Ita v. Cit"243 [Tr &§(Sc)?

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.475 of 2015Date of decision: 14.3.201 M/s A.S. Precision Machines P. Limited| .....- Appel Commissioner of Income Tax, Aayakar Bhawan, Rishi Nagar,Ludhiana, Punjab.| ....mesponden CORAM: HON BLE MR. JUSTICK AJAY KUMAR MITTALHON BLE MR. JUSTICE RAJ MOHAN SINGH 1. Whether Reporters of local papers may be allowed to see the judgment?2. To be referred to the Reporters or not?YES3. Whether the judgment should be reported 1n the Digest Present: Mr. S.K.Mukhi, Advocate with Mr. Rajiv Sharma, Advocatefor the appellant-assessee. Ajay Kumar Mittal, J. 1]This order shall dispose of ITA Nos.454 and 475 of 2015 asaccording to the learned counsel for the appellant-assessee, the issuesinvolved in both the appeals are identical. However, the facts are being ITA No.475 of 2015 extracted from ITA No.475 of 2015. ).ITA No.475 of 2015 has been preferred by the appellant-assessee under Section 260A of the Income Tax Act, 1961 (in short, “theAct’) against the order dated 3.8.2015, Annexure A.3 passed by the IncomeTax Appellate Tribunal, Division Bench, Chandigarh (in short, “theTribunal’) in ITA No.679/CHD/2013, for the assessment year 2009-10,claiming following substantial questions of law:- 5A,Whether the requirement of sub section (2) ofsection 263 that “no order shall be made under subsection (1) after the expiry of two years from the endof the financial year in which the order sought to berevised was passed” simply mean passing of the orderand keeping it 1n the file’’ B.Whether the requirement of passing/making theorder within the period of limitation meanseffectively passing/making the order so as to bebeyond the control of the authority, for any possiblechange or modification therein’’ CcWhether on the facts and circumstances of the caseand in law, the Tribunal was right in law in holdingthat order under section 263 was passed on20.3.2013 though the same was dispatched on4.4.2013 1.e. after the limitation which expired on31.3.2013? D.Whether on the facts and circumstances of thecase, the ITAT was justified in law in upholding theaction of the CIT under section 263 on the basis thatthe AO has allowed claim of assessee under section S8OIB without making any enquiry or investigatiowithout appreciating complete assessment record, thequery letter Annexure A.6 and its reply Annexure A.7,order sheet entry Annexure A.11 and office note toassessment order Annexure A.12 and the material andevidences on record and the fact that AO had takenone possible and prevalent view at the time of makingthe original assessment in view of judgment ofHon'ble Supreme Court of India in the case ofMalabar Industrial Co. Limited vs. CIT"243 [TR &§(SC)? HKWhether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal wasjustified in law in upholding the action of the CITunder section 263 in holding that the claim of theappellant under section 8OIB of the Income Tax Actwas wrongly allowed by blindly relying upon thejudgment of this Hon'ble Court in the case ofNational Legguard Works vs. Cll and another,IDSsITR 18 (P&H) which is distinguishable on facts itselfand rather favours the present appellant's case? EKWhether, under the facts and circumstances of thecase, the findings of ITATI are perverse andunsustainable in law being against the evidences onrecord wherein it 1s a trite law that no action undersection 263 of the Income Tax Act, 1961 les in viewof audit objection? G.Whether, on the facts and circumstances of thecase, the findings of ITAT are perverse and againstthe evidences on record thus unsustainable 1n law”? ITA No.475 of 2015 EKWhether, under the facts and circumstances of thecase, the findings of ITATI are perverse andunsustainable in law being against the evidences onrecord wherein it 1s a trite law that no action undersection 263 of the Income Tax Act, 1961 les in viewof audit objection? G.Whether, on the facts and circumstances of thecase, the findings of ITAT are perverse and againstthe evidences on record thus unsustainable 1n law”? ITA No.475 of 2015 3)A tew facts relevant for the decision of the controversy;involved as narrated in ITA No.475 of 2015 may be noticed. The appellant-assessee 1S a private limited company engaged in the business ofmanutacturing of rolling mill machinery and its parts based at MandiGobindgarh. Survey was conducted under section 133A of the Act in theappellant's case on 24.7.2008. The appellant company surrendered a sumotLi06 crores on account of right off of business sundry creditors,outstanding since long due to some dispute with the said parties. The samewere written back as income of the appellant for the year under appealwhich were shown as business advances forfeited in the cash book as on25.7.2008 and thereafter utilised in the business of manufacturing and onthe income thereof, deduction under section 8O0IB of the Act was claimed aper the provisions of law. Return of income for the assessment year inquestion was filed declaring income ofTL7,02,02,910/-. Notice for scrutinyof assessment was issued to the appellant. The appellant appeared and itsaccounts were checked. Addition ofLv80,529/- was made under sectionSOIB of the Act on account of DEPB receipts of =a2,68,430/- after scrutiny.The assessment was completed by the Assessing Officer under section 143(3) of the Act on 29.10.2010, Annexure A.1. On 14.11.2012, notice wasissued by the Commissioner of Income Tax, Ludhiana (CIT) under section263 of the Act wherein it was observed that the assessee had been alloweddeduction under section 80IB of the Act on various items. The appellantfiled objections vide reply dated nil Annexure A.5 stating that the judgmentin the case ofM/s Friends Castingswas not applicable to it since theassessment was made on 29.10.2010 when the impugned judgment was not ITA No.475 of 20155available. On the basis of subsequent judgment, the assessment could notbe reopened under section 263 of the Act in view of the judgment of thisCourt in CIT vs. Saluja Exim Limited, (2010) 329 ITR 603. On merits, itwas submitted that even during the course of search, nothing was recoveredto show that the appellant was engaged in any other business or activityexcept manufacturing. Therefore, the income as surrendered on account ofwriting back off of business sundry creditors having utilized for normalbusiness activities of the appellant was from manufacturing business onlyand also the job work activities carried on by the appellant company wereentitled for the impugned deduction under section 8OIB of the Act. Reliancewas placed on judgment of this Court inCIT vs. Vallabh Yarns (P) Limited&(2011) 51 DIR 236 wherein deduction under section 80IB of the Act wasallowed on job work. The CIT held that deduction under section 80IB ofthe Act was not allowable on the income surrendered/declared. It wasfurther held that the Assessing Officer had not made any inquiry and had notdisallowed the deduction under section SOIB of the Act on the aforesaidincome. Aggrieved by the order, the appellant filed appeal before theTribunal pleading that the revisional order was barred by limitation and theappellant was entitled to deduction under section 80IB of the Act on thesurrendered income as well as on job work. The appeal was dismissed videorder dated 3.8.2015, Annexure A.3. According to the appellant, the orderunder section 263 of the Act was time barred having not been served on itwithin two years from the end of the financial year in which the impugnedorder was passed which expired on 31.3.2013 while the impugned order wasissued on 4.4.2013 and received by the assessee on 06.04.2013. Hence the instant appeals by the appellant-assessee, instant appeals by the appellant-assessee, 4We have heard learned counsel for the appellant-assessee. 4 The primary issues that arise for consideration as discerniblefrom the questions claimed are:- (1) whether the order passed under section 263 of the Actin view of sub section (2) thereof was within the periodof limitation. Reliance was placed on judgment of theKerala High Court in-Cochin Plantations Limited vs.State of Kerala,(1997) 227 ITR 38 (Kerala); andsecondlyin view of sub section (2) thereof was within the periodof limitation. Reliance was placed on judgment of theKerala High Court in-Cochin Plantations Limited vs.State of Kerala,(1997) 227 ITR 38 (Kerala); andsecondly (11) whether any enquiries were made at the time ofassessment and therefore, there was no scope forexercising revisional jurisdiction under Section 263 ofthe Act. Relying upon judgment of the Apex Court inMalabar Industrial Co. Limited vs. Commissioner ofIncome lax, (2000) 243 ITR 83, initiation ofproceedings under section 263 of the Act were assailed. 6]On perusal of the findings recorded by the Tribunal and afterhearing learned counsel for the appellant, we find that the order undersection 263 of the Act was required to be passed within two years from theend of the financial year in which the order sought to be revised was passed.It has been categorically recorded by the Tribunal that the order undersection 263 of the Act in the case of the assessee was passed on 20.3.2013which was required to be passed upto 31.3.2013. Thus, the order was withinthe period of limitation. There was no requirement to dispatch the orderwithin the period of limitation itself. The relevant findings recorded by theTribunal read thus:- 5|The learned counsel for the assessee submitted thatassessment order was passed on 29.10.2010 and the order under section 263 has been passed on 20.3.2013. However,the impugned order was dispatched on 4.4.2013 andreceived by assessee on 6.4.2013. He has _ therefosubmitted that revision order 1s barred by limitation. He hashowever admitted that the last date of passing of therevision order was 31.3.2013.. 9.The learned DR contended that the only requirement ofthe law was to pass the revision order within two yearswhich is passed by the learned Commissioner of IncomeTax in this case. There is no requirement to dispatch theorder within that period itself. 10. On consideration of the rival submissions, we are of theview, this ground of appeal of the assessee has no merit.Section 263(2) of the Act provides that no order shall bemade under sub section (1) after expiry of two years fromthe end of the financial year in which the order sought to berevised was passed. In this case, the assessment order waspassed on 29.10.2010 which was sought to be revised.Therefore, after end of the financial year, the order couldhave been passed upto 31.3.2013 which 1s also admitted bythe learned counsel for the assessee. In the case of assessee,the order under section 263 of the Act has been passed on20.3.2013, therefore, same 1s passed by the learnedCommissioner of Income Tax within the period oflimitation. There 1s no requirement under the law todispatch the order within period of limitation itself. TheHon'ble Supreme Court in the case of R.K. Upadhyaya vsShanabhai P.Patel,166 ITR 163 held that “issue of noticeunder section 147 within the period of limitation. Serviceon assessee beyond period. Assessment valid.” Thiscontention of learned counsel for the assessee has no meritand is accordingly rejected because service of theimpugned order is not a condition precedent within theperiod so prescribed. The order shall have to be passed within the period of limitation which 1s so in the case of theassessee. This ground of appeal of the assessee 1saccordingly rejected.” doThe Apex Court 1n |K.K.Upadhyaya vs. Shanabhai P.Patel, within the period of limitation which 1s so in the case of theassessee. This ground of appeal of the assessee 1saccordingly rejected.” doThe Apex Court 1n |K.K.Upadhyaya vs. Shanabhai P.Patel, (1987) 166 ITR 163 had held that where the Income Tax Officer issued alnotice of reassessment under section 147(b) of the Act by registered post onMarch 31, 1970 and the notice was received by the assessee on April 3,1970, the same was not barred by limitation and the Income Tax Officer hadJurisdiction to proceed to complete the assessment. Thus, the order of theTribunal on this issue cannot be faulted. The judgment relied upon by thelearned counsel for the appellant inCochin Plantations Limited's Case(supra) would not come to the rescue of the appellant in view of thejudgment of the Apex Court 1nR.K. Upadayaya'case (supra).8 |With regard to the second issue regarding claim under sectionSOIB of the Act, it was recorded by the Tribunal that the Assessing Officerhad passed the assessment order without making any enquiry andinvestigation and allowed claim under section 80IB of the Act. Thus, theorder was held to be erroneous and prejudicial to the interest of the revenue.The CIT was held to be justified 1n setting aside the assessment order anddirecting the Assessing Officer to pass the assessment order afresh bygiving opportunity of hearing to the assessee. The conclusion of theTribunal is quoted below:- | 511.The learned counsel for the assessee submitted thatassessee 1S eligible for deduction under section 80IB onsurrendered income as well as on job work and AssessingOfficer after making proper enquiry granted relief to theassessee at assessment stage. The learned counsel for the assessee has, however, not been able to place on record anyquery letter issued by the Assessing Officer with regard todeduction under section 8OIB or any reply filed beforeAssessing Officer in this regard. The learned counsel forthe assessee ultimately submitted that the directions may be1ssued to the learned Commissioner of [Income Tax toconsider the plea of the assessee on merit. On the otherhand, learned DR submitted that Assessing Officer has notmade any enquiry on both the issues and no income isderived form any business or industrial undertaking onwhich surrender was made as well as job income wasshown. Therefore, when Assessing Officer failed to makeenquiry on both the aspects, learned Commissioner ofIncome Tax was justified in holding that assessment orderto be erroneous and prejudicial to the interest of revenue. 12.The learned DR also submitted that learnedCommissioner of Income Tax is bound by the judgment ofHon'ble Punjab and Haryana High Court in the case ofNational Legguard Works288 ITR 18 directly applicablein this issue. The learned DR relied upon decision of theHon'ble Punjab and Haryana High Court in the case ofArun Luthra252 ITR 76 on the proposition of decision ofthe jurisdictional High Court are binding on all thesubordinate authorities. 13.We have considered rival submissions. [t 1s not Jndispute that during the course of survey conducted in thepremises of assessee on 24.7.2008, certain incriminatingdocuments were found relating to loan and advances. Theassessee surrendered a sum of.<a6 crore to cover up thesediscrepancies. The accounts of the assessee revealed thatassessee had declared income of|Lv6 crore as businessadvances written off. Hon'ble Punjab and Haryana HighCourt 1n the case of National Legguard Works(supra) heldthat the deduction under section SOHHC of the Act 1s 13.We have considered rival submissions. [t 1s not Jndispute that during the course of survey conducted in thepremises of assessee on 24.7.2008, certain incriminatingdocuments were found relating to loan and advances. Theassessee surrendered a sum of.<a6 crore to cover up thesediscrepancies. The accounts of the assessee revealed thatassessee had declared income of|Lv6 crore as businessadvances written off. Hon'ble Punjab and Haryana HighCourt 1n the case of National Legguard Works(supra) heldthat the deduction under section SOHHC of the Act 1s available on showing fulfilment of the conditionsprescribed and that there could be no presumption thatsurrendered income on account of unexplained stocksrepresented export income. The assessee however claimeddeduction under section 8OIB on income ofan6 crore sosurrendered during the course of survey. It is interesting tonote that despite it is a case of survey under section 133Aconducted against the assessee and finding incriminatingmaterial against the assessee during the course of survey,the Assessing Officer has even failed to mention this fact inthe assessment order that it 1s a case of survey and duringthe course of survey, incriminating material was foundagainst the assessee. The Assessing Officer has notdiscussed anything in the assessment order if he has|conducted any enquiry or investigation with regard tomaterial found against the assessee during the course ofsurvey. The Assessing Officer has also failed to make anyenquiry or investigation with regard to claim of deductionunder section 80IB made by assessee on surrenderedincome and income on job charges at the assessment stage,The learned counsel for the assessee has shown hisinability to produce any query letter issued by theAssessing Officer at assessment stage for investigating orconducting any enquiry with regard to claim of deductionunder section 8OI[B on surrendered income of|6 crore oron job charges. The learned counsel for the assessee hasalso shown inability to produce any reply filed beforeAssessing Officer of making claim of deduction undersection 8QIB on the surrendered income as well as on jobcharges by fulfilling conditions of Section 80IB. It wouldtherefore reveal that Assessing Officer did not make anyenquiry or investigation at assessment stage so as to qualifydeduction under section 8OIB of the Act to the assessee onsurrendered income as well as on job charges. The accounts oft the assessee revealed that assessee declared income ofL6 crores as business advances written off, therefore, 1tcould not be said to have any nexus with the industrialundertaking of the assessee. The surrendered income wastherefore undisclosed income from other sources andassessee failed to establish that source of unaccountedincome invested in advances which were written off hadany nexus with the industrial undertaking of the assessee,The assessee during the course of survey as well asassessment proceedings has not filed any documentaryevidence to establish that income of v6 crore has beenearned through manufacturing activities eligible fordeduction under section S8OIB of the Act. Thus, theAssessing Officer has failed to make any enquiry orinvestigation on claim of assessee of deduction undersection 80IB at the assessment stage on the abovesurrendered income as well as on job charges. It is wellsettled law that failure by the Assessing Officer to makeenquiry at assessment stage would render his order to beerroneous and prejudicial to the interest of revenue andJurisdiction under section 263 of the Act has been properlyexercised by the learned Commissioner of Income Tax. Werely upon decision of the Delhi High Court in the case ofGee Vee Enterprises 99 ITR 375, decision of Gauhati HighCourt in the case ofTarzen Tea Company Pyt. Limited&205 ITR 45 and decision of Madras High Court 1n the caseot|k.A.Ramaswamt Chettiar220 ITR 657. The learnedCommissioner of Income Tax also relied upon severaldecisions in the impugned order in support of his findings|that failure to make enqiry by the Assessing Officer atassessment stage would render the assessment order to beerroneous and prejudicial to the interest of revenue. Thedecision of the Hon'ble Punjab and Haryana High Court inthe case ofNational Legguard Workers(supra) squarely applies against the assessee and the failure to considerdecision of jurisdictional High Court itself would supportthe findings of the learned Commissioner of Income Taxthat the order passed by the Assessing Officer waserroneous and prejudicial to the interest of revenue. 14.Considering the totality of the facts and circumstances,it is clear that Assessing Officer has passed the assessmentorder without conducting enquiry and investigation on theabove issues and has allowed the claim of assessee undersection 80IB of the Act without making any enquiry andinvestigation. Therefore, the order was correctly treated aserroneous and prejudicial to the interest of revenue. Thelearned CIT was, therefore, justified in setting aside theassessment order and directing the Assessing Officer topass the assessment order afresh de novo by givingopportunity of being heard to the assessee. In this view ofthe matter, no further directions are required to the learnedCommissioner of Income Tax in the matter as is argued bylearned counsel for the assessee. The appeal of the assesseehas thus no merit. The same is accordingly, dismissed.” Q |The proposition enunciated inMalabar Industrial Co. Limited'scase (supra) 1s well settled that the Commissioner has to besatishied of twin conditions namely (1) the order of the Assessing Officersought to be revised 1s erroneous and (11) it 1s prejudicial to the interests ofthe revenue. Each case has to be considered on 1ts own facts. The factualposition in the present case is different as noticed hereinbefore. 10...A Full Bench of Gauhati High Court in Commissioner ofincome tax vs. Shri Jawahar Bhattacharjee,ITA No.2 of 2008 decided on7.2.2012 considering the scope of jurisdiction under section 263 of the Actconcluded as under:- 523Jurisdiction under section 263 can be exercisedwhenever jit 1s found that the order of assessment waerroneous and prejudicial to the interest of the revenue,Cases of assessment order passed on wrong assumption offacts, on incorrect application of law, without dueapplication of mind or without following principles ofnatural justice are not beyond the scope of Section 263 ofthe Act.’ 10...A Full Bench of Gauhati High Court in Commissioner ofincome tax vs. Shri Jawahar Bhattacharjee,ITA No.2 of 2008 decided on7.2.2012 considering the scope of jurisdiction under section 263 of the Actconcluded as under:- 523Jurisdiction under section 263 can be exercisedwhenever jit 1s found that the order of assessment waerroneous and prejudicial to the interest of the revenue,Cases of assessment order passed on wrong assumption offacts, on incorrect application of law, without dueapplication of mind or without following principles ofnatural justice are not beyond the scope of Section 263 ofthe Act.’ 114The findings recorded by the Tribunal are based onappreciation of evidence on record and consideration of relevant statutoryprovisions and the case law on the point. Learned counsel for the appellant-assessee has not been able to show any illegality or perversity in the saidfindings. 12.In view of the above, no substantial question of law arises. Theappeals stand dismissed, (Ajay Kumar Mittal)sudge March 14, 2016@6"@ (Raj Mohan Singh)sudge