M/s Kunjal Synergies Pvt. Ltd., Kolkata V. CIT, Cir-8, Kolkata, Kolkata

ITA 699/KOL/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7931 (ITAT-KOLKATA)
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2014
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 21-04-2014
• Court: TRIBUNAL
• Keywords: Opportunity of being heard
• Section: 143(3); 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH B , KOLKATA [BEFORE HON BLE SRI MAHAVIR SINGH, JM& HON BLE SRI SHAMIM YAHYA , A M ] ITA NO.699/KOL/2014 ASSESSMENT YEAR : 2009 - 10 ( A PPELLANT ) (RESPONDENT) M/S.KUNJAL SYNERGIES PVT.LTD. - VS - C.I.T., KOL.III, KOLKATA KOLKATA (PAN: AACCK 9990L) FOR THE APPELLAN T SHRI SUNIL SURANA, FCA FOR THE RESPONDENT SHRI VIJAY KUMAR, CIT DATE OF HEARING : 02.12 .2014 DATE OF PRONOUNCEMENT : 08.12.2014. ORDER PER SHRI SHAMIM YAHYA, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF L D. C.I.T.KOL - III , KOLKATA DT. 24.03.2014 AND PERTAIN S TO ASSESSMENT YEAR 2009 - 10. 2. THE MAIN ISSUE RAISED IN THIS APPEAL IS THAT THE LD.CIT ERRED IN EXERCIS ING JURISDICTION U/S 263 ON THE ISSUE DEDUCTION OF TAX AT SOURCE ON REIMBURSEMENT OF FREIGHT CHARGES TO THE SUPPLIERS WHICH HAD ALREADY BEEN CONSIDERED BY THE AO AFTER DUE APPLICATION OF MIND IN THE ORIGINAL ORDER PASSED U/S 143(3) OF THE I.T.ACT, 1961 AND THEREFORE THE ASSESSMENT ORDER PASSED BY THE AO CANNOT BE SAID TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 3. IN THIS CASE THE LD. CIT OBSERVED THAT ORDER PASSED U/S 143(3) BY THE AO IS APPARENTLY ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF REVENUE FOR THE FOLLOWING REASON : - ON PERUSAL OF THE ASSESSMENT ORDER, RECORDS, ACCOUNTS ETC. IT IS FOUND THAT DURING THE F.Y. 2008 - 09, THE ASSESSEE PAID FREIGHT CHARGES TOTALING RS.96,15,109/ - (RELIANCE INDUSTRIES LTD. RS.3,61,839/ - + NIRMA LTD. RS .89,92,420/ - + SAURASHTRA CHEMICALS LTD. RS.2,60,850/ - ) WITHOUT DEDUCTION OF TAX AT SOURCE U/S 194C. THE ASSESSEE WAS UNDER MANDATORY OBLIGATION TO DEDUCT TAX AT SOURCE ALSO AS PER CBDT CIRCULAR NO.715 DATED 08 - 08 - 1995 ON SUCH TRANSACTIONS. SINCE THE ASSES SEE HAD NOT DEDUCTED TAX AT SOURCE ITA.NO. 699/K/2014 M/S. KUNJAL SYNERGIES PVT.LTD., A.YR. 2009 - 10 2 WHILE MAKING FREIGHT CHARGES OF RS.96,15 ,109/ - THE SAME WAS NOT ALLOWABLE U/S 40(A)(IA) OF THE I.T.ACT THE ASSESSMENT MADE U/S 143(3) DATED 11 - 11 - 2011 FOR A.Y.2009 - 10 APPEARED TO BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE AND PROCEEDINGS U/S 263 OF THE I.T.ACT WAS INITIATED BY ISSUING A SHOW CAUSE TO THE ASSESSEE TO EXPLAIN AS TO WHY THE ASSESSMENT MADE U/S 143(3) FOR A.Y.2009 - 10 