TaxTMI 
TaxTMI 
2014 (8) TMI 1217
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....engaged in multifarious activities and for the year ending 31.03.1994, had filed return declaring income of Rs. 22,94,050/-. The return was taken for scrutiny assessment and by assessment order dated 26.03.1997 under Section 143(3) of the Act, total income after various additions was determined at Rs. 3,54,55,858/-. 4. The Commissioner of Income Tax, by order under Section 263 of the Act dated 24.03.1998 held that the Assessment Order was erroneous and prejudicial to the revenue on the issue of allowance of depreciation on the assets purchased and leased back to M/s. Jaiprakash Industries Ltd. and M/s. Andhra Pradesh State Electricity Board (APSEB). He observed that the said assets were earlier used by M/s. Jaiprakash Industries Ltd. and APSEB for the purpose of their business before they were bought by the respondent-assessee and then given on lease to the said sellers. This was to claim, 100% depreciation as each item was costing less than Rs. 5000/-. He accordingly observed as under: 5. In the present case, there is ample evidence to show that the assets allegedly purchased were used by the alleged seller for the purposes of business or profession. There are also sub....
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....order under Section 263, read: 6. It has been held in Kungundi Industrial Works (Pr.) Ltd. vs. CIT 57-ITR-540 (AP) that the mere production of documentary evidence showing that a contract was made for purchase of the assets at a certain price does not conclusively establish the correctness of the claim made by the assessee especially where the Assessing Officer is of the opinion that in the deal the assessee has taken resort to a subterfuge or device in order to avoid tax which he is liable to pay or otherwise has acted fraudulently or the transaction is illusory or colourable. In such cases, the Assessing Officer can go behind the contract and ascertain the actual cost for the purposes of correct ascertainment of income-tax liability of the assessee. In the present case, the discussion made above clearly shows that the buy and lease back was a device to avoid/defer tax and the Assessing Officer was required to go behind the agreements and examine the applicability of Explanation 3 to Section 43(1) in detail. However, the necessary inquiries were not made. Pages 1 and 2 annexed by the assessee company with its reply dated 6/3/98 do not substantiate the assessee company's con....
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....r se. Applying the ratio in Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC), it was observed that Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, but is applicable only when the order is erroneous and which is also prejudicial to the interest of the revenue. Every loss of revenue as a consequence of the order of the Assessing Officer, cannot be treated as prejudicial to the interest of the revenue, for example, when an Income Tax Officer adopts one of the courses permissible and admissible in law, it cannot be said that the view taken by the Assessing Officer was erroneous or the order was prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. Reference was made to the decision of the Bombay High Court in CIT Vs. Gabriel India Ltd., [1993] 203 ITR 108 (Bom.) and judgment of the Karnataka High Court in CIT Vs. T.Narayana Pal, [1995] 98 ITR 422 (KAR.). 7. We have gone through the Assessment Order, the order under Section 263 of the Act, impugned order of the Tribunal as well as the documents which have been filed on record by ....
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....lity, as over the duration of the lease, the assessee would offer Rs. 174.69 lakhs as income by way of lease rental, as against the claim of depreciation at Rs. 150 lakhs only. In view of this, it is requested that no adverse inference be drawn in the matter. (The aforesaid paragraph has been reproduced from the order of the Tribunal.) 8. It is clear from the aforesaid that the question of genuineness of the transaction was examined by the Assessing Officer and it was highlighted that the transaction was between two unrelated parties and the assessee had to purchase the assets by payment of a substantial amount. Therefore, it was pleaded, there was no question of over valuation of the assets and it was highlighted that the seller company would have suffered or paid tax as the capital gains on the sale of assets, on which, depreciation had been claimed by the purchaser assessee. Further, even the claim of 100% depreciation did not result in reduction of tax liability as over a duration of lease, Rs. 174.69 lakhs was to accrue as income by way of these rentals as against claim of depreciation of Rs. 150 lakhs. It is therefore clear that the Assessing Officer, when he rais....
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....r further detailed or full verification, it was held as under: - ''We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as r....
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....ous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commiss....
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....ssing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged ''inadequate investigation'', it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by t....
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....ad noted that before the Assessing Officer, the respondent-assessee had filed a copy of the agreements executed with APSEB, a State Government undertaking. Thus, the transaction was not with a private party. The reasoning and submissions made in respect of M/s. Jaiprakash Industries Ltd. would be equally applicable to the transaction with APSEB. It is not disputed that copy of the lease agreement between the respondent-assessee and APSEB was on record of the Assessing Officer and was filed before the Assessment Order was passed. These details, it is apparent, were filed as question had been raised regarding 100% depreciation which had been claimed in the return and was under scrutiny and examination before the Assessing Officer. It is also apparent that the reasoning and logic given in the reply to the purchase and lease back agreement with M/s. Jaiprakash Industries Ltd. would be equally applicable to the transaction with APSEB. 13. During the course of hearing before us, it is pointed out that the total value of purchase transaction with APSEB was Rs. 2,23,23,329/- but, 100% depreciation has been claimed in respect of the assets Rs. 1,73,26,739/- and on the remaining assets wo....