P K STTEL CASTING PVT LTD, Calicut V. ACIT, Calicut

ITA 296/COCH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65061 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 17-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 02-05-2011
• Court: TRIBUNAL
• Department Lawyers: SUSAN GEORGE VARGHESE
• Assessee Lawyers: A S NARAYANAMOORTHY
• Keywords: Revision of order; Opportunity of being heard; Assessment record
• Section: 145; 263

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. 296/COCH/2011 ASSESSMENT YEAR : 2006-07 PEEKEY STEEL CASTING PVT. LTD., NALLALAM, CALICUT. [PAN: AABCP 3517H] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), CALICUT. (ASSESSEE -APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI A.S. NARAYANAMOORTHY, CA REVENUE BY SMT. SUSAN GEORGE VARGHESE, SR. DR DATE OF HEARING 17/10/2012 DATE OF PRONOUNCEMENT 21/12/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE REVISION ORDER DATED 18-03- 2011 PASSED BY LD CIT, KOZHIKODE U/S 263 OF THE ACT FOR THE ASSESSMENT YEAR 2006-07. THE ASSESSEE IS CHALLENGING THE VALIDITY OF THE SAID ORDER. 2. THE FACTS RELATING TO THE ISSUE UNDER CONSID ERATION ARE SET OUT IN BRIEF. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UN DER CONSIDERATION DECLARING A TOTAL INCOME OF RS.71.63 LAKHS AND THE AO COMPLETED THE ASSESSMENT BY ACCEPTING THE INCOME RETURNED. HOWEVER, THE AO PAS SED A CRYPTIC ORDER WITHOUT MAKING ANY DISCUSSION ON ANY OF THE ISSUES. ON THE EXAMINATION OF ASSESSMENT RECORD, THE LD CIT NOTICED THAT THE AO DID NOT EXAM INE ABOUT THE CHANGE MADE IN THE METHOD OF VALUATION OF REJECTED CASTINGS D URING THE YEAR UNDER CONSIDERATION. IN THE EARLIER YEARS, THE ASSESSEE HAD VALUED THE STOCK OF REJECTED CASTINGS AT MATERIAL COST PLUS 12.5% TO WARDS OVERHEADS IN THE CASE OF ALLOY STEEL. IN THE CASE OF STAINLESS STEEL, THE STOCK WAS VALUED AT MATERIAL COST PLUS 17.5% TOWARDS OVERHEADS. HOWEVER, DURI NG THE YEAR UNDER I.T.A. NO. 296/COCH/2011 2 CONSIDERATION, THE ASSESSEE VALUED THE REJECTED CA STINGS AT THE VALUE OF RAW MATERIALS ONLY, I.E., THE ESTIMATED OVER HEADS COST WAS NOT ADDED TO THE VALUE. THE LD CIT NOTICED THAT THE CHANGE IN THE METHOD OF VALUATION HAS RESULTED IN THE REDUCTION OF PROFIT BY RS.74,15,785/-. SINCE T HE AO DID NOT EXAMINE THE TAX IMPLICATIONS ON THE CHANGE IN THE METHOD OF VALUATI ON OF REJECTED CASTINGS, THE LD CIT INITIATED REVISION PROCEEDINGS U/S 263 OF TH E ACT. 3. BEFORE LD CIT, THE ASSESSEE CONTENDED THAT T HE AO HAS APPLIED HIS MIND ON THE IMPUGNED ISSUE. THE LD CIT DID NOT ACCEPT THE SAID CONTENTIONS AND OPINED THAT THE FAILURE ON THE PART OF THE AO TO MAKE NECE SSARY ENQUIRIES WOULD RENDER THE ASSESSMENT ORDER ERRONEOUS. ACCORDINGLY, THE L D CIT HELD THAT THE ASSESSING OFFICER DID NOT MAKE PROPER ENQUIRIES ON THE IMPUGN ED ISSUE AND CONSEQUENTLY THE ASSESSMENT ORDER IS RENDERED ERRONEOUS IN SO FA R AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE LD CIT PLACED RELIA NCE ON THE FOLLOWING CASE LAW:- (A) CIT VS. GREENWORLD CORPORATION (314 ITR 81)(S C) (B) MALABAR INDUSTRIAL CO LTD (243 ITR 83) (C) CIT VS. ACTIVE TRADERS (P) LTD (214 583) (D) THALIBAI S JAIN (101 ITR 1)(KAR) (E) D.K.SINGHAL VS. CIT (2008)(TIOL 311-ITAT-DE LHI) (F) RAJALAKSHMI MILLS LTD VS.ITO (2009)(25 DTR (C HENNAI)(SB)(TRIB) 258) ACCORDINGLY, THE LD CIT SET ASIDE THE ASSESSMENT OR DER AND DIRECTED THE AO TO REDO THE ASSESSMENT AFTER CONSIDERING THE IMPUGNED ISSUE AND AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE ASSESSEE IS LEGALLY ENTITLED TO CHANGE ITS ACCOUNTING POLICY AND SUCH C HANGE WOULD HAVE IMPACT ON THE PROFITABILITY ONLY IN THE YEAR OF CHANGE. SUCH CHANGES ARE NORMALLY MADE EITHER TO ALIGN WITH GLOBALLY ACCEPTED PRACTICES OR TO ALIGN WITH THE REALITY OF THE BUSINESS. HE FURTHER SUBMITTED THAT THE ACCOUNTING STANDARD-I ISSUED BY THE GOVERNMENT U/S 145(2) OF THE ACT GIVE STATUTORY REC OGNITION TO THE CHANGES I.T.A. NO. 296/COCH/2011 3 MADE IN THE ACCOUNTING POLICIES. THE LD A.R DREW O UR ATTENTION TO THE FOLLOWING PARAGRAPH FROM THE ACCOUNTING STANDARD I ISSUED U/S 145 OF THE ACT. ANY CHANGE IN AN ACCOUNTING POLICY WHICH HAS A MAT ERIAL EFFECT IN THE PREVIOUS YEAR OR IN THE YEARS SUBSEQUENT TO THE PRE VIOUS YEAR SHALL BE DISCLOSED. THE IMPACT OF, AND THE ADJUSTMENTS RESU LTING FROM, SUCH CHANGE, IF MATERIAL SHALL BE SHOWN IN THE FINANCIAL STATEMENTS OF THE PERIOD IN WHICH SUCH CHANGE IS MADE TO REFLECT THE EFFECT OF SUCH CHANGE. WHERE THE EFFECT OF SUCH CHANGE IS NOT ASCERTAINABL E, WHOLLY OR IN PART, THE FACT SHALL BE INDICATED. IF A CHANGE IS MADE I N THE ACCOUNTING POLICIES WHICH HAS NO MATERIAL EFFECT ON THE FINANCIAL STATE MENTS FOR THE PREVIOUS YEAR BUT WHICH IS REASONABLY EXPECTED TO HAVE A MAT ERIAL EFFECT IN ANY YEAR SUBSEQUENT TO PREVIOUS YEAR, THE FACT OF SUCH CHANGE SHALL BE APPROPRIATELY DISCLOSED IN THE PREVIOUS YEAR IN WHI CH THE CHANGE IS ADOPTED. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS DULY DIS CLOSED THE DETAILS OF CHANGE IN THE METHOD OF VALUATION OF REJECTED CASTINGS A ND ALSO ITS IMPACT IN THE NOTES ON ACCOUNT ATTACHED TO THE FINANCIAL STATEMENTS. A CCORDINGLY, HE SUBMITTED THAT THE CHANGES SO MADE IN THE ACCOUNTING POLICIES WOUL D NOT RENDER THE ASSESSMENT ORDER ERRONEOUS. HE FURTHER PLACED RELIANCE ON THE DECISION DATED 27-07-2012 RENDERED BY THIS BENCH IN THE CASE OF M/S MUTHOOT B ANKERS IN ITA NO.223/COCH/2010 AND SUBMITTED THAT THE TRIBUNAL HA S SET ASIDE THE REVISION ORDER PASSED U/S 263 OF THE ACT ON THE GROUND THAT THE VIEW ENTERTAINED BY LD CIT IS NOT SUSTAINABLE IN LAW. THE LD A.R ALSO PLA CED RELIANCE ON THE FOLLOWING CASE LAW:- (A) CIT VS. HONDA SIEL POWER PRODUCTS LTD (333 IT R 547)(DELHI) (B) CIT AND ANOTHER VS. GOKULDAS EXPORTS (333 ITR 214)(KAR) (C) CIT VS. LEISURE WEAR EXPORTS LTD (341 ITR 166 )(DELHI) (D) CIT VS. RAJIV AGNIHOTRI (332 ITR 608)(P & H) (E) CIT VS. SUNBEAM AUTO LTD (332 ITR 167)(DELHI) . 5. ON THE CONTRARY, THE LD D.R SUBMITTED THAT T HE ASSESSEE IS LEGALLY ENTITLED TO CHANGE ITS ACCOUNTING POLICY ON ANY OF THE ISSUE , BUT IT IS THE DUTY OF THE ASSESSING OFFICER TO EXAMINE THE SAID CHANGE IN ORD ER TO ASCERTAIN ITS IMPACT ON THE TOTAL INCOME. THE LD D.R FURTHER SUBMITTED THA T THE DUTY OF THE ASSESSING OFFICER IS TO DETERMINE THE CORRECT AMOUNT OF TOTAL INCOME AND HENCE FAILURE TO MAKE ENQUIRY ON ANY OF THE ISSUES, WHICH IS LIKELY TO HAVE IMPACT ON THE TOTAL I.T.A. NO. 296/COCH/2011 4 INCOME, WOULD RENDER THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LD D.R DREW OUR ATTEN TION TO THE VARIOUS CASE LAW RELIED UPON BY THE LD CIT IN THE REVISION ORDER. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PE RUSED THE RECORD. BEFORE PROCEEDING FURTHER, WE FEEL IT PERTINENT TO DISCUSS ON THE LEGAL POSITION RELATING TO THE REVISION PROCEEDINGS CARRIED OUT UNDER SECTION 263 OF THE ACT. THE HON'BLE BOMBAY HIGH COURT, IN THE CASE OF GRASIM INDUSTRIES LTD. V CIT (321 ITR 92) HAS DISCUSSED ABOUT THE SCOPE OF PROVISIONS OF SECTION 263 AS UNDER: SECTION 263 OF THE INCOME-TAX ACT, 1961 EMPOWERS TH E COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD OF ANY PROCEED INGS UNDER THE ACT AND, IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN, BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, TO PASS AN ORDER UPON HEARING THE ASSESSEE AND AFTER AN ENQUIRY AS IS NECESSARY, ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELING THE ASSESSMENT AND DIRECTING A FRESH ASSE SSMENT. THE KEY WORDS THAT ARE USED BY SECTION 263 ARE THAT THE ORD ER MUST BE CONSIDERED 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 JUDGMEN TS TO WHICH IT IS NOW NECESSARY TO TURN. IN MALABAR INDUSTRIAL CO. LT D. V. CIT [2000] 243 ITR 83, THE SUPREME COURT HELD THAT THE PROVISI ON CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE O R ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. THE SUPREME CO URT HELD THAT AN INCORRECT ASSUMPTION OF FACT OR AN INCORRECT APPLIC ATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONE OUS. AN ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JU STICE OR WITHOUT APPLICATION OF MIND, WOULD BE AN ORDER FALLING IN T HAT CATEGORY. THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF THE REV ENUE, THE SUPREME COURT HELD, IT IS OF WIDE IMPORT AND IS NOT CONFINE D TO A LOSS OF TAX. WHAT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE IS EXPLAINED IN THE JUDGMENT OF THE SUPREME COURT (HEAD NOTE) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF A N ORDER OF THE ASSESSING OFFICER, CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF 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 I.T.A. NO. 296/COCH/2011 5 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 LTD. [2007] 295 ITR 282. THERE MAY NOT BE ANY DISPUTE THAT THE REVISION PROC EEDING SHALL NOT LIE ON THE ISSUES ON WHICH THE ASSESSING OFFICER HAS TAKEN A P LAUSIBLE VIEW AFTER EXAMINING AND APPLYING HIS MIND ON IT. IF THERE IS NO ENQUIR Y AT ALL ON ANY OF THE ISSUES, THEN REVISION PROCEEDING SHALL BE VALID ON SUCH OF THOSE ISSUES. HOWEVER, IF THE VIEW ENTERTAINED BY LEARNED CIT IS NOT SUSTAINABLE IN LAW, THEN ALSO REVISION PROCEEDING SHALL NOT BE VALID. IT IS ALSO SETTLED PROPOSITION OF LAW THAT THE REVISION COULD BE POSSIBLE ONLY IF BOTH THE CONDITI ONS VIZ., (A) ORDER SHOULD BE ERRONEOUS AND (B) IT SHOULD BE PREJUDICIAL TO THE I NTERESTS OF THE REVENUE ARE SATISFIED. 7. IN THE CASE OF M/S MUTHOOT BANKERS (REFERRED SUPRA), THIS TRIBUNAL FOUND THAT THE VIEW ENTERTAINED BY LD CIT IN THAT CASE WA S NOT SUSTAINABLE IN LAW. IN THAT CASE, THE ASSESSEE HAD BEEN CALCULATING THE IN TEREST PAYABLE ON PARTNERS CURRENT ACCOUNT ON A SCIENTIFIC BASIS, I.E., UNDER PRODUCT METHOD AND THE LD CIT HAD TAKEN A VIEW THAT THE INTEREST SHOULD HAVE BEEN CALCULATED ON THE AVERAGE OF OPENING AND CLOSING BALANCE. HENCE THE TRIBUNAL SE T ASIDE THE ORDER OF LD CIT, SINCE THE SAID VIEW WAS SUSTAINABLE IN LAW. 8. IN THE INSTANT CASE, THE ASSESSEE HAS CHANGE D THE METHOD OF VALUATION OF REJECTED CASTINGS STOCK AND THE SAME HAS RESULTED IN REDUCTION OF PROFIT. THE ASSESSEES ARGUMENT THAT SUCH KIND OF CHANGES IS PE RMISSIBLE MAY ALSO BE RIGHT. HOWEVER, THE SCOPE OF TRIBUNAL WHILE DEALING APPEAL S FILED AGAINST REVISION ORDERS PASSED U/S 263 OF THE ACT IS LIMITED. IT WAS NOT S HOWN TO US THAT THE AO DID I.T.A. NO. 296/COCH/2011 6 MAKE ENQUIRY ON THIS ISSUE AND HAS TAKEN A PLAUSIBL E VIEW BY DULY APPLIYING HIS MIND. WE ALSO DO NOT FIND ANY DISCUSSION ON THE IM PUGNED ISSUE IN THE ASSESSMENT ORDER. IT WAS ALSO NOT SHOWN TO US THAT THE VIEW ENTERTAINED BY THE LD CIT IS NOT SUSTAINABLE IN LAW. IN FACT, THE LD CIT HAS ONLY POINTED OUT THAT THE AO HAS NOT MADE PROPER VERIFICATION OF THE IMPU GNED ISSUE AND THE ADMINISTRATIVE COMMISSIONER HAS NOT EXPRESSED ANY O PINION OR GIVEN ANY DIRECTION ABOUT SPECIFIC TREATMENT OF THE IMPUGNED ISSUE. HE HAS ONLY DIRECTED THE AO TO EXAMINE THE IMPUGNED ISSUE. IT IS SETTL ED PROPOSITION OF LAW THAT THE LACK OF ENQUIRY WOULD RENDER THE ASSESSMENT ORDER A N ERRONEOUS ONE. 9. IN VIEW OF THE FOREGOING DISCUSSIONS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LD CIT U/S 263 OF THE ACT. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 21-12-20 12. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 21ST DECEMBER, 2012 GJ COPY TO: 1. PEEKEY STEEL CASTING PVT. LTD., NALLALAM, CALICU T. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(1), CALICUT. 3. THE COMMISSIONER OF INCOME-TAX, KOZHIKODE. 4. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 5. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN