TMI Blog2014 (6) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... is manufacturing and trading structure impaired resulting in loss of his source of income - the receipt would be a capital receipt – Relying upon Kettlewell Bullen And Company Limited Versus Commissioner Of Income-Tax, Calcutta [1964 (5) TMI 4 - SUPREME Court] - If on the other hand it was a gratuitous payment as indicated in the agreement dated 22nd March, 2005 “amounts are being paid by BDF on its own free will” the receipt would still be a capital receipt - the Tribunal was justified in holding that the AO took a possible view. Whether the assessment order dated 28th March, 2008 was passed without application of mind is basically a question of fact - Tribunal has held that the assessment order was not passed without application of mind - The records of the assessment including the order sheets go to show that appropriate enquiry was made and the assessee was heard from time to time - the fact that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous - A prima facie evidence on the basis of the presumption is converted into a conclusive proof of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yalty Rs.46,61,828/-. d) Excess allowance of Royalty paid by Rs.24,77,129/-. e) Excess debit on account of consumption of Raw Materials by Rs.1,56,59,363/-. The proceedings under Section 154 were, however, dropped by an order dated 9th November, 2009 holding that the issues were debatable and also required further investigation/enquiry. A notice, thereafter, under Section 263 of the Act was issued on 26th November, 2009 by the CIT proposing to revise the order dated 28th March, 2008 due to the following defects:- I) During the said A.Y., you have received a sum of Rs.18.00 Crore from MYS Beierdorf AG., Germany (BDF) as an one-time settlement for termination of contracts of producing and selling of the products of the latter company in India as well as issuing a NOC for setting up a 100% subsidiary by them in India. The said receipt should have been considered as income in the ambit of either Sec. 28 or Sec. 56, if the same is considered as voluntary payment on a goodwill gesture as pointed out by you. But, the said receipt has been allowed to be transferred directly to Capital Reserve Account while passing the assessment order for the A.Y. 2006-07. 2) You have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so far as the above mentioned issues are concerned. Accordingly, the assessment order is set aside on the above mentioned issues and the AO is directed to pass fresh assessment order after giving reasonable opportunity of being heard to the assessee on such matters. Challenging the aforesaid order dated 1st March, 2010, the assessee approached the learned Tribunal. By the impugned judgment and order dated 13th April, 2011 the Tribunal has set aside the order dated 1st March, 2010. The appeal in the circumstances has been preferred by the revenue. The questions of law raised in the appeal by the Revenue, are as follows :- i) Whether on the facts and in the circumstances of the case the Ld. Tribunal has erred in law in quashing the order of the CIT passed under Section 263 of the I.T. Act, 1961, by disregarding that the assessment order passed by the Assessing Officer under Section 143(3) of the I.T. Act, 1961, was erroneous and prejudicial to the interest of the revenue within the meaning of Section 263 of the Income Tax Act, 1961 ? ii) Whether on the facts and in the circumstances of the case the Ld. Tribunal has erred in law in quashing the order of the CIT passed unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of mind? (d) Whether the Tribunal was justified in setting aside the order passed by the Commissioner of Income Tax under Section 263 without examining all the four issues appearing from the notice under section 263 ? (e) Whether the order passed by the Tribunal is perverse ? The main thrust of the arguments advanced on behalf of the Revenue by Mr. Nizamuddin, is directed against the third question formulated above, whereas the main thrust of the arguments of the assessee are directed against the first and the second questions formulated above. The first judgment relied upon by Mr. Nizamuddin is a judgment in the case of CIT vs. M. M. Khambhatwala reported in 198 ITR 144 wherein the following views were expressed :- ...the Tribunal took the view that the Commissioner could not have invoked the provisions of section 263 of the Act since two views are possible on the question whether the assessee was entitled to weighted deduction under Section 35B of the Act. This is a strange view taken by the Tribunal and it is conceded that this view taken by the Tribunal is not supported by any provision of the Act or any decision. The Commissioner would be entitled to revi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustainable in law as regards which not one submission was made by the appellant. The case of the CIT in his notice dated 26th November, 2009 under Section 263 of the Act reads as follows :- 1. During the said A.Y., you have received a sum of Rs.18.00 Crore from M/s. Beierdorf AG., Germany (BDF) as one-time settlement for termination of contracts of producing and selling of the products of the latter company in India as well as issuing a NOC for setting up a 100% subsidiary by them in India. The said receipt should have been considered as income in the ambit of either Sec.28 or Sec.56, if the same is considered as voluntary payment on a goodwill gesture as pointed out by you. But, the said receipt has been allowed to be transferred directly to Capital Reserve Account while passing the assessment order for the A.Y. 2006-07. Mr. Poddar contended that the CIT has not been able to demonstrate that the sum of Rs.18 crores received by the assessee from the German concern can be treated as an income from business under Section 28 or can be treated as an income from other sources under Section 56. In either case, the principal question is whether the sum of Rs.18 crores received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - i. JLM has agreed to BDF establishing a wholly owned subsidiary in India (hereinafter referred to as BDF India for the purpose of this Agreement) for the purpose of carrying on the business of manufacturing, marketing and sale, importing and exporting of various products, in particular cosmetics and toiletries and other Beiersdorf consumer products (hereinafter referred to as the Products ). JLM hereby acknowledges the above and further confirms that it shall provide all necessary support and assistance that may be required by BDF to set up its subsidiary in India and to carry out its operation in India; in particular by executing all necessary documents in this regard. JLM further agrees to provide BDF with a No-objection certificate to BDF (which shall be handed over to BDF by JLM on the same day as execution of this document) for facilitating the setting up of a wholly owned subsidiary in India. ii. In consideration of the covenants/obligations imposed on JLM by virtue of this Agreement BDF shall pay JLM a sum of Indian Rupees 100 (one hundred) million, which shall become payable within 21 days after BDF has obtained the FIPB approval for setting up BDF India for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his aforesaid submission, wherein the following view was expressed :- By sections 3 and 4, the Indian Income-tax Act, 1922, imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Mr. Poddar then took us through the Sections 28 and 56 of the Income Tax Act and contended that the receipt in question of a sum of Rs.18 crores does not fall within any of the sub-sections of either Section 28 or Section 56. As to the nature of receipts which have judicially been interpreted to be of a capital nature, Mr. Poddar cited the following decisions. In the case of Divecha (P.H.) vs. Commissioner of Income-tax reported in [1963] 48 ITR 222 (S.C.) the following view was taken :- We shall begin by considering whether the payment made in this case be related to the termination of the agreement of 1938 and can be said to arise from that termination in the shape of compensation in lieu of profits. The agreement of 1938 did not stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of a contract which does not affect the trading structure of his business, nor deprive him of what in substance is his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade (freed from the contract terminated) the receipt is revenue: Where by the cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee s income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt. The third judgment cited by Mr. Poddar in this regard is in the case of Gillanders Arbuthnot and Co. Ltd. vs. CIT reported in 53 ITR 283 (SC). What had happened in that case and the decision rendered by the apex court appearing from the Head Note of the judgment are as follows:- The appellant-company carried on business in diverse lines: besides acting as managing agents, shipping agents, purchasing agents, and secretaries, the company also acted as importers and distributors on behalf of foreign principals and bought and sold on its own account. Under an unw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also in consideration of the appellant s agreeing not to carry on any competitive business in explosives or other commodities in which business was carried on by the appellant under the agency agreement. It cannot seriously be disputed that compensation paid for agreeing to refrain from carrying on competitive business in the commodities in respect of which the agency was terminated, or for loss of goodwill would, prima facie, be of the nature of a capital receipt. But there is no evidence that compensation was paid to the appellant as consideration for giving the undertaking not to carry on a competitive business, or as compensation for loss of goodwill. Mr. Poddar submitted that in the case before us it would appear from the agreement dated 22nd March 2005, whereunder the assessee was to receive a sum of Rs. 18 crore, that the consideration for the aforesaid payment was, inter alia, as follows:- The above-mentioned amounts are being paid by BDF on its own free will and BDF has agreed to pay JLM as a one time settlement towards termination of the Said Agreements and also providing a No-objection certificate to BDF to facilitate BDF to file an application with Foreign Inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Malabar Industrial Co. Ltd. vs. CIT (supra), also relied upon by Mr. Nizamuddin, the following views were expressed at page 88 of the report:- For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. Mr. Poddar submitted that the judgments cited by him before this Court were also cited before the CIT. The CIT in his order has referred to at least one of them viz. the judgment in the case of Divecha v. CIT reported in 48 ITR SC 222, but the CIT got rid of the judgments merely by saying that the case laws cited by the assessee are distinguishable on facts. Mr. Poddar commented that the CIT in getting rid of the judgments cited by the assessee, in the manner as he did, did not disclose a judicial approach. Mr. Poddar contended that neither in the order passed by the CIT in exercise of power under Section 263 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation of the contract on 31st December, 2005. The stipulations in the agreement dated 22nd March, 2005 that BDF will use the services of the assessee s Waluj plant or that the assessee would be appointed agent for the products to be manufactured by the German concern, are all in the nature of agreements to agree in future. It is nobody s case that the Waluj plant of the assessee was either leased out or licensed to the German concern in consideration whereof the sum of Rs.18 crores was received, nor is it anybody s case that the sum of Rs.18 crores was paid to the assessee because the assessee was proposed to be appointed the agent of the German concern for sale of its goods to be manufactured in future. He submitted that in case the assessee is to be appointed agent of the German concern, in the normal course, in that event, the assessee has to pay and not the other way round. He submitted that the fact that all these stipulations were in the nature of agreement to agree would be evident from the following stipulation appearing from the agreement dated 22nd March, 2005 which provides for a separate agreement as follows:- i. JLM has agreed to BDF establishing a wholly owned sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded by saying that in the facts and circumstances of the case the views expressed by the CIT in exercise of power under Section 263 were altogether erroneous and not sustainable in law. The second ground appearing from the notice under Section 263 is as follows:- 2) You have been allowed to debit Rs.1,32,11,353/- as Royalty paid to BDF during the said A.Y. for exclusive use of their Trade Mark, copy rights, know-how to manufacture their products etc. in India as per agreements entered time to time. But, as per the guidelines laid down by the Ministry of Commerce Industry, Govt. of India, the amount of Royalty required to be allowed for payment in such a case is 1% of Net Sales Value , which comes to Rs.84,49,525/- in your case. So, you have been allowed an additional amount of Rs.46,61,828/- to be debited under the said head while passing the assessment order for the A.Y. 2006-07. Mr. Poddar contended that the ceiling as regards payment of royalty fixed at 1% is applicable to those cases where prior permission of the Reserve Bank of India was not obtained. The ceiling at 1% of the net sales was imposed by virtue of the guidelines dated 8th September, 2000 issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g from the Notice under Section 263, issued by the CIT, reads as follows :- It is now judicially well settled that the expenditure towards payment of Royalty for the reasons discussed above is partly capital in nature and hence, one-fourth i.e. 25% of the same is required to be disallowed for being capital in nature. But, no such disallowance has been made while passing the assessment order for the A.Y.2006-07. The findings given by the CIT with regard to the third ground are as follows :- The assessee has contended that royalty paid is simply for use of trade mark of foreign collaborator with use of knowhow for a short period only and there is no enduring benefit. The royalty paid is for use of trade mark know-how and not for setting up a factory. The user was not available after termination of the agreement. Hence, there is no capital expenditure in payment of royalty by the assessee. The contentions of the assessee are not reasonable since it has been held by the Hon ble Supreme Court in the case of Southern Switch Gear Ltd. V. CIT, 224 ITR 342 that expenditure towards payment of royalty for exclusive right to manufacture and sale in India or to obtain know-how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whatever reason the Licensee shall cease to make any use of the Trade Marks, the Know-how or the Copyrights save that if the Licensee has a stock of Products existing or in the course of manufacture or unfulfilled orders on hand at the date of termination or expiry of this Agreement the Licensee may, but only with the Licensor s specific permission, sell such stock on the terms hereof or such other terms as may be agreed. 11.6. Upon termination of this Agreement for whatever reason the Licensee shall forthwith deliver up to the Licensor all documents sent by or on behalf of the Licensor to the Licensee relating to the subject matter of this Agreement. Mr. Poddar contended that no elaborate reasoning is as such required to demonstrate that upon expiry of the agreement the assessee was no longer entitled to use the technical know-how. Therefore, the question of 25% royalty being treated as a capital expenditure could not have arisen. The CIT in his order also expressed the opinion that expenditure towards payment of royalty could not have been allowed in toto because the exclusive right to manufacture was given to the assessee. Mr. Poddar contended that this view is patently c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of quantitative details of raw materials only and does not reflect any discrepancy in accounts so as to call for any addition on this count. The contentions of the assessee are not reasonable since there is nothing in the Notes that consumption of major raw material items only were reflected in Sl. 14(D) of Sch.17. Moreover, the matter was not examined/verified or considered by the AO while passing the assessment order. Mr. Poddar contended that it is a fact that a sum of Rs.5,14,48,363/- was spent in purchasing the raw materials. The particulars of the raw materials used by the assessee are required to be disclosed in the profit and loss account but the major raw materials which are in excess of 10% of the total expenditure on that account are to be disclosed in the notes on accounts both quantitatively and value-wise as per the provisions contained in the Companies Act, in particular, in Part-II of Schedule VI to the Companies Act, 1956. He drew our attention to paragraph 3(ii)(a) which provides as follows:- In the case of manufacturing companies, - (1) The value of the raw materials consumed, giving item-wise break-up and indicating the quantities thereof. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity, can confer jurisdiction on itself by deciding a jurisdictional fact wrongly. The question whether the jurisdictional fact has been rightly decided or not is a question that is open for examination by the High Court in an application for a writ of certiorari. If the High Court comes to the conclusion, as the learned Single Judge has done in this case, that the Income-tax Officer had clutched at the jurisdiction by deciding a jurisdictional fact erroneously, then the assessee was entitled for the writ of certiorari prayed for by him. It is incomprehensible to think that a quasi-judicial authority like the Income-tax Officer can erroneously decide a jurisdictional fact and thereafter proceed to impose a levy on a citizen. In our opinion, the Appellate Bench is wholly wrong in opining that the Income-tax Officer can decide either way . The order passed by the CIT directing the assessing officer to pass a fresh assessment order is, in the facts and circumstances, without jurisdiction. Naturally the order was appealed against and the learned Tribunal accepted the contention of the assessee and set aside the order. Mr. Poddar contended that the appeal preferred by the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal cannot be sustained. The aforesaid judgment does not really help the revenue because the Division Bench of the Punjab and Haryana High Court in that case interfered with the order of the Tribunal because the High Court was satisfied that the assessment order was passed without application of mind. An order passed without application of mind by a judicial or a quasi-judicial authority can have no claim to legitimacy. The question whether the assessment order in this case was passed without application of mind is yet to be considered by us. We are, at this stage only concerned with the question as to whether the Assessing Officer in allowing the claim of the assessee with respect to the four questions raised by the CIT including the receipt of sum of Rs.18 crores from the German Concern took a possible view of the matter. There was absolutely no attempt on the part of Mr. Nizamuddin to demonstrate that the Assessing Officer did not take a possible view in accepting the contention of the assessee. The parent contract dated 14th September, 1995 did not provide for payment of any compensation or any sum on any account whatsoever. Upon expiry of the contract, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 of the Act since two views are possible on the question whether the assessee was entitled to weighted deduction under Section 35B of the Act. This is a strange view taken by the Tribunal and it is conceded that this view taken by the Tribunal is not supported by any provision of the Act or any decision. The Commissioner would be entitled to revise the order of the Income-tax Officer if he is of the view that the order of the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue. The Commissioner can exercise the power under section 263 even in a case where the issue is debatable. Revisional power under section 263 is not comparable with the power of rectification of mistake under section 154 of the Act. It was only in the context of section 154 of the Act that the Supreme Court has in T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50, observed that, when the issue is debatable, the power of rectification cannot be exercised. This decision of the Supreme Court has no application whatsoever so far as powers under section 263 are concerned. Therefore, with respect, the view taken by the Tribunal is patently erroneous and illegal. We, therefore, answer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). In the instant case, the Commissioner noted that the Income-tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the Income-tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant-company was not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in support of his submissions:- (A) An unreported judgment of the Allahabad High Court in the case of Meerut Roller Flour Mills Pvt. Ltd. vs. C.I.T., wherein the following views were expressed:- It was incumbent upon the Assessing Officer to have examined the cash credit entries appearing in the accounts of the petitioner assessee in detail keeping in view the explanation furnished by the petitioner. Having failed to do so, it is but obvious that the assessment order is erroneous and prejudicial to the interest of the Revenue. (B) The second judgment cited by Mr. Nizamuddin is a judgment of the Cochin Bench of Income Tax Appellate Tribunal passed in ITA No. 116/Coch/2012. He drew our attention to paragraphs 8 and 11 which read as follows :- 8. We have considered the rival submissions on either side and also perused the material available on record. We have also gone through the assessment order as well as the order of the Administrative Commissioner. The assessment order does not contain any reasoning. The assessing officer without any discussion accepted the return filed by the assessee. It is not in dispute that the proceedings before the assessing officer are jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for the assessing authority to spell out reasons when the order is accepting the claim of the assessee and the learned counsel submit that this is the legal position on authority, we are afraid that to accept a submission of this nature would be to give a free hand to the assessing authority, just to pass orders without reasoning and to spell out reasons only in a situation where the finding is to be against the assessee or any claim put forth by the assessee is denied. 28. We are of the clear opinion that, there cannot be any dichotomy of this nature, as every conclusion and finding by the assessing authority should be supported by reasons, however brief it may be, and in a situation where it is only a question of computation in accordance with the relevant articles of a double taxation avoidance agreements and that should be clearly indicated in the order of the assessing authority, whether or not the assessee had given particulars or details of it. It is the duty of the assessing authority to do that and if the assessing authority had failed in that, more so in extending a tax relief to the assessee, the order definitely constitutes an order not merely erroneous but also pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the case of Hindustan Tin Works Limited vs. CIT reported in 275 ITR 43 (Del). He relied upon paragraph 5 of the judgment which reads as follows:- It is true that the Tribunal has referred to the submissions made by the counsel as well as the Departmental Representative. However, while reversing the order made by the CIT (A) no reasons have been given by the Tribunal. If a detailed reasoned order is made by the appellate officer and the Tribunal is in agreement therewith, then one may say that no detailed discussions are required but, when the Tribunal is reversing the order made by the appellate officer, then detailed reasons are required to be given particularly when the decision of the Tribunal is considered to be final on facts. Mr. Poddar, on the other hand drew our attention to the judgment and order of the CIT passed under Section 263 of the Act. He in particular drew our attention to the following sentence from the judgment of the CIT:- Moreover, it is apparent from the record that the AO did not examine/verify or consider the matter at the time of passing the order. Mr. Poddar contended that this was not a ground or one of the grounds, for exercise of power u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 142(1) of the Act. He contended that all the requisite particulars were furnished together with documents. Thereafter, the matter was heard from time to time by the assessing officer as would appear from the List of Dates submitted by Mr. Nizamuddin, learned advocate for the appellant. From the list of dates it appears that on 21st January, 2008 notice under Section 142(1) was issued. On 4th February, 2008 the Assessee appeared and filed details and particulars. On 18th February, 2008, 4th March, 2008, 19th March, 2008 and 26th March, 2008 the matter was heard. The Assessing Officer has recorded in the order sheet that the case was discussed and the official documents and particulars were filed by the Assessee. Mr. Poddar contended that the fact that the Assessing Officer had issued the notice under Section 142(1) of the Act requiring the assessee to give particulars and to furnish documents in respect of seventeen items indicates that the Assessing Officer had in fact applied his mind. Without application of mind, according to him, the aforesaid notice itself could not have been issued. The fact that all the requisite papers required by the Assessing Officer were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not passed without application of mind has not been challenged before this Court. No attempt far less any serious attempt was made on behalf of the revenue to demonstrate that the order passed on 28th March, 2008 by the Assessing Officer was wrong either on facts or law. The appellant has also not been able, nor in fact has made any attempt to establish that the finding of the learned Tribunal that the order dated 28th March, 2008 was not passed without the application of mind is based otherwise than on evidence. On the contrary, the records of assessment, the list of dates produced by Mr. Nizamuddin go to establish that the assessment order was passed after due application of mind. Mr. Poddar contended that there is no provision in the Income Tax Act which requires the Assessing Officer while accepting the claim of the assessee to pass a reasoned order. The reasons, according to him, are required only when an issue is decided against the assessee. He also drew our attention to the judgment in the case of Gadgil (SS) vs. Lall Co. , reported in 53 ITR 231 (S.C), wherein the Apex Court held as follows :- A proceeding for assessment is not a suit for adjudication of a civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment record to verify the contentions of the assessee. Instead of doing that, the Tribunal has merely been swayed by the fact that the Assessing Officer has not mentioned anything in the assessment order. During the course of assessment proceedings, the Assessing Officer examines numerous issues. 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. As already observed, we have examined the records of the case and find that the Assessing Officer had made full inquiries before accepting the claim of the assessee qua the amount of Rs.10 lakhs on account of discrepancy in stock. Not only this, he has even gone a step further and appended an office note with the assessment order to explain why the addition for alleged discrepancy in stock was not being made. In the absence of any suggestion by the Commissioner as to how the inquiry was not proper, we are unable to uphold the action taken by him under section 263 of the Act. Whether the assessment order dated 28th March, 2008 was passed without application of mind is basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiry. The judgment of Cochin Bench of Income Tax Appellate Tribunal in ITA No. 116 /Coch/ 2012 relied upon by Mr. Nizamuddin is evidently based on an erroneous impression that the proceedings before the Assessing Officer are judicial proceedings . This impression, which is patently contrary to the views expressed by Apex Court in the case of Gadgill (S.S.) Vs. Lall Company (supra), was responsible for the views taken by the Tribunal. When the premise is wrong, the conclusion is bound to be wrong. The judgment in the case of CIT vs. Infosys Technologies Ltd. (supra) is distinguishable on facts. The step taken by the CIT under Section 263 in that case was justified because the Income Tax records produced before him did not show that the assessing officer had considered the double taxation avoidance agreement on the basis whereof the claims were made by the assessee. Therefore, that was a clear case to show that the assessment order was passed without considering the relevant pieces of evidence. The judgment in the case of A. A. Doshi vs. JCIT (supra) does not apply because the High Court in that case was dealing with the need on the part of the learned Tribunal to giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer accepted the contention of the assessee there was no occasion for him to make any discussion in his order. If the assessing officer cannot be shown to have violated any form prescribed for writing an assessment order, it would not be correct to hold that he acted illegally or without applying his mind. The third question is, for the reasons discussed above, answered in the negative. With regard to the fourth question Mr. Nizamuddin contended as follows:- The learned Tribunal erred in passing the order under challenge without dealing with all the four questions raised by the CIT in his notice under Section 263 of the Act. Therefore, the order is bad and is liable to be set aside. In support of his submission he drew our attention to a judgment of the High Court of Gujarat in the case of RCM Luthra vs. ACIT reported in 257 ITR 460, wherein the following views were expressed :- 4. It appears from the order of the Tribunal that it has not bestowed its attention to the above material reasoning adopted by the Commissioner (Appeals) for deciding the appeal. It was incumbent on the Tribunal before upsetting the order of the Commissioner (Appeals) to consider th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not pointed out before us that the expenditure and other transactions were not recorded in the books of accounts which were produced before the A.O. It is now settled law that if, while making the assessment, the AO examines the accounts and other details, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the Ld. C.I.T., while exercising his power under sec.263 of the Act, is not permitted to substitute his own view about the computation of income in place of the income assessed by the A.O., unless the order of the A.O. is patently unsustainable in law. It does not appear from the aforesaid conclusion of the Tribunal that all the four issues were not examined by the learned Tribunal. After examining all the four issues the Tribunal was of the opinion that the Assessing Officer took a possible view. The fact that the aforesaid opinion of the Tribunal is not related to only one of the issues would be evident from the following sentence:- The Ld. CIT, may be of the view that some more disallowance/addition would have been justified considering the expenditure as capital in nature and receipts as revenue in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assesse should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this court. The third judgment relied upon by him is in the case of A. Venkata Rao vs. CIT reported in 203 ITR 64 (Orissa) wherein the following views are given:- This was a case where the conclusions were in favour of the assessee. The Tribunal has merely noted the arguments advanced on behalf of the department and the assessee. No definite conclusions on the vital aspects have been arrived at by the Tribunal as is evident from the paragraphs quoted above. The Tribunal was duty-bound to examine the point raised by the parties and to record definite conclusions in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law. (p.464) The Apex Court further observed thus: The Tribunal was undoubtedly competent to disagree with the view of the Appellate Assistant Commissioner. But in proceeding to do so, the Tribunal had to act judicially, i.e., to consider all the evidence in favour of and against the assessee. An order recorded on a review of only a part of the evidence and ignoring the remaining evidence cannot be regarded as conclusively determining the questions of fact raised before the Tribunal. (p.465) In this case the Tribunal did not discuss any evidence whatsoever and after quoting the submissions made by both sides the Tribunal disagreed with the conclusions arrived at by the Commissioner (Appeals). In our opinion this is not correct. The Tribunal failed to discharge its obligation as per the Act. Mr. Nizamuddin also drew our attention to an unreported judgment of this Court in the case of CIT vs. Binani Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not considered the same in coming to the conclusion. (d) The Tribunal has come to the conclusion by considering material which is irrelevant or by considering material which is partly relevant and partly irrelevant. (e) The Tribunal has disabled itself in reaching a fair decision by some considerations extraneous to the evidence and the merits of the case. (f) The Tribunal has based its finding upon conjectures, surmises and suspicion. (g) The Tribunal has based the finding upon a view of the facts which could not reasonably be entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant law could have found. (h) If the Tribunal in conducting the enquiry has acted in flagrant disregard of the rules of procedure or has violated the principles of natural justice, where no particular procedure is prescribed. 81. In any of the above cases and in any other case where the Court, in the particular facts of the case, considers the finding of the Tribunal to be perverse and where the Court is of the opinion that justice of the case so requires, the Court is entitled to interfere and set aside the finding of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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