9911796707
TMI Blog2013 (1) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... 000-01, vide order of assessment dated 29.12.2009 passed under S.143(3) of the Act. 3. The Commissioner of Income-tax, while perusing the assessment records for the year under appeal, noted that the assessing officer has not applied his mind to the following points and initiated the proceedings under S.263 of the Act, by issuing a show cause notice- (a) Assessee has offered tonnage income of RS.12,60,230 and rental income of Rs.9,08,942 from CTC (Coast to Coast) Division. However, it is seen from the Profit & Loss Account of the CTC division that the assessee was in receipt of Rs.15,46,428 towards "difference in Exchange (net)" which is not incidental to tonnage income and the same should have been assessed under the head of Profit and against of business. (b) As per Schedule 19 "Administrative Expenses" to the Profit & Loss Account, the assessee had debited an amount of Rs.17,77,598 towards loss on sale of fixed assts. However, an amount of Rs.16,37,540 was only added back under EDSC Division while computing the total income leaving a balance of Rs.1,40,058 which is required to be brought to tax. (c) It is seen from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g officer has taken one of the two possible views, initiation of proceedings under S.263 is not legally permissible. It was also further submitted that the order of assessment was neither erroneous nor prejudicial to the interests of the Revenue, and hence the provisions of S.263 are not attracted to the facts of the case. In support of these contentions, reliance was placed on a number of decisions of the Apex Court and various High Courts, including the decisions of the Apex Court in the case of CIT V/s. Max India Ltd. (295 ITR 282) and Malabar Industrial Company Ltd. V/s. CIT (243 ITR 83). Issue-wise elaborate submissions were also made in support of the contention that the assessment was neither erroneous nor prejudicial to the interests of the Revenue on any of the issues that gave rise to the proceedings under S.263 of the Act. 5. As for the second issue relating to discrepancy with regard to administrative expenses debited to Profit & Loss Account, the Commissioner of Income-tax was convinced with the explanation of the assessee, and as such, did not give any direction to the assessing officer. With regard to the other three issues, the Commissioner of Income-tax was not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following decisions - (a) CIT V/s. Munjal Castings (303 ITR 23)-P&H (b) CIT V/s. Pankaj Dhirajlal Dhruve (305 ITRT 332)-Guj (c) CIT V/s. Max India Ltd. (268 ITR 128)- P&H (d) CIT V/s. Arvind Jewellers (177 CTR 546)-Guj (e) S.R.Koshti V/s. CIT(276 ITR 165)-Guj (f) CIT V/s. Max India Ltd. (295 ITR 282)-SC (g) Malabar Industrial Co. Ltd. V/s. CIT (243 ITR 83)-SC 8. The learned Departmental Representative submitted that the Assessing Officer while completing the assessment has not at all considered the issues, in relation to which the Commissioner of Income-tax exercised his jurisdiction under S.263 of the Act. Hence, the assessment order passed by the Assessing Officer erroneous and prejudicial to the interests of Revenue. 9. We have considered the rival submissions and perused the orders of the lower authorities on the issue of legality and validity of the impugned order of the Commissioner of Income-tax passed under S.263 of the Act. We have also gone through the written submissions of the assessee and the case-law relied upon by the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejudicial to the interests of the Revenue. An order is erroneous if it has been passed on an incorrect assumption of facts or on incorrect application of law or non-application of mind to something which was obvious and required application of mind or based on no material or insufficient material so as to affect the merits of the case and thereby cause prejudice to the interests of the revenue. The role of the Assessing Officer under the Income-tax Act, is not only that of an adjudicator, but also of an investigator. He cannot remain passive in the face of a return which apparently may be in order but calls for further enquiry. He must discharge both the roles effectively. The Assessing Officer is required to carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of the material collected by him as also those produced by the assessee before him. In sum and substance, the assessment order passed by the Assessing Officer should reveal that there is proper investigation and enquiry made by the Assessing Officer and he has applied his mind to the material available before him before coming to his conclusions. In the facts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee submitted that it forms part of the core activity of the assessee. The learned Authorised Representative for the assessee taking us through the provision contained in S.115V.I submits that the section nowhere states that expenses incurred in activities of operating qualifying ships shall not be considered while computing the shipping income. The learned Authorised Representative for the assessee submitted that the Commissioner of Income-tax completely misconceived the fact while observing that names of the persons from whom freight received during the year do not appear in the list submitted before him by the assessee. Had the Commissioner of Income-tax sought a clarification in this regard the assessee could have explained the fact that their names cannot appear in the list submitted before him only because the persons paying the freight are different from the agencies who are service providers and who provide service enabling the plying of qualifying ships by the assessee. The learned Authorised Representative for the assessee further submitted that the other deficiencies/discrepancies pointed out by the Commissioner of Income-tax are also non-existent and had the Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fluctuation relating to the activities of operating the qualifying ships for the year under appeal, which are at pages 94 to 111 of the paper-book, it is evident that there is a net credit surplus of Rs.15,46,428. The said list comprises of different items like excess amount paid due to exchange fluctuations for services taken from the service provider in relation to the operation of qualifying ships, excess amount payable due to exchange fluctuations on the outstanding amount payable to service provider, saving in payment due to exchange fluctuations in respect of amounts paid to service provider, saving due to exchange fluctuations in respect of amounts payable to service provider remaining outstanding, freight amounts received or receivable in excess from the customers due to exchange fluctuation in the course of operating qualifying ships, freight amounts short received or receivable from the customers due to exchange fluctuation in the course of plying of qualifying ships. Keeping in view the aforesaid items, the observation of the Commissioner of Income-tax that the gain arising from foreign exchange fluctuations do not represent receipt transactions is not correct. In our v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gratuity liability. As on 31.3.2007, the actuary quantified the gratuity liability at Rs.2,47,52,069. Out of the aforesaid amount, the assessee paid an amount of Rs.1 crore before the end of the financial year, i.e. on 26.3.2007, against the gratuity liability, which was debited to the General Reserves as per the Accounting Standard 15, notified under Companies (Accounting Standards) Rules. A further amount of Rs.32,95,577 was paid by the assessee on 30.10.2007, which is before the due date for filing the return of income, for the assessment year under appeal. 16. The learned Authorised Representative for the assessee submitted that the amounts having been actually paid towards the gratuity liability in terms of S.43B of the Act, it is an allowable expenditure. The learned Authorised Representative for the assessee submitted that the Commissioner of Income-tax, without properly appreciating the facts, has directed for disallowance of the amount of gratuity paid of Rs.1,32,95,577 by the assessee, only on suspicion. The learned Authorised Representative for the assessee seriously disputing the observation made by the Commissioner of Income-tax that no evidence was produced with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him : Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. ........" A reading of the aforesaid provision makes it clear that a deduction with regard to the expenditure can be allowed only if it is actually paid by him within the relevant financial year or before the due date of filing of the return of income for the relevant assessment year, irrespective of the previous year in which the liability to pay such sum was incurred. 19. It is seen from the certificate of the actuary which is at page 117 of the paper-book, that the assessee has gratuity liability of Rs.2,47,52,069 as on 31.3.2007. It is the claim of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency convertible bonds (FCCB) for USD.20 Million. The Bond-holders were given option to convert the FCCB into ordinary shares on before 5.11.2011 or can claim redemption of bonds on 6.11.2011 at Rs.147.882% of the bond amount. It was submitted by the learned Authorised Representative for the assessee that the bonds were not compulsorily convertible into ordinary shares and the purpose of issuing the bonds was for the business of the company. For issuing these bonds, the company had to incur expenses to the tune of Rs.2,64,26,757. The learned Authorised Representative for the assessee submitted that during the financial year 2006-07, none of the bond holders exercised their option for conversion and continued to remain as holders of FCCB. The amounts outstanding to the holders of FCCB have also been repaid on 13.12.2011. The learned Authorised Representative for the assessee submitted that bonds were issued for securing funds for business purposes, which included expansion of the business. Therefore, the expenses incurred in connection with the issue of the bonds have to be allowed as revenue expenditure. The learned Authorised Representative for the assessee submitted that the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment would be of an enduring nature. The Commissioner of Income-tax further came to hold that the issuance of FCCB was not an integral part of the existing profit making process. 23. It is an undisputed fact that the assessee has issued the FCCBs giving an option to the bond-holders for converting the bonds into shares. Though the assessee has claimed that the issuance of FCCBs was for business purpose, and for expansion of the business of the assessee, the fact remains that an option was given to the bond holders to convert the bonds into shares. Therefore, the onus is on the assessee to establish that the FCCBs were not issued for the purpose of expanding the capital base of the company. The Hon'ble Supreme Court in the case of Brooke Bond India Ltd. V/s. CIT (supra), held that though the increase in the capital results in expansion of the capital base of the company, and incidentally that would help in the business of the company and may also help in the profit making process, the expenditure incurred in that connection would retain the character of a capital expenditure, since the expenditure is directly related to the expansion of the capital base of the company. In the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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