S.B.S. CLOTHING P. LTD, MUMBAI V. CIT -7, MUMBAI

ITA 3541/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55791 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 11-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 05-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS KU SUM INGALE
• Assessee Lawyers: HARSHVARDHAN DATAR
• Keywords: Speculation loss
• Section: 143(3); 142(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J : MUMBAI BEFORE SHRI R.S. PADVEKAR, ( JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.3541/MUM/2010 ASSESSMENT YEAR : 2005-06 SBS CLOTHING (P) LTD. C/O., JAYESH SANGHRAJKA & CO. CHARTERED ACCOUNTANTS UNIT NO.405 HIND RAJASTHAN CENTRE D.S. PHALKE ROAD DADAR (E) MUMBAI-400 014. ..( APPELLANT ) P.A. NO. ( AAGCS 7908 A ) VS. DY. COMMISSIONER OF INCOME TAX CIRCLE- 7(2) MUMBAI. .( RESPONDENT ) APPELLANT BY : SHRI HARSHVARDHAN DATAR RESPONDENT BY : MRS. KUSUM INGALE DATE OF HEARING : 11.10.2011 DATE OF PRONOUNCEMENT : 28 TH OCTOBER, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30.3.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2005-06 . THE ASSESSEE IN THIS APPEAL HAS CHALLENGED THE JURISDICTION OF CIT UNDER SECTION 263 OF THE INCOME TAX ACT, IN ADDITION TO RAISING A GROUND REGARDING LACK OF ADEQUATE OPPORTUNITY BY THE CIT. AT THE TIME OF HEARING LD. AR FOR THE ASSESSEE DID ITA NO.3541/M/10 A.Y:05-06 2 NOT PRESS THE GROUND RELATING TO LACK OF ADEQUATE O PPORTUNITY. THEREFORE, GROUND NO.2 RAISED BY THE ASSESSEE IS DISMISSED AS NOT PRESSED. 2. THE FACTS RELATING TO THE GROUND REGARDING THE J URISDICTION OF CIT UNDER SECTION 263 ARE THAT ASSESSMENT FOR ASSESSMENT YEAR 2005-06 HAD BEEN COMPLETED BY AO UNDER SECTION 143(3) ON 7.12.2007. SUBSEQUENTLY CIT ON EXAMINATION OF RECORDS NOTED THAT EMPLOYEES REMUNE RATION PAID BY THE ASSESSEE DURING THE YEAR HAD INCREASED 5-FOLD TO RS .2,04,98,187/- AS COMPARED TO RS.46,35,046/- IN THE IMMEDIATELY PRECE DING YEAR, THOUGH THERE WAS NO SUBSTANTIAL RISE IN THE TURNOVER. THE AO HAS ALLOWED THE SAME WITHOUT EXAMINATION. CIT THEREFORE, ISSUED A SHOW CAUSE NOT ICE DATED 2.3.2010 ASKING THE ASSESSEE TO EXPLAIN AS TO WHY THE ASSESS MENT SHOULD NOT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF THE REVENUE AS AO HAD ACCEPTED THE CLAIM WITHOUT ANY EXAMINATION. CIT HA D FIXED THE CASE ON 9.3.2010 BUT THERE WAS NO COMPLIANCE. SUBSEQUENTLY , THE ASSESSEE VIDE LETTER DATED 22.3.2010 INFORMED CIT THAT NOTICE HAD BEEN RECEIVED ONLY ON 19.3.2010. HOWEVER, ON PERUSAL OF THE LETTER OF TH E ASSESSEE WHICH HAD ALSO ENCLOSED PART OF THE NOTICE UNDER SECTION 263, CIT NOTED THAT THE NOTICE HAD BEEN RECEIVED BY THE ASSESSEE ON 13.3.2010. THEREFO RE, CIT DID NOT BELIEVE THE VERSION OF THE ASSESSEE AND CONCLUDED THAT THE NOTICE SENT BY SPEED POST TO THE ASSESSEE MUST HAVE BEEN RECEIVED BY THE ASSE SSEE ON 6.3.2010. CIT THEREFORE PASSED AN EXPARTE ORDER ON MERIT. IT WAS OBSERVED BY HIM THAT THE AO HAD ALLOWED THE CLAIM OF THE ASSESSEE WITHOUT AN Y APPLICATION OF MIND, AND, THEREFORE, ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE IN VIEW OF THE JUDGMENT OF THE HON'BLE SUPRE ME COURT IN CASE OF ITA NO.3541/M/10 A.Y:05-06 3 M/S. MALABAR INDUSTRIAL CO. LTD. VS. CIT (243 ITR 8 3) AND SEVERAL OTHER JUDGMENTS. CIT, THEREFORE, SET ASIDE THE ORDER OF ASSESSMENT AND DIRECTED THE AO TO PASS A FRESH ORDER AFTER NECESSARY ENQUIR IES AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 3. THE ASSESSEE AS POINTED OUT EARLIER HAS NOT PRES SED THE GROUND RELATING TO LACK OF OPPORTUNITY BY THE CIT. AS REGA RD THE MERIT OF THE CASE, LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTE D THAT THE AO HAD ISSUED A QUESTIONNAIRE WITH THE NOTICE DATED 25.10.2007 UN DER SECTION 142(1) IN WHICH AO IN Q.NO.7 HAD SPECIFICALLY ASKED THE REASO NS FOR EXORBITANT RISE IN SALARIES FROM RS .28.00 LACS TO RS.1.49 CRORES. THE ASSESSEE HAD GI VEN REPLY VIDE LETTER DATED 19.11.2007 COPY OF WHICH HAS BEEN PLACED AT PAGE-9 OF THE PAPER BOOK IN WHICH THE ASSESSEE HAD EXPLAINED THAT THE REASON FOR SUBSTANTIAL INCREASE IN SALARY COMPARED TO THE ASSE SSMENT YEAR 2004-05 WAS THAT IN THAT YEAR THE ASSESSEE HAD ENGAGED JOB WORK ERS WHO HAD BEEN SEPARATELY AND WHICH HAD BEEN ADDED TO THE COST OF SALES WHEREAS IN ASSESSMENT YEAR 2005-06 UNDER CONSIDERATION, THE SA ID JOB WORKERS WERE TAKEN ON PAY ROLL AND WERE PAID SALARY. THE LD. AU THORISED REPRESENTATIVE ALSO REFERRED TO THE LETTER DATED 25.2.2010 ADDRES SED TO CIT A COPY OF WHICH IS PLACED AT PAGE 16 OF THE PAPER BOOK IN WH ICH THE AO MENTIONED THAT REASONS FOR EXORBITANT RISE IN SALARY HAD BEEN EXAMINED BY AO AND THEREFORE, OBJECTION RAISED BY AUDIT PARTY WAS NOT ACCEPTABLE. IT WAS THUS ARGUED THAT THE AO HAD ALLOWED THE CLAIM AFTER NECE SSARY EXAMINATION AND APPLICATION OF MIND AND ORDER WAS NOT ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LD. AR PLACED RELIAN CE ON THE DECISION OF THE ITA NO.3541/M/10 A.Y:05-06 4 TRIBUNAL IN THE CASE OF SYNERGY ENTREPRENEUR SOLUTI ONS P. LTD. IN ITA NO.3076/M/2010 DATED 31.3.2011 IN SUPPORT OF THE CA SE. IT WAS ACCORDINGLY URGED THAT THE ORDER OF CIT(A) SHOULD BE SET ASIDE. 3.1 THE LD. DR ON THE OTHER HAND STRONGLY SUPPORTED THE ORDER OF CIT. IT WAS SUBMITTED THAT THE REPLY GIVEN BY THE ASSESSEE VIDE LETTER DATED 19.11.2007 EXPLAINING THE STEEP RISE IN SALARY PAYM ENT HAD NOT BEEN EXAMINED BY THE AO AND HE ALLOWED THE CLAIM AS MADE BY THE ASSESSEE WITHOUT ANY EXAMINATION. THEREFORE, THE ORDER WAS E RRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING LEGAL VALIDITY OF THE JURISDICTION UNDER SECTION 263 OF THE INCOME TAX ACT EXERCISED BY CIT. UNDER PROVISION OF SECTION 263 CIT IS EMPOWERED TO MODIFY THE ASSESSME NT ORDER PASSED BY AO IN CASE, THE ORDER IS FOUND TO BE ERRONEOUS AND PRE JUDICIAL TO THE INTEREST OF REVENUE. A STEREOTYPED ORDER PASSED WITHOUT MAKING ENQUIRIES WHICH ARE CALLED FOR ON THE FACTS OF THE CASE IS ERRONEOUS WH ICH CAUSES PREJUDICE TO THE INTEREST OF THE REVENUE AS HELD BY HON'BLE SUPREME C OURT IN THE CASE OF RAMPYARI DEVI SARAOGI (67 ITR 84). THE SAME VIEW W AS FOLLOWED BY THE HON'BLE SUPREME COURT IN THE CASE OF TARADEVI AGGARW AL (88 ITR 323). FOLLOWING THE AFORESAID JUDGMENTS THE HONBLE HIGH C OURT OF DELHI IN CASE OF GEE VEE ENTERPRISES (99 ITR 375) HAVE HELD THAT AN ORDER IS ERRONEOUS NOT ONLY BECAUSE IT CONTAINS SOME APPARENT ERROR OF REA SONING OR OF LAW OR OF FACT ITA NO.3541/M/10 A.Y:05-06 5 IN THE FACE OF IT BUT ALSO BECAUSE IT IS A STEREOTY PED ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS STATED AND FAILS TO M AKE ENQUIRIES WHICH ARE CALLED FOR ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. IT IS THUS SETTLED LEGAL POSITION THAT AN ORDER PASSED WITHOUT NECESSA RY EXAMINATION/ENQUIRY WHICH ARE REQUIRED ON THE FACTS OF THE CASE IS ERRO NEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 4.1 IN THIS CASE, THERE WAS 5-FOLD INCREASE ON ACCO UNT OF PAYMENT OF SALARY WHEN THERE WAS NO SUBSTANTIAL INCREASE IN THE TURNO VER. THE AO VIDE NOTE DATED 25.10.2007 HAD ASKED FOR REASONS FOR EXORBITA NT RISE IN SALARY TO WHICH ASSESSEE FILED LETTER DATED 19.11.2003 REPLIE D THAT THE SAME WAS BECAUSE OF PAYMENT MADE TO JOB WORKERS IN THE EARLI ER YEARS WHEREAS IN THE CURRENT YEAR JOB WORKERS HAD BEEN TAKEN ON SALARY B ASIS AND SALARY HAD BEEN PAID TO THEM. THE ORDER OF ASSESSMENT SHOWS THAT T HE AO ACCEPTED THE SAID CLAIM OF THE ASSESSEE WITHOUT ANY FURTHER ENQUIRY O R EXAMINATION. ONCE, THE ASSESSEE MAKES A PARTICULAR CLAIM, IT IS REQUIRED T O BE EXAMINED AND IN CASE AO ACCEPTS THE CLAIM WITHOUT ANY EXAMINATION OR ENQ UIRY, THE ORDER WILL BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. THEREFORE, ON THE FACTS OF THE CASE WE ARE OF THE VIEW THAT THE CIT H AD JURISDICTION UNDER SECTION 263 OF THE IT ACT WHICH HAS BEEN RIGHTLY EX ERCISED BY HIM. CIT IS NOT BOUND BY THE REPORT OF AO. HE HAS TO PASS THE ORDER AFTER NECESSARY APPLICATION OF MIND, WHICH HAS BEEN FOLLOWED IN THI S CASE. THE LD. AR HAS RELIED UPON THE DECISION IN THE CASE OF SYNERGY ENT REPRENEUR SOLUTIONS P. LTD. (SUPRA), WHICH IN OUR VIEW IS DISTINGUISHABLE. IN T HAT CASE THE TRIBUNAL NOTED ITA NO.3541/M/10 A.Y:05-06 6 THAT THE CIT HAD HELD THE ASSESSMENT ORDER TO BE ER RONEOUS AND PREJUDICIAL ON A GROUND DIFFERENT FROM THE GROUND TAKEN IN THE SHOW CAUSE NOTICE WHICH WAS NOT PERMISSIBLE UNDER LAW. MOREOVER, THE TRIBUN AL ALSO NOTED THAT EVEN ON MERIT, THE ISSUE OF SET OFF OF SPECULATION LOSS AGAINST BUSINESS PROFIT WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE JURISDICTI ONAL HIGH COURT IN THE CASE OF CIT VS. LOKMAT NEWSPAPER (322 ITR 43) IT WAS UND ER THESE CIRCUMSTANCES THAT THE ORDER OF CIT WAS HELD TO BE DEVOID OF ANY MERIT. THE CASE IS OBVIOUSLY DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 5. IN VIEW OF THE FOREGOING DISCUSSION, WE DO NOT S EE ANY INFIRMITY IN THE ORDER OF THE CIT HOLDING THE ASSESSMENT ORDER OF AO TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE OR DER OF CIT IS ACCORDINGLY UPHELD. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.10.2011. SD/- SD/- (R.S. PADVEKAR) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 28.10.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.