Shri Nagesh Chundur, CHENNAI v. CIT, CHENNAI

ITA 656/CHNY/2010 | 2005-2006
Pronouncement Date: 28-02-2011 | Result: Dismissed

Appeal Details

RSA Number 65621714 RSA 2010
Assessee PAN ACUPC6638E
Bench Chennai
Appeal Number ITA 656/CHNY/2010
Duration Of Justice 9 month(s) 18 day(s)
Appellant Shri Nagesh Chundur, CHENNAI
Respondent CIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-02-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 28-02-2011
Date Of Final Hearing 11-01-2011
Next Hearing Date 11-01-2011
Assessment Year 2005-2006
Appeal Filed On 10-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH B : CHENNAI [BEFORE DR. O.K. NARAYANAN VICE-PRESIDENT AND SHRI HARI OM MARATHA JUDICIAL MEMBER] I.T.A NO.656/MDS/2010 ASSESSMENT YEAR : 2005-06 SHRI. SRI NAGESH CHUNDUR FLAT NO.4A SRINIVAS 30 MAHARAJA SURYA ROAD ALWARPET CHENNAI 600 018 VS THE CIT -X CHENNAI [PAN ACUPC6638E ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S. KASI VISWANATHAN RESPONDENT BY : SHRI P.B SEKARAN O R D E R PER HARI OM MARATHA JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE FOR ASSESSMENT YEA R 2005-06 IS DIRECTED AGAINST THE ORDER OF THE LD. CIT-X CHENNA I DATED 29.3.2010 PASSED U/S 263 OF THE INCOME-TAX ACT 1961 (HEREINA FTER REFERRED TO AS 'THE ACT' FOR SHORT). 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSING OFFICER PASSED ORDER U/S 143(3) ON 30.5.2007 FOR A SSESSMENT YEAR 2005-06 IN THE CASE OF THIS ASSESSEE. THE ASSESSEE HAS DISCLOSED TOTAL ITA 656/10 :- 2 -: INCOME OF ` 1 28 790/- AFTER CLAIMING DEDUCTION U/S 10A OF THE ACT OF ` 34 89 448/-. THE ASSESSING OFFICER HAS CONCLUDED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF ELECTRONIC DATA TRAN SMISSION (DATA PROCESSING) AND THAT ASSESSEES CONCERN IS A 100% E XPORT ORIENTED UNIT(EOU) SO HE TREATED HIM TO BE ELIGIBLE FOR DED UCTION U/S 10A OF THE ACT. THE UNIT IS AN EXISTING UNIT WHICH HAD ST ARTED OPERATION SINCE 1998. DURING ASSESSMENT PROCEEDINGS FROM THE RECO RDS AVAILABLE IT WAS REVEALED THAT THE UNIT HAD BEEN APPROVED BY THE SOFTWARE TECHNOLOGY PARK. GOVERNMENT OF INDIA AS A 100% EOU FOR COMPUTER SOFTWARE ON 3.4.2002. THE LD. CIT CALLED FOR THE RECORDS OF THIS CASE AND ISSUED A SHOW CAUSE NOTICE U/S 263 DATED 3.2 .2010 SEEKING ASSESSEES OBJECTIONS IF ANY. THE ASSESSEE REPLIE D VIDE HIS LETTER DATED 10.2.2010 THAT THE DATES MENTIONED IN SECTION 10A(2) SUB- SECTION (I)(A) (I) AND (I)(C) ONLY LIST THE CONDIT ION REGARDING THE YEAR OF MANUFACTURE YEAR WISE FOR THE PURPOSE OF RECKONING THE EXEMPTIONS OR DEDUCTION FOR 10 CONSECUTIVE YEARS WITH REFERENC E TO THE UNDERTAKING SET UP IN DIFFERENT PERIODS AND LOCATIO NS VIZ. FREE TRADE ZONE STP AND SEZ BASED ON THE PRE-AMENDED PROVISIO NS AND THE PRESENT SUBSTITUTED SECTIONS. ACCORDING TO THE ASSE SSEE THE TAX HOLIDAY IS FOR 10 YEAR PERIOD FROM THE YEAR OF MANUFACTURE/ PRODUCTION. BUT IT DOES NOT MEAN THAT AN UNDERTAKI NG SET UP BEFORE ITA 656/10 :- 3 -: 1.4.1994 AND AFTER 1.4.2001 AND GOT REGISTERED AS S TPI UNIT WOULD NOT GET DEDUCTION. THE LD.AR OF THE ASSESSEE ALSO REFE RRED TO THE BOARDS CIRCULAR NO.1 OF 2005 WHICH CLARIFIED THAT THE UNIT SET UP IN DTA ON APPROVAL AS EXPORT ORIENTED UNDERTAKING WILL BE ELI GIBLE FOR DEDUCTION U/S 10B FROM THE YEAR IN WHICH IT GOT THE APPROVAL BUT THE DEDUCTION WILL BE AVAILABLE ONLY FOR THE REMAINING CONSECUTIV E TEN ASSESSMENT YEARS CALCULATED FROM THE YEAR OF MANUFACTURE OR PR ODUCTION OF COMPUTER SOFTWARE. ACCORDING TO HIM THIS CLARIFIC ATION REGARDING SECTION 10B WOULD ALSO APPLY TO SECTION 10A WHICH A RE PARA MATERIA TO EACH OTHER AND IT HAS BEEN CLARIFIED BY THE CBDT CIRCULAR NO.794 DATED 9.8.2000. IT WAS STATED THAT THE ONLY DIFFER ENCE BETWEEN THE TWO SECTIONS IS THAT U/S 10A THE BENEFICIARIES ARE THE UNDERTAKING AND UNITS REGISTERED WITH STPI WHICH WERE EARLIER LOCAT ED IN FREE TRADE ZONE AND IN THE CASE OF SECTION 10B THEY ARE THE U NITS EARLIER LOCATED IN DOMESTIC TARIFF AREA (DTA) LATER CONVERTED AS 10 0% EOU BOTH DULY APPROVED BY DESIGNATED AUTHORITIES. SO ACCORDING TO HIM UNITS EXISTING IN FREE TRADE ZONE WHICH ARE SUBSEQUENTLY REGISTERED WITH APPROVAL OF THE CONCERNED AUTHORITIES FOR BEING TRE ATED AS UNITS UNDER STPI SCHEME WOULD ALSO GET BENEFIT OF DEDUCTION FRO M THE YEAR OF REGISTRATION. BUT THE PERIOD OF ELIGIBILITY IS 10 CONSECUTIVE YEARS FROM THE YEAR OF MANUFACTURE/PRODUCTION. IT WAS ADMITTE D THAT THE UNIT WAS ITA 656/10 :- 4 -: SET UP IN FINANCIAL YEAR 1999-2000 WHEN IT GOT APPR OVAL AS STPI UNIT BUT IT DOES NOT IPSO FACTO BECOME AN UNDERTAKING FORMED BY SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXIST ENCE OR A CASE OF TRANSFER OF NEW MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE AS PROVIDED IN 10A(2). AFTER CONSIDERING THE ENTIRE S UBMISSIONS OF THE ASSESSEE THE LD. CIT WITH REFERENCE SUB-SECTION (2) TO SECTION 10A CAME TO THE CONCLUSION THAT IF AN UNDERTAKING CLAIM ED DEDUCTION U/S 10A DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR COMMENCING AFTER 1.4.2001 SHOULD BE OPERATING IN ANY SEZ. B UT IN THIS CASE THE UNDERTAKING STARTED PRODUCTION DURING FINANCIAL YEA R 1999-2000 AND WAS NOT REGISTERED WITH STPI AT THAT TIME AS IT GOT REGISTERED ON 27.3.2002 AND IT WAS NOT IN A SEZ SO IT CONTINUED T O USE THE SAME OLD MACHINERY WHICH IT WAS HAVING EARLIER. THEREFORE THE CONDITIONS LAID IN SECTION 10A(2)(I)(B) AND (I)(C) ARE NOT SATISFIE D. SO HE FOUND THAT THERE IS AN ERROR IN THE ORDER BY ALLOWING A WRONG CLAIM U/S 10A AMOUNTING TO ` 34 89 448/-. THEREFORE HE HELD THE ASSESSMENT O RDER ERRONEOUS IN SO FAR IT IS PREJUDICIAL TO THE INTERE STS OF THE REVENUE AND DIRECTED TO ASSESSING OFFICER TO REVISE THE ORDER A CCORDINGLY. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: THE ORDER OF THE CIT CHENNAI-X IS CONTRARY TO LAW AND FACTS OF THE CASE AND IS THEREFORE UNSUSTAINABLE AND THE DIS ALLOWANCE OF 10A BE DELETED DROPPED AFTER CONSIDERING THE GROUN DS OF APPEAL OF THE APPELLANT. ITA 656/10 :- 5 -: CIT 'S OPINION THAT SINCE THE UNIT BEGINS TO MANUFA CTURE ON OR AFTER 01/04/2001 IT HAS TO BE IN SEZ IN ORDER TO BE ELIGIBLE FOR DEDUCTION U/S.10A IS WRONG AS THE DATE MENTIONED IN THE SECTION IS ONLY FOR RECKONING OF THE PERIOD OF 10 Y EARS TAX HOLIDAY PERIOD AS HAS BEEN HELD BY VARIOUS ITATS IN THEIR DECISIONS. CIT HAS ERRED IN HIS CONTENTION THAT SINCE THE APPE LLANT WAS ON EXISTING UNIT SINCE F.Y: 1999-2000 AND PLANT & MACH INERY OF WHICH WERE BEING PREVIOUSLY USED HAD BEEN TRANSFERR ED TO THE STP WHICH WAS APPROVED ON 27.03.2002. CIT IS WRONG IN HIS PRESUMPTION THAT ACCORDING TO SEC.10(A)(2)(I)(C) SINCE THE UNIT BEGINS TO MANUFAC TURE OR PRODUCTION COMMENCING ON OR AFTER 01.04.2001 IT HA S TO BE IN SEZ TO BE ELIGIBLE FOR DEDUCTION U/S.10A WITHOUT CO NSIDERING THE FACT THAT BEFORE AND AFTER THE STPI REGISTRATION TH E STATUS OF THE UNIT CONTINUED TO REMAIN AS SOLE PROPRIETORSHIP FIR M AND HENCE THE CONDITIONS LAID DOWN IN SEC.10A(1 )(B) &10A(2)( I)(II) & (III) ARE FULFILLED SINCE IT WAS AN EXISTING UNIT AND IT WAS NOT FORMED BY SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALR EADY IN EXISTENCE AND NOT FORMED BY TRANSFER TO A NEW BUSIN ESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE THE CIT HAS FAILED TO TAKE COGNIZANCE OF CIRCULAR NO.1/2005 DATED 06/01/2005 STATING THAT THE ABOVE CIRCULAR APPLIES ONLY TO SEC.1 OB AND NOT TO SEC.1 OA WITHOUT TAKING NOTE OF THE DECISIONS OF THE ITAT DELHI BENCH IN M/S .IQUARA TE CHNOLOGIES AND M/S VIDYA TECH SOLUTIONS WHEREIN IT WAS HELD TH AT PROVISIONS CONTAINED IN SECTION 10B IS ANALOGOUS TO SECTION 10A. THE SAME DECISION WAS TAKEN BY ITAT BANGALORE IN ITO VS. GIGNEXT SOLUTIONS INDIA(P) LTD .THESE CASES WER E MENTIONED TO CIT AT THE TIME OF HEARING OF THE CASE U/S.263. IN M/S.FORESEE INFORMATION SYSTEMS(P) LTD. IT WAS H ELD THAT SINCE THE FOREIGN TRADE POLICY AND CBDT CIRCULAR PE RMIT CONVERSION OF A DOMESTIC TARIFF AREA(DTA) UNIT IN T O A STP UNIT THERE WAS NO TRANSFER OF CAPITAL ASSETS INVOLVED IN THE EXERCISE AND HENCE SECTION 10A BENEFITS CANNOT BE DENIED BUT CAN BE CLAIMED ONLY FOR THE REMAINING PERIOD OF 10 YEARS T AX HOLIDAY ENVISAGED BY THE GOVERNMENT. ITAT BANGALORE BENCH ' A ' UPHOLDS AND DISMISSED THE REVENUE'S APPEAL AGAINST ALLOW ABILITY OF DEDUCTION U/S.10A.. ITA 656/10 :- 6 -: FOR THE GROUNDS STATED ABOVE AND FOR THE ARGUMENTS WHICH MAY BE PERMITTED TO BE ADDUCED AT THE TIME OF HEARING O F THIS APPEAL THE APPELLANT PRAYS THAT THE RELIEF AS PRAY ED FOR MAY BE DIRECTED TO BE GRANTED. THE APPELLANT PRAYS THAT IT MAY BE ALLOWED TO ADD CORRECT OR MODIFY DELETE OR WITHDRAW ANY OF THE GROUNDS EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 4. WE HAVE HEARD BOTH SIDES IN DETAIL. WE HAVE ALSO PERUSED CAREFULLY THE ENTIRE EVIDENCE AVAILABLE ON RECORD. IT IS TRITE THAT AN ORDER CAN BE REVISED ONLY AND ONLY IF TWIN CONDITIO NS OF ERROR IN THE ORDER AND PREJUDICE CAUSED TO THE REVENUE CO-EXI ST. 5. THE SUBJECT OF