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2016 (11) TMI 1057 - ITAT MUMBAI

2016 (11) TMI 1057 - ITAT MUMBAI - TMI - Revision u/s 263 - CIT observed that no enquiry at all was conducted by the AO - AO computed the Capital Gains u/s 50B - Held that:- In the present case the assessee had submitted a detailed explanation along with relevant details assessment order was passed by the AO, prima facie on being satisfied with the explanation of the assessee. In the present case the learned CIT has passed the order u/s 263 by concluding that the order passed by the AO is errone .....

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d, therefore, in such a circumstance, the learned CIT cannot be allowed to wrongly assume jurisdiction u/s 263 of the Act under the “Guise” of AO’s failure to conduct any further enquiry. The learned CIT has passed his order on this issue on the ground that no enquiry at all was conducted by the AO. After perusal of the record, we noticed that the stand taken by CIT is incorrect. The records of assessment establishes that an enquiry was conducted by the AO and the assessee had also participated .....

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essee - Decided in favour of assessee - ITA No.3989/Mum/2013 - Dated:- 28-9-2016 - SHRI B.R. BASKARAN, AM AND SHRI SANDEEP GOSAIN, JM For The Appellant : Shri F. B. Irani , AR For The Respondent : Shri Abhinay Kumbhar, DR ORDER PER SANDEEP GOSAIN,JUDICIAL MEMBER: The present appeal has been filed by the assessee against the order No.CIT.8/263(14)/2011-12 of the learned CIT -8, Mumbai dated 18th March, 2013 passed u/s 263 of the Income Tax Act, 1961 for assessment year 2007-08 on the following gr .....

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DCIT-8(1), Mumbai ( The AO ) was erroneous and prejudicial to the interest of the Revenue. ii) The computation by the AO of the Capital Gains computed under Section 50B of the Act was erroneous. iii) The net worth had to be reduced by depreciation of ₹ 19,968,604 while computing capital gains under Section 50B of t he Act. iv) The Appellant s case was identical to the case of Warner Lambert India Pvt. Ltd. ( The said decision ). v) The AO had erred in not applying the said decision to the .....

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e of computing Capital Gains in terms of Section 50B of the Act. 6. The CIT s direction regarding reduction under Section 10A of the Act are, in any event, illegal and contrary to the principles of natural justice, as they were never the subject of the CIT s Section 263 notice and were never put to the Appellant . 2. Brief facts of the case are that the assessee engaged in the business of providing international and domestic business and financial information services, releasing publications, so .....

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e proposed order of assessment was prepared u/s 144C(1) of the Act at an assessed income of ₹ 15,55,83,590 wherein disallowance of ₹ 1,43,30,864/- u/s 92CA(3) and deduction u/s 10A of the Act of ₹ 4,05,91,252/- was proposed on 26-12-2010 under normal provisions of the Act. The aforesaid draft proposed order of assessment proposing total variation of ₹ 1,46,54,564/- to be made in the income returned by the assessee was held to be prejudicial to the interest of the assessee .....

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and requested the AO to issue final assessment order u/s 143(3) of the Act. On this basis, the AO finalized the assessment order u/s 144C (1) of the Act on 25th January, 2011. 3. Ld. CITwhile exercising its jurisdiction u/s 263 and on perusal of the assessment order for AY 2007-08 has found that while passing the assessment order u/s 143(3) r.w.s. 144C(1) of the Act dated 25.01.2011. The assessing officer has wrongly computed the capital gain u/s 50B of the Act and therefore show cause notice wa .....

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term capital gain u/s 50b amounting to ₹ 1,70,56,696/- on the same has been offered in the return of income. However, while computing Short Term Capital Gains an amount of ₹ 12,36,81,923/- has been reduced from the sale consideration in view of provision of section 50B r.w.s. 43(6)(c)(C)(i) and section 32 of the Act. The AO while computing the assessment has accepted the computation of Short term capital gain u/s 50B without reducing the net worth by the current year s depreciation. .....

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provisions of sub item © of item(i) of sub clause (C) of clause (6) of section 43. The sub clause (C) lays down the specific mode for computation of WDV in the case of a slump sale as produced below: (C) in the case of a slump sale, decrease by the actual cost of the asset falling within that block as reduceda) by the amount of depreciation actually allowed to him under this Act or under the corresponding provisions of the India Income-tax Act 1922 in respect of any previous year relevant .....

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by the ITAT, Mumbai. Accordingly, the net worth of the undertaking should have been computated as under: Sale consideration 14,15,00,000 Less: 1.Fixed Assets(wdv) 6,26,71,984 Less: Depreciation allowable 1,99,68,604 4,29,03,380 2 Net current assets 6,08,09,939 Net worth as on 14.02.2007 10,37,13,319 Less: Expenses on transfer 7,61,381 Capital Gain (Short term) 3,70,25,300 However, as stated in para 3 above, the AO has erred in not reducing the depreciation of ₹ 1,99,68,604/- while computin .....

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d before the undersigned on 28th February, 2012 at 11.30 AM either in person or by a representative duly authorized in writing in this behalf. If you do not wish to avail of this opportunity off being heard in person or through authorized representative you may show cause in writing on or before the said date which will be considered before any such order u/s 263 of the Act is passed. 4. After receiving show cause notice assessee filed detail reply which is reproduced below. (1) (a) The powers c .....

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n order of AO cannot be treated as prejudicial to the interests of the revenue. A similar view was also taken in case of Vijay Kumar Megotia Vs. commissioner of Income Tax (2010) 3 ITR (Trib.) 760 (Patna). (b) Net worth of the undertaking was computed by the assessee in accordance with the provisions of section 50B read with section 43(6)(c) of the Act, by increasing the opening Written Down Value(WDV) of the block of assets sold under slump sale with the additions made during the year. In compu .....

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n, the Assessing Officer was convinced with the stand taken by the assessee. (II) With regard to the computation of capital gains the assessee contended as under: (a) As per the provisions of section 50B of the Act, any profit or gain arising from slump sale effected during the previous year shall be chargeable to tax as capital gain in the year in which transfer takes place. In computing capital gains net worth of the undertaking sold shall be deemed to be the cost of acquisition and cost of im .....

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, in view of the provisions of Explanation 2 to section 50B, of the purposes of computing net worth of the undertaking, WDV of the block of assets transferred shall be WDV as on the date of transfer/sale. WDV on the date of transfer/sale should be taken as WDV at the beginning of the previous year, i.e. 1st April, 2006, as per the provisions of section 43(6)(c) read with section 32(1). (e) In view of section 43(6)(c)(i), WDV of a block of assets at the beginning of the previous year has to be ad .....

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actual cost of that asset, depreciation that would have been allowable assuming that the asset was the only asset in the relevant block of assets. (item C) (iv) It is further provided that reduction cannot exceed the WDV of the block as at the beginning of the previous year. (f) The above adjustments are required to be made to the opening WDV of the block and hence the WDV as referred for the purpose of reduction is the opening WDV of the relevant block and not the WDV of the block after consid .....

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WDV is the figure on which depreciation is to be calculated at the rates applicable on the first day of the relevant assessment year. This aspect also remained unexamined in the case of DIT vs. Warner Lambert India Private Limited 56 DTR 121 (Mum). (g) Since 4the assets sold on slump sale are not in existence on the first day of the relevant assesmsen5t year and since the WDV of the assets sold on slump sale is already reduced from the opening WDV of the relevant block, the question of computing .....

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e WDV of the block of assets existing as on the 1st day of the relevant assessment year i.e., as on 1 April 2007 in the present case, however, since the assets have been transferred by way of slump sale on 14.02.2007 and are not owned by the assessee on 1 April 2007, no depreciation can be granted to it. (i) Another absurdity that will arise if depreciation is allowed to the assessee for the year in which assets are sold under slump sale, is that both the assessee as well as the purchaser will b .....

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ation to the acquirer of the asset, based on the criteria of usage of the asset for more or less than 180 days. Hence, the claim of depreciation for more or less than 180 days shall apply only to the assets acquired during the year and not to those assets which are sold during the year. In other words, the claim of depreciation is an annual exercise and as on 31 March if it is found that the person is not the owner and user of the assessee then depreciation cannot be granted to him. This aspect .....

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for the purpose of deduction u/s 10A as wells for the purpose of computing capital gains u/s 50B of the Act. Being aggrieved, the assessee is now in appeal before us on the aforementioned grounds. 6. Before us, the learned AR submitted that in the present case, the AO made reasonable enquiries on the issues in response to which the assessee submitted detailed explanation for the stand taken by the assessee along with Accountant s report showing the computation for Slump Sale, working on sales c .....

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arned CIT passed u/s 263 of the Act, with regard. 7. We have heard rival submissions and perused the materials placed on record before us. After considering the order passed by the learned CIT as well as hearing the parties at length we are of the considered view that since the assessee itself has submitted all the details as required by the AO with regard to the issue in question, therefore, any order u/s 263 of the Act in this regard is unwarranted. 8. Further, the learned AR relied upon the j .....

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considering explanation furnished by assessee in that regard, allowed assessee s claim. Subsequently, Commissioner, exercising powers under section 263, cancelled order of the ITO observing that order of ITO did not contain discussion in regard to allowability of claim for deduction which indicated non-application of mind and that claim of assessee required examination as to whether expenditure in question was a revenue or capital expenditure and directed ITO to make a fresh assessment on lines .....

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n setting aside assessment order - Held, no. From perusal of the aforesaid judgment it becomes clear that it is well settled position of law that when an assessee has already submitted a detailed explanation and the claim of the assessee has been allowed by the AO on being satisfied with the explanation of the assessee, then, such a decision of the AO cannot be held to be erroneous and prejudicial to the interests of the Revenue unless it is found to be legally and factually unsustainable. 9. We .....

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Price. Vide order u/s 92CA(3) of the I.T. Act 1961 dated 28.10.2010, the Transfer Pricing Officer-I(6), Mumbai, has proposed an upward adjustment of ₹ 1,43,30,864/- on account of Arms Length price in respect of International transactions. The Transfer Pricing Officer-I(6) has held as under; In view of the above, the arguments provided by the assessee are not acceptable. Accordingly, the assessee s arguments are rejected and the operating margin has been considered at 27.96% is applied to t .....

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dingly increase. Thus, upward adjustment is required to be made in the income of the assessee on account following: (i) Software Development ₹ 1,43,30,864/- 4.2 In terms of section 92CA(4) of the I.T. Act,1961, the Assessing Officer is mandated to compute the total income of the assessee under sub section 4 of section 92CA in conformity with the arms length price as so determined by the Transfer Pricing Officer vide order u/s 92CA(3) dated 15.10.2010. in view of the above, the addition of .....

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s, vide order sheet noting dated 25.11.2010, the assessee was asked to explain why these expenses should not be apportioned against these unit on the basis of turnover of the business. In reply, the assessee vide letter dated 03.12.2010 has submitted as under: during the year, the Audit fees of ₹ 13,00,000/- was not apportioned to STP unit. This is due to the fact that the STP unit is not a separate entity and it is part of DBIS only and therefore these expenses were not apportioned to STP .....

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pportioned only against one unit. The remuneration to auditors are not paid for a particular unit. The Auditor is required to audit the entire accounts of the company as a whole and as such these expenses are also required to be apportioned against each unit. Accordingly, the following expense are apportioned against the 10A Unit. The expenses apportioned are worked out as under: Expenses Total amount 10A Unit (24.90%) Non 10A Unit (75.10%) Audit fees 13,00,000 323700 976300 In view of the above .....

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₹ 3,23,700/- in non 10A unit. However, as the total income is computed after taking net profit of whole unit, no separate working of non 10a unit is made. 10. After considering the details filed by the assessee in its paper book and upon hearing the arguments of both the sides, we are of the considered view that in the present case the assessee had submitted a detailed explanation along with relevant details assessment order was passed by the AO, prima facie on being satisfied with the ex .....

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e AO to be Erroneous for lack of enquiry. From a careful perusal of the record, we have also noticed that enquiries were conducted by the AO and, therefore, in such a circumstance, the learned CIT cannot be allowed to wrongly assume jurisdiction u/s 263 of the Act under the Guise of AO s failure to conduct any further enquiry. The learned CIT has passed his order on this issue on the ground that no enquiry at all was conducted by the AO. After perusal of the record, we noticed that the stand tak .....

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wed by the AO on being satisfied with the explanations of the assessee. Therefore, the learned CIT in the present case has wrongly assumed jurisdiction u/s 263 of the Act on all the issues raised by the assessee. It is also a settled law that when two views are possible and Assessing Officer takes one view then order cannot be regarded as erroneous? In this respect we draw support from the case titled Commissioner of Income Tax vs. Design & Automation Engineers (Bombay)(P) Ltd (2010) 323 ITR .....

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after discussion allowed the deduction of the entire profit earned by the assessee pertaining to his export business. We are in complete agreement with the decision of this Court in the case of Commissioner of Income Tax v. Gabriel India Ltd. (supra) and we reject the submission of the revenue that the order of the Assessing Officer is erroneous or is passed without application of mind because in his order he has not made elaborate discussion in that regard. In any event the Revenue has admitte .....

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