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Income Tax Appellate Tribunal, MUMBAI C BENCH, MUMBAI
Assessment year: 2012-13 Pirmal Enterprises Limited (formerly Piramal Healthcare Limited) ……………….………Appellant Piramal Ananta, Agastaya Corporate Park, Kamani Junction, LBS Marg, Kurla (West) Mumbai 400 070 [PAN: AAACN4538P] Vs Deputy Commissioner of Income Tax Circle 7(3)(2), Mumbai ……………………Respondent Appearances by J D Mistry, along with Madhur Agarwal, Ronak Doshi and Manshi Padhiar for the appellant Awungshi Gimson and Brijendra Kumar for the respondent Date of concluding the hearing: : December 11, 2020 Date of pronouncement : March 03, 2021 ORDER Per bench 1. By way of this appeal, the assessee appellant has challenged correctness of the order dated 29th March 2019 passed by the learned Principal Commissioner of Income Tax, under section 263 r.w.s. 143(3) and 144C(13) of the Income Tax Act, 1961.
2. Grievances raised by the appellant are as follows:
GROUND NO. I: ORDER U/S 263 OF THE ACT IS BAD IN LAW BEING CONTRARY TO THE PRINCIPLES OF NATURAL JUSTICE: 1. On the facts and circumstances of the case and in law, the ld. Pr. CIT erred in passing the impugned order on a completely different basis as against the reason specified in the notice u/s 263 of the Act without giving any specific opportunity to the Appellant, thereby violating the principles of natural justice. Assessment year: 2012-13 Page 2 of 16
2. The Appellant prays that the impugned order passed in violation of principles of natural justice be quashed as bad in law. WITHOUT PREJUDICE TO GROUND NO. I, GROUND NO. II: IMPUGNED ORDER PASSED TO REVISE THE ASSESSMENT ORDER, WHICH WAS SUPERCEDED BY THE SUBSEQUENT RECTIFICATION ORDER, IS BAD IN LAW:
1. 1. On the facts and circumstances of the case and in law, the Id. Pr. CIT erred in invoking the provisions of section 263 of the Act to revise the order passed u/s 143(3) r.w.s. 144C(13) of the Act dated November 29, 2016("the assessment order") without appreciating that the assessment order had merged into the order passed u/s 154 of the Act dated May 31, 2018("the rectification order").
2. The Appellant prays that the impugned order passed to revise the assessment order, which was superseded by the subsequent rectification order, be held as bad in law. WITHOUT PREJUDICE TO GROUND NO. I AND II ABOVE, GROUND NO. Ill: IMPUGNED ORDER PASSED BY INVOKING PROVISIONS OF SECTION 263 OF THE ACT IS BAD IN LAW: 1. On the facts and circumstances of the case and in law, the ld. Pr. CIT erred in invoking the provisions of section 263 of the Act and setting aside the assessment order and directing the AO to pass a fresh order after examination of the facts of the case.
2. Ld. Pr. CIT, inter alia, failed to appreciate that: i. Provision of section 263 of the Act cannot be invoked where an issue is subject matter of appeal before the Hon'ble CIT(A) ii. Provision of section 263 of the Act cannot be invoked where an order which has been the subject matter of the proceedings before Hon'ble Dispute Resolution Panel ("DRP"); iii. the pre-requisites for invoking provisions of section 263 of an order being erroneous in so far as is prejudicial to the interest of the revenue are not satisfied in the facts of the present case; iv. the impugned order is based on the directions of the DRP in subsequent year without any application of mind and on factually incorrect premise; v. Provisions of section 263 of the Act cannot be invoked where enquiries have been made by the AO while making the assessment; Assessment year: 2012-13 Page 3 of 16 vi. He ought to have come to finite conclusion that the order is 'erroneous' and 'prejudicial to the interest of the revenue' and he cannot set-aside the matter to the AO to make enquiries and thereafter establish that the order is erroneous' and 'prejudicial to the interest of the revenue'.
3. The Appellant prays that it be held that the provisions of section 263 of the Act cannot be invoked and accordingly, the impugned order be quashed as bad in law. WITHOUT PREJUDICE TO GROUND I, II AND III ABOVE; GROUND NO. IV: DIRECTION TO VERIFY THE TRANSACTION OF DISCOUNITNG OF ABBOTT RECEIVABLES ("THE ASSIGNMENT") BE SET-ASIDE OR QUASHED.
1. On the facts and circumstances of the case and in law, the Ld. PCIT erred in exercising jurisdiction u/s. 263 of the Act and directing the AO to verify the discounting of the assignment.
2. Ld. PCIT inter alia failed to appreciate that: i. Discounting is not considered as transfer and once when the entire consideration is offered to tax as per Rule 115 of the Income Tax Rules, 1962 ("the Rules"), any further consideration is capital in nature and therefore not chargeable to tax. ii. Even if the assignment is considered as transfer, based on 'real income' theory it be held that the consideration be restricted to forward rate while computing the sale consideration 3. The Appellant prays that the action of the Ld. PCIT in directing the AO to verify the discounting of the assignment as be set-aside or quashed.
3. The hearing in this case was first concluded just before the lockdown on account of Covid pandemic started. Before the order in this case could be finalized, one of us was hospitalized on account of Covid infection, and the other was on medical leaves, due to a fractured leg, for two months. It was in this backdrop that the matter had to be refixed for hearing, arguments were heard afresh, and the hearing was finally concluded on 11th December 2020. There is thus indeed an inordinate delay in disposal of this appeal, but this delay is on account of factors beyond our control.
4. To adjudicate on this appeal, only a very few material facts need to be taken note of. The assessee before us is a domestic company engaged in the business of pharmaceuticals. The scrutiny assessment in this case was completed on 13th November 2016, determining a Assessment year: 2012-13 Page 4 of 16 taxable income at Rs (-) 268,01,35,553 and book profit under section 115 JB of Rs 107,24,76,500. On 17th July 2018, however, t he learned Principal Commissioner of Income Tax required the assessee to show cause as to why the said assessment not be subjected to revision proceedings under section 263. The show cause notice, inter alia, stated as follows:
2. In this regard on a perusal of the records, it is seen that while passing the assessment order, the Assessing Officer has failed to carry out enquiries as warranted by the facts and circumstances of the case and that the assessment has been completed without examining all the aspects which were required to be looked into for arriving at the correct taxable income of the assessee. It is found that even though there were clear indications that something was amiss yet the AO did not cause the necessary verification. The omissions which render the assessment order as erroneous and prejudicial to the interest of revenue are as under:
2.1 The assesse company has reduced an amount of Rs. 309,51,25.000/- from business income towards exchange gain on Abbott Receivables and forward contract taken on Abbott receivables for sale of domestic formulation business to Abbott. In support of the same, in notes to computation the assessee company stated as under:
During the previous /last year relevant to AY 2011-12, on account of sale of domestic formulation business, assessee company had offered for tax entire sale consideration receivable in foreign currency under the head capital gains u/s 50B. Therefore, any subsequent foreign exchange gain /loss arising during the year relevant to AY 2012-13 on account of reinstatement / realization of receivable as well as on forward contract taken thereon which are being on capital account (in respect of sale of an undertaking on a going concern), has been excluded / reduced from the business income (ne) as not chargeable to tax and toss has been added back / disallowed in the business income as not allowable 2.2 It is thus seen that you have claimed that that the said gain has been reduced because the capital gain arising on the transfer has already been offered to tax in AY 2011-12 under the head the head capital gain u/s. 50B arising out of sale of domestic formulation business. It was claimed that any subsequent gain on reinstatement or actual realization of receivables is on capital account and thus not chargeable to tax.
2.3. In this regard, it is seen that your company had accounted the consideration-on the basis of the foreign exchange rate prevalent at the time of Assessment year: 2012-13 Page 5 of 16 transaction and offered the said amount to tax in the respective assessment year. Thereafter, when the actual foreign exchange proceeds were received by your company, the consideration underwent an incremental change due to increase in value of Dollar in terms of Rupee. Therefore, the amount accounted in the current AY of Rs. 3,09,51,25,000/- is nothing but additional consideration received for the slump sale of the domestic formulation business. Thus, as per the provisions of the Act, the said gain should have been offered to tax. However, you have not offered the additional consideration of Rs. 309,51,25,000/- to tax and the AO also has not brought it to tax while completing the assessment u/s. 143(3) rws 144C(13) of the IT Act.
4. Thus prima-facie there is a the failure on the part of the AO to make relevant and meaningful inquiry as warranted by the facts of the present case and allowing without causing necessary enquiries the claims of the assessee. The AO's failure to take cognizance of the legal implication of the transaction would render the assessment order being erroneous and prejudicial to the interest of revenue in terms of section 263 of the Act.
5 in view of the above, I propose to suitably revise the assessment order passed by the AO u/s 263 of the IT. Act. 1961. Accordingly you are hereby requested to appear before me at above address on 30/07/2018 at 11:00 A.M. to present your case and to explain why the said order u/s 143(3) rws 144C(13) dated 13.11.2016 should not be revised u/s 263 of the I.T, Act, 1961. If you do not wish to avail of this opportunity of being heard in person or through authorized representative you may file in writing your response on or before the said date which will be considered before any such order is made under the section referred above. If nothing is heard from you by the said date, necessary order will be passed ex-parte on the basis of material available on record without giving further opportunity to you, which may please be noted.
5. In response to this notice, authorised representative of the assessee attended the proceedings and furnished all the necessary explanations on the above issue. As evident from the affidavit filed by Ronak G Doshi, learned counsel of the assessee appearing before the Principal Commissioner of Income Tax (hereinafter referred to as ‘the Principal Commissioner’ as also ‘the Commissioner’), no other issues were discussed in the said hearing. The relevant contents of this affidavit are reproduced below for ready reference:
I say that I am a practicing chartered accountant and partner with M/s. Bansi S.Mehta & Co, Chartered Accountant; Assessment year: 2012-13 Page 6 of 16 2. I say that M/s Piramal Enterprises Limited received notice dated July 17, 2018 under section 263 of the Income Tax Act, 1961 ("the Act") for assessment year 2012-13 from the Principal Commissioner of Income Tax-7 ("the PCIT") stating that the assessment order passed by the Assessing Officer is erroneous as the amount of Rs. 309,51,25,000/- being foreign exchange gain from outstanding receivable from sale of undertaking is taxable as income of the assessee for the assessment year 2012-13. I say that the personal hearing for the same was fixed on July 30, 2018; 3. I say that the personal hearing was adjourned at request of the assessee from July 30, 2018 to August 6, 2018 and then to August 9, 2018; 4. On August 9, 2018, I appeared before PCIT along with Ms. Manshi Padhiar, Chartered Accountant and Mr. Pinesh Bhandari, representing the client. 5. I say that I tendered the written submissions of 13 pages dated August 9, 2018 on the issue of validity of jurisdiction under section 263 of the Act with respect to the issue of taxability of the amount of Rs. 309,51,25,000/- referred to in the show cause notice dated July 17, 2018; 6. I say that in the personal hearing, the discussion was restricted to the sale of the Domestic Formulation Business to M/s Abbot Healthcare Pvt. Ltd. and why the sum of Rs.309 crores relating to foreign exchange gain in the assessment year 2012-13, i.e. a year subsequent to the year of the transfer of domestic formulation business, be added to the assessee's income; 7. I say that no further issues or points were put to us by the PCIT or discussed during the hearing on August 9, 2018; 8. I say that no further personal hearing took place in the matter and the order dated March 29, 2019 under section 263 was directly received on April 2, 2019. I hereby affirm that whatever is stated above is true to best of my knowledge and belief.
6. While on this aspect of the matter, for the sake of completeness, it may be added that the aforesaid affidavit was put to the learned Departmental Representative, and when he was directed to comment upon the same, he filed a counter affidavit of the learned Principal Commissioner of Income Tax. This affidavit states, inter alia, as follows:
1. I say that I am an Officer of the Indian Revenue Service, presently posted as Director General (Investigation) Jaipur.
2. I say that while discharging my duties as Pr. CIT -7, Mumbai, my office had issued a notice under Section 263 of the Income tax Act, 1961 to M/s Piramal Enterprises Limited dated July 16, 2018 for the Assessment year 2012-13 stating Assessment year: 2012-13 Page 7 of 16 that the assessment order passed by the Assessing Officer was erroneous to the extent of calculation of the forex gain on the sale consideration receivable from Abbott, amounting to Rs. 309.51 cr.
3. I say that during the personal hearing accorded to the assessee, the breakup of the gain and working of the forex gain was submitted and explained by the authorised representative of the assessee.
4. I say that the affidavit of Shri Ronak Girish Doshi, the authorised representative of the assessee, dated 25.10.2019, also affirms the above fact.
I say that, while passing the order u/s. 263 of the I T Act, though the issue of the discounting transaction with the Axis Bank was not reflected in the notice issued u/s. 263, the findings of the DRP for AY - 2013-14, vide order dated 29.09.2017, were already available to the assessee and as per the findings of DRP for AY 2013-14 a gain of Rs 8.609 rupees per USD which comes to Rs 344.36 crores which is apparently taxable in the hands of the assessee for AY 2012-13 was already crystallised This issue was thus very well within the knowledge of the assessee as well as the Revenue and was very well part of the records. Thus, the proceedings under Section 263 are very much in sync with the ratio of the Hon Apex court Judgement in case of Amitabh Bachchan, which reads : If the revisional authority had come to its conclusions in the matter on the basis of the record of the assessment proceedings which was open for scrutiny by the assessee and available to his authorized representative at all times it is difficult to see as to how the requirement of giving of a reasonable opportunity of being heard as contemplated by Section 263 of the Act had been breached. Hence the order passed u/s. 263 of the IT Act is as per the law.
I say that vide order passed u/s 263 of the Act, the assessment order has been set aside to the file of the AO with directions to verify the transactions of discounting of Abbott Receivables during AY 2012-13, so that if the consequent gain for the said AY is found to be fully or partly not offered for taxation, the same could be considered for bringing to taxation. I say that, the order u/s 263 has in no way, crystallized the assessee's liability and has left the door open for him to make his submissions on the said matter before the AO and the AO is duty bound to pass a speaking order after taking the submissions of the assessee under due consideration.
I say that, if the Hon ITAT still believes that the opportunity of being heard was not given to the assessee, then the same is a procedural lapse AND is hence a curable defect. It per se does not make the order u/s. 263 invalid. This ratio is laid down by the Apex Court in the case of Commissioner v/s Jai Prakash Assessment year: 2012-13 Page 8 of 16 Singh [1996] 85 taxman 407(SC). Accordingly, if the Hon Tribunal takes this view, then the order u/s. 263 need to be set aside back to the CIT with a direction to give an opportunity of being heard to the assessee and pass a fresh order.
6. Learned Principal Commissioner, subsequent to the said hearing, proceed to pass the impugned revision order on a different aspect, as is evident from the operative portion of the impugned revision order, as follows:
3.2 The arguments of the assessee have been considered but are not found to be acceptable. The facts of the case are that the assessee signed a Business Transfer Agreement with Abbott Healthcare Pvt. Ltd. to transfer its Domestic Formulation Business on a ‘Slump Sale Basis’. The total consideration initially agreed at Rs. 3,72,00,00,000/- was subsequently elevated by Rs. 8,00,00,000/- vide Amendment No.1 dated 8.9.2010 to the original agreement. The new consideration arrived at Indian Rupee equivalent of USD 380,00,00,000. Out of this, the assessee received an upfront sum Indian Rupee equivalent of USD 220,00,00,000 and the balance Indian Rupee equivalent of USD 160,00,00,000 was receivable on deferred I payment basis over the next four years in four equal instalments each year in September. The aforesaid transfer concluded in September 7, 2010. Assessee offered the slump sale to LTCG in the year of transfer i.e. AY 2011-12 where tax was paid on the entire consideration of Indian Rupee equivalent of USD 380,00,00,000 as per the provisions of Rule 115 of the Rules. 3.3 The balance instalments receivable from Abbott is shown by the assessee in its Books of Accounts as Receivables on Sale of Domestic Formulation Business under the head Other Current Assets. Now, for the year under consideration, the assessee has booked the net foreign exchange gain of Rs. 161,42,36,807/- under amortization of premium, reinstatement of receivables, cancellation of forward, discounting received etc but while computing the total income has reduced the same while computing the profits from Business and Profession because capital gains arising on the transfer were already offered to tax in AY 2011-12. It is however found that the assessee had subsequently taken a forward contract claimed as a safeguard from foreign exchange fluctuation. During AY 2013-14 USD 177080000 receivable in September 2013 from Abbott on account of undertaking sold to Abbott were transferred to a buyer Axis bank in March 2013. The receivables were discounted by entering into transfer agreement with Axis Bank dated March 25th 2013 at the rate of USD 55. The assessee Suo motto offered a capital gain of Rs 8,45,42,842/-on account of this transaction. 3.4 Further from the perusal of the records of AY 2013-14 it is seen that , the DRP has gone into various aspects of a similar transaction and after analysing the facts of the case, it was held by the DRP in its order dated 29.9.2017 for AY 2013-14 that the actual gain of the assessee from the said transaction amounts to Rs 98,28,43,1207- and accordingly the AO was directed to make an addition of Assessment year: 2012-13 Page 9 of 16 Rs 89,83,00,2787- on this amount for AY 2013-14 and the issue has been discussed in detail in para-32 to 35 of the said order. 3.5 It was further observed by DRP that similar transactions were observed to have happened during AY 2012-13 too. As per the details furnished during the period pertaining to AY 2012-13, the asssessee was to receive 400 million USD on Abbott Receivables. The same was discounted at 55.295 rupees per dollar. As per the findings of DRP for AY 2013-14, the cost of acquisition on Abbott Receivable was 46.680 rupees per USD. Therefore, there was a gain of Rs. 8.609 rupees per USD which comes to Rs. 344.36 crores which is apparently taxable in the hands of the assessee for AY 2012.13 4. In view of the above discussion, it is held that the assessment order passed by the AO is erroneous and prejudicial to the interest of the revenue. The assessment order is therefore set aside to the file of the AO with directions to verify the transactions of discounting of Abbott Receivables during AY 2012-13, so that if the consequent gain for the said AY is found to be fully or partly not offered for taxation, the same could be considered for bringing to taxation.
7. Aggrieved by the revision order so passed by the learned Principal Commissioner, the assessee is in appeal before us.
One of the points that Shri Mistry, learned senior counsel, has vehemently canvassed before us is that the issue on which learned Principal Commissioner has passed the impugned revision order is an issue which did not even come up for consideration before him, during the hearing in respect of these revision proceedings. It is contended that the short point on which the hearing was taken by the learned Principal Commissioner was that the accounting figure of Rs 309,51,25,000, i.e. gain on foreign exchange receivables and related forward contracts, is an additional consideration for slump sale of domestic formulation business, and is, therefore, chargeable to tax, which, according to the learned Principal Commissioner, should be added to the returned income of the assessee. No other point was put to the assessee, and hearing was concluded. Learned counsel submits that the counter affidavit filed by the learned Principal Commissioner does not dispute the above position but merely submits that the discounting issues, on which impugned revision is actually done, was well within the knowledge of the assessee as the finings of the Dispute Resolution Panel for the assessment year 2013-14, which specifically dealt with this issue, were obviously known to the assessee, and that, even if there be a procedural lapse, the matter should at best be remitted back to the Principal Commissioner for fresh adjudication, as the lapse is only a curable defect. It is then pointed out that, as held by Hon’ble Supreme Court in the case of CIT Vs Amitabh Bachhan [(2016) 384 ITR 200 (SC)], learned Commissioner is indeed free to exercise his jurisdiction on consideration of all the facts, as long an opportunity of hearing is provided to the assessee to contest facts on the basis of which learned Commissioner seeks to exercise his revisional power. It is submitted that this requirement is not satisfied on the facts of the present case. Learned counsel for the assessee also places his reliance on the Assessment year: 2012-13 Page 10 of 16 judgment of Hon’ble Punjab & Haryana High Court, in the case of CIT Vs Roadmaster Industries of India Ltd [(2013) 233 Taxman 13 (P&H)]. It was then contended that if the Commissioner was to get another opportunity for conducting hearing on the issues on which revision is done, without providing an opportunity of hearing to the assessee at the stage of first revision proceedings, it would result in a situation that the revision can be done on any ground without providing an opportunity of hearing, and such a lapse, which is jurisdictional, is made up at a later point of time. Learned Departmental Representative vehemently opposes these submissions. The stand of the learned Commissioner is that even if the assessee is not given an opportunity of hearing by the learned Commissioner on a particular point, even though the jurisdiction to exercise powers under section 263 was lawfully assumed, the matter is required to be remitted back to the learned Principal Commissioner for taking a fresh call, after providing a reasonable opportunity of hearing to the assessee. In a note filed before us, learned Departmental Representative has submitted as follows:
On the issue of violation of principles of natural justice 1. Though the issue of discounting transaction of Abbott Receivables with Axis Bank was not specifically mentioned in the notice u/s 263, the discounting transaction forms part of the break up of Rs. 309,51,25,000/- which was reduced from business income in the computation of income which was the subject matter for issue of notice u/s 263. This being so, it cannot be said that the action of the Ld. PCIT in setting aside the assessment order with directions to the AO to verify the discounting of Abbott Receivables is on a completely different basis as against the reasons mentioned in the notice u/s 263.
At the time of proceedings u/s 263, the findings of DRP for AY 2013-14 vide order dated 29.09.2017 were already available to the assessee and as per the findings of DRP for AY 2013-14 a gain of Rs. 8.609 rupees per USD which comes to Rs. 344.36 crores which is apparently taxable in the hands of the assessee for AY 2012-13 was already crystallized. This issue was thus very well within the knowledge of the assessee as well as the Revenue and was very well part of the records. Thus, the proceedings under section 263 are very much in sync with the ratio of the Hon'ble Apex Court Judgement in the case of CIT vs Amitabh Bachchan, 384 ITR 200 (SC) which reads: If the revisional authority had come to its conclusions in the matter on the basis of the record of the assessment proceedings which was open for scrutiny by the assessee and available to his authorized representative at all times it is difficult to see as to how the requirement of giving of a reasonable opportunity of being heard as contemplated by Section 263 of the Act had been breached in the present case. Hence the order passed u/s 263 of the Act is as per law.
The Ld. PCIT had aside the assessment order with directions to the AO to verify the discounting of Abbott Receivables during AY 2012-13, so that if the consequent gain for the said AY is found to be fully or partly not offered for taxation. The order u/s 263 has in no way crystallized the assessee's liability and has left the door open for the assessee to make its submissions on the said matter before the AO and the AO is duty bound to pass a speaking order after taking the submissions of the Assessment year: 2012-13 Page 11 of 16 assessee under due consideration. No undue prejudice has been caused to the assessee .
Without prejudice to the above submissions, if it is held that opportunity of being heard was not given to the assessee, then, the same is to be treated as a procedural lapse and hence a curable defect. The Hon'ble Madras High Court in the case of V. Raju v Commissioner of Income-tax (1984) 16 Taxman 249 (Mad) has held that in view of principles of natural justice having been embedded in section 263 itself, order passed by commissioner under section 263 without giving opportunity to assessee of being heard, suffered only from procedural irregularity and could not be void ab initio and non est in law. It also held that the tribunal, while setting aside order of commissioner passed under section 263 on the ground of procedural irregularity, is duty bound to direct commissioner to pass fresh order after following statutory procedure. In CIT vs Electro House(1971) 82 ITR 824 (SC), the Hon'ble Supreme Court held that breach of the principles of natural justice might affect the legality of the order made but that did not affect the jurisdiction of the Commissioner u/s 263. The same view has been reiterated in the case of CIT vs Amitabh Bachchan, 384 ITR 200 (SC).
5. It is accordingly submitted that the impugned order u/s 263 may be set aside and restored back to the PCIT with the direction to pass fresh order after giving opportunity of being heard to the assessee. For this proposition, reliance is also placed on the following judicial decisions: (i) CIT v National Taj Traders [1979] 2 Taxman 546 (SC) Head Notes: Section 33B(1), (2) and (4) of the Indian Income-tax Act, 1922 [Corresponding to section 263(1) & (2) and section 254 of the Income-tax Act, 1961] - Revision - Appellate Tribunal - Powers of-To made assessment for assessment years 1958-59 and 1959-60 in status of URF -Commissioner cancelled them under section 33B by passing ex parte order and directed for fresh assessment by ITO holding proper jurisdiction - Tribunal (a) upheld assumption of jurisdiction by CIT under section 33b but (b) remanded case back to CIT directing its disposal afresh after giving due opportunity to assessee - High court affirmed tribunal's order except holding that tribunal was right in law in directing CIT for fresh disposal in view of expiry of limitation period of two years prescribed under section 33b(2)(b) - Whether high court had legally erred in setting aside tribunal's direction to CIT for fresh disposal - Held, yes (ii) Kapurchand Shrimal v CIT [1981] 7 Taxman 6 (SC) Head Notes: Section 25A of the Indian Income-tax Act, 1922 (Corresponding to section 171 of the inconfie-tax Act, 1961) - Hindu undivided family - Assessment after partition - Assessment order passed by ITO in case of a HUF without holding an inquiry into validity of claim of partition made within a reasonable time by a member of HUF - Whether such assessment liable to be cancelled - Held, yes - Whether tribunal Assessment year: 2012-13 Page 12 of 16 dealing with such question in appeal can merely cancel ITO's oijder without a further direction to assessing authority either to modify assessment suitably or to pass a fresh order of assessment in accordance with law - Held, no (iii) Prem Syndicate v CIT[1983] 141ITR 290 (Madhya Pradesh) Head Notes Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment years 1967-68 and 1968-69 - Commissioner issued notice under section 263(1) which was served on authorised representative of assessee firm and on family member of its partner - Notice was served at Indore one day before date of hearing at Bhopal - None appeared before Commissioner on behalf of assessee - Commissioner after setting aside assessment order directed ITO to make fresh assessment -Tribunal held Commissioner's order to be void ab-initio and also refused to direct Commissioner to pass fresh order after giving assessee further opportunity of being heard - Whether no notice was required to be issued ay Commissioner before exercising jurisdiction to proceed under section 263(1) and, hence, question of its validity did not arise nor did, it affect Commissioner's jurisdiction to exercise power under section 263(1) - Held, yes - Whether however, on facts, there was no proper opportunity to assessee to show cause why an order against assessee be not passed by Commissioner under section 263(1) - Held, yes - Whether breach of principles of natural justice might affect legality of order but not Commissioner's jurisdiction - Held, yes - Whether, therefore, exercise of jurisdiction by Commissioner under section 263(1) was valid and his order was not void ab initio - Held, yes - Whether since Tribunal's finding that order of Commissioner was void ab initio was not justified, it was not right in refusing to direct Commissioner to pass an order under section 263(1) afresh after giving due opportunity to assessee - Held, yes (iv) Smt. Anantkuverba v Commissioner of Wealth-tax[1993] 201ITR 42 (Gujarat) Head Notes: Section 25 of the Wealth-Tax Act, 1957 - Revision by Commissioner - Assessment years 1972-73 to 1975-76 - Whether no notice is required to be issued by Commissioner before assuming jurisdiction to proceed under section 25(2) - Held, yes - Whether, however, in such a case, Tribunal undoubtedly has jurisdiction to remand matter to Commissioner and to direct him to dispose of proceedings under section 25(2) afresh, after giving due opportunity to assessee -Held, yes 6. The above submissions may kindly be considered while adjudicating the appeal.
In brief rejoinder, learned counsel for the assessee reiterates his submissions, and contends that no useful purpose will be served by remitting the matter to the file of the learned Principal Commissioner. He submits that in case we are inclined to remit the matter to the file of the Principal Commissioner, he would rather not press this grievance, and pray that the matter be adjudicated on merits. He submits that he has a strong case on merits and Assessment year: 2012-13 Page 13 of 16 he takes pains to explain the same. In short his point is that the rate of Rs 55.295 per US Dollar, as adopted by the learned Principal Commissioner, is a mistake pure and simple inasmuch as he has adopted that rate from the DRP order for the assessment year 2013-14, whereas the correct rate, for the year before us, is Rs 49.1545 per US Dollar. He submits that when we compute the gains, in rupee terms, on the basis of the said conversion rate, it comes to only Rs 98.74 crores as against the discounting charges of Rs 111.74 crores, resulting in short term capital loss of Rs 13 crores as claimed by the assessee in its revised return. It is also pointed out that all these details were duly submitted before us, that we have called a remand report from the Assessing Officer on the same wherein the Assessing Officer has accepted correctness of the said conversion rate but submitted that he “is not in a position to make any comment as under what analogy the learned PCIT has adopted the said exchange rate in the order under section 263 dated 29th March 2019”. He submits that, for this reason, on merits also, the impugned revision order needs to be quashed. Of course, he has dealt with, and addressed us at length, on several other legal and factual aspects, but, for the reasons we will set out in a short while, it is not really necessary to go into those aspects in any detail.
We have considered the rival submissions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
We find that as is evident from a perusal of the affidavits filed by the learned counsel for the assessee as also by the learned Principal Commissioner, it is clear that the learned Principal Commissioner has not given any opportunity of hearing to the assessee on the precise point on which the powers of revision exercised, and, to borrow the words of Hon’ble Supreme Court in the case of Amitabh Bachan (supra), “there can be no dispute that while the C.I.T. is free to exercise his jurisdiction on consideration of all relevant facts, a full opportunity to controvert the same and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to him by the C.I.T. prior to the finalization of the decision”. To this extent, undoubtedly, the impugned order is vitiated in law, but the question is what are the implications of this failure on the part of the learned Commissioner. We find that so far as the question as to whether, in the absence of an opportunity of hearing having been given on the points on which powers of revision under section 263 are exercised, the matter can be sent back to the file of the Commissioner, for adjudication de novo after giving an opportunity of hearing to the assessee, is concerned, this issue stands concluded against the assessee by Hon’ble Madras Court in the case V Raju (supra) wherein Their Lordships has observed that, “As already stated, the duty of the Tribunal does not end with merely setting aside the order of the Commissioner and it has got a duty to direct the Commissioner to pass an order afresh, after following the statutory procedure contained in section 263(1). As pointed out by the Supreme Court in National Taj Trader's case (supra), mere setting aside of the order by the Tribunal will leave the ITO's order which has been held by the Assessment year: 2012-13 Page 14 of 16 Commissioner to be against the interest of the revenue intact and, therefore, the Tribunal is duty bound to give a direction to the Commissioner to make a fresh order under section 263, if the order already passed under that section is found to be one passed without following the statutory procedure and without giving a reasonable opportunity, as contemplated by the statute”. Undoubtedly, it is a decision from Hon’ble non-jurisdictional High Court, but it only interprets a binding judicial precedent from Hon’ble Supreme Court, in the case of National Taj Traders (supra), and there is nothing contrary thereto. Clearly, therefore, the matter is required to be remitted back to the file of the learned Commissioner, for addressing this curable defect and for fresh adjudication after giving an opportunity of hearing to the assessee. When there is a foundational curable defect in the impugned order, and we are alive to this situation, we cannot simply ignore the same, and proceed to take a call on merits at this stage itself. When admittedly no hearing has taken place on the issue in the impugned revision order, and as such proper call, after hearing the assessee, is required to be taken at that stage now, we cannot simply bypass that forum and take a call on merits, at our level, on that issue. We have no reasons to doubt that in case, on merits, no revision is required to exercised on the issue, the Commissioner will not, once he has the benefit of hearing the assessee on merits, drop the revision proceedings. We have heard the parties on this foundational aspect, and the only fetters on the grounds on which we decide an appeal on is that we can do so only after hearing parties on the said ground. Just because an assessee prefers the matter being decided on merits by us does not bind us for a decision on merits. In any case, we are of the considered view that such a decision on merits at this stage will be premature and inappropriate. However, once the assessee has raised the matter on merits, we may briefly deal with this aspect as well. That takes us to the factual issue raised by the learned counsel with respect to the correct US dollar conversion rate to be adopted for computing the gains on discounting. There indeed seems to be an error in adopting the conversion rate inasmuch as the learned Commissioner simply seems to have adopted the rate relevant for the assessment year 2013-14, as mentioned in the DRP order, for the present assessment year as well. While one can understand anxiety of the assessee to bring an end to the dispute at this forum itself, we are of the considered view that the right course of action will be to send the matter back to the file of the Commissioner for giving an opportunity of hearing to the assessee, on the point on which the impugned revision is actually done in the present case, and thus afford an opportunity to the assessee explain the circumstances surrounding this issue, as may be considered relevant by the assessee. While doing so, learned Commissioner will also consider whether the rate of foreign exchange conversion, as pointed out by the assessee and as accepted by the Assessing Officer, is indeed in order, and, if so, whether the subject assessment order can indeed be said to erroneous and prejudicial to the interest of the assessee. In other words, before deciding the matter afresh in the remanded proceedings, learned Commissioner must take a categorical call on this factual aspect, now that it has been pointed out, and in case the stand of the assessee is found to be correct, the matter must end there. Assessment year: 2012-13 Page 15 of 16 12. As the matter is being remitted back to the file of the learned Commissioner, it is made clear that the subject matter of hearing will be confined to the issue in the impugned revision order, that the learned Commissioner does not have the liberty of modifying or expanding the scope of the impugned revision proceedings, as the remand is for the limited purpose of providing an opportunity of hearing to the assessee on the points taken in the impugned revision proceedings, that all the contentions of the assessee in this appeal and on merits are left open, and that the Commissioner will deal with all such contentions, as may be raised by the assessee in the remanded proceedings, by way of a speaking order, in accordance with the law and by way of a speaking order. With these directions, the matter is hereby restored to the file of the learned Commissioner.
In view of the fact that the matter has been restored to the file of the learned Principal Commissioner for fresh adjudication, as above, we see no need to address ourselves to other grounds of appeals. These aspects of the matter are rendered academic and infructuous
14. We may also add that the assessee had raised several other factual aspects of the matter, in addition to the issue specifically set out about the rate of conversion of foreign exchange contracts, but, given the fact that the matter is being remitted to the file of the Principal Commissioner for addressing a foundational, even if curable, defect, we are not dealing with these aspects in any detail. Learned Principal Commissioner had no occasion to deal with these aspects, and, we are of the considered view that these issues should be first raised before the learned Principal Commissioner, rather than directly before us. We leave it that for the time being.