EVEREST INDUSTRIES LTD,NEW DELHI vs. CIT -I, THANE

2.0 That on the facts and in the circumstances of the case and without prejudice to Ground No. 1.0 to 1.2 taken here-in-above, the Ld. CIT was not justified and grossly erred in contending that Sales Tax Incentive and Excise Duty Exemption availed by the appellant during the year, being in the nature of capital subsidy/incentive, amounting to Rs. 6,74,12,461/- and Rs. 15,67,00,636/- respectively should be excluded in computing Book Profit u/s 115JB.

3.0 That on the facts and in the circumstances of the case and without prejudice to Ground No. 1.0 to 1.2 taken here-in-above the Ld. CIT was not justified and grossly erred in holding that the amount of foreign exchange fluctuation loss of Rs. 12,35,43,256/- is not related to acquisition of any capital asset and consequentially adding it to the cost of the asset and allowance of depreciation on the same is not tenable.

3.1 That on the facts and in the circumstances of the case and without prejudice to Ground No. 3.0 taken here-in-above the Ld. CIT was not justified and grossly erred in holding that depreciation in the relevant year on foreign exchange fluctuation loss of Rs. 12,35,43,256/- which was disallowed and considered as addition to fixed assets in the order u/s 143(3) for AY 2009-10 could not have been allowed by the AO.

4.0 That on the facts and in the circumstances of the case and without prejudice to Ground No. 1.0 to 1.2 taken here-in-above, the Ld. CIT was not justified and grossly

3 M/s. Everest Industries Ltd. erred in contending that the Excise Duty Exemption granted to the appellant during the year amounting to Rs. 15,67,00,636/- cannot be considered as capital receipt in computing its Total Income under the provisions of the Act other than sec. 115JB.

4.1 That on the facts and in the circumstances of the case and without prejudice to Ground No. 4.0 taken here-in-above, the Ld. CIT was not justified rather grossly erred in again adjudicating the issue of exclusion of Excise Duty Exemption as capital receipt in computation of total income under the provisions of the Act other than sec. 115JB when the said claim was already disallowed by the AO in the order u/s 143(3).

4.2 That on the facts and in the circumstances of the case and without prejudice to Ground No. 4.0 & 4.1 taken here-in-above, the Ld. CIT was not justified rather grossly erred in contending that the Excise Duty Exemption granted to the appellant cannot be considered as capital receipt when the allowance of the same while computing Total Income under the provisions of the Act other than sec. 115JB was not specifically mentioned in the show-cause notice.

4.3 That on the facts and in the circumstances of the case and without prejudice to Ground No. 4.0, 4.1 & 4.2 taken here-in-above, the Ld. CIT was not justified rather grossly erred in contending that the amount of Excise Duty paid over and above the Cenvat Credit available to the assessee can only be considered as Excise Duty Incentive without appreciating the fact that the appellant is not entitled to avail Cenvat Credit since the final goods manufactured by the appellant are exempt from the levy of Excise Duty.

5.0 That on the facts and in the circumstances of the case and without prejudice to Ground No. 1.0 to 1.2 taken here-in-above, the Ld. CIT was not justified rather grossly erred in contending that sales tax incentive received by the appellant during the year amounting to Rs. 6,74,12,461/- cannot be considered as capital receipt in computing its Total Income under the provisions of the Act other than sec. 115JB.

5.1 That on the facts and in the circumstances of the case and without prejudice to Ground No. 5.0 taken here-in-above, the Ld. CIT was not justified rather grossly erred in again adjudicating the issue of exclusion of Sales Tax Incentive as capital receipt in computation of total income under the provisions of the Act other than sec. 115JB when the said claim was already disallowed by the AO in the order u/s 143(3).

4 M/s. Everest Industries Ltd.

5.2 That on the facts and in the circumstances of the case and without prejudice to Ground No. 5.0 & 5.1 taken here-in-above, the Ld. CIT was not justified rather grossly erred in contending that Sales Tax Incentive granted to the appellant cannot be considered as capital receipt when the allowance of the same while computing Total Income under the provisions of the Act other than sec. 115JB was not specifically mentioned in the show-cause notice.

5.3 That on the facts and in the circumstances of the case and without prejudice to Ground No. 5.0, 5.1 & 5.2 taken here-in-above, the Ld. CIT was not justified rather grossly erred in contending that Sales Tax Incentive granted to the appellant cannot be considered as capital receipt when the Hon'ble ITAT had decided the issue in favour of the appellant in earlier year.”

revenue receipt by the Assessing Officer as against capital receipt declared by the assessee.

6 M/s. Everest Industries Ltd. year 2009-10 holding the same to be capital loss was wrong; c) that the issue of treatment of excise duty incentive of Rs. 15,67,00,636/- as revenue receipt was decided by the Assessing Officer in a routine manner without application of mind and without making proper enquiries; and, d) that issue of treatment of sales tax incentive of Rs. 6,74,12,461/- was decided by the Assessing Officer in a routine manner without application of mind and without making proper enquiries.

7 M/s. Everest Industries Ltd. of the Act reduced the sales tax incentives of Rs. 6,74,12,461/- and excise duty incentives of Rs. 15,67,00,636/- from the profit declared in its Profit & Loss Account for the purposes of computing ‘Book profit’. Notably, in the return of income, the assessee declared the final income as per Section 115JB of the Act, whereas in the assessment finalised under Section 143(3) of the Act, the Assessing Officer completed the assessment under the normal provisions of the Act as after various additions in the assessment order, the income under normal provisions of the Act was higher as compared to income declared by the assessee under Section 115JB of the Act. Since the assessment under Section 143(3) of the Act was completed under normal provisions of the Act, the Assessing Officer did not discuss anything regarding the assessee’s computation under Section 115JB of the Act in the assessment order. The Commissioner has observed that the action of the Assessing Officer in accepting the assessee’s computation of Book Profit under Section 115JB of the Act was erroneous and prejudicial to the interest of the revenue as the assessee cannot make additions / deletions other than those specifically provided for under Section 115JB of the Act. Thus, as per the Commissioner, the assessee had wrongly reduced the sales tax and excise incentives while computing book profit under Section 115JB of the Act.

deleted by CIT(A), the assessee will be liable to tax under Section 115JB of the Act and, therefore, the instant error will become prejudicial to the interest of the Revenue. In this context, it was pointed out that Section 263 of the Act empowers the Commissioner to exercise revisionary jurisdiction on the basis of ‘records’ relating to any proceedings available at the time of examination by the Commissioner, as provided by Clause (b) of Explanation 1 to section 263 of the Act. In the present case, the order of the CIT(A) for the year under consideration was not available at the time of examination of record by the Commissioner and, therefore, the same cannot be understood to be ‘record’, based on which the proceedings under Section 263 of the Act could have been initiated. It has been submitted that proceedings under Section 263 of the Act cannot be initiated based on ‘records’, which are not available before the Commissioner at the time of his examination of record. In this regard, reliance has been placed on the following decisions :- 1) Panyam Cements and Mineral Industries Ltd. vs. Addl. CIT (ITA no. 706/Hyd/2013) 2) Jolly Engineers and Contractors (P) Ltd vs. ITO (1982) 2 ITD 92 (Asr -ITAT) 3) Punjab Wool Syndicate vs. ITO (2012) 17 ITR 0439 (Chd. – ITAT) 4) Ganga Properties vs. ITO (1979) 118 ITR 447 (Kol) (HC) 5) Jai Kumar Kankaria vs. CIT (2001) 251 ITR 707 (Kol) (HC)

It was also submitted that even if the ‘book profit’ is recomputed in terms of the directions of the Commissioner, the assessee will be entitled for MAT credit of equivalent amount which will be eligible for set-off in subsequent years, thereby resulting in neutralising of tax liability. Therefore, the instant assessment order dated 28.03.2013 (supra) cannot be said to be prejudicial to 9 M/s. Everest Industries Ltd. the interest of revenue since the instant addition made is tax neutral over the period of time.

