M/s Popular Mini Financiers, Cochin V. ACIT, Kottayam

ITA 352/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61429 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 03-04-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 28-05-2010
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Assessee Lawyers: A S NARAYANAMOORTHY
• Keywords: Revision of order; Audit objection; Principle of natural justice; Assessment record
• Section: 80HHC; 133A; 147; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS.352 TO 364 /COCH/2010 ASSESSMENT YEARS : 2001-02 TO 2005-06 1.M/S. POPULAR MINI FINANCIERS, VAKAYAR, KONNI, PATHANAMTHITTA. [PAN: AABFP 6665P] 2.M/S. POPULAR FINANCIERS, VAKAYAR, KONNI, PATHNAMTHITTA. [PAN; AABFP 6302K] 3. M/S. FINANCE CO., VAKAYAR, KONNI, PATHNAMTHITTA. [PAN: AADFP 9578M] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1/C), KOTTAYAM (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI A.S. NARAYANAMOORTHY, CA REVENUE BY SHRI S.R. SENAPATI, SR. DR DATE OF HEARING 03/04/2012 DATE OF PRONOUNCEMENT 19 /04/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: ALL THESE APPEALS FILED BY THE RESPECTIVE ASSE SSEES ARE DIRECTED AGAINST THE ORDERS PASSED BY LD. CIT(CENTRAL), KOCHI U/S 263 OF THE A CT AND THEY RELATE TO THE ASSESSMENT YEARS MENTIONED AGAINST THEIR RESPECTIVE NAMES IN T HE CAPTION. THESE ASSESSEES ARE I.T.A. NOS. 352-364/COCH/2010 2 CHALLENGING THE VALIDITY OF INITIATION OF REVISION PROCEEDINGS U/S 263 OF THE ACT IN ALL THE YEARS. SINCE THE FACTS SURROUNDING THE SAID ISSUE IN ALL THESE APPEALS ARE IDENTICAL IN NATURE, THEY WERE HEARD TOGETHER AND ARE BEING DISP OSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE APPEALS OF M/S POPULAR MINI FINANCIERS MAY BE TAKEN AS THE LEAD CASE AND THE DE CISION REACHED IN THAT CASE CAN BE CONVENIENTLY APPLIED TO OTHER CASES ALSO, AS THE UN DERLYING FACTS IN ALL THE APPEALS ARE IDENTICAL IN NATURE. ACCORDINGLY WE TAKE M/S POPUL AR MINI FINANCIERS AS THE LEAD CASE AND HENCE THE FACTS RELATING THERETO ARE DISCUSSED HEREUNDER: 3. THE ASSESSEE FIRM IS CARRYING ON MONEY LENDING B USINESS ON THE SECURITY OF GOLD AND DERIVES INTEREST INCOME. THE ASSESSEES SISTER CONCERNS COLLECT DEPOSITS FROM PUBLIC AND THE DEPOSITS SO COLLECTED ARE TAKEN OVER BY THE MANAGING PARTNERS OF THE ASSESSEE FIRM, WHO IN TURN HAS INVESTED THE SAME IN THE ASSE SSEE FIRM IN THE FORM OF CAPITAL/LOAN. THE ASSESSEE FIRM PAYS INTEREST TO THE MANAGING PAR TNERS ON THE AMOUNT INVESTED BY THEM. THE DEPARTMENT CARRIED OUT A SURVEY OPERATIO N U/S 133A OF THE ACT IN FOUR BRANCHES OF THE ASSESSEE FIRM. CONSEQUENT THERETO, THE ASSESSMENTS WERE REOPENED U/S 147 OF THE ACT. WHILE THE ASSESSMENT IS PENDIN G, THE ADDL CIT, CENTRAL RANGE, ERNAKULAM HAD DISCUSSIONS WITH THE ASSESSEE AS WELL AS THE ASSESSING OFFICER WITH REGARD TO THE MODALITIES OF DETERMINATION OF INCOME OF THE ASSESSEE. IT WAS AGREED THAT THE NET MARGIN FOR THE ASSESSEE IS ONLY 2% OF THE FUNDS EMPLOYED (AMOUNT ADVANCED AS LOANS) IN THE MONEY LENDING ACTIVITIES. IT WAS ALSO AGREED THAT THE AMOUNT ADVANCED AS LOANS SHOULD BE QUANTIFIED AT 50% OF TH E TOTAL DEPOSITS COLLECTED, AS THE ASSESSEE STATED THAT IT HAS DISBURSED ONLY 50% OF T HE AGGREGATE DEPOSITS AMOUNT AS LOANS AT ANY POINT OF TIME. ACCORDINGLY IT WAS DEC IDED TO ARRIVE AT THE INCOME FOR VARIOUS FIRMS @2% OF THE AMOUNT ADVANCED AS LOANS. IT APPEARS THAT THE MANAGING PARTNER SHRI THOMAS DANIEL HAD OFFERED INCOME IN TW O ASSESSMENT YEARS TO THE TUNE OF RS.50.00 LAKHS. IT WAS REQUESTED BY THE ASSESSEE T HAT THE SAID AMOUNT MAY BE ALSO TREATED AS THE INCOME OF THE FIRMS. ACCORDING TO THE ABOVE SAID PROPOSALS, IT APPEARS THAT THE ASSESSEE FILED A LETTER DATED 28-12-2007 G IVING DETAILED WORKINGS. BEFORE US, I.T.A. NOS. 352-364/COCH/2010 3 THE ASSESSEE HAS FILED ONLY THE DETAILED WORKINGS A ND THE LETTER DATED 28-12-2007 CITED ABOVE WAS NOT FURNISHED TO US. IT IS STATED THAT T HE ASSESSEE FILED RETURNS OF INCOME IN ACCORDANCE WITH THE DETAILED WORKING SUBMITTED BY I T AND THE ASSESSING OFFICER ALSO COMPLETED THE ASSESSMENT ACCEPTING THE RETURN OF IN COME FILED BY THE ASSESSEE. 4. THE LD.CIT NOTICED THAT THE INCOME ASSESSED IN T HE HANDS OF THE FIRMS FOR THE ASSESSMENT YEARS UNDER CONSIDERATION WAS LESS THAN 2% OF THE AVERAGE FUNDS ADVANCED BY THE ASSESSEE, I.E. THE ASSESSEE DID NOT OFFER IN COME AS PER THE AGREED RATE OF 2% IN ALL THE YEARS. ACCORDINGLY, HE INITIATED REVISION PROCEEDINGS U/S 263 OF THE ACT. AFTER CONSIDERING THE OBJECTIONS RAISED BY THE ASSESSEE, THE LD.CIT SET ASIDE THE ORDERS OF THE ASSESSING OFFICER FOR THE YEARS UNDER CONSIDERATION S AND DIRECTED HIM TO REDO THE ASSESSMENTS, AFTER EXAMINING THE ISSUE PROPERLY AND AFTER MAKING SUCH ENQUIRIES AS MAY BE NECESSARY. AGGRIEVED BY THE ORDER OF LD.CIT , THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE RAISED DIFFEREN T TYPES OF CONTENTIONS TO SUBSTANTIATE HIS PLEA THAT THE REVISION ORDERS PASS ED BY THE LD CIT IS NOT IN ACCORDANCE WITH LAW AND HENCE THE SAME IS LIABLE TO BE QUASHED . THE CONTENTIONS OF THE LD. A.R ARE SUMMARIZED BELOW:- (A) THE ASSESSING OFFICER HAS COMPLETED THE ASSESS MENT AS PER THE DIRECTION ISSUED BY THE ADDL CIT U/S 144A OF THE ACT AND HENC E THE IMPUGNED ASSESSMENT ORDERS CANNOT BE CONSIDERED AS ERRONEOUS AND PREJUD ICIAL TO THE INTEREST OF THE REVENUE. IN THIS REGARD, HE INVITED OUR ATTENTION TO THE DIRECTION GIVEN BY THE ADDL CIT U/S 144A OF THE ACT AND ALSO THE WORKINGS SUBMITTED BY THE ASSESSEE, WHICH ARE PLACED AT PAGES 1 TO 3 OF THE PAPER BOOK FILED BY THE ASSEESSEE. HE FURTHER SUBMITTED THAT THE DIRECTIONS GIVEN BY THE ADDL CIT U/S 144A OF THE ACT ARE PART OF THE ASSESSMENT ORDER AND IF SUCH DIRECT ION WAS GIVEN AFTER DUE APPLICATION OF MIND, AND IF THE ASSESSING OFFICER F OLLOWED THE SAID DIRECTIONS, THE ASSESSMENT ORDER CANNOT BE CONSIDERED AS ERRONEOUS, EVEN IF THE ASSESSING OFFICER DID NOT MAKE A SPECIFIC REFERENCE TO THE SA ID DIRECTIONS. FOR THIS PROPOSITION HE RELIED ON THE DECISION OF CHANDIGARH BENCH OF THIS TRIBUNAL IN THE CASE OF ITO VS ARORA ALLOYS LTD REPORTED IN (2011) (12 ITR (TRIB) 263). (B) THE IMPUGNED REVISION ORDERS ARE LIABLE TO BE QUASHED AS THE LD.CIT HAS INITIATED THE REVISION PROCEEDINGS AT THE INSTANCE OF THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, WHILE THE STATUTE MANDA TES THE LD.CIT TO EXAMINE THE I.T.A. NOS. 352-364/COCH/2010 4 RECORD AND TO TAKE A DECISION ON HIS OWN. IN SUPPO RT OF THIS SUBMISSION, THE LD.AR INVITED OUR ATTENTION TO LETTER DATED 4TH MAR CH, 2010 WRITTEN BY THE DY.CIT, CENT.CIR. TO THE CIT (CENTRAL), WHICH IS PLACED AT PAGES 18 & 19 OF THE PAPER BOOK FILED BY THE ASSESSEE. IN THE SAID LETTER THE DY.CIT HAD REQUESTED THE CIT TO INITIATE REVISION PROCEEDINGS U/S 263 OF THE ACT , AS THE ACCOUNTANT GENERAL DID NOT DROP THE AUDIT OBJECTIONS WITH REGARD TO THE IN COME ASSESSED IN THE HANDS OF THE ASSESSEE. THE LD.COUNSEL SUBMITTED THAT THE LD .CIT CANNOT INITIATE REVISION PROCEEDINGS ON THE BASIS OF AUDIT OBJECTIONS. IN S UPPORT OF THE PROPOSITION CONTENDED ABOVE, THE LD.COUNSEL PLACED RELIANCE ON THE ORDER DATED 29-02-2012 PASSED BY THIS BENCH OF TRIBUNAL IN THE CASE OF PAR ISONS INFRASTRUCTURE PVT LTD IN ITA NO.298/COCH/2010. (C) THE ASSESSING OFFICER HAS TAKEN ONE OF THE POS SIBLE VIEWS WHILE DETERMINING THE INCOME FOR THE YEARS UNDER CONSIDERATION AND HE NCE THE SAID ASSESSMENT ORDERS CANNOT BE SUBJECTED TO REVISION PROCEEDINGS. 6. ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE L ETTER DATED 04-03-2010 WRITTEN BY DY.CIT TO LD.CIT IS AN INTERNAL DOCUMENT WHICH I S EXCHANGED BETWEEN THE OFFICIALS IN THE NORMAL COURSE OF FUNCTIONING. SUCH ADMINISTRA TIVE CORRESPONDENCES ARE NOT ACCESSIBLE TO THE ASESSEES AND HE WONDERED AS TO HO W THE ASSESSEE GOT COPY OF SUCH CORRESPONDENCE. WHEN THE BENCH ENQUIRED AS TO HOW THE ASSESSEE CAME TO BE POSSESSED OF THIS DOCUMENT, THE LD.AR SUBMITTED THA T IT WAS OBTAINED THROUGH AN APPLICATION FILED UNDER RTI ACT. HOWEVER, THE LD. DR POINTED OUT THAT THE SAID DOCUMENT WAS NOT CERTIFIED BY ANY AUTHORITY AND ACC ORDINGLY SUBMITTED THAT THE SAID DOCUMENT SHOULD NOT BE TAKEN NOTE OF. HE FURTHER SUBMITTED THAT EVEN IF THE ABOVE SAID LETTER IS ADMITTED AS EVIDENCE, THE REVISION P ROCEEDINGS CANNOT BE FOUND FAULT WITH SINCE THE LD.CIT HAS NOT INITIATED THE REVISION PRO CEEDINGS WITHOUT APPLICATION OF HIS MIND. ON THE CONTRARY, THE LD CIT HAS INDEPENDENTL Y APPLIED HIS MIND ON THE IMPUGNED MATTERS AND HAS TAKEN A DECISION ON HIS OW N WITHOUT BEING INFLUENCED BY THE LETTER DATED 04-03-2010 ISSUED BY DY.CIT, WHICH IS VERY MUCH EVIDENT FROM THE ORDER PASSED U/S 263 OF THE ACT. IN THIS REGARD HE RELI ED UPON THE DECISION OF DELHI BENCH OF ITAT IN THE CASE OF APOLLO TYRES LTD VS. ASST. CIT REPORTED IN (1998) (65 ITD 263). IN THAT CASE, IT WAS HELD AS UNDER:- A PLAIN READING OF SECTION 263 CLEARLY INDICATES T HAT THE COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDINGS UNDE R THE ACT. FOR THIS PURPOSE, HE IS NOT REQUIRED TO SHOW AS TO WHAT REASONS PROMP TED HIM TO CALL FOR AND I.T.A. NOS. 352-364/COCH/2010 5 EXAMINE THE RECORD. THE PROVISIONS ALSO DO NOT PRE SCRIBE ANY LIMITATION THAT THE COMMISSIONER