Income Tax Appellate Tribunal - Mumbai
Reliance Communications Ltd, Navi ... vs Assessee on 5 February, 2013
धकरण, मंुबई यायपीठ 'डी', मंुबई ।
आयकर अपील य अ धकरण, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES "D", MUMBAI सव ी आर.एस. याल, लेखा सद य एवं डॉ. ट .एम. पवलन, या यक सद य, के सम ।
Before Shri R.S.Syal, AM and Dr.T.M.Pavalan, JM
ITA No.2915/Mum/2012 : Asst.Year 2007-2008
M/s.Reliance Communications Limited The Asstt.Commissioner of Income-tax
H Block, 1st Floor बनाम/
Circle 10(3)
Dhirubhai Ambani Konwledge City Mumbai.
Navi Mumbai - 400 710 Vs.
PAN : AACCR7832C.
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओर से /Appellant by : Shri Soli Dastur and Sh. Niraj Sheth
यथ क ओर से /Respondent by : Mrs. Rupinder Brar
सनवाई
ु क तार ख / घोषणा क तार ख /
Date of Hearing : 28.01.2013 Date of Pronouncement : 05.02.2013
आदे श / O R D E R
Per R.S.Syal (AM) :
This appeal by the assessee arises out of the order passed by the CIT u/s. 263 of the Income-tax Act, 1961 (hereinafter called `the Act') on 30.3.2012 in relation to the assessment year 2007-08.
2. Briefly stated the facts of the case are that the assessment in this case was completed u/s.143(3) of the Act on 11.6.2009 computing the total income at Rs.Nil after allowing set off of brought forward business loss to the tune of Rs.244.93 crore and unabsorbed 2 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
depreciation amounting to Rs.2615.92 crore. On perusal of the assessment records, it was observed by ld CIT that:
(1) the assessee company claimed to have raised funds to the tune of Rs.6485 crores by way of Foreign Currency Convertible Bonds (FCCBs) during the year under consideration. No investigation was carried out by the AO to establish the name and address, genuineness and creditworthiness of the actual subscribers to such FCCBs in terms of Section 68 of the Act.
(2) Out of the proceeds of the said FCCB funds, an amount of Rs.5142 crore was given to M/s. Reliance Info Investments Ltd., (RIIL), which was invested by this company on which interest income of Rs.157.95 crores was earned. Such granting of interest free funds would be deemed to be transfer of an asset and in view of the provisions of section 60 to 63 of the Act, the the AO failed to club such interest income with the assessee's total income.
(3) The assessee acquired derivative instruments for hedging and recognized losses on the settlement day or the reporting day, whichever is earlier. The said Mark to market losses (MTM) as on the reporting day were notional losses and hence contingent in nature not allowable for set off against the total income. The AO was wrong in allowing such set off.3 ITA No.2915/Mum/2012.
M/s.Reliance Communications Limited.
3. On being show caused as to why the assessment order be not revised in view of the above reasons, the assessee submitted detailed arguments which have been summarized by the ld. CIT in the impugned order. Not convinced with the assessee's submissions, he came to hold that the Assessing Officer (AO) failed to examine the above referred three aspects properly, which rendered the assessment order erroneous and prejudicial to the interests of the revenue. The assessment order was set aside to that extent. The assessee has come up in appeal against the reasoning and conclusions drawn by the ld. CIT for revising the assessment order.
4. We have heard rival submissions and perused the relevant material on record. Before proceeding further, it is relevant to record that the ld. Senior Authorised representative was fair enough to accept and rightly so, that there is no discussion/reference to these aspects in the assessment order. He, however, maintained that the AO conducted proper enquiry in respect thereof and got satisfied with the assessee's explanation. In order to appreciate as to whether or not the action of the ld. CIT in respect of above these items warranted revision of the assessment order passed by the AO u/s.143(3), it is apt to scrutinize the merits and correctness of the conclusions drawn by the ld. CIT thereon.
4 ITA No.2915/Mum/2012.M/s.Reliance Communications Limited.
5. Foreign Currency Convertible Bonds 5.1. The factual matrix as regards this item is that the assessee raised funds through three issues of FCCBs during the previous year relevant to the assessment year under consideration. FCCB means a bond expressed in foreign currency, the principal and interest in respect of which is payable in foreign currency, issued by an Issuing company and subscribed to by a person who is resident outside India, in foreign currency and exchangeable into equity shares of the company after a specified period or to the redeemed. The assessee received proceeds of FCCB issues in Deutsche Bank, Singapore (DB) of US$ 500 million; and JP Morgan New York and Hong Kong and Shanghai Banking Corporation of US$ 1000 million. These FCCBs were subscribed to by the Lead Managers namely, Deutsche Bank Hong Kong (DB HK) for US$ 500 million; JP Morgan Securities Ltd. U.K. and Hong Kong and Shanghai Banking Corporation for US$1000 million.
5.2. The AO enquired about this aspect of the matter and the assessee furnished its reply dated 17.4.2009, a copy of which has been placed at page 25 of the Paper Book (PB). By the said reply, the assessee submitted that it issued FCCBs in three tranches aggregating to US$ 1500 million. The name and address of the subscribers to the three tranches of FCCBs and the corresponding amounts were duly indicated by showing name and address of the subscribers such as DB HK for the FCCB US$ 500 million. The 5 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
details of the bank in which the proceeds of FCCBs were parked in the foreign countries and from where these were transferred to Indian Bank, were also furnished. Along with the said reply, the assessee submitted copies of Offer Memorandum of the FCCBs issued, Global Certificate along with the Registrar's confirmation of entries of the Bondholder in Register, Foreign Inward Remittance Certificate and the details of FCCBs as per the Offer documents and Global Certificates.
5.3. Both the sides are in agreement that the facts and circumstances of the three FCCB issues are similar. For the sake of convenience and on representative basis, the parties chose to take up the FCCB issue of US$ 500 million with DB HK as Lead Manager for making their respective submissions. The assessee entered into a Subscription Agreement with DB HK on 21.3.2006, as per which DB HK agreed to subscribe to the FCCB issue of US$ 500 million. As per Clause-1 of the Agreement, the assessee agreed to issue the Bonds and the Lead Manger agreed to subscribe and pay for or to procure subscribers to subscribe and pay for the Bonds on the closing date at the issue price of hundred per cent of the aggregate principal amount of the Bonds less the commission and concession referred to in Clause-5. As per Clause 1.2, the Issuer assessee undertook to prepare and deliver to the Lead Manager an Offering Circular not later than four business days prior to the closing date. The assessee issued Offering document dt. 05.05.2006 to DB HK, clarifying that 6 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
the Bonds would be represented by single Global Certificate (GC). Upon issuance, the Bonds were represented by a Global Certificate deposited with a Common Depositary. The terms and conditions of the Bonds given as per Schedule-1 to the Agreement provide that the Bonds were to be issued in the registered form in the denomination of US$ 1000 each. As per Clause 3.2, no individual certificates in respect of interest (share) in any Bonds were to be issued in exchange for the Global certificate except in the circumstances provided in Clause 3.3. According to clause 3.3, individual certificates were to be issued only in the prescribed circumstances, such as, the Common depositary or any successor to the common depositary notifying to the company in writing that it is at any time unwilling or unable to continue to act as a depositary and a successor depositary is not appointed by the Company within 90 days or Euroclear, Clearstream Luxembourg (Stock exchange) is closed for business for a continuous period of 14 days, etc. As per the Paying, Conversion and Transfer Agency Agreement dated 9.5.2006, a copy of which has been placed in the PB, the assessee Company agreed to deliver to the Registrar a duly executed GC. Such GC was issued on 09.05.2006, being the closing date of FCCB, and delivered to DB, Luxemburg (Registrar). A copy of the Global Certificate issued by the assessee in the name of BT Globenet Nominees Limited for US$ 500 million is available at pages 42 onwards of PB. It was registered in the name of BT Globenet as the nominee of DB London, which was the Common Depository. The Registrar authenticated the Global Certificate upon 7 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
the written order of the company and arranged for the delivery of the Global Certificate to the depositary. The assessee instructed DB London to hold the GC on its behalf till DB HK instructs it to effect the payment and thereafter to hold it for the subscriber, that is, DB HK. Payment of US$497.500 million (net after deduction of expenses and commission) was made by DB HK, that is, the subscriber, on the instructions of the assessee. Copies of the letter authorizing payment and the cross receipt in respect of US$ 497,500,000 are available at pages 61 and 62 of PB. The assessee received such payment on 09.05.2006 which was reflected in its books of account. The assessee duly informed the Reserve Bank of India (RBI) about such issues of FCCBs from time to time at the relevant stages. It can be noticed from letter dated 28.3.2005 issued by RBI authorizing the assessee to issue FCCBs under Automatic Approval Route.
5.4. The case of ld. CIT is that the AO should have examined the identity, capacity and credit worthiness of the `actual subscribers' to the FCCB issue in terms of section 68. In his opinion, the acceptance by the AO of the assessee's contention that the amount was eventually received from DB HK, the subscriber, was not appropriate. Now the question arises as to whether the ld. CIT was justified in holding that the onus u/s 68 of the Act could have been discharged only on proving three pre-requisites - identity, capacity and creditworthiness - in respect of actual subscribers and not DB HK, who undertook to subscribe to the FCCB and remitted the 8 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
proceeds after partly finding some further subscribers and partly itself subscribing to the FCCB.
5.5. Section 68 of the Act clearly provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. A bare perusal of this provision divulges that there is an obligation on the assessee to prove the identity, capacity and credit worthiness of the person from whom the money is actually received. At the cost of repetition, we summarize the entire proceedings in respect of FCCB of US$ 500 million which was undertaken to be subscribed to by DB HK. A GC for the whole issue was issued in favour of the nominee of DB HK, who could have either subscribed to all the Bonds itself or solicited customers. It was the sole discretion/obligation of the DB HK to find such customers, if it wanted. Admittedly, DB HK subscribed to/collected the sum in respect of US$ 500 million and after deduction of their commission, remitted the balance USD 497,500,000 to the assesse.
5.6. It is palpable from the above narration of facts that the assessee was concerned with and did actually receive US$ 497.500 million from and on behalf of DB HK, which was duly recorded in its 9 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
name. It is not understandable, in the facts and circumstances of the extant case, that how the assessee could have entered the names and addresses of the actual subscribers in its books of account, when the subscriber, as far as the assessee is concerned, was DB HK. The Global Certificate was issued by the assessee in the name of DB HK. It was for DB HK to subscribe to the entire FCCB or find customers for a part or total of such issue. The decision on inviting other customers from outside India to subscribe to the FCCB and to what extent was the sole responsibility of DB HK, without any instructions or involvement of the assessee in India. In so far as the assessee is concerned, it was only supposed to get the amount against FCCB from DB HK, which it, in fact, received. The fact that Global Certificate was issued in the name of nominee of DB HK amply proves that it was the obligation of DB HK to pay towards FCCB issue of US$ 500 million. The ld. CIT has not referred to any material which indicates that the assessee had details of the `actual subscribers' at the time of issuance of FCCB or it was obliged to keep such details. No material has been brought to our notice even by the ld. DR to show that at that stage the assessee had any direct contact with the actual subscribers to the FCCB, different from DB HK. It can be observed from the details of the shares issued, on conversion of FCCB at a much later stage, that DB HK itself opted to subscribe for a certain part of the FCCB and issued a portion thereof to other customers who also happen to be international financial institutions only. At the stage of issuance of Bonds, there was privity of contract 10 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
between the assessee and DB HK on one hand and between DB HK and actual subscribers on the other. It was the duty of DB HK to eventually get the shares allotted or refund granted to itself and other international financial institutions at the relevant point of time. It was only at the stage of issuance of shares or the granting of refund, that the assessee was to do the needful upon intimation by DB HK about the persons who had purchased separate interest (shares) in the GC. It is a matter of record that the assessee issued shares on conversion to certain parties, such as, JP Morgan Securities Ltd., The Hong Kong and Shanghai Banking Corporation Limited and DB HK itself in next year on various dates from 18.10.2007 to 31.1.2008. Only on the issuance of shares, these international financial institutions could be said to have come into direct contact with the assessee company. At the stage of issuance of Bonds in the previous year relevant to the assessment year under consideration, such customers of DB HK were not entitled to directly approach the assessee company in respect of any matter concerning the issuance of Bonds. When such is the situation, we fail to appreciate as to how the assessee could record the names of actual subscribers other than DB HK in its books of account and further prove their identity, capacity and credit worthiness. On a specific query from the bench, the learned Departmental Representative could not bring to our notice any statutory requirement or guideline issued by the RBI or any other Government authority fastening obligation on the assessee to maintain a record of the actual subscribers at that stage and recording 11 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
their names instead of DB HK, who actually signed subscription agreement with the assessee. During the curency of the GC, only DB HK remained the subscriber to the FCCB issue of the assessee. The assessee was only required to prove the identity, capacity and creditworthiness of DB HK who subscribed to its full issue of FCCB (some part directly and some part through its own customers), which is not in doubt. The fact that the assessee received the amount of subscription of Bonds from DB HK has not been denied by ld CIT. The further fact that Global certificate in respect of Bonds was issued in favour of DB HK and upon conversion of such Bonds, some of the shares were issued in favour of DB HK and remaining in favour of other international financial institutions has also not been disputed by the ld. CIT. In our considered opinion, the assessee adequately discharged the onus cast upon it in terms of section 68. The probe suggested by the ld. CIT could have been possible in the assessment of DB HK, who eventually partly subscribed to the Bonds itself and partly issued these to the international financial institutions. In view of these facts, we are of the considered opinion that ld. CIT was not justified in putting obligation on the assessee to prove the identity, capacity and creditworthiness of the actual subscribers, which fact was beyond its reach at the relevant time. We, therefore, do not approve the stand taken by ld. CIT on this issue.
6.1. The learned Departmental Representative lent support to the impugned order from one more angle. While referring to a Circular 12 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
issued by Reserve Bank of India dated 02.07.2012 with subject matter "Master circular on educational, commercial borrowings and trade credits", she submitted that the Assessing Officer miserably failed to examine the factum of the compliance or otherwise of the RBI Guidelines in connection with its FCCB issue. This, in her opinion, also constituted a solid defect making the assessment order erroneous and also prejudicial to the interests of the revenue.
6.2. A perusal of the impugned order indicates the conclusion drawn by the learned CIT on this aspect is contained in para 4.3.5. He opined that the assessee did not discharge its onus of fulfilling the requisite conditions of section 68 of the Act in respect to the actual subscribers to the FCCB issue, as it only furnished the identity of the Lead Managers who are distinct from the subscribers to the issue. He noticed that : "The names and addresses and creditworthiness etc. of the actual subscribers to the FCCB issues have not been furnished / established by the assessee either during the course of assessment proceedings or even now, during the course of proceedings u/s 263". Thereafter, he recorded that various judicial decisions relied upon by the assessee were of no help as the assessee did not furnish details about the names and addresses, PANs etc. and creditworthiness of the persons from whom the FCCB funds were introduced in the books of account of the assessee, which is a primary condition for the applicability of the said decisions to the assessee's case. He further noticed that : "In the absence of above, compliance to the procedure 13 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
and rules of various regularity authorities in respect of FCCB cited by the assessee cannot be substituted for establishing the identity and creditworthiness etc. of subscribers to the FCCB.". A cursory look at the above findings recorded by the ld.CIT on this issue reveals that he was not satisfied with the assessment order because in his opinion, the necessary ingredients for the applicability of section 68, being identity, capacity and credit worthiness of the `actual subscribers' were required to be examined, which the AO failed to do. There is no reference whatsoever to the non-examination by the AO of the compliance or otherwise of the RBI guidelines in respect of FCCB issues. Now the question arises as to whether the ld. DR can be held to be within her power to press for approving the impugned order from an angle different from that taken note of by the ld. CIT.
6.3. The Hon'ble Punjab and Haryana High Court in the case of CIT v. Jagadhri Electric Supply and Industrial Co. [(1983) 140 ITR 490 (P&H)] has held that the jurisdiction vesting in the CIT u/s 263(1) is of a special and exclusive nature. At the time of hearing of the appeal against CIT's order u/s 263(1), if the assessee can satisfy the tribunal that the grounds for decision given in the order by the CIT are wrong on facts or are not tenable in law, the Tribunal has no option, but to accept the appeal and to set aside the order of the CIT. The Tribunal cannot uphold the order of the CIT on any other ground which, in its opinion, was available to the CIT as well but was not relied upon by CIT in his order. It further held that if the tribunal is 14 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
allowed to find out the grounds available to the CIT to pass an order u/s 263(1), then it will amount to sharing of the exclusive jurisdiction vesting in the CIT, which is not warranted under the Act. The nutshell of this judgment is that the tribunal in an appeal against revision order cannot substitute the grounds which the Commissioner did not find proper to form the basis of his order. This judgment has been followed by the Hon'ble Kerala High Court in the case of CIT v. Chandrika Educational Trust [(1994) 207 ITR 108 (Ker.)]. In view of the foregoing precedents it is abundantly clear that the Tribunal can vet only the reasons recorded by the CIT for determining as to whether the order u/s 263 is sustainable or not.
6.4. It is out of place for the ld. DR to rely on the RBI guidelines in the present proceedings for bringing home the point that the A.O. did not examine the aspect of compliance of such guidelines. It has been noticed above that the ld. CIT did not touch this aspect in the impugned order. In that view of the matter, if the ld. DR is allowed to supplement the reasons for revision, it would amount to usurping the jurisdiction of the ld. CIT u/s 263, which obviously is impermissible. The conclusion drawn by the ld. CIT as to whether the assessment order was erroneous and prejudicial to the interests of the revenue can be examined and decided only on the touchstone of the reasons given by him alone. No arguing or adjudicating authority can put forth or consider any reason other than that adopted by the CIT for testing the sustainability or otherwise of the order u/s 263.
15 ITA No.2915/Mum/2012.M/s.Reliance Communications Limited.
6.5. Coming back to the facts of the instant case we find that the ld. CIT has held the assessment order to be erroneous and prejudicial to the interests of the Revenue on this issue only because the identity, capacity and creditworthiness etc. of `actual subscribers', other than DB HK were not furnished / established by the assessee. In earlier paras we have expressed our disagreement with the view taken by the ld. CIT on this issue. As such, it is not open to the learned Departmental Representative to support the impugned order with new reasons. We, therefore, refuse to examine this aspect of the matter. It is, therefore, held that the ld. CIT was not justified in holding the assessment order to be erroneous and prejudicial to the interests of the Revenue on this issue.
7. Applicability of sections 60 to 63 7.1. The second point considered by ld. CIT making the assessment order erroneous and prejudicial to the interests of revenue is about the attractability of the provisions of sections 60 to 63 of the Act on interest income earned by RIIL on the bank deposits, which amount was advanced by the assessee company free of interest. The ld. CIT noticed that : "the assessee company transferred its assets by virtue of a revocable transfer which in effect means transfer of income without the transfer of the assets". He further observed that : "If an interest free loan is given by a person to another person, it is a case of transfer of an asset and the transfer is to be treated as a revocable transfer 16 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
because the transferor would receive the fund back thus invoking provisions of section 60 to 63". As this aspect was not properly considered in this assessment order, the ld. CIT opined that it led to making the assessment order erroneous and prejudicial to the interests of the revenue.
7.2. We have heard the rival submissions and perused the relevant material on record. In this regard, it is observed that the AO enquired about this aspect of the matter during the course of the assessment proceedings. The assessee, vide its letter dated 20.5.2009 addressed to the AO, explained that out of the proceeds of the FCCB, a sum of Rs.1,343 crore was utilized for capital expenditure and the balance amount of Rs.5,142 crore was temporarily held in various nationalized banks by RIIL, a wholly owned subsidiary of the assessee company. The assessee further intimated that RIIL earned interest income of Rs.157.95 crore on the said fixed deposit and accounted for the same in its Profit and loss account. Copy of accounts of RIIL for the year ending 31.3.2007 was also furnished to the AO with further details of fixed deposits given through Annexures 4 & 5 of assessee's letter.
7.3. Now we turn to the applicability of the provisions of sections 60 to 63 to the present factual position. Firstly, it is relevant to note that the ld. CIT has referred to sections 60 to 63 in a composite manner without particularly pointing out as to under which specific 17 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
provision the case falls. As such, we will also examine the case accordingly. Section 60 contemplates clubbing of income in the hands of the transferor when the asset is retained with self but the income is transferred. This section categorically provides that all income arising to any person by virtue of a transfer whether revocable or not, shall be chargeable to income tax as the income of the transferor where there is no transfer of the asset from which the income arises. It is quite manifest also that when the asset is retained by the transferor himself but only income is transferred, such income is liable to be included in the total income of the transferor. Section 61 deals with the clubbing of income from a revocable transfer of asset. This section provides that all income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income tax as the income of the transferor and shall be included in his total income. "Revocable transfer" has been defined in section 63. Clause
(a) of section 63 provides that a transfer shall be deemed to be revocable if (i) it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way, gives the transferor a right to re- assume power directly or indirectly over the whole or any part of the income or assets. When we read section 61 in conjunction with section 63, it becomes manifest that in case of a revocable transfer of asset as defined in section 63(a), the income is chargeable in the hands of the transferor and not the transferee.
18 ITA No.2915/Mum/2012.M/s.Reliance Communications Limited.
7.4. Now the question arises as to the applicability or otherwise of sections 60 to 63 of the Act to the interest income in a case where interest free loan is given by one to another and the later earns interest income thereon. The ld. counsel vehemently argued that the clubbing provisions cannot be attracted in case of interest earned by the borrower on the interest bearing or interest free loan advanced by the lender. Per contra, the ld. DR forcefully relied on the relevant provisions to contend that there is no bar on such clubbing. She referred to the provisions of section 63(a)(i) to contend that what is contemplated is the re-transfer of an asset. Her argument was that in every loan, the pre-requisite of re-transfer is always present. If the provision of re-transfer is obliterated in a money transaction, then it becomes a case of gift. In every case of loan, she submitted, that the provisions of section 63(a)(i) will be attracted to make it a case of revocable transfer and consequently the interest income earned by the borrower shall become eligible for clubbing in the hands of the lender. On a pointed query, the ld. DR failed to draw our attention towards any precedent in support of her contention.
7.5. Though, ex facie, we find some force in the submissions advanced on behalf of the Revenue in this regard, we equally find that the Ahmedabad Bench of the Tribunal in the case of ITO v. Nalinbhai M.Shah [(2000) 93 TTJ (Ahd) 107] has held that income earned by family members of the assessee by employing interest free 19 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
loan advanced to them by the assessee out of his funds cannot be made subject matter of addition u/s 60. In the light of the above, it is clear that the question as to whether income earned by the borrower from the interest free loan advanced by the lender be clubbed in the hands of the lender, is definitely debatable and not conclusive. Suffice to say, we are dealing with proceedings u/s 263. The scope of such proceedings is restricted to revising an order which is erroneous and prejudicial to the interests of the Revenue. An order cannot be said to be erroneous when the AO followed one of the legally sustainable view out of the two views available on the point. The CIT can not call an assessment order to be erroneous simply because he is inclined to follow the other legally sustainable view in preference to the one followed by the AO. The Hon'ble Summit Court in Malabar Industrial Co. Ltd. v. CIT [(2000) 243 ITR 83 (SC)] has held that :
`Where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law.' The same view has been reiterated by several Hon'ble High Courts including the Hon'ble Delhi High Court in CIT Vs. Ansal Properties & Ind. (P) Ltd. (2009) 315 ITR 225 (Del). In this case it has been noticed that : `That at the time when the Commissioner issued the notice under section 263 and passed the order dated March 23, 2004, the question of surcharge on undisclosed income was a debatable one. When an issue was 20 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
debatable, the provisions of section 263 could not be invoked.' From the above discussion it is axiomatic that no revision can be done on a debatable issue. An issue becomes debatable if two legally sustainable views exist on a particular point. When the A.O. accepts and adopts one possible view, the power of the CIT is ousted to revise the assessment order on his finding the other legally sustainable view as more logical in preference to the one adopted by the AO. Coming back to the issue in hand, we find that the controversy here lies in narrow compass inasmuch as the existence of one possible view in favour of the assessee also exists. Without going deep into the interpretation of the relevant provisions, we leave this point here by holding that this aspect cannot be taken out from the realm of "debatable issue" and hence there can be no revision of the assessment order on this point.
8. Mark to market loss/gain 8.1. The next point considered by ld. CIT for assuming jurisdiction u/s.263 is about Mark to market (MTM) losses claimed by the assessee. The ld. CIT noticed that there was a component of MTM loss on foreign exchange derivatives which was included by the assessee under the head Foreign currency exchange fluctuation loss/gain (net) in Schedule O, that is, Financial charges. The said MTM loss as on the reporting date was held by the ld. CIT to be only notional and contingent in nature not eligible for set off against taxable income. In reaching this conclusion, the ld. CIT took 21 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
assistance from CBDT Instruction No.3 /2010, which provides that no benefit of adjustment of income or gain should be given against such losses. He noticed that it was not clear, in the absence of details of gains amounting to Rs.21.89 crores, that how much component was of loss set off against the income. As this issue was not examined by the AO, the ld. CIT held the assessment order to be erroneous and also prejudicial to the interests of the revenue.
8.2. We have heard the rival submissions and perused the relevant material on record. Mark-to-market or fair value accounting refers to accounting for the "fair value" of an asset or liability based on the current market value on the last business day of the year, and any gain or loss is taken into account for that year. We find that the AO examined Financial charges debited to profit and loss account to the tune of Rs.264,91,96,232, the details of which are available at page 82 of PB. It has several sub-components. Presently we are concerned with sub-component H with title: 'Foreign Currency Exchange Fluctuation loss/(gain)/(Net)'. Under this sub-head, there are six transactions - four representing gain on account of foreign currency exchange fluctuation, inter alia, a sum of Rs.21.89 crores towards `Urealised Forex Gain - Derivatives' and two items of losses. There is an overall excess of gain of foreign currency exchange fluctuation over the loss under this sub-component to the extent of Rs.69.42 crores, which has been reduced from the total Financial charges debited to the Profit and loss account. There is no dispute on any 22 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
other item even under sub-component H, except Unrealized forex gain of derivatives amounting to Rs.21.89 crores. The ld. CIT relied on CBDT Instruction No.3/2010 to bolster his point of view that the loss on account of derivatives cannot be claimed as deduction. We have perused this Instruction. The crux of the Instruction is that the loss on account of forex derivatives cannot be allowed against taxable income.
8.3. In CIT v. Woodward Governor India (P.) Ltd. [(2009) 312 ITR 254 (SC)], the assessee debited to its profit and loss account certain unrealized loss due to foreign exchange fluctuation in foreign currency transactions towards revenue items as on the last day of the accounting year. The A.O. held that the liability as on the last date of the previous year was not an ascertained but a contingent liability. Resultantly, the same was added back to the total income. The CIT(A) echoed the assessment order. However, the Tribunal held that the claim of the assessee for deduction of unrealized loss due to foreign exchange fluctuation as on the last date of the previous year was deductible. The said order of the Tribunal was upheld by the Hon'ble High Court. On further appeal, the Hon'ble Supreme Court held that the loss suffered by the assessee on revenue account towards foreign exchange difference as on the date of balance sheet is an item of expenditure deductible u/s 37(1). It further observed than an enterprise has to report outstanding liability relating to import of raw material using closing rate of foreign exchange and any 23 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
difference, loss or gain, arising on conversion of said liability at closing rate should be recognized in profit and loss account for reporting period. In para 21 of the report, the Hon'ble Supreme Court summed up its conclusion by observing that in order to find out if an expenditure is deductible certain factors, inter alia, the following should be taken into consideration: "whether the assessee has been consistent and definite in making entries in the account book in respect of losses and gains; whether the method adopted by the assessee for making entries in the books of account in respect of losses and gains is as per nationally accepted Accounting Standards." From the judgment of the Hon'ble Summit Court it can be clearly deduced that unrealized loss due to foreign exchange fluctuation in foreign currency transactions on revenue items as on the last date of the accounting year is deductible. A further important factor which needs consideration is that the same treatment needs to be given to losses as well as gains accruing to the assessee on account of fluctuations in foreign currency rate as at the end of the year.
8.4. Reverting to the facts of the instant case, it is seen that the assessee showed net `Unrealised Forex Gain on Derivatives' amounting to Rs.21.89 crore. In other words, it is a case of overall gain on derivatives due to change in the market rate as at the end of the year and not that of the loss. Thus it becomes manifest that on this count, the assessee offered for taxation the said sum and did not claim deduction for loss. This fact finds prominence in the impugned 24 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
order as well. Despite that, the ld. CIT has held that the component of forex loss on derivatives was not eligible for deduction. There is no doubt that the CBDT Instruction provides that no deduction can be allowed on account of forex losses. Such Instruction has been obviously issued after the judgment in the case of Woodward Governor (SC) and restricts itself to the disallowability of loss on account of currency derivatives. Going by this Instruction, it becomes patent that such forex loss is no more deductible. We fail to understand the logic of the view that the forex loss be ignored but the forex gain on derivatives be taxed. Any profit and loss from an item cannot go in the opposite directions. This position can be observed from the judgment of the Hon'ble Supreme Court in Woodward Governor (supra). The Instruction of CBDT simply states the loss on account of forex derivatives cannot be allowed since it is a contingent loss. It cannot be accepted that the deduction claimed by the assessee towards loss due to foreign exchange fluctuation in foreign currency transactions in derivatives should be considered as contingent and hence ignored but the gain due to such foreign exchange fluctuations in foreign currency transactions on derivatives should be assessed to tax. Both the loss / gain assume the same character of either contingent or non-contingent. If the forex loss on account of derivatives is considered as contingent and hence ineligible for deduction, the forex gain will also have to be considered as contingent and hence immune from taxation. If there is a prohibition in not allowing the loss on account of forex derivatives, 25 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
equally there can be no question of charging to tax the gain on account of forex derivatives. It is axiomatic that both loss or gain can move in tandem and not in diametrically opposite directions.
8.5. Be that as it may, it is observed from the impugned order as well as the details of the financial charges that the amount of Rs.21.89 crores represents gain on account of forex derivatives. This fact has also been admitted by ld CIT in para 6.3 of the impugned order. When there is a net gain of Rs.21.89 crores, which the assessee included in its total income, we fail to appreciate the reason for charging the gross gain of forex derivatives to tax but ignoring the loss on account of such forex derivatives. As the ultimate net figure on account of forex derivatives in the given facts and circumstances of the case is that of gain which was offered for taxation, it is manifest that the assessment order in accepting said figure of gain as chargeable to tax, cannot be described as prejudicial to the interests of the revenue. We are, therefore, unable to countenance the view canvassed in the impugned order on this issue.
9. Now we shall espouse the cases relied by the ld. DR to accentuate on the validity of the revision proceedings. First in this line is the order passed by the Mumbai Bench of the Tribunal in the case of Arvee International v. Addl.CIT [(2006) 101 ITD 495 (Mum.)]. In this case a loss return filed by the assessee was accepted in the assessment completed u/s 143(3). The CIT found that since the 26 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
value of import licences had already been considered while giving deduction u/s 80HHC for an earlier year, the claim of the assessee for further deduction by way of loss on sale of the said licences during the year under consideration was untenable. He further opined that there was failure on the part of the Assessing Officer in not examining the said claim of the assessee on merits and in accordance with law at the assessment stage. Resultantly, the assessment order was held to be passed mechanically and without application of mind which was set aside. The Tribunal upheld the order passed by the CIT. It can be observed from para 14 of the tribunal order that the assessment order was passed without any enquiry or verification of the issue in question. The assessee's statement given in the return was accepted as such. The Tribunal in such circumstances held that the Assessing Officer should have made further enquiries before accepting the claim made by the assessee in its return. On going through the facts of this case it can be easily noticed that the Assessing Officer accepted the assessee's statement given in the return without any verification. No enquiry worth the name was made. However, when we turn to the facts of the instant case, we find that the Assessing Officer did embark upon proper enquiry and sought necessary details from the assessee in respect of all the issues taken note of by the learned CIT in the impugned order. As such, this decision does not advance the case of the Revenue.
27 ITA No.2915/Mum/2012.M/s.Reliance Communications Limited.
10. The next case relied by the learned Departmental Representative is CIT v. Nalwa Investments Ltd. [(2011) 338 ITR 522 (Del.)]. In this case the assessee was a non-banking finance company engaged in the business of investment in shares, securities, other debt instruments and financing loans and providing guarantees. The income of the assessee comprised of interest on loans and securities, professional income as well as dividend income. Entire income was shown under the head "Profits and gains of business and profession". The A.O. categorized dividend income under the head `Income from other sources'. However, he allowed set off of brought forward business losses of earlier years against said dividend income as well. The CIT, while exercising power u/s 263, set aside the order of the Assessing Officer on the ground that the A.O. failed to examine the nature of investments on which dividend was earned and to conduct proper inquiry as regards the application of provisions of section 72. The Tribunal quashed the order u/s 263 by holding that the A.O. adopted plausible view. Setting aside the order passed by the Tribunal, the Hon'ble Delhi High Court held that the A.O. failed to apply his mind to issue as to whether dividend income could be given character of business income for purposes of set off and there was no question of a plausible view existing on this issue. From the above narration of facts of the case before the Hon'ble Delhi High Court, it is obvious that the Assessing Officer wrongly allowed set off of the dividend income falling under the head `Income from other sources' against the brought forward business loss, which is not possible as 28 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
per the provisions under the Act. When we revert to the facts of the instant case, it is noticed that the Assessing Officer did not commit any mistake. All the three issues taken note of by the learned CIT in the impugned order are such on which either the A.O. took the correct view or chose to follow one of the possible views. It is, therefore, clear that the said judgment is also of no assistance to buttress the case of the Revenue.
11. Next is the judgment in CIT v. Bhagawandas [(2005) 142 Taxmann 1 (All.)]. In this case, the assessee filed return claiming exemption of income from agriculture and poultry farm. The same was allowed by the A.O. as such. The CIT initiated proceedings u/s 263 on the ground that in making the assessment, the A.O. did not make any enquiry or investigation as regards the nature, source or extent of income derived from agriculture and poultry farm. The Tribunal allowed the assessee's appeal. When the matter came up before the Hon'ble Allahabad High Court, it was observed that the A.O. granted exemption to the income from agriculture and poultry farm without making an enquiry or investigation as regards the nature, source or extent of income and further there was no discussion in the assessment order in this regard. That is how the revision order came to be upheld. It can be seen from the facts of the case before the Hon'ble Allahabad High Court that the Assessing Officer in that case allowed exemption without making any enquiry or investigation and naturally, there could have been no point of 29 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
making any discussion in the assessment order on this issue. When we come back to the facts of the instant case, it can be seen that the Assessing Officer did make proper enquiry and investigation into all relevant issues. The non-finding of discussion on these three issues in the assessment order is due to the acceptance, after due verification and investigation, by the A.O. of the assessee's claim in this regard. As such this judgment also cannot be held to be supporting the view of the Revenue.
12. Other decisions relied by the learned Departmental Representative are reiteration of the ratio laid down in the above cases as discussed above. Accordingly, we do not propose to unnecessarily burden our order with the repetitive nature of cases.
13. A survey of the above cases indicates that that revision has been held to be valid where either the assessment order was passed without any enquiry or verification of the issues taken up by the CIT or where it was found that the Assessing Officer wrongly applied the provisions of the Act to the fact situation prevailing before him.
14.1. Having seen the cases relied by the learned Departmental Representative, let us examine the relevant judgments having a bearing on the facts of the case rendered by the Hon'ble jurisdictional High Court. In CIT v. Gabrial India Ltd. [(1993) 203 ITR 108 (Bom.)] the assessee claimed deduction of a particular sum described 30 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
as "plant re-lay-out expenses". On a query by the A.O., it was stated by the assessee that this expenditure was incurred in connection with the merger of two existing plants. The case of the assessee was that as the lay out of two plants was not conducive, the management decided to merge these two plants and re-lay-out the same according to the flow of operations conducive to more production. Accordingly the assessee claimed that it was deductible business expenditure. The A.O. accepted the explanation and allowed the deduction. The CIT issued notice u/s 263 of the Act on the ground that the order of the Assessing Officer was erroneous and prejudicial to the interests of revenue on the question of allowance of deduction of the expenditure. The expenditure was capital in nature in the opinion of the CIT. The assessee appeared before the CIT and explained its position, who turned down the assessee's contention by observing that the order of the A.O. did not contain any discussion on the allowability of this claim. The assessee's view point was accepted by the Tribunal. When the matter came up before the Hon'ble High Court, it observed that the power u/s 263 can be exercised by the Commissioner if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the A.O. is erroneous insofar as it is prejudicial to the interests of the Revenue. Upholding the order passed by the Tribunal, the Hon'ble jurisdictional High Court observed that unless both the conditions of
(i) the order being erroneous and (ii) it being prejudicial to the interests, are satisfied, the CIT cannot exercise power of revision. It 31 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
observed that "an order cannot be termed as erroneous unless it is not in accordance with law". If the A.O., acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because according to him the order should have been written more elaborately. The Hon'ble High Court further visualized and set out certain situations warranting and not warranting action u/s 263. It was held that any and every erroneous order cannot be subject matter of revision because the second requirement also must be fulfilled. The Hon'ble High Court also observed that : "There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute, on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed". The Hon'ble Court further held that decision of the AO could not be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. It noticed that :
`Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re- examine the matter. That was not permissible.' 14.2. Recently, the Hon'ble Bombay High Court in CIT v.
Hindustan Lever Limited [(2012) 343 ITR 161 (Bom.)] revisited the 32 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
law on section 263. In this case the assessee filed return of income claiming deductions u/ss 80-I, 80-IA and 80HH for certain amounts. The A.O. restricted the amount of deductions claimed under these sections to a certain level. The CIT, on verification of the records, observed that some expenses having bearing on the profits of the units eligible for the above deductions, were not considered for allocation. As such the assessment order was revised. The Tribunal set aside the order u/s 263. Reversing the order of the Tribunal, the Hon'ble Bombay High Court, inter alia, noticed that though the A.O. had in letter dated 30.01.2001 sought an explanation as to why capital expenditure on research and development and on scientific capital expenditure should not be allocated, the assessee's reply contained virtually no material or details to establish that there was no direct nexus between the expenditure incurred under the head in question and the business of the undertakings with reference to which the deductions were claimed. It was noticed that during the course of proceedings u/s 263 the assessee came out with another explanation that research was not undertaken at the units, but that the products which were being manufactured by the units were those in respect of which the company already possessed the requisite know-how. In reaching the conclusion that the assessment order was both erroneous and prejudicial to the interests of the Revenue because there was no due application of mind by the AO, the Hon'ble High Court also considered earlier decision rendered in the case of Gabrial India Ltd.(supra). About the judgment in Gabrial India Ltd. (supra), it was 33 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
noticed in the later decision of Hindustan Lever Ltd. (supra) that the former confined the categories within which the jurisdiction u/s 263 could be exercised to a situation in which the order of the Assessing Officer could be regarded as not being in accordance with law or which has been passed without making an enquiry in undue haste. The Hon'ble High Court observed that by the exposition of the law by the Hon'ble Supreme Court in the case of Malabar Industrial Co. (supra), the judgment of the division bench in Gabriel India (supra) , `to the extent to which it confined the jurisdiction under section 263 only to these categories stands modified'. The judgment of the Hon'ble Supreme Court was found to be not warranting a restriction on the jurisdiction u/s 263 "only to a situation where the judgment of the Assessing Officer is contrary to law or where the Assessing Officer has not made any enquiry in undue haste". The Hon'ble High Court considered the mandate of the Apex Court judgment in Malabar Industrial Co. (supra) by which it has been laid down that an incorrect assumption of facts or an incorrect application of law and also the orders passed without applying the principles of natural justice or without application of mind, will satisfy the requirement of the order being erroneous. It also observed that if due to an erroneous order of the A.O., the Revenue is losing tax lawfully payable by a person, it would certainly be prejudicial to the interests of the Revenue.
34 ITA No.2915/Mum/2012.M/s.Reliance Communications Limited.
14.3. When we consider the above judgments of the Hon'ble jurisdictional High Court in Gabrial India Ltd. (supra) and Hindustan Lever Limited (supra) in juxtaposition to each other, it emerges that the former judgment has been modified in Hindustan Lever Limited (supra) only to the extent by which it confined the jurisdiction u/s 263 only to certain categories, thereby aligning it with the judgment of the Hon'ble Supreme court in the case of Malabar Industrial Co. (supra), which expanded the scope of an erroneous order to situations when there is an incorrect assumption of facts or an incorrect application of law or where the order was passed without application of mind. On all other aspects, the judgment in Gabriel India Ltd.(supra) stands undiluted and still holds precedent value. Going by another aspect dealt with in the case of Gabriel India Ltd. (supra) as a necessary condition for invoking the power u/s 263, we find that the CIT must in the first instance show as to how the assessment order was erroneous on a particular issue. It follows that where the AO conducted enquiry on a particular matter, which is evident either from the assessment order or the assessment record, revision is not possible unless the CIT shows the assessment order to be erroneous.
15. On a bird's eye view of the the ratio decidendi of the above judgments, both for and against the exercise of power u/s 263, the following legal propositions are discernible :-
35 ITA No.2915/Mum/2012.M/s.Reliance Communications Limited.
15.1. While finalizing assessment, it is the duty of the AO to examine each and every aspect of the return except tiny or inconsequential items. However, it is not necessary to incorporate all the aspects examined by him in the assessment order. An assessment order ordinarily contains discussion on the aspects with which the AO does not agree with the assessee and proposes to make additions.
It is so because his action is again subject to scrutiny by appellate authorities. At the same time, there is no bar on the AO to also include all or any of the relevant aspects of assessment in his order, where he even agrees with the assessee's claim. But incorporating such relevant aspects in the assessment order is discretionary and not mandatory. If a view is taken that an assessment order must contain each and every aspect examined by him during the course of assessment proceedings with the reasons as to why he agrees or disagrees with the assessee, then the assessment order would become needlessly large. So long as there is material on record to indicate that the AO did enquire into all the relevant aspects of the assessment, it cannot be considered as a case of lack of enquiry empowering the CIT to exercise jurisdiction u/s 263. If we simply go by non-mentioning of a particular issue in the assessment order as a mark of non-application of mind by the A.O., then probably every assessment order would fall within the domain of an "erroneous order". The crux of the matter is that where the Assessing Officer applied his mind, which is evident from the enquiry conducted by him during the course of assessment proceedings, the assessment 36 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
order cannot be branded as erroneous due to non-application of mind merely because there is no mention of certain issues in the assessment order on which the Assessing Officer, after due enquiry, got satisfied. Where, however, the AO fails to enquire into all or any of the aspects of the assessment, which fact is amply proved from the assessment order as well as the assessment records, it would obviously bring the case within the fold of sec. 263. The mere fact of no enquiry on all or any of the relevant aspects of assessment is sufficient to enable the CIT for invoking jurisdiction u/s 263. The cases of Arvee International (Mum.)(supra) and Bhagawandas (All.) (supra) descend into this category because in both these cases the AO failed to conduct proper enquiry into the aspects taken note of by the CIT. In the like manner, the cases of overlooking the fact that the assessee tendered incomplete information to the AO's requisition and the assessment being finalized accordingly, also fall in this category. Noticing this mere fact from the assessment order/record is in itself sufficient for the CIT to validly assume authority u/s 263.
