WINVEST HOLDINGS (I) PVT. LTD.,CHENNAI vs. ACIT CORPORATE CIRCLE 3(2), CHENNAI

आदेश / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER This is an appeal filed by the Assessee directed against the order of the ld. Principal Commissioner of Income Tax- 3, Chennai (‘PCIT for short) dated 27.03.2019 for the Assessment Year (AY)

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2014-015 passed u/s.263 of the Income Tax Act, 1961 (in short ‘’the

Act’’).

‘’1. The Learned Principal Commissioner of Income Tax -3, Chennai erred in law and on the facts and in the circumstances of the case in holding that the order dated: 07.11.2016 passed by the Assessing Officer u!s.143 (3) of the Income Tax Act, 1961 was erroneous and prejudicial to the interest of revenue within the meaning of Section 263 of the Income Tax Act, 1961.

(ii) Each Ground of Appeal hereinabove is independent and without prejudice to each other. (iii) The appellant craves leave to reserve to itself the right to add, after, amend or annul any of the grounds of appeal at or

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before the time of hearing and to produce such further evidences, documents and papers as may be necessary’’.

The appellant namely M/s. Winvest Holdings (I) Pvt. Ltd is a

company incorporated under the provisions of the Companies Act,

1956. It is engaged in the business of investment. trading in shares,

stocks, debentures, bonds etc., The return of income for the AY

2014-2015 was filed on 29.09.2014 disclosing total income of Rs.

722,84,21,180/-. Against the said return of income, the assessment

was completed by the Assistant Commissioner of Income Tax,

Corporate Circle-3(2), Chennai (hereinafter called “AO”) vide order

dated 07.11.2016 passed u/s.143(3) of the Income Tax Act, 1961 (in

short ‘the Act’) accepting the returned income.

`722,11,72,932/- arising on sale of shares of Prizm Payment Services

Pvt. Ltd. It is a matter of record that the appellant had sold the

shares of Prizm Payment Services Pvt. Ltd. held by it for a total sale

consideration of `779,37,71,993/- after reducing the indexed cost of

acquisition of `4,82,20,969/- long term capital gains were computed at

`774,55,51,024/-. From this sum, a sum of `52,43,78,092/- was

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claimed as deduction in connection with transfer of such shares.

Which includes payment of exgratia to the employee directors

`28,86,59,668/-. It appears that during the course of assessment

proceedings, the Assessing Officer had called for the details of the

claim of expenditure vide notice dated 24.05.2016 by issuing notice

u/s.142(1) of the Act. The appellant had filed detailed information

vide its letter dated 03.11.2016 regarding claim of allowance of

expenditure incurred in connection with sale of shares. The Assessing

Officer after consideration of the materials on record and submissions

of the assessee accepted the returned income.

records came to conclusion that assessment order passed is

erroneous and prejudicial to the interest of the Revenue since

according to him the Assessing Officer passed the assessment order

without enquiring into the allowability of expenditure of exgratia

payment made to the employee Directors of �28,86,59,668/- in

connection with the sale of the shares and also claim towards

exchange fluctuation expenditure of �6,31,12,289/-. Accordingly, the

ld. PCIT issued show cause notice dated 07.02.2019 u/s.263 of the

Act calling upon the appellant to show cause why the assessment

order should not be treated as erroneous and prejudicial to the

interest of the Revenue and be revised under the powers of vested

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with him under the provisions of section 263 of the Act. In response

to the show cause notice, the assessee made detailed submissions on

various dates i.e. 25.02.2019, 05.03.2019 and 08.03.2019 and

submitted that the payment had been made to the employee

directors for rendering the following services.

‘’Identifying possible development opportunities for sale by the Company of its stake in its subsidiary undertaking the ATM deployment and electronic financial transactions processing business and in evaluate the possible strategy for such divestment;

Evaluation of and advising on the transaction structure, sale price and commercial terms;

Identification and appointment of merchant banker (s) and other advisors and coordinating with them:

Prepare planning document, budgeting financials, cash report and cash flow projections, detailed report on financial operating and business plans;

Undertake market research, market studies, long—term and short – term strategic plans and valuation analysis.

