Bachi Shoes (India) Pvt Ltd., Vellore V. ACIT, Vellore

ITA 650/CHNY/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51736 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2001-2002
• Appeal Filed On: 11-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR I VIJAYAKUMAR
• Assessee Lawyers: A MAHESH
• Keywords: Business income
• Section: 143(3); 80HHC; 115JB; 80IB; 147; 148; 263; 63; 10; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO.650/MDS/2011 (ASSESSMENT YEAR : 2001-02 ) M/S BACHI SHOES(INDIA) PVT. LTD 47, THIAGARAJAPURAM VELLORE VS THE ACIT VELLORE [PAN AABCB2609J] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.MAHESH, CA RESPONDENT BY : DR. I.VIJAYAKUMAR, CIT/DR DATE OF HEARING : 19-07-2011 DATE OF PRONOUNCEMENT : 24-08-2011 O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE, FOR ASSESSMENT YEA R 2001-02, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT, CHENNAI, DATED 1.3.2011. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2001-02, O N 31.10.2001 DECLARING NIL INCOME AND CLAIMING DEDUCTION U/S 80H HC OF ` 2,52,37,497/- AND ALSO CLAIMING DEDUCTION U/S 80IB OF ` 66,56,504/- ITA 650/11 :- 2 -: FROM THE GROSS TOTAL INCOME OF ` 3,18,94,000/-. THIS RETURN WAS PROCESSED U/S 143(1) ON 31.7.2003 BY THE ACIT, VEL LORE CIRCLE, VELLORE. CONSEQUENTLY, IT WAS NOTICED THAT THE INC OME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT AS DEDUCTION U/S 80HHC H AD BEEN WRONGLY CLAIMED, NOT BEING CONVERSANT WITH THE PROV ISIONS OF SECTION 115JB OF THE ACT. ACCORDINGLY, THE ASSESSMENT WAS REOPENED U/S 147 R.W.S 148 AFTER TAKING DUE COURSE TO THE ESTABLISHE D PROCEDURE. RE- ASSESSMENT WAS DONE VIDE ORDER DATED 29.12.2008 BY ARRIVING AT THE BOOK PROFIT OF ` 53,06,990/- AFTER DEDUCTING THE ELIGIBLE PROFIT OF ` 2,52,37,397/- BEFORE DEDUCTION U/S 80HHC(3)(A) FROM THE NET PROFIT OF ` 3,05,44,487/- AS PER THE PROFIT & LOSS ACCOUNT. T AX U/S 115JB WAS LEVIED AT THE BOOK PROFIT OF ` 53,06,990/- WHICH RESULTED IN A DEMAND OF ` 7,34,386/-. SUBSEQUENTLY, THE LD. CIT FOUND THE O RDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE AS DEDUCTION U/S 80HHC WAS ERRONEOUSLY ALLOWED WITHOUT REDUCING DEDUCTION U/S 80IB FROM THE BUSINESS PROFIT AS STIPULATED IN SECT ION 80IB(13). THE ASSESSEE HAS RECEIVED DUTY DRAW BACK FOR ` 1,33,96,176/- AND CLAIMED DEDUCTION OF ` 66,56,504/-U/S 80IB AND OF ` 2,52,37,497/- U/S 80HHC. ACCORDING TO THE LD. CIT, DEDUCTION UNDER SUB-SECTI ON (1) OF SECTION 80IB, IS ALLOWABLE ONLY AGAINST THE BUSINESS INCOME OF AN ASSESSEE AND NOT AGAINST ANY INCOME OTHER THAN BUSINESS INCOME. IN THIS REGARD, HE HAS RELIED ON A DECISION OF HON'BLE MADRAS HIGH COU RT RENDERED IN THE ITA 650/11 :- 3 -: CASE OF CIT VS JAMEEL LEATHERS & UPPER, 246 ITR 97 AND ALSO ON A DECISION OF HON'BLE SUPREME COURT RENDERED IN THE CASE OF LIBERTY INDIA VS CIT, 183 TAXMAN 349. SO, HE WAS OF THE O PINION THAT NOT ONLY EXCESS CLAIM HAS BEEN MADE BUT HAS ALSO BEEN ALLOWED TO THE EXTENT OF ` 11,06,857 U/S 80IB AND OF ` 33,31,447/- U/S 80HHC, IN THE ORDER PASSED U/S 143(3) R.W.S 147 DATED 29.12.2008. AFTER SHOW CAUSING THE ASSESSEE, HE HAS FINALLY COME TO THE CO NCLUSION THAT THE ORDER IS ERRONEOUS IN SO FAR IT IS PREJUDICIAL TO T HE INTERESTS OF THE REVENUE SINCE THE ASSESSING OFFICER HAS NOT EXCLUDE D DUTY DRAW BACK RECEIPT OF ` 1,33,96,176/- FROM THE ELIGIBLE PROFIT OF ` 3,18,94,000/- WHILE COMPUTING DEDUCTION U/S 80IB. HE HAS, THEREF ORE, MODIFIED THE RE-ASSESSMENT ORDER TO THAT EXTENT FOR COMPUTATION OF THE CORRECT DEDUCTION U/S 80IB. HE HAS DIRECTED THE ASSESSING OFFICER TO RECOMPUTE THE DEDUCTION U/S 80IB AFTER EXCLUDING T HE DUTY DRAW BACK INCOME OF ` 1,33,96,176/- FROM THE ADJUSTED BUSINESS PROFIT OF ` 1,98,38,342/- AND TO ARRIVE AT THE TAXABLE INCOME. NOW THE ASSESSEE IS AGGRIEVED AND HAS RAISED THE FOLLOWING GROUNDS: THE APP ELL ANT OBJECTS TO T H E ORDE R U/ S 26 3 A ND TO T HE D IR E CTIONS THE R E IN TO MODIFY THE ORD E R U/ S 143(3 ) R. W 1 4 7 DT. 29. 1 2.2 0 08 F O R 2008-09 A/Y O N T HE F O LL OW I NG GROUNDS. 1. TH E L EA R NED C OMM I SS I ONER E R RED I N I NVOKING S E C.263 BY HO L D I NG T HA T TH E ORDE R U / S 14 7 DT . 29 . 12.2008 I S ' ERRO N EO US AND PREJUDI CI A L T O T H E INTE R ESTS OF THE R EVENUE ' WITHOUT APPREC I AT ING THAT SEC . 263 C A N BE I NVOKED ON L Y WHEN AN O R DER I S 'ERRONEOU S IN SO FAR AS IT IS P R E J UD ICI AL TO THE I NTERESTS OF THE REVEN U E ' . ITA 650/11 :- 4 -: 2. THE LEARNED C OMMI S SIONE R FAILED TO APP R E CIA TE THAT THE ORDE R U/S 147 CAN NOT BE HELD TO BE 'E RR ONEOUS ' WHE N THE A SS E SSING OFF IC E R (AO) HAD FOLLOWED ONE OF THE POSSIBLE V I EWS ON THE DATE OF THE ORDE R AS HELD IN CI T V S MAX INDIRA LTD. 295 ITR 282 ( S C) - [E VE N WH EN THE STATUTE WAS R ETROSPECTIVELY AMENDED]; C I T VS SATYA EXIM LTD 329 ITR 603 (P & H) - - DO RUSSEL L PROPERTIES P LTD . V S ADDL. CIT 109 IT R 229 (CAL) 3. THE LD. COMMISSIONER OUGHT NOT TO HAVE HELD THA T THE ORDER WAS ERRONEOUS U/S 263 IN VIEW OF THE DIRECT A ND BINDING DECISION OF THE MADRAS HIGH COURT. CIT VS SHIVA TEX YARN LTD 40 DTR 270 (MAD) U/S 115JA CIT VS K.G.DENIM LTD 180 TAXMAN 590 (MAD) U/S 115JA AND CIT VS JUMBO BAG LTD, 32 ITR 111(MAD) U/S 115JB 4. THE LEARNED COMMISSIONER M IS D IR ECTED HIM S E L F B Y NOT FOLLOW I N G T H E BINDING DECISION OF T HE MAD R AS HIGH C OU RT I N S C M CREAT I ON S V S A CI T 30 4 ITR 319 (MAD) & A SS O C IATED CAPSU L E S PV T LTD VS DCIT (BO RN) ITA NO . 3036 OF 2010 , HO L D IN G THAT DED UCTION U/S 80IA/80IB SHO U LD NOT BE REDUCED F R OM THE DEDUCTI ON U / S 80 H H C. 5. T HE L EARNED COMMISSIONER OUGHT TO HAVE FOL L OWED THE FOLLOWING BINDI N G D E C ISI ONS OF THE MADRAS HIGH C O U R T , H O LD I NG THAT DEDUC TION U/S 80HHC - F O R PURPOS E OF C OMPUT I NG ' BOOK P R O F I T ' U/ S 1 15J, 115J A O R 115JB - HAS TO BE C OMPUTED ON THE ' ADJUSTED BOOK PROFIT ' A S DEF I NED IN SEC.115J, 115JA & 1 1 5JB & NOT ON 'STATUTO RY PRO FIT ' . CIT V S RAJAN IK AN T SCHNELDER & A SSOC I ATES (P) L TD 302 IT R 22 ( M AD) - 10 .9 . 2007 - SEC.115J; CIT VS MAGNA ELECTRO CASTINGS LTD 184 TAXMAN 7 9 (MAD ) - 15 . 4 . 2 0 0 9 - S EC .1 15JA; 15.4.2009 CIT VS SPEL SEMICONDUCTOR LTD 323 ITR 488 (MAD) S E C .115JA - 13.2009 DCIT VS SYNCOME FORMULATIONS (I) LTD 106 ITD 193 (MUM - SB) 6. IN ANY VIEW OF THE MATTER THE LEARNED COMMIS SI ON ER FA IL ED T O APP R E C IATE THAT THE O R DE R W I LL NOT BE P R EJUDI CI A L E V EN O N AC CO UNT OF T HE NON REDUCTION OF THE DEDUCTIO N U/S 115JB F ROM THE ITA 650/11 :- 5 -: 'E L IG I B LE PR O FI T ' U/ S 80HHC, IF THE ENTIRE 'ELIGIBLE PROF I T ' IS R EDU C ED F R O M THE 'BOOK PROFIT ' AS PER THE B I NDING DECISION OF THE APE X C OUR T IN AJANTA PHARMA LTD VS CIT 327 ITR 305 (SC). 7. THE L EARNED COMMISS I ONER FA I LED TO APPRECIATE TH AT THE O R D ER DT.29.12.2008, SOUGHT TO BE REVISED, DID NOT COMPUT E TH E DEDUCT I ON U/ S 80IB AT ALL AND THEREFORE THE SAID ORDER CAN NOT B E REV IS ED U/S 263 ON THIS SCORE, IN VIEW OF THE BINDING DEC ISI ON S I N CIT V S ALAGENDRAN FINANCE LTD 293 ITR 1 (SC); C IT VS SHR I ARBUDA MILLS LTD 231 ITR 50 (SC); C W T V S A . K.THANGAPIL L A I 252 ITR 260 (MAD) AND C I T VS SHRIRAM ENGINEE R ING CONSTRUCTION CO LTD 230 IT R 5 6 8 (MA D) O N THESE GROUNDS AND ON SUCH OTHER GROUNDS AS MAY BE P U T FORTH AT T H E TI ME OF HEARING, THE APPELLANT PRAYS THAT THE ORDE R U / S 2 6 3 R EV ISING T HE A S S E S S MENT ORDER U/S 143(3) R.W 147 DT.29.12.2008 B E CA N CELED AN D JUSTICE RENDERED. 3. WE HAVE HEARD BOTH SIDES IN DETAIL. WE HAVE ALSO PERUSED CAREFULLY THE ENTIRE EVIDENCE AVAILABLE ON RECORD. IT IS TRITE THAT AN ORDER CAN BE REVISED ONLY AND ONLY IF TWIN CONDITIO NS OF ERROR IN THE ORDER AND PREJUDICE CAUSED TO THE REVENUE CO-EXI ST. 4. THE SUBJECT OF REVISION UNDER SECTION 263 HAS BEE N VASTLY EXAMINED AND ANALYSED BY VARIOUS COURTS INCLUDING T HAT OF HONBLE APEX COURT. THE REVISIONAL POWER CONFERRED ON THE CIT VIDE SECTION 263 IS OF VIDE AMPLITUDE. IT ENABLES THE CIT TO CA LL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDING UNDER THE ACT. IT EM POWERS THE CIT TO MAKE OR CAUSE TO BE MADE SUCH AN ENQUIRY AS HE DEEM S NECESSARY IN ORDER TO FIND OUT IF ANY ORDER PASSED BY ASSESSING OFFICER IS ERRONEOUS ITA 650/11 :- 6 -: IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF T HE REVENUE. THE ONLY LIMITATION ON HIS POWERS IS THAT HE MUST HAVE SOME MATERIAL(S) WHICH WOULD ENABLE HIM TO FORM A PRIMA FACIE OPINION THAT THE ORDER PASSED BY THE OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJ UDICIAL TO THE INTEREST OF THE REVENUE. ONCE HE COMES TO THE ABOVE CONCLUSION S ON THE BASIS OF THE MATERIAL THAT THE ORDER OF THE ASSESSING OFFI CER IS ERRONEOUS AND ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE, T HE CIT IS EMPOWERED TO PASS AN ORDER AS THE CIRCUMSTANCES OF THE CASE M AY WARRANT. HE MAY PASS AN ORDER ENHANCING THE ASSESSMENT OR HE MA Y MODIFY THE ASSESSMENT. HE IS ALSO EMPOWERED TO CANCEL THE ASS ESSMENT AND DIRECT TO FRAME A FRESH ASSESSMENT. HE IS EMPOWERE D TO TAKE RECOURSE TO ANY OF THE THREE COURSES INDICATED IN SECTION 26 3. SO, IT IS CLEAR THAT THE CIT DOES NOT HAVE UNFETTERED AND UNCHEQURED DIS CRETION TO REVISE AN ORDER. THE CIT IS REQUIRED TO EXERCISE REVISION AL POWER WITHIN THE BOUNDS OF THE LAW AND HAS TO SATISFY THE NEED OF FA