SMT. SARASA PRAHALAD,BANGALORE vs. CIT, BANGALORE

Per Shri Jason P Boaz, A.M. : This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-I, Bangalore dt.28.3.2013 passed under Section 263 of the Income Tax Act, 1961 (in short 'the Act') for Assessment Year 2008-09.

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ORDER ON PETITION FOR CONDONATION OF DELAY IN FILING APPEAL BEFORE THE TRIBUNAL.

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The learned Authorised Representative was heard in support of the plea for condonaiton of delay.

4.1 We have heard the rival contentions, perused and carefully considered the petition for condonation of delay in the peculiar facts and circumstances of the case on hand; including the judicial pronouncements cited. Admittedly there was a delay of 312 days in filing this appeal before the Tribunal. The Hon'ble Apex Court in the case of Collector, Land Acquisition Vs. MST Katiji & Others (167 ITR 41) (SC), while laying down the principles for considering the matters of condonation of delay in filing appeals has stated that substantial justice should prevail over technical consideration. The Hon'ble Court also explained that the expression “every day’s delay must be explained” does not mean that a pedantic approach should be adopted. The doctrine must be applied in a natural common sense and pragmatic manner.

4.2 Considering the aforesaid principles and taking into account the peculiar facts and circumstances of the case, as discussed above. We are

7 ITA No.463/Bang/2014 of the opinion that if the delay of 312 days in filing this appeal for Assessment Year 2008-09 before the Tribunal is to be condoned, there shall be no loss to revenue as legitimate taxes payable by the assessee in accordance with law alone will be collected / levied; whereas if the delay is not condoned, then the assessee may be put to hardship and difficulty. In this view of the matter and in the interest of equity and justice, we are of the considered opinion that this is a fit case for condonation of delay and accordingly condone the delay of 312 days in filing this appeal for Assessment Year 2008-09 before the Tribunal. This appeal for Assessment Year 2008-09 filed against the order of the CIT–1, Bangalore passed under Section 263 of the Act dt.28.3.2013 is accordingly admitted for consideration and adjudication. We hold and direct accordingly.

‘O R D E R’

5.1 The assessee, Prop. Hi-Tech Times, engaged in the business of manufacture of metallic watch cases, filed the return of income for Assessment Year 2008-09 on 28.9.2008, declaring loss of (-) Rs.7,94,277. The case was taken up for scrutiny and the assessment was concluded under Section 143(3) of the Act vide order dt.22.12.2010, wherein the returned loss of (-) Rs.7,94,277 was accepted. The order of assessment reads as under :

8 ITA No.463/Bang/2014 “ The assessee has filed the return of income for the Assessment Year 2008-09 on 24.7.2008 declaring al loss of Rs.7,94,277. This case was selected for scrutiny under ‘Computer Assisted Selection of Scrutiny’ (CASS) ITS DATA Base. Notice under Section 143(2) and 142(1) were issued to the assessee and the case was posted for hearing. As there was change of incumbent in office, notice under Section 129 was also issued to the assessee.

Total loss as returned : (-) Rs.7,94,277.

Tax thereon : Nil.

Tax calculation sheet is enclosed separately.

Demand notice issued accordingly.

(K.E. Rajan) Income Tax Officer, Ward 6(3), Bangalore.”

5.2 The CIT-1, Bangalore on a perusal of the record, arrived at the conclusion that the order of assessment for Assessment Year 2008-09 dt.22.10.2010 is erroneous in so far as it is prejudicial to the interest of revenue since the following two issues were not considered / examined; as observed at page 2 of the impugned order :

“ a. While arriving at the business loss of Rs.9,13,119 the assessee has debited inadmissible expenditure towards education cess of Rs.69,132 to the P & L a/c.

b. The assessee has debited a sum of Rs.75,42,610 as VRS compensation which as per the notes forming part of accounts represents the entire compensation paid under Employees Voluntary Retirement Scheme is in view of the closure and distress sale of business. As per Section 35DDA only 1/5 th of the amount so received shall be taken

9 ITA No.463/Bang/2014 as allowable deduction which works out to Rs.;15,08,522 and the excess amount claimed by the assessee works out to Rs.60,34,088. 3. As these two issues were not considered by the Assessing Officer while completing the assessment under Section 143(3), the order is erroneous in so far as it is prejudicial to the interest of revenue.” 5.3 In that view of the matter, the learned CIT initiated revisionary proceedings under Section 263 of the Act by issue of show cause notice dt.13.3.2013 requiring the assessee to file his explanation / rebuttal in the matter. In response thereto, the learned Authorised Representative of the assessee appeared before the learned CIT and filed written submissions, both on merits and technical grounds, the gist of which have been recorded at para 4 (1) to (d) of the impugned order. It was submitted that proceedings for assumption of jurisdiction under Section 263 of the Act is applicable only when the impugned order of assessment was erroneous and prejudicial to the interest of revenue; whereas in the case on hand, the order of assessment has been passed by the Assessing Officer with due application of mind after hearing the assessee on the issues raised and therefore the order cannot be erroneous. The learned CIT after considering the assessee's submissions, the order of assessment for Assessment Year 2008-09 and the other material on record, arrived at the conclusion that the Assessing Officer had not carried out any examination / enquiry on the assessee's claims of (i) expenditure towards education cess of Rs.69,132 and (ii) Rs.75,42,610 as VRS Compensation. In that factual view of the matter, the learned CIT

10 ITA No.463/Bang/2014 held that the order of assessment for Assessment Year 2008-09 is erroneous and prejudicial to the interest of revenue.

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7.1 The learned Authorised Representative for the assessee was heard in support of the grounds raised (supra). At the outset, it was contended that as per the relevant grounds raised (supra) the initiation of proceedings and assumption of jurisdiction under Section 263 of the Act was untenable and erroneous since there was no application of mind by the CIT and entire exercise was based on a proposal submitted by the Assessing Officer in this regard. In support of this contention, the learned Authorised Representative placed reliance, inter alia, on the decision of the Jaipur Bench of the ITAT in the case of Dharmendra Kumar Bansal V. CIT (2014) 161 TTJ (JP) 801 wherein it was held that before taking action on a proposal by the Assessing Officer for proceedings under Section 263 of the Act, the CIT himself has to apply his mind after examining the records of assessment and his satisfaction is a must. According to learned Authorised Representative, the ld. CIT had initiated revisionary proceedings under Section 263 of the Act in the case on hand for Assessment Year 2008-09, without application of mind and therefore on this ground alone, the impugned order is liable to be cancelled. Reliance was also placed on the following decisions :-

12 ITA No.463/Bang/2014 (i) Digital Global Soft (ITA No.30/2006 dt.19.9.2011) (Kar. HC) and

(ii) CIT Vs. D.G. Gopala Gowda (ITA No.1422/2006 dt.5.3.2013)

7.2 Per contra, the learned Departmental Representative vehemently supported the impugned order of the ld.CIT. According to the learned Departmental Representative, it is very clear that the ld. CIT had applied his mind to the matter; for in pages 1 & 2 of the impugned order he records that on perusal of the records he observed that the Assessing Officer had not considered the two issues; of expenditure claimed by the assessee towards education cess and VRS Compensation under Section 35DDA; while completing the order of assessment for Assessment Year 2008-09 dt.22.12.2010 passed under Section 143(3) of the Act. Therefore, since on facts alone, the assessee had no case, the judicial pronouncements cited by the assessee would not come to his rescue and the initiation and assumption of jurisdiction by the ld. CIT being in order is to be upheld.

7.3.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. We have perused the order of assessment and the impugned order of the ld. CIT under Section 263 of the Act and find merit in the arguments put forth by the learned Departmental Representative for revenue. While it is not disputed that the Assessing Officer has sent a proposal for initiation of revisionary proceedings under Section 263 of the Act, we find that the ld. CIT (Appeals) has in fact

13 ITA No.463/Bang/2014 perused the records and obviously applied his mind before recording his observations at pages 1 & 2 that since the two issues; of assessee's claim of allowability of expenditure on account of education cess and VRS compensation under Section 35DDA of the Act; were never considered by the Assessing Officer while passing the order of assessment for Assessment Year 2009-10 dt.22.12.2010, the order of assessment was erroneous in so far as it is prejudicial to the interests of revenue. The relevant portion of the assessment order at pages 1 & 2 thereof is extracted hereunder :-

“ On perusal of the records it is observed that :

“ a. While arriving at the business loss of Rs.9,13,119 the assessee has debited inadmissible expenditure towards education cess of Rs.69,132 to the P & L a/c. b. The assessee has debited a sum of Rs.75,42,610 as VRS compensation which as per the notes forming part of accounts represents the entire compensation paid under Employees Voluntary Retirement Scheme is in view of the closure and distress sale of business. As per Section 35DDA only 1/5 th of the amount so received shall be taken as allowable deduction which works out to Rs.;15,08,522 and the excess amount claimed by the assessee works out to Rs.60,34,088. 3. As these two issues were not considered by the Assessing Officer while completing the assessment under Section 143(3), the order is erroneous in so far as it is prejudicial to the interest of revenue.” 7.3.2 In the light of the discussion in pre para 7.3.1 of this order ((supra), it is factually established that since the ld.CIT had applied his mind and then recorded his observations, to hold that the order of assessment for Assessment Year 2008-09 dt.22.12.2010 was erroneous in so far as it is prejudicial to the interests of revenue. We find no merit in

14 ITA No.463/Bang/2014 this proposition put forth by the learned Authorised Representative of the assessee and consequently uphold the initiation and assumption of jurisdiction by the ld. CIT as being in order and valid. With due respect, in view of the factual finding rendered by us, the judicial pronouncements cited by the assessee would not come to his rescue.

8.1 The second proposition put forth by the learned Authorised Representative for the assessee, was that the two issues raised by the learned CIT (Appeals) as not being examined or considered by the Assessing Officer before passing the order of assessment for Assessment Year 2008-09 was incorrect as details were in fact called for examined by the Assessing Officer as can be seen from the copy of financial statements filed before him (placed at pages 1 to 30 of Paper Book). Therefore, it is not a case of no or lack of enquiry; but a case where the matter was enquired into by the Assessing Officer and therefore even if the enquiry was inadequate, it would not clothe the CIT with jurisdiction under Section 263 of the Act. It is contended that this is a case of change of opinion, where the learned CIT is trying to substitute the Assessing Officer’ s view with his own opinion. In this regard reliance was, inter alia, placed on the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd. (332 ITR 667) (Del).

8.2 Per contra, the learned Departmental Representative for revenue submitted that the finding of the ld. CIT that there was no enquiry on the two issues was correct. According to the learned Departmental Representative, it is evidently clear that the order of assessment for

15 ITA No.463/Bang/2014 Assessment Year 2008-09 is silent on the aforesaid two issues raised by the ld. CIT about expenditure claimed in respect of education cess and VRS Compensation under Section 35DDA of the Act. Further, even a perusal of the notice under Section 142(1) of the Act issued by the Assessing Officer to the assessee on 17.5.2010, calling for details, clearly shows there is no query raised by the Assessing Officer in respect of the aforesaid two issues (copy of notice under Section 142(1) of the Act dt.17.5.2010 listing details called for on 9 issues placed on record). In this factual situation, there being no basis for the assessee's arguments that these two issues were examined and enquired into by the Assessing Officer, the same deserve to be rejected. The learned Departmental Representative submitted that it is clearly established that the Assessing Officer had erred by not conducting enquiry on the allowability of these two issues and therefore, the learned CIT (Appeals) has corrected these errors by requiring the Assessing Officer to examine the issues and then to pass fresh orders thereon as per law after affording the assessee adequate opportunity in the matter. In this regard, the learned Departmental Representative for revenue, inter alia, placed reliance on the following judicial pronouncements :-

(i) Malabar Industrial Co. Ltd. (243 ITR 83) (SC) (ii) Infosys Ltd. (341 ITR 253) (Kar) (iii) CIT Vs. Sunbeam Auto Ltd. (232 ITR 167)(Del).

16 ITA No.463/Bang/2014 8.3.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. The Hon'ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd. (supra) has propounded a distinction between lack of enquiry and inadequate enquiry. If there is a lack of enquiry, then the order of assessment can be branded as erroneous. The Hon'ble Delhi High Court in this case ((supra) has observed as under at para 12 thereof :-

“ 12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the CIT under s. 263 of the IT Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the AO did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open………..…”

8.3.2 According to the assessee, the Assessing Officer had examined the two issues on allowability of claims of expenditure on (i) Education Cess and (ii) VRS Compensation under Section 35DDA of the Act. The mode of passing of the order of assessment is the prerogative of the Assessing Officer and the assessee had no control over the Assessing

17 ITA No.463/Bang/2014 Officer for passing an order of assessment in a specific manner. However, if a discussion on the issues in question is not forthcoming or discernible from the order of assessment, on a particular issue; then in order to ascertain whether the Assessing Officer has applied his mind or not, the higher forum can go through the show cause notice, if any, issued by the Assessing Officer and the reply given by the assessee. That would indicate that though the orders of assessment is silent, but the issues must have been discussed in the course of assessment proceedings. On a perusal of the order of assessment, the details called for to be filed by the Assessing Officer in the notice issued under Section 142(1) of the Act dt.17.5.2010 on the details filed, we find none of the 9 listed details called for or in respect of which queries raised by the Assessing Officer or submissions filed by the assessee are in respect of or pertain to the two issues of the assessee's claim for expenditure on Education Cess and VRS Compensation under Section 35DDA of the Act which the ld. CIT has raised in the impugned order under Section 263 of the Act.

8.3.3 The Hon'ble Apex Court in the case of Malabar Industries Co. Ltd. (supra) has observed that the acceptance of accounting entries, as it is, without causing any enquiry by the Assessing Officer would render the order of assessment erroneous in so far as it is prejudicial to the interests of revenue. Drawing support from the aforesaid decision of the Hon'ble Apex Court in the case of Malabar Industries Co. Ltd (supra), of the Hon'ble Delhi High Court in the case of Sunbeam Auto Ltd. (supra) and of

18 ITA No.463/Bang/2014 the Hon'ble Karnataka High Court in the case of Infosys Ltd. (supra); we are of the considered view, the ld. CIT had correctly considered all these aspects before taking revisionary action under Section 263 of the Act in the case on hand for Assessment Year 2008-09 in directing the Assessing Officer to examine the aforesaid two issues in question in accordance with law. Consequently, since we do not find any merit in the grounds raised by the assessee in this appeal, it is dismissed.

Order pronounced in the open court on the 20th day of April,2018.

Sd/- Sd/- (N.V. VASUDEVAN) (JASON P BOAZ) Judicial Member Accountant Member Bangalore, Dt.20.04.2018. *Reddy gp

Copy to : 1 Appellant 4 CIT(A) 2 Respondent 5 DR. ITAT, Bangalore 3 CIT 6 Guard File

Senior Private Secretary Income Tax Appellate Tribunal Bangalore.