Garden Reach Shipbuilders & Engineers ... vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH: KOLKATA [Before Shri P. K. Bansal, AM & Shri Mahavir Singh, JM]

I.T.A No.1601/Kol/2013 Assessment Year: 2008-09 Garden Reach Shipbuilders & Engineers Ltd. vs. Commissioner of Income-tax, Kol-1, (PAN: AAACG9371K) Kolkata (Appellant) (Respondent)

Date of hearing: 06.05.2015 Date of pronouncement: 15.05.2015

For the Appellant: Shri Sanjay Bhattacharya, FCA For the Respondent: Shri Ajoy Kr. Singh, CIT, DR

ORDER Per Shri Mahavir Singh, JM :

This appeal by assessee is arising out of revision order of CIT, Kolkata-1 u/s. 263 of the Income-tax Act, 1961 (hereinafter referred to as "the Act") dated 28.03.2013. Assessment was framed by DCIT, Circle-1, Kolkata u/s. 143(3) of the Act for AY 2008-09 vide his order dated 20.12.2010.

2. At the outset, Ld. CIT, DR Shri Ajoy Kr. Singh raised preliminary objection in respect to maintainability of this appeal in view of the decision of Hon'ble Calcutta High Court in the case of K. P. Jain V CIT (2011) 202 Taxman 244 (Cal). This was originally argued by Shri Virender Mehta, CIT, DR and he referred to the following paras of the judgment of Hon'ble Calcutta High Court:

"Dr. Pal's client approached the Tribunal challenging the order passed under section 263 and even did not pray for any interim relief for stay of operation of the said order and allowed the order of assessment to be passed. Ultimately an appeal was also preferred. The legal proposition explained by Dr. Pal would be appropriate when it would be found that the authority concerned lacks inherent jurisdiction in the subject- matter. In this case it cannot be held CIT had no jurisdiction. The question is whether assumption of jurisdiction is done by the said authority on being satisfied with the twin conditions mentioned therein. This question could and can be examined in many ways. When assessee did not take any step for stay of the order of the Assessing Officer pursuant to the impugned order of the CIT under section 263 and after having participated in the hearing of the assessment proceedings and consequently preferring appeal, we think it would not be proper for this Court at this stage to decide issue raised before us.

Accordingly, we accept the submission of the learned counsel for the Revenue that the appeal factually has become infructuous but not legally. The provision of the appeal is 2 ITA No.1601/K/2013 Garden Reach Shipbuilders & Engineers Ltd., AY 2008-09

very exhaustive and all points can be taken including the question of jurisdiction as taken here. We feel that considering all the aspects of the matter no decision should be rendered as if we do not accept contention of Dr. Pal, the appeal preferred by his client against subsequent order of assessment will have to be heard on merit and in that case the question of jurisdiction cannot be raised. In the event, if we do not decide then all points can be decided obviously by the appellate forum. We, therefore, dispose of the present appeal keeping all points open holding that since the regular appeal has already been preferred this appeal has factually become infructuous."

According to Ld. CIT, DR, the appeal filed by assessee against the revision order passed by CIT u/s. 263 of the Act has become infructuous for the reason that the assessee has participated in the hearing of assessment proceedings in consequence to revision order passed by CIT u/s. 263 of the Act.

3. On the other hand, the Ld. Counsel for the assessee drew our attention to section 253 of the Act, whereby right to appeal is a statutory right provided in the statute against the revision order passed by CIT u/s 263 of the Act. He referred to the relevant provision of section 253 of the Act, which is as under:

"Appeals to the Appellate Tribunal.

253.(1) Any assessee aggrieved by any of the following orders may appeal to the Appellate Tribunal against such order -

..... ..... ..... .....

(c) an order passed by a Commissioner [under section 12AA[or under clause (vi) of sub-

section (5) of section 80G] or ] under section 263 [or under section 271] [or under section 272A] [***] or an order passed by him under section 154 amending his order under section 263] [or an order passed by a Chief Commissioner or a Director General or a Director under section 272A; [or]."

Ld. Counsel for the assessee relied on the decision of Hon'ble Calcutta High Court in the case of Indian Aluminium Co. Ltd. Vs. CIT (1986) 162 ITR 788 (Cal) wherein it has held by Hon'ble High Court that right of appeal is a statutory right and which is a valuable right also. According to him, unless expressly taken away or abandoned, it cannot be said that assessee has abandoned or lost such right by implication. According to him, essential criteria of appellate jurisdiction is, that it revises and corrects the proceedings in a cause already instituted or does not create that cause. In reference to judicial tribunal an appellate jurisdiction, therefore, necessarily implies that the subject matter has already been instituted and acted upon by some authority, whose proceedings are to be revised. Ld. Counsel stated that right of appeal is not merely matter of procedure rather it is a matter of substantive right. This right of 3 ITA No.1601/K/2013 Garden Reach Shipbuilders & Engineers Ltd., AY 2008-09

appeal from a decision of an inferior authority to a superior authority becomes vested in a party when proceedings are first initiated in and before a decision is given by the inferior authority. Ld. Counsel for the assessee also relied on the decision of Hon'ble Madhya Pradesh High Court in the case of Smt. Shantibai Vs. CIT (1984) 148 ITR 49 (MP) wherein Hon'ble court has observed that just as an appeal being a creature of the statute would not lie unless it is provided by the statute, the right so conferred cannot be taken away merely because some other remedy is also available to the assessee. Ld. Counsel for the assessee, however, contested the claim made by Ld. CIT, DR and stated that Hon'ble Calcutta High Court in the case of K. P. Jain, supra, has clearly stated that factually the appeal has become infructuous but not legally. He filed the subsequent clarification in the same case on very date i.e. 12.11.2010 wherein Hon'ble High Court has directed the Tribunal to decide all points including the question of jurisdiction. The relevant reads as under:

"The Court: We direct the learned Tribunal to decide the appeal on all points including the question of jurisdiction which have been raised before us within a period of three months from the date of communication of this order.

All parties shall act on a Xerox signed copy of this order on usual undertakings."

According to him, on the issue of maintainability of the appeal, the issue is very clear that Hon'ble Calcutta High Court has no where taken away the right to appeal against the revision order passed by CIT u/s. 263 of the act, as provided by the statute i.e. the Income Tax Act in section 253 of the Act (the relevant portion is reproduced above).

4. We have heard the contest on preliminary objection in regards to maintainability of appeal, against the revision order u/s 263 of the Act passed by CIT, to the Income Tax Appellate Tribunal being a statutory right in term of section 253 of the Act, despite the facts that the assessee participated in the proceedings before the AO in consequent to revision order u/s 263 of the Act. We are of the view that the right to appeal is a vested right which is inherent in a party from the commencement of the action in the court of first instance and such right cannot be taken away except by express provision or by necessary implication. Hon'ble Supreme Court in the case Hooseini Kasam Dada (India) Ltd. v. State of M.P. (1953) 4 STC 114 (SC) has ruled, 4 ITA No.1601/K/2013 Garden Reach Shipbuilders & Engineers Ltd., AY 2008-09

that when the right to appeal vests, change of law after initiation of proceedings in lower court would not divests the appellant of his vested rights. The right of appeal is a matter of substantive right and not merely a matter of procedure, and this right becomes vested in a party when the proceedings are first initiated in, and before a decision is given by, the inferior court and such a vested right cannot be taken away except by express enactment or necessary intendment. Such ruling has no application to a case where the right of appeal granted is a conditional one. In the present case before us, assessment was framed by DCIT Circle-I Kolkata u/s.143(3) of the Act for the relevant AY 2008-09 vide his order dated 20-12-2010. Subsequently, the CIT from examination of records prima facie observed that there is error in the order of the assessment in not disallowing unpaid excise duty and not making addition of value of goods being stock in transit thereby the assessment order is prejudicial to the interest of Revenue also. The CIT revised the assessment u/s. 263 of the Act vide his order dated 28-03-2013. It means that it is proved conclusively that 'lis' has commenced from the date of order passed u/s 263 of the Act by the CIT i.e., on 28-03-2013.

5. Now the question arises whether the right so conferred by the statute can be taken away merely because alternative remedy is also available to the assessee. This has been answered by Hon'ble Madhya Pradesh High Court in the case of Smt. Shantibai (supra), as cited by Ld. counsel for the assessee, wherein it is held as under:-

"We may, in this connection, also refer to the decision in Jaipur Udyog Ld. v. CIT (1969) 71 ITR 799 (SC), wherein the Supreme Court clearly pointed out that a provisional assessment does not bind the assessee or the Department. The quantum of tax computed and the levy thereof are not binding upon the assessee and the Revenue.

Tax paid pursuant to provisional assessment is liable to be adjusted in the light of the final order in the regular assessment. We may also refer to sub-s. (7) of s. 141, applicable at the relevant time, which has been deleted with effect from April 1, 1971, which prohibited any appeal against a provisional assessment made under sub-s. (1) of s. 141. The reason for prohibiting such an appeal obviously was that such provisional assessment did not bind either the assessee or the Revenue and an appeal is provided against the regular assessment at the end of the assessment proceeding. The prohibition contained in s. 141(7) did not apply to the present case, because the appeal preferred was not against the provisional assessment but against the order of the ITO at the end of the assessment proceeding, refusing to refund the amount in deposit in excess of the tax liability determined in the assessment proceeding.

As a result of the aforesaid discussion, it follows that both these references must be answered in the affirmative, in favour of the assessee and against the Revenue as under:

5 ITA No.1601/K/2013 Garden Reach Shipbuilders & Engineers Ltd., AY 2008-09

In the facts and circumstances of the case, the appeal filed by the applicant before the Appellate Assistant Commissioner of Income-tax was maintainable under section 246 of the Income-tax Act, 1961."

Another case law cited by Ld. counsel for the assessee of Hon'ble Calcutta High Court in the case of Indian Aluminium Co. Ltd. v. Commissioner of Income-Tax (1986)162 ITR 788 (Cal) wherein it is held as under:-

"In the instant case, it is not disputed that the order of assessment has been passed under section 143(3) of the Act, though a proceeding under section 144B was initiated at the outset. At that stage, the assessee did not file any objection. Under section 246©, a specific right has been given to the assessee to file an appeal against an order of assessment under section 143(3), where the assessee objects to the quantum of income of the assessee or to the quantum of tax determined. The right of appeal is a valuable right and unless expressly taken away or abandoned, it cannot be held that the assessee has abandoned or lost such right by implication. In the case of Ramanlal Kamdar [1977] 108 ITR 73 (Mad), the assessee through its partner appeared before the Income-tax Officer and stated that the assessee had no objection to the proposed revision. In the instant case, the assessee never appeared nor accepted the proposed assessment at the draft stage. The decision is distinguishable from the instant case on facts. The decision in M.K. Industries' [1979] 119 ITR 286 (All) has no application in the facts of the instant case as the said decision is on the question of allowability of a writ petition in the facts of that case.

For the reasons as aforesaid, we answer question No. 3 in the affirmative and against the Revenue."

6. To sum up this issue, a right of appeal being a sustentative right, the institution of a suit carries with it the implication that all successive available with law then in force would be preserve to the parties to the suit throughout the career of the suit. Hence, in the present case before us, the appeal filed by assessee against the revision order passed by CIT u/s 263 of the Act, a statutory right is available to the assessee u/s 253(1)© of the Income-tax Act and in terms of the same, the appeal filed by the assessee is very much maintainable. The preliminary objection raised by the Revenue is dismissed.

7. The only issue in this appeal of assessee is against the order of CIT revising the assessment framed by AO for the relevant AY 2008-09 for the reason that the assessment is erroneous and prejudicial to the interest of revenue for (i) non- disallowance of unpaid excise duty u/s. 43B of the Act and (ii) goods in transit has not been including in the purchases.

For this, assessee has raised following three grounds:

6 ITA No.1601/K/2013 Garden Reach Shipbuilders & Engineers Ltd., AY 2008-09

1) That the Commissioner of Income-tax was wrong in holding the Assessment Order for the Assessment Year 2008-09 as allegedly erroneous and prejudicial to the interest of Revenue and in setting aside the said Assessment Order.

2) That the Commissioner of Income-tax failed to appreciate that there had not been any scope of disallowance u/s 43B in relation to the unpaid Excise Duty and thus he erred in treating the Assessment Order as allegedly erroneous and prejudicial to the interest of Revenue for not making disallowance of unpaid Excise Duty u/s 43B.

3) That the Commissioner of Income-tax failed to appreciate that since the Goods-in- transit had not been included in the figure for "Purchases", there was no requirement of including such goods in transit in the closing stock and thus he erred in holding such non-inclusion of the goods in transit in closing stock as allegedly erroneous and prejudicial to the interest of Revenue.

8. Briefly stated facts are that the assessment was framed by DCIT, Circle-1, Kolkata u/s. 143(3) of the act vide his order dated 20.12.2010. The AO after verifying various details has required the assessee to explain the return of income and the same were filed by the assessee and discussed. The CIT subsequently on examination of assessment records noted that assessment order passed by the AO is erroneous and prejudicial to the interest of revenue since the AO has omitted to disallow unpaid excise duty amounting to Rs.35.43 lacs and value of stock in transit amounting to Rs.1,517.16 lacs, resulting in under assessment of tax. The assessee explained before the CIT that there is no fresh provision made in respect of unpaid excise duty of Rs.35.43 lacs. Even now before us, assessee drew our attention to annexure 9 of the Balance Sheet that this amount of unpaid excise duty of Rs.35.43 lacs pertains to earlier years and no new provision is made. Ld. Counsel for the assessee now before us also filed the copy of assessment order passed in consequence to revision order u/s. 263 of the Act wherein the AO has clearly observed after verifying the records that this excise duty of Rs.35,43,390/- was actually outstanding balance of pre-existed unpaid excise duty relevant to AY 1997-98 out of total sum of Rs.1,04,79,687/- which was disallowed u/s. 43B of the Act. Ld. Counsel for the assessee drew our attention to page 13 of assessee's paper book, which is copy of annexure 9 as certified by Sr. Manager, (Finance, taxation) of the assessee company and the statement showing the details in respect of sum referred to in clause (a), (c) and (d) of section 43B of the Act as required under the audit provisions. Relevant chart reads as under:

NATURE OF LIABILITY PRE-EXISTED ON THE FIRST DAY OF THE INCURRED IN THE PREVIOUS PREVIOUS YEAR BUT WAS NOT ALLOWED IN YEAR ANY PRECEDING YEAR BALANCES PAID NO LONG NOT PAID NEW PAID ON OR NOT PAID ON 7 ITA No.1601/K/2013 Garden Reach Shipbuilders & Engineers Ltd., AY 2008-09

DURING REQUIRED DURING PROVI- BEFORE DUE DT. OR BEFORE THE THE SION OF FURNISHING DUE DT. FOR YEAR PREVIOUS REF. U/S 139(1) FURNISHING 2007-08 YR Ref. u/s. 139(1) EXCISE 4203003.00 614413.00 45000.00 3543590.00 NIL NIL 3543590.00 DUTY SALES 18268885.00 NIL NIL 18268885.00 NIL NIL NIL TAX

In respect to transit stock the Ld. Counsel for the assessee explained as under:

"1. In respect of 'stores-in-Transit', GRSE at the end of each Financial year, while drawing up its final Accounts for that year, the following entry is passed.

Stores-in-transit Dr. To, Sundry Creditors Cr.

This entry is reversed in the following year by passing another entry as under:

Sundry Creditors Dr. To, Stores-in-transit Cr.

This accounting process is followed by GRSE consistently.

2. The Stores Items included in 'Stores-in-Transit' are duly accounted for as Purchases as and when those items are received in the following Financial Year or thereafter and consequently whichever stores items are actually received any subsequent year, are debited to the Profit and Loss Account of the said year (Refer Schedule 12) to the final accounts.

3. The particular stores items contained in 'Stores-in-Transit' as on 31.03.2008 had not been included in the "Purchases" of that year, viz. 2007-08 and consequently the value thereof was not debited to the Profit and Loss Account.

4. Following consistent practice over the years, GRSE reversed the entries relating to "Stores-in-Transit" as at 31.-3.2008, at the beginning of the next Financial year, viz. 2008-09."

9. Ld. Counsel for the assessee drew our attention to pages 15 to 23 wherein the copies of Schedule 8 (inventories) of the annual accounts for the FYs 2006-07, 2007- 08 and 2008-09 along with copies of journal entries relating to 'stores in transit' for the respective years is enclosed. The assessee has also drawn our attention to page 14 of the assessee's paper book where copy of schedule 12 (consumption of raw material and components including stores and spares) of the annual accounts for the FY 2007- 08 relevant to AY 2008-09 are enclosed. Ld. Counsel for the assessee argued that the assessee is consistently following this practice and there is no change in practice that the transit stock is not included in the purchases consequently value thereof was not 8 ITA No.1601/K/2013 Garden Reach Shipbuilders & Engineers Ltd., AY 2008-09

debited in the P&L Account. Hence, the very basis is without the authority of law the revision order is likely to be quashed.

10. We have heard rival submissions and gone through facts and circumstances of the case. In respect to the first aspect we find that the AO after verifying various details has required the assessee to explain return of income. The assessee filed details and the same were discussed. The CIT subsequently on examination of assessment records noted that assessment order passed by the AO is erroneous and prejudicial to the interest of revenue since the AO has omitted to disallow unpaid excise duty amounting to Rs.35.43 lacs resulting in under assessment of tax. The assessee explained before the CIT that there is no fresh provision made in respect of unpaid excise duty of Rs.35.43 lacs. Even now before us, assessee drew our attention to annexure 9 of the Balance Sheet that this amount of unpaid excise duty of Rs.35.43 lacs pertains to earlier years and no new provision is made. Ld. Counsel for the assessee now before us also filed the copy of assessment order passed in consequence to revision order u/s. 263 of the Act wherein the AO has clearly observed after verifying the records that this excise duty of Rs.35,43,390/- was actually outstanding balance of pre-existed unpaid excise duty relevant to AY 1997-98 out of total sum of Rs.1,04,79,687/- which was disallowed u/s. 43B of the Act. Ld. Counsel for the assessee drew our attention to page 13 of assessee's paper book, which is copy of annexure 9 as certified by Sr. Manager, (Finance, taxation) of the assessee company and the statement showing the details in respect of sum referred to in clause (a), (c) and (d) of section 43B of the Act as required under the audit provisions. Relevant chart reads as under:

NATURE OF LIABILITY PRE-EXISTED ON THE FIRST DAY OF THE INCURRED IN THE PREVIOUS PREVIOUS YEAR BUT WAS NOT ALLOWED IN YEAR ANY PRECEDING YEAR BALANCES PAID NO LONG NOT PAID NEW PAID ON OR NOT PAID ON DURING REQUIRED DURING PROVI- BEFORE DUE DT. OR BEFORE THE THE SION OF FURNISHING DUE DT. FOR YEAR PREVIOUS REF. U/S 139(1) FURNISHING 2007-08 YR Ref. u/s. 139(1) EXCISE 4203003.00 614413.00 45000.00 3543590.00 NIL NIL 3543590.00 DUTY SALES 18268885.00 NIL NIL 18268885.00 NIL NIL NIL TAX 9 ITA No.1601/K/2013 Garden Reach Shipbuilders & Engineers Ltd., AY 2008-09

In view of the factual position that the unpaid excise duty pertains to earlier years and no claim for this excise duty is made, the disallowance of excise duty is not possible. The AO has taken a correct view while framing assessment and revision order passed by CIT u/s. 263 of the Act is without jurisdiction. The assessment order is neither erroneous nor prejudicial to the interest of revenue.

11. In respect to the stock in transit, the facts are that the assessee explained from the paper book pages 15 to 23 wherein the copies of Schedule 8 (inventories) of the annual accounts for the FYs 2006-07, 2007-08 and 2008-09 along with copies of journal entries relating to 'stores in transit' for the respective years are filed. The assessee has also filed copies of ledger account of raw material and stores and spares at page 14 of the assessee's paper book where copy of schedule 12 (consumption of raw material and components including stores and spares) of the annual accounts for the FY 2007-08 relevant to AY 2008-09 are filed. We find from the arguments of Ld. Counsel of the assessee that it is consistently following this practice and there is no change in practice that the transit stock is not included in the purchases consequently value thereof was not debited in the P&L Account. In term of the above and the facts of the case, we are of the view that the assessment framed by AO in considering the inventories, i.e. stores in transit was considered and allowed, the assessment order is neither erroneous nor prejudicial to the interest of revenue. The CIT while passing revision order u/s. 263 of the Act has totally erred in revising the assessment. We quash the same. Accordingly, on both the issues the order of CIT passed u/s. 263 of the Act is quashed.

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

13. Order is pronounced in the open court on 15.05.2015

Sd/- Sd/-

(P. K. Bansal) (Mahavir Singh) Accountant Member Judicial Member

Dated : 15th May, 2015

Jd.(Sr.P.S.) 10 ITA No.1601/K/2013 Garden Reach Shipbuilders & Engineers Ltd., AY 2008-09

Copy of the order forwarded to:

1. APPELLANT - Garden Reach Shipbuilders & Engineers Ltd.,43/46, Garden Reach Road, Kolkata-700 024.

2 Respondent - CIT, Kol-1, Kolkata.

3. The CIT(A), Kolkata

4. CIT Kolkata

5. DR, Kolkata Benches, Kolkata /True Copy, By order,

Asstt. Registrar.