ESSAR SHIPPING LIMITED ,MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX - 5, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E”, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI N.K. PRADHAN, HON'BLE ACCOUNTANT MEMBER ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited v. Pr. CIT-5 Essar House, 11, K.K. Marg Room No. 501 Mahalaxmi, Mumbai – 400 034 Aayakar Bhavan, M.K. Road Mumbai-400 020 PAN: AACCE3707D (Appellant) (Respondent) Assessee by : Shri Vijay Mehta Department by : Shri D.G. Pansari

Date of Hearing : 27.09.2019 Date of Pronouncement : 30.09.2019

O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Ld. Principal Commissioner of Income Tax– 5, Mumbai [hereinafter in short “Pr.CIT”] dated 28.03.2018 passed u/s. 263 of the Act setting aside the assessment order dated 10.04.2015 passed u/s. 144C(1) r.w.s. 143(3) of the Act, directing the Assessing Officer to conduct proper investigations and frame fresh assessment.

2 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited Briefly stated the facts are that, the assessee is engaged in the 2. business of shipping and logistics business. The income arising from shipping business is offered under tonnage business and income arising from non-shipping business is offered under non-tonnage business. During the relevant previous year, the shipping business of M/s. Essar Ports Limited was demerged with the assessee w.e.f. 01.10.2010 as per the Scheme approved by the High Court of Gujarat. For the previous year relevant to the year under consideration, return of income was filed declaring loss of ₹.47,85,08,570/- which was initially processed u/s.143(1) of the Act and, thereafter selected for scrutiny. In response to the statutory notices issued in the course of the assessment proceedings due compliance was made. The draft order framed u/s.144C(1)/143(3) of the Act dated 05.03.2015 was served on the assessee on 10.03.2015. Since the issue of determination of arm's length price was involved, the Assessing Officer made reference u/s. 92CA(1) of the Act to the Transfer Pricing Officer [hereinafter in short “TPO”] vide letter dated 23.10.2013. Subsequently the TPO passed an order u/s. 92CA(3) of the Act dated 22.01.2015 determining the arm’s length price of the international transactions. The final assessment order was passed on 10.04.2015 u/s.144C(1) r.w.s. 143(3) of the Act.

3 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited The Ld. Pr.CIT thereafter issued notice u/s. 263 of the Act dated 3. 12.03.2018 directing the assessee to show cause as to why the order passed u/s. 144C(1) r.w.s. 143(3) of the Act be not revised, on the ground that the assessee had not allocated interest expenditure on non- convertible debentures of ₹.39.61 crores and interest expenditure on FCCB of ₹.27.57 crores to tonnage business. Ld. Pr.CIT further observed in the notice that out of the balance interest expenditure of ₹.19.92 crores, ₹.14.17 crores was allocated to non-tonnage business. Therefore, he was of the view that the same is in the nature of capital expenditure and not to be allowed.

A detailed reply dated 20.03.2018 was filed assailing the 4.

correctness of the issues raised in the notice u/s. 263 of the Act. The Ld. Pr. CIT, however, not accepted the submissions made by the assessee and, issued the following directions vide his order dated 28.03.2018: "5. I have perused the relevant record and also considered the submissions made on behalf of the assessee company. The assessee claimed interest expenditure of Rs. 123,10,57,100/- which was allocated to the tonnage and non- tonnage business. The interest expenditure of R. 81,36,80,821/- allocated to non- tonnage business included interest expenditure of Rs. 39,61,61,644/- and Rs. 27,57,66,170/-related to NCD and FCCB respectively, which should have been allocated to tonnage as well as non-tonnage business in the ratio of turnover. The Ld. AR submitted that the borrowed fund in the form of NCD and FCCB was utilized for giving Inter Corporate Deposit and for investment in wholly-owned subsidiary company thereby indicating that the fund was utilized for non-tonnage business. The Ld. AR further submitted that the assessee borrowed money from LIC and gave Inter Corporate Deposit of Rs. 418 crores to its wholly-owned subsidiary M/s. Essar Oilfield Services India Limited (EOSIL) engaged in business of oil drilling operations and there was one-to-one nexus between the borrowed fund and the Inter Corporate Deposit given to EOSIL which could be verified from the bank statement. The Ld. AR added that the money borrowed in the form of FCCB was

4 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited invested in its wholly owned subsidiary M/s. Essar Oilfield Services Limited, Mauritius (EOSL) and the direct nexus could be verified from FIRCs. The assessment record reveals that the issue was not at all examined by the AO at the assessment stage. As no query in this regard was raised by the AO, no submission as made in the present proceedings u/s. 263 was filed before him. The AO failed to examine the nexus between borrowed fund and its utilization for the purposes of non-tonnage business as claimed by the assessee company in course of the present proceedings. In absence of such investigation, the AO was erroneous in allowing the claim of the assessee in allocating the entire expenditure on account of interest related to NCD and FCCB to non-tonnage business instead of allocating the same to tonnage and non-tonnage business in the ratio of respective turnover. Also, the AO did not examine the magnitude of interest earned on ICD. Secondly, interest expenditure of Rs. 81,36,80,8217- allocated to non-tonnage business include interest of Rs. 14,17,53,007/- on account of investment that was clearly not allowable in view of the provisions of section 437(1) which reads as: any expenditure (not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenses of thee assessee) laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and Gains of business or profession”. The AO failed to ascertain the facts and examine the issue of allowability of interest related to investment as business expenditure in view of the provisions of section 37(1). The AO also failed to examine the veracity of the claim now made by the assessee that such interest was anyway allowable u/s. 36(1)(iii). The above discussion clearly suggested that the AO allowed the claims of interest expenditure allocated to non-tonnage business without carrying out proper investigation so as to ascertain the relevant facts which rendered the assessment erroneous in so far as it is prejudicial to the interest of the revenue within the meaning of section 263. The AO passed the assessment order without making inquiries or verifications as stated above which should have been made thereby attracting the provisions of clause (a) of Explanation 2 to section 263(1) and therefore the assessment order shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue. I therefore invoke the provisions of section 263 and set aside the impugned assessment order u/s. 144C(1) read with section 143(3) passed on 10.04.2015 and direct the AO to conduct proper investigation in the issues involved as narrated above and then frame fresh assessment after allowing reasonable opportunity to the assessee."

before us. The assessee has taken the following grounds in its appeal

challenging the validity and correctness of the order passed by the

Ld. Pr.CIT u/s. 263 of the Act.

"1. The order passed by the learned CIT u/s. 263 of the Income-tax Act 1961 is illegal and bad in law. 2. The learned CIT has erred in law and on facts in holding that the order passed by the Assessing Officer was erroneous and prejudicial to the interests of the revenue. 3. The learned CIT ought to have appreciated the fact that no part of interest expenditure of Rs. 67,11,51,226/- was to be allocated to tonnage business activity.

5 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited 4. The learned CIT ought to have appreciated the fact that interest expenditure of Rs. 14,17,53,007/- was incurred for purpose of business and hence is allowable as deduction u/s. 36(1)(iii) r. w.s. 37 of the Act."

6 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited 23.10.2013. Ld. Counsel for the assessee submits that an approval from the Commissioner u/s. 92CA(1) was obtained on 28.10.2013 which is later to 23.10.2013 which is the date of reference made to TPO. Therefore, the Ld. Counsel for the assessee submits that since the Assessing Officer made reference u/s. 92CA(1) on 23.10.2013 to TPO which is prior to obtaining the approval from Commissioner i.e. on 28.10.2013 and passed final Assessment Order u/s. 144C(1) r.w.s. 143(3) of the Act on 10.04.2015, the reference made by the Assessing Officer is bad in law as it is in contravention to the provisions of section 92CA(1) of the Act. Ld. Counsel for the assessee submits that since the reference made to TPO is invalid the extended time limit to pass the assessment order as per the provisions of section 153 would not be applicable. Therefore, he submits that as per the provisions of section 153(1)(a) the time limit for completion of assessment shall be two years from the end of the assessment year in which the income was first assessable and since the assessment year involved in the present case is A.Y. 2011-12 the outer time limit for passing the Assessment Order shall be 31.03.2014 but Assessment Order u/s. 144C(1) r.w.s. 143(3) of the Act was passed on 10.04.2015. Therefore, Ld. Counsel for the assessee submits that since the order which is subject matter of proceedings u/s. 263 of the Act was passed beyond the period of limitation it is illegal and bad in law and

7 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited consequently proceedings u/s. 263 of the Act revising such assessment order which is barred by limitation is also not valid. Reliance was placed on the following decisions: - (i). M/s. Westlife Development Ltd., v. Pr.CIT in ITA.No. 688/Mum/2016 date 24.06.2016 (ii). Classic Flour & Food Processing Pvt. Ltd., v. CIT in ITA.Nos. 764 to 766/Kol/2014 dated 05.04.2017. (iii). Supersonic Technologies Pvt. Ltd., v. Pr.CIT [197 TTJ 889]

8 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited furnished before Ld. Pr.CIT explaining the allocation made by the assessee in respect of interest to tonnage business and non-tonnage business. The Ld. Counsel for the assessee submits that it has been brought to the notice of the Ld. Pr.CIT that there is one to one nexus for the money received by the assessee company and the said amount has been given as Inter Corporate Deposits [hereinafter in short “ICD”] to its wholly owned subsidiary M/s. Essar Oilfield Services India Ltd [EOSIL] which is carrying on the business of oil drilling operations. Ld. Counsel for the assessee submits that in fact the bank statements were also furnished before the Ld. Pr.CIT in proof of nexus between the amount received and advanced to EOSIL. Therefore, it is submitted that the moneys borrowed by the assessee in the form of NCD and FCCB has been utilized for using ICD and for investments in wholly owned subsidiary company. Thus, it has been submitted that the said amount has been wholly utilized for non-tonnage business. Learned Counsel for the assessee submitted that, the moneys borrowed in the form of FCCB had been invested in its wholly owned subsidiary company M/s. Essar Oilfield Services Limited, Mauritius [EOSL]. Ld. Counsel for the assessee submits that a direct nexus between money received by the assessee and the investment made in preference shares of ESOL can be established from FIRC showing money received by the assessee company and

9 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited outward remittance. It is submitted that a copy of FIRC and outward remittance were also furnished before the Ld. Pr.CIT establishing this fact. Ld. Counsel for the assessee submits that the amount received from NCD and FCCB has been utilized only for non-tonnage business and hence it should not be split between tonnage business and non-tonnage business as proposed by the Ld. Pr.CIT.

10 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited the assessee referring to the reply submits that, it was explained to the Ld. Pr.CIT that the investments made by the assessee company in its wholly owned subsidiaries are for strategic business purpose and for furtherance of its business as per the objects of the company, therefore it was explained that the interest expenditure incurred on the funds borrowed which have been invested in the wholly owned subsidiary of the assessee company is allowable as business expenditure. It was explained that once the money has been borrowed for the purpose of the business the interest on the said borrowals has to be allowed u/s. 36(1)(iii) of the Act. It was explained that section 36(1)(iii) does not place any embargo on investments to be made in group concerns and subsidiary concerns. The Ld. Counsel for the assessee submits that in support of its contentions reliance was also placed on the decisions of the Hon'ble Bombay High Court in the case of CIT v. Phil Corporation Limited [244 CTR 226] and the Hon'ble Madras High Court in the case of CIT v. RPG Transmission Limited [48 taxman.com 57].

11 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited which is the computation of income and note mentioned therein submitted that, the shipping logistics and oilfield business were demerged into the assessee company from M/s. Essar Shipping Ports and Logistics w.e.f. 01.10.2010 as per the composite scheme of arrangement sanctioned by the Hon'ble Gujarat High Court by order dated 01.03.2011. Due to demerger the allocation was bifurcated between assessee company and M/s. Essar Shipping Ports and Logistics equally for six months each. This allocation has been accepted by the Assessing Officer while completing the assessment u/s. 143(3) of the Act in the case of M/s. Essar Ports Limited which is the predecessor of the assessee company.

12 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited enquiry. The Ld. Counsel for the assessee submits that on a reading of the impugned order the Ld. Pr.CIT had simply directed the Assessing Officer to conduct proper investigation and to frame a fresh assessment. Therefore, it is submitted that the order passed by the Ld. Pr.CIT passed u/s. 263 of the Act is not correct. For the proposition that Ld. Pr.CIT should conduct minimal enquiry before setting aside the matter to the Assessing Officer, reliance was placed on the following decisions: - (i). Pr.CIT v. Delhi Airport Metro Express Pvt. Ltd., in ITA.No. 705/2017 dated 05.09.2017 [Delhi High Court] (ii). M/s. Metacaps Engineering & Mahindra Construction Co. v. CIT in ITA.No. 2895/Mum/2014 dated 11.09.2017. (iii). Sadhana Stocks & Securities Pvt. Ltd., v. Pr.CIT [168 ITD 499] (iv). M/s. Arun Kumar Garg HUF v. Pr.CIT in ITA.No. 3391/DEL/2018 dated 08.01.2019.

13 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited 14. Ld. Counsel for the assessee further submits that the issue pointed out by the Ld. Pr.CIT on which revision was sought had already been considered by the Assessing Officer while completing the assessment and he had taken a possible view and hence Ld. Pr.CIT could not have exercised his jurisdiction u/s. 263 of the Act. Referring to Page No. 1 and 2 of the Paper Book which is the computation of total income and statement showing the allocation of expenses between the tonnage and non-tonnage business counsel submits that, assessee has shown bifurcation of Profit and Loss Account between tonnage and non-tonnage business and the details of the interest of ICD offered as business income. Ld. Counsel for the assessee referring to Page No. 15 and 16 of the Paper Book submits that the Assessing Officer in the course of the assessment proceedings issued notice u/s.142(1) of the Act dated 16.12.2014 calling for various details and documents. Referring to Point No. 9 of the questionnaire in the notice wherein the Assessing Officer called for party wise details of security deposits and advances to subsidiary with details of interest charged therein. Referring to Page No. 17 of the Paper Book which is the reply furnished by the assessee the Ld. Counsel for the assessee submits that, bifurcation of interest cost between Tonnage and non-tonnage business were provided to the Assessing Officer. Referring to the reply dated 02.01.2015 Ld. Counsel for the assessee submits that

14 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited the assessee explained that during the year the shipping business of M/s. Essar Ports Limited had been demerged into assessee company effective from 01.10.2010 as per the scheme approved by the Hon'ble Gujarat High Court and a copy of the order was also furnished. Details of bifurcation between tonnage and non-tonnage income was furnished, details of other income from non-tonnage business were furnished. Details of fleet operating and Chartering earnings from non-tonnage business were furnished. Therefore, the Ld. Counsel for the assessee submits that it is evident on record that both the issues pointed out by the Ld. Pr.CIT were explained to the Assessing Officer during the course of the scrutiny proceedings in response to his notice u/s. 142(1) of the Act. Therefore, it is submitted that since these issues were already considered by the Assessing Officer in the scrutiny proceedings and the Assessing Officer has taken one of the possible views, initiation of proceedings u/s. 263 of the Act was uncalled for.

15 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited Non- Tonnage Total Tonnage activity Sl.No. Particulars (in Activity Remarks (in Crores) (in Crores) Crores) 1. Interest on loan utilised for 36.00 36.00 - - acquisition of ship 2. Interest on NCD issued to LIC. 39.61 39.61 This allocation has been The proceeds of NCD was accepted by the AO u/s. utilised for giving ICD to Essar 143(3) of the Act in A.Y. Oilfield Services (India) Ltd. 2011-12 (in the case of Interest income on ICD has been Essar Ports Ltd. offered as business income (non- (predecessor) tonnage activity) 3. Interest on FCCB. The proceeds 27.57 27.57 This allocation has been of FCCB was utilised for making accepted by the AO u/s. investment in subsidiary which 143(3) of the Act in A.Y, was involved in logistics business 2011-12 (in the case of (non-tonnage activity) Essar Ports Ltd predecessor). 4, Balance interest expenditure 19.92 5.75 14.17 Accepted as revenue allocated between tonnage and expenditure by the AO u/s. non-tonnage income in the ratio 143(3) of the Act in A.Y. of funds utilised 2011-12 (in the case of Essar Ports Ltd - predecessor). 5. Total interest expenditure 123.10 41.75 81.35 -

Referring to the above chart, it is submitted that interest paid on

NCD issued by LIC amounts to ₹.39.61 Crores and the proceeds of the

LIC were used for giving ICD to M/s. Essar Oilfield Services (India) limited.

it was submitted that interest income on ICD has been offered as business

income under non tonnage business. Hence the entire interest paid on

NCD to be allowed as expenditure under non tonnage business.

Ld. Counsel for the assessee submits that in any case the assessee took

over the shipping business of M/s. Essar Ports Limited w.e.f. 01.10.2010

and interest expenditure on NCD for the period from 01.11.2010 to

30.09.2010 has been claimed under non tonnage business by M/s. Essar

Ports limited i.e. predecessor of the assessee company and the same has

16 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited been accepted by the Assessing Officer u/s. 143(3) of the Act for the A.Y. 2011-12.

17 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited 18. Thus, the Ld. Counsel for the assessee submits that for all the reasons explained above the order passed by the Ld. Pr.CIT u/s. 263 of the Act is invalid and deserves to be cancelled.

18 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited 21. We observe that for the previous year relevant to the Assessment Year under consideration i.e. A.Y. 2011-12 a return of income was filed by the assessee declaring loss of ₹.47,85,08,570/- which was initially processed u/s.143(1) of the Act and subsequently selected for scrutiny proceedings. Assessing Officer passed draft assessment order on 05.03.2015 framed u/s. 144C(1) r.w.s. 143(3) of the Act and the said order was served on the assessee on 10.03.2015. Since the issue of determination of arm’s length price was involved on the international transactions entered into by the assessee with its associate enterprises the Assessing Officer made a reference u/s. 92CA(1) of the Act to the Transfer pricing Officer by letter dated 23.10.2013 and the final Assessment Order u/s. 144C(1) r.w.s. 143(3) of the Act was passed on 10.04.2015. The assessee contends that this final assessment order which was passed on 10.04.2015 is time barred for the reasons that the Assessing Officer before making reference to TPO he has to obtain approval from the Commissioner as per provision of section 92CA(1) of the Act. However, this approval from Commissioner was obtained on 28.10.2013 after making a reference to TPO on 23.10.2013. Therefore, the reference made by the Assessing Officer without the prior approval of the Commissioner is in contravention of section 92CA(1) of the Act and therefore the reference is bad in law. Since the reference made to TPO

19 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited is invalid the extended time limit to pass the Assessment Order as per section 153 would not be applicable and the limitation for passing order u/s. 143(3) r.w.s. 144 in so far as the A.Y. 2011-12 is concerned is as per section 153(a) of the Act according to which the time limit for completion of assessment is two years from the end of the Assessment Year and since the assessment year involved in the present case is A.Y. 2011-12 the outer time limit for passing the Assessment Order was 31.03.2014. However, since the Assessment Order was passed on 10.04.2015 the same was passed beyond the period of limitation and therefore is illegal and bad in law.

20 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited 24. Admittedly in this case the approval of the Commissioner was obtained on 28.10.2013 which is after the date of reference made by the Assessing Officer to the TPO on 23.10.2013. As there is no valid reference, the extended time limit to pass the Assessment Order as per section 153 would not be applicable and consequently the time limit for completion of assessment u/s. 153(1)(a) will be two years from the end of the Assessment Year. The present Assessment Year involved is 2011-12, the assessment should have been completed on or before 31.03.2014 but in this case the assessment was completed on 10.04.2015 u/s. 144C(1) r.w.s. 143(3) of the Act .

21 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited 26. We observe that when an impugned assessment order passed u/s. 143(3) was illegal or nullity in the eyes of law, then whether the CIT had a valid jurisdiction to pass an order u/s. 263 to revise the non-est assessment order has come up for consideration before the Coordinate Bench in the case of M/s. Westlife Development Limited (supra) and the Coordinate Bench considering various decisions of the Hon'ble Supreme Court and the Hon'ble High Court’s held that, as per law the assessee should be permitted to challenge the validity of order passed u/s. 263 of the Act on the ground that the impugned assessment order was non-est. The Coordinate Bench further following the decision of the Delhi Bench in the case of Krishna Kumar Saraf v. CIT in ITA.No. 4562/Del/2011 held that when the original Assessment Order passed u/s. 143 (3) of the Act was null and void in the eyes of law, the Commissioner could not have assumed jurisdiction under law to make revision of a non-est order and therefore the impugned order passed u/s. 263 of the Act by the Commissioner is also nullity in the eyes of law. While holding so the Coordinate Bench observed as under: “7. We have heard both the parties on this issue and also gone through the orders passed by the lower authorities as well as the judgments relied upon before us. In our view, we need to decide following issues, before we go into any other issues or merits of the impugned order: 1. Whether the assessee can challenge the validity of an assessment order during the appellate proceedings pertaining to examination of validity of order passed u/s 263? 2. Whether the impugned assessment order passed u/s 143(3) dated 24- 10-2013 was valid in the eyes of law or a nullity as has been claimed by the assessee?

22 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited 3. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non est assessment order? In our considered view, since these issues are jurisdictional issues and go to the root of the matter, therefore before dealing with any other issue, we shall first deal with all above three issues one by one, as under: 8. Challenging the jurisdictional defects of assessment order for assailing the jurisdictional validity of the revision order passed u/s 263: The first issue that arises for our consideration is - whether the assessee can challenge the jurisdictional validity of order passed u/s 143(3) in the appellate proceedings taken up for challenging the order passed u/s 263? If we analyse the nature of both of these proceedings, which are under consideration before us, we find that the original assessment proceedings can be classified in a way as 'primary proceedings'. These are, in effect, basic / foundational proceedings and akin to a platform upon which any subsequent proceedings connected therewith can rest upon. The proceedings initiated u/s 263 seeking to revise the original assessment order is off shoot of the primary proceedings and therefore, these may be termed as 'collateral proceedings' in the legal framework. The issue that arises here is whether any illegality/invalidity in the order passed in the 'primary proceedings' can be set up in the 'collateral proceedings' and if yes, then of what nature? 8.1. We have analyzed this issue carefully. There is no doubt that after passing of the original assessment order, the primary (i.e. original proceedings) had come to an end and attained finality and, therefore, outcome of the same cannot be disturbed, and therefore, the original assessment order framed to conclude the primary proceedings had also attained finality and it also cannot be disturbed at the instance of the assessee, except as permitted under the law and by following the due process of law. Under these circumstances, it can be said that effect of the original assessment order cannot be erased or modified subsequently. In other words, whatever tax liability had been determined in the original assessment order that had already become final and that cannot be sought to be disturbed by the assessee. But, the issue that arises here is that if the original assessment order is illegal in terms of its jurisdiction or if the same is null & void in the eyes of law on any jurisdictional grounds, then, whether it can give rise to initiation of further proceedings and whether such subsequent proceedings would be valid under the law as contained in Income Tax Act? It has been vehemently argued before us that the subsequent proceedings (i.e. collateral proceedings) derive strength only from the order passed in the original proceedings (i.e. primary proceedings). Thus, if order passed in the original proceedings is itself illegal, then that cannot give rise to valid revision proceedings. Therefore, as per law, the validity of the order passed in the primary (original) proceedings should be allowed to be examined even at the subsequent stages, only for the limited purpose of examining whether the collateral (subsequent) proceedings have been initiated on a valid legal platform or not and for examining the validity of assumption of jurisdiction to initiate the collateral proceedings. If it is not so allowed, then, it may so happen that though order passed in the original proceedings was illegal and thus order passed in the subsequent proceedings in turn would also be illegal, but in absence of a remedy to contest the same, it may give rise to an 'enforceable' tax liability without authority of law. Therefore, the Courts have taken this view that jurisdictional aspects of the order passed in the primary proceedings can be examined in the collateral proceedings also. This issue is not res integra. This issue has been decided in many

23 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited judgments by various courts, and some of them have been discussed by us in f ollowings paragraphs. 8.2. In a matter that came up before Hon'ble Supreme Court in the case of Kiran Singh & Ors. v. Chaman Paswan & Ors., [1955] 1 5CR 117 the facts were that the appellant in that case had undervalued the suit at Rs.2,950 and laid it in the court of the Subordinate Judge, Monghyr for recovery of possession of the suit lands and mesne profits. The suit was dismissed and on appeal it was confirmed. In the second appeal in the High Court the Registry raised the objection as to valuation under Section 11. The value of the appeal was fixed at Rs.9,980. A contention then was raised by the plaintiff in the High Court that on account of the valuation fixed by the High Court the appeal against the decree of the court of the Subordinate Judge did not lie to the District Court, but to the High Court and on that account the decree of the District Court was a nullity. Alternatively, it was contended that it caused prejudice to the appellant. In considering that contention at page 121, a four Judge Bench of the Hon'ble Supreme Court speaking thorough Vankatarama Ayyar, J. held that: - 'lt is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject- matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties." 8.3. This judgment was subsequently followed by Hon'ble Supreme Court in the landmark case of Sushil Kumar Mehta vs Gobind Ram Bohra, (1990) 1 SCC 193, wherein an issue arose whether a decree can be challenged at the stage of execution and whether a decree which remained uncontested operates as res-judicata qua the parties affected by it . Hon'ble apex court, taking support from aforesaid judgment, observed as under: "In the light of this position in law the question for determination is whether the impugned decree of the Civil Court can be assailed by the appellant in execution. It is already held that it is the Controller under the Act that has exclusive jurisdiction to order ejectment of a tenant from a building in the urban area leased out by the landlord. Thereby the Civil Court inherently lacks jurisdiction to entertain the suit and pass a decree of ejectment. Therefore, though the decree was passed and the jurisdiction of the Court was gone into in issue Nos. 4 and 5 at the ex-parte trial, the decree there-under is a nullity, and does not bind the appellant. Therefore, it does n o t o p e r a t e a s a r e s j u d i c a t a . T h e C o u r t s b e l ow h a v e committed grave error of law in holding that the decree in the suit operated as res judicata and the appellant cannot raise the same point once again at the execution." 8.4. Similar view has been taken by Hon'ble Supreme Court by following aforesaid judgments recently in the case of Indian Bank vs Manual Govindji Khona reported in 2015 (3) SCC 712. Further, similar view was emphasized by Hon'ble Bombay High Court (GOA Bench) in the case of Mavany Brothers vs CIT (Tax Appeal No 8 of 2007) in its order dt 17th April, 2015 wherein it was held that an issue of jurisdiction can be raised at any time even in appeal or execution.

24 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited 8.5. The aforesaid principles, enunciated by the Apex Court in the case of Kiran Singh & Ors. v. Chaman Paswan & Ors, supra were reiterated by the Apex Court in the cases of Superintendent of Taxes vs Onkarmal Nathmal Trust (AIR 1975 SC 2065) and Dasa Muni Reddy v. Appa Rao (AIR 1974 SC 2089). In the first of these decisions it was pointed out that revenue statutes protect the public on the one hand and confer power upon the State on the other, and the fetter on the jurisdiction is one meant to protect the public on the broader ground of public policy and, therefore, jurisdiction to assess or reassess a person can never be waived or created by consent. This decision shows that the basic principle recognized in Kiran Singh (supra) is applicable even to revenue statutes such as the Income Tax Act. Dasa Muni Reddy (supra) is a judgment where the principle of 'coram non judice' was applied to rent control law. It was held that neither the rule of estoppel nor the principle of res ludicata can confer the Court jurisdiction where none exists. Here also the principle that was put into operation was that jurisdiction cannot be conferred by consent or agreement where it did not exist, nor can the lack of jurisdiction be waived. 8.6. These judgments were subsequently noticed by Hon'ble Gujarat High Court in the case of P. V. Doshi 113 ITR 22(Gujrat). This case arose under the Income Tax Act with reference to the provisions of Section 147 dealing with re- assessment. The facts were that the assessment was sought to be reopened under Section 147 and notice under section 148 was issued. Validity of reopening was not challenged upto Tribunal and additions were challenged on merits only. The Tribunal restored the matter to the Assessing Officer with some directions to reexamine the issue on merits. When the matter came back to the assessing officer the assessee specifically raised the point of jurisdiction to reopen the assessment, contending that the notice of reopening was prompted by a mere change of opinion. The AO rejected plea of the assessee but the AAC accepted this ground and also held the reassessment to be bad in law on jurisdictional ground. Against the order of the AAC the Revenue went in appeal before the Tribunal and specifically raised the plea that the question of jurisdiction to reopen the assessment having been expressly given up by the assessee in the appeal against the reassessment order in the first round, the assessee was debarred from raising that point again before the AAC and the AAC was equally wrong in permitting the assessee to raise that point which had become final in the first round and in adjudicating up on the same. The plea of the Re venue impressed the Tribunal which took the view that after its earlier order in the first round of proceedings the matter attained finality with regard to the point of jurisdiction which was given up before the AAC and not agitated further and that in the remand proceedings what was open before the Assessing Officer was only the question whether the addition was justified on merits and the point regarding the jurisdictional aspect was not open before the Assessing Officer. According to the Tribunal, the assessee having raised the point in the first round and having given it up could not revive it in the second round of proceedings where the issue was limited to the merits of the additions. In this view, the Tribunal accepted the Revenues plea. The assessee thereafter carried order of the Tribunal in reference before the Gujarat High Court. The High Court after considering various judgments of the Supreme Court on the point of jurisdiction to reopen the assessment and also after specifically discussing the judgment of the Supreme Court in Onkarmal Nathmal Trust (supra) and Dasa Muni Reddy (supra) held that the Tribunal was in error in holding that the question of jurisdiction became final when it passed the earlier remand order. It was held that neither the question of res judicata nor the rule of estoppel could be invoked where the jurisdiction of an authority was under challenge. According to Hon'ble Gujarat High Court, the rule of res judiccitci cannot be invoked where the question involved is the competence of the Court to assume jurisdiction, either pecuniary or territorial or over the subject matter of the dispute. Hon'ble High Court further held that since neither consent nor waiver can confer jurisdiction upon the Assessing Officer where it did not exist, no importance could be attached to the fact that the assessee, in the first round of

25 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited proceedings, expressly gave up the plea against the erroneous assumption of jurisdiction by the assessing authority. According to the Hon'ble Court, the "finality or conclusiveness could only arise in respect of orders which are competent orders with jurisdiction and if the proceedings of reassessment are not validly initiated at all, the order would be a void order as per the settled legal position which could never have any finality or conclusiveness. If the original order is without jurisdiction, it would be only a nullity confirmed in further appeals'. In this view of the matter, Hon'ble High Court finally answered the reference in favour of the assessee. 8.7. It is further noted that many of these judgments were discussed and followed by the co-ordinate bench of the Tribunal in the case of Indian Farmers Fertilizers Co-operative Ltd vs KIT 105 lTD 33 (Del), wherein a similar issue had arisen. In this case, the issue raised before the bench was whether it is open to the assessee, not having appealed against the reassessment order, to set up or canvass its correctness in collateral proceedings taken for rectification thereof u/s 154. The bench minutely analysed law in this regard and applying the principle of 'coram non judice' and following aforesaid judgments of the supreme court, it was held that if an assessee seeks to challenge the reassessment proceedings as being without jurisdiction, when action for rectification is sought to be taken on the assumption of the validity of the reassessment order, then the assessee has to step in and protect its interests and the liberty to question even the validity of the reassessment proceedings ought to be given to it......." (emphasis supplied). 8.8. Similar view was taken in another decision of the Tribunal in the case of Dhiraj Suri vs ACIT 98 lTD 87 (Del). In the said case, appeal was filed by the assessee before the Tribunal against the levy of penalty. In the appeal challenging the penalty order, the assessee challenged the validity of block assessment order which had determined the tax liability of the assessee on the basis of which penalty was levied subsequently. The revenue objected with respect to the ground of the assessee raising jurisdictional issues of assessment proceedings in the appeal against the penalty order. After analysing the legal position, as clarified by Hon'ble Gujrat High Court in the case of P.V. Doshi, supra and Hon'ble Bombay High Court in the case of Jainaravan Babulal vs CIT. 170 ITR 399, the bench held as that if the block assessment itself is without jurisdiction then there is no question of levy of any penalty u/s. 158BFA(2) and therefore it is open to the assessee to set up the question of validity of the assessment in the appeal against the levy of penalty. 8.9. We also derive support from another judgement of Hon'ble Bombay High Court in the case of Inventors Industrial Corporation Ltd vs CIT 194 ITR 548 (Bombay) wherein it was held that assessee was entitled to challenge the jurisdiction of the AO to initiate re-assessment proceedings before the CIT(A) in the second round of proceedings, even though he had not raised it in earlier proceedings before the Assessing Officer or in the earlier appeal. 8.10. Thus, on the basis of aforesaid discussion we can safely hold that as per law, the assessee should be permitted to challenge the validity of order passed u/s 263 on the ground that the impugned assessment order was non est and we hold accordingly. ………. 10. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non-est assessment order: Having decided the aforesaid two issues, the next issue that is to be decided by us is about the validity of order passed u/s 263 by the Ld. CIT seeking to revise the assessment order which was nullity in the eyes of law. 10.1. We have discussed in detail in earlier part of our order that an invalid order cannot give birth to legally valid proceedings. It is further noticed by us that some

26 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited of the judgments relied upon by the Ld. Counsel have already addressed this issue. This issue has also been decided by the co-ordinate bench (Delhi Bench of Tribunal) in the case of Krishna Kumar Saraf vs CIT (supra). The relevant part of the order is reproduced below: "17. There is no quarrel with the proposition advanced by Id. DR that the proceedings u/s 263 are for the benefit of revenue and not for assessee. 18 .However, u/s 263 the Id. Commissioner cannot revise a non est order in the eye of law. Since the assessment order was passed in pursuance to the notice U/S 143(2), which was beyond time, therefore, the assessment order passed in pursuance to the barred notice had no legs to stand as the some was non est in the eyes of law. All proceedings subsequent to the said notice are of no consequence. Further, the decision of Hon'ble Madras High Court in the case of CIT Vs. Gitsons Engineering Co. 370 ITR 87 (Mad) clearly holds that the objection in relation to non service of notice could be raised for the first time before the Tribunal as the some was legal, which went to the root of the matter. 19. While exercising powers u/s 263 Id. Commissioner cannot revise an assessment order which is non est in the eye of law because it would prejudice the right of assessee which has accrued in favour of assessee on account of its income being determined. If Id. Commissioner revises such an assessment order, then it would imply extending/ granting fresh limitation for passing fresh assessment order. It is settled law that by the action of the authorities the limitation cannot be extended, because the provisions of limitation are provided in the same. 20. In view of above discussion, ground no.3 is allowed and revision order passed u/s 263 is quashed." 10.2. It is further noticed by us that similar view has been taken by Chandigarh Bench of the Tribunal in the case of Steel Strips Ltd (supra). 11. Thus, after taking into account all the facts and circumstances of the case, we find that in this case, the original assessment order passed u/s 143(3) dt 24- 10-2013 was null & void in the eyes of law as the same was passed upon a non - existing entity and, therefore, the Ld. CIT could not have assumed jurisdiction under the law to make revision of a non est order and, therefore, the impugned order passed u/s 263 by the Ld.CIT is also nullity in the eyes of law and therefore the same is hereby quashed. 12. Since we have quashed the impugned order passed u/s 263 by Ld. CIT on jurisdictional ground, we do not find it necessary to deal with, at this stage, other legal aspects and issues raised on merits of the impugned order.”

the Tribunal in the case of M/s. Classic Flour & Food Processing Pvt. Ltd.,

v. CIT (supra) wherein a question arouse as to whether the order u/s. 263

of the Act is bad in law for the reason that the proceedings u/s. 147

27 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited initiated itself was bad in law, the order u/s. 143(3) r.w.s. 147 of the Act

was not maintainable since no assessment can be made by making

rowing and fishing enquiry and an invalid assessment cannot not be set

aside u/s. 263 of the Act. The Tribunal held as under: -

“8. The first aspect which needs to be examined is as to whether the assessee is entitled to challenge the validity of initiation of proceedings u/s 147 of the Act in the present appeals in which he has challenged the validity of order passed u/s 263 of the Act. The ld. Counsel for the assessee submitted before us that it is open to an assessee in an appeal against the order u/.s 263 of the Act which seeks to revise an order passed u/s 147 of the Act, to challenge the validity of the order passed u/s.147 of the Act as well as initiation of proceedings u/.s 147 of the Act. In this regard the ld. Counsel for the assessee placed before us two decisions one rendered by Lucknow Bench of ITAT in the case of Inder Kumar Bachani (HUF) vs ITO 99 ITD 621 (Luck) and ITAT Mumbai ‘G Bench in the case of M/s. Westlife Development Ltd. Vs Principal C.I.T. in ITA NO.688/Mum/2016. In both the decisions a view has been taken by the Tribunal that when an Assessment order passed u/s 147 of the Act was illegal the CIT cannot invoke the jurisdiction u/s 263 of the Act against such void or non-est order. In the second decision cited the Hon’ble Mumbai bench of the Tribunal has specifically framed the following questions :-

“1. Whether the assessee can challenge the validity of an assessment order during the appellate proceedings pertaining to examination of validity of order passed u/s 263? 2. Whether the impugned assessment order passed u/s 143(3) dated 24-10-2013 was valid in the eyes of law or a nullity as has been claimed by the assessee? 3. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non est assessment order?” 9. On question no. 1 and 3 which is relevant to the present case the Hon’ble Mumbai bench of the Tribunal has taken the view that when the original assessment proceedings are null and void in the eyes of law for want of proper assumption of jurisdiction then such validity can be challenged even in collateral proceedings. The Mumbai bench took the view that the proceedings u/s 147 of the Act are primary proceedings and proceedings u/s 263 of the Act are collateral proceedings and in such collateral proceedings, the validity of initiation of the original proceedings u/s 147 of the Act can be challenged. The Mumbai bench of the Tribunal in this regard has placed reliance on several decisions, the principal decision being that of the Hon’ble Supreme Court in the case of Kiran Singh & Ors. V. Chaman Paswan & Ors. [1955] 1 SCR 117 wherein the Hon’ble Supreme Court observed as follows :- “It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court

28 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited to pass any decree and such a defect cannot be cured even by consent of parties." 10. The ITAT Mumbai bench made a reference to another decision of the Hon’ble Supreme Court in the case of Sushil Kumar Mehta vs Gobind Ram Bohra, (1990) 1 SCC 193 and the decisions in the case of Indian Bank vs Manilal Govindji Khona (2015) 3 SCC 712. The ITAT Mumbai bench also held that if order of assessment passed u/s 147 of the Act was illegal and nullity in the eyes of law then that order cannot be revised by invoking powers u/s 263 of the Act by CIT. The Mumbai Bench has in this regard placed reliance on the decision of Hon’ble Delhi bench of the Tribunal in the case of Krishna Kumar Saraf vs CIT in ITA NO.4562/Del/2007 order dated 24.09.2015 wherein it was held as follows :- “17. There is no quarrel with the proposition advanced by Id. DR that the proceedings u/s 263 are for the benefit of revenue and not for assessee. 18 However, u/s 263 the Id. Commissioner cannot revise a non est order in the eye of law. Since the assessment order was passed in pursuance to the notice U/S 143(2), which was beyond time, therefore, the assessment order passed in pursuance to the barred notice had no legs to stand as the same was non est in the eyes of law. All proceedings subsequent to the said notice are of no consequence. Further, the decision of Hon’ble Madras High Court in the case of CIT Vs. Gitsons Engineering Co. 370 ITR 87 (Mad) clearly holds that the objection in relation to non service of notice could be raised for the first time before the Tribunal as the same was legal, which went to the root of the matter. 19. While exercising powers u/s 263 Id. Commissioner cannot revise an assessment order which is non est in the eye of law because it would prejudice the right of assessee which has accrued in favour of assessee on account of its income being determined. If Id. Commissioner revises such an assessment order, then it would imply extending/ granting fresh limitation for passing fresh assessment order. It is settled law that by the action of the authorities the limitation cannot be extended. Because the provisions of limitation are provided in the same 20. In view of above discussion ground no.3 is allowed and revision order passed u/s 263 is quashed. “ 11 The learned DR relied on the order of the CIT(A). We have considered the rival submissions. We are of the view that the validity of the order u/s 147 of the Act depends upon the AO assuming jurisdiction to make an order of assessment u/s 147 of the Act after fulfilling the conditions laid down in the said section namely reason to believe the income chargeable to tax for that assessment year has escaped assessment. If this condition is not satisfied then it cannot be said the AO has validly assumed jurisdiction u/s 147 of the Act. If the validity of proceedings u/s 147 of the Act has not been challenged by the assessee by filing appeal against the order u/s.147 of the Act, can it be challenged in the appeal against an order u/s 263 of the Act revising the invalid order u/s 147 of the Act. This issue has been analysed by the Hon’ble Mumbai Bench of the tribunal in the case of M/s. Westlife Development Ltd. (supra) and 147 proceedings has been equated to primary proceedings and the proceedings u/s 263 passed equated to collateral proceedings. It has further been held based on various judicial pronouncements of the Hon’ble Supreme Court that if the primary proceedings are non-est in law or void on the ground of lack of jurisdiction then the validity of such proceedings can be challenged even in an appeal arising out of collateral proceedings. We have already set out the ratio laid down in these decisions and we do not wish to repeat the same. Suffice it to say the law is well settled that invalidity of the primary proceedings for want of proper jurisdiction can be challenged even in appellate proceedings arising out of a collateral proceeding. In view of the aforesaid legal position we admit the additional grounds for adjudication.”

29 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited 28. The Delhi Bench of the Tribunal in the case of Supersonic Technologies Pvt. Ltd., v. Pr. CIT (supra) also considered a similar issue as whether assessee can challenge the validity of re-assessment proceedings in the collateral proceedings u/s. 263 of the Act, since the reassessment order itself is bad in law, whether such order can be revised u/s. 263 of the Act. The Tribunal held that since no notice u/s. 143(2) was prepared, issued and served upon the assessee, the assessment framed u/s. 147 of the Act is illegal, invalid and bad in law. Assessee can challenge the validity of re-assessment proceedings in the collateral proceedings u/s. 263 of the Act, therefore since the re-assessment order itself is bad in law the same could not be revised u/s. 263 of the Act.

30 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited Assessing Officer has not examined the issues while framing the

assessment. The Ld. Pr.CIT though extracted the submissions made by

the assessee, without making any preliminary enquiries by him he simply

concluded that the Assessment Order is erroneous as the Assessing

Officer has failed to examine the submissions which the assessee made

before him.

(supra), the Hon'ble Delhi High Court held as under: “9. It is seen, in the order dated 30th March 2016, the PCIT has proceeded by setting out the contents of the SCN and the contents of the reply given by the Assessee. It appears that no inquiry, as such, was undertaken by the PCIT to come to the conclusion that the original assessment order was erroneous and prejudicial to the interests of the Revenue.

& Securities Pvt. Ltd., v. Pr.CIT (supra) considered identical situation

where the CIT had not conducted any preliminary enquiries regarding the

31 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited submissions made by the assessee in the course of the proceedings

before him, and the Tribunal held as under:

“9. We have considered the rival submissions and also perused the relevant material available on record. It is observed that in the assessment completed under section 143(3), the claim of the assessee of derivative loss being non- speculation loss was accepted by the Assessing Officer. The records of the said assessment was subsequently examined by the ld. Principal CIT and on such examination, he held that the said derivative loss was liable to be treated as speculative loss by relying on the decision of the Hon'ble Delhi High Court in the case of CIT -vs.- DLF Commercial [(2013) 35 taxmann 280]. Accordingly he treated the order of assessment made by the Assessing Officer as erroneous on this issue on merit as is clearly evident from the notice issued by him under section 263, the contents of which are extracted hereinabove in paragraph no. 3. In reply filed to the notice issued by the ld. Principal CIT under section 263, a detailed submission was made by the assessee to show that there was no error in the order of the Assessing Officer in accepting its claim of Assessment Year: 2012-2013 derivative loss as non-speculation loss on merit. In this regard, reliance was placed by the assessee on the decision of the Hon'ble Calcutta High Court in the case of Asian Financial Services Limited -vs.- CIT [70 taxmann.com 9 (Calcutta)], wherein it was held that derivative loss can be set off against other profits. It was also brought to the notice of the ld. Principal CIT by the assessee that the said decision was rendered by the Hon'ble Jurisdictional High Court after considering the decision of the Hon'ble Delhi High Court in the case of DLF Commercial (supra), which was referred to in the notice issued under section 263. Reliance was also placed by the assessee on some other judicial pronouncements as well as the relevant provisions of section 43(5) in support of its contention that dealing in derivative was separate kind of transaction, which did not involve any purchase and sale of shares and, therefore, the derivative loss could not be treated as speculative loss. It is observed that although the ld. Principal CIT in his impugned order passed under section 263 reproduced the submission made by the assessee, he did not give any finding or observation thereon and without arriving at any conclusion to show how the order of Assessing Officer was erroneous on the issue on merit, he simply set aside the same on the ground that the claim of the assessee was accepted by the Assessing Officer without making enquiries or verification, which should have been made by him. In this regard, he relied on Explanation 2 to section 263 inserted in the Statute by the Finance Act, 2015 w.e.f. 01.04.2015. As per the said Explanation, an order passed by the Assessing Officer shall be deemed to be erroneous in so far as prejudicial to the interest of the revenue for the purpose of section 263 if, in the opinion of the ld. Principal CIT or ld. CIT, the same is passed without making enquiries or verification, which should have been made. It is observed that in the case of Sterling Biotech Ltd.-vs.- Principal CIT 9ITA No. 2750/MUM/2015 dated 29.06.2016), Mumbai Bench of this Tribunal has already considered the effect of Explanation 2 to section 263. In the said case, the contention raised on behalf of the assessee was that the ld. Principal CIT, before holding an order to be erroneous should have conducted necessary enquiries or verification in order to show that Assessment Year: 2012-2013 the finding given by the ld. CIT is erroneous and the view taken by the Assessing Officer is unsustainable in law and this contention of the assessee was found to be duly supported by law interpreted by the various Hon'ble High Courts including Hon'ble Delhi High Court. Reliance in this regard was placed on behalf of the Revenue on Explanation 2 to section 263 inserted by the Finance Act, 2015 w.e.f. 1 s t April, 2015. The Tribunal, however, did not find merit in the same by holding that the said Explanation can be said to have overridden the law interpreted by the Hon'ble Delhi High Court. It is observed by the Tribunal that if the revenue's contention is accepted, the ld. CIT can find a fault with each and every assessment order without conducting any enquiry or verification in order to establish that the

32 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited assessment order is not sustainable in law and order for revision. It was also observed that the ld. CIT then can force the Assessing Officer to conduct the enquiry in the manner referred by him prejudicing the independent application of mind of the Assessing Officer, which could not be the intention of the legislature inserting Explanation 2 to section 263. It was held that it could lead to unending litigation and there would not be any point of finality in the legal proceeding. 10. In the case of ITO -vs.- D.G. Housing Projects Limited (supra) cited by the ld. counsel for the assessee, the Hon'ble Delhi High Court has held that in cases of wrong opinion or finding on merits, the ld. CIT has to arrive at the conclusion and himself decide that the order is erroneous by conducting necessary enquiry, if required, before order under section 263 is passed. It was held that the ld. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. It was further held that in some cases, the ld. CIT can also show and establish that the facts on the record or inference drawn from the 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, un-ambiguous and not debatable and the matter cannot be remitted for a fresh decision to the Assessing Assessment Year: 2012-2013 Officer to conduct further enquiries. It was held that in such matters, to remand the matter/issue to the Assessing Officer would imply and mean that the ld. CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide this aspect/question.

Pr.CIT in his impugned order passed u/s. 263 of the Act reproduced the

submissions made by the assessee, he did not give any finding or

observation thereon and without arriving at any conclusion to show how

the order of the Assessing Officer was erroneous on the issue on merits

he simply set-aside the same on the ground that the claim of the assessee

was accepted by the Assessing Officer without making enquiries or

verification which should have been made by him.. We also observe that

the Tribunal also held that the CIT cannot remand matter to the Assessing

Officer to decide whether the findings recorded are erroneous. We also

observed from the Tribunal’s order that the Hon'ble Delhi High Court in

the case of D.G. Housing Projects. Ltd., [343 ITR 329] held that in cases

33 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited of wrong opinion or findings on merits the CIT has to arrive at the conclusion and he himself decide that the order is erroneous by conducting necessary enquiry if required, before passing order u/s. 263 of the Act.

34 ITA NO.3156/MUM/2018 (A.Y: 2011-12) M/s. Essar Shipping Limited 36. Thus, in view of the above reasons the order passed u/s.263 of the Act by the Ld. Pr.CIT is hereby quashed.

Order pronounced in the open court on the 30th September, 2019

Sd/- Sd/- (N.K. PRADHAN) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai / Dated 30/09/2019 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.

//True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum