M/s. Biocon Limited, Bengaluru V. Commissioner of Income Tax, LTU, Bengaluru

ITA 1859/BANG/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3115 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 23-02-2021
• Assessment Year: 2011-2012
• Appeal Filed On: 29-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR CIT BENGALURU
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Opportunity of being heard; Principle of natural justice; Non-deduction of tax; Assessment record; TDS; Set aside
• Section: 143(3); 14A; 195; 144C; 72; 13; 22; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER IT A NO . 1859/ BANG / 2018 ASSESSMENT YEAR : 2011 - 12 BIOCON LIMITED, 20 TH KM, HOSUR ROAD, ELECTRONICS CITY, BENGALURU 560 106. PAN: AAACB 7461R VS. THE COMMISSIONER OF INCOME TAX, LTU, BENGALURU 560 095. APPELLANT RESPONDENT APPELLANT BY : S HRI PADAMCHAND KHINCHA, CA RESPONDENT BY : SHRI PRADEEP KUMAR, C IT(DR)(ITAT ), BENGALURU. DA T E OF HEARING : 24 . 02.2021 DATE OF PRONOUNCEMENT : 19 .0 3 .202 1 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 28.03.2018 PASSED BY THE CIT, LTU, BENGALURU FOR TH E ASSESSMENT YEAR 2011-12 ON THE FOLLOWING GROUNDS:- THE GROUNDS MENTIONED HEREIN BELOW ARE INDEPENDENT AND WITHOUT PREJUDICE TO THE OTHER GROUNDS PREFERRED BY THE APPELLANT. ITA NO.1859/BANG/2018 PAGE 2 OF 30 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX, LAR GE TAX PAYERS UNIT, BENGALURU ('LEARNED CIT') UNDER SE CTION 263 OF THE INCOME-TAX ACT, 1961 ('THE ACT') TO THE EXTENT PREJUDICIAL TO THE APPELLANT, IS BAD IN LAW AND ON FACTS AND LIABLE TO BE QUASHED. 2. SCOPE OF REVISION PROCEEDINGS 2.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED CIT ERRED IN LAW AND ON FACTS IN INITIATING PROCEEDINGS AND PASSING THE ORDER UNDER SECTION 263 OF THE ACT. 2.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED CIT FAILED TO APPRECIATE THAT THE DETAILS P ERTAINING TO THE ADJUSTMENTS PROPOSED TO BE MADE WERE EXAMINED/CONSIDERED BY THE ASSESSING OFFICER IN THE COURSE OF THE ASSESSMENT PROCEEDINGS. 2.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED CIT ERRED IN CONCLUDING THAT THE ASSESSMENT ORDER PASSED BY THE JOINT COMMISSIONER OF INCOME TAX ('TH E LEARNED ASSESSING OFFICER' OR THE 'LEARNED AO') UND ER SECTION 143(3) R.W.S 144C(13) OF THE ACT IS ERRONEO US AND PREJUDICIAL TO THE INTEREST OF REVENUE BY ALLEGING THAT THE LEARNED AO HAD ACCEPTED THE CLAIMS OF THE ASSESSEE WITHOUT REASONS AND WITHOUT MAKING ENQUIRY. 2.4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED CIT ERRED IN INITIATING THE REVISION PROCEE DINGS AND PASSING THE ORDER UNDER SECTION 263 ON MATTERS THAT ARE DEBATABLE AND WHERE TWO VIEWS ARE POSSIBLE. 2.5 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED CIT ERRED IN NOT APPRECIATING THAT THE INAD EQUATE ENQUIRY, IF ANY, BY ITSELF, CANNOT BE A FACTOR IN C ONSIDERING THE ASSESSMENT ORDER AS ERRONEOUS IN SO FAR AS IT I S PREJUDICIAL TO THE INTERESTS OF REVENUE UNDER SECTI ON 263. ITA NO.1859/BANG/2018 PAGE 3 OF 30 3. REMANDING THE ISSUES TO THE LEARNED AO FOR VER IFICATION 3.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT ERRED IN DISREGARDING THE SUBMISSIONS M ADE BY THE APPELLANT AND REMANDING ALL THE ISSUES TO TH E LEARNED AO TO VERIFY AND PASS A SUITABLE ORDER DEMONSTRATING THE FACT THAT THE LEARNED CIT IS SEEK ING TO MAKE FISHING AND ROVING ENQUIRY, WHICH IS NOT PERMI SSIBLE UNDER THE PROVISIONS OF SECTION 263 OF THE ACT. 3.1.1 DEDUCTION UNDER SECTION 35(2AB) OF THE ACT THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT FAILED TO APPRECIATE THAT THE EXPENDITURE INCUR RED ON CLINICAL TRIALS, CONTRACT MANUFACTURING AND FOREIGN RESEARCH AND DEVELOPMENT ACTIVITY ARE INTEGRAL TO IN-HOUSE R ESEARCH AND DEVELOPMENT ACTIVITY AND CLOSELY LINKED TO THE RESEARCH PROGRAMME OF THE IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY. THAT ON THE FACTS AND CIRCUMSTANCE OF THE CASE, THE LEARNED CIT FAILED TO APPRECIATE THAT THE SITUS OF UTILISAT ION OF EXPENDITURE IS RELEVANT TO CLAIM WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT AND NOT THE SITUS OF THE PAYEE. THAT ON THE FACTS AND CIRCUMSTANCE OF THE CASE, THE LEARNED CIT FAILED TO APPRECIATE THAT THE OBJECTIVE OF SECT ION 35(2AB) IS TO PROVIDE AN IMPETUS TO R&D ACTIVITY IN THE COUNTRY AND THEREFORE THE PROVISIONS SHOULD BE CONS TRUED LIBERALLY AND NOT CURTAIL THE AMBIT OF THE SECTION TO RESTRICT THE BENEFIT TO THE TAXPAYER. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT FAILED TO APPRECIATE THAT DEDUCTION UNDER SECTI ON 35(2AB) OF THE ACT IS NOT GOVERNED BY THE DEPARTMEN T OF SCIENTIFIC AND INDUSTRIAL RESEARCH GUIDELINES ('DSI R') GUIDELINES. ITA NO.1859/BANG/2018 PAGE 4 OF 30 CLINICAL TRIALS THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT ERRED IN DISREGARDING THE EXPLANATION TO SECTIO N 35(2AB)(I) OF THE ACT, WHICH STATES THAT EXPENDITUR E ON SCIENTIFIC RESEARCH INCLUDES EXPENDITURE INCURRED O N 'CLINICAL TRIALS'. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT ERRED IN DISREGARDING THE DECISION OF THE GUJAR AT HIGH COURT IN THE CASE OF CADILA HEALTHCARE LIMITED [201 3] 31 TAXMANN.COM 300 (GUJARAT) AND THE DECISION OF THE HYDERABAD TRIBUNAL IN THE CASE OF BHARAT BIOTECH INTERNATIONAL LIMITED (ITA NO.1327/HYD/2OO8) WHEREI N IT WAS HELD THAT EXPENDITURE ON OUTSOURCED CLINICAL TR IAL ACTIVITY IS ELIGIBLE FOR WEIGHTED DEDUCTION UNDER S ECTION 35(2AB) OF THE ACT. FOREIGN RESEARCH AND DEVELOPMENT COST THAT ON THE FACTS AND CIRCUMSTANCE OF THE CASE, THE LEARNED CIT ERRED IN DISREGARDING THE FACT THAT THE PROCURE MENT OF SERVICES FROM OUTSIDE INDIA WOULD ACTUALLY BE UTILI SED INSIDE THE APPROVED RESEARCH AND DEVELOPMENT FACILITY AND THEREFORE SUCH EXPENDITURE IS ELIGIBLE FOR WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT. CONTRACT MANUFACTURING EXPENSES THAT ON THE FACTS AND CIRCUMSTANCE OF THE CASE, THE LEARNED CIT ERRED IN DISREGARDING THE FACT THAT THE END PRO DUCT RECEIVED FROM CONTRACT MANUFACTURER WAS CONSUMED IN SIDE THE APPROVED RESEARCH AND DEVELOPMENT FACILITY AND THAT IT IS SIMILAR TO ANY OTHER PURCHASE OF MATERIAL OR CONSUM ABLE UTILISED INSIDE THE APPROVED RESEARCH AND DEVELOPME NT FACILITY AND THEREFORE SUCH EXPENDITURE IS ELIGIBLE FOR WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT . SET OFF OF SALES REALISATION ON TRANSFER OF DEVELOP MENT AND MARKETING RIGHTS OF PEG GCSF ITA NO.1859/BANG/2018 PAGE 5 OF 30 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT FAILED TO APPRECIATE THAT, IN ABSENCE OF SPECIF IC PROVISIONS IN THE ACT, REQUIRING REDUCTION OF SALE PROCEEDS, NO AMOUNT WAS REQUIRED TO BE REDUCED FROM THE RESEA RCH AND DEVELOPMENT EXPENDITURE ('R & D') IN RESPECT OF TRANSFER OF DEVELOPMENT AND MARKETING RIGHTS OF PEG GCSF. WITHOUT PREJUDICE OF THE ABOVE, ON THE FACTS AND CIRCUMSTANCE OF THE CASE, THE LEARNED CIT ERRED IN DISREGARDING THE DSIR GUIDELINES, WHICH SPECIFICALL Y STATES THAT 'SALES REALIZATION' OF ASSETS SOLD (IN CASH OR KIND) AND NOT R&D PRODUCTS, SHALL BE OFFSET AGAINST R & D EXPENDITURE. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT ERRED IN DISREGARDING THE FACT THAT PEG GCSF IS A PRODUCT WHICH HAS EMANATED FROM THE R & D WORK CARR IED OUT IN THE RESEARCH FACILITY OF THE APPELLANT AND N OT AN ASSET UTILISED FOR CONDUCTING THE RESEARCH FACILITY, THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT ERRED IN HOLDING THAT A THIRD PARTY PROOF IS NE CESSARY FROM AN AUTHORITY LIKE DSIR TO SUBSTANTIATE THAT PE G GCSF IS A PRODUCT GENERATED FROM THE R & D WORK CARRIED OUT IN THE RESEARCH ACTIVITY WHEN NO SUCH REQUIREMENT IS S PECIFIED UNDER THE PROVISIONS OF THE ACT/DSIR GUIDELINES. 3.1.2 DEDUCTION UNDER SECTION 80JJAA OF THE ACT THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT ERRED IN DISREGARDING THE SUBMISSION MADE BY TH E APPELLANT THAT REGULAR WORKMEN WITH WHOM CONTRACT O F EMPLOYMENT IS ENTERED INTO FOR MORE THAN 300 DAYS W OULD BE ELIGIBLE FOR DEDUCTION UNDER SECTION 8OJJAA OF T HE ACT. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT ERRED IN DISREGARDING THE FACT THAT PROVISIONS OF SECTION 8OJJAA OF THE ACT BEING A BENEFICIAL PROVISION HAVE TO BE INTERPRETED LIBERALLY. ITA NO.1859/BANG/2018 PAGE 6 OF 30 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT ERRED IN NOT APPRECIATING THAT INTRODUCTION OF SECOND PROVISO BELOW EXPLANATION (II) TO SUBSECTION 2 OF S ECTION 8OJJAA MADE BY THE FINANCE ACT, 2018 IS RETROSPECTI VE IN NATURE. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT ERRED IN SETTING ASIDE THE ISSUE OF DEDUCTION U /S 8OJJAA WITHOUT ANY FINDING AS TO HOW THE ASSESSMENT ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF REVENUE BY ALLOWING DEDUCTION UNDER THE SAID SECTIO N. 3.1.3 DISALLOWANCE UNDER SECTION 14A OF THE ACT THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT ERRED IN SETTING ASIDE THE ISSUE OF DISALLOWANC E UNDER SECTION 14A WITHOUT ANY FINDING AS TO HOW THE ASSES SMENT ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL T O THE INTERESTS OF REVENUE UNDER SECTION 263. 3.1.4 NON DEDUCTION OF TAXES AT SOURCE UNDER SECTI ON 195 OF THE ACT THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT ERRED IN REMITTING THE ISSUE TO THE LEARNED AO FOR VERIFICATION WITHOUT APPRECIATING THE FACT THAT DET AILED SUBMISSIONS WERE FILED BY THE APPELLANT IN RELATION TO NON- APPLICABILITY OF TAXES AT SOURCE ON PAYMENTS MADE I N FOREIGN CURRENCY MADE TO NON-RESIDENTS DURING THE YEAR. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT ERRED IN SETTING ASIDE THE ISSUE OF NON- DEDUCT ION OF TDS U/S 195 WITHOUT ANY FINDING AS TO HOW THE ASSES SMENT ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL T O THE INTERESTS OF REVENUE UNDER SECTION 263. THE ASSESSEE CRAVES LEAVE TO ADD, ALTER, VARY, OMIT , SUBSTITUTE OR AMEND THE ABOVE GROUNDS, AT ANY TIME BEFORE OR AT T HE TIME OF HEARING. EACH OF THE ABOVE GROUNDS IS INDEPENDENT A ND WITHOUT PREJUDICE TO THE OTHER GROUNDS PREFERRED BY THE ASS ESSEE. ITA NO.1859/BANG/2018 PAGE 7 OF 30 2. THE FACTS ARE THAT IN THIS CASE ASSESSMENT WAS C OMPLETED U/S. 143(3) R.W.S. 144C OF THE INCOME-TAX ACT, 1961 [THE ACT] DATED 25.1.2016. THE CIT ON GOING THROUGH THE ASSESSMENT RECORDS WAS OF THE OPINION THAT THE ORDER PASSED BY THE AO WAS ERRONEOUS SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HENCE HE ISSUED SHOW CAU SE NOTICE TO THE ASSESSEE ON 23.1.2017 WHEREIN HE RAISED THE FOLLOWI NG ISSUES:- (I) DEDUCTION U/S. 35(2AB) OF THE ACT : THE ASSESSEE HAS CLAIMED WEIGHTED DEDUCTION OF RS.54,72,18,073 U/S. 35(2AB) OF THE ACT. IT INCLUDED RS.27,21,80,265 TOWARDS REVENUE EXPENSES (DEBITED T O P&L ACCOUNT AND HENCE ADDITIONAL CLAIM IS ANOTHER 100%) AND RS.13,7 5,18,904 OF CAPITAL EXPENSES (CLAIMED AT 200%). THE CIT WAS OF THE OPINION THAT CLINICAL TRIAL EXPE NSES INCURRED OUTSIDE THE APPROVED FACILITY IS NOT ENTITLED FOR WEIGHTED DEDU CTION AND HE OBSERVED THAT EXPENSES INCURRED ON SCIENTIFIC RESEARCH ON INHOUSE RESEARCH & DEVELOPMENT FACILITY ONLY IS ELIGIBLE FOR WEIGHTED DEDUCTION. FURTHER, HE OBSERVED THAT SIMILAR ISSUE IN AYS 2012-13 & 2013-1 4 ARE PENDING BEFORE THE TRIBUNAL AS THESE ISSUES HAVE BEEN UPHELD BY TH E DRP. IN VIEW OF THIS, THIS ISSUE OF CLAIM OF DEDUCTION U/S. 35(2AB) OF TH E ACT NEEDS VERIFICATION. THE AO HAS NOT EXAMINED THIS ISSUE IN PROPER PERSPE CTIVE. THEREFORE IT WAS REMITTED BACK TO AO TO PASS A SPEAKING ORDER AF TER GIVING OPPORTUNITY OF BEING HEARD TO ASSESSEE. (II) DEDUCTION U/S. 80JJA OF THE ACT: THE ASSESSEE CLAIMED DEDUCTION U/S. 80JJA OF THE ACT AT RS.,46,03,657. T HIS ISSUE WAS ALSO NOT EXAMINED BY THE AO AND IT IS REQUIRED TO BE EXAMINE D IN THE LIGHT OF KARNATAKA HIGH COURT JUDGMENT IN THE CASE OF CIT V. TEXAS INSTRUMENTS INDIA PVT. LTD. IN ITA NO.535/2007 & 537/2007 DATE D 17.2.2020 AND ALSO ORDER OF THE TRIBUNAL REPORTED IN THE CASE OF TEXAS INSTRUMENTS INDIA PVT. ITA NO.1859/BANG/2018 PAGE 8 OF 30 LTD. REPORTED IN 27 SOT 72 . THUS HE REMITTED THIS ISSUE ALSO TO THE FILE OF AO FOR FRESH EXAMINATION. (III) DEDUCTION U/S. 14A OF THE ACT : ON THIS ISSUE, THE CIT OBSERVED THAT THE AO HAS NOT EXAMINED AND IT IS REQUIRED TO BE EXAMINED IN THE LIGHT OF THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE AYS 11-12 & 12-13 IN ITA NO.1229 & 1329/BANG/2016 DATED 18.12.2017. (IV) NON-DEDUCTION OF TAX AT SOURCE U/S. 195: THE CIT OBSERVED THAT ASSESSEE MADE PAYMENT TO FOREIGN ENTITY WITHOUT DED UCTION OF TAX AT SOURCE TO THE TUNE OF RS.3,37,080 MILLION AND ACCORDING TO THE CIT, IT IS REQUIRED TO BE EXAMINED BY THE AO WITH A DIRECTION TO THE ASSES SEE TO FILE FULL DETAILS REGARDING NATURE OF SERVICES RENDERED, CONSULTANCY RENDERED, BENEFITS EARNED, TECHNOLOGY USED IF ANY, ETC. 3. THUS, HE SET ASIDE THE ORDER OF AO PASSED U/S. 1 43(3) R.W.S. 144C AND REMITTED IT BACK ON THE ABOVE ISSUES FOR RE-EXA MINATION. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. AR SUBMITTED THAT THE AO HAS EXAMINED TH E ISSUE IN DETAIL WITH REGARD TO THE ISSUES IN THE ASSESSMENT PROCEED INGS AND THE ASSESSEE FILED VARIOUS DETAILS WHICH ARE LISTED BELOW:- ITA NO.1859/BANG/2018 PAGE 9 OF 30 ITA NO.1859/BANG/2018 PAGE 10 OF 30 ITA NO.1859/BANG/2018 PAGE 11 OF 30 ITA NO.1859/BANG/2018 PAGE 12 OF 30 ITA NO.1859/BANG/2018 PAGE 13 OF 30 ITA NO.1859/BANG/2018 PAGE 14 OF 30 ITA NO.1859/BANG/2018 PAGE 15 OF 30 ITA NO.1859/BANG/2018 PAGE 16 OF 30 ITA NO.1859/BANG/2018 PAGE 17 OF 30 ITA NO.1859/BANG/2018 PAGE 18 OF 30 ITA NO.1859/BANG/2018 PAGE 19 OF 30 ITA NO.1859/BANG/2018 PAGE 20 OF 30 ITA NO.1859/BANG/2018 PAGE 21 OF 30 ITA NO.1859/BANG/2018 PAGE 22 OF 30 ITA NO.1859/BANG/2018 PAGE 23 OF 30 5. THE LD. DR SUBMITTED THAT THE CIT HAS NOT GIVEN ANY FINDING ON MERIT. HE HAS SET ASIDE THE VARIOUS ISSUES ON THE GROUND T HAT THEY ARE NOT PROPERLY EXAMINED BY THE AO AT THE TIME OF ASSESSME NT AND IT INVOLVES TAX. BEING SO, NON-ENQUIRY OF THE ISSUES IN DETAIL WHICH RESULTED IN LOSS OF REVENUE TO THE GOVERNMENT. BEING SO, THE CIT INVOK ED JURISDICTION U/S. 263 OF THE ACT PROPERLY AND THE SAME HAS TO BE CONFIRME D AND THE ASSESSEE CANNOT HAVE ANY GRIEVANCE ON REMITTING THE ABOVE IS SUES BY THE CIT FOR FRESH EXAMINATION TO THE AO. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IF DUE TO ERRONEOUS ORDER OF THE AO, THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICI AL TO THE INTERESTS OF THE REVENUE. THE CIT CAN EXERCISE REVISION JURISDICTION AL UNDER S. 263 IF HE IS SATISFIED THAT THE ORDER OF THE AO SOUGHT TO BE REV ISED IS (I) ERRONEOUS AND ITA NO.1859/BANG/2018 PAGE 24 OF 30 ALSO (II) PREJUDICIAL TO THE INTERESTS OF THE REVEN UE. THE WORD ERRONEOUS HAS NOT BEEN DEFINED IN THE IT ACT. AN ORDER SOUGHT TO BE REVISED UNDER S. 263 WOULD BE ERRONEOUS AND FALL IN THE CATEGORY OF 'ERRORS' IF IT IS, INTER ALIA, BASED ON AN INCORRECT ASSUMPTION OF FACTS OR AN INC ORRECT APPLICATION OF LAW OR NON-APPLICATION OF MIND TO SOMETHING WHICH WAS O BVIOUS AND REQUIRED APPLICATION OF MIND OR BASED ON NO OR INSUFFICIENT MATERIALS SO AS TO AFFECT THE MERITS OF THE CASE AND THEREBY CAUSE PREJUDICE TO THE INTEREST OF THE REVENUE. 7. SEC. 263 SEEKS TO REMOVE THE PREJUDICE CAUSED TO THE REVENUE BY THE ERRONEOUS ORDER PASSED BY THE AO. IT EMPOWERS T HE CIT TO INITIATE SUO MOTU PROCEEDINGS EITHER WHERE THE AO TAKES A WRONG DECISION WITHOUT CONSIDERING THE MATERIALS AVAILABLE ON RECORD OR HE TAKES A DECISION WITHOUT MAKING AN ENQUIRY INTO THE MATTERS, WHERE SUCH INQU IRY WAS PRIMA FACIE WARRANTED. THE CIT WILL BE WELL WITHIN HIS POWERS T O REGARD AN ORDER AS ERRONEOUS ON THE GROUND THAT IN THE CIRCUMSTANCES O F THE CASE, THE AO SHOULD HAVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE CLAIM MADE BY THE ASSESSEE IN HIS RETURN. THE REASON IS OBVIOUS. UNLI KE THE CIVIL COURT WHICH IS NEUTRAL IN GIVING A DECISION ON THE BASIS OF EVI DENCE PRODUCED BEFORE IT, THE ROLE OF AN AO UNDER THE IT ACT IS NOT ONLY THAT OF AN ADJUDICATOR BUT ALSO OF AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FACE OF A RETURN, WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER ENQUIR Y. HE MUST DISCHARGE BOTH THE ROLES EFFECTIVELY. IN OTHER WORDS, HE MUST CARR Y OUT INVESTIGATION WHERE THE FACTS OF THE CASE SO REQUIRE AND ALSO DECIDE TH E MATTER JUDICIOUSLY ON THE BASIS OF MATERIALS COLLECTED BY HIM AS ALSO THO SE PRODUCED BY THE ASSESSEE BEFORE HIM. THE AO HAS GOT TO PROTECT, ON ONE HAND, THE INTEREST OF THE ASSESSEE IN THE SENSE THAT HE IS NOT SUBJECT ED TO ANY AMOUNT OF TAX IN EXCESS OF WHAT IS LEGITIMATELY DUE FROM HIM, AND ON THE OTHER HAND, HE HAS A DUTY TO PROTECT THE INTERESTS OF THE REVENUE AND TO SEE THAT NO ONE DODGED THE REVENUE AND ESCAPED WITHOUT PAYING THE L EGITIMATE TAX. THE ITA NO.1859/BANG/2018 PAGE 25 OF 30 AO IS NOT EXPECTED TO PUT BLINKERS ON HIS EYES AND MECHANICALLY ACCEPT WHAT THE ASSESSEE CLAIMS BEFORE HIM. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED AND THE GENUINENESS OF THE CLAIMS MADE IN THE RETURN WHEN THE CIRCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOK E INQUIRY. ARBITRARINESS IN EITHER ACCEPTING OR REJECTING THE CLAIM HAS NO P LACE. THE ORDER PASSED BY THE AO BECOMES ERRONEOUS BECAUSE AN ENQUIRY HAS NOT BEEN MADE OR GENUINENESS OF THE CLAIM HAS NOT BEEN EXAMINED WHER E THE INQUIRIES OUGHT TO HAVE BEEN MADE AND THE GENUINENESS OF THE CLAIM OUGHT TO HAVE BEEN EXAMINED AND NOT BECAUSE THERE IS ANYTHING WRONG WI TH HIS ORDER IF ALL THE FACTS STATED OR CLAIM MADE THEREIN ARE ASSUMED TO B E CORRECT. 8. THE CIT MAY CONSIDER AN ORDER OF THE AO TO BE ER RONEOUS NOT ONLY WHEN IT CONTAINS SOME APPARENT ERROR OF REASONING O R OF LAW OR OF FACT ON THE FACE OF IT BUT ALSO WHEN IT IS A STEREOTYPED OR DER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS STATED IN HIS RETURN AND FAIL S TO MAKE ENQUIRIES OR EXAMINE THE GENUINENESS OF THE CLAIM WHICH ARE CALL ED FOR IN THE CIRCUMSTANCES OF THE CASE. IN VIEW OF THE FOREGOING , IT CAN SAFELY BE SAID THAT AN ORDER PASSED BY THE AO BECOMES ERRONEOUS AN D PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNDER S. 263 IN THE FOLLOW ING CASES : (I) THE ORDER SOUGHT TO BE REVISED CONTAINS ERROR OF REASONING OR OF LAW OR OF FACT ON THE FACE OF IT. (II) THE ORDER SOUGHT TO BE REVISED PRO CEEDS ON INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW . IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NA TURAL JUSTICE OR WITHOUT APPLICATION OF MIND. (III) THE ORDER PASSED BY THE AO IS A STEREOTYPE ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS STATED I N HIS RETURN OR WHERE HE FAILS TO MAKE THE REQUISITE ENQUIRIES OR EXAMINE THE GENUINENESS OF THE CLAIM WHICH IS CALLED FOR IN THE CIRCUMSTANCES OF T HE CASE. THIS VIEW IS SUPPORTED BY THE JUDGMENTS IN THE CASE OF MALABAR I NDUSTRIAL CO. LTD. (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC), RAM PYARI DEVI SARAOGI ITA NO.1859/BANG/2018 PAGE 26 OF 30 VS. CIT (1968) 67 ITR 84 (SC) AND SMT. TARA DEVI AG GARWAL VS. CIT 1973 CTR (SC) 107 : (1973) 88 ITR 323 (SC). 9. PERUSAL OF THE ASSESSMENT ORDER PASSED BY THE AO DOES NOT SHOW ANY APPLICATION OF MIND ON HIS PART. THIS IS A CASE WHERE THE AO MECHANICALLY ACCEPTED WHAT THE ASSESSEE WANTED HIM TO ACCEPT WITHOUT ANY APPLICATION OF MIND OR PROPER ENQUIRY. THE EVID ENCE AVAILABLE ON RECORD IS NOT ENOUGH TO HOLD THAT THE CLAIM MADE BY THE AS SESSEE WAS OBJECTIVELY EXAMINED OR CONSIDERED BY THE AO. IT IS BECAUSE OF SUCH NON-CONSIDERATION OF THE ISSUES ON THE PART OF THE AO THAT THE CLAIM BY THE ASSESSEE STOOD AUTOMATICALLY ACCEPTED WITHOUT ANY PROPER ENQUIRY. THE ASSESSMENT ORDER IS CLEARLY ERRONEOUS AS IT WAS PASSED WITHOUT PROPE R EXAMINATION OR ENQUIRY OR VERIFICATION OR OBJECTIVE CONSIDERATION OF THE C LAIM MADE BY THE ASSESSEE. THE AO HAS FAILED TO EXAMINE THE ISSUE IN PROPER PERSPECTIVE AND MADE THE ASSESSMENT IN AN ARBITRARY MANNER ON T HE ISSUES IN DIPSUTE. HIS ORDER IS A COMPLETELY NON-SPEAKING ORDER. IT WA S A FIT CASE FOR THE CIT TO EXERCISE HIS REVISIONAL JURISDICTION UNDER S. 263 W HICH HE RIGHTLY EXERCISED BY SETTING ASIDE THE ASSESSMENT ORDER AND DIRECTING THE AO TO PASS A FRESH ORDER AFTER PROPER VERIFICATION AS DIRECTED BY HIM. 10. THE SUBMISSION OF THE COUNSEL THAT THE AO HAD T AKEN A POSSIBLE VIEW ON THE IMPUGNED ISSUES, THE CIT WAS NOT JUSTIF IED IN ASSUMING THE REVISIONAL JURISDICTION UNDER S. 263 CANNOT BE ACCE PTED FOR TWO OTHER REASONS ALSO. FIRST REASON IS THAT THE VIEW SO TAKE N BY THE AO WITHOUT MAKING THE REQUISITE INQUIRIES OR EXAMINING THE CLA IM OF THE ASSESSEE WILL PER SE BE AN ERRONEOUS VIEW AND HENCE WILL BE AMENA BLE TO REVISIONAL JURISDICTION UNDER S. 263. SECOND REASON IS THAT IT IS NOT TAKING OF ANY VIEW THAT WILL TAKE THE MATTER UNDER THE SCOPE OF S. 263 . THE VIEW TAKEN BY THE AO SHOULD NOT BE A MERE VIEW IN VACUUM BUT A JUDICI AL VIEW. IT IS WELL ESTABLISHED THAT THE AO BEING A QUASI-JUDICIAL AUTH ORITY CANNOT TAKE A VIEW, EITHER AGAINST OR IN FAVOUR OF THE ASSESSEE/REVENUE , WITHOUT MAKING PROPER ITA NO.1859/BANG/2018 PAGE 27 OF 30 INQUIRIES AND WITHOUT PROPER EXAMINATION OF THE CLA IM MADE BY THE ASSESSEE IN THE LIGHT OF THE APPLICABLE LAW. AS ALR EADY STATED EARLIER, IT CANNOT BE APPRECIATED WHAT MATERIAL WAS PLACED BEFO RE THE AO AT THE ASSESSMENT STAGE TO TAKE SUCH A VIEW. THE ASSESSEE HAS ALSO NOT BEEN ABLE TO LEAD ENOUGH EVIDENCE TO SHOW THAT ANY INQUI RY WAS MADE BY THE AO IN THIS REGARD. THEREFORE MERE ALLEGATION THAT THE AO HAS TAKEN A VIEW IN THE MATTER WILL NOT PUT THE MATTER BEYOND THE PURVI EW OF S. 263 UNLESS THE VIEW SO TAKEN BY THE AO IS A JUDICIAL VIEW CONSCIOU SLY BASED UPON PROPER INQUIRIES AND APPRECIATION OF ALL THE RELEVANT FACT UAL AND LEGAL ASPECTS OF THE CASE. THE JUDICIAL VIEW TAKEN BY THE AO MAY PERHAPS PLACE THE MATTER OUTSIDE THE PURVIEW OF S. 263 UNLESS IT IS SHOWN TH AT THE VIEW SO TAKEN BY THE AO CONTAINS SOME APPARENT ERROR OF REASONING OR OF LAW OR OF FACT ON THE FACE OF IT. 'ADOPTING' ONE OF THE COURSES PERMI SSIBLE IN LAW NECESSARILY REQUIRES THE AO TO CONSCIOUSLY ANALYSE AND EVALUATE THE FACTS IN THE LIGHT OF RELEVANT LAW AND BRING THEM ON RECORD. IT IS ONLY T HEN THAT HE CAN BE SAID TO HAVE 'ADOPTED' OR CHOSEN ONE OF THE COURSES PERMISS IBLE IN LAW. THE AO CANNOT BE PRESUMED OR ATTRIBUTED TO HAVE 'ADOPTED' OR CHOSEN A COURSE PERMISSIBLE IN LAW WHEN HIS ORDER DOES NOT SPEAK IN THAT BEHALF. SIMILARLY, 'TAKING' ONE VIEW WHERE TWO OR MORE VIEWS ARE POSSI BLE ALSO NECESSARILY IMPORTS THE REQUIREMENT OF ANALYSING THE FACTS IN T HE LIGHT OF APPLICABLE LAW. THEREFORE, PROPER EXAMINATION OF FACTS IN THE LIGHT OF RELEVANT LAW IS A NECESSARY CONCOMITANT IN ORDER TO SAY THAT THE AO H AS ADOPTED A PERMISSIBLE COURSE OF LAW OR TAKEN A VIEW WHERE TWO OR MORE VIEWS ARE POSSIBLE. IT IS ONLY AFTER SUCH PROPER EXAMINATION AND EVALUATION HAS BEEN DONE BY THE AO THAT HE CAN COME TO A CONCLUSION AS TO WHAT ARE THE PERMISSIBLE COURSES AVAILABLE IN LAW OR WHAT ARE TH E POSSIBLE VIEWS ON THE ISSUE BEFORE HIM. IN CASE HE COMES TO THE CONCLUSIO N THAT MORE THAN ONE VIEW IS POSSIBLE THEN HE HAS NECESSARILY TO CHOOSE A VIEW, WHICH IS MOST APPROPRIATE ON THE FACTS OF THE CASE. IT MUST THERE FORE FIRST BE SHOWN THAT THE AO HAS 'ADOPTED' A PERMISSIBLE COURSE OF LAW OR , WHERE TWO VIEWS ARE ITA NO.1859/BANG/2018 PAGE 28 OF 30 POSSIBLE, THE AO HAS 'TAKEN' ONE SUCH POSSIBLE VIEW IN THE ORDER SOUGHT TO BE REVISED UNDER S. 263. THIS REQUIRES THE AO TO TA KE A CONSCIOUS DECISION; ELSE HE WOULD NEITHER BE ABLE TO 'ADOPT' A COURSE P ERMISSIBLE IN LAW NOR 'TAKE' A VIEW WHERE TWO OR MORE VIEWS ARE POSSIBLE. IN OTHER WORDS, IT IS THE AO WHO HAS TO ADOPT A PERMISSIBLE COURSE OF LAW OR TAKE A VIEW WHERE TWO OR MORE VIEWS ARE POSSIBLE. IT IS DIFFICULT TO COMP REHEND AS TO HOW THE AO CAN BE ATTRIBUTED TO HAVE 'ADOPTED' A PERMISSIBLE C OURSE OF LAW OR 'TAKEN' A VIEW WHERE TWO OR MORE VIEWS ARE POSSIBLE WHEN THE ORDER PASSED BY HIM DOES NOT SPEAK IN THAT BEHALF. ONE CANNOT ASSUME, I N ORDER TO PROVIDE LEGITIMACY TO THE ASSESSMENT ORDER, THAT THE AO HAS ADOPTED A PERMISSIBLE COURSE OF LAW OR TAKEN A POSSIBLE VIEW WHERE HIS OR DER DOES NOT SAY SO. IT COULD HAVE BEEN A DIFFERENT POSITION IF THE AO HAD 'ADOPTED' OR 'TAKEN' A VIEW AFTER ANALYSING THE FACTS AND DECIDING THE MAT TER IN THE LIGHT OF THE APPLICABLE LAW. HOWEVER, THE AO HAS NOT AT ALL EXAM INED AS TO WHETHER ONLY ONE VIEW WAS POSSIBLE OR TWO OR MORE VIEWS WERE POS SIBLE AND HENCE, THE QUESTION OF HIS ADOPTING OR CHOOSING ONE VIEW IN PR EFERENCE TO THE OTHER DOES NOT ARISE. 11. THE CONTENTION THAT THE MERE FACT THAT THE ASSE SSMENT ORDER PASSED BY THE AO WAS SHORT WOULD NEITHER MEAN FAILURE ON H IS PART IN NOT EXAMINING THE MATTER CAREFULLY NOR WOULD RENDER HIS ORDER ERRONEOUS SO LONG AS THE VIEW TAKEN BY HIM WAS A POSSIBLE VIEW M UST FAIL FOR THE REASONS ALREADY EXPLAINED IN THE FOREGOING PARAS AS THE ORD ER, WHICH IS SOUGHT TO BE REVISED UNDER S. 263 REFLECTS NO PROPER APPLICATION OF MIND BY THE AO AND THUS BE AMENABLE TO REVISION UNDER S. 263. THE ASSE SSMENT ORDER PASSED BY THE AO LACKS JUDICIAL STRENGTH TO STAND. IT IS N OT A CASE WHERE THE ORDER IS SHORT BUT IS NOT SUPPORTED BY JUDICIAL STRENGTH. IT IS IN THIS VIEW OF THE MATTER THAT THE CIT HAS CORRECTLY EXERCISED HIS REVISIONAL JURISDICTION UNDER S. 263. THE PROVISIONS OF S. 263 WOULD LOSE SIGNIFICANCE IF THEY WERE TO BE INTERPRETED IN A MANNER THAT PREVENTED THE CIT FROM REVISING THE ERRONEOUS ITA NO.1859/BANG/2018 PAGE 29 OF 30 ORDER PASSED BY THE AO, WHICH WAS PREJUDICIAL TO TH E INTEREST OF THE REVENUE. IN FACT, SUCH A COURSE WOULD BE COUNTER-PR ODUCTIVE AS IT WOULD HAVE THE EFFECT OF PROMOTING ARBITRARINESS IN THE D ECISIONS OF THE AOS AND THUS DESTROY THE VERY FABRIC OF SOUND TAX DISCIPLIN E. IF ERRONEOUS ORDERS, WHICH ARE PREJUDICIAL TO THE INTEREST OF THE REVENU E, ARE ALLOWED TO STAND, THE CONSEQUENCES WOULD BE DISASTROUS IN THAT THE HO NEST TAXPAYERS WOULD BE REQUIRED TO PAY MORE THAN OTHERS TO COMPENSATE F OR THE LOSS CAUSED BY SUCH ERRONEOUS ORDERS. FOR THIS REASON ALSO, THE OR DERS PASSED ON AN INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICAT ION OF LAW OR WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHO UT APPLICATION OF MIND OR WITHOUT MAKING REQUISITE INQUIRIES WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHIN THE MEANING OF S. 263. 12. BEING SO, AT THIS STAGE, WE REFRAIN FROM GOING INTO THE MERITS OF THE GROUNDS RAISED BY THE ASSESSEE AND THE ASSESSEE IS AT LIBERTY TO RAISE THE ISSUE ON MERITS AT APPROPRIATE STAGE. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF MARCH, 2021. SD/- SD/- ( N V VASUDEV AN ) ( CHANDRA POOJARI ) VICE PRESIDENT ACCOUNTANT M EMBER BANGALORE, DATED, THE 19 TH MARCH, 2021. / DESAI S MURTHY / ITA NO.1859/BANG/2018 PAGE 30 OF 30 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.