Income Tax Appellate Tribunal - Mumbai
Jagdishprasad M. Joshi, Mumbai vs Assessee on 1 December, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "G", MUMBAI
BEFORE SHRI P. M. JAGTAP, ACCOUNTANT MEMBER
AND
SHRI V. DURGA RAO, JUDICIAL MEMBER
ITA No.2949/M/2006
ASSESSMENT YEAR: 2001-2002
Jagadishprasad M. Joshi, Assistant Commissioner of
J.M.J. House, 5 th Floor, Income Tax Cr-II,
Orchard Avenue, Old CGO Building Annexe,
Near Delphi Bldg., Vs. 10 th Floor,
Hiranandani, Powai, M.K. Road,
Mumbai - 400 076. Mumbai - 400 020..
PAN: AAAPJ5006B
(Appellant) (Respondent)
Appellant By : Shri R. Muralidhar
Respondent By : Shri Rajiv Khandelwal
Date of hearing : 01-12-2011
Date of pronouncement : 25 -01-2012
O R D E R
Per P.M. Jagtap, A.M:
This appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax, Central-I, Mumbai dated 22.3.2006 passed u/s 263 for the Assessment Year 2001-02.
2. The assessee in the present case is an individual who is engaged in the business of manufacturing and trading of Attar, Hina, Shemmama and other perfumery compounds in the names and styles of his 8 proprietary concerns. The return of income for the year under consideration was filed by him on 29 th October, 2001 declaring total income of Rs. 98,83,470/-. In the said return, deduction u/s 80-IA was claimed by the assessee in respect of profits derived from 2 ITA No.2949/M/2006 three of his proprietary concerns namely viz., M/s. J.M. Perfumery, Silvassa, M/s. J.M. Essential Oil Co., Silvassa and M/s. Sachin Perfumery & Cosmetics, Silvassa. In the assessment completed u/s 143(3) vide order dated 6.3.2004, the Assessing Officer restricted the claim of the assessee for deduction u/s 80-IA in respect of profits derived from his three proprietary concerns by disallowing the same to the extent it was in respect of interest income earned by the said proprietary concerns. The Assessing Officer held that such interest income was chargeable to tax under the head "Income from Other Sources" and the same, therefore, was not eligible for deduction u/s 80-IA. Accordingly the total income of the assessee was assessed by the Assessing officer at Rs. 2,34,26,880/- in the assessment completed u/s 143(3) vide an order dated 16.3.2004.
3. The records of the assessment made by the Assessing Officer u/s 143(3) came to be examined by the learned CIT and on such examination, he was of the opinion that the assessment order passed by the Assessing officer u/s 143(3) on 16.3.2004 was erroneous as well as prejudicial to the interest of revenue. The reasons for coming to the said conclusion as stated by the learned CIT in the show cause notice dated 7.3.2006 issued u/s 263 sent to the assessee were as under:
"Searches in your case were conducted on 14.3.2002 and appraisal report and seized material were available to A.O. However, first notice u/s 143(2) was issued on 26.8.2003 and then notices u/s 143(2) and 142(1) were issued only on 8.1.2004 i.e., 24 months after the filing of return for AY 2001-2002. The hearings took place on 15.1.2004 and 12.2.2004 and only matter examined by 3 ITA No.2949/M/2006 Assessing Officer regarding inclusion of interest income in claim of deduction u/s 80-IA. Thus, an assessment where gross total income was Rs. 18.00 crore and returned income was Rs. 98.83 lakhs was completed in just two hearings after examining only singly issue. No real proceedings were initiated during first two years after filing of return and then the assessment was completed in utter haste before limitation period. AO was well aware of searches, appraisal report and cases under MCOCA, 1999. Still, proper and due enquiries were not conducted by the AO. If the AO has bothered to pursue the appraisal report, he would have examined the claim of deduction u/s 80-IA in respect of three units amounting to Rs. 17.01 crore. When proper enquiries as enumerated in assessment order u/s 143(3) dated 31.3.2005 for AY 2002-2003 were conducted, Assessing Officer disallowed the claim of deduction u/s 80 IB in respect of M/s. J.M. Essential Oil Company & Sachin, Perfumery and Cosmetics and a finding was arrived to the effect that sale price was inflated to avail higher deduction under Chapter VI-A. Assessing Officer has not examined the matter in the same light for AY 2001-2002. No enquiries were conducted regarding genuineness of price charged by two proprietary concern from another proprietary concern M/s. Yogesh Perfumery and Essential Oil. It is important to note that deduction u/s 80-IB has been disallowed to M/s. Yogesh Perfumery & Essential Oil on the sales made by it in the AY 2002-2003. Further, the outcome of searches indicated that sales to M/s. Jayawant Industries Ltd. & M/s. Jayawant Products Ltd. (please refer to block assessment order dated 31.3.2005) were bogus and that claim of goods transportation was false. Similar enquiries were definitely warranted for AY 2001-2002. Still further, M/s. J.M. Laminator and Packing leased out factory, Plant & Machinery. Assessing Officer failed to make any enquiry to determine whether rental income was taxable on income from other sources."
4. Keeping in view the reasons given above, the learned CIT required the assessee to show cause as to why the assessment order passed by the Assessing Officer u/s 143(3) should not be revised u/s 263 by treating the same as erroneous and prejudicial to the interest of the revenue on the ground that there was a failure on the part of Assessing Officer to make a due enquiry and investigations warranted 4 ITA No.2949/M/2006 in the facts of the case. In the reply filed to the said notice in writing, the following submissions were made on behalf of the assessee before the learned CIT:
The Assessing Officer (AO) has passed the said order allowing deduction under chapter VI-A after proper assessment proceedings, without haste and after full consideration of search material and appraisal report.
1.1. As your honour know that assessment year 2001-
2002 was part of two block periods (firstly, for AY 1996-97 to AY 2001-02 and part period from 1.4.2001 to 14.3.2002 for which block order was passed on 31.3.2004, and secondly from AY 1997-1998 to 2002-2003 and part period from 1.4.2002 to 31.5.2002 for which block assessment order was passed on 28.5.2004) which were assessed by the same Assessing Officer with previous approval of Add. CIT. So though specific hearing recorded for the said assessment year 2001-2002 was only two but it cannot be seen in separation of assessment proceedings undertaken over a period of two years for assessment of two block period which comprise the said assessment year 2001-2002 also.
1.2. Further, even it is not your contention that the said assessment order u/s 143(3) was inconsistent with the block orders passed by the same AO with previous approval of Addl. CIT.
1.3. Further, the fact before the AO was that the assessee had been regularly allowed deduction u/s 80-IA since AY 1996-97 and the claim of the assessee under Chapter VI-A was also scrutinized in earlier search and allowed in consequential block assessment for the period from AY 1988-89 to AY 1997-98 and the part period from 1.4.1997 to 30.7.1997.
1.4. An AO, and for that mater any person, cannot prejudge or thing of the mind or circumstances of his successor while passing order for AY 2002-03 on 31.3.2005 (more than one year in future). For a matter of fact, even the assessment order for AY 2002-03 is also substantially based on the same seized material and appraisal report which were considered and relied by the erstwhile AO while passing assessment order for AY 2001-2002 and the two block periods comprising the said assessment year also.
1.5. Thus, the AO has exercised the quasi judicial power vested in him in accordance with law and arrived at a 5 ITA No.2949/M/2006 conclusion and such a conclusion cannot be termed as erroneous simple because your honour is not satisfied with the conclusion and as such it cannot be said that the order in question is prejudicial to the interest of the revenue.
1.6. Evidently the claim was allowed by AO on being satisfied with the explanation of the assessee. Thus, the decision of AO could not be held as erroneous simply because in his order he did not make an elaborate discussion in that regard.
1.7. Unless deduction allowed in earlier year u/s 80- IA/80-IB is withdrawn, they cannot be denied for subsequent year, since there is no provision for withdrawal of special deduction for breach of certain condition and thus the order passed on the basis of view of jurisdictional High Court cannot be revised.
2. It is correct to say that there was a finding by the AO for AY 2002-03 in respect of J.M. Essential Oil Company and Sachin perfumery and Cosmetics to the effect that sale price was inflated to avail high deduction under Chapter VI- A. 2.1. And so it is also incorrect to say that no enquiries were conducted regarding genuineness of price charged by two proprietary concerns from another proprietary concern M/s. Yogesh Perfumery and Essential Oil Co.
2.2. Further, the sale by two proprietary concerns to latter proprietary concern is neither erroneous nor in any way prejudicial to the interest of the revenue.
3. Your honour has stated that M/s J.M. Laminates & Packaging leased out factory, plant and machinery. The AO failed to make any enquiry to determine whether rental income was taxable on income from other sources.
3.1. This enquiry must have been made by the AO during the course of assessment proceedings for the AY under question which was also part of block assessments. Any disallowances or deduction would otherwise have been added in block assessment which attracts a higher rate of tax than normal assessment.
3.2. Further assuming without conceding that no enquiry was made to determine the head of income to be charged for rental income, how it was prejudicial to the interest of the revenue? The rate of tax is same for business income as well as for income from other sources." 6 ITA No.2949/M/2006
5. On the basis of above submissions, it was contended on behalf of the assessee that the assessment order passed by the Assessing Officer was neither erroneous nor prejudicial to the interest of the revenue calling for revision u/s 263.
6. The learned CIT did not find merit in the submission made on behalf of the assessee for the following reasons given in Para 3-5 of the impugned order:
"3. Facts and circumstances of the case and submission of the Authorized Representative are carefully considered and in my views, the assessment order u/s 143(3) dated 16.3.2004 was erroneous and prejudicial to the interest of revenue. Submission of the A.R that as two block orders were passed on 31.3.2004 and 28.5.2004 respectively, specific hearing were not recorded for AY 2001-2002, and that proceedings during block assessment were sufficient for completing the assessment for AY 2001-02, cannot be accepted. Each proceeding is separate and is governed by different provisions. For AY 2001-02, first hearing took place after about 28 months of filing return and assessment was completed after two hearing and after examining only one single issue i.e., inclusion of interest income for the purposes of deduction u/s 80-IA. The entire outcome of the searches, appraisal report etc., was simply ignored by the AO which resulted into erroneous assessment order which was prejudicial to the interest of revenue. The Authorized Representative has mentioned in Para 1.4 of his letter that AO could not have prejudged the outcome of the assessment order for AY 2..2-03 was passed on the same seized material and appraisal report. In fact Para 1.4 supports my view that had the AO examined the seized material and appraisal report etc in the same manner and after due enquiries was done by his successor while passing the order u/s 143(3) dated 31.3.2005 for AY 2002-03 were conducted, the AO disallowed deduction u/s 80 IB in respect of M/s J.M. Essential Oil Company and Sachin Perfumery and Cosmetics. Various other findings which have been arrived for AY 2002-03, and in block assessment order dated 31.3.2005 were have been arrived for AY 2002-03, and in block assessment order dated 31.3.2005 were arrived on the basis of same seized material, information, appraisal report etc., which were available to the AO at the time of passing assessment order for AY 2001-02. Failure of the Assessing 7 ITA No.2949/M/2006 Officer to consider the matter in correct perspective and failure to conduct due and proper investigation warranted under the facts and circumstances has definitely resulted into passing of erroneous assessment order which is prejudicial to the interest of revenue.
4. Further, record shows that, proprietary concern M/s J.M. Laminates & Packing has leased out the entire plant and machinery and part of the factory building and that no other activity was conducted by this concern later on. The AO was duty bound to examine the matter to decide whether the income/loss would be considered under the head "business" or as "other sources". It was submitted by the Authorized Representative that tax rate is the same for business income as well as for other sources; therefore, assessment order was not prejudicial to the interest of revenue.
5. I am unable to agree with the submission as taxing the income under correct head of income is primary duty of the Assessing Officer. The provision for computing the business income and income from other sources, provision regarding set off and carry forward are different. U/s 37(1), expenditure incurred wholly and exclusively for the purpose of the business is allowable. However, u/s 57(iii), expenses are allowable if incurred for the purposes of making or earning the income. It was held in Smt. Padmavathi Jaikrishnan 101 ITR 153 (Gujarat), approved by S.C. in 166 ITR 176, "making or earning income" points to a more specific purpose. This is one of the basic differences in computing income under "business" and "other sources".
