O.V.Sreedharan, Kanhandad v. DCIT, Kannur

ITA 244/COCH/2010 | 2006-2007
Pronouncement Date: 18-07-2013

Appeal Details

RSA Number 24421914 RSA 2010
Assessee PAN AJAPS9030K
Bench Cochin
Appeal Number ITA 244/COCH/2010
Duration Of Justice 3 year(s) 3 month(s) 13 day(s)
Appellant O.V.Sreedharan, Kanhandad
Respondent DCIT, Kannur
Appeal Type Income Tax Appeal
Pronouncement Date 18-07-2013
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 18-07-2013
Date Of Final Hearing 15-07-2013
Next Hearing Date 15-07-2013
Assessment Year 2006-2007
Appeal Filed On 05-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE S/SHRI N.R.S.GANESAN JM AND B.R.BASKAR AN AM I.T.A. NO.244/COCH/2010 ASSESSMENT YEAR : 2006-07 SHRI O.V. SREEDHARAN PWD CONTRACTOR TRICHAMBARAM TALIPARAMBA KANNUR [PAN: AJAPS 9030K] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-1 KANNUR (ASSESSEE-APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI ARUN RAJ ADV. REVENUE BY SMT. S. VIJAYAPRABHA JR. DR DATE OF HEARING 15/07/2013 DATE OF PRONOUNCEMENT 18/07/2013 O R D E R PER B.R.BASKARAN ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 04-02-2010 PASSED BY THE LD. CIT KANNUR U/S. 263 OF THE ACT F OR THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE IS ASSAILING THE VALIDITY OF THE RE VISION ORDER PASSED U/S. 263 OF THE ACT. 3. THE FACTS RELATING TO THE ISSUE UNDER CONSIDERAT ION ARE STATED IN BRIEF. THE ASSESSMENT IN THE HANDS OF THE ASSESSEE FOR THE YEA R UNDER CONSIDERATION WAS COMPLETED BY THE ASSESSING OFFICER U/S. 143(3) OF T HE ACT. WHILE COMPLETING THE ASSESSMENT THE ASSESSING OFFICER MADE A LUMP SUM D ISALLOWANCE OF RS.3 50 000/- OUT OF THE EXPENSES CLAIMED BY THE ASSESSEE AS THEY WE RE NOT SUPPORTED BY PROPER VOUCHERS. FURTHER THE ASSESSING OFFICER ALSO MADE DISALLOWANCE U/S. 40A(IA) OF THE ACT. I.T.A. NO.244/COCH/2010 2 4. ON EXAMINATION OF THE ASSESSMENT RECORD THE ADM INISTRATIVE COMMISSIONER TOOK THE VIEW THAT THE ASSESSMENT ORDER REFERRED ABOVE IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE ON THE FOLLOWING POINTS: (A) DEFECTS NOTICED IN THE BOOKS OF ACCOUNTS SHOW THAT THEY WERE WRITTEN WITHOUT ANY SYSTEMATIC RULE AND WITHOUT ANY EVIDENCE. HEN CE THE ASSESSING OFFICER SHOULD HAVE REJECTED THE BOOKS OF ACCOUNTS AND EST IMATED THE PROFIT AT 8% OF THE GROSS RECEIPTS. (B) THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE HAS DEDUCTED PROVIDENT FUND FROM THE PAYMENTS MADE TO ITS EMPLOYEES. HOWE VER IF THE ASSESSEE IS MADE TO DEDUCT AND PAY THE PROVIDENT FUND IN FUTURE SUCH PAYMENTS WILL BE ALLOWED U/S. 43B OF THE ACT ON THE PAYMENT BASIS E VEN THOUGH IT WAS NOT DISALLOWED DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE MAY BE LIABLE TO PAY PROVIDENT FUND CONTRIBUTION TO THE TUNE OF RS.2 5 LAKHS AND HENCE THE SAME SHOULD HAVE BEEN DISALLOWED DURING THE YEAR UNDER C ONSIDERATION. ACCORDINGLY THE LD CIT INITIATED REVISION PROCEEDI NGS AND ISSUED NOTICE TO THE ASSESSEE TO SUBMIT HIS EXPLANATIONS ON THE POINTS DISCUSSED ABOVE. AFTER HEARING THE ASSESSEE THE LD. CIT SET ASIDE THE ASSESSMENT ORDER AND REST ORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO RE-DO THE ASS ESSMENT CONSIDERING THE OBSERVATION MADE IN THE REVISION ORDER. AGGRIEVED THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. ADMINISTRATIVE COMMISSIONER INITIALLY TOOK THE VIEW THAT THE INCOM E OF THE ASSESSEE SHOULD HAVE BEEN ESTIMATED AT 8% OF THE GROSS RECEIPTS AND ACCORDING LY INDICATED IN THE NOTICED ISSUED BY HIM. HOWEVER DURING THE COURSE OF THE REVISION PR OCEEDINGS THE ASSESSEE POINTED OUT THAT THE INCOME