THE COMMISSIONER OF INCOME TAX vs. M/S SHOBHA DEVELOPERS (P) LTD

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ITA/500/2007HC KarnatakaKAHC01054024200727 January 2014Bench: B.MANOHAR,DILIP B.BHOSALE7 pages
AI SummaryRemanded

What did the High Court hold?

The High Court set aside the ITAT's common judgment and order dated February 2, 2007, and restored the appeals (I.T.A. Nos. 362 & 363/2005) to the Tribunal's file. The Tribunal was directed to deal with these appeals afresh on merits in accordance with law. The Court explicitly stated that it had not expressed any opinion on the merits of the case and left all contentions open. Specifically, the Tribunal was instructed to consider the notification dated 25.01.1996 and its effect on the facts of the present case. It was also directed to consider the submissions made by the assessee's counsel. The Court expressed hope that the Tribunal would decide the appeals expeditiously, preferably within six months. The reasoning was that both the Tribunal and the Appellate Authority had overlooked the notification issued under Section 145(2) and its potential impact, having relied solely on an earlier judgment without a fresh examination of the facts and the Assessing Officer's findings.

What were the facts?

The appeals by the Revenue were against a common judgment of the Income Tax Appellate Tribunal (ITAT) dated February 2, 2007. The ITAT had dismissed the Revenue's appeals (I.T.A. Nos. 362 & 363/2005) which were filed against the order of the Commissioner of Income-tax (Appeals-III), Bangalore. The Appellate Authority had partly allowed the assessee's appeals against the assessment order dated September 29, 2003, passed under Section 143(3) of the Income Tax Act. The Assessing Officer had added Rs. 48,07,460/- and Rs. 42,04,831/- to the income of M/s. Shobha Developers (P) Ltd. for Assessment Years 2001-02 and 2002-03, respectively. The High Court was hearing appeals filed by the Commissioner of Income-tax and Assistant Commissioner of Income-tax under Section 260A of the Income Tax Act.

What were the issues?

1. Whether the Tribunal and Appellate Authority erred by not considering the effect of Notification No. S.O. 69(E) dated 25.01.1996, issued under Section 145(2) of the Income Tax Act, on the facts of the case? (Question of law) 2. Whether the Tribunal and Appellate Authority erred by relying solely on the judgment in Commissioner of Income-tax Vs. M/s. Khoday Distilleries Ltd. without entering into the merits of the case and the findings of the Assessing Officer? (Question of mixed law and fact) Assessee's Contentions: The assessee did not oppose the remand but requested the Tribunal to consider whether the income determined by the Assessing Officer due to an increase in work-in-progress is permissible in law and whether the notification dated 25.01.1996 applies to the facts. The assessee relied on the judgment in Commissioner of Income-tax Vs. M/s. Khoday Distilleries Ltd. and the completed contract method for computing income. Revenue's Contentions: The Revenue argued that neither the Tribunal nor the Appellate Authority considered the notification dated 25.01.1996 and its effect. They contended that both authorities relied on the M/s. Khoday Distilleries Ltd. judgment without examining the merits of the Assessing Officer's findings. The Revenue also pointed out that the notification was issued after the Khoday Distilleries judgment.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 145(2),Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE 27TH DAY OF JANUARY 2014

PRESENT

THE HON’BLE MR. JUSTICE DILIP B.BHOSALE AND THE HON’BLE MR. JUSTICE B.MANOHAR

I.T.A. No.497/2007 C/W. I.T.A. NO.500/2007

BETWEEN :

1.

The Commissioner of Income-tax, Central Circle, C.R.Building, Queens Road, Bangalore.

2.

The Asst. Commissioner Of Income-Tax, Circle – 9(1), C.R.Building, Queens Road, Bangalore. …APPELLANTS (Common in both)

(By Sri.Jeevan J.Neeralagi, Adv. for Sri.K.V.Aravind, Adv.)

AND :

M/s.Shobha Developers (P) Ltd., No.106, Sun Rise Chambers, 22, Ulsoor Road, Bangalore. …RESPONDENT (Common in both)

(By Sri.A.Shankar & Ssri.M.Lava, Advs.) . . . .

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I.T.A. No.497/2007 is filed under Section 260A of the Income Tax Act, 1961 praying to (i) formulate the substantial questions of law stated therein, (ii) allow the appeal and set-aside the order passed by the Income Tax Appellate Tribunal, Bangalore in I.T.A. No.362/Bang/2005 dated 02.02.2007 confirming the order of the Appellate Commissioner and confirm the order passed by the Asst. Commissioner of Income Tax, Circle-12, Bangalore in the interest of justice and equity.

I.T.A. No.500/2007 is filed under Section 260A of the Income Tax Act, 1961 praying to (i) formulate the substantial questions of law stated therein, (ii) allow the appeal and set-aside the order passed by the Income Tax Appellate Tribunal, Bangalore in I.T.A. No.363/Bang/2005 dated 02.02.2007 confirming the order of the Appellate Commissioner and confirm the order passed by the Asst. Commissioner of Income Tax, Circle-12, Bangalore in the interest of justice and equity.

These I.T.As. coming on for hearing, this day, Dilip B.Bhosale, J., delivered the following:

JUDGMENT

PC:

These income-tax appeals are directed against the common judgment and order dated 2nd of February 2007 rendered by Income Tax Appellate Tribunal,

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Bangalore Bench `A’ (for short `the Tribunal’). The Tribunal dismissed the appeals bearing I.T.A. Nos. 362 & 363/2005, pertaining to the Assessment Years 2001- 02 and 2002-03, filed by the Revenue. The appeals, before the Tribunal, were directed against the order of Commissioner of Income-tax (Appeals-III), Bangalore (for short `the Appellate Authority’) dated 31.12.2004 in I.T.A. Nos. 85 and 86/2003-04. The Appellate Authority, partly allowed the appeals filed by the assessee, which were directed against the Assessment order dated 29.09.2003 under Section 143(3) of the Income-tax Act (for short “the Act”). By that order, the Assessing Officer added Rs.48,07,460/- and Rs.42,04,831/- to the income of the assessee for the Assessment Years 2001-02 and 2002-03 respectively.

2.

It is against this backdrop, learned counsel appearing for the Revenue after inviting our attention to Section 145(2) of the Act and a notification issued thereunder bearing No.S.O.69(E) dated 25.01.1996, submitted that neither the Tribunal nor the Appellate

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Authority looked into the said notification and considered its effect on the facts of the present case and have simply relied on the judgment of this Court in the case of Commissioner of Income-tax Vs. M/s. Khoday Distilleries Ltd., in ITRC Nos. 19, 20 & 21 of 1993 decided on 12th of September 1995 and held that the issue raised in the instant case is squarely covered by the said judgment. The Tribunal further observed that the Appellate Authority was justified in adopting the “completed contract method” for computing the income. He submitted that neither the Tribunal nor the Appellate Authority entered into merits of the case to find out whether the findings recorded by the Assessing Officer are correct. He further submitted that the effect of the notification dated 25.01.1996 was also not taken into consideration, which was issued after the judgment of this Court in M/s.Khoday Distilleries case.

3.

Having confronted with this Mr.Shankar, learned counsel appearing for the assessee, though did not oppose the prayer for remand of the matter to the

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Tribunal, submitted that the Tribunal may be directed to consider whether the income determined by the Assessing Officer on account of increase in work-in- progress is permitted in law and that whether the notification has application to the facts of the present case.

4.

We have perused the order of the Tribunal. The Tribunal, while dismissing the appeals filed by the Revenue, simply placed reliance upon the judgment of M/s. Khoday Distilleries case to hold that the present case is squarely covered by the said judgment without entering into the merits of the case and/or considering the findings recorded by the Assessing Officer. It further appears from the judgment of the Tribunal and so also, the Appellate Authority that both lost sight of the fact that the notification dated 25.01.1996, issued under Section 145(2) of the Act, was not in the field when the judgment in M/s. Khoday Distileries was delivered on 12th of September 1995. They have also not considered the effect of notification on the facts of

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the present case. It is in this backdrop when we expressed that we are inclined to allow these appeals and remand the matters to the Tribunal for its consideration afresh, both the learned counsel for the parties have agreed for the following order: (a) The judgment and order dated 2nd of February 2007 is set-aside and the I.T.A. Nos. 362 & 363/2005 are restored to file. (b) The Tribunal shall deal with these appeals afresh on merits in accordance with law keeping in view the observations made in this order. It is, however, made clear that we have not expressed any opinion on merits of the case. (c) All contentions are left open. (d) The Tribunal, while dealing with the appeals, as aforementioned, shall keep in view the notification dated 25.01.1996 and consider whether that has any effect on the facts of the present case. It may also consider the

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submission of the learned counsel appearing for the assessee, as recorded in the order.

With these observations, we dispose of these appeals. We hope and trust that the Tribunal shall deal with the appeals and decide the same as expeditiously as possible and preferably within a period of six months from the date of receipt of this order.

Sd/- JUDGE

Sd/- JUDGE

SPS

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