IRNESS IN ADMINISTRATIVE ACTION AND FAIR PLAY WITH DUE RESPEC T TO THE PRINCIPLE OF AUDI ALTERAM PARTEM AS ENVISAGED IN THE CONSTITUTIO N OF INDIA AS WELL IN SECTION 263. AS ORDER CAN BE TREATED AS ERRONE OUS IF IT WAS PASSED IN UTTER IGNORANCE OR IN VIOLATION OF ANY LAW; OR P ASSED WITHOUT TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS OR BY TAK ING INTO CONSIDERATION IRRELEVANT FACTS. THE PREJUDICE THAT IT CONTEMPL ATED UNDER SECTION 263 IS THE PREJUDICE TO THE INCOME TAX ADMINISTRATION A S A WHOLE. THE ITA 650/11 :- 7 -: REVISION HAS TO BE DONE FOR THE PURPOSE OF SETTING RIGHT DISTORTIONS AND PREJUDICES CAUSED TO THE REVENUE IN THE ABOVE CONTE XT. THE FUNDAMENTAL PRINCIPLES WHICH EMERGE FROM THE SEVERA L CASES REGARDING THE POWERS OF THE CIT UNDER SECTION 263 MAY BE SUMM ARIZED 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 OFFICER HAS TAKEN ONE VIEW UNDER WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOU S ITA 650/11 :- 8 -: 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 ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANAT ION 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 CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HI S ITA 650/11 :- 9 -: ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 5. REVERTING TO THE FACTS OF THE CASE, WE HAVE FOUND THAT THE LEGAL ISSUE REGARDING LIMITATION OF THE REVISIONAL ORDER WAS NOT SERIOUSLY CONTESTED, SO THE GROUNDS RAISED IN RESPECT OF THE SAME STANDS DISMISSED. 6. ON MERITS, IT WAS FOUND THAT THE ASSESSING OFFICER HAS APPLIED HIS MIND AND HAS TAKEN ONE OF THE POSSIBLE VIEWS AN D WHEN THE ASSESSING OFFICER TAKES A POSSIBLE VIEW, IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT RENDERED IN THE CASE OF CIT V S MAX INDIA LTD, 295 ITR 282, THE ORDER CANNOT BE TREATED TO BE ERRO NEOUS ON THAT COUNT. CONSEQUENTLY, IN VIEW OF THE OBTAINING FACT S OF THIS CASE AS WELL AS THE LEGAL POSITION DISCUSSED ABOVE, WE ARE OF TH E OPINION THAT THERE IS NO ERROR IN THE RE-ASSESSMENT ORDER AND HENCE, T HE SAME CANNOT BE REVISED, AS THE ISSUE INVOLVED IS DEBATABLE ONE. W HEN THE ASSESSING OFFICER ADOPTS ONE OF THE POSSIBLE VIEWS, HIS ORDER CANNOT BE DUBBED AS ERRONEOUS. WHEN THE ASSESSMENT ORDER IS NOT ERR ONEOUS, EVEN IF IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE EXISTENCE OF TWIN- CONDITIONS, WHICH IS A SINE QUA NON FOR REVISING A N ORDER U/S 263, IS FOUND MISSING. ITA 650/11 :- 10 - : 7. IT MAY BE MENTIONED THAT THE ASSESSING OFFICER HAD INITIATED PROCEEDINGS U/S 154 OF THE ACT WHICH HE HIMSELF SUB SEQUENTLY DROPPED AND THEREAFTER RE-ASSESSMENT WAS DONE. THUS, THE A SSESSING OFFICER WAS VERY MUCH CONSCIOUS OF THIS ISSUE AND AFTER D UE VERIFICATION AND APPLICATION OF HIS MIND, HAS TAKEN A VIEW, WHICH I S ONE OF THE POSSIBLE VIEWS. WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT AND RESTORE THAT OF THE ASSESSING OFFICER. 8. IN THE RESULT, THE APPEAL STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24. 8.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 24 TH AUGUST, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR