ASHOKKUMAR RUIA (HUF), MUMBAI V. ITO WD 18(2)(4), MUMBAI

ITA 369/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54913 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 14-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS USHA NAIR
• Keywords: Search and seizure; Speculation loss
• Section: 143(3); 263

Judgement Text

ITA NO.369/MUM/2010 IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A MUMBAI BEFORE SHRI PRAMOD KUMAR, AM & SHRI VIJAY PAL RAO, JM I.T.A.NO.369/MUM/2010 (A.Y 2005-06) ASHOK KUMAR RUIA (HUF) 462 THE PHOENIX MILL COMPOUND SENAPATI BAPAT MARG MUMBAI 13 VS. THE INCOME TAX OFFICER WARD 18(2)(4), MUMBAI APPELLANT RESPONDENT PAN NO. AACHA6159A APPELLANT BY SHRI ASHISH MEHTA RESPONDENT BY MRS USHA NAIR DATE OF HEARING 3 RD AUG 2011 DATE OF PRONOUNCEMENT 12 AUG 2011 ORDER PER VIJAY PAL RAO, JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E REVISION ORDER DATED 2 ND DEC 2009 OF THE CIT PASSED U/S 263 OF THE I T ACT F OR THE AY 2005-06. 2 THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A)ERRED IN INVOKING THE PROVISIONS OF SEC. 263 THEREBY ASSUMING JURISDICTION UNDER THE SAID PROVISIONS AND SET ASID E THE ASSESSMENT ORDER FOR AY 2005-06 WITH DIRECTION TO PASS FRESH ASSESSMENT ORDER THOUGH THE ORDER PASSED BY THE AO DATED 24.12.2007 WAS NEITHER ERRON EOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE SO AS TO WARRANT ACT ION U/S 263. THE APPELLANT PRAYS THAT ORDER OF THE AO MAY BE RESTORED AND ORDE R PASSED U/S 263 DT 2.12.2009 MAY BE SET ASIDE. ITA NO. 363/MUM/2010 2 3 THE ASSESSEE FILED ITS RETURN OF INCOME ON 27.10 .2005 DECLARING TOTAL INCOME AT RS. 2,.25,303/-. THE ASSESSMENT WAS COMPLETED U/S 1 43(3) ON 24.12.007 ON A TOTAL INCOME OF RS. 67,25,300/-. SUBSEQUENTLY THE CIT PR OPOSED TO TAKE ACTION U/S 263 WITH REGARD TO THE INCOME OF RS. 65 LACS ASSESSED BY THE AO UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS WELL AS ON THE ISSUE OF SEGREGA TION OF SPECULATION BUSINESS AND INVESTMENT IN SHARES. THE CIT, IN THE SHOW CAUSE NOTICE, HAS NOTED THE FACT THAT THE AO HAS WRONGLY ASSESSED RS. 65 LACS AS INCOME FROM HOUSE PROPERTY WHEREAS IN THE OPINION OF THE CIT, THE SAME SHOULD HAVE BEEN ASSES SED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE OBJECTED TO THE PROPOSED TREATMENT OF THE INCOME AS INCOME FROM OTHER SOURCE INSTEAD OF IN COME FROM HOUSE PROPERTY BY FILING REPLY DATED 30.10.2009 AND LETTER DATED 1.12 .2009. THE CIT DID NOT AGREE WITH THE REPLY AND THE EXPLANATION OF THE ASSESSEE AND H ELD THAT THE ASSESSMENT PASSED BY THE AO IS ERRONEOUS AS WELL AS PREJUDICIAL TO TH E INTEREST OF THE REVENUE AND DESERVES TO BE SET ASIDE. ACCORDINGLY, VIDE IMPUGN ED ORDER, THE AO WAS DIRECTED TO DO IT AFRESH AFTER COLLECTING ALL THE NECESSARY MAT ERIAL. 4 WE HAVE HEARD THE LD AR OF THE ASSESSEE AND THE L D DR AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS EVIDENT FROM T HE ASSESSMENT ORDER THAT THE ASSESSEE HAD ADMITTED THE LICENSE FEE OF RS. 65 LACS AS BUSI NESS INCOME, WHICH WAS QUESTIONED BY THE AO DURING THE ASSESSMENT PROCEEDI NGS. THE AO ISSUED LETTER DATED 8.10.2007 TO THE ASSESSEE AND ASKED TO SUBMIT THE DETAILS OF LICENSE FEES RECEIVED FROM PHOENEIX MILLS. THE AO AGAIN WRITTEN A LETTER ON 25. 11.2007 IN HIS REGARD. THEREAFTER, THE AO HAS ASSESSED THE LICENS E FEE AS INCOME FROM HOUSE PROPERTY. 4.1 AS REGARDS THE LOSS ON DERIVATIVES AND SHARE TR ADING, THE AO TREATED THE LOSS ON DERIVATIVES AS SPECULATION IN NATURE. IT IS EV IDENT FROM THE ASSESSMENT ORDER THAT ITA NO. 363/MUM/2010 3 THE AO ISSUED A LETTER DATED 13.2.2007 AND THE ASSE SSEE WAS ASKED TO EXPLAIN AS TO WHY THE NET LOSS ON DERIVATIVES AND TRADING IN SHAR E CLAIMED IN P&L ACCOUNT SHOULD NOT BE DEEMED TO BE A SPECULATION TRANSACTION AS PE R SEC.43(5) OF THE I T ACT. AFTER CONSIDERING THE REPLY AND THE EXPLANATION OF THE AS SESSEE VIDE LETTER DATED 20.12.2007, THE AO COMPUTED THE SPECULATION LOSS AT RS. 79,90,860/-. THUS, IT IS MANIFEST FROM THE ASSESSMENT ORDER THAT THE AO HAS DULY EXAMINED BOTH THE ISSUES WHILE FRAMING THE ASSESSMENT AND AFTER APPLYING HIS MIND HAS TAKEN A VIEW. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAD CHALLENGED BOTH THE ISSUES BEFORE THE CIT(A) AND THIS FACT HAS ALSO BEEN TAKEN A NOTE BY THE CI T WHILE PASSING THE REVISION ORDER U/S 263. 4.2 ONE MORE ASPECT HAVING DIRECT BEARING, ON THE I SSUE IS A SEARCH AND SEIZURE ACTION, WHICH WAS CARRIED OUT AT THE RESIDENTIAL A ND BUSINESS PREMISES OF PHOENIX GROUP ON 20.2.2008 AND THEREAFTER THE ASSESSMENT U/ S 153C R.W.S 143(3) OF THE I T ACT WAS FRAMED ON 29.12.2010 FOR THE AY UNDER CONSIDERA TION. IN THE SAID ORDER PASSED U/S 153C R.W.S 143(3), THE AO COMPUTED THE SPECULAT ION LOSS AS IT WAS ASSESSED IN THE ORIGINAL ASSESSMENT ORDER. HOWEVER, THE INCOME ASS ESSED AS INCOME FROM HOUSE PROPERTY IN THE ORIGINAL ASSESSMENT HAS BEEN ASSESS ED AS INCOME FROM OTHER SOURCES. THEREFORE, BOTH THE ISSUES HAVE BEEN AGAIN ADJUDI CATED BY THE AO WHILE PASSING THE ASSESSMENT U/S 153C W.E.F 143(3). THERE IS NO AMBIGUITY ABOUT THE FACT THAT THE AO HAS TAKEN A VIEW ABOUT THE ISSUES, WHICH ARE SUB JECT MATTER OF REVISION ORDER U/S 263 AND THEREFORE, WHEN THE AO APPLIED HIS MIND AND TAKEN A POSSIBLE VIEW, THEN THE CIT CANNOT ASSUME JURISDICTION U/S 263 MERELY B ECAUSE HE DOES NOT AGREE WITH THE VIEW TAKEN BY THE AO. 4.3 IT IS SETTLED PROPOSITION OF LAW THAT WHEN THER E ARE TWO POSSIBLE VIEWS IN A MATTER AND THE AO HAS TAKEN A PARTICULAR VIEW, THEN THE CIT, WHO DOES NOT AGREE WITH THE VIEW TAKEN BY THE AO, DOES NOT RENDER THE ASSESSMENT AS ERRONEOUS AND ITA NO. 363/MUM/2010 4 PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE HO NBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO LTD VS CIT REPORTED IN 243 I TR 83 HAS OBSERVED AS UNDER: 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 OF THE R EVENUE. FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PE RMIS- SIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE ; OR WHERE TWO VIEW S ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH TH E 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 INCOM E-TAX OFFICER IS UNSUSTAINABLE IN LAW. IT HAS BEEN HELD BY THIS COUR T THAT WHERE A SUM NOT EARNED BY A PERSON IS ASSESSED AS INCOME IN HIS HA NDS ON HIS SO OFFERING, THE ORDER PASSED BY THE ASSESSING OFFICER ACCEPT- ING T HE SAME AS SUCH WILL BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. RAMPYARI DEVI SARAOGI V. CIT [1968] 67 ITR 84 (SC) AND IN SMT. T ARA DEVI AGGARWAL V. CIT [1973] 88 ITR 323 (SC). IN THE INSTANT CASE, THE COMMISSIONER NOTED THAT TH E INCOME-TAX OFFICER PASSED THE ORDER OF NIL ASSESSMENT WITHOUT APPLICAT ION OF MIND. INDEED, THE HIGH COURT RECORDED THE FINDING THAT THE INCOME-TAX OFFICER FAILED TO APPLY HIS MIND TO THE CASE IN ALL PERSPECTIVE AND THE ORD ER PASSED BY HIM WAS ERRONEOUS. IT APPEARS THAT THE RESOLUTION PASSED BY THE BOARD OF THE APPELLANT-COMPANY WAS NOT PLACED BEFORE THE ASSESSI NG OFFICER. THUS, THERE WAS NO MATERIAL TO SUPPORT THE CLAIM OF THE APPELLA NT THAT THE SAID AMOUNT REPRESENTED COMPENSATION FOR LOSS OF AGRICULTURAL I NCOME. HE ACCEPTED THE ENTRY IN THE STATEMENT OF THE ACCOUNT FILED BY THE APPELLANT IN THE ABSENCE OF ANY SUPPORTING MATERIAL AND WITHOUT MAKING ANY INQU IRY. ON THESE FACTS THE CONCLUSION THAT THE ORDER OF THE INCOME-TAX OFFICER WAS ERRONEOUS IS IRRESISTIBLE. WE ARE, THEREFORE, OF THE OPINION THAT THE HIGH CO URT HAS RIGHTLY HELD THAT THE EXERCISE OF THE JURISDICTION BY THE COMMIS- SIONER UNDER SECTION 263(1) WAS JUSTIFIED. 5 IT IS NOT THE CASE OF THE REVENUE THAT THE AO HA S NOT TAKEN A VIEW OR HE HAS NOT APPLIED HIS MIND WHILE PASSING THE ASSESSMENT O RDER WITH RESPECT TO THE ISSUES ON WHICH THE CIT HAS PASSED THE REVISION ORDER. 6 IN THE CASE IN HAND, THE AO HAS DULY EXAMINED AND ADDRESSED THE ISSUES WHILE PASSING THE ASSESSMENT ORDER; THEREFORE, THE REVISI ON ORDER PASSED BY THE CIT IS NOT SUSTAINABLE IN LAW ON THIS SHORT POINT. HOWEVER, I N VIEW OF THE FACT THAT BOTH THE ISSUES ITA NO. 363/MUM/2010 5 WERE CHALLENGED BY THE ASSESSEE BEFORE THE CIT(A) A ND AS PER CLAUSE (C) OF EXPLANATION TO SEC. 263(1), COMMISSIONERS POWER EX TENT TO SUCH MATTER AS HAS NOT BEEN CONSIDERED AND DECIDED IN APPEAL. THEREFORE, O NCE THE ISSUE IS BEFORE THE APPELLATE AUTHORITY, WHO HAS CO-TERMINUS POWER AS O F THE AO AND THE CIT(A) IS HAVING POWERS TO ENHANCE THE ASSESSMENT, THEN THE COMMISSIONER CANNOT INVOKE HIS JURISDICTION U/S 263 ON THE ISSUES WHICH ARE PENDIN G BEFORE THE APPELLATE AUTHORITY. 6.1 FURTHER, ONE MORE DEVELOPMENT HAS TAKEN PLACE I N THIS CASE WHEN THE ASSESSMENT FOR THE ASSESSMENT YEAR UNDER CONSIDERAT ION HAS BEEN FRAMED U/S 153C R.W.S 143(3) AND THE AO HAS AGAIN EXAMINED AND ADJU DICATED BOTH THE ISSUES. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AND PARTI CULARLY WHEN THE AO, IN THE ORIGINAL ASSESSMENT ORDER HAS TAKEN A POSSIBLE VIEW , THE IMPUGNED ORDER PASSED U/S 263 WOULD NOT STAND TO THE TEST OF LEGALITY; ACCORD INGLY, THE SAME IS SET ASIDE. 7 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED ON THE 12 TH , DAY OF AUG 2011 SD/ SD/ (PRAMOD KUMAR) ( VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 12 TH , AUG 2001 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI