Ambica Family Holdings, Eluru V. CIT, Rajahmundry

ITA 78/VIZ/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50251 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-03-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 17-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N RAUL
• Keywords: Principle of natural justice; Assessment record; Revenue expenditure; Capital expenditure
• Section: 143(3); 263

Judgement Text

ITA NO.78/VIZAG/2009 AMBICA FAMILY HOLDINGS, ELURU PAGE 1 OF 10 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.78/VIZAG/2009 ASSESSMENT YEAR: 2003-04 AMBICA FAMILY HOLDINGS ELURU VS. CIT RAJAHMUNDRY (APPELLANT) PAN NO: AAMFA 2199L (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI N. RAUL, DR ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 11.12.2008 PASSED BY LEARNED CIT, RAJAHMUNDRY UNDER SECTION 263 OF THE ACT AND IT RELATES TO THE ASSESSMENT YEAR 2003 -04. 2. THOUGH THE ASSESSEE HAS RAISED AS MANY AS NINE G ROUNDS, ALL OF THEM ARE RELATED TO THE VALIDITY OF INITIATION OF R EVISION PROCEEDING BY LEARNED CIT UNDER SECTION 263 OF THE ACT. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION WAS COMPLETED IN THE H ANDS OF THE ASSESSEE UNDER SECTION 143(3) RWS 147 OF THE ACT ON 29-12-20 06 DETERMINING THE TOTAL INCOME AT NIL. THE ASSESSEE HAD ATTACHED A TR IAL BALANCE ALONG WITH THE RETURN OF INCOME. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED ANOTHER TRIAL BALAN CE WHICH WAS TOTALLY IN VARIANCE TO THE EARLIER ONE. ON VERIFICATION OF ASS ESSMENT RECORD, THE LEARNED CIT NOTICED THAT THE SECOND TRIAL BALANCE H AS DISCLOSED RECEIPT OF DIVIDEND INCOME OF RS.32,85,889/- DURING THE YEAR U NDER CONSIDERATION AND THE SAME WAS NOT OFFERED AS INCOME BY THE ASSESSEE. THE SAID DIVIDEND ITA NO.78/VIZAG/2009 AMBICA FAMILY HOLDINGS, ELURU PAGE 2 OF 10 WAS RECEIVED FROM AN ASSOCIATE CONCERN NAMED M/S AM BICA AGARBATHIES AND AROMA INDUSTRIES LIMITED ON 03-10-2002. HENCE THE LEARNED CIT INITIATED REVISION PROCEEDINGS UNDER SECTION 263 OF THE ACT. BEFORE LEARNED CIT, THE ASSESSEE SUBMITTED THAT THE TRIAL BALANCE SUBMITTED ALONG WITH THE RETURN OF INCOME IS THE CORRECT ONE. FURTHER THE A SSESSEE SUBMITTED THAT IT IS FOLLOWING CASH SYSTEM OF ACCOUNTING AND DURING T HE YEAR UNDER CONSIDERATION, IT DID NOT RECEIVE ANY DIVIDEND BY W AY OF CASH OR CHEQUES. ACCORDINGLY IT WAS CONTENDED BY THE ASSESSEE THAT N O INCOME IS LIABLE TO BE TAXED AS IT IS FOLLOWING CASH SYSTEM OF ACCOUNTING. THE LEARNED CIT WAS NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE AND ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO EXAMINE AND ASSESS THE DIV IDEND INCOME OF RS.32,85,889/- IN THE HANDS OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2003- 04. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE U S. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE IMPUGNED DIVIDEND DECLARED BY M/S AMBICA AGARBATHIES AND ARO MA INDUSTRIES LIMITED RELATE TO THE FINANCIAL YEAR 2001-02. FURTHER THE ASSESSEE DID NOT RECEIVE THE IMPUGNED DIVIDEND EITHER BY WAY OF CASH OR CHEQ UES AND SINCE THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING, IT DID NOT OFFER ANY INCOME FOR TAXATION IN ITS RETURN OF INCOME. IN THE SECON D TRIAL BALANCE, THE IMPUGNED DIVIDEND INCOME HAS BEEN INCLUDED BY WAY O F PASSING CERTAIN BOOK ENTRIES AND HENCE THE SAME CANNOT BE TAKEN AS RECEIPT BY WAY OF CASH OR CHEQUE. DURING THE COURSE OF ASSESSMENT PROCEED ING, THE ASSESSING OFFICER HAS RAISED A SPECIFIC QUERY WITH REGARD TO DIVIDEND INCOME AND THE ASSESSEE HAS GIVEN A SPECIFIC REPLY THAT IT HAS FOL LOWED CASH SYSTEM OF ACCOUNTING AND NO DIVIDEND WAS RECEIVED IN THAT YEA R. THUS THE ASSESSING OFFICER HAS EXAMINED THE ISSUE AND HAS ACCEPTED THE EXPLANATIONS OF THE ASSESSEE. HE FURTHER SUBMITTED THAT THE LEARNED CI T HAS TAKEN THE VIEW ON THE BASIS OF THE SECOND TRIAL BALANCE, WHICH WAS DI SPUTED BY THE ASSESSEE. ACCORDINGLY THE LEARNED A.R CONTENDED THAT THE ASSE SSING OFFICER HAS TAKEN A POSSIBLE VIEW AND HENCE IMPUGNED ISSUE FALLS OUTS IDE THE SCOPE OF REVISION PROCEEDINGS UNDER SECTION 263 OF THE ACT. ITA NO.78/VIZAG/2009 AMBICA FAMILY HOLDINGS, ELURU PAGE 3 OF 10 5. ON THE CONTRARY, THE LEARNED DEPARTMENTAL RE PRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS SHOWN THE DIVIDEND RECEIPTS I N THE SECOND TRIAL BALANCE AND IT IS WRONG ON THE PART OF THE ASSESSEE TO CONTEND THAT IT HAS NOT RECEIVED THE DIVIDEND INCOME. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING . ACCORDING TO LEARNED A.R, THE ASSESSEE HAS NOT RECEIVED THE IMPUGNED DIV IDEND EITHER BY WAY OF CASH OR BY WAY OF CHEQUES. THE CONTENTION OF LEARNE D AUTHORISED REPRESENTATIVE IS THAT THE IMPUGNED ISSUE HAS ALREA DY BEEN EXAMINED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT PROCEEDINGS AND HAS TAKEN A POSSIBLE VIEW. IN THIS REGARD, THE LEARNED A.R INVITED OUR ATTENTION TO THE QUERY RAISED BY THE ASSESSING OFFICER AND TH E REPLY GIVEN BY THE ASSESSEE. ANOTHER CONTENTION OF LEARNED AUTHORISED REPRESENTATIVE IS THAT THE LEARNED CIT HAS PLACED HEAVY RELIANCE ON THE SE COND TRIAL BALANCE, WHICH WAS DISPUTED BY THE ASSESSEE AND IN ANY CASE IN THE SAID TRIAL BALANCE, THE IMPUGNED DIVIDEND INCOME IS SHOWN BY M AKING CERTAIN BOOK ADJUSTMENTS. ACCORDINGLY IT IS CONTENDED THAT SAID BOOK ADJUSTMENTS CANNOT BE TAKEN AS RECEIPT BY WAY OF CASH OR CHEQUES. 7. BEFORE GOING INTO THE MERITS OF THE ISSUE, WE WOULD LIKE TO DISCUSS ABOUT THE LEGAL POSITION WITH REGARD TO THE POWER O F LEARNED CIT TO INVOKE REVISION PROCEEDINGS UNDER SECTION 263 OF THE ACT. THE SCOPE OF REVISION PROCEEDINGS INITIATED UNDER SECTION 263 OF THE ACT WAS CONSIDERED BY HON'BLE BOMBAY HIGH COURT, IN THE CASE OF GRASIM IN DUSTRIES LTD. V CIT (321 ITR 92) BY TAKING INTO ACCOUNT THE LAW LAID DO WN BY THE HON'BLE SUPREME COURT. THE RELEVANT OBSERVATIONS ARE EXTRA CTED BELOW: SECTION 263 OF THE INCOME-TAX ACT, 1961 EMPOWERS TH E COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD O F ANY PROCEEDINGS UNDER THE ACT