Commissioner Of Income-Tax, Chennai v. M/S.s.albert & Co. P.ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR. JUSTICE DR.VINEET KOTHARI &THE HONOURABLE MR.JUSTICE R.SURESH KUMAR T.C.A.No.631 of 2017 Commissioner of Income-tax,Chennai...Appellant/RespondentVsM/s.S.Albert & Co. P.Ltd.,No.13/1, Whannels Road,Egmore,Chennai 600 008... Respondent/Appellant Prayer: Tax Case Appeal filed under Section 260A of theIncome Tax Act, 1961 against the order of the Income TaxAppellate Tribunal Madras “B” Bench, dated 13.04.2016 inITA.No.2201/Mds/2015. Against the order of the PrincipalCommissioner of Income Tax, Chennai-6 dated 03.11.2015 made inC.No.6119(22)/PRCIT-6/2015-16. Against the order of the DeputyCommissioner of Income Tax Company Circle-VI(1) Mahathma GandhiRoad, Chennai-34 dated 31.03.2014 in PAN/GIR.No. forthe Assessment year 2011-2012. For appellant : Mr.J. Narayanasamy, Standing CounselFor Respondent : Mr.A.S. Sivaraman for S.Sridhar The present appeal has been filed by the Revenue againstthe order of the learned Tribunal dated 13.4.2016 raising thefollowing purported substantial questions of law. '1.Whetherunderthefactsandcircumstances of the case, the Income TaxAppellate Tribunal was right in setting asidethe revision order u/s.263 solely on the 1/6 https://hcservices.ecourts.gov.in/hcservices/ ground that the finding was based on AuditObjection? 2.Whetherunderthefactsandcircumstances of the case, the Income TaxAppellate Tribunal was correct in holding thatthe order u/s.263 is bad in law, withoutappreciating the fact that Assessment Orderu/s.143(3) is erroneous and prejudicial innature in as much as the depreciation andinterest were allowed as deduction afterestimation of income thereby allowing doublededuction to the assessee?' 2.The learned Tribunal has set aside the revisional orderpassed by the learned Principal Commissioner, Income Tax, undersection 263 of the Act and restored the order passed by theAssessing Authority in the case of the assessee with thefollowing observations:- '6. We have heard the rival submissions andcarefully perused the materials available on record.On perusing the order of the learned assessingOfficer, we find that the learned Assessing Officerhas estimated the profit of the assessee at 8% onits turnover and further granted the benefit ofdepreciation and allowed the interest expenditure asdeduction and thereafter estimated the profit ofthe assessee consciously at Rs.47,95,054/-The entireprocess of assessment made by the learned AssessingOfficer was based on estimation considering thefacts of the relevant case before him. In thesecircumstances, we do not find strength in thecomments made by the audit party citing certaindecisions wherein the facts of the case were notdiscussed to be identical to that of the case of theassessee. It appears that the learned PrincipalCommissioner of Income Tax has been simplyinfluenced by the audit report of the Revenuewithout examining the facts involved in case of theassessee. In these circumstances, we do not findmerit in the order of the learned PrincipalCommissioner of Income Tax. Therefore, we herebyset aside the order of the learned PrincipalCommissioner of Income Tax passed under section 263of the Act and reinstate the order of the learnedassessing Officer.' 3.In the present case, the assessee, who was carrying onthe business of clearing and forwarding agent, declared itsprofit at the rate of 1.56 % and produced the regular books ofaccounts for verification before the Assessing Authority, whofound that there was some discrepancies in the books of accountsmaintained, and therefore he resorted to best judgment byadopting 'market standards' and applied 8% rate of profit asincome from business and thereafter, allowing deduction oninterest and depreciation, computed the net income. Theassessment even then resulted in refund of tax on account ofexcess TDS made by the Awarder of the contract. 4. Even this best assessment order was found to beerroneous by the learned Principal Commissioner of Income Taxunder Section 263 of the Act, who passed the revisional order on3.11.2015, holding that once the net income was estimated at therate of 8%, the learned assessing authority could not haveallowed any further deduction on interest and depreciationand to that extent the best judgment assessment order waserroneous and prejudicial to the interest of Revenue andtherefore liable to be revised under section 263 of the Act. 5.Aggrieved by the revisional order of the learnedPrincipal Commissioner, Income Tax under section 263 of the Act,the Assessee took up the matter further before the learnedTribunal, which however, restored the said order of theassessing authority and set aside the revisional order passedby the Principal Commissioner of Income Tax under section 263 ofthe Act. 6.The Revenue is therefore, in appeal before us. 7. Learned counsel for the Revenue Mr.J. Narayanasamysubmitted that the learned Principal Commissioner was justifiedin adopting the course of section 263 of the Act on the basis ofthe audit objection raised against the assessment order andfollowing the High Court decision in the case of IndwellConstructions V. Commissioner of Income Tax (1998) 232 ITR 776(AP), the learned Commissioner was justified in setting asidethe assessment order and directing the assessing authority topass fresh orders on the ground that once the net profit rateof 8% was adopted, there is no justification for giving furtherdeductions on account of the interest and depreciation. Hetherefore submitted that the learned Tribunal could not have setaside the said revisional order under section 263 of the Act, 3/6 passed by the Commissioner. 8.Per contra, the learned counsel appearing for theAssessee Mr. A.S.Sivaraman submitted that the AssessingAuthority was not justified in raising the income from 1.56 %of turnover declared by the Assessee to 8% without bringing onrecord any evidence for supporting such adoption of 8% of netprofit. He further submitted that whether the Assessee filedany first appeal against the assessment order is not withinhis knowledge. He however supported the order passed by theTribunal and urged that it is a finding of fact and noquestion of law arises from the order of the Tribunal. 9. Having heard the learned counsel for the parties, we areprima facie of the opinion that no question of law, as such,arises from the order of learned Tribunal, as the estimation ofIncome Tax is essentially a fact finding exercise, which becomesfinal at the hands of the final fact finding authority ofIncome Tax namely, Income Tax Appellate Tribunal and we wouldnot have entertained this appeal which lies under section 260Aof the Act, only on the 'substantial question of law' arisingfrom the order of the learned Appellate Tribunal. 9. Having heard the learned counsel for the parties, we areprima facie of the opinion that no question of law, as such,arises from the order of learned Tribunal, as the estimation ofIncome Tax is essentially a fact finding exercise, which becomesfinal at the hands of the final fact finding authority ofIncome Tax namely, Income Tax Appellate Tribunal and we wouldnot have entertained this appeal which lies under section 260Aof the Act, only on the 'substantial question of law' arisingfrom the order of the learned Appellate Tribunal. 10. But we see glaring perversity in the assessmentorder itself. The alleged 'market standards' adopted by theassessing authority to jack up the net profit from 1.56% onturnover declared by the Assessee to 8% seems to have been madewithout any basis whatsoever. There is not even an iota ofevidence or reference, to any material or any parallel casereferred by the assessing authority to adopt such rate of 8% ofturnover. Even grounds or alleged discrepancies whichpermitted the assessing authority did not appear to besufficient to reject the books of accounts. The reasons, asdiscussed in the assessment order are quoted below for readyreference ; '3. During the course of assessment, assesseecompany was asked to submit separate P & L for Import– Export trading business and Clearing and Forwardingbusiness. On perusal of the Separate P and L drawn bythe assessee company it was seen that the profit fromClearing and Forwarding business is 1.56%. Thereforeto verify the assessee company was asked to produceledgers and supporting Bills/Vouchers for the expensesrelated to labours handling and others. The same wasproducedandonverificationthefollowingdiscrepancies were observed: 1. Bills/vouchers pertaining to the labour chargeswere self made and made in cash.were self made and made in cash. 2. Applicability of TDS for the labour charges wasalso discussed.also discussed. 3. Bills/vouchers pertaining to the Freight Handlingwere also not properly vouchers.were also not properly vouchers. 4. To make short for all these discrepancies,since as per market standards 8% profit is nominal inthis line of business, the profits of the assesseecompany is recomputed at 8% as under: ---------------- 11. Such arbitrarily assessed income tax by the assessingauthority which had no legs to stand upon, cannot be sustained.More surprising is that even this assessment order which wasunduly and falsely in favour of Revenue, (God Knows How??) wasfound to be erroneous and prejudicial to the interest of Revenueby the learned Commissioner and that is beyond ourcomprehension. Therefore, the entire exercise of the factfinding in the form of estimation of income under the powersconferred upon the Assessing Authorities to make best judgmentassessments, where the books of accounts are validly rejected,does not seem to have been adopted by the authorities below.We cannot countenance such an approach on the part of the 5/6 https://hcservices.ecourts.gov.in/hcservices/ 12. Therefore, we are inclined to set aside all the threeorders passed in the matter in for the AY 2011-12, in the caseof the Assessee, namely assessment order dated 13.3.2014, theorder dated 3.11.2015 passed under Section 263 of the Act andthe order of the learned Tribunal dated 13.4.2016 and remit thematter back to the Assessing Authority to pass fresh assessmentsin accordance with law giving reasons for particular findingsarrived at by the assessing authority. 13. Therefore, with these observations without answeringthe aforesaid questions of law, we remit the matter back tothe assessing authority for passing fresh order. The Tax CaseAppeal is disposed of accordingly. No costs. msrTo -s/d- Assistant RegistrarTrue CopySub-Assistant Registrar 12. Therefore, we are inclined to set aside all the threeorders passed in the matter in for the AY 2011-12, in the caseof the Assessee, namely assessment order dated 13.3.2014, theorder dated 3.11.2015 passed under Section 263 of the Act andthe order of the learned Tribunal dated 13.4.2016 and remit thematter back to the Assessing Authority to pass fresh assessmentsin accordance with law giving reasons for particular findingsarrived at by the assessing authority. 13. Therefore, with these observations without answeringthe aforesaid questions of law, we remit the matter back tothe assessing authority for passing fresh order. The Tax CaseAppeal is disposed of accordingly. No costs. msrTo -s/d- Assistant RegistrarTrue CopySub-Assistant Registrar 1.The Income Tax Appellate Tribunal Madras “B” Bench,Chennai.2.O/o.The Deputy Commissioner of Income TaxCompany Circle-VI(1)7th floor New block121, Mahathma Gandhi RoadChennai-600 034 +1 cc to Mr.J.Narayanaswamy Standing Counsel for I.T.Department sr21813+1 cc to Mr.S.Sridhar Advocate sr20897 rld(co)aa17/07/2020 6/6 https://hcservices.ecourts.gov.in/hcservices/