M/s. Palco Distributors, Paschim Medinipur V. ACIT, Circle - 1, Midnapore, Paschim Medinipur

ITA 696/KOL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48216 (ITAT-KOLKATA)
• Duration Of Justice: 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 06-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S M SURANA
• Keywords: Opportunity of being heard
• Section: 143(3); 142(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA () BEFORE . . , ! '# '# '# '# /AND ' # , ! ) [BEFORE HONBLE SHRI S. V. MEHROTRA, AM & HONBLE S RI MAHAVIR SINGH, JM] #$ #$ #$ #$ / I.T.A NO. 696/KOL/2011 %& ''( %& ''( %& ''( %& ''(/ // / ASSESSMENT YEAR: 2006-07 M/S. PALCO DISTRIBUTORS VS. ASSISTANT COMMISSION ER OF INCOME-TAX, (PAN-AAIFP 3309 B) CIRCLE-1, MIDNAPORE (*+ /APPELLANT ) (,-*+/ RESPONDENT ) *+ . / /FOR THE APPELLANT: SHRI S. M. SURANA ,-*+ . / /FOR THE RESPONDENT: SHRI NEERAJ KUMAR 0 / ORDER PER MAHAVIR SINGH, JM/ ' # ' # ' # ' # , ! ! ! ! : THIS APPEAL BY ASSESSEE IS ARISING OUT OF THE ORDER OF CIT-XIX, KOLKATA U/S. 263 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) VIDE NO CIT-XIX/U/S.263/2010-11 DATED 21.03.2011 REVISING THE ASSESSMENT FRAMED BY ACIT-CIRCLE 1, MIDNAPORE VIDE ORDER DATED 19.12.2008 U/S.143(3) OF THE ACT FOR ASSESSME NT YEAR 2006-07. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT REVISING THE ASSESSMENT BY INVOKING THE PROVISIONS OF SECTION 26 3 OF THE ACT. FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING FIVE EFFECTIVE GROUNDS: 1. FOR THAT THE ORDER OF THE LD. COMMISSIONER OF I NCOME TAX IS ARBITRARY, ILLEGAL AND BAD IN LAW. 2. FOR THAT THE LD. COMMISSIONER OF INCOME TAX ERRE D IN INITIATING PROCEEDINGS U/S. 263 WHEN THE ORDER WAS NOT ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF REVENUE. 3. FOR THAT THE LD. COMMISSIONER OF INCOME TAX ERRE D IN APPLYING THE PROVISIONS OF SECTION 263 AND DIRECTING THE AO TO EXAMINE THE TAX IMPLICATIONS ON THE CAPITAL CONTRIBUTION BY THE PARTNER WHEN THERE WAS NO FINDI NG THAT THE ORDER WAS PREJUDICIAL TO THE INTEREST OF REVENUE AND IN ANY CASE THERE CAN B E NO TAX IMPLICATION IN SO FAR AS THE ASSESSEE FIRM WAS CONCERNED ON THE ISSUE OF CAPITAL CONTRIBUTION BY THE PARTNERS. 4. FOR THAT THE LD. COMMISSIONER OF INCOME TAX ERRE D IN SETTING ASIDE THE ASSESSMENT FOR EXAMINING THE EXPENSES UNDER THE HEAD LOADING A ND UNLOADING CHARGES WHEN THE SAME WAS DULY EXAMINED IN THE COURSE OF ASSESSMENT PROCEEDINGS, NO FINDING HAVE BEEN RECORDED THAT THERE WAS ANY DISALLOWABLE ITEM AND F OR THAT PURPOSE THE ORDER OF THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF RE VENUE. 5. FOR THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE PROVISIONS OF 263 WAS NOT APPLICABLE AND AS SUCH THE ORDER OF THE C.I.T MAY B E CANCELLED. 2 ITA 696/K/2011 M/S. PALCO DISTRIBUTORS. A.Y.06-07 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSEE IS A DEALER IN TRADING OF HARDWARE MACHINERY AND CLEARING AGENT UNDER THE NAM E AND STYLE OF M/S. PALCO DISTRIBUTORS. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.10.20 06 AND ASSESSMENT U/S. 143(3) OF THE ACT WAS COMPLETED ON 19.12.2008 BY MAKING CERTAIN ADDITIONS . THE ASSESSING OFFICER SUBSEQUENTLY, NOTICED THAT THERE ARE CERTAIN MISTAKES IN THE COMP UTATION OF INCOME, HENCE HE REQUESTED THE CIT TO TAKE REMEDIAL ACTION U/S. 263 OF THE ACT AND IT IS CLEAR FROM VERY FIRST PART OF THE ORDER OF CIT, WHICH READS AS UNDER: THE ASSESSEE IS DEALING IN TRADING OF HARDWARE MAC HINERY AND A CLEARING AGENT. THE ASSESSEE FIRM FILED ITS RETURN ON 30.10.2006 DECLAR ING TOTAL INCOME OF RS.4,18,114/- AND THE A.O. COMPLETED THE ASSESSMENT U/S. 143(3) ON 1 9.12.2008 DETERMINING TOTAL INCOME OF RS.6,40,660/-. THE A.O. AFTER PASSING THE ASSES SMENT ORDER NOTICED SOME MISTAKES IN COMPUTATION OF INCOME AND PRAYED FOR REMEDIAL ACTIO N U/S. 263 OF THE I. T. ACT. THE CIT ISSUED SHOW CAUSE NOTICE AND DIRECTED THE A SSESSING OFFICER TO RE-EXAMINE ISSUES ON FOLLOWINGS: A)IN THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. HAS NOT EXAMINED THE TRANSFER OF ASSETS AND LIABILITIES TAKEN OVER BY THE ASSESEE FR OM M/S. PALCO HARDWARE AND THE CONSEQUENT TAX IMPLICATIONS. SUCH ACTION ON THE PA RT OF THE A.O. TANTAMOUNT TO INADEQUATE SCRUTINY. F) THE A.R. MENTIONED THAT THOUGH THE TRANSPORTATIO N RECEIPTS WERE ONLY RS.1,94,435/- AS AGAINST LOADING AND UNLOADING CHARGES OF RS.2,55,87 0/- AND RS.3,06,065/-, THERE WERE OTHER RECEIPTS ON ACCOUNT OF COMMISSION AGAINST WHI CH THESE EXPENSES HAD TO BE INCURRED. A COPY OF THE AGREEMENT FOR EARNING COMM ISSION INCOME WAS ENCLOSED. IT WAS FURTHER STATED THAT THE EXPENSES ARE FULLY VOUCHED AND THE SAME WERE EXAMINED BY THE A.O. THIS BEING NOT EVIDENT FROM RECORD, THE A.O. I S DIRECTED TO EXAMINE THE SAID EXPENSES AND THE RECEIPTS FROM THE OPERATIONS INCL UDING EXPENSES INCURRED ON EARNING COMMISSION INCOME. SUBSEQUENTLY, CIT DIRECTED AS UNDER: I) IT WAS SUBMITTED THAT THE PARTNER SHRI M. K. PA L BROUGHT IN CAPITAL BY WAY OF HIS CONTRIBUTION IN THE FORM OF INTRODUCTION OF ASSETS. IT WAS CONTENDED THAT THERE WAS NO LAW THAT THE PARTNER HAD TO INTRODUCE THE ASSETS AT MARKET VALUE. IN THIS REGARD, THE A.O. IS DIRECTED TO EXAMINE THE VALUE OF THE ASSETS IN P ALCO HARDWARE AND THE VALUE AS SHOWN IN THE ASSESSEE FIRM BY WAY OF PARTNERS CONTRIBUTI ON. THE TAX IMPLICATION, IF ANY, MAY BE EXAMINED. VI) THE A.R. MENTIONED THAT THOUGH THE TRANSPORTATI ON RECEIPTS WERE ONLY RS.1,94,435/- AS AGAINST LOADING AND UNLOADING CHARGES OF RS.2,55 ,870/- AND RS.3,06,965/-, THERE WERE OTHER RECEIPTS ON ACCOUNT OF COMMISSION AGAINS T WHICH THESE EXPENSES HAD TO BE INCURRED. A COPY OF THE AGREEMENT FOR EARNING COMM ISSION INCOME WAS ENCLOSED. IT WAS FURTHER STATED THAT THE EXPENSES ARE FULLY VOUCHED AND THE SAME WERE EXAMINED BY THE A.O. THIS BEING NOT EVIDENT FROM RECORD, THE A.O. I S DIRECTED TO EXAMINE THE SAID EXPENSES AND THE RECEIPTS FROM THE OPERATIONS INCL UDING EXPENSES INCURRED ON EARNING COMMISSION INCOME. 3 ITA 696/K/2011 M/S. PALCO DISTRIBUTORS. A.Y.06-07 AND FINALLY, THE CIT HELD HAS UNDER: IN VIEW OF THE ABOVE DISCUSSION THE A.O. IS DIRECT ED TO REEXAMINE THE ISSUES AS MENTIONED ABOVE AND REVISE THE ASSESSMENT ORDER, IF SO REQUIRED, AFTER DUE VERIFICATION AND GRANTING AN OPPORTUNITY OF BEING HEARD TO THE A SSESSEE. THE ISSUES WHERE IT IS OBSERVED THAT NO INTERFERENCE IS CALLED FOR ARE NOT TO BE REEXAMINED. AGGRIEVED AGAINST THE REVISION ORDER PASSED U/S. 26 3 OF THE ACT BY CIT, ASSESSEE CAME IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. THE LD. COUNSEL FOR THE ASSESSEE, IN RESPECT OF THE FIRST OBJECTION, STATED FACTS THAT M/S. PALCO HARDWARE WAS A PARTNERSHIP CONCERN, WHERE FROM ONE OF THE PARTNER SRI M.M. PAL, RETIRED AND ON RETIREMENT, HE TOOK OVER SOME OF THE ASSETS OF T HE PARTNERSHIP FIRM AND SUCH ASSETS BEING STOCK IN TRADE WAS INTRODUCED BY HIM AS HIS CAPITAL IN THE ASSESSEE FIRM. THE DETAILS OF THE SAME WERE FILED DURING THE COURSE OF ASSESSMENT PROCEEDI NGS AND COPY OF THE SAID DETAILS IS ALSO FILED IN THE ASSESSEES PAPER BOOK. LD. COUNSEL ARGUED TH AT WHEN PARTNER HAS BROUGHT CAPITAL BY WAY OF HIS CONTRIBUTION IN THE FORM OF INTRODUCTION OF ASSETS, THERE CANNOT BE ANY TAX IMPLICATION IN SO FAR AS THE ASSESSEE FIRM IS CONCERNED, AND THERE IS NO LAW THAT THE PARTNER WHILE INTRODUCING HIS CAPITAL, IN KIND, HAS TO INTRODUCE THE SAME AT MARKET VALUE. IN VIEW OF THESE FACTS, LD. COUNSEL FINALLY STATED THAT PROCEEDINGS U/S. 263 ON THIS GROUND IS NOT PROPER AS THE SAME CANNOT BE SAID TO BE NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. IN RESPECT TO SECOND OBJECTION LD. COUNSEL IN RESPECT TO SECOND ISSUE ST ATED FACTS THAT TRANSPORTATION CHARGES AND LOADING AND UNLOADING CHARGES WERE RS.255870/- AND RS.306965/-, WHEREAS THE RECEIPTS UNDER THIS OPERATIONS WERE AT RS.194435/- AND OTHER RECEI PTS WERE ON ACCOUNT OF COMMISSION. HE STATED THAT EVEN AGAINST COMMISSION INCOME THESE EX PENSES HAVE TO BE INCURRED AND FOR THIS HE REFERRED TO THE AGREEMENT WITH THE PRINCIPLE, WHICH IS FILED IN ASSESSEES PAPER-BOOK. FROM THE AGREEMENT, LD. COUNSEL DEMONSTRATED, THAT IT IS THE DUTY OF THE ASSESSEE TO KEEP THE GOODS SAFE WITHOUT ANY DAMAGE AND LOADING AT THE TIME OF DELIV ERY TO CUSTOMERS HAS TO BE MADE AND FURTHER, SUCH EXPENSES ARE NOT PART OF THE DUMPING AGREEMENT. IN VIEW OF THESE FACTS, LD. COUNSEL FINALLY ARGUED THAT EXPENSES ARE FULLY VOUC HED AND SUCH VOUCHERS WERE PRODUCED AND EXAMINED AND, THEREFORE, THE EXPENSES WERE RIGHTLY CLAIMED AND PROPERLY ALLOWED BY THE AO AND THE ASSESSMENT ORDER IS NEITHER ERRONEOUS NOR P REJUDICIAL TO THE INTEREST OF REVENUE. 5. THE LD. CIT-DR RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF RAMPYARI DEVI SARAOGI VS. CIT (1968) 67 ITR 84(SC) AND ITAT , MUMBAI TRIBUNAL IN 303 ITR 87 (AT) (BUT WE FOUND NO SUCH CITATION AND CASE LAW). THE LD. CIT-DR STATED THAT LACK OF ENQUIRY BY 4 ITA 696/K/2011 M/S. PALCO DISTRIBUTORS. A.Y.06-07 THE A.O, DURING THE COURSE OF ASSESSMENT PROCEEDING S, IS A REASONABLE GROUND FOR INVOKING REVISIONAL POWERS BY THE CIT U/S. 263 OF THE ACT. HE STATED THAT HONBLE APEX COURT AND MUMBAI TRIBUNAL HAVE TAKEN A CONSISTENT VIEW, CONFI RMING THE SITUATION IN THE PRESENT CASE. 6. WE FIND THAT IN THE PROCEEDINGS U/S. 263 OF THE ACT, THE CIT HAS NOT POINTED OUT THAT THE ORDER OF THE A.O I.E. ASSESSMENT ORDER IS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE FIND THAT THE ASSESSMENT IN THIS CASE WAS COMPLE TED U/S.143(3) OF THE ACT AFTER ISSUING NOTICE U/S.143(2) AND 142(1) OF THE ACT ASKING NUMB ER OF DETAILS INCLUDING THE POINTS RAISED IN THE SHOW-CAUSE NOTICE U/S.263 OF THE ACT. AS POINTE D OUT BY THE LD. COUNSEL FOR THE ASSESSEE TO THE QUESTIONNAIRE ISSUED BY ACIT VIDE NO.ACIT/CIR-1 /MID/AAIFP3309B/2006-07/182 DATED 05-01-2007, WHEREIN IT WAS SPECIFICALLY ASKED REGAR DING LOADING AND UNLOADING LABOUR CHARGES AND TRANSPORTATION CHARGES. THE ASSESSEE REPLIED TO THE SAME VIDE LETTER DATED 18-12-2008 SUBMITTING BILLS AND VOUCHERS IN SUPPORT OF EXPENSE S INCLUDING LOADING AND UNLOADING LABOUR CHARGES AND TRANSPORTATION CHARGES. WE FIND FROM TH E ABOVE THAT THE AO HAS RAISED SPECIFIC QUESTION REGARDING THESE EXPENSES AND ASSESSEE HAS REPLIED TO THE SAME AND ALSO SUBMITTED BILLS AND VOUCHERS IN SUPPORT OF THESE EXPENSES. IN RESPE CT TO TRANSFER OF ASSETS AND LIABILITIES TAKEN OVER BY THE ASSESSEE FROM M/S. PAL HARDWARE, WE ARE OF THE VIEW WHEN A PARTNER BROUGHT HIS CAPITAL IN THE FORM OF INTRODUCTION OF ASSET, IN TH AT CASE, THERE CANNOT BE TAX IMPLICATION IN SO FAR AS THE ASSESSEE FIRM IS CONCERNED AND EVEN THERE IS NO PROVISION IN THE ACT THAT PARTNER WHILE INTRODUCING HIS CAPITAL IN KIND HAS TO INTRODUCE TH E SAME AT MARKET VALUE. THIS ALSO THE CIT HAS RAISED ONLY ON THE BASIS OF HIS OPINION AND THERE I S NO FIRM BASIS FOR SUCH OPINION AS HE HAS ONLY NOTED THAT THE TAX IMPLICATION, IF ANY, MAY BE EXAM INED. IN VIEW OF THE ABOVE FACTUAL SITUATION AND LEGAL POSITION, WE ARE OF THE VIEW THAT THE CIT HIMSELF WAS NOT SURE, WHETHER THE ORDER OF THE AO IS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE SO AS TO INVOKE THE PROVISION OF SECTION 263 OF THE ACT. WE ARE OF THE VIEW THAT U/S .263 OF THE ACT, ASSESSMENT