10. On the other hand, the learned CIT-DR defended the order of the Commissioner by placing reliance on the same.

11. We find that in the present case, the assessment has been completed by the Assessing Officer under the normal provisions of the Act whereas assessee had declared the income under Section 115JB of the Act. The assessee had preferred an appeal to the CIT(A) against the order of the Assessing Officer which was pending disposal at the time of examination of records by the Commissioner. As per clause (b) of Explanation 1 to section 263 of the Act, the expression ‘record’ means records available with Commissioner at the time of examination by him, and based on which he ought to arrive at a conclusion that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the revenue. Ostensibly, the order of the CIT(A) was not available with the Commissioner at the time of arriving at the conclusion that order passed by Assessing Officer is erroneous and prejudicial to the interests of the revenue; and, therefore, the expected decision or finding of the CIT(A) cannot be taken as basis to arrive at a conclusion envisaged in Section 263 of the Act by the Commissioner. Thus, it is only the order of Assessing Officer and other material on record, which can be taken as the basis to arrive at conclusion envisaged in Section 263 of the Act by the Commissioner. In the instant case, on the basis of assessment order and other records, it is evident that the assessment has been completed under normal provisions of the Act. In fact, as per the Commissioner, it is the computation of book profit under Section 115JB of the Act which is erroneous, but that has no relevance to the 10 M/s. Everest Industries Ltd.

tax liability finally determined. In fact, as per the Commissioner, it is only after the order of CIT(A) that the relevance of computation of book profit under Section 115JB of the Act will arise, which is an aspect in the realm of future uncertainty. Thus, the Commissioner was not justified in exceeding his jurisdiction under Section 263 of the Act in this case. Moreover, even if we go along with the Commissioner and accept that the computation of ‘book profit’ under Section 115JB of the Act accepted by the Assessing Officer is erroneous, yet the assessment order cannot be termed as prejudicial to the interests of the revenue, in so far as it was assessed under normal provisions of the Act.

“6. In our view, since the income determined and tax computed under the normal provisions is much more than the book profit and tax thereon u/s 115JB , action of the AO in not computing/ enforcing the tax demand on the profit computed u/s 115JB cannot be considered to be prejudicial to the interests of revenue. Only because subsequently, ld. CIT(A) while considering assessee’s appeal against assessment order has held that capital gain is taxable in AY 2006-07 and as a result of which income returned by assessee was restored, that will not render assessment order erroneous and prejudicial to the interest of revenue.

7. While assuming jurisdiction u/s 263 ld. CIT has to examine the error and prejudice caused to revenue by virtue of assessment order on the basis of the facts and materials on record as on the date of completion of assessment. He cannot take into consideration any event subsequent thereto..”

11 M/s. Everest Industries Ltd.

“12. ….the powers under section 263 of the Act are to be invoked on satisfaction of twin conditions of the order being both erroneous and prejudicial to the interest of the Revenue. Where the tax effect because of an order passed by the Assessing Officer is nil, such order even if erroneous being not prejudicial to the interest of the Revenue, is not open to revision under section 263 of the Act. We vacate the directions of Commissioner of Income Tax under section 263 on this issue.”

revenue expenditure. In the course of assessment proceedings for assessment year 2009-10, the Assessing Officer noted the above facts and in an assessment completed under Section 143(3) of the Act for assessment year 2009-10, the said loss was treated as a capital loss and it was held that the amount of Rs. 12,18,02,186/- should be added to the block of Plant and Machinery and other assets and after providing for depreciation on this amount, the Assessing Officer made a net addition of Rs. 11,38,85,000/-. The assessee, thus, filed revised return for the year under consideration, i.e. 2010- 11 and claimed further depreciation in respect of the addition to the block of Plant & Machinery made by the Assessing Officer in assessment year 2009-10. The Assessing Officer in the course of assessment proceedings for assessment year 2010-11 allowed the claim of further depreciation made by the assessee in its revised return of income. In the instant order, the Commissioner observed that the loan on which assessee incurred foreign exchange fluctuation loss was for the purpose of business of the assessee and not for the purpose of acquisition of any capital assets and thus, no depreciation on this amount could not have been allowed. The Commissioner further observed that the assessee has increased the WDV based on the order of the Assessing Officer for assessment year 2009-10 but the findings in the assessment order for assessment year 2009-10 on this issue is erroneous and not sustainable in law. The Commissioner in his order has categorically stated that “steps are being taken to set right the wrong findings given by the AO in AY 2009-10.” According to the Commissioner, each assessment year is different and the Assessing Officer is duty bound to check correctness of the claim made by the assessee in its return of income for each year which has not been done in the present case, and thus the order of the Assessing Officer dated 28.03.2013 (supra) on this issue is erroneous and prejudicial to the interests of the 13 M/s. Everest Industries Ltd. revenue. He further noted that the assessee has also disputed the action of the Assessing Officer in disallowing foreign exchange fluctuation loss in assessment year 2009-10.

a) DIT (IT) vs. HSBC Asset Management (I) Pvt. Ltd. (ITA No. 254 of 2012)(Bom)(HC) b) DCIT vs. Nutech Corporation Services Ltd (ITA No. 6091/Mum/2007)

14 M/s. Everest Industries Ltd. in the assessment order passed for assessment year 2009-10. Since the foreign exchange fluctuation loss arose in the hands of the assessee in assessment year 2009-10, the treatment of the said amount has been discussed by the Assessing Officer in assessment year 2009-10. In the instant assessment proceedings for assessment year 2010-11, the assessee as well as the Assessing Officer have followed the treatment given by the Assessing Officer in the assessment order for assessment year 2009-10. Impliedly, even the Commissioner accepts the said position in as much as he has categorically asserted in the impugned order that he was trying to set right the wrong committed by the Assessing Officer in the assessment for assessment year 2009-10. In our considered opinion, the Commissioner exceeded his jurisdiction in this context since the proceedings initiated by him were for assessment year 2010-11 and he ought to have confined himself to applying the provisions of Section 263 of the Act qua the instant assessment year alone. Admittedly, each assessment year is different and by invoking the jurisdiction under Section 263 of the Act, the Commissioner is empowered to revise the assessment order of the relevant assessment year alone. It is not open for the Commissioner to invoke his jurisdiction prescribed in Section 263 of the Act for one assessment year and thereby embark on correcting the order of assessment passed by the Assessing Officer for a different assessment year. Ostensibly, in the instant case, if the Commissioner found that the order of assessment for assessment year 2009-10 was erroneous and prejudicial to the interests of the revenue, he ought to have invoked the provisions of Section 263 of the Act for assessment year 2009-10. Quite clearly, the Commissioner did not do so and instead, he has attempted to revise the assessment for assessment year 2009-10 while invoking his power of revision under Section 263 of the Act qua the assessment year 2010-11. Quite clearly, the action of 15 M/s. Everest Industries Ltd. the Assessing Officer of allowing depreciation on foreign exchange fluctuation loss in this year is consequent to the assessment for assessment year 2009-10, which the Commissioner treats to be erroneous. In this context, the following observations of the Hon'ble Bombay High Court in the case of HSBC Asset Management (I) Pvt. Ltd. (supra) are quite relevant :-

“9. Having perused this Appeal Memo including the impugned orders, we are of the opinion that the Delhi High Court judgment has been delivered on 5th November 2012 and the impugned order was passed on 15th June 2011. The Tribunal has essentially based its conclusion on the consistent stand of the Assessee and that of the Assessing Officer. In dealing with the shift in stand for the subject assessment year, the Tribunal found that this claim of depreciation was raised in the assessment year 2003-2004. The Assessee claimed that it is allowable as per the provisions of Income Tax Act on block of assets under the head “intangible assets”. The Assessing Officer allowed the claim for that assessment year by an order under Section 143(3) dated 28.03.2006. The Tribunal then, proceeds to hold that when the Assessing Officer had to allow depreciation on the written down value of the block of assets, then, it cannot in the present assessment year dispute the opening written down value of the block of assets nor can he examine the correctness or otherwise of the opening written down value brought forward from the earlier year. The order under Section 143(3) for the assessment year 2003-2004 continues to operate and no proceedings under the Act were initiated to disturb the same.”

“30…..Thus, once the AO has applied his mind and allowed the deprecation on the assets leased, then, in the subsequent year, the 16 M/s. Everest Industries Ltd.

AO is obliged to allow depreciation on such assets and cannot take a different view, without bringing, any adverse material on record that would suggest otherwise of the assets acquired in the earlier year(s).

31. …..If the AO wants to take another view and disallow deprecation, then he has necessarily to reopen the assessment of the earlier year to disallow the deprecation and then and then only, can disallow depreciation in the year under reference; this has not been done by the AO, even though it was open to him to do so while passing the assessment order on 31.3.1991.”

Assessing Officer was required to revisit or relook at his own order for earlier assessment year while passing the order of assessment in the instant year, wherein the findings of the earlier order have merely been given effect to, as we have discussed in the earlier part of this order. Thus, on this aspect also, assessee succeeds.

18 M/s. Everest Industries Ltd.

a) CIT vs. Shreepati Holdings & Finance (P.) Ltd. (ITA No. 1879 of 2013) (Bom)(HC). b) CIT vs. Sunbeam Auto Ltd. (2011) 332 ITR 0167 (Del)(HC) c) CIT vs. Vikas Polymers (2012) 341 ITR 537 (Del)

19 M/s. Everest Industries Ltd.

“(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of the Commissioner under this sub-section shall extend [and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.]”

It is evident from the above that the Commissioner is not empowered to exercise his jurisdiction on an issue which is subject matter of appeal before the CIT(A). In the present case, it is undisputed that the matter on the two issues in question is pending before the CIT(A). Thus, we find that the Commissioner has no jurisdiction to consider these issues in revisionary proceedings under Section 263 of the Act in terms of clause (c) to Explanation 1 to Section 263 of the Act.

20 M/s. Everest Industries Ltd.

“7. Moreover the CIT in exercise of powers under Section 263 of the Act directed the Assessing Officer to redetermine the rebate allowable under Section 88E of the Act after holding that the same needs more careful examination on the part of the Assessing Officer. This itself

21 M/s. Everest Industries Ltd. indication of the fact that this is not the case of lack of enquiry, but at the highest it can be a case of inadequate enquiry. It is settled position in law that inadequate enquiry by itself would not justify invoking the jurisdiction under Section 263 of the Act unless the order is erroneous. In the present facts, the CIT has not exercised jurisdiction under Section 263 of the Act on the ground that the order is erroneous. We find that the impugned order has correctly applied the principles laid down by this Court in Gabriel (I) Ltd. (supra). Accordingly, the question as formulated does not give rise to any substantial question of law. Thus not entertained.”

[underlined for emphasis by us] Quite clearly, the ratio laid down by the Hon'ble Bombay High Court in the case of Shreepati Holdings and Finance (P.) Ltd. (supra) is attracted in the present case and the assumption of jurisdiction by the Commissioner in the instant case is untenable.

order of the Assessing Officer with certain directions. On an appeal before the Tribunal challenging the order of Commissioner under Section 263 of the Act, it was held as under:

“15. During the course of hearing, Ld. DR submitted that ld. CIT(A) had not considered the applicability of Rule 9A and, therefore, clause (c) of Explanation to sec. 263(1) is not applicable. We, on consideration and perusal of the order of ld. CIT(A) read with the remand report before the AO submitted to the ld. CIT(A), do not find merit in her contention. The AO specifically stated in the remand report to make “working of deduction allowable u/r 9A” of I. T. Rules. Further, we also observe from para-10 of the assessment order that the AO called for the details from the assessee by issuing notice u/s 142(1) dated 18-12-2009 to furnish details of cost of productionallowable as per Rule 9A of Rs.27.19 crores. As mentioned hereinabove, the AO after considering the reply filed by the assessee vide letter dated 29-12-2009 as mentioned by the AO in para-10 of the assessment order, considered the claim of the assessee to the extent of Rs. 24,84,37,124/- and disallowed the balance amount of Rs. 2,34,91,380/-. Therefore, it is not factually correct that the AO at the time of making the assessment did not consider the applicability of Rule 9A vis-a-vis claim of the assessee on cost of production of film.

16. The Bombay High Court has also held in the case of CIT vs. Saraf Bandhu Pvt. Ltd. (supra), that once the original order goes in appeal and the appeal is decided, the original order ceases to exist since it merged in the appellate order and hence the original order cannot be revised under the revisional jurisdiction of the Commissioner u/s 263 of the Act. It is relevant to state that the ld. CIT(A) passed the order on 12- 10-2011 that is much before the notice u/s 263 dated 9-3-2012 was issued by the ld. CIT.

17. At the time of hearing Ld. DR also made a submission that if the issue has not been considered in entirety of applicability of Rule 9A, ld. CIT u/s 263 of the Act can also exercise his revisional jurisdiction. As mentioned hereinabove there is no dispute to the fact that AO as well

23 M/s. Everest Industries Ltd. as ld. CIT(A) considered the applicability of Rule 9A of I. T. Rules while allowing the cost of production of film as claimed by the assessee.

18. A similar issue came before the ITAT Mumbai Bench in the case of Sonal Garments vs. JCIT (supra), wherein the income of the assessee was assessed u/s 143(3) after allowing the deduction u/s.80HHC. On appeal, the assessee agitated the computation of deduction u/s.80HHC on the ground that AO erred in deducting certain amounts from export turnover. The CIT(A) allowed the appeal of the assessee and directed the AO to reduce FOB value from the export turnover. Thereafter, CIT passed an order u/s 263 holding that the profit for the purpose of sec. 80HHC should be computed after excluding export incentives and after allowing current years depreciation and as the assessee had incurred loss from the export business, deduction u/s.80HHC was erroneously allowed by the AO in the assessment year which caused prejudice to the interests of the revenue. The ld. CIT, thus, directed the AO to recompute the income of the assessee by disallowing deduction u/s.80HHC of the Act. On appeal before the Tribunal it was contended that the order of the AO had merged with the order of the ld. CIT(A) and, thus, power u/s 263 could not be exercised by the Commissioner. In that context, it was held by the Tribunal that the Commissioner (Appeals) had given some finding from the computation of deduction u/s.80HHC. Therefore, the assessment order had merged with the order of the ld. CIT(A). In view of explanation (c) to sec. 263(1), such action of the Commissioner was not permissible. The Tribunal also rejected the contentions of the department that it was difficult to accept the submission of the department that the issue of depreciation being optional or the issue whether the assessee was at all entitled to deduction u/s.80HHC or not, was not a subject matter of appeal filed by the assessee before the ld. CIT(A). It was held that a matter might have many aspects and the above mentioned two factors might be the aspect of the matter, but not the entire matter itself. The “matter”, in the instant case, was deduction u/s.80HHC. Therefore, the assessment order so far as related to deduction u/s.80HHC has merged with the order of the ld. CIT(A) and, therefore, exercise of power by the Commissioner u/s 263 was even not available under explanation (c) to 24 M/s. Everest Industries Ltd.

sec. 263(1) and held that order u/s 263 passed by the ld. CIT was not a valid order in the eyes of law.

19. Similar issue also came before the Hon'ble Gujarat High Court in the case of CIT vs. Nirma Chemicals Works P. Ltd. (supra), wherein also it was held that the assessee claimed relief u/s 80I of the Act. AO worked out such claim after making necessary enquiries and partly reduced the claim made by the assessee. The assessee carried the matter in appeal before the CIT(A) who allowed the appeal on this count directing the AO to grant relief u/s 80I of the Act as claimed by the assessee without any disallowance. Subsequently, CIT u/s 263 of the Act disallowed the claim u/s 80I on the ground that the asset used by the assessee in the new industrial undertaking had formed part of old plant & machinery and the new industrial undertaking of the assessee was formed by reconstructing or restructuring or splitting up of the old business. In appeal before the Tribunal, the Tribunal rejected the contention of the assessee that the revisional order had been made without jurisdiction but allowed the appeal on merits. In further appeal before the Hon'ble High Court, it was held in para-19 thereof that when deduction u/s 80I of the Act was granted by the AO after disallowing a part of the claim which was carried in appeal before the CIT(A), the appellate authority was duty bound to examine whether the claim made by the assessee was in accordance with and subjection to the provisions of sec. 80I of the Act. The requirement of fulfillment of condition stipulated by sub-sec(2) of sec. 80I of the Act, is therefore, very much subject matter of the appeal in relation to the income from warehousing which had been disallowed by the AO. The Hon'ble High Court rejected the stand of the assessee that the assessment order was silent. As regards the allowability or otherwise of sec. 80I of the Act, it was inter alia, held that in view of clause (c) of explanation to sec. 263 of the Act, the order passed by the ld. CIT is not valid.

20. A similar view has also been taken by the ITAT Mumbai Bench in the case of Marico Industries Ltd. vs. ACIT (supra), wherein it was held that CIT had no power to assume jurisdiction in respect of matter covered in appeal as the order of AO had merged with the order of CIT(A).”

25 M/s. Everest Industries Ltd.

On appeal by Revenue before the Hon’ble High Court, the High Court upholding the decision of Tribunal held as under:

“8. The revisional authority was aware of the fact that against such an order of the Assessing Officer, the Assessee has preferred an Appeal to the Commissioner of Income Tax (Appeals). Ground No. 1 of that Appeal was whether on the facts and circumstances and in law, the Assessing Officer erred in addition of alleged suppressed business profit aggregating to Rs.11 crores as per the order dated 31st December, 2009 (para 9.2). The first appellate authority, in dealing with this ground, in its order dated 12th October, 2011, concluded that after that consideration of the submissions of the Assessee, in the backdrop of the facts of this case, it is evident that the addition made by the Assessing Officer cannot be sustained. In para 1.6 of the order passed by the first appellate authority on 12th October, 2011, this conclusion is reached.

9. Then, ground No. 2 in that Appeal was whether in the facts and circumstances and in law the Assessing Officer erred in disallowing the alleged cost of production claimed amounting to Rs.2,34,91,380/-as per para 10 of the impugned order. In other words, if the amount of Rs.11,25,00,000/- is not taken to be the income of the Assessee from film "Darna Zaroori Hai", then, by applying Rule 9A, the cost of production of this film deserves to be deducted and in full as claimed by the Assessee. From para 2.1 onwards in the appellate order, this aspect has been dealt with. When this aspect was considered by the first appellate authority, not only did he have before him the record pertaining to the Assessing Officer's order dated 31st December, 2009, but he called for a remand report from the Assessing Officer. The gist of that remand report is reproduced in para 2.3 of the first appellate authority's order. Once the copy of the remand report was given to the Assessee for his comments and the Assessee agreed with the remand report, then, barring the addition of Rs.4,01,467/-, the balance addition made by the Assessing Officer came to be deleted. Thus, as 26 M/s. Everest Industries Ltd.

against the expenses or cost of production to the tune of Rs.27,19,28,504/- only a sum of Rs.4,01,467/- was deleted.

appellate authority and which was given effect to by the Assessing Officer. All these would denote that something which was very much part and parcel of the appellate authority's order and dealt with extensively therein is now sought to be revised and revisited. Firstly, if the income of the Assessee from the film is Rs.11,25,00,000/-, then, whether the explanation of the Assessee that it is not so deserves to be considered or not by the Assessing Officer is grievance No. 1/ground No. 1 before the first appellate authority. Secondly, if that is taken to be the income of the Assessee and without admitting it to be so the cost of production of the film needs to be deducted by applying Rule 9A of the Income Tax Rules. Thus, that is ground No. 2 in the memo of Appeal before the first appellate authority and in his order dated 12th October, 2011. Both these matters are very much part of the revisional authority's order dated 29th March, 2012. The attempt to reopen them cannot be saved as clause (c) of Explanation below sub-section (1) of section 263 of the Income Tax Act, 1961 had no application.”

In the case of K. Sera Sera Productions Ltd. (supra), the Tribunal in its order, which has been affirmed by the Hon'ble High Court, extensively discussed the meaning of the expression “matter” contained in clause (c) of Explanation 1 to Section 263 of the Act. The Tribunal, after referring to an earlier decision of co-ordinate bench in case of Sonal Garments vs. JCIT[2005] 95 ITD 363 (Mum.) and the decision of Hon’ble Gujarat High Court in the case of CIT vs. Nirmal Chemical Works Pvt. Ltd. [2009] 182 taxman 183 (Gujarat) held that a ‘matter’ might have many aspects and the appeal before the appellate authority might be for one of the aspects of the matter, but not the entire matter itself; yet, the ‘matter’ refers to even one aspect of the entire issue pertaining to particular allowance or disallowance. Thus, even though the assessment order has dealt with one aspect of the particular matter and appellate authority while deciding the matter has dealt with only that particular aspect of the matter and has not touched upon the other aspects of the very same matter,

28 M/s. Everest Industries Ltd. then also it could be said that the entire matter has merged with the order of the appellate authority and therefore, clause (c) of Explanation 1 to Section 263(1) of the Act was very much applicable and the Commissioner had no jurisdiction to invoke Section 263 of the Act.

29 M/s. Everest Industries Ltd.

Order pronounced in the open court on 21st August, 2019.