M/s. Saritha Steel & Industries Ltd, Hyd, Hyderabad V. ACIT, Circle -3(1), Hyderabad

ITA 1057/HYD/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1428 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 31-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M RAVIDER SAI
• Assessee Lawyers: P MURALI MOHANA RAO
• Keywords: Business income; Depreciation; Principle of natural justice; Difference of opinion; Capital receipt; Change of opinion; Capital expenditure
• Section: 43B; 143(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1056/HYD/2011 ASSESSMENT YEAR: 2006-07 VASAVI INDUSTRIES LTD., APPELLANT HYDERABAD (PAN AADCS1262L) VS. DY. COMMISSIONER OF INCOME-TAX, RESPONDENT CIRCLE-3(2), HYDERABAD. AND ITA NO. 1057/HYD/2011 ASSESSMENT YEAR: 2006-07 SARITHA STEEL AND INDUSTRIES LTD., APPELLANT HYDERABAD (PAN AAGS7356A) VS. ASST. COMMISSIONER OF INCOME-TAX, RESPONDENT CIRCLE- 3(2), HYDERABAD. APPELLANT BY : SHRI P. MURALI MOHANA RAO RESPONDENT BY : SHRI M. RAVIDER SAI DATE OF HEARING : 27/12/2012 DATE OF PRONOUNCEMENT : 01/02/ 2013 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: BOTH THESE APPEALS FILED BY DIFFERENT ASSESSEES AR E DIRECTED AGAINST THE RESPECTIVE ORDERS OF CIT-III, HYDERABAD DATED 30/03/2011 PASSED U/S 263 OF THE IT ACT, FOR THE ITA NOS. 1056 & 1057/HYD/11 M/S VASAVI INDUSTRIES LT. M/S SARITHA STEEL AND INDUSTRIES LTD. 2 ASSESSMENT YEAR 2006-07. SINCE IDENTICAL ISSUE IS INVOLVED IN BOTH THESE APPEALS, THEY WERE CLUBBED AND HEARD TOG ETHER AND THEREFORE A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. ITA NO. 1056/HYD/2011 IN THE CASE OF M/S VASAVI I NDUSTRIES LTD. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE CIT-I II, HYDERABAD BY VIRTUE OF POWERS VESTED U/S 263 OF THE IT ACT CALLED FOR AND PERUSED THE RECORDS OF THE ASSESSEE COMPANY PERTAINING TO AY 2006-07. ON EXAMINATION, THE CIT O BSERVED THAT THE ASSESSEE HAD ENTERED INTO ONE TIME SETTLE MENT (OTS) WITH ITS BANKERS, M/S STATE BANK OF INDIA AND M/S INDUSTRIAL DEVELOPMENT BANK OF INDIA, AS A RESULT O F WHICH, IT GOT WAIVER OF LOAN AMOUNT OF RS. 3,83,98,703/- AND THE CIT WAS OF THE OPINION THAT THE SAID WAIVER REPRESENTED BENEFIT TO THE ASSESSEE AND BECAME INCOME OF THE ASSESSEE DURI NG THE YEAR UNDER CONSIDERATION. THEREFORE, THE CIT ISSUED A SHOW CAUSE NOTICE U/S 263 DATED 15/02/2010 CALLING UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SAID WAIVER AM OUNT NOT CONSIDERED AS INCOME BY THE AO IN THE ASSESSMENT OR DER PASSED U/S 143(3) DATED 31/12/2008 BE NOT TREATED A S ASSESSEES INCOME. 3. DURING THE COURSE OF HEARING, THE AR WAS REQUEST ED TO FURNISH THE DOCUMENTARY EVIDENCE IN SUPPORT OF WAIV ERS GRANTED BY SBI AND IDBI. IN REPLY, THE LEARNED AR SUBMITTED THAT AS PER THE NOTES TO THE ACCOUNTS FOR THE YEAR 2005-06 AT S.NO. 9 VIDE PAGE-6, THE DETAILS OF THE WAIVER FROM IDBI AND SBI TOWARDS OTS ARE MENTIONED AS UNDER: ITA NOS. 1056 & 1057/HYD/11 M/S VASAVI INDUSTRIES LT. M/S SARITHA STEEL AND INDUSTRIES LTD. 3 NAME OF THE BANK TOTAL DUE OTS WAIVER (RS.) SBI 3882.60 1396.00 24,86,60,569 IDBI 6885.05 5122.00 17,63,05,000 42,49,65,569 ========= IT WAS SUBMITTED THAT OUT OF THE ABOVE AMOUNT, AN AMOUNT OF RS. 38,65,66,297 REPRESENTED INTEREST WAI VER ON TERM LOANS AND WORKING CAPITAL LOANS, WHICH WAS TRA NSFERRED TO RESERVES & SURPLUS ACCOUNT. THE BALANCE AMOUNT OF R S. 3,83,98,703 REPRESENTS WAIVER OF PRINCIPAL AMOUNT O F LOANS. 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT NOTED THAT THE ASSESSEE HAD ACQUIRED BUSINESS A SSETS FUNDED FROM THE CAPITAL AND LOANS. INTEREST ON SUCH LOANS WAS ALLOWED AS DEDUCTION U/S 36 EVERY YEAR. THUS, THE W AIVER OF PRINCIPAL AMOUNT OF LOAN WAS REQUIRED TO BE REDUCED FROM THE CAPITAL EXPENDITURE I.E. FROM THE WDV OF FIXED ASSE TS. IN OTHER WORDS, THE WAIVER SHOULD BE TREATED ON PAR WITH CAP ITAL SUBSIDY, WHICH REDUCES THE COST TO THE ASSESSEE OF THE FIXED ASSETS. IN THIS CONNECTION, THE CIT PLACED RELIANC E ON APEX COURTS DECISION IN THE CASE OF M/S SAHNI STEEL & P RESS WORKS LTD. VS. CIT, 228 ITR 253 (SC). 5. DURING THE COURSE OF HEARING, ON BEING ASKED BY THE CIT TO THE ASSESSEE TO SHOW REASON WHY THE SAID BENEFI T ACCRUED TO THE ASSESSEE SHOULD NOT BE TAXED AS ITS PROFIT, IN ITS REPLY DATED 06/01/2011, IT WAS ARGUED BY THE ASSESSEE THA T ENTIRE PRINCIPAL AMOUNT OF LOAN HAD BEEN TRANSFERRED TO CA PITAL RESERVE ACCOUNT AND PRINCIPAL AMOUNT OF LOAN IS OUT OF PURVIEW OF SECTION 41(1). SIMILARLY, IT WAS ARGUED THAT PRO VISIONS OF ITA NOS. 1056 & 1057/HYD/11 M/S VASAVI INDUSTRIES LT. M/S SARITHA STEEL AND INDUSTRIES LTD. 4 SECTION 28(IV) ARE NOT APPLICABLE TO THE CASE AND T HE ASSESSEE RELIED ON THE FOLLOWING CASE-LAWS: 1) D.S. NARAYANA & CO. VS. ITO, [1987] 27 TTJ(HYD) 179 2) IFB SECURITIES LTD. VS. ITO [2006] 101 TTJ (KOL ) 829 3) MINDTECH (INDIA) LTD. VS. ITO [2009] 124 TTJ (M UM) 830 6. THE CIT HELD THAT THERE WAS NO MERIT IN THE ASS ESSEES CONTENTIONS AND THAT CASE-LAWS RELIED UPON BY THE A SSESSEE WERE NOT APPLICABLE TO THE FACTS OF THE CASE. ACCOR DINGLY, THE CIT HELD THAT AN AMOUNT OF RS. 3,83,98,703 RECEIVED BY THE ASSESSEE AS LOAN WAIVER CONSTITUTED CAPITAL RECEIPT WHICH WENT TO REDUCE THE COST OF THE FIXED ASSETS OF ASSESSEE . THE CIT WAS OF THE VIEW THAT THE SAID AMOUNT SHOULD BE REDU CED FROM THE WDV OF THE FIXED ASSETS AND THE DEPRECIATION SH OULD BE ALLOWED TO THE ASSESSEE ON THE REDUCED WDV OF THE F IXED ASSETS. HE, THEREFORE, CONCLUDED THAT THE ASSESSMEN T ORDER PASSED BY THE AO U/S 143(3) DATED 31/12/2008 WAS ER RONEOUS AND THE ASSESSMENT ORDER HAD TO BE REVISED. 7. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 8. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE FILED PRECISE GROUNDS OF APPEAL INCLUDING ADDITIONAL GROU NDS OF APPEAL, WHICH ARE AS FOLLOWS: 1. THE CIT-III HAS ERRED ON THE AMOUNT WAIVED BY ID BI & SBI BY CONSIDERING THE PRINCIPAL PORTION OF AMOUNT RS. 383.98 LAKHS BUSINESS INCOME OF THE ASSESSEE U/S 41(1)/28(IV). THE WAIVER APPROVED BY THE FINANCIAL INSTITUTIONS IS NOT THE BUSINESS OBJECT OF THE ASSESSEE. 2. MERE CHANGE OF OPINION CANNOT BE BASIS FOR ISSU ING ORDER U/S 263 BY CONSIDERING ANOTHER VIEW AS PER T HE ITA NOS. 1056 & 1057/HYD/11 M/S VASAVI INDUSTRIES LT. M/S SARITHA STEEL AND INDUSTRIES LTD. 5 CASE LAW MALABAR INDUSTRIAL CO. LTD. VS. CIT, [200 0] 243 ITR 83 (SC). 3. THE ASSESSEE HAS PLACED RELIANCE ON THE FOLLOWI NG CASE LAWS: 1. CHETAN CHEMICALS VS. CIT (GUJ. HC) 2. JEHANGIR GULLABBHAI VS. JT. CIT [2008] 21 SOT 6 03 (MUM.) 3. HELIOS FOOD IMPROVERS (P) LTD. VS. DCIT, [2007] 14 SOT 546 (MUM.) 4. D.S. NARAYANA & CO. VS. ITO [1987] 27 TTJ (HYD) 179 5. IFB SECURITIES LTD. VS. ITO [2006] 101 TTJ (KOL ) 829 6. MINDTECK (INDIA) LTD. VS. ITO [2009] 124 TTJ (M UMBAI) 830. 9. THE ADDITIONAL GROUNDS FILED BY THE ASSESSEE ARE AS FOLLOWS: 7. THE CIT-III, HYDERABAD ERRED BY PASSING THE ORDE R U/S 263 ON 30/03/201 BY CONSIDERING ANOTHER VIEW FOR T HE FACTS/INFORMATION WHICH WAS ALREADY FURNISHED DURI NG THE TIME OF ASSESSMENT U/S 143(3). ONCE THE ASSESSMENT ORDER HAS BEEN PASSED U/S 143(3), THE CHANGE OF OP INION CANNOT BE MADE AND THE ORDER PASSED CONSIDERING ON E VIEW CANNOT BE CHANGED WITH CHANGE OF OPINION U/S 263 OF THE IT ACT, 1961, BY CONSIDERING ANOTHER VIEW. 8. THE ASSESSEE COMPANY HAS PLACED RELIANCE ON THE CASE LAW MALABAR INDUSTRIAL CO. LTD. VS. CIT [2000 243 ITR 83 (SC). 10. WE SHALL FIRST ADJUDICATE UPON GROUND PERTAININ G TO THE EXERCISE OF JURISDICTION U/S 263, RAISED AS GROUND NO. 2. 11. THE LEARNED COUNSEL FOR THE ASSESSEE INVITED OU R ATTENTION TO PAGE 1 OF THE PAPER BOOK TO SUBMIT THAT THE AO H AS MADE THOROUGH ENQUIRY AND, TO THIS EFFECT, THE AO ISSUED A QUESTIONNAIRE ASKING FOR THE INFORMATION TO BE FURN ISHED, WHICH IS EXTRACTED BELOW: ITA NOS. 1056 & 1057/HYD/11 M/S VASAVI INDUSTRIES LT. M/S SARITHA STEEL AND INDUSTRIES LTD. 6 I) DURING THE YEAR THE ASSESSEE EFFECTED EXPORTS T O THE TUNE OF RS. 35,14,32,807/- WHICH EARNED AN AMOUNT OF RS. 85,44,794/- TOWARDS EXPORT BENEFITS RECEIVABLE . SHOW CAUSE WHY THIS AMOUNT OF RS. 85,44,794/- BEING THE EXPORT BENEFITS RECEIVABLE, SHOULD NOT BE TREATED AS INCOME. II) IT IS NOTICED FROM THE STATEMENTS FILED THAT TH E ASSESSEE HAD INVESTED AN AMOUNT OF RS. 16,05,93,500 /- IN THE EQUITY SHARES OF SHRI VASAVI HOLDINGS & INVE STMENT LTD AND THE ASSESSEE HAS INCURRED A LIABILITY OF RS . 85,77,810/- AS INTEREST ON WORKING CAPITAL BESIDES INTEREST TO OTHERS OF RS. 1,02,45,869/- AND INTERES T ON TERM LOANS AT ABOUT RS. 4 CRORES. PLEASE SHOW CAUSE WHY THE INTEREST ATTRIBUTABLE TO THE INVESTMENT OF RS. 16,05,93,500/- SHOULD NOT BE DISALLOWED U/S 14A OF THE IT ACT. III) IT IS NOTICED FROM THE STATEMENTS FILED, THAT DURING THE YEAR THE ASSESSEE TRANSFERRED AN AMOUNT OF RS. 38,65,66,297/- TO CAPITAL RESERVE UNDER THE ITEM IN TEREST WAIVER AND TERM LOAN AND WCDL. AS PER SCHEDULE 18 T O THE BALANCE SHEET IT IS FOUND THAT THE ASSESSEE HAS GOT A WAIVER OF RS. 2486.60 LAKHS FROM SBI AND RS. 1763.0 5 FROM IDBI ON ACCOUNT OF ONE TIME SETTLEMENTS ENTERE D INTO WITH THE SBI AND IDBI. THESE AMOUNTS REPRESENT THE CESSATION OF LIABILITY AND IS TO BE TREATED AS INCO ME OF THE YEAR. PLEASE SHOW CAUSE WHY THE AMOUNT OF RS. 38,65,66,297/- SHOULD NOT BE TREATED AS INCOME AND ADDED BACK TO THE TOTAL INCOME. IV) EMPLOYEES CONTRIBUTION TOWARDS PF NOT PAID IN TIME AS PER ANNEXURE III TO 3CD REPORT, PLEASE EXPLAIN WHY THE SAME SHOULD NOT BE ADDED BACK TO THE TOTAL INCOME. V) ROLLING DIVISION SEPTEMBER INSTALLMENT NOT PAID IN TIME AS PER ANNEXURE-III TO 3CD REPORT. WHY THE SAME SHO ULD NOT BE ADDED TO THE TOTAL INCOME. VI) INTEREST ON IREDA TERM LOAN AT RS. 67,63,200/- WHY THE SAME SHOULD NOT BE ADDED IN THE ABSENCE OF DETA ILS OF PAYMENTS. VII) INTEREST ACCRUED AND DUE ON TERM LOANS AS PER SCHEDULE III OF BALANCE SHEET AT RS. 11,91,59,076/- . WHY THE SAME SHOULD NOT BE ADDED TO THE INCOME. ITA NOS. 1056 & 1057/HYD/11 M/S VASAVI INDUSTRIES LT. M/S SARITHA STEEL AND INDUSTRIES LTD. 7 12. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY HAS BEEN ENGAGED IN THE BUSINESS O F MANUFACTURING OF IRON AND STEELS AND WIND POWER GEN ERATION AND MANUFACTURE OF FERRO CHROME BUSINESS FOR THE AB OVE ASSESSMENT YEARS AND THE ONE TIME SETTLEMENT HAS BE EN MADE FOR THE PAYMENTS OF LIABILITY OF THE OUTSTANDING WI TH THE FINANCIAL INSTITUTIONS LIKE IDBI AND SBI AND THE BE NEFIT OR WAIVER HAS BEEN GIVEN FOR THE PAYMENT TO BE MADE TO THE LIABILITY OF THE INSTITUTION. HE POINTED OUT THAT T HE ASSESSEE HAS GOT THE WAIVER NOT FROM THE BUSINESS DONE OF THE AS SESSEE DURING THE COURSE OF BUSINESS AND THE WAIVER OBTAINING/APPLYING IS NOT THE BUSINESS OF THE ASSES SEE BY ANY STRETCH OF IMAGINATION BE SAID TO BE A BENEFIT OF T HE ASSESSEE WHICH ARISES FROM BUSINESS. HE CONTENDED THAT EVASI ON OF DEBTS OWED BY THE ASSESSEE IS NOT THE BUSINESS OF T HE COMPANY. THE LEARNED COUNSEL FOR THE ASSESSEE RELI ED UPON THE DECISION OF THE MALABAR INDUSTRIAL CO. LTD. VS. CIT, 243 ITR 83 (SC) AND NECTOR BEVERAGES P. LTD. VS. DCIT, (BOM .). 13. ON THE OTHER HAND, THE LEARNED DR HAS RELIED UP ON THE ORDER OF THE CIT IN SUPPORT OF REVENUES CASE. 14. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES , PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF T HE AUTHORITIES BELOW AS WELL AS THE DECISIONS CITED. 15. WE FIND THAT THE CIT WHILE PASSING THE ORDER I N RESPECT OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WHERE IN IT WAS HELD THAT THE ASSESSMENT ORDER PASSED BY THE ASSESS ING OFFICER ITA NOS. 1056 & 1057/HYD/11 M/S VASAVI INDUSTRIES LT. M/S SARITHA STEEL AND INDUSTRIES LTD. 8 U/S 143(3) DATED 31/12/2008 WAS ERRONEOUS IN SO FAR AS IT RELATES TO THE REDUCTION OF THE ASSESSEES LIABILIT Y UNDER OTS SCHEME. HE DIRECTED TO PASS ORDER GIVING EFFECT TO THE ORDER U/S 263 DATED 30/03/2011 WHERE IN IT WAS HELD THAT THE ASSESSMENT ORDER NEED TO BE REVISED BY DEDUCTING TH E PRINCIPAL WAIVER AMOUNT FROM COST OF FIXED ASSETS. THE ASSES SEE COMPANY HAS GOT WAIVER FROM A STATE BANK OF INDIA A ND IDBI OF RS. 4249.66 LAKHS CONSISTING OF RS. 3865.66 LAKH S OF INTEREST AND 383.98 LAKHS OF PRINCIPAL AND THE INTEREST PORT ION OF RS. 3865.66 LAKHS WAS DEBITED TO PROFIT AND LOSS ACCOUN T AND DISALLOWED U/S 43B IN THE ASSESSMENT YEARS 2003-04 TO 2005- 06. 16. IT WAS ARGUED BY THE LEARNED COUNSEL FOR THE A SSESSEE THAT WITH REGARD TO PRINCIPAL PORTION AMOUNTING TO RS. 383.98 LAKHS CANNOT BE CONSIDERED AS INCOME U/S 41(1) AND ALSO U/S 28(IV). BECAUSE THE WAIVER OBTAINING/APPLYING IS NO T THE BUSINESS OF THE ASSESSEE BY ANY STRETCH OF IMAGINAT ION BE SAID TO BE A BENEFIT OF THE ASSESSEE WHICH ARISES FROM B USINESS. 17. FURTHER, THE LEARNED COUNSEL HAS RELIED ON THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF CHETAN CHEMICALS VS. CIT AND SUBMITTED THAT AS PER THE PROVISIONS OF SECTION 4(1) CONTAIN CERTAIN CONDITIONS, NAMELY, I) IN THE ASSESSMENT OF AN ASSESSEE, AN ALLOWANCE O R DEDUCTION HAS BEEN MADE IN RESPECT OF ANY LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY HIM; II) ANY AMOUNT IS OBTAINED IN RESPECT OF SUCH LOSS OR EXPENDITURE, OR (B) ANY BENEFIT IS OBTAINED IN RESP ECT OF ITA NOS. 1056 & 1057/HYD/11 M/S VASAVI INDUSTRIES LT. M/S SARITHA STEEL AND INDUSTRIES LTD. 9 SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSA TION THEREOF; III) SUCH AMOUNT OR BENEFIT IS OBTAINED BY THE ASSE SSEE; AND IV) SUCH AMOUNT OR BENEFIT IS OBTAINED IN A SUBSEQU ENT YEAR. 18. FURTHER, THE LEARNED COUNSEL SUBMITTED THAT THE AMOUNT OF LOAN RECEIVED HAS NO CONNECTION TO ANY SUCH ALLO WANCE OR DEDUCTION REFERRED TO ABOVE AS IT IS A MERE LOAN UN CONNECTED TO ANY ALLOWANCE OR DEDUCTION MADE IN THE ASSESSEE S ASSESSMENT. ALTHOUGH IT IS AN UNDISPUTED FACTS THAT THE ASSESSEE RECEIVED BENEFIT BY WAY OF REMISSION OR CE SSATION OF LIABILITY, THE SAME IS CERTAINLY NOT IN RESPECT OF ANY TRADING LIABILITY AS THE ASSESSEE DID NOT RECEIVE THE SAID AMOUNT IN RESPECT OF ANY SALES OR PURCHASES OR OTHER RELATED DIRECT OR INDIRECT EXPENSES TO QUALIFY FOR TRADING ACTIVITY. IT IS SUBMITTED THAT SECTION 41(1) DEALS WITH THE AMOUNTS OR BENEFI TS RECEIVED AND NOT THE ONES INPUT. FURTHER, THE PROVISIONS OF S. 28(IV) DO NOT COME TO THE RESCUE OF THE REVENUE. FOR THIS PRO POSITION, HE RELIED ON THE DECISION IN THE CASE OF JEHANGIR GULL ABHAI VS. JT. CIT [2008 21 SOT 603 (MUM) AND HELIOS FOOD IMPROVER S (P) LTD. VS. DCIT [2007] 14 SOT 546 (MUM). THE LEARNED COUNSEL ALSO RELIED UPON THE FOLLOWING CASE LAWS: 1 . D.S. NARAYANA & CO. VS. ITO [1987] 27 TTJ (HYD) 1 79 2. IFB SECURITIES LTD. VS. ITO [2006] 101 TTJ (KOL ) 829 3. MINDTECK (INDIA) LTD. VS. ITO [2009] 124 TTJ (M UMBAI) 830. 19. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F MALABAR ITA NOS. 1056 & 1057/HYD/11 M/S VASAVI INDUSTRIES LT. M/S SARITHA STEEL AND INDUSTRIES LTD. 10 INDUSTRIAL CO. LTD. (SUPRA) WHERE THE SCOPE FOR REV ISION U/S 263 HAS SUCCINCTLY EXPLAINED AS UNDER: 6. A BARE READING OF THIS PROVISION MAKES IT CLEAR THAT THE PRE-REQUISITE TO EXERCISE OF JURISDICTION BY TH E COMMISSIONER SUO MOTUER IT, IS THAT THE ORDER OF T HE ITO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE IN TERESTS OF THE REVENUE. THE COMMISSIONER HAS TO BE SATISFIED W ITH TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSES SING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENT - IF THE ORDER OF THE ITO IS ERRONEOUS B UT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOU S BUT IS PREJUDICIAL TO THE REVENUE - RECOURSE CANNOT BE HAD TO SECTION 263(1). 7. THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE O R ERROR COMMITTED BY THE ASSESSING OFFICER; IT IS ONL Y WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTR ACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL OR DERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REV ENUE IS NOT AN EXPRESSION OF ART AND IS NOT DEFINED IN THE ACT. UNDERSTOOD IN ITS ORDINARY MEANING, IT IS OF WIDE I MPORT AND IS NOT CONFINED TO LOSS OF TAX. THE HIGH COURT OF CALCUTTA IN DAWJEE DADABHOV & CO.V. S.P. JAIN [19 57] 31 ITR 872, THE HIGH COURT OF KARNATAKA INCITV. T. NARAYANA PAI[1975] 98 ITR 422, THE HIGH COURT OF BOMBAY IN CITV. GABRIEL INDIA LTD.[1993] 203 ITR 208 AND THE HIGH COURT OF GUJARAT IN CITV. SMT. MINALBE N S. PARIKH[1995] 215 ITR 81/79 TAXMAN 184 TREATED LOSS OF TAX AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. . THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REV ENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORD ER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVE NUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER ITA NOS. 1056 & 1057/HYD/11 M/S VASAVI INDUSTRIES LT. M/S SARITHA STEEL AND INDUSTRIES LTD. 11 CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS O F THE REVENUE, FOR EXAMPLE, WHEN AN ITO ADOPTED ONE OF TH E COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN L OSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE IT O HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. IT HAS BE EN HELD BY THIS COURT THAT WHERE A SUM NOT EARNED BY A PERS ON IS ASSESSED AS INCOME IN HIS HANDS ON HIS SO OFFERING, THE ORDER PASSED BY THE ASSESSING OFFICER ACCEPTING THE SAME AS SUCH WILL BE ERRONEOUS AND PREJUDICIAL TO THE I NTERESTS OF THE REVENUE - RAMPYARI DEVI SARAOGIV. CIT[1968] 67 ITR 84 (SC) AND IN SMT. TARA DEVI AGGARWALV. CIT[19 73] 88 ITR 323 (SC). 20. THE LEARNED COUNSEL SUBMITTED THAT THE WAIVER O F LOAN BY CREDITOR NOT BEING IN RESPECT OF TRADING LIABILITY, SECTION 41(1) DOES NOT APPLY. 21. WE FIND THAT THE HONBLE ITAT, HYDERABAD BENCH IN THE CASE OF SUN MINERALS VS. ADDL. CIT, [2013] 55 SOT 5 4 HAS HELD THAT AN ORDER PASSED BY THE ASSESSING OFFICER BECOM ES ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE U/S 263 IN THE FOLLOWING CASES: I). II) III) THE ORDER PASSED BY THE ASSESSING OFFICER IS A STEREOTYPE ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSE SSEE HAS STATED IN HIS RETURN OR WHERE HE FAILS TO MAKE THE REQUISITE ENQUIRIES OR EXAMINE THE GENUINENESS OF T HE CLAIM WHICH IS CALLED FOR IN THE CIRCUMSTANCES OF T HE CASE. ITA NOS. 1056 & 1057/HYD/11 M/S VASAVI INDUSTRIES LT. M/S SARITHA STEEL AND INDUSTRIES LTD. 12 22. IN THE SAME DECISION OF SUN MINERALS (SUPRA), I T HAS BEEN OBSERVED AS FOLLOWS: 28. WE ARE UNABLE TO ACCEPT THE SUBMISSION OF THE LEARNED COUNSEL FOR TWO OTHER REASONS ALSO. FIRST REASON IS THAT THE VIEW SO TAKEN BY THE ASSESSING OFFICER WITHOUT MAKING THE R EQUISITE INQUIRIES OR EXAMINING THE CLAIM OF THE ASSESSEE WI LL PER SE BE AN ERRONEOUS VIEW AND HENCE WILL BE AMENABLE TO REVISI ONAL JURISDICTION UNDER SECTION 263. SECOND REASON IS THAT IT IS NOT TAKING OF ANY VIEW THAT WILL TAKE THE MATTER UNDER THE SCOPE OF SECTIO N 263. THE VIEW TAKEN BY THE ASSESSING OFFICER SHOULD NOT BE A MERE VIEW IN VACUUM BUT A JUDICIAL VIEW. IT IS WELL ESTABLISHED THAT TH E ASSESSING OFFICER BEING A QUASI-JUDICIAL AUTHORITY CANNOT TAKE A VIEW , EITHER AGAINST OR IN FAVOUR OF THE ASSESSEE / REVENUE, WITHOUT MAKING PROPER INQUIRIES AND WITHOUT PROPER EXAMINATION OF THE CLAIM MADE BY THE ASSESSEE IN THE LIGHT OF THE APPLICABLE LAW. AS ALREADY ST ATED EARLIER, WE ARE NOT ABLE TO APPRECIATE ON WHAT MATERIAL WAS PLACED BEFORE THE ASSESSING OFFICER AT THE ASSESSMENT STAGE TO TAKE S UCH A VIEW. THE ASSESSEE HAS ALSO NOT BEEN ABLE TO LEAD ENOUGH EVID ENCE TO SHOW TO US THAT ANY INQUIRY WAS MADE BY THE ASSESSING OFFIC ER IN THIS REGARD. THEREFORE MERE ALLEGATION THAT THE ASSESSIN G OFFICER HAS TAKEN A VIEW IN THE MATTER WILL NOT PUT THE MATTER BEYOND THE PURVIEW OF SECTION 263 UNLESS THE VIEW SO TAKEN BY THE ASSESSING OFFICER IS A JUDICIAL VIEW CONSCIOUSLY BASED UPON P ROPER INQUIRIES AND APPRECIATION OF ALL THE RELEVANT FACTUAL AND LE GAL ASPECTS OF THE CASE. THE JUDICIAL VIEW TAKEN BY THE ASSESSING OFFI CER MAY PERHAPS PLACE THE MATTER OUTSIDE THE PURVIEW OF SECTION 263 UNLESS IT IS SHOWN THAT THE VIEW SO TAKEN BY THE ASSESSING OFFIC ER CONTAINS SOME APPARENT ERROR OF REASONING OR OF LAW OR OF FA CT ON THE FACE OF IT. 23. THE LEARNED ASSESSING OFFICER IN THE PRESENT CA SE HAS TAKEN A VIEW, WHICH FROM PERUSING THE RECORDS, WE A RE UNABLE TO COMPREHEND WHETHER THIS VIEW WAS TAKEN AFTER PRO PER ENQUIRY OR EXAMINATION OF THE CLAIM. HENCE, THE ORD ER U/S 263 IS MODIFIED WITH A DIRECTION TO THE ASSESSING OFFIC ER TO EXAMINE WHETHER THE CLAIM OF THE ASSESSEE THAT UNDER THE N ORMAL PROVISION IF IN RESPECTIVE YEARS IN WHICH THE INTER EST LIABILITY WERE DEBITED TO THE P&L A/C, AND NOT ALLOWED AS DED UCTION IN THE ASSESSMENT THEN NOW UPON THE WAIVER OF THE INTE REST THE ITA NOS. 1056 & 1057/HYD/11 M/S VASAVI INDUSTRIES LT. M/S SARITHA STEEL AND INDUSTRIES LTD. 13 SAME CANNOT BE BROUGHT TO TAX U/S 41(1) OR U/S 43B OF IT ACT, AND AFTER PROPER ENQUIRY DECIDE THE CLAIM OF THE AS SESSEE IN ACCORDANCE WITH LAW. IN VIEW OF THIS, WE ARE INCLIN EC TO DIRECT THE ASSESSING OFFICER TO CAUSE NECESSARY ENQUIRY IN THE LIGHT OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS. T.V. SUNDARAM IYENGAR & SONS LTD., [1996] 222 I TR 344 AND HE ALSO TAKE NOTE OF THE DECISION OF THE ITAT, DELHI BENCH D IN THE CASE OF DCIT VS. LOGITRONICS (P.) LTD., [2010] 127 ITD 16 (DEL.) AND DECIDE THE ISSUE IN ACCORDANCE WI TH LAW. 24. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. 25. AS THE FACTS IN THE CASE OF M/S SARITHA STEEL A ND INDUSTRIES LTD. BEING ITA NO. 1057/HYD/2011 ARE MAT ERIALLY IDENTICAL TO THAT OF THE CASE OF M/S VASAVI INDUSTR IES LTD. BEING ITA NO. V 1056/HYD/2011 (SUPRA), FOLLOWING THE CONC LUSIONS DRAWN THEREIN, WE ALLOW THIS APPEAL FOR STATISTICAL PURPOSES. 26. TO SUM UP, BOTH THE APPEALS UNDER CONSIDERATION ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 1 ST FEBRUARY, 2013. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAV AN) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED: 1 ST FEBRUARY, 2013 KV ITA NOS. 1056 & 1057/HYD/11 M/S VASAVI INDUSTRIES LT. M/S SARITHA STEEL AND INDUSTRIES LTD. 14 COPY TO:- 1) M/S VASAVI INDUSTRIES LTD., 2) M/S SARITHA STEEL AND INDUSTRIES LTD., C/O SHRI P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 500 082. 3) DCIT, CIRCLE 3(2), HYDERABAD 4) THE CIT-III, HYDERABAD 5) ADDL. CIT, RANGE-3, HYDERABAD 6) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD.