TaxTMI 
TaxTMI 
2019 (12) TMI 253
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....cheme approved by the High Court of Gujarat. For the previous year relevant to the year under consideration, return of income was filed declaring loss of Rs. 47,85,08,570/- which was initially processed u/s.143(1) of the Act and, thereafter selected for scrutiny. In response to the statutory notices issued in the course of the assessment proceedings due compliance was made. The draft order framed u/s.144C(1)/143(3) of the Act dated 05.03.2015 was served on the assessee on 10.03.2015. Since the issue of determination of arm's length price was involved, the Assessing Officer made reference u/s. 92CA(1) of the Act to the Transfer Pricing Officer [hereinafter in short "TPO"] vide letter dated 23.10.2013. Subsequently the TPO passed an order u/s. 92CA(3) of the Act dated 22.01.2015 determining the arm's length price of the international transactions. The final assessment order was passed on 10.04.2015 u/s.144C(1) r.w.s. 143(3) of the Act. 3. The Ld. Pr.CIT thereafter issued notice u/s. 263 of the Act dated 12.03.2018 directing the assessee to show cause as to why the order passed u/s. 144C(1) r.w.s. 143(3) of the Act be not revised, on the ground that the assessee had not allocated....
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....on for the purposes of non-tonnage business as claimed by the assessee company in course of the present proceedings. In absence of such investigation, the AO was erroneous in allowing the claim of the assessee in allocating the entire expenditure on account of interest related to NCD and FCCB to non-tonnage business instead of allocating the same to tonnage and non-tonnage business in the ratio of respective turnover. Also, the AO did not examine the magnitude of interest earned on ICD. Secondly, interest expenditure of Rs. 81,36,80,8217- allocated to non-tonnage business include interest of Rs. 14,17,53,007/- on account of investment that was clearly not allowable in view of the provisions of section 437(1) which reads as: any expenditure (not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenses of thee assessee) laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and Gains of business or profession". The AO failed to ascertain the facts and examine the issue of allowability of interest r....
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....Therefore, since the order passed u/s. 144C(1) r.w.s. 143(3) of the Act being non-est in the eyes of law, the proceedings initiated by the Ld. Pr.CIT u/s. 263 of the Act is illegal and bad in law. 7. Ld. Counsel for the assessee submits that during the relevant previous year assessee had entered into certain international transactions with its associate enterprises, therefore the provisions of section 92 have application in assessee's case for computing the income from international transactions to determine arm's length price. Referring to the provisions of section 92CA(1), the Ld. Counsel for the assessee submits that, in order to determine the arm's length price of the international transactions, the Assessing Officer with prior approval of the Pr.CIT or Commissioner shall refer the computation of arm's length price to the Transfer Pricing Officer. Ld. Counsel for the assessee submits that the Assessing Officer in order to determine the arm's length price of the international transactions a reference was made to TPO by letter dated 23.10.2013. Ld. Counsel for the assessee submits that an approval from the Commissioner u/s. 92CA(1) was obtained on 28.10.2013 which is later to 23....
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....not allocated between tonnage business and non-tonnage business and further he was of the view that interest of Rs. 14.17 Crores was incurred on the investments made and since this is capital no part of it is allowable u/s. 37(1) of the Act. 9. Ld. Counsel for the assessee referring to Page Nos. 36 to 56 of the Paper Book which is the reply furnished by the assessee in response to notice issued u/s. 263 of the Act submits that, a detailed reply was furnished before Ld. Pr.CIT explaining the allocation made by the assessee in respect of interest to tonnage business and non-tonnage business. The Ld. Counsel for the assessee submits that it has been brought to the notice of the Ld. Pr.CIT that there is one to one nexus for the money received by the assessee company and the said amount has been given as Inter Corporate Deposits [hereinafter in short "ICD"] to its wholly owned subsidiary M/s. Essar Oilfield Services India Ltd [EOSIL] which is carrying on the business of oil drilling operations. Ld. Counsel for the assessee submits that in fact the bank statements were also furnished before the Ld. Pr.CIT in proof of nexus between the amount received and advanced to EOSIL. Therefore, it....
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....s business as per the objects of the company, therefore it was explained that the interest expenditure incurred on the funds borrowed which have been invested in the wholly owned subsidiary of the assessee company is allowable as business expenditure. It was explained that once the money has been borrowed for the purpose of the business the interest on the said borrowals has to be allowed u/s. 36(1)(iii) of the Act. It was explained that section 36(1)(iii) does not place any embargo on investments to be made in group concerns and subsidiary concerns. The Ld. Counsel for the assessee submits that in support of its contentions reliance was also placed on the decisions of the Hon'ble Bombay High Court in the case of CIT v. Phil Corporation Limited [244 CTR 226] and the Hon'ble Madras High Court in the case of CIT v. RPG Transmission Limited [48 taxman.com 57]. 11. Ld. Counsel for the assessee further submits that interest expenses have already been allocated by the assessee for tonnage and non-tonnage business and this allocation was accepted in predecessor's hands while completing the assessment u/s. 143(3) of the Act. Ld. Counsel for the assessee referring to Page No. 1 of ....
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....ing to the above decisions, Ld. Counsel for the assessee submits that Ld. Pr.CIT not at all examined the submissions of the assessee and evidences furnished thereon. It is submitted that the Ld. Pr.CIT has not given any reasoning as to why the submissions of the assessee are incorrect or which issues need further verification on the part of the Assessing Officer. Therefore, it is submitted that since the Ld. Pr.CIT has not conducted any enquiry before setting aside the matter to the file of the Assessing Officer for fresh enquiries the order passed by the Ld. Pr.CIT is bad in law. 14. Ld. Counsel for the assessee further submits that the issue pointed out by the Ld. Pr.CIT on which revision was sought had already been considered by the Assessing Officer while completing the assessment and he had taken a possible view and hence Ld. Pr.CIT could not have exercised his jurisdiction u/s. 263 of the Act. Referring to Page No. 1 and 2 of the Paper Book which is the computation of total income and statement showing the allocation of expenses between the tonnage and non-tonnage business counsel submits that, assessee has shown bifurcation of Profit and Loss Account between tonnage and non....
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....d. Interest income on ICD has been offered as business income (non-tonnage activity) 39.61 39.61 This allocation has been accepted by the AO u/s. 143(3) of the Act in A.Y. 2011-12 (in the case of Essar Ports Ltd. (predecessor) 3. Interest on FCCB. The proceeds of FCCB was utilised for making investment in subsidiary which was involved in logistics business (non-tonnage activity) 27.57 27.57 This allocation has been accepted by the AO u/s. 143(3) of the Act in A.Y, 2011-12 (in the case of Essar Ports Ltd predecessor). 4, Balance interest expenditure allocated between tonnage and non-tonnage income in the ratio of funds utilised 19.92 5.75 14.17 Accepted as revenue expenditure by the AO u/s. 143(3) of the Act in A.Y. 2011-12 (in the case of Essar Ports Ltd -predecessor). 5. Total interest expenditure 123.10 41.75 81.35 - Referring to the above chart, it is submitted that interest paid on NCD issued by LIC amounts to Rs. 39.61 Crores and the proceeds of the LIC were used for giving ICD to M/s. Essar Oilfield Services (India) limited. it was submitted that interest income on ICD has been offered as business income under non tonn....
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....Ld. Pr. CIT has rightly invoked the provisions of section 263 of the Act. 20. We have heard the rival submissions, perused the orders of the authorities below. The preliminary contention of the assessee is that, the assessment framed by the Assessing Officer u/s. 144C(1) r.w.s. 143(3) of the Act dated 10.04.2015 is time barred and bad in law and consequently when the foundation i.e. order u/s. 144C(1) r.w.s. 143(3) of the Act being non-est in the eyes of law the proceeding initiated by the Ld. Pr.CIT u/s. 263 of the Act and the order passed is illegal and bad in law. 21. We observe that for the previous year relevant to the Assessment Year under consideration i.e. A.Y. 2011-12 a return of income was filed by the assessee declaring loss of Rs. 47,85,08,570/- which was initially processed u/s.143(1) of the Act and subsequently selected for scrutiny proceedings. Assessing Officer passed draft assessment order on 05.03.2015 framed u/s. 144C(1) r.w.s. 143(3) of the Act and the said order was served on the assessee on 10.03.2015. Since the issue of determination of arm's length price was involved on the international transactions entered into by the assessee with its associate enterpri....
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....arm's length price. 24. Admittedly in this case the approval of the Commissioner was obtained on 28.10.2013 which is after the date of reference made by the Assessing Officer to the TPO on 23.10.2013. As there is no valid reference, the extended time limit to pass the Assessment Order as per section 153 would not be applicable and consequently the time limit for completion of assessment u/s. 153(1)(a) will be two years from the end of the Assessment Year. The present Assessment Year involved is 2011-12, the assessment should have been completed on or before 31.03.2014 but in this case the assessment was completed on 10.04.2015 u/s. 144C(1) r.w.s. 143(3) of the Act . 25. We further observe that the third proviso to section 153(1) of the Act which gives extended time limit to pass the Assessment Order where a reference under sub section (1) of section 92CA was made, the time limit for completion of assessment was prescribed as three years from the end of the Assessment Year. Even assuming that the extended time limit is available for passing an order under third proviso to sub section (1) of section 153 the outer time limit for passing Assessment Order was 31.03.2015, however the a....
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....f assessment order for assailing the jurisdictional validity of the revision order passed u/s 263: The first issue that arises for our consideration is - whether the assessee can challenge the jurisdictional validity of order passed u/s 143(3) in the appellate proceedings taken up for challenging the order passed u/s 263? If we analyse the nature of both of these proceedings, which are under consideration before us, we find that the original assessment proceedings can be classified in a way as 'primary proceedings'. These are, in effect, basic / foundational proceedings and akin to a platform upon which any subsequent proceedings connected therewith can rest upon. The proceedings initiated u/s 263 seeking to revise the original assessment order is off shoot of the primary proceedings and therefore, these may be termed as 'collateral proceedings' in the legal framework. The issue that arises here is whether any illegality/invalidity in the order passed in the 'primary proceedings' can be set up in the 'collateral proceedings' and if yes, then of what nature? 8.1. We have analyzed this issue carefully. There is no doubt that after passing of the orig....
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....rious courts, and some of them have been discussed by us in f ollowings paragraphs. 8.2. In a matter that came up before Hon'ble Supreme Court in the case of Kiran Singh & Ors. v. Chaman Paswan & Ors., [1955] 1 5CR 117 the facts were that the appellant in that case had undervalued the suit at Rs. 2,950 and laid it in the court of the Subordinate Judge, Monghyr for recovery of possession of the suit lands and mesne profits. The suit was dismissed and on appeal it was confirmed. In the second appeal in the High Court the Registry raised the objection as to valuation under Section 11. The value of the appeal was fixed at Rs. 9,980. A contention then was raised by the plaintiff in the High Court that on account of the valuation fixed by the High Court the appeal against the decree of the court of the Subordinate Judge did not lie to the District Court, but to the High Court and on that account the decree of the District Court was a nullity. Alternatively, it was contended that it caused prejudice to the appellant. In considering that contention at page 121, a four Judge Bench of the Hon'ble Supreme Court speaking thorough Vankatarama Ayyar, J. held that: - 'lt is a fund....
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....in the case of Kiran Singh & Ors. v. Chaman Paswan & Ors, supra were reiterated by the Apex Court in the cases of Superintendent of Taxes vs Onkarmal Nathmal Trust (AIR 1975 SC 2065) and Dasa Muni Reddy v. Appa Rao (AIR 1974 SC 2089). In the first of these decisions it was pointed out that revenue statutes protect the public on the one hand and confer power upon the State on the other, and the fetter on the jurisdiction is one meant to protect the public on the broader ground of public policy and, therefore, jurisdiction to assess or reassess a person can never be waived or created by consent. This decision shows that the basic principle recognized in Kiran Singh (supra) is applicable even to revenue statutes such as the Income Tax Act. Dasa Muni Reddy (supra) is a judgment where the principle of 'coram non judice' was applied to rent control law. It was held that neither the rule of estoppel nor the principle of res ludicata can confer the Court jurisdiction where none exists. Here also the principle that was put into operation was that jurisdiction cannot be conferred by consent or agreement where it did not exist, nor can the lack of jurisdiction be waived. 8.6. These ....
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....sdiction to reopen the assessment and also after specifically discussing the judgment of the Supreme Court in Onkarmal Nathmal Trust (supra) and Dasa Muni Reddy (supra) held that the Tribunal was in error in holding that the question of jurisdiction became final when it passed the earlier remand order. It was held that neither the question of res judicata nor the rule of estoppel could be invoked where the jurisdiction of an authority was under challenge. According to Hon'ble Gujarat High Court, the rule of res judiccitci cannot be invoked where the question involved is the competence of the Court to assume jurisdiction, either pecuniary or territorial or over the subject matter of the dispute. Hon'ble High Court further held that since neither consent nor waiver can confer jurisdiction upon the Assessing Officer where it did not exist, no importance could be attached to the fact that the assessee, in the first round of proceedings, expressly gave up the plea against the erroneous assumption of jurisdiction by the assessing authority. According to the Hon'ble Court, the "finality or conclusiveness could only arise in respect of orders which are competent orders with jur....
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.... any penalty u/s. 158BFA(2) and therefore it is open to the assessee to set up the question of validity of the assessment in the appeal against the levy of penalty. 8.9. We also derive support from another judgement of Hon'ble Bombay High Court in the case of Inventors Industrial Corporation Ltd vs CIT 194 ITR 548 (Bombay) wherein it was held that assessee was entitled to challenge the jurisdiction of the AO to initiate re-assessment proceedings before the CIT(A) in the second round of proceedings, even though he had not raised it in earlier proceedings before the Assessing Officer or in the earlier appeal. 8.10. Thus, on the basis of aforesaid discussion we can safely hold that as per law, the assessee should be permitted to challenge the validity of order passed u/s 263 on the ground that the impugned assessment order was non est and we hold accordingly. .......... 10. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non-est assessment order: Having decided the aforesaid two issues, the next issue that is to be decided by us is a....
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....-10-2013 was null & void in the eyes of law as the same was passed upon a non -existing entity and, therefore, the Ld. CIT could not have assumed jurisdiction under the law to make revision of a non est order and, therefore, the impugned order passed u/s 263 by the Ld.CIT is also nullity in the eyes of law and therefore the same is hereby quashed. 12. Since we have quashed the impugned order passed u/s 263 by Ld. CIT on jurisdictional ground, we do not find it necessary to deal with, at this stage, other legal aspects and issues raised on merits of the impugned order." 27. We also find that similar view has been taken by Kolkata Bench of the Tribunal in the case of M/s. Classic Flour & Food Processing Pvt. Ltd., v. CIT (supra) wherein a question arouse as to whether the order u/s. 263 of the Act is bad in law for the reason that the proceedings u/s. 147 initiated itself was bad in law, the order u/s. 143(3) r.w.s. 147 of the Act was not maintainable since no assessment can be made by making rowing and fishing enquiry and an invalid assessment cannot not be set aside u/s. 263 of the Act. The Tribunal held as under: - "8. The first aspect which needs to be examined is as to whet....
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.... decisions, the principal decision being that of the Hon'ble Supreme Court in the case of Kiran Singh & Ors. V. Chaman Paswan & Ors. [1955] 1 SCR 117 wherein the Hon'ble Supreme Court observed as follows :- "It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties." 10. The ITAT Mumbai bench made a reference to another decision of the Hon'ble Supreme Court in the case of Sushil Kumar Mehta vs Gobind Ram Bohra, (1990) 1 SCC 193 and the decisions in the case of Indian Bank vs Manilal Govindji Khona (2015) 3 SCC 712. The ITAT Mumbai bench also held that if order of assessment passed u/s 147 of the Act was illegal and nullity in the eyes of law then that order cannot be revised by invoking powers u/s 263 of....
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....peal against the order u/s.147 of the Act, can it be challenged in the appeal against an order u/s 263 of the Act revising the invalid order u/s 147 of the Act. This issue has been analysed by the Hon'ble Mumbai Bench of the tribunal in the case of M/s. Westlife Development Ltd. (supra) and 147 proceedings has been equated to primary proceedings and the proceedings u/s 263 passed equated to collateral proceedings. It has further been held based on various judicial pronouncements of the Hon'ble Supreme Court that if the primary proceedings are non-est in law or void on the ground of lack of jurisdiction then the validity of such proceedings can be challenged even in an appeal arising out of collateral proceedings. We have already set out the ratio laid down in these decisions and we do not wish to repeat the same. Suffice it to say the law is well settled that invalidity of the primary proceedings for want of proper jurisdiction can be challenged even in appellate proceedings arising out of a collateral proceeding. In view of the aforesaid legal position we admit the additional grounds for adjudication." 28. The Delhi Bench of the Tribunal in the case of Supersonic Technologies Pvt....
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.... that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. All that PCIT has done in the impugned order is to refer to the Circular of the CBDT and conclude that "in the case of the Assessee company, the AO was duty bound to calculate and allow depreciation on the BOT in conformity of the CBDT Circular 9/2014 but the AO failed to do so. Therefore, the order of the AO is erroneous insofar as prejudicial to the interest of revenue". 11. In the considered view of the Court, this can hardly constitute the reasons required to be given by the PCIT to justify the exercise of jurisdiction under Section 263 of the Act. In the context of the present case if, as urged by the Revenue, the Assessee has wrongly claimed depreciation on assets like land and building, it was incumbent upon the PCIT to undertake an inquiry as regards which of the assets were purchased and installed by the Assessee out of its own funds during the AY in question and, which were those assets that were handed over to it by the DMRC. That basic exercise of determining to what extent the depreciation was claimed in excess has not been undertaken by the PCIT." 32. The Calcutta Be....
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.... speculative loss. It is observed that although the ld. Principal CIT in his impugned order passed under section 263 reproduced the submission made by the assessee, he did not give any finding or observation thereon and without arriving at any conclusion to show how the order of Assessing Officer was erroneous on the issue on merit, he simply set aside the same on the ground that the claim of the assessee was accepted by the Assessing Officer without making enquiries or verification, which should have been made by him. In this regard, he relied on Explanation 2 to section 263 inserted in the Statute by the Finance Act, 2015 w.e.f. 01.04.2015. As per the said Explanation, an order passed by the Assessing Officer shall be deemed to be erroneous in so far as prejudicial to the interest of the revenue for the purpose of section 263 if, in the opinion of the ld. Principal CIT or ld. CIT, the same is passed without making enquiries or verification, which should have been made. It is observed that in the case of Sterling Biotech Ltd.-vs.- Principal CIT 9ITA No. 2750/MUM/2015 dated 29.06.2016), Mumbai Bench of this Tribunal has already considered the effect of Explanation 2 to section 263.....
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.... be clear, un-ambiguous and not debatable and the matter cannot be remitted for a fresh decision to the Assessing Assessment Year: 2012-2013 Officer to conduct further enquiries. It was held that in such matters, to remand the matter/issue to the Assessing Officer would imply and mean that the ld. CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide this aspect/question. 33. As could be seen from the above, the Tribunal observed that the Pr.CIT in his impugned order passed u/s. 263 of the Act reproduced the submissions made by the assessee, he did not give any finding or observation thereon and without arriving at any conclusion to show how the order of the Assessing Officer was erroneous on the issue on merits he simply set-aside the same on the ground that the claim of the assessee was accepted by the Assessing Officer without making enquiries or verification which should have been made by him.. We also observe that the Tribunal also held that the CIT cannot remand matter to the Assessing Officer to decide whether the findings recorded are erroneous. We also observed from the Tribunal's order that the Hon'ble....