AND, IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN, BY THE ASSESSING OFFICER IS ERRONEO US IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENU E, TO PASS AN ORDER UPON HEARING THE ASSESSEE AND AFTER AN ENQUIR Y AS IS ITA NO.78/VIZAG/2009 AMBICA FAMILY HOLDINGS, ELURU PAGE 4 OF 10 NECESSARY, ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. TH E KEY WORDS THAT ARE USED BY SECTION 263 ARE THAT THE ORD ER MUST BE CONSIDERED BY THE COMMISSIONER TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. TH IS PROVISION HAS BEEN INTERPRETED BY THE SUPREME COURT IN SEVERAL JU DGMENTS TO WHICH IT IS NOW NECESSARY TO TURN. IN MALABAR INDUS TRIAL 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 WI LL BE ATTRACTED. THE SUPREME COURT HELD THAT AN INCORREC T ASSUMPTION OF FACT OR AN INCORRECT APPLICATION OF L AW, WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. AN ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE O R WITHOUT APPLICATION OF MIND, WOULD BE AN ORDER FALLING IN T HAT 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 IS PREJUDICIAL TO THE INTEREST OF THE REVENUE IS EXPLAINED IN THE JUDGMENT OF THE SUPREME COURT (HEA DNOTE) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PA SSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CON SEQUENCE OF AN ORDER OF THE ASSESSING OFFICER, CANNOT BE TREATE D AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR E XAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PE RMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WH ERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CA NNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE IN TERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. THE PRINCIPLE WHICH HAS BEEN LAID DOWN IN MALABAR I NDUSTRIAL CO. LTD. [2000] 243 ITR 83 (SC) HAS BEEN FOLLOWED AND EXPLAINED IN A SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN CIT V. MAX INDIA LTD. [2007] 295 ITR 282. 8. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUNBEAM AUTO LTD. (2011)(332 ITR 167) HAS DISCUSSED THE JUDICIAL PRECEDENTS IN THIS REGARD. THE RELEVANT OBSERVATIONS OF THE HON'BLE D ELHI HIGH COURT ARE EXTRACTED BELOW:- WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE CO UNSEL ON THE OTHER SIDE AND HAVE GONE THROUGH THE RECORDS. THE F IRST ISSUE THAT ARISES FOR OUR CONSIDERATION IS ABOUT THE EX ERCISE OF POWER ITA NO.78/VIZAG/2009 AMBICA FAMILY HOLDINGS, ELURU PAGE 5 OF 10 BY THE COMMISSIONER OF INCOME-TAX UNDER SECTION 26 3 OF THE INCOME-TAX ACT. AS NOTED ABOVE, THE SUBMISSION OF LEARNED COUNSEL FOR THE REVENUE WAS THAT WHILE PASSING THE ASSESSMENT ORDER, THE ASSESSING OFFICER DID NOT CONSIDER THIS ASPECT SPECIFICALLY WHETHER THE EXPENDITURE IN QUESTION WA S REVENUE OR CAPITAL EXPENDITURE. THIS ARGUMENT PREDICATES ON THE ASSESSMENT ORDER, WHICH APPARENTLY DOES NOT GIVE ANY REASONS WHILE ALLOWING THE ENTIRE EXPENDITURE AS REVENUE EXPENDITURE. HOWEVER, THAT BY ITSELF WOULD NOT BE INDICATIVE OF THE FACT THAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND ON T HE ISSUE. THERE ARE JUDGMENTS GALORE LAYING DOWN THE PRINCIPL E THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS NOT REQUIRED TO GIVE DETAILED REASON IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTION, ETC. THEREFORE, ONE HAS TO SEE FROM TH E RECORD AS TO WHETHER THERE WAS APPLICATION OF MIND BEFORE ALLOWI NG THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. LEA RNED COUNSEL FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT ON E HAS TO KEEP IN MIND THE DISTINCTION BETWEEN LACK OF INQUIRY AND INADEQUATE INQUIRY. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE COMMISSIONER T O PASS ORDERS UNDER SECTION 263 OF THE ACT, MERELY BECAUSE HE HAS A DIFFERENT OPINION IN THE MATTER. IT IS ONLY IN CASES OF LACK OF INQUIRY THAT SUCH A COURSE OF ACTION WOULD BE OPEN. IN GABRIEL IN DIA LTD. [1993] 203 ITR 108 (BOM), LAW ON THIS ASPECT WAS DI SCUSSED IN THE FOLLOWING MANNER (PAGE 113) : . . . FROM A READING OF SUB-SECTION (1) OF SECTIO N 263, IT IS CLEAR THAT THE POWER OF SUO MOTU REVISION CAN BE EXERCISED BY THE COMMISSIONER ONLY IF, ON EXAMINATI ON OF THE RECORDS OF ANY PROCEEDINGS UNDER THIS ACT, HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE INCOM E- TAX OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJU DICIAL TO THE INTERESTS OF THE REVENUE . IT IS NOT AN ARBITRA RY OR UNCHARTERED POWER, IT CAN BE EXERCISED ONLY ON FULF ILMENT OF THE REQUIREMENTS LAID DOWN IN SUB-SECTION (1). THE CONSIDERATION OF THE COMMISSIONER AS TO WHETHER AN ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL T O THE INTERESTS OF THE REVENUE, MUST BE BASED ON MATERIAL S ON THE RECORD OF THE PROCEEDINGS CALLED FOR BY HIM. IF THERE ARE NO MATERIALS ON RECORD ON THE BASIS OF WHICH IT CAN BE SAID THAT THE COMMISSIONER ACTING IN A REASONABLE MANNER COULD HAVE COME TO SUCH A CONCLUSION, THE VE RY INITIATION OF PROCEEDINGS BY HIM WILL BE ILLEGAL AN D WITHOUT JURISDICTION. THE COMMISSIONER CANNOT INITIATE PROCEEDINGS WITH A VIEW TO STARTING FISHING AND ROV ING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE ALREADY CONCLUDED. SUCH ACTION WILL BE AGAINST THE WELL-ACCEPTED POLICY OF LAW THAT THERE MUST BE A POINT OF FINALIT Y IN ALL ITA NO.78/VIZAG/2009 AMBICA FAMILY HOLDINGS, ELURU PAGE 6 OF 10 LEGAL PROCEEDINGS, THAT STALE ISSUES SHOULD NOT B E REACTIVATED BEYOND A PARTICULAR STAGE AND THAT LAPS E OF TIME MUST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI-JUDICIAL CONTROVERSIES AS IT MUST IN OTHER SP HERES OF HUMAN ACTIVITY. (SEE PARASHURAM POTTERY WORKS CO. L TD. V. ITO [1977] 106 ITR 1 (SC) AT PAGE 10) . . . FROM THE AFORESAID DEFINITIONS IT IS CLEAR THAT AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN INCOME-TAX OFFICER ACTING IN ACCORDANCE WITH LAW MAKES A CERTAIN ASSESSMENT, THE SAME CANNOT BE BRANDED AS ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE, ACCORDING TO HIM, THE ORDER SHOULD HAVE BEEN WRITTEN MORE ELABORATELY. TH IS SECTION DOES NOT VISUALISE A CASE OF SUBSTITUTION O F THE JUDGMENT