×Latest Case Laws on Income Tax by various High Courts of India
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16-04-2019, KOHINOOR FOODS, Section 260-A, 263, 80HHC, HIGH COURT OF DELHI
1. These are three appeals by the Revenue, under Section 260-A of the Income tax Act, 1961 („Act‟) against the common order dated 31st January 2005 passed by the Income Tax Appellate Tribunal („ITAT‟) in ITA Nos.2442, 2443 and 2444/Del/2004 for the Assessment Years (AYs) 1999- 2000, 2000-2001 and 2001-2002.
2. By an order dated 28th March 2019 of this Court, the name of Assessee was permitted to be corrected from „Satnam Overseas Ltd.‟ to its present name i.e. Kohinoor Foods Ltd.
Question of law
3. The question of law framed by this Court while admitting these appeals on 21st November 2008 reads as under:
“Whether the Commissioner of Income Tax correctly exercised his powers under Section 263 of the Income Tax Act, 1961 in cancelling the assessment order passed under Section 143(3) of the said Act and in directing the assessing officer to pass a fresh assessment order on all issues, except those, decided by the Commissioner of Income Tax (Appeals )?"
4. The background facts are that the Respondent Assessee is engaged in manufacturing and trading of rice. For each of the AYs in question its return was picked up for scrutiny and an assessment order was passed by the Assessing Officer (AO) under Section 143 (3) of the Act. The assessment order for AY 1999-2000 dealt with two of the issues viz., (i) claim of reduction by the Assessee under Section 80 HHC and (ii) deferred revenue expenditure. For AY 2000-2001 four issues were dealt with viz., (i) claim under Section 80 HHC, (ii) claim under Section 80 IA, (iii) issue relating to Section 43B of the Act and (iv) issue relating to Section 40A (7) of the Act. As far as AY 2001-02 is concerned the assessment order under Section 143(3) of the Act dealt with the issues of (i) claim under Section 80 HHC, (ii) depreciation and (iii) claim under Section 80 IA.
5. By the common order dated 23rd November 2004 the Commissioner of Income Tax (Appeals) disposed of the assessee‟s appeals confirming the assessment orders for the two AYs 1999-2000 and 2000-2001 and issued necessary directions in relation to the assessment order for AY 2001-02. Show Cause Notices
6. The Commissioner of Income Tax („CIT‟) invoked the revisional jurisdiction under Section 263 of the Act and issued a show cause notice (SCN) dated 8 th March 2004 to the Assessee as regards AYs 1999-2000. For AY 2000-2001 a separate SCN dated 16th February 2004 was issued. In the said SCNs the following issues were referred to: given the average rate of Rs.2887 per quintal of rice, the figures of the closing stock of rice as end of the previous financial year (FY) relevant to the AY in question would be much more than the figure arrived at in terms of the actual sales of rice. This indicated a suppression of sales. This got further confirmed by the packing expenses which were much more than the claim for the preceding year by 83%. The corresponding increase in the sales as compared to the immediately previous AYs was only 33%. The AO had failed to take note of the serious discrepancies and rushed to complete the assessment.
7. Another issue raised by the CIT was that the AO had failed to examine the substantial revenue expenses claimed by the assessee under several heads though prima facie some of these expenses appeared to be personal or capital in nature. For example, the detail of the foreign travel expenses pertaining to the travel by the relatives of the assessee‟s directors. Further a portion of the advertisement expenditure and business promotion expenditure appeared to be towards land and building which may have brought an advantage of agreeable nature of the assessee. Therefore, these were to be treated not as revenue expenses and ought to be disallowed.
8. It was further noted that brokerage and commission expenses had been allowed by the AO without examination and verification. Likewise he also accepted the assessee‟s computation of the deduction under Section 80 HHC. Lastly, the requisite proof of payment of bonus and sales tax was not furnished and, therefore, these ought to have been disallowed under Section 43B of the Act. Order of the CIT under Section 263
9. After considering the reply of the Assessee to the above SCNs, orders were passed by the CIT under Section 22 of the Act on 25th March 2004 (in respect of AYs 1999-2000 and 2000-2001) and 29th March 2004 (in respect of AY 2001-2002). The CIT held that the Assessee‟s contention that it hadfurnished complete details of purchase and sales was only partly correct. The quality-wise breakup of rice purchased and sold i.e. Basmati, Tibar, Dubar and Kinki etc. was not furnished. It was noted that out of the Assessee‟s total sales for all products aggregating to Rs.340 crores, sale of rice constituted Rs.244 crores i.e. over 70% for which no item-wise or quality-wise breakup was furnished.
10. As regards closing stock, the CIT observed that their full particulars were not furnished. The Assessee produced its stock register but it was found that they did not contain the record of different qualities of rice. Only the aggregate quantity of rice received and dispatched was recorded therein. However, the sales receipts showed that the different quality of rice was mentioned therein. Consequently, the CIT held that it was not correct to apply the average rate of rice in the closing stock to the total quantity of rice sold since the product mix of the rice in the closing stock was significantly different from the product mix of the rice sold. According to the CIT the Assessee was unable to reconcile the sale of different qualities of rice vis-avis the availability of the respective quality of rice.