M/s. IRIS Smart Card Pvt.Ltd., Hyd, Hyderabad V. DCITm Circle-2(1), Hyderabad

ITA 1052/HYD/2012

• Counselvise Citation: 105222514 RSA 2012
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 06-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: P MURALI MOHAN
• Keywords: Capital asset; Depreciation; Principle of natural justice; Bad and doubtful debts; Capital receipt; Unabsorbed depreciation
• Section: 43B; 143(3); 115JB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1052/HYD/2012 ASSESSMENT YEAR : 2007-08 M/S IRIS SMART CARD PVT. LTD., HYDERABAD. PAN: AAACI7579P VS. COMMISSIONER OF INCOME-TAX-II, HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P. MURALI MOHAN REVENUE BY : SHRI P. SOMA SEKHAR REDDY DATE OF HEARING : 06-11-2013 DATE OF PRONOUNCEMENT : 13-11-2013 O R D E R PER B. RAMAKOTAIAH, A.M.: THIS IS AN APPEAL BY ASSESSEE DIRECTED AGAINST THE ORDER OF CIT-II, HYDERABAD, PASSED U/S 263, DATED 27-03-2012 FOR THE ASSESSMENT YEAR 2007-08. 2. BRIEFLY STATED, ASSESSEE HAS FILED RETURN OF INC OME FOR THE AY 2007-08 ADMITTING NIL INCOME AFTER SET OFF OF BRO UGHT FORWARD LOSSES. ASSESSMENT WAS COMPLETED U/S 143(3) BY THE DCIT, CI RCLE 2(1), HYDERABAD VIDE ORDER DATED 24-12-2009. IN THE SAID ORDER THE AO DISALLOWED BAD DEBTS AND ALLOWED CARRY FORWARD LOSE S TO AN EXTENT OF RS. 6,16,00,086/- MAKING TOTAL INCOME NIL. FURTHE R, THE AO ALSO GAVE A FINDING THAT AS SUBSTANTIAL BROUGHT FORWARD BUSI NESS LOSS AND DEPRECIATION LOSSES ARE AVAILABLE TO BE SET OFF, NO TAX LIABILITY U/S 115JB HAS ARISEN. 2 ITA NO. 1052/HYD/2012 M/S IRIS SMART CARD PVT. LTD. 3. THE CIT-II, HYDERABAD EXAMINED THE RECORD AND IS SUED NOTICE U/S 263 HOLDING THAT THE ORDER OF THE AO WAS ERRONE OUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. IN THE SHO W CAUSE NOTICE, THE CIT WAS OF THE OPINION THAT THE AMOUNT OF RS. 10,44 ,87,420/- RECEIVED BY ASSESSEE COMPANY AS WAIVER OF INTEREST AND PRINC IPLE FROM M/S IDBI AND BOI TERM LOAN IS TO BE CONSIDERED AS INCOM E U/S 41(1) AND THIS ASPECT WAS NOT APPLIED BY THE AO. FURTHER, THE CIT ALSO ASKED ASSESSEE TO SHOW CAUSE AS TO WHY PROVISIONS OF SECT ION 115JB(2) SHOULD NOT BE INVOKED AS HE WAS OF THE OPINION THAT BROUGHT FORWARD LOSSES WORKS OUT TO RS. 62,24,350/-, WHICH SHOULD H AVE BEEN SET OFF AND BALANCE PROFIT SHOULD BE WORKED OUT AS BOOK PRO FIT U/S 115JB. ASSESSEE IN ITS REPLY SUBMITTED THAT ASSESSEE HAS R ECEIVED WAIVER OF INTEREST AS WELL AS PRINCIPLE AND TO THE EXTENT OF INTEREST OF RS. 6,61,29,562/- HAS ALREADY BEEN CREDITED TO P&L A/C AND THE BALANCE HAS BEEN TAKEN TO RESERVES AND PROVISIONS OF SECTIO N 41(1) TO THE EXTENT APPLICABLE WERE ALREADY INVOKED. WITH REFERE NCE TO PROVISIONS OF SECTION 115JB, ASSESSEE HAS FILED DETAILS OF CAR RY FORWARD LOSSES AND DEPRECIATION AS PER ITS ANNUAL REPORTS AND SUBM ITTED THAT PROFIT COMPUTED DURING THE YEAR IS LESS THAN EITHER OF CAR RY FORWARD LOSSES OR DEPRECIATION, THEREFORE, PROVISIONS OF SECTION 1 15JB ARE NOT APPLICABLE AND, ACCORDINGLY, THE PROCEEDINGS SHOULD BE DROPPED. ASSESSEE ALSO SUBMITTED THAT THESE ISSUES HAVE BEEN EXAMINED BY THE AO AND SINCE HE HAS EXAMINED AND ACCEPTED IN TH E ORDER U/S 143(3), REVISION BY CIT ON THE SAME FACTS IS NOT PE RMITTED. ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE SUPR EME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD., VS. CIT, 243 I TR 83. THE CIT DID NOT AGREE WITH THE SUBMISSIONS AND DIRECTED THE AO TO BRING TO TAX THE AMOUNT OF RS. 10,44,87,460/- CREDITED TO RESERVES A ND SURPLUS ACCOUNT AS INCOME AND FURTHER DIRECTED THE AO TO CO NSIDER ONLY LOSS OF RS. 62,24,350/- AND ASSESS TAXABLE BOOK PROFIT O F RS. 2,24,42,360/- U/S 115JB. EVEN THOUGH HE HAS GIVEN CLEAR DIRECTION TO AO, HE SET 3 ITA NO. 1052/HYD/2012 M/S IRIS SMART CARD PVT. LTD. ASIDE THE ASSESSMENT WITH A DIRECTION TO RE-DO THE SAME IN THE LIGHT OF AFORESAID FINDINGS, OBSERVATIONS AND DIRECTIONS . 4. BEFORE US, THE LEARNED COUNSEL REFERRING TO THE ORDER OF THE AO AND THE DETAILS SUBMITTED BEFORE THE CIT, SUBMITTED THAT ASSESSEE CREDITED INTEREST WAIVER IN THE BOOKS OF ACCOUNT, A ND THE PRINCIPLE AMOUNT CANNOT BE CONSIDERED AS INCOME U/S 41(1) AS THE SAME WAS OBTAINED FOR THE PURPOSE PURCHASE OF ASSETS BY WAY OF TERM LOANS. SINCE ASSESSEE WAS INCURRING LOSSES, LOANS WERE RES TRUCTURED. IT WAS HIS SUBMISSION THAT THESE ASPECTS HAVE BEEN EXAMINE D BY THE AO IN THE ASSESSMENT PROCEEDINGS AND HAS CORRECTLY CONSI DERED AS INCOME TO THE EXTENT OF INTEREST WAIVER WHICH ASSESSEE HAS OFFERED. WITH REFERENCE TO 115JB, LEARNED COUNSEL PLACED FOLLOWIN G DETAILS ON RECORD TO SUBMIT THAT UNABSORBED DEPRECIATION AND B USINESS LOSSES ARRIVED AT BY CIT WAS NOT ONLY WRONG BUT ALSO NOT B ASED ON FACTS. CORRECT STATEMENT SUBMITTED AS SUPPORTED BY ANNUAL REPORTS IS AS UNDER: IRIS SMART CARDS LIMITED (AMTS. IN RS) ASST. YEAR UNABSORBED DEPRECIATION BUSINESS LOSS TOTAL 2004-05 22,167,801 104,817,188 126,984,989 2005-06 17,689,375 5,317,188 23,006,563 2006-07 14,396,074 15,284,149 29,680,223 TOTAL 54,253,250 125,418,525 179,671,775 IT WAS SUBMITTED THAT THESE ASPECTS WERE EXAMINED B Y THE AO AND THE AO GAVE A FINDING IN THE ASSESSMENT ORDER ITSELF TH AT THERE IS NO APPLICATION OF PROVISIONS OF SECTION 115JB. HE RELI ED ON VARIOUS PRINCIPLES TO SUBMIT THAT CIT HAS NO JURISDICTION T O INVOKE PROVISIONS OF SECTION 263 OF THE ACT. 5. THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF CIT TO SUBMIT THAT WAIVER OF PRINCIPLE AS WELL AS INTER EST SHOULD BE CONSIDERED AS INCOME U/S 42(1) AND HE RELIED ON THE PRINCIPLES LAID 4 ITA NO. 1052/HYD/2012 M/S IRIS SMART CARD PVT. LTD. DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF TV S SUNDARAM IYENGAR AND SONS LTD., 222 ITR 344 AND ALSO IN THE CASE OF SOLID CONTAINERS LTD. VS. DCIT, 308 ITR 417(BOM) TO SUBMI T THAT CIT WAS CORRECT IN DIRECTING THE AO TO BRING TO TAX AN AMOU NT OF RS. 10,44,87,460/-. WITH REFERENCE TO 115JB, HE SUBMIT TED THAT THE BIFURCATION AS PROVIDED BY CIT IS ON THE BASIS OF D EPRECIATION SCHEDULE ENCLOSED TO ANNUAL REPORT AND, THEREFORE, THE ORDERS OF CIT SHOULD BE UPHELD. 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FA CTS AND DOCUMENTS PLACED ON RECORD. BEFORE DEALING WITH THE ISSUE OF JURISDICTION U/S 263, IT IS NECESSARY TO PLACE THE FACTS ON RECORD. ASSESSEE HAS INCURRED LOSSES AND HAS OBTAINED WAIVE R OF PRINCIPLE AS WELL AS INTEREST. THE AO VIDE SHOW CAUSE LETTER DAT ED 03-12-2009 ASKED ASSESSEE TO EXPLAIN AND FURNISH BREAK-UP OF P RINCIPLE AND INTEREST WAIVED. ASSESSEE VIDE ANNEXURE-III TO THE LETTER GIVEN TO AO SUBMITTED THAT ASSESSEE COMPANY RECEIVED FINANCIAL ASSISTANCE OF RS. 598 LAKHS UNDER VENTURE CAPITAL FUND SCHEME COM PRISING CONVERTIBLE RUPEE TERM LOAN OF RS. 480 LAKHS AND SU BSCRIPTION OF 100 LAKHS TO THE EQUITY SHARE CAPITAL AND 17.5% REDEEMA BLE CONVERTIBLE ACCUMULATIVE PREFERENTIAL SHARES OF 98 LAKHS. THESE AMOUNTS WERE DISBURSED IN THE YEAR 1999. FURTHER RECEIVED FINANC IAL ASSISTANCE OF 104 MILLION UNDER PROJECT FINANCE SCHEME FOR THE EX PANSION CUM UP- GRADATION PROJECT FOR THE MANUFACTURE OF SMART CARD S BY WAY OF TERM LOAN FROM IDBI. THESE WERE DISBURSED IN 2001. SINCE ASSESSEE ENDED UP IN LOSSES, IT HAS ENTERED INTO ONE TIME SETTLEME NT FOR THE DUES. WITH RESPECT TO LOANS RECEIVED FROM IDBI AND WITH R ESPECT TO WAIVER LETTER RECEIVED FORM STRESSED ASSETS STABILIZATION FUND, THESE WERE PLACED ON RECORD BEFORE THE AO. TO THE EXTENT OF W AIVER OF PRINCIPLE DETAILS ARE AS UNDER: 5 ITA NO. 1052/HYD/2012 M/S IRIS SMART CARD PVT. LTD. PARTICULARS AMOUNTS (RS.) AMOUNT WAIVED IN THE LEDGER TERM LOAN IDBI AS ON 31-03-2007 AFTER SATISFYING THE CONDITIONS IN THE ABOVE WAIVER LETTER 4,81,07,389/- AMOUNT WAIVED IN THE LEDGER (S) IDBI TERM LOAN PAYABLE AS ON 31-03-2007 AFTER SATISFYING THE CONDITIONS IN THE ABOVE WAIVER LETTER 4,81,75,000/- TOTAL PRINCIPAL WAIVED 9,62,82,389/- WITH REFERENCE TO WAIVER OF INTEREST, INTEREST TO T HE EXTENT OF RS. 6,19,29,562/- WAS WAIVED AND THE SAME WAS CREDITED TO THE P&L A/C FOR THE PERIOD 31-03-2007 AS EXCESS PROVISION WRITT EN BACK. TO THIS EXTENT ALL THE DETAILS PERTAINING TO WAIVER, SANCTI ON OF AMOUNTS, ETC. WERE PLACED ON RECORD BEFORE THE AO BY ASSESSEE. TH E AO ACCEPTED THAT AND CONSIDERED AS INCOME TO THE EXTENT OF CRED IT TO THE P&L A/C U/S 41(1) AND ALLOWED CARRY FORWARD / SET OFF OF BR OUGHT FORWARD LOSSES IN THE ORDER U/S 143(3) OF THE ACT. 7. THE ISSUE RAISED BY CIT IS THAT THE AMOUNT OF PR INCIPLE ALSO TO BE TREATED AS INCOME OF ASSESSEE U/S 41(1). WE AR E UNABLE TO AGREE WITH THE FINDING OF CIT. FIRST OF ALL, NO DEDUCTION WAS CLAIMED IN ANY OF THE EARLIER YEARS, SO TREATING THE AMOUNT AS INCOME U/S 41(1) DOES NOT ARISE, THEREFORE, TO THAT EXTENT THE ORDER OF CIT I S NOT CORRECT. EVEN TO THE EXTENT TREATING THE AMOUNT U/S 28, CIT RELIED O N THE DECISION OF TVS IYYENGAR AND SONS LTD. (SUPRA). THE PRINCIPLE L AID DOWN BY THE HONBLE SUPREME COURT IN THE ABOVE DECISION IS THAT IF THE AMOUNT IS RECEIVED IN THE COURSE OF TRADING TRANSACTION, THOU GH IT IS NOT TAXABLE IN THE YEAR OF RECEIPT AS BEING OF REVENUE, THAT AM OUNT CHANGES ITS CHARACTER AND THE AMOUNT BECOMES ASSESSEES OWN MON EY BECAUSE OF LIMITATION OR BY ANY OTHER STATUTORY OR CONTINGE NT RIGHT. WHEN SUCH THING HAPPENS, COMMON SENSE DEMANDS THAT THE AMOUNT SHOULD BE TREATED AS INCOME OF ASSESSEE. IN THIS CASE, LOAN S ANCTIONED IS NOT RECEIVED IN THE COURSE OF TRADING TRANSACTION, THIS BEING A CAPITAL RECEIPT FOR PURPOSE OF PURCHASE OF ASSETS/ BUSINESS . ALL AMOUNTS 6 ITA NO. 1052/HYD/2012 M/S IRIS SMART CARD PVT. LTD. RECEIVED DURING THE COURSE OF BUSINESS CANNOT BE CO NSIDERED AS AMOUNT RECEIVED IN THE COURSE OF TRADING TRANSACTIO N. THEREFORE, THE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT I N THE ABOVE SAID CASE DOES NOT APPLY AT ALL. THE OTHER DECISION RELI ED UPON BY THE CIT IS THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD. VS. DCIT, 308 ITR 417 WHEREIN THE A MOUNT WAS TRANSFERRED TO P&L A/C AND THE WAIVER OF THE LOAN T AKEN BY ASSESSEE WAS CONSIDERED TAXABLE. HOWEVER, THE BOMBAY HIGH CO URT HAS NOT FOLLOWED THIS CASE AND DISTINGUISHED IN THE CASE OF CIT VS. MODEST MARRY TIMES PVT. LTD., 338 ITR 64. FURTHER, THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. TOSHA INTERNATIONAL , 319 ITR (ST) 7 SC, ON SIMILAR ISSUE, HELD THAT ASSESSEE HAD NOT GOT AN Y DEDUCTION ON ACCOUNT OF ACQUISITION OF CAPITAL ASSETS AS IT HAS BEEN REFLECTED IN THE BALANCE SHEET AND NOT IN THE P&L A/C AND THE REMISS ION OF PRINCIPLE AMOUNT OF LOAN OBTAINED FROM BANK AND FINANCIAL INS TITUTION HAD NOT BEEN CLAIMED AS EXPENDITURE OR TRADING LIABILITY IN ANY OF THE EARLIER YEAR, HENCE, SECTION 41(1) WAS NOT APPLICABLE. 8. THE LEARNED DR IN THE COURSE OF ARGUMENTS RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURTS JUDGMEN T IN THE CASE OF NECTOR BEVERAGES (P) LTD. VS. DCIT,0 267 ITR 385, W HICH WAS SUBSEQUENTLY REVERSED BY THE HONBLE SUPREME COURT AS REPORTED IN 314 ITR 314. SO THE LAW ON THIS ISSUE IS VERY CLEAR THAT IF ASSESSEE HAS NOT GOT ANY DEDUCTION AS A TRADING LIABILITY IN ANY OF THE EARLIER YEARS, PROVISIONS OF SECTION 41(1) DOES NOT APPLY. UNLESS PRINCIPLE AMOUNT PERTAINS TO ANY AMOUNT RECEIVED DURING THE C OURSE OF TRADING ACTIVITY, THE SAME CANNOT BE BROUGHT TO TAX AS INCO ME OF ASSESSEE PARTICULARLY ONLY IN THOSE SITUATIONS AS STATED BY THE HONBLE SUPREME COURT IN THE CASE OF TVS SUNDARAM IYYENGAR & SONS ( SUPRA). IN THE CASE OF ASSESSEE, NO SUCH SITUATION EXISTED, THEREF ORE, THE DIRECTION OF CIT TO TREAT THE ENTIRE CAPITA AMOUNT AS INCOME IS NOT CORRECT ON THE FACTS OF THE CASE AND ALSO ON THE PRINCIPLES OF LAW. TO THAT EXTENT WE ARE NOT ABLE TO UPHOLD THE ORDER OF CIT. MOREOVE R, ONCE A DECISION 7 ITA NO. 1052/HYD/2012 M/S IRIS SMART CARD PVT. LTD. WAS TAKEN BY AO ON THE SAID FACTS, THE CIT CANNOT R EVIEW THE SAME UNDER THE PROVISIONS OF SECTION 263. WHEN THERE ARE TWO VIEWS POSSIBLE, ONE OF THE PLAUSIBLE OPINION TAKEN BY THE AO CANNOT BE DISSENTED BY CIT UNDER SECTION 263. THEREFORE, WE H OLD THAT CIT LACKS JURISDICTION AND SO THE DIRECTION OF CIT IS CANCELL ED. 9. THE NEXT ISSUE FOR CONSIDERATION IS ASSESSABILIT Y U/S 115JB. AS CAN BE SEEN FROM THE ANNUAL REPORTS PLACED ON RECOR D AND THE TABLE EXTRACTED ABOVE IN THE SUBMISSIONS, CARRY FORWARD LOSSES AND CARRY FORWARD DEPRECIATION IS MORE THAN PROFIT EARNED DUR ING THE YEAR IN THE BOOKS OF ACCOUNT. THE PROFIT IN THE BOOKS OF ACCOUN T IS RS. 2,86,66,679/-. THE CIT WRONGLY HAS TAKEN DEPRECIATI ON SO FAR ALLOWED UNDER THE COMPANY LAW, AS STATED IN SCHEDULE OF ASS ETS IN ANNUAL REPORT, TO EXCLUDE THE SAME FROM CARRY FORWARD LOSS ES REPORTED UP TO THE YEAR SO AS TO ARRIVE AT THE AMOUNT OF RS. 62,24 ,350/-. IN SPITE OF FURNISHING THE CORRECT CARRY FORWARD LOSSES ON THE BASIS OF ANNUAL REPORTS OF EARLIER 3 YEARS IN WHICH ASSESSEE SUFFE RED LOSSES, THE CIT WENT ON A CONVOLUTED WAY TO EXCLUDE DEPRECIATION CL AIMED IN THE BOOKS OF ACCOUNT ON ALL THE FIXED ASSETS FROM THE I NCEPTION OF COMPANY TO ARRIVE AT THAT AMOUNT. WHAT CIT FAILED T O CONSIDER WAS THAT LOSSES WERE INCURRED BY ASSESSEE ONLY IN THE LAST THREE YEARS AND WHAT IS TO BE EXAMINED UNDER THE PROVISIONS OF COMPANIES ACT IS AMOUNT OF LOSS OR DEPRECIATION IN THOSE YEARS, WHIC H HAVE BEEN CARRIED FORWARD UNDER COMPANY LAW. DEPRECIATION ALR EADY ALLOWED TO ASSESSEE ON ASSETS IN EARLIER YEARS HAS CERTAINLY N O BEARING ON THE ISSUE. WE ARE OF THE VIEW THAT THE ORDER OF CIT IS ERRONEOUS RATHER THAN THE ORDER OF AO. AS SEEN FROM THE STATEMENTS F URNISHED BY ASSESSEE BEFORE THE CIT AND ALSO BEFORE THE AO AT T HE TIME OF ORIGINAL ASSESSMENT, CARRIED FORWARD LOSSES OR DEP RECIATION ARE MORE THAN THE PROFIT EARNED DURING THE YEAR, THEREFORE, THE AO FINDING THAT PROVISIONS OF SECTION 115JB ARE NOT ATTRACTED IS C ORRECT AND THERE IS NO ERROR IN THE FINDING OF THE AO. ACCORDINGLY, THE DIRECTION OF CIT 8 ITA NO. 1052/HYD/2012 M/S IRIS SMART CARD PVT. LTD. DETERMINING TAXABLE PROFIT AT 2,24,42,330/- IS ERRO NEOUS AND, THEREFORE, WE HAVE NO HESITATION IN CANCELLING THE DIRECTION. 10. BEFORE PARTING WITH THESE ISSUES, WE WOULD ALSO LIKE TO PLACE OUR OBSERVATIONS. AS SEEN FROM THE COMPUTATION OF A SSESSEE AND THE ORDERS OF AO, IN FACT, THE AMOUNT OF RS. 6,61,29,56 2/- COULD NOT HAVE BEEN BROUGHT TO TAX UNDER THE INCOME-TAX PROVISIONS , AS THIS INTEREST WAS A PROVISION MADE IN THE BOOKS OF ACCOUNT. U/S 43B OF THE ACT THIS INTEREST PROVISION WOULD NOT HAVE BEEN ALLOWED UNLE SS IT IS PAID AND AS THESE AMOUNTS ARE NOT PAID, TO THAT EXTENT, PROV ISION OF INTEREST MADE IN THE BOOKS OF ACCOUNT COULD NOT HAVE BEEN CL AIMED AS DEDUCTION IN ANY OF THE EARLIER YEARS. THEREFORE, B RINGING THE AMOUNT TO TAX U/S 41(1) MAY NOT ARISE AT ALL. MAY BE IN O RDER TO CLAIM CARRY FORWARD LOSSES WHICH MAY GET LAPSED, ASSESSEE WOULD HAVE OFFERED THESE AMOUNTS IN THE COMPUTATION OF INCOME WITHOUT EXCLUDING THE SAME. CONSIDERING THIS ASPECT IN MIND, WE ARE OF TH E OPINION THAT NO PREJUDICE IS CAUSED TO REVENUE ON THE BASIS OF THE ORDERS OF THE AO, THEREFORE, CIT WAS PRECLUDED IN INVOKING PROVISIONS OF SECTION 263. THE HONBLE SUPREME COURT IN THE CASE OF MALABAR IN DUSTRIAL CO. LTD. VS. CIT, 243 ITR 83 HAS HELD AS UNDER: A BARE READING OF PROVISIONS OF S. 263 MAKES IT CLE AR THAT THE PREREQUISITE TO EXERCISE OF JURISDICTION BY THE CIT SUO MOTO UNDER IT, IS THAT THE ORDER OF THE ITO IS ERRO NEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF TH E REVENUE. THE CIT HAS TO BE SATISFIED OF TWIN CONDITIONS, NAM ELY, (I) THE ORDER OF THE AO SOUGHT TO BE REVISED IS ERRONEO US; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVE NUE. IF ONE OF THEM IS ABSENTIF THE ORDER OF THE ITO IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRO NEOUS BUT IS PREJUDICIAL TO THE REVENUERECOURSE CANNOT BE HAD T O S. 263(1). THERE CAN BE NO DOUBT THAT THE PROVISION CA NNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE O R ERROR COMMITTED BY THE AO; IT IS ONLY WHEN AN ORDER IS ER RONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT AS SUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SA TISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SA ME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PR INCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE IS NO T AN 9 ITA NO. 1052/HYD/2012 M/S IRIS SMART CARD PVT. LTD. EXPRESSION OF ART AND IS NOT DEFINED IN THE ACT. UN DERSTOOD IN ITS ORDINARY MEANING IT IS OF WIDE IMPORT AND IS NOT CONFINED TO LOSS OF TAX. THE SCHEME OF THE ACT IS T O LEVY AND COLLECT TAX IN ACCORDANCE WITH THE PROVISIONS OF TH E ACT AND THIS TASK IS ENTRUSTED TO THE REVENUE. IF DUE TO AN ERRONEOUS ORDER OF THE ITO, THE REVENUE IS LOSING TAX LAWFULL Y PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO TH E INTERESTS OF THE REVENUE. THE PHRASE PREJUDICIAL TO THE INTE RESTS OF THE REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE AO. EVERY LOSS OF REV ENUE AS A CONSEQUENCE OF AN ORDER OF AO CANNOT BE TREATE D AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EX AMPLE, WHEN AN ITO ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TW O VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WH ICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRO NEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE U NLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. FOLLOWING THE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT IN THE SAID CASE, WE HAVE NO HESITATION IN HOLDING THA T CIT DOES NOT HAVE ANY JURISDICTION TO INVOKE THE PROVISIONS OF S ECTION 263. EVEN OTHERWISE HIS DIRECTIONS, AS DISCUSSED ABOVE, ARE E RRONEOUS AND NOT BASED ON FACTS. BEFORE US, LEARNED COUNSEL DID NOT PREFER ANY COST TO BE GRANTED TO HIM, ACCORDINGLY, THERE IS NO ORDER A S TO COST. THE GROUNDS ARE ALLOWED. 11. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 13 TH NOVEMBER, 2013. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. RAMA KOTAIAH) JUDICIAL MEMBER ACCOU NTANT MEMBER HYDERABAD, DATED: 13 TH NOVEMBER, 2013. KV 10 ITA NO. 1052/HYD/2012 M/S IRIS SMART CARD PVT. LTD. COPY TO:- 1) M/S IRIS SMART CARD PVT. LTD., C/O P. MURALI & C O., CAS., 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYD 82. 2) DCIT - II HYDERABAD. 3) CIT-II, HYDERABAD 4) ADDL.CIT, RANGE 2, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A .T., HYDERABAD.