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TMI Blog2010 (10) TMI 732X X X X Extracts X X X X X X X X Extracts X X X X ..... as not solely relied on the directions given under S.144A for the year under appeal - when the Assessing Officer as well as the Addl. CIT who gave directions 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 - 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 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 - Decided in the favour of assessee - ITA No. 611/Hyd/2010 - - - Dated:- 29-10-2010 - SHRI N.R.S.GANESAN JUDICIAL MEMBER SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER Appellant by : Shri K.C.Devadas Revenue by : Shri A.Srinivasulu ORDER Per Chandra Poojari, Accountant M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im 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 direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 case of M/s Kishore Surfactants Vs. ACIT 11. The learned Departmental Repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 . 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/200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd not 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 cnsider 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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