Tc/2716/2006 Of Commr. Of Income Tax v. M/S.surana Metals & Steels

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 22.1.2007 Coram The Honourable Mr.Justice P.D.DINAKARAN and The Honourable Mrs.Justice CHITRA VENKATARAMAN T.C.(Appeal)No.2716 of 2006 Commissioner of Income TaxChennai...Appellant/ Respondent-vs- M/s.Surana Metals & Steels (I) Ltd ..Respondent/ Appellant Tax Case (Appeal) is against the order of the Income TaxAppellate Tribunal Madras B bench, dated 31.5.2006 in ITA.No.431/Mds/2000 for the Assessment year 1996-97 (I.T.A.No.235/99-2000 dated 5.11.1999 on the file of Commissioner of Income Tax(Appeals) IV, Chennai against PAN/GIR No.1228-S dated 31.3.99 onthe file of Deputy Commissioner of Income Tax, company Circle IV,(4) Chennai-6. For Appellant:Mrs.Pushya SitaramanJUDGMENT (The judgment of the Court was delivered by CHITRA VENKATARAMAN,J) This tax case appeal is filed under Section 260-A of theIncome Tax Act, 1961 by the Revenue raising the followingquestions of law:-"1. Whether in the facts and circumstances of the case, the Tribunal wasright in allowing the assessee to produce aconfidential note of the department in respectof a subsequent assessment year, and relyingon the same? https://hcservices.ecourts.gov.in/hcservices/ 2. Whether in the facts and circumstancesof the case, the Tribunal was right inignoring the factual findings of the assessingofficer, and going only by the confidentialnote in respect of a subsequent assessmentyear?" 2. The assessee claimed an expenditure of Rs.14.60 lakhs aslease rental payable to various finance companies. The AssessingAuthority noted that the assessee had inflated the claim on thevalue of cost of acquisition on steel rolls from Rs.15,000/- toRs.60,000/-. Consequently, in respect of assessment year 1995-96,he restricted the claim on lease rentals by Rs.15,000/- as costof steel rolls. On appeal, the Commissioner of Income Tax Appealspartly allowed the appeal. but rejected the cost of acquisitionof each steel rolling mills. In the course of the order, theCommissioner held that the assessee had not rebutted the findingof the Assessing Officer, which was based on the results of theenquiry conducted by him in the case of the financiers that eachsteel rolling mill could not be higher than Rs.15,000/-. Theassessee's contention was that the quality and specification ofsteel rolls were superior to the steel rolling mills referred toby the Assessing Officer in his enquiry. However, as the assesseehad not established through any technical expert he rejected thecase of the assessee. The Commissioner further viewed thatthough in the normal course, proforma invoices on the cost ofacquisition of rolling mills could be conceded, yet, since theassessment was based on the results of the enquiry made, mereinvoice evidence was not good enough to firmly substantiate thatthe cost of the rolling mill was not inflated. He also referredto the fact that the assessee was a lessee using the rolling millgiven on hire by one of the financiers. Consequently, theCommissioner of Income Tax rejected the appeal. 3. On appeal before the Tribunal, it was noted that the costof steel rolls in this particular case had not been referred forany valuation. In the course of argument, the assessee referredto the assessment records in his own case for the immediatesucceeding year 1997-98. The document relied on by the assesseeis related to a note pertaining to the assessment year 1997-98.It was noted therein that the rate for each roll is differentdepending upon its specifications. The note relied on by theassessee stated as follows:- "The value of Rolls utilized in theassessee's factory is more than Rs.60,000/-.The value estimated in the assessment orderfor 1996-97 is Rs.15,000/- which has beenarrived at on erroneous comparison. Since 3. On appeal before the Tribunal, it was noted that the costof steel rolls in this particular case had not been referred forany valuation. In the course of argument, the assessee referredto the assessment records in his own case for the immediatesucceeding year 1997-98. The document relied on by the assesseeis related to a note pertaining to the assessment year 1997-98.It was noted therein that the rate for each roll is differentdepending upon its specifications. The note relied on by theassessee stated as follows:- "The value of Rolls utilized in theassessee's factory is more than Rs.60,000/-.The value estimated in the assessment orderfor 1996-97 is Rs.15,000/- which has beenarrived at on erroneous comparison. Since the assessment for 1996-97 has beenconfirmed by CIT (A) the addition ofRs.58,91,945/- has been made as above inline with the decision taken in thatassessment order. However, for the freshlease transactions entered into this yearappropriate action has been taken asmentioned in the order as per discussionsheld with the Additional CIT. " 4. On the basis of the said notes, on which the heavyreliance is placed by the assessee, the Tribunal noted that thesame carried signature of the Deputy Commissioner of Income Tax,Chennai. Consequently, it held that the Revenue had no case andallowed the appeal of the assessee. 5. Aggrieved of this, the Revenue is on appeal before thisCourt questioning the correctness of the Tribunal' view inallowing the claim of the assessee on the basis of theconfidential note of the Department for the subsequent year. 6. The learned counsel appearing for the Revenue submittedthat the Tribunal erred in placing reliance on this report whichis a confidential one, that as the report admittedly is relatedto the subsequent assessment year 1997-98, (the appeal wasagainst the assessment for the year 1996-97, )the Tribunal oughtnot to have accepted the plea. She also submitted that theAssessing Officer had clearly proved on an enquiry that theassessee had inflated the price. She also objected to theTribunal extracting the confidential note. She further placedreliance on the invoice price for purchase of 12 rolling mills atRs.1,75,136/- and that the same items had been sold by theLakshmi Steels, a sister concern of the assessee to SwarnadharaCredit Corporation Limited at Rs.6 lakhs and the same taken onlease by the assessee claiming huge lease rental payments. Shecontended that instead of going into the question of how theassessee got the copy of confidential note, the Tribunal erred inextracting it as a part of the order to allow the claim. 7. The appeal lacks merits and has to be rejected at theadmission stage itself. The objection stated in the appeal issolely on the Tribunal passing its order on the strength of theview of the Department for the subsequent year. We failed to seeany trace of unfairness leave alone an illegality in the orderof the tribunal in following the opinion expressed in the notebythe deputy commissioner to give rise to a substantive question oflaw. The admitted statement in the note is that the assessmentfor the year 1996-97 at Rs.15,000/- had been arrived at on anerroneous comparison, that being so, fairness requires that the Revenue should have respected its own file note and desisted fromfiling this appeal, 8. We do not find any justification to interfere with theorder of the Tribunal, unless the Department itself has its ownreservation on what it had expressed in the note filed forassessment year 1997-98 as regards the valuation for the year1996-97. We absolutely find no justification for entertainingthis appeal purely on the question of confidentiality. 9. Leaving aside the view of the Officer herein, the noteexpressed by the Deputy Commissioner of Income Tax, Chennai,deserves its weight. Consequently, the appeal fails and the sameis dismissed. Revenue should have respected its own file note and desisted fromfiling this appeal, 8. We do not find any justification to interfere with theorder of the Tribunal, unless the Department itself has its ownreservation on what it had expressed in the note filed forassessment year 1997-98 as regards the valuation for the year1996-97. We absolutely find no justification for entertainingthis appeal purely on the question of confidentiality. 9. Leaving aside the view of the Officer herein, the noteexpressed by the Deputy Commissioner of Income Tax, Chennai,deserves its weight. Consequently, the appeal fails and the sameis dismissed. Sd/-Asst. Registrar./true copy/Sub Asst. Registrar. bgTo1. The Assistant Registrar,Income Tax Appellate TribunalRajaji Bhavan, Shastri Nagar,Chennai. 2. The Commissioner of Income Tax (Appeals) IV,121, Mahatma Gandhi Road,Chennai-34. 3. The Deputy commissioner of Income Tax,Company Circle IV, (4) Chennai. 4. The Commissioner of Income Tax, Chennai.1 cc to Mrs. Pushya Sitaraman, Advocate, Sr. 4563 T.C.(Appeal) No.2716 of 2006 AKM (CO)kk 13/3