M/s Hindustan Institute of Pharmakon Limited, Bhopal V. The CIT, Bhopal

ITA 303/IND/2012

• Counselvise Citation: 30322714 RSA 2012
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 21-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KESHAVE SAXENA
• Assessee Lawyers: H P VERMA; SAKSHI VERMA
• Keywords: Principle of natural justice
• Section: 143(3); 153A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AAACH4612C I.T.A.NO. 303 /IND/201 2 . A.Y. : 2007 - 08 M/S. HINDUSTAN INSTITUTE OF PHARMAKON LIMITED, BHOPAL. VS. COMMISS IONER OF INCOME - TAX, BHOPAL APPELLANT RESPONDENT APPELLANT BY : SHRI H.P.VERMA, ADV. AND MS.SAKSHI VERMA, C.A. RESPONDENT BY : SHRI KESHAVE SAXENA, CIT DR DATE OF HEARING : 31 .0 7 .2012 DATE OF PRONOUNCEMENT : 06 . 0 8 .20 1 2 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX DATED 26.8.2012, PASS ED U/S 263 OF THE INCOME-TAX ACT, 1961. -: 2: - 2 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT ERRED IN CANCELLING THE ASSESSMEN T ORDER U/S 263 BY HOLDING THAT THE IMPUGNED ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IT IS SUBMITTED THAT DURING THE COURSE OF ASSESSMEN T PROCEEDINGS ALL THE MATTERS WERE LOOKED INTO IN DETAILS AND THEN ONLY, THE ASSESSMENT ORDER WAS PASSED. THUS, THE ORDER PASSED BY THE LD. CIT U/S 263 OF THE ACT CANCELLING THE ASSESSMENT IS UNJUSTIFIED, UNFAIR AND BAD IN LAW AND THUS DESERVE S TO BE QUASHED. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G OF THE MEDICINES. THERE WAS SEARCH AT BUSINESS PREMISES OF THE ASSESSEE AND THEREAFTER ASSESSMENT WAS FRAMED U/S 1 53A READ WITH SECTION 143(3) OF THE INCOME-TAX ACT, 196 1. IN THE ASSESSMENT SO FRAMED, THE ASSESSING OFFICER, HAS AC CEPTED THE RETURNED INCOME OF THE ASSESSEE AND NO ADDITION NOR ANY DISALLOWANCE WAS MADE. THE LD. CIT CALLED FOR ASSES SMENT -: 3: - 3 RECORDS AND AFTER EXAMINATION, HE FOUND THAT THE AS SESSEE COMPANY HAS ADVANCED LOAN OF RS. 78.50 LAKHS TO SHR I RAM NANDA EDUCATIONAL AND WELFARE SOCIETY WITHOUT CHARG ING ANY INTEREST. IT WAS ALSO FOUND THAT THE ASSESSEE HAS T AKEN SECURED LOAN FROM THE BANK ON WHICH INTEREST OF RS. 16.27 L AKHS WAS CHARGED AND THE SAME WAS DEBITED TO PROFIT AND LOSS ACCOUNT. BY REFERRING TO THE AUDITORS NOTE IN THE ACCOUNT, THE LD. CIT INFERRED THAT ASSESSEE HAS DIVERTED ITS INTEREST BE ARING FUNDS FOR NON-BUSINESS PURPOSES, WHICH HAS NOT BEEN EXAMI NED BY THE ASSESSING OFFICER, THEREFORE, THE ORDER OF THE ASSESSING OFFICER WAS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ACCORDINGLY, ASSESSMENT WAS SET ASIDE AND ASSESSING OFFICER WAS DIRECTED TO REFRAME THE ASSES SMENT AFTER EXAMINING THE SAID ISSUE. AGAINST THIS ORDER OF CIT PASSED U/S 263, THE ASSESSEE IS IN APPEAL BEFORE US. 4. SHRI H.P.VERMA, ADV. AND MISS SAKSHI VERMA, C.A., APPEARED ON BEHALF OF THE ASSESSEE AND CONTENDED TH AT IN SEARCH ASSESSMENT, DEEP SCRUTINY AND THOROUGH INVES TIGATION IS CARRIED OUT FOR MAKING THE ASSESSMENT AND ASSESS ING OFFICER COULD NOT COMMIT MISTAKE OF IGNORING THE FACT OF IN TEREST FREE -: 4: - 4 LOAN. HE FURTHER SUBMITTED THAT BOOKS OF ACCOUNTS W ERE EXAMINED BY THE ASSESSING OFFICER, WHEREIN LEDGER A CCOUNT OF THE SOCIETY WAS APPEARING IN THE BOOKS. AS PER THE LD. AUTHORIZED REPRESENTATIVE , THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS OF ITS OWN AND THERE WAS NO DIV ERSION OF INTEREST BEARING FUNDS. HE INVITED OUR ATTENTION TO THE AMOUNT OF TERM LOAN UTILIZED BY THE ASSESSEE FOR SPECIFIC PURPOSE FOR WHICH IT WAS GRANTED. OUR ATTENTION WAS ALSO INVITE D TO THE OWN FUNDS INCLUDING SHARE CAPITAL OF RS. 2.95 CRORE S AVAILABLE WITH THE ASSESSEE OUT OF WHICH IT WAS SUBMITTED THA T THE ASSESSEE HAS GIVEN INTEREST FREE LOAN OF RS. 78.50 LAKHS. AS PER LD. AUTHORIZED REPRESENTATIVE, AFTER DUE EXAMINATIO N/ CONSIDERATION OF ALL THESE FACTS, THIS ASSESSMENT W AS FRAMED BY ASSESSING OFFICER AFTER APPROVAL U/S 153D AND THERE WAS NO LACK OF INQUIRY AND PROPER APPLICATION OF MIND WAS THERE BY THE ASSESSING OFFICER AND THE LD. JT. CIT. OUR ATTE NTION WAS ALSO INVITED TO THE NOTICE U/S 263 AND PRINCIPLE OF NATURAL JUSTICE NOT ADHERED TO BY THE CIT WHILE INVOKING HI S POWERS U/S 263. THE LD. AUTHORIZED REPRESENTATIVE ALSO IN VITED OUR ATTENTION TO THE AUDITED BALANCE SHEET AND PROFIT A ND LOSS -: 5: - 5 ACCOUNT OF THE ASSESSEE COMPANY, ACCORDING TO WHICH PROFIT BEFORE TAX WAS RS. 64.47 LAKHS AND AFTER INCLUDING PROFIT OF LAST YEAR, PROFIT AS ON 31.3.2007 WORKS OUT TO BE R S. 82.40 LAKHS. AS PER LD. AUTHORIZED REPRESENTATIVE, THIS C OVERS THE AMOUNT OF RS. 78.58 LAKHS GIVEN TO THE SOCIETY. IT WAS ALSO ARGUED THAT WHEN TWO OPINIONS ARE POSSIBLE, THE ORD ER OF THE ASSESSING OFFICER CANNOT BE BRANDED AS ERRONEOUS WH EN ONE OF THE OPINIONS HAS BEEN ADOPTED BY THE ASSESSING OFFI CER AND FOR THIS PURPOSE RELIANCE WAS PLACED ON THE ORDER OF I. T.A.T., KOLKATA BENCH, REPORTED AT 283 ITR (AT)101. FOR THI S PURPOSE, RELIANCE WAS ALSO PLACED ON THE DECISIONS REPORTED AT 303 ITR 23, 298 ITR 63, 243 ITR 83 AND 294 ITR 121. MR. VER MA VEHEMENTLY ARGUED THAT POWER OF COMMISSIONER U/S 26 3 IS EXTRAORDINARY REVISIONAL POWER AND IT HAS NOT TO BE EMPLOYED AS A JURISDICTIONAL CORRECTIVE AS A REVIEW OF A SUB ORDINATE ORDER IN EXERCISE OF SUPERVISORY POWERS. FOR THIS PURPOSE , RELIANCE WAS PLACED ON THE DECISIONS REPORTED AT 163 ITR 129 , 263 ITR 645 AND 248 ITR 292. 5. ON THE OTHER HAND, SHRI KESHAVE SAXENA, CIT DR SUPPORTED THE ORDER OF CIT PASSED U/S 263 AND SUBMI TTED THAT -: 6: - 6 WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND TO THE INTEREST FREE ADVANCE GIVEN BY ASSESSEE TO THE SOCIETY, WHEREAS ASSESSEE WAS PAYING INTERES T ON THE SECURED LOANS TAKEN FROM BANK. AS PER LD. CIT DR, T HE ORDER PASSED BY THE ASSESSING OFFICER WITHOUT APPLICATION OF MIND RENDERS THE ASSESSMENT ERRONEOUS AS WELL AS PREJUDI CIAL TO THE INTERESTS OF THE REVENUE AND FOR THIS PURPOSE, RELI ANCE WAS PLACED ON THE DECISIONS REPORTED AT 67 ITR 84, 264 ITR 673 AND 244 ITR 83. 6. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. THE DECISIONS CITED AT BAR BY LD. AUTHORI ZED REPRESENTATIVE AND LD. CIT DR HAVE BEEN DULY CONSI DERED IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. FROM THE ORDER OF THE ASSESSING OFFICER FRAMED U/S 153A READ WITH SECTION 143(3), WE FOUND THAT THE ORDER IS COMPLETELY SILENT AS TO THE INTEREST EXPENDITURE DEBITED BY THE ASSESSEE AND THE INTERES T FREE FUNDS GIVEN TO THE SOCIETY, WHEREAS IT IS CLEAR FRO M THE AUDITORS REPORT ON THE NOTE ON ACCOUNTS THAT THE A SSESSEE HAS NOT CHARGED INTEREST ON THE LOAN GIVEN TO SOCIETY A MOUNTING TO RS. 78.50 LAKHS, WHICH WAS PRIMA FACIE OPINED AS PR EJUDICIAL -: 7: - 7 TO THE INTERESTS OF THE ASSESSEE. THUS, IT IS CLEAR THAT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND TO THE A PPARENT FACTS AVAILABLE ON RECORD WHILE FRAMING THE ASSESSM ENT. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSMENT WAS F RAMED U/S 153A, WHICH, ITSELF, REQUIRES THE ASSESSING OFFICER TO MAKE DETAILED INVESTIGATION AND IN DEPTH SCRUTINY OF THE ACCOUNTS AND THE INCRIMINATING MATERIAL FOUND DURING COURSE OF SEARCH, SO AS TO BRING CORRECT AMOUNT OF INCOME TO THE NET OF TAX. THUS, PASSING THE ORDER BY THE ASSESSING OFFICER WI THOUT CONSIDERING THE INTEREST FREE LOAN GIVEN BY THE ASS ESSEE TO THE SOCIETY VIS--VIS INTEREST EXPENDITURE CLAIMED IN T HE PROFIT AND LOSS ACCOUNT, HAS RENDERED THE ORDER OF THE ASSESSI NG OFFICER AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST S OF THE REVENUE. HON'BLE SUPREME COURT IN THE CASE OF MALAB AR INDUSTRIAL CO.LTD., 243 ITR 83, HELD THAT ASSESSMEN T FRAMED BY THE ASSESSING OFFICER WITHOUT MAKING INQUIRY REN DERS THE ORDER OF ASSESSING OFFICER ERRONEOUS. ACCORDINGLY, WE ARE INCLINED TO AGREE WITH LD. CIT DR, SHRI SAXENA THAT INVOCATION OF POWER BY THE CIT U/S 263 WAS PERFECTLY JUSTIFIED . -: 8: - 8 7. NOW COMING TO THE MERIT OF THE CASE, WE FOUND THAT AS PER THE MATERIAL PLACED ON RECORD BEFORE THE LOWER AUTHORITIES AND WHICH WAS ALSO BROUGHT TO OUR NOTICE BY THE LD. AUTHORIZED REPRESENTATIVE DURING THE COURSE OF HEARING, THERE WAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH THE C OMPANY AMOUNTING TO RS. 2.95 CRORES AS WELL AS PROFIT OF T HE COMPANY AMOUNTING TO RS. 2.40 LAKHS. THE ASSESSEE HAD ALSO TAKEN A TERM LOAN FROM BANK ON WHICH INTEREST OF RS. 16.27 LAKHS WAS PAID AND CLAIMED AS EXPENDITURE. THERE IS NO DISPUT E TO THE WELL SETTLED LEGAL PROPOSITION THAT INTEREST ON LOA N TAKEN FOR PURPOSE OF BUSINESS CANNOT BE ALLOWED IF THE FUNDS ARE DIVERTED FOR NON BUSINESS PURPOSES. HOWEVER, IF THE ASSESSEE HAS USED ITS OWN INTEREST FREE FUNDS FOR ADVANCING INTEREST FREE LOAN, NO DISALLOWANCE OF INTEREST CAN BE MADE BY HYPOTHETICALLY COMPUTING INTEREST INCOME THEREON. C LAIM OF THE ASSESSEE THAT IT HAS UTILIZED INTEREST FREE FUNDS F OR ADVANCING TO THE SOCIETY INTEREST FREE, REQUIRES EXAMINATION ON THE PART OF ASSESSING OFFICER, AND IF IT IS FOUND THAT THE ASSE SSEE HAS UTILIZED ITS INTEREST FREE FUNDS, NO DISALLOWANCE I S WARRANTED ON ACCOUNT OF INTEREST EXPENDITURE INCURRED IN RESPECT OF TERM -: 9: - 9 LOAN, WHICH IS STATED TO BE UTILIZED FOR THE SPECIF IC PURPOSE FOR WHICH IT WAS SANCTIONED BY THE BANK. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO MAKE INQUIRY FROM THE BANK TO FIND OUT UTILIZATION OF TERM LOAN SANCTIONED BY IT. IF THE BANK CERTIFIES THAT TERM LOAN HAS BEEN UTILIZED BY ASSES SEE FOR THE SPECIFIC PURPOSE FOR WHICH IT WAS SANCTIONED, NO DI SALLOWANCE OF INTEREST IS WARRANTED AGAINST CLAIM OF INTEREST EXPENDITURE IN RESPECT OF LOAN TAKEN FROM BANK. ACCORDINGLY, WE MO DIFY THE ORDER OF CIT AND DIRECT THE ASSESSING OFFICER TO DE CIDE THE ISSUE OF DISALLOWANCE OF INTEREST EXPENDITURE IN TE RMS OF OUR ABOVE OBSERVATIONS. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D IN PART IN TERMS INDICATED HEREINABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 6 TH AUGUST, 2012. SD/- SD/- (JOGIND ER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 6 TH AUGUST, 2012. CPU* 31716.8