SHOULD SUO MOTU CALL FOR AND EXAMINE T HE RECORD AND HE CANNOT TAKE INTO CONSIDERATION OR RELY UPON ANY REPORT OR INFORMATION WHICH MAY BE SUPPLIED TO HIM BY OTHER OFFICERS OF THE DEPARTMENT OR ON THE BASIS OF ANY INFORMATION WHICH HE MAY OBTAIN FROM ANY OTHER SOUR CE. THE AUTHORITY OF THE COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD ON THE BASIS OF ANY INFORMATION FROM ANY SOURCE OR SUO MOTU IS PURELY AN ADMINISTRA TIVE MATTER. IF AFTER CALLING FOR AND EXAMINING THE RECORDS, THE COMMISSIONER CON SIDERS THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS INSOFAR AS IT IS PRE JUDICIAL TO THE INTERESTS OF THE REVENUE, THEN SUBSEQUENT PROCEEDING ACQUIRES QUASI- JUDICIAL CHARACTER. ON COMPARISON OF SECTIONS 263 AND 264, IT WOULD BE SEE N THAT IN SECTION 264 THE COMMISSIONER MAY, EITHER OF HIS OWN MOTION OR ON AN Y APPLICATION BY THE ASSESSEE, CALL FOR THE RECORDS OF ANY PROCEEDING UN DER THE ACT. HOWEVER, IN SECTION 263 THE EXPRESSION ON HIS OWN MOTION IS A BSENT. IN THE ABSENCE OF SUCH AN EXPRESSION AND ALSO IN VIEW OF THE FACT THAT THE RE IS NO RESTRICTION OR LIMITATION ON THE POWER OF THE COMMISSIONER TO CALL FOR AND EX AMINE THE RECORD OF ANY PROCEEDING PURSUANT TO THE REPORT GIVEN BY THE ASSE SSING OFFICER OR BY ANY OTHER DEPARTMENTAL OFFICER, THE COMMISSIONER COULD VALIDL Y CALL FOR AND EXAMINE THE RECORD OF THE ASSESSEE IN THE INSTANT CASE FOR THE RELEVANT YEAR PURSUANT TO A LETTER OF THE ASSESSING OFFICER CONTAINING A PROPOS AL UNDER SECTION 263. THEREFORE, THERE WAS NO MERIT IN THE CONTENTION OF THE ASSESSEE IN THIS REGARD. HE FURTHER SUBMITTED THAT IT IS VERY MUCH EVIDENT T HAT THE ASSESSING OFFICER HAS PASSED THE IMPUGNED ASSESSMENT ORDERS WITHOUT MAKING DUE V ERIFICATIONS WHICH HE IS EXPECTED TO DO, I.E., HE HAS COMPLETED THE ASSESSMENT EVEN W ITHOUT VERIFYING WHETHER THE COMPUTATIONS OF INCOME SUBMITTED BY THE ASSESSEE AR E IN ACCORDANCE WITH THE PROPOSAL SUBMITTED TO THE ADDL CIT. HE ALSO SUBMITTED THAT EVEN THE ADDL. CIT ALSO DID NOT EXAMINE THE COMPUTATIONS OF INCOME SUBMITTED BY THE ASSESSEE BEFORE GIVING DIRECTIONS U/S 144A OF THE ACT. ACCORDINGLY HE SUBMITTED THAT THE ASSESSMENT ORDER IS LIABLE FOR REVISION U/S 263 OF THE ACT, IF IT IS PASSED WITHOU T MAKING PROPER ENQUIRIES AND WITHOUT APPLICATION OF MIND. IN THIS REGARD, THE LD D.R P LACED HIS RELIANCE ON THE FOLLOWING CASE LAW:- (A) GEE VEE ENTERPRISES VS CIT (1975) 99 ITR 375 (DE L), WHEREIN IT WAS HELD THAT THE COMMISSIONER CAN REGARD THE ORDER AS ERRONEOUS, IF THE INCOME TAX OFFICER DID NOT MAKE FURTHER INQUIRIES BEFORE ACCEPTING THE STATEMENTS MADE BY THE ASSESSEE IN HIS RETURN. THE INCOME TAX OFFICER IS NOT ONLY AN ADJUDICATOR BUT ALSO AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE F ACE OF A RETURN WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER INQUIRY. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED IN THE RETURN WHEN THE CI RCUMSTANCES OF THE CASE ARE I.T.A. NOS. 352-364/COCH/2010 6 SUCH AS TO PROVOKE AN INQUIRY. IT IS BECAUSE IT IS INCUMBENT ON THE INCOME TAX OFFICER TO FURTHER INVESTIGATE THE FACTS STATED IN THE RETURN WHEN CIRCUMSTANCES WOULD MAKE SUCH AN INQUIRY PRUDENT THAT THE WORD E RRONEOUS IN SECTION 263 INCLUDES THE FAILURE TO MAKE SUCH AN ENQUIRY. THE ORDER BECOMES ERRONEOUS BECAUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT B ECAUSE THERE IS ANYTHING WRONG WITH THE ORDER IF ALL THE FACTS STATED THEREI N ARE ASSUMED TO BE CORRECT. (B) JAI BHARAT TANNERS VS CIT (2003) 264 ITR 673 (MAD, WHEREIN IT WAS HELD THAT THE ORDER OF THE ASSESSING OFFICER GRANTING DE DUCTIONS U/S 80HH AND 80HHC WITHOUT AN ENQUIRY IS PLAINLY ERRONEOUS AND PREJUDI CIAL TO THE INTERESTS OF THE REVENUE. (C) ADDL. CIT VS MUKUR CORPORATION (1978) 111 ITR 312 (GUJ, WHEREIN IT WAS HELD THAT THE INITIATION OF REVISION PROCEEDINGS WA S QUITE PROPER WHEN THE INCOME TAX OFFICER COMMITTED ANY ERROR IN NOT MAKIN G ENQUIRY INTO THE DETAILS AS REGARDS THE DEDUCTIONS CLAIMED BY THE ASSESSEE AND ALSO THAT WANT OF SUCH ENQUIRY HAD RESULTED IN PREJUDICE TO THE INTERESTS OF THE REVENUE. (D) APPOLLO TYRES LTD S ACIT 65 ITD 263 (DEL) 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. BEFORE GOING INTO THE MERITS OF THE ISSUE, WE WOULD LIKE T O DISCUSS ABOUT THE LEGAL POSITION WITH REGARD TO THE POWER OF LEARNED CIT TO INVOKE REVISI ON PROCEEDINGS UNDER SECTION 263 OF THE ACT. THE SCOPE OF REVISION PROCEEDINGS INITIAT ED UNDER SECTION 263 OF THE ACT WAS CONSIDERED BY HON'BLE BOMBAY HIGH COURT, IN THE CAS E OF GRASIM INDUSTRIES LTD. V CIT (321 ITR 92) BY TAKING INTO ACCOUNT THE LAW LAID DO WN BY THE HON'BLE SUPREME COURT. THE RELEVANT OBSERVATIONS ARE EXTRACTED BELOW: SECTION 263 OF THE INCOME-TAX ACT, 1961 EMPOWERS T HE COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDINGS UNDER THE ACT AND, IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN, BY THE ASS ESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE, TO PASS AN ORDER UPON HEARING THE ASSESSEE AND AFTER A N ENQUIRY AS IS NECESSARY, ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. THE KE Y WORDS THAT ARE USED BY SECTION 263 ARE THAT THE ORDER MUST BE CONSIDERE D BY THE COMMISSIONER TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THIS PROVISION HAS BEEN INTERPRETED BY THE SUPREME COURT IN SEVERAL JUDGMENTS TO WHICH IT IS NOW NECESSARY TO TURN. IN MALABAR INDUSTRIAL CO. LTD. V. CIT [2000] 243 ITR 83, THE SUPREME COURT HELD THAT THE PROVISION I.T.A. NOS. 352-364/COCH/2010 7 CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ON LY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. THE SUPREME COURT HELD THAT AN INCORRECT ASSUMPTION OF FACT OR AN INCORRECT APP LICATION OF LAW, WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. AN ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APP LICATION OF MIND, WOULD BE AN ORDER FALLING IN THAT CATEGORY. THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE SUPREME COURT HELD, IT IS OF W IDE IMPORT AND IS NOT CONFINED TO A LOSS OF TAX. WHAT IS PREJUDICIAL TO T HE INTEREST OF THE REVENUE IS EXPLAINED IN THE JUDGMENT OF THE SUPREME COURT (HEA