Ita/423/2013 Of The Commissioner Of Income Tax v. M/S Chemsworth Pvt Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 16 DAY OF SEPTEMBER 2020. PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD LT.A. NO.423 OF 2013 BETWEEN: 1.THE COMMISSIONER OF INCOME TAX. C.R. BUILDING, QUEENS ROAD BANGALORE. 2 |THE COMMISSIONER OF INCOME TAX. BANGALORE-I, C.R. BUILDING QUEENS ROAD, BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: M/S. CHEMSWORTH PVT. LTD.,KIMWELL HOUSE11, TUMKUR ROAD, BANGALORE-560022. ... RESPONDENT (BY SRI. A. SHANKAR, SR. COUNSEL A/W SRI. M. LAVA, ADV.) | THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,1961 ARISING OUT OF ORDER DATED 19.04.2013 PASSED IN NO.402/BANG/2012 FOR THE ASSESSMENT YEAR 2007-08,|PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN. (I) ALLOW THE APPEAL AND SET ASIDE THE ORDERPASSED BY THE ITAT, BANGALORE IN ITA NO.402/BANG/2012|DATED 19-04-2013 AND CONFIRM THE ORDER OF THE APPELLATE|COMMISSIONER CONFIRMING THE ORDER PASSED BY THE|COMMISSIONER OF INCOME TAX, BANGALORE-I, BANGALORE. THISLIACOMINGONFOR.HEARING,THISALOK ARADHE J.,DELIVERED THE FOLLOWING: DAY, JUDGMENT This appeal under Section 260A of the Income Tax)Act, 1961 (hereinafter referred to as tne Act for short)has been preferred by the revenue. The subject matterof the appeal pertains to the Assessment year 2007-08. The appeal was admitted by a bench of this Court videorder dated 12.08.2014 on the following substantialquestion of law: (1)Whether on the facts and in thecircumstances and In law the Tribunal wes|correct in holding that revision under Section263 of the Act was not permissible, as tne|adSSCSSCEhad|furnishedallthedetails|without appreciating the fact that, Assessing|Officer nas failed to examine tne expenaitureIncurredDy theaASSCSSCEtowardstheexempt income as required under Section| 14A of the Act? 2.|Facts leading to filing of the appeal brieflystated are that the assessee is engaged in business ofinvestment and sale of filtration, equipment and sparesand service. The assessee filed the return of Income on26.10.2007 for Assessment Year J2O0O/7-O8 and declara total income of Rs.80,93,859/-. The Assessing Officerby an order dated 30.09.2009, without considering theexpenditure which was not allowable under Section 14Aof the Act proceeded to complete the assessment. TheCommissioner of Income Tax, on examination of therecords, found that the assessee had earned dividendincome, which was exempt from tax. The AssessingOfficer without examining the quantum of expenditureincurred by the assessee for earning the exemptincome, proceeded to complete the assessment. It wasfurther noticed that expenditure incurred for earningexempt income has to be disallowed under Section14Aof the Act. 3.Thereupon, the Commissioner of Income Taxissued a notice under Section 263 of the Act to theassessee and held that non consideration of disallowableexpenditure under Section 14A of the Act is erroneousand is. prejudicial to the interest of the revenue.Accordingly, the Commissioner of Income Tax by anorder dated 11.01.2012 set aside the order of the!Assessing Officer and remitted the matter to theAssessing Officer to re do the assessment. Beingaggrieved, the assessee approached the Income TaxAppellate Tribunal (hereinafter referred to as theTribunal for short). Tne TridDunal Dy an order dated19.04.7013 inter alia held that the Commissioner ofIncome Tax erred in setting aside the order passed bythe Assessing Officer merely on the ground that |inadequate. In the aforesaid factual background, thisappeal has been filed by the revenue. 4Learned counsel for the revenue submittedthat the Tribunal ought to have appreciated that theAssessing Officer has failed to conduct any enquiry withreference to the expenditure debited by the assessee. Itis further submitted that the Tribunal grossly erred inholding that invocation of revisional powers underSection 263 of the Act was not permissible as tne fact that Assessing Officer nas failed toexamine the incurring of expenditure by assesseetowards exempt income as required under Section 14Aof the Act. On the other hand, learned counsel for theassessee has supported the order passed by theTribunal. 5.|We have considered the submissions madeby learned counsel! for the parties and have perused therecord. Before proceeding further, it is apposite to takenote of the relevant extract of Section 263 of the Act,which reads as under: 263. Revision of orders prejudicial torevenulle (1) The Commissioner may call for andexamine the record of any proceeding underthis Act, and if he considers that any orderpassed therein by the Assessing Officer iserroneous in so far as it is prejudicial to theinterests of the revenue, he, may, after givingthe assessee an opportunity of being heardand after making or causing to be made suchinguiry as he deems necessary, pass suchorder thereon as the circumstances of thecase justify, including an order enhancing or.modifying the assessment, or cancelling theassessmen.and|directingadfresh|assessment. 6.|Thus, from close scrutiny of Section 263 it isevident that twin conditions are required to be satisfiedfor exercise of revisional jurisdiction under Section 263of the Act firstly, the order of the Assessing Officer iserroneous and secondly, that it is prejudicial to theinterest of the revenue on account of error in the order|of assessment. J |The aforesaid provision was considered bythe Supreme Court in|MALABAR INDUSTRIAL CO.LTD.I supraand it was held that the phrase.‘prejudicial|to the Interests of the revenue’has to be read in|conjunction with an erroneous order passed by the.Assessing Officer and every loss of revenue as a|consequence of the order of the Assessing Officer cannotbe treated as prejudicial to the interest of revenue. Itwas further held that where two views are possible and.the Income Tax Officer has taken one view with which|the Commissioner does not agree, the order passed by.the Assessing Officer cannot be treated as erroneous|order prejudicial to the interest of the revenue. The|principles laid down in the aforesaid decision were|reiterated by the Supreme Court in‘CIT VS. MAX|INDIA LTD.,’ 295 ITR 282 (SC)and recently in‘ULTRATECH CEMENT LTD. AND ORS. VS. STATE OFRAJASTHANANDORS.’,CIVILAPPEALNO.2773/2020 DECIDED ON 17.07.2020. 8.|In the backdrop of aforesaid well settled legalprinciples, we may examine the facts of the case inhand. In.‘CIT VS. SUNBEAM AUTO LTD.’, 332 ITR$% , it has been held by Delhi High Court that AssessingOfficer in the order of assessment Is not required to givedetailed reasoning in respect of each and every item ofdeduction and therefore, the question whether there hasbeen an application of mind before allowing expenditurehas to be examined from the record of the case. Thequestion of lack of enquiry / inadequate enquiry is alsorequired to be kept in mind and mere inadequacy of theenquirywouldNotconfer|jurisdictionontheCommissioner of Income Tax under Section 263 of theAct. In the instant case, the Commissioner of IncomeTax has held that the enquiry conducted by theAssessing Officer is inadequate and has assumed therevisional jurisdiction. The assessee nas filed all tnedetails before the Assessing Officer and AssessingOfficer has accepted the contention of the assessee that no expenditure is attributable to the exempt incomeduring the relevant Assessment Year. Thus, whilerecording the aforesaid finding, the Assessing Officerhas taken one of the plausible views in allowing theclaim of the assessee and therefore, the Commissionerof Income Tax could not have set aside the order ofassessment merelyon the ground of inadequacy ofenquiry, the order passed by the Commissioner ofIncome Tax is not sustainable in law and the same nasrightly been set aside by the Tribunal. In view of preceding analysis, the substantial|question of law framed by this court is answered againstthe revenue and in favour of the assessee.. In the result, we do not find any merit in the)appeal. Tne same falls and is nereby dismissed. Sd/-—JUDGE. Sd/-—JUDGE.