ORDER CANNOT BE SET ASIDE FOR MAKING ROVING INQUIRIES WITHOUT POINT ING OUT ANY ERROR IN THE ORDER. A SIMILAR VIEW HAS BEEN TAKEN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GABRIEL INDIA LTD(1993) 203 ITR 108 (BOM). THE POWER OF REVISION IS NOT MEA NT TO BE EXERCISED FOR THE PURPOSE OF DIRECTING THE AO TO HOLD ANOTHER INVESTIGATION, PAR TICULARLY WHEN THE ORDER OF THE AO IS FOUND NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST O F THE REVENUE. HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SHAKTI CHARITIES (2000) 244 ITR 226(MAD) HELD THE SIMILAR VIEW. MAKING A VALID ORDER U/S.263 OF THE ACT THE ESSENTIAL CONDIT ION THAT THE COMMISSIONER HAS TO RECORD AN EXPRESS FINDING TO THE FACT THAT THE ORDER SOUGHT T O BE REVISED IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND IN THE ABSENCE O F ANY SUCH FINDING, THE ORDER U/S.263 OF THE ACT IS LIABLE TO BE SET ASIDE. WE FIND THAT, IN THE PRESENT CASE BEFORE US, THE AO HAS VERIFIED THE 5 ITA 696/K/2011 M/S. PALCO DISTRIBUTORS. A.Y.06-07 DETAILS OF EXPENSES AFTER CALLING THE DETAILS FROM THE ASSESSEE AND ASSESSEE HAS ALSO SUPPLIED BILLS AND VOUCHERS OF THESE EXPENSES. EVEN THE CASE LAW CITED BY LD.CIT-DR OF HONBLE APEX COURT IN THE CASE OF RAM PAYARI SARAOGI(SUPRA) WHE REIN IT IS HELD THAT THE COMMISSIONER MAY CONSIDER AN ORDER OF THE AO TO BE ERRONEOUS NOT ONL Y IF IT CONTAINS SOME APPARENT ERROR OF REASONING OR OF LAW OR OF FACT ON THE FACE OF IT, B UT ALSO BECAUSE IT IS A STEREO TYPED ORDER WHICH SIMPLY ACCEPTS, WHAT THE ASSESSEE HAS STATED IN HIS RETURN AND FAILED TO MAKE ENQUIRIES, WHICH ARE CALLED FOR IN THE CIRCUMSTANCE OF THE CASE. BUT THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. MULCHAND BAGRI(1992) 108 CTR 206(CAL) STATED THAT WHERE THE AO HAS MADE ENQUIRIES, IT CANNOT BE SAID THAT THE ORDER PASSED IS PREJUDICIAL TO THE INTEREST OF REVENUE. IN THE PRESENT CASE THE AO HAS MADE ENQUIRIES AND THE ASSE SSEE REPLIED TO THE ENQUIRIES, THE ORDER PASSED BY THE AO IN THE PRESENT CASE CANNOT BE SAID TO BE EITHER ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLY, WE QUASH THE REVI SION ORDER PASSED U/S.263 OF THE ACT BY CIT. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. 8. ORDER PRONOUNCED IN OPEN COURT ON 21.6.2011. SD/- SD/- . . ! ' '' ' # # # # , ! (S. V. MEHROTRA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( 1 1 1 1) )) ) DATED 21ST JUNE, 2011 '23 %45 6' JD.(SR.P.S.) 0 . ,7 87'9- COPY OF THE ORDER FORWARDED TO: 1 . *+ / APPELLANT M/S. PALCO DISTRIBUTORS, 501, JUDGES CO URT ROAD, PO MIDNAPORE, DIST. PASCHIM MEDINIPUR, PIN 721101 2 ,-*+ / RESPONDENT, ACIT, CIRCLE-1, MIDNAPORE. 3 . 0% ( )/ THE CIT(A), KOLKATA 4. 0% / CIT, KOLKATA 5 . '? ,% / DR, KOLKATA BENCHES, KOLKATA -7 ,/ TRUE COPY, 0%@/ BY ORDER, #5 /ASSTT. REGISTRAR .