HI-TECH COMMERICALS, MUMBAI V. ITO 19(2)(3), MUMBAI

ITA 3018/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1135 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 28-06-2010
• Assessment Year: 1997-1998
• Appeal Filed On: 11-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Keywords: Opportunity of being heard
• Section: 143(3); 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, H, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI T R SOOD, ACCOUNTANT MEMBER I T A NO: 3018/MUM/2009 (ASSESSMENT YEAR: 1997-98) HI-TECH COMMERCIALS, MUMBAI APPELLANT (SINCE MERGED WITH NOVAMED PHARMACEUTICALS PVT. LTD.) (PAN: AAAFH1817L) VS INCOME TAX OFFICER 19(2)(3), MUMBAI RESPONDENT APPELLANT BY: MS VASANTI PATEL RESPONDENT BY: MR R K SAHU O R D E R R V EASWAR, PRESIDENT: THIS IS AN APPEAL BY THE ASSESSEE RELATING TO THE ASSESSMENT YEAR 1997-98 AND IT IS DIRECTED AGAINST THE ORDER P ASSED BY THE COMMISSIONER OF INCOME TAX UNDER SECTION 263 OF THE INCOME TAX ACT, 1961, ON 20 TH MARCH 2009. 2. THE APPEAL ARISES THIS WAY. THE ASSESSEE FILED A RETURN DECLARING LOSS OF RS.80,42,910/-. THE ASSESSMENT W AS COMPLETED ON 27 TH MARCH 2000 UNDER SECTION 143(3) ON A REDUCED LOSS OF RS.32,92,767/-. PENALTY UNDER SECTION 271(1)(C) WA S ALSO LEVIED BY ORDER DATED 29 TH MARCH 2005. HOWEVER, THE ASSESSEES APPEAL AGAINST THE ASSESSMENT ORDER DATED 27 TH MARCH 2000 BEFORE THE TRIBUNAL WAS DISPOSED OF ON 28 TH NOVEMBER 2006 IN ITA NO: 636 & 637/MUM/2004 AND THE ASSESSMENT ORDER WAS SET ASIDE WITH A ITA NO: 3018/MUM/2009 2 DIRECTION TO THE ASSESSING OFFICER TO DECIDE THE IS SUE OF DISALLOWANCE OF DISCOUNTING CHARGES AFRESH. IN VIE W OF THIS ORDER OF THE TRIBUNAL, THE CIT(A), WHO HEARD THE ASSESSEES APPEAL AGAINST THE PENALTY LEVIED BY ORDER DATED 29 TH MARCH 2005, QUASHED THE PENALTY ORDER. THIS ORDER WAS PASSED BY THE CIT(A) ON 19 TH FEBRUARY 2007. THE SET ASIDE ASSESSMENT WAS TAKEN UP BY THE AO UNDER SECTION 143(3) READ WITH SECTION 254 AND IN T HE ORDER PASSED ON 18 TH DECEMBER 2007, THE AO AGAIN DISALLOWED THE DISCOUN TING CHARGES AND OTHER EXPENSES. AFTER DOING SO THE TOT AL LOSS WAS COMPUTED AT RS.34,93,554/-. PENALTY PROCEEDINGS WE RE AGAIN INITIATED UNDER SECTION 271(1)(C) OF THE ACT. THE ASSESSEE SUBMITTED THAT IN VIEW OF THE DECISION OF THE SUPRE ME COURT IN THE CASE OF VIRTUAL SOFT SYSTEMS LTD. VS. CIT (2007) 28 9 ITR 83 (SC), THE PENALTY PROCEEDINGS SHOULD BE DROPPED SINCE BOT H THE RETURNED INCOME AND THE ASSESSED INCOME WERE LOSSES. THE AO ACCEPTED THE ASSESSEES SUBMISSION IN THE LIGHT OF THE JUDGM ENT OF THE SUPREME COURT AND BY ORDER DATED 27 TH JUNE 2008, THE PENALTY PROCEEDINGS WERE DROPPED. 3. THE CIT TOOK PROCEEDINGS UNDER SECTION 263 OF TH E ACT ON THE BASIS OF THE LATER JUDGMENT OF THE SUPREME COUR T IN THE CASE OF CIT VS. GOLD COIN HEALTH FOOD P. LTD. (2008) 304 IT R 308 (SC) WHERE THE EARLIER JUDGMENT IN THE CASE OF VIRTUAL S OFT SYSTEMS LTD. (SUPRA) WAS OVERRULED AND IT WAS HELD THAT EXPLANAT ION 4 TO SECTION 271(1)(C) WHICH PROVIDED FOR PENALTY IN CASES WHERE THE ASSESSED FIGURE WAS ALSO A LOSS WAS CLARIFICATORY IN NATURE AND APPLIED RETROSPECTIVELY, COVERING THE ASSESSMENT YEAR NOW U NDER ITA NO: 3018/MUM/2009 3 CONSIDERATION. HE OPINED THAT SINCE THE DROPPING O F THE PENALTY PROCEEDINGS BY ORDER DATED 27 TH JUNE 2008 PASSED BY THE AO WAS ON THE BASIS OF A JUDGMENT OF THE SUPREME COURT WHI CH HAD BEEN SUBSEQUENTLY OVERRULED, THE SAID ORDER BECAME ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE HEA RD THE ASSESSEES OBJECTIONS TO HIS PROPOSAL TO REVISE THE ASSESSMENT AND AFTER REJECTING THEM HELD, FOLLOWING THE JUDGMENT OF THE MADRAS HIGH COURT IN CIT VS. SESHASAYEE PAPER BOARD LTD. (1996) 217 ITR 358 (MAD), THAT HE HAD JURISDICTION TO INVOKE SECTION 2 63 TO REVISE AN ASSESSMENT ORDER ON THE BASIS OF A SUBSEQUENT SUPRE ME COURT DECISION OVERRULING AN EARLIER DECISION ON THE BASI S OF WHICH THE ASSESSMENT ORDER HAD BEEN PASSED. HE ALSO CITED TH E JUDGMENT OF THE ALLAHABAD HIGH COURT IN CIT VS. BRAJ BHUSHAN CO LD STORAGE, 275 ITR 360 (ALL). 4. IN THE AFORESAID VIEW OF THE MATTER THE CIT HELD THAT THE ORDER PASSED BY THE AO DROPPING THE PENALTY PROCEEDINGS W AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE ACCORDINGLY SET ASIDE THE ORDER WITH A DIRECTION TO THE AO TO PASS A FRESH ORDER ON MERITS AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 5. THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. RELIANCE HAS BEEN PLACED ON AN ORDER OF THE MUMBAI F BENCH OF THE TRIBUNAL IN ITA NO: 3019/MUM/2009 (ASSESSMENT YEAR 1997-98), DA TED 30 TH APRIL 2010 IN THE CASE OF FELLOWSHIP CORPORATION VS . ITO. IT IS SUBMITTED THAT ON IDENTICAL CIRCUMSTANCES, THE TRIB UNAL HAS SET ASIDE THE ORDER OF THE CIT HOLDING THAT WHEN THE AO PASSES AN ORDER ON THE BASIS OF A JUDGMENT OF THE SUPREME COU RT, HIS ORDER ITA NO: 3018/MUM/2009 4 CANNOT BE SAID TO BE ERRONEOUS AND IT DOES NOT MATT ER THAT THE JUDGMENT OF THE SUPREME COURT IS SUBSEQUENTLY OVERR ULED. IT HAS FURTHER BEEN HELD IN THIS ORDER THAT THE CIT CANNOT INVOKE SECTION 263 ON THE BASIS OF THE SUBSEQUENT JUDGMENT OF THE SUPREME COURT BECAUSE AT THE TIME WHEN THE AO PASSED THE ORDER, I T WAS IN ACCORDANCE WITH THE LAW OF THE LAND DECLARED BY THE SUPREME COURT AT THAT TIME. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO POINTED OUT THAT IN THIS ORDER THE JUDGMENTS OF THE MADRAS AND ALLAHABAD HIGH COURTS (CITED SUPRA) HAVE BEEN CONSIDERED BY THE TR IBUNAL AND THE TRIBUNAL HAS FOLLOWED A JUDGMENT OF THE GAUHATI HIG H COURT IN CIT VS. ASSAM ASBESTOS LTD. (1995) 215 ITR 847 (GAU). IT WAS ALSO POINTED OUT THAT THE ORDER OF THE TRIBUNAL IS IN ON E OF THE GROUP CASES OF THE ASSESSEE. 6. ON BEHALF OF THE REVENUE STRONG RELIANCE HAS BEE N PLACED ON THE ORDER OF THE CIT AND THE REASONING CONTAINED THEREIN. RELIANCE IS ALSO PLACED ON THE JUDGMENTS OF THE MAD RAS AND ALLAHABAD HIGH COURTS CITED SUPRA. 7. ON A CAREFUL CONSIDERATION OF THE FACTS AND THE RIVAL CONTENTIONS, WE ARE INCLINED TO FOLLOW, WITH RESPEC T, THE ORDER OF THE CO-ORDINATE BENCH OF THE MUMBAI BENCHES OF THE TRIB UNAL PASSED IN THE CASE OF FELLOWSHIP CORPORATION VS. ITO (SUPR A). AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE GA UHATI HIGH COURT IN ITS DECISION CITED SUPRA HAS HELD THAT THE POWERS OF THE CIT UNDER SECTION 263 MUST BE EXERCISED ON THE BASIS OF THE MATERIAL THAT WAS AVAILABLE TO HIM WHEN HE EXERCISED THE POW ER AND THAT IF AN ORDER WAS PASSED BY AN INCOME TAX AUTHORITY ON T HE BASIS OF AN ITA NO: 3018/MUM/2009 5 OPERATING DECISION OF A JURISDICTIONAL HIGH COURT, IT CANNOT BE HELD THAT SUCH AN ORDER IS ERRONEOUS AND THE FACT THAT T HE SUPREME COURT HAD SUBSEQUENTLY REVERSED THE JUDGMENT OF THE HIGH COURT CANNOT BE A GROUND FOR INVOKING THE REVISIONAL POWER UNDER SECTION 263. THE TRIBUNAL HAS ALSO NOTED IN ITS ORDER THAT WHEN THERE IS A JUDGMENT OF THE SUPREME COURT ON A PARTICULAR POINT , THE AO HAS NO OPTION BUT TO FOLLOW THE SAME AS IT IS THE LAW OF T HE LAND. IN THE CASE OF VIRTUAL SOFT SYSTEMS LTD. (SUPRA) THE SUPREME CO URT DECLARED THE LAW THAT WHERE BOTH THE RETURNED FIGURE AND THE ASS ESSED FIGURE ARE LOSSES, NO PENALTY UNDER SECTION 271(1)(C) CAN BE I MPOSED. THE AO HAD NO OPTION BUT TO RESPECTFULLY FOLLOW THE JUD GMENT OF THE SUPREME COURT AND DROP THE PENALTY PROCEEDINGS IN T HE PRESENT CASE BECAUSE UNDOUBTEDLY BOTH THE RETURNED FIGURE A ND THE ASSESSED FIGURE WERE LOSSES. THE ORDER PASSED BY T HE AO DROPPING THE PENALTY PROCEEDINGS CANNOT THEREFORE B E CHARACTERIZED AS AN ERRONEOUS ORDER. 8. THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF T HE TRIBUNAL PASSED IN THE CASE OF FELLOWSHIP CORPORATION (SUPRA ), WE HOLD THAT THE CIT HAD NO JURISDICTION TO INVOKE SECTION 263 O F THE ACT. HIS ORDER IS SET ASIDE AND THE APPEAL OF THE ASSESSEE I S ALLOWED WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH JULY 2010. SD/- SD/- (T R SOOD) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 9 TH JULY 2010 SALDANHA ITA NO: 3018/MUM/2009 6 COPY TO: 1. HI-TECH COMMERCIALS 159, CST ROAD, KALINA SANTACRUZ (EAST), MUMBAI 400 098 2. ITO 19(2)(3) 3. CIT-19 4. CIT(A)- 5. DR H BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI