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TMI Blog2015 (10) TMI 2772X X X X Extracts X X X X X X X X Extracts X X X X ..... determination of the ALP of the international transaction reported in Form No.3CEB filed by the assessee. The TPO after considering the various submissions made by the assessee form time to time made an upward adjustment of Rs. 9,84,10,304/- to the value of international transaction relating to provision of software service to arrive at the ALP of the international transaction. The assessee approached the DRP who vide order dated 30-09-2010 revised the adjustment to Rs. 10,77,00,742/- as against Rs. 9,84,10,304/- proposed by the TPO. Subsequently, the AO vide order dated 25-11- 2010 passed the order u/s.143(3) r.w.s. 144C(13) of the I.T. Act determining the total income at Rs. 10,65,91,200/-. 5. Subsequently, the Ld.CIT examined the records and noted that the AO has not verified certain items of balance sheet and profit and loss account with reference to the provisions of the I.T. Act. He, therefore, was of the opinion that the order is prejudicial to the interest of revenue. Accordingly, he issued a notice u/s. 263 of the I.T. Act vide notice dated 24-02-2011 fixing the date of hearing of the case on 07-03-2011. The details of the notice dated 24-02-2011 read as under : "It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ences, 2.9 provisions, para 6 of implementing SAP modules for its account and MIS reporting at the cost of 99,38,263/- needs verification and justification for claim. As per para 8 there is deferred tax liability of Rs. 10,92,888/- which has to be seen that whether the period was available for completing tax holiday u/s. 10A of the Act. Similarly the verification is also required in respect of para 10 to 14 in respect of the auditors notes annexed form No.3 CE report along with verification of points from 1 to 6. Therefore, submit the details with evidences to justify the claims. 4) Without following the verification / investigation / cross verification norms in respect of P & L Account and Balance sheet items, the notes to the audit report and notes to the audited accounts which are revealing various points of addition, the A.O. has passed the order. Therefore, file the details with evidences for cross verification and addition. In view of the same it is decided to revise u/s. 263 of the I.T. Act to verify the items of P & L Account and balance sheet items along with verification of notes and other explanations to protect the interest of revenue. Your case is fixed for hearing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time. Accordingly, all the details were available on record before the AO when he completed the assessment proceedings. Accordingly, it is incorrect to hold that AO has failed to conduct enquiries into the accounts and thereby exercise revisionary proceedings under section 263 by starting fishing and roving enquiries into the details submitted during the year." 9. Referring to para 8 of the order of the CIT he submitted that the Ld.CIT says that the AO has failed to make necessary enquiry in respect of the issues highlighted in the notice u/s.263. However, the Ld.CIT does not say what is the error in the order of the AO. Referring to page 1 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the letter addressed to the AO on 28-04-2008 in which the assessee has furnished the details/explanations regarding the statement of total income, the tax audit report in Form 3CD and statutory audit report and financial statements for the financial year ending 31-03-2006. Referring to page 5 of the order the Ld. Counsel for the assessee drew the attention of the Bench to clause 4 of the notes to the return of income for the financial year ending 31-03-2006 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is required to determine the appropriateness of these amounts since these amounts are merely in the nature of reimbursements (without markup). The amounts reflected in the books have therefore been determined by the assessee at arm's length." 12. Referring to page 38 of the paper book he drew the attention of the Bench to the letter addressed to the AO on 12-11-2009 wherein the assessee has given the details of unsecured loans, details of addition to fixed assets, details of sundry debtors, details of loans and advances, details of sundry creditors and other liabilities, details of expenses as per Schedule 10 and 11 of the audited financials, details of exceptional items as per note 5 of schedule 13 of the audited financials, details of reimbursement of expenses as per note 7 of schedule 13, details of TDS, expenses/payments not deductible u/s.40A, details of statutory payments covered u/s.43B and the details of profit earned and loss incurred due to foreign exchange fluctuation. Referring to page 44 of the paper book he drew the attention of the Bench to the details of exceptional items as per note of schedule 13 of the audited financials justifying the damages paid as ordinar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006 where there is a loss of Rs. 19,32,048/- is concerned the Ld. Counsel for the assessee referring to page 14 of the paper book drew the attention of the Bench to clause 2.2 of schedule 13 which reads as under : "The Company has during the year re-calculated the useful life in respect of computers and peripherals, office equipment and intangibles including remaining useful life of existing computers and peripherals, office equipments and intangibles w.e.f. January 1, 2006. Consequently, such assets are depreciated over the revised useful life as per table given below. As a result, the charge by way of depreciation for the year is higher by Rs. 1,932,848/- and "Loss before Taxation" is higher by this amount. Description Old Rate Revised Rate Computers and Peripherals (except Video Conferencing Equipments) 16.31% 33.33% Office Equipments 4.75% 12.25% Video Conferencing Equipments 16.21% 20% Intangibles 16.21% 33.33% 16. Referring to page 12 of the paper book he submitted that the assessee has claimed depreciation of Rs. 59,79,695/-. Coming to the computation statement at page 3 of the paper book he submitted that the assessee, in the computation of income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... country outside India, which are adjusted in the cost corresponding assets." 18. Referring to para 3 of the notice issued u/s.263 of the I.T. Act the Ld. Counsel for the assessee submitted that it is not understood as to what aspects need further verification. Referring to the deferred tax liability of Rs. 10,92,888/-, at page 18 of the paper book he submitted that the said amount is a balance sheet item and the assessee has not claimed any deduction of the same. So far as the verification of para 10 to 14 of the audit report annexed to Form 3CE is concerned he submitted that the TPO has already gone with all the aspects. He accordingly submitted that when every aspect has been duly explained it is not understood as to how the order of the AO is erroneous. 19. Referring to the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT Vs. R.K. Metal Works reported in 112 ITR 445 he submitted that the Hon'ble High Court in the said decision has held that in passing an order of revision u/s.263 of the I.T. Act it is necessary for the CIT to state in what manner he considered that the order of the AO was erroneous and prejudicial to the interest of the revenue and what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. He accordingly submitted that the order of the CIT does not spell out clearly as to how and on what basis the order of the AO is erroneous and prejudicial to the interest of the revenue. Since the assessee has submitted all the details as asked for by the AO and the AO after verifying all these details has passed the order, therefore, the CIT was not justified in setting aside the order u/s.263 of the I.T. Act. 24. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT. She submitted that the AO has not done any enquiry and has accepted the submission of the assessee. Since there was no proper enquiry made by the AO while passing the order, the order has become both erroneous as well as prejudicial to the interest of the revenue. Therefore, the Ld.CIT is fully justified in setting aside the order u/s.263 of the I.T. Act. 25. We have considered the rival arguments made by both the sides, perused the orders of the AO and Ld.CIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case filed its return of income on 30-11-2006 showing total loss o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of expense as per schedule 10 of the audited financials, details of expenses as per schedule 11 of audited financials, details of exceptional item as per Note 5 of schedule 13 of audited financials, details of reimbursement of expenses as per Note 7 of schedule 13 of the audited financials, details of TDS and its deposit, expenses/payments not deductible u/s.40A of the Act, details of profits earned/loss incurred due to foreign exchange fluctuations and nature of provisions made in this regard, details of statutory payments covered by section 43B of the I.T. Act etc. 28. Further, from the computation of total income, we find although depreciation as per books of account has been claimed at Rs. 59,77,695/- the assessee has added the same to the computation of income and deducted depreciation of Rs. 1,47,71,626/- under the provisions of the I.T. Act. The Ld.CIT does not dispute the allowability of depreciation as per the I.T. Act of Rs. 1,47,71,626/-. Therefore, when the assessee itself has added back the depreciation as per books of accounts at Rs. 59,79,695/- in the computation of total income, how the same is erroneous and prejudicial to the interest of the revenue is not unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as erroneous and prejudicial to the interest of the Revenue and what the basis was for such a conclusion. The relevant observation of the Hon'ble High Court at page 447 read as under : "A perusal of the order of the Commissioner of Income tax clearly shows that the criticism of the Tribunal is well founded. There is no indication in the order of the Commissioner as to the basis on which he came to the prima facie conclusion that the capital borrowed by the firm was utilised for purposes other than that of the firm's business. When the assessee filed a detailed written statement before him, the Commissioner did not deal with any of the points raised in the statement. He thought that the best course in the circumstances was to remand the matter to the Income tax Officer for consideration of the points raised in the assessee's written statement. That certainly was not the proper course to be adopted by him. It was necessary for the Commissioner to state in what manner he considered that the order of the Income tax Officer was erroneous and prejudicial to the interests of the revenue and what the basis was for such a conclusion. After indicating his reasons for such a conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a higher figure. This is because the Income-tax Officer has exercised the quasi judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself would not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, that the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interests of the Revenue, then the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement must be fulfilled. 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, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was right in vacating the order. Accordingly, we answer the question in favour of the assessee, that is, in the affirmative, with no order as to costs." 35. We find the Hon'ble Madras High Court in the case of Sakti Charities (Supra) has held that revisional power is not meant to correct every error of fact. The power of revision should not be exercised for purpose of directing the AO to hold another investigation. When the order of the CIT does not indicate as to how the order of the ITO was erroneous and prejudicial to the interest of the revenue, the CIT lacks the jurisdiction to revise the order of the AO. The relevant observation of the Hon'ble High Court reads as under : "We are of the view that there is no infirmity in the order of the Appel late Tribunal. The facts clearly show that the Income tax Officer had applied his mind to all the relevant materials produced before him at the time of completion of the assessment proceedings and then came to the conclusion that the income of the assessee was exempt under the provisions of section 11 of the Act. According to the Income tax Officer, the decision of the Supreme Court in the case of CIT v. Dharmodayam Co. [1977] 109 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied upon by the Commissioner which, according to him, was omitted to be noticed by the Income tax Officer would not have altered or varied the final conclusion arrived at by the Income tax Officer, the Commissioner would lack the jurisdiction to revise the order of assessment and the decision of this court in K. A. Ramaswamy Chettiar's case [1996] 220 ITR 657 would have no application to the facts of the case. We are also of the opinion that it is futile on the part of the Commissioner to set aside the order of the Income tax Officer by directing him to consider the fact of donation of the distributorship business in favour of the assessee trust when after considering the said fact, the conclusion that may be reached by the Income tax Officer would not be different. We, therefore, hold that the Commissioner had no jurisdiction to set aside the order of assessment merely to conduct another purposeless and fruitless enquiry to reach the same result which was arrived at earlier, and if any fresh enquiry is held, it will be an empty formality as by going through the motion of making a further enquiry and reaching the same conclusion no useful purpose would be achieved. Though it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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