Sri Grandhi Manoj Kumar, Eluru v. The CIT, Rajahmundry

ITA 288/VIZ/2009 | 2004-2005
Pronouncement Date: 05-07-2010 | Result: Partly Allowed

Appeal Details

RSA Number 28825314 RSA 2009
Assessee PAN AABAG9892B
Bench Visakhapatnam
Appeal Number ITA 288/VIZ/2009
Duration Of Justice 1 year(s) 1 month(s) 9 day(s)
Appellant Sri Grandhi Manoj Kumar, Eluru
Respondent The CIT, Rajahmundry
Appeal Type Income Tax Appeal
Pronouncement Date 05-07-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 05-07-2010
Date Of Final Hearing 29-04-2010
Next Hearing Date 29-04-2010
Assessment Year 2004-2005
Appeal Filed On 27-05-2009
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SRI B.R. BASKARAN ACCOUNTANT MEMBER I.T.A. NO.288/VIZAG/2009 ASSESSMENT YEARS : 2004-05 GRANDHI MANOJ KUMAR ELURU VS. CIT RAJAHMUNDRY (APPELLANT) (RESPONDENT) PAN NO.AABAG 9892B APPELLANT BY : SHRI G.V.N. HARI CA RESPONDENT BY : SHRI SUBRATA SARKAR DR O R D E R PER SHRI B.R. BASKARAN ACCOUNTANT MEMBER : THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 23.3.2009 PASSED BY LD. CIT RAJAHMUNDRY CHALLENGING THE ACT ION OF THE LEARNED CIT IN INVOKING THE PROVISIONS OF SECTION 263 FOR THE ASSE SSMENT YEAR 2004-05 AND DIRECTING THE AO TO EXAMINE CERTAIN ISSUES. 2. THE FACTS OF THE CASE ARE STATED IN BRIEF. THE ASSESSEE IS THE PROPRIETOR OF A CONCERN NAMED M/S VAIBHAV JEWELLERS. THE ORIGINAL A SSESSMENT OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 WAS COMPLETED U/S 1 43(3) ON 28.12.2006 WHERE IN THE ASSESSING OFFICER ACCEPTED THE INCOME ADMITTED BY THE ASSESSEE BY PASSING A CRYPTIC ORDER. THE LEARNED CIT SCRUTINIZ ED THE FILE AND NOTICED FOLLOWING POINTS. (A) THE ASSESSEE DID NOT CHARGE INTEREST ON THE L OANS GIVEN TO OTHERS THROUGH IT PAID INTEREST ON SECURED LOANS AND UNSEC URED LOANS @ 18% P.A. (B) DURING THE IMMEDIATELY PRECEDING YEAR THE A SSESSEE HAD RECEIVED A SUM OF RS.24.40 LAKHS FRO USA AS ADVANCE TOWARDS SO FT WARE SALES IN HIS 2 PROPRIETARY CONCERN NAMED M/S VAIBHAV INFO TECH. THE ASSESSEE DID NOT OFFER THE SAID RECEIPTS AS INCOME IN THE YEAR UNDER CONSI DERATION. (C) THE ASSESSEE CLAIMED A SUM OF RS.12.00 LAKHS AS EXPENDITURE TOWARDS CUSTOM DUTY. IN THE ABSENCE OF ANY IMPORTS THE SAID EXPENDITURE IS NOT ALLOWABLE. (D) THE ASSESSEE CLAIMED INTEREST EXPENDITURE OF RS.12 03 653/- TOWARDS GOLD SAVING SCHEMES. AS PER THE DETAILS OF GOLD SAVING SCHEME THERE IS A MENTION OF INCENTIVES AND BONUS BUT NOT INTEREST. HENCE THE SAID INTEREST CLAIM IS NOT AN ALLOWABLE EXPENDITURE. HENCE THE LEARNED CIT BY INVOKING THE PROVISIONS O F SECTION 263 INITIATED REVISION PROCEEDING AND DIRECTED THE ASSESSING OFFI CER TO EXAMINE THE ABOVE ASPECTS AND TAKE APPROPRIATE ACTION AS PER LAW. TH E ASSESSEE IS AGGRIEVED BY THE SAID ORDER. 3. BEFORE PROCEEDING WE FEE IT PERTINENT TO DISC USS ON THE LEGAL POSITION ON THE ISSUE OF SECTION 263 OF THE ACT. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GRASIM INDUSTRIES LTD. V CIT (321 ITR 92) HAS DEALT WITH THE SCOPE OF PROVISIONS OF SECTION 263 AS UNDER: SECTION 263 OF THE INCOME-TAX ACT 1961 EMPOWERS TH E COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD OF ANY PROCEED INGS UNDER THE ACT AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE TO PASS AN ORDER UPON HEARING THE ASSESSEE AND AFTER AN ENQUIRY AS IS NECESSARY ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASS ESSMENT. THE KEY WORDS THAT ARE USED BY SECTION 263 ARE THAT THE ORD ER MUST BE CONSIDERED 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 JUDGMEN TS TO WHICH IT IS NOW NECESSARY TO TURN. IN MALABAR INDUSTRIAL CO. LT D. V. CIT [2000] 243 ITR 83 THE SUPREME COURT HELD THAT THE PROVISI ON CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE O R ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. THE SUPREME CO URT HELD THAT AN INCORRECT ASSUMPTION OF FACT OR AN INCORRECT APPLIC ATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONE OUS. AN ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JU STICE OR WITHOUT APPLICATION OF MIND WOULD BE AN ORDER FALLING IN T HAT CATEGORY. THE 3 EXPRESSION PREJUDICIAL TO THE INTERESTS OF THE REV ENUE THE SUPREME COURT HELD IT IS OF WIDE IMPORT AND IS NOT CONFINE D TO A LOSS OF TAX. WHAT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE IS EXPLAINED IN THE JUDGMENT OF THE SUPREME COURT (HEADNOTE) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR EXAMPLE WHEN AN INCOME-TAX OFFICE R ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULT ED IN LOSS OF REVENUE OR WHERE TWO VIEWS ARE POSSIBLE AND THE IN COME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE IT CANNOT BE TREATED AS 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 LTD. [2007] 295 ITR 282. 4. TAKING INTO ACCOUNT THE LEGAL PROPOSITION ST ATED IN THE PRECEDING PARAGRAPH WE NOW TAKE UP THE ISSUES BEFORE US. THE FIRST ISSU E RELATES TO THE CHARGEABILITY OF NOTIONAL INTEREST ON INTEREST FREE ADVANCES. TH E HON'BLEBLE GAUHATI HIGH COURT IN THE CASE OF HIGH WAYS CONSTRUCTION PVT. LT D. VS. CIT (199 ITR 702) HAS HELD THAT IF AN ASSESSEE HAD NOT BARGAINED FOR INTE REST OR HAD NOT COLLECTED INTEREST ONE FAILS TO SEE HOW THE IT AUTHORITIES C AN FIX A NOTIONAL INTEREST AS DUE OR COLLECTED BY THE ASSESSEE. THUS THE ISSUE WHETH ER NOTIONAL INTEREST SHOULD BE CHARGED OR NOT IS A DEBATABLE ISSUE WHICH RENDERS IT OUTSIDE THE PURVIEW OF THE REVISION PROCEEDINGS U/S 263 OF THE ACT. HENCE WE NOT DO NOT FIND ANY MERIT IN THE DIRECTION OF LEARNED CIT ON THIS ISSUE AND ACCO RDINGLY SET ASIDE THE SAME. 5. THE NEXT ISSUE RELATES TO THE RECEIPT OF AN ADVANCE OF RS.24.40 LAKHS IN THE IMMEDIATELY PRECEDING YEAR TOWARDS SOFT WARE SALES. THE SAID AMOUNT WAS RECEIVED IN YET ANOTHER PROPRIETARY CONCERN NAMED M /S VAIBHAV INFO TECH (AS PER THE ASSESSEE M/S VAIBHAV TECHNOLOGIES). HOWEVER B EFORE LEARNED CIT THE ASSESSEE SUBMITTED THAT THE IMPUGNED AMOUNT OF RS.2 4.40 LAKHS WAS NOT 4 RECEIVED AS AN ADVANCE TOWARDS SOFTWARE SALES BUT TOWARDS INVESTMENT IN HIS SOFTWARE VENTURE. THUS WE NOTICE THAT THERE IS CO NTRADICTION BETWEEN THE OBSERVATIONS OF LEARNED CIT AND THE SUBMISSIONS MAD E BY THE ASSESSEE BEFORE HIM. IF THE AMOUNT HAD BEEN RECEIVED AS SALES ADV ANCE NORMALLY THE SAME IS ADJUSTED AGAINST THE SUBSEQUENT SUPPLIES OR IF THE SALES DID NOT MATERIALIZE THE SALES ADVANCE WOULD BE RETURNED BACK. IF SUBSEQUEN T SALE IS EFFECTED THEN IT IS THE DUTY OF THE ASSESSEE HAS TO DISCLOSE THE TRADIN G RESULTS AND THE ASSESSING OFFICER SHOULD HAVE CAUSED ENQUIRY IN THIS REGARD D URING THE ASSESSMENT PROCEEDINGS. ACCORDING TO THE ASSESSEE THE SAID CON CERN M/S VAIBHAV TECHNOLOGIES WAS SHELVED DUE TO ADVERSE CONDITIONS . THOUGH THE ASSESSEE CLAIMED BEFORE LEARNED CIT THAT THE SAID AMOUNT WAS RECEIVED AS AN INVESTMENT YET HE DID NOT PROVIDE FULL DETAILS IN THIS REGARD I.E. THE NAME OF PERSON WHO HAS INVESTED THE SAID AMOUNT ETC. IN ANY CASE AS STA TED EARLIER THERE IS APPARENT CONTRADICTION REGARD THE FACT SURROUNDING THE ISSUE BETWEEN THE ASSESSEE AND THE LEARNED CIT. BESIDES THE ABOVE THE ASSESSEE DID N OT PRODUCE BEFORE US ANY RECORD TO SHOW THAT THIS ISSUE WAS EXAMINED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDING NOR DID THE ASSESSI NG OFFICER MENTION ANY THING ON THIS ISSUE IN THE ASSESSMENT ORDER. IN VIEW OF THE UNCLEAR PICTURE SURROUNDING THE SAID TRANSACTION THE LEARNED CIT HAS DIRECTED THE ASSESSING OFFICER TO EXAMINE THE ISSUE AND TAKE APPROPRIATE ACTION AS PE R LAW. IN THESE CIRCUMSTANCES WE DO NOT FIND ANY INFIRMITY IN THE DIRECTION ISSUED BY LEARNED CIT ON THIS ISSUE. 6. THE NEXT TWO ISSUES RELATE TO THE CLAIM OF E XPENDITURE OF RS.12.00 LAKHS TOWARDS PAYMENT OF CUSTOM DUTY AND A SUM OF RS.12.0 3 LAKHS TOWARDS INTEREST. AS STATED EARLIER THERE IS NO MATERIAL ON RECORD T O SUGGEST THAT ANY ENQUIRY WAS CONDUCTED BY THE ASSESSING OFFICER ON THESE TWO ISS UES ALSO. FURTHER THE DIRECTION OF THE LEARNED CIT IS ONLY TO EXAMINE THE SE TWO ISSUES IN ORDER TO ASCERTAIN THE TAX IMPLICATIONS. FOR THE REASONS ST ATED EARLIER WE DO NOT FIND ANY INFIRMITY IN THE DIRECTION OF LEARNED CIT ON THESE TWO ISSUES. 5 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 05/07/2010. SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 5 TH JULY 2010 A COPY OF THIS ORDER IS FORWARDED TO : 01 GRANDHI MANOJ KUMAR PROP: VAIBHAV JEWELLERS MA IN BAZAR ELURU 02 CIT RAJAHMUNDRY 03 ITO WARD-1 ELURU 04 THE DR ITAT VISAKHAPATNAM 05 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT VISAKHAPATNAM BENCH