TMI Blog2014 (10) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue, unless the view taken by the ITO is unsustainable in law - during the course of assessment proceedings, the AO examines numerous issues and generally, the issues which are accepted do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made - provisions of s. 263 cannot be resorted to – relying upon Commissioner Of Income-Tax Versus Gabriel India Limited [1993 (4) TMI 55 - BOMBAY High Court] - when a regular assessment is made u/s 143(3) a presumption can be raised that the order has been passed upon on application of mind - Revenue has not brought any material on record to demonstrate that the view taken by the AO was an impermissible view and was contrary to law or was upon erroneous application of legal principles necessitating the exercising of Revisionary powers u/s 263 – thus, the order of the CIT(A) is to be set aside – Decided in favour of assessee. - I.T.A. Nos. 1096/AHD/2013 & 910/AHD/2014 - - - Dated:- 17-10-2014 - Shri Anil Chaturvedi, A.M. And Shri Kul Bharat, J.M,JJ. For the Appellant : Shri M. M. Patel with Jigar M. Patel, A. R For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O was unsustainable in the eyes of law. He accordingly cancelled the assessment order dated 28.10.2010 framed u/s 143(3) of the Act and directed the A.O to make the fresh assessment of the total income of the Assessee. 6. As far as AY 2008-09 is concerned, Assessee filed its return of income on 29.9.2008 declaring total income at Rs. Nil. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) r.w.s. 144C vide order dated 23.02.2012 and the total income was determined at ₹ 1,77,09,75,283/-. Subsequently, on examination of records of assessment, Ld. CIT noticed that Assessee had received remuneration of ₹ 4.73 crore from Zydus Healthcare Sikkim in terms of the agreement and it was claimed as exempt u/s 28(v) rws 40(b) of the Act. Ld. CIT was of the view that since the amount received by the assessee was pursuant to an agreement entered by the Assessee with Zydus Healthcare, the amount was required to be treated as income of the assessee u/s 56 of the Act for the year under consideration. He accordingly issued notice and called upon the Assessee to show cause as to why the order u/s 263 of the Act not be passed in response t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O is unsustainable in law and for the aforesaid proposition he relied on the decision in the case of Malabar Ind. Co Vs CIT (2000) 243 ITR 83 (SC). 9. With respect to the issue of loss on account of exchange fluctuation in AY 2006- 07, the Ld AR submitted that during the course of assessment proceedings, A.O had raised a query with respect to the loss on account of exchange fluctuation and the same was replied by the Assessee vide its reply dated 14th October, 2009. He pointed to page 7 of the paper book wherein he pointed out that the details of deficit on account of fluctuation in foreign exchange rate on loans that was submitted before the A.O. He also pointed to the details of foreign rate fluctuation loss statement placed at page 9 of the paper book which was also submitted before the A.O. The ld. A.R. further submitted that in response to the further query of the A.O, Assessee vide its letter dated November 12, 2009 had submitted the reasons for claiming the loss as revenue loss and the relevant reply was placed at page 15 of the paper book. The ld. A.R. therefore submitted that after considering the submissions of the Assessee and on being satisfied by . A.Ys. 2006-07 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt was exempt in the hands of Assessee. The Ld AR pointed to the copy of the notice placed at page 1 of the paper book. In response to the query of the AO, Assessee vide letter dated 13.10.2011 furnished the copies of the addendum to the partnership deed, MOU and submitted that the amount was not taxable. He pointed to the copy of the letter and the relevant reply placed at page 9 of the paper book. Thereafter the AO again vide letter dated 24.10.2011 sought explanation and stated that he proposed to disallow the assessee's claim and asked the assessee to file its objection if any. The assessee objected to the proposed disallowance and submitted a detailed written reply. He pointed to the copy of the letter of the AO and response of the assessee which was placed at page 17 to page 24 of the paper book. The ld. A.R. therefore submitted that after considering the submissions of the Assessee and on being satisfied by the replies given by Assessee, no addition was made by A.O. The Ld AR relying on the decision of Apex Court in the case of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC) that the phrase 'prejudicial to the interests of the Revenue' has to be read i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsent. Similarly if an order is erroneous but not prejudicial to the interest of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be subject-matter of revision because the second requirement also must be fulfilled. On the issue of non mentioning of the query raised during the assessment proceedings in the assessment order, he pointed to the observations made by the Tribunal in the case of Siddh International vs. CIT (2009) 32 SOT 14 (Ahd) (URO) wherein the H'ble Tribunal has observed that there is no provision under the Income Tax Act which requires that the Assessing Officer should pass order in specified manner so that all the queries raised by him as well as the submissions made by the Assessee along with the decision of the A.O should be incorporated in the order. The Ld AR thus submitted that the order of the Ld CIT for AY 2006-07 and AY 2008-09 passed u/s 263 of the Act needs to be set aside, both on the ground of jurisdiction and on facts. 11. The ld. D.R. on the other hand supported the order of CIT. He further submitted that when A.O has allowed the claim without any discussion, the order was erroneous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) by virtue of being erroneous prejudice has been caused to the interests of the Revenue. 15. H'ble Apex Court in the case of Malabar Industrial Co Ltd Vs CIT (2000) 243 ITR 83 (SC) has held that CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent--if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue--recourse cannot be had to s. 263(1). It was further held that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO; when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law. 16. In the case of CIT vs Gabriel India Ltd (1993) 203 ITR 108 (Bom), the H'ble Bombay High Court has held as under: An order cannot be termed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign exchange rates on loans. Of ₹ 565.95 Lacs, marked as Annexure No. 9. Since the said deficit/ loss is pertained to the loan/borrowings of the company it has been charged to the Profit and Loss account as per the Accounting Standard 11 prescribed by the Institute of Chartered Accountants of India, consistently followed by the Assessee Company from year to year. Copy of the Annexure 9 referred to in the above reply and which 9 of the paper book is as under:- Name of the Party ERF Loss Rs. ERF Gain Rs. Loan Taken: BNP Paribas ECB Loan EXIM Bank Foreign Loan BOB-ECB FCNR Loan SBI-FCNR Loan ICICI-ECB Loan Given: Zydus International Pvt. Ltd., Ireland Zydus France SAS, France Net Deficit 3,284,061 1,189,071 26,701,748 17,170,000 13,100,000 27,110,000 27,022,840 2,187,520 2,749,061 56,595,459 Total 88,554,880 88,554,880 Assessee vide its letter dated 12th Nov 2009 gave further clarification on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's income . Please give details and evidence of the same with working and a note as to how the same is exempt in the hands of the Company In response to which Assessee vide reply dated 13.10.2011 submitted (which is placed at page 9 of the paper book) reads as under: 3. Reply to point no 3 of your letter dated 19.9.2011: The assessee company has claimed the amount of remuneration from partnership firm as not chargable to tax since the same has been added to the total income as disallowance u/s 40(b) in the firm's case as envisaged under the proviso to s. 28(v) of the Act. In this regard, we are enclosing herewith copies of the addendum to the partnership deed and the memorandum of understanding between the partners firxing the remuneration marked as Annexure No 8 and 9 respectively. Thereafter vide notice dated 24.10.2011 (copy placed at page 17 of the paperbook) further query was raised by the AO which reads as under: 2. With regard to ₹ 4,73,19,405 claimed as exempt in Statement of Total income under the head 'remuneration from Partnership Firm since disallowed u/s. 40(b) in Firm's income', verification of Statement of Total income of Zy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d u/s. 40(b) while computing the Total Income of the aforesaid partnership firm. As per Sec. 40(b), the following amount shall not be deducted in computing the income chargeable under the head profits and gains of business and profession: - in the case of any firm assessable as such, any payment of salary, bonus, commission or remuneration, by whatever name called to any partner who is not a working partner. 3. Since as per Explanation 4 to Sec. 40(b), working partner means only an individual who is actively engaged in conducting the affairs of the business or profession of the firm, remuneration paid to the assessee company is not allowed to be deducted under the provisions of Sec.40(b). In view of the above, while computing the total income of the partnership firm, remuneration of ₹ 4.73 crores paid by the firm to the company was duly disallowed under Sec. 40(b). 4. Section 28(v) provides that any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm, shall be chargeable to income-tax under the head Profits and Gains of Business or Profession. However, the Proviso to the said S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A)]. 48.3 The gross total income of the firm is to be determined in the normal way under different heads as in the case of any taxable entity. The gross total income so computed is reduced by salary, bonus, commission, or any remuneration payable or paid to a partner [section 40(b)]. Remuneration due to or received by a partner is not to be assessed as income under the head Salaries (Explanation 2 to section 15). Any salary, interest, bonus, commission or remuneration due to or received by a partner in view of clause (v) to section 28 shall be chargeable to income-tax under the head Profits and gains of business or profession . 48.4 The payment of remuneration only to a working partner is allowable [defined in Explanation 4 to section 40(b)]. Only individuals are capable of being working partners. 6. As logically explained in the aforesaid CBDT Circular, the purpose of the Proviso to Section 28(v) (erroneously referred to as Explanation to Sec. 10(2A) under the Circular), is to make it clear that the remuneration or interest which is disallowed in the hands of the firm wilt not suffer taxation in the hands of the partner. Since the legislative intention for the new sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to avoid double taxation of any disallowance under Sec.40(b), whether made by the assessee suo-motu or by the Assessing Officer. The legislative intention in this context is clearly reflected in the CBDT Circular No. 636 extracted hereinabove. 10. We also wish to point out that your observation to the effect that, the intention of the proviso is not to facilitate the assessee to suo- motu disallow full amount to get undue benefit of excess deduction and deprive the revenue of due tax, is wholly misplaced, unjustified and uncalled for on the facts of our case. As pointed out hereinabove, neither the partnership firm of Zydus Healthcare, Sikkim, nor the partner Cadila Healthcare Ltd. has derived any undue benefit as alleged in the notice. In fact, it needs to be noted that the assessee company viz. Cadila Healthcare Ltd., who is required to pay income-tax under the provisions of MAT u/s. Sec.115JB, has duly discharged its tax obligation by paying MAT on the aforesaid amount of remuneration of ₹ 4.73 crores. The company never had any mischievous intentions. Else, it could have been smart in not drawing any remuneration at all, but receive the same as share of profit. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther find that H'ble Apex Court in the case of CIT vs. Max India Ltd. (2007) 295 ITR 282 (SC) has held that where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of Revenue, unless the view taken by the ITO is unsustainable in law. It is a generally noticed that during the course of assessment proceedings, the AO examines numerous issues and generally, the issues which are accepted do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made. In such a situation, we are of the view that provisions of s. 263 cannot be resorted to and for which we draw support by the decision of H'ble Bombay High Court in the case of Gabriel India Ltd (supra). We also draw support from the decision of H'ble Delhi High Court in the case of CIT vs. Honda Sial Power 333 ITR 547 (Del). where it has been held that when a regular assessment is made u/s 143(3) a presumption can be raised that the order has been passed upon on application of mind. Before us, Revenue has not b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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