M/s. Integrated Finance Company Ltd., CHENNAI V. ACIT, CHENNAI

ITA 638/CHNY/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 7841 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-11-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 04-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Revision of order; Opportunity of being heard; Bad and doubtful debts; Set aside; Audi alteram partem
• Section: 263; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH B : CHENNAI [BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER] I.T.A.NO.638/MDS/2010 ASSESSMENT YEAR : 2005-06 M/S INTEGRATED FINANCE COMPANY LTD NO.10, R. BLOCK, II FLOOR PREM NAGAR COLONY T. NAGAR CHENNAI VS THE ACIT COMPANY CIRCLE II(3) CHENNAI [PAN AAAC 10876 M] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R. VIJAYARAGHAVAN RESPONDENT BY : SHRI P.B SEKARAN O R D E R PER HARI OM MARATHA, JM: THIS APPEAL OF THE ASSESSEE, FOR ASSESSM ENT YEAR 2005-06, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT DATED 3.3 .2010, PASSED U/S 263 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERR ED TO AS 'THE ACT' FOR SHORT). 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSMENT WAS COMPLETED FOR ASSESSMENT YEAR 2005-06 IN THE GI VEN CASE ON 4.12.2007. IN THE ASSESSMENT ORDER SO FRAMED U/S 1 43(3), TOTAL LOSS OF ` 17,73,71,490/-, AFTER MAKING CERTAIN DISALLOWANCE/ S ADDITIONS IN THE ITA 638/10 :- 2 -: RETURNED LOSS, WAS MADE. THE LD. CIT CALLED FOR TH E RECORDS OF THE CASE U/S 263 OF THE ACT WHEN HE FOUND THAT THE ORDE R IS NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR THAT MATTER, HE ISSUED LETTER DATED 25.2.2010 TO THE ASS ESSEE, WHICH IS IN EFFECT A SHOW CAUSE NOTICE, THINKING THAT THE ORDER OF THE ASSESSING OFFICER IS HIT BY THE PROVISIONS OF SECTION 263 BEC AUSE OF THE FOLLOWING REASONS: (I) AN AMOUNT OF ` 4,11,66,754/- DEBITED UNDER THE HEAD REBATE ON HIRE PURCHASE WHICH WAS INFERRED BY THE LD. CIT AS NOTHING BUT BAD DEBTS CLAIMED IN THE PROFIT & LO SS ACCOUNT, WHICH ACCORDING TO HIM, WAS NOT VERIFIED B Y THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS. (II) DURING THE YEAR, THE ASSESSEE CHANGED THE AC COUNTING POLICY FROM ACCRUAL BASIS TO CASH BASIS IN RESPECT OF ADDITIONAL FINANCE CHARGES, WHICH ACCORDING TO TH E LD. CIT, AS PER THE ACCOUNTING STANDARDS COULD NOT BE DONE. 3. FOR THE ABOVE MENTIONED REASONS, THE LD. CIT WANTED TO SET ASIDE THE ASSESSMENT ORDER. FINALLY, HE CAME TO TH E CONCLUSION THAT THE ASSESSING OFFICER HAS NOT CONSIDERED AT ALL THE ABOVE POINTS DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THIS FACT ITSELF MAKES THE ASSESSMENT ORDER NOT ONLY ERRONEOUS BUT ALSO PREJUD ICIAL TO THE INTERESTS OF THE REVENUE. ACCORDINGLY, HE HAS SET ASIDE THE ASSESSMENT ORDER DATED 4.12.2007 WITH A DIRECTION T O MAKE THE SAME ITA 638/10 :- 3 -: DE NOVO AS PER LAW. NOW THE ASSESSEE IS AGGRIEVED AND HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF COMMISSIONER OF INCOME TAX IS C ONTRARY TO LAW , FACTS AN D IN THE CIRCUMSTANCES OF THE CASE . 2 . THE COMM I SS I ONER OF INCOME TAX E R RED I N ASSUM I NG J UR I SD I CT I O N U / S . 263 W I THO UT G I V I NG ANY OPPORTUNITY OF BEING HEARD BY THE APPEL L A NT A N D S E TTI NG ASIDE THE ORDER P A SSED BY THE AS S ESSING OFFICER A ND D IR ECT ING HIM T O PASS FRESH O R DE R. 3 . THE C OMM I SS I O N ER OF INCOME TA X ERRED I N H OLD I NG TH A T T HE A SSE SSING OFFICE R O U G HT TO HAVE D I SALLOWED THE CLAIM OF THE ASSESSEE FO R R EB A TE O N H I RE P URCHAS E OF RS . 4 , 11 , 66 , 754/ - . 3. 1 THE COMMISSIONE R OF INCOME TAX OU G HT TO H A V E APP R EC IAT ED THAT TH ESE AMOUNTS REPRESENTS THE AMOUNT WR I TTEN OFF A S IR RECOVE R ABLE B Y THE ASSESSEE AND HENCE THE SAME I S ALLOWABLE A S DEDUCT I ON IN COMPUTI N G THE I NCOME OF THE APPEL L ANT . T H E APPELLANT R ELIES O N THE DE CI S I O N O F T HE SUPREME COURT I N THE CASE OF TRF LTD (2010 TIOL 15 - SC ) 4. THE C O MMI SS I O NER O F I N COME T AX F A ILED T O A PP R EC IA T E T H A T THE SCR UT I NY A SSESS M ENT WAS COMPLETED U/S . 143 ( 3 ) AFTER EX A MINING T H E BO OK S O F A CCOUNT . 4 . 1 . THE COMMISSIONER OF INCOME- TAX ERRED I N HOLDING THAT TH E ASSESS M E NT ORDER IS ERRONEOUS AND PREJUDICIA L TO THE I NTEREST OF REVENUE M E R E LY BEC A USE THE DEC I S I ON OF THE ASSESSING OF F ICE R I S NOT I NCONSON ANCE W I TH T H E VI EW OF T H E CIT. 4.2. THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE APP R EC I ATED THAT I F THE ASSESSING OFFICER HAS TAKE N ONE OF THE TWO POSSIBLE VIEWS IT C ANN O T BE TE R MED AS ER R ONEOUS AND PREJUDICIAL TO THE IN TEREST OF REVENUE . [M A L A B AR INDUSTR I AL CO . (VS) CIT 243 ITR 83 (SC)]. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE CAREFULLY PERUSED THE ENTIRE RECORDS. WE DO NOT FIND MUCH LEG AL FORCE IN THE ITA 638/10 :- 4 -: SUBMISSION THAT OPPORTUNITY OF BEING HEARD WAS NOT GIVEN TO THE ASSESSEE. A SHOW CAUSE NOTICE U/S 263 DATED 25.2.2 010 WAS ISSUED TO THE ASSESSEE WHICH WAS RECEIVED ON 1.3.2010. WHEN NOBODY APPEARED ON FIRST DATE OF HEARING BUT ADJOURNMENT W AS SOUGHT, IT WAS GRANTED. ON THE NEXT DATE ALSO NOBODY APPEARED. T HE LD. CIT HAD ALSO GIVEN LIBERTY TO ASSESSEE TO FILE WRITTEN ARGU MENT, IF SO DESIRED, BUT THE ASSESSEE DID NOT COMPLY. SO, THE GROUND TH AT OPPORTUNITY OF BEING HEARD WAS NOT GIVEN CANNOT BE ACCEPTED. 5. NOW, COMING TO MERITS OF THE CASE. AS PER THE LD. CIT, THE TWO GROUNDS MENTIONED ABOVE WERE NOT AT ALL VERIFIED BY THE ASSESSING OFFICER, AS PER THE NOTICE ISSUED U/S 263 OF THE AC T AND THIS HAS MADE THE ASSESSMENT ORDER ERRONEOUS IN SO FAR AS IT IS P REJUDICIAL TO THE INTERESTS OF THE REVENUE. BEFORE WE DECIDE THE MER ITS OF THIS CASE, WE NEED TO MENTION LEGAL POSITION ON THIS ISSUE. THE SUBJECT OF REVISION UNDER SECTION 263 HAS BEEN VASTLY EXAMINED AND ANA LYSED BY VARIOUS COURTS INCLUDING THAT OF HONBLE APEX COURT. THE R EVISIONAL POWER CONFERRED ON THE CIT VIDE SECTION 263 IS OF VIDE AM PLITUDE. IT ENABLES THE CIT TO CALL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDING UNDER THE ACT. IT EMPOWERS THE CIT TO MAKE OR CAUSE TO B E MADE SUCH AN ENQUIRY AS HE DEEMS NECESSARY IN ORDER TO FIND OUT IF ANY ORDER PASSED BY ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT I S PREJUDICIAL TO THE ITA 638/10 :- 5 -: INTEREST OF THE REVENUE. THE ONLY LIMITATION ON HI S POWERS IS THAT HE MUST HAVE SOME MATERIAL(S) WHICH WOULD ENABLE HIM T O FORM A PRIMA FACIE OPINION THAT THE ORDER PASSED BY THE OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE . ONCE HE COMES TO THE ABOVE CONCLUSIONS ON THE BASIS OF THE MATERIAL THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND ALSO PREJUDI CIAL TO THE INTERESTS OF THE REVENUE, THE CIT IS EMPOWERED TO PASS AN ORD ER AS THE CIRCUMSTANCES OF THE CASE MAY WARRANT. HE MAY PASS AN ORDER ENHANCING THE ASSESSMENT OR HE MAY MODIFY THE ASSES SMENT. HE IS ALSO EMPOWERED TO CANCEL THE ASSESSMENT AND DIRECT TO FRAME A FRESH ASSESSMENT. HE IS EMPOWERED TO TAKE RECOURSE TO AN Y OF THE THREE COURSES INDICATED IN SECTION 263. SO, IT IS CLEAR THAT THE CIT DOES NOT HAVE UNFETTERED AND UNCHEQURED DISCRETION TO REVISE AN ORDER. THE CIT IS REQUIRED TO EXERCISE REVISIONAL POWER WITHIN THE BOUNDS OF THE LAW AND HAS TO SATISFY THE NEED OF FAIRNESS IN ADMI NISTRATIVE ACTION AND FAIR PLAY WITH DUE RESPECT TO THE PRINCIPLE OF AUDI ALTERAM PARTEM AS ENVISAGED IN THE CONSTITUTION OF INDIA AS WELL IN S ECTION 263. AS ORDER CAN BE TREATED AS ERRONEOUS IF IT WAS PASSED IN U TTER IGNORANCE OR IN VIOLATION OF ANY LAW; OR PASSED WITHOUT TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS OR BY TAKING INTO CONSIDERATION IRRE LEVANT FACTS. THE PREJUDICE THAT IT CONTEMPLATED UNDER SECTION 263 IS THE PREJUDICE TO ITA 638/10 :- 6 -: THE INCOME TAX ADMINISTRATION AS A WHOLE. THE REVI SION HAS TO BE DONE FOR THE PURPOSE OF SETTING RIGHT DISTORTIONS A ND PREJUDICES CAUSED TO THE REVENUE IN THE ABOVE CONTEXT. THE FUNDAMENT AL PRINCIPLES WHICH EMERGE FROM THE SEVERAL CASES REGARDING THE P OWERS OF THE CIT UNDER SECTION 263 MAY BE SUMMARIZED BELOW: (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDE R OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO T HE INTERESTS OF THE REVENUE. BOTH THE CONDITIONS MUS T BE FULFILLED. (II) SECTION 263 CANNOT BE INVOKED TO CORRECT EAC H AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS, THAT THE SECTION WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORR ECT APPLICATION OF LAW WILL SUFFICE FOR THE REQUIREME NT OR ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORD ER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND IF THE ASSESSING OF FICER HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LA W OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING ITA 638/10 :- 7 -: OFFICER HAS TAKEN ONE VIEW UNDER WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOU S ORDER, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFIC ER IS UNSUSTAINABLE UNDER THE LAW. (VI) IF WHILE MAKING THE ASSESSMENT, THE ASSE SSING OFFICER EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME, THE CIT, WHILE EXERCISING HI S POWER UNDER SECTION 263, IS NOT PERMITTED TO SUBSTI TUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIM ATED BY THE ASSESSING OFFICER. (VII) THE ASSESSING OFFICER EXERCISE QUASI-JUDICIA L POWER VESTED IN HIM AND IF HE EXERCISE SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVES AS A CONCLUSION, SU CH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER SECTION 263, MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE ASSESSING OFFICER HAS MADE ENQU IRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANAT ION ITA 638/10 :- 8 -: BE A LETTER IN WRITING AND THE ASSESSING OFFICER AL LOWED THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION O F THE ASSESSEE, THE DECISION OF THE ASSESSING OFFICER CAN NOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGAR D. 6. ADVERTING TO THE FACTS OF THIS CASE, WE HAVE SQUAR ELY FOUND THAT THE ASSESSING OFFICER HAS NOT AT ALL ENQUIRED ABOUT THE ABOVE TWO ISSUES, AT ALL. IN VIEW OF THE LEGAL POSITION DISC USSED ABOVE, NON- APPLICATION OF MIND BY THE ASSESSING OFFICER TANTAM OUNTS TO AN ERROR. SO THE ASSESSMENT ORDER HAS BECOME ERRONEOUS. THIS ERROR HAS RESULTED INTO LOSS OF REVENUE, THEREFORE, THE ORDER IS ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE REQUISITE TWIN C ONDITIONS DO EXIST IN THIS CASE. HENCE, THE ASSESSMENT ORDER HAS BEEN CO RRECTLY REVISED BY THE LD. CIT U/S 263 OF THE ACT. 7. IN THE RESULT, THE APPEAL FAILS AND, IS HEREBY DISM ISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 26.11.2010. SD/- SD/- (ABRAHAM P GEORGE) ACCOUNTANT MEMBER ( HARI OM MARATHA ) JUDICIAL MEMBER DATED: 26 TH NOVEMBER, 10 RD COPY TO: APPELLANT /RESPONDENT/CIT(A)/CIT/DR