BHARTI AIRTEL LTD (FORMERLY BHARTI BROADBAND LTD),NEW DELHI vs. ADDL CIT RG 8(1), MUMBAI

PER N.K. BILLAIYA, ACCOUNTANT MEMBER,

This appeal by the assessee is preferred against the order of the

CIT(A) - 8, Mumbai dated 25.03.2009 framed u/s 263 of the Income

tax Act, 1961 [hereinafter referred to as 'The Act' for short].

the ld. CIT erred both on facts and on law in passing an order u/s 263

of the Act without jurisdiction on a mistaken belief that order passed

u/s 143(3) of the Act was erroneous and prejudicial to the interest of

the Revenue.

background.

assessment u/s 143(3) of the Act which was assailed before the ld.

CIT(A) who decided the appeal vide order dated 20.03.2009.

Subsequently, assuming jurisdiction u/s 148 of the Act, the Assessing

Officer issued notice u/s 16.03.2009. On 17.03.2009, the ld. CIT

assumed jurisdiction u/s 263 of the Act by issuing following notice

dated 17.03.2009:

“The Principal Officer, Bharti Broadband Ltd. (Formerly Known as Comsat Max Ltd.) Unltech Wold Cyber Park, Tower - A, 4th floor, Sector - 39, Gurgaon -122 001

Sir / Madam, Sub.: Notice u/s.263 of the I.T, Act for A.Y. 2004-05 - Reg.

Please refer to the above. This office letter dated 06.03.2009 fixing the hearing on 17.03.2009 on the above mentioned subject is returned by the postal authorities with remarks "Not Known’ at your address 5th Floor, Centre Point, Junction of S.V. Road & Juhu Road, Santacruz (E), Mumbai - 400 054.

On perusal of assessment records, it is found that the assessment made by the A O. u/s.143(3)(ii) of the I.T, Act, 1961 on 22.12.2006 is erroneous and prejudicial to the interest of revenue on account of the following reasons:

It is seen from the records that you have received an amount of Rs.5,10,83,475/- by way of cessation of liabilities which attracts the provisions of section 41(1) of the I.T. Act, according to which any assessee, who obtained whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of trading liability by way of remission or cessation such amount shall be treated as his income. Further, it is observed that a loan given to the company by CUM and its associates includes accumulated interest, which has been claimed as revenue expenditure. The cessation of liability on account of basic loan amount is also liable to be taxed u/s. 28(iv) of the I.T. Act. Thus, the assessment made by the Assessing Officer is without proper enquiry and application of mind, hence the assessment is erroneous and prejudicial to the interest of the revenue.

You are hereby given an opportunity to show cause as to why the amount of Rs.5,10,83,475/- received by way of cessation of liability should not be treated as revenue receipt u/s.41(1) and 28(|v), you are further given an opportunity to show cause as to why the amount of interest should not be brought for taxation u/s.41(1), and why the assessment made by the A.O. should not be set aside to this extent.

Your case is fixed for hearing on 23rd March, 2009 at 11.30.”

of the firm belief that the assessee, by way of cessation of liabilities,

has received a sum of Rs. 5,10,83,475/- which attracts the provisions

of section 41(1) of the Act.

Assessing Officer has examined the computation of income, balance

sheet, profit and loss account and tax audit report and notes to the

accounts, in particular the following note:

“II Pursuant to Share Sale and Purchase agreement dated February 20, 2003, amongst Comsat / Investments amongst Comsat Investment and Comsat Corporation, Max India Limited and the Company, Max India Limited acquired the balance 49 % of the share holding in the Company. In terms of the aforesaid agreement

in/addition to payment of the purchase price, Max India Limited was required to secure an unconditional release from letters of comfort given by CIIM to a bank in respect of certain facilities availed by the Company. The release was obtained by Max India Limited giving a Corporate Guarantee to the bankers.

Upon fulfilment of the conditions stipulated in the aforesaid agreement the loans including accumulated interest thereon, given by CUM and its associates to the Company, were deemed to have been repaid in full and extinguished, during the financial year. Accordingly, loans related to acquisition of fixed assets amounting to Rs.38;478,473 have been set off against cost of the related fixed assets and the corresponding accumulated depreciation amounting to Rs. 31,998,187 has been reversed and set off against current year’s depreciation charge. The balance amount of Rs. 51,083,475 included in the total loan amount was retained by the Company to continue to maintain and support its infrastructure thereby enabling, through a deemed grant by virtue of the Corporate Guarantee referred to above, as approved by the Board of Directors, the strengthening of its net worth position. The amount so retained has been transferred to Capital reserves.”

relevant extracts of the balance sheet:

required – written back would make the facts clear to understand:

assessment u/s 143(3) of the Act, pursuant to the order u/s 263 of the

Act, the Assessing Officer has not made any addition in so far as

interest part is concerned and in so far as waiver of principal amount is

concerned, the issue is highly debatable, in as much as, there are

direct decisions in favour of the assessee and against the revenue.

Mahindra and Mahindra 261 ITR 501 has held that waiver of loan

utilised for purchase of capital asset is a capital receipt.

jurisdiction u/s 263 of the Act is Note II to Schedule XIIIB of the

balance sheet was very much examined by the Assessing Officer while

framing assessment order u/s 143(3) of the Act and, therefore, it

cannot be said that there was no application of mind by the Assessing

Officer.

through the relevant balance sheet, profit and loss account, audit

report and notes thereon. After considering the facts, the Assessing

Officer has taken a plausible legal view that waiver of loan of Rs. 5,10,

83,475/- by joint promoters by way of corporate guarantee for

strengthening net worth was capital receipt.

cannot be taxed u/s 28(iv) of the Act as mentioned above, This view

has been taken by the Hon'ble Bombay High Court in the case of

Mahindra and Mahindra [supra], which decision has subsequently been

confirmed by the Hon'ble Supreme Court in 93 Taxmann.com 32. The

relevant part of the decision reads as under:

“Waiver of loan for acquiring capital asset cannot be taxed as perquisite u/s 28(iv) of the Act as receipt in the hands of the debtor/assessee or in the form of cash/money and it also cannot be taxed as remission of liability u/s 41(1) of the Act as waiver of loan does not amount to cessation of trading liability.

plausible view in line with the decision of the Hon'ble High Court and,

therefore, by no stretch of imagination, the assessment order dated

22.12.2006 can be said to be erroneous and prejudicial to the interest

of the Revenue.

83, has laid down the following ratio:

"A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent--if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-- recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous ".

Anil Kumar reported in 335 ITR 83 has held that where it was

discernible from record that the A.O has applied his mind to the issue

in question, the ld. CIT cannot invoke section 263 of the Act merely

because he has different opinion.

We further find the Hon'ble Delhi High Court in the case of 17.

Vikas Polymer reported in 341 ITR 537 has held as under:

“63. We are thus of the opinion that the provisions of s. 263 of the Act, when read as a composite whole make it incumbent upon the CIT before exercising revisional powers to : (i) call for and examine the record, and (ii) give the assessee an opportunity of being heard and thereafter to make or cause to be made such enquiry as he deems necessary. It is only on fulfilment of these twin conditions that the CIT may pass an order exercising his power of revision. Minutely examined, the provisions of the section envisage that the CIT may call for the records and if he prima facie considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue, he may after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. The twin requirements of the section are manifestly for a purpose. Merely because the CIT considers on examination of the record

that the order has been erroneously passed so as to prejudice the interest of the Revenue will not suffice. The assessee must be called, his explanation sought for and examined by the CIT and thereafter if the CIT still feels that the order is erroneous and prejudicial to the interest of the Revenue, the CIT may pass revisional orders. If, on the other hand, the CIT is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interest of the Revenue, he may choose not to exercise his power of revision. This is for the reason that if a query is raised during the course of scrutiny by the AO, which was answered to the satisfaction of the AO, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the AO called for interference and revision. In the instant case, for example, the CIT has observed in the order passed by him that the assessee has not filed certain documents on the record at the time of assessment. Assuming it to be so, in our opinion, this does not justify the conclusion arrived at by the CIT that the AO had shirked his responsibility of examining and investigating the case. More so, in view of the fact that the assessee explained that the capital investment made by the partners, which had been called into question by the CIT was duly reflected in the respective assessments of the partners who were I.T. assessees and the unsecured loan taken from M/s Stutee Chit & Finance (P) Ltd. was duly reflected in the assessment order of the said chit fund which was also an assessee.”

203 ITR 108 has held as under:

“The power of suo motu revision under subsection (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub- section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary. According to the definition, "erroneous" means "involving

error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer 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".

be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income-tax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate

proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power.

It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority.

The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That, in our opinion, is not permissible. Hence the provisions of section 263 of the Act were not applicable to the instant case and, therefore, the commissioner was not justified in setting aside the assessment order.”

elsewhere, and in light of the judicial decisions discussed hereinabove,

we are of the considered opinion that the assessment order dated

22.12.2006 framed u/s 143(3) of the Act is neither erroneous nor

prejudicial to the interest of the Revenue. Therefore, the assumption

of jurisdiction u/s 263 of the Act by the ld. CIT is bad in law. We,

accordingly, set aside the order of the ld. CIT dated 25.03.2009 and

restore that of the Assessing Officer dated 22.12.2006.

is allowed.

The order is pronounced in the open court on 18.06.2021.

Sd/- Sd/-

[AMIT SHUKLA] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 18th June, 2021

VL/