M/S KANDHARI and KHANDARI P LTD. V. INCOME TAX APPELLATE TRIBUNAL and ORS.

ITA/222/2011

AI Insights

The case involves M/S. Kandhari & Kandhari(P) Ltd., Udaipur, appealing against the decision of the Income Tax Appellate Tribunal, Jodhpur Bench, which upheld the revision of their assessment order by the Commissioner of Income Tax. The primary issue was the non-inclusion of Rs. 8 lacs in the assessee's income for the assessment year 1992-93, which was related to Excise Duty reimbursed by the assessee's sister concern, M/s. Plasto Packs International Pvt. Ltd. The CIT found the original assessment order to be erroneous and prejudicial to the interest of the revenue, leading to its revision under Section 263 of the Income Tax Act, 1961. The ITAT and the High Court both affirmed this decision, rejecting the appellant's arguments that the two entities should be treated separately for the purpose of tax assessment and that the amount in question was not actually received by them.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 751031 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 10-07-2012
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: L M LODHA
• Keywords: Erroneous and prejudicial to the interest of revenue; Excise Duty; Income tax appeal; Job Work; Revision of assessment order
• Section: 143(3); 263; 260-A

Judgement Text

"M/S. KANDHARI & KANDHARI(P) LTD., UDAIPUR VS. THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR & ORS. (D.B.INCOME TAX APPEAL NO.222/11) 1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR JUDGMENT M/S. KANDHARI & KANDHARI(P) LTD., UDAIPUR VS. THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR & ORS. (D.B.INCOME TAX APPEAL NO.222/11) Date of Judgment :- 10.7.2012. HON'BLE THE CHIEF JUSTICE MR.ARUN MISHRA HON'BLE MR.JUSTICE SANGEET LODHA Mr. L.M.Lodha , for the appellant. BY THE COURT:(PER HON'BLE MR. SANGEET LODHA,J.) 1. This appeal u/s 260 A of Income Tax Act, 1961 ( for short “the Act”) is directed against the order dated 28.7.11 of the Income Tax Appellate Tribunal(ITAT), Jodhpur Bench,Jodhpur in Income Tax Appeal No.825/JU/1997, dismissing the appeal filed by the appellant-assessee against the order of Commissioner of Income Tax(CIT), Jodhpur u/s 263 of the Act for the assessment year 1992-93 holding the assessment order dated 28.2.95 passed by the Assessing Officer (AO)under Section 143(3) of the Act as erroneous and prejudicial to the interest of revenue. M/S. KANDHARI & KANDHARI(P) LTD., UDAIPUR VS. THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR & ORS. (D.B.INCOME TAX APPEAL NO.222/11) 2 2. Briefly the facts giving rise to the appeal are that the assessee during the relevant assessment year was engaged in the business of manufacturing HDPE woven sacks and was also doing the job work of converting HDPE granules into HDPE tape for its sister concern, namely, M/s. Plasto Packs International Private Limited, which is ultimately used as yarn in weaving HDPE fabric. The return of income for the relevant assessment year was filed by the assessee on 31.12.92 disclosing the income at Rs.11,98,404/-. The assessment was completed by AO u/s 143(3) of the Act on 28.2.95 assessing the income at Rs.23,62,540/-. 3. However, on perusal of the assessment records, CIT found that the assessee was doing job work for M/s. Plasto Packs International Pvt. Ltd.under an agreement dated 28.12.84. In terms of the agreement, Excise Duty and other taxes, if any, levied at any time were to be reimbursed by the assessee's sister concern M/s. Plasto Packs International Pvt. Ltd.. The assessment in the case of the sister concern for the assessment year 1992-93 was completed vide assessment order dated 28.2.95 wherein it was observed by the AO that M/s. Plasto Packs International Pvt. Ltd. had credited an amount of Rs.8 lacs towards the assessee in Excise Duty account. It was also observed by the AO that the assessee did not raise any debit M/S. KANDHARI & KANDHARI(P) LTD., UDAIPUR VS. THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR & ORS. (D.B.INCOME TAX APPEAL NO.222/11) 3 note on M/s. Plasto Packs International Pvt. Ltd. with regard to the sum of Rs.8 lacs. But, the AO did not deal with the matter while passing the assessment order in the case of the assessee for Assessment Year 1992-93. The CIT also observed that as a matter of fact, the assessee had demanded Rs.8 lacs from its sister concern vide letter dated 21.3.92. The position as aforesaid was also indicated in the order of CIT dated 10.2.97 passed in Appeal No.20/96-97 for Assessment Year 1993-94. In these circumstances, CIT being satisfied that an amount of Rs.8 lacs was taxable in the hands of the assessee for the Assessment Year 1992-93 but the same was not included by the AO due to failure on his part in making enquiries with regard to the job work and agreement dated 28.12.94 and therefore, the assessment order passed by the AO u/s 143(3) is erroneous in so far as it is prejudicial to the interests of the revenue and accordingly, initiated the proceedings