9911796707
TMI Blog2015 (4) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee claimed to be a leading service provider in information technology training in India and the only Indian information technology service company outside Europe and U.S. in the 20 global I.T. training institutes. 2.3. It offers complete range of learning solution, including learning strategy, formulation, custom content development, technology, and out sourced services amongst the top ten fortune 500 companies. 2.4. The assessee company is ranked no. 16 among global I.T. training companies and top amongst such companies outside U.K. and U.S. 2.5. The assessee also derived income from export business, capital gains and income from other sources. The assessee filed its return of income on 31-12-1999 which was processed u/s 143(1) vide order dated 30-5-2000. 2.6. A search was conducted u/s 132(1) of the Income-tax act, 1961 in the office premises of the assessee and the residential premises of its directors on 10-11th November 2004. In response to notice u/s 153A, the assessee filed its return of income on 5-10-2005 declaring income of Rs. 10,11,66,880/-. The assessment order u/s 153A read with section 143(3) of the Act was passed on 1-6-2006 determining the total income at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment organizations, including Income-tax Department, FERA authorities etc. (vi) The Income-tax Department (Inv.), for the first time in 2002, issued show cause notices u/s 131 of the Act to the assessee, asking information on several issues. Voluminous and detailed records running over thousand pages were submitted to the Investigation Department in 2002. Nothing was heard thereafter from the department for two years. (vii) The assessee further submitted that it appeared that Mr. Mehta was not satisfied with the investigations carried out by the department and goaded the department to initiate action u/s 132 of the Act against the assessee and in consequence to that search was carried out at the premises of the assessee in November 2004. (viii) The assessee pointed out that as a result of search, there was neither issue of any undisclosed cash nor of any asset etc. The assessment u/s 153A for A.Y. 1999-2000 to 2004-05 were made after making an aggregate disallowance of Rs. 41 crores against the assessee and its group companies, which were substantially deleted in their appeals. The revenue's appeals on the issues are pending with the Tribunal. (ix) The assessee further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer does not seek any direction from either the CIT or the CBDT. Thus, the assessee's contention that the assessment was framed on the basis of monitoring and directions of the then CIT was unsustainable. (iii) Ld. CIT further pointed out that assessing officer had made independent inquiries during assessment and framed the assessment order. However, on examination of records by CIT it was found that there were certain issues on which no inquiries or inadequate inquiries were made by the assessing officer. Ld. CIT also distinguished the case laws relied upon by assessee. (iv) As regard's assessee's objection that proceedings u/s 263 had been initiated on the basis of correspondence made by informant with the department including CBDT, ld. CIT pointed out that this contention also does not hold good because the assessment records examined by CIT, revealed that assessment was erroneous and prejudicial to the interests of revenue. (v) Ld. CIT, accordingly, disposed of the preliminary objection and then passed the order on various issues raised in the show cause notice. 2.11. The assessee filed a writ petition being WP(C) no. 4722/2008 before the Hon'ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o produce the records as were desired by the assessee before the Hon'ble High Court. Department produced the records, which were examined by assessee's counel in the presence of Sr. Standing Counsel and assessee had taken detailed notes with the assistance of stenographer. 2.15. Hon'ble High Court vide its judgment dated 11-12-2009 allowed the writ petition, setting aside the order dated 19-6-2008 passed by the CIT (Central)-II. However, liberty was granted to the CIT to appropriately deal with the matter and pass fresh order after giving opportunity of being heard to the assessee on various points canvassed before Hon'ble High Court or which intended to raise at the time of fresh hearing. 2.16. The scope of this judgment has been a matter of considerable debate inasmuch as the same was considered by Hon'ble High Court in its judgment dated 3-8-2012 while deciding the writ petition filed by revenue. Since presently we are only narrating the course of events, therefore, we will consider in detail the effect of the findings recorded by Hon'ble High Court later while deciding the jurisdictional issues raised before us by the assessee. 3. An application was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing officer on all points, including the issue involved in these matters. He, accordingly, prays for withdrawal of these Special Leave Petitions. Permission granted. Special Leave Petitions are dismissed as withdrawn. It may be noted that we are expressing no opinion on the merits of the case(s)." 3.4. Thus, finally, the assessee withdrew its SLP and, therefore, the decision of Hon'ble Delhi High Court had become final. 4. In consequence to the order of Hon'ble Delhi High Court dated 11-12- 2009, ld. CIT (Central)-II, issued show cause notice to assessee dated 5-2- 2010, contained at pages 186 to 194 of the PB and thereafter another show cause notice dated 19-2-2010 (contained at pages 195 to 196 of the PB). 4.1. The assessee vide its reply dated 10-3-2010, contained at pages 195 to 206, replied to the show cause notices, in which, inter alia, it was submitted that inspection of records as requested by the assessee vide letters dated 16- 12-2008; 23-2-2009; and 12-3-2009 to the assessing officer/ CIT be allowed, particularly, following: (i) All interdepartmental correspondences (including with CBDT) in respect of the assessment proceedings u/s 153A/143(3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 5.2. The assessee further submitted that in the set aside proceedings, it is not possible to issue fresh show cause notice in respect of other items, which did not form part of the order passed on 19-6-2008. 5.3. The assessee relied on the decision of Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO & Ors 259 ITR 19 (SC), wherein the Apex Court in the context of section 147/148 of the Act, held that the assessing officer is duty bound to dispose of the legal objections filed by the assessee in response to the reasons recorded for reassessment before proceedings with the reassessment. Accordingly, assessee submitted that legal objections be disposed off. 5.4. The assessee also relied on the decision of Hon'ble Delhi High Court in the case of Janaki Exports International v. UOI 278 ITR 296 (Del), wherein the decision of Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. (supra), has been followed with reference to the proceedings u/s 158BD, which also talk about the satisfaction of the assessing officer, recorded in proceedings u/s 158BC, Hon'ble Delhi High Court held that, once the satisfaction by the assessing officer, passing the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out that the results of limited inspection were tabulated by the assessee and submitted to the Hon'ble High Court, which had been annexed along with assessee's letter dated 10-3-2010 which clearly vindicated the objections raised by the assessee. 5.10. The assessee also distinguished the decision of Hon'ble Calcutta High Court in the case of Sri Sri Kubereswar Mahadeva Thakur, referred by ld. CIT, on the ground that in the said decision the issue was whether in set aside proceedings, the Commissioner could go into the question of year of accrual of capital gains, which went to the root of the matter, when such question was not raised by the assessee before the Commissioner in the original proceedings.The Hon'ble High Court held that the Commissioner could consider such question in the set aside proceedings, since the question went into the root of the matter and the Commissioner could raise all questions in the course of proceedings held de novo. 6. However, in the present case, there is no observation of Hon'ble High Court, vis-à-vis the power of the Commissioner's power to raise new grounds in set aside proceedings. The assessee fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er/Respondent No. 4, while exercising his power under section 263 of the Act, shall look into the matter with independent mind without being influenced by the observations made in the impugned order. "(emphasis supplied by us) .... . "Since the matter has to be considered afresh by the Commissioner, even this contention can be raised by the petitioner before the said Commissioner and the Commissioner, while passing the order, shall specifically deal with this contention." ..... . "The upshot of aforesaid discussion is that WP(C) No 4722/2008 is allowed and the impugned order dated 19/6/2008 passed by the Commissioner of Income Tax (Central-II)/respondent no 4 is hereby set aside. However, liberty is granted to the respondent No 4 to appropriately deal with the matter and pass fresh order after giving opportunity of being heard to the petitioner on various points canvassed before us or which it intends to raise at the time of fresh hearing. We also make it clear that we have not authoritatively pronounced on the contentions raised by the petitioner, either way, and the Commissioner shall deal with such contentions objectively without being influenced by any observations in this j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the superior authorities. He pointed out that nowhere, during the assessment proceedings, any approval has been sought by the assessing officer from the CIT nor the CIT issued any directions to the assessing officer, stating that the assessment order must be passed by making any particular addition or disallowance. 8.4. None of the letters, written by the CIT/ CBDT indicated that there was any dictate therein by the assessing officer. 8.5. Ld. CIT further pointed out that as per the provisions of the Act, the higher authorities are not to interfere with the independence or unfettered discretion, which is statutorily conferred upon the assessing officer, hence if assessee's allegations were to be accepted, even then it was clear that the said order passed by the assessing officer was contrary to the provisions of law and, accordingly, the same itself becomes erroneous and prejudicial to the interests of revenue. 8.6. As regards the assessee's allegation that the initiation of proceeding u/s 263 was on the dictates/ at the behest of the CCIT/ CBDT, ld. CIT referred to the observations of Hon'ble Delhi High Court noted in para8.1 of this order to conclude that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us on 4-5-2010 and has assailed the order on following grounds of appeal: "1. That on the facts and circumstances of the case and in law, the order passed by the Commissioner of Income-tax (CIT), under section 263 of the Income-tax Act, 1961 ('the Act') setting aside the assessment framed under section 143(3)/153A of the Act as erroneous and prejudicial to the interest of the Revenue is without jurisdiction, bad in law and void ab-initio. 2. That on the facts and circumstances of the case and in law, the order passed by the CIT without affording adequate opportunity of being heard, in complete violation of principles of natural justice, is void-ab-initio. 3. That on the facts and circumstances of the case and in law, the CIT erred in not allowing inspection of the records prayed by the appellant, preventing the appellant from making submissions on the validity of assumption of jurisdiction under section 263 of the Act. 3.1 That the CIT erred in facts and in law in observing that complete inspection of records had been allowed while the writ petition was pending before the Hon'ble High Court. 4. That on the facts and circumstances of the case and in law the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial to the interest of the Revenue on the ground that the same was not examined by the assessing officer while passing the order under section 143(3)/153A of the Act. 11.1 That on the facts and circumstances of the case and in law, the CIT erred in holding that the individual units of the appellant, deduction in respect of which was claimed under section 10B of the Act, were not separate industrial undertakings but mere extension of already existing business of the appellant. 11.2 That on the facts and circumstances of the case and in law, the CIT erred in alleging that since the assessing officer failed to examine the basis of allocation of expenses between the appellant's EOU and non-EOU units, the order of the assessing officer was erroneous and prejudicial to the interest of the Revenue. 11.3 That on the facts and circumstances of the case and in law, the CIT erred in holding that since the appellant had not allocated foreign exchange fluctuation loss of Rs. 2.76 crores to the EOU units and the assessing officer having failed to examine the said issue, the order of the assessing officer in this regard was erroneous and prejudicial to the interest of the Revenue. 11.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances of the case and in law, the CIT erred in holding that repair expenses of Rs. 1O.15 crores were claimed by the appellant and allowed by the assessing officer without any verification or enquiry. 14.1 That on the facts and circumstances of the case and in law, the CIT failed to point out any error in the order of the assessing officer in allowing the aforesaid claim of the appellant, which is sine qua non for initiation of proceedings under section 263 of the Act. 14.2 That on the facts and circumstances of the case and in law, the CIT erred in setting aside the assessment order in this regard, without appreciating that the aforesaid expenses were in the nature of routine maintenance and repair expenses, deduction whereof was allowable under section 31137 of the Act. 15. That on the facts and circumstances of the case and in law, the CIT erred in holding that the alleged steep rise in course execution charges incurred by the appellant was accepted by the assessing officer without any verification and enquiry and, therefore, the order of the assessing officer in this regard was erroneous and prejudicial to the interest of the Revenue. 15.1 That on the facts and ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical service from the non-resident, the consideration paid was not subject to tax withholding under section 195 of the Act. 19. That on the facts and circumstances of the case and in law, the CIT erred in alleging that since import of 'NetVarsity' from NUT USA was fictitious, the order of the assessing officer allowing depreciation on the value of NetVarsity, was erroneous and prejudicial to the interest of the Revenue. 19.1 That on the facts and circumstances of the case and in law, the CIT erred in holding that 'NetVarsity' was developed in India and, therefore, the question of importing the said software from NUT USA did not arise. 19.2 That on the facts and circumstances of the case and in law, the CIT erred in alleging that the said software having not been put to use during the year under consideration, the order of the assessing officer allowing depreciation thereon, was erroneous and prejudicial to the interest of the Revenue. 19.3 That in holding as aforesaid, the CIT failed to appreciate that aforesaid software, viz., Netvarsity had already been put to use from financial year 1997-98 onwards and formed part of the block of assets thereafter. 19.4 That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were duly furnished before the assessing officer and the assessing Officer satisfied allowed credit for such taxes while processing the return of income under section 143(1) of the Act. 10. The assessee sought stay of proceedings before Tribunal u/s 143(3) read with sec. 263 of the Act, which were taken by assessing officer pursuant to the order of ld. CIT on 1-4-2010. The main submissions before the Tribunal in the stay application was that since appeals had been filed against the order (passed by the CIT u/s 263 on 1-4-2010), there would be multiplicity of proceedings and if the assessing officer was permitted to complete fresh assessment, such an exercise on the part of the assessing officer would be rendered futile if the Tribunal accepts the appeals filed by the assessee against the order passed u/s 263 and were to hold that the CIT had erroneously assumed jurisdiction to revise the assessments. 10.1. The Tribunal passed orders on 21-5-2010 granting stay of the assessment proceedings pending before the assessing officer. 10.2. The Tribunal took up for hearing the appeals filed by the assessee against the order passed by the ld. CIT u/s 263 immediately after the passing of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missed as withdrawn. (c) The assessee agreed before the Hon'ble High Court that the CIT may look into the assessment orders on merits, which implied that there was no objection to the Commissioner, assuming jurisdiction u/s 263. (d) The assessee was merely trying to delay the assessment proceedings by taking frivolous and untenable claims. (e) The Revenue placed strong reliance on the order passed by the Hon'ble High Court on 11-12-2009 in the assessee's writ petition and it was contended that the observations of Hon'ble High Court, if properly understood, would clearly show that once the order passed by the CIT- I, on 19-6-2008 was quashed by the Hon'ble High Court, all objections to the assumption of jurisdiction by the Commissioner, vanished or come to an end and, thereafter, his order could be objected to only on merits. It was contended that this was the true consequence of the order passed by Hon'ble High Court on 11-12-2009 and, therefore, the assessee could not be permitted to take up the point that the second order passed by the Commissioner on 1-4-2010 u/s 263 also suffered from the same flaw i.e. that he did not apply his independent mind and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled legal position which could never have any finality or conclusiveness. If the original order is without jurisdiction, it would be only a nullity confirmed in further appeals. 12.1. Hon'ble High Court then referred to its observations vide order dated 11-12-2009 in paras 20 & 21 and concluded that the observations of Hon'ble High Court could not be understood as placing an embargo on the assessee from raising the plea when the authority considered the matter afresh that that order suffers from the same jurisdictional defect, namely, that it did not show an independent application of mind and was authorized by the dictates of some other authority, observing as under: 20. We have to read and understand this Court's order dated 11.12.2009 as a whole and taking all the observations made therein together in order to appreciate the true scope and tenor of the order. To understand the order as barring the assessee from questioning the order passed by the CIT on 01.04.2010 on the ground that he did not exercise his independent mind but merely proceeded on the lines as dictated by the CBDT would not be proper, for no Court can plausibly lay down the grounds on which an orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and all the interim orders passed were vacated and Tribunal was directed to proceed with the hearing of appeals. 13. From the aforementioned discussion, it is evident that assessee is entitled to raise the plea on all points which were raised in the first round of proceedings before Hon'ble High Court on the issue of jurisdiction to pass order u/s 263 viz., firstly the order was passed at the dictates of higher authorities and secondly since order u/s 153A/ 243(3) was passed under the monitoring of CIT, therefore, the order could not be held to be erroneous insofar as it was prejudicial to the interest of revenue. We, therefore, now proceed to examine the various grounds on the issue of jurisdiction of present Commissioner to pass order u/s 263, which has been assailed before us vide ground nos. 1 to 5. 14. As far as ground no. 1 is concerned, it is general in nature and the various issues are covered in other grounds of appeal. 15. Ground no. 2 is in regard to passing of the order by ld. CIT without affording adequate opportunity of being heard. This ground, in our opinion, does not survive, particularly because the impugned order has been passed by new Commissioner after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r - for revision of order The said letter states that the assessment was made at the behest CIT/Addl. CIT 3 27-7-07 7 182-185 Letter from CIT to CCIT The CIT states that the case was monitored by the Member (Inv.) CBDT from time-to-time. 4. 6-9-2007 1 42-43 Report of Addl CIT to CIT II The report records that CBDT had monitored the assessment and that the AO had examined all issues/ allegations during assessment. 17.3. The various issues raised in the appraisal report and reiterated by Shri AL Mehta in the various complaints filed from time to time were looked into and scrutinized during the course of assessment as is evident from the following: S.N. Date of Letter Vol. No. Page No. Contents Remarks 1 16-5-2006 9 58-59 Letter from CIT to Addl. CIT regarding points to be kept in mind while conducting investigation Shows that assessment being monitored/ supervised by CIT. The AO is further advised by the CIT that in case of variance with the stand taken in the appraisal report, the AO should properly record the same in the office note for future reference. Reference to office notes - not shown 2 25-6-2007 7 123-146 Report of Addl. CIT to C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed, as is evident from the following: " - The records shown to the applicant/authorized representative only contained copies of the return of income filed by the applicant, statutory notices/questionnaires issued by the assessing officer / CIT and replies thereto filed by the applicant, which are already available with the applicant; - Certain pages were found to be missing in the serially-numbered files shown to the representatives of the applicant, which were not shown to the applicant; - With respect to the inspection of the records relating to assessment, certain pages of the original assessment order, which has to be retained on record, were also not found in the files shown for inspection. This, it appears, was primarily done to deny inspection of the office notes available in the files; With respect to inspection of files relating to proceedings under section 263 of the Act, order sheets of the files leading to initiation of proceedings under that section were not complete and certain pages were found to be missing." "(a) interdepartmental correspondences (including with CBDT) in respect of the assessment proceedings under section 153A/143(3) of the Act; (b) inter-d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. 24.10.2005 Letter from CIT to Addl. CIT enclosing another letter dated 10.10.2005 9 3 6. 02-11-2005 Questionnaire issued by the assessing officer 7. 08-11-2005 Status report forwarded by the assessing officer to CIT 9 6 8. 14.11.2005 Reply filed by the assessee in response to queries raised during the assessment proceedings. 9 Status report, in turn, forwarded by CIT to CCIT 9 11 and 12 10 20-11-2005 Another status report forwarded by A.O. to CIT 9 13 11. 21.11.2005 Reply filed by the assessee in response to queries raised during the assessment proceedings 12. 29-11-2005 Reply filed by the assessee in response to queries raised during the assessment proceedings 13. 30-11-2005 14. 05-12-2005 Reply filed by the assessee in response to queries raised during the assessment proceedings 15. 12.12.2005 Reply filed by the assessee in response to queries raised during the assessment proceedings 16. 29.12.2005 Another questionnaire issued by the assessing officer. 17. 09-01-2006 Reply filed by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 41. 19-6-2006 Letter from CCIT to CBDT This letter of the CCIT also refers to an earlier report dated 23-05-2006 9 106-111 42. Office Notes 17.10. The assessee in its reply dated 20-11-2012, contained at pages 65L to 65Z, reiterated the submissions made in its petition dated 15-10- 2012, inter alia, pointed out that in course of inspection before the Hon'ble High Court the assessee was denied the photo copies of the record/ files which were made available to the assessee. Further, only limited/ incomplete record had been shown to the assessee. 18. The Revenue, inter alia, submitted that the record for the purposes of 263 proceedings before the ITAT constituted: (a) All the correspondence between the AO/ CIT and the assessee; (b) Evidence collected and used by the department against the assessee; and (c) File notings, which are meant for communication to the assessee. 18.1. The revenue specifically pointed out that documents, correspondence and file notings, which are not used and not meant for communication to the assessee for passing the impugned order, cannot be regarded as part of the record because it is not that all the paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regards the assessee's reliance on the decision in the case of M.D. Overseas Ltd. (supra), ld. Spl counsel pointed out that the said case deals with the recording of satisfaction u/s 132, which is wholly out of context for the present case, because u/s 132 if the reasons are not recorded or information is not on record, it would not be a bona fide satisfaction for the issue of search warrant, because the search warrant is the basis of action. However, u/s 263 satisfaction is recorded in the order of the Commissioner on each of the issues as to why he considers that the order is erroneous and prejudicial to the interests of the revenue, which has been done by ld. Commissioner in the present case. 18.5. As regards reliance, placed by ld. Counsel for the assessee, in the case of P.K. Mishra Vs. ACIT, ld. Spl. counsel pointed out that in the said case the AO persisted with the reopened proceedings despite the fact that the assessee could demonstrate from a valid document that he was not the owner but only a tenant of the property and hence question of any unexplained investment did not arise. In respect of other investments, he could file details of loan etc., taken for the const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses towards learning business and towards software business. In these cases, we want to examine whether there is any loss of revenue suffered by the Department de hors the question of mala fides at this stage. Proceedings to go on but, no recovery shall be made. It is made clear that limitation will not come in the way of the Department. Matters to stand over for three weeks." 18.10. Ld. Spl counsel pointed out that after all these proceedings when such directions were issued by Hon'ble Supreme Court on 12-4-2010, the assessee withdrew the Spl. Leave petitions. Therefore, the directions of Hon'ble High Court have attained finality. 18.11. Ld. Spl. Counsel further pointed out that Hon'ble Delhi High Court in its order dated 11-12-2009 had directed the Commissioner to pass fresh order after giving opportunity. He pointed out that as far as the legal position, as expounded by Hon'ble Delhi High Court in para 22 itself, there is no quarrel with the same. 18.12. Ld. Spl. Counsel further referred to pages 128 and 129 wherein additional submissions of Sr. Counsel Shri Solisorabji, on behalf of the assessee, are contained and pointed out that they clearly demon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the AO. In course of hearing, Ld. CIT(DR) filed before us copy of charge-sheet, as additional evidence. However, ld. Counsel for the assessee objected to the same, pointing out that without providing the charge-sheet to assessee and taking his reply on the same, the additional evidence should not be admitted. We find force in the submission of ld. Counsel that this additional evidence should not be admitted, particularly when admittedly administrative correspondence relating to vigilance matters does not form part of record of either of the two proceedings. 18.17. As regards the assessee's contention that assessment order was passed under the monitoring of CIT, ld. Spl. Counsel referred to page 8 of the impugned order, wherein it has been observed as under: "The above allegation of the assessee is totally baseless. Sending of routine correspondence and reports by the Assessing Officer to senior authorities does not in any way mean that the assessment has been completed by him on the directions of senior authorities. Nowhere during the assessment proceedings, any approval has been sought by the A.O. from the CIT, nor has CIT issued any directions to the A.O. stating that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Spl. Counsel referred to the decision in the case of Dr. Pratap Singh Vs. Director of Enforcement 22 Taxman 30 (SC), wherein it has been held that it is not obligatory on the officer to disclose his material on the mere allegation that there were no material before him on which his reason to believe could be grounded - It is for the person making an allegation of prejudice or bias to lead necessary evidence to demonstrate that the action of the statutory authority is prima facie not bona fide. He cannot make an allegation and then call for the other party to make available the evidence on which he can rely to substantiate the allegation. This obligation is all the more burdensome in this case where the Hon'ble High Court has already disposed off all such allegations against the original order by directing a fresh proceeding and a fresh order by a fresh statutory authority. Unless similar allegations can be shown to exist against the new CIT as well, the entire contention deserves to be disregarded." 18.20. Ld. Spl. Counsel pointed out that the Hon'ble High Court in its order dated 3-8-2012 did not give any direction for producing the confidential record though specific p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive AOs - clear instance of monitoring of assessment by CBDT 4 27-4-2006 5.5.2006 9 60-68 Letter from CBDT to CCIT enclosing Shri A.L.Mehta's letter dated 25-3- 2006 addressed to Chairperson CBDT directing that allegations made there be investigated and report with regard to the action taken to be sent to the Board. 5. Undated 11 1-68 Status report dated 15-5-2006 submitted by AO to CIT dealing with each allegation raised by Shri A.L. The report points out that ach allegation raised by AL Mehta was confronted to the assessee during the course of assessment. Mehta The report also points out that a total addition of Rs. 31.29 crores is being made in various companies of the same group. 6. 16-5-2006 9 55-56 Letter by Addl. CIT to CIT forwarding investigatin note prepared by AO on the allegations made by Shri A.L. Mehta 7. 16-5-2006 9 58-59 Letter from CIT to Addl. CIT regarding points to be kept in mind while conducting investigation office notes not shown. Shows that assessment being monitored/ supervised by CIT. The AO is further advised by the CIT that in case of variance with the stand taken in the appraisal report, the AO shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar assessment or to dispose of a particular case in a particular manner. Ld. counsel has relied on the decisions in the cases of J & K Synthetics Ltd. Vs. CBDT 83 ITR 335 (SC); and Sirpur Paper Mills Ltd. Vs. CWT 77 ITR 6 (SC) to submit that while the AO is seized of an assessment, it is not open to the superior authorities to seek progress reports from such officer. Ld. counsel submits that submission of progress reports by the AO is not in discharge of any administrative functions and would amount to interference with the exercise of jurisdiction by the AO in discharge of his quasi judicial function. We are not inclined to accept this plea of ld. counsel because in the two decisions referred by ld. counsel, it is not so held. The decisions primarily hold that Board cannot give directions or instructions to Income-tax authorities in exercise of their quasi judicial function. But there is nothing in the Act or these two decisions to restrain CBDT to obtain status report from authorities seized of a case. This is purely in discharge of administrative function of CBDT. While obtaining status report, the CBDT can also seek information from AO on the various allegations made in TEP. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble High Court was complied and this fact was taken cognizance of by Hon'ble Delhi High Court. It is only thereafter that the matter was proceeded for final hearing. Thus the issue of inspection of records has already been settled during the course of writ proceedings before the Hon'ble Delhi High Court as discussed above. Further, Hon'ble High Court directions as contained in para 21 of order reads as under: "For this reason alone, once we proceed to set aside the impugned order, the effect would be that the concerned Commissioner will have to go into this issue afresh for considering the submissions of the petitioner, which would necessarily involve application of his independent mind. This coupled with the fact that the Commissioner who passed the order is no more the concerned officer , i.e. , the respondent No. 4, the matter will have to go to another office discharging the duties in the capacity of respondent No. 4. In these circumstances, the very basis of the submission that the impugned order was passed on the dictates lines of CBDT vanishes." Accordingly, as per the directions of the Hon'ble High Court fresh notice was issued and the proceedings un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, are of the considered opinion that department fully complied with the directions of Tribunal regarding production of all records. 20.8. All correspondence referred to by assessee relates to earlier order passed by ld. CIT. In his order dated 1-4-2010 ld. CIT has pointed out that as per direction of the Hon'ble High Court, fresh notice was issued and the proceedings u/s 263 had been initiated for giving assessee the opportunity to respond. Fresh order u/s 263 was being passed after considering all the submissions of the assessee and, therefore, the relevance of showing old files containing inter departmental correspondence, in any case, is lost. 20.9. From this it is evident that ld. CIT, while passing the order, was conscious of the fact that Hon'ble High Court in its order date d 11-12-2009 had, inter alia, observed in para 20 that "No doubt, some anxiety is shown by the CBDT in this behalf. However the argument of the respondents is that the CBDT had wanted the matter to be examined and never intended that the orders are to be passed in one particular manner only". Therefore, the assessee's stand that while passing the fresh order the Commissioner wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions and relied on the decision of Hon'ble Allahabad High Court in the case of MD OVERSEAS LTD. V DIRECTOR GENERAL OF INCOME-TAX AND OTHERS ( 333 ITR 407), wherein it has been held that where certain information/ material/ documents going to the root of the matter, have been directed to be produced by one party, such documents must be provided to the other party as the other party cannot make submissions without access to such material. It was held that proceeding with the matter, without allowing such access, would not only be violative of principles of natural justice, but not compatible with the principle of jurisprudence. In this case, the issue was that assessee company carried on the business of precious metals, namely, gold, silver and platinum. The registered office of the company was situated at New Delhi, but had 8 branches situated in 7 different cities of the country and at least one warehouse was situated within the Special Economic Zone (SEZ), at Noida. A search was conducted by the department on 15-9-2009 and 16-9-2009, not only in the office, branches and warehouse at Noida, but also at the residence of its directors as well as on some other persons. In all, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to believe for authorizing the search, except the source of the information. Therefore, it is evident that assessee is entitled to the information, which is relevant to the issue and if the same goes to the root of the proceeding. The source of information is not required to be disclosed by revenue authorities. 21.2. In this case the issue was regarding the recording of satisfaction as per the statutory requirements in search proceedings and, therefore, assessee had right to ask for the same. But this proposition cannot be extended to confidential administrative correspondences, which do not even form part of 'record' under section 263. This correspondence can be examined by Court to come to proper conclusion but need not be disclosed to other party. We, therefore, hold that the decision relied by ld. Counsel is of little assistance in the present context. 21.3. The proceedings cannot be brought to stand still on account of repeated plea of assessee regarding confidential records not being provided to assessee which have not been directed even by Hon'ble High Court to be shown to assessee on which privilege is being claimed by department, particularly when substanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dictate of higher authority, no more survive. 24. We have heard at length both the parties on this issue and are of the considered opinion that keeping in view the observations made by the Hon'ble High Court in the writ petition, filed by the assessee and writ petition filed by the revenue, it has to be concluded that the present proceedings are fresh proceedings, initiated by ld. Commissioner and cannot be held to be continuation of earlier proceedings. The reasons for the same are as under: (i) From the combined reading of both the orders of Hon'ble High Court it is evident that assessee is entitled to take all the pleas relating to jurisdictional issue on the ground that the order u/s 263 is being passed on the dictates of higher authorities and secondly the order u/s 153A/ 143(3) was passed under the monitoring of ld. Commissioner. If we accept the contention of the ld. counsel for the assessee that the show cause notice dated 23-7-2007 survives in spite of the set aside order of Hon'ble High Court dated 11-12- 2009, then it would mean that the initiation of proceedings u/s 263 is legal and all the events occuring prior to the issuance of notice dated 23-7-2007 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the assessee has submitted that as per section 263(2), order could be passed up to 31-3-2009 and the Hon'ble High Court has lifted the limitation for passing the order only and not for initiation of proceeding. He submitted that bar of limitation has not been lifted for initiating proceedings and the order has been set aside to the stage where irregularity occurred. (vi) We find that in the order passed by the Hon'ble High Court on 11-12-2009, it was specifically clarified in para 24 of its order that since the writ petitions were pending before the Hon'ble High Court, issue of limitation could not be raised by the assessee. Therefore, it cannot be inferred that the directions were only in regard to passing of the order u/s 263 and not for taking up fresh revisional proceedings. There is no separate limitation prescribed for initiation and passing of order u/s 263. As a matter of fact, Hon'ble High Court granted liberty to ld. CIT to appropriately deal with the matter and pass fresh order, after giving opportunity of being heard to the assessee on various points, canvassed before him, or which it intended to raise at the time of fresh hearing. This impli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 on the ground of inadequate inquiry. 26.6. In this case, ld. CIT exercised powers u/s 263 on the ground that while passing the assessment order, the AO did not consider whether the expenditure in question was revenue or capital expenditure. The Hon'ble High Court observed that the assessment order did not give any reason in regard to allowing the entire expenditure as revenue expenditure by AO. However, it was held that it by itself would not be indicative of the fact that AO had not applied his mind on the issue. It was held that it is not necessary that AO should give detailed reasons in respect of each and every item of deduction. One has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. It was held to be, at best, a case of inadequate inquiry and not lack of inquiry. It was held that if there was inadequate inquiry, that would not by itself give occasion to CIT to pass order u/s 263. 26.7. Ld. Counsel further referred to the decision of Hon'ble High Court in the case of CIT Vs. Anil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of 'on money' by the assessee for purchase of property during the year; and in the case of Mukur Corporation (supra), the assessment order was set aside by the CIT after coming to the conclusion that no inquiry, qua the issue in dispute, was conducted by the AO during the course of assessment proceedings. In the case of Shyam TelelLink Ltd. (Supra), the Tribunal found that there was no material on record to hold that the issue raised by the CIT was examined by by the AO. Ld. counsel submitted that these cases fall in the category of lack of inquiry and not inadequate inquiry. 26.12. Ld. Counsel submitted that in the office note, AO has given elaborate reasons on various issues and therefore, the same have to be referred to find out whether there was application of mind by AO or not. 26.13. Ld. Counsel submitted that Hon'ble Supreme Court in the case of Malabar Industrial Co. Vs. CIT 243 ITR 83 has held that where the AO has taken a possible view, the CIT cannot revise the assessment merely because the CIT holds another view. 27. Ld. Spl. Counsel submitted that whether a case falls under lack of inquiry or inadequate inquiry depends upon facts of each case. &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to lend privately, from which she earned interest. The entire cash of Rs. 31,500/- was offered accordingly for taxation. It was further pointed out that no documentary evidence was available with her to prove the same. Hon'ble High court noted that while accepting the returns, spot assessments were made by the ITO, spreading over the income for the assessment years 1969-70 to 1972-73, as desired by the assessee. Large number of similar assessments were made to other assesses. Thereafter, it was brought to the notice of the Commissioner that the income of all these assesses had been invested in the business of their husbands. In the inquiry made by ld. Commissioner it was discovered that the assesses, during the relevant period of assessments, had no business of their own, much less any money lending business. Ld. CIT initiated proceedings u/s 263 and directed the ITO to re do the assessments after observing as under: " Any Income tax Officer who does his duties diligently would have sat up, on reading the assessee's letter and seeing the assessee's returns and would have made elementary enquiries to satisfy himself that there was a business done by the assessee and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be held to be erroneous though the converse may not always be true. The Commissioner, in my view, was, therefore, right in revising the assessments under section 263 of the Act. The petitioners have not been prejudiced in any way by not disclosing to them the nature of the materials collected by the Commissioner behind their back. The Commissioner has directed the Income tax Officer to make the assessments afresh according to law after making proper enquiries. The petitioners will have full opportunity of showing to the Income tax Officer that the assessments earlier made were correct and the enquiries subsequently made were incorrect." 27.5. With reference to this decision, ld. Special Counsel submitted that AO was required to make the necessary inquiry to find out that income was earned in that year and belonged to assessee. This was essential inquiry, which was not conducted by AO. Thus, AO did not reach the necessary level of inquiry to acquire the requisite satisfaction. Accordingly, the revisional proceedings were upheld. 27.6. Ld. Special Counsel further referred to the decision in the case of Rampyari Devi Saraogi v. CIT (1968) 67 ITR 84 (SC). In this case the Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs from ' S ' to ' Z ', with a view to camouflage the name and make it appear to fall within the jurisdiction of the Income tax Officer, the name has been given in the reverse order by putting the surname first and her own name after wards, as will be apparent from the returns filed. In the return of income for the assessment year 1961-62, the assessee has given her residential address as 90, Feeder Road, Belgharia, Calcutta, while in that for 1962-63, the office address has been given as 90, Feeder Road, Belgharia, Calcutta. " He then concluded : " It is apparent that with a view to fall within the jurisdiction of this particular Income tax Officer, i.e., Income tax Officer, D Ward, Howrah, a fictitious address was given and the order of the names reversed. Hence, all the assessments made are without jurisdiction ab initio null and void. " We agree with the High Court that all this material was supporting material and did not constitute the basic grounds on which the orders under section 33B were passed by the Commissioner. There was ample material to show that the Income tax Officer made the assessments in undue hurry. The assessee was a new assessee and filed vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had jurisdiction u/s 33B of the I.T. Act, 1922 (corresponding to sec. 263 of the I.T. Act), to cancel the assessment and proceedings that may be initiated under the provisions of the Act against some other assessee, who, according to the income-tax authorities, would be liable for the income thereon. Hon'ble Supreme Court also referred to the decision in the case of Rampyari Devi Saraogi (supra) in this regard. 27.9. Ld. Special Counsel further relied on the decision of Hon'ble Delhi High Court in the case of Gee Vee Enterprises Vs. ACIT 99 ITR 375, wherein, following the decision of Hon'ble Supreme Court in the case of Smt. Tara Devi Agarwal (supra), it was held that it is not necessary for the Commissioner to make further inquiry before cancelling the assessment order of the ITO. It was held that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the ITO should have made further inquiries before accepting the statements made by the assessee in his return. The Hon'ble Delhi High Court further observed as under: "The reason is obvious. The position and function of the Income tax Officer is very different from tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have been conducted to reach a rational satisfaction and not a mere pretence of the so called enquiry. b) The CIT raises as many as thirteen items which are in dispute and as per the assessee, no enquiry was required or further details were required to examine such issues iri detail. The AO accepted the claims of the assessee only after a questionnaire and taking the replies on their face value without bringing any material on record to justify such claims. This was not an enquiry of any kind and the assessment was made with complete non application of mind. In the case of Firoj Nadiadwala vs ACIT (35 taxmann.com 89),the Hon'ble Mumbai IT AT held as under: "In view of the foregoing discussion we hold that the order passed by Aa was erroneous and prejudicial to the interest of revenue as he accepted the explanation of assessee that the loans were of general purpose loans without any examination and application of mind. The interest on borrowings which had been specifically taken for the production of two films has to be considered as part of cost of production in view of definition of cost of production given in the Explanation to Rule 9A. Therefore allowing the interest as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : In this case, the assessee surrendered Rs. 10 lakhs for stock. The case of the CIT in revisionary proceedings uls 263 was that no proper enquiry had been made by the assessing officer about the surrendered amount. The Hon'ble High court held that the fact that the assessee had not included the surrendered amount had been noticed by the assessing officer and was raised by him in the various notices issued to the assessee. The assessee had explained and produced necessary evidence that there was no discrepancy either in cash or in the stock. (Page No. 1205 of PB filed by the assessee.). In view of the above, it is submitted that the facts of the above case are distinguishable from the present case before your Honours. In the cited case, there was proper application of mind. The enquiries were conducted by the Assessing Officer. The necessary evidence was produced as clearly recorded by the Court. However, in the present case, there was no enquiry conducted by the Assessing Officer. CIT vs Eicher Ltd (294 ITR 310-Del-@ vol VI: page no. 112- 115 of assessee's paper book The Ld. Counsel relied upon the above case. In this regard, it is submitted that the above case was wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of "inadequate enquiry". The Revenue is not disputing the settled legal position. There is no quarrel on such a proposition. The issue is when would it be a case of inadequate enquiry and when of no enquiry. ONGC v DCIT (104 TTJ 900-Del @ Vol IV: 1222-1227 of assessee's paper book In this case, the view taken by AO was one of the plausible views. The finding of this case is not applicable to the present case. In the present case, there is no question of any plausible view since he has accepted the claims without application of mind and the view taken by the AO is not backed by enquiry and material and, therefore, not legally sustainable. 9. The Ld. Counsel has referred to a host of other decisions which are also distinguishable for the reasons stated above. In none of the cited cases, the claim of the assessee was accepted without enquiring into and placing on record the primary and basic facts as in the present case. The case before your Honours is one where the A.O. has not only failed to conduct the minimum level of enquiries, but the so called enquiry is farce and a only a pretence of enquiry. It is not open to suggest, in the wake of glaring facts as your Honour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inquiry which is just farce or mere pretence of inquiry, cannot be said to be an inquiry at all, much less an inquiry needed to reach the level of satisfaction of the AO on the given issue. The level of satisfaction would obviously mean that he has conducted the inquiry in a manner whereby he places on record the material enough to reach the satisfaction, which a rational person, being informed of the nuances of tax laws would reach after due appreciation of such material. If this component is missing, it will always be a case of lack of inquiry and not inadequate inquiry. We find that ld. Commissioner, while considering this argument of assessee has observed that the representative of the assessee was assured that this issue will be considered with independent application of mind while passing the order u/s 263. Therefore, when specific issues will be considered, it will be examined whether the AO had reached the level of satisfaction by carrying out necessary inquiries qua that issue or not. Ground is disposed of accordingly. 29. In ground no. 7 the assessee has challenged the exercise of jurisdiction by CIT u/s 263 on the ground that the various claims, which were duly supporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the finding that the order passed by the Assessing Officer was prejudicial to the interest of the Revenue, then the order of the Commissioner cannot be set aside on the ground that the two views were possible or probable. In such cases, the order under Section 263 of the Act can be set aside if the findings accorded by Commissioner taking the particular view, whether on facts or in law, is wrong or incorrect or the order of the Assessing Officer was not prejudicial to the interest of the Revenue. The first aspect is essentially a question of merits and not a question relating to whether or not two views were possible. Commissioner can examine the issue on merits even when the same issue was examined by the assessing officer. Principles of change of opinion do not apply. If an order of the assessing officer is held to be erroneous and prejudicial to the interest of the revenue, it can be revised. The contention of the assessee and the reasoning of the tribunal in this regard is clearly fallacious as Revenue does not have any right to appeal against the order of the Assessing Officer. It is in these circumstances that power of revision has been conferred on the Commissioner unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth the sides including the decision of Hon'ble Delhi High Court in the case of Goetz India (supra). The main thrust is on the level of inquiries conducted by AO to arrive at a particular conclusion. A possible view taken by AO after due appreciation of evidence on record particularly found during course of search, in present context, will not render the Assessment Order erroneous and prejudicial to the interest of revenue merely because another view could be taken which was beneficial to the interest of revenue. However, the position will be entirely different if AO merely raises various queries and accepts the assessee's explanation without proper appreciation of evidence on record.This aspect will be taken into consideration while deciding the various issues, keeping in view the arguments of both the sides. This ground is accordingly disposed of. 32. In ground no. 8, the assessee has challenged the jurisdiction of ld. CIT on the ground that jurisdiction u/s 263, in respect of issues, which were beyond the jurisdiction of the AO, while framing the original assessment u/s 143(3)/ 153A, cannot be exercised. The submission is that scope of revisionary jurisdiction depends u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessment order was not erroneous and CIT could not have exercised jurisdiction u/s 263 of the Act. 32.3. The assessee also placed reliance on the decision of Hon'ble Rajasthan High Court in the case of Rajasthan Spinning & Weaving Mills Vs. DCIT 281 ITR 177 (Raj.), wherein it has been held that where certain issues are outside the scope of any assessment/ reassessment proceedings, the AO cannot be said to have committed error in not making adjustments on the said issues in order to exercise revisionary jurisdiction u/s 263 of the Act. 32.4. Ld. Counsel for the assessee also placed reliance on the following decisions of the ITAT: - Simbhaoli Industries Ltd. Vs. DCIT 78 ITD 161 (Del.)(SB); - Abad Fisheries v. DCIT 80 ITD 153 (Coch.); - Paul John Delicious Cashew Co. 94 ITD 131 (Coch.) - Gift Land Handicrafts Vs. CIT 108 TTJ 312 (Del.); - Peerless General Finance & Investment Co. Vs. ACIT 96 TTJ 834; - Smt. N. Sasikala Vs. DCIT 115 TTJ 563 (Chennai). - Dholadhar Investment (P) Ltd. Vs. CIT (ITA no. 628/Del/2010). 32.5. Ld. Counsel pointed out that the scope of section 153A is such that addition/ disallowance can only be made on the basis of incriminating ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applies t o the CIT, for the purposes of section 263 of the Act. For the aforesaid reason too, the impugned order passed by the CIT under section 263 of the Act is legally unsustainable and calls for being quashed." 33. Ld. Special Counsel submitted that there is no dispute on preliminary proposition that what AO cannot do, CIT also cannot do. He submitted that in the present case assessment year involved is 1999-2000 in which original assessment had been completed u/s 143(1). He submitted that no notice was issued; no assessment order was passed and no inquiry was made by the AO. He submitted that search took place on 10-11-2004 on which date assessment proceedings were not pending, therefore, did not abate. He, therefore, submitted that in effect 153A assessment has been made for the first time. He submitted that u/s 153A, two situation arise in respect of proceedings which are not pending. Firstly, AO is to reassess the income, if assessment order had been passed, and, secondly, if not assessed earlier then to assess for the first time. He contended that assessment u/s 153A takes in its ambit 147 proceedings also and there is no need to reopen assessment u/s 147. In such situ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the AO, (b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search 33.2. Ld. Special Counsel specifically referred to para 57 in the case of All Cargo Global Logistics Ltd. V. DCIT 137 ITD 26 (Mum.)(SB), and pointed out that Special Bench specifically noticed that the question which had been referred to it was in respect of scope of assessment u/s 153A and whether it encompasses additions not based on incriminating material found in the course of search. It was observed that the question uses the word incriminating material which again finds no mention either in section 132(1) or 153A. Thus, it was observed that analysis of various phrases regarding completed assessment does not fall within the ambit of the question posed to the Special Bench. He, therefore, submitted that it was a matter of inquiry whether the entries in the books of a/c were incriminating or otherwise. He submitted that it depends on the facts of each case what constitutes incrimina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h which were not produced in the course of original assessment. He submitted that since proceedings u/s 143(1) are in the nature of summary proceedings for assessment, undertaken to simply check the arithmetical accuracy of the total income and tax liability of an assessee and further since no books of account/ documents were produced by the assessee before the AO, as required by law, the scope of assessment u/s 153A would extend to the issues arising from scrutiny of regular books of account as well found during the course of search. He submitted that the expression "not produced before the AO", cannot have restrictive meaning to suggest "deliberately not produced" but would also include "not produced by operation of law". 33.5. In support of his contention Ld. Spl. Counsel further referred to the decision of Hon'ble Delhi High Court in the case of CIT Vs. Anil Kumar Bhatia (ITA no. 1626/2010) and referred to paras 15,16 and 22 of the order, reproduced below: "15. The first question which we have to consider is whether the Tribunal was right in holding that no addition can be made for agricultural income, gifts received and unexplained deposits as stated in the chart set out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this [sub-section] pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. [(2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section(1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revised with effect from the date of receipt of the order of such annulment by the Commissioner. Provided that such revival sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oboration of the unsigned document. If it is not in dispute that the document was found in the course of the search of the assessee, then Section 153A is triggered. Once the Section is triggered, it appears mandatory for the Assessing Officer to issue notices under Section 153A calling upon the assessee to file returns for the six assessment years prior to the year in which the search took place. There are contradictions in the order of the Tribunal. We are unable to appreciate how the Tribunal can say in Para 9.6 that no material was found during the search and at the same time in Paragraph 10 deal with the merits of the additions based on the document recovered during the search which allegedly contain the loan transaction with Mohini Sharma. Therefore, both the reasons given by the Tribunal for holding that the assessments made under Section 153A were bad in law do not commend themselves to us. The result is that the first substantial question of law is answered in the negative, in favour of the Revenue and against the assessee." 33.6. With reference to this decision, Ld. Spl. Counsel submitted that the only requirement is that nexus/ relevance with material has to be there but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Emails. 111. Statements recorded during search operations lV. Copies of certain documents. v. Copies of documents relating to other years but having a bearing on the year under consideration as well. All such material has been found during search. It is, therefore, wholly incorrect to suggest that the assessment is framed without having nexus with the material found during search. If a certain material is found during search, its incriminating nature can be ascertained only when the material is examined to find out whether it has any bearing on the income already assessed or not. If the material so found, on examination, leads to the inference that the income originally assessed whether u/s 143(3) or 143(1) needs to be re-determined, the material would be incriminating and jurisdiction of the A.a. can not be challenged on the reasoning that the material is not prima facie incriminating. The word "incriminating" has neither been used in the statute nor and has been defined in the judicial precedents. It has to have its common sense meaning in the given context which would only mean whether the material, on examination, leads to redetermination of the income already assessed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ched person that the valuable articles or books of accounts or documents seized during search belong to a third person. It was held that there is no requirement in section 153C (1) that the Assessing Officer should also be satisfied, that such valuable articles or books of accounts or documents belonging to other person, conclusively reflect earning of undisclosed income by such third person. Accordingly, it was contended that the existence of seized material is sufficient for the purposes of assuming jurisdiction and making assessment under section 153Aand there is no impediment to complete the assessment on the basis of such material. 27. On the basis of the above, it is submitted that since in the case of the assessee there was incriminating material in the form of accounts not hitherto produced before A.O., emails / statements of various persons and such material was sufficient to assume jurisdiction for the purposes of making assessment under section 153A. 34. We have considered the rival submissions and perused the record of the case. Section 153A lays down the procedure for assessment as a consequence of search. As per this section, where a search has been initiated u/s 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of non-abated assessment, the same is to be restricted to - (a)undisclosed income/ property found during the course of search; and (b) income on the basis of books of account or other documents, which was not produced in the regular assessment and are found in the course of search. It was held that in case of abated assessments, the assessment u/s 153A of the Act would merge into one and, thus, only one assessment is to be made. 34.3. Ld. Special Counsel's contention that since the original assessment had been completed u/s 143(1), the restrictive meaning cannot be ascribed to the expression "not produced before the AO" and will include 'not produced by operation of law' deserves to be accepted. However, in the present case material in the form of e-mails, copies of a/cs, documents etc., was seized during search and statements were also recorded, which have been filed before us by way of compilation and the same had direct nexus with the issue raised by ld. CIT. Therefore, assessments had to be made after proper scrutiny of those documents as well as on the basis of books of a/c found in course of search. There is no quarrel with the proposition advanced by ld. c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om Ltd. Vs. DCIT 2009-TIOL-487-ITAT- MUM - CIT vs. Hero Auto Ltd. 343 ITR 342 (Del.). 36.1. Ld. counsel pointed out that in response to the notice issued by the CIT u/s 263 of the Act, the assessee, apart from raising legal objection to the assumption of jurisdiction under the said section, had submitted detailed replies on merits. He pointed out that in the order passed u/s 263, the CIT did not deal with the submissions of the assessee on merits and had merely set aside the same to the file of AO for de novo adjudication. He submitted that ld. CIT failed to demonstrate how the assessment framed by the AO after due verification and inquiry, was erroneous and prejudicial to the interests of revenue. Ld. counsel in this regard referred to para 15 of the decision in the case of DG Housing Projects (supra) and pointed out that the Hon'ble Delhi High Court after considering the decision in the case of CIT vs. Sunbeam Ltd. 332 ITR 167, held as under: 16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions made earlier in regard to the level of inquiry which is expected from the AO, which we have noted in extenso earlier. He submitted that in case where the assessment has been completed without making any worthwhile inquiry and without placing on record the material to form an opinion one way or the other, it is wholly an untenable proposition to suggest that CIT must record a finding that the opinion so framed by the AO, was erroneous. 37.2. He submitted that in a case of non-application of mind by the AO, the finding is always erroneous as it displays non-application of mind and failure to conduct the enquiries and collect the primary details. If in a given case the AO accepts the returned income without looking into any material, it cannot be said that he has formed an opinion. Forming of opinion is a judicial or quasi judicial process while discharging statutory functions. He submitted that opinions are not formed in vacuum. In a judicial process, it has to be based on material evidence. It is not the subjective opinion of an individual but the rational view of an authority duly empowered to form the opinion under law. 37.3. Ld. Special counsel submitted that the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not." 37.6. Ld. Spl. Counsel referred to the decision in the case of CIT Vs. Leisure Wear Exports Ltd. 341 ITR 166, relied upon by the ld. counsel for the assessee to point out that the facts in the said case were different. In that case one of the issues on which the CIT exercised his revisionary powers u/s 263 of the Act pertained to the claim of deduction by the assessee u/s 80HHC of the act. The assessee had claimed deduction under this provision amounting to Rs. 32,25,486/-. However, despite various opportunities given by AO, the assessee did not furnish th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which needed examination by the AO." 37.7. In the back drop of these facts the Hon'ble High Court observed as under: 12. Keeping in mind the aforesaid principles, we proceed to discuss the issue at hand. It was argued by the learned counsel for the assessee that in the entire order passed by the Commissioner under Section 263 of the Act it is not mentioned as to how the order was erroneous and prejudicial to the interest of the Revenue. After scrutinising the said order minutely we are inclined to agree with the aforesaid argument of the learned counsel. In the entire order emphasis laid by the Commissioner is that in respect of four issues mentioned by him, no queries were raised by the AO. On this premise, though it is observed that there was no application of mind on the part of the AO and the AO has not recorded any reasons to justify the omission to consider the said facts, the Commissioner does not take the said order to its logical conclusion which was the prime duty of the Commissioner in order to justify exercise of power under Section 263 of the Act. There is not even a whisper that the order is erroneous. Even if we infer that non-consideration of the issues poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o far as the insurance claim is concerned, the Commissioner observed that the assessee had shown receivable on this account to the tune of Rs. 1.21 crores but no details had been furnished. The AO had also not made any inquiries. In the detailed discussion on this aspect the Tribunal has observed that insurance clam was lodged for the goods lost in transit. The assessee at that time had merely filed a claim with the insurance company. This claim had not been approved as the insurance company had neither accepted the same nor given any assurance for making payment. Therefore, no income had "accrued" which could be taxed. The Tribunal rightly held that ordinarily the income is said to have accrued to a person when he acquires the right to income and this should be enforceable right, though actual quantification or receipt may follow in due course. The mere claim to income without any enforceable right cannot be regarded as an accrued income for the purpose of Income-Tax Act. The Tribunal referred to the following judgments in support:- i) In CIT Vs. Finance (P) Ltd. 124 ITR 619(P&H High Court), held as under: "Income-tax is levied on income whether the accounts are maintained on m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the facts were entirely different and after consideration of the facts and the observations of CIT, Hon'ble High Court held that the exercise of power u/s 263 was not called for. He submitted that this decision has no application to the present set of facts. 37.9. Ld. Special counsel further referred to the decision in the case of CIT Vs. Hindustan Marketing & Advertising Co. Ltd. 341 ITR 180 and pointed out that the issue was that the assessment order was held to be erroneous and prejudicial to the interests of revenue because ITO had not made adequate and detailed investigation/ inquiry in respect of major area of the of the company's operation and source of income; the ITO had acted in a hurry and did not examine carefully assessee's receipts and payments pertaining to the advertising work done by the company. 37.10. Ld. Special counsel referred to para 13 of the decision and pointed out that in this case the AO had made various inquiries which have been noted in the assessment order and, therefore, the second principle laid down in the case of DG Housing (supra) would apply. As regards the decision in the case of CIT Vs. Hero Auto Ltd. 343 ITR 342, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeding, on each and every issue was considered and records vis-à-vis replies filed at the time of assessment proceedings were also examined and accordingly finding is being given, with reference to each issue separately. Issues were also discussed in detail with the A.Rs of the assessee. For this purpose sufficient opportunities were also granted to the assessee to file the details, as requested, which is clear from the calendar of events. It is only after the receipt of all the details, to the satisfaction of the assessee, that this order is being passed. Now the merit of issues raised under the proceedings u/s 263 of the Act are considered. On the following issues reply of the assessee is examined and is found be untenable. 38.2. Therefore, without examining the detail, the findings of ld. CIT qua various issues, it cannot be concluded that ld. CIT's order is not sustainable in law. The order needs to be examined in the backdrop of principles laid down in various cases. It cannot be out rightly concluded that ld. CIT has set aside the issue without examining the merits of assessee's claim. 38.3. The Hon'ble Delhi High Court, while deciding the issue in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iry, then ld. CIT has to demonstrate that how the order was erroneous and prejudicial to the interests of revenue. This aspect we will take into consideration while deciding various issues on merits. In the result, this ground is disposed of accordingly. 39. Vide ground no. 10 the assessee has assailed the order passed by the ld. CIT for assessment year 1999-2000 on the ground that ld. Commissioner exceeded his jurisdiction in setting aside the assessment order in respect of issues raised in the notice dated 5-2-2010 issued u/s 263 of the Act in contravention of the Hon'ble High Court's order dated 11-12-2009. 39.1. This issue we have examined earlier, wherein we have held that the ld. CIT was required to pass fresh order in view of Hon'ble High Court's decision and it has been held that the present proceedings being fresh proceedings undertaken by ld. Commissioner, he did not exceed his jurisdiction in raising various issues vide show cause notice dated 5-2-2010 issued u/s 263. This ground is accordingly dismissed. 40. Now we will consider the various grounds raised by the assessee in regard to various issues: 41. Vide ground no. 11 the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king to qualify for exemption under the said section. In this regard ld. CIT referred to the decision of Hon'ble Delhi High Court in the case of CIT Vs. Mohun Foods Ltd. 177 Taxmann 274, wherein it has been held that the true test of industrial undertaking is not, whether new industrial undertaking connotes expansion of existing business of assessee, but whether it is of the same new and identifiable undertaking separate and distinct from existing business. Ld. Commissioner pointed out that the AO failed to examine whether the different industrial units as claimed, actually existed independently or the same were only expansion of the existing business. (b) No separate books of account were maintained for each unit eligible for exemption u/s 10B of the Act. He pointed out that common books of account of the entire business units were maintained and only at the end of the period, for the purpose of computing deduction/ exemption under the Act, the expenses were allocated to said units to prove from branches. This issue was not at all examined by AO. (c) Ld. Commissioner observed that though assessee was maintaining books of account but for the purpose of computing the profits o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he detailed reply filed by assessee on 30-3-2010 contained at pages 346 to 370 of PB-I and specifically referred to page 353 wherein the assessee's reply in regard to grant of deduction u/s 10B is contained. 43.1. Ld. counsel submitted that addition made by AO by denying deduction u/s 10B was deleted by ld. CIT(A) and, therefore, in view of explanation (c) to section 263, the CIT's jurisdiction was ousted. He referred to explanation (c) to Section 263, which reads as under: "(c) where any order referred to in the sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal." 43.2. With reference to above explanation, ld. counsel pointed out that the meaning of the word 'matter' has to be considered. 43.3. Ld. counsel referred to the decision of Hon'ble Supreme Court in the case of Jute Corporation of India vs. CIT 187 ITR 688 to submit that the appellate authority is vested with all the plenary powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirm that all exports of software tantamount to transfer of all ownership and property rights without recourse to recall of resumption of titles." 43.7. Ld. counsel further referred to pages 774,775, 778 to 794, wherein the replies filed by assessee on various issues raised by AO are contained. 43.8. Ld. counsel further referred to page 795 wherein the questionnaire dated 10-1-2006 is contained, wherein AO had, inter alia, raised following query: (3) In support of export of software by you please provide year- wise details of exports made along with reference of softex forms issued by STP authorities with sample copies thereof." 43.8.1. The reply to AO are contained at page 796 vide letter dated 17-1-2006. 43.9. Ld. counsel further referred to page 857 wherein the questionnaire dated 17-3-2006 is contained, in which AO had required the assessee to furnish following details: "3. Necessary approvals and compliances to be eligible for exemption/ deduction u/s 10B of the Income tax Act." 43.10. The assessee's reply is contained at page 858, in which assessee had submitted the following details: "(1) The assessee is eligible for exemption u/s 10B of the Act. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43.16 . Ld. counsel referred to page 900 of PB, wherein the CIT(A)'s order dated 27-9-2006 is contained. He pointed out that ld. CIT(A), after detailed consideration of facts allowed the assessee's appeal. 43.17. Ld. counsel further referred to page 909 of PB, wherein the CIT(A)'s order dated 27-9-2006 for AY 2001-02 is contained, wherein the issue regarding allocation of expenses between EOU and non EOU units was considered and it was held that the allocation made by the assessee of common expenses between EOU and non EOU could not be disturbed. In sum and substance, he, therefore, submitted that AO had duly examined the issue of allocation of expenses. 43.18. As regards the ld. Commissioner's objection that nature of export was not examined by AO, ld. counsel referred to page 773 and 774 of the PB and pointed out that AO had required the assessee to explain with evidence, how the software was physically exported. It was further required by the AO that assessee should confirm that all exports of software tantamount to transfer of all ownership and property rights without recourse to recall or resumption of titles. 43.19. He referred to page 774 and pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g issues, AO failed to conduct inquiries and accepted the assessee's reply on its face value, without any verification and application of mind. Therefore, the order of AO was erroneous and prejudicial to the interests of revenue: (i) Eligibility of the unit for the claim of deduction, in regard to which it was incumbent upon the AO to place preliminary details on record to demonstrate that t he unit continues to fulfill the conditions for the eligibility. (ii) Allocation of expenses between EOU and non EOU. (iii) Non verification of revenues of EOU. (iv) Loss on foreign exchange fluctuation not allocated to EOU. 44.1. He submitted that issue with regard to deduction u/s 10B has two broad categories (a) Eligibility of the unit for the claim of deduction u/s 10B; (b) Quantum of deduction u/s 10B. 44.2. Ld. Special Counsel fairly submitted that: (a) The claim of eligibility will need in depth examination in the initial year and in subsequent years, only fulfillment of conditions based on changes in facts, if any, will need to be examined; (b) The determination of income, which would be entitled for deduction will need to be examined each year with reference to the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted out that AO failed to obtain the details of total expenses under each head and how it had been allocated to the EOU units. The AO proceeded to accept the reply of the assessee without bothering to obtain at least elementary details of the total expenses, allocable expenses and the allocation key in the year under appeal. 44.6. He submitted that since AO failed to carry out the basic inquiries and details were not placed on record, therefore, it comes within the ambit of lock of inquiry and complete non-application of mind. AO had simply made a pretence of inquiry. Further he referred to page 29 of the ld. CIT's order and pointed out that the ld. CIT has scanned the audited accounts of the eligible unit on the said page. In this, the auditors have only preferred to state that the indirect expenses to the EOU had been allocated on appropriate basis. He submitted that it is anybody's guess what that appropriate basis was. He pointed out that such a certificate from the auditors should have immediately alerted the AO for going into the primary and basic details instead of accepting the claim on its face value. 44.7. Ld. Special Counsel further submitted that even before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be apportioned proportionately." 44.9. Ld. Spl. Counsel referred to following Questionnaire dated 29-12- 2005, :- 9. It is claimed that export of software is physical export of article or thing. Please explain with evidence how the software is physically exported. Further confirm that all exports of software tantamount to transfer of all ownership and property rights without recourse to recall of resumption of titles." 44.10. Ld. Special counsel submitted that out of the gross revenue of Rs. 5,26,79,28,616/-, the revenues of EOU amounted to Rs. 1,54,79,36,325/-. He submitted that for the amount of revenue, neither the assessee filed nor the AO called for any details to arrive at the figure shown in the return. Thus, there was certainly lack of inquiry on this preliminary aspect. Ld. Spl. Counsel referred to page 774 and 778 of the PB, wherein the assessee's reply is contained to buttress his submission that no details were filed by assessee. Ld. Special counsel referred to page 779 and pointed out that softex forms were primarily exchange control declaration regarding export of software and AO accepted these forms without verifying whether the same formed part of export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties in respect of which disallowance was made by the AO was deleted by ld. CIT(A), Ld. Spl. Counsel submitted as under: "Counter submissions of Revenue "It is submitted that in the course of assessment proceedings, the Assessing Officer only took details of export of Softex Forms issued by STPI, but the AO did not verify whether software was actually exported or the payments were in reality received in relation to transactions not amounting to export of software. In this connection, reliance was placed on the assessment order passed u/s 153A of the Act for the relevant assessment year, wherein the AO had disallowed deduction u/s 10B claimed with respect to six invoices raised on Kwetliso Holding on the ground that the same were receipts of technical knowhow fee and not in relation to actual export of Software (TRM). Revenue would like to submit that the AO failed to conduct the basic and primary enquiry with regard to nature of the so called export revenue. The glaring example is with regard to the export made to 15 parties indicated by CIT in his revisionary order. There was absolutely no material placed on record to indicate that these represented export of TRM and not fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals. In respect of above three items the CIT exercised his power u/s 263. Main contention of the assessee was that since the order of the ITO was subject matter of appeal before ld. CIT(A), therefore, the said order merged with the order of ld. CIT(A), ousting the jurisdiction of ld. Commissioner. This plea was rejected by Hon'ble Supreme Court and it was held that in view of Explanation (c) to section 263, the Commissioner had power u/s 263 in respect of the impugned three items. 44.18. The Hon'ble Bombay High Court in the case of Ritz Ltd. (supra), while considering the scope of explanation (c) to section 263, observed that the legal position as laid down in CIT Vs. Muncherji (P) and Co. 167 ITR 671 and CIT Vs. Smt. A.S.Narendrakumari Basaheba 176 ITR 515 is that once an order of assessment is subject matter of appeal, the whole of it merges in that of the appellate order, nothing survives. The Hon'ble Bombay High Court, inter alia, observed as under: " The Explanation was then evidently prospective with effect from June 1, 1988. In the present case, the appeals having been not only filed but also disposed of before that date, this Explanation would have no effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en for revision by the CIT u/s 263. 44.20. Ld. Special Counsel submitted that the word "matter", used in clause (c) of the Explanation includes only such matter as are agitated before the CIT(A) or which CIT(A) examines or considers suo motu in exercise of his plenary powers. It is not open to urge that if an appeal is filed and decided by appellate authority, the entire issue in its broad spectrum is ousted from the purview of consideration by the Commissioner. 44.21. In regard to reliance placed by assessee in the case of Sujata Grover (2002) 74 TTJ 347 (Del.), Ld. ld. Special Counsel submitted as under: "The case relied upon by the Ld. Counsel for the assessee are clearly distinguishable on facts in the case of Sujata Grover (2002) 74 TTJ 347 (Del.) the expression "any other receipts of similar nature" as appearing in Explanation (baa) to Section 80HHC was considered and decided by CIT(Appeals) in respect of foreign exchange fluctuation. CIT sought to exclude 90% of such fluctuation. It was in this back drop that the exercise of powers by CIT was found as being not justified. In the present case, there is complete lack of enquiry with regard to receipts from various parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken u/s 153A, since the documents found had nexus with the claim of deduction u/s 10B. He submitted that some nexus is necessary but no direct nexus is necessary for assuming jurisdiction u/s 153A. He submitted that the plea advanced by ld. counsel is factually incorrect and legally not sound. 44.25. Ld. Special Counsel reiterated his submissions made earlier in this regard vide ground no.9 and pointed out that the assessment in the year was completed u/s 143(1) without reference to any books of account or other documents. Therefore, the books of a/c found in course of search, inter alia, constitute material seized in the course of search. 55.27. Ld. Special Counsel referred to pages 759 to 764 of the PB to demonstrate that the notice issued to assessee was based on scrutiny of seized material. 55.28. As regards the assessee's plea that ld. Commissioner has not given any specific finding further and had not considered the replies filed by assessee in course of revisional proceedings, ld. Special Counsel referred to page 6 of CIT's order to demonstrate that Commissioner has pointed out at various places in his order that failure of AO to conduct inquiries had resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 30-5-2014 in the case of HCL Technologies Ltd. Vs. ACIT (supra) wherein it had been held that it is beyond the power of the AO to examine whether the undertakings were formed in the earlier years by splitting up or reconstruction of existing business. Therefore, this could not be held to be a case where AO had not applied his mind to the assessee's claim regarding eligibility u/s 10B and, therefore, this, in our opinion, does not come within the revisionary powers of ld. CIT. Therefore, we hold that , as regards the eligibility of claim u/s 10B, the revisional proceedings taken were not in accordance with law. 56.1. The second limb of this issue is regarding determination of assessee's claim u/s 10B. On this count, the first aspect, which has been raised by ld. CIT in his order, is regarding allocation of expenses to non-taxable units. Ld. CIT's main objection was that the common expenses had not been allocated on an appropriate basis. He also, after considering the assessee's reply, observed that assessee's reply was quite dumb and it had not given any bifurcation or specific distribution of expenses between EOU and non EOU units. The contention of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if a particular aspect permeates through all the assessment years within the block period then, if, in one year the issue has been examined by ld. CIT(A), then doctrine of merger will not apply to other assessment years. However, ld. CIT has clearly demonstrated that the issue of allocation of expenses was not examined in assessment year 2001-02. In view of above discussion, we concur with the finding of ld. CIT on this issue. 56.5. The next objection of ld. CIT was that the assessee was not maintaining separate books of account for each eligible undertaking. The assessee's submission was that the accounts were maintained through FAMS/ SAP software, which contained separate code for each head of expenditure and for each of the units of the asessee. We find that this reply of assessee was sufficient enough for dropping the objection raised on this count by ld. CIT. We further find force in the submission of ld. counsel for the assessee that in view of the decision of Hon'ble Supreme Court in the case of Bongaigaon Refinery and Petrochemical Ltd. 349 ITR 352 and CBDT Circular no. 01/13 dated 17-1-201, in any view of the matter, non- maintenance of separate books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liso Holdings was in lieu of technical know how fees as opposed to export of technical reference material Softec. These findings were reversed by ld. CIT(A). The AO was required to bring the primary facts on record in respect of all the invoices and not bringing the said details on record resulted into error creeping into the assessment order, which caused prejudice also to the revenue. 56.8. We do not find much substance in the submission of ld. counsel for the assessee that it is a case of merger with CIT(A)'s finding because CIT(A) deleted the disallowance made by AO. The same finding will be relevant only with reference to the invoices considered by AO and not with respect to invoices in respect of rest of the parties. We accordingly uphold the order of CIT on this aspect. 56.9. The next aspect is regarding non allocation of foreign exchange fluctuation loss to EOU unit. In this regard we find that assessee in its reply had pointed out that loss of Rs. 2.76 crores did not pertain to EOU units. The assessee had further pointed out that in Schedule 15 of the profit and loss account under the head "Revenue from operations" it is clearly stated that net gain of Rs. 4,66,35,66 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-11-2005 directed the assessee to furnish details of interest paid and interest received. In response thereof, the assessee, vide letter dated 14-11-2005 furnished complete details of interest income and interest paid. It was further submitted that it could not be held that the AO did not examine the details of interest income and interest expenses. The assessee further stated that by netting off of interest income against interest payment, no prejudice was caused to the revenue, as is evident from the following: (a) The assessee has not claimed any deduction under section 10B of the Act on the entire int4erest income of Rs. 13,08,53,750. This is clearly evident from the Profit & Loss Account of the EOU Units wherein the assessee has merely shown receipts on account of income from operation; (b) Finance charges, including interest paid, aggregating to Rs. 1,74,36,330, which are relatable to the EOU unit has been debited and reduced from the Profit & Loss Account of the eligible unit; (c) Even if the entire interest income of Rs. 13,08,53,750 were to be assessed as income from other sources, as against the same being presently assessed as income from business, there would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated to business of EOU, was not credited to the P&L A/c of EOU unit and consequently no deduction u/s 10B of the act was claimed on the aforesaid amount. Ld. counsel further submitted that Ld. Commissioner wrongly proceeded on the premise that no allocation of interest was made to EOU units. On the contrary, exact interest was debited to respective units. He clarified that in the consolidated account of the assessee company as a whole, the interest income was netted against the total interest expenditure and net interest expenditure of Rs. 3,94,95,436/- was debited to the profit and loss account under the head 'administration and others'. In this regard he referred to page 1062 of PB Vol. III, wherein, schedule, forming part of P&L A/c, containing details of administration and other expenses is contained and pointed out that description and disclosure of both, interest received and interest paid was as under: Interest on: Fixed Loans 105,456,846 Other Loans 64,892,340 170,349,186 Less: Interest Received: From Deposits 59,729,499 From Loans 14,700,000 From others 56,424,251 130,853,750 58.2. Ld. counsel pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner that the AO did not make any inquiry. Therefore, he submitted, at best it could be a case of inadequate inquiry and not lack of inquiry. As regards the ld. Commissioner's observation that the interest income should have been assessed under the head "income from other sources", ld. Counsel pointed out that since interest expenditure relating to EOU unit was allocated to such unit and no part of interest income was credited to that unit, even if the entire interest income were to be assessed as "income from other sources" as against the same being presently assessed as 'business income', there would have been no effect on the final gross taxable income of the assessee and, therefore, there was no prejudice caused to the revenue from the aforesaid alleged non-examination by the assessing officer. 58.6. Ld. Counsel further submitted that this issue was out the scope of jurisdiction of AO u/s 153A because no incriminating material/ evidence was found during the course of search in respect of this issue. 58.7. He further submitted that ld. Commissioner did not give any specific finding or pin point the error and prejudice from the alleged non- verification, insufficien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind and lack of enquiry. 59.2. As regards the submission of ld. counsel that the issue was out of the scope of section 153A, Ld. Special Counsel submitted that the accounts of the assessee as also its EOU units were found during search and this gave the necessary nexus for the issue, which was never looked into hereinbefore, to be examined u/s 153A. 60. We have heard rival submissions and perused the material available on record. From the replies filed by assessee and the submissions made on behalf of the revenue it is evident that the assessee had returned the interest income of Rs. 13,08,53,750/- as income from business. The very amount of receipt should have prompted the AO to resort to detailed inquiry on this issue. It is settled law that the order is prejudicial to the interest of revenue if AO does not apply correct position of law to the facts of the case. If the income was assessable under the head "Income from other sources", but was returned as "Income from business", then it could not be said that even if on ultimate analysis no loss is caused to the revenue, the order is not prejudicial to the interest of revenue. The phrase "Prejudicial to the interest of revenue" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciate that in the absence of one-to-one nexus between the funds borrowed for purpose of business and those diverted interest free, the assessing officer had rightly not made any disallowance of interest in the original assessment. 61.4. Brief facts apropos these issues are that assessee had borrowed various loans from financial institutions as noted in ground no. 12, on which interest of Rs. 17,03,49,186/- had been paid and claimed the same to be adjusted against interest income. However, ld. Commissioner observed that assessee had made various investments to the tune of Rs. 57.20 crores and also given various loans and advances etc. on which no interest had been charged. Ld. commissioner referred to the reply filed by the assessee, which has been considered by the Commissioner in ground no. 12 regarding maintenance of common pool of funds and pointed out that the contention of assessee was based on presumption. He pointed out that direct nexus between interest free funds and interest free loans/ advances has to be proved. If the interest free loans/ advances had been given from interest bearing funds, then it is clear that the interest expenses had not been incurred for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in those countries. 62.2. Ld. counsel pointed out that since the entire investments/ loans and advances were made/ given in the course of the business, therefore, entire expenditure was allowable u/s 36(1)(iii). In this regard ld. counsel relied on various case laws given in the written submissions. 62.3. He further pointed out that no disallowance was called for u/s 14A, because the investments were made in foreign companies, the dividend wherefrom was not exempt. 62.4. Ld. counsel further submitted that the presumption of interest free funds out of own funds is always in favour of assessee in case of mixed pool of funds. In this regard also ld. counsel relied on various case laws given in the written submissions. He, therefore, submitted that in any view of the matter, since own funds of the assessee far exceeded investments made/ loans advanced, the presumption would be that the same were out of interest free funds available with the assessee. 62.5. Ld. counsel further referred to pages 1052 and 1053 of the PB and submitted that borrowed funds were substantially repaid by the assessee inasmuch as borrowings reduced to Rs. 105.53 crores as at the end of the relevant year from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f interest paid at page 971, ld Spl. Counsel submitted that only details of interest paid on various loan account from business were given and at page 973 details of interest received were given. 63.2. Ld. Special counsel further referred to page 1046, wherein the balance-sheet and tax audit report is contained. He pointed out that at page 1055, the details of investments are contained. All these investments were mainly in equity shares of different companies. Thereafter, ld. Spl. Counsel referred to page 1058, wherein the loans and advances including loans to subsidiaries are contained. With reference to all these details, ld. Spl. Counsel submitted that no details regarding common pool etc., were furnished by assessee. 63.3. Ld. Spl. Counsel referred to page 312, wherein assessee's reply to show cause notice is contained, in which the assessee submitted that interest bearing funds were utilized for business purposes and not for making interest free advances and investment was not correct because assessee had mixed pool of funds, comprising of own funds in the form of share capital and reserves and interest bearing funds in the form of loans. He submitted that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not carry out any inquiry so as to come to the conclusion that the interest free advances were out of interest free funds. The submission advanced by assessee for the first time before ld. CIT was that it was having mixed fund and, therefore, the presumption was that the borrowed interest bearing funds were utilized for business purposes and the advances or loans and investments were to be presumed to have come out from interest free funds available with the assessee. There is no quarrel with this proposition in principle. But the AO was required to bring at least primary facts on record before applying this proposition to the facts of assessee's case. He had to at least consider whether there were sufficient interest free funds available with assessee or not. The AO had merely called for the details of interest received and paid, but did not examine this issue from the legal point of view. Thus, it was completely a case of non-application of mind by AO. 64.1. Ld. special counsel has rightly submitted that on careful examination of material facts, the entire interest may be allowed but for the present we are only to examine whether the primary issue of conducting necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature that merely facilitate the carrying on of the business more profitably and efficiently leaving the fixed capital untouched and, therefore, it could not be regarded as capital expenditure. The assessee also filed sample copy of AMC agreement. The assessee also referred to the decision of Hon'ble Supreme Court in the case of CIT Vs. Saravana Spinning Mills P. Ltd. 293 ITR 201 (SC), wherein the test for determining, whether the expenditure would constitute current repairs, allowable u/s 31 of the Act, has been laid down. 65.2. Ld. CIT, after considering the assessee's reply, set aside the assessment order on this issue and restored the matter to the file of AO for fresh consideration for the following reasons: (i) No break up of the expenses were called for by the AO during the course of assessment proceedings. (ii) No details of the expenses were filed by the assessee before the AO, which fact is not disputed. (iii) The case laws and other contentions can only be judged after details of expenses debited under the head "repairs". (iv) The AO did not verify the genuineness and allowability of these expenses. (v) Capital expenditure, if any, included in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He submitted that the onerous and time consuming task of verifying each and every expense has been assigned to the tax auditor who is required to go through the books of account, examine/ audit the expenditure incurred and report the items of disallowance in the report to be furnished u/s 44AB of the Act. He submitted that u/s 263 the CIT cannot direct fresh enquiry into issues on pure conjectures and surmises. Ld. counsel submitted that the direction to the AO to undertake fresh examination, without reaching any prima facie finding as to the incorrectness of the claim of an assessee, is beyond jurisdiction of CIT u/s 263 of the Act. 66.5. Ld. counsel also reiterated his submissions as regards the issue being beyond the scope of jurisdiction of AO u/s 153A. Ld. counsel further submitted that in earlier years this expenditure has been allowed. As regards the proposition that mere "no inquiry" does not automatically lead to justification of 263 proceedings. Ld. counsel relied on following decisions: (1) DLF Ltd. (PB 1227) - He submitted that in this case it has been held that CIT must pin point the error and prejudice caused to revenue. (2) Gulmohar Finance 170 Taxmann 483 (3) 341 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered as capital expenditure. In our opinion since the present issue comes within the ambit of lack of inquiry, therefore, ld. CIT was justified in setting aside the issue to the file of AO for examining the entire issue as per law. In the result, this ground is rejected. 69. Vide ground no. 15 the assessee has assailed the order of ld. CIT in holding that the steep rise in course execution charges incurred by the assesee was accepted by the AO without any verification and inquiry. The grievance of the assessee is that ld. CIT failed to appreciate that the issue was duly examined by the AO during the original assessment proceedings and, therefore, was not amenable to revisionary jurisdiction u/s 263. 69.1. Brief facts, apropos this issue are that during the year under consideration the assessee had claimed course execution charges of Rs. 119,81,32,796/- as against the sum of Rs. 57,59,53,934/-claimed in the immediately preceding year. Thus, the assessee had returned more than 108% increase in the above expenses during the year under consideration. He further noted that in the corresponding revenues, there had not been any such proportionate increase. He pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to AO for fresh consideration. 69.5. Ld. counsel for the assessee reiterated the submissions made before ld. CIT and referred to the query raised vide letter dated 2-11-2005 and 29-12- 2005 noted earlier, which were replied by assessee. 69.6. Ld. counsel further submitted that AO vide notice dated 8-2-2006 contained at page 859 of the PB, specifically required the assessee to explain the reasons behind increase in aforesaid expenditure vis a vis the last year. The said query reads as under: "Please give justification for increase in the following expenses in the assessment year 2001-02: Courseware & Manuals Bought out package Courseware execution expenses Other equipment hiring Course announcement" 69.7. Ld. counsel referred to pages 960 to 962 of the PB, wherein the assessee had submitted its reply, which reads as under: "Courseware Execution (Rs. 17647.02): These payments were made to business partners which are directly linked with revenue. The percentage of expenses works out to 30-32% as compared to 22% in the previous year. (F.Yr 1997-98). The percentage is higher due to change in mix business with the franchisees between metro and network centre." 69.8. With ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s i.e. domestic units only. Also related revenue is booked in domestic area." 69.13. With reference to above queries and replies, Ld. counsel pointed out that AO had specifically examined the impugned issue during the course of assessment proceedings and the expenditure was allowed after due application of mind and formation of his view on the issue. 69.14. Ld. counsel further submitted that even if it is considered to be a case of inadequate inquiry, then too ld. CIT was required to give specific finding, pin pointing error and prejudice to the revenue. Ld. counsel pointed out that before ld. CIT, vide reply dated 19-3-2010, contained at page 291 to 294 of PB, it was clearly explained that from AY 1999-2000 onwards the assessee had changed the business model of disbursement of business to licensees towards execution of courses at Satellite Centres (STCs) and network centers (NWCs). It was clarified that increase in course execution charges was mainly due to the reasons, which have been summarized in the chart of issues, as under: (a) From AY 1999-2000 onwards the assessee had changed the business model of disbursement of fees and licensees towards execution of courses at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee had submitted the break up of course execution expenses vide Annexure 6, contained at page 948 of the PB. Ld. counsel pointed out that the payments were made to unrelated parties, who joined hands with assessee to run business execution centers. He submitted that reasonableness of the expenditure could not be examined by ld. CIT. Mere increase in expenditure, does not entail disallowance. 69.17. Ld. counsel reiterated his submissions in regard to scope of jurisdiction of AO u/s 153A and submitted that no undisclosed income/ property or any incriminating documents suggesting income escaping assessment qua aforesaid issue was found in the course of search. 70. Ld. Special Counsel in reply referred to page 41 of CIT's order and pointed out that there was 108% increase in course execution charges. Ld. Spl. Counsel referred to page 959 of PB, wherein the AO's query dated 8-2- 2006 is contained and pointed out that said query was with reference to assessment year 2001-02 and not with reference to assessment year 1999- 2000. Hence, there was no query qua increase in the aforesaid expenditure during the year under consideration. Accordingly, the reply of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... testing of Microsoft certified courses, copywriting, editing translation, certificate writing mean for student etc. 71.2. However, ld. CIT did not take into consideration the further query raised by AO vide letter dated 8-2-2006, contained at page 959 of PB wherein he has specifically required the assessee to give justification for increase, inter alia, in course execution expenses. This was duly replied by assessee vide reply dated 27-2-2006 contained at pages 900-961, wherein assessee, inter alia, specifically pointed out as to why the percentage of expenses worked out 30-32% as compared to 22% in the FY 1997-98. Therefore, the very premise of ld. CIT, in holding the order as erroneous and prejudicial to the interest of revenue, does not survive. Once the AO had applied his mind to this issue, then at best this issue could be held to be a case of inadequate inquiry and, therefore, ld. CIT was required to give his findings as to how the assessment order was erroneous and prejudicial to the interest of revenue. Ld. CIT has not given any such finding and, therefore, we are not inclined to accept the finding of ld. CIT on this issue. In the result, this ground is allowed. 72 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this issue. 73. We have heard rival submissions and perused the material available on record. This issue relates to allowing of assessee's claim regarding bad debts. Ld. CIT held the order as erroneous and prejudicial to the interest of revenue on the ground that AO failed to examine the satisfaction of the conditions laid down in section 36 of the I.T. Act. 73.1. Ld. CIT has not disputed that the bad debts had been written off in the books of account. It is now settled law that post 1-4-1989, the only requirement for allowing bad debts is that the same should have been written off in the books of account. The assessee in its replies had given the details of bad debts written off. Ld. CIT has not disputed that the impugned debts were trade debts. Therefore, it could not be said that the assessment order was erroneous, in any view of the matter, as the assessee's claim was legally sustainable. If assessee's claim is legally allowable and the quantum of amount claimed is not disputed by ld. CIT, then it cannot be said that the assessment order was erroneous and prejudicial to the interest of revenue. We, accordingly, are not inclined to accept the finding of ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (33). However, no disallowance was made u/s 14A by the AO. Therefore, the assessment order was erroneous and prejudicial to the interests of revenue. 75.1. Ld. counsel referred to page 300 of the PB, wherein the assessee's reply dated 29-3-2010,in this regard, is contained, wherein assessee had, inter alia, submitted that: (a) Ld. CIT did not pin point, which part of the expenditure had been incurred to earn the aforesaid exempt income. A sweeping allegation has been made in the show cause notice that some expenditure must have been incurred to earn the exempt dividend income. (b) In the following cases, it has been held that it is incumbent upon the CIT to record prima facie finding as to how the assessment was erroneous and resulted in prejudice to revenue: - 98 ITR 1 (Kar) - 111 ITR 326 - 199 ITR 424. (c) As per the proviso to Sec. 14A, the AO does not have jurisdiction to pass an order enhancing the assessment of the assessee or reassess the income invoking section 14A of the Act. Therefore, ld. CIT also could not enhance the assessment by invoking the provisions of sections 14A. (d) Kochin Bench of the ITAT in the case of Paul John Delicious Cashew 280 ITR 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not taking away or whittling down retrospectivity. Only power u/s 147 and 154 has been taken away from AO and this is the only import of proviso and section 263 cannot be read into it. He submitted that the Circular no. 14 of 2001 ( page 86 of 252 ITR (Stat.) has no application with reference to section 153A. 77. We have heard rival submissions and perused the material available on record. Admittedly no query qua applicability of section 14A was raised by the AO during the course of assessment proceedings and, therefore, it was a case of lack of enquiry which justified the action of the CIT. Section 14A is a specific section for making disallowance in respect of exempt income. Therefore, the AO was duty bound to consider the applicability of section 14A, particularly because the assessment was finalized by AO on 1- 6-2006, which date fell after the date given in the Circular no. 14 of 2001. The AO has to pass a fresh assessment order u/s 153A and in doing so he has to consider the applicability of all relevant provisions of Act. This aspect we have considered in detail while dealing with legal ground in this regard. As far as decision in the case of Paul John Delicious Cashew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndian customers at client sites under the 'Annual Maintenance Contracts' entered into between the parties. Under these contracts, the assessee agreed to supply upgrades to Indian customers free of cost and render technical support services. (b) The contracts with Indian customers of assessee were independent of the contracts entered into by the assessee with foreign suppliers for application software/ upgrades. (c) Payment to foreign suppliers by the assessee was made solely for purchase of software updates/ upgrades. (d) The imports of the software upgrades are evidenced by the sales invoices and bills of entry submitted by the assessee during the course of assessment vide letter dated 14.11.2005. (e) In view of above facts, no tax was required to be deducted at source there-from by the assessee. (f) The commercial invoices raised on the assessee by the foreign suppliers were not carrying the words 'Annual Maintenance Contracts' or 'Annual Support Service '. Such contracts were in fact entered into between the assessee and the Indian customers and the foreign suppliers were not a party to these contracts. (g) Under these contracts with the India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance billing." There is clear reference of annual maintenance and is not pertaining to early recovery/ settlement of outstanding dues, as claimed by the assessee. iii) Email dt. 09/11/2000 from Mr. Sunanda Singh of ESB department in NIIT Ltd. To Mr. T.S. Thomas which reads as under "Kindly have a P.O. generated against our PR # 1006401 as per details below. Vendor: Mechanical Dynamic Inc. USA Amount: USD 3990 Delivery: 30 Nov. 2000 This is an AMC order. Please have the item description as per your convenience. " Emphasis supplied The language of this e- mail is itself very clear and self speaking. This e-mail shows that bogus purchase order were raised to remit money for AMC contracts iv) Purchase orders were issued to cover the payments of technical service is evident from the fact that even before receipts of Material! Software upgrades by the NIlT, the NIlT has sold the Material! Software upgrades to Indian Customers. The above evidence on record shows that payment of remittance were made to overseas supplier for annual maintenance charge/ Technical services and purchase order of imports were fictitious and bogus. By accepting the purchases order as genuine the A.O. erred an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering design and simulation. 3. When NIIT re-sells such imported software in the Indian market, we ensure that the existing customers get there incremental updates/upgrades on a regular basis so that they are always using the latest version. For the purpose, we keep purchasing the update/upgrade software on a regular basis from the principal and provide them to our customer in India. 4. All imports are through proper Custom channel and payment through banks after submission Bill of Entry and other documents to the bank. 5. All maintenance contracts are for the softwares supplied by principals and installed at client site by us. After warranty period is over, the customer desires technical support which is provided by us which also includes supplying upgrades. These upgrades are imported from the principals and supplied to the customer. The technical support in terms of maintenance, upkeeps and other technical problems are taken care by us. 6. To provide technical support for maintenance of software supplied to and installed at clients site we have technical team with us. 7. We have our own team of technical persons who provide Annual Maintenance services to the client at their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stributor Agreements with different Principals for buying their software/upgrades and selling in India, as per terms and conditions of the agreement on "stock and sell" basis. b. It is wrong to state that the imported items were actually stuff of small or rather nil value, which could not be sold in India. All upgrades imported by us were against annual contracts signed by NIIT Ltd with Indian clients. These were supplied to the clients against annual maintenance contracts. This was part of the obligations of annual maintenance contract. c. It is true that invoices raised on clients carry the word "annual maintenance contract". Providing free-upgrades is part of obligation of contract for which separate invoice is not raised. d. Sample copy of sale invoice is submitted to the department vide our letter dated 27/02/2006 in respect of Assessment year 2001-02. e. The price variation is on account of number of users and therefore cannot be constant or fixed. f. In the case of government and semi government clients, to release payment in advance the clients need advance invoice to enable them to sign contract and release the payment. This is the general practice of the trade. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial piece of evidence in the aforesaid matter is the original email dated 17.11.2000 (which was enclosed as Annexure --- from Mr, Rod Duce, Vice President, Business Development (for Asia Pacific region) of the Convergent Group, who was then based in Singapore, which inter-alia stated that "The Model Office is not a stand alone piece of software but a step in designing and structuring the relevant functionalities to build our own 'Digital. Utility' solution, whereas the aforesaid agreement dated 22.9.2000 was manipulated by NIIT Limited to give description therein as Model Office Software' and went on to give description therein as Model Office Software and went on to give it a piece of USD 2 Million which was grossly over-stated. d) It is noteworthy to point out that during searches a note written by Shri Rajesh Mathur, Vice President with NIIT GIS Limited was seized wherein he had recommended import for marketing right in South Asia, whereas the fact is Ms Convegent Group, USA did not extend marketing right for South Asia to NIIT Limited since they had their office in Singapore. You are .requested to produce any evidence regarding usage made of the software, as it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are; Covergent Model Office Software Energy Network Object Model (ENOM) core. (vide our letter dated 27-2-2006). NIIT Limited imported the above mentioned software to be used to set up the basic infrastructure for the centre of competence of ENOM under Corporate Group. There were two objectives: - To provide a training area for sales and support staff who would be engaged in re-selling the product. - To provide platform for usage and study for technical staff to grasp the functionality of software, so that they have a capability to port the software to another platform. The Software was installed for easy access to the staff members needing the system at that time.(vide assessee company's letter dated 14-11-2005) The allegations made against us are incorrect as the same is evident from the above that the company imported software only and not technical services. The same was imported through normal physical import through customs. List of Relevant import documents have already been submitted vide letter dated 14-11-2005; a) Copy of Agreements b) Copy of purchase Order & Requisition c) Copy of invoice d) Copy of Download Certificate. e) Copy of letter of Intimation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2005, the relevant faces (facts) are given below : 1. The company keep purchasing the update/upgrades software on a regular basis from the principal and provide them to their customer in India. 2. All imports are through proper custom channel and payment through banks after submission bill of entry-and other documents to the bank. 3. All maintenance contracts are for the softwares supplied by principals and installed at Clients site by the assessee. After warranty period is over, if the customer desires technical support is provided by the assessee, which includes supplying upgrades. These upgrades are imported from the principals and supplied to the customer. The technical support in terms of maintenance, upkeep and other technical problems are taken care by NIIT Ltd. 4.To provide technical support for maintenance of software supplied to and installed at clients site . 5. NIIT Ltd. Have their own team of technical persons who provide Annual Maintenance services to the client at their sites. There is no technical service provided by the foreign principals. 6. NIIT Ltd. have imported upgrades, which are of small value; there is no question of deducting tax at source as the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to foreign suppliers cannot be treated as fee for technical services. He submitted that in the present case, no technical services were made available by foreign suppliers to recipient of service being Indian customers. 78.17. Ld. counsel also referred to India-UK treaty (346 ITR 564); India- Netherland Treaty (346 ITR 469), in support of his contention. 78.18. Ld. counsel further referred to 91 ITD 133 and submitted that the payments were not in the nature of fee for technical services since they were in the nature of repairs. He pointed out that the required technical support/ maintenance upkeep and other technical problems on site of Indian customers were provided by the assessee through its employees/ technical personnel and there was no technical service provided by the foreign/ over- seas suppliers. He pointed out that it is a matter of record that no employee from foreign distributors at any point of time travelled India for the purpose of rendering the aforesaid alleged service, nor there was any allegation in the impugned order u/s 263 of the Act. The fact that there was actual physical control of upgrade/ update of software, was clearly intended from the purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in the hands of foreign suppliers, set aside the assessment order. He submitted that ld. CIT was required to record finding on merits of the matter. 78.23. Ld. counsel further submitted that the allegation that all the sale invoices carried the words "annual maintenance contracts" or "annual support service" is with reference to sale invoice raised by the assessee on Indian customers, which carried the particulars as "annual maintenance contracts". He pointed out that ld. CIT, it appears, proceeded on wrong factual premises that the said words appeared in the invoices raised on the asessee by the foreign suppliers. In this regard ld. counsel referred to the notice dated 10-2-2006 contained at page 451, reproduced earlier and the assessee's reply contained at pages 455-456 reproduced earlier. 78.24. As regards the emails found during the course of search written by Mr. Phillips Dode of Mesa (Manager- foreign supplier) dated 21-9-2004 to Mr. Rajesh Mathur (NIIT Delhi), in order to appreciate the import of impugned e-mail. Ld. counsel referred to pages 1158.72 vol. IV of the PB, wherein the impugned e-mail is contained and pointed out that the said e- mail was fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yee (including non-resident payee), if no attempt is made to assess income of such payee. - Van Oord ACZ India (P) Ltd. V. CIT 323 ITR 130 (Del.); - Mahindra and Mahindra Ltd. V. DCIT 313 ITR 263 (Mum.)(SB)(AT). 79. Ld. Special counsel submitted that payments towards AMC was made to foreign suppliers in the garb of software import. He pointed out that e- mail found during the course of search specifically talked of AMC. He submitted that keeping in view the contents of e-mail, the main issue which should have been examined by AO was whether the payment was for software supplies or for services. He submitted that the e-mails found during the course of search constituted incriminating material. He referred to the replies of assessee contained at page 455 and pointed out that no reply to that part of e-mail where it says that it will revert back to annual maintenance billing, was given. 79.1. Ld. Spl. Counsel further submitted that the most crucial document in the form of distributor agreement had not been brought on record by assessee before the AO and the AO also did not call for the same. He pointed out that assessee did not question the correctness of e-mail in any of its repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in timely receipt of such payments, they threatened to exercise their right to annual maintenance billing which was the true character of these payments. The email clearly showed that the remittance was falsely shown as being for software upgrade. This email formed part of search material. The CIT also referred to, on page 50 of his order, to another email dated 09.11.2000 from Mr. Sunanda Singh of ESB department of the assessee which reads as under: "Kindly have a PO generated " "This is an AMC order. Please have the item description as per your convenience. " There can be no more explicit material to demonstrate the real nature of the remittance. The purchase order is generated for any item of convenience to make remittance for AMC payments. The CIT also noted on the same page of his order that all the sale invoices carry the words "Annual Maintenance Contract" or annual support service. Despite such glaring and self speaking documents being on record as a result of search, the A.O. accepted the reply of the assessee on its face value to the effect that payment to overseas parties was made for software upgrades. 69. It was urged that in the course of assessment proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on facts and the claim of the assessee accepted as such holding that the overseas entities were not at all chargeable to tax. The decision in the case of Mahindra & Mahindra (Supra) relied upon by the learned counsel had been rendered in the context of proceedings U/S 201 and not with regard to disallowance U/S 40(a)(i) of the Act. The same is wholly inapplicable. As regards the case of Van Oord ACZ India er) Ltd. (Supra), the income was held as not chargeable to tax in the case of payee by accepting the return U/S 143(1). No such facts exist in the present case and hence the case is distinguishable and also inapplicable. 80. We have heard rival contentions and perused the relevant material available on record. We have earlier considered in detail the submissions of ld. counsel for the assessee, wherein he has submitted that AO had raised specific queries on this issue and the assessee had filed sample import documents, copy of invoices, details of payment etc. The AO, after detailed inquiry on this issue, concluded that the payments were made for import of software. In the office note the AO specifically has given his conclusion on this point, which we have considered earlier. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, confirm the order of CIT setting aside the assessment order on this issue and restore the matter to the file of AO for fresh consideration. In the result this ground is dismissed. 81. Vide ground no. 19, the assessee has assailed the findings of ld. CIT in holding that since import of 'Net Varsity' from NIIT USA was fictitious, the order of the AO allowing depreciation on the value of Net Varsity, was erroneous and prejudicial to the interest of the revenue. 81.1. In support of its ground, the assessee has further taken a ground that ld. CIT erred in holding that 'Net Varsity' was developed in India and, therefore, the question of importing the same from NIIT, USA did not arise. 81.2. The assessee has further taken ground that ld. CIT erred in alleging that the said software having not been put to use during the year under consideration, the order of the AO allowing depreciation thereon, was erroneous and prejudicial to the interest of revenue. In this regard the assessee in its ground has pointed out that ld. CIT failed to appreciate that aforesaid software viz. 'Net Varsity' had already been put to use from FY 1997-98 and formed part of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine with the 'Net Varsity'. (e) AO failed to consider the e-mail dated 8-2-2000 which apparently indicated that 'Net Varsity' was not an Indian site. (f) AO overlooked the fact that in 1996-97, NIIT USA did not have facility to develop 'Net Varsity'. The 'Net Varsity' website was not available to the students in India during the year under consideration. There was no evidence to show that the software was put to use during the year under consideration and the revenue was realized. He, therefore, concluded as under: "a) The 'Net Varsity' was developed in India by CRCS, a partnership venture of NIIT and IIT. When it has been developed in India the question of importing it from M/s NIIT USA does not arise. b) The 'Net Varsity' was not an Indian site and, therefore, NIIT Delhi does not own it. c) The software was not put to use during the year under consideration." 81.5. Ld. counsel submitted that ld. CIT erred in doubting the import of aforesaid software and its use for the purposes of business of the asessee for the following reasons: "The aforesaid software was imported by the assessee from outside India after following proper i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mported is computer software with documentations FACELIFT WEBSITE (description as mentioned in commercial invoice No. INC/CORP/97001 dated 13-6-97) and further as clarified by Indian Overseas Bank that description of goods mentioned is taken from description mentioned in shipping challan is towards analysis, design, development of FACELIFT NIIT WEBSITE prototype version. In view of the clarification given by bank the item described in the shipping challan and commercial invoices are same as Facelift Website and bill of entry no. 55665 is also filed for Facelift Website. In respect of remittances of US$ 275000 each as per invoice no. INC/CORP/97003 dated 30-6-97 and no. INC/CORP/97002 daed 28-6-97 items shown by bank are computer software with documentation NETVARSITY and bill of entries no. 560846 and no. 564343 are filed for software with documentation (Unix Productivity Tools) and software with documentation ('Net Varsity') and the said description of the items are duly reflected in the invoices nos. INC/CORP/97002 and INC/CORP/97003. In this case remitting bank is Indian overseas, Nehru Place, New Delhi. The said bank has certified that remittance of US$ 150000 on 24-7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d raised following query: "NIITs own website states that Netvarsity was developed at Centgre for Research in Cognitive Systems (CRCS). The website was originally developed by NIIT Delhi and exported to NIIT USA. Two email dated 8-02-2000 and 15-05-2000 have been found from the computers seized from C-125, Okhla Indl. Area, Phase-1, New Delhi which shows that till May, 2000 Netversity was not launched as an Indian site but the website was being run by NIIT USA and in all likelihood the revenues were also been received by NIIT USA. In order to meet the expense which have incurred in USA to set up Netversity and to expend the operation there, the management appears to have decided to remit funds as payment for imports of software from NIIT USA. A sum of US $ 7,50,000 was remitted to NIIT USA in June 1997. Apart from the depreciation on the capitalized cost of software to be disallowed, the transaction with a related party needs evaluation of market price of the software on the date of purchase. Your are required to explain the above." 81.9. Ld. counsel submitted that this query was duly replied by asessee which is evident from pages 556 to 572, 573 to 574 and 588,wherein all the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel pointed out that this clearly shows that software was in use of students. 81.16. Ld. counsel has rebutted the specific allegation made by ld. CIT as under: "A. The software was developed in India by CRCS, a partnership venture of NIIT and IIT, Delhi and, there was no question of import of same from outside India It is emphatically denied that Net Varsity was developed in India and thereafter exported to NIIT, USA. There is no evidence on record to suggest that the aid software was developed in India and thereafter exported to NIIT, USA. The CIT has made bald allegation that same was exported to NIIT, USA earlier simply on the basis of display at website of the assessee that Net Varsity was developed by CRCS, a joint venture between NIIT & IIT, Delhi. The background behind development of the aforesaid software is as under: During the Third President Club conference held in May, 1996, a team under the leadership of Mr. CN Madhususan, President, NIIT, USA was formed and charged with the responsibility of conceptualizing and popularizing 'Net Varsity' on internet. Dr. Sugata Mitra, Head of CRCS was entrusted with the job of providing advice/guidance in setting up the N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again. The aforesaid query was raised by the assessing officer, vide notice dated 2-11-2005 and 10-02-2006, which was replied to by the assessee, vide reply dated 14-11-2005 and 27-02-2006. B. a"Net Varsity" was not an Indian site and, therefore, assessee was not its owner. In the impugned order, the CIT, on the basis of the contents of email dated 8-2-2000 from Mr. Nicholas George to Ms. Nilanjana Paul, alleged that ""Net Varsity" was not an Indian website and, therefore, the assessee cannot be considered as "owner" of that website. In this connection, extracts of the said email, attached at page 608 of paper book Vol II, is reproduced hereunder for ready reference. "On this "Net Varsity" home page, can you please remove the reference to Rs. 6,000 which comes in bright red? Apart from the fact that "Net Varsity" is not an Indian site (and to anyone else a Rupee price doesn't make sense). It is disastruous if the preferential price that we offer in India (i.e. the lowest possible price) is advertised so prominently on the home page. Most of NIIT does not display prices on web sites and brochures (with the exception of eNIIT, which displays US prices - the highest in the wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paper book Vol II, pertaining to the query raised by an Indian customer qua use of the aforesaid website. The contents of that mail further supports that the site was used by Indian customers and was, therefore, a website, which was being put to use by the assessee for the purpose of its business. The aforesaid query was raised by the assessing officer, vide notice dated 10-02-2006, which was replied to by the assessee vide reply dated 27-02-2006." 82. Ld. Special counsel referred to ld. CIT's order and pointed out that he had taken note of various points to come to the conclusion that this software was not imported by assessee but developed in India itself. He referred to the office note of AO, referred to earlier, and pointed out that in the said office note the AO simply concluded that since the import of the software was not covered in the block period, therefore, this issue was outside the scope of assessment proceedings u/s 153A. 82.1. Ld. Spl. Counsel pointed out that AO over looked the fact that assessee had claimed depreciation during the year. Therefore, he was required to look into the details. Ld. Spl. Counsel further referred to the order of Enforcement Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order is dated 30.04.2004. The search was conducted on 10.11.2004. The email which forms the basis of enquiry was found long after the order of ED. The order of ED did not have the benefit of incriminating material discover at a later point of time. Further, the only issue before the ED was whether the remittance of USD 7,00,000/- was made for the purpose other than for which it was acquired (Pg.577 of PB). The ED, relied upon the sale invoices, shipment documents and the bankers certificate. It came to conclusion on Pg.588 that there was no evidence to support the allegation that the remittance was for goods other than those for which remittance was made. The ED was not concerned whether the ownership of asset 'Net Varsity' was with the assessee or not but this is a precondition for the allowance of depreciation U/S 32 of the Act. 83. In view of the above, it was urged that no relevant verification/ enquiry was conducted by the Assessing Officer and, therefore, it was a case of lack of inquiry, which justified the action of the CIT in assuming revisionary jurisdiction under section 263 of the Act. 83. We have heard rival submissions and perused the material available o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted obsolete CBTs from NETg (UK) in order to remit payments in the nature of 'royalty' to NETg and the AO having failed to examine the said issue, the assessment order in this regard was erroneous and prejudicial to the interest of the Revenue. 84.1. The assessee in support of its aforementioned ground has further taken a ground that ld. CIT failed to appreciate that the aforesaid issue had duly been examined in detail by the AO in the original assessment and, therefore, was not amenable to revisionary jurisdiction u/s 263. It is further submitted that ld. CIT erred in exercising jurisdiction u/s 263 in respect of this issue without appreciating that the CIT(A) for AY 2002-03 had allowed the said issue in favour of the assessee. 84.2. Brief facts apropos this issue are that in the show cause notice dated 5-2-2010, ld. CIT pointed out that there were evidences on record which suggested that in FY 2001-02 the import of CBTs from NETg (UK) were not genuine commercial transactions. Obsolete, out dated and non saleable CBTs were imported in India after expiry of agreemen between NIIT and NETg in order to remit money to NETg for payment of royalty. 84.3. Ld. CIT referred to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground that the Distribution agreement had expired. Being aggrieved, the assessee preferred an appeal to the CIT(A) for AY 2002-03 which was disposed off vide order dated 31/0712009, allowing the appeal of the assessee. Agreement of NIIT with NETg was different from the Agreement between APTECH and NETg." 84.4. As regards assessee's contention that it was not required to replicate or reproduce any material but merely acted as a distributor of NETg products, ld. CIT pointed out that assessee had not furnished corresponding sales invoices neither during the course of its search proceedings (though specifically asked to do so), nor filed before the AO during the course of assessment proceedings. He pointed out that assessee itself admitted that part of CBTs were put to self use. As regards the contention of the assessee that the email relied upon by the department pertained to AY 2001-02, ld. CIT pointed out that mentioning of emails of subsequent year was for ascertaining the true nature of the payment. 84.5. As regards the contention that this issue was examined by AO during the course of assessment proceedings, as it had, vide letter dated 11-5-2006, filed all related docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... why Mr. Katyal had not given specific answer is very obvious from the fact that NETg had appointed a new distributor namely Mls APTECH Ltd. for its products in India and the agreement with NIIT had been discontinued. Therefore, NIIT was not authorized to sale NETg products in India. The import of CBTs amounting to USD 2,07,785 from NETg after expiry of the agreement also again confirms that remitting money to NETg was for some other purposes (royalty payments).It was stated by-the authorities ofNIIT (Sh. Ajay Wahi and Sh. Katyal) in their statements that the purpose of their import was to fulfill a minimum purchase commitment with NETg. However, they could 'not explain if the import commitment was only for USD 1,82,500 then why was the eventual import for USD 2,07,785? and further if NETg discontinued its relationship with NIIT then why did it insist on a minimum purchase commitment. For the payment made in 2001 for alleged import of CBTs, inspite of the fact that huge stock was already lying and there were no corresponding sale orders, it was submitted ~ the assessee during the course of post search proceedings and also before the undersigned, that the same was done in orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... multinational company based in UK, which is engaged in the business of producing, acquiring and marketing training resources in various media including CD ROMs, interactive video instruction, linear video instructors, computer based training (CBT) and related texts, audio material and equipment. He pointed out that this issue is similar to issue relating to royalty/FTS, as considered vide ground no. 18. He pointed out that assessee was appointed as sole distributor by NETg for distribution of its products viz. CBTs/ training programmes in India vide agreement dated 31-12-1994. In accordance with the agreement, the assessee was required to purchase products from NETg for further sale in India. This agreement expired in the previous year relevant to AY 2002-03. 84.12. Ld. counsel pointed out that in pursuance to this agreement, right from its commencement, the assessee made payments for purchase/import of CBTs, which were always accepted and allowed as business deduction in the completed assessments for the earlier years. He pointed out that assessee also purchased CBTs for amounts aggregating to USD 207785 from NETg after expiry of the agreement in AY 2002-03. This was disallowed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of royalty. 84.18. Ld. counsel submitted that assessment order was passed after detailed queries raised by AO and the replies filed by the assessee were considered by AO. He refered to page 667 of the PB, wherein the AO's query letter dated 1-3-2006 is contained, in which AO had confronted the assessee with the documents in the shape of e-mails, invoices etc., which were not seized from the premises during the course of search action on 10-11-2004. In the notice the assessee had, inter alia, observed that with reference to the remittance to NIITg(UK), the AO referred to emails and pointed out that the payments were on account of royalty and imports were not meant for resale/use. The queries of AO are reproduced hereunder: "Remittance to NIITg (UK) Evidence in support of the fact that the remittance to NETg(UK) were on account of royalty is in the form of e-mails is annexed. These e-mails clearly establish that import of copies of older/outdated CBTs effected by NIIT from NETg(UK) merely for making remittances to NETg(UK) towards royalty and imports were not meant for re-sell/use. E-mail dated 06-02-2001 sent by Mr. Rajeev Katiyal to Amita Mitra, Vice President, NI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, let us close this transaction by taking older titled. Though this way, they are trying to protect their current partner apprehending that we may sell the new titles." Email dated 25-10-2001 (Annexure ---) sent by Mr. Rajeev Katyal, Vice President NIIT with copy to Mr Andre Hogan, Director Sales Operations, NETg(UK) wherein it was inter alia stated as under: My understanding with Andre NETg is that we cannot order those titles that are not in our stock and are new titles produced by NETg. If titles are already in stock, we can order against those item. These items are not going to be sold by NIIT as we have taken their products off our sales list .... Therefore if titles already exists in stock we can order them. We have no intention of reselling these." The above email messages clearly establish how the remittances were effected through the import route to square off the outstanding to NETg towards royalty and NIIT continued release of import purchase orders on NETg in spite of their carrying a stock of NETG's CBTs amounting to approx. Rs. 3.37 crores as in February 2001 (please refer email dated 6-2- 2001 of Mr. Rajeev Katyal, Vice President, NIIT) since NIIT was prohibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T on the basis of subsequent agreement entered into by NETg with APTECH is completely misconceived because APTEC and assessee are two different entities and the nature of interest entered into by NETg with the two parties is different and at variance both in terms of scope of agreement as well as business consideration. 84.21. Ld. counsel submitted that AO had conducted detailed inquiries and thereafter took one view by accepting that payment towards purchase of CBTs was not royalty. In this regard ld. counsel referred to following queries and respective answers furnished by assessee: (a) Query no. 24 raised by AO vide letter no. 2-11-2005 available at page 620 of the PB, reproduced below: "24. As per details obtained from the seized laptop of Sh. V.K. Thadani, you have imported CBTs (Computer Based Trainign Products) valuing US$ 207785 vide three different purchase orders from NETg. You are requested to file the complete details of income from the sale/use of above CBTs." 84.22. Assessee's answer to the aforementioned query, vide letter dated 14- 11-2005, contained at page 626 is as under: "3. Provide details of obtained from laptop of Mr. V.K. Thadani, which is lying sei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee's answer to the aforementioned query, vide letter dated 27- 2-2006, contained at page 658 is as under: "Regarding TDS on remittances to NETg. In respect of the above, the assessee company would like to submit as under: NETg is a multinational company based in UK. The company was engaged in the business of producing, acquiring & marketing, training resources in various media including CD- ROMs, Interactive Video Instructions, Linear Video Instructions, CBTs and related texts, audio material and equipments. The business relationship between NIIT & NETg was for a long period as distributor of CBT products of NETg. The ame is evident from the agreement with NETg which has already been filed with the department on 9-1-2006. At a latter stage in 1996, NIIT started software development work for NETg for 'Work on Hire' basis. Under this new relationship, on the basis of requirement/ specific instructions of the client, NIIT Ltd. developed learning software and contents on assigned topics with rigorous project and quality control by the client. These were pieces of Learning Software, called Learning Objects. Once these softwares were sent to NETg USA, they added th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, this clause clarifies that NIIT can generate their revenue of Rs.I 00 in the market only, if they have purchased products worth Rs. 30 from NETg. This means that the Targeted Order Commitment from NIIT will be 30% of NIlT billings (as shown in the example above) or Minimum Order Commitment shall be as per Clause 4(B) of the Agreement whichever is higher. h. The clarifications of 7 A & B of the Distributor Agreement are as follows: 7 A. Any distributor can order either in a master copy format or in customer copy format. In case master copy format is ordered, the distributor has to reproduce the material and package it and sell it. 7B. In our case, NIIT always ordered in the customer copy format only which could be delivered immediately to the customer. Because of this, the issue of reproduction as per 7B did not arise. Annexure-31 is not applicable for the assessment year 1999- 2000. In view of the reasons stated above, the assessee company would like to submit that TDS is not applicable on the remittances effected to NETg, because it is not royalty payment but physical import of CBTs items, which were purchased and sold as "stock and sell" items. These CBTs are standar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Q: Was NIIT payment any royalty to NETg? A: To the best of my knowledge, we were paying for the material and not royalty. Ajay Wahi: Q: Whether it was for the minimum purchase commitment or something else. A: To the best of my knowledge, this was minimum purchase commitment. P Rajendran: Q. I am showing you certain email extracs of some of yourexisting/ erstwhile employees email messages either amongst themselves or with foreign principals exchanged during the period Feb Mar 2001 which talks about business links between NIIT & NETg group of companies. It talks about outstanding liability of royalty payment, talks about adjustment required to be made in purchase orders and also outstanding liability of payments by NIIT to NETg group UK. Kindly go thru these email extracts and explain the discrepancy in your statement. A: To the best of my knowledge since we were importing CBT related software from NETg, UK, there was no question of adjusting any royalty with NETg,UK. I. As mentioned above, the assessee company cannot comment on the emails referred in your letter vide point 1(1 to 4) II. It is not correct to state that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conclusion in the office notes for the assessment year 2002-03, that the assessee had merely entered into a sale and purchase transaction of CBTs and no payment in the nature of royalty was made under the agreement with NETg warranting deduction of tax at source. He referred to the said office note, relevant portion of which reads as under: "Since the assessee has purchased the CBT's for sale in India, as trading items for which details have been submitted by the asessee. It is clear that this is a simple transaction of outright sale & purchase and the Royalty Clause is not attracted at all. However, the import of CBTs worth US$ 2,07,785/- is disallowed because these CBTs were purchased after the expiry of the agreement with the supplier." 84.29. Ld. counsel further submitted that the issue regarding purchase of software under a distribution agreement is not in the nature of royalty has been upheld by various decisions of Courts, including the Jurisdictional High Court in the case of Ericsson A.B (supra) and Nokia Networks, OY (supra). He, therefore, submitted that since the order passed by the AO was in accordance with the decisions of various High Courts, therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he distributor." 85.2. He submitted that basis of disallowance was disputed before ld. CIT(A). The decision of ld. CIT(A), contained at page 757 of the PB, rests on two counts, firstly, that the purchases were duly accounted for and expenses were made for business purpose. He referred to para 11.3 of CIT(A)'s order, which reads as under: "11.3. I have gone through the documents so produced before me and from the perusal of the same it is found that the purchase are accompanied with the necessary import documents and have duly been consumed by the appellant. Further the purchase so made have been duly accounted for and the payment for the same have been made through banking channels therefore it is also not a case from the assessing officer that the purchase are not genuine. From the facts it is clear that the purchases have been made wholly and exclusively for the purpose of business and out of the commercial expediency, in view of the totally of the circumstances and taking a support from the decision of Supreme Court in the case of S.A. Builders Ltd. v. CIT 289 ITR 26, the addition made by the AO deserves to be deleted." 85.3. Ld. Special counsel submitted that CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. Spl. Counsel referred to page 679 onwards wherein the reply of the assessee is contained, in which assessee sought to explain the e-mails. Ld. Spl. Counsel pointed out that AO did not make any discussion of e- mails and accepted the assessee's plea without proper verification regarding import of software though the payment was towards royalty. He pointed out that the reply filed by the assessee, threw no reply on issues raised in the show cause notice. The AO did not comment upon material found during search. 85.9. Ld. Spl. Counsel referred to the office note and pointed out that at pages 38 to 41 of the PB, there is no discussion as to why AO accepted this as simple transaction of outright sale and purchase holding that royalty clause was not attracted at all. He pointed out that from these observations, it is clear that AO accepted the assessee's reply without proper inquiry. He submitted that application of mind has to be clear from the order itself. 85.10. As regards the assessee's plea that in view of the findings of ld. CIT(A) for AY 2002-03, this issue got merged with the order of ld. CIT(A), ld. Spl. Counsel submitted that ld. CIT was deciding diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and characterization of payment. The transaction may be in one or more years but if the nature of the transaction is the same, the characterization of payment (or income) will not vary. 95. The AO has not brought any material on record and made no enquiries with reference to the material gathered during search before accepting the bald and unsubstantiated reply of the assessee that the payment to NETg represented consideration of import of goods. 96. The CIT has also pointed out that during the relevant period, another entity APTECH was appointed by NETg for similar rights in India and APTECH was paying royalty to NETg. It is a strange suggestion that one so called distributor pays royalty and the other does not or the one has the right to replicate and the other does not. The AO could not have put blinkers on such vital issues and accepted the claim without any enquiry whatsoever. 97. The CIT also points out that Investigation Wing of the Department carried out search at the premises ofM/s KK Lubricants to whom CBTs imported from NETg were supposed to have been sold by the assessee but found no such stock of CBTs as claimed to have been sold. The AO turns a blind eye to all su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he garb of purchases of CBT's. The statements recorded of various employees also pointed to this aspect. It cannot be denied that true character of payment to NETg had wide revenue implications. Therefore, it was incumbent upon AO to record specific findings with reference to the e-mails and statements keeping in view the reply filed by assessee. Merely accepting the reply without proper reasoning cannot be countenanced. The AO performs quasi judicial functions and, therefore, has to comply with the basic canons of judicial process. Further, the AO should have become more investigative when his queries regarding sales of CBT's were not suitably replied by assessee, inasmuch as no stock of CBT's was found with K.K. Lubricant to whom alleged sales aggregating to Rs. 7.98 crores were made. No satisfactory explanation was given by Director K.K. Mittal. Then a further aspect of date of PO being subsequent to the date of agreement between NETg and APTECH, which under almost similar terms of agreement was paying royalty to NETg, should have prompted the AO to specifically deal with these queries. At this juncture assessee was not entitled to sell CBT's imported from NETg. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with reference to doctrine of merger, we have already considered this aspect while deciding ground no. 11 and, therefore, we refrain from making any further comments on this issue. 86.2. In view of above, we concur with the finding of ld. CIT in restoring the matter to the file of AO as it falls within the ambit of lack of inquiry. This ground is dismissed. 87. Vide ground no. 21, the assessee has assailed CIT's action in alleging that the AO having allowed deduction u/s 35D of the Act in respect of public issue expenses without verification/ inquiry the assessment order was erroneous and prejudicial to the interest of revenue. 88. Ld. counsel referred to show cause notice dated 5-2-2010 issued by ld. Commissioner ( contained at page 193 of PB, and pointed out that ld. Commissioner referred to the claim of Rs. 12,01,249/- made by the assessee in regard to write off of share issue expenses u/s 35D. He submitted that ld. CIT pointed out that since the expenditure had been expenditure after the commencement of the business, the same can be allowed if the conditions laid down in the provisions of section 35D are fulfilled. However, the AO allowed the claim without verif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxman 72 (Guj.); - L.G. Balakrishnan & Bros. Ltd. v. CIT 151 ITR 270(Mad.); - CIT v. Nippon Electronics (India)(P) Ltd. 181 ITR 518 (Kar.) - CIT v. Paul Brothers 216 ITR 548 (Bom) - Direct Information (P) Ltd. v. ITO 2011 TIOL 664 HC MUM IT (Bom) - cIT v. Western Outdoor Interactive (P) Ltd. 2012 TIOL 625 (Bom) - ITO v. Smt. Kaushalya Devi 112 Taxman 72 (Chand.)(Trib.)(Mag.) - Desai Bros Ltd. v. DCIT 66 ITD 203 (Pune) - Glaxo Smithkline Consumer Healthcare Ltd. 112 TTJ 94 (Chd.) - Tahreen Electricals (P) Ltd. v. ACIT 112 TJ 586 - Godhavat Pan Masala (India) P Ltd. v. JCIT 108 ITD 603(Pune) - Steel Fab Engg. Corpn. India vs. ACIT 54 SOT 79 (Mum) The Delhi High Court in the recent decision of Rio Tinto India P. Ltd. (2013) 212 Taxman 139 @ 1609 -1620 Vol. V] held that it is unfair on the part of Revenue to contend that assessee must establish date of commencement of business in each successive year. It was held that such issue attained finality when the assessing officer framed assessment for first year and the aid issue, once settled, cannot be reopened every year." 89.1. Ld. Spl. Counsel relied on the order of CIT on this ground 90 We have heard rival su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode of such receipts/ giving such loans. You are also requested to indicate the assessment particulars of such persons. 10.Please furnish the details of all the loans squared up during the year, together with the name, address and the assessment particulars of all such persons." 91.4. He referred to assessee's reply to the above query contained at page 1017 along with annexure to the assessee's reply contained at page 1018 to 1023, wherein all the details were furnished by assessee. He submitted that after considering the assessee's reply the AO accepted the assessee's claim. He submitted that it is the judgment of AO as to how to proceed with assessment. 91.5. Ld. counsel referred to ld. CIT's finding and pointed out that ld. CIT did not point out any error in the replies filed by assessee and, therefore, there could not be any blanket set aside. He submitted that loans were coming from earlier years and, therefore, ld. CIT should have given specific instances on refund of loan in cash to attract section 269T. He submitted that this issue has been raised for the first time in show cause notice. 91.6. Ld. counsel referred to assessee's reply contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re as under: "109. With respect the deposits received from franchises / distributors, it is submitted that no details were furnished by the assessee in the course of assessment proceedings and, therefore, no enquiry qua applicability of sections 269 SS/T to such deposits was conducted by the Assessing Officer. It is, therefore, urged that it was a case of lack of inquiry, which justified the action of the CIT in assuming revisionary jurisdiction under section 263 of the Act. As regards the claim of the assessee that the relevant year was not the first year of accepting deposits from business partners/franchisees, it is submitted that the principle of resjudicata is not applicable in the Income tax proceedings more so when the depositors and the amounts vary in each year. The assessee filed details of borrowings from banks and financial institutions but did not furnish details of smaller transactions from individual persons/entities. The AO should have brought the necessary material on record after conducting relevant enquiries. 110. The issue is not beyond the scope of Section 153A of the Act since accounts for the year were found during the search operation. 111. It is also sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ored the matter without recording any specific finding as to how the assessment order was erroneous and prejudicial to the interest of revenue on account of inadequate inquiries carried out by the AO. We, accordingly, confirm the order of ld. CIT on this issue for the detailed reasons given by the ld. CIT in his order. In the result, this ground is dismissed. 93. Vide ground no. 23, the assessee has assailed the action of ld. CIT in holding that credit for taxes paid/ deducted abroad was claimed by the assessee and allowed by the AO without verification and enquiry and, therefore, the order of AO in this regard was erroneous and prejudicial to the interest of the Revenue. 93.1. Further additional ground in respect of above ground is that ld. CIT failed to appreciate that all certificates in respect of foreign taxes paid/ deducted were duly furnished before the AO and the AO after being satisfied allowed credit for such taxes while processing the return of income u/s 143(1) of the Act. 94. Ld. counsel pointed out that during the relevant previous year the assessee had paid tax amounting to Rs. 1781828 in foreign jurisdictions as per the applicable laws of the said countries. Whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it was fresh proceedings, not barred by limitation. In this regard, the revenue has made a detailed submissions under ground no. 10." 96. We have considered the submissions of both the parties and have perused the record of the case. As far as preliminary issue raised by ld. Counsel for the assessee, regarding scope being expanded by the CIT in the second round of proceeding consequent to set aside order passed by the Hon'ble High Court, is concerned, we do not find any merit in the said submission, because we have already held that ld. CIT had taken up fresh proceeding in consequence to the orders passed by the Hon'ble High Court. Accordingly, this objection raised by the ld. Counsel is rejected. 96.1. The assessee had claimed credit of Rs. 47,81,828/- in respect of tax paid in foreign jurisdiction as per the applicable laws of the said countries. The AO had not verified this claim and allowed relief to assessee and, therefore, ld. CIT rightly held that assessment order was erroneous and prejudicial to the interest of revenue, in the absence of proper verification. We, accordingly, uphold the finding of ld. CIT on this issue. 97. In the result, assessee's appeal i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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