AI Drafter 
TaxTMI 
TaxTMI 
2011 (4) TMI 1556
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....sment order suffered from following defects :- 1) During the said A.Y., you have received a sum of Rs. 18.00 Crore from M/S Beierdorf AG., Germany (BDF) as an one-time settlement for termination of contracts of producing and selling of the products of the latter company in India as well as issuing a NOC for setting up a 100% subsidiary by them in India. The said receipt should have been considered as income in the ambit of either Sec. 28 or Sec. 56, if the same is considered as voluntary payment on a goodwill gesture as pointed out by you. But, the said receipt has been allowed to be transferred directly to Capital Reserve Account while passing the assessment order for the A.Y. 2006-07. 2) You have been allowed to debit Rs. 1,32,11,353/- as Royalty paid to BDF during the said A.Y. for exclusive use of their Trade Mark, copy rights, know-how to manufacture their products etc. in India as per agreements entered time to time. But, as per the guidelines laid down by the Ministry of Commerce & Industry. Govt. of India, the amount of Royalty required to be allowed for payment in such a case is l% of 'Net Sales Value', which comes to Rs. 84,49,525/- in your case. So, you....
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....s Waluj Plant for manufacturing of products by BDF India. The assessee company was also appointed agent for channels for the products manufactured or imported by BDF India in India. The assessee company agreed not to cause any hindrance to BDF successfully setting up 100% subsidiary and indirectly consented not to share the know how etc. and not to manufacture similar products. In the NOC vide para-3 it is mentioned that the new proposal would not in any way jeopardize the interest of the assessee company. Therefore, the contentions of the assessee that the receipts can not be taxed as income u/s 28 or 56 are not tenable. Besides, admittedly the amount received is a voluntary payment by BDF as a goodwill gesture. The case laws cited by the assessee are distinguishable on facts. Moreover, it is apparent from the record that the AO did not examine/verify or consider the matter at the time of passing the order. 2) Non-disallowance of Royalty paid to BDF in excess of 1% of the net sales: The assessee has contended that the limit of 1% is applicable where there is no technology transfer but in the assessee's case the licence agreement clearly permits use of know-how of....
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....ble since there is nothing in the Notes that consumption of major raw material items only were reflected in Sl. 14(D) of Sch. 17. Moreover, the matter was not examined/verified or considered by the AO while passing the assessment order. It is clear that the assessment order passed is both erroneous vis-à-vis legal provisions and also prejudicial to the interests of revenue. Hence recourse to action u/s 263 is warranted as per conditions set out by the Apex Court in Malabar Industrial Company Ltd. V. CIT (2000) 243 ITR 83 (SC). Moreover, non application of mind by the AO to the issues stated above also justifies action u/s 263 CIT V. Emery Stone Mfg. CO. (1995) 213 ITR 843 (Raj.) In view of the discussions made in the earlier paragraphs, the assessment order u/s 143(3) passed by the AO on 28/03/2008 is considered to be erroneous and prejudicial to the interest of the revenue so far as the above mentioned issues are concerned. Accordingly, the assessment order is set aside on the above mentioned issues and the AO is directed to pass fresh assessment order after giving reasonable opportunity of being heard to the assessee on such matters." 4. Being aggrieve....
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....satisfied about disclosure requirement of Schedule VI to the Companies Act, 1956. The learned counsel referring to pages 81 to 83 of the paper book further submitted that after passing of the assessment order u/s. 143(3) of the Act dated 28/3/2008, the A.O. of his own issued notice u/s. 154 of the Act dated 08/5/2008 proposing to rectify the alleged mistakes, which, inter alia, included the points raised by the ld. C.I.T. for assuming jurisdiction u/s. 263 of the Act. He also referred to pages 84 to 89 which are copies of replies given by the assessee in response to notice u/s. 154 of the Act. He submitted that after considering the replies of the assessee, the A.O. vide order sheet entry dated 09/11/2009 dropped the proceeding by stating that the issues involved in the proceeding u/s. 154 dated 08/5/2008 is debatable and also require further investigation/ enquiry and hence the proceeding initiated u/s. 154 of the Act is being dropped. A copy of the said order sheet entry is also filed before us. The learned counsel, therefore, submitted that the A.O. himself has found the issues debatable and for which he on his own perception dropped the proceeding. Therefore, when the issues ar....
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....reasons which rendered the assessment order passed without proper enquiry to be erroneous and hence prejudicial to the interest of the revenue. Therefore, the order of ld. C.I.T. directing the A.O. to pass fresh assessment order after examining/verifying the issues pointed out by him and after affording opportunity to the assessee was justified and the same should be upheld. 7. We have carefully considered the arguments of both the sides and perused the material placed before us. The reason as pointed out by the ld. C.I.T. to justify his invoking jurisdiction u/s. 263 of the Act was that the A.O. while making scrutiny assessment did not investigate into the aspects pointed out in his order passed u/s. 263 which made the assessment order erroneous and prejudicial to the interest of revenue. He, therefore, directed for proper verification and examination afresh the points raised in the impugned order. A bare reading of section 263 of the Act makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the A.O. is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be ....
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....sues was made in that order. It, therefore, can be said that the A.O. was satisfied that there was no mistake in original assessment order for A.Y. 2005-06 in respect of the above issues. We observe that the issues in A.Y. 2005-06 were similar to the assessment year under consideration. Therefore, on combined reading of the assessment order for the assessment year under consideration along with the order sheet entries, it can be said that the A.O. had carried out such enquiry as the circumstances warranted and permitted before accepting the claim of the assessee and passing assessment order accordingly. It was an entirely different matter that the Commissioner did not agree with the conclusion derived by the A.O. from the enquiries made. Failure to carry out an enquiry is one thing and in such cases the Commissioner would be justified in saying that the mere failure to make any enquiry was erroneous and prejudicial to the interests of the Revenue. But it would not be open to him to hold that the assessment order was erroneous and prejudicial to the interests of the revenue merely because he is of the opinion that some more enquiries are required to be made and he could not agree wi....
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....s to be read in conjunction with the expression "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 the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law." 7.3. In the case of CIT vs. Sunbeam Auto Ltd. (supra), the Hon'ble Delhi High Court held as under :- "AO having made enquiries, elicited replies and thereafter allowed the expenditure on tools and dyes as revenue expenditure, it cannot be said that it is a case of 'lack of enquiry and, therefore, the assessment order passed by the AO allowing deduction of said expenditure could not be revised under s. 263 more so, as the view taken by the AO was one of the possible views and the CIT himself was not clear as to whether the said expenditure is to be tre....
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....that the party against whom the adverse view is taken, can know the reasons for the same. In this case the AO after examining both the issues preferred not to make the addition in the case of the assessee, therefore, there is no error in the order if he has not discussed the issues in the assessment order. It is only the queries raised by the AO and the submissions made by the assessee will speak of whether the AO has applied his mind or not. An assessee cannot compel the AO to incorporate each and every issue in respect of which the AO made the enquiry with the assessee even if the AO got satisfied that no addition is required to be made in the assessment. A perusal of the order passed by the CIT indicates that the assessment orders passed by the AC under s. 143(3) have been set aside on the ground that the desired enquiries have not been made. This cannot be a sufficient ground for setting aside of the assessments. While making the assessment order, it is the satisfaction of the AO who made enquiry and it should be the touchstone to base the validity of the assessment order passed by him. The CIT cannot substitute his subjective view in place of the findings of the AO until and u....