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Lok Nath Pd. Gupta Versus Deputy Commissioner of Income Tax Central Circle-XXV, Kolkata

2015 (6) TMI 675 - ITAT KOLKATA

Revision u/s 263 - claim for expenditure towards payment of Excise Duty has been allowed by AO despite not being disclosed in the regular books of accounts - Held that:- The only view possible in view of the specific provisions of section 43B(a) is that the excise duty has to be allowed in the year in which it is actually paid. It is not denied by the revenue that the assessee has paid the excise duty during the impugned assessment year. Since dictum of law on this count does not require any oth .....

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nt passed under section 143(3) in respect of the excise duty amounting to ₹ 29,17,01,515/- in respect of which the proceeding under section 263 has been carried out by the CIT, we, therefore, on this basis itself, set aside the order of the CIT passed under section 263.

Interest paid allowed by AO despite not being disclosed in the regular books of accounts - Held that:- Assessing officer has after examining the submissions of the assessee as well as making the enquiry on this i .....

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t finding in this regard. Thus it is a case where due inquiry was conducted by the Assessing Officer as is apparent from assessment order on this issue on which CIT invoked jurisdiction under section 263.

Once the order passed under section 143(3) is rectified under section 154, the order passed under section 143(3) get merged with the order passed under section 154 and the natural consequence will be that the order passed by the CIT(Appeals) will also get merged with the order passed .....

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Sr. Advocate, Shri A.K. Tulsiyan, FCA, Shri Gopal Das, Advocate, Shri Saurabh Bagaria, Advocate For the Respondent :Shri Ajay Kumar Singh, CIT, D.R. ORDER Per P.K. Bansal: This appeal has been filed by the assessee against the order of Commissioner of Income Tax (Central)-III, Kolkata dated 25.03.2014 for the assessment year 2009-10. 2. Brief facts of the case are that in this case the assessment was completed under section 143(3) on 24.11.2011. Subsequently the said order was rectified by the .....

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AY 2009-10) has been allowed despite not being disclosed in the regular books of accounts, which is bad in law with reference to the following observations:- (a) The expenditure was resulted from undisclosed production and sales which was not part of regular books of accounts. (b) The assessee did not disclose any details regarding liability towards unpaid excise duty, which the assessee wsa likely to have incurred on account of order by CESTAT (Central Excise Settlement Commission). Hence, it i .....

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cise duty was not disclosed before the ITSC, hence he was prevented from claiming deduction in respect of payment of such liability in the year of payment i.e. AY 2009-10. (d) Further vide para 9 of the order under section 245D(4), the ITSC has allowed capitalization of additional income offered before the ITSC. Hence the use of additional income for payment of unpaid excise duty and interest levied by the Excise Department on undisclosed sale, is not allowable as per ITSC s order, as obvious an .....

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ntly contended that the CIT lacks jurisdiction to revise the order passed under section 143(3) as it got rectified by the order passed under section 154. Reliance was placed in this regard on the order of the Hon ble Madhya Pradesh High Court in the case of CIT -vs.- Vippy Solves Products Pvt. Ltd. reported in 228 ITR 587 (M.P.). It was further contended that two issues involved in the show-cause notice about the claim of the expenditure towards the payment of excise duty and interest thereon am .....

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inance Ltd. [320 ITR 157 (MP)]; (iii) SLP against the decision was dismissed by the Hon ble Supreme Court [322 ITR (St.)14]; (iv) General Beopar Co. (P) Ltd. -vs.- CIT [167 ITR 86 (Cal.)]; (v) CIT -vs.- Amritlal Bhogilal & Co. [34 ITR 130 (SC)]; (vi) Gopal Chandra Sen -vs.- ITO [50 ITR 87 (Cal.)]; (vii) Addl. CIT -vs.- J.K. Synthetics ltd. [169 ITR 533 (SC)]; (viii) CIT -vs.- Arvind Mills Ltd. [231 ITR 50 (SC)]; (ix) CIT -vs.- Jay Kumar B. Patel [236 ITR 469] It was further submitted that th .....

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financial year 2008-09 in pursuance to the demand as per the order of the Hon ble Customs & Central Excise Settlement Commission. The provisions of section 43B(a) are explicitly clear that the said payment has to be allowed on payment basis irrespective of the method of accounting followed by the assessee. Based on the order of the Settlement Commission of Customs and Central Excise an income of ₹ 105,00,00,000/- for the assessment years 2001-02 to 2007-08 was settled by the Settlemen .....

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paid by way of tax, duty, cess, or fee, shall be allowed only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by him, irrespective of the previous year in which the liability to pay was incurred on the payment of such sum as per method of accounting regularly employed by the assessee as per section145. For the claim of deduction of the sum paid against the liability of tax, duty, cess, fee, etc., the year of payment is relevant which is .....

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assesseee was required to pay the interest on delayed payment of the excise duty as determined by the Settlement Commission, Customs and Excise. The interest amounting to ₹ 12,93,62,086/- was paid under section 11AF of the Central Excise Act, 1944 and such compensatory payment of interest cannot be described as penalty imposed for infringement of law but on account of compensation paid for the Government vide challan of the excise duty. Such interest is allowable expenditure under section .....

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ard, reliance was placed on the decision of the Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. -vs.- CIT reported in 243 ITR 83. 5. Ld. D.R. on the other hand, relied on the order of CIT and contended that the proceedings initiated were valid as on the date when the proceedings under section 263 were initiated. The order passed under section 154 was already annulled and thus was not inexistence. Therefore, the proceedings were initiated against the order passed under section 14 .....

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ully considered the same along with the order of tax authorities below. Now the question before us is whether the order passed by the CIT under section 263 is within the four corners of his order as is envisaged on him under the Income Tax Act, 1961. Before deciding the issue whether the order passed by the CIT is valid, it is necessary to discuss the provision of sect ion 263 which empowers the CIT to revise the assessment order under section 263, which reads as under:- 263. (1) The Commissione .....

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he assessment and directing a fresh assessment. Explanation.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, - (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include - (i) an order of assessment made by the Assistant Commissioner or Deputy Director or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner .....

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any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend 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 .....

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rd 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. From the perusal of the aforesaid section, it is apparent that there are four main features of the power of revision to be exercised u/s 263 by the Commissioner of Income-tax. Firstly, the Commissioner may call for and examine the records of any proceedings under the Act and for this purpose he need not to show any reason or reco .....

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e submission. Thirdly, if after calling for and examining the records the Commissioner considers that the order of the Assessing Officer is erroneous in so far it is prejudicial to the interest of the Revenue, he is bound to give an opportunity to the assessee of being heard and after making or causing to be made such enquiry as he may deem fit, pass such order thereon as the circumstances of the case may justify including an order enhancing or modifying the assessment or cancelling assessment a .....

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sions of section 263 will not be legal. The term erroneous has not been defined under the Income-tax Act but it is well settled that each and every type of mistake or error committed by the Assessing Officer cannot be said to be an error. An order can be said to be erroneous if there is an incorrect assumption of fact or incorrect application of law in the order passed by the Assessing Officer. If the Assessing Officer after making the enquiries and examining the records, taken one of the possib .....

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because on the basis of the record of the proceedings the CIT will form an opinion that the order passed is erroneous as well as prejudicial to the interest of the Revenue and once he forms an opinion, he has to give an opportunity to the assessee of being heard and after making or causing the enquiry he can pass an order. Moreover the inquiry is conducted once the CIT forms an opinion on the basis of record that the order passed is erroneous and prejudicial to the interest of Revenue. The word .....

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the record forms an opinion that the order is erroneous and prejudicial to the interest of the Revenue, he is empowered after giving the opportunity to the assessee, to make such enquiry as he may deem necessary. Therefore, the enquiry to be conducted by the CIT is an act once the CIT arrives at a conclusion that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue after examining the record. Thus enquiry precedes the record and the material coll .....

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2005-06 on the ground that the same was paid in the impugned assessment year despite the same being not disclosed in the regular books of account. The other issue relates to the claim of interest amounting to ₹ 12,93,62,086/- pertaining to the assessment years 2001-02 to 2005-06 in accordance with the Excise Act on the ground that the same was paid in the assessment year 2009-10 and has been allowed in the same assessment year even though the order of Central Excise Settlement Commissioner .....

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ppeal of the assessee vide order dated 20.01.2014. So far as the Issue No. 1 regarding the payment of the excise duty is concerned, we noted that the provisions of section 43B under which the claim by the assessee was allowed by the Assessing Officer in the original assessment read as under:- 43B : Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (a) Any sum payable by the assessee by way of tax, duty, cess or fe .....

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investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing, or (e) Any sum payable by the assessee as interest on any loan or advances from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances, or (f) Any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, Shall be allowed (irrespective of the previous year in which the liability to pay s .....

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n which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return . 11. It is not denied by the ld. D.R. before us that the excise duty paid by the assessee is covered by the provisions of section 43B(a). Excise duty is a duty imposed by the Central government under the Central Excise Duty Act. The provisions of section 43B(a), in our opinion, are explicit clear and it allows the deduction in computing the income .....

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ar in which it is actually paid. It is not denied by the revenue that the assessee has paid the excise duty during the impugned assessment year. Since dictum of law on this count does not require any other interpretation, therefore, we are of the view that the order passed by the Assessing Officer cannot be regarded to be erroneous coupled with the errors. For invocation of the provisions of section 263 both the conditions that the order passed by the Assessing Officer is erroneous as well as pr .....

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e interest paid amounting to ₹ 12,93,62,086/-, we noted that this issue has duly been examined by the Assessing Officer as is apparent from the order-sheet dated 24.10.2011, which reads as under:- Sri Mukesh Kumar, FCA, AR appeared with books of account. He filed the written submission in respect of the queries raised vide notice u/s 142(1), i.e. explanation why TDS is not required in the case of assessee for getting the printing work done from M/s. Lamicoat International Pvt. Ltd. & M .....

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equent visit to its distributors to survive in competition. As a manufacturer, when the society is fond of...., Moreover, the assessee has unit at Haridwar, Delhi, Kolkata. Thus, visit to distributors and coordination among the manufacturing units centred at Delhi and Kolkata. Then the AR clarified that the interest paid on unsecured loan proportionate to the loan advanced without charging any interest to the son of the assessee and M/s. Logotech (I) Pvt. Ltd. have been made from business receip .....

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ries allowed the claim of the assessee on that issue. It is not necessary that the Assessing Officer should discuss in detail the finding in his order, although the Assessing Officer has given clear-cut finding in this regard. 14. If the Assessing Officer has not discussed the inquiry made by him in the case of assessee in respect of which, he issued show-cause to assessee, we cannot say that order is erroneous as the Assessing Officer has not made any inquiry into the matter. The assessee canno .....

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l these were part of the record of the case. Evidently, the claim was allowed by the Income Tax Officer on being satisfied with the explanation of the assessee. This decision of the Income Tax Officer could not be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the disallowance of the claim of .....

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Allahabad High Court in the case of CIT -vs.- Goyal Private Family Specific Trust, 171 ITR 698 (Alld.) has held under para no. 12 as under:- As held by this Court in the case of Goyal Private Family Specific Trust (supra), we are of the considered opinion that merely because the ITO had not written l engthy order, it would not establish that the assessment order passed under section 143(3)/148 of the Act is erroneous and prejudicial to the interest of the Revenue without bringing on record spec .....

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re the assessment order has been passed by the AO after taking into account the assessee s submissions and documents furnished by him and no material whatsoever has been brought on record by the CIT which showed that there was any discrepancy or falsity in evidences furnished by the assessee, the order of the AO cannot be set aside for making deep inquiry only on the presumption and assumption that something new may come out. For making a valid order under section 263 it is essential that the CI .....

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by the Act on the Commissioner/Director of Income Tax when an order passed by the lower authority is erroneous and prejudicial to the interest of the Revenue. Orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interest of the revenue, but orders which are passed after inquiry/investigation on the question/issue are not per se or normally treated as erroneous and prejudicial to the interest of the revenue because the revisionary authority fee .....

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the AO has taken one of the possible views, it cannot be said that there is an error in the order passed unless and until the view taken by the AO is unsustainable in law. The said view has been taken by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) wherein their lordships has held as under :- "The pre-requisite to the exercise of jurisdiction by the Commissioner under section 263 is that the order of the AO is erroneous insofar as it is .....

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or error committed by the assessing officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the asse .....

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s the view taken by the assessing officer is unsustainable in law. Where a sum not earned by a person is assessed as income in his hands on his so offering the order passed by the assessing officer accepting the same without application of mind as such will be erroneous and prejudicial to the interest of Revenue. 20. In the case of CIT vs. R.K. Construction Co., Hon ble Gujarat High court 313 ITR 65 (Guj.) as confirmed by supreme court has held as under:- The details of sub-contractors examined .....

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for the reasons of discounting with the Shroff. It is the stand of the assessee right from the beginning that all these sub-contractors were mainly working for the assessee and they did not have any office set up and since they were working for the assessee, they have used assessee s address for correspondence, especially with the Government for timely communication. These persons are eligible under s. 44AD to file their returns under presumptive scheme of taxation. All these persons were produc .....

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. These details were duly verified by the AO with the books and records. No adverse observation was made by the AO and hence, no addition was made in the regular assessment. The AO has also randomly selected two labourers and examined them and their statements were recorded under s. 131. Since all necessary details were furnished by the assessee, there was no reason for the CIT to invoke the revisional jurisdiction under s. 263. The CIT has not stopped merely by issuance of notice under s. 263. .....

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fect that there was no evidence on record that these contractors were related to the assessee or were associates or sister concerns of the assessee. The Tribunal has also given finding that the Revenue has not discharged the onus that the payments to sub-contractors were not genuine. Thus the Tribunal has come to the conclusion that no disallowances can be made merely on the basis of suspicion, howsoever strong may it be, and the suspicion cannot take the place of actuality. AO has taken a parti .....

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46 : (2003) 259 ITR 502 (Guj) and Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) relied on). 21 Hon ble Supreme Court in the case of CIT vs. Max India Limited, 295 ITR 282 (SC) has held as under:- The phrase prejudicial to the interests of the Revenue in section 263 of the Income-tax Act, 1961, has to be read in conjunction with the expression erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing O .....

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1 ITR 141 (MP), Madhya Pradesh High Court has held as under:- It is well settled that where the ITO made the assessment in undue hurry, accepting what the assessee states in the return without making any enquiries in the circumstances of the case, the CIT would be justified in holding the order of the ITO to be erroneous. In the instant case, however, the Tribunal has found that the assessee had furnished all the requisite information and that the ITO, considering all the facts, had completed th .....

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of the notices issued under s. 142(1) as well as s. 143(2) and after considering those materials and explanation, the ITO has come to a definite conclusion. The CIT did not agree with the conclusion reached by the ITO. Sec. 263 does not empower him to take action on these facts to arrive at the conclusion that the order passed by the ITO is erroneous and prejudicial to the interest of the Revenue. Since the material was there on record and the said material was considered by the ITO and a parti .....

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as held as under:- A finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Incometax Act, 1961. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. In such matters, to remand the matter to the Assessing Officer would imply the Commissioner has not examined and decided whether or not the order is erroneous but .....

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r does not conduct an enquiry ; as lack of enquiry by itself renders the order erroneous and prejudicial to the interests of the Revenue and cases where the Assessing Officer conducts an enquiry but the finding recorded is erroneous and which is also prejudicial to the interests of the Revenue. In the latter cases, the Commissioner has to examine the order or the decision taken by the Assessing Officer on the merits and then form an opinion on the merits that the order passed by the Assessing Of .....

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tem of deduction, etc. Whether there was application of mind before allowing the expenditure in question has to be seen. If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Income-tax Act, 1961, merely because he has a different opinion in the matter. It is only in cases of lack of inquiry that such a course of action would be open. An order cannot be termed erroneous unless it is not in accordance with law. .....

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accordance with law and arrived at a conclusion such a conclusion cannot be found to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. The assessee was a manufacturer of car parts. Its return for t .....

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ar of installation was not correct and he remitted the case to the Assessing Officer for re-examination. The Tribunal allowed the claim of the assessee. On appeal : _Held,_ dismissing the appeal, (i) that the Assessing Officer allowed the claim on being satisfied with the explanation of the assessee. Such decision of the Assessing Officer could not be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. The Assessing Officer had called for expl .....

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rs had the approval of the income-tax authorities. Even for future assessment years, the very same accounting practice was accepted. (ii) That the dies were components of the machines. They needed constant replacement, as their life was not more than a year. The assessee also explained that since the parts were manufactured for the automobile industry, which had to work on complete accuracy at high speed for a longer period, replacement of the parts at short intervals becomes imperative to retai .....

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expenditure was plausible and thus there was no material before the Commissioner to vary that opinion and ask for fresh inquiry . 26. In view of the aforesaid decisions, we are of the view that the order passed by the CIT under section 263 is beyond the jurisdiction and cannot be sustained. If the order passed by the CIT is sustained, then it legality will be allowed to be continued. On this basis itself, we quash the order of the CIT under section 263. Ld. A.R. before us has also taken an alter .....

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