Eco Wheels Pvt Ltd, Kolkata V. D.C.I.T Cir - 7,kolkata, Kolkata

ITA 733/KOL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74990 (ITAT-KOLKATA)
• Duration Of Justice: 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 05-04-2013
• Court: TRIBUNAL
• Department Lawyers: VARIENDRA MEHTA
• Assessee Lawyers: D S DAMLE
• Keywords: Assessment record
• Section: 143(3); 145; 263

Judgement Text

, C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA () BEFORE , . . . . ! ! ! ! /AND '' # $ % '' # $ % '' # $ % '' # $ % , ) [BEFORE SHRI P. K. BANSAL, AM & SHRI GEORGE MATHAN, JM] !& !& !& !& / I.T.A NO. 733/KOL/2013 '( )* '( )* '( )* '( )*/ // / ASSESSMENT YEAR: 2008-09 ECO WHEELS PVT. LTD. VS. DEPUTY COMMISSIONER OF INCOME-TAX, (PAN: AABCT8246K) HQRS. 3, KOLKATA. (%, /APPELLANT ) (-.%,/ RESPONDENT ) DATE OF HEARING: 15.01.2014 DATE OF PRONOUNCEMENT: 31.01.2014 FOR THE APPELLANT: SHRI D. S. DAMLE FOR THE RESPONDENT: SHRI VARIENDRA MEHTA, CIT, D R / ORDER PER SHRI P. K. BANSAL, AM: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT DATED 22.02.2013. THE ASSESSEE HAS CHALLENGED THE ORDER PASSED U/S. 263 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) BOTH ON LEGAL AS WELL AS AS ON MERIT. 2. WE NOTED FROM THE ORDER PASSED U/S. 263 OF THE A CT THAT THE CIT HAS SET ASIDE THE ASSESSMENT ORDER AS THE ASSESSING OFFICER IN HIS OP INION, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, HAS NOT EXAMINED THE ISSUE REGARDING T HE TAXING OF INTEREST SUBSIDY AMOUNT ON ACCRUAL BASIS EVEN THOUGH THE ASSESSEE WAS FOLLOWIN G THE MERCANTILE SYSTEM OF ACCOUNTING AND ACCORDINGLY, HE WAS OF THE VIEW THAT THE ASSESSMENT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. HE SET ASIDE THE ASSESSMENT AND DIRECT ED THE AO TO PASS ORDER AFTER TAKING INTO ACCOUNT ALL RELEVANT FACTS AND DECISION OF SUPERIOR COURTS AND GIVING OPPORTUNITY TO THE ASSESSEE. FROM THE ORDER OF CIT IT IS APPARENT THAT CIT HAS N OT GIVEN ANY FINDING ON MERIT, WHETHER THE INTEREST SUBSIDY HAS TO BE ASSESSED DURING THE IMPU GNED ASSESSMENT ORDER OR NOT. IN VIEW OF THIS FACT, AFTER HEARING THE LD. AR, WE ARE OF THE OPINION THAT ON MERIT, THIS TRIBUNAL DOES NOT HAVE ANY JURISDICTION TO EXAMINE THE ISSUE IN AN AP PEAL FILED AGAINST THE ORDER PASSED U/S. 263 OF THE ACT. ACCORDINGLY, WE DISMISS THE GROUND TAKEN BY THE ASSESSEE ON MERIT AGAINST THE ORDER PASSED U/S. 263 OF THE ACT. 2 ITA NO.733/K/2013 ECO WHEELS PVT. LTD. , AY:2008-09 3. NOW, COMING TO THE ISSUE ABOUT THE CHALLENGE OF THE ORDER PASSED U/S. 263 OF THE ACT IS A VALID ORDER OR NOT. BEFORE DECIDING THE ISSUE, IT IS NECESSARY TO GO THROUGH THE FACTS OF THE CASE. THE BRIEF FACTS ARE THAT THE ASSESSMENT IN THIS CAS E WAS PASSED U/S. 143(3) OF THE ACT ON 29.10.2010 DETERMINING THE TOTAL INCOME AT RS.31,59 ,840/-. SUBSEQUENTLY, THE CIT INVOKING THE JURISDICTION U/S. 263 OF THE ACT ISSUED NOTICE TO THE ASSESSEE DATED 05.10.2012 STATING THEREIN THAT ON PERUSAL OF THE ASSESSMENT RECORD AND THE TA X AUDIT REPORT IT WAS FOUND THAT THE ASSESSEE COMPANY FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING. ITEM 13-B OF THE TAX AUDIT REPORT STATES THAT THE INTEREST SUBSIDY OF RS.6.86 LAC RECEIVABLE FROM WBIDC WOULD BE CONSIDERED AS INCOME FOR THE YEAR OF RECEIPT. AS T HE ASSESSEE FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING THE SUBSIDY SO ACCRUED SHOULD HAVE BEEN OFFERED FOR INCOME IN THE IMPUGNED ASSESSMENT YEAR. THE AO HAS NOT EXAMINED THIS ISS UE WHY THE ASSESSMENT SHOULD NOT BE REVISED U/S. 263 OF THE ACT. THE ASSESSEE FILED WR ITTEN SUBMISSION STATING THEREIN THAT THE ASSESSEE WAS OFFERING THE INTEREST SUBSIDY ON RECEI PT BASIS EVERY YEAR AND WAS CONSISTENTLY FOLLOWING THIS ACCOUNTING PRACTICE. DURING THE YEA R, THE ASSESSEE HAS OFFERED RS.15.57 LAC WHICH IS RECEIVED FROM WBIDC. IT WAS FURTHER STATE D THAT THE SUM OF RS.6.86 LAC WAS ULTIMATELY OFFERED IN THE AY 2009-10. THE CIT WAS NOT SATISFIED WITH THE REPLY OF THE ASSESSEE. HE, THEREFORE, SET ASIDE THE ASSESSMENT AND DIRECTE D THE AO TO PASS THE ORDER AFTER TAKING INTO ACCOUNT ALL RELEVANT FACTS AND DECISION OF THE SUPR EME COURT AND GIVING OPPORTUNITY TO THE ASSESSEE. BEFORE US, THE LD. AR DREW OUR ATTENTION TO PARA 4 OF THE ASSESSMENT ORDER, WHICH STATES THAT IT WAS FOUND THAT DURING THE YEAR OTHER INCOME OF RS.23,08,820/- IN THE FORMS OF INTEREST, INTEREST SUBSIDY, MISCELLANEOUS INCOME WA S EARNED, WHICH SHOULD NOT BE CONSIDERED AS INCOME OF THE UNDERTAKING. OUR ATTENTION WAS ALSO DRAWN TOWARDS THE AUDIT REPORT APPEARING AT PAGES 5 AND 13 FOR THE YEAR ENDED 31.03.2006 AND 31.03.2007 RESPECTIVELY. PARTICULARLY AT PAGE 5 AND 13 OF THE PAPER BOOK IN WHICH UNDER ITEM 13 IT WAS SPECIFICALLY MENTIONED THAT THE INTEREST SUBSIDY AND THE CAPITAL SUBSIDY FROM WBIDC WILL BE CONSIDERED IN THE YEAR OF THE RECEIPT. FOR THE IMPUGNED ASSESSMENT YEAR, ATTENTI ON WAS DRAWN TOWARDS PAGE 22 OF THE PAPER BOOK AND IT WAS POINTED OUT THAT UNDER ITEM NO. 13( D), IT WAS SPECIFICALLY MENTIONED THAT THE INTEREST SUBSIDY OF RS.6.86 LACS FROM WBIDC WILL BE CONSIDERED IN THE YEAR OF THE RECEIPT. THUS, IT WAS CONTENDED THAT THE ASSESSEE WAS CONSIS TENTLY FOLLOWING THE RECEIPT METHOD IN RESPECT OF INTEREST SUBSIDY. THE REVENUE HAS DULY ACCEPTED IN EACH OF THE ASSESSMENT YEAR THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE. THER E WAS NO ERROR IN THE ASSESSMENT ORDER PASSED BY THE AO AS ON THE BASIS OF THE METHOD OF A CCOUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE, THE INTEREST SUBSIDY WAS NOT TAXABLE IN T HE IMPUGNED ASSESSMENT YEAR ON ACCRUAL BASIS. 3 ITA NO.733/K/2013 ECO WHEELS PVT. LTD. , AY:2008-09 EVEN BY DRAWING OUR ATTENTION TOWARDS THE ORDER OF THE CIT(A) PAGE 10 OF THE IMPUGNED ASSESSMENT YEAR, IT WAS CONTENDED THAT SINCE THE A SSESSEE WAS ENTITLED FOR DEDUCTION U/S. 10A OF THE ACT ON THE INTEREST SUBSIDY RECEIVED FROM WBIDC , THE INCOME WAS NOT CHARGEABLE TO TAX. UNTIL AND UNLESS IT CHARGEABLE TO TAX THERE CANNOT BE ERROR IN THE ORDER OF THE AO. IT WAS ALSO STATED THAT THE ORDER OF THE AO WAS MERGED WITH THE ORDER OF THE CIT(A) ON THE SAME ISSUE. 4. THE LD. DR ON THE OTHER HAND, CONTENDED THAT THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE IN LAW. ACCORDING TO SECTION 145 OF THE ACT, INCOME FROM THE BUSINESS HAD TO BE COMPUTED EITHER ON MERCANTILE BASIS OR CASH BASIS, MIXED BASIS OF ACCOUNTING IS NOT PERMISSIBLE. THEREFORE, THE VIEW TAKEN BY THE AO, EVEN IF CONSIS TENTLY FOLLOWED AND ACCEPTED, IS UNSUSTAINABLE IN LAW AND, THEREFORE, THERE WAS AN E RROR IN THE ORDER PASSED BY THE AO U/S. 143(3) OF THE ACT. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND CAREFULLY CO NSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE ALONG WITH THE ORDERS OF THE TAXING AUT HORITIES BELOW. THE JURISDICTION U/S. 263 OF THE ACT CAN BE INVOKED BY THE CIT IF THE ORDER PASS ED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH THE CONDITIONS T HAT THERE IS AN ERROR IN THE ORDER AND THE ORDER PASSED IS PREJUDICIAL TO THE INTEREST OF REVENUE M UST BE SATISFIED. WE HAVE PERUSED THE PROVISION OF SECTION 145 OF THE ACT. WE NOTED THAT U/S. 145 OF THE ACT, INCOME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PRO FESSION HAS TO BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. NO DOUBT THE ASSESSEE HAS REGULARLY ACCOUNTED FOR THE INTEREST SUBSIDY ON RECEIPT BASIS I.E. ON CASH BASIS BUT THE PROVISION OF SECTION 145 OF THE ACT D OES NOT TALK OF ANY PARTICULAR INCOME OR SOURCE OF INCOME UNDER THE HEAD PROFIT AND GAINS O F BUSINESS OR PROFESSION. SECTION 145 OF THE ACT CLEARLY LAYS DOWN THAT THE INCOME CHARGEABL E UNDER THE HEAD PROFIT AND GAINS FROM BUSINESS OR PROFESSION HAD TO BE COMPUTED EITHER O N CASH OR ON MERCANTILE SYSTEM OF ACCOUNTING. IT IS NOT DISPUTED THAT THE ASSESSEE H AS ADOPTED THE MERCANTILE SYSTEM OF ACCOUNTING FOR COMPUTING THE INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION BUT IN RESPECT OF INTEREST SUBSIDY, THE ASSESSEE HAS ADOPT ED THE CASH SYSTEM OF ACCOUNTING. THIS, IN OUR OPINION, IS NOT PERMISSIBLE U/S. 145 OF THE ACT AND IN THAT CASE THE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE WILL BE REGARDED TO BE THE HI-BRID SYSTEM OF ACCOUNTING, WHICH IS NOT PERMISSIBEL U/S. 145 OF THE ACT. IF THE ASSESSEE H AS ADOPTED REGULARLY A SYSTEM OF ACCOUNTING WHICH IS NOT PERMISSIBLE IN LAW, IN OUR OPINION, TH IS SYSTEM IS NOT PERMISSIBLE LEGALLY TO BE ADOPTED BY THE ASSESEE U/S. 145 OF THE ACT ON THE B ASIS THAT THE ASSESSEE HAS REGULARLY EMPLOYED 4 ITA NO.733/K/2013 ECO WHEELS PVT. LTD. , AY:2008-09 THE SAME SYSTEM OF ACCOUNTING IN RESPECT OF THAT PA RTICULAR INCOME IN THE EARLIER YEAR ALSO. THUS, WE NOTED THAT THERE IS AN ERROR IN THE ORDER OF THE AO. HOWEVER, HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT (2000) 243 ITR 83 HAS CLEARLY LAID DOWN THAT WHEN A TAXING OFFICER ADOPTED ONE OF THE COURSES P ERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANN OT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF THE REVENUE UNLESS T HE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. THE HONBLE SUPREME COURT IN THIS CASE IN A CLEAR TERM HAS LAID DOWN THAT IF THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW THEN IT CA N BE SAID THAT THERE IS AN ERROR IN THE ORDER AND THE ORDER PASSED IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT IS NOT A CASE WHERE THERE CAN BE TWO VIEWS ARE POSSIBLE. THE PROVISION OF SECTIO N 145 IS EXPLICITLY CLEAR. IT PERMITS ONLY EITHER CASH SYSTEM OF ACCOUNTING OR MERCANTILE SYST EM OF ACCOUNTING FOR COMPUTATION OF INCOME UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION . BOTH THE METHODS I.E. CASH OR MERCANTILE SYSTEM OF ACCOUNTING CANNOT BE PARTLY ADOPTED FOR C OMPUTING THE INCOME UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. WE NOTED IN THIS CASE THAT THE ASSESSEE HAS ADOPTED MERCANTILE SYSTEM OF ACCOUNTING METHOD FOR COMPUTAT ION OF THE INCOME UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. BUT FOR COMP UTING THE INCOME UNDER THE SAME HEAD OF INCOME FROM INTEREST SUBSIDY, THE ASSESSEE HAS ADOP TED THE CASH SYSTEM, WHICH IS NOT PERMISSIBLE OR SUSTAINABLE. IN OUR OPINION, UNDER THE LAW THERE CANNOT BE EVEN TWO VIEWS POSSIBLE THAT THE ASSESSEE CAN ADOPT DIFFERENT SYST EM OF ACCOUNTING FOR BRINGING TO TAX THE INTEREST SUBSIDY UNDER THE HEAD INCOME FROM BUSINE SS OR PROFESSION. 6. NOW, COMING TO THE SUBMISSION OF THE LD. AR, WHE THER THERE IS A MERGER ON THIS ISSUE IN THE ORDER PASSED BY THE AO WITH THE ORDER OF CIT(A) . WE HAVE GONE THROUGH THE ORDER OF CIT(A) FOR THE IMPUGNED ASSESSMENT YEAR ESPECIALLY PAGE 10 AS HAS BEEN CONTENDED BY THE LD. AR. WE NOTED THAT THE ISSUE BEFORE THE CIT(A) WAS WHETHER THE INTEREST SUBSIDY FROM WBIDC IS SCHEME HAS OF DIRECT LINK WITH THE EXPORT BUSINE SS OF THE ASSESSEE SO THAT THE INCOME MAY BE ELIGIBLE FOR DEDUCTION U/S. 10A OF THE ACT. IN THI S CONTEXT, THE CIT(A) ALLOWED THE DEDUCTION TO THE ASSESSEE U/S. 10A OF THE ACT ON INTEREST SUBSID Y. THE ISSUE BEFORE THE CIT(A) WAS NOT WHETHER THE INTEREST SUBSIDY IS CHARGEABLE TO TAX U NDER THE HEAD INCOME FROM BUSINESS OR PROFESSION WHILE COMPUTING INCOME UNDER THE HEAD INCOM FROM BUSINESS OR PROFESSION ON THE BASIS OF CASH SYSTEM OF ACCOUNTING OR MERCANTIL E SYSTEM OF ACCOUNTING. THEREFORE, IF WE LOOK INTO EXPLANATION (C) OF SECTION 263 OF THE ACT , IT IS APPARENT THAT EXPLANATION (C) 5 ITA NO.733/K/2013 ECO WHEELS PVT. LTD. , AY:2008-09 EMPOWERS THE CIT TO EXECUTE POWER U/S. 263 OF THE A CT ON SUCH MATTER AS HAS NOT BEEN CONSIDERED AND DECIDED IN APPEAL. THE ISSUE RELAT ING TO WHETHER THE INTEREST SUBSIDY IS CHARGEABLE ON RECEIPT BASIS OR ON ACCRUAL BASIS HAS NOT BEEN DECIDED BY THE CIT(A). THEREFORE, IN OUR OPINION, THE SUBMISSION MADE BY THE LD. AR D OES NOT HAVE ANY LEGS TO STAND. IN VIEW OF THIS, WE CONFIRM THE ORDER OF CIT AS, IN OUR OPINIO N, THE CIT HAS RIGHTLY EXERCISED HIS JURISDICTION U/S. 263 OF THE ACT. WE, THEREFORE, C ONFIRM THE ORDER OF CIT. 7. IN THE RESULT, APPEAL OF ASSESSEE IS DISMISSED. 8. ORDER IS PRONOUNCED IN THE OPEN COURT ON 31.01.2 014 SD/- SD/- '' # $ % '' # $ % '' # $ % '' # $ % , , . . . . , (GEORGE MATHAN) (P. K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 31ST JANUARY, 2014 PRONOUNCED BY SD/-(A.P.GEORGE) SD/-(G. MATHAN) AM JM /0 '1' '2 JD.(SR.P.S.) 3 -''4 54)6- COPY OF THE ORDER FORWARDED TO: 1 . %, / APPELLANT ECO WHEELS PVT. LTD., ROOM NO.410, 4 TH FLOOR, 25A, CAMAC STREET, KOLKATA-16 2 -.%, / RESPONDENT DCIT, HQRS-3, KOLKATA. 3 . ' ( )/ THE CIT(A), KOLKATA 4. 5. ' / CIT KOLKATA 4;'< -' / DR, KOLKATA BENCHES, KOLKATA .4 -'/ TRUE COPY, =/ BY ORDER, > !' /ASSTT. REGISTRAR .