ACIT, Visakhapatnam V. KV Narasimha Rao, Visakhapatnam

ITA 57/VIZ/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50148 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-03-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 05-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: C KAMESHWARA RAO
• Keywords: Business income; Salary income; Period of limitation; Permanent establishment; Corroborative evidences; Procedural lapse; Assessment record; Time period of passing order

Judgement Text

ITA NO 57 OF 2009 KV NARASIMHA RAO VISAKHAPATNAM PAGE 1 OF 15 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.57/VIZAG/2009 ASSESSMENT YEAR: 2004 - 05 ACIT CIRCLE-3(1) VISAKHAPATNAM VS. K.V. NARASIMHA RAO, VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO:AHCPK 4037 C APPELLANT BY: SHRI D.S. SUNDER SINGH, SR.DR RESPONDENT BY: SHRI C. KAMESHWARA RAO, CA ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE O RDER DATED 25.11.2008 PASSED BY LEARNED CIT(A)-I, VISAKHAPATNAM AND IT RELATES TO THE ASSESSMENT YEAR 2004-05. 2. THE REVISED GROUNDS RAISED BY THE REVENUE READ A S UNDER: 1. THE LEARNED CIT (A) ERRED IN LAW IN DISPOSING T HE APPEAL WITHOUT HAVING JURISDICTION OVER THE CASE AS THE AP PELLATE JURISDICTION LIES WITH THE CIT (A)-XXV, MUMBAI CONS EQUENT TO SERVICE OF THE DEMAND NOTICE. 2. THE LEARNED CIT (A) ERRED IN CONDONING THE DELAY IN THE FILING OF APPEAL, ON THE BASIS OF THE AFFIDAVIT FIL ED BY THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE, WHEREAS, THE AFFIDAVIT IS REQUIRED TO BE FILED BY THE ASSESSEE H IMSELF IN SO MUCH AS HE IS TO AFFIRM THE FACTS IN HIS KNOWLEDGE AS WELL AS THE REASON FOR WHICH DELAY OCCURRED. 3. THE LEARNED CIT (A) ERRED IN NOT CONFIRMING THE ORDER OF THE ASSESSING OFFICER WITH REGARD TO TREATMENT OF I NCOME AS SALARY INCOME AS AGAINST THE CLAIM OF THE APPELLANT THAT IT WAS INCOME FROM BUSINESS OR PROFESSION. ITA NO 57 OF 2009 KV NARASIMHA RAO VISAKHAPATNAM PAGE 2 OF 15 4. THE LEARNED CIT (A) HAS GRIEVOUSLY ERRED IN ALLO WING THE CLAIM OF EXPENDITURE, AS THE ASSESSEE FAILED TO PRO DUCE ANY EVIDENCE WHATSOEVER BEFORE THE ASSESSING OFFICER. D URING THE COURSE OF THE ASSESSMENT PROCEEDINGS, HE OUGHT TO H AVE GOT IT EXAMINED BEFORE ALLOWING IT. 5. THE REVENUE CRAVES TO ADD, ALTER, AMEND AND MODI FY ANY GROUND, AS MAY BE FOUND NECESSARY AT THE TIME OF AP PEAL HEARING. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE IS A MARINE ENGINEER. HE FILED HIS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WITH THE INCOME TAX OFFICER-25(2)(4), MUMBAI. THE SAID ASSESSING OFFICER COMPLETED THE ASSESSMENT THERE OF ON 15-12-2006. AS PER THE DEMAND NOTICE ISSUED TO THE ASSESSEE, THE A PPEAL LIES WITH LEARNED CIT(A)-XXV, MUMBAI. HOWEVER THE ASSESSEE FILED THE APPEAL AGAINST THE SAID ASSESSMENT ORDER BEFORE LEARNED CIT(A), VISAKH APATNAM ON 24.09.2007 WITH A DELAY OF ABOUT EIGHT MONTHS. THE LEARNED CIT (A), VISAKHAPATNAM HEARD THE SAID APPEAL FILED ON 12-11- 2008 AND PASSED ORDER ON 25-11-2008. AGAINST THE SAID ORDER OF THE LEARNE D CIT (A) THE REVENUE HAS FILED THIS APPEAL BEFORE US RAISING OBJECTIONS ON TECHNICAL ISSUES AND ALSO ON MERITS. 4. IN THE FIRST GROUND, THE REVENUE IS CONTENDING THAT THE LEARNED CIT(A), VISAKHAPATNAM HAS NO JURISDICTION TO PASS THE IMPUG NED APPELLATE ORDER. THE FACTS RELATING TO THE SAME ARE STATED IN BRIEF. AS STATED EARLIER, THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION WAS COM PLETED BY THE ITO IN MUMBAI AND HENCE NORMALLY THE APPEAL LIES WITH THE LEARNED CIT(A) IN MUMBAI. HOWEVER, AFTER THE COMPLETION OF THE IMPUG NED ASSESSMENT, THE ASSESSEE SHIFTED HIS PERMANENT ESTABLISHMENT FROM M UMBAI TO VISAKHAPATNAM. ACCORDINGLY, VIDE LETTER DATED 12-9- 2007, HE REQUESTED THE INCOME TAX OFFICER MUMBAI TO TRANSFER THE RECORD TO THE INCOME TAX OFFICE, VISAKHAPATNAM AND THE COPIES OF SAID LETTER WERE MA RKED TO COMMISSIONER ITA NO 57 OF 2009 KV NARASIMHA RAO VISAKHAPATNAM PAGE 3 OF 15 OF INCOME TAX LOCATED AT MUMBAI AND VISAKHAPATNAM. AFTER SENDING THE ABOVE CITED LETTER, THE ASSESSEE FILED THE IMPUGNED APPEAL BEFORE THE LEARNED CIT (A) VISAKHAPATNAM ON 24-9-2007, WITHOUT WAITING FOR THE ORDER FOR TRANSFERRING THE ASSESSMENT RECORDS. THERE AFT ER THE ASSESSEE SENT ANOTHER LETTER WITH A SIMILAR REQUEST ON 26-12-2007 TO THE INCOME TAX OFFICER, MUMBAI AND THE COPIES OF SAID LETTER WERE MARKED TO CHIEF COMMISSIONER OF INCOME TAX, VISAKHAPATNAM AND ALSO TO THE COMMISSIONERS OF INCOME TAX, LOCATED AT VISAKHAPATNA M AND CHENNAI. THEREAFTER THE ASSESSEE STARTED FILING HIS RETURN O F INCOME WITH THE INCOME TAX OFFICE, VISAKHAPATNAM. FOR ASSESSMENT YEAR 2007 -08, HE FILED THE RETURN OF INCOME ON 15.10.2007 AND FOR ASSESSMENT YEAR 200 8-09, THE RETURN OF INCOME WAS FILED ON 16.9.2008. THE RETURN OF INCOM E FILED FOR ASSESSMENT YEAR 2007-08 WAS ALSO PROCESSED UNDER SECTION 143(1 ) BY ACIT, CIRCLE-3(1) VISAKHAPATNAM ON 24-7-2008. AS PER THE DOCUMENT FIL ED BY THE REVENUE BEFORE US, THE ASSESSEES RECORDS WERE TRANSFERRED FROM MUMBAI TO VISAKHAPATNAM ON 12.8.2008. AS STATED EARLIER, THE LEARNED CIT(A), VISAKHAPATNAM HEARD THE APPEAL ON 12.11.2008 AND DI SPOSED OF THE SAME ON 25.11.2008. 4.1 ACCORDING TO THE LEARNED DEPARTMENTAL REPRE SENTATIVE, THE ASSESSEE SHOULD HAVE FILED THE APPEAL AT MUMBAI AND THEN HE SHOULD HAVE ASKED FOR TRANSFER OF THE SAME TO LEARNED CIT(A), VISAKHAPATN AM. ONLY IF THE PROCEDURE STATED ABOVE HAD BEEN FOLLOWED, THE LD CI T(A), VISAKHAPATNAM WOULD HAVE GOT PROPER JURISDICTION TO ADJUDICATE TH E IMPUGNED APPEAL. SINCE THE ASSESSEE HAS FAILED TO FOLLOW THE PROCEDU RE STATED ABOVE, THE LEARNED CIT(A), VISAKHAPATNAM CANNOT BE SAID TO HAV E JURISDICTION OVER THE IMPUGNED APPEAL AND CONSEQUENTLY HIS ORDER IS LIABL E TO BE QUASHED. 4.2 HOWEVER, THE LEARNED AUTHORISED REPRESENTAT IVE SUBMITTED THAT THE MISTAKES POINTED OUT BY LEARNED D.R CAN ALMOST BE T REATED AS PROCEDURAL ITA NO 57 OF 2009 KV NARASIMHA RAO VISAKHAPATNAM PAGE 4 OF 15 LAPSE AND FOR SUCH KIND OF PROCEDURAL LAPSES, THE O RDER OF LEARNED CIT(A) CANNOT BE HELD TO BE INVALID OR WITHOUT JURISDICTIO N. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS FIRST FILED A LETTER ON 12-09 -2007 TO THE ASSESSING OFFICER, MUMBAI GIVING INTIMATION OF CHANGE OF HIS PERMANENT ESTABLISHMENT AND ACCORDINGLY REQUESTED HIM TO TRANSFER THE RECOR DS FROM MUMBAI TO VISAKHAPATNAM. THE COPIES OF SAID LETTER WERE ALSO SENT TO THE COMMISSIONER OF INCOME TAX LOCATED BOTH AT MUMBAI AN D VISAKHAPATNAM. ONLY AFTER FILING THE ABOVE SAID LETTER, THE ASSESS EE HAS FILED THE IMPUGNED APPEAL BEFORE THE LEARNED CIT(A), VISAKHAPATNAM IN GOOD FAITH AND WITH THE BELIEF THAT HIS ASSESSMENT RECORDS WOULD BE TRANSFE RRED FROM MUMBAI TO VISAKHAPATNAM. WITH THE SAME BELIEF ONLY, THE ASSE SSEE HAS ALSO STARTED FILING RETURNS OF INCOME FOR THE SUBSEQUENT YEARS W ITH THE INCOME TAX OFFICE, VISAKHAPATNAM AND HIS RETURN OF INCOME FOR ASSESSME NT YEAR 2007-08 WAS ALSO PROCESSED BY ACIT, CIRCLE-3(1), VISAKHAPATNAM ON 24.7.08 AND REFUND OF RS.41,522/- WAS ALSO GRANTED, I.E. EVEN PRIOR TO THE TRANSFER OF RECORDS FROM MUMBAI TO VISAKHAPTNAM ON 12.8.2008. IN ANY CA SE, THE LEARNED CIT(A) HAS HEARD THE APPEAL AND PASSED THE IMPUGNED ORDER ONLY AFTER SUCH TRANSFER OF RECORD. HE ACCORDINGLY SUBMITTED THAT THE ASSESSEE HAS ALL THROUGH ACTED IN GOOD FAITH AND HENCE THE PROCEDURA L OR TECHNICAL LAPSES IF ANY, WOULD NOT INVALIDATE THE ORDER PASSED BY LEARN ED CIT(A). THE LEARNED A.R ALSO RELIED UPON CERTAIN CASE LAW ON THE IMPUGN ED SUBJECT AND THEY ARE DEALT WITH IN SUBSEQUENT PARAGRAPHS. 4.3 WE HAVE HEARD THE RIVAL SUBMISSIONS ON THE IMPUGNED ISSUE OF JURISDICTION OF LEARNED CIT(A). SECTION 120(1) OF THE ACT STATES THAT THE INCOME TAX AUTHORITIES SHALL EXERCISE THEIR POWERS IN ACCORDANCE WITH SUCH DIRECTIONS AS THE BOARD MAY ISSUE. AS PER SEC. 120( 3), FOLLOWING CRITERIA SHALL BE TAKEN REGARD OF VIZ., (A) TERRITORIAL AREA; (B) PERSONS OR CLASS OF PERSONS; (C) INCOMES OR CLASSES OF INCOME; AND (D) CASES OR CLASSES OF CASES. UNDER SECTION 124 STATES ABOUT THE JURISDICTION OF THE AS SESSING OFFICERS. SEC. 127 ITA NO 57 OF 2009 KV NARASIMHA RAO VISAKHAPATNAM PAGE 5 OF 15 OF THE ACT PROVIDES FOR TRANSFER OF CASES FROM ONE ASSESSING OFFICER TO ANOTHER ASSESSING OFFICER. AS PER SEC. 124(4), THE DISPUTE WITH REGARD TO THE JURISDICTION OF THE ASSESSING OFFICER SHALL BE DECIDED BY THE DIRECTOR GENERAL/CHIEF COMMISSIONER/COMMISSIONER. THUS IT C OULD BE SEEN THAT THE ISSUE REGARDING JURISDICTION OF ASSESSING OFFICER I S TREATED AS AN ADMINISTRATIVE ISSUE. THE ACT DOES NOT PRESCRIBE A NY PROCEDURE, IF THE ASSESSEE IS NOT SATISFIED WITH THE DECISION OF DIRE CTOR GENERAL/CHIEF COMMISSIONER/COMMISSIONER. 4.4 IT IS TO BE NOTED HERE THAT THERE IS NO SPEC IFIC PROVISION IN THE ACT WHICH PRESCRIBES THE JURISDICTION OF THE LEARNED CI T(A). DURING THE COURSE OF HEARING, IT WAS SUBMITTED BY LEARNED D.R THAT TH E JURISDICTION OF LEARNED CIT(A) IS DECIDED ON THE BASIS OF THE JURISDICTION OF THE ASSESSING OFFICER ONLY. HOWEVER THE REVENUE DID NOT BRING ANY DIRECT IONS/ORDERS ISSUED BY CBDT IN THIS REGARD. FURTHER, IT IS ALSO NOT KNOWN WHETHER THE CBDT HAS ADDRESSED THE ISSUE OF JURISDICTION OF LEARNED CIT( A), WHENEVER THERE IS TRANSFER OF CASES FROM ONE ASSESSING OFFICER TO ANO THER ASSESSING OFFICER. HENCE WE PROCEED TO DISPOSE OF THIS GROUND ON THE B ASIS OF RIVAL CONTENTIONS AND MATERIAL ON RECORD. 4.5 IN THE INSTANT CASE, WE HAVE ALREADY NOTICED THAT THE ASSESSEE, AFTER FILING A LETTER DATED 12.9.2007 REQUESTING FOR TRAN SFER OF RECORDS, HAS PREFERRED APPEAL BEFORE LEARNED CIT(A), VISAKHAPATN AM AGAINST THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER LO CATED AT MUMBAI. THERE AFTER THE ASSESSEE HAS ALSO STARTED FILING HIS RETU RN OF INCOME FOR THE SUBSEQUENT YEARS ALSO IN THE INCOME TAX OFFICE, VIS AKHAPATNAM. IT IS PERTINENT TO NOTE THAT HIS RETURN OF INCOME FOR ASS ESSMENT YEAR 2007-08 WAS PROCESSED IN THE INCOME TAX OFFICE, VISAKHAPATNA M AND REFUND WAS ALSO GRANTED, PRIOR TO THE DATE OF TRANSFER OF RECO RDS. THE ASSESSMENT RECORDS WERE ACTUALLY TRANSFERRED ON 12.08.2008. T HUS, FROM THE CONDUCT OF ITA NO 57 OF 2009 KV NARASIMHA RAO VISAKHAPATNAM PAGE 6 OF 15 THE ASSESSEE NARRATED ABOVE, IT IS SEEN THAT THE AS SESSEE HAS ACTED IN GOOD FAITH ALL THROUGH, WITH THE FIRM BELIEF THAT HIS AS SESSMENT RECORDS WOULD BE TRANSFERRED FROM MUMBAI INCOME TAX OFFICER TO VISAK HAPATNAM INCOME TAX OFFICE. WE HAVE ALSO NOTICED THAT THE LEARNED CIT( A) HAS HEARD THE APPEAL AND ALSO PASSED THE ORDER ONLY AFTER THE TRANSFER O F RECORDS FROM MUMBAI TO VISAKHAPATNAM. WE WERE TOLD THAT THE LEARNED CIT(A ) ISSUES THE NOTICE OF HEARING TO THE ASSESSING OFFICER ALSO, BUT THE ASSE SSING OFFICER DID NOT RAISE THE ISSUE OF JURISDICTION BEFORE LEARNED CIT(A). H OWEVER, AT THE TIME OF HEARING BEFORE US, THE LEARNED D.R CONTENDED THAT T HE NOTICE OF HEARING WAS NOT SERVED ON THE ASSESSING OFFICER; BUT HE COU LD NOT SUBSTANTIATE HIS CONTENTIONS WITH ANY EVIDENCE. 