M/S. ASIANET SATELLITE COMMUNICATIONS LTD. vs. THE COMMISSIONER OF INCOME TAX

JUDGMENT Antony Dominic, J. 1.This appeal is filed by the assessee, impugning the order passed by the Income Tax Appellate Tribunal, Cochin Bench in ITA.No.342/Coch/2011. 2.Briefly stated facts of the case are as follows: Assessment for the year 2006-07 was completed under section 143(3) of the Income Tax Act by Annexure A order, accepting loss of `2,68,03,915/- returned by the assessee and allowing the loss to be carried forward. Subsequently, in exercise of the powers under section 263, the Commissioner of Income Tax initiated proceedings and passed Annexure B order dated 7.2.2011, by which, the assessment order was set aside for detailed examination of the issues involved. Accordingly, fresh assessment was completed by Annexure C order, where the total income was assessed to be 'nil'. By the impugned order, appeal field against Annexure B order as ITA.342/11 was dismissed by the Tribunal. We are told that the appeal filed by the assessee against Annexure C order of assessment is pending consideration of the appellate authority. 3.In this appeal filed under section 260A of the IT Act, the main question of law framed is whether, on the facts and circumstances of the case, the decision of the Tribunal holding that the order of the Commissioner of Income Tax under section 263 of the Act satisfies the precondition of prejudice to the revenue is proper and correct. 4.We heard learned senior counsel for the appellant and the learned senior standing counsel for the Revenue. 5.Relying on the judgment of the Apex Court in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax [(2000) 243 ITR 83], senior counsel for the appellant contended that to invoke the power under section 263 of the IT Act, the twin conditions, that the order of the Assessing Officer being erroneous and prejudicial to the interests of the Revenue, should be established. According to the learned counsel, in this case, this statutory requirement was not satisfied and therefore, the order passed by the Commissioner, as confirmed by the Tribunal, calls for interference. 6.On the other hand, learned senior standing counsel for the Revenue invited our attention to Annexure B order passed by the Commissioner and also the principles laid down, not only in the decision in Malabar Industrial Co. Ltd. (supra) but also in Toyota Motor Corporation v. Commissioner of Income Tax [(2008) 306 ITR 52(SC)] and Appollo Tyres Ltd. v. Deputy Commissioner of Income Tax [(2014)360 ITR 36 (Ker)] and contended that this is a case where the Commissioner has correctly concluded that the order of assessment was erroneous and prejudicial to the interests of the Revenue. Therefore, according to him, the order of the Commissioner as confirmed by the Tribunal did not merit interference. 7.We have considered the submissions made by both sides. Section 263(1) reads thus:

“The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.”

“Later examination of records showed that the assessee had debited Rs.710.19 lakhs as extra ordinary items being the Pole Rental Charges payable to KSEB for the period from 2002-03 to 31.3.2005. This was allowed by the assessing officer while determining the loss. Further it was noticed that Bandwidth charges of Rs.404.09 lakhs was debited in the Profit & Loss account in which Rs.86.76 lakhs were hire charges paid in foreign currency to M/s.Singtel, Singapore. No tax has been deducted as required under the relevant provisions and hence liable to be added u/s 40(a)(ia). It was further observed that the assessing officer had not applied his mind in accepting these items as details of expenditure did not call for and verified so as to satisfy their allowability under the statute. Clearly this is an error which would cause prejudice to the interest of revenue in as much as high quantum of loss require to be carried forward.” 10.Relying on the above, the Commissioner held that the Assessing Officer has passed Annexure A order without any application of mind and without conducting any enquiry and also without even calling for or verifying the records. The Commissioner has also found that hire charges were paid but no tax has been deducted. Admittedly, the assessment order does not reflect any reason for the conclusions of the Assessing Officer. These findings of the Commissioner fully justified his conclusion that Annexure A order was erroneous in as much as it is prejudicial to the Revenue. In our view, the findings of the Commissioner satisfies the requirements of section 263 of the IT Act and therefore, the order of the Tribunal confirming Annexure A order of the Commissioner passed under section 263 does not merit interference. In the aforesaid circumstances, answering the question of law raised in favour of the Revenue, this appeal is dismissed. ANTONY DOMINIC, Judge. SHAJI P. CHALY, Judge. kkb.