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Income Tax Appellate Tribunal, MUMBAI BENCHES “J”, MUMBAI
Before: Shri Joginder Singh, & Shri N.K. Pradhan
आदेश / O R D E R Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 19.08.2016, of the ld. First Appellate Authority,
2 M/s. Laxmi Venture India Ltd. Mumbai, in allowing the appeal of the assessee, relying upon the decision of the Tribunal dated 03.08.2016, without going into the merits of the case.
2. During the hearing, at the outset, the learned Counsel for the assessee Shri Haridas Bhat, claimed that the Tribunal vide order dated 03.08.2016 (ITA no.2293/Mum./2014), while dealing with the revisional jurisdiction u/s 263 of the Income Tax Act, 1961 (herein after “the Act”), the order of the learned CIT was set aside allowing the appeal of the assessee. This factual matrix was consented to be correct by Ms. Aarju Garodia, learned D.R. However, she added that the learned CIT(A) should have decided the appeal of the assessee on merit.
We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing herein under the relevant portion from the aforesaid order of the Tribunal dated 03.08.2016 for ready reference and analysis:-
3 M/s. Laxmi Venture India Ltd. ―The assessee is aggrieved by the impugned order dated 26/12/2011 of Ld. Commissioner of Income Tax, Mumbai. The only ground agitated by the assessee, before this Tribunal, is with respect to invoking revisional jurisdiction u/s 263 of the Income Tax Act, 1961 (hereinafter the Act) by holding the assessment order as erroneous and prejudicial to the interest of the Revenue.
During hearing, Shri Haridas Bhat, ld. counsel for the assessee, contended that necessary details, called for by the ld. Assessing Officer were duly furnished by the assessee and even the query raised were also replied to by the assessee for which our attention was invited to various paras of the assessment order including submission dated 21/11/2011 (pages 9 to 38 of the paper book) and also submissions dated 09/12/2011 (pages 39 to 45). The balance sheet, profit & loss account along with annexures for Financial Year 2008-09 (pages 1 to 8 of the paper book) were filed before the Assessing Officer. Our attention was invited to the finding recorded in the assessment order. The ld. counsel invited our attention to various pages of the paper book. Reliance was placed upon the following decisions:- a) CIT vs Gabrial India Ltd. (1993) 203 ITR 108(Bom.) b) CIT vs Development Credit Bank Ltd. (2010) 323 ITR 206(Bom.) c) CIT vs Ganpat Ram Bishnoi (2008) 296 ITR 292 (Raj.) d) CIT vs Design & Automation Engineers (Bom.) Pvt. Ltd. 323 ITR 632 e) Grasim Industries Ltd. vs CIT 321 ITR 92 & f) Fiduciary Shares & Stocks Pvt. Ltd. (ITA No.321/Mum/2013) order dated 13/05/2016. g) 338 ITR 435 (Delhi) h) 379 ITR 222 (Delhi) The ld. counsel took us to the aforesaid order dated 13/05/2016, passed by the Tribunal and the finding recorded in para 5.6.3 of the order, wherein, discussion has been made with respect to amendment in explanation to section 73 by the 4 M/s. Laxmi Venture India Ltd. Finance (No.2) Act, wherein, it was held that it is curative and clarificatory in nature. 2.1. On the other hand, the ld. CIT-DR, Shri L.K.S. Dahiya, strongly defended the impugned order by explaining that the facts in the case of Fudiciary Shares and Stock Pvt. Ltd. are different as the major business of the assessee was trading in shares, whereas, in the present appeal, a negligible income was earned from the shares which constitutes less than 0.5% of the total turnover of the business of the assessee. A question was imposed by the ld. CIT-DR whether the assessee is covered by explanation to section 73 of the Act by contending that necessary enquiry was not made by the Assessing Officer and the assessee is having other activities and share trading is not the major activity/principal business of the assessee. Reliance was placed upon the decision in 261 CTR 127 (Del.), 174 TTJ 875 (Cal.), 152 ITD 652 (Cal.) and 69 taxman.com 170(SC). It was contended that there is non-application of mind by the Assessing Officer, thus, invocation of revisional jurisdiction by the Ld. Commissioner of Income Tax (Appeal) may be upheld. 2.2. We have considered the rival submissions and perused the material available on record. Before coming to any conclusion, we are expected to analyze the order of the ld. Assessing Officer. We find that there is a mention in the assessment order that the assessee declared income of Rs.2,66,67,700/- in its return filed on 29/08/2009, which was processed u/s 143(1) of the Act on 15/12/2010. Notice u/s 143(2) dated 19/08/2010 was issued to the assessee as the case was selected for regular assessment. Vide order dated 30/06/2011, the ld. Commissioner assigned this case to the Addl. Commissioner for completing the assessment. The ld. Assessing Officer issued notices u/s 143(2) and 142(1) along with questionnaire to which the assessee attended the assessment proceedings on several occasions. The assessee furnished the details, called for, vide submissions dated 20/06/2011, 13/09/2011, 20/09/2011, 21/11/2011, 09/12/2011. Various issues were discussed and finally the total income was 5 M/s. Laxmi Venture India Ltd. computed at Rs.2,66,67,700/- while framing assessment u/s 143(3) of the Act. The assessee was held to be liable for charging of interest u/s 234A, B, C. Admittedly, the order is short. However, question arises, whether a short order, which was passed after issuance of notices/questionnaire and on consideration of various submissions, filed by the assessee can be said to be erroneous and prejudicial to the interest of Revenue. The obvious reply is it is not always. Sometimes, short order may not be erroneous and a long order which was passed without application of mind and ignoring the factual matrix may be wrong / erroneous or prejudicial to the interest of Revenue. It is also noted that the assessment was completed u/s 143(3) of the Act by a Senior Officer in the rank of Addl. Commissioner that too the case was assigned by the ld. Commissioner to him vide order dated 30/06/2011. The assessee vide submissions dated 09/12/2011 further submitted the copies of the contract notes and ledger accounts of broker with a submissions that a profit/ loss on sale of shares may be considered as capital gains. Reply with respect to volume of transaction, frequency of transactions, motive, treatment in the books of accounts and reply to point no.3 relating to as to why transaction in future and options should not be treated as speculative transactions were explained. All these facts clearly indicates that the assessment order was framed after considering the necessary details and on application of mind. In such a situation, we are of the view that the assessee should not be put to jeopardy due to the passing of short order by the Additional Commissioner otherwise, there is no end to it and finality to the order can never be reached. In identical situation, the Mumbai Bench of the Tribunal, wherein, one of us (Judicial Member) is signatory to the order deliberated upon the issue and decided in favour of the assessee in the case of M/s Shimnit Kiwalite Industries Pvt. Ltd., (ITA No.3010/Mum/2014) order dated 16/01/2015 is reproduced hereunder for ready reference:- ―Aggrieved by the impugned order dated 10/03/2014 of the Ld. Commissioner of Income Tax, 6 M/s. Laxmi Venture India Ltd. Mumbai, invoking revisional jurisdiction u/s 263 of the Income Tax Act, 1961, the assessee is in appeal before this Tribunal, challenging such invocation on the ground that the ld. Commissioner erred in holding that the amount so received is nothing but a consideration for relinquishment of development right of the land and the reason assigned by him, for doing so, are contrary to the facts.
2. During hearing of this appeal, Shri Vijay Mehta, ld. counsel for the assessee advanced his arguments which are broadly identical to the ground raised
by further submitting that neither the assessment order is erroneous nor prejudicial to the interest of Revenue, by further submitting that revisional jurisdiction was invoked without appreciating the facts specially when the assessment order was framed after making due/detailed enquiries, examination of facts, applying provision of the law and then completed the assessment u/s 143(3) of the Act. Setting aside of assessment and directing to make fresh assessment with regard to the issue of sum of Rs.50 crores to be included on account of advances received from three parties for joint development of land, thus, reason assigned by the ld. CIT are contrary to facts and rules. It was also pleaded that the ld. Commissioner failed to appreciate that the ld. Assessing Officer rightly considered the advances received as contribution for joint development of the land, as per the agreed terms of MOU, received for relinquishment of development of rights which is in accordance with law. It was explained that the agreed terms and conditions, due to certain unavoidable circumstances, could not materlise and the amount was shown as advances. It was also contended that the parties filed suit against the assessee for recovery of advance money given to the assessee in the Court and all these facts were duly filed before the Assessing Officer. The crux of argument is that after scrutinizing/ examining the details, after making full enquiries and on detailed examination of facts, the assessment order was passed by the Assessing Officer. Our attention was invited to pages 10 of the paper book (MOU), page 11(advance for exclusive rights), page
12. (confidential clause) and other pages like 16, 19,21, 28, note 11 at page 29, detailed notices issued to the assessee by the Assessing Officer (page 34), reply of the assessee to the Assessing Officer (page 35), page 37, 38,39,(notice by the Assessing Officer) of the paper book. It was explained that even the concerned parties treated the amounts as business advances. Our attention was further invited to pages 40 to 45 of the paper book. Mr. Mehta also invited our attention towards legal
7 M/s. Laxmi Venture India Ltd. notice sent to the assessee by the parties and filed suit for recovery of the amount/business advances. The ld. Counsel invited our attention that the assessee duly responded to the notices of the concerned parties by asserting that matter will be settled by Court and the assessee is not denying regarding payments made as business advances. Strong plea was raised that both the parties are treating the amounts as business advances. From the MOU, it was explained that the money was subject to final agreement and the observation of the ld. CIT that mind was not applied by the Assessing Officer is factually incorrect as the transaction was rightly looked into by the Assessing Officer. Plea was also raised that no income arose out of the transaction and the ld. CIT treating it differently by taking a different view. Our attention was also invited to para 5 raising the controversy in the impugned order. It was explained that the amount of Rs.50 crores was not put to use, as per MOU, and if the money is not returned, it will be dealt with as per section 51 of the Act and section 5 has no application at all. Our attention was invited to the show cause notice where even there is no whisper of section 51, therefore, the jurisdiction of the ld. Commissioner is confined to issue raised in show cause notice. Reliance was placed upon the decision in CIT vs Max India Ltd. (295 ITR 282) by contending that view of the ld. Commissioner is not sustainable. Broadly, it was contended that the view taken by the ld. Commissioner is contrary to section 5 and 2(24) of the Act and unless the ld. Commissioner comes to a definite conclusion the order cannot be termed as erroneous/prejudicial. 2.1. On the other hand, Shri Manjunatha Swamy, ld. CIT-DR, defended the invocation of revisional jurisdiction by the ld. Commissioner by contending that even till today the money has not been returned to the parties, the Assessing Officer did not apply his mind while framing assessment u/s 143(3) of the Act, therefore, it is an erroneous order. It was also contended that even the MOU is silent regarding return of money. It was pleaded that necessary enquiries were not made by the Assessing Officer, therefore, the assessment so framed is erroneous as well as prejudicial to the interest of the Revenue. 2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is engaged in the business of trading in Kiwalite reflective sheets, filed its return by way of e-filing, declaring nil income, after setting off of brought forward loss of Rs.27,56,495/- on 29/09/2009, which was processed u/s 143(1) of the Income Tax Act, 1961( 8 M/s. Laxmi Venture India Ltd. hereinafter the Act). The case of the assessee was selected for scrutiny, consequently, notice u/s 142(1) of the Act along with detailed questionnaire was issued to the assessee. After the change of incumbent, fresh statutory notice was again issued on 06/06/2011 and served upon the assessee. The assessee attended the proceedings from time to time and filed the details called for by the Assessing Officer. From the accounts of the assessee it was noticed by the Assessing Officer that the assessee showed short term capital loss of Rs.17,88,101/- and while computing the business income, the assessee did not add back the Short Term Capital Loss, therefore, vide questionnaire dated 08/11/2011, the assessee was asked to explain as to why the claimed short term capital loss may not be added to the business income of the assessee. The relevant portion of the notice issued u/s 142(1) of the Act (page-34 of the paper book) is reproduced hereunder for ready reference:- Notice under Section 142(1) of the Income-tax Act, 1961 To The Principal Officer M/s Shimnit Kiwalite Ind. Pvt. Ltd. 8th Floor, Regent Chambers Narimna Point Mumbai - 400 021 Sir, In connection with the assessment proceedings for the Assessment Year 2009-10 you are required to furnish in writing and verified in the prescribed manner information before me at the above address on 17th November, 2011 at 10.30 A.M. on the points or matters specified hereunder.- .
2. If you wish to be represented by an authorised representative furnish a Letter of Authority in the prescribed form.
3. Please file tax audit report in form No.3GA and 3CB prepared uj s.44AE of the Income- tax Act, 1961 for the year ending 31-03-2009. Also file a detailed note in respect of nature of business carried out by you .
4. Please furnish the year-wise declared and assessed losses shown in the computation of income with necessary supporting evidences, namely copies of assessment orders of all the respective years, if any.
In the accounts you have shown short term capital loss of Rs.17,88,lOlj -, however, while computing the business income the said losses have not been added 9 M/s. Laxmi Venture India Ltd. back. In this regard you are asked to explain as to why the Short Term Capita Loss should not be added back to the business income. Also file the dividend striping as per provisions of section 94(7) of the Act. 6. horn the accounts it is seen that share capital issued along with premium. In this regard please file Form No.2 for allotment of shares along with Board Resolution. Also file Form FCGRB filed with RBI alongwith all annexures required therein. Please also file the approval received from RBI in this regard. Also state the basis for working of premium.
You have shown receipt of loans from the following parties: i. Amazon Enterprises Pvt. Ltd. Rs.25,OO,OO,OOO/- ii. Himandari Enterpises Pvt. Ltd. Rs. 10,OO,OO,OOO/- lll. Pusti Enterprises Pvt. Ltd. Rs.15,OO,OO,OOO/- In this regard please file copy of return along with audited accounts specifying the share holding pattern of the said entities, loan confirmation with copy of bank statement highlighting the said loan transactions.
Please file quantity-wise, item j value-wise inventories of opening and closing stock.
Please file the details of advances receivable in cash or in kind, specifying the name of the party, purpose, contract agreement if any of Rs.2,46,72,586/ -. Also file details of other deposits of Rs.1,17,30,lOO/- .
Please file party-wise details of advances from customers mentioning the complete post address.
Please file the party-wise purchases and sales whose value exceeding Rs.10 lacs.
12. Complete details of administrative expenses with necessary supporting, specifying the amount of TDS made wherever applicable. Please also file the details of fresh expenses claimed for the year under consideration with proper justification. 13 Please file the copy of TDS return along with all annexures.
10 M/s. Laxmi Venture India Ltd.
14. Please file the working of attributable expenses for exempt income as per Rule 8D of the Income-tax Rules 1962.
15. Kindly note that non-compliance La the notice may attract penalty ujs.271(1)(b) of the IT. Act, 1961 of Rs.10,OOO/ - for each such failure.
2.3. In response to the above, the assessee, vide reply dated 17/11/2011, addressed to the Assessing Officer, filed the necessary details. The relevant portion of the reply (pages 35-38 of the paper book is reproduced hereunder:- Date: 17/11/2011 Asstt. Comm. Of Income Tax Circle3 (L) R.No. 609, 6th Floor, Aayakar Bhavan, Mumbai- 400020 REF: Notice U/S 142(1) OF THE Income Tax Act, 1961 SUB: Submission of Details PAN:AAECS8610B Please find enclosed herewith the following details as desired by your honour. 1) Letter of Authority 2) Statement of year wise declared losses and assessed losses along with Assessment orders for the A.Y 2006-07, 2007-08 marked as Annexure- 1 3) The short term capital loss of Rs. 17,88,101/- was wrongly not added back to Business Income and not shown separately as short term capital loss and to be carried forward to be set- off in subsequent years against the capital gain income and mistake has been now rectified and pleases find attached herewith the revised computation of Total Income marked as Annexure-2 4) Copy of Form 2 filed with the ROC for allotment of 3,50,000 equity shares during the year and copy of FC-GPR along with valuation report filed with RBI marked as Annexure-3 5) Copy of MOU entered with M/S Amazon Enterprises Pvt. Ltd, M/S Himandari Enterprises Pvt. Ltd. and M/S Pusti Enterprises Pvt. Ltd. and copy of cheque received form them and bank statement indicating the said transaction marked as Annexure-4 11 M/s. Laxmi Venture India Ltd. 6) Statement of Item wise, quantity wise and value wise inventory of opening and closing stock marked as Annexure-5 7) Statement of Advance recoverable in cash or kind, details of other advance and details of advance received from customers marked as Annexure-6 8) Statement of Sales an Purchase exceeding Rs. 10 lakhs marked as Annexure-7 9) Copy of acknowledgement of TDS returns marked as Annexure-8 10) Working of attributable expenses for exempt income as per rule 80 of the Income Tax Rules 1962 marked as Annexure-9 Please find above in order and as per your requirement and let us know any further information required.
2.4. It is pertinent to mention here that the assessee annexed copies of the cheques also annexed with the aforesaid reply alongwith summery of accounts as on 30/04/2008 (pages 37-38 of the paper book which are not reproduced above). We find that in the aforementioned reply as mentioned in para -5, the copy of MOU entered with M/s Amazon Enterprises Pvt. Ltd., M/s Hidmandari Enterprises Pvt. Ltd. and M/s Pusti Enterprises Pvt. Ltd. and copy of cheques received from them along with bank statement indicating the said transactions (Marked as annexure-4), statement of itemwise, quantity wise, and value wise inventory and closing stock (marked as annexure-5) were filed before the Assessing Officer alongwith statement of advances recoverable in cash or kind, details of other advance and details of advance received from customers (marked as annexure-6), statement of sale and purchases exceeding Rs.10 lakh (annexure-7), copy of acknowledgment of TDS returns (annexure-7) and working of attributable expenses for exempt income as per Rule 8D of the Rules (Annexure-9) (these annexure means which were annexed with the letter addressed to the 12 M/s. Laxmi Venture India Ltd. Assessing Officer) were furnished. Again vide letter dated 05/12/2011 addressed to the Assessing Officer, other details were also furnished. The relevant portion of this letter (page -39 of the paper book) is reproduced hereunder for ready reference:- Date: 05/12/2011 Asstt. Comm. Of Income Tax Circles (3), R.No. 609, s" Floor, Aayakar Bhavan, , Mumbai- 400020 REF: Notice U/S 142(1) OF THE Income Tax Act, 1961 SUB: Submission of Details PAN: AAECS8610B Please find enclosed herewith the following details as desired by your honour. 1)Copy of bills for Legal & Professional Fees paid. 2) Statement of Travelling Expenses 3) Copy of Balance sheet, Annual Return for the year ended si" March 2009 and certificate of change in name issued by ROC of M/S PUSTI ENTERPRISES PVT. LTD, M/S HI MAORI ENTERPRISES PVT. LTD and M/S AMAZON ENTERPRISES PVT. LTD. 4) Copy of legal notice DT. 28/11/2011 received from M/S AMAZON ENTERPRISES PVT. LTD. and M/S PUSTI ENTERPRISES PVT. LTD for the recovery of business advance . Please find above in order and as per your requirement and let us know any further information required. Thanking You Yours Faithfully FOR SHIMNIT KIWALITE IND. PVT. LTD 2.5. We find that along with the aforesaid reply, the assessee also furnished the following details:- a. Details of shareholders b. Certificate issued by ROC for change of name of M/s Himadri Enterprises Pvt. Ltd. (Now, Reliance Prolofic Traders Pvt. Ltd.) c. Certificate issued by ROC for change of name of M/s Pushti Enterprises Pvt. Ltd. (Now Reliance Progressive Traders Pvt. Ltd.)
13 M/s. Laxmi Venture India Ltd. d. Certificate issued by ROC for change of name of M/s Amazon Enterprises Pvt. Ltd. (Now Reliance Eminent Trading & Commercial Pvt. Ltd.) 2.6. We are also reproducing hereunder such as memorandum of understanding dated 28/04/2008 (page-10 to 14 of the paper book), whereas computation of total income and copy of the acknowledgment of the Income Tax Return filed by the assessee, copy of the balance sheet, profit & Loss Account and notes to Accounts (Note No. 11), which were filed before the Assessing Officer are available from pages 16 to 26 of the paper book and are not being reproduced. ―This Memorandum of Understanding (MOU) made on this 28th day of April, 2008 at Mumbai Among ShimDit Kiwalite Industries Private Ltd (formerly known as Shimrot Kiwalite Industries, Limited) having its registered office at 8th Floor. Regent Chambers, Nariman Point, Mumbai -400 021 (hereinafter called as SKIL. which expression shall include any successor and permitted assignee); Pusti Enterprises Private Limited having its registered office at Mangla Vihar, 7/1, Pate! Colony. Jamnagar, Gujarat-361001 (hereinafter called as 'Pusti', which expression shall unless the context does not so admit shall include its successor and assigns) ; Himadri Enterprises Pvt. Ltd having its registered office at Mangla Vjhar, 7/1, Patel Colony, Jamnagar, Gujarat-361 00 1 (hereinafter called as 'Himadri', which expression shall unless tile context docs not so admit shall include its Successor and assigns); and Amazon Enterprises Pvt. Ltd having its registered office at Mangla Vihar, 7/1, Patel Colony, Jamnagar, Gujarat-361001(hereinafter called as 'Amazon', which expression shall unless the context does not so admit shall include its successor and assigns) Each party shall be referred to as Party and collectively shall be referred to as 'Parties'. Whereas: A. SKIL, has taken on lease from Maharashtra Industrial Development Corporation (MIDC) a plot of land admeasuring 20.728' square meters known as plot no L/44 in the Taloja Industrial Area within the village limits' of Tondre and outside the limits of Municipal Council, in rural area, Taluka and 14 M/s. Laxmi Venture India Ltd. Registration Sub-Division Panvel district and registration district Raigad ('the Plot'). the description of the Plot is given in "Annexure 1" under a lease agreement dated lS1h December 2004 ' ("Lease Agreement") . ' B. SKIL has approached Pusti, Himadri and-Amazon to partner in development of the plot for building of factory and other, buildings as permitted under the lease agreement ("Joint Development"). C. Pusti, Himadri and Amazon intend to be joint developers along with SKIL for the same . D. This MOU sets forth the general terms and conditions for the Joint Development. 1) The term of this MOU shall be for a period of 180 days commencing from the date of execution of this MOU extendable by mutual consent. ("Term") 2) SKIL represents and warrants (a) That it is a company duly formed and registered under the Companies Act,1956 (b) that they are the rightful leasehold owners of the PLOT and are entitled to develop the same by building factory and other buildings. (c) that they shall obtain the approval of MIDC for this purpose, if required .: (d) that they are entitled to enter into MOU's agreements for this purpose. 3) Pusti, Himadri and Amazon represents and Warrants (a) that they are companies duly formed and registered under the Companies Act, 1956 ' (b) that-they can arrange to procure necessary skill sets 'for the-construction and development 4) Pusti, Himadri and Amazon hereby pay an advice to SKIL an aggregate amount of Rs, 50 crores (Rupees Fifty Crores) towards' advance for exclusive rights for development as under: . (a) Pusti - Rs, 15 crores (b) Amazon - Rs. 25 crores (c) Himadri - Rs. 10 erores SKIL hereby acknowledges the receipt ofthe advance., 5) The terms, and conditions of this MOU for Joint Development shall take effect on execution of final definitive agreements for Joint Development. 6) SKIL shall make available the Plot for Joint Development.
15 M/s. Laxmi Venture India Ltd. 7) Pusti, Himadri and Amazon will be responsible for the development of the Plot and shall bear the construction cost upto Rs50 crores, All expenses beyond the said amount of Rs. 50 crores shall be contributed 50% by SKIL and 50% by Pusti, Himadri and Amazon. 8) Once Pusti, Himadri and Amazon agree for the Joint Development, this amount should be treated as their contribution for the Joint Development. 9) The profits and losses of the Joint Development shall be shared in the following ratio: (a) SKlL - 50% (b) Pusti -15% (c) Amazon-25%' (d) Himadri - 10% 10) SKIL shall make all arrangements for allowing the representatives of Pusti, Himadri and Amazon to enter the Plot and carry out all the activities to discharge their obligations . 11) The Parties shall enter into a detailed definitive agreements for this Joint Development before the end of the Term. The Parties agree that the obligations of the Parties for Joint Development s1Wl commence on conclusion of the definitive agreements. 12) Parties shall treat the existence of this MOU, the contents hereof and any document or information exchanged between the Parties in connection with or pursuant to the MOU as confidential. No Party will, without the prior consent of the other Party, make, directly or indirectly any public comment, statement, or communication with respect to, or otherwise disclose or permit the disclosure of the existence .of discussions regarding, a transaction between the Parties or any of the terms, conditions. or other aspects of the transaction described in this MOU except as required by law and after-consultation with the other Party provided however, that either Party shall have the right to disclose this MOU and the terms and conditions of the transactions contemplated hereby to its shareholders, affiliates, employees who are involved in the work contemplated in this MOU. 13) Notices . All notices to be provided pursuant to this MOU shall be in writing and delivered by hand, or sent by fax, courier or registered mail, return receipt requested, to the Parties at the following addresses, or such other 16 M/s. Laxmi Venture India Ltd. address as a party may advise the other Party from time to time: If to Pusti, Himadri and Amazon: Attn: Mr K R Raja Tel: +912222785548 If to SKIL: Attn: Mr. Navin Shah Tel: +912256311111 Fax: +912256339404 14) This MOU may be executed in one or more counterparts, each of which will be deemed to be an original and all of which, when taken together, will be deemed to constitute one and the same MOU. 15) No amendments, changes or modifications to this MOU shall be valid except if the same are in writing and signed by a duly authorized representative of each Party. 16) This MOU will be governed by the laws of India, and the parties agree that the courts in Ahmedabad shall have exclusive jurisdiction in matters arising under this MOU. IN WITNESS WHEREOF, Parties hereto have executed this MOU through their duly authorized. representatives as of the day and Year first written above. Signed for and 'on behalf of . Shimnit Kiwalite Industries Private Ltd. By ………… Name…………. Title…………… Signed for and on behalf of Pusti Enterprises Private Limited By ………… Name…………. Title…………… In the aforesaid MOU dated 28th April, 2008, entered into/agreed by the parties (as per clause 4) Pusti( Rs. 15 crore), Himadari (Rs.10 crore) and Amazon(Rs.25 crore) paid advances to the assessee towards advance for exclusive rights for development. It is further noted that terms and conditions of this MOU for joint development shall take effect on execution of final definitive agreement. As per clause-11 the party shall entered into a detailed definitive agreement 17 M/s. Laxmi Venture India Ltd. for this joint development before the end of the term and further the parties agreed that the obligation of the parties for joint development shall commence on conclusion of the definitive agreement. It is noteworthy that all these documents were made available before the Assessing Officer, prior to finalization of assessment. The Assessing Officer only after examining the necessary details framed assessment u/s 143(3) that too after detailed enquiries, examination and after due application of mind. 2.7. The ld. CIT issued notice u/s 263 of the Act which is also reproduced hereunder:- ―The regular assessment for Asstt.Year 2009- 10 was completed on 28.12.2011, accepting the total income at Rs. NIL under normal provisions of the Act and determining Book Profit of Rs. 57,88,591/- as against declared income of Rs. 32,79,786/- u/s 115JB of the Act.
2. On verification of the records, certain discrepancies were found in the assessment order dt. 28.12.2011 ie.:-The assessee company had a land on lease admeasuring 20728 sq. mt. known as plot no.L/44 I the Taloja taken from Maharashtra Industrial Development Corporation(MIDC) under a lease agreement dated 15/12/2004. During the year the assessee had signed a Memorandum of Understanding (MOU) with three parties namely 'Reliance Eminent Trading and Commercial Pvt. Ltd. (formally known as Amazon Enterprises Pvt. Ltd.), Himadri Enterprises Pvt. Ltd. and Pusti Enterprises Pvt. Ltd. for joint development of the said land. In terms of the Memorandum of Understanding (MOU) dt. 28/04/2008 these parties agreed to develop the plot and bear the construction cost up to Rs.50 crore and all expenses beyond the said amount of Rs.50 crore was to be contributed 50% by assessee company and 50% by Pusti, Himadri, and Amazon addition, the said parties paid an amount of Rs.50 crore to assessee for getting exclusive rights for development at agreed proportion. On verification, 1 observed that the amount of Rs.50 Crores received by the assessee was nothing but consideration received for relinquishment of development rights of land, therefore this amount was required to be brought to tax. However, this amount remained to be brought to tax. As per section-5 of the IT Act, the total income of any previous year of a person who is resident includes all income which is received or deemed to be received, or accrues or arises, or 18 M/s. Laxmi Venture India Ltd. deemed to accrue or arise in India during such year from whatever source.
3. In view of the above, the assessment order passed by the DCIT 3(3), Mumbai dated 28.12.2011 appears to be erroneous and prejudicial to the interest of Revenue and it is evident that the Assessing Officer has committed the lapse of not applying his mind to the issues discussed above. I, therefore, propose to pass such order thereon as the circumstance of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment under the provisions of Section 263 of the I.T Act.
4. You are hereby given an opportunity to appear before the undersigned personally or through an Authorized Representative at the above mentioned address on 25.2.2014 at 3.30 P.M or file your written submission by same date, failing which it will be presumed that you have nothing to say in the matter and the decision will be taken ex-parte on merits.‖ 2.8. In response to the above notice, the assessee vide reply dated 03rd March, 2014, addressed to the ld. Commissioner replied as under:- ―We refer to your captioned show cause notice under section 263 of the Income Tax Act, 1961 (the Act) dated 17-02-2014, received by us on 22-02-2014 proposing to pass an order, enhancing or modifying the assessment order, uls 143(3) of the Act dated 28.12.201l. Your goods elf has mentioned therein that the amount of Rs. 50 crores being the amount received from three parties in terms of Memorandum of Understanding (MOU) for joint development of land is nothing but consideration received for relinquishment of development rights of the land and required to be added to the total income of the assessee. In this regard, we have to submit as under:- 1.1 Assessee Company has filed the return of income for the captioned assessment year on 29.09.2009 declaring total income of Rs.NIL I-.The regular assessment u/s.143(3) of the I.T. Act, 1961 was completed vide order dated 28.l2.2011, after adding back the Short Term Capital Loss of Rs.17,88,101/- and assessing the total income at Rs.NIL/-after set off of brought forward losses under the normal provisions of the Act and determining the Book Profit of Rs. 57,88,591/- u/s 115.18 of the Act. Now, your goods elf has issued notice under section 263 of the Act on the following observation:- 1.2 " ... The assessee company hada land on lease admeasuring 20728 sq. mt. known as plot no.L144 I the Talojataken from Maharashtra Industrial Development Corporation (MIDC) under a lease agreement dated 19 M/s. Laxmi Venture India Ltd. 15.12.2004. During the year the assessee had signed a Memorandum of Understanding(MOU) with three parties namely 'Reliance Eminent Trading & Commercial Pvt. Ltd. (formerly known as Amazon Enterprises Pvt. Ltd.), Himadri Enterprises Pvt. Ltd. and Pusti Enterprises Pvt. Ltd. for joint development of the said land. In terms of the MOU dt. 28.04.2008 these parties agreed to develop the plot& bear construction costuptoRs. 50 crore and all expenses beyond the said amount of Rs. 50 crore was to be contributed 50% by the assessee company and 50% by Pusti, Himadri and Amazon. In addition, the said parties paid an amount of Rs. 50 crore for getting exclusive rights for development at agreed proportion. On verification, it was observed that the amount of Rs. 50 crores received by the assessee was nothing but consideration received for relinquishment of development rights of the land, therefore this amount was required to be brought to tax. However, this amount remained to be brought to tax. As per section 5 of the Act, the total income in any previous year of a person who is a resident includes all income received or deemed to be received, arises or accrues to arise or deemed to accrue or arise in India from whatever 1.2. According to your goodself, the assessment order passed by the DCIT.3(3), Mumbai dated 28.12.2011 is considered to be erroneous and prejudicial to the interest of Revenue and that the Assessing Officer has committed the lapse of not applying his mind to the issue discussed above. Therefore, your goodself proposes to pass such order thereon as the circumstance of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment under the provisions of Section 263." 1.3 In this regard, we have to submit that the assessee company had entered into a Memorandum of Understanding (MOU) (copy attached) with three parties namely 'Reliance Eminent Trading & Commercial Pvt. Ltd. (formerly known as Amazon Enterprises Pvt. Ltd.), Himadri Enterprises Pvt. Ltd. and Pusti Enterprises Pvt. Ltd. for their intention to be joint developers for the development of the plot of land. The terms and condition of the said MOU were effective for a period of 180 days and shall take effect on execution of final definitive agreements for joint development. As per clause 7 of the MOU, Pusti, Himadri and Amazon will be responsible for the development of the plot and shall bear the construction cost uptoRs. 50 crores. All expenses beyond the said amount of Rs. 50 crores shall be contributed 50% by SKIL and 50% by Pusti, Himadri and Amazon. In terms of the MOU, Pusti, himadri and Amazon paid advance to the company an aggregate amount of Rs. 50 crorcs as their contribution for their joint development as under:
20 M/s. Laxmi Venture India Ltd. (a) Pust i Rs. 1 5 crorcs (b) Amazon - Rs. 25 crores (c.) Himadri - Rs. 10 crores The profits and losses of the joint development was agreed to be shared amongst the 4 parties as per the ratio mentioned in Clause 9 of the MOU. As per clause 8 of the MOU dt. 28.04.2008 it is very clearly mentioned that once the Pusti, Himadri and Amazon agree for joint development, this amount should be treated as their contribution for the joint development. Thus, the amount paid is an advance for joint development of property and to be treated as their contribution for the joint development. 1.3 From the above facts it is evident that the amount assessee has received 'is just an initial advance as a contribution for the joint development of the assessee company's property as per the terms of the MOU and the said advance is not the consideration for relinquishment of development of land as mentioned by your goodself. These amounts of Rs. 50 crores received from the said three parties, though advance contribution towards joint development, wasreflected under the head 'Unsecured Loans (Inter corporate Deposits)' in the Balance Sheet as on 31 st March 2009. 1.5 In the following paragraph we would like to submit that this is a case not fit for revision proceedings under section 263 of the Act as the amount received as contribution towards joint development of land cannot be considered as income and the learned assessing officer after due application of mind to the facts of the case and after duly considering the provisions of law. 1.6 It is submitted that during the assessment proceedings u/s. 143(3) the ld. Assessing Officer had vide notice u/s. 142(1) dated 08.11.2011 called for various details which included the details for amount received from the above three parties aggregating to Rs. 50 crore along with confirmations and copy of the bank statement reflecting the receipt of the said amounts. The assessee vide letter dated 17.11.2011 had submitted the copy of MOU entered with M/s Amazon Enterprises Pvt. Ltd., M/s Himandri Enterprises Pvt. Ltd. and M/s. Pusti Enterprises Pvt. Ltd. along with copy of cheque received from the above parties and copy of the bank statement reflecting the said receipt. Further, vide letter dated 05.12.2011 the assessee had also submitted the details of the shareholding of the said three companies as well as the copies of the certificated issued by Asst. Registrar of companies for change of the names of these companies. Further, the point no.
21 M/s. Laxmi Venture India Ltd. 11 of the Notes to Accounts state that the assessee company has received Rs. 50 crores from the above mentioned parties for the joint development of the land as per the MOU entered between them on 28.04.2008. Due to some unforeseen circumstances, the final agreement between the assessee company and the parties could not materialize. As a result, the aforesaid three parties demanded the said amount and also filed summary suit in the Hon'ble City Civil Court or Ahmedabad on 30th June, 2012. The same was objected by the assessee Oil the basis or jurisdiction. The plaint was returned by the said Court vide order dated 3rd May, 2013. Subsequently, theses parties have filed fresh summary suits in the High Court of judicature at Bombay on 31 st May. 2013. The same are pending before the Hon'ble High Court. After examining the facts, applicability of provisions of the law and proper application of mind, the ld. Assessing Officer has rightly considered the said amounts as being advance contribution received towards joint development, and not as a consideration received for relinquishment of development rights of land, as mentioned by your goodself in the captioned notice. Section 5 of the Act explains the scope of total income. The said contribution received towards proposed development under no stretch of imagination be called or treated as "income". Under section 2(24) of the Act, "income" is defined which postulates that the word 'income' has to be given a wide meaning, but certainly it does not mean to cover capital or the stock or corpus or principal. It is an increase in wealth or fruit borne of capital. The amount received in the instant case is contribution corpus for the proposed project of development. There is no transfer of the land or any asset which is evident from the MOU and its terms. The leasehold land continue to be asset of the assessee company in its own possession and no right is transferred or parted with. Thus, the said amount received cannot be treated as income and accordingly section 5 of the Act also is not applicable to this amount. Thus, the Assessing Officer had accepted the contention of the assessee after examining the submissions. Therefore, it cannot be said that the ld. A.O. has summarily accepted the claim of the assessee, without application of mind and without any inquiry. Therefore there is no error in the assessment order and no prejudice is caused to revenue and" hence provisions of Section 263 are not applicable in the instant case. Thus, the observation in the above notice uls.263 of the Income Tax Act, 22 M/s. Laxmi Venture India Ltd. 1961 that the ld. AO has committed lapse of not applying his mind to the issues is not correct. It is therefore submitted that once the Assessing officer has examined the facts of the case which were on the records at the time of the assessment and taken a view as per the judicial position, it does not give jurisdiction for revision u/s.263 of the Act. 1.7 Your Honour will agree that two conditions are required to be fulfilled for the purpose of invoking jurisdiction under Section 263. This issue has been considered by various Courts including the Hon'ble Supreme Court and the judicial conclusion is that these two conditions are – (1) that the assessing officer was "erroneous" in passing the assessment order, and (2) that the decision or the assessing officer was "prejudicial to the interest of the Revenue". Law is well settled that an order can be termed as "erroneous" only if it is rendered contrary to law or upon a mistaken view of the law or on erroneous application of legal principals. An order cannot be termed "erroneous" unless it is not in accordance with law. If Assessing Officer acting in accordance with law, makes certain order the same cannot be branded as erroneous by the Commissioner simply because, according to him, it was not written elaborately. Section 263 does not visualize a case of substitution of judgment of the Commissioner for that of Assessing Officer, who passed the order, unless the decision is held to be erroneous. (See CIT v. Gabriel India Ltd. (1993) 203 ITR 108 Bom.). Apparently the reason, which is the foundation of the notice, we humbly submit, itself is patently contrary to the facts on records, judicial decisions and provisions of the Income Tax Act, 1961. The Assessing Officer made the enquiries about receipt of amount of Rs. 50 crores as contribution for joint development of the said land as per the agreed terms of MOU and has not considered it as a consideration received for relinquishment of development rights of land. This action of the Assessing Officer is strictly in accordance with law and on the face of the uncontroverted factual position on record by no stretch of imagination the assessing officer's order can be termed as erroneous. It could not also be said that the ld. Assessing Officer incorrectly applied the law in not making any addition to the returned income of the assessee as what could be lawfully assessed was the income earned by the assessee. In that view of the matter, it 23 M/s. Laxmi Venture India Ltd. is submitted that the notice under section 263 of the Act issued by your goodself is without jurisdiction and not tenable in law, and we request your goodself to drop the said proceedings initiated by you. 1.8 We would also like to cite in this connection a few judicial pronouncements: 1) Malabar Industrial Co. Ltd. v. CIT, 243 ITR 83 (S.C.) The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue- recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous and prejudicial to the revenue that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. 2) CIT v. Gabricllndia Ltd., 203 ITR 109 (Born.) The power or suomotu revision under sub-section (1) of section 263 of the Income-tax Act, 1961 is in the nature of supervisory jurisdiction and can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise the power of revision under this sub-section, viz., (i) the order should be erroneous; and (ii) by virtue of the order being erroneous prejudice must have been caused to the interests of the Revenue. An order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. 3) Ashok ManilalThakkar v. ACIT, 279 ITR (AT) 143 (Ahd.). In this case during the survey proceedings u/s.133A the assessee disclosed additional income for two assessment years. However, in the return of income the disclosed income was not included. The assessee filed a detailed reply explaining therein in what circumstances the disclosed amount was not shown. The Assessing Officer raised various queries during 24 M/s. Laxmi Venture India Ltd. assessment proceedings which were complied by the assessee. Thereafter the Assessing Officer completed the assessment accepting the returned income. After completion of the assessment, proceedings u/s.263 were initiated by CIT on the ground that the assessment order was erroneous and prejudice to the interest of revenue. In the appeal, the ITA T held that in the absence of any material to show that the assessee had any business activity which was not recorded in the books of account, it could not be inferred that the Assessing Officer while assessing the income at the returned figure had drawn any incorrect assumption of facts. It could not also be said that the Assessing Officer incorrectly applied the law in not making any addition to the returned income of the assessee as what could be lawfully assessed was the income earned by the assessee. Thus, the order passed by the Assessing Officer could not be said to be erroneous within the meaning of section 263 as there was no incorrect assumption of facts or incorrect application of law. 4) Dy. Commissioner of Agricultural Income Tax and Sales Tax, Quilon & Another v. Dhanalaxmyvilas Cashew Co. - State of Kerala v. Vijaya Produce Agency, 24 STC 491 SC, 495 (S.C.) While exercising revisionary jurisdiction the Commissioner would be restricted to the examination of records for determining whether order of assessment was according to law. 5) C1T v. Honda Siel Power Products Ltd. 194 Taxman 175 (Delhi) wherein the court held that the expression prejudicial to the interest of revenue appearing in section 263 has to be read in conjunction with the expression "erroneous" and that every loss of revenue as a consequence or an order or the Assessing Officer cannot be treated as prejudicial to interest of revenue. In cases where Assessing officer adopts one of the courses permissible in law or where two views are possible and the Income Tax Officer has taken one view, the Commissioner of Income Tax cannot exercise his powers u/s. 263 to differ with the view of the Assessing Officer even if there has been a loss of revenue. 6) CIT v. International Travel House Ltd. 194 Taxman 324 (Delhi) [2010] wherein it was held that before invoking powers u/s 263 the CIT must have positive materials in his possession, and merely forming a different opinion is not sufficient to revise an order passed u/s 143(3).
25 M/s. Laxmi Venture India Ltd. 7) CIT vs. Hindustan Coca Cola Beverages Pvt. Ltd. ITA Nos.1391 1 2010, 1394/2010 & 1396 1 2010 wherein the Delhi High Court held as under: (i) S. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO if it is not "prejudicial to the interests of the revenue". Every loss of revenue as a consequence of the AO's order cannot be treated as prejudicial to the interests of the Revenue. E.g. when the AO adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the AD has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the AO is unsustainable in law (Malabar Industrial Co 243 ITR 83 (SC) followed); (ii) On facts, as the assessee had made full disclosure of the facts of the claim and the AO had examined the claim and taken a view, the assessment order cannot be termed "erroneous & prejudicial to the interests of the revenue".
2.0 In view of the above factual position on record, the A.O.'s order by no stretch of imagination can be termed as erroneous and/or prejudicial to the interest of revenue. We, therefore request your goodself to kindly drop the proceedings u/s.263 of the Income Tax Act. We earnestly hope that in view of the above submissions, you will be kind enough not to take the proposed action u/s.263 of the Income Tax Act, 1961. We shall be glad to furnish any other particulars required by your goodself.‖ 2.9. If the notice issued by the ld. Commissioner u/s 263 of the Act is analyzed, in para-2, it also says that the parties paid Rs.50 lakh to the assessee for getting exclusive rights for development at agreed proportion for relinquishment of development rights of land. This fact has already been considered by the Assessing Officer by issuing a notice to the assessee and after examining the reply of the assessee framed 26 M/s. Laxmi Venture India Ltd. the assessment. It is not the case that no notice of this fact was ever taken by the Assessing Officer. In para -3 of the notice, the ld. CIT has alleged that the Assessing Officer has committed a lapse by not applying his mind on this issue. As discussed earlier, the Assessing Officer has duly examined this issue, thus, the observation made in the notice by the ld. Commissioner is not substantiated. The terms and conditions of the MOU were to be fulfilled by the parties on execution of final definitive agreements for joint development, all expenses beyond the amount of Rs.50 crores were to be contributed 50% by the assessee and 50% by parties i.e. Pusti, Hiamadari and Amazon. It is also seen that in terms of the MOU, these three parties paid advance to the assessee as their contribution for the joint development and the profit and losses were to be shared amongst the four parties in the ratio mention in clause -9 of the MOU. As per clause-8, it is clearly mentioned that once the aforementioned three parties agree for joint development, the impugned amount has to be treated as their contribution, meaning thereby, the amount paid was an advance for the joint development property, thus, it was their contribution. The totality of facts indicates that the impugned amount was an initial advance as a contribution for the joint development, as per terms of the MOU. It is also noted that vide letter dated 05/12/2011, the assessee also submitted the details of share holding of these parties as well as certificate issued by Assistant Registrar of Companies. Further, through point no.11 to notes on account, assessee has received the impugned amount for the aforementioned parties as per MOU on 28/04/2008. Due to certain unforeseen circumstances, the same could not materalize and these parties filed a summary suit in the Civil Court on 30th June, 2012, which was rejected on the issue of jurisdiction vide order dated 3rd May, 2013, subsequently, fresh suit was filed before the Hon‘ble High Court of Bombay on 31st May, 2013, and the same is pending. Therefore, we are not deciding whether the amount is returnable or not, its nature because the issue is pending before the Hon‘ble High Court and at the same time even the 27 M/s. Laxmi Venture India Ltd. concerned parties in their suit has claimed the same as advance paid to the assessee as contribution for relinquishment of development rights of the land. So far as, mention of section 5 of the Act by the ld. Commissioner in the notice to treating the same as income, we note that section 5 of the Act explains the scope of total income. Under the facts available on record, it cannot be treated as income as such. Though, under section 2(24) of the Act, income is defined by giving a wide meaning but it does not mean to cover capital or the stock or corpus or principle or any sum referred to in section 28. Section 51 of the Act deals with advance money received by the assessee. The amount received in the instant case is a contribution or corpus for the development of the proposed project, thus, the revisionary jurisdiction invoked by the ld. Commissioner is without any merit, because the Commissioner has to be satisfied of twin conditions i.e. (1) the assessment order, sought to be revised, is erroneous and (2) it is prejudicial to the interest of the Revenue. If one of theme is absent, meaning thereby, if the assessment order is erroneous but not prejudice to the Revenue or if it is not erroneous but prejudicial to the Revenue recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. It is only when the order is erroneous and prejudicial to the Revenue, the revisional jurisdiction is attracted. Our view find supports from the landmark decision from the Hon‘ble Apex Court in Malabar Industrial Company Ltd. vs CIT 243 ITR 83 (SC), CIT vs Gabriel India Ltd. (203 ITR 109)(Bom), ratio laid down in Ashok manilal Thakkar vs ACIT 279 ITR (AT)143(Ahd.), CIT vs Honda Siel power Products Ltd. 194 taxman 175 (Del.), CIT vs Internal travel House Ltd. 194 taxman 324 (Del.) and CIT vs Hindustan Coca Cola Beverages Pvt. Ltd. (ITA Nos.1391/2010, 1394/2010 & 1396/2010) wherein, the Hon‘ble Delhi High Court held that section 263 cannot be invoked to correct each and every type of mistake committed by the Assessing Officer, if it is not ‗prejudicial to the interest of the revenue‘ and every loss of revenue as a 28 M/s. Laxmi Venture India Ltd. consequence of assessment order cannot be treated as prejudicial to the interest of the revenue. So far as, non-application of mind by the Assessing Officer is concerned under the facts narrated in this order, reliance can be placed upon the ratio laid down in following cases:- i. CIT vs Gabriel India Ltd. 203 ITR 108 (Bom.) ii. CIT vs. Ashish Rajpal (320 ITR 674)(Del.) iii. CIT vs. Eicher Ltd. (294 ITR 310) (Del.) iv. Hari Iron Trading Co. vs. CIT (263 ITR 437) (P&H) v. CIT vs. Development Credit Bank Ltd. (323 ITR 206) (Bom.) vi. RCI Ltd. vs. CIT (2010) 40 DTR Mum (Trb.) 186 vii. Reliance Gas Transportation Infrastructure Ltd. vs. CIT(2014) (100 DTR 1)(Mum.)(Trb.) and viii. CIT vs. Anil Kumar Sharma 335 ITR 83(Del.) ix. CIT vs Arvind Jewellers 259 ITR 502 (Guj.) x. CIT vs Sunbeam Auto 189 taxman 436 (Del.) The Hon‘ble Delhi High Court in International Travel House Ltd. (344 ITR 554) held that the ld. Commissioner has no unfettered power to initiate proceedings by revision for reexamining and directing fresh enquiry on his own whim for change or having a different view. 2.10. If the observation made in the assessment order, notices issued to the assessee along with questionnaire, reply filed by the assessee along with documents/details, objections/observations made in the notice issued u/s 263 by the ld. Commissioner and reply filed by the assessee, if kept in juxtaposition and analyzed undisputed fact oozes out is that the assessment u/s 143(3) of the Act was framed after examination of necessary details filed by the assessee. It is not the case that assessment was framed without application of mind and in a slip shot manner. Now question arises whether the assessment order is erroneous or prejudicial to the interest of the Revenue. We are of the view, that there is a distinction between ―lack of enquiry‖ and ―inadequate enquiry‖. In the present case the Assessing Officer collected necessary details, examined the same and then framed the assessment u/s. 143(3) of the Act. Therefore, in such a situation the decision from Hon'ble High Court of Delhi in CIT vs. Anil Kumar Sharma (2011) 335 ITR 83 (Del.)(supra), clearly 29 M/s. Laxmi Venture India Ltd. comes to the rescue of the assessee . The Hon'ble High Court held as under :- ― Held, dismissing the appeal, that the present case would not be one of ―lack of enquiry‖ even if the enquiry was termed inadequate. The Tribunal found that complete details were filed before the Assessing Officer and that he applied his mind to the relevant material and fact, although such application of mind was not discernable from the assessment order. The Tribunal held that the Commissioner in proceedings u/s. 263 also had all these details and materials available before him but had not been able to point out defects conclusively in the material, for arriving at a conclusion that particular income had escaped assessment on account of non- application of mind by the Assessing Officer . The Tribunal was right and the order of revision was not valid.‖ 2.11. The aforesaid order clearly fits into the facts before us. While coming to the aforesaid conclusion the Hon'ble High Court duly considered the decision in CIT vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del.) (para-6 & 7). We are expected to ascertain whether the Assessing Officer had investigated/examined the issue and applied his mind towards the whole record made available by the assessee during assessment proceedings. Uncontrovertedly, necessary details were produced and examined by the Assessing Officer, therefore, it is not a case of lack of enquiry by the Assessing Officer. Identical ratio was laid down by the Tribunal in the case of Reliance Gas Transportation Infrastructure Ltd. vs. CIT (2014) 100 DTR (Mum.) (Trb.) 1 , order dated 10/1/2014. In another case from Hon'ble Jurisdictional High Court in CIT vs. Development Credit Bank Limited (2010) 323 ITR 206, on identical fact wherein assessment order was passed after considering all details called for and furnished by the assessee. The ld. Commissioner invoked revisional jurisdiction on the ground that enquiry was not conducted, the Hon'ble High Court held that the ld. Commissioner was not justified. Identical is the situation from Hon'ble High Court Punjab & Haryana in Hari Iron Trading Company vs. CIT 30 M/s. Laxmi Venture India Ltd. (263 ITR 437) order dated 23/5/2003. The Hon'ble High Court of Delhi in CIT vs. Eicher (294 ITR 310) (Del.) wherein the entire material was placed by the assessee before the Assessing Officer at the time of original assessment, the Assessing Officer applied his mind to the material and accepted the view canvassed by the assessee and mere fact that he did not express this in the assessment order, cannot be a ground to conclude that income has escaped assessment, further supports the case of the assessee . Identically, the Hon'ble High Court of Delhi in CIT vs. Ashish Rajpal (320 ITR 674) vide order dt.14/5/2009, decided in favour of the assessee . The Hon'ble Jurisdictional High Court in CIT vs. Gabriel India Ltd. (203 ITR 108) held that there must be material before the Commissioner to satisfy himself that two requisite provided u/s. 263 are present, otherwise power cannot be exercised at the whims and caprice of the Commissioner. We have also seen the paper book filed by the assessee and the documents/papers contained/mentioned therein were duly made available before the Assessing Officer, before framing the assessment u/s. 143(3) of the Act and are satisfied that he asked the assessee to furnish the necessary details, therefore, the observation made by the ld. Commissioner is not substantiated as has been alleged in the revisional order. 2.12. Admittedly, an incorrect assumption of fact or an incorrect application of law would satisfy the requirement of order being erroneous u/s. 263 of the Act. The phrase ―prejudicial to the interest of the Revenue‖ u/s. 263 of the Act, has to be read in conjunction with the expression ―erroneous‖ order by the Assessing Officer . Every loss of Revenue as a consequence of assessment order cannot be termed as ‗prejudicial to the interest of Revenue‘. Meaning thereby ―prejudice‖ must be prejudice to the Revenue administration. At the same time, if another view is possible revision is not permissible. Our view is fortified by the decision from Himachal Pradesh Financial Corpn. (186 Taxmann 105)(HP), Bismillah Trading Co. (248 ITR 292)(Ker.) and CIT vs. Green World Corpn. (314 31 M/s. Laxmi Venture India Ltd. ITR 81)(SC). For invoking revisional jurisdiction u/s. 263 the assessment order must contain ‗grievous error‘ which is subversive of the administration of Revenue. Further, ‗exact error‘ must be disclosed by the Commissioner as was held in CIT vs. G.K. Kabra (211 ITR 336)(AP). Totality of facts, clearly indicates that assessment u/s. 143(3) of the Act was framed by the Assessing Officer after obtaining necessary details from the assessee and further the same were examined by him. Therefore, even if, the same has not been spelt elaborately in the assessment order it cannot be said that there is a ‗lack of enquiry‘ or ‗prejudice‘ has been caused to the Revenue, as we have discussed various case laws in earlier part of this order which are identical to the facts before us. Our view is further fortified by the decision of Mumbai Bench of the Tribunal (wherein one of us i.e. JM is signatory to the order ) in the case of Mehta Trading Company (ITA No.2838/Mum/2013), order dated 31/10/2014, which is also on identical facts/issue. In view of these facts and the judicial pronouncement from Hon'ble Apex Court and various Hon'ble High Courts we set aside the order of the ld. Commissioner and decide the appeal in favour of the assessee, because, by no stretch of imagination, the assessment order can be termed as erroneous and/or prejudicial to the interest of the Revenue, thus, invoking revisional jurisdiction by the ld. Commissioner cannot be upheld. Resultantly, the appeal of the assessee is allowed.‖ If the factual matrix along with certain judicial pronouncement discussed in the aforesaid order, if analyzed, we are also expected to examine the submissions of the assessee, which were filed by the assessee, pursuant to notices issued to the assessee. One of the reply/submissions dated 21/11/2011 (pages 9 to 38 of the paper book) is reproduced hereunder for ready reference and analysis:- Singrodia Goyal & Co. Chartered Accountants· 21st November, 2011 32 M/s. Laxmi Venture India Ltd. The Addl. Comm. of Income Tax, Circle: 6 (3), Room No. 505, 5th Floor, Aayakar Bhavan, Mumbai - 400020 Dear Sir, Reg: Laxmi Ventures (India) Limited PAN: AAACL1082 G Sub: Submission for Scrutiny Assessment for the AY 2009·10 With reference to the above subject matter of Scrutiny-Assessment for A.Y, 2009-10, under the instructions from our aforesaid client, in continuation of our earlier submissions, we are herewith submitting following details as required by Your Honour:- 1) With reference to Point No. 1, we are enclosing herewith the details of Loss from Shares & Securities Including F&O for the AY 2009-10 marked as Annexure "A". 2) With reference to Point No. 4 relating to profit from Bhilai/Tedessara unit, we would like to submit that we have not submitted any Audit report, Profit and Loss A/c, Balance sheet, etc. of Bhilai & Tedessara Unit and are unaware about these details. In this respect, we request Your Honour, not to consider such Audit report, Profit and Loss A/c, Balance Sheet and other details, since the same are not approved before the Annual Genera! Meeting of the company and are Ultra -Vires the company. We therefore respectfully stress that we cannot be held liable or responsible for the profits and losses earned or incurred respectively in these units at Bhilai and Tedessara. Your Honour will appreciate that the Company Law Board has permitted separate management and control by Mr. SuniJ Agarwaf of the units located at Bhilai and Tedesszra distinct from the management and control of Laxmi Ventures (I) Lld and also restricting Laxmi Ventures (I) Ltd. from taking any action which would result in taking away the management and control of the Bhilai and Tedessara unit from Mr. Sunil Agarwal. That the recognition of defacto management and control by Mr. Sunil Agar'Nal of Bhilai and Tedessara units itself suggest that Mr. Anil Agarwal director of Laxmi Ventures (I) Ltd. has no say in the running of Bhilai and Tedessara units. We once reiterate that in the light of the above peculiar facts and circumstances of the case the income/loss of Bhilai and Tedessara units cannot be assessed in the hands of the company. In alternate the income/losses should be assessed in the hands of Mr.Sunil Agarwal who is alone responsible for the transactions entered by him. Thus Your Honour will appreciate that income of Bhilai and Tedessara unit should be assessed in the hands of Mr. Sunil Agarwal who is exercising control and management of these said units at Bhilai and T edessara. 3) With reference to Point No. 5, we are enclosing herewith the copy of Ledger Account of Custom Duty on Steel Export during the AY 2009.-10 marked as Annexure "8", with reference to your further query regarding note on nature of the expense, we wish to state that the assessee company is also engaged in the business activity of export of Mild Steel Billets. Your Honour will appreciate that the' assessee company has paid the custom duty for export of Mild Steel Billets during the AY 2009-10.
33 M/s. Laxmi Venture India Ltd. 4) With reference to Point No. p, we are herewith enclosing the copy of Rent Agreements in respect of all the 3 properties marked as Annexure "C". Kindly find the same in order and acknowledge the receipt, Should you require any further information, explanation or elaboration/ we shall gladly furnish the same to you. Thanking you, Laxmi Ventures (India) Limited Loss on Sale of Shares and Securities Assessment year 2009-10 Sr. Particulars Amount No. 1 Loss on sale of Shares (2,17,07,640) 2 Loss from Futures & (4,95,10,996) Options (7,12,18,636) If the aforesaid submissions of the assessee are analyzed, we find that with reference to point no.1, the details of loss from shares and securities including F & O were produced by the assessee. 2.13. Now we shall examine another reply/submissions dated 09/12/2011, filed by the assessee before finalization of assessment (pages 39 to 45 of the paper book) are also reproduced hereunder for ready reference and analysis:-
Singrodia Goyal & Co. Chartered Accountants· 09th December, 2011 The Addl. Comm. of Income Tax, Circle: 6 (3), Room No. 505, 5th Floor, Aayakar Bhavan, Mumbai - 400020 Dear Sir, Reg: Laxmi Ventures (India) Limited PAN: AAACL1082 G Sub: Submission for Scrutiny Assessment for the AY 2009·10 With reference to the above subject matter of Scrutiny-Assessment for A.Y, 2009-10, under the instructions from our aforesaid client, in continuation of our earlier submissions, we are herewith submitting following details as required by Your Honour:- 1) With reference to Point No. 1, we wish to state that we have already. submitted the details of Loss from Shares & Securities including Derivatives vide our earlier submission dated 21st November, 2011. Further, as required by Your Honour, we are enclosing herewith the major copies of contract notes and Ledger accounts of Brokers for the AY 2009-10 marked.
34 M/s. Laxmi Venture India Ltd. as Annexure "A". 2) with reference 10 your query regarding as to why the Profit(Loss) on Sale of Shares should not be considered as Capital Gain/(Loss), we wish to state as under- During the year under consideration the assessee has undertaken transactions of trading in shares & securities. Accordingly for the year under consideration, the assessee has offered the same under the head 'Profit & Gains from Business & Profession". i) Volume of Transaction During the year under reference, the assessee has indulged into voluminous transactions of shares and even the frequency of such transactions has been manifold. In this regards, we invite your kind attention towards details of Profit/(Loss) on Sale of Shares submitted vide our earlier submission dated 21st November, 2011. On perusal of the same, Your Honour would find that the assessee company has entered into 80 transactions of purchase and 139 transactions of sales during the year under reference. II) Frequency of Transactions As regards the frequency of transactions, it may be noted that the assessee company has carried out multiple transactions in the following scrips:- a. Canara Bank b. Edelweiss Capital Limited c. Engineers India Ltd. d. GMR Infra Ltd. e. GTL Ltd. f. Gujrat Narmada Valley Fertilizers Company Ltd. g. Hexaware Ltd. h. CICI Bank Ltd. i. IDBI Bank Ltd. j. Ispat Industries Limited k. Kotak Mahindra Bank l. Larsen & Toubro Limited m. Nakoda Textiles Industries Limited n. NTPC Limited o. Nuche,m Limited p. Oriental Bank of Commerce q. Punjab National Bank r. Reliance Communication Limited s. Reliance Industries Limited t. Reliance Power Limited u. Reliance Petroleum Limited v. TATA Teleservices Limited w. Union Bank of India x. Unitech Limited y. Vijaya Bank Limited z. SRF Limited and so on The assessee was regularly monitoring the scrips so as to maximize profits in the business of the shares transactions and investment is not an object of purchase of shares iii) Motive to earn profit from Trading The main objective of the assessee company is e 35 M/s. Laxmi Venture India Ltd. arning profit from the business of trading in share and not earning the dividend income. Your Honour would appreciate that the assessee company has earned the dividend income of Rs. 3,01,969/-only during the year under consideration on the total shares acquired costing approximately Rs. 5 Crore. This clearly reflects that the main objective of the assessee company is not to. remain invested but to earn profits regularly from the business of frequent dealings in shares. iv) Treatment in the books of accounts It may be observed that the shares sold during the year are out of the shares held under the head "Stock in Trade". It is a well settled proposition of law as held in the case of Management Structure & Systems Pvt. Ltd. [20101 TU. 254 ITAT MUM. that the intention of the assessee to invest reflects from the conduct of the assessee and the books of accounts prepared. In the present facts of the case, Your Honour would appreciate that unlike investments; the shares held are valued at lower of cost or market value as per the Accounting Standards 2 issued by ICAI for Valuation of Inventory. Further, it may also be seen that the assessee company maintains two portfolios Viz. Investment Portfolio consisting of Mutual Funds. And Stock in Trade Portfolio consisting of Shares, and also treated accordingly in the books. v) Systematic activity It can be seen that for the year under consideration the assessee company has systematically carried out the share transactions along with complete infrastructure. Your Honour would appreciate that during the year the assessee company has continuously carried out the share transactions.
In view of the above submission, we request Your Honour to kindly treat the profit/(loss) on sale of share transaction as business loss and not capital loss. 3) With reference to Point No. 3, relating to why transactions in Futures and Options should not be treated as Speculative Transactions, we would like to draw Your Honour's kind attention to section 43(5) of the Income Tax Act, 1961 which are as under:- Section 43(5) defines speculative transactions as follows:- "Speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips Provided that for the purposes of this clause— (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to 36 M/s. Laxmi Venture India Ltd. guard again loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations: or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may in the ordinary course of his business as such member; 18[or] (d) an eligible transaction in respect of trading in derivatives referred to in clause [(ac)] of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out In a recognized stock exchange; shall not be deemed to be a speculative transaction.
The above clause (d) has been inserted after clause (c) in the proviso to clause (5) of section 43 by the Finance Act, 2005, w.e.f. 1.4.2006.
All the transactions in respect of trading in Derivatives entered into by Assesse Company are carried out only through the recognized stock exchanges i.e. Bombay Stock Exchange end National Stock Exchange as notified by CBDT vide SO 89(E) dated 25/01/2006.
From the above submission, it is clear that trading in Futures & Options i.e. Derivatives are specifically excluded by Section 43(5) (d) of the Income Tax Act, 1961 and should not to be treated as Speculative transactions.
4) With reference to Point No. 5 relating to Customs Duty on Sales of Mild Steel Billets, we are enclosing herewith the details of such Payment along with copies of challans thereof marked as Annexure ‗B‘. 5) With reference to Point No. 5, relating to Customs Duty on Sales of Mild Steel Billets, we are enclosing herewith details of Invoices of export sales of Mild Steels Billets and Bank Certificate of Export Realization marked as Annexure "C"(Further we submit that we have properly recorded Sales income from export of Mild Steel Billets appearing in invoices. 6) With reference to Point No. '6 (ii) regarding why the Rent Income should not be treated as Business Income instead of House Property Income, we wish to state as under: The assessee company is engaged in the business of manufacturing of Solvex Extractions & Refinery. The assessee company Is also engaged in the business of 37 M/s. Laxmi Venture India Ltd. Hotel and dealing in shares. Your Honour would note that the main objective-of the assessee company is earning the profits from their main sources of business and not the income from letting out of properties. Your Honour will further note that the assessee company has rented the house properties to encash the ideal vacancies in the house properties held as investment of the assessee company and to earn the income from the same. Your honour will appreciate that the assessee is not in the business of letting out of premises; letting out of the premises is not the business of the assessee. Further, Section 24 specifically provides that income from letting out should be treated as Income from House property. Your Honour will further notice that the assessee company has never used these properties for the purposes of his business during the year and never claimed the depreciation on the said properties. Reliance is placed 'On CIT vs. Shambhu Investment Pvt. Ltd (249 ITR7), wherein it has been held by Hon'ble Supreme court that Income from letting out of property should be assessed as income from House Property unless the main intention is to exploit the immovable property by way of complex commercial activities. From the above, your honour will appreciate that in case of your assesee, the main intention is for normal letting out the property and not to exploit the immovable property by way of complex commercial activities. Hence, in our case rental income from house property should be treated as Income from House property and not as Business Income. In view of the above, we request Your Honour to kindly treat the Rent Income as Income from House Property as not the Business Income. 7) With reference to your ,query regarding why only amount of Rs.7,426/- is disallowed in the computation as prior period expenses whereas Rs.7,06.729/- is debited in the profit & Loss) as prior period expense, we wish to state that balance of prior period expenses amounting to Rs.6,99,303/· are relating to statutory dues such as Service Tax, Sales tax, Vat and Luxury tax which are covered by the provisions of section 438 of the Income Tax Act; 1961 which are allowable on payment basis. During the year under consideration, all the above mentioned statutory dues amounting to Rs.6,99,303/- have been paid and hence the same have been claimed as deduction. Kindly find the same in order and' acknowledge the receipt, Should you require any further information, explanation or elaboration, we shall gladly furnish the same to you. Thanking you, Yours faithfully Singrodia Goyal & Co.‖ 38 M/s. Laxmi Venture India Ltd. ITA NO.6379/Mumbai/2016 In aforesaid letter (with reference to point No. 3) relating to why transactions in Future and Options should not be treated as Speculative Transactions were duly explained by the assessee. 2.14. The assessee vide another clarification dated 21st November 2011 (pages 9 to 38 of the paper book) duly explained the details of loss from shares and securities including F&O for Assessment year 2009-10. We have gone through the same and found that the necessary details were duly furnished by the assessee and after anlysing/examining the necessary details the learned Assessing Officer accepted the claim of the assessee. It is also noted that though the order is not elaborate but still cannot be said to be erroneous/ prejudicial to the interests of Revenue. It is not the case that assessment was framed without examining the facts/ details and the assessment was framed without application of mind. 2.15. So far as the contention of the learned CIT-DR that the assessment order was short/brief is concerned, we find that Hon'ble Jurisdictional High Court in the case of CIT vs. Gabriel India Ltd. 203 ITR 108 (Bom) wherein the learned CIT invoked revisional jurisdiction under section 263 of the Act. The assessment order was not elaborate. The Hon'ble High Court observed as under: - ―The power of suo motu revision under subsection (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary. According to the definition, "erroneous" means "involving error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is 39 M/s. Laxmi Venture India Ltd. jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, "erroneous judgment" means "one rendered according to course and practice of court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles".
From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re- examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi- judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not 40 M/s. Laxmi Venture India Ltd. 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.
As observed in Dawjee Dadabhoy and Co. v. S. P. Jain [1957] 31 ITR 872 (Cat), at page 881, "the words 'prejudicial to the interests of the Revenue' have not been defined, but it must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. It can mean nothing else". The aforesaid observations were also applied by the Gujarat High Court in Addl. CIT v. Mukur Corporation [1978] 111 ITR 312. We are of the opinion that the aforesaid interpretation given by the Calcutta High Court to the expression "prejudicial to the interests of the Revenue" is the correct interpretation.
We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income-tax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority. Our aforesaid conclusion gets full support from a decision of Sabyasachi Mukharji J. (as his Lordship then was) in Russell Properties Pvt. Ltd. v. A. Chowdhury, Addl. CIT . In our opinion, any other view in the matter will amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re- examination and fresh enquiries in matters which 41 M/s. Laxmi Venture India Ltd. have already been concluded under the law. As already stated it is a quasi judicial power hedged in with limitation and has to be exercised subject to the same and within its scope and ambit. So far as calling for the records and examining the same is concerned, undoubtedly, it is an administrative act, but on examination "to consider" or in other words, to form an opinion that the particular order is erroneous in so tar as it is prejudicial to the interests of the Revenue, is a quasi-judicial act because on this consideration or opinion the whole machinery of re-examination and reconsideration of an order of assessment, which has already been concluded and controversy which has been set at rest, is set again in motion. It is an important decision and the same cannot be based on the whims or caprice of the revising authority. There must be materials available from the records called for by the Commissioner.
We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re- examine the matter. That, in our opinion, is not permissible. Further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal.
In the light of the foregoing discussion, we answer the question referred to us in the affirmative, that is, in favour of the assessee and against the Revenue.
42 M/s. Laxmi Venture India Ltd.
Under the facts and circumstances of the case, we make no order as to costs.‖ In the aforesaid case the assessment order was not elaborate. The Hon'ble High Court held that the revisional jurisdiction by the Commissioner can be exercised only if the circumstances specified therein exist, i.e. (i) the order is erroneous, (ii) by virtue of the order, being erroneous, prejudice has been caused to the interests of Revenue. The Hon'ble High Court held that an order cannot be termed as erroneous unless it is not in accordance with law. The same cannot be branded as erroneous by the Commissioner simply because, according to him the order should have been written more elaborately. This section does not visualize a case of substitution of the judgement of the Commissioner for that of the ITO, who passed the order unless the decision is held to be erroneous. Cases may be visualized where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates by himself. The revisional jurisdiction was held to be not justified. The ratio laid down by the Hon'ble High Court clearly supports the case of the assessee to the effect that revisional jurisdiction was wrongly invoked by the learned Commissioner. 2.16. The decision of the Mumbai Bench of the Tribunal in the case of Rachana Finance and Investment P. Ltd. vs. CIT order dated 23.03.2016, wherein brief order was passed by the Assessing Officer. The Bench held as under: - ―6.1 We have also perused the orders passed by the coordinate Mumbai bench of ITA Nos. 4148 to 4152/Mum/2013 in case of ‗M/s. Turakhia Ferromet Pvt. Ltd. vs . CIT‘ And ITA Nos.3966 to 3969/Mum/2013 in case of ‗M/s. Standard Conduits Pvt. Ltd. vs. CIT‘ wherein also the issue before the coordinate bench of ITAT was same i.e. u/s 263 of the Act and the companies named above are the recipient companies who received the money and issued the shares. In their case also the CIT(A) for the year under consideration and for other years had passed orders u/s 263 of the Act on similar grounds and the coordinate bench in the case of recipient company had set aside the order of the CIT(A) u/s 263 of the Act and 43 M/s. Laxmi Venture India Ltd. it is noteworthy that the coordinate bench orders setting aside the order under section 263 of the Act is in respect of recipient company who actually received the money from the assessee and issue the shares. 6.2 We have also perused the paper book filed by the assessee which contains all those documents which were filed before the AO as well as the CIT including copy of return of income, computation of income and annual accounts, copy of notice u/s 148 dated 31.03.2011, copy of reply dated 14/10/2011 submitted to the assessing officer along with details of investment and advances along with confirmation of accounts, copy of bank statement of the assessee as well as recipient company and copy of annual accounts of Shirdi Industries. 6.3 In the present case although the AO has mentioned regarding the submissions of documents and discussion carried out but still the CIT has mentioned while passing the order u/s 263 of the Act that the order of AO is erroneous and prejudicial to the interest of revenue. In this respect we would further like to mention that the order of AO in the present case may be brief but that by itself is not a sufficient reason to held the order of assessment as erroneous and prejudicial to the interest of the revenue. The scope of interference u/s 263 is not to set aside merely unfavaourable orders and bring to tax some more money to the treasury nor is the section meant to get at sheer escapement of revenue which is taken care of by other provisions in the Act. Power under Section 263 cannot be exercised for starting fishing and roving enquiries. In the garb of exercising power under Section 263, the Commissioner cannot initiate proceedings with a view to starting fishing and roving enquires in matters or orders which are already concluded. 6.4 We have also perused the judgement relied upon by the ld. DR decided by ITAT Kolkata Bench in case of ‗Bisakha Sales (P.) Ltd. vs. CIT‘ however in the above cited case the assessee had received share application money with huge and unjustified share premium from corporate entities but in the present case the assessee has not received share application money or share premium from corporate entities. Since the facts of the cited case are different and are not similar to the facts of the present case hence the cited judgement is distinguishable and is not applicable to the facts of the present case. Similar is the position of another case decided by Kolkata High Court titled ‗CIT vs. Maithan International‘ facts of the afore mentioned case are also different and distinguishable and 44 M/s. Laxmi Venture India Ltd. therefore the said judgment is also not applicable to the facts of the present case. 7. After considering the entire facts and material evidences brought on record reproduced elsewhere in the order by us, in our considered view the order of CIT u/s 263 of the Act does not stand on its own leg, we accordingly set aside the order of CIT u/s 263 dated 28.3.14 and restore that of the AO. This ground raised
by the assessee in the appeal is allowed.‖ 2.17. Considering the totality of facts, material available on record and the judicial pronouncement discussed herein-above, we are of the view that though what constitute ―prejudice to the Revenue‖ has been the subject matter of judicial debate. One view was that ―prejudice to the interest of Revenue‖ does not necessarily means loss of revenue. This expression is not to be construed in a pettifogging manner but must be given a dignified construction. The interests of Revenue are not to be equated to rupees and paisa merely. There must be a grievous error in the order passed by the ITO which might set a bad trend or pattern for similar assessment which, on a broad reckoning, the Commissioner might think to be prejudicial to the revenue administration. The Hon'ble Apex Court in CIT vs. Green World Corporation (2009) 314 ITR
81. (SC) held that where another view is possible revision is not permissible. In Venkatakrishna Rice Co. vs. CIT 163 ITR 129 (Mad) Hon'ble Madras High Court held that for invoking revisional jurisdiction by the Commissioner the assessment order should contain a grievous error. In CIT vs. G.K. Kabra 211 ITR 336 (AP) the Hon'ble High Court held that before invoking revisional jurisdiction exact error must be disclosed by the learned Commissioner. We are of the view that before the revisional jurisdiction is invoked two prerequisites must be present, i.e. (i) the assessment order must be erroneous and (ii) such error must be prejudicial to the interests of Revenue. We find that the learned Assessing Officer reached to a particular conclusion after due application of mind and that too on examination of necessary details, filed by the assessee. So far as necessary details are concerned, we have already discussed in preceding para of this order that these details 45 M/s. Laxmi Venture India Ltd. were duly filed by the assessee. We are aware that the assessment order passed on a wrong assumption of facts or an incorrect application of law, without due application of mind or without following the principle of natural justice are not beyond the scope of section 263 as was held in CIT vs. Jawahar Bhattacharjee (2012) 231 ITR 434 (Gauhati) (FB). Section 263 would not be invoked merely to correct mistake or error committed by the Assessing Officer unless it has caused prejudice to the interests of Revenue. The ratio laid down in CIT vs. Leisure Wear Exports Ltd. (2012) 341 ITR 166) (Del) supports our view. The ratio laid down in CIT vs. Rajiv Agnihotri (2011) 332 ITR 608 (P&H), CIT vs. DLF Ltd. (2013) 350 ITR 555 (Del), CIT vs. Chambal Fertilizers and Chemicals Ltd. (2014) 360 ITR 225 (Raj), CIT vs. Usha Kiran Movies Ltd. (2014) 363 ITR 165 (AP), CIT vs. Gabriel India Ltd. (203 ITR 108, 114) (Bom) and Kesharimal Bapulal (HUF) vs. CIT 252 ITR 764 (MP) further supports the case of the assessee. The exercise of re visional jurisdiction by the Commissioner should become a fiat, but should be within the bounds of law and satisfy the need of fairness in administrative action and fair play and full compliance with the requirements of principal of natural justice. The scope of interference under section 263 is not to set aside merely unfavourable orders and bring to tax some more money to the treasury nor is the section means to get sheer escapement of revenue which is taken care of by other provisions of the Act. The prejudice that is contemplated under section 263 is prejudice to the income tax administration as a whole. Admittedly, the revisional power confront on the Commissioner under section 263 is of wide amplitude. It enables the Commissioner to call for and examine the record. The only limitation on its power is the he must have some material which would enable him to form an opinion that the assessment order is erroneous and prejudicial to the interest of Revenue. However, the Commissioner does not have unfettered discretion to revise the order and the conditions necessary for invoking the power must exist. Thus exercise of power under section 263 is not possible to direct second investigation 46 M/s. Laxmi Venture India Ltd. without finding the order to be erroneous and prejudicial to the Revenue. Our view finds support from the decision in CIT vs. Sakti Charities (2000) 244 ITR 226, 220 (Mad). The factual matrix revealing a marginal situation, invoking of revisional power is not proper (CIT vs. Dr. B.A. Rajakrishnan 226 ITR 323) (Kerala). The revisional power under section 263 is a quasi judicial power hedged in with limitation and has to be exercised subject to the same and within its scope and ambit. This view was expressed by Hon'ble Jurisdictional High Court in Gabriel India Ltd. (supra). The Hon'ble Karnataka High Court in Shankar Construction Co. vs. Addl. CIT (2001) 124 STC 265, 271 (Kar) held that while the revisional authority has wide powers in a case where order is erroneous and prejudicial to the interest of Revenue bit it is wholly impermissible to step into the shoes of the assessing authority and redo the assessment or pass a fresh assessment. If the Assessing Officer adopts one of the courses, permissible in law and it has resulted in loss of revenue or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest or Revenue, unless the view taken by the Assessing Officer is unsustainable in law. Our view finds support from Hon'ble Apex Court in Rampyari Devi Saraogi vs. CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal (1973) 88 ITR 323 (SC). The learned CIT has mentioned in the order that meaningful enquiry was not made by the Assessing Officer. However, we find that during assessment proceedings necessary details were duly filed by the assessee and the same were examined/verified by the Assessing Officer. It is also noted that vide order dated 30.06.2011 the learned Commissioner of Income Tax Act assigned this case to the Addl. Commissioner for the purposes of completing the regular assessment. Notice under section 143(2) was issued to the assessee alongwith questionnaire and necessary details were called for and the same were duly furnished vide submissions dates 20.06.2011, 13,09.2011, 20.09.2011, 21.11.2011 and 47 M/s. Laxmi Venture India Ltd. 09.12.2011 as is evident from para 4 of the assessment order itself. It has been further mentioned that various were discussed and thereafter the assessment was framed. It is not the case that the assessment was frames a slipshot manner. Before framing the assessment on 20.12.2011 by the Assessing Officer all the necessary details were called for and thereafter the assessment order was passed. Though the order is not elaborate but still it cannot be said to be erroneous/prejudicial to the interests of Revenue. Even otherwise the ratio laid down in by Hon'ble Jurisdictional High Court in CIT v. Gabriel India Ltd. (1993) 203 ITR 108 (Bom) and he Mumbai Bench of the Tribunal in M/s Shimnit Kiwalite Industries Pvt. Ltd vs. CIT in ITA No.3010/Mum/2014 order dated 16.01.2015 squarely covers the case of the assessee in its favour. Therefore in the light of the foregoing discussion and the judicial pronouncements, we set aside the order of the learned CIT. The appeal of the assessee is allowed.‖
It is noted that the original assessment was framed u/s 143(3) of the Act on 26/12/2011 accepting the returned income. The Ld. Commissioner of Income Tax invoked revisional jurisdiction u/s 263 of the Act which was quashed by the Tribunal vide order dated 03/08/2016. Meantime, the Ld. Assessing Officer framed assessment u/s 143(3) r.w.s 263 of the Act. Upon further appeal, the Ld. Commissioner of Income Tax (Appeal), following the order of the Tribunal dated 03/08/2016 did not approve the assessment made u/s 48 M/s. Laxmi Venture India Ltd. 143(3) r.w.s 263 as the Tribunal has already quashed the revisional jurisdiction. We find no infirmity in the order of Ld. Commissioner of Income Tax (Appeal) and therefore, dismiss the appeal of the revenue.
Finally, the appeal of the Revenue is dismissed.
This Order was pronounced in the open court in the presence of learned representatives from both sides at the conclusion of the hearing on 12th March, 2018.