Crystal Pharmaceuticals, Ambala City V. CIT, Panchkula

ITA 439/CHANDI/2013

• Counselvise Citation: 43921514 RSA 2013
• Duration Of Justice: 2 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 22-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Period of limitation; Assessment record; Reassessment proceedings
• Section: 143(3); 147; 148; 263; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L. KARWA, HONBLE VICE PRESIDENT AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO.439/CHD/2013 ASSESSMENT YEAR:2006-07 CRYSTAL PHARMACEUTICALS VS. CIT #365, MODEL TOWN PANCHKULA AMBALA CITY PAN NO. AAAFC6802G (APPELLANT) (RESPONDENT) APPELLANT BY : SH. TEJ MOHAN SINGH RESPONDENT BY : SH. S.K. MITTAL DATE OF HEARING : 09/09/2015 DATE OF PRONOUNCEMENT :30/09/2015 ORDER PER ANNAPURNA MEHROTRA A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT, PANCHKULA PASSED UNDER SECTION 263 OF THE INCOME TA X ACT 1961 DT. 22/03/2013. 2. BRIEF FACTS OF THE CASE ARE THAT, SURVEY OPERATIONS WERE CONDUCTED ON THE ASSESSEE ON 12/08/2005 DURING THE COURSE OF WHICH T HE ASSESSEE DECLARED ADDITIONAL INCOME OF RS. 1,00,00,000/- ON ACCOUNT O F CASH FOR AY 2006-07, AND RS. 60,00,000/- ON ACCOUNT OF UNSECURED LOANS FOR AY 20 05-06. THEREAFTER, THE ASSESSEE FILED ITS RETURN FOR THE IMPUGNED AY DECLA RING TOTAL INCOME OF RS. 43,92,280/- , ON 31/10/2006. ASSESSMENT U/S 143(3) WAS FRAMED ON THE ASSESSEE AT AN INCOME OF RS. 1,08,92,280/- VIDE ORDER DT. 26/12 /2008. SUBSEQUENTLY, NOTICE U/S 148 WAS ISSUED TO THE ASSESSEE ON 11/02/2010. ASSES SMENT U/S 147/143(3) WAS COMPLETED VIDE ORDER DT. 29/07/2010 AT AN INCOME OF RS. 1,11,12,890/-AFTER MAKING DISALLOWANCE OF INTEREST AMOUNTING TO RS.2,2 0,614/-U/S 36(1)(III) OF THE ACT. THEREAFTER PROCEEDINGS UNDER SECTION 263 WERE INITI ATED AGAINST THE ORDER PASSED U/S 147/143(3) ON 29/07/2010, CONSIDERING IT AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON THE FOLLOWING GRO UNDS REPRODUCED IN THE ORDER OF THE CIT U/S 263 : 2 A PERUSAL OF ASSESSMENT RECORD REVEALED THAT ASSE SSEE HAD SHOWN SALES TURNOVER OF RS. 4,12,83,916/- IN ITS RETURN OF INCO ME ON THE BASIS OF AUDIT REPORT, BALANCE SHEET / PROFIT & LOSS ACCOUNT ETC. PREPARED BY SH. HARISH KUMAR, CHARTERED ACCOUNTANT ON 05/08/2006, WHEREAS SALES/T URNOVER OF RS. 8,21,20,978/- WAS SHOWN BY THE ASSESSEE ON THE BASIS OF ACCOUNTS PREPARED BY M/S ANIL RAJ & ASSOICATE, CHARTERED ACCOUNTANT, NEW DELHI ON 05/08 /2006, WHICH WERE SUBMITTED TO THE BANK AUTHORITIES. THUS, IT IS QUIT E CLEAR THAT ASSESSEE HAD TWO SETS OF ACCOUNT BOOKS. DURING THE ASSESSMENT PROCEEDINGS , THE AO REJECTED ASSESSEES BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE INCOME TAX ACT AND ADOPTED G.P. RATE OF 24.57% INSTEAD OF G.P. RATE 15 .3% THEREBY MAKING AN ADDITION OF 9.27% ON SALES OF RS. 4,12,83,916/- (BA SED ON ACCOUNT BOOKS PRODUCED BEFORE A.O.) AMOUNTING TO RS. 38,09,528/-. (II) SINCE BOOK OF ACCOUNTS WERE REJECTED UNDER SEC TION 145(3), THEREFORE, IN THE INTEREST OF REVENUE, HIGHER SALES OF RS. 8,21,20,97 8/- SHOULD HAVE BEEN TAKEN INTO ACCOUNT FOR COMPUTATION OF GROSS PROFIT. 3. IN THE COURSE OF PROCEEDING UNDER SECTION 263 TH E ASSESSEE SUBMITTED DETAILED ARGUMENTS, REPRODUCED IN PARA 2 OF THE ORDER. THE LD. CIT, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE HELD AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE ASSESSEE AND THE FACTS OF THE CASE. I HAVE ALSO GONE THROUGH THE VARIOUS C ASE LAWS RELIED UPON BY THE ASSESSEE IN ITS SUPPORT. THERE IS NO DENYING THE FA CT THAT THE ASSESSEE WAS MAINTAINING TWO SETS OF BOOKS OF ACCOUNTS ONE AUD ITED BY M/S ANIL RAJ AND ASSOCIATES CHARTERED ACCOUNTANT NEW DELHI DATED 05/ 08/2006 SHOWING A TURNOVER OF RS. 8,21,20,978 WHICH WAS SUBMITTED TO THE BANK AUTHORITIES, AND THE OTHER SIGNED BY SH. HARISH KUMAR CHARTERED ACCOUNTA NT DATED 05/08/2006 SUBMITTED ALONG WITH THE RETURN OF THE INCOME SHOWI NG A TURNOVER OF RS. 4,12,83,916/-. THE AO HAD REJECTED THE BOOKS OF ACC OUNT OF THE ASSESSEE ON THIS ACCOUNT UNDER SECTION 145(3) OF THE INCOME TAX ACT AND FRAMED THE ASSESSMENT APPLYING A GP RATE 24.57% AS AGAINST 9.27% SHOWN BY THE ASSESSEE. HOWEVER THE AO APPLIED THIS RATE ON THE LOWER TURNOVER OF RS. 4 ,12,83,916/- WHEREAS THE HIGHER TURNOVER OF RS. 8,21,20,978/- SHOULD HAVE BEEN TAKE N. THIS HAS RESULTED IN UNDER ASSESSMENT OF INCOME OF THE EXTENT OF RS. 1,00,33,6 66/-. THE ORDER PASSED BY THE AO IS CLEARLY ERRONEOUS AS IT HAS BEEN PASSED WITHOUT APPLICATION OF MIND. AN ORDER PASSED WITHOUT TAKING INTO ACCOUNT THE DETAILS ON RECORD IS TREATED AS ORDER WITHOUT APPLICATION OF M IND. FURTHER, THE INCOME HAS BEEN UNDER-ASSESSED BY IGNORING THE HIGHER TURNOVER AS REFLECTED IN THE BALANCE SHEET SUBMITTED TO THE BANK BY THE ASSESSEE. THEREF ORE THE ASSESSMENT IS TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REV ENUE. THE VARIOUS CASE LAWS RELIED UPON BY THE ASSESSEE ARE NOT APPLICABLE ON T HE FACTS OF THE CASE. IN VIEW OF THE FACTS AS MENTIONED ABOVE THE ASSESSM ENT SO FRAMED IS CANCELLED U/S 263(1) OF THE INCOME TAX ACT WITH THE DIRECTION TO THE AO TO FRAME IT AFRESH AFTER TAKING INTO ACCOUNT THE HIGHER TURNOVER I.E. RS. 8,21,20,978/- AS REFLECTED IN THE BALANCE SHEET SUBMITTED BY THE ASSESSEE TO THE BANK AUTHORITIES. 4. AGGRIEVED BY THE SAME THE ASSESSEE FILED THE PRE SENT APPEAL BEFORE US AND TAKING THE FOLLOWING GROUNDS : 1. THAT THE LD. COMMISSIONER OF INCOME TAX HAS WRON GLY ASSUMED JURISDICTION UNDER SECTION 263 OF THE ACT TO SET-ASIDE THE RE-AS SESSMENT ORDER DATED 29/07/2010 PASSED BY THE ASSESSING OFFICER IN AS MU CH AS THE ORDER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENU E AND AS SUCH THE ASSUMPTION OF JURISDICTION UNDER SECTION 263 OF THE ACT IS BEY OND HIS COMPETENCE. 2. THAT THE LD. COMMISSIONER OF INCOME TAX HAS IN FACT RESORTED TO THE PROVISIONS OF SECTION 263 TO REVISE THE ORIGINAL AS SESSMENT ORDER DATED 26.12.2008 3 PASSED UNDER SECTION 143(3) WHICH OTHERWISE HAD BEC OME TIME BARRED IN AS MUCH AS THE ASSESSMENT FRAMED ON 26.12.2008 STOOD F INALIZED AND AS SUCH THE ORDER PASSED IS ARBITRARY AND UNJUSTIFIED. 3. THAT EVEN THE RETURN FILED IN RESPONSE TO NOTICE UNDER SECTION 148 WS INCLUSIVE OF THE INCOME ASSESSED UNDER SECTION 143( 3) AND AS SUCH THERE WAS NO OCCASION TO RESORT TO THE PROVISION OF SECTION 263 WHICH RENDERS THE ORDER ILLEGAL, ARBITRARY AND UNJUSTIFIED. 4. THAT THE RE-ASSESSMENT ORDER HAVING BEEN PASSED BY THE ASSESSING OFFICER AFTER DUE APPLICATION OF MIND, RECORDING OF REASONS FOR RE-OPENING AND TAKING INTO CONSIDERATION THE VARIOUS REPLIES, MATERIAL ON RECO RD AND BOOKS OF ACCOUNT, THE ACTION RESORTED TO BY THE COMMISSIONER OF INCOME TA X IS UNWARRANTED AND UNCALLED FOR. 5. THAT THE REASONS MENTIONED IN THE NOTICE ISSUED BY THE COMMISSIONER OF INCOME TAX FOR INITIATION OF PROCEEDINGS UNDER SECT ION 263 ARE BASED ON SUSPICION, CONJECTURES AND SURMISES WITH NO MATERIA L WHATSOEVER ON RECORD TO SUBSTANTIATE THE ACTION SO INITIATED WHICH, IN ANY CASE HA DULY BEEN COUNTERED DURING THE COURSE OF PROCEEDINGS BEFORE HIM CLEARLY ESTABLISHING THAT THE ORDER SOUGHT TO BE REVISED IS NEITHER ERRONEOUS NOR PREJU DICIAL TO THE INTEREST OF REVENUE. 5. WE SHALL FIRST TAKE UP GROUND NO. 2 WHERE THE AS SESSEE HAS AGITATED THAT THE IMPUGNED ORDER PASSED U/S 263 OF THE ACT, STOOD BARRED BY LIMITATION. 6. BEFORE US THE LD. AR PLEADED THAT THE ORDER PASS ED IN THE PRESENT CASE IS BARRED BY LIMITATION, SINCE THE PERIOD OF TWO YEARS FROM THE END OF THE FINANCIAL YEAR, AS PRESCRIBED U/S 263(2) HAVE TO BE CALCULATE D FROM THE YEAR IN WHICH THE ORDER IS PASSED WHICH IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LD. AR ARGUED THAT THE ERROR COMMITTED BY THE A O WAS APPLICATION OF G.P. RATE OF 24.57% ON A TURNOVER OF 4,12,83,916/-, AS P ER BOOKS FILED BEFORE AO, INSTEAD OF A TURNOVER OF RS. 8,21,20,978/- WHICH WA S DISCLOSED TO THE BANK. THE LD. AR STATED THAT THIS ERROR WAS COMMITTED IN THE ORDER PASSED U/S 143(3) ON 26/12/2008. LD. AR FURTHER DREW OUR ATTENTION TO TH E ORDER PASSED U/S 147/143(3) AND STATED THAT THE SAME DEALT WITH INTEREST DISALL OWABLE U/S 36(I)(III) AND HAD NOTHING TO DO WITH THE APPLICATION OF G.P. RATE ON TURNOVER. THE LD. AR THEREFORE PLEADED THAT THE DOCTRINE OF MERGER DID NOT APPLY I N THIS CASE AND THEREFORE THE ORDER SOUGHT TO BE REVISED WAS THAT PASSED U/S 143( 3) ON 26/12/2008. THE LD. AR PLACED RELIANCE ON THE ORDER OF THE APEX COURT IN T HE CASE OF CIT VS. ALAGENDRAN FINANCE LTD.(2007)293 ITR 1(SC) IN SUPPORT OF HIS C ONTENTION. THE LD. AR FURTHER STATED THAT THE ORDER PASSED U/S 143(3) COULD BE REVISED U/S 263 UPTO 31/03/2011 AS PER THE PROVISION OF SECTION 263(2). BUT SINCE THE ORDER U/S 263 IN THE IMPUGNED CASE WAS PASSED ON 24/02/20 15, IT WAS CLEARLY BARRED BY LIMITATION. 4 7. THE LD. DR ON THE OTHER HAND STATED THAT THE IMP UGNED PROCEEDINGS U/S 263 HAD BEEN INITIATED IN RELATION TO THE ORDER PAS SED UNDER SECTION 147 AND NOT IN RELATION THE ORDER PASSED UNDER SECTION 143(3) A ND THEREFORE WAS NOT BARRED BY LIMITATION. 8. WE HAVE HEARD THE ARGUMENT OF BOTH THE PARTIES A ND HAVE GONE THROUGH THE DOCUMENTS AND CASE LAWS CITED BEFORE US. IT IS NOT IN DISPUTE THAT THE ORIGINAL ASSESSMENT ORDER IN THIS CASE WAS PASSED ON 26/12/2 008 AND THE SAME DEALT WITH APPLICATION OF GROSS PROFIT RATE OF 24.57% ON THE TURNOVER OF THE ASSESSEE AFTER REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSE E UNDER SECTION 145(3). IT IS ALSO NOT IN DISPUTE THAT REASSESSMENT PROCEEDINGS W ERE INITIATED FOR MAKING DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III). FURTHER IT IS NOT IN DISPUTE THAT THE PROCEEDING UNDER SECTION 263 WERE INITIATED FOR APP LYING THE GP RATE OF 24.57%, ON A TURNOVER OF RS. 8,21,20,978/-, SHOWN IN THE AU DITED BALANCE SHEET FILED TO THE BANK AS AGAINST THE GP RATE APPLIED BY THE AO O N A TURNOVER OF RS. 4,12,83,916/- SHOWN IN THE AUDITED BALANCE SHEET FI LED ALONGWITH RETURN OF INCOME. 9. IT IS EVIDENT FROM THE ABOVE THAT THE ERROR RELA TED TO APPLICATION OF G.P. RATE AND HAD CREPT IN THE ORDER PASSED U/S 143(3) O N 26/12/2008. THE ORDER PASSED U/S 147 HAD NOTHING TO DO WITH THIS ISSUE. T HEREFORE THE ORDER U/S 143(3) WOULD SUBSIST AND WOULD NOT MERGE WITH THE ORDER U/ S 147. 10. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS . ALAGENDRAN FINANCE LTD. [2007] 293 ITR 1 WHILE DEALING WITH AN IDENTICAL IS SUE HAS HELD AS UNDER : HELD, AFFIRMING THE DECISION OF THE HIGH COURT, T HAT THE COMMISSIONER HAD SOUGHT REVISE ONLY THAT PART OF THE ORDER OF AS SESSMENT WHICH RELATED TO LEASE EQUALISATION FUND; BUT THE PROCEEDINGS FOR RE ASSESSMENT HAD NOTHING TO DO WITH THAT ITEM OF INCOME. THE DOCTRINE OF MERGER DI D NOT APPLY IN A CASE OF THIS NATURE: THE PERIOD OF LIMITATION COMMENCED FROM THE DATES OF THE ORIGINAL ASSESSMENTS AND NOT FROM THE REASSESSMENTS SINCE TH E LATTER HAD NOT HAD ANYTHING TO DO WITH THE LEASE EQUALISATION FUND. TH IS WAS NOT A CASE WHERE THE SUBJECT MATTER OF REASSESSMENT AND THE SUBJECT MATT ER OF THE ASSESSMENT WERE THE SAME. CIT V. SHRI ARBUDA MILLS LTD.[1998] 231 ITR 50 (SC) RELIED ON. CWT V. A.K. THANGA PILLAI [2001] 252 ITR 260 (MAD) APPROVED. THERE MAY NOT BE ANY DOUBT OR DISPUTE THAT ONCE AN ORDER OF ASSESSMENT IS REOPENED, THE PREVIOUS UNDER-ASSESSMENT WILL BE HEL D TO BE SET ASIDE AND THE WHOLE PROCEEDINGS WOULD START AFRESH, BUT THAT WOUL D NOT MEAN THAT EVEN WHEN THE SUBJECT-MATTER OF REASSESSMENT IS DISTINCT AND DIFFERENT, THE ENTIRE PROCEEDINGS WOULD BE DEEMED TO HAVE BEEN REOPENED. EXPLANATION (C) APPENDED TO SUB-SECTION(1) OF SECTI ON 263 OF THE INCOME-TAX ACT, 1961, WHICH DEALS WITH THE POWER OF THE COMMISSIONE R IN REVISION, IS CLEAR AND UNAMBIGUOUS, AS IN TERMS THEREOF THE DOCTRINE OF ME RGER APPLIES ONLY IN RESPECT 5 OF SUCH ITEMS WHICH WERE THE SUBJECT MATTER OF APPE AL AND NOT IN RESPECT OF THOSE WHICH WERE NOT. 11. IN VIEW OF THE SAME WE HOLD THAT THE LIMITATION FOR THE PASSING OF ORDER UNDER SECTION 263 WAS TO BE TAKEN INTO CONSIDERATIO N FROM THE DATE OF PASSING OF ORDER U/S 143(3) I.E. 26/12/2008. THE LIMITATION IN THE PRESENT CASE THEREFORE EXPIRED ON 31/03/2011. THE IMPUGNED ORDER UNDER SEC TION 263 HAVING BEEN PASSED ON 22/03/2013 IT IS WELL BEYOND THE PERIOD O F LIMITATION. IN VIEW OF THE SAME WE HOLD THAT THE IMPUGNED ORDER IS BARRED BY L IMITATION. ACCORDINGLY THE ORDER OF THE LD. CIT U/S 263 IS VACATED. 12. GROUND NO. 2 OF THE ASSESSEE IS THEREFORE ALLOW ED. 13. GROUND NO. 1,3,4 & 5 NEED NO ADJUDICATION SINCE THE ORDER UNDER SECTION 263 HAS BEEN VACATED AS DISCUSSED ABOVE. 14. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 30/09/2015. SD/- SD/- (H.L. KARWA) (ANNAPURNA MEHROTRA) VICE PRESIDENT ACCOUNTANT MEMBER DATED :30/09/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR