WELLWORTH LABORATORIES, MUMBAI V. ITO 19(2)(2), MUMBAI

ITA 3021/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1506 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 07-06-2010
• Assessment Year: 1997-1998
• Appeal Filed On: 11-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BALAKRISHNAN
• Keywords: Opportunity of being heard; Valuation report; Set aside
• Section: 271(1)(c); 143(3); 263

Judgement Text

ITA NOS.3020 & 3021/MUM/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI P M JAGTAP, AM &SHRI R S PADVEKAR, JM ITA NOS. 3020 & 3021/MUM/2009 (ASST YEARS 1996-97 & 97-98) M/S WELLWORTH LABORATORIES 159 CST ROAD KALINA , SANTACRUZ (E) MUMBAI 98 VS THE INCOME TA OFFICER WARD 19(2)(2), MUMBAI (APPELLANT) (RESPONDENT) PAN AAAFW0348P ASSESSEE BY: MS VASANTI PATEL REVENUE BY: SHRI BALAKRISHNAN O R D E R PER R S PADVEKAR: THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST THE ORDERS OF THE LD CIT-19, MUMBAI PASSED U/S 263 OF THE I T ACT FOR THE ASSESSMENT YEARS 1996-97 & 1997-98 DATED18.3.2009. 2 THE FACTS AS WELL AS THE ISSUES ARE IDENTICAL AND HENCE, BOTH THESE APPEALS ARE DISPOSED OFF BY THIS COMMON ORDER. 3 THE COMMON ISSUE ARISES FOR OUR CONSIDERATION IS WHETHER THE LD CIT IS JUSTIFIED IN INVOKING REVISIONAL JURISDICTION U NDER SECTION 263 OF THE ACT, HOLDING THAT THE ORDERS PASSED BY THE AO, DROPPING THE PENALTY PROCEEDINGS U/S 271(1)( C), ARE ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF THE REVENUE. 4 SO FAR AS THE ASSESSMENT YEAR 1996-97 IS CONCERNE D, THE ASSESSMENT WAS COMPLETED U/S 143(3) VIDE ORDER DATED 26.2.1999 DETERMINING THE TOTAL LOSS AT RS.26,14,956/-. THE SAID ASSESSMENT ORDER W AS SUBJECT MATTER OF THE LITIGATION BY WAY OF APPEAL AND THE TRIBUNAL SET AS IDE THE ORDER OF THE LD ITA NOS.3020 & 3021/MUM/2009 2 CIT(A) AND RESTORED THE MATTER TO THE FILE OF THE A O. THE AO, AGAIN MADE THE ADDITION IN RESPECT OF THE PAYMENT OF DISCOUNTING C HARGES AND VARIOUS EXPENSES WHICH WERE CLAIMED SUPPORTED ONLY BY DEBI T NOTES, BY DISALLOWING THE SAME. THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)( C) AND ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE. 4.1 THE ASSESSEE STATED BEFORE THE AO THAT IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CASE OF VIRTUAL SOFT SYSTEMS V S CIT (289 ITR 83), THE PENALTY PROCEEDINGS INITIATED AGAINST THE ASSESSEE SHOULD BE DROPPED AS THE THE ASSESSED INCOME WAS ONLY RESULTED IN LOSS. IT APPEARS THAT THE AO DROPPED THE PENALTY PROCEEDINGS. SUBSEQUENTLY, THE HONBLE SUPREME COURT DELIVERED ANOTHER DECISION IN THE CASE OF CIT VS GO LD COIN HEALTH FOOD PVT LTD (304 ITR 308) IN WHICH IT IS HELD THAT EXPLANAT ION-4 TO SEC. 271(1)( C) IS CLARIFICATORY IN NATURE AND THE SAME IS HAVING RETR OSPECTIVE EFFECT. 4.2 THE LD CIT INVOKED REVISIONAL POWERS U/S 263 OF THE ACT AND VIDE ORDER DATED 18.3.2009 HELD THAT THE ORDER OF THE AO DATED 22.5.2008 DROPPING THE PENALTY PROCEEDINGS INITIATED U/S 271(1)(C) OF THE ACT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND DIR ECTED THE AO TO PASS FRESH ORDER ON MERIT AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 5 SO FAR AS THE ASSESSMENT YEAR 1997-97 IS CONCERNE D, THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DATE D 27.5.2000 DETERMINING THE TOTAL LOSS AT RS. 39,40,328/-. THE SAID ORDER A LSO REACHED BEFORE THE TRIBUNAL BY WAY OF APPEAL AND THE MATTER WAS SET AS IDE TO THE FILE OF THE AO FOR DECIDING THE ISSUE IN RESPECT OF DISALLOWANCE O F DISCOUNTING CHARGES AFRESH. IT APPEARS THAT THE PENALTY ORDER WAS ALSO QUASHED BY THE LD CIT(A). THE AO PASSED FRESH ASSESSMENT ORDER IN COMPLIANCE WITH THE DIRECTIONS OF THE TRIBUNAL IN WHICH THE ADDITION MADE IN RESPECT OF DISCOUNTING CHARGES AND VARIOUS EXPENSES WHICH WERE CLAIMED VIDE DIFFER ENT DEBIT NOTES. THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) AND IS SUED SHOW CAUSE NOTICE TO THE ASSESSEE. THE ASSESSEE MADE ITS SUBMISSIONS BEF ORE THE AO, WHICH WERE ITA NOS.3020 & 3021/MUM/2009 3 MADE IN RESPECT OF AY 1996-97 AND RELIED ON THE DEC ISION OF THE SUPREME COURT IN THE CASE VIRTUAL SOFT SYSTEMS VS CIT (SUPR A). 5.1 THE AO ACCEPTED THE PLEA OF THE ASSESSEE AND TH E PENALTY PROCEEDINGS WERE DROPPED VIDE ORDER DATED 22.5.2008. SUBSEQUEN TLY, TAKING COGNISANCE OF THE DECISION OF THE SUPREME COURT IN THE CASE OF GOLD COIN HEALTH FOOD PVT LTD (SUPRA), THE LD CIT, INVOKED REVISIONAL JUR ISDICTION U/S 263 OF THE ACT AS HAS DONE IN THE ASSESSMENT YEAR 1996-97 AND SET ASIDE THE ORDER OF THE AO DROPPING THE PENALTY PROCEEDINGS INITIATED U/S 2 71(1)(C) OF THE ACT AND DIRECTED TO PASS FRESH ORDER ON MERIT. NOW, THE ASS ESSEE IS IN APPEAL HERE BEFORE US. 6 THE LD COUNSEL OF THE ASSESSEE SUBMITTED THAT WHE N THE AO PASSED THE ORDER DROPPING THE PENALTY PROCEEDINGS U/S 271(1)(C ) IN BOTH THE ASSESSMENT YEARS, THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF VIRTUAL SOFT SYSTEMS (SUPRA) WAS THE ONLY DECISION AVAILABLE ON THE ISSUE AND THE SAID DECISION WAS BINDING ON THE AO. IT IS ARGUED THAT THERE IS NO ILLEGALITY IN THE ORDERS OF THE AO DROPPING THE PENALTY PROCEEDINGS A S HE FOLLOWED THE RATIO LAID DOWN BY THE SUPREME COURT IN THE SAID DECISION . IT IS FURTHER ARGUED THAT THE DECISION IN THE CASE OF GOLD COIN HEALTH F OOD PVT LTD (SUPRA) WAS RENDERED SUBSEQUENTLY. THE LD COUNSEL OF THE ASSES SEE FURTHER ARGUED THAT SECTION 263 MANDATES TWO CONDITIONS I.E (I) THE ORD ER MUST BE ERRONEOUS AND (II) THE SAID ORDER SHOULD ALSO BE PREJUDICIAL TO T HE INTEREST OF THE REVENUE AND BOTH THESE CONDITIONS MUST BE SATISFIED FOR INV OKING REVISIONAL POWERS U/S 263 OF THE ACT. 7 IN THE PRESENT CASE, THE AO WAS UNDER LEGAL OBLIG ATION TO FOLLOW THE DECISION OF THE SUPREME COURT AND HENCE, THE ORDERS PASSED BY THE AO DROPPING THE PENALTY PROCEEDINGS INITIATED U/S 271( 1)(C ) CANNOT BE SAID TO BE ERRONEOUS ORDERS. THE LD COUNSEL OF THE ASSESSE E HEAVILY RELIED ON THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I N THE CASE OF FELLOWSHIP CORPORATION VS ITO DECIDED IN ITA NO.3019/MUM/2009 DATED 30.4.2010. ITA NOS.3020 & 3021/MUM/2009 4 7.1 PER CONTRA, THE LD DR RELIED ON THE DECISION OF THE SUPREME CO URT IN THE CASE OF CIT VS SHREE MANJUNATHESWARE PACKING PRODUCTS & CAMPHOR WORKS-96 TAXMAN 1(SC). 8 WE HAVE HEARD THE PARTIES AND ALSO GIVEN OUR ANXI OUS CONSIDERATION ON THE PRECEDENTS RELIED UPON BY BOTH THE PARTIES. ADMITTEDLY, IN BOTH THESE CASES, WHEN THE A.O. HAS DROPPED THE PENALTY PROCEEDINGS INITIATED U/S 271(1)(C), AT THAT TIME, THE HONBLE SUPREME CO URT HAS DECIDED THE APPLICABILITY OF THE AMENDMENT OF EXPLANTION-4 TO S EC. 271(1)( C) OF THE ACT AND HENCE, HELD THAT IT IS HAVING RETROSPECTIVE EF FECT AND THE SAID DECISION WAS BINDING ON THE A.O. ADMITTEDLY, IN THE ASSESSE ES CASE, IN BOTH THE ASSESSMENT YEARS, EVEN THE FINAL DETERMINATION IS O NLY TOTAL LOSS. 8.1 IN THE CASE OF FELLOWSHIP CORPORATION (SUPRA), THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING AND INVESTMENT I N SHARES AND SECURITIES AND ALSO FINANCE. THE ASSESSMENT WAS FRAMED U/S 14 3(3) DETERMINING THE TOTAL LOSS AT RS. 79,57,547/-. THERE WAS A DISALLOW ANCE MADE BY THE A.O. BUT EVEN AFTER THE DISALLOWANCE, THERE WAS A LOSS. THE AO LEVIED PENALTY OF RS. 8,22,523/- U/S 271(1 )( C) OF THE ACT VIDE ORDE R DATED 30.3.2005. IT APPEARS THAT IN THE SAID CASE, THE TRIBUNAL SET ASI DE THE ISSUE OF QUANTUM TO THE FILE OF THE AO. THE AO AGAIN REFRAMED THE ASSES SMENT WHICH AGAIN RESULTED INTO DETERMINING TOTAL LOSS. THE AO, AGAIN INITIATED PENALTY PROCEEDINGS U/S 271(1)(C ) BUT SUBSEQUENTLY DROPPED THE SAME IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CASE OF VIRTUA L SOFT SYSTEMS (SUPRA). SUBSEQUENTLY, THE CIT INVOKED REVISIONAL POWERS U/S 263 AND DIRECTED THE AO TO DECIDE THE ISSUE OF PENALTY ON MERIT HOLDING THAT THE ORDER PASSED BY THE AO DROPPING THE PENALTY PROCEEDINGS IN THE SAID CASE WAS ERRONEOUS AND ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. TH E ORDER PASSED U/S 263 WAS SUBJECT TO CHALLENGE BEFORE THE TRIBUNAL AND THE TR IBUNAL HELD AS UNDER: 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN OUR VIEW, DECISION OF HON'BLE GAUHATI HIGH COURT IN THE CASE OF MEHALA YA PLYWOOD LTD. ITA NOS.3020 & 3021/MUM/2009 5 (SUPRA) IS SQUARELY APPLY TO THE FACTS OF THE PRESE NT CASE. FACTS IN THE AFORESAID CASE WAS AS FOLLOWS. THE ASSESSING OFFIC ER TREATED TRANSPORT SUBSIDY RECEIVED BY THE ASSESSEE AS NON-TAXABLE FOR A.Y. 1994-95 TO 1996-97. IN COMING TO THE AFORESAID CONCLUSION, THE ASSESSING OFFICER FOLLOWED THE DECISION OF HON'BLE GAUHATI HIGH COURT IN THE CASE OF CIT VS. ASSAM ASBESTOS LTD., 215 ITR 847 (GAU). SUBSEQU ENTLY, HON'BLE SUPREME COURT IN THE CASE OF SAHNEY STEEL & PRESS W ORKS LTD. VS. CIT, 228 ITR 253 (SUPREME COURT ) LAID DOWN CERTAIN PRIN CIPLES REGARDING TAXABILITY OF SUBSIDY. BASED ON THOSE PRINCIPLES, L EARNED CIT SOUGHT TO REVISE ORDER OF THE ASSESSING OFFICER IN EXERCISE O F POWERS U/S. 263 OF THE ACT. THE HON'BLE GAUHATI HIGH COURT HELD THAT T HE ORDER U/S. 263 CANNOT BE SUSTAINED. FOLLOWING WERE THE OBSERVATION S OF HON'BLE HIGH COURT :- THE ASSESSING OFFICER IS OBLIGATED TO MAKE ASSESSM ENT IN ACCORDANCE WITH THE LAW APPLICABLE AT THE POINT OF TIME AS INTERPRETED BY HIGH COURT. A DIVISION BENCH OF THE COURT IN CIT VS. ASSAM ASBESTOS LTD. (1995) 215 ITR 847 (GAU) HA D ALREADY DECIDED THAT TRANSPORT SUBSIDY IS NOT A TAXABLE ITE M. THE SLP PREFERRED BY THE DEPARTMENT AGAINST THE JUDGMENT WA S DISMISSED BY THE APEX COURT. IT WAS ON THE BASIS OF THE SAID DECISION THAT THE AO MADE ASSESSMENT ORDERS FOR THE YEARS 1994-95 , 1995-96 AND 1996-97 ON 9TH JUNE, 1997 AND 31ST MARCH, 1997 TREATING TRANSPORT SUBSIDY AS NOT TAXABLE. THE CIT, THEREFOR E, CLEARLY ERRED IN HOLDING THAT THE ASSESSMENT ORDERS WERE ERRONEOU S. THE QUESTION WHETHER THE SUBSEQUENT CHANGE OF LAW CAN B E A GROUND FOR EXERCISING THE POWER OF SUO MOTO REVISION UNDER SECTION 263 CAME UP FOR CONSIDERATION IN CIT VS. G.M. MITTAL ST AINLESS STEEL (P) LTD. (2003) 179 CTR (SC) 553; WHEREIN HON'BLE APEX COURT HELD THAT SUCH POWER IS NOT AVAILABLE. THUS, THE CORRECT LEGAL POSITION ARE THAT THE POWER OF LEARNED CIT UNDER SECTION 263 MUST BE EXERCISED ON THE BASIS OF THE MATERIAL THAT WAS AVAILABLE TO HIM WHEN THE EXE RCISED THE POWER; THAT IF THE ASSESSMENT ORDER WAS MADE ON THE BASIS OF OPERATING DECISION OF A JURISDICTIONAL HIGH COURT, IT CANNOT BE HELD THAT SUCH AN ASSESSMENT ORDER IS ERRONEOUS AND THAT THE FACT THAT THE APEX COURT HAD SUBSEQUENTLY REVERSED THE DECISION OF HIGH COURT CANNOT BE GROUND FOR INVOKING THE SUO MOTO REVISIONAL POWER OF THE LEARNED CIT UNDER SECTION 2 63. THUS IT IS THE LAW AS LAID DOWN BY THE HONBLE SUPR EME COURT AS ON THE DATE THE AO PASSED HIS ORDER THAT WOULD BE RELEVANT . THE AO HAD NO OTHER OPTION EXCEPT TO FOLLOW THE SAME. THE SUBSEQ UENT DECISION OF THE HONBLE SUPREME COURT REVERSING THE EARLIER DECISIO N CANNOT BE THE BASIS FOR THE CIT TO EXERCISE POWERS U/S.263 OF THE ACT. IT IS NO DOUBT ITA NOS.3020 & 3021/MUM/2009 6 TRUE THAT THE REVENUE IS LEFT WITHOUT ANY REMEDY. B UT THAT CANNOT BE THE REASON TO UPHOLD THE ORDER U/S. 263 OF THE ACT. IN THE LIGHT OF THE DECISION OF HON'BLE GAUHATI HIGH COURT, WE HOLD THA T THE ORDER OF THE ASSESSING OFFICER AS ON THE DATE WHEN HE DROPPED TH E PENALTY PROCEEDINGS CANNOT BE SAID TO BE ERRONEOUS. LEARNE D CIT WAS THEREFORE NOT JUSTIFIED IN EXERCISING HIS POWER U/S. 263 OF T HE ACT. WE THEREFORE QUASH THE ORDER OF LEARNED CIT U/S. 263 OF THE ACT AND ALLOW THE APPEAL OF THE ASSESSEE. 9 THE FACT IN THE CASE OF SHREE MANJUNATHESWARE PAC KING PRODUCTS & WORKS (SUPRA), RELIED UPON BY THE LD DR, THE ASSESS EE FIRM HAD CONSTRUCTED A CINEMA THEATRE AND IN THE RETURN FILED BY IT HAD SHOWN THE COST OF CONSTRUCTION OF RS. 20,28,498/-. THE AO REFERRED TH E MATTER TO THE DVO TO ASCERTAIN AND REPORT CORRECT COST OF CONSTRUCTION O F THE THEATRE. THE DVO EXPRESSED HIS INABILITY TO GIVE HIS VALUATION REPOR T BY 31.3.1980 BY WHICH THE ASSESSMENT WAS GETTING TIME BARRED. THE AO, THE REFORE, WITHOUT WAITING FOR HIS REPORT, PASSED THE ASSESSMENT ORDER ACCEPTI NG THE VALUATION DECLARED BY THE ASSESSEE. THE DVO SUBMITTED HIS REPORT ON 16 .12.1980 IN WHICH THE COST OF CONSTRUCTION WAS DETERMINED AT RS. 34,58,60 0/- AS AGAINST RS.20,28,498/- SHOWN BY THE ASSESSEE. THE CIT INVOK ED SECTION 263 AND SUBSEQUENTLY THE MATTER REACHED BEFORE THE HONBLE SUPREME COURT. IT WAS HELD THAT IT WAS OPEN TO THE COMMISSIONER TO TAKE I NTO CONSIDERATION ALL THE RECORDS AVAILABLE AT THE TIME OF EXAMINATION BY HIM AND, THUS, TO CONSIDER THE VALUATION REPORT SUBMITTED BY THE DEPARTMENTAL VALUATION CELL SUBSEQUENT TO THE PASSING OF THE ASSESSMENT ORDER, WAS WITHIN THE JURISDICTION CONFERRED UPON HIM U/S 263. IN OUR OP INION, THE FACTS IN THE CASE OF SHREE MANJUNATHESWARE PACKING PRODUCTS & CA MPHOR WORKS (SUPRA) ARE TOTALLY DISTINGUISHABLE. 10 IN THE PRESENT CASE, THE ONLY DECISION, WHICH WA S AVAILABLE AT THE TIME OF PASSING THE ASSESSMENT ORDER, WAS THE DECISION O F THE SUPREME COURT IN THE CASE OF VIRTUAL SOFT SYSTEMS (SUPRA), WHICH WA S BINDING ON THE AO. MOREOVER, THE CO-ORDINATE BENCH OF THE TRIBUNAL, IN THE CASE OF FELLOWSHIP ITA NOS.3020 & 3021/MUM/2009 7 CORPORATION (SUPRA), ON ALMOST IDENTICAL SET OF FA CTS, HELD THAT AS PER THE LAW DECLARED BY THE SUPREME COURT AS ON THE DATE, THE AO PASSED HIS ORDER THAT WILL BE RELEVANT. IN OUR OPINION, THE ORDER PASSED BY THE AO CANNOT BE SAID TO BE ERRONEOUS AS THE AO HAS FOLLOWED THE DEC ISION OF THE SUPREME COURT AS IT WAS AT THAT TIME ON THE INTERPRETATION OF EXPLANATION 4 TO SEC. 271(1)( C) OF THE ACT. WE, ACCORDINGLY HOLD THAT THE LD CIT WAS NOT JUSTIFIED IN INVOKING REVISIONAL POWERS U/S 263 OF THE ACT AS THE IMPORTANT MANDATORY CONDITION WAS NOT FULFILLED I.E. THE ORDER MUST BE ERRONEOUS. WE THEREFORE, QUASHED THE ORDERS PASSED BY THE LD CIT U/S 263 OF THE ACT. 11 IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON THE 18 TH DAY OF JUNE 2010. SD/- SD/- ( P M JAGTAP ) ACCOUNTANT MEMBER (R S PADVEKAR ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 18 TH , JUNE 2010 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI