TaxTMI 
TaxTMI 
2017 (2) TMI 1484
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....ame was erroneous and prejudicial to the interest of Revenue, on the ground that the assessment was completed without proper enquiries on such issues. 1.2 That the CIT erred on facts and in law in exercising revisionary powers under section 263 of the Act without appreciating that the twin conditions in that section, viz, assessment order being (i) erroneous as well as (ii) prejudicial to the interest of Revenue, were not satisfied, in respect of each issue. 1.3 That the CIT erred on facts and in law in exceeding revisionary jurisdiction under section 263 by substituting his opinion with that of the assessing officer, formed after detailed examination / inquiries and proper application of mind at the time of passing assessment order under section 143(3) of the Act, which is not permissible in law. 1.4 That the CIT erred on facts and in law in exceeding revisionary jurisdiction under section 263 of the Act with respect to issues that are (i) debatable and, (ii) a possible view was formed by the assessing officer in respect of the same. 2 That the CTT erred on facts and in law in observing that total expenses on account of royalty and technical kno....
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....d in law in directing the assessing officer to revisit/re-examine the deductibility of depreciation, claimed under section 32. and deferred revenue expenses, claimed under section 35 of the Act, aggregating to Rs. 2,52,56,9447- on the ground that same are not allowable as deduction, without offering any reasons for such observation. 5.1 That the CIT erred on facts and in law in directing the assessing officer to re-examine whether computers, on which additional depreciation was claimed under section 32 of the Act, was covered under the head 'plant and machinery' or 'office appliances'." 3. Thought he assessee has raised in all five grounds however, they are raising an issue that the ld CIT erred in assuming jurisdiction u/s 263 of the Act with respect to five issues raised therein. 4. The brief facts of the case is that the assessee is a company engaged in manufacture and sale of motorcycle and spare filed its return of income on 28.10.2004 declaring income of Rs. 9800849030/-. Subsequently, the assessment u/s 143(3) of the Act was passed on 28.12.2006 at a total income of Rs. 10192782174/-. On examination of the records of the assessee the ld CIT iss....
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....ed vide Sl No. 8, which was replied by letter dated 23.11.2006 and the ld Assessing Officer has allowed the claim. The issue is further decided in favour of the assessee for AY 2006-07 and 2007-08 by ITAT. With respect to the double disallowance of depreciation, he submitted that the AO himself has allowed this relief to the assessee vide order dated 26.10.2009 passed u/s 143(3) read with Section 263 of the Act. With respect to additional depreciation on computers he submitted that the query was raised vide Sl. No. 9 of the query letter by AO to whom reply was supplied on 01.12.2006 and identical issue has been decided by ld DRP in AY 2006-07 in favour of the assessee. Therefore, his main contention was that issue has been examined during the course of assessment proceedings and thereafter, the ld Assessing Officer has decided the issue. Therefore, in all the issues there is no error in order of the ld Assessing Officer and it is also not prejudicial to the interest of the revenue. He further stated that in all the cases the ld Assessing Officer has made detailed enquiry and therefore, it cannot be said that there is no application of mind by making an enquiry or it is also the cas....
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.... vii. He further relied upon the decision of the Hon'ble Supreme Court in case of Transmission Corporation of AP Ltd Vs. CIT 239 ITR 587 and Toyota Motor Corporation Vs. CIT 306 ITR 52. viii. The ld DR further referred to the various paragraphs of the order of ld CIT to defend that order. 7. The ld AR in rejoinder submitted as under:- i. In the subsequent years the issue has been decided in favour of the assessee by the various stages of appellate authorities therefore it cannot be said that the treatment given by the Assessing Officer to various issues is erroneous. He relied on the decision of the Hon'ble Supreme Court in case of CIT Vs. Max India 295 ITR 282. He further referred to page No. 129 of the decision of the Hon'ble Punjab and Haryana High Court in case of CIT Vs. Max India wherein it was argued by the revenue that on the basis of subsequent decision of the tribunal it could not be said that the view taken by the Assessing Officer was a possible view. ii. He further referred to the decision of Hon'ble Bombay High Court in CIT Vs. Gabriel India Ltd. 203 ITR 108 (Bombay) to contend that when the AO has made disallowance on the es....
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....dicial to the interest of the revenue or not. 9. With respect to royalty, technical guidance fees when the Learned assessing officer is disallowed 25% of the expenditure as capital expenditure, the issue is examined as under:- a) the ld Assessing Officer has raised the query on 19.09.2006 by item No. 7 asking details of royalty, technical know-how, technical guidance fees, initial fees for new model paid to Honda Motor Co. LTD with the copy of agreement and related computation. It was further asked to explain how these are accounted for while determining the income and if these are claimed as revenue expenses why these are to be allowed. In response to this the assessee submitted letter dated 23.11.2006 wherein, vide Sl No. 2 the assessee has replied to this query as under:- 2. Point No. 7 and 10: Details of Royalty, Technical guidance fees and Know how fees for new models paid to Honda Motor Company Ltd, is attached at Annexure II. All these amounts have been claimed as revenue expenditure u/s 37(1) of the Income-tax Act, 1961. Regarding allowability of these expenses as revenue, ii is submitted as under; Technical Guidance Fee is being paid @ us $ 65....
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....fied territory. The assessee during the currency of the agreement only had a limited right to use the technology of Honda. The ownership/proprietary rights in Mie technical know-how continued to vest in Honda and the assessee was not authorized to transfer, assign or convey the know-how/technical information to any third party and. therefore, the assessee acquired a limited right to use exploit the know-how. The expenditure on model fee and royalty, it is respectfully submitted, did not result in acquisition of any capital asset or a benefit of enduring nature. The same would be clear on perusal of the rights obtained by the assessee under the aforesaid agreement. Your honour's kind attention is invited to the following clauses of the agreement in support of the aforesaid : Article 2 provides for the grant of an indivisible, non transferable and exclusive right and license by Honda to the assessee to manufacture, assemble, sell and distribute the products and the pails within,-the territory under the Intellectual Property Rights and by using the Technical information provided by Honda. Article 20 provides that the assessee shall, in accord....
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.... terminated after giving notice to the other party in case there is any default. Article 33.3 provides that in the event of termination of this agreement the assessee shall promptly discontinue (i) use of the Trademarks licensed by Honda (ii) return all documents and tangible property supplied by Honda under the agreement and keep all information received by Licensee hereunder secret and confidential. Having regard to the various clauses of the agreement as indicated in the preceding paras, it would be appreciated that the model fee and royalty payable to Honda is only for the purpose of use of technical assistance in the manufacture and sale of products and the assessee has not acquired any capital asset resulting in an enduring benefit so as to consider any part of the said expenditure to be as capita! expenditure. It will be appreciated that in the case of acquisition of the technical, know-how, etc., the acquirer is free to use the rights acquired in the manner he likes and has the right to dispose of such rights. There are no restrictions or obligations on the acquirer as to secrecy, disposal, inspection of facilities, returning the technical k....
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....nagement and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though i.e. advantage may endure of an indefinite future. In CIT vs. British India Corp. Ltd. 1987 165 ITR 51, the Supreme Court held that a lump sum payment made to a distributor nominated by the foreign collaborator of the assesses as a condition of an agreement which entitled the assessee to the benefit of using the trade marks and special processes of the collaborator to be revenue expenditure. The Supreme Court reiterated the same view in the case of Alembic Chemical Works Co. Ltd. v. CIT: 177 ITR 377. The Court in that case observed that the limitation placed in the agreement on the rights of the appellant in dealing with the know-how and the condition as to the non-partibility, confidentiality and secrecy of the know-how pertained more to (he use of the know-how than to its exclusive acquisition. The Court further observed that "it would be unrealistic to ignore the rapid advances in research in antibiotic medical microbiology and to attribute a degree of endurabilit....
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....he payment is mode only for obtaining access to information which does not become its own the payment cannot be elevated to the nature of payment (if capital nature. The same view has been reiterated by the Delhi High Court in the following cases: > Triveni Engineering Works Ltd. v. CIT 136 ITR 340 (Del) > Acted.CIT v. Sharma Engine Valves Ltd. 138 ITR 216 (Del) > CIT v. Bhai Sunder Dass & Sons Ltd. 158 ITR 195 (Del) In the case of CIT vs. Ohlum Electrical Industries (P.) Ltd. [127 ITR 409f before the AP High Court the assessee paid a certain royalty on net .vales effected by the exploitation of a technical know how patent for which a license wax granted for 14 years on a non- exclusive basis without the right of granting any sub licence. It wax held that the royalty payment wax deductible revenue expenditure as it was linked with turnover. In (he cave of CIT w. Gujarat Carbon ltd 1254 ITR 294} before the Gujarat High Court, royalty paid by the assessee to the collaborator wax based on sales, in return for service rendered by collaborator, and on factory price for supply of information of clay today development in range' of ....
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....ow-how during the currency of the agreement, the payment made under the agreement could be deductible as revenue expenditure The other High Courts in the country, loo. have taken a similar view in the under noted cases; CIT v. Tata Engg. & Locomotive Co. Pvl. Ltd. 123 ITR 538 (Bom,) CIT v. Avery India Ltd. 207 ITR 813 (Cat) Bajaj Tempo Ltd. v. C/T 207 ITR 1017 (Bom) CIT v. Madras Rubber Factory ltd. 212 ITR 443 (Mad). The Delhi Bench of the Tribunal (TM) in the case of Goodyear India Ltd. vs. /TO : 73 ITD 189 (Del) (TM) observed as under: "In the present case, the assessee obtained right to use the technical know-how for manufacturing of Radial Tyres, which was meant for improvisation in the process and technology far manufacture of tyres. It was on part of the existing line of business. The Agreement provided the conditions as to non transferability to others without the permission of the foreign company. it also contained clauses' relating to confidentiality and secrecy of the know-how, it contained prohibition for user of the know-how upon termination of the Agreement. It only provided a l....
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....ubmitted that no part of the royalty and mode fee paid to Honda can be considered as capital expenditure and the same is allowable in full. Without prejudice to the above, it is submitted that, in view of model fee being held as capital expenditure eligible to deduction u/s 32 in some of the past years , the assessee should be allowed deduction of depreciation in rcspcd ofbroujilit forward written down value of model fee. For this purpose, we are attaching herewith calculation of deduction of depreciation on know how fee like in last year. The amount of deduction so allowable comes to Rs. 4,58,38,627. The detail is attached at Annexure- VI b) The ld Assessing Officer has dealt with this issue vide para No. 2 of his order as under:- "2. Royalty 2.1 During the relevant year, the assessee company M/s Hero Honda Motors Ltd. ("HHML'3 had paid Rs. 896439331/- as royalty and Rs. S934922/- as technical guidance fee totaling Rs. 900374253/- to its Joint Venture partner M/s. Honda Motors Co. Ltd., Japan ("Honda"). An amount of Rs. 220878278/- was also paid as Model Fees in pursuance to the License and Technical Assistance Agreement. The assessee was as....
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....earch and development at their end. 2. The model developed by licensor has been patented. The dictionary meaning of Patent is a grant made by a designated regulated authority that confers upon the creator of an invention the sole right to make, use and sell that invention for a set period of time. 3. The licensor has the Intellectual Property Right over the said developed model. For clarification, the meaning of Intellectual Property is a product of the intellect that has commercial value, including copyrighted property such as literary or artistic works, and ideational property, such as patents, appellations of origin, business methods, and industrial processes. 4. The licensor has transferred this Intellectual Property Right to licensee (assessee company) 5. The patent over the now developed project has also been transferred to licensee. 6. Over and above the transfer of the right of Intellectual Property right and Patent, the licensor has also agreed to set up manufacturing facilities for the licensee. 7. Other rights, exclusively handed over to the licensee inter alia are (a) know-how and technical information and a....
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....acceptable and hereby rejected. Moreover, it was seen in the assessment order for AY 2003-04 that the facts of the case are similar to the case of M/s Southern Switch Gears Ltd. Vs. CIT 232 ITR 359. In that case, the Supreme Court had affirmed the decision of the Madras High Court in the said case ("SSL"), wherein part of the royalty and technical know paid to its foreign collaborator as per Collaboration Agreement, to the extend of 25% was treated as Capital Expenditure. In this backdrop, the facts of the case of the assessee are discussed as under: 1) HHML was set up on 19th January 1984 as a joint venture between the Hero Group and Honda, Japan. The Technical collaboration Agreement (License & Technical Assistance Agreement) is dt. 24/01/1984, formalized just 5 days after inception. Thus the technical assistance contemplated in that agreement covered the setting of the factory / and the operation thereof for the manufacture of products as in the case of SSL. The entire apparatus set up for manufacture of 'models' has been provided by Honda exclusively to the assessee, HHML. 2) On expiring of the former agreement dt. 24/01/84 (effective dt 21/06/1984), i....
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....Honda. Though, it is correct that the services provided by the Honda also have a component of revenue nature as it is providing day to day technical services to the assessee also. However, as discussed above, the rights and benefits received by the assesses like setting up the manufacturing facility and getting further technical information on the models developed by the Honda, for which royalty is paid are enduring in nature and therefore, this capital component of royalty is not allowable as revenue expenditure. Therefore, for the acquisition f such rights as discussed above, royalty paid by die assessee may be treated partly to card capital and partly towards the revenue. The Hon'ble Supreme Court in die case of Southern Switch Gear Ltd. vs. CIT reported in 232 ITR 359 (SC) and Hon'ble Madras High-Court in same case reported in 148 ITR 272 held that 25$. of such royalty expenses constitutes capital expenditure as it gives to the assessee a benefit which is of enduring nature and thereby constituting a capital asset. Following the same judgment, 25% of total royalty and technical guidance fee totaling Rs. 900374253/- which come to Rs. 225093565/- are treated as b....
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....y the second and the third supplementary agreements. These agreements were valid for a period of ten years. The respondent-assessee and Honda thereupon entered into another agreement dated June 2, 1995, called "licence and technical assistance agreement" and we are concerned in the present appeals with the payments made under the said agreement and the question raised is whether royalty paid under the said agreement to Honda is wholly or partly capital expenditure. Another contention raised by the Revenue is that the model fee, which was separately payable under the agreement dated June 2, 1995, was capital expenditure. The third contention raised by the Revenue relates to the payment of technical guidance fee and whether the same was capital expenditure. The last two items arise for consideration in the assessment year 2000-01 but these aspects have not been raised in the appeals preferred for the assessment years 2001-02 and 2002-03. 3. Before we critically examine the relevant clauses of the "licence and technical assistance agreement" dated June 2, 1995, it would be punctilious to elucidate the difference between capital and revenue expenditure with reference to acquis....
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....cquire technical information and know-how in capital or revenue field was elucidated by the Supreme Court in CIT v. Ciba of India Ltd. [1968] 69 ITR 692 (SC). This judgment pronounced on December 15, 1967, is incessantly cited and applied to decide this question/issue. In the said case, the assessee-company had procured know-how in the form of processes, formulae, scientific data, working, prescription and other intellectual property rights developed by a Swiss company, to produce licensed preparations and to promote their sale in India. In spite of the fact that the Swiss company had granted to the Indian assessee "full and sole right and licence" in the territory of India under the patents listed in schedule I, to make use, exercise and vend the inventions referred to therein and to use the trade marks set out in schedule II in the territory of India, the Supreme Court held that what was conferred was a mere right to use. The Indian assessee, it was observed, was not entitled to exclusive rights to patents, trade marks, etc. As per the agreement, proprietary information was not to be divulged to third parties without consent. The rights granted enabled access to the technical kno....
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.... will be only payment of revenue nature. Similarly, whether the payment was lump sum or periodical cannot by itself in the absence of other facts, help decide whether the agreement was for acquisition of a capital asset or an enduring advantage. But the nature and character of the asset acquired, whether it is permanent or everlasting or merely enables an assessee to run its business more efficiently, is determinative. In the said case, technical knowledge was made available without absolute acquisition of any knowledge or asset and, therefore, the payment, it was held, was revenue in nature. In Triveni Engineering Works Ltd. v. CIT [1982] 136 ITR 340 (Delhi), the Indian assessee was a public limited company manufacturing turbines and other machinery. It had made payments in connection with obtaining the technical know-how, services for manufacture of turbines and sugar mill machinery for 10 years, which were partly treated as revenue expenditure in one year and partly carried forward for two years, and then written off in three years. The Revenue contested the said claim on the ground that the expenditure was of capital nature. The High Court observed that the test to be ....
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....Delhi) wherein referring to a circular, it was observed that if a licence was acquired for use of technical know-how for a limited period, the payment would not bring into existence an asset of enduring nature. In this decision, reference was made to the decision of the Supreme Court in Jonas Woodhead and Sons (India) Ltd. v. CIT [1997] 224 ITR 342 (SC), wherein it has been held that the answer to the question whether a particular payment was wholly or partly capital or revenue expenditure, would depend upon several factors like, whether the assessee had obtained a completely new plant with completely new process and technology ; whether the expenditure was for acquiring technical know-how for betterment of the product which were already being produced ; is it a case of improvisation and part and parcel of the existing business or a new business ; whether the assessee after the expiry of a specified period was required to return plans and designs but could continue to manufacture the product in the factories which had been set up. The cumulative effect on a construction of various terms and conditions of the agreement must be considered. Similar reasoning can be found in Shriram Pi....
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.... the licensee is required to return back the plans and designs obtained under the licence to the licensor even though the licensee may continue to manufacture the product, in respect of, which 'access' to knowledge was obtained dur ing the subsistence of the licence. (f) whether any secret or process of manufacture was sold by the licensor to the licensee. Expenditure on obtaining access to such secret process would ordinarily be construed as capital in nature ; (vi) the fact that assessee could use the technical knowledge obtained during the tenure of the licence for the purposes of its busi ness after the agreement has expired, and in that sense, resulting in an enduring advantage, has been categorically rejected by the courts. The courts have held that this, by itself, cannot be decisive because knowledge by itself may last for a long period even though due to rapid change of technology and huge strides made in the field of sci ence, the knowledge may with passage of time become obsolete." The said decision makes a reference to the decision of the Bombay High Court in CIT v. Tata Engineering and Locomotive Co. P. Ltd. [1980] 123 ITR 538 (....
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.... the assessee had entered into a collaboration agreement for providing of technical know-how for setting up of a factory and operation thereof. The foreign company had agreed not to manufacture products in India or give right to a third person to do the same. Referring to the clauses of the agreement, the High Court held that technical knowledge so secured had resulted in an enduring advantage and benefit, as the same was available even after termination of the agreement since the factory and its operation would have continued. The duration of the agreement was 5 years but the method, production, procedure, etc., would remain with the Indian assessee and, therefore, an enduring benefit/advantage was acquired. There was also conferment of exclusive right to manufacture and sell the articles, which was an independent right secured and was of an enduring nature. Accordingly, 25 per cent. of the royalty paid was disallowed as capital expenditure. Noticeably, it was observed that the entire royalty was for acquisition of the exclusive privilege to manufacture and sell the products and, therefore, it was partly capital and partly revenue in nature. The aforesaid decision was upheld by th....
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.... in any part or entirety of the product, including but not limited to appearance, structure, characteristics or specifications and in each case was subject to a new model agreement. The agreement specifically recorded that the respondent-assessee was already engaged in the business of manufacturing, assembling, selling and otherwise dealing with two/three wheelers and their parts as a joint venture. It referred to the earlier collaboration agreement dated January 24, 1984, and the subsequent amendment thereto which conferred and had granted to the respondent-assessee a right and licence to manufacture, assemble, sell, distribute, repair and service two/ three wheelers. The other terms of the agreement were : Rights and licences granted by the licensor to the respondent- assessee were exclusive, indivisible and non-transferable, without the right to grant sub-licenses to manufacture, assemble, sell and distribute the product or parts thereof. The rights and duties under the agreement were not assignable or delegatable, directly or indirectly. The aforesaid licence was for the term of the agreement, i.e., 10 years from the effective date of June 21, 1994. ....
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....se of manufacture, assembly, repair and servicing, subject to obtaining a "written promise" from the approved sub-contrac tors to treat all information as secret and confidential. The aforesaid rights and obligations were to persist even on the expiration or termination of the agreement. The respondent-assessee was not to use or cause or permit use by any third party, intellectual property right or technical information pro vided under the agreement. The respondent-assessee was not to claim any title or property right whatsoever during the existence of the agreement. Upon termination as a result of default of the respondent-assessee, no such right, title, pro perty or interest whatsoever could be claimed. There were stipulations in case the respondent-assessee became aware or had knowledge of any infringement or illegal use of intellectual property right of Honda in India by a third party. The respondent was to submit monthly written report in the designated form to Honda regarding manufacture, sale and inventory and/ or sale of parts or products. Honda was entitled to have access to books of account, financial statements and records, to....
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....was not exactly new. Manufacture and sales had already commenced under the agreement dated January 24, 1984. After the expiry of the first agreement, the second agreement dated June 2, 1995, ensured continuity in manufacture, development, production and sale. The period of the agreement, 10 years in the present case, would be inconsequential for the agreement merely permitted and allowed use of technology subject to payment of royalty and compliances and the proprietorship and ownership right was never granted or transferred. The factum that after 10 years and after returning the tangible properties, the respondent-assessee could still have continued to use the technical know-how and information would be a trivial and inconsequential factum as in the automobile industry, technology upgradation is constant and rapid. Gone are the days when one or two manufacturers enjoyed monopoly rights and there was a long and indeterminate wait and queue for purchase of out-of-date models. Technical upgradation and state-of-the-art know-how is injected every year in the automobile industry. Failure to keep up and upgrade would result in product rejection and fall in sales. Persistent upgradation ....
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....esent appeal for this ground and reason, as the High Court orders do not set out and indicate any ground or reason. We do not comment or express an opinion on whether the High Court under section 260A of the Act can at the time of hearing, frame any additional question of law. We also reject the contention of the respondent-assessee with reference to the power of the Commissioner under section 263 of the Act relating to the assessment year 2001-02. In the impugned order, the Tribunal on the said question held : "Learned counsel has made clear case that in the assessment year 2001-02, section 263 appeal before hon'ble Delhi High Court was not pressed by the assessee and the hon'ble High Court passed the order to the effect that the issue will be open for consideration in other years. In our view, the view adopted by the Assessing Officer allow ing the model fee and TGF expenses being a correct view, there was no error in passing the original assessment order. Therefore, section 263 action in the assessment year 2002-03 is quashed. Since we have quashed section 263 order passed by the Commissioner of Income- tax, subsequent proceedings, i.e., the Assessing O....
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....nced by both the parties. It has consistently been held that if the AO's conclusion is arrived at after due application of mind on a particular issue, then the order cannot be said to be erroneous. 'Due application of mind' implies that if the assessee has merely responded to the AO's query and the AO, without proper verification of replies, accepts the same, then, it cannot be said to be a case of due application of mind. 28.1 Ld. Special counsel has rightly pointed out that the expression, 'inquiry', 'lack of inquiry' and 'inadequate inquiry', have not been defined and, therefore, when the action of the AO would be suggestive of lack of inquiry or inadequate inquiry, will depend upon the facts obtaining in a particular case. What emerges as a broad principle from the various decisions is that where the AO has reached a rational conclusion, based on his inquiries and material on record, the Commissioner should not start the matter afresh in a way as to question the manner of his conducting inquiries. It is not the province of the Commissioner to enter into the merits of evidence; it has only to see whether the requirements of essent....
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....e decision of the coordinate bench is not proper. i) Therefore, on this disallowance we do not agree with the order of ld CIT to hold that 75% of amount of expenditure allowed by the AO is erroneous and prejudicial to the interest of the revenue. Furthermore, the ld CIT has set aside the issue to the file of Assessing Officer to carry out the full enquiries in the matter. It is also contrary to the principal laid down by the Hon'ble Delhi High Court in CIT Vs. Jyoti Foundation and DG Housing (supra). It can also be not said that there is lack of enquiry on the aspect of allowability of expenditure. The ld Assessing Officer himself raised the query with respect to the allowability of the above expenditure is revenue expenditure, considered the reply of the assessee, thereafter relying on the decision of the Hon'ble Supreme Court and decision of the Hon'ble High Court has reached at a conclusion that 25% of the expenditure is capital in nature. Therefore the Ld. assessing officer has examined the expenditure with reference to capital expenditure versus revenue expenditure and its allowability vis a vis quantum also. Therefore, it cannot be said that the view take....
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....(l)(c) have been initiated separately." 11. The issue of allowability of the model fee has also been examined by the Hon'ble high court in case of the assessee wherein it has been held to be revenue in nature and fully liable to the assessee. 12. During the course of assessment proceedings the Ld. assessing officer has raised the adequate queries on this point which was also replied by the assessee therefore we are not inclined to hold that it is also a case of Lack of Inquiry. 13. Therefore for similar reasons given by us on the issue of royalty and technical guidance fees for this ground also we are not inclined to uphold the order of the Ld. CIT holding that the order of the Ld. Assessing officer is erroneous and prejudicial to the interest of revenue. 14. Coming to the issue of export commission where the Ld. CIT has noted that the assessee has debited a sum of Rs. 5 723 7951/- to the profit and loss account and export commission without deducting tax at source. The claim of the assessee is that that this issue has been examined by the Ld. assessing officer and evidence of the same is very letter dated 19/9/2006 in reply dated 23/11/2006 on this basis the AO having ....
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....ous, the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the Ld Pr. CIT has failed to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with the mandate of the provisions of sec. 263 of the Act. The Ld Pr. CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of the Act. Even though there is a doubt as to whether the said explanation, which was inserted by Finance Act 2015 w.e.f. 1.4.2015, would be applicable to the year under consideration, yet we are of the view that the said Explanation cannot be said to have over ridden the law interpreted by Hon'ble Delhi High Court, referred above. If that be the case, then the Ld Pr. CIT can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the AO to conduct the enquiries in the manner preferred by Ld Pr. CIT, thus prejudicing the independent application ....
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....xample, the amendment to Section 263 by the Finance Act, 1961. In many judicial precedents, [such as in the case of CIT Vs Sunbeam Auto Limited (332 ITR 167) wherein it was held that "Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open"], it was reiterated that it was only the lack, not the adequacy, of inquiry which could confer jurisdiction under section 263 on the Commissioner. By inserting Explanation 2 to Section 263(1), which inter alia provided that powers under section 263 could also be invoked in the cases where "the order is passed without making inquiries or verification which should have been made", all ratio of all these decisions was nullified. That, however, is done with prospective effect, i.e. with effect from 1st June 2015. As a matter of fact, it is a laudable policy of the present tax administ....
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....ment is applicable prospectively. In any way we would like to also say that whether the order passed by the Ld. assessing officer is without making Inquiries or verification which should have been made. In the present case vide letter dated 23/11/2006 by wild point No. 8 the assessee has explained before the assessing officer that export commission of Rs. 5 723 7951/- was paid to M/s Honda motor Co Ltd Japan at the rate of 5% of the free on-board value of export sales made under an agreement dated 20th may 2000. Along with this the assessee enclosed the copy of the agreement to the assessing officer. It was further stated that export commission is being paid to Honda motor Co Japan for services rendered in connection with export outside India. It was also submitted that since the services are rendered outside India no income accrues or arises in India on account of export commission being paid for such services and therefore no tax is deductible at source. Furthermore assessee relied upon the circular No. 23 dated 23/07/1969 and circular No. 786 dated 7/2/2000 with respect to tax withholding on the issue of export commission for services rendered outside India. The assessee further....