for revision of the order by issuing notice to the assessee u/s 263 of the Act. 4. The notice was responded by the assessee by filing a reply thereto taking the stand that the assessee had not issued any debit note for Rs.8 lacs to M/s. Plasto Packs International Pvt. Ltd. However, it was not denied that a request was made on behalf of the assessee for payment of disputed amount of Rs.8 lacs but its sister concern M/s. Plasto Packs International Pvt. M/S. KANDHARI & KANDHARI(P) LTD., UDAIPUR VS. THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR & ORS. (D.B.INCOME TAX APPEAL NO.222/11) 4 Ltd. refused to make payment. According to the assessee, it was done in the light of undertaking dated 28.8.91 whereunder the assessee was not entitled to raise any demand or issue any debit note to its sister concern M/s. Plasto Packs International Pvt. Ltd. The assessee urged that the letter dated 21.3.92 issued by the assessee demanding Rs.8 lacs was only an intimation for probable liability and therefore, no proceedings u/s 263 could be initiated with regard to the same. It was also submitted that amount of Rs.8 lacs related to the liability for assessment years 1985-86 to 1992-93 and as such the same could not be considered the assessee's income for the assessment year 1992- 93. 5. After due consideration of the facts and circumstances of the case and the explanation furnished by the assessee as aforesaid, the CIT arrived at the finding that the AO was not justified in not taking any action for including the amount of Rs.8 lacs in the hands of the assessee during the relevant assessment year, particularly when that the assessment of the sister concern M/s. Plasto Packs International Pvt. Ltd. was completed on the same date. Accordingly, on account of non inclusion of the income of Rs.8 lacs as assessee's income during the relevant assessment year, the AO holding the assessment order erroneous and prejudicial to the interest of the revenue M/S. KANDHARI & KANDHARI(P) LTD., UDAIPUR VS. THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR & ORS. (D.B.INCOME TAX APPEAL NO.222/11) 5 while setting aside the said order, directed AO to pass the assessment order de novo after necessary verification in respect of the Excise Duty payable by the sister concern of the assessee, M/s. Plasto Packs International Pvt.Ltd. 6. Aggrieved by the order passed by the CIT as aforesaid, the appellant preferred an appeal before ITAT which stands dismissed by the order impugned. Hence, this appeal. 7. Learned counsel for the appellant contended that CIT and ITAT have failed to appreciate the position of law in correct perspective. It is submitted that two different companies; one assessee and the other M/s. Plasto Packs International Pvt.Ltd. cannot be considered as one company for the reason of their inter se business while passing the assessment order under the provisions of the Act. Learned counsel submitted that the communication dated 21.3.92 requiring M/s. Plasto Packs International Pvt. Ltd. to make immediate payment of Excise Duty leviable on the product of job work was not sufficient to treat the amount alleged to be due as income of the assessee. Learned counsel urged that regarding the job work, the liability of Excise Duty was of M/s. Plasto Packs International Pvt. Ltd. and as regard the manufacturing activities by the assessee, the liability was of the assessee and thus, the two liabilities cannot be permitted to be mixed up so as to make out a case for M/S. KANDHARI & KANDHARI(P) LTD., UDAIPUR VS. THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR & ORS. (D.B.INCOME TAX APPEAL NO.222/11) 6 revision of assessment order in terms of provisions of Section 263 of the Act. Learned counsel submitted that the assessee has not actually received the amount of Rs.8 lacs till this date, which is presumed to be income of the assessee and therefore, CIT has seriously erred in holding the assessment order passed by AO in the case of the assessee for the relevant assessment year as erroneous and prejudicial to the interest of the revenue to this extent. Learned counsel submitted that any addition to the income of the assessee as proposed will amount to double addition and double taxation which is not permissible under the law. 8. We have considered the submissions of the learned counsel for the appellant and perused the order impugned. 9. Indisputably, Section 263 of the Act empowers CIT to initiate the proceedings for revision of order passed by AO if the twin condition namely, (i) the order of AO sought to be revised is erroneous and (ii) it is prejudicial to the interest of the revenue are satisfied. If any of these conditions is not satisfied , the CIT cannot invoke the jurisdiction u/s 263(1) to correct an error committed by the AO. Needless to say that the conclusion regarding the order passed by AO being erroneous and prejudicial to interest of the revenue has to be arrived at by the CIT after examination of the record of the proceedings taken by M/S. KANDHARI & KANDHARI(P) LTD., UDAIPUR VS. THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR & ORS. (D.B.INCOME TAX APPEAL NO.222/11) 7 AO objectively. Once the CIT is satisfied that order passed by the AO is erroneous and prejudicial to the interest of the revenue , the appropriate order thereon including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment, as the circumstances of the case justify, could be passed by the CIT only after giving the assessee an opportunity of being heard and making or causing to be made such inquiry as he deems necessary. 10. In the instant case, it is not in dispute that the assessee had entered into an agreement with its sister concern M/s. Plasto Packs International Pvt. Ltd., for doing job work . It is also not disputed by the assessee that under the agreement dated 28.12.84 entered into as aforesaid, Excise Duty and other taxes if any levied at any time on the product were to be reimbursed by the sister concern. It is pertinent to note that the assessment of the assessee as also of sister concern M/s. Plasto Packs International Pvt. Ltd. were completed by the AO on 28.2.95. It is a matter of record that in the assessment order of the assessee's sister concern, it was categorically observed by the AO that it had credited an amount of Rs.8 lacs towards the assessee in Excise Duty account. AO also observed that the assessee did not raise any debit note on M/s. Plasto Packs International Pvt. Ltd. with regard to the amount due against the M/S. KANDHARI & KANDHARI(P) LTD., UDAIPUR VS. THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR & ORS. (D.B.INCOME TAX APPEAL NO.222/11) 8 Excise Duty a sum of Rs.8 lacs. That apart, the factum of specific demand of Rs.8 lacs being raised by the assessee from its sister concern towards the amount of Excise Duty was also there on record in the form of a letter dated 21.3.92 sent by the assessee to its sister concern. Thus, on the facts and in the circumstances of the case, the AO should have made the requisite inquiry in accordance with law regarding the job work performed, the liabilities of the parties under the agreement and the factum of an amount of Rs.8 lacs being credited by the sister concern towards the assessee in Excise Duty account so as to determine the liability of tax, if any, in the hands of the assessee against the said amount during the relevant assessment year i.e. 1992- 93. In considered opinion of this court, omission on the part of AO in not including the amount of Rs.8 lacs to the income of the assessee without making appropriate inquiry, while passing the assessment order in the case of assessee for the relevant assessment year was undoubtedly erroneous and prejudicial to the interest of the revenue. Obviously, since the assessee was making the payment to the Excise Department on the goods manufactured under the job work, the reimbursement of the Excise Duty paid by the assessee's sister concern, if any, will be an addition to the income of the assessee. In this view of the matter, in considered opinion of this court, learned ITAT has M/S. KANDHARI & KANDHARI(P) LTD., UDAIPUR VS. THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR & ORS. (D.B.INCOME TAX APPEAL NO.222/11) 9 committed no illegality or jurisdictional error in affirming the order passed by the CIT. 11. Coming to the contention raised by the counsel for the appellant regarding the mixing of two liabilities of Excise Duty, one regarding the job work which was to be borne by the M/s. Plasto Packs International Pvt. Ltd. and other regarding manufacturing activities by the assessee, to say the least, is devoid of any merit. A bare perusal of the order impugned makes it abundantly clear that the matter relates only to the amount of Excise Duty to be reimbursed by the assessee's sister concern M/s. Plasto Packs International Pvt. Ltd. in regard to job work and not with regard to any liability of Excise Duty borne by the assessee on other manufacturing activities undertaken by it. Regarding the amount of double addition and double taxation, suffice it to say that these are the matters to be gone into by the AO while passing the assessment order afresh after due consideration of the material on record. Obviously, the fresh assessment order shall be passed by the AO after giving an opportunity of hearing to the assessee and it is always open for the assessee to place the material on record and make its submissions objecting the addition to the income, if any, on all available grounds before the AO. 12. For the aforementioned reasons, in considered opinion of M/S. KANDHARI & KANDHARI(P) LTD., UDAIPUR VS. THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR & ORS. (D.B.INCOME TAX APPEAL NO.222/11) 10 this court, no substantial question of law arises for the consideration of this court in the present appeal. 13. Accordingly, the appeal is hereby dismissed. (SANGEET LODHA),J. (ARUN MISHRA),C.J. Aditya/- All corrections made in the judgment/order have been incorporated in the judgment/order being emailed. Aditya Joshi, PS "