M/s Laj Exports, Ludhiana V. DCIT, Ludhiana

ITA 558/CHANDI/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60831 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-01-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 23-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Keywords: Business expenditure; Principle of natural justice
• Section: 143(3); 263; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.558/CHD/2011 (ASSESSMENT YEAR : 2006-07) M/S LAJ EXPORTS, VS. THE D.C.I.T., C-199, PHASE VII, FOCAL POINT, CIRCLE-1, LUDHIANA. LUDHIANA. PAN: AAAFL3811A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SMT.JYOTI KUMARI, CIT DR DATE OF HEARING : 18.04.2012 DATE OF PRONOUNCEMENT : 30.04.2012 O R D E R PER SUSHMA CHOWLA, J.M, : THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX-I, LUDHIANA DATED 29.03. 2011 RELATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORDER PASSED UN DER SECTION 263 OF THE INCOME TAX ACT, 1961. 2. THE ISSUE ARISING IN THE PRESENT APPEAL IS AGAIN ST ORDER PASSED BY CIT U/S 263 OF THE INCOME TAX ACT HOLDING THE ASSES SMENT FRAMED BY THE ASSESSING OFFICER TO BE BOTH ERRONEOUS AND PRE JUDI CIAL TO THE INTEREST OF REVENUE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD FILED RETURN OF INCOME DECLARING NET LOSS OF RS.49,20,430/- ON 28.1 0.2006. THE ASSESSEE HAD DECLARED INCOME FROM PROFITS OF BUSINESS. THE CASE OF THE ASSESSEE WAS PICKED FOR SCRUTINY BY ISSUE OF REQUISITE NOTIC E AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. DURING THE CO URSE OF ASSESSMENT 2 PROCEEDINGS THE ASSESSING OFFICER ISSUED QUESTIONNA IRE THE ASSESSEE IN ADDITION TO THE OTHER QUERIES RAISED WAS ASKED TO G IVE CLARIFICATION OF THE INSURANCE EXPENSES CHARGED TO THE PROFIT & LOSS ACC OUNT. THE ASSESSEE IN REPLY PLACED AT PAGES 1 TO 4 OF THE PAPER BOOK V IDE PARA 3 EXPLAINED THAT OUT OF THE TOTAL CHARGES OF RS.33,16,223/-, SU M OF RS.30 LACS WAS PAID AS PREMIUM OF KEYMAN INSURANCE POLICY. COPY O F THE INSURANCE EXPENSES ACCOUNT WAS ALSO ENCLOSED TO THE SAID REPL Y, WHICH IS PALCED AT PAGE 5 OF THE PAPER BOOK. IN REPLY TO FURTHER QUER Y RAISED BY THE ASSESSING OFFICER IN RESPECT OF THE KEYMAN INSURANC E FURTHER REPLY WAS FILED BY THE ASSESSEE CLAIMING THAT THE SAID EXPEN DITURE IS ALLOWABLE AS BUSINESS EXPENDITURE IN VIEW OF THE CIRCULAR NO.762 DATED 18.2.1998 ISSUED BY THE CBDT. COPY OF THE REPLY OF THE ASSES SEE AND CIRCULAR OF CBDT ARE ENCLOSED AT PAGES 6 AND 7 OF THE PAPER BOO K. 4. THE ASSESSMENT IN THE CASE WAS COMPLETED U/S 143 (3) OF THE ACT VIDE ORDER DATED 30.12.2008 AFTER MAKING DISALLOWAN CE OF CAR EXPENSES AND TELEPHONE EXPENSES AND ADJUSTMENT OF DEPRECIATI ON. THE COPY OF THE ASSESSMENT ORDER IS AVAILABLE ON RECORD. THEREAFT ER NOTICE U/S 154 OF THE ACT WAS ISSUED BY THE ASSESSING OFFICER TO THE ASSESSEE, COPY OF WHICH IS PLACED AT PAGES 8 AND 9 OF THE PAPER BOOK. AS PER THE NOTICE ISSUED UNDER SECTION 154 OF THE ACT, IT WAS PROPOSE D THAT OUT OF INSURANCE EXPENSES RELATING TO KEYMAN INSURANCE IN RESPECT OF THREE PERSONS, DISALLOWANCE OF RS.26,30,137/- WAS PROPOSE D BEING IN EXCESS OF ADMISSIBLE CLAIM OF RS.3,69,863/-. THE REPLY OF TH E ASSESSEE IS PLACED AT PAGES 10 AND 11 OF THE PAPER BOOK IN WHICH IT WAS P OINTED OUT THAT THE SAID EXPENSES WERE ALLOWED BY THE ASSESSING OFFICER AFTER CONSIDERING THE REPLY ON THE ISSUE AND ALSO IN VIEW OF THE DISA LLOWANCE OF SIMILAR AMOUNT IN ASSESSMENT YEAR 2005-06 ON ACCOUNT OF MER CANTILE SYSTEM OF ACCOUNTING, THE ASSESSEE WAS ENTITLED TO ALLOWANCE OF THE AMOUNT OF 3 RS.26,30,137/- IN THE INSTANT ASSESSMENT YEAR. THE PROCEEDINGS INITIATED UNDER SECTION 154/155 OF THE ACT WERE FILED BY THE ASSESSING OFFICER VIDE LETTER DATED 7.3.2011. COPY OF THE SAID LETTE R IS PLACED AT PAGE 12 OF THE PAPER BOOK. 5. THEREAFTER THE ASSESSEE RECEIVED NOTICE U/S 263 OF THE ACT. THE CIT IN THE SHOW CAUSE NOTICE ISSUED TO THE ASSESSEE REQUISITIONED THE ASSESSEE TO EXPLAIN WHY THE SAID INSURANCE EXPENSES BE ALLOWED IN THE HANDS OF THE ASSESSEE BEING VIOLATIVE OF IRDA CIRCU LARS DATED 27.4.2005 AND 30.1.2006. SECOND ISSUE RAISED BY THE CIT WAS THAT IN VIEW OF MERCANTILE SYSTEM OF ACCOUNTING BEING FOLLOWED BY T HE ASSESSEE, EXPENDITURE OF RS.36,61,644/- WAS ONLY REQUIRED TO BE ALLOWED BEING RELATABLE TO THE YEAR UNDER REFERENCE. THE COPY O F SHOW CAUSE NOTICE IS PLACED AT PAGES 13 AND 14 OF THE PAPER BOOK. THE R EPLY OF THE ASSESSEE IS PLACED AT PAGES 15 TO 22 OF THE PAPER BOOK. 6. THE CIT INVOKING JURISDICTION U/S 263 OF THE ACT OBSERVED THAT THE ORDER OF ASSESSING OFFICER WAS ERRONEOUS AS FAR AS IT WAS MADE ON INCORRECT ASSUMPTION OF FACTS AS WELL AS INCORRECT APPLICATION OF LAW. THE ORDER OF THE ASSESSING OFFICER WAS HELD TO BE E RRONEOUS BECAUSE OF ALLOWANCE OF THE SAID EXPENSES, THE SAME WAS HELD T O BE PREJUDICIAL TO THE INTEREST OF REVENUE. THE CIT HELD THE EXPENSES TO BE NOT ALLOWABLE AND WAS TO BE ADDED TO THE TOTAL INCOME OF THE ASSE SSEE. THE ASSESSING OFFICER WAS DIRECTED TO RECOMPUTE THE INCOME AND TH E TAXES ACCORDINGLY. 7. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT TH AT EVEN THE ASSESSMENT RELATING TO PRECEDING YEAR I.E. ASSESSME NT YEAR 2005-06 WAS COMPLETED U/S 143(3) OF THE ACT AND THE NATURE OF THE SAID EXPENDITURE WAS ENQUIRED INTO AND WAS ALLOWED IN THE HANDS OF T HE ASSESSEE. AS PER THE LEARNED A.R. FOR THE ASSESSEE THE SAID ORDER OF THE ASSESSING OFFICER 4 HAD BEEN PASSED AFTER DETAILED ENQUIRIES AND THERE WAS APPLICATION OF MIND TO THE FACTS OF THE CASE. AS THE DECISION WAS TAKEN AS PER LAW, THERE WAS NO MERIT IN THE EXERCISE OF JURISDICTION BY THE CIT UNDER SECTION 263 OF THE ACT. THE LEARNED A.R. FOR THE A SSESSEE FURTHER POINTED OUT THAT IN THE PROCEEDINGS TAKEN UP U/S 15 4 OF THE ACT, THE CONTENTION WAS ALREADY BEFORE THE ASSESSING OFFICER , AND THE CIT COULD NOT HAVE ASSUMED THE JURISDICTION U/S 263 OF THE AC T. THE LEARNED A.R. FOR THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING D ECISIONS: A) CIT VS. B.N.EXPORTS [323 ITR 178 (BOM) B) SUNITA FINLEASE LTD. VS. DCIT [118 TTJ (BILASPUR TRIB.) 263] C) R.S. WAREHOUSING, LUDHIANA VS. ITO, ITA NO.310/CHD/2011, ITAT, CHANDIGARH D) M/S LAJ EXPORTS VS. ACIT, ITA NO.668/CHD/2010,ITAT, CHANDIGARH. E) ACIT VS. M/S PARAMOUNT IMPEX, ITA NO.762/CHD/2011, ITAT, CHANDIGARH. 8. THE LEARNED D.R. FOR THE REVENUE POINTED OUT THA T THE DIRECTIONS ISSUED BY IRDA WERE BINDING ON THE INSURANCE COMPAN IES AND THE POLICY ISSUED IN THE PRESENT CASE WAS AGAINST THE IRDA GUI DELINES. CONSEQUENTLY THE INSURANCE EXPENDITURE CLAIMED BY T HE ASSESSEE WAS NOT ALLOWABLE AND HENCE THE ORDER OF CIT MERITS TO BE U PHELD. 9. THE LEARNED D.R. FOR THE REVENUE PLACED RELIANCE ON THE OBSERVATION OF THE CIT IN THE ORDER PASSED UNDER SE CTION 263 OF THE ACT. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE CIT UNDER SECTION 263 OF THE ACT IS EMPOWERED TO RE VISE SUCH ORDER/S PASSED BY THE ASSESSING OFFICER WHICH ARE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE TWIN CONDITIONS OF TH E ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E ARE TO BE SATISFIED SIMULTANEOUSLY FOR THE CIT TO EXERCISE HIS POWERS U /S 263 OF THE ACT. IF 5 EITHER OF THE CONDITIONS ARE NOT SATISFIED, THEN TH E CIT CANNOT TAKE RECOURSE TO SECTION 263 OF THE ACT. 11. THE HON'BLE SUPREME COURT IN MALABAR INDUSTRIES COMPANY LTD V CIT [243 ITR 83 (SC)] HELD AS UNDER:- THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE O R ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONL Y WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SA ME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATIO N OF MIND. THE PHRASE 'PREJUDICIAL TO THE INTERESTS OF THE REVENUE' IS NOT AN EXPRESSION OF ART AND IS NOT DEF INED IN THE ACT. UNDERSTOOD IN ITS ORDINARY MEANING IT I S OF WIDE IMPORT AND IS NOT CONFINED TO LOSS OF TAX. THE HIGH COURT OF CALCUTTA IN DAWJEE DADABHOY AND CO. V . S. P. JAIN [1957] 31 ITR 872 , THE HIGH COURT OF KARNATAKA IN CIT V. T. NARAYANA PAI [1975] 98 ITR 422 , THE HIGH COURT OF BOMBAY IN CIT V. GABRIEL INDIA LTD. [1993] 203 ITR 108 AND THE HIGH COURT OF GUJARAT IN CIT V. SMT. MINALBEN S. PARIKH [1995] 21 5 ITR 81 TREATED LOSS OF TAX AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. MR. ABRAHAM RELIED ON THE JUDGMENT OF THE DIVISION BENCH OF THE HIGH COURT OF MADRAS IN VENKATAKRISHNA RICE COMPANY V. CIT [1987] 163 ITR 129 INTERPRETING 'PREJUDICIAL TO THE INTERESTS OF THE REVENUE.' THE HIGH COURT HELD (PAGE 138) : 'IN THIS CONTEXT, IT MUST B E REGARDED AS INVOLVING A CONCEPTION OF ACTS OR ORDER S WHICH ARE SUBVERSIVE OF THE ADMINISTRATION OF REVEN UE. THERE MUST BE SOME GRIEVOUS ERROR IN THE ORDER PASS ED BY THE INCOME-TAX OFFICER, WHICH MIGHT SET A BAD TR END OR PATTERN FOR SIMILAR ASSESSMENTS, WHICH ON A BROA D RECKONING, THE COMMISSIONER MIGHT THINK TO BE PREJUDICIAL TO THE INTERESTS OF REVENUE ADMINISTRATION.' IN OUR VIEW, THIS INTERPRETATION I S TOO NARROW TO MERIT ACCEPTANCE. THE SCHEME OF THE ACT I S TO LEVY AND COLLECT TAX IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND THIS TASK IS ENTRUSTED TO THE REVENUE. IF DUE TO AN ERRONEOUS ORDER OF THE INCOME - TAX OFFICER, THE REVENUE IS LOSING TAX LAWFULLY PAY ABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO TH E INTERESTS OF THE REVENUE. THE PHRASE 'PREJUDICIAL TO THE INTERESTS OF THE REVENUE' HAS TO BE READ IN CONJUNCTION WITH AN 6 ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDIC IAL TO THE INTERESTS OF 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 TH E COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED A S AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. 12. FURTHER, THE HON'BLE SUPREME COURT IN MAX IN DIA LTD [295 ITR 282 (SC)] UPHELD THE JUDGMENT OF THE HON'BLE PUNJAB & H ARYANA HIGH COURT IN THE SAID CASE, WHEREIN IT WAS HELD THAT IF THE V IEW EXPRESSED BY THE ASSESSING OFFICER WAS A POSSIBLE VIEW, THE CIT WOUL D HAVE NO JURISDICTION TO INTERFERE WITH SUCH A VIEW, WHILE E XERCISING THE POWER U/S 263 OF THE ACT. THE HON'BLE SUPREME COURT IN THE S AID CASE FURTHER CLARIFIED THAT WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAD TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, T HE ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS ERRONEOUS AN D PREJUDICIAL TO THE INTEREST OF REVENUE, UNLESS THE VIEW TAKEN BY THE A SSESSING OFFICER WAS UNSUSTAINABLE. 13. IN THE FACTS OF THE PRESENT CASE BEFORE US, THE ASSESSMENT IN THIS CASE WAS COMPLETED U/S 143(3) OF THE ACT. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER REQUIS ITIONED THE ASSESSEE TO EXPLAIN THE NATURE OF EXPENDITURE CLAIMED ON ACC OUNT OF INSURANCE CHARGES. FURTHER QUERY WAS RAISED REGARDING THE AD MISSIBILITY OF THE SAID EXPENSES. THE ASSESSEE IN REPLY STATED THAT THE SA ID EXPENDITURE WAS LAID OUT ON ACCOUNT OF KEYMAN INSURANCE CHARGES PAID ON THE LIVES OF THE PARTNERS OF THE ASSESSEE FIRM. THE CLAIM OF THE AS SESSEE WAS THAT THE SAID EXPENDITURE WAS ALLOWABLE IN VIEW OF THE CBDT CIRCULAR NO.762 DATED 18.2.1998 ISSUED IN THIS REGARD. THE CLAIM O F THE ASSESSEE WAS ALLOWED IN ENTIRETY BY THE ASSESSING OFFICER AFTER DISCUSSION. THEREAFTER 7 NOTICE UNDER SECTION 154 OF THE ACT WAS ISSUED TO T HE ASSESSEE THAT IN VIEW OF ITS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG, WHY THE SAID EXPENDITURE SHOULD BE ALLOWED IN TOTALITY. THE EXP LANATION OF THE ASSESSEE WAS THAT PART OF THE EXPENDITURE WAS DISAL LOWED IN THE PRECEDING YEAR I.E. ASSESSMENT YEAR 2005-06. IF TH E SAME IS CONSIDERED TO BE ALLOWED DURING THE YEAR, THE SAID EXPENDITURE IS FULLY ALLOWABLE IN THE HANDS OF THE ASSESSEE. THE PROCEEDINGS INITIAT ED UNDER SECTION 154 OF THE ACT WERE DROPPED BY THE ASSESSING OFFICER AS PER THE LETTER DATED 7.3.2011. THE ASSESSING OFFICER ACCORDINGLY COMPUT ED THE INCOME IN THE HANDS OF THE ASSESSEE. 14. WE FIND THAT, SIMILAR ISSUE OF ALLOWABILITY OF PREMIUM PAID ON LIVES OF PARTNERS UNDER KEYMAN INSURANCE POLICY ARO SE BEFORE THE HON'BLE BOMBAY HIGH COURT IN CIT VS. B.N.EXPORTS [3 23 ITR 178 (BOM)] AND SUNITA FINLEASE LTD. VS. VS. DCIT (2008) 118 TTJ (BILASPUR) 263 AND THE SAID EXPENDITURE HAS BEEN ALLOWED. IN VIEW OF THE ABOVE SAID JUDICIAL PRECEDENTS ON THE ISSUE, THE ORDER OF THE ASSESSING OFFICER IN ALLOWING THE CLAIM OF THE ASSESSEE WAS A PLAUSIB LE VIEW AND THE SAID VIEW IS NOT OPEN FOR REVIEW BY THE CIT BY WAY OF IN VOKING THE JURISDICTION UNDER SECTION 263 OF THE ACT. 15. THE COURTS HAVE TIME AND AGAIN OBSERVED THAT S INCE THE ASSESSEE HAS NO CONTROL OVER THE WAY AN ASSESSMENT ORDER IS DRAFTED AND SINCE, GENERALLY, THE ISSUES WHICH ARE ACCEPTED BY THE ASS ESSING OFFICER DO NOT FIND MENTION IN THE ASSESSMENT ORDER AND ONLY THOSE POIN TS ARE TAKEN NOTE OF ON WHICH THE ASSESSEES EXPLANATIONS ARE REJECTED AND ADDITIONS / DISALLOWANCES ARE MADE, THE MERE ABSENCE OF THE DISCUSSION OF THE PROVISIONS OF SECTION 80IB(13) READ WITH SECTION 80IA(9) WOULD NOT MEAN T HAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND TO THE SAID PROVISIONS. 8 16. FURTHER THE HON'BLE SUPREME COURT IN CIT VS. MA X INDIA LTD. (SUPRA) HAD HELD THAT IF THE VIEW EXPRESSED BY THE ASSESSING OFFICER WAS A POSSIBLE VIEW, THE CIT HAD NO JURISDICTION TO INT ERFERE WITH SUCH A VIEW BY WAY OF EXERCISE OF JURISDICTION U/S 263 OF THE ACT. 17. IN VIEW OF THE ABOVE SAID PRECEDENTS LAID DOWN BY THE HON'BLE SUPREME COURT AND VARIOUS HIGH COURTS, WE FIND NO M ERIT IN EXERCISE OF JURISDICTION BY THE CIT U/S 263 OF THE ACT BY OBSER VING THAT THE ORDER PASSED BY THE ASSESSING OFFICER IN THE PRESENT CASE WAS BOTH ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE AS SESSING OFFICER HAVING TAKEN PLAUSIBLE VIEW IN THE MATTER WHICH IN TURN IS SUPPORTED BY THE ASSESSMENT ORDER PASSED FOR ASSESSMENT YEAR 2005-06 , WE CANCEL THE INVOKING OF JURISDICTION U/S 263 OF THE ACT BY THE CIT AND ALSO CANCEL THE ORDER PASSED U/S 263 OF THE ACT. WE SET SIDE T HE ORDER OF THE CIT AND ALLOW THE GROUNDS OF APPEAL RAISED BY THE ASSES SEE. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DAY OF APRIL, 2012. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 TH APRIL, 2012 RATI COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH 9