DNOTE) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE A SSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER, CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS O F 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 T HE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. THE PRINCIPLE WHICH HAS BEEN LAID DOWN IN MALABAR I NDUSTRIAL CO. LTD. [2000] 243 ITR 83 (SC) HAS BEEN FOLLOWED AND EXPLAI NED IN A SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN CIT V. MAX INDIA L TD. [2007] 295 ITR 282. 8. IN THE INSTANT CASES, THERE IS NO DISPUTE WI TH REGARD TO THE FACT THAT THE ASSESSES HEREIN HAD AGREED TO OFFER INCOME @2% OF THE AVERAG E AMOUNTS ADVANCED AS LOANS. THIS FACT IS EVIDENT FROM THE DIRECTIONS ISSUED BY THE ADDL. CIT U/S 144A OF THE ACT. IN THIS REGARD, WE FEEL IT PERTINENT TO EXTRACT THE FO LLOWING OBSERVATIONS MADE BY THE ADDL.CIT IN THE DIRECTION DATED 27-12-2007 ISSUED U /S 144A OF THE ACT: SHRI THOMAS DANIEL HAD OFFERED RS.50 LAKHS RS.3 0 LAKHS FOR 2006-07 AND RS.20 LAKHS FOR 2005-06 ASST.YEARS, DURING THE COUR SE OF SURVEY. IT TRANSPIRED DURING THE SURVEY THAT THE F.DS FROM PUBLIC IN THES E FIRMS COMES TO AROUND RS.100 CRORES. HOWEVER, IT IS REPRESENTED THAT ARO UND 50% OF THE FUNDS ARE KEPT IDEL. ONLY THE BALANCE IS GIVEN OUT ON INTERE ST. THE ASSESSEE NOW ADMITS THAT THEY GET ABOUT 2% NET ON THE AMOUNTS DISTRIBUT ED. I.T.A. NOS. 352-364/COCH/2010 8 THE AO PROPOSED TO ASSESS THE DIFFERENCE OF 2% AS I NCOME. AFTER DETAILED DISCUSSION WITH SHRI THOMAS DANIEL AND SHRI MURALI OHAN CA AND THE AO SHRI SEENI THE CIT CENTRAL, COCHIN WAS ALSO APPRAISED OF THE POSITION IT IS DECIDED TO ASSESS THE INCOME FOR VARIOUS FIRMS @2% OF THE AMOU NT ADVANCED. ADVANCE WAS TAKEN AT 50% OF DEPOSITS. THE AMOUNT OFFERED B Y SHRI THOMAS DANIEL FOR TWO EARLIER YEARS HAS BEEN REQUESTED TO BE TO BE TR EATED AS PART OF THE FIRMS INCOME NOW OFFERED FOR ASSESSMENT. THIS IS ACCEPTE D AND SUITABLE ADJUSTMENT TO BE MADE WHILE COMPUTING THE INCOME OF THE GROUP. Y OU MAY WORK OUT THE YEAR WISE DISTRIBUTION OF INCOME. THE ASSESSEE SHOULD F URNISH A WORKING OF THE INCOME OFFERED FIRM-WISE AND YEAR-WISE. ON A ROUGH ESTIMATE THIS WILL COME TO RS.3.18 CRORES INCLUDING THE INCOME OF RS. 50 LAKHS OFFERED IN THE ASSESSMENT YEARS BY THE MANAGING PARTNER SHRI THOMAS DANIEL. THE GROUP MAY BE ALLOWED TO PAY THE TAX IN SUITABLE INSTALLMENTS. IF THE AS SESSEE GOES BACK ON THESE CONDITIONS, YOU MAY TAKE APPROPRIATE ACTION TO RECO VER THE TAX. THE ASSESSEE HAS ALSO FILED COPIES OF ORDER SHEET NOTING OBTAINED FROM THE ASSESSMENT RECORD. THE OBSERVATIONS RECORDED BY THE ASSESSING OFFICER IN THE ORDER SHEET ARE EXTRACTED BELOW: PLEASE SEE THE JOINT COMMISSIONERS DIRECTIONS U/S 144A OF THE ACT FROM JCIT, CENTRAL RANGE, ERNAKULAM F.NO.JCIT-CR-REKM/TECH/144A /08-09 DATED 27-12- 2007 RECEIVED ON 29-12-2007. JOINT COMMISSIONERS DIRECTIONS DULY CONSIDERED. A FTER DISCUSSION WITH THE MANAGING DIRECTOR, THOMAS DANIEL, HIS REPRESENTATIV E, SHRI MURALI MOHAN, CHARTERED ACCOUNTANT, THE INCOME ESTIMATED @2% ON T HE AMOUNTS ADVANCED APPEARS TO BE REASONABLE. THE ASSESSMENT IS COMPLE TED ON THE LINES OF THE DIRECTIONS GIVEN BY THE JOINT COMMISSIONER OF INCOM E-TAX, ERNAKULAM. 