Kolhapur Motor Malak Sangh P. Ltd., Kolhapur V. DCIT,Cir.-2, Kolhapur

ITA 597/PUN/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9768 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 10-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH VARMA
• Keywords: Business income; Principle of natural justice
• Section: 143(3); 263; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 597/PN/2011 (ASSTT. YEAR : 2 006-07) KOLHAPUR MOTOR MALAK SANGH PVT. LTD., APPELLANT 2113/E, P.B. ROAD, KOLHAPUR PAN AAACK7444D V. DY. COMMISSIONER OF INCOME-TAX RESPONDENT CIRCLE 2, KOLHAPUR APPELLANT BY : SHRI. M.K. KULKARNI RESPONDENT BY : SHRI. MU KESH VARMA DATE OF HEARING : 18/10/1 2 DATE OF PRONOUNCEMENT : 20-11-12 O R D E R PER R.S. PADVEKAR, JM IN THIS APPEAL, THE ASSESSEE HAD CHALLENGED THE IM PUGNED ORDER OF THE LD CIT - II, KOLHAPUR PASSED U/S. 263(1) OF THE I.T. ACT DATED 29.3.2011 BY TAKING THE FOLLOWING GROUNDS : 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE A ND IN LAW THE ACTION INVOKED UNDER SECTION 263(1) BY C.I.T. KOLHAPUR TO SET ASIDE THE ASSESSMENT ORDER AS ERRONEOUS AND PREJUDICIAL TO TH E INTERESTS OF REVENUE IS ILLEGAL, WITHOUT JURISDICTION AND CONTRARY TO JU DICIAL VERDICTS OF SUPERIOR COURT. THE ORDER PASSED BY LD. C.I.T. U/S. 263 BE QUASHED. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. C.I.T . IS NOT JUSTIFIED IN ITS DECISION THAT THE I NCOME OF RS.7,87,640/- IS NOT A BUSINESS INCOME. THE APPELLANT HAS EARNED TH E SAID INCOME WITH DOMINANT INTENTION TO EXPLOIT THE COMMERCIAL ASSET IN ITS POSSESSION AND IS A BUSINESS INCOME. THE A.O. HAS ADOPTED ONE POS SIBLE VIEW AS PER HONBLE JURISDICTIONAL HIGH COURT JUDGMENT WHICH IS SUSTAINABLE IN LAW. IN THIS SITUATION THE ACTION UNDER SECTION 263 IS ILLE GAL AND WITHOUT JURISDICTION. IT BE QUASHED. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. C.I.T. WAS NOT JUSTIFIED IN TREATING THE AMOUNT OF INTEREST PAID TO TWO CREDIT CO-OP. BANKING INSTITUTIONS OF RS. 6,61,777/ - ON LOANS TAKEN AND HOLDING SUBJECT TO SECTION 40(A)(I-A) AND HENCE LIA BLE FOR TDS. SINCE THE APPELLANT HAS NOT DEDUCTED THE TDS HELD IT WAS DISA LLOWABLE AS PER THAT SECTION. 2 ITA NO. 597/PN/2011 KOLHAPUR MOTOR MALAK SANGH PVT. LTD. A.Y.2006-07 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW AND IN VIEW OF GROUND NO.3 ABOVE THE PAYMENT OF INTEREST I S COVERED BY THE PROVISIONS OF S. 194-A (3)(III)(A) OF THE ACT. NO TDS LIABILITY THEREFORE, ARISES ON PAYMENT OF SUCH INTEREST. SINCE THE TDS IS NOT REQUIRED TO BE MADE THE INAPPLICABILITY OF PROVISIONS OF S.40(A)(I -A) BECOME CRYSTAL CLEAR. ON THIS COUNT ALSO THE ACTION OF LD. C.I.T. KOLHA PUR INVOKING S. 263 IS ILLEGAL AND WITHOUT JURISDICTION. IT BE QUASHED. 5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE PARA 4.2 REGARDING INTEREST RECEIVED OF RS. 70,319/ - AND SETTING ASIDE OF THE ASSESSMENT ORDER ON THIS POINT HOLDING THAT THE CLAIM NEEDS TO BE VERIFIED BY A.O. IS DE HORS THE SHOW-CAUSE NOTICE. THIS ISSUE IS NOT INCLUDED IN THE SHOW-CAUSE NOTICE AND IS THEREFORE, NOT VALIDLY RAISED AND ALSO WAS CONSIDERED WITHOUT AFFORDING ANY OPPORTUNI TY AND THEREFORE, NOT VALIDLY RAISED. THE ACTION IS BREACHING PRINCIPLES OF NATURAL JUSTICE. THE ACTION BE QUASHED. 6) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW IT IS NOW SETTLED LAW ON THE SUBJECT THAT WHEN THE ORDER IS PASSED UNDER S. 143(3) THEN A PRESUMPTION CAN BE RAISED THAT SUCH A N ORDER HAS BEEN PASSED ON AN APPLICATION OF MIND. THE RELIANCE IS PLACED ON THE HONBLE MUMBAI I.T.A.T. BENCH REPORTED AS (2010) 40 DTR (MU MBAI) (TRIB) 186 WHERE HONBLE TRIBUNAL PLACED RELIANCE ON THE JUDGM ENT OF HONBLE DELHI HIGH COURT IN KELVINATOR OF INDIA LTD. IN VIEW OF T HIS THE ASSESSMENT ORDER WAS PASSED UNDER S. 143(3) IN THE INSTANT CASE BY T HE A.O. AFTER APPLICATION OF HIS JUDICIAL MIND. THE REVISIONAL A CTION UNDER SECTION 263 IS NOT SUSTAINABLE IN LAW AND IT BE QUASHED. 2. THE FACTS REVEAL FROM THE RECORD ARE AS UNDER. T HE ASSESSEE IS A PRIVATE LIMITED CO. AND IN THE BUSINESS OF RUNNING THE PETROL PUMPS IN DIFFERENT PLEASES IN KOLHAPUR. THE ASSESSEE IS ALS O IN THE BUSINESS OF RUNNING THE TANKERS WHICH ARE USED FOR TRANSPORTAT ION OF THE PETROLEUM PRODUCTS FOR THE HPCL. THE ASSESSEE FILED THE RETU RN OF INCOME FOR THE A.Y. 2006-07 ON 28.11.2006, DECLARING TOTAL INCOME AT NIL, AFTER CLAIMING SET-OFF OF BROUGHT FORWARD BUSINESS LOSS OF EARLIE R YEARS OF RS. 56,009/-. SUBSEQUENTLY, THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT VID E ORDER DATED 08- 12-2008, ACCEPTING THE RETURN FILED BY THE ASSESSEE . THE LD CIT- II, KOLHAPUR ISSUED THE NOTICE U/S. 263 TO THE ASSESSEE BY STATING THAT THE ASSESSMENT ORDER SUFFERS FROM THE FOLLOWING DEFECTS : I) IT HAS INCLUDED RS. 70319/- BEING INTEREST, A ND RS.787640/- AS OTHER INCOME UNDER THE HEAD INCOME IN THE PROFI T & LOSS ACCOUNT AS BUSINESS INCOME. THE SAID OTHER INCOME OF RS. 7876 40/- INCLUDES DIVIDEND OF RS.15000/-, AND LICENSE FEES OF RS. 772 640/-. THE AO HAS ALLOWED THE ABOVE CLAIM OF RS. 857959/- AS BUSINESS INCOME, THOUGH THE SAME WAS REQUIRED TO BE TAXED UN DER THE HEAD INCOME FROM OTHER SOURCES, AND NO BENEFIT OF SET -OFF F BUSINESS LOSS AGAINST SUCH INCOME, SHOULD HAVE BEEN ALLOWED. 3 ITA NO. 597/PN/2011 KOLHAPUR MOTOR MALAK SANGH PVT. LTD. A.Y.2006-07 II) FURTHER, IT HAS PAID INTEREST TO VASANTRAO CHOU GULE PAT SANSTHA AND PARSHWANATH CO-OP BANK LTD., TOTALING TO RS. 661777 /-, WITHOUT DEDUCTING TDS. THEREFORE, THE PROVISIONS OF SEC. 40(A)(IA) O F THE ACT ARE ATTRACTED IN THIS CASE. THE AO HAS FAILED TO MAKE DISALLOWAN CE BY INVOKING PROVISIONS OF SEC. 40(A)(IA) OF THE ACT. 3. THE ASSESSEE RESISTED ACTION OF THE LD CITS PR OPOSAL TO SET ASIDE THE ASSESSMENT ORDER TREATING THE SAME AS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE ON THE ABOVE ISSUES. THE ASSESSEE FILED DETAILED REPLY RAISING THE OBJECTION WHICH IS REPRODUCED IN THE IMPUGNED ORDER IN PARA NO. 3.1. IN RESPECT OF THE INTEREST INCOME OF RS. 70,319/-, THE ASSESSEE SUBMITTED THAT THE SAME IS ON THE DEPOSIT KEPT IN BANK. THE DEPOSITS WERE INCIDENTAL TO LOAN TAKEN FROM BANK FOR BUSINESS PURPOSE AND HENCE, THE DEPOSIT HAS DIRECT NEXUS WITH THE BUSINESS OF ASSESSEE AND THE INTEREST EARNED IS TH E BUSINESS INCOME AND SAME CANNOT BE CONSIDERED AS AN INCOME FROM OTH ER SOURCES. THE ASSESSEE ALSO GAVE THE DETAILS IN RESPECT OF INTERE ST ON THE TAX REFUND, INTEREST ON SAVING ACCOUNT AND INTEREST ON RECURRIN G ACCOUNT. IN RESPECT OF THE OTHER INCOME OF RS.7,87,640/-, THE ASSESSEE GAVE BREAK-UP AS UNDER : LICENSE FEE 135600/- RECEIVED FROM TYRE SHED, ELECTRICAL SHED & MECHANICAL SHED ETC, LAND USED. TOAP PUMP RENT 60000/- RECEIVED R ENT FOR PETROL PUMP LAND. PARKING CHARGE. 207150/- RECEIVED RENT FOR PETROL PUMP LAND. TYRE SHOP RENT 18000 RECEIVED TYRE SH OP RENT HOTEL RENT 200000/- RECEIVED HOTEL/CANTEEN RENT OTHER RECEIPTS 800/- RENT RECEIVED FROM HPCL GARAGE RENT 151090/- IT IS PARKING CHARGE S FROM VEHICLE COMING FOR REPAIRS & PETROL, DIESEL. DIVIDEND 15000 THE SHARE FROM PARSHWANATH CO-OP. BANK & SHRI. MAHALAXMI CO- OP. BANK & SHRI. MAHALAXMI CO- OP.BANK LTD. WHEN LOAN WAS TAKEN. SHARES WERE LINKED WITH LOAN SO INVESTMENT IN SHARE. TOTAL 787640/- THE ASSESSEE STATED THAT TYRE SHOPS, MECHANICAL WOR K SHOP, BATTERY AND ELECTRICAL REPAIR SHOP, TEA SHOP ETC., ARE SUBSERV IENT AND INCIDENTAL TO THE CARRYING OF THE ASSESSEES BUSINESS DUE TO THE SAID SERVICES. FACILITIES ARE AVAILABLE TO THE ASSESSEES CUSTOMERS AND THAT SUPPORT THE ASSESSEES BUSINESS. THE ASSESSEE, THEREFORE, CONTENDED THAT AS THOSE INCOME HAS DIRECT NEXUS WITH ASSESSEES BUSINESS, HENCE THE SA ME CANNOT BE 4 ITA NO. 597/PN/2011 KOLHAPUR MOTOR MALAK SANGH PVT. LTD. A.Y.2006-07 ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERT Y OR OTHER SOURCES. 4. IN RESPECT OF THE PAYMENT OF INTEREST OF RS. 6,6 1,777/- AND THE ISSUE OF THE TDS, THE ASSESSEE CONTENDED THAT PARSH WANATH CO-OP BANK LTD. IS NOT COVERED UNDER THE PROVISIONS OF SEC. 194A AND AS PER THE PROVISIONS OF LAW, THE ASSESSEE NEED NOT DEDUCT TDS IF INTEREST IS PAID TO THE CO-OP SOCIETY. THE LD CIT, KOLHAPUR REJECTED T HE EXPLANATION OF THE ASSESSEE AND SET ASIDE THE ASSESSMENT ORDER PASSED U/S. 143(3) DATED 8.12.2008 BY HOLDING THAT THE A.O HAS PASSED THE O RDER WITHOUT PROPER VERIFICATION AND HENCE, THE SAME IS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE IS CONCERNED. THE LD CIT R ELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RAMPYARI D EVI SARAOGI VS. CIT, 67 ITR 84 (SC) AND HELD THAT THE A.O HAS ACCEPTED T HE CLAIM OF THE ASSESSEE WITHOUT PROPER VERIFICATION. THE LD CIT D IRECTED THE A.O TO EXAMINE THE FACTS DE NOVO AND ALSO GAVE OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE. THE LD CIT ALSO OBSERVED THAT SINCE NO ADVERSE FINDING IS BEING GIVEN IN THIS CASE, THE ASSESSEE SHOULD NOT H AVE ANY GRIEVANCE WHATSOEVER. IN SUM AND SUBSTANCE, THE LD CIT WAS O F THE OPINION THAT THE ASSESSMENT ORDER SUFFERS FROM THE LACK OF ENQUI RIES AS OF THE MATERIAL FACTS RELATING TO THE CLAIMS OF THE ASSESSEE HAVING BEEN NOT PROPERLY EXAMINED. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORD. THE LD COUNSEL VEHEMENTLY ARGUED THAT THE JURISDICTION EXERCISED BY THE LD CIT IS WITHOUT DUE AUTHORITY OF LAW. HE SUBMITS THAT ALL THE DETAILS WERE FILED BEFORE THE A.O AND IT IS THE A.O TO WRITE THE ORDER AND NOT THE ASSESSEE. HE SUBMITS THAT IN THE CASE OF T HE PRESENT ASSESSEE, THE INCOME FROM THE LICENSE FEE FROM THE SHED OWNER S, RENT FROM THE PETROL PUMP, PARKING CHARGES, HOTEL RENT/CANTEEN RE NT, & GARRAGE RENT HAVE BEEN ASSESSED CONSISTENTLY AS A BUSINESS INCOM E IN PAST ALSO. HE FURTHER SUBMITS THAT AFTER THE ASSESSMENT ORDER WAS PASSED, THE A.O TRIED TO RECTIFY THE SAME BY EVOKING THE PROVISIONS OF SE C. 154 OF THE I.T. ACT THE NOTICE WAS ALSO ISSUED, BUT, NO FURTHER ACTION WAS TAKEN. HE, THEREFORE, CONCLUDED THAT THE ORDER PASSED BY THE L D CIT U/S. 263 MAY BE QUASHED AS THE ASSESSMENT ORDER CANNOT BE SAID TO B E ERRONEOUS NOR IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 5 ITA NO. 597/PN/2011 KOLHAPUR MOTOR MALAK SANGH PVT. LTD. A.Y.2006-07 6. PER CONTRA, THE LD. D.R. SUBMITS THAT THE ORDER PASSED BY THE LD CIT IS SELF EXPLANATORY. THE ASSESSEE HAS WRONGLY INCLUDED THE INTEREST INCOME AS WELL AS THE RENTAL INCOME IN HIS BUSINESS INCOME. HE FURTHER SUBMITS THAT THE I.T. ACT HAS SPECIFIED THE HEADS U NDER WHICH, ON THE BASIS OF THE NATURE OF INCOME, THE INCOME IS TO BE DETERMINED. HE SUBMITS THAT THE ASSESSEE HAS ALSO INCLUDED THE DIV IDEND INCOME IN HIS BUSINESS INCOME. HE PLEADED FOR CONFIRMING THE ORD ER OF LD CIT. 7. ON THE PERUSAL OF THE ASSESSMENT ORDER, WE FIND THAT IN PARA 5, THE A.O HAS OBSERVED THAT DURING THE COURSE OF SCRUTIN Y, THE INFORMATION CALLED FOR ON THE VARIOUS POINTS VIZ. DEPOSITS AND PAYMENTS, AND DETAILS OF EXPENDITURE HAVE BEEN PRODUCED FOR VERIFICATION. I T IS TRUE THAT THE A.O HAS NOT DISCUSSED THE ISSUES IN DETAIL IN THE ASSES SMENT ORDER WHICH ARE MADE THE SUBJECT MATTERS OF THE ORDER PASSED U/S. 263. NOW, THE LAW IS WELL SETTLED AND WELL EXPLAINED ALSO THAT IF THE OR DER IS PASSED BY THE A.O WITHOUT ANY ENQUIRY AND COMPLETES THE ASSESSMENT WH ICH IS A CASE OF THE LACK OF ENQUIRY, AN ORDER IS SAID TO BE ERRONEOUS. THERE MAY BE ENQUIRY AT THE LEVEL OF THE A.O BUT THE SAID ENQUIRY MAY NO T BE SUFFICIENT ENQUIRY AND HENCE, IN THAT CASE, IT IS THE CASE OF THE INAD EQUATE ENQUIRY. IF IT IS THE CASE OF INADEQUATE ENQUIRY, ORDER CANNOT BE SA ID TO BE ERRONEOUS. THE ASSESSEE HAS SHOWN THE INTEREST OF RS. 70,319/- IN THE PROFIT & LOSS ACCOUNT AND SHOWN THE SAME AS A PART OF BUSINESS IN COME. AS PER THE STATEMENT MADE BY THE COUNSEL AT BAR, THE A.O HAS A CCEPTED THE ASSESSEES TREATMENT TO THE INTEREST ON THE DEPOSI T FROM BANK AS A BUSINESS INCOME IN PAST. IF IT IS SO, THEN THERE S HOULD BE CONSISTENCY IN THE APPROACH OF A.O AND ON THE SAID ISSUE, ORDER CA NNOT BE SAID TO BE ERRONEOUS. SO FAR AS OTHER INCOME OF RS. 7,87,640/ - IS CONCERNED, THAT CONTEND THE DIVIDEND INCOME AND RENTAL INCOME. THE CONTENTION OF THE ASSSESSEE IS THAT THE SAID INCOME IS ALSO TREATED A S THE PART OF THE BUSINESS INCOME BY THE A.O IN THE PAST AND HENCE, IN THIS YEAR NO SEPARATE APPROACH CAN BE ADOPTED. WE DO NOT FULLY AGREE WITH THE LD COUNSEL. AS PER THE STATEMENT MADE BY THE LD COUNS EL, INCOME IN THE NATURE OF THE LICENSE FEE OF RS. 1,35,600/-, TOAP PUMP RENT OF RS. 60,000/-, PARKING CHARGES OF RS. 2,07,150/- AND GAR AGE RENT OF RS. 1,51,090/- ARE TREATED AS PART OF THE BUSINESS INC OME BY THE A.O IN THE PAST AND NO ACTION IS TAKEN BY THE LD CIT. IN OUR OPINION, SO FAR AS THE ABOVE INCOME ARE CONCERNED, AND IF IN PRECEDING YEA RS THE A.O HAS TREATED THOSE RECEIPTS AS A PART PERTAINING TO THE ASSESSEES BUSINESS 6 ITA NO. 597/PN/2011 KOLHAPUR MOTOR MALAK SANGH PVT. LTD. A.Y.2006-07 ACTIVITY, THEN THERE SHOULD BE CONSISTENCY IN THE A PPROACH AND HENCE, THE SAID CANNOT BE AGAIN RE-EXAMINED BY THE A.O IN THIS YEAR. SO FAR AS THE OTHER ITEMS OF INCOME ARE CONCERNED, I.E. TYRE SHOP RENT OF RS. 18,000/-, HOTEL RENT OF RS. 2,00,000/-, AND DIVIDEND OF RS . 15,000/-, ON THE FACE OF IT, THE SAME CANNOT BE TREATED AS A PART OF THE BUSINESS INCOME. WE, THEREFORE, UPHOLD THE ORDER OF THE LD CIT PASSED U/ S. 263 TO THE EXTENT OF THE ABOVE THREE ITEMS AS WELL AS THE INTEREST ON FI XED DEPOSIT. ACCORDINGLY, THE ORDER OF THE LD CIT IS MODIFIED AS ABOVE AND PARTLY UPHELD. 8. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 20TH NOVEMBER 2012. SD/- SD/- (G.S. PANNU) ACCOUNTANT MEMBER (R.S.PADVEKAR ) JUDICIAL MEMBER PUNE, DATED THE 20TH NOVEMBER, 2012 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE ADDL.CIT, RANGE -2, KOLHAPUR 4. THE CIT II, KOLHAPUR 5. THE D.R. A BENCH, PUNE 6. GUARD FILE /- TRUE COPY-/ BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE