CIT vs. GALILEO INDIA PVT LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . . . ITA 409/2013 . . . CIT ..... Appellant . Through Mr. Kamal Sawhney, Sr. Standing Counsel. . . . versus . . . GALILEO INDIA PVT LTD. ..... Respondent . Through . . . CORAM: . HON'BLE MR. JUSTICE SANJIV KHANNA . HON'BLE MR. JUSTICE SANJEEV SACHDEVA . . . O R D E R . 13.09.2013 . . . ITA 409/2013 and C.M.No.12624/2013 . . . There is delay of 212 days in refiling of the appeal. However, before issuing notice on the application for condonation of delay, we deem it appropriate to examine the appeal on merits. . 2. The grounds of appeal and the figures stated therein do not arise out of the impugned order. Question of depreciation on computer and computer peripherals was not a subject matter of the order passed by the tribunal or the order under Section 263 of the Income Tax Act, 1961 (?Act? for short) passed by the Commissioner for assessment year 2006-07. Figure of dividend income mentioned in the grounds of appeal is also incorrect and not Rs.28,20,145/- but Rs.24,12,482/-. We do not know from where and how the Revenue has calculated that the tax effect as Rs.1,55,93,845/-. . 2A. Apart from the above defects, we feel that the appeal on merits is liable to be dismissed in view of the decision of this Court in CIT Vs. Sunbeam Auto Ltd. [2010] 189 Taxman 436 (Del) as it is a case where inquiries were made by the Assessing Officer and thereafter the assessee had written a letter and offered Rs.94,47,712/- as a disallowance under Section 14A. The said amount was accepted by the Assessing Officer. As already noted above, the dividend income was Rs.24,12,482/-. Assessee also justified and explained why disallowance of Rs.94,47,712/- should be made by stating that they had obtained term loan of Rs.35 crores from a . bank which had been deposited in an FDR to earn interest. After netting off, interest paid on the loan from interest earned, the assessee had offered Rs.94,47,712/- . 3. Commissioner in his order under Section 263 has stated that it appears that the Assessing Officer had not caused any enquiry to ascertain quantum of the disallowance. This is factually incorrect. The Assessing Officer had conducted inquiry and had accepted the disallowance which was offered by the assessee. The Commissioner has further recorded that the Assessing Officer should have conducted further inquiries and correct disallowance should be made under Section 14A read with Rule 8D. The assessment year in question is 2006-07 and Rule 8D is not retrospective. In any case, for applying Rule 8D certain pre conditions have to be satisfied. There is also a stray observation by the Commissioner to the effect that no explanation was offered why the respondent had surrendered Rs.94,47,712/- for disallowance as the term loan did not cover the investment made. The said observation does not refer to any details or basis. In any case, once the matter was examined by the Assessing Officer and he had conducted inquiry and accepted the surrender of the assessee, the ratio of the decision in Sunbeam Auto Ltd. (supra) is applicable. Assessment order does not become erroneous because the Assessing Officer after verification accepts the claim/disallowance. It will be erroneous if the Commissioner holds that the finding recorded by the Assessing Officer is incorrect or contrary to law. Without a firm finding, the Commissioner cannot set aside the assessment for fresh determination. The said decision was followed and explained in Income-tax Officer v DG Housing Projects Ltd. (2012) 343 ITR 329 (Del.) wherein it has been held as under:- . ?Thus, in cases of wrong opinion or finding on the merits, the Commissioner of Income-tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. The Commissioner of Income-tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Income-tax must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Income-tax and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in law. In some cases possibly though rarely, the Commissioner of Income-tax can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing 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 Commissioner of Income-tax 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 Commissioner of Income tax 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 interests of the 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 the Commissioner of Income-tax conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. The Commissioner of Income-tax cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the Commissioner of Income-tax to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the Commissioner of Income-tax hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. . . . Therefore, the Commissioner of Income-tax must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the Commissioner of Income-tax must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the Commissioner of Income-tax can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the Commissioner of Income-tax (see CIT v. Shree Manjunathesware Packing Products and Camphor Works [1998] 231 ITR 53 (SC)). Nothing bars/prohibits the Commissioner of Income-tax from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.? . . . 4. Learned counsel for the appellant-Revenue has relied upon the order dated 19th December, 2011 passed in ITA 1074/2011 in the case of the respondent. In the said case there were two issues. Dividend income of Rs.28,20,145/- was exempt from tax but no disallowance had been made under Section 14A. In the present case, we notice that disallowance has been made under Section 14A and the question was whether a higher disallowance of more than Rs.94 lakhs would have been made and the Commissioner has not given or formed any opinion on whether or not the said disallowance was satisfactory or not. Commissioner was not sure and certain, though the Assessing Officer had applied his mind and accepted the offer made by the assessee. . 5. In view of the aforesaid position, we are not inclined to issue notice on the application for condonation of delay and as a sequitur the application and appeal are dismissed. . . . . . SANJIV KHANNA, J. . . . . . . . SANJEEV SACHDEVA, J. . SEPTEMBER 13, 2013 . NA/VKR . . . . . . . . . . .