ESTIMATED BY THE ASSESSING OFFICER WORKS OUT TO MORE THAN 8%. ON NOTICING THE SAME THE LD. CIT TOOK THE VIEW THAT T HE PROFIT SHOULD HAVE BEEN ESTIMATED AT 10% OF THE GROSS RECEIPTS WHICH IS AGAINST THE P ROPOSAL MADE IN THE NOTICE ISSUED BY THE LD. ADMINISTRATIVE COMMISSIONER. THE LD. COUNSE L FURTHER SUBMITTED THAT THE ASSESSEE DID NOT DEDUCT OR PAY ANY PROVIDENT FUND F ROM THE PAYMENTS MADE TO ITS EMPLOYEES AND HENCE THE QUESTION OF ALLOWANCE OR DI SALLOWANCE DOES NOT ARISE OUT OF THE ASSESSMENT ORDER. THE LD. COUNSEL SUBMITTED THA T THE ASSESSING OFFICER HAS CHOSE TO MAKE LUMP SUM DISALLOWANCE FOR IMPROPER VOUCHERS AND THE SAME IS ONE OF THE I.T.A. NO.244/COCH/2010 3 POSSIBLE METHODS OF DETERMINING THE INCOME OF THE A SSESSEE. HENCE THE ASSESSMENT ORDER CANNOT BE CONSIDERED AS ERRONEOUS ONE AND HEN CE THE IMPUGNED REVISION ORDER CANNOT BE SUSTAINED. 6. ON THE CONTRARY THE LD. DR SUBMITTED THAT THE A SSESSING OFFICER HAS MADE A DISALLOWANCE OF RS.3.5 LAKHS TO THE TOTAL INCOME RE TURNED BY THE ASSESSEE TOWARDS IMPROPER MAINTENANCE OF BOOKS OF ACCOUNTS EVEN THO UGH THERE IS A SPECIFIC OBSERVATION BY THE AUDITOR THAT THE ENTRIES MADE IN THE BOOKS O F ACCOUNT ARE NOT SUPPORTED BY PROPER EVIDENCE. UNDER THESE SET OF FACTS THE ASS ESSING OFFICER SHOULD HAVE REJECTED THE BOOKS OF ACCOUNTS AND SHOULD HAVE ESTIMATED THE PROFIT INSTEAD OF MAKING LUMP SUM ADDITION. HENCE THE ASSESSMENT ORDER IS RENDER ED ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 7. BEFORE GOING INTO THE MERITS OF THE ISSUE WE WOULD LIKE TO DISCUSS ABOUT THE LEGAL POSITION WITH REGARD TO THE POWER OF LEARNED CIT TO INVOKE REVISION PROCEEDINGS UNDER SECTION 263 OF THE ACT. THE SCOPE OF REVISION PROC EEDINGS INITIATED UNDER SECTION 263 OF THE ACT WAS CONSIDERED BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF GRASIM INDUSTRIES LTD. V CIT (321 ITR 92) BY TAKING INTO ACCOUNT THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT. THE RELEVANT OBSERVATIONS ARE EXTRA CTED BELOW: SECTION 263 OF THE INCOME-TAX ACT 1961 EMPOWERS T HE COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDINGS UNDER THE ACT AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASS ESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE TO PASS AN ORDER UPON HEARING THE ASSESSEE AND AFTER A N ENQUIRY AS IS NECESSARY ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. THE KE Y WORDS THAT ARE USED BY SECTION 263 ARE THAT THE ORDER MUST BE CONSIDERE D BY THE COMMISSIONER TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THIS PROVISION HAS BEEN INTERPRETED BY THE SUPREME COURT IN SEVERAL JUDGMENTS TO WHICH IT IS NOW NECESSARY TO TURN. IN MALABAR INDUSTRIAL 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 OFFICER AND IT IS ON LY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. THE SUPREME COURT HELD THAT AN INCORRECT ASSUMPTION OF FACT OR AN INCORRECT APP LICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. AN OR DER PASSED IN VIOLATION I.T.A. NO.244/COCH/2010 4 OF THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APP LICATION OF MIND WOULD BE AN ORDER FALLING IN THAT CATEGORY. THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF THE REVENUE THE SUPREME COURT HELD IT IS OF W IDE IMPORT AND IS NOT CONFINED TO A LOSS OF TAX. WHAT IS PREJUDICIAL TO T HE INTEREST OF THE REVENUE IS EXPLAINED IN THE JUDGMENT OF THE SUPREME COURT (HEA D NOTE) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE A SSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS O F THE REVENUE FOR EXAMPLE WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN O NE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE IT CANNOT BE TREATED A S AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS 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 EXPLAI NED IN A SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN CIT V. MAX INDIA L TD. [2007] 295 ITR 282. 8. IN THE INSTANT CASE IT IS AN ADMITTED FACT THAT THE BOOKS OF ACCOUNTS ARE NOT SUPPORTED BY PROPER VOUCHERS. HENCE THE ASSESSING OFFICER HAS CHOSEN TO MAKE A LUMP SUM DISALLOWANCE OF RS.3 50 000/- TO COVER UP THE D EFICIENCIES. IN THE NOTICE ISSUED BY LD CIT U/S 263 OF THE ACT THE ADMINISTRATIVE COMMI SSIONER HAS TAKEN THE VIEW THAT THE ASSESSING OFFICER SHOULD HAVE REJECTED THE BOOKS OF ACCOUNT AND SHOULD HAVE ESTIMATED THE INCOME AT 8% OF THE GROSS RECEIPTS. HOWEVER T HE ASSESSEE POINTED OUT DURING THE REVISION PROCEEDINGS THAT THE INCOME DETERMINED BY THE AO WORKS OUT TO MORE THAN 8% OF THE GROSS RECEIPTS. THE LD CIT WHILE ACKNOWLED GING THE SAID FACT HAS TAKEN A DIFFERENT STAND I.E. HE TOOK THE VIEW THAT THE IN COME SHOULD HAVE BEEN ESTIMATED AT 10% OF THE GROSS RECEIPTS. THUS IT IS SEEN THAT T HERE IS A CLEAR SHIFT IN THE STAND TAKEN BY LD CIT WITH REGARD TO THE QUANTUM OF INCOME THAT SHOULD HAVE BEEN ESTIMATED. IN ANY CASE THE CORE OF THE MATTER IS REGARDING DETER MINATION OF INCOME. WE HAVE SEEN THAT GENERALLY THE ASSESSING OFFICERS EITHER CHOOSE TO MAKE LUMP SUM DISALLOWANCE TO THE INCOME RETURNED BY THE ASSESSEE OR ESTIMATE THE TOTAL INCOME OF THE ASSESSEE BY REJECTING THE BOOKS OF ACCOUNTS. THERE SHOULD NOT BE ANY DISPUTE THAT BOTH THE METHODS ARE IN VOGUE IN THE INCOME TAX DEPARTMENT. THUS IT IS SEEN THAT THE ASSESSING I.T.A. NO.244/COCH/2010 5 OFFICER IN THE INSTANT CASE HAS FOLLOWED ONE OF T HE PERMISSIBLE METHODS FOR DETERMINING THE TOTAL INCOME OF THE ASSESSEE. FURTHER IT IS A LSO A FACT THAT THE INCOME DETERMINED BY THE ASSESSING OFFICER WORKS OUT TO MORE THAN 8% OF THE GROSS RECEIPTS I.E. AT THE LEVEL INITIALLY PROPOSED BY THE ADMINISTRATIVE COMM ISSIONER. IN THIS FACTUAL SITUATION IN OUR VIEW THE QUESTION OF ERROR OR PREJUDICE TO THE REVENUE IN THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER DOES NOT ARISE. 9. THE NEXT ISSUE POINTED OUT BY LD CIT RELATES T O THE DISALLOWANCE OF PROVIDENT FUND PAYMENT LIABILITY THAT MAY ARISE IN FUTURE. IT IS AN ADMITTED FACT THAT THE ASSESSEE DID NOT CLAIM ANY EXPENDITURE TOWARDS PROVIDENT FUND PA YMENT LIABILITY DURING THE YEAR UNDER CONSIDERATION. IT IS INCONCEIVABLE AS TO HOW THE ASSESSING OFFICER COULD MAKE DISALLOWANCE OF ANY EXPENDITURE THAT WAS NEVER CLAI MED BY THE ASSESSEE OR ANY EXPENDITURE IN RESPECT OF WHICH LIABILITY HAS NOT A RISEN AT ALL. FURTHER THIS ISSUE DOES NOT EMANATE FROM THE ASSESSMENT RECORD. ACCORDINGL Y IN OUR VIEW THE LD CIT WAS NOT JUSTIFIED IN ASSUMING SOME HYPOTHETICAL SITUATION A ND IN GIVING DIRECTIONS TO THE ASSESSING OFFICER. 10. IN VIEW OF THE FOREGOING DISCUSSIONS WE AR E OF THE VIEW THAT THE IMPUGNED REVISION ORDER PASSED BY LD CIT IS NOT SUSTAINABLE IN LAW. ACCORDINGLY WE SET ASIDE THE SAME. 11. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED ACCORDINGLY ON 18-07-20 13. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 18TH JULY 2013 GJ COPY TO: 1. SHRI O.V. SREEDHARAN PWD CONTRACTOR TRICHAMBAR AM TALIPARAMBA KANNUR. I.T.A. NO.244/COCH/2010 6 2. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-1 KANNUR. 3. THE COMMISSIONER OF INCOME-TAX KANNUR. 4. D.R. I.T.A.T. COCHIN BENCH COCHIN. 5. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR ) I.T.A.T COCHIN