PR COMMISSIONER OF INCOME TAX vs. M/S VARDHMAN INDUSTRIES LTD NEW DELHI

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ITA/310/2016HC Punjab & HaryanaPHHC01110514201625 April 2017Author: MR. JUSTICE SURINDER GUPTA,MRS JUSTICE DAYA CHAUDHARY6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that for the exercise of revisional jurisdiction under Section 263 of the Act, two conditions must be satisfied: the order must be erroneous, and it must be prejudicial to the interest of the revenue. Both conditions must be present. In this case, the assessee had shown that the sales appearing in the balance sheet were inclusive of sales tax. The revenue failed to produce any material to substantiate that the assessee had excluded the amount of sales tax from the sales. Therefore, it could not be said that the order sought to be revised was either erroneous or prejudicial to the interest of the revenue. Consequently, both limbs of Section 263 were not satisfied, and the exercise of revisional jurisdiction by the CIT was unwarranted. The Court found no illegality or perversity in the ITAT's assumption of revisional jurisdiction. Therefore, no substantial question of law arose, and the appeal was dismissed.

What were the facts?

The appellant-revenue (Principal Commissioner of Income Tax) filed an appeal under Section 260A of the Income Tax Act, 1961, against an order of the Income Tax Appellate Tribunal (ITAT) dated March 15, 2016, for assessment year 2004-05. The ITAT had set aside an order passed by the Commissioner of Income Tax (CIT) under Section 263 of the Act. The CIT had found the assessment order dated December 29, 2011, passed under Section 153A read with Section 143(3) of the Act, to be erroneous and prejudicial to the revenue. This was due to the assessee, M/s Vardhman Industries Limited, claiming expenses of ₹1,12,50,000 on account of sales tax, which the CIT believed was not allowable as sales did not include sales tax. The ITAT allowed the assessee's appeal, holding that the CIT had not given concrete findings on the merits and that the assumption of jurisdiction under Section 263 was not as per law.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the ITAT erred in setting aside the order passed under Section 263 of the Act by the CIT, when the said order contained a concrete finding regarding the disallowability of expenditure on account of sales tax and that the assessment order was erroneous and prejudicial to the revenue? 2. Whether the ITAT erred in setting aside the order passed under Section 263 of the Act without appreciating that the CIT had rightly exercised jurisdiction, as the assessment order was passed on an incorrect assumption of facts, incorrect application of law, without application of mind, and without proper enquiry? 3. Whether the ITAT erred in law in setting aside the order under Section 263 of the Act without appreciating that the assessment order was passed without proper enquiry as to how sales tax could be claimed as expenditure when it was not included in sales? Assessee's contentions: The sales tax payment of ₹1,12,50,000 under the Compound Levy Scheme was allowable under Section 43B of the Act. It was also stated that sales appearing in the balance sheet were inclusive of sales tax, making the sales tax paid an allowable expense. Revenue's contentions: The quantum of sales shown by the assessee did not include sales tax, and therefore, the amount of ₹1,12,50,000 claimed on account of sales tax paid under the Compound Levy Scheme was inadmissible. The assumption of jurisdiction under Section 263 of the Act was proper.

Which sections of the Income-tax Act were involved?

Section 260A,Section 263,Section 153A,Section 143(3),Section 43B

AI-generated summary — verify with the full judgment below

ITA No. 310 of 2016 (O&M) 1

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITA No. 310 of 2016 (O&M)

Date of decision: 25.04.2017

Pr. Commissioner of Income Tax (Central), Ludhiana

……Appellant

Vs.

M/s Vardhman Industries Limited, New Delhi

…..Respondent

CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL

HON’BLE MR. JUSTICE RAMENDRA JAIN

Present: Mr. Rajesh Katoch, Senior Standing counsel for the appellant-

revenue.

Ms. Radhika Suri, Senior Advocate with Mr. Manpreet Singh

Kanda, Advocate for the respondent-assessee.

Ajay Kumar Mittal,J.

1.

The following substantial questions of law have been claimed by the appellant-revenue in the instant appeal filed under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 15.03.2016, Annexure A.III, passed by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (in short, “the Tribunal”) for the assessment year 2004-05:- “(i) Whether on the facts and in the circumstances of the present case, the Hon’ble ITAT has erred in setting aside the Gurbax Singh 2017.05.15 16:34

ITA No. 310 of 2016 (O&M) 2

order, passed under Section 263 of the Income Tax Act, 1961 by the Commissioner of Income Tax(Central), Ludhiana whereas the said order contains a concrete finding regarding disallowability of expenditure on account of sales tax and also a specific finding that the assessment order, sought to be revised, was erroneous and prejudicial to the interest of the revenue ?

(ii) Whether on the facts and in the circumstances of the present case, the Hon’ble ITAT has erred in setting aside the order, passed under Section 263 of the Income Tax Act, 1961 without appreciating that the Commissioner of Income Tax(Central), Ludhiana had rightly exercised jurisdiction under Section 263 of the Income Tax Act, 1961 as the assessment order, sought to be revised had been passed by the Assessing Officer on an incorrect assumption of facts, incorrect application of law, without application of mind and without making proper enquiry and verification?

(iii) Whether the Hon’ble ITAT has erred in law in setting aside the order under Section 263 of the Income Tax Act, 1961 without appreciating that assessment order, sought to be revised had been passed without making proper enquiry as to how the sales tax can be claimed by the assessee as an expenditure when the same was not included in the sales?”

2.

A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The assessee is a limited company. It deals with manufacturing of Steel Ingots, Vanaspati Ghee/Refined Oil, G.P. sheets/coils, G.C. sheets, CCL sheets and generation of power. A search under Section 132 of the Act was conducted on 10.06.2009. The assessee filed its return in pursuance to the notice under Section 153A of the Act, declaring income of `4,81,513/- on 22.06.2010. The assessment under Section 153A read with Section 143(3)

ITA No. 310 of 2016 (O&M) 3

of the Act was completed vide order dated 29.12.2011 at an income of ` 9,63,880/-. A perusal of the Assessing Officer’s proposal, for initiating proceedings under Section 263 of the Act and on perusal of the assessment records, the Commissioner of Income Tax(Central), Ludhiana (CIT) found the assessment order under Section 153A/143(3) of the Act dated 29.12.2011 to be erroneous and prejudicial to the interest of the revenue. A show cause notice under Section 263 of the Act dated 02.1.2014 was issued to the assessee. The CIT noticed that in the profit and loss account, the assessee had claimed expenses of `1,12,50,000/- on account of sales tax included in the selling and distribution expenses which had been allowed by the Assessing Officer. According to notes on the accounts, the sales did not include sales tax. In fact, the expenditure was not allowable and should have been disallowed. The CIT after examining the assessment records and the submissions of the assessee found that the Assessing Officer had not been properly examined the issue of allowability of sales tax expenditure of `1,12,50,000/- and consequently passed the impugned order under Section 263 of the Act holding that the assessment order dated 29.12.2011 under Section 153A/14(3) of the Act was erroneous and prejudicial to the interest of the revenue. The CIT set aside the impugned order with the direction to the Assessing Officer to make fresh assessment after examining the facts of the case and the relevant provisions of the Act. Aggrieved by the order, the assessee filed an appeal before the Tribunal. Vide order dated 15.03.2016, Annexure A-III, the Tribunal allowed the appeal of the assessee holding that the CIT himself had not given any concrete finding as to the merits of the case and directed the Assessing Officer to make further enquiry. It was further held that the assumption of jurisdiction

ITA No. 310 of 2016 (O&M) 4

under Section 263 of the Act by the CIT was not as per law. Hence, the instant appeal by the appellant-revenue.

3.

We have heard learned counsel for the parties.

4.

Learned counsel for the appellant-revenue submitted that the quantum of sales shown by the assessee did not include sales tax and therefore the amount of `1,12,50,000/- claimed on account of sales tax paid under the Compound Levy Scheme was inadmissible. On the aforesaid premises, assumption of jurisdiction under Section 263 of the Act was urged to be proper.

5.

On the other hand, learned counsel for the assessee argued that the sales tax payment of `1,12,50,000/- under Compound Levy Scheme was allowable under Section 43B of the Act. It was claimed that even in the reply submitted to the Assessing Officer, it was specifically stated that the sales appearing in the balance sheet were inclusive of sales tax and hence, the sales tax paid was allowable expense. Learned counsel for the assessee produced a copy of the paper book which was filed before the Appellate Tribunal. It is taken on record.

6.

The relevant extract of Section 263 of the Act is reproduced as under:- “263- Revision of orders prejudicial to revenue-(1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, 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 ITA No. 310 of 2016 (O&M) 5

order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation…………………………………………………”

7.

ITA No. 310 of 2016 (O&M) 6

9.

In view of the above, it is concluded that no illegality or perversity could be shown by the learned counsel for the appellant- revenue so as to hold that the assumption of revisional jurisdiction by the CIT under Section 263 of the Act was justified. Consequently, no substantial question of law aarises and the appeal stands dismissed.

(Ajay Kumar Mittal)

Judge

April 25, 2017

(Ramendra Jain)

‘gs’

Judge Whether speaking/reasoned

Yes

Whether reportable

Yes

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