Chiripal Industries Ltd.,, Ahmedabad vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL " D " BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI, A.M.)

I.T. A. No. 903/AHD/2014 (Assessment Year: 2009-10)

Chiripal Industries Ltd. V/S The Addl. Commissioner of Chiripal House, Shivranjani Income Tax Range-1, Char Rasta, Satellite, Ahmedabad Ahmedabad -380015

(Appellant) (Respondent)

PAN: AAACC8513B

Appellant by : Shri Gaurav Nahata, A.R. Respondent by : Ms. Vibha Bhalla, CIT/D.R.

(आदेश )/ORDER

Date of hearing : 24-12-2014 Date of Pronouncement : 16 -01-2015

PER SHRI ANIL CHATURVEDI,A.M.

1. This appeal filed by the Assessee is against the order of CIT(A)-I, Ahmedabad dated 11.03.2014 for A.Y. 2009-10.

2. The facts as culled out from the material on record are as under.

3. Assessee is a company stated to be engaged in the business of manufacturing and trading of yarn, fabrics and garments. Assessee electronically filed its return of income for A.Y. 09-10 on 30.09.2009 declaring total income of Rs. 10,99,65,930/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 26.12.2011 and 2 ITA No 903/AHD/2014 . A.Y. 2009-2010 the total income was determined at Rs. 11,47,84,854/-. Subsequently, on examining the records of assessment proceedings, ld. CIT noticed (i) Assessee had claimed deduction of Rs. 2.45 crore u/s. 80IA from steam produced from captive power plant which was an old plant taken over from M/s. Shanti Processors Ltd, a group entity and the total machinery was more than 20% of the total value of plant and therefore Assessee was not eligible for deduction u/s. 80IA (ii) Assessee had not deducted TDS on various payments and therefore the expenses were liable to be disallowed as per provisions of Section 40(a)(ia). (iii) subsidy received under Textile Up gradation Fund Scheme (TUFS) was neither accounted as income nor reduced from interest expenses (iv) interest free loan of Rs. 18.76 crore was received from Sparrow Exports Pvt. Ltd. which was liable to be treated as unexplained cash credit u/s 68 of the Act. He was of the view that A.O had neither examined the aforesaid 4 issues nor conducted necessary enquiries and therefore the assessment order passed u/s.143(3) dated 26.12.2011 was erroneous and prejudicial to the interest of the Revenue. He accordingly issued notice dated 26.09.2013 and called upon the Assessee to show cause as to why the order u/s. 263 of the Act not be passed and in response to which Assessee interalia objected to the initiation of proceedings u/s. 263 and on merits submitted that no error was committed by the A.O while computing the assessment. The submissions of the Assessee was not found acceptable to ld. CIT. He was of the view that A.O has neither examined the issues involved nor conducted necessary enquiries and therefore the order was erroneous. He accordingly vide order dated 11.03.2014 cancelled the assessment famed by the A.O and directed the A.O to make a fresh assessment and the total income of the Assessee. Aggrieved by the order of ld. CIT, Assessee is now in appeal before us.

4. Before us, the ld. A.R. submitted that in the present case, the pre-requisite conditions specified u/s 263 were not satisfied and therefore the proceedings u/s 263 lacks jurisdiction and are bad in law. He submitted that u/s 263, the ld. CIT can revise an order passed by the AO only on the satisfaction of twin conditions 3 ITA No 903/AHD/2014 . A.Y. 2009-2010 namely (i) the order is erroneous and (ii) it is prejudicial to the interest of Revenue. If one of them is absent i.e. if either the order of the Revenue is erroneous but is not prejudicial to the interest of the Revenue or if it is not erroneous but is prejudicial to the interest of Revenue - recourse cannot be had to s. 263(1). He further submitted that the error envisaged by s. 263 is not one which depends on possibility or guesswork but it should be an actual error either of facts or of law. He further submitted that when two views are possible and the AO has taken one view with which the CIT does not agree, the order of the AO cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the AO is unsustainable in law and for the aforesaid proposition he relied on the decision in the case of Malabar Ind. Co Vs CIT (2000) 243 ITR 83 (SC).

5. With respect to the claim of deduction u/s. 80IA with respect to the captive power plant, the ld. A.R. pointed that the A.O vide letter dated 16.08.2011 had raised a specific query (the copy of which is placed at page 153 & 154 of the paper book). In response to the aforesaid query of the A.O, the Assessee had made the details submission. He pointed to the reply of the same at page 162, 163 & 167 of the paper book. He also pointed to page 169 to 209, pages 188 to 192 being the audit report issued u/s. 80IA(vii) of the Act. He therefore submitted that the claim of deduction u/s. 80IA was accepted by A.O after verification and on being satisfied about the claim. With respect to the non deduction of TDS, he submitted that during the course of assessment proceedings, A.O had raised the specific query wherein the Assessee was asked to reconcile the total amount paid and the amount on which tax deducted under various heads of income. In response to the query raised by the A.O, Assessee had filed various submissions. He pointed to page 164 of the paper book. He also pointed to head wise TDS summary submitted before A.O, the copy of which is placed at page 210, 211 of the paper book.

He further pointed to the computation of income placed at page 212 of the paper book and pointed that Assessee had suo motu disallowed expenses u/s. 40(a)(ia) where the TDS had remained unpaid. With 4 ITA No 903/AHD/2014 . A.Y. 2009-2010 respect to the subsidy receivable under TUFS scheme, he pointed to the query of the A.O (placed at page 151 of the paper book) wherein the A.O had asked for the details of subsidy receivable for last 3 years and also enquired as to whether the same was offered to tax. In response to the aforesaid query, Assessee had submitted the details (the copy of such details is placed at page 158 page 334 and 335 of the paper book). It was further submitted that the amount received under TUFS scheme was duly accounted for and offered for tax by reducing the claim of interest cost. With respect to the unsecured loan received by the Assessee, A.O had raised the query asking the Assessee to give the details of the name, address and PAN number confirmation etc. In response to which Assessee had furnished the necessary details, the copy of which is placed at page 157, 166 340 to 346 of the paper book.

The ld. A.R. therefore submitted that after considering the submissions of the Assessee on all the 4 issues raised in the impugned order, and on being satisfied by the replies given by the Assessee, no additions on the aforesaid were made by the A.O. He therefore submitted that since the issue had been examined by A.O. Ld. CIT cannot resort to revisionary proceedings u/s. 263.The ld. A.R. thus submitted that the order of ld. CIT needs to be set aside both on the ground of jurisdiction and on facts. The ld. D.R. on the other hand supported the order of ld. CIT.

6. We have heard the rival submissions and perused the material on record. The issue in the present case is about the invoking of provisions of Section 263 by ld. CIT.

7. S. 263(1) of the Act, the powers under which ld. CIT has assumed power for revision reads as under:

"The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the ITO is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, 5 ITA No 903/AHD/2014 . A.Y. 2009-2010 including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment."

8. The reading of the above provisions makes it very clear that the power of suo motu revision u/s 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision u/s 263, namely (i) the order is erroneous (ii) by virtue of being erroneous prejudice has been caused to the interests of the Revenue.

9. Hon'ble Apex Court in the case of Malabar Industrial Co Ltd Vs CIT (2000) 243 ITR 83 (SC) has held that ld. CIT has to be satisfied of twin conditions, namely,

(i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent--if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue--recourse cannot be had to s. 263(1). It was further held that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO; when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the ld. CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law.

10. In the case of CIT vs Gabriel India Ltd (1993) 203 ITR 108 (Bom), the Hon'ble Bombay High Court has held as under:

"An order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because according to him the order should have been written more elaborately. This section does not visualise a case of substitution of judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where ITO while 6 ITA No 903/AHD/2014 . A.Y. 2009-2010 making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and, left to the Commissioner, he would have estimated the income at a higher figure than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interest of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interest of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be subject-matter of revision because the second requirement also must be fulfilled."

11. In the present case, it is seen that during the course of assessment proceedings, A.O had raised the specific queries on the points raised by ld. CIT namely deduction under 80IA, disallowance u/s. 40(a)(ia), taxability of subsidy under TUFS scheme and unsecured loan from Sparrow Exports Pvt. Ltd. The queries raised by the A.O were replied by the Assessee and the copies of which are also placed in paper book. Thus on perusing the query raised by the A.O and the reply of the Assessee, it is seen that A.O had made full inquires by raising the queries with respect to the aforesaid issues under consideration and the same were also replied by the Assessee and on receipt of the replies and after being satisfied, accepted the claim of the Assessee. We find that Hon'ble Apex Court in the case of CIT vs. Max India Ltd. (2007) 295 ITR 282 (SC) has held that where two views are possible and the ITO has taken one view with which ld. CIT does not agree, the order of the A.O cannot be treated as an erroneous order 7 ITA No 903/AHD/2014 . A.Y. 2009-2010 prejudicial to the interest of the Revenue, unless the view taken by the A.O is unsustainable in law. We also find support by the Hon'ble Bombay High Court in the case of CIT vs. Gabriel India Pvt. Ltd. (1993) 203 ITR 108 (Bom) cited hereinabove. Before us, Revenue has not brought any material on record to demonstrate that the view taken by the A.O was an impermissible view and was contrary to law or was upon erroneous application of legal principles initiating the exercising of revisionary powers u/s 263. In view of the aforesaid facts, we are of the view that in the present case, ld. CIT was not justified in resorting to revisionary powers u/s 263 of the Act. We therefore set aside the order of ld. CIT cancelling the assessment order dated 26.12.2011 passed u/s. 143(3) of the Act. Thus the ground of the Assessee is allowed.

12. In the result, the appeal of the Assessee is allowed.

Order pronounced in Open Court on 16 - 01 - 2015.

Sd/- Sd/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER Ahmedabad. TRUE COPY Rajesh

Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) - 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER

Deputy/Asstt.Registrar ITAT,Ahmedabad