Aarvee Denims & Exports Ltd., Ahmedabad V. The Pr. CIT-I, Ahmedabad

ITA 1015/AHD/2015

AI Insights

The case involves Aarvee Denims & Exports Ltd., which faced scrutiny under sections 263 and 250(6) of the Income Tax Act, 1961, for the assessment years 2010-11 and 2011-12. The PCIT had invoked revisionary powers under section 263, leading to a fresh assessment order, which the assessee contested. The Tribunal examined whether the original assessment orders were erroneous or prejudicial to the interests of the revenue. Key issues included the non-deduction of TDS on foreign consultancy and sales commission payments, and the applicability of section 14A concerning disallowance of expenses related to investments. The Tribunal's decision highlighted the need for a thorough examination of each issue based on the law as it stood at the time of the original assessments, and the proper application of legal principles concerning retrospective amendments and the burden of proof in tax liability.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133608 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 22-11-2022
• Assessment Year: 2010-2011
• Appeal Filed On: 21-04-2015
• Other Referred Cases: Ishikawajima-Harima Heavy Industries Ltd V Dit [2007] 288 ITR 408 (SC), Sterling Abrasive Ltd. Vs. ACIT, 44 SOT 52 (Ahd), United Helicharters P.ltd. Vs. ACIT, 60 SOT 58 (Mum), CIT Vs. NGC Networks (India) P.Ltd., Income Tax Appeal No.397 of 2015 dated 29 th January 2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Audit objection; Earning of tax free income; Retrospective amendment; Non-deduction of tax; Assessment record; Tax effect; Revenue expenditure; Capital expenditure; TDS; Rule 8D; Set aside
• Section: 147; 148; 263; 143(3); 5(2); 14A; 115JB; 40(a)(ia); 194C; 195; 9(1); 9(1); 9(1); 194J

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘D’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER ITA No.1015/Ahd/2015 Assessment Year : 2010-11 Aarvee Denims & Exports Ltd. 191, Shahwadi, Nr.Old Octroi Naka Narol-Sarkhej Highway Ahmedabad 382 045. Pr.CIT-1 Ahmedabad. ITA No.288/Ahd/2020 WITH CROSS OBJECTION NO.1/Ahd/2022 Asst.Year : 2011-12 Pr.CIT-1 Ahmedabad. Aarvee Denims & Exports Ltd. 191, Shahwadi, Nr.Old Octroi Naka Narol-Sarkhej Highway Ahmedabad 382 045. (Applicant) (Responent) Assessee by : Shri D.K. Parikh, AR Revenue by : Shri Mohd Usman, CIT-DR स ु नवाई क तार ख/D a t e o f H e a r i n g : 2 3 / 1 1 / 2 0 2 2 घोषणा क तार ख /D a t e o f P r o n o u n c e m e n t : 1 0 / 0 2 / 2 0 2 3 आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER All these appeals relate to the same assessee and are against orders passed u/s 263 of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short] by the ld.Principal Commissioner of Income-1, Ahmedabad [hereinafter referred to as “ld.Pr.CIT”] for ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 2 the Asst.Year 2010-11 and u/s 250(6) of the Act by the ld.Commissioner of Income Tax (Appeals)-1, Ahmedabad for A.Y 2011-12. While the assessee has come up in appeal against the order passed u/s 263 of the Act for A.Y 2010-11, the Revenue has filed appeal and the assessee has filed cross objection to the same, against order passed u/s 250(6) of the Act for A.Y 2011-12. 2. All these appeals were heard together and are being disposed of by this common consolidated order. 3. We shall first deal with the assessee’s appeal in ITA No.1015/Ahd/2015 against the order passed in revisionary proceedings under section 263 of the Act. ITA No.1015/Ahd/2015 A.Y 2010-11 (Assesses Appeal) 4. The impugned appeal by the assessee is against order passed by the Ld.PCIT in exercise of his revisionary jurisdiction u/s 263 of the Act and the grounds raised by the assessee read as under: “1) The learned CIT has erred in law and on facts in passing an order u/s 263 cancelling the assessment order passed by learned AO under Section 143(3) with direction to make fresh assessment which was neither erroneous nor prejudicial to the interest of revenue. The conditions of Section 263 having not been satisfied the learned CIT has no jurisdiction to invoke provisions of Section 263. It be so held now and the order passed by CIT under Section 263 be cancelled. 2) The learned CIT has further erred in law and on facts in not appreciating the detail submissions dated 28.11.2014 and 16.03.2015 wherefrom it was evident that the learned AO has taken a correct and legally permissible view after raising specific queries regarding all the following issues. i) Non deduction of TDS on the amount of Rs. 96,63,750/- towards consultancy fees paid to nonresident firm Spinnakar Group. ii) Non deduction of TDS on foreign sale commission amounting to Rs.94,21,032/- iii) Applicability of provisions of Section 14A of the Act. ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 3 iv) Book Profit of Rs.30,80,62,7123/- being arrived at after reducing prior period income/expenses (net) of Rs.17,09,756/-. The learned CIT ought not to have passed an order cancelling the said order of AO with direction to make fresh assessment, which was neither erroneous nor prejudicial to the interest of revenue simply because he held another view about the treatment of above four issues. It be so held now and the order under section 263 be cancelled. 3) The order of learned CIT under Section 263 is wholly unjust, illegal, invalid and bad in law. It be so held now and the order be quashed. 4) Without prejudice to above, the learned CIT erred both in law and on facts in holding that payment towards consultancy fees paid to nonresident firm M/s Spinnaker Group falls under Section 5(2)(b) of the Act and also in view of Explanation below subsection (2) to Section 9, inserted by Finance Act, 2010, the assessee was liable to make TDS. The learned CIT failed to appreciate the fact that, the retrospective amendment brought about by the Finance Act 2010 was nowhere in existence at the time of payment of such fees as on 23.12.2009 and hence the law cannot cast upon the burden of performing impossible task. The learned CIT erred in not accepting the detailed submissions on the merits of the issue and erroneously cancelling the order of AO which was framed after raising specific queries, detailed scrutiny and applications of mind. It be so held now. 5) The learned CIT erred both in law and on facts in holding that commission paid on foreign sales to nonresident agents falls under section 5(2)(b) of the Act without properly appreciating the facts and binding judicial decisions in the matter. The learned CIT erred in not accepting detailed submissions on merits of the issue and erroneously cancelling the order of AO which was framed after raising specific queries, detailed scrutiny and applications of mind. It be so held now. 6) The learned CIT erred both in law and on facts in holding that the assessee has used part of borrowed funds towards investment of shares having exempt income and hence appropriate disallowance u/s 14A was required to be made. The learned CIT erred in not accepting the detailed submission of merits of the issue that investment in shares was made since long back out of Company's own capital and free reserves and no cost was incurred towards interest or any other expenditure for earning dividend income. It be so held now. 7) The learned CIT erred both in law and on facts in holding that for the purpose of calculations of profit under Section 115JB prior period's expenses are not to be considered since the same is shown below the line of Profit & Loss Account. The learned CIT erred in not accepting the detailed submissions on merits of the issue that as per provisions of Section 115JB "Book Profit" means the net profit as shown in the Profit & Loss Account prepared in accordance with Schedule VI to the Companies Act, 1956 and laid before the Annual General Meeting. It be so held now. ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 4 8) The learned CIT ought to have dropped the revision proceedings erroneously initiated by him. It be so held now.” 5. The ld.counsel for the assessee at the outset pointed out that the issues on which the ld.Pr.CIT found the assessment order passed to be erroneous so as to cause prejudice to the Revenue ,was allowing the following patently in-allowable claims without proper verification: – • foreign consultancy fee of Rs.96,63,750/-on which no TDS was deducted and thus liable to be disallowed as per section 40(a)(i) of the Act; • export sale commission of Rs.94.21 lacs on which no TDS was deducted and thus liable to be disallowed as per section 40(a)(i) of the Act • Disallowance to be made under section 14A of the Act on investments made by the assessee in equity; • Adjustment to the book profit of the assessee by reducing prior period expenses therefrom for the purpose of computing tax liability under section 115JB of the Act, which was not allowable as per law. 6. The ld.counsel for the assessee contended that the primary arguments vis-à-vis the issues so raised was two folds; (i) all these issues had been examined and discussed by the AO, who had accordingly made no adjustment to the income of the assessee taking a plausible view on the same; (ii) that even on merits, the above issues raised by the ld.Pr.CIT did not warrant any disallowance/addition to the income of the assessee. He thereafter made specific submissions with respect toeach issue raised before us. 7. Taking up the first issue of non-deduction of TDS on foreign consultancy fee, he pointed out that the ld.Pr.CIT had found the ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 5 assessment order erroneous since the assessee had been allowed claim of foreign consultancy fee of Rs.96,63,750/- despite the fact that no TDS had been deducted on the same, and accordingly, entire amount was liable to be disallowed under section 40(a)(i) of the Act. 8. With respect to his contention that the issue had been examined during assessment proceedings, he drew our attention to Paper Book filed before us on 9.6.2016 and referred to page no.7 therein, which was the reply filed by the assessee query wise on each query raised by the AO during assessment proceedings ,pointing out that specific query was raised by the AO in this regard as to why TDS was not deducted on FCCB Consultancy fees paid. He thereafter referred to page no.11 of the same PB wherein reply of the assessee to this query was there to the effect that since consultant had rendered service of advisory nature outside India,had no PE in India, and the payment also had been made outside India, there was no requirement to deduct TDS on the same as per the provisions of section 5(2) read with section 9 of the Act. Same is reproduced hereunder: 9. He thereafter drew our attention to PB Page No.13 to 17 being copy of form 15CA filed by the assessee for making remittances. He ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 6 pointed out that the same was certificate from Chartered Accountant for certifying the TDS deducted therein , giving reasons for no TDS deducted as “PE NOT IN INDIA, SERVICE NOT RENDERED IN INDIA”. The ld.counsel for the assessee thereafter pointed out that as per the provision of law prevailing as on the date when the payment was made i.e. December, 2009, no TDS was required to be deducted on payments qualifying as Fee for Technical Services where the services were not rendered in India, nor was there any PE of the entity rendering services, in India. He referred to the decision of Hon’ble Apex Court in the case of Ishikawajima-Harima Heavy Industries Ltd V Dit [2007] 288 ITR 408 (SC). He further pointed out from the copy of ledger account of party to whom payment was made, i.e M/s Spinnaker Global Opportunity Fund Ltd., the fact of payment made on 23.12.2009. The ld.counsel for the assessee contended that the view taken by the AO on the assesee’s submission that impugned payment was not liable to tax in India was clearly in accordance with the prevailing position of law. He therefore contended that it is evident that the AO had thoroughly examined the issue and had taken a plausible view on the matter. 10. He thereafter drew our attention to the finding of the ld.PCIT holding the assessment order to be erroneous on this account at page no.6 and 6.1 of the order as under: “6. I have considered the facts and submissions of the AR of the assessee carefully. As regards payment of consultancy fee amounting to Rs. 96,63,750/- to non-resident firm namely, M/s. Spinkar Group, it has been seen that the assessee while making such payment has not made TDS on such amount in terms of provisions of Section 195 of the Act. In view of Explanation below sub-section (2) to Section 9, inserted by Finance Act, 2010 with retrospective effect from 01/06/1976, TDS was required to be made on such payments to the non-resident frim. In absence of tax deduction at source, such expenditure was required to be disallowed the provisions of Section 40(a)(i) of the Act. ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 7 6.1 The contention raised by the AR of the assessee is not tenable in the sense that after the amendment in provisions of Section 9 read with explanation which has been inserted by the Finance Act, 2010 retrospectively, the income of a non-resident shall be deemed to accrue or earned in India on which deduction of tax at source u/s. 195 is mandatory. Further, vide Circular No. 7 of 2009 dated 22/10/2009, the CBDT has withdrawn Circular No. 23 as well as No. 786 and the Circular No. 163 dated 29/05/1975 which dealt with an agent engaged in the activity of purchase of goods for export. The reason behind withdrawal of said Circulars was that the interpretation put on the said Circulars by some tax payers to claim relief was not in accordance with the provisions of Section 9 of the Act, neither there was any intention behind the issue of such Circulars. Therefore, after the withdrawal of such Circulars, the income arising to the agent on account of consultancy fee falls u/s. 5(2)(b) of the Act, as the income has accrued in India and the right to receive the same became vested, therefore, provisions of Section 195 would apply.” 11. Referring to the above, he contended that as per the Pr.CIT the impugned amount was liable to be taxed in India by virtue of Explanation below sub-section (2) of section 9 inserted by the finance Act, 2010 with retrospective effect from 1.6.1976. The ld.counsel for the assessee contended that impugned Explanation was not there on the statute when the assessee had made payment, and Courts in various decisions have held that in such circumstances no disallowance for non-deduction of TDS could be made since the assessee could not be expected to do what was not there on the statute at the relevant point of time. In this regard he referred to the decision of the ITAT in the case of Sterling Abrasive Ltd. Vs. ACIT, 44 SOT 52 (Ahd) more particularly para 9 of the said order placed before us at PB Page No.99 to 104 (in the compilation of case laws) and further to the decision of Mumbai ITAT in the case of United Helicharters P.ltd. Vs. ACIT, 60 SOT 58 (Mum) (Page No.99- 112 of the compilation). He further referred to the decision of Hon’ble Bombay High Court in the case of CIT Vs. NGC Networks (India) P.Ltd., Income Tax Appeal No.397 of 2015 dated 29 th January 2018 for the said proposition laid down at para (d) & (e) of the order as under: ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 8 “d) We find that view taken by the impugned order dated 9th July, 2014 of the Tribunal that a party cannot be called upon to perform an impossible Act i.e. to comply with a provision not in force at the relevant time but introduced later by retrospective amendment. This is in accord with the view taken by this Court in CIT v/s. Cello Plast (2012) 209Taxmann 617 - wherein this Court has applied the legal maxim lex non cogit ad impossibilia (law does not compel a man to do what he cannot possibly perform). (e) In the present facts, the amendment by introduction of Explanation-6 to Section 9(1) (vi) of the Act took place in the year 2012 with retrospective effect from 1976. This could not be have been contemplated by the Respondent when he made the payment which was subject to tax deduction at source under Section 194C of the Act during the subject Assessment Year, would require deduction under Section 194J of the Act due to some future amendment with retrospective effect. 12. He therefore stated that the finding of the ld.Pr.CIT that by virtue of Explanation inserted to section (2) of the Act the assessee was liable to deduct TDS on the consultancy charges outside India was not in accordance with law, and therefore, there was clearly no error as such in the order of the AO. 13. The ld.DR however relied on the order of the ld.Pr.CIT. 14. We have heard the rival contentions and having considered the contentions made by the learned Counsel for the assessee along with the documents and case-laws to which our attention was drawn and taking note of the findings of the Ld.Pr.CIT on the issue of the assessment order being found erroneous for not having examined the issue of consultancy fees paid without deduction of tax at source, we find merit in the contention of the learned Counsel for the assessee that there was no error in the order of the Assessing Officer as such. The learned Counsel for the assessee has demonstrated that as per the prevailing position of law at the time when the payment was made to the non-resident consultant, there was no requirement for tax deduction at source where the services were rendered outside India, payment made outside India and there ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 9 was no PE of the non-resident India. He has demonstrated that these facts were pointed out to the Assessing Officer, substantiated with the copy of certificate of the Chartered Accountant while making remittance to the said party outside India certifying the said facts as being the reason for non-deduction of tax at source on the payments remitted to the non-resident consultant. The Ld.Pr.CIT does not dispute this contention of the assessee that at the time when the payment was made to the non-resident for consultancy, the assessee was not required to deduct any tax at source as per law. The case of the Ld.Pr.CIT is that on account of an explanation inserted to Section 9 of the Act subsequently with retrospective effect, the assessee was required to deduct tax at source in such circumstances also. In this regard, we find that the assessee has pointed out that the Courts have held that the assessee cannot be compelled to do what was not there on the statute at the relevant point of time by way of a retrospective amendment and no consequence shall, therefore, follow to such Acts by virtue of such amendments. The Ld. DR has been unable to draw our attention to any contrary decision in this regard. What follows is that the assesses claim of foreign consultancy fees paid without deduction of tax at source was rightly allowed by the AO as per the prevailing position of law and the Ld.PCIT ‘s basis for holding the claim as not in accordance with law is incorrect. Therefore there is clearly no error in the order of the AO allowing the assessee’s claim of consultancy charges paid to non-resident of Rs.96.64 lacs without deduction of tax at source. The order of the Ld.PCIT therefore holding the assessment order erroneous on this count is not sustainable, we hold, and accordingly set aside. ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 10 15. Taking up the next issue of disallowance under section 14A of the Act, the ld.counsel for the assessee first dew our attention to the documents evidencing that the AO had examined this issue during the assessment proceedings. He drew our attention to PB Page No.40 filed on 9.6.2016, being reply filed by the assessee to the questionnaire raised by the AO mentioning therein the query raised by the AO asking for brief note for disallowance under section 14A at point no.11. He thereafter referred to PB page No.42 pointing out that the assessee had given therein details of investment in shares mentioning the year of investment, amount invested as on 31-03- 2009 and 31-03-2010 and dividend received during the year. He pointed out therefrom that the investments were made mostly from period 1996 to 1998, and one being made in 2005-06. He thereafter drew our attention to the note appended in the said reply pointing out to the AO that all these investments were old investments made out of own resources of the assessee, and no expenditure had been incurred by the assessee on the same. The relevant reply at page no.42 is as under: ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 11 16. The ld.counsel for the assessee thereafter contended that the AO had considered the explanation of the assessee and taken a plausible view on the matter making no disallowance of expenses u/s 14A of the Act, which was in accordance with law. He stated therefore that it was evident that the issue had been examined during assessment proceedings, the AO had taken a plausible view on the matter, and therefore, there was no error in the order of the AO. 17. He thereafter drew our attention to the finding of the ld.Pr.CIT holding the assessment order erroneous and on this issue at para 8 of the order as under: “8. As regards the disallowance u /s14A of the Act is concerned, it is seen that in schedule VI of the balance sheet, the average investment of the assessee in equity shares worked out at Rs.23,06,000/- (provisions of diminution in value of investment of Rs.2,81,000/- claimed in schedule in respect of current year investment was not allowable for the purpose of Section 14A of the Act). Since the assessee used part of funds towards investment in the instrument having exempt income, appropriate disallowance u/s. 14A was required to be made by the Assessing Officer taking into account the factors as referred to above. It has been noticed from the assessment records that the assessee earned dividend income to the tune of Rs. 62,040/-during the relevant period, however, the Assessing Officer did not make further inquiries in this regard and did not work out disallowance u/s 14A read with Rule 8D of the I.T. Rules accordingly.” 18. He pointed out that the ld.PCIT had turned a blind eye to the examination of the issue by the AO and without considering the same had gone onto hold the assessment order to be erroneous. Ld.DR relied on the order of the Ld.PCIT. 19. We have heard both the parties and we find merit in the contention of the learned Counsel for the assessee that the ld. Pr. CIT has held the assessment order to be erroneous on account of non-examination of the issue of disallowance to be made of expenses as per Section 14A of the Act without even considering the reply filed ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 12 by the assessee to him during the revisionary proceedings, clearly bringing out the fact that the issue had been fully examined during the assessment proceedings by the Assessing Officer. We have noted from the documents filed by the assessee during the assessment proceedings pertaining to the impugned issue that the assessee had explained the reason for no disallowance under Section 14A of the Act being warranted, stating that all investments were old investments and no new investments had been made during the year. It had also been pointed out that the investments made in the preceding year were out of own resources of the assessee and no expenditure had been incurred by the assessee on the same. The ld. Pr. CIT has totally ignored this contention of the assessee made before the Assessing Officer, taking note only of the fact that the average investments of the assessee in shares worked out to Rs.23,06,000/- as per the balance-sheet of the assessee and since part of the funds had been utilized for making these investments, disallowance under Section 14A of the Act was warranted and the Assessing Officer having made no inquiry on the issue, his order making no disallowance under Section 14A of the Act was in error. As is evident, the ld. Pr. CIT has totally ignored assessee’s contention made to the Assessing Officer that no investment was made during the year, that all investments were made in the preceding year out of own resources calling for no disallowance at all. Clearly, since the ld. Pr. CIT’s finding of error in the order of the Assessing Officer has been made without considering the assessee’s reply to the Assessing Officer, the same merit no consideration at all. The ld. Pr. CIT’s finding of error on the impugned issue of disallowance of expenses under Section 14A of the Act is, therefore, ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 13 we hold, without any basis and the order of the ld. Pr. CIT is accordingly set aside on this issue. 20. He thereafter took the next issue relating to allowance of commission paid on export sale of Rs.94.21 lacs without deduction of TDS, liable to be disallowed as per section 40(a)(i) of the Act . He again drew our attention to PB Page No.40 pointing out that the AO during the assessment proceedings had raised query asking the assessee to file details of expenses liable to TDS, to which the assessee had furnished all the details (placed before us at PB Page NO.43). On merits, the ld.counsel for the assessee contended that the issue whether the TDS is to be deducted on foreign sales commission is now settled in view of various decision of the Tribunal and Courts holding that in the absence of any PE and in the absence of any service rendered in India, no TDS is liable to be deducted. In this regard he drew our attention to the following decisions: i) Welspring Universal Vs. JCIT (2015) 56 taxmann.com 174 (Del-Trib); ii) CIT Vs. Economic Traders P.Ltd., Tax Appeal No.713 to 715 of 2016 dated 19.9.2016 21. The ld.DR however contended that clearly the issue had not been examined by the AO, and therefore, the fact whether the services were not rendered in India or agents had no PE, have not been verified, and therefore allowability of claim as per law also remained to be verified. 22. On considering the contentions of both the parties, we find that the ld. Pr. CIT has rightly held the assessment order to be erroneous on account of no inquiry being conducted on the issue of ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 14 commission expenses paid to non-residents for export sales without deduction of tax at source. Clearly, as per the facts pointed out to us, this issue was not examined by the Assessing Officer at all who had only asked for the assessee to file details of expenses liable to TDS which the assessee had filed. This in itself does not qualify as any inquiry on the issue of commission expenses paid to non- residents for export sales. Moreover, the assessee’s contention on merits that even otherwise no TDS was required to be deducted on the same in view of various decisions of the Tribunal and the Hon’ble High Courts holding that in the absence of any PE and any services rendered in India, no TDS is to be deducted, we agree with the Ld. DR that without establishment of the above two facts i.e. absence of PE and absence of services rendered in India, the said decisions have no applicability and the Assessing Officer having not examined the issue at all, the said facts were not there before the Assessing Officer nor were they placed before the ld. Pr. CIT and nor before us also. Therefore, even on merits, we do not agree with the learned Counsel for the assessee that no disallowance of the commission expenses paid to non-resident, for export sales ,were warranted as per Section 40(a)(ia) of the Act for non-deduction of tax at source. Therefore, the Assessing Officer having not examined this issue during the assessment proceedings, the assessment order clearly was erroneous causing prejudice to the Revenue. The order of the ld. Pr. CIT holding the assessment order erroneous so as to cause prejudice to the Revenue on account of non-examination of foreign sales commission expenses of Rs.94.21 lacs is accordingly upheld. 23. On the issue of adjustment of book profits of the assessee with prior period expenses for the purpose of paying taxes as per the provisions of Section 115JB of the Act, the ld. Counsel for the ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 15 assessee pointed out that the Ld.Pr. CIT had admittedly found no error in the order of the Assessing Officer, and therefore there remains no grievance of the assessee on the issue. 24. In view of the above the order of the Ld.PCIT is upheld on the issue of non examination b y the AO of foreign commission expenses paid by the assessee without deduction of tax at source, amounting to Rs.94.21 lacs, while on the issue of non examination of foreign consultancy expenses paid by the assessee without deduction of tax at source, amounting to Rs.96.64 lacs and disallowance u/s 14A of the Act, the order of the Ld.PCIT is setaside since ,we hold, that there is no finding of error in the order of the AO allowing the said claim /making no disallowance on account of the same. In effect therefore the appeal of the assessee is partly allowed. 25. ITA No.288/Ahd/2020 Revenue’s Appeal and assessee’s CO No.1/Ahd/2022 A.Y 2011-12 26. In the impugned case, the assessment had been framed under section147 of the Act and additions made therein were deleted by the ld.CIT(A). Accordingly, the Department has come up in appeal before us while the assessee has filed CO challenging the validity of the assessment framed under section 147 of the Act. Since the assessee has raised legal ground before us challenging validity of the assessment framed, we shall first deal with the CO of the assessee. CO No.1/Ahd/2022 A.Y 2011-12 27. The grounds raised by the assessee are as under: “1. Ld. CIT (A) erred in law and on facts in not adjudicating and deciding ground No: 1 taken before him challenging validity of reassessment made u/s 147 of the IT Act. ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 16 2. The ld.CIT (A) ought to have considered submissions made on the legality of reassessment based on case laws cited before him and ought to have quashed the reassessment. 3. It is prayed that reassessment being invalid and illegal, the reassessment order be quashed now.” 28. The ld.counsel for the assessee contended that his solitary contention in the present case was that reassessment was resorted to on the basis of audit objection, which the AO himself was not agreeable to having contended in his reply to the audit objection that they were not maintainable. He contended therefore that clearly the AO was not satisfied with the information given to him by the audit party, and therefore reassessment proceedings were not based on any satisfaction of the AO vis-à-vis income of the assessee having escaped assessment. The reassessment order passed therefore was without valid jurisdiction. In this regard, he first drew our attention to the reasons recorded (placed before us at PB page no.3 to 9) as under: ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 17 ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 18 ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 19 ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 20 ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 21 ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 22 29. He thereafter drew our attention to the report of the AO on the internal audit objection in the case of the assessee placed before us at PB Page No.4 to 12 as under: “2. The report on the Audit Scrutiny of the Internal Audit Party is as under: 3. Gist of Audit Objection:- 1. The assessment in this case was finalized u/s. 143(3) of the Act on 31/01/2014 determining the income of assessee at Rs.20,01,38,400/- as against returned income of Rs.20,00,73,780 as per the return filed on 28.09.0211. Consequent to audit check carried out in respect of this assessment, the following observations are made: 2. No TDS on payments to Naroda Environment Projects Ltd. (Disallowance u/s 40(a)(ia) of the IT Act) :- On perusal of the ledger of Environment expenses, it was seen that the assessee has debited following sums on account of these expenses: Date Particulars Vch Type Vch No. Debit 30/04/2010 Naroda Enviro Projects Ltd Stores 8s Other S/10-1/10192 38,820.00 *31/05/2010 Naroda Enviro Projects Ltd Stores & Other S/10-1/20160 6,717.00 ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 23 10/06/2010 Naroda Enviro Projects Ltd Stores & Other S/ 10-1/30062 25,317.00 30/06/2010 Naroda Enviro Projects Ltd Stores & Other S/10-1/30712 35,841.00 28/02/2011 Naroda Euviro Projects Ltd Stores & Other S/10-/1 1065 1 58,721.00 01/03/2011 Naroda Euviro Projects Ltd Stores & Other S/10-/ 120320 41,877.00 01/03/2011 Naroda Enviro Projects Ltd Stores & Other S/10-/120321 75,417.00 01/03/2011 Naroda Enviro Projects Ltd Stores & Other S/10-/ 120322 97,380,00 01/03/2011 Naroda Enviro Projects Ltd Stores & Other S/10-/ 120323 49,884.00 31/03/2011 Naroda Enviro Projects Ltd Stores & Other S/10/120833 60,848.00 31/03/2011 Naroda Enviro Projects Ltd Journal JV/10 120323 25,830.00 Total 5,16,652.00 *The assesses Co. has debited Environment expenses only on the amount of Rs. 6,717/, and made TDS thereon of Rs. 134/-. However, the assessee company has failed to comply with the provisions of chap- XVII-B while accounting for the balance expense of Rs.5,09,935/-, incurred on account of pollution control expenses. Hence the sum of Rs.5,0 m,9,935/-, needs to be disallowed and added back as per the provisions of Section 40(a)(ia) of the I T Act. The Tax effect is Rs. 1,52,981 + surcharge + cess. 3. No TDS on payments to Atpa Swarnirn Gujarat Environ Pvt. Ltd. (Disallowance u/s 40(a)(ia) of the I T Act):- On perusal of the ledger of Environment expenses, it was seen that the assessee has shown sum of Rs.15,00,000/- (vide JV/10-11/60288) paid/credited to Atpa Swarnim Gujarat Environ Pvt. Ltd., but failed to comply with the TDS provisions o/chap-XVIl-B of the IT Act, i.e. the assessee has not deducted TDS on these expenses. Hence the sum of Rs.15,00,000/-, needs to be disallowed and-added back as per the provisions of Section 40(a)(ia) of the IT Act. The Tax effect is Rs.4,50,000/- + surcharge + cess. 4. No TDS on payments to Narol Textile Infrastructure and Enviro Management. (Disallowance u/s 40(a)(ia) of the I T Act):- On perusal of the ledger of Environment expenses, it was seen that the assessee has debited 1,84,12,500/- on account of Pollution expenses relating to sums payable to Narol Textile Infrastructure and Enviro Management. The details of such expenses are as under: Date Particulars Vch Type Vch No. Debit 30/09/2010 Narol Textiles Infrastructure and Enviro Management Journal JV/10-11/60289 1,12,87,500/- 31/12/2010 Narol Textile Infrastructure and Enviro Management Journal JV/10-11/90163 39,18,750.00 31/03/2011 Narol Textile Infrastructure and Enviro Management Journal JV/ 10-ll/ 120272 32,06,250,00 Total 1,84,12, 500/- Since the assessee has failed to comply with the provisions of chap-XVH-B of the I T Act, i.e. the assessee has not deducted TDS on these expenses, the sum of ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 24 Rs.1,84,12,500/-, needs to be disallowed and added back as per the provisions of Section 40(a)(ia) of the I T Act. The Tax effect is Rs.55,23,750/- + surcharge + cess. # Regarding the payments made, as stated in para no.2, 3 & 4 above, the assessee has claimed such expenses under stores and spares. It was ascertained that Naroda Enviro Projects Ltd., is a company registered under Section 25 of the Companies Act, 1956 and working on "No Profit No Loss" basis. The Company is working as a Nodal Agency between Industrial Units and various Government agencies. The Company has two main Projects; the Common Effluent Treatment Plant (CETP) which is giving services to the polluting industries of Naroda GIDC Estate and Treatment, Storage and Disposal Facilities (TSDF), giving services to Industries of Gujarat to dispose their hazardous waste in scientific manner. Similarly, Narol Textiles Infrastructure and Enuiro Management is also a Section-25 Company, promoted by Ahmedabad Textile Processors Association, to develop and operate common Environmental and infrastructure facilities for its member industries, engaged in processing of textiles. ## The assessee had complied with the provisions of TDS only on one transaction of Rs.6,717/-; and made TDS thereon of Rs. 134/-, but failed to comply with the said provisions regarding rest of the payments. However, from perusal of files of other assesses (one of them being Asian Tubes Ltd for the same A.Y), it was noticed that TDS was being deducted on all payments made to Naroda Environment Projects Ltd. The payments made to the above entities, appear to be made towards the charges of common effluent treatment plant and allied waste disposal activities carried out by them. It has also been ascertained that M/s. NaroI Textile Infrastructure and Enviro Management did not have any lower deduction certificate, which would have enabled it to receive payments without any TDS. Hence, such expenses require the tax to be deducted and deposited as per the provisions of law, which the assessee has failed to do. ### The applicability of penal provisions, for filing wrong particulars of income, should also be explored if it is found that the assessee has camouflaged these expenses by categorizing them as stores and spares. However, in case, such expenses are incurred as towards capital contribution (as the terminology in ledger is unclear and no bills/vouchers are on record) towards setting up such project, the same is also disallowable on toto, being of capital in nature. 