SHOULD NOT BE REVISED U/S 163 OF THE I.T.ACT AS THE SAME IS APPARENTLY ERR ON EOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 3.1. IN REPLY TO THE SHOW CAUSE NOTICE IN THIS REGARD THE ASSESSEE S SUBMISSION BEFORE THE LD. CIT WAS AS UNDER : THE A/R STATED IN HIS SUBMISSION AS FOLLOWS THE ASSESSEE WAS IN THE BUSINESS OF TRADI NG OF INDUSTRIAL CHEMICALS, PETROCHEMICALS, SOLVENTS ETC. AND THEIR MAIN PURCHASES WERE MADE FROM M/S.RELIANCE INDUSTRIES LTD., M/S. NIRMA LIMITED AND M/S. SAURASHTRA CHEMICALS LTD . THE FREIGHT PAYMENTS WERE REIMBURSED TO THEM SINCE THEY DISPATCHED THE G OODS AFTER PAYMENT OF THE FREIGHT TO THE CARRIERS. THE ASSESSEE HAD NO CONTRACT WITH OR EVEN CONTACT WITH ANY OF THE TRANSPORT CARRIERS ON BEHALF OF THE ASSESSEE. THE A/R FURTHER REITERATED THAT THE ASSESSEE WAS IN THE BUSINESS OF TRADING OF INDUSTRIAL CH EMICALS, PETROCHEMICALS, SOVENTS ETC. AND THEIR MAIN SUPPLIERS WERE M/S. RELIANCE INDUSTRIES LTD., M/S. NIRMA LIMITED AND M/S.SAURASHTRA CHEMICALS LTD. WHO DELIVERED THE GOODS DIRECTLY TO THE GODOWNS OF THE ASSESSEE. THE FREIGHT CHARGES WERE RECOVERED BY T HEM FROM THE ASSESSEE. ALL THE BILLS WERE PRODUCED BEFORE THE AO AND AS REQUIRED BY THE AO COPIES OF A FEW PURCHASE INVOICES FROM THE ABOVE STATED PARTIES WERE ALSO FILED BEFORE THE AO AND ARE AGAIN ENCLOSED FOR YOUR READY REFERENCE. IT IS CLEARLY MENTIONE D IN ALL THE PURCHASE BILLS THAT THE FREIGHT HAS DIRECTLY BEEN PAID BY THE SUPPLIERS ON BEHALF OF PURCHASE BILLS THAT THE FREIGHT HAS DIRECTLY BEEN PAID BY THE SUPPLIERS ON BEHALF OF CUSTOMERS (THE ASSESSEE) AND WAS BEING RECOVERED BY THEM. THERE WAS NO AG REEMENT OR CONTRACT BETWEEN THE ASSESSEE AND THE TRANSPORTERS WHO WERE PAID BY THE SUPPLIERS DIRECTLY. THE SAID PAYMENT WAS, THEREFORE, ONLY REIMBURSEMENT OF THE EXPENSES INCURRED BY THE SUPPLIERS ON BEHALF OF THE ASSESSEE ON WHICH THERE WAS NO REQUIREMENT TO DEDUCT TAX AT SOURCE. THE AO HAS APPLIED HIS MIND AND HAS TAKEN A POSSIBLE VIEW. THE ASSESSMENT, THEREFORE, CANNOT BE SAID TO BE EITHER ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE. THE A/R ALSO OPINED THAT THE CIRCULAR NO.715 OF CBDT DATED 08 - 08 - 1995 THE PURCHASE TRANSACTIONS DO NOT FALL UNDER THE AMBIT OF SECTION 194C, THERE IS NO QUESTION OF DEDUCTION OF TAX AT SOURCE ON THE BILLS RAISED BY THE SUPPLIERS. ALTERNATIVELY AS PER A/R THE CIRCULARS ISSUED BY THE CBDT ARE NOT HINDERING THE ASSES SEE. THE A/R ALSO STATED THAT FOLLOWING THE DECISIONS OF THE HON BLE APEX COURT WITH THE CASE OF CIT VS - GUJARAT NARMADA VALLEY FERTILISERS CO.LTD WHEREIN THE SLP FILED BY THE DEPARTMENT WAS REJECTED BY THE APEX COURT FILED AGAINST THE JUDGEMENT OF HIGH C OURT OF GUJARAT WHERE IT IS ADJUDICATED THAT NO TAX IS REQUIRED TO BE DEDUCTED IN CASE OF REIMBURSEMENT OF EXPENSES . 3.2. CONSIDERING THE ABOVE THE LD.CIT HELD THAT THE HON BLE GUJARAT HIGH COURT WAS WITH REGARD TO CFN AGENT AND THE FACTS OF THIS CASE A RE DIFFERENT . THE LD. CIT FURTHER NOTED THAT THE ASSESSEE HAD SHOWN FREIGHT AT RS. 3,68,78,002.53 IN THE PROFIT AND LOSS ACCOUNT OF WHICH THE FREIGHT OF RS.96 , 15,109/ - WERE MADE TO M/S. (M/S.NIRMA ITA.NO. 699/K/2014 M/S. KUNJAL SYNERGIES PVT.LTD., A.YR. 2009 - 10 3 LIMITED FOR R S.89,92,420.32, M/S.SAURASHTRA CHEMICALS LTD. FOR RS.2,60,8 50/ - , M/S.RELIANCE INDUSTRIES L TD. FOR R S.3,61,839/ - ) ON WHICH NO TDS WAS DEDUCTED BECAUSE AS PER THE ASSESSEE S SUBMISSION THE SAME HAS BEEN INCLUDED IN THE PURCHASE. LD.CIT FURTHER OBSERVED THAT D URING ASSESSMENT PROCEEDINGS, VIDE SUBMISSION DATED 31 - 10 - 2011 THE AR ADMITS PROPORTIONATE UNDER VALUATION OF CLOSING STOCK A S PER ACCOUNTS STANDARD AS - 7. THAT IT IS NOT CLEAR WHETHER PURCHASE DEBITED IN THE PROFIT & LOSS ACCOUNT INCLUDES SUCH PURCHASES AND IF SO THEN WHY IT IS AGAIN CLAIMED AS FREIG HT. THAT IF PURCHASES DO NOT INCLUDE SUCH FREIGHT THEN WHY DID THE AR ADMIT UNDERVALUATION OF CLOSING STOCK AND WHY TDS IS NOT DEDUCTIBLE. THAT T HE A.O. DURING THE COURSE OF ASSESSMENT APPARENTLY FAILED TO EXAMINE THESE ISSUES. 3.3. IN THE ABOVE CIRCUMSTA NCES THE LD. CIT OBSERVED THAT POWER U/S 263 OF THE ACT CAN BE EXERCISED EVEN IN CASES WHERE THE ISSUE IS DEBATABLE . T HE LD. CIT REFERRED TO THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF RAMPYARI DEVI SARAOGI VS CIT 67 ITR 84 (SC) AND SEVERAL OTHE R CASE LAWS. THE LD. CIT CONCLUDED AS UNDER : IT IS ALSO A TRITE LAW THAT THE DISCLOSURE OF FACTS BY THE ASSESSEE IN THE RETURN OF INCOME OR/AND IN THE COURSE OF ASSESSMENT PROCEEDINGS CANNOT GIVE IMMUNITY FROM REVISIONAL JURISDICTION OF THE CIT U/S 263. THE DETAILS THAT WERE NEEDED TO BE FILED BEFORE THE AO APPEARS TO BE FILED ONLY BEFORE THIS OFFICE AND THE A.O. FAILED TO EXAMINE AND APPLY HIS MIND TO THE ISSUE REGARDING THE FREIGHT CHARGES AND LIABILITY TO DEDUCT TAX AT SOURCE U/S 194C. IN THE ASSESSME NT ORDER PASSED U/S 143(3) OF THE I.T.ACT DATED 11 - 11 - 2011 THE AO DID NOT LOOK INTO THE MATTER WHICH ENTAILS LOSS OF REVENUE AS DETAILED IN THE PRECEDING PARAS AND THEREFORE THE SAID ASSESSMENT ORDER IS HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND IS SET ASIDE AND THE AO IS DIRECTED TO FRAME THE ASSESSMENT DE NOVO AFTER CAUSING SUFFICIENT ENQUIRY AND AS PER LAW. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD NOT MADE ANY FREIGHT PAYMENT TO THE TRANSPORTERS. HE CLAIMED THAT THE ASSESSEE HAD MADE PURCHASES OF INDUSTRIAL CHEMICALS, PETRO CHEMICALS, SOLVENTS FROM THREE MAIN SUPPLIERS. THE FREIGHT PAYM ENTS WERE REIMBURSED TO THEM SINCE THEY DISPATCHED THE GOODS AFTER PAYMENT OF THE FREIGHT TO THE CARRIERS. IN THIS REGARD THE LD. COUNSEL REFERRED TO THE INVOICE OF THE PARTIES SUBMITTED IN THE PAPER BOOK AND SUBMITTED THAT THE ASSESSEE HAD NO CONTRACT WIT H ANY OF THE ITA.NO. 699/K/2014 M/S. KUNJAL SYNERGIES PVT.LTD., A.YR. 2009 - 10 4 TRANSPORT CARRIERS. THERE WAS NO CONTRACT BETWEEN THE ASESSEE AND THE TRANSPORTER WHO WERE PAID BY THE SUPPLIERS DIRECTLY. HE SUBMITTED THAT THE SAID PAYMENT WAS ONLY REIMBURSEMENT OF THE EXPENDITURE INCURRED BY THE SUPPLIERS ON BEHALF OF THE ASSESSEE ON WHICH THERE WAS NO REQUIREMENT TO DEDUCT TAX AT SOURCE. THE LD. COUNSEL FURTHER REFERRED TO PAGE 13 OF THE PAPER BOOK WHEREIN THE ASSESSEE HAS SUBMITTED DETAIL EXPLANATION TO THE AO VIDE LETTER DATED 31.10.2011 GIVING THE EXPLANATION REGARDING NON DEDUCTION OF TAX ON FREIGHT. THE LD. COUNSEL FURTHER REFERRED TO THE ASSESSMENT ORDER IN PARA 3 WHERE IN AO SPECIFICALLY DISCUSSED THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT. IN THIS VIEW OF THE MATTER THE LD. COUNSEL SUBMITTED THAT AO HAS DULY CONSID ERED THE ISSUE AND APPLIED HIS MIND. HENCE HE SUBMITTED THAT THE LD. CIT CANNOT EXERCISE JURISDICTION U/S 263 OF THE ACT. HE ALSO PLACED BEFORE US THE COPY OF THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS GUJARAT NARMADA VALLEY FERTI LISERS CO.LTD AND THE DECISION OF THE HON BLE APEX COURT IN WHICH SLP FILED BY THE DEPARTMENT WAS REJECTED BY THE APEX COURT. THE LD. COUNSEL SUBMITTED THAT THESE DECISIONS ARE SQUARELY IN FAVOUR OF THE ASSESSEE AND HENCE THE ISSUE ON MERITS ITSELF IS COV ERED IN FAVOUR OF THE ASSESSEE. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE LD. CIT. 4.1. UPON CAREFUL CONSIDERATION WE NOTE THAT SECTION 263 OF THE ACT PROVIDES AS UNDER : - 263 (1) THE COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTE R MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. F ROM THE ABOVE IT IS EVIDENT THAT THE LD. CIT CAN EXERCISE HIS JURISDICTION U/S 263 IF THE ORDER P ASSED BY THE AO IS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 4.2. THE HON BLE APEX COURT HAD THE OCCASION OF EXPOUNDING OF SECTION 2 63 IN THE CASE OF MALABAR INDUSTRIES VS CIT 243 ITR 83. IT HAS BEEN HELD THAT THE C.I.T HAS TO ITA.NO. 699/K/2014 M/S. KUNJAL SYNERGIES PVT.LTD., A.YR. 2009 - 10 5 SATISFY TWIN CONDITIONS NAMELY (I) THE ORDER OF THE AO SOUGHT TO BE REVISED IS ERRONEOUS AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ANY ONE OF THEM IS ABSENT CIT CANNOT EXERCISE JURISDICTION U/S 263(1) . T HE HON BLE APEX COURT FURTHER EXPOUNDED THAT EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE AO CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. FOR EXAMPLE WHEN AN ITO HAS ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTE REST OF THE REVENUE UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE IN LAW. 4.3. NOW WE EXAMINE THE PRESENT CASE ON THE ANVIL OF FORESAID CASE LAW. IN THE PRESENT CASE WE FIND THAT SSESSEE HAS EXPLAINED BEFORE THE AO THAT THE FREIGHT PAYMENT HAS NOT BE EN MADE BY THE ASSESSEE HIMSELF. THE AMOUNT OF FREIGHT WAS INCLUDED IN THE BILLS FOR SUPPLIES RECEIVED FROM SUPPLIERS. ASSESSEE HAS ONLY REIMBURSED THE FREIGHT PAYMENT MADE BY THE SUPPLIERS OF THE GOODS. AFTER CONSIDERING THE ASSESSEE S SUBMISSIONS AO HAS DECIDED THAT NO DISALLOWANCE U/S 40(A)(IA) OF THE ACT IS CALLED FOR. FURTHERMORE IN SUPPORT OF THIS PROPOSITION THAT REIMBURSEMENT OF EXPENSES CANNOT BE SAID TO BE PAYMENT OF FREIGHT WHICH MAY CALL FOR DEDUCTION OF TDS U/S 40(A)(IA) OF THE ACT THE LD. COUN SEL OF THE T HE ASSESSEE HAS ALSO PLACED RELIANCE UPON THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS GUJARAT NARMADA VALLEY FERTISLISERS CO.LTD. IN OUR OPINION IT CANNOT BE SAID THAT THE RATIO ARISING OUT OF THIS CASE LAW IS NOT APPLI CABLE ON THE FACTS OF PRESENT CASE. IN OUR VIEW THE VIEW ADOPTED BY THE AO CANNOT BE SAID TO BE UNSUSTAINABLE IN LAW. HENCE THE EXERCISE OF JURISDICTION BY THE LD. CIT U/S 263 IN THIS CASE IS NOT SUSTAINABLE. WE FURTHER NOTE THAT AO HAS DONE PROPER ENQUIRY AND THEREAFTER HE HAS FORMED AN OPINION WHICH CANNOT BE SAID TO BE PRIMA FACIE UN SUSTAINABLE. HENCE LD.CIT S CONCLUSIO N THAT AO HAS NOT APPLIED HIS MIND IS ALSO NOT SUSTAINABLE. IN THIS VIEW OF THE MATTER IN OUR CONSIDERED OPINION THE LD. CIT IS NOT JUS TI FIED IN EXERCISING HIS JURISDICTION U/S 263 OF THE ACT. HENCE WE SET ASIDE THE ORDER PASSED BY THE LD.CIT U/S 263 OF THE IT ACT. ITA.NO. 699/K/2014 M/S. KUNJAL SYNERGIES PVT.LTD., A.YR. 2009 - 10 6 5. IN THE RESULT THE APPEAL FILED BY THE ASSESEE STANDS ALLOWED. ORDER PRONOUNCE D IN THE COURT ON 8 .12.2014. SD/ - SD/ - [ MAHA VIR SINGH ] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 08.12.2014. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . M/S. KUNJAL SYNERGIES PVT. LTD., 15D, EVEREST HOUSE, 46C, J.L.NEHRU ROAD, KOLKATA - 700071. 2 C.I.T., KOL - III, KOLKATA 3 . CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY, BY ORDER, ASST. REGISTRAR , ITAT, KOLKATA BENCHES