Income Tax Appellate Tribunal - Hyderabad
Liquors India Ltd., Secunderabad vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI N.R.S.GANESAN JUDICIAL MEMBER AND SHRI
CHANDRA POOJARI, ACCOUNTANT MEMBER
ITA No.611/Hyd/2010 : Assessment Year 2005-06
M/s. Liquors India Limited, V/s Dy. Commissioner of Income-tax
Hyderabad. Circle 16(1), Hyderabad.
( PAN- AAACL 3279 R )
(Appellant) (Respondent)
Appellant by : Shri K.C.Devadas
Revenue by : Shri A.Srinivasulu
ORDER
Per Chandra Poojari, Accountant Member:
This appeal by the assessee is directed against the order of the Commissioner of Income-tax IV, Hyderabad, dated 29.3.20010 passed under S.263 of the Income Tax Act, 1961.
2. Assessee, engaged in the business of manufacture and sale of Indian made Liquor, bulk drugs and shrimp seeds, filed return of income for the assessment year 2005-067 on 29.10.2005 declaring an income of Rs.69,56,153. Though the said return was initially processed under S.143(1) of the Act, accepting the income returned, as rounded off to Rs.69,56,150, vide intimation dated 13.3.2006, in the scrutiny assessment that ensued, after making a hefty disallowance under S.40(a)(ia) of Rs.3,85,88,419, claimed by the assessee as Trade Scheme Expenses, the income of the assessee was determined at Rs.4,55,74,570, vide order of assessment dated 31.12.2007 passed under s.143(3) of the Act.
2 ITA No.611/Hyd/10M/s. Liquors India Limited, Hyderabad.
3. While examining the assessment records for the assessment year 2005-06, the Commissioner of Income-tax noted that disallowance of trade scheme expenditure made by the Assessing Officer for the assessment years 2003-04 and 2004-05 have been upheld by the CIT(A), but the Joint/Addl.Commissioner of Income-tax Range-16, Hyderabad, mechanically ignoring the said decision of an higher authority, i.e. CIT(A), issued direction under S.144A of the Act to the Assessing Officer on 20.12.2007 to allow the claim of the assessee on account of Trade scheme Expenses. He noted that no enquiries had been conducted by the JCIT to ascertain the genuineness of the alleged expenditure claimed by the assessee. The Commissioner of Income-tax was therefore of the view that the directions of the Joint Commissioner of Income-tax under S.144A, based on which the Dy. Commissioner of Income-tax completed the assessment, vide his order dated 31.12.2007 passed under S.143(3) of the Act, were erroneous and prejudicial to the interests of the Revenue. He accordingly invoked the jurisdiction under S.263 of the Act. Gist of submissions made on behalf of the assessee questioning the jurisdiction assumed under S.263, as noted by the Commissioner of Income-tax in para 3 of his order is as follows-
"i. The assessment order in question was neither erroneous nor prejudicial to the interest of the Revenue. It was in accordance with law and based on appreciation of material on record as well as the evidence available on record.
ii. On the petition filed by the assessee u/s. 144A of the I.T. Act, it was clearly brought on record as to how and why on wrong premises the claim of trade scheme expenses was disallowed in the earlier years. It was precisely because the Assessing Officer had disallowed trade scheme expenses for the A.Ys. 2003-04 and 2004-05 without due appreciation of evidence, the assessee had to approach the J.C.I.T. in accordance with the provisions of section144A of I.T. Act with a request to consider the matter and issue suitable instructions so that the raising of huge demand of no consequence should be set at rest.3 ITA No.611/Hyd/10
M/s. Liquors India Limited, Hyderabad.
iii. A copy of the detailed explanation as submitted to the Assessing Officer i.e. covering all the aspects is being submitted to the Commissioner of Income-tax in present proceeding. The Assessing Officer had made enquiries with regard to the nature of expenditure incurred in respect of the trade expenses. The assessee's explanation had been sought in terms of a show cause notice. The case had been examined with books of account, bills, values and documents, etc. produced for verification as directed in the show cause notice. As the verification of the expenditure had been done by the Assessing Officer, the assessee's claim was established.
iv. It is not correct to suggest that the Addl. Commissioner of Income-tax mechanically ignored the decision of the CIT(A) and issued directions u/s. 144A of I.T.Act, 1961.
v. The present notice is tantamount to reiteration of a considered issue by recourse to a supervisory jurisdiction which is nothing but substitution of the judgment.
vi. The assessee's application u/s. 144A, the instructions of the JCIT to the Assessing Officer, the assessee's detailed explanation in writing are part of the records of the case. It is not for the assessee to explain or know whether the enquiries had ben taken care of by the JCIT or Assessing Officer as per the statute. The letter issued by the Assessing Officer and the detailed explanation submitted by the assessee in writing establish that there was no error in the assessment order.
vii. It was precisely for the reason that the evidence was not properly appreciated by the Assessing Officer and the CIT(A), the assessee exercised a remedy which was available statutorily. For the A.Ys. 2003-04 and 2004-05 on similar issue consequent upon by the appeal filed by the assessee, the Hon'ble ITAT Hyderabad Bench-A in ITA No.478/Hyd/2007 and 1055/Hyd/2007 allowed the appeals of the assessee and deleted the additions made on the said ground in its order dated 30-09.2009. The decision of the supervisory authority should be respected as it ought to be. The Hon'ble Tribunal had appreciated the facts brought on record in respect of earlier years and directions of the JCIT under section 144A of I.T. Act. Thus, the instruction had become part of the record before the Hon'ble ITAT and 4 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
therefore, the premises of notice of Commissioner of Income-tax u/s. 263 is not correct and objectionable too.
viii. The word 'record' as occurring in 263 is meant to include all records relating to any proceeding under the Act available at the time of examination of the case of income-tax. It cannot be confined to any particular assessment year. Hence, order of the Hob'ble ITAT for the A.Y. 2003-04 and 2004-05 should be taken into consideration by the CIT.
Hence, the point of the view of the CIT to exercise revisional jurisdiction would not be justifiable in the facts and circumstances of the assessee's case.
ix. The proposal of the CIT to cancel the directions issued u/s.
144A of the I.T. Act by the JCIT does not have any statutory support. As the direction issued u/s. 144A is not an order and therefore, cannot be subject matter of supervisory jurisdiction u/s. 263. It merges with the order passed u/s. 143(3) of the I.T. Act, 1961.
x. When a statute provides for different hierarchy of fora in relation to passing of an order -appellate or revisionary order, by no stretch of imagination can a higher authority interfere with the independence which is the basic feature of any statutory claim involving adjudicatory process.
xi. The facts and circumstances of the case do not justify the assumption of supervisory jurisdiction by the Commissioner of Income-tax. "
4. The Commissioner of Income-tax, after taking note of sequence of events which culminated in the disallowance of trade scheme expenditure for the assessment year under consideration, notwithstanding the sustenance of disallowance by CIT(A) of such expenditure for the two immediately preceding assessment years, noted that the break in continuity of the trend of the preceding two years occurred at a point of time when the assessee's appeals were pending before the Hon'ble ITAT, Hyderabad for assessment years 2003-04 and 2004-05, where the assessee had challenged the decision of the CIT(A) in upholding the disallowance of trade scheme expenditure. He noted that important question that arises is whether the 5 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
conduct of the Addl. CIT in issuing the direction under S.144A at the particular juncture, i.e. in the teeth of the order of the first appellate authority, i.e. CIT(A) confirming the disallowance of trade scheme expenditure for immediately preceding two assessment years and when further appeals by the assessee on the said issue were pending before the Tribunal, is justifiable on any criteria. Taking note of the ratio of the decision of the Hon'ble Supreme Court in the case of Union of India V/s. Kama Lakshmi Finance Corporation Limited (1992 AIR (SC) 711), the Commissioner of Income-tax framed the following questions for consideration-
(1) Whether it would be a permissible conduct on the part of an A.O. to ignore, defy or disagree with the decision or instruction of his official superiors?
(2) Is it open to him or her not to accept, in a subsequent assessment year, decision rendered by jurisdictional higher appellate authority such as CIT(A) in the very same case for earlier assessment years on identical issue? (3) Is it permissible conduct on the part of an Addl. CIT to record that he does not agree with the decision of his own jurisdictional CIT or CIT(A) in the very same case?
The Commissioner of Income-tax, observing that if such conduct or latitude, as that of the Addl. CIT, were allowed, then CIT(A)/CIT would start disagreeing with their own jurisdictional ITAT or even still higher authorities, i.e. Hon'ble High Court, and such a scenario is fraught with dire consequences for all, concluded that there can be no two opinions that the replies/answers to all the above questions raised have to be resoundingly in the negative.
6 ITA No.611/Hyd/10M/s. Liquors India Limited, Hyderabad.
5. The Commissioner of Income-tax, with a view to know as to how and why the Addl. CIT came to the decision in his directions issued under s.144A, also addressed a letter to the Addl. CIT on 17.3.2010 requesting for the relevant file containing the evidence and proceedings before him which culminated with the issuance of direction under S.144A. In his reply dated 22.3.2010, the then Addl. CIT stated that he had not maintain independent folder for each case but maintained a folder where all the 144A directions issued by him in all cases were kept and there was a common order sheet for all and relating to this particular case, there was an order sheet entry made on 19.12.2007. He also replied further that there was no specific requirement of giving opportunity to the assessee company because his direction were not prejudicial to the assessee and therefore he had called for file and issued direction which he deemed fit.
6. A serious consequence and fall out of the direction of the Addl. CIT under S.144A of the Act, as noted by the Commissioner of Income-tax in para 4.4 of the impugned order under S.263, is that when the assessee's appeals for the two immediately preceding assessment years came up for decision before the Tribunal, assessee placed reliance on the directions of the Addl. CIT under S.144A for assessment year 2005-06, and obviously, laying due natural stress of the same, the Tribunal too deleted the additions made on account of trade scheme expenses by the Assessing Officer and sustained by the CIT(A) for those two years.
7. The Commissioner of Income-tax noted that the central question that arises is whether the assessment order for the year under appeal, which was based on the direction of the Addl. CIT under S.144A can be said to be erroneous or prejudicial to the interest of revenue within the ambit of the S.263 of the Act. In the light of the ratio laid down by the Apex Court in the case of Malabar Industrial Co. Ltd.( 243 ITR 83), he noted that some indicators of error are incorrect assumption of facts, incorrect application of 7 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
law or passing order without application of mind. After detailed discussion as to the facts relating to trade scheme expenditure incurred by the assessee for the assessment year under appeal, in order to verify whether the present case of the assessee falls within any of the above three categories of errors, the Commissioner of Income-tax concluded that the facts and surrounding circumstances clearly point to collusion among the three, the assessee, Seagram and ARK Marketing Agencies, with the object of contriving diversion of funds from the assessee company in different guises. He also noted that the Assessing Officer has not applied his mind to various issues as directed by his official superior u/s. 144A, while allowing the assessee's claim for deduction in respect of trade scheme expenditure. The concluding remarks of the Commissioner of Income-tax in this behalf in para 4.14 of the impugned order on page 18 thereof, read as follows-
"4.14. In the foregoing discussion, it has been conclusively demonstrated and established that the Assessing Officer had not carried out the direction given by his official superior u/s. 144A, i.e. the direction to verify the income-tax particulars of the alleged marketing agents in order to ascertain as to whether the amounts claimed as payments by the assessee were reflected in the hands of the marketing agents. Although he evidently did not carry out this particular direction, he did not balk act recording an untrue certificate under 'Note not to the assessee', saying that necessary verification had been done. Completing an assessment without actually carrying out the verification as per 144A direction and then proceeding to record an apparently disingenuous self-certification that such verification had been carried out, would certainly establish that the Assessing Officer had assumed facts which needed to be proved and probed. Such a conduct would, at the same time, indicate absence of proper application of mind and absence of proper examination of the issue. Thus there can be no doubt that such a conduct on the part of the Assessing Officer has rendered the assessment in question erroneous. Further, when on the basis of such assumption and total non-examination, an unsubstantiated and apparently spurious claim of deduction was allowed, leading 8 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
to reduction of legitimate revenue, it evidently becomes prejudicial to the interests of the revenue."
8. Dealing with the question whether the directions of the Addl. CIT under S.144A of the Act could be said to be erroneous and prejudicial to the interests of the Revenue, the Commissioner of Income-tax after elaborate discussion as to the propriety of the Addl. CIT on various aspects, concluded in para 4.15 of his order on page 20 thereof, as follows-
".....Thus, the directions issued u/s. 144A by the said Addl. CIT, clearly show lack of proper application of mind. He fondly assumed that the assessee should go to any extent by way of expenditure in furtherance of its business interest without applying reality-check. He overlooked the fact that the primary duty of an Assessing Authority is to scrutinize claims of deduction with regard to proper evidence and the burden is on the assessee to establish such claims. Thus, there can be no doubt that the 144A directions issued by the Addl. CIT were not only erroneous but also prejudicial to the interest of revenue...."
Rejecting the contentions of the assessee before him that the directions under S.144A of the Act do not constitute an order for the purpose of S.263; and that the word 'record' for the purpose of S.263 should confine to the assessment record for the relevant assessment year alone, viz. assessment year 2005-06 alone in this case, the Commissioner of Income-tax concluded vide para 4.17 of the impugned order on page 22 thereof, that the assessment order in question as well as the 144A directions issued by the then Addl. CIT are erroneous and prejudicial to the interests of revenue, and consequently setting aside the assessment order, directed the Assessing Officer as follows-
"I direct the Assessing Officer to bring to tax the evident inflation in the assessee's claim of trade scheme expenditure with regard to ARK Marketing Agencies i.e. Rs.2,17,85,853. At the same time, he should scrutinize the 9 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
claim with regard to Gayatri Agencies by requisitioning the relevant income-tax returns and assess whatever inflation is noticed. He should also examine the assessee's gain/profit from its transaction with Seagram and bring to tax job work receipts/any other receipts from Seagram after making proper inquiries and bring on record proper evidence. He should call for and examine the TML Agreement with Seagram. He should also bring to tax the apparent inflation in conversion charges in annexure-23, i.e. Rs.75,65,440 (Rs.1,89,82,944 - Rs.1,14,17,504).
9. Aggrieved by the above order of the Commissioner of Income-tax dated 29.3.2010, passed under S.263 of the Act, assessee preferred this appeal before us.
10. Reiterating the contentions urged before the Commissioner of Income-tax, learned counsel for the assessee submitted that the order passed under S.143(3) on the very same grounds on which proceedings under S.263 of the Act were initiated were the subject matter of appeal before the Tribunal for the immediately preceding two assessment years and the Tribunal by its order dated 30.9.2009 deleted the additions made by the Assessing Officer for those years, and therefore, the order passed by the Commissioner of Income-tax is wholly unsustainable. He drew our attention to Para No.11 of the Tribunal order in ITA No.478 & 1055/H/2007 dated 30/9/2009 which reads as follows:
11. We have considered the rival submissions and perused the material available on record. There is no dispute either with regard to the identity of the marketing agents, who in facts are income tax assessees and their returns of income for the relevant years are also brought on record by the assessee. Though certain doubts have been expressed by the lower authorities with regard to the nature of service rendered or the justification for such services, we find no basis for the same. The lower authorities have not brought any record to establish the falsity of the assessee's claim with regard to the services rendered by the marketing agents in question. As for the justification for such service agents, we are of the view that the matter has to be looked from businessman's point of view and in the absence of 10 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
any material brought on record, it is not fair and proper to allege diversion of funds by the assessee or question the engagement of marketing agents by the assessee on grounds of commercial expendiency. The decision of jurisdictional High Court in the case of transport corporation of India (supra) relied upon by the learned dr is totally distinguishable, in as much as in that case the issue involved relates to secret commission paid by the assessee, whereas in the present case, the department tends to disbelieve the very existence of the marketing agency arrangement made by the assessee, though similar payments made to these very marketing agents have been allowed in other years both earlier and subsequent years. For those years, as evident from the material brought on record, assessments have been made u/s 143(3) and in pursuance of directions of competent authority u/s 144A. It is no doubt true that having claimed a particular deduction, it is for the assessee to substantiate its claim. However, when the Revenue is making a serious allegation like diversion of funds by the assessee, the burden shifts to the revenue, and it is for the revenue to bring necessary material on record to substantiate such an allegation and confront the assessee with such material. It is evident from the material available on record that as claimed by the assessee, corresponding expenditure claimed by the assessee in the earlier as well as succeeding years, except ay 2004-05, have been allowed. As such, the contention of the learned dr that no such claim was made by the assessee in the preceding year is factually wrong and contrary to the material available on record. The observations of the lower authorities with regard to absence increase in sales commensurate with the increase in expenditure by way of commission is also not factually correct as demonstrated by the learned counsel that there was substantial increase in sale of Seagram Brand of liquor for which 87% of the expenditure in question has been incurred. Considering totality of facts and circumstances of the case, we agree with the learned counsel for the assessee that the lower authorities were not justified in disallowing the claim of the assessee. We accordingly set aside the impugned order of the CIT(A) and delete the addition of Rs.2,83,50,920/- made by the assessing officer and confirmed by the CIT(A). Assessee's grounds on this are allowed.
10.1 It is submitted by learned AR. that the proceedings u/s 263 were initiated on 2.3.2010 and impugned order under S.263 was passed on 29.3.2010. At this point of time, assessee's claims for trade scheme expenses for the immediately preceding two assessment years, were allowed 11 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
as deduction by the Tribunal considering identical set of facts, vide its order dated 30.9.2009 for the assessment years 2003-04 and 2004-05 and therefore, the order passed by the Assessing Officer for the year under appeal on 31.12.2007 is neither erroneous nor prejudicial to the interests of Revenue and consequently, the order passed by the Commissioner of Income-tax is bad in law and cannot be upheld under any statutory provision. He also submitted that the direction given by the Addl. Commissioner of Income-tax under s.144A of the Act was only to examine the necessary issues and allow the claims as per law and therefore, the conclusion arrived at by the Commissioner of Income-tax that the order passed under S.143(3) on the basis of directions under S.144A is erroneous and prejudicial to the interests of Revenue, being totally contrary to the facts and evidence on record, is wholly unsustainable. He further submitted that consequent upon directions under S.144A issued by the Addl. Commissioner of Income-tax, the Assessing Officer examined the issues in dispute through a detailed questionnaire and came to conclusion that the expenditure claimed was deductible and therefore the Commissioner of Income-tax was not correct in holding that the order passed under S.143(3) was erroneous and prejudicial to the interests of Revenue. Even otherwise, it is submitted in the alternative that the directions under S.144A do not constitute an order and therefore, could not be subject matter of proceedings under S.263 of the Act. He submitted that the observation of the CIT(A) is that petition u/s 144A were submitted on 13.12.2007 i.e. the fortnight before the expiry of the statutory limitation for filing petition u/s 144A for the assessment year 2005-06 i.e. 31.3.2007 is baseless. According to learned AR, the section 144A was introduced to reduce the multiplicity of proceedings and to see that the assessments are not over pitched and there is no time limit for making an application u/s 144A as long as it is made before completion of the assessment. He submitted that it is not correct to say that the Addl. CIT has issued the directions in haste. He has taken normal time as the CIT has taken time for passing order u/s 263. Further 12 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
he submitted that the direction issued u/s 144A is not at all prejudicial to the interest of the revenue. The Addl. CIT given the direction to examine the issue as below:
i) The agreement with Pernord Ricord Group and to go through the terms to ascertain the extent of liability of the assessee in promoting IMFL brands owned by Pernord Ricord Group.
ii) The agreements entered with marketing agents, their income tax particulars, whether the amounts paid by the assessee have been reflected in the hands of the recipients, whether the terms entered with them are within the limits of the liability of the assessee as per
(i)
iii) The genuinely of the expenditure which are governed by the agreements mentioned (i) & (ii)
iv) The terms of understanding with APBCL as per the tender document, to verify the contention of needs to move stocks within the prescribed time schedule.
10.2 According to learned AR, the assessing officer duly carried out the above directions issued by the Addl.CIT. The learned counsel also submitted that the Commissioner of Income-tax failed to appreciate the explanations tendered by the assessee before the Assessing Officer in the proceedings taken up consequent upon directions issued under S.144A and also overlooked the fact that the Assessing Officer keeping in mind the evidence on record based on detailed questionnaire and on careful examination of the entirety of the facts and circumstances of the case, passed an independent order of assessment and therefore, by no stretch of imagination, the Commissioner of Income-tax can interfere with the independence of the Assessing Officer which is the basic feature of any statutory scheme involving adjudicatory process and therefore, the order passed by the learned Commissioner of Income-tax under S.263 of the Act 13 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
is clearly erroneous and a deliberate attempt to usurp the statutory provisions with the sole aim to revise the assessment so that the assessee is deprived of the refunds due to the assessee for assessment years 2003-04 and 2004-05, on account of favourable order passed by the Tribunal for those years, since such refunds can be adjusted towards the tax dues of the current year. Thus, he submitted that the order passed is with an ill motive and hence it is totally unsustainable in law. It is also submitted in the alternative that the scope of proceedings under S.263 could not be enlarged to travel beyond the issues raised in the show-cause notice relating to trade scheme expenses and therefore on that count also, the impugned order passed by the Commissioner of Income-tax is not sustainable in law. He submitted that the assessing officer made detailed enquiry at the time of completing assessment and he was satisfied regarding the genuineness of the expenditure and he opted not to make an addition on the impugned issue. This is a conscious decision of the assessing officer. If an assessing officer while acting in accordance with law make certain assessment, the same cannot be branded as erroneous by the CIT, simply because, according to him, the order should have been passed by making more additions. This section does not visualize a case of substitution of the judgement of the CIT for that of the ITO, who passed the order, unless the decision is held to be erroneous. The assessing officer while making assessment examined the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income. The CIT, on perusal of records, may be of the opinion that the addition made by the officer concerned was on the lower side and he must have made additions on the impugned issue, had he left with that assessment and it would have resulted in assessment of income at higher figure. According the learned AR, this is not possible as per the provisions of section 263 of the IT Act and CIT is not vested with the power to reexamine the accounts and determine the income at higher figure. This is because, the ITO has exercised his quasi judicial power in accordance with law and arrived at a conclusion and such a conclusion cannot be 14 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
termed to be erroneous simply because in earlier year there was an addition on account of trade expenses. He submitted that each assessment year is independent and separate assessable unit and facts of each to be considered while making assessment. Because there was an addition in earlier year on account of trade expenses same mathematical formula cannot be followed in a routine manner to make an addition on this count in the assessment year under consideration also. He submitted that the addition made in earlier assessment years have been deleted by the Tribunal and as on date there is no sustaining of addition towards trade expenses. Being so, he submitted that the order of the assessing officer cannot be said to be erroneous so far as prejudicial interest of the revenue. He further submitted that when two views are possible on an issue and the Assessing Officer has taken one such view, if the Commissioner of Income-tax does not agree with such a view, it cannot be said that the assessment order is an erroneous order or prejudicial to the interests of Revenue and therefore, the order passed by the Commissioner of Income-tax is totally unsustainable in law. He relied on the following judgements:
1. CIT Vs. Deepak Mittal (P&H HC) 324 ITR 411
2. CIT Vs. Development Credit Bank Ltd. 323 ITR 206
3. CIT Vs. Greenworld Corporation (SC) 314 ITR 81
4. CIT Vs. Gampat Ram Bishnoi (Raj HC) 296 ITR 292
5. CIT Vs. Max India Ltd. (SC) 295 ITR 282
6. Bongaigaon Refinery and Petrochemicals Ltd. Vs. Union Bank of India (Gauhati HC) 287 ITR 120
7. CIT Vs. Gabriel India Ltd. (SC)203 ITR 108
8. CIT Vs. Arvind Jewellers (Guj. HC) 259 ITR 502
9. CIT Vs. Girdhari Lal (Rajasthan HC) 258 ITR 331
10. Malabar Industries Co. Ltd. Vs. CIT (SC) 243 ITR 83
11. Ganapat Ram Bishnoi 296 ITR 292
12. Inventa Chemicals Vs. ACIT , Hyd (5 Taxman 105)
13. Order of the Tribunal dated 23.10.2009 in ITA No.834/Hyd/2008 in the 15 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
case of M/s Kishore Surfactants Vs. ACIT
11. The learned Departmental Representative on the other hand, strongly supporting the order of the Commissioner of Income-tax passed under S.263 of the Act and submitted that the issue for consideration is what the Commissioner of Income-tax noticed for the assessment year 2005- 06 and not what happened for assessment years 2003-04 an 2004-05. He submitted that the Commissioner of Income-tax noticed substantial transactions under the label 'trade scheme expenses and certain transactions with M/s. Seagrams deserve to be examined. Assessing Officer's failure to do so led the Commissioner of Income-tax to conclude that the assessment order is erroneous and prejudicial to the interests of the Revenue. As for the error that was caused by the J/Addl.CIT's decision to issue direction under S.144A that went against the principles of judicial discipline, he submitted that it is not material that the order of the Tribunal dated 30.9.2009 ruled in favour of the assessee for the preceding assessment years. That order of Tribunal dated 30.9.2009 was not passed as on the date of directions issued under S.144A. The material date in that connection was 20.12.2007 being the date on which the said directions were issued to the Assessing Officer. As on that date, the order of the Assessing Officer had merged with the order of the CIT(A) which held the field. The Addl. CIT in his direction under S.144A, after deciding the issue in principle, directed the Assessing Officer to carry out certain verification. The Commissioner of Income-tax noticed that failure to adhere to the finding of the CIT(A) was perverse. Relying on the decision of the Supreme Court in the case of Union of India V/s. Kama Lakshmi Finance Corporation (Supra), besides the decisions of Supreme Court in CIT V/s. Raison Industries Ltd. (288 ITR 322) (SC)` and of the Delhi High Court in Nokia Corporation V/s. Director of Income-tax(International Taxation) and Another (292 ITR 22), he submitted that breach of judicial discipline is impermissible.
16 ITA No.611/Hyd/10M/s. Liquors India Limited, Hyderabad.
12. The learned Departmental Representative further submitted that the Commissioner of Income-tax noticed on examination of the record that there was no evidence on the record to the effect that the Assessing Officer carried out any of the verifications in accordance with the directions given by the Addl. CIT under S.144A of the Act. Further, according to The Commissioner of Income-tax, there was failure on the part of the Assessing Officer to apply his mind to pertinent issues. Learned Departmental Representative, at this juncture submitted that when an enquiry, which was required to be made, was not made, the omission assumes proportions of an error that is prejudicial to the interests of Revenue for the purposes of S.263 of the Act. In support of this proposition reliance is placed on the following decisions-
(a) Colorcraft Kashmira Ceramic Compound V/s. ITO Ward-4(4), Thane(105 ITD 599)(Mum)
(b) Ashok Leyland Ltd V/s. CIT (260 ITR 599)-Mad.
(c) Jai Bharath Tanners V/s. CIT (264 ITR 673)-Mad.
(d) Rajalakshmi Mills Ltd. V/s. ITO (313 ITR (AT) 182)(Chennai)(SB)
(e) K.A.Ramawamy Chettiar & Another V/s. CIT(220 ITR 657)-Mad.
13. Taking us through paras 4.6 to 4.13 of the impugned order of the Commissioner of Income-tax, he submitted that the Commissioner of Income-tax found serious discrepancies which have to be answered after due process and opportunities. Briefly elaborating those discrepancies noticed by the Commissioner of Income-tax, he submitted that assessee furnished bare details, such as PAN and there was a mismatch between the expenditure recorded by the assessee and receipt accounted for by the contracting party. In the case of one transacting party, M/s. ARK Marketing Agencies, the purported agreement does not have Hyderabad region as one of its territories of operation, whereas reimbursement to M/s. ARK Marketing Agencies has been made in respect of Hyderabad territory also. The sub-
17 ITA No.611/Hyd/10M/s. Liquors India Limited, Hyderabad.
sheet totals of expenditure were not adding up to month totals of expenditure incurred on this account and assessee was unable to reconcile opening and closing balance of respective accounts, etc. Based on such discrepancies noticed, the Commissioner of Income-tax concluded that failure on the part of the Assessing Officer was not only with regard to carrying out the verification as directed by the Addl. CIT under S.144A of the Act, but also in applying mind to the available facts.
14. Learned Departmental Representative further submitted that if the order of the Tribunal is viewed in the light of the above background, the Tribunal in its order for the assessment years 2003-04 and 200-05 relied heavily on the absence of any material brought on record by the Department and decided the matter in favour of the assessee. Even though the Commissioner of Income-tax, as argued by the learned counsel for the assessee, should have subordinated himself to the decision of the ITAT for the immediately preceding years, on the same principles of judicial discipline which according to the Commissioner of Income-tax the Addl. CIT violated while issuing directions under S.144A of the Act, the Learned Departmental Representative submitted that since each assessment year is different and in as much as new fats have been unearthed in assessment year 2005-06, the decision handed out by the Tribunal for the assessment years 2003-04 and 2004-05 cannot bind the department in so far as assessment year 2005-06 is concerned. In this behalf, it is submitted that if an earlier decision is incorrect or inapplicable for any reason, it has to be reviewed and not to be perpetuated. In support of this proposition, reliance is placed on the following decisions-
(a) Shri Agasthyar Trust V/s. CIT(236 ITR 23)-SC
(b) Shriram Transport Finance Co. Ltd. V/s. ACIT(70 ITD 406)-Mad.
18 ITA No.611/Hyd/10M/s. Liquors India Limited, Hyderabad.
15. Summing up his arguments, learned Departmental Representative submitted that Addl. CIT's failure to adhere to judicial discipline in the issuance of directions under S.144A; the subsequent and incorrect assumption of commercial expediency by the Assessing Officer without any enquiry; and non-application of mind by the Assessing Officer in not noticing obvious discrepancies and in not paying heed to the directions to carry out verification, constitute errors and resulted in consequence to the prejudiced to the interests of Revenue, and in this view of the matter, this case satisfies the test prescribed by the Apex Court in the case of Malabar Industrial Co. Ltd. (Supra), for invoking jurisdiction under S.263 of the Act.
16. We have considered the rival submission and perused the material available on record. We have also carefully gone through the detailed order of the Commissioner of Income-tax passed under S.263 of the Act, besides the case-laws relied upon by the parties in support of their respective arguments. The main dispute in this appeal relates to the allowability of trade scheme expenses, claimed by the assessee to the tune of Rs.3,32,96,512. These expenses have been allowed by the Assessing Officer, vide order of assessment dated 31.12.2007, following the directions issued under S.144A of the Act, by the Addl. Commissioner of Income-tax. It is an undisputed fact that for the immediately preceding two assessment years, viz. assessment years 2003-04 and 2004-05, the decision of the Tribunal dated 30.10.2009 in ITA Nos.478/Hyd/2007 and 1055/Hyd/2007 respectively is in favour of the assessee. However, the case of the Revenue is that the Tribunal in that decision has relied on the directions issued under S.144A of the Act for the assessment year 2005-06 which is the year under consideration in this appeal, and even otherwise, the directions given by the Addl. CIT under S.144A have not been strictly complied with by the Assessing Officer while allowing the trade scheme expenses claimed by the assessee for this year. The case of the assessee is that it is not only the Assessing Officer as evident from the assessment order itself, but even the 19 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
Addl. Commissioner of Income-tax have specifically applied their mind to the allowability of trade scheme expenses, and that being so, the impugned order of the Commissioner of Income-tax is based on a mere change of opinion and substitution of his judgment to the one of the Assessing Officer, and therefore, it is beyond the scope of review envisaged under S.263 of the Act. It is also the case of the assessee that the Commissioner of Income-tax has traveled beyond the reasons stated in the show cause notice issued under S.263 of the Act, for invoking the revisional jurisdiction.
17. On careful consideration of the matter, we find that there is merit in the contentions of the assessee in this appeal. Since the issue relatable to the allowance of trade scheme expenses is covered in favour of the assessee by the decision of this Tribunal dated 30th September, 2009 in the appeals for the immediately preceding two assessment years, and since the action of the Assessing Officer in allowing the trade scheme expenses for the year under appeal, is in accordance with the decision of the Tribunal for the earlier years, it cannot be said that the assessment order is either erroneous or prejudicial to the interests of Revenue. There is no merit in the contention of the Revenue that this Tribunal in the order for the earlier years has not solely relied on the directions given under S.144A for the year under appeal. The directions given by the Addl. CIT under S.144A constitute only one of the reasons that prevailed upon the Tribunal, while accepting the contentions of the assessee with regard to allowability of trade scheme expenses. Even the fact that Department has not accepted the decision of the Tribunal for the earlier years and preferred appeals against the same before higher forum, does not mitigate in any way the binding force of the Tribunal decision on the lower authorities. Therefore, neither the fact that the Tribunal has relied upon the directions given under S.144A of the Act for the assessment year 2005-06, nor the fact that the Revenue has not accepted the decision of the Tribunal for the earlier years, render the assessment order passed under S.143(3) for the year under appeal 20 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
erroneous and prejudicial to the interests of Revenue, because the action of the Assessing Officer in allowing the trade scheme expenses is in consonance with the decision of the Tribunal for the earlier years noted above.
18. Further, a close reading of the elaborate order of the Commissioner of Income-tax under S.263 of the Act reveals that besides questioning the bona fides of the assessee in seeking directions under S.144A of the Act for the year under consideration, in the face of disallowance of trade scheme expenses for the earlier years and during pendenecy of appeals against such disallowance before the Tribunal, has also criticized the actions of the lower authorities, viz. Additional Commissioner who gave directions under S.144A of the Act, and the Assessing Officer who passed the impugned assessment order, even attributing motives to their actions. While it is evident from the impugned assessment order that the trade expenses have been allowed duly complying with the directions issued under S.144A of the Act by the Addl. CIT, the Commissioner of Income-tax in the impugned order reviewing the compliance claimed by the Assessing Officer in the impugned assessment order, came to the conclusion that the Assessing Officer has not complied with the directions given under S.144A of the Act in their entirety, because according to him, if those directions are strictly complied with by the Assessing Officer, the conclusions with regard to allowability of totality of expenses claimed would have been different, and at least a part of the trade scheme expenses, which represent the inflated portion, is disallowable. Even this conclusion of the Commissioner of Income-tax reveals that the Commissioner of Income-tax in the impugned order has been sitting on the order of the Tribunal rather than questioning the actions of the Assessing Officer and the Addl. CIT in relation to a particular issue, and is merely seeking to substitute his judgment against that of Tribunal. That being so, when the Assessing Officer as well as the Addl. CIT who gave directions 21 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
under S.144A, have applied their mind to a particular issue, it cannot be said that the assessment order is either erroneous or prejudicial to the interests of the Revenue when it is in accordance with the earlier years order of the Tribunal on similar issue. The CIT has any right and jurisdiction to come to a conclusion entirely contrary to the one reached by Tribunal in assessee's own case in earlier years on the same facts. Otherwise, it will not only shake the confidence of the public in judicial procedure as such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individual officers and not reached objectively on the basis of the facts placed before authorities. However, one thing is to be kept in mind, and that is, a decision rendered by this Tribunal is a binding decision. We are of the view that merely because the department is contemplating to file appeal against the order of the Tribunal, the Commissioner cannot refuse to follow the decision when the Tribunal has decided the issue in favour of the assessee as on the date of passing the order u/s 263 of the IT Act. The decision of the Tribunal pertain to an earlier assessment years on the impugned issue is in favour of the assessee and that is to be followed in the assessment relating to the subsequent assessment years. It may happen that the Commissioner may consider that such a decision of the Tribunal is not in accordance with the law and may also find that such a decision is the subject matter of further appeal or revision as the case may be. He may expect that the High Court may decide in favour of the Revenue, but that may take a number of years. He may be of the view that by the time the decision of the High Court arrives, a number of years may elapse by which time the exercise of the power u/s 263 may become barred. When an assessing officer has passed order which is in accordance with the subsequent orders of the Tribunal, though the said Tribunal order was not at all available at the time of passing the assessment order, in such situation it is not possible to say that the assessing officer's order is erroneous so far as prejudicial to the interest of the Revenue. The Tribunal order not available to the assessing officer, but the same is 22 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
available to CIT at the time of passing order u/s 263. Being so, the order of the assessing authority cannot be said to be erroneous as his order is in conformity with the order of the Tribunal. It is required to be noted that the decisions reached by the Tribunal is binding upon the CIT and judicial discipline demands that he should follow the decision of the Tribunal or High Court, as the case may be. It is not open for him to ignore the same on the ground that the Tribunal order on the question is subject matter of appeal before the Higher Forum. If he is permitted to take such a view, it would introduce nothing but judicial indiscipline which is not called for. It would lead to chaotic situation. The grievance of the Revenue may be real and substantial in certain cases but such situation cannot be provided for by judicial interpretation by Courts but only by an appropriate agency. In the present case, the Order of the Tribunal in assessee own case in earlier years which is delivered on similar set facts is binding on authorities below and they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such proceeding. This is breach of judicial discipline which cannot be allowed to happen. The Tribunal also in fact, has any right or jurisdiction to come to the conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the members who constituted the Tribunal and decided on the earlier occasion were different from the members who decided the case on the present occasion. But what is relevant is not the personality of the officers presiding over the Tribunal or participating in the hearing but the Tribunal as an institution. If it is to be conceded that simply because of the change in the personal of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts, it will not only shake the confidence of the public in judicial procedure as such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individuals presiding over the courts or the tribunals and not 23 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
reached objectively on the basis of the facts placed before the authorities. In view of this, CIT cannot take up the issue relating to trade expenses for revision u/s 263.
18.1 Further, we also find merit in the contentions of the assessee that the Commissioner of Income-tax, by enlarging the scope of the revision by considering the reasons not stated in the show-cause notice issued for invoking the revisional jurisdiction under S.263 of the Act, has traveled beyond the scope of the provisions of S.263 of the Act. U/s 263 Act, when the CIT forms a prima facie view that the order passed by the assessing officer is both erroneous and prejudicial to the interest of revenue, he is obliged to afford an opportunity to the assessee before passing an order, to the prejudice of the assessee. The Commissioner sought to accord such an opportunity to the assessee by putting him to notice as regards aspects with the assessing officer failed to scrutinize. In the present case, CIT issued a notice dated 2.3.2010 to consider the following issue as seen from the Para 3 of the said notice:
3. It is seen that the assessing officer had neither examined nor applied his mind to the following points:
a) it is seen that you had claimed an amount to the tune of Rs.3,32,96,512 on account of "Trade Scheme Expenses". In this case addition made in assessment years 2003-04 and 2004-05 on similar issue, was upheld by the CIT(A). The JCIT Range-16, Hyderabad mechanically ignored the above decision of CIT(A) and issued directions u/s 144A of the Act to the assessing officer on 20.12.2007 to allow the expenditure claimed towards trade scheme expenses. No enquiries had been conducted by the JCIT to ascertain the genuineness of the alleged expenditure incurred by the assessee. Hence, the directions of the JCIT tax issued u/s 144A to allow the expenditure claimed towards trade scheme expenses appear to be both erroneous and prejudicial to the interest of revenue.
18.2. The other issues dealt by the CIT in para 4.11 , 4.12, 4.13. and 4.14 which did not find place in the notice cited supra. In our opinion, it was always open to CIT to put such issues, found by him based on material 24 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
on record, to the assessee. It is admitted fact that there is nothing on record which would show that the assessee was given an opportunity to these issues which form part of the order in revision dated 29.3.2010, but were not part of notice dated 2.3. 2010. Though, the learned DR agreed that there was nothing on record which would establish the contrary. It was, however, contended that the assessee would have get its opportunity to give explanation to the issue raised in the revisional order before the assessing officer and that such an opportunity would meet the requirement of the provision. In our opinion, this is not the position envisaged in law. If one were to permit correct of such a grievous error in such a manner, it would tantamount to committing errors again, which shall be avoided by all means. The assessment, unless reopened by paying faithful obeisance to statutory provision and conditionalities provided therein, attain finality on their conclusion. The provisions of 263 mandate that an order for enhancing, or modifying the assessment, or canceling the assessment and directing a fresh assessment can only be passed after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as is deemed necessary. The threshold condition for revision of the assessment is that before passing an order u/s 263, an opportunity has to be granted to the assessee and, such an opportunity granted to the assessee is a necessary concomitant of the enquiry, the commissioner is required to conduct to come to a conclusion that an order for either an enhancement or modification of the assessment or, as in the present case, an order for cancellation of the assessment is called for, with a direction to the assessing officer to make a fresh assessment. This defect cannot be cured by first carrying the revision and then granting the opportunity to the assessee to respond to the issues raised before the assessing officer during the course of fresh assessment. It is a requirement of sec.263 of the Act that the assessee must have an opportunity of being heard in respect of those discrepancies noticed by the CIT. To accord an opportunity after setting aside the assessment order, would in our view, not meet the mandate of the sec. 263 25 ITA No.611/Hyd/10 M/s. Liquors India Limited, Hyderabad.
of the IT Act. If such an interpretation is accepted it would make light of the finality accorded to an assessment order which cannot be revised unless due adherence is made to the conditionaltities incorporated in the provisions of Act in respect of such power vested with the CIT. In our opinion, the issues dealt by CIT other than issue mentioned in the notice cannot be formed part of the order passed u/s 263.
19. In the light of the above discussion and considering totality of facts and circumstances of the case, we hold that the impugned order of the Commissioner of Income-tax passed under S.263 of the Act is not sustainable in law, as the impugned order of assessment passed under S.143(3) of the Act allowing the trade scheme expenses in accordance with the directions given by the Addl. CIT under S.144A of the Act, is neither erroneous nor prejudicial to the interests of the Revenue. We accordingly cancel the same, allowing the grounds of the assessee in this appeal.
20. In the result, assessee's appeal is allowed.
Order pronounced in the Court on 29.10.2010
Sd/- sd/-
(N.R.S.Ganesan) (Chandra Poojari)
Judicial Member. Accountant Member.
Dt/- 29th October, 2010
Copy forwarded to:
1. M/s. Liquors India Limited, C/o. M/s. Sekhar & Co, Chartered Accountants, 133/4, R.P.Road, Secunderabad..
2. Dy. Commissioner of Income-tax 16(1), Hyderabad
3. Commissioner of Income-tax IV, Hyderabad.
4. The D.R., ITAT, Hyderabad.
26 ITA No.611/Hyd/10M/s. Liquors India Limited, Hyderabad.