Appell v. M/S Vardhman Industries Limited, New Delhi

ITA No. 310 of 2016 (O&M) 1 Gurbax SinghIN THE HIGH COURT OF PUNJAB AND HAR Y AWWA cA besec-o,2017.05.15 16:34 CHANDIGARH. ITA No. 310 of 2016 (O&M).Date of decision: 25.04.2017 Pr. Commissioner of Income Tax (Central), Ludhiana ...---Appell Vs. M/s Vardhman Industries Limited, New Delhi ...Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTALHON’BLE MR. JUSTICK RAMENDRA JAINHON’BLE MR. JUSTICK RAMENDRA JAIN Present: | Mr. Rajesh Katoch, Senior Standing counsel for the appellant-TEVeENUE,.Ms. Radhika Suri, Senior Advocate with Mr. Manpreet SinghKanda, Advocate for the respondent-assessee.TEVeENUE,.Ms. Radhika Suri, Senior Advocate with Mr. Manpreet SinghKanda, Advocate for the respondent-assessee. Ajay Kumar Mittal,J. 1,The following substantial questions of law have been claimedby the appellant-revenue in the instant appeal filed under Section 260A ofthe Income Tax Act, 1961 (in short, “the Act”) against the order dated15.03.2016, Annexure A.III, passed by the Income Tax AppellateTribunal, Chandigarh Bench, Chandigarh (in short, “the Tribunal’) for theassessment year 2004-05:- | “(1) Whether on the facts and in the circumstances of thepresent case, the Hon’ble ITAT has erred in setting aside the order, passed under Section 263 of the Income Tax Act, 1961by the Commissioner of Income Tax(Central), Ludhianawhereas the said order contains a concrete finding regardingdisallowability of expenditure on account of sales tax andalso a specific finding that the assessment order, sought to berevised, was erroneous and prejudicial to the interest of therevenue ?| (11) Whether on the facts and in the circumstances of thepresent case, the Hon’ble ITAT has erred in setting aside theorder, passed under Section 263 of the Income Tax Act, 1961without appreciating that the Commissioner of IncomeTax(Central), Ludhiana had rightly exercised jurisdictionunder Section 263 of the Income Tax Act, 1961 as theassessment order, sought to be revised had been passed bythe Assessing Officer on an incorrect assumption of facts,incorrect application of law, without application of mind andwithout making proper enquiry and verification? (111) Whether the Hon’ble ITAT has erred in law in settingaside the order under Section 263 of the Income Tax Act,1961 without appreciating that assessment order, sought to berevised had been passed without making proper enquiry as tohow the sales tax can be claimed by the assessee as anexpenditure when the same was not included in the sales?” ? A few facts relevant for the decision of the controversyinvolved as narrated in the appeal may be noticed. ‘The assessee is alimited company. It deals with manufacturing of Steel Ingots, VanaspatiGhee/Refined Oil, G.P. sheets/coils, G.C. sheets, CCL sheets andgeneration of power. A search under Section 132 of the Act wasconducted on 10.06.2009. The assessee filed its return in pursuance to thenotice under Section 153A of the Act, declaring income of<4.81,513/- on22.06.2010. The assessment under Section 153A read with Section 143(3) ? A few facts relevant for the decision of the controversyinvolved as narrated in the appeal may be noticed. ‘The assessee is alimited company. It deals with manufacturing of Steel Ingots, VanaspatiGhee/Refined Oil, G.P. sheets/coils, G.C. sheets, CCL sheets andgeneration of power. A search under Section 132 of the Act wasconducted on 10.06.2009. The assessee filed its return in pursuance to thenotice under Section 153A of the Act, declaring income of<4.81,513/- on22.06.2010. The assessment under Section 153A read with Section 143(3) of the Act was completed vide order dated 29.12.2011 at an income of |d9,63,880/-. A perusal of the Assessing Officer’s proposal, for initiating|proceedings under Section 263 of the Act and on perusal of theassessment records, the Commissioner of Income Tax(Central), Ludhiana(CIT) found the assessment order under Section 153A/143(3) of the Actdated 29.12.2011 to be erroneous and prejudicial to the interest of therevenue. A show cause notice under Section 263 of the Act datedQ2.1.2014 was issued to the assessee. The CIT noticed that in the profitand loss account, the assessee had claimed expenses of<1,12,50,000/- on.account of sales tax included in the selling and distribution expenseswhich had been allowed by the Assessing Officer. According to notes onthe accounts, the sales did not include sales tax. In fact, the expenditurewas not allowable and should have been disallowed. The CIT afterexamining the assessment records and the submissions of the assesseefound that the Assessing Officer had not been properly examined the issueof allowability of sales tax expenditure of<1,12,50,000/- andconsequently passed the impugned order under Section 263 of the Actholding that the assessment order dated 29.12.2011 under Section153A/14(3) of the Act was erroneous and prejudicial to the interest of therevenue. The CIT set aside the impugned order with the direction to theAssessing Officer to make fresh assessment after examining the facts ofthe case and the relevant provisions of the Act. Agegrieved by the order,the assessee filed an appeal betore the Tribunal. Vide order dated15.03.2016, Annexure A-III, the Tribunal allowed the appeal of theassessee holding that the CIT himself had not given any concrete findingas to the merits of the case and directed the Assessing Officer to makefurther enquiry. It was further held that the assumption of jurisdiction under Section 263 of the Act by the CIT was not as per law. Hence, the instant appeal by the appellant-revenue. | onWe have heard learned counsel for the parties.4Learned counsel for the appellant-revenue submitted that thequantum of sales shown by the assessee did not include sales tax andtherefore the amount of|Y1,12,50,000/- claimed on account of sales tax.paid under the Compound Levy Scheme was inadmissible. On theaforesaid premises, assumption of jurisdiction under Section 263 of theAct was urged to be proper. — 5 On the other hand, learned counsel for the assessee arguedthat the sales tax payment ofd1,12,50,000/- under Compound LevyScheme was allowable under Section 43B of the Act. It was claimed thateven in the reply submitted to the Assessing Officer, it was specificallyStated that the sales appearing in the balance sheet were inclusive of salestax and hence, the sales tax paid was allowable expense. Learned counselfor the assessee produced a copy of the paper book which was filed beforethe Appellate Tribunal. It is taken on record. 6 The relevant extract of Section 263 of the Act is reproducedas under:-. “263- Revision of orders prejudicial to revenue-(1) ThePrincipal Commissioner or Commissioner may call for andexamine the record of any proceeding under this Act, and ifhe considers that any order passed therein by the AssessingOfficer is erroneous in so far as it is prejudicial to theinterests of the revenue, he may, after giving the assessee anopportunity of being heard and after making or causing to bemade such inquiry as he deems necessary, pass such orderthereon as the circumstances of the case justify, including an 6 The relevant extract of Section 263 of the Act is reproducedas under:-. “263- Revision of orders prejudicial to revenue-(1) ThePrincipal Commissioner or Commissioner may call for andexamine the record of any proceeding under this Act, and ifhe considers that any order passed therein by the AssessingOfficer is erroneous in so far as it is prejudicial to theinterests of the revenue, he may, after giving the assessee anopportunity of being heard and after making or causing to bemade such inquiry as he deems necessary, pass such orderthereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancellingthe assessment and directing a fresh assessment. Explanation. ......... 0... cc c vaThe above provision provides for exercise of revisonaljurisdiction by the CIT. According to the said provision, the twoconditions are required to be satisfied i.e. (1) the order sought to be revisedis erroneous and at the same time, it should be prejudicial to the interest ofthe revenue. Both conditions have to be conjointly present. Once suchsatisfaction is reached, jurisdiction to exercise the power under Section263 would be available subject to complying with the principles of naturaljustice. Opportunity of hearing is also required to be given to the assessee.Reference may be made to the judgment of the Apex Court inCommissioner of Income Tax, Mumbai Vs. Amitabh Bachchan, CivilAppeal No. 5009 of 2016 arising out of S.L.P.(C) No. 11621 of 2009decided on 11.05.2016. § In the present case, once the assessee had shown that thesales appearing in the balance sheet were inclusive of sales tax, there wasno occasion to disallow the claim made by the assessee relating topayment of sales tax, on the basis of Compound Levy Scheme. Therevenue was unable to produce any material on record to substantiate thatthe assessee had excluded the amount of sales tax from the sales. Oncethat was so, it could not be said that the order sought to be revised waseither erroneous or prejudicial to the interest of the revenue. Thus, boththe limbs of Section 263 of the Act were not satisfied. Consequently, the|exercise of revisional jurisdiction by the CIT under Section 263 of the Actwas unwarranted. QOIn view of the above, it is concluded that no illegality orperversity could be shown by the learned counsel for the appellant-revenue so as to hold that the assumption of revisional jurisdiction by theCIT under Section 263 of the Act was justified. Consequently, nosubstantial question of law aarises and the appeal stands dismissed. (Ajay Kumar Mittal)Judge April 25, 2017(Ramendra Jain)JudgeWhether speaking/reasonedYesWhether reportableYes