TaxTMI 
TaxTMI 
2019 (11) TMI 1354
X X X X Extracts X X X X
X X X X Extracts X X X X
...."Ld. PCIT - 2") erred in initiating revision proceedings under section 263 of the Income Tax Act, 1961 ("the Act"). Your Appellants submit that the initiation of proceedings under section 263 of the Income Tax Act, 1961 is illegal and bad in law and the order of the Ld. PCIT -2 be quashed. 2. The Ld. PCIT - 2 erred in stating that the order passed by the then Learned Assessing Officer ("Ld. AO") for A.Y. 2015-16 is erroneous and prejudicial to the interest of the revenue on the ground that, Ld. AO had passed the Assessment Order without making inquiries and verification which were required and directing the Ld. AO to disallow the amount of Rs. 25,78,84,501/- and Rs. 6,75,00,000/- contributed towards Settlement Guarantee Fund and Investor Service Fund respectively. Looking into the facts and circumstances of your Appellant, it is submitted that specific queries with respect to contribution made to Settlement Guarantee Fund and Investor Service Fund were raised by the Ld. AO in his notices dated November 23, 2017 and December 9, 2017. In response your Appellant vide acknowledgement nos. 15121710015292, 30111710012737 and 1512171005310 uploaded the necessary details along with the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../- had been reduced while computing taxable income as 'Contribution towards settlement guarantee fund' (b) Rs. 6.75 Crore had been debited to P&L A/c as contribution towards investors service fund." 4.1 While carrying out assessment proceedings for assessment year 2016-17 details were asked for allowability of contribution towards aforementioned funds as business expenditure. Based on the details is has been held in the assessment order that a) Contribution towards settlement / core settlement guarantee fund is in the nature of deposit / contingency reserve for the assessee. The SEBI Circular on the contribution itself says that It is 'transfer of profit'. Hence, it cannot be allowed as business expenditure. b) Contribution towards investors service fund is Just set-aside amount as mandated by SEBI. This set-aside amount cannot be allowed as deductible business expenditure unless it was actually spent during the year for the purpose of business." 4.2 In view of the above, since the facts and circumstances of the case for A. Y. 2015-16 ore same, allowing the claim of contribution to the two funds as business expenditure makes the assessment order for A.Y. 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oaded online on the Income Tax Portal a detailed note along with the Annexures as follows; "Point 17: Mandatory Contribution to settlement guarantee fund of Rs. 25,78,84,501/-. Objective of the Core SGF: In order to protect the interest of the investors in securities & to regulate the securities market, Securities and Exchange Board of India (SEBI) vide circular no CIR/MRD/DRMNP/25/2015 dated August 27, 2014 (Annexure 22.1) (presently refer annexure 3) directed the Clearing Corporation (CC) to create a fund coiled Core Settlement Guarantee Fund (Core SGF) for each segment of each Recognized Stock Exchange (SE) to guarantee the settlement of trades executed in respective segment of the SE. In the event of a clearing member (member) failing to honour settlement commitments, the Core SGF shall be used to fulfill obligations of that member and complete the settlement without affecting the normal settlement process. Corpus of Core SGF: As per SEBI Circular, the corpus of the fund should be adequate to meet out all the contingencies arising on account of failure of any member(s). The risk or liability to the fund depends on various factors such as trade volume, delivery percent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ring member contribution in the form of bank FD5 too. CC shall adhere to specific guidance which may be issued by SEBI from time to time in this regard. As mandated by Circular CIR/MRD/DRMNP/25/2014 dated August 27, 2014 (refer Annexure 22.1) (presently refer annexure 3), BSE, implemented the provisions of this circular with effect from December 1, 2014 and contributed to the "Core SGF" of Indian Clearing Corporation Ltd (ICCL) total amount of 25,78,84,501/- as at March 31, 2015. At the time of finalizing the accounts for FY 2014-15, since there was no clarity regarding the regulation and its implementation, the said amount of 25,78,84,501/- contributed by SSE Limited to the Core SGF of Indian Clearing Corporation Limited was shown as "Contribution to Settlement Guarantee Fund" under the head "Other Current Assets". After receiving necessary clarification that the amount mandatorily contributed including the income earned on the said Core SGF belongs to Core SGF of ICCL and in view of Sec. 10(23EE) of the Income Tax Act, 1961 and as per the SEBI circular, BSE Ltd has been prohibited from sharing this fund either wholly or partly for its normal business purpose. Hence in view of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w after detailed enquiry then such conclusion of allowability of claim of contribution to CSGF of Rs. 25,78,84,501/- cannot be termed to be erroneous and prejudicial to the interest of revenue. 9. As regards to the issue raised in para 4(b) of Show Cause Notice with respect to the amount set aside to Investor Service Fund. It is submitted that the AO had issued a notice u/s. 142(1) of the Act dated 23.11. 2017 (refer point no. 24 of Annexure 1) particularly asking BSE to "Please refer to Rare: Other Liability includes; a) Investors' Service Fund" and furnish the details of Annual Listing Fees Received vis-à-vis expenses incurred towards investors services and its treatment in the books of account along with the supporting documents. In response to the aforementioned questionnaire dated 30.11.2017 (refer Annexure 2) BSE had uploaded online on the Income Tax Portal a detailed note along with the Annexures as follows: - "Details of other liability (AY 2015-16) SEBI vide circular no Ref. SE/10118 dated October 12, 1992 and Master circular (attached for reference) (present refer Annexure 2) requested BSE Limited to set aside 20% of the Annual listing fees received to an ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....respectively. Accordingly, as a practice for the past many years, BSE Limited has been making these timely contributions to SEBI & IPF on quarterly basis and thus, paid Rs. 6,22,80,123 to SEBI and Rs. 62,28,013 to IPF for the financial year 2014-2015. *Note: The details of the Investors Service Fund during financial year 2014-15 has already been uploaded in reply to Point 24 of the notice u/s 142(1) of the Income Tax Act, 1961 dated November 23, 2017." 11. These details were once again re-uploaded online on the Income Tax Portal on 20.12.2018 (refer Annexure 8). From these details it is clear that a specific query was raised by the AO. A detailed note alongwith the annexures were submitted by BSE. Thereafter considering all the facts, AO allowed the claim of BSE of set-aside amount to Investor Service Fund (ISF) of Rs. 12,36,07,102/-. It is therefore submitted that once the conclusion is arrived at by the AO in accordance with law after detailed enquiry then such conclusion of allowability of claim of amount set aside to ISF of Rs. 12,36,07,102/- cannot be termed to be erroneous and prejudicial to the interest of revenue. 12. In view of the above, we noted that the PCIT obser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment. Moreover, the contribution to the Investors Service Fund is being made by BSE from 1992 onwards and has been claimed as expense under section 37 of the Act. The said claim has been allowed and accepted by the department till date and there is no change in facts compared to earlier years. If there are no changes in the facts or circumstances over the years, then it would not be appropriate on part of the department to change the opinion in subsequent years. The details are as under: - Sr. No. AY Contribution to Investor Service Fund Whether order u/s 143(3) was passed Whether Contribution was allowed 1. 2006-07 1,75,00,000 Yes Yes 2. 2007-08 2,99,00,000 Yes Yes 3. 2008-09 3,13,00,000 Yes Yes 4. 2009-10 3,13,00,000 Yes Yes 5. 2010-11 3,95,00,000 Yes Yes 6. 2011-12 3,99,00,000 Yes Yes 7. 2012-13 5,59,00,000 Yes Yes 8. 2013-14 6,05,00,000 Yes Yes 9. 2014-15 6,40,00,000 Yes Yes 10. 2015-16 12,3,00,000 Yes Yes (since revised u/s 263) The contribution has been made by assessee even in prior years and never disallowed by Department. For this proposition of consistency, Ld ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rder of the Tribunal, which had set aside the revision order of the CIT, held as under: - "The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise 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 interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary. According to the definition, "erroneous" means "involving error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, "erroneous Judgment" means "one rendered according to course and practice of court....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt 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. It can mean nothing else". The aforesaid observations were also applied by the Gujarat High Court in Addl. CIT v. Mukur Corporation [1978] 111 ITR 312. We are of the opinion that the aforesaid interpretation given by the Calcutta High Court to the expression "prejudicial to the interests of the Revenue" is the correct interpretation." 16. We have also gone through the judgment of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v/s CIT 243 ITR 83 (SC). Wherein Hon'ble Court has stated that the provision of Sec. 263 of the Act cannot be invoked to correct each and every type of mistake or error committed by the AO and that it is only when the order is erroneous that the section would be attracted. In other words, what has been emphasized by the Hon'ble Supreme Court is that every loss of revenue as a consequence of an order of the AO cannot be construed to be prejudicial to the interests of the revenue, unless it can be established that the assessment order is erroneous in as much as the sam....