5. Disallowance of Product Registration Expenses:- Assessee company incurred expenses of Rs. 56,358/- towards trademark and branding and claimed the same as revenue expenditure. The above expenditure clearly entitles the assessee to a benefit of enduring nature in the form of Right (intangible asset) to use the ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 25 approved brand/trademark/logo. Without getting these Rights (intangible asset), the assessee cannot sell its products under the desired brand/trademark/logo. Hence, the intangibles rights are created by registration expenses incurred on brand/trademark and therefore, such expenditure is of capital expenditure and not allowable u/s. 37(1). Since, such expenditure has clearly created a benefit of enduring nature and hence, the claim of deduction of expenditure on brand/trademark as Revenue Expenditure should have been disallowed and added to the income of the assessee. It is under assessment of income to Rs.56,358/- and the tax effect thereon Rs. 16,907 /- + surcharge + cess as applicable as per I.T. Act. 6. Non deduction of on Foreign Commission Payment (disallowance u/s.40 (a)(i) of the IT Act):- On perusal of the Sales commission details, it is seen that the assessee 6mpany has debited foreign sales commission amounting to Rs.2,97,73,101/-. However, the assessee Company has not deducted TDS on sales commission. Vide circular no 7 of 2009 dated 22.10.2009, the CBDT has withdrawn circulars, no, 23 as well as no. 786, besides the circular no.163 dated 29.5.1975 which dealt with an agent engaged in the activity of purchase of goods for export. The reason behind withdrawal of the said circulars was that the interpretation put on the said circulars by some of the taxpayers to claim relief, which in the opinion the Board was not in accordance with the provisions of section 9, or the intention behind the issue of the circulars. Hence, as per the present position taken by the revenue, the income arising to the agents on account of export commission falls under section 5(2)(b) of the Act, as the income has accrued in India when the right to receive the income became vested and hence, the provision of section 195 would apply. The details of foreign commission paid, is tabulated as under: Sr No Name of Party Address of the Party Amount paid PAN Ward/ circle TDS Deducted if any Rate of comm. 1 ARTURO SILVA CALL, TOMASES1TEVBS NO 235 URBAUTARES LINA 38, LINAPERU 1,609,725 N.A N.A 4% to 5% 2 ASHA COLLECTION HOUSE # 6, 5™ FLOORM FLAT5A, ROAD 14A, SECTOR04,UTTAR A MODEL/TOWNDH AKA-123 3,732,409 N.A N.A 3% to 5% 3 CARE TRADJG CO HOUSED 111, (3 R o FLOOR), ROAD# 13, BLOCK E,BANANI, DHAKA- 1213, BANGLADESH 1,572,974 N.A N.A 5% ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 26 4 EYUP . SADETTIN GEREM M.S.FERATEKS TEKSTILMUMESSI LLIK TICARET LTD SIRKETI, DEGIRMEN SOK, SASMAZ SITESI, CEMAL BEY HANI, A-BLOKNO. 15.K6D24, 81090 KOZYATAGIISTAN BUL, TURKY 854,245 N.A N.A 3% to 5% 5 IMS BAHADUR CALL 7NO 39-2 15 (OFFICE LWLJP.O BOX-012674 MEDELLIN, COLUMBIA 244,964 N.A N.A 5% 6 LUCIANO AMPUERO URTEAGA AV.RICARDO ELIAS^PARICIO 141 OF 2, LA MOLINA,LIMA,PER U 115,937 N.A. N.A 5% 7 MONTANA FASHION MEIRHAI KOYANNOV23,HA MAS HBIR ST,ISRAEL 38,329 N.A. N.A 5% 8 RESHET 7DERCHJATTA ST.TELAV1V 87,124 N.A. N.A 5% 9 STANIC INTERNATIO NAL CORPORATION 228 J JUNIPERCIRCL E ] SOUTHLOWRENCE .N U.USA 201,473 N.A. N.A 5% to 6% 10 YNK 1112,CENTURY 21,315,921 N.A N.A 2% to 3% TRADING iC TOWERS.JRICARD O ALFAROTUMBA, MUERTO, PANAMA 11 Total 2,97,73,101 Since the assessee has failed to comply with the provisions of chap-XVH-B of the I T Act, i.e. the assessee has not deducted TDS on these foreign commission expenses, the sum of Rs.2,97,73,101/-, needs to be disallowed and added back as per the provisions of Section 40(a)(i) of the I T Act. The Tax effect is Rs.89,31,930/- + surcharge + cess. **It may be noted that the presently available decisions of higher judiciary on the issue of foreign commission, claimed by the assessee in support of its case, pertain to the assessment years prior to the issue of circular no. 7 of 2009 (dated 22.10,09) by the CBDT whereby the earlier circulars are withdrawn. Hence, a level playing field is now created, wherein the interpretation in favour of revenue is expected to be taken by the revenue ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 27 authorities. The recent decision of AAR in case of SKF Boilers and Driers Put. Ltd. (AAR No. 983-984 of 2010) is in line with the position taken by the revenue. 7. Incorrect allowance of set-off of brought forward losses. The assessee had filed income of Rs.20,00,73,776/- after claiming set-off of brought forward loss of Rs.25,43,97,719/-. However, on perusal of records of A.Y. 2010-11, it was found that, after the additions of Rs.2,68,055/- vide order dated 12.03.2013 u/s. 143(3), the carry forward losses should have reduced by an equivalent amount. In simpler terms, the assessee claimed, in the return of A.Y.2010-11 to carry forward unadjusted loss of earlier years, amounting to Rs.25,43,97,721/- {there seems to be an error of Rs. 2 (two) in the figures filled in by the assessee in schedule CFL of return for A.Y.2010-11 and schedule BFLA of the return for A.Y.2011-12}. Hence, because of the addition made vide order dated 12.03.2013, the carry forward of such loss, for adjustment against income of Rs. 2011-12, is reduced by Rs.2,68,055/-. However, the assessee has been allowed to set-off; at it's claimed loss, without accounting for the additions made in A.Y.2010- 11. This incorrect allowance of set-off of loss, has resulted in underassessment of Income by Rs.2,68,055/- and having tax effect of Rs.80,417/-+ surcharge + cess. 8. In view of the above issues there is under assessment of income to the tune of Rs. 5,05,19,949/- resulting in short levy of total tax of Rs. 1,71,71,731/- (tax Rs. 1,51,55,985/- + SC Rs. 15,15,599 + EC Rs. 5,00,147/-). The assessing Officer is requested to take necessary action in respect of the above issues and submit a report at the earliest. 9. Observation Note :- On perusal of Electricity Transmission charges/expenses from ledger account of relevant financial year, it is not ascertainable as whether the provisions of TDS have been complied with regarding the following expenses. (1) Electricity Production Charges from 01/04/2010 to 31-03-2011 of Rs. 7 ; 08,524/- (2) Electricity Transmission Expenses From 01/04/2010 to 31-03-2011 of Rs 14, 66,936/- (3) Electricity Transmission Expenses from 01/04/2010 to 31-03-2011 of Rs. 33, 09,047/- Total charges/expenses of Rs. Rs. 54, 84,507/- Hence, it needs to be verified as to whether the provision of chap-XVII-B of the I T Act, have been complied with regarding the above payments, and the applicability of the provisions of section 40(a)(ia) may be examined regarding such expenses claimed. ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 28 4. Facts of the Case:- In this case, the assessment was finalized u/s.143(3) of the IT Act determining total income of Rs.20,01,38,400/- vide order dtd.31/01/2014. 5. Assessing Officer's view:- (i) No TDS on payments to Naroda Environment Projects Ltd. (Disallowance u/s. 40(a)(ia) of the IT Act): Details are being examined. (ii) No TDS on payments to Atpa Swarnim Gujarat Environ Pvt. Ltd. (Disallowance u/s. 40(a)(ia) of the IT Act) : The assessee is a member of Atpa Swarnim Gujarat Environment Pvt. Ltd. The company is a non-profit company helping its members to suitably dispose effluents generated by them. Its members reimburse the expenses incurred by it. Since, it is a no profit company so there is no income. Payments made by the assessee to Atpa Swarnim Gujarat Environment Pvt. Ltd. were towards reimbursement of expenses incurred by it for setting up a common Mega Pipeline Effluent Treatment plant. Such payments are is outside the scope of provisions of TDS. (iii) No TDS on payments to Narol Textile Infrastructure and Enviro Management (Disallowance u/s. 40(a)(ia) of the IT Act) : NTIEM is a Section-25 Company promoted by Ahmedabad Textile Processors Association to develop and operate common Environmental and infrastructure facilities for its member industries, engaged in processing of textiles. The assessee company is member of Textile Processors Association. The association is providing effluent treatment plant facility to its members. For its purpose the association is creating necessary infrastructure in the form of Mega Pipeline and other equipment for water treatment. NTIEM is putting up 150 MLD capacity Effluent Conveyance System and 100 MLD Common Effluent Treatment Plant, in growth a Centre For Excellence covering research in textile processing, effluent recycling. All the members were required to contribute their share of expenses based on size of their project. They have incurred the expenditure for Effluent Conveyance System (Mega Pipeline) on behalf of all the members and after that they have requested for the payment from the members and the assessee company has to reimburse the expenditure to them, Assessee's share of contribution towards expenses incurred by its main body does not attract provisions of section 194C, so on reimbursement of the expenditure TDS is not applicable, ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 29 (iv) Disallowance of Product Registration Expenses: The assessee incurred expenses of Rs. 56,395/- towards trademark and branding expenses. The expenses were incurred in foreign currency where the party to whom sales were proposed to be made insisted for registration of Logo for entering any international trade transaction. It was requirement of a specific transaction and the expense incurred for registration of Logo was just related to specific international transaction. Moreover, the assessee prepared books of accounts as per accounting standard (AS-26). The expenditure incurred on Trademark and Branding did not fulfill recognition criteria of AS-26 and hence such expenditure was debited as revenue expenditure. During the assessment proceedings, the AO after taking into account all the facts accepted such expenditure as revenue expenditure. Therefore, objection raised by the audit is not acceptable. (v) Non deduction of Foreign Commission Payment (disallowance u/s.40(a)(ia) of the IT Act) As the assessee has paid the Commission on export sales to the nonresident foreign commission agents who do not have any PE in India and as the foreign commission Agent operates in his own country and no part of his income arises in India. His commission is remitted directly to him and is, therefore, not received by him or on his behalf in India. So as per section 5(2) and section 9 any income accrues or arises or deemed to accrue or arise to nonresident outside India shall not be deemed to be received in India. So no TDS has been required to be deducted from it. Detailed analysis of the same is as under. Section 5 of The Act provides for scope of total Income in India of any person for a previous Year. A reference is made to Section 5(2) of the Act, which provides that the total income of any previous year of a person who is a non-resident includes all income from whatever source derived Which— "(a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such Year" Further, Explanation 1 to section 5 of the Act states that Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India." As per section 5(2), the total income of a non resident assessee includes the income which have been received or deemed to be received in India or ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 30 accrues or arises or deemed to accrue or arise to him in' India. The Income which are deemed to be received and deemed to accrue or arise in India is dealt by Section 9 of The-Income Tax Act. The income is said to be received when it reaches a person or the assessee. The Income is said to be accrued or arise when the right to receive the income is vested in a person. Thus, in case of an assessee the income may accrue to him even without receipt of the same when the right to receive such income is vested to him. In case of a non resident assessee also, the concept of accrual of income is equally applicable, however the place of receipt or accrual of such income assumes importance. In order to determine the status of accrual of Income, several other factors may enter into consideration such as the place of entering of an agreement verbal or written, the place where the services have been provided, place where the business of the person receiving the income is situated, and the place where the payment is agreed to be received. In this regard attention is invited to the judgement of Rajasthan High Court in case of Mansinghka Bros, (P.) Ltd. V.CIT [1984] 147 ITR 361 (Raj.), wherein dealing with the question of place of accrual of the income the court observed as following - ".... It would appear from the above observations that the place of accrual of income is the place where the right to receive that income arises, with the corresponding liability to mate payment of the same there...."Thus, from the above court decision it can be clearly inferred that the place of accrual of an income is the place where the right to receive that income has arisen. The Hon'ble Supreme in the case of GE India Technology Centre (P) ltd, vs. CIT 327 ITR 456 (SC)has held that if the income is not chargeable to tax in India , there is no liability of TDS u/s 195 of the I,T. Act Therefore, in order to determine the applicability of the provisions of Section 195, it is first essential to find out whether the sum paid to non- residents is chargeable to tax as per the provisions of Section 9. The provisions of Section 9(1)(i) states: "that all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of capital asset situate in India shall be deemed to accrue or arise in India." Therefore, when the payment in question has been made to an export agent operating outside India, the income is not chargeable to tax in India as the no income which is accruing or arising in India. Thus, payment made by the assessee as foreign commission did not fall under provisions of section 195. Therefore, assessee was not liable to deduct tax on such payments. ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 31 (vi) Incorrect allowance of set-off of brought forward losses : The assessee has given effect of addition made of Rs. 2,68,055/- in AY 2010- 11. For AY 2011-12, the assessee paid MAT. The assessee had MAT credit of Rs. 2,02,55,209/-. To give effect to the addition made, the assessee reduced MAT credit by Rs. 89,040/-, being 30% of Rs. 2,68,055/- + surcharge 7.5% and education Cess 3%. After subtracting Rs. 89,040/- MAT credit for AY 2011-12 reduced to Rs. 2,01,66,169/-. Therefore, objection raised by the Internal Audit Party is not acceptable. (vii) Observation Note on Electricity Transmission Expenses: Wind mills are generated electricity in Units and after that GETCO has transferred the units to the respected Users through Electric-power transmission. Electric Transmission is the bulk transfer of electrical energy, from generating plants to electrical substations located near demand centers. This is distinct from the local wiring between high- voltage substations and customers, which is typically referred to as electric power distribution & transmission networks. Transmitting electricity at high voltage reduces the fraction of energy lost to resistance, which varies depending on the specific conductors, the current flowing, and the length of the transmission line. So during the process of Transmission some of the Units generated by windmills are lost which is booked as Electrical Transmission Charges. So when the assessee generate the Electricity at Windmills then booked the Income for the gross units but the GETCO (Transmission Company) after deducting the transmission loss (Lost Units) and gives the assessee the credit for the net units only. So the assessee has to book the transmission charges (Loss) in books of account. So it is a loss of Units and not any payment of expenditure. So TDS is not applicable on it. In view of the above, the objections raised by the Internal Audit Party are not acceptable. Therefore, it is requested that above audit objections may be dropped. Yours faithfully, Sd/- (Mukesh Thakwani) Dy. Commissioner of Income-tax, Circle-1(1)(1), Ahmedabad.” 30. He drew our attention to the last two lines of the report wherein the AO had clearly mentioned that objection raised by the audit party were not acceptable. He further drew our attention to ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 32 the order passed in the present case with office note of the AO stating that the impugned order had been passed just for sake of settlement of the audit objection (PB Page No.38) as under: Office Note: Proceedings u/s 147 were initiated and a notice u/s 148 was issued on 29.03.2018 after obtaining approval of the Pr. CIT-1, Ahmedabad. The notice was served on 31.03.2018. The assessment proceedings were completed and assessment order u/s 143(3) r.w.s. 147 was passed. Disallowances totalling to Rs. 5,05,19,948/- were made as discussed in the body of the assessment order. The audit objection on the basis of which case was reopened was not accepted by this office. But just for the sake of settlement of audit objection, disallowances as per assessment order were made. 31. Ld.DR was unable to controvert the above contentions of the Ld.counsel for the assessee that the reopening was based on audit objection to which the AO was not agreeable at any point of time. 32. We have heard learned Counsel for the assessee and gone through all the documents referred to before us. Carefully going through all the documents, we hold that, in the facts of the present case, the reopening has been resorted to in a mechanical manner by the Assessing Officer without any application of mind. In fact, the Assessing Officer has reopened the case taking a view contrary to that which he arrived at on application of his mind. Clearly, the reopening was resorted to on the basis of audit objection. When the audit objection note was presented to the Assessing Officer, he had, in very clear terms, mentioned that the objections raised by the audit party were not acceptable. Despite the Assessing Officer forming such a view on the objections raised by the audit party, which clearly shows that on his application of mind on the issues raised by the audit party, there was no case of any income having escaped assessment so as to resort to any measure to reign in the ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 33 escaped income in any manner, whether by way of Section 147 of the Act by reopening the case of the assessee or otherwise. That despite this view of the Assessing Officer on his application of mind, to the objections raised by the audit party, he was per force required to reopen the case of the assessee which he has clearly mentioned in the office note to the assessment order mentioning therein that the audit objections on the basis of which the reopening was resorted was not accepted by his office but merely for settling all audit objections, the disallowances were made in the assessment order passed. 33. In view of the above, the assumption of jurisdiction in the present case is contrary to the provisions of law which require that reopening can be resorted only on the satisfaction/belief of the Assessing Officer that income has escaped assessment. In the present case, there is no such satisfaction of the Assessing Officer which is clearly demonstrated from the fact that he had not accepted the audit objections based on which reopening was resorted to and mentioned the said fact in the assessment order also. In the absence of any satisfaction of the Assessing Officer of the income having escaped the assessment, the assumption of jurisdiction to reopen the case of the assessee was clearly contrary to the prescribed provisions of law and, therefore, invalid. The assessment order passed as a consequence therefore of an invalid jurisdiction assumed by the Assessing Officer, is void in the eyes of law, we hold. The assessment order so passed is, therefore, set aside as invalid. Grounds of Cross Objection raised by the assessee are allowed. In effect, the CO filed by the assessee is allowed. ITA No.1015/Ahd/2015 and 2 Others Aarvee Denims & Exports Ltd. Vs. DCIT 34 34. Since we have held that the assessment order passed in the present case to be invalid, the grounds raised by the Department in its appeal in ITA No.288/Ahd/2020 , on the merits of the case are mere academic in nature and require no adjudication by us. The appeal of the Department is, therefore, not being dealt with by us. 35. In the result– i) the appeal of the assessee in ITA No.1015/Ahd/2015 is partly allowed; ii) the Cross Objection of the assessee in CO No.1/Ahd/2022 is allowed, and iii) the appeal of the Revenue in ITA No.288/Ahd/2020 is not being dealt with by us as the issues raised therein on merits of the case being rendered academic on account of the assessment order passed being held invalid by us in the Cross Objection of the assessee in CO No.1/Ahd/2022. Order pronounced in the Court on 10 th February, 2023 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 10/02/2023