Income Tax Appellate Tribunal - Rajkot
Kiran Roadlines,, Gandhidham vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
Before Shri A.L. Gehlot (AM) and Shri D.T. Garasia (JM)
I.T.A. No. 143/Rjt/2008
(Assessment year 2003-04)
M/s Kiran Roadlines vs ACIT, Cent.Cir.1
Plot No.120 Rajkot
Sector-2, Gandhidham
PAN : AACFK1870E
(Appellant) (Respondent)
Appellant by : Shri JC Ranpura
Respondent by: Shri SL Meena
ORDER
A.L. Gehlot : This is an appeal filed by the assessee against the order dated 19- 02-2008 u/s 263 passed by the Commissioner of Income-tax-I, Rajkot for the assessment year 2003-04.
2. The effective ground raised in the appeal is that the order u/s 263 of the Act passed by the Commissioner of Income tax is without jurisdiction and bad in law.
3. The brief facts of the case are that during the review of the file the Commissioner noticed that the assessee has claimed Rs. 19,26,245 as penalty in the profit & loss account. The Commissioner was of the view that after insertion of Explanation to section 37(1), such penalty is not allowable expenses. The Commissioner held that the order passed by the assessing officer is Erroneous and prejudicial to the interest of the revenue. Accordingly he set aside the assessment order dated 17-01-2006 with the direction to reframe the assessment after taking into account the discussion made by him in his order and pass a fresh order as per law.
2 ITA No.143/Rjt/20084. The ld.AR reiterated the submissions which were made before the lower authorities and submitted that in original assessment the assessing officer, after considering detailed replies submitted by the assessee allowed the expenditure. The ld.AR in this regard referred to query letter issued by the assessing officer and reply filed by the assessee dated 28-12-2005. Copies of show cause notice and reply of the assessee have been placed at paper book pages 8 to 13. The assessing officer vide his letter dated 28-12-2005 at paragraph 11 asked the assessee as to why expenditure of Rs.19,26,245 should not be disallowed since as per the audit report column No.17(e) above expenses were incurred in violation of law. In reply to the said letter the assessee vide letter dated 03-01- 2006 explained that the over loading charges paid to RTO is nothing but the charges on account of over load of the goods and the related income has been offered for tax as business income. To earn that business income by varying over load, these so called penalty expenses have been incurred and therefore, the so-called penalty is not penalty but in fact it is expenses related to the over load revenue being subjected to tax. The ld.AR further submitted that when there are two possible views and the assessing officer has taken one possible view, the Commissioner cannot invoke provisions of section 263 of the Act. He relied upon the following decisions which were relied upon before the Commissioner also:
CIT vs Arvind Jewellers - 259 ITR 502 (Guj) CIT vs Mehsana District Co-op Milk Producers Union Ltd 263 ITR645 (Guj)
5. The ld.AR further submitted without prejudice that the income earned on overloading the trucks is offered for tax and hence expenditure to earn that income is an allowable expenditure. For this proposition the ld.AR relied upon the judgment of the Hon'ble Madras High Court in the case of CIT vs NM Parthasarathy 212 ITR 105 (Mad) and the decision of the ITAT, Delhi Bench in the case of ITO vs VM Prakash Arunkumar 91 TTJ 170 (Del). It is also the submission of the ld.AR that similar expenditure disallowed in assessment year 3 ITA No.143/Rjt/2008 2002-03 in an order u/s 143(3) r.w.s. 147 was deleted by the CIT(A)-IV, Ahmedabad vide order dated 21st March, 2007. The ld.AR further submitted that the order of the assessing officer is not erroneous. He relied upon the following judgments:
CIT vs. Arvind Jewellers 259 ITR 502(Guj) CIT vs. Mehsana Dist Co-op. Milk Producers Union Ltd 263 ITR 645 (Guj) Malabar Industrial Co Ltd vs. CIT 243 ITR 83(SC)
6. The ld. DR, on the other hand, relied upon the order of the Commissiner and submitted that the case laws cited by the ld.AR are not applicable to the facts of the case under consideration. He further submitted that it is a clear case of violation of Explanation to provisions of section 37(1) of the Act, and therefore, there is no question of two views. The ld. DR referred to paragraph 6 of order u/s 263 and submitted that the Commissioner has observed that assessing officer is expected to take one view which is sustainable in law, but in the case under consideration the view taken by the assessing officer is not sustainable in law.
7. We have heard the learned representatives of the parties, record perused. The issue under consideration is pertaining to section 263 of IT Act. The said section reads as under:-
"263. (1) The Commissioner may call for and examine the record3 of any proceeding under this Act, and if he considers that any order passed therein by the 4[Assessing] Officer is erroneous in so far3 as it is prejudicial to the interests of the revenue3, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment3 and directing a fresh assessment.5
[Explanation.--For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,--
(a) an order passed 6[on or before or after the 1st day of June, 1988] by the Assessing Officer shall include--4 ITA No.143/Rjt/2008
(i) an order of assessment made by the Assistant Commissioner 7[or Deputy Commissioner] or the Income-tax Officer on the basis of the directions issued by the 8[Joint] Commissioner under section 144A;
(ii) an order made by the 8[Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under section 120;
(b) "record" 9[shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal 10[filed on or before or after the 1st day of June, 1988], the powers of the Commissioner under this sub-section shall extend 10[and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.] [(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.] (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, 12[National Tax Tribunal,] the High Court or the Supreme Court.
Explanation.--In computing the period of limitation for the purposes of sub- section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded."
7.1 From a reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is " erroneous in so far as it is prejudicial to the interests of the Revenue". It is not an arbitrary or unchartered power. It can be exercised only on fulfillment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is 5 ITA No.143/Rjt/2008 erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this subsection, viz.
(1) the order is erroneous ;
(2) by virtue of the order being erroneous prejudice has been caused to the
interests of the Revenue.
It has, therefore, to be considered first as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment"
and "erroneous judgment" have been defined in Black's Law Dictionary. According to the definition, "erroneous" means "involving error; deviating from the law". "erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is defect that is jurisdictional in its nature, similarly, "erroneous judgment" means "one rendered according to course and practice of court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles. An order cannot be termed as erroneous unless it is not in accordance with law. If an Income tax Officer acting in accordance with law makes an assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the AO should made thorough enquiry and order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some changes. The Commissioner, on 6 ITA No.143/Rjt/2008 perusal of the records, may be of the different opinion than the opinion of the Income-tax Officer. That would not vest the Commissioner with power to re- examine the accounts and express different opinion. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent.
7.2 In the light of the above discussion if we consider the facts of the case under consideration we find that the auditor has qualified his report stating that the expenditures are incurred in violation of law. It may mention that an view taken by auditor is not final under the Income Tax Act. It is simply an opinion which may not be conclusive according to the provisions of the Act. The audit report was submitted along with the return of income. The assessing officer has examined the issue in detail by issuing query letters. The assessee furnished reply to that and after that the assessing officer found that the expenditure incurred was for the purpose of the business. It is also to mention that when the assessing officer is convinced with the assessee's explanation, it is not necessary to discuss that issue in detail in the assessment order. We also find on the basis of various decisions including the decisions cited by the assessee before us and before the Commissioner that the issue is to be decided after considering the facts of the particular case. It cannot be decided by nomenclatures like in this case 'penalty'. On examination of the details the assessing officer found that the expenditure incurred was for the purpose of business though in the profit & loss account and books of account the nomenclature has been mentioned as 'penalty'. Under the circumstances, we are of the considered view that such order of the assessing officer cannot be said to be erroneous as he passed the order after applying mind.. Thus, one of the 7 ITA No.143/Rjt/2008 conditions to establish that the order being erroneous is absent; the power exercised by the Commissioner u/s 263 is erroneous. We, therefore, quash the order u/s 263 of the Act passed by the Commissioner of Income-tax-I, Rajkot.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 23-12-2010.
Sd/- sd/-
(D.T. Garasia) (A.L. Gehlot)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Rajkot, Dt : 23rd December, 2010
Pk/-
copy to:
1. the appellant
2. the respondent
3. the CIT-I, Rajkot
4. the DR
(True copy) By order
Asstt.Registrar, ITAT, Rajkot