ITA No. 310 of 2016 (O&M) 1 IN HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 310 of 2016 (O&M) Date of decision: 25.04.2017 Pr. Commissioner of Income Tax (Central), Ludhiana Appellant Vs. M/s Vardhman Industries Limited, New Delhi ..Respondent CORAM: HON BLE MR. JUSTICE AJAY KUMAR MITTAL HON BLE MR. JUSTICE RAMENDRA JAIN Present: Mr. Rajesh Katoch, Senior Standing counsel for appellant- revenue. Ms. Radhika Suri, Senior Advocate with Mr. Manpreet Singh Kanda, Advocate for respondent-assessee. Ajay Kumar Mittal,J. 1. following substantial questions of law have been claimed by appellant-revenue in instant appeal filed under Section 260A of Income Tax Act, 1961 (in short, Act ) against order dated 15.03.2016, Annexure A.III, passed by Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (in short, Tribunal ) for assessment year 2004-05:- (i) Whether on facts and in circumstances of present case, Hon ble ITAT has erred in setting aside 1 of 6 ITA No. 310 of 2016 (O&M) 2 order, passed under Section 263 of Income Tax Act, 1961 by Commissioner of Income Tax(Central), Ludhiana whereas said order contains concrete finding regarding disallowability of expenditure on account of sales tax and also specific finding that assessment order, sought to be revised, was erroneous and prejudicial to interest of revenue ? (ii) Whether on facts and in circumstances of present case, Hon ble ITAT has erred in setting aside order, passed under Section 263 of Income Tax Act, 1961 without appreciating that Commissioner of Income Tax(Central), Ludhiana had rightly exercised jurisdiction under Section 263 of Income Tax Act, 1961 as assessment order, sought to be revised had been passed by Assessing Officer on incorrect assumption of facts, incorrect application of law, without application of mind and without making proper enquiry and verification? (iii) Whether Hon ble ITAT has erred in law in setting aside order under Section 263 of Income Tax Act, 1961 without appreciating that assessment order, sought to be revised had been passed without making proper enquiry as to how sales tax can be claimed by assessee as expenditure when same was not included in sales? 2. few facts relevant for decision of controversy involved as narrated in appeal may be noticed. assessee is limited company. It deals with manufacturing of Steel Ingots, Vanaspati Ghee/Refined Oil, G.P. sheets/coils, G.C. sheets, CCL sheets and generation of power. search under Section 132 of Act was conducted on 10.06.2009. assessee filed its return in pursuance to notice under Section 153A of Act, declaring income of 4,81,513/- on 22.06.2010. assessment under Section 153A read with Section 143(3) 2 of 6 ITA No. 310 of 2016 (O&M) 3 of Act was completed vide order dated 29.12.2011 at income of ` 9,63,880/-. perusal of Assessing Officer s proposal, for initiating proceedings under Section 263 of Act and on perusal of assessment records, Commissioner of Income Tax(Central), Ludhiana (CIT) found assessment order under Section 153A/143(3) of Act dated 29.12.2011 to be erroneous and prejudicial to interest of revenue. show cause notice under Section 263 of Act dated 02.1.2014 was issued to assessee. CIT noticed that in profit and loss account, assessee had claimed expenses of `1,12,50,000/- on account of sales tax included in selling and distribution expenses which had been allowed by Assessing Officer. According to notes on accounts, sales did not include sales tax. In fact, expenditure was not allowable and should have been disallowed. CIT after examining assessment records and submissions of assessee found that Assessing Officer had not been properly examined issue of allowability of sales tax expenditure of `1,12,50,000/- and consequently passed impugned order under Section 263 of Act holding that assessment order dated 29.12.2011 under Section 153A/14(3) of Act was erroneous and prejudicial to interest of revenue. CIT set aside impugned order with direction to Assessing Officer to make fresh assessment after examining facts of case and relevant provisions of Act. Aggrieved by order, assessee filed appeal before Tribunal. Vide order dated 15.03.2016, Annexure A-III, Tribunal allowed appeal of assessee holding that CIT himself had not given any concrete finding as to merits of case and directed Assessing Officer to make further enquiry. It was further held that assumption of jurisdiction 3 of 6 ITA No. 310 of 2016 (O&M) 4 under Section 263 of Act by CIT was not as per law. Hence, instant appeal by appellant-revenue. 3. We have heard learned counsel for parties. 4. Learned counsel for appellant-revenue submitted that quantum of sales shown by assessee did not include sales tax and therefore amount of `1,12,50,000/- claimed on account of sales tax paid under Compound Levy Scheme was inadmissible. On aforesaid premises, assumption of jurisdiction under Section 263 of Act was urged to be proper. 5. On other hand, learned counsel for assessee argued that sales tax payment of 1,12,50,000/- under Compound Levy Scheme was allowable under Section 43B of Act. It was claimed that even in reply submitted to Assessing Officer, it was specifically stated that sales appearing in balance sheet were inclusive of sales tax and hence, sales tax paid was allowable expense. Learned counsel for assessee produced copy of paper book which was filed before Appellate Tribunal. It is taken on record. 6. relevant extract of Section 263 of Act is reproduced as under:- 263- Revision of orders prejudicial to revenue-(1) Principal Commissioner or Commissioner may call for and examine record of any proceeding under this Act, and if he considers that any order passed therein by Assessing Officer is erroneous in so far as it is prejudicial to interests of revenue, he may, after giving assessee opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as circumstances of case justify, including 4 of 6 ITA No. 310 of 2016 (O&M) 5 order enhancing or modifying assessment, or cancelling assessment and directing fresh assessment. Explanation 7. above provision provides for exercise of revisonal jurisdiction by CIT. According to said provision, two conditions are required to be satisfied i.e. (i) order sought to be revised is erroneous and at same time, it should be prejudicial to interest of revenue. Both conditions have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise power under Section 263 would be available subject to complying with principles of natural justice. Opportunity of hearing is also required to be given to assessee. Reference may be made to judgment of Apex Court in Commissioner of Income Tax, Mumbai Vs. Amitabh Bachchan, Civil Appeal No. 5009 of 2016 arising out of S.L.P.(C) No. 11621 of 2009 decided on 11.05.2016. 8. In present case, once assessee had shown that sales appearing in balance sheet were inclusive of sales tax, there was no occasion to disallow claim made by assessee relating to payment of sales tax, on basis of Compound Levy Scheme. revenue was unable to produce any material on record to substantiate that assessee had excluded amount of sales tax from sales. Once that was so, it could not be said that order sought to be revised was either erroneous or prejudicial to interest of revenue. Thus, both limbs of Section 263 of Act were not satisfied. Consequently, exercise of revisional jurisdiction by CIT under Section 263 of Act was unwarranted. 5 of 6 ITA No. 310 of 2016 (O&M) 6 9. In view of above, it is concluded that no illegality or perversity could be shown by learned counsel for appellant- revenue so as to hold that assumption of revisional jurisdiction by CIT under Section 263 of Act was justified. Consequently, no substantial question of law aarises and appeal stands dismissed. (Ajay Kumar Mittal) Judge April 25, 2017 (Ramendra Jain) gs Judge Whether speaking/reasoned Yes Whether reportable Yes 6 of 6 Pr. Commissioner of Income-tax (Central), Ludhiana v. Vardhman Industries Limited