TaxTMI 
TaxTMI 
2020 (2) TMI 247
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....3 of the Act was of the view that the aforesaid order dated 27.9.2016 passed by the AO was erroneous and prejudicial to the interests of the revenue for the following reasons:- "1. On verification of assessment record it was noticed that the assessee had debited Rs. 2,15,89,831/- towards Service Tax input receivable written off in the P&L account/Notc- 20/Other Expenses. However, the service tax receipts and expenditure were not routed through the P&L account. The same are maintained in a separate ledger account and therefore. does not qualify as an admissible expenditure. 3. The AO has failed to conduct adequate enquiries regarding the above issue and has failed to bring to tax the correct income while completing the assessment U/s 143(3). Therefore, action u/s.263 is warranted and the assessment for the A.Y.2014-15 was proposed to be revised according1y." 4. In reply to the aforesaid show cause notice of the Pr.CIT, the assessee filed reply pointing out that the Assessee was engaged in the business of development of software services. These software development services are provided to its Holding company MetricStream Inc, USA. During the financial year relev....
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....f section 37 r.w.s. 145 of the Act. In this regard the assessee relied on the following cases laws. TVC Sky Shop Ltd vs. DCIT ITA No. 7907/Mum/2011 (I TAT. Mumbai) (A.Y2008-09) NCS Distilleries Pvt. Ltd v ITO ITA No. 699/Hyd/2012 (ITAT, Hyderabad) 7. Without prejudice to the above contention, the Assessee contended that the service tax input credit written off is also allowable as a 'business loss' under section 28 itself in computing the business income for the year under consideration. The write off of service tax input credit which was already paid by the Assessee and would amount amount to business loss and hence was allowable in computing the business income. The contention that write off of service tax input credit amounting to Rs. 2,15,89,831 does not qualify as an admissible expenditure is therefore incorrect. 8. Besides the above, the assessee also submitted that the condition precedent for exercise of jurisdiction u/s. 263 of the Act by the Pr.CIT was not present in the case of assessee. In this regard, the assessee pointed out that AO before concluding the assessment has issued a notice u/s. 143(2) of the Act dated 29.8.2015 and in respons....
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....ce tax in the absence of any adjustment for the same with the output service tax liability of the company. Therefore, the amount has been held as allowable as it is not adjustable against any liability of the assessee or refundable by the Service Tax Department. However, the facts and circumstances of the present case are entirely different and the assessee is entitled to refund from Service tax department. It is admitted that this refund of Rs. 2,04,68,882 has been received in the A.Y.2017-18 as per its letter dated 28.03.2018. In view of the above the case law cited by the assessee is not avail to the assessee. In the case of NCS Distilleries Pvt. Ltd v ITO the service tax is allowed on the ground that the relevant company has closed down its manufacturing unit and consequently the benefit of the CENVAT credit remained un-adjusted. In the present case the assessee is a goi11g concern and not stopped its activities in the year under consideration. Therefore, this case law also not help the assessee's case. Since the assessee has not debited the service tax paid to Profit & Loss account and the assessee has alternate remedy to get refund of the entire service ....
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....ion u/s. 263 of the Act was not required to be exercised. He also relied on the decision of Hon'ble Supreme Court in the case of Malabar Industrial Company Ltd. v. CIT 243 ITR 83 (SC) for the proposition that two conditions are required to be satisfied for invoking jurisdiction u/s. 263 of the Act viz., the order sought to be revised must be erroneous and also prejudicial to the interests of revenue. He also submitted that the jurisdiction u/s. 263 of the Act should be exercised only when the orders challenged are unsustainable in law. 15. On merits of the issue which was subject matter of the order u/s. 263 of the Act, the ld. counsel for the assessee placed reliance on the decision of ITAT Delhi Bench in the case of Maruti Suzuki (I) Ltd. v. ACIT [2015] 60 taxmann.com 411 wherein the Delhi ITAT has dealt with the unutilised balance of excise duty under PLA in the context of provisions of section 43B and section 145A of the Act and the ratio laid down therein is in favour of assessee. 16. The ld. DR relied on the order of Pr.CIT and highlighted the fact that this aspect of service tax input receivable written off was not specifically enquired into by the AO before conclud....
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....ies on this aspect while concluding the original Assessment. From the notice issued u/s.143(2) and 142(1) of the Act, we do not find any query having been raised by the AO on how service tax input written off was an expenditure which can be claimed while computing income from business. The ld. Counsel for the assessee could not substantiate before us as to how the AO made enquiries on this issue before concluding the assessment, except by pointing out that all facts were laid before the AO and it can be presumed that he had taken note of this aspect while concluding the assessment. The fact that the AO himself initiated proceedings u/s.154 of the Act to rectify error apparent on record on the aspect of having allowed service tax input written off as a deduction goes to show that he had while completing the Assessment not enquired or was not conscious of the merits of the claim for deduction of the aforesaid sum while computing income. The law is well settled that if there is a failure on the part of AO to make an enquiry on the issue which calls for an enquiry, that by itself will render the order of assessment erroneous and prejudicial to the interests of the revenue. It has be....
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....interests of the Revenue." What is the meaning of "erroneous" in this context? It was argued for the assessee by Shri G. C. Sharma that the word "erroneous" means that the order must appear to be wrong on the face of it. In other words, he equated the "error" with "error of law apparent on the face of record" which is a well-known ground for the review of a quasi-judicial order by this Court under Article 226. We are unable to agree with this interpretation. The intention of the legislature was to give a wide power to the Commissioner. He may consider the order of the Income Tax Officer as erroneous not only because it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereo-typed order which simply accepts what the assessed has stated in his return and fails to make inquiries which are called for in the circumstances of the case. Shri Sharma's contention that this would give the Commissioner the power to revise the order of the Income Tax Officer merely on the ground of suspicion is. untenable in view of the following two Supreme Court decisions which have already construed the old Section 33B contrary to Shri Sh....
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....iness, the investments, etc., without any inquiry or evidence whatsoever and that the order of assessment was erroneous and prejudicial to the interests of the Revenue. The High Court held that there were materials to justify the Commissioner's finding that the order of assessment was erroneous insofar as it was prejudicial to the interests of the Revenue. Shri Sharma tried to distinguish this decision on the ground that the address of the assessed in that case was given incorrectly. The decision of the High Court and that of the Supreme Court were not, however, based on that ground at all. On the contrary, the Supreme Court followed their previous decision in Rampyari Devi's case and upheld the decision of the High Court precisely on the same grounds. These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income Tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income Tax Officer should have made further inquiries before accepting the statements made by the assessed in his return. (14) The reason is obvious. ....
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....tion 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person." 22. We are of the view that we need not examine the arguments of the learned counsel for the Assessee in this regard because Explnation-2 is only a deeming provision and if on facts it is found that the AO did not make any enquiries before concluding the assessment on the question whether service tax input written off can be allowed as a deduction in computing income from....