COMMISSIONER OF INCOME TAX III vs. R.K. CONSTRUCTION CO.

TAXAP/845/2007HC GujaratGJHC24040747200730 July 2008Author: HONOURABLE MR. JUSTICE K.A.PUJ,HONOURABLE MR. JUSTICE BANKIM.N.MEHTA21 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arises from the ITAT's order. The Court noted that the AO had taken a particular view based on evidence, and while the CIT took a different view, it was not open for the CIT to do so under Section 263 in light of the Supreme Court decision in Malabar Industrial Company Limited vs. CIT. The Court found nothing on record to suggest the AO's view was unsustainable at law. The High Court also referred to its own decision in CIT vs. Arvind Jewellers, where a similar Section 263 order was quashed. The Court explicitly stated that dismissing the appeal at the threshold does not mean it approved the ITAT's interpretation of the word 'record' in Section 263(1), as it deemed it proper not to express an opinion on that point since the ITAT had already held the CIT's order liable to be quashed on merits. The appeal was dismissed.

What were the facts?

The Commissioner of Income Tax (CIT) initiated proceedings under Section 263 of the Income-tax Act, 1961, against R.K. Construction Co. for Assessment Year 2001-02. The CIT questioned the Assessing Officer's (AO) order dated December 30, 2003, which accepted the assessee's claim of Rs. 7.84 Crores as sub-let payment against gross receipts of Rs. 30.08 Crores, noting that the sub-let commission shown was only 1.88%. The CIT believed the AO failed to inquire into the genuineness and identity of sub-contractors, making the order erroneous and prejudicial to revenue. After multiple notices and replies, the CIT disallowed Rs. 2,37,61,817/- of the sub-let payments. The Income Tax Appellate Tribunal (ITAT) allowed the assessee's appeal, finding the CIT's order bad in law and on merits. The revenue appealed to the High Court.

What were the issues?

1. Whether the ITAT was correct in deleting the addition of Rs. 2,37,61,817/-, enhanced from Rs. 30,66,860/- by the CIT under Section 263, on account of an erroneous order passed by the AO? (Question of law) 2. Whether the ITAT was correct in holding that the CIT's order was beyond jurisdiction under Section 263 and also incorrect on merits? (Question of law) 3. Whether the ITAT was correct in holding that the word 'record' in Section 263(1) refers to the record at the time of the AO's order, not the CIT's examination? (Question of law) 4. Whether the ITAT was correct in not considering the Supreme Court decisions in CIT vs. Shree Manjunathesware Packing Products and Camphor Works and Malabar Industrial Company Limited vs. CIT? (Question of law) Assessee's Contention: The Tribunal considered the entire facts and circumstances and correctly held that the CIT's order was bad in law and on merits. The AO had conducted necessary inquiries, and the sub-contractors were genuine. The revenue failed to discharge its onus. The ITAT's order does not give rise to any substantial question of law. Revenue's Contention: The Tribunal wrongly concluded that the CIT's order was beyond jurisdiction and incorrect on merits. The Tribunal erred in its interpretation of the word 'record' in Section 263(1). The Tribunal failed to consider the Supreme Court decisions in CIT vs. Shree Manjunathesware Packing Products & Camphor Works and Malabar Industrial Company Limited vs. CIT. The revenue relied on Juggilal Kamlapat, CIT vs. Durga Prasad More, and McDowell & Company Limited vs. CTO.

Which sections of the Income-tax Act were involved?

Section 263,Section 143(3),Section 145(3),Section 44AD,Section 131,Section 260A

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TAXAP/845/2007 1/21 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 845 of 2007 For Approval and Signature: HONOURABLE MR.JUSTICE K.A.PUJ HONOURABLE MR.JUSTICE BANKIM.N.MEHTA ====================================

1.

Whether Reporters of Local Papers may be allowed to see the judgment ? YES

2.

To be referred to the Reporter or not ? YES

3.

Whether their Lordships wish to see the fair copy of the judgment ? NO 4. Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5. Whether it is to be circulated to the civil judge ? NO ==================================== COMMISSIONER OF INCOME TAX III - Appellant Versus R.K. CONSTRUCTION CO. - Opponent ==================================== Appearance : MR KM PARIKH for Appellant. MR SN SOPARKAR, SENIOR ADVOCATE WITH MRS SWATI SOPARKAR for Opponent. ====================================

TAXAP/845/2007 2/21 JUDGMENT CORAM : HONOURABLE MR.JUSTICE K.A.PUJ and HONOURABLE MR.JUSTICE BANKIM.N.MEHTA Date : 30/07/2008 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE K.A.PUJ)

1.

The revenue has filed this Tax Appeal under Sect

The order continues below.

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