TaxTMI 
TaxTMI 
TaxTMI 
2013 (9) TMI 267
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....dealt with by the after due application of mind. 4. That in any case the order passed by the CIT-II u/s 263 is against the law and facts of the case and deserves to be quashed. 5. That the learned CIT- II has erred in modifying the disallowance u/s 14A ignoring the order of the Hon'ble Tribunal." 3. The issues raised in the present appeal are in relation to the order passed by the Commissioner of Income Tax, Ludhiana under section 263 of the Act. 4. The present appeal was filed after a delay of 40 days before the Tribunal. The assessee had received the order passed under section 263 of the Act on 19.12.2011 whereas the appeal against the said order was filed on 28.3.2012. The learned counsel for the assessee has filed an affidavit of the Finance Manager of the assessee company, under which it has been stated that he was not aware that an appeal could be filed before the Tribunal against the order of the Commissioner of Income Tax passed under section 263 of the Act. It was only after receipt of notice under section 142(1) of the Act from the Assessing Officer, he was informed that an appeal should have been filed against the order passed under section ....
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.... out that the perusal of the order passed under section 143(3) of the Act dated 29.12.2009 would reveal that the only discussion in the assessment order was in relation to the disallowance under section 14A of the Act r.w.s.8D of the Income Tax Rules under which the disallowance of Rs.75,77,959/- was made. The Commissioner of Income Tax vide order dated 15.4.2010 had reduced the disallowance to Rs. 11,48,013/-, which in turn was deleted by the Tribunal. The learned A.R. for the assessee further pointed out that the show cause notice issued by the Commissioner of Income Tax, Ludhiana dated 10.8.2011 was passed on the audit objections raised in the case by the audit party. Our attention was drawn to the narration in the show cause notice, placed at pages 1 and 2 of the Paper Book and audit objections raised in the case of the assessee for the relevant assessment year placed at pages 24 to 27 of the Paper Book. The learned A.R. for the assessee pointed out that same objections as raised by the audit party were in the show cause notice issued by the Commissioner of Income Tax, Ludhiana. It was the claim of the learned A.R. for the assessee that there was non application of mind by the ....
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....der section 263 of the Act was not warranted as held by the Hon'ble Punjab & Haryana High Court in CIT Vs. Sohana Woollen Mills [296 ITR 238 (P&H)]. Further reliance was placed on the decision of the Chandigarh Bench of the Tribunal in Sh.Jaswinder Singh Prop. Vs. CIT in ITA No.690/Chd/2010 - date of order 9.3.2012 for assessment year 2005-06 and in R.S. Warehousing Vs. ITO in ITA No.310/Chd/2011 - date of order 30.9.2011. It was further submitted by the learned A.R. for the assessee that there was difference between non-application of mind and no enquiries being conducted or inadequate enquiries being made. However, in the case of the assessee there were due enquiries made and the Assessing Officer applied his mind before computing the income in the hands of the assessee. In respect of the working of disallowance under section 14A of the Act, it was pointed out that the Commissioner of Income Tax had ignored the last page of the Balance Sheet which reflected no overdraft balance. 7. The learned D.R. for the Revenue pointed out that the application of mind by the Assessing Officer was demonstrated by the order passed in the case. It was stressed by the learned D.R. for the Revenue....
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....3 ITR 437 (P&H)]. 10. We have heard the rival contentions and perused the record. The issue arising in the present appeal is against the invoking of jurisdiction by the Commissioner of Income Tax, Ludhiana under section 263 of the Act. In all such cases where assessment made by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue, the Commissioner of Income Tax is empowered to invoke his jurisdiction under section 263 of the Act. However, the twin conditions of the order being erroneous and prejudicial to the interest of the Revenue are to be satisfied cumulatively. 11. Now coming to the facts of the present case the assessment in the case of the assessee was taken for scrutiny by the Assessing Officer. The first questionnaire was issued on 8.4.2009. Various queries were raised by the Assessing Officer in the said questionnaire issued. The assessee thereafter filed replies to the various queries and thereafter another show cause notice was given to the assessee by way of entries in the order-sheet and assessment was completed under section 143(3) of the Act vide order dated 29.12.2009. The Commissioner of Income Tax had issued show cause notice under ....
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....; 3. In the assessment order the assessing officer has made disallowance of Rs.75,77,959/- u/s 14A of the income Tax Act, 1961. As per the provisions of Rule 8D of the I.T. Rules 1962 this has been computed on the basis of amount shown in the Balance Sheet, as per which the value of total assets as on 31.03.2007 was Rs.432,44,07,771/-. This included an amount of Rs.29,85,70,978/- which is depreciation of earlier years back. The value of assets as on 31.03.07 has been artificially increased by this amount. For the purpose of computation of the disallowance the correct value of total assets was to be adopted. The A.O. has failed to notice this aspect and this failure on his part has further resulted into disallowance of a lower amount." 12. The reply of the assessee before the Commissioner of Income Tax in relation to each of the issues was as under: "1. The assessment was made by the Addl. Commissioner of Income Tax, Range-V, Ludhiana, vide order dated 29.12.2009. During the course of hearing all those issues, which are being raised now, were duly discussed. A detailed reply dated 18.12.2009 relating to various issues was filed. Complete details regarding capital work....
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....venue on all the three accounts. 14. Considering the issue of invoking of jurisdiction under section 263 of the Act point-wise we find that the first issue raised by the Commissioner of Income Tax was in relation to the investment in land amounting to Rs.34.98 crores purchased during the year on which no construction was made. Further the Commissioner of Income Tax has tabulated the list of assets which, according to him, were not put to use during the relevant previous year, which reads as under: S.No. Current Year Last Year (i) Building under 7,07,36,051/- 12,21,49,715/- (ii) Machinery under installation 2,09,92,893/- 14,30,232/- (iii) Advance against capital expenditure 4,50,48,775/- 27,80,3041- Total 13,67,77,719/- 126360251/- 15. The Commissioner of Income Tax noted the assessee to have borrowed funds for investment in the said assets, on which interest liability arose, which was liable to be capitalized and added back to the income under the proviso to section 36(1)(iii) of the Act. The explanation of the assessee in this regard was that complete details of capital work in progress amounting to Rs.7.07 crores were filed under wh....
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.... and that there was no justification in taking up these issue again now. However I do not agree with the ld. Counsel in this regard. It is settled position of law that if the AO has passed the assessment order without due application of mind and accepted the contention of the assessee without verification, such an order could very well be taken to be erroneous and prejudicial to the interest of the revenue within the meaning of the provisions of section 263 of the I.T.Act. It is almost settled position in view of the various decisions of Hon'ble High Courts and different Benches of the Hon'ble ITATs that administrative and other common expenses are to be apportioned amongst different units of assessee for the purpose of determination of income of these respective units. Just, because separate books of accounts have been maintained for different units common administrative expenses cannot be said to be pertaining to only the units in the books of accounts of which such expenses have been debited. Clearly the order of the AO in accepting the contention of the assessee and not apportioning these expenses between the two units on rational basis is erroneous and prejudicial to the inter....
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....levant queries in respect of the issues raised in the said show cause notice were as under: "13. Please furnish details of additions made to fixed assets. 18. Please justify deduction claimed u/s 10B amounting at Rs.11,18,29,590/-. 19. Please furnish photocopy of the land purchased by you during the year at Rs.34,98,68,640/- alongwith the site plan of the land purchased. 22. Please give the number of units of the company, complete addresses of all units. 23. Please file separate Balance Sheet cum Trading & Profit & Loss Account of each unit and complete Balance Sheet of last 2 years of each units. 24. Please produce computation of exemption u/s 10B claimed at Rs.11,18,29,590/- and evidence to prove that all the conditions of section 10B are satisfied. 25. Evidence of donation paid and allowability of deduction u/s 806. 26. You have claimed deduction on account of interest earned at Rs. 1,69,83,373/- in the computation of income. Please furnish complete evidence of allowability of this deduction. Why interest paid on investment made in earning this exempted interest income....
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.... of business already in existence. (d) That it is not formed by the transfer of a new business of machinery or plant previously used for any purpose, because all the machinery was new. (e) That all the machinery of the said undertaking was new and no old machinery was purchased. (f) That all the sale proceeds of exports out of India were received in India in convertible foreign exchange within a period of 6 months from the end of the previous year. 19. During the year under reference land for Rs.34,98,68,640/- was purchased. Photocopy of the title deed are produced herewith for your verification. 22. The company has two units '(UNIT-I & UNIT-II) at Chandigarh road, Ludhiana. 23. Copy of separate balance sheet cum trading & profit and loss accounts of each unit and complete balance sheets of last 2 years is enclosed. 24. That investment in shares amounting to Rs.22.97 crore in the shares of associated concern namely Aarti Steels Limited. The said investment was made by the company from its internal cash accruals and....
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....ess activities. Therefore interest paid on the said borrowings was a business expense and no part of it can be disallowed. 11. Detail of capital WIP as on 31.03.2007 is enclosed herewith. It is further submitted that an amount of Rs.584115/- paid as interest on term loan paid up to 31.03.2007 was capitalized under pre-operative expenses." 23. The assessee had enclosed requisite details working out details of exemption under section 10B of the Act alongwith said letter dated 18.12.2009, copies of which are placed before us alongwith said letter dated 18.12.2009. The assessee had also elaborately explained details of capital work in progress alongwith the said letter dated 18.12.2009. The Assessing Officer in response raised another set of queries on 21.12.2009 and the relevant queries raised are 5 and 6. The reply of the assessee dated 24.12.2009 elaborately explained the issue in respect of disallowance under section 14A of the Act and also the allowability of deduction under section 10B of the Act. The order-sheet entries dated 24.12.2009 noted the assessee to have produced books of account, which were examined on test-check basis and also with reference to reply fi....
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....me Court in Malabar Industrial Co. Ltd. (supra) further held that the order of the Assessing Officer passed without application of mind by merely accepting the entries in the statement of account filed by the assessee in the absence of any supporting material and without making any enquiries would be an erroneous order and where the said order is erroneous or implying thereby that in case the said order has resulted in loss of revenue, or is also prejudicial to the interest of the Revenue justifies the invoking of jurisdiction by the Commissioner of Income Tax under section 263 of the Act. 26. The Hon'ble Delhi High Court in ITO Vs. D.G. Housing Projects Ltd. (supra) observed as under: "This distinction must be kept in mind by the Commissioner while exercising jurisdiction under section 263 and in the absence of the finding that the order is erroneous and prejudicial to the interest of revenue, exercise of jurisdiction under section 263 is not sustainable. In most cases of alleged 'inadequate investigation', it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without Commiss....
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....he expenditure in question as revenue expenditure. One 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 to pass orders under section 263 merely because he has different opinion in the matter. It is only in cases of 'lack of inquiry' that such a course of action would be open. In the instant case, the Assessing Officer had called for explanation on items in question from the assessee and the assessee had furnished his explanation. Said fact was even taken note of by the Commissioner himself in his order." 28. The Hon'ble Delhi High Court in CIT Vs. Sunbeam Auto Ltd.(supra) laid down the principle that there was distinction between the lack of enquiry and inadvertent enquiry where there was application of mind by the Assessing Officer before allowing expenditure in question and even if inadequate enquiries were made by the Assessing Officer that in itself would not empower the Commissioner of Income Tax to invoke the revisional jurisdiction under section 263 of the Act. 29. The Hon'ble Punjab & Haryana High Court in Hari Iron T....
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....amined any issue or not. The assessee had no control over the way an assessment order was drafted. The assessee on its part had produced enough material on record to show that the matter had been discussed in detail by the Assessing Officer. The least that the Tribunal could have done was to refer to the assessment record to verify the contentions of the assessee. Instead of doing that, the Tribunal had merely been swayed by the fact that the Assessing Officer had not mentioned anything in the assessment order. During the course of assessment proceedings, the Assessing Officer examined numerous issues. Generally, the issues which are accepted do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made. On examination the records of the instant case, it was found that the Assessing Officer had made full inquiries before accepting the claim of the assessee and amount on account of discrepancy in stock. Not only that, he had even gone a step further and appended an office note with the assessment order to explain why the addition for allegation discrepancy in stock was not bei....
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....g the course of assessment proceedings and had applied his mind before passing the assessment order. We find support from the ratio laid down by Hon'ble Delhi High Court in ITO Vs D.G. Housing Projects Ltd. (supra) and CIT Vs Sunbeam Auto Ltd. (supra). 31. The second issue raised by the CIT (Appeals) was in regard to the exemption claimed under section 10B of the Act. The Assessing Officer not only asked the assessee to justify its claim of deduction under section 10B of the Act but also to adduce relevant documents. The assessee has placed on record the details submitted before the Assessing Officer alongwith letter dated 18.12.2009 in which the elaborate working of the exemption under section 10B of the Act were furnished during the course of assessment proceedings. The Assessing Officer had made enquiries and had decided the issue after taking into consideration the relevant data and material. The Commissioner of Income Tax while exercising his jurisdiction under section 263 of the Act had observed vide para 3.1 that where the order passed by the Assessing Officer was without due application of mind and having accepted the contention of the assessee without verification, would ....
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....ee that the disallowance whatsoever made under section 14A of the Act was deleted by the I.T.A.T. After noting the same the Commissioner of Income Tax admits that no addition could be made on its account at this stage. However, where the order of the Tribunal is reversed by the Hon'ble High Court at any stage, the Assessing Officer is to work out the disallowance under section 14A of the Act by including the amount of Rs.29.85 crores in the total assets of the assessee as on 31.3.2007. On this account the assessment order was held to be erroneous and prejudicial to the interest of the Revenue. First of all the Commissioner of Income Tax has erred in adopting the said figures as against the complete figures available in the Balance Sheet, i.e. on the consequent pages. Further the issue was decided by the Assessing Officer by making enquiries and due application of mind and had also elaborately discussed the issue in the body of the assessment order resulting in addition of Rs.75.77 lacs. In such circumstances where the Assessing Officer had made the enquiries and had applied his mind in working out the disallowance which in turn has been deleted by the Tribunal, which facts stand ac....
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....re at variance and the said ratio is not applicable to the facts of the present case as brought out by us in the paras hereinabove. 35. The Hon'ble Supreme Court in CIT Vs. Manjunathesware Packing Products (supra) considered the legal position and hence, the said ratio is not applicable to the present case. 36. Another reliance placed by the learned D.R. for the Revenue on the decision of the Hon'ble Punjab & Haryana High Court in CIT Vs. Assam Tea House (supra) wherein the invoking of revisional jurisdiction by the Commissioner of Income Tax under section 263 of the Act was held to be correct holding that the Commissioner of Income Tax could have proceeded under section 263 of the Act if the Assessing Officer had made the assessment without application of mind. The Commissioner of Income Tax as per the order-sheet entries in the said case observed that no record was produced while in the assessment order a contrary statement was made. However, the perusal of the order-sheet entries in the case of the assessee before us reflects a completely different picture wherein various queries were raised by the Assessing Officer from time to time and the assessee had participated in the pr....
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....er: 20. We find that similar issue of exercise of revisionary powers by the Commissioner of Income Tax on the basis of audit objections arose before the Hon'ble Punjab & Haryana High Court in CIT Vs. Sohana Woollen Mills (supra) and it was held that mere audit objection and the fact that a different view could be taken, were not enough to say that the order of Assessing Officer was erroneous or prejudicial to the interests of Revenue. The Hon'ble Court further held that "whether satisfaction of the Commissioner for exercising jurisdiction was called for or not, has to be decided having regard to the given fact situation". 21. The Hon'ble Gauhati High Court in B & A Plantation & Industries Ltd. & Another Vs. CIT & Others (supra) has laid down the difference between revisionary, rectification and re-assessment proceedings. The fact situation before the Hon'ble Guahati High Court that rectification proceedings were initiated on the basis of audit objections, which were dropped subsequently and notice under section 263 of the Act was issued by the Commissioner of Income Tax on the basis of same audit objections and the Hon'ble Court held that there was no in....