M/s Punjab Wool Syndicate, Ludhiana V. ITO, Ludhiana

ITA 559/CHANDI/2011

• Counselvise Citation: 55921514 RSA 2011
• Duration Of Justice: 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Assessee Lawyers: SUDHIR SEHGAL
• Keywords: Depreciation; Opportunity of being heard; Cost of acquisition; Assessment record; Tax effect
• Section: 145; 263; 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.559/CHD/2011 (ASSESSMENT YEAR : 2006-07) M/S PUNJAB WOOL SYNDICATE VS. THE INCOME TAX OFFI CER, 186, INDL. AREA-A, WARD VI(2), LUDHIANA. LUDHIANA. PAN: AABFP3254G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SMT.JAISHREE SHARMA, DR DATE OF HEARING : 21.11.2011 DATE OF PRONOUNCEMENT : 13.01.2012 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-III, LUDHIANA DATED 29.0 3.2011 RELATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORDER PASSED UN DER SECTION 263 OF THE INCOME TAX ACT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX-III, LUDHIANA HAS ERRED IN ISSUING NOTICE AND PASSING ORDER U/S 263 OF THE INCOME TAX ACT, 1961. 2. THAT THE LD.CIT-III HAS ALSO ERRED TO STATE THAT ASSESSMENT FRAMED AND ORDER PASSED U/S 143(3) BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 3. A) THAT THE LD.CIT-III AS PER PARA (A) OF THE ORDER U/S 263 HAS STATED THAT THE ORDER PASSED BY T HE ASSESSING OFFICER WAS PREJUDICIAL TO THE INTEREST O F REVENUE AS THERE WAS LACK OF ENQUIRY AND VERIFICATION, REGARDING THE COMPLIANCE OF EXCISE DUTY PROVISIONS AND ALSO COPIES OF SUPPORTING BILLS AND EVIDENCES FOR THE PURCHASE OF ADDITION IN MACHINERY ON WHICH DEPRECIATION CLAIMED HAS NOT BEEN OBTAINED AND VERIFIED. 2 B) THAT THE LD.CIT-III HAS ERRED TO CONSIDER THAT BOTH THE POINTS AS PER PARA-3 ABOVE HAVE ALREADY BEEN DISCUSSED DURING THE APP AND DOCUMENTS WERE ENCLOSED AND FINALLY ASSESSMENT WAS FRAMED AFTER DUE APPLICATION OF MIND BY THE ASSESSING OFFICER ON THE ABOVE ISSUE. 4. THAT THE LD.CIT-III HAS FURTHER FAILED TO CONSID ER THAT BESIDES OUR SUBMISSION AS PER PARA NOS. 3(A)(B), ABOVE THAT PARA WISE REPLY WAS FILED IN RESPONSE TO THE OBJECTION OF CIT AS STATED IN PARA NO.3 TO HIS FULL SATISFACTION, GIVING COMPLETE DETA IL OF EXCISE DUTY AND VAT, GROSS AND NET PURCHASE AND SALES, COPY OF AUDIT REPORT U/S 44 AUTHORITIES BELOW ALONG WITH BALANCE SHEET, ANNEXURE-II OF AUDIT REPORT IN WHICH DETAILS OF ADJUSTMENT MADE U/ S 145A, ALONGWITH PHOTO COPIES OF BILLS OF MACHINERY, COPY OF ACCOUNT OF PARTY I.E. GAOCHENG INNE IMPORT AND EXPORT, FROM WHOM MACHINERY WAS PURCHASED, ALONG WITH PHOTO COPY OF BANK STATEMENT, REFLECTING PAYMENT MADE FOR THE PURCHASE OF MACHINERY ETC. THOUGH ABOVE SAID DOCUMENTS WERE ALREADY FILED AND DISCUSSED DURING THE COURSE OF HEARING, THE CIT HAS ERRED IN SETTING ASIDE THE ISSUE TO THE FILE OF ASSESSING OFFICER. 5. NOTWITHSTANDING THE ABOVE GROUND OF APPEAL, THE WORTHY CIT (CENTRAL) HAS ERRED IN SETTING ASIDE THE ISSUE BACK TO THE ASSESSING OFFICER, MEANING THEREB Y THAT HE IS NOT OF CONFIRMED OPINION ABOUT REOPENING OF THE CASE U/S 263 AND IS AGAINST THE PRINCIPLES L AID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT AS REPORTED IN THE CASE OF KANDA RICE MILLS AS REPORTED IN 178 ITR 446. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSM ENT IN THIS CASE WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDE R DATED 26.12.2008. THE COPY OF THE ASSESSMENT ORDER IS PLACED ON RECOR D. THE COMMISSIONER OF INCOME TAX INVOKING HIS JURISDICTIO N UNDER SECTION 263 OF THE INCOME TAX ACT ISSUED SHOW CAUSE NOTICE DATE D 15.3.2011. IN RESPONSE TO THE NOTICE, THE ASSESSEE FURNISHED ITS REPLY WHICH IS INCORPORATED AT PAGES 2 AND 3 OF THE ORDER OF THE C OMMISSIONER OF INCOME TAX. THE OBJECTION OF THE COMMISSIONER OF I NCOME TAX WAS IN RESPECT OF NON-INCLUSION OF THE EXCISE DUTY IN THE VALUE OF OPENING STOCK AND CLOSING STOCK AND ALSO NON-FURNISHING OF THE SU PPORTING BILLS IN 3 RESPECT OF THE ADDITION TO THE FIXED ASSET AND WHET HER THE SAID ASSET WAS PUT TO USE. 4. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD W AS THAT WHILE PREPARING ITS MANUFACTURING, TRADING AND PROFIT & L OSS ACCOUNT, THE ASSESSEE HAD SHOWN THE SALES AFTER REDUCING THE AMO UNT OF EXCISE DUTY AND ALSO THE PURCHASES WERE DEBITED AFTER EXCLUDING THE SAME. A REFERENCE WAS MADE TO ANNEXURE-2 OF THE AUDIT REPOR T IN WHICH THE DETAILS OF ADJUSTMENT TO BE MADE UNDER SECTION 145A OF THE INCOME TAX ACT ARE PROVIDED. THE ASSESSEE HAS FURTHER EXPLAIN ED THAT THE DETAILS OF ADDITION MADE TO THE FIXED ASSET ALONGWITH PHOTOCOP IES OF THE BILLS WERE FURNISHED BEFORE THE ASSESSING OFFICER AND FURTHER THE SAID BILLS WERE ALSO FILED BEFORE THE COMMISSIONER OF INCOME TAX. FURTHER EXPLANATION BEFORE THE COMMISSIONER OF INCOME TAX BY THE LEARNE D A.R. FOR THE ASSESSEE IN RESPECT OF PROVISIONS OF SECTION 145A O F THE ACT DATED 28.3.2011 READS AS UNDER: WITH REGARDS TO THE CAPTIONED SUBJECT, WE HEREBY SUBMIT THE REPLY TO YOUR GOODSELFS QUARRY ON THE L AST DATE OF HEARING, AS UNDER:- 1) THAT, THE MANUFACTURING AND PROFIT & LOSS ACCOUN T AS PER SECTION 1450-A OF THE INCOME TAX ACT, 1961 I S ENCLOSED HEREWITH. THERE IS NO IMPACT ON THE PROFI T AFTER TAKING THE EXCISE DUTY. 2. THAT, VALUATION OF CLOSING STOCK HAS BEEN TAKEN EXCLUDING OF EXCISE DUTY. THE DETAILS OF CLOSING STOCK HAS ALREADY BEEN FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HOWEVER COPY OF CLOSING STOCK IS ALSO ENCLOSED HEREWITH. 3. WE HOPE YOUR GOODSELF WILL FIND THE ABOVE DETAIL S IN ORDER AND THE SAME MAY PLEASE BE PLACED ON RECORD AND OBLIGE. YOUR GOODSELF IS ALSO REQUESTED TO PLEASE DROP THE PROCEEDINGS INITIATED U/S 263 OF TH E INCOME TAX ACT, 1961. 5. AFTER CONSIDERING THE REPLY OF THE ASSESSEE THAT THE PURCHASES AND SALES SHOWN IN THE TRADING ACCOUNT WERE NET OF EXCI SE DUTY, THE COMMISSIONER OF INCOME TAX OBSERVED THAT THE ASSESS ING OFFICER HAD 4 FAILED TO CONSIDER THE IMPACT OF SECTION 145A OF TH E ACT AND IN PARTICULAR, THE VALUATION OF CLOSING STOCK AND WORK IN PROGRESS. FURTHER THE COMMISSIONER OF INCOME TAX NOTED THAT THE BILLS OF PURCHASE OF THE FIXED ASSETS WERE NOT AVAILABLE ON THE FILE OF THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS. IN VIEW THEREOF THE ORDER OF THE ASSESSING OFFICER WAS FOUND TO BE BOTH ERRONEOUS AN D PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THE ISSUE WAS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER TO RE-DECIDE THE ISSUE ON MERITS. 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF T HE COMMISSIONER OF INCOME TAX PASSED UNDER SECTION 263 OF THE ACT. SU BMISSION WAS RAISED IN RESPECT OF NON-IMPACT OF EXCISE DUTY IN VIEW OF PROVISIONS OF SECTION 145A OF THE ACT. FURTHER IT WAS POINTED OUT THAT T HE DETAILS OF ADDITION TO THE PLANT AND MACHINERY WERE FURNISHED BEFORE TH E ASSESSING OFFICER AND ALL THE BILLS WERE PRODUCED DURING THE COURSE O F ASSESSMENT PROCEEDINGS. 7. THE LEARNED D.R. FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF THE COMMISSIONER OF INCOME TAX. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO EXERCISE OF POWER UNDER SECTION 263 OF THE ACT. THE COMMISSIONER OF INCOME TAX WAS OF THE VIEW THAT THE ASSESSMENT COMPLETED BY THE ASSES SING OFFICER UNDER SECTION 143(3) OF THE ACT WAS BOTH ERRONEOUS AND PR EJUDICIAL TO THE INTEREST OF THE REVENUE ON THE FOLLOWING ACCOUNTS: IN THIS CASE THE ITO, WARD-VI(2), LUDHIANA HAS PASSED ORDER U/S 143(3) OF THE I.T. ACT FOR A.Y. 20 06-07 ON 26.12.2008. ON PERUSAL OF ASSESSMENT RECORD IT IS NOTICED THAT THE ORDER OF THE AO IS ERRONEOUS IN S O FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE ON THE FOLLOWING POINTS:- 5 A) IT IS NOTICED THAT THE ASSESSEE HAS SHOWN SALES IN THE MANUFACTURING TRADING & PROFIT & LOSS ACCOUNT AT RS.7,00,83,040/-. THE SAME HAS BEEN ARRIVED AT BY REDUCING THE SUM OF RS.37,13,579/- FOR EXCISE DUTY. IN FACT SALES AMOUNT SHOULD HAVE BEEN SHOWN INCLUDING THE EXCISE DUTY AMOUNT. IT IS NOT APPARENT WHETHER EXCISE DUTY IS FURTHER CLAIMED AS EXPENDITURE AND WHETHER IT HAS BEEN PAID TO THE EXCISE DEPARTMENT. THE AO HAS ALSO FAILED TO EXAMINE WHETHER ANY SUM OF EXCISE DUTY PAYABLE WAS DISALLOWABLE U/S 43B OF THE I.T. ACT. THERE IS LACK OF ENQUIRY AND LACK OF VERIFICATION. B) THE ASSESSEE HAS SHOWN ADDITION TO MACHINERY ACCOUNT AT RS.31,55,026/- ON WHICH DEPRECIATION OF RS.561677/- HAVE BEEN CLAIMED. THE AO HAS FAILED TO OBTAIN COPIES OF SUPPORTING BILLS AND EVIDENCE F OR THE PURCHASE OF MACHINERY AND OF HAVING PUT THE MACHINERY TO USE. THE AO HAS FAILED TO OBTAIN DOCUMENTARY EVIDENCE IN THIS REGARD BEFORE ALLOWING THE CLAIM OF DEPRECIATION BY THE ASSESSEE. THERE I S LACK OF VERIFICATION AND THERE IS FAILURE TO OBTAIN NECESSARY EVIDENCE. 2. THEREFORE, IN VIEW OF THE ABOVE, THE ORDER OF TH E A.O. PASSED U/S 143(3) OF THE I.T.ACT IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. YOU ARE GIVEN AN OPPORTUNITY OF BEING HEARD AND SHOW CAUSE AS TO WHY THE IMPUGNED ORDER BE NOT ENHANCED/MODIFIED/CANCELLED OR SET-ASIDE FOR FRESH ASSESSMENT U/S 263 OF THE I.T.ACT, IN THIS OFFICE O N 23//3/2011 AT 11:30 A.M. AT AAYAKAR BHAWAN, RISHI NAGAR, LUDHIANA. 9. IN RESPECT OF THE FIRST OBJECTION OF COMMISSIONE R OF INCOME TAX VIS--VIS THE PROVISIONS OF SECTION 145A OF THE ACT , THE ASSESSEE HAD FURNISHED AMMEXURE-2 TO THE AUDIT REPORT PLACED AT PAGE 13 OF THE PAPER BOOK UNDER WHICH IT HAS BEEN CERTIFIED THAT A FTER THE SO-CALLED ADJUSTMENT MADE UNDER SECTION 145A OF THE ACT, WHIC H READS AS UNDER, THERE WAS NIL EFFECT UNDER THE MODVAT ACCOUNT :- ANNEXURE-II PARTICULARS OF ADJUSTMENTS TO BE MADE UNDER SECTION 145 A OF THE INCOME-TAX ACT, 1961. --------------------------------------------------- ----------------------------- SL.NO. PARTICULARS (RUPEES) (RUPEES) INCREASED IN DECREASE IN PROFIT PROFIT --------------------------------------------------- ---------------------------- 1. INCREASE IN COST OF OPENING STOCK 299,025.73 6 ON INCLUSION OF EXCISE DUTY ON WHICH CENVAT CREDIT IS AVAILABLE/AVAILED. 2. INCREASE IN PURCHASE COST OF RAW 3,567,322.00 MATERIAL ON INCLUSION OF EXCISE DUTY ON WHICH CENVAT CREDIT IS AVAILABLE/ AVAILED. 3. INCREASE IN SALE OF FINISHED GOODS ON 3,713,579. 00 INCLUSION OF EXCISE DUTY. 4. EXCISE DUTY PAID ON SALE OF FINISHED 3,713,57 9.00 GOODS AS A RESULT OF ITS INCLUSION IN SALES. 5. INCREASE IN CLOSING STOCK OF RAW - MATERIAL ON INCLUSION OF EXCISE DUTY. 6. INCREASE IN CLOSING STOCK OF FINISHED - GOODS ON INCLUSION OF EXCISE DUTY. 7. INCREASE IN EXCISE DUTY ON CLOSING STOCK FINISHED GOODS AS A RESULT OF ITS INCLUSION IN CLOSING STOCK OF FINISHED GOODS. 8. ACCOUNTING OF MODVAT CREDIT AVAILED 3,866,347,73 AND UTILIZED ON RAW MATERIALS CONSUMED IN PAYMENT OF EXCISE DUTY ON FINISHED GOODS ACCOUNTED ON THE BASIS OF RAW MATERIAL CONSUMED. -- ------------- -------------- 7,579,926.73 7,579,926.73 --------------- --------------- 10. THE ASSESSING OFFICER DURING THE COURSE OF ASSE SSMENT PROCEEDINGS HAD ISSUED A QUESTIONNAIRE DATED 29.9.2008 TO THE A SSESSEE, WHICH IS PLACED AT PAGES 29 AND 30 OF THE PAPER BOOK. THE L EARNED A.R. FOR THE ASSESSEE HAD REFERRED TO QUERY NOS.13 AND 21 RAISED BY THE ASSESSING OFFICER, WHICH READS AS UNDER : 13. DETAILS OF ADDITION TO FIXED ASSETS.(PL. DONT ATTACH COPIES OF ACCOUNTS) DESCRIPTION OF DATE OF PURCHASE DATE ON WHICH PUT TO USE TOTAL AMOUNT 21.DETAILS OF 43B AND EVIDENCE OF PAYMENTS MADE. 11. IN REPLY DATED 4.11.2008, PLACED AT PAGES 31 AN D 32 OF THE PAPER BOOK, THE ASSESSEE HAD REPLIED AS UNDER: 7 13. THAT THE DETAILS OF ADDITIONS TO FIXED ASSETS, AS REQUIRED BY YOUR GOODSELF IS ENCLOSED HEREWITH FOR YOUR HONOURS KIND REFERENCE. 21. THAT THE DETAILS OF PAYMENTS MADE U/S 43B OF TH E INCOME TAX ACT, 1961 HAS ALREADY BEEN FILED ALONG WITH RETURN OF INCOME FILED BY THE ASSESSEE. HOWEVER, THE DETAILS OF THE SAME ARE BEING ENCLOSED HEREWITH FOR YOUR HONOURS KIND REFERENCE. 12. IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT THE ASSESSING OFFICER HAD NOT RAISED ANY QUERY IN RESPECT OF THE PROVISIONS OF SECTION 145A OF THE ACT. AFTER THE A MENDMENT TO THE SAID SECTION 145A OF THE ACT CERTAIN ADJUSTMENTS ON ACCO UNT OF EXCISE DUTY TO OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK H AVE TO BE MADE. THE CLAIM OF THE ASSESSEE IS THAT IN VIEW OF ANNEXURE-I I TO AUDIT REPORT, THE DETAILS IN THE ACCOUNT OF MODVAT WERE FILED AND THE EFFECT IS NIL. THE POWERS UNDER SECTION 263 OF THE ACT ARE TO BE I NVOKED ON SATISFACTION OF TWIN CONDITIONS OF THE ORDER BEING BOTH ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE. WHERE THE TAX EFFECT BECAUSE OF AN ORDER PASSED BY THE ASSESSING OFFICER IS NIL, SU CH ORDER EVEN IF ERRONEOUS BEING NOT PREJUDICIAL TO THE INTEREST OF REVENUE, IS NOT OPEN TO REVISION UNDER SECTION 263 OF THE ACT. WE VACATE T HE DIRECTIONS OF COMMISSIONER OF INCOME TAX UNDER SECTION 263 ON THI S ISSUE. 13. THE SECOND ISSUE RAISED IN THE APPEAL IS IN CON NECTION WITH THE CLAIM OF DEPRECIATION ON ASSETS WHICH WERE PURCHASE D DURING THE YEAR. FROM THE PERUSAL OF THE QUERY RAISED BY THE ASSESSI NG OFFICER AND THE REPLY GIVEN BY THE ASSESSEE, IT TRANSPIRES THAT THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF ADDITION TO THE FIXED ASSET IN TABULATED FORM AND THE ASSESSING OFFICER HAD CLEARLY STATED THAT PLEAS E DO NOT ATTACH COPIES OF ACCOUNT. THE ASSESSEE CLAIMS TO HAVE PRODUCED T HE RELEVANT BILLS BEFORE THE ASSESSING OFFICER. THE ASSESSEE HAS ALS O FILED TABULATED DETAILS IN RESPECT OF ADDITIONS TO FIXED ASSETS ALO NGWITH DATE OF PURCHASE 8 AND DATE ON WHICH PUT TO USE. THE SAID DETAILS WER E FURNISHED BEFORE THE ASSESSING OFFICER. IN VIEW OF THE SAID INFORMATION BEING AVAILABLE WITH THE ASSESSING OFFICER AND CLAIM OF DEPRECIATION ON ADDITION TO FIXED ASSETS CANNOT BE HELD TO BE NOT VERIFIED BY ASSESSI NG OFFICER DURING ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER HAD ALLOWED THE CLAIM OF DEPRECIATION ON ASSETS ON VERIFICATION OF DETAILS A ND SUCH ORDER OF ASSESSING OFFICER CANNOT BE HELD TO BE ERRONEOUS AN D PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLY WE HOLD THAT THE EXERCISE OF POWER UNDER SECTION 263 OF THE ACT BY THE COMMISSIONER OF INCOME TAX IS NOT WARRANTED IN THE FACTS OF THE CASE. THE ORDER PASS ED BY COMMISSIONER OF INCOME TAX UNDER SECTION 263 IS THUS CANCELLED. TH E GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS ALLOWED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH DAY OF JANUARY, 2012. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 13 TH JANUARY, 2011 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH 9