TMI Blog2019 (9) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... terial on record could show that the Assessing Officer had applied his mind on the issue. The fact the PCIT has sought to revise the issue which is not subject matter of deduction i.e. loss on account of foreign exchange fluctuation on receivables would suggest that there was no proper application of mind on the part of PCIT. Thus, considered opinion that the material on record would establish application of mind on the part of the Assessing Officer while allowing the claim during the assessment proceedings. Once such application of mind is discernible from the record, the proceedings under section 263 of the Act would fall into the area of the ld. PCIT having a different opinion and it is settled proposition of law that an assessment order cannot be treated as erroneous and prejudicial to the interests of the Revenue simply because in the opinion of the ld. PCIT some other views are possible as held by the Hon ble Supreme Court in the case of CIT vs. Max India Ltd [ 2007 (11) TMI 12 - SUPREME COURT] . PCIT does not satisfy the prerequisite condition of assessment order being erroneous and prejudicial to the interest of the Revenue. Therefore the order of the ld. PCIT cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase may be set aside/cancelled/amended or modified. (ii) Each Ground of Appeal hereinabove is independent and without prejudice to each other. (iii) The appellant craves leave to reserve to itself the right to add, after, amend or annul any of the grounds of appeal at or before the time of hearing and to produce such further evidences, documents and papers as may be necessary . 3. The brief facts of the case are as under: The appellant namely M/s. Winvest Holdings (I) Pvt. Ltd is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of investment. trading in shares, stocks, debentures, bonds etc., The return of income for the AY 2014-2015 was filed on 29.09.2014 disclosing total income of ₹ 722,84,21,180/-. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax, Corporate Circle-3(2), Chennai (hereinafter called AO ) vide order dated 07.11.2016 passed u/s.143(3) of the Income Tax Act, 1961 (in short the Act ) accepting the returned income. 4. The returned income includes capital gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocessing business and in evaluate the possible strategy for such divestment; Evaluation of and advising on the transaction structure, sale price and commercial terms; Identification and appointment of merchant banker (s) and other advisors and coordinating with them: Prepare planning document, budgeting financials, cash report and cash flow projections, detailed report on financial operating and business plans; Undertake market research, market studies, long-term and short term strategic plans and valuation analysis. Provide a detailed report on the process involved in the ATM deployment services, multi-vendor services and field services and lead the team for coordinating and explaining ATM deployment operations and operations of the business, Support operational and financial due diligence team. It is further contended that services were rendered wholly and exclusively in connection with the transfer of shares and therefore the same is allowable as deduction while computing capital gains arising on sale of shares of Prizm Payment Services Pvt. Ltd. As regards to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Malabar Industrial Co. Ltd vs. CIT, 243, ITR 83 and also the following decisions of various Hon ble High Courts. (i) Davjee Dadabhoy and Co. vs. S.P. Jain, (1957) 31 ITR 872 (ii) CIT vs. T. Narayana Pai, (1975) 98 ITR 422. (iii) CIT vs. Gabriel India Ltd, (1993) 203 ITR 108. (iv) CIT vs. Smt. Minalben S. Parikh, (1995) 215 ITR 81. (v) CIT vs. G.R. Thangamaligai, (2003) 259 ITR 129. It is further contended that assessment order was passed after making due enquiry on the issues sought to be revised, in case if the ld. PCIT was of the opinion that the Assessing Officer had not made any enquiry on the issues then it was for the ld. PCIT to make necessary enquiry and give finding that the assessment order is erroneous and the ld. PCIT cannot set aside the assessment order to the Assessing Officer for the purpose of making an enquiry after passing the order of revision u/s.263 of the Act. Reliance in this regard were placed on the decisions of Hon ble Delhi High Court in the case of ITO vs. D.G. Housing Projects Ltd (2012) 343 ITR 329 and DIT vs. Jyoti Foundation (2013) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on an incorrect assumption of facts or is iii breach of principles of natural justice or is passed without application of mind, that is, is stereo-typed inasmuch as the Assessing Officer accepts what is slated in the return of the assessee without making any enquiry called for in the circumstances of the case, i.e., proceeds with undue haste . (ii) The expression prejudicial to the interest of the revenue while not to be confused with the loss of tax will certainly include an erroneous order which results in a person not paying tax which is lawfully payable to the revenue. (iii) Every loss of tax to the revenue cannot be treated as being prejudicial to the interest of the revenue . For example, when the Assessing Officer takes recourse to one of the two courses possible, in law, or where there are two views possible and the commissioner does not agree with the view taken by the Assessing Officer which has resulted in a loss. (iv) There is no requirement of issuance of a notice before commencing proceedings under section 263. What is required is adherence to the principles of natural justice by granting to the assessee an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd, (1993) 203 ITR 108 had held that simply because the Assessing Officer did not make elaborate discussion on the issue in the assessment order it cannot be held that assessment order is erroneous. This position of law was reiterated subsequently by various High Courts. Even the Jurisdictional High Court in the case of Smt. Renuka Philip vs. ITO, 409 ITR 567 in a case where the Commissioner of Income Tax, has sought to revise the assessment order on the ground that the Assessing Officer allowed the exemption claimed u/s.54 of the Act without application of mind, the Hon ble High Court held that it cannot be said that there is no application of mind by the Assessing Officer on allowing the exemption u/s.54F of the Act merely because the assessment order is silent about the enquiries conducted by the Assessing Officer by making the following observations vide para 20 of the judgment. 20. On a reading of the above, it is evidently clear that the assessee had produced documents to show that the property was utilized for residential purpose. On being satisfied, the Assessing Officer has extended the benefit of deduction under section 54F of the Act. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revisionary proceedings. To that extent the submission of the learned counsel for the Revenue Mr.Sanjeev Sabharwal has to be accepted. What is mandated under section 263 of the Act is that once the Commissioner calls for and examines the record, pertaining to the assessee, and forms a prima facie view that the order passed by the Assessing Officer is both erroneous and prejudicial to the interest of the Revenue, he is obliged to afford an opportunity to the assessee before passing an order, to the prejudice of the assessee. In the instant case, the Commissioner sought to accord such an opportunity to the assessee by putting him to notice as regards aspects which the Assessing Officer had failed to scrutinize. During the course of the revisionary proceedings this was conveyed to the assessee by way of a notice dated May 11, 2006. It is not disputed that in the order dated January 18/19, 2007, the Commissioner has referred to certain other issues which did not form part of the initial notice dated May 11, 2006. To our minds it was always open to the Commissioner to put such issues/discrepancies, found by him based on material on record, to the assessee. It is to be noted, however, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment can only be passed after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as is deemed necessary. The threshold condition for reopening the assessment is that before passing an order an opportunity has to be granted to the assessee and, such an opportunity granted to the assessee is a necessary concomitant of the enquiry the Commissioner is required to conduct to come to a conclusion that an order for either an enhancement or modification of the assessment or, as in the present case, an order for cancellation of the assessment is called for, with a direction to the Assessing Officer to make a fresh assessment. This defect cannot be cured by first reopening the assessment and then granting an opportunity to the assessee to respond to the issues raised before Assessing Officer during the course of fresh assessment proceedings. To buttress his submission the learned counsel for the Revenue has relied upon the judgment of the Supreme Court in the case of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 . This is a case in which the order issued by the Commissioner, itself revealed that the assessment was bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, (2013) 357 ITR 388, after referring to its earlier decisions in the cases of CIT vs. Sunbeam Auto Ltd, (2011) 332 ITR 167 and CIT vs. DG Housing Projects Ltd, (2012) 343 ITR 329 held as follows. Thus, in cases of wrong opinion or finding on the merits, the Commissioner of Income-tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. The Commissioner of Income-tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Income- tax must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Income-tax and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may notice that the material which the Commissioner of Income-tax can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the Commissioner of Income-tax (see CIT v. Shree Manjunathesware Packing Products and Camphor Works [1998] 231 ITR 53 (SC)). Nothing bars/prohibits the Commissioner of Income-tax from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. 5. In the present case, inquiries were certainly conducted by the Assessing Officer. It is not a case of no inquiry. The order under section 263 itself records that the Director felt that the inquiries were not sufficient and further inquiries or details should have been called. However, in such cases, as observed in the case of DG Housing Projects Ltd. (supra), the inquiry should have been conducted by the Commissioner or the Director himself to record the finding that the assessment order was erroneous. He should not have set aside the order and directed the Assessing Officer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section is not sustainable. In most cases of alleged inadequate investigation , it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without the Commissioner of Income-tax conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. The Commissioner of Income-tax cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the Commissioner of Income-tax to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the Commissioner of Income-tax hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore, the Commissioner of Income-tax must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the Commissioner of Income-tax must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad not decided whether or not the assessment order is erroneous. Mere bald finding by the ld. PCIT that the assessment order is erroneous cannot be sustained in the eyes of law unless the impugned order refers to any material to show that the assessment order is erroneous. The mere nomenclature given to an item of expenditure cannot decide the allowability otherwise of it. Reference can be made to the decisions of Hon ble Supreme Court in the cases of Padmasundara Rao (Decd) vs. State of Tamil Nadu (2002) 255 ITR 147 and National Steel Works Ltd vs. CIT, (1962) 46 ITR 646. The tone and tonor of the impugned order indicates that the ld.PCIT was driven by the nomenclature given to the item of expenditure without examining the real nature of expenditure. It is settled position of law that there must be some prima facie material on record to show that tax which 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. In the present case, the ld. PCIT had not referred to any material which indicates that the exgratia payment made to employee directors towar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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