TMI Blog2011 (8) TMI 974X X X X Extracts X X X X X X X X Extracts X X X X ..... ng effect to the Commissioner of Income-tax's order dated March 27, 2003 in this regard. I. T. A. Nos. 2017 and 833/Del/04 : The facts in both these appeals are, mutatis mutandis, the same. The issue involved is one and the same. Therefore, the facts are being taken from I. T. A. No. 2017, which is the appeal that has been argued by the parties. The modified grounds of appeal read as under : "1. The Commissioner of Income-tax (Central)-III, Delhi (in short CIT) had no jurisdiction under section 263 of the Act to pass the order dated March 27, 2003. None of the conditions precedent for assumption of jurisdiction under section 263 of the Act existed and/or were satisfied. The order passed by the Assessing Officer was neither erroneous nor prejudicial to the interests of the Revenue. 1.1. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax erred in exercising jurisdiction under section 263 of the Act, without appreciating that the issue of allowability of losses of association of persons, viz., Birla Textile Mills, in the hands of the appellant was a possible view taken by the Assessing Officer and hence the assessment order was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel contends that this is only the business income, whereas the aggregate income is Rs. 64 crores. The Assessing Officer allowed set-off of loss from the association of persons amounting to Rs. 2,95,49,860. By virtue of the impugned order dated March 27, 2003, the learned Commissioner of Income-tax set aside the assessment order under section 263 of the Act. It was observed, inter alia, that the order of the Assessing Officer appeared to be prejudicial to the interests of the Revenue, as the set off of the share of loss of the assessee from the association of person needed to be disallowed since the loss determined in the hands of the assessee, which was an association of person, could not be set off against the income of another assessee as per CIT v. Smt. Lalita M. Bhat [1998] 234 ITR 319 (Bom), wherein it was held that since the association of persons was a separate entity, its loss could be set off only against the other income of the association of persons and not against the income of the individual members ; that the provisions of section 67A of the Act did not come to the rescue of the assessee, especially when section 86/167B was inoperative in view of the fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embers of the association of persons or body of individuals, the whole or any part of income shall be deemed to be indeterminate or unknown, if such shares are indeterminate or unknown on the date of formation of such association or body or at any time thereafter ; that the provisions involved in the present case were introduced by the Direct Tax Laws (Amendment) Act, 1989, for doing away with the amendments pertaining to the new scheme of taxation of firms and their partners ; that this was done in a composite manner by introducing sections 40(ba), section 67A and section 167B and by substituting section 86(v) ; that as per the Central Board of Direct Taxes Circular No. 551, dated January 23, 1990, the method of computing a member's share of income in the association of persons, wherein the shares of the members are determinate in the same manner as provided in section 67A for computing the partner's share in the income of the firm, it does not include section 67(4), which deals with set off or carry forward of share of loss of a partner in a registered firm with similar provisions in section 67A; that, therefore, the set-off of loss of the association of persons in the hands of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to carry forward or set off the loss of the association of persons against the income of its members and also because the shares were indeterminate in the case of Birla Textile Mills, the assessment needed to be done under the provisions of section 167B in respect of the income of Birla Textile Mills and neither the income, nor the loss thereof could be taxed or allowed as deduction in the hands of the partners, including the assessee-company ; and that therefore, the assessment order required to be modified so as to ensure that the share of loss in the association of persons claimed by the assessee-company as its loss, was disallowed as a deduction out of the business income of the assessee company. Challenging the impugned order, learned counsel for the assessee has contended that the legal position is that the decision in the case of Smt. Lalita M. Bhat [1998] 234 ITR 319 (Bom) is not applicable for the year under consideration but is applicable to the year under consideration involved therein, i.e., the assessment year 1978-79 ; that the scheme of the Act has since changed ; that the taxation of association of persons is now governed by sections 67, 86 and 167B of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he part of the Assessing Officer while passing the assessment order ; that rather, the learned Commissioner of Income-tax has said that the loss was not allowable to the assessee ; that as such, the learned Commissioner of Income-tax has only taken a view which was different from that held by the Assessing Officer ; that the assessee's paper book dated May 8, 2009 filed before us, contains papers of the association of persons to show that the association of persons did not seek to carry forward losses ; that these papers were also duly filed by the assessee before the Assessing Officer ; that there are judgments both ways apropos the merits of the controversy, copies whereof have been filed before us ; that Mahindra Holdings and Finance Ltd. v. Deputy CIT [2009] 311 ITR (AT) 1 (Mumbai); 23 SOT 215 [TM] (copy at page 127 of the case law paper book "CLPB" in short, filed by the assessee before us), is in favour of the assessee ; that Birla Tyres v. Joint CIT [2004] 267 ITR (AT) 1 (Cal) ; 88 ITD 1, copy at case law paper book 8 to 25, is in favour of the Department ; that Metro Exports P. Ltd. v. Deputy CIT [2004] 3 SOT 566 (Mumbai), copy at the assessee's paper book dated December 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation of the provisions of the Act, the learned Commissioner of Income-tax was well justified in invoking the provisions of section 263 of the Act ; that in the order under appeal, the learned Commissioner of Income-tax has elaborately discussed as to why the assessee could not have claimed the set-off of loss from the association of persons against individual income ; that as pointed out by the learned Commissioner of Income-tax, in view of the provisions of section 67A, the shares of the members of the association of persons must be determinate, so as to enable the claim of set off of losses ; that, however, as correctly observed by the learned Commissioner of Income-tax, in the assessee's case, the shares of the members of the association of persons had been changing very frequently, which change was intended for setting off of the losses against the income as required from year to year ; that section 67A of the Act un-doubtedly applies, as also observed in the impugned order, only when the shares of the members of the association of persons are determinate ; that furthermore, undeniably, the assessee remained unable to justify the formation of the association of persons ; that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act. Undisputedly, the Assessing Officer allowed the loss claimed by the assessee in the computation of income as made in the assessment orders. It would be apposite at this stage to reproduce the notice dated March 13, 2003 issued by the learned Commissioner of Income-tax to the assessee under section 263 of the Act (copy at the assessee's paper book December 12, 2006 pages 8 and 9) : "F. No. CIT(C)-III/263/027/02-03/2118, dated March 13, 2003 To : The Principal Officer, M/s. Hindustan Times Ltd., 18-20, K.G. Marg, Contt. Place, New Delhi-110001. Sub : Show-cause notice under section 263 of the Income-tax Act, 1961. I had called for and examined the assessment record in the case of M/s Hindustan Times Ltd. for the assessment year 1998-99. The assessment order for the said assessment year has been passed under section 143(3) vide order dated March 27, 2001 by the Assistant Commissioner of Income-tax, CC-19, New Delhi. It is seen that the Assessing Officer has while framing the order, allowed you deduction in respect of loss purported to have been made by the company in its role as a member of association of persons in Birla Textile Mills which appears t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettled that it is beyond the control of the assessee as to how the assessment order is framed. Moreover, nowhere in the order under appeal has the learned Commissioner of Income-tax observed that there was any lack of inquiry in the matter by the Assessing Officer. The notice issued under section 263 (supra) also does not contain any such comment/observation by the learned Commissioner of Income-tax. The learned Commissioner of Income-tax has passed the orders in the light of Smt. Lalita M. Bhat [1998] 234 ITR 319 (Bom), wherein undisputedly, the assessment year involved was 1978-79. It is also patent that the scheme of taxation of association of persons is now governed by the provisions of sections 67, 86 and 167B of the Income-tax Act. These provisions were brought in by the Direct Tax Laws (Amendment) Act, 1989 with effect from April 1, 1989. The assessment years under consideration are the assessment years 1998-99 and 1999-2000. The provisions of sections 67, 86 and 167B are, therefore, applicable. Smt. Lalita M. Bhatt, on the contrary, per se, is not applicable. As per the second proviso to section 86 of the Act, where no income-tax is chargeable on the total income of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of invoking the provisions of section 263 of the Act. Max India Ltd. [2004] 268 ITR 128 (P H), rendered by the hon'ble Punjab and Haryana High Court, was affirmed by the hon'ble Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282 (SC), holding to the effect that debatable issues are outside the realm of section 263 of the Act. The contention on behalf of the Department to the effect that at the time of passing of the assessment order, no judgment on the issue was available and that so, the view taken by the Assessing Officer was not a possible view, stands dealt with by the hon'ble Punjab and Haryana High Court in Max India Ltd. [2004] 268 ITR 128 (P H), as upheld by the hon'ble Supreme Court. Further, it has not been refuted that the assessee had made a complete disclosure in the details/documents filed before the Assessing Officer. These documents related not only to the assessee, but also to the association of persons, M/s. Birla Textile Mills, showing that the association of persons did not seek to carry forward the loss itself. Coming to the case law cited on behalf of the Department, in Gee Vee Enterprises [1975] 99 ITR 375 (Delhi), jurisdiction under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1998] 233 ITR 546 (Mad), the Income-tax Officer allowed the claim for weighted deduction without verifying the nature of the expenses and as to under which sub-clause of section 35B(1)(b) of the Act, the claim would fall. The Commissioner of Income-tax came to a prima facie conclusion that the order of the Incometax Officer was prejudicial to the interests of the Revenue. It was held that the Commissioner of Income-tax was not debarred from exercising his revisional jurisdiction in the absence of his final conclusion in the matter. Apropos the above case law, it is seen that they are not helpful to the cause of the Department, since in all these cases, the reason for the Commissioner of Income-tax to invoke section 263 of the Act was lack of inquiry on the part of the Assessing Officer, which is not the case herein, as discussed hereinabove. In view of the above, we find the grievance of the assessee to be justified. The same is accepted as such. Accordingly, both orders of the learned Commissioner of Income-tax are cancelled. I. T. A. No. 2966/Del/04 : This appeal is consequential to our above findings as pertaining to I.T.A. No. 2017/Del/03. In the result, all the th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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