M/s. Semco Electric Pvt. Ltd., Pune V. CIT, Circle-10, Pune

ITA 915/PUN/2013

• Counselvise Citation: 91524514 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-07-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 25-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M S VERMA
• Keywords: Opportunity of being heard; Assessment record; Reassessment proceedings
• Section: 143(3); 10B; 148; 263; 63; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.915/PN/2013 (A.Y: 2003-04) SEMCO ELECTRIC PVT. LTD., GAT NO.154/1, MAHALUNGE, POST CHAKAN, TALUKA KHED, PUNE 411012 PAN: AADCS9449H APPELLANT VS. CIT, CIRCLE 10, NIGDI, PUNE RESPONDENT APPELLANT BY : SHRI SHARAD SHAH RESPONDENT BY : MS. M.S. VERMA, CIT DATE OF HEARING: 23.07.2014 DATE OF ORDER : 30.07.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX-V, PUNE, DATED 25.03. 2013 FOR A.Y. 2003-04 ON THE FOLLOWING GROUNDS. 1. THE ORDER U/S 263 (1) BE DECLARED NULL AS THE RELEV ANT ORDER OF AO IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. 2. THE LEARNED CIT HAS ERRED IN ASSUMING POWER U/S 263 TO REVIEW THE ASSESSMENT ORDER WHICH HAS BEEN PASSED A FTER DUE VERIFICATION OF THE FACT AND THE LAW. 3. THE EXCISE DUTY AND SALES TAX COLLECTED ON SCRAP SA LES CANNOT BE TAKEN PART OF TOTAL TURNOVER AND/OR EXPOR T TURNOVER FOR THE PURPOSE OF WORKING OUT COMPUTATION OF DEDUCTION U/S 10B AND THEREFORE THERE CANNOT BE ANY EFFECT ON THE AMOUNT OF DEDUCTION U/S 10B. 2 ITA NO.915 OF 13 SEMCO ELECTRIC PVT. LTD. 4. THE APPELLANT CRAVES ITS RIGHT TO ADD TO OR ALTER T HE GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE COURSE OF HEARING OF THE CASE. 2. THE ASSESSEE M/S. SEMCO ELECTRIC PVT. LTD. IS A COMPANY ENGAGED IN MANUFACTURE AND SALE OF AIR AND ELECTRIC AL WIRE ACCESSORIES, HAD FILED ITS ORIGINAL RETURN OF INCOM E FOR A.Y. 2003- 04 DATED 28.11.2013 DECLARING TAXABLE INCOME OF RS.2,16,77,460/- AFTER CLAIMING DEDUCTION U/S.10B O F THE ACT. ASSESSMENT U/S.143(3) OF THE ACT WAS CARRIED OUT AS SESSING THE TOTAL INCOME AT RS.3,16,51,230/- AFTER MAKING CERTA IN ADJUSTMENTS IN THE COMPUTATION OF DEDUCTION CLAIMED U/S 10B OF THE ACT. IN THE SAID ASSESSMENT ORDER COMPLETED ON 28.02.2006 U/S 143(3) OF THE INCOME TAX ACT, THE ASSESSING OFF ICER HAD EXCLUDED THE FOLLOWING ITEMS FROM THE ELIGIBLE INCO ME FOR COMPUTING THE DEDUCTION U/S 10B ON THE GROUND THAT THEY ARE NOT BEING DERIVED FROM THE SAID INDUSTRIAL UNDERTAK ING APPROVED FOR EXPORT OF ARTICLES OR THINGS TO BE MANUFACTURED OR PRODUCED BY IT: A. SALE OF SCRAP - RS.57,96,409/- B. SALES TAX SET OFF - RS.61,08,008/- C. INTEREST INCOME (OTHER SOURCES) - RS.1,54,511/-. 3. THE TOTAL OF ABOVE ITEMS WAS COMPUTED BY THE ASS ESSING OFFICER AT RS.1,20,58,925/- WHICH WAS HELD TO BE NO T DERIVED FROM THE ELIGIBLE BUSINESS OF SECTION 10B AND THERE FORE THE ABOVE SUM WAS ASSESSED UNDER THE HEAD 'OTHER SOURCES'. I T WAS SUBSEQUENTLY NOTED BY THE ASSESSING OFFICER THAT TH E INCOME ESCAPED ASSESSMENT AS EXCESSIVE DEDUCTION U/S 10B W AS COMPUTED DUE TO NON EXCLUSION OF RS.16,91,596/- COM PRISING OF EXCISE DUTY OF RS.14,03,598/- AND SALES TAX OF RS.2 ,87,998/- RELATING TO THE SCRAP SALE ALREADY EXCLUDED. THIS ESCAPEMENT CAME TO THE NOTICE OF THE ASSESSING OFFICER AS IT W AS NOTED THAT THE INCOME FROM SCRAP SALE INCLUDED IN THE ELIGIBLE BUSINESS WAS ON NET BASIS WHEREAS ON GROSS RECEIPTS SCRAP SALE W AS OF THE 3 ITA NO.915 OF 13 SEMCO ELECTRIC PVT. LTD. VALUE OF RS.74,88,005/-. THE ASSESSING OFFICER COM PLETED THE ASSESSMENT U/S 143(3) R.W.S. 147 ON 15.12.2010, IN WHICH NO ADDITION WAS MADE ON THIS ACCOUNT AND THE SUBMISSIO NS MADE BY THE ASSESSEE WERE ACCEPTED. MEANWHILE THE ADDITION S MADE BY THE ASSESSING OFFICER ON SCRAP SALE ETC. WAS CONFIR MED BY THE CIT(A) BUT DELETED BY THE ITAT PUNE BENCH. THE DEP ARTMENT IS IN APPEAL BEFORE THE HON'BLE HIGH COURT ON THIS ISS UE. IN THE ASSESSMENT COMPLETED U/S 143(3) R.W.S. 147 THE ASSE SSING OFFICER MADE ADDITIONS AS WERE MADE IN THE ORIGINAL ASSESSMENT DESPITE THE FINDINGS OF THE CIT(A) AND ITAT AVAILAB LE BEFORE HIM ON THE GROUND THAT THE MATTER IS CONTESTED BEFORE T HE HIGH COURT. IN OTHER WORDS THE ASSESSING OFFICER EXCLUDED THE S AME SCRAP SALE FIGURE OF RS.57,96,409/- ON NET SALE BASIS. T HE ASSESSEE AGAIN WENT BEFORE THE CIT(A) WHO HAS DELETED THE AD DITION THIS TIME BY FOLLOWING THE ORDER OF THE ITAT ALREADY AVA ILABLE IN THIS ASSESSMENT YEAR, THOUGH NO APPEAL WAS FILED BEFORE THE ITAT HIS PREDECESSOR ON THE GROUND THAT THE MATTER IS ALREAD Y BEFORE THE HIGH COURT AGAINST THE ORIGINAL ASSESSMENT ORDER BU T IT WAS DECIDED TO TREAT THE REASSESSMENT MADE U/S 143(3) R .W.S. 147 ON 15.12.2010 AS ERRONEOUS IN SO FAR AS IT IS PREJUDIC IAL TO THE INTEREST OF REVENUE FOR THE FAILURE OF THE ASSESSIN G OFFICER TO NOT EXCLUDE THE ADDITIONAL SUM OF RS.16,91,596/- (EXCIS E DUTY OF RS.14,03,598/- AND SALES TAX OF RS.2,87,998/-) WHIC H WAS PART OF THE SCRAP SALE WHILE DETERMINING THE DEDUCTION U/S 10B. HENCE IT WAS CONCLUDED THAT THE REASSESSMENT ORDER COMPLE TED BY THE ASSESSING OFFICER WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF REVENUE AND A SHOW CAUSE WAS ISSUED TO THE ASSESSEE U/S 263 OF THE IT ACT DATED 13.03.2013 ON THE FOLLOWING REASONS: 'ON EXAMINATION OF YOUR ASSESSMENT RECORDS FOR THE ABOVE ASSESSMENT YEAR, IT IS SEEN THAT THE ORDER U/S 143( 3) R.W.S 147 PASSED BY THE DY.CTT, CIRCLE 10, PUNE ON 15.12. 2010, APPEARS TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDIC IAL TO THE 4 ITA NO.915 OF 13 SEMCO ELECTRIC PVT. LTD. INTEREST OF REVENUE WITHIN THE MEANING OF SECTION 2 63 OF THE INCOME TAX ACT, 1961, FOR THE FOLLOWING REASON:- IN YOUR CASE, IT IS SEEN THAT, RETURN OF INCOME FOR THE A.Y. 2003-04 WAS ORIGINALLY FILED ON 28 TH NOV 2003 DECLARING A TAXABLE INCOME OF RS.2,16,77,460/- ASSESSMENT U/S 143(3] WAS COMPLETED ON 28.02.2006 BY RESTRICTING T HE EXEMPTION U/S 10B OF THE ACT BY EXCLUDING AMOUNT OF SALE OF SCRAP, SALES TAX SETOFF AND INTEREST INCOME AMOU NTING TO RS.57,96,409/-, RS.61,08,008/- AND RS.1,54,511/- RESPECTIVELY BEING DERIVED FROM INDUSTRIAL UNDERTAK ING FROM EXPORT OF ARTICLES OR THINGS MANUFACTURED OR PRODUC ED BY IT. HOWEVER, ON SUBSEQUENT VERIFICATION OF THE ASSESSME NT RECORDS, IT REVEALED THAT GROSS SCRAP SALE WAS OF RS.74,88,005/- CONSISTING OF NET SALES OF RS.57,96, 409/- RS.14,03,598/- AND SALES TAX OF RS.2,87,998/-. THER EFORE, EXCISE DUTY AND SALES TAX BEING PARTS OF THE SALES SHOULD HAVE BEEN INCLUDED IN THE TOTAL INCOME OF THE ASSES SEE COMPANY FOR THE AY 2003-04, HOWEVER, IT REMAINED TO BE DONE. HENCE, A NOTICE U/S 148 WAS ISSUED TO THE ASS ESSEE AFTER RECORDING REASONS AND WITH DUE APPROVAL AND SATISFACTION OF THE CIT. DURING THE COURSE OF RE-AS SESSMENT PROCEEDINGS, THE ASSESSING OFFICER ACCEPTED THE CON TENTION OF THE ASSESSEE AND PASSED THE ASSESSMENT ORDER UND ER SECTION 143(3) R.W.S 147 ON 15.12.2010 WITHOUT INCL UDING THE INCOME FOR WHICH THE ASSESSMENT WAS REOPENED, I N THE ASSESSMENT COMPLETED U/S 143(3) R.W.S 147 EVEN THOU GH, THIS MATTER IS BEING CONTESTED IN HIGH COURT BY THE DEPARTMENT ON SIMILAR ISSUES. HENCE, THE ASSESSING ORDER DATED 15.12.2010 FOR THE A.Y. 2003-2004 PASSED BY T HE THEN ASSESSING OFFICER UNDER SECTION 143(3) R.W.S 1 47, APPEARS TO BE ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE.' 4. HAVING CONSIDERED THE RESPONSE OF THE ASSESSEE, THE CIT HAS CONCLUDED AS UNDER: 3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND THE LAW AS ARE APPARENT FROM RECORD. EVEN IF THE CLAIM OF THE ASSESSEE IS ACCEPTED TO BE CORRECT, THE AO WILL HAV E TO VERIFY WHETHER THE PAYMENT OF THE EXCISE DUTY AND THE SALE S TAX HAS BEEN MADE FOR IT TO BECOME ELIGIBLE AS EXPENSE. FURTHERMORE EXCLUSION OF GROSS AMOUNT WILL REDUCE T HE ELIGIBLE DEDUCTION U/S 10B. AS THE AO HAS NOT CONSI DERED THESE ASPECTS BEFORE COMPLETING THE REASSESSMENT U/ S 143(3) R.W.S. 147 DESPITE INITIATING THE ACTION OF REASSESSMENT, THE SAID ASSESSMENT ORDER IS TREATED AS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF 5 ITA NO.915 OF 13 SEMCO ELECTRIC PVT. LTD. REVENUE. IT IS A TRITE LAW THAT AN INCORRECT ASSUMP TION OF FACT OR AN INCORRECT APPLICATION OF LAW DURING THE COURS E OF ASSESSMENT WOULD SATISFY THE REQUIREMENT OF ORDER B EING ERRONEOUS U/S 263 OF THE IT ACT. EXPRESSION 'PREJUD ICIAL TO INTEREST OF REVENUE' AS UNDERSTOOD IN ITS ORDINARY MEANING IS OF WIDE IMPLICATION AND CANNOT BE CONFINED TO LO SS OF TAX ONLY. THE HON'BLE HIGH COURT IN THALIBAI F. JAIN VS . ITO (1975) (101 ITR 1) (KAR) HAS HELD THAT AN ASSESSMEN T MADE IN UNDUE HASTE OR WITHOUT INQUIRY ARE PREJUDICIAL T O THE INTEREST OF REVENUE AND WHAT IS PREJUDICIAL TO THE INTEREST OF REVENUE MUST BE HELD TO BE ERRONEOUS. THE HON'BLE D ELHI HIGH COURT IN GEE VEE ENTERPRISES VS. ADDL. CIT (19 75) (99 ITR 375) (DEL) HAS HELD THAT AN OMISSION MADE TO MA KE FURTHER INQUIRIES IN THE FACTS OF THE CASE IS AN ER ROR AND AN ASSESSMENT ORDER CAN BE REGARDED AS ERRONEOUS IF TH E FACTS AND CIRCUMSTANCES SUGGEST THAT THE AO SHOULD HAVE M ADE FURTHER INQUIRIES BEFORE ACCEPTING THE STATEMENTS M ADE BY THE ASSESSEE IN HIS RETURN. SIMILARLY, THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS EMERY STONE MANUFACTURING COMPANY (1995) (213 ITR 843) (RAJ) HA S HELD THAT ALLOWING CERTAIN DEDUCTIONS WITHOUT THE SAME B EING PROVED TO BE ALLOWABLE I.E. WITHOUT PROPER VERIFICA TION OR IN IGNORANCE OF THE PROVISIONS OF LAW ARE THE VARIOUS INSTANCES ON THE BASIS OF WHICH THE ORDER COULD BE CONSIDERED AS PREJUDICIAL TO THE REVENUE AND COULD BE SET RIGHT I N REVISIONAL JURISDICTION. HON'BLE SUPREME COURT IN T HE CASE OF MALABAR INDUSTRIAL COMPANIES LTD, REPORTED IN 243 I TR 83 HAS HELD THAT IF THE AO HAS NOT APPLIED HIS MIND PR OPERLY EVEN THEN THE CASE CAN BE REVISED U/S 263 OF THE IT ACT, 1961. 4. THUS IT IS WELL ESTABLISHED THAT THE ORDER OF AO IS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. THE AO HAS DEFINITELY NOT EXAMINED THE ISSUE PROPER LY DURING THE COURSE OF REASSESSMENT PROCEEDINGS. IT WOULD BE INCUMBENT ON THE AO TO EXAMINE AND ISSUE. HENCE TH E REASSESSMENT COMPLETED U/S 143(3) RWS 147 IS SET-AS IDE AND THE AO IS DIRECTED TO REDO IT AFTER GIVING A PR OPER OPPORTUNITY OF BEING HEARD TO ASSESSEE ON THE ISSUE S DISCUSSED ABOVE AND COMPLETE ASSESSMENTS AS PER LAW . 5. THE SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF THE ASSESSEE, INTER ALIA, SUBMITTED THAT THE ORDER U/S. 263 BE ANNULLED AS THE RELEVANT ORDER OF THE ASSESSING OFF ICER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENU E. THE CIT HAS ERRED IN ASSUMING POWER U/S 263 TO REVIEW THE ASSES SMENT ORDER 6 ITA NO.915 OF 13 SEMCO ELECTRIC PVT. LTD. WHICH HAS BEEN PASSED AFTER DUE VERIFICATION OF THE FACT AND THE LAW. THE EXCISE DUTY AND SALES TAX COLLECTED ON SC RAP SALES CANNOT BE TAKEN PART OF TOTAL TURNOVER AND/OR EXPOR T TURNOVER FOR THE PURPOSE OF WORKING OUT COMPUTATION OF DEDUCTION U/S 10B AND THEREFORE THERE CANNOT BE ANY EFFECT ON THE AMOUNT OF DEDUCTION U/S 10B. ACCORDINGLY, THE ORDER OF CIT BE SET ASIDE. ON THE OTHER HAND, THE LEARNED DEPAR TMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF CIT. 6. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD, WE FIND THAT ASSESSEE COMPANY IS ENGAGED IN MANUFACTURE AND SALE OF AIR AND ELECTRICAL WIRE ACCESSORIES, HA D FILED ITS ORIGINAL RETURN OF INCOME FOR A.Y. 2003-04 DATED 28 .11.2013 DECLARING TAXABLE INCOME OF RS.2,16,77,460/-. THE ASSESSMENT U/S 143(3) WAS MADE BY MAKING CERTAIN ADDITION, INT ER ALIA, DENIAL OF 10B DEDUCTION IN RESPECT OF SALE OF SCRAP ON THE GROUND THAT THE INCOME IS NOT DERIVED FROM ELIGIBLE BUSINESS. THE AMOUNT INVOLVED WAS RS.57,96,409/-. ASSESSEE WENT IN TO APPEAL AND ITAT ALLOWED THE DEDUCTION U/S 10B ON THE BASIS OF SALE OF SCRAP HAVING BEEN DERIVED FROM THE ELIGIBLE BUSINES S. SUBSEQUENTLY, THE ASSESSEE WAS ISSUED A NOTICE U/S 147 ON ACCOUNT OF NON INCLUSION OF EXCISE DUTY AND SALES T AX IN RESPECT OF SCRAP SALES WHILE DENYING THE DEDUCTION U/S 10B IN RESPECT OF PRINCIPAL AMOUNT OF SCRAP SALE. DURING THE COURSE OF REASSESSMENT PROCEEDINGS THE ASSESSING OFFICER WAS EXPLAINED THAT THERE IS NO MISTAKE BY NOT ADDING EXCISE DUTY AND SALES TAX IN THE AMOUNT OF SCRAP SALE. THE ENTIRE EXPLANATIO N IS PART OF THE RELEVANT ASSESSMENT ORDER U/S 143(3) R.W.S.147. ON CE AGAIN CIT GAVE THE NOTICE FOR REVISION OF THE ASSESSMENT AND PASSED U/S.143 (3) R.W.S. 147 OF THE ACT CITING THE SAME R EASON. ONCE AGAIN ASSESSEE EXPLAINED IN DETAIL WHY THERE WAS NO ERROR IN THE ASSESSMENT ORDER DURING THE COURSE OF PROCEEDINGS U /S 263. THE STAND OF THE ASSESSEE HAS BEEN THAT IF GROSS AMOUNT OF 7 ITA NO.915 OF 13 SEMCO ELECTRIC PVT. LTD. RS.74,88,005/- RELATING TO THE SCRAP SALE WAS COMPU TED UNDER THE HEAD OTHER SOURCES, THE PAYMENT OF EXCISE DUTY AND SALES TAX WILL BE ELIGIBLE AS EXPENDITURE U/S. 57(III) AND T HEREFORE THE NET AMOUNT TAXABLE UNDER THE HEAD OTHER SOURCES FOR SCR AP SALE WILL BE RS.57,96,409/-. WE FIND THAT ALL THESE FACTUAL ASPECTS WERE DISCUSSED IN DETAIL ON MERIT IN THE REASSESSMENT PR OCEEDINGS PASSED U/S.143(3) R.W.S. 147 OF THE ACT. SO, THE O RDER OF THE ASSESSING OFFICER MAY NOT BE TREATED AS ERRONEOUS S O AS TO BE PREJUDICIAL TO THE INTEREST OF REVENUE. IN VIEW OF ABOVE, THE CIT WAS NOT JUSTIFIED IN INVOKING REVISIONAL POWER. AC CORDINGLY, THE SAME IS SET ASIDE. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 30 TH OF JULY, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 30 TH JULY, 2014 GCVSR COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE CIT-V, PUNE 4) THE DR, A BENCH, I.T.A.T., PUNE. 5) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE