Income Tax Appellate Tribunal - Mumbai
Elder It Solutions P Ltd, Mumbai vs Assessee on 12 December, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI
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BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND
SHRI B.R. BASKARAN, ACCOUNTANT MEMBER
ITA NO.3325/Mum/2014
Assessment year: - 2009-10
Elder IT Solutions Pvt. Ltd. V Commissioner of Income Tax
6, Ground Floor, s. -4,
Hanumanta Apartment, ` Aayakar Bhavan,
Bamanwada, Mumbai.
Nr. Chakala Cigarette Factory,
Andheri (East)
Mumbai - 400007.
PAN:- AABCE9586F
Appellant Respondent
Assessee By Shri Arvind Sonde and
Shri Jitendra Sanghvi
Revenue By Shri R. Manjunatha
Swamy
Date of hearing 12.11.2014
Date of pronouncement 12-12-2014
ORDER
Per Vijay Pal Rao, JM
This appeal by the assessee is directed against the revision order dated 28.3.2014 of Commissioner of Income Tax, passed u/s 263 of the Income Tax Act for the A.Y. 2009-10. The assessee has raised following grounds:-
Elder IT Solutions Pvt. Ltd "GROUNDS OF APPEALS GROUND NO. I:
l. On the facts and in the circumstances of the case and in law, the Hon'ble CIT erred in issuing show cause notice u/s. 263 of the Act and later in passing the order u/s. 263 in the name of "Elder Infotech Pvt. Ltd.', even though the company by the said name is no more in existence having been dissolved upon its amalgamation with the Appellant.
2. The Appellant prays that the order passed in the name of an assessee not in existence be struck down and annulled as ab-initio or otherwise null and void.
WITHOUT PREJUDICE TO GROUND NO.1:
GROUND NO. II:
1. The Hon'ble CIT further erred in holding that the Appellant had indicated that an assessment of Elder Infotech Pvt. Ltd. could be made in respect of the Assessment Year 2009-10 against the Appellant whereas the Appellant had submitted that the Assessment of Elder Infotech Pvt. Ltd. for the Assessment Year 2009-10 could not be made on any person (including the Appellant) and that there were no provisions in the Income Tax Act which would permit the making of such an Assessment or the recovery of any consequential demand.
2. The Hon'ble CIT failed to appreciate and ought to have held that Elder Infotech Pvt. Ltd. was dissolved on August 23,2011 with effect from April 1,2010 and consequently, or otherwise in the absence of any enabling provision no proceeding relating to the determination of tax liability of Elder Infotech Pvt. Ltd. could be commenced under the Income-tax Act on Elder Infotech Pvt. Ltd. or on any other person including the Appellant.
3. The Appellant prays that order passed under section 263 of the Act be struck down as authorities below-initio or otherwise, null and/or void and/or of no effect.
WITHOUT PREJUDICE TO GROUND NO. 1/11:
2|Page Elder IT Solutions Pvt. Ltd GROUND NO. III:
1. On the facts and in the circumstances of the case and in law, the Hon'ble CIT erred in invoking the provisions of section 263 of the Act and setting aside the assessment order passed under section 143(3) of the Act restoring it back to the file of the A.O. for fresh consideration on the ground that the said assessment order was erroneous and prejudicial to the interest of revenue.
WITHOUT PREJUDICE TO GROUND NO. I/II/III:
GROUND NO. IV:
1. On the facts and in the circumstances of the case and in law, Hon'ble CIT erred in setting aside the assessment order passed under section 143(3) of the Act by the AO on the ground that the AO had not examined the nature of rights (i.e. intangible asset) acquired by Agreement with Reliance Communications Limited and observing that on a prima facie basis Elder Infotech Pvt. Ltd. has not acquired any capital asset and does not own it fully or partially.
2. The Appellant prays that it be held that, in the facts and in the circumstances of the case, the amount paid against acquiring the commercial rights is an 'intangible asset' and depreciation on the same is allowable under section 32(1) of the Act and has correctly been allowed after due verification in the assessment made under See 143(3) in the case of Elder Infotech Pvt. Ltd for the Assessment Year 2009-10 and that there is no warrant for setting aside the order on this count and that the order is neither erroneous nor prejudicial to the interest of the Revenue.
GROUND NO. V:
On the facts and in the circumstances of the case and in law, Hon'ble CIT erred in setting aside the assessment order passed under section 143(3) of the Act by the AO on the ground that the AO had not adequately examined the amount received by Elder Infotech Pvt. Ltd. through issue of preference shares and by way of unsecured loan.
The Appellant prays that it be held that in the facts and in the circumstances of the case, the amounts received by Elder Infotech
3|Page Elder IT Solutions Pvt. Ltd Pvt. Ltd. through issue of preference shares and unsecured loan have been duly examined by the AO in the assessment proceedings of that Company and that there is no warrant for setting aside the order on this count and that the order is neither erroneous nor prejudicial to the interest of the Revenue.
3. Without prejudice the Hon'ble CIT erred in failing to appreciate that in the facts and circumstances of the case, the source of the funds received by way of application for Preference Shares and unsecured loans was adequately established and the nature of the transactions was confirmed by the counterparties and consequently or otherwise there was no case whatsoever for any addition to the income of Elder Infotech Pvt. Ltd.
2. The assessee challenged the validity of revision order passed u/s 263 on various grounds. First we will consider the issue on which the Commissioner has invoked the provisions of section 263 as raised in ground no. 3 to 5 in this appeal. The assessee filed its return of income for A.Y. under consideration on 30.09.2009 declaring a net loss of Rs. 19,82,57,889/-. The assessment was completed u/s 143(3) on 9.12.2011 at nil income against the loss of Rs. 19,82,57,889/-. Subsequently, on verification of the assessment records, the CIT found that during the year under consideration, the assessee was having commission income of Rs. 6.06 crore from the services rendered to Reliance Communication Ltd., with a view to create the potential to revive the relationship with such dormant subscribers and to augment the revenue to Reliance Communication Ltd, the assessee had debited in its P&L account, a sum of Rs. 25.89 crores on account of purchase of Dormant subscribers. The assessee paid a sum of Rs. 517.94 cores to Reliance Communication Ltd. in the nature of purchase of intangible asset and claimed depreciation on the said amount at the rate of 25% for 73 days amounting to Rs. 25.90 crores. The depreciation claimed by the assessee on the rights being purchase of dormant subscribers. The Assessing Officer restricted the claim of the assessee to the extent of commission income earned by it in pursuant to the
4|Page Elder IT Solutions Pvt. Ltd agreement of revival of dormant subscribers. The Commissioner was of the view that the Assessing Officer while examining the details has not considered whether the revival of the dormant subscribers is a commercial right or not for the purpose of allowing depreciation u/s 32(1)(ii). The second claim which was found by the CIT(A) as wrongly allowed by the Assessing Officer is regarding the preference share application money of Rs. 139.86 crore and Rs. 4,87,55,68,401/- as unsecured loan. Accordingly, the Commissioner issued a show cause notice dated 20.03.2014 u/s 263 and asked the assessee as to why the order passed by the Assessing Officer should not be revised being erroneous and prejudicial to the interest of revenue. The grounds for invoking the provisions of section 263 as stated in the show cause notice is that these two issues have not been examined by the Assessing Officer while passing the order for the A.Y. 2009-10. The assessee submitted its reply to show cause notice and raised various objections including a technical legal objection that the company Elder Infotech got merged with the Elder IT solutions Pvt. Ltd. w.e.f 1.4.2010 and, therefore, as per the provisions of section 170(2), the assessment of income of the previous year shall be made on successor and not on the Elder Infotech solutions Pvt. Ltd. The assessee also raised the objection on jurisdiction to revise the assessment u/s 263 of the Income Tax Act., on the ground that when the Assessing Officer has examined the issue and taken a possible view. It was contended by the assessee that the entire material was available before the Assessing Officer during the course of assessment proceedings and the Assessing Officer after examination of the relevant material restricted the claim of depreciation and allowed the share application money against the preferential shares of Elder Infotech Pvt. Ltd.. as well as the unsecured loans. The Commissioner did not accept the contention of the assessee. As regards the issue of depreciation on commercial right, the Commissioner observed that the assessee has to
5|Page Elder IT Solutions Pvt. Ltd specify that either they are covered under the specific business asset as described u/s 32(1)(ii) of the Act., or having similar nature. He has expressed his disagreement in accepting the payment made by the assessee to Reliance Communication for any commercial right of similar nature as provided u/s 32(1)(ii) and 32(1)(iii). The Commissioner concluded that the agreement for revival of dormant subscribers is not commercial asset and the payment made by the assessee company is not for acquiring the capital asset.
3. On the second issue of share premium money and unsecured loan, the Commissioner held that the order of the Assessing Officer suffers from several defects as the Assessing Officer has not raised any question while recording the statement with respect to the credentials of the applicant companies. The statement recorded in stereo type and no question has been asked by the Assessing Officer with respect to the capacity of companies who have given the loan to the assessee. Thus the Commissioner has questioned the justification of payment of premium of Rs. 999 on a face value of Rs. 1 per share when the assessee company does not have any credentials in the market to attract the huge premium on its preferential share. Accordingly, the commissioner held that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue with respect to the claim of depreciation on revival of dormant subscribers and acceptance of unsecure loans of Rs. 487.55 crores and preference share of Rs. 139.86 crores. Therefore, the Commissioner set aside the assessment order and remanded the matter back to the file of Assessing Officer for a fresh consideration after giving reasonable opportunity to the assessee of being heard.
6|Page Elder IT Solutions Pvt. Ltd
4. Before us, the Ld. Authorized Representative of the assessee had advanced the arguments at length and referred the voluminous records filed before the Assessing Officer. On the issue of depreciation on commercial rights being an intangible asset, the Ld. Authorized Representative has submitted that the payment in question has been made by the assessee under the agreement dated 1.8.2008 for revival of dormant subscribers as identified by Reliance Communication. The assessee acquired the right to revive the dormant subscribers of Reliance Communication under the said agreement and made one time payment of Rs. 320.04 crores towards the payment of EITPL as an Exclusive Reviving Agent of RCOM and further Rs. 199 per subscriber inclusive of applicable taxes and levies, if any, payable under the law. Thus the Ld. Authorized Representative has submitted that as per clause 3.1 and 3.2, the business right to revive the dormant subscribers of RCOM was acquired by the assessee against the payment of Rs. 517.09 crores for doing the business of providing the services of revival and generating the income in the shape of service charges as provided under the terms of the agreement. He has referred the assessment order and submitted that the Assessing Officer in the scrutiny assessment has examined the issue and restricted the claim of depreciation on the said amount to the extent of commission income earned by the assessee during the year against the services provided for revival of dormant subscribers. Thus the Assessing Officer restricted the claim of depreciation from Rs. 25.9 crores to 6.06 crores and made the addition on account of disallowance amounting to Rs. 19,82,57,889/-. The Ld. Authorized Representative has submitted that the Commissioner has revised the order of Assessing Officer on the ground that the assessee has not acquired any capital asset in the nature of business or commercial right and, therefore, the Assessing Officer has wrongly allowed the claim of the assessee even to the extent of Rs. 6.06 croes as depreciation on
7|Page Elder IT Solutions Pvt. Ltd intangible assets. He has referred the decision of Hon'ble Supreme Court in the case of Techno Shares and Stock Ltd. (327 ITR 323) and submitted that the issue of commercial right has been discussed by the Apex Court and it has been held that the right of a membership which allowed the non-defaulting member to participate in the trading season on the floor of the exchange is a business or commercial right conferred by the Rule of BSE on such member. The right to participate in the market had an economic and money value. It was an expense incurred by the assessee which satisfied the test of being a 'licence' or 'any other business or commercial right of similar nature' in terms of S. 32(1)(ii) as held by the Hon'ble Supreme Court. Without the right in the agreement, the assessee could not approach the dormant subscribers for revival and collect the revival subscription and consequently in the absence of such right the assessee could not do its business activity of revival of subscribers earning income. Thus the Ld. Authorized Representative submitted that the right acquired by the assessee under the agreement is in the nature of business or commercial right for doing their specific business activity. In support of his contention he has relied upon the decision of Hon'ble Kerala High Court in the case of B. Raveendran Pillai Vs. CIT (332 ITR 531), wherein, the question fell for consideration of Hon'ble High Court was whether the purchase of Hospital by assessee with its name and trademark as a going concern involves any purchase of good-will. The Hon'ble High Court held that the purpose of purchasing a business concern whether it be hospital or hotel, is to ensure continuity of business with the same reputation. The name of the hospital is the most important after purchase by the assessee continued to be run in the very same building in the very same name. Therefore, the purpose of being paying a huge amount of good-will for maintaining a continued reputation of hospital is for ensuring the retention and continue business in the hospital and it is certainly for
8|Page Elder IT Solutions Pvt. Ltd acquiring the business or commercial right comparable with trade mark, franchise, copyright etc. The Ld. Authorized Representative then referred the judgment of Hon'ble Delhi High Court in the case of CIT Vs. Hindustan Coco Cola Beverages P. Ltd. (331 ITR 192) and submitted that the Hon'ble High Court has considered the meaning of business or commercial rights of similar nature in terms of section 32(1)(ii) of the Act., that any right which is obtained for carry on business with effectiveness is likely to fall or comes within the sweep meaning of intangible asset. He has then referred the Judgment of Hon'ble Delhi High Court in the case of Areva T & D India Limited v DCIT (345 ITR 421) (Delhi HC), wherein, a similar view was taken by the High Court while considering the issue of depreciation on the amount paid over and above the book value of net tangible asset.
5. On the issue of share application money and cash credits, the Ld. Authorized Representative has submitted that the assessee furnished all the relevant material before the Assessing Officer during the assessment proceedings and the Assessing Officer after considering the relevant evidence allowed the claim as correct and genuine. He has referred the relevant part of the revision order wherein the Commissioner has recorded the financial details of all these share applicant companies and also recorded the fact that the Assessing Officer called for the financial details of all these companies but no examination of accounts of these companies has been done by the Assessing Officer. Therefore, the assessment order to the extent of share application was treated as erroneous and prejudicial to the interest of revenue only on the suspicion and justification of payment of share premium. He has contended that when all the relevant material was available with the Assessing Officer as it was produced during the assessment proceedings, then accepting the share premium by the
9|Page Elder IT Solutions Pvt. Ltd Assessing Officer does not suffer from any error. The Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in the matter or orders which already concluded. When the Assessing Officer has allowed the claim after considering the relevant evidence and materials filed by the assessee then the commissioner cannot held the order erroneous simply because according to him the matter should have been written more elaborately. It is a clear case where the Assessing Officer has made enquiries and satisfied himself about the correctness and genuineness of the claim. In support of his contention he has relied upon the decision of Hon'ble Jurisdictional High Court in the case of Commissioner Of Income-Tax vs Gabriel India Ltd. He has referred the financial accounts of these companies who has paid the share premium as well as loan to the assessee and submitted that the assessee has placed on record the bank statements of those companies showing the payment from the bank accounts and source of payment. He has also referred the return of income filed by these companies showing these transactions therein. Therefore, when these companies have shown all these transactions in their return of income then the question of not accepting the claim of the premium paid to the assessee for want of source is contrary to the well settled principle on this point. If the revenue doubts the capacity of these companies then the issue has to be considered in their assessment and not in the assessment of the assessee. In support of his contention he has relied upon the decision of Hon'ble Supreme Court in the case of Lovely Exports and submitted that when the assessee has prima facie proved the identity of the creditors and genuineness of the transactions through the banking channel and the creditworthiness of the creditors/subscribers by furnishing the details of addresses, PAN nos., bank statements as well as return of income where the transaction is duly reflected then if the Assessing Officer has the doubt of legitimacy of any of 10 | P a g e Elder IT Solutions Pvt. Ltd the creditors, he is free to carry out thorough investigation in the case of the creditors. He has relied upon the following decisions:-
(i) Hari Iron Trading Co. Vs. CIT ( 263 ITR 437)
(ii) Commissioner of Income-Tax. Vs. Eicher Limited
(294 ITR 310)
(iii) CIT. vs. Development Credit Bank Limited. (323 ITR
167)
(iv) CIT Vs. Sunbeam Auto Ltd., (2011) 332 ITR 167 (Del.)
(v) CIT Vs. Anil Kumar Sharma, 335 ITR 83
6. On the other hand. The Ld. DR has submitted that the Assessing Officer has not examined the issue whether the assessee had acquired any capital asset in the agreement for revival of dormant subscribers of the RCOM. He has referred the relevant finding of he Commissioner in the impugned order and submitted that the Commissioner has given a finding that the assessee has not acquired any capital asset or owned any capital asset uder the agreement, therefore, no depreciation is allowable. The Assessing Officer has not made any enquiry on this issue, therefore, there is a lack of application of mind on the part of the Assessing Officer which renders the order erroneous so far as prejudicial to the interest of revenue. In support of his contention he has relied upon the order of Hon'ble Karnataka High Court in the case of CIT Vs. Infosys Technologies (341 ITR 293) that in the absence of any discussion either in the assessment order or in the computation claim to the extent of relief claimed by the assessee, the order is erroneous and prejudicial and in such a situation the Commissioner has the jurisdiction to exercise the power u/s 263. He has further submitted that the issue is not at all examined by the Assessing Officer, therefore, the Commissioner can direct the assessing authorities 11 | P a g e Elder IT Solutions Pvt. Ltd to compute or re-compute the same. He has then relied upon the decision of Hon'ble Jurisdictional High Court in the case of CIT Vs. Hindustan Liver (343 ITR 161) and submitted that an excess allowance by the Assessing Officer by over looking the fact, the research expenditure incurred by the inextricably linked with the business of the assessee including business in those produces which are manufactured in the unit entitled for deduction u/s 80I, 80IA and 80HH. Therefore, only an appropriate part of the expenditure would have to be allocated to the eligible unit for the purpose of aforesaid deduction. The Hon'ble High Court held that the Commissioner was justified in setting aside the order as erroneous and prejudicial to the interest of revenue. The Ld. DR then relied upon the decision of Delhi Benches of this Tribunal in the case of Frick India Ltd. Vs/. DCIT 6 ITR (Trib.) 82 (Del) and submitted that the order of the Assessing Officer allowing deduction was erroneous and prejudicial to the interest of revenue on the ground that the Assessing Officer has failed to consider the assessment of the earlier years wherein a technical know how fee was included in intangible asset and depreciation was allowed. Thus the Ld. DR has submitted that even if the Assessing Officer has examined the issue but when he failed to consider the decision taken in the assessment order for earlier year, the order was considered to be erroneous and prejudicial to the interest of revenue He has then relied upon the decision of Hon'ble Jurisdictional High Court in the case of Major Metals Ltd. Vs. Union of India ( 359 ITR 450) and submitted that the Hon'ble Hon'ble Jurisdictional High Court after considering the judgment of Hon'ble Delhi High Court as well as the judgment of Hon'ble Supreme Court in the case of Lovely Exports has confirmed the finding of settlement commission in respect of the addition u/s 68 of Income Tax Act on account of cash credit of Rs. 6 crore against which the shares were issued by the assessee at a huge premium. The Ld. DR then relied upon the 12 | P a g e Elder IT Solutions Pvt. Ltd decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd Vs. CIT (243 ITR 83) and submitted that when the Assessing Officer accepted the claim of the assessee without any supporting material and without making any enquiry, the Commissioner is justified in exercising the jurisdiction u/s 263. The Assessing Officer has not applied his mind while allowing the claim of the assessee in respect of share application money as well as loan received from these companies. He has forcefully contended that the Commissioner has discussed the fact as to how the Assessing Officer has not made any enquiry on the issues which are subject matter of revision. He has referred the decision of Hon'ble Supreme Court in the case of South India Steel Rolling Mills v CIT [1997] 224 ITR 654 and submitted that the exercise of power conferred u/s 263 by the Commissioner was held to be justified when the Assessing Officer while granting the benefit of development rebate u/s 33(1A), failed to note that the condition provided u/s 34(3)(A) were not fulfilled by the assessee as the firm was dissolved and ceased to exist before the expiry of period of eight years. Thus the Ld. DR has strongly supported the revision order and submitted that the Commissioner was justified in revising the assessment order when the Assessing Officer has not applied its mind on the issues in question.
7. In rebuttal, the ld. Authorized Representative has submitted that the share applicant companies are NBFC registered with RBI, therefore, there is no question of doubting the identity and availability of funds with the share applicant companies.
8. We have considered the rival submissions as well as relevant material on record. The assessment in this case was completed u/s 143(3) on 13 | P a g e Elder IT Solutions Pvt. Ltd 9.12.2011. Subsequently, the Commissioner has issue a show cause notice dated 20.03.2014 u/s 263 as under:-
"The assessee company i.e. M/s Elder Infotech Pvt. Ltd. has filed its return of income on 30.09.2009 declaring a net loss of rs. 19,82,57,889/- for A.Y. 2009-10. Thereafter, the said company i.e. M/s Elder Infotech got merged with Elder IT solutions Pvt. Ltd., 6 ground floor, Shree Hanuman Apt, Bamanwada, Nr. Chakala Cigarette Factory, Andheri (E) Mumbai - 400 009. During the year under consideration i.e. A.Y. 2009-10 (F.Y. 2008-09), the assessee was having the commission income of Rs. 25.89 crores on account of purchase of dormant subscribers. The assessee company has paid to Reliance Communication Ltd. an amount of Rs. 517.94 crores in the nature of purchase of intangible asset. The assessee company has provided depreciation @ 25% for 73 days amounting to Rs. 25.90 crores. The assessee company has claimed the depreciation on commercial rights from the period 01.04.2009 to 28.05.2009 amounting to Rs. 25.90 crores. This has been claimed on the instant that the assessee has paid to Reliance Communication Ltd., a sum amounting to Rs. 517.94 crores in the nature of purchase of intangible assets. The assessee company has claimed the depreciation for 6 months amounting to Rs. 64.74 crores but claimed only Rs. 25.90 crores. The Assessing Officer has considered this aspect and restricted the claim of the assessee to the extent of commission income earned by it in pursuance of the aforesaid agreement of revival. The Assessing Officer has not considered whether the revival of dormant subscribers is a commercial right or not. The substantive aspect of the depreciation prescribed u/s 32(1)(ii) which says that depreciation will be allowed on know-how, patents, copyrights, trade mark, licences, franchises or any other business or commercial right of similar nature being intangible assets acquired on or after the 1st day of April, 1998 has not been examined by the Assessing Officer. There is nothing on record that verification of the assessee's technical capabilities or the infrastructure required to carry out the alleged revival was ever done.
The second issue in this case is with respect to share application money and unsecured loans for the year ending 31.03.2010. The assessee company, M/s Elder IT solutions Pvt. Ltd has received the unsecured loan of Rs. 48,75,56,8401/- and share application money of Rs. 1,39,86,00,000/-.
14 | P a g e Elder IT Solutions Pvt. Ltd The above two issues have not been examined by the Assessing Officer while passing the order of Elder Infotech Pvt. Ltd. for A.Y. 2009-10.
On the issues as stated above a show cause is being given to you as to why the order passed by JCIT (OSD)-Cir. 8(1), Mumbai dtd 09.12.2011 should not be revised u/s 263 of the Act being order erroneous one ad prejudicial to the interest of revenue. Please submit your reply either in person or through authorize representative on 25.03.2014 at 11.30 A.M."
9. The Commissioner proposed to revise the assessment order dated 9.12.2011 in respect of these two issues on the ground that the Assessing Officer has not examined these issues while passing the order for the A.Y. under consideration. There may be two broad scenario in which section 263 can be invoked. Firstly, in a case where the claim of the assessee needed inquiry and examination but the Assessing Officer failed to conduct any inquiry. Such a case would fall under the category of lack of enquiry and consequentially non application of mind on the part of the Assessing Officer, renders the order erroneous so far as prejudicial to the interest of revenue. Secondly, in a case where despite the inquiry the view of the Assessing Officer is not permissible due to non consideration of crucial relevant facts or legal provisions of law on the point. The failure on the part of the Assessing Officer to consider the crucial facts, provisions of law or settled legal precedent on the point renders the order erroneous and prejudicial to the interest of revenue. However, in a case where the Assessing Officer conducted an inquiry may be inadequate and allow the claim by taking a view on the issue having two possible views then the CIT cannot invoke the provisions of section 263 merely on the ground that he does not agree with the view taken by Assessing Officer.. This position has been settled by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT (supra) as under:-
15 | P a g e Elder IT Solutions Pvt. Ltd "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 is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.
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 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 ITO 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 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 - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and inSmt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)."
10. In the case in hand, the Assessing Officer has made an enquiry regarding the claim of depreciation on tangible asset and after considering the relevant agreement under which the assessee had acquired the right for revival of dormant subscribers of RCOM Ltd., has decided the issue in para 3.3 of the assessment order as under:-
"3.3 The submissions of the assessee have been considered but the same are not acceptable. The assessee furnished the ledger account of advance towards purchase of subscribers', perusal of which shows that during the year the assessee has given advance of Rs 402,44,00,000/- on 23.10.2008 and Rs.115,50,OO,OOO/- on 20.01.2009 to Reliance Communication Limited on account of 16 | P a g e Elder IT Solutions Pvt. Ltd purchase of subscribers. Thus, during the year, the assessee has - paid a sum of Rs. 517,94,OO,OOO/- to Reliance Communication Limited on account of 'purchase of subscribers'. However, at the end of the year itself i.e. on 31st March, 2009, the assessee has written off a sum of Rs.25,89,70,OOO/- being 5% of the amount of 'advance towards purchase or subscribers'. To substantiate the aforesaid transaction, the assessee has furnished a Reliance Communications Limited. During the year, the assessee has earned income by way of commission of Rs.6,06,61,421/- from Reliance Communication Limited due to revival of certain subscriber contracts. The assessee also earned income in the copy of Agreement for Revival of Dormant Subscribers dated 01.08.2008 with form of consultancy fees. However, the assessee has not clearly justified the logic of claiming 5% of the total amount of subscriber contracts against the aforesaid income. Even, the perusal of Profit & Loss Account reveals that there is no other expenditure incurred to earn this income such as legal and professional charges, salary & wages, etc. In view of the same, it would be in the interest of justice to restrict the claim of assessee to the extent of commission income earned by the assessee in pursuance of the aforesaid Agreement of Revival and the balance stands disallowed."
11. Thus it is clear that it is not a case of complete lack of enquiry on the part of the Assessing Officer on the issue of allowing depreciation on intangible asset being business or commercial rights acquired under the agreement for revival of dormant subscribers of RCOM. Once the Assessing Officer has conducted the enquiry and after examination of relevant record as well as contention of the assessee has given a finding then the provisions of section 263 can be invoked by the Commissioner only if the view taken by the Assessing Officer is not permissible under the law. The Commissioner in this case though has given the reasons for not accepting the view of the Assessing Officer, however, at the same time he has again left the issue to be decided by the Assessing Officer afresh in the concluding para as under:-
17 | P a g e Elder IT Solutions Pvt. Ltd "Subject to the above discussion, I wish to conclude that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue , with respect to the claim of depreciation on revival of dormant subscribers as a commercial asset (intangibles) made by assessee company and accetance of unsecured loan of Rs. 4,87,55,68,401/- and preference share of Rs. 13,98,60,000/-. Therefore, the order is set aside and matter is resorted to the file of Assessing Officer for a fresh consideration after giving reasonable opportunity of being heard to the assessee."
12. When the matter was restored back to the file of Assessing Officer for a fresh consideration after giving reasonable opportunity of hearing to the assessee then it is apparent that the Commissioner has not arrived to a concluding finding that the view taken by the Assessing Officer is not permissible under the law. Moreover, the issue of tangible asset being business or commercial right as per section 32(1)(ii) of the Act., is a debatable issue in view of the various judgments including the judgment of Hon'ble Supreme Court in the case of Techno Shares & Stocks (supra), referred by assessee wherein, the stock exchange membership was considered as a right akin to a license which is one of the item which falls under section 32(1)(ii) of the Income Tax Act. The Hon'ble Supreme Court has observed that right to practice in market has an economic and money value. It was an expense incurred by the assessee which satisfied the test of being a 'licence' or 'any other business or commercial right of similar nature' in terms of S. 32(1)(ii) of the Income Tax Act. In the case of B. Raveendran Pillai Vs. CIT (supra), the Hon'ble Kerala High Court has discussed the allowability of depreciation on very huge amount paid for good will and held that it is certainly for acquiring a business or commercial right and also comparable with the trade mark, franchise, copyright etc,. referred to in the first part of sub clause (ii) of section 32(1). In the case of CIT Vs. Hindustan Coco Cola (supra), the Hon'ble Delhi High Court on the issue of depreciation on intangible asset u/s 32(1)(ii) held that the asset which are in the definition of intangible asset includes 18 | P a g e Elder IT Solutions Pvt. Ltd along with other things any other business or commercial right of similar nature. The meaning of business or commercial rights of similar nature has been discussed in para 24 as under:-
"24. It is worth noting that the meaning of business or commercial rights of similar nature has to be understood in the backdrop of section 32(1)(ii) of the Act. Commercial rights are such rights which are obtained for effectively carrying on the business and commerce, as is understood, is a wider term which encompasses in its fold many a facet. Studied in this background, any right which is obtained for carrying on the business with effectiveness is likely to fall or come within the sweep of meaning of intangible asset. The dictionary clause clearly stipulates that business or commercial rights should be of similar nature as know-how, patents, copyrights, trademarks, licences, franchises, etc. and all these assets which are not manufactured or produced overnight but are brought into existence by experience and reputation. They gain significance in the commercial world as they represent a particular benefit or advantage or reputation built over a certain span of time and the customers associate with such assets. Goodwill, when appositely understood, does convey a positive reputation built by a person/company/business concern over a period of time. Regard being had to the wider expansion of the definition after the amendment of section 32 by the Finance (No. 2) Act, 1998 and the auditor's report and the explanation offered before the Assessing Officer, we are of the considered opinion that the Tribunal is justified in holding that if two views were possible and when the Assessing Officer had accepted one view which is a plausible one, it was not appropriate on the part of the Commissioner to exercise his power under section 263 solely on the ground that in the books of account it was mentioned as 'goodwill' and nothing else. As has been held by the Apex Court in Malabar Industrial Co. Ltd.'s case (supra), Max India Ltd.'s case ( supra) and CIT v. Vimgi Investment (P.) Ltd. [2007] 290 ITR 505 (Delhi) once a plausible view is taken, it is not open to the Commissioner to exercise the power under section 263 of the Act."
13. The meaning as understood by the Hon'ble High Court that any business or commercial right which is obtained for carry on business with effectiveness is likely to fall or comes within the sweep meaning of tangible 19 | P a g e Elder IT Solutions Pvt. Ltd asset. Similarly in the case of AREVA T&D India Ltd. (Supra), the Hon'ble Delhi High Court has held that the term business or commercial right of similar nature has been additionally used under the category of intangible asset referred to section 32(1)(ii) clearly demonstrates that the legislature did not intend to provide for depreciation only in respect of specified intangible asset but also to other categories of intangible assets which were neither feasible nor possible to exhaustively enumerate. Therefore, the expression any business or commercial rights cannot be restricted to only the six categories of the assets as mentioned in section 32(1)(ii). The Hon'ble High court has clearly foreseen the non feasible impossibility to enumerate the intangible asset under the category of business or commercial rights. In view of the above said decisions it cannot be said that the claim of the assessee and view of he Assessing Officer is absolutely contrary to law but the issue of allowability of depreciation on intangible asset being business or commercial rights is a debatable issue. Once the Assessing Officer has taken a possible view then the Commissioner is not permitted to invoke the provisions of section 263 merely because he did not agree with the view taken by the Assessing Officer.
14. Now we take up the second issue of share application money and unsecured loan. The Commissioner has given the details of preferential share holder of the assessee at page 9 of the impugned order as under:-
Sr. Name Face value Premium Amount
no. received
1. Mindtree Industrial Finance 3,50,000 34,96,50,000 35,00,00,000
Ltd.
Address: 60-B, 4th Floor, 9,
Bhupen Chamber, Dalal
Street, Fort, Mumbai -
400001.
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Elder IT Solutions Pvt. Ltd
PAN : AACV1614N
2 Pearl Housing Finance 3,50,000 34,96,50,000 35,00,00,000
(India) Ltd.
Address: 60-B, 4th Floor, 9,
Bhupen Chamer, Dalal
Street, Fort, Mumbai -
400001
PAN: AAACP6331J
3 VB Desai Securities and 3,50,000 34,96,50,000 35,00,00,000
Finance Ltd.
Address: 60-B, 4th Floor, 9,
Bhupen Chamer, Dalal
Street, Fort, Mumbai -
400001
PAN: AAACV3592M
4 Vishvakarma Equipment 3,50,000 34,96,50,000 35,00,00,000
Finance (India) Ltd.
Address: 60-B, 4th Floor, 9,
Bhupen Chamer, Dalal
Street, Fort, Mumbai -
400001
PAN: AAACV4286N
Total 14,00,000 1,39,86,00,000 1,40,00,00,000
15. One of the reasons for proposing the revision on this issue by Commissioner is the justification of huge premium paid by these share applicant companies. The Commissioner has stated in the order that the source of applicant company is also the share premium and loan generated by them and the Assessing Officer while finalizing the assessment order has not examined the credentials of these companies and how they have generated fund to give the assessee under consideration. The Commissioner has further recorded at page no. 10 of the impugned order as under:-
"The above companies' financial details have been called for by the AO but no examination of the accounts of these companies have been done when it is required by the AO to examine the transaction pertaining to these companies because these companies do not have any operational income and creating entries in their books of accounts by way of loans and premium on issue of shares. The AO has recorded the statement of some of the persons but the statement recorded by the AO was also stereotype and no worthwhile question has been asked while recording the statement of the concerned parties. Al the statement recorded by the 21 | P a g e Elder IT Solutions Pvt. Ltd AO is stereotype. Even the confirmation filed by the parties who have given money to the assessee has not been examined by the AO with respect to source of money of depositors. In the background of above stated facts, it needs to be discussed the requirement of Sec.263 of the Act. The section 263 of the I.T. Act, 1961 speaks two things:
(i) Order should be prejudicial to the interest of the revenue
(ii) Order should be erroneous one.
16. The Commissioner has not disputed the fact as recorded in the impugned order that the above companies financial details have been called for by the Assessing Officer but no examination of accounts of these companies have been done when it is required by the Assessing Officer to examine the transaction pertaining to these companies in view of the fact that these companies do not have any operational income. It is further recorded that the Assessing Officer has recorded the statement of some of the persons but the statement so recorded by the Assessing Officer are stereo type and no worthwhile questions have been asked. Thus the reason for doubting the genuineness of the transaction of preferential shares issued at premium as well as unsecured loans is that the Assessing Officer has not properly conducted the enquiry. It is pertinent to mention that when the Assessing Officer has called for all the relevant details including financial details as well as parties for examination of genuineness of the transaction then it is not a case of lack of enquiry or non application of mind on the part of the Assessing Officer. The Commissioner was not pleased with the manner in which the enquiry was conducted by the Assessing Officer. The facts recorded by the Commissioner also demonstrate the source of application money and loan given to the assessee is against the share application money received by these companies as well as certain loans generated by them. Therefore, the facts as far as availability of source is concerned, the same is admitted by the Commissioner but the reason for not accepting the transaction is non 22 | P a g e Elder IT Solutions Pvt. Ltd examination of the transaction of money received by the share applicant companies. It is not the case of the Commissioner that these companies were not having funds but since the Assessing Officer has not examined the source of source, therefore, this issue was again restored back to the Assessing Officer for fresh consideration. In the case of CIT Vs. Gabriel India (supra), the Hon'ble High Court has recorded the reasons on which the order of Assessing Officer was held as erroneous by the Commissioner at page 112 and then held as under:-
"The Commissioner, however, did not accept the contention of the assessee. He observed that the order of the ITO did not contain discussion in regard to the allowability of the claim for deduction which indicated non-application of mind. According to the Commissioner, the claim of the assessee required examination as to whether the expenditure in question was a revenue or capital expenditure. In that view of the matter, he cancelled the order of the ITO in this regard and directed him to make a fresh assessment on the lines indicated by him.
******************* ******************* From a reading of sub-section 1 of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the ITO is 'erroneous insofar as it is prejudicial to the interests of the revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous insofar 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. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of
23 | P a g e Elder IT Solutions Pvt. Ltd law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity- [SeeParashuram Pottery Works Co.
Ltd. v. ITO [1977] 106 ITR 1 (SC), at page 10]."
17. As it was held that the Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in the matter or orders which are already concluded. The order cannot be termed as erroneous unless it is not in accordance with law. If the Assessing Officer is acting in accordance with law and made certain assessment, the same cannot be said erroneous by the Commissioner simply because according to him matter should have been written more elaborately. Similar view has been taken by the Hon'ble Delhi High Court in the case of Hari Iron Trading Vs. CIT (supra) and observed at page 442 and 449 s under:-
". In the light of the above factual background, we have not been able to appreciate as to how the Commissioner has recorded a finding that the assessment had been framed without application of mind or that difference in stock has not been properly examined. Unfortunately, his order is totally non-speaking and it does not convey as to what according to him should have been the proper examination by the Assessing Officer. The assessee had filed a detailed reply to his notice under section 263(1) of the Act which has been rejected without giving any reasons whatsoever. The Commissioner does not appear to have either perused the records or applied his mind to the detailed reply filed by the assessee. He has not discussed even a single contention raised therein. We have referred to the assessment recorded and find that the Assessing Officer had issued various notices on these points and had, satisfied himself that the addition of Rs. 10 lacs on account of discrepancy in stock was not called for as there was no discrepancy in stock. The Tribunal has done no better.
A bare perusal of the aforesaid provision shows that the Commissioner can exercise powers under sub-section (1) of section 263 of the Act only after examining "the record of any proceedings under the Act". The expression 'record' has also been 24 | P a g e Elder IT Solutions Pvt. Ltd defined in clause (b) of theExplanation so as to include all records relating to any proceedings available at the time of examination by the Commissioner. Thus, it is not only the assessment order but the entire record which has to be examined before arriving at a conclusion as to whether the Assessing Officer had examined any issue or not. The assessee has no control over the way an assessment order is drafted. The assessee on its part had produced enough material on record to show that the matter had been discussed in detail by the Assessing Officer. The least that the Tribunal could have done was to refer to the assessment record to verify the contentions of the assessee. Instead of doing that, the Tribunal has merely been swayed by the fact that the Assessing Officer has not mentioned anything in the assessment order. During the course of assessment proceedings, the Assessing Officer examines numerous issues. Generally, the issues which are accepted do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/ disallowances are made. As already observed, we have examined the records of the case and find that the Assessing Officer had made full inquiries before accepting the claim of the Assessing Officer qua the amount of Rs. 10 lacs on account of discrepancy in stock. Not only this, he has even gone a step further and appended an office note with the assessment order to explain why the addition for allegation discrepancy in stock was not being made. In the absence of any suggestion by the Commissioner as to how the inquiry was not proper, we are unable to uphold the action taken by him under section 263 of the Act."
18. In the case in hand, there is no dispute that the Assessing Officer called for financial details of these companies and also examine the parties in order to satisfy himself about the genuineness of the transaction. Therefore, on the basis of the record available before him, the Assessing Officer accepted the claim of the assessee. The Commissioner has not found any fault with the details and records filed by the assessee in support of the claim but has cited the reasons that the Assessing Officer has not conducted the proper enquiry. When the entire record was available with the Commissioner then he ought to have given a concluding finding that the view taken by the Assessing Officer is contrary to the law as well as 25 | P a g e Elder IT Solutions Pvt. Ltd facts emerging from the records. However, the Commissioner has not given any such finding and restored the matter to the record of the Assessing Officer which is not permissible as per the provisions of section 263 when the Assessing Officer has conducted the enquiry and allowed the claim of the assessee on the basis of the examination of the record as well a the parties in person. We further note that the assessee has also filed the bank statements of these companies showing the transaction of payment of share premium as well as loans to the assessee. The transactions were also reflected in the return of income filed by these companies, therefore, in any case if the department has any doubt about the genuineness of arranging the funds by these share applicant companies, the enquiry and investigation should have been conducted in those cases as held by the Hon'ble Delhi High Court in the case of Lovely Exports (299 ITR 268) which has been confirmed by the Hon'ble Supreme Court by dismissing the SLP filed by the department.
19. One more reasons for setting aside the assessment order in respect of the share premium is the justification of payment of huge premium in comparison to the prospective earnings of the assessee. It is pertinent to note that as per the provisions of section 68, the addition can be made if the transaction of cash credit is not properly explained by the assessee by establishing the identity of the creditor and the capacity of the creditor and genuineness of the transactions to the satisfaction of the Assessing Officer. Therefore, the justification of payment cannot be a sole ground for addition u/s 68. Though the same may be the reason for enquiry and investigation by the assessing authorities to find out the genuineness of the transactions. There is not dispute about the identity of the parties as it was also not disputed by the Commissioner, the source and capacity of these parties were prima facie established by the assessee by producing their financial 26 | P a g e Elder IT Solutions Pvt. Ltd statements and bank accounts etc. The Commissioner has also found from record the source of payment of share premium as the share application money and loan generated by these companies, therefore, the availability of fund was not disputed by the Commissioner but how that fund was generated by these companies is the only reason for revising the assessment order on this issue. The Commissioner himself has not given a concluding finding about the genuineness of the transactions, therefore, the enquiry of source of source is not warranted when the identity and source as well as transaction through banking channel has already been established by the assessee in view of the decision in the case of Lovely Exports. The Commissioner has also not brought out any fact or material to suggest or cast any doubt about the genuineness of the transaction, accordingly, the setting aside of the assessment order and restoring back to the file of Assessing Officer for fresh consideration is beyond the jurisdiction u/s 263.
18. The judgment in the case of CIT Vs. Infosys Technologies (supra) as relied upon by the Ld. DR will not help the case of the revenue as in the said case the issue was allowability of deduction u/s DTAA with Canada and Thailand which were not examined by the Assessing Officer while passing the order. The Hon'ble High Court has observed that it is the duty of the assessing authorities to do the computation in accordance with the relevant Articles of DTAA and if it had failed in that, more so in extending a tax relief to the assessee, the order definitely constitutes an order not merely erroneous but also prejudicial to the interest of the Revenue. Therefore, it was a glaring case of ignoring the mandatory provisions under the DTAA on the part of the Assessing Officer. In the case of CIT Vs. Hindustan Liver (supra), the Assessing Officer has completely missed out the head office expenses to be apportioned to determine the quantum 27 | P a g e Elder IT Solutions Pvt. Ltd of profit derived from industrial undertaking. Therefore, in the said case the point of apportionment of Head Quarter expenses was totally ignored due to non application of mind on the part of the Assessing Officer. It was a case of missing a crucial fact on the part of the Assessing Officer, therefore, the said decision cannot be applied in the facts of the present case. In the case of Frick India, Vs. DCIT (supra), the Tribunal has noted the fact that the Assessing Officer allowed the deduction without considering the earlier assessment orders, wherein, the said deduction was disallowed. Thus it was clear case of overlooking a mandatory aspect of the assessment and the fact that the deduction was earlier disallowed. The Assessing Officer failed to consider the earlier assessment orders and, therefore, the action of the Assessing Officer was absolutely not permissible under law. The said case is entirely distinguishable on fact and not applicable in the facts of the present case. In the case of Major Metals Ltd. Vs. Union of India (supra), is a judgment of the Hon'ble High Court against the finding of the settlement commission, which was based on the material and evidence on record. Therefore, the said analogy cannot be applied in the case of revision order passed u/s 263. It was purely a finding of fact and hence have no applicability in the facts of the present case.
19. In view of the above, facts and circumstances of the case as well as above discussion , we are of the view that the Commissioner has travelled beyond the jurisdiction as prescribed u/s 263 and accordingly, the impugned revision order is not sustainable and, therefore, the same is set aside.
20. The assessee has also raised the ground no. 1 and 2 regarding validity of the revision order passed in the name of a person who is not in existence but amalgamated with the assessee. Since we have already set aside the 28 | P a g e Elder IT Solutions Pvt. Ltd revision order on the other grounds, therefore, this ground of assessee's appeal becomes academic in nature. Further we note that the Commissioner has passed the impugned order in the name of Elder Infotech Pvt. Ltd., merged with Elder IT Solutions Pvt., Ltd., accordingly, we do not find any error or illegality in writing the name of the assessee along with erstwhile company being merged with the assessee. Hence, this ground of the assessee's appeal is dismissed
21. In the result appeal of the assessee is allowed.
Order pronounced in the open court on 12th Day of November
2014
Sd/- Sd/-
(B.R.Baskaran) (Vijay Pal Rao)
ys[kk lnL;)
(Accountant Member/ys lnL; U;kf;d lnL;)
(Judicial Member/U;kf;d lnL;
Mumbai dated 12-12-2014
SKS Sr. P.S,
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, "E" Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
29 | P a g e