TMI Blog2021 (11) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee responded to the queries comprehensively along with requisite information and documentary evidences. Allegation of Ld. Pr. CIT that the assessment order was passed without making requisite enquiries do not have any sound basis rather the same is based more on surmises and conjectures without appreciating material facts on record and without considering detailed response filed by the assessee during assessment proceedings as well as during revisional proceedings. As per settled legal position, the revisionary proceedings could not be held to be valid where Ld. AO had made enquiries and adopted the claim with due application of mind. Merely because the issue has not been discussed in the assessment order, the same would not lead to a conclusion that assessment was made without application of mind. On the facts and circumstances of the case, we are of the opinion that revisional jurisdiction as exercised by Ld. Pr. CIT u/s 263 is bad in law and is liable to be quashed in terms of settled legal position . Allowability of interest - As the interest was taxable u/s 56 to 59 as Income from Other Sources , the claim made u/s 36(2) could not be made and therefore, inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961, the revenue authorities namely Pr. Commissioner of Income Tax / Commissioner of Income Tax is vested with the supervisory powers of suo-moto revision of any order passed by the Assessing Officer [AO]. For the said purpose, the appropriate authority may call for and examine the record of any proceedings under the Act and may proceed to revise the same provided two conditions are satisfied-(i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the revenue. If one of the condition is absent i.e. if the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but it is prejudicial to the revenue - recourse cannot be had to Section 263 of the Act as held by Hon ble Supreme Court in Malabar Industrial Co. Ltd. V/s CIT [243 ITR 83 10/02/2000] noted by Hon ble Delhi High Court in CIT V/s Vikas Polymers [194 Taxman 57 16/08/2010]. The Hon ble Supreme Court in Malabar Industrial Co. Ltd. V/s CIT (supra) has held that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loss of tax as held in various judicial pronouncements. At the same time, the words prejudicial to the interest of the revenue , as observed in Dawjee Dadabhoy and Co. vs. S.P. Jain, (1957) 311 ITR 872 (Calcutta), can only mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. Thus, the Commissioner's exercise of revisional jurisdiction under the provisions of Section 263 cannot be based on whims or caprice. It is trite law that it is a quasi-judicial power hedged in with limitation and not an unbridled and unchartered arbitrary power. The exercise of the power is limited to cases where the Commissioner on examining the records comes to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interest of the revenue and that fresh determination of the case is warranted. There must be material to justify the Commissioner's finding that the order of the assessment was erroneous insofar as it was prejudicial to the interest of the revenue. 1.4 The Hon ble Delhi Court, in the cited dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. x x x x 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. 1.5 The Hon ble Supreme Court in CIT V/s Amitabh Bachchan (69 Taxmann.com 170 11/05/2016) held that the power of appeal and revision is contained in Chapter XX of the Act which includes section 263 that confers suo-motu power of revision in the Commissioner. The different shades of power conferred on different authorities under the Act has to be exercised within the areas specifically delineated by the Act and the exercise of power under one provision cannot trench upon the powers available under another provision of the Act. In this regard, it must be specifically noticed that against an order of assessment, so far as the revenue is concerned, the power conferred under the Act is to reopen the concluded assessment under section 147 and/or to revise the assessment order under section 263. The scope of the pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed allowing any relief without inquiring into the claim; (iii) the order is not in accordance with any direction or instructions etc. issued by the Board u/s 119; or (iv) the order was not in accordance with binding judicial precedent. 