TMI Blog2013 (7) TMI 992X X X X Extracts X X X X X X X X Extracts X X X X ..... aining to exempted goods; (iv)Club membership expenditure; (v) Doubtful advances written off; (vi) u/s 40(a)(i) / 40(a)(ia) of the Act; also (vii) Applicability of the provisions of s. 115JB to the expenses provisions disallowed u/s 40(a)(i)/40(a)(ia) of the Act. (3) (Ground No.15) that the CIT erred in directing the AO not to allow setting off of brought forward losses. 3. The facts of the issues, in brief, are as under: 3.1. The assessee company is engaged in the business of manufacturing, trading and leasing of computer hardware, maintenance of computer equipment, development of computer software and related services as consultancy in information technology, system integration etc., For the assessment year under consideration, the assessee had furnished its return of income on 26.10.2005, admitting a total income of ₹ 115,81,64,033/-. An order u/s 143(3) of the Act was passed on 26.12.2008, determining the taxable income of the assessee at ₹ 546,90,33,790/- which comprised of, among others, the additions made by the AO under the following heads, namely: (i) TP adjustment of ₹ 335,96,65,289/- (ii) Provision for warranty ₹ 16,19,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned CIT on 18.11.2010, 23.11.2010 and 30.11.2010. Copies of these submissions are placed at pages 87 to 211 of the paper book 2. Copy of submissions filed on 30.11.2010 and enclosures thereto are also separately placed as box file No.3. The assessee was again directed to file certain additional details and the same was filed on 16.12.2010. Copies of these submissions are placed at page 212 to 219 of paper book 2. 3.2.4 A second notice under section 263 was issued by the learned CIT on 21.12.2010. Copy of this notice is placed at page 220 and 221 of paper book 2. In the said notice, it was proposed by the learned CIT to re-examine and revise the concluded assessment in order to ascertain whether payments made outside India without deducting tax at source under section 195 are liable for disallowance under section 40(a)(ia). It was stated that the revision in respect of the above issue is in addition to issues already under consideration vide notice issued under section 263 on 06.01.2010. The matter was posted for hearing on 04.01.2011. 3.2.5 During the course of hearing on 04.0-1.2011, the learned CIT called for certain documents and these were filed by the assessee vide let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice and submitted the details and documents called for vide submissions dated 18.02.2011 and 25.02.2011. Copy of these submissions and enclosures thereto are placed at pages 268 to 403 of paper book 2. The learned CIT also made various enquiries and called for various documents and details during the course of revisionary proceedings. Assessee complied with the same and furnished the submissions and documents vide letters dated 01.03.2011, 04.03.2011 and 09.03.2011. Copy of the same is placed at pages 404 to 511 of paper book 2. 3.2.8 The sequence of proceedings before the learned CIT under section 263 is also tabulated at page 1 to 5 of the compilation of relevant decisions/material filed before the Bench by the assessee. 4. The CIT after due consideration of the submissions made by the assessee and also extensively quoting various case laws as recorded in her impugned order under dispute, the CIT had concluded her proceedings u/s 263 of the Act dated 21.3.2011, among others, as under: X. Conclusion: To conclude, the discussions in the fore-going paragraphs show that the original assessment dated 26.12.2008 completed under section 143(3) was concluded without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as prejudicial to the interest of the revenue. When the AO adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue. The provision cannot be invoked to correct each and every type of mistake or error committed by the AO; Relies on the following case laws: (i) Malabar Industrial Co. Ltd v. CIT (2000) 243 ITR 83 (SC); (ii)T.K. International Ltd v. ACIT (2005) 275 ITR (AT) 101 ITAT (Ctk); (iii) Jamnadas T Mehta v. ITO (2002) 257 (AT) 90 ITAT (Pune) - that an order passed u/s 143(3) after consideration of all the details/information cannot be said to be erroneous and prejudicial to the interests of revenue Relies on the following case laws: (i) CIT v. Abdul Rahman Sait (2008) 306 ITR 142 (Mad); (ii) ALA Firm v. CIT (1991) 189 ITR 285 (SC); (iii) CIT v. Kelvinator of India Ltd (2010) 320 ITR 561 (SC) S. 263 has no application in respect of inadequate inquiry: - that s. 263 does not visualize a case of substitution of the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account for STPI Units is not mandatory and, thus, the basis/reasons on which the issuance of notice u/s 263 was incorrect, contrary to law; - that since the AO having taken a conscious view or opinion while passing the assessment order, the same cannot be disturbed in the garb of proceedings u/s 263 [Source: Malabar Industrial Co. Ltd v. CIT (2000) 243 ITR 83 (SC)]; - that even assuming that the enquiries made by the AO were insufficient, the inadequate enquiry , per se, cannot be the reason for assuming jurisdiction u/s 263; that there is a difference between lack of enquiry and inadequate enquiry. It is only lack of enquiry which may attract revision and that the inadequate enquiry by itself cannot result in revision by the CIT u/s 263 [Source: Infosys BPO Ltd v. ACIT [(2012) 6 TxCorp (A.T) 27503]; Relies on the following case laws: (a) CIT v. D silva (LF) (1991) 192 ITR 547 (Kar); (b) Raylon Silk Mills v. CIT (1996) 221 ITR 155 (Guj); Validity of issuance of second and third notices u/s 263: - that in the second show-cause notice u/s 263 dated 21.12.2010, it was proposed to re-examine and revise the order for the reason that the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02.94 Offshore Gurgaon 4129.03 97.36/845.88 11.68 On/offshore Pune 2 4129.03 149.19/845.88 19.88 On/offshore Pune 1 4129.03 56.93/845.88 09.16 On/offshore Kolkatta 4129.03 234.24/845.88 29.11 On/offshore Total 242.70 Bangalore 1 Non-10A 194.73 18.99 2085,30,15,748 185.11 Domestic 2106,72,86,265 89.12 - that the CIT had issued a show-cause notice u/s 263 of the Act which primarily raised the issue of brought forward losses of ₹ 37.13 crores wrongly allowed by the AO and also allowance of deduction u/s 10-A to the assessee etc., With regard to assumptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the undertaking is maintained separately and the exports proceeds could be verifiably related to the manufacture of goods/computer software by the undertaking. Relies on the following case laws: (i) CIT v. Himatasingike Seide Ltd. (2006) 286 ITR 255 (Kar); (ii) Intellinet 129 TTJ 273 (Chennai SB)(sic) Scientific Atlanta India Technology (P) Ltd v. ACIT (2010) 129 TTJ (Chennai) (SB) 273; (iii)Arisudana Spinning Mills (2012) 348 ITR 385 (SC) - That the assessee did not furnish the bank account with Marine Midland Bank (HSBC), USA where amounts were credited, alleged for the software exports by 10A Units before the AO, neither such credits were correlated with the invoices raised by the Units. The FIRCs do not indicate the realization against any invoice raised or in relation to softex forms certified by the STPI authorities. The FIRCs merely indicate that substantial amounts have been transferred from the overseas account of the assessee. They do not have any reference and/or endorsement to softex invoices or forms. The source, volume and nature of credit in the overseas account has not been explained till date; - with regard to the issue of separate books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or services to be made to the customer to verify the nature of goods or services supplied and the location of such end-user, domestic or foreign; (ii) bill raised for the goods/services and verification of sale proceeds being received in foreign exchange, verified and correlated with entries in the bank accounts and FIRCs issued by the bank; - that the very fact of non-verification of assets, employees, customers, nature of work and the end beneficiary of the services of such undertaken would render the assessment erroneous. Further, the export of tangible goods in terms of bills raised, and bringing the foreign exchange to India in terms of FIRCs was not examined or verified and, thus, the assessment was erroneous and allowance of exemption u/s 10A prejudicial to the interest of revenue. The various details called for by the CIT itself shows that such details required for assessment before allowing the exemption were neither called for nor submitted by the assessee. The multiplicity of notices issued by the CIT is more on account of non-furnishing of requisite details/accounts e.g., asset register of the undertakings for the purposes of verifying the nature of work, depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusion, the learned DR had distinguished the following case laws on which the learned AR placed strong reliance: (i) Malabar Industrial Company v. CIT 243 ITR 83 (SC); (ii) CIT v. Garbriel India Ltd 203 ITR 83 (SC); (iii)Bongaigaon Refinery and Petro Chemicals Ltd 287 ITR 120; (iv) B A Plantation Industries Ltd 290 ITR 395 (Gau); (v) CIT v. Leisure Wear Exports Ltd 341 ITR 166 (Del); (vi) CIT v. Hindustan Marketing and Advertising Co. Ltd 341 ITR 180 (Del); (vii)IBM India (P) Ltd v. DCIT ITA No.1151/Bang/2009 AY 2002-03 ITAT, Bangalore; 6.2 In the following case laws, the learned DR had placed reliance to support his views, namely: (i) Mukur Corporation (1978) 111 ITR 312 (Guj); (ii) CIT v. Daga Entradce Pvt. Ltd (2010) 327 ITR 467 (Guj); (iii)CIT v. English Indian Clays Ltd (2011) 331 ITR 219 (Ker); (iv) CIT v. Infosys Technologies Ltd (2012) 341 ITR 293 (Kar); (v) Mysore Sales International Ltd ITA No.1402/B/2010 dated 30.3.2012 AY 2006-07 ITAT, Bangalore A Bench; (vi) M/s. Times VPL Ltd ITA No.587/B/2012 dated 31.1.2012 - AY 2007-08 ITAT, A Bench, Bangalore; (vii) CIT v. Nagesh Knitwears P Ltd Ors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for club membership; (e) Writing off of advances; (f) Eligibility to claim deduction u/s 10A of the Act; (g) Applicability of s. 115JB; (h) Disallowance u/s 40(a); (i) With regard to incorrect set off of non-existing losses of earlier years, the assessing officer was directed to withdraw the set off allowed. 7.2 Aggrieved, the assessee has come up before us with the present appeal. The first and second ground on which the learned CIT assumed jurisdiction to revise the order is that losses amounting to ₹ 37,13,52,075 relating to assessment year 2003-04 and assessment year 2004-05 have been wrongly allowed to be set off in computing the business income and export profits in the order passed under section 143(3) for assessment year 2005-06. The CIT observed that as per assessment records relating to assessment year 2003-04 and assessment year 2004-05 there are no losses available for carry forward and hence these losses have been wrongly allowed by the Assessing Officer in the order passed under 143(3) for the year under consideration. The losses were not allowed to be carried forward in assessment year 2003-04 and assessment year 2004-05 for the reason that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed under section 263 that the assessee itself has filed the rectification application in respect of the set off of loses and the learned CIT was also aware of the order of the Tribunal in assessee s favour for the earlier year. The assessee voluntarily having filed the rectification application, the Assessing Officer was seized with the said matter and was competent to rectify the same. There was no legal requirement for the Commissioner to exercise supervisory jurisdiction in respect of an issue which is already pending before the Assessing Officer, which is purely consequential in nature and further given the fact that the issue on merits has already been decided in favour of the assessee by the Coordinate Bench for the earlier years. Even otherwise, as and when the consequential orders are passed to give effect to the appellate orders, the issue of carry forward of losses and the quantification thereof would get resolved. As held by the Supreme Court in Malabar Industrial Co Ltd v CIT (2000) 243 ITR 83, the provisions of section 263 cannot be invoked to correct each and every type of mistake or error committe4d by the Assessing Officer. The learned CIT was therefore not lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid order. In the present case, the first show cause notice under section 263 is dated 6.1.2010 and the order under section 263 was passed on 21.3.2011. When the learned CIT passed the order under section 263 on 21.3.2011, the Coordinate Bench of the Tribunal in assessee s own case for the earlier years i.e. for assessment year 2000-01 vide order dated 31.10.2007 for assessment year 2001-02 vide order dated 29.02.208 for assessment year 2002-03 vide order dated 24.06.2011 had already held that the assessee is entitled to claim deduction under section 10A. The ITAT also held that there is no requirement for maintenance of separate of books of accounts for STPI Units. This is an undisputable fact which is also placed at page 177 of paper book 1. Thus, there is no basis for the learned CIT to hold that the order passed under section 143(3) is erroneous in so far as it is prejudicial to the interests of the Revenue. Further, this is not a case where the Assessing Officer allowed deduction under section 10A without making enquiries. During the course of the assessment proceedings, the Assessing Officer asked the assessee to submit explanation as to why deduction under section 10A should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal are binding on the lower authorities. The order passed under section 143(3) in the instant case which allowed deduction under section 10A by following the orders of the Coordinate Bench of the Tribunal in assessee s own case for the earlier years cannot, by any stretch of imagination, be branded as an order erroneous and prejudicial to the interests of the Revenue as per sec 263. We are fortified in our conclusion by the decision of the Calcutta High Court in Russell Properties Pvt Ltd v. Chowdhury (A), CIT (Addl.) (1977) 109 ITR 229 wherein it was held that an order passed by the ITO following the decision of the Appellate Tribunal cannot be held to be erroneous and such an order cannot be revised under section 263. The Supreme Court in fact relied on the above decision in CIT vs. Max India Ltd (2007) 295 ITR 282. Even otherwise, the Assessing Officer has taken a possible or a permissible view in law having consciously allowed deduction under section 10A after making enquiries and on an application of mind. Consequently, the order passed under section 143(3) cannot be regarded as satisfying the requirements of section 263 going by the ratio of the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the Commissioner in its appellate jurisdiction . 7.3.3 In the above decision the Hon'ble jurisdictional High Court held that if the reasons for the conclusion and findings of the Assessing Officer are not forthcoming in the order, the order can be regarded as erroneous in so far as it is prejudicial to the interests of Revenue. As a corollary, if the Assessing Officer calls for the details, examines the same and the order of the Assessing Officer contains the reasons for his conclusions and findings, the said order cannot be regarded as erroneous in so far as it is prejudicial to the interests of Revenue. In the present case, the allowability of deduction under section 10A and its computation were examined by the Assessing Officer in the course of assessment proceedings. The Assessing Officer has recorded reasons in support of her conclusions and findings on the aspect of deduction under section 10A. The order under section 143(3) has been passed after an application of mind as admitted by the Assessing Officer that he has considered all the details following the decisions of the Coordinate Bench in assessee s own case for the earlier years. On similar facts and circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd consideration of the materials, documents and evidences produced, the conclusions drawn by him in the order passed under section 143(3) cannot be branded as erroneous only because the Commissioner chooses not to agree with him. Even otherwise, it is not a case of a lack of enquiry by the Assessing Officer in respect of computation and allowability of deduction under section 10A. The Delhi High Court in Cit vs. Sunbeam Auto Ltd (2009) 227 CTR 133, CIT v. Anil Kumar Sharma (2010) 194 TAXMAN 504, CIT vs. Vikas Polymers (2010) 194 TAXMAN 57, CIT vs. Hindustan Marketing Advertising Co. Ltd (2011) 196 TAXMAN 368 has consistently held that the Commissioner cannot revise the order passed under section 143(3) for inadequate enquiry . 7.4 In view of the above, the action of the learned CIT in issuing notice under section 263 dated 6.1.2010 and in passing the order under the said section on account of denial of deduction under section 10A is bad in law and is quashed. Since the first notice issued under section 263 dated 6.1.2010 and the order passed under section 263 in this connection are bad in law, the second and subsequent notices issued under section 263 and the proceedings t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial on record for the learned CIT to conclude that the order passed under section 143(3) is erroneous in so far as it is prejudicial to the interests of the revenue. The subsequent letter asking for details of disallowances made by the assessee demonstrates that there was no material on record for issue of second show cause notice. The learned CIT first issued notice under section 263 when there was no material on record to conclude that the order was erroneous and prejudicial to the interests of revenue and then started making enquiries. This is impermissible under the scheme of section 263 under which the Commissioner is required to demonstrate that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue on the basis of examination of record which is already available before him. In view of the same, the second show cause notice issued under section 263 on 21.12.2010 and the order passed under section 263 is bad in law and is quashed. 7.5.1 After the issue of second show cause notice dated 21.12.2010 and letter dated 12.01.2011, the learned CIT called for voluminous details on various issues during the course of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of Revenue. 7.6.3 The question for our consideration is whether, in the contest and setting of section 263 the Commissioner can make suo moto enquiries by calling for and examining new records which were not available before for the purpose of determining whether the order passed is erroneous and prejudicial to the interests of Revenue?. 7.6.4 The Guahati High Court in Bongaigaon Refinery and Petrochemicals Ltd v UOI (206) 287 ITR 120 held that the Commissioner cannot make roving probe into the facts to pick out errors for sustaining his interference in the course of revisionary proceedings. It was held that the Commissioner cannot supplant the roles of other authorities under the Act and he is not a substitute for other statutorily prescribed authorities under the Act. The High Court came to the above conclusion after noticing that section 263 permits the Commissioner to initiate an enquiry as he may deem necessary. The relevant observations of the High Court are reproduced hereunder: Entertainment of a view different from the one adopted by the Assessing Officer, if plausib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how the order of the Assessing Officer is erroneous. 7.6.7 The Bombay High Court in Cit v. Gabriel India Ltd (1993) 203 ITR 108 held that the Commissioner cannot make further enquiry without demonstrating that the earlier finding of the Assessing Officer is erroneous and prejudicial to the interests of revenue. Relevant extracts from the decision are as under: Further inquiry and/or fresh determination can be directed by the Commissioner only after coming tot eh conclusion that the earlier finding of the Income Tax Officer was erroneous and prejudicial to the interests of the Revenue. Without doing so, he does not get the power to set aside the assessment . 7.6.8 The Karnataka High Court in the case of CIT v D Silva (LF) (1991) 192 ITR 547 referring to decision of the Gujarat High Court in Cit vs. Harikishan Jethalal Patrl (1987) 168 ITR 472 held that the Revenue cannot make fishing inquiries and claim opportunity for a shot in the dark without there being any foundational facts on record. The relevant extracts from the decision of the Gujarat High Court quoted by the Karnataka High Court were as under: It is obvious from the demand made before the Appellate T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciples as to exercise of jurisdiction by the Commissioner under section 263 of the Act can be culled out: (a) The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it s not erroneous but it is prejudicial to the Revenuerecourse cannot be had to section 263(1) of the Act. (b) Every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue: or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. (c) To invoke the suo motu revisional powers to reopen a concluded assessment under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed. (f) The power of the Commissioner under section 263(1) is not limited only to the material which was available before the assessing officer and, in order to protect the interests of the Revenue, the Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment. 7.7 The judgment of the Apex Court in CIT v. Shree Manjunatheswara Packing Products and Camphor Works (1998) 231 ITR 53 (SC) which was strongly relied on by the learned DR does not help the case of the Revenue. In the above decision, the question before the Supreme Court was whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the word record used in s.263 (1) of the Act would not mean the record as it stands at the time of examination by the CIT, but it means the record as it stands at the time the order in question was passed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments directed to be produced by the assessee were filed vide letters dated 1.3.2011, 4.3.2011 and 9.3.2011 (Page 404, 441 and 470 respectively of paper book 2). The learned CIT also relied on various events occurring after the issue of notice u/s 263. The first notice u/s 263 was issued on 6.1.2010. However, the learned CIT has relied on various material subsequent to notice issued u/s 263. For instance the learned CIT relied on the order passed u/s 143(3) for assessment year 2007-08 (Page 7, 48 and 50 of CIT order), tax auditors statement dated 22.12.2010 (Page 6 and 63 of CIT order), DRP s order dated 8.9.2010 (Page 13 of CIT order) and letter to Income Tax Officer (TDS) dated 7.2.2011 (Page 7 of CIT order). It is thus clear that the learned CIT called for various new records, documents, information, which were not available at the time of his examination and examined the same for the purpose of coming to the impugned conclusion that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. Thus, the order passed by the learned CIT is therefore, not in accordance with the provisions of section 263. 7.8 In an overall consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X
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