Even otherwise, it is trite law that income falling under one specific head cannot be considered under another head (Refer: 32 ITR 688 (SC), 42 ITR 49 (SC), 150 ITR 310 (Bom). In my view, not deciding the correct head of income resulted into erroneous assessment order which was prejudicial to the interest of revenue and such an order falls within the scope of Section 263 of the I.T. Act."
7. For the reasons given above, the learned CIT set aside the assessment order passed by the Assessing Officer u/s 143(3) and directed him to pass fresh assessment order after making due enquiry and investigation by his order passed u/s 263 which has been impugned by the assessee for the present appeal filed before the Tribunal.
8ITA No.2949/M/2006
8. The learned counsel for the assessee at the outset invited out attention to the notice issued by the learned CIT u/s 263 to show that the assessment order passed by the Assessing Officer u/s 143(3) was sought to be held erroneous and prejudicial to the interest of revenue by the learned CIT by pointing out the following four errors:
1. On proper enquiry, the deduction claimed by the assessee u/s 80-IB was disallowed in the assessment made for AY 2002-03. Further there was no such enquiry, however, made by the Assessing Officer in AY 2001-02.
2. There was no enquiry conducted by the Assessing Officer regarding genuineness of price chargeable by two proprietary concerns, the profits of which was claimed as eligible for deduction u/s 80-IA/80-IB.
3. Out come of the search i.e, the adverse findings of the search were not considered by the Assessing Officer while completing the assessment.
4. The issue relating to head of income under which lease rent is chargeable to tax was not properly examined by the Assessing Officer.
9. The learned counsel for the assessee submitted that the assessment order passed by the Assessing Officer u/s 143(3), however, was finally held to be erroneous and prejudicial to the interest of revenue by the learned CIT for the reasons given at 1,3 & 4 above as is clearly evident from the concluding portion of his impugned order. The learned counsel for the assessee then proceeded to make his submissions in respect of the three errors allegedly pointed out by the learned CIT in support of the assessee's case that there were no such errors committed by the Assessing Officer. As regards the first error allegedly pointed out by the learned CIT that the claim of the assessee for deduction u/s 80-IA was 9 ITA No.2949/M/2006 allowed by the Assessing Officer without making proper enquiries, the learned counsel for the assessee invited out attention to the copies of various documents submitted before the Assessing Officer by the assessee in support of his claim for deduction u/s 80-IA. He invited our attention to the submissions made by the assessee before the Assessing Officer in response to enquiries made by the latter mainly during the course of block assessment proceedings to show that the claim of the assessee for deduction u/s 80-IA was thoroughly examined by the Assessing Officer during the course of block assessment proceedings. He submitted that the claim of the assessee for deduction u/s 80-IA on such verification and examination was disallowed by the Assessing Officer to the extent of Rs. 6.90 crores in the block assessment and addition to that extent was made to the undisclosed income of the assessee for the block period. He submitted that the issue relating to assessee's for claim of deduction u/s 80-IA, thus, was duly examined by the Assessing Officer in the block assessment proceedings which was conducted simultaneously with the regular assessment proceedings. He pointed out that the block assessment was completed by the Assessing Officer u/s 158BC on 31.3.2004 whereas the regular assessment u/s 143(3) for AY 2001-02 was completed by him on 16.3.2004. He contented that the block assessment proceedings as well as regular assessment proceedings for AY 2001-02 thus were conducted simultaneously and since the AY 2001-02 was forming part of the block period and claim of the assessee for deduction u/s 80-IA was not only examined by the 10 ITA No.2949/M/2006 Assessing Officer in the block assessment proceedings but addition was also made to the undisclosed income of the assessee by way of disallowance u/s 80-IA in the block assessment, it cannot be said that the claim of the assessee for the said deduction was not examined by the Assessing Officer in the regular assessment proceedings for AY 2001-02 as alleged by the learned CIT.
10. As regards the 2 n d error allegedly pointed out by the learned CIT in the assessment order made the Assessing Officer that the adverse findings of the search action were not considered by the Assessing Officer while allowing the claim of the assessee for deduction u/s 80- IA in the assessment for AY 2001-02 as done in AY 2002-03 wherein the claim of the assessee for the same deduction was disallowed in the assessment completed u/s 143(3), the learned counsel for the assessee submitted that the industrial units of the assessee were held to be not eligible for deduction u/s 80-IA by the Assessing Officer in AY 2002-03 based on the figures of turnover and profits of the relevant units and it was not based on any material found during the course of search. He submitted that the assessee has already preferred appeal against the assessment order passed by the Assessing Officer u/s 143(3) for AY 2002-03 and although the same is still pending with the learned CIT, the appeal filed by the assessee for AY 2003-04 wherein the claim of the assessee for deduction u/s 80-IA was disallowed by Assessing Officer following his order for AY 2002-03, has already been disposed of by the learned CIT (A) vide his order dated 25.07.2011. He invited our attention to the copy of the 11 ITA No.2949/M/2006 said order placed at page no. 292-323 of his paper book and pointed out that this issue has been decided by the learned CIT (A) in favour of the assessee holding that his units were entitled for deduction u/s 80-IB as clamed. He contended that the view taken by Assessing Officer while allowing the claim of the assessee for deduction u/s 80- IB in the assessment completed u/s 143(3) for the year under consideration, therefore, cannot be held to be an erroneous one on the ground that the said deduction was allowed by the Assessing Officer without proper examination. He submitted that the issue was duly examined by the Assessing officer in the block assessment proceedings in detail which were conducted simultaneously with the regular proceedings. He also submitted that the material seized during the course of search was relevant for the purpose of making block assessment and the Assessing Officer having considered the same while completing the block assessment, the regular assessment made by him u/s 143(3) cannot be held to be erroneous for non- consideration of seized material. He contended that the deduction claimed by the assessee u/s 80-IA/IB was allowed in the initial year and the same having not been disturbed, it could be disallowed in the subsequent year as held by the Hon'ble Bombay High Court in the case of CIT vs. Paul Brothers reported in 216 ITR 548.
11. As regards the allegation of the learned CIT that the issue relating to head of income under which lease rent was offered by the assessee had not been examined by the AO and the claim of the assessee offering it as business income was accepted by the 12 ITA No.2949/M/2006 Assessing Officer without proper examination, the learned counsel for the assessee invited out attention to the relevant portion of annual accounts of the assessee placed at Page No. 67-72 & 74 of the paper book to point out that lease rental income was clearly disclosed by the assessee as his business income and even the corresponding expenses incurred in relation to the said income were claimed as business expenses. He contented that the claim of the assessee of the rental income being his business income was accepted by the Assessing Officer after having considered all the facts and circumstances of the case and there was no error in the assessment order made by him while accepting the treatment given by the assessee to the lease rental income as business income. He contended that the rate of tax in respect of the said rental income in any case is the same irrespective of whether the same is assessed as business income or income from house property and the order of the Assessing Officer assessing the income as business income, therefore, cannot be considered as prejudicial to the interest of the revenue.
12. The learned counsel for the assessee contended that there was, thus, no error in the assessment order made by the Assessing Officer as alleged by the learned CIT in his impugned order passed u/s 263 that can be said to be prejudicial to the interest of the revenue and the learned CIT (A), therefore, was not justified in revising the assessment order made by the Assessing Officer u/s 143(3). In 13 ITA No.2949/M/2006 support of this contention, the learned counsel for the assessee relied on the following judicial pronouncements.
1. CIT vs. Gabriel India Ltd
2. Malabar Industrial Co. Ltd vs. CIT
3. Gujarat Guardian Ltd. vs. DCIT
4. Eureka Sales Corporation vs. ACIT
5. CIT vs. M/s. Vikas Polymers
6. DCIT vs. International Travel House Ltd.
7. CIT vs. International Travel House Ltd.
9. ICAI vs. DCIT (Exemption)
10. Gee Vee Enterprises vs. Addl. CIT
11. Piem Hotels Ltd. vs. DCIT
13. CIT vs. Saurashtra Cement & Chemical Industries Ltd.
14. CIT vs. Bhilai Engg. Corpn. Pvt. Ltd.
13. The learned Departmental Representative on the other hand submitted that the assessment order u/s 143(3) was apparently made by the Assessing Officer in utter haste at the fag end which cannot be denied. He submitted that the assessment in the case of the assessee for the subsequent year, however, was made by the Assessing Officer after proper and due examination which resulted in substantial addition to the total income of the assessee. He contended that this by itself was sufficient to show that proper and due enquiries were not made by the Assessing Officer while computing the assessment for the year under consideration. He read out the notice issued by the learned CIT u/s 263 as well as relevant portion of the impugned order passed u/s 263 to show that the reasons given therein are sufficient to establish that the assessment order passed by the Assessing Officer u/s 143(3) was erroneous as well as prejudicial to the interest of the revenue. He submitted that 14 ITA No.2949/M/2006 the enquiries which the AO failed to conduct in the facts and circumstances of the case have been specifically pointed out by the learned CIT in his impugned order with reference to the assessment order passed in assessee's own case for the year immediately succeeding year. He submitted that the assessment for the year under consideration that was completed by the Assessing Officer without making proper and sufficient enquiries as found by the learned CIT on examination of the relevant assessment records and this failure on the part of the Assessing Officer to make the proper and sufficient enquiries made his order erroneous as well as prejudicial to the interest of the revenue. He submitted that the learned CIT has justified his action of revising the assessment by setting aside the same for the elaborate reasons given in Para No.4 of his impugned order and placed strong reliance on the same in support of the revenue's case.
14. We have considered the rival submissions and also perused the relevant material on the record. It is observed that the assessment made by the AO for the year under consideration u/s 143(3) has been set aside by the learned CIT by exercising the powers conferred upon him u/s 263 for the reason that the claim of the assessee for deduction u/s 80-IA was allowed by the AO without making proper and sufficient enquiries. For this conclusion, the learned CIT mainly relied on the assessment made in assessee's own case for AY 2002- 2003 wherein the claim of the assessee for deduction u/s 80-IA was disallowed by the AO in the assessment completed u/s 143(3). The 15 ITA No.2949/M/2006 learned CIT also held that the adverse findings of the search conducted in the case of the assessee were not considered by the AO while making the assessment u/s 143(3) for the year under consideration and even the issue relating to head of income under which lease rental is chargeable to tax in the hands of the assessee and the assessee was not properly examined.
15. As regards the first error allegedly pointed by the learned CIT in the assessment made by the AO in not conducting proper and sufficient enquiry in relation to the assessee claim for deduction u/s 80-IA, it is observed that a reference was made by the learned CIT in his notice issued u/s 263 to the hearings that took place on 15.1.2004 and 12.2.2004 before the AO during the course of regular assessment proceedings u/s 143(3). As pointed out by the learned counsel for the assessee from the copies of submissions made on behalf of the assessee on 15.1.2004 and 12.2.2004, the relevant details and documents in relation to satisfaction of eligibility conditions of three units of the assessee namely, M/s. Sachin Perfumery & Cosmetics, M/s. J.M. Perfumery and M/s. J.M. Essential Oil Co., were furnished before the AO to establish that the said units were entitled to claim for deduction u/s 80-IA. Moreover, details of purchases and sales made by the said concerns along with additions to fixed assets and major heads of expenses claimed under major heads were also furnished by the assessee before the AO. Along with the proceedings conducted by the AO u/s 143(3), block assessment proceedings u/s 158BC were also conducted by the AO 16 ITA No.2949/M/2006 simultaneously. During the course of block assessment proceedings, the claim of the assessee for deduction u/s 80-IA was also examined by the AO particularly with reference to the adverse findings of the search action and various details and documents in this regard were furnished by the assessee before the AO during the course of block assessment proceedings as is clearly evident from the copies of relevant submissions placed at page nos. 436-775 of the assessee's paper book. A perusal of the assessment order passed by the AO for the block period as on 31.3.2004 u/s 158BC (copy placed at page nos. 257-287 of the assessee's paper book) shows that the issue relating to the claim of the assessee for deduction u/s 80-IA was duly examined by the AO in the light of material found during the course of search including the relevant statements recorded u/s 132(4) as well as the submissions made on behalf of the assessee thereon during the course of block assessment proceedings and on such examination, the deduction claimed by the assessee inter alia for AY 2001-2002 was disallowed by the AO to a substantial extent for the following reasons given at page no.18 of the block assessment order.
"Thus, it is clear from the above discussion that no AH was sold to JIL or JPL by the assessee and such sales claimed in the assessee's books are not genuine. By creating a dummy like NCM and by obtaining hawala bills for transportation, the assessee has manipulated to give a real shape to the alleged sale of AH and in the garb of the same, it has brought its own unaccounted money under the purview of section 80-IA of the Income Tax Act, 1961. Once it becomes clear that the figures related to quantity manufactured by the assessee are not ascertainable and verifiable and sales figures shown in the books are incorrect, the book results of the assessee's business also not give a true and correct state his affairs. Therefore the 17 ITA No.2949/M/2006 books of accounts of the assessee pertaining to the period under consideration are being rejected. As per the above discussions, the sales of AH allegedly made to NCM are in fact bogus and no corresponding quantity was actually manufactured. The claim u/s 80-IA to this extent has to be therefore allowed."
16. As is clearly evident from the concluding observations of the AO recorded in the block assessment order and also seen from the elaborate submissions made by the assessee in response to the specific queries raised by the AO during the course of block assessment proceedings, the claim of the assessee for deduction u/s 80-IA was properly examined by the AO during the course of block assessment proceedings and on such examination, the same was substantially disallowed by him in the assessment completed u/s 158BC vide order dated 31.3.2004 for the relevant assessment years comprising of a block period including the assessment year under consideration i.e., AY 2001-2002. It is observed that the regular assessment proceedings u/s 143(3) and the block assessment proceedings u/s 158BC were conducted simultaneously by the same AO and since the claim of the assessee for deduction u/s 80-IA was substantially disallowed in the block assessment on the basis of adverse findings of the search, the AO did not discuss the enquiries made during the course of block assessment proceedings in the assessment order regularly passed u/s 143(3). It is well settled that the scope of regular assessment proceedings is different from the block assessment proceedings and once the addition was made by the AO in the block assessment proceedings on account of disallowance of assessee's claim for deduction u/s 80-IA on the basis of adverse 18 ITA No.2949/M/2006 findings of the search, we are of the view the same issue could not have been considered by him in the regular assessment. It appears that the learned CIT (A), however, overlooked the block assessment proceedings conducted simultaneously by the same AO and relied only on the records of the regular assessment to come to the conclusion that the claim of the assessee for deduction u/s 80-IA was allowed by the AO without making proper and sufficient enquiry. As already noted by us from the relevant details and documents furnished by the learned counsel for the assessee as well as order passed by the AO in the block assessment proceedings, the issue relating to assessee's claim for deduction u/s 80-IA was duly examined by the AO by conducting proper and sufficient enquiry with reference to the adverse findings of the search and on such examination the same was disallowed to a substantial extent in the block assessment which was simultaneously done with the regular assessment. In the regular assessment made u/s 143(3), the AO therefore confined himself only to the issue relating to assessee's claim for deduction u/s 80-IA in respect of interest income since the same was not considered in the block assessment as it was not based on any adverse findings of the search. In our opinion, it, therefore, cannot be said that there was any error in the order of the AO passed u/s 143(3) in allowing the claim of the assessee for deduction u/s 80-IA without making proper and sufficient enquiry and without considering the adverse findings of the search as alleged by the learned CIT in his impugned order passed u/s 263. 19 ITA No.2949/M/2006
17. While coming to the conclusion that there was an error in the order passed by the AO in allowing the claim of the assessee for deduction u/s 80-IA in the regular assessment completed for the year under consideration, the learned CIT has heavily relied on the assessment made in assessee's case for the immediately succeeding year i.e., 2002-2003 wherein the claim of the assessee for deduction u/s 80-IA was disallowed by the AO which, according to the learned CIT (A) was a result of proper and sufficient enquiry made by the AO in that year. A copy of the assessment order passed for AY 2002- 2003 is placed on the record at page nos. 234-256 of the paper book and a perusal of the same shows that the claim of the assessee for deduction u/s 80-IA/80-IB was disallowed by the AO for the following reasons given at page nos. 15 & 16 of the said order.
"In the case of the assessee, the business of J.M. Perfumery has suffered. The assessee has closed the business of J.M. Perfumery on 19.02.2002 after availing 100% deductions u/s 80-IB over a period of five years. Similarly, the assessee has closed the business of J.M. Essential Oil Co. in October, 2004 after availing 100% deductions u/s 80-IB over a period of five years. In new units, no substantial investments were made. It is not the intention of Section 80-IB that the assessee can close dow unit after the period of five years and rehash the same business in another unit. The data compiled above is self- explanatory. All the three units in the case of the assessee are located in Silvasa. All the manufacturing activities are closely monitored by J.M. Joshi. He himself certifies the quality of the products. Nobody other than the assessee knows the manufacturing process. Thus the assessee has merely rehashed the business of J.M. Perfumery in other two units, namely, J.M. Essential Oil Co. and Sachin Perfumery & Cosmetics. Thus the conditions of section 80- IB(2)(i) is not fulfilled in the cases of two units, namely, J.M. Essential Oil Co. and Sachin Perfumery & Cosmetics. Hence, the claim for deductions by these two units, namely 20 ITA No.2949/M/2006 J.M. Essential Oil Co. and Sachin Perfumery & Cosmetics are hereby disallowed."
18. It is manifest from the relevant portion of the assessment order made by the AO for AY 2002-2003 as extracted above that the claim of the assessee for deduction u/s 80-IA/80-IB was disallowed in AY 2002-2003 for altogether different reasons and the said basis was adopted by the AO for the first time in AY 2002-2003. Although the appeal filed by the assessee against the order of the AO for AY 2002- 2003 is pending, the assessment completed for AY 2003-2004 wherein the claim of the assessee for deduction u/s 80-IB was disallowed by the AO following the assessment for AY 2002-2003, was the subject matter of appeal and as pointed out by the learned counsel for the assessee, appeal for the said year has already been disposed of by the learned CIT (A) holding that the assessee was entitled for deduction u/s 80-IB. The basis on which deduction claimed by the assessee u/s 80-IB was disallowed by the AO in the subsequent year thus has been found to be unsustainable by the learned CIT (A) in AY 2003-2004 and the learned CIT, in our opinion, was not right to hold the assessment for AY 2001-2002 as erroneous on the basis of view taken by the AO in the subsequent year which has been found to be not sustainable by the first appellate authority.
19. As regards the other error allegedly pointed out by the CIT in the order of the AO in not examining the issue relating to head of income under which the lease rent is chargeable to tax in the hands of the assessee, the learned counsel for the assessee has taken us 21 ITA No.2949/M/2006 through the relevant documents filed by the assessee along with its return of income in support of his claim that lease rent constituted his business income. As submitted by him, the treatment given by the assessee to the lease rental income as business income was accepted by the AO after taking into consideration the said details filed by the assessee as well as the relevant facts of the case and the learned CIT was not correct to say that this issue was not properly examined by the AO. Even otherwise, as rightly submitted by the learned counsel for the assessee, the rate of tax on lease rental income whether charged to tax under head business income or income from house property is the same and the learned CIT has not pointed out as to how the order of the AO in taking lease rent as business income of the assessee is prejudicial to the interest of the revenue. As such, considering all the facts of the case, we are of the view that there was no error in the order of the AO passed u/s 143(3) for the year under consideration as alleged by the learned CIT calling for revision u/s 263. In that view of the matter, we set aside the impugned order of the learned CIT passed u/s 263 and restore that of the AO passed u/s 143(3).
20. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 25 th January, 2012 Sd/- Sd/-
(V. DURGA RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 25 th January, 2012. 22 ITA No.2949/M/2006 Okk* Copy to: 1. The appellant 2. The respondent
3. Commissioner of Income Tax (Appeals)- Concerned
4. Commissioner of Income Tax, concerned
5. Departmental Representative, Bench 'G', Mumbai TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI