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2015 (4) TMI 1007 - ITAT DELHI

2015 (4) TMI 1007 - ITAT DELHI - TMI - Revision u/s 263 - assessee's plea that the assessment u/s 153A was completed under the monitoring of the CIT/CCIT/ CBDT and such order could not be regarded as erroneous much less prejudicial to the interest of revenue - Held that:- As per the directions of the Hon'ble High Court fresh notice was issued and the proceedings under section 263 have been initiated for giving assessee opportunity to respond. The fresh order u/s 263 is being passed after .....

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or the continuation of earlier proceedings, initiated vide issue of show cause notice dated 23-7-2007? - Held 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 f .....

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h the matter had to re-examine the records before embarking upon to take revisional proceedings.

Whether issues which had been discussed and scrutinized by the AO in detail while framing the assessment u/s 143(3)/ 153A could not be set aside to AO? - 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 - Held that:- An inquiry which is just farce or mere preten .....

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f 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 .....

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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 .....

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ed 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. counsel for the assessee, as fairly accepted by ld. Special Counsel, that the bar which apply to the AO equally applies to the .....

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HIGH COURT ] have to be taken into consideration depending upon the facts obtaining in a particular case while deciding various issues. The broad principle that emerges from various decisions is that if AO has merely accepted the assessee's explanation on various issues without proper inquiry then the same would come within the ambit of 'lack of enquiry'and not ' inadequate inquiry' . If a particular issue comes within the ambit of complete lack of inquiry then the order is t .....

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und that the same was not examined by the AO while passing the order u/s 143(3)/153A - Held that:- Admittedly the deduction u/s 10B was being claimed and allowed to assessee since AY 1994-95. In response to the AO's notice dated 17-3-2006, the assessee had furnished vide letter dated 24-3-2006 all the approvals received from STPI authorities of relevant states, where the EOU unit was established along with note on various business units including EOU units, the nature of operations carried o .....

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erefore, 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.

Determination of assessee's claim u/s 10B - Held that:- 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 d .....

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he basis of man power. Thus, there was no consistency in assessee's claim.

AO failed to bring even primary facts on record to justify his conclusion in accepting the assessee's claim particularly when assessee never provided any bifurcation of common expenses amongst EOU and non EOU units. Thus, AO failed to examine whether the expenses had been distributed in proportionate manner on the basis of some specific and scientific basis between EOU and non EOU units. As regards the .....

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ssion, we concur with the finding of ld. CIT on this issue.

Non maintaining separate books of account for each eligible undertaking - Held that:- 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 .....

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t calling for any details on this ground - Held that:- The AO was required to verify whether software was actually exported or the payments were in realty in regard to transaction not amounting to export of software. The AO failed to conduct the basic and preliminary inquiry with regard to nature of the so called export revenue. The AO had disallowed the claim of ₹ 25.20 lacs on the ground that the amount received from Kwetliso Holdings was in lieu of technical know how fees as opposed to .....

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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.

Non allocation of foreign exchange fluctuation loss to EOU unit - Held that:- Admittedly, the AO had not made any inquiries on this count. Assessee failed to furnish transactions which resulted into loss on account of foreign exchange fluctuations. Considering the fact t .....

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ssed u/s 143(3)/153A - AO failed to appreciate that this issue had already been examined and scrutinized in detail during the original assessment proceedings u/s 143(3)/153A - Held that:- The assessee had netted this interest income against the interest expenditure of ₹ 17,03,49,186/-. This claim of netting off of interest made by assessee was accepted by the AO without examining the primary details regarding nexus of interest received against interest paid. Interest expenditure incurred f .....

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quired into this aspect to find out the correctness of claim or not. There is nothing on record to suggest that this issue at all was examined by AO. The lack of necessary inquiries being made by AO resulted in passing of an erroneous order, which was prejudicial to the interest of revenue. We accordingly, sustain the findings of ld. CIT on this count.

Interest free advances/ loans/ investments having been made by the assessee for non-business purpose out of interest bearing funds - A .....

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ve any finding/ pin point any expenditure or gave reasons as to why and on what basis particulars of the repairs expenses were to 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.

Steep rise in course execution charges incurred by the assesee was accepted by .....

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t 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, there .....

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ccount. 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 int .....

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llowance 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. Even otherwise, ld. CIT has elaborately considered as to why the said decision is not applicable. We con .....

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reement was not brought on record by assessee. It is pertinent to note that in letter dated 1-3-2006, the AO had referred to various documents leading to conclusion that the payments were towards AMC. In regard to payment to M/s Conversant Group Corporation, the AO had referred to agreement dated 22-9-2000, E-mail dated 17-11-2000 and note of Rajesh Mathur to NIIT GIS Ltd. The assessee in its reply did not give specific replies on these counts and only gave a general reply. Similarly, AO had rai .....

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ings u/s 263. We find that ld. CIT has given his finding with reference to various e-mails to come to the conclusion that bogus purchase orders were raised to remit money for AMC contract. Therefore, it is clear that AO had not arrived at a rational conclusion. He has merely accepted the assessee's plea on this issue without proper scrutiny of documents found during the course of search. We, accordingly, confirm the order of CIT setting aside the assessment order on this issue and restore th .....

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not. The AO was also required to give his specific findings with reference to queries raised by him in connection with e-mail dated 8-2-2000 from Mr. Nicholas George to Ms. Nilangana Paul. 83.2. The findings of Enforcement Directorate were recorded on 30-4-2004 and search took place on 10-11-2004. Therefore, though ED's findings could not be ignored, but they had to be considered by AO along with material found during course of search. We, therefore, uphold the order of ld.CIT on this issue. .....

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he payment made was towards royalty or towards purchase of software. Ld. Counsel submitted that payment made to NETg was in terms of distributorship agreement and in respect of physical import of CBTs only for which invoices relating to import were produced before AO. However, in course of search proceedings, certain evidences were brought on record, which suggested a contrary state of affair and, therefore, it was incumbent upon the AO to resort to detailed inquiry and not accept the assessee&# .....

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t of public issue expenses without verification/ inquiry the assessment order was erroneous and prejudicial to the interest of revenue - Held that:- It is not disputed that the claim of assessee was accepted in AY 1993-94 and, therefore, we are in agreement with ld. Counsel for the assessee that mere non-examination of this issue by AO will not render the assessment order as erroneous and prejudicial to the interest of revenue, particularly when assessee's claim was legally allwoable. We, ac .....

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at ld. CIT has restored 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.

Credit for taxes paid/ deducted abroad was claimed by the assessee and allowed by the AO without verification - Held that:- The assessee had claimed .....

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2015 - S.V. Mehrotra And C.M. Garg JJ. For the Appellant : Shri Ajay Vohra Sr. Adv.& Shri Gaurav Jain Adv. & Ms. Bhavita Kumar For the Respondent : Shri G.C. Srivastava (Spl. Counsel) & Shri Saurabh Srivastava CA ORDER PER S.V. MEHROTRA, A.M:- This appeal has been filed by the assessee against the order dated 1-4- 2010, passed u/s 263 of the Income-tax Act, 1961, for A.Y. 1999-2000, after the first order passed u/s 263 by the CIT (Central)-II, New Delhi, dated 19-6-2008 was set aside .....

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over thirty countries. 2.2. The 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 amo .....

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tice u/s 153A, the assessee filed its return of income on 5-10-2005 declaring income of ₹ 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 ₹ 10,36,86,880/-, the only addition made being the disallowance on account of claim made u/s 10B in respect of the technical know-how fees of ₹ 25,20,000/-. 2.7. The assessee filed an appeal against the additions made in the aforesaid assessment order and .....

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sessment order was passed by AO after minutely scrutinizing and discussing the detailed and voluminous written submissions along with necessary evidence filed before him. 2.9. The assessee filed its reply on all the issues raised in the show cause notice. Thereafter, ld. CIT (Central)-II, New Delhi again issued a show cause notice dated 15-10-2007 in continuation to the issues raised in the show cause letter dated 23-7-2007. The assessee vide its letter dated 10-1- 2008 filed its reply in which .....

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channel from time to time on the progress of the assessments and the decisions/ actions proposed to be taken. Thus, the assessments were completed under the monitoring of CIT/ CBDT. (iv) It is not open to the successor CIT to seek to revise an assessment completed under the direction and the monitoring of the predecessor CIT. (v) Shri A.L. Mehta was employed with the company as Dy. General Manager up to December 2001. He resigned from service and at the time of resignation his certain demands we .....

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g 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 a .....

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partment and the assessee company in his written complains. (x) The assessee filed a copy of such letter dated 17-5-2007 written by Shri A.L. Mehta to the Member (Investigation), CBDT, instigating the department to initiate proceedings u/s 263 of the Act. The contention of the assessee was that it reliably believed that it was on account of pressure and influence exerted by A.L. Mehta on Member (Investigation), CBDT that the department had initiated action u/s 263 of the Act. (xi) In sum and sub .....

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issions, directed the assessing officer to frame the assessment afresh, after affording the assessee of being heard. Ld. CIT while dealing with the various issues raised by assessee in its reply dated 10-1-2008 refuted each and every objection raised by assessee and, inter alia, pointed out as under: (i) As regards assessee's contention that assessment order was passed under the monitoring by CIT, it was pointed out that there was no material to indicate that directions were issued by the th .....

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cases sending of reports to the CBDT is a normal practice. These reports are in the nature of status report that give the progress of investigations/ assessments made by the assessing officer. By sending these reports assessing officer 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 ha .....

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nted 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 and assailed the order passed u/s 263 mainly on following grounds: (i) T .....

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more than 5 months dismissed the legal objections raised and also disposed of the matter on merits. Thus, it was submitted that there was complete violation of principles of natural justice. (ii) Assessment completed under the monitoring of CIT, could not be revised u/s 263. In regard to this ground, the assessee inter alia, submitted that the ld. CIT was duty bound to bring on record the correspondence exchanged between various officers of the department to refute/ rebut the objections raised .....

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of mind could not be regarded as erroneous and prejudicial to the interests of revenue. (v) View taken by the assessing officer was one of the possible view in law. (vi) No prima facie finding reached by the ld. CIT that assessment was erroneous and prejudicial to the interest of revenue before exercising of the revisional jurisdiction u/s 263 of the Act. 2.12. The assessee had, inter alia, prayed that Hon'ble High Court may be pleased to call for the complete record of the department inclu .....

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e 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 ra .....

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pplication was filed by the revenue for clarification in regard to the limitation for passing the fresh order and the Hon'ble High Court, vide order dated 5-2-2010 in CWP no. 4722/1987 clarified that period of limitation would also not apply to fresh order to be passed by the Commissioner u/s 263 of the Act for the assessment year 1999-2000 pursuant to the direction of the Hon'ble High Court. 3.1. The assessee filed SLP before the Hon'ble Supreme Court and assailed the order of Hon&# .....

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of his minatory letters and conduct, it was virtually impossible for the CIT to exercise independent judgment and unfettered discretion in discharge of its statutory functions u/s 263 of the Act. 3.2. The Hon'ble Supreme Court had issued notice on this petition on 12- 3-2010. On 22-3-2010 the SLP was heard and after hearing counsel, the Hon'ble Supreme Court made the following order: SLP(C) Nos. 8488-8493/2010: By consent, these SLPs are taken on Board. SLP(C) Nos. 7712/2010 & 8488- .....

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l not come in the way of the Department. Matters to stand over for three weeks." 3.3. Thereafter, a SLP was again taken up for hearing on 12-4-2010 and upon hearing the counsel, Hon'ble Supreme Court made the following order: "Mr. Ajay Vohra, learned counsel, submits that recently an order(s) has been passed by the Commissioner under Section 263 of the Income Tax Act, 1961 remanding the matter(s) to the Assessing officer on all points, including the issue involved in these matters. .....

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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 .....

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of the following records: (i) assessment folders containing office notes to the orders; (ii) correspondence with CBDT in respect of proceedings u/s 263 and correspondence with Shri A.L. Mehta. (iii) Inter-departmental correspondence in respect of both assessment proceedings and proceedings u/s 263 of the Act. 5. The assessee pointed out that pursuant to the directions of the Hon'ble High Court, the department made available for inspection to the assessee 12 files maintained in the office of .....

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correspondence in respect of both assessment proceedings and proceedings u/s 263 of the Act. 5.1. The assessee pointed out that its challenge to 263 proceedings before CIT and in the writ petition was on the ground that the assessment u/s 153A/143(3) was completed under the monitoring / supervision of the CIT. CBDT. The second objection was that the initiation of proceedings u/s 263 was on the dictates/ at the behest of the CCIT/ CBDT and for both the reasons, the order passed u/s 263 was witho .....

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ssee. 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 .....

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, 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 assessment order u/s 158BC, is recorded, the person who is to be proceeded u/s 158BD, must be informed about the satisfaction of the assessing officer, which has been recorded and he must be given a reasonable opportunity to object to the same. 5.5. The assessee further relied on the decision of H .....

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les; (b) vide letter dated 7-6-2007, copies of assessment orders passed u/s 153A/143(3) for A.Y. 1999-2000 to 2005-06; (c) vide letter dated 23-2-2009 inspection of - (i) records for exercising revisional jurisdiction u/s 263; (ii) All interdepartmental correspondences (including with CBDT) in respect of the assessment proceedings u/s 153A; (iii) All interdepartmental correspondences (including with CBDT) in respect of the proceedings u/s 263; (iv) All correspondences between Mr. A.L. Mehta and .....

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nterdepartmental correspondences, both, in respect of assessment proceedings as well as proceedings u/s 263 of the Act and also various correspondences between Shri A.L. Mehta and the department. This letter is contained at pages 212 to 214 of the PB. 5.8. Ld. CIT vide its order dated 11-3-2010 replied the assessee's letter dated 10-3-2010 and gave a point wise reply to the assessee's objection. 5.9. Thereafter, assessee again filed its reply to CIT vide letter dated 15-3- 2010. In this .....

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. 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 Commissione .....

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nquiries. This direction cannot be read as permitting raising of new issues. 6.1. The assessee also reiterated the submissions as regards the passing of the assessment order u/s 153A/ 143(3) under the monitoring/ supervision of CIT/ CCIT and in support of this contention relied on various letters. 6.2. The assessee in its detailed reply in regard to the submission that proceedings initiated on dictate of CCIT/CBDT were bad in law relied on various decisions in which this proposition has been con .....

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rest of revenue, ld. CIT referred to the finding of Hon'ble High Court while disposing of the writ petition of the assessee in writ petition no. 4722/2008 dated 11-12-2009 (supra), which are reproduced hereunder: "The learned ASG, as noted above, has conceded that an opportunity shall be granted to the petitioner for making its submission on the merits of the case by the Commissioner and thereafter fresh order would be passed. For this reason also, once we proceed to set aside the impug .....

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he submission that the impugned order was passed on the dictated lines of CBDT vanishes. As the same time, we make it clear that the present Commissioner/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 .....

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ing 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 judgment." Hon'ble Delhi High Court further clarified vide order dated 05/02/2010 as under: "While setting aside the or .....

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as well. " 8.2. As regards the issue regarding inspection of record to be provided to assessee, ld. CIT pointed out that as per the directions of the Hon'ble High Court, during the course of writ petition filed by the assessee's counsel Shri Ajay Vohra and Ms. Kavita Jha, along with other representative of the assessee and were duly shown the records and contents thereof were also duly noted by representatives with the help of stenographer under the supervision of Sr. Standing Couns .....

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eeded for final hearing. Thus, ld. CIT held that the issue of inspection of records stood settled. 8.3. As regards the assessee's plea that the original assessment order was passed by the assessing officer under the monitoring or the supervision of the then CIT/ CBDT and, therefore, the present CIT could not withdraw such assessment as erroneous and prejudicial to the interests of revenue, ld. CIT observed that examination of assessment record of the assessee clearly shows that there was nei .....

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er, 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 acce .....

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ions on these issues were no longer valid. 9. As regards the allegation of assessee 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 u/s 263 on 19-6-2008, the ld. CIT pointed out that the Hon'ble Delhi High Court has held that the CIT while exercising the powers u/s 263 of the Act, shall look into the matter afresh with independent mind. 9.1. Ld. CIT pointed out that the new issues, w .....

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All issues of fact and law can be considered de novo - When an order is set aside with a direction to pass a fresh order in accordance with law, the concerned authority can entertain all issues of fact and law in the course of the proceedings in which the fresh order would be made, unless there are directions to decide specific issues only." 9.4. As regards the allegation that the issues raised in the show cause notice had been subjected to detailed scrutiny during the course of assessment .....

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ver, in the proceedings u/s 263, the show cause notice itself contains all the preliminary issues, which are not conclusive and the assessee is at liberty to rebut the same with submissions and supporting evidence. 9.6. Thereafter, ld. CIT has passed order on other issues also which we shall discuss later. 9.7. Against this order passed u/s 263, the assessee preferred appeal before us on 4-5-2010 and has assailed the order on following grounds of appeal: "1. That on the facts and circumstan .....

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iolation 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 H .....

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the appellant in the writ petition. 5. That on the facts and circumstances of the case and in law, the CIT erred in exercising jurisdiction under section 263 of the Act without appreciating that the original assessment order under section 143(3)/153A of the Act having been passed under the monitoring of the Commissioner/Chief Commissioner, such an assessment was not amenable to revision under section 263 of the Act. 6. That on the facts and circumstances of the case and in law, the CIT erred in .....

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sdiction under the said section. 8. That on the facts and circumstances of the case and in law, the CIT erred in exercising jurisdiction under section 263 in respect of issues which were beyond the jurisdiction of the assessing officer while framing the original assessment under section 143(3)/153A of the Act. 9. That on the facts and circumstances of the case and in law, the CIT erred in setting aside the various issues without recording any prima facie finding on the merits of the issues. 10. .....

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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 t .....

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ssing 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 That on the facts and circumstances of the case and in law, the CIT erred in exercising jurisdiction under section 263 of the Act in respect of the aforesaid issue without appreciating that the said issue was subject matter of appeal before the CIT (A) in the present assessment year as well as assessment year 2001-02. That on .....

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foresaid issue having already been examined and scrutinized in detail during the original assessment proceedings under section 143(3)1153A of the Act and, the CIT could not have exercised jurisdiction in respect thereto. 13. That on the facts and circumstances of the case and in law, the CIT erred in alleging that interest free advanceslloans/investments having been made by the appellant for non-business purpose out of interest bearing funds and the assessing officer having failed to examine the .....

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ciate that since the appellant maintained common pool of funds and since the profits of the business exceeded the interest free advances / investments, the assessing officer had rightly not made any disallowance of interest in the original assessment. 13.3 That in holding as aforesaid, the CIT failed to appreciate 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 .....

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iation 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 ch .....

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under section 263 of the Act. 16. That on the facts and circumstances of the case and in law, the CIT erred in setting the assessment on the issue of deduction on account of bad debts on the ground that same had been allowed without any verification or enquiry by the assessing officer. 16.1 That on the facts and circumstances of the case and in law, the CIT failed to appreciate that the aforesaid issue was duly examined by the assessing officer during the original assessment proceedings and, th .....

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and in law, the CIT failed to appreciate that in terms of proviso to section 14A, the assessing officer being precluded from making any disallowance in this regard, the CIT could not have exercised jurisdiction under section 263 of the Act in respect of such issue. 18. That on the facts and circumstances of the case and in law, the CIT erred in alleging that since the appellant had paid technical services fee to various non- residents without deduction of tax at source and the assessing officer .....

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thout prejudice, the CIT failed to appreciate that since under the alleged AMC contracts, the appellant had only received upgrades to sof received any technical 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 .....

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er 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 on the facts and circumstances of the case and in law, the CIT failed to appreciate that the aforesaid issue having already been examined and scruti .....

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us and prejudicial to the interest of the Revenue. 20.1 That on the facts and circumstances of the case and in law, CIT failed to appreciate that the aforesaid issue having duly examined in detail by the assessing officer in the original assessment, the same was, therefore, not amenable to revisionary jurisdiction under section 263 of the Act. 20.2 That on the facts and circumstances of the case and in law, the CIT erred in exercising jurisdiction under section 263 of the Act in respect of afore .....

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cumstances of the case and in law, the CIT erred in setting aside the issue of loan transactions between the appellant and various banks and other parties alleging that the said issue was not examined by the assessing officer. 23. That on the facts and circumstances of the case and in law, the CIT erred in holding that credit for taxes paid/deducted abroad was claimed by the appellant and allowed by the assessing officer without verification and enquiry and, therefore, the order of the assessing .....

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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 .....

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roduced hereunder: Present for the assessee : Shri Ajay Vohra, Advocate Present for the revenue: Smt. S. Narasamma Sr. DR The Ld. DR is directed to produce all records pertaining to assessment completed u/s 153A/ 143(3) of the Act for assessment year 99-00 to 05-06 and record pertaining to initiation and completion proceeding u/s 263 of the Act for the said assessment years. Hearing adj. to 19/07/10 at the request of the Ld. DR. Both parties are informed in the open court. (A/W ITA no. 2058 to 2 .....

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terim order dated 16-7-2010, passed by the Hon'ble High Court, the order passed by the Tribunal on 6-7-2010 and all other proceedings pending before the Tribunal, forming subject matter of ITA nos. 2057 to 2063/Del/2010 for A.Ys. 1999-2000 to 2005-06, were stayed, which was made absolute on 27-4-2011. 10.5. The writ petition was primarily filed before the Hon'ble High Court on following grounds:- (a) It was not open to the assessee to question the order passed by the CIT on 1-4-2010 on t .....

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, to revise the assessment orders, was already adjudicated upon by the Hon'ble High Court in WP(C) no. 4772/2007 dated 11-12-2009 and, thereafter, the assessee itself had submitted before the Hon'ble Supreme Court that all issues were remitted back to the assessing officer by the CIT and, therefore, the SLP may be dismissed 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 ob .....

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on'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 hi .....

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showed that the assessee was granted liberty to raise all points before the Commissioner which were canvassed before the Hon'ble High Court and also further points which the assessee intended to urge at the time of fresh hearing. The assessee raised strong reliance on the observations of Hon'ble High Court that it had not authoritatively pronounced all the contentions raised by the assessee either way and the Commissioner had to deal with such contentions objectively without being influ .....

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igh Court after detailed discussion of this decision, inter alia, observed that according to the Hon'ble Gujarat High Court, neither the question of res-judicata nor the rule of estoppel could be invoked where the jurisdiction of authority was under challenge. The Hon'ble High Court further noted that Hon'ble Gujarat High Court held that since neither consent nor waiver can confer jurisdiction upon the AO where it did not exist, no importance could be attached to the fact that the as .....

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f 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 a .....

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ded on the lines as dictated by the CBDT would not be proper, for no Court can plausibly lay down the grounds on which an order, which is to be passed, can be challenged by the aggrieved party. At the time when this Court passed the order, the order of the CIT was not in existence. It was yet to be passed. Neither the petitioner, nor the respondent in the writ proceedings nor even this Court could have delved into the mind of the CIT and attempt to anticipate the grounds on which he would rest h .....

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was before it. It cannot 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. In any event, even if the plea of the petitioner to the effect that the objection to the jurisdiction of the CIT to initiate proceedings under Section 263 vanished af .....

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the Tribunal cannot be faulted for directing, by its order dated 06.07.2010, the Revenue to produce the assessment records and the records relating to the proceedings under Section 263 for the relevant W.P. (C) 4684/2010 Page 16 of 17 assessment years. Unless these records are made available to the Tribunal, it will not be able to take a view on the assessee's challenge that the CIT did not exercise his independent mind while initiating proceedings under Section 263. 12.2. The writ filed by .....

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as 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 rega .....

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CIT on this aspect in para 5 of his order. Ld. CIT observed that as per the directions of Hon'ble High Court fresh notice was issued and the proceedings u/s 263 were initiated for giving assessee an opportunity to respond. The fresh order u/s 263 was being passed after considering all the submissions of the assessee. He, therefore, held that in such circumstances, the relevance of showing old files containing interdepartmental correspondence, had no relevance. 17. Ld. counsel's submissio .....

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tmental correspondences (including with CBDT) in respect of the proceedings u/s 263 of the Act: (iii) All correspondences of the department with Shri A.L. Mehta: (iv) Copies of office notes of the assessment orders. 17.1. Ld. counsel submitted that unless the interdepartmental correspondences (including with CBDT), in respect of assessment proceedings u/s 153A/143(3) are disclosed to the assessee, he cannot advance his arguments regarding the monitoring of the assessment by CIT/ CCIT. The submis .....

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Addl. CIT 2. 25-6-2007 1 18 AL Mehta's letter The said letter states to Prime Minister - 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 asses .....

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y 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 CIT The Addl CIT who was not involved with the original assessment after independent analysis of the appraisal report, the assessment records, the allegations of AL Mehta intimates tha tall the points raised by AL Mehta has been duly considered in the cour .....

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al report and finding mentioned in the repeated complaints by Shri AL Mehta were duly examined in the course of the assessment. In case no addition was made in the assessment qua such issues, reasons have been duly recorded in the form of office notes 17.4. Ld. Counsel for the assessee referred to page 35 of PB dated 9-1-2013 wherein the extract of order-sheet dated 9-10-2012 is contained, which is reproduced hereunder: "9/10/12 Spl. Counsel Mr. G.C. Srivastava agreed to allow inspection of .....

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ision of Hon'ble High Court dated 3-8-2012, the Tribunal vide order-sheet entry dated 9-10- 2012 had directed the Income-tax department to allow inspection of the entire records to the assessee which is evident from the order-sheet entry noted above. 17.6. Ld. Counsel in petition has pointed out that the AO allowed the authorized representatives to appear before the office of the AO and CIT on 9th & 10th October 2012 for inspection of the aforesaid records including confidential folders .....

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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 unde .....

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ot; 17.7. Thus, the direction of the Tribunal to place the entire records was not complied with. Accordingly, the assessee prayed as under: In view of the aforesaid, it is respectfully submitted that the Department may kindly be specifically directed to allow the applicant inspection of the entire records relating to assessment and proceedings under section 263 of the Act, and more particularly the following: (a) inter-departmental correspondences (including with CBDT) in respect of the assessme .....

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ding Counsel for the Revenue; (e) copies of documents relating to initiation/completion of revisionary proceedings under section 263 of the Act referred to in Annexure B to this application, prepared on the basis of limited inspection of ten files allowed to the applicant before the Delhi High Court in the presence of the Standing Counsel for the Revenue;" 17.8. The assessee had also relied on the decision of Hon'ble Punjab & Haryana High Court in the case of Hari Iron Trading Co. V .....

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05 Letter from CCIT to CIT forwarding aforesaid letter to CBDT 9 2 3. 05.10.2205 Return filed by assessee in response to notice under section 153A 4 10.10.2005 Not known/Required 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 proc .....

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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 assessee in response to queries raised during the assessment proceedings 18. 10-01-2006 19. 17-01-2006 Reply filed by the assessee in response to queries raised during the assessment proceedings 20. 31-1-2006 Status report, in turn, forwarded by CIT to CCIT 9 22-28 21. 06-02-2006 Questionnaire issued by the assess .....

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7-03-2006 Questionnaire issued by the assessing officer 29. 23.03.2006 Letter from CBDT forwarded by CCIT to CIT. 9 46 30. 24.03.2006 Reply filed by the assessee in response to queries raised during the assessment proceedings 31. 25.03.2006 Letter from A.L. Mehta to Chairman, CBDT directing that allegations made there be investigated and report with regard to the action taken to be sent to the Board. 32. 30-3-2006 Status report, in turn, forwarded by CIT to CCIT 9 47-52 33. 27-4-2006 5-5-2006 Le .....

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-5-2006 Letter from CIT to Addl. CIT 9 58-59 38. 26-5-2006 Status report of assessing officer forwarded by CCIT to CBDT 9 69-86 39. 26.5.2006 Letter from CCIT to CBDT 7 109-122 40. 01-06-2006 Assessment order(s) under section 153A 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 .....

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d 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 papers and documents lying in any folder of the department constitute record for the purpose of these proceedings. The dep .....

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noted something in file which was never communicated to the assessee, though the noting may be based on the facts of the case. The A.O. might have remarked that for the stated reasons mentioned therein, an addition was not called for. Later, if the AO found patent error in the un-communicated file noting, he cannot rectify it by resorting to section 154, as this is not part of the order. This would be so whether he has made the noting before or after passing the assessment order, but discovered .....

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g authority it is imperative that the order granting sanction must be demonstrative of the fact that there had been proper application of mind on the part of the sanctioning authority. 18.3. The revenue also referred to the following decisions, mentioned in para 11, for the proposition that application of mind is to be demonstrated through assessment order and if there is no application of mind by the AO then the assessment order can be termed as erroneous and prejudicial to the interests of rev .....

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ntext 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 .....

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tainly a case where the AO did not display a bona fide intent when he refused to close the proceedings and rejected the objections in an irrational and illogical manner. However, in the present case, the order passed u/s 263 is well reasoned order and based on material facts. 18.6. Ld. Special Counsel Shri G.C. Srivastava submitted that new CIT has passed the order after going into the issues afresh and after considering the submissions of the assessee. 18.7. Ld. Spl. Counsel further referred to .....

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nitiate action. 7. Because the Hon'ble High Court failed to appreciate that the proceedings under section 263 of the Act had been initiated and the orders under that section had been passed by the CIT without reaching any independent satisfaction and as directed by the superior authorities in the income tax hierarchy, to satisfy the insidious desire of informant Mehta and his determination to cause harm to the petitioner." 13. Because the Hon'ble High Court failed to appreciate that .....

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re listed the Hon'ble Supreme Court passed the order which has been reproduced earlier SLP(C) Nos. 8488-8493/2010: By consent, these SLPs are taken on Board. SLP(C) Nos. 7712/2010 & 8488-8493/2010: Pursuant to the order dated 11th March, 2010, we are directing the petitioner-assessee in these cases to give us a complete break-up/ bifurcation of the worldwide income, allocation of expenses towards learning business and towards software business. In these cases, we want to examine whether .....

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f 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 Solis .....

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of the submission that the impugned order was passed on the dictated lines of CBDT, vanished. 18.14. Ld. Spl counsel Shri G.C. Srivastava pointed out that the allegation of the assessee with regard to the first order u/s 263 having been passed on the dictates of the superior authority, which the assessee made before the Hon'ble High Court after inspection of records, was taken note of by the Hon'ble Court. The Hon'ble High Court believed so and observed that all these allegations wou .....

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n'ble High Court preferred to direct the new CIT to pass a fresh order with application of independent mind and dispose of assessee's objection in this regard. 18.16. Ld. Spl counsel pointed out that assessee has referred to the affidavit of Shri A.L. Mehta in a defamation suit, asserting that he got the proceedings u/s 263 initiated. In this regard he pointed out that the statement was from a party, having personal interest in the case and the said assertion was not backed by any tangib .....

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rse 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 .....

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ons 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 assessment order must be passed by making any particular addition or disallowance. None of the letters written by the CIT/CBDT indicate that there was any dictate therein for the A.O. Hence, the important issue in the light of assessee's allegation is that whether the CIT was empowered by the provisions of .....

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he said order passed by the A.O. is contrary to the provisions of law and accordingly the same itself becomes erroneous and prejudicial to the interest of the revenue. Hon'ble Supreme Court in the case of CIT vs Green Word Corporation (2009) 314 ITR 81 (SC) has inter alia held that in the case where it is found that the assessment has been passed on the dictates of the commissioner, being fully without jurisdiction, then such assessment would be treated as nullity and in the said case Hon .....

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as observed that, "the High Court may examine the files for the limited purpose, but the person against whom the search warrant was issued, is not entitled to look into the file. He also relied on the decision of Patna High Court in the case of Ram Swarup Sahu Vs. CIT 196 ITR 841, wherein it has been held that confidential documents could not be shown to the petitioners as their disclosure will hamper the inquiry pending against the petitioners. He pointed out that in the present case also .....

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essary 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. Unles .....

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r, further relied on the decision of Hon'ble Calcutta High Court in the case of CIT v. Hastings Properties 253 ITR 124 and as regards the revenue's contention regarding application of mind by AO in framing the assessment, to be demonstrated through the assessment order, assessee relied on the decision, including the decision of ITAT Delhi Ç' Bench in the case of CIT Vs. Usha International Ltd. 210 Taxation 188 wherein it has been held that the fact that there is no finding qua .....

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ee, primarily in the nature of administrative actions being taken by the department, had been shown to assessee and department is claiming confidentiality on rest of the documents. Further, we find that as per the directions of Hon'ble High Court, the assessee was shown the correspondence, from which assessee has prepared a synopsis, the extracts from which, have been reproduced in the written submissions filed before the Hon'ble High Court, contained at pages 104 to 146 of the PB-I ( re .....

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ails of investigations done with respect to specific allegation Nos. 2,3,4,5 and 6 and whether information regarding allegation nos. 13 & 14 have been sent to the respective 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. Undat .....

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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 should properly record the same in the office note for future reference - Reference to 8. 26.5.2006 9 69-86 Status report of AO forwarded by CCIT to CBDT CCIT records that all the .....

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m CCIT to CBDT regarding monitoring of NIIT Group of cases by the Board The CCIT states that various allegations of the informer, the conclusion drawn on such allegations as well as the various enquiries and investigations done were dealt at length. This report was sent by the CCIT to the Board ahead of finalization of assessment order by the AO which shows close day-to-day monitoring of the assessment by the CBDT The CCIT further stats as follows: As is apparent from this report the Department .....

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out in the appraisal report in the Directorate of Income-tax 20.1. A bare perusal of the above details would show that in none of the letters, CBDT or CCIT has given any direction to the assessing officer to frame the assessment in a particular manner on a particular issue. Taking status report on the basis of information received by CBDT on tax evasion petition cannot be said to be monitoring of assessment by CBDT. U/s 119, CBDT is required to issue instruction to other authorities, as it may d .....

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ogress 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 autho .....

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tion from AO on specific allegations does not amount to interference with his quasi judicial powers. In exercise of its administrative and vigilance functions, CBDT issues various letters to various authorities for proper administration of Income-tax Act, but that cannot be equated with giving directions to the authorities for doing assessment in a particular manner. No doubt position will be different when statutory approval is required to the action by an authority. Submissions of Ld. counsel .....

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nted out that the assessee had inspected the records as per the directions of the Hon'ble High Court which is evident from the following observations: "1. Inspection of Records: Issue regarding the inspection of record had already been complied with. The various correspondence, etc. which the assessee has mentioned in its letter, while raising the legal objections, clearly shows that it has not only inspected the requisite records but have also taken copies of the same. The assessee has .....

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Hon'ble High Court and again on 17.08.2009 & 19.08.2009. Records were also shown/ made available to assessee's counsel during the course of hearings of writ petitions before the Hon'ble Delhi High Court. Inspection of records as directed by the Hon'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 sett .....

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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 under section 263 have been ini .....

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the assessee in assessment proceedings, the same is not required to be confronted to the assessee because that does not constitute the relevant material for the purposes of assessment. 20.4. The order sheet noting recorded by the Tribunal on 6-7-2010 has to be read subject to the final direction of Hon'ble High Court in its order dated 3- 8-2012, wherein the Hon'ble High Court has observed that, "Consequently, the Tribunal cannot be faulted in directing vide its order dated 6-7-201 .....

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h Court. Hon'ble High Court has only referred to assessment records and the records relating to proceedings u/s 263 for the relevant assessment year. It is pertinent to note that neither Tribunal nor Hon'ble High Court referred to above correspondences and confidential records inspite of specific prayer to that effect by assessee. 20.6. Thus "all records", as mentioned in the Tribunal's order dated 6-7- 2010, have been clarified by Hon'ble High Court in its order dated .....

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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 department .....

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assessee's stand that while passing the fresh order the Commissioner will again be influenced by the alleged correspondence, cannot be accepted. 20.10. There is no correspondence between CBDT and CCIT/CIT/AO on record between passing of the order by Hon'ble High Court on 11-12-2009 and 3-8-2012. Therefore, it cannot be accepted that the second order passed by ld. CIT suffers from same flaws or infirmities. The position that emerges now is that assessee has been shown entire corresponden .....

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pass order in a particular manner but if he simply confirms that all aspects have been taken note of that does not imply that he has followed directions of higher authorities. We have examined the compilation filed by department in sealed cover, which is mainly from file nos.1,7,8,9,10,11 and 12. The entire correspondence relates to 2006 and 2007 i.e. prior to the passing of first order of ld. CIT which was set aside by Hon'ble High Court and not thereafter. Therefore, in any case, this corr .....

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laints being made by Shri A.L. Mehta which is primarily a tax evasion petition and CBDT, in exercise of its administrative functions, is required to take reports from CCIT/CIT on various allegations contained in the tax evasion petition. We do not see any interference being caused by CBDT in discharge of quasi judicial functions of AO by resorting to obtaining reports from CCIT/ CIT. 21. Ld. counsel for the assessee has filed before us supplementary submissions and relied on the decision of Hon& .....

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iolative 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 .....

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artment, the search was conducted on the satisfaction note of the Director of the Income-tax (Inv.), Kanpur, after getting approval of the Director General of Income-tax (Inv.), North, Lucknow. The assessee filed an application on 7-11-2009 before the DGIT (Inv.), Lucknow and the DIT(Inv.), Lucknow and the DIT(Inv.), Kanpur, requesting them to provide, apart from other papers, the copy of satisfaction note to the assessee. The assessee pointed out before the Hon'ble High Court that neither t .....

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amendment application, (i) Challenge the search and seizure action; (ii) Question the centralization of assessment case at Noida; and (iii) Seek a direction for conducting the assessment proceeding at Delhi, in case the answer to the aforesaid questions is in negative. 14. The remaining nine companies, the firm, and the nine individuals (out of fifteen) have also filed writ petition raising similar points. These petitions are connected with the present one. 15. The search by the Department, is .....

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w the information in possession of the department or the reasons 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 proce .....

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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 substantial details have been made available to assessee. 22. As regards the assessee's contention that new issues were raised in the show cause notice dated 5-2-2010, ld. CIT, inter alia, pointed out that Hon'ble High Court while disposing .....

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ch needs to be decided is whether the present proceedings are fresh proceedings or the continuation of earlier proceedings, initiated vide issue of show cause notice dated 23-7-2007. The contention of ld. Counsel for the assessee is that since the Hon'ble High Court vide its order dated 11-12-2009 had only set aside the order passed u/s 263 and did not quash the proceedings, therefore, the proceedings initiated vide show cause notice dated 23-7-2007 still survive and the matter is restored t .....

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e dated 23-7- 2007 and 15-10-2007 and the issues covered in the original order, in the earlier round of proceedings. 22.2. In sum and substance, the submission of ld. counsel for the assessee Shri Ajay Vohra, is that initiation of proceedings has to be considered with reference to the original show cause notice issued in the first round of proceedings. 23. On the contrary, the submission of ld. Special Counsel Shri G.C. Srivastava is that ld. Commissioner, who was a new incumbent, as was also ob .....

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re 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. Commiss .....

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he argument advanced by ld. counsel for the assessee viz. that the impugned order passed u/s 263 dated 11-3-2010, still suffers from the same jurisdictional defect as was canvassed by the assessee in regard to proceedings initiated by issue of show cause notice dated 23-7-2007. (ii) The submission of the ld. counsel for the assessee that Hon'ble High Court has not quashed the proceedings but has only set aside the order, has to be considered in the perspective of nature of proceedings u/s 26 .....

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he issues raised in the show cause notice. This show cause notice does not per se give jurisdiction to ld. commissioner for passing order u/s 263 which can be passed only after the objections of assessee are duly considered. It is only after considering the explanation/ objection of the assessee if the ld. Commissioner reaches a conclusion that the order passed by ld. Commissioner is erroneous in so far as prejudicial to the interest of revenue, then he proceeds to pass order u/s 263. In the pro .....

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the order passed by ld. Commissioner has been set aside, then it cannot be said that though the order does not survive, but the show cause notice does survive. This will be contrary to the very nature of proceedings under section 263. (v) Ld. counsel 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 limi .....

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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 implied that ld. CIT had to apply his mind independently and .....

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essment proceedings u/s 143(3)/ 153A, the AO raised queries qua all the issues pointed out by the Commissioner in the impugned order and accepted the same either wholly or in part after due application of mind. 26.1. Ld. Counsel has referred to brief synopsis of the inquiries conducted by the AO which we will consider qua specific grounds raised by the assessee regarding various issues. However, presently only the legal aspect is being considered. 26.2. Ld. Counsel referred to the impugned order .....

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to be seen from examination of the entire assessment records and not just the assessment order. He relied on following judicial pronouncements: -Hari Iron Trading co. Vs. CIT 263 ITR 437; -CIT v. Eicher Ltd. 294 ITR 310 (Del.); -CIT Vs. Sunbem Auto 332 ITR 167 (Del.); -CIT v. Anil K Sharma 335 ITR 83 (Del.); -ONGC v. DCIT 104 TTJ 900 (Del.). 26.4. Ld. Counsel submitted that Ld. Commissioner cannot substitute his opinion in place of that of the AO as to the manner and the form in which the inqui .....

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ed 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 sho .....

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e case of CIT Vs. Anil Kumar Sharma 335 ITR 83, wherein it was, inter alia, held that once application of mind is discernable from the record, the proceedings u/s 263 would fall into the ambit of the CIT opinion. This case was also examined on the touch stone of principle laid down in the case of Sun Beam Auto (supra) regarding lack of inquiry vis a vis inadequate inquiry. He also referred to the decision of Hon'ble Rajasthan High Court in the case of Ganpat Bishnoi 152 ITR 242, wherein it w .....

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s that the order of the AO is erroneous. It was held that the lack of inquiry by itself renders the order to be erroneous and prejudicial to the interests of revenue. However, in cases where the AO conducts inquiry, the CIT has to examine the order of the AO on merits and then form an opinion on merits that the order passed by the AO is erroneous and prejudicial to the interests of revenue. 26.9. It was, inter alia, held that an order is not erroneous, unless the CIT records reasons why it is er .....

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Chettiar & Anr. V. CIT 220 ITR 657(Mad.); -Addl. CIT v. Mukur Corporation 111 ITR 312 (Guj.); -Shyam Telelink Ltd. V. ITO 99 ITD 576 (Del.). 26.11. Ld. Counsel submitted that in the case of K.A. Ramaswamy Chettiar & Anr. (supra), no inquiry was conducted by AO on the issue of purchase of property by the assessee during the year, though contemporary material was available on record to suggest payment of 'on money' by the assessee for purchase of property during the year; and in t .....

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y. 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 .....

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n in a given circumstance would come to that conclusion, then only the case would not be covered by lack of inquiry. He, therefore, submitted that merely because some inquiry is carried out by AO, would not imply that the case falls under the ambit of inadequate inquiry and the same may still fall under the category of lack of inquiry. 27.2. He 'gave an example that in case of cash credit, unless the AO carries on such inquiry so as to reach the conclusion/ satisfaction about genuineness of .....

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required satisfaction, then it may be a case of inadequate inquiry, but not lack of inquiry. He submitted that there is no authority for the proposition that ld. CIT cannot substitute his opinion in place of AO. 27.3. Ld. Spl. Counsel placed reliance on the decision in the case of Thalibai F. Jain & other Vs. ITO 101 ITR 1, wherein it has been held that if order is prejudicial then necessarily erroneous but not vice versa. In this case, the assessee, who had not been assessed previously, fil .....

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lend privately, from which she earned interest. The entire cash of ₹ 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 .....

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ld 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 there was income earned from it as alleged. That he did not do so and misdirected himself in accepting the returns under section 143(1) without the basic necessaries prescribed thereunder is enough to establish prejudice to revenue. The subsequent enquiries, as already stated, only confirmed what .....

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thout any enquiry being made in a new case and on the very next day the returns of income were received for the assessment years 1969-70 to 1972-73." 27.4. In the backdrop of these facts, the Hon'ble High Court upheld the action taken by the ld. Commissioner, inter alia, observing as under: "Section 143(1)(a) as substituted by Act 42 of 1970 with effect from April 1, 1971, provides where a return has been made under section 139, the Income tax Officer may, without requiring the pre .....

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sessee was correct and complete. He could accept the return of income as submitted by the assessee. But the income must be the income earned by the assessee in the relevant year. The Income tax Officer has no power to assess the income of one person in the hands of another. To that extent at least, he must apply his mind and cannot blindly make the assessment while accepting the voluntary return. Since no such inquiry was made by the Income tax Officer in all these cases, the assessments must be .....

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cer 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 .....

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ss from the address declared in the returns. Also the Income-tax Officer was not justified in accepting the initial capital, the gift received and sale of jewellery, the income from business etc. without any inquiry or evidence what-so-ever. The show cause notice was challenged by way of writ petition, inter alia, on the ground that the order passed by the ld. Commissioner was based on notice which was absolutely ague and did not contain any indication in what respect the assessment orders were .....

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n of Hon'ble High Court, inter alia, observing as under: "In our view, the High Court was right in overruling the contention of the assessee. The order of the Commissioner is a detailed order. There is no doubt that he does mention some facts which were not indicated or communicated to the assessee and which the assessee had had no opportunity of meeting. For instance, in paragraph 9 it is stated : " It has been ascertained that the Income tax Officer, D Ward, Howrah, had no jurisd .....

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oreover, the name of the assessee is Rampiyari Devi Saraogi, and as the Income tax Officer, D Ward, Howrah, who has made the assessments, had only jurisdiction over cases of new assessees, whose names began with the alphabetical letters 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 b .....

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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 voluntary returns in respect of a number of years, i.e .....

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ut any Income tax Officer on his guard. But the Income tax Officer without making any enquiries to satisfy himself passed the assessment order on March 30, 1961, for the assessment years 1952-53 to 1957-58, and on April 26, 1961, for the assessment years 1958-59 to 1960-61. No bank account or any proper books of account were maintained by the assessee or produced before the Income tax Officer. A short stereo typed assessment order was made for each assessment year. As a sample, the Commissioner .....

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nterest income was received." 27.7. With reference to above decision, ld. Special counsel pointed out that Hon'ble Supreme Court upheld the revisional proceedings because the AO did not carry out that level of inquiry from which he could reach a stage where he was in a position to take proper decision. He submitted that inquiry level had to be weighed by AO. 27.8. Ld. Spl. Counsel Ld. further relied on the decision of Hon'ble Supreme Court in the case of Smt.Tara Devi Agarwal Vs. CI .....

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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 .....

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and function of the Income tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order bu .....

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failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. 27.10. With reference to above case laws, ld. Spl. Counsel has summarized his arguments as under: "In the present case before your Honours, it is respectfully submitted that the ratio laid down by the apex court and by the jurisdictional High Court is squarely applicable for t .....

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ving high stakes for the Revenue. No material of any kind was brought on record to reach any kind of satisfaction for the acceptance of the claims put forth before him. This is a case of complete lack of enquiry and the assessee may not be allowed to take benefit of certain observations of Hon'ble Courts drawing distinction between 'lack of enquiry' and 'inadequate enquiry' as arising in the facts of those cases. Such a distinction can arise only when the enquiries have been .....

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ssment 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 .....

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squarely applicable to the present case. Since in the present case also, the A.O. accepted the replies of assessee on their face value without conducting any enquiry having regard to the circumstances of the case." 27.11. ld. Special counsel further submitted that the case laws relied by the ld. counsel for the assessee are distinguishable on the facts and circumstances of the case. In this regard, the ld. CIT(DR) has filed written submissions, which are reproduced hereunder: "8. The L .....

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counts was filed before the AO. without any supporting material and thus there was lack of enquiry. This case really supports the case of the Revenue. Ganpact Ram Vishnoi (152 Taxman 242 @ Vol IV-1248-1250) The attention is drawn to the observations of Hon'ble High Court on Page 1249 of PB where a finding is recorded that detailed enquiries were completed in this case. The case is, therefore, distinguishable. D.G. Housing projects Ltd. (343 ITR 329-Del @ Vol-IV-1262- 1280) In this case, the .....

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hable. Hari Iron Trading Co. (263 ITR 437-P&H-@ vol IV of assessee's paper book on page no. 1204-1209 : In this case, the assessee surrendered ₹ 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 .....

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arly 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 with reference to reopening of assessment uls 148 of the Act.Further, without prejudice, even on merit of the case, the Assessing Officer sought to tax the waiver of interest in reassessment pr .....

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ction 263 of the Act nowhere provides or has any relation with disclosure of facts as provided in the proviso to Section 148 of the Act. The requirement of section 148 is that material facts are disclosed but uls 263, the point of enquiry is the error in the order. Besides, the Court clearly records a finding that the assessee had placed all the material before the A.O. CIT vs Sunbeam Auto (332 ITR 167-Delhi High Court @ vol IV: page no. 1228-1237 of assessee's paper book In this case the as .....

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g Officer had not applied his mind at all. He had not conducted any enquiry or further enquiry as necessary in the given circumstances. CIT vs Anil K Sharma (335 ITR 83-Delhi High Court @ vol IV: page no. 1238-1240 of assessee's paper book In this case it was found by the Tribunal that complete detail were filed before the Assessing Officer and that he applied his mind to the relevant material and facts, although such application of mind was not discernible from the assessment order. The fin .....

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see'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 .....

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been handled by the A.O. (grounds no. 11 onwards), that it is a case of adequate or inadequate enquiry and hence the jurisdiction of CIT is ousted. The judicial precedents have to be seen in the backdrop of factual matrix in which these are rendered. These cannot have universal application." 28. We have considered the detailed submissions of both the parties and have perused the record of the case keeping in view the various authoritative pronouncements in this regard. There cannot be any .....

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cial counsel has rightly pointed out that the expression, 'inquiry', 'lack of inquiry' and 'inadequate inquiry', have not been defined and, therefore, when the action of the AO would be suggestive of lack of inquiry or inadequate inquiry, will depend upon the facts obtaining in a particular case. What emerges as a broad principle from the various decisions is that where the AO has reached a rational conclusion, based on his inquiries and material on record, the Commission .....

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cial to the interests of the revenue. Then only the powers u/s 263 can be invoked. Therefore, if AO accepts or rejects any claim of the assessee without due application of mind and if such failure causes prejudice to revenue, the Commissioner would be well within his powers u/s 263 to intervene in the matter. An 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 iss .....

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ative 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 .....

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35 ITR 83 (Del.); - Vimgi Investment (P) Ltd. 290 ITR 505 (Del.); - CIT V. Vikram Aditya & Associates 287 ITR 268 (Del.); - CIT Vs. Ashish Rajpal 180 Taxman 623 (Del); - CIT Vs. Gabriel India Ltd. 203 ITR 108 (Bom.). 30. Ld. Spl. Counsel submitted that there is no quarrel on the settled legal position. He submitted that if AO's order is not legally sustainable, the CIT has power to substitute the view which is legal and sustainable. 30.1. Ld. Special Counsel referred to the decision of H .....

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as observed as under: 10. In the facts of the present case, as we examine the factual position, the Commissioner in her order under Section 263 has recorded specific findings as to why and for what reason she felt that the order passed by the Assessing Officer on two accounts was erroneous and prejudicial to the interest of Revenue. For the reasons set out in the order, which we need not at this stage elaborate as this is a question of merits, we reject the contention of the respondent- assessee .....

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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 whet .....

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Officer. It is in these circumstances that power of revision has been conferred on the Commissioner under Section 263 of the Act to correct erroneous orders which are also prejudicial to the interest of Revenue. Observations of the Supreme Court in the case of Malabar Industrial Company Limited (supra) have to be understood in the context in which they were made. An order will not be erroneous, if the Commissioner does not decide whether the order of the assessing officer is erroneous but obser .....

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ble and incorrect. But the said finding must be recorded. This would satisfy the statutory requirement that the order passed and made subject matter of revision was erroneous, subject to the second condition that the order under review should also be prejudicial to the interest of the Revenue. (Emphasis supplied by us). 30.3. Ld. Spl. Counsel further submitted that the ld. Commissioner restored the matter to the AO on the ground that inquiries were not conducted and the claims were accepted on t .....

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one way or the other, could not have been reached at all without conducting the preliminary inquiries in the matter. He submitted that in a situation, where AO chooses not to conduct the inquiry and does not bring any material on record of any kind; in any view of the matter, the plea of AO having taken one of the possible views, becomes wholly irrelevant. 31. We have considered the submissions of both the parties. The issues in hand have to be examined in the light of various decisions relied b .....

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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 respec .....

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s that what the AO could not do directly, the CIT cannot do indirectly. 32.1. The assessee placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Software Consultants 341 ITR 240 (Del.). In this case the AO initiated proceedings u/s 147 of the Act on the issue of taxability of certain FDRs, which were found in possession of Poonam Rani Singh, a director of the company. However, Poonam Rani Singh claimed that the FDRs, in her name, actually belonged to the Software .....

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de on this count. The return filed by the assessee, showing loss of ₹ 1,02,756/- was accepted. In the assessment order, the AO had also noted as under: "Scrutiny of the P&L A/c also revealed that during the year share application money was increased by ₹ 47,00,000/-. In order to verify the geniuses of share application money summons u/s 131 of the IT Act was issued to person on random basis and statement was recorded for confirming of these investments made by them towards t .....

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the ITAT, the Hon'ble Delhi High Court held that since AO could not have made addition on account of share application money, 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 .....

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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 material/ document/ books of account found during the course of search. The AO does not have the jurisdiction to verify the total income and cannot re- agitate issues, which have att .....

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uiries and applied mind on all the issues raised in impugned order. Assuming for the sake of argument, without admitting, that the assessment was completed without making necessary enquiries on any of the issues having no relation to the incriminating material found during search, still the same could not have been held to be erroneous and prejudicial to the interests of Revenue under section 263 since the said issues being outside the scope of assessment under section 153A of the Act was not re .....

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raming assessment under that section. In other words, the CIT cannot indirectly seek to do what the assessing officer could not do directly. The Full bench of the Delhi High Court in the case of Kelvinator of India Ltd. 256 ITR 1 observed as under: "... It is well settled principle of law that what cannot be done directly cannot be done indirectly. If the Income tax Officer does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiati .....

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pute 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 assess .....

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ssessment. 33.1. Ld. Special Counsel referred to the decision of ITAT in the case of All Cargo Global Logistics Ltd. (supra) and pointed out that it has been held that 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. He submitted that admittedly when intimation u .....

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search will be covered by the phrase 'material found in the course of search'. In this regard ld. Special Counsel referred to para 53 of the decision report, which reads as under: 53. The question now is - what is the scope of assessment or reassessment of total income u/s 153A (1) (b) and the first proviso ? We are of the view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had .....

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ollowing results :- a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record 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 .....

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he 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 .....

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ot use the words "completed assessment". Further, the question which has been referred to us is 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. The question uses the words "incriminating material" which again find no mention either in section 132(1) or 153A. Thus, analysis of various scenarios regarding completed assessments does not fall within the ambit of the question posed .....

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u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search. 33.4. Ld. Special Counsel submitted that assessment u/s 143(1) even if treated as completed assessment but that was not on the basis of books of account. He submitted that power u/s 147 .....

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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 .....

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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 in Para 10 (supra) on the ground that in respect of these additions, no material was found during the search carried out under Section 132 and also on the ground that for all the years under consideration, the returns filed by the assessee before the search had been processed under Section 143(1)(a) of the A .....

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not been applied by the Tribunal in respect of the addition of ₹ 1,50,000/- made in the assessment year 2003-04 on account of unexplained loan advanced to Mohini Sharma and the addition of ₹ 27,000/- made in the assessment years 2004-05 and 2005-06 presumably because the document embodying the loan was recovered in the course of the search of the assessee‟s premises. 16. We now proceed to discuss the correctness of the conclusion of the Tribunal that the Assessing Officer had .....

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or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall- (a) Issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act sh .....

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r 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-sectio .....

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all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year........... . 22. In the light of our discussion, we find it difficult to uphold the view of the Tribunal expressed in Para 9.6 of its order that since the returns of income filed by the assessee for all the six years under consid .....

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ts order that no material was found during the search is factually unsustainable since the entire case and arguments before the departmental authorities as well as the Tribunal had proceeded on the basis that the document embodying the transaction with Mohini Sharma was recovered from the assessee. While summarizing the contentions of the assessee in Paragraph 5 of its order, the Tribunal itself has referred to the contention that no document much less incriminating material was found during the .....

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dition of ₹ 1,50,000/- as well as the notional interest on merits, holding that the document was unsigned, that Mohini Sharma was not examined by the income tax authorities and there was no corroboration 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 asse .....

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unal 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 not necessarily specific material found in the course of search. 33.7. Accordingly, ld. Spcial .....

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decision of Hon'ble High Court in the case of CIT Vs. Software Consultants 341 ITR 240, ld. Special Counsel submitted that the said decision is not applicable to the present set of facts. He pointed out that the aforesaid decision was based on the reasoning that no addition could be made on the issue of share application money by AO but no such dispute is involved in the present case. 33.9. As regards the reliance placed by ld. counsel for the assessee in the cases of Rajasthan Shipping &am .....

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ies of accounts found during search, e-mails, statements and all other material brought on record as a result of search proceedings. He submitted that the case of the present assessee stands on its own facts and none of the cases referred to by the assessee have any application. Ld. Spl. Counsel in written submissions submitted as under: "Search proceedings. The case of the present assessee stands on its own facts and none of the cases referred to by the assessee have any application. 23.Re .....

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ell. 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 .....

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sessed. To illustrate, if regular books of accounts have not been produced and the assessment has been completed uls 143(1) and during search the books are found and seized and further on its examination it is found that certain purchases/expenses are bogus/inflated, would it be open to argue that the A.a. has no jurisdiction u/s 153A because the accounts are maintained in the regular course or books are not prima facie duplicate. It would be a complete travesty of justice to suggest that the ma .....

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during search. The evidence found for one year may have bearing on the other year as well and would thus form material for the year of assessment. A direct one-to-one correlation is neither mandated nor necessary in law. 25. The assumption of jurisdiction uls 153A is triggered by operation of law. The rest is a matter of determination of income based on the material available with the A.O. Section 153A substitutes other powers and functions of A.O., like those available uls 147. If a Profit &am .....

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enue placed reliance on the decision of Delhi High Court in the case of SSP Aviation Ltd. V. DCIT 346 ITR 177. In that case the High Court had examined the validity of assumption of jurisdiction under section 153C of the Act. The High Court held that for the purposes of assuming jurisdiction under section 153C, the only requirement is recording of satisfaction by the Assessing Officer having jurisdiction over the searched person that the valuable articles or books of accounts or documents seized .....

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ediment 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 .....

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certain pre-requisite conditions prescribed under that section. He has pointed out that search can be conducted on a person only if the prescribed income-tax authority has reason to believe that - (i) Any person, to whom, summons/ notice was issued under the provisions of the Act to produce books/ documents, has failed to produce the same; or (ii) Any person to whom summons/ notice under the provisions of the Act had been or might be issued will not or would not produce books/ documents; or (iii .....

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urpose of making assessment u/s 153A of the Act is not to verify the return, as such, but to make assessment primarily on the basis of the material found during the course of search. There cannot be any quarrel with these submissions made by the ld. counsel for the assessee. In this regard we may refer to the decision of Hon'ble Jurisdictional High Court in the case of Chetan Das Laxman Das (supra), in which Hon'ble Jurisdictional High Court observed that though there is no condition in .....

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held that in 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 .....

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aised 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. counsel for the assessee, as fairly accepted by ld. Special Counsel, that the bar which apply to the AO equally applies to the CIT for the purposes of section 263 of the Act, as was held by the Hon'ble Kerala High Court in the case of CIT Vs. Paul John, Delicious Cashew Co. .....

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the interests of revenue and, therefore, while exercising revisionary jurisdiction u/s 263 of the Act, CIT must pinpoint not only as to how the assessment order was erroneous but also how the prejudice was caused to the revenue as a result of such error. Ld. counsel submitted that in the present case the Commissioner while alleging that AO conducted inadequate inquiries qua various issues held the assessment order to be erroneous, but did not give any finding on merits of any of the issues. He s .....

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rder of AO on merits and then hold and form an opinion on the merits that the order passed by the AO is erroneous and prejudicial to the interests of Revenue. Ld. counsel relied on following case laws on this issue: - CIT vs. Leisure Wear Exports Ltd. 341 ITR 166 (Del); - CIT vs. Hindustan Marketing & Advertising Co. Ltd. 341 ITR 180 (Del); - CWT v. Prithvi Raj & Co. 199 ITR 424 (Del); - JP Servastava & Sons (Kanpur) Ltd. Vs. CIT 111 ITR 326(All); - CIT Vs. Chawla Trunk House 139 ITR .....

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d 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 afte .....

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IT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, .....

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dition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question." 37. Ld. Special Counsel submitted that since the case of the assessee falls in the category of lack of inquiry as opposed to inadequate inquiry, the CIT w .....

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ht the necessary material and evidence on record; formed an opinion on the given issue based on such evidence that the proposition sought to be advanced by the assessee would apply. 37.1. Ld. Special counsel reiterated the submissions 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 .....

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e 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 case is not one where the AO has chosen to adopt one of two possible view .....

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ew was formed based on material on record. However, in the present case, even the primary enquiries have not been conducted and there is a complete non- application of mind. There is a complete failure of AO to discharge the statutory function. The ground of appeal is, therefore, not tenable. 37.5. Ld. Special counsel further referred to para 19 of the decision in the case of DG Housing (supra), reproduced below, to submit that the facts in the said case were such where CIT was required to give .....

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n received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent‟s computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is & .....

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e 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. .....

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pportunities given by AO, the assessee did not furnish the particulars/ documents and took a plea that it had lost the books of a/c. The required information was not given. Then AO disallowed the entire claim of deduction u/s 80HHC of the Act. The CIT in his order passed u/s 263 of the Act opined that non-supply of the information was deliberate non-compliance on the part of the assessee and, therefore, the assessment should have been completed u/s 144 of the Act and not u/s 143(3) of the Act. T .....

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able amounting to ₹ 1.21 crores but no details have been furnished by the assessee. The Assessing Officer has also not made any inquires in respect of this issue, from the insurance company which would be having the details of the claim; c) The assessee has shown M/s Meghna Overseas as a Sundry Debtors to the extent of ₹ 6.99 crores. It appears that export have been made to this firm, but no details are on record, which would details the export sales made. It is pertinent to point ou .....

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no certificate u/s 80 HHC has been filed from which it could be deduced that such huge exports have been made, it was incumbent on the Assessing Officer to make enquiries from the Directorate of Foreign Trade, but no such enquiries have been made. d) The assessee has shown income at ₹ 1.61 crores as exchange variation and this has been export/sales of crores. It is pertinent to note that in the immediate previous year no such gain was shown. Therefore, this is a point which needed examinat .....

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h 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 .....

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s stated in the following terms:- "7. In the instant case, the Assessing Officer was satisfied with making a flimsy addition disallowing the claim of ₹ 17,38,106/- debited under the head, "selling and distributing expenses", and after further holding that the deduction under section 80HHC of ₹ 32,25,486/- was unwarranted. These additions were not sustained at the appellate stage by the CIT (Appeals), who accepted the plea of the assessee "The Director being out of .....

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per inquiries were not made; major issues involved were ignored and a weak order was passed. There is not a whisper as to how this order was prejudicial to the interest of the Revenue. 14. That apart, we find that the approach of the Tribunal in discarding the observation of the Commissioner about not making proper inquiries in respect of the said four issues are also justified and without blemish. 15. First comment of the Commissioner was in respect of finished goods in the closing stock. The C .....

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ng for more details. This is neither here nor there, when we keep in view the ingredients of Section 263 of the Act. 16. In so far as the insurance claim is concerned, the Commissioner observed that the assessee had shown receivable on this account to the tune of ₹ 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 assesse .....

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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 mercantile system or on cash basis. If income does not result at all, there cannot be levy of tax. Even if an entry of hypothetical income is made in the bo .....

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account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If the income does not result at all, there cannot be a tax, even though in book keeping, an entry is made about a hypothetical income, which does not materialize". At page 748 and 749, the Supreme Court further observed as under: "Even though the assessee company was following the mercantile system of accounting and had .....

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ssessee company during the relevant previous year." 17. Coming to the claim under Section 80HHC of the Act, we are again inclined to agree with the Tribunal that it was totally uncalled for on the part of the Commissioner to say that the AO did not make requisite inquiries because of the simple reason that the AO had, in fact, declined and rejected this claim of the assessee. If the AO himself disallowed the deduction claimed by the assessee on this account under Section 80 HHC of the Act, .....

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s 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 .....

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ancelled for the following reasons: "Held, dismissing the appeal, (i) that there was no discussion in the order of the Commissioner as to how and in what manner the enquiry was lacking and what was the fault and default committed by the Assessing Officer. The Assessing Officer had examined this aspect in the original assessment proceedings and accepted the stand of the assessee. There was no finding of the Commissioner that the order passed by the Assessing Officer was erroneous and prejudi .....

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Assessing Officer had followed the earlier assessment orders. The Commissioner observed that note 2 in the audit report did create doubt as to whether expenditure to ES was actually incurred or not. The asessee had clarified that the note was written by the auditor as a precautionary measure for reporting that the amount had been claimed under section 35DDA. The Commissioner in the order did not appreciate and deal with this aspect. He had wrongly interpreted and observed that the claim itself w .....

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considered the submissions of both the parties and have perused the record of the case. 38.1. Ld. CIT while passing the order u/s 263 has considered the assessee's reply in detail and gave his finding on various issues, inter alia, observing as under: "However, keeping in view he principle of natural justice, the reply of the assessee, filed during the course of this proceeding, on each and every issue was considered and records vis-à-vis replies filed at the time of assessment .....

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edings 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 .....

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whatsoever, the order was erroneous and prejudicial to the interests of revenue. After referring to these two decisions Hon'ble Delhi High Court observed as under: "These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries b .....

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rrect/ erroneous; and (ii) where there is failure to make proper or full verification or enquiry." 38.5. Thus, it is evident that Hon'ble Delhi High Court in DG Housing Projects Ltd. clearly pointed out that the facts in Gee Vee Enterprise (supra) were entirely different. Thus, the ratio laid down in the case of Gee Vee Enterprise as well as DG Housing Projects Ltd., have to be taken into consideration depending upon the facts obtaining in a particular case while deciding various issues .....

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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 .....

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ound 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 has assailed the findings of ld. CIT in setting aside the claim for exemption u/s 10B as erroneous and prejudicial to the interests of the revenue on the ground that the same was not examined by the AO while passing the order u/s 143(3)/153A of the Act. 41.1. Vide ground no. 11.1 the assessee has assailed the findings of ld. CIT in ho .....

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erests of the revenue. 41.3. Vide ground no. 11.3 the assessee has assailed the findings of ld. Commissioner in holding that since the assessee had not allocated foreign exchange fluctuation loss of ₹ 2.76 crores to the EOU units and the AO having failed to examine the said issue, the order of the AO in this regard was erroneous and prejudicial to the interests of revenue. 41.4. Vide ground no. 11.4 the assessee has assailed the Commissioner's action u/s 263 without appreciating that t .....

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the AO on the face value without any verification and application of mind. He pointed out that assessee was show caused vide notice dated 5- 2-2010 in regard to various discrepancies which was as under: (iv)(a) Section 10B talks of profit of an industrial undertaking. All the different units were engaged in similar business activities i.e. information technology, services and solutions and, therefore, all the units were basically expansion of existing business and could not be treated as separa .....

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ner 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 a .....

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this aspect is clear from the fact that from the net profit rate of EOU eligible units u/s 10B of the Act was far in excess of those units, which were not eligible for exemption. (d) No inquiry was conducted to substantiate the revenue/ export turn over of such EOUs as disclosed by the assessee. He pointed out that the assessee had shown revenue of the EOU at ₹ 15,47,93,925/- and the gross revenue from production at ₹ 5,26,79,28,616/-. No basis had been given in the return of income .....

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der consideration when there was loss, instead of reducing the revenue from operations the expenses were claimed separately under the head sundry expenses. 42.1. The main objection of ld. Commissioner was that since the major part of the said loss was attributable to the export oriented units, eligible for exemption u/s 10B, the said expenses should have been attributed to the said income. However, while computing the profits of export oriented units, eligible for exemption u/s 10B of the Act, o .....

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r in the show cause notice, the assessee filed detailed reply. 43. Ld. counsel for the assessee Shri Ajay Vohra referred to the 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 2 .....

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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 powers which the subordinate authority may have in the matter. He, therefore, submitted that once ld. CIT(A) has determined any of the aspects relating to sec. 10B, then th .....

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and pointed out that his conclusion is that AO failed to inquire and verify the eligibility and the genuineness of exemption claimed u/s 10B of the I.T. Act. Thus exemption/ deduction u/s 10B was allowed without proper inquiry and application of mind, which rendered the assessment order erroneous and prejudicial to the interest of revenue. 43.5. In this regard ld. counsel referred to page 759 to 764 of the PB, wherein the queries raised by AO vide his questionnaire dated 2-11-2005 is contained, .....

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ooking these expenses under the taxable unit or whether some of these expenses can be supported proportionately." 43.6. Ld. counsel referred to pages 765, 769, 770, 771 of the PB, wherein the assessee's replies are contained, in which assessee had furnished the details in this regard. He further referred to questionnaire dated 29-12-2005, wherein AO had required to furnish the following details: "7. Please provide year-wise expenses shown under the following heads: a. Bought out pr .....

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e 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. 4 .....

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already filed relevant documents and information in support of assessee's claim u/s 10B of the Act. Further to that we are filing the following documents and details as under:- A. Approval by the Board appointed by the Central Government B. Note of EOU and method of allocation of expenses C. The assessee has filed Form no. 56G duly certified by Chartered Accountants, enclosed along with return of income. D. The assessee ahs filed along with return of income audited profit & loss Account .....

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years. As regards the ld. CIT's objection regarding disparity on allocation of expenses between EOU and non-EOU units, ld. counsel referred to pages 898 and 899, wherein the assessee had furnished a note on allocation of expenses as under: (a) Direct expenses were chargeable to individual business group; (b) Service group (corp) Expenses: Expenses under this category is debited to individual service organisation such FSO/CSO/CMO etc. These expenses are allocated based on the manpower of EOU .....

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hat assessee had replied the AO's query regarding impact on allocation of expenses between EOU and non-EOU on account of turn over with business partners; and further regarding 5 heads of expenditures not debited in EOU accounts. He submitted that after considering all these details, which were before AO, he denied assessee's claim to the extent of ₹ 25.20 lacs. 43.16 . Ld. counsel referred to page 900 of PB, wherein the CIT(A)'s order dated 27-9-2006 is contained. He pointed o .....

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ad 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 reca .....

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on the decision of Hon'ble supreme court in the case of Tata Consultancy Services vs. state of Andhra Pradesh 271 ITR 401 (SC). 43.20. Ld. counsel referred to page 779 to 795 of PB, wherein samples of softex forms are contained. Ld. counsel further referred to pages 798 to 800, wherein the export details with export proof are contained. He, therefore, submitted that assessee had furnished all the details which were necessary for verification of nature of export turn over. He submitted that w .....

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in course of search, which threw any shred of doubt on admissibility of 10B deduction, therefore, aO could not go into this issue in 153A proceedings. (iii) Exhaustive and detailed reply given on each allegation raised by ld. Commissioner but ld. Commissioner did nto give any decision on merit. He failed to examine the assessee's reply. (iv) Claim u/s 10B allowed in all preceding years and, therefore, it would not be denied in AY 1999-2000. In this regard ld. counsel has relied on the decis .....

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uiries 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 verific .....

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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 of receipts and claim of expenses. 44.3. As far as eligibility of claim of deduction 10B for such units are concerned, Ld. Special Counsel relied on the order of the Commissioner. He fairly pointed out that these units came up in 1994-95 and no new units were established during the year. As regards the quantification of deduction u/s 10B is .....

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method for allocation of such expenses. He referred to page 21 of the order, wherein the reply of the assessee to the show cause notice is extracted and pointed out that assessee mainly stated that direct expenses were charged to individual business group, service expenses were charged on the basis of revenues of EOU and non-EOU units and other common expenses like rent, electricity etc. were charged on the basis of area occupied, as under:. "1. Direct Expenses chargeable to individual bus .....

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ice group/EOU factories based on the area occupied." 44.4. Ld. Special Counsel further pointed out that, on the other hand, in the reply scanned on page 21 of the order, it was stated that service expenses had been allocated on the basis of manpower. Thus, there was no consistency in the stand of the assessee in regard to the allocation of expenses. 44.5. Ld. Special Counsel further submitted that AO failed to look into this primary aspect of the matter. He failed to examine the basis of al .....

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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 appropri .....

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ed inquiry so as to reach the satisfaction that the expenses were wholly and exclusively incurred and correctly claimed in respect of 10B units. As regards the ld. counsel's submission with reference to the common questionnaire dated 2- 11-2005, asking explanation with regard to specific expenses, like "brought out package", "course execution charges", "professional charges" etc., ld. Special counsel submitted that assessee had given only a general justification .....

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tionnaire on 2-11-2005 on the basis of assets/ documents found during the search, inter alia, to explain the following: "8. Please give details of all the advances given or taken, during the financial year, together with the name, address and the assessment particulars of all such persons. 9. 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. 10. Please furnish the details of interest pa .....

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items which have been "assigned" to non taxable region, have been booked as expense in the taxable unit. You are requested to explain the justification of booking these expenses under the taxable unit or whether some of these expenses 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 p .....

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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 turn over or not. He submitted that AO .....

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are contained and pointed out that the assessee claimed to have exported technical reference material to certain parties, the details whereof are contained at pages 798 to 800. He submitted that the AO, without conducting any inquiry into the matter made a nominal disallowance of the claim of export of technical reference material and denied exemption with regard to export of ₹ 25.20 lacs, which represented provision of technical service to M/s Kwet Liso Holdings. He referred to pages 798 .....

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rovision of technical services. 44.13. Ld. Spl. Counsel pointed out that the disallowance of paltry sum of ₹ 25.20 lacs without bringing on record to show how other receipts qualify for deduction or how these stood on a different footing than the one which he chose to disallow, clearly demonstrates that AO only pretended to apply his mind. He further pointed out that CIT(A) deleted the addition of ₹ 25.20 lacs, so made by AO on the preliminary ground that he himself accepted the clai .....

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bmissions 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 ded .....

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record to indicate that these represented export of TRM and not fee for technical services more so when the AO chose to take the contrary view I respect of 6 invoices (identically placed) of Kwetliso Holdings. This leaves no room for any doubt that the AO made the pretence of enquiry and made some petty adhoc disallowances only to be deleted in appeal. The order of the CIT examines the issue in sufficient details and the lack of enquiry is writ large on the face of the matter. In view of the abo .....

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ls to issues not reached and adjudicated by the CIT(A). In this regard Ld. Spl. Counsel placed reliance on following decisions: - CIT Vs. Shri Arbuda Mills Ltd. 231 ITR 50 SC; - Ritz Ltd. Vs. Union of India 184 ITR 599 (Bom.). 44.16. Hon'ble Supreme Court in the case of Shri Arbuda Mills Ltd. (supra) has held that powers of Commissioner u/s 263 would extend and would be deemed to have extended to the items which had been considered and decided in appeal filed by the assessee. In this case th .....

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ation of ₹ 4,21,000/- which was paid by the assessee to United Textile Industries as consideration for transfer of installed property of ₹ 17,480/- and 400 looms of old Manek Chowk Mills. (iii) Loss on account of difference in exchange rate which was referable to the purchase of machinery etc. as revenue expenditure. 44.17. In the appeals filed by the assessee, the items in respect of which the decision was in its favour, were not the subject matter of the appeals. In respect of abov .....

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h 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 p .....

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d" at two places in the Explanation may support the Department's contention on the fact of it that after the amendment in 1989, Explanation (c) means that to the extent matters have not been considered and decided in appeal the Commissioner will always have jurisdiction to revise the order of assessment under section 263 subject to other conditions. The question, however, is if that was so, why did the Legislature not stop at that and went further to say that the insertion of these word .....

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from the date the Explanation itself was inserted. Thus, only in cases where action under section 263 is taken after June 1, 1988, the merger of the assessment order will be treated as confined to the issues actually considered and decided in appeal in terms of Explanation (c). In my judgment, the construction placed herein is based on sound logic, namely, irrespective of the language in which the amending provisions are couched, the amendment cannot be retrospective with effect from a date earl .....

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d, allocation of expenses and verification of physical export of software to other parties was open 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 .....

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ered 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 on primary facts as to whether these constituted export of TRM or constituted consideration for technical fee. The decision is not at all applicable." 44.22. As regards the reli .....

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s are further distinguishable also for the reason that the CIT holds the order as erroneous for lack of enquiry which would have led the statutory authority to reach the conclusion one way or the other and not for the reason that he has taken one plausible view of the matter, which did not find favour in appeal or otherwise. 44.23. As regards the assessee's plea that since no incriminating material was found in regard to claim made u/s 10B by the assessee in course of search, therefore, the .....

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April 98 to Mar 99 15 EOU P&L account April 97 to Mar 98 16 Service group expenses 18 EOU Calcutta expenses 19 EOU Bombay expenses 20-30 Direct expenses EOU & P&L A/c 31-32 EOU P&L A/c 33-37 Fixed assets charts & depreciation 38-45 Salary April 98 to Mar 99 46-47 EOU expenses April 98 to Mar 99 48-71 List of employees & salary paid 72-111 EOU Calcutta expenses 112-119 EOU Bombay expenses 120-129 Office expenses 130-136 Stride expenses 137-143 Questionnaire issued by Inve .....

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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. .....

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er that failure on the part of AO to conduct proper/ necessary inquiries with respect to each issue discussed earlier, constituted a valid finding of the Commissioner for the purpose of setting aside the issue u/s 263 of the Act. The failure to conduct the inquiry itself rendered the order as erroneous. He pointed out that it was not a case, where the AO had taken one plausible view, where the Commissioner would be called upon to demonstrate that the view so taken was erroneous. He submitted tha .....

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t for all the years and has to be examined for each year. 55.30. As regards the plea of ld. counsel for the assessee that foreign exchange loss did not pertain to export of EOU unit and, therefore, the question of location of EOU unit does not arise at all, ld. Spl. Counsel submitted that details were furnished before the ld. Commissioner and were not before the AO, as no inquiry was made by the AO. Therefore, on account of failure to carry out necessary inquiry, the assessment order was erroneo .....

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all the approvals received from STPI authorities of relevant states, where the EOU unit was established along with note on various business units including EOU units, the nature of operations carried out by them. Ld. Counsel has rightly relied on the decision of Tribunal dated 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 reconst .....

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his 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 ld. CIT was that even as per the s .....

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like course execution charges, bad debts, legal and professional charges etc. exclusively to taxable units and not to non-taxable/ EOU units. The assessee had explained the allocation of expenses. It is evident from the reply that assessee only explained the methodology followed for allocation of expenses vide reply dated 24th March 2006 but did not give any details of the expenses incurred by it under various heads and its distribution amongst respective units. With reference to details furnis .....

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ea of assessee that auditors had examined the issue of allocation of expenses is also not acceptable because auditors only stated that indirect expenses had been allocated on appropriate basis. The AO was required to inquire as to what was the alleged appropriate basis and whether the same in principle, was followed or not. Thus, AO failed to bring even primary facts on record to justify his conclusion in accepting the assessee's claim particularly when assessee never provided any bifurcatio .....

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n 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 mainta .....

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ny view of the matter, non- maintenance of separate books of a/c was not detrimental to the claim of deduction u/s 10B. We, accordingly, reverse the finding of CIT on this aspect. 56.6. Next aspect is with regard to the acceptance by the AO of revenue of the export oriented unit without calling for any details on this ground. Therefore, ld. CIT concluded that it was a case of lack of inquiry on this primary aspect. Further, as regards the assessee's claim of exported technical reference mate .....

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ich he choose to disallow clearly demonstrated a complete lack of inquiry on behalf of the AO. 56.7. Ld. Special Counsel has rightly pointed out that ld. CIT(A) deleted the addition of ₹ 25.20 lacs on the preliminary ground that AO himself accepted the claim of other 14 parties. The assessee had merely submitted softec forms issued by STPI in support of its contention. If the AO accepts the details furnished by assessee without proper inquiry as to the basic aspects involved in a particula .....

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ort of TRM. The AO did not refer to any material on record for his conclusions either way. The AO was required to verify whether software was actually exported or the payments were in realty in regard to transaction not amounting to export of software. The AO failed to conduct the basic and preliminary inquiry with regard to nature of the so called export revenue. The AO had disallowed the claim of ₹ 25.20 lacs on the ground that the amount received from Kwetliso Holdings was in lieu of te .....

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ecause 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 ₹ 2.76 crores did not pertain to EOU units. The assess .....

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the transactions which resulted in foreign exchange fluctuation loss, the assessee's reply could not be accepted, particularly because assessee's foreign exchange transactions were mainly on account of operational exports. Admittedly, the AO had not made any inquiries on this count. Assessee failed to furnish transactions which resulted into loss on account of foreign exchange fluctuations. Considering the fact that assessee was having EOU and non EOU units and was regularly exporting t .....

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le allowing netting off of interest income and expenses in the order passed u/s 143(3)/153A, failed to appreciate that this issue had already been examined and scrutinized in detail during the original assessment proceedings u/s 143(3)/153A of the Act. 57.1. Brief facts, apropos this issue, are that the Commissioner noticed that during the year under consideration the assessee had received following interest income: Interest received from deposits ₹ 5,97,29,499/- Interest received from loa .....

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ted that during the course of assessment proceedings the AO vide questionnaire dated 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 in .....

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o 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 ₹ 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 be no effect on the final taxable income of the assessee. 57.3. Ld. CIT, however, did not accept the assessee's contention and observed that AO had only asked about the details of interest income and .....

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interest expenses on the taxable income of the EOU as well as non-EOU units. He pointed out that if the assessee had charged the actual interest expenditure to the respective unit, the profit of those units would have been reduced accordingly. He submitted that interest income can only be adjusted against the interest payment only if there was direct nexus between the two. He pointed out that since the assessee was not in the business of finance, direct nexus between the two amounts could not b .....

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also have been reduced. Ld. CIT has further amplified his finding with reference to illustration. He, therefore, concluded that since the AO had not inquired into the actual interest expenditure, which was attributable to various business units, therefore, it was clear that the AO had not examined the issue while passing order u/s 143(3)/153A and allowed the entire claim of interest paid to be adjusted against interest income, without making necessary inquiry/ verification. Further, in view of v .....

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ade 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 ₹ 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 d .....

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term loan borrowed for purchase of assets at EOU units, which was debited in the profit and loss account of the EOU units under the head "finance charges", aggregating to ₹ 1,74,36,330/-. In this regard ld. counsel referred to page 855 of the PB, wherein the P&L A/c., relating to export oriented unit envisaged u/s 10A/10B of the I.T. Act is contained, to demonstrate that finance charges aggregating to ₹ 1,74,36,330/- had been debited in the said account, comprising of .....

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uction under that section. 58.3. Ld. counsel submitted that since the assessment order was neither erroneous, nor prejudicial to the interests of revenue, jurisdiction u/s 263 was ousted. He pointed out that allegation of the Commissioner that the AO did not examine the aforesaid issue, is incorrect. Complete disclosure had been made by assessee and in course of assessment proceedings, the AO vide notice dated 2-11-2005, contained at page 963 to 968 of the PB, required the assessee to furnish fo .....

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details were duly examined by AO. Ld. counsel further submitted that ld. Commissioner has observed that AO had allowed assessee's claim of netting off of interest expenditure with interest income, without making necessary inquiry/ verification, which clearly goes to show that it is not at all the case of Ld. commissioner 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' .....

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oss 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 t .....

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ure should have been examined to find out as to how much was relatable to EOU and how much to non-EOU. He referred to page 963 of the PB, wherein the notice dated 2-11- 2005 is contained and referred to inquiry raised by AO, which have been reproduced earlier. He pointed out that assessee in its reply, contained at page 971 onwards, pointed out that working capital loan was borrowed for various business. Therefore, it was necessary that AO should have inquired as to for which particular unit, th .....

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further amount was allocable to EOU units. 59.1. As regards the submission of ld. counsel that the issue being revenue neutral, could not be made the basis for action u/s 263, Ld. Special Counsel submitted that this submission is devoid of substance for the reason that the AO did not bother at all to look into what part of the borrowings was utilized for EOU for which deduction u/s 10B was being claimed. The only detail that the AO called for and placed on record, was the list of lenders and br .....

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n 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 .....

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f 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", does not imply only monetary loss, but also includes wrong application of law to the facts of the case. The assessee had netted this interest income against the interest expenditure of ₹ 17,03,49,186/-. This claim of netting off of interest made by assessee was accepted by the AO without examining the primary detail .....

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terest relating to EOU was debited in the particular unit. But the fact remains whether AO enquired into this aspect to find out the correctness of claim or not. There is nothing on record to suggest that this issue at all was examined by AO. The lack of necessary inquiries being made by AO resulted in passing of an erroneous order, which was prejudicial to the interest of revenue. We accordingly, sustain the findings of ld. CIT on this count. In the result this ground is dismissed. 61. Vide gro .....

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oans/ investments AO had rightly presumed that interest free advances/ loans/ investments had come out from interest free funds available with the assessee while not making any disallowance of interest in the original assessment. 61.2. The ld. Commissioner failed to appreciate that since the assessee maintained common pool of funds and since the profits of the business exceeded the interest free advances/ investments, the AO had rightly not made any disallowance of interest in the original asses .....

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and claimed the same to be adjusted against interest income. However, ld. Commissioner observed that assessee had made various investments to the tune of ₹ 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 presum .....

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ssessee also failed to prove that some borrowing were exclusively utilized for the purposes of business and not for granting interest free loans/ advances, even in its reply filed in response to show cause notice. Ld. Commissioner concluded that since utilization of funds was neither for earning interest income nor for the purpose of business, the interest expenditure attributable to the same was neither allowable to be adjusted against interest income nor allowable for earning business profits. .....

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etc. The assessee had also given certain interest bearing loans. He submitted that assessee had not given any interest free loan including loans to subsidiary companies as alleged by the Commissioner. He pointed out that assessee had made investment to the tune of ₹ 57.20 crores during relevant previous year in shares of various subsidiary companies. Ld. counsel reiterated that the AO vide notice dated 2-11-2005 had called for all the details of, inter alia, interest paid, which were furni .....

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h a view to hold controlling interest made investment in shares of foreign/ overseas subsidiary companies, which were engaged in the similar business of imparting education/ ITES 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 poi .....

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eeded 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 ₹ 105.53 crores as at the end of the relevant year from ₹ 151.04 crores as at the beginning of the year. 62.6. Ld. counsel further submitted that as regards the investmen .....

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AO u/s 153A and further ld. Commissioner did not give any specific finding/ pin point the error in the assessment order and prejudice caused to revenue. Further, ld. counsel submitted that in the second round, ld. commissioner has extended the scope. 62.8. Ld. counsel submitted that this issue has been raised by ld. Commissioner for the first time in its notice dated 5-2-2010. The Hon'ble High Court had set aside the order to cure the irregularity and, therefore, ld. Commissioner could not r .....

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ish the details of interest paid/ received, if any, during the financial year together with the name, address and the assessment particulars of all such persons. Apart from this query, no other query was raised. "10. Please furnish the details of interest paid/ received if any, during the financial year, together with the name, address and the assessment particulars of all such persons." 63.1. Ld. Spl. counsel further referred to page 969, wherein the reply of assessee dated 14-11-2005 .....

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sel 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 .....

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that interest free funds were inextricably mixed up with the interest bearing funds. Under such circumstances, relying on the decision in the case of Indian Explosives Ltd. Vs. CIT 147 ITR 392 (Cal.); and Marntie Polycast Ltd. Vs. ACIT 53 ITD 345, assessee's contention was that interest free funds or loans and advanes should be presumed to have come out from interest free funds available with the assessee while interest bearing funds were utilized for business purposes. 63.4. Ld. Spl. Counse .....

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were made for the first time before the CIT. The AO did nothing beyond calling for sketchy details of interest received and paid. The issue was not examined at all. It was a complete non-application of mind. He submitted that preliminary issue is whether the necessary inquiries were done or not. 63.5. Ld. Spl. Counsel submitted that if some factual contentions are made before the CIT for the first time, it is not necessary for the CIT to conduct the enquiries only at his end. He would be fully j .....

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64. We have heard rival submissions and perused the material available on record. Looking to the amount involved in respect of payment of interest on borrowed funds, aggregating to ₹ 17,03,49,186/-, the AO was required to at least bring on record the primary facts whether the funds were used for business purpose or for advancing interest free loans. The AO did not carry out any inquiry so as to come to the conclusion that the interest free advances were out of interest free funds. The subm .....

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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 o .....

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e Delhi High Court in the case of CIT Vs. DLF Ltd. (supra) to contend that in case of debatable issue, even if issue was not specifically examined by the AO, such issue cannot be set aside by the CIT by invoking revisionary powers u/s 263 of the Act. However, before treating the issue a legally debatable one, at least primary facts have to be brought on record. 64.3. In our opinion, the present issue is to be examined with reference to the decision of Hon'ble Delhi High Court in the case of .....

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without considering that the impugned expenses were in the nature of routine maintenance and repair expenses, deduction whereof were allowable u/s 31/37 of the Act. 65.1. Ld. CIT has observed that while examining the assessment records it was noticed that the assessee had claimed ₹ 10,14,53,772/- as repair expenses (plant & machinery 4,66,38,719, building ₹ 48,48,463/- and others ₹ 4,99,66,590). The assessee in reply to show cause notice submitted that the expenses were es .....

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arrying 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. .....

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er the head "repairs". (iv) The AO did not verify the genuineness and allowability of these expenses. (v) Capital expenditure, if any, included in the expenses, had to be capitalized while computing the income of the assessee. (vi) The claims have been accepted by the AO without verification, inquiry or application of mind. 65.3. Therefore, such allowance of expenses was erroneous and prejudicial to the interests of revenue. 66. Ld. counsel submitted that the impugned expenditure were .....

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s P. Ltd. 293 ITR 201 (SC); and CIT vs. Ramraju Surgical Cotton Milsl 294 ITR 398 (SC). 66.1. He submitted that AO, taking into consideration the expenditure being within normal range, keeping in view the size of business, did not ask for details. This cannot be the only basis for 263. 66.2. Ld. counsel referred to page 1062 of the PB, wherein the schedules annexed to and forming part of P&L A/c are contained, wherein details of repairs and maintenance are contained and pointed out that the .....

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tice ld. CIT had not pointed out any expenditure, which was capital in nature and had made the observations solely on presumption. He referred to page 321 of PB, wherein the agreement for comprehensive AMC with HCL is contained and in pursuance to this agreement the payments were made. 66.4. Ld. counsel submitted that ld. CIT did not comment with reference to reply filed. Ld. counsel further referred to page 1071, wherein the comments of tax auditors are contained, wherein they specifically stat .....

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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 au .....

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tal expenditure was included in the impugned amount or not. 67.1. Ld. Spl. Counsel submitted that apart from tax audit report, AO had no other details and he did not call for even copy of account. Explanation was given for the first time before ld. CIT and agreement was also filed for the first time. 67.2. Ld. Spl. Counsel submitted that primary details have to be first brought on record then only mind can be applied. He submitted that it was the case of complete lack of inquiry and non applicat .....

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of the claim of expenditure without looking into it at all to the basic details, does lead to an inference of an error. 68. We have heard rival submissions and perused the material available on record. The assessee had claimed ₹ 10,14,53,772/- as repairs expense (plant & machinery ₹ 4,66,38,719/0; building ₹ 48,48,463/-; and others ₹ 4,99,66,590/-). Admittedly with respect to this issue no queries were raised by AO and no details were filed by the assessee before the .....

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ee in his submissions has submitted that ld. CIT did not give any finding/ pin point any expenditure or gave reasons as to why and on what basis particulars of the repairs expenses were to 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 ass .....

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ee had claimed course execution charges of ₹ 119,81,32,796/- as against the sum of ₹ 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 that the AO failed to examine the reasons behind such steep increase while passing order u/s 153A and allowed t .....

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yment to M/s Sylvan Prometric for online testing of Microsoft certified courses, copywriting, editing translation, certificate writing mean for student etc. 69.2. Ld. CIT pointed out that in the questionnaire dated 2-11-2005 the AO had not raised any specific question on this issue. In the questionnaire dated 29-12-2005, following query was raised: "Please provide year wise expenses shown under the following heads: (a) Bought out products (b) Course Execution Expenses (c) Course Announcemen .....

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ment as well as private schools. Payment of Royalty/ Technical fees to the overseas Principals for using their contents, technical evaluation support for students for domestic business. Payments made for domestic GNIIT students for online learning. Professional expenses like copy writing, editing translations, certificate writing meant for students etc. The above expenses are incurred in relation to domestic division Educational Business in India. Therefore, all expenses have been debited in dom .....

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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" 6 .....

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ove reply, Ld. counsel submitted that the assessee's explanation for increase in the expenses was on account of change in the business model of payment to business partners. 69.9. Ld. counsel referred to page 930 of the PB and pointed out that AO had specifically raised the query in its letter dated 2-11-2005 as to why some expenses like "bought out package/ products" " course execution charges" "Professional charges" "Bad debts" etc. had been allocate .....

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query, following expenses exclusively pertained to domestic business (taxable units) and not to EOU. These were - Bought out packages/ products - Course Execution Charges - Course Announcement Expenses; and - Bad Debts (domestic). 69.11. It was further clarified that as far as professional charges were concerned, they were debited to both domestic (taxable) and EOU (non- taxable) units in the respective years. 69.12. Thereafter, assessee had clarified the nature of these expenses and referred t .....

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rt for students for domestic business. - Payment made for domestic GNIT students for online learning - AMC for assets installed in School-both Government and Private schools. - Professional expenses like copy writing, editing translations, certificate writing meant for students etc The above expenses are incurred in relation to Education Business in India. Therefore, all expenses have been debited in taxable units i.e. domestic units only. Also related revenue is booked in domestic area." 6 .....

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d 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 th .....

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the method of recognizing income in the assessee's books in line with the treatment of receipts connected with courses offered at STCs. As a result of this change in treatment of receipts, the course execution expenses as well as connected revenues of NWCs stood correspondingly enhanced in the books of assessee. Thus, the expenses as well as revenues in the profit and loss account of the assessee were increased by the same amount. It is pertinent to note that the licensee's share in the .....

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esting examination facility for the same. (c) Another reason for increase in the course execution changes was the growing popularity of certain products of the assessee which entail higher course execution expenditure as compared to other products of the assessee. Thus, an alteration in the sales-mix of the assessee also contributed towards increase in course execution expenses." 69.15. With reference to above reply, Ld. counsel pointed out that ld. Commissioner, without dealing with the af .....

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ed 6-2-2006, 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 o .....

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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 assessee contained at page 962 of the PB was made with reference to justification in increase in the aforesaid expenditure for AY 2001-02 and not for the year under consideration. He further submitted that AO sought for only general details. 70.1. As regards the contention of ld. counsel that ld. .....

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sum and substance Ld. Special Counsel submitted that it was a case of lack of inquiry and, therefore, action of the CIT in setting aside the aforesaid issue by exercising revisionary jurisdiction u/s 263 of the Act, was valid. 70.4. With reference to the reply filed by assessee, Ld. Special Counsel submitted that the AO had not raised any query about the purported expenses from AY 1999-2000, so benefit of reply for AY 2001-02 could not be taken. Ld. Special Counsel further pointed out that asse .....

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st the sum of ₹ 57,59,53,934/- claimed in the immediately preceding year. Thus, there was increase of 108% in this expenditure during the year under consideration. 71.1. Ld. CIT has observed that the query regarding course execution charges was raised by the AO in his letter dated 2-11-2005 and 29-12-2005 and it was replied by the assessee vide letter dated 9-1-2006 wherein it was stated that course execution charges comprised mainly of payment to licensees towards execution of courses at .....

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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 .....

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lowed without any verification or enquiry by the AO. 72.1. Ld. CIT in his order at pages 42 & 43 pointed out that AO failed to examine the satisfaction of the conditions laid down in the provisions of section 36. He pointed out that assesse had written off ₹ 14,95,100/- as bad debts, which was basically a deposit. He pointed out that this was not a trade debt but was an advance. The AO allowed the above amount as well as other sum debited under the head "bad debts" without ex .....

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ed. Thus, out of the total bad debts written off of ₹ 1,43,44,418/-, ld. CIT accepted the assessee's contention qua ₹ 14,95,100/- but for the balance he set aside the assessment order to the file of AO for fresh consideration. 72.2. Ld. counsel for the assessee submitted that during the course of assessment proceedings u/s 153A/143(3), vide notice dated 2-11-2005, the AO required the assessee to furnish details of bad debts claimed during the year which was replied to by the asse .....

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ions with reference to scope of assessment u/s 153A and, inter alia, pointed out that no incriminating document was found, suggesting income escaping assessment. 72.3. Ld. Spl. Counsel placed reliance upon the order of ld. CIT on 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 .....

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, 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. CIT on this issue. Ground is allowed. 74. Vide ground no. 17, the assessee has .....

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diction u/s 263 of the Act in respect of this issue. 74.1. Ld. CIT noticed that AO while passing the assessment order did not make any disallowance u/s 14A in respect of dividend income claimed exempt u/s 10(33) of the I.T. act. The assessee, in response to show cause notice issued by ld. CIT on this issue, relied upon the decision of Cochin Bench of the Tribunal in the case of Paul John Delicious Cashew's case (supra) in support of the contention that AO has no power to reopen or to change .....

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the assessment proceedings had become final before 1-4-2001 the assessment should not be reopened u/s 147 of the Act to disallow expenditure relatable to the exempt income by applying provisions of section 14A. Ld. CIT pointed out that since in the present case proceedings were finalized by the AO on 1-6-2006, therefore, the Board's Circular was not applicable in the instant case. Thereafter, ld. CIT also referred to proviso to section 14A, inserted by the Finance Act, 2002 w.e.f. 11-5-2001 .....

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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 f .....

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110 (AT) has held that the order of CIT u/s 263, making disallowance u/s 14A of the Act was invalid. He further pointed out that this decision has been approved by Hon'ble Kerala High Court reported as 200 Taxman 154. 75.2. The submission as regards the scope of assessment u/s 153A was reiterated. The assessee's contention was that u/s m153A of the Act, assessment cannot be completed on mere reappraisal of information/ documents readily available with the AO but has to be based on materi .....

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of Hon'ble Delhi High Court in the case of CIT Vs. DLF Ltd. 350 ITR 555, wherein it was held that considering that the issue of disallowance u/s 14A is debatable and no disallowance under that section by the AO being a possible sustainable action, the assessment order could not be set aside on the said issue by the CIT, while exercising jurisdiction u/s 263 of the Act, notwithstanding that the issue was not specifically examined by the AO. 76. Ld. Special counsel submitted that since no quer .....

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the submissions made on the basis of proviso to section 14A, ld. Spl. Counsel pointed out that AO was not exercising his power to reopen assessment u/s 147. He submitted that assessment was being reopened on account of statutory provision and the assessment being pending before AO, section 14A will have its application. He submitted that section 14A is retrospective in operation and the proviso is not taking away or whittling down retrospectivity. Only power u/s 147 and 154 has been taken away f .....

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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 .....

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nding of ld. CIT in holding that since the asessee had paid technical service fee to various non- residents without deduction of tax at source and the AO having failed to examine the said issue, the order of the AO in this regard was erroneous and prejudicial to the interest of the Revenue. 78.1. The connecting ground taken in this regard is that ld. CIT failed to appreciate that this issue including the issue of deduction of tax at source had duly been considered and scrutinized by the AO in th .....

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al Support/ Maintenance Charges" (SMC) to M/s Ansys Inc. USA, M/s Mechanical Dynamics USA, M/s Mentor Graphics Pvt. Ltd., Singapore, M/s Kokums Corporate Sweden etc. Ld. CIT was of the opinion that payments made were on account of technical support service rendered to Indian customers in the form of annual maintenance charges. The assessee in its reply dated 15-3-2010 pointed out that foreign suppliers only supplied the software and their upgrades from time to time. No services were rendere .....

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Indian 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 purchas .....

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uch 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 Indian customers, there was obligation of assessee to supply software upgrades, as well as render technical maintenance/ support services through its technical personnel, to the Indian customers. (h) The supply of software upgrades was incidental and free of cost to the main activity of providing technical services .....

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ing of purchase orders. 78.4. Ld. CIT after considering the assessee's submissions observed that softwares were supplied to customers in India and the maintenance of software was being done free of cost by overseas seller for initial few months. Thereafter, the Indian buyer had to pay for technical support service rendered to Indian customers in the form of annual maintenance charge. He observed that remittance of annual support fee / maintenance charges to the overseas suppliers was subject .....

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yments were actually made for technical service rendered to customers in India but it was shown as if payment were made for importing software upgrades by raising bogus purchase order. For his conclusion ld. CIT referred to following aspects:- "i) All the sale invoice carries the words "Annual Maintenance Contract" or annual support service. ii) The email written byMr.Phillips Dode of Mesa Solution dt. 21/09/04 to Rajesh Mathur (NIIT Delhi) which talks about " .... raising of .....

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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 .....

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a in the hand of overseas suppliers. Therefore it was statutory obligation on the assessee part to deduct the tax at source u/s 195 of the I.T. Act, before making/crediting payment to overseas suppliers. As the assessee has failed to deduct tax at source the entire payment is disallowable u/s 40 (a) of I.T. Act." 78.5. Ld. CIT, accordingly, held that the assessment order was erroneous as no proper inquires were made and prejudicial to the interests of revenue. 78.6. Ld. counsel for the asse .....

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eunder : "33. Please explain why the tax has not been collected against payment received by you as a distributor. You were acting as a distributor of various foreign company. The maintenance of software was being done free of cost for initial few months. Thereafter, the Indian buyer had to pay for any support service to the overseas seller. These payments, which were otherwise subject to tax, were made through import of software. The imported items were actually stuff of small or nil value .....

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we submit our reply as under: 1. That we signed distributor agreement with different principals for buying their software/ updates and selling in India. 2. The softwares under consideration are sophisticated software for engineering 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 purcha .....

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se 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 sites. There is no technical service provided by the foreign principals. 8. A .....

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ntained at page 449 of PB2. 78.10. Thereafter, Ld. counsel referred to page 451, wherein the AO's query vide letter dated 10-2-2006 is contained. The AO required the assessee to furnish information/ document in regard to following queries: "A. Regarding Annual Maintenance Contracts on Imported Software: a. Please clarify why tax was not deducted at source on royalty/service payments, which was otherwise subject to deduction of tax at source? b. Is it correct to state that the imported i .....

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d on some customers in India, even before the receipt of materials from overseas suppliers? f. Please clarify on the email written by Mr Philip Dode of Mesa Solutions dated 21-9-2004." 78.11. Ld. counsel referred to the reply filed by assessee on this issue vide its reply dated 27-2-2006 which is contained at pages 455 to 456 and the same is reproduced hereunder: A. Regarding Annual Maintenance Contracts on Imported Software: In respect of above, the assessee company would like to submit as .....

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sis. 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 i .....

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neral practice of the trade. This practice is also followed in some of the private sector parties. g. Email dated 21st Sept 2004 written by Mr Philip Dode of Mesa Solutiaons to Mr Rajesh C Mathur talks of setting outstanding dues and request for early settlement of dues. The assessee company would like to clarify that TDS is not applicable on payment for import of software and their upgrades. Because it is not technical services. These software/upgrades are standard products and not customized w .....

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e on account of technical services and were therefore subject to withholding tax in India but the technical services provided by these parties were described as 'software' which enabled NIIT to evade taxes, which ,,'ere otherwise applicable on the remittances pertaining to technical services. (i) M/s. Convergent Group Corporation, USA; (stated as Conversion group in your aforesaid query); (ii) M/s Relativity Technologies, USA (iii) M/s. Prosoft Training Corn Inc. USA; (iv) M/s ACAE, .....

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2 Million was effected by NIIT Limited to M/s. Convergent Group, USA through manipulated import consignment of software through satellite; b) Copy of the agreement dated 22.9.2000 with M/s. Convergent Group, USA, which was manipulated to give description as Software was enclosed as Annexure -. A perusal of the documents enclosed as Annexure - bring out clearly as to how the transaction was manipulated to evade tax; c) A very crucial piece of evidence in the aforesaid matter is the original emai .....

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iption 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 Limi .....

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Limited on remittance of USD 750,0001- towards equity of Relativity Technologies, USA as the remittance reduced the taxable profits of NIIT's domestic operation, and in support of which copies of documents are also enclosed; a) Please establish that with the direct use of Software allegedly imported from Relativity, they were able to earn additional revenue; iii) Remittance of USD 90.000/- 10 M/s Prosoft Training Com. USA; Tax was evaded by NIIT Limited on remittance of USD 90,000/- towards .....

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ade) at payment at inflated prices of 20% release of payment where no supply was made and any evidence to prove that the directors have purchased farm house or properties out of black money so generated." 78.13. Ld. counsel further referred to pages 545 to 547 of PB2, wherein the assessee's reply is contained, which is reproduced hereunder: "Topic-8: Remittance to the below parties were on account of technical services and were therefore subject to withholding tax in India, but the .....

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oration is a USA based company dealing in utilities software; 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 .....

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toms. 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 Customs f) Chartered Accountant's Certificate g) Copy of letter from RBI, approving deferment of payment. Further, it has already been submitted that the company has generated revenue of USD 2.20 million using this software as tool.(vide letter .....

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dated 14.11.2005: The remittance is not towards technical know-how fee, but towards import of software. iii. M/s Proseft Training, Inc: As mentioned above. the assessee company can not comment on the e-mails referred . However, the assessee company would like to submit as under: M/s Prosoft Training Com. Inc was a leader in the US market for Internet & e-commerce related training and also had global certification program for internet technologies, called the CIW program (Certified Internet .....

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e company has generated revenue of ₹ 4 Crores. Vide letter dt 14.11.2005. The remittance is not towards technical know-how tee, but towards import of software iv. AcAe Inc., USA: American Computer Aided Engineering Company based in USA give support service for Mentor Graphics Products. NIIT Limited has imported the products for sale in India. The relevant import documents have already been filed with the department vide letter dated 27.02.2006. The remittance is not towards technical know- .....

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nance 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 supplie .....

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hich are imported for upgrade of software. ( vide letter dt 14.11.2005) : - Copy of invoice - Annexure 33(i) - Copyof' Bi11 of Entry - Annexure 33(ii) The remittance, therefore, is not towards technical know-how fee, but towards import of software." 78.14. With reference to above detailed query raised by AO and replies filed by assessee, ld. counsel submitted that it is clear that ld. CIT was seeking to thrust/ substitute his opinion on the AO, arrived by him after making proper inquiri .....

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he assessee also purchased upgrades/ updates of such applications softwares as and when purchased from the foreign suppliers, which were supplied by the asessee to the Indian customers in pursuance of obligation undertaken by the assessee under the annual maintenance contract, entered into with such Indian concerns. He pointed out that foreign suppliers only supplied the application software and their upgrades from time to time and received payment in connection therewith. Those services were re .....

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9 CTR 418 Director of Income Tax Vs. Ericsson AB 343 ITR 470 (Del) 78.16. Ld. Counsel further submitted that as per article 12(4) under India-US Treaty, unless technical services are made available to assessee, the payments made by assessee 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 Ind .....

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al 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 purchase order placed by the assessee; invoices raised by the foreign suppli .....

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ontention that amount was paid for import of Software upgrades only, without any reason specified/ verification of the related documents 1 by him to reach to this conclusion." 78.20. Ld. counsel further referred to office notes to the assessment order, contained at pages 9 to 12 of vol. 8 of PB, which were provided to assessee as per the direction of Tribunal to submit that after considering exactly the same issues, as raised in the impugned order and replies filed by the asessee for AY 199 .....

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ence it is physical import and is not subject to withholding tax." 78.21. Ld. counsel further reiterated his submissions as regards the scope of assessment proceedings u/s 153A and pointed out that no undisclosed income, property or incriminating documents suggesting income escaping assessment qua this issue was found in the course of search. The AO and the CIT only sought to construe the contents of the said email found during the course of search in a particular manner to draw their own i .....

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3. 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. .....

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l is contained and pointed out that the said e- mail was for realization of pending dues and in that context Mr. Phillips suggested that they may have to recall back the AM billing. 78.25. Ld. counsel further referred to page 1158.71 vol. IV, wherein e-mail sent by Sunanda Singh to Mr. T.S. Thomas is contained, wherein it was written as under: "Kindly have a PO generated against our PR# 10006401 as per details below: Vendor: MECHANICAL DYNAMICS INC, USA. Amount: USD 3990 Delivery: 30-NOV-20 .....

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that the purchase order was raised in guise of annual maintenance service. 78.27. In regard to the allegation that purchase orders were issued to cover the payments of technical service on the basis of the fact that even before receipt of material/ software updates by the NIIT, NIIT had sold the material/software upgrades to Indian customers, ld. counsel pointed out that it was clarified that in case of certain government and semi government clients, in order to release advance payment, the said .....

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nue having not issued any notices to the payees or made an attempt to assess the aforesaid income, alleged to be chargeable to tax in India, in payees hands, assessee/ payer cannot be held to be in default for not deducting tax at source u/s 195 of the Act. In this regard he relied on following decisions, wherein it has been held that the payer cannot be treated as assessee in default for not deducting tax at source from the payment made to the payee (including non-resident payee), if no attempt .....

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e 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 .....

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ry was raised on e-mails. He pointed out that replies did not explain the piece of evidence gathered during the course of search. He submitted that reply had simply been accepted and it is not a case of inadequate inquiry but lack of inquiry. He pointed out that it is wholly non-commercial that one would purchase the software and would give free of cost to its customers. The entire exercise is towards make belief story He pointed out that in case of digital products, no need for physical visit t .....

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aintenance contracts and not for supply of software. The email written by Mr. Phillips Dode of Mesa Solution dt. 21/09/2004 to Rajesh Mathur (NIIT Delhi) clearly indicates that the payments were for the AMC charges and not for the software. It is written in the email that the supplier will revert back to Annual Maintenance Billing if the problem is not resolved. It clearly shows that the payments were for AMC and not for supply of upgrades of software. The fee for technical services was paid as .....

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Since the recipient of the payment was facing difficulty 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 rea .....

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uch 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, although query was raised by the Assessing Officer with respect to the said e-mails, yet no enquiry was made in this regard and the reply filed by the assessee was accepted by the Assessing Officer without verificatio .....

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disregarded. The A.O. was too eager to accept the reply of the assessee on its face value disregarding vital material on record and without conducting any enquiry in the matter. 70. It is also submitted that the distribution agreement or contract with customer was not on record nor requisitioned by the Assessing Officer during the course of assessment proceedings, which would have demonstrated the exact nature of payment made to the foreign parties and corresponding obligation to deduct tax at .....

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t incriminating material, what else could the incriminating material? 73. The argument of the learned counsel for the assessee that no action for non-deduction of tax can be taken unless a notice is first issued to the payee is really off the mark. Here, the question is whether the AO was correct in accepting the reply of the assessee that it was a remittance for software upgrade without conducting the enquiry with reference to the seized material. The matter has been sent back to the AO for fre .....

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)(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 .....

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earch such documents are found which show that the actual state of affair may be different, then AO is required to go deep into the issue to find out the real state of affair. Under such circumstances, he is not supposed to simply accept the documents at its face value. He cannot abrogate his findings as an investigator. Therefore, the fact remains, whether the AO correctly appreciated the evidence found during course of search proceedings or not. The moot point for consideration is whether AO c .....

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d to various documents leading to conclusion that the payments were towards AMC. In regard to payment to M/s Conversant Group Corporation, the AO had referred to agreement dated 22-9-2000, E-mail dated 17-11-2000 and note of Rajesh Mathur to NIIT GIS Ltd. The assessee in its reply did not give specific replies on these counts and only gave a general reply. Similarly, AO had raised specific queries with respect to M/s Relativity Technologies and payment to M/s Prosoft Training Company. The assess .....

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t bogus purchase orders were raised to remit money for AMC contract. Therefore, it is clear that AO had not arrived at a rational conclusion. He has merely accepted the assessee's plea on this issue without proper scrutiny of documents found during the course of search. We, accordingly, 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 .....

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. 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 block of assets thereaf .....

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IIT USA in June 1997 and as such related to the period not covered u/s 153A of the I.T. Act. He further noticed that AO allowed depreciation on the WDV amount of the software overlooking various evidences on record which showed that 'Net Varsity' was indeed developed in India by Centre for Research in Cognitive Systems (CRCS), which is partnership venture between NIIT/ assessee and IIT, Delhi. He further pointed out that even the website of NIIT, Delhi displayed the fact that 'Net Va .....

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d in India as a partnership venture of NIIT and IIT Delhi. (c) He did not accept the assessee's contention that since during the course of assessment proceedings for AY 1998-99, this issue was already considered by AO, therefore, it was not open to the department to deny its claim of depreciation. In this regard he pointed out that each assessment year is separate and AO is required to enquire the issue in subsequent assessment year also. (d) NIIT Ltd. New Delhi developed the software packag .....

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ity' 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 .....

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re was imported by the assessee from outside India after following proper import procedures which is substantiated through the following documents available on record: - Copy of purchase orders raised by the asessee on NIIT, USA; - Copy of invoice raised by NIIT, USA on the asessee; - Copy of Airway bill; - Copy of bill of entry submitted with the Customs Authorities substantiating physical import of software through the customs channel. The aforesaid purchase and payment made there against in f .....

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the contention of the assessee that remittance was made against actual import of the Software titled 'Net Varsity' The aforesaid documents were filed before the assessing officer during the assessment proceedings and forms part of the records, since the aforesaid issue was extensively examined by the assessing officer (as discussed infra). The aforesaid contemporaneous evidences available on record, in our respectful submission, clearly establish/ prove, without any doubt whatsoever, th .....

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he notices. The allegation against the notices is that they imported goods other than the one for which the remittance of US$ 7,00,000 was made through Indian Overseas Bank in violation of the provisions of section 8(3) read with section 8(4) of FERA, 1973. The notices in their defense denied the allegations that they imported goods other than the goods for which foreign exchange has been remitted abroad...... . "In view of above, in respect of remittance of US$ 150000 the item imported is .....

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e 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 .....

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28.6.97 and invoice no. INC/CORP/97003 dated 30.6.97. The bill of entry no. 556667 (invoice no. INC/CORP/97001/ dated 13.6.97), was filed by the notice company before the customs authority was for the same item as per invoice i.e. software with documentation facelift website'). Similarly the bill of entry no. 560846 (Invoice no. INC/CORP/97002/ dated 28.6.97), was field before the customs authority was for software with documentation (unix productivity tools') and the said item is menti .....

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ces for import on the basis of above documents referred hereinabove presented to them by the notice company. In view of above factual position, I do not have any evidence to support the allegation in the SCN that imported goods were other than the one for which remittances were sent abroad. On the other hand available and cited evidences proves that the notice has only imported the goods for which remittances were released by the bank. I pass order as under. ORDER I drop the proceedings initiate .....

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eferred to page 552 of the PB wherein AO in his query letter dated 2-11-2005 had 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 .....

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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 facts relating to installation and inquiries being conducted in this regard were brought to the notice of AO. Ld. counsel further referred to pages 592 to 593, wherein again AO vide his query letter dated 10-2-2006 h .....

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597 to 600 wherein in detail the assessee had clarified all the aspects raised in the notice and had also empathetically denied the allegation that assessee had exported computer software package to NIIT(USA) Inc., He also referred to pages 604 to 607 of the PB, wherein the utilities of this software was discussed. 81.11. Ld. counsel referred to office note of AO for AY 1999-2000 contained at pages 12 to 14 of PB 8, in which AO, inter alia, has taken into consideration the various invoices raise .....

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ed 26-05-2006. 81.13. He, therefore, submitted that AO had duly examined this aspect as specific allegation in this regard was made in the allegations levied by Mr. Mehta. 81.14. Ld. counsel further submitted that as far as the issue of user of software is concerned, it has been clearly demonstrated that students had access to this site. Without prejudice to above submissions, ld. counsel further submitted that since this software formed part of block of asset, so no user was necessary. 81.15. L .....

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m 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 .....

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de India by NIIT, USA and the said company was the owner of the same. It is also denied that CRCS was a partnership venture between the assessee and IIT, Delhi, as alleged in the impugned order. CRCS was a research department, which was a part and parcel of the assessee. The background to the development of Net Varsity is that this project was set up in order to galvanize NIIT's education business to embrace the internet revolution. At that time the internet infrastructure in India was at it .....

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ve in July of 1996 on the Worldwide Web while it was owned and managed by NIIT, USA. As time elapsed after the launch of Net Varsity site, it began to emerge that the content of the site had to be stylized according to local requirements of students who were using the site for effective usage as a learning tool. It was felt that the site alone was not enough to sustain learning over the web. The assessee also wanted to add/ modify the contents of the site in connection with its specific requirem .....

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t it required content modification for its specific needs. In view of the above, it is respectfully submitted, that the purchase of "Net Varsity" software was a genuine transaction driven by business considerations and was not developed by the assessee and exported to NIIT, USA earlier and thereafter imported 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 2 .....

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hereunder for ready reference. "On this "Net Varsity" home page, can you please remove the reference to ₹ 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 brochure .....

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. The ownership of the assessee cannot be doubted simply on the basis of adverse inference drawn from the aforesaid email. The email, it is submitted, merely instructs to change the pricing for the products offered as "Net Varsity" to be done in non-rupee terms and not to disclose the lower prices offered by the assessee in India, to customers/ business in outside markets. While the site continued to be hosted in USA, owing to the fact that India did not have a similar level of hosting .....

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sively establish that the same was an Indian site owned and operated by the assessee (refer pages 603-608 of paper book Vol II). The aforesaid query was specifically raised by the assessing officer, vide notice dated 10-02-2006, which was replied to by the assessee, vide reply dated 27-02-2006. C. The software was not put to use during the year under consideration: The CIT, it is submitted, has made a bald allegation, without any evidence being brought on record to suggest that software was not .....

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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' .....

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r 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 Directorate and pointed out that ED did not consider the issue regarding genuineness of import as claimed by the assessee. He further pointed out that ld. CIT has considered the issue of allowing depreciation qua the ownership of software. 82.2. The Counter Arguments of the Revenue before the Bench in this reg .....

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ideration. It is not in dispute that the so called purchase was made in 1997 and depreciation was allowed in the earlier years. However, the issue became open as a result of material found during search, particularly the email dated 08.02.2000 from Mr. Nicholas George to Ms. Niranjana Paul. This email appearing on page number 608 vol. VII clearly stated that 'Net Varsity' is not an Indian site. If the program had been purchased in 1997, the email could not have stated that the site is no .....

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e AO ought to have conducted before accepting the reply of the assesee on its face value. The allowance of depreciation in earlier years was no longer relevant as the papers found during search clearly indicated that the real facts on the basis of which depreciation was allowed were otherwise. In any case, this aspect of the matter deserved to be looked into and the true import of the seized paper was needed to be enquired, which was not done. 82. A great deal of emphasis was laid on the order o .....

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ired (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 .....

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preciation in 1999-2000 was beyond the ambit of 153A proceedings. In our opinion, the view taken by AO is not legally sustainable. Allowability of depreciation had to be considered from two perspectives - firstly, whether the asset is owned by assessee and secondly whether it was put to use or not for business purpose. Normally if in one year depreciation has been allowed on an asset then, unless the asset is removed from block of asset, depreciation cannot be denied. However, when in course of .....

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tters dated 2-11-2005, 10-2-2006 and after examining the replies filed by assessee concluded that assessee's claim was allowable. He was required to give findings with proper reasoning with reference to queries raised by him mainly on the basis of appraisal report prepared by Investigation Wing. The AO was required to record a finding how the allegation of 'Net Varsity' software being developed in India, on the basis of details found at web site of NIIT were met by assessee and wheth .....

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uphold the order of ld.CIT on this issue. In the result this ground is dismissed. 84. Ground no. 20: Vide ground no. 20 the assessee has assailed the allegation of ld. CIT that since the assessee had imported 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 afore .....

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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 following evidences on record: "- There are e-mail exchanges between key functionaries of NIIT .....

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207785, but failed to re-examine the real motive and purpose for which said amount was remitted. However, evidences on record suggest that the real motive of remittance was to make payment of "Royalty". This position is also reinforced from the fact that after the expiry of contract with NIIT, M/s NeTg entered into a more or less similar agreement though worded differently with M/s APTECH, Mumbai, wherein M/s APTECH had to make payment of royalty to NETg for the right to market and dis .....

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sment year 2001-02 and no adverse inference may drawn from such e-mails with respect to assessment year under consideration. In absence of any material casting doubt over the nature of the transactions, the assessee's claim had been rightly accepted by AO). Payment to NETg after the agreement was towards the Minimum Purchase Commitment in terms of Distribution Agreement. Invoices relating to import of the same have been produced before the AO during the course of assessment vide letter dated .....

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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 .....

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all related documents before the AO, ld. CIT pointed out that assessee filed only a chart showing purchases made from NETg Ltd. and no detailed submission was made. Further assessee's contention was not found acceptable on the basis of examination of seized material/ statements of the senior officers of the assessee company recorded during the course of search proceedings. 84.6. Ld. CIT further pointed out that NIIT had been developing and exporting course or computer based training product .....

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tween NIIT & NETg. There are e-mail exchanges between key functionaries of NIIT and NETg, which shows that bogus purchase orders were raised in F.Y. 2001-02 for remitting moneys for payment of royalty amounting to USD 182500 (copies of the said e-rnails have already been provided to the assessee on 13111/2007, by the then DCfT, C.C.-8, New Delhi). It is pertinent to mention here that NETg had appointed APTECH Ltd as its new distributor in India. The "NETg channel agreement" with Ap .....

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"Q.14 Did Andre Hogan asked you or tell you that NIIT cannot buy new titles. Ans. Andre Hogan was keen that NIIT not go in for the latest titles and NIIT knew that this was immaterial as the titles, it wanted to buy were saleable. Q.15 Can you give me the reason why NETg wanted to avoid selling new titles with the background of your experience with NETg. Ans. I can not guess as it was a business issue ofNETg"(sic) The reason why Mr. Katyal had not given specific answer is very obvious .....

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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 w .....

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ese CBTs was not found at the premises of K.K. Lubricants Pvt. Ltd. during the search. The director Shri K.K. Mittal of K.K. Lubricants Pvt. Ltd. also failed to explain as to where the stock had been kept and also the purpose for which he had purchased such old obsolete stock. 84.8. Ld. CIT further disputed the genuineness of this transaction observing that NIIT continued to release of import purchase order from NETg in spite of their carrying a stock of NETg courseware CDs amounting to approxim .....

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d out that a comparison of the agreement between NETg and NIIT viz-a-viz agreement between M/s NETg and APTECH showed that they were differently worded but the effect was same. He pointed out that under the agreement NIIT had to pay a minimum each year called "minimum order commitment" and excess of the amount calculated @ 30% of sales made by NIIT every year called the "Target Order Commitment". He also pointed out that NIIT was also authorized to reproduce training resource .....

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1. Ld. counsel for the assessee submitted that NETg is a 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 app .....

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cepted 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 by AO on the ground that the same was made after the expiry of the agreement with NETg. However, from AY 1999-2000 onwards up to AY 2001-02, AO after detailed examination/ verification of the replies and explanations furnished by the assessee ac .....

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nd prejudicial to the interest of the Revenue. 84.14. Ld. counsel submitted that the assessee only ordered CBT's in customer copy format from NETg, which were ready to be delivered to the ultimate customer. Therefore, NIIT was not required to replicate or reproduce any material. 84.15. Ld. counsel relied on following decisions for the proposition that software purchased and sold under a distribution arrangement without obtaining all the rights in relation to the copyright, which remained wit .....

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ng decisions: - Van Oord ACZ India (P) Ltd. v. CIT 323 ITR 130 (Del.) - Mahindra and Mahindra Ltd. v. DCIT 313 ITR 263 (Mum)(SB)(AT). 84.17. Ld. counsel further submitted that since ld. CIT(A) had allowed the assessee's appeal in respect of disallowance made by AO in respect of purchases made in AY 2003-04 aggregating to USD 207785, therefore, in view of clause (c) of Explanation to sec. 263(1), ld. CIT's jurisdiction was ousted. He pointed out that after examining the e-mails, referred .....

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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 .....

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a, stated as under: "I told him the only way we can send money from India is getting course in the quantities mentioned in the PO. His stance was that they cannot send courses as we will stock & resell them even though our agreement is over. My reply was that we already hold stock worth close to 750 KUSD (read USD 750000/-) and if he send some more worth USD 180 K (read 180000/-) it can't add to our ability to sell. He has now agreed to process our PO provided we revise it to includ .....

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nd the PO. He process and payment is released." Email dated 28-02-2001 (Annexure ..... of Mr. P. Rajendaran, sr. Executive with NIIT Limited to Mr AL Mehta, Dy. General Manager, NIIT, wherein he stated as under: "NIIT has to pay USD 1,83,000 as royalty to NETg... Email dated 11-9-2001 (Annexure -) from Mr. Andre Hogan, Director Sales Operations, NETg(UK) to Mr. Devand of NIIT Delhi, wherein it was inter alia stated as under: The purpose of the shipment is to enable NIIT to release long .....

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NIIT (in reply to email dated 12.9.2001) with copy to Mr Ajay Wahi, General Manager, NIIT, Mr. Amitava Mitra, vice President NIIT (USA) Inc. Mr. Arvind Thakur, Director, NIIT, wherein it was stated as under: "Since we cannot anyway sell these in India, 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 P .....

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tion 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. ₹ 3.37 crores as in February 2001 (please refer email dated 6-2- 2001 of Mr. Rajeev Katyal, Vice President, NIIT) since NIIT was prohibited by NETg during subsequent cours .....

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at which CBTs were imported by NIIT from NETg; Stock statement obtained from NIIT by the Department further confirmed that a huge inventory of NETg CBTs were being carried by NIIT, which further goes to prove that the imports effected were only for the purposes of making payments for $207735 to NETg towards royalty and not for genuine imports of CBTs and their resale in India NETg after having appointed Aptech as their sole selling distributor in India had prohibited NIIT to sell NETg's CBT .....

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ed all the points raised above in his query letter, which is contained at pages 667 to 678. The assessee's reply on all the points are contained from pages 679 to 692. Ld. counsel further pointed out that in course of assessment proceedings vide letter dated 9-1-2006, contained at pages630 of the PB, the assessee had furnished copy of agreement with NETg (UK) highlighting minimum purchase commitment of NIIT along with note on import of material from NETg valuing US$ 2,07,000/-. 84.20. Ld. co .....

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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 .....

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vide details of obtained from laptop of Mr. V.K. Thadani, which is lying seized with you s per point 24 of your questionnaire." (b) Query no. 9 raised by AO vide letter no. 29-12-2005 available at page 628 of the PB, as reproduced below: "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 right .....

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w: "E. Regarding TDS on remittances - a. Please give a brief of your business association with NETg, UK b. Is it correct that the CBTs imported from NETg have been shown in the non-EOU and the same CBTs were exported to NETg from the 100% EOUs? c. Is it correct that the import of CBTs for USD 2,07,785 was done after expiry of the agreement? d. Furnish evidence detailing eventual sale/utilization of the CBTs imported for USD 2,07,785. Have you sold part of the CBTs to M/s K.K. Lubricants e. .....

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ads as follows: 7.A. NIIT shall order any Training Resources for which it has distribution rights hereunder either in master copy format (where available) or customer copy format. 7B. NIIT may reproduce Training Resources for distribution under this Agreement, except in cases where NETg's agreement with an authority or producer, or other legal restrictions preclude such reproduction. i. Provide the details of number of copies and price at which these CBTs were imported (Annexure 31)." 8 .....

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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 softwa .....

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as debited to non-EOU. This is evident from the matching sales as against the same purchases made in non-EOU. However, it is not correct that the assessee company have exported the same CBTs to NETg from their 100% EOU. The G Ts developed by NIIT Limited for NETg were shown as exports In the 100% EOU (STP Units). This is as per the arrangement with NETg on 'Work on Hire' basis. It is further submitted that the EOU Profitability Statements are correct and the same have also been certified .....

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d. Summary detailing eventual sale/utilization of the imported products have already been provided on 14.11.200S. The assessee company have sold part of the CBTs to M/s K K Lubricants. Further, the assessee company have offered the margin of profit for tax purpose. e Copy of sale invoices is submitted to the department vide letter dated . 27.2.2006 in respect of assessment year 200 I -02. f. No, the assessee company have not replicated/copied the CBTs purchased from NETg and sold to customers i .....

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per this arrangement, when products are bought from NETg, NIIT can set their own sale price in the market. However, this clause clarifies that NIIT can generate their revenue of Rs.I 00 in the market only, if they have purchased products worth ₹ 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 .....

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ent 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 standard products and not customized. Relevant copies of import documents have already been filed with the department vide our letter dated 14.11.2005. . The assessee company would also .....

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ng CD- ROM, Interactive Instructions, Linear Instructions, CBTs and related texts, audio materials and equipments. The business association between NIIT Ltd. & NETg was for a long period as distributor of CBT products of NETg. Under the arrangement, the assessee company are improting CBTs for selling them in the Indian market. Later on, NIIT started software development work for NETg in its EOUs under 'work on Hire' basis. Under this arrangement, once the assessee company develop the .....

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partment vide letter dated 09-01-2006. Therefore, the remittances effected to NETg is towards minimum purchase commitment and not royalty. In addition DDIT have summoned some f the executives of the assessee company for statement. They have recorded the statements which are reproduced below. In the statements recorded in the department from Mr. Rajeev Katyal, Mr. Ajay Wahi, Mr P. Rajendran, it is very clearly mentioned that remittances effected to NETg was towards minimum purchase commitment and .....

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tment. 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 thes .....

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y at their Education Centres (vide assessee's letter dated 14-11-2005). III. Regarding comparison of import prices of the CBTs of NIIT with Aptech vide your letter clause-III, the assessee company cannot compare the price with them. As you know, the technology is changing very fast. The pricing will vary from time to time with the change in technology. IV. Regarding remittance of USD 207,735 to NETg towards as alleged in your clause IV, it is true that the assessee company had made the remit .....

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ted out in clause V of your letter, this is not applicable as this is not a related party transaction (Associate Enterprise). This business ahs been agreed upon between two independent parties. The price of the imported materials is not manipulated. The imports were at arm's length. Section 92C of the Act is not, therefore, applicable in this case." 84.26. The assessee vide letter dated 11-5-2006 submitted the details of purchases made from M/s NETg and import of NETg products from NIIT .....

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he ground that there was no rational for purchase of the same after the expiry of agreement with NETg. 84.28. Ld. counsel further submitted that the AO, after considering exactly the same issues, as were raised in the impugned order and replies filed by the assessee from 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 .....

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y 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, the same could not .....

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the case of the ld. CIT in the impugned order that facts in all the assessment years are same and, therefore, emails relating to transactions conducted in the assessment year 2002-03 are relevant for determining the true nature of transaction. Ld. counsel reiterated his submissions as regards the impugned issue beyond the scope of jurisdiction of the AO u/s 153A. He pointed out that the nature of payment towards purchase of software was royalty or not is a legal issue and did not emanate from a .....

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hich amount was remitted to NETg. He submitted that the evidence on record like e-mails exchanged between key functionary of NIIT and NETg showed that bogus orders were raised and that there was no corresponding sale orders for the payment made in US$. It further suggested that the real motive and purpose of remittance was to make payment of royalty and not to pay for import of an outdated computer base training product (CBTs). AO had failed to consider this aspect and erred in accepting the imp .....

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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 ac .....

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he AO deserves to be deleted." 85.3. Ld. Special counsel submitted that CIT is on a different issue altogether. In this regard he referred to page 53 of the CIT's order, wherein the ld. CIT's finding in this regard is contained and pointed out that the main plank of ld. CIT's order for holding the assessment order as erroneous and prejudicial to the interests of revenue was that payment of royalty was made in the garb of purchases/ import of software. He submitted that language .....

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he year as well as the years thereafter. He pointed out that no finding has been given by ld. CIT(A) regarding character of payment - whether royalty or business transaction, solely because of non-examination of the issue by AO. He submitted that while drafting the agreement, phraseology may be used but the substance of the agreement has to be considered. 85.5. Ld. Spl. Counsel further submitted that no stock was found of this soft-ware during the course of search at K.K. Lubricants. He submitte .....

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the necessary facts which could determine the true nature of payments 85.7. Ld. Spl. Counsel referred to pages 667 onwards, wherein show cause notice dated 1-3-2006 is contained and pointed out that the e-mails were referred to in the show cause notice to demonstrate that the payment was towards royalty in the garb of merit of software. He pointed out that from the e-mails it is evident that the amount was due to NETg even before the shipment was made. 85.8. Ld. Spl. Counsel referred to page 67 .....

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. 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 o .....

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s such without proper application of mind. It was urged that whether the assessee had the right to use the software leading to the characterization of payments made to Netg as Royalty or was'a mere distributor of the same was a matter of fact, which needed to be investigated by the Assessing Officer to determine whether any tax was required to be deducted at source by the assessee. 93. During search operations, certain material in the form of emails and the statement of responsible employees .....

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uantity as the overall exercise is not being completed to produce content reusable for sale .... " The email dated 28.02.2001 from P.Rajendran of NIIT to Mr. AL MEhta of NIIT reproduced on the same page reads as under: "NIIT has to pay USD 1,83,0001- as royalty to NETg" 94. Further emails on page 669 of PB 11 indicate that these imports from NETg were of obsolete and unsaleable materials. These orders were sent and imports made to cover the payment for royalty which NIIT was to pa .....

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relevant to AY 2002-2003 but throw light on the nature of the transaction 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 consider .....

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at 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 such vital material. 98. The reliance of the learned counsel for the assessee on decisions to the effect that no tax would be deductible as the payment for the purchase of software does not amount to royalty are of no consequence a .....

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he assessee that the issue is beyond the scope of section 153A, it is submitted that the issue arose as a result of search material and hence was well within the scope of Section 153A. 100. In view of the above, it is urged that it is a complete case of lack of inquiry, which justified the action of the CIT in assuming revisionary jurisdiction under section 263 of the Act. 101. As regards the other objection of the assessee that the aforesaid issue merged with the order of CIT(Appeals) in the as .....

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her it was royalty or a payment for purchase. Therefore, it is urged that doctrine of merger is not applicable to the aforesaid issue." 86. We have heard rival submissions and perused the relevant material available on record. The primary reason for exercising revisionary jurisdiction by ld. CIT was on the ground that AO failed to examine the real motive and purpose for which amount was remitted to NETg. The assessee's claim for making payments towards import of CBT's came within sh .....

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eply 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 ₹ 7.98 crores were made. No satisfactory .....

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arketing in NIIT Ltd. confirmed that NETg was not allowing NIIT to buy new titles. If this was the state of affair, the AO was required to record a finding as to how PO's were raised and why payments made. Then a further aspect on which AO should have recorded his findings emnated from statement of Shri Ajai Wahi and Shri Katyal. As per their statement the payment was made towards minimum purchase commitment of USD 182500. But actual payment was for USD 207785 and further if NETg discontinue .....

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outdated computer based training product (CBTs). The AO erred in accepting the import as genuine. During search operations certain e-mails were found and the statement of employees was gathered. The detailed scrutiny of these e-mails was necessary to find out the true import of the e- mails as to whether the payment made was towards royalty or towards purchase of software. Ld. Counsel submitted that payment made to NETg was in terms of distributorship agreement and in respect of physical import .....

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. 86.1. Merely bringing the evidence on record without proper appreciation of import of such documents cannot be said to be a case of proper inquiry. Under such circumstances, ld. CIT was fully justified in restoring the matter to the file of AO. As regards the issue raised 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 f .....

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er ( contained at page 193 of PB, and pointed out that ld. Commissioner referred to the claim of ₹ 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 verifying its admissibility. 89. Ld. C .....

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tion in respect of the said expenses under section 35D of the Act, amortized over a period of 10 years, covering the impugned assessment year. The aforesaid claim of the assessee has been allowed as deduction u/s 35D of the Act from assessment year 1993-94 and onwards. The apparent facts relating to the aforesaid claim being made in the return of income were fully and truly disclosed by the assessee in the following manner: - Schedule 14 of audited accounts relating to Miscellaneous Expenditure/ .....

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ugned issue beyond the scope of jurisdiction of assessing officer In this regard, it is submitted, that the claim of deduction under section 35D of t he Act having been accepted in the assessment year 1993-94, it was beyond the power of the assessing officer to examine the claim in the succeeding year(s)/ impugned year, without disturbing/ disallowing the same in the initial year. Reliance, in this regard, is placed on the following decisions, wherein the context of admissibility of deduction u/ .....

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81 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. .....

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he order of CIT on this ground 90 We have heard rival submissions and perused the material available on record. We find that it is not disputed that the claim of assessee was accepted in AY 1993-94 and, therefore, we are in agreement with ld. Counsel for the assessee that mere non-examination of this issue by AO will not render the assessment order as erroneous and prejudicial to the interest of revenue, particularly when assessee's claim was legally allwoable. We, accordingly, do not concur .....

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ved were squared up within the year itself. He pointed out that AO failed to examine the genuineness of these transactions and the identity and creditworthiness of the parties. The main contention was that as per the clause 24(a) of the audit report the auditor was required to furnish the PAN of the said parties being available with the assessee. However, in none of the cases the PAN had been mentioned. AO also failed to examine the purpose of accepting these loans and whether any interest has b .....

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377; 20,000/- or more was accepted during the year. 91.3. Ld. counsel referred to page 1011, wherein the AO had, inter alia, raised following query on this issue ) "7. Please also submit the details of the OD limit, if any, with any bank, with requisite details. 8. Please indicate all the loans taken or given by you during the year. Please state the name(s) and address of the persons from/ to whom such loans were taken/given. Please also indicate the mode of such receipts/ giving such loans .....

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e 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 s .....

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1.7. Ld. counsel also referred to assessee's reply dated 30-3-2010, contained at page 345, wherein it was submitted as under: "Fresh loan Transaction: The assessee had, vide letter dated 29-03-2010, filed reply to the show-cause notice dated 5-02-2010 in respect of the aforesaid issue. However, during the course of hearing on 30- 03-2010 your honour had required the assessee to explain, with reference to Annexure 8 of the Tax Audit Report, the nature of loans/ deposits taken from variou .....

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zed by the assessing officer therefrom." 91.8. Ld. counsel submitted that ld. CIT ignored the above replies and without appreciating the facts and circumstances of the case, alleged that there was variance in the list of parties/ details furnished in the tax audit report and that furnished before the AO in the course of assessment proceedings. Therefore, the AO failed to explain - (1) genuineness of the transaction and identity and creditworthiness of the parties; (2) Purpose of accepting t .....

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s as contained in written submissions are 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 .....

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ould 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 submitted that CIT had not exceeded his jurisdiction since it was a fresh proceedings not barred by limitation. In this regard, the Revenue has made a detailed submissions under Ground no. 10." 93. We have considered the submissions of both the parties and .....

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on raised by the ld. Counsel is rejected. 93.1. As regards the issue raised by ld. CIT in regard to accepting of all the loan transactions by AO without any verification is concerned, we find from the foregoing submissions of assessee that queries were raised by the AO, which have been reproduced earlier. A bare perusal of the inquiries raised by the AO makes it clear that AO had raised specific queries on this issue. However, ld. CIT has pointed out that no details were furnished with regard to .....

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essary details in regard to the genuineness of the transactions, identity and creditworthiness of the parties. He further pointed out that AO did not verify whether in this case the provisions of Sections 269SS and 269T of the Act were attracted or not. The assessee's claim was that the loans taken were from business partners/ franchises from whom no interest bearing loans were taken. The AO merely accepted the assessee's contention without carrying out necessary inquiries in this regard .....

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ismissed. 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 .....

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read with the relevant DTAA. However, in the return of income the assessee had inadvertently mentioned the section under which the claim was made as section 91 instead of section 90, while processing the return of income u/s 143(1). 94.1. The assessee submitted as under: "In this regard it is submitted that the aforesaid claim was verified at the time of processing the return of income under section 143(1) and after being satisfied with the genuineness of claim, credit was allowed for the .....

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D 145,602 USD 21,840 INR 855,969 INR 855,969 Total INR 4,781,828 Merely because wrong section was inadvertently mentioned in the return of income, cannot, by itself be the basis to deny legitimate claim of the assessee. Reference in this regard can also be made to the recent decision of the Indore Bench of the Tribunal in the case of Paramjeet Singh Chhabra: TS-293- ITAT-2013: @Vol. VII: 270-276], wherein it was held that wrong mention of section by the assessee in the return of income cannot be .....

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