TMI Blog2015 (8) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... be exercised, since the twin conditions have not been fulfilled in the case. In view thereof, we reverse the directions of the Commissioner in this regard and uphold the order of Assessing Officer in allowing the set off of unabsorbed depreciation relating to assessment year 1999-2000 amounting to ₹ 5,41,84,430/- claimed against the business income for assessment year 2008-09 in computation of income. The directions of the Commissioner in this regard are thus, reversed and the order of Assessing Officer is restored. We find merit in the alternate plea raised by the assessee that in view of the information being available on record though in the proceedings under section 154 of the Act, the Commissioner could not exercise the jurisdiction under section 263 of the Act. We set-aside the order of Commissioner on this ground also. - Decided in favour of assessee. Proceedings under section 263 in relation to the management / license fees paid - The said issue was restored back to the file of Assessing Officer to decide the same after verifying the submissions of the assessee and due verification of the books of account and other details - The learned Authorized Representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time of assessment proceedings. 3.3 That the Ld. CIT erred in law in not appreciating that if the Ld. AO adopts one of the views permissible in law and it has resulted in loss to revenue, or where two views are possible and the AO has taken one view with which CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of revenue. 3.4 That the Ld. CIT grossly erred on facts and in law in initiating proceedings under section 263 of the Act without appreciating that the issue involved under dispute is debatable and the Ld. AO has taken one of the two plausible views on the issue involved. 3.5 That the Ld. CIT grossly erred on facts and in law in invoking proceedings under section 263 of the Act against order passed by the Ld. AO without appreciating that there is a mere difference of opinion on the issue under dispute between the Ld. AO and Ld. CIT, which is clearly not permissible to initiate proceedings under section 263 of the Act. DEDUCTION OF MANAGEMENT LICENSE FEES 4. That the Ld. CIT erred in setting aside the order of assessment on the issue assessment on the issue of management license fees which is neither erroneous nor preju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / license fees paid by the assessee to SABMiller Management (IN) BV Netherlands, at ₹ 2,69,57,660/-. As per the Commissioner, the said expenses were not in accordance with the business exigency and hence were not allowable under section 37(1) of the Act for the reasons mentioned in the show cause notice. The assessee in reply, raised preliminary objection against the issue of notice under section 263 of the Act on the basis of assumption of jurisdiction. Reliance was placed on series of decisions, in this regard. The Commissioner was of the view that, the facts of the present case were totally different from those of the cases relied upon by the assessee. It was further held by the Commissioner that the Assessing Officer had passed the order on the basis of hypothetical ground without verifying the facts, thus, incorrect conclusion had been drawn by the Assessing Officer without application of mind. The Commissioner further placed reliance on the ratio laid down by the Hon ble Supreme Court in Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC) and held that the order passed by the Assessing Officer was both erroneous and prejudicial to the interests of Revenue. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t / license fees paid by the assessee to SABMiller Management (In) BV Netherlands. The submissions of the assessee in this regard, were reproduced by the Commissioner, which are being referred but not reproduced here for the sake of brevity. The Commissioner after considering the submissions made by the assessee observed as under:- The submissions of the assessee have been duly considered. On perusal, it is noticed that the license fee paid by the assessee is governed by the agreement dated 21st January, 2008 executed between SKOL Breweries Limited (SOK) and SABMiller Management (IN) BV, which needs verification. Further, the clarification letter dated January, 6, 2012 of SABMiller Management (IN) BV also requires verification. Accordingly, the AO is directed to verify the issue raised in the show cause notice in the light of decisions relied upon and submissions made by the assessee, after due verification of books of accounts and other details such as agreements executed by the assessee. 10. The assessee is in appeal against the said invoking of jurisdiction by the Commissioner under section 263 of the Act. 11. The learned Authorized Representative for the assessee poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Paper Book, is enclosed the copy of order under section 154 of the Act dropping the said proceedings. 14. In respect of second issue i.e. license / management fees, the learned Authorized Representative for the assessee pointed out that the issue was set aside to the Assessing Officer despite enquiry was made by the Assessing Officer in the first round of assessment proceedings. It was further pointed out by him that the Assessing Officer in the set-aside proceedings, had not made any addition. The learned Authorized Representative for the assessee pointed out that in the present case, the Assessing Officer had called for details and applied his mind whereas, the Commissioner has not applied his mind before issue of show cause notice under section 263 of the Act. Another contention raised by the learned Authorized Representative for the assessee was that where the details were called for and examined by the Assessing Officer, whether the Commissioner could exercise the jurisdiction under section 263 of the Act. 15. The next contention of the learned Authorized Representative for the assessee that the record i.e. assessment record shows that the issue had been elaborately co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT Vs. S S Power Switchgear Ltd. (2009) 318 ITR 187 (Mad) and also the claim of assessee. Further, the reliance was placed on the ratio laid down by the Mumbai Bench of the Tribunal in ACIT Vs. Associated Cables Pvt. Ltd., in ITA No.5556/Mum/2012. 18. The learned Authorized Representative for the assessee concluded by stating that queries were raised in the original assessment proceedings which were replied to by the assessee and further, issue was raised in the proceedings under section 154 of the Act which were also replied to, whether in such circumstances, the order of Commissioner was sustainable in law, also because the issue being settled by the High Courts and various Benches of the Tribunal, even on merits, the issue was in favour of the assessee. Further, the issue of management fees has been accepted by the Assessing Officer in the set-aside proceedings. In the said circumstances, it was stated by the learned Authorized Representative for the assessee that the Commissioner thus, had not applied his mind before issue of notice or the order as to why he was setting aside the issue. 19. The learned Departmental Representative for the Revenue pointed out that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase prejudicial to the interests of the, Revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy and Co. v. S. P. Jain [1957] 31 ITR 872. the High Court of Karnataka in CIT v. T. Narayana Pai [1975] 98 ITR 422, the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 203 ITR 108 and the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81 treated loss of tax as prejudicial to the interests of the Revenue. Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company v. CIT [1987] 163 ITR 129 interpreting prejudicial to the interests of the Revenue. The High Court held (page 138) : In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the second issue raised vis- -vis the management / license fees paid to SAB Miller Management (In) BV Netherlands, the issue was set-aside to the file of Assessing Officer to verify the issue and decide the same. 24. In the appeal filed by the assessee, the objection has been raised against such invoking of jurisdiction by the Commissioner in holding that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of Revenue on both the accounts. As the various Courts have held the twin conditions of the order being erroneous and prejudicial to the interest of Revenue are to be fulfilled and in case any one of the conditions are not so fulfilled, then even if the other condition is fulfilled, the revisionary powers cannot be exercised by the Commissioner. 25. We shall first take up the first issue of setting off of brought forward unabsorbed depreciation relating to A.Y. 1999-2000 against the business income for assessment year 2008-09. 26. The case of the assessee before Commissioner was that the said set off of unabsorbed depreciation carried forward from assessment year 1999-2000 could be set off against the business income for assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation allowance worked out in the assessment year 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by the Finance Act, 2001, it would have incorporated a provision to that effect. 28. The Hon ble Gujarat High Court had considered the issue at length and had observed as under:- 30. The last question which arises for consideration is that whether the unabsorbed depreciation pertaining to the assessment year 1997-98 could be allowed to be carried forward and set off after a period of eight years or it would be governed by section 32 as amended by the Finance Act, 2001 ? The reason given by the Assessing Officer under section 147 is that section 32(2) of the Act was amended by the Finance (No. 2) Act of 1996, with effect from the assessment year 1997-98 and the unabsorbed depreciation for the assessment year 1997-98 could be carried forward up to the maximum period of eight years from the year in which it was first computed. According to the Assessing Officer, eight years expired in the assessment year 2005-06 and only till then, the assessee was eligible to claim unabsorbed depreciation of the assessment year 1997-98 for being carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear; (iii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i) and clause (ii), the amount of allowance not so set off shall be carried forward to the following assessment year, and- (a) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year ; (b) if the unabsorbed depreciation allowance cannot be wholly so setoff, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed: Provided that the time limit of eight assessment years specified in sub-clause (b) shall not apply in case of a company for the assessment year beginning with the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Company (Special Provisions) Act, 1985 (1 of 1986), and ending with the assessment year relevant to the previous year in which the entire net worth of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on any motor car manufactured outside India unless it is used (i) in the business of running it on hire for tourists, or (ii) outside in the assessee's business or profession in another country. 30.4 The Act has allowed depreciation allowance on all imported motor cars acquired on or after 1st April, 2001. 30.5 These amendments will take effect from the 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years. 37. The Central Board of Direct Taxes Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of eight years for carry forward and set off of unabsorbed depreciation. The amendment is applicable from the assessment year 2002- 03 and subsequent years. This means that any unabsorbed depreciation available to an assessee on the 1st day of April, 2002 (the assessment year 2002-03), will be dealt with in accordance with the provisions of section 32(2) as amended by the Finance Act, 2001, and not by the provisions of section 32(2) as it stood before the said amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. We are of the considered opinion that any unabsorbed depreciation available to an assessee on the 1st day of April, 2002 (the assessment year 2002-03), will be dealt with in accordance with the provisions of section 32(2) as amended by the Finance Act, 2001. And once Circular No. 14 of 2001 clarified that the restriction of eight years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from the assessment year 1997-98 up to the assessment year 2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by the Finance Act, 2001, and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. For the aforesaid reasons, this writ petition succeeds and is allowed. The 41 notice issued under section 148 of the Income-tax Act, 1961, dated March 29, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. This was the decision of Third Member in the case of Kanel Oil Exports Industries Ltd. reported in 126 TTJ 158 (Ahm) (TM). 31. Applying the ratio laid down by the Hon ble Gujarat High Court in General Motors India Pvt. Ltd. Vs. DCIT (supra) to the facts of the present case, the issue of allowability of unabsorbed depreciation relating assessment year 1999-2000 against the income arising in assessment year 2008-09 is to be set off and consequently, the order passed by the Assessing Officer in this regard cannot be said to be prejudicial to the interest of Revenue. Consequently, the revisionary powers exercised by the Commissioner against the order of assessment which is not prejudicial to the interest of Revenue, even where the order passed by the Assessing Officer was erroneous, cannot be exercised, since the twin conditions have not been fulfilled in the case. In view thereof, we reverse the directions of the Commissioner in this regard and uphold the order of Assessing Officer in allowing the set off of unabsorbed depreciation relating to assessment year 1999-2000 amounting to ₹ 5,41,84,430/- claimed against the business income for assessment year 2008-09 in computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer u/s 154 of the Act. The learned D.R. for the Revenue had placed reliance on the above said proposition laid down by the Apex Court. However, we find that the learned A.R. for the assessee had referred to the proceedings of rectification u/s 154 of the Act under which reply was given by the assessee which in turn becomes record for the purpose of explanation to section 263 of the Act. 25. In view of the totality of facts and circumstances and the explanation filed by the assessee in reply to the notice, we find merit in the alternate plea raised by the assessee that in view of the information being available on record, the CIT could not exercise the jurisdiction u/s 263 of the Act. We set aside the order of the CIT and allow the grounds of appeal raised by the assessee. 34. Following the above said ratio, we find merit in the alternate plea raised by the assessee that in view of the information being available on record though in the proceedings under section 154 of the Act, the Commissioner could not exercise the jurisdiction under section 263 of the Act. We set-aside the order of Commissioner on this ground also. 35. Now, coming to the second issue rais ..... X X X X Extracts X X X X X X X X Extracts X X X X
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