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BSES Rajdhani Power Ltd. Versus Principal Commissioner of Income Tax, Delhi-2

2017 (11) TMI 588 - DELHI HIGH COURT

Revision order u/s 263 - scope of exercise of power under Section 263 - Held that:- As far as the first aspect with respect to exercise of power under Section 263 is concerned, the issue stands concluded, in the light of the amendment with effect from 1989, by insertion of Explanation (c) to Section 263 (1). The non-consideration of the larger claim for ₹298.93 crores as depreciation and the consideration of only a part of it (₹644,81,091) by the assessing officer, who did not go int .....

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aspects which were the subject matter of the AO’s order, if in his opinion, they are erroneous, despite the assessee’s appeal on that or some other aspect. - This Court is of the opinion that the revisional order, to the extent that it did not provide any pre-decisional opportunity to address the issues it dealt with, could not be sustained; the ITAT has granted relief of a limited nature on that score. However, we do not agree that those issues were incapable of consideration as they were .....

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ng Counsel for Revenue. S. RAVINDRA BHAT, J. 1. The following questions of law arise for consideration: (a) Whether on facts and in the circumstances of the case, the Tribunal erred in law in not holding that order dated 31.03.2016 passed under section 263 of the Act was without jurisdiction, illegal and bad in law? (b) Whether on facts and in the circumstances of the case, the Tribunal erred in law in not quashing order passed under section 263 of the Act, considering that the assessing officer .....

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novo adjudication by the CIT? 2. The appellant/assessee filed its return for assessment year (AY) 2010-11, declaring Nil income, which was subsequently revised on 30.03.2012. The return was selected for scrutiny and the assessing officer (AO) initiated assessment proceedings and issued notice under Section 143(2) of the Act. During the course of assessment a special audit of the assesse s accounts was directed, under Section 142(2A) of the Act on 05.03.2013. The special auditor s report dated 30 .....

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ted assessment by an order-dated 29.10.2013, under Section 143(3) of the Act. The total income assessed was ₹838,38,00,790 after making, inter alia, disallowance of ₹66, 27,782 being depreciation on ₹6,44,81,091 capitalized for re-installing fixed assets. Further, the AO also disallowed ₹94,20,842 due to related party transactions, added ₹38,58,60,000 in respect of arm s length price of transactions with related party and disallowed ₹2,58,28,863 under section .....

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otice under Section 263, on 16.03.2016, was issued by the Commissioner, alleging that there was variation in cost of fixed assets, which aspect had not been verified or examined by the AO while framing assessment under section 143(3) of the Act. In response to the show-cause notice issued under Section 263 of the Act, the assessee filed its replies, resisting the move to revise the completed assessments; the appellant also pointed that since the original order of the AO had merged with that of t .....

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ice) [hereinafter also referred to as first issue ]; (ii) Applicability of TDS provisions to certain expenditure claimed by the assessee. It was urged that this issue was not mentioned in the show cause notice nor was any opportunity of hearing allowed to the assessee. (iii) Benchmarking of transactions with group companies under Section 40A (2). It was urged that this issue was not mentioned in the show cause notice nor was any opportunity of hearing allowed to the assessee. 5. The assessee s a .....

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no opportunity was provided to the assessee regarding those issues and accordingly, directed the Respondent to pass fresh order in respect thereof after providing reasonable opportunity to the assessee. 6. Relying on Malabar Industrial Co. Ltd. vs Commissioner of Income Tax 243 ITR 83 (SC) and Commissioner of Income Tax vs Max India Ltd 295 ITR 282 (SC) it was contended, by Mr. Ajay Vohra, learned senior counsel, that having regard to the fact that each of the issues which were sought to be re- .....

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earned senior counsel, merged with the appellate order of the CIT (A) on 30.05.2014. 7. Counsel submitted that the issue relating to depreciation in fact merged with the decision of the CIT (A). Thus, if there was any concern with respect to the AO s order, that stood addressed and became final upon application of mind at the appellate stage. Particular notice of the court was drawn to the following observations of the CIT (A): 5.5.7. Therefore, I am of the opinion that expenditure incurred by t .....

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e too. Counsel relied on the following extract of the CIT (A) s order: Considering the peculiar facts of the case and material on records, I am of the view that the AO has added on an ad hoc basis ₹ 38.58 crores on account of lack of arms length price in appellants transaction with M/s RETL as regard power purchase without a valid legal and factual support as all purchases and sales of power by the distribution companies (Discoms) in Delhi require approval from Delhi Power Procurement Grou .....

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unt disallowed by the AO of ₹ 38.58 crores. 9. As regards TDS too, it was argued that the issue had been gone into; the Commissioner could not legitimately have sought to re-open such matters, under Section 263 on a re-appreciation of the merits. Learned counsel relied on the decision of this Court in Commissioner of Income Tax v Sunbeam Auto Ltd 332 ITR 167 (Del) where it was observed that: 12. We have considered the rival submissions of the counsel on the other side and have gone through .....

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y reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the .....

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l argued that the order of the CIT under Section 263 could not be upheld under any circumstance and the ITAT, in refusing to set it aside, compounded the error. It was particularly stressed that the issues in addition to the one relating to depreciation were not part of the show cause notice and could not have been made the subject matter of revision; furthermore, no opportunity of hearing was granted by the Commissioner. 11. Mr. Vohra submitted that each of the three points on which revisional .....

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or the AO to conduct detailed enquiry; in such circumstances, it cannot be presumed that the assessing officer had not examined the claims of the assessee. He cited Commissioner of Income Tax v DLF Ltd 350 ITR 555 (Del.); Commissioner of Income Tax v. International Travel House Ltd. 344 ITR 554 (Del.) Commissioner of Income Tax v. Leisurewear Exports 341 ITR 166 (Del.) Commissioner of Income Tax v. Hero Auto Ltd. 343 ITR 342 (Del.) and Commissioner of Income Tax v. Vikas Polymers 341 ITR 537 (De .....

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es of this sub-section, - (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include - (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him un .....

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re or after the 1st day of June, 1988], the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal. The revenue relied on Commissioner of Income Tax vs Ratilal Bacharilal & Sons (2006) 282 ITR 457; Commissioner of Income Tax v Aruba Mills 1998 (231) ITR 50 (SC) where the position was clarified as follows: The consequence of the said amendment made with retrospective effe .....

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ed as follows: 20. The consequence of the aforesaid Clause (c) introduced with retrospective effect, is that the powers under Section 263 of the CIT shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in the order passed in appeal on or before or after 1st June, 1988. The very fact that Expln. (c) was given retrospective effect by using the words on or before or after itself denotes that the intention of legislature is to embrace all or .....

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x vs Printers House(1998) 233 ITR 666 was in accord with the law declared in Aruba (supra), holding that those issues that were not the subject matter of appeal were capable of revision. 13. As far as the question of dealing with issues that were not the subject matter of show cause notice is concerned, counsel points out that the previous judgments of this Court and several other High Court has now been overruled in Commissioner of Income tax v Amitabh Bacchan 2016 SCC Online SC 484. In that ju .....

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e. 15. As far as the first aspect with respect to exercise of power under Section 263 is concerned, the issue stands concluded, in the light of the amendment with effect from 1989, by insertion of Explanation (c) to Section 263 (1). The non-consideration of the larger claim for ₹298.93 crores as depreciation and the consideration of only a part of it (₹644,81,091) by the assessing officer, who did not go into the issue with respect to the whole amount, was an error, that could be cor .....

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the assessee s appeal on that or some other aspect. The Court held that: Reverting to the specific provisions of Section 263 of the Act what has to be seen is that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the Revenue is the basic pre-condition for exercise of jurisdiction under Section 263 of the Act. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise th .....

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require any specific show cause notice to be served on the assessee. Rather, what is required under the said provision is an opportunity of hearing to the assessee. The two requirements are different; the first would comprehend a prior notice detailing the specific grounds on which revision of the assessment order is tentatively being proposed. Such a notice is not required. What is contemplated by Section 263, is an opportunity of hearing to be afforded to the assessee. Failure to give such an .....

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