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TMI Blog2006 (8) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... The return so filed by the assessee was selected for scrutiny with the approval of ld. Chief CIT, Allahabad and thereafter regular assessment proceedings were initiated by issue of notice under section 143(2). During the course of regular assessment proceedings, the assessee produced books of account and other relevant records as also the details as were called for from time to time. The assessee s claim for relief under section 80-IB was also examined and consequent upon such examination it was reduced by a sum of ₹ 3,33,250. After such an examination, the Assessing Officer completed the regular assessment vide order dated 28-3-2005. 3. The notice under section 263 of the Act dated 7-6-2005 was issued on various grounds summarised as below : (i) relief under section 80-IB had been allowed without there being on record, the requisite report of an Accountant as defined in section 288 of the Act; (ii) claim of brokerage amounting to ₹ 10,14,335, which is much higher from the immediately preceding year has not been properly examined; (iii) premium received on allotment of 7 lakhs equity shares has not been transferred to Securities Payment Premium Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-3-2005 by TRO, R-II(1), Allahabad is erroneous insofar as it is prejudicial to the interest of the revenue. The ITO has illegally allowed the deduction under section 80-IB of the Income-tax Act, even though the mandatory audit report was not filed alongwith the return. The Assessing Officer did not examine the case properly as discussed above. Therefore, the assessment order is set aside with the direction to the Assessing Officer to pass a fresh order in accordance with law in the light of the observations made in the foregoing paragraphs and after affording the assessee reasonable opportunity of being heard. While framing re-assessment, the Assessing Officer shall be at liberty to examine other issues also which may come to his notice during the course of reassessment proceedings. Being aggrieved the order of the ld. CIT, the assessee is in appeal before the Tribunal. 5. Sri S.K. Garg, ld. A.R. of the assessee has argued that the report under section 80-IB, although filed separately and on a date subsequent to the date of filing the return, formed part of the Return itself. In any case, the same was available on records of the Assessing Officer, who had even examined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of making claim under section 80-IB also and other relevant documents copies of which appear at pages 41 to 49 of vol. 1 of Paper Book. It was very candidly admitted fry Sri Garg, as had been admitted by him before the ld. CIT also during the course of proceedings under section 263, that the audit report could not be filed alongwith the return and it was filed on the following day. However, he hastened to add that the date of filing the audit report was still within the time limit as prescribed under section 139(1) and it related back to the return itself as per the narration given in the audit report. He further submitted that the date of Audit report was 11-8-2003, which was also the date of statutory audit report. It was just because of inadvertence that the audit report under section 80-IB could not be attached alongwith the return itself and no motive could have been attached for such inadvertence. The audit report so filed by the assessee on the subsequent date was available before the Assessing Officer, when the proposal was sent to the ld. Chief CIT for selecting the case for scrutiny, much before the completion of assessment. This is evident from this fact alone that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case laws also appear in the said Vol. of the Paper Book. In nutshell, the contention of Sri Garg was that the assessee had duly filed the audit report in the manner laid down in the Act and well within the time limit prescribed for filing the return and even it is taken to have been filed belatedly still there is sufficient compliance of the provisions of section 80-IA(7). The said provisions are directory in nature and not mandatory. If the audit report is available before the Assessing Officer, before completion of assessment as is the case here, the claim for relief under section 80-IA(7) cannot be negated on the technical ground that the said audit report remained to be tagged with the return itself. Reliance was placed on the principle laid down by the Hon ble Supreme Court in the judicial pronouncement in the matter of CIT v. Nagpur Hotel Owners Association [2001] 247 ITR 201 which is in the context of furnishing Form No. 10 under Rule 17 of the Income-tax Rules for the purposes of claiming benefit of section 11 of the Act. 9. As far as the second issue is concerned, the ld. A.R. relied upon the submissions made before the C.I.T. to the effect that non-compliance wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to the order sheet entries, copy of which appears at pages 84 to 93 of the Vol. III of the Paper Book and other relevant documents. 11. The ld. A.R. of the assessee further submitted that the assessment order dated 28-3-2005 accorded fully with the provisions of law and the same, therefore, could not have been termed as erroneous and prejudicial to the interests of revenue. The said term received extensive examination by the Hon ble Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 wherein it has been held that only such an order can be subject-matter of revision under section 263 which is not in accordance with the provisions of law. The principle now represents law of land as that has received approval of the Apex Court also in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83. As there was no legal infirmity in the regular assessment order passed by the Assessing Officer, or any of the specific issues on which the order has been finally found to be erroneous and prejudicial to the interests revenue by the ld. CIT. In support of this contention too large number of case laws were cited, gists of which appear at pages A to E of Vol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andatory for the assessee to file the audit report in the prescribed form alongwith the return itself. It is evident from the very language of section 80-IA(7) which is applicable to the relief admissible under section 80-IB also. It nowhere says that such a compliance can be made later on. In the present case, admittedly, the audit report had not been filed alongwith the return itself. Even if, section 80-IB is a beneficial provision, the assessee has to make a strict compliance, in order to avail the benefit as is provided in the said section. The ld. CIT has, therefore, rightly held the assessment order to be erroneous and prejudicial to the interests of revenue on this count. 15. As regards non-availability of stock register, it was pleaded by the ld. D.R. that the same was not available for scrutiny and examination by the Auditors at the time of audit and they had even qualified their report by saying that stock register was not produced. Although, such stock register had been produced during the course of assessment proceedings, it is not understood as to why the assessee chose not to make compliance at the stage of audit itself. Further, the ld. CIT has not expressed any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the law itself has laid down built in safeguard against arbitrary action of the ld. CIT. He cannot interfere with the finality of assessment unless requisite conditions are satisfied. As per other scheme of the Act, the Commissioner is precluded to pass any order under section 263 without confronting the assessee with material on which the order passed by the Assessing Officer has been found to be erroneous and prejudicial to the interests of revenue. This is the essence of principles of natural justice which have to be observed and followed in all walks of life. In the present case, the assessee was confronted with some specific grounds, but the assessment as a whole has been cancelled, which being undisputedly in excess of the scope of notice under section 263 of the Act, is wholly illegal. 18.2 Further, the very jurisdiction of the ld. CIT to pass order under section 263 in this case has been challenged and on such a challenge being made, the grounds are to be examined by the Tribunal before whom such an order is appealable. Therefore, if on such an examination, the order under section is not found to be tenable on the grounds on which notice had been issued, the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer at an earlier date of hearing as per requisition. It is seen that the case has been picked up for scrutiny on the following grounds: The assessee has declared an income of ₹ 1,12,54,279. The deduction under section 80-IB Chapter VIA has been claimed in full. Gross profit declared is 6.58 per cent. Expenditure has been claimed at ₹ 25,46,34,152 as against claimed during the previous year at ₹ 15,67,65,062. For proper examination of accounts the case is being recommended for scrutiny. Which has been noted by the ld. CIT also in para 4 of his order under section 263. A bare perusal of the said proposal goes to show that the case was picked up for scrutiny, for proper examination of accounts. In the said proposal itself, the Assessing Officer has clearly noted the assessee s claim for exemption under section 80-IB. Had the audit report in the prescribed for being not there on the records at that time, it would have been natural for him to make a mention of the same in his proposal, as non-filing of such a report would have attracted disqualification of the said claim. In the said proposal, the Assessing Officer has not even mentioned that the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents are presented at the dak counter. No such acknowledgement bearing the distinctive number is given when the documents are filed before the Assessing Officer and any other authority. This procedure followed in the Income-tax department, has not been disputed even by the ld. D.R. In fact, he could not have done so, for the reason that pages 70-71 of First Vol. of the Paper Book, which are the photo copies of letters filed in the office of the CIT himself also do not bear any acknowledgement number. Still the authenticity of the said documents is not in dispute. By the same token, the authenticity of the letter dated 28-11-.2003 alongwith which the audit report had been filed, cannot be disputed. 22. It is also seen from the assessment order dated 28-3-2005 itself that the Assessing Officer himself had extensively examined the claim under section 80-IB which includes quantification parts of the same. After such an examination, the assessee s claim for exemption was allowed, though at a reduced figure. There is force in the assessee s contention that such an examination was not possible in the absence of audit report being there before the Assessing Officer. Therefore, on a due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claim for exemption under section 80-IB and whether the Assessing Officer has committed any error of law by accepting the assessee s claim for exemption under section 80-IB, although at a reduced level. The ld. A.R. of the assessee has referred to a catena of case laws as mentioned in the gist of case laws as appearing at pages F to R of the III Vol. of the Paper Book, which are as under : (1) CIT v. Gupta Fabs [2005] 274 ITR 620 (Punj. Har.), (2) CIT v. Shivanand Electronics [1994] 209 ITR 63 (Bom.), (3) CIT v. Shiva Rice Dal Mills [2005] 273 ITR 265 (Punj. Har.), (4) CIT v. Panama Chemical Works [2000] 245 ITR 684 (MP), (5) CIT v. Gujarat Oil Allied Industries [1993] 201 ITR 325 (Guj.), (6) CIT v. Punjab Financial Corpn. [2002] 254 ITR 6 (Punj. Har.), (7) CIT v. Jayant Patel [2001] 248 ITR 1994A (Mad.), (8) CIT v. B.L. Murarka [2001] 250 ITR 714 (Raj.), (9) CIT v. Hemsons Industries [2001] 251 ITR 693 (AP), (10) CIT v. A.N. Arunachalam [1994] 208 ITR 481 (Mad.), (11) CIT v. Shahzadanand Charity Trust [1997] 228 ITR 292 (Punj. Har.), (12) Zenith Processing Mills v. CIT [1996] 219 ITR 721 (Guj.), (13) CIT v. Magnum Export (P.) Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision of the Hon ble Supreme Court in the matter of Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT 227 ITR 172, wherein it was held as under: In the case before us, the company had surplus funds in its hands. In order to earn income out of the surplus funds, it invested the amount for the purpose of earning interest. The interest thus earned is clearly of revenue nature and will have to be taxed accordingly. The accountants may have taken some other view but accountancy practice is not necessarily good law. In B.S.C. Footwear s case, 83 ITR 269, the House of Lords had no hesitation in holding that the accounting practice for calculating its profit followed by the assessee and accepted by the revenue for 30 years could not be treated as sanctioned by law and was not acceptable for the purpose of computation of taxable income. It is true that this court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, the question has to be decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the aspects of the quantitative tally of stock as well as valuation thereof as also the stock in transit. For the sake of ready reference, the extract from the order sheet entries are given below: 17-1-2005 Sri Navneet Agarwal, CA attended with Sri Amit Agarwal. Filed reply dated 17-1-2005 and produced cash book, ledger, journal book and purchase vouchers which have been test-checked. They are further required to furnish- (1) Details of stock in transit, quantity of price-wise. (2) Details of closing stock. (3) Produce vouchers and expenses (4) Produce books of A/c and vouchers for purchase and sales. Date fixed; for compliance 28-1-2005. 23-2-2005Sri Navneet Agarwal, CA attended with Sri Amit Kumar, Director. Produced cash book, ledger, stock register and vouchers, which have been test checked. Case partly examined. They are further required to furnish/produce- (i) Bank statement with reconciliation (ii) Why income from tankers has not been disclosed, furnish details of tankers. (iii) P L and Balance sheet of Financial Officer 2001-02. (iv) Proof regarding commencement of business period from which deduction under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer had examined also, all such details and records. Thus, the action has been taken by the ld. CIT on non-existent ground, which cannot be supported. Further, there being no failure at the part of the Assessing Officer to examine quantitative tally of finished products, as obtained from the purchases of raw material, stock-in-transit, valuation of stocks etc. and no error much less an error of law has crept in the assessment order. Therefore, the CIT s order in this respect also is not tenable. 29. On a due consideration of the facts and circumstances of the case in their entirety, the only conclusion that emerges is that the regular assessment order dated 29-3-2005 accorded fully with the provisions of law on all the issues on which the revision under section 263 was considered necessary by the ld. CIT. Therefore, following the principle laid down by the Hon ble Bombay High Court in the case of Gabriel India Ltd. (supra) and other case laws which have been approved by the Apex Court in the case of Malabar Industrial Co. Ltd. (supra) as may be seen from the following extract from the judgment: The phrase prejudicial to the interests of the revenue has to be read in con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich have not been disclosed to the assessee. In the decision in the case of Sirpur Paper Mill Ltd. (supra), the Hon ble Apex Court held as under: The power conferred by section 25 is not administrative, it is quasi-judicial. The expression may make such inquiry and pass such order thereon does not confer any absolute discretion on the Commissioner. In exercise of the power the Commissioner must bring to bear an unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice, he cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority. Section 13 of the Wealth-tax Act provides that all officers and other persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board. These instructions may control the exercise of the power of the officers of the department in matters administrative, but not quasi-judicial. The proviso to section 13 is somewhat obscure in its import. It enacts that no orders, instructions or directions shall be given by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held in this case, the Tribunal has no option but to quash the order under section 263. The decision of the Hon ble Punjab and Haryana High Court in the case of Jagadhari Electric Supply Industrial Co. (supra), goes to fortify the said view. The relevant portion of the judgment is reproduced below: The jurisdiction vested in the Commissioner under section 263(1) of the Act is of a special nature or in other words, the Commissioner has the exclusive jurisdiction under the Act to revise the order of the ITO if he considers that any order passed by him was erroneous insofar as it was prejudicial to the interests of revenue. Before doing so, he is also required to give an opportunity of being heard to the assessee. If after hearing the assessee in pursuance of the notice issued by him under section 263(1) of the Act, he is not satisfied, he may pass the necessary orders. Of course, the order thus passed will contain the grounds for holding the order of the ITO to be erroneous, as contemplated under section 263(1) of the Act. Feeling aggrieved, therefore, the assessee may file an appeal against the same, as provided under section 253(1)(c ) of the Act. In the memorandum of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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