M/s The Mysore Electrical Industries Ltd., Bangalore V. CIT, Bangalore

ITA 565/BANG/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8712 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-12-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 28-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS NEERA MALHOTRA
• Assessee Lawyers: GURUNATHAN
• Keywords: Search and seizure
• Section: 143(3); 148; 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO.565(BANG.)/2014 (ASSESSMENT YEAR : 2007-08) THE MYSORE ELECTRICAL INDUSTRIES LTD. PB NO.2221, TUMKUR ROAD, BANGALORE APPELLANT VS THE COMMISSIONER OF INCOME-TAX, BANGALORE-III, BANGALORE RESPONDENT ASSESSEE BY : SHRI GURUNATHAN, ADVOCATE REVENUE BY : MRS NEERA MALHOTRA, CIT DATE OF HEARING : 30-12-2015 DATE OF PRONOUNCEMENT : 0 8-01-2016 O R D E R PER SHRI INTURI RAMA RAO, AM THIS APPEAL IS FILED BY THE ASSESSEE COMPANY DIRECT ED AGAINST THE ORDER OF THE LEARNED CIT, BANGALORE-III, BANGALORE DATED 20-03-2014 PASSED U/S 263 OF THE IT ACT, 1961 ( HEREINAFTER REFERRED TO AS THE ACT) FOR THE ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE COMPANY RAISED THE FOLLOWING GROUND S; IT NO.565(BANG)/2014 2 1. THE CONDITIONS PRECEDENT FOR INVOKING THE PROVI SIONS OF SEC.263 OF THE ACT BEING ABSENT, THE ORDER OF THE L D.CIT IS BAD IN LAW AND LIABLE TO BE SET ASIDE. 2. IN LAW AND ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THERE BEING NO ERROR IN THE ASSESSMENT ORDER DATED 30.11.2011 PASSED U/S 143(3)RWS SEC.147 OF THE ACT WHICH IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, THE LD.CIT ERRED IN ASSUMING JURISDICTION U/S 263 OF THE ACT T SET A SIDE THE ASSESSMENT. 3. THE LD. CIT OUGHT TO HAVE APPRECIATED THAT IN LI GHT OF THE FACTS AND ALSO THE SUPPORTING CASE LAW, THE PROVISI ON WAS ON ACCOUNT OF ASCERTAINED LIABILITY AND WAS LIABLE TO BE ALLOWED AS A DEDUCTION AND ACCORDINGLY THERE WAS NO ERROR T O APPLY THE PROVISIONS OF SEC.263 OF THE ACT TO INTERFERE W ITH THE ASSESSMENT ORDER. 4. THE LD.CIT OUGHT TO HAVE FOLLOWED THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF MALABAR IN DUSTRIAL CO. LTD VS CIT(2000) 243 ITR 83(SC) AND IN THE CAS E OF CIT VS MAX INDIA LTD (2007) 295 ITR 282(SC) AND REFRAI NED FROM PASSING THE ORDER U/S 263 OF THE ACT. 5. WITHOUT PREJUDICE, THE LD.CIT OUGHT TO HAVE ACCE PTED THE EXPLANATION OFFERED AND HELD THAT THE PROVISION OF RS.99,80,000/- WAS ON ACCOUNT OF ASCERTAINED INCIDE NCE OF LOSS AND WAS LIABLE TO BE ALLOWED IN THE RELEVANT Y EAR IN ACCORDANCE WITH THE CONSISTENT METHOD OF ACCOUNTING FOLLOWED BY THE ASSESEE UNDER MERCANTILE BASIS COUP LED WITH IT NO.565(BANG)/2014 3 THE ACCOUNTING STANDARD (AS) PROVIDED BY THE INSTIT UTE OF CHARTERED ACCOUNTANTS OF INDIA. 6. ON FACTS, THE LD.CIT OUGHT TO HAVE APPRECIATED T HAT THE DEDUCTION AS CLAIMED WAS CORRECT AND COMPLETE AND H E OUGHT TO HAVE REFRAINED FROM DIRECTING THE AO TO DI SALLOW THE CLAIM. 7. THE KARNATAKA HIGH COURT JUDGMENTS REFERRED TO B Y THE CIT TO JUSTIFY HIS CASE WERE DISTINGUISHABLE AND HA S NO APPLICATION TO THE ASSESSEES CASE AND ON THE OTHER HAND THE CASES CITED BY THE ASSESSEE WOULD SQUARELY APPLY AN D THE LD.CIT ERRED IN NOT CONSIDERING THE CASES BY VAGUEL Y OBSERVING THAT FACTS OF THOSE CASES WERE APPLICABLE WITHOUT JUSTIFYING THE CONCLUSION DRAWN BY HIM. 8. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING, THE ASSESSEE PRAYS THAT THE AP PEAL MAY BE ALLOWED 3. BRIEFLY THE FACTS OF THE CASE ARE THAT ASSESSEE COMPANY IS DULY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF SWITCHGE AR AND COMPONENTS. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-0 8 WAS FILED ON 24-10- 2007 DECLARING TOTAL INCOME AT RS. NIL, AFTER SET O FF OF BROUGHT FORWARD UNABSORBED LOSS OF RS.54,56,733/-. AGAINST THE SAID RETURN OF INCOME THERE WAS NO SCRUTINY ASSESSMENT. HOWEVER, SUBSEQUENTLY THE ASSESSMENT WAS IT NO.565(BANG)/2014 4 RE-OPENED BY ISSUANCE OF NOTICE U/S 148 O THE IT AC T, 1961 DATED 22-04- 2011 AND THE RE-ASSESSMENT WAS COMPLETED AT A TOAL INCOME OF RS.4,49,06,035/- VIDE ORDER DATED 30-11-2011 PASSED U/S 143(3) R.W.W.S147 OF THE IT ACT, AFTER MAKING A DISALLOWAN CE. 4. WHILE, THE MATTER STOOD THUS, LEARNED CIT ISSUED A SHOW CAUSE NOTICE U/S 263 OF THE IT ACT DATED 29-11-2014 CALLI NG UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ASSESSMENT CANNOT BE REVIS ED UNDER THE PROVISIONS OF SEC.263 OF THE IT ACT, AS THE AO HAD FAILED TO CONSIDER AN ITEM OF PROVISION FOR ANTICIPATORY LOSS IN RESPECT OF TU RNKEY PROJECTS OF RS.99,80,000/-. IN RESPONSE TO THE SAID SHOW CAUS E NOTICE, THE ASSESSEE- COMPANY SUBMITTED THAT IT HAD UNDERTAKEN A TURNKEY PROJECT FROM M/S KARNATAKA POWER TRANSMISSION CO.LTD. ( M/S KPTCL ) FOR CONSTRUCTION OF 220 KV DCDC LINE FROM CHIKKODI TO KUDACHI ON TURNKE Y BASIS. M/S KPTCXL HAD ISSUED THE TOTAL PURCHASE ORDER OF RS.76 0.44 LAKHS COMPRISING MATERIAL OF RS.634.93 LAKHS AND CIVIL CO NTRACT OF RS.102.55 LAKHS. IN RESPECT OF THIS TRANSACTION, THE REVENUE HAD BEEN RECOGNIZED IN THE BOOKS OF ACCOUNTS FOLLOWING THE ACCOUNTING STAN DARD-7, IN TERMS OF EXPECTED LOSS OF ANY PARTICULAR CONTRACT SHOULD BE RECOGNIZED AS AN EXPENSE IMMEDIATELY IRRESPECTIVE OF THE STAGE OF CO NTRACT AND THE AMOUNTS OF PROFIT, THAT LIKELY TO BE MADE. IT WAS FURTHE R SUBMITTED THAT THIS METHOD OF ACCOUNTING STANDARD-7 WAS FOLLOWED FROM Y EAR TO YEAR, ON REGULAR BASIS. IT WAS CONTENDED THAT IT WAS NOT A CONTINGENT LIABILITY AS THE IT NO.565(BANG)/2014 5 EVENT HAD ALREADY TAKEN PLACE AND THE LIABILITY WAS MEASURED WITH GREAT RELIABILITY AND THERE IS A CERTAINTY OF OUTFLOW OF RESOURCES AND FURTHER RELIED ON THE FOLLOWING DECISIONS IN SUPPORT OF THE CLAIM. A. CIT VS REALEST BUILDERS & SERVICES LTD 307 ITR 0202(2008) SC B. CIT VS WOODWARD GOVERNER INDIA PVT.LTD. 312 ITR 0254(2009) SC C. CIT & ANR. VS DINESH KUMAR GOEL 331 ITR 0010 (2 011) DELHI HC D. PRAKASH LEASING LTD. VS DCIT 208 TAXMAN 0464(20 12) KAR.HC. E. OIL AND NATURAL GAS CORPN.LTD VS CIT 332 ITR 01 80 (2010) SC F. CIT VS TRIVENI ENGINEERING & INDUSTRIES LTD. 33 6 ITR 0374 (2011) DELHI. HC G. BHARATH EARTH MOVERS LTD VS CIT 245 ITR 428 (20 00) SC H. CIT VS ANSAL HOUSING FINANCE AND LEASING CO. LT D. AND OTHERS 354 ITR 180 (2013)-DELHI HC I. CIT VS ANSAL PROPERTIES AND IND.LTD.352 ITR 637 (2000) DHC 5. THE LEARNED CIT BRUSHING ASIDE THE EXPLANATION OFFERED BY THE ASSESSEE COMPANY HAD HELD THAT PROVISION OF RS.99,8 0,000/- IS A CONTINGENT LIABILITY AS IT IS NOT ASCERTAINABLE AND THEREFORE, HELD THAT THE CLAIM IS NOT ADMISSIBLE AS DEDUCTION IN COMPUTING T HE TAXABLE INCOME OF THE ASSESSEE COMPANY, EXERCISING HIS POWER VESTED U/S 263 OF THE IT ACT DIRECTED THE AO TO MAKE A DISALLOWANCE OF PROVISI ON OF RS.99,80,000/- IT NO.565(BANG)/2014 6 AND DRAWN THE SUPPORT OF THE JURISDICTIONAL HIGH CO URT IN THE CASE OF CIT VS M/S INFOSYS TECH.LTD. VS 341 ITR 293 IN THIS RE GARD. 6. BEING AGGRIEVED BY THE ORDER, THE ASSESSEE COMP ANY IS IN APPEAL BEFORE US. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE VERY SAME ISSUE WAS CONSIDERED BY THE AO DURING THE RE-ASSESS MENT PROCEEDINGS AND HE HAD DRAWN OUR ATTENTION TO PAGE-24,25 OF THE PAP ER BOOK WHEREIN THE QUESTIONNAIRE DATED 26-09-2011 ISSUED BY THE AO IS PLACED. HE HAD DRAWN OUR SPECIFIC ATTENTION TO CLAUSE-P OF TIEM-9 OF THE QUESTIONNAIRE WHEREIN THE DETAILS FOR THE PROVISIONS FOR ANTICIPA TED LOSS OF RS.99,80,000/- WAS CALLED FOR BY THE AO. HE FURTHER SUBMITTED THA T THE QUESTIONNAIRE WAS DULY COMPLIED WITH BY FILING THE EXPLANATION AND NE CESSARY DETAILS. HE HAS DRAWN OUR ATTENTION TO PAGE-75 OF THE PAPER BOOK WH EREIN THE EXPLANATION WAS FILED BEFORE THE AO IN RESPECT OF THE ANTICIPAT ED LOSS OF RS.99,80,000/- HE FURTHER SUBMITTED THAT THE AO AFTER BEING SATISF IED WITH THE EXPLANATION FILED BY THE ASSESSEE COMPANY HAD CHOSEN NOT TO MAK E ANY FURTHER ADDITION ON THIS ITEM. THEREFORE, THE LEARNED COUNSEL CONTE NDED THAT IT IS A CASE OF SUBSTITUTION OF OPINION OF THE AO BY THE CIT, WHICH IS NOT PROPER U/S 263 OF THE ACT AND HE PLACED RELIANCE ON THE DECISION O F THE HONBLE SC IN THE CASE OF MALABAR INDUSTRIAL CO.LTD VS CIT (2000) 243 ITR 83 (SC). ON THE MERITS OF THE ISSUE LEARNED COUNSEL FOR THE ASSESSE E SUBMITS THAT IT IS NOT A PROVISION FOR CONTINGENT LIABILITY AS THE EVENT OF INCURRING LOSS HAD OCCURRED IT NO.565(BANG)/2014 7 ALREADY, WHEN THE ASSESSEE IS REGULARLY FOLLOWING T HE ACCOUNTING STANDARD- 7 FOR THE PURPOSE OF RECOGNIZING THE INCOME AND THE AS-7 MANDATES THAT SUCH LOSS HAS TO BE RECOGNIZED AS THE EXPENSE IMMED IATELY WHEN IT IS KNOWN THAT LOSS IS BOUND TO INCUR. 8. ON THE OTHER HAND, LEARNED DR SUPPORTED THE ORD ER OF THE CIT PASSED U/S 263 OF THE IT ACT AND STATED THAT IT IS THE CASE OF NON-ENQUIRY ON THE ISSUE OF LIABILITY OF THE PROVISION FOR THE ANTICIPATED LOSS OF RS.99,.80,000/- AND ALSO PLACED RELIANCE ON THE DEC ISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS M/S INFOSYS TECH.LTD (SUPRA). ON THE MERITS OF THE ISSUE LEARNED CIT SU BMITTED THAT THE PROVISION IS PURELY CONTINGENT IN NATURE AND CANNOT BE ALLOWED AS DEDUCTION. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AT THE OUTSET, WE SHALL DEAL WITH THE PRIM ARY GROUND RELATING TO THE VALIDITY OF ASSUMPTION OF JURISDICTION BY THE LEARN ED CIT UNDER THE PROVISION OF SEC.263 OF THE T ACT, 1961. A PERUSA L OF THE ORDER PASSED U/S 263 OF THE ACT REVEALS THAT THE POWER OF REVISION U/S 263 OF THE ACT WAS RESUMED BY THE LEARNED CIT TO DISALLOW THE CLAIM OF DEDUCTION OF RS.99,80,000/- STATED TO HAVE BEEN MADE FOR THE ANT ICIPATED LOSS ON TURNKEY CONTRACT. WE FIND FROM THE ASSESSMENT ORD ER PASSED U/S 143(3) R.W.S.147 OF THE IT ACT ON 30-11-2011 THAT THIS ISS UE WAS NOT EXAMINED BY THE AO. EVEN FROM THE QUESTIONNAIRE ISSUED THE AO , HE MERELY CALLED FOR IT NO.565(BANG)/2014 8 THE DETAILS OF THE CLAIM AND EVEN THE EXPLANATION F ILED BY THE ASSESSEE IS ONLY ABOUT THE NATURE OF THE CLAIM BUT DOES NOT EXP LAIN AS TO HOW THE PROVISION IS ALLOWABLE AS AN EXPENDITURE UNDER THE PROVISIONS OF THE ACT. THEREFORE, IT CANNOT BE SAID THAT THE AO HAD APPLIE D HIS MIND TO THE ISSUE AND FORMED A OPINION ABOUT THE ALLOWABILITY OR OTHE RWISE OF THE CLAIM. 10. THE FACTS IN THE PRESENT CASE ARE IDENTICAL TO THE FACTS IN THE CASE CIT VS M/S INFOSYS TECH.LTD(SUPRA)341 ITR 293 WHERE IN THE HONBLE JURISDICTIONAL HIGH COURT HELD THAT ASSUMPTION OF J URISDICTION U/S 263 IS JUSTIFIED WHEN NO ENQUIRY WAS MADE, WHEREIN IT WAS HELD AS FOLLOWS: WE ARE ALSO NOT IN A POSITION TO ACCEPT THE SUBMIS SION THAT THE MATERIALS HAD BEEN PLACED BEFORE THE ASSES SING AUTHORITY AND THEREFORE, THERE SHOULD BE A CONCLUSI ON THAT THE AUTHORITY HAS APPLIED HIS MIND TO THE SAME AND THERE WAS NO QUESTION OF THE COMMISSIONER INTERFERING BY TAKING A DIFFERENT VIEW ETC. ASSESSING AUTHORITY PERFORMS A QUASI-JUDICIAL FUNC TION AND THE REASON FOR HIS CONCLUSIONS AND FINDINGS SHO ULD BE FORTHCOMING IN THE ASSESSMENT ORDER. THOUGH, IT IS URGED ON BEHALF OF THE ASSESSEE BY ITS LEARNED COUNSEL THAT REASONS SHOULD BE SPELT OUT ONLY IN A SITUATION WHERE THE A SSESSING AUTHORITY PASSES AN ORDER AGAINST THE ASSESSEE OR A DVERSE TO THE INTEREST OF THE ASSESSEE AND NO NEED FOR THE ASSESSING AUTHORITY TO SPELL OUT REASONS WHEN THE ORDER IS AC CEPTING THE CLAIM OF THE ASSESSEE AND THE LEARNED COUNSEL S UBMIT THAT THIS IS THE LEGAL POSITION ON AUTHORITY, WE AR E AFRAID THAT IT NO.565(BANG)/2014 9 TO ACCEPT A SUBMISSION OF THIS NATURE WOULD BE TO G IVE A FREE HAND TO THE ASSESSING AUTHORITY, JUST TO PASS ORDER S WITHOUT REASONING AND TO SPELL OUT REASONS ONLY IN A SITUAT ION WHERE THE FINDING IS TO BE AGAINST THE ASSESSEE OR ANY CL AIM PUT FORTH BY THE ASSESEE IS DENIED. WE ARE OF THE CLEAR OPINION THAT THERE CANNOT BE A NY DICHOTOMY OF THIS NATURE, AS EVERY CONCLUSION AND F INDING BY THE ASSESSING AUTHORITY SHOULD BE SUPPORTED BY REAS ONS, HOWEVER, BRIEF IT MAY BE, AND IN A SITUATION WHERE IT IS ONLY A QUESTION OF COMPUTATION IN ACCORDANCE WITH RELEVANT ARTICLES OF A DOUBLE TAXATION AVOIDANCE AGREEMENTS AND THAT SHOULD BE CLEARLY INDICATED IN THE ORDER OF THE ASSESSING AUTHORITY, WHETHER OR NOT THE ASSESSEE HAD GIVEN PARTICULARS O R DETAILS OF IT. IT IS THE DUTY OF THE ASSESSING AUTHORITY T O DO THAT AND IF THE ASSESSING AUTHORITY HAD FAILED IN THAT, MORE SO IN EXTENDING A TAX RELIEF TO THE ASSESSEE, THE ORDER D EFINITELY CONSTITUTES AN ORDER NOT MERELY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THER EFORE, WHILE THE COMMISSIONER WAS JUSTIFIED IN EXERCISING THE JU RISDICTION U/S 263 OF THE ACT, THE TRIBUNAL WAS DEFINITELY NOT JUSTIFIED IN INTERFERING WITH THIS ORDER OF THE COMMISSIONER IN ITS APPELLATE JURISDICTION. THE HONBLE SUPREME COURT I N THE CASE OF MALABAR IND. CO.LTD. (SUPRA) HELD THAT THE ASSESSMENT ORDER IS ERRONEOUS IN THE EVENT OF AN IT EM OF EXPENDITURE IS ACCEPTED IN THE ABSENCE OF ANY SUPPO RTING MATERIAL WITHOUT MAKING ANY ENQUIRY AND THE ASSUMPT ION OF JURISDICTION U/S 263 OF THE IT ACT WAS HELD TO BE J USTIFIED. IT NO.565(BANG)/2014 10 11. THEREFORE, ADOPTING THE SAME RATIO EVEN IN THIS CASE IN THE ABSENCE OF ANY MATERIAL AS WELL AS ENQUIRY BY THE A O ON THIS ISSUE OF PROVISION FOR ANTICIPATED LOSS OF RS.99,80,000/- WE HOLD THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF REVENUE AND THE CIT WAS JUSTIFIED IN REVISING THE ORDER U/S 63 OF THE IT ACT, 1961. 12. ON THE MERITS OF THE ISSUE, IT APPEARS THAT TH E CIT HAD DIRECTED THE AO TO DISALLOW THE CLAIM OF ANTICIPATED LOSS OF RS.99,80,000/- BY MAKING A BALD STATEMENT THAT THE LIABILITY IS NOT A SCERTAINABLE WITHOUT PROPERLY CONSIDERING THE ISSUE FROM ITS PROPER PERS PECTIVE. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE INTEREST OF JUSTICE WOULD BE MET IF THE MATTER IS RESTORED TO THE FILE OF THE CIT FOR LIMIT ED PURPOSE OF EXAMINING THE ISSUE ON MERITS ON THE ALLOWABILITY OR OTHERWISE OF THE CLAIM OF ANTICIPATED LOSS OF RS.99,80,000/- AFTER AFFORDING DUE OPPORTUN ITY OF HEARING TO THE ASSESSEE. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 8 TH JANUARY, 2016. SD/- (N.V.VASUDEVAN) SD/- (INTURI RAMARAO) JUDICIAL MEMBER ACCOUNTAN T MEMBER PLACE: BANGALORE D A T E D : 08-01-2016 AM* IT NO.565(BANG)/2014 11 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER, AR,ITAT, BANGALORE