2014 (12) TMI 1370

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....Without prejudice to Ground I GROUND II 1. On the facts and circumstances of the case and in law, the CIT erred in directing the AO to disallow the claim for deduction under section 35D in respect of amortization of expenditure incurred on initial public offer of Equity Shares amounting to Rs. 3.28 crores (being one fifth of the total expenditure of Rs. 16.39 crores) on the ground that the Appellant is not an industrial undertaking. 2. The Appellant prays that it be held that on the facts and circumstances, invoking section 263 for directing such disallowance is not in accordance with law and that disallowance of the claim for deduction under section 35D is not called for. GROUND III The appellant craves leave to add, amend, alter and/or delete any/all of the above grounds of appeal". 2. The facts are that the assessee is a bank and in the banking business. In its computation of income, the assessee bank, amongst other claims, claimed an allowance of Rs. 3,27,82,000/-, being 1/5th of the expense claimed as deduction under section 35D, on the total expense incurred on the issue on IPO. The assessment was framed under section 143(3) on ....

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.... section 35D vide his order sheet noting on 12.10.2009 (copy supplied by the assessee). The assessee vide letter dated 26.10.2009, gave specific submissions on the issue raised by the AO. 6. While passing the order, the AO, however, did not mention about the query raised in the assessment order. 7. On this lapse, the CIT, initiated revision proceedings under section 263. 8. Before us, the AR submitted that the issue is viability of proceedings under section 263. In the process of arguments, the AR very fairly submitted that in the preceding year, the action of the CIT in initiation of proceedings under section 263 was sustained as there was no enquiry done by the AO. But here in the instant case, in the instant year, the AO had made all enquiries and relevant replies had been given. On the basis of question raised and the answer given by the assessee, the AO having got satisfied, did not mention the issue in the assessment order. 9. The AR also submitted that in any case the issue of allowability of 1/5th expense under section 35D in case of the assessee in the preceding year has been admitted by the Hon'ble Bombay High Court under section 260A. 10. On this backgroun....

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.... all or any of the relevant aspects of assessment in his order, where he even agrees with the assessee's claim. But incorporating such relevant aspects in the assessment order is discretionary and not mandatory. "If a view is taken that an assessment order must contain each and every aspect examined by him during the course of assessment proceedings with the reasons as to why he agrees or disagrees with the assessee, then the assessment order would become needlessly large. So long as there is material on record to indicate that the AO did enquire into all the relevant aspects of the assessment, it cannot be considered as a case of lack of enquiry empowering the CIT to exercise jurisdiction under section 263. If we simply go by non-mentioning of a particular issue in the assessment order as a mark of non-application of mind by the A.O., then probably every assessment order would fall within the domain of an "erroneous order". The crux of the matter is that where the Assessing Officer applied his mind, which is evident from the enquiry conducted by him during the course of assessment proceedings, the assessment order cannot be branded as erroneous due to non-application of mind merel....

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.... of mind. The phrase 'prejudicial to the interest of the revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the ITO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase 'prejudicial to the interest of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopts one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the ITO is unsustainable in law. It has been held b....

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....ither side, the issue before us is legality of initiation of proceedings under section 263 and consequent passing of the order under section 263. 19. The section starts from the wordings, "The Commissioner may call for and examine the record of any proceeding under the Act ...". Here we have to make a distinction between record and order, because, both these terms have distinct connotations. An order is the mind of the AO/Officer to incorporate or not to incorporate any point in the order, whereas the record forms the basis for formation and construction of the order. It is the record of the case, from which, one can ascertain, as to whether the AO had conducted adequate enquiry to form a legally correct inference. It is, then upto the AO/revenue authorities to incorporate his inference drawn in the order. 20. We entirely agree with the decision of the coordinate Bench in the case of Reliance Communication Ltd (supra), wherein, it has been observed, "If a view is taken that an assessment order must contain each and every aspect examined by him during the course of assessment proceedings with the reasons as to why he agrees or disagrees with the assessee, then the ass....