2010 (10) TMI 732 - AT - Income Tax

Tribunal upholds assessment order, favors assessee, cancels Commissioner's order, emphasizes judicial discipline

Liquors India Ltd. Versus DCIT

The Tribunal held that the assessment order under Section 143(3) was in line with previous decisions, allowing trade scheme expenses. It found the JCIT's ... Revision u/s 263 - Disallowance u/s 40(a)(ia) - whether the conduct of the Addl. CIT in issuing the direction under S.144A at the particular juncture, confirming the disallowance of trade scheme expenditure for immediately preceding two assessment years and when further appeals by the assessee on the said issue were pending before the Tribunal, is justifiable on any criteria - It was precisely for the reason that the evidence was not properly appreciated by the Assessing Officer and the CIT(A), the assessee exercised a remedy which was available statutorily - The lower authorities have not brought any record to establish the falsity of the assessee’s claim with regard to the services rendered by the marketing agents in question - It is evident from the material available on record that as claimed by the assessee, corresponding expenditure claimed by the assessee in the earlier as well as succeeding years, except ay 2004-05, have been allowed - Decided in the favour of assessee Regarding Revision - There is no merit in the contention of the Revenue that this Tribunal in the order for the earlier years has not solely relied on the directions given under S.144A for the year under appeal - when the Assessing Officer as well as the Addl. CIT who gave directions under S.144A, have applied their mind to a particular issue, it cannot be said that the assessment order is either erroneous or prejudicial to the interests of the Revenue when it is in accordance with the earlier years order of the Tribunal on similar issue - In the present case, the Order of the Tribunal in assessee own case in earlier years which is delivered on similar set facts is binding on authorities below and they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such proceeding - This defect cannot be cured by first carrying the revision and then granting the opportunity to the assessee to respond to the issues raised before the assessing officer during the course of fresh assessment - Decided in the favour of assessee Issues Involved:1. Validity of the Commissioner of Income-tax's invocation of jurisdiction under Section 263 of the Income Tax Act, 1961.2. Examination of the trade scheme expenses disallowed by the Assessing Officer for the assessment year 2005-06.3. Compliance with directions issued under Section 144A by the Joint/Addl. Commissioner of Income-tax.4. Alleged errors and prejudicial conduct in the assessment order passed under Section 143(3).Detailed Analysis:1. Validity of the Commissioner of Income-tax's invocation of jurisdiction under Section 263:The Commissioner of Income-tax invoked jurisdiction under Section 263 of the Income Tax Act, 1961, asserting that the assessment order passed under Section 143(3) was erroneous and prejudicial to the interests of the Revenue. The Commissioner noted that the disallowance of trade scheme expenditure for previous assessment years 2003-04 and 2004-05 was upheld by the CIT(A), but the JCIT issued directions under Section 144A to allow the claim for the assessment year 2005-06 without proper enquiry. The Commissioner argued that the directions issued under Section 144A were erroneous and prejudicial to the interests of the Revenue, leading to the invocation of Section 263.2. Examination of the trade scheme expenses disallowed by the Assessing Officer:The assessee claimed trade scheme expenses amounting to Rs. 3,85,88,419, which were initially disallowed by the Assessing Officer under Section 40(a)(ia). The Commissioner of Income-tax noted that the disallowance of similar expenses for previous years was upheld by the CIT(A), but the JCIT directed the Assessing Officer to allow the claim for the assessment year 2005-06. The Commissioner argued that no proper enquiries were conducted by the JCIT to ascertain the genuineness of the expenditure, leading to an erroneous and prejudicial assessment order.3. Compliance with directions issued under Section 144A by the Joint/Addl. Commissioner of Income-tax:The Commissioner of Income-tax questioned the propriety of the JCIT's directions under Section 144A, issued at a time when the assessee's appeals for the previous years were pending before the Tribunal. The Commissioner framed questions regarding the permissibility of the JCIT's conduct and concluded that the JCIT's directions lacked proper application of mind and were prejudicial to the interests of the Revenue. The Commissioner also noted that the Assessing Officer did not properly verify the income-tax particulars of the marketing agents, leading to an erroneous assessment.4. Alleged errors and prejudicial conduct in the assessment order passed under Section 143(3):The Commissioner of Income-tax concluded that the assessment order was erroneous and prejudicial to the interests of the Revenue due to the Assessing Officer's failure to carry out proper verification and application of mind. The Commissioner directed the Assessing Officer to scrutinize the claim with regard to Gayatri Agencies, examine the assessee's transactions with Seagram, and bring to tax any apparent inflation in conversion charges. The Commissioner also rejected the assessee's contention that the directions under Section 144A do not constitute an order for the purpose of Section 263.Tribunal's Decision:The Tribunal found merit in the assessee's contentions and held that the assessment order was in accordance with the Tribunal's decision for the previous assessment years, which allowed the trade scheme expenses. The Tribunal noted that the directions given by the JCIT under Section 144A were one of the reasons for the Tribunal's decision in favor of the assessee. The Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue and canceled the order passed under Section 263 by the Commissioner of Income-tax. The Tribunal also emphasized the importance of judicial discipline and the binding nature of the Tribunal's decisions on lower authorities.Conclusion:The Tribunal allowed the assessee's appeal, holding that the assessment order passed under Section 143(3) was not erroneous or prejudicial to the interests of the Revenue, and canceled the order passed under Section 263 by the Commissioner of Income-tax. The Tribunal emphasized the importance of judicial discipline and the binding nature of the Tribunal's decisions on lower authorities.