2.1 Keeping in mind aforesaid principles, we proceed to adjudicate the captioned appeals. In this appeal, the assessee has challenged the validity of revisional jurisdiction u/s 263 as exercised by Ld. Pr. Commissioner of Income Tax-8, Mumbai (Pr. CIT) for Assessment Years 2014-15 2015-16 vide separate orders both dated 22/03/2021. First we take up appeal for AY 2014-15 wherein the grounds raised by the assessee read as under: - On the facts and circumstances of the case and in law, the learned Principal Commissioner of Income Tax-8 (hereinafter referred to as CIT) Order u/s.263 of the Act is bad in law, illegal, ultra-virus 1. erred in passing the order under section 263 of the Income-tax Act, 1961 (the Act), by holding that the Assessment Order passed by the Deputy Commissioner of Income Tax-8(1)(1), Mumbai (hereinafter referred to as AO) u/s.143(3) r.w.s. 144C(3) of the Act dated 24.01.2018 is erroneous and prejudicial to the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rits stood covered in assessee s favor. The assessee being resident corporate assessee is stated to be engaged in scientific research development in biotechnology etc. 2.2 The Ld. AR, drawing attention to the factual paper-book, assailed the revision of order u/s 263 and submitted that the revision was bad in law. The Ld. CIT-DR, on the other hand, submitted that as per Explanation-2 to Sec.263, Ld. AO failed to carry out proper enquires and therefore, the revision was validly exercised by revisional authority. 2.3 We have carefully considered the factual matrix as well as arguments advances by both the representatives. We have also gone through the queries raised by Ld. AO during the course of original assessment proceeding and the assessee s response thereto. Our adjudication to the issue, in the light of settled legal position as enumerated in opening paragraphs, would be as given in succeeding paragraphs. Assessment Proceedings 3.1 The material facts are that an assessment for the year under consideration was framed by Ld. AO u/s 143(3) r.w.s. 144C(3) of the Act on 24/01/2018. While framing the assessment, the assessee has been saddled with certain Transfer Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ALP interest of ₹ 418.52 Lacs and proposed the same in its order dated 27/09/2017. This adjustment was incorporated by Ld. AO in assessment order dated 24/01/2018. 3.4 Post determination of ALP by Ld. TPO vide order dated 27/09/2017, a notice u/s 142(1) was issued by Ld. AO to assessee on 18/12/2017 calling for details of Long-Term Capital Loss of ₹ 7345.76 Lacs as shown by the assessee in its computation of income. In this regard, following details were requisitioned from the assessee: - Provide the following details for Long Term Capital Loss of ₹ 73,45,76474/- incurred during the year. (1) Proof for cost of acquisition of equity shares in foreign subsidiary company along with documentary evidence. (2) Please provide complete details of the addition/movement in investment in foreign subsidiary from the initial year of purchase along with documentary evidence. (3) Please provide complete details of the conversion of any other security into investment in foreign subsidiary along with documentary evidence. (4) Please provide complete details with documentary evidence for sale of equity in foreign subsidiary. (5) In your submission, it has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company, in FY 2013-14 the company was dissolved and the winding up procedure was initiated, we are submitting herewith following documents in this regard: a) The board resolution passed by Board of Directors of Reliance Life Sciences Inc, for dissolution and winding up of the company is attached as Annexure 8(viii) b) The certificate of termination of Reliance Life Sciences inc. received from the authorities of USA is attached as Annexure 8(ix) We wish to inform that after the winding up procedure was completed whatever balance remained in the bank account of Reliance Life Sciences Inc was transferred to our bank account which amounted to ₹ 2486962/- (USD 405171-).The balance sheet of Reliance Life Sciences Inc as on 14.03.2014 is attached as Annexure 8(x) wherein in the cash flow statement under the head 'cash flow from financing activities USD 40518/- is shown as paid to shareholders. Also a sum of ₹ 1510706/- (USD 24579/-) was outstanding as amount payable in the vendor account of Reliance Life Sciences Inc in our books of accounts which was on account of write back of liabilities. This sum was also considered part of the sale consideration. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seen that no further query was raised by Ld. AO on this issue and apparently, satisfied with assessee s explanation, he chose to accept the claim made by the assessee. For the same reason, no material discussion has been made by Ld. AO, on this issue, in the assessment order. However, upon perusal of all the aforesaid facts, it could be concluded that this issue of investment made by the assessee in M/s RLS Inc. and computation of ALP of these transactions as well as Long-Term capital losses arising there-from, were under due consideration of Ld. TPO as well as Ld. AO during the course of original assessment proceedings. Revisional Proceedings 4.1 Subsequently, upon perusal of assessment record, Ld. Pr. CIT invoked revisional jurisdiction u/s 263 vide order dated 22/03/2021 on the allegation that the assessee, in the garb of conversion from loan to equity, was irregularly allowed Long-Term Capital losses of ₹ 7345.76 Lacs. The application for winding up of foreign subsidiary was filed with US authorities on 23/12/2013. The termination document was to become effective from the date when it was filed with Secretary of State. Since the documents was filed with that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strategic investment in RLS Inc. in earlier years. The investment was in the shape of share application as well as loans. As per the agreement, the loan was convertible into share capital. Accordingly, entire share application money as well as loan was converted into share capital / capital surplus as on 31/03/2011. During FY 2013-14, RLS Inc. was dissolved and after winding up procedure was completed, the balance lying in the bank account was transferred to assessee s account. Another sum of USD 24579 was payable by the assessee to RLS Inc. and the same was also considered as part of sale consideration. The Long-Term Capital losses have been computed by the assessee as per the provisions of Sec.46 by deducting the indexed cost of acquisition from sale consideration. These transactions were duly reflected in the computation of income and necessary disclosures were made at appropriate places in the financial statements. These transactions were also reflected in Form No.3CEB which has been subjected to benchmarking before Ld. TPO. Not only this, specific enquiries were made by Ld. AO by issuance of notice u/s 142(1) wherein elaborate information was sought from the assessee with resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The case law of Hon ble High Court of Madhya Pradesh in Nagal Garment Industries (P) Ltd. V/s CIT (113 taxmann.com 4) is a case where the assessee filed the reply but AO recorded in the note-sheet that reply was not satisfactory and the assessee did not explain all the facts, but still the claim was accepted. Under these circumstances, the revision was held to be justified. In the case law of Hon ble High Court of Allahabad in Jagdish Kumar Gulati V/s CIT (139 Taxman 369), the admitted fact was that Ld. AO could not make proper enquiries as the assessment was becoming time barred. The same is not the case here. Therefore, all these case laws as cited by Ld. CIT-DR are factually distinguishable and do not apply to the facts of the present case before us. 8. Finally, on the facts and circumstances of the case, we are of the opinion that revisional jurisdiction as exercised by Ld. Pr. CIT u/s 263 is bad in law and is liable to be quashed in terms of settled legal position as enumerated by us in opening paragraphs. Ground nos. 1 to 3 stands allowed. Consequently, delving into the merits of the case has become merely academic in nature and therefore, not gone into. Ground Nos. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he accrued interest and details of interest income offered to tax in earlier year as business income and also a copy of ledger account of RLS BV. Reliance was placed on the decision of Hon ble Supreme Court in TRF Ltd. V/s CIT (323 ITR 397) in support of the claim. After verifying above details and having satisfied with documents filed, Ld. AO accepted the bad-debt claim and passed the assessment order. Since, Ld. AO verified the claim and allowed the deduction, the order could not be held to be erroneous. The assessee also made submissions that the claim on merits was allowable to the assessee in terms of cited decision of Hon ble Supreme Court. 9.4 However, disregarding the same, the assessment order was held to be erroneous and prejudicial u/s 263 and Ld. AO was directed to redo the assessment as per observation made in the revision order. Aggrieved, the assessee is in further appeal before us with following grounds of appeal: - Order u/s.263 of the Act is bad in law, illegal, ultra-virus 1. erred in passing the order under section 263 of the Income-tax Act, 1961 (the Act), by holding that the Assessment Order passed by the Deputy Commissioner of Income Tax -8(1 )(1), M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n adjustment thereof in its order dated 31/05/2018. 11. It could further be seen that subsequently a notice u/s 142(1) was issued to the assessee by Ld. AO on 05/12/2018 calling for certain information from the assessee (page nos. 171-172 of paper-book). One of the queries raised was as follows: - 2. It is observed from the P L that you have debited an amount of ₹ 24.51 Crores under the head-accrued interest written off. Please provide details of the item and documentary evidence to prove the genuineness of this write off. The assessee vide reply dated 10/12/2018, submitted a detailed note as Annexure 6(4) (page 184 of the paper-book). In the note, it was explained that the assessee had advanced loan to RLS BV in parts during the period from 01/04/2009 to 31/03/2013 and charged interest of 6.75% up-to 31/03/2014. The interest so accrued up-to 31/03/2014 amounted to ₹ 2451.44 Lacs. The detail of interest income offered to tax in earlier years was also attached. Since RLS BV was unable to pay interest, the amount was written-off as bad debts in terms of the provisions of Sec.36(1)(vii) as supported by the decision of Hon ble Supreme Court in TRF Ltd. V/s CIT (3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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