Arvind Ramchandra Mutalik, Satara V. Pr. Commissioner of Income-tax - 3,

ITA 721/PUN/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7376 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-09-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 18-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIRUPAMA KOTRU
• Keywords: Opportunity of being heard
• Section: 143(3); 133(6); 263

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.721/PUN/2015 / ASSESSMENT YEAR : 2010-11 ARVIND RAMCHANDRA MUTALIK, L-77, ADDL. MIDC, SATARA, DIST. SATARA. PAN : ABRPM6439R. . / APPELLANT V/S PRL.COMMISSIONER OF INCOME TAX, PMT BUILDING, B WING, 3 RD FLOOR, SWARGATE, PUNE 411037. . / RESPONDENT ASSESSEE BY : SHRI C.H. NANIWADEKAR. REVENUE BY : SMT. NIRUPAMA KOTRU. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF THE ORDER OF PRL.COMMISSIONER OF INCOME TAX-3, PUNE DT.30.03.20 15 FOR THE ASSESSMENT YEAR 2010-11 PASSED U/S 263 OF THE ACT. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS AN INDIVIDUAL STATED TO BE DERIVING INCOME FROM PARTNERSHIP FIRM AND OTHER SOURCES. ASSESSEE FILED HIS RETU RN OF / DATE OF HEARING : 11.09.2017 / DATE OF PRONOUNCEMENT: 29.09.2017 2 INCOME FOR AY 2010-11 ON 26.09.2010 DECLARING TOTAL INCOM E OF RS.17,25,930/- THE CASE WAS SELECTED FOR SCRUTINY AND TH EREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE OR DER DATED 20.12.2013 AND THE TOTAL INCOME WAS DETERMINED AT RS.17,25,930/- BEING THE RETURNED INCOME. SUBSEQUENTLY, O N EXAMINATION OF RECORDS OF ASSESSMENT, LD. CIT NOTICED THAT THE CASE OF THE ASSESSEE WAS SELECTED UNDER CASS TO EXAMIN E THE GENUINENESS OF COMMISSION OF RS.11,03,511/- THAT WAS PAID T O VARIOUS PERSONS BY THE ASSESSEE. CIT NOTED THAT AO HAD ISSUED NOTICE U/S 133(6) OF THE ACT TO ONLY 2 PERSONS (MICROFIL ENTERPRISES AND ADITYA ARVIND MUTALIK) OUT OF THE SIX PERS ONS AND BASED ON THE REPLIES RECEIVED BY THE AO FROM THOSE TWO PERSONS, ALLOWED THE CLAIM OF COMMISSION INCLUDING THE COMMISSION PAID TO OTHER FOUR PERSONS ALSO. HE WAS OF THE VIEW THAT THE CLAIM OF COMMISSION TO THE OTHER 4 PARTIES WAS ALLOWED BY THE AO WITHOUT ANY DOCUMENTARY EVIDENCE SO AS TO PROVE THE RENDERING OF SERVICES BY THEM TO ASSESSEE AND THUS THE GENUINENESS OF PAYMENT OF COMMISSION WAS NOT PROVED. HE ACCORDINGLY ISS UED SHOW CAUSE NOTICE U/S 263 OF THE ACT ON 12.03.2015 AN D CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ORDER U/S 263 OF THE ACT NOT BE PASSED. IN RESPONSE TO THE NOTICE OF CI T, CIT NOTED THAT ASSESSEE SUBMITTED WRITTEN SUBMISSION WHEREIN IT WAS SUBMITTED THAT THE TWO PARTIES TO WHOM THE COMMISSION A ND TO WHOM NOTICE U/S 133(6) WAS ISSUED BY AO CONSTITUTED MORE THAN 88% OF THE TOTAL COMMISSION PAID AND IT WAS ALLOWED AFTER OBTAINING THEIR CONFIRMATIONS. IT WAS FURTHER SUBMITTED THA T FOR OTHER 4 PARTIES STATEMENT OF ACCOUNT, SALES AFFECTED BY THEM AND 3 TDS DEDUCTED WERE FURNISHED BY THE ASSESSEE AND AFTER BEING SATISFIED, THE CLAIM OF THE ASSESSEE WAS ALLOWED. IT WAS FURTH ER SUBMITTED THAT PROVISIONS OF SEC.263 WERE NOT ATTRACTED IN THE PRESENT CASE. THE SUBMISSION OF THE ASSESSEE WAS NOT F OUND ACCEPTABLE TO THE LD CIT. CIT VIDE ORDER DATED 30.03.20 15 PASSED U/S 263 OF THE ACT HELD THAT SINCE THE AO HAS NOT VERIFIE D THE NATURE OF SERVICES PROVIDED BY THOSE PERSONS TO THE AS SESSEE AND WHETHER IT WAS INCURRED FOR THE PURPOSE OF BUSINESS, THE ASSESSMENT ORDER PASSED BY AO U/S 143(3) OF THE ACT WA S ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE COMPANY AS CONTEMPLATED U/S 263 OF THE ACT. HE ACCORDINGLY SET AS IDE THE AFORESAID ORDER PASSED BY AO U/S 143(3) OF THE ACT AND D IRECTED THE AO TO PASS A DENOVO ORDER. AGGRIEVED BY THE ORDE R OF CIT, ASSESSEE IS NOW IN APPEAL BEFORE US AND RAISED THE FOLLOWING GROUNDS. 1. THE LEARNED COMMISSIONER OF INCOME TAX ERRED ON FACTS AND IN LAW IN ASSUMING JURISDICTION U/S 263 OF THE ACT CON SEQUENTLY SETTING ASIDE THE ENTIRE ASSESSMENT ORDER. 2. THE LEARNED COMMISSIONER OF INCOME TAX ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE RELEVANT ISSUE OF COMMISSION PAID TO VARIOUS PARTIES WAS EXAMINED BY THE LEARNED AO D URING SCRUTINY PROCEEDINGS U/S 143(3), AND THAT THE LEARN ED AO HAS TAKEN A POSSIBLE VIEW IN THE MATTER. AS SUCH, HE F AILED TO APPRECIATE THAT THE ORDER IS NOT AN ERRONEOUS ONE. 3. THE LEARNED COMMISSIONER OF INCOME TAX, IN ANY C ASE FAILED TO APPRECIATE THAT ALMOST 90% OF THE SAID EXPENDITURE WAS CROSS- VERIFIED BY THE LEARNED AO. IN VIEW OF THIS SITUATI ON, HE OUGHT TO HAVE LIMITED HIS JURISDICTION ONLY TO THE EXTENT OF BALANCE 10% OF THE EXPENDITURE AND NOT EXTENDED THE SAME TO ENTIRE ASSESSMENT. 3. BEFORE US, AT THE OUTSET, LD. A.R SUBMITTED THAT THOU GH ASSESSEE HAS RAISED VARIOUS GROUNDS BUT THE SOLE CONTR OVERSY 4 WHICH IS TO BE DECIDED IS ABOUT THE INVOKING OF REVISIONARY POWERS UNDER SEC.263 OF THE ACT. 4. BEFORE US, THE LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE CIT AND FURTHER SUBMITTED THAT IN THE PRESENT CA SE, THE PRE-REQUISITE CONDITIONS SPECIFIED U/S 263 WERE NOT SATISFIED AND THEREFORE THE PROCEEDINGS U/S 263 LACKS JURISDICTION AND ARE BAD IN LAW. HE SUBMITTED THAT U/S 263, THE CIT CAN REVISE AN ORDER PASSED BY THE AO ONLY ON THE SATISFACTION OF TWIN CONDITIO NS NAMELY (I) THE ORDER IS ERRONEOUS AND (II) IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. IF ONE OF THEM IS ABSENT I.E. IF EITHER T HE ORDER OF THE REVENUE IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIA L TO THE INTEREST OF REVENUE RECOURSE CANNOT BE HAD TO SEC.2 63(1). HE FURTHER SUBMITTED THAT THE ERROR ENVISAGED BY SEC.263 IS NOT ONE WHICH DEPENDS ON POSSIBILITY OR GUESSWORK BUT IT SHOULD BE AN ACTUAL ERROR EITHER OF FACTS OR OF LAW. HE FURTHER SUBMITTED THAT WHEN TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE V IEW WITH WHICH THE CIT DOES NOT AGREE, THE ORDER OF THE AO CANN OT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERE STS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE IN LAW AND FOR THE AFORESAID PROPOSITION HE RELIED ON THE DECISIO N IN THE CASE OF MALABAR INDUSTRIAL CO. LTD., VS CIT (2000) 243 ITR 83 (SC). 5. ON THE MERITS OF THE PAYMENT OF COMMISSION TO MICROFIL ENTERPRISES AND ADITYA MUTALIK, LD AR SUBMITTED THAT DURIN G THE 5 COURSE OF ASSESSMENT PROCEEDINGS AO HAD SOUGHT INFORMATION LIKE THE COPY OF THE LEDGER ACCOUNT, COPY OF THE INCOME TAX RETURN AND COPIES OF BILLS / VOUCHERS U/S 133(6) OF THE ACT. ON RECEIPT OF THE REQUIRED INFORMATION AND AFTER BEING SATISFIED, THE EXPENSES WERE ALLOWED BY THE AO. HE POINTED TO THE COPY OF THE INFORMAT ION SOUGHT BY THE AO U/S 133(6) AND THE DETAILS FURNISHED IN IT S RESPONSE, WHICH IS PLACED IN THE PAPER BOOK. WITH RESPECT TO THE PAYMENT OF THE COMMISSION TO THE OTHER PARTIES HE POINTE D TO THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE AO. HE THEREFORE SUBMITTED THAT ASSESSEE HAD SUBMITTED THE DETAILS CALLED FOR BY AO AND THE AO HAD APPLIED HIS MIND TO THE FACTS OF THE C ASE. HE SUBMITTED THAT THE VIEW OF THE AO IS NOT UNSUSTAINABLE IN LAW AND IN SUCH A SITUATION, THE ORDER OF AO CANNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AS CONTEMPLATED U/S 263 OF THE ACT. THE LD AR RELYING ON T HE DECISION OF APEX COURT IN THE CASE OF MALABAR INDUSTRIAL (S UPRA) SUBMITTED THAT THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEO US ORDER PASSED BY THE AO. EVERY LOSS OF REVENUE AS A CONSEQUEN CE OF AN ORDER OF AO CANNOT BE TREATED AS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE AND WHERE TWO VIEWS ARE POSSIBLE AND THE ITO H AS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, THE ORDER O F AO CANNOT BE TREATED AS AN ERRONEOUS ORDER AND PREJUDIC IAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. THE LD AR FURTHER PLACING RELIANCE ON T HE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. GABR IEL INDIA LTD (1993) 203 ITR 108 (BOM) SUBMITTED THAT HONBLE 6 BOMBAY HIGH COURT HAS HELD THAT THE SECTION DOES NOT VISUALIZE A CASE OF SUBSTITUTION OF JUDGMENT OF THE COMMISSIONER FOR THAT OF THE ITO, WHO PASSED THE ORDER, UNLESS THE DECISION IS HELD TO BE ERRONEOUS. THE LD AR THUS SUBMITTED THAT THE ORDER OF THE LD CIT PASSED U/S 263 OF THE ACT NEEDS TO BE SET ASIDE, BOTH ON THE GROUND OF JURISDICTION AND ON FACTS. THE LD. D.R. ON THE OTH ER HAND SUPPORTED THE ORDER OF CIT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS ABOU T THE INVOKING OF PROVISIONS OF SECTION 263 BY COMMISSIONER OF INCO ME TAX. SEC.263(1) OF THE ACT, THE POWERS UNDER WHICH CIT H AS ASSUMED POWER FOR REVISION READS AS UNDER: THE COMMISSIONER MAY CALL FOR AND EXAMINE THE RECO RD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ITO IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, HE MAY, AFTER GIVI NG THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING OR C AUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, I NCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CAN CELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. THE READING OF THE ABOVE PROVISIONS MAKES IT VERY CLEAR T HAT THE POWER OF SUO MOTU REVISION U/S 263(1) IS IN THE NATURE OF SUPERVISORY JURISDICTION AND THE SAME CAN BE EXERCISED O NLY IF THE CIRCUMSTANCES SPECIFIED THEREIN EXIST. TWO CIRCUMSTANCES MU ST EXIST TO ENABLE THE COMMISSIONER TO EXERCISE POWER OF REV ISION U/S 263, NAMELY (I) THE ORDER IS ERRONEOUS (II) BY VIRTUE OF BEING ERRONEOUS PREJUDICE HAS BEEN CAUSED TO THE INTERESTS OF THE REVENUE. HONBLE APEX COURT IN THE CASE OF MALABAR IND USTRIAL CO LTD (SUPRA) HAS HELD THAT CIT HAS TO BE SATISFIED OF TW IN 7 CONDITIONS, NAMELY, (I) THE ORDER OF THE AO SOUGHT TO BE RE VISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. IF ONE OF THEM IS ABSENTIF THE ORDER OF THE ITO IS ERRON EOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUERECOURSE CANNOT BE HAD TO S EC. 263(1). IT WAS FURTHER HELD THAT THE PROVISION CANNOT BE IN VOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR CO MMITTED BY THE AO; WHEN AN ITO ADOPTED ONE OF THE COURSES PERMISS IBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO V IEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE C IT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN B Y THE ITO IS UNSUSTAINABLE IN LAW. 7. IN THE CASE OF CIT VS. GABRIEL INDIA LTD (SUPRA) THE HO NBLE BOMBAY HIGH COURT HAS HELD AS UNDER: AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT I S NOT IN ACCORDANCE WITH LAW. IF AN ITO ACTING IN ACCORDANCE WITH LAW MAKES CERTAIN ASSESSMENT, THE SAME CANNOT BE BRANDE D AS ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE ACCORD ING TO HIM THE ORDER SHOULD HAVE BEEN WRITTEN MORE ELABORATELY . THIS SECTION DOES NOT VISUALISE A CASE OF SUBSTITUTION OF JUDGME NT OF THE COMMISSIONER FOR THAT OF THE ITO, WHO PASSED THE ORD ER, UNLESS THE DECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE ITO WHILE MAKING AN ASSESSMENT EXAMINES THE A CCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACC EPTING THE ACCOUNTS OR BY MAKING SOME ESTIMATES HIMSELF. THE COMMISSIONER, ON PERUSAL OF THE RECORDS, MAY BE OF T HE OPINION THAT THE ESTIMATE MADE BY THE OFFICER CONCERNED WAS ON THE LOWER SIDE AND, LEFT TO THE COMMISSIONER, HE WOULD HAVE E STIMATED THE INCOME AT A HIGHER FIGURE THAN THE ONE DETERMINED B Y THE ITO. THAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE-EX AMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGH ER FIGURE. IT IS BECAUSE THE ITO HAS EXERCISED THE QUASI-JUDICIAL PO WER VESTED IN HIM IN ACCORDANCE WITH LAW AND ARRIVED AT A CONCLUS ION AND SUCH A CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPL Y BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE CONCLU SION. IT MAY 8 BE SAID IN SUCH A CASE THAT IN THE OPINION OF THE C OMMISSIONER THE ORDER IN QUESTION IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. BUT THAT BY ITSELF WILL NOT BE ENOUGH TO VEST THE COMMI SSIONER WITH THE POWER OF SUO MOTU REVISION BECAUSE THE FIRST REQUIR EMENT, NAMELY, THE ORDER IS ERRONEOUS, IS ABSENT. SIMILARLY IF AN O RDER IS ERRONEOUS BUT NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE, THEN ALSO THE POWER OF SUO MOTU REVISION CANNOT BE EXERCISED. ANY AND EVERY ERRONEOUS ORDER CANNOT BE SUBJECT-MATTER OF REVISIO N BECAUSE THE SECOND REQUIREMENT ALSO MUST BE FULFILLED. 8. IN THE PRESENT CASE, IT IS SEEN THAT DURING THE COURS E OF ASSESSMENT PROCEEDINGS AO HAD RAISED QUERY WITH RESPEC T TO THE PAYMENT OF SALES COMMISSION AND THE ISSUE WAS EXAMINED BY THE AO AND THEREAFTER THE CLAIM OF ASSESSEE WAS ALLOWED. IT IS ALSO A FACT THAT OUT OF THE TOTAL COMMISSION OF RS 1103511/- TH AT WAS CLAIMED AND ALLOWED TO ASSESSEE, COMMISSION AGGREGATING TO RS.9,66,278/- WHICH CONSTITUTED 88% OF THE COMMISSION WAS PAID TO TWO PARTIES NAMELY MICROFIL ENTERPRISES AND ADITYA MUTA LIK. FROM THESE TWO PARTIES AO HAD SOUGHT INFORMATION U/S 1 33(6) OF THE ACT AND AFTER BEING SATISFIED BY THE DETAILS AND AFTER MAKING THE NECESSARY INQUIRIES THE CLAIM WAS ALLOWED. WITH RESPECT TO THE OTHER 4 PARTIES TO WHOM THE AGGREGATE COMMISSION OF RS.1,37,233/- WAS PAID, ASSESSEE HAD FURNISHED THE DETAILS AND THE SAME WERE EXAMINED BY AO. THUS IT IS SEEN THAT DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS RELEVANT QUERIES WITH R ESPECT TO THE ALLOWABILITY OF COMMISSION WAS EXAMINED BY THE AO AND A FTER CONSIDERING THE REPLY OF ASSESSEE, THE CLAIM OF EXPENDITURE WAS ALLOWED. IN SUCH A SITUATION, WE ARE OF THE VIEW THAT PROVIS IONS OF SEC.263 OF THE ACT CANNOT BE RESORTED TO AND FOR WHICH WE DRAW SUPPORT BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GABRIEL INDIA LTD (SUPRA). BEFORE US, REVENUE HAS N OT BROUGHT ANY MATERIAL ON RECORD TO DEMONSTRATE THAT TH E VIEW 9 TAKEN BY THE AO WAS AN IMPERMISSIBLE VIEW AND WAS CONTRA RY TO LAW OR WAS UPON ERRONEOUS APPLICATION OF LEGAL PRINCIPLES NECESSITATING THE EXERCISING OF REVISIONARY POWERS U/S 26 3. IN VIEW OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT IN THE PRESENT CASE CIT WAS NOT JUSTIFIED IN RESORTING TO THE REVISIONARY POWERS U/S 263 OF THE ACT. WE THEREFORE SET ASIDE THE ORDERS OF CIT AND THUS THE GROUNDS OF ASSESSEE ARE ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED ON 29 TH DAY OF SEPTEMBER, 2017. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 29 TH SEPTEMBER, 2017. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. PR.CIT-3, PUNE. THE JT. CIT RANGE, SATARA. '#$ %%&',) &', / DR, ITAT, B PUNE; $+,-/ GUARD FILE. / BY ORDER // TRUE COPY // ./0%1&2 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.