TaxTMI 
TaxTMI 
2005 (5) TMI 238
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...., is "erroneous insofar as it is prejudicial to the interest of Revenue" and in cancelling the assessment with the direction to the AO to reframe the assessment order. 2. Because the assessment order dt. 28th March, 2002, as had been passed by the Asstt. CIT, Range-II, Allahabad, accorded fully with the provisions of law (except to the extent the same has been contested in appeal before the learned first appellate authority) and the learned CIT could not have held the said order to be "erroneous and prejudicial to the interest of Revenue" within the meaning of s. 263 in cancelling the assessment as a whole on that ground. 3. Because all such inquiries as were called for on the facts and circumstance of the case, on all the issues as had been referred to in the notice under s. 263(1) and the regular assessment order dt. 28th March, 2002, could not have been faulted with on that reasoning and ground so as to vest with the learned CIT to assume his revisionary jurisdiction and to cancel the assessment as a whole for being reframed. 4. Because in any case, in response to the notice under s. 263, the appellant had made detailed submissions on each and every "ground" that had be....
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.... an additional claim for expenditure relating to this year, but paid in the succeeding year. Thereafter, a second revised return (hereinafter referred to as third return) was filed on 30th Oct., 2001. In the third return, the assessee excluded long-term capital gain arising out of the transaction with M/s Wilkinson Sword (India) Limited. In the letter dt. 29th Oct., 2001, accompanying the said return, it was claimed that "intellectual property assets" as had been transferred by the assessee, in the nature of 'trademarks', trade names, etc., as per the agreement dt. 25th Nov., 1988 itself, which came within the ambit of taxation under the head 'Capital gain' w.e.f. 1st April, 2002, by virtue of insertion of the term 'trademark' or 'brand name' in s. 55(2)(a) of the Act. Therefore, the long-term capital gain in relation to the transfer of 'trademark' should be excluded from the overall computation of income, as stood included in the original return as well as in the first revised return (second return). As per the said letter, it was also contended that in any case computation of income (as shown in the original return as well as in the second return) was liable to be corrected by ex....
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....99, which is already a part of the return filed under s. 139(1) on 30th Dec., 1999. 4. In the return so filed by us under s. 139(1) and so also in the first revised return filed on 30th Nov., 2000, i.e., within the period specified under s. 139(5), the said sum had been offered for taxation by way of long-term capital gain which worked out to Rs. 29,99,34,132 as per the working given in the schedule attached with the statement showing computation of income (filed alongwith the return on 30th Dec., 1999). 5. We have now been advised that the said consideration of Rs. 55 crores for transferring the trademarks, trade names, etc., as got associated with our business as had been carried on over a number of decades did not fall in the category of taxable gains; the basis of such an advice being the express provision which got inserted in s. 55(2)(a) by the Finance Act, 2001. 6. It is further submitted that the said amendment was brought in terms of cl. (32) of the Finance Bill, 2001, true import of which was explained in the memorandum of notes on clauses which reads as under: 'Clause 32 seeks to amend s. 55 of the IT Act relating to meaning of the expressions 'adjusted', 'co....
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....ng years as per the provisions of law. 1,66,70,797 8. As a result of the revision of return in the aforesaid manner, as per the working given in the statement accompanying the revised return that is being filed herewith, the assessee-company has become entitled to a refund of Rs. 7,89,48,801, for which a refund voucher may kindly be issued at your earliest convenience. 9. In any case, the computation of income as has already been submitted by us in the return/revised return, has to be necessarily corrected so as to bring the same in conformity with the provisions of the Act, in view of the decision of the Hon'ble Supreme Court in the case of CIT vs. Maha1axmi Sugar Mills Co. Ltd. (1986) 58 CTR (SC) 138 : (1986) 160 ITR 920 (SC), wherein the Hon'ble Court observed as under: 'In the second place, there is a duty cast on the ITO to apply the relevant provisions of the Indian IT Act for the purpose of determining the true figure of the assessee's taxable income and the consequential tax liability. Merely because the assessee fails to claim the benefit of a set off, it cannot relieve the ITO of his duty to apply s. 24 in ....
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....he assessee-company and the claim had been allowed without having full knowledge about the nature of "assets" which was subject-matter of transfer; (iv) The disallowances under the head "commission" and sale promotion expenses were inadequate looking to the observations made by the AO about the quantum of expenses (claimed as deduction) and unverifiable nature thereof, as contained in the assessment order; (v) No enquiries were made by the AO from the debtors and creditors inspite of an observation in the audit report that the balances in such accounts were subject to confirmation by the respective parties. 7. As there was a change in the incumbency, the succeeding CIT issued another notice dt. 14th Jan., 2004. Before him a detailed submission dt. 22nd Jan., 2004, was made by the assessee on all the issues as aforesaid, including the validity of third return. In relation to the taxability of consideration received from Wilkinson Sword (India) Ltd., it was specifically submitted that the sum of Rs. 55 crores had been received by the assessee, on transfer of "Intellectual property asset" which represented "trademark" or "brand name" and at any stage, there was no ambiguity a....
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.... 143(3) is erroneous insofar as it is prejudicial to the interest of the Revenue. I, therefore, cancel the assessment order and direct the AO to reframe the assessment order after proper scrutiny and investigation and also after having given the assessee reasonable opportunity of being heard on all the issues." Aggrieved by the said order, the appeal has been filed by the assessee on a number of grounds as have been noted by us in para 2 above. 9. Shri S.K. Garg, the learned counsel for the assessee, raised a preliminary objection to the very validity of assumption of jurisdiction by the learned CIT (in relation to the regular assessment order dt. 28th Feb., 2004). The learned CIT, who occupies supervisory jurisdiction under the IT Act, can interfere with an order passed by an "AO", only if such an order (passed by the AO) is found to be both erroneous as well as prejudicial to the interests of the Revenue, as a result of enquiries made by him. In this respect, apart from referring to the provisions of law, the learned counsel referred to the decision of Hon'ble Allahabad High Court in the case of CIT vs. Late Sunder Lal Through Bankey Behari Lal (1974) 96 ITR 310 (All) and o....
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....er the learned CIT could direct the AO to frame the assessment afresh under the provisions of the IT Act, 1961. It is here that the nature of infirmity in the notice issued by the AO under s. 143(2), in consequence of which the assessment was made, becomes relevant. No doubt, basically, the provisions of s. 143(2) are procedural in nature but from the language and the context of s. 143(2), it is clear that in the eventualities specified in the section, a notice is mandatory and not a mere formality. In the provisions of s. 143(2), as they stood before substitution by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1st April, 1989, no time-limit was prescribed for issue of a notice. It was in the context of the pre-amendment provisions that, following the ratio of decisions of the Allahabad High Court in Sant Baba Mohan Singh vs. CIT (1973) 90 ITR 197 (All) and J&K High Court in Rattan Lal Tiku vs. CIT (1974) 97 ITR 553 (J&K), the Rajasthan High Court in the decision in CIT vs. Gyan Prakash Gupta (1986) 54 CTR (Raj) 69 : (1987) 165 ITR 501 (Raj) relied upon by the learned Departmental Representative, had held that an assessment passed without issuing notice under s. 143(2) of the ....
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....ginally on 30th Dec., 1999, under s. 139(1) could have been revised by 31st March, 2001. In the meantime, the assessee had revised the original return on 30th Nov., 2000, i.e., prior to the expiry of a period of one year from the end of the relevant assessment year. The law is that once a valid revised return is filed, it has the effect of substituting the return filed originally under s. 139(1). The provisions of s. 139(5) as are effective from 1st April, 1989, do not curtail the right of an assessee to file a second revised return at any time, before completion of assessment, once it is found that the original return had been validly revised. The principle is well laid down by the decision of Hon'ble Allahabad High Court in the case of Niranjan Lal Ram Chandra vs. CIT (1982) 134 ITR 352 (All). Therefore, the time-limit available to the assessee to file another return (revising the return filed on 30th Nov., 2000), was available and the AO had validly taken cognizance of the said return, before completing the assessment on 28th Feb., 2002. 12. In any case, even if the third return was not to be treated as a valid return, statement showing the computation of income as appended t....
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....to be accepted, then also, this should be taken to be the case where the AO had taken into account the corrected computation of income and since such a corrected computation accorded fully with the law prevalent in the asst. yr. 1999-2000; no error of law has been committed by the AO and the regular assessment order dt. 28th March, 2002 could not have been held to be erroneous in this respect. 14. It was further submitted by the learned counsel that there was no failure to make necessary enquiries by the AO. After receipt of the second revised return accompanied by letter dt. 29th Oct., 2001, wherein nature of transaction in question as also applicability of relevant provisions of law had been fully explained, the AO made further enquiries and the assessee had duly responded to the same. It was only after such enquiries that the assessee's claim of non-taxability was accepted. No doubt, the Asstt. CIT made direct enquiries from the parties concerned, rather belatedly, on 21st March, 2002, but the result of such enquiries too did not alter the situation even by a bit. The payers had duly confirmed that so far as the assessee was concerned, the payment of Rs. 55 crores had been ma....
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....the AO for the purposes of assessment. Even in the impugned order, no finding was given by the learned CIT about lack of reliance or worthiness of the books of account of the appellant, which had, otherwise been very extensively examined by the AO. The learned CIT could not have assumed jurisdiction under s. 263, just to direct the AO to carry out verification and/or to make roving enquiries, without finding an error of law in the assessment order on specific issues. Reliance was again placed on the 'gist of case laws' and our attention was specifically drawn to the following case law: (i) CIT vs. Trustees of Anupam Charitable Trust (1987) 65 CTR (Raj) 30 : (1987) 167 ITR 129 (Raj}-"The error envisaged by s. 263 is not one which depends on possibility or guesswork, but it should be actually an error either on facts or in law." (ii) CIT vs. Steller Investment Ltd. (1991) 99 CTR (Del) 40 : (1991) 192 ITR 287 (De1)-Commissioner set aside the assessment order on the alleged ground that the officer did not make enquiries with regard to the genuineness of the subscription of the share capital. CIT's action was held not proper. This judgment got confirmed from the Hon'ble Supreme....
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....pen the assessment as a whole, is wholly untenable, as being beyond the provisions of law. Reliance was placed on the following case law: (i) Jai Commercial Co. Ltd. vs. Jt. CIT (2000) 66 TTJ (Del) 731 ......29. There are not more meshes in a net than there are in the administration of human justice. Thus, justice should be administered with due caution and care. The power conferred on the CIT under s. 263 deals with corrective measure. If an error had crept in the order of assessment and that error is prejudicial to the interest of the Revenue, the CIT can assume jurisdiction under s. 263 of the Act. The CIT's action under s. 263 must resemble that of a surgeon's knife. He cannot open the assessment wide and direct the AO to consider everything de novo. Only errors, which had crept into the assessment need to be corrected. He must give a clear-cut finding as to the error. He must establish that the said error is prejudicial to the interest of Revenue. He should see that the justice is done. There cannot be anything of greater consequence than to keep the stream of justice clear and pure, that parties may proceed with safety both to themselves and their characters. (ii) Ra....
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....ng entries should not be treated at their face value. Under these circumstances, the AO, could not have even entertained the said claim, much less allowed it. The AO acted contrary to the specific provision of law, as contained in s. 139(5) of the Act, which is evident from para 2 of the assessment order, wherein he has recorded the comparative details of all the three returns. Such a distortion has rendered the assessment as erroneous and in view of the fact that the 'Revenue' has been denied its legitimate share, the order is prejudicial also. The learned CIT has rightly corrected the said order, in his supervisory jurisdiction under s. 263 of the Act, by setting aside the same. 19. He further argued that there was a failure at the part of the AO to make timely enquiries from the parties concerned. Such enquiries into the nature of receipt of Rs. 55 crores in the hands of the assessee were necessary before granting exemption from long-term capital gain. Without making timely enquiries from the other party, the AO could not have granted exemption, as had been sought for by the assessee. Such a failure itself has rendered the assessment to be erroneous and prejudicial to the int....
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....e assessee has a right to contend in appeal before Tribunal that on the facts and information as were available on record and as had been highlighted in the submissions made during the course of proceedings under s. 263, there was no error in the assessment order and interference with the same by the learned CIT in exercise of his revisionary jurisdiction was wholly uncalled for Reliance in this regard was placed on the decision of Hon'ble Punjab and Haryana High Court in the case of CIT vs. Jagadhri Electric Supply and Industrial Co. (1981) 25 CTR (P&H) 94 : (1983) 140 ITR 490 (P&H), wherein their Lordships have observed and held as under: "The jurisdiction vested in the CIT under s. 263(1) of the Act is of a special nature or, in other words, the CIT has the exclusive jurisdiction under the Act to revise the order of the ITO if he considers that any order passed by him was erroneous insofar as it was prejudicial to the interest of Revenue. Before doing so, he is also required to give an opportunity of being heard to the assessee. If after hearing the assessee in pursuance of the notice issued by him under s. 263(1) of the Act, he is not satisfied, he may pass the necessary ord....
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....to comply with such mandatory requirement of law within the stipulated period of time, is fatal to the very survival of the assessment order. However, such notice is required to be served only if there is a valid return on record. Therefore, answer to the assessee's plea will depend on the answer to the question as to whether second revised return filed on 30th Oct., 2001, was a valid return. There is no dispute that the original return had been filed in time and under s. 139(1). Such a return can be revised, in case the assessee discovers any omission or incorrect statement in such return. 25. However, w.e.f. 1st April, 1989, the legislature has placed certain limitation on the assessee's right to file revised return, by providing that such return can be filed only "before expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier." In the present case, the assessment was made on 28th March, 2002. However, the period of one year (as calculated from the end of the relevant assessment year) had expired on 31st March, 2001. The revised return, therefore, in the instant case could be filed before 31st March, 20....
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.... therefore, invalid and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the AO in fixing the amount of valuation of the property. Similarly, "erroneous judgment" means "one rendered according to course and practice of Court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles. From the aforesaid definitions it is clear that an order cannot be terms as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the CIT 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 CIT for that of the ITO, who passed the order, unless the decision is held to be erroneous" "Prejudicial to the interest of Revenue" : "....... .As observed in Dawjee Dadabhoy & CO. vs. S.P. Jain & Anr. (1957) 31 ITR 872 (Cal) at p. 881, "the words 'prejudicial to the interests of the Revenue' have not been defined, but it must mean that the orders of assessment challenged are such as are not in accordance with law,....
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....thereof and used in the business together with the goodwill of the business connection with which the GEEP trademarks, trade names and brand names are used, short particulars whereof are given in Sch. A hereto (herein the 'GEEP trademarks'): (b) all literary and artistic works and other works and materials amounting to copyrights owned and/or used by the seller in the business and all benefits and advantages accruing therefrom, short particulars whereof are given in Sch. B hereto (herein the 'GEEP copyrights'): (c) all designs owned and/or used by the Seller in, or in relation to, the business and all benefits and advantages accruing therefrom, short particulars of such designs are given in Sch. C hereto (herein the 'GEEP designs')" 30. It was further shown in terms of the said letter itself that s. 55(2)(a) was sought to be amended by the Finance Bill, 2001, so as to provide that in relation to the "trademark" or "brand name associated with a business", purchase price shall be taken at Nil in the hands of the owner/transferor if he himself has not purchased it earlier. There is no ambiguity about the applicability of the said provision w.e.f. the asst. yr. 2002-03 and for....
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....se of CIT vs. B. C. Srinivasa Setty, wherein at p. 299, their Lordships have observed and held as under: "A transaction to which those provisions cannot be applied must be regarded as never intended by s. 45 to be the subject of the charge. This inference flows from the general arrangement of the provisions in the IT Act, where under each head of income the charging provision is accompanied by a set of provisions for computing the income subject to that charge. The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus, the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise, one would be driven to conclude that while a certain income seems to fall within the charging section, there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of pro....
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....of getting a square deal from the Department. Although, therefore, the responsibility for claiming refunds and reliefs rests with the assessee on whom it is imposed by law, officers should: (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs." A show-cause notice was issued to the appellant and in response to such show-cause notice, the appellant again made detailed submissions and even referred to various case law. After considering all these materials and information, including the position of law, the AO granted exemption. 32. Subsequently, the Hon'ble Supreme Court in the case of CIT vs. Mahalaxmi Sugar Mills Co. Ltd. (1986) 58 CTR (SC) 138 : (1986) 160 ITR 920 (SC), in its judgment dt. 15th July, 1986, laid down as under by reiterating its earlier stand: "In the second place, there is a duty cast on the ITO to apply the relevant provisions of the Indian IT Act for the purpose of determining the true figure o....
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....84,994 on short-term deposits with bank. The said sum according to the return of the assessee was duly subjected to tax and inclusion of such income was not disputed (by the assessee) even in the first appeal (which the assessee had filed on a number of other grounds). Against the order of the first appellate authority, the second appeal was filed before the Tribunal and there too, the taxability of the said sum was not objected to in the original grounds of appeal. Subsequently, through, additional ground it was contended that the said sum could not have been included in the income of the assessee. It pleaded that the authorities below themselves should have adjudicated the issue of taxability of the said sum (even if the assessee had offered the same for taxation) on the basis of facts and evidence on record. The Tribunal declined to entertain these grounds. The matter came up for consideration finally before the Hon'ble Supreme Court and it was held that "where the Tribunal is only required to consider the question of law arising from the facts which are on record in the assessment proceedings, we fail to see as to why such question should not be allowed to be raised when it is ....
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....son concerned came after the assessment had been completed. But, this has not made any difference to the assessee's claim for exemption. The factual position with regard to nature of 'receipt' which was subject-matter of transfer remains the same as had been explained by the assessee in terms of its letter dt. 29th Oct., 2001. and in the subsequent Explanation given by it on 27th March, 2002. It is a settled law that in taxing statute, there is no equity about law and there is no scope for any intendment. This principle as had been laid down long back by the House of Lords, has recently been considered by the Hon'ble Allahabad High Court in the case of CIT vs. Sahara India Savings and Investment Corporation Ltd. (2003) 185 CTR (All) 136 : (2003) 264 ITR 646 (All), wherein their Lordships have observed and held as under: "Where the language of a provision is plain, Courts cannot ordinarily concern themselves with the policy behind the provision, or the intention of the legislature. As Lord Watson said in A. Salomon vs. A. Salomon & Co. (1897) AC 22, 38 (HL), "intention of the legislature' is a common but slippery phrase". In ITO vs. T.S. Devinatha Nadar & Ors. (1968) 68 ITR 252 (....
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.... show that there was any discrepancy in these accounts. There is a force in the contention putforth by the learned counsel that the order has been held to be erroneous in this respect merely on guesswork and in the expectation of finding out some discrepancy. The revisionary jurisdiction as has been conferred on the CIT under s. 263 cannot be exercised on the basis of such a possibility or guesswork. Apart from various case law as have been referred to by the learned counsel in support of this contention, with which we concur, we also hold that the point at issue is squarely covered by the decision in the case of Gabriel India Ltd., relevant observation are on p. 114 of the Report in the said case, which is reproduced hereunder: "As observed in Dawjee Dadabhoy & CO. vs. S.P. Jain (1957) 31 ITR 872 (Cal) at p. 881. "the words 'prejudicial to the interests of the Revenue' have not been defined, but it must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue dies to the State has not been realized or cannot be realized. It can mean nothing else"? The aforesaid observations were also applied by the Gu....
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....king some estimate himself. The CIT, 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 CIT he would have estimated the income at a figure higher than the one determined by the ITO. That would not vest the CIT with power to reexamine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous and simply because the CIT does not feel satisfied with the conclusion. It may be said in such a case that in the opinion the CIT the order in question is prejudicial to the interests of the Revenue. But, that by itself will not be enough to vest the CIT with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent." 42. There is also force in the contention putforth by the learned counsel to the effect that, while interfering with the finality of assessment, the learned CIT carried out a statutory duty to deal with and decide the objections of the affected person. In the pre....