4.6 THE PRESENT APPEAL WAS ORIGINALLY FILED BY T HE DEPARTMENT IN FEBRUARY, 2009. IN THE ORIGINAL GROUNDS OF APPEAL, THE ISSUE OF JURISDICTION WAS NOT RAISED. LATER THE DEPARTMENT HAS RILED REVISED GR OUNDS OF APPEAL IN FEBRUARY 2011 AND IN THAT THE DEPARTMENT HAS RAISED THE ISSUE OF JURISDICTION OF LEARNED CIT(A). DURING THE COURSE OF HEARING, THE LEARNED A.R ALSO SUBMITTED THAT IF THE DEPARTMENTS OBJECTI ON IS ACCEPTED FOR A MOMENT, THEN THE ASSESSING OFFICER, WHO FILED THE P RESENT APPEAL AND THE LEARNED CIT, WHO AUTHORISED THE FILING OF APPEAL AL SO CANNOT HAVE JURISDICTION TO INSTITUTE THE PRESENT APPEAL BEFORE THIS BENCH OF THE TRIBUNAL. IN THAT CASE, THE LEARNED CIT SHOULD HAVE REQUESTED THE LEARNED CIT, MUMBAI TO FILE APPEAL BEFORE THE ITAT, MUMBAI AGAIN ST THE IMPUGNED APPELLATE ORDER. ACCORDINGLY, IT WAS SUBMITTED BY LEARNED A.R THAT THE DEPARTMENT HAS INDIRECTLY ACCEPTED THE JURISDICTION OF LEARNED CIT(A) BY THEIR CONDUCTS AT DIFFERENT STAGE, I.E. THEY HAVE A CCEPTED AND PROCESSED THE RETURN OF INCOME FILED BY THE ASSESSEE; THEY DID N OT RAISE ANY OBJECTION BEFORE LEARNED CIT(A); THEY HAVE FILED APPEAL BEFOR E THE TRIBUNAL AND HENCE THEY ARE NOT ENTITLED TO RAISE THE ISSUE OF JURISDI CTION FOR THE FIRST TIME BEFORE THE TRIBUNAL THAT TOO, AFTER PASSING OF MORE THAN T HREE YEARS FROM THE DATE ITA NO 57 OF 2009 KV NARASIMHA RAO VISAKHAPATNAM PAGE 7 OF 15 OF FILING OF APPEAL BY THE ASSESSEE. IN THIS REGARD , THE LEARNED A.R TOOK SUPPORT FROM THE FOLLOWING CASE LAW:- (A) RAJA OF VENKATAGIRI VS. CIT (1955) (28 ITR 189 (A.P) (B) KAKUNURU VENKATA REDDY VS. CIT (1979) (118 ITR 917 (A.P) 4.7 IN THE CASE OF RAJA OF VENKATAGIRI, (SUPRA) , THE ISSUE WAS WHETHER THE APPELLATE AUTHORITY WAS RIGHT IN ADMITTING AND DISPOSING OF THE APPEAL FILED BY THE ASSESSEE, EVEN IF THE ASSESSEE DID NOT PAY THE TAX. AS PER SEC. 30(1) OF THE INCOME TAX ACT, 1922, NO APPEAL SHALL LIE UNLESS THE TAX HAS BEEN PAID. THE ASSESSEE THEREIN WAS GRANTED INSTAL MENTS TO PAY THE TAX. BY THE TIME THE APPELLATE AUTHORITY DISPOSED OF THE APPEAL, THE ASSESSEE HAD ALREADY PAID THE TAX. THE REVENUE RAISED THE QU ESTION OF JURISDICTION OF APPELLATE ASSISTANT COMMISSIONER (AAC) FOR THE FIRS T TIME BEFORE THE TRIBUNAL BECAUSE, AS PER SEC. 30(1) OF 1922 ACT, NO APPEAL SHALL LIE UNLESS THE TAX HAS BEEN PAID. THE REVENUE DID NOT RAISE T HE ISSUE OF JURISDICTION BEFORE AAC AND ALLOWED THE APPEAL TO BE DISPOSED OF ON MERITS. THE HON'BLE JURISDICTIONAL HIGH COURT HELD THAT IN THIS KIND OF SITUATION, IT IS NOT OPEN TO CONTEND THE SAID ISSUE FOR THE FIRST TIME B EFORE THE TRIBUNAL. THOUGH THE FACTS IN THIS CASE ARE DIFFERENT, YET TH E RATIO OF THIS DECISION IS THAT THE DEPARTMENT SHOULD FIRST RAISE ITS OBJECTIO NS OVER SUCH KIND OF TECHNICAL MATTERS BEFORE THE APPELLATE AUTHORITY. 4.8 IN THE CASE OF KAKUNURU VENKATA REDDY, (SUP RA), EX-PARTE ORDER WAS PASSED IN THE HANDS OF THE ASSESSEE, SINCE HE DID N OT FILE ANY RETURN OF INCOME IN RESPONSE TO THE NOTICE ISSUED TO HIM. IN THE APPEAL FILED BEFORE THE APPELLATE AUTHORITY, SUBSTANTIAL RELIEF WAS GRA NTED. HENCE THE REVENUE FILED APPEAL BEFORE THE TRIBUNAL AND THE ASSESSEE F ILED CROSS OBJECTION. IN THE FIRST APPEAL AS WELL AS IN THE CROSS OBJECTION, THE ASSESSEE RAISED THE QUESTION OF JURISDICTION OF THE INCOME TAX OFFICER, WITHOUT RAISING THE SAME BEFORE THE INCOME TAX OFFICER. SINCE THE ASSESSEE WAS UNSUCCESSFUL ON THIS ITA NO 57 OF 2009 KV NARASIMHA RAO VISAKHAPATNAM PAGE 8 OF 15 GROUND, HE FILED APPEAL BEFORE THE HIGH COURT. THE HON'BLE JURISDICTIONAL HIGH COURT ANSWERED THE TERRITORIAL ISSUE AGAINST T HE ASSESSEE. WHILE DECIDING THE ISSUE THE HON'BLE HIGH COURT ALSO CONS IDERED SEC. 21 OF CPC. THE RELEVANT OBSERVATIONS OF THE JURISDICTIONAL HIG H COURT ARE EXTRACTED BELOW: 6. IN THE CASE OF INHERENT LACK OF JURISDICTION BEF ORE AN AUTHORITY, THE QUESTION OF JURISDICTION CAN BE RAIS ED AT ANY STAGE OF THE ENQUIRY AND EVEN IN COLLATERAL PROCEED INGS IS WELL KNOWN. THE OBJECTION BASED ON TERRITORY IS NOT IN T HAT SENSE A FUNDAMENTAL QUESTION. THE IT ACT (S.124) EVOLVED A SCHEME WITH A VIEW TO WORK OUT SUCH OBJECTIONS. A PROCEDUR E IS LAID DOWN IN SUB-S.(5) AND (6) OF S.124: COULD IT BE BYP ASSED AND SAID THAT THE ASSESSEE IS CLOTHED WITH THE RIGHT TO OBJECT TO THE JURISDICTION OF THE OFFICER AND HIS AUTHORITY WITHO UT RECOURSE TO THE PROCEDURE IN SUB SS.(5) AND (6)?. THE ANSWER HA VING REGARD TO THE SCHEME, IN OUR VIEW, SHOULD BE IN THE NEGATIVE. THE LEGAL MAXIM GENERALIBUS SPECIALIA DEROGANT ALSO INDICATES THAT THE RIGHT HAS TO BE WORKED OUT WITHIN THE FRAM EWORK OF THE SCHEME AND IT IS REASONABLE TO HOLD THAT THE PL EA IS NOT ENTERTAINABLE AND THE ASSESSEE IS PRECLUDED AT SUBS EQUENT STAGES OF THE PROCEEDINGS UNDER THE ACT. . 8. THEREFORE, ON THE FACTS IT IS NOT POSSIBLE TO HOLD THAT CL.(B) OF SUB-S.(5) IS NOT ATTRACTED. APART FROM THE PROVISIONS IN THE ACT, THE GENERAL P RINCIPLES GOVERNING APPEALS INDICATE OBJECTIONS BASED AS TO TERRITORY SHOULD BE DECIDED AT THE INCEPTION AND AT THE EARLI EST OPPORTUNITY. SEC.21 OF THE CPC IS A POINTER IN THAT DIRECTION. IN SCOTLAND THE PRINCIPLE FORUM NON CONVENIENS SPE AKS OF SUCH A RIGHT. THE WORD CONVENIENS IN SCOTTISH LAW IS NOT THE SAME AS THE WORD CONVENIENCE IN ENGLISH. LORD DUN EDIN POINTS OUT THAT IN SCOTTISH LAW CONVENIENS MEANS APPRO- PRIATE (1962 SUPREME COURT (HL) PAGE 18). THE WHOL ESOME PRINCIPLE IS NOW BEING GRAFTED IN ENGLAND. THE RIGH T TO OBJECT TO THE SEAT OF JUDGMENT IN OUR JURISPRUDENCE MUST BE DECIDED AT THE INCEPTION, OTHERWISE THE FORUM SHOP PING (THE EXPRESSION HAS NO IMPLICATION IN A PEJORATIVE SENSE ) IN SEQUEL IF ALLOWED AT LATER STAGES BRINGS FORTH THE LAMENTA BLE CONSEQUENCE OF MAKING THE ENTIRE PROCEEDINGS IN VAI N. THE ASSESSEE AND THE REVENUE BOTH UNDER THE IT ACT (IF OBJECTION ITA NO 57 OF 2009 KV NARASIMHA RAO VISAKHAPATNAM PAGE 9 OF 15 IS NOT RAISED BEFORE THE ITO) HAVE HAD DISSIPATED I N THE END THEIR TIME AND ENERGY IN SLEEVELESS ERRAND. 4.9 FOR THE SAKE OF CONVENIENCE, WE EXTRACT BEL OW SEC. 21 OF THE CODE OF CIVIL PROCEDURE, 1908: 21. OBJECTIONS TO JURISDICTION:- (1) NO OBJECTION AS TO THE PLACE OF SUING SHALL BE ALLO WED BY ANY APPELLATE OR REVISIONAL COURT UNLESS SUCH OBJEC TION WAS TAKEN IN THE COURT UNLESS SUCH OBJECTION WAS TA KEN IN THE COURT OF FIRST INSTANCE AT THE EARLIEST POSSIBL E OPPORTUNITY AND IN ALL CASES WHERE ISSUES ARE SETTL ED AT OR BEFORE SUCH SETTLEMENT, AND UNLESS THERE HAS BEEN A CONSEQUENT FAILURE OF JUSTICE. (2) NO OBJECTION AS TO THE COMPETENCE OF A COURT WITH REFERENCE TO THE PECUNIARY LIMITS OF ITS JURISDICTI ON SHALL BE ALLOWED BY ANY APPELLATE OR REVISIONAL COURT UNLESS SUCH OBJECTION WAS TAKEN IN THE COURT OF FIRST INSTANCE AT THE EARLIEST POSSIBLE OPPORTUNITY, AND, IN ALL CASES WH ERE ISSUES ARE SETTLED, AT OR BEFORE SUCH SETTLEMENT, A ND UNLESS THERE HAS BEEN A CONSEQUENT FAILURE OF JUSTI CE. (3) NO OBJECTION AS TO THE COMPETENCE OF THE EXECUTING COURT WITH REFERENCE TO THE LOCAL LIMITS OF ITS JURISDICT ION SHALL BE ALLOWED BY ANY APPELLATE OR REVISIONAL COURT UNLESS SUCH OBJECTION WAS TAKEN IN THE EXECUTING COURT AT THE E ARLIEST POSSIBLE OPPORTUNITY AND UNLESS THERE HAS BEEN A CONSEQUENT FAILURE OF JUSTICE. 4.10 THUS IT IS SEEN THAT, AS PER THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT AND ALSO AS PER SEC. 21 OF CPC, THE ISSU E WITH REGARD TO THE TERRITORIAL JURISDICTION OF LEARNED CIT(A) SHOULD H AVE BEEN RAISED BEFORE THE LEARNED CIT(A) HIMSELF AT THE EARLIEST POSSIBLE OPP ORTUNITY OR OTHERWISE IT SHOULD BE SHOWN THAT THERE HAS BEEN A CONSEQUENT FA ILURE OF JUSTICE. IN OUR VIEW, THE ABOVE SAID LEGAL PROPOSITIONS SHALL EQUAL LY APPLY TO THE REVENUE ALSO. IN THE INSTANT CASE, THE REVENUE HAS NOT RAI SED THE INSTANT ISSUE ITA NO 57 OF 2009 KV NARASIMHA RAO VISAKHAPATNAM PAGE 10 OF 15 BEFORE LEARNED CIT(A). IT WAS ALSO NOT SHOWN BEFORE US THAT THERE WAS A CONSEQUENT FAILURE OF JUSTICE. HENCE, IN OUR VIEW, THE REVENUE IS PRECLUDED FROM RAISING THE ISSUE OF JURISDICTION OF LEARNED C IT(A) AT THIS STAGE AND ACCORDINGLY WE DISMISS THE SAID GROUND OF REVENUE. 5. THE NEXT GROUND RELATES TO THE ISSUE OF VALI DITY OF AFFIDAVIT FILED BY THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE EXPLAININ G THE REASONS FOR THE DELAY IN FILING THE APPEAL BEFORE LEARNED CIT(A). THE FACTS RELATING TO THE SAID ISSUE ARE STATED IN BRIEF. THE ASSESSEE FILED APPEAL BEFORE THE LEARNED CIT (A) BEYOND THE LIMITATION PERIOD WITH A DELAY O F ABOUT EIGHT MONTHS. THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE FILED AN AFFIDAVIT EXPLAINING THE REASONS FOR THE DELAY IN FILING THE APPEAL. O N THE STRENGTH OF THE SAID AFFIDAVIT, THE LEARNED CIT(A) CONDONED THE DELAY AN D ADMITTED THE APPEAL. ACCORDING TO THE REVENUE, THE AFFIDAVIT IN SUCH KIN D OF SITUATION IS REQUIRED TO BE FILED BY THE ASSESSEE HIMSELF, AS HE HAS TO A FFIRM THE FACTS WHICH ARE WITHIN HIS KNOWLEDGE AND THE REASONS ARE KNOWN TO H IM ONLY. THE LEARNED D.R REITERATED THE SAME CONTENTIONS BEFORE US. 5.1 HOWEVER THE LEARNED AUTHORISED REPRESENTATI VE, BY PLACING RELIANCE ON THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF ITO VS. P.B. BABU REPORTED IN (1995) 213 ITR 219 (KER), SUBMITTE D THAT IT IS NOT COMPULSORY THAT THE ASSESSEE HIMSELF HAS TO FILE AN AFFIDAVIT IN SUPPORT OF THE CONDONATION PETITION. 5.2 WE HAVE GONE THROUGH THE DECISION IN THE CA SE OF P.B.BABU REFERRED (SUPRA). IN THAT CASE THE HON'BLE KERALA HIGH COUR T HAS HELD AS UNDER: IT IS ALSO NOT COMPULSORY THAT THE COMPLAINANT HIM SELF HAS TO FILE AN AFFIDAVIT IN SUPPORT OF THE CONDONATION PET ITION. ANY PERSON WHO IS ACQUAINTED WITH THE FACTS OF THE CASE AND THE PERSON WHO IS IN THE KNOW OF THINGS IS COMPETENT TO FILE AN AFFIDAVIT JUSTIFYING THE GROUNDS FOR NOT FILING THE APPEAL IN TIME. THEREFORE, THERE IS NO MERIT IN THE ABOVE TWO ITA NO 57 OF 2009 KV NARASIMHA RAO VISAKHAPATNAM PAGE 11 OF 15 CONTENTIONS RAISED BY THE LEARNED COUNSEL FOR THE RESPONDENT. THUS IT IS HELD BY HON'BLE KERALA HIGH COURT THAT T HE AFFIDAVIT CAN BE FILED BY ANY PERSON WHO IS ACQUAINTED WITH THE FACTS OF THE CASE. IN THE INSTANT CASE, IT WAS SUBMITTED BY THE LEARNED AUTHORISED RE PRESENTATIVE THAT HE WAS FULLY ACQUAINTED WITH THE FACTS AND HENCE HE HI MSELF FILED THE AFFIDAVIT EXPLAINING THE REASONS FOR THE DELAY IN FILING THE APPEAL BEFORE THE LEARNED CIT (A). IN VIEW OF THE DECISION OF THE HON'BLE KE RALA HIGH COURT CITED ABOVE, THE CONTENTION OF THE REVENUE THAT THE ASSES SEE HIMSELF HAS TO FILE THE AFFIDAVIT FAILS AND ACCORDINGLY WE DISMISS THE GROUND RELATING TO THE SAME. 6. IN THE NEXT GROUND THE REVENUE IS ASSAILING THE DECISION OF LEARNED CIT(A) IN HOLDING THAT THE INCOME RECEIVED BY THE A SSESSEE IS ASSESSABLE AS BUSINESS INCOME. THE FACTS RELATING TO THE SAID IS SUE ARE STATED IN BRIEF. AS STATED EARLIER, THE ASSESSEE IS A MARINE ENGINEER. HE WAS EMPLOYED WITH M/S SHIPPING CORPORATION OF INDIA LTD (SCI) EARLIER AND ALSO FOR SOME PART OF THE YEAR UNDER CONSIDERATION. THEREAFTER, HE RESIG NED THE JOB AND STARTED HIS OWN PROFESSIONAL CONSULTANCY CONCERN BY NAME O CEANIC OFFSHORE SERVICES. HE ENTERED INTO A CONTRACT WITH A CONCE RN NAMED M/S EVANGROVE SHIPPING (P) LTD FOR OFFERING CONSULTANCY SERVICES AND RECEIVED A SUM OF RS.15,13,926/-, AGAINST WHICH HE CLAIMED EXPENDITUR E TO THE TUNE OF RS.10,71,901/-. DURING THE COURSE OF ASSESSMENT PR OCEEDING, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE WHILE WORKING WIT H SCI, HAD ACTUALLY WORKED IN A SHIP NAMED MSV SAMUDRA SURAKSHA. THE SAID SHIP HAD BEEN TAKEN ON A CONTRACT BY SCI FROM ONGC. LATER THE SC I SUB-LET THE SAID CONTRACT TO A COMPANY NAMED M/S EVANGROVE SHIPPING PVT. LTD. IN THIS PROCESS, THE ASSESSEE CONTINUED TO PROVIDE SERVICES IN THE SAME SHIP. WHILE THE ASSESSEE HAD OFFERED THE INCOME RECEIVED FROM S CI AS SALARY INCOME, HE HAS OFFERED THE INCOME RECEIVED FROM M/S EVANGRO VE SHIPPING PVT. LTD ITA NO 57 OF 2009 KV NARASIMHA RAO VISAKHAPATNAM PAGE 12 OF 15 AS PROFESSIONAL INCOME. HENCE THE ASSESSING OFFI CER EXAMINED THE TERMS OF CONTRACT ENTERED BETWEEN THE ASSESSEE AND M/S EV ANGROVE SHIPPING SERVICES AND CAME TO THE CONCLUSION THAT THE ASSESS EE HAS ONLY RECEIVED SALARY UNDER THE GARB OF CONSULTANCY SERVICES. A CCORDINGLY THE ASSESSING OFFICER ASSESSED THE ENTIRE RECEIPT OF RS.15,13,926 /- UNDER THE HEAD INCOME FROM SALARY. HE FURTHER HELD THAT THE EXP ENDITURE OF RS.10,86,174/- CLAIMED BY THE ASSESSEE CANNOT BE AL LOWED AS THE ASSESSEE HAS FAILED TO ADDUCE SUPPORTING EVIDENCES, EVEN IF THE RECEIPT OF RS.15,13,926/- IS TREATED AS BUSINESS RECEIPTS. IN THE APPEAL PROCEEDINGS, THE LEARNED CIT(A) HELD THAT THE AMOUNT OF RS.15,13 ,926/- RECEIVED BY THE ASSESSEE HAS TO BE TREATED AS BUSINESS RECEIPTS. W ITH REGARD TO THE EXPENDITURE CLAIMED BY THE ASSESSEE, THE LEARNED CI T(A) DIRECTED THE ASSESSING OFFICER TO MAKE A DISALLOWANCE OF 10% OF THE SAID CLAIM. 6.1 THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBM ITTED THAT THE ASSESSEE IS CONTINUED TO BE EMPLOYED IN THE SAME SH IP AND THERE WAS ONLY CHANGE IN THE MANAGEMENT. THE TERMS OF CONTRACT CLE ARLY SHOW THAT THE RELATIONSHIP BETWEEN THE PARTIES WAS ONLY AN EMPLOY ER-EMPLOYEE RELATIONSHIP. ACCORDINGLY HE CONTENDED THAT THE IMP UGNED RECEIPT OF RS.15,13,926/- HAS TO BE ASSESSED ONLY UNDER THE HE AD INCOME FROM SALARY. ON THE CONTRARY, THE LEARNED A.R PLACED H EAVY RELIANCE ON THE ORDER OF LEARNED CIT(A). 6.2 WE NOTICE THAT THE ASSESSEE HAS ADVANCED FO LLOWING CONTENTIONS BEFORE LEARNED CIT(A), VIZ., (A) UNLIKE SALARY INCOME, HIS MONTHLY REC EIPTS ARE NOT OF IDENTICAL AMOUNT. (B) THE STATUTORY ALLOWANCES LIKE PF, ESI ARE NOT ALLOWED TO HIM. (C) THE TDS HAS BEEN DEDUCTED AT THE RATES APPLICA BLE TO PROFESSIONAL CHARGES. ITA NO 57 OF 2009 KV NARASIMHA RAO VISAKHAPATNAM PAGE 13 OF 15 (D) THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP BET WEEN THE ASSESSEE AND THE COMPANY, WHICH IS A MANDATORY COND ITION FOR ASSESSING THE RECEIPT UNDER THE HEAD INCOME FROM SALARY. 6.3 THE LEARNED CIT(A) RE-EXAMINED THE ISSUE IN THE LIGHT OF SUBMISSIONS MADE BY THE ASSESSEE AND HELD AS UNDER AND ACCEPTED THE CONTENTIONS OF THE ASSESSEE. 6.4 WE NOTICE THAT THE ASSESSING OFFICER HAS CO NSIDERED CERTAIN CLAUSES IN THE CONTRACT ENTERED BY THE ASSESSEE WITH THE AB OVE SAID COMPANY AND CAME TO THE CONCLUSION THAT THE TERMS OF CONTRACT A RE ONLY IN THE NATURE OF EMPLOYMENT CONTRACT ONLY. IT IS A WELL SETTLED PRO POSITION THAT THE EMPLOYER-EMPLOYEE RELATIONSHIP SHOULD EXIST BETWEEN THE PARTIES IN ORDER TO TAX THE RECEIPT UNDER THE HEAD INCOME FROM SALARIES . THE ASSESSEE IS RENDERING SERVICES ON BOARD AND HE IS CONSTRAINED TO REMAIN IN THE SHIP. HENCE, IN ORDER TO PROTECT MUTUAL INTERESTS, IT IS QUIET NORMAL TO INCLUDE CERTAIN CLAUSES WHICH ARE IDENTICAL WITH THE CLAUSE S NORMALLY ENTERED INTO IN A SERVICE AGREEMENT. CONSIDERING THE TERMS OF CONT RACT, THE LEARNED CIT(A) HAS GIVEN A CLEAR FINDING THAT THE EMPLOYER- EMPLOYEE RELATIONSHIP DOES NOT EXIST BETWEEN THE ASSESSEE AND THE COMPANY . THE VIEW OF THE LEARNED CIT(A) IS FURTHER FORTIFIED BY THE FACT THA T THE COMPANY CITED ABOVE HAS DEDUCTED THE TDS BY TREATING THE PAYMENTS MADE TO THE ASSESSEE AS PROFESSIONAL PAYMENTS. CONSIDERING THESE FACTS, WE ARE OF THE VIEW, THE LEARNED CIT(A) IS RIGHT IN HOLDING THAT THE IMPUGNE D RECEIPTS CANNOT BE ASSESSED AS SALARY INCOME. 7. IN THE NEXT GROUND, THE REVENUE IS ASSAILING THE DECISION OF LEARNED CIT(A) IN ALLOWING 90% OF THE EXPENDITURE CLAIMED B Y THE ASSESSEE. THE ASSESSING OFFICER HELD THAT THAT ENTIRE EXPENDITURE CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED, EVEN IF THE AMOUNT RECEIVED BY T HE ASSESSEE IS TREATED AS PROFESSIONAL INCOME, AS THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE. ITA NO 57 OF 2009 KV NARASIMHA RAO VISAKHAPATNAM PAGE 14 OF 15 HOWEVER, THE LEARNED CIT(A) NOTED THAT THE ACCOUNTS OF THE ASSESSEE HAVE BEEN AUDITED UNDER SECTION 44AB OF THE ACT AND TAX AUDIT REPORT HAS ALSO BEEN FURNISHED TO THE ASSESSING OFFICER AND THE NET PROFIT DECLARED BY THE ASSESSEE WORKED OUT TO 29.19%. THE LEARNED CIT(A) ALSO NOTICED THAT THE TAX AUDITORS HAS REPORTED THAT THE EXPENDITURE CLAI M OF THE ASSESSEE INCLUDED PERSONAL EXPENDITURE TO THE TUNE OF RS.13, 743/-. ACCORDINGLY, THE LEARNED CIT(A) DIRECTED THE ASSESSING OFFICER TO DI SALLOW THE PERSONAL EXPENDITURE OF RS.13,743/- CLAIMED BY THE ASSESSEE AND ALSO FURTHER AMOUNT EQUIVALENT TO 10% OF THE REMAINING AMOUNT OF EXPENSES. 7.1 THE LEARNED D.R SUBMITTED THAT THE ASSESSEE COULD NOT SUPPORT THE EXPENDITURE CLAIM WITH PROPER VOUCHERS AND ACCORDIN GLY CONTENDED THAT THE LEARNED CIT(A) IS WRONG IN RESTRICTING DISALLOWANCE TO ONLY 10% OF THE TOTAL EXPENDITURE CLAIM. THE LEARNED A.R HOWEVER SUPPORT ED THE ORDER OF LEARNED CIT(A). 7.2 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. THE ASSESSING OFFICER DISALLOWED THE ENTIRE CLAIM MAINLY BECAUSE THE ASSE SSEE DID NOT PRODUCE THE SUPPORTING VOUCHERS BEFORE HIM. HOWEVER, THE SAID OBSERVATIONS OF THE ASSESSING OFFICER ARE ONLY ALTERNATIVE ONE, SINCE H E HAD ALREADY ASSESSED THE ENTIRE AMOUNT RECEIVED BY THE ASSESSEE AS SALARY I NCOME. IN THE PRECEDING PARAGRAPHS, WE HAVE CONFIRMED THE ORDER OF LEARNED CIT(A) IN HOLDING THAT THE INCOME RECEIVED BY THE ASSESSEE HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. IT CANNOT BE DENIED THAT ONCE A BUS INESS IS SET UP, IT IS INEVITABLE TO INCUR CERTAIN EXPENSES. IN THE INSTAN T CASE, THE ASSESSEE IS MAINLY WORKING ON ON BOARD SHIP AND HENCE THE EXPENSES S HOULD NORMALLY BE MORE ON ACCOUNT OF SALARY. HOWEVER, IT IS THE DUTY OF THE ASSESSEE TO PRODUCE SUPPORTING EVIDENCES TO PROVE THE CLAIM OF EXPENSES. IN THIS C ASE, THE ASSESSEE HAS FAILED TO PRODUCE THEM BEFORE THE ASSESSING OFFICER. HENC E, ON A CONSPECTUS OF THE MATTER, WE ARE OF THE VIEW THAT THE RATE OF DISALLO WANCE MADE BY THE ASSESSING ITA NO 57 OF 2009 KV NARASIMHA RAO VISAKHAPATNAM PAGE 15 OF 15 OFFICER MAY BE INCREASED FROM 10% TO 15% AND IN OUR VIEW THE SAME WOULD MEET THE ENDS OF JUSTICE. WE ORDER ACCORDINGLY. T HE ORDER OF LEARNED CIT(A) IS MODIFIED ACCORDINGLY. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS P ARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 7 TH APRIL, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 07-04-2011 COPY TO 1 THE ACIT, CIRCLE-3(1) VISAKHAPATNAM 2 SHRI VARAHA NARASIMHA RAO, K. DOOR NO.1-68-41, MIG -I, PLOT NO.1A, SECTOR-3, MVP COLONY, VISAKHAPATNAM 530 017 3 4. THE CIT 1, VISAKHAPATNAM THE CIT(A)-I, VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM