TMI Blog2011 (10) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... nder sec. 143(1) of the Act on 24.2.2003. The case of the assessee was selected for scrutiny assessment and a notice under sec. 143(2) of the Act was issued and served upon the assessee company. In response to the notice, Shri Rakesh Sehgal, CA appeared on behalf of the assessee from time to time and filed the requisite details. An assessment order under section 143(3) was passed on 31.3.2005. 3. The Deputy CIT, Central Circle-22, Range-5, Mumbai vide his letter dated 16.2.2006 informed the Assessing Officer of the assessee that a sum of ₹ 50,29,896 payable by the assessee to Shri Shreya Morakhia had been written off by Shri Morakhia. From perusal of the assessee s account for assessment year 2002-03, it revealed to the Assessing Officer that the said amount had not been declared by the assessee company as its income, therefore, he recorded the reasons under sec. 147 and issued a notice under sec. 148 of the Act. The reasons have been supplied to the assessee in response to its request and copy of such reasons have been placed on page 12 of the paper book which read as under: F.No.DCIT/Circle 10(1)/Inv./2006-07/ Office of the Dy. Commissioner of Income-tax Circle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking any inquiry accepted the submissions of assessee and dropped the reassessment proceedings. This action of the Assessing Officer is erroneous and prejudicial to the interest of revenue. He issued a show-cause notice under sec. 263 of the Act. The copy of such notice has been placed on pages 38 39 of the paper book. Learned Commissioner had reproduced the relevant part of the show-cause notice in paragraph 2 of the impugned order. In response to the show-cause notice, assessee made detailed submissions which have been reproduced by the Learned Commissioner in paragraphs 3 on page nos. 4 to 8. Learned Commissioner has summarized the arguments raised by the assessee and the point in dispute in paragraph No.4 which reads as under: 4. I have considered facts of the case and have also gone through the submissions of the assessee. The arguments of the assessee can be summarized as under: i) there is no jurisdiction u/s.263 of the Income-tax Act, 1961 because of the absence of any order passed by the Assessing Officer on account of initiation of reassessment proceedings u/s.147/148 and also notice issued u/s.143(2) in the same proceedings. The claim of the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f capital gain/loss. He highlighted this calculation in the impugned order. According to the Learned Commissioner, the assessee had 11,66,700 shares as on 31.3.2001 which were valued at ₹ 2,71,33,433. Then as on 31.3.2002, it had 13,01,900 shares which normally would have been valued at ₹ 2,76,04,956 but in the balance sheet it has taken the value at ₹ 2,28,85,319 i.e. the value has been reduced by ₹ 47,19,637, apparently, due to final settlement and reduction in liability, due to Shri Shreya Morakhia. Thus, according to the Learned Commissioner, had the value of the investment was worked out on the basis of inclusion of liability then value of each share would be on higher side. The capital loss ultimately at the end of this year would be on a lower side. He worked out the excess loss allowed to the assessee at ₹ 11,23,719. This excess loss according to the Learned Commissioner ought to have not been allowed. Had the Assessing Officer passed an order under sec. 143(3) read with sec. 147 of the Act? Thus, it is a prejudice to the revenue. 7. The learned counsel for the assessee while impugning the order of Learned Commissioner raised multifold submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r etc. after affording an opportunity of hearing to the assessee. He emphasized on the expression if he considers that any order passed therein according to the learned counsel for the assessee, there is no order passed by the Assessing Officer which can enable the Learned Commissioner to take action u/s 263 on the proceedings of sec. 147. Thus, the order passed under sec. 263 is not sustainable. In his next fold of submissions, he pointed out that since the assessee has already reduced the cost of investment, there cannot be any tax implication. Reassessment order would not sustainable in that way. Learned Commissioner has assigned one more reason that assessee claimed excessive loss. He pointed out that the assessment was reopened on account of escapement of income representing the liability payable to Shri Shereya Morakhia. If that amount has already been disclosed by the assessee and ultimately comes out that no such income has escaped then any other addition cannot be made. For this proposition, he relied upon the decision of Hon'ble Mumbai High Court in the case of CIT vs. Jet Airways (I) Ltd. reported in 331 ITR 236, which has been followed by the Hon'ble Delhi Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the A,O and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the A.O has adopted one of the courses permissible under law or where two views are possible and the A.O has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the A.O is unsustainable under law. (vi) If while making the assessment, the A.O examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s. 263 is not permitted to substitute his estimate of income in place of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Assessing Officer which could be revised or cancelled or modified by exercising powers under sec. 263. In our opinion, Learned Commissioner has rightly observed that extinguishments of a live proceedings under sec. 147 would amount to passing of an order which is amenable under action of Learned Commissioner under sec. 263 of the Act. 14. The next issue is whether there is any prejudice to the revenue which can empower the Learned Commissioner to take action under sec. 263. The basic foundation for taking action under sec. 147 as well as under sec. 263 is that Mr. Shreya Morakhia has written off a liability payable by the assessee resultantly that liability would cease and assessee ought to have shown it as an income. The assessee has demonstrated before the Assessing Officer that it has already reduced the cost of acquisition of shares in respect of liability payable to Shreya Morakhia. Thus, there is no tax implication. Assessing Officer has dropped the proceedings. Learned Commissioner has termed this action of the Assessing Officer as erroneous as well as prejudicial to the interest of revenue. According to him, even if, there cannot be any addition on account of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer would not be in a position to examine the alleged excess capital loss claimed by the assessee. If the Assessing Officer was not in a position to examine that issue then in our opinion, Learned CIT(Appeals) would not be in a position to take cognizance of that issue in sec. 263 of the Act. In other words, even if, it is upheld that the dropping of proceedings under sec. 147 of the Act is erroneous and prejudicial to the interest of the revenue then also on revival of such issue, Assessing Officer has to first see whether any addition could be possible on the escapement of income for which he has recorded the reasons. If it is established on the record that there is no escapement of income for which reasons are recorded then in view of two decisions, i.e. of Hon'ble Mumbai High Court as well as of Hon'ble Delhi High Court, no other issue could examined by the Assessing Officer. In such situation, the dropping of the proceedings could not be hold as erroneous or prejudicial to the interest of the revenue. We could understood the logic of Learned Commissioner, had he referred the scrutiny assessment passed under sec. 143(3) of the Act also? He did not find any error i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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