WESTERN OUTDOOR INTERACTIVE P. LTD, MUMBAI V. ITO WD 2(30(4), MUMBAI

ITA 3009/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48557 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 03-03-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 16-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARVIND SONDE
• Section: 143(3); 147; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI P.M. JAGTAP (AM) AND SHRI V. DURGA RAO , JM I.T.A.NO. 3009/MUM/2010 ASSESSMENT YEARS: 2002-03 M/S. WESTERN OUTDOOR INTERACTIVE PVT. LTD., 7 TH FLOOR, NANAVATI MAHALAYA, 18, HOMI MODI STREET, FORT, MUMBAI 400 023. PAN: AAACW 0584 A VS. THE INCOME-TAX OFFICER, WARD 2(3)(4), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ARVIND SONDE RESPONDENT BY : SHRI PAVAN VED O R D E R PER P.M. JAGTAP, AM: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX-2, MUMBAI, UNDER SECTION 263 DATED 24.03.2010. 2. IN THIS CASE, ASSESSMENT WAS COMPLETED BY THE AS SESSING OFFICER UNDER SECTION 143(3) READ WITH SECTION 147 DETERMINING TH E TOTAL INCOME OF THE ASSESSEE AT RS.5,03,53,770/- AS AGAINST THE RETURNED INCOME OF RS. 71,40,930/-. IN THE SAID ASSESSMENT, THE ASSESSEES CLAIM FOR EXEMPTION UNDE R SECTION 10A FOR SEEPZ UNIT WAS REJECTED BY THE ASSESSING OFFICER ON THE GROUND THAT THE SAID UNIT HAD COME INTO EXISTENCE BY SPLITTING UP THE EXISTING BUSINESS. O N APPEAL, THE LEARNED CIT(A) AS WELL AS THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSES SEE FOR EXEMPTION U/S.10A FOR SEEPZ UNIT AND THE APPEAL FILED BY THE REVENUE CHAL LENGING THE SAID RELIEF ALLOWED BY THE TRIBUNAL WAS PENDING BEFORE THE HONBLE BOMBAY HIGH COURT. MEANWHILE THE RECORD OF THE ASSESSMENT CAME TO BE EXAMINED BY TH E LEARNED COMMISSIONER OF INCOME-TAX AND ON SUCH EXAMINATION HE FOUND THAT TH E PROFIT OF COLABA UNIT WAS SHOWN BY THE ASSESSEE AT RS.2.25 CRORES ON TURNOVER OF RS.5.37 CRORES, WHEREAS THE PROFIT OF SEEPZ UNIT WAS SHOWN AT RS.4.34 CRORES ON A TURNOVER OF RS.5.47 CRORES. ITA NO.3009/MUM/2010 WESTERN OUTDOOR INTERNACTIVE PVT. LTD.. 2 ACCORDING TO THE LEARNED COMMISSIONER OF INCOME-TAX , THE ASSESSEE HAD APPARENTLY CLAIMED THE EXPENSES RELATABLE TO SEEPZ UNIT IN COL ABA UNIT TO CLAIM MORE EXEMPTION U/S.10A. HE, THEREFORE, HELD THAT THE O RDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) READ WITH SECTION 147 WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND ISSUED NOTICE DATE D 25.2.2010 REQUIRING THE ASSESSEE TO SHOW CAUSE AS TO WHY HE SAID ORDER SHOU LD NOT BE REVISED UNDER SECTION 263. IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE A SSESSEE THAT COLABA UNIT EXPENSES WERE HIGH BECAUSE THE RENT PAID FOR THE OFFICE PREM ISES AT DHANRAJ MAHAL WAS HIGH. IT WAS ALSO SUBMITTED THAT SUBSTANTIAL RENOVATION E XPENSES WERE ALSO INCURRED IN COLABA UNIT WHICH HAD ADVERSE EFFECT ON THE PROFITA BILITY OF THE SAID UNIT. IT WAS FURTHER SUBMITTED THAT THE PROFIT OF SEEPZ UNIT, ON THE OTHER HAND, WAS HIGHER BECAUSE OPERATIONAL COST IN RESPECT OF THE SAID UNI T WAS PRACTICALLY NIL. IT WAS CONTENDED THAT THERE WAS THUS NO DELIBERATE ATTEMPT TO INFLATE THE EXPENSES OF COLABA UNIT BY REDUCING THE EXPENSES OF SEEPZ UNIT TO CLAIM HIGHER EXEMPTION U/S.10A. THE LEARNED COMMISSIONER OF INCOME-TAX DI D NOT DEAL WITH THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE IN HIS IMPUGNED ORD ER. HE, HOWEVER, PROCEEDED TO UPHOLD THE ASSESSMENT MADE BY THE ASSESSING OFFICER UNDER SECTION 143(3) READ WITH SECTION 147 AS ERRONEOUS ON THE GROUND THAT TH E SAME WAS COMPLETED WITHOUT CONDUCTING NECESSARY ENQUIRIES IN RELATION TO THE E XPENSES OF SEEPZ UNIT. HE, THEREFORE, SET ASIDE THE SAME AND DIRECTED THE ASSE SSING OFFICER TO DO THE SAME DENOVO AS PER LAW AFTER GIVING SUFFICIENT OPPORTUNI TY TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX PASSED UNDER SECTION 263, THE ASSESSEE HAD PREFERRED THIS APPEAL BEFORE THE TRIB UNAL. 3. THE LEARNED COUNSEL FOR THE ASSESSEE, AT THE OUT SET, INVITED OUR ATTENTION TO THE COPY OF THE NOTICE DATED 16 TH NOVEMBER, 2009, ISSUED BY THE LEARNED COMMISSIONER OF INCOME-TAX UNDER SECTION 263 PLACED AT PAGE NO.1 OF HIS PAPER BOOK TO POINT OUT THAT THE SAID NOTICE WAS ISSUED B Y THE LEARNED COMMISSIONER OF ITA NO.3009/MUM/2010 WESTERN OUTDOOR INTERNACTIVE PVT. LTD.. 3 INCOME-TAX ON THE BASIS THAT THE PROFIT OF SEEPZ UN IT WAS APPARENTLY OVER STATED BY THE ASSESSEE BY CLAIMING EXPENSES RELATABLE TO SEEP Z UNIT IN COLABA UNIT IN ORDER TO CLAIM HIGHER EXEMPTION U/S.10A. HE SUBMITTED THAT NOTICE U/S.263 THUS WAS ISSUED BY THE LEARNED COMMISSIONER OF INCOME-TAX ON THE BA SIS OF SURMISES AND CONJECTURES AND THERE WAS NO CONCLUSION EVEN PRIMA FACIE REACHED BY THE LEARNED COMMISSIONER OF INCOME-TAX THAT THE ORDER PASSED BY THE ASSESSING OFFICER U/S. 143(3) READ WITH SECTION 147 ON THIS ISSUE WAS ERRO NEOUS. HE THEN INVITED OUR ATTENTION TO THE REPLY FILED BY THE ASSESSEE VIDE L ETTER DATED 30.11.2009 (COPY PLACED AT PAGE 2& 3 OF THE PAPER BOOK) TO SHOW THAT THE R EASONS FOR HIGHER PROFITABILITY IN SEEPZ UNIT AS COMPARED TO COLABA UNIT WERE DULY EXP LAINED BY THE ASSESSEE. HE SUBMITTED THAT THIS EXPLANATION OFFERED BY THE ASSE SSEE, HOWEVER, WAS NEITHER CONSIDERED NOR DISCUSSED IN HIS IMPUGNED ORDER AND WITHOUT POINTING OUT ANY INFIRMITY THEREIN, THE LEARNED CIT PROCEEDED TO SET ASIDE THE ORDER PASSED BY THE ASSESSING OFFICER ON A DIFFERENT GROUND THAT THE SA ME WAS COMPLETED WITHOUT CONDUCTING NECESSARY ENQUIRIES IN RESPECT OF EXPENS ES OF SEEPZ UNIT. IN THIS REGARD, HE INVITED OUR ATTENTION TO THE PROFIT & LOSS ACCOU NT PLACED AT PAGE 36 OF HIS PAPER BOOK TO POINT OUT THAT SEPARATE PROFIT & LOSS ACCOU NT WAS PREPARED BY THE ASSESSEE IN RESPECT OF COLABA UNIT AND SEEPZ UNIT. HE ALSO INVITED OUR ATTENTION TO THE ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3 ) READ WITH SECTION 147 TO SHOW THAT THE SAID PROFIT & LOSS ACCOUNT FILED BY THE AS SESSEE ALONG WITH THE RETURN OF INCOME WAS VERIFIED BY THE ASSESSING OFFICER AND ON SUCH VERIFICATION, THE ALLOCATION OF EXPENSES MADE BY THE ASSESSEE BETWEEN COLABA UNI T AND SEEPZ UNIT WAS ACCEPTED BY THE ASSESSING OFFICER. HE CONTENDED THA T THERE WAS THUS NO ERROR IN THE ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) READ WITH SECTION 147 AS ALLEGED BY THE LEARNED CIT CALLING FOR REVISION UND ER SECTION 263. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT THE PROFIT SHOWN BY THE ASSESSEE IN RESPECT OF SEEPZ UNIT WAS SUBSTANTIALLY ITA NO.3009/MUM/2010 WESTERN OUTDOOR INTERNACTIVE PVT. LTD.. 4 HIGHER THAN THAT OF COLABA UNIT IN SPITE OF THE FAC T THAT BOTH THE UNITS WERE ENGAGED IN THE SAME LINE OF BUSINESS. ACCORDING TO HIM, TH IS POSITION CLEARLY EVIDENT FROM THE RECORD WAS SUFFICIENT FOR THE LEARNED COMMISSIONER OF INCOME-TAX TO COME TO A PRIMA FACIE CONCLUSION THAT THE EXPENSES OF SEEPZ U NIT WERE DIVERTED BY THE ASSESSEE TO COLABA UNIT IN ORDER TO CLAIM HIGHER EX EMPTION UNDER SECTION 10A OF THE ACT. HE INVITED OUR ATTENTION TO THE PROFIT & LOSS ACCOUNT OF BOTH THESE UNITS TO SHOW THAT THE ALLOCATION OF SOME OF THE EXPENSE AS MADE BY THE ASSESSEE BETWEEN THE TWO UNITS WAS NOT PROPER. HE SUBMITTED THAT THE ASS ESSING OFFICER, HOWEVER, DID NOT ENQUIRE INTO THIS MATERIAL ASPECT WHILE COMPLETING THE ASSESSMENT AND ACCEPTED THE ALLOCATION OF EXPENSES MADE BY THE ASSESSEE WITHOUT MAKING PROPER AND SUFFICIENT ENQUIRY. HE CONTENDED THAT THIS FAILURE OF THE ASSE SSING OFFICER TO MAKE SUCH ENQUIRIES MADE THE ASSESSMENT COMPLETED U/S.143(3) READ WITH SECTION 147 ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS O F THE REVENUE AND THE LEARNED COMMISSIONER OF INCOME-TAX WAS FULLY JUSTIFIED IN S ETTING ASIDE THE SAME BY EXERCISING HIS POWERS CONFERRED UPON HIM U/S.263. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESS MENT COMPLETED BY THE ASSESSING OFFICER U/S.143(3) READ WITH SECTION 147 WAS HELD T O BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE BY THE LEARNED COMMISS IONER OF INCOME-TAX AND THE SAME WAS SOUGHT TO BE REVISED ON THE BASIS OF THE FOLLOWING REASONS GIVEN IN THE NOTICE DATED 16.11.2009 ISSUED TO THE ASSESSEE: NOTICE UNDER SECTION 263 OF THE INCOM E TAX ACT, 1961 ON EXAMINATION OF THE RECORDS FOR THE A.Y. 2002-03 , IT IS NOTICED THAT ASSESSMENT ORDER PASSED U/S.143(3) R.W.S.147 O F THE INCOME TAX ACT, 1961 ON 24.07.2007 BY THE INCOME-TAX OFFICER -2(3)( 4), MUMBAI IN YOUR CASE IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE ON THE FOLLOWING POINT. IT IS SEEN THAT SALES TURNOVER OF COLABA UNIT COME S TO RS. 5.37 CRORES AND PROFIT IS RS. 2.25 CRORES WHEREAS SALES TURNOVER OF SEEPZ IS RS. 5.47 CRORES AND PROFIT IS RS. 4.34 CRORES. WORKING OF THE PROFITS OF COLABA UNIT AND SEEPZ UNIT SHOWS THAT THE PROFIT OF SEEPZ UNIT SEEMS TO HAVE BEEN OVERSTATED THROUGH BOTH UNITS ARE ENGAGED IN THE SAME LINE OF BUSINESS AND THAT THE EXPENSES RELATABLE TO SEEPZ U NIT UNDER COLABA UNIT ITA NO.3009/MUM/2010 WESTERN OUTDOOR INTERNACTIVE PVT. LTD.. 5 HAVE BEEN INFLATED IN ORDER TO CLAIM 100% DEDUCTION FOR A MAJOR PART OF ITS INCOME. IN VIEW OF THE ABOVE ERROR IN THE ASSESSMENT ORDER , YOU ARE REQUESTED TO SHOW CAUSE AS TO WHY THE SAID ORDER SH OULD NOT BE REVISED U/S.263 OF THE INCOME-TAX ACT. YOUR OBJECTIONS, IF ANY TO THE PROPOSED REVISION OF ASSESSMENT MAY BE FILED BEFORE THE UNDE RSIGNED ON OR BEFORE 25.11.2009 ON WHICH DATE THE MATTER STANDS POSTED F OR HEARING IN MY OFFICE AT THE ABOVE ADDRESS AT 4.00 P.M. YOU MAY AP PEAR PERSONALLY OR THROUGH YOUR AUTHORIZED REPRESENTATIVE IN THIS REGA RD. YOURS FAITHFULLY, SD. COMMISSIONER OF INCOME-TAX-2, MUMBAI. 6. A PERUSAL OF THE CONTENTS OF THE NOTICE ISSUED B Y THE LEARNED COMMISSIONER OF INCOME-TAX UNDER SECTION 263 SHOWS THAT THERE WA S NO CONCLUSION EVEN PRIMA FACIE REACHED BY THE LEARNED COMMISSIONER OF INCOME -TAX ABOUT THE PROFIT OF SEEPZ UNIT HAVING BEEN OVERSTATED BY THE ASSESSEE TO CLAI M HIGHER EXEMPTION U/S.10A AND THE ORDER OF THE ASSESSING OFFICE WAS HELD TO BE ER RONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE BY HIM ON THE BASIS THAT T HE PROFIT OF SEEPZ UNIT WAS SEEMINGLY OVER-STATED BY THE ASSESSEE. IT IS WELL S ETTLED POSITION OF LAW THAT THE POWERS CONFERRED UPON BY THE LEARNED CIT U/S.263 CA N BE EXERCISED ONLY WHEN THE ORDER OF THE ASSESSING OFFICER IS FOUND TO BE ERRON EOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ONLY WHEN THESE TWO CONDI TIONS ARE FOUND TO BE EXISTED, THE LEARNED COMMISSIONER OF INCOME-TAX CAN EXERCISE HIS POWERS UNDER SECTION 263 AND IT CANNOT BE DONE MERELY ON THE BASIS OF CONJEC TURES AND SURMISES. MOREOVER, THE REASONS FOR HIGHER PROFITABILITY IN SEEPZ UNIT AS COMPARED TO COLABA UNIT WERE DULY EXPLAINED BY THE ASSESSEE IN ITS REPLY DATED 3 0.11.2009. A PERUSAL OF THE IMPUGNED ORDER OF THE LEARNED COMMISSIONER OF INCOM E-TAX, HOWEVER, SHOWS THAT NO FAULT WAS FOUND BY HIM IN THE SAID EXPLANATION O FFERED BY THE ASSESSEE REGARDING THE HIGHER PROFITABILITY OF SEEPZ UNIT AND WITHOUT DEALING WITH THE SAID EXPLANATION, HE HELD THE ORDER OF THE ASSESSING OFFICER TO BE ER RONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE ON THE BASIS OF AN ALTOGET HER DIFFERENT GROUND WHICH WAS NOT EVEN MENTIONED IN THE NOTICE ISSUED UNDER SECT ION 263. AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE, SEPARATE PROIT & LOSS ACCOUNT IN RESPECT OF BOTH ITA NO.3009/MUM/2010 WESTERN OUTDOOR INTERNACTIVE PVT. LTD.. 6 THE COLABA UNIT AND SEEPZ UNIT WAS PREPARED AND FUR NISHED BY THE ASSESSEE ALONG WITH ITS RETURN OF INCOME AND ONLY AFTER VERIFYING THE SAME, THE ALLOCATION OF EXPENSES WAS ACCEPTED BY THE ASSESSING OFFICER IN T HE ASSESSMENT COMPLETED UNDER SECTION 143(3) READ WITH SECTION 147. THE ALLEGATIO N OF THE LEARNED COMMISSIONER OF INCOME-TAX THAT THE SAID ASSESSMENT WAS MADE BY THE ASSESSING OFFICER WITHOUT CONDUCTING NECESSARY ENQUIRIES IN RESPECT OF EXPEN SES OF SEEPZ UNIT THUS IS NOT TENABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. AS SUCH, KEEPING IN VIEW ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THERE WAS NO ERROR IN THE ORDER OF THE ASSESSING OFFICER MADE U/S.143(3) READ WITH SECTION 147 AS ALLEGED BY THE LEARNED COMMISSIONER OF INCOME-TAX CALLING F OR REVISION UNDER SECTION 263 OF THE ACT. IN THAT VIEW OF THE MATTER, WE SET ASIDE T HE IMPUGNED ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX PASSED U/S.263 AND RESTO RE THAT OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) READ WITH SECTI ON 147 OF THE ACT. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT N THIS 29 TH DAY OF APRIL, 2011. SD. SD. (V. DURGA RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED THE 29 TH APRIL, 2011. KN COPY TO: 1. THE ASSESSEE 2. THE ITO -2(3)(4), MUMBAI 3. THE CIT-2 MUMBAI. 4. THE DR G BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, ITAT, MUMBAI