L & T KOMATSU LTD, MUMBAI V. CIT -2, MUMBAI

ITA 4147/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3571 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-02-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 19-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SURINDER JIT SINGH
• Assessee Lawyers: HEENA DOSHI
• Keywords: Principle of natural justice
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI .. , ! , '# ' $ BEFORE SHRI I. P. BANSAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NO. 4147/MUM/2011 ( & ' (' & ' (' & ' (' & ' (' / / / / ASSESSMENT YEAR: 2005-06) L & T KOMATSU LTD. TAXAION DEPT., L & T HOUSE, 3 RD FLOOR, N. M. MARG, BALLARD ESTATE, MUMBAI-400 001 & & & & / VS. CIT 2, ROOM NO.344, AAYAKAR BHAVAN, M. K. MARG, MUMBAI-400 020 ) ' # ./ * ./ PAN/GIR NO. : AAACL 4175 C ( )+ / APPELLANT ) : ( ,-)+ / RESPONDENT ) )+ . ' / APPELLANT BY : MS. HEENA DOSHI ,-)+ / . ' / RESPONDENT BY : SHRI SURINDER JIT SINGH & / 01# / // / DATE OF HEARING : 13.06.2013 2 ( / 01# / DATE OF PRONOUNCEMENT : 21.06.2013 '3 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX-2, MUMBAI (CIT FOR SHORT) DATED 23. 03.2011, PASSED U/S.263 OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR TH E ASSESSMENT YEAR (A.Y.) 2005-06 IN ITS CASE, SETTING ASIDE THE ASSESSEES ASSESSMENT U /S.143(3) OF THE ACT DATED 12.12.2008 FOR THAT YEAR. 2 ITA NO. 4147/MUM/2011 (A.Y. 2005-06) L & T KOMATSU LTD. VS. CIT 2.1 EXPLAINING THE ASSESSEES CASE, IT WAS SUBMITTE D BY THE LD. AR, THE ASSESSEES COUNSEL, THAT THE ONLY ASPECT OF THE ASSESSMENT WIT H WHICH THE LD. CIT HAS FOUND FAULT WITH IS THAT THE ASSESSEE IS MAINTAINING ITS ACCOUN TS ON AN EXCLUSIVE BASIS, I.E., VALUING ITS INVENTORIES AS WELL AS PURCHASES AND SALES, AT NET OF EXCISE DUTY, WHICH IS BEING ACCOUNTED FOR SEPARATELY. THOUGH, THEREFORE, ADMITTEDLY THERE IS A TECHNICAL BREACH OF SECTION 145A OF THE ACT, THE METHOD AND THE PRESENTATION OF THE ASSESSEES ACCOUNTS IS TAX-NEUTRAL, I.E., WITH REFERENCE TO SECTION 145A OF THE ACT. NO PREJU DICE IS AS SUCH CAUSED TO THE REVENUE. AN ORDER TO BE LIABLE TO REVISION U/S.263 HAS TO BE BOTH ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LD. CIT HAS FAILED TO CONSIDER THIS ASPECT OF THE MATTER. ON A QUERY BY THE BENCH AS TO WHETHER THE ASSESSING OFFICER (A.O.) HAD EXAMINED THIS ASPECT, IT WAS CONCEDED BY THE LD. AR THAT THE A.O. DID NOT EXAMINE THIS ISSUE, AND NEITHER WAS THE SAME RAISED BEFORE HIM, EVEN AS THE IMPACT ON THE BOOK PROFIT, I.E., OF FOLLOWING THE EXCLUSIVE METHOD OF ACCOUNTING, HAD B EEN CLEARLY INDICATED BY THE TAX AUDITORS, THE RELEVANT ASPECT BEING A SUBJECT MATTE R OF THE AUDIT REPORT U/S.44AB OF THE ACT, ADVERTING OUR ATTENTION TO ANNEXURE-3 THERETO, PLACED AT PAGE 12 OF THE ASSESSEES PAPER-BOOK (PB). THE SAME CLEARLY SHOWS THE NET IMP ACT ON THE BOOK PROFIT TO BE NIL. ON A FURTHER QUERY BY THE BENCH AS TO WHETHER THE PLEA OF SECTION 145A BEING TAX-NEUTRAL IN ITS CASE STOOD RAISED BEFORE THE LD. CIT, SHE REPLI ED IN THE AFFIRMATIVE; THE SAME FORMING PART OF THE ASSESSEES OBJECTIONS DATED 03/7/2009 T O THE NOTICE U/S.263 (PB PGS. 8-19). HOWEVER, SHE CONTINUED, HE HAS ONLY DEALT WITH THE MATTER IN A SUMMARY FASHION. SHE WOULD THOUGH FURTHER ADD THAT ANY ADJUSTMENT ON ACC OUNT OF UNUTILIZED CENVAT CREDIT COULD BE ONLY WITH REFERENCE TO THE INVENTORIES IN STOCK, AND NOT THAT CONSUMED DURING THE YEAR, AS THE SAME WOULD STAND TO BE ABSORBED THROUG H THE TRADING ACCOUNT TO THAT EXTENT. FURTHER, THE ADJUSTMENT FOR THE UNUTILIZED CENVAT C REDIT WOULD APPLY TO BOTH THE CLOSING AS WELL AS THE OPENING INVENTORIES, AND COULD NOT BE A PPLIED TO THE CLOSING INVENTORY ONLY, ON THE GROUND THAT THE VALUE OF THE OPENING STOCK G ETS CRYSTALLIZED ON THE BASIS OF THE VALUE OF THE CLOSING STOCK FOR THE IMMEDIATELY PREC EDING YEAR. SUITABLE DIRECTIONS IN THIS REGARD BE MADE IF THE IMPUGNED ORDER IS TO BE CONFI RMED. RELIANCE WAS PLACED BY HER ON THE DECISIONS BY THE TRIBUNAL IN SUPPORT OF THE SAI D PROPOSITIONS, AS WELL AS THE RECENT 3 ITA NO. 4147/MUM/2011 (A.Y. 2005-06) L & T KOMATSU LTD. VS. CIT DECISION BY THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. MAHALAXMI GLASS WORKS P. LTD. [2009] 318 ITR 116 (BOM) (COPY ON RECORD) AS WELL A S IN THE CASE OF CIT VS. KOLSITE MASCHINE FABRIK LTD. (IN ITA NO.302 OF 2009 DATED 20.04.2009) FOLLOWING IT. 2.2 THE LD. DR, ON THE OTHER HAND, WOULD SUPPORT TH E FINDINGS BY THE LD. CIT. THE MATTER HAD NOT BEEN EXAMINED AT ALL BY THE A.O., AN D WHICH WOULD, THEREFORE, RENDER THE ASSESSMENT ORDER PER SE ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTE REST OF THE REVENUE. THE LD. CIT HAS, VIDE PARA 5 OF HIS ORDER, FINALLY ONLY DIRECTED THE A.O. TO REDO THE ASSESSMENT AS PER LAW AFTER GIVING SUFFICIENT O PPORTUNITY TO THE ASSESSEE, SO THAT THE ARGUMENTS BEING ADVANCED BY THE LD. AR ON THE MERIT S OF THE CASE WOULD BE OF NO MOMENT. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD. OUR FIRST OBSERVATION IN THE MATTER IS THAT SECTION 145A IS A NON-OBSTANTE PROVISION, WHICH, THEREFORE, IS TO BE NECESSARILY FOLLOWED FOR THE PURPOSE OF RETURNING THE INCOME UNDER THE ACT. THIS IS, IN FACT, WHAT IN SUBSTANCE THE LD. CIT STATES WHEN HE DIRECTS THE AO TO REDO THE ASSESSMENT AS PER LAW. IF THERE IS N O TAX IMPACT, WHICH ASPECT HAS NOT BEEN EXAMINED BY THE ASSESSING AUTHORITY, RENDERING HIS ORDER AS LIABLE TO REVISION U/S.263, THERE WOULD BE NO CHANGE IN THE ASSESSEES INCOME A ND, CONSEQUENTLY, NO PREJUDICE CAUSED TO IT. IN FACT, THAT WOULD ONLY IMPLY OF THE ASSESSEES RETURN AS BEING IN TERMS OF S. 145A. WE WONDER WHY IT COULD NOT, IF THAT BE SO, HA VE SATISFIED THE LD. CIT ON THIS ASPECT OF THE MATTER; HE EXPRESSLY STATING HIS REASONS FOR NOT ACCEPTING THE ASSESSEES ARGUMENT OF NO TAX IMPACT VIDE PARA 3[(III) AND (IV)] OF HIS ORDER. IN FACT, THE TRIBUNAL PER ITS RECENT DECISION IN THE CASE OF HERCULES PIGMENT INDUSTRY VS. ITO (IN ITA NO.271/MUM/2012 DATED 29.05.2013) HAS EXAMINED THIS ISSUE IN DETAIL , COMING TO THE CONCLUSION THAT NOTWITHSTANDING THE CLAIMS MADE IN THIS REGARD, THE MANDATE OF THE SECTION 145A HAS TO BE SCRUPULOUSLY FOLLOWED. THE DIRECTION LD. CIT FOR OB SERVING THE LAW WOULD ALSO TAKE INTO ACCOUNT THE DECISIONS BY THE HONBLE COURTS, INCLUD ING BY THE HON'BLE JURISDICTIONAL HIGH COURT BEING RELIED UPON BY THE ASSESSEE BEFORE US. THE LD. AR DURING HEARING HAS INFORMED US THAT THE ASSESSING AUTHORITY HAS FURTHE R PROCEEDED TO ADD THE ENTIRE AMOUNT OF 4 ITA NO. 4147/MUM/2011 (A.Y. 2005-06) L & T KOMATSU LTD. VS. CIT UNUTILIZED CENVAT CREDIT OF RS.10.27 CRORES TO ITS INCOME, ATTRIBUTING THE ENTIRE OF IT TO THE CLOSING STOCK OF THE RAW MATERIAL. WE ARE UNABLE TO READ ANY SUCH INFERENCE AS ARISING FROM THE IMPUGNED ORDER, WITH WE HAVING FURTHER CLA RIFIED THAT ALL IT AMOUNTS TO IS OBSERVING THE PROVISION OF SECTION 145A FAITHFULLY. IF THE A.O. HAS ACTED IN DISREGARD AND VIOLATION OF THE DIRECTIONS BY THE LD. CIT HIS ACTI ON CANNOT BE SUSTAINED IN LAW AND, IS, IN FACT, REPREHENSIBLE, GIVEN THE CLEAR DIRECTIONS BY THE LD. CIT IN THE MATTER AS WELL AS THE CLEAR POSITION OF THE LAW PER BY A SERIES OF DECISI ONS. THE A.O. HAS, FIRSTLY, BY NOT DISCHARGING HIS OBLIGATIONS, BEING DUTY BOUND TO VE RIFY THE ASSESSEES RETURN AS BEING IN ACCORDANCE WITH THE LAW, AND THEN IN ACTING IN DISR EGARD OF THE DIRECTIONS BY THE LD. CIT, HAS PUT THE ASSESSEE TO INCONVENIENCE, AND WHICH CA NNOT BUT BE DEPRECIATED. AS REGARDS THE INVOCATION OF S. 263, THE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT [2000] 243 ITR 83 (SC) HAS LAID DOWN FOUR-WAY TEST FOR INVOCATION OF A PROVISION. SUCCINCTLY PUT, THESE AR E; INCORRECT ASSUMPTION OF FACTS; INCORRECT APPLICATION OF LAW; WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE; AND WITHOUT APPLICATION OF MIND. IT IS THE LAST CATEGO RY, IF NOT PERHAPS THE FIRST ONE AS WELL, WHICH ARISE IN THE INSTANT CASE, AND WHICH, THEREFO RE, WE ARE CONCERNED WITH. THE LAW IN THIS RESPECT IS FULLY DEVELOPED AND STABLE, SO THAT AN ORDER PASSED WITHOUT APPLICATION OF MIND IS PER SE ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTE REST OF THE REVENUE, AND TOWARD WHICH THE CASE LAW IS LEGION, RENDERED BOTH BEFORE AND AFTER THE SAID DECISION BY THE APEX COURT (INCLUDING THE TWO DECISIONS BY THE SAID COURT ITSELF REFERRED THEREIN, I.E., REPORTED AT 88 ITR 323 AND 67 ITR 84), SO THAT THE APEX COURT WAS, THUS, ONLY ARTICULATING THEREIN THE SETTLED LAW. NO CASE FOR NON-INVOCATION OF S. 263 IN THE FACTS AND CIRCUMSTANCES OF THE CASE IS MADE OUT. IN VIEW OF THE FOREGOING, WE, WHILE CONFIRMING THE INVOCATION OF SECTION 263 IN THE INSTANT CASE, DIRECT THE ASSESSING AUTHORITY TO OBS ERVE THE DIRECTIONS OF THE REVISIONARY AUTHORITY BOTH IN LETTER AND IN SPIRIT SO AS TO AVO ID MULTIPLICITY OF PROCEEDINGS. WE DECIDE ACCORDINGLY. 5 ITA NO. 4147/MUM/2011 (A.Y. 2005-06) L & T KOMATSU LTD. VS. CIT 4. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. 4 05 & '40 / #4 / 0 67 ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 21, 2013 '3 / 2 ( #' 8&59& 21 , 2013 / > SD/- SD/- (I. P. BANSAL) (SANJAY ARORA) / JUDICIAL MEMBER '# / ACCOUNTANT MEMBER MUMBAI; 8& DATED : 21.06.2013 .&../ ROSHANI , SR. PS '3 / ,0? @'?(0 '3 / ,0? @'?(0 '3 / ,0? @'?(0 '3 / ,0? @'?(0/ COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT 3. A ( ) / THE CIT(A) 4. A / CIT - CONCERNED 5. ?D> ,0& , , / DR, ITAT, MUMBAI 6. >E' F / GUARD FILE '3& '3& '3& '3& / BY ORDER, G GG G/ // /6 6 6 6 (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI