TaxTMI 
TaxTMI 
2015 (3) TMI 261
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....cidental expenses after ascertaining whether the appellant has carried out its business activities as per the Memorandum of Association (MOA) and whether lending money to the holding and subsidiary companies constitutes its business activities, ignoring the fact that AO made detailed inquiries during the course of the assessment proceedings and only after due satisfaction to the enquiries, allowed various expenses while computing the income from business or profession. 4. Without prejudice, the CIT erred in ignoring the fact that the business of the appellant was set up as well as commenced during AY 2008-09 when it had borrowed money from holding company and lends it to subsidiary company, which represents one of the objects of the appellant." 2. The brief facts of the case are that the assessee company filed return of income declaring total income at Rs. Nil and claimed loss of Rs. 3,61,09,708/- under the head „profit and gains from business‟ and long term capital loss of Rs. 46,51,437/-. Assessment u/s 143(3) was completed on the income as returned. Subsequently assessing officer made a proposal to CIT for invoking jurisdiction u/s 263 on the basis of the following....
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....he loss of Rs. 36109708/- as per law." 4. The ld. A.R before us vehemently contended that the proceedings initiated u/s 263 is illegal and void. The CIT issued two notices one dated 25.10.2013 and other dated 28.10.2013. The facts stated in notice dated 25.10.2013 does not belong to the assessee. This is a settled principle of law that second notice issued during the pendency of the proceedings under first notice is not valid and is liable to be quashed. Reliance was placed on the following decisions:- (1) Indian Tubes Company Ltd vs ITO 272 ITR 439 (Kol.) (2) Smt Nilofer Hameed vs ITO 235 ITR 161 (Ker.) 5. The company was incorporated on 06.12.2006 under the name Zuari SEZ Ltd. Subsequently, since the company wanted to expand and diversify its activities to real estate development, the name of the company was changed to Zuari Infrastructure and developers Ltd w.e.f. 27.02.2008. The objects of the company were also amended accordingly. Subsequently w.e.f. 04.01.2011 the name of the company was further changed to Zuari Management Services Ltd. The company submitted its return on 19.09.2009 at a business loss of Rs. 36109708/- and long term capital loss of Rs. 4651437/-. During t....
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....inquiry. The order passed by the assessing officer was therefore erroneous as well as prejudicial to the interest of the revenue. If the business has not commenced during the year the interest and other incidental expenses cannot be allowed. There cannot be any two views. Earlier notice dated 25.10.2013 does not debar CIT to issue show cause notice dated 28.10.2013. Referring to the decision relied on by the ld. A.R it was contended that those decisions are not applicable on the facts of this case. 7. We heard the rival submissions and carefully considered the same along with the order of the authorities below. Before deciding the issue whether the order passed u/s 263 is valid or not, it is essential to refer to the relevant provisions of Sec. 263. Section 263 lays down as under :- "263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order th....
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....revision to be exercised u/s 263 by the Commissioner of Income-tax. Firstly, the Commissioner may call for and examine the records of any proceedings under the Act and for this purpose he need not to show any reason or record any reason to believe. It is a part of his administrative power to call for the record and examine them relating to any assessee. Secondly, he may consider any order passed by the Assessing Officer as erroneous as well as prejudicial to the interest of the Revenue. This is exercised by calling for and examining the record available at this stage. There is no question of the assessee to appear and make submission at this stage. Thirdly, if after calling for and examining the records the Commissioner considers that the order of the Assessing Officer is erroneous in so far it is prejudicial to the interest of the Revenue, he is bound to give an opportunity to the assessee of being heard and after making or causing to be made such enquiry as he may deem fit, pass such order thereon as the circumstances of the case may justify including an order enhancing or modifying the assessment or cancelling assessment and directing a fresh assessment. This empowers the CIT to....
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....9/-." 11. From these reasons it is apparent that it was noted that company has not commenced its business or development of SEZ / real estate still the interest payable / paid on the loans and other incidental expenses were charged to the profit and loss account as expenses incurred during the previous year relevant to the assessment year and computed the business loss at Rs. 36109708/-. The assessing officer has allowed the carry forward of these expenses even though the assessee has not commenced its business. 12. The Ld. A.R. before us vehemently contended that the assessing officer has made the detailed inquiry into the various aspects of the assessment and after considering the assessing officer allowed the deduction. No doubt the assessing officer issued the questionnaire vide notice dated 24.8.2010, 13.6.2011. The assessee submitted the reply vide letter dated 08th August, 19th August, 2011 the copy of which placed before us at page 116 to 124 which we pursued. From this, we noted neither the assessing officer has inquired of about the commencement of business nor any submission was made in this regard. This is the settled law and expenses can be regarded to be revenue exp....
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....iled by him. The same does not constitute any finding of fact reached after making any enquiry by the Assessing Officer. It thus is apparent that the Assessing Officer accepted the claim on its face without performing his functions as are required of him as a quasi judicial authority. The assessment order thus made was erroneous and under the circumstances of the case, it was not necessary for the learned CIT to make further enquiries before setting aside the order and find out himself all such relevant facts in a manner as are required to be done by the assessing authority. The aspect of deduction of interest paid on income tax was neither enquired nor shown to have been verified by the Assessing Officer and thus the order of assessment is erroneous on that count as well. 13. Admittedly the Assessing Officer being a quasi-judicial authority had three functions -(i) to collect the materials and information (ii) to process the materials and information; and (iii) to adjudicate on the consideration of such materials and information. In a case like this, where the Assessing Officer has failed to perform his duties in number (i) and (ii) above and proceeds to adjudicate, such orders a....
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....vs. Vodafone Essar South Ltd. 212 Taxmann 184 (Del.) on which the ld . AR vehemently relied. We noted that this decision will not assist the Assessee. In this decision the Hon‟ble High Court relied on the earlier decision of the High Court in the case of CIT vs. Sunbeam Auto Ltd., 332 ITR 167 in which it was held that if there is some inquiry by the AO in the original proceedings, even if inadequate, that cannot clothe the Commissioner with jurisdiction u/s 263 merely because he can form another opinion. In this case on the basis of this decision, Hon‟ble High Court took the view that if there was any inquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass orders u/s 263 of the Act merely because he has a different opinion in the matter. It is only in cases of "lack of inquiry". In this decision under para 11 Hon‟ble High Court clearly laid down that that was not a case of no inquiry. In the case of the Assessee we noted the AO has not made any inquiry whether the Assessee has commenced the business or not so that the expenses incurred could be regarded to be revenue expenditure. 16. In the case of ITO vs DG Housing Projects L....
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....ssessee. 20. The decision of the coordinate Bench in the case of the V.N. Salgaocar is binding on us and we cannot take a different view. This is a fact that in this case the Assessing Officer has not issued any notice or raised any query to the assessee in respect of ascertaining whether the business has commenced during the impugned assessment year for ascertaining the nature of the expenditure incurred by the assessee, during the course of assessment proceeding. Even no submissions were also made by the assessee on this aspect. 21. Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT [2000] 243 ITR 83, at page 88 has categorically held as under:- "In the instant case, the Commissioner noted that the Income Tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the Income Tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount....
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....87 ITR 412 has also taken the similar view by observing as under :- "It is beyond dispute that, under section 263 of the I.T. Act, the Commissioner has power to set aside the assessment order and send the matter for fresh assessment if he is satisfied that further enquiry is necessary and that the order of Income Tax Officer is prejudicial to the interest of the Revenue." 24. Hon'ble Delhi High Court also in the case of Gee Vee Enterprises vs. Addl. CIT [1975] 99 ITR 375 (Del) has also taken the similar view that lack of proper inquiry tantamounts that the order is erroneous and prejudicial to the interest of Revenue. 25. Similar issue has arisen before the Special Bench of I.T.A.T. Chennai "B" Bench in the case of Rajalaksmi Mills Ltd. vs. Income Tax Officer [2009] 121 ITD 343 (Chennai) (SB). The facts of this case were that the assessee enclosed the balance sheet along with the return and in the balance sheet the assessee made a provision for gratuity amounting to Rs. 7,85,600/-. The assessee claimed it as deduction in the return of income. The Assessing Officer allowed the same without making any discussion in the order of assessment. The CIT by invoking the provision of ....
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.... the questionnaire dated 29/06/2006 issued by the Assessing Officer. In this questionnaire, Assessing Officer has called for information from the assessee under sec. 142(1) on fifteen counts. With the assistance of learned representatives, we have gone through this questionnaire carefully. Perusal of this questionnaire reveals that Assessing Officer has not a single question on both the issues. Therefore, it suggests that he has not conducted any inquiry on these two issues. The contentions of the assessee is that it has disclosed all material facts fully and truly during the assessment proceedings and assessment has been framed under sec.143(3) of the Act, therefore, it be presumed that Assessing Officer must have gone through all these details. However, Hon'ble Supreme Court in the case of Malabar Industries, Hon'ble Delhi High Court in the case of Gee Vee Enterprises as well as in the case of Ashok Logani and DLF Power Equipments, it has been held that if the Assessing Officer failed to go into the issues in proper perspective and his approach is perfentory then the order would be termed as erroneous which would ultimately caused a prejudice to the assessee on escapement....