R.Sathyam, CHENNAI V. ACIT, CHENNAI

ITA 614/CHNY/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73766 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2014
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 22-01-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 06-04-2011
• Court: TRIBUNAL
• Department Lawyers: HARI RAO
• Assessee Lawyers: V D GOPAL
• Keywords: Business income; Rectification of order; Reason to believe
• Section: 147; 148; 263; 154; 15

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , ! , ' # $ BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NOS. 613 & 614/MDS/2011 ASSESSMENT YEARS : 2001-02 & 2002-03 SHRI R.SATHYAM, NO.3, FLAT 1, LYNWOOD AVENUE, MAHALINGAPURAM, CHENNAI 600 034 [PAN: BKRPS 2582 M] ( !& /APPELLANT) VS ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE-XV CHENNAI ( '(!& /RESPONDENT) / APPELLANT BY : SHRI V.D.GOPAL, ADVOCATE / RESPONDENT BY : SHRI HARI RAO, JCIT / DATE OF HEARING : 22-01-2014 /DATE OF PRONOUNCEMENT : 17-03-2014 #) / O R D E R PER VIKAS AWASTHY, J.M: THESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE ASSAILING THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)- XII, CHENNAI RELEVANT TO THE ASSESSMENT YEAR (AY) 2 001-02 & AY.2002-03 RESPECTIVELY. BOTH ORDERS ARE DATED 28- 01-2011. SINCE, THE ISSUE IN BOTH THE APPEALS IS IDENTICAL, THE APPEALS ARE TAKEN UP TOGETHER FOR ADJUDICATION. I.T.A. NOS. 613 & 614/MDS/2011 2 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUYIN G, DEVELOPING AND SAMPLING OF HOUSES. THE ASSESSEE FI LED HIS RETURN OF INCOME FOR THE AY.2001-02 ON 31-10-2001 DECLARIN G LOSS OF ` 9,97,118/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT) WAS ISSUED TO THE ASSESSE E ON 21-10-2002. THE ASSESSING OFFICER VIDE ORDER DATED 03-03-2004 MADE DIS-ALLOWANCES OF ` 89,356/- ON ACCOUNT OF CLAIMING EXCESS EXPENDITURE AND MADE ADDITION OF ` 5,960/- FOR EXCESS CLAIM U/S.80-O. THEREAFTER, NOTICE U/S.148 WAS ISSUED TO THE ASSESSEE ON 18-01-2008. THE REASONS FOR RE-OPENING ASSESSME NT FOR THE AY.2001-02 WERE COMMUNICATED TO THE ASSESSEE ON 28- 03-2008. THE REASONS FOR RE-OPENING ARE AS UNDER: FOR THE FOLLOWING REASON, YOUR ASSESSMENT HAS BEEN REOPENED FOR THE AY.2001-02: WHILE PASSING THE SCRUTINY ASSESSMENT ORDER, DEDUC TION U/S.80O WAS ALLOWED TO THE TUNE OF ` 30,68,103/-. THE ASSESSEE HAD RECEIVED A GROSS BUSINESS INCOME OF ` 76,79,168/- AND THE EXPENDITURE INCURRED IN INDIA T O EARN THE RECEIPT IN FOREIGN EXCHANGE WAS ` 44,35,654/-. INCOME RECEIVED OUT OF BUSINESS WOULD BE ` 32,43,514/-. THEREFORE, 40% OF ` 32,43,514/- AMOUNTING TO ` 12,97,405/- ALONE SHOULD HAVE BEEN ALLOWED U/S.80O FOR AY IN QUESTION. THE EXCESS ALLOWANCE U/S.80O OF ` 17,70,697/- IS TO BE WITHDRAWN. I.T.A. NOS. 613 & 614/MDS/2011 3 THE ASSESSEE FILED OBJECTIONS TO THE RE-OPENING PRO CEEDINGS BUT THE SAME WERE REJECTED. THE ASSESSING OFFICER VIDE ORDER U/S.143(3) R.W.S.147 OF THE ACT DATED 29-12-2008 MA DE ADDITION TO THE TUNE OF ` 13,37,661/- AFTER RECOMPUTING DEDUCTION U/S.80-O. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESS EE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS). THE CIT(APPEALS) VIDE IMPUGNED ORDER, DISMISSED THE APPEAL OF THE AS SESSEE. 3. FOR THE AY.2002-03, ORIGINAL ASSESSMENT ORDER WA S PASSED U/S.143(1) ON 19-01-2003. NOTICE U/S.148 WAS ISSUE D TO THE ASSESSEE ON 07-03-2008. THE REASONS FOR RE-OPENING ASSESSMENT FOR THE AY.2002-03 WERE COMMUNICATED TO THE ASSESSE E ON 02-12-2008. THE SAME ARE RE-PRODUCED AS UNDER: REASONS FOR REOPENING OF YOUR ASSESSMENT FOR AY.20 02- 2003: IN THE RETURN FILED BY THE ASSESSEE FOR AY 2002-20 03, DEDUCTION U/S.80O WAS CLAIMED TO THE TUNE OF ` 9,25,782/-. THE ASSESSEE HAD RECEIVED A GROSS BUSINESS INCOME O F ` 45,25,399/- AND THE FOREIGN INCOME OF ` 30,85,940/-. THE EXPENDITURE INCURRED IN INDIA TO EAR THE RECEIPT IN FOREIGN EXCHANGE WAS ` 13,97,982/-. THE NET FOREIGN EXCHANGE RECEIPTS WOULD THEREFORE BY ONLY ` 16,87,958/-. THEREFORE 30% OF ` 16,87,958/- AMOUNTING TO ` 5,06,387/- ALONE SHOULD HAVE BEEN ALLOWED U/S.80O FOR THE AY.2002-2003 IN QUESTI ON. THE ASSESSEE HAS THUS CLAIMED AN EXCESS DEDUCTION U/S.8 0O OF I.T.A. NOS. 613 & 614/MDS/2011 4 THE INCOME TAX ACT TO THE EXTENT OF ` 4,19,395/-. TO THAT EXTENT, THE INCOME HAS ESCAPED ASSESSMENT FOR AY 20 02- 2003. AGGRIEVED AGAINST THE ASSESSMENT ORDER PASSED U/S. 143(2) R.W.S.147, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS). THE CIT(APPEALS) VIDE IMPUGNED ORDE R DATED 28-01-2011, DISMISSED THE APPEAL OF THE ASSESSEE ON SIMILAR GROUND ON WHICH THE APPEAL OF THE ASSESSEE FOR THE AY.2001-02 WAS DISMISSED. NOW, THE ASSESSEE HAS COME IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAILING THE ORDERS OF THE CIT(APPEALS) F OR BOTH THE AYS. 4. SHRI V.D.GOPAL, APPEARING ON BEHALF OF THE ASSES SEE SUBMITTED THAT THE RE-OPENING PROCEEDINGS HAVE BEEN INITIATED AGAINST THE ASSESSEE BEYOND THE PERIOD OF FOUR YEAR S AND THUS THE PROVISO TO SECTION 147 SHALL APPLY. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR THE AY.2001-02, ORIGINA L ASSESSMENT ORDER HAS BEEN PASSED U/S.143(3). THE ASSESSING OF FICER HAD EXAMINED THE BOOKS OF ACCOUNT AND THE MATERIAL PLA CED BEFORE HIM. THE ASSESSING OFFICER HAD APPLIED HIS MIND ON THE DEDUCTION CLAIMED BY THE ASSESSEE U/S.80-O AND THEREAFTER MAD E ADDITION OF ` 5,960/-ON ACCOUNT OF EXCESS CLAIM U/S.80-O. THEREF ORE, THERE I.T.A. NOS. 613 & 614/MDS/2011 5 WAS NO QUESTION TO INITIATE RE-ASSESSMENT PROCEEDIN GS U/S.147. THE REASONS FOR RE-OPENING DO NOT MENTION THAT THE ASSESSEE HAS NOT DISCLOSED ANY INFORMATION OR MATERIAL FACTS AT THE TIME OF ORIGINAL ASSESSMENT PROCEEDINGS. THUS, THE RE-ASSE SSMENT PROCEEDINGS ARE BAD IN LAW. IN ORDER TO SUPPORT HI S SUBMISSIONS ON THE ISSUE OF RE-OPENING, THE LD.COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING JUDGMENTS: I. STERLITE INDUSTRIES (INDIA) LTD. VS. ACIT REPORT ED AS 305 ITR 339 (MAD); II. HINDUSTAN LEVER LTD. VS. R.B.WADKAR, ACIT AND O THERS REPORTED AS 268 ITR 332 (BOM); III. MAHAVIR SPINNING MILLS LTD., VS. CIT REPORTED AS 270 ITR 290 (P&H); IV. CIT VS. ORIENT CRAFT LTD., REPORTED AS 354 ITR 536 (DELHI); ON MERITS, THE LD.COUNSEL FAIRLY CONCEDED THAT THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. MK RAJU CONSULTANTS (P) LTD., REPORTED AS 239 ITR 232 IS AGAINST THE ASSESSEE. THE LD.COUNSEL SUBMITTED THAT THE JUDGM ENT OF THE HONBLE MADRAS HIGH COURT WAS PASSED ON 11-02-1998, THEREFORE, THE SAME WAS AVAILABLE TO THE ASSESSING OFFICER AT THE TIME OF PASSING OF THE ASSESSMENT ORDER U/S.143(3). THE AS SESSING I.T.A. NOS. 613 & 614/MDS/2011 6 OFFICER CANNOT RESORT TO RE-ASSESSMENT PROCEEDINGS TO RECTIFY A MISTAKE COMMITTED BY HIM WHILE MAKING AN ASSESSMENT . THE LD.COUNSEL FURTHER SUBMITTED THAT IN RESPECT OF AY.2002- 03, ALTHOUGH THE ASSESSMENT ORDER WAS PASSED U/S.14 3(1), BUT RE-OPENING PROCEEDINGS HAVE BEEN INITIATED AFTER TH E EXPIRY OF FOUR YEARS. THE RE-ASSESSMENT PROCEEDINGS HAVE BEEN INI TIATED ON THE BASIS OF EXISTING MATERIAL, NO FRESH MATERIAL HAS C OME TO THE NOTICE OF ASSESSING OFFICER THAT CAN INSTIGATE RE-ASSESSME NT PROCEEDINGS. THE ASSESSING OFFICER OUGHT TO HAVE RESORTED TO APP ROPRIATE REMEDY FOR RECTIFICATION OF MISTAKE IN THE ASSESSME NT ORDER RATHER THAN INVOKING THE PROVISIONS OF SECTION 148 OF THE ACT. IN ORDER TO SUBSTANTIATE HIS ARGUMENTS, THE LD.COUNSEL FOR THE ASSESSEE RELIED ON THE JUDGMENT OF THE FULL BENCH OF THE HONBLE DE LHI HIGH COURT IN THE CASE OF CIT VS. KELVINATOR INDIA LTD., REPORTED AS 123 TAXMAN 433 (DELHI)(FB): 256 ITR 1 (FB) AFFIRMED BY THE HONBLE SUPREME COURT OF INDIA IN 320 ITR 561 (SC) 5. ON THE OTHER HAND, SHRI HARI RAO, APPEARING ON B EHALF OF THE REVENUE SUBMITTED THAT THE DISPUTE IS WITH RESPECT TO METHOD OF COMPUTING DEDUCTION U/S.80-O. THE ASSESSEE HAD CLAI MED DEDUCTION U/S.80-O ON THE GROSS RECEIPTS WHEREAS TH E STAND OF THE REVENUE IS THAT THE DEDUCTION IS AVAILABLE ON THE N ET INCOME. IN I.T.A. NOS. 613 & 614/MDS/2011 7 THE ORIGINAL ASSESSMENT, THERE WAS AN ERROR IN COMP UTING DEDUCTION WHICH WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THAT ERROR HAS BEEN RECTIFIED IN THE RE-ASSESSMENT PROCEEDINGS. THE DEDUCTION HAS BEEN ALLOWED TO THE ASSESSEE IN A CCORDANCE WITH THE VIEW EXPRESSED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. MK RAJU CONSULTANTS (P) LTD., (SUPRA). THE LD.DR VEHEMENTLY SUPPORTED THE IMPUGNED ORDERS AND PRAYED FOR THE DISMISSAL OF THE APPEALS OF THE ASSESSEE. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES. WE HAVE ALSO PE RUSED THE ORDERS OF THE AUTHORITIES BELOW FOR BOTH THE AYS AN D HAVE EXAMINED THE JUDGMENTS CITED BY THE LD. COUNSEL FOR THE ASSESSEE. THE LD.COUNSEL HAS ASSAILED THE RE-OPENING PROCEEDI NGS ON TWO GROUNDS: (I) RE-OPENING BEYOND FOUR YEARS; AND (II) THE REVENUE HAS RESORTED TO WRONG REMEDY OF RE -OPENING FOR RECTIFICATION OF AN ERROR IN THE ORIGINAL ASSES SMENT ON ACCOUNT OF WRONG COMPUTATION OF DEDUCTION U/S.80-O. THE ASSESSEE HAD CLAIMED DEDUCTION U/S.80-O ON THE GROSS FOREIGN EXCHANGE RECEIPTS. THE SAME WAS ACCEPTED B Y THE I.T.A. NOS. 613 & 614/MDS/2011 8 DEPARTMENT IN THE ORIGINAL ASSESSMENT. SUBSEQUENTLY , RE-ASSESSMENT PROCEEDINGS WERE INITIATED TO ALLOW T HE DEDUCTION ON NET BUSINESS INCOME. 7. IT IS A WELL SETTLED LAW THAT FOR INVOKING THE P ROVISIONS OF SECTION 147 OF THE ACT, TWO CONDITIONS ARE REQUIRED TO BE SATISFIED, VIZ; I. THE ASSESSING OFFICER MUST HAVE REASONS TO BELIE VE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT; AND II. HE MUST ALSO HAVE REASON TO BELIEVE THAT SUCH ESCAPEMENT OCCURRED BY REASON OF EITHER: A) OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN OF HIS INCOME UNDER SECTION 139; OR B) OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HI S ASSESSMENT FOR THAT YEAR. SATISFACTION OF BOTH THE CONDITIONS IS NECESSARY FO R INVOKING JURISDICTION U/S.147 OF THE ACT. IF ANY ONE OF THE TWO CONDITIONS ARE NOT FULFILLED, THE NOTICE ISSUED U/S.148 SHALL BE W ITHOUT JURISDICTION AND BAD IN LAW. FURTHER, THE NOTICE U/S.148 ISSUED AFTER THE EXPIRY OF FOUR YEARS SHOULD EXPRESSLY STATE THAT INCOME CH ARGEABLE TO TAX HAS ESCAPED ASSESSMENT BY REASON OF THE FAILURE ON THE PART OF I.T.A. NOS. 613 & 614/MDS/2011 9 ASSESSEE TO DISCLOSE ALL MATERIAL FACTS NECESSARY F OR ASSESSMENT IN THAT PARTICULAR ASSESSMENT YEAR. 8. IN THE PRESENT CASE, THE REASONS FOR RE-OPENING ASSESSMENT FOR THE AY.2001-02 ARE RE-PRODUCED IN PARA 2 AND FO R AY.2002-03 ARE REPRODUCED IN PARA 3 ABOVE. UNDISPUTEDLY, THE NOTICES ARE ISSUED AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. A PERUSAL OF SAME WOULD SHOW THA T, NO WHERE IT HAS BEEN MENTIONED THAT THE PROVISIONS OF SECTION 1 47 ARE BEING INVOKED ON ACCOUNT OF OMISSION OR FAILURE ON THE PA RT OF ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECE SSARY FOR HIS ASSESSMENT. THE ASSESSING OFFICER HAS PLACED RELIANCE ON THE J UDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF CIT VS. MK RAJU CONSULTANTS (P) LTD., (SUPRA) TO RE-COMPUTE DEDUCTION U/S.80-O BY INVOKING JURISDICTION U/S.147. THE HON BLE HIGH COURT HAD RENDERED THE JUDGMENT IN FAVOUR OF THE REVENUE WAY BACK IN THE YEAR 1988. THE ORIGINAL ASSESSMENT U/S.143(3) WAS COMPLETED BY THE ASSESSING OFFICER IN MARCH 2004, THE REVENUE AUTHORITIES OUGHT TO HAVE KNOWLEDGE OF THE LAW IN THEIR FAVOUR AT THE TIME OF MAKING ASSESSMENT. EVEN IF THE MISTAKE OCCURRED AT THE TIME OF ASSESSMENT, INVOKING THE PROVISIONS OF SECTION 147 IS NOT THE I.T.A. NOS. 613 & 614/MDS/2011 10 CORRECT REMEDY FOR RECTIFICATION OF THE MISTAKE. T HE FULL BENCH OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. KELVINATOR INDIA LTD., (SUPRA) HAS HELD: 14.IT IS WELL-SETTLED PRINCIPLE OF INTERPRETATION OF STATUTE THAT ENTIRE STATUTE SHOULD BE READ AS A WHOLE AND THE SA ME HAS TO BE CONSIDERED THEREAFTER CHAPTER BY CHAPTER AND THE N SECTION BY SECTION AND ULTIMATELY WORD BY WORD. IT IS NOT I N DISPUTE THAT THE ASSESSING OFFICER DOES NOT HAVE ANY JURISD ICTION TO REVIEW ITS OWN ORDER. HIS JURISDICTION IS CONFINED ONLY TO RECTIFICATION OF MISTAKE AS CONTAINED IN SECTION 15 4 OF THE ACT. THE POWER OF RECTIFICATION OF MISTAKE CONFERRED UPO N THE ITO IS CIRCUMSCRIBED BY THE PROVISIONS OF SECTION 154 OF T HE ACT. THE SAID POWER CAN BE EXERCISED WHEN MISTAKE IS APPAREN T. EVEN MISTAKE CANNOT BE RECTIFIED WHERE IT MAY BE A MERE POSSIBLE VIEW OR WHERE THE ISSUES ARE DEBATABLE. EVEN THE IN COME-TAX APPELLATE TRIBUNAL HAS LIMITED JURISDICTION UNDER S ECTION 254(2) OF THE ACT. THUS WHEN THE ASSESSING OFFICER OR TRIBUNAL HAS CONSIDERED THE MATTER IN DETAIL AND THE VIEW TA KEN IS A POSSIBLE VIEW THE ORDER CANNOT BE CHANGED BY WAY OF EXERCISING THE JURISDICTION OF RECTIFICATION OF MIS TAKE. 15. IT IS A WELL-SETTLED PRINCIPLE OF LAW THAT WHAT CANNOT BE DONE DIRECTLY CANNOT BE DONE INDIRECTLY. IF THE ITO DOES NOT POSSESS THE POWER OF REVIEW, HE CANNOT BE PERMITTED TO ACHIEVE THE SAID OBJECT BY TAKING RECOURSE TO INITI ATING A PROCEEDING OF RE-ASSESSMENT OR BY WAY OF RECTIFICAT ION OF MISTAKE . IN A CASE OF THIS NATURE THE REVENUE IS NOT WITHO UT REMEDY. SECTION 263 OF THE ACT EMPOWERS THE COMMISS IONER TO REVIEW AN ORDER WHICH IS PREJUDICIAL TO THE REVE NUE. I.T.A. NOS. 613 & 614/MDS/2011 11 THE AFORESAID JUDGMENT OF THE HONBLE DELHI HIGH CO URT HAS BEEN AFFIRMED BY THE HONBLE SUPREME COURT OF INDIA IN 320 ITR 561 (SC). 9. IN VIEW OF THE WELL SETTLED POSITION OF LAW WITH RESPECT TO EXERCISE OF JURISDICTION U/S.147 AND THE FACTS OF T HE PRESENT CASE, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS ERRED IN INVOKING JURISDICTION U/S.147. THE NOTICE AND THE PROCEEDINGS ARISING THERE FROM ARE THUS, LIABLE TO BE SET ASIDE. THE REVENUE SHOULD HAVE TAKEN RECOURSE TO OTHER REMEDIE S AVAILABLE UNDER THE ACT FOR RECTIFICATION OF MISTAKE, IF ANY. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AR E ALLOWED. ORDER PRONOUNCED ON MONDAY, THE 17 TH MARCH, 2014 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VI KAS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER DATED: 17 TH MARCH, 2014 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR