STECKBECK JEWELLERY PVT. LTD.,MUMBAI vs. I.T.O.8(3)-2, MUMBAI

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ITA 221/MUM/2013Status: DisposedITAT Mumbai29 February 2016AY 2008-096 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Commissioner's revision was invalid because the basis for it (business reconstruction) was previously rejected by the Tribunal itself in an earlier assessment year. Therefore, the Assessing Officer's allowance of the deduction was not erroneous.

What were the facts?

The assessee claimed deduction under Section 10AA. The Assessing Officer accepted the return. The Commissioner, under Section 263, revised the assessment, believing the deduction was wrongly allowed due to a prior year's disallowance based on business reconstruction.

What were the issues?

Whether the Commissioner's revision under Section 263 was justified when the underlying issue of business reconstruction had been decided in favour of the assessee by the Tribunal in a prior year.

Which sections of the Income-tax Act were involved?

Section 263,Section 10AA

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “E” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR

For Appellant: Shri Govind Javeri
For Respondent: Shri Manjunatha Swamy

Aforesaid appeal of the assessee is directed against the order dated 18th December 2012, passed by the learned Commissioner–8, Mumbai, under section 263 of the Income Tax Act, 1961 (for short "the Act") for the assessment year 2008–09.

2.

Briefly stated the facts are, assessee a company is engaged in the business of manufacturing and export of gold and diamond

2 M/s. Steckback Jewellery Pvt. Ltd. studded jewellery. For the assessment year under consideration, assessee filed its return of income declaring total income of ` 62,996, after claiming deduction under section 10AA of the Act. The Assessing Officer completed the assessment under section 143(3) vide order dated 23rd December 2011, accepting the income returned by the assessee. Subsequently, the learned Commissioner, in exercise of power under section 263, called for the assessment record of the assessee for the impugned assessment year and after verifying the same, he was of the opinion that the assessment order passed is erroneous and prejudicial to the interests of Revenue as the Assessing Officer while completing the assessment has completely ignored the fact that in assessment year 2007–08, assessee’s claim of deduction under section 10AA was disallowed by the Assessing Officer on the ground that the assessee company was formed by re–construction / splitting up of another company namely M/s. Devize Electro Mechanical Pvt. Ltd. (DEMPL). He observed, though, the learned Commissioner (Appeals) had allowed assessee’s claim of deduction under section 10AA while deciding assessee’s appeal against the assessment order for assessment year 2007–08 but the Department has challenged the order of the learned Commissioner (Appeals) before the Tribunal which is still pending. He, therefore, issued a notice directing the assessee to 3 M/s. Steckback Jewellery Pvt. Ltd. show cause why the assessment order passed for the impugned assessment order should not be held to be erroneous and prejudicial to the interests of Revenue and accordingly revised. Though, assessee objected to the proposed action of the learned Commissioner, but learned Commissioner rejecting the contention of the assessee held that the Assessing Officer having allowed assessee’s claim of deduction under section 10AA ignoring the disallowance of deduction claimed under section 10AA in assessment year 2007–08, assessment order passed is erroneous and prejudicial to the interests of Revenue. He, therefore, set aside the assessment order and directed the Assessing Officer to disallow assessee’s claim of deduction under section 10AA. Being aggrieved, assessee is in appeal before the Tribunal.

3.

At the outset, learned Authorised Representative submitted before us, the Department’s appeal against the order of the learned Commissioner (Appeals) allowing assessee’s claim of deduction under section 10AA, in the meanwhile, has been dismissed by the Tribunal by upholding the order of the learned Commissioner (Appeals). He, therefore, submitted that as the very basis on which the learned Commissioner held the assessment order to be erroneous and prejudicial to the interest of Revenue, no longer exist having been 4 M/s. Steckback Jewellery Pvt. Ltd.

settled by the order of the Tribunal, the impugned order of the learned Commissioner has to be set aside.

4.

The learned Departmental Representative agreed before us that assessee’s claim of deduction under section 10AA has been allowed by the Tribunal while dismissing the Department’s appeal for assessment year 2007–08.

5.

We have considered the submissions of the parties and perused the material available on record. It is clearly evident from the impugned order of the learned Commissioner that the only reason on which he has held the assessment order passed for the impugned assessment year to be erroneous and prejudicial to the interests of Revenue is assessee’s claim of deduction under section 10AA was disallowed by the Assessing Officer in assessment year 2007–08. However, fact remains, in the appeal preferred by the assessee against the assessment order passed for the assessment year 2007– 08 before the learned Commissioner (Appeals) assessee’s claim of deduction under section 10AA was allowed by disapproving the reasoning of the Assessing Officer. Though, against the order of the learned Commissioner (Appeals), Department preferred appeal before the Tribunal but the Tribunal in order dated 25th March 2015, in ITA

5 M/s. Steckback Jewellery Pvt. Ltd. no.7088/Mum./2010, upheld the order of the learned Commissioner (Appeals) by dismissing the appeal of the Revenue observing as under:–

“6. The aforesaid facts are also corroborated by the fact that as on 31.03.2004 and 31.03.2005 the DMPEL had not started any business activity. The said company was taken over by the assessee, during May, 2005 and as on that date also, DMPEL had no assets. The assessee had purchased the shares of DMPEL for an amount of Rs.75,00,000/- and thereafter had applied for letter of permission for manufacturing of diamond studded jewellery. Letter of permission was transferred in the name of the assessee. Once the DMPEL has no assets and had not started any business activity, then mere purchase of shares of such company will not be considered as reconstruction of business. A change in the ownership of the company’s or the undertaking will not result into reconstruction as held by the AO. Accordingly, conclusion drawn by the CIT(A) on the facts of the case is not only factually covered but also legally sound. Thus, the grounds raised by the department are dismissed.”

6.

Thus, as can be seen from the finding of the Tribunal reproduced above, it was held that the assessee company was not formed by re– construction of an existing business. Therefore, the very reasoning on the basis of which learned Commissioner has invoked his jurisdiction under section 263 and ultimately passed the impugned order was not accepted by the Tribunal in assessment year 2007–08. In these circumstances, the action of the Assessing Officer in allowing assessee’s claim of deduction under section 10AA, cannot be held to be either erroneous or prejudicial to the interests of Revenue.

6 M/s. Steckback Jewellery Pvt. Ltd.

Therefore, we have no hesitation in quashing the impugned order of the learned Commissioner.

7.

In the result, appeal stands allowed. Order pronounced in the open Court on 29.02.2016

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