TaxTMI 
TaxTMI 
2016 (11) TMI 1700
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....far prejudicial to the interest of Revenue. 3. Brief facts are that assessee in the present case is a Limited Company and engaged in manufacturing of cement, tyre, viscose filament, rayon yarn, transparent paper, cast iron spun pipe and certain chemicals. The assessee for the year under consideration filed its return of income on 30.09.2011 declaring total loss of Rs.369,67,31,212/- under the normal provision of the Act and book loss of Rs.960071348/- under the provision of Minimum Alternate Tax (MAT for short). Subsequently, case was selected for scrutiny under the CASS module. Accordingly, notice was issued u/s 143(2)/142(1) of the Act. The assessment was framed u/s. 143(3) of the Act at a total loss of Rs.3629585781/- after making several disallowances / additions to the total income of assessee. Thereafter on examination of assessment records, Ld. CIT u/s. 263 of the Act observed certain defects in the assessment order passed by Assessing Officer u/s. 143(3) of the Act, which are enumerated below:- 1) As per audited financial statement there was an addition of Rs.534,90,34,744/- in the fixed asset schedule of assessee. However, as per the depreciation schedule of tax audit r....
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....change not Adjusted in Tax Audit Report 21,792,210 (as per clause 13(d) of Tax Audit Report) Difference due to addition to freehold Land & 329,944 Livestock (not included in the depreciable block of Assets in Tax Audit Report) It was further submitted that the effect on account of foreign exchange fluctuation in relation to capital goods imported was not given in tax audit report in pursuance to provisions of Sec. 43A of the Act. The difference was also arising on account of freehold land and livestock of Rs. 3,29,944.00 which was shown in the audited financial statement but the same was not shown in the depreciation schedule attached along with the tax audit report as these items were non depreciable assets. b) The assessee submitted that it has already disallowed a sum of Rs.1,16,731/- suo moto under the provision of Sec. 14A of the Act. The investment was not made out of the borrowed fund, therefore, there is no question for making the disallowance on account of interest expense claimed in profit and loss a/c of assessee. c) The assessee submitted that it has been providing certain disc....
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....tion now, which had neither been examined nor considered during the Assessment proceedings by the AO. 8. I find that the figures of fixed assets (as shown at Schedule-5) as per books of account was Rs. 5,34,90,34,744/-. But, it was seen from the Depreciation Schedule (as shown at Appendix-III) of TAR that the total addition of fixed asset during the year was taken at Rs. 5,36,00,61,703/-. Thus in any case, it is evident that the Assessee had not disclosed the addition of fixed assets of Rs. 1,10,26,959/-, the difference between the two above, in the books of account. This appears to be not explained even before me now. The A/Rs have come up with a plea that "the difference was due to the Unrealized Gain on Foreign Exchange (Rs. 2,17,92,210) and Additions to Freehold Land & Livestock (Rs. 3,29,944) and that "additions to Freehold Land and Livestock have not been considered in the schedule of assets as per the Tax Audit Report since the same is not eligible for depreciation under the Act." It is only obvious that the figures of the A/Rs do not match with the figures pointed out in my notice taken from their Accounts. Their arguments are not convincing Along with this, the A/Rs clu....
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....e Assessee had not explained as to how the amount it had disallowed suo motu u/s. 14A. Similarly, the AO while resorting to his computation under Rule 8D had also snot taken the gross amount of interest spent. Thus, the point which was to be explained to me now as to how much exactly was to be held as attributable to the earning of the exempted Divided. The A/.Rs furnished nothing. They merely relied on the aforementioned judgment which does not speak of an obligation to net off the interest spent. Especially, in a case like this, where it is obvious that Rs. 239.82 crore of interest had been spent against an interest earning of Rs. 6.33 crore only. The figures are not proportionate even to imagine that amount borrowed had been invested in the amount advanced as loan and hence as though they had deserved to be netted off. Therefore, the logic of the A/Rs before me fails. They shall have to explain and show it by their cash flow statement to show now the investments had been made with which fund from the interest bearing borrowed Fund or from its available fund and also how the entire interest spent was not attributable to the said divided earning investments. 11. There is anothe....
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....its show cause notice dated 17.02.2016 issued u/s 263 of the Act sought clarification on the amount of difference to the addition of fixed assets between audited accounts and tax audit report. Accordingly, assessee clarified the difference in response to notice issued u/s 263 of the Act but Ld. CIT changed the tack and held the order of AO as erroneous and prejudicial to the interest of revenue on account of non-verification of the facts by the AO. The Ld. CIT did not consider at all the submission made by assessee in the form of reconciliation statement which is placed on page 43 of the paper book. Ld. AR further on merit submitted that as per Accounting Standard-11 (the effect of changes in foreign exchange rate) is to be applied in the preparation of financial statement on the date of the balance sheet. Accordingly, the effect was given in the books of account but such effect was not given in the tax audit report by virtue of provision of Sec. 43A of the Act which requires to recognise the fluctuation in foreign currency with respect to capital assets at the time of actual payment. Therefore, such difference was found but there is no error causing prejudicial to the interest of ....
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....T. The ld. DR vehemently supported the order of the ld. CIT passed under section 263 of the Act. In rejoinder Ld. AR submitted that Ld. CIT sought clarification in its show cause notice issued u/s. 263 of the Act about the difference in the amount of addition between audited accounts and tax audit report but in its order set aside the issue before AO for further verification without giving any comment regarding the submission of assessee. Ld. CIT, in the instant case raised one issue in its show cause notice but set aside the order of AO on some other grounds which was not case as per the notice. 8. We have heard rival contentions of both the parties and perused the materials available on record. The order under section 143(3) of the Act has been held as erroneous and prejudicial to the interest of Revenue on account reasons as discussed above. Our order on all the issues stand as under : a) With regard to the difference in addition of fixed assets for Rs. 1,10,26,959.00 as observed by the ld. CIT, we find that the notice under section 263 of the Act was issued to clarify the difference. The assessee accordingly clarified the said difference by making a written submission along ....
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.... grounds mentioned in the show-cause notice, could be held to be sustainable in law. We find support and guidance from the case Vesuvius India Limited Vs CIT 54 SOT 172, where the juridictional Coordinate Bench of Tribunal has held as under : "6. We find that the impugned revision order is indeed not sustainable in law for the very elementary reason that the grounds on which order was subjected to revision are different, vis-a-vis the grounds on which revision proceedings were actually initiated. A plain reading of the impugned revision order clearly shows that the conclusions drawn in the revision proceedings, which are extracted earlier in this order, are materially different than the reasons for which revision proceedings were initiated. While in the show-cause notice, learned Commissioner states that "the order passed by the Assessing Officer was erroneous and prejudicial to the interest of revenue because the Assessing Officer did not assess the amount of Rs. 55 lakhs received by Vesuvius India Ltd. (the assessee) as repairs of machinery charges and he did not assess a sum of Rs. 2,41,81,436/- being contract receipts for A.Y. 2002-03", in the revision order, learned Commissi....
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....olding that the Commissioner of Income-tax lacks initial jurisdiction, particularly when the conclusion made by the Commissioner of Incometax in the order under section 263 was on the basis of the information furnished in response to the initial notice?" While declining to refer the above question, the High Court held as under (pages 339- 340) : "The necessary implication in the expression" after giving opportunity of being heard" relates to the point on which the Commissioner considers the order to be erroneous and prejudicial to the interests of the revenue. In other words, it is necessary for the commission to point out the exact error in the order which he proposes to revise so that the assessee would have an adequate opportunity of meeting the error before the final order is made." [Emphasis supplied] In the case before the High Court, the show-cause notice referred to two issues to which the assessee had given satisfactory replies. No action was taken under section 263 in respect of these two issues. However, in the said order the CIT mentioned the hire charges as the ground for revising the assessment. This point had not been mentioned as a ground in the show-....
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.... issued by him under section 263(1) of the Act, he is not satisfied, he may pass the necessary orders. Of course, the order thus passed will contain the grounds for holding the order of the ITO to be erroneous, as contemplated under section 263(1) of the Act. . . . The Tribunal cannot uphold the order of the Commissioner on any other ground which, in its opinion, was available to the Commissioner as well. If the Tribunal is allowed to find out the ground available to the Commissioner to pass an order under section 263(1) of the Act, then it will amount to a sharing of the exclusive jurisdiction vested in the Commissioner, which is not warranted under the Act. It is all the more so, because the revenue has not been given any right of appeal under the Act against an order of the Commissioner under section 263(1) of the Act. . . . Under section 263 of the Act it is only the Commissioner who has been authorized to proceed in the matter and, therefore, it is his satisfaction according to which he may pass necessary orders thereunder in accordance with law. If the grounds which were available to him at the time of the passing of the order do not find a mention in his order appealed again....
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....ase laws we are of the view that unless ld. CIT points out errors in the order of Assessing Officer, which has not been pointed out before us, he cannot invoke his powers under section 263. Having said so, we may also make it clear that in view of the judgment of the Hon'ble Delhi High Court in the case of CIT -vs.-Vee Gee Enterprises [99 ITR 375],an assessment order is rendered erroneous and prejudicial to the interest of revenue in a situation in which Assessing Officer remains passive in the face of a return which is apparently in order but calls for further enquiry. However, the facts of the present case are distinct from this judicial precedence on two material counts. Firstly, in the present case, proceedings were not initiated on the grounds that adequate enquiries were not carried out. The Commissioner has not alleged in the show cause notice that adequate enquiries were not carried out, and again, it is elementary that no person can be condemned unheard, and therefore, the assessee not having been heard on the question whether or not adequate enquiries were carried out, learned Commissioner could not have subjected the assessment order to revision proceedings on the gr....
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....cer had made some enquiries though according to them it was not a proper enquiry. In view of the above facts that some enquiry was made is sufficient to debar the authorities from exercising the powers u/s 263 of the Act. The Tribunal was accordingly justified in setting aside the order passed u/s 263 of the Act. 10. We do not find any substantial question of law arising for consideration and so the appeal is accordingly dismissed. In the case one hand, the AO has made an addition by disallowing the commission expenses after making the necessary enquiry. The instant case is duly covered with the decision of Hon'ble Allahabad High Court M/s Ashok Handloom Factory Pvt. Ltd. (supra) as discussed above, therefore relying on the same, we reverse the order of Ld. CIT for u/s 263 of the Act. We are also putting our reliance in the decision of Hon'ble Delhi High Court in the case of CIT v. Sunbeam Auto Ltd. 332 ITR 167 and CIT v. Anil Kumar Sharma 335 ITR 83 (Del) held that the fact as to whether the AO has applied his mind or not need not necessarily be determined from what has been stated in the assessment order alone, it has to be examined as to whether any inquiry was at all conducted....
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....nterest disallowance. We have also noted that entire expenses incurred by the assessee have been offered for disallowance, and once that happen, nothing remains for further disallowance u/s. 14A. The disallowance under section 14A can come into play only out of expenses claimed for deduction and expenses have been claimed for deduction, there cannot be any disallowance either. The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A)." Similarly we also find that Hon'ble Gujrat High Court in the case of CIT Vs. Deep Industries Limited 238 taxman 198 has held as under : "Thus, the Assessing Officer after examining the issue and calling for the explanation of the assessee was not satisfied with the explanation of the assessee and computed the interest expenditure in terms of section 14A of the Act read with rule 8D of the rules. The Commissioner of Income Tax is of the opinion that he would have assessed the interest expenditure at a higher figure. Therefore, merely because another view is possible is not sufficient to invoke powers under section 263 of the Act. The view adopted by the Assessi....