1. This appeal arises out of the impugned order in ITA No. 138/PNJ/2011 dated 03.08.2011 on the file of Income-tax Appellate Tribunal, Panaji Bench, Panaji (for short 'the Tribunal'). This appeal has been filed for considering the following substantial questions of law—
"(i) |
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Whether on facts and in law the ITAT is right in holding that the view taken by the Assessing Officer is legally sustainable in law ignoring the fact that no proper examination was done nor any inquiry was made by the Assessing Officer during the course of assessment proceedings and thereby holding that revisionary proceedings under Section 263 are unwarranted? |
(ii) |
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Whether on the facts and the circumstances of the case, the ITAT is right in law in holding that Explanation No. 3 to Section 40 (b) of the Income-tax Act, 1961, cannot empower the Assessing Officer to go behind the net profit shown in the P and L account nor he is empowered to decide under which head the income is to be taxed? |
(iii) |
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Whether the ITAT is right on facts and in law in not considering the nature of expenses incurred by the assessee which requires deduction of tax at source in certain circumstances and holding that there was no error in order to indicate that TDS provisions are applicable to the assessee in respect of Labour Charges, Felting Charges and Moulding Charges whereas, prima facie, no examination was done by the Assessing Officer? |
(iv) |
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Whether the ITAT is right in law and on facts in allowing the deduction claimed on account of Keyman Insurance Premium in the name of partner which is against the requirement of Keyman Insurance Scheme of LIC of India? |
(v) |
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Whether the ITAT is right in law and on facts not considering the decision relied upon by the CIT in regard to premium paid on Insurance Policy and life of partner in the case of Hiradas Motiram panchay at 161 ITR 99?" |
2. The brief facts of the case are that the respondent/assessee had filed return of income on 30.10.2006 which was processed under Section 143 (1) on 20.03.2007. As the case fell under the guidelines of compulsory scrutiny as per the Board's action plan, the case was picked up for scrutiny by way of issue of notice under Section 143 (2) initiating the assessment proceedings under Section 143 (3). In response to notice issued under Section 143 (2) and subsequent 142 (1) notices. Shri. V.S. Halbhavi, C.A. duly authorised by the assessee appeared on behalf of the assessee firm and produced the books of accounts, bills and vouchers and other details called for vide this office letter dated 11.07.2008. It is seen that the assessee is carrying on business of manufacture of CI castings and alloys deriving receipts on labour charges and also effecting own sales. As the turnover during the year has exceeded Rs.40 lakhs, the assessee's books of account have been duly audited by the Chartered Accountant and reporting Form No.3CB and 3CD have been filed along with return of income. During the course of verification of books of accounts and bills and vouchers produced, it was seen that the assessee under the head labour charges, machinery maintenance, felting labour charges and molding charges has made payments by making certain self made vouchers which neither bore the purpose for which the work has been carried out nor complete name and address of the persons to whom these payments have been made. The assessee's representative stated that these are small labourers or machine repairers who were hired under emergent conditions and payments were made to them and contended that these are expenses really incurred. However, it was proposed to disallow a sum of Rs.2 lakhs out of these payments made for which the assessee's representative agreed vide their letter dated 27.10.2008. Considering the above observations, the assessment was completed and the Assistant Commissioner of Income-tax, Circle-1, Belgaum, passed the order dated 27.11.2008. Be that as it may, the Commissioner of Income-tax having exercised his revisional powers under Section 263 of the Income-tax Act, 1961, (for short 'the Act') has issued a notice under Section 263 of the Act, on 11.02.2011 and duly served on the assessee proposing as under:
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The interest income is to be assessed as income from other sources, |
(ii) |
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While computing remuneration payable under Section 40 (b) of the Income-tax Act, 1961, the interest income is not to be considered, as the same is to be assessed as income from other sources. Hence, the allowable remuneration under Section 40 (b) of the Income-tax Act, 1961 is to be reworked out, |
(iii) |
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The applicability of Section 40 (a) (ia) needs to be examined,:- |
(iv) |
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The sum of Rs. 25,00,000/- debited to P and L Account on account of partnership insurance, where as the policy is in the name of the partner, the deduction claimed by the firm on this account needs to be disallowed. |
3. The aforesaid four points having not been looked into nor considered or appreciated by the Assessing Officer, the Commissioner of Income-tax in order to safeguard the interest of both the Revenue as well as the Assessee has disposed of the case with a direction to the Assessing Authority to reconsider the matter in the light of the observations made in the order on the ground that the reasoning given by the Assessing Authority is erroneous which requires revision under Section 263 of the Income-tax Act. Accordingly, the Assessing Authority was directed to modify the assessment order dated 27.11.2008 as per the directions given. Not being satisfied with the order passed by the Commissioner of Income-tax Act under Section 263 of the Act, the respondent-assessee has filed I.T.A.No.138 (PNJ.)/2011 (Assessment year 2006-2007) on the file of the Income-tax Appellate Tribunal, Panaji Bench, Panaji. The said matter had come up for consideration before the Tribunal and the Tribunal pronounced the order on 03.08.2011 holding that the Assessing Officer adopted possible view permissible in law but the Commissioner did not agree with it and it cannot be treated as an erroneous order prejudicial to the interest of revenue. Therefore, the Tribunal set aside the order of the Commissioner of Income-tax and allowed the appeal filed by the Assessee. Being aggrieved by the order passed by the Tribunal vide Annexure-A, the appellant felt necessitated to present his appeal.
4. The submission of Sri. Y.V. Raviraj, learned Additional Government Advocate for the appellant at the outset is that the Tribunal has erred in making observations contrary to the observations made by the Commissioner of Income-tax regarding satisfying of two ingredients for reviewing the order under section 263 of the Act. To substantiate his contention, he has taken us through paragraph 9 of the reasoning given by the Tribunal wherein it is stated that in respect of applicability of TDS provision the Assessing Officer has obtained all the information of Labour Charges, Felting Charges and Moulding Charges and found that TDS provision is not applicable to these expenses contrary to the order passed by the Assessing Officer. Therefore, the impugned order passed by the Tribunal is liable to be set aside and the order passed by the Commissioner of Income-tax be restored directing the Assessing Authority to redo the process afresh and decide the matter after affording reasonable opportunity.
5. As against this, learned counsel for the assessee interalia contended and substantiated that the order passed by the Tribunal is after due consideration of the material available on record and the reasoning given for upholding the order passed by the Assessing Officer is strictly in accordance with the provisions of the Act. To substantiate his submissions, he has referred to the provisions of Section 263 of the Act. The suo-motu powers exercised by the Commissioner is uncalled for when the Assessing Officer has assigned reasons at paragraph 3 of the assessment order by specifically stating that the Assessee is carrying on business of manufacturer of CI castings and alloys deriving receipts on labour charges and also effecting own sales. As the turnover during the year has exceeded Rs.40 lakhs, the assessee's books of account have been duly audited by the Chartered Accountant and reporting Form No.3CB and 3CD have been filed along with return of income after going through the same and after hearing the authorised representative of the assessee. The representative has pointed out to the effect that there are small labourers or machine repairers who were hired under emergent conditions and payments made to them and contended that these are expenses really incurred. The said assertion cannot be a ground for revoking the powers under Section 263 of the Act by the Commissioner of Income Taxes and further he has failed to give any reasons in the order as to why he wants to interfere and the loss for the revenue is not forthcoming.
6. After careful consideration of the submission made by learned counsel appearing for both the parties and after perusal of the impugned order, it is manifest on the face of the order of the Tribunal that it has committed grave error muchless material irregularity and proceeded to pass the impugned order. As rightly pointed out by the learned counsel for the appellant specifically at paragraph 9 of the order it is stated that in respect of applicability of TDS provision, the Assessing Officer has obtained all the information of Labour Charges, Felting Charges and Moulding Charges and found that TDS provision is not applicable to these expenses. Therefore, the reasoning given by the Commissioner of Income-tax is just and proper as nowhere it is mentioned that the enquiry made by the Assessing Officer has resulted in error in the order and the assessee has given complete details and Assessing Officer has applied his mind to the relevant material and facts. It is significant to note that the Assessing Authority in paragraphs 3 and 4 has stated that in fact the authorised representative of the Assessee has stated that there are small labourers or machine repairers who were hired under emergent conditions and payments made to them and contended that these are expenses which are really incurred. However, he has not produced any vouchers, receipts or bills to show the amount incurred. This shows that there is no application of mind on the part of the Assessing Authority. This fact has been rightly taken note by the 4 points framed by the Commissioner of Income-tax and that 4 points have not been considered by the Assessing Authority. Therefore, he is justified in issuing a direction to the assessing authority to redo the matter afresh and pass appropriate orders in accordance with law. The said reasoning given is well founded. Therefore, we do not find any reason to interfere with the order passed by the Commissioner of Income-Tax and we find error committed by the Tribunal in the reasoning given at paragraph 9 of the order which cannot be sustained and is liable to be set aside without expressing any opinion on the merits or demerits of the case as it will prejudice the stand to be taken by the revenue and the assessee before the Assessing Officer.
7. Accordingly, the appeal filed by the appellant is allowed in part. The order passed by the Income-tax Appellate Tribunal, Panaji Bench, Pajani, in ITA No.138(PNJ)/2011 (Assessment year 2006-2007) dated 03.08.2011 vide Annexure-A is hereby set aside. The matter is remitted back to the Assessing Authority to reconsider the matter afresh in , accordance with law after affording reasonable opportunity of hearing to the Assessee and the Revenue and dispose of the matter as expeditiously as possible at any rate within a period of three months from the date of receipt of copy of this judgment. However, the appellant and the respondent both are directed to appear before the Assessing Officer personally on 08.07.2013 at 11 a.m. and to collect the necessary date of further hearing.