15.2.i. Then comes the category of cases, in which the AO made enquiry on all the relevant aspects of the assessment and the assessee also furnished the required details, but the AO failed to reach a logical conclusion. Such cases enable the CIT to validly assume power u/s 263 of the Act. This would embrace two broader categories viz., first, where the AO did not appreciate the facts in right perspective; and second, where he failed to correctly apply the 37 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
relevant legal provisions to the factual position obtaining before him. First category, being the failure to appreciate the facts correctly could contemplate various situations, such as,
(a) Where full information, as demanded, was furnished by the assessee but the AO failed to take note of certain glaring inconsistencies apparent to naked eye in such information. For example, where the AO demanded balance confirmation of a party, which was made available by the assessee, but the AO failed to notice that the balance as confirmed by such party did not tally with the balance shown by the assessee in its books of account and further the assessee failed to submit any reconciliation. Accepting the correctness of such account can rightly empower the CIT to assume jurisdiction u/s 263.
(b) Where the assessee furnished complete information as demanded by the AO but a careful and deep consideration of such information, in contradistinction to the glaring or apparent contradiction in the earlier situation mentioned in para (a) above, would have revealed the fallacy or incompleteness of the information, which the AO failed to notice. This will cover a situation akin to that prevailing in the case of Hindustan Lever Ltd. (supra) in which albeit the assessee supplied the details of income of the units eligible for deductions under Chapter VI-A, but the AO failed to note that the assessee had not allocated proper amount of expenses to such eligible units, which he was required to observe from the details filed by the assessee.
38 ITA No.2915/Mum/2012.M/s.Reliance Communications Limited.
15.2.ii. The second broad category comprises of cases where the AO failed to correctly apply the relevant legal provisions to the factual position obtaining before him. It may include both the cases, viz., where a wrong provision is applied or where a correct provision is applied wrongly. It is in such circumstances that the CIT can assume power u/s 263. The case of Nalwa Investments Ltd. (Del.) (supra) falls in this category because the AO failed to correctly apply the provisions of section 72 of the Act.
15.2.iii. However, there is one vital difference between the situations discussed in para 15.1 on one hand and para 15.2.i and ii. on the other. Unlike the cases in para 15.1. above where the mere fact of no or inadequate enquiry by the AO on some or all the relevant aspects of assessment is sufficient to clothe the CIT with jurisdiction u/s 263, in the cases falling in both the broader categories as per para 15.2.i. and ii. above, the CIT can assume power only when he points out, at least, prima facie that, the AO went wrong in correctly appreciating the factual position stated before him or applying the provisions of the Act in a correct manner. In some situations, it may be possible for the CIT to straightway show inaccuracy of the AO's action from the material available on record and then set it right himself. In other situations, it may be possible only to show inaccuracy of the AO's action but setting it right may require further calling of information and examination of the issue. In 39 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
such a later case, the CIT can set aside the assessment order and ask the AO to redo the assessment in the light of the observations made by him in showing the inaccuracy of the AO's action. However, in both the cases it is of paramount importance for the CIT to show that the assessment order is wrong in categories of cases mentioned in 15.2.i and ii. above. He cannot set aside the assessment in such cases by merely mentioning that the possibility of something wrong with the assessment order cannot be ruled out without showing as to where the AO went off the track. In case the CIT fails to point out the mistake of the AO in such categories of the cases, no revision is possible. The assessee escaped revision in Gabrial India Ltd.(supra) because the AO had conducted enquiry on the aspect taken note of in the revision but the CIT could not point out as to how the assessment order was erroneous on this issue. It goes without saying that an assessment order can be construed as wrong only where the AO adopts a view which is not sustainable in law or, in other words, is not a possible view.
16. Adverting to the facts of the instant case, we find that the Assessing Officer made enquiry about the above referred three aspects which have been noted by the CIT for exercising jurisdiction u/s 263. Upon such enquiry, the assessee made submissions by placing all the relevant documents before the AO. Thus it can be seen that this case does not fall in the category discussed in para 15.1. above. The mere fact that the Assessing Officer did not make any 40 ITA No.2915/Mum/2012. M/s.Reliance Communications Limited.
reference to these three issues in the assessment order cannot make the assessment order erroneous when these issues were properly looked into by the Assessing Officer. Now let us see whether it can be brought within the ambit of para 15.2. above. From the details filed by the assessee it can be inferred that the AO not only enquired into these three issues but also got satisfied with the assessee's reply submitted from time to time in support of its stand. Resorting to the provisions of section 263 in such a situation could have been possible only on the ld. CIT showing that the assessment order was erroneous on such three aspects. From the detailed discussion made above on these issues, it is manifest that the AO took either perfectly correct or a possible view. As such, the extant assessment order can not be held as erroneous and prejudicial to the interests of the Revenue. The natural corollary which, therefore, follows in the present case is that the learned CIT was not justified in invoking his jurisdiction u/s 263 of the Act. We, therefore, set aside the impugned order.
17. In the result, the appeal is allowed.
Order pronounced on this 05th day of February, 2013.
आदे श क घोषणा दनांकः को क गई ।
Sd/- Sd/-
(Dr.T.M.Pavalan) (R.S.Syal)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मंुबई Mumbai; दनांक Dated : 05th February, 2013.
Devdas*
41 ITA No.2915/Mum/2012.
M/s.Reliance Communications Limited.
आदे श क त ल प अ े षत/Copy
षत of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु (अपील) / The CIT - 10, Mumbai.
4. आयकर आयु / CIT
5. वभागीय त न ध, आयकर अपील य अ धकरण, मंुबई / DR, ITAT, Mumbai
6. गाड फाईल / Guard file.
ु / BY ORDER,
आदे शानसार
स या पत त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.
उप/ Registrar)
आयकर अपील य अ धकरण,
धकरण, मंुबई / ITAT, Mumbai