TaxTMI 
TaxTMI 
2015 (5) TMI 865
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....ficer/Draft Resolution Panel (DRP), is without jurisdiction, bad in law and voidab- initio. 2. That on the facts and circumstances of the case and in law, the proceedings under section 263 of the Act having been initiated on the basis of incorrect facts, the impugned order passed pursuant thereto is without jurisdiction, illegal and bad in law. 3. That on the facts and circumstances of the case and in law, the CIT failed to appreciate that-the order passed under section 144C(13), in pursuance of the directions of the DRP not being an order passed by the assessing officer, the same cannot be revised under section 263 of the Act. 3.1 That on the facts and circumstances of the case and in law, the CIT erred in exercising jurisdiction under section 263 of the Act without appreciating that the original assessment order under section 143(3)/144C of the Act having been passed with the approval/sanction of the DRP, comprising of a collegium of three CITs, such an assessment was not amenable to revision under section 263 of the Act. 3.2. That on the facts and circumstances of-the case and in law, the CIT failed to appreciate that the order of the assessing officer stood merged w....
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....owned subsidiary of the appellant, pursuant to which the investment in subsidiary was revalued upwards in the books of' the appellant, gave rise to any taxable income in the hands of the appellant. 6. That on the facts and circumstances of the case and in law, the impugned order is bad in law as the CIT was himself not certain as to the tax implications of the transaction of transfer of passive telecom infrastructure, as would be clear on perusal of para 20 of the impugned order alongwith the first show cause notice issued by the CIT on 25.11.2013 and the second show cause notice issued on 29.03.2014. Without prejudice: 7. The CIT erred in holding that the 'notional' difference between the book value and the fair market value of the 'passive telecom infrastructure' transferred by the appellant to Bharti Infratel Ltd. (BIL), constituted consideration for transfer of such infrastructure and was exigible to capital gains under section 45 of the Act. 7.1 That the CIT erred in observing that since the value of investment in subsidiary company had gone up only because of transfer of assets by the appellant to the subsidiary at fair market value, the considera....
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....ransaction was purely a capital transaction which was not in the appellant's regular course of business. 10. That the CIT erred on facts and in law in setting aside the assessment order passed by the assessing officer under section 143(3)/144 of the Act as regards allowability of the expenditure incurred by the appellant towards amount paid to BIL, for usage of the passive telecom infrastructure, alleging that the assessing officer has failed to examine if such amount was payable in terms of the scheme and was allowable deduction. 10.1 That the CIT failed to appreciate there was no embargo in the terms of the Scheme, prohibiting the appellant from making payment to BIL for usage of the transferred telecom infrastructure and there was no scope for disallowance of such expenditure under the Act. 10.2 That the CIT failed to appreciate that there was no prejudice caused to the Revenue in the aforesaid transaction in as much as the amount allowed as deduction in the hands of the appellant was ultimately taxed in the hands of BIL at the same rate. The appellant craves leave to add to, alter, amend or vary the aforesaid grounds of appeal before or at the time of hearing." ....
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.... 7055,48.15,808/-. Aggrieved by the proposed additions in the draft assessment order, the assessee filed objection before the Dispute Resolution Panel (DRP) on 15.12.2011 and the DRP vide directions dated 30.08.2012 held that the disallowance of Rs. 5739 crores by the AO being capital loss on transfer of PI undertaking by the assessee to BIL at Nil consideration was perfectly in order. At the same time, the AO was directed to verify the claim of the assessee for not reducing the equivalent sum from the computation of income on account of amount transferred from the reserves. The DRP passed an order u/s 144C(5) of the Act on 30.08.2012 which was implemented by the AO as per the directions given in the said order and the assessment was framed at an income of Rs. 7819,34,10,410/- vide assessment order dated 30.10.2012. The AO held that the assessee transferred PI undertaking to BIL at Nil consideration resulting in a capital loss of Rs. 5739 crores which was not allowable under normal computation provisions. The AO added back the loss of Rs. 5739 crores to the income offered by the assessee. Being aggrieved the assessee filed the appeal before the ITAT on the issue of disallowance mad....
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.....1 vii) Therefore, as per the SOA, the transferee company was not required to issue any shares or pay any consideration to the transferor company or its share holders. .....3.1.1 viii) As per the SOA, the scheme was subject to nonexclusive right of the transferor company to use the telecom infrastructure for the purposes of its business without any obligation to pay for the same or on payment of such charges as maybe reasonable and acceptable to the transferor company and the transferee company. ........C(5) ix) The transferee company was to credit an amount equal to fair value of telecom infrastructure as general reserve which shall constitute free reserves available for all purposes as the transferee company at its own discretion considers proper. .......3.2.2 x) The transferor company shall revalue in particular the investment in the transferee company at its fair value and the difference between the book value of investments and fair value of investments will be accounted as reserves for business restructuring, available to meet the increased depreciation, cost, expenses and losses, including on account of impairment of or write down of assets which may be suffered ....
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....Indus Company is to operate and maintain the existing passive infrastructure of the shareholders in the territory until the date of merger of the above assets in Indus and after the merger to own the above assets. The Annual Report of Bharti lnfratel Limited for F.Y. 2007-08 and F.Y. 2008-09. The main facts related to the issues under consideration are noted below:- i. Investments of 1.35 billion USD from leading International Investors were received in BIL during the financial year 2007-08. ii. The Annual report of F. Y.2007-08 shows that during the financial year itself, after the transfer of Passive Infrastructure on 31.1.2008 to BIL from BAL, 4050 equity shares of RS.l0 each has been called by BIL through private placement from foreign entities. 3825 equity shares were issued in March, 2008 itself at a share premium of Rs. 2017,04,62,000/- and the balance of 225 shares were issued in April, 2008 in the next financial year at a share premium of Rs. 118, 64,98,000/- . The share premium per equity share works out to Rs. 52, 73,324/- taken by BIL within less than two months, after the transfer of passive infrastructure by the transferor company on 31.1.2008. Besides thi....
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....nal reconciliation with BIL, transferred in/out certain assets and accounted these in accordance with the accounting prescribed in the Scheme resulting into net increase in the Business Restructuring Reserve (BRR) and decrease in net liabilities of the Company by Rs. 126, 831,000 for the year ended on March 31,2009. ix. In the financial year ending on 31 March 2009, the assessee company was having 500,000,000 equity shares, and the total value of the investments as on 31.3.2009 has been shown same i.e. Rs. 82,181,703,000/- as on 31.03.2008. Bonus shares totalling to 499,950,000 were allotted to the assessee company by BIL during the financial year ending on 31.03.2009. x. The relevant portion how the reserve has been created is reproduced below: "The assets and liabilities have been recorded at following fair values [based on independent fair valuation report for fixed assets and capital work in progress and management estimate for others} and the amount of the General Reserve is computed as below:" Particulars Amount Fair Value of Assets and Liabilities 89,600,620 Fixed Assets, Capital Work in Progress (Including Capital Advances) 2,502,324 Current Assets 2....
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....t the prior written consent of the other Part, provided however, that the demerger of Passive Infrastructure by the IRU Grantor Party into another entity by way of one or more schemes of arrangement under Sections 391 to 394 of the Companies Act (a 'Demerger'), shall not require the prior written consent of Indus. - 4.3 (vii) During the Term, the IRU Grantor Party shall not transfer, assign, sell, alienate or otherwise dispose of or create any third party interests in the Sites or the Passive Infrastructure located at the Sites without the prior written approval of Indus, provided however, that a Demerger shall not require the prior written approval of Indus. - 4.5 (viii) This Agreement shall expire upon the completion of the Term. No Party shall be entitled to terminate and/or revoke this Agreement at any time during the Term, except as set out in Clause 6.1.2. - 6.1" 7. The ld. CIT observed that from the Shareholders Agreement dated 08.12.2007, Annual Report of M/s Bharti Infratel Ltd. for the Financial Years 2007-08 and 2008-09, Annual Report of the assessee and the agreement, it was clear that the assessee had not disclosed the full and true intention in the SO....
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.... transferee company and that the assets had been passed to another joint venture company i.e. Indus, created for this purpose only, while before the Hon'ble High Court, it had been submitted that the transferred assets did not involve any movement of assets or liabilities to any company outside the group. The ld. CIT was of the view that the assessee company has totally misrepresented before the Hon'ble High Court and that the schedule 6 of the balance sheet for the Financial Year 2007-08 revealed that the assessee had increased the value of its investment in M/s Bharti Infratel Ltd. (BIL) from Rs. 500,000/- to Rs. 82,181,703,000/- which had been explained by way of Note 2(b) of schedule 21 of the balance sheet, to be due to transfer of passive infrastructure assets at fair market value to BIL. The ld. CIT observed that the value investment of subsidiary company had gone up only and only for the reason of transfer of assets by the assessee company to its subsidiary company at fair market value and as per the Accounting Standard-13, Para No. 29, if an investment is acquired in exchange of other assets, the acquisition cost of the investment should be determined by reference to th....
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....been examined by the AO during the course of assessment proceedings, therefore, the assessment order was not only erroneous but also was prejudicial to the interest of the Revenue to the amount of expenditure paid by the assessee to the transferee company. The ld. CIT observed that the assessment order dated 30.11.2012 for the assessment year 2008-09 passed by the AO prima facie appears to be erroneous and prejudicial to the interest of the Revenue on the following two issues: "(a) The AO failed to examine the taxability of the difference between the cost of assets and fair market value of the assets, shown directly credited to the reserves by the assessee company in its balance sheet, of the assets transferred by it on 31.01.2008 to its subsidiary company, which no longer remained a wholly owned subsidiary of the assessee company as on 31.03.2008. (b) The AO failed to examine the allowability of the expenditure claimed by the assessee company for the usage of its transferred assets to its subsidiary company contrary to the assessee company having a Non-exclusive right of use of its transferred assets to BIL, without any obligation to pay or on payment of such charges as may ....
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....Issue specifically examined by Dispute Resolution Panel/Draft assessment order stands merged with the direction of Dispute Resolution Panel. (b) Assessment order passed pursuant to directions of Dispute Resolution Panel. (c) Order not passed by the assessing officer. (d) Notice is issued on mere change of opinion. (e) Notice is issued on factually incorrect premise." 12. The assessee also submitted to the ld. CIT as under: "6(i) In the assessment proceedings, the assessing officer after examining the scheme and the accounting entries passed in this regard by the assessee, disallowed loss of Rs. 5,739 cores debited to the Profit& Loss Account pursuant to transfer of the Telecom Infrastructure, holding the same to be capital loss in the draft assessment order passed under section 144C(1) of the Act. In pursuance of the new scheme of assessment, the assessee filed its objections before the DRP under section 144C (2) of the Act which, inter-alia, included objections against the erroneous add back of 'capital loss' amounting to Rs. 5,739 crores made by the assessing officer in the draft assessment order dated 16.11.2011, resulting in double addition and all fac....
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....tion 263 of the Act. In other words, a Commissioner of coordinate rank cannot sit in judgment to determine whether the final assessment order passed by the assessing officer under section 144C(13) of the Act after incorporating directions of the DRP, which is a high powered body consisting of three Commissioners, is erroneous and prejudicial 'to the interest of the Revenue. For this argument the assessee has drawn support from the following case laws: - Hari Iron Trading Co. V, CIT: 263 ITR 437 (P&H) - CIT V. Hastings Properties: 253 ITR 124 (Cal.) - FestoElgi (P) Limited V. CIT: 246 ITR 705 (Mad.) A reference to the recent decision rendered by the Madras High Court in the case of R. Srinivasan vs. ACIT: ITA No. 354 of 2006, was also made wherein the High Court held that where order under section 158BC of the Act was passed by the assessing officer, with the statutory approval of the CIT under section 158BG of the Act, it was not open to another CIT to assume jurisdiction under section 263 of the Act to revise such an assessment on the ground that the same was erroneous and prejudicial to the interest of the Revenue. (iii) The power of revision available under se....
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....ransfer, there was, no warrant to assume revisionary jurisdiction under section 263 of the Act, for the purpose of substituting the view of the assessing officer, more so when the view of the assessing officer has been affirmed by the Hon'ble Dispute Resolution Panel (DRP). In the aforesaid show cause notice dated 25.11.2013, the conclusion drawn by the assessing officer is sought to be substituted with a totally different view inasmuch as the transaction of transfer of passive telecom infrastructure is alleged to have resulted in 'capital gains' to the assessee in the assessment year under consideration. The aforesaid action, tantamount to mere 'change of opinion'. Section 263 of the Act does not visualize a case of substitution of opinion of Commissioner for that of the assessing officer, if the view of the assessing officer is a plausible view. Once the assessing officer has accepted the fact that the assessee received 'nil' consideration on transfer of the passive telecom infrastructure, which consequently resulted in capital loss of Rs. 5,739 crores, the attempt to now consider the revalued amount of such assets at Rs. 8,218 crores, amounts to chang....
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.... repeated herein. The ld. CIT observed that the AO raised the query only about action of the assessee in reducing an amount of Rs. 5739 crores from the net profit as per P & L a/c which was credited to the P & L a/c as transfer from the revaluation reserve and asked as to why the said action of the assessee may not be disapproved while computing the book profit u/s 115JB of the Act, in view of the decision of the Hon'ble Apex Court in the case of Indo Rama Synthetics (2011) 196 Taxman 539 and after receiving the reply from the assessee that its action of reducing the amount of Rs. 5739 was not in line with the decision of the Hon'ble Apex Court, the AO simply added back the said amount in the computation of book profit for the purpose of section 115JB of the Act. Accordingly, the ld. CIT was of the view that the transaction of transfer of asset and taxability thereof was not at all raised by the AO in her draft assessment order as far as the computation of book profit for the purposes of section 115JB of the Act was concerned. As regards to the computation of total income as per normal provisions, the ld. CIT observed that the AO had simply asked why the loss of Rs. 5739 crores deb....
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....be said that the AO had applied his mind on this issue and came to the conclusion that the said transaction had resulted a capital loss. He also mentioned that the assessment order was passed in pursuant of directions of DRP but directions were only on the objections raised before the DRP, therefore, the principle of merger applies only to the issues which were raised and asked by the DRP. The ld. CIT held that the decisions cited by the assessee were not applicable on the facts of the case. He also did not accept this contention of the assessee that the show cause notice was issued under wrong presumption of the fact and so it was not valid show cause notice and therefore, the proceedings should have been dropped. The ld. CIT also discussed the submissions of the assessee at para 15 of the impugned order which are reproduced verbatim as under: "15(i) Twin conditions of section 263 namely order being erroneous and prejudicial to the interest of revenue are not satisfied. The assessment order dated 30.10.2012 for the assessment year 2008-09, is neither 'erroneous' nor 'prejudicial to the interest of the Revenue in relation to the two issues referred to in the above no....
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.... the Hon'ble High Court. The consequential increase in the value of investment in Bharti Infratel Ltd. was not on account of receipt of any additional shares in the said company, but was merely a notional book entry. It may be pertinent to note here that the investment of the assessee-company in Bharti Infratel Ltd. pursuant to the scheme remained intact i.e. in other words, prior to the transfer of telecom infrastructure the assessee-company held 50,000 shares of Rs. 10 each in Bharti Infratel Ltd., which remained unchanged even on transfer of the telecom infrastructure and no additional shares were, it is submitted, received by the assessee in pursuance of the scheme of arrangement Further, the analogy drawn by your Honour in the above notice by placing reliance on the provisions contained in Para 29 of AS-13 is also misplaced, in as much as there was virtually no fresh investment received by the assessee-company on transfer of the assets. Para 29 of AS-13 provides for the determination of value of 'Investment', when the same is acquired in exchange for another asset. In the case of the assessee, it is an accepted fact that no additional shares were received from Bhar....
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....the documents in relation to the claim of various expenses were before the assessing officer and it cannot be presumed that he did not examine the same merely because there is no discussion in the assessment order in this regard. The terms of the scheme nowhere provided that the assessee had the right to use the telecom infrastructure, without payment of charges. The parties were, in fact to decide whether any payment was to be made for use of the aforesaid infrastructure. There was no embargo, in the terms of the scheme, prohibiting the assessee from making payment to M/s Bharti Infratel Limited, for usage of the transferred telecom infrastructure. As per the terms of the scheme, the usage of the transferred telecom infrastructure by the assessee-company was allowable on payment of reasonable charges. The payment made by the assessee-company to Bharti Infratel Limited in the assessment year under consideration, for the usage of the telecom infrastructure was as per market rates, has been noted by your Honour, in Para 7 of the show cause notice itself. Once it is accepted that the usage charges paid by the assessee- company was as per the prevalent market rates and there was no emb....
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....at a capital receipt, in principle, is outside the scope of income chargeable to tax. The transaction was purely a capital transaction which was not in the course of the assessee's regular business dealing. In view of the aforesaid, by no stretch of argument, the assessment order could, be regarded as erroneous so as to warrant exercise of revisionary jurisdiction under section 263, on the alleged ground that the assessing officer has not examined the issue whether any income arose under section 28(iv) of the Act in the aforesaid transaction of transfer of Telecom Infrastructure Undertaking." 16. However, the ld. CIT after considering the submissions of the assessee was of the view that the AO had not applied his mind and simply took the loss as debited in the P & L a/c for disallowance purposes in the computation of income which was added back by the assessee also in its computation of income. As regards to the twin conditions required for passing the order u/s 263 of the Act, the ld. CIT referred to the following case laws: CIT(Central-II) Vs Goetz (India) Pvt. Ltd. (Del.) (HC) order dated 09.12.2013 CIT Vs Nagesh Knitwear Pvt. Ltd. 345 ITR 135 (2012) (Del.) Ma....
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....alance sheet by increase of investment in Bharti Infratel Limited worth Rs. 82,181,203,000/-. In simple terms, if the cross entries are ignored, the final effect in the balance sheet as on 31.03.2008 of the assessee is that the value of investment (in the form of investment in BIL) has increased to the tune of Rs. 8.218 crores and the value of its passive infrastructure assets has decreased by Rs. 5739 crores. The difference thereof amounting to Rs. 2479crores, during the AY.2008-09 has been credited to Business Restructuring Reserve. This increase in value of investment has been explained in the balance sheet by way of Note 2(b) of schedule 21 of the balance sheet, to be due to the transfer of passive infrastructure assets at fair market value to BIL. In other words, the value of investment in the subsidiary company has gone up only and only for the reason of transfer of assets by the assessee company to its subsidiary company at fair market value. Therefore, it appears that consideration for transfer of asset is not nil but Rs. 82,181,203,000/-. (b) It is claimed by assessee that the increase in investment in BIL is notional as it is on account of revaluation of asset of BIL a....
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....ve at as to what was substance in the transaction over the form. He should have also examined whether the tax planning of the assessee in the instant transaction was colourable device or not which had not been done at all. He also opined that what was apparent had been accepted by the AO and no enquiry whatsoever had been done to arrive at the exact nature of the transaction and real consideration. He further observed that since the AO had not made any enquiry to pierce the corporate veil, he also failed to examine the taxability of transfer of asset at a fair market value and failed to examine as to how provisions of section 45 of the Act will be applicable on the asset transferred to BIL and that the AO also failed to examine how and whether effect of provisions of section 50 of the Act will be required to be given or whether the effect of this transaction of transfer at fair market value will be reflected by change in allowability of depreciation due to change in written down value as per section 43(6) of the Act, if it was claimed that the passive infrastructure assets so transferred were depreciable asset. 19. As regards to the objection of the assessee for the applicabilit....
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....he assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the ld. CIT and further submitted that the order passed by the AO was not amenable to revisionary jurisdiction of the ld. CIT u/s 263 of the Act on the issue already considered by the Dispute Resolution Panel (DRP). It was stated that the issues relating to the tax implication of transactions pertaining to transfer of PI undertaking to BIL, the revaluation of investments in BIL, the creation of Reserves for Business Restructuring, the amount transferred from such Reserve to P & L a/c were all considered by the DRP and that the assessment order u/s 143(3) r.w.s. 144C(13) was passed by the AO after taking into consideration the directions of the DRP. It was further stated that the AO as well as the DRP held in clear terms that the transfer of the telecom infrastructure by the assessee to BIL resulted in a capital loss of Rs. 5739 crores to the assessee company and since the said loss was capital in nature, the assessee company suo-motu added back the same while computing income under normal provisions of the Act. It was contented that the AO although correctly held that the said transfer....
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.... case of double addition. (ii) The Dispute Resolution Panel had also been somewhat superficial in its approach in confirming the addition made by the AO. (iii) All the related facts, including accounting entries and treatment given in the computation of taxable income were placed before the DRP. (iv) The loss on transfer of assets of Rs. 5739 crores was not a tax deductible item. Similarly, the amount transferred from reserves of Rs. 5739 crores was also not a taxable item. (v) These were purely factual issues which were adequately dealt by the DRP." 22. It was contended that the ld. CIT while excercising the powers conferred u/s 263 of the Act clearly exceeded his jurisdiction in directing the AO to verify the matters already covered in totality by the ITAT, Delhi vide order dated 11.03.2014 in the assessee's case in ITA No. 5816/Del/2012. It was also contended that the Tribunal is the final Fact Finding Authority and on questions of fact, its decision is final. Reliance was placed on the following case laws: Patnaik & Co. Ltd. Vs CIT, (1986) 161 ITR 365 (SC) K. S. Subbiah Pillai Vs CIT (1999) 152 CTR (SC) 428 : (1999) 237 ITR 11 (SC) CIT Vs D.L.F United (2....
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....olorable device. It was stated that the ld. CIT being a subordinate officer was not empowered to reconsider and review the same set of transaction carried out by the assessee pursuant to SOA approved by the Hon'ble High Court. The reliance was placed on the following case laws: CIT Vs Bharat Bijlee Ltd. (2014) 365 ITR 258 (Bom) CIT Vs J. S. Electronics (P) Ltd. (2009) 311 ITR 311 (Del.) Union of India Vs Azadi Bachao Andolan (2003) 263 ITR 0706 (SC) Banyan and Berry Vs CIT (1996) 222 ITR 831 (Guj.) 25. It was further stated that the transactions pertaining to transfer of PI undertaking to BIL, the revaluation of investments in BIL, the creation of Reserves for Business Restructuring, the amount transferred from such Reserve to P & L a/c were all considered by the Dispute Resolution Panel (DRP) and the assessment order u/s 143(3) r.w.s 144C(13) was passed by the AO after taking into consideration the directions of the DRP. A reference was made to page no. 243 of the paper book and it was stated that the DRP vide their order dated 30.08.2012 in para 3.9.3 held in clear terms that the transfer of the telecom infrastructure by the assessee company to BIL resulted in a ca....
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....out any obligation to pay or on payment of such charges as may be reasonable and acceptable to both the transferor and transferee company, as per SOA approved by the Hon'ble High Court." 27. It was submitted that accordingly to the ld. CIT, the final effect in the balance sheet as on 31.03.2008 was that the value of investment had increased to the tune of Rs. 8218 crores and value of its passive infrastructure assets had decreased by Rs. 5739 crores, the difference thereof amounting to Rs. 2479 crores arising on transfer of those assets standing to the credit of Business Restructuring Reserve was allegedly in the nature of capital gains accruing to the assessee which should have been offered to tax u/s 45 of the Act and alternatively, such amount was allegedly taxable u/s 28(iv) of the Act. The ld. Counsel for the assessee summarized the allegations of the ld. CIT on the issue of transfer of PI undertaking as under: "(i) The order of the AO was erroneous and prejudicial to the interest of the Revenue. (ii) The AO failed to examine the issue of taxability of capital gains allegedly accruing on the impugned transfer of PI undertaking. (iii) The consideration for transfer ....
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....cturing Reserve (BRR) Rs. 8218 crores 30. It was stated that in the aforesaid entry the figure of profit remained untouched in so far as the revaluation of investments to the tune of Rs. 8218 crores was concerned. It was contended that the ITAT in assessee's own case categorically held that the transfer of PI undertaking to BIL at Nil consideration resulted in a capital loss of Rs. 5739 crores and the amount transferred to the P & L a/c from Business Restructuring Reserve of Rs. 5739 crores to recoup such loss was merely in the nature of contra adjustment in the P & L a/c and was also not a taxable item and that the Hon'ble Supreme Court in the case of Indo Rama Synthetics (supra) gave a categorical finding that creation of revaluation reserve was merely an adjustment entry to balance both sides of the balance sheet having no impact whatsoever on the profits of the assessee company. It, thus, follows that the balance amount of Rs. 2479 crores standing to the credit of Business Restructuring Reserve (being the difference between the original revaluation reserve of Rs. 8218 crores and amount transferred there from of Rs. 5739 crores to the P & L a/c) was also merely a notional cre....
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....urpose of computation of income under normal provisions. On the other hand, if the ld. CIT assumed that the consideration for transfer of the telecom infrastructure undertaking was not Nil but Rs. 8218 crores resulting in a profit of Rs. 2479 crores to the assessee company, he should have issued directions to the AO to increase the book profits to that extent but the same was not done. Thus, the ld. CIT adopted contradictory stands for the purpose of computing book profits u/s 115JB of the Act and for the purpose of computation of income under normal provisions. Therefore, the action of the ld. CIT was erroneous and unsustainable in law and hence deserves to be quashed. 31. It was further stated that the power of suo-motu revision under sub-section (1) of section 263 of the Act is in nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. It was further stated that two circumstances must exist to enable the Commissioner to exercise the power of revision under this sub-section viz., (i) the order is erroneous (ii) by virtue of the order being erroneous, prejudice has been caused to the interest of the Revenue. However, t....
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....rt of the return of income filed for the assessment year under consideration categorically disclosed the fact of demerger as under: "(6) Company has entered into a Scheme of Arrangement (SOA) with Bharti Infratel Limited (BIL) for transfer of assets and liabilities of passive telecom infrastructure undertaking, as defined in the Scheme, from the company to BIL, which has been duly approved by the Hon'ble High Court of Delhi vide order dated November 26, 2007 and filed with the Registrar of Companies, Delhi & Haryana on January 31, 2008 i.e. the effective date of the scheme. Pursuant to the terms of the Scheme; the Company has transferred the telecom Infrastructure worth Rs. 57,396,005,089 to BIL. The depreciation on assets transferred to BIL have been computed in accordance with the fifth proviso to section 32 of the Income tax Act, since assets have been used by both the legal entities during the year. Hence the depreciation on such assets for the assessment year 2008-09 has been apportioned between the two Companies in the ratio of number of days for which the assets were used by respective Companies, computed as follows: Total depreciation on assets transferred to BIL for ....
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.... company to BIL at 'nil' consideration pursuant to SOA sanctioned by the Hon'ble High Court of Delhi. (ii) The book value of the assets transferred was Rs. 5739 crores. (iii) The said transfer resulted in a loss of Rs. 5739 crores which was of capital nature. (iv) The said loss was not allowable as deduction from the business income of the appellant. (v) As such capital loss of Rs. 5739 crores debited in the P & L A/c was required to be added back to the computation of income. (vi) Out of the total reserves for business restructuring created in pursuance of the SOA, an amount of Rs. 5739 crores being equal to the loss incurred on transfer of PI undertaking was credited to the P & L A/c pursuant to the terms of the SOA." 36. It was stated that the conclusions arrived at by the AO in the draft assessment order were also affirmed by the DRP vide directions dated 30.08.2012 and the ITAT, Delhi Bench vide order dated 11.03.2014 particularly took note of the SOA and all the aforesaid records of the assessee and upheld that the assessee had incurred a capital loss of Rs. 5739 crores on the transfer of the PI undertaking to BIL at Nil consideration pursuant to the SOA app....
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....s Polymers 341 ITR 537 (Del) CIT Vs International Travel House 344 ITR 554 (Del) CIT Vs Vodafone Essar 212 Taxman 184 (Del) 38. It was further stated that the proceedings initiated by the ld. CIT u/s 263 of the Act were 'mere a change of opinion' as regards to tax implication of transaction of 'transfer of passive telecom infrastructure'. As such there was no justification in assuming revisionary jurisdiction u/s 263 of the Act for the purpose of substituting the view of the AO with the view of the ld. CIT in as much as the same transaction of transfer of PI undertaking resulting in a capital loss was alleged to have resulted in capital gains of Rs. 2479 crores to the assessee by the ld. CIT. It was stated that the ld. CIT acted on mere suspicion doubting the intentions/motive of the assessee behind transactions carried out pursuant to the SOA approved by the Hon'ble Delhi High Court, he failed to point out any error in the order passed by the AO u/s 143(3) r.w.s. 144C(13) of the Act and the ld. CIT failed to prove that such order was prejudicial to the interest of the Revenue. It was further stated that the ld. CIT passed a confusing order directing the AO to conduct furt....
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....ich was actually hypothetical income arising from notional book entries, was not clear to the Ld. CIT. Such an action on the part of the CIT was unwarranted and bad-inlaw. (iv) On account of reasons elaborated supra, it is a clear case of substitution of the judgment of the CIT for that of the AO without proving that the assessment order was erroneous in so far as being prejudicial to the interests of the Revenue. This again renders the proceedings u/s 263 unlawful and void. (v) The AO after exercising the quasi-judicial power vested in him in accordance with law and after examination of records of the assessee arrived at a conclusion that the impugned transfer resulted in a capital loss of Rs. 5739 crores to the appellant company. The said view was also upheld by the Hon'ble DRP and subsequently by the Hon'ble ITAT. Such a conclusion could not be considered as erroneous merely because the CIT was not satisfied with the conclusion arrived at by the AO. The Ld. CIT sought to revise the assessment on the basis of reappraisal of the same set of documents submitted at the time of assessment proceedings by taking a completely different view in respect of the very same transaction.....
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....nsideration for transfer of such assets goes completely against the clear verdict of the Hon'ble Apex Court. It was further stated that the Hon'ble Supreme Court in the case of CIT Vs George Henderson & Co. Ltd. (supra) aptly pointed out that the legislature itself made distinction between the two expressions 'full value of the consideration' and 'fair market value of the capital asset transferred' and the market value of the asset transferred, though not equivalent to the full value of the consideration for the transfer may be deemed to be the full value of the consideration only in specified circumstances on satisfaction of specified conditions. It was stated that for imposing charge on the capital gain legislature has indicated detailed provisions in order to compute profits or gains under the head capital gains. However, if, for some reason computation u/s 48 of the Act is not possible, then the charge u/s 45 of the Act fails because it cannot be effectuated. The reliance was placed on the following case laws: CIT Vs B. C. Srinivasa Shetty (1981) 128 ITR 294 ACIT Vs Glad Investments (P) Ltd. 102 ITD 227 CIT Vs Mohanbhai Pamabhai 91 ITR 393 42. It was submitted that ....
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....1962) 46 ITR 144 (SC) Godhra Electricity Co. Ltd. Vs CIT (1997) 225 ITR 746 (SC) UCO Bank Vs CIT 237 ITR 889 Keshkal Co-operative Marketing Society Ltd. Vs CIT (1987) 165 ITR 437 (MP) CIT Vs Birla Gwalior (P) Ltd. 89 ITR 266 (SC) CIT Vs A. Raman & CO. 67 ITR 11 (SC) Poona Electricity Supply Co. Ltd. Vs CIT 57 ITR 521 (SC) 43. It was further stated that the accounting entries are not determinative of the taxability of any claim of income or deductibility of expenditure. The reliance was placed on the following case laws: Kedarnath Jute Manufacturing Co. Ltd. Vs CIT 82 ITR 363 (SC) CIT Vs India Discount Co. Ltd. 75 ITR 191 (SC) Pullangode Rubber Produce Co. Ltd. Vs State of Kerala & Anr. (1973) 91 ITR 18 (SC) Sutlej Cotton Ltd. Vs CIT 116 ITR 1 (SC) 44. It was further stated that the ld. CIT alleged that the assessee had not disclosed the full and true intention in the SOA approved by the Hon'ble Delhi High Court for the following reasons: "(i) Till the time of taking approval of SOA by the Hon'ble High Court, the transferor company kept the status of its subsidiary as 100% subsidiary, but soon after the approval after the transfer of assets on ....
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....o vest in it the passive telecom infrastructure of the group. It was pointed out that during the relevant previous year only 3,875 shares of BIL were issued to third parties whereas the assessee continued to hold 50,000 shares (accounting for almost 93% of the total shares of that company). Thus, the assessee continued to have controlling interest over the BIL and consequently over the impugned passive telecom infrastructure transferred with the said company and the fact that BIL was contemplating to induct strategic partners was duly disclosed before the Hon'ble High Court even before the scheme was sanctioned. It was pointed out that out of the 23 circles of which passive telecom infrastructure was transferred by the assessee company to BIL under the SOA, only 12 circles were managed by M/s Indus Infratel Ltd. and the balance 11 circles continued to be managed by M/s BIL. Thus, the allegation of the ld. CIT that the passive infrastructure was not handled/managed by BIL even for the single day was factually incorrect. It was further stated that the assessee incurred a capital loss of Rs. 5739 crores on account of the transfer of PI undertaking and suo-motu added back the same to t....
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....isrepresentation of the facts before the Hon'ble High Court. It was further stated that the ld. CIT in the additional show cause notice dated 27.03.2014 asked the assessee to submit as to why the assessment order dated 30.10.2012 passed by the AO may not be treated as erroneous and prejudicial to the interest of the Revenue on one more ground that the AO failed to conduct enquiry of records to ascertain as to whether the amount of Rs. 2479 crores representing the increase in the balance sheet of the assessee only due to transfer of passive infrastructure assets under reference to BIL was taxable as its income for the assessment year 2008-09 as per the provisions of section 28(iv) of the Act or not. In this regard, the ld. Counsel for the assessee submitted that section 28(iv) of the Act postulates following preconditions to be satisfied: "(a) There should be a non-monetary 'benefit or perquisite' accruing to the assessee; and (b) Such benefit or perquisite should arise from the business or exercise of a profession." 46. It was submitted that the view of the ld. CIT was based on mere change of opinion as the very same transaction of transfer of PI undertaking which was held....
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....such expenditure incurred by the assessee at market rate, therefore, the assessment order dated 30.10.2012 passed u/s 143(3) of the Act allowing such deduction of expenses was not only erroneous but also prejudicial to the interest of the Revenue. It was pointed out that the ld. CIT had noted that the assessee had paid to the transferee company, charges at market rate for use of assets transferred by it to the transferee company. However, at point no. (viii) of the SOA, it had been stated that the assessee company had non-exclusive right to use the telecom infrastructure for the purpose of its business without any obligation to pay for the same on payment of such charges as may be reasonable and acceptable. It was further stated that the ld. CIT alleged that the AO had not examined this issue which rendered the assessment order erroneous and prejudicial to the interest of the Revenue. The ld. Counsel for the assessee stated that the ld. CIT failed utterly in proving that the order of the AO allowing such expenditure was erroneous and prejudicial to the interest of the Revenue and that the ld. CIT was required to prove that (i) either the impugned expenses claimed to have been paid ....
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....stated that the ld. CIT failed to prove how the claim of the assessee of having paid charges at market rate which was mutually accepted by the parties and as per the SOA was incorrect and disallowable under the Act and how payment of such charges at market rate by the assessee made the assessment order allowing such claim erroneous and prejudicial to the interest of the Revenue. It was stated that on this basis that the matter required further enquiry and examination by the AO, the assessment order cannot be regarded erroneous and the ld. CIT was not empowered to assume jurisdiction u/s 263 of the Act to initiate suo-motu power of revision because the ld. CIT at his whims, felt that the assessee had either not paid such charges or paid charges at a different rate and the same required further verification. Such an action of the ld. CIT was impermissible and could not be allowed u/s 263 of the Act as the ld. CIT was required to reach a definite finding that the assessment order allowing the charges as claimed by the assessee was erroneous and incorrect. It was contended that since during the course of framing the assessment, the AO had access to all records of assessee and after per....
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....act has not been examined by the AO. It was further stated that in the balance sheet of the assessee as on 31.03.2008, the value of investment had increased to the tune of Rs. 8218 crores and the value of its passive infrastructure assets had decreased by Rs. 5739 crores. The difference thereof amounting to Rs. 2479 crores shown in the assessment year under consideration and Rs. 12.68 crore shown in the assessment year 2009-10 totaling to Rs. 2492 crores arising on transfer of these assets had been credited to business restructuring reserve but the same had not been offered to tax. It was submitted that the aforesaid amount was not credited to the P & L a/c of the quarter in which the assets had been transferred as per the SOA and as the AO had not examined this issue at all alongwith the issue relating to the share premium of Rs. 2136 crores, therefore, the ld. CIT was justified in considering the assessment order passed by the AO as erroneous as well as prejudicial to the interest of the Revenue. The ld. CIT DR also referred to paras 7 & 8 of the impugned order and submitted that the assessment order dated 30.11.2012 passed by the AO was erroneous and prejudicial to the interest ....
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....the assessee relating to the amount of Rs. 5739 crores which was not included in the P & L a/c and no other issue was either raised or adjudicated by the DRP. Therefore, the principle of merger applies only to the issue which was raised and adjudicated by the DRP not on the other issues, as such, it cannot be said that the entire assessment order was approved by the DRP. It was further submitted that in the show cause notice it has been pointed out very clearly by the ld. CIT that though the apparent consideration was Nil but it appears that what was apparent was not real. Therefore, the facts needed inquiry, examination and investigation to lift the corporate veil from the apparent to the real transaction, actual consideration and then examined the taxability of real transaction but the AO had not examined the transaction in totality. Therefore, the ld. CIT rightly held the assessment order passed by the AO as erroneous and prejudicial to the interest of the Revenue. It was further stated that the AO had not examined the issue relating to the taxability of the amount of Rs. 2479 crores and had also not examined the scheme of amalgamation in right prospective. It was contended that....
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.... deems necessary in order to find out if any order passed by Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The only limitation on his powers is that he must have some material(s) which would enable him to form a prima facie opinion that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue. Once he comes to the conclusion on the basis of the 'material' that the order of the Assessing Officer is erroneous and also prejudicial to the interests of the Revenue, the Ld. CIT is empowered to pass an order as the circumstances of the case may warrant. He may pass an order enhancing the assessment or he may modify the assessment. He is also empowered to cancel the assessment and direct the AO to frame a fresh assessment. He is empowered to take recourse to any of the three courses indicated in section 263 of the Act. But the ld. CIT does not have unfettered and unchequred discretion to revise an order, he is required to exercise revisional power within the bounds of the law and has to satisfy the need of fairness in administrative action and fair play with due respect to the princ....
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....rmed to be erroneous simply because the CIT does not feel satisfied with the conclusion. (viii) The CIT, before exercising his jurisdiction under section 263 of the Act, must have material on record to arrive at a satisfaction." 55. It is well settled that in such type of cases, if the Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation, be a letter in writing and the Assessing Officer allowed the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. 56. Reverting to the facts of the present case, it is noticed that the ld. CIT considered the assessment order dated 30.10.2012 passed by the AO as erroneous and prejudicial to the interest of the Revenue to the following extent: (i) The AO failed to examine the taxability of the difference between the cost of the assets and fair value of the assets transferred to BIL, shown directly credited to the 'Reserves for Business Restructuring' by the assessee company in it....
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....py of which is placed at page nos. 125 to 130 of the assessee's compilation. The assessee specifically explained to the AO in reply to the query raised by the AO as under: "(i) That the assessee (BAL) had entered into a SOA with BIL for transfer of passive infrastructure undertaking having book value of Rs. 57,39,60,05,089/- at NIL consideration. The SOA was duly approved by the Hon'ble Delhi High Court vide order dated 26.11.2007 and filed with the ROC, Delhi & Haryana on 31.01.2008, the effective date of the Scheme. (ii) Pursuant to the SOA, the loss arising on transfer of such undertaking did not require any adjustment for computing book profits u/s 115JA. (iii) The amount withdrawn from Reserve and credited to P & L A/c amounting to Rs. 57,39,60,05,089/- had been reduced out of the book profits as such reserve was not created in terms of explanation (i) to section 115JB of the Act, because such reserves had arisen pursuant to the SOA. The scheme approved by the High Court mentioned that "such reserve for Business restructuring shall be arising out of this Scheme and shall not be considered as reserve created by the Transferor Company" para 3.3.1 at page 18 of the Schem....
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....eto were required. Even if no adjustment was carried out in the computation of income, the resultant income would have been the same, but the adjustments, if at all required for the sake of completeness and transparency, were required for both the entries, i.e. loss on transfer of assets as also amount withdrawn from business restructuring. This is precisely what the assessee has done. As much as the loss on transfer of assets is not a tax deductible item, the amount transferred from reserves is also not a taxable item. The assessee thus reversed both these entries, as depicted above, in the computation of income. The Assessing Officer has taken note of the fact that in the computation of income attached to the return of income, the assessee has first added Rs. 5739,60,05,089 as "Loss on transfer of telecom infrastructure to Bharti Infratel Limited" and then reduced Rs. 5739,60,05,089 as "amount withdrawn from Reserve for Business Restructuring", but then, instead of taking note of the unambiguous fact that these two distinct entries representing two facets duly reflected in the profit and loss account, the Assessing Officer assumes that since debit and credit of the same amount, r....
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....tion of taxable income, were placed before the Dispute Resolution Panel. The fact that even such purely factual issues are not adequately dealt with by the DRPs raises a big question mark on the efficacy of the very institution of Dispute Resolution Panel. One can perhaps understand, even if not condone, such frivolous additions being made by the Assessing Officers, who are relatively younger officers with limited exposure and experience, but the Dispute Resolution Panels, manned by very distinguished and senior Commissioners of eminence, will lose all their relevance, if, irrespective of their heavy work load and demanding schedules, these forums do not rise to the occasion and do not deal with the objections raised before them in a comprehensive and effective manner. While we delete the impugned addition of Rs. 5739,60,05,089, we also place on record our dissatisfaction with the way and manner in which this issue has been handled at the assessment stage. Let us not forget that the majesty of law is as much damaged by not rendering justice to the conduct which cannot be faulted as much it is damaged by a wrongdoer going unpunished; not giving relief in deserving cases is as much o....
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....(I) Ltd. Vs CIT reported at 330 ITR 363 has held as under: "The adjustment made in the profit and loss account was primarily in the nature of contra adjustment in the profit and loss account and not a case of effective credit in the profit and loss account (as contemplated in clause (i) of the Explanation). The amount withdrawn from any reserve must in effect impact the net profit as shown in the profit and loss account. Unless an adjustment has the effect of increasing the net profit as shown in the profit and loss account, that entry cannot be said to be a credit to the profit and loss account and, therefore, though the amount had been literally credited to the profit and loss account, in substance there was no credit to the profit and loss account." 61. In the present case also the assessee passed the adjustment entries for a sum of Rs. 5739 crores in its books of account which had no effect on the profit/income of the assessee, therefore, the ld. CIT was not justified in holding that the AO had not examined the issue relating to the loss on account of transfer of passive telecom infrastructure to the subsidiary company. Therefore, it cannot be said that the assessment ord....
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....e aforesaid transfer was non-taxable. The same finding had been given by the ITAT vide aforesaid order dated 11.03.2014. Therefore, the ld. CIT was not justified in holding that the order passed by the AO was erroneous as well as prejudicial to the interest of the Revenue particularly when the ld. CIT himself failed to arrive at a definite conclusion and to form an opinion regarding the tax implication of the impugned transaction. In the present case, the ld. CIT on the one hand, stated that the transfer of telecom passive infrastructure undertaking at Nil consideration resulted in a capital gain of Rs. 2479 crores, on the other hand, the same transaction was alternatively alleged to have resulted in a business income of Rs. 2479 crores u/s 28(iv) of the Act. Moreover, the ld. CIT directed the AO to re-examine and verify the issue, however, he himself failed to arrive at a definite conclusion. Therefore, we are of the view that the ld. CIT without arriving at a definite conclusion was not justified in holding the assessment order dated 30.10.2012 as erroneous and prejudicial to the interest of the Revenue. 64. On a similar issue the Hon'ble Bombay High Court in the case of CIT V....
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....ad duly applied his mind and was satisfied with the explanation offered by the assessee and did not make any addition in that regard. The Assessing Officer had not incorporated the facts in detail in the order but that would not mean that there had been no application of mind. The Tribunal noted the fact that the details of tax deducted at source during the financial year had been shown and the income that was shown as commission income was reflected in detail in the show cause and in the books of account. The Assessing Officer had already examined this aspect but the Commissioner had directed a re inquiry for merely a change of opinion which was impermissible under section 263 of the Act. He was required to arrive at a definite conclusion but he had not done so. There was no reason to interfere with the order of the Tribunal." 66. Similarly the Hon'ble Delhi High Court in the case of Hari Iron Trading Co. Vs CIT (2003) 263 ITR 437 (supra) held as under: "In the absence of any suggestion by the Commissioner as to how the inquiry was not proper, the action taken by him under section 263 could not be sustained. The letter by the Assessing Officer to the Commissioner supported t....
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....is also noticed that in the SOA, it was categorically mentioned that the assessee had non-exclusive right to use the telecom infrastructure without any obligation to pay or on payment of such charges as may be reasonable and acceptable to the transferor i.e. assessee and the transferee i.e. BIL. The above said provision in the SOA, was an enabling provision and the parties to the SOA chose the later option i.e. payment at market rate. Therefore, allowing the claim of the charges paid by the assessee at market rates would not be held as erroneous merely because the ld. CIT at his whims felt that the assessee had either not paid such charges or paid charges at a different rate and the same required further verification. In this regard, it is relevant to point out the observation of the ld. CIT at para 21 of the impugned order which reads as under: "21. The assessment order is therefore set aside to that extent with a direction to AO to verify the taxability of transaction under reference namely transfer of passive asset by the assessee to BIL in totality in light of observation given above as well as issues raised in show cause notice and also examine the allowability of the expen....
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....eous. Where the Incometax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion such a conclusion cannot be found to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. 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." 70. On a similar issue, the Hon'ble Delhi High Court in the case of CIT Vs Vikas Polymers (2012) 341 ITR 537 held as under: "It is pre-requisite that the Commissioner must give reasons to justify the exercise of suo motu revisional powers by him to reopen a concluded assessment. A bare reiteration by him that the order of the Incometax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice. The exercise of the power being quasi-judicial in nature, the reasons must be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessmen....
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....the Act and the doctrine of merger, these facts are not involved in the present case. Therefore, both the aforesaid cases relied by the ld. CIT DR are distinguishable on facts. Similarly, in the case of CIT Vs Goetze India Ltd. reported at (2014) 361 ITR 505 (Del.), the ld. CIT in her order had specifically recorded that enhanced depreciation on revalued reserve was claimed in earlier assessment year and the proviso to clause (i) of the explanation to section 115JA was not applicable as a reserve was not created during the relevant period and that the AO had not applied section 14A of the Act and made no deduction under the said section. Therefore, the Hon'ble High Court held that the order of revision was valid. However, in the present case, there is no such facts. In the case of CIT Vs Ashok Logani reported at (2012) 347 ITR 22 (Delhi) which was relied by the ld. CIT DR, the facts involved were that the AO had gone into the issue and accepted the claim of the assessee or not, was not discernible from the assessment order, it was held that there should have been at least a brief discussion regarding a satisfaction on the explanation offered by the assessee. Thus, it was a reasonab....