M/s Utkal Refineries Ltd, Cuttack V. CIT, Cuttack

ITA 291/CTK/2012

• Counselvise Citation: 29122114 RSA 2012
• Duration Of Justice: 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 27-09-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 24-04-2012
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Assessee Lawyers: B PANDAB R PANDAARS
• Keywords: Unexplained cash credit; Audit objection; Deemed dividend; Assessment record
• Section: 68; 263; 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO. 291/CTK/2012 / ASSESSMENT YEAR 2008 - 09 M/S.UTKAL REFINERIES LTD., AT:NEW INDUSTRIAL ESTATE, JAGATPUR, DIST. CUTTACK. PAN:AAACU 6063 - - - VERSUS - COMMISSIONER OF INCOME - TA X, CUTTACK. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI B.PANDA/B.R.PANDA,ARS / FOR THE RESPONDENT: / S MT. PARAMITA TRIPATHY, CIT - DR / DATE OF HEARING: 27.09.201 2 / DATE OF PRONOUNCEMENT: 30.10.2012 / ORDER . . . , SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DT.05.03.2012 PASSED BY THE LEARNED COMMISSIONER O F INCOME - TAX, CUTTACK U/S.263 OF THE I.T.ACT,1961 FOR THE AY 2008 - 09. 2. THE ASSESSEE HAS RAISED THE FOLLOWING ISSUES IN THE GROUNDS OF APPEAL. (A) FOR THAT THE ORDER PASSED UNDER SECTION 263 OF THE LT. ACT WITHOUT EXAMINING THE CHARACTER OF ERRONEOUS AN D PREJUDICIAL ELEMENTS WHETHER WAS AVAILABLE OTHERWISE IN ABSENCE OF EXAMINING THE STATUTORY PROVISIONS AS WELL AS INVOLVEMENT OF ERRONEOUS AND PREJUDICIAL CHARACTER THE ORDER PASSED IS LIABLE TO BE QUASHED BEING ILLEGAL, ABSURD UNLAWFUL AND CAPRICIOUS IN THE FACTS AND CIRCUMSTANCES OF THE CASE. (B) FOR THAT EXERCISE OF POWER UNDER SECTION 263 OF THE I.T. ACT CAN ONLY BE MADE WHEN ORDER OF THE A.O. WAS PASSED WAS FOUND TO BE ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND NO SUCH ELEMENT WAS DETEC TED PARTICULARLY TO JUSTIFY PASSING OF THE ORDER UNDER SECTION 143(3) WHETHER WAS ERRONEOUS TO WHAT EXTENT FOUND ERRONEOUS NEITHER HAD B EEN EXAMINED NOR STATED I.T.A.NO. 291/CTK/2012 2 IN THE ORDER PASSED AND SIMILARLY PREJUDICIAL CHARACTER ALSO NOT EXPLAINED AND THEREFORE THE ORD ER IS TO BE QUASHED AND VACATED. (C) FOR THAT ADEQUATE OPPORTUNITY FOR HEARING BEFORE PASSING OF THE ORDER ON THE BASIS OF ERRONEOUS ISSUE WAS NOT GRANTED EXCEPT THE DATE WAS FIXED FOR HEARING TO 28.11.2001 AND THEREAFTER TO 12.12.2011 AND THEN AFTER PASS ED THE ORDER IN EXPARTE. HENCE THE ORDER IS TO BE QUASHED. (D ) FOR THAT THE INVESTMENT OF 90 LAKHS AGAINST WHICH 70,57,068 HAS BEEN CONTRIBUTED BY THE PERSONS AGAINST THE SALE OF ANCESTRAL AGRICULTURAL PROPERTIES ETC. COMMENCING FROM THE ASSESSMENT YEAR 2006 - 07, 2007 - 08 AND 2008 - 09.THERFORE IN PASSING OF THE ORDER OF THE RELEVANT PERIOD HAD NOT SPELT OUT BY THE LEARNED CIT WHETHER THE ORDER WAS ERRONEOUS AND PREJUDICIAL CHARACTER IN THE ORDER TO JUSTIFY AND INVOKE SECTION 263 OF THE LT. ACT. HENCE THE ORDER PASSED UNDER SECTION 263 OF THE LT. ACT HAS TO BE QUASHED IN TOTO. (E) FOR THAT IF TH E ORDER IS NOT ERRONEOUS AND PREJUDICIAL IN NATURE ML, FOUND SIMILARLY ALLEGED LOSS OF REVENUE DETECTED THEN ALSO THE QUASHING OF THE ORDER UNDER SECTION 263 OF THE I.T. ACT AND THEN EXERCISING THE PROVISION UNLAWFULLY SHOULD NOT HAVE BEEN MADE. (F) FOR THAT THERE WAS WRONG APPLICATION OF LAW MADE UNDER SECTION 263 OF THE I.T. ACT FOR QUASHING THE ORDER OF ASSESSMENT WITHOUT GRANTING ADEQUATE OPPORTUNITY AND NO PROVISION WAS AVAILABLE TO DENY FOR RECEIVING THE AMOUNT AGAINST THE SALE PROCEEDINGS OF HUF AN CESTRAL PROPERTIES AND WILL NOT ATTRACT SECTION 2(22)(E) OF THE LT. ACT ACCORDINGLY THE ORDER. IS TO BE QUASHED AND VACATED. (G) FOR THAT THE SHOW CAUSE NOTICE ISSUED PASSING OF THE ORDER THEREAFTER IS TOTALLY UNLAWFUL, HENCE IS TO BE QUASHED AND VACATED AND NO ORDER OF THE ID. CIT WAS WITHIN THE FRAME WORK OF THE STATUTE. 3. BOTH THE PARTIES WERE HEARD REGARDING THE ISSUES RAISED IN THE APPEAL FILED BY THE ASSESSEE AND THEIR LEGAL IMPLICATIONS. 4. ON CAREFUL CONSIDERATION OF THE MATERIAL MADE AVAILABLE TO THE TRIBUNAL IN THE LIGHT OF THE SUBMISSIONS OF BOTH THE PARTIES, THE UNDISPUTED FACTS RELATING TO THE ISSUES ARE THAT THE ASSESSEE IS COMPANY DERIVING INCOME I.T.A.NO. 291/CTK/2012 3 FROM MANUFACTURING OF EDIBLE OIL. ASSESSMENT FOR THE AY 2008 - 09 WAS COMPLETED U/S.143(3) OF TH E I.T.ACT,1961 ON 28.12.2010. ON VERIFICATION OF THE MATERIAL AVAILABLE IN THE ASSESSMENT RECORD VIS - - VIS THE ASSESSMENT ORDER, THE LEARNED CIT FOUND THAT THE ASSESSEE HAD SHOWN UNSECURED LOAN TOTALING 90 LAKHS FROM FAMILY MEMBERS OF THE SHAREHOLDER OF T HE COMPANY. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSEE FURNISHED A STATEMENT OF SUCH UNSECURED LOAN TOTALING 70,57,068. THEREFORE, THE LEARNED CIT WAS OF THE VIEW THAT THE DIFFERENTIAL AMOUNT OF 19,42,932 WAS TO BE TREATED AS UNEXP LAINED CASH CREDIT U/S.68 OF THE ACT OF WHICH NO PARTICULARS HAS BEEN FURNISHED BY THE ASSESSEE. ACCORDINGLY HE ISSUED SHOW CAUSE NOTICE BY INVOKING JURISDICTION U/S.263 OF THE ACT REQUIRING THE ASSESSEE TO FURNISH CLARIFICATION BY 28.11.2011 AND ON THE RE QUEST OF THE ASSESSEE DATE WAS FIXED TO 12.12.2011. THE LEARNED CIT OBSERVED IN HIS ORDER THAT NO COMPLIANCE WAS MADE ON THE SAID DATE. ACCORDINGLY, HOLDING A VIEW THAT THE ASSESSEE COMPANY HAS NOTHING TO EXPLAIN ON THE ISSUES AS POINTED OUT IN THE SHOW CA USE NOTICE, THE LEARNED CIT SET ASIDE THE ASSESSMENT AND DIRECTED THE ASSESSING OFFICER FOR FRESH ADJUDICATION OF FACTS AND PROPER APPLICATION OF LAW IN THE LINES AS INDICATED IN HIS ORDER PASSED U/S.263 AS UNDER : 1. THE ASSESSING OFFICER HAS TO VERIFY T HE NAME AND ADDRESS OF THE SHARE HOLDERS OF NI/S. UTKAL REFINARY LTD. AS WELL AS M/S. UTKAL GALVANISER LTD. FROM THE DATE OF INCORPORATION TILL 31.03.2008 EXAMINING TOTAL NUMBER OF SHARES HELD BY EACH SHARE HOLDER IN THE PAID UP CAPITAL OF M/S. UTKAL REFIN ARY LTD. AS WELL AS M/S. UTKAL GAVANISER LTD. 2. THE ASSESSING OFFICER HAS TO VERIFY UNSECURED LOAN PARTICULARS FROM THE BOOKS OF ACCOUNT MAINTAINED BY ASSESSEE COMPANY FOR THE RELEVANT F/Y 2005 - 0 6 , 2006 - 07 & 2007 - 08 AS WELL AS BOOKS OF M/S. UTKAL GALVANI SER LTD. SHOWING SUCH LOANS. 3. THE ASSESSING OFFICER HAS TO EXAMINE THE AUDITED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF M/S. UTKAL REFINARY LTD. AS I.T.A.NO. 291/CTK/2012 4 WELL AS MIS. UTKAL GALVANISER LTD. FILED FOR THE RELEVANT A/Y 200607, 2007 - 08 & 2008 - 09 SHOWING SUCH L OAN TRANSACTIONS. 4. THE ASSESSI NG OFFICER HAS TO EXAMINE YEAR WISE BREAK UP O F BOOK PROFIT DISCLOSED BY M/S. UTKAL GALVANISER LTD. FO R THE F/Y 2005 - 06, 2006 - 07 & 200 7 - 08. ON THE BASIS OF SUCH RE - EXAMINATION OF THE FACTS, FRESH FINDING HAS TO BE RECORDED IN WRITING AS TO WHETHER THE DIFFERENTIAL AMOUNT OF 19,42,932 ON ACCOUNT OF UNEXPLAINED CASH CREDIT U/S. 68/AND WHETHER THE UNSECURED LOAN OF 42,95,068 CAN BE ASSESSED TO TAX AS DEEMED DIVIDEND IN ACCORDANCE WITH PROVISIONS OF SECTION 2(22)(E) OF THE I.T. ACT,1961 IN THE HANDS OF THE ASSESSEE COMPANY. 5 . THE LEARNED AR OF THE ASSESSEE CONTENDED BEFORE US SUBMITTED THAT THE LEARNED CIT HAS PASSED THE IMPUGNED ORDER U/S.263 OF THE I.T.ACT,1961 EXPARTE WITHOUT GRANT OF ADEQUATE OPPORTUNITY TO THE ASSESSEE AND NOTHING WAS FOUND FROM THE ORDER PASSED WHETHER THE ORDER OF ASSESSMENT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. HE FURTHER CONTENDED THAT THE ASSESSEE COULD NOT COMPLY TO THE SHOW CAUSE NOTICE ON 12.12.2011 I.E., THE DATE FIXED BY THE LEARNED CIT, DUE TO DISTURBANCES IN THE FACTORY AND OTHER UNAVOIDABLE CIRCUMSTANCES IN RUNNING OF THE BUSINESS . AS REGARDS THE MERITS, THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE POINT OF ERRONEOUS AND PREJUDICIAL NATURE OF THE ORDER HAS NOT BEEN SPELT OUT BY THE LEARNED CIT AS SUCH THE ALLEGATION OF ERRONEOUS IN SO FAR AS PREJUDICIAL NATURE BOTH BEING CONJUNCTIVE AND SHALL BE AVAILABLE AT A TIME WHICH WAS NOT MADE IN PASSING THE SAID ORDER. ERRONEOUS MEANS WRONG WHICH WAS NOT DONE IN ACCORDANCE WITH LAW (CIT VS. GABRIEL INDIA, 203 ITR 108 (BOM .) . PRE JUDICIAL TO REVENUE MEANS ALSO NOT IN CONFORMITY WITH LAW. OF COURSE NO STRICT MEANING TO THIS HAS BEEN ASSIGNED. THAT THE MATTER ARISEN OUT OF THE AUDIT OBJECTION SHOULD NOT BE TREATED AS A GOSPEL TRUTH FOR LAUNCHING 263 PROCEEDING HOLDING THE ORDER IS ER RONEOUS AND PREJUDICIAL TO THE REVENUE. EVEN IF, MORE THAN 12 I.T.A.NO. 291/CTK/2012 5 TIMES THE ASSESSMENT WAS HEARD AND THE APPELLANT FURNISHED DETAILS OF EVIDENCE IN COMPLIANCE TO THE BOOKS OF ACCOUNTS. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE ONLY ALLEGATION ARISES OU T OF THE TOTAL DEPOSIT OF 90,00,000 , A SUM OF 70,57,068 WAS CONTRIBUTED BY ONE M/S. UTKAL GALVANIZERS AND MR. K. K. MOHANTY, ITS DIRECTOR BUT THE DIFFERENTIAL AMOUNT OF 19,42,932 SHOULD NOT HAVE BEEN TAGGED TO TREAT AS INCOME FROM UNEXPLAINED CASH CRE DIT UNDER SECTION 68 OF THE IT ACT IN THE HANDS OF THE APPELLANT. HE FURTHER SUBMITTED THAT THE ALLEGATION OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE IT ACT IS NOT APPLICABLE SINCE THE APPELLANT COMPANY HAS NO SUBSTANTIAL INTEREST OR BENEFICIAL SHARE HOLDERS IN THAT OTHER COMPANY. ACCORDINGLY, THE NAME OF THE DIRECTORS OF M/ S. UTKAL GALVANIZERS AND THE APPELLANT COMPANY ARE SEPARATELY FURNISHED AND ENCLOSED HEREWITH. THE AMOUNT OF 42,95,068 ACCRUED AT ( 5, 00,000 + 10,00,000 + 10 ,00,000 + 17,95,000) SHOULD NOT BE TREATED AS DIVIDEND INCOME IN THE HANDS OF THE APPELLANT AND THE AMOUNT WAS BROUGHT FROM THE ASSESSMENT YEAR 2006 - 07 AND 2007 - 08 SHOWN SEPARATELY IN THE BALANCE SHEET. IN VIEW OF THE ABOVE, THE LEARNED AR OF THE ASSESSEE CONTENDED THAT THE AMOUNT OF 19,42,932 CANNOT BE TREATED AS UNEXPLAINED CASH CREDIT UNDER S ECTION 68 OF THE IT ACT EVEN IF THE AMOUNT HAS BEEN DEPOSITED OUT OF THE SALE PROCEEDS OF ANCESTRAL LANDED AND H OUSE PROPERTIES TO ANOTHER COPARCENER BY THE OTHER SHARE HOLDERS IN THE PRECEDING YEARS. HE FURTHER CONTENDED THAT EVEN IF THE ORDER OF ASSESSMENT IS BRIEF AND CRYPTIC THEN CANNOT BE TREATED AS ERRONEOUS OR PREJUDICIAL TO THE INTEREST UNLESS SPECIFICALLY B ROUGHT OUT. THE ORDER OF ASSESSMENT HAVING BEEN COMPLETED AFTER EXAMINING THE BOOKS OF ACCOUNTS AND DETAILS EXAMINED FOR NUMBER OF TIMES ETC. THE LEARNED COMMISSIONER HAD FAILED TO ESTABLISH THE INGREDIENTS OF ERRONEOUSNESS IN THE ORDER OR EVEN THE PREJUDI CIAL CHARACTER WEATHER WAS PREVAILED IN THE MATTER. THEREFORE, I.T.A.NO. 291/CTK/2012 6 THE APEX COURT HELD THAT THESE AFORESAID TWO CONDITIONS MUST BE PRESENT IN THE FACTS OF THE CASE. OTHERWISE THE ORDER CANNOT BE SUSTAINED IN THE EYE OF LAW. HENCE MAY BE DROPPED AND DELETED. 6. THE LEARNED CIT - DR, ON THE OTHER HAND, THE ASSESSING OFFICER IN HIS CRYPTIC ORDER HAS NOT DISCUSSED ANYTHING ABOUT THE UNSECURED LOAN. THE LEARNED CIT, ON VERIFICATION OF THE MATERIAL AVAILABLE ON RECORD VIS - - VIS THE ASSESSMENT ORDER, FOUND THAT AS AGAIN ST THE UNSECURED LOAN OF 90,00,000 THE ASSESSEE HAD SUBMITTED THE BREAKUP OF ONLY 70,57,068 AND THUS THE DIFFERENTIAL AMOUNT OF 19,42,932 REMAINED UNEXPLAINED. FURTHER THE LEARNED CIT FOUND THAT THE LOAN CREDITORS ARE CLOSELY HELD PRIVATE LIMITED COMPAN IES IN WHICH DIRECTORS/ SUBSTANTIAL SHARE HOLDERS ARE COMMON. THE ASSESSING OFFICER HAD NOT EXAMINED WHETHER THE LOAN AMOUNTING TO 42,95,068 COULD BE CONSIDERED AS DEEMED DIVIDED IN THE HANDS OF THE ASSESSEE COMPANY U/S.2(22)(E). THEREFORE, ON THE BASIS O F SUCH FACTS AND CIRCUMSTANCES, ASSUMING JURISDICTION U/S.263 BY THE LEARNED CIT CANNOT BE FAULTED WITH. FURTHER, SHE SUBMITTED THAT THE ASSESSEE HAVING FAILED TO COMPLY WITH THE SHOW CAUSE NOTICE ISSUED, THE LEARNED CIT IS JUSTIFIED IN PASSING THE IMPUGNE D ORDER EXPARTE SETTING ASIDE THE ASSESSMENT AND DIRECTING THE ASSESSING OFFICER FOR FRESH ADJUDICATION. SHE PLACED RELIANCE ON THE DECISIONS IN THE CASE OF CIT V. RAJESH MAHAJAN [(2011) 16 TAXMAN.COM 85 ( P & H), NAV BHARAT INTERNATIONAL LTD V. CIT [(2012) ITAT, BENCH E NEW DELHI (COPIES PLACED ON RECORD), IN SUPPORT OF HER CONTENTION THAT WHERE NOTHING WAS REFERRED WHICH MIGHT JUSTIFY PASSING THE ASSESSMENT BY ASSESSING OFFICER, COMMISSIONER WAS JUSTIFIED IN SETTING ASIDE THE SAID ORDER AND INITIATING REVISION PROCEDURE. 7. ON CAREFUL ANALYSIS OF THE IMPUGNED ORDER OF THE LEARNED CIT AND THE ASSESSMENT ORDER, WE FIND THAT THE ASSESSING OFFICER HAS NOT DISCUSSED I.T.A.NO. 291/CTK/2012 7 ANYTHING ABOUT THE UNSECURED LOAN, WHEN AS AGAINST CLAIM OF 90,00,000 THE ASSESSEE HAD FURNISHED THE BREAKUP OF ONLY 70,57,068 LEAVING A BALANCE OF 19,42,932 TO BE EXPLAINED BY THE ASSESSEE WHETHER COULD BE DISALLOWED U/S.68 OF THE I.T.ACT. FURTHER, THE LOAN OF 42,95,068 FROM ITS SISTER CONCERNS, WHO ARE CLOSE LY HELD PRIVATE LIMITED COMPANIES IN WHICH DIRECTORS/SUBSTANTIAL SHARE HOLDERS ARE COMMON WHETHER COULD BE CONSIDERED AS DEEMED DIVIDED REMAINED UNEXAMINED BY THE ASSESSING OFFICER. IN SUCH VIEW OF THE MATTER, ASSUMING JURISDICTION U/S.263 OF THE I.T.ACT,1 961 BY THE LEARNED CIT MUST BE HELD TO BE JUSTIFIED. AT THE SAME TIME, WE FIND THAT THE LEARNED CIT HAS NOT GIVEN PROPER OPPORTUNITY TO THE ASSESSEE FOR COMPLIANCE TO THE SHOW - CAUSE NOTICE INASMUCH AS HE HAS ONLY GIVEN ONE OPPORTUNITY WHEN THE ASSESSEE COU LD NOT AVAIL DUE TO REASONS AS STATED BY THE LEARNED AR OF THE ASSESSEE ABOVE. IN THIS VIEW OF THE MATTER, OPINING AS A FIT CASE, SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT AND RESTORE THE MATTER TO HIS FILE FOR CONSIDERING AFRESH AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE FOR COMPLIANCE TO THE SHOW CAUSE NOTICE ISSUED TO IT. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSE. ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( ) DATE: ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY. I.T.A.NO. 291/CTK/2012 8 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : M/S.UTKAL REFINERIES LTD., AT:NEW INDUSTRIAL ESTATE, JAGATPUR, DIST. CUTTACK. 2 / THE RESPONDENT: COMMISSIONER OF INCOME - TAX, CUTTACK. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 03.10.2012 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 04.10.2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S 30.10.2012 . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30.10.2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER ..