Income Tax Appellate Tribunal - Jaipur
Emgee Cables & Communications Ltd. , ... vs Assessee on 20 January, 2014
IN THE INCOMETAX APPELLATE TRIBUNAL
JAIPUR BENCH: JAIPUR
(BEFORE SHRI H.M. MARATHA, JUDICIAL MEMBER AND
SHRI N.K. SAINI, ACCOUNTANT MEMBER)
I.T.A. No. 366/JP/2012
Asstt. Year- 2007-08
M/s Emgee Cables & The Commissioner of Income Tax,
Communication Ltd. Vrs. (OSD)(Central), Jaipur.
T-16, 3rd Floor, Alankar Plaza,
Central Spine, Vidhyadhar Nagar,
Jaipur.
PAN No. AAACE3633Q
(Appellant) (Respondent)
Assessee by :- Shri G.G. Mundra
Department by :- Shri Subhash Chandra , D.R.
Date of hearing : 20/01/2014
Date of pronouncement : 31/01/2014
ORDER
PER: N.K. SAINI, A.M. This is an appeal by the assessee against the order dated 28/03/2012 of the Ld. Commissioner of Income Tax (Central), Rajasthan. Following grounds have been raised in this appeal.
"1. That the invoking of provisions of Section 263 of the I.T. Act, 1961 in case of the appellant by the Ld. CIT was without jurisdiction, wrong and bad in law.
2. That on the facts and in the circumstances of the case, the Ld. CIT is wrong, unjust and has erred in law in holding that the assessment completed by the Assessing Officer on 30/11/2009 u/s 143(3) of the I.T. Act, 1961 in case of the appellant was erroneous on facts and in law and prejudicial to the interest of revenue on the ground that the ITA 366/JP/2012 2 Assessing Officer has wrongly allowed set off of brought forward unabsorbed business losses against income from interest, commission and sale of assets amounting to Rs. 9715587/- by allegedly holding that these income are not assessable under the head "income from business".
3. The assessee craves the permission to add or to amend to any of ground of appeal or to withdraw any of them."
2. The grievance of the assessee in this appeal relates to the invoking of provisions of Section 263 of the IT Act, 1961 (hereinafter referred to as the Act) by the Ld. CIT.
3. Facts of the case that the assessee was engaged in the business of manufacturing and trading of Copper/Wires/Cables and Electric Items and had shown total business income at Rs. NIL after set off of earlier business losses of Rs. 19,70,402/- in its return of income. The Assessing Officer completed the assessment at an income of Rs. NIL after set off of brought forward unabsorbed business losses of Rs. 36,57,073/-. The Ld. CIT observed that the Assessing Officer while completing the assessment had treated the income from interest, commission and sale of assets as income from other sources but had wrongly allowed set off of the brought forward unabsorbed business losses against the said income from interest, commission and sale of assets amounting to Rs. 97,15,587/-. He, therefore, proposed to set aside the assessment order u/s 143(3) dated 30/11/2009 of the Act passed by the Assessing Officer and accordingly issued a notice u/s 263 of the Act.
ITA 366/JP/2012 3
4. In response to the said notice, the assessee vide letter dated 14/3/2012 submitted as under:-
"In this connection we have been directed to submit that assessment order is neither erroneous nor prejudicial to the interest of revenue. The assessee company in course of assessment proceedings filed all the details in respect of said income (s) and Ld. A.O. after considering the said details and nature of receipts and its nexus with business of assessee company rightly treated and assessed as income from business. Thus it is clear that the Assessing Officer considered the issue though not mentioned in the assessment order still it cannot be said that the order was erroneous. Reliance is placed on the ITAT judgment in the case of Infosys Technologies Ltd. Vs. JCIT (2006) 286 ITR (AT) 211 (Bang). These very incomes were assessed as income from business in earlier year(s) and, therefore, rule of consistency applies and there is no basis of prejudice under such circumstances.
Without prejudice to above, it is submitted that the assessee has rightly declared the (i) interest receipt of Rs. 25,64,156/- and (ii) commission receipts of Rs. 67,60,123/- as income from business and correctly dealt the profit on sale of assets in accordance with section 32 of I.T. Act, 1961 by reducing sale value of asset from WDV of block assets. The income from interest and commission receipts are not taxable under the head income from other sources on following grounds:
(i) Interest receipts Rs. 25,64,156/-:- The interest is received from parties to whom advances were made by company out of funds of C.C. Limit of Bank and thus business funds were advanced to reduce burden on interest payable to Bank and so the interest receipts are business income.
ITA 366/JP/2012 4 The said funds advanced were neither out of share capital or company nor out of surplus funds of company and, therefore, same cannot be considered as income from other sources of company nor out of surplus funds of company and, therefore, same cannot be considered as income from other sources. These advances were made in earlier years as is evidenced from copy of accounts filed in course of assessment proceedings and thus they are not short term advances but are long term advances. The moneys on which interest was earned were advanced in course of business. The assessee company utilized business funds lying temporarily surplus for earning interest and, therefore, such interest was assessable as business income. Reliance is placed on CIT Vs. Tirupati Woolen Mills Ltd. (1992) 193 ITR 252 (Cal.). In all the earlier assessments completed u/s 143(3) the interest receipts from these parties have been treated as business income and thus rule of consistency also applies and no different treatment can be accorded in this year. It is a settled law that interest can be assessed under the head 'Income from other sources' only it cannot be brought within other specific head.
(ii) Commission receipts Rs. 67,60,123/-:- The commission has been received for rendering services to other persons dealing in the similar products as that of company. The commission receipt is always a business receipt as having received through a systematic and organized activity. It is wrong to held that the assessee company being a manufacturer it could not have business income from commission. The notice does not point out how commission income can be treated as income from other sources.
(iii) Profit on sale of assets Rs. 3,91,308/-:- As already stated the profit of sale of business assets is not income from other sources but is to be ITA 366/JP/2012 5 dealt in accordance with Section 32 of I.T. Act, 1961 i.e. by reducing sale value of asset from WDV of block of assets. The assessee has also met treatment to profit on sale of assets in same way as is evident from computation of income and depreciation chart filed. It is thus submitted that assessment order passed in accordance with law cannot be held as erroneous or prejudicial to the interest of revenue. The A.O. has examined and considered the issue and so it cannot be held as erroneous.
Without prejudice to above even for argument sake if it is taken that the A.O. has followed one of the permissible view it cannot be said that the assessment order is erroneous and prejudicial (refer CIT Vs. Green World Corporation (2009) 314 ITR 81 (SC).
5. The Ld. CIT did not find merit in the submissions of the assessee. He also did not accept this contention of the assessee that the incomes shown from interest, commission and profit on sale of assets would fall under the head "Income from Business" and profession for the following reasons:-
(a) The main source of the assessee's business is the business of manufacturing and trading of Copper Wires/Cables and Electric Items and money lending or commission agency was not the part of assessee's main objectives. Thus the income earned from any activity other than manufacturing or trading of Copper wires, cables and Elecric items cannot be termed as income from business or profession.
ITA 366/JP/2012 6
(b) The A.O. has not ascertained whether own funds of the assessee company or borrowed funds were given on interest.
(c) The assessee company was having share capital of Rs. 3.89 Crore and the company alongwith reserves of Rs. 7.49 crores as on 31/3/2007. Therefore, it can safely be presumed that the advances were made out of own funds of the assessee and the interest income on such funds fell under the head income from other sources.
(d) The assessee's contention that these advances were made in earlier years cannot be a basis for not treating the receipt from such advances by way of interest as income from other sources.
(e) The commission income earned by the assessee is not from the regular business and it was an ancillary income, therefore, it cannot be treated as income from business or professional.
(f) The profit earned from sale of assets does not fall under the head of business income but is assessable under a separate Head of Income from Capital Gains, thus the assessee's contention is not acceptable.
The reliance was placed on the following case laws:-
(a) Ferro Concrete Construction (India) Pvt. Ltd V. CIT, 290 ITR 713 (MP).
(b) CIT Vs. Gimpex P. Ltd. 268 ITR 0377 (Mad).
(c) CIT Vs. Haribhai Estate Pvt. 242 ITR 0706 (SC)
(d) CIT Vs. Monarch Tools Pvt. Ltd. 260 ITR 0258 (Mad.).
(e) Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT, 227 ITR 0172(SC).
ITA 366/JP/2012 7
6. The Ld. CIT considered the assessment order as erroneous and prejudicial to the interest of the revenue and accordingly directed the Assessing Officer to complete the assessment de novo by observing in para 9 of the impugned order as under:-
"In the assessment completed u/s 143(3) of the Act for A.Y. 2007-08 in the assessee's case the A.O. has allowed set off of earlier years business losses against the income from other sources which cannot be allowed to be set off in view of express provisions of Section 72(1)(i) of the Act. Thus after considering all the facts and circumstances of the case, there remains no doubt that the brought forwarded business losses can be set off against the profits and gains of business or profession carried out by the assessee for the current assessment year as per provision of section 72(1)(i) of the Income Tax Act, 1961. The other income shown by the assessee of Rs. 97,15,587/- is to be taxed under separate head of income i.e. Income from Other Sources and Capital Gains and brought forward losses are not eligible for set off against such income, which has resulted in under assessment to this extent. As such, I am satisfied that the impugned assessment order u/s 143(3)dated 30/11/2009 for A.Y. 2007-08 is erroneous and prejudicial to the interest of revenue and is set aside in respect of the issue of under assessment of wrongly set off of brought forward business loss against the income of Rs. 97,15,587/- treated as income from other sources and such income of Rs. 97,15,587/- is to be taxed under separate head 'Income from Other Sources and Capital Gains as discussed above. The A.O. is directed to complete the assessment de novo on the lines indicated above after giving an opportunity to the assessee of being heard.
ITA 366/JP/2012 8 Now the assessee is in appeal.
7. The Ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the incomes of the assessee, which were alleged to be assessed as income from other sources and not from income by business was as follows:-
Interest Rs. 25,64,156/-
Commission Rs. 67,60,123/-
Profit on sale of assets Rs. 3,91,308/-
Rs. 97,15,587/-
It was stated that the assessment order was neither erroneous nor prejudicial to the interest of revenue and the assessee during the course of assessment proceedings, filed all the details in respect of the said incomes and the Assessing Officer after considering the said details and nature of receipts and its nexus with business of the assessee, rightly treated and assessed those as "income from business". It was further stated that the interest was received from the parties to whom advances were made by the company out of funds of CC limit of bank and thus business funds were advanced to reduce to burden of interest payable to bank, so it was a business income. It was further submitted that the commission had been received for rendering services to other persons dealing in the similar products as that of company and the commission receipt was always a business receipt as having received through a systematic and organized activity. So it was ITA 366/JP/2012 9 wrong to held that the assessee company being a manufacturer, could not have disclosed income from commission.
8. As regards to profit on sale of business assets, it was stated that this income was not from other sources but was to be dealt in accordance with Section 32 of the Act i.e. by reducing sale value of assets from Written Down Value of block of assets and the assessee had also met treatment to profit on sale of assets in the same way as was evident from computation of income and depreciation chart. It was further stated that in earlier years also, the similar incomes were considered as business income by passing the assessment order u/s 143(3) of the Act. It was, accordingly, submitted that the Ld. CIT was not justified in considering the assessment order as erroneous and prejudicial to the interest of the revenue.
9. In his rival submissions, the Ld. D.R. supported the impugned order passed by the Ld. CIT.
10. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, the Assessing Officer invoked the provisions of Section 263 of the Act. The said powers may be summarized as under:-
(i) "The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interests of the Revenue. Both the conditions must be fulfilled.
ITA 366/JP/2012 10
(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it is only when an order is erroneous, that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice for the requirement or order being erroneous.
(iv) if the order is passed without application of mind, such order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the interest of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view -with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under the law.
(vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the CIT, while exercising his power under s. 263, is not permitted to substitute his estimate of income in place of the income estimated by the AO.
(vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion.
ITA 366/JP/2012 11
(viii) The CIT, before exercising his jurisdiction under s. 263, must have material on record to arrive at a satisfaction.
(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allowed the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.
11. In the instant case, the Assessing Officer considered the commission income and the interest income received from the debtors etc. by the assessee as business income and allowed the set off of unabsorbed losses. The said view was taken in consonance with the view than in earlier year. In the present case, it is noticed that the Ld. CIT in the show cause notice dated 22/12/2011 u/s 263 of the Act in para 4 observed as under, "scrutiny of assessment records revealed that the failure of the Assessing Officer to make proper verification and allowing incorrect set off has made the assessment order erroneous in so far it is prejudicial to the interest of the revenue." From the above observation, it appears that the Ld. CIT wanted that the Assessing Officer should make re- verification, therefore, it cannot be said that the assessment order passed by the Assessing Officer was without making proper enquiry and when the Assessing Officer has taken one of the possible view, it cannot be said that the assessment ITA 366/JP/2012 12 order passed by the Assessing Officer was erroneous or prejudicial to the interest of the revenue. On a similar issue, the Hon'ble Supreme Court in the case of CIT Vs. Green World Corporation (2009) 314 ITR 81 (SC) (supra) has held as under:-
The Income-tax Officer, while passing an order of assessment performs a judicial function. A revision application lies before the Commissioner. It is trite that the jurisdiction exercised by the revisional authority pertains to his appellate jurisdiction. The jurisdiction under section 263 can be exercised only when both the following conditions are satisfied
(i) the order of the Assessing Officer should be erroneous, and (ii) it should be prejudicial to the interests of the Revenue. These conditions are conjunctive. An order of assessment passed by the Assessing Officer should not be interfered with only because another view is possible.
The Commissioner, or for that matter, any other higher authority, may have supervisory jurisdiction over the Assessing Officer but it is difficult to conceive that even the merits of the decision should be discussed and should be rendered by the higher authority, who is a supervisory authority. It is one thing to say that while making the orders of assessment the Assessing Officer should be bound by the statutory circulars issued by the CBDT but it is another thing to say that the assessing authority exercising quasi-judicial functions, keeping in view the scheme contained in the Act, would lose his independence to pass an independent order of assessment. When a statute provides for different hierarchies providing for forums in relation to passing of an order as also appellate or revisional order, by no stretch of imagination can a ITA 366/JP/2012 13 higher authority interfere with the independence which is the basic feature of any statutory scheme involving adjudicatory process. Considering the totality of the facts as discussed hereinabove and keeping in view the ratio laid down by the Hon'ble Supreme Court in the aforesaid referred to case, we are of the view that the Ld. CIT was not justified in setting aside the assessment order dated 30/11/2009 by invoking the provisions of Section 263 of the Act. Accordingly, the impugned order is set aside and the assessment order passed by the Assessing Officer is restored.
12. In the result, appeal of the assessee is allowed.
(Order pronounced in the open court on 31/01/2014) Sd/- Sd/-
(HARI OM MARATHA) (N.K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Jaipur, Dated : 31/01/2014 * Ranjan Copy forwarded to :-
1. Appellant - M/s Emgee Cables & Communication Ltd. , Jaipur
2. Respondent- The CIT, (OSD)(Central), Jaipur,
3. The CIT (A)
4. The CIT
5. The D/R Guard file (I.T.A. No. 366/JP/2012) By Order, AR ITAT Jaipur.