M/S. CASTRON TECHNOLOGIES LTD.,KOLKATA vs. ACIT, HQRS.-1, KOLKATA, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘A’ BENCH, KOLKATA [Before Sri J. Sudhakar Reddy, Accountant Member & Sri S.S. Viswanethra Ravi, Judical Member] I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd……...……………………...………………………….......… Appellant 14, Bentinck Street Room No.8 1st Floor Kolkata – 700 001 [PAN : AABCC 0646 G] A.C.I.T. HQRS.- (1), Kolkata….…….………………………………………….……………....Respondent Ayakar Bhawan P-7, Chowringhee Square Kolkata – 700 069 Appearances by: Shri Siddharta Jhaharia, FCA & Shri Sujoy Sen, AR, appeared on behalf of the assessee. Shri Goulen Hangshing, CIT, DR appearing on behalf of the Revenue. Date of concluding the hearing : March 8th, 2018 Date of pronouncing the order : April 04th, 2018 O R D E R Per J. Sudhakar Reddy :-

This appeal filed by the assessee is directed against the order of the ld. Principal Commissioner of Income Tax -1, Kolkata, (hereinafter the ‘ld. CIT (A)’), passed u/s 263 of the Income Tax Act, 1961 (the ‘Act’), dt. 01/03/2017, wherein he revised the order passed by the Assessing Officer u/s 143(3) of the Act, on 31/03/2015, for the Assessment Year 2012-13. The ld. Pr. CIT had set aside to the file of the Assessing Officer, the issue of applicability of Section 2(22)(e) of the Act, to case of the assessee. He directed the Assessing Officer to pass a fresh assessment order, after giving an opportunity to the assessee of being heard, in accordance with law.

2 I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd 3. The ld. Pr. CIT, proposed to invoke his powers u/s 263 of the Act, by issuing a showcause notice dt. 27/01/2017. The relevant portion is extracted for ready reference:- “Whereas the Jurisdictional Pr. Commissioner of Income Tax had called for and examined the record of your case and he considered that the impugned assessment order passed u/s 143(3) of the I T Act, 1961 by the DCIT,Cir-3(1), - Kolkata on 17.03.2015 for A.Y. 2012-13 is, prima facie, erroneous in so far as it is prejudicial to the interests of the revenue for the following reasons:- 2. It was observed from the assessment records that during, the relevant previous year assessee received 'Loans & Advances' of Rs.1,81,15,655/- from "Shraddha Vyapaar Private Limited". Further it was also noticed that the assessee held 9,52,520 nos of unquoted shares of Shraddha Vyapaar Private Limited out of total of 19,34,520 nos of issued subscribed and paid up shares i.e, 49.24% of the share capital of the company,- which was more than 10% of the issued Share- capital: of the "Shraddha-Vyapaar Private Limited" was a private limited company in which public were not substantially interested and the substantial part of the business of "Shraddha Vyapaar Private Limited" was not money lending and also "Shraddha Vyapaar Private Limited" had accumulated profit of Rs.87,14,672 on 31.03.2012. Since all the conditions of Section 2(22)(e) of the IT Act were satisfied in this case the said Loan or Advance to the extent of accumulated profit of Rs.87,14,672/- i.e. hands of the assessee and to be taxed which was not done during the assessment resulting in underassessment of income by Rs.87,14,672/-. The AO has not enquired into the matter. He has not passed the impugned asstt. Order keeping the mandate of Section 2(22)(e) in mind. 3. In short, the AO has passed the impugned assessment order without making enquiries or verification which should have been made in this case. 4. Having regard to the facts and circumstances of the case and in law and in accordance with the provisions of Sec.263(1) of I T Act, 1961 you are given an opportunity of being heard. You are requested to show cause as to why the impugned assessment order passed u/s 143(3) by DCIT,Cir-3(1), Kolkata on 17.03.2015 for A.Y. 2012-13 should not be held as erroneous in so far as it is prejudicial to the interests of the revenue. Therefore, you are requested to furnish your written submissions u/s 263(1) of I T Act, 1961 on 14.02.2017 at 11:15 A,M. 5. You may appear personally on the above date and time and rebut the contentions or you may send your AIR with valid vakalatnama to appear and furnish written submissions elaborating and/or evidencing your contentions. 6. In case of failure to respond to this notice, decision may be taken on merits of the case without providing further opportunities.”

3 I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd (b) SVPL is a Non-Banking Financial Company and lending of money is substantial part of its business and this money has been lent in the ordinary course of its business to the assessee and hence Section 2(22)(e) of the Act, is not attracted. (c) That the Assessing Officer during the course of assessment had enquired into this issue of Inter Corporate loan taken from SVPL and the assessee had filed all the relevant details and that the Assessing Officer had taken a possible view. A number of case-law were relied upon and factual data in support of the contentions was furnished. 4.1. The ld. Pr. CIT rejected these contentions of the assessee and held that the Assessing Officer has not enquired into this aspect of applicability of Section 2(22)(e) of the Act, during the course of assessment proceedings. He relied on the amendment made to Section 263 of the Act, w.e.f. 01/06/2015 and held that the Assessing Officer , not making adequate and relevant enquiries, would deem the assessment order to be erroneous and prejudicial to the interest of the revenue. He set aside this issue to the file of the Assessing Officer for fresh adjudication, in accordance with law.

4 I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd the substantial business of lending money on interest, cannot be treated as deemed dividend U/S 2(22)(e) of the Act in the hands of the assessee company. 6. The Hon'ble CIT erred in law and on facts in initiating the revisionary proceeding and passing the order u/s 263 of the Act merely on a change of opinion without considering the facts that the relevant particulars and documents filed along with copy of MOA, NBFC Certificate and Audited a/cs of the Lender company declaring / disclosing its money lending business activities were duly examined and settled by the AD during the course of the original assessment without requiring to make any enquiry & verification as section 2(22)( e) of the Act was found by him not applicable in view of the exclusive clause (ii) of section 2(22) of the Act. 7. For that your petitioner craves the right to put additional grounds and / or to alter / amend / modify the present grounds before or at the time of hearing.”

6.1. The ld. Counsel for the assessee further pointed out that the Assessing Officer has made detailed enquiries and drew the attention of the Bench to page 47, 50 & 52 of the paper book, wherein the assessee has furnished confirmations along with account copies of SVPL as well as copy of bank statements, ITR Acknowledgements etc., to the Assessing Officer, during the course of assessment proceedings. He pointed out that the ld. Assessing Officer has called for the details of this particular loan transaction from SVPL and after examining all the documents took a conscious decision and accepted the explanation of the assessee. Hence, to hold that, there is no

5 I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd verification made by the Assessing Officer, is factually incorrect. He submitted that the Assessing Officer examined this loan and was also aware that this is a loan taken from a related party as a question, in this regard was asked and replied to by the assessee. Hence he submitted that it should be concluded that the Assessing Officer has taken a conscious decision that Section 2(22)(e) of the Act, does not apply under the facts and circumstances. He submits that the ld. Pr. CIT was in error in holding that there was no enquiry made by the Assessing Officer. He further submitted that the Explanation 2 to Section 263 of the Act, invoked by the ld. Pr. CIT is prospective in nature. He pointed out that the ld. Pr. CIT has not given a finding anywhere in his order that the order of the ld. Assessing Officer is erroneous on facts. He submitted that the ld. Pr. CIT, is bound to give a finding that the factual reply by the assessee is wrong after examining the issue. He further relied on the decision of circular of the CBDT for the proposition that when the transaction is a commercial transaction Section 2(22)(e) of the Act, does not apply. He prayed that the order of the ld. Pr. CIT, be quashed.

6 I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd remand made. He submitted that the order of the ld. Pr. CIT passed u/s 263 of the Act, be upheld.

8.1. The propositions of law laid down by various Hon’ble High Courts on the issue of revisionary powers u/s 263 of the Act, conferred on the revenue authorities are brought out below:- “The Hone’ble Andhra Pradesh High Court in the case of Spectra Shares and Scrips Pvt. Ltd. V CIT (AP) 354 ITR 35 had considered a number of judgments on this issue of exercise of jurisdiction u/s 263 of the Act by the Principal Commissioner of Income Tax and culled the principles laid down in the judgments as below : “24. In Malabar Industrial Co.Ltd. ( 2 Supra), the Supreme Court held that a bare reading of Sec.263 makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suomotu under it, is the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. 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 it is prejudicial to the Revenue – recourse cannot be had to Sec.263 (1) of the Act. It also held at pg-88 as follows: "The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. RampyarideviSaraogi v. CIT (1968) 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal V. CIT (1973) 88 ITR 323 (SC)". 25. In Max India Ltd. (3 Supra), reiterated the view in Malabar Industrial Co.Ltd. (2 Supra) and observed that every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law. On the facts of

7 I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd that case, Sec.80HHC(3) as it then stood was interpreted by the Assessing Officer but the Revenue contended that in view of the 2005 Amendment which is clarificatory and retrospective in nature, the view of the Assessing Officer was unsustainable in law and the Commissioner was correct in invoking Sec.263. But the Supreme Court rejected the said contention and held that when the Commissioner passed his order disagreeing with the view of the Assessing Officer, there were two views on the word "profits" in that section; that the said section was amended eleven times; that different views existed on the day when the Commissioner passed his order; that the mechanics of the section had become so complicated over the years that two views were inherently possible; and therefore, the subsequent amendment in 2005 even though retrospective will not attract the provision of Sec.263. 26. In Vikas Polymers (4 Supra), the Delhi High Court held that the power of suomotu revision exercisable by the Commissioner under the provisions of Sec.263 is supervisory in nature; that an "erroneous judgment" means one which is not in accordance with law; that 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 differently or more elaborately; that the section does not visualize the substitution of the judgment of the Commissioner for that of the Income Tax Officer, who passed the order unless the decision is not in accordance with the law; that to invoke suomotu revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income Tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suomotu revisional powers unless supported by adequate reasons for doing so; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. 27. In Sunbeam Auto Ltd.( 5 Supra), the Delhi High Court held that the Assessing Officer in the assessment order is not required to give a detailed reason in respect of each and every item of deduction, etc.; that whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed. In that case, the Delhi High Court held that the Commissioner

8 I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd in the exercise of revisional power could not have objected to the finding of the Assessing Officer that expenditure on tools and dies by the assessee, a manufacturer of Car parts, is revenue expenditure where the said claim was allowed by the latter on being satisfied with the explanation of the assessee and where the same accounting practice followed by the assessee for number of years with the approval of the Income Tax Authorities. It held that the Assessing Officer had called for explanation on the very item from the assessee and the assessee had furnished its explanation. Merely because the Assessing Officer in his order did not make an elaborate discussion in that regard, his order cannot be termed as erroneous. The opinion of the Assessing Officer is one of the possible views and there was no material before the Commissioner to vary that opinion and ask for fresh inquiry. 28. In Gabriel India Ltd. (6 Supra), the Bombay High Court held that a consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. It held that the Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted; that to do so is to divide one argument into two and multiply the litigation. It held that cases may be visualized where the Income Tax Officer while making an assessment examines the accounts, makes inquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the account or by making some estimate himself; that the Commissioner, on perusal of the record, 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; but that would not vest the Commissioner with power to reexamine the accounts and determine the income himself at a higher figure; there must be material available on the record called for by the Commissioner to satisfy him prima facie that the order is both erroneous and prejudicial to the interests of the Revenue. Otherwise, it would 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 inquiry in matters which have already been concluded under law. 29. In M.S. Raju(15 Supra), this Court has held that the power of the Commissioner under Sec.263 (1) is not limited only to the material which was available before the Assessing Officer and, in order to protect the interests of the Revenue, the Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment. 30. In Rampyari Devi Saraogi(21 Supra), the Commissioner in exercise of revisional powers cancelled assessee’s assessment for the years 1952-1953 to 1960-61 because he found that the income tax officer was not justified in accepting the initial capital, the gift received and sale of jewellery, the income from business etc., without any enquiry or evidence whatsoever . He

9 I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd directed the income tax officer to do fresh assessment after making proper enquiry and investigation in regard to the jurisdiction. The assessee complained before the Supreme Court that no fair or reasonable opportunity was given to her. The Supreme Court held that there was ample material to show that the income tax officer made the assessments in undue hurry; that he had passed a short stereo typed assessment order for each assessment year; that on the face of the record, the orders were pre-judicial to the interest of the Revenue; and no prejudice was caused to the assessee on account of failure of the Commissioner to indicate the results of the enquiry made by him, as she would have a full opportunity for showing to the income tax officer whether he had jurisdiction or not and whether the income tax assessed in the assessment years which were originally passed were correct or not" 31. From the above decisions, the following principles as to exercise of jurisdiction by the Commissioner u/s.263 of the Act can be culled out: a) 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 erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue – recourse cannot be had to Sec.263 (1) of the Act. b) Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. c) To invoke suomotu revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income Tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suomotu revisional powers unless supported by adequate reasons for doing so; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. e) The Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted f) Whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be

10 I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed. g) The power of the Commissioner under Sec.263 (1) is not Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment. Now we examine the following judgements. :- DIRECTOR OF INCOME TAX vs. JYOTI FOUNDATION 357 ITR 388 (Delhi High Court ) It was held that revisionary power u/s 263 is conferred on the Commissioner/Director of Income Tax when an order passed by the lower authority is erroneous and prejudicial to the interest of the Revenue. Orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interest of the Revenue, but orders which are passed after inquiry/investigation on the question/issue are not per se or normally treated as erroneous and prejudicial to the interest of the Revenue because the revisionary authority feels and opines that further inquiry/investigation was required or deeper or further scrutiny should be undertaken. INCOME TAX OFFICER vs. DG HOUSING PROJECTS LTD343 ITR 329 (Delhi) Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. S. 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression "prejudicial to the interest of the Revenue" is of wide import and is not confined to merely loss of tax. The term "erroneous" means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word "erroneous" includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under s. 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by

11 I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under s. 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the CIT while exercising jurisdiction under s. 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It may be noticed that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.

COMMISSIONER OF INCOME TAX vs. J. L. MORRISON (INDIA) LTD. 366 ITR As regard the submission on behalf of the Revenue that power under Section 263 of the Act can be exercised even in a case where the issue is debatable, it was held that the case of CIT vs. M. M. Khambhatwala was not applicable. The observation that the Commissioner can exercise power under Section 263 of the Act even in a case were the issue is debatable was a mere passing remark which is again contrary to the view taken by the Apex Court in thecase of Malabar Industrial Company Ltd. & Max India Ltd. If the Assessing Officer has taken a possible view, it cannot be said that the view taken by him is erroneous nor the order of the Assessing Officer in that case can be set aside in revision. It has to be shown unmistakably that the order of the Assessing Officer is unsustainable. Anything short of that would not clothe the CIT with jurisdiction to exercise power under Section 263 of the Act. CIT vs. M. M. Khambhatwala reported in 198 ITR 144; CIT vs. Ralson Industries Ltd. reported in 288 ITR 322 (SC), not applicable; Malabar Industrial Co. Ltd. v. CIT reported in 243 ITR 83, relied on.

12 I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd (Para 72) As regard the third question as to whether the assessment order was passed by the Assessing Officer without application of mind, it was held that the Court has to start with the presumption that the assessment order was regularly passed. There is evidence to show that the assessing officer had required the assessee to answer 17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind the questions raised by him in the annexure to notice under Section 142 (1) of the Act could not have been formulated. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain his income and to levy appropriate tax on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why was he satisfied. On the top of that the Assessing Officer by his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He was as such under no obligation in law to give reasons. The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous and was also considered both by the Tribunal as also by us to be a possible view, strengthens the presumption under Clause (e) of Section 114 of the Evidence Act. A prima facie evidence, on the basis of the aforesaid presumption, is thus converted into a conclusive proof of the fact that the order was passed by the assessing officer after due application of mind. Meerut Roller Flour Mills Pvt. Ltd. vs. C.I.T., ITA No. 116 /Coch/ 2012; CIT vs. Infosys Technologies Ltd., 341 ITR 293 (Karnataka); S.N. Mukherjee vs. Union of India, AIR 1990 SC 1984; A. A. Doshi vs. JCIT, 256 ITR 685; Hindusthan Tin Works Ltd. Vs. CIT, 275 ITR 43 (Del), distinguished. (Paras 90-92, 102) COMMISSIONER OF INCOME TAX vs. SOHANA WOOLLEN MILLS 296 ITR 238 (P&H HC) A reference to the provisions of s. 263 shows that jurisdiction thereunder can be exercised if the CIT finds that the order of the AO was erroneous and prejudicial to the interest of Revenue. Mere audit objection and merely because a different view could be taken, were not enough to say that the order of the AO was erroneous or prejudicial to the interest of the Revenue. The jurisdiction could be exercised if the CIT was satisfied that the basis for exercise of jurisdiction existed. No rigid rule could be laid down about the situation when the jurisdiction can be exercised. Whether satisfaction of the CIT for exercising jurisdiction was called for or not, has to be decided having regard to a given fact situation. In the present case, the Tribunal has held that the assessee had disclosed that out of sale consideration, a sum of Rs. 1 lakh was to be received for sale of permit. If that is so, there was no error in the view taken by the AO and no case was made out for invoking jurisdiction under s. 263.”

13 I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd 9.1. The first issue is whether the Assessing Officer during the course of assessment proceedings had examined this issue or not. Vide notice issued u/s 142(1) of the Act, on 08/08/2014, to the assessee, in connection with the assessment for the Assessment Year 2012-13, the Assessing Officer asked for the following details:- (a) Furnishing all details of unsecured loans, in a given form. (b) Details of interest payments along with details and supporting evidence. (c) Details of related party transactions with name and addresses, nature of transactions, quoted prices and total cost. 9.2. The assessee had furnished the information vide his replies dt. 25/03/2015, 22/01/2015, 11/02/2015. So the facts that SVPL is a related party and that it has given loans to the assessee was enquired into by the Assessing Officer. It cannot be said that there was no enquiries or verification made by the Assessing Officer on this issue of loan. Inadequate enquiries cannot be a basis for invoking powers u/s 263 of the Act, by the ld. Pr. CIT. At the same time, it is a fact that the ld. Assessing Officer has not recorded that he had examined the transaction from the angle of Section 2(22)(e) of the Act. 10. Be it as it may, when the assessee has submitted that what was given was an Inter Corporate Loan and that it carried interest and that it was not a gratuitous loan and SVPL is a NBFC and that substantial part of its business, in fact more than 90 per cent of its business is lending money i.e. giving loan and advances and when the judgement of the Hon’ble Jurisdictional High Court and the Tribunals which had laid down propositions of law on this issues are placed before the ld. Pr. CIT, to come to a conclusion, contrary to these judgments cannot be countenanced. The submissions made by the assessee either on facts or on law has not been controverted by the ld. Pr. CIT. The ld. Pr. CIT is bound by the proposition of law laid down by the Hon’ble Jurisdictional High Court. Ignoring the same makes the order bad in law.

14 I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd with FD/ NCD & Debt fund) Total asset 14,94,35,434.77 15,20,40,333.74 17,13,18,715 Capital 11,52,71,334.60 12,10,34,701,.80 12,74,49,467.00 Loans & advances and 94.84% 108.18% 115.45% percentage of total capital Interest income as % of 93.62% 79.27% 94.09% revenue from operator

15 I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd the ambit of the provisions of section 2(22) (e) of the Act. Such views have attained finality. 2.1 Some illustrations/examples of trade advances/commercial transactions held to be not covered under section 2(22) (e) of the Act are as follows: i. Advances were made by a company to a sister concern and adjusted against the dues for job work done by the sister concern. It was held that amounts advanced for business transactions do not to fall within the definition of deemed dividend under section 2(22) (e) of the Act. (CIT v. Creative Dyeing & Printing Pvt. Ltd.1, Delhi High Court). ii. Advance was made by a company to its shareholder to install plant and machinery at the shareholder’s premises to enable him to do job work for the company so that the company could fulfil an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act. (CIT v. Amrik Singh, P&H High Court)2. iii. A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The company utilised gas available to it from GAIL to generate electricity and supplied it to the sister concern at concessional rates. It was held that the security deposit made by the company to its sister concern was a business transaction arising in the normal course of business between two concerns and the transaction did not attract section 2(22) (e) of the Act. (CIT, Agra v. Atul Engineering Udyog, Allahabad High Court) 3. In view of the above it is, a settled position that trade advances, which are in the nature of commercial transactions would not fall within the ambit of the word ‘advance’ in section 2(22)(e) of the Act. Accordingly, henceforth, appeals may not be filed on this ground by Officers of the Department and those already filed, in Courts/Tribunals may be withdrawn/not pressed upon.”

Kolkata, the 4th day of April, 2018. Sd/- Sd/- [S.S. Viswanethra Ravi] [J. Sudhakar Reddy] Judicial Member Accountant Member Dated : 04.04.2018 {SC SPS}

16 I.T.A. No. 945/Kol/2017 Assessment Year: 2012-13 M/s. Castron Technologies Ltd Copy of the order forwarded to: 1. M/s. Castron Technologies Ltd 14, Bentinck Street Room No.8 1st Floor Kolkata – 700 001 2. A.C.I.T. HQRS.- (1), Kolkata Ayakar Bhawan P-7, Chowringhee Square Kolkata – 700 069 3. CIT(A)- 4. CIT- , 5. CIT(DR), Kolkata Benches, Kolkata.