AXCEL GLOBAL SERVICES,MUMBAI vs. CIT 13, MUMBAI

The Ld. Counsel for the Assessee at the outset submits that the Ld. Commissioner set aside the assessment made u/s 143(3) by the Assessing Officer allowing exemption u/s 10A/10AA on the ground that Assessing Officer has never examined, the claim of the Assessee and allowed the claim without proper application of mind, without proper verification and investigation. The Ld. Counsel further submits that it is the finding of the Ld.CIT that the Assessing Officer has not made any inquiry or investigation to ascertain the genuineness of the claim of the Assessee and therefore the order passed u/s 143(3) was held to be erroneous and prejudicial to the interest of revenue.

The Ld. Counsel for the Assessee referring to the show cause notice issued by the Ld. Commissioner which is placed at page no.81 of paper book submits that the ld. CIT proposed to hold the assessment made u/s 143(3) of 3 M/s Axcel Global Services Act as erroneous and prejudicial to interest of revenue for the reason that the Assessing Officer allowed the claim of the Assessee without any verification. The Ld. Counsel for the Assessee referring to page 2 of the paper book which is the computation of income, submits that the Assessee has claimed deduction u/s 10AA of the Act. He submits that Assessee also reported in Form 3CD the nature of business of Assessee carried on during the year as ‘services’. Referring to page 24 and 25 of the paper book, the ld. Counsel submits that in the course of assessment proceedings, the Assessing Officer issued notice u/s 142(1) along with annexure requiring the Assessee to file various details and especially referring to point 5 of the annexure submits that details of exempted income with sources of investments was called for and referring to page 26 and 27 of the paper book, especially point no.4, he submits that reply was furnished before the Assessing Officer as to how the Assessee claimed exemption u/s10AA of the Act on the net profit from the firm set up in SEZ. Referring to page 28 of the paper book, which is the second notice issued by the Assessing Officer u/s 142(1) calling for the details, the Ld. Counsel submits that reply dated 13.08.2011 along with annexures was submitted which is placed at page 29 of the paper book. Further details regarding setting up of the unit in SEZ and the nature of business carried on by the Assessee was explained.

The Ld. Counsel for the Assessee further submits that the Assessing Officer further called for details in respect of claim made u/s 10AA, brief note on business activities, copy of agreement etc. and the Assessee by letter dated 03.10.2011 submitted the details of lease rent paid during 2009-10, additions to various assets during the assessment year 2009-10, he further referring to 4 M/s Axcel Global Services 62 of the paper book submits that the Assessing Officer by letter dated 21.11.2011 issued a further show cause notice regarding the sale of scrap and interest accrued on FDR and required the Assessee to explain as to why these two amounts should not be considered as income from other sources which according to him not realized in convertible foreign exchange from out of the profit of Rs.85,10,003/- claimed as exempt from SEZ unit. Referring to page 65, Ld. Counsel submits that detailed reply was filed before the Assessing Officer with regard to the scrap sales and interest on FDR and the Ld. Counsel for the Assessee submits that considering all these details furnished by the Assessee in the course of assessment proceedings, the Assessing Officer completed the assessment on 12.12.2011 u/s 143(3) of the Act allowing deduction u/s 10A to the extent of Rs.83,26,298/-. The Ld. Counsel further submits that the Assessing Officer not satisfied with the replies of the Assessee furnished income from interest on FDR and scrap sales was treated as income from other sources. Therefore, the ld. Counsel for the Assessee submits that the Assessing Officer in the course of assessment proceedings called for various details regarding the claim of the Assessee u/s 10AA and the claim was examined thoroughly and was allowed on proper application of mind and therefore the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interests of revenue.

The Ld. Counsel for the Assessee submits that the Ld. Commissioner is not clear as to the nature of verification carried out by the Assessing Officer. He submits that Assessing Officer made repeated inquiries and therefore, the Ld. Commissioner is completely erroneous in observing that the Assessing Officer

The Ld. Counsel for the Assessee further placing reliance on the decision of the Hon’ble Bombay High Court in the case of Gabriel India Ltd Vs. CIT [203 ITR 108] submits that the Ld. Commissioner cannot initiate proceedings with a view to make fishing and roving inquiries in matters or orders which are already concluded based on the information called for by the Assessing Officer and submitted by the Assessee in the course of assessment proceedings. The Ld. Counsel for the Assessee further placing reliance on the decision of Calcutta High Court in the case of Jai Kumar Kankaria Vs. CIT [251 ITR 707] submits that 6 M/s Axcel Global Services 263 of the Act based on subsequent events. Finally, the Ld. Counsel for the Assessee placing reliance on the decision of Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd Vs. CIT [243 ITR 83] submits that the Assessing Officer has taken one of the possible views and therefore when two views are possible and the Assessing Officer has taken one of the views possible and if the Commissioner does not agree with such view of the Assessing Officer, the assessment cannot be treated as erroneous and prejudicial to the interest of the revenue.

In the rejoinder, the Ld. Counsel for the Assessee submits that the case laws relied on by the Ld. DR have no application to the facts of the Assessee’s case. He submits that in all these cases, there is a clear finding of fact that there is complete lack of inquiry or there was no inquiry at all. He submits that in all these cases, Assessing Officer failed to make any inquiries and therefore these cases are distinguishable from the facts of the Assessee’s case and have no application.

We have heard the rival submissions, perused the orders of the authorities below , the information placed before us and the case laws relied on before us. On a careful perusal of the materials placed before us in the form of paper book, it is abundantly clear that the Assessee made a claim for deduction u/s 10AA in the return of income which is at page no.2 of paper book. The nature of services, nature of activities of business operations of the Assessee is also reported in Form 3CD at page no.9 of paper book. The Assessing Officer issued notice dated 11.03.2011 u/s 142(1) and an annexure to the notice placed at page nos. 24 and 25 of the paper book calling for the details of exempted income with sources of investments. The Assessee vide letter dated 22.03.2011 placed at page nos. 26 and 27 of the paper book furnished its reply stating that the Assessee had set up a unit in SEZ under the SEZ Act, 2005, warehousing/repair services of oil field equipment and chemicals during the year under assessment. It was submitted before Assessing Officer that the Assessee firm entered into contract

The Commissioner by letter dated 22.10.2013 required the Assessee to show cause as to why the assessment order should not be revised for the reason that claim for exemption u/s 10A/10AA was allowed by the Assessing Officer without any verification and therefore assessment order passed by the Assessing Officer was erroneous in so far as it is prejudicial to the interest of the revenue. The Assessee furnished reply to the show cause notice explaining why the assessment order passed by Assessing Officer allowing the claim of the assessee is not erroneous and prejudicial to the interest of revenue. However not convinced with the reply of the assessee the Ld. Commissioner by order dated 12.03.2014 set aside the assessment order passed u/s 143(3) with a direction to the Assessing Officer to make a fresh assessment after making thorough inquiries and investigation on the issue after allowing reasonable opportunity of being heard to the Assessee observing as under :

On reading of the above Ld. Commissioner’s order, it is apparent that the Ld. Commissioner came to the conclusion that the assessment order is erroneous only for the reason that according to the Ld. CIT the Assessing Officer never examined and without proper verification and investigation allowed the claim of the Assessee and therefore assessment order is erroneous. As we have already explained in earlier paragraphs, the Assessing Officer in the course of assessment proceedings, called for the details and the Assessee has furnished various details and explanation as to why the claim should be allowable to the Assessee u/s 10A/10AA and therefore the observation of the Ld.Commissioner that the Assessing Officer has never examined claim and claim was allowed without application of mind, without proper verification and investigation is 11 M/s Axcel Global Services baseless and contrary to record. The Ld. Commissioner completely overlooked the queries raised by the Assessing Officer and replies submitted by the Assessee in coming to the conclusion that the Assessing Officer has never examined and no proper investigation was made. The Commissioner has not brought out in its order as to how the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue.

In the case if CIT Vs. Shri Govindram Seksaria Charity Trust (supra), the Ld. Commissioner was of the view that the Assessing Officer allowed exemption u/s 11 to the Assessee without examining in detail the applicability of the provisions of section 13(1)(c)(ii) of the Act. Therefore, after giving a show cause notice, the Ld. Commissioner held that assessments made by the Assessing Officer were perfunctory and set aside the assessment orders with a direction to assess afresh. On these facts, the Hon’ble High Court held as under : “Learned counsel for the Revenue contended that the Tribunal was not justified in coming to the conclusion that the Income-tax Officer had granted exemption to the assessee-trust after applying his mind to the question as to whether the assessee was entitled to claim exemption under section 11 of the Act read with the provisions of section 13 of the Act. The contention cannot be upheld. The Tribunal, after examining the record, found that to the audit objections that the assessee was not entitled to the benefit of exemption by virtue of the provisions of section 13(1) of the Act, the Income-tax Officer had given detailed replies showing that the Income-tax Officer was alive to the relevant provisions of law and the facts before passing orders of assessment. The Commissioner had not found that the order -passed by the Income-tax Officer, was erroneous inasmuch as the assessee was not entitled to claim exemption under section 11 of the Act. The finding of the 12 M/s Axcel Global Services Commissioner was that the Income-tax Officer had not applied. his mind to the question as to whether the assessee was or was not entitled to exemption in the light of the provisions of section 13(1) of the Act. This finding, according to the Tribunal, was not justified in view of the material on record. Learned counsel for the Revenue contended that the order of assessment passed by the Income-tax Officer did not disclose application of mind. However, if from the entire record, the Tribunal found that the Income-tax Officer was alive to the relevant facts and provisions of law before proceeding to frame the assessment, it cannot be held that the Tribunal was not right in holding that the Income-tax Officer had granted exemption after making thorough enquiries about the applicability of section 13(1) of the Act.”

In the case of CIT Vs. Rathan Coal Ash Co. (supra), the Ld. Commissioner passed order u/s 263 on the ground that the Assessing Officer failed to make proper inquiry both as regards to income and expenses shown by the Assessee. On these facts, the Hon’ble High Court held as under : “Having heard learned counsel for the parties, we have come to the conclusion that this reference must be answered in the affirmative and in favour of the assessee. It is well settled that where the Income-tax Officer made the assessment in undue hurry, accepting what the assessee stated in return without making any enquiries, in the circumstances of the case, the Commissioner would be justified in holding the order of the Income-tax Officer to be erroneous. In the instant case, however, the Tribunal has found that the assessee had furnished all the requisite information and that the Income-tax Officer, considering all the facts, had completed the assessment. The Tribunal further held that in the circumstances of the case, it could not be held that the Income-tax Officer had made the assessment without making proper enquiries. In view of these findings, the Tribunal, in our opinion, was justified in law in reversing the order passed by the Commissioner of Income-tax.”

In the case of CIT Vs. Mulchand Bagri (supra), the Assessee sold some silver utensils and earned profit of Rs.16,237/-. This was claimed as exempt on the ground that the profit was on the sale of silver utensils and constitute ‘personal effects’ of the Assessee. The Ld. Commissioner on a perusal of the record came to the conclusion that no inquiry was made in the course of assessment by the Assessing Officer and therefore, he passed order u/s 263 holding that the assessment was erroneous and prejudicial to the interest of revenue because of the reason that the Assessing Officer has nto made inquiry which ought to have been made by him. On these facts, the Hon’ble High Court held as under :

This finding has not been challenged by the Commissioner as perverse in this case. There is no allegation of any misdirection of law. In other words, the finding of the Tribunal was that the ITO had actually made an enquiry into the sale of silver utensils. Therefore, the Commissioner was not right in his conclusion that the case of the assessee had been accepted by the ITO without any enquiry. Since this finding of fact of the Tribunal has not been challenged, it will be academic to give any answer to the question of law posed by the Revenue. The Tribunal might have wrongly decided the question of the Commissioners jurisdiction under s. 263 of the IT Act and the nature of the assessment order made by the ITO pursuant to a directions given by the IAC. But the Tribunal has come to a conclusion that the ITO had made enquiries about the sale of the silver utensils. Therefore, the Commissioner was not right in coming to the conclusion that the order passed by the ITO was prejudicial to the interest of the Revenue because he had not made the necessary enquiry in this regard. So long as this finding of fact stands, it has to be held that the Commissioners decision to revise the order of the ITO under s. 263 was erroneous.” 15. In the case of CIT Vs. Trustees Anupam Charitable Trust (supra), the Hon’ble High Court held as under : “As regards the other mistake pointed out by the Commissioner of Income-tax, the Tribunal held that from a meticulous perusal of the observations of the Commissioner of Income-tax, it is obvious that he himself could not categorically say that the income of Rs. 4,96,790 represented income from speculative business. The Commissioner of Income-tax simply observed that the expression "sugar rate difference" occurring in the return of the assessee relating to the assessment year 1971-72 indicated that it was income from speculative business. The Tribunal held that a given expression may indicate something which may not be conclusive proof of anything. The error envisaged by Section 263 was not one which depended on possibility or guesswork but it should be actually an error either of fact or of law.

In the case of CIT Vs. Goyal Private Family Specific Trust (supra), the Assessee, a private Trust filed its return and the assessment was made assessing the beneficiaries of the Trust and it was held that the Trust was not assessable. The Ld. Commissioner passing order u/s 263 of the Act set aside the assessment order. The Tribunal found that necessary books of account had been produced, the Assessing Officer had examined them and also discussed the case with the representative of the Assessee before passing the assessment order. On these facts, the Hon’ble High Court held that in the absence of a finding by the Ld. Commissioner that the assessment order passed as erroneous, the cancellation of assessment was not justified. While holding so, the Hon’ble High Court held as under :

In the income-tax assessments, all questions boil down to this, whether income has been properly determined and whether the correct rate of tax has been applied. The Commissioner does not say that the income was higher or that it was assessed on a wrong entity or at a low rate or that any exemption was wrongly allowed. In the absence of such a finding, the assessment orders cannot be said to be erroneous and prejudicial to the interest of the Revenue.”

In the case of CIT Vs. Gabriel India Ltd. (supra), the Hon’ble jurisdictional High Court while considering the exercising of power of Ld. CIT to make revision u/s 263 held as under: “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 17 M/s Axcel Global Services 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.”

In the case of CIT Vs. Malabar Industrial Co. Ltd, the Hon’ble Supreme Court explained the scope of Section 263 of the Act and held as under :

On analyzing the above, decisions, it is emerging that when the Assessing Officer called for the details and the details were furnished by the Assessee in the course of assessment proceedings and passed the assessment order allowing the claims of the Assessee the Ld. CIT (Appeals) cannot invoke revisional jurisdiction u/s 263 on the ground that the order passed by the Assessing Officer is without making inquiries. In the case on hand, the Assessing Officer called for the details in respect of the deduction claimed by the Assessee, u/s 10A/10AA, the details were furnished by the Assessee, these were examined by the Assessing Officer allowed the claim of the Assessee. Therefore, the observations of the Ld. CIT that the Assessing Officer never examined or there was no proper verification and investigation appears to be not correct. We also noticed from the order of the Ld. Commissioner that except saying that the order was passed by the Assessing Officer without making inquiries, he has not stated how the claim made by the Assessee is unsustainable in law and therefore is erroneous. As held by the Hon’ble Supreme Court, if the Assessing Officer has taken one view with which the Ld. CIT does not agree, the order cannot be treated as erroneous order, prejudicial to the interest of revenue unless the view taken by the Assessing Officer is unsustainable in law. There is no such finding by the Ld. CIT that the claim of the Assessee allowed by the Assessing Officer is unsustainable in law, the only finding of the Ld. CIT to invoke the provisions of section 263 is there was no proper inquiry by Assessing Officer. We do not agree with this finding as the Assessing Officer conduct inquiries and allowed the claim of the Assessee. The 19 M/s Axcel Global Services Ld. DR are distinguishable on facts since in all these cases, the Assessing Officer has not made any inquiries at all. Therefore, the case laws relied on by the Ld. DR are of no help to him. Thus in view of what is stated above, we quash the Order of the Ld. CIT passed u/s 263 of the Act.

In the result, Appeal of the assessee is allowed.