SAKUMA EXPORTS, MUMBAI V. ACIT RG 18(3), MUMBAI

ITA 3510/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59883 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 05-03-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 05-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUSUM INGALE
• Assessee Lawyers: VIPUL B JOSHI
• Keywords: Principle of natural justice; Deemed dividend
• Section: 143(3); 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER. I.T.A. NO. 3510/MUM/2010. ASSESSMENT YEAR : 2005-06. M/S SAKUMA EXPORTS, ASSTT. COMMISSIONER OF INCOME-TAX, 17, CHEMOX HOUSE, VS. 18(3), MUMBAI. 7,BARRACK ROAD, BOMBAY HOSPITAL LANE, MUMBAI 400 020. PAN : AALFS6796C APPELLANT. RESPONDENT. APPELLANT BY : SHRI VIPUL B. JOSHI. RESPONDENT BY : SMT. KUSUM INGALE. DATE OF HEARING : 05-03-2012 DATE OF PRONOUNCEMENT : 16-03-2012 O R D E R. PER P.M. JAGTAP, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX-18, MUMBAI DATED 30-03-2 010 PASSED U/S 263. 2. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHI P FIRM WHICH IS ENGAGED IN THE BUSINESS OF EXPORTING AGRICULTURAL BASED COMMODITIE S. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 28-1-20 05 DECLARING TOTAL INCOME OF RS.2,15,83,420/-. IN THE ASSESSMENT COMPLETED U/S 1 43 VIDE AN ORDER DATED 19-12- 2007, THE TOTAL INCOME OF THE ASSESSEE WAS COMPUTED BY THE AO AT RS.2,17,33,960/-. THE RECORD OF THE SAID ASSESSMENT CAME TO BE EXAMINED BY THE 2 ITA NO/ 3510/MUM/2010 LEARNED C.I.T. AND ON SUCH EXAMINATION, HE FORMED A PRIMA FACIE OPINION THAT THE ASSESSMENT MADE BY THE AO U/S 143(3) WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE, THEREFORE, ISSUED A SH OW CAUSE NOTICE U/S 263 TO THE ASSESSEE ON 18-03-2010 WHICH READS AS UNDER : THE ASSESSEE FIRM HAS RECEIVED LOAN WORTH RS.50 LA KHS FROM A SISTER CONCERN M/S SAKUMA FINWEST LTD. ON 23.07.2005. IT H AS BEEN FOUND THAT SHRI SAURABH MALHOTRA HOLDS 60% SHARES OF THE COMPANY AN D SMT. KUSUM MALHOTRA HOLDS 10% SHARES OF THIS COMPANY. BOTH THE SE PERSONS ARE PARTNERS IN THE ASSESSEE FIRM HAVING SUBSTANTIAL INTEREST (4 5% EACH AS PER ORIGINAL PARTNERSHIP DEED VALID TILL 3.7.2005). HENCE THE PR OVISION OF SECTION 2(22)(E) WERE APPLICABLE IN THE CASE OF THE FIRM FOR A.Y. 20 05-06. THE JT.CIT HOWEVER HAS TAKEN NO ACTION U/S 2(22)(E) IN THE ASS ESSMENT ORDER PASSED BY HIM U/S 143(3). THEREFORE, THE ASSESSMENT ORDER IS ERRONEOUS AS WELL AS PREJUDICIAL TO REVENUE. IT IS PROPOSED TO REVISE TH E SAID ASSESSMENT ORDER U/S 263 OF THE I.T. ACT, 1961. IN REPLY TO THE ABOVE NOTICE FILED VIDE ITS LETTER DATED 26-03-2010, IT WAS POINTED OUT BY THE ASSESSEE THAT FACTS STATED IN THE SAID N OTICE WERE INCORRECT. IT WAS SUBMITTED THAT NO LOAN HAD BEEN RECEIVED BY THE ASS ESSEE FROM M/S SAKUMA FINVEST LTD. DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMEN T YEAR 2005-06 AS ALLEGED IN THE SAID NOTICE. IT WAS ALSO SUBMITTED THAT THE AMOUNT OF RS.50 LAKHS WAS RECEIVED BY THE ASSESSEE FROM M/S SAKUMA FINVEST LTD. IN THE PR EVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2006-07 AND THIS MATTER WAS DULY DI SCUSSED BY THE AO IN THE ASSESSMENT ORDER PASSED FOR THAT YEAR. THIS SUBMISS ION MADE ON BEHALF OF THE ASSESSEE POINTING OUT THE FACTUAL MISTAKE COMMITTED IN THE NOTICE ISSUED U/S 263 WAS ACCEPTED BY THE LEARNED CIT. HE, HOWEVER, FOUND FROM THE RECORD THAT A LOAN OF RS.53.60 LAKHS WAS RECEIVED BY THE ASSESSEE FROM M/S SAKUMA INTERNATIONAL MARKETING PVT. LTD. DURING THE PREVIOUS YEAR RELEVA NT TO ASSESSMENT YEAR 2005-06 AND THE SAID AMOUNT WAS LIABLE TO BE ADDED TO THE T OTAL INCOME OF THE ASSESSEE AS DEEMED DIVIDEND AS PER THE PROVISIONS OF SECTION 2( 22)(E). HE NOTED THAT EVEN THOUGH NO SUCH ADDITION WAS MADE BY THE AO IN THE A SSESSMENT ORIGINALLY 3 ITA NO/ 3510/MUM/2010 COMPLETED U/S 143(3) ON 19-12-2007, A NOTICE U/S 14 8 WAS ISSUED BY HIM ON 19-01- 2009 TO BRING TO TAX THE INCOME IN THE HANDS OF THE ASSESSEE WHICH HAD ESCAPED ASSESSMENT. HE, THEREFORE, HELD THAT FAILURE OF THE AO TO MAKE THE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE ON THIS ISSUE BY INVOK ING THE PROVISIONS OF SECTION 2(22)(E) IN THE ASSESSMENT ORIGINALLY COMPLETED U/S 143(3) VIDE ORDER DATED 9-12- 2007 HAD MADE THE SAID ASSESSMENT ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE ACCORDINGLY REVISED THE SAID ASS ESSMENT BY HIS IMPUGNED ORDER PASSED U/S 263 MAKING AN ADDITION OF RS.53,60,000/- TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) . AGGRIEVED BY THE SAME, THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBU NAL CHALLENGING THE VALIDITY OF THE ORDER PASSED BY THE CIT U/S 263 AS WELL AS DISP UTING THE ADDITION MADE THEREIN U/S 2(22)(E) ON MERIT. 3. WHILE ARGUING THE CASE OF THE ASSESSEE ON THE PR ELIMINARY ISSUE CHALLENGING THE VALIDITY OF THE IMPUGNED ORDER PASSED BY THE LE ARNED CIT U/S 263, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE SOLI TARY NOTICE ISSUED BY THE LEARNED CIT U/S 263 DATED 18-03-2010, THE ERROR POINTED OUT BY THE LEARNED CIT IN THE ORDER OF THE AO PASSED U/S 143(3) WAS FACTUALLY INC ORRECT INASMUCH AS THE AMOUNT OF RS.50 LAKHS RECEIVED BY THE ASSESSEE FIRM FROM I TS SISTER CONCERN WHICH, ACCORDING TO THE LEARNED CIT, WAS LIABLE TO BE ADDE D U/S 2(22)(E) HAD NOT BEEN RECEIVED IN THE PREVIOUS YEAR RELEVANT TO ASSESSMEN T YEAR 2005-06 BUT THE SAME WAS RECEIVED IN THE PREVIOUS YEAR RELEVANT TO ASSESSMEN T YEAR 2006-07. HE SUBMITTED THAT THIS FACTUAL MISTAKE WAS BROUGHT TO THE NOTICE OF THE LEARNED CIT BY THE ASSESSEE IN THE SUBMISSION MADE IN WRITING VIDE LET TER DATED 26-03-2010 AND THE SAME HAVING BEEN ACCEPTED BY THE LEARNED CIT, THERE WAS NO ERROR IN THE ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) ON 19- 12-2007 AS ALLEGED BY THE LEARNED CIT IN THE NOTICE ISSUED U/S 263 ON 18-03-2 010. HE CONTENDED THAT THE 4 ITA NO/ 3510/MUM/2010 LEARNED CIT, HOWEVER, STILL PROCEEDED TO REVISE THE ASSESSMENT MADE BY THE AO BY HIS IMPUGNED ORDER PASSED U/S 263 ON ALTOGETHER DIF FERENT ISSUE WHICH WAS NOT EVEN INDICATED IN THE ONLY NOTICE ISSUED U/S 263. H E CONTENDED THAT REVISION BY THE LEARNED CIT ON THE ISSUE NOT MENTIONED IN THE SHOW CAUSE NOTICE IS NOT PERMISSIBLE IN LAW AND THE IMPUGNED ORDER PASSED BY THE LEARNED CIT MAKING SUCH REVISION IS LIABLE TO BE CANCELLED. IN SUPPORT OF THIS CONTENTI ON, HE RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS : I) CIT VS. ASHISH RAJPAL (2010) 320 ITR 674 (DEL) II) CIT VS. CONTIMETERS ELECTRICALS (P) LTD. (2009 ) 317 ITR 249 (DEL). III) CIT VS. GULMOHAR FINANCE LTD. (2008) 6 DTR (D EL) 327. IV) COLOCRAFT VS. ITO (2007) 105 ITD 599 (MUM). V) MAXPAK INVESTMENT LTD. VS. ACIT (2007) 13 SOT 6 7 (DEL) VI) UNREPORTED DECISION OF MUMBAI BENCH OF ITAT IN ITA NO.3076/MUM/10 IN THE CASE OF SYNERGY ENTREPRENEUR SOLUTIONS PVT. LTD. 4. THE LEARNED DR, ON THE OTHER HAND, RELIED STRONG LY ON THE IMPUGNED ORDER OF THE LEARNED CIT PASSED U/S 263 IN SUPPORT OF THE RE VENUES CASE THAT THE SAME IS IN ACCORDANCE WITH LAW. IN REPLY TO A QUERY RAISED BY THE BENCH, SHE, HOWEVER, ACCEPTED THAT ONLY ONE NOTICE WAS ISSUED BY THE LEA RNED CIT U/S 263 IN THIS CASE ON 18-03-2010. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON THIS PRELIMINARY ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. A PERUSAL OF THE IMPUGNED ORDER OF THE LEARNED CIT CLEARLY SHOWS THAT THE ASSESSMENT MADE BY THE AO U/S 143(3) HAS BEEN REVISED BY HIM BY MAKING ADDITION OF RS.53,60,000/- TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF AMOUNT RECEIVED FROM M/S SAK UMA INTERNATIONAL MARKETING PVT. LTD. TREATING THE SAME AS DEEMED DIVIDEND U/S 2(22)(E). THE SAID ISSUE, HOWEVER, WAS NOT RAISED BY HIM IN THE SOLITARY NOTI CE ISSUED U/S 263. IN THE CASE OF 5 ITA NO/ 3510/MUM/2010 MAXPAK INVESTMENT LTD. VS. ACIT 104 TTJ (DEL) 881, IT WAS HELD BY DELHI BENCH OF THE TRIBUNAL THAT REVISION U/S 263 ON A GROUND D IFFERENT FROM ONE STATED IN THE NOTICE ISSUED U/S 263 IS INVALID AND THE ORDER PASS ED BY HIM U/S 263 TO THAT EXTENT WILL HAVE TO BE SET ASIDE AS NOT BASED ON ANY GROUN D WHICH MIGHT JUSTIFY HIS BELIEF THAT THE ORDER PASSED BY THE AO WAS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THE CASE OF SSI LTD. VS . DCIT 85 TTJ (CHENNAI) 1049, IT WAS HELD BY CHENNAI BENCH OF THE TRIBUNAL THAT PROC EEDINGS U/S 263 HAVE TO BE STRICTLY CONFINED TO THE NOTICE ISSUED U/S 263 INVO KING THE JURISDICTION UNDER THAT SECTION FOR THE REASONS STATED THEREIN AND LAW DOES NOT PERMIT EXPANDING THE PROCEEDINGS U/S 263 AFTER ITS INITIATION BEYOND WHA T IS STATED IN THE NOTICE ITSELF. IT WAS FURTHER HELD THAT WHETHER IMPUGNED ASSESSMENT I S ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE IS TO BE JUDGED ONLY WI TH REFERENCE TO THE REASONS STATED IN THE NOTICE ISSUED BY THE LEARNED CIT U/S 263 AND IT IS IMPERMISSIBLE TO EXTEND THE SAID PROCEEDING BEYOND THE REASONS GIVEN IN THE NOT ICE. IT WAS HELD THAT IN RESPECT OF PROCEEDING U/S 263, THE BEDROCK ON WHICH THE ENT IRE PROCEEDINGS REST IS THE SHOW CAUSE NOTICE AND SO PROCEEDINGS U/S 263 HAVE TO BE STRICTLY CONFINED TO THE NOTICE ISSUED. 6. IN THE CASE OF SYNERGY ENTREPRENEUR SOLUTIONS PV T. LTD. (SUPRA) CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE COORDINATE BE NCH OF THIS TRIBUNAL AT MUMBAI HAS HELD, RELYING ON THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. G.K. KABRA 211 ITR 336 THAT IF A GR OUND OF REVISION IS NOT MENTIONED IN THE SHOW CAUSE NOTICE ISSUED U/S 263, THAT GROUND CANNOT BE MADE THE BASIS OF THE ORDER PASSED U/S 263 FOR THE SIMPLE RE ASON THAT THE ASSESSEE WOULD HAVE HAD NO OPPORTUNITY TO MEET THE POINT. THE TRIBUNAL ALSO HELD THAT IF THE CIT HAS NOT MENTIONED THE GROUND ON WHICH ACTION IS PROPOSED TO BE TAKEN U/S 263 IN THE SHOW CAUSE NOTICE, IT IS DEEMED THAT HE WAS NOT SATISFIE D THAT IT WAS A FIT GROUND FOR 6 ITA NO/ 3510/MUM/2010 TAKING ACTION UNDER THE SECTION, WITH THE RESULT TH AT THE FINAL ORDER, IF BASED ON THE GROUND WHICH HE HAD EARLIER CONSIDERED NOT FIT FOR TAKING ACTION U/S 263, WILL HAVE TO BE SET ASIDE AS NOT BASED ON ANY GROUND WHICH MA Y JUSTIFY HIS BELIEF THAT THE ORDER PASSED BY THE AO WAS ERRONEOUS IN SO FAR AS I T IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THE CASE OF CIT VS. ASHISH RAJPAL ( SUPRA) CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE, ORDER IN REVISION PASSED BY THE COMMISSIONER CONTAINING GROUNDS IN ADDITION TO THOSE MENTIONED IN THE SHOW CAUSE NOTICE WAS HELD TO BE NOT SUSTAINABLE BY THE HONBLE DELHI HIGH COURT ON THE GROUND THAT IT SUFFERED FROM VIOLATION OF PRINCIPLE OF NATURAL JUSTICE. TO THE S IMILAR EFFECT IS THE ANOTHER DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CONTIMET ERS ELECTRICALS (P) LTD. (SUPRA) WHEREIN IT IS HELD THAT REVISION BY THE COMMISSIONE R ON THE ISSUE NOT MENTIONED IN THE SHOW CAUSE NOTICE IS NOT PERMISSIBLE. 7. KEEPING IN VIEW THE LEGAL POSITION EMANATING FRO M THE VARIOUS JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE AND HAVING REGARD TO THE FACT THAT THE IMPUGNED ORDER PASSED BY THE CIT U/S 263 IS BASED ON THE ISS UE WHICH WAS NOT RAISED IN THE NOTICE ISSUED UNDER THAT SECTION, WE HOLD THAT THE SAME IS NOT SUSTAINABLE IN LAW. THE IMPUGNED ORDER PASSED BY THE LEARNED CIT U/S 26 3 IS, THEREFORE, CANCELLED AND THIS APPEAL OF THE ASSESSEE IS ALLOWED ON THE PRELI MINARY ISSUE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON THIS 16 TH MARCH, 2012. SD/- SD/- (S.S. GODARA) (P.M. JA GTAP) JUDICIAL MEMBER. ACCO UNTANT MEMBER MUMBAI, DATED: 16 TH MARCH, 2012. 7 ITA NO/ 3510/MUM/2010 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, J-BENCH. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES , MUMBAI. WAKODE