Provide a detailed report on the process involved in the ATM deployment services, multi-vendor services and field services and lead the team for coordinating and explaining ATM deployment operations and operations of the business,’

Support operational and financial due diligence team.”

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It is further contended that services were rendered wholly and

exclusively in connection with the transfer of shares and therefore the

same is allowable as deduction while computing capital gains arising

on sale of shares of Prizm Payment Services Pvt. Ltd. As regards to the

claim of loss towards exchange fluctuation on deferred receivables, it

is submitted that no claim for deduction was made, therefore the

question of disallowance does not arise. Further, it was contented

that the issue sought to be revised were examined by the Assessing

Officer during the course of original assessment proceedings and the

Assessing Officer took possible view that expenditure is allowable as

deduction u/s.48 (i) of the Act on consideration of full material and

information on record. The appellant further contended that the

powers of revision cannot be invoked for the purpose of making

roving and fishing enquiry. Thus, it was contended that assessment

order cannot be said to be erroneous and prejudicial to the interest of

the Revenue, placing reliance on the plethora of following decisions.

i) CIT vs. R. Ramanathan Chettiar (1985) 20 Taxman 232. ii) CIT vs. Venkata Rajendran, (2015) 373 ITR 424. iii) Vaipa Pharmaceuticals (P) Ltd vs. ACIT, (2017) 46 ITR (T) 109.

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and the submissions made by the assessee concluded that the

Assessing Officer had allowed expenditure of �28,86,59,668/- without

examination and application of mind and accordingly held that the

assessment order is erroneous and prejudicial to the interest of the

Revenue and set aside the assessment, and directed the Assessing

Officer to redo the assessment after due enquiry and examination

and giving opportunity of hearing to the appellant vide order dated

27.03.2019 passed u/s.263 of the Act.

is in appeal before us in the present appeal.

assessment order was passed after due examination and enquiry of

the issues sought to be revised in the impugned order. Thus it was

submitted that it is not case of lack of enquiry, therefore the

assessment order cannot be said to be erroneous. In the absences of

satisfying the twin conditions i.e. the order of the Assessing Officer

sought to be revised is erroneous; and prejudicial to the interest of

Revenue, the ld. PCIT cannot exercise power of revision u/s.263 of the

Act. In this connection, he placed reliance on the judgment of Hon'ble

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Supreme Court in the case of Malabar Industrial Co. Ltd vs. CIT, 243,

ITR 83 and also the following decisions of various Hon’ble High Courts.

(i) Davjee Dadabhoy and Co. vs. S.P. Jain, (1957) 31 ITR 872 (ii) CIT vs. T. Narayana Pai, (1975) 98 ITR 422. (iii) CIT vs. Gabriel India Ltd, (1993) 203 ITR 108. (iv) CIT vs. Smt. Minalben S. Parikh, (1995) 215 ITR 81. (v) CIT vs. G.R. Thangamaligai, (2003) 259 ITR 129.

It is further contended that assessment order was passed after

making due enquiry on the issues sought to be revised, in case if

the ld. PCIT was of the opinion that the Assessing Officer had not

made any enquiry on the issues then it was for the ld. PCIT to make

necessary enquiry and give finding that the assessment order is

erroneous and the ld. PCIT cannot set aside the assessment order to

the Assessing Officer for the purpose of making an enquiry after

passing the order of revision u/s.263 of the Act. Reliance in this regard

were placed on the decisions of Hon’ble Delhi High Court in the case of

ITO vs. D.G. Housing Projects Ltd (2012) 343 ITR 329 and DIT vs.

Jyoti Foundation (2013) 357 ITR 388. It is further contended that

mere inadequate enquiry by the Assessing Officer does not confer

jurisdiction of revision u/s.263 on the ld. PCIT. Reliance in this regard

was also placed on the decision of Hon’ble Delhi High Court in the

case of CIT vs. Sunbeam Auto Ltd (2011) 332 ITR 167. Finally it is

submitted that in garb of exercising powers u/s.263 of the Act, PCIT

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cannot initiate proceedings with a view to start fishing and roving

enquiries in the matters or orders which are already concluded.

Further, it is submitted that there was no loss of revenue as the

payees have paid the taxes thereon. In the absence of any finding

by the ld. PCIT as to the loss of revenue, he cannot exercise the

power of revision vested with him u/s 263 of the Act. Reliance in this

regard was placed on the judgment of Hon’ble Jurisdictional High

Court in the case of CIT vs. G.R. Thangamaligai (2003) 259 ITR 129.

Thus, the ld. Counsel submitted that revision proceedings u/s.263 of

the Act should be squashed.

Representative) placed reliance on the order of the ld. PCIT.

record. The only issue involved in the present appeal relates to the

validity of the revision proceedings initiated by the ld. PCIT under

the provisions of Section 263 of the Act. Now it is settled position of

law that in order to invoke the provisions of Section 263 of the Act, it

is incumbent on the ld. PCIT to satisfy himself the following twin

conditions namely

(i) the order of the Assessing Officer sought to be revised is

erroneous; and

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(ii) It is prejudicial to the interest of Revenue.

are satisfied cumulatively. Reference in this regard can be made to

the decisions of Hon'ble Supreme Court in the cases of Malabar

Industrial Co. Ltd (supra) and CIT vs. Max India Ltd, (2007) 295 ITR

whether the assessment order sought to be revised can be

considered as erroneous and prejudicial to the interests of the

Revenue. The Courts had laid down the following parameters to

determine whether the assessment order is erroneous or not.

‘’(i) An order is erroneous when it is contrary to law or proceeds on an incorrect assumption of facts or is iii breach of principles of natural justice or is passed without application of mind, that is, is stereo-typed inasmuch as the Assessing Officer accepts what is slated in the return of the assessee without making any enquiry called for in the circumstances of the case, i.e., proceeds with ‘undue haste’.

(ii) The expression prejudicial to the interest of the revenue’ while not to be confused with the loss of tax will certainly include an erroneous order which results in a person not paying tax which is lawfully payable to the revenue.

(iii) Every loss of tax to the revenue cannot be treated as being prejudicial to the interest of the revenue’. For example, when the Assessing Officer takes recourse to one of the two courses possible, in law, or where there are two views possible and the commissioner does not agree with the view taken by the Assessing Officer which has resulted in a loss.

(iv) There is no requirement of issuance of a notice before commencing proceedings under section 263. What is

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required is adherence to the principles of natural justice by granting to the assessee an opportunity of being heard before passing an order under section 263.

(v) If the Assessing Officer acts in accordance with law, his order cannot be termed as erroneous by the Commissioner, simply because according to him, the order should have been written ‘’more elaborately’. Recourse cannot be taken to section 263 to substitute the view of the Assessing Officer with that of the Commissioner’’.

The Explanation 2 to Sec 263 of the Act inserted w.e.f. 01.06.2015 by

Finance Act, 2015 provides that an assessment order shall be deemed

to be erroneous in so far it is prejudice to the interest of Revenue in

the following circumstances.

(a) ‘’The order is passed without making inquires or verification which should have been made; (b) The order is passed allowing any relief without inquiring into the claim; (c) The order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) The order has not been passed in accordance with any decision, which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person’’.

In the present case during the course of assessment proceedings, the

Assessing Officer vide his notice u/s.142(1) of the Act dated

24.05.2016 placed at paper book page No.88, sought details of long

term capital gains and appellant vide his letter dated 17.06.2016

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furnished the details of long term capital gains wherein the claim for

deduction of expenditure incurred wholly and exclusively in connection

with the sale of shares of �52,43,78,092/- which includes exgratia

payment made to the employee directors of `28,86,59,668/- placed

at paper book pages 99 & 100. The Assessing Officer considering the

details had accepted the claim for deduction of expenditure of

payment of exgratia to employees directors of `28,86,59,668/-.

However, the assessment order is silent with respect to the enquires

conducted by the Assessing Officer. Therefore the issue that may

come up for consideration is whether in such circumstances, the

assessment order can be termed as erroneous and prejudicial to the

interests of the Revenue. Hon’ble Bombay High Court in the case of

CIT vs. Gabriel India Ltd, (1993) 203 ITR 108 had held that simply

because the Assessing Officer did not make elaborate discussion on

the issue in the assessment order it cannot be held that assessment

order is erroneous. This position of law was reiterated subsequently by

various High Courts. Even the Jurisdictional High Court in the case of

Smt. Renuka Philip vs. ITO, 409 ITR 567 in a case where the

Commissioner of Income Tax, has sought to revise the assessment

order on the ground that the Assessing Officer allowed the exemption

claimed u/s.54 of the Act without application of mind, the Hon’ble High

Court held that it cannot be said that there is no application of mind

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by the Assessing Officer on allowing the exemption u/s.54F of the Act

merely because the assessment order is silent about the enquiries

conducted by the Assessing Officer by making the following

observations vide para 20 of the judgment.

‘’20. On a reading of the above, it is evidently clear that the assessee had produced documents to show that the property was utilized for residential purpose. On being satisfied, the Assessing Officer has extended the benefit of deduction under section 54F of the Act. The Assessing Officer is not expected to write a judgment and his order should reveal application of mind, which in our opinion is writ large on the face of the order. Therefore, we do not approve the finding rendered by the Commissioner in his order dated March 14, 2012, that the Assessing Officer did not apply his mind. Unfortunately, when the matter was taken up before the Tribunal, the Tribunal also failed to take into consideration, as to the claim made by the assessee and the exercise undertaken by the Assessing Officer’’.

The fact that there was an enquiry by the Assessing Officer can be

demonstrated with the help of material available on record. In the

present case, the Assessing Officer issued many notices u/s.143(2)

and 142(1) of the Act on various dates i.e. 31.08.2015, 09.05.2016

and 24.05.2016 and the assessee had also vide letters dated

14.09.2015, 18.05.2016, 17.06.2016, 03.11.2016 and 04.11.2016

replied to the Assessing Officer giving details, documents and

information pertaining to the queries raised by the Assessing Officer.

This goes to prove that assessment was not done in un due haste.

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The fact that the Assessing Officer had called for the details of the

expenditure incurred in connection with the transfer of shares would

go to show that there is application of mind on the part of the

Assessing Officer. Evidently the claim for deduction of expenditure in

connection of transfer of shares was allowed by the Assessing Officer

on being satisfied with the explanation and the evidence filed by the

assessee. The finding of the ld. PCIT that there was no enquiry by the

Assessing Officer is far from truth. The ld. PCIT had not given

findings what enquiry should have been conducted by the Assessing

Officer on the issue. It is for the ld. PCIT to conduct the enquiry for

himself and come to conclusion that assessment order is erroneous

and then set aside the assessment order to the Assessing Officer to

redo the assessment. It is settled position of law that power of

revision cannot be used for the purpose of making roving and fishing

enquires. The Hon’ble Delhi High Court in the case of CIT vs. Ashish

Rajpal, (2010) 320 ITR 674, had held as follows:-

‘’17.1 As observed by us above, there is no requirement under section 263 of the Act to issue a notice before embarking upon a revisionary proceedings. To that extent the submission of the learned counsel for the Revenue Mr.Sanjeev Sabharwal has to be accepted. What is mandated under section 263 of the Act is that once the Commissioner calls for and examines the record, pertaining to the assessee, and forms a prima facie view that the order passed by the Assessing Officer is both erroneous and prejudicial to the interest of the Revenue, he is obliged to afford an opportunity to the assessee before passing an order,

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to the prejudice of the assessee. In the instant case, the Commissioner sought to accord such an opportunity to the assessee by putting him to notice as regards aspects which the Assessing Officer had failed to scrutinize. During the course of the revisionary proceedings this was conveyed to the assessee by way of a notice dated May 11, 2006. It is not disputed that in the order dated January 18/19, 2007, the Commissioner has referred to certain other issues which did not form part of the initial notice dated May 11, 2006. To our minds it was always open to the Commissioner to put such issues/discrepancies, found by him based on material on record, to the assessee. It is to be noted, however, that the learned counsel for the assessee vehemently denied that the assessee had been given any opportunity to meet issues other than those to which reference has been made in the Commissioner' s notice dated May 11, 2006. For this purpose, the learned counsel for the assessee sought to place reliance on the impugned judgment passed by the Tribunal, wherein this aspect of the matter has been discussed elaborately. In order to satisfy ourselves we called upon learned counsel for the Revenue Mr. Sanjeev Sabharwal to place on record any communication, order or any other document which would show that the assessee had been given an opportunity to deal with those aspects which did not form part of the initial notice dated May 11, 2006, but were taken into account by the Commissioner while passing his order dated January 18/19, 2007. In this regard, the learned counsel for the Revenue placed on record order sheet entries of the proceedings conducted by the Commissioner. We have already extracted the order sheet entries commencing from June 15, 2005 to June 28, 2006. A perusal of those entries would clearly demonstrate that there is nothing on record which would show that the assessee was given an opportunity to respond to these discrepancies which formed part of the order in revision dated January 18/19, 2007, but were not part of notice dated May 11, 2006. This was put to the learned counsel for the Revenue, who in response fairly conceded that there was nothing on record which would establish the contrary. It was, however, urged by the learned counsel for the Revenue Mr.Sanjeev Sabharwal that the assessee would have his opportunity to give satisfactory replies to the discrepancies raised in the revisional order before the

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Assessing Officer and that such an opportunity would meet the requirements of the provision. We are afraid that that is not the position envisaged in law. If one were to permit correction of such a grievous error in the manner suggested it would tantamount to, in a manner of speaking, closing the stable doors after the horse has bolted. The assessments, unless reopened by paying faithful obeisance to statutory provisions and conditionalities provided therein, attain finality on their conclusion. The provisions of section 263 mandate that an order for enhancing, or modifying the assessment, or cancelling the assessment and directing a fresh assessment can only be passed after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as is deemed necessary. The threshold condition for reopening the assessment is that before passing an order an opportunity has to be granted to the assessee and, such an opportunity granted to the assessee is a necessary concomitant of the enquiry the Commissioner is required to conduct to come to a conclusion that an order for either an enhancement or modification of the assessment or, as in the present case, an order for cancellation of the assessment is called for, with a direction to the Assessing Officer to make a fresh assessment. This defect cannot be cured by first reopening the assessment and then granting an opportunity to the assessee to respond to the issues raised before Assessing Officer during the course of fresh assessment proceedings. To buttress his submission the learned counsel for the Revenue has relied upon the judgment of the Supreme Court in the case of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 . This is a case in which the order issued by the Commissioner, itself revealed that the assessment was being reopened based on an additional supporting material. The Supreme Court in such fact situation thus ruled that non-supply of additional supporting material would not affect the basic issue of assessment being carried out without adequate investigation. In the instant case the order in revision refers to issues and discrepancies which did not find mention in the initial notice dated May 11, 2006 and not to additional or supporting material as in the case of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84. Therefore, to suggest that it would be sufficient compliance with the provisions of section 263 of the Act, if an opportunity to

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respond to the discrepancies mentioned in the order in revision is given to the assessee in reassessment proceedings before the Assessing Officer, is according to us is completely untenable. It is the requirement of section 263 of the Act that the assessee must have an opportunity of being heard in respect of those errors which the Commissioner proposes to revise. To accord an opportunity after setting aside the assessment order, would, in our view, not meet the mandate the section 263 of the Act. If such an interpretation is accepted it would make light of the finality accorded to an assessment order which cannot be reopened unless due adherence is made to the conditionalities incorporated in the provisions of the Act in respect of such powers vested in the Revenue’’.

The Hon’ble Delhi High Court in the case of PCIT vs. Delhi Airport

Metro Express Pvt. Ltd, (2017) 398 ITR 8, had held as follows

The Hon’ble Delhi High Court in the case of DIT vs.Jyoti Foundation,

(2013) 357 ITR 388, after referring to its earlier decisions in the cases

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of CIT vs. Sunbeam Auto Ltd, (2011) 332 ITR 167 and CIT vs. DG

Housing Projects Ltd, (2012) 343 ITR 329 held as follows.

‘’Thus, in cases of wrong opinion or finding on the merits, the Commissioner of Income-tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. The Commissioner of Income-tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Income- tax must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Income-tax and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in law. In some cases possibly though rarely, the Commissioner of Income-tax can also show and establish that the facts on record or inferences drawn from 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, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a con dition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the Commissioner of Income-tax has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the Commissioner of Income-tax while exercising jurisdiction under section 263 of the Act and in the absence of the finding that the order is erroneous and pre judicial to the interests of the Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged 'inadequate investigation, it will be difficult to hold that the order of the

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Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without the Commissioner of Income-tax conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. The Commissioner of Income-tax can not direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the Commissioner of Income-tax to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the Commissioner of Income-tax hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore, the Commissioner of Income-tax must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the Commissioner of Income-tax must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the Commissioner of Income-tax can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the Commissioner of Income-tax (see CIT v. Shree Manjunathesware Packing Products and Camphor Works [1998] 231 ITR 53 (SC)). Nothing bars/prohibits the Commissioner of Income-tax from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous." 5. In the present case, inquiries were certainly conducted by the Assessing Officer. It is not a case of no inquiry. The order under section 263 itself records that the Director felt that the inquiries were not sufficient and further inquiries or details should have been called. However, in such cases, as observed in the case of DG Housing Projects Ltd. (supra), the inquiry should have been conducted by the Commissioner or the Director himself to record the finding that the assessment order was erroneous. He should not have set aside the order and directed the Assessing Officer to conduct the said inquiry’’.

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The Hon’ble Delhi High Court in the case of ITO vs. DG Housing

Projects Ltd, (2012) 343 ITR 329, held as follows.

‘’17. Thus, in cases of wrong opinion or finding on the merits, the Commissioner of Income-tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. The Commissioner of Income-tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Income-tax must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Income-tax and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in law. In some cases possibly though rarely, the Commissioner of Income-tax can also show and establish that the facts on record or inferences drawn from 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, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the Commissioner of Income-tax has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. 18. This distinction must be kept in mind by the Commissioner of Income- tax while exercising jurisdiction under section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interests of the Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without the Commissioner of Income-tax conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. The Commissioner of Income-tax cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the Commissioner

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of Income-tax to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the Commissioner of Income-tax hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore, the Commissioner of Income-tax must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the Commissioner of Income-tax must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the Commissioner of Income-tax can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the Commissioner of Income-tax (see CIT v. Shree Manjunathesware Packing Products and Camphor Works [1998] 231 ITR 53 (SC)). Nothing bars/prohibits the Commissioner of Income-tax from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. 19. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC), had observed that the phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to the Revenue ; or two views were possible and the Assessing Officer has taken one view with which the Commissioner of Income-tax may not agree ; the said orders cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the Commissioner of Income-tax must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interests of the Revenue’’.

The principle enunciated in the above cases is that in cases where

there is no enquiry or inadequate enquiry by the Assessing Officer on

the issues sought to be revised by the CIT, the CIT himself should

conduct the enquires and come to conclusion that order is erroneous.

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The matter cannot be remanded to the Assessing Officer to enquire to

decide whether the order is erroneous. In the present case, we are

unable to discern from the impugned order that the ld. PCIT had

conducted any enquiries and recorded a finding that the assessment

order is erroneous. The fact that the ld. PCIT remanded the matter

to the Assessing Officer for the purpose of enquiry by itself prove that

the ld. PCIT had not decided whether or not the assessment order is

erroneous. Mere bald finding by the ld. PCIT that the assessment

order is erroneous cannot be sustained in the eyes of law unless the

impugned order refers to any material to show that the assessment

order is erroneous. The mere nomenclature given to an item of

expenditure cannot decide the allowability otherwise of it. Reference

can be made to the decisions of Hon’ble Supreme Court in the cases of

Padmasundara Rao (Decd) vs. State of Tamil Nadu (2002) 255 ITR

147 and National Steel Works Ltd vs. CIT, (1962) 46 ITR 646. The

tone and tonor of the impugned order indicates that the ld.PCIT was

driven by the nomenclature given to the item of expenditure without

examining the real nature of expenditure. It is settled position of law

that there must be some prima facie material on record to show that

tax which was lawfully exigible has not been imposed or that by the

application of the relevant statute on an incorrect or incomplete

interpretation a lesser tax than what was just has been imposed. In

ITA No.1519 /2019 :- 23 -:

the present case, the ld. PCIT had not referred to any material which

indicates that the exgratia payment made to employee directors

towards the consideration for service rendered in connection with the

sale of shares of Prizm Payment Services Pvt Ltd held by it is not an

allowable expenditure u/s.48(1) of the Act.

in the impugned order as to how the assessment order is erroneous

and prejudicial to the interests of the Revenue. In the absence of this

finding, power of revision cannot be exercised by the ld. PCIT u/s.263

of the Act as held by Hon’ble Jurisdictional High Court in the case of

G.R. Thangamaligai (supra) held as follows.

“In the absence of any finding that there is loss of Revenue, interference u/s.263 of the Act was not justified’’.

From the above discussions, it is apparent that though the assessment

order does not patently indicate that the issue in question had been

considered by the Assessing Officer, the material on record could

show that the Assessing Officer had applied his mind on the issue. The

fact the ld. PCIT has sought to revise the issue which is not subject

matter of deduction i.e. loss on account of foreign exchange

fluctuation on receivables would suggest that there was no proper

application of mind on the part of ld. PCIT. Thus, we are of the

ITA No.1519 /2019 :- 24 -:

considered opinion that the material on record would establish

application of mind on the part of the Assessing Officer while allowing

the claim during the assessment proceedings. Once such application of

mind is discernible from the record, the proceedings under section 263

of the Act would fall into the area of the ld. PCIT having a different

opinion and it is settled proposition of law that an assessment order

cannot be treated as erroneous and prejudicial to the interests of the

Revenue simply because in the opinion of the ld. PCIT some other

views are possible as held by the Hon’ble Supreme Court in the case of

CIT vs. Max India Ltd, (2007) 295 ITR 282, wherein it was held as

follows.

‘’2. At this stage we may clarify that under paragraph 10 of the judgment in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 this court has taken the view that the phrase "prejudicial to the interests of the Revenue" under section 263 has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue ; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law’’.

ITA No.1519 /2019 :- 25 -:

satisfy the prerequisite condition of assessment order being erroneous

and prejudicial to the interest of the Revenue. Therefore the order of

the ld. PCIT cannot be sustained in the eyes of law. Accordingly, we

set aside the order passed u/s.263 by the ld. PCIT and allow the

appeal filed by the assessee company.

allowed.

Order pronounced on 23rd day of August, 2019, at Chennai.

Sd/- Sd/- (इंटूर� रामा राव) (धु�वु� आर.एल रे�डी) (DUVVURU RL REDDY) (INTURI RAMA RAO) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य;[/JUDICIAL MEMBER चे�नई/Chennai �दनांक/Dated:23rd August, 2019. KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF