K.P.Murugasamy, CHENNAI V. DCIT, Coimbatore

ITA 769/CHNY/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8734 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 19-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RU GEORGE
• Assessee Lawyers: R SRIDHAR
• Keywords: Business expenditure; Principle of natural justice; Revenue expenditure
• Section: 143(3); 37(1); 37; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI .. , ! , ' #$ BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ./ ITA NO. 769/MDS/2013 ' % &% / ASSESSMENT YEAR : 2008-09 SHRI K.P. MURUGASAMY, 5, AKS NAGAR, THADAGAM ROAD, R.S. PURAM, COIMBATORE 641 002. PAN : AAZPM 3140 N V. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE III, COIMBATORE 641 018. (!(/ APPELLANT) (*+!(/ RESPONDENT) !( , - / APPELLANT BY : SHRI R. SRIDHAR, ADVOCATE *+!( , - / RESPONDENT BY : MS. RUBY GEORGE, CIT . , / / DATE OF HEARING : 22.01.2015 01& , / / DATE OF PRONOUNCEMENT : 23.01.2015 / O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING T HE ORDER DATED 18.12.2012 PASSED LD CIT-I, COIMBATORE U/S 26 3 OF THE ACT FOR ASSESSMENT YEAR 2008-09. THE ASSESSEE IS QUEST IONING THE VALIDITY OF REVISION ORDER PASSED BY LD CIT. 2 I.T.A. NO. 769/MDS/2013 2. THE APPEAL IS BARRED BY LIMITATION BY 59 DAY S. THE ASSESSEE HAS FILED AN AFFIDAVIT BEFORE THE BENCH, WHEREIN IT IS STATED THAT THE ASSESSEE FELL ILL DUE TO LIVER PROBLEM IN DECEMBER, 2012, WHICH FINALLY RESULTED IN LIVER TRANSPLANT AND CONTINUOUS TREATMENT. ACCORDINGLY IT WAS STATED THAT THE ASSESSEE COULD N OT HAND OVER THE REVISION ORDER TO HIS CHARTERED ACCOUNTANT FOR FILI NG APPEAL. ACCORDINGLY IT WAS PRAYED THAT THE DELAY IN FILING THE APPEAL BE CONDONED. WE HEARD LD D.R ON THIS PRELIMINARY ISSU E. HAVING REGARD TO THE SUBMISSIONS MADE BY THE ASSESSEE IN T HE AFFIDAVIT, WE ARE OF THE VIEW THAT THERE WAS SUFFICIENT CAUSE FOR NOT FILING THE PRESENT APPEAL WITHIN THE PRESCRIBED TIME. ACCORDI NGLY WE CONDONE THE DELAY AND ADMIT THE APPEAL FOR HEARING. 3. THE LD COUNSEL APPEARING FOR THE ASSESSEE SUBMIT TED THAT THE ASSESSING OFFICER COMPLETED THE ASSESSMENT FOR AY 2008-09 U/S 143(3) OF THE ACT ON 20/12/2010, ACCEPTING THE LOSS OF RS.16,50,870/- RETURNED BY THE ASSESSEE. HE SUBMIT TED THAT THE ASSESSEE IS CARRYING ON CLOTH DYEING BUSINESS. THE ASSESSEE WAS ALLEGED TO HAVE CAUSED POLLUTION AND IN THE SUIT FI LED AGAINST THE ASSESSEE BY NOYYAL RIVER AYACUTDARS PROTECTION ASS OCIATION, THE COURT AWARDED COMPENSATION ON THE POLLUTER PAYS PR INCIPLE @ SIX PAISE PER LITRE OF WATER DISCHARGED FROM 1.1.2007 T O 1.3.2007; @ EIGHT PAISE PER LITRE FROM 1.4.2007 TO 31.5.2007 AN D @ 10 PAISE PER 3 I.T.A. NO. 769/MDS/2013 LITRE FROM 1.6.2007 TO 31.7.2007 AND ACCORDINGLY AL LOWED THE BUSINESS TO CONTINUE. ACCORDINGLY, THE ASSESSEE PA ID A SUM OF RS.19,93,506/- AND CLAIMED THE SAME UNDER THE HEAD ECOLOGICAL COMPENSATION. THE LD A.R SUBMITTED THAT THE SUIT WAS FILED AS PUBLIC INTEREST LITIGATION AND THE HONBLE COURT HAS AWARDED COMPENSATION ON A PARTICULAR BASIS. THE ASSESSEE W AS CONSTRAINED TO PAY THE SAID COMPENSATION IN ORDER TO RUN THE BU SINESS WITHOUT ANY INTERRUPTION. ACCORDINGLY THE ASSESSEE CLAIMED THE ABOVE SAID AMOUNT AS REVENUE EXPENDITURE U/S 37(1) OF THE ACT. 4. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSI NG OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, MADE SPECIFIC ENQUIRIES ABOUT THE CLAIM MADE UNDER THE HEAD ECOLOGICAL COM PENSATION AND THE ASSESSEE HAS, VIDE HIS LETTER DATED 22.11.2 010, INTER ALIA, FURNISHED FOLLOWING REPLY:- E. ECOLOGICAL COMPENSATION:- ECOLOGY COMPENSATION WAS PAID ON THE BASIS OF COURT DIRECTION UNDER THE HEADINGS LOSS OF ECOLOGY AND ORATHUPALAY AK DAM CLEANING TO THE DISTRICT COLLECTOR, COIMBATORE THR OUGH DYERS ASSOCIATION AND ANGERIPALAYAM COMMON EFFLUENT TREAT MENT PLANT LIMITED (ACETP). A COPY OF THE NOTICE OF DEM AND AND A CERTIFICATE ISSUED BY ACETP ALONG WITH LEDGER COPY ARE ENCLOSED FOR YOUR RECORDS. THE LD A.R SUBMITTED THAT THE ASSESSING OFFICER HAS , THUS EXAMINED THE CLAIM DURING THE COURSE OF ASSESSMENT PROCEEDIN G AND HAS 4 I.T.A. NO. 769/MDS/2013 ACCEPTED THE SAME AS REVENUE EXPENDITURE. HE SUBMI TTED THAT THE VIEW TAKEN BY THE ASSESSING OFFICER IS ONE OF THE P LAUSIBLE VIEWS AND HENCE THE LD CIT WAS NOT JUSTIFIED IN PASSING THE I MPUGNED REVISION ORDER. 5. THE LD A.R FURTHER SUBMITTED THAT THE LD CIT HAS TAKEN THE VIEW THAT THE ASSESSEE HAS CONTRAVENED THE POLLUTIO N CONTROL LAWS AND HENCE THE COURT HAS AWARDED COMPENSATION. HE S UBMITTED THAT THE ASSESSEE HAS PAID THIS COMPENSATION CONSEQ UENT TO THE ORDER PASSED BY THE COURT IN A PUBLIC INTEREST LITI GATION FILED BY A FARMERS ASSOCIATION AND HENCE THE LD CIT(A) WAS NO T RIGHT IN LAW IN PRESUMING THE SAME TO BE IN THE NATURE OF FINE. HE SUBMITTED THAT, IN ANY CASE, THE ASSESSING OFFICER HAS TAKEN A POSS IBLE VIEW OF THE MATTER AND HENCE THE REVISION ORDER PASSED BY THE L D CIT IS NOT SUSTAINABLE. IN THIS REGARD, THE LD A.R PLACED REL IANCE ON THE FOLLOWING CASE LAW:- (A) MAX INDIA LTD (295 ITR 282)(SC) (B) MEPCO INDUSTRIES (294 ITR 121)(MAD) (C) SACSOFT LTD (298 ITR 63)(MAD). 6. ON THE CONTRARY, THE LD D.R SUBMITTED THAT T HE ASSESSEE WAS REQUIRED TO COMPLY WITH THE NORMS PRESCRIBED BY THE POLLUTION CONTROL BOARD FOR TREATING THE EFFLUENTS, WHICH THE ASSESSEE HAS NOT 5 I.T.A. NO. 769/MDS/2013 COMPLIED WITH AND THE SAME HAS RESULTED IN INFRACTI ON OF POLLUTION CONTROL LAWS. THE COURT HAS AWARDED COMPENSATION U PON THE ASSESSEE IN CONNECTION WITH THE ABOVE SAID FAILURE AND HENCE THE SAME IS IN THE NATURE OF FINE FOR INFRACTION OF POL LUTION CONTROL LAWS. THE FINES AND PENALTY PAID FOR INFRACTION OF LAW IS NOT ALLOWABLE AS DEDUCTION UNDER SECTION 37 OF THE ACT. HOWEVER, TH E ASSESSING OFFICER HAS NOT EXAMINED THE SAID CLAIM IN PROPER P ERSPECTIVE AND HENCE THE ASSESSMENT ORDER HAS BEEN RENDERED ERRONE OUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. ACCORDING LY, THE LD D.R CONTENDED THAT THE IMPUGNED REVISION ORDER SHOULD B E SUSTAINED. 7. BEFORE GOING INTO THE MERITS OF THE ISSUE, W E WOULD LIKE TO DISCUSS ABOUT THE LEGAL POSITION WITH REGARD TO THE POWER OF LEARNED CIT TO INVOKE REVISION PROCEEDINGS UNDER SECTION 26 3 OF THE ACT. THE SCOPE OF REVISION PROCEEDINGS INITIATED UNDER S ECTION 263 OF THE ACT WAS CONSIDERED BY HONBLE SUPREME COURT AND VAR IOUS HIGH COURTS. WE MAY GAINFULLY REFER TO THE OBSERVATIONS MADE BY HON'BLE BOMBAY HIGH COURT, IN THE CASE OF GRASIM INDUSTRIES LTD. V CIT (321 ITR 92), WHICH ARE EXTRACTED BELOW: SECTION 263 OF THE INCOME-TAX ACT, 1961 EMPOWERS THE COMMISSIONER TO CALL FOR AND EXAMINE THE RECO RD OF ANY PROCEEDINGS UNDER THE ACT AND, IF HE CONSIDE RS THAT ANY ORDER PASSED THEREIN, BY THE ASSESSING 6 I.T.A. NO. 769/MDS/2013 OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, TO PASS AN ORDER UPON HEARING THE ASSESSEE AND AFTER AN ENQUIRY AS IS NECESSARY, ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. THE KEY WORDS THAT ARE USED BY SECTION 263 ARE THAT THE ORDER MUST BE CONSIDERED BY THE COMMISSIONER TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THIS PROVISION HAS BEEN INTERPRETED BY THE SUPREME COURT IN SEVERAL JUDGMENTS TO WHICH IT IS NOW NECESSARY TO TURN. IN MALABAR INDUSTRIAL CO. LTD. V. CIT [2000 ] 243 ITR 83, THE SUPREME COURT HELD THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFIC ER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. THE SUPREME COURT HELD THAT AN INCORRECT ASSUMPTION OF FACT OR AN INCORREC T APPLICATION OF LAW, WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. AN ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLIC ATION OF MIND, WOULD BE AN ORDER FALLING IN THAT CATEGORY . THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE SUPREME COURT HELD, IT IS OF WIDE IMPORT AND IS NOT CONFINED TO A LOSS OF TAX. WHAT I S PREJUDICIAL TO THE INTEREST OF THE REVENUE IS EXPLA INED IN THE JUDGMENT OF THE SUPREME COURT (HEADNOTE) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE HAS TO BE READ IN CONJUNCTION WITH AN 7 I.T.A. NO. 769/MDS/2013 ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER, CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE 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 CANNOT B E TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY T HE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. THE PRINCIPLE WHICH HAS BEEN LAID DOWN IN MALABAR INDUSTRIAL CO. LTD. [2000] 243 ITR 83 (SC) HAS BE EN FOLLOWED AND EXPLAINED IN A SUBSEQUENT JUDGMENT O F THE SUPREME COURT IN CIT V. MAX INDIA LTD. [2007] 295 ITR 282. IN ORDER TO INVOKE THE REVISION JURISDICTION U/S 26 3 OF THE ACT, IT HAS TO BE SHOWN BY THE LD CIT THAT THE ASSESSMENT ORDER WAS NOT ONLY ERRONEOUS, BUT ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE, I.E., BOTH THE CONDITIONS PRESCRIBED IN SEC. 263 OF THE A CT ARE TO BE SHOWN TO EXIST. THE OBSERVATIONS MADE BY HONBLE S UPREME COURT IN THE CASE OF MALABAR INDUSTRIAL COMPANY (SUPRA) A RE VERY MUCH RELEVANT HERE, I.E., IF THE ASSESSING OFFICER HAS A DOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN L OSS OF REVENUE, OR 8 I.T.A. NO. 769/MDS/2013 WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFF ICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE , IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE IN TERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFF ICER IS UNSUSTAINABLE IN LAW. 8. WITH THE ABOVE SAID LEGAL PROPOSITIONS, WE SHA LL NOW EXAMINE THE FACTS PREVAILING IN THE INSTANT CASE. THE ASSE SSEE HAS PAID A COMPENSATION OF RS.19,93,506/- AS PER THE ORDER PAS SED BY THE COURT. IT WAS STATED THAT THE SUIT WAS FILED BY N OYYAL RIVER AYACUTDARS PROTECTION ASSOCIATION AS PUBLIC INTERE ST LITIGATION AGAINST THE BUSINESS HOUSES ENGAGED IN CLOTH DYEING BUSINESS. THE ASSESSEE WAS ONE OF THE PARTIES AGAINST WHOM TH E SUIT WAS FILED. ACCORDING TO THE LD A.R, THIS COMPENSATION WAS PAID TO THE FARMERS, WHO WERE AFFECTED BY THE POLLUTION. APART FROM FINALISING THE METHODOLOGY FOR PAYMENT OF COMPENSATION, THE CO URT HAS ALSO ORDERED TO SET UP COMMON EFFLUENT TREATMENT PLANTS (CETP). IT HAS BEEN FURTHER ORDERED THAT IN CASE OF DEFAULT IN PAYMENT OF COMPENSATION, THE POLLUTION CONTROL BOARD SHALL DIR ECT CLOSURE OF SUCH DEFAULTING CETP AND THE MEMBER UNITS AND ALSO DISCONNECT THE POWER SUPPLY TO SUCH DEFAULTING CETP AND THE ME MBER UNIT. ACCORDINGLY, IT WAS CONTENDED BY THE ASSESSEE THAT IT HAS PAID THE COMPENSATION IN ORDER TO RUN THE BUSINESS WITHOUT A NY INTERRUPTION 9 I.T.A. NO. 769/MDS/2013 AND THE SAME WAS INCURRED FOR THE PURPOSE AND ALSO DURING THE COURSE OF CARRYING ON BUSINESS. THUS, ACCORDING TO THE ASSESSEE, IT WAS A REVENUE EXPENDITURE AND HENCE THE ASSESSING O FFICER HAS ALLOWED THE SAME AS DEDUCTION. 9. HOWEVER, THE LD CIT HAS TAKEN THE VIEW THAT T HE ASSESSEE WAS CONSTRAINED TO PAY THE COMPENSATION FOR THE FAILURE ON THE PART OF THE ASSESSEE TO FOLLOW THE NORMS PRESCRIBED BY THE POLLUTION CONTROL BOARD AND HENCE THE SAID PAYMENT IS IN THE NATURE O F FINE FOR INFRACTION OF POLLUTION CONTROL LAWS. HENCE THE SA ME CANNOT BE CONSIDERED AS AN EXPENDITURE LAID OUT FOR THE PURPO SE OF BUSINESS. 10. THE QUESTION WHETHER THE PAYMENT MADE BY TH E ASSESSEE IN ACCORDANCE WITH THE COURTS ORDER IS IN THE NATURE OF COMPENSATION OR IN THE NATURE OF FINE IS THE DI SPUTE HERE. WHILE THE ASSESSEES CLAIM IS THAT IT IS IN THE NATURE OF COMPENSATION AND SAME IS ALLOWABLE AS NORMAL BUSINESS EXPENDITURE, T HE LD CITS VIEW IS THAT THE SAME IS IN THE NATURE OF FINE FOR INFRACTION OF POLLUTION CONTROL LAWS. A PERUSAL OF THE BOTH THE VIEWS WOUL D SHOW THAT THE ISSUE RELATING TO THE DEDUCTION OF COMPENSATION PAI D AS PER COURTS ORDER IS A DEBATABLE ISSUE AND HENCE TWO VIEWS ARE POSSIBLE IN THIS MATTER. APPARENTLY THE ASSESSING OFFICER HAS TAKEN ONE VIEW, WHICH, ACCORDING TO US, CANNOT BE SAID TO BE NOT SUSTAINAB LE IN LAW. HENCE, 10 I.T.A. NO. 769/MDS/2013 WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HA S TAKEN ONE OF THE POSSIBLE VIEWS IN THIS MATTER AND HENCE THE ASSESSM ENT ORDER PASSED BY HIM CANNOT BE CONSIDERED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ACCOR DINGLY, WE ARE OF THE VIEW THAT THE LD CIT WAS NOT RIGHT IN ASSUMING JURISDICTION U/S 263 OF THE ACT AND HENCE WE ARE UNABLE TO SUSTAIN T HE ORDER OF LD CIT. ACCORDINGLY WE SET HIS ORDER. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS ALLOWED. ORDER PRONOUNCED ON THE 23 RD DAY OF JANUARY, 2015 AT CHENNAI. SD/- SD/- ( ! ) ( .. ) (VIKAS AWASTHY) (B.R. BASKARAN) ' /JUDICIAL MEMBER /ACCOUNTANT MEMBER /CHENNAI, A /DATED, THE 23 RD JANUARY, 2015. KRI. B , *'/C D &/ /COPY TO: 1. !( /APPELLANT 2. *+!( /RESPONDENT 3. . E/ /CIT-I, COIMBATORE 5. FG *'/' /DR 6. GH% I /GF.