Case Law Details
IN THE ITAT BANGALORE BENCH ‘A’
Mysore Sales International Ltd. V/s. CIT
IT Appeal No. 1402 (Bang.) of 2010
[Assessment year 2006-07]
Date of Pronouncement – March 30, 2012
ORDER
George George K., Judicial Member
This appeal instituted by the assessee is directed against the order of the CIT(LTU), Bangalore, dated 30-9-2010 passed u/s 263 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”]. The relevant assessment year is 2006-07. There is a delay of 4 days in filing of the appeal. The assessee-company had filed a petition for condoning the delay along with affidavit of the General Manager stating therein reasons for delay in filing of the appeal. We have perused the petition and the affidavit filed. We are of the view that there is a reasonable and justifiable cause for 4 days delay in filing of the appeal. Hence, we condone the delay and proceed to dispose of the matter on merits.
2. The relevant grounds read as follows:
“The order of the learned Commissioner is opposed to law and facts of the case.
2. Having regard to the provisions of law and the concept of the method of accounting and the mode of determination of the leave encashment allowance, the amount was allowable as deduction u/s 37 of the Act.
3. The order of the assessment which is the subject matter of revision, the order was perfectly in accordance with law and did not suffer from any error as it followed the binding decision of the Karnataka High Court in M/s. Exide Industries Ltd., and Supreme Court in BEML.
4. The power of the Commissioner u/s 263 must be examined with reference to the state of law on the date on which the order which is the subject matter of revision is passed. If on that day it was not erroneous or prejudicial to the interest of the Revenue it could not happen to be so because of subsequent event.
5. The appellant craves leaves to add to, delete from or amend the grounds of appeal.”
3. Briefly stated facts of the case are as follow: The assessee is a fully owned company of the Government of Karnataka. It is engaged in the business of trading items like consumer and industrial products, liquor, Air and Bus tickets etc. Return of income for the concerned year was filed on 30-11-2006 declaring income of Rs. 50,81,68,273/-. Revised return of income was filed on 14-2-2008 declaring taxable income of Rs. 45,52,92,086/-. The assessment was completed u/s 143(3) on 29-10-2008 determining the income at Rs. 46,08,63,020/-. Subsequently, notice was issued for initiating proceedings u/s 263. The revisionary jurisdiction was initiated by the CIT for the following reasons:
“(a) Unpaid leave encashment is to be disallowed as per the provisions of sec.43B(f),
(b) Interest payable u/s 244A on refund for the period from the due date to the date of filing of revised return which needs to be excluded for the reason that the delay is attributable to assessee and no interest is payable.”
4. The assessee filed written objections before the CIT which reads as follows:
“1. In so far as the leave encashment balance of Rs. 14,53,596/- it may be noted that the appeal filed by the Department against the decision of Kolkatta High Court is still pending with Supreme Court.
2. Regarding interest payable on the refund, it is submitted that the company has filed the income tax return on or before due date.
3. As the CBDT had notified the introduction of e-filing of returns for Corporates for the first time for AY 2006-07, there was an extension of time to file the returns upto 30-11-2006. There is no delay and the return is filed before the due date as such the question of invoking section 244A of the Income-tax Act does not arise.”
The CIT accepted the assessee’s contention with reference to the issue of interest payable u/s 244A of the Act for the period from the due date of filing of return to the date of filing of revised return and dropped the proceedings u/s 263 of the Act. The CIT, however, rejected the assessee’s contention with reference to the issue of disallowance of unpaid leave encashment by invoking the provisions of sec.43B(f) of the Act.
The relevant observation of the CIT reads as follows:
“I have considered the arguments put forward by the assessee’s representative. With regard to the issue of leave encashment it is seen that the operation of the decision of the Hon’ble Kolkata High Court referred to by the assessee in the case of M/s. Exide Industries Ltd. & Anr. In support of its case has been stayed by the Hon’ble Supreme Court. The Hon’ble Supreme Court has observed
‘We further make it clear that the assessee would during the pendency of this Civil Appeal, pay tax as if section 43B(f) is on the Statute Book but at the same time it would be entitled to make a claim in its returns’
In view of the above, the order dated 29-10-08 is erroneous and prejudicial to the interests of revenue in the light of the findings of the Hon’ble Supreme Court. The assessing officer is directed to add back to the total income a sum of Rs. 14,53,596/- being encashment of earned leave not paid by the due date u/s 43B.”
5. The assessee-company, being aggrieved, is in appeal before us. Learned counsel for the assessee submitted that the CIT has erred in invoking the revisionary jurisdiction u/s 263 of the Act. It was submitted that the assessment order was perfectly in accordance with law and does not suffer from any error as it was in tune with the judgment of the Hon’ble Calcutta High Court in the case of Exide Industries Ltd. v. Union of India [2007] 164 Taxman 9. It was submitted that the observation of the CIT that Hon’ble Supreme Court has stayed the judgment of the Hon’ble Calcutta High Court is not justified since the Apex Court’s observation in the last paragraph of its judgment is confined to the assessee in that case. Therefore, it was submitted that foundation for invoking the jurisdiction u/s 263 has lost its substratum. Learned Departmental Representative submitted that the AO has not noticed clause (f) to sec.43B and the assessment order having allowed unpaid leave encashment as allowable deduction, is an order which is erroneous and prejudicial to the interests of revenue. It was submitted that the CIT is correct in concluding that Hon’ble Calcutta High Court judgment in the case of Exide Industries Ltd. (supra) is stayed by the Hon’ble Apex Court.
6. We have heard rival submissions and perused the material on record. The assessment order is silent on the provisions of section 43B(f) and has blindly allowed unpaid portion of leave encashment as an allowable deduction. There has been no proper inquiry conducted by the AO. There is no discussion in the assessment order whether unpaid portion of the leave encashment is an allowable deduction. The Hon’ble Karnataka High Court in the case of CIT v. Namdari Seeds [2011] 203 Taxman 421/16 taxmann.com 9 has observed thus:
“Hence there were no two views available to the AO and even if so, it is not stated in the order as to what are those two views and as to how he intends to adopt one out of these two views – Therefore the CIT is right in passing the revisional order under s.263.”
6.1 The recent judgment of the Hon’ble Karnataka High Court in the case of CIT v. Infosys Technologies Ltd. [2012] 341 ITR 293/205 Taxman 98/17 taxmann.com 203 has held as follows:
“The assessing authority performs a quasi-judicial function and the reasons for his conclusions and findings should be forthcoming in the assessment order. Though it is urged on behalf of the assessee by its learned counsel that reasons should be spelt out only in a situation where the assessing authority passes an order against the assessee or adverse to the interests of the assessee and no need for the assessing authority to spell out reasons when the order is accepting the claim of the assessee and the learned counsel submit that this is the legal position on authority, we are afraid that to accept a submission of this nature would be to give a free hand to the assessing authority, just to pass orders without reasoning and to spell out reasons only in a situation where the finding is to be against the assessee or any claim put forth by the assessee is denied.
We are of the clear opinion that there cannot be any dichotomy of this nature as every conclusion and finding by the assessing authority should be supported by reasons, however brief it may be, and in a situation where it is only a question of computation of in accordance with the relevant articles of a double taxation avoidance agreement and that should be clearly indicated in the order of the assessing authority, whether or not the assessee had given particulars or details of it. It is the duty of the assessing authority to do that and if the assessing authority had failed in that, more so in extending a tax relief to the assessee, the order definitely constitutes an order not merely erroneous but also prejudicial to the interests of the Revenue and, therefore, while the Commissioner was justified in exercising the jurisdiction under section 263 of the Act, the Tribunal was definitely not justified in interfering with this order of the Commissioner in its appellate jurisdiction.”
In the instant case, there is no discussion at all in the assessment order why the unpaid leave encashment is allowed as deduction. Prima facie, we feel, the AO has not noted the relevant statutory provisions viz., 43B(f). It is a settled law non-consideration of mandatory provisions of law in an order will lead the same to be erroneous and prejudicial to the interests of revenue.
6.2 We are of the opinion that the CIT is justified in stating that the Hon’ble Supreme Court has stayed the operation of the judgment of the Hon’ble Calcutta High Court in the case of Exide Industries Ltd. (supra) which has struck down clause (f) to sec. 43B. The Hon’ble Supreme Court, while admitting the SLP filed by the revenue against the judgment of the Hon’ble Calcutta High Court observed thus:
‘We further make it clear that the assessee would during the pendency of this Civil Appeal, pay tax as if section 43B(f) is on the Statute Book but at the same time it would be entitled to make a claim in its returns’
From a reading of the above Hon’ble Supreme Court order, it is clear that sec.43B(f) is in the statute book during the pendency of the civil appeal. It cannot be said that sec.43B(f) is in respect of only those assessees before the Supreme Court. The order of the Hon’ble Supreme Court cannot be interpreted to mean that the parties before the Hon’ble Supreme Court alone need to take note of the provisions of sec.43B(f) of the Act. In light of the aforesaid reasoning, we are of the opinion that the CIT is justified in invoking the revisionary jurisdiction u/s 263 of the Act and accordingly uphold his order.
7. In the result, the assessee’s appeal is dismissed.