REVISION UNDER SECTION 263 HAS BEE N VASTLY EXAMINED AND ANALYZED BY VARIOUS COURTS INCLUDING T HAT OF HONBLE APEX COURT. THE REVISIONAL POWER CONFERRED ON THE CIT VIDE SECTION 263 IS OF VIDE AMPLITUDE. IT ENABLES THE CIT TO CA LL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDING UNDER THE ACT. IT EM POWERS THE CIT TO MAKE OR CAUSE TO BE MADE SUCH AN ENQUIRY AS HE DEEM S NECESSARY IN ORDER TO FIND OUT IF ANY ORDER PASSED BY ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF T HE REVENUE. THE ONLY LIMITATION ON HIS POWERS IS THAT HE MUST HAVE SOME M0ATERIAL(S) WHICH WOULD ENABLE HIM TO FORM A PRIMA FACIE OPINION THAT THE ORDER PASSED BY THE OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJ UDICIAL TO THE INTEREST OF THE REVENUE. ONCE HE COMES TO THE ABOVE CONCLUSION S ON THE BASIS OF THE MATERIAL THAT THE ORDER OF THE ASSESSING OFFI CER IS ERRONEOUS AND ITA 656/10 :- 7 -: ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE T HE CIT IS EMPOWERED TO PASS AN ORDER AS THE CIRCUMSTANCES OF THE CASE M AY WARRANT. HE MAY PASS AN ORDER ENHANCING THE ASSESSMENT OR HE MA Y MODIFY THE ASSESSMENT. HE IS ALSO EMPOWERED TO CANCEL THE ASS ESSMENT AND DIRECT TO FRAME A FRESH ASSESSMENT. HE IS EMPOWERE D TO TAKE RECOURSE TO ANY OF THE THREE COURSES INDICATED IN SECTION 26 3. SO IT IS CLEAR THAT THE CIT DOES NOT HAVE UNFETTERED AND UNCHEQURED DIS CRETION TO REVISE AN ORDER. THE CIT IS REQUIRED TO EXERCISE REVISION AL POWER WITHIN THE BOUNDS OF THE LAW AND HAS TO SATISFY THE NEED OF FA IRNESS IN ADMINISTRATIVE ACTION AND FAIR PLAY WITH DUE RESPEC T TO THE PRINCIPLE OF AUDI ALTERAM PARTEM AS ENVISAGED IN THE CONSTITUTIO N OF INDIA AS WELL IN SECTION 263. AS ORDER CAN BE TREATED AS ERRONE OUS IF IT WAS PASSED IN UTTER IGNORANCE OR IN VIOLATION OF ANY LAW; OR P ASSED WITHOUT TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS OR BY TAK ING INTO CONSIDERATION IRRELEVANT FACTS. THE PREJUDICE THAT IT CONTEMPL ATED UNDER SECTION 263 IS THE PREJUDICE TO THE INCOME TAX ADMINISTRATION A S A WHOLE. THE REVISION HAS TO BE DONE FOR THE PURPOSE OF SETTING RIGHT DISTORTIONS AND PREJUDICES CAUSED TO THE REVENUE IN THE ABOVE CONTE XT. THE FUNDAMENTAL PRINCIPLES WHICH EMERGE FROM THE SEVERA L CASES REGARDING THE POWERS OF THE CIT UNDER SECTION 263 MAY BE SUMM ARIZED BELOW: ITA 656/10 :- 8 -: (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDE R OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO T HE INTERESTS OF THE REVENUE. BOTH THE CONDITIONS MUS T BE FULFILLED. (II) SECTION 263 CANNOT BE INVOKED TO CORRECT EAC H AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORR ECT APPLICATION OF LAW WILL SUFFICE FOR THE REQUIREME NT OR ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORD ER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND IF THE ASSESSING OF FICER HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LA W OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW UNDER WITH WHICH THE CIT DOES NOT AGREE IT CANNOT BE TREATED AS AN ERRONEOU S ORDER UNLESS THE VIEW TAKEN BY THE ASSESSING OFFIC ER IS UNSUSTAINABLE UNDER THE LAW. ITA 656/10 :- 9 -: (VI) IF WHILE MAKING THE ASSESSMENT THE ASSE SSING OFFICER EXAMINES THE ACCOUNTS MAKES ENQUIRIES APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME THE CIT WHILE EXERCISING HI S POWER UNDER SECTION 263 IS NOT PERMITTED TO SUBSTI TUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIM ATED BY THE ASSESSING OFFICER. (VII) THE ASSESSING OFFICER EXERCISE QUASI-JUDICIA L POWER VESTED IN HIM AND IF HE EXERCISE SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVES AS A CONCLUSION SU CH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CONCLUSION. (VIII) THE CIT BEFORE EXERCISING HIS JURISDICTION UNDER SECTION 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE ASSESSING OFFICER HAS MADE ENQU IRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANAT ION BE A LETTER IN WRITING AND THE ASSESSING OFFICER AL LOWED THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION O F THE ASSESSEE THE DECISION OF THE ASSESSING OFFICER CAN NOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGAR D. ITA 656/10 :- 10 - : 6. ADVERTING TO THE FACTS OF THE CASE IN HAND WE N OTICE FROM THE ASSESSMENT ORDER PASSED U/S 143(3) THAT THE ASSESSI NG OFFICER HAS NOT APPLIED HIS MIND TO THE LEGAL POSITION ARISING VIS- -VIS THE FACTS OF THIS CASE. THE ASSESSMENT ORDER PASSED U/S 143(3) IS A VERY SMALL ORDER WHICH WE EXTRACT HEREIN BELOW: THE ASSESSEE FILED HIS RETURN OF INCOME ON 29-10-2 005 ADMITTING A TOTAL INCOME OF ` 128793/-. THE SAME WAS PROCESSED UNDER SECTION 143(1) ON 8-3-2006. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UND ER CASS. A NOTICE UNDER SECTION 143(2) WAS ISSUED ON 25-7-2006. IN RESPONSE TO THE NOTICE SHRI S.KASI VISWANATHAN CA APPEARED AND FILED THE DETAILS CALL ED FOR FROM TIME TO TIME. THE DETAILS WERE DULY SCRUTINIZ ED. THE ASSESSEE IS ENGAGED IN ELECTRONIC DATA TRANSMISSION(DATA PROCESSING) AND IT IS 100% EXPORT ORIENTED UNIT AND ASSESSEE HAS CLAIMED ENTIRE INCOM E OUT OF THE ABOVE BUSINESS AS DEDUCTION UNDER SECTION 10 A. THE RELEVANT DETAILS AND DOCUMENTS ARE ALSO SCRUTIN IZED WHICH ARE FOUND IN ORDER. THEREFORE THE RETURN FI LED BY THE ASSESSEE IS ACCEPTED. RETURNED INCOME ` 128793 ASSESSED INCOME ` 128793 CALCULATION SHEET ENCLOSED. DEMAND NOTICE ISSUED. 7. THEREFORE THE ORDER BECOMES ERRONEOUS FOR NON-APPL ICATION OF MIND AND HENCE THE SAME IS ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE. CONSEQUENTLY THE TWIN CONDITIONS LAID DOW N IN SECTION 263 STAND FULFILLED AND THEREFORE IN OUR CONSIDER OPIN ION THE LD. CIT HAS ITA 656/10 :- 11 - : CORRECTLY REVISED THE ORDER. WE CONFIRM THE SAME A ND DISMISS THE APPEAL FILED BY THE ASSESSEE. 8. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.2.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 28.2.2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR