OM KAILASH FINANCE & INVESTMENTS P. LTD, MUMBAI V. CIT-4, MUMBAI

ITA 3347/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92525 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 30-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S B PRASAD
• Assessee Lawyers: RAHUL K HAKANI; DR K SHIVARAM
• Keywords: Business income; Depreciation; Business expenditure; Principle of natural justice; Earning of tax free income; Difference of opinion; Change of opinion
• Section: 143(3); 142(1); 14A; 263

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI C BENCH , , BEFORE S/SH. I P BANSAL,JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 3347 /MUM/2013, / ASSESSMENT YEAR - 200 8 - 09 M/S. OM KAILASH FINANCE & INVESTMENTS PVT. LTD. SAVOY CHAMBERS, 6 TH FLOOR, DATTATRAY ROAD & LINKING ROAD JUNCTION, SANTACRUZ (W)MUMBAI - 400 0 54. PAN: A AACO 0496 P VS INCOME TAX OFFICER WARD - 4(3)(1), 6 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI. ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : DR. K. SHIVA RAM AND SHRI RAHUL K. HAKANI / REVENUE BY :SHRI S .B. PRASAD / DATE OF HEARING : 14 - 05 - 2015 / DATE OF PRONOUNC EMENT : 14 - 05 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER D ATED 2 5.3.13 , PASSED BY THE CIT - 4 ,MUMBAI, U/S.263OF THE ACT, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1.THE ORDER PASSED BY THE LEARNED CIT U/S.263 OF THE INCOME - TAX ACT, 1961 IS IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE, ILLEGAL AND BAD IN LAW. 2. THE LEARNED CIT HAS ERRED IN LAW AND ON FACTS IN SETTING ASIDE THE ASSESSMENT ORDER DATED 28.10.2010 PASSED BY THE ASSESSING OFFICER U/S.143(3) OF THE ACT AND DIRECTING THE ASSESSING OFFICER TO EXAMINE THE ISSUE OF ALLOWABILITY OF VARIOUS EXPENSES CLAIMED IN PROFIT & LOSS ACCOUNT AGAINST INCOME OF THE APPELLANT EVEN THOUGH VARIOUS DISALLOWANCE WERE MADE BY ASSESSING OFFICER. 3. THE LEARNED CIT HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS AN D PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 4. THE LEARNED CIT HAS ERRED IN NOT APPRECIATING THAT THE EXPENSES CLAIMED BY APPELLANT IN PROFIT AND LOSS ACCOUNT NEED NOT BE MATCHED ONE TO ONE WITH INCOME OR NEED NOT BE CONSISTENT WITH INCOME OF EACH YEAR WHEN SAME BUSINESS IS CARRIED ON YEAR AFTER YEAR. 5. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND, ALTER OR DELETE ALL OR ANY OF THE FOREGOING GROUNDS OF APPEAL. A SSESSEE - COMPANY , DERIVING INCOME FROM LETTING OUT AND SHARE OF PROFIT, FILED ITS RETUR N OF INCOME ON 7.10.2008 DECLARING TOTAL INCOME OF RS.5.53 LACS. THE ASSESSING OFFICER(AO) COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT ON 28.10.2010 DETERMINING THE INCOME OF THE ASSESSEE AT RS.7.44 LACS. THE AO MADE CERTAIN DISALLOWANCES WHILE COMPLET ING THE ASSESSMENT. 2. ON PERUSAL OF THE RECORDS,THE CIT FOUND THAT THE AO HAD ALLOWED CERTAIN EXPENSES WHICH SHOULD NOT HAVE BEEN ALLOWED. HE HELD THAT INCOME OF THE ASSESSEE WAS FROM LETTING OUT AND SHARE ITA/ 3347 /MUM/2013,AY. 0 8 - 09 - OKFI PVT. LTD. 2 PROFIT OF THE FIRM, THAT THE INCOME DID NOT ENTIT LE THE ASSESSEE TO CLAIM BUSINESS EXPENDITURE, THAT THE AO HAD ALLOWED CERTAIN EXPENDITURE, THAT THERE WAS LOSS OF REVENUE,THAT THE ORDER WAS LIA BLE ACTION U/S. 263 OF THE ACT.HE ISSUED A SHOW CAUSE NOTICE ON 5.11.2012 INVOKING THE REVISIONARY PROVISIONS O F THE ACT . VIDE ITS SUBMISSION, DATED 28.8.2013, THE ASSESSEE CONFIRMED THAT IT HAD RECEIVED EXEMPT INCOME IN THE FORM OF SHARE OF PROFIT FROM PARTNERSHIP FIRM, THAT IT WAS CARRYING OUT OTHER ACTIVITIES, THAT THE EXPENDITURE CLAIMED BY IT WERE GENUINE AND A LLOWABLE, THAT THE AO HAD MADE DISALLOWANCE U/S. 14A OF THE ACT IN RESPECT OF EXEMPT INCOME, THAT THE ORDER PASSED BY THE AO WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE, THAT THE AO HAD MADE DETAILED ENQUIRY ABOUT THE EXPENDITURE I NCURRED BY IT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT HELD THAT THE AO COMPLETED THE ASSESSMENT IN ROUTINE AND CASUAL MANNER WITHOUT APPLICATION OF MIND, THAT HE ALLOWED THE EXPENDITURE TO BE DEDUCTED FROM ASSESSEES INCOME, THE EARNING OF WHICH COULD NOT HAVE BEEN DEPENDENT ON THE EXPENDITURE ALLOWED, THAT THE AO HAD NOT MADE ANY INDEPENDENT ENQUIRY WITH RESPECT TO ALLOWABILITY OF EXPENSES, THAT THE AO ALLOWED THE CLAIM OF EXPENSES IN A MECHANICAL MANNER, THAT THE ACTION OF THE AO RESUL TED IN DEFINITE LOSS OF REVENUE. THE CIT REFERRED TO THE CASES OF SOUTH INDIAN SHIPPING CORPN. (233 ITR 546); RAM PYARI DEVI SARAOGI (67 ITR 84); MALABAR INDUSTRIAL CO. LTD. (243 ITR83); GABRIEL INDIA LTD. (203 ITR 108). THE CIT FURTHER STATED THAT THE CLAI M OF THE ASSESSEE THAT THE AO HAD DISALLOWED CERTAIN EXPENSES U/S.14A WAS OF NO HELP, THAT THE AO HAD DISALLOWED A SUM OF RS.1.15 LACS WITH REFERENCE TO DIVIDEND INCOME, THAT THE CLAIM OF EXPE NSES AGAINST THE EXEMPT INCOME WAS NEVER PROPERLY EXAMINED, THAT THE AO HAD COMPLETED THE ASSESSMENT IN A ROUTINE AND CASUAL MANNER, THAT NECESSARY ENQUIRIES WERE NOT MADE BEFORE ALLOWING THE CLAIM OF THE ASSESSEE WITH REGARD TO EXPENSES. SETTING ASIDE THE ORDER OF THE AO, THE CIT DIRECTED THE AO TO EXAMINE THE ALLOWA BILITY OF THE CLAIM OF EXPENSES. 3 . BEFORE US, THE AUTHORISED REPRESENTATIVE (AR) ARGUED THAT THE AO HAD ISSUED NOTICE U/S. 142(1) OF THE ACT AND HAD CALLED FOR VARIOUS DETAILS VIDE NOTICE DT.14/7/2010 AND 24/3/2010, THAT THE ASSESSEE FILED DETAILED REPLIES ON 29/5/2010 AND 21/7/2010, THAT THE ASSESSEE HAD EXPLAINED AS TO WHY THE RENTAL INCOME WAS OFFERED UNDER THE HEAD BUSINESS, THAT IT WAS ALSO EXPLAINED AS TO WHY THE EXPENSES CLAIMED BY IT WERE ALLOWABLE AS DEDUCTION, THAT THE ASSESSEE GAVE LEDGER ACCOUNT OF ALL THE EXPENSES CLAIMED ALONGWITH RELEVANT INVOICES, THAT THE AO HAD VERIFIED THE EXPENSES INCURRED BY THE ASSESSEE, THAT THE MATTER WAS HEARD ON SIX DIFFERENT OCCASIONS BY THE AO,THAT THE AO PASSED THE 143(3) ORDER AND DISALLOWED DEPRECIATION, THAT T HE AO HAD MADE DISALLOWANCE U/S. 14A OF THE ACT AS THE SHARE OF PROFIT FROM THE FIRM WAS EXEMPT, THAT THE AO HAD ACCEPTED THE TREATMENT OF RENTAL INCOME AS BUSINESS INCOME,THAT THE AO ALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE AS BUSINESS EXPENSES, THAT THE CIT ISSUED A NOTICE U/S. 263 OF THE ACT ON THE GROUND THAT EXPENSES AMOUNTING TO RS.16.31 LACS HAD BEEN INCORRECTLY ALLOWED AGAINST THE EXEMPT SHARE OF PROFIT INCOME, THAT THE ORDER OF THE AO WAS PASSED AFTER DUE APPLICATION OF MIND,THAT THE ASSESSMENT ORDER WAS NEITHER ERRONEOUS NOR PREJUDICIAL THE INTEREST OF THE REVENUE, THAT THE ORDER OF THE CIT WAS MERE CHANGE OF OPINION. AR RELIED UPON THE CASES SMT.VIDYA DEVI (245 ITR 836),ASHISH RAJPAL (320 ITR 67 4 ) . DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF CIT. 5. W E HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFOR E US. WE FIND THAT WHILE PASSING THE ORDER THE A O HAD SPECIFICALLY DEALT WITH THE ISSUE RAISED BY THE CIT IN THE NOTICE ISSUED U/S. 263 OF THE ACT. WE WOULD LIKE TO REPRODUCE THE QUESTION RAISED BY THE ASSESSING OFFICER AT SL.NO.5 OF THE LETTER ISSUED BY HIM ON 14.7.2010 AND SAME READS AS UNDER : ITA/ 3347 /MUM/2013,AY. 0 8 - 09 - OKFI PVT. LTD. 3 15. VERY IMPORTANT: - YOU HAVE ONLY TWO MAJOR SOURCE OF INCOME THAT IS SHARE OF PROFIT FROM THE FIRM FOR WHICH THERE IS NO EXPENSES TO BE CONSIDERED. THE OTHER MAJOR SOURCE OF INCOME IS RENTAL INCOME AND WHY SAME SHOULD NOT BE COMPUTED UNDER THE HEAD HOUSE PROPERTY INCOME, IN WHICH THE COMPENSATION, INTEREST FOR DELAYED PAYMENT OF RENT AND REIMBURSEMENT RECEIVED FROM EXEL INDIA SHOULD NOT BE INCLUDED. AND THE DIVIDEND INCOME SHOULD NOT BE TAXED AS INCOME FROM OTHER SOURCES. IT IS FOUND THAT THE ASSESSEE HAD FILED A DETAILED REPLY IN THIS REGARD (PAGE - NO.47 OF THE PAPER BOOK). WHILE GOIN G THROUGH THE NOTI NGS OF THE ORDER SHEET MAINTAINED BY THE AO(PAGE 95 TO 96 OF THE PAPER - BOOK ), WE FIND THAT THE A O HAD DISCUSSED THE ISSUE WITH THE ASSESSEE ON SIX OCCASSIONS.ON THE BASIS OF THE ORDER SHEET NOTING AND THE ORDER PASSED BY THE AO,IT CAN SAFELY BE STATED THAT THE A O HAD APPLIED HIS MIND WHILE CO MPLETING THE ASSESSMENT. ONCE THE A O HAD CALLED FOR THE DETAILS ABOUT THE EXEMPT INCOME AND THE EXPENSES INCURRED BY THE ASSESSEE AND HAD PASSED THE ORDER AFTER CONSIDERING THE SAME, THERE WAS NO JUSTIFICATION FOR THE CIT TO INVOKE THE PROVISIONS OF S.263 O F THE ACT. AS PER THE ESTABLISHED PRINCIPLES OF TAXATION, REVISIONARY POWERS THE CIT CANNOT BE USED FOR REVIEWING THE ORDER OF THE A O,EVEN IF THE CIT IS OF THE OPINION THAT HE COULD PASSED A BETTER ORDER . THE A O H AD TAKEN ONE OF THE POSSIBLE VIEWS AND THAT W AS NOT AGA INST THE PROVISIONS OF THE ACT. THEREFORE, IT CANNOT BE HELD TO BE ERRONEOUS ORDER RESULTING IN PREJUDICE TO THE INTERESTS OF THE REVENUE. WE WOULD LIKE TO REFER TO THE DECISION OF THE HON'BLE SUPREME COURT DELIVERED IN THE CASE OF MALABAR INDUSTR IAL COMPANY( 243 ITR 83) WHICH READS AS UNDER: A BARE READING OF SECTION 263 OF THE INCOME - TAX ACT, 1961, MAKES IT CLEAR THAT THE PREREQUISITE FOR THE EXERCISE OF JURISDICTION BY THE COMMISSIONER SUO MOTU UNDER IT, IS THAT THE ORDER OF THE INCOME - TAX OFFICE R IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS ; AND (II) IT IS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENT IF THE ORDER OF THE INCOME - TAX OFFICER IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUE RECOURSE CANNOT BE HAD TO SECTION 263(1) OF THE ACT. THE P ROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE IS NOT AN EXPRE SSION OF ART AND IS NOT DEFINED IN THE ACT. UNDERSTOOD IN ITS ORDINARY MEANING IT IS OF WIDE IMPORT AND IS NOT CONFINED TO LOSS OF TAX. THE SCHEME OF THE ACT IS TO LEVY AND COLLECT TAX IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND THIS TASK IS ENTRUSTED TO THE REVENUE. IF DUE TO AN ERRONEOUS ORDER OF THE INCOME - TAX OFFICER, THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE HA S TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN 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 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 THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME - TAX OFFICER IS UNSUSTAINABLE IN LAW. ITA/ 3347 /MUM/2013,AY. 0 8 - 09 - OKFI PVT. LTD. 4 CONSIDERING THE ABOVE,WE HOLD THAT THE CIT SHOULD NOT HAVE DISTURB ED THE ORDER OF THE AO , AS THE AO HAS PASSED THE ORDER AFTER CAL LING FOR NECESSARY DETAILS. IT IS NOT A CASE OF A N INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW .NON APPLICATION OF MIND HAS NOT BEEN PROVED BY THE CIT.ON THE CONTRARY,I N THE CASE UNDER APPEAL, THE AO HAD MADE ENQUIRIES AND THE ASSESSEE H AD FILED THE DETAILS AS REQUIRED BY THE AO. CONSIDERING THE ABOVE FACTS WE ARE OF THE OPINION THAT THE REVISIONARY ORDER PASSED BY OF THE CIT IS NOT SUSTAINABLE. EFFECTIVE GROUND OF APPEAL, RAISED BY THE ASSESSEE IS DECIDED IN ASSESSEES FAVOUR . AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALLOWED . . ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH ,MAY,2015. 14 , 2015 SD/ - SD/ - ( /I P BANSAL) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 14.05.. 2015 . . . JV . SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.