EXERCISE THE POWER OF REVISION ARE, VIZ.(I) THAT THE ORDER SHOULD BE ERRONEOUS; AND,(II) THAT THE ORDER IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN THIS BACKGROUN D, IF THE IMPUGNED 5 ITA NO. 2876/MUM/2013 (ASSESSMENT YEAR : 2009-10) INVOKING OF SECTION 263 OF THE ACT BY THE CIT IS EX AMINED, IT IS QUITE CLEAR THAT THE CIT HAS MISDIRECTED HIMSELF IN CONSTRUING THE ASSESSMENT ORDER AS ERRONEOUS IN LAW ON THE POINT OF INVOKING OF SEC TION 2(22)(E) OF THE ACT. QUITE CLEARLY, BEREFT OF OTHER DETAILS, SECTI ON 2(22)(E) OF THE ACT SEEKS TO ASSESS AN AMOUNT AS DIVIDEND IN THE HAND S OF A SHAREHOLDER, WHICH HAS BEEN RECEIVED FROM AN ENTITY SPECIFIED T HEREIN. IN THE PRESENT CASE, THE CHARGE MADE BY THE CIT IS THAT TH E ASSESSEE COMPANY HAS MADE CERTAIN ADVANCES TO OTHER CONCERNS, WHERE ITS DIRECTORS ARE SHAREHOLDERS ARE INTERESTED. EVEN IF WE GO ALONGWI TH THE CHARGE MADE BY THE CIT YET THE ASSESSABILITY OF SUCH AMOUNT AS DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT WOULD ARISE IN THE HANDS OF THE RESPECTIVE SHAREHOLDERS ONLY AND NOT IN THE HANDS OF THE PAYER OF SUCH AMOUNT, WHICH HAPPENS TO BE THE ASSESSEE COMPANY. THUS, THERE IS NO TAX WHICH HAS DENIED TO THE REVENUE IN THIS REGARD. THEREFORE, ON THIS POINT ITSELF WE FIND NO REASONS TO UPHOLD THE STAND OF THE CIT ON THE ASPECT OF SECTION 2(22)(E) OF THE ACT. 8.1 SECONDLY, EVEN WITH REGARD TO THE EXPENDITURE O N ACCOUNT OF DIRECTORS FOREIGN TRAVEL EXPENSES ALLOWED IN THE C OURSE OF THE ASSESSMENT PROCEEDINGS, WE FIND THAT THE CASE SOUGH T TO BE MADE OUT BY THE CIT IS THAT THE ASSESSING OFFICER DID NOT MA KE CERTAIN ENQUIRIES, WHICH ACCORDING TO THE CIT, WERE REQUIRED TO BE MAD E. NO DOUBT, LACK OF ENQUIRY CAN BE A GOOD GROUND FOR INVOKING THE PR OVISIONS OF SECTION 263 OF THE ACT, BUT IN THE PRESENT CASE FACTUALLY S PEAKING, IT CANNOT BE SAID THAT THE ASSESSING OFFICER DID NOT MAKE ANY EN QUIRIES. THE MATERIAL REFERRED TO BY THE APPELLANT BEFORE THE CIT AS WEL L AS BEFORE US SUPPORT THE PROPOSITION THAT THE ASSESSING OFFICER HAD CALL ED FOR THE RELEVANT 6 ITA NO. 2876/MUM/2013 (ASSESSMENT YEAR : 2009-10) DETAILS AND BASED ON THE SAME, THE IMPUGNED ASSES SMENT HAS BEEN FINALIZED, WHICH THE CIT SEEKS TO BRAND AS ERRONEOU S. SUCH BRANDING OF AN ASSESSMENT AS ERRONEOUS IS MERELY AN ATTEMPT BY THE CIT TO SUBSTITUTE HIS OWN JUDGMENT FOR THAT OF THE ASSESSI NG OFFICER AND DOES NOT ESTABLISH THE ASSESSMENT AS ERRONEOUS IN LAW. AS A CONSEQUENCE, WE DO NOT FIND ANY JUSTIFICATION ON THE PART OF T HE CIT FOR INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT ON THIS ASPECT ALSO. 8.2 AS A CONSEQUENCE, THE ORDER OF THE CIT IS SET ASIDE AND THAT OF THE ASSESSING OFFICER DATED 25/11/2010 IS RESTORED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 23/10/2015. SD/- SD/- (SANJAY GARG) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 23/10/2015 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI VM , SR. PS