OF THE COMMISSIONER FOR THAT OF THE INCOME -TAX OFFICER, WHO PASSED THE ORDER UNLESS THE DECISION I S HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE THE INCOME-TAX OFFICER WHILE MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACCEPTING THE ACCOU NTS OR BY MAKING SOME ESTIMATE HIMSELF. THE COMMISSION ER, ON PERUSAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY THE OFFICER CONCERNED WAS ON THE LOWER SIDE AND LEFT TO THE COMMISSIONER HE WOULD HA VE ESTIMATED THE INCOME AT A FIGURE HIGHER THAN THE ON E DETERMINED BY THE INCOME-TAX OFFICER. THAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE-EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGH ER FIGURE. IT IS BECAUSE THE INCOME-TAX OFFICER HAS EXE RCISED THE QUASI-JUDICIAL POWER VESTED IN HIM IN ACCORDANC E WITH LAW AND ARRIVED AT A CONCLUSION AND SUCH A CONCLUSION CANNOT BE FORMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WI TH THE CONCLUSION . . . THERE MUST BE SOME PRIMA FACIE MATERIAL ON RECORD TO SHOW THAT TAX WHICH WAS LAWFU LLY EXIGIBLE HAS NOT BEEN IMPOSED OR THAT BY THE APPLIC ATION OF THE RELEVANT STATUTE ON AN INCORRECT OR INCOMPLE TE INTERPRETATION A LESSER TAX THAN WHAT WAS JUST HAS BEEN IMPOSED . . . WE MAY NOW EXAMINE THE FACTS OF THE PRESENT CASE I N THE LIGHT OF THE POWERS OF THE COMMISSIONER SET OUT ABOVE. THE INCOME-TAX OFFICER IN THIS CASE HAD MADE ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITUR E INCURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN DETAILED EXPLANATION IN THAT REGARD BY A LETTER IN WRITING. ITA NO.78/VIZAG/2009 AMBICA FAMILY HOLDINGS, ELURU PAGE 7 OF 10 ALL THESE ARE PART OF THE RECORD OF THE CASE. EVIDE NTLY, THE CLAIM WAS ALLOWED BY THE INCOME-TAX OFFICER ON BEIN G SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. SUC H DECISION OF THE INCOME-TAX OFFICER CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 9. THE PRINCIPLES LAID DOWN BY THE COURTS ARE T HAT THE LEARNED CIT CANNOT INVOKE HIS POWERS OF REVISION UNDER SECTION 263 IF THE ASSESSING OFFICER HAS CONDUCTED ENQUIRIES AND APPLIED HIS MIND, EVEN IF T HERE IS NO DETAILED DISCUSSION IN THE ASSESSMENT ORDER. IF THERE WAS A NY ENQUIRY, EVEN INADEQUATE WOULD NOT BY ITSELF GIVE OCCASION TO THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 OF THE ACT, MERELY BECAUSE HE HAS A DIFFERENT OPINION IN THE MATTER. THE CONSIDERATION OF THE CO MMISSIONER AS TO WHETHER AN ORDER IS ERRONEOUS IN SO FAR IT IS PREJU DICIAL TO THE INTERESTS OF REVENUE MUST BE BASED ON MATERIALS ON RECORD OF THE PROCEEDINGS CALLED FOR BY HIM. IF THERE ARE NO MATERIALS ON RECORD ON THE BASIS OF WHICH IT CAN BE SAID THAT THE COMMISSIONER ACTING IN A REASONABL E MANNER COULD HAVE COME TO SUCH A CONCLUSION, THE VERY INITIATION OF P ROCEEDINGS BY HIM WILL BE ILLEGAL AND WITHOUT JURISDICTION. THE COMMISSIONER CANNOT INITIATE PROCEEDINGS WITH A VIEW TO START FISHING AND ROVING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE ALREADY CONCLUDED. 10. NOW WE SHALL EXAMINE WHETHER THE ACTION OF T HE LEARNED CIT IN INVOKING THE REVISION PROCEEDINGS UNDER SECTION 263 OF THE ACT IS IN ACCORDANCE WITH THE LAW. IN THE INSTANT CASE, THE S ECOND SET OF TRIAL BALANCE FILED BY THE ASSESSEE HAS ONLY PROMPTED THE LEARNED CIT TO LOOK INTO THE ISSUE OF TAXABILITY OF DIVIDEND INCOME. B EFORE HIM, THE ASSESSEE HAS DISOWNED THE SECOND TRIAL BALANCE AND HAS SUBMI TTED THAT THE TRIAL BALANCE FILED ALONG WITH THE RETURN OF INCOME (I.E. THE FIRST TRIAL BALANCE) IS THE CORRECT ONE. HOWEVER, IN ORDER TO ESTABLISH THE AUTHENTICITY OF THE SECOND TRIAL BALANCE, THE LEARNED CIT COMPARED THE ASSESSMENT RECORD OF A CONCERN NAMED M/S AMBICA CHEMICAL PRODUCTS AND STAT ED THE BALANCE OUTSTANDING IN THE NAME OF THE ASSESSEE AS ON 31.3. 2003 TO THE TUNE OF ITA NO.78/VIZAG/2009 AMBICA FAMILY HOLDINGS, ELURU PAGE 8 OF 10 RS.6,07,58,405/- TALLIES WITH THE BALANCE SHOWN IN THE SECOND TRIAL BALANCE AND ACCORDINGLY HELD THAT THE SECOND TRIAL BALANCE IS THE CORRECT ONE. HOWEVER, IT IS TO BE NOTED THAT THE SAID AMOUNT OF RS.6,07,58,405/- IS SHOWN IN THE NAME OF M/S ACP INDUSTRIES LTD IN TH E SECOND TRIAL BALANCE AND NOT IN THE NAME OF AMBICA CHEMICAL PRODUCTS A S STATED BY THE LEARNED CIT. IT IS A MATTER OF DEBATE TO SAY THAT THE AUTHENTICITY OF THE SECOND TRIAL BALANCE COULD BE ESTABLISHED BY COMPAR ING A SINGLE ENTRY OUT OF ABOUT THIRTY ENTRIES. IN OUR VIEW, THE CORRECT WAY T O ESTABLISH THE AUTHENTICITY OF THE SECOND TRIAL BALANCE WOULD BE T O COMPARE THE SAME WITH THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. H OWEVER, NO EFFORT APPEARS TO HAVE BEEN TAKEN TO COMPARE THE SAID TRIA L BALANCE WITH THE BOOKS OF ACCOUNT, WITHOUT WHICH IT WOULD BE DIFFICU LT FOR ANYBODY TO RELY UPON ITS CONTENTS. THUS, IN OUR VIEW, THE LEARNED CIT HAS REACHED THE CONCLUSIONS BASING ON CERTAIN PRESUMPTIONS THAT TOO WITHOUT ESTABLISHING THE AUTHENTICITY OF THE DOCUMENT RELIED UPON BY HIM . FURTHER, THE DIVIDEND IS USUALLY DECLARED AT A FIXED PERCENTAGE AND THE Q UANTUM OF DIVIDEND CAN BE ASCERTAINED WITH REFERENCE TO THE NUMBER OF SHAR ES HELD BY A PERSON. IT IS NOT CLEAR WHETHER THE QUANTUM OF IMPUGNED DIVIDE ND WAS VERIFIED VIS-- VIS THE NUMBER OF SHARES HELD BY THE ASSESSEE. SUC H INFORMATION COULD ALSO BE OBTAINED FROM THE DIVIDEND DECLARING COMPANY ITS ELF. THE FOREGOING DISCUSSIONS WOULD SHOW THAT IT REQUIRES A LOT OF IN VESTIGATION IN ORDER TO ESTABLISH THE AVAILABILITY OF THE IMPUGNED DIVIDEND INCOME TO THE ASSESSEE AND HENCE, IN OUR VIEW, THE LEARNED CIT HAS REACHED HIS OWN CONCLUSIONS ON THE BASIS OF PRESUMPTIONS WITHOUT CONCLUSIVELY E STABLISHING THE AUTHENTICITY OF THE SECOND TRIAL BALANCE. 11. THE LEARNED CIT HAS TAKEN THE VIEW THAT THE DIVIDEND INCOME WOULD BE TAXABLE IN THE HANDS OF THE ASSESSEE SINCE THE A SSOCIATE CONCERN DID NOT MAKE ANY PROVISION FOR PAYMENT OF TAX UNDER SECTION 115O OF THE ACT. THIS VIEW OF THE LEARNED CIT DOES NOT APPEAR TO BE IN AC CORDANCE WITH THE LAW. IF A COMPANY IS LIABLE TO PAY TAX UNDER SECTION 115O , IT WOULD ALWAYS REMAIN THE LIABILITY OF THE SAID COMPANY. THE FAI LURE ON THE PART OF THE ITA NO.78/VIZAG/2009 AMBICA FAMILY HOLDINGS, ELURU PAGE 9 OF 10 COMPANY TO PAY THE SAID TAX WOULD NOT RENDER THE DI VIDEND TAXABLE IN THE HANDS OF THE SHARE HOLDERS. THUS THE LEARNED CIT H IMSELF APPEARS TO BE NOT FIRM ABOUT THE ASSESSABILITY OF THE IMPUGNED DI VIDEND IN THE HANDS OF THE ASSESSEE. 12. IT IS PERTINENT TO NOTE THAT, DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS RAISED SPECI FIC QUERY WITH REGARD TO THE RECEIPT OF DIVIDEND AND THE ASSESSEE HAS ALSO R EPLIED TO THE SAME. THUS THE ASSESSING OFFICER APPEARS TO HAVE SATISFIED WIT H THE REPLY FURNISHED BY THE ASSESSEE, EVEN THOUGH THE SECOND TRIAL BALANCE CITED ABOVE WAS ALSO AVAILABLE ON RECORD. 13. THE CONTENTION OF THE LEARNED A.R IS THAT T HE DIVIDEND WAS RECORDED IN THE SECOND TRIAL BALANCE BY WAY OF BOOK ADJUSTME NT, I.E. THE DIVIDEND WAS NOT RECEIVED BY WAY OF CASH OR CHEQUE. ACCORDING T O HIM SUCH BOOK ADJUSTMENT CANNOT BE TAKEN AS RECEIPT IN THE CONTEX T OF INCOME TAX PROVISIONS. WE WERE INFORMED THAT THE PAYMENT OF D IVIDEND IS REGULARIZED BY THE COMPANIES ACT AND THE SAID ACT PROVIDES FOR THE METHODOLOGIES IN THAT REGARD. IN ADDITION TO THE ABOVE, THE DIVIDEN D, IF TAXABLE, WOULD BE SUBJECTED TO TDS PROVISIONS. IN THE SECOND TRIAL BA LANCE, THE AVAILABILITY OF TDS ON THE IMPUGNED DIVIDEND INCOME IS NOT ASCERTAI NABLE. WE HAVE ALREADY NOTED THAT THE LEARNED CIT DID NOT ESTABLIS H THE AUTHENTICITY OF THE SECOND TRIAL BALANCE BY COMPARING THE SAME WITH THE BOOKS OF ACCOUNT. 14. THE FOREGOING DISCUSSIONS WOULD SHOW THAT T HE LEARNED CIT HAS REACHED CONCLUSIONS ONLY ON PRESUMPTIONS, I.E., WIT HOUT ACTUALLY ESTABLISHING THAT THE IMPUGNED DIVIDEND HAS ACTUALLY BEEN RECEIV ED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE MATERIAL RELIED UPON BY HIM FOR THE PURPOSE ALSO SUFFERS FROM DEFECTS. FURTHER, IT IS NOT CLEARLY DISCERNIBLE FROM THE RECORD AS TO WHETHER THE ASSESSEE HAS RECE IVED ANY DIVIDEND DURING THE YEAR UNDER CONSIDERATION WHICH REQUIRES ASSESSMENT IN THE HANDS OF THE ASSESSEE AND IN ANY CASE, THE SAID ISSUE REQ UIRES A DETAILED ENQUIRY ITA NO.78/VIZAG/2009 AMBICA FAMILY HOLDINGS, ELURU PAGE 10 OF 10 AND INVESTIGATION. HENCE, IN OUR VIEW, IT CANNOT B E SAID THAT THE IMPUGNED ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF THE REVENUE, PARTICULARLY WHEN THE ISSUE WAS EXAMINED B Y THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE ACTION OF THE LEARNED CIT IN ASSUMING JURISDICTION UNDER SECTION 263 OF THE ACT DOES NOT APPEAR TO BE IN ACC ORDANCE WITH THE LAW. ACCORDINGLY WE SET ASIDE HIS ORDER CHALLENGED BEFOR E US. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON 15 TH JUNE, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 15-06-2011 COPY TO 1 AMBICA FAMILY HOLDINGS, ANASUYA BHAVAN, CHADALAVA DA VARI STREET, POWERPET, ELURU-534 002. 2 CIT, RAJAHMUNDRY 3 THE CIT(A), RAJAHMUNDRY 4 THE DR, ITAT, VISAKHAPATNAM 5 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM