C I T JAIPUR vs. VILLAGE ANTIQUES AND ETHNIC

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ITA/65/2011HC RajasthanRJHC02064076201122 August 20174 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the CIT-I was not justified in revising the assessment order under Section 263. The Tribunal noted that the CIT had not recorded a finding that the assessee had not employed 20 or more workers or that the conditions in Section 10BA(2) were not fulfilled. The CIT's primary concern was that the AO had allowed the deduction without proper verification, but there was no specific finding as to what proper verification was lacking. The Tribunal found that the AO had considered necessary details and taken a possible view that the assessee was entitled to the deduction. The CIT's opinion that expenses debited were inadequate for manufacturing artistic articles was not part of the show cause notice, and no finding was made about expenses outside the books. The Tribunal emphasized that Section 263 requires the CIT to afford an opportunity of hearing regarding the proposed revision. Citing various case laws, the Tribunal concluded that the assessment order was not erroneous, a prerequisite for action under Section 263. Therefore, the CIT's order was cancelled, and the appeal of the assessee was allowed.

What were the facts?

The Commissioner of Income Tax-I (CIT-I), Jaipur, challenged a decision of the Income Tax Appellate Tribunal (ITAT) that had dismissed the department's appeal. The ITAT's order had, in turn, set aside an order passed by the CIT-I under Section 263 of the Income Tax Act, 1961. The CIT-I had held that the assessment order, which allowed a deduction under Section 10BA, was erroneous and prejudicial to the interest of the revenue due to a lack of proper verification by the Assessing Officer (AO). The assessee is Village Antiques and Ethnic, Jaipur. The assessment year is not explicitly stated but implied to be prior to the assessment order dated 04.12.2017.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the order dated 08.03.2010 passed by the CIT (I), Jaipur under Section 263 of the Income Tax Act, 1961, whereby the CIT held that the assessment order dated 04.12.2017 allowing deduction under Section 10BA was erroneous and prejudicial to the interest of the Revenue for having been made without proper verification? Assessee's Contentions (as reflected in the Tribunal's reasoning): The AO had considered all necessary details and came to a conclusion that deduction under Section 10BA was allowable. The articles exported were covered by eligible articles or things. The AO took a possible view that the assessee was entitled to deduction. The CIT did not record a finding that the conditions in Section 10BA(2) were not fulfilled or that the articles were not eligible. The CIT's observation regarding inadequate expenses was not part of the show cause notice, and there was no finding that expenses were made outside the books. The CIT lacked jurisdiction to record such a finding. Reliance was placed on CIT v. G.K. Kabra (2011) 211 ITR 336 (AP HC) and CIT v. M/s. Sanbeam Auto Ltd. (2009) 10 T.O.L. 552 (HC-Del), CIT v. Honda Siel Power Products Ltd. (2010) 235 CTR 336 (Del HC), and Crisil Limited v. Addl. CIT (2010) 10 T.O.L. 372 (ITAT-Mum), CIT v. M/s. Vikas Polymers (2010) 10 T.O.L. 595 (HC-Del). Revenue's Contentions: The CIT held that the AO allowed the claim of deduction under Section 10BA without proper verification. The CIT believed the assessment order was erroneous and prejudicial to the interest of the revenue.

Which sections of the Income-tax Act were involved?

Section 263,Section 10BA

AI-generated summary — verify with the full judgment below

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 65 / 2011 The Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj) ----Appellant Versus Village Antiques and Ethnic, B-141, Vidhyut, Nagar, Queens Road, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi alongwith Mr. Aditya Vijay For Respondent(s) : Mr. Sarvesh Jain _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 22/08/2017 1. By way of this appeal, the appellant has challenged the judgment and order of the tribunal whereby the tribunal has dismissed the appeal of the department. 2. This court while admitted the matter has framed following substantial questions of law:- “(1) Whether on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the order dated 08.03.2010 as passed by the CIT (I), Jaipur under Section 263 of the Income Tax Act whereby the CIT has held that the assessment order dated 04.12.2017 as regards deduction under Section 10BA of the Act was erroneous and prejudicial to the interest of the Revenue for having been made without proper verification?” 3. We have heard counsel for the parties.

(2 of 4) [ITA-65/2011] 4. Counsel for the respondent has taken us to the order of the Tribunal whereby the Tribunal while considering the matter, has rightly observed as under:- “ 15. The Ld.CIT has not recorded a finding that the assessee has not employed 20 or more workers. The Ld.CIT in his order held that the A.O. has allowed the claim of deduction u/s 10BA without proper verification. There is no finding as to what proper verification has not been done. The conditions as mentioned in section 10BA(2) hve been fulfilled and there is no iota of finding by the Ld. CIT that deduction is not allowable. The A.O. has considered all the necessary details and came to a conclusion that deduction u/s 10BA is allowable. The article which the assessee was exporting are covered by eligible article or things. The Ld. A/R has referred to the decision of Jaipur. Tribunal in the case of Goverdhan Prasad Singhal in ITA No.1000/JP/2008 dated 24.10.2008. In that case, the assessee was performing the following activities before the item was exported. “(i) Firstly, the appellant purchases semi finished furniture which requires further wood and other work of beautification and of artistic value. There apart, the other raw material, the wooden out of which is the main, and other i.e. grass, nails etc. are purchased. (ii) Thereafter various wooden items are added depending upon the designs, size, quality of the subjected item to be exported. (iii) After purchasing the semi finished goods and raw material, as stated above, the very first step is to assemble the same, if so required. Some time the semi finished furniture is required to be given further shape as per the desired exportable designs. (iv) Thereafter, punching done by hammering nails by hand. It may be noted that the nails are of special type having artistic and antipue look. (v) Fitting of brass and iron items again with a view to give artistic and antique look.

(3 of 4) [ITA-65/2011] (vi) Filling with a view to smoothen the surface. (vii) Sanding. (viii) Carving with a view to bring the artistic value and to show that these are antique items, (ix) And lastly polishing. (x) Thereafter, various wooden items are fitted according to the need and design of the exportable wooden article ie. wooden moulding is fitted, Inlay is done.”

16.

Hence the A.O. took a possible view that assessee is entitled to deduction u/s 10BA. The Ld. CIT has not recorded a finding that the article as exported by the assessee are not covered under the eligible articles or things as mentioned in Explaination to section 10BA. 17. Perusal of order of ld. CIT show that the Ld. CIT was of the opinion that expenses debited are inadequate as substantial expenses were needed to manufacture artistic articles. But this issue has not been part of the show cause notice and there is also no finding that expenses have been made outside the books of account. There is general observation by the Ld. CIT but final finding is that A.O. has not properly verified the claim of deduction u/s 10BA. Section 263 requires the Ld. CIT to afford an opportunity of hearing and this means an opportunity with regard to error which he proposes to revise. There is nothing in show cause to say that expenses have been less as compared to the expenses which might have been needed to manufacture artistic work. Hence the Ld. CIT was not having jurisdiction to record any such finding. Reliance is placed in the decision of Hon’ble A.P. High Court in CIT V G.K. Kabra 211 ITR 336. 18. Lack of enquiry may justify the action to be taken by CIT u/s 263 of the I.T. Act but order can not be errenous on the ground of inadequate enquiry. Reliance is place to decision of Delhi H.C. in CIT v M/s. Sanbeam Auto Ltd 2009-T10L- 552 HC-Del. The Hon’ble Delhi High Court in the case of CIT v Honda Siel Power Products Ltd. 235 CTR 336 held that onus on revenue is to rebut the presumption that A.O. has not applied the mind. In the instant case, the A.O. has made

(4 of 4) [ITA-65/2011] querries and considered the reply and hence it is clear that A.O. has applied his mind. If the facts stated in the return and the documents furnished do not provide doubt in a reasonable mind to examine further then the Ld. CIT will not have jurisdiction to take action u/s 263 of the I.T.Act. Crisil Limited v Addl. CIT 2010-T10L-372 ITAT- Mum. The Hon’ble Delhi High Court observed that there is a difference between lack of enquiry and inadequate enquiry. In a case where the assessee has given reply to the querry raised as per satisfaction of A.O. the order is not errenous, CIT M/s. Vikas Polymers 2010-T10L-595 H.C.Del. 19. Considering the case laws, as cited by the Ld. A/R, it is clear that order is required to be errenous as well as prejudicial to the interest of revenue. The order in the instant case is not errenous. Hence we fell that Ld. CIT was not justified in directing the A.O. to pass fresh order as per alw. 20. In the result the appeal of the assessee is allowed and the order of Ld. CIT u/s 263 is cancelled.” 5. In that view of the matter, the issue is answered in favour of the assessee and against the department. 6. The appeal stands dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Jyoti item No.73

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