TaxTMI 
TaxTMI 
2019 (9) TMI 230
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....of revenue within the meaning of Section 263 of the Income Tax Act, 1961. 2. The Learned Principal Commissioner of Income Tax -3, Chennai erred in law and on the facts and in the circumstances of the case in holding that the Appellant have to ultimately establish that the payments of Rs. 28,86,59,6681- have been incurred wholly and exclusively in connection with the transfer of shares. 3. The Learned Principal Commissioner of Income Tax -3, Chennai erred in law and on the facts and in the circumstances of the case in directing the Assessing Officer to verify the claim of the Appellant that no deduction of foreign exchange fluctuation expenses amounting to Rs. 6,31,12,289/- even though the Appellant denied having claimed any such expenses. 4. The Learned Principal Commissioner of Income Tax -3, Chennai erred in law and on the facts and in the circumstances of the case in directing the Assessing Officer to make fishing and roving enquiries in concluded matters. 5. (i) The order of Principal Commission of Income Tax - 3, Chennai being contrary to laws, evidence and facts of the case may be set aside/cancelled/amended or modified. (ii) Each ....
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....out enquiring into the allowability of expenditure of exgratia payment made to the employee Directors of J28,86,59,668/- in connection with the sale of the shares and also claim towards exchange fluctuation expenditure of J6,31,12,289/-. Accordingly, the ld. PCIT issued show cause notice dated 07.02.2019 u/s.263 of the Act calling upon the appellant to show cause why the assessment order should not be treated as erroneous and prejudicial to the interest of the Revenue and be revised under the powers of vested with him under the provisions of section 263 of the Act. In response to the show cause notice, the assessee made detailed submissions on various dates i.e. 25.02.2019, 05.03.2019 and 08.03.2019 and submitted that the payment had been made to the employee directors for rendering the following services. ''Identifying possible development opportunities for sale by the Company of its stake in its subsidiary undertaking the ATM deployment and electronic financial transactions processing business and in evaluate the possible strategy for such divestment; Evaluation of and advising on the transaction structure, sale price and commercial terms; Identificatio....
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....d examination and giving opportunity of hearing to the appellant vide order dated 27.03.2019 passed u/s.263 of the Act. 7. Being aggrieved by the order of the ld. PCIT, the appellant is in appeal before us in the present appeal. 8. The ld. Counsel for the appellant contended that the assessment order was passed after due examination and enquiry of the issues sought to be revised in the impugned order. Thus it was submitted that it is not case of lack of enquiry, therefore the assessment order cannot be said to be erroneous. In the absences of satisfying the twin conditions i.e. the order of the Assessing Officer sought to be revised is erroneous; and prejudicial to the interest of Revenue, the ld. PCIT cannot exercise power of revision u/s.263 of the Act. In this connection, he placed reliance on the judgment of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd vs. CIT, 243, ITR 83 and also the following decisions of various Hon'ble High Courts. (i) Davjee Dadabhoy and Co. vs. S.P. Jain, (1957) 31 ITR 872 (ii) CIT vs. T. Narayana Pai, (1975) 98 ITR 422. (iii) CIT vs. Gabriel India Ltd, (1993) 203 ITR 108. (iv) CIT vs. Smt.....
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....ssessing Officer sought to be revised is erroneous; and (ii) It is prejudicial to the interest of Revenue. are satisfied cumulatively. Reference in this regard can be made to the decisions of Hon'ble Supreme Court in the cases of Malabar Industrial Co. Ltd (supra) and CIT vs. Max India Ltd, (2007) 295 ITR 282. Therefore the question that comes up for our consideration whether the assessment order sought to be revised can be considered as erroneous and prejudicial to the interests of the Revenue. The Courts had laid down the following parameters to determine whether the assessment order is erroneous or not. ''(i) An order is erroneous when it is contrary to law or proceeds on an incorrect assumption of facts or is iii breach of principles of natural justice or is passed without application of mind, that is, is stereo-typed inasmuch as the Assessing Officer accepts what is slated in the return of the assessee without making any enquiry called for in the circumstances of the case, i.e., proceeds with 'undue haste'. (ii) The expression prejudicial to the interest of the revenue' while not to be confused with the loss of tax will certainly include an er....
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....8,86,59,668/- placed at paper book pages 99 & 100. The Assessing Officer considering the details had accepted the claim for deduction of expenditure of payment of exgratia to employees directors of Rs. 28,86,59,668/-. However, the assessment order is silent with respect to the enquires conducted by the Assessing Officer. Therefore the issue that may come up for consideration is whether in such circumstances, the assessment order can be termed as erroneous and prejudicial to the interests of the Revenue. Hon'ble Bombay High Court in the case of CIT vs. Gabriel India Ltd, (1993) 203 ITR 108 had held that simply because the Assessing Officer did not make elaborate discussion on the issue in the assessment order it cannot be held that assessment order is erroneous. This position of law was reiterated subsequently by various High Courts. Even the Jurisdictional High Court in the case of Smt. Renuka Philip vs. ITO, 409 ITR 567 in a case where the Commissioner of Income Tax, has sought to revise the assessment order on the ground that the Assessing Officer allowed the exemption claimed u/s.54 of the Act without application of mind, the Hon'ble High Court held that it cannot be said tha....
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....conclusion that assessment order is erroneous and then set aside the assessment order to the Assessing Officer to redo the assessment. It is settled position of law that power of revision cannot be used for the purpose of making roving and fishing enquires. The Hon'ble Delhi High Court in the case of CIT vs. Ashish Rajpal, (2010) 320 ITR 674, had held as follows:- ''17.1 As observed by us above, there is no requirement under section 263 of the Act to issue a notice before embarking upon a revisionary proceedings. To that extent the submission of the learned counsel for the Revenue Mr.Sanjeev Sabharwal has to be accepted. What is mandated under section 263 of the Act is that once the Commissioner calls for and examines the record, pertaining to the assessee, and forms a prima facie view that the order passed by the Assessing Officer is both erroneous and prejudicial to the interest of the Revenue, he is obliged to afford an opportunity to the assessee before passing an order, to the prejudice of the assessee. In the instant case, the Commissioner sought to accord such an opportunity to the assessee by putting him to notice as regards aspects which the Assessing Officer had ....
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.... in law. If one were to permit correction of such a grievous error in the manner suggested it would tantamount to, in a manner of speaking, closing the stable doors after the horse has bolted. The assessments, unless reopened by paying faithful obeisance to statutory provisions and conditionalities provided therein, attain finality on their conclusion. The provisions of section 263 mandate that an order for enhancing, or modifying the assessment, or cancelling the assessment and directing a fresh assessment can only be passed after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as is deemed necessary. The threshold condition for reopening the assessment is that before passing an order an opportunity has to be granted to the assessee and, such an opportunity granted to the assessee is a necessary concomitant of the enquiry the Commissioner is required to conduct to come to a conclusion that an order for either an enhancement or modification of the assessment or, as in the present case, an order for cancellation of the assessment is called for, with a direction to the Assessing Officer to make a fresh assessment. This defect cann....
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....ioner of Income-tax undertakes an inquiry himself in the manner indicated hereinbefore. That is missing in the present case. 13. Therefore, the court is of the view that the Income-tax Appellate Tribunal was not in error in setting aside the impugned order of the Principal Commissioner of Income-tax under section 263 of the Act. No substantial question of law arises. The Hon'ble Delhi High Court in the case of DIT vs.Jyoti Foundation, (2013) 357 ITR 388, after referring to its earlier decisions in the cases of CIT vs. Sunbeam Auto Ltd, (2011) 332 ITR 167 and CIT vs. DG Housing Projects Ltd, (2012) 343 ITR 329 held as follows. ''Thus, in cases of wrong opinion or finding on the merits, the Commissioner of Income-tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. The Commissioner of Income-tax cannot remand the matter to the Assessing Officer to decide whether the findings ....
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....it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore, the Commissioner of Income-tax must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the Commissioner of Income-tax must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the Commissioner of Income-tax can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the Commissioner of Income-tax (see CIT v. Shree Manjunathesware Packing Products and Camphor Works [1998] 231 ITR 53 (SC)). Nothing bars/prohibits the Commissioner of Income-tax from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous." 5. In the present case, inquiries were certainly conducted by the Assessing Officer. It is not a case of no inquiry. The order under section 263 itself records that the Director felt that the inquiries ....
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....essing Officer to decide the aspect/question. 18. This distinction must be kept in mind by the Commissioner of Income- tax while exercising jurisdiction under section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interests of the Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without the Commissioner of Income-tax conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. The Commissioner of Income-tax cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the Commissioner of Income-tax to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the Commissioner of Income-tax hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is e....
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....we are unable to discern from the impugned order that the ld. PCIT had conducted any enquiries and recorded a finding that the assessment order is erroneous. The fact that the ld. PCIT remanded the matter to the Assessing Officer for the purpose of enquiry by itself prove that the ld. PCIT had not decided whether or not the assessment order is erroneous. Mere bald finding by the ld. PCIT that the assessment order is erroneous cannot be sustained in the eyes of law unless the impugned order refers to any material to show that the assessment order is erroneous. The mere nomenclature given to an item of expenditure cannot decide the allowability otherwise of it. Reference can be made to the decisions of Hon'ble Supreme Court in the cases of Padmasundara Rao (Decd) vs. State of Tamil Nadu (2002) 255 ITR 147 and National Steel Works Ltd vs. CIT, (1962) 46 ITR 646. The tone and tonor of the impugned order indicates that the ld.PCIT was driven by the nomenclature given to the item of expenditure without examining the real nature of expenditure. It is settled position of law that there must be some prima facie material on record to show that tax which was lawfully exigible has not been imp....