9. NOW THE QUESTION THAT ARISES IS WHETHER THE ASSE SSING OFFICER HAS COMPLETED THE ASSESSMENT BY DETERMINING INCOME @ 2% OF THE AVERAG E AMOUNT ADVANCED BY THE ASSESSEE AS LOAN, AS AGREED BY IT BEFORE THE ADDL. CIT. THE LD.CIT HAS PRECISELY EXAMINED THIS QUESTION AND ACCORDING TO THE LD.CIT, THE ASSESSEE FIRM DID NOT DISCLOSE INCOME AT 2% OF THE AVERAGE AMOUNT ADVANCED AS LOAN , AS AGREED TO BEFORE THE ADDL CIT. THIS IS EVIDENT FROM PARA 6 OF THE REVISION O RDER DATED 30-03-2010 PASSED IN THE HANDS OF M/S POPULAR MINI FINANCIERS FOR ASSESSMENT YEAR 2002-03 AND THE SAME IS EXTRACTED BELOW, FOR THE SAKE OF CONVENIENCE: I.T.A. NOS. 352-364/COCH/2010 9 6. A CLOSER LOOK AT THE LETTER OF OFFER FILED BY T HE ASSESSEE GOES TO SHOW THAT THE INCOME SHOWN AS PERCENTAGE OF THE AVERAGE FUNDS EMPLOYED IN THE CASE OF THE FIRMS FOR THIS GROUP FOR VARIOUS YEARS IS AS UN DER: A.Y. M/S POPULAR FINANCERS M/S POPULAR MINI FINANCE M/S POPULAR FINANCE CO 2001-02 1.00 1.00 1.00 2002-03 1.00 1.00 1.00 2003-04 1.00 1.00 1.00 2004-05 1.15 1.15 1.15 2005-06 1.32 2.00 2.00 2006-07 2.45 3.50 3.50 10. A CAREFUL READING OF THE DIRECTIONS ISSUED BY THE ADDL. CIT U/S 144A OF THE ACT AND ALSO THE ASSESSMENT ORDER AS WELL AS THE OBSERV ATIONS RECORDED BY THE AO IN THE ORDER SHEET WOULD SHOW THAT NEITHER THE ADDL. CIT NOR THE ASSESSING OFFICER DID EXAMINE THE COMPUTATIONS OF INCOME SUBMITTED BY THE ASSESSEE IN ORDER TO FIND OUT WHETHER THE SAID COMPUTATIONS ARE IN ACCORDANCE WIT H THE PROPOSAL AGREED TO BY THE ASSESSEE TO OFFER INCOME @2% OF THE AMOUNT ADVANCED AS LOAN. THE WELL SETTLED PROPOSITION OF LAW AS PER THE VARIOUS CASE LAW RELI ED UPON BY LD D.R AND WHICH ARE EXTRACTED IN THE PRECEDING PARAGRAPH, IS THAT LACK OF APPLICATION OF MIND ON THE PART OF THE ASSESSING OFFICER ON A PARTICULAR ISSUE WOULD R ENDER THE ASSESSMENT ORDER ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE REVENUE. IN TH E INSTANT CASE, THOUGH THE ASSESSING OFFICER HAS FOLLOWED THE DIRECTIONS ISSUED BY THE A DDL.CIT, THE FACT REMAINS THAT EVEN THE ADDL CIT DID NOT APPLY HIS MIND AND HE DID NOT MAKE ANY INVESTIGATION TO ASCERTAIN THE VERACITY OF THE COMPUTATIONS OF INCOME SUBMITTE D BY THE ASSESSEE. IN THE CASE OF M/S ARORA ALLOYS LTD, (SUPRA) WHICH WAS RELIED UPON BY THE ASSESSEE, THE TRIBUNAL HAS GIVEN A SPECIFIC FINDING THAT THE ADDL CIT THEREIN HAS DULY CONSIDERED AND DEALT WITH ALL THE RELEVANT ASPECT OF THE CASE, WHICH IS VERY MUCH ABSENT IN THE INSTANT CASE. HENCE I.T.A. NOS. 352-364/COCH/2010 10 WE ARE OF THE VIEW THAT THE ASSESSEE COULD NOT TAKE SUPPORT FROM M/S ARORA ALLOYS LTD (SUPRA). 11. IT IS THE CONTENTION OF THE ASSESSEE THAT THE L D.CIT HAS INITIATED THE IMPUGNED REVISION PROCEEDINGS ON THE BASIS OF REQUEST RECEIV ED FROM DY.CIT AND FOR THIS SUBMISSION, THE ASSESSEE HAS RELIED UPON A LETTER D ATED 04-03-2010 REFERRED (SUPRA). IN THIS REGARD, THE DECISION OF DELHI BENCH OF TRIB UNAL IN THE CASE OF APOLLO TYRES LTD, SUPRA COMES HANDY FOR THE DEPARTMENT, WHERE IN IT I S HELD THAT THE ACT DOES NOT PRESCRIBE ANY LIMITATION THAT THE COMMISSIONER SHOU LD SUO MOTU CALL FOR AND EXAMINE THE RECORD AND HE CANNOT TAKE INTO CONSIDERATION OR RELY UPON ANY REPORT OR INFORMATION WHICH MAY BE SUPPLIED TO HIM BY THE OTHER OFFICERS OF THE DEPARTMENT. IT IS ALSO HELD THEREIN THAT THE AUTHORITY OF THE COMMISSIONER TO C ALL FOR AND EXAMINE THE RECORD ON THE BASIS OF ANY INFORMATION FROM ANY SOURCE OR SUO MOT U IS PURELY AN ADMINISTRATIVE MATTER. HENCE, WE AGREE WITH THE CONTENTIONS OF THE LD.DR THAT THE SAID LETTER IS AN INTERNAL ADMINISTRATIVE DOCUMENT AND IT IS NOT A CA SE WHERE THE LD.CIT HAS INITIATED THE REVISION PROCEEDINGS WITHOUT APPLICATION OF MIND. IN THE REVISION ORDER, NOWHERE IT IS STATED THAT THE SAID PROCEEDINGS WERE INITIATED ON THE REQUEST OF THE DY.CIT. ON THE CONTRARY, THE LD.CIT HAS CLEARLY DISCUSSED THE FACT S OF THE CASE AND BROUGHT OUT AS TO HOW THE IMPUGNED ASSESSMENT ORDERS ARE ERRONEOUS AN D PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDINGLY WE REJECT THE SUBMISSIONS MADE BY THE LD.AR IN THIS REGARD. 12. THE LD.AR ALSO SUBMITTED THAT THE AO HAS TAKEN ONE OF THE POSSIBLE VIEWS AND HENCE THE LD.CIT SHOULD NOT HAVE REVISED THE ASSESS MENT ORDER U/S 263 OF THE ACT. AS SUBMITTED BY THE LD D.R, THE LD CIT HAS INITIATED T HE REVISION PROCEEDINGS AS HE WAS OF THE VIEW THAT THE AO DID NOT CARRY OUT NECESSARY IN QUIRIES, I.E., THERE IS LACK OF APPLICATION OF MIND ON THE PART OF THE AO AS WELL A S ON THE PART OF THE ADDL. CIT. WE NOTICE THAT, IN THE INSTANT CASE, THE LD.CIT HAS ON LY DIRECTED THE AO TO VERIFY WHETHER THE INCOME OFFERED BY THE ASSESSEE WAS IN ACCORDANC E WITH THE PROPOSAL AGREED TO BY IT BEFORE THE ADDL CIT, AS THE INCOME OFFERED AND ASSE SSED IN THE HANDS OF THE ASSESSEE, IN THE OPINION OF THE LD.CIT, WAS NOT IN ACCORDANCE WITH THE SAID PROPOSAL. IN THE CASE OF VERIFICATION OF FACTS, IN OUR VIEW, THERE IS NO SCOPE FOR TAKING ANY POSSIBLE VIEW. I.T.A. NOS. 352-364/COCH/2010 11 13. IN VIEW OF THE FOREGOING DISCUSSIONS, WE DO NOT FIND ANY INFIRMITY IN THE REVISION ORDERS PASSED BY LD.CIT. THE SAID DECISION SHALL A LSO APPLY TO THE TWO OTHER ASSESSES, VIZ., M/S POPULAR FINANCE AND M/S POPULAR FINANCE C O. 14. ACCORDINGLY WE DISMISS ALL THE APPEALS FILE D BY THE ASSESSEES. PRONOUNCED ACCORDINGLY ON ____19TH_______ APRIL, 2 012 . SD/- SD/- (N.R.S.GANESAN) (B.R. BASKARA N) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 19TH APRIL, 2012 COPY TO: 1.M/S. POPULAR MINI FINANCIERS, VAKAYAR, KONNI, PAT HANAMTHITTA. 2.M/S. POPULAR FINANCIERS, VAKAYAR, KONNI, PATHNAMT HITTA. 3. M/S. FINANCE CO., VAKAYAR, KONNI, PATHNAMTHITTA. 4. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRA L CIRCLE(1/C), KOTTAYAM. . 5.. THE COMMISSIONER OF INCOME-TAX (CENTRAL), KOCHI . 6. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM 7. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 8. GUARD FILE . BY ORDER (ASSISTANT REGISTRAR) ITAT, COCHIN