Income Tax Appellate Tribunal - Hyderabad
Bilt Paper Holdings Ltd.,, ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI G.C.GUPTA, VICE PRESIDENT AND
SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
ITA No.403/Hyd/2008 : Asstt. Year : 2003-04
Bilt Paper Holdings Ltd., VS Commissioner of Income-tax,
Secunderabad. Circle 1, Hyderabad.
PAN - AACCA 5467E
(Appellant) (Respondent)
Appellant by : Shri Suresh Anantaraman, CA
Respondent by : Shri V.Naga Prasad, CIT-DR
ORDER
Per Chandra Poojari, Accountant Member:
This appeal by the assessee for the assessment years 2003-04 is directed against the order of the CIT, Hyderabad-1 dated 31-1-2008 passed u/s 263 of the Income tax Act, 1961 (the Act).
2. Following are the grounds of appeal taken by the assessee in the present appeal.
"1.1 That on the facts and circumstances of the case the order passed u/s 263 of the Income tax Act, 1961 is wrong, erroneous and bad in law.
1.2 That the learned CIT was wrong in holding that the assessment order passed u/s 143(3) on March 29, 2006 was prejudicial to the interest of revenue.
1.3 That the learned CIT was wrong in invoking proceedings u/s 263 ignoring the facts that during the assessment proceedings the assessing officer had examined the accounts, made enquiries and applied his mind to the facts and circumstances of the impugned issues and determines the income.
1.4 That the learned CIT was wrong in holding that the order passed u/s 143(3) of the Act is without application of mind by the assessing officer.1
1.5 That the learned CIT was wrong in setting aside the assessment for fresh adjudication without finding any material facts additional and afresh.
1.6 That the learned CIT has failed to verify the facts with reference to records available with him and wrong in concluding that the assessment is erroneous in so far as prejudicial to the interest of revenue attracting the provision of sec.263.
2. That the direction given of the CIT to the assessing officer to treat the trading loss as "speculation loss"and to apply the provision of section 73 of the Act as wrong and not to the prejudicial interest of revenue.
3. That the order of the learned CIT setting aside the assessment on the issue of allowability of Profession Expenses Rs.34,96,790 is invalid and without jurisdiction.
4.That the learned CIT was wrong in treating the 'Holding Cost' Rs.30,77,88,622 as a part of consideration received for sale of 32,20,69,427 shares.
5. That the order of learned CT setting aside the assessment on re- computation of capital gain was wrong and invalid.
General
6.That the above grounds are independent and without prejudice to each other.
7. That the order of the learned CIT is against the facts and otherwise bad in law.
3. Briefly stated, facts of the case are that the assessee is a public limited company having its registered office at Hyderabad. Assessee company derives its income mainly from export of goods and merchandise and income by way of dividend. In respect of the assessment year under appeal viz., 2003-04, the assessing officer completed the assessment vide his order dt. 29-3-2006 in accordance with section 143(3) of the Income tax Act, 1961 (the Act). Break up of assessed income is as under:
a) Profits and gains from business (loss) Rs.4,97,74,115
b) capital gains (long term) (before setting off of unabsorbed capital loss Rs. 3,96,48,935 2
c) Book Profit u/s 115JB (not considering expenses of Rs.1,30,28,745 debited to profit and loss account Rs.1,32,79,974 To arrive at the said computation, the Assessing officer has disallowed/adjusted the Following:
a) Rent in respect of accommodation Provided to a Director of the Company Rs. 3,00,000
b) 'Cost' for arranging fund treated as A part of sales consideration since Recovered along with sales consideration Rs.30,77,88,662
c) Expenditure under the head 'Prior Year adjustment debited to P&L A/C was Not considered to arrive the book profit at Rs.1,30,28,745 Rs. 1,32,79,974 3.1. Finding that the above order of assessment made by the ACIT, Circle 1(3), Hyderabad was erroneous in so far as it is prejudicial to the interest of revenue, the CIT, Hyderabad-1 had issued a notice u/s 263 of the Act on 11-7-2007 after perusing the assessment order dt.29-3-2006 made u/s 143(3) of the Act for the year under consideration. It was observed by the learned CIT that the assessee company has shown gross sales of Rs.7,91,48,720 against which the purchases were shown at Rs.7,91,00,046. The above transaction was a single transaction and was not a normal purchase and sale transaction and hence the resulting loss was speculative in nature and the provisions of sec.73 of the Ac were applicable. The learned CIT observed that despite no other trading activity except the above, the company claimed hue expenditure which may not be entirely relatable 3 to the trading activity done by the company and as such the claim of expenditure was liable to be disallowed. It was observed by him that as per the assessment order dt.29-3-2006, as against loss of Rs.15,09,44,979 admitted by the company, the interest resetting free claimed in the capital gain computation ought to have been added back. Likewise, the capital gain computation too needed further revision because the holding costs do not form part of qualifying expenses i.e. the cost of improvement for the computation of capital gains. When it as proposed that the aforesaid loss of Rs.4,21,148 was to be treated as speculation loss, it was contended that mere change of head of income u/s 14 of the Act does not warrant exercise of jurisdiction u/s 263 more particularly when the assessee was loaded with huge amount of unabsorbed loss etc.as per record and even if the order was erroneous, it was not prejudicial to the interest of revenue.
It was opined by the learned CIT that it was not disputed before him that the transaction in question was speculative in nature and the loss was governed by sec.73 of the Act. Hence, the same can only be allowed to be set off only against the profits and gains of another speculation business in the same assessment year and if it cannot be set of from income of another speculation income in the same assessment year, it will be carried over to be claimed as set off n the subsequent years only against the income of any speculation business. By not indicating the same as speculation loss, the order of the assessing officer has become erroneous and prejudicial to the interest of revenue as it has implication in subsequent assessment years. Further, there are other issues also which have resulted in making the order erroneous and causing prejudice to the interest of revenue. Thus rejecting the claim of the assessee, the CIT directed the assessing officer to treat the loss of Rs.41,21,148 as speculation loss 4 and deal the same as per provisions of sec.73 of the Act. The CIT dealt with the other issues as follows.
4. As regards claim of loss on capital gain on sale of shares at Rs.3,96,48,935, the CIT after considering the submissions made on behalf of the assessee opined that it is not disputed that on sale of 32,20,69,27 shares (out of total of 53,71,06,144 shares) in the assessment year under appeal, the company received total consideration of Rs.1,77,26,56,582. As per the assessee, the holding cost being the reimbursement of expense was rightly not claimed in the computation of capital loss (after cost of 32,20,69,427 shares was indexed) whereas as per propel u/s 263, the alleged holding cost being part of sale consideration was to be included in sale receipts, the holding cost had no relevance to cost of acquisition as it was in the nature of maintenance. The correct capital gain accordingly should have been as under:
Total consideration (sale proceeds) Rs.177,26,56,582 Less: Cost of acquisition (after indexing) Rs.161,28,52,981 Capital gains Rs. 15,98,03,601 Rs. 161,28,52,981
5. The learned counsel for the assessee submitted that in its reply to the notice issued u/s 263 of the Act by the CIT in reply to para 1 and 2 of the notice dt.5-12-2007 whether or not the transaction is speculative in nature, it was submitted that though the language insec.43(5) of the Act is plain and it does not admit any doubt or ambiguity, this proceedings to treat the 'transaction' as 'speculative in nature' is a futile exercise simply because the order passed by the assessing officer maybe said as erroneous but under no circumstances 5 it is prejudicial to the interest of revenue. Mere change of head of income u/s of the Act does not address the cause for modification of assessment u/s 263 more particularly when the assessee is loaded with huge amount of unabsorbed loss etc. as per record. Thus, the issue raised by the learned CIT is purely an academic one in nature. With regard to interest re-setting of Rs.75,38,174 it was submitted by the learned counsel for the assessee that the claim was made in the return filed in relation to assessment year 202-03 simply because such expenditure, being revenue in nature, were incurred in the year relevant to assessment year 2002-03. However, assessee company's claim was not accepted and the claim was disallowed vide order dt.24- 3-2005 passed u/s 143(3) of the Act. Therefore, proposed addition of interest re-setting fee of Rs.65,38,17 in the assessment year 003-04 is not called for. With regard to addition made on account of capital gains, it as submitted by the assessee that the assessee company is one of the promoters of Ballarpur Industries Ltd. commonly known as BILT. BILT was incorporated in the year 1945 and is engaged in manufacturing paper-pulp and various kinds of papers. BILT owned 5 mills and had an annual production capacity of approx 3 lakh tones and it controlled approximately 20% of the country's paper market during the year under consideration. Bilt Graphics Papers Ltd. also known as BGPL, was one of the best paper producing units located in Maharashtra. This state of art manufacturing unit was started production a few years earlier catering the needs of customers in foreign country. In other words, its an export oriented paper manufacturing unit. BILT being a pioneer in the field of paper manufacturing area was desirous of acquiring the above said state of art machinery in its fold so as to strengthen its position in the country and that too without losing the required minimum time for erecting of 6 a plant of its size. However, there were many legal constraints for BILT, being a listed company in the country, in acquiring shares of BGPL. On the contrary, this assessee did not have requisite expertise to run any paper manufacturing business effectively, smoothly and profitably. Financial statements lying in the records also suggest that the assessee company neither had the financial strength absolutely necessary for such acquisition nor it had the requisite strength of manpower in various areas in order to acquire shares of BGPL. Having this background, the assessee company being a promoter, started acquiring shares of Bilt Graphic Paper Ltd. also known as BGPL without loss of any time. As this assessee had acquired 64,76,21,811 equity shares in Bilt Graphic papers Ltd. (BGPL) in the year 2001-02 relevant to the assessment year 2002-03 pending certain formalities both legal and financial. Under the circumstances and as per arrangement, shares in BGPL was transferred to BILT at an acquisition cost plus cost for certain other expenditure incurred for arrangement of fund and other legal facilities. However, this transfer of shares took place by way of sale, the only alternative available to this assessee. The expenditure incurred for arrangement of fund and other legal facilities are in reality was reimbursement of expenditure. However, this expenditure described in account as 'holding cost' was recovered as agreed upon from BILT. Moreover, this expenditure was not treated as 'investments' nor any claim was there in any year as revenue for the purpose of allowance in computing the income under the law. Rather, documents resting with the assessing officer clearly show that expenses were booked as 'loans and advance' in the books of account. Thu, such loans and advances do no have any direct bearing to the acquisition of asset i.e. shares of BGPL for purpose of investment, such expenses should not and must not form part of the cost of shares. As 7 explained, the assessee company did not have requisite fund to hold the entire shares of BGPL as an investment and instead thereof, as per arrangement, the assessee had transferred the shares to BILT immediately after acquisition. Financial statements for the earlier years as well as for this year testify this position. Moreover, principle of chargeability to tax on any receipts is dependent upon the very factor 'income' and in turn, income is dependent upon factors such as exploitation of asset, capital etc. Expenditure incurred for specific purpose other than for investment and collection/realization of fund from BILT as against corresponding expenditure are the elements in this case and these two basic elements do not encompass the basics of 'income' for the purpose of computation of income and that too chargeability to tax under the law.
6. Reiterating his submissions, the learned counsel for the assessee with regard to treating the holding cost of shares as part of cost of improvement has no basis as it is admitted position that expenditure that Rs.30,77,38,662 was incurred by the assessee for specific purpose as explained in details i.e for raising the fund but the nomenclature given to such expenditure was 'holding cost.' It was also submitted that it is admitted position that aforesaid expenditure was recovered/reimbursed as and when the assessee had transferred the shares by way of sale at a cost price (but not at a profit) particularly when there was no other option under the law for mode of transfer of shares in the given case. Assessee's counsel summed up his argument by concluding that tax is payable on income not on receipt that too on recovery of money spent earlier, that mere a book entry that too as 'loans and advance' does not entail collection of tax 8 by the revenue. He prayed that the proceedings made u/s 263 of the Act be dropped.
7. On the other hand, learned departmental representative submitted that prima facie, proceedings u/s 263 of the Act were initiated for the following reasons.
a) The assessee company has shown gross sales of Rs.7,91,48,720 against which the purchases were shown at Rs.7,91,00,046. The above transaction was a single transaction and was not a normal purchase and sale transaction and hence the resulting loss was speculative in nature and the provisions of sec.73 of the act were applicable.
b) Despite no other trading activity except the above, the company claimed huge expenditure which may not be entirely relatable to the trading activity done by the company and as such the claim of expenditure was liable to be disallowed.
c) as per the assessment order dt.29-3-2006, as against loss of rs.15,09,4,979 admitted by the company, the interest resetting fee claimed in the capital gain computation ought to have been added back.
d) The capital gain computation needed further revision because the holding costs do not form part of qualifying expenses i.e. the cost of improvement for the computation of capital gains. Further, the expenditure incurred towards profession fee has not been furnished with full details of the expenditure.9
8. The learned departmental representative submitted that as regards sales of Rs.7,91,48,920 (gross) as appearing under schedule 12 to P& A/c as loss from 'speculative business' in place of 'trading loss' at Rs.41,21,148 as has been rightly held by the learned CIT, it was not disputed that the transaction was speculative in nature and the loss was governed by sec.73 of the Act. Consequently, the same can only be allowed to be set off only against the profits and gains of another speculation business in the same assessment year and if it cannot be set off from income of another speculation income in the same assessment year, it will be carried over to be claimed as set off in the subsequent years only against the income of any speculation business. By not indicating the same as speculation loss, the order of the assessing officer has become erroneous and prejudicial to the interest of revenue as it has implication in subsequent assessment years. Hence the loss of Rs.41,21,148 as speculation loss was rightly ordered to be treated as speculation loss.
9. With regard to claim of huge expenditure at Rs.6,75,09,210 it was submitted by the learned DR that for assessment year 2003-04 Rs.6,75,09,210 were spent as expenses against gross receipts of Rs.15,74,54,144 which included trading sales of Rs.7,91,48,920. Thus, there was a surplus of rs.1,07,96,014 over and above the expenses of Rs.6,75,09,210. The learned DR submitted that it was examined by the learned CIT in detail of the speculation loss of Rs.41,21,148, the directly relatable expenses were Rs.7,95,70,069 (cost of goods Rs.7,91,00,046 + Consultancy charges of Rs.4,70,023) and the rest of the expenses other than above worked out to Rs.6,75,09,210 and even if the trading sales of Rs.7,91,48,920 were excluded, there were still other gross receipts/income of 10 Rs.7,83,05,224 and assessee's contention was that expenditure of Rs.6,75,09,210 could be treated as corresponding to the remaining receipt/income of Rs.7,83,05,224 which implied a surplus of Rs.1,07,96,014 over expenses of Rs.6,75,09,210. However, it was noticed that major component of assessee's other income comes from dividend income of Rs.6,70,27,766, investment for which appears to have been made in earlier years and Rs.6,75,09,210 could not have been spent for earning this income. So notwithstanding the fact that dividend income has been offered to tax, the onus was on the assessee to show that Rs.6,75,09,210 was spent or purposes of its business. It was further seen that professional expenses of Rs.68,21,834 included expenses which did not appear to be revenue expenses apparently being related to merger and require capitalization. The learned DR submitted that the learned CIT after careful examination of the facts of the case and the replies given by the assessee vide its letters dt.7-8-2007 and 3-1-2008, found merit in assessee's contention that considering the scoeofsec.37 of the Ac, the issue becomes debatable. Sec.14A of the Act is also not of much help as dividend income was not exempt in the hands of the assessee company in AY 2003-04 and cannot be invoked. Nevertheless the expenses of Rs.34,96,790 out professional expenses of Rs.68,21,83 on which no comments were given by the assessee, call for disallowance as apparently not being revenue in nature.
10. As regards claim of holding cost of shares at Rs.14,79,35,061put forth by the assessee company, it was submitted that the capital loss from the transaction of shares of M/s Bilt Graphic papers Ltd. was Rs.4,33,63,287 ( Rs.1,81,60,19,869(-) Rs.1,772,656,582) as against loss of Rs.14,7,35,061 claimed by the assessee. It was submitted by 11 the learned DR that the assessing officer, however, did not agree even with the working of capital loss of rs.4,33,63,287 and took note of the fact that since Rs.1,28,97,338 was expenditure incurred towards holding cost during FY 2002-03 relevant to the AY 2003-04, the effect of indexation on this amount was 'nil' and there was error in the revised cost indexation adopted by the assessee. The assessing officer recomputed the indexed cost of 32,20,69,427 shares including proportionate holding cost at s.1,72,98,87,759 and the sale consideration for the same number of shares including holding cost recovered from Ballarpur Industries Ltd. at Rs.1,77,26,56,582. Further, it was submitted by the learned DR that as rightly observed by the learned CIT it is not disputed that on sale of 32,20,69,427 shares (out of total of 53,71,06,144 shares) in the financial year relevant to AY 203-04, the company received total consideration of Rs.1,77,26,56,582. as per the assessee, the holding cost being the reimbursement of expenses was rightly not claimed in the computation of capital loss (after cost of 32,20,69,427 shares was indexed) whereas as per proposal u/s 263, the alleged holding cost being part of sale consideration was to be included in sale receipts, the holding cost had no relevance to cost of acquisition as it was in the nature of maintenance. The correct capital gain accordingly should have been as under:
Total consideration (sale proceeds) 177,26,56,582 Less: Cost of acquisition (after Indexing) 161,28,52,981
-----------------
Capital gains 15,98,03,601
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12
The assessing officer, as discussed above had taken the capital gain at Rs.4,27,66,823 and so the order was erroneous and prejudicial to the interest of revenue. The said expenses being in the nature of maintenance expenses cannot come in the computation of capital gain. The assessee company is only eligible to claim expenditure incurred in the financial year relevant to the Assessment Year 203-04 in connection with the transfer of aforesaid shares u/s 48 of the Act. This issue was rightly set aside to the file of the assessing officer for re-computing capital gain without any reference to alleged holding cost. The assessee is eligible to get benefit of provisions of sec.48 subject to production of necessary evidence.
11. We have heard the rival submissions and perused the material on record. The contention of the assessee counsel is that the explanation to section 73 applies only to dealing in equity shares in view of the judgement of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT (255 ITR 273) (SC). and not to dealing in goods or merchandise as the assessee in this case bought and sold better yellow corn from USA. The contention of the assessee counsel is totally misplaced. In that case the Supreme Court while examining the question whether buying and selling of the units by the assessee company can be treated as speculated business, it was held that a deeming provision as in section 32(3) of the UTI Act should be applied for the purpose for which the said deeming provision is specifically enacted, which in the present case confined only to deeming the UTI company and deeming the income from the units a dividend, if as a matter of fact, the legislature had contemplated making the units also deemed share then it would have stated so. In the absence of any such specific deeming in regard to units as shares it would be 13 erroneous to extend the provisions of section 32(3) of the UTI Act to the units of the UTI for the purpose of holding that the unit is a share. Accordingly, it was held that the business of purchase and sale of units conducted by the assessee company cannot be deemed to be a business in shares and accordingly provision of explanation to section 73 not applicable. Thus in our humble opinion, it was not held that explanation to section 73 is application only to shares. Further, in our opinion it is a speculative transaction as mentioned in section 43(5) of the IT Act and mentioning of the wrong section by CIT is not fatal and it cannot make the order of the CIT invalid on this issue. We have also gone through the facts of this case, the assessee bought the better yellow corn from Cargill Incorporated, USA on 19.3.2003 and same was sold to M/s Cargill International SA, Switzerland on 25.3.2003. The payment made and received were the same date i.e. 16.4.2003. There is no intention of taking actual delivery of goods and only paper transactions since there is no evidence of actual delivery taken by the assessee. The main sphere of activity of the assessee is not at all dealing with the buying and selling of better yellow corn. The assessee dealt with buying and selling of better yellow corn and there is no evidence of taking the actual delivery of these goods. The transactions of buying and selling took within a short time of six days. The transactions resulted in a loss. Since there is no actual delivery of the commodity the provisions of section 43(5) is directly applicable. In our opinion, in this case, the transaction in which a contract for purchase and sale of better yellow corn ultimately settle otherwise than by the actual delivery of the commodity and there is no physical delivery of goods from seller to the buyer and in this event, the loss if any, would be a loss in a speculative transaction which could be allowed to be set off only against a profit in a transaction of the sale 14 nature. The object of the provisions of sec. 43(5) only to brand them as 'speculative transactions' so as to put them in a special category for income tax purposes. Further, the intention of the CIT is to invoke the provisions of section 43(5). The assessee also understood the intention of the CIT. This is evident from the reply given by the assessee to the CIT on 3.1.2008 in Para 1 which reads as follows:
'Reply to Para 1 and 2 of the letter/notice dated 5th December, 2007:
In reply to the point raised by your honor whether or not the transaction is speculative in nature, we submit that though the language in section 43(5) of the Act is plain and it does not admit any doubt or ambiguity, this proceedings to treat the 'transaction' as 'speculative in nature' is a futile exercise simply because the order passed by the assessing officer may be said as erroneous but under no circumstances it is prejudicial to the interest of revenue. Mere change of head of income u/s 14 of the Act does not address the cause for modification of assessment u/s 263 more particularly when the assessee is loaded with huge amount of unabsorbed loss etc. as per record. Thus, the issue raised by your good self may be said as purely academic in nature."
12. In view of the above, we confirm the order of the CIT on this issue.
13. Next ground is with reference to allowability of professional expenses at Rs.34,96,790/-. In the present case, professional expenses Rs.68,21,834/- includes a sum of Rs.34,96,790/- being related to merger and it required to be capitalized. The CIT vide its notice dated 5.12.2007 called for an explanation from the assessee failing which direction for verification or disallowance will be issued to the assessing officer. The assessee has filed no comments on this issue. Apparently it was considered as not Revenue expenditure.
Being so, the CIT given direction to adjudicate the allowability of the same since there is no discussion by assessing officer in its order regarding the allowability of this expenditure. Enquiry before assessment means is not merely collecting of papers or documents 15 and keeping the same in the file. The assessing officer not applied his mind on this issue which he is required to do so before completion of the assessment. Non application of mind by assessing officer is a reason for invoking the provision of Sec.263. Accordingly, the action of the CIT justified on this issue.
14. The next ground is with reference treatment of holding cost at Rs.30,77,88,662/- as a part of consideration received for sale of shares. The assessee sold 32,20,69,427 shares of M/s Bilt Graphic Papers Ltd. at Rs.1,46,49,17,920/. This amount is equal to cost of purchase of shares. However, long term capital loss was claimed at Rs.14,79,35,016/-. The assessee also received holding cost at Rs.30,77,838,662/-. This amount was not included in the sales consideration. The contention of the assessee counsel is that this was not included in the sales consideration that on the reason that this was the actual cost incurred for holding the shares including that amount in the sales consideration would render if necessary to include the amount in the cost of purchase and index such cost and consequently this exercise would lead to increase in the loss further. The CIT was of the opinion that holding cost to be included in the sales consideration but shall not be considered as part of cost of improvement for determining the cost of acquisition of shares. Now the contention of the assessee counsel is that the assessee had actually incurred this expenditure and same was not claimed as Revenue expenses in any assessment years and it is to be considered as capital expenditure and it was shown in the balance sheet under the head 'Loans and Advances' as on 31.3.2002. On the other hand the contention of the department is that the holding cost is neither recorded in the books of accounts nor it was capitalized as such there 16 is no question of considering the same in the cost of acquisition of shares or as a cost of improvement. We have gone through the facts of the case. The assessee not able to demonstrate how this holding cost was incurred by the assessee and to whom it is payable. The counsel not able to explain the same. He filed a details of loans and advances as on 31.3.2002. But failed to explain how this amount represents the holding cost incurred by the assessee. There was no iota of evidence brought on record regarding incurring of expenditure. The assessee counsel relied on the judgements in the case of CIT Vs. Industrial Engineering Projects (P) Ltd. (202 ITR 1014) (Delhi HC) and CIT Vs. Tejaji Farasram Kharawalla Ltd (67 ITR 95) (SC). These judgements are delivered on different facts and cannot be applied to the fact of the present case. In our opinion CIT justified in invoking the provisions of S.263 on this issue and directing the assessing officer include the recovery of the holding cost in sales consideration and not to include the same in the cost of improvement.
15. Further contention of the assessee counsel is that invoking the provisions of s.263 is itself bad in law. The assessee counsel relied on the following judgements:
1. Malabar Industries Co. Ltd., Vs. CIT (243 ITR 83) (SC)
2. CIT Vs. Gabriel India Ltd. (203 ITR 108) (Bombay)
3. Srinivasa Hatcheries (P) Ltd. Vs. DCIT (81 ITD 36)
4. Ahalya Trading (P) Ltd. Vs. CIT(Mum) (22 SOT 68)
5. Seaking infrastructure Ltd. Vs. CIT (21 SOT 142 (Mum)
6. CIT Vs. Gujarat V. Tejaji Farasram Kharawalla Ltd. (67 ITR 95) (SC)
7. CIT Vs. Industrial Engineering Projects (P) Ltd. (202 ITR 1014) (Del.)
8. Coca Cola India Inc. Vs. Addl.CIT (Faridabad) (7 SOT 224) (Del.)
9. Gee Vee Enterprises Vs. Addl. CIT & Others (99 ITR 375) (Delhi HC)
10. Kamal Kumar Saharia Vs. CIT (216 ITR 217) (Guwahati HC) 17
11. Hari Iron Trading Co. Vs. CIT (263 ITR 437) (P&H HC)
12. Addl. CIT Vs. K.S. Gupta (119 ITR 372) (AP HC)
13. CIT Vs. Maithreyi Pal (152 ITR 247) (Karnataka HC)
14. CIT Vs. Mithlesh Kumari (92 ITR 9) (Delhi HC)
15. ICICI Bank Ltd. JCIT (118 TTJ 132) (Chennai)
16. CIT Vs. Shimla V. Greenworld Corporation (181 Taxman 111) (SC)
17. S. Balan Alias Shanmugam Vs. DCIT (120 ITD 469) (Pune) We have gone through the provisions of S.263 and also through the orders of lower authorities. As per the provisions of S.263, to exercise the jurisdiction by the CIT suo moto under it, is that the order of the ITO is erroneous in so far as it is prejudicial to the interest of the revenue. The Commissioner has to be satisfied twin conditions, i) the order of the assessing officer sought to be revised is erroneous and ii) it is prejudicial to the interest of the revenue. If one of them is absent
- if the order of the assessing officer is erroneous but is not prejudicial to the revenue or if it is nor erroneous but is prejudicial to the revenue
- recourse cannot be had to S.263 of the Act. There can be no doubt that 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 erroneous that this section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order be erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. As seen from the order of the assessing officer, there is incorrect assumption of facts as well as non application of mind by assessing officer. It amounts to passing of erroneous order and it resulted in losing of tax lawfully payable by assessee. It will certainly be prejudicial to the interest of revenue. The phrase ' prejudicial to the interests of the Revenue,' has to be read in conjunction with an erroneous order passed bys the assessing officer.18
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 ITO 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 ITO is unsustainable in law. It has been held by Supreme courts that where a sum not earned by a person is assessed as income in the 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. Rampyari Devi Saraogi Vs. CIT (67 ITR
84) (SC) and in Smt. Tara Devi Aggarwal Vs. CIT (88 ITR 323 (SC). In the instant case, the CIT observed that assessing officer pass the order without proper application of mind and he has not gone into the issues noted by the CIT in proper perspectives and the order passed by him was erroneous. He accepted the version of the assessee instead of making proper enquiries and came to wrong conclusion. On these facts, the conclusion reached by the assessing officer is erroneous so far as prejudicial interest to the Revenue as such invoking the provisions of S.263 by CIT is justified.
17. In the result, the appeal of the assessee is dismissed.
Order pronounced in the Court on: 26. 3. 2010
Sd/- Sd/-
G.C.GUPTA CHANDRA POOJARI
VICE PRESIDENT Accountant Member
Dated the 26th March, 2010
19
Copy forwarded to:
1. Bilt Paper Holdings Ltd., C-16, Vikrampuri Colony, Beside Bata Lane, Secunderabad500 009.
2 ACIT, Circle 1(3), Hyderabad
3. CIT, AP., Hyderabad 4 CIT, Hyderabad.
5. The D.R., ITAT, Hyderabad.
Vnr & Np 20