Appeal Details
Counselvise Citation
[2015] 140 COUNSELVISE.COM (IT) 87160 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 year(s) 10 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-03-2015
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
E
Next Hearing Date
09-01-2013
Assessment Year
1999-2000
Appeal Filed On
04-05-2010
Judgement Text
1 ITA NO. 2057/DEL/10 NIIT VS. CIT IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI C.M. GARG : JUDICIAL MEMBER ITA NO. 2057/DEL/2010 A.Y. 1999-2000 NIIT, 8, BALAJI ESTATE, VS. COMMISSIONER OF INCOM E-TAX, 1 ST FLOOR, GURU RAVI DAS MARG, (CENTRAL-II), ARA CENT RE, KALKAJI, NEW DELHI-110019. E-2, JHANDEWALAN, NEW DELHI-110055. PAN: AAACN 0085 D. ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI AJAY VOHRA SR. ADV.& SHRI GAURAV JAIN ADV. & MS. BHAVITA KUMAR RESPONDENT BY : SHRI G.C. SRIVASTAVA (SPL. COU NSEL) & SHRI SAURABH SRIVASTAVA CA DATE OF HEARING : 09-02-2015 DATE OF ORDER : 27-03-2015. O R D E R PER S.V. MEHROTRA, A.M:- THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 1-4- 2010, PASSED U/S 263 OF THE INCOME-TAX ACT, 1961, F OR A.Y. 1999-2000, AFTER THE FIRST ORDER PASSED U/S 263 BY THE CIT (CE NTRAL)-II, NEW DELHI, DATED 19-6-2008 WAS SET ASIDE BY HONBLE HIGH COURT VIDE ORDER DATED 11-12-2009 IN WRIT PETITION BEING WP(C) NO. 4722/2008 AND OTH ERS. 2 ITA NO. 2057/DEL/10 NIIT VS. CIT 2. SEVERAL EVENTS HAVE TAKEN PLACE DURING THE COUR SE OF PROCEEDINGS AND, THEREFORE, IT IS NECESSARY TO REFER TO VARIOUS EVE NTS, LEADING TO THE PASSING OF THE PRESENT IMPUGNED ORDER U/S 263. 2.1. THE ASSESSEE, INCORPORATED UNDER THE INDIAN CO MPANIES ACT, 1956, IN THE RELEVANT ASSESSMENT YEAR, CLAIMED TO BE ENGAGED IN THE BUSINESS OF IMPARTING COMPUTER EDUCATION AND TRAINING TO CLIENT S IN OVER THIRTY COUNTRIES. 2.2. THE ASSESSEE CLAIMED TO BE A LEADING SERVICE P ROVIDER IN INFORMATION TECHNOLOGY TRAINING IN INDIA AND THE ONLY INDIAN IN FORMATION TECHNOLOGY SERVICE COMPANY OUTSIDE EUROPE AND U.S. IN THE 20 GLOBAL I.T. TRAINING INSTITUTES. 2.3. IT OFFERS COMPLETE RANGE OF LEARNING SOLUTION, INCLUDING LEARNING STRATEGY, FORMULATION, CUSTOM CONTENT DEVELOPMENT, TECHNOLOGY, AND OUT SOURCED SERVICES AMONGST THE TOP TEN FORTUNE 500 CO MPANIES. 2.4. THE ASSESSEE COMPANY IS RANKED NO. 16 AMONG G LOBAL I.T. TRAINING COMPANIES AND TOP AMONGST SUCH COMPANIES OUTSIDE U. K. AND U.S. 2.5. THE ASSESSEE ALSO DERIVED INCOME FROM EXPORT B USINESS, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. THE ASSESSEE FILED ITS RETURN OF INCOME ON 31-12-1999 WHICH WAS PROCESSED U/S 143(1) VIDE ORDE R DATED 30-5-2000. 2.6. A SEARCH WAS CONDUCTED U/S 132(1) OF THE INCOM E-TAX ACT, 1961 IN THE OFFICE PREMISES OF THE ASSESSEE AND THE RESIDENTIAL PREMISES OF ITS DIRECTORS ON 10-11TH NOVEMBER 2004. IN RESPONSE TO NOTICE U/S 153A, THE ASSESSEE FILED ITS RETURN OF INCOME ON 5-10-2005 DECLARING I NCOME OF RS. 10,11,66,880/-. THE ASSESSMENT ORDER U/S 153A READ WITH SECTION 143(3) OF THE ACT WAS PASSED ON 1-6-2006 DETERMINING THE TOTA L INCOME AT RS. 10,36,86,880/-, THE ONLY ADDITION MADE BEING THE DI SALLOWANCE ON ACCOUNT OF 3 ITA NO. 2057/DEL/10 NIIT VS. CIT CLAIM MADE U/S 10B IN RESPECT OF THE TECHNICAL KNO W-HOW FEES OF RS. 25,20,000/-. 2.7. THE ASSESSEE FILED AN APPEAL AGAINST THE ADDIT IONS MADE IN THE AFORESAID ASSESSMENT ORDER AND THE CIT(A) ALLOWED T HE SAME VIDE ORDER DATED 27-9-2006. THE REVENUE PREFERRED APPEAL BEFOR E THE ITAT AGAINST THE RELIEF ALLOWED BY CIT(A), WHICH IS PENDING DISPOSAL . 2.8. WHILE THE AFORESAID APPEAL BEFORE THE TRIBUNAL AGAINST THE ASSESSMENT ORDER DATED 1-6-2006 WAS PENDING, THE LD. CIT (CENT RAL)-III, NEW DELHI INITIATED REVISIONARY PROCEEDINGS U/S 263 BY ISSUIN G SHOW CAUSE NOTICE DATED 23-7-2007. THE ASSESSEE FILED ITS REPLY DATED 9-10- 2007, IN WHICH PRIMARILY THE ASSESSEE CONTENDED THAT THE ASSESSMENT ORDER WA S PASSED BY AO AFTER MINUTELY SCRUTINIZING AND DISCUSSING THE DETAILED A ND VOLUMINOUS WRITTEN SUBMISSIONS ALONG WITH NECESSARY EVIDENCE FILED BEF ORE HIM. 2.9. THE ASSESSEE FILED ITS REPLY ON ALL THE ISSUES RAISED IN THE SHOW CAUSE NOTICE. THEREAFTER, LD. CIT (CENTRAL)-II, NEW DELHI AGAIN ISSUED A SHOW CAUSE NOTICE DATED 15-10-2007 IN CONTINUATION TO TH E ISSUES RAISED IN THE SHOW CAUSE LETTER DATED 23-7-2007. THE ASSESSEE VID E ITS LETTER DATED 10-1- 2008 FILED ITS REPLY IN WHICH THE ASSESSEE PRIMARIL Y RAISED FOLLOWING ISSUES: (I) THE ASSESSMENTS WERE COMPLETED BY THE ASSESSING OFF ICER AFTER DUE APPLICATION OF MIND, TAKING INTO ACCOUNT THE VOLUMI NOUS RECORD AND EVIDENCES FILED BY THE ASSESSEE IN THAT BEHALF. (II) THE ASSESSEE BELIEVED THAT THE ASSESSMENTS WERE COM PLETED UNDER THE MONITORING OF THE CIT, EXERCISING JURISDICTION OVER THE ASSESSING OFFICER. (III) THE ASSESSEE POINTED OUT THAT IT WAS FURTHER BELIEV ED THAT REGULAR REPORTS WERE ALSO SENT TO CBDT THROUGH PROPER CHANN EL FROM TIME 4 ITA NO. 2057/DEL/10 NIIT VS. CIT TO TIME ON THE PROGRESS OF THE ASSESSMENTS AND THE DECISIONS/ ACTIONS PROPOSED TO BE TAKEN. THUS, THE ASSESSMENTS WERE COMPLETED UNDER THE MONITORING OF CIT/ CBDT. (IV) IT IS NOT OPEN TO THE SUCCESSOR CIT TO SEEK TO REVI SE AN ASSESSMENT COMPLETED UNDER THE DIRECTION AND THE MONITORING OF THE PREDECESSOR CIT. (V) SHRI A.L. MEHTA WAS EMPLOYED WITH THE COMPANY AS DY . GENERAL MANAGER UP TO DECEMBER 2001. HE RESIGNED FROM SERV ICE AND AT THE TIME OF RESIGNATION HIS CERTAIN DEMANDS WERE NO T ACCEPTED. ACCORDINGLY, HE WAS DISGRUNTLED EMPLOYEE AND STAR TED MAKING FRIVOLOUS ALLEGATIONS AGAINST THE COMPANY TO VARIOU S GOVERNMENT ORGANIZATIONS, INCLUDING INCOME-TAX DEPARTMENT, FER A AUTHORITIES ETC. (VI) THE INCOME-TAX DEPARTMENT (INV.), FOR THE FIRST TIM E IN 2002, ISSUED SHOW CAUSE NOTICES U/S 131 OF THE ACT TO THE ASSESSEE, ASKING INFORMATION ON SEVERAL ISSUES. VOLUMINOUS AN D DETAILED RECORDS RUNNING OVER THOUSAND PAGES WERE SUBMITTED TO THE INVESTIGATION DEPARTMENT IN 2002. NOTHING WAS HEARD THEREAFTER FROM THE DEPARTMENT FOR TWO YEARS. (VII) THE ASSESSEE FURTHER SUBMITTED THAT IT APPEARED THA T MR. MEHTA WAS NOT SATISFIED WITH THE INVESTIGATIONS CARRIED OUT BY THE DEPARTMENT AND GOADED THE DEPARTMENT TO INITIATE ACTION U/S 13 2 OF THE ACT AGAINST THE ASSESSEE AND IN CONSEQUENCE TO THAT SEA RCH WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE IN NOVEMBER 200 4. (VIII) THE ASSESSEE POINTED OUT THAT AS A RESULT OF SEARCH , THERE WAS NEITHER ISSUE OF ANY UNDISCLOSED CASH NOR OF ANY A SSET ETC. THE 5 ITA NO. 2057/DEL/10 NIIT VS. CIT ASSESSMENT U/S 153A FOR A.Y. 1999-2000 TO 2004-05 W ERE MADE AFTER MAKING AN AGGREGATE DISALLOWANCE OF RS. 41 CR ORES AGAINST THE ASSESSEE AND ITS GROUP COMPANIES, WHICH WERE SU BSTANTIALLY DELETED IN THEIR APPEALS. THE REVENUES APPEALS ON THE ISSUES ARE PENDING WITH THE TRIBUNAL. (IX) THE ASSESSEE FURTHER ALLEGED THAT MR. MEHTA AGAIN, NOT SATISFIED WITH THE QUALITY OF ASSESSMENTS AND THE ADDITIONS M ADE THEREIN, STARTED LEVELING ALLEGATIONS AGAINST THE OFFICIALS OF THE DEPARTMENT AND THE ASSESSEE COMPANY IN HIS WRITTEN COMPLAINS. (X) THE ASSESSEE FILED A COPY OF SUCH LETTER DATED 17-5 -2007 WRITTEN BY SHRI A.L. MEHTA TO THE MEMBER (INVESTIGATION), CBDT , INSTIGATING THE DEPARTMENT TO INITIATE PROCEEDINGS U/S 263 OF T HE ACT. THE CONTENTION OF THE ASSESSEE WAS THAT IT RELIABLY BE LIEVED THAT IT WAS ON ACCOUNT OF PRESSURE AND INFLUENCE EXERTED BY A.L . MEHTA ON MEMBER (INVESTIGATION), CBDT THAT THE DEPARTMENT HA D INITIATED ACTION U/S 263 OF THE ACT. (XI) IN SUM AND SUBSTANCE THE ASSESSEES CONTENTION WAS THAT IT WAS NOT SATISFACTION OF CIT BUT THE PRESSURE FROM HIGHER AU THORITIES WHO DIRECTED THE CIT TO TAKE REMEDIAL ACTION U/S 263 OF THE ACT. THE ASSESSEE RELIED ON VARIOUS DECISIONS WHEREIN IT HAS BEEN HELD THAT WHERE AUTHORITY WHICH IS EXPECTED TO EXERCISE JURIS DICTION, ABDICATED THE SAME TO OTHER AUTHORITY, SUCH ACTION CANNOT BE LEGALLY SUSTAINED. 2.10. LD. CIT(CENTRAL)-II, NEW DELHI VIDE ORDER DAT ED 19-6-2008, AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, DIRECTED TH E ASSESSING OFFICER TO FRAME THE ASSESSMENT AFRESH, AFTER AFFORDING THE AS SESSEE OF BEING HEARD. LD. 6 ITA NO. 2057/DEL/10 NIIT VS. CIT CIT WHILE DEALING WITH THE VARIOUS ISSUES RAISED BY ASSESSEE IN ITS REPLY DATED 10-1-2008 REFUTED EACH AND EVERY OBJECTION RAISED BY ASSESSEE AND, INTER ALIA, POINTED OUT AS UNDER: (I) AS REGARDS ASSESSEES CONTENTION THAT ASSESSMENT OR DER WAS PASSED UNDER THE MONITORING BY CIT, IT WAS POINTED OUT THA T THERE WAS NO MATERIAL TO INDICATE THAT DIRECTIONS WERE ISSUED BY THE THEN CIT(CENTRAL)-III, NEW DELHI TO THE ASSESSING OFFICE R TO FRAME THE ASSESSMENT OF NIIT IN A PARTICULAR MANNER. NO FORMA L OR INFORMAL MONITORING WAS DONE BY THE CIT/ CBDT. NO SEIZED MAT ERIAL OR THE ASSESSMENT RECORDS WERE REQUISITIONED BY THE THEN C IT/CBDT. THERE WAS NO EVIDENCE OF ANY MONITORING/ DIRECTIONS ISSUED BY THE HIGHER AUTHORITIES. (II) AS REGARDS FORWARDING OF THE REPORT TO THE CBDT OF THE FRAMING OF THE ASSESSMENT ORDER, THE LD. CIT POINTED OUT THAT IN IMPORTANT SEARCH & SEIZURE CASES SENDING OF REPORTS TO THE CB DT IS A NORMAL PRACTICE. THESE REPORTS ARE IN THE NATURE OF STATUS REPORT THAT GIVE THE PROGRESS OF INVESTIGATIONS/ ASSESSMENTS MADE BY THE ASSESSING OFFICER. BY SENDING THESE REPORTS ASSESSING OFFICER DOES NOT SEEK ANY DIRECTION FROM EITHER THE CIT OR THE CBDT. THUS , THE ASSESSEES CONTENTION THAT THE ASSESSMENT WAS FRAME D ON THE BASIS OF MONITORING AND DIRECTIONS OF THE THEN CIT WAS UN SUSTAINABLE. (III) LD. CIT FURTHER POINTED OUT THAT ASSESSING OFFICER HAD MADE INDEPENDENT INQUIRIES DURING ASSESSMENT AND FRAMED THE ASSESSMENT ORDER. HOWEVER, ON EXAMINATION OF RECORD S BY CIT IT WAS FOUND THAT THERE WERE CERTAIN ISSUES ON WHICH N O INQUIRIES OR 7 ITA NO. 2057/DEL/10 NIIT VS. CIT INADEQUATE INQUIRIES WERE MADE BY THE ASSESSING OFF ICER. LD. CIT ALSO DISTINGUISHED THE CASE LAWS RELIED UPON BY ASS ESSEE. (IV) AS REGARDS ASSESSEES OBJECTION THAT PROCEEDINGS U /S 263 HAD BEEN INITIATED ON THE BASIS OF CORRESPONDENCE MADE BY IN FORMANT WITH THE DEPARTMENT INCLUDING CBDT, LD. CIT POINTED OUT THAT THIS CONTENTION ALSO DOES NOT HOLD GOOD BECAUSE THE ASSE SSMENT RECORDS EXAMINED BY CIT, REVEALED THAT ASSESSMENT WAS ERRON EOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. (V) LD. CIT, ACCORDINGLY, DISPOSED OF THE PRELIMINARY O BJECTION AND THEN PASSED THE ORDER ON VARIOUS ISSUES RAISED IN T HE SHOW CAUSE NOTICE. 2.11. THE ASSESSEE FILED A WRIT PETITION BEING WP(C ) NO. 4722/2008 BEFORE THE HONBLE HIGH COURT AND ASSAILED THE ORDER PASSE D U/S 263 MAINLY ON FOLLOWING GROUNDS: (I) THE ORDER PASSED WAS IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE BECAUSE THE ASSESSEE REQUESTED THE LD. CIT TO DISP OSE OF THE PRELIMINARY LEGAL OBJECTIONS BY PASSING REASONED SP EAKING ORDER AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF GK N DRIVESHAFT V. CIT 259 ITR 19 ( IN CONTEXT OF SECTION 148 OF TH E ACT). THE ASSESSEE HAD RESERVED THE RIGHT TO MAKE SUBMISSION ON MERITS ONCE LD. CIT HAD PASSED INTERIM ORDER DISPOSING OF THE LEGAL OBJECTIONS RAISED. HOWEVER, LD. CIT, AFTER A LAPSE OF MORE TH AN 5 MONTHS DISMISSED THE LEGAL OBJECTIONS RAISED AND ALSO DISP OSED OF THE MATTER ON MERITS. THUS, IT WAS SUBMITTED THAT THERE WAS COMPLETE VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. 8 ITA NO. 2057/DEL/10 NIIT VS. CIT (II) ASSESSMENT COMPLETED UNDER THE MONITORING OF CIT, C OULD NOT BE REVISED U/S 263. IN REGARD TO THIS GROUND, THE ASSE SSEE INTER ALIA, SUBMITTED THAT THE LD. CIT WAS DUTY BOUND TO BRING ON RECORD THE CORRESPONDENCE EXCHANGED BETWEEN VARIOUS OFFICERS O F THE DEPARTMENT TO REFUTE/ REBUT THE OBJECTIONS RAISED B Y THE ASSESSEE THAT THE ASSESSMENT U/S 153A WAS COMPLETED UNDER TH E MONITORING OF THE THEN CIT. (III) THE REVISION AT THE DIRECTION/ DICTATES OF SUPERIO R AUTHORITIES : IN THIS REGARD THE ASSESSEE, INTER ALIA, SUBMITTED THA T ON ACCOUNT OF UNDUE PRESSURE AND INFLUENCE EXERTED BY SHRI A.L. M EHTA, THE SUPERIOR AUTHORITIES WITHIN THE INCOME-TAX HIERARCH Y DIRECTED THE LD. CIT TO REOPEN THE CONCLUDED ASSESSMENT BY INITI ATING ACTION U/S 263 OF THE ACT. (IV) THE ASSESSMENT ORDER PASSED AFTER APPLICATION OF MI ND COULD NOT BE REGARDED AS ERRONEOUS AND PREJUDICIAL TO THE INTERE STS OF REVENUE. (V) VIEW TAKEN BY THE ASSESSING OFFICER WAS ONE OF THE POSSIBLE VIEW IN LAW. (VI) NO PRIMA FACIE FINDING REACHED BY THE LD. CIT THAT ASSESSMENT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVEN UE BEFORE EXERCISING OF THE REVISIONAL JURISDICTION U/S 263 O F THE ACT. 2.12. THE ASSESSEE HAD, INTER ALIA, PRAYED THAT HON BLE HIGH COURT MAY BE PLEASED TO CALL FOR THE COMPLETE RECORD OF THE DEPA RTMENT INCLUDING CONFIDENTIAL FOLDER TO VERIFY FOR ITSELF THE AVERME NTS MADE BY ASSESSEE IN THE WRIT PETITION. 2.13. THE ASSESSEE ALSO FILED DETAILED SUBMISSIONS WHICH ARE CONTAINED AT PAGE 104 TO 146 OF THE PAPER BOOK VOL. I. 9 ITA NO. 2057/DEL/10 NIIT VS. CIT 2.14. THE HONBLE HIGH COURT VIDE ORDERS DATED 18-8 -2008 AND 15-7-2009 HAD DIRECTED THE DEPARTMENT TO PRODUCE THE RECORDS AS WERE DESIRED BY THE ASSESSEE BEFORE THE HONBLE HIGH COURT. DEPARTMENT PRODUCED THE RECORDS, WHICH WERE EXAMINED BY ASSESSEES COUNEL IN THE PRE SENCE OF SR. STANDING COUNSEL AND ASSESSEE HAD TAKEN DETAILED NOTES WITH THE ASSISTANCE OF STENOGRAPHER. 2.15. HONBLE HIGH COURT VIDE ITS JUDGMENT DATED 11 -12-2009 ALLOWED THE WRIT PETITION, SETTING ASIDE THE ORDER DATED 19-6-2 008 PASSED BY THE CIT (CENTRAL)-II. HOWEVER, LIBERTY WAS GRANTED TO THE C IT TO APPROPRIATELY DEAL WITH THE MATTER AND PASS FRESH ORDER AFTER GIVING O PPORTUNITY OF BEING HEARD TO THE ASSESSEE ON VARIOUS POINTS CANVASSED BEFORE HONBLE HIGH COURT OR WHICH INTENDED TO RAISE AT THE TIME OF FRESH HEARIN G. 2.16. THE SCOPE OF THIS JUDGMENT HAS BEEN A MATTER OF CONSIDERABLE DEBATE INASMUCH AS THE SAME WAS CONSIDERED BY HONBLE HIGH COURT IN ITS JUDGMENT DATED 3-8-2012 WHILE DECIDING THE WRIT PET ITION FILED BY REVENUE. SINCE PRESENTLY WE ARE ONLY NARRATING THE COURSE OF EVENTS, THEREFORE, WE WILL CONSIDER IN DETAIL THE EFFECT OF THE FINDINGS RECOR DED BY HONBLE HIGH COURT LATER WHILE DECIDING THE JURISDICTIONAL ISSUES RAI SED BEFORE US BY THE ASSESSEE. 3. AN APPLICATION WAS FILED BY THE REVENUE FOR CLAR IFICATION IN REGARD TO THE LIMITATION FOR PASSING THE FRESH ORDER AND THE HONBLE HIGH COURT, VIDE ORDER DATED 5-2-2010 IN CWP NO. 4722/1987 CLARIFIED THAT PERIOD OF LIMITATION WOULD ALSO NOT APPLY TO FRESH ORDER TO B E PASSED BY THE COMMISSIONER U/S 263 OF THE ACT FOR THE ASSESSMENT YEAR 1999-2000 PURSUANT TO THE DIRECTION OF THE HONBLE HIGH COURT . 10 ITA NO. 2057/DEL/10 NIIT VS. CIT 3.1. THE ASSESSEE FILED SLP BEFORE THE HONBLE SUPR EME COURT AND ASSAILED THE ORDER OF HONBLE HIGH COURT ON THE GRO UND THAT THE HONBLE HIGH COURT ERRED IN LAW IN NOT QUASHING THE ORDER P ASSED BY THE CIT U/S 263 AND ALSO IN NOT DECIDING THE OBJECTIONS RAISED BY T HE ASSESSEE THAT THE REVISION U/S 263 HAD BEEN INITIATED ON THE DICTATES OF THE SUPERIOR AUTHORITIES AND THE ORIGINAL ASSESSMENT HAD BEEN COMPLETED UNDE R THE MONITORING OF THE CIT OR THE CCIT. THE ASSESSEE HAD ALSO, INTER ALIA, TAKEN A GROUND THAT IN THE PREVAILING ATMOSPHERE GENERATED BY THE INFORMANT ME HTA BY REASONS OF HIS MINATORY LETTERS AND CONDUCT, IT WAS VIRTUALLY IMPO SSIBLE FOR THE CIT TO EXERCISE INDEPENDENT JUDGMENT AND UNFETTERED DISCRE TION IN DISCHARGE OF ITS STATUTORY FUNCTIONS U/S 263 OF THE ACT. 3.2. THE HONBLE SUPREME COURT HAD ISSUED NOTICE ON THIS PETITION ON 12- 3-2010. ON 22-3-2010 THE SLP WAS HEARD AND AFTER HE ARING COUNSEL, THE HONBLE SUPREME COURT MADE THE FOLLOWING ORDER: SLP(C) NOS. 8488-8493/2010: BY CONSENT, THESE SLPS ARE TAKEN ON BOARD. SLP(C) NOS. 7712/2010 & 8488-8493/2010: PURSUANT TO THE ORDER DATED 11 TH MARCH, 2010, WE ARE DIRECTING THE PETITIONER-ASSESSEE IN THESE CASES TO GIVE US A COM PLETE BREAK-UP/ BIFURCATION OF THE WORLDWIDE INCOME, ALLOCATION OF EXPENSES TOWARDS LEARNING BUSINESS AND TOWARDS SOFTWARE BUSINESS. IN THESE CASES, WE WANT TO EXAMINE WHETHER THERE IS ANY LOSS OF REVENUE SUFFERED BY THE DEPARTMENT DE HORS THE QUESTION OF MALA FIDES AT THIS STAGE. PROCEEDINGS TO GO ON BUT, NO RECOVERY SHALL BE MADE . IT IS MADE CLEAR THAT LIMITATION WILL NOT COME IN T HE WAY OF THE DEPARTMENT. MATTERS TO STAND OVER FOR THREE WEEKS. 3.3. THEREAFTER, A SLP WAS AGAIN TAKEN UP FOR HEAR ING ON 12-4-2010 AND UPON HEARING THE COUNSEL, HONBLE SUPREME COURT MAD E THE FOLLOWING ORDER: 11 ITA NO. 2057/DEL/10 NIIT VS. CIT MR. AJAY VOHRA, LEARNED COUNSEL, SUBMITS THAT REC ENTLY AN ORDER(S) HAS BEEN PASSED BY THE COMMISSIONER UNDER SECTION 263 O F THE INCOME TAX ACT, 1961 REMANDING THE MATTER(S) TO THE ASSESSING OFFICER ON ALL POINTS, INCLUDING THE ISSUE INVOLVED IN THESE MATTERS. HE, ACCORDINGLY, PRAYS FOR WITHDRAWAL OF THESE SPECIAL LEAVE PETITIONS. PERMIS SION GRANTED. SPECIAL LEAVE PETITIONS ARE DISMISSED AS WITHDRAWN. IT MAY BE NOTED THAT WE ARE EXPRESSING NO OPINION ON THE MERITS OF THE CASE(S). 3.4. THUS, FINALLY, THE ASSESSEE WITHDREW ITS SLP A ND, THEREFORE, THE DECISION OF HONBLE DELHI HIGH COURT HAD BECOME FIN AL. 4. IN CONSEQUENCE TO THE ORDER OF HONBLE DELHI HIG H COURT DATED 11-12- 2009, LD. CIT (CENTRAL)-II, ISSUED SHOW CAUSE NOTIC E TO ASSESSEE DATED 5-2- 2010, CONTAINED AT PAGES 186 TO 194 OF THE PB AND T HEREAFTER ANOTHER SHOW CAUSE NOTICE DATED 19-2-2010 (CONTAINED AT PAGES 19 5 TO 196 OF THE PB). 4.1. THE ASSESSEE VIDE ITS REPLY DATED 10-3-2010, C ONTAINED AT PAGES 195 TO 206, REPLIED TO THE SHOW CAUSE NOTICES, IN WHICH, I NTER ALIA, IT WAS SUBMITTED THAT INSPECTION OF RECORDS AS REQUESTED BY THE ASSE SSEE VIDE LETTERS DATED 16- 12-2008; 23-2-2009; AND 12-3-2009 TO THE ASSESSING OFFICER/ CIT BE ALLOWED, PARTICULARLY, FOLLOWING: (I) ALL INTERDEPARTMENTAL CORRESPONDENCES (INCLUDING WI TH CBDT) IN RESPECT OF THE ASSESSMENT PROCEEDINGS U/S 153A/143( 3) OF THE ACT. (II) ALL INTERDEPARTMENTAL CORRESPONDENCES (INCLUDING WI TH CBDT) IN RESPECT OF THE PROCEEDINGS U/S 263 OF THE ACT: (III) ALL CORRESPONDENCES OF THE DEPARTMENT WITH SHRI A.L . MEHTA: (IV) COPIES OF OFFICE NOTES OF THE ASSESSMENT ORDERS. 4.2. THE ASSESSEE POINTED OUT THAT VIDE LETTERS DAT ED 24-2-2009, 4-3-2009; AND 6-3-2009, THE DEPARTMENT HAD CATEGORICALLY DENI ED INSPECTION OF THE FOLLOWING RECORDS: 12 ITA NO. 2057/DEL/10 NIIT VS. CIT (I) ASSESSMENT FOLDERS CONTAINING OFFICE NOTES TO THE O RDERS; (II) CORRESPONDENCE WITH CBDT IN RESPECT OF PROCEEDINGS U/S 263 AND CORRESPONDENCE WITH SHRI A.L. MEHTA. (III) INTER-DEPARTMENTAL CORRESPONDENCE IN RESPECT OF BOT H ASSESSMENT PROCEEDINGS AND PROCEEDINGS U/S 263 OF THE ACT. 5. THE ASSESSEE POINTED OUT THAT PURSUANT TO THE DI RECTIONS OF THE HONBLE HIGH COURT, THE DEPARTMENT MADE AVAILABLE FOR INSPE CTION TO THE ASSESSEE 12 FILES MAINTAINED IN THE OFFICE OF THE CIT RELATING TO THE PROCEEDINGS U/S 263 OF THE ACT. THE ASSESSEE WAS, HOWEVER, NOT ALLOWED TO TAKE COPIES THEREOF. THE ASSESSEE FURTHER POINTED OUT THAT THE FILES MEN TIONED WERE ALSO NOT COMPLETE AND THE FOLLOWING DOCUMENTS/ FILES WERE NO T PRODUCED IN SPITE OF THE DIRECTION OF THE HONBLE HIGH COURT: (I) ASSESSMENT FOLDERS CONTAINING OFFICE NOTES TO THE O RDERS; (II) CORRESPONDENCE WITH CBDT IN RESPECT OF PROCEEDINGS U/S 263 AND CORRESPONDENCE WITH SHRI A.L. MEHTA. (III) INTER-DEPARTMENT CORRESPONDENCE IN RESPECT OF BOTH ASSESSMENT PROCEEDINGS AND PROCEEDINGS U/S 263 OF THE ACT. 5.1. THE ASSESSEE POINTED OUT THAT ITS CHALLENGE TO 263 PROCEEDINGS BEFORE CIT AND IN THE WRIT PETITION WAS ON THE GROUND THAT THE ASSESSMENT U/S 153A/143(3) WAS COMPLETED UNDER THE MONITORING / SU PERVISION OF THE CIT. CBDT. THE SECOND OBJECTION WAS THAT THE INITIATION OF PROCEEDINGS U/S 263 WAS ON THE DICTATES/ AT THE BEHEST OF THE CCIT/ CBD T AND FOR BOTH THE REASONS, THE ORDER PASSED U/S 263 WAS WITHOUT JURIS DICTION. THE ASSESSEE POINTED OUT THAT THESE OBJECTIONS ARE TO BE DISPOSE D OF AND FOR DECIDING THE ISSUE, THE ASSESSEE WOULD REQUIRE INSPECTION OF THE ASSESSMENT RECORDS AS WELL AS RECORD RELATING TO PROCEEDINGS U/S 263 OF T HE ACT, INCLUDING 13 ITA NO. 2057/DEL/10 NIIT VS. CIT CONFIDENTIAL FOLDERS. IN THE ABSENCE OF RELEVANT RE CORDS BEING MADE AVAILABLE FOR INSPECTION, THE ASSESSEE WOULD BE HANDICAPPED I N SUBSTANTIATING THE AFORESAID LEGAL OBJECTIONS. ACCORDINGLY, IT WAS PRA YED THAT INSPECTION OF RECORDS BE ALLOWED TO ASSESSEE. 5.2. THE ASSESSEE FURTHER SUBMITTED THAT IN THE SET ASIDE PROCEEDINGS, IT IS NOT POSSIBLE TO ISSUE FRESH SHOW CAUSE NOTICE IN R ESPECT OF OTHER ITEMS, WHICH DID NOT FORM PART OF THE ORDER PASSED ON 19-6 -2008. 5.3. THE ASSESSEE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GKN DRIVESHAFTS (INDIA) LTD. V. ITO & ORS 2 59 ITR 19 (SC), WHEREIN THE APEX COURT IN THE CONTEXT OF SECTION 14 7/148 OF THE ACT, HELD THAT THE ASSESSING OFFICER IS DUTY BOUND TO DISPOSE OF THE LEGAL OBJECTIONS FILED BY THE ASSESSEE IN RESPONSE TO THE REASONS RE CORDED FOR REASSESSMENT BEFORE PROCEEDINGS WITH THE REASSESSMENT. ACCORDING LY, ASSESSEE SUBMITTED THAT LEGAL OBJECTIONS BE DISPOSED OFF. 5.4. THE ASSESSEE ALSO RELIED ON THE DECISION OF HO NBLE DELHI HIGH COURT IN THE CASE OF JANAKI EXPORTS INTERNATIONAL V. UOI 278 ITR 296 (DEL), WHEREIN THE DECISION OF HONBLE SUPREME COURT IN GK N DRIVESHAFTS (INDIA) LTD. (SUPRA), HAS BEEN FOLLOWED WITH REFERENCE TO T HE PROCEEDINGS U/S 158BD, WHICH ALSO TALK ABOUT THE SATISFACTION OF TH E ASSESSING OFFICER, RECORDED IN PROCEEDINGS U/S 158BC, HONBLE DELHI HI GH COURT HELD THAT, ONCE THE SATISFACTION BY THE ASSESSING OFFICER, PAS SING THE ASSESSMENT ORDER U/S 158BC, IS RECORDED, THE PERSON WHO IS TO BE PR OCEEDED U/S 158BD, MUST BE INFORMED ABOUT THE SATISFACTION OF THE ASSESSING OFFICER, WHICH HAS BEEN RECORDED AND HE MUST BE GIVEN A REASONABLE OPPORTUN ITY TO OBJECT TO THE SAME. 14 ITA NO. 2057/DEL/10 NIIT VS. CIT 5.5. THE ASSESSEE FURTHER RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BV VODAFONE INTERNATIONAL HOLDINGS V . UOI 221 CTR 627 (SC), WHEREIN, IN THE CONTEXT OF SEC. 201 OF THE AC T, THE APEX COURT DIRECTED THE DEPARTMENT TO DISPOSE OF THE PRELIMINARY OBJECT ION RAISED BY THE ASSESSEE REGARDING ASSUMPTION OF JURISDICTION BEFORE PROCEED INGS ON MERITS OF THE CASE. 5.6. THEREAFTER, ASSESSEE (A) VIDE LETTER DATED 16-12-2008 GAVE A REMINDER FOR CO PIES OF ASSESSMENT ORDERS ALONG WITH OFFICE NOTE THEREON AN D INSPECTION OF ASSESSMENT FILES; (B) VIDE LETTER DATED 7-6-2007, COPIES OF ASSESSMENT OR DERS PASSED U/S 153A/143(3) FOR A.Y. 1999-2000 TO 2005-06; (C) VIDE LETTER DATED 23-2-2009 INSPECTION OF (I) RECORDS FOR EXERCISING REVISIONAL JURISDICTION U/S 263; (II) ALL INTERDEPARTMENTAL CORRESPONDENCES (INCLUDING WI TH CBDT) IN RESPECT OF THE ASSESSMENT PROCEEDINGS U/S 153A; (III) ALL INTERDEPARTMENTAL CORRESPONDENCES (INCLUDING WI TH CBDT) IN RESPECT OF THE PROCEEDINGS U/S 263; (IV) ALL CORRESPONDENCES BETWEEN MR. A.L. MEHTA AND THE DEPARTMENT (INCLUDING WITH CBDT). (D) VIDE LETTER DATED 23-2-2009, INSPECTION OF RECORD IN REGARD TO PROCEEDINGS U/S 153A AND 263 FOR AY 1999-2000 TO 20 05-06; (E) VIDE LETTER DATED 12-3-2009, INSPECTION OF RECORD IN REGARD TO PROCEEDINGS U/S 153A AND 263 FOR AY 1999-2000 TO 20 05-06; 5.7. VIDE LETTER DATED 12-3-2009, ADDRESSED TO AO, THE ASSESSEE POINTED OUT VARIOUS DISCREPANCIES AS WERE NOTICED ON INSPEC TION OF FILES AND ALSO 15 ITA NO. 2057/DEL/10 NIIT VS. CIT POINTED OUT THAT NO INSPECTION WAS ALLOWED IN RESPE CT OF VARIOUS INTERDEPARTMENTAL CORRESPONDENCES, BOTH, IN RESPECT OF ASSESSMENT PROCEEDINGS AS WELL AS PROCEEDINGS U/S 263 OF THE A CT AND ALSO VARIOUS CORRESPONDENCES BETWEEN SHRI A.L. MEHTA AND THE DEP ARTMENT. THIS LETTER IS CONTAINED AT PAGES 212 TO 214 OF THE PB. 5.8. LD. CIT VIDE ITS ORDER DATED 11-3-2010 REPLIED THE ASSESSEES LETTER DATED 10-3-2010 AND GAVE A POINT WISE REPLY TO THE ASSESSEES OBJECTION. 5.9. THEREAFTER, ASSESSEE AGAIN FILED ITS REPLY TO CIT VIDE LETTER DATED 15-3- 2010. IN THIS REPLY, THE ASSESSEE REITERATED ITS S UBMISSIONS, AS REGARDS INSPECTION OF RECORDS, AND POINTED OUT THAT THE RE SULTS OF LIMITED INSPECTION WERE TABULATED BY THE ASSESSEE AND SUBMITTED TO THE HONBLE HIGH COURT, WHICH HAD BEEN ANNEXED ALONG WITH ASSESSEES LETTER DATED 10-3-2010 WHICH CLEARLY VINDICATED THE OBJECTIONS RAISED BY THE ASS ESSEE. 5.10. THE ASSESSEE ALSO DISTINGUISHED THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF SRI SRI KUBERESWAR MAHADEVA TH AKUR, REFERRED BY LD. CIT, ON THE GROUND THAT IN THE SAID DECISION THE IS SUE WAS WHETHER IN SET ASIDE PROCEEDINGS, THE COMMISSIONER COULD GO INTO T HE QUESTION OF YEAR OF ACCRUAL OF CAPITAL GAINS, WHICH WENT TO THE ROOT OF THE MATTER, WHEN SUCH QUESTION WAS NOT RAISED BY THE ASSESSEE BEFORE THE COMMISSIONER IN THE ORIGINAL PROCEEDINGS.THE HONBLE HIGH COURT HELD TH AT THE COMMISSIONER COULD CONSIDER SUCH QUESTION IN THE SET ASIDE PROCE EDINGS, SINCE THE QUESTION WENT INTO THE ROOT OF THE MATTER AND THE COMMISSION ER COULD RAISE ALL QUESTIONS IN THE COURSE OF PROCEEDINGS HELD DE NOVO . 6. HOWEVER, IN THE PRESENT CASE, THERE IS NO OBSER VATION OF HONBLE HIGH COURT, VIS--VIS THE POWER OF THE COMMISSIONERS P OWER TO RAISE NEW GROUNDS IN SET ASIDE PROCEEDINGS. THE ASSESSEE FURT HER POINTED OUT THAT THE 16 ITA NO. 2057/DEL/10 NIIT VS. CIT DIRECTION OF THE HIGH COURT THAT LD. CIT COULD LOOK INTO THE MATTER AFRESH WITH INDEPENDENT MIND, COULD NOT BE DIVORCED FROM T HE CONTEXT IN WHICH THE SAME WAS RENDERED TO ALLOW FISHING AND ROVING ENQUI RIES. THIS DIRECTION CANNOT BE READ AS PERMITTING RAISING OF NEW ISSUES. 6.1. THE ASSESSEE ALSO REITERATED THE SUBMISSIONS A S REGARDS THE PASSING OF THE ASSESSMENT ORDER U/S 153A/ 143(3) UNDER THE MON ITORING/ SUPERVISION OF CIT/ CCIT AND IN SUPPORT OF THIS CONTENTION RELIED ON VARIOUS LETTERS. 6.2. THE ASSESSEE IN ITS DETAILED REPLY IN REGARD T O THE SUBMISSION THAT PROCEEDINGS INITIATED ON DICTATE OF CCIT/CBDT WERE BAD IN LAW RELIED ON VARIOUS DECISIONS IN WHICH THIS PROPOSITION HAS BEE N CONSIDERED. 6.3. THE ASSESSEE ALSO FILED ITS REPLY ON MERITS. 7. LD. CIT, AFTER CONSIDERING THE DETAILED SUBMISSI ONS OF THE ASSESSEE PASSED ITS ORDER U/S 263 ON 1-4-2010. 8. FOLLOWING ARE THE SALIENT FINDINGS OF LD. CIT ON THE ISSUE OF JURISDICTION, ASSAILED VIDE GROUND NOS. 1 TO 5 BEFO RE US. 8.1. AS REGARDS THE ASSESSEES PLEA THAT THE ASSESS MENT U/S 153A WAS COMPLETED UNDER THE MONITORING OF THE CIT/CCIT/ CBD T AND SUCH ORDER COULD NOT BE REGARDED AS ERRONEOUS MUCH LESS PREJUD ICIAL TO THE INTEREST OF REVENUE, LD. CIT REFERRED TO THE FINDING OF HONBLE HIGH COURT WHILE DISPOSING OF THE WRIT PETITION OF THE ASSESSEE IN W RIT PETITION NO. 4722/2008 DATED 11-12-2009 (SUPRA), WHICH ARE REPRODUCED HERE UNDER: THE LEARNED ASG, AS NOTED ABOVE, HAS CONCEDED THAT AN OPPORTUNITY SHALL BE GRANTED TO THE PETITIONER FOR MAKING ITS SUBMISS ION ON THE MERITS OF THE CASE BY THE COMMISSIONER AND THEREAFTER FRESH ORDER WOULD BE PASSED. FOR THIS REASON ALSO, ONCE WE PROCEED TO SET ASIDE THE IMPUGNED ORDER, THE EFFECT WOULD BE THAT THE CONCERNED COMMISSIONER WILL HAVE TO GO INTO THIS ISSUE AFRESH FOR CONSIDERING THE SUBMISSION OF THE PETITI ONER, WHICH WOULD NECESSARILY INVOLVE APPLICATION OF HIS INDEPENDENT MIND. THIS, COUPLED WITH THE FACT THAT THE COMMISSIONER WHO PASSED THE ORDER IS NO MORE THE CONCERNED OFFICER, I.E. THE RESPONDENT NO. 4 THE MA TTER WILL HAVE TO GO TO 17 ITA NO. 2057/DEL/10 NIIT VS. CIT ANOTHER OFFICE DISCHARGING THE DUTIES IN THE CAPAC ITY OF RESPONDENT NO. 4. IN THESE CIRCUMSTANCES, THE VERY BASIS OF THE SUBMISSI ON THAT THE IMPUGNED ORDER WAS PASSED ON THE DICTATED LINES OF CBDT VANI SHES. AS THE SAME TIME, WE MAKE IT CLEAR THAT THE PRESENT COMMISSIONER/RESP ONDENT NO. 4, WHILE EXERCISING HIS POWER UNDER SECTION 263 OF THE ACT, SHALL LOOK INTO THE MATTER WITH INDEPENDENT MIND WITHOUT BEING INFLUENCED BY T HE OBSERVATIONS MADE IN THE IMPUGNED ORDER. '(EMPHASIS SUPPLIED BY US) . . 'SINCE THE MATTER HAS TO BE CONSIDERED AFRESH BY TH E COMMISSIONER, EVEN THIS CONTENTION CAN BE RAISED BY THE PETITIONER BEF ORE THE SAID COMMISSIONER AND THE COMMISSIONER, WHILE PASSING THE ORDER, SHAL L SPECIFICALLY DEAL WITH THIS CONTENTION. .. . 'THE UPSHOT OF AFORESAID DISCUSSION IS THAT WP(C) NO 4722/2008 IS ALLOWED AND THE IMPUGNED ORDER DATED 19/6/2008 PASSED BY TH E COMMISSIONER OF INCOME TAX (CENTRAL-II)/RESPONDENT NO 4 IS HEREBY S ET ASIDE. HOWEVER, LIBERTY IS GRANTED TO THE RESPONDENT NO 4 TO APPROP RIATELY DEAL WITH THE MATTER AND PASS FRESH ORDER AFTER GIVING OPPORTUNIT Y OF BEING HEARD TO THE PETITIONER ON VARIOUS POINTS CANVASSED BEFORE US OR WHICH IT INTENDS TO RAISE AT THE TIME OF FRESH HEARING. WE ALSO MAKE IT CLEAR THAT WE HAVE NOT AUTHORITATIVELY PRONOUNCED ON THE CONTENTIONS RAISE D BY THE PETITIONER, EITHER WAY, AND THE COMMISSIONER SHALL DEAL WITH SU CH CONTENTIONS OBJECTIVELY WITHOUT BEING INFLUENCED BY ANY OBSERVA TIONS IN THIS JUDGMENT. HONBLE DELHI HIGH COURT FURTHER CLARIFIED VIDE ORD ER DATED 05/02/2010 AS UNDER: 'WHILE SETTING ASIDE THE ORDER UNDER SECTION 263 OF THE INCOME TAX ACT BY THE RESPONDENT, IT WAS MADE CLEAR IN OR JUDGMENT DA TED 11/12/2009 THAT THE CONCERNED COMMISSIONER OF INCOME TAX/RESPONDENT NO. 4 SHALL LOOK INTO THE MATTER WITH INDEPENDENT MIND WITHOUT BEING INFLUENCED BY THE OBSERVATIONS MADE IN THE IMPUGNED ORDER. WE MAKE IT CLEAR THAT IN PARA 24 WHERE IT IS STATED THAT THE ISSUE OF LIMITATION WOULD NOT BE RAISED BY THE PETITIONERS, THE SAME IS IN THE CONTEXT OF PASSING OF THE ORDERS UNDER SECTION 263 OF THE ACT AS WELL. ' 8.2. AS REGARDS THE ISSUE REGARDING INSPECTION OF R ECORD TO BE PROVIDED TO ASSESSEE, LD. CIT POINTED OUT THAT AS PER THE DIREC TIONS OF THE HONBLE HIGH COURT, DURING THE COURSE OF WRIT PETITION FILED BY THE ASSESSEES COUNSEL SHRI AJAY VOHRA AND MS. KAVITA JHA, ALONG WITH OTHER REP RESENTATIVE OF THE 18 ITA NO. 2057/DEL/10 NIIT VS. CIT ASSESSEE AND WERE DULY SHOWN THE RECORDS AND CONTEN TS THEREOF WERE ALSO DULY NOTED BY REPRESENTATIVES WITH THE HELP OF STEN OGRAPHER UNDER THE SUPERVISION OF SR. STANDING COUNSEL MRS. RASHMI CHO PRA ON 11-8-2009, IN BETWEEN THE HEARING BEFORE THE HONBLE HIGH COURT A ND AGAIN ON 17-8-2009 AND 19-8-2009 RECORDS WERE ALSO SHOWN/ MADE AVAILAB LE TO ASSESSEES COUNSEL DURING THE COURSE OF HEARING OF WRIT PETITI ONS BEFORE THE HONBLE DELHI HIGH COURT. THUS, THE INSPECTION OF RECORDS, AS DIRECTED BY THE HONBLE HIGH COURT WAS DULY COMPLIED WITH AND THIS FACT WAS TAKEN COGNIZANCE BY THE HONBLE DELHI HIGH COURT. IT IS O NLY THEREAFTER THAT THE MATTER WAS PROCEEDED FOR FINAL HEARING. THUS, LD. C IT HELD THAT THE ISSUE OF INSPECTION OF RECORDS STOOD SETTLED. 8.3. AS REGARDS THE ASSESSEES PLEA THAT THE ORIGIN AL ASSESSMENT ORDER WAS PASSED BY THE ASSESSING OFFICER UNDER THE MONITORIN G OR THE SUPERVISION OF THE THEN CIT/ CBDT AND, THEREFORE, THE PRESENT CIT COULD NOT WITHDRAW SUCH ASSESSMENT AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE, LD. CIT OBSERVED THAT EXAMINATION OF ASSESSMENT RECORD OF THE ASSESSEE CLEARLY SHOWS THAT THERE WAS NEITHER ANY DIRECTIONS NOR ANY APPROVAL OF THE CIT FOR PASSING THE ASSESSMENT ORDER. HE POINTED OUT THAT S ENDING OF ROUTINE CORRESPONDENCE AND REPORT BY THE ASSESSING OFFICER TO SENIOR AUTHORITIES DOES NOT IN ANY WAY MEANS THAT THE ASSESSMENT HAS BEEN C OMPLETED BY HIM ON THE DIRECTIONS OF THE SUPERIOR AUTHORITIES. HE POINTED OUT THAT NOWHERE, DURING THE ASSESSMENT PROCEEDINGS, ANY APPROVAL HAS BEEN S OUGHT BY THE ASSESSING OFFICER FROM THE CIT NOR THE CIT ISSUED ANY DIRECTI ONS TO THE ASSESSING OFFICER, STATING THAT THE ASSESSMENT ORDER MUST BE PASSED BY MAKING ANY PARTICULAR ADDITION OR DISALLOWANCE. 19 ITA NO. 2057/DEL/10 NIIT VS. CIT 8.4. NONE OF THE LETTERS, WRITTEN BY THE CIT/ CBDT INDICATED THAT THERE WAS ANY DICTATE THEREIN BY THE ASSESSING OFFICER. 8.5. LD. CIT FURTHER POINTED OUT THAT AS PER THE PR OVISIONS OF THE ACT, THE HIGHER AUTHORITIES ARE NOT TO INTERFERE WITH THE IN DEPENDENCE OR UNFETTERED DISCRETION, WHICH IS STATUTORILY CONFERRED UPON THE ASSESSING OFFICER, HENCE IF ASSESSEES ALLEGATIONS WERE TO BE ACCEPTED, EVEN TH EN IT WAS CLEAR THAT THE SAID ORDER PASSED BY THE ASSESSING OFFICER WAS CONT RARY TO THE PROVISIONS OF LAW AND, ACCORDINGLY, THE SAME ITSELF BECOMES ERRON EOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. 8.6. AS REGARDS THE ASSESSEES ALLEGATION THAT THE INITIATION OF PROCEEDING U/S 263 WAS ON THE DICTATES/ AT THE BEHEST OF THE C CIT/ CBDT, LD. CIT REFERRED TO THE OBSERVATIONS OF HONBLE DELHI HIGH COURT NOTED IN PARA8.1 OF THIS ORDER TO CONCLUDE THAT THE ASSESSEES OBJECTI ONS ON THESE ISSUES WERE NO LONGER VALID. 9. AS REGARDS THE ALLEGATION OF ASSESSEE THAT IN TH E SET ASIDE PROCEEDINGS, IT IS NOT POSSIBLE TO ISSUE FRESH SHOW CAUSE NOTICE IN RESPECT OF OTHER ITEMS, WHICH DID NOT FORM PART OF THE ORDER PASSED U/S 263 ON 19-6-2008, THE LD. CIT POINTED OUT THAT THE HONBLE DELHI HIGH COURT HAS HELD THAT THE CIT WHILE EXERCISING THE POWERS U/S 263 OF THE ACT, SHA LL LOOK INTO THE MATTER AFRESH WITH INDEPENDENT MIND. 9.1. LD. CIT POINTED OUT THAT THE NEW ISSUES, WHICH HAD BEEN TAKEN IN SHOW CAUSE NOTICE, HAD BEEN RAISED AFTER EXAMINATIO N OF THE ASSESSMENT RECORD WITH INDEPENDENT MIND. 9.2. LD. CIT POINTED OUT THAT SHOW CAUSE NOTICE HAD BEEN ISSUED AS PER THE PROVISIONS OF THE IT ACT/ DIRECTION OF THE HONBLE HIGH COURT AND OTHER JUDICIAL PRONOUNCEMENTS ON THE ISSUE. 20 ITA NO. 2057/DEL/10 NIIT VS. CIT 9.3. LD. CIT REFERRED TO THE DECISION OF HONBLE CA LCUTTA HIGH COURT IN THE CASE OF SRI KUBERESWAR MAHADEVA THAKUR V. CIT [1992 ] 196 ITR 649, WHEREIN IT HAS BEEN HELD AS UNDER: ALL ISSUES OF FACT AND LAW CAN BE CONSIDERED DE NO VO WHEN AN ORDER IS SET ASIDE WITH A DIRECTION TO PASS A FRESH ORDER IN ACCORDANCE WITH LAW, THE CONCERNED AUTHORITY CAN EN TERTAIN ALL ISSUES OF FACT AND LAW IN THE COURSE OF THE PROCEED INGS IN WHICH THE FRESH ORDER WOULD BE MADE, UNLESS THERE ARE DIRECTI ONS TO DECIDE SPECIFIC ISSUES ONLY. 9.4. AS REGARDS THE ALLEGATION THAT THE ISSUES RAIS ED IN THE SHOW CAUSE NOTICE HAD BEEN SUBJECTED TO DETAILED SCRUTINY DURI NG THE COURSE OF ASSESSMENT U/S 153A/ 143(3), LD. CIT POINTED OUT TH AT REPLY ON THE MERITS CAN BE SUBMITTED WHICH WILL BE CONSIDERED WHILE PASSING THE ORDER. 9.5. LD. CIT FURTHER POINTED OUT THAT THE PROCEEDIN GS U/S 263 CANNOT BE COMPARED WITH THE PROCEEDINGS U/S 147/ 158BD AND 20 1 AND POINTED OUT THAT IN THOSE PROCEEDINGS ONLY NOTICE IS ISSUED TO THE A SSESSEE WHEREIN NO REASONS, WHAT-SO-EVER, ARE GIVEN FOR INITIATION OF THE SAME AND, THEREFORE, THE REASON HAD TO BE SUPPLIED TO ASSESSEE SO THAT HE C AN FILE OBJECTIONS. HOWEVER, IN THE PROCEEDINGS U/S 263, THE SHOW CAUSE NOTICE ITSELF CONTAINS ALL THE PRELIMINARY ISSUES, WHICH ARE NOT CONCLUSIV E AND THE ASSESSEE IS AT LIBERTY TO REBUT THE SAME WITH SUBMISSIONS AND SUPP ORTING EVIDENCE. 9.6. THEREAFTER, LD. CIT HAS PASSED ORDER ON OTHER ISSUES ALSO WHICH WE SHALL DISCUSS LATER. 9.7. AGAINST THIS ORDER PASSED U/S 263, THE ASSESSE E PREFERRED APPEAL BEFORE US ON 4-5-2010 AND HAS ASSAILED THE ORDER ON FOLLOW ING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE COMMISSIONER OF INCOME -TAX (CIT), UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 ('THE ACT') SETTING ASIDE THE ASSESSMENT FRAMED UNDER SECTION 143(3)/15 3A OF THE 21 ITA NO. 2057/DEL/10 NIIT VS. CIT ACT AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE IS WITHOUT JURISDICTION, BAD IN LAW AND VOID AB-INITIO . 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE CIT WITHOUT AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD, IN COMPLETE VIOLATION O F PRINCIPLES OF NATURAL JUSTICE, IS VOID-AB-INITIO. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN NOT ALLOWING INSPECTION OF TH E RECORDS PRAYED BY THE APPELLANT, PREVENTING THE APPELLANT F ROM MAKING SUBMISSIONS ON THE VALIDITY OF ASSUMPTION OF JURISD ICTION UNDER SECTION 263 OF THE ACT. 3.1 THAT THE CIT ERRED IN FACTS AND IN LAW IN OBSE RVING THAT COMPLETE INSPECTION OF RECORDS HAD BEEN ALLOWED WHI LE THE WRIT PETITION WAS PENDING BEFORE THE HON'BLE HIGH COURT. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE PROCEEDINGS UNDER SECTION 263 OF THE ACT HAVING BEEN INITIATED AT THE DICTATES OF SUPERIOR AUTHORITIES ( CCIT/CBDT) WERE BAD IN LAW AND VOID AB-INITIO. 4.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT ERRED IN HOLDING THAT WHILE SETTING AS IDE THE ORIGINAL ORDER PASSED UNDER SECTION 263 OF THE ACT, THE HON' BLE HIGH COURT, VIDE ORDER DATED 11.12.2009, HAD DISMISSED T HE AFORESAID GROUND RAISED BY THE APPELLANT IN THE WRIT PETITION . 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN EXERCISING JURISDICTION UNDER SECTION 263 OF THE ACT WITHOUT APPRECIATING THAT THE ORIGINAL ASSE SSMENT ORDER UNDER SECTION 143(3)/153A OF THE ACT HAVING BEEN PA SSED UNDER THE MONITORING OF THE COMMISSIONER/CHIEF COMMISSION ER, SUCH AN ASSESSMENT WAS NOT AMENABLE TO REVISION UNDER SE CTION 263 OF THE ACT. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN EXERCISING JURISDICTION UNDER SECTION 263 OF THE ACT AND SETTING ASIDE ISSUES WHICH HAD BEEN DIS CUSSED AND SCRUTINIZED BY THE ASSESSING OFFICER IN DETAIL WHIL E FRAMING THE ASSESSMENT UNDER SECTION 143(3) /153A OF THE ACT. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN EXERCISING JURISDICTION UNDER SECTION 263 OF THE ACT IN RESPECT OF VARIOUS CLAIMS, WHICH WERE DU LY SUPPORTED BY JUDICIAL PRECEDENTS AND, THEREFORE, COULD AT BES T BE SAID TO BE DEBATABLE OUSTING JURISDICTION UNDER THE SAID SECTI ON. 22 ITA NO. 2057/DEL/10 NIIT VS. CIT 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN EXERCISING JURISDICTION UNDER SECTION 263 IN RESPECT OF ISSUES WHICH WERE BEYOND THE JURISDICTIO N OF THE ASSESSING OFFICER WHILE FRAMING THE ORIGINAL ASSESS MENT UNDER SECTION 143(3)/153A OF THE ACT. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN SETTING ASIDE THE VARIOUS ISS UES WITHOUT RECORDING ANY PRIMA FACIE FINDING ON THE MERITS OF THE ISSUES. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT EXCEEDED HIS JURISDICTION IN SETTING A SIDE THE ASSESSMENT ORDER IN RESPECT OF ISSUES RAISED IN THE NOTICE, DATED 05.02.2010, ISSUED UNDER SECTION 263 OF THE ACT, IN CONTRAVENTION OF THE HON'BLE HIGH COURT'S ORDER DATED 11.1'2.2009 . 11. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN SETTING ASIDE THE CLAIM FOR E XEMPTION UNDER SECTION 10B AS ERRONEOUS AND PREJUDICIAL TO THE INT EREST OF THE REVENUE ON THE GROUND THAT THE SAME WAS NOT EXAMINE D BY THE ASSESSING OFFICER WHILE PASSING THE ORDER UNDER SEC TION 143(3)/153A OF THE ACT. 11.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT ERRED IN HOLDING THAT THE INDIVIDUAL U NITS OF THE APPELLANT, DEDUCTION IN RESPECT OF WHICH WAS CLAIME D UNDER SECTION 10B OF THE ACT, WERE NOT SEPARATE INDUSTRIA L UNDERTAKINGS BUT MERE EXTENSION OF ALREADY EXISTING BUSINESS OF THE APPELLANT. 11.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT ERRED IN ALLEGING THAT SINCE THE ASSES SING OFFICER FAILED TO EXAMINE THE BASIS OF ALLOCATION OF EXPENS ES BETWEEN THE APPELLANT'S EOU AND NON-EOU UNITS, THE ORDER OF THE ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERE ST OF THE REVENUE. 11.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT ERRED IN HOLDING THAT SINCE THE APPELL ANT HAD NOT ALLOCATED FOREIGN EXCHANGE FLUCTUATION LOSS OF RS.2 .76 CRORES TO THE EOU UNITS AND THE ASSESSING OFFICER HAVING FAIL ED TO EXAMINE THE SAID ISSUE, THE ORDER OF THE ASSESSING OFFICER IN THIS REGARD WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF TH E REVENUE. 23 ITA NO. 2057/DEL/10 NIIT VS. CIT 11.4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT ERRED IN EXERCISING JURISDICTION UNDER SECTION 263 OF THE ACT IN RESPECT OF THE AFORESAID ISSUE WITHOUT A PPRECIATING THAT THE SAID ISSUE WAS SUBJECT MATTER OF APPEAL BEFORE THE CIT (A) IN THE PRESENT ASSESSMENT YEAR AS WELL AS ASSESSMENT Y EAR 2001-02. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN HOLDING THAT THE ASSESSING OFFICER WHI LE ALLOWING NETTING OFF OF INTERESJ-IR RCORRRE-SAD FOR IT EXPEN SE IN THE ORDER PASSED UNDER SECTION 143(3)1153A OF THE ACT, HAVING FAILED TO EXAMINE NEXUS BETWEEN INTEREST INCOME AND EXPENSE, THE ORDER OF THE ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 12.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT FAILED TO APPRECIATE THAT THE AFORESAI D ISSUE HAVING ALREADY BEEN EXAMINED AND SCRUTINIZED IN DETAIL DUR ING THE ORIGINAL ASSESSMENT PROCEEDINGS UNDER SECTION 143(3 )1153A OF THE ACT AND, THE CIT COULD NOT HAVE EXERCISED JURIS DICTION IN RESPECT THERETO. 13. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN ALLEGING THAT INTEREST FREE ADVANCESLLOANS/INVESTMENTS HAVING BEEN MADE BY THE APPELLANT FOR NON-BUSINESS PURPOSE OUT OF INTEREST BEARING FU NDS AND THE ASSESSING OFFICER HAVING FAILED TO EXAMINE THE AFOR ESAID ISSUE, THE ASSESSMENT ORDER IN THIS REGARD WAS ERRONEOUS A ND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 13.1 THAT IN HOLDING AS AFORESAID, THE CIT FAILED TO APPRECIATE THAT THE APPELLANT HAVING MIXED POOL OF FUNDS, INTE REST FREE ADVANCES/ LOANS/ INVESTMENTS HAD RIGHTLY BEEN PRESU MED BY THE ASSESSING OFFICER TO HAVE COME OUT FROM INTEREST FR EE FUNDS AVAILABLE WITH THE APPELLANT, WHILE NOT MAKING ANY DISALLOWANCE OF INTEREST IN THE ORIGINAL ASSESSMENT. 13.2 THAT THE CIT FAILED TO APPRECIATE THAT SINCE THE APPELLANT MAINTAINED COMMON POOL OF FUNDS AND SINCE THE PROFI TS OF THE BUSINESS EXCEEDED THE INTEREST FREE ADVANCES / INVE STMENTS, THE ASSESSING OFFICER HAD RIGHTLY NOT MADE ANY DISALLOW ANCE OF INTEREST IN THE ORIGINAL ASSESSMENT. 24 ITA NO. 2057/DEL/10 NIIT VS. CIT 13.3 THAT IN HOLDING AS AFORESAID, THE CIT FAILED TO APPRECIATE THAT IN THE ABSENCE OF ONE-TO-ONE NEXUS BETWEEN THE FUNDS BORROWED FOR PURPOSE OF BUSINESS AND THOSE DIVERTED INTEREST FREE, THE ASSESSING OFFICER HAD RIGHTLY NOT MADE AN Y DISALLOWANCE OF INTEREST IN THE ORIGINAL ASSESSMENT. 14. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN HOLDING THAT REPAIR EXPENSES OF RS.1O.15 CRORES WERE CLAIMED BY THE APPELLANT AND ALLOWED BY THE ASSESSING OFFICER WITHOUT ANY VERIFICATION OR ENQUI RY. 14.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT FAILED TO POINT OUT ANY ERROR IN THE O RDER OF THE ASSESSING OFFICER IN ALLOWING THE AFORESAID CLAIM O F THE APPELLANT, WHICH IS SINE QUA NON FOR INITIATION OF PROCEEDINGS UNDER SECTION 263 OF THE ACT. 14.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT ERRED IN SETTING ASIDE THE ASSESSMENT ORDER IN THIS REGARD, WITHOUT APPRECIATING THAT THE AFORESAID EXP ENSES WERE IN THE NATURE OF ROUTINE MAINTENANCE AND REPAIR EXPENS ES, DEDUCTION WHEREOF WAS ALLOWABLE UNDER SECTION 31137 OF THE ACT. 15. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN HOLDING THAT THE ALLEGED STEE P RISE IN COURSE EXECUTION CHARGES INCURRED BY THE APPELLANT WAS ACC EPTED BY THE ASSESSING OFFICER WITHOUT ANY VERIFICATION AND ENQU IRY AND, THEREFORE, THE ORDER OF THE ASSESSING OFFICER IN TH IS REGARD WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. 15.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT FAILED TO APPRECIATE THAT THE AFORESAI D ISSUE WAS DULY EXAMINED BY THE ASSESSING OFFICER DURING THE O RIGINAL ASSESSMENT PROCEEDINGS AND, THEREFORE, WAS NOT AMEN ABLE TO REVISIONARY JURISDICTION UNDER SECTION 263 OF THE A CT. 16. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN SETTING THE ASSESSMENT ON THE ISSUE OF DEDUCTION ON ACCOUNT OF BAD DEBTS ON THE GROUND THA T SAME HAD BEEN ALLOWED WITHOUT ANY VERIFICATION OR ENQUIRY BY THE ASSESSING OFFICER. 25 ITA NO. 2057/DEL/10 NIIT VS. CIT 16.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT FAILED TO APPRECIATE THAT THE AFORESAI D ISSUE WAS DULY EXAMINED BY THE ASSESSING OFFICER DURING THE O RIGINAL ASSESSMENT PROCEEDINGS AND, THEREFORE, WAS NOT AMEN ABLE TO REVISIONARY JURISDICTION UNDER SECTION 263 OF THE A CT. 17. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN HOLDING THAT THE ASSESSING OF FICER FAILED TO VERIFY WHETHER ANY EXPENSES WERE INCURRED FOR EARNI NG EXEMPT INCOME WHICH WERE REQUIRED TO BE DISALLOWED UNDER ~ A OF THE ACT AND, THEREFORE, THE ORDER OF THE ASSESSING OFFI CER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. 17.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT FAILED TO APPRECIATE THAT IN TERMS OF PROVISO TO SECTION 14A, THE ASSESSING OFFICER BEING PRECLUDED FROM MAKING ANY DISALLOWANCE IN THIS REGARD, THE CIT COULD NOT HAVE EXERCISED JURISDICTION UNDER SECTION 263 OF THE ACT IN RESPECT OF SUCH ISSUE. 18. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN ALLEGING THAT SINCE THE APPEL LANT HAD PAID TECHNICAL SERVICES FEE TO VARIOUS NON- RESIDENTS WI THOUT DEDUCTION OF TAX AT SOURCE AND THE ASSESSING OFFICE R HAVING FAILED TO EXAMINE THE SAID ISSUE, THE ORDER OF THE ASSESSI NG OFFICER IN THIS REGARD WAS ERRONEOUS AND PREJUDICIAL TO THE IN TEREST OF THE REVENUE. 18.1 THAT IN HOLDING AS AFORESAID, THE CIT FAILED TO APPRECIATE THAT THE AFORESAID ISSUE, INCLUDING THE ISSUE OF DE DUCTION OF TAX AT SOURCE, HAVING BEEN DULY CONSIDERED AND SCRUTINIZE D BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT, THE A SSESSMENT ORDER COULD NOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 18.2 WITHOUT PREJUDICE, THE CIT FAILED TO APPRECIA TE THAT SINCE UNDER THE ALLEGED AMC CONTRACTS, THE APPELLANT HAD ONLY RECEIVED UPGRADES TO SOF RECEIVED ANY TECHNICAL SER VICE FROM THE NON-RESIDENT, THE CONSIDERATION PAID WAS NOT SUBJEC T TO TAX WITHHOLDING UNDER SECTION 195 OF THE ACT. 19. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN ALLEGING THAT SINCE IMPORT OF 'NETVARSITY' 26 ITA NO. 2057/DEL/10 NIIT VS. CIT FROM NUT USA WAS FICTITIOUS, THE ORDER OF THE ASSES SING OFFICER ALLOWING DEPRECIATION ON THE VALUE OF NETVARSITY, W AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 19.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT ERRED IN HOLDING THAT 'NETVARSITY' WAS DEVELOPED IN INDIA AND, THEREFORE, THE QUESTION OF IMPORTING THE SAID SOFTWARE FROM NUT USA DID NOT ARISE. 19.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT ERRED IN ALLEGING THAT THE SAID SOFTWA RE HAVING NOT BEEN PUT TO USE DURING THE YEAR UNDER CONSIDERATION , THE ORDER OF THE ASSESSING OFFICER ALLOWING DEPRECIATION THEREON , WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. 19.3 THAT IN HOLDING AS AFORESAID, THE CIT FAILED TO APPRECIATE THAT AFORESAID SOFTWARE, VIZ., NETVARSITY HAD ALREA DY BEEN PUT TO USE FROM FINANCIAL YEAR 1997-98 ONWARDS AND FORMED PART OF THE BLOCK OF ASSETS THEREAFTER. 19.4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT FAILED TO APPRECIATE THAT THE AFORESAI D ISSUE HAVING ALREADY BEEN EXAMINED AND SCRUTINIZED IN DETAIL DUR ING THE ORIGINAL ASSESSMENT PROCEEDINGS UNDER SECTION 143(3 )/153A OF THE ACT AND, THE CIT COULD NOT HAVE EXERCISED JURIS DICTION IN RESPECT THERETO. 20. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN ALLEGING THAT SINCE THE APPEL LANT HAD IMPORTED OBSOLETE CBTS FROM NETG (UK) IN ORDER TO R EMIT PAYMENTS IN THE NATURE OF 'ROYALTY' TO NETG AND THE ASSESSING HAVING FAILED TO EXAMINE THE SAID ISSUE, THE ASSESS MENT ORDER IN THIS REGARD WAS ERRONEOUS AND PREJUDICIAL TO THE IN TEREST OF THE REVENUE. 20.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, CIT FAILED TO APPRECIATE THAT THE AFORESAID IS SUE HAVING DULY EXAMINED IN DETAIL BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT, THE SAME WAS, THEREFORE, NOT AMENABLE T O REVISIONARY JURISDICTION UNDER SECTION 263 OF THE ACT. 20.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT ERRED IN EXERCISING JURISDICTION UNDER SECTION 263 OF 27 ITA NO. 2057/DEL/10 NIIT VS. CIT THE ACT IN RESPECT OF AFORESAID ISSUE WITHOUT APPRE CIATING THAT THE CIT CA) FOR ASSESSMENT YEAR 2002-03 HAD ALLOWED THE SAID ISSUE IN FAVOUR OF THE APPELLANT. 21. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN ALLEGING THAT THE ASSESSING O FFICER HAVING ALLOWED DEDUCTION UNDER SECTION 35D OF THE ACT IN R ESPECT OF PUBLIC ISSUE EXPENSES WITHOUT VERIFICATION AND ENQU IRY, THE ASSESSMENT ORDER IN THIS REGARD WAS ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF THE REVENUE. 22. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN SETTING ASIDE THE ISSUE OF LO AN TRANSACTIONS BETWEEN THE APPELLANT AND VARIOUS BANKS AND OTHER P ARTIES ALLEGING THAT THE SAID ISSUE WAS NOT EXAMINED BY TH E ASSESSING OFFICER. 23. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN HOLDING THAT CREDIT FOR TAXES PAID/DEDUCTED ABROAD WAS CLAIMED BY THE APPELLANT AND ALLOWED BY THE ASSESSING OFFICER WITHOUT VERIFICATION AND ENQUIRY AND, THEREFORE, THE ORDER OF THE ASSESSING OFFICER IN THIS REGARD W AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 23.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT FAILED TO APPRECIATE THAT ALL CERTIFIC ATES IN RESPECT OF FOREIGN TAXES PAID/DEDUCTED WERE DULY FURNISHED BEF ORE THE ASSESSING OFFICER AND THE ASSESSING OFFICER SATISFI ED ALLOWED CREDIT FOR SUCH TAXES WHILE PROCESSING THE RETURN O F INCOME UNDER SECTION 143(1) OF THE ACT. 10. THE ASSESSEE SOUGHT STAY OF PROCEEDINGS BEFORE TRIBUNAL U/S 143(3) READ WITH SEC. 263 OF THE ACT, WHICH WERE TAKEN BY ASSESSING OFFICER PURSUANT TO THE ORDER OF LD. CIT ON 1-4-2010. THE M AIN SUBMISSIONS BEFORE THE TRIBUNAL IN THE STAY APPLICATION WAS THAT SINCE APPEALS HAD BEEN FILED AGAINST THE ORDER (PASSED BY THE CIT U/S 263 ON 1-4 -2010), THERE WOULD BE MULTIPLICITY OF PROCEEDINGS AND IF THE ASSESSING OF FICER WAS PERMITTED TO COMPLETE FRESH ASSESSMENT, SUCH AN EXERCISE ON THE PART OF THE ASSESSING 28 ITA NO. 2057/DEL/10 NIIT VS. CIT OFFICER WOULD BE RENDERED FUTILE IF THE TRIBUNAL AC CEPTS THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER PASSED U/S 263 AND W ERE TO HOLD THAT THE CIT HAD ERRONEOUSLY ASSUMED JURISDICTION TO REVISE THE ASSESSMENTS. 10.1. THE TRIBUNAL PASSED ORDERS ON 21-5-2010 GRANT ING STAY OF THE ASSESSMENT PROCEEDINGS PENDING BEFORE THE ASSESSING OFFICER. 10.2. THE TRIBUNAL TOOK UP FOR HEARING THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE LD. CIT U/S 263 IMM EDIATELY AFTER THE PASSING OF THE STAY ORDER AND ORDER WAS PASSED ON 6-7-2010 WHICH IS REPRODUCED HEREUNDER: PRESENT FOR THE ASSESSEE : SHRI AJAY VOHRA, ADVOCAT E PRESENT FOR THE REVENUE: SMT. S. NARASAMMA SR. DR THE LD. DR IS DIRECTED TO PRODUCE ALL RECORDS PERTA INING TO ASSESSMENT COMPLETED U/S 153A/ 143(3) OF THE ACT FOR ASSESSMEN T YEAR 99-00 TO 05-06 AND RECORD PERTAINING TO INITIATION AND COMPLETION PROCEEDING U/S 263 OF THE ACT FOR THE SAID ASSESSMENT YEARS. HEARING ADJ. TO 19/07/10 AT THE REQUEST OF THE LD. DR. BOTH PARTIES ARE INFORMED IN THE OPEN C OURT. (A/W ITA NO. 2058 TO 2063/10). SD/- SD/- (A.K. GARODIA) (C.L. SETHI) AM JM 10.3. THE REVENUE FILED WRIT PETITION BEING WP NO. 4684 OF 2010 AGAINST THE AFOREMENTIONED TWO ORDERS PASSED BY THE TRIBUNA L I.E. ONE STAYING THE ASSESSMENT PROCEEDINGS BEFORE THE ASSESSING OFFICER ; AND THE OTHER DIRECTING THE REVENUE TO PRODUCE ALL THE RECORDS PERTAINING T O THE ASSESSMENTS COMPLETED U/S 153A/ 143(3) AND THE RECORD PERTAININ G TO THE INITIATION AND COMPLETION OF THE PROCEEDINGS U/S 263 FOR ALL THE ASSESSMENT YEARS. 10.4. VIDE INTERIM ORDER DATED 16-7-2010, PASSED BY THE HONBLE HIGH COURT, THE ORDER PASSED BY THE TRIBUNAL ON 6-7-2010 AND ALL OTHER PROCEEDINGS PENDING BEFORE THE TRIBUNAL, FORMING SU BJECT MATTER OF ITA NOS. 29 ITA NO. 2057/DEL/10 NIIT VS. CIT 2057 TO 2063/DEL/2010 FOR A.YS. 1999-2000 TO 2005-0 6, WERE STAYED, WHICH WAS MADE ABSOLUTE ON 27-4-2011. 10.5. THE WRIT PETITION WAS PRIMARILY FILED BEFORE THE HONBLE HIGH COURT ON FOLLOWING GROUNDS:- (A) IT WAS NOT OPEN TO THE ASSESSEE TO QUESTION THE ORDER PASSED BY THE CIT ON 1-4-2010 ON THE GROUND THAT HE HAD NOT VALID LY ASSUMED JURISDICTION TO REVISE THE ASSESSMENT ORDERS, PARTI CULARLY WHEN IT WAS NOT OPEN TO THE ASSESSEE TO TAKE UP THE CONTENTION THAT THE CIT DID NOT INDEPENDENTLY APPLIED HIS MIND BEFORE TAKING ACTION U/S 263 AND HAD ACTED ON DICTATES OR INSTRUCTIONS OF HIS SUPERIORS I.E. CBDT. (B) THE STAY GRANTED BY THE TRIBUNAL IN THE ASSESSM ENT PROCEEDINGS WAS BARRED BY THE PRINCIPLE OF RESJUDICTA. IT WAS C ONTENDED THAT THE CHALLENGE TO THE JURISDICTION OF THE COMMISSIONER, TO REVISE THE ASSESSMENT ORDERS, WAS ALREADY ADJUDICATED UPON BY THE HONBLE HIGH COURT IN WP(C) NO. 4772/2007 DATED 11-12-2009 AND, THEREAFTER, THE ASSESSEE ITSELF HAD SUBMITTED BEFORE THE HONBLE SU PREME COURT THAT ALL ISSUES WERE REMITTED BACK TO THE ASSESSING OFFICER BY THE CIT AND, THEREFORE, THE SLP MAY BE DISMISSED AS WITHDRAWN. (C) THE ASSESSEE AGREED BEFORE THE HONBLE HIGH COU RT THAT THE CIT MAY LOOK INTO THE ASSESSMENT ORDERS ON MERITS, WHIC H IMPLIED THAT THERE WAS NO OBJECTION TO THE COMMISSIONER, ASSUMING JURI SDICTION U/S 263. (D) THE ASSESSEE WAS MERELY TRYING TO DELAY THE AS SESSMENT PROCEEDINGS BY TAKING FRIVOLOUS AND UNTENABLE CLAIM S. (E) THE REVENUE PLACED STRONG RELIANCE ON THE ORDER PASSED BY THE HONBLE HIGH COURT ON 11-12-2009 IN THE ASSESSEES WRIT PETITION AND IT WAS CONTENDED THAT THE OBSERVATIONS OF HONBLE HIGH COURT, IF PROPERLY 30 ITA NO. 2057/DEL/10 NIIT VS. CIT UNDERSTOOD, WOULD CLEARLY SHOW THAT ONCE THE ORDER PASSED BY THE CIT- I, ON 19-6-2008 WAS QUASHED BY THE HONBLE HIGH COU RT, ALL OBJECTIONS TO THE ASSUMPTION OF JURISDICTION BY THE COMMISSION ER, VANISHED OR COME TO AN END AND, THEREAFTER, HIS ORDER COULD BE OBJECTED TO ONLY ON MERITS. IT WAS CONTENDED THAT THIS WAS THE TRUE CON SEQUENCE OF THE ORDER PASSED BY HONBLE HIGH COURT ON 11-12-2009 AND, THE REFORE, THE ASSESSEE COULD NOT BE PERMITTED TO TAKE UP THE POI NT THAT THE SECOND ORDER PASSED BY THE COMMISSIONER ON 1-4-2010 U/S 26 3 ALSO SUFFERED FROM THE SAME FLAW I.E. THAT HE DID NOT APPLY HIS INDEPENDENT MIND AND MERELY ACTED ON THE DICTATES OR INSTRUCTIONS OF THE CBDT. (F) TO CONTEND THIS, REVENUE HAD RELIED ON THE HON BLE HIGH COURTS OBSERVATION THAT SINCE THERE WOULD BE CHAN GE IN THE INCUMBENT OF THE OFFICE OF THE COMMISSIONER, THE VERY BASIS O F ASSESSEES SUBMISSIONS THAT THE ORDER WAS PASSED BY THE COMMIS SIONER ON THE DICTATES OF THE CBDT VANISHED. 11. IN REBUTTAL, THE ASSESSEES CONTENTION WAS THAT OPERATIVE PART OF THE ORDER OF HONBLE HIGH COURT CLEARLY SHOWED THAT THE ASSESSEE WAS GRANTED LIBERTY TO RAISE ALL POINTS BEFORE THE COMMISSIONE R WHICH WERE CANVASSED BEFORE THE HONBLE HIGH COURT AND ALSO FURTHER POIN TS WHICH THE ASSESSEE INTENDED TO URGE AT THE TIME OF FRESH HEARING. THE ASSESSEE RAISED STRONG RELIANCE ON THE OBSERVATIONS OF HONBLE HIGH COURT THAT IT HAD NOT AUTHORITATIVELY PRONOUNCED ALL THE CONTENTIONS RAIS ED BY THE ASSESSEE EITHER WAY AND THE COMMISSIONER HAD TO DEAL WITH SUCH CONT ENTIONS OBJECTIVELY WITHOUT BEING INFLUENCED BY ANY OBSERVATIONS IN THE JUDGMENT. 31 ITA NO. 2057/DEL/10 NIIT VS. CIT 11.1. LD. COUNSEL FOR THE ASSESSEE HAD FURTHER ARGU ED THAT, IN ANY EVENT, THE QUESTION OF ASSUMING JURISDICTION BY ANY STATUTORY AUTHORITY AND ITS VALIDITY CAN BE SET UP BY THE AGGRIEVED PARTY AT ANY POINT OR AT ANY STAGE OF THE PROCEEDINGS AND CAN EVEN BE TAKEN DURING COLLATERAL PROCEEDINGS. IN SUPPORT OF THIS CONTENTION ASSESSEE HAD RELIED ON THE DECIS ION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF P.V. DOSHI VS. CIT 113 I TR 22. 12. HONBLE HIGH COURT AFTER DETAILED DISCUSSION OF THIS DECISION, INTER ALIA, OBSERVED THAT ACCORDING TO THE HONBLE GUJARA T HIGH COURT, NEITHER THE QUESTION OF RES-JUDICATA NOR THE RULE OF ESTOPPEL C OULD BE INVOKED WHERE THE JURISDICTION OF AUTHORITY WAS UNDER CHALLENGE. THE HONBLE HIGH COURT FURTHER NOTED THAT HONBLE GUJARAT HIGH COURT HELD THAT SINCE NEITHER CONSENT NOR WAIVER CAN CONFER JURISDICTION UPON THE AO WHER E IT DID NOT EXIST, NO IMPORTANCE COULD BE ATTACHED TO THE FACT THAT THE A SSESSEE, IN THE FIRST ROUND OF PROCEEDINGS, EXPRESSLY GAVE UP THE PLEA AGAINST THE ERRONEOUS ASSUMPTION OF JURISDICTION BY THE ASSESSING AUTHORITY. HONBLE GUJARAT HIGH COURT HELD THAT: FINALITY OR CONCLUSIVENESS COULD ONLY ARISE IN R ESPECT OF ORDERS WHICH ARE COMPETENT ORDERS WITH JURISDICTION AND IF THE PROCEEDINGS OF REASSESSMENT ARE NOT VALIDLY INITIATED AT ALL, THE ORDER WOULD BE A VOID ORDER AS PER THE SETTLED LEGAL POSITION WHICH COUL D NEVER HAVE ANY FINALITY OR CONCLUSIVENESS. IF THE ORIGINAL ORDER I S WITHOUT JURISDICTION, IT WOULD BE ONLY A NULLITY CONFIRMED IN FURTHER AP PEALS. 12.1. HONBLE HIGH COURT THEN REFERRED TO ITS OBSE RVATIONS VIDE ORDER DATED 11-12-2009 IN PARAS 20 & 21 AND CONCLUDED THAT THE OBSERVATIONS OF HONBLE HIGH COURT COULD NOT BE UNDERSTOOD AS PLACING AN EM BARGO ON THE ASSESSEE FROM RAISING THE PLEA WHEN THE AUTHORITY CONSIDERED THE MATTER AFRESH THAT THAT ORDER SUFFERS FROM THE SAME JURISDICTIONAL DEF ECT, NAMELY, THAT IT DID NOT 32 ITA NO. 2057/DEL/10 NIIT VS. CIT SHOW AN INDEPENDENT APPLICATION OF MIND AND WAS AUT HORIZED BY THE DICTATES OF SOME OTHER AUTHORITY, OBSERVING AS UNDER: 20. WE HAVE TO READ AND UNDERSTAND THIS COURTS ORD ER DATED 11.12.2009 AS A WHOLE AND TAKING ALL THE OBSERVATIONS MADE THEREIN TOGETHER IN ORDER TO APPRECIATE THE TRUE SCOPE AND TENOR OF THE ORDER. T O UNDERSTAND THE ORDER AS BARRING THE ASSESSEE FROM QUESTIONING THE ORDER PAS SED BY THE CIT ON 01.04.2010 ON THE GROUND THAT HE DID NOT EXERCISE H IS INDEPENDENT MIND BUT MERELY PROCEEDED ON THE LINES AS DICTATED BY THE CB DT WOULD NOT BE PROPER, FOR NO COURT CAN PLAUSIBLY LAY DOWN THE GROUNDS ON WHICH AN ORDER, WHICH IS TO BE PASSED, CAN BE CHALLENGED BY THE AGGRIEVED PA RTY. AT THE TIME WHEN THIS COURT PASSED THE ORDER, THE ORDER OF THE CIT WAS NO T IN EXISTENCE. IT WAS YET TO BE PASSED. NEITHER THE PETITIONER, NOR THE RESPONDE NT IN THE WRIT PROCEEDINGS NOR EVEN THIS COURT COULD HAVE DELVED INTO THE MIND OF THE CIT AND ATTEMPT TO ANTICIPATE THE GROUNDS ON WHICH HE WOULD REST HIS O RDER. THAT APART, THERE IS AMPLE AUTHORITY FOR THE PROPOSITION, AS WE HAVE EAR LIER REFERRED TO, THAT NEITHER CONSENT OR WAIVER CAN CONFER JURISDICTION UPON THE AUTHORITY. MOREOVER, THE RULE OF ESTOPPEL AND THE PRINCIPLE OF RES JUDICATA HAVE BEEN HELD TO BE INAPPLICABLE WHERE THE QUESTION INVOLVED IS THE COM PETENCE OR THE JURISDICTION OF AN AUTHORITY OR COURT OVER THE SUBJECT MATTER. T HE OBSERVATIONS OF THIS COURT CAN, THEREFORE, ONLY BE UNDERSTOOD IN THE CONTEXT O F THE ORDER OF THE CIT THAT WAS BEFORE IT. IT CANNOT BE UNDERSTOOD AS PLACING A N EMBARGO ON THE ASSESSEE FROM RAISING THE PLEA, WHEN THE AUTHORITY CONSIDERE D THE MATTER AFRESH, THAT THAT ORDER SUFFERS FROM THE SAME JURISDICTIONAL DEF ECT, NAMELY, THAT IT DID NOT SHOW AN INDEPENDENT APPLICATION OF MIND AND WAS AUT HORIZED BY THE DICTATES OF SOME OTHER AUTHORITY. IN ANY EVENT, EVEN IF THE PLE A OF THE PETITIONER TO THE EFFECT THAT THE OBJECTION TO THE JURISDICTION OF THE CIT T O INITIATE PROCEEDINGS UNDER SECTION 263 VANISHED AFTER THE ORDER OF THIS COURT, EITHER BY CONSENT OR WAIVER IS ACCEPTED, SINCE THESE ACTS ON THE PART OF THE AS SESSEE HAVE BEEN HELD INSUFFICIENT IN LAW TO CLOTHE THE CIT WITH JURISDIC TION TO PASS ORDERS UNDER SECTION 263, THE ASSESSEE CANNOT BE ESTOPPED FROM P UTTING FORTH THAT PLEA BEFORE THE CIT IN THE FRESH ROUND OF PROCEEDINGS. T HE ASSESSEE CANNOT ALSO BE PREVENTED FROM TAKING UP THE PLEA IN THE APPEALS FI LED BEFORE THE TRIBUNAL AGAINST THE ORDERS PASSED BY THE CIT ON 01.04.2010. CONSEQUENTLY, THE TRIBUNAL CANNOT BE FAULTED FOR DIRECTING, BY ITS OR DER DATED 06.07.2010, THE REVENUE TO PRODUCE THE ASSESSMENT RECORDS AND THE R ECORDS RELATING TO THE PROCEEDINGS UNDER SECTION 263 FOR THE RELEVANT W.P. (C) 4684/2010 PAGE 16 OF 17 ASSESSMENT YEARS. UNLESS THESE RECORDS ARE MADE AVAILABLE TO THE TRIBUNAL, IT WILL NOT BE ABLE TO TAKE A VIEW ON THE ASSESSEE' S CHALLENGE THAT THE CIT DID NOT EXERCISE HIS INDEPENDENT MIND WHILE INITIATING PROCEEDINGS UNDER SECTION 263. 33 ITA NO. 2057/DEL/10 NIIT VS. CIT 12.2. THE WRIT FILED BY THE REVENUE WAS DISMISSED A ND ALL THE INTERIM ORDERS PASSED WERE VACATED AND TRIBUNAL WAS DIRECTED TO PR OCEED WITH THE HEARING OF APPEALS. 13. FROM THE AFOREMENTIONED DISCUSSION, IT IS EVIDE NT THAT ASSESSEE IS ENTITLED TO RAISE THE PLEA ON ALL POINTS WHICH WERE RAISED IN THE FIRST ROUND OF PROCEEDINGS BEFORE HONBLE HIGH COURT ON THE ISSUE OF JURISDICTION TO PASS ORDER U/S 263 VIZ., FIRSTLY THE ORDER WAS PASSED A T THE DICTATES OF HIGHER AUTHORITIES AND SECONDLY SINCE ORDER U/S 153A/ 243 (3) WAS PASSED UNDER THE MONITORING OF CIT, THEREFORE, THE ORDER COULD NOT B E HELD TO BE ERRONEOUS INSOFAR AS IT WAS PREJUDICIAL TO THE INTEREST OF RE VENUE. WE, THEREFORE, NOW PROCEED TO EXAMINE THE VARIOUS GROUNDS ON THE ISSUE OF JURISDICTION OF PRESENT COMMISSIONER TO PASS ORDER U/S 263, WHICH H AS BEEN ASSAILED BEFORE US VIDE GROUND NOS. 1 TO 5. 14. AS FAR AS GROUND NO. 1 IS CONCERNED, IT IS GENE RAL IN NATURE AND THE VARIOUS ISSUES ARE COVERED IN OTHER GROUNDS OF APPE AL. 15. GROUND NO. 2 IS IN REGARD TO PASSING OF THE ORD ER BY LD. CIT WITHOUT AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD. THIS GROUND, IN OUR OPINION, DOES NOT SURVIVE, PARTICULARLY BECAUSE THE IMPUGNED ORDER HAS BEEN PASSED BY NEW COMMISSIONER AFTER COMPLYING WITH THE SPECIF IC DIRECTIONS OF HONBLE HIGH COURT, PARTICULARLY IN REGARD TO PROVI DING OF OPPORTUNITY OF BEING HEARD. IN THE RESULT, THIS GROUND IS DISMISSE D. 16. GROUND NO. 3 IS WITH REGARD TO INSPECTION OF RE CORDS. WE HAVE NOTED EARLIER THE OBSERVATIONS OF LD. CIT ON THIS ASPECT IN PARA 5 OF HIS ORDER. LD. CIT OBSERVED THAT AS PER THE DIRECTIONS OF HONBLE HIGH COURT FRESH NOTICE WAS ISSUED AND THE PROCEEDINGS U/S 263 WERE INITIAT ED FOR GIVING ASSESSEE AN OPPORTUNITY TO RESPOND. THE FRESH ORDER U/S 263 WA S BEING PASSED AFTER 34 ITA NO. 2057/DEL/10 NIIT VS. CIT CONSIDERING ALL THE SUBMISSIONS OF THE ASSESSEE. HE , THEREFORE, HELD THAT IN SUCH CIRCUMSTANCES, THE RELEVANCE OF SHOWING OLD FI LES CONTAINING INTERDEPARTMENTAL CORRESPONDENCE, HAD NO RELEVANCE. 17. LD. COUNSELS SUBMISSION IS THAT THE ORDER HAS BEEN PASSED ON THE DICTATES OF HIGHER AUTHORITIES AND ALSO UNDER THE M ONITORING OF CIT/ CCIT. IN THIS REGARD THE ASSESSEE VIDE LETTER DATED 16-4-200 8, 23-2-2009 AND 12-3- 2009 REQUESTED THE AO/ CIT FOR INSPECTION OF ASSESS MENT RECORDS AND RECORDS RELATING TO PROCEEDINGS U/S 263 OF THE ACT, MORE PARTICULARLY THE FOLLOWING: (I) ALL INTERDEPARTMENTAL CORRESPONDENCES (INCLUDING WI TH CBDT) IN RESPECT OF THE ASSESSMENT PROCEEDINGS U/S 153A/143( 3) OF THE ACT. (II) ALL INTERDEPARTMENTAL CORRESPONDENCES (INCLUDING WI TH CBDT) IN RESPECT OF THE PROCEEDINGS U/S 263 OF THE ACT: (III) ALL CORRESPONDENCES OF THE DEPARTMENT WITH SHRI A.L . MEHTA: (IV) COPIES OF OFFICE NOTES OF THE ASSESSMENT ORDERS. 17.1. LD. COUNSEL SUBMITTED THAT UNLESS THE INTERDE PARTMENTAL CORRESPONDENCES (INCLUDING WITH CBDT), IN RESPECT O F ASSESSMENT PROCEEDINGS U/S 153A/143(3) ARE DISCLOSED TO THE AS SESSEE, HE CANNOT ADVANCE HIS ARGUMENTS REGARDING THE MONITORING OF T HE ASSESSMENT BY CIT/ CCIT. THE SUBMISSION IS THAT, WITHOUT EXAMINATION O F ALL INTERDEPARTMENTAL CORRESPONDENCE, IT CANNOT BE DECIDED, WHETHER THE A SSESSMENT WAS COMPLETED UNDER THE MONITORING AND SUPERVISION OF H IGHER AUTHORITIES. 17.2. THE SUBMISSION OF LD. COUNSEL IS THAT IN THE FOLLOWING LETTERS IT IS CLEARLY MENTIONED THAT THE ASSESSMENT WAS COMPLETED UNDER THE SUPERVISION/ GUIDANCE OF CIT/ ADDITIONAL CIT S.N. DATE OF LETTER VOL. NO. PAGE NO. CONTENTS REMARKS 35 ITA NO. 2057/DEL/10 NIIT VS. CIT 1 UNDATED 8 1-2 ASSESSMENT FRAMED UNDER SUPERVISION/ GUIDANCE OF CIT/ ADDL. CIT 2. 25-6-2007 1 18 AL MEHTAS LETTER TO PRIME MINISTER FOR REVISION OF ORDERS THE SAID LETTER STATES THAT THE ASSESSMENT WAS MADE AT THE BEHEST OF CIT/ADDL. CIT 3 27-7-07 7 182- 185 LETTER FROM CIT TO CCIT THE CIT STATES THAT THE CASE WAS MONITORED BY THE MEMBER (INV.) CBDT FROM TIME-TO- TIME. 4. 6-9-2007 1 42- 43 REPORT OF ADDL. CIT TO CIT II THE REPORT RECORDS THAT CBDT HAD MONITORED THE ASSESSMENT AND THAT THE AO HAD EXAMINED ALL ISSUES/ ALLEGATIONS DURING ASSESSMENT. 17.3. THE VARIOUS ISSUES RAISED IN THE APPRAISAL RE PORT AND REITERATED BY SHRI AL MEHTA IN THE VARIOUS COMPLAINTS FILED FROM TIME TO TIME WERE LOOKED INTO AND SCRUTINIZED DURING THE COURSE OF ASSESSMENT AS IS EVIDENT FROM THE FOLLOWING: S.N. DATE OF LETTER VOL. NO. PAGE NO. CONTENTS REMARKS 1 16-5-2006 9 58- 59 LETTER FROM CIT TO ADDL. CIT REGARDING POINTS TO BE KEPT IN MIND WHILE CONDUCTING INVESTIGATION. SHOWS THAT ASSESSMENT BEING MONITORED/ SUPERVISED BY CIT. THE AO IS FURTHER ADVISED BY THE CIT THAT IN CASE OF VARIANCE WITH THE STAND TAKEN IN THE APPRAISAL REPORT, THE AO SHOULD PROPERLY RECORD THE SAME IN THE OFFICE NOTE FOR FUTURE REFERENCE. REFERENCE TO OFFICE NOTES NOT SHOWN 36 ITA NO. 2057/DEL/10 NIIT VS. CIT 2 25-6-2007 7 123- 146 REPORT OF ADDL. CIT TO CIT THE ADDL CIT WHO WAS NOT INVOLVED WITH THE ORIGINAL ASSESSMENT AFTER INDEPENDENT ANALYSIS OF THE APPRAISAL REPORT, THE ASSESSMENT RECORDS, THE ALLEGATIONS OF AL MEHTA INTIMATES THA TALL THE POINTS RAISED BY AL MEHTA HAS BEEN DULY CONSIDERED IN THE COURSE OF ASSESSMENT AND ADDITIONS MADE WHEREVER REQUIRED. ACCORDING TO THE ADDL CIT, NO ACTION WAS REQUIRED TO BE INITIATED U/S 263. WHRE ADDITION/ DISALLOWANCE HAS NOT BEEN MADE IN THE ASSESSMENT QUA ANY ITEM MENTIONED IN THE APPRAISAL REPORT FILED, THE REPORT OF THE ADDL. CIT REFERS TO THE PAGE(S) OF THE OFFICE NOTE TO THE ASSESSMENT ORDER GIVING REASONS WHY SUCH ADDITION/ DISALLOWANCE WAS NOT MADE. 3 6-9-2007 1 44- 46 CIT TO CCIT THE CIT RECORDS THAT THE VARIOUS ISSUES FORMING PART OF THE APPRAISAL REPORT AND FINDING MENTIONED IN THE REPEATED COMPLAINTS BY SHRI AL MEHTA WERE DULY EXAMINED IN THE COURSE OF THE ASSESSMENT. IN CASE NO ADDITION WAS MADE IN THE ASSESSMENT QUA SUCH ISSUES, REASONS HAVE 37 ITA NO. 2057/DEL/10 NIIT VS. CIT BEEN DULY RECORDED IN THE FORM OF OFFICE NOTES. 17.4. LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 35 OF PB DATED 9-1-2013 WHEREIN THE EXTRACT OF ORDER-SHEET DATED 9-10-2012 IS CONTAINED, WHICH IS REPRODUCED HEREUNDER: 9/10/12 SPL. COUNSEL MR. G.C. SRIVASTAVA AGREED TO ALLOW INSPECTION OF THE ENTIRE RECORD TO THE ASSESSEE IN THE DEPT. PREMISES. BOTH PARTIES TO COMPILE CONVENIENCE COMPILATION OF THE RECORD. BOTH PARTIES STATE THAT AN APPLICATION WILL BE MADE BEFORE HONBLE DELHI HIGH COURT FOR EXTENTION OF TIME BEYOND 3 RD NOV 2012. ADJ. TO 16 TH OCTOBER. BOTH PARTIES TO INFORM WHETHER HONBLE HI GH COURT HAS EXTENDED THE TIME LIMITATION OR NOT. 17.5. LD. COUNSEL FURTHER SUBMITTED THAT IN FURTHER ANCE OF THE DIRECTIONS ISSUED VIDE ORDER SHEET DATED 6-7-2010, READ WITH T HE DECISION OF HONBLE HIGH COURT DATED 3-8-2012, THE TRIBUNAL VIDE ORDER- SHEET ENTRY DATED 9-10- 2012 HAD DIRECTED THE INCOME-TAX DEPARTMENT TO ALLO W INSPECTION OF THE ENTIRE RECORDS TO THE ASSESSEE WHICH IS EVIDENT FRO M THE ORDER-SHEET ENTRY NOTED ABOVE. 17.6. LD. COUNSEL IN PETITION HAS POINTED OUT THAT THE AO ALLOWED THE AUTHORIZED REPRESENTATIVES TO APPEAR BEFORE THE OFF ICE OF THE AO AND CIT ON 9 TH & 10 TH OCTOBER 2012 FOR INSPECTION OF THE AFORESAID RECOR DS INCLUDING CONFIDENTIAL FOLDERS RELATING TO ASSESSMENTS U/S 15 3A AND PROCEEDINGS U/S 263 OF THE ACT. HOWEVER, VERY LIMITED INSPECTION OF THE RECORDS WAS ALLOWED, AS IS EVIDENT FROM THE FOLLOWING: - THE RECORDS SHOWN TO THE APPLICANT/AUTHORIZED REPRESENTATIVE ONLY CONTAINED COPIES OF THE RETURN OF INCOME FILED BY T HE APPLICANT, STATUTORY NOTICES/QUESTIONNAIRES ISSUED BY THE ASSESSING OFFI CER / CIT AND REPLIES THERETO FILED BY THE APPLICANT, WHICH ARE ALREADY AVAILABLE WITH THE APPLICANT; 38 ITA NO. 2057/DEL/10 NIIT VS. CIT - CERTAIN PAGES WERE FOUND TO BE MISSING IN THE SERIA LLY-NUMBERED FILES SHOWN TO THE REPRESENTATIVES OF THE APPLICANT, WHIC H WERE NOT SHOWN TO THE APPLICANT; - WITH RESPECT TO THE INSPECTION OF THE RECORDS RELAT ING TO ASSESSMENT, CERTAIN PAGES OF THE ORIGINAL ASSESSMENT ORDER, WHI CH HAS TO BE RETAINED ON RECORD, WERE ALSO NOT FOUND IN THE FILES SHOWN FOR INSPECTION. THIS, IT APPEARS, WAS PRIMARILY DONE TO DENY INSPECTION OF T HE OFFICE NOTES AVAILABLE IN THE FILES; WITH RESPECT TO INSPECTION OF FILES RELATING TO PRO CEEDINGS UNDER SECTION 263 OF THE ACT, ORDER SHEETS OF THE FILES LEADING TO INITI ATION OF PROCEEDINGS UNDER THAT SECTION WERE NOT COMPLETE AND CERTAIN PAGES WERE FO UND TO BE MISSING. (A) INTERDEPARTMENTAL CORRESPONDENCES (INCLUDING W ITH CBDT) IN RESPECT OF THE ASSESSMENT PROCEEDINGS UNDER SECTION 153A/143(3) OF THE ACT; (B) INTER-DEPARTMENTAL CORRESPONDENCES (INCLUDING W ITH CBDT) IN RESPECT OF THE PROCEEDINGS UNDER SECTION 263 OF THE ACT; (C) COPIES OF THE OFFICE NOTES TO THE ASSESSMENT OR DER; 17.7. THUS, THE DIRECTION OF THE TRIBUNAL TO PLACE THE ENTIRE RECORDS WAS NOT COMPLIED WITH. ACCORDINGLY, THE ASSESSEE PRAYED AS UNDER: IN VIEW OF THE AFORESAID, IT IS RESPECTFULLY SUBMIT TED THAT THE DEPARTMENT MAY KINDLY BE SPECIFICALLY DIRECTED TO ALLOW THE APPLIC ANT INSPECTION OF THE ENTIRE RECORDS RELATING TO ASSESSMENT AND PROCEEDINGS UNDE R SECTION 263 OF THE ACT, AND MORE PARTICULARLY THE FOLLOWING: (A) INTER-DEPARTMENTAL CORRESPONDENCES (INCLUDING WITH CBDT) IN RESPECT OF THE ASSESSMENT PROCEEDINGS UNDER SECTION 153A/143(3) OF THE ACT; (B) INTER-DEPARTMENTAL CORRESPONDENCES (INCLUDING THE C BDT) IN RESPECT OF THE PROCEEDINGS UNDER SECTION 263 OF THE ACT; (C) COPIES OF THE OFFICE NOTES TO THE ASSESSMENT ORDER; (D) COPIES OF DOCUMENTS RELATING TO MONITORING OF THE A SSESSMENT BY HIGHER AUTHORITIES REFERRED TO IN ANNEXURE A TO THIS APPLI CATION, PREPARED ON THE BASIS OF LIMITED INSPECTION OF TEN FILES ALLOWED TO THE APPLICANT BEFORE THE DELHI HIGH COURT IN THE PRESENCE OF THE STANDING CO UNSEL FOR THE REVENUE; (E) COPIES OF DOCUMENTS RELATING TO INITIATION/COMPLETI ON OF REVISIONARY PROCEEDINGS UNDER SECTION 263 OF THE ACT REFERRED T O IN ANNEXURE B TO THIS 39 ITA NO. 2057/DEL/10 NIIT VS. CIT APPLICATION, PREPARED ON THE BASIS OF LIMITED INSPE CTION OF TEN FILES ALLOWED TO THE APPLICANT BEFORE THE DELHI HIGH COURT IN THE PR ESENCE OF THE STANDING COUNSEL FOR THE REVENUE; 17.8. THE ASSESSEE HAD ALSO RELIED ON THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HARI IRON TRADING CO. VS. CIT 263 ITR 437, WHEREIN IT HAS BEEN HELD THAT RECORD, AS DEF INED IN CLAUSE (B) OF THE EXPLANATION, IS A WORD OF WIDE AMPLITUDE AND INCLUD ES ALL RECORDS RELATING TO ANY PROCEEDING AVAILABLE AT THE TIME OF EXAMINATIO N BY THE COMMISSIONER. 17.9. LD. COUNSEL REFERRED TO ANNEXURE A IN ITS PET ITION DATED 15-10-2012 TO DEMONSTRATE MONITORING OF ASSESSMENT BY HIGHER A UTHORITIES S. NO. DATE PARTICULARS REFER 1. 12.9.2005 LETTER FROM CBDT TO CCIT 9 1 2. 23.9.2005 LETTER FROM CCIT TO CIT FORWARDING AFORESAID LETTER TO CBDT 9 2 3. 05.10.2205 RETURN FILED BY ASSESSEE IN RESPONSE TO NOTICE UNDER SECTION 153A 4 10.10.2005 NOT KNOWN/REQUIRED 5. 24.10.2005 LETTER FROM CIT TO ADDL. CIT ENCLOSING ANOTHER LETTER DATED 10.10.2005 9 3 6. 02-11-2005 QUESTIONNAIRE ISSUED BY THE ASSESSING OFFICER 7. 08-11-2005 STATUS REPORT FORWARDED BY THE ASSESSING OFFICER TO CIT 9 6 8. 14.11.2005 REPLY FILED BY THE ASSESSEE IN RESPONSE TO QUERIES RAISED DURING THE ASSESSMENT PROCEEDINGS. 9 STATUS REPORT, IN TURN, FORWARDED BY CIT TO CCIT 9 11 AND 12 10 20-11-2005 ANOTHER STATUS REPORT FORWARDED BY A.O. TO CIT 9 13 11. 21.11.2005 REPLY FILED BY THE ASSESSEE IN RESPONSE TO QUERIES RAISED DURING THE ASSESSMENT 40 ITA NO. 2057/DEL/10 NIIT VS. CIT PROCEEDINGS 12. 29-11-2005 REPLY FILED BY THE ASSESSEE IN RESPONSE TO QUERIES RAISED DURING THE ASSESSMENT PROCEEDINGS 13. 30-11-2005 14. 05-12-2005 REPLY FILED BY THE ASSESSEE IN RESPONSE TO QUERIES RAISED DURING THE ASSESSMENT PROCEEDINGS 15. 12.12.2005 REPLY FILED BY THE ASSESSEE IN RESPONSE TO QUERIES RAISED DURING THE ASSESSMENT PROCEEDINGS 16. 29.12.2005 ANOTHER QUESTIONNAIRE ISSUED BY THE ASSESSING OFFICER. 17. 09-01-2006 REPLY FILED BY THE ASSESSEE IN RESPONSE TO QUERIES RAISED DURING THE ASSESSMENT PROCEEDINGS 18. 10-01-2006 19. 17-01-2006 REPLY FILED BY THE ASSESSEE IN RESPONSE TO QUERIES RAISED DURING THE ASSESSMENT PROCEEDINGS 20. 31-1-2006 STATUS REPORT, IN TURN, FORWARDED BY CIT TO CCIT 9 22-28 21. 06-02-2006 QUESTIONNAIRE ISSUED BY THE ASSESSING OFFICER 22. 08-02-2006 QUESTIONNAIRE ISSUED BY THE ASSESSING OFFICER 23. QUESTIONNAIRE ISSUED BY THE ASSESSING OFFICER 24. 13-02-2006 LETTER FROM CBDT TO CCIT WITH RESPECT TO THE STATUS REPORT FURNISHED BY A.O. 9 45 25. 27-02-2006 REPLY FILED BY THE ASSESSEE IN RESPONSE TO QUERIES RAISED DURING THE ASSESSMENT PROCEEDINGS 26. 01-03-2006 QUESTIONNAIRE ISSUED BY THE ASSESSING OFFICER 27. 06-03-2006 REPLY FILED BY THE ASSESSEE IN RESPONSE TO QUERIES RAISED DURING THE ASSESSMENT 41 ITA NO. 2057/DEL/10 NIIT VS. CIT PROCEEDINGS 28. 17-03-2006 QUESTIONNAIRE ISSUED BY THE ASSESSING OFFICER 29. 23.03.2006 LETTER FROM CBDT FORWARDED BY CCIT TO CIT. 9 46 30. 24.03.2006 REPLY FILED BY THE ASSESSEE IN RESPONSE TO QUERIES RAISED DURING THE ASSESSMENT PROCEEDINGS 31. 25.03.2006 LETTER FROM A.L. MEHTA TO CHAIRMAN, CBDT DIRECTING THAT ALLEGATIONS MADE THERE BE INVESTIGATED AND REPORT WITH REGARD TO THE ACTION TAKEN TO BE SENT TO THE BOARD. 32. 30-3-2006 STATUS REPORT, IN TURN, FORWARDED BY CIT TO CCIT 9 47-52 33. 27-4-2006 5-5-2006 LETTER FROM CBDT TO CCIT ENCLOSING LETTER DATE D 25-3- 2006 OF SHRI A.L. MEHTA 9 60-68 34. 11.5.2006 REPLY FILED BY THE ASSESSEE IN RESPONSE TO QUERIES RAISED DURING THE ASSESSMENT PROCEEDINGS 35. UNDATED STATUS REPORT DATED 15-5-2006 SUBMITTED BY THE ASSESSING OFFICER TO CIT DEALING WITH EACH ALLEGATION RAISED BY SHRI A.L. MEHTA 11 1-68 36. 16-5-2006 LETTER BY ADDL. CIT TO CIT FORWARDING INVESTIGATION NOTE PREPARED BY THE ASSESSING OFFICER ON THE ALLEGATIONS MADE BY SHRI A.L. MEHTA 9 55-56 37. 16-5-2006 LETTER FROM CIT TO ADDL. CIT 9 58-59 38. 26-5-2006 STATUS REPORT OF ASSESSING OFFICER FORWARDED BY CCIT TO CBDT 9 69-86 39. 26.5.2006 LETTER FROM CCIT TO CBDT 7 109-122 40. 01-06-2006 ASSESSMENT ORDER(S) UNDER SECTION 153A 41. 19-6-2006 LETTER FROM CCIT TO CBDT THIS LETTER OF THE CCIT ALSO REFERS TO AN EARLIER REPORT DATED 23-05-2006 9 106-111 42 ITA NO. 2057/DEL/10 NIIT VS. CIT 42. OFFICE NOTES 17.10. THE ASSESSEE IN ITS REPLY DATED 20-11-2012, CONTAINED AT PAGES 65L TO 65Z, REITERATED THE SUBMISSIONS MADE IN ITS PETITION DATED 15-10- 2012, INTER ALIA, POINTED OUT THAT IN COURSE OF INS PECTION BEFORE THE HONBLE HIGH COURT THE ASSESSEE WAS DENIED THE PHOTO COPIES OF THE RECORD/ FILES WHICH WERE MADE AVAILABLE TO THE ASSESSEE. FURTHER, ONLY LIMITED/ INCOMPLETE RECORD HAD BEEN SHOWN TO THE ASSESSEE. 18. THE REVENUE, INTER ALIA, SUBMITTED THAT THE RE CORD FOR THE PURPOSES OF 263 PROCEEDINGS BEFORE THE ITAT CONSTITUTED: (A) ALL THE CORRESPONDENCE BETWEEN THE AO/ CIT AND THE ASSESSEE; (B) EVIDENCE COLLECTED AND USED BY THE DEPARTMENT AGAI NST THE ASSESSEE; AND (C) FILE NOTINGS, WHICH ARE MEANT FOR COMMUNICATION TO THE ASSESSEE. 18.1. THE REVENUE SPECIFICALLY POINTED OUT THAT DOC UMENTS, CORRESPONDENCE AND FILE NOTINGS, WHICH ARE NOT USED AND NOT MEANT FOR COMMUNICATION TO THE ASSESSEE FOR PASSING THE IMPUGNED ORDER, CANNOT BE REGARDED AS PART OF THE RECORD BECAUSE IT IS NOT THAT ALL THE PAPERS AND DO CUMENTS LYING IN ANY FOLDER OF THE DEPARTMENT CONSTITUTE RECORD FOR THE PURPOSE OF THESE PROCEEDINGS. THE DEPARTMENT RELIED ON FOLLOWING DECISIONS: - VASANTLAL (C) & CO. VS. CIT 45 ITR 206(SC); - MANGALDAS N. VERMA VS. CIT 25 ITR 175 (BOM.); - ITAT VS. V.K. AGARWAL 1 SCC 16; AND - SHANTI SPORTS CLUB VS. UOI 15 SCC 705. 18.2. AS REGARDS THE ASSESSEES PLEA THAT OFFICE NO TES, APPENDED TO THE ASSESSMENT ORDER CONSTITUTE RECORD FOR PURPOSES O F PROCEEDINGS U/S 263, THE REVENUES REPLY IN PARA 10 IS AS UNDER: 43 ITA NO. 2057/DEL/10 NIIT VS. CIT 10. FOR THE SAKE OF ARGUMENT, IT CAN BE STATED THA T THE A.O. MIGHT HAVE NOTED SOMETHING IN FILE WHICH WAS NEVER COMMUNICATE D TO THE ASSESSEE, THOUGH THE NOTING MAY BE BASED ON THE FACTS OF THE CASE. THE A.O. MIGHT HAVE REMARKED THAT FOR THE STATED REASONS MENTIONED THEREIN, AN ADDITION WAS NOT CALLED FOR. LATER, IF THE AO FOUND PATENT ERR OR IN THE UN-COMMUNICATED FILE NOTING, HE CANNOT RECTIFY IT BY RESORTING TO S ECTION 154, AS THIS IS NOT PART OF THE ORDER. THIS WOULD BE SO WHETHER HE HAS MADE THE NOTING BEFORE OR AFTER PASSING THE ASSESSMENT ORDER, BUT DISCOVERED THE ERROR AFTER SERVICE OF THE ASSESSMENT ORDER ON THE ASSESSEE. THIS NOTING CANNOT CONSTITUTE ANY EVIDENCE FOR THE PURPOSE OF APPELLATE PROCEEDING. A PPLICATION OF MIND HAS TO BE DEMONSTRATED IN THE LANGUAGE OF THE ASSESSMENT O RDER ITSELF AND NOT ON THE BASIS OF THE NOTING WHICH ARE NOT COMMUNICATED TO THE ASSESSEE. IN STATE OF KARNATAKA VS. AMEERJAN, (2007) : I SCC 273 : (20 08) 1 SCC (CRI) 130, THE HON'BLE SUPREME COURT HAS HELD THAT FOR THE APP LICATION OF MIND ON THE PART OF THE SANCTIONING AUTHORITY IT IS IMPERATIVE THAT THE ORDER GRANTING SANCTION MUST BE DEMONSTRATIVE OF THE FACT THAT THE RE HAD BEEN PROPER APPLICATION OF MIND ON THE PART OF THE SANCTIONING AUTHORITY. 18.3. THE REVENUE ALSO REFERRED TO THE FOLLOWING D ECISIONS, MENTIONED IN PARA 11, FOR THE PROPOSITION THAT APPLICATION OF MI ND IS TO BE DEMONSTRATED THROUGH ASSESSMENT ORDER AND IF THERE IS NO APPLICA TION OF MIND BY THE AO THEN THE ASSESSMENT ORDER CAN BE TERMED AS ERRONEOU S AND PREJUDICIAL TO THE INTERESTS OF REVENUE: - ADDL. CIT VS. KRISHNA NARAYAN NAIK 150 ITR 513 (BOM .); - CONSOLIDATED PHOTO & FINVEST LTD. ACIT 281 ITR 394 (DEL.); - CIT VS. EMERY STONE MFG. CO. 213 ITR 843; - THERMAL SYSTEMS (HYD.) P. LTD. VS. ACIT 312 ITR (AT ) 187. - MALABAR INDUSTRIAL CO. LTD. 243 ITR 83 (SC); 18.4. AS REGARDS THE ASSESSEES RELIANCE ON THE DEC ISION IN THE CASE OF M.D. OVERSEAS LTD. (SUPRA), LD. SPL COUNSEL POINTED OUT THAT THE SAID CASE DEALS WITH THE RECORDING OF SATISFACTION U/S 132, WHICH I S WHOLLY OUT OF CONTEXT FOR THE PRESENT CASE, BECAUSE U/S 132 IF THE REASONS AR E NOT RECORDED OR INFORMATION IS NOT ON RECORD, IT WOULD NOT BE A BON A FIDE SATISFACTION FOR THE ISSUE OF SEARCH WARRANT, BECAUSE THE SEARCH WARRANT IS THE BASIS OF ACTION. 44 ITA NO. 2057/DEL/10 NIIT VS. CIT HOWEVER, U/S 263 SATISFACTION IS RECORDED IN THE O RDER OF THE COMMISSIONER ON EACH OF THE ISSUES AS TO WHY HE CONSIDERS THAT T HE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE, WHICH HAS BEEN DONE BY LD. COMMISSIONER IN THE PRESENT CASE. 18.5. AS REGARDS RELIANCE, PLACED BY LD. COUNSEL F OR THE ASSESSEE, IN THE CASE OF P.K. MISHRA VS. ACIT, LD. SPL. COUNSEL POI NTED OUT THAT IN THE SAID CASE THE AO PERSISTED WITH THE REOPENED PROCEEDIN GS DESPITE THE FACT THAT THE ASSESSEE COULD DEMONSTRATE FROM A VALID DOCUME NT THAT HE WAS NOT THE OWNER BUT ONLY A TENANT OF THE PROPERTY AND HENCE Q UESTION OF ANY UNEXPLAINED INVESTMENT DID NOT ARISE. IN RESPECT OF OTHER INVESTMENTS, HE COULD FILE DETAILS OF LOAN ETC., TAKEN FOR THE CONS TRUCTION. IT WAS CERTAINLY A CASE WHERE THE AO DID NOT DISPLAY A BONA FIDE INTE NT WHEN HE REFUSED TO CLOSE THE PROCEEDINGS AND REJECTED THE OBJECTIONS I N AN IRRATIONAL AND ILLOGICAL MANNER. HOWEVER, IN THE PRESENT CASE, THE ORDER PASSED U/S 263 IS WELL REASONED ORDER AND BASED ON MATERIAL FACTS. 18.6. LD. SPECIAL COUNSEL SHRI G.C. SRIVASTAVA SUBM ITTED THAT NEW CIT HAS PASSED THE ORDER AFTER GOING INTO THE ISSUES AFRESH AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE. 18.7. LD. SPL. COUNSEL FURTHER REFERRED TO THE SLP FILED BEFORE THE HONBLE SUPREME COURT IN WHICH ASSESSEE HAD, INTER ALIA, TA KEN FOLLOWING GROUNDS: 6. BECAUSE THE HONBLE HIGH COURT ERRED IN LAW IN NOT QUASHING THE ORDER UNDER SECTION 263 OF THE ACT HAV ING NOTED FROM PERUSAL OF RECORD THAT THE INITIATION OF REVIS IONAL PROCEEDINGS UNDER SECTION 263 WERE ON THE DICTATES OF HIGHER UPS IN THE DEPARTMENT, VIZ. CCIT/ CBDT, WHO SUCCUMBING TO THE PRESSURE EXERTED BY INFORMANT MEHTA HAD DIRECTED/ C OERCED/ PRESSURIZED THE CIT TO INITIATE ACTION. 45 ITA NO. 2057/DEL/10 NIIT VS. CIT 7. BECAUSE THE HONBLE HIGH COURT FAILED TO APPRECI ATE THAT THE PROCEEDINGS UNDER SECTION 263 OF THE ACT HAD BE EN INITIATED AND THE ORDERS UNDER THAT SECTION HAD BEEN PASSED B Y THE CIT WITHOUT REACHING ANY INDEPENDENT SATISFACTION AND A S DIRECTED BY THE SUPERIOR AUTHORITIES IN THE INCOME TAX HIERARCH Y, TO SATISFY THE INSIDIOUS DESIRE OF INFORMANT MEHTA AND HIS DETERMI NATION TO CAUSE HARM TO THE PETITIONER. 13. BECAUSE THE HONBLE HIGH COURT FAILED TO APPREC IATE THAT THE PREVAILING ATMOSPHERE GENERATED BY INFORMANT MEHTA BY REASONS OF HIS MINATORY LETTERS AND CONDUCT, IT WAS VIRTUALLY IMPO SSIBLE FOR THE CIT TO EXERCISE INDEPENDENT JUDGMENT AND UNFETTERED DISCRE TION IN DISCHARGE OF ITS STATUTORY FUNCTIONS UNDER SECTION 263 OF THE ACT. 18.8. LD. SPL. COUNSEL REFERRED TO PAGE 181 WHEREIN THE ORDER DATED 12-3- 2010 IS CONTAINED AND POINTED OUT THAT HONBLE SUPR EME COURT HAD ISSUED NOTICE TO THE CBDT AND OTHERS. 18.9. ON 22-3-2010 WHEN THE PETITIONS WERE LISTED T HE HONBLE SUPREME COURT PASSED THE ORDER WHICH HAS BEEN REPRODUCED EA RLIER SLP(C) NOS. 8488-8493/2010: BY CONSENT, THESE SLPS ARE TAKEN ON BOARD. SLP(C) NOS. 7712/2010 & 8488-8493/2010: PURSUANT TO THE ORDER DATED 11 TH MARCH, 2010, WE ARE DIRECTING THE PETITIONER-ASSESSEE IN THESE CASES TO GIVE US A COM PLETE BREAK-UP/ BIFURCATION OF THE WORLDWIDE INCOME, ALLOCATION OF EXPENSES TOWARDS LEARNING BUSINESS AND TOWARDS SOFTWARE BUSINESS. IN THESE CASES, WE WANT TO EXAMINE WHETHER THERE IS ANY LOSS OF REVENUE SUFFERED BY THE DEPARTMENT DE HORS THE QUES TION OF MALA FIDES AT THIS STAGE. PROCEEDINGS TO GO ON BUT, NO RECOVERY SHALL BE MADE . IT IS MADE CLEAR THAT LIMITATION WILL NOT COME IN T HE WAY OF THE DEPARTMENT. MATTERS TO STAND OVER FOR THREE WEEKS. 46 ITA NO. 2057/DEL/10 NIIT VS. CIT 18.10. LD. SPL COUNSEL POINTED OUT THAT AFTER ALL THESE PROCEEDINGS WHEN SUCH DIRECTIONS WERE ISSUED BY HONBLE SUPREME COURT ON 12-4-2010, THE ASSESSEE WITHDREW THE SPL. LEAVE PETITIONS. THE REFORE, THE DIRECTIONS OF HONBLE HIGH COURT HAVE ATTAINED FINALITY. 18.11. LD. SPL. COUNSEL FURTHER POINTED OUT THAT H ONBLE DELHI HIGH COURT IN ITS ORDER DATED 11-12-2009 HAD DIRECTED TH E COMMISSIONER TO PASS FRESH ORDER AFTER GIVING OPPORTUNITY. HE POINTED OU T THAT AS FAR AS THE LEGAL POSITION, AS EXPOUNDED BY HONBLE DELHI HIGH COURT IN PARA 22 ITSELF, THERE IS NO QUARREL WITH THE SAME. 18.12. LD. SPL. COUNSEL FURTHER REFERRED TO PAGES 128 AND 129 WHEREIN ADDITIONAL SUBMISSIONS OF SR. COUNSEL SHRI SOLISORA BJI, ON BEHALF OF THE ASSESSEE, ARE CONTAINED AND POINTED OUT THAT THEY C LEARLY DEMONSTRATE THE DIRECTION BY CBDT/ CCIT WAS ONLY FOR REMEDIAL ACTIO N AND NOT FOR DOING ASSESSMENT IN A PARTICULAR MANNER. 18.13. LD. SPECIAL COUNSEL REFERRED TO PARA 21 OF THE DECISION OF HONBLE HIGH COURT DATED 11-12-2009, WHICH HAS BEEN REPRODUCED EARLIER AND SUBMITTED THAT THE AFOREMENTIONED OBSERVATIONS HAVE ATTAINED FINALITY AND IN VIEW OF THE OBSERVATIONS OF HONBLE DELHI HI GH COURT, THE VERY BASIS OF THE SUBMISSION THAT THE IMPUGNED ORDER WAS PASS ED ON THE DICTATED LINES OF CBDT, VANISHED. 18.14. LD. SPL COUNSEL SHRI G.C. SRIVASTAVA POINTE D OUT THAT THE ALLEGATION OF THE ASSESSEE WITH REGARD TO THE FIRST ORDER U/S 263 HAVING BEEN PASSED ON THE DICTATES OF THE SUPERIOR AUTHORITY, W HICH THE ASSESSEE MADE BEFORE THE HONBLE HIGH COURT AFTER INSPECTION OF R ECORDS, WAS TAKEN NOTE OF BY THE HONBLE COURT. THE HONBLE HIGH COURT BELIEV ED SO AND OBSERVED 47 ITA NO. 2057/DEL/10 NIIT VS. CIT THAT ALL THESE ALLEGATIONS WOULD NOT SURVIVE IF THE ORDER, WHICH IS PASSED IN CONSEQUENCE OF SUCH PURPORTED ALLEGATIONS IS QUASHE D/ SET ASIDE WITH A DIRECTION THAT A FRESH ORDER WOULD BE PASSED BY THE NEW OFFICER. THEREFORE, AFTER WITHDRAWAL OF SLP BY ASSESSEE, THE VERY BASIS FOR THIS GROUND OF APPEAL VANISHED. 18.15. LD. SPL. COUNSEL FURTHER POINTED OUT THAT THE CONTENTION OF THE ASSESSEE THAT THOSE VERY DOCUMENTS AND ASSERTIONS, AS WERE MADE AGAINST THE FIRST ORDER PASSED U/S 263, STILL SURVIVE CANNOT BE ACCEPTED AS THE HONBLE HIGH COURT PREFERRED TO DIRECT THE NEW CIT TO PASS A FRESH ORDER WITH APPLICATION OF INDEPENDENT MIND AND DISPOSE OF ASSE SSEES OBJECTION IN THIS REGARD. 18.16. LD. SPL COUNSEL POINTED OUT THAT ASSESSEE HAS REFERRED TO THE AFFIDAVIT OF SHRI A.L. MEHTA IN A DEFAMATION SUIT, ASSERTING THAT HE GOT THE PROCEEDINGS U/S 263 INITIATED. IN THIS REGARD HE PO INTED OUT THAT THE STATEMENT WAS FROM A PARTY, HAVING PERSONAL INTEREST IN THE C ASE AND THE SAID ASSERTION WAS NOT BACKED BY ANY TANGIBLE MATERIAL AND WAS MAD E WITH ULTERIOR MOTIVE. HE POINTED OUT THAT THOUGH THE STATEMENT WAS EXTRAC TED IN THE WRIT PETITION, FILED BY THE ASSESSEE, THE HONBLE HIGH COURT PREFE RRED TO COMPLETELY IGNORE THE SAME IN ITS ORDER DATED 11-12-2009. HE FURTHER SUBMITTED THAT THERE WERE COMPLAINTS AGAINST THE AO FOR HAVING SHOWN UNDUE FA VOUR TO THE ASSESSEE. THE VERACITY OF THE COMPLAINT WAS LOOKED INTO AT DI FFERENT STAGES AND IT FINALLY CULMINATED IN THE ISSUE OF A CHARGE-SHEET A GAINST THE AO. IN COURSE OF HEARING, LD. CIT(DR) FILED BEFORE US COPY OF CHA RGE-SHEET, AS ADDITIONAL EVIDENCE. HOWEVER, LD. COUNSEL FOR THE ASSESSEE OBJ ECTED TO THE SAME, POINTING OUT THAT WITHOUT PROVIDING THE CHARGE-SHEE T TO ASSESSEE AND TAKING HIS REPLY ON THE SAME, THE ADDITIONAL EVIDENCE SHOU LD NOT BE ADMITTED. WE 48 ITA NO. 2057/DEL/10 NIIT VS. CIT FIND FORCE IN THE SUBMISSION OF LD. COUNSEL THAT TH IS ADDITIONAL EVIDENCE SHOULD NOT BE ADMITTED, PARTICULARLY WHEN ADMITTEDL Y ADMINISTRATIVE CORRESPONDENCE RELATING TO VIGILANCE MATTERS DOES N OT FORM PART OF RECORD OF EITHER OF THE TWO PROCEEDINGS. 18.17. AS REGARDS THE ASSESSEES CONTENTION THAT A SSESSMENT ORDER WAS PASSED UNDER THE MONITORING OF CIT, LD. SPL. COUNSE L REFERRED TO PAGE 8 OF THE IMPUGNED ORDER, WHEREIN IT HAS BEEN OBSERVED AS UNDER: THE ABOVE ALLEGATION OF THE ASSESSEE IS TOTALLY BA SELESS. SENDING OF ROUTINE CORRESPONDENCE AND REPORTS BY THE ASSESSING OFFICER TO SENIOR AUTHORITIES DOES NOT IN ANY WAY MEAN THAT THE ASSESSMENT HAS BE EN COMPLETED BY HIM ON THE DIRECTIONS OF SENIOR AUTHORITIES. NOWHERE DURIN G THE ASSESSMENT PROCEEDINGS, ANY APPROVAL HAS BEEN SOUGHT BY THE A. O. FROM THE CIT, NOR HAS CIT ISSUED ANY DIRECTIONS TO THE A.O. STATING T HAT THE ASSESSMENT ORDER MUST BE PASSED BY MAKING ANY PARTICULAR ADDITION OR DISALLOWANCE. NONE OF THE LETTERS WRITTEN BY THE CIT/CBDT INDICATE THAT T HERE WAS ANY DICTATE THEREIN FOR THE A.O. HENCE, THE IMPORTANT ISSUE IN THE LIGHT OF ASSESSEES ALLEGATION IS THAT WHETHER THE CIT WAS EMPOWERED BY THE PROVISIONS OF LAW, TO GIVE ANY DIRECTIONS AND ALSO WAS THE A.O. REQUIR ED TO TAKE ANY APPROVAL BEFORE PASSING THE ASSESSMENT ORDER. FOR PASSING T HE ASSESSMENT ORDER UNDER CONSIDERATION, THERE WAS NEVER ANY SUCH PROVI SION IN THE LAW. 'AS PER THE PROVISIONS OF THE ACT, THE HIGHER AUTHO RITIES ARE NOT TO INTERFERE WITH THE INDEPENDENCE OF UNFETTERED DISCRETION WHIC H IS STATUTORILY CONFERRED UPON THE ASSESSING OFFICER. HENCE. IF ASSESSEE'S AL LEGATIONS ARE TO BE ACCEPTED, EVEN THEN IT IS CLEAR THAT THE SAID ORDER PASSED BY THE A.O. IS CONTRARY TO THE PROVISIONS OF LAW AND ACCORDINGLY T HE SAME ITSELF BECOMES ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. HONBLE SUPREME COURT IN THE CASE OF CIT VS GREEN WORD CORPORATION (2009) 314 ITR 81 (SC) HAS INTER ALIA HELD THAT IN THE CASE WHERE IT IS FOUND THAT THE ASSESSMENT HAS BEEN PASSED ON THE DICTATES OF THE COMMISSIONER , BEING FULLY WITHOUT JURISDICTION, THEN SUCH ASSESSMENT WOULD BE TREATED AS NULLITY AND IN THE SAID CASE HON'BLE APEX COURT HAS ITSELF DIRECTED THE INC UMBENT COMMISSIONER TO REOPEN THE ASSESSMENT. HOWEVER, SINCE, IN THE CASE OF ASSESSEE, ASSESSMENT ORDER HAS NOT BEEN PASSED BY THE A.O. AFTER OBTAINI NG ANY DIRECTIONS/APPROVAL FROM ANY AUTHORITY, THERE IS NO BAR OR RESTRICTION IN INITIATING THE PROVISIONS OF SECTION 263.' 49 ITA NO. 2057/DEL/10 NIIT VS. CIT 18.18. LD. SPL. COUNSEL REFERRED TO THE DECISION IN THE CASE OF SOUTHERN HERBALS LTD. VS. DIRECTOR OF INCOME TAX (INV.) 207 ITR 55, WHEREIN THE HONBLE KARNATAKA HIGH COURT HAS OBSERVED THAT, TH E HIGH COURT MAY EXAMINE THE FILES FOR THE LIMITED PURPOSE, BUT THE PERSON AGAINST WHOM THE SEARCH WARRANT WAS ISSUED, IS NOT ENTITLED TO LOOK INTO THE FILE. HE ALSO RELIED ON THE DECISION OF PATNA HIGH COURT IN THE CASE OF RAM SWARUP SAHU VS. CIT 196 ITR 841, WHEREIN IT HAS BEEN HELD THAT CON FIDENTIAL DOCUMENTS COULD NOT BE SHOWN TO THE PETITIONERS AS THEIR DISC LOSURE WILL HAMPER THE INQUIRY PENDING AGAINST THE PETITIONERS. HE POINTED OUT THAT IN THE PRESENT CASE ALSO THE DISCLOSURE OF MATERIAL WILL HAVE EFFE CT ON THE VIGILANCE PROCEEDINGS AGAINST THE OFFICER. 18.19. LD. SPL. COUNSEL REFERRED TO THE DECISION IN THE CASE OF DR. PRATAP SINGH VS. DIRECTOR OF ENFORCEMENT 22 TAXMAN 30 (SC) , WHEREIN IT HAS BEEN HELD THAT IT IS NOT OBLIGATORY ON THE OFFICER TO DI SCLOSE HIS MATERIAL ON THE MERE ALLEGATION THAT THERE WERE NO MATERIAL BEFORE HIM ON WHICH HIS REASON TO BELIEVE COULD BE GROUNDED IT IS FOR THE PERSON MAKING AN ALLEGATION OF PREJUD ICE OR BIAS TO LEAD NECESSARY EVIDENCE TO DEMONSTRATE THAT THE ACT ION OF THE STATUTORY AUTHORITY IS PRIMA FACIE NOT BONA FIDE. H E CANNOT MAKE AN ALLEGATION AND THEN CALL FOR THE OTHER PARTY TO MAKE AVAILABLE THE EVIDENCE ON WHICH HE CAN RELY TO SUBSTANTIATE T HE ALLEGATION. THIS OBLIGATION IS ALL THE MORE BURDENSOME IN THIS CASE WHERE THE HONBLE HIGH COURT HAS ALREADY DISPOSED OFF ALL SUC H ALLEGATIONS AGAINST THE ORIGINAL ORDER BY DIRECTING A FRESH PRO CEEDING AND A FRESH ORDER BY A FRESH STATUTORY AUTHORITY. UNLESS SIMILAR ALLEGATIONS CAN BE SHOWN TO EXIST AGAINST THE NEW C IT AS WELL, THE ENTIRE CONTENTION DESERVES TO BE DISREGARDED. 50 ITA NO. 2057/DEL/10 NIIT VS. CIT 18.20. LD. SPL. COUNSEL POINTED OUT THAT THE HONBL E HIGH COURT IN ITS ORDER DATED 3-8-2012 DID NOT GIVE ANY DIRECTION FOR PRODU CING THE CONFIDENTIAL RECORD THOUGH SPECIFIC PLEA WAS TAKEN BEFORE HIGH C OURT TO THIS EFFECT. 19. IN REJOINDER, THE ASSESSEE IN REGARD TO ITS PL EA REGARDING ASSESSMENT ORDER BEING PASSED UNDER THE MONITORING/ SUPERVISIO N OF THE COMMISSIONER, FURTHER RELIED ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V. HASTINGS PROPERTIES 253 ITR 124 AND AS REGA RDS THE REVENUES CONTENTION REGARDING APPLICATION OF MIND BY AO IN F RAMING THE ASSESSMENT, TO BE DEMONSTRATED THROUGH THE ASSESSMENT ORDER, AS SESSEE RELIED ON THE DECISION, INCLUDING THE DECISION OF ITAT DELHI BENCH IN THE CASE OF CIT VS. USHA INTERNATIONAL LTD. 210 TAXATION 188 WHEREI N IT HAS BEEN HELD THAT THE FACT THAT THERE IS NO FINDING QUA THE ASSESSEE IN THE BODY OF THE ASSESSMENT PASSED BY THE AO THE SAME DOES NOT LEAD TO THE CONCLUSION THAT THERE WAS NO APPLICATION OF MIND OR FORMATION OF OP INION QUA SUCH ISSUE BY THE AO BEFORE COMPLETING THE ASSESSMENT. 20. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE WANTS TH E DEPARTMENT TO PROVE THE NEGATIVE WHICH IS NOT PERMISSIBLE. IN THE PRESENT C ASE, WE FIND THAT ALL THE INTER-DEPARTMENTAL CORRESPONDENCES REQUIRED BY THE ASSESSEE, PRIMARILY IN THE NATURE OF ADMINISTRATIVE ACTIONS BEING TAKEN BY THE DEPARTMENT, HAD BEEN SHOWN TO ASSESSEE AND DEPARTMENT IS CLAIMING CONFID ENTIALITY ON REST OF THE DOCUMENTS. FURTHER, WE FIND THAT AS PER THE DIRECT IONS OF HONBLE HIGH COURT, THE ASSESSEE WAS SHOWN THE CORRESPONDENCE, F ROM WHICH ASSESSEE HAS PREPARED A SYNOPSIS, THE EXTRACTS FROM WHICH, HAVE BEEN REPRODUCED IN THE WRITTEN SUBMISSIONS FILED BEFORE THE HONBLE HIGH C OURT, CONTAINED AT PAGES 104 TO 146 OF THE PB-I ( RELEVANT AT PAGES 136 TO 1 40). ASSESSEE WAS ALLOWED 51 ITA NO. 2057/DEL/10 NIIT VS. CIT INSPECTION OF 12 FILES MAINTAINED IN THE OFFICE OF CIT IN RELATION TO THE PROCEEDINGS U/S 263 OF THE ACT. THE SAME IS REPRODU CED: S.N. DATE OF LETTER VOL. NO. PAGE NO. CONTENTS REMARKS 1 8-11-2005 9 6 STATUS REPORT FORWARDED BY ASSESSING OFFICER TO CIT 2. 20-11-2005 9 13 LETTER BY AO TO CIT FORWARDING ANOTHER STATUS REPORT 3. 13-2-2006 9 45 LETTER FROM CBDT TO CCT WITH RESPECT TO THE STATUS REPORT FURNISHED BY AO CBDT WANTED SPECIFIC REPORT ON DETAILS OF INVESTIGATIONS DONE WITH RESPECT TO SPECIFIC ALLEGATION NOS. 2,3,4,5 AND 6 AND WHETHER INFORMATION REGARDING ALLEGATION NOS. 13 & 14 HAVE BEEN SENT TO THE RESPECTIVE AOS CLEAR INSTANCE OF MONITORING OF ASSESSMENT BY CBDT 4 27-4-2006 5.5.2006 9 60- 68 LETTER FROM CBDT TO CCIT ENCLOSING SHRI A.L.MEHTAS LETTER DATED 25-3- 2006 ADDRESSED TO CHAIRPERSON CBDT DIRECTING THAT ALLEGATIONS MADE THERE BE INVESTIGATED AND REPORT WITH REGARD TO THE ACTION TAKEN TO BE SENT TO THE BOARD. 5. UNDATED 11 1-68 STATUS REPORT DATED 15-5-2006 SUBMITTED BY AO TO CIT DEALING WITH EACH ALLEGATION RAISED BY SHRI A.L. THE REPORT POINTS OUT THAT ACH ALLEGATION RAISED BY AL MEHTA WAS CONFRONTED TO THE ASSESSEE DURING THE COURSE OF ASSESSMENT. 52 ITA NO. 2057/DEL/10 NIIT VS. CIT MEHTA THE REPORT ALSO POINTS OUT THAT A TOTAL ADDITION OF RS. 31.29 CRORES IS BEING MADE IN VARIOUS COMPANIES OF THE SAME GROUP. 6. 16-5-2006 9 55- 56 LETTER BY ADDL. CIT TO CIT FORWARDING INVESTIGATIN NOTE PREPARED BY AO ON THE ALLEGATIONS MADE BY SHRI A.L. MEHTA 7. 16-5-2006 9 58- 59 LETTER FROM CIT TO ADDL. CIT REGARDING POINTS TO BE KEPT IN MIND WHILE CONDUCTING INVESTIGATION SHOWS THAT ASSESSMENT BEING MONITORED/ SUPERVISED BY CIT. THE AO IS FURTHER ADVISED BY THE CIT THAT IN CASE OF VARIANCE WITH THE STAND TAKEN IN THE APPRAISAL REPORT, THE AO SHOULD PROPERLY RECORD THE SAME IN THE OFFICE NOTE FOR FUTURE REFERENCE REFERENCE TO OFFICE NOTES NOT SHOWN. 8. 26.5.2006 9 69- 86 STATUS REPORT OF AO FORWARDED BY CCIT TO CBDT CCIT RECORDS THAT ALL THE ALLEGATIONS LEVIED BY THE INFORMANT HAVE BEEN INVESTIGATED IN DEPTH AND WHEREVER FOUND CORRECT, ADDITIONS ARE BEING MADE. THE AFORESAID CLEARLY SHOWS SUPERVISION/ MONITORING OF THE ASSESSMENT BY CCIT. 9. 26-5-2006 7 109- 122 LETTER BY CCIT TO CBDT THE CCIT INFORMS THE BOARD THAT COMPLETE INVESTIGATION WAS UNDERTAKEN IN THE COURSE OF ASSESSMENT AND ADDITIONS ARE BEING MADE, WHEREVER 53 ITA NO. 2057/DEL/10 NIIT VS. CIT NECESSARY. YET ANOTHER INSTANCE OF SUPERVISION/ MONITORING OF ASSESSMENT BY CCIT 10. 19-6-2006 9 106- 111 LETTER FROM CCIT TO CBDT REGARDING MONITORING OF NIIT GROUP OF CASES BY THE BOARD THE CCIT STATES THAT VARIOUS ALLEGATIONS OF THE INFORMER, THE CONCLUSION DRAWN ON SUCH ALLEGATIONS AS WELL AS THE VARIOUS ENQUIRIES AND INVESTIGATIONS DONE WERE DEALT AT LENGTH. THIS REPORT WAS SENT BY THE CCIT TO THE BOARD AHEAD OF FINALIZATION OF ASSESSMENT ORDER BY THE AO WHICH SHOWS CLOSE DAY-TO-DAY MONITORING OF THE ASSESSMENT BY THE CBDT THE CCIT FURTHER STATS AS FOLLOWS: AS IS APPARENT FROM THIS REPORT THE DEPARTMENT HAS MADE A LUDICIOUS AND WATERTIGHT CASE AGAINST THE ASSESSEE BY MAKING IN DEPTH INVESTIGATION FROM ALL POSSIBLE ANGLES AFTER REFERRING THE CASES TO TPOS AS WELL AS DVOS THE LETTER OF THE CCITT REFERS TO EARLIER REPORT DATED 23-5-2006 NOT ON RECORD. 11 24-4-2007 12 32- 34 LETTER OF SHRI A.L. MEHTA TO MEMBER (INV.), CBDT, ASKING FOR A COPY OF DETAILED REPORT SENT TO MEMBER (INV.), CBDT, BY CCIT (CENTRAL)/2006- 54 ITA NO. 2057/DEL/10 NIIT VS. CIT 07/136 DATED 26-5- 2006(NOT SHOWN) ON THE POINTS OF ALLEGATION OF TAX EVASION BROUGHT OUT IN THE APPRAISAL REPORT IN THE DIRECTORATE OF INCOME-TAX. 20.1. A BARE PERUSAL OF THE ABOVE DETAILS WOULD SHO W THAT IN NONE OF THE LETTERS, CBDT OR CCIT HAS GIVEN ANY DIRECTION TO TH E ASSESSING OFFICER TO FRAME THE ASSESSMENT IN A PARTICULAR MANNER ON A PA RTICULAR ISSUE. TAKING STATUS REPORT ON THE BASIS OF INFORMATION RECEIVED BY CBDT ON TAX EVASION PETITION CANNOT BE SAID TO BE MONITORING OF ASSESSM ENT BY CBDT. U/S 119, CBDT IS REQUIRED TO ISSUE INSTRUCTION TO OTHER AUT HORITIES, AS IT MAY DEEM FIT, FOR THE PROPER ADMINISTRATION OF THE ACT. NO O RDER, INSTRUCTION OR DIRECTION CAN BE ISSUED SO AS TO REQUIRE ANY INCOME -TAX AUTHORITY TO MAKE A PARTICULAR ASSESSMENT OR TO DISPOSE OF A PARTICULAR CASE IN A PARTICULAR MANNER. LD. COUNSEL HAS RELIED ON THE DECISIONS IN THE CASES OF J & K SYNTHETICS LTD. VS. CBDT 83 ITR 335 (SC); AND SIRPU R PAPER MILLS LTD. VS. CWT 77 ITR 6 (SC) TO SUBMIT THAT WHILE THE AO IS S EIZED OF AN ASSESSMENT, IT IS NOT OPEN TO THE SUPERIOR AUTHORITIES TO SEEK PROGRESS REPORTS FROM SUCH OFFICER. LD. COUNSEL SUBMITS THAT SUBMISSION OF PRO GRESS REPORTS BY THE AO IS NOT IN DISCHARGE OF ANY ADMINISTRATIVE FUNCTIONS AN D WOULD AMOUNT TO INTERFERENCE WITH THE EXERCISE OF JURISDICTION BY T HE AO IN DISCHARGE OF HIS QUASI JUDICIAL FUNCTION. WE ARE NOT INCLINED TO ACC EPT THIS PLEA OF LD. COUNSEL BECAUSE IN THE TWO DECISIONS REFERRED BY LD. COUNSE L, IT IS NOT SO HELD. THE DECISIONS PRIMARILY HOLD THAT BOARD CANNOT GIVE DI RECTIONS OR INSTRUCTIONS TO INCOME-TAX AUTHORITIES IN EXERCISE OF THEIR QUASI J UDICIAL FUNCTION. BUT THERE 55 ITA NO. 2057/DEL/10 NIIT VS. CIT IS NOTHING IN THE ACT OR THESE TWO DECISIONS TO RES TRAIN CBDT TO OBTAIN STATUS REPORT FROM AUTHORITIES SEIZED OF A CASE. THIS IS P URELY IN DISCHARGE OF ADMINISTRATIVE FUNCTION OF CBDT. WHILE OBTAINING ST ATUS REPORT, THE CBDT CAN ALSO SEEK INFORMATION FROM AO ON THE VARIOUS AL LEGATIONS MADE IN TEP. NO DOUBT THE POSITION WOULD BE DIFFERENT IF CBDT DI RECTS THE AO TO CARRY OUT INVESTIGATION IN A PARTICULAR MANNER BUT OBTAIN ING OF INFORMATION FROM AO ON SPECIFIC ALLEGATIONS DOES NOT AMOUNT TO INTER FERENCE WITH HIS QUASI JUDICIAL POWERS. IN EXERCISE OF ITS ADMINISTRATIVE AND VIGILANCE FUNCTIONS, CBDT ISSUES VARIOUS LETTERS TO VARIOUS AUTHORITIES FOR PROPER ADMINISTRATION OF INCOME-TAX ACT, BUT THAT CANNOT BE EQUATED WITH GIVING DIRECTIONS TO THE AUTHORITIES FOR DOING ASSESSMENT IN A PARTICULAR MA NNER. NO DOUBT POSITION WILL BE DIFFERENT WHEN STATUTORY APPROVAL IS REQUIR ED TO THE ACTION BY AN AUTHORITY. SUBMISSIONS OF LD. COUNSEL IS THAT SIN CE CBDT/ CCIT WERE ISSUING LETTERS TO CIT QUA INVESTIGATION OF ALLEGAT IONS MADE BY MR. A.L. MEHTA AND SEEKING REVIEW REPORT THEREOF, THEREFORE, THE 263 ORDER AS WELL AS ASSESSMENT ORDER WAS PASSED ON DICTATES OF HIGHER A UTHORITIES. WE FAIL TO FIND OUT ANY OTHER MANNER BY WHICH CBDT COULD DEAL WITH TEP. ONLY AUTHORITIES SEIZED OF THE MATTER COULD BE REQUIRED TO FURNISH T HE REQUISITE INFORMATION. AUTHORITIES HAVE TO KEEP INFORM THE DEVELOPMENT TO CBDT. 20.2. LD. CIT, INTER ALIA, HAS POINTED OUT THAT THE ASSESSEE HAD INSPECTED THE RECORDS AS PER THE DIRECTIONS OF THE HONBLE HIGH C OURT WHICH IS EVIDENT FROM THE FOLLOWING OBSERVATIONS: 1. INSPECTION OF RECORDS: ISSUE REGARDING THE I NSPECTION OF RECORD HAD ALREADY BEEN COMPLIED WITH. THE VARIOUS CORRESPONDE NCE, ETC. WHICH THE ASSESSEE HAS MENTIONED IN ITS LETTER, WHILE RAISING THE LEGAL OBJECTIONS, CLEARLY SHOWS THAT IT HAS NOT ONLY INSPECTED THE RE QUISITE RECORDS BUT HAVE ALSO TAKEN COPIES OF THE SAME. THE ASSESSEE HAS RA ISED SIMILAR OBJECTIONS BEFORE THE HONBLE DELHI HIGH COURT, DURING THE COU RSE OF THE WRIT PETITIONS. AS PER THE DIRECTION OF THE HIGH COURT THE RECORDS WERE DULY 56 ITA NO. 2057/DEL/10 NIIT VS. CIT SHOWN TO ASSESSEE'S COUNSEL SHRI AJAY VOHRA AND MS . KAVITA JHA ALONG WITH OTHER REPRESENTATIVES OF THE ASSESSEE AND CONTENTS THEREOF WERE ALSO DULY NOTED BY ITS REPRESENTATIVES WITH THE HELP OF STENO GRAPHER , UNDER THE SUPERVISION OF OUR SENIOR STANDING COUNSEL MS RASH MI CHOPRA ON 1.08.2009 IN BETWEEN THE HEARING BEFORE THE HON'BLE HIGH COURT AND AGAIN ON 17.08.2009 & 19.08.2009. RECORDS WERE ALSO SHOWN / MADE AVAILABLE TO ASSESSEE'S COUNSEL DURING THE COURSE OF HEARINGS O F WRIT PETITIONS BEFORE THE HON'BLE DELHI HIGH COURT. INSPECTION OF RECORDS AS DIRECTED BY THE HON'BLE HIGH COURT WAS COMPLIED AND THIS FACT WAS TAKEN COG NIZANCE OF BY HON'BLE DELHI HIGH COURT. IT IS ONLY THEREAFTER THAT THE MA TTER WAS PROCEEDED FOR FINAL HEARING. THUS THE ISSUE OF INSPECTION OF RECO RDS HAS ALREADY BEEN SETTLED DURING THE COURSE OF WRIT PROCEEDINGS BEFOR E THE HONBLE DELHI HIGH COURT AS DISCUSSED ABOVE. FURTHER, HON'BLE HIGH COURT DIRECTIONS AS CONTAINE D IN PARA 21 OF ORDER READS AS UNDER: 'FOR THIS REASON ALONE, ONCE WE PROCEED TO SET ASID E THE IMPUGNED ORDER, THE EFFECT WOULD BE THAT THE CONCERNED COMMISSIONER WIL L HAVE TO GO INTO THIS ISSUE AFRESH FOR CONSIDERING THE SUBMISSIONS OF THE PETITIONER, WHICH WOULD NECESSARILY INVOLVE APPLICATION OF HIS INDEPENDENT MIND. THIS COUPLED WITH THE FACT THAT THE COMMISSIONER WHO PASSED THE ORDER IS NO MORE THE CONCERNED OFFICER , I.E. , THE RESPONDENT NO. 4, TH E MATTER WILL HAVE TO GO TO ANOTHER OFFICE DISCHARGING THE DUTIES IN THE CAPACI TY OF RESPONDENT NO. 4. IN THESE CIRCUMSTANCES, THE VERY BASIS OF THE SUBMISSI ON THAT THE IMPUGNED ORDER WAS PASSED ON THE DICTATES LINES OF CBDT VANI SHES.' ACCORDINGLY, AS PER THE DIRECTIONS OF THE HONBLE H IGH COURT FRESH NOTICE WAS ISSUED AND THE PROCEEDINGS UNDER SECTION 263 HA VE BEEN INITIATED FOR GIVING ASSESSEE OPPORTUNITY TO RESPOND. THE FRESH O RDER U/S 263 IS BEING PASSED AFTER CONSIDERING ALL THE SUBMISSIONS OF THE ASSESSEE AND WITH AN INDEPENDENT MIND WITHOUT BEING INFLUENCED BY THE OB SERVATIONS MADE IN THE EARLIER ORDER. IN THESE CIRCUMSTANCES. THE RELEVANC E OF SHOWING OLD FILES CONTAINING INTERDEPARTMENTAL CORRESPONDENCE, HAS NO RELEVANCE. 20.3. IN VARIOUS DECISIONS, RELIED UPON BY REVENUE , THE PROPOSITION LAID DOWN IS THAT UNLESS ANY EVIDENCE/ STATEMENT IS USED AGAINST THE ASSESSEE IN ASSESSMENT PROCEEDINGS, THE SAME IS NOT REQUIRED TO BE CONFRONTED TO THE ASSESSEE BECAUSE THAT DOES NOT CONSTITUTE THE RELEV ANT MATERIAL FOR THE PURPOSES OF ASSESSMENT. 57 ITA NO. 2057/DEL/10 NIIT VS. CIT 20.4. THE ORDER SHEET NOTING RECORDED BY THE TRIBUN AL ON 6-7-2010 HAS TO BE READ SUBJECT TO THE FINAL DIRECTION OF HONBLE HIGH COURT IN ITS ORDER DATED 3- 8-2012, WHEREIN THE HONBLE HIGH COURT HAS OBSERVED THAT, CONSEQUENTLY, THE TRIBUNAL CANNOT BE FAULTED IN DIRECTING VIDE IT S ORDER DATED 6-7-2010 THE REVENUE TO PRODUCE THE ASSESSMENT RECORDS AND THE R ECORDS RELATING TO PROCEEDING U/S 263 FOR THE RELEVANT ASSESSMENT YEAR S. 20.5. THEREFORE, ALL RECORDS AS INTERPRETED BY TH E ASSESSEE TO INCLUDE INTER- DEPARTMENTAL CORRESPONDENCE (INCLUDING CBDT) IN RES PECT OF ASSESSMENT PROCEEDINGS U/S 153A/143(3); AND THE INTER-DEPARTME NTAL CORRESPONDENCE (INCLUDING CBDT) IN RESPECT OF PROCEEDINGS U/S 263 OF THE ACT DOES NOT COME WITHIN THE AMBIT OF DIRECTIONS GIVEN BY THE HO NBLE HIGH COURT. HONBLE HIGH COURT HAS ONLY REFERRED TO ASSESSMENT RECORDS AND THE RECORDS RELATING TO PROCEEDINGS U/S 263 FOR THE RELEVANT AS SESSMENT YEAR. IT IS PERTINENT TO NOTE THAT NEITHER TRIBUNAL NOR HONBLE HIGH COURT REFERRED TO ABOVE CORRESPONDENCES AND CONFIDENTIAL RECORDS INS PITE OF SPECIFIC PRAYER TO THAT EFFECT BY ASSESSEE. 20.6. THUS ALL RECORDS, AS MENTIONED IN THE TRIBU NALS ORDER DATED 6-7- 2010, HAVE BEEN CLARIFIED BY HONBLE HIGH COURT IN ITS ORDER DATED 3-8-2012 BY OBSERVING THAT TRIBUNAL CANNOT BE FAULTED IN DIR ECTING TO PRODUCE THE ASSESSMENT RECORD AND THE RECORDS RELATING TO PROCE EDINGS U/S 263. 20.7. THE OBSERVATIONS IN THE CASE OF DR. PRATAP SI NGH (SUPRA) AND OTHER DECISIONS RELIED BY LD. SPECIAL COUNSEL, NOTED SUPR A,CONCLUSIVELY LAY DOWN THE LAW THAT DEPARTMENT IS NOT OBLIGED TO PRODUCE C ONFIDENTIAL RECORDS. WE, THEREFORE, ARE OF THE CONSIDERED OPINION THAT DEPAR TMENT FULLY COMPLIED WITH THE DIRECTIONS OF TRIBUNAL REGARDING PRODUCTION OF ALL RECORDS. 58 ITA NO. 2057/DEL/10 NIIT VS. CIT 20.8. ALL CORRESPONDENCE REFERRED TO BY ASSESSEE RE LATES TO EARLIER ORDER PASSED BY LD. CIT. IN HIS ORDER DATED 1-4-2010 LD. CIT HAS POINTED OUT THAT AS PER DIRECTION OF THE HONBLE HIGH COURT, FRESH NOTI CE WAS ISSUED AND THE PROCEEDINGS U/S 263 HAD BEEN INITIATED FOR GIVING A SSESSEE THE OPPORTUNITY TO RESPOND. FRESH ORDER U/S 263 WAS BEING PASSED AFTER CONSIDERING ALL THE SUBMISSIONS OF THE ASSESSEE AND, THEREFORE, THE REL EVANCE OF SHOWING OLD FILES CONTAINING INTER DEPARTMENTAL CORRESPONDENCE, IN AN Y CASE, IS LOST. 20.9. FROM THIS IT IS EVIDENT THAT LD. CIT, WHILE P ASSING THE ORDER, WAS CONSCIOUS OF THE FACT THAT HONBLE HIGH COURT IN IT S ORDER DATE D 11-12-2009 HAD, INTER ALIA, OBSERVED IN PARA 20 THAT NO DOUBT, SOME ANXIETY IS SHOWN BY THE CBDT IN THIS BEHALF. HOWEVER THE ARGUMENT OF TH E RESPONDENTS IS THAT THE CBDT HAD WANTED THE MATTER TO BE EXAMINED AND N EVER INTENDED THAT THE ORDERS ARE TO BE PASSED IN ONE PARTICULAR MANNER ON LY . THEREFORE, THE ASSESSEES STAND THAT WHILE PASSING THE FRESH ORDER THE COMMISSIONER WILL AGAIN BE INFLUENCED BY THE ALLEGED CORRESPONDENCE, CANNOT BE ACCEPTED. 20.10. THERE IS NO CORRESPONDENCE BETWEEN CBDT AND CCIT/CIT/AO ON RECORD BETWEEN PASSING OF THE ORDER BY HONBLE HIGH COURT ON 11-12-2009 AND 3-8-2012. THEREFORE, IT CANNOT BE ACCEPTED THA T THE SECOND ORDER PASSED BY LD. CIT SUFFERS FROM SAME FLAWS OR INFIRMITIES. THE POSITION THAT EMERGES NOW IS THAT ASSESSEE HAS BEEN SHOWN ENTIRE CORRESPO NDENCE RELATING TO ASSESSMENT ALONG WITH OFFICE NOTES INCLUDING THE EN TIRE CORRESPONDENCE RELATING TO REVISION BUT ASSESSEE HAS NOT BEEN ABLE TO SHOW EVEN A SINGLE CORRESPONDENCE FROM WHICH IT COULD BE INFERRED THAT THERE WAS ANY DIRECTION BY CBDT/CCIT/CIT TO AO FOR COMPLETING ASSESSMENT IN ANY PARTICULAR MANNER. HAD THERE BEEN ANY DIRECTION TO AO, IT WOUL D HAVE DEFINITELY BEEN INCORPORATED IN AT LEAST OFFICE NOTE BY THE AO. THE TERM DIRECTION IMPLIES 59 ITA NO. 2057/DEL/10 NIIT VS. CIT THAT ASSESSING OFFICER IS REQUIRED TO PASS ORDER IN A PARTICULAR MANNER BUT IF HE SIMPLY CONFIRMS THAT ALL ASPECTS HAVE BEEN TAKEN NOTE OF THAT DOES NOT IMPLY THAT HE HAS FOLLOWED DIRECTIONS OF HIGHER AU THORITIES. WE HAVE EXAMINED THE COMPILATION FILED BY DEPARTMENT IN SEA LED COVER, WHICH IS MAINLY FROM FILE NOS.1,7,8,9,10,11 AND 12. THE ENTI RE CORRESPONDENCE RELATES TO 2006 AND 2007 I.E. PRIOR TO THE PASSING OF FIRST ORDER OF LD. CIT WHICH WAS SET ASIDE BY HONBLE HIGH COURT AND NOT THEREAFTER. THEREFORE, IN ANY CASE, THIS CORRESPONDENCE, WHICH IS PURELY ADMINISTRATIVE IN NATURE, IS NOT RELEVANT FOR PRESENT PROCEEDINGS. WE HAVE GONE THROUGH VARIO US LETTERS AND FIND THAT MAINLY THE CORRESPONDENCE IS BETWEEN VARIOUS AUTHOR ITIES WITH REFERENCE TO VARIOUS ISSUES ON WHICH REVIEW WAS REQUIRED BUT FIN ALLY LD. CIT HAS PASSED THE ORDER AFTER DULY VERIFYING THE RECORDS BEFORE H IM. NO DIRECTION HAD BEEN ISSUED TO AO TO PASS THE ORDER IN A PARTICULAR MANN ER. 20.11. IT IS PERTINENT TO NOTE THAT ASSESSEE IS HAR PING MORE ON THE COMPLAINTS BEING MADE BY SHRI A.L. MEHTA WHICH IS PRIMARILY A TAX EVASION PETITION AND CBDT, IN EXERCISE OF ITS ADMINISTRATIVE FUNCTIO NS, IS REQUIRED TO TAKE REPORTS FROM CCIT/CIT ON VARIOUS ALLEGATIONS CONTAI NED IN THE TAX EVASION PETITION. WE DO NOT SEE ANY INTERFERENCE BEING CAUS ED BY CBDT IN DISCHARGE OF QUASI JUDICIAL FUNCTIONS OF AO BY RESORTING TO O BTAINING REPORTS FROM CCIT/ CI T . 21. LD. COUNSEL FOR THE ASSESSEE HAS FILED BEFORE U S SUPPLEMENTARY SUBMISSIONS AND RELIED ON THE DECISION OF HONBLE A LLAHABAD HIGH COURT IN THE CASE OF MD OVERSEAS LTD. V DIRECTOR GENERAL OF INCOME-TAX AND OTHERS ( 333 ITR 407), WHEREIN IT HA S BEEN HELD THAT WHERE CERTAIN INFORMATION/ MATERIAL/ DOCUMENTS GOING TO THE ROOT OF THE MATTER, HAVE BEEN DIRECTED TO BE PRODUCED BY ONE PA RTY, SUCH DOCUMENTS 60 ITA NO. 2057/DEL/10 NIIT VS. CIT MUST BE PROVIDED TO THE OTHER PARTY AS THE OTHER PA RTY CANNOT MAKE SUBMISSIONS WITHOUT ACCESS TO SUCH MATERIAL. IT WAS HELD THAT PROCEEDING WITH THE MATTER, WITHOUT ALLOWING SUCH ACCESS, WOUL D NOT ONLY BE VIOLATIVE OF PRINCIPLES OF NATURAL JUSTICE, BUT NOT COMPATIBLE W ITH THE PRINCIPLE OF JURISPRUDENCE. IN THIS CASE, THE ISSUE WAS THAT AS SESSEE COMPANY CARRIED ON THE BUSINESS OF PRECIOUS METALS, NAMELY, GOLD, SILV ER AND PLATINUM. THE REGISTERED OFFICE OF THE COMPANY WAS SITUATED AT NE W DELHI, BUT HAD 8 BRANCHES SITUATED IN 7 DIFFERENT CITIES OF THE COUN TRY AND AT LEAST ONE WAREHOUSE WAS SITUATED WITHIN THE SPECIAL ECONOMIC ZONE (SEZ), AT NOIDA. A SEARCH WAS CONDUCTED BY THE DEPARTMENT ON 15-9-20 09 AND 16-9-2009, NOT ONLY IN THE OFFICE, BRANCHES AND WAREHOUSE AT NOIDA , BUT ALSO AT THE RESIDENCE OF ITS DIRECTORS AS WELL AS ON SOME OTHER PERSONS. IN ALL, THE SEARCH WAS CONDUCTED IN 10 COMPANIES, ONE FIRM AND 15 INDI VIDUALS. ACCORDING TO THE DEPARTMENT, THE ASSESSEE WAS THE FLAGSHIP COMPA NY, WHEREAS THE FIRM AND THE OTHER COMPANIES WERE CONNECTED WITH IT. TWO IND IVIDUALS WERE EMPLOYEES IN THE OFFICE AND REST OF THEM WERE THE DIRECTORS IN THE COMPANIES OR THEIR RELATIVES. ACCORDING TO THE DEPARTMENT, TH E SEARCH WAS CONDUCTED ON THE SATISFACTION NOTE OF THE DIRECTOR OF THE INCOME -TAX (INV.), KANPUR, AFTER GETTING APPROVAL OF THE DIRECTOR GENERAL OF INCOME- TAX (INV.), NORTH, LUCKNOW. THE ASSESSEE FILED AN APPLICATION ON 7-11- 2009 BEFORE THE DGIT (INV.), LUCKNOW AND THE DIT(INV.), LUCKNOW AND THE DIT(INV.), KANPUR, REQUESTING THEM TO PROVIDE, APART FROM OTHER PAPERS , THE COPY OF SATISFACTION NOTE TO THE ASSESSEE. THE ASSESSEE POINTED OUT BEFO RE THE HONBLE HIGH COURT THAT NEITHER THE SATISFACTION NOTE WAS PROVIDED NOR ANY ORDER ON THE APPLICATION HAD BEEN INTIMATED TO THE ASSESSEE. THE WRIT PETITIONS FILED BY THE ASSESSEE WERE ADMITTED. SUBSEQUENTLY, THE DEPARTMEN TAL AUTHORITY PASSED 61 ITA NO. 2057/DEL/10 NIIT VS. CIT ORDERS, CENTRALIZING THE ASSESSMENT CASES OF THE PE RSONS SEARCHED AT NOIDA. THIS ACTION WAS ALSO CHALLENGED BEFORE THE HONBLE HIGH COURT BY WAY OF AMENDMENT APPLICATION. THE HONBLE HIGH COURT CRYST ALLIZED THE ISSUES BEFORE IT OBSERVING AS UNDER: 13. ESSENTIALLY, THE WP AND THE AMENDMENT APPLICAT ION, (I) CHALLENGE THE SEARCH AND SEIZURE ACTION; (II) QUESTION THE CENTRALIZATION OF ASSESSMENT CASE AT N OIDA; AND (III) SEEK A DIRECTION FOR CONDUCTING THE ASSESSMENT PROCEEDING AT DELHI, IN CASE THE ANSWER TO THE AFOR ESAID QUESTIONS IS IN NEGATIVE. 14. THE REMAINING NINE COMPANIES, THE FIRM, AND THE NINE INDIVIDUALS (OUT OF FIFTEEN) HAVE ALSO FILED WRIT P ETITION RAISING SIMILAR POINTS. THESE PETITIONS ARE CONNECTED WITH THE PRESENT ONE. 15. THE SEARCH BY THE DEPARTMENT, IS BEING CHALLENG ED ON THE NUMBER OF GROUNDS. THE MAIN GROUND OF CHALLENGE IS THAT THERE WAS NO RELEVANT INFORMATION THAT COULD LEAD TO REAS ONABLE BELIEF TO AUTHORIZE THE SEARCH. 21.1. THE HONBLE HIGH COURT, AFTER DETAILED DISCUS SION OF VARIOUS PROVISIONS OF LAW, AS WELL AS CASE LAWS, CONCLUDED THAT IF THE ASSESSEE IS ABLE TO MAKE OUT A PRIMA FACIE CASE AGAINST THE VALIDITY OF THE SEARCH, THEN (SUBJECT TO PRIVILEGE U/S 123 OR SEC. 124 OF THE EV IDENCE ACT), THE ASSESSEE IS ENTITLED TO KNOW THE INFORMATION IN POSSESSION OF T HE DEPARTMENT OR THE REASONS TO BELIEVE FOR AUTHORIZING THE SEARCH, EXCE PT THE SOURCE OF THE INFORMATION. THEREFORE, IT IS EVIDENT THAT ASSESSEE IS ENTITLED TO THE INFORMATION, WHICH IS RELEVANT TO THE ISSUE AND IF THE SAME GOES TO THE ROOT OF THE PROCEEDING. THE SOURCE OF INFORMATION IS NOT RE QUIRED TO BE DISCLOSED BY REVENUE AUTHORITIES. 62 ITA NO. 2057/DEL/10 NIIT VS. CIT 21.2. IN THIS CASE THE ISSUE WAS REGARDING THE REC ORDING OF SATISFACTION AS PER THE STATUTORY REQUIREMENTS IN SEARCH PROCEEDING S AND, THEREFORE, ASSESSEE HAD RIGHT TO ASK FOR THE SAME. BUT THIS PROPOSITION CANNOT BE EXTENDED TO CONFIDENTIAL ADMINISTRATIVE CORRESPONDENCES, WHICH DO NOT EVEN FORM PART OF RECORD UNDER SECTION 263. THIS CORRESPONDENCE CAN BE EXAMINED BY COURT TO COME TO PROPER CONCLUSION BUT NEED NOT BE DISCLO SED TO OTHER PARTY. WE, THEREFORE, HOLD THAT THE DECISION RELIED BY LD. COU NSEL IS OF LITTLE ASSISTANCE IN THE PRESENT CONTEXT. 21.3. THE PROCEEDINGS CANNOT BE BROUGHT TO STAND ST ILL ON ACCOUNT OF REPEATED PLEA OF ASSESSEE REGARDING CONFIDENTIAL RE CORDS NOT BEING PROVIDED TO ASSESSEE WHICH HAVE NOT BEEN DIRECTED EVEN BY HO NBLE HIGH COURT TO BE SHOWN TO ASSESSEE ON WHICH PRIVILEGE IS BEING CLAIM ED BY DEPARTMENT, PARTICULARLY WHEN SUBSTANTIAL DETAILS HAVE BEEN MA DE AVAILABLE TO ASSESSEE. 22. AS REGARDS THE ASSESSEES CONTENTION THAT NEW I SSUES WERE RAISED IN THE SHOW CAUSE NOTICE DATED 5-2-2010, LD. CIT, INTE R ALIA, POINTED OUT THAT HONBLE HIGH COURT WHILE DISPOSING OF THE WRIT PETI TION HAD COMPLETELY SET ASIDE THE ORDER PASSED BY THE THEN COMMISSIONER U/S 263 DATED 19-6-2008, THE REVIEW PROCEEDINGS U/S 263 HAD TO BE REDONE DE NOVO. LD. CIT OBSERVED THAT THE ASSESSEE WAS TOTALLY WRONG IN ALLEGING THA T THE ORDER DATED 19-6- 2008 HAD BEEN SET ASIDE BY THE HIGH COURT ONLY FOR A LIMITED PURPOSE. NOWHERE IN THE WRIT ORDER THERE WAS ANY LIMITED DIR ECTIONS, SO AS TO ASSUME THAT THE ORDER HAD ONLY BEEN PARTIALLY SET ASIDE. 22.1. ON THIS COUNT, THE FIRST ASPECT WHICH NEEDS T O BE DECIDED IS WHETHER THE PRESENT PROCEEDINGS ARE FRESH PROCEEDINGS OR T HE CONTINUATION OF EARLIER PROCEEDINGS, INITIATED VIDE ISSUE OF SHOW CAUSE NOT ICE DATED 23-7-2007. THE CONTENTION OF LD. COUNSEL FOR THE ASSESSEE IS THAT SINCE THE HONBLE HIGH 63 ITA NO. 2057/DEL/10 NIIT VS. CIT COURT VIDE ITS ORDER DATED 11-12-2009 HAD ONLY SET ASIDE THE ORDER PASSED U/S 263 AND DID NOT QUASH THE PROCEEDINGS, THEREFOR E, THE PROCEEDINGS INITIATED VIDE SHOW CAUSE NOTICE DATED 23-7-2007 ST ILL SURVIVE AND THE MATTER IS RESTORED TO THE PRESENT COMMISSIONER TO BE TAKEN UP FROM THE STAGE WHERE THE IRREGULARITY CREPT IN THE ORDER PASSED BY LD. C IT ON 19-6-2008. THE SUBMISSION IS THAT PRIMARILY ON ACCOUNT OF NOT FOLL OWING THE PRINCIPLES OF NATURAL JUSTICE IN PASSING THE ORDER, THE MATTER HA D BEEN SET ASIDE BY THE HONBLE HIGH COURT AND, THEREFORE, IN THE SET ASIDE PROCEEDINGS THE LD. CIT COULD NOT ISSUE FRESH SHOW CAUSE NOTICE DATED 5-2-2 010 U/S 263 ON SEVERAL NEW ISSUES IN ADDITION TO THOSE ALREADY INCLUDED IN THE NOTICE DATED 23-7- 2007 AND 15-10-2007 AND THE ISSUES COVERED IN THE O RIGINAL ORDER, IN THE EARLIER ROUND OF PROCEEDINGS. 22.2. IN SUM AND SUBSTANCE, THE SUBMISSION OF LD. C OUNSEL FOR THE ASSESSEE SHRI AJAY VOHRA, IS THAT INITIATION OF PROCEEDINGS HAS TO BE CONSIDERED WITH REFERENCE TO THE ORIGINAL SHOW CAUSE NOTICE ISSUED IN THE FIRST ROUND OF PROCEEDINGS. 23. ON THE CONTRARY, THE SUBMISSION OF LD. SPECIAL COUNSEL SHRI G.C. SRIVASTAVA IS THAT LD. COMMISSIONER, WHO WAS A NEW INCUMBENT, AS WAS ALSO OBSERVED BY HONBLE HIGH COURT, HAS INITIATED FRESH PROCEEDINGS AND, THEREFORE, ALL THE OBJECTIONS IN REGARD TO INITIATI ON OF PROCEEDINGS AS PER THE DICTATE OF HIGHER AUTHORITY, NO MORE SURVIVE. 24. WE HAVE HEARD AT LENGTH BOTH THE PARTIES ON THI S ISSUE AND ARE OF THE CONSIDERED OPINION THAT KEEPING IN VIEW THE OBSERVA TIONS MADE BY THE HONBLE HIGH COURT IN THE WRIT PETITION, FILED BY T HE ASSESSEE AND WRIT PETITION FILED BY THE REVENUE, IT HAS TO BE CONCLU DED THAT THE PRESENT PROCEEDINGS ARE FRESH PROCEEDINGS, INITIATED BY LD. COMMISSIONER AND CANNOT 64 ITA NO. 2057/DEL/10 NIIT VS. CIT BE HELD TO BE CONTINUATION OF EARLIER PROCEEDINGS. THE REASONS FOR THE SAME ARE AS UNDER: (I) FROM THE COMBINED READING OF BOTH THE ORDERS OF HON BLE HIGH COURT IT IS EVIDENT THAT ASSESSEE IS ENTITLED TO TA KE ALL THE PLEAS RELATING TO JURISDICTIONAL ISSUE ON THE GROUND THAT THE ORDER U/S 263 IS BEING PASSED ON THE DICTATES OF HIGHER AUTHORITI ES AND SECONDLY THE ORDER U/S 153A/ 143(3) WAS PASSED UNDER THE M ONITORING OF LD. COMMISSIONER. IF WE ACCEPT THE CONTENTION OF THE LD . COUNSEL FOR THE ASSESSEE THAT THE SHOW CAUSE NOTICE DATED 23-7- 2007 SURVIVES IN SPITE OF THE SET ASIDE ORDER OF HONBLE HIGH COURT DATED 11-12- 2009, THEN IT WOULD MEAN THAT THE INITIATION OF PRO CEEDINGS U/S 263 IS LEGAL AND ALL THE EVENTS OCCURING PRIOR TO THE ISSUANCE OF NOTICE DATED 23-7-2007 CANNOT BE EXAMINED. THIS CANNOT BE THE TRUE IMPORT OF THE DIRECTIONS OF HONBLE HIGH COURT AND IT WOULD ALSO RESULT IN AN UNINTENDED CONSEQUENCE OF THE ARGUMENT ADVANCED BY LD. COUNSEL FOR THE ASSESSEE VIZ. THAT THE IMPUGNED ORDER PASSED U/S 263 DATED 11-3-2010, STILL SUFFERS FROM THE SAME JU RISDICTIONAL DEFECT AS WAS CANVASSED BY THE ASSESSEE IN REGARD T O PROCEEDINGS INITIATED BY ISSUE OF SHOW CAUSE NOTICE DATED 23-7- 2007. (II) THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT HONBLE HIGH COURT HAS NOT QUASHED THE PROCEEDINGS BUT HAS ONLY SET ASIDE THE ORDER, HAS TO BE CONSIDERED IN THE PERSPECTIVE OF NATURE OF PROCEEDINGS U/S 263. THE JURISDICTION TO PASS ORDER U/S 263 STARTS THE MOMENT ASSESSMENT ORDER IS PASSED. (III) IN THE PROCEEDINGS U/S 263, UNLIKE THE NOTICE CONTE MPLATED U/S 147/ 148, LD. COMMISSIONER FIRST EXAMINES THE ASSESSMENT RECORDS AND 65 ITA NO. 2057/DEL/10 NIIT VS. CIT ON REACHING A CONCLUSION FROM SUCH INSPECTION THAT THE ORDER PASSED BY ASSESSING OFFICER IS ERRONEOUS TO THE EXT ENT IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE, ISSUES SHO W CAUSE NOTICE TO ASSESSEE AND, THUS, PROVIDE AN OPPORTUNITY TO ASSES SEE TO GIVE EXPLANATION ON ALL THE ISSUES RAISED IN THE SHOW CA USE NOTICE. THIS SHOW CAUSE NOTICE DOES NOT PER SE GIVE JURISDICTION TO LD. COMMISSIONER FOR PASSING ORDER U/S 263 WHICH CAN BE PASSED ONLY AFTER THE OBJECTIONS OF ASSESSEE ARE DULY CONSIDERE D. IT IS ONLY AFTER CONSIDERING THE EXPLANATION/ OBJECTION OF THE ASSES SEE IF THE LD. COMMISSIONER REACHES A CONCLUSION THAT THE ORDER PA SSED BY LD. COMMISSIONER IS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE, THEN HE PROCEEDS TO PASS ORDER U/S 263. IN THE PROCEEDINGS U/S 147, FOR PROPER ASSUMPTION OF JURISDICTION ASSE SSING OFFICER HAS TO ISSUE NOTICE U/S 148 AFTER RECORDING OF REASONS AND IF THIS NOTICE IS FOUND TO BE ISSUED WITHOUT JURISDICTION, THEN TH E NOTICE AS SUCH IS QUASHED. (IV) IN 263 PROCEEDINGS, THE SHOW CAUSE NOTICE AND THE O RDER PASSED BY THE LD. COMMISSIONER BOTH CANNOT SURVIVE ONCE THE O RDER HAS BEEN SET ASIDE. THE SHOW CAUSE NOTICE AND THE ORDER PASS ED BY THE LD. COMMISSIONER ARE PART AND PARCEL OF THE SAME ORDER AND, THEREFORE, WHEN THE ORDER PASSED BY LD. COMMISSIONER HAS BEEN SET ASIDE, THEN IT CANNOT BE SAID THAT THOUGH THE ORDER DOES N OT SURVIVE, BUT THE SHOW CAUSE NOTICE DOES SURVIVE. THIS WILL BE CO NTRARY TO THE VERY NATURE OF PROCEEDINGS UNDER SECTION 263. (V) LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT AS PER SECTION 263(2), ORDER COULD BE PASSED UP TO 31-3-2009 AND T HE HONBLE 66 ITA NO. 2057/DEL/10 NIIT VS. CIT HIGH COURT HAS LIFTED THE LIMITATION FOR PASSING TH E ORDER ONLY AND NOT FOR INITIATION OF PROCEEDING. HE SUBMITTED THAT BAR OF LIMITATION HAS NOT BEEN LIFTED FOR INITIATING PROCEEDINGS AND THE ORDER HAS BEEN SET ASIDE TO THE STAGE WHERE IRREGULARITY OCCURRED. (VI) WE FIND THAT IN THE ORDER PASSED BY THE HONBLE HIG H COURT ON 11- 12-2009, IT WAS SPECIFICALLY CLARIFIED IN PARA 24 O F ITS ORDER THAT SINCE THE WRIT PETITIONS WERE PENDING BEFORE THE HO NBLE HIGH COURT, ISSUE OF LIMITATION COULD NOT BE RAISED BY T HE ASSESSEE. THEREFORE, IT CANNOT BE INFERRED THAT THE DIRECTION S WERE ONLY IN REGARD TO PASSING OF THE ORDER U/S 263 AND NOT FOR TAKING UP FRESH REVISIONAL PROCEEDINGS. THERE IS NO SEPARATE LIMITA TION PRESCRIBED FOR INITIATION AND PASSING OF ORDER U/S 263. AS A M ATTER OF FACT, HONBLE HIGH COURT GRANTED LIBERTY TO LD. CIT TO AP PROPRIATELY DEAL WITH THE MATTER AND PASS FRESH ORDER, AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE ON VARIOUS POINTS, CANV ASSED BEFORE HIM, OR WHICH IT INTENDED TO RAISE AT THE TIME OF F RESH HEARING. THIS IMPLIED THAT LD. CIT HAD TO APPLY HIS MIND INDEPEND ENTLY AND FOR APPROPRIATELY DEALING WITH THE MATTER HAD TO RE-EXA MINE THE RECORDS BEFORE EMBARKING UPON TO TAKE REVISIONAL PROCEEDING S. 24.1 IN VIEW OF ABOVE DETAILED DISCUSSION, GROUND N OS. 3 TO 5 ARE DISMISSED. 25. IN GROUND NO. 6 THE ASSESSEE HAS PRIMARILY ASSA ILED THE ORDER PASSED U/S 263 ON THE GROUND THAT THE ISSUES WHICH HAD BEE N DISCUSSED AND SCRUTINIZED BY THE AO IN DETAIL WHILE FRAMING THE A SSESSMENT U/S 143(3)/ 153A COULD NOT BE SET ASIDE TO AO. 67 ITA NO. 2057/DEL/10 NIIT VS. CIT 26. LD. COUNSEL SUBMITTED THAT AT THE TIME OF ASSES SMENT PROCEEDINGS U/S 143(3)/ 153A, THE AO RAISED QUERIES QUA ALL THE ISS UES POINTED OUT BY THE COMMISSIONER IN THE IMPUGNED ORDER AND ACCEPTED THE SAME EITHER WHOLLY OR IN PART AFTER DUE APPLICATION OF MIND. 26.1. LD. COUNSEL HAS REFERRED TO BRIEF SYNOPSIS OF THE INQUIRIES CONDUCTED BY THE AO WHICH WE WILL CONSIDER QUA SPECIFIC GROUN DS RAISED BY THE ASSESSEE REGARDING VARIOUS ISSUES. HOWEVER, PRESENT LY ONLY THE LEGAL ASPECT IS BEING CONSIDERED. 26.2. LD. COUNSEL REFERRED TO THE IMPUGNED ORDER AN D SUBMITTED THAT REVISIONARY JURISDICTION HAS BEEN EXERCISED ON THE GROUND THAT PROPER INQUIRIES OR INQUIRIES, AS EXPECTED BY CIT OR NECE SSARY INQUIRIES ACCORDING TO THE LD. COMMISSIONER, WERE NOT CONDUCTED. HE SU BMITTED THAT LD. CIT DID NOT AGREE WITH THE MANNER OF INQUIRIES CONDUCTED BY AO PRIOR TO COMPLETION OF ASSESSMENT. 26.3. LD. COUNSEL SUBMITTED THAT IT IS WELL SETTLE D LAW THAT THE ISSUE WHETHER THE ASSESSMENT ORDER WAS PASSED AFTER MAKING PROPER INQUIRY AND DUE APPLICATION OF MIND IS TO BE SEEN FROM EXAMINATION OF THE ENTIRE ASSESSMENT RECORDS AND NOT JUST THE ASSESSMENT ORDER. HE RELIE D ON FOLLOWING JUDICIAL PRONOUNCEMENTS: - HARI IRON TRADING CO. VS. CIT 263 ITR 437; - CIT V. EICHER LTD. 294 ITR 310 (DEL.); - CIT VS. SUNBEM AUTO 332 ITR 167 (DEL.); - CIT V. ANIL K SHARMA 335 ITR 83 (DEL.); - ONGC V. DCIT 104 TTJ 900 (DEL.). 26.4. LD. COUNSEL SUBMITTED THAT LD. COMMISSIONER C ANNOT SUBSTITUTE HIS OPINION IN PLACE OF THAT OF THE AO AS TO THE MANNER AND THE FORM IN WHICH THE INQUIRIES SHOULD HAVE BEEN CONDUCTED DURING THE COURSE OF ASSESSMENT. 68 ITA NO. 2057/DEL/10 NIIT VS. CIT 26.5. LD. COUNSEL REFERRED TO THE DECISION OF JURIS DICTIONAL HIGH COURT IN THE CASE OF CIT VS. CIT VS. SUNBEAM AUTO 332 ITR 16 7 (DEL.), WHEREIN, WHILE CONSIDERING THE DISTINCTION BETWEEN LACK OF I NQUIRY AND ADEQUATE INQUIRY, THE HONBLE COURT HELD THAT WHERE THE AO HAS MADE INQUIRY PRIOR TO THE COMPLETION OF ASSESSMENT, THE SAME CANNOT BE SE T ASIDE U/S 263 ON THE GROUND OF INADEQUATE INQUIRY. 26.6. IN THIS CASE, LD. CIT EXERCISED POWERS U/S 26 3 ON THE GROUND THAT WHILE PASSING THE ASSESSMENT ORDER, THE AO DID NOT CONSID ER WHETHER THE EXPENDITURE IN QUESTION WAS REVENUE OR CAPITAL EXPE NDITURE. THE HONBLE HIGH COURT OBSERVED THAT THE ASSESSMENT ORDER DID N OT GIVE ANY REASON IN REGARD TO ALLOWING THE ENTIRE EXPENDITURE AS REVENU E EXPENDITURE BY AO. HOWEVER, IT WAS HELD THAT IT BY ITSELF WOULD NOT BE INDICATIVE OF THE FACT THAT AO HAD NOT APPLIED HIS MIND ON THE ISSUE. IT WAS H ELD THAT IT IS NOT NECESSARY THAT AO SHOULD GIVE DETAILED REASONS IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTION. ONE HAS TO SEE FROM THE RECORD AS TO WHE THER THERE WAS APPLICATION OF MIND BEFORE ALLOWING THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. IT WAS HELD TO BE, AT BEST, A CASE OF INADEQUATE INQUIRY AND NOT LACK OF INQUIRY. IT WAS HELD THAT IF THERE WAS INA DEQUATE INQUIRY, THAT WOULD NOT BY ITSELF GIVE OCCASION TO CIT TO PASS ORDER U/ S 263. 26.7. LD. COUNSEL FURTHER REFERRED TO THE DECISION OF HONBLE HIGH COURT IN THE CASE OF CIT VS. ANIL KUMAR SHARMA 335 ITR 83, W HEREIN IT WAS, INTER ALIA, HELD THAT ONCE APPLICATION OF MIND IS DISCERN ABLE FROM THE RECORD, THE PROCEEDINGS U/S 263 WOULD FALL INTO THE AMBIT OF THE CIT OPINION. THIS CASE WAS ALSO EXAMINED ON THE TOUCH STONE OF PRINCIPLE LAID DOWN IN THE CASE OF SUN BEAM AUTO (SUPRA) REGARDING LACK OF INQUIRY VIS A VIS INADEQUATE INQUIRY. HE ALSO REFERRED TO THE DECISION OF HONBL E RAJASTHAN HIGH COURT IN 69 ITA NO. 2057/DEL/10 NIIT VS. CIT THE CASE OF GANPAT BISHNOI 152 ITR 242, WHEREIN IT WAS, INTER ALIA, HELD THAT JURISDICTION U/S 263 CANNOT BE INVOKED FOR MAKING F RESH INQUIRIES OR TO GO INTO THE PROCESS OF ASSESSMENT AGAIN AND AGAIN MERE LY ON THE BASIS THAT MORE INQUIRY OUGHT TO HAVE BEEN CONDUCTED TO FIND SOMETH ING. 26.8. LD. COUNSEL PLACED STRONG RELIANCE ON THE DEC ISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF ITO D.G. HOUSING 343 ITR 329. IN THIS CASE IT WAS HELD THAT IN CASE OF INADEQUATE INQUIRY, THE CO MMISSIONER MUST EXAMINE THE RECORDS AND GIVE A FIRM FINDING ON MERITS THAT THE ORDER OF THE AO IS ERRONEOUS. IT WAS HELD THAT THE LACK OF INQUIRY BY ITSELF RENDERS THE ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF RE VENUE. HOWEVER, IN CASES WHERE THE AO CONDUCTS INQUIRY, THE CIT HAS TO EXAMI NE THE ORDER OF THE AO ON MERITS AND THEN FORM AN OPINION ON MERITS THAT THE ORDER PASSED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS O F REVENUE. 26.9. IT WAS, INTER ALIA, HELD THAT AN ORDER IS NOT ERRONEOUS, UNLESS THE CIT RECORDS REASONS WHY IT IS ERRONEOUS. HE HAS TO DEMO NSTRATE THAT INADEQUATE INQUIRY LED TO PASSING AN ERRONEOUS ORDER ON MERITS . THUS, IT WAS HELD THAT IN CASE OF INADEQUATE INQUIRY, THE COMMISSIONER MUST, AFTER RECORDING REASONS, HOLD THAT THE ORDER IS ERRONEOUS AND UNSUSTAINABLE IN LAW. 26.10. LD. COUNSEL SUBMITTED THAT LD. CIT HAS RELIE D ON FOLLOWING DECISIONS TO CONTEND THAT WHERE THE AO DOES NOT CONDUCT INQUI RY IN THE MANNER AS EXPECTED THAT WOULD PROVIDE POWER TO THE CIT TO REV IEW THE ASSESSMENT ORDER. - K.A. RAMASWAMY CHETTIAR & ANR. V. CIT 220 ITR 657(M AD.); - ADDL. CIT V. MUKUR CORPORATION 111 ITR 312 (GUJ.); - SHYAM TELELINK LTD. V. ITO 99 ITD 576 (DEL.). 70 ITA NO. 2057/DEL/10 NIIT VS. CIT 26.11. LD. COUNSEL SUBMITTED THAT IN THE CASE OF K .A. RAMASWAMY CHETTIAR & ANR. (SUPRA), NO INQUIRY WAS CONDUCTED B Y AO ON THE ISSUE OF PURCHASE OF PROPERTY BY THE ASSESSEE DURING THE YEA R, THOUGH CONTEMPORARY MATERIAL WAS AVAILABLE ON RECORD TO SUGGEST PAYMENT OF ON MONEY BY THE ASSESSEE FOR PURCHASE OF PROPERTY DURING THE YEAR; AND IN THE CASE OF MUKUR CORPORATION (SUPRA), THE ASSESSMENT ORDER WAS SET A SIDE BY THE CIT AFTER COMING TO THE CONCLUSION THAT NO INQUIRY, QUA THE I SSUE IN DISPUTE, WAS CONDUCTED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IN THE CASE OF SHYAM TELELLINK LTD. (SUPRA), THE TRIBUNAL FOUND THAT THERE WAS NO MATERIAL ON RECORD TO HOLD THAT THE ISSUE RAISED B Y THE CIT WAS EXAMINED BY BY THE AO. LD. COUNSEL SUBMITTED THAT THESE CASES F ALL IN THE CATEGORY OF LACK OF INQUIRY AND NOT INADEQUATE INQUIRY. 26.12. LD. COUNSEL SUBMITTED THAT IN THE OFFICE NO TE, AO HAS GIVEN ELABORATE REASONS ON VARIOUS ISSUES AND THEREFORE, THE SAME HAVE TO BE REFERRED TO FIND OUT WHETHER THERE WAS APPLICATION OF MIND BY AO OR NOT. 26.13. LD. COUNSEL SUBMITTED THAT HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. VS. CIT 243 ITR 83 HAS HE LD THAT WHERE THE AO HAS TAKEN A POSSIBLE VIEW, THE CIT CANNOT REVISE TH E ASSESSMENT MERELY BECAUSE THE CIT HOLDS ANOTHER VIEW. 27. LD. SPL. COUNSEL SUBMITTED THAT WHETHER A CASE FALLS UNDER LACK OF INQUIRY OR INADEQUATE INQUIRY DEPENDS UPON FACTS OF EACH CASE. 27.1. LD. SPL. COUNSEL SUBMITTED THAT THE MEANING O F INQUIRY IN THE PRESENT CONTEXT IS THAT AO SHOULD REACH THAT LEVEL WHERE A RATIONAL PERSON, UNDER SIMILAR CIRCUMSTANCES, WOULD BE SATISFIED WITH THE LEVEL OF INQUIRY. HE SUBMITTED THAT RATIONAL PERSON TEST HAS TO BE APPLI ED TO DECIDE WHETHER THE INQUIRIES CONDUCTED BY AO MET THE SAID TEST OR NOT. LD. SPL. COUNSEL 71 ITA NO. 2057/DEL/10 NIIT VS. CIT SUBMITTED THAT IF A RATIONAL PERSON IN A GIVEN CIRC UMSTANCE WOULD COME TO THAT CONCLUSION, THEN ONLY THE CASE WOULD NOT BE CO VERED BY LACK OF INQUIRY. HE, THEREFORE, SUBMITTED THAT MERELY BECAUSE SOME I NQUIRY IS CARRIED OUT BY AO, WOULD NOT IMPLY THAT THE CASE FALLS UNDER THE A MBIT OF INADEQUATE INQUIRY AND THE SAME MAY STILL FALL UNDER THE CATEG ORY OF LACK OF INQUIRY. 27.2. HE GAVE AN EXAMPLE THAT IN CASE OF CASH CRE DIT, UNLESS THE AO CARRIES ON SUCH INQUIRY SO AS TO REACH THE CONCLUSION/ SATI SFACTION ABOUT GENUINENESS OF CASH CREDIT, IT CANNOT BE SAID THAT THE LEVEL OF INQUIRY MET THE TEST OF RATIONAL PERSON INQUIRY LEVEL. LD. SPL. COUNSEL PO INTED OUT THAT MERE ENTRY IN BOOKS OF ACCOUNT WITHOUT SUPPORTING MATERIAL IS NOT ENOUGH AND CALLS FOR FURTHER INQUIRY. HE SUBMITTED THAT MERE ASSERTION A ND CLAIM BY ASSESSEE IS NOT SUFFICIENT AND SUPPORTING MATERIAL HAS TO BE TH ERE TO REACH THE SATISFACTION ABOUT THE GENUINENESS OF LOAN. LD. SPL. COUNSEL SUB MITTED THAT IF LEVEL OF INQUIRY IS SUCH BY WHICH AO COULD REACH THE REQUIRE D SATISFACTION, THEN IT MAY BE A CASE OF INADEQUATE INQUIRY, BUT NOT LACK OF INQUIRY. HE SUBMITTED THAT THERE IS NO AUTHORITY FOR THE PROPOSITION THAT LD. CIT CANNOT SUBSTITUTE HIS OPINION IN PLACE OF AO. 27.3. LD. SPL. COUNSEL PLACED RELIANCE ON THE DECI SION IN THE CASE OF THALIBAI F. JAIN & OTHER VS. ITO 101 ITR 1, WHEREI N IT HAS BEEN HELD THAT IF ORDER IS PREJUDICIAL THEN NECESSARILY ERRONEOUS BUT NOT VICE VERSA. IN THIS CASE, THE ASSESSEE, WHO HAD NOT BEEN ASSESSED PREVI OUSLY, FILED VOLUNTARY RETURN OF INCOME FOR A.Y. 1969-70 TO 1973-74, DECLA RING AN INCOME OF RS. 31,500/-, STATING THAT IT WAS PREVIOUS SAVING INCLU SIVE OF THE GIFTS GIVEN TO HER AT THE TIME OF HER MARRIAGE. SHE WAS NOT ASSESS ED TO TAX PREVIOUSLY. ALONG WITH THE RETURN OF INCOME SHE HAD FILED A LET TER TO THIS EFFECT ALSO. THIS LETTER WAS FURTHER SUPPLEMENTED BY ANOTHER LETTER, IN WHICH IT WAS POINTED OUT 72 ITA NO. 2057/DEL/10 NIIT VS. CIT THAT HER FATHER, AT THE TIME OF MARRIAGE PAID THE C ASH TO HER. SUBSEQUENTLY, THE MONEY WAS USED TO LEND PRIVATELY, FROM WHICH SHE EA RNED INTEREST. THE ENTIRE CASH OF RS. 31,500/- WAS OFFERED ACCORDINGLY FOR TA XATION. IT WAS FURTHER POINTED OUT THAT NO DOCUMENTARY EVIDENCE WAS AVAILA BLE WITH HER TO PROVE THE SAME. HONBLE HIGH COURT NOTED THAT WHILE ACCEP TING THE RETURNS, SPOT ASSESSMENTS WERE MADE BY THE ITO, SPREADING OVER TH E INCOME FOR THE ASSESSMENT YEARS 1969-70 TO 1972-73, AS DESIRED BY THE ASSESSEE. LARGE NUMBER OF SIMILAR ASSESSMENTS WERE MADE TO OTHER AS SESSES. THEREAFTER, IT WAS BROUGHT TO THE NOTICE OF THE COMMISSIONER THAT THE INCOME OF ALL THESE ASSESSES HAD BEEN INVESTED IN THE BUSINESS OF THEIR HUSBANDS. IN THE INQUIRY MADE BY LD. COMMISSIONER IT WAS DISCOVERED THAT TH E ASSESSES, DURING THE RELEVANT PERIOD OF ASSESSMENTS, HAD NO BUSINESS OF THEIR OWN, MUCH LESS ANY MONEY LENDING BUSINESS. LD. CIT INITIATED PROCEEDIN GS U/S 263 AND DIRECTED THE ITO TO RE DO THE ASSESSMENTS AFTER OBSERVING AS UNDER: ' ANY INCOME TAX OFFICER WHO DOES HIS DUTIES DILIGE NTLY WOULD HAVE SAT UP, ON READING THE ASSESSEE'S LETTER AND SEEING THE ASSESSEE'S RETURNS AND WOULD HAVE MADE ELEMENTARY ENQUIRIES TO SATISFY HIMSELF THAT THERE WAS A BUSINESS DONE BY THE ASSESSEE AND THERE WAS INCOME EARNED FROM IT AS ALLEGED. THAT HE DID NOT DO SO AN D MISDIRECTED HIMSELF IN ACCEPTING THE RETURNS UNDER SECTION 143(1) WITHOUT THE BASIC NECESSARIES PRESCR IBED THEREUNDER IS ENOUGH TO ESTABLISH PREJUDICE TO REVE NUE. THE SUBSEQUENT ENQUIRIES, AS ALREADY STATED, ONLY CONFIRMED WHAT SHOULD HAVE OCCURRED PRIMA FACIE TO ANY DILIGENT AND INDUSTRIOUS INCOME TAX OFFICER DOING H IS FUNCTIONS WITHOUT HASTE AND WITH DUE DELIBERATION. THE RESULT OF THESE ENQUIRIES HAVE NO DOUBT BEEN PUT IN MY NOTICE TO THE ASSESSEE, BUT THEY DO NOT FORM THE SO LE BASIS FOR PREJUDICE. PREJUDICE CAN BE EASILY DEDUCED ON T HE FACTS OF HER RECORD FROM THE VERY RETURNS FILED BY THE ASSESSEE AND THE IMPOSSIBLE EXPLANATIONS GIVEN IN H ER 73 ITA NO. 2057/DEL/10 NIIT VS. CIT LETTER AND THE FACT THAT THE ASSESSMENTS WERE COMPL ETED IN GREAT HASTE WITHOUT ANY ENQUIRY BEING MADE IN A NEW CASE AND ON THE VERY NEXT DAY THE RETURNS OF INCOME WERE RECEIVED FOR THE ASSESSMENT YEARS 1969-70 TO 1972-7 3.' 27.4. IN THE BACKDROP OF THESE FACTS, THE HONBLE HIGH COURT UPHELD THE ACTION TAKEN BY THE LD. COMMISSIONER, INTER ALI A, OBSERVING AS UNDER: SECTION 143(1)(A) AS SUBSTITUTED BY ACT 42 OF 1970 WITH EFFECT FROM APRIL 1, 1971, PROVIDES WHERE A RETURN HAS BEEN MADE UNDER SECTION 139, THE INCOME TAX OFFICER MAY, WITHOUT REQUIRING THE PRESENCE OF THE ASSESSEE OR THE PRODUCTION BY HIM OF ANY EVIDENCE IN SUPPORT OF THE RETURN, MAKE AN ASSESSMENT OF THE TOTAL INCOME OR L OSS OF THE ASSESSEE AFTER MAKING SUCH ADJUSTMENTS TO THE I NCOME OR LOSS DECLARED IN THE RETURN AS ARE REQUIRED TO B E MADE UNDER CLAUSE (B) ............... AND DETERMINE THE SUM PAYABLE BY THE ASSESSEE OR REFUNDABLE TO HIM ON THE BASIS OF SUCH ASSESSMENT. IT IS TRUE THAT THE INCOME TAX OFFICER NEED NOT HAVE BEEN SATISFIED THAT THE VOLUNTARY RET URN SUBMITTED BY THE ASSESSEE WAS CORRECT AND COMPLETE. HE COULD ACCEPT THE RETURN OF INCOME AS SUBMITTED BY T HE ASSESSEE. BUT THE INCOME MUST BE THE INCOME EARNED BY THE ASSESSEE IN THE RELEVANT YEAR. THE INCOME TAX O FFICER HAS NO POWER TO ASSESS THE INCOME OF ONE PERSON IN THE HANDS OF ANOTHER. TO THAT EXTENT AT LEAST, HE MUST APPLY HIS MIND AND CANNOT BLINDLY MAKE THE ASSESSMENT WHI LE ACCEPTING THE VOLUNTARY RETURN. SINCE NO SUCH INQUI RY WAS MADE BY THE INCOME TAX OFFICER IN ALL THESE CASES, THE ASSESSMENTS MUST BE HELD TO BE PREJUDICIAL TO THE I NTERESTS OF THE REVENUE, AND WHAT IS PREJUDICIAL TO THE INTE RESTS OF THE REVENUE MUST BE HELD TO BE ERRONEOUS THOUGH THE CONVERSE MAY NOT ALWAYS BE TRUE. THE COMMISSIONER, IN MY VIEW, WAS, THEREFORE, RIGHT IN REVISING THE ASSE SSMENTS UNDER SECTION 263 OF THE ACT. THE PETITIONERS HAVE NOT BEEN PREJUDICED IN ANY WAY BY NOT DISCLOSING TO THEM THE NATURE OF THE MATERIALS COLLECTED BY THE COMMISSIONER BEHIND THEIR BACK. TH E COMMISSIONER HAS DIRECTED THE INCOME TAX OFFICER TO 74 ITA NO. 2057/DEL/10 NIIT VS. CIT MAKE THE ASSESSMENTS AFRESH ACCORDING TO LAW AFTER MAKING PROPER ENQUIRIES. THE PETITIONERS WILL HAVE FULL OPPORTUNITY OF SHOWING TO THE INCOME TAX OFFICER TH AT THE ASSESSMENTS EARLIER MADE WERE CORRECT AND THE ENQUI RIES SUBSEQUENTLY MADE WERE INCORRECT. 27.5. WITH REFERENCE TO THIS DECISION, LD. SPECIAL COUNSEL SUBMITTED THAT AO WAS REQUIRED TO MAKE THE NECESSARY INQUIRY TO FIND OUT THAT INCOME WAS EARNED IN THAT YEAR AND BELONGED TO ASSESSEE. T HIS WAS ESSENTIAL INQUIRY, WHICH WAS NOT CONDUCTED BY AO. THUS, AO DID NOT REA CH THE NECESSARY LEVEL OF INQUIRY TO ACQUIRE THE REQUISITE SATISFACTION. A CCORDINGLY, THE REVISIONAL PROCEEDINGS WERE UPHELD. 27.6. LD. SPECIAL COUNSEL FURTHER REFERRED TO THE D ECISION IN THE CASE OF RAMPYARI DEVI SARAOGI V. CIT (1968) 67 ITR 84 (SC). IN THIS CASE THE LD. COMMISSIONER (WEST BENGAL ) HAD SENT A NOTICE U/S 1 33B TO THE ASSESSEE, INTER ALIA, ON THE GROUND THAT INQUIRIES MADE REVEA LED THAT ASSESSEE HAD NEITHER RESIDED NOR CARRIED ON ANY BUSINESS FROM TH E ADDRESS DECLARED IN THE RETURNS. ALSO THE INCOME-TAX OFFICER WAS NOT JUSTIF IED IN ACCEPTING THE INITIAL CAPITAL, THE GIFT RECEIVED AND SALE OF JEWELLERY, T HE INCOME FROM BUSINESS ETC. WITHOUT ANY INQUIRY OR EVIDENCE WHAT-SO-EVER. THE S HOW CAUSE NOTICE WAS CHALLENGED BY WAY OF WRIT PETITION, INTER ALIA, ON THE GROUND THAT THE ORDER PASSED BY THE LD. COMMISSIONER WAS BASED ON NOTICE WHICH WAS ABSOLUTELY AGUE AND DID NOT CONTAIN ANY INDICATION IN WHAT RES PECT THE ASSESSMENT ORDERS WERE ERRONEOUS OR PREJUDICIAL TO THE INTERES TS OF REVENUE. IT WAS FURTHER POINTED OUT THAT ASSESSEE WAS NOT AWARE AS TO WHAT INQUIRIES HAD BEEN MADE BY THE COMMISSIONER AND UNTIL THE COPIES OF SU CH INQUIRY WERE MADE AVAILABLE, THE ASSESSEE WAS NOT IN A POSITION TO PR ODUCE ANY EVIDENCE BEFORE THE COMMISSIONER. THE HONBLE HIGH COURT DID NOT AC CEPT THE ASSESSEES 75 ITA NO. 2057/DEL/10 NIIT VS. CIT CONTENTION. THE ASSESSEE PREFERRED APPEAL BEFORE TH E HONBLE SUPREME COURT, THE HONBLE SUPREME COURT UPHELD THE DECISIO N OF HONBLE HIGH COURT, INTER ALIA, OBSERVING AS UNDER: IN OUR VIEW, THE HIGH COURT WAS RIGHT IN OVERRULIN G THE CONTENTION OF THE ASSESSEE. THE ORDER OF THE COMMI SSIONER IS A DETAILED ORDER. THERE IS NO DOUBT THAT HE DOES MEN TION SOME FACTS WHICH WERE NOT INDICATED OR COMMUNICATED TO T HE ASSESSEE AND WHICH THE ASSESSEE HAD HAD NO OPPORTUNITY OF ME ETING. FOR INSTANCE, IN PARAGRAPH 9 IT IS STATED : ' IT HAS B EEN ASCERTAINED THAT THE INCOME TAX OFFICER, D WARD, HOWRAH, HAD NO JURISDICTION OVER THE ASSESSEE AND HENCE ALL THE AS SESSMENTS MADE BY HIM ARE AB INITIO NULL AND VOID. IT HAS AL SO BEEN LEARNT FROM LOCAL ENQUIRIES THAT THE ASSESSEE NEVER RESIDE D NOR CARRIED ON ANY BUSINESS FROM 7, HARAGENJ ROAD, SALKIA, HOWR AH, AND THAT THE ASSESSEE'S FATHER IN LAW, SHRI SAGARMALL S ARAOGI, AND HIS SONS HAVE BEEN DOING BUSINESS OF FOODGRAINS, BE SIDES OWNING A RICE FACTORY AND FLOUR GRINDING MACHINE FR OM 90, FIDDER ROAD, BELGHARIA, 24 PARGANAS. ' HE FURTHER O BSERVED : ' MOREOVER, THE NAME OF THE ASSESSEE IS RAMPIYARI D EVI SARAOGI, AND AS THE INCOME TAX OFFICER, D WARD, HOW RAH, WHO HAS MADE THE ASSESSMENTS, HAD ONLY JURISDICTION OVE R CASES OF NEW ASSESSEES, WHOSE NAMES BEGAN WITH THE ALPHABET ICAL LETTERS FROM ' S ' TO ' Z ', WITH A VIEW TO CAMOUFL AGE THE NAME AND MAKE IT APPEAR TO FALL WITHIN THE JURISDICTION OF THE INCOME TAX OFFICER, THE NAME HAS BEEN GIVEN IN THE REVERSE ORDER BY PUTTING THE SURNAME FIRST AND HER OWN NAME AFTER WA RDS, AS WILL BE APPARENT FROM THE RETURNS FILED. IN THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 1961-62, THE ASSESSEE HAS GIVEN HER RESIDENTIAL ADDRESS AS 90, FEEDER ROAD, BELGHARIA, CALCUTTA, WHILE IN THAT FOR 1962-63, THE OFFICE ADDRESS HAS B EEN GIVEN AS 90, FEEDER ROAD, BELGHARIA, CALCUTTA. ' HE THEN CON CLUDED : ' IT IS APPARENT THAT WITH A VIEW TO FALL WITHIN THE JURISDICTION OF THIS PARTICULAR INCOME TAX OFFICER, I.E., INCOME TA X OFFICER, D WARD, HOWRAH, A FICTITIOUS ADDRESS WAS GIVEN AND TH E ORDER OF THE NAMES REVERSED. HENCE, ALL THE ASSESSMENTS MAD E ARE WITHOUT JURISDICTION AB INITIO NULL AND VOID. ' WE AGREE WITH THE HIGH COURT THAT ALL THIS MATERIAL WAS SUPPORTING MA TERIAL AND 76 ITA NO. 2057/DEL/10 NIIT VS. CIT DID NOT CONSTITUTE THE BASIC GROUNDS ON WHICH THE O RDERS UNDER SECTION 33B WERE PASSED BY THE COMMISSIONER. THERE WAS AMPLE MATERIAL TO SHOW THAT THE INCOME TAX OFFICER MADE THE ASSESSMENTS IN UNDUE HURRY. THE ASSESSEE WAS A NEW ASSESSEE AND FILED VOLUNTARY RETURNS IN RESPECT OF A NUMBER OF YEARS, I.E., FROM ASSESSMENT YEARS 1952-53 TO 1960-61. THE RETU RN FOR THE ASSESSMENT YEAR 1953-54 IS UNDATED. THE RETURNS FO R THE ASSESSMENT YEARS 1952-53 AND 1954-55 TO 1957-58 ARE DATED MARCH 21, 1961, AND THOSE FOR THE ASSESSMENT YEARS 1958-59 TO 1960-61 ARE DATED APRIL 26, 1961. ON MARCH 21, 196 1, THE ASSESSEE MADE A DECLARATION GIVING THE FACTS REGARD ING INITIAL CAPITAL, THE ORNAMENTS AND PRESENTS RECEIVED AT TH E TIME OF MARRIAGE, OTHER GIFTS RECEIVED FROM HER FATHER IN L AW, ETC., WHICH SHOULD HAVE PUT ANY INCOME TAX OFFICER ON HIS GUARD. BUT THE INCOME TAX OFFICER WITHOUT MAKING ANY ENQUI RIES TO SATISFY HIMSELF PASSED THE ASSESSMENT ORDER ON MARC H 30, 1961, FOR THE ASSESSMENT YEARS 1952-53 TO 1957-58, AND ON APRIL 26, 1961, FOR THE ASSESSMENT YEARS 1958-59 TO 1960-61. NO BANK ACCOUNT OR ANY PROPER BOOKS OF ACCOUNT WERE MAINTAI NED BY THE ASSESSEE OR PRODUCED BEFORE THE INCOME TAX OFFICER. A SHORT STEREO TYPED ASSESSMENT ORDER WAS MADE FOR EACH ASS ESSMENT YEAR. AS A SAMPLE, THE COMMISSIONER HAS REPRODUCED THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 1952-53 IN HIS ORDER. PROFIT FROM SPECULATION WAS SHOWN AS RS. 3,085 AND INTEREST RS. 600, AND RS. 500 WAS ADDED FOR WANT OF BOOKS OF ACC OUNT AND EVIDENCE. NO EVIDENCE WHATSOEVER WAS PRODUCED IN R ESPECT OF THE MONEY LENDING BUSINESS DONE AND INTEREST INCOME SHOWN TO HAVE BEEN RECEIVED BY THE ASSESSEE. NO NAMES WERE GIVEN AS TO THE PARTIES TO WHOM THE LOANS WERE ADVANCED, WITH A MOUNTS AND RATE OF INTEREST AND AS TO WHEN THE INTEREST INCOME WAS RECEIVED. 27.7. WITH REFERENCE TO ABOVE DECISION, LD. SPECIAL COUNSEL POINTED OUT THAT HONBLE SUPREME COURT UPHELD THE REVISIONAL PROCEED INGS BECAUSE THE AO DID NOT CARRY OUT THAT LEVEL OF INQUIRY FROM WHICH HE COULD REACH A STAGE WHERE HE WAS IN A POSITION TO TAKE PROPER DECISION. HE SUBMITTED THAT INQUIRY LEVEL HAD TO BE WEIGHED BY AO. 77 ITA NO. 2057/DEL/10 NIIT VS. CIT 27.8. LD. SPL. COUNSEL LD. FURTHER RELIED ON THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF SMT.TARA DEVI AGARWAL VS. CIT 88 ITR 323, WHEREIN IT WAS, INTER ALIA, HELD THAT WHERE AN I NCOME HAD NOT BEEN EARNED AND IS NOT ASSESSABLE, MERELY BECAUSE THE ASSESSEE WANTS IT TO BE ASSESSED IN HIS OR IN HER HANDS IN ORDER TO ASSIST SOMEONE ELSE , WHO WOULD HAVE BEEN ASSESSED TO A LARGER AMOUNT, AN ASSESSMENT SO MADE WILL BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND THE CIT HAD JURISDICTION U/S 33B OF THE I.T. ACT, 1922 (CORRESPONDING TO SEC. 263 OF THE I.T. ACT), TO CANCEL THE ASSESSMENT AND PROCEEDINGS THAT MAY BE INITIATE D UNDER THE PROVISIONS OF THE ACT AGAINST SOME OTHER ASSESSEE, WHO, ACCORDING TO THE INCOME-TAX AUTHORITIES, WOULD BE LIABLE FOR THE INCOME THEREON . HONBLE SUPREME COURT ALSO REFERRED TO THE DECISION IN THE CASE OF RAMPYA RI DEVI SARAOGI (SUPRA) IN THIS REGARD. 27.9. LD. SPECIAL COUNSEL FURTHER RELIED ON THE DEC ISION OF HONBLE DELHI HIGH COURT IN THE CASE OF GEE VEE ENTERPRISES VS. A CIT 99 ITR 375, WHEREIN, FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SMT. TARA DEVI AGARWAL (SUPRA), IT WAS HELD THAT IT IS NOT NECESSARY FOR THE COMMISSIONER TO MAKE FURTHER INQUIRY BEFORE CANCELL ING THE ASSESSMENT ORDER OF THE ITO. IT WAS HELD THAT THE COMMISSIONER CAN REGARD THE ORDER AS ERRONEOUS ON THE GROUND THAT IN THE CIRCUMSTANCES O F THE CASE THE ITO SHOULD HAVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE ST ATEMENTS MADE BY THE ASSESSEE IN HIS RETURN. THE HONBLE DELHI HIGH COUR T FURTHER OBSERVED AS UNDER: THE REASON IS OBVIOUS. THE POSITION AND FUNCTION O F THE INCOME TAX OFFICER IS VERY DIFFERENT FROM THAT OF A CIVIL COURT. THE STATEMENTS MADE IN A PLEADING PROVED BY THE MIN IMUM AMOUNT OF EVIDENCE MAY BE ACCEPTED BY A CIVIL COURT IN THE 78 ITA NO. 2057/DEL/10 NIIT VS. CIT ABSENCE OF ANY REBUTTAL. THE CIVIL COURT IS NEUTRAL . IT SIMPLY GIVES DECISION ON THE BASIS OF THE PLEADING AND EVI DENCE WHICH COMES BEFORE IT. THE INCOME TAX OFFICER IS NOT ONLY AN ADJUDICATOR BUT ALSO AN INVESTIGATOR. HE CANNOT REM AIN PASSIVE IN THE FACE OF A RETURN WHICH IS APPARENTLY IN ORDE R BUT CALLS FOR FURTHER INQUIRY. IT IS HIS DUTY TO ASCERTAIN THE TR UTH OF THE FACTS STATED IN THE RETURN WHEN THE CIRCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOKE AN INQUIRY. THE MEANING TO BE GIVEN T O THE WORD 'ERRONEOUS' IN SECTION 263 EMERGES OUT OF THIS CONT EXT. IT IS BECAUSE IT IS INCUMBENT ON THE INCOME TAX OFFICER T O FURTHER INVESTIGATE THE FACTS STATED IN THE RETURN WHEN CIR CUMSTANCES WOULD MAKE SUCH AN INQUIRY PRUDENT THAT THE WORD 'E RRONEOUS' IN SECTION 263 INCLUDES THE FAILURE TO MAKE SUCH AN INQUIRY. THE ORDER BECOMES ERRONEOUS BECAUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT BECAUSE THERE IS ANYTHING WRONG WITH T HE ORDER IF ALL THE FACTS STATED THEREIN ARE ASSUMED TO BE CORR ECT. 27.10. WITH REFERENCE TO ABOVE CASE LAWS, LD. SPL. COUNSEL HAS SUMMARIZED HIS ARGUMENTS AS UNDER: IN THE PRESENT CASE BEFORE YOUR HONOURS, IT IS RES PECTFULLY SUBMITTED THAT THE RATIO LAID DOWN BY THE APEX COUR T AND BY THE JURISDICTIONAL HIGH COURT IS SQUARELY APPLICABLE FO R THE REASON THAT: A) THE AO HAD PASSED ONE PAGE STEREO TYPE ORDER (FO R AY 99-00) WITHOUT LOOKING INTO ANY ASPECT OF THE MATTE R. WE WILL POINT OUT THE NATURE OF THE SO CALLED ENQUIRY ALLEG EDLY CONDUCTED BY THE AO, WHILE DEALING WITH SPECIFIC GROUNDS. SUF FICE IT TO SAY AT THIS STAGE IN RELATION TO THIS GROUND OF APP EAL THAT IN THE GIVEN FACTS OF THIS CASE, THE AO COMPLETED THE ASSE SSMENT IN UNDUE HASTE, WITHOUT APPLYING HIS MIND AND WITHOUT CONDUCTING ANY WORTHWHILE ENQUIRY INTO VARIOUS ISSUES INVOLVIN G HIGH STAKES FOR THE REVENUE. NO MATERIAL OF ANY KIND WAS BROUGHT ON RECORD TO REACH ANY KIND OF SATISFACTION FOR THE AC CEPTANCE OF THE CLAIMS PUT FORTH BEFORE HIM. THIS IS A CASE OF COMP LETE LACK OF ENQUIRY AND THE ASSESSEE MAY NOT BE ALLOWED TO TAKE BENEFIT OF CERTAIN OBSERVATIONS OF HON'BLE COURTS DRAWING DIST INCTION 79 ITA NO. 2057/DEL/10 NIIT VS. CIT BETWEEN 'LACK OF ENQUIRY' AND 'INADEQUATE ENQUIRY' AS ARISING IN THE FACTS OF THOSE CASES. SUCH A DISTINCTION CAN AR ISE ONLY WHEN THE ENQUIRIES HAVE BEEN CONDUCTED TO REACH A RATION AL SATISFACTION AND NOT A MERE PRETENCE OF THE SO CALL ED ENQUIRY. B) THE CIT RAISES AS MANY AS THIRTEEN ITEMS WHICH A RE IN DISPUTE AND AS PER THE ASSESSEE, NO ENQUIRY WAS REQ UIRED OR FURTHER DETAILS WERE REQUIRED TO EXAMINE SUCH ISSUE S IRI DETAIL. THE AO ACCEPTED THE CLAIMS OF THE ASSESSEE ONLY AFT ER A QUESTIONNAIRE AND TAKING THE REPLIES ON THEIR FACE VALUE WITHOUT BRINGING ANY MATERIAL ON RECORD TO JUSTIFY SUCH CLA IMS. THIS WAS NOT AN ENQUIRY OF ANY KIND AND THE ASSESSMENT WAS M ADE WITH COMPLETE NON APPLICATION OF MIND. IN THE CASE OF FI ROJ NADIADWALA VS ACIT (35 TAXMANN.COM 89),THE HON'BLE MUMBAI IT AT HELD AS UNDER: 'IN VIEW OF THE FOREGOING DISCUSSION WE HOLD THAT THE ORDER PASSED BY AA WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AS HE ACCEPT ED THE EXPLANATION OF ASSESSEE THAT THE LOANS WERE OF GENERAL PURPOSE LOANS WITHOUT ANY EXAMINATION AND APPLICATION OF MIND. THE INTEREST ON BORROWINGS WHICH HAD BEEN SPECIFICALLY TAKEN FOR THE PRODUCTION OF TWO FILMS HAS TO BE CONSIDERED AS PART OF COST OF PRODUCTION IN VIEW OF DEFINITION OF COST OF PRODUCTION GIVEN IN THE EXPLANATION TO RULE 9A. THEREFORE ALLOWING THE INTEREST AS DEDUCTION EVEN THOUGH THE FILMS WERE NOT RELEASED DURING THE YEAR WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. WE THEREFORE. HOLD THAT THE CIT HAD CORRECTLY EXERCISED JURISDICTION U/S 263 OF IT ACT. AND THE ORDER OF CIT IS THEREFORE UPHELD. ' THE RATIO OF THE ABOVE JUDGMENT IS ALSO SQUARELY A PPLICABLE TO THE PRESENT CASE. SINCE IN THE PRESENT CASE ALSO, T HE A.O. ACCEPTED THE REPLIES OF ASSESSEE ON THEIR FACE VALU E WITHOUT CONDUCTING ANY ENQUIRY HAVING REGARD TO THE CIRCUMS TANCES OF THE CASE. 80 ITA NO. 2057/DEL/10 NIIT VS. CIT 27.11. LD. SPECIAL COUNSEL FURTHER SUBMITTED THAT THE CASE LAWS RELIED BY THE LD. COUNSEL FOR THE ASSESSEE ARE DISTINGUISH ABLE ON THE FACTS AND CIRCUMSTANCES OF THE CASE. IN THIS REGARD, THE LD. CIT(DR) HAS FILED WRITTEN SUBMISSIONS, WHICH ARE REPRODUCED HEREUNDER: 8. THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANC E ON VARIOUS CASE LAWS. IN THIS REGARD, IT IS RESPECTFULLY SUBMITTED THAT THE CASE LAWS CITED BY THE LD. COUNSEL ARE DISTINGUISHABLE ON THE FACTS AND CIRCUMSTANCES OF THE CASE. WE WISH TO DEAL WITH THE CASE LAWS CITED BY THE LD. COUNSEL AS UNDER: MALABAR INDUSTRIAL CO. LTD. VS CIT(243 ITR 83-SC-@ VOL IV- 1216-1219 IN THIS CASE, THE HON ' BLE SUPREME COURT OBSERVED ON PAGES 128-1219 OF PB THAT THERE WAS NON-APPLICATION OF MIND BY THE AO. AND ENTRY IN ACCOUNTS WAS FILED BEFORE THE AO. WITHOUT ANY SUPPORTING MATERIAL AND THUS THERE WAS LACK OF ENQU IRY. THIS CASE REALLY SUPPORTS THE CASE OF THE REVENUE. GANPACT RAM VISHNOI (152 TAXMAN 242 @ VOL IV-1248-1 250) THE ATTENTION IS DRAWN TO THE OBSERVATIONS OF HON'B LE HIGH COURT ON PAGE 1249 OF PB WHERE A FINDING IS RECORDED THAT DETAILED ENQUIRIES WERE COMPLETED IN THIS CASE . TH E CAS E IS , THEREFORE , DISTINGUISHABLE. D.G. HOUSING PROJECTS LTD. (343 ITR 329-DEL @ VOL-I V-1262- 1280) IN THIS CASE, THE HON'BLE HIGH COURT OF DELHI OBSER VED THAT IN THE CASE OF INADEQUATE ENQUIRY , CIT MUST RECORD A FINDING ON MERITS THAT THE CONCLUSIONS REACHED BY THE AO . ARE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. HOWEVER , IN THE CASES OF LACK OF ENQUIRY , IT WOULD BE OPEN TO THE CIT TO REMAND THE MATTER BACK TO THE AO. FOR FURTHER ENQUIRIES. I T IS SUBMITTED THAT IN THE CASE BEFORE YOUR HONOURS , THERE IS LACK OF ENQUIRY , NAY, ONLY A PRETENCE OF ENQUIRY. THE CASE IS, THERE FORE, CLEARLY DISTINGUISHABLE . 81 ITA NO. 2057/DEL/10 NIIT VS. CIT HARI IRON TRADING CO. (263 ITR 437-P&H-@ VOL IV OF ASSESSEE'S PAPER BOOK ON PAGE NO. 1204-1209 : IN THIS CASE, THE ASSESSEE SURRENDERED RS 10 LAKHS FOR STOCK . THE CASE OF THE CIT IN REVISIONARY PROCEEDINGS U L S 263 WAS THAT NO PROPER ENQUIRY HAD BEEN MADE B Y THE ASSESSING OFFICER ABOUT THE SURRENDERED AMOUNT . THE HON'BLE HIGH COURT HELD THAT THE FACT THAT THE ASSESSEE HAD NOT INCLUDED THE SURREND ERED AMOUNT HAD BEEN NOTICED B Y THE ASSESSING OFFICER AND WAS RAISED BY HIM IN THE VARIOUS NOTICES ISSUED TO THE ASSESSEE. THE ASSESSEE HAD EXPLAINED AND PRODUCED NECESSARY EVIDENCE THAT THERE WAS NO DISCREPANCY EITHER IN CASH OR IN THE STOCK . (PAGE NO. 1205 OF PB FILED BY THE ASSESSEE.). IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT THE FACT S OF THE ABOVE CASE ARE DISTINGUISHABLE FROM THE PRESENT CASE BEFO RE YOUR HONOURS. IN THE CITED CASE, THERE WAS PROPER APPLIC ATION OF MIND. THE ENQUIRIES WERE CONDUCTED BY THE ASSESSING OFFICER . THE NECESSARY EVIDENCE WAS PRODUCED AS CLEARLY RECO RDED BY THE COURT. HOWEVER , IN THE PRESENT CASE , TH E R E WA S NO ENQUIRY CONDUCTED BY THE ASSESSING OFFICER . CIT VS EICHER LTD (294 ITR 310-DEL-@ VOL VI: PAGE N O. 112- 115 OF ASSESSEE ' S PAPE R BOOK THE L D . COUNSEL RELIED UPON THE ABOVE CASE . IN THIS REGARD , IT IS SUBMITTED THAT THE AB OVE CASE WAS WITH REFERENCE TO REOPENING OF ASSESSMENT ULS 148 OF THE ACT . FURTHER , W ITHOUT PREJUDICE , EVEN ON MERIT OF THE CASE , THE ASSESSING OFFICER SOUGHT TO TAX THE WAI V ER OF INTEREST IN REASSESSMENT PROCEEDINGS U / S 148 . IT WAS HELD BY THE COURT THAT THE ASSESSEE HAD PLACED ALL THE MATERIAL BEFORE THE ASSESSING OFFICER AND WHERE THE RE WAS A DOUBT, EVEN THAT WAS CLARIFIED BY THE ASSESSEE IN I TS LETTER. (PAGE NO. 112 OF PB: VOL VI) THE FINDING OF THE ABOVE CASE CAN NOT BE APPLIED IN THE PRESENT CASE FOR THE REA S ON THAT THE FINDING GIVEN WAS BASED ON DIFFERENT FACTS AND CIRCUMSTANCES . IT WAS A CASE OF SECTION 148 OF THE ACT 82 ITA NO. 2057/DEL/10 NIIT VS. CIT BUT IN THE PRESENT CASE PROCEEDINGS U / S 263 OF THE ACT WERE INITIATED . S E C T ION 263 OF THE ACT NOWHERE PROVIDES OR HAS ANY RELATION WITH DISCLOSURE OF FACTS AS PRO V ID E D IN THE PRO V ISO TO SECTION 148 OF THE ACT . THE REQUIREMENT OF SECTION 148 IS THAT MAT E RI A L FACTS ARE DISCLOSED BUT ULS 263, THE POINT OF ENQUIRY IS THE ERROR IN THE ORDER. B ES ID ES , THE COURT CLEARLY RECORDS A FINDING THAT THE ASSESSEE HAD PLA CED ALL THE MATERIAL BEFORE THE A.O. CIT VS SUNBEAM AUTO (332 ITR 167-DELHI HIGH COURT @ VOL IV: PAGE NO. 1228-1237 OF ASSESSEE'S PAPER BOOK IN THIS CASE THE ASSESSMENT WAS MADE IN ACCORDANCE WITH LAW . THE ASSESSEE FOLLO WE D TH E SAME ACCOUNTING PRACTICE WHICH WAS FOLLOWED IN EARLIER YEARS. FURTHER , THE VIEW TAKEN BY THE ASSESSING OFFICER WAS ONE OF THE POSSIBLE VIEWS . IN VIEW OF THESE FACT S, TH E HON'BLE DELHI HIGH COURT HELD THAT THE VIEW TAKEN BY THE ASSESSING OFFICER W A S ON E OF THE POSSIBLE VIEWS AND THE ASSESSMENT ORDER PASSED BY HIM COULD NOT B E H E LD T O PREJUDICIAL TO THE INTEREST OF REVENUE . IN THE PRESENT CASE BEFORE YOUR HONOURS , THE ASSESSING OFFICER HAD NOT APPLIED HI S MIND AT ALL . HE HAD NOT CONDUCTED ANY ENQUIRY OR FURTHER ENQUIRY AS NEC E SSARY IN TH E G I VE N CIRCUMSTANCES . CIT VS ANIL K SHARMA (335 ITR 83-DELHI HIGH COURT @ VOL IV: PAGE NO. 1238-1240 OF ASSESSEE'S PAPER BOOK IN THIS CASE IT WAS FOUND BY THE TRIBUNAL THAT COMP LETE DETAIL WERE FILED BEFORE THE ASSESSING OFFICER AND THAT HE APPLIED HIS MIND TO THE RELEVANT MATERIAL AND FACTS, ALTHOUGH S UCH APPLICATION OF MIND WAS NOT DISCERNIBLE FROM THE AS SESSMENT ORDER. THE FINDING OF THE ABOVE CASE IS ALSO NOT APPLICABL E TO THE PRESENT CASE. THIS CASE ONLY UPHOLDS THE PRINCIPLE THAT REVISIONARY PROCEEDING U/S 263 CAN BE INITIATED ONL Y IN THE CASE OF 'LACK OF ENQUIRY' AND NOT IN THE CASE OF 'I NADEQUATE 83 ITA NO. 2057/DEL/10 NIIT VS. CIT ENQUIRY'. THE REVENUE IS NOT DISPUTING THE SETTLED LEGAL POSITION. THERE IS NO QUARREL ON SUCH A PROPOSITION . THE ISSUE IS WHEN WOULD IT BE A CASE OF INADEQUATE ENQUIRY AND W HEN OF NO ENQUIRY. ONGC V DCIT (104 TTJ 900-DEL @ VOL IV: 1222-1227 OF ASSESSEE'S PAPER BOOK IN THIS CASE, THE VIEW TAKEN BY AO WAS ONE OF THE P LAUSIBLE VIEWS. THE FINDING OF THIS CASE IS NOT APPLICABLE T O THE PRESENT CASE. IN THE PRESENT CASE, THERE IS NO QUESTION OF ANY PLAUSIBLE VIEW SINCE HE HAS ACCEPTED THE CLAIMS WITHOUT APPLI CATION OF MIND AND THE VIEW TAKEN BY THE AO IS NOT BACKED BY ENQUIRY AND MATERIAL AND, THEREFORE, NOT LEGALLY SUSTAINABL E. 9. THE LD. COUNSEL HAS REFERRED TO A HOST OF OTHER DECISIONS WHICH ARE ALSO DISTINGUISHABLE FOR THE REASONS STAT ED ABOVE. IN NONE OF THE CITED CASES, THE CLAIM OF THE ASSESSEE WAS ACCEPTED WITHOUT ENQUIRING INTO AND PLACING ON RECORD THE PR IMARY AND BASIC FACTS AS IN THE PRESENT CASE. THE CASE BEFORE YOUR HONOURS IS ONE WHERE THE A.O. HAS NOT ONLY FAILED T O CONDUCT THE MINIMUM LEVEL OF ENQUIRIES, BUT THE SO CALLED E NQUIRY IS FARCE AND A ONLY A PRETENCE OF ENQUIRY. IT IS NOT O PEN TO SUGGEST, IN THE WAKE OF GLARING FACTS AS YOUR HONOURS WILL O BSERVE WHILE EXAMINING THE MANNER IN WHICH VARIOUS VITAL ISSUES HAVE BEEN HANDLED BY THE A.O. (GROUNDS NO. 11 ONWARDS), THAT IT IS A CASE OF ADEQUATE OR INADEQUATE ENQUIRY AND HENCE THE JUR ISDICTION OF CIT IS OUSTED. THE JUDICIAL PRECEDENTS HAVE TO BE S EEN IN THE BACKDROP OF FACTUAL MATRIX IN WHICH THESE ARE RENDE RED. THESE CANNOT HAVE UNIVERSAL APPLICATION. 28. WE HAVE CONSIDERED THE DETAILED SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE KEEPING IN VIEW THE VARIOUS AUTHORITATIVE PRONOUNCEMENTS IN THIS REGARD. THERE CANNOT BE ANY QUARREL WITH THE LEGAL PROPOSITIONS, AS ADVANCED BY BOTH THE PARTIES. IT H AS CONSISTENTLY BEEN HELD THAT IF THE AOS CONCLUSION IS ARRIVED AT AFTER DUE APPLICATION OF MIND ON A PARTICULAR ISSUE, THEN THE ORDER CANNOT BE SAID TO BE ERRONEOUS. DUE 84 ITA NO. 2057/DEL/10 NIIT VS. CIT APPLICATION OF MIND IMPLIES THAT IF THE ASSESSEE H AS MERELY RESPONDED TO THE AOS QUERY AND THE AO, WITHOUT PROPER VERIFICATION OF REPLIES, ACCEPTS THE SAME, THEN, IT CANNOT BE SAID TO BE A CASE OF DUE APPLICATION OF MIND. 28.1. LD. SPECIAL COUNSEL HAS RIGHTLY POINTED OUT T HAT THE EXPRESSION, INQUIRY, LACK OF INQUIRY AND INADEQUATE INQUIR Y, HAVE NOT BEEN DEFINED AND, THEREFORE, WHEN THE ACTION OF THE AO WOULD BE SUGGESTIVE OF LACK OF INQUIRY OR INADEQUATE INQUIRY, WILL DEPEND UPON THE FACTS OBTAINING IN A PARTICULAR CASE. WHAT EMERGES AS A BROAD PRINCIPLE FROM THE VARIOUS DECISIONS IS THAT WHERE THE AO HAS REACHED A RATION AL CONCLUSION, BASED ON HIS INQUIRIES AND MATERIAL ON RECORD, THE COMMISSIO NER SHOULD NOT START THE MATTER AFRESH IN A WAY AS TO QUESTION THE MANNER OF HIS CONDUCTING INQUIRIES. IT IS NOT THE PROVINCE OF THE COMMISSIONER TO ENTER INTO THE MERITS OF EVIDENCE; IT HAS ONLY TO SEE WHETHER THE REQUIREMEN TS OF ESSENTIAL INQUIRES AND OF LAW HAVE BEEN DULY AND PROPERLY COMPLIED WIT H BY AO OR NOT. 28.2. IT IS WELL SETTLED THAT BEFORE THE COMMISSION ER CAN INVOKE HIS POWERS U/S 263, HE HAS TO ARRIVE AT A CONCLUSION THAT THE ASSESSMENT ORDER IS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE IN TERESTS OF THE REVENUE. THEN ONLY THE POWERS U/S 263 CAN BE INVOKED. THEREFORE, IF AO ACCEPTS OR REJECTS ANY CLAIM OF THE ASSESSEE WITHOUT DUE APPLICATION O F MIND AND IF SUCH FAILURE CAUSES PREJUDICE TO REVENUE, THE COMMISSIONER WOULD BE WELL WITHIN HIS POWERS U/S 263 TO INTERVENE IN THE MATTER. AN INQUI RY WHICH IS JUST FARCE OR MERE PRETENCE OF INQUIRY, CANNOT BE SAID TO BE AN I NQUIRY AT ALL, MUCH LESS AN INQUIRY NEEDED TO REACH THE LEVEL OF SATISFACTION O F THE AO ON THE GIVEN ISSUE. THE LEVEL OF SATISFACTION WOULD OBVIOUSLY ME AN THAT HE HAS CONDUCTED THE INQUIRY IN A MANNER WHEREBY HE PLACES ON RECORD THE MATERIAL ENOUGH TO REACH THE SATISFACTION, WHICH A RATIONAL PERSON, BE ING INFORMED OF THE 85 ITA NO. 2057/DEL/10 NIIT VS. CIT NUANCES OF TAX LAWS WOULD REACH AFTER DUE APPRECIAT ION OF SUCH MATERIAL. IF THIS COMPONENT IS MISSING, IT WILL ALWAYS BE A CASE OF LACK OF INQUIRY AND NOT INADEQUATE INQUIRY. WE FIND THAT LD. COMMISSIONER, WHILE CONSIDERING THIS ARGUMENT OF ASSESSEE HAS OBSERVED THAT THE REPRESEN TATIVE OF THE ASSESSEE WAS ASSURED THAT THIS ISSUE WILL BE CONSIDERED WITH INDEPENDENT APPLICATION OF MIND WHILE PASSING THE ORDER U/S 263. THEREFORE, WHEN SPECIFIC ISSUES WILL BE CONSIDERED, IT WILL BE EXAMINED WHETHER THE AO HAD REACHED THE LEVEL OF SATISFACTION BY CARRYING OUT NECESSARY INQUIRIES Q UA THAT ISSUE OR NOT. GROUND IS DISPOSED OF ACCORDINGLY. 29. IN GROUND NO. 7 THE ASSESSEE HAS CHALLENGED THE EXERCISE OF JURISDICTION BY CIT U/S 263 ON THE GROUND THAT THE VARIOUS CLAIM S, WHICH WERE DULY SUPPORTED BY JUDICIAL PRECEDENTS, COULD, AT BEST, BE SAID TO BE DEBATABLE OUSTING JURISDICTION OF COMMISSIONER UNDER THE SAI D SECTION. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT COURTS HAVE UNANIMO USLY HELD THAT WHERE THE AO TAKES A POSSIBLE VIEW IN LAW, JURISDICTION U/S 2 63 OF THE ACT IS OUSTED. HE RELIED ON FOLLOWING DECISIONS: - MALABAR INDUSTRIAL CO. LTD. VT 243 ITR 83 (SC); - CIT VS. MAX INDIA LTD. 295 ITR 282 (SC); - CIT VS. SUNBEAM AUTO 332 ITR 167 (DEL.); - CIT VS. ANIL K. SHARMA 335 ITR 83 (DEL.); - VIMGI INVESTMENT (P) LTD. 290 ITR 505 (DEL.); - CIT V. VIKRAM ADITYA & ASSOCIATES 287 ITR 268 (DEL. ); - CIT VS. ASHISH RAJPAL 180 TAXMAN 623 (DEL); - CIT VS. GABRIEL INDIA LTD. 203 ITR 108 (BOM.). 30. LD. SPL. COUNSEL SUBMITTED THAT THERE IS NO QUA RREL ON THE SETTLED LEGAL POSITION. HE SUBMITTED THAT IF AOS ORDER IS NOT L EGALLY SUSTAINABLE, THE CIT HAS POWER TO SUBSTITUTE THE VIEW WHICH IS LEGAL AND SUSTAINABLE. 86 ITA NO. 2057/DEL/10 NIIT VS. CIT 30.1. LD. SPECIAL COUNSEL REFERRED TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. GOETZ INDIA AND P OINTED OUT THAT NEW DIMENSIONS HAVE BEEN GIVEN TO 263 JURISPRUDENCE A ND IT HAS BEEN HELD THAT CIT CAN REVISE IF HE FINDS THAT THE VIEW TAKEN BY T HE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE IRRESPECTIV E OF THE FACT THAT TWO VIEWS ARE POSSIBLE. IF ERRONEOUS VIEW HAS BEEN TAKEN, THE N 263 CAN BE RESORTED TO. 30.2. IN THE CASE OF CIT VS. GOETZE INDIA (ITA NO. 1179/2010) THE HONBLE DELHI HIGH COURT IN PARA 10 HAS OBSERVED AS UNDER: 10. IN THE FACTS OF THE PRESENT CASE, AS WE EXAMINE THE FACTUAL POSITION, THE COMMISSIONER IN HER ORDER UNDER SECTI ON 263 HAS RECORDED SPECIFIC FINDINGS AS TO WHY AND FOR WHAT R EASON SHE FELT THAT THE ORDER PASSED BY THE ASSESSING OFFICER ON TWO AC COUNTS WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. FOR THE REASONS SET OUT IN THE ORDER, WHICH WE NEED NOT AT THIS STA GE ELABORATE AS THIS IS A QUESTION OF MERITS, WE REJECT THE CONTENTION O F THE RESPONDENT- ASSESSEE AND ALSO THE FINDINGS AND REASONING OF THE TRIBUNAL THAT THE COMMISSIONER COULD NOT HAVE INVOKED POWER AND JURIS DICTION UNDER SECTION 263 OF THE ACT, BECAUSE THE ASSESSING OFFIC ER HAD TAKEN A PROBABLE VIEW, WHICH MAY BE DEBATABLE AND NOT ACCEP TABLE TO THE REVENUE. WHEN AN ASSESSING OFFICER TAKES A VIEW BUT THE SAID VIEW IS NOT CORRECT, ERRONEOUS AS PER THE FINDINGS RECORDED BY THE COMMISSIONER, ALONG WITH THE FINDING THAT THE ORDER PASSED BY THE ASSESSING OFFICER WAS PREJUDICIAL TO THE INTEREST O F THE REVENUE, THEN THE ORDER OF THE COMMISSIONER CANNOT BE SET ASIDE O N THE GROUND THAT THE TWO VIEWS WERE POSSIBLE OR PROBABLE. IN SU CH CASES, THE ORDER UNDER SECTION 263 OF THE ACT CAN BE SET ASIDE IF THE FINDINGS ACCORDED BY COMMISSIONER TAKING THE PARTICULAR VIEW , WHETHER ON FACTS OR IN LAW, IS WRONG OR INCORRECT OR THE ORDER OF THE ASSESSING OFFICER WAS NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE FIRST ASPECT IS ESSENTIALLY A QUESTION OF MERITS AND NOT A QUESTION RELATING TO WHETHER OR NOT TWO VIEWS WERE POSSIBLE. COMMISSI ONER CAN EXAMINE THE ISSUE ON MERITS EVEN WHEN THE SAME ISSU E WAS EXAMINED BY THE ASSESSING OFFICER. PRINCIPLES OF CHANGE OF O PINION DO NOT APPLY . IF AN ORDER OF THE ASSESSING OFFICER IS HELD TO B E ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, IT CAN BE REVISED. THE CONTENTION OF THE ASSESSEE AND THE REASONING OF THE TRIBUNAL IN THIS 87 ITA NO. 2057/DEL/10 NIIT VS. CIT REGARD IS CLEARLY FALLACIOUS AS REVENUE DOES NOT HA VE ANY RIGHT TO APPEAL AGAINST THE ORDER OF THE ASSESSING OFFICER. IT IS IN THESE CIRCUMSTANCES THAT POWER OF REVISION HAS BEEN CONFE RRED ON THE COMMISSIONER UNDER SECTION 263 OF THE ACT TO CORREC T ERRONEOUS ORDERS WHICH ARE ALSO PREJUDICIAL TO THE INTEREST O F REVENUE. OBSERVATIONS OF THE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL COMPANY LIMITED (SUPRA) HAVE TO BE UNDERSTOOD IN THE CONTEXT IN WHICH THEY WERE MADE. AN ORDER WILL NOT BE ERRONEOUS, IF THE COMMISSIONER DOES NOT DECIDE WHETHER THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS BUT OBSERVES THAT TWO VIEWS AR E POSSIBLE AND YET REMITS THE ISSUE FOR FRESH DECISION BY THE ASSESSIN G OFFICER. HOWEVER, IT WOULD BE INCORRECT TO STATE AS A BROAD PROPOSITION THAT AN ORDER OF THE ASSESSING OFFICER CANNOT BE ERRONEO US, IF THE ASSESSING OFFICER HAS TAKEN ONE OF THE TWO VIEWS PO SSIBLE. IN SUCH CASES THE ORDER OF THE ASSESSING OFFICER IS ERRONEO US PROVIDED THE COMMISSIONER HOLDS AND IS ABLE TO DEMONSTRATE THAT THE VIEW TAKEN BY THE ASSESSING OFFICER WAS NOT PLAUSIBLE, BEING L EGALLY UNSUSTAINABLE AND INCORRECT. BUT THE SAID FINDING MUST BE RECORDED. THIS WOULD SATISFY THE STATUTORY REQUIREMENT THAT T HE ORDER PASSED AND MADE SUBJECT MATTER OF REVISION WAS ERRONEOUS, SUBJECT TO THE SECOND CONDITION THAT THE ORDER UNDER REVIEW SHOULD ALSO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. (EMPHASIS SUPPLIED BY US). 30.3. LD. SPL. COUNSEL FURTHER SUBMITTED THAT THE LD. COMMISSIONER RESTORED THE MATTER TO THE AO ON THE GROUND THAT IN QUIRIES WERE NOT CONDUCTED AND THE CLAIMS WERE ACCEPTED ON THEIR FAC E VALUE WITHOUT ANY INQUIRY AND THE SUPPORTING MATERIAL HAVING BEEN PLA CED ON RECORD. HE SUBMITTED THAT THE CASE NEEDED CERTAIN BASIC INQUIR IES TO BRING ON RECORD THE MATERIAL TO REACH THE CONCLUSION ARRIVED AT BY THE AO. HE SUBMITTED THAT IT IS NOT A CASE WHERE THE AO HAS TAKEN ONE OF TWO POS SIBLE AND LEGALLY SUSTAINABLE VIEWS AND THE COMMISSIONER WAS SEEKING TO CHALLENGE THE SAME. HE SUBMITTED THAT IN THIS CASE THE LD. COMMISSIONER PROCEEDED ON THE BASIS THAT THE VIEW TAKEN BY THE AO, ONE WAY OR THE OTHER , COULD NOT HAVE BEEN REACHED AT ALL WITHOUT CONDUCTING THE PRELIMINARY I NQUIRIES IN THE MATTER. HE 88 ITA NO. 2057/DEL/10 NIIT VS. CIT SUBMITTED THAT IN A SITUATION, WHERE AO CHOOSES NOT TO CONDUCT THE INQUIRY AND DOES NOT BRING ANY MATERIAL ON RECORD OF ANY K IND; IN ANY VIEW OF THE MATTER, THE PLEA OF AO HAVING TAKEN ONE OF THE POSS IBLE VIEWS, BECOMES WHOLLY IRRELEVANT. 31. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES. THE ISSUES IN HAND HAVE TO BE EXAMINED IN THE LIGHT OF VARIOUS DE CISIONS RELIED BY BOTH THE SIDES INCLUDING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF GOETZ INDIA (SUPRA). THE MAIN THRUST IS ON THE LEVE L OF INQUIRIES CONDUCTED BY AO TO ARRIVE AT A PARTICULAR CONCLUSION. A POSSI BLE VIEW TAKEN BY AO AFTER DUE APPRECIATION OF EVIDENCE ON RECORD PARTIC ULARLY FOUND DURING COURSE OF SEARCH, IN PRESENT CONTEXT, WILL NOT RENDER THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE MERELY B ECAUSE ANOTHER VIEW COULD BE TAKEN WHICH WAS BENEFICIAL TO THE INTEREST OF RE VENUE. HOWEVER, THE POSITION WILL BE ENTIRELY DIFFERENT IF AO MERELY RA ISES VARIOUS QUERIES AND ACCEPTS THE ASSESSEES EXPLANATION WITHOUT PROPER A PPRECIATION OF EVIDENCE ON RECORD.THIS ASPECT WILL BE TAKEN INTO CONSIDERAT ION WHILE DECIDING THE VARIOUS ISSUES, KEEPING IN VIEW THE ARGUMENTS OF BO TH THE SIDES. THIS GROUND IS ACCORDINGLY DISPOSED OF. 32. IN GROUND NO. 8, THE ASSESSEE HAS CHALLENGED TH E JURISDICTION OF LD. CIT ON THE GROUND THAT JURISDICTION U/S 263, IN RESPEC T OF ISSUES, WHICH WERE BEYOND THE JURISDICTION OF THE AO, WHILE FRAMING T HE ORIGINAL ASSESSMENT U/S 143(3)/ 153A, CANNOT BE EXERCISED. THE SUBMISSION I S THAT SCOPE OF REVISIONARY JURISDICTION DEPENDS UPON THE SCOPE OF PROCEEDINGS/ ORDER SOUGHT TO BE REVISED U/S 263 OF THE ACT. THE ISSUES, WHICH ARE OUTSIDE THE SCOPE OF THE PARTICULAR ASSESSMENT, WOULD, AS A NECESSARY CO ROLLARY, BE OUTSIDE THE SCOPE OF REVISIONARY PROCEEDINGS UNDERTAKEN TO REVI SE SUCH ASSESSMENT. IN 89 ITA NO. 2057/DEL/10 NIIT VS. CIT SUM AND SUBSTANCE, THE PLEA IS THAT WHAT THE AO COU LD NOT DO DIRECTLY, THE CIT CANNOT DO INDIRECTLY. 32.1. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SOFTWARE CONSULTANTS 3 41 ITR 240 (DEL.). IN THIS CASE THE AO INITIATED PROCEEDINGS U/S 147 OF T HE ACT ON THE ISSUE OF TAXABILITY OF CERTAIN FDRS, WHICH WERE FOUND IN POS SESSION OF POONAM RANI SINGH, A DIRECTOR OF THE COMPANY. HOWEVER, POONAM R ANI SINGH CLAIMED THAT THE FDRS, IN HER NAME, ACTUALLY BELONGED TO TH E SOFTWARE CONSULTANTS I.E. THE ASSESSEE. THIS STAND WAS ACCEPTED BY CIT(A ) IN THE APPEAL FILED BY POONAM RANI SINGH. THEREAFTER, THE AO IN THE CASE O F THE ASSESSEE ISSUED NOTICE U/S 148 OF THE ACT ON 29-3-2001. IN RESPONSE TO THIS NOTICE, THE ASSESSEE ON 16-8-2001 FILED A RETURN, SHOWING LOSS OF RS. 1,02,756/-. VIDE ASSESSMENT ORDER DATED 28-3-2002, THE AO ACCEPTED T HAT THE ASSESSEE HAD ESTABLISHED AND PROVED THE SOURCE AND THEIR CAPACIT Y TO INVEST RS. 20 LACS AND, ACCORDINGLY, NO ADDITION WAS MADE ON THIS CO UNT. THE RETURN FILED BY THE ASSESSEE, SHOWING LOSS OF RS. 1,02,756/- WAS AC CEPTED. IN THE ASSESSMENT ORDER, THE AO HAD ALSO NOTED AS UNDER: SCRUTINY OF THE P&L A/C ALSO REVEALED THAT DURING THE YEAR SHARE APPLICATION MONEY WAS INCREASED BY RS. 47,00, 000/-. IN ORDER TO VERIFY THE GENIUSES OF SHARE APPLICATION M ONEY SUMMONS U/S 131 OF THE IT ACT WAS ISSUED TO PERSON ON RANDO M BASIS AND STATEMENT WAS RECORDED FOR CONFIRMING OF THESE INVE STMENTS MADE BY THEM TOWARDS THE ASSESSEE COMPANY . 32.2. THE CIT VIDE ORDER DATED 25-3-2004 U/S 263 DI RECTED THE AO TO CONDUCT FURTHER ENQUIRIES IN RESPECT OF SHARE APPLI CATION MONEY OF RS. 47 LACS. HE ALSO HELD THAT THE AO HAD ERRED IN DETERMINING LOSS AFTER ISSUE OF NOTICE U/S 148 OF THE ACT. THE ITAT QUASH ED THE ORDER U/S 263, 90 ITA NO. 2057/DEL/10 NIIT VS. CIT INTER ALIA, ON THE GROUND THAT SINCE NO ADDITION CO ULD HAVE BEEN MADE ON THE ISSUE OF SHARE APPLICATION MONEY, THE ASSESSMENT OR DER COULD NOT BE REGARDED AS ERRONEOUS. AFFIRMING THE DECISION OF THE ITAT, T HE HONBLE DELHI HIGH COURT HELD THAT SINCE AO COULD NOT HAVE MADE ADDITI ON ON ACCOUNT OF SHARE APPLICATION MONEY, THE ASSESSMENT ORDER WAS NOT ERR ONEOUS AND CIT COULD NOT HAVE EXERCISED JURISDICTION U/S 263 OF THE ACT. 32.3. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECI SION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF RAJASTHAN SPINN ING & WEAVING MILLS VS. DCIT 281 ITR 177 (RAJ.), WHEREIN IT HAS BEEN HE LD THAT WHERE CERTAIN ISSUES ARE OUTSIDE THE SCOPE OF ANY ASSESSMENT/ REA SSESSMENT PROCEEDINGS, THE AO CANNOT BE SAID TO HAVE COMMITTED ERROR IN NO T MAKING ADJUSTMENTS ON THE SAID ISSUES IN ORDER TO EXERCISE REVISIONARY JU RISDICTION U/S 263 OF THE ACT. 32.4. LD. COUNSEL FOR THE ASSESSEE ALSO PLACED RELI ANCE ON THE FOLLOWING DECISIONS OF THE ITAT: - SIMBHAOLI INDUSTRIES LTD. VS. DCIT 78 ITD 161 (DEL. )(SB); - ABAD FISHERIES V. DCIT 80 ITD 153 (COCH.); - PAUL JOHN DELICIOUS CASHEW CO. 94 ITD 131 (COCH.) - GIFT LAND HANDICRAFTS VS. CIT 108 TTJ 312 (DEL.); - PEERLESS GENERAL FINANCE & INVESTMENT CO. VS. ACIT 96 TTJ 834; - SMT. N. SASIKALA VS. DCIT 115 TTJ 563 (CHENNAI). - DHOLADHAR INVESTMENT (P) LTD. VS. CIT (ITA NO. 628/ DEL/2010). 32.5. LD. COUNSEL POINTED OUT THAT THE SCOPE OF SEC TION 153A IS SUCH THAT ADDITION/ DISALLOWANCE CAN ONLY BE MADE ON THE BASI S OF INCRIMINATING MATERIAL/ DOCUMENT/ BOOKS OF ACCOUNT FOUND DURING T HE COURSE OF SEARCH. THE AO DOES NOT HAVE THE JURISDICTION TO VERIFY THE TOT AL INCOME AND CANNOT RE- AGITATE ISSUES, WHICH HAVE ATTAINED FINALITY DURING THE ORIGINAL PROCEEDINGS, 91 ITA NO. 2057/DEL/10 NIIT VS. CIT SINCE THE PROCEEDINGS U/S 153A ARE NOT INTENDED TO GIVE ANOTHER INNINGS TO THE AO TO MAKE ASSESSMENT U/S 143(3) OF THE ACT. 32.6. LD. COUNSEL PLACED RELIANCE ON THE ITA T SPEC IAL BENCH DECISION IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. VS. DCI T 137 ITD 26 (MUM.)(SB). LD. COUNSEL HAS SUMMARIZED HIS SUBMISSI ON ON THIS COUNT AS UNDER: TO SUMMARIZE, THE ASSESSING OFFICER, AT THE TIME O F ASSESSMENT UNDER SECTION 153A OF THE ACT, CONDUCTED ENQUIRIES AND APPLIED MIND ON ALL THE ISSUES RAISED IN IMPUGNED ORDER. AS SUMING FOR THE SAKE OF ARGUMENT, WITHOUT ADMITTING, THAT THE A SSESSMENT WAS COMPLETED WITHOUT MAKING NECESSARY ENQUIRIES ON ANY OF THE ISSUES HAVING NO RELATION TO THE INCRIMINATING MATE RIAL FOUND DURING SEARCH, STILL THE SAME COULD NOT HAVE BEEN H ELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE UNDER SECTION 263 SINCE THE SAID ISSUES BEING OUTSIDE THE SCOPE OF ASSESSMENT UNDER SECTION 153A OF THE ACT WAS NOT RE QUIRED TO BE LOOKED INTO BY THE ASSESSING OFFICER DURING THE COU RSE OF ASSESSMENT. THE ALLEGED FAILURE TO ENQUIRE INTO SUC H ISSUES, WHICH DID NOT AND COULD NOT FORM THE SUBJECT MATTER OF AS SESSMENT UNDER SECTION 153A OF THE ACT, CANNOT RESULT IN SUC H AN ORDER BEING REGARDED ERRONEOUS AND PREJUDICIAL TO THE INT EREST OF REVENUE. AS A NECESSARY COROLLARY, THE CIT COULD NOT SEEK TO REVISE THE ASSESSMENT UNDER SECTION 153A OF THE ACT QUA ISSUE THAT CANNOT BE GONE INTO BY THE ASSESSING OFFICER WHILE FRAMING ASSESSMENT UNDER THAT SECTION. IN OTHER WORDS, THE CIT CANNOT INDIRECTLY SEEK TO DO WHAT THE ASSESSING OFFICER COULD NOT DO DIREC TLY. THE FULL BENCH OF THE DELHI HIGH COURT IN THE CASE OF KELVINATOR OF INDIA LTD. 256 ITR 1 OBSERVED AS UNDER: IT IS WELL SETTLED PRINCIPLE OF LAW THAT WHAT CA NNOT BE DONE DIRECTLY CANNOT BE DONE INDIRECTLY. IF THE INCOME TAX OFFICER DOES NOT POSSESS THE POWER OF REVIEW, HE CANNOT BE PERMITTED TO ACHIEVE THE SAID 92 ITA NO. 2057/DEL/10 NIIT VS. CIT OBJECT BY TAKING RECOURSE TO INITIATING A PROCEEDIN G OF REASSESSMENT OR BY WAY OF RECTIFICATION OF MISTAKE. THE KERALA HIGH COURT IN THE CASE OF CIT V. PAUL JO HN, DELICIOUS CASHEW CO. 200 TAXMAN 154 HELD THAT THE BAR WHICH A PPLY TO THE ASSESSING OFFICER EQUALLY APPLIES T O THE CIT, FOR THE PURPOSES OF SECTION 263 OF THE ACT. FOR THE AFORESAID REASON TOO, THE IMPUGNED ORDER PA SSED BY THE CIT UNDER SECTION 263 OF THE ACT IS LEGALLY UNSUSTA INABLE AND CALLS FOR BEING QUASHED. 33. LD. SPECIAL COUNSEL SUBMITTED THAT THERE IS NO DISPUTE ON PRELIMINARY PROPOSITION THAT WHAT AO CANNOT DO, CIT ALSO CANNO T DO. HE SUBMITTED THAT IN THE PRESENT CASE ASSESSMENT YEAR INVOLVED IS 199 9-2000 IN WHICH ORIGINAL ASSESSMENT HAD BEEN COMPLETED U/S 143(1). HE SUBMIT TED THAT NO NOTICE WAS ISSUED; NO ASSESSMENT ORDER WAS PASSED AND NO INQUI RY WAS MADE BY THE AO. HE SUBMITTED THAT SEARCH TOOK PLACE ON 10-11-2004 O N WHICH DATE ASSESSMENT PROCEEDINGS WERE NOT PENDING, THEREFORE, DID NOT ABATE. HE, THEREFORE, SUBMITTED THAT IN EFFECT 153A ASSESSMEN T HAS BEEN MADE FOR THE FIRST TIME. HE SUBMITTED THAT U/S 153A, TWO SITUATI ON ARISE IN RESPECT OF PROCEEDINGS WHICH ARE NOT PENDING. FIRSTLY, AO IS TO REASSESS THE INCOME, IF ASSESSMENT ORDER HAD BEEN PASSED, AND, SECONDLY, IF NOT ASSESSED EARLIER THEN TO ASSESS FOR THE FIRST TIME. HE CONTENDED THA T ASSESSMENT U/S 153A TAKES IN ITS AMBIT 147 PROCEEDINGS ALSO AND THERE I S NO NEED TO REOPEN ASSESSMENT U/S 147. IN SUCH SITUATION, THE ASSESSME NT ,WHETHER ABATED OR UNABATED, AO HAS POWER TO MAKE ASSESSMENT. 33.1. LD. SPECIAL COUNSEL REFERRED TO THE DECISION OF ITAT IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. (SUPRA) AND POINTED O UT THAT IT HAS BEEN HELD 93 ITA NO. 2057/DEL/10 NIIT VS. CIT THAT IN RESPECT OF NON ABATED ASSESSMENTS, THE ASSE SSMENT WILL BE MADE ON THE BASIS OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS NO T PRODUCED IN THE COURSE OF ORIGINAL ASSESSMENT, BUT FOUND IN THE COURSE OF SEARCH AND UNDISCLOSED INCOME OR UNDISCLOSED PROPERTY DISCOVERED IN THE CO URSE OF SEARCH. HE SUBMITTED THAT ADMITTEDLY WHEN INTIMATION U/S 143(1 ) WAS ONLY ISSUED, NO BOOKS OF ACCOUNT WERE PRODUCED BEFORE THE AO AND, T HEREFORE, ON THE BASIS OF BOOKS OF A/C FOUND IN THE COURSE OF SEARCH, THE ASSESSMENT HAS TO BE COMPLETED. HE REFERRED TO THE ORDER PASSED BY THE CIT AND POINTED OUT THAT ON VARIOUS ISSUES ACCOUNTS CAME TO THE NOTICE OF AO FOR THE FIRST TIME AS THERE WAS NO OCCASION FOR ASSESSEE TO PRODUCE THE S AME. HE SUBMITTED THAT IF ASSESSMENT HAS NOT BEEN MADE ON THE BASIS OF BOOKS OF A/C, ANY BOOKS OF ACCOUNT FOUND IN COURSE OF SEARCH WILL BE COVERED B Y THE PHRASE MATERIAL FOUND IN THE COURSE OF SEARCH. IN THIS REGARD LD. SPECIAL COUNSEL REFERRED TO PARA 53 OF THE DECISION REPORT, WHICH READS AS UNDE R: 53. THE QUESTION NOW IS - WHAT IS THE SCOPE OF ASSE SSMENT OR REASSESSMENT OF TOTAL INCOME U/S 153A (1) (B) AND T HE FIRST PROVISO ? WE ARE OF THE VIEW THAT FOR ANSWERING THI S QUESTION, GUIDANCE WILL HAVE TO BE SOUGHT FROM SECTION 132(1) . IF ANY BOOKS OF ACCOUNT OR OTHER DOCUMENTS RELEVANT TO THE ASSESSMENT HAD NOT BEEN PRODUCED IN THE COURSE OF ORIGINAL ASS ESSMENT AND FOUND IN THE COURSE OF SEARCH IN OUR HUMBLE OPINION SUCH BOOKS OF ACCOUNT OR ITA NOS. 5018 TO 5022 & 5059/M/2010 OTHER DOCUMENTS HAVE TO BE TAKEN INTO ACCOUNT WHILE MAKIN G ASSESSMENT OR REASSESSMENT OF TOTAL INCOME UNDER TH E AFORESAID PROVISION. SIMILAR POSITION WILL OBTAIN IN A CASE W HERE UNDISCLOSED INCOME OR UNDISCLOSED PROPERTY HAS BEEN FOUND AS A CONSEQUENCE OF SEARCH. IN OTHER WORDS, HARMONIOUS INTERPRETATION WILL PRODUCE THE FOLLOWING RESULTS :- 94 ITA NO. 2057/DEL/10 NIIT VS. CIT A) IN SO FAR AS PENDING ASSESSMENTS ARE CONCERNED, THE JURISDICTION TO MAKE ORIGINAL ASSESSMENT AND ASSESS MENT U/S 153A MERGE INTO ONE AND ONLY ONE ASSESSMENT FOR EAC H ASSESSMENT YEAR SHALL BE MADE SEPARATELY ON THE BAS IS OF THE FINDINGS OF THE SEARCH AND ANY OTHER MATERIAL EXIST ING OR BROUGHT ON THE RECORD OF THE AO, (B) IN RESPECT OF NON-ABATED ASSESSMENTS, THE ASSESSMENT WILL BE MADE ON THE BAS IS OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS NOT PRODUCED IN THE C OURSE OF ORIGINAL ASSESSMENT BUT FOUND IN THE COURSE OF SEAR CH, AND UNDISCLOSED INCOME OR UNDISCLOSED PROPERTY DISCOVER ED IN THE COURSE OF SEARCH 33.2. LD. SPECIAL COUNSEL SPECIFICALLY REFERRED TO PARA 57 IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. V. DCIT 137 ITD 26 (M UM.)(SB), AND POINTED OUT THAT SPECIAL BENCH SPECIFICALLY NOTICED THAT TH E QUESTION WHICH HAD BEEN REFERRED TO IT WAS IN RESPECT OF SCOPE OF ASSESSME NT U/S 153A AND WHETHER IT ENCOMPASSES ADDITIONS NOT BASED ON INCRIMINATING MA TERIAL FOUND IN THE COURSE OF SEARCH. IT WAS OBSERVED THAT THE QUESTION USES THE WORD INCRIMINATING MATERIAL WHICH AGAIN FINDS NO MENTION EITHER IN SECTION 132(1) OR 153A. THUS, IT WAS OBSERVED THAT ANALYSIS OF VAR IOUS PHRASES REGARDING COMPLETED ASSESSMENT DOES NOT FALL WITHIN THE AMBIT OF THE QUESTION POSED TO THE SPECIAL BENCH. HE, THEREFORE, SUBMITTED THAT I T WAS A MATTER OF INQUIRY WHETHER THE ENTRIES IN THE BOOKS OF A/C WERE INCRIM INATING OR OTHERWISE. HE SUBMITTED THAT IT DEPENDS ON THE FACTS OF EACH CAS E WHAT CONSTITUTES INCRIMINATING MATERIAL. THE RELEVANT PART OF PARA 5 7 EADS AS UNDER: 57. THE VARIOUS LD. COUNSELS FOR THE INTERVENING PA RTIES HAVE LISTED OR STATED VARIOUS SCENARIOS REGARDING WHAT C ONSTITUTES PENDING ASSESSMENT AND WHAT ITA NOS. 5018 TO 5022 & 95 ITA NO. 2057/DEL/10 NIIT VS. CIT 5059/M/2010 CONSTITUTES COMPLETED ASSESSMENT. WE FI ND THAT SECOND PROVISO TO SECTION 153A USES THE WORDS 'PEND ING ON THE DATE OF INITIATION OF SEARCH' AND PROVIDES THAT ASS ESSMENT SO PENDING SHALL ABATE. THE PROVISION DOES NOT USE THE WORDS 'COMPLETED ASSESSMENT'. FURTHER, THE QUESTION WHICH HAS BEEN REFERRED TO US IS IN RESPECT OF SCOPE OF ASSESSMENT U/S 153A AND WHETHER IT ENCOMPASSES ADDITIONS , NOT BASED ON INC RIMINATING MATERIAL FOUND IN THE COURSE OF SEARCH. THE QUESTIO N USES THE WORDS 'INCRIMINATING MATERIAL' WHICH AGAIN FIND NO MENTION EITHER IN SECTION 132(1) OR 153A. THUS, ANALYSIS OF VARIOUS SCENARIOS REGARDING COMPLETED ASSESSMENTS DOES NOT FALL WITHIN THE AMBIT OF THE QUESTION POSED TO US. 32.3. LD. SPECIAL COUNSEL FURTHER REFERRED TO PARA 58 OF THE DECISION WHICH READS AS UNDER: 58. THUS, QUESTION NO.1 BEFORE US IS ANSWERED AS UN DER : A) IN ASSESSMENTS THAT ARE ABATED, THE AO RETAINS T HE ORIGINAL JURISDICTION AS WELL AS JURISDICTION CONFERRED ON H IM U/S 153A FOR WHICH ASSESSMENTS SHALL BE MADE FOR EACH OF THE SIX ASSESSMENT YEARS SEPARATELY ; ITA NOS. 5018 TO 5022 & 5059/M/2010 B) IN OTHER CASES, IN ADDITION TO THE INCOME THAT H AS ALREADY BEEN ASSESSED, THE ASSESSMENT U/S 153A WILL BE MADE ON THE BASIS OF INCRIMINATING MATERIAL, WHICH IN THE CONTE XT OF RELEVANT PROVISIONS MEANS - (I) BOOKS OF ACCOUNT, OTHER DOCU MENTS, FOUND IN THE COURSE OF SEARCH BUT NOT PRODUCED IN THE COU RSE OF ORIGINAL ASSESSMENT, AND (II) UNDISCLOSED INCOME OR PROPERTY DISCOVERED IN T HE COURSE OF SEARCH. 33.4. LD. SPECIAL COUNSEL SUBMITTED THAT ASSESSMEN T U/S 143(1) EVEN IF TREATED AS COMPLETED ASSESSMENT BUT THAT WAS NOT ON THE BASIS OF BOOKS OF 96 ITA NO. 2057/DEL/10 NIIT VS. CIT ACCOUNT. HE SUBMITTED THAT POWER U/S 147 HAS BEEN M ERGED WITH 153A TO AVOID MULTIPLICITY OF PROCEEDINGS. HE SUBMITTED TH AT SCOPE OF ASSESSMENT U/S 153A QUA ASSESSMENT U/S 143(1) ISSUE HAS NOT BE EN ANSWERED IN ALL CARGO GLOBAL LOGISTICS LTD. (SUPRA). HE SUBMITTED THAT ON THE BASIS OF THE CONCLUSION DRAWN BY THE SPECIAL BENCH OF TRIBUNAL, IT IS CLEAR THAT JURISDICTION U/S 153A CAN BE ASSUMED IN RELATION TO UNABATED ASSESSMENT IF BOOKS OF ACCOUNT/ OTHER DOCUMENTS ARE FOUND IN THE COURSE OF SEARCH WHICH WERE NOT PRODUCED IN THE COURSE OF ORIGINAL ASSESSM ENT. HE SUBMITTED THAT SINCE PROCEEDINGS U/S 143(1) ARE IN THE NATURE OF S UMMARY PROCEEDINGS FOR ASSESSMENT, UNDERTAKEN TO SIMPLY CHECK THE ARITHMET ICAL ACCURACY OF THE TOTAL INCOME AND TAX LIABILITY OF AN ASSESSEE AND FURTHER SINCE NO BOOKS OF ACCOUNT/ DOCUMENTS WERE PRODUCED BY THE ASSESSEE BE FORE THE AO, AS REQUIRED BY LAW, THE SCOPE OF ASSESSMENT U/S 153A W OULD EXTEND TO THE ISSUES ARISING FROM SCRUTINY OF REGULAR BOOKS OF AC COUNT AS WELL FOUND DURING THE COURSE OF SEARCH. HE SUBMITTED THAT THE EXPRESS ION NOT PRODUCED BEFORE THE AO, CANNOT HAVE RESTRICTIVE MEANING TO SUGGEST DELIBERATELY NOT PRODUCED BUT WOULD ALSO INCLUDE NOT PRODUCED BY O PERATION OF LAW. 33.5. IN SUPPORT OF HIS CONTENTION LD. SPL. COUNSEL FURTHER REFERRED TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANIL KUMAR BHATIA (ITA NO. 1626/2010) AND REFERRED TO PARAS 15 ,16 AND 22 OF THE ORDER, REPRODUCED BELOW: 15. THE FIRST QUESTION WHICH WE HAVE TO CONSIDER I S WHETHER THE TRIBUNAL WAS RIGHT IN HOLDING THAT NO ADDITION CAN BE MADE FOR AGRICULTURAL INCOME, GIFTS RECEIVED AND UNEXPLA INED DEPOSITS AS STATED IN THE CHART SET OUT IN PARA 10 (SUPRA) O N THE GROUND THAT IN RESPECT OF THESE ADDITIONS, NO MATERIAL WAS FOUND DURING THE SEARCH CARRIED OUT UNDER SECTION 132 AND ALSO O N THE GROUND THAT FOR ALL THE YEARS UNDER CONSIDERATION, THE RETURNS 97 ITA NO. 2057/DEL/10 NIIT VS. CIT FILED BY THE ASSESSEE BEFORE THE SEARCH HAD BEEN PR OCESSED UNDER SECTION 143(1)(A) OF THE ACT. THOUGH THE TRIB UNAL HAS NOT REFERRED EXPRESSLY TO THE PROVISIONS OF SECTION 153 A OF THE ACT, ITS DECISION IN PARAGRAPH 9.6 OF THE ORDER IS BASED ON THE PREMISE THAT THE ASSESSING OFFICER HAD WRONGLY INVO KED SECTION 153A SINCE (A) NO MATERIAL WAS FOUND DURING THE SEA RCH IN RESPECT OF THE AGRICULTURAL INCOME, GIFTS RECEIVED AND UNEXPLAINED DEPOSITS AND (B) THE RETURNS FILED BY T HE ASSESSEE PRIOR TO THE SEARCH HAD BEEN ACCEPTED UNDER SECTION 143(1)(A) OF THE ACT. THE SAME REASONING HOWEVER, HAS NOT BEE N APPLIED BY THE TRIBUNAL IN RESPECT OF THE ADDITION OF `1,50 ,000/- MADE IN THE ASSESSMENT YEAR 2003-04 ON ACCOUNT OF UNEXPLAIN ED LOAN ADVANCED TO MOHINI SHARMA AND THE ADDITION OF `27,0 00/- MADE IN THE ASSESSMENT YEARS 2004-05 AND 2005-06 PRESUMA BLY BECAUSE THE DOCUMENT EMBODYING THE LOAN WAS RECOVER ED IN THE COURSE OF THE SEARCH OF THE ASSESSEE S PREMISES. 16. WE NOW PROCEED TO DISCUSS THE CORRECTNESS OF THE CONCLUSIO N OF THE TRIBUNAL THAT THE ASSESSING OFFICER HAD WRONGLY INV OKED SECTION 153A OF THE ACT. THIS SECTION WAS INTRODUCE D INTO THE ACT BY THE FINANCE ACT, 2003 W.E.F. 1.6.2003 ALONG WITH SECTIONS 153B AND 153C. SECTION 153A PROVIDES FOR ASSESSMENT IN CASE OF SEARCH OR REQUISITION . IT RUNS AS FOLLOWS: 153A. [(1)] NOTWITHSTANDING ANYTHING CONTAINED IN SECTION 139, SECTION 147, SECTION 148, SECTION 149, SECTION 151 AND SECTION 153, IN THE CASE OF A PERSON WHERE A SE ARCH IS INITIATED UNDER SECTION 132 OR BOOKS OF ACCOUNT, OT HER DOCUMENTS OR ANY ASSETS ARE REQUISITIONED UNDER SEC TION 132A AFTER THE 31ST DAY OF MAY, 2003, THE ASSESSING OFFI CER SHALL- (A) ISSUE NOTICE TO SUCH PERSON REQUIRING HIM TO FU RNISH WITHIN SUCH PERIOD, AS MAY BE SPECIFIED IN THE NOTI CE, THE RETURN OF INCOME IN RESPECT OF EACH ASSESSMENT YEAR FALLING WITHIN SIX ASSESSMENT YEARS REFERRED TO IN CLAUSE (B), IN THE PRESCRIBED FORM AND VERIFIED IN THE PRE SCRIBED MANNER AND SETTING FORTH SUCH OTHER PARTICULARS AS MAY BE PRESCRIBED AND THE PROVISIONS OF THIS ACT SHALL, SO FAR AS MAY BE, APPLY ACCORDINGLY AS IF SUCH RETURN WERE A RETURN REQUIRED TO BE FURNISHED UNDER SECTION 139; 98 ITA NO. 2057/DEL/10 NIIT VS. CIT (B) ASSESS OR REASSESS THE TOTAL INCOME OF SIX ASSE SSMENT YEARS IMMEDIATELY PRECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SUCH SEARCH IS CONDUCTED OR REQUISITION IS MADE: PROVIDED THAT THE ASSESSING OFFICER SHALL ASSESS OR REASSESS THE TOTAL INCOME IN RESPECT OF EACH ASSESSMENT YEAR FAL LING WITHIN SUCH SIX ASSESSMENT YEARS. PROVIDED FURTHER THAT ASSESSMENT OR REASSESSMENT, IF ANY, RELATING TO ANY ASSESSMENT YE AR FALLING WITHIN THE PERIOD OF SIX ASSESSMENT YEARS REFERRED TO IN THIS [SUB-SECTION] PENDING ON THE DATE OF INITIATION OF THE SEARCH UNDER SECTION 132 OR MAKING OF REQUISITION UNDER SE CTION 132A, AS THE CASE MAY BE, SHALL ABATE. [(2) IF ANY PROCEEDING INITIATED OR ANY ORDER OF AS SESSMENT OR REASSESSMENT MADE UNDER SUB-SECTION (1) HAS BEEN AN NULLED IN APPEAL OR ANY OTHER LEGAL PROCEEDING, THEN, NOTWITH STANDING ANYTHING CONTAINED IN SUB-SECTION(1) OR SECTION 153 , THE ASSESSMENT OR REASSESSMENT RELATING TO ANY ASSESSME NT YEAR WHICH HAS ABATED UNDER THE SECOND PROVISO TO SUB-SE CTION (1), SHALL STAND REVISED WITH EFFECT FROM THE DATE OF RE CEIPT OF THE ORDER OF SUCH ANNULMENT BY THE COMMISSIONER. PROVIDED THAT SUCH REVIVAL SHALL CEASE TO HAVE EFFECT, IF SUCH OR DER OF ANNULMENT IS SET ASIDE.] EXPLANATION.- FOR THE REMO VAL OF DOUBTS, IT IS HEREBY DECLARED THAT- (I) SAVE AS OTHERWISE PROVIDED IN THIS SECTION, SEC TION 153B AND SECTION 153C, ALL OTHER PROVISIONS OF THIS ACT SHAL L APPLY TO THE ASSESSMENT MADE UNDER THIS SECTION; (II) IN AN ASSESSMENT OR REASSESSMENT MADE IN RESPE CT OF AN ASSESSMENT YEAR UNDER THIS SECTION, THE TAX SHALL B E CHARGEABLE AT THE RATE OR RATES AS APPLICABLE TO SUCH ASSESSME NT YEAR. . . 22. IN THE LIGHT OF OUR DISCUSSION, WE FIND IT DIFF ICULT TO UPHOLD THE VIEW OF THE TRIBUNAL EXPRESSED IN PARA 9.6 OF I TS ORDER THAT SINCE THE RETURNS OF INCOME FILED BY THE ASSESSEE F OR ALL THE SIX YEARS UNDER CONSIDERATION BEFORE THE SEARCH TOOK PL ACE WERE 99 ITA NO. 2057/DEL/10 NIIT VS. CIT PROCESSED UNDER SECTION 143(1)(A) OF THE ACT, THE P ROVISIONS OF SECTION 153A CANNOT BE INVOKED. THE ASSESSING OFFIC ER HAS THE POWER UNDER SECTION 153A TO MAKE ASSESSMENT FOR ALL THE SIX YEARS AND COMPUTE THE TOTAL INCOME OF THE ASSESSEE, INCLUDING THE UNDISCLOSED INCOME, NOTWITHSTANDING THAT THE AS SESSEE FILED RETURNS BEFORE THE DATE OF SEARCH WHICH STOOD PROC ESSED UNDER SECTION 143(1)(A). THE OTHER REASON GIVEN BY THE TR IBUNAL IN THE SAME PARAGRAPH OF ITS ORDER THAT NO MATERIAL WAS FO UND DURING THE SEARCH IS FACTUALLY UNSUSTAINABLE SINCE THE ENT IRE CASE AND ARGUMENTS BEFORE THE DEPARTMENTAL AUTHORITIES AS WE LL AS THE TRIBUNAL HAD PROCEEDED ON THE BASIS THAT THE DOCUME NT EMBODYING THE TRANSACTION WITH MOHINI SHARMA WAS RE COVERED FROM THE ASSESSEE. WHILE SUMMARIZING THE CONTENTION S OF THE ASSESSEE IN PARAGRAPH 5 OF ITS ORDER, THE TRIBUNAL ITSELF HAS REFERRED TO THE CONTENTION THAT NO DOCUMENT MUCH LE SS INCRIMINATING MATERIAL WAS FOUND DURING THE SEARCH OF THE ASSESSEE S PREMISES, EXCEPT ONE UNSIGNED UNDERTAKING FOR LOA N. AGAIN IN PARAGRAPH 10 OF ITS ORDER, WHILE DEALING W ITH THE ASSESSEE S CONTENTION AGAINST THE ADDITION OF `1,50,000/- BE ING UNEXPLAINED LOAN GIVEN TO MOHINI SHARMA, THE TRIBUN AL HAS STATED THAT IT HAS ANALYZED THE SUBJECT DOCUMENT C AREFULLY, RECOVERED FROM SEARCH SUGGESTING THAT THE DOCUMENT WAS RECOVERED DURING THE SEARCH FROM THE ASSESSEE. THE TRIBUNAL HAS EVEN PROCEEDED TO DELETE THE ADDITION OF `1,50, 000/- AS WELL AS THE NOTIONAL INTEREST ON MERITS, HOLDING THAT TH E DOCUMENT WAS UNSIGNED, THAT MOHINI SHARMA WAS NOT EXAMINED B Y THE INCOME TAX AUTHORITIES AND THERE WAS NO CORROBORATI ON OF THE UNSIGNED DOCUMENT. IF IT IS NOT IN DISPUTE THAT THE DOCUMENT WAS FOUND IN THE COURSE OF THE SEARCH OF THE ASSESSEE, THEN SECTION 153A IS TRIGGERED. ONCE THE SECTION IS TRIGGERED, I T APPEARS MANDATORY FOR THE ASSESSING OFFICER TO ISSUE NOTICE S UNDER SECTION 153A CALLING UPON THE ASSESSEE TO FILE RETU RNS FOR THE SIX ASSESSMENT YEARS PRIOR TO THE YEAR IN WHICH THE SEA RCH TOOK PLACE. THERE ARE CONTRADICTIONS IN THE ORDER OF THE TRIBUNAL. WE ARE UNABLE TO APPRECIATE HOW THE TRIBUNAL CAN SAY I N PARA 9.6 THAT NO MATERIAL WAS FOUND DURING THE SEARCH AND AT THE SAME TIME IN PARAGRAPH 10 DEAL WITH THE MERITS OF THE AD DITIONS BASED ON THE DOCUMENT RECOVERED DURING THE SEARCH W HICH ALLEGEDLY CONTAIN THE LOAN TRANSACTION WITH MOHINI SHARMA. 100 ITA NO. 2057/DEL/10 NIIT VS. CIT THEREFORE, BOTH THE REASONS GIVEN BY THE TRIBUNAL F OR HOLDING THAT THE ASSESSMENTS MADE UNDER SECTION 153A WERE B AD IN LAW DO NOT COMMEND THEMSELVES TO US. THE RESULT IS THAT THE FIRST SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN THE NEGA TIVE, IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 33.6. WITH REFERENCE TO THIS DECISION, LD. SPL. COU NSEL SUBMITTED THAT THE ONLY REQUIREMENT IS THAT NEXUS/ RELEVANCE WITH MATE RIAL HAS TO BE THERE BUT NOT NECESSARILY SPECIFIC MATERIAL FOUND IN THE COUR SE OF SEARCH. 33.7. ACCORDINGLY, LD. SPCIAL COUNSEL SUBMITTED THA T IN ORDER TO MAKE ASSESSMENT U/S 153A, EXISTENCE OF SEIZED MATERIAL I S SUFFICIENT AND IT IS NOT NECESSARY THAT SUCH SEIZED MATERIAL MUST SHOW ACTUA L EARNING OF UNDISCLOSED INCOME, TO BE BROUGHT TO TAX IN THE COMPLETED ASSES SMENT. HE SUBMITTED THAT ON INQUIRY OR INVESTIGATION OF BOOKS OF ACCOUNT, IF IT IS FOUND THAT CERTAIN INCOME HAS NOT BEEN DECLARED BY ASSESSEE IN RETURN, THEN THE SAME CAN BE SUBJECTED TO ADDITION. 33.8. IN REGARD TO THE RELIANCE PLACED BY ASSESSEE ON THE DECISION OF HONBLE HIGH COURT IN THE CASE OF CIT VS. SOFTWARE CONSULTA NTS 341 ITR 240, LD. SPECIAL COUNSEL SUBMITTED THAT THE SAID DECISION IS NOT APPLICABLE TO THE PRESENT SET OF FACTS. HE POINTED OUT THAT THE AFORE SAID DECISION WAS BASED ON THE REASONING THAT NO ADDITION COULD BE MADE ON THE ISSUE OF SHARE APPLICATION MONEY BY AO BUT NO SUCH DISPUTE IS INVO LVED IN THE PRESENT CASE. 33.9. AS REGARDS THE RELIANCE PLACED BY LD. COUNSEL FOR THE ASSESSEE IN THE CASES OF RAJASTHAN SHIPPING & WEAVING MILLS 281 ITR 177 (RAJ.); SUMBHOLI INDUSTRIES LTD. 78 ITD 161; PAUL JOHN DELICIOUS CAS HEW CO. 94 ITD 131; DHOLADHAR INVESTMENT (P) LTD. (ITA 628/DEL/2010), L D. SPECIAL COUNSEL SUBMITTED THAT THEY ARE OF NO HELP AS THE ISSUE INV OLVED IN THOSE CASES WERE 101 ITA NO. 2057/DEL/10 NIIT VS. CIT OUTSIDE THE SCOPE OF ASSESSMENT/ REASSESSMENT PROCE EDINGS. HE POINTED OUT THAT IN THE PRESENT CASE, THE AO HAD THE NECESSARY JURISDICTION TO COMPLETE THE ASSESSMENT U/S 153A AFTER TAKING INTO CONSIDERA TION THE MATERIAL INCLUDING THE COPIES OF ACCOUNTS FOUND DURING SEARC H, E-MAILS, STATEMENTS AND ALL OTHER MATERIAL BROUGHT ON RECORD AS A RESUL T OF SEARCH PROCEEDINGS. HE SUBMITTED THAT THE CASE OF THE PRESENT ASSESSEE STA NDS ON ITS OWN FACTS AND NONE OF THE CASES REFERRED TO BY THE ASSESSEE HAVE ANY APPLICATION. LD. SPL. COUNSEL IN WRITTEN SUBMISSIONS SUBMITTED AS UNDER: SEARCH PROCEEDINGS . THE CASE OF THE PRESENT ASSE S SEE STAND S ON IT S OW N FA C T S AN D NONE OF THE CASES REFERRED TO BY THE ASSESSEE HAVE ANY APPLICATION . 23. R EVE NU E H AS PLA CE D BEFOR E THE H O N ' BL E B E N C H , SA MPL E CO PI ES OF P A P E R S F OUN D A N D SEIZED M A T E RIA L DUR I N G SEA RCH OP ERA T I ON S. T H ESE ARE CO NT A IN E D I N R EVE NU E'S S UPPL E M E NT A R Y PAPER BO O K FIL E D DURIN G TH E COURS E O F H E ARIN G AND CONTAIN BROADL Y THE FOLLO W INGS : 1 . C OP I E S O F A CCOUNTS FOR THE RE L E V ANT YEA R . 11 . E MAILS . 111 . S T A T E M E NTS R EC ORD E D DURING S EARCH OPERATIONS L V . C OPIES OF CERTAIN DOCUMENTS . V. C OPI ES OF DOCUMENTS RELATIN G TO OTHER Y EARS BUT HAVING A BE A RIN G O N TH E YEAR UNDER CON S ID E RATION A S WE LL . A LL S UCH MAT ER IAL H A S BE E N FOUND DURING S E AR CH . I T IS, T H E R E FOR E, WHOLLY INCORRECT TO S UGGEST THAT THE ASSESSMENT IS FRAMED WITHOUT HAVING NEXUS WITH THE MAT E RIAL FOUND DURING SEARCH . IF A CE RT A IN MATERIAL I S F OUND DU R ING SE A R CH , ITS INCRIMINATING NATUR E C A N BE ASCERTAINED ONLY WHEN THE MATERIAL IS EXAMINED TO FIND OUT WHETHER IT HA S A N Y BEARING ON THE INCOME ALREADY ASSESSED OR NOT . IF THE MATERIAL SO FOUND, ON EXAMINATION, LEADS TO THE INFERENCE THAT THE INCOME ORIG IN ALLY ASSESS ED WHETH E R U/ S 143(3) OR 143(1) NEEDS TO BE RE-DETERMINED, THE MAT ERIAL WOU LD 102 ITA NO. 2057/DEL/10 NIIT VS. CIT BE IN C RI MINATING A N D JURISDICTION OF THE A.A. CAN NOT BE CHALLENGED ON THE REASO N IN G T H AT T HE MATE R I AL IS NOT PRIMA FACIE INCRIMINATING. THE WORD 'INCRIMINATING' HAS N EITHER BEEN U S ED IN THE STATUTE NOR AND HAS BEEN DEFINED IN THE JUDICIA L PRECEDE N TS . IT HAS TO HA VE ITS COMMON SENSE MEANING IN THE GIVEN CONTEXT WHICH WOU L D ONLY MEAN WH E TH E R THE MATERIAL, ON EXAMINATION, LEADS TO REDETERMINATION OF THE INCOME A L READ Y ASSESSED. TO ILLUSTRATE , IF REGULAR BOOKS OF A CCOUNTS HAV E NOT B E EN PRODU CE D A ND T H E AS SESS M E N T HAS BEEN COMPL E T E D U L S 143(1) AND DURING SEARCH THE BOOKS AR E F OUND AND SEIZE D AN D F U RTHER O N IT S EXA MINATION IT I S FOUND THAT CERTAIN PURCHASES/EXPENSE S ARE BOGUS/INFLAT ED, WOULD IT BE OPEN TO ARGUE THAT THE A.A. HAS NO JURISDICTION U/S 153 A B EC AU SE TH E ACCOUNTS ARE MAINTAINED IN THE REGULAR COURSE OR BOOKS A RE NOT PRIM A FAC I E DUPL ICATE . IT WOULD BE A COMPLETE TRAVESTY OF JUSTICE TO SUGGEST THAT THE MATERIAL IS NOT PRIMA F ACI E INCRIMINATING AND HENCE JURISDICTION U L S 153A IS OUSTED . 24. IN THE CASES OF CHETAN DAS LACHMAN DAS (SUPRA) , THE JURISDICTIONAL HIGH COURT HAS TAKEN THE VIEW THAT ' THERE IS NO CONDITION THAT THE ADDITIONS SHOULD BE STRICTLY MAD E ON THE BASIS OF EVIDENCE FOUND IN THE COURSE OF SEARCH '(PAGE 1 295 OF VOL:IV OF PB) THE ONL Y REQUIREMENT OF LAW IS THAT THERE SHOULD BE A NEXUS, HOWSOEVER THIN , BETWEEN THE ASSESSMENT MADE U L S 153A AND THE MATERIAL / INFORMATION GATHERED DURING SEARCH. THE EVIDENCE FOUND FOR ONE YEAR MAY HAVE BEARING ON THE OTHER YEAR AS WELL AND WOULD THUS FORM MATERIAL FOR THE YEAR O F ASSESSMENT . A DIRECT ONE-TO-ONE CORRELATION IS NEITHER MANDATED NOR NECESSARY IN LAW. 25. THE ASSUMPTION OF JURISDICTION ULS 153A IS TRIGGERED BY OPERATION OF LAW . THE REST IS A MATTER OF DETERMINATION OF INCOME BASED ON THE MATERIAL AVAILABLE WITH THE A . O. SECTION 153A SUBSTITUTES OTHER POWERS AND FUNCTIONS OF A . O ., LIKE THOSE AVAILABLE U L S 147. IF A PROFIT & LOSS ACCOUNT IS FOUND DURING 103 ITA NO. 2057/DEL/10 NIIT VS. CIT SEARCH(NOT HITHERTO AVAILABLE ON RECORD) THE A.O. W OULD BE DUTY BOUND, WHILE EXERCISING HIS POWERS AND FUNCTION ULS 153A, TO DETERMINE WHAT TAXABLE INCOME EMERGES FROM THE SAME . IT WOULD NOT BE OPEN TO ARGUE THAT THE INCOM E ARISING FROM SUCH ACCOUNT SHOULD BE DISREGARDED MER ELY BECAUSE THE ASSESSMENT IS NOT ABATED. THE PLEA MAY BE VALID IF SUCH PROFIT & LOSS ACCOUNT WAS PRODUCED AND EXAMINED A T EARLIER POINT OF TIME WHILE MAKING THE REGULAR ASSE SSMENT . THE REVENUE PLACED RELIANCE ON THE DECISION OF DELH I HIGH COURT IN THE CASE OF SSP AVIATION LTD. V. DCIT 346 ITR 177. IN THAT CASE THE HIGH COURT HAD EXAMINED THE VALIDI TY OF ASSUMPTION OF JURISDICTION UNDER SECTION 153C OF TH E ACT. THE HIGH COURT HELD THAT FOR THE PURPOSES OF ASSUMING J URISDICTION UNDER SECTION 153C, THE ONLY REQUIREMENT IS RECORD ING OF SATISFACTION BY THE ASSESSING OFFICER HAVING JURISD ICTION OVER THE SEARCHED PERSON THAT THE VALUABLE ARTICLES OR B OOKS OF ACCOUNTS OR DOCUMENTS SEIZED DURING SEARCH BELONG T O A TH I R D PERSON. IT WAS HELD THAT THERE IS NO REQUIREMENT IN SECTION 153C (1) THAT THE ASSESSING OFFICER SHOULD ALSO BE SATIS FIED, THAT SUCH VALUABLE ARTICLES OR BOOKS OF ACCOUNTS OR DOCUMENTS BELONGING TO OTHER PERSON, CONCLUSIVELY REFLECT EARNING OF UN DISCLOSED INCOME BY SUCH THIRD PERSON. ACCORDINGL Y, IT WAS CONTENDED THAT THE EXISTENCE OF SEIZED MATERI A L I S S UFFICIENT FO R THE PURPOSES OF ASSUMING JURISDICTION AND MAKING ASSESS MENT UNDER SECTION 153A A N D THERE IS NO IMPEDIMENT TO COMPLETE THE ASSESSMENT ON THE BASI S OF S UCH MATERIAL . 27. ON TH E BA S I S OF TH E A BO V E , IT I S S UBMITTED THAT S INC E IN TH E CAS E OF T HE ASSESS E E T H ERE WAS IN C RIMINATIN G MAT E RIAL IN TH E F O RM OF A CCOUNTS NOT HITHERTO PRODUCED B E FOR E A. O ., E MA ILS / ST A T E M E NT S O F V ARIOU S P E R S ON S AND S UCH MATER I AL W A S SUFFICIENT T O A SSUM E J URI S DI CT I O N FO R THE PURPO SES O F M A KIN G A SSES SMENT UNDER SECTION 153A . 34. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE RECORD OF THE CASE. SECTION 153A LAYS DOWN THE PROCEDURE FOR ASSESSMENT AS A 104 ITA NO. 2057/DEL/10 NIIT VS. CIT CONSEQUENCE OF SEARCH. AS PER THIS SECTION, WHERE A SEARCH HAS BEEN INITIATED U/S 132 OR REQUISITION IS MADE U/S 132A OF THE ACT, THE AO SHALL ASSESS OR REASSESS THE TOTAL INCOME OF SIX ASSESSMENT YEARS I MMEDIATELY PRECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH SUCH SEARCH WAS CONDUCTED OR REQUISITION WAS MADE. LD. SPL. COUNSE L HAS RIGHTLY POINTED OUT THAT IN TERMS OF SECTION 132 OF THE ACT, SEARCH CAN BE CONDUCTED ONLY ON SATISFACTION OF CERTAIN PRE-REQUISITE CONDITIONS PR ESCRIBED UNDER THAT SECTION. HE HAS POINTED OUT THAT SEARCH CAN BE CONDUCTED ON A PERSON ONLY IF THE PRESCRIBED INCOME-TAX AUTHORITY HAS REASON TO BELIE VE THAT (I) ANY PERSON, TO WHOM, SUMMONS/ NOTICE WAS ISSUED UND ER THE PROVISIONS OF THE ACT TO PRODUCE BOOKS/ DOCUMENTS, HAS FAILED TO PRODUCE THE SAME; OR (II) ANY PERSON TO WHOM SUMMONS/ NOTICE UNDER THE PROVIS IONS OF THE ACT HAD BEEN OR MIGHT BE ISSUED WILL NOT OR WOULD NOT P RODUCE BOOKS/ DOCUMENTS; OR (III) ANY PERSON IS IN POSSESSION OF MONEY, BULLION, JEW ELLERY OR ANY VALUABLE ARTICLE OR THING, WHICH HAD NOT BEEN OR W OULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THE ACT, REFERRED TO AS UNDISCLOSED INCOME. 34.1. THUS, THE TRIGGER POINT OF SUCH ASSESSMENT IS SEARCH, WHICH, IN TURN, CAN BE CONDUCTED ONLY WHERE THE INCOME-TAX AUTHORIT Y HAS REASON TO BELIEVE THAT THE ASSESSEE IS IN POSSESSION OF CERTAIN UNDI SCLOSED ASSETS OR DOCUMENTS SUGGESTING EARNING OF UNDISCLOSED INCOME BY THE ASS ESSEE. THE PURPOSE OF MAKING ASSESSMENT U/S 153A OF THE ACT IS NOT TO VER IFY THE RETURN, AS SUCH, BUT TO MAKE ASSESSMENT PRIMARILY ON THE BASIS OF TH E MATERIAL FOUND DURING THE COURSE OF SEARCH. THERE CANNOT BE ANY QUARREL W ITH THESE SUBMISSIONS 105 ITA NO. 2057/DEL/10 NIIT VS. CIT MADE BY THE LD. COUNSEL FOR THE ASSESSEE. IN THIS R EGARD WE MAY REFER TO THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN T HE CASE OF CHETAN DAS LAXMAN DAS (SUPRA), IN WHICH HONBLE JURISDICTIONAL HIGH COURT OBSERVED THAT THOUGH THERE IS NO CONDITION IN SECTION 153A T HAT ADDITION SHOULD BE STRICTLY MADE ON THE BASIS OF EVIDENCE FOUND IN THE COURSE OF SEARCH OR OTHER POST-SEARCH MATERIAL OR INFORMATION AVAILABLE WITH THE AO WHICH CAN BE RELATED TO THE EVIDENCE FOUND, BUT THAT DOES NOT M EAN THAT ASSESSMENT U/S 153A CAN BE ARBITRARY OR MADE WITHOUT ANY RELEVANC E OR NEXUS WITH THE SEIZED MATERIAL. 34.2. LD. COUNSEL HAS ALSO RELIED ON THE DECISION O F SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ALL CARGO GLOBAL LOGISTIC S LTD. (SUPRA), WHEREIN IT WAS HELD THAT IN CASE OF NON-ABATED ASSESSMENT, TH E SAME IS TO BE RESTRICTED TO (A)UNDISCLOSED INCOME/ PROPERTY FOUND DURING TH E COURSE OF SEARCH; AND (B) INCOME ON THE BASIS OF BOOKS OF ACCOUNT OR OTHE R DOCUMENTS, WHICH WAS NOT PRODUCED IN THE REGULAR ASSESSMENT AND ARE FOUN D IN THE COURSE OF SEARCH. IT WAS HELD THAT IN CASE OF ABATED ASSESSMENTS, THE ASSESSMENT U/S 153A OF THE ACT WOULD MERGE INTO ONE AND, THUS, ONLY ONE AS SESSMENT IS TO BE MADE. 34.3. LD. SPECIAL COUNSELS CONTENTION THAT SINCE THE ORIGINAL ASSESSMENT HAD BEEN COMPLETED U/S 143(1), THE RESTRICTIVE MEAN ING CANNOT BE ASCRIBED TO THE EXPRESSION NOT PRODUCED BEFORE THE AO AND WIL L INCLUDE NOT PRODUCED BY OPERATION OF LAW DESERVES TO BE ACCEPTED. HOWEV ER, IN THE PRESENT CASE MATERIAL IN THE FORM OF E-MAILS, COPIES OF A/CS, DO CUMENTS ETC., WAS SEIZED DURING SEARCH AND STATEMENTS WERE ALSO RECORDED, WH ICH HAVE BEEN FILED BEFORE US BY WAY OF COMPILATION AND THE SAME HAD DI RECT NEXUS WITH THE ISSUE RAISED BY LD. CIT. THEREFORE, ASSESSMENTS HA D TO BE MADE AFTER PROPER SCRUTINY OF THOSE DOCUMENTS AS WELL AS ON THE BASIS OF BOOKS OF A/C FOUND IN 106 ITA NO. 2057/DEL/10 NIIT VS. CIT COURSE OF SEARCH. THERE IS NO QUARREL WITH THE PR OPOSITION ADVANCED BY LD. COUNSEL FOR THE ASSESSEE, AS FAIRLY ACCEPTED BY LD. SPECIAL COUNSEL, THAT THE BAR WHICH APPLY TO THE AO EQUALLY APPLIES TO THE CI T FOR THE PURPOSES OF SECTION 263 OF THE ACT, AS WAS HELD BY THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. PAUL JOHN, DELICIOUS CASHEW CO. 200 TAXMAN 154. 34.4. IN VIEW OF ABOVE DISCUSSION, THIS GROUND IS R EJECTED. 35. VIDE GROUND NO. 9, THE ASSESSEE HAS ASSAILED TH E ORDER PASSED U/S 263 ON THE GROUND THAT LD. COMMISSIONER ERRED IN SETTIN G ASIDE THE VARIOUS ISSUES WITHOUT RECORDING ANY PRIMA FACIE FINDING ON THE ME RITS OF THE ISSUE. 36. LD. COUNSEL SUBMITTED THAT LD. CIT FAILED TO RE CORD THAT ASSESSMENT ORDER WAS PRIMA FACIE ERRONEOUS. HE SUBMITTED THAT IT IS THE MANDATORY REQUIREMENT THAT ASSESSMENT ORDER SHOULD BE PREJUD ICIAL TO THE INTERESTS OF REVENUE AND, THEREFORE, WHILE EXERCISING REVISIONAR Y JURISDICTION U/S 263 OF THE ACT, CIT MUST PINPOINT NOT ONLY AS TO HOW THE ASSESSMENT ORDER WAS ERRONEOUS BUT ALSO HOW THE PREJUDICE WAS CAUSED TO THE REVENUE AS A RESULT OF SUCH ERROR. LD. COUNSEL SUBMITTED THAT IN THE PRESE NT CASE THE COMMISSIONER WHILE ALLEGING THAT AO CONDUCTED INADEQUATE INQUIRI ES QUA VARIOUS ISSUES HELD THE ASSESSMENT ORDER TO BE ERRONEOUS, BUT DID NOT GIVE ANY FINDING ON MERITS OF ANY OF THE ISSUES. HE SUBMITTED THAT CIT SIMPLY SET ASIDE THE ASSESSMENT TO BE DECIDED AFRESH, THEREBY GIVING A F RESH INNING TO THE AO TO FIRST CONDUCT INQUIRY AND THEREAFTER MAKE ADDITIO NS/ DISALLOWANCES, IF REQUIRED. HE SUBMITTED THAT THIS APPROACH OF LD. CO MMISSIONER IS 107 ITA NO. 2057/DEL/10 NIIT VS. CIT IMPERMISSIBLE IN LAW AND BEYOND JURISDICTION, AS HE LD BY HONBLE DELHI HIGH COURT IN THE CASE OF DG HOUSING PROJECTS (SUPR A), WHEREIN IT HAS BEEN HELD THAT WHERE AO ACTUALLY CONDUCTED INQUIRY AT TH E TIME OF ASSESSMENT, THE CIT MUST EXAMINE THE ORDER OF AO ON MERITS AND THEN HOLD AND FORM AN OPINION ON THE MERITS THAT THE ORDER PASSED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. LD. COUNSE L RELIED ON FOLLOWING CASE LAWS ON THIS ISSUE: - CIT VS. LEISURE WEAR EXPORTS LTD. 341 ITR 166 (DEL) ; - CIT VS. HINDUSTAN MARKETING & ADVERTISING CO. LTD. 341 ITR 180 (DEL); - CWT V. PRITHVI RAJ & CO. 199 ITR 424 (DEL); - JP SERVASTAVA & SONS (KANPUR) LTD. VS. CIT 111 ITR 326(ALL); - CIT VS. CHAWLA TRUNK HOUSE 139 ITR 182 (P&H); - JEWEL OF INDIA V. ACIT 325 ITR 92 (BOM); - SAW PIPES LTD. V. ACIT 94 TTJ 1036 (DEL.); - MAHINDRA BRITISH TELECOM LTD. VS. DCIT 2009-TIOL-48 7-ITAT- MUM - CIT VS. HERO AUTO LTD. 343 ITR 342 (DEL.). 36.1. LD. COUNSEL POINTED OUT THAT IN RESPONSE TO T HE NOTICE ISSUED BY THE CIT U/S 263 OF THE ACT, THE ASSESSEE, APART FROM RA ISING LEGAL OBJECTION TO THE ASSUMPTION OF JURISDICTION UNDER THE SAID SECTION, HAD SUBMITTED DETAILED REPLIES ON MERITS. HE POINTED OUT THAT IN THE ORDER PASSED U/S 263, THE CIT DID NOT DEAL WITH THE SUBMISSIONS OF THE ASSESSEE O N MERITS AND HAD MERELY SET ASIDE THE SAME TO THE FILE OF AO FOR DE NOVO AD JUDICATION. HE SUBMITTED 108 ITA NO. 2057/DEL/10 NIIT VS. CIT THAT LD. CIT FAILED TO DEMONSTRATE HOW THE ASSESSME NT FRAMED BY THE AO AFTER DUE VERIFICATION AND INQUIRY, WAS ERRONEOUS A ND PREJUDICIAL TO THE INTERESTS OF REVENUE. LD. COUNSEL IN THIS REGARD RE FERRED TO PARA 15 OF THE DECISION IN THE CASE OF DG HOUSING PROJECTS (SUPRA) AND POINTED OUT THAT THE HONBLE DELHI HIGH COURT AFTER CONSIDERING THE DECI SION IN THE CASE OF CIT VS. SUNBEAM LTD. 332 ITR 167, HELD AS UNDER: 16. THUS, IN CASES OF WRONG OPINION OR FINDING ON M ERITS, THE CIT HAS TO COME TO THE CONCLUSION AND HIMSELF DECID E THAT THE ORDER IS ERRONEOUS, BY CONDUCTING NECESSARY ENQUIRY , IF REQUIRED AND NECESSARY, BEFORE THE ORDER UNDER SECT ION 263 IS PASSED. IN SUCH CASES, THE ORDER OF THE ASSESSING O FFICER WILL BE ERRONEOUS BECAUSE THE ORDER PASSED IS NOT SUSTAINAB LE IN LAW AND THE SAID FINDING MUST BE RECORDED. CIT CANNOT R EMAND THE MATTER TO THE ASSESSING OFFICER TO DECIDE WHETHER T HE FINDINGS RECORDED ARE ERRONEOUS. IN CASES WHERE THERE IS INA DEQUATE ENQUIRY BUT NOT LACK OF ENQUIRY, AGAIN THE CIT MUST GIVE AND RECORD A FINDING THAT THE ORDER/INQUIRY MADE IS ERR ONEOUS. THIS CAN HAPPEN IF AN ENQUIRY AND VERIFICATION IS CONDUC TED BY THE CIT AND HE IS ABLE TO ESTABLISH AND SHOW THE ERROR OR MISTAKE MADE BY THE ASSESSING OFFICER, MAKING THE ORDER UNS USTAINABLE IN LAW. IN SOME CASES POSSIBLY THOUGH RARELY, THE C IT CAN ALSO SHOW AND ESTABLISH THAT THE FACTS ON RECORD OR INFE RENCES DRAWN FROM FACTS ON RECORD PER SE JUSTIFIED AND MANDATED FURTHER ENQUIRY OR INVESTIGATION BUT THE ASSESSING OFFICER HAD ERRONEOUSLY NOT UNDERTAKEN THE SAME. HOWEVER, THE S AID FINDING MUST BE CLEAR, UNAMBIGUOUS AND NOT DEBATABLE. THE M ATTER CANNOT BE REMITTED FOR A FRESH DECISION TO THE ASSE SSING OFFICER TO CONDUCT FURTHER ENQUIRIES WITHOUT A FINDING THAT THE ORDER IS ERRONEOUS. FINDING THAT THE ORDER IS ERRONEOUS IS A CONDITION OR REQUIREMENT WHICH MUST BE SATISFIED FOR EXERCISE OF JURISDICTION UNDER SECTION 263 OF THE ACT. IN SUCH MATTERS, TO R EMAND THE MATTER/ISSUE TO THE ASSESSING OFFICER WOULD IMPLY A ND MEAN THE CIT HAS NOT EXAMINED AND DECIDED WHETHER OR NOT THE ORDER IS 109 ITA NO. 2057/DEL/10 NIIT VS. CIT ERRONEOUS BUT HAS DIRECTED THE ASSESSING OFFICER TO DECIDE THE ASPECT/QUESTION. 37. LD. SPECIAL COUNSEL SUBMITTED THAT SINCE THE CA SE OF THE ASSESSEE FALLS IN THE CATEGORY OF LACK OF INQUIRY AS OPPOSED TO IN ADEQUATE INQUIRY, THE CIT WAS NOT REQUIRED TO GIVE FINDING ON MERITS OF THE MATTER AND THE APPROACH OF SETTING ASIDE THE ISSUE FOR FRESH CONSIDERATION BY AO WAS VALID IN LAW. IN THIS REGARD HE PLACED RELIANCE ON THE DECISION OF H ONBE DELHI HIGH COURT IN THE CASE OF GEE VEE ENTERPRISE V. ACIT 99 ITR 375, WHEREIN IT HAS BEEN HELD THAT IT IS NOT NECESSARY FOR THE COMMISSIONER TO MAKE FRESH INQUIRIES BEFORE CANCELLING THE ORDER OF ASSESSMENT. HE SUBMI TTED THAT IT IS ONLY WHERE AO HAS CONDUCTED THE NEESSARY INQUIRY; BROUGHT THE NECESSARY MATERIAL AND EVIDENCE ON RECORD; FORMED AN OPINION ON THE GIVEN ISSUE BASED ON SUCH EVIDENCE THAT THE PROPOSITION SOUGHT TO BE ADVANCED BY THE ASSESSEE WOULD APPLY. 37.1. LD. SPECIAL COUNSEL REITERATED THE SUBMISSIO NS MADE EARLIER IN REGARD TO THE LEVEL OF INQUIRY WHICH IS EXPECTED FR OM THE AO, WHICH WE HAVE NOTED IN EXTENSO EARLIER. HE SUBMITTED THAT IN CASE WHERE THE ASSESSMENT HAS BEEN COMPLETED WITHOUT MAKING ANY WORTHWHILE INQUIR Y AND WITHOUT PLACING ON RECORD THE MATERIAL TO FORM AN OPINION ONE WAY O R THE OTHER, IT IS WHOLLY AN UNTENABLE PROPOSITION TO SUGGEST THAT CIT MUST R ECORD A FINDING THAT THE OPINION SO FRAMED BY THE AO, WAS ERRONEOUS. 37.2. HE SUBMITTED THAT IN A CASE OF NON-APPLICAT ION OF MIND BY THE AO, THE FINDING IS ALWAYS ERRONEOUS AS IT DISPLAYS NON -APPLICATION OF MIND AND FAILURE TO CONDUCT THE ENQUIRIES AND COLLECT THE PR IMARY DETAILS. IF IN A GIVEN CASE THE AO ACCEPTS THE RETURNED INCOME WITHOUT LOO KING INTO ANY MATERIAL, 110 ITA NO. 2057/DEL/10 NIIT VS. CIT IT CANNOT BE SAID THAT HE HAS FORMED AN OPINION. FO RMING OF OPINION IS A JUDICIAL OR QUASI JUDICIAL PROCESS WHILE DISCHARGIN G STATUTORY FUNCTIONS. HE SUBMITTED THAT OPINIONS ARE NOT FORMED IN VACUUM. I N A JUDICIAL PROCESS, IT HAS TO BE BASED ON MATERIAL EVIDENCE. IT IS NOT THE SUBJECTIVE OPINION OF AN INDIVIDUAL BUT THE RATIONAL VIEW OF AN AUTHORITY DU LY EMPOWERED TO FORM THE OPINION UNDER LAW. 37.3. LD. SPECIAL COUNSEL SUBMITTED THAT THE PRESEN T CASE IS NOT ONE WHERE THE AO HAS CHOSEN TO ADOPT ONE OF TWO POSSIBLE VIEW S. IN THAT EVENT, IT WOULD HAVE BEEN CORRECT TO SUGGEST THAT THE CIT MUS T GIVE HIS FINDING ON HOW THE VIEW TAKEN BY THE AO WAS ERRONEOUS. IT IS O NLY IN THE CASE OF WRONG OR UNTENABLE OPINION AND FINDING THAT THE CIT HAS T O RECORD A FINDING AS TO HOW THE OPINION OF THE AO WAS ERRONEOUS. 37.4. LD. SPECIAL COUNSEL FURTHER SUBMITTED THAT THE CASES CITED BY THE ASSESSEE ARE NOT APPLICABLE TO THE PRESENT CASE AS IN ALL THOSE CASES REASONABLE AND DETAILED INQUIRES WERE CONDUCTED AND A QUASI JUDICIAL VIEW WAS FORMED BASED ON MATERIAL ON RECORD. HOWEVER, IN THE PRESENT CASE, EVEN THE PRIMARY ENQUIRIES HAVE NOT BEEN CONDUCTED AND T HERE IS A COMPLETE NON- APPLICATION OF MIND. THERE IS A COMPLETE FAILURE OF AO TO DISCHARGE THE STATUTORY FUNCTION. THE GROUND OF APPEAL IS, THEREF ORE, NOT TENABLE. 37.5. LD. SPECIAL COUNSEL FURTHER REFERRED TO PARA 19 OF THE DECISION IN THE CASE OF DG HOUSING (SUPRA), REPRODUCED BELOW, TO S UBMIT THAT THE FACTS IN THE SAID CASE WERE SUCH WHERE CIT WAS REQUIRED TO G IVE HIS DECISION ON MERITS BEFORE BRANDING THE ASSESSMENT ORDER AS ERRO NEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE: 19. IN THE PRESENT CASE, THE FINDINGS RECORDED BY THE TRIBUNAL ARE CORRECT AS THE CIT HAS NOT GONE INTO AND HAS NO T GIVEN ANY REASON FOR OBSERVING THAT THE ORDER PASSED BY THE A SSESSING 111 ITA NO. 2057/DEL/10 NIIT VS. CIT OFFICER WAS ERRONEOUS. THE FINDING RECORDED BY THE CIT IS THAT ORDER PASSED BY THE ASSESSING OFFICER MAY BE ERRON EOUS. THE CIT HAD DOUBTS ABOUT THE VALUATION AND SALE CONSIDE RATION RECEIVED BUT THE CIT SHOULD HAVE EXAMINED THE SAID ASPECT HIMSELF AND GIVEN A FINDING THAT THE ORDER PASSED B Y THE ASSESSING OFFICER WAS ERRONEOUS. HE CAME TO THE CON CLUSION AND FINDING THAT THE ASSESSING OFFICER HAD EXAMINED THE SAID ASPECT AND ACCEPTED THE RESPONDENT S COMPUTATION FIGURES BUT HE HAD RESERVATIONS. THE CIT IN THE ORDER HAS RECOR DED THAT THE CONSIDERATION RECEIVABLE WAS EXAMINED BY THE ASSESS ING OFFICER BUT WAS NOT PROPERLY EXAMINED AND THEREFORE THE ASSESSMENT ORDER IS ERRONEOUS. THE SAID FINDING W ILL BE CORRECT, IF THE CIT HAD EXAMINED AND VERIFIED THE S AID TRANSACTION HIMSELF AND GIVEN A FINDING ON MERITS. AS HELD ABOVE, A DISTINCTION MUST BE DRAWN IN THE CASES WHE RE THE ASSESSING OFFICER DOES NOT CONDUCT AN ENQUIRY; AS L ACK OF ENQUIRY BY ITSELF RENDERS THE ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND CASE S WHERE THE ASSESSING OFFICER CONDUCTS ENQUIRY BUT FINDING RECO RDED IS ERRONEOUS AND WHICH IS ALSO PREJUDICIAL TO THE INTE REST OF THE REVENUE. IN LATTER CASES, THE CIT HAS TO EXAMINE TH E ORDER OF THE ASSESSING OFFICER ON MERITS OR THE DECISION TAKEN B Y THE ASSESSING OFFICER ON MERITS AND THEN HOLD AND FORM AN OPINION ON MERITS THAT THE ORDER PASSED BY THE ASSESSING OF FICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. IN THE SECOND SET OF CASES, CIT CANNOT DIRECT THE ASSESSIN G OFFICER TO CONDUCT FURTHER ENQUIRY TO VERIFY AND FIND OUT WHET HER THE ORDER PASSED IS ERRONEOUS OR NOT. 37.6. LD. SPL. COUNSEL REFERRED TO THE DECISION IN THE CASE OF CIT VS. LEISURE WEAR EXPORTS LTD. 341 ITR 166, RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE TO POINT OUT THAT THE FACTS IN THE SA ID CASE WERE DIFFERENT. IN THAT CASE ONE OF THE ISSUES ON WHICH THE CIT EXERCISED H IS REVISIONARY POWERS U/S 263 OF THE ACT PERTAINED TO THE CLAIM OF DEDUCTION BY THE ASSESSEE U/S 80HHC OF THE ACT. THE ASSESSEE HAD CLAIMED DEDUCTIO N UNDER THIS PROVISION 112 ITA NO. 2057/DEL/10 NIIT VS. CIT AMOUNTING TO RS. 32,25,486/-. HOWEVER, DESPITE VARI OUS OPPORTUNITIES GIVEN BY AO, THE ASSESSEE DID NOT FURNISH THE PARTICULARS / DOCUMENTS AND TOOK A PLEA THAT IT HAD LOST THE BOOKS OF A/C. THE REQUIRE D INFORMATION WAS NOT GIVEN. THEN AO DISALLOWED THE ENTIRE CLAIM OF DEDUC TION U/S 80HHC OF THE ACT. THE CIT IN HIS ORDER PASSED U/S 263 OF THE ACT OPINED THAT NON-SUPPLY OF THE INFORMATION WAS DELIBERATE NON-COMPLIANCE ON THE PART OF THE ASSESSEE AND, THEREFORE, THE ASSESSMENT SHOULD HAVE BEEN COM PLETED U/S 144 OF THE ACT AND NOT U/S 143(3) OF THE ACT. THEN COMMISSIONE R ALSO RECORDED IN HIS ORDER THAT THE AO HAD NOT RAISED INQUIRES ON THE FO LLOWING ISSUES: A) AS PER THE PAPERS ON RECORD, THE ASSESSEE HAS CL AIMED THAT THERE ARE FINISHED GOODS IN THE CLOSING STOCK TO TH E TUNE OF RS.5.28 CRORES. CONSIDERING THE FACTS THAT THE TOTA L TURNOVER OF THE ASSESSEE WAS ONLY RS.6.13 CRORES, IT WAS NECESS ARY TO OBTAIN THE DETAILS OF THE CLOSING STOCK, BUT NO DET AILS WERE CALLED FOR FROM THE ASSESSEE; B) THE ASSESSEE HAS SHOWN INSURANCE CLAIM RECEIVABL E AMOUNTING TO RS.1.21 CRORES BUT NO DETAILS HAVE BEE N FURNISHED BY THE ASSESSEE. THE ASSESSING OFFICER HAS ALSO NOT MADE ANY INQUIRES IN RESPECT OF THIS ISSUE, FROM THE INSURAN CE COMPANY WHICH WOULD BE HAVING THE DETAILS OF THE CLAIM; C) THE ASSESSEE HAS SHOWN M/S MEGHNA OVERSEAS AS A SUNDRY DEBTORS TO THE EXTENT OF RS.6.99 CRORES. IT APPEARS THAT EXPORT HAVE BEEN MADE TO THIS FIRM, BUT NO DETAILS ARE ON RECORD, WHICH WOULD DETAILS THE EXPORT SALES MADE. IT IS PE RTINENT TO POINT OUT THAT THE REQUIREMENTS OF SECTION 80 HHC ( 4) IS AS FOLLOWS: (4) THE DEDUCTION UNDER SUB-SECTION (1) SHALL NOT BE ADMISSION UNLESS THE ASSESSEE FURNISHES IN THE PRESCRIBED FORM, ALONGWITH THE RETURN OF INCOME, TH E REPORT OF AN ACCOUNTANT, AS DEFINED IN THE EXPLANAT ION BELOW SUB-SECTION (2) OF SECTION 288, CERTIFYING TH AT THE 113 ITA NO. 2057/DEL/10 NIIT VS. CIT DEDUCTION HAS BEEN CORRECTLY CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION. AND AS THERE I S SUCH A LARGE BALANCE OUTSTANDING, AND IN VIEW OF THE FACT THAT NO CERTIFICATE U/S 80 HHC HAS BEEN FILED FROM WHICH IT COULD BE DEDUCED THAT SUCH HUGE EXPORTS HAVE BEEN MADE, IT WAS INCUMBENT ON THE ASSESSING OFFICER TO MAKE ENQUIRIES FROM THE DIRECTORATE OF FOREIGN TRADE, BU T NO SUCH ENQUIRIES HAVE BEEN MADE. D) THE ASSESSEE HAS SHOWN INCOME AT RS.1.61 CRORES AS EXCHANGE VARIATION AND THIS HAS BEEN EXPORT/SALES O F CRORES. IT IS PERTINENT TO NOTE THAT IN THE IMMEDIATE PREVIOUS YEAR NO SUCH GAIN WAS SHOWN. THEREFORE, THIS IS A POINT WHICH NE EDED EXAMINATION BY THE AO. 37.7. IN THE BACK DROP OF THESE FACTS THE HONBLE H IGH COURT OBSERVED AS UNDER: 12. KEEPING IN MIND THE AFORESAID PRINCIPLES, WE PR OCEED TO DISCUSS THE ISSUE AT HAND. IT WAS ARGUED BY THE LEA RNED COUNSEL FOR THE ASSESSEE THAT IN THE ENTIRE ORDER PASSED BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT IT IS NOT MENTIONED AS TO HOW THE ORDER WAS ERRONEOUS AND PREJUDICIAL T O THE INTEREST OF THE REVENUE. AFTER SCRUTINISING THE SAI D ORDER MINUTELY WE ARE INCLINED TO AGREE WITH THE AFORESAI D ARGUMENT OF THE LEARNED COUNSEL. IN THE ENTIRE ORDER EMPHASI S LAID BY THE COMMISSIONER IS THAT IN RESPECT OF FOUR ISSUES MENT IONED BY HIM, NO QUERIES WERE RAISED BY THE AO. ON THIS PREM ISE, THOUGH IT IS OBSERVED THAT THERE WAS NO APPLICATION OF MIN D ON THE PART OF THE AO AND THE AO HAS NOT RECORDED ANY REASONS T O JUSTIFY THE OMISSION TO CONSIDER THE SAID FACTS, THE COMMIS SIONER DOES NOT TAKE THE SAID ORDER TO ITS LOGICAL CONCLUSION W HICH WAS THE PRIME DUTY OF THE COMMISSIONER IN ORDER TO JUSTIFY EXERCISE OF POWER UNDER SECTION 263 OF THE ACT. THERE IS NOT EV EN A WHISPER THAT THE ORDER IS ERRONEOUS. EVEN IF WE INFER THAT NON- CONSIDERATION OF THE ISSUES POINTED OUT BY THE COMM ISSIONER WOULD AMOUNT TO AN ERRONEOUS ORDER, IT IS NOT STATE D AS TO HOW THIS ORDER IS PREJUDICIAL TO THE INTEREST OF THE RE VENUE. THE 114 ITA NO. 2057/DEL/10 NIIT VS. CIT PENULTIMATE PARAGRAPHS OF THE ORDERS, AT BEST, CONT AIN THE OBSERVATIONS THAT THE AO WAS SATISFIED WITH MAKING FLIMSY ADDITIONS WHICH WERE DELETED BY THE CIT(A). THIS IS STATED IN THE FOLLOWING TERMS:- 7. IN THE INSTANT CASE, THE ASSESSING OFFICER WAS SATISFIED WITH MAKING A FLIMSY ADDITION DISALLOWING THE CLAIM OF RS.17,38,106/- DEBITED UNDER THE HEAD, SELLING AND DISTRIBUTING EXPENSES, AND AFTER FURTHER HOLDING THAT THE DEDUCTION UNDER SECTION 80HHC OF RS.32,25,486/- WAS UNWARRANTED. THESE ADDITIONS WERE NOT SUSTAINED AT THE APPELLATE STAGE BY THE CIT (APPEALS), WHO ACCEPTED THE PLEA OF THE ASSESSEE THE DIRECTOR BEING OUT OF THE COUNTRY AND THE MATTER HAVING NOT BEEN PROPERLY ATTENDED TO AT THE EARLIER STAGE AS PER THE REQUISITION IS HIGHLY REGRETTED. 8. THE POINT WHICH BEARS CONSIDERATION IS THAT THE ASSESSING OFFICER MADE NO THIRD PARTY ENQUIRIES, AS A RESULT OF WHICH HE HAS PASSED A VERY WEAK ORDER, WHICH IGNORED THE MAJOR ISSUES INVOLVED, AND LEFT THE ASSESSEE TO BENEFIT FROM ITS OWN NON-COMPLIANCE. 13. THUS, ACCORDING TO THE COMMISSIONER PROPER EXER CISE WAS NOT DONE WHILE MAKING THE ASSESSMENT; DEEPER INQUIR IES WERE NOT MADE; MAJOR ISSUES INVOLVED WERE IGNORED AND A WEAK ORDER WAS PASSED. THERE IS NOT A WHISPER AS TO HOW THIS ORDER WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 14. THAT APART, WE FIND THAT THE APPROACH OF THE TR IBUNAL IN DISCARDING THE OBSERVATION OF THE COMMISSIONER ABOU T NOT MAKING PROPER INQUIRIES IN RESPECT OF THE SAID FOUR ISSUES ARE ALSO JUSTIFIED AND WITHOUT BLEMISH. 15. FIRST COMMENT OF THE COMMISSIONER WAS IN RESPEC T OF FINISHED GOODS IN THE CLOSING STOCK. THE COMMISSION ER FOUND THAT THESE WERE TO THE TUNE OF `5.28 CRORES. ACCORD ING TO THE 115 ITA NO. 2057/DEL/10 NIIT VS. CIT COMMISSIONER, WHEN THE TOTAL TURNOVER OF THE ASSESS EE WAS `6.13 CRORES, THE AO SHOULD HAVE SATISFIED HIMSELF BY CALLING FOR MORE DETAILS AS TO HOW THERE WAS CLOSING STOCK OF S UCH A MAGNITUDE OF ` 5.28 CRORES. THUS, THE COMMISSIONER HAS NOT DOUBTED THE STATEMENT OF FINISHED GOODS IN THE CLOS ING STOCK FURNISHED BY THE ASSESSEE. HE HAS ONLY REMARKED THA T THERE SHOULD HAVE BEEN A DEEPER PROBE BY CALLING FOR MORE DETAILS. THIS IS NEITHER HERE NOR THERE, WHEN WE KEEP IN VIE W THE INGREDIENTS OF SECTION 263 OF THE ACT. 16. IN SO FAR AS THE INSURANCE CLAIM IS CONCERNED, THE COMMISSIONER OBSERVED THAT THE ASSESSEE HAD SHOWN R ECEIVABLE ON THIS ACCOUNT TO THE TUNE OF `1.21 CRORES BUT NO DETAILS HAD BEEN FURNISHED. THE AO HAD ALSO NOT MADE ANY INQUIR IES. IN THE DETAILED DISCUSSION ON THIS ASPECT THE TRIBUNAL HAS OBSERVED THAT INSURANCE CLAM WAS LODGED FOR THE GOODS LOST I N TRANSIT. THE ASSESSEE AT THAT TIME HAD MERELY FILED A CLAIM WITH THE INSURANCE COMPANY. THIS CLAIM HAD NOT BEEN APPROVED AS THE INSURANCE COMPANY HAD NEITHER ACCEPTED THE SAME NOR GIVEN ANY ASSURANCE FOR MAKING PAYMENT. THEREFORE, NO INCOME HAD ACCRUED WHICH COULD BE T AXED. THE TRIBUNAL RIGHTLY HELD THAT ORDINARILY THE INCOME IS SAID TO HAVE ACCRUED TO A PERSON WHEN HE ACQUIRES THE RIGHT TO I NCOME AND THIS SHOULD BE ENFORCEABLE RIGHT, THOUGH ACTUAL QUA NTIFICATION OR RECEIPT MAY FOLLOW IN DUE COURSE. THE MERE CLAIM TO INCOME WITHOUT ANY ENFORCEABLE RIGHT CANNOT BE REGARDED AS AN ACCRUED INCOME FOR THE PURPOSE OF INCOME-TAX ACT. T HE TRIBUNAL REFERRED TO THE FOLLOWING JUDGMENTS IN SUP PORT:- I) IN CIT VS. FINANCE (P) LTD. 124 ITR 619(P&H HIGH COURT), HELD AS UNDER: INCOME-TAX IS LEVIED ON INCOME WHETHER THE ACCOUNT S ARE MAINTAINED ON MERCANTILE SYSTEM OR ON CASH BASIS. I F INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE LEVY OF TAX . EVEN IF AN ENTRY OF HYPOTHETICAL INCOME IS MADE IN THE BOOKS O F ACCOUNTS, WHERE THE INCOME DOES NOT RESULT AT ALL AS THERE IS NEITHER 116 ITA NO. 2057/DEL/10 NIIT VS. CIT ACCRUAL NOR RECEIPT OF INCOME, NO TAX CAN BE LEVIED . EVEN IN MERCANTILE SYSTEM OF ACCOUNTANCY AN ASSESSEE COULD FORGE THE WHOLE OR PART OF A DEBT, WHICH WAS IRRECOVERABLE, A ND THE SAME COULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE. HONBLE SUPREME COURT IN THE CASE OF GODHRA ELECTRICITY CO. LTD. VS. CIT (SC) 225 ITR 706, HELD THAT INCOME-TAX IS A LE VY ON INCOME. NO DOUBT, THE INCOME-TAX ACT TAKES INTO ACC OUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATT RACTED, VIZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPT; BUT THE SUBST ANCE OF THE MATTER IS THE INCOME. IF THE INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK KEEPING, AN EN TRY IS MADE ABOUT A HYPOTHETICAL INCOME, WHICH DOES NOT MATERIA LIZE. AT PAGE 748 AND 749, THE SUPREME COURT FURTHER OBSERVE D AS UNDER: EVEN THOUGH THE ASSESSEE COMPANY WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND HAD MADE ENTRIE S IN THE BOOKS REGARDING ENHANCED CHARGES FOR THE SUPPLY MAD E TO THE CONSUMERS, NO REAL INCOME HAD ACCRUED TO THE ASSESS EE COMPANY IN RESPECT OF THOSE ENHANCED CHARGES. THE T RIBUNAL HAD RIGHTLY HELD THAT THE CLAIM AT THE INCREASED RA TES AS MADE BY THE ASSESSEE COMPANY ON THE BASIS OF WHICH NECES SARY ENTRIES WERE MADE, ITA REPRESENTED ONLY HYPOTHETICA L INCOME, AND THE AMOUNTS IN QUESTION BROUGHT TO TAX BY THE I NCOME-TAX OFFICER DID NOT REPRESENT INCOME WHICH HAD REALLY A CCRUED TO THE ASSESSEE COMPANY DURING THE RELEVANT PREVIOUS Y EAR. 17. COMING TO THE CLAIM UNDER SECTION 80HHC OF THE ACT, WE ARE AGAIN INCLINED TO AGREE WITH THE TRIBUNAL THAT IT WAS TOTALLY UNCALLED FOR ON THE PART OF THE COMMISSIONER TO SAY THAT THE AO DID NOT MAKE REQUISITE INQUIRIES BECAUSE OF THE SIM PLE REASON THAT THE AO HAD, IN FACT, DECLINED AND REJECTED THI S CLAIM OF THE ASSESSEE. IF THE AO HIMSELF DISALLOWED THE DEDUCTIO N CLAIMED BY THE ASSESSEE ON THIS ACCOUNT UNDER SECTION 80 HHC O F THE ACT, WE FAIL TO UNDERSTAND WHAT FURTHER INQUIRIES WERE N EEDED BY THE AO. 117 ITA NO. 2057/DEL/10 NIIT VS. CIT 37.8. LD. SPECIAL COUNSEL SUBMITTED THAT SINCE ENT IRE CLAIM U/S 80HHC HAD, IN ANY CASE, BEEN DISALLOWED SO NO FRUITFUL PURPOS E OF INQUIRY WAS THERE. AS REGARDS OTHER ISSUES, LD. SPECIAL COUNSEL SUBMITTED THAT THE FACTS WERE ENTIRELY DIFFERENT AND AFTER CONSIDERATION OF THE F ACTS AND THE OBSERVATIONS OF CIT, HONBLE HIGH COURT HELD THAT THE EXERCISE OF P OWER U/S 263 WAS NOT CALLED FOR. HE SUBMITTED THAT THIS DECISION HAS NO APPLICATION TO THE PRESENT SET OF FACTS. 37.9. LD. SPECIAL COUNSEL FURTHER REFERRED TO THE DECISION IN THE CASE OF CIT VS. HINDUSTAN MARKETING & ADVERTISING CO. LTD. 341 ITR 180 AND POINTED OUT THAT THE ISSUE WAS THAT THE ASSESSMENT ORDER WA S HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE BECAUSE ITO HAD NOT MADE ADEQUATE AND DETAILED INVESTIGATION/ INQUIRY IN RESPECT OF M AJOR AREA OF THE OF THE COMPANYS OPERATION AND SOURCE OF INCOME; THE ITO H AD ACTED IN A HURRY AND DID NOT EXAMINE CAREFULLY ASSESSEES RECEIPTS AND PAYMENTS PERTAINING TO THE ADVERTISING WORK DONE BY THE COMPANY. 37.10. LD. SPECIAL COUNSEL REFERRED TO PARA 13 OF THE DECISION AND POINTED OUT THAT IN THIS CASE THE AO HAD MADE VARIOUS INQUI RIES WHICH HAVE BEEN NOTED IN THE ASSESSMENT ORDER AND, THEREFORE, THE S ECOND PRINCIPLE LAID DOWN IN THE CASE OF DG HOUSING (SUPRA) WOULD APPLY. AS R EGARDS THE DECISION IN THE CASE OF CIT VS. HERO AUTO LTD. 343 ITR 342, THE ORDER PASSED U/S 263 WAS CANCELLED FOR THE FOLLOWING REASONS: HELD, DISMISSING THE APPEAL, (I) THAT THERE WAS NO DISCUSSION IN THE ORDER OF THE COMMISSIONER AS TO HOW AND IN W HAT MANNER THE ENQUIRY WAS LACKING AND WHAT WAS THE FAULT AND DEFAULT COMMITTED BY THE ASSESSING OFFICER. THE ASSESSING O FFICER HAD EXAMINED THIS ASPECT IN THE ORIGINAL ASSESSMENT PRO CEEDINGS AND ACCEPTED THE STAND OF THE ASSESSEE. THERE WAS N O FINDING OF THE COMMISSIONER THAT THE ORDER PASSED BY THE ASSE SSING 118 ITA NO. 2057/DEL/10 NIIT VS. CIT OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERE STS OF THE REVENUE. THE QUESTION OF WARRANTY CLAIM WAS REOPENE D IN THE ASSESSMENT YEAR 1999-2000 AFTER AN ORDER UNDER SECT ION 263 OF THE ACT. THIS ORDER PASSED WAS STRUCK DOWN BY THE T RIBUNAL AND THAT DECISION HAD BEEN UPHELD BY THE HIGH COURT. THAT THE CLAIM FOR DEDUCTION UNDER SECTION 35DDA WA S MADE BY THE ASSESSEE FOR THE FIRST TIME IN ASSESSMENT YE AR 2002-03. ONE FIFTH OF THE AMOUNT PAYABLE UNDER THE VOLUNTARY RETIREMENT SCHEME WAS ALLOWED AS A DEDUCTION. IN THIS YEAR, TH E ASSESSING OFFICER HAD FOLLOWED THE EARLIER ASSESSMENT ORDERS. THE COMMISSIONER OBSERVED THAT NOTE 2 IN THE AUDIT REPO RT DID CREATE DOUBT AS TO WHETHER EXPENDITURE TO ES WAS AC TUALLY INCURRED OR NOT. THE ASESSEE HAD CLARIFIED THAT THE NOTE WAS WRITTEN BY THE AUDITOR AS A PRECAUTIONARY MEASURE F OR REPORTING THAT THE AMOUNT HAD BEEN CLAIMED UNDER SECTION 35DD A. THE COMMISSIONER IN THE ORDER DID NOT APPRECIATE AND DE AL WITH THIS ASPECT. HE HAD WRONGLY INTERPRETED AND OBSERVE D THAT THE CLAIM ITSELF WAS MADE A S A PRECAUTIONARY MEASURE. THE TRIBUNAL WAS, THEREFORE, RIGHT IN SETTING ASIDE THI S PART OF THE ORDER. 37.11. IN VIEW OF ABOVE FINDING OF HONBLE HIGH COU RT, LD. SPECIAL COUNSEL SUBMITTED THAT THIS DECISION IS ALSO OF NO ASSISTAN CE TO ASSESSEE BECAUSE HERE THE FACTS WERE ENTIRELY DIFFERENT. IN EARLIER YEAR DISALLOWANCE WAS DELETED BY THE TRIBUNAL AND THIS ASPECT WAS NOT TAKEN NOTE OF BY THE CIT WHO MERELY PROCEEDED ON THE BASIS OF OBSERVATIONS IN THE AUDIT REPORT. 38. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. 38.1. LD. CIT WHILE PASSING THE ORDER U/S 263 HAS C ONSIDERED THE ASSESSEES REPLY IN DETAIL AND GAVE HIS FINDING ON VARIOUS ISS UES, INTER ALIA, OBSERVING AS UNDER: 119 ITA NO. 2057/DEL/10 NIIT VS. CIT HOWEVER, KEEPING IN VIEW HE PRINCIPLE OF NATURAL J USTICE, THE REPLY OF THE ASSESSEE, FILED DURING THE COURSE OF THIS PROCE EDING, ON EACH AND EVERY ISSUE WAS CONSIDERED AND RECORDS VIS--VIS RE PLIES FILED AT THE TIME OF ASSESSMENT PROCEEDINGS WERE ALSO EXAMINED A ND ACCORDINGLY FINDING IS BEING GIVEN, WITH REFERENCE TO EACH ISSU E SEPARATELY. ISSUES WERE ALSO DISCUSSED IN DETAIL WITH THE A.RS OF THE ASSESSEE. FOR THIS PURPOSE SUFFICIENT OPPORTUNITIES WERE ALSO GRANTED TO THE ASSESSEE TO FILE THE DETAILS, AS REQUESTED, WHICH IS CLEAR FROM THE CALENDAR OF EVENTS. IT IS ONLY AFTER THE RECEIPT OF ALL THE DET AILS, TO THE SATISFACTION OF THE ASSESSEE, THAT THIS ORDER IS BEING PASSED. NOW THE MERIT OF ISSUES RAISED UNDER THE PROCEEDING S U/S 263 OF THE ACT ARE CONSIDERED. ON THE FOLLOWING ISSUES REPLY O F THE ASSESSEE IS EXAMINED AND IS FOUND BE UNTENABLE. 38.2. THEREFORE, WITHOUT EXAMINING THE DETAIL, THE FINDINGS OF LD. CIT QUA VARIOUS ISSUES, IT CANNOT BE CONCLUDED THAT LD. CIT S ORDER IS NOT SUSTAINABLE IN LAW. THE ORDER NEEDS TO BE EXAMINED IN THE BACKD ROP OF PRINCIPLES LAID DOWN IN VARIOUS CASES. IT CANNOT BE OUT RIGHTLY CO NCLUDED THAT LD. CIT HAS SET ASIDE THE ISSUE WITHOUT EXAMINING THE MERITS OF ASSESSEES CLAIM. 38.3. THE HONBLE DELHI HIGH COURT, WHILE DECIDING THE ISSUE IN THE CASE OF DG HOUSING PROJECTS (SUPRA) HAS REFERRED TO THE DEC ISION IN THE CASE OF GEE VEE ENTERPRISE (SUPRA) AND HAS OBSERVED THAT THE HO NBLE DELHI HIGH COURT HAS REFERRED TO THE TWO JUDGMENTS OF HONBLE SUPREM E COURT IN THE CASE OF RAMPIARI SAROGI 67 ITR 84 AND TARA DEVI AGARWAL 88 ITR 323, WHEREIN IT HAD BEEN HELD THAT WHERE THE AO HAD ACCEPTED A PART ICULAR CONTENTION/ ISSUE, WITHOUT ANY INQUIRY OR EVIDENCE, WHATSOEVER, THE OR DER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. AFTER REFE RRING TO THESE TWO DECISIONS HONBLE DELHI HIGH COURT OBSERVED AS UNDER: THESE TWO DECISIONS SHOW THAT IT IS NOT NECESSARY FOR THE COMMISSIONER TO MAKE FURTHER INQUIRIES BEFORE CANCE LLING THE 120 ITA NO. 2057/DEL/10 NIIT VS. CIT ASSESSMENT ORDER OF THE INCOME-TAX OFFICER. THE COM MISSIONER CAN REGARD THE ORDER AS ERRONEOUS ON THE GROUND THA T IN THE CIRCUMSTANCES OF THE CASE THE INCOME-TAX OFFICER SH OULD HAVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE STATEME NTS MADE BY THE ASSESSEE IN HIS RETURN. 38.4. IN THE BACKDROP OF THESE FACTS THE HONBLE HI GH COURT OBSERVED AS UNDER: THE AFORESAID OBSERVATIONS HAVE TO BE UNDERSTOOD I N THE FACTUAL BACK-GROUND AND MATRIX INVOLVED IN THE SAID TWO CASES BEFORE THE SUPREME COURT. IN THE SAID CASES, THE AS SESSING OFFICER HAD NOT CONDUCTED ANY ENQUIRY OR VERIFICATI ON. THESE CASES HAVE TO BE DISTINGUISHED FROM OTHER CASES (I) WHERE THERE IS ENQUIRY BUT THE FINDINGS ARE INCORRECT/ ERRONEOU S; AND (II) WHERE THERE IS FAILURE TO MAKE PROPER OR FULL VERIF ICATION OR ENQUIRY. 38.5. THUS, IT IS EVIDENT THAT HONBLE DELHI HIGH COURT IN DG HOUSING PROJECTS LTD. CLEARLY POINTED OUT THAT THE FACTS IN GEE VEE ENTERPRISE (SUPRA) WERE ENTIRELY DIFFERENT. THUS, THE RATIO LAID DOWN IN THE CASE OF GEE VEE ENTERPRISE AS WELL AS DG HOUSING PROJECTS LTD., HAV E TO BE TAKEN INTO CONSIDERATION DEPENDING UPON THE FACTS OBTAINING IN A PARTICULAR CASE WHILE DECIDING VARIOUS ISSUES. THE BROAD PRINCIPLE THAT E MERGES FROM VARIOUS DECISIONS IS THAT IF AO HAS MERELY ACCEPTED THE ASS ESSEES EXPLANATION ON VARIOUS ISSUES WITHOUT PROPER INQUIRY THEN THE SAME WOULD COME WITHIN THE AMBIT OF LACK OF ENQUIRYAND NOT INADEQUATE INQU IRY . IF A PARTICULAR ISSUE COMES WITHIN THE AMBIT OF COMPLETE LACK OF INQUIRY THEN THE ORDER IS TO BE CONSIDERED AS ERRONEOUS AS WELL AS PREJUDICIAL TO T HE INTERESTS OF REVENUE BUT IF THE CASE IS OF INADEQUATE INQUIRY, THEN LD. CIT HAS TO DEMONSTRATE THAT HOW THE ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTE RESTS OF REVENUE. THIS 121 ITA NO. 2057/DEL/10 NIIT VS. CIT ASPECT WE WILL TAKE INTO CONSIDERATION WHILE DECIDI NG VARIOUS ISSUES ON MERITS. IN THE RESULT, THIS GROUND IS DISPOSED OF A CCORDINGLY. 39. VIDE GROUND NO. 10 THE ASSESSEE HAS ASSAILED TH E ORDER PASSED BY THE LD. CIT FOR ASSESSMENT YEAR 1999-2000 ON THE GROUN D THAT LD. COMMISSIONER EXCEEDED HIS JURISDICTION IN SETTING ASIDE THE ASSE SSMENT ORDER IN RESPECT OF ISSUES RAISED IN THE NOTICE DATED 5-2-2010 ISSUED U /S 263 OF THE ACT IN CONTRAVENTION OF THE HONBLE HIGH COURTS ORDER DAT ED 11-12-2009. 39.1. THIS ISSUE WE HAVE EXAMINED EARLIER, WHEREIN WE HAVE HELD THAT THE LD. CIT WAS REQUIRED TO PASS FRESH ORDER IN VIEW OF HONBLE HIGH COURTS DECISION AND IT HAS BEEN HELD THAT THE PRESENT PROC EEDINGS BEING FRESH PROCEEDINGS UNDERTAKEN BY LD. COMMISSIONER, HE DID NOT EXCEED HIS JURISDICTION IN RAISING VARIOUS ISSUES VIDE SHOW CA USE NOTICE DATED 5-2-2010 ISSUED U/S 263. THIS GROUND IS ACCORDINGLY DISMISSE D. 40. NOW WE WILL CONSIDER THE VARIOUS GROUNDS RAISE D BY THE ASSESSEE IN REGARD TO VARIOUS ISSUES: 41. VIDE GROUND NO. 11 THE ASSESSEE HAS ASSAILED T HE FINDINGS OF LD. CIT IN SETTING ASIDE THE CLAIM FOR EXEMPTION U/S 10B AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE ON THE GROUND THAT THE SAME WAS NOT EXAMINED BY THE AO WHILE PASSING THE ORDER U/S 143(3)/153A O F THE ACT. 41.1. VIDE GROUND NO. 11.1 THE ASSESSEE HAS ASSAILE D THE FINDINGS OF LD. CIT IN HOLDING THAT THE INDIVIDUAL UNITS OF THE ASSESSE E, DEDUCTION IN RESPECT OF WHICH WAS CLAIMED U/S 10B OF THE ACT, WERE NOT SEPA RATE INDUSTRIAL UNDERTAKINGS BUT MERE EXTENSION OF ALREADY EXISTING BUSINESS OF THE ASSESSEE. 41.2. VIDE GROUND NO. 11.2 THE ASSESSEE HAS ASSAILE D THE ACTION OF THE LD. COMMISSIONER IN ALLEGING THAT SINCE THE AO FAILED T O EXAMINE THE BASIS OF ALLOCATION OF EXPENSES BETWEEN THE ASSESSEES EOU AND NON-EOU UNITS, THE 122 ITA NO. 2057/DEL/10 NIIT VS. CIT ORDER OF THE AO WAS ERRONEOUS AND PREJUDICIAL TO TH E INTERESTS OF THE REVENUE. 41.3. VIDE GROUND NO. 11.3 THE ASSESSEE HAS ASSAILE D THE FINDINGS OF LD. COMMISSIONER IN HOLDING THAT SINCE THE ASSESSEE HAD NOT ALLOCATED FOREIGN EXCHANGE FLUCTUATION LOSS OF RS. 2.76 CRORES TO THE EOU UNITS AND THE AO HAVING FAILED TO EXAMINE THE SAID ISSUE, THE ORDER OF THE AO IN THIS REGARD WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF R EVENUE. 41.4. VIDE GROUND NO. 11.4 THE ASSESSEE HAS ASSAILE D THE COMMISSIONERS ACTION U/S 263 WITHOUT APPRECIATING THAT THE SAID I SSUE WAS SUBJECT MATTER OF APPEAL BEFORE THE COMMISSIONER IN THE PRESENT ASSES SMENT YEAR AS WELL AS ASSESSMENT YEAR 2001-02. 42. LD. COMMISSIONER, WHILE EXAMINING THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 10B NOTICED THAT (I) THE AO IN THE ORDER PASSED U/S 143(3) READ WITH SEC . 153A OF THE ACT HAD NOT EXAMINED THE EXEMPTION CLAIMED BY THE ASSES SEE U/S 10B OF THE ACT. (II) THE AO FAILED TO CONDUCT INQUIRIES ON THIS ISSUE. (III) THE DETAILS FURNISHED BY THE ASSESSEE HAD BEEN ACCE PTED BY THE AO ON THE FACE VALUE WITHOUT ANY VERIFICATION AND APPL ICATION OF MIND. HE POINTED OUT THAT ASSESSEE WAS SHOW CAUSED VIDE N OTICE DATED 5- 2-2010 IN REGARD TO VARIOUS DISCREPANCIES WHICH WA S AS UNDER: (IV)(A) SECTION 10B TALKS OF PROFIT OF AN INDUSTRIA L UNDERTAKING. ALL THE DIFFERENT UNITS WERE ENGAGED IN SIMILAR BUSINESS AC TIVITIES I.E. INFORMATION TECHNOLOGY, SERVICES AND SOLUTIONS AND, THEREFORE, ALL THE UNITS WERE BASICALLY EXPANSION OF EXISTING BUSINESS AND COULD NOT BE TREATED AS SEPARATE INDUSTRIAL UNDERTAKING TO QUALI FY FOR EXEMPTION 123 ITA NO. 2057/DEL/10 NIIT VS. CIT UNDER THE SAID SECTION. IN THIS REGARD LD. CIT REFE RRED TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MOH UN FOODS LTD. 177 TAXMANN 274, WHEREIN IT HAS BEEN HELD THAT THE TRUE TEST OF INDUSTRIAL UNDERTAKING IS NOT, WHETHER NEW INDUSTRI AL UNDERTAKING CONNOTES EXPANSION OF EXISTING BUSINESS OF ASSESSEE , BUT WHETHER IT IS OF THE SAME NEW AND IDENTIFIABLE UNDERTAKING SEPARA TE AND DISTINCT FROM EXISTING BUSINESS. LD. COMMISSIONER POINTED OU T THAT THE AO FAILED TO EXAMINE WHETHER THE DIFFERENT INDUSTRIAL UNITS AS CLAIMED, ACTUALLY EXISTED INDEPENDENTLY OR THE SAME WERE ONL Y EXPANSION OF THE EXISTING BUSINESS. (B) NO SEPARATE BOOKS OF ACCOUNT WERE MAINTAINED FO R EACH UNIT ELIGIBLE FOR EXEMPTION U/S 10B OF THE ACT. HE POINT ED OUT THAT COMMON BOOKS OF ACCOUNT OF THE ENTIRE BUSINESS UNIT S WERE MAINTAINED AND ONLY AT THE END OF THE PERIOD, FOR T HE PURPOSE OF COMPUTING DEDUCTION/ EXEMPTION UNDER THE ACT, THE E XPENSES WERE ALLOCATED TO SAID UNITS TO PROVE FROM BRANCHES. TH IS ISSUE WAS NOT AT ALL EXAMINED BY AO. (C) LD. COMMISSIONER OBSERVED THAT THOUGH ASSESSEE WAS MAINTAINING BOOKS OF ACCOUNT BUT FOR THE PURPOSE OF COMPUTING THE PROFITS OF ELIGIBLE UNITS AS COVERED UNDER THE PROV ISIONS OF SECTION 10B OF THE ACT, THE EXPENSES HAD NOT BEEN DISTRIBUTED I N APPROPRIATE MANNER. HE POINTED OUT THAT THE AO NEVER EXAMINED A S TO WHAT WAS THE BASIS ON WHICH EXPENSES HAD BEEN DISTRIBUTED. IN THIS REGARD HE FURTHER POINTED OUT THIS ASPECT IS CLEAR FROM THE F ACT THAT FROM THE NET PROFIT RATE OF EOU ELIGIBLE UNITS U/S 10B OF THE AC T WAS FAR IN EXCESS OF THOSE UNITS, WHICH WERE NOT ELIGIBLE FOR EXEMPTI ON. 124 ITA NO. 2057/DEL/10 NIIT VS. CIT (D) NO INQUIRY WAS CONDUCTED TO SUBSTANTIATE THE REVENU E/ EXPORT TURN OVER OF SUCH EOUS AS DISCLOSED BY THE ASSESSEE . HE POINTED OUT THAT THE ASSESSEE HAD SHOWN REVENUE OF THE EOU AT R S. 15,47,93,925/- AND THE GROSS REVENUE FROM PRODUCTION AT RS. 5,26,7 9,28,616/-. NO BASIS HAD BEEN GIVEN IN THE RETURN OF INCOME OR DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS TO SUBSTANTIATE THE SAID REV ENUE INCOME OF THE EXPORT ORIENTED UNIT. THIS ASPECT HAS NOT BEEN EXAM INED BY THE AO TO FIND OUT THE GENUINENESS OF THESE INCOMES. (E) NET LOSS OF RS. 2,76,56,898/- ON ACCOUNT OF FOREIGN EXCHANGE RATE FLUCTUATION WAS SHOWN AS PART OF SUNDRY EXPENS ES. LD. CIT OBSERVED THAT IN THE PRECEDING YEARS WHEN THERE WA S PROFIT UNDER THIS HEAD, THE SAME WAS INCLUDED AS PART OF REVENUE FROM OPERATIONS. HOWEVER, DURING THE YEAR UNDER CONSIDERATION WHEN T HERE WAS LOSS, INSTEAD OF REDUCING THE REVENUE FROM OPERATIONS THE EXPENSES WERE CLAIMED SEPARATELY UNDER THE HEAD SUNDRY EXPENSES. 42.1. THE MAIN OBJECTION OF LD. COMMISSIONER WAS T HAT SINCE THE MAJOR PART OF THE SAID LOSS WAS ATTRIBUTABLE TO THE EXPORT ORIENTED UNITS, ELIGIBLE FOR EXEMPTION U/S 10B, THE SAID EXPENSES S HOULD HAVE BEEN ATTRIBUTED TO THE SAID INCOME. HOWEVER, WHILE COMPU TING THE PROFITS OF EXPORT ORIENTED UNITS, ELIGIBLE FOR EXEMPTION U/S 1 0B OF THE ACT, ONLY RS. 3701/- WAS SHOWN AS MISC. EXPENSES. 42.2. ONE MORE ISSUE WAS ALSO RAISED IN COURSE OF PASSING THE ORDER U/S 263 ON THE GROUND THAT THE ASSESSEE HAD RECEIVE D RS. 5,28,74,000/- ON ACCOUNT OF EXPORT OF TECHNICAL REFERENCE MATERIAL O N WHICH EXEMPTION U/S 10B WAS CLAIMED. HOWEVER, THE AO ONLY DISALLOWED RS . 25,20,000/- QUA SIX 125 ITA NO. 2057/DEL/10 NIIT VS. CIT INVOICES RAISED ON KWETLISO HOLDINGS LTD., WITHOUT VERIFYING THE GENUINENESS OF OTHER ISSUES. 42.3. IN RESPONSE TO VARIOUS QUERIES RAISED BY LD. COMMISSIONER IN THE SHOW CAUSE NOTICE, THE ASSESSEE FILED DETAILED REPLY. 43. LD. COUNSEL FOR THE ASSESSEE SHRI AJAY VOHRA RE FERRED TO THE DETAILED REPLY FILED BY ASSESSEE ON 30-3-2010 CONTAINED AT P AGES 346 TO 370 OF PB-I AND SPECIFICALLY REFERRED TO PAGE 353 WHEREIN THE A SSESSEES REPLY IN REGARD TO GRANT OF DEDUCTION U/S 10B IS CONTAINED. 43.1. LD. COUNSEL SUBMITTED THAT ADDITION MADE BY A O BY DENYING DEDUCTION U/S 10B WAS DELETED BY LD. CIT(A) AND, TH EREFORE, IN VIEW OF EXPLANATION (C) TO SECTION 263, THE CITS JURISDICT ION WAS OUSTED. HE REFERRED TO EXPLANATION (C) TO SECTION 263, WHICH READS AS U NDER: (C) WHERE ANY ORDER REFERRED TO IN THE SUB-SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTE R OF ANY APPEAL FILED ON OR BEFORE OR AFTER THE 1 ST DAY OF JUNE, 1988, THE POWERS OF THE COMMISSIONER UNDER THIS SUB-SECTION S HALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL. 43.2. WITH REFERENCE TO ABOVE EXPLANATION, LD. COUN SEL POINTED OUT THAT THE MEANING OF THE WORD MATTER HAS TO BE CONSIDERED. 43.3. LD. COUNSEL REFERRED TO THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF JUTE CORPORATION OF INDIA VS. CIT 187 ITR 6 88 TO SUBMIT THAT THE APPELLATE AUTHORITY IS VESTED WITH ALL THE PLENARY POWERS WHICH THE SUBORDINATE AUTHORITY MAY HAVE IN THE MATTER. HE, T HEREFORE, SUBMITTED THAT ONCE LD. CIT(A) HAS DETERMINED ANY OF THE ASPECTS R ELATING TO SEC. 10B, THEN THE JURISDICTION OF LD. COMMISSIONER IS OUSTED WITH REFERENCE TO THE SAME. HE SUBMITTED THAT THE LD. COMMISSIONER CANNOT ASSUME J URISDICTION QUA A 126 ITA NO. 2057/DEL/10 NIIT VS. CIT PARTICULAR FACET OR ASPECT OF SEC. 10B. HE SUBMITTE D THAT THE ENTIRE MATTER OF CLAIM U/S 10B WAS CONSIDERED BY THE LD. COMMISSIONE R (A). 43.4. WITHOUT PREJUDICE TO HIS SUBMISSION, LD. COUN SEL ADVANCED HIS FURTHER ARGUMENTS ON VARIOUS ISSUES RAISED BY LD. COMMISSIO NER QUA DEDUCTION U/S 10B. LD. COUNSEL REFERRED TO PAGE 35 OF LD. COMMISS IONERS ORDER AND POINTED OUT THAT HIS CONCLUSION IS THAT AO FAILED T O INQUIRE AND VERIFY THE ELIGIBILITY AND THE GENUINENESS OF EXEMPTION CLAIME D U/S 10B OF THE I.T. ACT. THUS EXEMPTION/ DEDUCTION U/S 10B WAS ALLOWED WITHO UT PROPER INQUIRY AND APPLICATION OF MIND, WHICH RENDERED THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 43.5. IN THIS REGARD LD. COUNSEL REFERRED TO PAGE 7 59 TO 764 OF THE PB, WHEREIN THE QUERIES RAISED BY AO VIDE HIS QUESTIONN AIRE DATED 2-11-2005 IS CONTAINED, IN WHICH HE, INTER ALIA, REQUIRED THE AS SESSEE TO FURNISH FOLLOWING DETAILS: 37. IT IS NOTICED THAT SOME EXPENSES LIKE BOUGHT OUT PACKAGE/ PRODUCTS COURSE EXCISION CHARGES PROFESSION CHA RGES BAD DEBTS ETC., HAVE BEEN ALLOCATED EXCLUSIVELY T O THE TAXABLE UNITS WHEREAS SOME OF THE ITEMS WHICH HAVE BEEN AS SIGNED TO NON TAXABLE REGION, HAVE BEEN BOOKED AS EXPENSE IN THE TAXABLE UNIT. YOU ARE REQUESTED TO EXPLAIN THE JUSTIFICATIO N OF BOOKING THESE EXPENSES UNDER THE TAXABLE UNIT OR WHETHER SO ME OF THESE EXPENSES CAN BE SUPPORTED PROPORTIONATELY. 43.6. LD. COUNSEL REFERRED TO PAGES 765, 769, 770, 771 OF THE PB, WHEREIN THE ASSESSEES REPLIES ARE CONTAINED, IN WHICH ASSE SSEE HAD FURNISHED THE DETAILS IN THIS REGARD. HE FURTHER REFERRED TO QUES TIONNAIRE DATED 29-12-2005, WHEREIN AO HAD REQUIRED TO FURNISH THE FOLLOWING DE TAILS: 7. PLEASE PROVIDE YEAR-WISE EXPENSES SHOWN UNDER T HE FOLLOWING HEADS: 127 ITA NO. 2057/DEL/10 NIIT VS. CIT A. BOUGHT OUT PRODUCTS B. COURSE EXECUTION EXPENSES C. COURSE ANNOUNCEMENT EXPENSES D. BAD DEBTS E. PROFESSIONAL EXPENSES XXXX 9. IT IS CLAIMED THAT EXPORT OF SOFTWARE IS PHYSICA L EXPORT OF ARTICLE OR THING. PLEASE EXPLAIN WITH EVIDENCE HOW THE SOFTWARE IS PHYSICALLY EXPORTED. FURTHER CONFIRM THAT ALL E XPORTS OF SOFTWARE TANTAMOUNT TO TRANSFER OF ALL OWNERSHIP AN D PROPERTY RIGHTS WITHOUT RECOURSE TO RECALL OF RESUMPTION OF TITLES. 43.7. LD. COUNSEL FURTHER REFERRED TO PAGES 774,775 , 778 TO 794, WHEREIN THE REPLIES FILED BY ASSESSEE ON VARIOUS ISSUES RAISED BY AO ARE CONTAINED. 43.8. LD. COUNSEL FURTHER REFERRED TO PAGE 795 WHER EIN THE QUESTIONNAIRE DATED 10-1-2006 IS CONTAINED, WHEREIN AO HAD, INTER ALIA, RAISED FOLLOWING QUERY: (3) IN SUPPORT OF EXPORT OF SOFTWARE BY YOU PLEASE PROVIDE YEAR- WISE DETAILS OF EXPORTS MADE ALONG WITH REFERENCE O F SOFTEX FORMS ISSUED BY STP AUTHORITIES WITH SAMPLE COPIES THEREOF. 43.8.1. THE REPLY TO AO ARE CONTAINED AT PAGE 796 V IDE LETTER DATED 17- 1-2006. 43.9. LD. COUNSEL FURTHER REFERRED TO PAGE 857 WHER EIN THE QUESTIONNAIRE DATED 17-3-2006 IS CONTAINED, IN WHICH AO HAD REQUI RED THE ASSESSEE TO FURNISH FOLLOWING DETAILS: 3. NECESSARY APPROVALS AND COMPLIANCES TO BE ELIGI BLE FOR EXEMPTION/ DEDUCTION U/S 10B OF THE INCOME TAX ACT. 128 ITA NO. 2057/DEL/10 NIIT VS. CIT 43.10. THE ASSESSEES REPLY IS CONTAINED AT PAGE 85 8, IN WHICH ASSESSEE HAD SUBMITTED THE FOLLOWING DETAILS: (1) THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S 10B OF THE ACT. IN THIS CONNECTION WE HAVE ALREADY FILED RELEVANT D OCUMENTS AND INFORMATION IN SUPPORT OF ASSESSEES CLAIM U/S 10B OF THE ACT. FURTHER TO THAT WE ARE FILING THE FOLLOWING DO CUMENTS AND DETAILS AS UNDER:- A. APPROVAL BY THE BOARD APPOINTED BY THE CENTRAL GOVERNMENT B. NOTE OF EOU AND METHOD OF ALLOCATION OF EXPENSES C. THE ASSESSEE HAS FILED FORM NO. 56G DULY CERTIFIED BY CHARTERED ACCOUNTANTS, ENCLOSED ALONG WITH RETURN O F INCOME. D. THE ASSESSEE AHS FILED ALONG WITH RETURN OF INCOME AUDITED PROFIT & LOSS ACCOUNT OF 100% EXPORT ORIENTED UNDER TAKINGS ELIGIBLE FOR EXEMPTION U/S 10B OF THE ACT. 43.11. LD. COUNSEL FURTHER REFERRED TO PAGE 870, WH EREIN THE PERMISSION UNDER THE STP SCHEME FOR THE ESTABLISHMENT OF A NEW UNDERTAKING FOR DEVELOPMENT OF COMPUTER SOFTWARE IN RESPECT OF 100 % EXPORT ORIENTED UNITS IS CONTAINED. 43.12. LD. COUNSEL WITH REFERENCE TO ABOVE REPLIES SUBMITTED THAT ALL ARE OLD UNITS AND ARE AT DIFFERENT LOCATIONS. HE POINTED OU T THAT DEDUCTION U/S 10B HAS BEEN ALLOWED IN ALL EARLIER YEARS. AS REGARDS T HE LD. CITS OBJECTION REGARDING DISPARITY ON ALLOCATION OF EXPENSES BETWE EN EOU AND NON-EOU UNITS, LD. COUNSEL REFERRED TO PAGES 898 AND 899, W HEREIN THE ASSESSEE HAD FURNISHED A NOTE ON ALLOCATION OF EXPENSES AS UNDER : (A) DIRECT EXPENSES WERE CHARGEABLE TO INDIVIDUAL BUSIN ESS GROUP; (B) SERVICE GROUP (CORP) EXPENSES: EXPENSES UNDER THIS CATEGORY IS DEBITED TO INDIVIDUAL SERVICE ORGANISATION SUCH FSO /CSO/CMO ETC. THESE EXPENSES ARE ALLOCATED BASED ON THE MANP OWER OF EOU AND NON EOU UNITS. 129 ITA NO. 2057/DEL/10 NIIT VS. CIT 43.13. LD. COUNSEL FURTHER REFERRED TO PAGE 854 WHE REIN THE CERTIFICATE OF THE AUDITOR IS CONTAINED, IN WHICH THEY CERTIFIED THAT INDIRECT EXPENSES RELATING TO THE EOU HAD BEEN ALLOCATED ON AN APPROPRIATE BA SIS. 43.14. LD. COUNSEL SUBMITTED THAT NOTHING HAS BEEN FOUND IN COURSE OF SEARCH AND LD. CIT IS ONLY RESORTING TO REAPPRAISAL OF F ACTS. 43.15. LD. COUNSEL REFERRED TO PAGES 801 TO 803 OF PB, WHEREIN THE REPLY FILED BY ASSESSEE DATED 6-2-2006 IS CONTAINED TO SU BMIT THAT ASSESSEE HAD REPLIED THE AOS QUERY REGARDING IMPACT ON ALLOCATI ON OF EXPENSES BETWEEN EOU AND NON-EOU ON ACCOUNT OF TURN OVER WITH BUSIN ESS PARTNERS; AND FURTHER REGARDING 5 HEADS OF EXPENDITURES NOT DEBIT ED IN EOU ACCOUNTS. HE SUBMITTED THAT AFTER CONSIDERING ALL THESE DETAILS, WHICH WERE BEFORE AO, HE DENIED ASSESSEES CLAIM TO THE EXTENT OF RS. 25.20 LACS. 43.16 . LD. COUNSEL REFERRED TO PAGE 900 OF PB, WHE REIN THE CIT(A)S ORDER DATED 27-9-2006 IS CONTAINED. HE POINTED OUT THAT LD. CIT(A), AFTER DETAILED CONSIDERATION OF FACTS ALLOWED THE ASSESS EES APPEAL. 43.17. LD. COUNSEL FURTHER REFERRED TO PAGE 909 OF PB, WHEREIN THE CIT(A)S ORDER DATED 27-9-2006 FOR AY 2001-02 IS CO NTAINED, WHEREIN THE ISSUE REGARDING ALLOCATION OF EXPENSES BETWEEN EOU AND NON EOU UNITS WAS CONSIDERED AND IT WAS HELD THAT THE ALLOCATION MADE BY THE ASSESSEE OF COMMON EXPENSES BETWEEN EOU AND NON EOU COULD NOT B E DISTURBED. IN SUM AND SUBSTANCE, HE, THEREFORE, SUBMITTED THAT AO HAD DULY EXAMINED THE ISSUE OF ALLOCATION OF EXPENSES. 43.18. AS REGARDS THE LD. COMMISSIONERS OBJECTION THAT NATURE OF EXPORT WAS NOT EXAMINED BY AO, LD. COUNSEL REFERRED TO PAGE 773 AND 774 OF 130 ITA NO. 2057/DEL/10 NIIT VS. CIT THE PB AND POINTED OUT THAT AO HAD REQUIRED THE ASS ESSEE TO EXPLAIN WITH EVIDENCE, HOW THE SOFTWARE WAS PHYSICALLY EXPORTED. IT WAS FURTHER REQUIRED BY THE AO THAT ASSESSEE SHOULD CONFIRM THAT ALL EX PORTS OF SOFTWARE TANTAMOUNT TO TRANSFER OF ALL OWNERSHIP AND PROPERT Y RIGHTS WITHOUT RECOURSE TO RECALL OR RESUMPTION OF TITLES. 43.19. HE REFERRED TO PAGE 774 AND POINTED OUT THA T ASSESSEE HAD SUBMITTED A NOTE ON EXPORT OF SOFTWARE, WHICH IS C ONTAINED AT PAGE 778 OF PB. THE ASSESSEE HAD FILED SAMPLES OF SOFTEX FORMS ISSUED BY STP AUTHORITY, CONFIRMING EXPORT OF SOFTWARE. IT WAS FURTHER POINT ED OUT THAT EXPORT OF SOFTWARE TANTAMOUNT TO TRANSFER OF ALL OWNERSHIP IN CLUDING INTELLECTUAL PROPERTY RIGHTS WITHOUT RECOURSE TO RECALL OR RESUM PTION OF RIGHTS. IN THIS REGARD THE ASSESSEE HAD ALSO RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TATA CONSULTANCY SERVICES VS. STATE OF ANDHRA PRADESH 271 ITR 401 (SC). 43.20. LD. COUNSEL REFERRED TO PAGE 779 TO 795 OF PB, WHEREIN SAMPLES OF SOFTEX FORMS ARE CONTAINED. LD. COUNSEL FURTHER REFERRED TO PAGES 798 TO 800, WHEREIN THE EXPORT DETAILS WITH EXPORT PROOF A RE CONTAINED. HE, THEREFORE, SUBMITTED THAT ASSESSEE HAD FURNISHED A LL THE DETAILS WHICH WERE NECESSARY FOR VERIFICATION OF NATURE OF EXPORT TURN OVER. HE SUBMITTED THAT WHOLE GAMUT OF CLAIM U/S 10B WAS LOOKED INTO BY THE AO. 43.21. LD. COUNSEL SUBMITTED THAT SINCE ISSUE WAS EXAMINED BY AO, IT WAS NOT A CASE OF NO INQUIRY. 131 ITA NO. 2057/DEL/10 NIIT VS. CIT 43.22. ON THE ISSUE OF MERGER, LD. COUNSEL SUBMITT ED THAT:- (I) SINCE THE CLAIM U/S 10B MADE BY ASSESSEE WAS S UBJECT MATTER OF APPEAL BEFORE LD. CIT(A) FOR A.Y. 1999-2000 AND 200 1-02, THEREFORE, THE ISSUE OF 10B CLAIM GOT MERGED WITH T HE ORDER OF LD. CIT(A) AND HENCE THE LD. COMMISSIONERS JURISDICTIO N WAS OUSTED. (II) NO MATERIAL WAS FOUND IN COURSE OF SEARCH, WH ICH THREW ANY SHRED OF DOUBT ON ADMISSIBILITY OF 10B DEDUCTION, THEREFO RE, AO COULD NOT GO INTO THIS ISSUE IN 153A PROCEEDINGS. (III) EXHAUSTIVE AND DETAILED REPLY GIVEN ON EACH ALLEGAT ION RAISED BY LD. COMMISSIONER BUT LD. COMMISSIONER DID NTO GIVE ANY DECISION ON MERIT. HE FAILED TO EXAMINE THE ASSESSEES REPLY . (IV) CLAIM U/S 10B ALLOWED IN ALL PRECEDING YEARS AND, T HEREFORE, IT WOULD NOT BE DENIED IN AY 1999-2000. IN THIS REGARD LD. COUNSEL HAS RELIED ON THE DECISION IN THE CASE OF CIT VS. H ERO AUTO LTD. 343 ITR 342; AND DELHI ESCORTS LTD. 338 ITR 435. (V) CLAIM MADE BY ASSESSEE AND ALLOWED BY AO, AFTE R EXAMINATION AND THEREFORE AO HAD TAKEN ONE PLAUSIBLE VIEW IN LAW. T HEREFORE, LD. COMMISSIONER COULD NOT SUBSTITUTE HIS VIEWS ON THIS ISSUE. 44. LD. SPL. COUNSEL SUBMITTED THAT ESSENTIALLY LD. COMMISSIONER HAS RAISED FOUR ISSUES ON ACCOUNT OF WHICH THE CLAIM U/ S 10B HAS TO BE CONSIDERED BY AO. HE SUBMITTED THAT ON FOLLOWING IS SUES, AO FAILED TO CONDUCT INQUIRIES AND ACCEPTED THE ASSESSEES REPLY ON ITS FACE VALUE, WITHOUT ANY VERIFICATION AND APPLICATION OF MIND. THEREFORE , THE ORDER OF AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE: (I) ELIGIBILITY OF THE UNIT FOR THE CLAIM OF DEDUC TION, IN REGARD TO WHICH IT WAS INCUMBENT UPON THE AO TO PLACE PRELIMINARY D ETAILS ON 132 ITA NO. 2057/DEL/10 NIIT VS. CIT RECORD TO DEMONSTRATE THAT T HE UNIT CONTINUES TO F ULFILL THE CONDITIONS FOR THE ELIGIBILITY. (II) ALLOCATION OF EXPENSES BETWEEN EOU AND NON EOU . (III) NON VERIFICATION OF REVENUES OF EOU. (IV) LOSS ON FOREIGN EXCHANGE FLUCTUATION NOT ALLOCATED TO EOU. 44.1. HE SUBMITTED THAT ISSUE WITH REGARD TO DEDUCT ION U/S 10B HAS TWO BROAD CATEGORIES (A) ELIGIBILITY OF THE UNIT FOR THE CLAIM OF DEDUCTION U/S 10B; (B) QUANTUM OF DEDUCTION U/S 10B. 44.2. LD. SPECIAL COUNSEL FAIRLY SUBMITTED THAT: (A) THE CLAIM OF ELIGIBILITY WILL NEED IN DEPTH EXAMIN ATION IN THE INITIAL YEAR AND IN SUBSEQUENT YEARS, ONLY FULFILLMENT OF C ONDITIONS BASED ON CHANGES IN FACTS, IF ANY, WILL NEED TO BE EXAMINED; (B) THE DETERMINATION OF INCOME, WHICH WOULD BE ENTITL ED FOR DEDUCTION WILL NEED TO BE EXAMINED EACH YEAR WITH REFERENCE T O THE NATURE OF RECEIPTS AND CLAIM OF EXPENSES. 44.3. AS FAR AS ELIGIBILITY OF CLAIM OF DEDUCTION 10B FOR SUCH UNITS ARE CONCERNED, LD. SPECIAL COUNSEL RELIED ON THE ORDER OF THE COMMISSIONER. HE FAIRLY POINTED OUT THAT THESE UNITS CAME UP IN 1994 -95 AND NO NEW UNITS WERE ESTABLISHED DURING THE YEAR. AS REGARDS THE QUANTIF ICATION OF DEDUCTION U/S 10B IS CONCERNED, LD. SPECIAL COUNSEL POINTED OUT T HAT IN COURSE OF ASSESSMENT PROCEEDINGS THE AO ONLY RAISED GENERAL Q UERIES TO THE EFFECT, WHETHER EXPENSES HAD BEEN ALLOCATED BETWEEN EOU AND NON EOU UNITS, AGAINST WHICH A GENERAL REPLY WAS FILED BY THE ASSE SSEE. HE SUBMITTED THAT ON EXAMINATION OF RECORD IT WAS FOUND BY THE COMMISSIO NER THAT COMMON EXPENSES HAD NOT BEEN ALLOCATED ON AN APPROPRIATE B ASIS. HE FURTHER POINTED 133 ITA NO. 2057/DEL/10 NIIT VS. CIT OUT THAT COMMISSIONER ALSO NOTICED THAT ASSESSEE DI D NOT FOLLOW ANY CONSISTENT METHOD FOR ALLOCATION OF SUCH EXPENSES. HE REFERRED TO PAGE 21 OF THE ORDER, WHEREIN THE REPLY OF THE ASSESSEE TO THE SHOW CAUSE NOTICE IS EXTRACTED AND POINTED OUT THAT ASSESSEE MAINLY STAT ED THAT DIRECT EXPENSES WERE CHARGED TO INDIVIDUAL BUSINESS GROUP, SERVICE EXPENSES WERE CHARGED ON THE BASIS OF REVENUES OF EOU AND NON-EOU UNITS A ND OTHER COMMON EXPENSES LIKE RENT, ELECTRICITY ETC. WERE CHARGED O N THE BASIS OF AREA OCCUPIED, AS UNDER:. 1. DIRECT EXPENSES CHARGEABLE TO INDIVIDUAL BUSINE SS GROUP. 2. SERVICE GROUP (CORP) EXPENSES: EXPENSES UNDER TH IS CATEGORY IS DEBITED TO INDIVIDUAL SERVICE ORGANIZAT ION SUCH FSO/CSO/CMO ETC. THESE EXPENSES ARE ALLOCATED BASED ON THE REVENUE OF EOU AND NON EOU UNITS. 3. CERTAIN EXPENSES LIKE RENT, ELECTRICITY & WATER, REPAIR & MAINTENANCE ETC. THAT ARE BUILDING RELATED ARE CONS IDERED AS COMMON IN NATURE. THESE EXPENSES ARE NOT DIRECTLY C HARGED TO BUSINESS GROUP/ SERVICE GROUPS. WHEREAS EXPENSES AR E ALLOCATED TO RESPECTIVE GROUPS/ SERVICE GROUP/EOU FACTORIES B ASED ON THE AREA OCCUPIED. 44.4. LD. SPECIAL COUNSEL FURTHER POINTED OUT THAT, ON THE OTHER HAND, IN THE REPLY SCANNED ON PAGE 21 OF THE ORDER, IT WAS STATE D THAT SERVICE EXPENSES HAD BEEN ALLOCATED ON THE BASIS OF MANPOWER. THUS, THERE WAS NO CONSISTENCY IN THE STAND OF THE ASSESSEE IN REGARD TO THE ALLOCATION OF EXPENSES. 44.5. LD. SPECIAL COUNSEL FURTHER SUBMITTED THAT AO FAILED TO LOOK INTO THIS PRIMARY ASPECT OF THE MATTER. HE FAILED TO EXA MINE THE BASIS OF ALLOCATION. THESE DETAILS WERE NEVER OBTAINED OR EX AMINED BY AO. HE 134 ITA NO. 2057/DEL/10 NIIT VS. CIT POINTED OUT THAT AO FAILED TO OBTAIN THE DETAILS OF TOTAL EXPENSES UNDER EACH HEAD AND HOW IT HAD BEEN ALLOCATED TO THE EOU UNITS . THE AO PROCEEDED TO ACCEPT THE REPLY OF THE ASSESSEE WITHOUT BOTHERING TO OBTAIN AT LEAST ELEMENTARY DETAILS OF THE TOTAL EXPENSES, ALLOCABLE EXPENSES AND THE ALLOCATION KEY IN THE YEAR UNDER APPEAL. 44.6. HE SUBMITTED THAT SINCE AO FAILED TO CARRY OU T THE BASIC INQUIRIES AND DETAILS WERE NOT PLACED ON RECORD, THEREFORE, IT CO MES WITHIN THE AMBIT OF LOCK OF INQUIRY AND COMPLETE NON-APPLICATION OF MIN D. AO HAD SIMPLY MADE A PRETENCE OF INQUIRY. FURTHER HE REFERRED TO PAGE 29 OF THE LD. CITS ORDER AND POINTED OUT THAT THE LD. CIT HAS SCANNED THE AU DITED ACCOUNTS OF THE ELIGIBLE UNIT ON THE SAID PAGE. IN THIS, THE AUDITO RS HAVE ONLY PREFERRED TO STATE THAT THE INDIRECT EXPENSES TO THE EOU HAD BEE N ALLOCATED ON APPROPRIATE BASIS. HE SUBMITTED THAT IT IS ANYBODYS GUESS WHAT THAT APPROPRIATE BASIS WAS. HE POINTED OUT THAT SUCH A CERTIFICATE FROM TH E AUDITORS SHOULD HAVE IMMEDIATELY ALERTED THE AO FOR GOING INTO THE PRIMA RY AND BASIC DETAILS INSTEAD OF ACCEPTING THE CLAIM ON ITS FACE VALUE. 44.7. LD. SPECIAL COUNSEL FURTHER SUBMITTED THAT E VEN BEFORE THE TRIBUNAL ALSO THE ASSESSEE HAS NOT BEEN ABLE TO POINT OUT WH AT APPROPRIATE BASIS OF ALLOCATION OF EXPENSES WAS. HE SUBMITTED THAT MEREL Y ON THE BASIS OF ROUTINE/ GENERAL LETTERS/ REPLIES, IT CANNOT BE SAID THAT TH E AO HAD CONDUCTED INQUIRY SO AS TO REACH THE SATISFACTION THAT THE EXPENSES W ERE WHOLLY AND EXCLUSIVELY INCURRED AND CORRECTLY CLAIMED IN RESPECT OF 10B UN ITS. AS REGARDS THE LD. COUNSELS SUBMISSION WITH REFERENCE TO THE COMMON Q UESTIONNAIRE DATED 2- 11-2005, ASKING EXPLANATION WITH REGARD TO SPECIFIC EXPENSES, LIKE BROUGHT OUT PACKAGE, COURSE EXECUTION CHARGES, PROFESSI ONAL CHARGES ETC., LD. SPECIAL COUNSEL SUBMITTED THAT ASSESSEE HAD GIVEN O NLY A GENERAL 135 ITA NO. 2057/DEL/10 NIIT VS. CIT JUSTIFICATION FOR THE SAME. THEREFORE, LD. COMMISSI ONER OBSERVED THAT ALL SUCH UNSUBSTANTIATED CLAIMS WERE ACCEPTED WITHOUT A NY PRIMARY VERIFICATION. THUS, AO FAILED TO DISCHARGE HIS STATUTORY OBLIGATI ON AND FAILED TO CONDUCT THE BASIC INQUIRIES. THEREFORE, IT IS A CASE OF LAC K OF INQUIRY AND NON- APPLICATION OF MIND. 44.8. AS REGARDS LD. CITS OBSERVATIONS TO VERIFICA TION OF ACTUAL AND PHYSICAL EXPORT OF SOFTWARE, LD. SPECIAL COUNSEL RE FERRED TO PAGE 759 OF PB AND POINTED OUT THAT AO HAD ISSUED THE QUESTIONNAIR E ON 2-11-2005 ON THE BASIS OF ASSETS/ DOCUMENTS FOUND DURING THE SEARCH, INTER ALIA, TO EXPLAIN THE FOLLOWING: 8. PLEASE GIVE DETAILS OF ALL THE ADVANCES GIVEN O R TAKEN, DURING THE FINANCIAL YEAR, TOGETHER WITH THE NAME, ADDRESS AND THE ASSESSMENT PARTICULARS OF ALL SUCH PERSONS. 9. PLEASE FURNISH THE DETAILS OF ALL THE LOANS SQUA RED UP DURING THE YEAR, TOGETHER WITH THE NAME, ADDRESS AN D THE ASSESSMENT PARTICULARS OF ALL SUCH PERSONS. 10. PLEASE FURNISH THE DETAILS OF INTEREST PAID/ RE CEIVED, IF ANY, DURING THE FINANCIAL YEAR, TOGETHER WITH THE N AME ADDRESS AND THE ASSESSMENT PARTICULARS OF ALL SUCH PERSONS. 15. PLEASE FURNISH THE DETAILS OF THE BAD DEBTS CLA IMED, IF ANY, DURING EACH OF THE ASSESSMENT YEAR COVERED U/S 153A. 37. IT IS NOTICED THAT SOME EXPENSES LIKE BROUGHT OUT PACKAGE/ PRODUCTS COURSE EXCISION CHARGES PROFE SSION CHARGES BAD DEBTS ETC. HAVE BEEN ALLOCATED EXCLU SIVELY TO THE TAXABLE UNITS WHEREAS SOME OF THE ITEMS WHICH H AVE BEEN ASSIGNED TO NON TAXABLE REGION, HAVE BEEN BOOKED AS EXPENSE IN THE TAXABLE UNIT. YOU ARE REQUESTED TO EXPLAIN T HE JUSTIFICATION OF BOOKING THESE EXPENSES UNDER THE T AXABLE UNIT OR WHETHER SOME OF THESE EXPENSES CAN BE APPORTIONED PROPORTIONATELY. 44.9. LD. SPL. COUNSEL REFERRED TO FOLLOWING QUEST IONNAIRE DATED 29-12- 2005, :- 136 ITA NO. 2057/DEL/10 NIIT VS. CIT 9. IT IS CLAIMED THAT EXPORT OF SOFTWARE IS PHYSICA L EXPORT OF ARTICLE OR THING. PLEASE EXPLAIN WITH EVIDENCE HOW THE SOFTWARE IS PHYSICALLY EXPORTED. FURTHER CONFIRM THAT ALL E XPORTS OF SOFTWARE TANTAMOUNT TO TRANSFER OF ALL OWNERSHIP AN D PROPERTY RIGHTS WITHOUT RECOURSE TO RECALL OF RESUMPTION OF TITLES. 44.10. LD. SPECIAL COUNSEL SUBMITTED THAT OUT OF TH E GROSS REVENUE OF RS. 5,26,79,28,616/-, THE REVENUES OF EOU AMOUNTED TO R S. 1,54,79,36,325/-. HE SUBMITTED THAT FOR THE AMOUNT OF REVENUE, NEITHER T HE ASSESSEE FILED NOR THE AO CALLED FOR ANY DETAILS TO ARRIVE AT THE FIGURE S HOWN IN THE RETURN. THUS, THERE WAS CERTAINLY LACK OF INQUIRY ON THIS PRELIMI NARY ASPECT. LD. SPL. COUNSEL REFERRED TO PAGE 774 AND 778 OF THE PB, WHE REIN THE ASSESSEES REPLY IS CONTAINED TO BUTTRESS HIS SUBMISSION THAT NO DETAILS WERE FILED BY ASSESSEE. LD. SPECIAL COUNSEL REFERRED TO PAGE 779 AND POINTED OUT THAT SOFTEX FORMS WERE PRIMARILY EXCHANGE CONTROL DECLAR ATION REGARDING EXPORT OF SOFTWARE AND AO ACCEPTED THESE FORMS WITHOUT VER IFYING WHETHER THE SAME FORMED PART OF EXPORT TURN OVER OR NOT. HE SUB MITTED THAT AO HAS NOT LOOKED INTO THIS PART OTHER THAN STP FORMS. 44.11. LD. SPL. COUNSEL FURTHER REFERRED TO PAGE 79 5 OF THE PB, WHEREIN QUESTIONNAIRE DATED 10-1-2006 IS CONTAINED, IN WHIC H THE AO HAS REQUIRED THE ASSESSEE TO FURNISH THE DETAILS IN SUPPORT OF E XPORT OF SOFTWARE THE FOLLOWING DETAILS: (A) SOURCE OF DETAILS OF EXPORT MADE; (B) SOFTEX FORMS ISSUED BY STP AUTHORITIES WITH SAMPLES , COPIES THEREOF. 44.12. LD. SPL. COUNSEL REFERRED TO PAGE 798 ONWARD S, WHEREIN THE DETAILS OF EXPORT MADE BY ASSESSEE ARE CONTAINED AND POINTED O UT THAT THE ASSESSEE CLAIMED TO HAVE EXPORTED TECHNICAL REFERENCE MATERI AL TO CERTAIN PARTIES, THE DETAILS WHEREOF ARE CONTAINED AT PAGES 798 TO 800. HE SUBMITTED THAT THE AO, 137 ITA NO. 2057/DEL/10 NIIT VS. CIT WITHOUT CONDUCTING ANY INQUIRY INTO THE MATTER MADE A NOMINAL DISALLOWANCE OF THE CLAIM OF EXPORT OF TECHNICAL REFERENCE MATER IAL AND DENIED EXEMPTION WITH REGARD TO EXPORT OF RS. 25.20 LACS, WHICH REPR ESENTED PROVISION OF TECHNICAL SERVICE TO M/S KWET LISO HOLDINGS. HE REF ERRED TO PAGES 798 TO 800 AND POINTED OUT THAT IN ALL THERE WERE 12 INVOI CES RAISED AGAINST M/S KWET LISO HOLDINGS, BUT AO PICKED UP ONLY SIX INVOI CES AND MADE THE DISALLOWANCE. HE SUBMITTED THAT THERE IS NO BASIS F OR PICKING UP ONLY SIX INVOICES. HE FURTHER POINTED OUT WITH REFERENCE TO THE SAID DETAILS THAT THERE WERE IN ALL 14 OTHER PARTIES TO WHOM SIMILAR EXPORT S WERE MADE BUT NO INQUIRY WAS CONDUCTED, NOR ANY DETAIL OBTAINED TO S HOW WHETHER THE INVOICES REPRESENTED EXPORT OF TECHNICAL REFERENCE MATERIAL OR PROVISION OF TECHNICAL SERVICES. 44.13. LD. SPL. COUNSEL POINTED OUT THAT THE DISALL OWANCE OF PALTRY SUM OF RS. 25.20 LACS WITHOUT BRINGING ON RECORD TO SHOW H OW OTHER RECEIPTS QUALIFY FOR DEDUCTION OR HOW THESE STOOD ON A DIFFERENT FO OTING THAN THE ONE WHICH HE CHOSE TO DISALLOW, CLEARLY DEMONSTRATES THAT AO ONLY PRETENDED TO APPLY HIS MIND. HE FURTHER POINTED OUT THAT CIT(A) DELETE D THE ADDITION OF RS. 25.20 LACS, SO MADE BY AO ON THE PRELIMINARY GROUND THAT HE HIMSELF ACCEPTED THE CLAIMS OF OTHER 14 PARTIES. THUS, LD. SPL. COUNSEL SUBMITTED THAT AO NEITHER MADE THE INQUIRY NOR CAME TO A CORR ECT CONCLUSION WITH REGARD TO THE ELIGIBILITY OF SUCH RECEIPTS FOR THE DEDUCTION U/S 10B OF THE ACT. 44.14. IN RESPONSE TO ASSESSEES SUBMISSION THAT RE VENUES OF EOUS OR NON EOUS WERE SUPPORTED BY SOFTEX ISSUED BY STPI AND EX PORT OF ERN TO CERTAIN PARTIES IN RESPECT OF WHICH DISALLOWANCE WA S MADE BY THE AO WAS DELETED BY LD. CIT(A), LD. SPL. COUNSEL SUBMITTED A S UNDER: COUNTER SUBMISSIONS OF REVENUE 138 ITA NO. 2057/DEL/10 NIIT VS. CIT IT IS SUBMITTED THAT IN THE COURSE OF ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER ONLY TOOK DETAILS OF EXPORT O F SOFTEX FORMS ISSUED BY STPI, BUT THE AO DID NOT VERIFY WHE THER SOFTWARE WAS ACTUALLY EXPORTED OR THE PAYMENTS WERE IN REALITY RECEIVED IN RELATION TO TRANSACTIONS NOT AMOUNTING TO EXPORT OF SOFTWARE. IN THIS CONNECTION, RELIANCE WAS PLACED ON THE ASSE SSMENT ORDER PASSED U/S 153A OF THE ACT FOR THE RELEVANT ASSESSM ENT YEAR, WHEREIN THE AO HAD DISALLOWED DEDUCTION U/S 10B CLA IMED WITH RESPECT TO SIX INVOICES RAISED ON KWETLISO HOLDING ON THE GROUND THAT THE SAME WERE RECEIPTS OF TECHNICAL KNO WHOW FEE AND NOT IN RELATION TO ACTUAL EXPORT OF SOFTWARE (T RM). REVENUE WOULD LIKE TO SUBMIT THAT THE AO FAILED TO CONDUCT THE BASIC AND PRIMARY ENQUIRY WITH REGARD TO NATURE OF THE SO CALLED EXPORT REVENUE. THE GLARING EXAMPLE IS WITH REGARD TO THE EXPORT MADE TO 15 PARTIES INDICATED BY CIT IN HIS R EVISIONARY ORDER. THERE WAS ABSOLUTELY NO MATERIAL PLACED ON R ECORD TO INDICATE THAT THESE REPRESENTED EXPORT OF TRM AND N OT FEE FOR TECHNICAL SERVICES MORE SO WHEN THE AO CHOSE TO TAK E THE CONTRARY VIEW I RESPECT OF 6 INVOICES (IDENTICALLY PLACED) OF KWETLISO HOLDINGS. THIS LEAVES NO ROOM FOR ANY DOUB T THAT THE AO MADE THE PRETENCE OF ENQUIRY AND MADE SOME PETT Y ADHOC DISALLOWANCES ONLY TO BE DELETED IN APPEAL. THE ORD ER OF THE CIT EXAMINES THE ISSUE IN SUFFICIENT DETAILS AND THE LA CK OF ENQUIRY IS WRIT LARGE ON THE FACE OF THE MATTER. IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT THE AFO RESAID WAS A CASE OF LACK OF ENQUIRY, WHICH JUSTIFIED THE ACT ION OF THE CIT IN EXERCISING REVISIONARY JURISDICTION UNDER SECTIO N 263 AND SETTING ASIDE THE AFORESAID ISSUE TO THE FILE OF TH E ASSESSING OFFICER FOR FRESH EXAMINATION. 44.15. AS REGARDS THE PLEA OF LD. COUNSEL FOR THE A SSESSEE REGARDING DOCTRINE OF MERGER, LD. SPL. COUNSEL SUBMITTED THAT THE SAID DOCTRINE IS CONFINED TO ISSUES ACTUALLY DECIDED IN APPEAL BY THE CIT(A) AND DOES NOT TRAVELS TO 139 ITA NO. 2057/DEL/10 NIIT VS. CIT ISSUES NOT REACHED AND ADJUDICATED BY THE CIT(A). IN THIS REGARD LD. SPL. COUNSEL PLACED RELIANCE ON FOLLOWING DECISIONS: - CIT VS. SHRI ARBUDA MILLS LTD. 231 ITR 50 SC; - RITZ LTD. VS. UNION OF INDIA 184 ITR 599 (BOM.). 44.16. HONBLE SUPREME COURT IN THE CASE OF SHRI A RBUDA MILLS LTD. (SUPRA) HAS HELD THAT POWERS OF COMMISSIONER U/S 263 WOULD EXTEND AND WOULD BE DEEMED TO HAVE EXTENDED TO THE ITEMS WHICH HAD BEEN CONSIDERED AND DECIDED IN APPEAL FILED BY THE ASSESSEE. IN THIS CA SE THE ASSESSMENT WAS COMPLETED U/S 143(3) READ WITH SECTION 144B OF THE ACT ON 31-3-1978 FOR THE AY 1975-76, IN WHICH THE NET BUSINESS LOSS WAS COMP UTED AT RS. 3,61,086/- AND THE INCOME UNDER THE HEAD CAPITAL GAINS AT RS . 38,874/-. THE ITO HAD MADE CERTAIN ADDITIONS AND DISALLOWANCES WHILE COMP UTING THE LOSS AND INCOME AS ABOVE AND HAD ALSO ACCEPTED, INTER ALIA, THE FOLLOWING THREE ITEMS: (I) DEDUCTION OF A SUM OF RS. 23,82,621/- BY WAY O F PROVISION FOR SECURITY; (II) DEPRECIATION OF RS. 4,21,000/- WHICH WAS PAID BY THE ASSESSEE TO UNITED TEXTILE INDUSTRIES AS CONSIDERATION FOR TRA NSFER OF INSTALLED PROPERTY OF RS. 17,480/- AND 400 LOOMS OF OLD MANE K CHOWK MILLS. (III) LOSS ON ACCOUNT OF DIFFERENCE IN EXCHANGE RATE WHIC H WAS REFERABLE TO THE PURCHASE OF MACHINERY ETC. AS REVENUE EXPEND ITURE. 44.17. IN THE APPEALS FILED BY THE ASSESSEE, THE IT EMS IN RESPECT OF WHICH THE DECISION WAS IN ITS FAVOUR, WERE NOT THE SUBJECT MA TTER OF THE APPEALS. IN RESPECT OF ABOVE THREE ITEMS THE CIT EXERCISED HIS POWER U/S 263. MAIN CONTENTION OF THE ASSESSEE WAS THAT SINCE THE ORDER OF THE ITO WAS SUBJECT MATTER OF APPEAL BEFORE LD. CIT(A), THEREFORE, THE SAID ORDER MERGED WITH THE 140 ITA NO. 2057/DEL/10 NIIT VS. CIT ORDER OF LD. CIT(A), OUSTING THE JURISDICTION OF L D. COMMISSIONER. THIS PLEA WAS REJECTED BY HONBLE SUPREME COURT AND IT WAS HE LD THAT IN VIEW OF EXPLANATION (C) TO SECTION 263, THE COMMISSIONER HA D POWER U/S 263 IN RESPECT OF THE IMPUGNED THREE ITEMS. 44.18. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RITZ LTD. (SUPRA), WHILE CONSIDERING THE SCOPE OF EXPLANATION (C) TO S ECTION 263, OBSERVED THAT THE LEGAL POSITION AS LAID DOWN IN CIT VS. MUNCHERJ I (P) AND CO. 167 ITR 671 AND CIT VS. SMT. A.S.NARENDRAKUMARI BASAHEBA 1 76 ITR 515 IS THAT ONCE AN ORDER OF ASSESSMENT IS SUBJECT MATTER OF AP PEAL, THE WHOLE OF IT MERGES IN THAT OF THE APPELLATE ORDER, NOTHING SUR VIVES. THE HONBLE BOMBAY HIGH COURT, INTER ALIA, OBSERVED AS UNDER: THE EXPLANATION WAS THEN EVIDENTLY PROSPECTIVE W ITH EFFECT FROM JUNE 1, 1988. IN THE PRESENT CASE, THE APPEALS HAVING BEEN NOT ONLY FILED BUT ALSO DISPOSED OF BEF ORE THAT DATE, THIS EXPLANATION WOULD HAVE NO EFFECT WHATSOEVER. C OMING THEN TO THE AMENDMENT OF THE EXPLANATION IN 1989 WITH RE TROSPECTIVE EFFECT FROM JUNE 1, 1988, IT IS SEEN THAT ON THE FA CE OF IT THERE IS SOME CONTRADICTION. THE INSERTION OF THE WORDS 'FIL ED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988' AND 'AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED' AT TWO PLACES IN TH E EXPLANATION MAY SUPPORT THE DEPARTMENT'S CONTENTION ON THE FACT OF IT THAT AFTER THE AMENDMENT IN 1989, EXPLAN ATION (C) MEANS THAT TO THE EXTENT MATTERS HAVE NOT BEEN CONS IDERED AND DECIDED IN APPEAL THE COMMISSIONER WILL ALWAYS HAVE JURISDICTION TO REVISE THE ORDER OF ASSESSMENT UNDE R SECTION 263 SUBJECT TO OTHER CONDITIONS. THE QUESTION, HOWEVER, IS IF THAT WAS SO, WHY DID THE LEGISLATURE NOT STOP AT THAT AN D WENT FURTHER TO SAY THAT THE INSERTION OF THESE WORDS TH OUGH FACTUALLY IN 1989 WAS WITH RETROSPECTIVE EFFECT FROM JUNE 1, 1988, THE DATE ON AND FROM WHICH EXPLANATION (C) ITSELF WAS I NSERTED BY THE FINANCE ACT, 1988. IN MY JUDGMENT, EXPLANATION (C) REQUIRES TO BE CONSTRUED HARMONIOUSLY. THE INSERTIO N OF THE WORDS AT TWO PLACES AS WELL AS THE FACT THAT THE IN SERTION IS 141 ITA NO. 2057/DEL/10 NIIT VS. CIT MADE RETROSPECTIVE FROM THE DATE ON WHICH THE EXPLA NATION ITSELF WAS INSERTED CAN ALL BE GIVEN PROPER MEANING IF IT IS HELD THAT THESE WORDS ARE TO BE READ IN THE EXPLANATION RIGHT FROM THE DATE THE EXPLANATION ITSELF WAS INSERTED. THUS, ONLY IN CASES WHERE ACTION UNDER SECTION 263 IS TAKEN AFTER JUNE 1, 1988, THE MERGER OF THE ASSESSMENT ORDER WILL BE TREATED AS C ONFINED TO THE ISSUES ACTUALLY CONSIDERED AND DECIDED IN APPEA L IN TERMS OF EXPLANATION (C). IN MY JUDGMENT, THE CONSTRUCTION P LACED HEREIN IS BASED ON SOUND LOGIC, NAMELY, IRRESPECTIVE OF TH E LANGUAGE IN WHICH THE AMENDING PROVISIONS ARE COUCHED, THE AMEN DMENT CANNOT BE RETROSPECTIVE WITH EFFECT FROM A DATE EAR LIER TO THE DATE ON WHICH THE PROVISION SOUGHT TO BE AMENDED IT SELF WAS BROUGHT ON THE STATUTE BOOK. 44.19. IN VIEW OF THESE DECISIONS, LD. SPECIAL COUN SEL SUBMITTED THAT IN THE PRESENT CASE SINCE THE ISSUE UNDER CONSIDERATION BE FORE THE COMMISSIONER (A) WAS ONLY DISALLOWANCE OF CLAIM OF DEDUCTION WIT H RESPECT TO 6 INVOICES RAISED ON M/S KWET LISO HOLDINGS, THEREFORE, TO THA T EXTENT ONLY THE ISSUE MERGED WITH THE ORDER OF CIT(A) AND ALL OTHER ISSUE S INCLUDING REMAINING INVOICES OF THE SIMILAR KIND, ALLOCATION OF EXPENSE S AND VERIFICATION OF PHYSICAL EXPORT OF SOFTWARE TO OTHER PARTIES WAS OP EN FOR REVISION BY THE CIT U/S 263. 44.20. LD. SPECIAL COUNSEL SUBMITTED THAT THE WORD MATTER, USED IN CLAUSE (C) OF THE EXPLANATION INCLUDES ONLY SUCH MATTER AS ARE AGITATED BEFORE THE CIT(A) OR WHICH CIT(A) EXAMINES OR CONSIDERS SUO MO TU IN EXERCISE OF HIS PLENARY POWERS. IT IS NOT OPEN TO URGE THAT IF AN APPEAL IS FILED AND DECIDED BY APPELLATE AUTHORITY, THE ENTIRE ISSUE IN ITS BRO AD SPECTRUM IS OUSTED FROM THE PURVIEW OF CONSIDERATION BY THE COMMISSIONER. 142 ITA NO. 2057/DEL/10 NIIT VS. CIT 44.21. IN REGARD TO RELIANCE PLACED BY ASSESSEE IN THE CASE OF SUJATA GROVER (2002) 74 TTJ 347 (DEL.), LD. LD. SPECIAL COUNSEL SUBMITTED AS UNDER: THE CASE RELIED UPON BY THE LD. COUNSEL FOR THE AS SESSEE ARE CLEARLY DISTINGUISHABLE ON FACTS IN THE CASE OF SUJ ATA GROVER (2002) 74 TTJ 347 (DEL.) THE EXPRESSION ANY OTHER RECEIPTS OF SIMILAR NATURE AS APPEARING IN EXPLANATION (BAA) T O SECTION 80HHC WAS CONSIDERED AND DECIDED BY CIT(APPEALS) IN RESPECT OF FOREIGN EXCHANGE FLUCTUATION. CIT SOUGHT TO EXCLUDE 90% OF SUCH FLUCTUATION. IT WAS IN THIS BACK DROP T HAT THE EXERCISE OF POWERS BY CIT WAS FOUND AS BEING NOT JU STIFIED. IN THE PRESENT CASE, THERE IS COMPLETE LACK OF ENQUIRY WITH REGARD TO RECEIPTS FROM VARIOUS PARTIES ON PRIMARY FACTS A S TO WHETHER THESE CONSTITUTED EXPORT OF TRM OR CONSTITUTED CONS IDERATION FOR TECHNICAL FEE. THE DECISION IS NOT AT ALL APPLI CABLE. 44.22. AS REGARDS THE RELIANCE PLACED ON THE DECISI ON IN THE CASE OF SAHARA INDIA MUTUAL BENEFIT COMPANY (2002) 74 TTJ 67 (ALL) , LD. SPECIAL COUNSEL SUBMITTED THAT THE SAID DECISION IS ALSO DISTINGUIS HABLE ON FACTS. IN THIS CASE THE ISSUE BEFORE THE CIT(A) WAS THE ALLOWABILITY OF INTEREST ON CERTAIN DEPOSIT. HOWEVER, IN THE PRESENT CASE, THE ISSUE BE FORE CIT(A) WAS LIMITED AS TO WHETHER THE RECEIPTS FROM KWETLISO HOLDINGS C ONSTITUTED AS EXPORT OF TRM OR WAS IN THE NATURE OF FEE FOR TECHNICAL SERVI CES. BESIDES, THESE CASES ARE FURTHER DISTINGUISHABLE ALSO FOR THE REASON THA T THE CIT HOLDS THE ORDER AS ERRONEOUS FOR LACK OF ENQUIRY WHICH WOULD HAVE LED THE STATUTORY AUTHORITY TO REACH THE CONCLUSION ONE WAY OR THE OTHER AND NOT F OR THE REASON THAT HE HAS TAKEN ONE PLAUSIBLE VIEW OF THE MATTER, WHICH DID N OT FIND FAVOUR IN APPEAL OR OTHERWISE. 44.23. AS REGARDS THE ASSESSEES PLEA THAT SINCE NO INCRIMINATING MATERIAL WAS FOUND IN REGARD TO CLAIM MADE U/S 10B BY THE ASSESS EE IN COURSE OF SEARCH, THEREFORE, THE AOS JURISDICTION U/S 153A WAS OUSTE D, LD. SPECIAL COUNSEL 143 ITA NO. 2057/DEL/10 NIIT VS. CIT REFERRED TO SUPPLEMENTARY PAPER BOOK FILED ON 18-12 -2013, CONTAINING 144 PAGES, WHEREIN THE FOLLOWING DOCUMENTS ARE CONTAINE D: PAGE NO. DESCRIPTION OF DOCUMENTS 1-7 TELEPHONE EXPENSES APRIL TO MARCH,99 8 ELECTRICITY EXPENSE AS ON 31-03-99 9. SERVICE GROUP EXPENSES APRIL 98 TO MAR 99 10 EXPENSES FOR STRIDE APRIL 98 TO MAR 99 11 EOU CALCUTTA EXPENSES APRIL 98 TO MAR 99 12 EOU MUMBAI EXPENSES APRIL 98 TO MAR 99 13-14 EOU P&L ACCOUNT APRIL 98 TO MAR 99 15 EOU P&L ACCOUNT APRIL 97 TO MAR 98 16 SERVICE GROUP EXPENSES 18 EOU CALCUTTA EXPENSES 19 EOU BOMBAY EXPENSES 20-30 DIRECT EXPENSES EOU & P&L A/C 31-32 EOU P&L A/C 33-37 FIXED ASSETS CHARTS & DEPRECIATION 38-45 SALARY APRIL 98 TO MAR 99 46-47 EOU EXPENSES APRIL 98 TO MAR 99 48-71 LIST OF EMPLOYEES & SALARY PAID 72-111 EOU CALCUTTA EXPENSES 112-119 EOU BOMBAY EXPENSES 120-129 OFFICE EXPENSES 130-136 STRIDE EXPENSES 137-143 QUESTIONNAIRE ISSUED BY INVESTIGATION WING (WETG) 144 ANN. A-63 REGARDING EMAIL BY PHILLIPS M DODDS. 44.24. HE, THEREFORE, SUBMITTED THAT THE AO WAS WEL L WITHIN HIS POWERS TO EXAMINE THE CLAIM U/S 10B IN THE PROCEEDINGS TAKEN U/S 153A, SINCE THE DOCUMENTS FOUND HAD NEXUS WITH THE CLAIM OF DEDUCTI ON U/S 10B. HE SUBMITTED THAT SOME NEXUS IS NECESSARY BUT NO DIRE CT NEXUS IS NECESSARY FOR ASSUMING JURISDICTION U/S 153A. HE SUBMITTED THAT T HE PLEA ADVANCED BY LD. COUNSEL IS FACTUALLY INCORRECT AND LEGALLY NOT SOUN D. 144 ITA NO. 2057/DEL/10 NIIT VS. CIT 44.25. LD. SPECIAL COUNSEL REITERATED HIS SUBMISS IONS MADE EARLIER IN THIS REGARD VIDE GROUND NO.9 AND POINTED OUT THAT T HE ASSESSMENT IN THE YEAR WAS COMPLETED U/S 143(1) WITHOUT REFERENCE TO ANY B OOKS OF ACCOUNT OR OTHER DOCUMENTS. THEREFORE, THE BOOKS OF A/C FOUND IN COU RSE OF SEARCH, INTER ALIA, CONSTITUTE MATERIAL SEIZED IN THE COURSE OF SEARCH. 55.27. LD. SPECIAL COUNSEL REFERRED TO PAGES 759 T O 764 OF THE PB TO DEMONSTRATE THAT THE NOTICE ISSUED TO ASSESSEE WAS BASED ON SCRUTINY OF SEIZED MATERIAL. 55.28. AS REGARDS THE ASSESSEES PLEA THAT LD. COM MISSIONER HAS NOT GIVEN ANY SPECIFIC FINDING FURTHER AND HAD NOT CONS IDERED THE REPLIES FILED BY ASSESSEE IN COURSE OF REVISIONAL PROCEEDINGS, LD. S PECIAL COUNSEL REFERRED TO PAGE 6 OF CITS ORDER TO DEMONSTRATE THAT COMMISSIO NER HAS POINTED OUT AT VARIOUS PLACES IN HIS ORDER THAT FAILURE OF AO TO C ONDUCT INQUIRIES HAD RESULTED IN PASSING OF AN ERRONEOUS ORDER, CAUSING PREJUDICE TO THE REVENUE. HE SUBMITTED THAT OBSERVATIONS OF COMMISSIONER THAT FAILURE ON THE PART OF AO TO CONDUCT PROPER/ NECESSARY INQUIRIES WITH RESP ECT TO EACH ISSUE DISCUSSED EARLIER, CONSTITUTED A VALID FINDING OF T HE COMMISSIONER FOR THE PURPOSE OF SETTING ASIDE THE ISSUE U/S 263 OF THE A CT. THE FAILURE TO CONDUCT THE INQUIRY ITSELF RENDERED THE ORDER AS ERRONEOUS. HE POINTED OUT THAT IT WAS NOT A CASE, WHERE THE AO HAD TAKEN ONE PLAUSIBLE VI EW, WHERE THE COMMISSIONER WOULD BE CALLED UPON TO DEMONSTRATE T HAT THE VIEW SO TAKEN WAS ERRONEOUS. HE SUBMITTED THAT COMMISSIONER DID N OT WANT TO REVERSE THE FINDING OF AO BUT AS NECESSARY INQUIRIES WERE NOT D ONE BY AO, THEREFORE, THE ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST S OF REVENUE. 55.29. LD. SPL. COUNSEL SUBMITTED THAT DELETION OF DISALLOWANCE IN SUBSEQUENT YEAR CANNOT BE A GROUND TO CANVASS THE P ROPOSITION THAT INQUIRIES 145 ITA NO. 2057/DEL/10 NIIT VS. CIT WERE MADE THIS YEAR ALSO AND NO DISALLOWANCE IS CAL LED FOR AT ALL. EACH YEAR, NATURE OF EXPENSES AND QUANTUM OF DEDUCTION MAY BE DIFFERENT. THIS FACT CANNOT REMAIN CONSTANT FOR ALL THE YEARS AND HAS TO BE EXAMINED FOR EACH YEAR. 55.30. AS REGARDS THE PLEA OF LD. COUNSEL FOR THE ASSESSEE THAT FOREIGN EXCHANGE LOSS DID NOT PERTAIN TO EXPORT OF EOU UNIT AND, THEREFORE, THE QUESTION OF LOCATION OF EOU UNIT DOES NOT ARISE AT ALL, LD. SPL. COUNSEL SUBMITTED THAT DETAILS WERE FURNISHED BEFORE THE LD . COMMISSIONER AND WERE NOT BEFORE THE AO, AS NO INQUIRY WAS MADE BY THE AO . THEREFORE, ON ACCOUNT OF FAILURE TO CARRY OUT NECESSARY INQUIRY, THE ASSESSMENT ORDER WAS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS O F REVENUE. 56. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORD OF THE CASE. AS FAR AS ASSESSEES CHALLENGE TO FINDINGS OF LD. CIT IN REGARD TO SETTING ASIDE THE ISSUE OF ELIGIBILITY OF CLAIM FOR EXEMPTION U/S 10B IS CONCERNED, ADMITTEDLY THE DEDUCTION U/S 10B WAS BEING CLAIMED AND ALLOWED TO ASSESSEE SINCE AY 1994-95. IN RESPONSE T O THE AOS NOTICE DATED 17-3-2006, THE ASSESSEE HAD FURNISHED VIDE LETTER D ATED 24-3-2006 ALL THE APPROVALS RECEIVED FROM STPI AUTHORITIES OF RELEVAN T STATES, WHERE THE EOU UNIT WAS ESTABLISHED ALONG WITH NOTE ON VARIOUS BUS INESS UNITS INCLUDING EOU UNITS, THE NATURE OF OPERATIONS CARRIED OUT BY THEM. LD. COUNSEL HAS RIGHTLY RELIED ON THE DECISION OF TRIBUNAL DATED 30 -5-2014 IN THE CASE OF HCL TECHNOLOGIES LTD. VS. ACIT (SUPRA) WHEREIN IT H AD BEEN HELD THAT IT IS BEYOND THE POWER OF THE AO TO EXAMINE WHETHER THE U NDERTAKINGS WERE FORMED IN THE EARLIER YEARS BY SPLITTING UP OR RECO NSTRUCTION OF EXISTING BUSINESS. THEREFORE, THIS COULD NOT BE HELD TO BE A CASE WHERE AO HAD NOT APPLIED HIS MIND TO THE ASSESSEES CLAIM REGARDING ELIGIBILITY U/S 10B AND, 146 ITA NO. 2057/DEL/10 NIIT VS. CIT THEREFORE, THIS, IN OUR OPINION, DOES NOT COME WITH IN THE REVISIONARY POWERS OF LD. CIT. THEREFORE, WE HOLD THAT , AS REGARDS TH E ELIGIBILITY OF CLAIM U/S 10B, THE REVISIONAL PROCEEDINGS TAKEN WERE NOT IN A CCORDANCE WITH LAW. 56.1. THE SECOND LIMB OF THIS ISSUE IS REGARDING DE TERMINATION OF ASSESSEES CLAIM U/S 10B. ON THIS COUNT, THE FIRST ASPECT, WHI CH HAS BEEN RAISED BY LD. CIT IN HIS ORDER, IS REGARDING ALLOCATION OF EXPENS ES TO NON-TAXABLE UNITS. LD. CITS MAIN OBJECTION WAS THAT THE COMMON EXPENSES H AD NOT BEEN ALLOCATED ON AN APPROPRIATE BASIS. HE ALSO, AFTER CONSIDERING THE ASSESSEES REPLY, OBSERVED THAT ASSESSEES REPLY WAS QUITE DUMB AND I T HAD NOT GIVEN ANY BIFURCATION OR SPECIFIC DISTRIBUTION OF EXPENSES BE TWEEN EOU AND NON EOU UNITS. THE CONTENTION OF LD. CIT WAS THAT EVEN AS P ER THE SUBMISSION OF THE ASSESSEE THERE WAS NO CONSISTENT METHOD OF DISTRIBU TION OF EXPENSES. LD. CIT HAD ARRIVED AT THIS CONCLUSION AFTER OBSERVING THAT ASSESSEE HAD, INTER ALIA, CLAIMED THAT SERVICE EXPENSES WERE CHARGED ON THE B ASIS OF REVENUE OF EOU AND NON EOU UNITS AND HAD IN OTHER REPLY STATED THA T SERVICE EXPENSES HAD BEEN ALLOCATED ON THE BASIS OF MAN POWER. THUS, THE RE WAS NO CONSISTENCY IN ASSESSEES CLAIM. 56.2. ADMITTEDLY THE AO HAD SOUGHT JUSTIFICATION OF ALLOCATION OF VARIOUS EXPENSES LIKE COURSE EXECUTION CHARGES, BAD DEBTS, LEGAL AND PROFESSIONAL CHARGES ETC. EXCLUSIVELY TO TAXABLE UNITS AND NOT T O NON-TAXABLE/ EOU UNITS. THE ASSESSEE HAD EXPLAINED THE ALLOCATION OF EXPENS ES. IT IS EVIDENT FROM THE REPLY THAT ASSESSEE ONLY EXPLAINED THE METHODOLOGY FOLLOWED FOR ALLOCATION OF EXPENSES VIDE REPLY DATED 24 TH MARCH 2006 BUT DID NOT GIVE ANY DETAILS OF THE EXPENSES INCURRED BY IT UNDER VARIOUS HEADS AND ITS DISTRIBUTION AMONGST RESPECTIVE UNITS. WITH REFERENCE TO DETAILS FURNISH ED REGARDING BIFURCATION OF THE EXPENSES LD. CIT HAS CLEARLY DEMONSTRATED THAT AS REGARDS ALLOCATION OF 147 ITA NO. 2057/DEL/10 NIIT VS. CIT SERVICE GROUP EXPENSES THERE WAS NO CONSISTENT BAS IS VIZ. REVENUE OF UNITS/ MANPOWER OF UNITS. ASSESSEE DID NOT FURNISH DETAILS OF ACTUAL MANPOWER / AREA OF UNITS. IT CANNOT BE DISPUTED THAT WITHOUT B RINGING ALL THESE PRIMARY/ BASIC DETAILS ON RECORD, THE AO COULD NOT TAKE ANY RATIONAL DECISION. THEREFORE, THIS ISSUE COMES WITHIN THE AMBIT OF LA CK OF INQUIRY AND NOT INADEQUATE INQUIRY. THE PLEA OF ASSESSEE THAT AUDI TORS HAD EXAMINED THE ISSUE OF ALLOCATION OF EXPENSES IS ALSO NOT ACCEPTA BLE BECAUSE AUDITORS ONLY STATED THAT INDIRECT EXPENSES HAD BEEN ALLOCATED ON APPROPRIATE BASIS. THE AO WAS REQUIRED TO INQUIRE AS TO WHAT WAS THE ALLEG ED APPROPRIATE BASIS AND WHETHER THE SAME IN PRINCIPLE, WAS FOLLOWED OR NO T. THUS, AO FAILED TO BRING EVEN PRIMARY FACTS ON RECORD TO JUSTIFY HIS C ONCLUSION IN ACCEPTING THE ASSESSEES CLAIM PARTICULARLY WHEN ASSESSEE NEVER P ROVIDED ANY BIFURCATION OF COMMON EXPENSES AMONGST EOU AND NON EOU UNITS. T HUS, AO FAILED TO EXAMINE WHETHER THE EXPENSES HAD BEEN DISTRIBUTED I N PROPORTIONATE MANNER ON THE BASIS OF SOME SPECIFIC AND SCIENTIFIC BASIS BETWEEN EOU AND NON EOU UNITS. AS REGARDS THE PLEA OF ASSESSEE ON THE B ASIS OF DOCTRINE OF MERGER IN PRINCIPLE, WE DO NOT AGREE WITH LD. SPECIAL COUN SELS SUBMISSION THAT IF A PARTICULAR ASPECT PERMEATES THROUGH ALL THE ASSESSM ENT YEARS WITHIN THE BLOCK PERIOD THEN, IF, IN ONE YEAR THE ISSUE HAS BEEN EXA MINED BY LD. CIT(A), THEN DOCTRINE OF MERGER WILL NOT APPLY TO OTHER ASSESSME NT YEARS. HOWEVER, LD. CIT HAS CLEARLY DEMONSTRATED THAT THE ISSUE OF ALLO CATION OF EXPENSES WAS NOT EXAMINED IN ASSESSMENT YEAR 2001-02. IN VIEW OF ABO VE DISCUSSION, WE CONCUR WITH THE FINDING OF LD. CIT ON THIS ISSUE. 56.5. THE NEXT OBJECTION OF LD. CIT WAS THAT THE A SSESSEE WAS NOT MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR EACH ELIG IBLE UNDERTAKING. THE ASSESSEES SUBMISSION WAS THAT THE ACCOUNTS WERE M AINTAINED THROUGH 148 ITA NO. 2057/DEL/10 NIIT VS. CIT FAMS/ SAP SOFTWARE, WHICH CONTAINED SEPARATE CODE FOR EACH HEAD OF EXPENDITURE AND FOR EACH OF THE UNITS OF THE ASESSE E. WE FIND THAT THIS REPLY OF ASSESSEE WAS SUFFICIENT ENOUGH FOR DROPPING THE OBJECTION RAISED ON THIS COUNT BY LD. CIT. WE FURTHER FIND FORCE IN THE SUBM ISSION OF LD. COUNSEL FOR THE ASSESSEE THAT IN VIEW OF THE DECISION OF HONBL E SUPREME COURT IN THE CASE OF BONGAIGAON REFINERY AND PETROCHEMICAL LTD. 349 ITR 352 AND CBDT CIRCULAR NO. 01/13 DATED 17-1-201, IN ANY VIE W OF THE MATTER, NON- MAINTENANCE OF SEPARATE BOOKS OF A/C WAS NOT DETRIM ENTAL TO THE CLAIM OF DEDUCTION U/S 10B. WE, ACCORDINGLY, REVERSE THE FIN DING OF CIT ON THIS ASPECT. 56.6. NEXT ASPECT IS WITH REGARD TO THE ACCEPTANCE BY THE AO OF REVENUE OF THE EXPORT ORIENTED UNIT WITHOUT CALLING FOR ANY DETAILS ON THIS GROUND. THEREFORE, LD. CIT CONCLUDED THAT IT WAS A CASE OF LACK OF INQUIRY ON THIS PRIMARY ASPECT. FURTHER, AS REGARDS THE ASSESS EES CLAIM OF EXPORTED TECHNICAL REFERENCE MATERIAL (TRM) TO CERTAIN PARTI ES, THE AO ONLY CALLED FOR THE DETAILS OF RECEIPT OF US$ 60,000 EQUIVALENT TO RS. 25,20,000/- RECEIVED FROM M/S KWETLISO HOLDINGS IN RESPECT OF SIX INVOI CES ONLY AND DISALLOWED THE SAME. THE ASSESSEE HAD CLAIMED THE EXPORT TO 15 PARTIES BUT THE AO CHOSE TO EXAMINE ONLY 6 INVOICES OUT OF 12 INVOICES RAISED ON KWETLISO HOLDINGS. THE AO DID NOT MAKE ANY INQUIRY TO SHOW H OW OTHER RECEIPTS QUALIFIED FOR DEDUCTION OR HOW THOSE STOOD ON A DIF FERENT FOOTING THAN THE ONE WHICH HE CHOOSE TO DISALLOW CLEARLY DEMONSTRATE D A COMPLETE LACK OF INQUIRY ON BEHALF OF THE AO. 56.7. LD. SPECIAL COUNSEL HAS RIGHTLY POINTED OUT THAT LD. CIT(A) DELETED THE ADDITION OF RS. 25.20 LACS ON THE PRELI MINARY GROUND THAT AO HIMSELF ACCEPTED THE CLAIM OF OTHER 14 PARTIES. THE ASSESSEE HAD MERELY 149 ITA NO. 2057/DEL/10 NIIT VS. CIT SUBMITTED SOFTEC FORMS ISSUED BY STPI IN SUPPORT OF ITS CONTENTION. IF THE AO ACCEPTS THE DETAILS FURNISHED BY ASSESSEE WITHOUT P ROPER INQUIRY AS TO THE BASIC ASPECTS INVOLVED IN A PARTICULAR CASE, THEN I T IS A CASE OF LACK OF INQUIRY. THE ASSESSEES REPLY THAT FROM SOME LICENSEES ASSES SEE WAS CHARGING TECHNICAL KNOW HOW FEES, WAS A RELEVANT FACT, WHICH SHOULD HAVE PROMPTED THE AO TO EXAMINE IN DETAIL ALL THE INVOICES RAISED BY ASSESSEE IN RESPECT OF EXPORT OF TRM. THE AO DID NOT POINT OUT AS TO FROM WHICH LICENSEES THE ASSESSEE HAD RECEIVED TECHNICAL KNOW-HOW FEE PARTIC ULARLY, WHEN HE WAS OF THE OPINION THAT ASSESSEE WAS CAMOFLOUGING THE TECH NICAL KNOW-HOW FEE WITH ALLEGED EXPORT OF TRM. THE AO DID NOT REFER TO ANY MATERIAL ON RECORD FOR HIS CONCLUSIONS EITHER WAY. THE AO WAS REQUIRED TO VERIFY WHETHER SOFTWARE WAS ACTUALLY EXPORTED OR THE PAYMENTS WERE IN REAL TY IN REGARD TO TRANSACTION NOT AMOUNTING TO EXPORT OF SOFTWARE. THE AO FAILED TO CONDUCT THE BASIC AND PRELIMINARY INQUIRY WITH REGARD TO NATURE OF THE SO CALLED EXPORT REVENUE. THE AO HAD DISALLOWED THE CLAIM OF RS. 25.20 LACS O N THE GROUND THAT THE AMOUNT RECEIVED FROM KWETLISO HOLDINGS WAS IN LIEU OF TECHNICAL KNOW HOW FEES AS OPPOSED TO EXPORT OF TECHNICAL REFERENCE MA TERIAL SOFTEC. THESE FINDINGS WERE REVERSED BY LD. CIT(A). THE AO WAS RE QUIRED TO BRING THE PRIMARY FACTS ON RECORD IN RESPECT OF ALL THE INVOI CES AND NOT BRINGING THE SAID DETAILS ON RECORD RESULTED INTO ERROR CREEPING INTO THE ASSESSMENT ORDER, WHICH CAUSED PREJUDICE ALSO TO THE REVENUE. 56.8. WE DO NOT FIND MUCH SUBSTANCE IN THE SUBMISS ION OF LD. COUNSEL FOR THE ASSESSEE THAT IT IS A CASE OF MERGER WITH C IT(A)S FINDING BECAUSE CIT(A) DELETED THE DISALLOWANCE MADE BY AO. THE SAM E FINDING WILL BE RELEVANT ONLY WITH REFERENCE TO THE INVOICES CONSID ERED BY AO AND NOT WITH 150 ITA NO. 2057/DEL/10 NIIT VS. CIT RESPECT TO INVOICES IN RESPECT OF REST OF THE PARTI ES. WE ACCORDINGLY UPHOLD THE ORDER OF CIT ON THIS ASPECT. 56.9. THE NEXT ASPECT IS REGARDING NON ALLOCATION O F FOREIGN EXCHANGE FLUCTUATION LOSS TO EOU UNIT. IN THIS REGARD WE FIN D THAT ASSESSEE IN ITS REPLY HAD POINTED OUT THAT LOSS OF RS. 2.76 CRORES DID NO T PERTAIN TO EOU UNITS. THE ASSESSEE HAD FURTHER POINTED OUT THAT IN SCHEDULE 1 5 OF THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD REVENUE FROM OPERATIONS IT IS CLEARLY STATED THAT NET GAIN OF RS. 4,66,35,669/- DUE TO EXCHANGE RATE FLUCTUATION WAS INCLUDED IN FOR THE YEAR. THUS, THE ASSESSEES CLAIM, BOTH FOR GAIN AND LOSS ON EXCHANGE FLUCTUATION IN RELATION TO REVENUE FROM OP ERATIONS HAD ALREADY BEEN CONSIDERED IN SCHEDULE 15 OF THE ANNUAL ACCOUNTS. 56.10. LD. CIT POINTED OUT THAT SINCE ASSESSEE FAI LED TO SUBMIT THE TRANSACTIONS WHICH RESULTED IN FOREIGN EXCHANGE FLU CTUATION LOSS, THE ASSESSEES REPLY COULD NOT BE ACCEPTED, PARTICULARL Y BECAUSE ASSESSEES FOREIGN EXCHANGE TRANSACTIONS WERE MAINLY ON ACCOUN T OF OPERATIONAL EXPORTS. ADMITTEDLY, THE AO HAD NOT MADE ANY INQUIR IES ON THIS COUNT. ASSESSEE FAILED TO FURNISH TRANSACTIONS WHICH RESUL TED INTO LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS. CONSIDERING THE FAC T THAT ASSESSEE WAS HAVING EOU AND NON EOU UNITS AND WAS REGULARLY EXPORTING T HE SOFTWARE AND GETTING THE PROFITS IN FOREIGN EXCHANGE, IT WAS INC UMBENT UPON THE AO TO AT LEAST BRING THE PRIMARY FACTS ON RECORD SO AS TO RE ACH THE LEVEL OF SATISFACTION WHERE HE COULD COME TO THE CORRECT CONCLUSION AS TO WHETHER THE FOREIGN EXCHANGE LOSS PERTAINED TO EOU OR NON EOU UNITS. W E, THEREFORE, SUSTAIN THE FINDING OF LD. CIT ON THIS COUNT. IN THE RESULT THIS GROUND IS PARTLY ALLOWED. 151 ITA NO. 2057/DEL/10 NIIT VS. CIT 57. VIDE GROUND NO. 12, THE ASSESSEE HAS ASSAILED T HE FINDINGS OF LD. CIT IN HOLDING THAT THE AO WHILE ALLOWING NETTING OFF O F INTEREST INCOME AND EXPENSES IN THE ORDER PASSED U/S 143(3)/153A, FAILE D TO APPRECIATE THAT THIS ISSUE HAD ALREADY BEEN EXAMINED AND SCRUTINIZED IN DETAIL DURING THE ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3)/153A OF THE ACT. 57.1. BRIEF FACTS, APROPOS THIS ISSUE, ARE THAT THE COMMISSIONER NOTICED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HA D RECEIVED FOLLOWING INTEREST INCOME: INTEREST RECEIVED FROM DEPOSITS RS. 5,97,29,499/- INTEREST RECEIVED FROM LOANS RS. 1,47,00,000/- INTEREST RECEIVED FROM OTHERS RS. 5,64,24,251/- TOTAL: RS. 13,08,53,750/- 57.2. HE NOTICED THAT IN THE RETURN OF INCOME, ASSE SSEE HAD NOT SHOWN THIS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES, BUT HAD REDUCED IT FROM INTEREST PAID ON LOANS AMOUNTING TO RS. 17,03, 49,186/- AND HAD CHARGED THE DIFFERENCE AMOUNT OF RS. 3,94,95,436/- TO P&L A /C. IN THE REPLY FILED BEFORE LD. COMMISSIONER VIDE LETTER DATED 30-3-201 0, THE ASSESSEE HAD SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROC EEDINGS THE AO VIDE QUESTIONNAIRE DATED 2-11-2005 DIRECTED THE ASSESSEE TO FURNISH DETAILS OF INTEREST PAID AND INTEREST RECEIVED. IN RESPONSE TH EREOF, THE ASSESSEE, VIDE LETTER DATED 14-11-2005 FURNISHED COMPLETE DETAILS OF INTEREST INCOME AND INTEREST PAID. IT WAS FURTHER SUBMITTED THAT IT COU LD NOT BE HELD THAT THE AO DID NOT EXAMINE THE DETAILS OF INTEREST INCOME AND INTEREST EXPENSES. THE ASSESSEE FURTHER STATED THAT BY NETTING OFF OF INTE REST INCOME AGAINST INTEREST PAYMENT, NO PREJUDICE WAS CAUSED TO THE REVENUE, AS IS EVIDENT FROM THE FOLLOWING: 152 ITA NO. 2057/DEL/10 NIIT VS. CIT (A) THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION UNDER SE CTION 10B OF THE ACT ON THE ENTIRE INT4EREST INCOME OF RS. 13,08,53, 750. THIS IS CLEARLY EVIDENT FROM THE PROFIT & LOSS ACCOUNT OF THE EOU U NITS WHEREIN THE ASSESSEE HAS MERELY SHOWN RECEIPTS ON ACCOUNT OF IN COME FROM OPERATION; (B) FINANCE CHARGES, INCLUDING INTEREST PAID, AGGREGATI NG TO RS. 1,74,36,330, WHICH ARE RELATABLE TO THE EOU UNIT HA S BEEN DEBITED AND REDUCED FROM THE PROFIT & LOSS ACCOUNT OF THE ELIGI BLE UNIT; (C) EVEN IF THE ENTIRE INTEREST INCOME OF RS. 13,08,53 ,750 WERE TO BE ASSESSED AS INCOME FROM OTHER SOURCES, AS AGAINST T HE SAME BEING PRESENTLY ASSESSED AS INCOME FROM BUSINESS, THERE W OULD BE NO EFFECT ON THE FINAL TAXABLE INCOME OF THE ASSESSEE. 57.3. LD. CIT, HOWEVER, DID NOT ACCEPT THE ASSESSEE S CONTENTION AND OBSERVED THAT AO HAD ONLY ASKED ABOUT THE DETAILS O F INTEREST INCOME AND INTEREST PAYMENT BUT HAD NEVER ASKED ABOUT NETTING OFF OF THESE. HE FURTHER OBSERVED THAT AO NEVER EXAMINED THAT INTEREST INCOM E SHOULD HAVE BEEN ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES . 58. AS REGARDS THE ASSESSEES CONTENTION THAT ASSES SEE HAD NOT CLAIMED ANY DEDUCTION UNDER SECTION 10B OF THE ACT ON THE ENTIR E INTEREST INCOME OF RS.13,08,53,750/-, LD. COMMISSIONER POINTED OUT THA T ASSESSEE WAS TALKING ABOUT INTEREST INCOME BUT NO WHERE IT HAD TAKEN TH E IMPACT OF INTEREST EXPENSES ON THE TAXABLE INCOME OF THE EOU AS WELL A S NON-EOU UNITS. HE POINTED OUT THAT IF THE ASSESSEE HAD CHARGED THE AC TUAL INTEREST EXPENDITURE TO THE RESPECTIVE UNIT, THE PROFIT OF THOSE UNITS WOUL D HAVE BEEN REDUCED ACCORDINGLY. HE SUBMITTED THAT INTEREST INCOME CAN ONLY BE ADJUSTED AGAINST 153 ITA NO. 2057/DEL/10 NIIT VS. CIT THE INTEREST PAYMENT ONLY IF THERE WAS DIRECT NEXUS BETWEEN THE TWO. HE POINTED OUT THAT SINCE THE ASSESSEE WAS NOT IN THE BUSINESS OF FINANCE, DIRECT NEXUS BETWEEN THE TWO AMOUNTS COULD NOT BE ASSUMED AND THAT ASPECT HAD TO BE EXAMINED BY THE AO. INTEREST INCOME WAS ALSO TO BE ASSESSED UNDER THE INCOME INCOME FROM OTHER SOURCES AND THE INTEREST EXPENDITURE, IF INCURRED FOR THE PURPOSE OF BUSINESS WAS TO BE ADJUSTED AG AINST BUSINESS PROFITS, AS THE LD. COMMISSIONERS MAIN OBJECTION WAS THAT, HA D THE ASSESSEE SHOWN INTEREST EXPENDITURE AGAINST BUSINESS PROFITS, THE PROFITS WOULD HAVE BEEN REDUCED TO THE SAME EXTENT. ACCORDINGLY, THE EXEMPT ION U/S 10B WOULD ALSO HAVE BEEN REDUCED. LD. CIT HAS FURTHER AMPLIFIED HI S FINDING WITH REFERENCE TO ILLUSTRATION. HE, THEREFORE, CONCLUDED THAT SINC E THE AO HAD NOT INQUIRED INTO THE ACTUAL INTEREST EXPENDITURE, WHICH WAS AT TRIBUTABLE TO VARIOUS BUSINESS UNITS, THEREFORE, IT WAS CLEAR THAT THE AO HAD NOT EXAMINED THE ISSUE WHILE PASSING ORDER U/S 143(3)/153A AND ALLOWED THE ENTIRE CLAIM OF INTEREST PAID TO BE ADJUSTED AGAINST INTEREST INCOME, WITHOU T MAKING NECESSARY INQUIRY/ VERIFICATION. FURTHER, IN VIEW OF VARIOUS JUDICIAL PRONOUNCEMENTS, THE INTEREST INCOME WAS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES AND THIS ASPECT WAS ALSO NOT EXAMINED BY TH E AO. 58.1. LD. COUNSEL SUBMITTED THAT INTEREST INCOME BE ING NOT RELATED TO BUSINESS OF EOU, WAS NOT CREDITED TO THE P&L A/C OF EOU UNIT AND CONSEQUENTLY NO DEDUCTION U/S 10B OF THE ACT WAS CL AIMED ON THE AFORESAID AMOUNT. LD. COUNSEL FURTHER SUBMITTED THAT LD. COMM ISSIONER WRONGLY PROCEEDED ON THE PREMISE THAT NO ALLOCATION OF INTE REST WAS MADE TO EOU UNITS. ON THE CONTRARY, EXACT INTEREST WAS DEBITED TO RESPECTIVE UNITS. HE CLARIFIED THAT IN THE CONSOLIDATED ACCOUNT OF THE A SSESSEE COMPANY AS A WHOLE, THE INTEREST INCOME WAS NETTED AGAINST THE T OTAL INTEREST EXPENDITURE 154 ITA NO. 2057/DEL/10 NIIT VS. CIT AND NET INTEREST EXPENDITURE OF RS. 3,94,95,436/- W AS DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD ADMINISTRATION AND OTHERS. IN THIS REGARD HE REFERRED TO PAGE 1062 OF PB VOL. III, WHEREIN, SCHE DULE, FORMING PART OF P&L A/C, CONTAINING DETAILS OF ADMINISTRATION AND O THER EXPENSES IS CONTAINED AND POINTED OUT THAT DESCRIPTION AND DIS CLOSURE OF BOTH, INTEREST RECEIVED AND INTEREST PAID WAS AS UNDER: INTEREST ON: FIXED LOANS 105,456,846 OTHER LOANS 64,892,340 170,349,186 LESS: INTEREST RECEIVED: FROM DEPOSITS 59,729,499 FROM LOANS 14,700,000 FROM OTHERS 56,424,251 130,853,750 58.2. LD. COUNSEL POINTED OUT THAT OUT OF THE AFORE SAID TOTAL EXPENDITURE OF RS. 17,03,49,186/-, INTEREST EXPENDITURE OF RS. 1,5 7,12,324/- RELATED TO TERM LOAN BORROWED FOR PURCHASE OF ASSETS AT EOU UNITS, WHICH WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT OF THE EOU UNITS UNDER THE HEAD FINANCE CHARGES, AGGREGATING TO RS. 1,74,36,330/-. IN THIS REGARD LD . COUNSEL REFERRED TO PAGE 855 OF THE PB, WHEREIN THE P&L A/C., RELATING TO EX PORT ORIENTED UNIT ENVISAGED U/S 10A/10B OF THE I.T. ACT IS CONTAINED, TO DEMONSTRATE THAT FINANCE CHARGES AGGREGATING TO RS. 1,74,36,330/- HA D BEEN DEBITED IN THE SAID ACCOUNT, COMPRISING OF INTEREST AMOUNTING TO RS. 1, 57,12,324/- AND BANK CHARGES OF RS. 17,24,006/-. THEREFORE, ALTHOUGH IN THE CONSOLIDATED ACCOUNT, THE TOTAL INTEREST EXPENDITURE WAS NETTED AGAINST I NTEREST INCOME, HOWEVER, IN THE SEPARATE AUDITED ACCOUNTS OF EOU, PREPARED FOR THE PURPOSES OF 155 ITA NO. 2057/DEL/10 NIIT VS. CIT DETERMINING PROFITS ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT, INTEREST EXPENDITURE ON BORROWED FUNDS RELATABLE TO SUCH UNI T, WAS SEPARATELY DEBITED AND REDUCED FROM PROFIT OF THE EOU UNITS, FOR PURPO SES OF COMPUTING DEDUCTION UNDER THAT SECTION. 58.3. LD. COUNSEL SUBMITTED THAT SINCE THE ASSESSME NT ORDER WAS NEITHER ERRONEOUS, NOR PREJUDICIAL TO THE INTERESTS OF REVE NUE, JURISDICTION U/S 263 WAS OUSTED. HE POINTED OUT THAT ALLEGATION OF THE C OMMISSIONER THAT THE AO DID NOT EXAMINE THE AFORESAID ISSUE, IS INCORRECT. COMPLETE DISCLOSURE HAD BEEN MADE BY ASSESSEE AND IN COURSE OF ASSESSMENT P ROCEEDINGS, THE AO VIDE NOTICE DATED 2-11-2005, CONTAINED AT PAGE 963 TO 968 OF THE PB, REQUIRED THE ASSESSEE TO FURNISH FOLLOWING DETAILS: PLEASE FURNISH THE DETAILS OF INTEREST PAID/ RECEI VED, IF ANY, DURING THE FINANCIAL YEAR, TOGETHER WITH THE NAME, ADDRESS AND THE ASSESSMENT PARTICULARS OF ALL SUCH PERSONS. 58.4. IN RESPONSE, THE ASSESSEE HAD GIVEN THE COMPL ETE DETAILS AND BREAK UP OF INTEREST INCOME AND INTEREST PAID VIDE LETTER D ATED 14-11-2005, CONTAINED AT PAGES 969 TO 973 OF THE PB. 58.5. HE FURTHER POINTED OUT THAT WHILE CONSIDERING THE ISSUE OF COMPUTATION OF DEDUCTION U/S 10B OF THE ACT, THE DETAILS WERE D ULY EXAMINED BY AO. LD. COUNSEL FURTHER SUBMITTED THAT LD. COMMISSIONER HAS OBSERVED THAT AO HAD ALLOWED ASSESSEES CLAIM OF NETTING OFF OF INTEREST EXPENDITURE WITH INTEREST INCOME, WITHOUT MAKING NECESSARY INQUIRY/ VERIFICAT ION, WHICH CLEARLY GOES TO SHOW THAT IT IS NOT AT ALL THE CASE OF LD. COMMI SSIONER THAT THE AO DID NOT MAKE ANY INQUIRY. THEREFORE, HE SUBMITTED, AT BEST IT COULD BE A CASE OF INADEQUATE INQUIRY AND NOT LACK OF INQUIRY. AS REGA RDS THE LD. COMMISSIONERS OBSERVATION THAT THE INTEREST INCOME SHOULD HAVE BEEN 156 ITA NO. 2057/DEL/10 NIIT VS. CIT ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES , LD. COUNSEL POINTED OUT THAT SINCE INTEREST EXPENDITURE RELATING TO EOU UNIT WAS ALLOCATED TO SUCH UNIT AND NO PART OF INTEREST INCOME WAS CREDITED TO THAT UNIT, EVEN IF THE ENTIRE INTEREST INCOME WERE TO BE ASSESSED AS INCO ME FROM OTHER SOURCES AS AGAINST THE SAME BEING PRESENTLY ASSESSED AS BUSI NESS INCOME, THERE WOULD HAVE BEEN NO EFFECT ON THE FINAL GROSS TAXABLE INCO ME OF THE ASSESSEE AND, THEREFORE, THERE WAS NO PREJUDICE CAUSED TO THE REV ENUE FROM THE AFORESAID ALLEGED NON-EXAMINATION BY THE ASSESSING OFFICER. 58.6. LD. COUNSEL FURTHER SUBMITTED THAT THIS ISSU E WAS OUT THE SCOPE OF JURISDICTION OF AO U/S 153A BECAUSE NO INCRIMINATIN G MATERIAL/ EVIDENCE WAS FOUND DURING THE COURSE OF SEARCH IN RESPECT OF THIS ISSUE. 58.7. HE FURTHER SUBMITTED THAT LD. COMMISSIONER D ID NOT GIVE ANY SPECIFIC FINDING OR PIN POINT THE ERROR AND PREJUDICE FROM T HE ALLEGED NON- VERIFICATION, INSUFFICIENT VERIFICATION BY THE AO, WHICH IS A SINE QUA NON FOR INVOKING REVISIONARY JURISDICTION U/S 263 OF THE AC T. 59. LD. SPECIAL COUNSEL SUBMITTED THAT AO DID NOT A T ALL LOOK INTO THE QUESTION, WHETHER NETTING OFF OF INTEREST PAYMENT A GAINST RECEIPT OF INTEREST WAS JUSTIFIED AND WHETHER INCOME FROM INTEREST WAS RIGHTLY TAXABLE AS INCOME FROM OTHER SOURCES. HE SUBMITTED THAT AO T AXED THE INCOME UNDER WRONG HEAD. HE POINTED OUT THAT INTEREST EXPENDITUR E SHOULD HAVE BEEN EXAMINED TO FIND OUT AS TO HOW MUCH WAS RELATABLE T O EOU AND HOW MUCH TO NON-EOU. HE REFERRED TO PAGE 963 OF THE PB, WHEREIN THE NOTICE DATED 2-11- 2005 IS CONTAINED AND REFERRED TO INQUIRY RAISED BY AO, WHICH HAVE BEEN REPRODUCED EARLIER. HE POINTED OUT THAT ASSESSEE IN ITS REPLY, CONTAINED AT PAGE 971 ONWARDS, POINTED OUT THAT WORKING CAPITAL LOAN WAS BORROWED FOR VARIOUS BUSINESS. THEREFORE, IT WAS NECESSARY THAT AO SHOULD HAVE INQUIRED 157 ITA NO. 2057/DEL/10 NIIT VS. CIT AS TO FOR WHICH PARTICULAR UNIT, THE WORKING CAPITA L LOAN WAS BORROWED. HE REFERRED TO PAGE 972 OF THE PB, WHERE THE FACILITY AVAILED FROM VARIOUS BANKS FOR SPECIFIC PURPOSE ARE CONTAINED AND POINTE D OUT THAT THE LOAN WAS TAKEN FOR HOUSING PURPOSES, CORPORATE LOANS, CAR FI NANCE, TERM LOAN AND SHORT TERM LOAN AND, THEREFORE, HOW EXPENDITURE WAS ALLOC ATED, WAS NECESSARILY REQUIRED TO BE INQUIRED INTO BY AO. HE SUBMITTED TH AT IN THE ABSENCE OF INQUIRY, IT IS CLEAR THAT AO COULD NOT REACH THE RE QUIRED SATISFACTION TO CONCLUDE THAT NO FURTHER AMOUNT WAS ALLOCABLE TO EO U UNITS. 59.1. AS REGARDS THE SUBMISSION OF LD. COUNSEL THAT THE ISSUE BEING REVENUE NEUTRAL, COULD NOT BE MADE THE BASIS FOR ACTION U/S 263, LD. SPECIAL COUNSEL SUBMITTED THAT THIS SUBMISSION IS DEVOID OF SUBSTAN CE FOR THE REASON THAT THE AO DID NOT BOTHER AT ALL TO LOOK INTO WHAT PART OF THE BORROWINGS WAS UTILIZED FOR EOU FOR WHICH DEDUCTION U/S 10B WAS BEING CLAIM ED. THE ONLY DETAIL THAT THE AO CALLED FOR AND PLACED ON RECORD, WAS TH E LIST OF LENDERS AND BROAD NATURE OF THE LOAN. THE DETAILS CONTAINED NOTHING T O SUGGEST THAT THESE LOANS WERE OR WERE NOT UTILIZED FOR EOUS. THERE WERE WORK ING CAPITAL LOANS IN THE LIST FILED BY THE ASSESSEE. HOW MUCH OF SUCH WORKIN G CAPITAL LOAN WAS UTILIZED BY ELIGIBLE UNITS AND HOW MUCH BY THE NON- ELIGIBLE UNITS. THESE ARE PRIMARY DETAILS AND IF THE AO PREFERS FOR SOME INEX PLICABLE REASONS TO NOT EVEN LOOK INTO THESE, IT IS CASE OF COMPLETE NON-AP PLICATION OF MIND AND LACK OF ENQUIRY. 59.2. AS REGARDS THE SUBMISSION OF LD. COUNSEL THAT THE ISSUE WAS OUT OF THE SCOPE OF SECTION 153A, LD. SPECIAL COUNSEL SUBMITTE D THAT THE ACCOUNTS OF THE ASSESSEE AS ALSO ITS EOU UNITS WERE FOUND DURIN G SEARCH AND THIS GAVE THE NECESSARY NEXUS FOR THE ISSUE, WHICH WAS NEVER LOOKED INTO HEREINBEFORE, TO BE EXAMINED U/S 153A. 158 ITA NO. 2057/DEL/10 NIIT VS. CIT 60. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE REPLIES FILED BY ASSESSEE AND T HE SUBMISSIONS MADE ON BEHALF OF THE REVENUE IT IS EVIDENT THAT THE ASSESS EE HAD RETURNED THE INTEREST INCOME OF RS. 13,08,53,750/- AS INCOME FROM BUSINES S. THE VERY AMOUNT OF RECEIPT SHOULD HAVE PROMPTED THE AO TO RESORT TO DE TAILED INQUIRY ON THIS ISSUE. IT IS SETTLED LAW THAT THE ORDER IS PREJUDIC IAL TO THE INTEREST OF REVENUE IF AO DOES NOT APPLY CORRECT POSITION OF LAW TO THE FA CTS OF THE CASE. IF THE INCOME WAS ASSESSABLE UNDER THE HEAD INCOME FROM O THER SOURCES, BUT WAS RETURNED AS INCOME FROM BUSINESS, THEN IT COULD N OT BE SAID THAT EVEN IF ON ULTIMATE ANALYSIS NO LOSS IS CAUSED TO THE REVENUE, THE ORDER IS NOT PREJUDICIAL TO THE INTEREST OF REVENUE. THE PHRASE PREJUDICIAL TO THE INTEREST OF REVENUE, DOES NOT IMPLY ONLY MONETARY LOSS, BUT ALSO INCLUDE S WRONG APPLICATION OF LAW TO THE FACTS OF THE CASE. THE ASSESSEE HAD NETT ED THIS INTEREST INCOME AGAINST THE INTEREST EXPENDITURE OF RS. 17,03,49,18 6/-. THIS CLAIM OF NETTING OFF OF INTEREST MADE BY ASSESSEE WAS ACCEPTED BY TH E AO WITHOUT EXAMINING THE PRIMARY DETAILS REGARDING NEXUS OF INTEREST REC EIVED AGAINST INTEREST PAID. INTEREST EXPENDITURE INCURRED FOR THE PURPOSE OF BU SINESS COULD BE ADJUSTED AGAINST BUSINESS PROFITS AND NOT AGAINST INCOME FRO M OTHER SOURCES AND, THEREFORE, THE AO WAS REQUIRED TO EXAMINE THIS ASPE CT. FURTHER, WHEN ASSESSEE WAS CLAIMING EXEMPTION U/S 10B IN RESPECT OF CERTAIN EOUS, IT WAS INCUMBENT UPON AO TO CARRY OUT BASIC INQUIRY AS TO AGAINST WHICH BUSINESS UNIT EXPENSES WERE TO BE ALLOCATED. LD. COUNSEL HAS DEMONSTRATED THAT INTEREST RELATING TO EOU WAS DEBITED IN THE PARTICU LAR UNIT. BUT THE FACT REMAINS WHETHER AO ENQUIRED INTO THIS ASPECT TO FIN D OUT THE CORRECTNESS OF CLAIM OR NOT. THERE IS NOTHING ON RECORD TO SUGGEST THAT THIS ISSUE AT ALL WAS EXAMINED BY AO. THE LACK OF NECESSARY INQUIRIES BEI NG MADE BY AO 159 ITA NO. 2057/DEL/10 NIIT VS. CIT RESULTED IN PASSING OF AN ERRONEOUS ORDER, WHICH WA S PREJUDICIAL TO THE INTEREST OF REVENUE. WE ACCORDINGLY, SUSTAIN THE FI NDINGS OF LD. CIT ON THIS COUNT. IN THE RESULT THIS GROUND IS DISMISSED. 61. VIDE GROUND NO. 13, THE ASSESSEE HAS ASSAILED T HE FINDINGS OF LD. COMMISSIONER ALLEGING THAT INTEREST FREE ADVANCES/ LOANS/ INVESTMENTS HAVING BEEN MADE BY THE ASSESSEE FOR NON-BUSINESS PURPOSE OUT OF INTEREST BEARING FUNDS AND THE AO HAVING FAILED TO EXAMINE THE AFORE SAID ISSUE, THE ASSESSMENT ORDER WAS ERRONEOUS AND PREJUDICIAL TO T HE INTERESTS OF REVENUE. 61.1. THE ASSESSEES PLEA WAS THAT LD. COMMISSIONER FAILED TO APPRECIATE THAT THE ASSESSEE HAVING MIXED POOL OF FUNDS, INTER EST FREE ADVANCES/LOANS/ INVESTMENTS AO HAD RIGHTLY PRESUMED THAT INTEREST F REE ADVANCES/ LOANS/ INVESTMENTS HAD COME OUT FROM INTEREST FREE FUNDS A VAILABLE WITH THE ASSESSEE WHILE NOT MAKING ANY DISALLOWANCE OF INTER EST IN THE ORIGINAL ASSESSMENT. 61.2. THE LD. COMMISSIONER FAILED TO APPRECIATE THA T SINCE THE ASSESSEE MAINTAINED COMMON POOL OF FUNDS AND SINCE THE PROFI TS OF THE BUSINESS EXCEEDED THE INTEREST FREE ADVANCES/ INVESTMENTS, THE AO HAD RIGHTLY NOT MADE ANY DISALLOWANCE OF INTEREST IN THE ORIGINAL A SSESSMENT. 61.3. FURTHER, SUB GROUND IS THAT LD. COMMISSIONER FAILED TO APPRECIATE THAT IN THE ABSENCE OF ONE-TO-ONE NEXUS BETWEEN THE FUND S BORROWED FOR PURPOSE OF BUSINESS AND THOSE DIVERTED INTEREST FREE, THE A SSESSING OFFICER HAD RIGHTLY NOT MADE ANY DISALLOWANCE OF INTEREST IN THE ORIGIN AL ASSESSMENT. 61.4. BRIEF FACTS APROPOS THESE ISSUES ARE THAT ASS ESSEE HAD BORROWED VARIOUS LOANS FROM FINANCIAL INSTITUTIONS AS NOTED IN GROUND NO. 12, ON WHICH INTEREST OF RS. 17,03,49,186/- HAD BEEN PAID AND CL AIMED THE SAME TO BE ADJUSTED AGAINST INTEREST INCOME. HOWEVER, LD. COMM ISSIONER OBSERVED THAT 160 ITA NO. 2057/DEL/10 NIIT VS. CIT ASSESSEE HAD MADE VARIOUS INVESTMENTS TO THE TUNE O F RS. 57.20 CRORES AND ALSO GIVEN VARIOUS LOANS AND ADVANCES ETC. ON WHICH NO INTEREST HAD BEEN CHARGED. LD. COMMISSIONER REFERRED TO THE REPLY FIL ED BY THE ASSESSEE, WHICH HAS BEEN CONSIDERED BY THE COMMISSIONER IN GROUND N O. 12 REGARDING MAINTENANCE OF COMMON POOL OF FUNDS AND POINTED OUT THAT THE CONTENTION OF ASSESSEE WAS BASED ON PRESUMPTION. HE POINTED OUT T HAT DIRECT NEXUS BETWEEN INTEREST FREE FUNDS AND INTEREST FREE LOANS / ADVANCES HAS TO BE PROVED. IF THE INTEREST FREE LOANS/ ADVANCES HAD BE EN GIVEN FROM INTEREST BEARING FUNDS, THEN IT IS CLEAR THAT THE INTEREST E XPENSES HAD NOT BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND, ACCORDINGLY, NOT A LLOWABLE AS BUSINESS EXPENDITURE. THUS, AO WAS REQUIRED TO VERIFY AND EX AMINE THIS NEXUS IN COURSE OF ASSESSMENT PROCEEDINGS, WHICH THE AO FAIL ED TO DO. HE FURTHER POINTED OUT THAT ASSESSEE ALSO FAILED TO PROVE THAT SOME BORROWING WERE EXCLUSIVELY UTILIZED FOR THE PURPOSES OF BUSINESS AND NOT FOR GRANTING INTEREST FREE LOANS/ ADVANCES, EVEN IN ITS REPLY FI LED IN RESPONSE TO SHOW CAUSE NOTICE. LD. COMMISSIONER CONCLUDED THAT SINCE UTILIZATION OF FUNDS WAS NEITHER FOR EARNING INTEREST INCOME NOR FOR THE PURPOSE OF BUSINESS, THE INTEREST EXPENDITURE ATTRIBUTABLE TO THE SAME WAS N EITHER ALLOWABLE TO BE ADJUSTED AGAINST INTEREST INCOME NOR ALLOWABLE FOR EARNING BUSINESS PROFITS. SINCE AO FAILED TO DISALLOW THE INTEREST EXPENDITUR E, THEREFORE, THE ASSESSMENT ORDER WAS ERRONEOUS AND PREJUDICIAL TO T HE INTERESTS OF REVENUE. HE, ACCORDINGLY, RESTORED THE MATTER TO THE FILE OF AO FOR FRESH CONSIDERATION. 62. LD. COUNSEL REFERRED TO THE REPLY FILED BEFORE LD. COMMISSIONER AT PAGE 312 OF THE PB AND POINTED OUT THAT IT WAS SUBMITTED THEREIN THAT ASSESSEE HAD GIVEN CERTAIN ADVANCES FOR THE PURPOSE OF BUSINESS, LIKE ADVANCE TO SUPPLIERS, ADVANCES TO EMPLOYEES, SECURITY DEPOSITS ETC. THE A SSESSEE HAD ALSO GIVEN 161 ITA NO. 2057/DEL/10 NIIT VS. CIT CERTAIN INTEREST BEARING LOANS. HE SUBMITTED THAT A SSESSEE HAD NOT GIVEN ANY INTEREST FREE LOAN INCLUDING LOANS TO SUBSIDIARY CO MPANIES AS ALLEGED BY THE COMMISSIONER. HE POINTED OUT THAT ASSESSEE HAD MADE INVESTMENT TO THE TUNE OF RS. 57.20 CRORES DURING RELEVANT PREVIOUS YEAR I N SHARES OF VARIOUS SUBSIDIARY COMPANIES. LD. COUNSEL REITERATED THAT T HE AO VIDE NOTICE DATED 2-11-2005 HAD CALLED FOR ALL THE DETAILS OF, INTER ALIA, INTEREST PAID, WHICH WERE FURNISHED TO HIM VIDE REPLY DATED 14-11-2005, NOTED EARLIER. THESE DETAILS INCLUDED THE AMOUNT OF INTEREST EARNED ON L OANS GIVEN BY THE ASSESSEE COMPANY INCLUDING INTEREST EARNED FROM SUBSIDIARIES AND, THEREFORE, THERE WAS NO SCOPE FOR ANY DOUBT THAT NO INTEREST FREE LO AN WAS GIVEN BY THE ASSESSEE COMPANY. 62.1. LD. COUNSEL POINTED OUT THAT DETAILS OF INVE STMENT WAS GIVEN IN SCHEDULE 6 OF THE AUDITED FINANCIAL STATEMENTS, CON TAINED AT PAGE 1055 OF THE PB, FROM WHICH IT IS CLEAR THAT ASSESSEE HAD, WITH A VIEW TO HOLD CONTROLLING INTEREST MADE INVESTMENT IN SHARES OF FOREIGN/ OVER SEAS SUBSIDIARY COMPANIES, WHICH WERE ENGAGED IN THE SIMILAR BUSINE SS OF IMPARTING EDUCATION/ ITES IN THOSE COUNTRIES. 62.2. LD. COUNSEL POINTED OUT THAT SINCE THE ENTIRE INVESTMENTS/ LOANS AND ADVANCES WERE MADE/ GIVEN IN THE COURSE OF THE BUSI NESS, THEREFORE, ENTIRE EXPENDITURE WAS ALLOWABLE U/S 36(1)(III). IN THIS R EGARD LD. COUNSEL RELIED ON VARIOUS CASE LAWS GIVEN IN THE WRITTEN SUBMISSIONS. 62.3. HE FURTHER POINTED OUT THAT NO DISALLOWANCE W AS CALLED FOR U/S 14A, BECAUSE THE INVESTMENTS WERE MADE IN FOREIGN COMPAN IES, THE DIVIDEND WHEREFROM WAS NOT EXEMPT. 62.4. LD. COUNSEL FURTHER SUBMITTED THAT THE PRESUM PTION OF INTEREST FREE FUNDS OUT OF OWN FUNDS IS ALWAYS IN FAVOUR OF ASSES SEE IN CASE OF MIXED POOL 162 ITA NO. 2057/DEL/10 NIIT VS. CIT OF FUNDS. IN THIS REGARD ALSO LD. COUNSEL RELIED ON VARIOUS CASE LAWS GIVEN IN THE WRITTEN SUBMISSIONS. HE, THEREFORE, SUBMITTED T HAT IN ANY VIEW OF THE MATTER, SINCE OWN FUNDS OF THE ASSESSEE FAR EXCEEDE D INVESTMENTS MADE/ LOANS ADVANCED, THE PRESUMPTION WOULD BE THAT THE S AME WERE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. 62.5. LD. COUNSEL FURTHER REFERRED TO PAGES 1052 AN D 1053 OF THE PB AND SUBMITTED THAT BORROWED FUNDS WERE SUBSTANTIALLY R EPAID BY THE ASSESSEE INASMUCH AS BORROWINGS REDUCED TO RS. 105.53 CRORES AS AT THE END OF THE RELEVANT YEAR FROM RS. 151.04 CRORES AS AT THE BEGI NNING OF THE YEAR. 62.6. LD. COUNSEL FURTHER SUBMITTED THAT AS REGARD S THE INVESTMENT/ LOANS AND ADVANCES MADE IN THE EARLIER YEARS, THE SAME HA VING BEEN ACCEPTED TO HAVE BEEN MADE FROM INTEREST FREE FUNDS INASMUCH AS NO PORTION OF INTEREST EXPENDITURE WAS DISALLOWED IN ANY EARLIER YEAR, NO PORTION OF INTEREST EXPENDITURE, RELATABLE TO OPENING INVESTMENTS/ LOAN S AND ADVANCES COULD HAVE BEEN DISALLOWED DURING THE RELEVANT YEAR. IN T HIS REGARD ALSO, LD. COUNSEL HAS RELIED ON VARIOUS CASE LAWS. 62.7. LD. COUNSEL SUBMITTED THAT IMPUGNED ISSUE IS OUT OF THE SCOPE OF JURISDICTION OF AO U/S 153A AND FURTHER LD. COMMISS IONER DID NOT GIVE ANY SPECIFIC FINDING/ PIN POINT THE ERROR IN THE ASSESS MENT ORDER AND PREJUDICE CAUSED TO REVENUE. FURTHER, LD. COUNSEL SUBMITTED T HAT IN THE SECOND ROUND, LD. COMMISSIONER HAS EXTENDED THE SCOPE. 62.8. LD. COUNSEL SUBMITTED THAT THIS ISSUE HAS BEE N RAISED BY LD. COMMISSIONER FOR THE FIRST TIME IN ITS NOTICE DATED 5-2-2010. THE HONBLE HIGH COURT HAD SET ASIDE THE ORDER TO CURE THE IRRE GULARITY AND, THEREFORE, LD. COMMISSIONER COULD NOT RAISE THIS ISSUE BY ISSUING FRESH SHOW CAUSE NOTICE 163 ITA NO. 2057/DEL/10 NIIT VS. CIT AS THE LIMITATION STOOD EXPIRED. HE SUBMITTED THAT THE SCOPE OF ORIGINAL PROCEEDINGS COULD NOT BE ENLARGED IN THE COURSE OF SET ASIDE PROCEEDINGS. 63. LD. SPECIAL COUNSEL REFERRED TO PAGES 38 AND 39 OF COMMISSIONERS ORDER WHERE THE LD. COMMISSIONER HAS CONSIDERED THI S ISSUE. HE REFERRED TO PAGE 963 OF THE PB, WHEREIN THE SHOW CAUSE NOTICE I SSUED BY AO IS CONTAINED AND POINTED OUT THAT AT SL. NO. 10, THE A O ONLY REQUIRED THE ASSESSEE TO FURNISH THE DETAILS OF INTEREST PAID/ R ECEIVED, IF ANY, DURING THE FINANCIAL YEAR TOGETHER WITH THE NAME, ADDRESS AND THE ASSESSMENT PARTICULARS OF ALL SUCH PERSONS. APART FROM THIS QUERY, NO OTHE R QUERY WAS RAISED. 10. PLEASE FURNISH THE DETAILS OF INTEREST PAID/ R ECEIVED IF ANY, DURING THE FINANCIAL YEAR, TOGETHER WITH THE NAME, ADDRESS AND THE ASSESSMENT PARTICULARS OF ALL SUCH PERSONS. 63.1. LD. SPL. COUNSEL FURTHER REFERRED TO PAGE 969 , WHEREIN THE REPLY OF ASSESSEE DATED 14-11-2005 IS CONTAINED TO DEMONSTRA TE THAT ONLY A GENERAL REPLY WAS FILED BY ASSESSEE. HE FURTHER REFERRED TO PAGE 970, WHEREIN THE REFERENCE IS IN REGARD TO SL. NO. 10, REGARDING INT EREST PAID AND INTEREST RECEIVED, THE DETAILS WHEREOF ARE CONTAINED AT PAGE 971. WITH REFERENCE TO DETAILS OF INTEREST PAID AT PAGE 971, LD SPL. COUNS EL SUBMITTED THAT ONLY DETAILS OF INTEREST PAID ON VARIOUS LOAN ACCOUNT FR OM BUSINESS WERE GIVEN AND AT PAGE 973 DETAILS OF INTEREST RECEIVED WERE GIVEN . 63.2. LD. SPECIAL COUNSEL FURTHER REFERRED TO PAGE 1046, WHEREIN THE BALANCE-SHEET AND TAX AUDIT REPORT IS CONTAINED. HE POINTED OUT THAT AT PAGE 1055, THE DETAILS OF INVESTMENTS ARE CONTAINED. ALL THESE INVESTMENTS WERE MAINLY IN EQUITY SHARES OF DIFFERENT COMPANIES. THE REAFTER, LD. SPL. COUNSEL REFERRED TO PAGE 1058, WHEREIN THE LOANS AND ADVANC ES INCLUDING LOANS TO SUBSIDIARIES ARE CONTAINED. WITH REFERENCE TO ALL T HESE DETAILS, LD. SPL. 164 ITA NO. 2057/DEL/10 NIIT VS. CIT COUNSEL SUBMITTED THAT NO DETAILS REGARDING COMMON POOL ETC., WERE FURNISHED BY ASSESSEE. 63.3. LD. SPL. COUNSEL REFERRED TO PAGE 312, WHEREI N ASSESSEES REPLY TO SHOW CAUSE NOTICE IS CONTAINED, IN WHICH THE ASSESS EE SUBMITTED THAT INTEREST BEARING FUNDS WERE UTILIZED FOR BUSINESS PURPOSES A ND NOT FOR MAKING INTEREST FREE ADVANCES AND INVESTMENT WAS NOT CORRECT BECAUS E ASSESSEE HAD MIXED POOL OF FUNDS, COMPRISING OF OWN FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES AND INTEREST BEARING FUNDS IN THE FORM OF LOANS. HE SUBMITTED THAT THE ASSESSEES CONTENTION WAS THAT INTEREST FREE FU NDS WERE INEXTRICABLY MIXED UP WITH THE INTEREST BEARING FUNDS. UNDER SUC H CIRCUMSTANCES, RELYING ON THE DECISION IN THE CASE OF INDIAN EXPLOSIVES L TD. VS. CIT 147 ITR 392 (CAL.); AND MARNTIE POLYCAST LTD. VS. ACIT 53 ITD 345, ASSESSEES CONTENTION WAS THAT INTEREST FREE FUNDS OR LOANS AN D ADVANES SHOULD BE PRESUMED TO HAVE COME OUT FROM INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WHILE INTEREST BEARING FUNDS WERE UTILIZED FOR BUSINESS PURPOSES. 63.4. LD. SPL. COUNSEL SUBMITTED THAT FOR THIS PROP OSITION NO DETAILS REGARDING COMMON POOL AND INTEREST BEARING FUNDS WE RE FILED BY ASSESSEE. NO MATERIAL WAS PUT BEFORE LD. COMMISSIONER TO EST ABLISH NEXUS. HE SUBMITTED THAT THE MOST CRITICAL ISSUE IS WHETHER T HE AO CONDUCTED THE PRELIMINARY ENQUIRIES TO FIND OUT WHETHER SUCH EXPE NSES WERE ALLOWABLE. HE SUBMITTED THAT ALL THE ARGUMENTS OF THE ASSESSEE, L IKE INVESTMENT IN OVERSEAS SUBSIDIARIES, COMMON POOL OF FUNDS, NO ADVANCE HAVI NG BEEN MADE FREE OF INTEREST ETC., WERE MADE FOR THE FIRST TIME BEFORE THE CIT. THE AO DID NOTHING BEYOND CALLING FOR SKETCHY DETAILS OF INTER EST RECEIVED AND PAID. THE ISSUE WAS NOT EXAMINED AT ALL. IT WAS A COMPLETE NO N-APPLICATION OF MIND. HE 165 ITA NO. 2057/DEL/10 NIIT VS. CIT SUBMITTED THAT PRELIMINARY ISSUE IS WHETHER THE NEC ESSARY INQUIRIES WERE DONE OR NOT. 63.5. LD. SPL. COUNSEL SUBMITTED THAT IF SOME FACTU AL CONTENTIONS ARE MADE BEFORE THE CIT FOR THE FIRST TIME, IT IS NOT NECESS ARY FOR THE CIT TO CONDUCT THE ENQUIRIES ONLY AT HIS END. HE WOULD BE FULLY JU STIFIED TO RESTORE THE MATTER TO AO FOR FRESH CONSIDERATION. AS REGARDS THE SUBMI SSION OF LD. COUNSEL THAT THE ISSUE HAVING NOT BEEN RAISED IN THE ORIGINAL OR DER OF THE COMMISSIONER U/S 263, HE REFERRED TO THE DETAILED SUBMISSIONS MA DE IN RESPONSE TO GROUND NO. 10. AS REGARDS THE ISSUE RAISED BY LD. COUNSEL OF THIS ISSUE BEING BEYOND THE SCOPE OF SECTION 153A, LD. SPL. COUNSEL SUBMITT ED THAT THE ACCOUNTS WERE FOUND DURING SEARCH AND, THEREFORE, THE MATTER FELL WITHIN THE SCOPE OF SECTION 153A. 64. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. LOOKING TO THE AMOUNT INVOLVED IN RESPEC T OF PAYMENT OF INTEREST ON BORROWED FUNDS, AGGREGATING TO RS. 17,03,49,186/ -, THE AO WAS REQUIRED TO AT LEAST BRING ON RECORD THE PRIMARY FACTS WHET HER THE FUNDS WERE USED FOR BUSINESS PURPOSE OR FOR ADVANCING INTEREST FREE LOA NS. THE AO DID NOT CARRY OUT ANY INQUIRY SO AS TO COME TO THE CONCLUSION THA T THE INTEREST FREE ADVANCES WERE OUT OF INTEREST FREE FUNDS. THE SUBMI SSION ADVANCED BY ASSESSEE FOR THE FIRST TIME BEFORE LD. CIT WAS THAT IT WAS HAVING MIXED FUND AND, THEREFORE, THE PRESUMPTION WAS THAT THE BORROW ED INTEREST BEARING FUNDS WERE UTILIZED FOR BUSINESS PURPOSES AND THE ADVANCE S OR LOANS AND INVESTMENTS WERE TO BE PRESUMED TO HAVE COME OUT FR OM INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THERE IS NO QUARREL WI TH THIS PROPOSITION IN PRINCIPLE. BUT THE AO WAS REQUIRED TO BRING AT LEAS T PRIMARY FACTS ON RECORD BEFORE APPLYING THIS PROPOSITION TO THE FACTS OF AS SESSEES CASE. HE HAD TO AT 166 ITA NO. 2057/DEL/10 NIIT VS. CIT LEAST CONSIDER WHETHER THERE WERE SUFFICIENT INTERE ST FREE FUNDS AVAILABLE WITH ASSESSEE OR NOT. THE AO HAD MERELY CALLED FOR THE D ETAILS OF INTEREST RECEIVED AND PAID, BUT DID NOT EXAMINE THIS ISSUE FROM THE LEGAL POINT OF VIEW. THUS, IT WAS COMPLETELY A CASE OF NON-APPLICATION OF MIND BY AO. 64.1. LD. SPECIAL COUNSEL HAS RIGHTLY SUBMITTED THA T ON CAREFUL EXAMINATION OF MATERIAL FACTS, THE ENTIRE INTEREST MAY BE ALLOW ED BUT FOR THE PRESENT WE ARE ONLY TO EXAMINE WHETHER THE PRIMARY ISSUE OF CO NDUCTING NECESSARY INQUIRY WAS DONE BY AO OR NOT. HAD IT BEEN A CASE OF INADEQUATE INQUIRIES, LD. CIT WAS REQUIRED TO RECORD A FINDING ON THE ISS UES RAISED BEFORE HIM, BUT SINCE IT WAS A CASE OF COMPLETE LACK OF INQUIRY, TH EREFORE, LD. CIT WAS NOT REQUIRED TO CONDUCT THE INQUIRIES AT HIS END AND, T HUS, WAS FULLY JUSTIFIED IN RESTORING THE MATTER TO AO FOR FRESH CONSIDERATION. 64.2. LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON TH E DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DLF LTD. (S UPRA) TO CONTEND THAT IN CASE OF DEBATABLE ISSUE, EVEN IF ISSUE WAS NOT SPEC IFICALLY EXAMINED BY THE AO, SUCH ISSUE CANNOT BE SET ASIDE BY THE CIT BY IN VOKING REVISIONARY POWERS U/S 263 OF THE ACT. HOWEVER, BEFORE TREATING THE ISSUE A LEGALLY DEBATABLE ONE, AT LEAST PRIMARY FACTS HAVE TO BE BR OUGHT ON RECORD. 64.3. IN OUR OPINION, THE PRESENT ISSUE IS TO BE EXAMINED WITH REFERENCE TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF GEEVEE ELECTRONICS (SUPRA), AS IT IS A CASE OF COMPLETE LACK OF INQUIR Y. WE, ACCORDINGLY, SUSTAIN THE FINDINGS OF LD. CIT ON THIS COUNT. IN THE RESUL T THIS GROUND IS DISMISSED. 65. VIDE GROUND NO. 14, THE ASSESSEE HAS ASSAILED T HE LD. COMMISSIONERS FINDINGS IN HOLDING THAT REPAIR EXPENSES OF RS. 10 .15 CRORES WERE CLAIMED BY THE ASSESSEE AND ALLOWED BY THE AO WITHOUT ANY VERI FICATION OR ENQUIRY. THE ASSESSEE HAS FURTHER ASSAILED THE ACTION OF LD. CIT IN SETTING ASIDE THE 167 ITA NO. 2057/DEL/10 NIIT VS. CIT ASSESSMENT ORDER WITHOUT CONSIDERING THAT THE IMPUG NED EXPENSES WERE IN THE NATURE OF ROUTINE MAINTENANCE AND REPAIR EXPENS ES, DEDUCTION WHEREOF WERE ALLOWABLE U/S 31/37 OF THE ACT. 65.1. LD. CIT HAS OBSERVED THAT WHILE EXAMINING THE ASSESSMENT RECORDS IT WAS NOTICED THAT THE ASSESSEE HAD CLAIMED RS. 10,14 ,53,772/- AS REPAIR EXPENSES (PLANT & MACHINERY 4,66,38,719, BUILDING R S. 48,48,463/- AND OTHERS RS. 4,99,66,590). THE ASSESSEE IN REPLY TO S HOW CAUSE NOTICE SUBMITTED THAT THE EXPENSES WERE ESSENTIALLY ROUTIN E EXPENSES, COMPRISING OF ANNUAL MAINTENANCE CHARGES OF OFFICE EQUIPMENTS, GE NSETS, ACS, COMPUTERS ETC. THE EXPENDITURE WAS INCURRED ON SPARE PART RE PLACEMENT OF COMPUTERS AND PERIPHERALS AND OFFICE EQUIPMENTS ETC. IT WAS FURTHER CONTENDED THAT NO NEW CAPITAL ASSET WAS BEING PURCHASED AND FURTHER S UCH EXPENDITURE DID NOT RELATE TO ANY ENDURING BENEFIT IN THE CAPITAL FIELD . THE CONTENTION OF ASSESSEE WAS THAT EVEN SOME EXPENDITURE WAS OF CAPITAL NATUR E THAT MERELY FACILITATE THE CARRYING ON OF THE BUSINESS MORE PROFITABLY AND EFFICIENTLY LEAVING THE FIXED CAPITAL UNTOUCHED AND, THEREFORE, IT COULD NO T BE REGARDED AS CAPITAL EXPENDITURE. THE ASSESSEE ALSO FILED SAMPLE COPY OF AMC AGREEMENT. THE ASSESSEE ALSO REFERRED TO THE DECISION OF HONBLE S UPREME COURT IN THE CASE OF CIT VS. SARAVANA SPINNING MILLS P. LTD. 293 ITR 201 (SC), WHEREIN THE TEST FOR DETERMINING, WHETHER THE EXPENDITURE WOULD CONSTITUTE CURRENT REPAIRS, ALLOWABLE U/S 31 OF THE ACT, HAS BEEN LAID DOWN. 65.2. LD. CIT, AFTER CONSIDERING THE ASSESSEES REP LY, SET ASIDE THE ASSESSMENT ORDER ON THIS ISSUE AND RESTORED THE MAT TER TO THE FILE OF AO FOR FRESH CONSIDERATION FOR THE FOLLOWING REASONS: (I) NO BREAK UP OF THE EXPENSES WERE CALLED FOR BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 168 ITA NO. 2057/DEL/10 NIIT VS. CIT (II) NO DETAILS OF THE EXPENSES WERE FILED BY THE ASSESS EE BEFORE THE AO, WHICH FACT IS NOT DISPUTED. (III) THE CASE LAWS AND OTHER CONTENTIONS CAN ONLY BE JUD GED AFTER DETAILS OF EXPENSES DEBITED UNDER THE HEAD REPAIRS . (IV) THE AO DID NOT VERIFY THE GENUINENESS AND ALLOWABIL ITY OF THESE EXPENSES. (V) CAPITAL EXPENDITURE, IF ANY, INCLUDED IN THE EXPENS ES, HAD TO BE CAPITALIZED WHILE COMPUTING THE INCOME OF THE ASSES SEE. (VI) THE CLAIMS HAVE BEEN ACCEPTED BY THE AO WITHOUT VER IFICATION, INQUIRY OR APPLICATION OF MIND. 65.3. THEREFORE, SUCH ALLOWANCE OF EXPENSES WAS ERR ONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. 66. LD. COUNSEL SUBMITTED THAT THE IMPUGNED EXPENDI TURE WERE INCURRED IN THE NORMAL COURSE OF BUSINESS ON ACCOUNT OF REPAIR AND MAINTENANCE OF PLANT AND MACHIENRY, BUILDING ETC., WHICH WAS ONLY 2.33% HIGHER THAN THE EXPENDITURE OF RS. 9,91,43,66 3/- INCURRED IN THE IMMEDIATELY PRECEDING YEAR. HE SUBM ITTED THAT THE LD. CIT HAS ONLY REFERRED TO THE TOTAL EXPENDITURE INCURRED BY ASSESSEE WITHOUT HAVING REGARD TO MACRO PERSPECTIVE OF THE ENTIRE IS SUE. HE SUBMITTED THAT UNDER SUCH CIRCUMSTANCES FOLLOWING JUDGMENTS ARE R ELEVANT: CIT VS. SARVANA SPINNIGN MILLS P. LTD. 293 ITR 201 (SC); AND CIT VS. RAMRAJU SURGICAL COTTON MILSL 294 ITR 398 ( SC). 66.1. HE SUBMITTED THAT AO, TAKING INTO CONSIDERATI ON THE EXPENDITURE BEING WITHIN NORMAL RANGE, KEEPING IN VIEW THE SIZE OF BU SINESS, DID NOT ASK FOR DETAILS. THIS CANNOT BE THE ONLY BASIS FOR 263. 169 ITA NO. 2057/DEL/10 NIIT VS. CIT 66.2. LD. COUNSEL REFERRED TO PAGE 1062 OF THE PB, WHEREIN THE SCHEDULES ANNEXED TO AND FORMING PART OF P&L A/C ARE CONTAIN ED, WHEREIN DETAILS OF REPAIRS AND MAINTENANCE ARE CONTAINED AND POINTED O UT THAT THE MAIN REASON FOR INCREASE IN EXPENDITURE OVER THE PREVIOUS YEAR WAS THAT UNDER THE HEAD BUILDING REPAIRS AS AGAINST THE SUM OF RS. 3300 I NCURRED IN PREVIOUS YEAR THE ASESSSEE HAD INCURRED RS. 48,48,463/- IN THE CU RRENT ASSESSMENT YEAR. HE REFERRED TO PAGES 309 TO 312 AND REFERRED TO THE RE PLY FILED BY ASSESSEE TO THE SHOW CAUSE NOTICE, WHEREIN IT WAS POINTED OUT THAT THIS WAS TOWARDS ROUTINE MAINTENANCE OF BUILDING. 66.3. LD. COUNSEL FURTHER SUBMITTED THAT IN THE SHO W CAUSE NOTICE LD. CIT HAD NOT POINTED OUT ANY EXPENDITURE, WHICH WAS CAPI TAL IN NATURE AND HAD MADE THE OBSERVATIONS SOLELY ON PRESUMPTION. HE REF ERRED TO PAGE 321 OF PB, WHEREIN THE AGREEMENT FOR COMPREHENSIVE AMC WIT H HCL IS CONTAINED AND IN PURSUANCE TO THIS AGREEMENT THE PAYMENTS WER E MADE. 66.4. LD. COUNSEL SUBMITTED THAT LD. CIT DID NOT CO MMENT WITH REFERENCE TO REPLY FILED. LD. COUNSEL FURTHER REFERRED TO PAGE 1 071, WHEREIN THE COMMENTS OF TAX AUDITORS ARE CONTAINED, WHEREIN THEY SPECIFI CALLY STATED THAT NO EXPENDITURE OF CAPITAL NATURE HAD BEEN DEBITED TO P &L A/C. HE SUBMITTED THAT THE ONEROUS AND TIME CONSUMING TASK OF VERIFYI NG EACH AND EVERY EXPENSE HAS BEEN ASSIGNED TO THE TAX AUDITOR WHO IS REQUIRED TO GO THROUGH THE BOOKS OF ACCOUNT, EXAMINE/ AUDIT THE EXPENDITUR E INCURRED AND REPORT THE ITEMS OF DISALLOWANCE IN THE REPORT TO BE FURNISHED U/S 44AB OF THE ACT. HE SUBMITTED THAT U/S 263 THE CIT CANNOT DIRECT FRESH ENQUIRY INTO ISSUES ON PURE CONJECTURES AND SURMISES. LD. COUNSEL SUBMITTE D THAT THE DIRECTION TO THE AO TO UNDERTAKE FRESH EXAMINATION, WITHOUT REAC HING ANY PRIMA FACIE 170 ITA NO. 2057/DEL/10 NIIT VS. CIT FINDING AS TO THE INCORRECTNESS OF THE CLAIM OF AN ASSESSEE, IS BEYOND JURISDICTION OF CIT U/S 263 OF THE ACT. 66.5. LD. COUNSEL ALSO REITERATED HIS SUBMISSIONS A S REGARDS THE ISSUE BEING BEYOND THE SCOPE OF JURISDICTION OF AO U/S 153A. LD . COUNSEL FURTHER SUBMITTED THAT IN EARLIER YEARS THIS EXPENDITURE HA S BEEN ALLOWED. AS REGARDS THE PROPOSITION THAT MERE NO INQUIRY DOES NOT AUT OMATICALLY LEAD TO JUSTIFICATION OF 263 PROCEEDINGS. LD. COUNSEL RELIE D ON FOLLOWING DECISIONS: (1) DLF LTD. (PB 1227) HE SUBMITTED THAT IN THIS CASE IT HAS BEEN HELD THAT CIT MUST PIN POINT THE ERROR AND PREJUDICE CAU SED TO REVENUE. (2) GULMOHAR FINANCE 170 TAXMANN 483 (3) 341 ITR 166 67. LD. SPL. COUNSEL SUBMITTED THAT ADMITTEDLY NO D ETAILS WERE CALLED FOR EXAMINATION BY AO IN RESPECT OF EXPENDITURE WHICH W AS MORE THAN RS. 10 CRORES. HE SUBMITTED THAT AO DID NOT EXAMINE WHETHE R ANY CAPITAL EXPENDITURE WAS INCLUDED IN THE IMPUGNED AMOUNT OR NOT. 67.1. LD. SPL. COUNSEL SUBMITTED THAT APART FROM TA X AUDIT REPORT, AO HAD NO OTHER DETAILS AND HE DID NOT CALL FOR EVEN COPY OF ACCOUNT. EXPLANATION WAS GIVEN FOR THE FIRST TIME BEFORE LD. CIT AND AGR EEMENT WAS ALSO FILED FOR THE FIRST TIME. 67.2. LD. SPL. COUNSEL SUBMITTED THAT PRIMARY DETAI LS HAVE TO BE FIRST BROUGHT ON RECORD THEN ONLY MIND CAN BE APPLIED. HE SUBMITTED THAT IT WAS THE CASE OF COMPLETE LACK OF INQUIRY AND NON APPLIC ATION OF MIND BY THE AO AND, THEREFORE, LD. CIT RIGHTLY EXERCISED HIS REVIS IONARY JURISDICTION. HE SUBMITTED THAT THE REPORT OF THE AUDITOR LEADS TO N O INFERENCE ON THE ALLOWABILITY OR OTHERWISE OF THE EXPENDITURE. AS RE GARDS THE VARIOUS CASE 171 ITA NO. 2057/DEL/10 NIIT VS. CIT LAWS, RELIED UPON BY LD. COUNSEL, LD. SPL. COUNSEL SUBMITTED THAT THOSE ARE DISTINGUISHABLE ON FACTS. HE POINTED OUT THAT IN A CASE OF NO INQUIRY, IT IS TRUE THAT THE SAME DOES NOT LEAD TO IPSO FACTO INFERENCE THAT THE ORDER WAS ERRONEOUS, BUT THE ACCEPTANCE OF THE CLAIM OF EXPEN DITURE WITHOUT LOOKING INTO IT AT ALL TO THE BASIC DETAILS, DOES LEAD TO A N INFERENCE OF AN ERROR. 68. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAD CLAIMED RS. 10,14,53,77 2/- AS REPAIRS EXPENSE (PLANT & MACHINERY RS. 4,66,38,719/0; BUILDING RS. 48,48,463/-; AND OTHERS RS. 4,99,66,590/-). ADMITTEDLY WITH RESPECT TO THIS ISSUE NO QUERIES WERE RAISED BY AO AND NO DETAILS WERE FILED BY THE ASSES SEE BEFORE THE AO. LD. CIT HAS FURTHER RECORDED A FINDING THAT THIS FACT W AS ALSO VERIFIED FROM THE ASSESSMENT RECORD. 68.1. LD. CIT HAS RIGHTLY POINTED OUT THAT THE ASSE SSEES PLEA THAT THE EXPENDITURE WAS ALLOWABLE AS CURRENT REPAIRS IN VIE W OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SARVANA SPINNI NG MILLS PVT. LTD. (SUPRA) AND ALSO AS PER THE AMC AGREEMENT, BUT THIS COULD BE DONE ONLY IF GENUINENESS AND ALLOWABILITY OF THE EXPENSE WAS EXA MINED BY THE AO. 68.2. LD. COUNSEL FOR THE ASSESSEE IN HIS SUBMISSIO NS HAS SUBMITTED THAT LD. CIT DID NOT GIVE ANY FINDING/ PIN POINT ANY EXPENDI TURE OR GAVE REASONS AS TO WHY AND ON WHAT BASIS PARTICULARS OF THE REPAIRS EX PENSES WERE TO BE CONSIDERED AS CAPITAL EXPENDITURE. IN OUR OPINION S INCE THE PRESENT ISSUE COMES WITHIN THE AMBIT OF LACK OF INQUIRY, THEREFOR E, LD. CIT WAS JUSTIFIED IN SETTING ASIDE THE ISSUE TO THE FILE OF AO FOR EXAMI NING THE ENTIRE ISSUE AS PER LAW. IN THE RESULT, THIS GROUND IS REJECTED. 172 ITA NO. 2057/DEL/10 NIIT VS. CIT 69. VIDE GROUND NO. 15 THE ASSESSEE HAS ASSAILED TH E ORDER OF LD. CIT IN HOLDING THAT THE STEEP RISE IN COURSE EXECUTION CHA RGES INCURRED BY THE ASSESEE WAS ACCEPTED BY THE AO WITHOUT ANY VERIFICA TION AND INQUIRY. THE GRIEVANCE OF THE ASSESSEE IS THAT LD. CIT FAILED TO APPRECIATE THAT THE ISSUE WAS DULY EXAMINED BY THE AO DURING THE ORIGINAL ASS ESSMENT PROCEEDINGS AND, THEREFORE, WAS NOT AMENABLE TO REVISIONARY JUR ISDICTION U/S 263. 69.1. BRIEF FACTS, APROPOS THIS ISSUE ARE THAT DURI NG THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD CLAIMED COURSE EXECU TION CHARGES OF RS. 119,81,32,796/- AS AGAINST THE SUM OF RS. 57,59,53, 934/-CLAIMED IN THE IMMEDIATELY PRECEDING YEAR. THUS, THE ASSESSEE HAD RETURNED MORE THAN 108% INCREASE IN THE ABOVE EXPENSES DURING THE YEAR UNDER CONSIDERATION. HE FURTHER NOTED THAT IN THE CORRESPONDING REVENUES , THERE HAD NOT BEEN ANY SUCH PROPORTIONATE INCREASE. HE POINTED OUT THAT TH E AO FAILED TO EXAMINE THE REASONS BEHIND SUCH STEEP INCREASE WHILE PASSIN G ORDER U/S 153A AND ALLOWED THE EXPENDITURE AS CLAIMED BY THE ASSESSEE WITHOUT ANY VERIFICATION. HE REFERRED TO THE REPLY FILED BY THE ASSESSEE WHER EIN IT WAS POINTED OUT BY THE ASSESSEE THAT QUERY REGARDING COURSE EXECUTION EXPENSES WAS RAISED BY THE AO VIDE HIS LETTER DATED 2-11-2005 AND 29-12-20 05 AND IT WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 9-1-2006 THAT COURSE EXECUTION CHARGES COMPRISED MAINLY PAYMENT TO LICENSEES TOWARDS EXECU TION OF COURSES AT SATELLITE CENTERS (STCS) AND NETWORK CENTERS (NWCS) AS WELL AS PAYMENT TO M/S SYLVAN PROMETRIC FOR ONLINE TESTING OF MICRO SOFT CERTIFIED COURSES, COPYWRITING, EDITING TRANSLATION, CERTIFICATE WRITI NG MEAN FOR STUDENT ETC. 69.2. LD. CIT POINTED OUT THAT IN THE QUESTIONNAIRE DATED 2-11-2005 THE AO HAD NOT RAISED ANY SPECIFIC QUESTION ON THIS ISSUE. IN THE QUESTIONNAIRE DATED 29-12-2005, FOLLOWING QUERY WAS RAISED: 173 ITA NO. 2057/DEL/10 NIIT VS. CIT PLEASE PROVIDE YEAR WISE EXPENSES SHOWN UNDER THE FOLLOWING HEADS: (A) BOUGHT OUT PRODUCTS (B) COURSE EXECUTION EXPENSES (C) COURSE ANNOUNCEMENT EXPENSES (D) BAD DEBTS (E)PROFESSIONAL EXPENSES 69.3. WITH REFERENCE TO ABOVE QUERY, LD. CIT POINTE D OUT THAT AO HAD NOT ENQUIRED ABOUT THE REASONS FOR STEEP RISE IN THE CO URSE EXECUTION EXPENSES. HE FURTHER REFERRED TO THE REPLY DATED 9-1-2006, FI LED BEFORE THE AO WHICH IS AS UNDER: COURSE EXECUTION EXPENSES BASICALLY CONSISTS OF: PAYMENT TO BUSINESS PARTNERS (LICENSEES) TOWARDS TH EIR SHARE OF FEES FOR THE COURSES EXECUTED BY THEM IN METRO C ENTRES, NETWORK CENTERS AND ALSO IN THE GOVERNMENT AS WELL AS PRIVATE SCHOOLS. PAYMENT OF ROYALTY/ TECHNICAL FEES TO THE OVERSEAS PRINCIPALS FOR USING THEIR CONTENTS, TECHNICAL EVALUATION SUPP ORT FOR STUDENTS FOR DOMESTIC BUSINESS. PAYMENTS MADE FOR DOMESTIC GNIIT STUDENTS FOR ONLIN E LEARNING. PROFESSIONAL EXPENSES LIKE COPY WRITING, EDITING TR ANSLATIONS, CERTIFICATE WRITING MEANT FOR STUDENTS ETC. THE ABOVE EXPENSES ARE INCURRED IN RELATION TO DOME STIC DIVISION EDUCATIONAL BUSINESS IN INDIA. THEREFORE, ALL EXPENSES HAVE BEEN DEBITED IN DOMESTIC DIVISION ONLY. ALSO R ELATED REVENUE IS LOOKED IN DOMESTIC DIVISION. 174 ITA NO. 2057/DEL/10 NIIT VS. CIT 69.4. LD. CIT POINTED OUT THAT IT IS CLEAR THAT THI S ISSUE WAS NEVER EXAMINED BY THE AO AND NEITHER ANY VERIFICATION OF THE EXPEN SES WAS EVER DONE AND, THEREFORE, HE SET ASIDE THE ASSESSMENT ORDER TO AO FOR FRESH CONSIDERATION. 69.5. LD. COUNSEL FOR THE ASSESSEE REITERATED THE S UBMISSIONS MADE BEFORE LD. CIT AND REFERRED TO THE QUERY RAISED VIDE LETTER DA TED 2-11-2005 AND 29-12- 2005 NOTED EARLIER, WHICH WERE REPLIED BY ASSESSEE. 69.6. LD. COUNSEL FURTHER SUBMITTED THAT AO VIDE NO TICE DATED 8-2-2006 CONTAINED AT PAGE 859 OF THE PB, SPECIFICALLY REQUI RED THE ASSESSEE TO EXPLAIN THE REASONS BEHIND INCREASE IN AFORESAID EXPENDITUR E VIS A VIS THE LAST YEAR. THE SAID QUERY READS AS UNDER: PLEASE GIVE JUSTIFICATION FOR INCREASE IN THE FOLL OWING EXPENSES IN THE ASSESSMENT YEAR 2001-02: COURSEWARE & MANUALS BOUGHT OUT PACKAGE COURSEWARE EXECUTION EXPENSES OTHER EQUIPMENT HIRING COURSE ANNOUNCEMENT 69.7. LD. COUNSEL REFERRED TO PAGES 960 TO 962 OF T HE PB, WHEREIN THE ASSESSEE HAD SUBMITTED ITS REPLY, WHICH READS AS UN DER: COURSEWARE EXECUTION (RS. 17647.02): THESE PAYMENT S WERE MADE TO BUSINESS PARTNERS WHICH ARE DIRECTLY LINKED WITH REVENUE. THE PERCENTAGE OF EXPENSES WORKS OUT TO 30 -32% AS COMPARED TO 22% IN THE PREVIOUS YEAR. (F.YR 1997-98 ). THE PERCENTAGE IS HIGHER DUE TO CHANGE IN MIX BUSINESS WITH THE FRANCHISEES BETWEEN METRO AND NETWORK CENTRE. 69.8. WITH REFERENCE TO ABOVE REPLY, LD. COUNSEL SU BMITTED THAT THE ASSESSEES EXPLANATION FOR INCREASE IN THE EXPENSES WAS ON ACCOUNT OF CHANGE IN THE BUSINESS MODEL OF PAYMENT TO BUSINESS PARTNE RS. 175 ITA NO. 2057/DEL/10 NIIT VS. CIT 69.9. LD. COUNSEL REFERRED TO PAGE 930 OF THE PB AN D POINTED OUT THAT AO HAD SPECIFICALLY RAISED THE QUERY IN ITS LETTER DAT ED 2-11-2005 AS TO WHY SOME EXPENSES LIKE BOUGHT OUT PACKAGE/ PRODUCTS COUR SE EXECUTION CHARGES PROFESSIONAL CHARGES BAD DEBTS ETC. HAD BEEN A LLOCATED EXCLUSIVELY TO THE TAXABLE UNITS, WHEREAS SOME OF THE ITEMS, WHICH HAD TO BE ASSIGNED TO NON TAXABLE UNITS, HAD BEEN BOOKED AS EXPENSES IN T HE TAXABLE UNIT. THE AO REQUIRED THE ASSESSEE TO EXPLAIN THE JUSTIFICATION OF BOOKING THESE EXPENSES UNDER THE TAXABLE UNIT OR WHETHER SOME OF THESE EXP ENSES COULD BE APPORTIONED PROPORTIONATELY. 69.10. LD. COUNSEL REFERRED TO PAGE 934 OF THE PB, WHEREIN ASSESSEES REPLY IS CONTAINED IN WHICH IT WAS CLARIFIED THAT OUT OF THE EXPENSES REFERRED TO IN THE QUERY, FOLLOWING EXPENSES EXCLUSIVELY PERTAINED TO DOMESTIC BUSINESS (TAXABLE UNITS) AND NOT TO EOU. THESE WERE - BOUGHT OUT PACKAGES/ PRODUCTS - COURSE EXECUTION CHARGES - COURSE ANNOUNCEMENT EXPENSES; AND - BAD DEBTS (DOMESTIC). 69.11. IT WAS FURTHER CLARIFIED THAT AS FAR AS PROF ESSIONAL CHARGES WERE CONCERNED, THEY WERE DEBITED TO BOTH DOMESTIC (TAXA BLE) AND EOU (NON- TAXABLE) UNITS IN THE RESPECTIVE YEARS. 69.12. THEREAFTER, ASSESSEE HAD CLARIFIED THE NATUR E OF THESE EXPENSES AND REFERRED TO COURSE EXECUTION CHARGES. IT WAS SUBMIT TED AS UNDER: COURSE EXECUTION CHARGES: COURSE EXECUTION EXPENSES BASICALLY CONSISTS OF PAY MENT TO DOMESTIC EDUCATION BUSINESS PARTNERS AS PER DETAILS GIVEN BELOW: - PAYMENT TO BUSINESS PARTNERS (LICENSEES) TOWARDS TH EIR SHARE OF FEES FOR THE COURSES EXECUTED BY THEM IN METRO C ENTERS, 176 ITA NO. 2057/DEL/10 NIIT VS. CIT NETWORK CENTERS AND ALSO IN THE GOVERNMENT AS WELL AS PRIVATE SCHOOLS. - PAYMENT OF ROYALTY/ TECHNICAL FEES TO THE FOR USING THEIR CONTENTS, TECHNICAL EVALUATION SUPPORT FOR STUDENTS FOR DOMESTIC BUSINESS. - PAYMENT MADE FOR DOMESTIC GNIT STUDENTS FOR ONLINE LEARNING - AMC FOR ASSETS INSTALLED IN SCHOOL-BOTH GOVERNMENT AND PRIVATE SCHOOLS. - PROFESSIONAL EXPENSES LIKE COPY WRITING, EDITING TR ANSLATIONS, CERTIFICATE WRITING MEANT FOR STUDENTS ETC THE ABOVE EXPENSES ARE INCURRED IN RELATION TO EDUC ATION BUSINESS IN INDIA. THEREFORE, ALL EXPENSES HAVE BEE N DEBITED IN TAXABLE UNITS I.E. DOMESTIC UNITS ONLY. ALSO RELATE D REVENUE IS BOOKED IN DOMESTIC AREA. 69.13. WITH REFERENCE TO ABOVE QUERIES AND REPLIES, LD. COUNSEL POINTED OUT THAT AO HAD SPECIFICALLY EXAMINED THE IMPUGNED ISSU E DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE EXPENDITURE WAS ALLO WED AFTER DUE APPLICATION OF MIND AND FORMATION OF HIS VIEW ON TH E ISSUE. 69.14. LD. COUNSEL FURTHER SUBMITTED THAT EVEN IF I T IS CONSIDERED TO BE A CASE OF INADEQUATE INQUIRY, THEN TOO LD. CIT WAS REQUIRE D TO GIVE SPECIFIC FINDING, PIN POINTING ERROR AND PREJUDICE TO THE REVENUE. L D. COUNSEL POINTED OUT THAT BEFORE LD. CIT, VIDE REPLY DATED 19-3-2010, CONTAIN ED AT PAGE 291 TO 294 OF PB, IT WAS CLEARLY EXPLAINED THAT FROM AY 1999-2000 ONWARDS THE ASSESSEE HAD CHANGED THE BUSINESS MODEL OF DISBURSEMENT OF B USINESS TO LICENSEES TOWARDS EXECUTION OF COURSES AT SATELLITE CENTRES ( STCS) AND NETWORK CENTERS (NWCS). IT WAS CLARIFIED THAT INCREASE IN COURSE EXECUTION CHARGES WAS MAINLY DUE TO THE REASONS, WHICH HAVE BEEN SUMM ARIZED IN THE CHART OF ISSUES, AS UNDER: (A) FROM AY 1999-2000 ONWARDS THE ASSESSEE HAD CHANGED THE BUSINESS MODEL OF DISBURSEMENT OF FEES AND LICENSEE S 177 ITA NO. 2057/DEL/10 NIIT VS. CIT TOWARDS EXECUTION OF COURSES AT SATELLITE CENTRES ( STCS) AND NETWORK CENTRES (NWCS). UNDER THE NEW MODEL, THE ASSESSEE STARTED COLLECTING THE ENTIRE FEES FROM TH E STUDENTS AND IN TURN DISBURSED THE LICENSEES SHARE IN FEE T O THE LICENSEE AS COURSE EXECUTION EXPENSES AT NWCS. EARL IER, THE ASSESSEE USED TO SHOW ONLY ITS OWN SHARE IN THE STU DENT FEES AS INCOME IN ITS BOOKS. THIS CHANGE IN TREATMENT HA D STANDARDIZED THE METHOD OF RECOGNIZING INCOME IN TH E ASSESSEES BOOKS IN LINE WITH THE TREATMENT OF RECE IPTS CONNECTED WITH COURSES OFFERED AT STCS. AS A RESULT OF THIS CHANGE IN TREATMENT OF RECEIPTS , THE COURSE EXECUTION EXPENSES AS WELL AS CONNECTED REVENUES OF NWCS STOOD CORRESPONDINGLY ENHANCED IN THE BOOKS OF ASSE SSEE. THUS, THE EXPENSES AS WELL AS REVENUES IN THE PROFI T AND LOSS ACCOUNT OF THE ASSESSEE WERE INCREASED BY THE SAME AMOUNT. IT IS PERTINENT TO NOTE THAT THE LICENSEES SHARE I N THE FEE IN CASE OF NWCS CONSTITUTES AROUND 80% OF THE TOTAL FE E COLLECTED FROM STUDENTS. THERE IS NO ADDITIONAL DEB IT TO THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF THE CHANGE. I T WILL HOWEVER, BE APPRECIATED THAT THE NET REVENUE TO THE ASSESSEE, EVEN AFTER THE CHANGE, REMAINED THE SAME. (B) THE ASSESSEE STARTED A NEW MICROSOFT ONLINE TESTING FACILITY FROM AY 1999-2000 IN RESPECT OF WHICH CERTAIN EXPEN SES WERE INCURRED, FOR THE FIRST TIME, TOWARDS PAYMENT TO M/S SYLVAN PROMETRIC FOR PROVIDING ONLINE TESTING EXAMI NATION FACILITY FOR THE SAME. (C) ANOTHER REASON FOR INCREASE IN THE COURSE EXECUTION CHANGES WAS THE GROWING POPULARITY OF CERTAIN PRODUCTS OF T HE ASSESSEE WHICH ENTAIL HIGHER COURSE EXECUTION EXPEN DITURE AS COMPARED TO OTHER PRODUCTS OF THE ASSESSEE. THUS, A N ALTERATION IN THE SALES-MIX OF THE ASSESSEE ALSO CO NTRIBUTED TOWARDS INCREASE IN COURSE EXECUTION EXPENSES. 69.15. WITH REFERENCE TO ABOVE REPLY, LD. COUNSEL POINTED OUT THAT LD. COMMISSIONER, WITHOUT DEALING WITH THE AFORESAID CO NTENTIONS OF THE 178 ITA NO. 2057/DEL/10 NIIT VS. CIT ASSESSEE, SET ASIDE THE ISSUE OF STEEP RISE IN COUR SE EXECUTION CHARGES BACK TO THE FILE OF THE AO ERRONEOUSLY, HOLDING THAT NECESS ARY ENQUIRIES HAD NOT BEEN CONDUCTED BY THE AO. HE SUBMITTED THAT SIMPLY BECAU SE QUERY WAS NOT RAISED BY THE AO IN THE MANNER DESIRED BY THE CIT, COULD NOT, BE A VALID GROUND TO HOLD THE ASSESSMENT ORDER AS ERRONEOUS. 69.16. LD. COUNSEL REFERRED TO PAGE 946 OF THE PB A ND POINTED OUT THAT IN THE REPLY FILED BEFORE LD. AO VIDE SUBMISSIONS DATED 6- 2-2006, THE ASSESSEE HAD SUBMITTED THE BREAK UP OF COURSE EXECUTION EXPENSES VIDE ANNEXURE 6, CONTAINED AT PAGE 948 OF THE PB. LD. COUNSEL POINTE D OUT THAT THE PAYMENTS WERE MADE TO UNRELATED PARTIES, WHO JOINED HANDS WI TH ASSESSEE TO RUN BUSINESS EXECUTION CENTERS. HE SUBMITTED THAT REASO NABLENESS OF THE EXPENDITURE COULD NOT BE EXAMINED BY LD. CIT. MERE INCREASE IN EXPENDITURE, DOES NOT ENTAIL DISALLOWANCE. 69.17. LD. COUNSEL REITERATED HIS SUBMISSIONS IN RE GARD TO SCOPE OF JURISDICTION OF AO U/S 153A AND SUBMITTED THAT NO U NDISCLOSED INCOME/ PROPERTY OR ANY INCRIMINATING DOCUMENTS SUGGESTING INCOME ESCAPING ASSESSMENT QUA AFORESAID ISSUE WAS FOUND IN THE COU RSE OF SEARCH. 70. LD. SPECIAL COUNSEL IN REPLY REFERRED TO PAGE 4 1 OF CITS ORDER AND POINTED OUT THAT THERE WAS 108% INCREASE IN COURSE EXECUTION CHARGES. LD. SPL. COUNSEL REFERRED TO PAGE 959 OF PB, WHEREIN TH E AOS QUERY DATED 8-2- 2006 IS CONTAINED AND POINTED OUT THAT SAID QUERY W AS WITH REFERENCE TO ASSESSMENT YEAR 2001-02 AND NOT WITH REFERENCE TO A SSESSMENT YEAR 1999- 2000. HENCE, THERE WAS NO QUERY QUA INCREASE IN THE AFORESAID EXPENDITURE DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, T HE REPLY OF THE ASSESSEE CONTAINED AT PAGE 962 OF THE PB WAS MADE WITH REFER ENCE TO JUSTIFICATION IN INCREASE IN THE AFORESAID EXPENDITURE FOR AY 2001-0 2 AND NOT FOR THE YEAR 179 ITA NO. 2057/DEL/10 NIIT VS. CIT UNDER CONSIDERATION. HE FURTHER SUBMITTED THAT AO SOUGHT FOR ONLY GENERAL DETAILS. 70.1. AS REGARDS THE CONTENTION OF LD. COUNSEL THAT LD. CIT DID NOT EXAMINE THE ASSESSES REPLY TO PIN POINT THE LOSS TO REVENU E, LD. SPL. COUNSEL SUBMITTED THAT THE EXPLANATION FURNISHED BY ASSES SEE NEEDED VERIFICATION WITH REGARD TO ITS CONTENT AND VERACITY. 70.2. LD. SPECIAL COUNSEL IN REPLY TO THE SUBMISSIO NS MADE BY LD. COUNSEL FOR THE ASSESSEE WITH REFERENCE TO IMPUGNED ISSUE BEYOND THE SCOPE OF JURISDICTION OF AO U/S 153A, SUBMITTED THAT THE REL EVANT ACCOUNTS CONTAINING SUCH EXPENSES WERE FOUND IN THE COURSE OF SEARCH OP ERATIONS. 70.3. IN SUM AND SUBSTANCE LD. SPECIAL COUNSEL SUBM ITTED THAT IT WAS A CASE OF LACK OF INQUIRY AND, THEREFORE, ACTION OF THE CI T IN SETTING ASIDE THE AFORESAID ISSUE BY EXERCISING REVISIONARY JURISDICT ION U/S 263 OF THE ACT, WAS VALID. 70.4. WITH REFERENCE TO THE REPLY FILED BY ASSESSEE , LD. SPECIAL COUNSEL SUBMITTED THAT THE AO HAD NOT RAISED ANY QUERY ABOU T THE PURPORTED EXPENSES FROM AY 1999-2000, SO BENEFIT OF REPLY FOR AY 2001-02 COULD NOT BE TAKEN. LD. SPECIAL COUNSEL FURTHER POINTED OUT T HAT ASSESSEE IN ITS REPLY HAD SUBMITTED THAT IT HAD RESORTED TO A NEW MODEL, WHICH WERE NOT EXAMINED BY AO. 70.5. LD. SPECIAL COUNSEL SUBMITTED THAT BLOCK ASSE SSMENT DOES NOT MEAN THAT EXPLANATION FOR ONE PARTICULAR ASSESSMENT YEAR APPLIES TO ALL ASSESSMENT YEARS. HE SUBMITTED THAT BASIC DETAILS WERE NOT AVA ILABLE TO DEMONSTRATE INCREASE. 71. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAD CLAIMED COURSE EXECUTIO N CHARGES OF RS. 180 ITA NO. 2057/DEL/10 NIIT VS. CIT 119,81,32,796/- AS AGAINST THE SUM OF RS. 57,59,53, 934/- CLAIMED IN THE IMMEDIATELY PRECEDING YEAR. THUS, THERE WAS INCREAS E OF 108% IN THIS EXPENDITURE DURING THE YEAR UNDER CONSIDERATION. 71.1. LD. CIT HAS OBSERVED THAT THE QUERY REGARDING COURSE EXECUTION CHARGES WAS RAISED BY THE AO IN HIS LETTER DATED 2- 11-2005 AND 29-12-2005 AND IT WAS REPLIED BY THE ASSESSEE VIDE LETTER DATE D 9-1-2006 WHEREIN IT WAS STATED THAT COURSE EXECUTION CHARGES COMPRISED MAIN LY OF PAYMENT TO LICENSEES TOWARDS EXECUTION OF COURSES AT SATELLITE CENTRES (STC) AND NETWORK CENTRES (NWCS) AS WELL AS PAYMENTS TO M/S S YLVAN PROMETRIC FOR ONLINE TESTING OF MICROSOFT CERTIFIED COURSES, COPY WRITING, EDITING TRANSLATION, CERTIFICATE WRITING MEAN FOR STUDENT ETC. 71.2. HOWEVER, LD. CIT DID NOT TAKE INTO CONSIDERAT ION THE FURTHER QUERY RAISED BY AO VIDE LETTER DATED 8-2-2006, CONTAINED AT PAGE 959 OF PB WHEREIN HE HAS SPECIFICALLY REQUIRED THE ASSESSEE T O GIVE JUSTIFICATION FOR INCREASE, INTER ALIA, IN COURSE EXECUTION EXPENSES. THIS WAS DULY REPLIED BY ASSESSEE VIDE REPLY DATED 27-2-2006 CONTAINED AT PA GES 900-961, WHEREIN ASSESSEE, INTER ALIA, SPECIFICALLY POINTED OUT AS T O WHY THE PERCENTAGE OF EXPENSES WORKED OUT 30-32% AS COMPARED TO 22% IN TH E FY 1997-98. THEREFORE, THE VERY PREMISE OF LD. CIT, IN HOLDING THE ORDER AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE, DOES NOT SU RVIVE. ONCE THE AO HAD APPLIED HIS MIND TO THIS ISSUE, THEN AT BEST THIS I SSUE COULD BE HELD TO BE A CASE OF INADEQUATE INQUIRY AND, THEREFORE, LD. CIT WAS REQUIRED TO GIVE HIS FINDINGS AS TO HOW THE ASSESSMENT ORDER WAS ERRONEO US AND PREJUDICIAL TO THE INTEREST OF REVENUE. LD. CIT HAS NOT GIVEN ANY SUCH FINDING AND, THEREFORE, WE ARE NOT INCLINED TO ACCEPT THE FINDING OF LD. CI T ON THIS ISSUE. IN THE RESULT, THIS GROUND IS ALLOWED. 181 ITA NO. 2057/DEL/10 NIIT VS. CIT 72. GROUND NO. 16: VIDE GROUND NO. 16, THE ASSESSE E HAS ASSAILED THE FINDING OF LD. CIT IN SETTING ASIDE THE ASSESSMENT ON THE ISSUE OF DEDUCTION ON ACCOUNT OF BAD DEBTS ON THE GROUND THAT SAME HAD BEEN ALLOWED WITHOUT ANY VERIFICATION OR ENQUIRY BY THE AO. 72.1. LD. CIT IN HIS ORDER AT PAGES 42 & 43 POINTED OUT THAT AO FAILED TO EXAMINE THE SATISFACTION OF THE CONDITIONS LAID DOW N IN THE PROVISIONS OF SECTION 36. HE POINTED OUT THAT ASSESSE HAD WRITTEN OFF RS. 14,95,100/- AS BAD DEBTS, WHICH WAS BASICALLY A DEPOSIT. HE POINTED OU T THAT THIS WAS NOT A TRADE DEBT BUT WAS AN ADVANCE. THE AO ALLOWED THE ABOVE A MOUNT AS WELL AS OTHER SUM DEBITED UNDER THE HEAD BAD DEBTS WITHOUT EXAM INING THEIR GENUINENESS AND ALLOWABILITY. THE ASSESSEE SOUGHT T O ALTER ITS CLAIM OF DEDUCTION ON ACCOUNT OF NON-RECOVERY OF SECURITY DE POSITED AS BUSINESS EXPENDITURE BEING LOSS INCIDENTAL TO BUSINESS U/S 28 READ WITH SECTION 37(1) OF THE ACT AS OPPOSED TO CLAIM THE SAME AS BAD DEBT . LD. CIT POINTED OUT THAT THIS CONTENTION OF THE ASSESSEE WAS ACCEPT ABLE. HOWEVER, NEITHER DURING THE ASSESSMENT PROCEEDINGS NOR BEFORE HIM AS SESSEE FURNISHED ANY DETAILS FOR THE BALANCE BAD DEBTS CLAIMED. THUS, OU T OF THE TOTAL BAD DEBTS WRITTEN OFF OF RS. 1,43,44,418/-, LD. CIT ACCEPTED THE ASSESSEES CONTENTION QUA RS. 14,95,100/- BUT FOR THE BALANCE HE SET ASID E THE ASSESSMENT ORDER TO THE FILE OF AO FOR FRESH CONSIDERATION. 72.2. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT D URING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 153A/143(3), VIDE NOTIC E DATED 2-11-2005, THE AO REQUIRED THE ASSESSEE TO FURNISH DETAILS OF BAD DEBTS CLAIMED DURING THE YEAR WHICH WAS REPLIED TO BY THE ASSESSEE VIDE LETT ER DATED 21-11-2005, 5-12- 2005 AND 12-12-2005 ALONG WITH DETAILS OF BAD DEBTS . HE SUBMITTED THAT LD. 182 ITA NO. 2057/DEL/10 NIIT VS. CIT CIT FAILED TO PIN POINT ANY ERROR IN THE ASSESSMENT ORDER AND THE ENSUING PREJUDICE CAUSED TO THE REVENUE FROM THE ALLEGED NO N-VERIFICATION OF CLAIM OF BAD DEBTS BY THE AO. HE SUBMITTED THAT POST 1-4-198 9 THE ONLY REQUIREMENT U/S 36(1)(VII) READ WITH SEC. 36(2) IS THAT THE BAD DEBT SHOULD BE WRITTEN OFF AND NO FURTHER CONDITION HAS BEEN LAID DOWN. LD. CO UNSEL REITERATED HIS SUBMISSIONS WITH REFERENCE TO SCOPE OF ASSESSMENT U /S 153A AND, INTER ALIA, POINTED OUT THAT NO INCRIMINATING DOCUMENT WAS FOUN D, SUGGESTING INCOME ESCAPING ASSESSMENT. 72.3. LD. SPL. COUNSEL PLACED RELIANCE UPON THE ORD ER OF LD. CIT ON THIS ISSUE. 73. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THIS ISSUE RELATES TO ALLOWING OF ASSESS EES CLAIM REGARDING BAD DEBTS. LD. CIT HELD THE ORDER AS ERRONEOUS AND PREJ UDICIAL TO THE INTEREST OF REVENUE ON THE GROUND THAT AO FAILED TO EXAMINE THE SATISFACTION OF THE CONDITIONS LAID DOWN IN SECTION 36 OF THE I.T. ACT. 73.1. LD. CIT HAS NOT DISPUTED THAT THE BAD DEBTS HAD BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT. IT IS NOW SETTLED LAW THAT POST 1 -4-1989, THE ONLY REQUIREMENT FOR ALLOWING BAD DEBTS IS THAT THE SAME SHOULD HAVE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT. THE ASSESSEE IN ITS RE PLIES HAD GIVEN THE DETAILS OF BAD DEBTS WRITTEN OFF. LD. CIT HAS NOT DISPUTED THAT THE IMPUGNED DEBTS WERE TRADE DEBTS. THEREFORE, IT COULD NOT BE SAID T HAT THE ASSESSMENT ORDER WAS ERRONEOUS, IN ANY VIEW OF THE MATTER, AS THE AS SESSEES CLAIM WAS LEGALLY SUSTAINABLE. IF ASSESSEES CLAIM IS LEGALLY ALLOWAB LE AND THE QUANTUM OF AMOUNT CLAIMED IS NOT DISPUTED BY LD. CIT, THEN IT CANNOT BE SAID THAT THE ASSESSMENT ORDER WAS ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF REVENUE. 183 ITA NO. 2057/DEL/10 NIIT VS. CIT WE, ACCORDINGLY, ARE NOT INCLINED TO ACCEPT THE FIN DING OF LD. CIT ON THIS ISSUE. GROUND IS ALLOWED. 74. VIDE GROUND NO. 17, THE ASSESSEE HAS ASSAILED T HE ACTION OF LD. CIT IN HOLDING THAT THE AO FAILED TO VERIFY WHETHER ANY EX PENSES WERE INCURRED FOR EARNING EXEMPT INCOME, WHICH WERE REQUIRED TO BE DI SALLOWED U/S 14A OF THE ACT AND, THEREFORE, THE ORDER OF THE AO WAS ERRONEO US AND PREJUDICIAL TO THE INTERESTS OF REVENUE. THE ASSESSEES MAIN CONTENTIO N IS THAT LD. CIT FAILED TO APPRECIATE THAT IN TERMS OF PROVISO TO SECTION 14A , THE AO IS PRECLUDED FROM MAKING ANY DISALLOWANCE. THEREFORE, THE LD. CI T COULD NOT HAVE EXERCISED JURISDICTION U/S 263 OF THE ACT IN RESPEC T OF THIS ISSUE. 74.1. LD. CIT NOTICED THAT AO WHILE PASSING THE AS SESSMENT ORDER DID NOT MAKE ANY DISALLOWANCE U/S 14A IN RESPECT OF DIVIDEN D INCOME CLAIMED EXEMPT U/S 10(33) OF THE I.T. ACT. THE ASSESSEE, IN RESPONSE TO SHOW CAUSE NOTICE ISSUED BY LD. CIT ON THIS ISSUE, RELIED UPON THE DECISION OF COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF PAUL JOHN DEL ICIOUS CASHEWS CASE (SUPRA) IN SUPPORT OF THE CONTENTION THAT AO HAS NO POWER TO REOPEN OR TO CHANGE OR TO INCREASE OR DECREASE THE LIABILITY OF THE ASSESSEE ON THE BASIS OF SECTION 14A, INSERTED BY FINANCE ACT, 2002. LD. CIT HAS IN DETAIL CONSIDERED THE ASSESSEES SUBMISSIONS ON LEGAL ISSUES RAISED B EFORE HIM AND POINTED OUT THAT BOARDS CIRCULAR, REFERRED BY THE TRIBUNAL IN THE AFOREMENTIONED DECISION, CORRIGENDUM WAS ISSUED, WHICH WAS REPORTE D IN 254 ITR (STAT.) 279 AND HAS REPRODUCED THE CONTENTS OF SAID CORRIGE NDUM IN HIS ORDER. IN THIS CORRIGENDUM IT WAS AGAIN CLARIFIED THAT WHERE THE ASSESSMENT PROCEEDINGS HAD BECOME FINAL BEFORE 1-4-2001 THE ASSESSMENT SHO ULD NOT BE REOPENED U/S 147 OF THE ACT TO DISALLOW EXPENDITURE RELATABLE TO THE EXEMPT INCOME BY APPLYING PROVISIONS OF SECTION 14A. LD. CIT POINTED OUT THAT SINCE IN THE 184 ITA NO. 2057/DEL/10 NIIT VS. CIT PRESENT CASE PROCEEDINGS WERE FINALIZED BY THE AO O N 1-6-2006, THEREFORE, THE BOARDS CIRCULAR WAS NOT APPLICABLE IN THE INST ANT CASE. THEREAFTER, LD. CIT ALSO REFERRED TO PROVISO TO SECTION 14A, INSERT ED BY THE FINANCE ACT, 2002 W.E.F. 11-5-2001 AND POINTED OUT THAT IN THE S AID PROVISO ALSO ONLY SECTIONS 147 AND 154 WERE MENTIONED. 75. LD. COUNSEL REFERRED TO PAGE 190 OF THE PB, WHE REIN THE SHOW CAUSE NOTICE IS CONTAINED, IN WHICH LD. CIT HAD POINTED O UT THAT ASSESSEE HAD SHOWN DIVIDEND INCOME OF RS. 9,12,000/-, WHICH HAD BEEN CLAIMED AS EXEMPT U/S 10(33). HOWEVER, NO DISALLOWANCE WAS MAD E U/S 14A BY THE AO. THEREFORE, THE ASSESSMENT ORDER WAS ERRONEOUS AND P REJUDICIAL TO THE INTERESTS OF REVENUE. 75.1. LD. COUNSEL REFERRED TO PAGE 300 OF THE PB, W HEREIN THE ASSESSEES REPLY DATED 29-3-2010,IN THIS REGARD, IS CONTAINED, WHEREIN ASSESSEE HAD, INTER ALIA, SUBMITTED THAT: (A) LD. CIT DID NOT PIN POINT, WHICH PART OF THE EXPEND ITURE HAD BEEN INCURRED TO EARN THE AFORESAID EXEMPT INCOME. A SWE EPING ALLEGATION HAS BEEN MADE IN THE SHOW CAUSE NOTICE THAT SOME EX PENDITURE MUST HAVE BEEN INCURRED TO EARN THE EXEMPT DIVIDEND INCO ME. (B) IN THE FOLLOWING CASES, IT HAS BEEN HELD THAT IT IS INCUMBENT UPON THE CIT TO RECORD PRIMA FACIE FINDING AS TO HOW THE ASS ESSMENT WAS ERRONEOUS AND RESULTED IN PREJUDICE TO REVENUE: - 98 ITR 1 (KAR) - 111 ITR 326 - 199 ITR 424. (C) AS PER THE PROVISO TO SEC. 14A, THE AO DOES NOT HAV E JURISDICTION TO PASS AN ORDER ENHANCING THE ASSESSMENT OF THE ASSES SEE OR REASSESS THE 185 ITA NO. 2057/DEL/10 NIIT VS. CIT INCOME INVOKING SECTION 14A OF THE ACT. THEREFORE, LD. CIT ALSO COULD NOT ENHANCE THE ASSESSMENT BY INVOKING THE PROVISIO NS OF SECTIONS 14A. (D) KOCHIN BENCH OF THE ITAT IN THE CASE OF PAUL JOHN D ELICIOUS CASHEW 280 ITR 110 (AT) HAS HELD THAT THE ORDER OF CIT U/S 263, MAKING DISALLOWANCE U/S 14A OF THE ACT WAS INVALID. HE FUR THER POINTED OUT THAT THIS DECISION HAS BEEN APPROVED BY HONBLE KER ALA HIGH COURT REPORTED AS 200 TAXMAN 154. 75.2. THE SUBMISSION AS REGARDS THE SCOPE OF ASSESS MENT U/S 153A WAS REITERATED. THE ASSESSEES CONTENTION WAS THAT U/S M153A OF THE ACT, ASSESSMENT CANNOT BE COMPLETED ON MERE REAPPRAISAL OF INFORMATION/ DOCUMENTS READILY AVAILABLE WITH THE AO BUT HAS TO BE BASED ON MATERIAL FOUND IN THE SEARCH. 75.3. LD. COUNSEL FURTHER REFERRED TO PAGE 1055 WHE REIN THE SCHEDULE ANNEXURE TO BALANCE-SHEET IN REGARD TO INVESTMENT I S CONTAINED TO POINT OUT THAT ALL THE INVESTMENTS ARE IN GROUP COMPANIES, W HICH IS FROM EARLIER YEARS. FRESH INVESTMENT HAS BEEN MADE IN FOREIGN SUBSIDIAR IES, THE INCOME FROM WHICH IS NOT EXEMPT. THEREFORE, IN ANY VIEW OF THE MATTER, NO EXPENDITURE WAS ALLOCABLE TO THE EARNING OF EXEMPT INCOME. 75.4. LD. COUNSEL FURTHER PLACED RELIANCE ON THE DE CISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DLF LTD. 350 ITR 555, WHEREIN IT WAS HELD THAT CONSIDERING THAT THE ISSUE OF DISALLOWANC E U/S 14A IS DEBATABLE AND NO DISALLOWANCE UNDER THAT SECTION BY THE AO BEING A POSSIBLE SUSTAINABLE ACTION, THE ASSESSMENT ORDER COULD NOT BE SET ASIDE ON THE SAID ISSUE BY THE CIT, WHILE EXERCISING JURISDICTION U/S 263 OF THE A CT, NOTWITHSTANDING THAT THE ISSUE WAS NOT SPECIFICALLY EXAMINED BY THE AO. 186 ITA NO. 2057/DEL/10 NIIT VS. CIT 76. LD. SPECIAL COUNSEL SUBMITTED THAT SINCE NO QUE RY QUA APPLICABILITY OF SECTION 14A WAS RAISED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS A CASE OF LACK OF ENQUIRY, WHIC H JUSTIFIED THE ACTION OF THE CIT IN EXERCISING REVISIONARY JURISDICTION U/S 263 OF THE ACT. HE REFERRED TO PAGE 45-46 OF CITS ORDER, WHEREIN EXTENSIVE DIS CUSSION HAS BEEN MADE BY LD. CIT ON THIS ISSUE AND POINTED OUT THAT THE C IT WAS NOT DIRECTING DISALLOWANCE. HE POINTED OUT THAT THERE WAS NO BAR ON DISALLOWBILITY OF EXPENSES U/S 14A.WITH REFERENCE TO THE SUBMISSIONS MADE ON THE BASIS OF PROVISO TO SECTION 14A, LD. SPL. COUNSEL POINTED OU T THAT AO WAS NOT EXERCISING HIS POWER TO REOPEN ASSESSMENT U/S 147. HE SUBMITTED THAT ASSESSMENT WAS BEING REOPENED ON ACCOUNT OF STATUTO RY PROVISION AND THE ASSESSMENT BEING PENDING BEFORE AO, SECTION 14A WI LL HAVE ITS APPLICATION. HE SUBMITTED THAT SECTION 14A IS RETROSPECTIVE IN O PERATION AND THE PROVISO IS NOT TAKING AWAY OR WHITTLING DOWN RETROSPECTIVIT Y. ONLY POWER U/S 147 AND 154 HAS BEEN TAKEN AWAY FROM AO AND THIS IS THE ONL Y IMPORT OF PROVISO AND SECTION 263 CANNOT BE READ INTO IT. HE SUBMITTED T HAT THE CIRCULAR NO. 14 OF 2001 ( PAGE 86 OF 252 ITR (STAT.) HAS NO APPLICATIO N WITH REFERENCE TO SECTION 153A. 77. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY NO QUERY QUA APPLICABILITY OF SECTION 14A WAS RAISED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDIN GS AND, THEREFORE, IT WAS A CASE OF LACK OF ENQUIRY WHICH JUSTIFIED THE A CTION OF THE CIT. SECTION 14A IS A SPECIFIC SECTION FOR MAKING DISALLOWANCE I N RESPECT OF EXEMPT INCOME. THEREFORE, THE AO WAS DUTY BOUND TO CONSIDE R THE APPLICABILITY OF SECTION 14A, PARTICULARLY BECAUSE THE ASSESSMENT WA S FINALIZED BY AO ON 1- 6-2006, WHICH DATE FELL AFTER THE DATE GIVEN IN THE CIRCULAR NO. 14 OF 2001. 187 ITA NO. 2057/DEL/10 NIIT VS. CIT THE AO HAS TO PASS A FRESH ASSESSMENT ORDER U/S 153 A AND IN DOING SO HE HAS TO CONSIDER THE APPLICABILITY OF ALL RELEVANT P ROVISIONS OF ACT. THIS ASPECT WE HAVE CONSIDERED IN DETAIL WHILE DEALING WITH LEG AL GROUND IN THIS REGARD. AS FAR AS DECISION IN THE CASE OF PAUL JOHN DELICIO US CASHEW (SUPRA) IS CONCERNED, THE SAME WAS NOT RENDERED WITH REFERENCE TO SECTION 153 ASSESSMENTS AND, THEREFORE, IS NOT APPLICABLE TO PR ESENT SET OF FACTS. EVEN OTHERWISE, LD. CIT HAS ELABORATELY CONSIDERED AS TO WHY THE SAID DECISION IS NOT APPLICABLE. WE CONCUR WITH HIS FINDINGS NOTED E ARLIER. WE, THEREFORE, UPHOLD THE ORDER OF LD. CIT ON THIS COUNT. 78. VIDE GROUND NO. 18, THE ASSESSEE HAS ASSAILED T HE FINDING OF LD. CIT IN HOLDING THAT SINCE THE ASESSEE HAD PAID TECHNICAL S ERVICE FEE TO VARIOUS NON- RESIDENTS WITHOUT DEDUCTION OF TAX AT SOURCE AND TH E AO HAVING FAILED TO EXAMINE THE SAID ISSUE, THE ORDER OF THE AO IN THIS REGARD WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 78.1. THE CONNECTING GROUND TAKEN IN THIS REGARD IS THAT LD. CIT FAILED TO APPRECIATE THAT THIS ISSUE INCLUDING THE ISSUE OF D EDUCTION OF TAX AT SOURCE HAD DULY BEEN CONSIDERED AND SCRUTINIZED BY THE AO IN THE ORIGINAL ASSESSMENT. 78.2. FURTHER CONNECTING GROUND TAKEN IN THIS REGAR D IS THAT LD. CIT FAILED TO APPRECIATE THAT SINCE UNDER THE ALLEGED AMC CONTRAC TS, THE ASSESSEE HAD ONLY RECEIVED UPGRADES TO SOFTWARE AND HAD NOT RECEIVED ANY TECHNICAL SERVICE FROM THE NON-RESIDENT, THE CONSIDERATION PAID WAS N OT SUBJECT TO TAX WITHHOLDING U/S 195 OF THE ACT. 78.3. LD. CIT NOTICED FROM THE PERUSAL OF APPRAISAL REPORT THAT APART FROM IMPORT OF SOFTWARE, ASSESSEE HAD TO EFFECT REMITTAN CE TOWARDS ANNUAL SUPPORT/ MAINTENANCE CHARGES (SMC) TO M/S ANSYS IN C. USA, M/S 188 ITA NO. 2057/DEL/10 NIIT VS. CIT MECHANICAL DYNAMICS USA, M/S MENTOR GRAPHICS PVT. L TD., SINGAPORE, M/S KOKUMS CORPORATE SWEDEN ETC. LD. CIT WAS OF THE OPI NION THAT PAYMENTS MADE WERE ON ACCOUNT OF TECHNICAL SUPPORT SERVICE R ENDERED TO INDIAN CUSTOMERS IN THE FORM OF ANNUAL MAINTENANCE CHARGES . THE ASSESSEE IN ITS REPLY DATED 15-3-2010 POINTED OUT THAT FOREIGN SUPP LIERS ONLY SUPPLIED THE SOFTWARE AND THEIR UPGRADES FROM TIME TO TIME. NO S ERVICES WERE RENDERED BY THE FOREIGN CONCERNS IN CONNECTION WITH THESE CONTR ACTS. IT WAS FURTHER POINTED OUT THAT NO TECHNICAL SERVICES WERE RENDERE D BY THE FOREIGN SUPPLIERS TO INDIAN CUSTOMERS. THE ASSESSEES SUBMISSIONS HAV E BEEN REPRODUCED FROM PAGES 47 TO 49 OF LD. CITS ORDER, IN WHICH ASSESSE E PRIMARILY MADE FOLLOWING SUBMISSIONS: (A) TECHNICAL/ MAINTENANCE SERVICES, INCLUDING TECHNICA L SUPPORT IN TERMS OF MAINTENANCE, UPKEEP AND OTHER TECHNICAL PROBLEMS , WAS RENDERED DIRECTLY BY THE ASSESSEE TO THE INDIAN CUSTOMERS AT CLIENT SITES UNDER THE ANNUAL MAINTENANCE CONTRACTS ENTERED INTO BET WEEN THE PARTIES. UNDER THESE CONTRACTS, THE ASSESSEE AGREED TO SUPPL Y UPGRADES TO INDIAN CUSTOMERS FREE OF COST AND RENDER TECHNICAL SUPPORT SERVICES. (B) THE CONTRACTS WITH INDIAN CUSTOMERS OF ASSESSEE WER E INDEPENDENT OF THE CONTRACTS ENTERED INTO BY THE ASSESSEE WITH FOR EIGN SUPPLIERS FOR APPLICATION SOFTWARE/ UPGRADES. (C) PAYMENT TO FOREIGN SUPPLIERS BY THE ASSESSEE WAS M ADE SOLELY FOR PURCHASE OF SOFTWARE UPDATES/ UPGRADES. (D) THE IMPORTS OF THE SOFTWARE UPGRADES ARE EVIDENCED BY THE SALES INVOICES AND BILLS OF ENTRY SUBMITTED BY THE ASSESS EE DURING THE COURSE OF ASSESSMENT VIDE LETTER DATED 14.11.2005. (E) IN VIEW OF ABOVE FACTS, NO TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE THERE-FROM BY THE ASSESSEE. (F) THE COMMERCIAL INVOICES RAISED ON THE ASSESSEE BY T HE FOREIGN SUPPLIERS WERE NOT CARRYING THE WORDS 'ANNUAL MAINT ENANCE CONTRACTS' OR 'ANNUAL SUPPORT SERVICE '. SUCH CONTRACTS WERE I N FACT ENTERED INTO BETWEEN THE ASSESSEE AND THE INDIAN CUSTOMERS AND T HE FOREIGN SUPPLIERS WERE NOT A PARTY TO THESE CONTRACTS. 189 ITA NO. 2057/DEL/10 NIIT VS. CIT (G) UNDER THESE CONTRACTS WITH THE INDIAN CUSTOMERS, TH ERE WAS OBLIGATION OF ASSESSEE TO SUPPLY SOFTWARE UPGRADES, AS WELL AS RENDER TECHNICAL MAINTENANCE/ SUPPORT SERVICES THROUGH ITS TECHNICAL PERSONNEL, TO THE INDIAN CUSTOMERS. (H) THE SUPPLY OF SOFTWARE UPGRADES WAS INCIDENTAL AND FREE OF COST TO THE MAIN ACTIVITY OF PROVIDING TECHNICAL SERVICES TO CU STOMERS THROUGH THE ASSESSEES TECHNICAL PERSONNEL SUBJECT TO THE TERMS AND CONDITIONS AGREED TO BY THE PARTIES. (I) THE CONTRACTS BETWEEN THE ASSESSEE AND THE INDIAN C USTOMERS DID NOT CAST ANY DOUBT REGARDING THE NATURE OF SUPPLY CONTR ACTS BETWEEN THE ASSESSEE AND THE FOREIGN SUPPLIERS, AS THE SUBJECT MATTER OF THE TWO CONTRACTS WAS DIFFERENT, BOTH IN SCOPE AND FOCUS. (J) THEREAFTER ASSESSEE ANSWERED VARIOUS QUERIES RAISED BY LD. CIT WITH REFERENCE TO VARIOUS E-MAILS AND DATES OF RAISING OF PURCHASE ORDERS. 78.4. LD. CIT AFTER CONSIDERING THE ASSESSEES SUB MISSIONS OBSERVED THAT SOFTWARES WERE SUPPLIED TO CUSTOMERS IN INDIA AND T HE MAINTENANCE OF SOFTWARE WAS BEING DONE FREE OF COST BY OVERSEAS SE LLER FOR INITIAL FEW MONTHS. THEREAFTER, THE INDIAN BUYER HAD TO PAY FOR TECHNICAL SUPPORT SERVICE RENDERED TO INDIAN CUSTOMERS IN THE FORM OF ANNUAL MAINTENANCE CHARGE. HE OBSERVED THAT REMITTANCE OF ANNUAL SUPPORT FEE / MA INTENANCE CHARGES TO THE OVERSEAS SUPPLIERS WAS SUBJECT TO WITHHOLDING TAX @ 20%. HOWEVER, AO ERRED IN ACCEPTING THE CONTENTION THAT AMOUNT WAS P AID FOR IMPORT OF SOFTWARE UPGRADES ONLY, WITHOUT ANY REASON SPECIFIE D/ VERIFICATION OF THE RELATED DOCUMENTS BY HIM TO REACH TO THIS CONCLUSI ON. HE FURTHER OBSERVED THAT A.O. NEITHER CROSS VERIFIED THE FACTS FROM TH E CONCERNED PERSONS, NOR RECORDED THEIR STATEMENTS, BEFORE ARRIVING AT ANY C ONCLUSION. HE POINTED OUT THAT A.O. DID NOT CONSIDER THE FACT THAT THERE WER E EVIDENCES ON RECORD WHICH SHOWED THAT PAYMENTS WERE ACTUALLY MADE FOR T ECHNICAL SERVICE RENDERED TO CUSTOMERS IN INDIA BUT IT WAS SHOWN AS IF PAYMENT WERE MADE FOR 190 ITA NO. 2057/DEL/10 NIIT VS. CIT IMPORTING SOFTWARE UPGRADES BY RAISING BOGUS PURCHA SE ORDER. FOR HIS CONCLUSION LD. CIT REFERRED TO FOLLOWING ASPECTS:- I) ALL THE SALE INVOICE CARRIES THE WORDS 'ANNUAL MAINTENANCE CONTRACT' OR ANNUAL SUPPORT SERVICE. II) THE EMAIL WRITTEN BYMR.PHILLIPS DODE OF MESA S OLUTION DT. 21/09/04 TO RAJESH MATHUR (NIIT DELHI) WHICH TA LKS ABOUT ' .... RAISING OF INVOICE QUARTERLY CAUSING MORE PROB LEM SO THEY WILL EXERCISE THE RIGHT TO REVERT BACK TO ANNUAL M AINTENANCE BILLING.' THERE IS CLEAR REFERENCE OF ANNUAL MAINTE NANCE AND IS NOT PERTAINING TO EARLY RECOVERY/ SETTLEMENT OF OUT STANDING DUES, AS CLAIMED BY THE ASSESSEE. III) EMAIL DT. 09/11/2000 FROM MR. SUNANDA SINGH OF ESB DEPARTMENT IN NIIT LTD. TO MR. T.S. THOMAS WHICH R EADS AS UNDER 'KINDLY HAVE A P.O. GENERATED AGAINST OUR PR # 1006401 AS PER DETAILS BELOW. VENDOR: MECHANICAL DYNAMIC IN C. USA AMOUNT: USD 3990 DELIVERY: 30 NOV. 2000 THIS IS AN AMC ORDER. PLEASE HAVE THE ITEM DESCRIPT ION AS PER YOUR CONVENIENCE. ' EMPHASIS SUPPLIED THE LANGUAGE OF THIS E- MAIL IS ITSELF VERY CLEAR AND SELF SPEAKING. THIS E -MAIL SHOWS THAT BOGUS PURCHASE ORDER WERE RAISED TO REMIT MONE Y FOR AMC CONTRACTS IV) PURCHASE ORDERS WERE ISSUED TO COVER THE PAYMEN TS OF TECHNICAL SERVICE IS EVIDENT FROM THE FACT THAT EVE N BEFORE RECEIPTS OF MATERIAL! SOFTWARE UPGRADES BY THE NILT , THE NILT HAS SOLD THE MATERIAL! SOFTWARE UPGRADES TO INDIAN CUSTOMERS. THE ABOVE EVIDENCE ON RECORD SHOWS THAT PAYMENT OF REMITTANCE WERE MADE TO OVERSEAS SUPPLIER FOR ANNUA L MAINTENANCE CHARGE/ TECHNICAL SERVICES AND PURCHASE ORDER OF IMPORTS WERE FICTITIOUS AND BOGUS. BY ACCEPTING THE PURCHASES ORDER AS GENUINE THE A.O. ERRED AND PASSED AN ASSES SMENT ORDER WHICH IS PREJUDICIAL TO THE INTEREST OF REVENUE. TH E PAYMENTS 191 ITA NO. 2057/DEL/10 NIIT VS. CIT MADE FOR ANNUAL MAINTENANCE CONTRACT (AMC)/RENDERIN G OF TECHNICAL SERVICES WAS TAXABLE IN INDIA IN THE HAND OF OVERSEAS SUPPLIERS. THEREFORE IT WAS STATUTORY OBLIGATION ON THE ASSESSEE PART TO DEDUCT THE TAX AT SOURCE U/S 195 OF THE I.T . ACT, BEFORE MAKING/CREDITING PAYMENT TO OVERSEAS SUPPLIERS. AS THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE THE ENT IRE PAYMENT IS DISALLOWABLE U/S 40 (A) OF I.T. ACT.' 78.5. LD. CIT, ACCORDINGLY, HELD THAT THE ASSESSMEN T ORDER WAS ERRONEOUS AS NO PROPER INQUIRES WERE MADE AND PREJUDICIAL TO THE INTERESTS OF REVENUE. 78.6. LD. COUNSEL FOR THE ASSESSEE REFERRED TO SHOW CAUSE NOTICE DATED 5-2- 2010 CONTAINED AT PAGE 189 OF PB 1 AND REFERRED TO PAGES 190 AND 191, WHEREIN LD. CIT HAD RAISED THE QUERY IN REGARD TO A NNUAL MAINTENANCE CHARGES/ TECHNICAL SERVICES FEE PAID OUTSIDE INDIA. LD. COUNSEL REFERRED TO PAGES 271 TO 274 OF PB 1, WHEREIN ASSESSEE HAD GIVE N A DETAILED REPLY TO THE VARIOUS ISSUES RAISED BY LD. CIT. 78.7. LD. COUNSEL REFERRED TO AOS NOTICE DATED 2- 11-2005, CONTAINED AT PAGES 432 TO 435, BEING POINT NO. 33, REPRODUCED HE REUNDER : 33. PLEASE EXPLAIN WHY THE TAX HAS NOT BEEN COLLEC TED AGAINST PAYMENT RECEIVED BY YOU AS A DISTRIBUTOR. YOU WERE ACTING AS A DISTRIBUTOR OF VARIOUS FOREIGN COMPANY. THE MAINTEN ANCE OF SOFTWARE WAS BEING DONE FREE OF COST FOR INITIAL FE W MONTHS. THEREAFTER, THE INDIAN BUYER HAD TO PAY FOR ANY SUP PORT SERVICE TO THE OVERSEAS SELLER. THESE PAYMENTS, WHICH WERE OTHERWISE SUBJECT TO TAX, WERE MADE THROUGH IMPORT OF SOFTWAR E. THE IMPORTED ITEMS WERE ACTUALLY STUFF OF SMALL OR NIL VALUE ITEMS, YOU ARE REQUIRED TO EXPLAIN HOW THE PAYMENT COLLECT ED BY YOU AS DISTRIBUTOR HAS BEEN APPROPRIATED. 78.8. LD. COUNSEL FURTHER REFERRED TO PAGES 437 TO 445 OF PB2 AND POINTED OUT THAT IN REGARD TO POINT NO. 33, ASSESSEE HAD FI LED ITS REPLY ON 14-11-2005 VIDE ANNEXURE 20 TO THE SAID REPLY, WHICH IS REPROD UCED HEREUNDER: 192 ITA NO. 2057/DEL/10 NIIT VS. CIT REGARDING POINT NO. 33 FOR NOT DEDUCTING TAX AT SO URCE ON THE PAYMENTS MADE TO FOREIGN PRINCIPALS FOR IMPORT OF S OFTWARE AND SUPPORT SERVICES. IN THIS CONNECTION WE SUBMIT OUR REPLY AS UNDER: 1. THAT WE SIGNED DISTRIBUTOR AGREEMENT WITH DIFFERENT PRINCIPALS FOR BUYING THEIR SOFTWARE/ UPDATES AND S ELLING IN INDIA. 2. THE SOFTWARES UNDER CONSIDERATION ARE SOPHISTICATED SOFTWARE FOR ENGINEERING DESIGN AND SIMULATION. 3. WHEN NIIT RE-SELLS SUCH IMPORTED SOFTWARE IN THE IN DIAN MARKET, WE ENSURE THAT THE EXISTING CUSTOMERS GET T HERE INCREMENTAL UPDATES/UPGRADES ON A REGULAR BASIS SO THAT THEY ARE ALWAYS USING THE LATEST VERSION. FOR THE PURPOS E, WE KEEP PURCHASING THE UPDATE/UPGRADE SOFTWARE ON A REGULAR BASIS FROM THE PRINCIPAL AND PROVIDE THEM TO OUR CUSTOMER IN INDIA. 4. ALL IMPORTS ARE THROUGH PROPER CUSTOM CHANNEL AND P AYMENT THROUGH BANKS AFTER SUBMISSION BILL OF ENTRY AND OT HER DOCUMENTS TO THE BANK. 5. ALL MAINTENANCE CONTRACTS ARE FOR THE SOFTWARES SUP PLIED BY PRINCIPALS AND INSTALLED AT CLIENT SITE BY US. AFTE R WARRANTY PERIOD IS OVER, THE CUSTOMER DESIRES TECHNICAL SUPP ORT WHICH IS PROVIDED BY US WHICH ALSO INCLUDES SUPPLYING UPG RADES. THESE UPGRADES ARE IMPORTED FROM THE PRINCIPALS AND SUPPLIED TO THE CUSTOMER. THE TECHNICAL SUPPORT IN TERMS OF MAINTENANCE, UPKEEPS AND OTHER TECHNICAL PROBLEMS A RE TAKEN CARE BY US. 6. TO PROVIDE TECHNICAL SUPPORT FOR MAINTENANCE OF SOF TWARE SUPPLIED TO AND INSTALLED AT CLIENTS SITE WE HAVE T ECHNICAL TEAM WITH US. 7. WE HAVE OUR OWN TEAM OF TECHNICAL PERSONS WHO PROVI DE ANNUAL MAINTENANCE SERVICES TO THE CLIENT AT THEIR SITES. THERE IS NO TECHNICAL SERVICE PROVIDED BY THE FOREI GN PRINCIPALS. 8. AS WE HAVE IMPORTED UPGRADE WHICH ARE OF SMALL VALU E, THERE IS NO QUESTION OF DEDUCTING TAX AT SOURCE AS THE PAYMENTS ARE TOWARDS PHYSICAL IMPORT OF UPGRADE AND NOT TOWARDS TECHNICAL SERVICES.\ 193 ITA NO. 2057/DEL/10 NIIT VS. CIT 9. WE ARE ENCLOSING SOME OF THE IMPORTED DOCUMENTS WHI CH ARE IMPORTED FOR UPGRADE OF SOFTWARE E.G. COMMERCIA L INVOICE AND BILL OF ENTRY. 78.9. LD. COUNSEL FURTHER REFERRED TO REPLY DATED 6 -2-2006, FILED BEFORE AO, IN WHICH THE DETAILS OF PAYMENTS TOWARDS AMC UPGRAD E PURCHASES WERE FILED VIDE ANNEXURE 8, CONTAINED AT PAGE 449 OF PB2 . 78.10. THEREAFTER, LD. COUNSEL REFERRED TO PAGE 451 , WHEREIN THE AOS QUERY VIDE LETTER DATED 10-2-2006 IS CONTAINED. THE AO R EQUIRED THE ASSESSEE TO FURNISH INFORMATION/ DOCUMENT IN REGARD TO FOLLOWIN G QUERIES: A. REGARDING ANNUAL MAINTENANCE CONTRACTS ON IMPOR TED SOFTWARE: A. PLEASE CLARIFY WHY TAX WAS NOT DEDUCTED AT SOURCE O N ROYALTY/SERVICE PAYMENTS, WHICH WAS OTHERWISE SUBJE CT TO DEDUCTION OF TAX AT SOURCE? B. IS IT CORRECT TO STATE THAT THE IMPORTED ITEMS WERE ACTUALLY OF SMALL OR NIL VALUE, WHICH COULD NOT BE SOLD IN INDI A? C. IS IT TRUE THAT ALL THE SALE INVOICES CARRY THE WOR DS ANNUAL MAINTENANCE CONTRACT (AMC) OR ANNUAL SUPPORT CONTRA CT (ASC)? PLEASE CLARIFY. PLEASE PROVIDE SAMPLE COPY OF SALE INVOICE OF AMC. D. IF THE PAYMENT TO OVERSEAS SUPPLIERS IS ONLY FOR UP GRADES, THE PRICE SHOULD REMAIN THE SAME. HOWEVER, WHY IS THE P RICE DIFFERENT, EVEN THOUGH THE PURCHASE ORDER IS FOR TH E SAME ITEM NUMBER? E. HOW DID THE SALE INVOICES WERE RAISED ON SOME CUSTO MERS IN INDIA, EVEN BEFORE THE RECEIPT OF MATERIALS FROM OV ERSEAS SUPPLIERS? F. PLEASE CLARIFY ON THE EMAIL WRITTEN BY MR PHILIP DO DE OF MESA SOLUTIONS DATED 21-9-2004. 78.11. LD. COUNSEL REFERRED TO THE REPLY FILED BY ASSESSEE ON THIS ISSUE VIDE ITS REPLY DATED 27-2-2006 WHICH IS CONTAINED A T PAGES 455 TO 456 AND THE SAME IS REPRODUCED HEREUNDER: 194 ITA NO. 2057/DEL/10 NIIT VS. CIT A. REGARDING ANNUAL MAINTENANCE CONTRACTS ON IMPORTED SOFTWARE: IN RESPECT OF ABOVE, THE ASSESSEE COMPANY WOULD LIK E TO SUBMIT AS FOLLOWS: A. IT IS WRONG TO STATE THAT PAYMENT MADE TO OVERSEAS PRINCIPALS IS FOR ROYALTY/ TECHNICAL SERVICES, BUT IT IS THE P AYMENT AGAINST IMPORT OF SOFTWARE. THE ASESSEE COMPANY HAS ALREADY FILED VIDE LETTER DATED 14-11-2005 RELEVANT DOCUMENTS FOR IMPORTS LIKE COPY OF INVOICE, BILL OF ENTRY ETC. NIIT LTD. SIGNED DISTRIBUTOR AGREEMENTS WITH DIFFER ENT PRINCIPALS FOR BUYING THEIR SOFTWARE/UPGRADES AND S ELLING IN INDIA, AS PER TERMS AND CONDITIONS OF THE AGREEMENT ON STOCK AND SELL BASIS. B. IT IS WRONG TO STATE THAT THE IMPORTED ITEMS WERE A CTUALLY STUFF OF SMALL OR RATHER NIL VALUE, WHICH COULD NOT BE SOLD IN INDIA. ALL UPGRADES IMPORTED BY US WERE AGAINST ANNUAL CON TRACTS SIGNED BY NIIT LTD WITH INDIAN CLIENTS. THESE WERE SUPPLIED TO THE CLIENTS AGAINST ANNUAL MAINTENANCE CONTRACTS . THIS WAS PART OF THE OBLIGATIONS OF ANNUAL MAINTENANCE CONTR ACT. C. IT IS TRUE THAT INVOICES RAISED ON CLIENTS CARRY TH E WORD ANNUAL MAINTENANCE CONTRACT. PROVIDING FREE-UPGRA DES IS PART OF OBLIGATION OF CONTRACT FOR WHICH SEPARATE I NVOICE IS NOT RAISED. D. SAMPLE COPY OF SALE INVOICE IS SUBMITTED TO THE DEP ARTMENT VIDE OUR LETTER DATED 27/02/2006 IN RESPECT OF ASSE SSMENT YEAR 2001-02. E. THE PRICE VARIATION IS ON ACCOUNT OF NUMBER OF USER S AND THEREFORE CANNOT BE CONSTANT OR FIXED. F. IN THE CASE OF GOVERNMENT AND SEMI GOVERNMENT CLIEN TS, TO RELEASE PAYMENT IN ADVANCE THE CLIENTS NEED ADVANCE INVOICE 195 ITA NO. 2057/DEL/10 NIIT VS. CIT TO ENABLE THEM TO SIGN CONTRACT AND RELEASE THE PAY MENT. THIS IS THE GENERAL PRACTICE OF THE TRADE. THIS PRA CTICE IS ALSO FOLLOWED IN SOME OF THE PRIVATE SECTOR PARTIES. G. EMAIL DATED 21 ST SEPT 2004 WRITTEN BY MR PHILIP DODE OF MESA SOLUTIAONS TO MR RAJESH C MATHUR TALKS OF SETT ING OUTSTANDING DUES AND REQUEST FOR EARLY SETTLEMENT O F DUES. THE ASSESSEE COMPANY WOULD LIKE TO CLARIFY THAT TDS IS NOT APPLICABLE ON PAYMENT FOR IMPORT OF SOFTWARE AND TH EIR UPGRADES. BECAUSE IT IS NOT TECHNICAL SERVICES. THE SE SOFTWARE/UPGRADES ARE STANDARD PRODUCTS AND NOT CUS TOMIZED WHICH THE ASSESSEE COMPANY HAVE IMPORTED AND SOLD I N THE DOMESTIC MARKET AS STOCK AND SELL ITEMS. THE ASSESSEE COMPANY WOULD FURTHER CLARIFY THAT THE ASSESSEE COMPANY HAVE NOT COPIED ANY OF THE SOFTWARE/ UPGRAD E. BUT HAVE IMPORTED AND SOLD THEM AS STOCK AND SELL ITEMS . 78.12. THEREAFTER, LD. COUNSEL REFERRED TO THE QUE STIONNAIRE OF AO DATED 1-3- 2006 CONTAINED AT PAGES 464 TO 475 OF THE PB, WHERE IN THE AO HAD INTER ALIA RAISED FOLLOWING QUERIES: REMITTANCE TO THE FOLLOWING PARTIES WERE ON ACCOUN T OF TECHNICAL SERVICES AND WERE THEREFORE SUBJECT TO WI THHOLDING TAX IN INDIA BUT THE TECHNICAL SERVICES PROVIDED BY THE SE PARTIES WERE DESCRIBED AS 'SOFTWARE' WHICH ENABLED NIIT TO EVADE TAXES, WHICH ,,'ERE OTHERWISE APPLICABLE ON THE REMITTANCE S PERTAINING TO TECHNICAL SERVICES. (I) M/S. CONVERGENT GROUP CO RPORATION, USA; (STATED AS CONVERSION GROUP IN YOUR AFORESAID QUERY); (II) M/S RELATIVITY TECHNOLOGIES, USA (III) M/S. PROSOFT TRAINING CORN INC. USA; (IV) M/S ACAE, USA; AND M/S. MENTOR GRAPHICS SINGAPORE WERE ON ACCOUNT OF ROYALTY)'. I) REMITTANCE OF USD 2 MILLION (0 M/S. CONVERGENT GROUP CORPORATION USA 196 ITA NO. 2057/DEL/10 NIIT VS. CIT A) TAX WAS EVADED BY NIIT LIMITED ON REMITTANCE OF USD 2 MILLION (RS. 9.6 CRORES APPR.) EFFECTED TO M/S. CON VERGENT GROUP CORPORATION USA UNDER THE TECHNICAL SERVICES CONTRACT FINALIZED FOR NIIT GLS LIMITED. REMITTANCE OF THIS AMOUNT WOULD HAVE ATTRACTED INCIDENCE OF WITHHOLDING TAX @ 30%. TO EVADE A TAX OF RS. 2.76 CRORES (APPR.) REMITTANCE O F USD 2 MILLION WAS EFFECTED BY NIIT LIMITED TO M/S. CONVER GENT GROUP, USA THROUGH MANIPULATED IMPORT CONSIGNMENT O F SOFTWARE THROUGH SATELLITE; B) COPY OF THE AGREEMENT DATED 22.9.2000 WITH M/S. CONVERGENT GROUP, USA, WHICH WAS MANIPULATED TO GIV E DESCRIPTION AS SOFTWARE WAS ENCLOSED AS ANNEXURE -- -. A PERUSAL OF THE DOCUMENTS ENCLOSED AS ANNEXURE --- B RING OUT CLEARLY AS TO HOW THE TRANSACTION WAS MANIPULATED T O EVADE TAX; C) A VERY CRUCIAL PIECE OF EVIDENCE IN THE AFORESAI D MATTER IS THE ORIGINAL EMAIL DATED 17.11.2000 (WHICH WAS ENCLOSED AS ANNEXURE --- FROM MR, ROD DUCE, VICE PRESIDENT, BUS INESS DEVELOPMENT (FOR ASIA PACIFIC REGION) OF THE CONVER GENT GROUP, WHO WAS THEN BASED IN SINGAPORE, WHICH INTER -ALIA STATED THAT 'THE MODEL OFFICE IS NOT A STAND ALONE PIECE OF SOFTWARE BUT A STEP IN DESIGNING AND STRUCTURING TH E RELEVANT FUNCTIONALITIES TO BUILD OUR OWN 'DIGITAL. UTILITY' SOLUTION, WHEREAS THE AFORESAID AGREEMENT DATED 22.9.2000 WAS MANIPULATED BY NIIT LIMITED TO GIVE DESCRIPTION THE REIN AS MODEL OFFICE SOFTWARE' AND WENT ON TO GIVE DESCRIPT ION THEREIN AS MODEL OFFICE SOFTWARE AND WENT ON TO GIVE IT A P IECE OF USD 2 MILLION WHICH WAS GROSSLY OVER-STATED. D) IT IS NOTEWORTHY TO POINT OUT THAT DURING SEARCH ES A NOTE WRITTEN BY SHRI RAJESH MATHUR, VICE PRESIDENT WITH NIIT GIS LIMITED WAS SEIZED WHEREIN HE HAD RECOMMENDED IMPOR T FOR MARKETING RIGHT IN SOUTH ASIA, WHEREAS THE FACT IS MS CONVEGENT GROUP, USA DID NOT EXTEND MARKETING RIGHT FOR SOUTH ASIA TO NIIT LIMITED SINCE THEY HAD THEIR OFF ICE IN SINGAPORE. YOU ARE .REQUESTED TO PRODUCE ANY EVIDEN CE REGARDING USAGE MADE OF THE SOFTWARE, AS IT WAS NOT A STAND ALONE PIECE OF SOFTWARE, AS PER THE STATEMENT OF CO NVERGENT'S VICE PRESIDENT IN THE AFORESAID EMAIL, AND TERRITOR Y OF SOUTH 197 ITA NO. 2057/DEL/10 NIIT VS. CIT ASIA HAVING BEEN DEVELOPED WITH THE USE OF THIS SO CALLED SOFTWARE DESCRIBED A 'MODEL OFFICE' ALLEGEDLY DOWNL OADED BY THEM. II) REMITTANCE OF USD 750,0001- TO M/S RELATIVITY TECHNOLOGIES, USA TAX WAS EVADED BY NUT LIMITED ON REMITTANCE OF USD 750,0001- TOWARDS EQUITY OF RELATIVITY TECHNOLOGIES , USA AS THE REMITTANCE REDUCED THE TAXABLE PROFITS OF NIIT' S DOMESTIC OPERATION, AND IN SUPPORT OF WHICH COPIES OF DOCUME NTS ARE ALSO ENCLOSED; A) PLEASE ESTABLISH THAT WITH THE DIRECT USE OF SO FTWARE ALLEGEDLY IMPORTED FROM RELATIVITY, THEY WERE ABLE TO EARN ADDITIONAL REVENUE; III) REMITTANCE OF USD 90.000/- 10 M/S PROSOFT TRA INING COM. USA; TAX WAS EVADED BY NIIT LIMITED ON REMITTANCE OF US D 90,000/- TOWARDS TECHNICAL SERVICES WHICH WERE FRAU DULENTLY DESCRIBED AS 'SOFTWARE' ALTHOUGH, M/S PROSOFT TRAIN ING CORN, USA PROVIDED TECHNICAL SERVICES FOR NIIT'S EDUCATIO NAL & TRAINING CENTRES, THE CONTRACT WAS WORDED TO DESCRI BE AS IT AS 'SOFTWARE INSTRUCTIONAL MATERIAL' IT IS FOR NIIT LIMITED TO ESTABLISH THAT THE AFORES AID TRANSACTIONS WERE AT ARM'S LENGTH AND REPRESENTED GENUINE IMPORT OF SOFTWARE. YOUR NINTH QUERY IS 'PLEASE PROVIDE THE MATERIAL TO PROVE THAT WERE MATE (MADE) AT PAYMENT AT INFLATED PRICES OF 2 0% RELEASE OF PAYMENT WHERE NO SUPPLY WAS MADE AND ANY EVIDENC E TO PROVE THAT THE DIRECTORS HAVE PURCHASED FARM HOUSE OR PROPERTIES OUT OF BLACK MONEY SO GENERATED.' 198 ITA NO. 2057/DEL/10 NIIT VS. CIT 78.13. LD. COUNSEL FURTHER REFERRED TO PAGES 545 TO 547 OF PB2, WHEREIN THE ASSESSEES REPLY IS CONTAINED, WHICH IS REPRODUCED HEREUNDER: TOPIC-8: REMITTANCE TO THE BELOW PARTIES WERE ON A CCOUNT OF TECHNICAL SERVICES AND WERE THEREFORE SUBJECT TO WI THHOLDING TAX IN INDIA, BUT THE TECHNICAL SERVICES PROVIDED BY TH ESE PARTIES WERE DESCRIBED AS SOFTWARE WHICH ENABLED NIIT TO EVADE TAXES, WHICH WERE OTHERWISE APPLICABLE ON THE REMIT TANCES PERTAINING TO TECHNICAL SERVICES (I) M/S COVERGENT GROUP CORPORATION, USA; (STATED AS CONVERGENT GROUP IN YO UR AFORESAID QUERY); (II) M/S RELATIVITY TECHNOLOGIES, USA (III) M/S PROSOFT TRAINING INC., USA; (IV) M/S ACAE, USA AND M/S MENTOR GRAPHICS, SINGAPORE WERE ON ACCOUNT OF ROYAL TY. I. COVERGENT GROUP: M/S COVERGENT GROUP CORPORATION IS A USA BASED COMPANY DEALING IN UTILITIES SOFTWARE; C OVERGENT MODEL OFFICE SOFTWARE ENERGY NETWORK OBJECT MODEL (ENOM) CORE. (VIDE OUR LETTER DATED 27-2-2006). NIIT LIMITED IMPORTED THE ABOVE MENTIONED SOFTWARE TO BE USED TO SET UP THE BASIC INFRASTRUCTURE FOR THE CEN TRE OF COMPETENCE OF ENOM UNDER CORPORATE GROUP. THERE WER E TWO OBJECTIVES: - TO PROVIDE A TRAINING AREA FOR SALES AND SUPPORT ST AFF WHO WOULD BE ENGAGED IN RE-SELLING THE PRODUCT. - TO PROVIDE PLATFORM FOR USAGE AND STUDY FOR TECHNIC AL STAFF TO GRASP THE FUNCTIONALITY OF SOFTWARE, SO THAT THEY H AVE A CAPABILITY TO PORT THE SOFTWARE TO ANOTHER PLATFORM . THE SOFTWARE WAS INSTALLED FOR EASY ACCESS TO THE S TAFF MEMBERS NEEDING THE SYSTEM AT THAT TIME.(VIDE ASSESSEE COMP ANYS LETTER DATED 14-11-2005) THE ALLEGATIONS MADE AGAINST US ARE INCORRECT AS TH E SAME IS EVIDENT FROM THE ABOVE THAT THE COMPANY IMPORTED SO FTWARE ONLY AND NOT TECHNICAL SERVICES. THE SAME WAS IMPOR TED THROUGH NORMAL PHYSICAL IMPORT THROUGH CUSTOMS. LIST OF RELEVANT IMPORT DOCUMENTS HAVE ALREADY BEEN SUBMITTED VIDE LETTER DATED 14-11-2005; 199 ITA NO. 2057/DEL/10 NIIT VS. CIT A) COPY OF AGREEMENTS B) COPY OF PURCHASE ORDER & REQUISITION C) COPY OF INVOICE D) COPY OF DOWNLOAD CERTIFICATE. E) COPY OF LETTER OF INTIMATION TO CUSTOMS F) CHARTERED ACCOUNTANTS CERTIFICATE G) COPY OF LETTER FROM RBI, APPROVING DEFERMENT OF PAY MENT. FURTHER, IT HAS ALREADY BEEN SUBMITTED THAT THE COM PANY HAS GENERATED REVENUE OF USD 2.20 MILLION USING THIS SO FTWARE AS TOOL.(VIDE LETTER DATED 14-11-2005). II. RELATIVITY TECHNOLOGIES, INC: RELATIVITY TECHNO LOGIES INC. USA IS A COMPANY IN USA PROVIDING SOFTWARE SOLUTION S IN THE AREA OF E-TRANSFORMATION TO MODERNIZE AND TRANSFOR M EXISTING LEGACY APPLICATIONS INTO NET ENABLING TECHNOLOGIES' . THE ASSESSEE HAS IMPORTED 'RESCUEWARE 5X INTERNET S OFTWARE' VIDE INVOICE NO. 129901 DATED 31.12.1990 FOR US$ 7, 50,000 IN SUPPORT OF THE ABOVE, THE ASSESSEE COMPANY HAVE SUBMITTED COPIES OF THE RELEVANT IMPORT DOCUMENTS VIDE LETTER DATED 14.11.2005: THE REMITTANCE IS NOT TOWARDS TECHNICAL KNOW-HOW FE E, BUT TOWARDS IMPORT OF SOFTWARE. III. M/S PROSEFT TRAINING, INC: AS MENTIONED ABOVE. THE ASSESSEE COMPANY CAN NOT CO MMENT ON THE E-MAILS REFERRED . HOWEVER, THE ASSESSEE COMPANY WOULD LIKE TO SUBMIT AS UNDER: M/S PROSOFT TRAINING COM. INC WAS A LEADER IN THE U S MARKET FOR INTERNET & E-COMMERCE RELATED TRAINING AND ALSO HAD GLOBAL CERTIFICATION PROGRAM FOR INTERNET TECHNOLOGIES, CA LLED THE CIW PROGRAM (CERTIFIED INTERNET WEB MASTER). 200 ITA NO. 2057/DEL/10 NIIT VS. CIT NIIT LTD.. IMPORTED 14 DIFFERENT COURSES OF THE ABO VE EDUCATIONAL SOFTWARE (INSTRUCTIONAL MATERIAL) FOR T HE PURPOSES OF LAUNCH OF VARIOUS COURSES, BASED ON THE ABOVE AFTER CREATION OF ADDITIONAL INSTRUCTIONAL RESEARCH AND CONTENT DEVEL OPMENT (VIDE ASSESSEE'S-LETTER DATED 14.11.2005) THE SAME WAS IMPORTED THROUGH CUSTOMS AND BANKING CHANNELS. THE ASSESSEE COMPANY HAVE A READY FILED RELEVANT IMPORT DOCUMEN TS VIDE LETTER DATED 27.02.2006. FURTHER, IT HAS ALSO BEEN SUBMITTED THAT THE COMPAN Y HAS GENERATED REVENUE OF RS 4 CRORES. VIDE LETTER DT 14 .11.2005. THE REMITTANCE IS NOT TOWARDS TECHNICAL KNOW-HOW TE E, BUT TOWARDS IMPORT OF SOFTWARE IV. ACAE INC., USA: AMERICAN COMPUTER AIDED ENGINEERING COMPANY BASED I N USA GIVE SUPPORT SERVICE FOR MENTOR GRAPHICS PRODUC TS. NIIT LIMITED HAS IMPORTED THE PRODUCTS FOR SALE IN INDIA . THE RELEVANT IMPORT DOCUMENTS HAVE ALREADY BEEN FILED W ITH THE DEPARTMENT VIDE LETTER DATED 27.02.2006. THE REMITTANCE IS NOT TOWARDS TECHNICAL KNOW-HOW FE E, BUT TOWARDS IMPORT OF SOFTWARE FOR RESALE IN INDIA. V) M/S MENTOR GRAPHICS THE ASSESSEE COMPANY HAVE-ALREADY EXPLAINED IN OUR LETTER DATED 14.11.2005, THE RELEVANT FACES (FACTS) ARE G IVEN BELOW : 1. THE COMPANY KEEP PURCHASING THE UPDATE/UPGRADES SOFTWARE ON A REGULAR BASIS FROM THE PRINCIPAL AND PROVIDE THEM TO THEIR CUSTOMER IN INDIA. 2. ALL IMPORTS ARE THROUGH PROPER CUSTOM CHANNEL AN D PAYMENT THROUGH BANKS AFTER SUBMISSION BILL OF ENTR Y-AND OTHER DOCUMENTS TO THE BANK. 201 ITA NO. 2057/DEL/10 NIIT VS. CIT 3. ALL MAINTENANCE CONTRACTS ARE FOR THE SOFTWARES SUPPLIED BY PRINCIPALS AND INSTALLED AT CLIENTS SITE BY THE ASSESSEE. AFTER WARRANTY PERIOD IS OVER, IF THE CUSTOMER DESIRES TE CHNICAL SUPPORT IS PROVIDED BY THE ASSESSEE, WHICH INCLUDE S SUPPLYING UPGRADES. THESE UPGRADES ARE IMPORTED FROM THE PRIN CIPALS AND SUPPLIED TO THE CUSTOMER. THE TECHNICAL SUPPORT IN TERMS OF MAINTENANCE, UPKEEP AND OTHER TECHNICAL PROBLEMS AR E TAKEN CARE BY NIIT LTD. 4.TO PROVIDE TECHNICAL SUPPORT FOR MAINTENANCE OF SOFTWARE SUPPLIED TO AND INSTALLED AT CLIENTS SITE . 5. NIIT LTD. HAVE THEIR OWN TEAM OF TECHNICAL PERSO NS WHO PROVIDE ANNUAL MAINTENANCE SERVICES TO THE CLIENT A T THEIR SITES. THERE IS NO TECHNICAL SERVICE PROVIDED BY THE FOREI GN PRINCIPALS. 6. NIIT LTD. HAVE IMPORTED UPGRADES, WHICH ARE OF S MALL VALUE; THERE IS NO QUESTION OF DEDUCTING TAX AT SOU RCE AS THE PAYMENTS ARE TOWARDS PHYSICAL IMPORT OF UPGRADE AND NOT TOWARDS TECHNICAL SERVICES: 7. THE ASSESSEE COMPANY HAVE ENCLOSED SOME OF THE IMPORTED DOCUMENTS, WHICH ARE IMPORTED FOR UPGRADE OF SOFTWARE. ( VIDE LETTER DT 14.11.2005) : - COPY OF INVOICE - ANNEXURE 33(I) - COPYOF' BI11 OF ENTRY - ANNEXURE 33(II) THE REMITTANCE, THEREFORE, IS NOT TOWARDS TECHNICAL KNOW-HOW FEE, BUT TOWARDS IMPORT OF SOFTWARE. 78.14. WITH REFERENCE TO ABOVE DETAILED QUERY RAISE D BY AO AND REPLIES FILED BY ASSESSEE, LD. COUNSEL SUBMITTED THAT IT IS CLEAR THAT LD. CIT WAS SEEKING TO THRUST/ SUBSTITUTE HIS OPINION ON THE AO, ARRIVED B Y HIM AFTER MAKING PROPER INQUIRIES AND DUE APPLICATION OF MIND. HE SUBMITTED THAT THE OBSERVATIONS OF LD. CIT THAT THE AO ACCEPTED THE AFORESAID CLAIM OF THE ASSESSEE, WITHOUT MAKING PROPER INQUIRIES WITH RESPECT TO THE AFORESA ID ISSUE DURING THE COURSE 202 ITA NO. 2057/DEL/10 NIIT VS. CIT OF ASSESSMENT PROCEEDINGS, IS, IN EFFECT, FACTUALLY INCORRECT AND CONTRARY TO THE DOCUMENTS AVAILABLE ON RECORD. 78.15. LD. COUNSEL SUBMITTED THAT THE ASSESSEE IS A DISTRIBUTOR OF APPLICATIONS SOFTWARES IN INDIA FOR VARIOUS FOREIGN CONCERNS, RE FERRED TO EARLIER. SUBSEQUENTLY, THE ASSESSEE ALSO PURCHASED UPGRADES/ UPDATES OF SUCH APPLICATIONS SOFTWARES AS AND WHEN PURCHASED FROM T HE FOREIGN SUPPLIERS, WHICH WERE SUPPLIED BY THE ASESSEE TO THE INDIAN CU STOMERS IN PURSUANCE OF OBLIGATION UNDERTAKEN BY THE ASSESSEE UNDER THE ANN UAL MAINTENANCE CONTRACT, ENTERED INTO WITH SUCH INDIAN CONCERNS. H E POINTED OUT THAT FOREIGN SUPPLIERS ONLY SUPPLIED THE APPLICATION SOFTWARE AN D THEIR UPGRADES FROM TIME TO TIME AND RECEIVED PAYMENT IN CONNECTION THE REWITH. THOSE SERVICES WERE RENDERED BY THE FOREIGN CONCERNS EITHER TO THE ASSESSEE OR TO INDIAN CUSTOMERS OF THE ASSESSEE. LD. COUNSEL FURTHER CLAR IFIED THAT THE ASSESSEE DID NOT MAKE COPIES OF THE AFORESAID SOFTWARE UPDATES/ UPGRADES BUT HAD IMPORTED AND SOLD THEM AS STOCK AND SALE ITEMS. HE SUBMITTED THAT ASSESSEE HAD ONLY RIGHT TO USE LICENSE SOFTWARE AND, THEREFO RE, IT WAS NOT ROYALTY. IN THIS REGARD LD. COUNSEL RELIED ON FOLLOWING DECISIO NS: MOTOROLA INC. VS. DCIT 95 ITD 269 (DEL.)(SPL. BENCH ); CIT VS. MITSU P. LTD, 259 CTR 418 DIRECTOR OF INCOME TAX VS. ERICSSON AB 343 ITR 470 (DEL) 78.16. LD. COUNSEL FURTHER SUBMITTED THAT AS PER AR TICLE 12(4) UNDER INDIA-US TREATY, UNLESS TECHNICAL SERVICES ARE MADE AVAILABL E TO ASSESSEE, THE PAYMENTS MADE BY ASSESSEE TO FOREIGN SUPPLIERS CANN OT BE TREATED AS FEE FOR TECHNICAL SERVICES. HE SUBMITTED THAT IN THE PRESEN T CASE, NO TECHNICAL SERVICES WERE MADE AVAILABLE BY FOREIGN SUPPLIERS T O RECIPIENT OF SERVICE BEING INDIAN CUSTOMERS. 203 ITA NO. 2057/DEL/10 NIIT VS. CIT 78.17. LD. COUNSEL ALSO REFERRED TO INDIA-UK TREATY (346 ITR 564); INDIA- NETHERLAND TREATY (346 ITR 469), IN SUPPORT OF HIS CONTENTION. 78.18. LD. COUNSEL FURTHER REFERRED TO 91 ITD 133 A ND SUBMITTED THAT THE PAYMENTS WERE NOT IN THE NATURE OF FEE FOR TECHNICA L SERVICES SINCE THEY WERE IN THE NATURE OF REPAIRS. HE POINTED OUT THAT THE R EQUIRED TECHNICAL SUPPORT/ MAINTENANCE UPKEEP AND OTHER TECHNICAL PROBLEMS ON SITE OF INDIAN CUSTOMERS WERE PROVIDED BY THE ASSESSEE THROUGH ITS EMPLOYEES/ TECHNICAL PERSONNEL AND THERE WAS NO TECHNICAL SERVICE PROVID ED BY THE FOREIGN/ OVER- SEAS SUPPLIERS. HE POINTED OUT THAT IT IS A MATTER OF RECORD THAT NO EMPLOYEE FROM FOREIGN DISTRIBUTORS AT ANY POINT OF TIME TRAV ELLED INDIA FOR THE PURPOSE OF RENDERING THE AFORESAID ALLEGED SERVICE, NOR THE RE WAS ANY ALLEGATION IN THE IMPUGNED ORDER U/S 263 OF THE ACT. THE FACT THAT TH ERE WAS ACTUAL PHYSICAL CONTROL OF UPGRADE/ UPDATE OF SOFTWARE, WAS CLEARLY INTENDED FROM THE PURCHASE ORDER PLACED BY THE ASSESSEE; INVOICES RAI SED BY THE FOREIGN SUPPLIERS AND BILL OF ENTRY FOR HOME CONSUMPTION EX ECUTED AT THE CUSTOMERS, WHICH WERE FURNISHED BEFORE THE AO DURING THE COURS E OF ASSESSMENT PROCEEDINGS. 78.19. LD. COUNSEL SUBMITTED THAT THE TENOR OF THE IMPUGNED ORDER PASSED BY THE CIT MAKES IT PATENTLY CLEAR THAT THE CIT IS MER ELY SEEKING TO THRUST/ SUBSTITUTE HIS OPINION IN PLACE OF THE AO, AS IS EV IDENT FROM THE FOLLOWING EXTRACTS FROM THE IMPUGNED ORDER: HOWEVER IN THE ASSESSMENT ORDER, THE ASSESSING OFF ICER (AO) ERRED IN ACCEPTING THE CONTENTION THAT AMOUNT WAS P AID FOR IMPORT OF SOFTWARE UPGRADES ONLY, WITHOUT ANY REASO N SPECIFIED/ VERIFICATION OF THE RELATED DOCUMENTS 1 BY HIM TO R EACH TO THIS CONCLUSION. 204 ITA NO. 2057/DEL/10 NIIT VS. CIT 78.20. LD. COUNSEL FURTHER REFERRED TO OFFICE NOTES TO THE ASSESSMENT ORDER, CONTAINED AT PAGES 9 TO 12 OF VOL. 8 OF PB, WHICH W ERE PROVIDED TO ASSESSEE AS PER THE DIRECTION OF TRIBUNAL TO SUBMIT THAT AFT ER CONSIDERING EXACTLY THE SAME ISSUES, AS RAISED IN THE IMPUGNED ORDER AND RE PLIES FILED BY THE ASESSEE FOR AY 1999-2000, THE AO FORMED A FIRM CONCLUSION T HAT ASSESSEE HAD PHYSICALLY IMPORTED UPGRADES OF SOFTWARE AS PART OF OBLIGATION UNDER AMC CONTRACTS, WHICH WERE NOT SUBJECT TO WITHHOLDING TA X, AS IS EVIDENT FROM THE FOLLOWING OBSERVATIONS: CONCLUSION: - BASED ON THE FACTS AND CIRCUMSTANCES OF CASE AND SU BMISSIONS MADE BY ASSSESSEE ALONG WITH THEIR REPLIES ON THE SEIZED MATERIAL, I AGREE WITH ASESSEE THAT AS THE UPGRADES IMPORTED PHYSICALLY ARE PART OF THE ANNUAL MAINTENANCE CONTR ACTS WITH CLIENT. HENCE IT IS PHYSICAL IMPORT AND IS NOT SUBJ ECT TO WITHHOLDING TAX. 78.21. LD. COUNSEL FURTHER REITERATED HIS SUBMISSIO NS AS REGARDS THE SCOPE OF ASSESSMENT PROCEEDINGS U/S 153A AND POINTED OUT THA T NO UNDISCLOSED INCOME, PROPERTY OR INCRIMINATING DOCUMENTS SUGGEST ING INCOME ESCAPING ASSESSMENT QUA THIS ISSUE WAS FOUND IN THE COURSE O F SEARCH. THE AO AND THE CIT ONLY SOUGHT TO CONSTRUE THE CONTENTS OF THE SAID EMAIL FOUND DURING THE COURSE OF SEARCH IN A PARTICULAR MANNER TO DRAW THEIR OWN INFERENCE REGARDING THE NATURE OF TRANSACTION OF PURCHASE OF SOFTWARE UPGRADES WHICH ORDINARILY STOOD RECORDED IN THE REGULAR BOOKS OF A CCOUNT. 78.22. LD. COUNSEL FURTHER SUBMITTED THAT ASSESSEE HAD FILED DETAILED REPLY IN REGARD TO SHOW CAUSE NOTICE ISSUED BY LD. CIT, BUT LD. CIT WITHOUT EXAMINING THE TAXABILITY OF THE PAYMENTS MADE BY AS SESSEE IN THE HANDS OF 205 ITA NO. 2057/DEL/10 NIIT VS. CIT FOREIGN SUPPLIERS, SET ASIDE THE ASSESSMENT ORDER. HE SUBMITTED THAT LD. CIT WAS REQUIRED TO RECORD FINDING ON MERITS OF THE MAT TER. 78.23. LD. COUNSEL FURTHER SUBMITTED THAT THE ALLEG ATION THAT ALL THE SALE INVOICES CARRIED THE WORDS ANNUAL MAINTENANCE CONT RACTS OR ANNUAL SUPPORT SERVICE IS WITH REFERENCE TO SALE INVOICE RAISED BY THE ASSESSEE ON INDIAN CUSTOMERS, WHICH CARRIED THE PARTICULARS AS ANNUAL MAINTENANCE CONTRACTS. HE POINTED OUT THAT LD. CIT, IT APPEARS , PROCEEDED ON WRONG FACTUAL PREMISES THAT THE SAID WORDS APPEARED IN TH E INVOICES RAISED ON THE ASESSEE BY THE FOREIGN SUPPLIERS. IN THIS REGARD LD . COUNSEL REFERRED TO THE NOTICE DATED 10-2-2006 CONTAINED AT PAGE 451, REPRO DUCED EARLIER AND THE ASSESSEES REPLY CONTAINED AT PAGES 455-456 REPRODU CED EARLIER. 78.24. AS REGARDS THE EMAILS FOUND DURING THE COURS E OF SEARCH WRITTEN BY MR. PHILLIPS DODE OF MESA (MANAGER- FOREIGN SUPPLIE R) DATED 21-9-2004 TO MR. RAJESH MATHUR (NIIT DELHI), IN ORDER TO APPRECI ATE THE IMPORT OF IMPUGNED E-MAIL. LD. COUNSEL REFERRED TO PAGES 115 8.72 VOL. IV OF THE PB, WHEREIN THE IMPUGNED E-MAIL IS CONTAINED AND POINTE D OUT THAT THE SAID E- MAIL WAS FOR REALIZATION OF PENDING DUES AND IN THA T CONTEXT MR. PHILLIPS SUGGESTED THAT THEY MAY HAVE TO RECALL BACK THE AM BILLING. 78.25. LD. COUNSEL FURTHER REFERRED TO PAGE 1158.71 VOL. IV, WHEREIN E-MAIL SENT BY SUNANDA SINGH TO MR. T.S. THOMAS IS CONTAIN ED, WHEREIN IT WAS WRITTEN AS UNDER: KINDLY HAVE A PO GENERATED AGAINST OUR PR# 1000640 1 AS PER DETAILS BELOW: VENDOR: MECHANICAL DYNAMICS INC, USA. AMOUNT: USD 3990 DELIVERY: 30-NOV-2000 THIS IS AN AMC ORDER. PLEASE HAVE THE ITEM DESCRIPT ION AS PER YOUR CONVENIENCE. 206 ITA NO. 2057/DEL/10 NIIT VS. CIT 78.26. MR. SUNANDA SINGH WAS EMPLOYEE OF NIIT AND H E HAD WRITTEN TO MR. T.S. THOMAS, WHO HAD BEEN EMPLOYED BY THE NIIT IN I TS PURCHASE DEPARTMENT AND THIS E-MAIL WAS IN RELATION TO RAISI NG OF PURCHASE ORDER ON FOREIGN SUPPLIER IN RELATION TO SOFTWARE TO BE SUPP LIED TO INDIAN CUSTOMERS PURSUANT TO OBLIGATION UNDER THE ANNUAL MAINTENANCE CONTRACT. HE SUBMITTED THAT THIS EMAIL IN NO WAY LEADS TO THE CONCLUSION THAT THE PURCHASE ORDER WAS RAISED IN GUISE OF ANNUAL MAINTENANCE SERVICE. 78.27. IN REGARD TO THE ALLEGATION THAT PURCHASE OR DERS WERE ISSUED TO COVER THE PAYMENTS OF TECHNICAL SERVICE ON THE BASIS OF T HE FACT THAT EVEN BEFORE RECEIPT OF MATERIAL/ SOFTWARE UPDATES BY THE NIIT, NIIT HAD SOLD THE MATERIAL/SOFTWARE UPGRADES TO INDIAN CUSTOMERS, LD . COUNSEL POINTED OUT THAT IT WAS CLARIFIED THAT IN CASE OF CERTAIN GOVERNMENT AND SEMI GOVERNMENT CLIENTS, IN ORDER TO RELEASE ADVANCE PAYMENT, THE S AID CLIENTS NEED INVOICE IN ADVANCE, WHICH IS THE GENERAL PRACTICE IN THIS TRAD E. IT WAS FOR THIS REASON THAT IN CERTAIN CASES DATE OF INVOICE OF SUPPLY OF MATER IAL TO CLIENTS PRECEDED THE DATE OF RECEIPT OF MATERIAL/ SOFTWARE FROM THE FORE IGN SUPPLIER. 78.28. WITHOUT PREJUDICE TO THE AFOREMENTIONED ARGU MENTS AND SUBMISSIONS, LD. COUNSEL SUBMITTED THAT EVEN OTHERWISE ASSUMING, WITHOUT ADMITTING THAT ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE FROM TH E PAYMENTS TOWARDS PURCHASE OF UPGRADES, THE REVENUE HAVING NOT ISSUED ANY NOTICES TO THE PAYEES OR MADE AN ATTEMPT TO ASSESS THE AFORESAID I NCOME, ALLEGED TO BE CHARGEABLE TO TAX IN INDIA, IN PAYEES HANDS, ASSESS EE/ PAYER CANNOT BE HELD TO BE IN DEFAULT FOR NOT DEDUCTING TAX AT SOURCE U/S 1 95 OF THE ACT. IN THIS REGARD HE RELIED ON FOLLOWING DECISIONS, WHEREIN IT HAS BE EN HELD THAT THE PAYER 207 ITA NO. 2057/DEL/10 NIIT VS. CIT CANNOT BE TREATED AS ASSESSEE IN DEFAULT FOR NOT DE DUCTING TAX AT SOURCE FROM THE PAYMENT MADE TO THE PAYEE (INCLUDING NON-RESIDE NT PAYEE), IF NO ATTEMPT IS MADE TO ASSESS INCOME OF SUCH PAYEE. - VAN OORD ACZ INDIA (P) LTD. V. CIT 323 ITR 130 (DEL .); - MAHINDRA AND MAHINDRA LTD. V. DCIT 313 ITR 263 (MUM .)(SB)(AT). 79. LD. SPECIAL COUNSEL SUBMITTED THAT PAYMENTS TOW ARDS AMC WAS MADE TO FOREIGN SUPPLIERS IN THE GARB OF SOFTWARE IMPORT . HE POINTED OUT THAT E- MAIL FOUND DURING THE COURSE OF SEARCH SPECIFICALLY TALKED OF AMC. HE SUBMITTED THAT KEEPING IN VIEW THE CONTENTS OF E-MA IL, THE MAIN ISSUE WHICH SHOULD HAVE BEEN EXAMINED BY AO WAS WHETHER THE PAY MENT WAS FOR SOFTWARE SUPPLIES OR FOR SERVICES. HE SUBMITTED THA T THE E-MAILS FOUND DURING THE COURSE OF SEARCH CONSTITUTED INCRIMINATING MATE RIAL. HE REFERRED TO THE REPLIES OF ASSESSEE CONTAINED AT PAGE 455 AND POINT ED OUT THAT NO REPLY TO THAT PART OF E-MAIL WHERE IT SAYS THAT IT WILL REVE RT BACK TO ANNUAL MAINTENANCE BILLING, WAS GIVEN. 79.1. LD. SPL. COUNSEL FURTHER SUBMITTED THAT THE M OST CRUCIAL DOCUMENT IN THE FORM OF DISTRIBUTOR AGREEMENT HAD NOT BEEN BROU GHT ON RECORD BY ASSESSEE BEFORE THE AO AND THE AO ALSO DID NOT CALL FOR THE SAME. HE POINTED OUT THAT ASSESSEE DID NOT QUESTION THE CORR ECTNESS OF E-MAIL IN ANY OF ITS REPLY. HE POINTED OUT THAT LD. CIT WAS NOT THRU STING HIS OPINION ON AO OR SUBSTITUTING THE OPINION OF AO BUT HIS FINDINGS WER E BASED ON THE EVIDENCE FOUND DURING THE COURSE OF SEARCH. IN REPLY TO LD. COUNSELS SUBMISSIONS WITH REFERENCE TO OFFICE NOTE, LD. SPL. COUNSEL POINTED OUT THAT IT ONLY REFERS TO QUERIES RAISED AND REPLIES OBTAINED BUT NO INQUIRY WAS RAISED ON E-MAILS. HE POINTED OUT THAT REPLIES DID NOT EXPLAIN THE PIECE OF EVIDENCE GATHERED DURING THE COURSE OF SEARCH. HE SUBMITTED THAT REPLY HAD S IMPLY BEEN ACCEPTED AND 208 ITA NO. 2057/DEL/10 NIIT VS. CIT IT IS NOT A CASE OF INADEQUATE INQUIRY BUT LACK OF INQUIRY. HE POINTED OUT THAT IT IS WHOLLY NON-COMMERCIAL THAT ONE WOULD PURCHASE THE SOFTWARE AND WOULD GIVE FREE OF COST TO ITS CUSTOMERS. THE ENTIR E EXERCISE IS TOWARDS MAKE BELIEF STORY HE POINTED OUT THAT IN CASE OF DIGITAL PRODUCTS, NO NEED FOR PHYSICAL VISIT TO CUSTOMERS REQUIRED AND THE SERVI CES ARE RENDERED THROUGH COMPUTER/ INTERNETS. WRITTEN SUBMISSIONS MADE BY LD . SPECIAL COUNSEL ARE REPRODUCED HEREUNDER: COUNTER ARGUMENTS OF THE REVENUE BEFORE THE HON'BL E BENCH IN THIS REGARD ' 68. THE REVENUE RELIED UPON E-MAILS, (APPEARING ON PAGES 1158.71 AND 1158.72 OF THE PAPER BOOK (VOL-IV )), FOUND IN THE COURSE OF SEARCH AND URGED THAT THE SA ID E- MAILS LED TO THE INFERENCE THAT PAYMENTS WERE MADE/ INVOICES WERE RAISED IN RESPECT OF ANNUAL MAINTENANCE CONTRA CTS AND NOT FOR SUPPLY OF SOFTWARE. THE EMAIL WRITTEN BY MR . PHILLIPS DODE OF MESA SOLUTION DT. 21/09/2004 TO RAJESH MATH UR (NIIT DELHI) CLEARLY INDICATES THAT THE PAYMENTS WE RE FOR THE AMC CHARGES AND NOT FOR THE SOFTWARE. IT IS WRITTEN IN THE EMAIL THAT THE SUPPLIER WILL REVERT BACK TO ANNUAL MAINTENANCE BILLING IF THE PROBLEM IS NOT RESOLVED. IT CLEARLY SHOWS THAT THE PAYMENTS WERE FOR AMC AND NOT FOR SU PPLY OF UPGRADES OF SOFTWARE. THE FEE FOR TECHNICAL SERVICE S WAS PAID AS PRICE FOR IMPORTS BY WAY OF AN INTERNAL ARR ANGEMENT BETWEEN THE PARTIES TO AVOID THE TAX INCIDENCE. THE CIT HAS EXTRACTED THE RELEVANT PORTION OF THE EMAIL OF MR.P HILLIPS DODE OF MESA SOLUTIONS ON PAGE 50 OF HIS ORDER WHIC H READS AS UNDER: 'RAISING OF INVOICE QUARTERLY CAUSING MORE PROBLEM SO THEY WILL EXERCISE THE RIGHT TO REVERT BACK TO ANNUAL MA INTENANCE BILLING.' THE EMAIL CLEARLY SHOWS THAT THERE WAS A TACIT UNDERSTANDING TO REMIT FEE FOR AMC AS CONSIDERATION FOR SOFTWARE UPGRADE. SINCE THE RECIPIENT OF THE PAYMEN T WAS 209 ITA NO. 2057/DEL/10 NIIT VS. CIT FACING DIFFICULTY IN TIMELY RECEIPT OF SUCH PAYMENT S, THEY THREATENED TO EXERCISE THEIR RIGHT TO ANNUAL MAINTE NANCE BILLING WHICH WAS THE TRUE CHARACTER OF THESE PAYME NTS. THE EMAIL CLEARLY SHOWED THAT THE REMITTANCE WAS FALSEL Y SHOWN AS BEING FOR SOFTWARE UPGRADE. THIS EMAIL FORMED PA RT OF SEARCH MATERIAL. THE CIT ALSO REFERRED TO, ON PAGE 50 OF HIS ORDER, TO ANOTHER EMAIL DATED 09.11.2000 FROM MR. SUNANDA SINGH OF ES B DEPARTMENT OF THE ASSESSEE WHICH READS AS UNDER: 'KINDLY HAVE A PO GENERATED ' 'THIS IS AN AMC ORDER. PLEASE HAVE THE ITEM DESCRIP TION AS PER YOUR CONVENIENCE. ' THERE CAN BE NO MORE EXPLICIT MATERIAL TO DEMONSTRA TE THE REAL NATURE OF THE REMITTANCE. THE PURCHASE ORDER IS GEN ERATED FOR ANY ITEM OF CONVENIENCE TO MAKE REMITTANCE FOR AMC PAYMENTS. THE CIT ALSO NOTED ON THE SAME PAGE OF HIS ORDER TH AT ALL THE SALE INVOICES CARRY THE WORDS 'ANNUAL MAINTENANCE C ONTRACT' OR ANNUAL SUPPORT SERVICE. DESPITE SUCH GLARING AND SELF SPEAKING DOCUMENTS BE ING ON RECORD AS A RESULT OF SEARCH, THE A.O. ACCEPTED THE REPLY OF THE ASSESSEE ON ITS FACE VALUE TO THE EFFECT THAT PAYME NT TO OVERSEAS PARTIES WAS MADE FOR SOFTWARE UPGRADES. 69. IT WAS URGED THAT IN THE COURSE OF ASSESSMENT P ROCEEDINGS, ALTHOUGH QUERY WAS RAISED BY THE ASSESSING OFFICER WITH RESPECT TO THE SAID E-MAILS, YET NO ENQUIRY WAS MADE IN THI S REGARD AND THE REPLY FILED BY THE ASSESSEE WAS ACCEPTED BY THE ASSESSING OFFICER WITHOUT VERIFICATION AND APPLICATION OF MIN D. AS REGARDS THE OFFICE NOTES TO THE ASSESSMENT ORDER, RECORDED BY THE ASSESSING OFFICER ON THE AFORESAID ISSUE, IT IS SUB MITTED THAT THE SAME ALSO DEMONSTRATES MERE ACCEPTANCE OF THE REPLY OF THE ASSESSEE AND REPRODUCTION OF THE SAME BUT DOES NOT REFLECT ANY EXAMINATION/APPLICATION OF MIND BY THE ASSESSING OF FICER. THERE IS NOTHING IN THE OFFICE NOTE GIVING ANY JUSTIFICAT ION AS TO WHY THE MATERIAL FOUND DURING SEARCH WAS NOT BEING TAKEN NO TE OF OR WHY THE SAME WAS BEING DISREGARDED. THE A.O. WAS TOO EA GER TO ACCEPT THE REPLY OF THE ASSESSEE ON ITS FACE VALUE DISREGARDING 210 ITA NO. 2057/DEL/10 NIIT VS. CIT VITAL MATERIAL ON RECORD AND WITHOUT CONDUCTING ANY ENQUIRY IN THE MATTER. 70. IT IS ALSO SUBMITTED THAT THE DISTRIBUTION AGRE EMENT OR CONTRACT WITH CUSTOMER WAS NOT ON RECORD NOR REQUIS ITIONED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT PROCEEDINGS, WHICH WOULD HAVE DEMONSTRATED THE EXAC T NATURE OF PAYMENT MADE TO THE FOREIGN PARTIES AND CORRESPONDI NG OBLIGATION TO DEDUCT TAX AT SOURCE BY THE ASSESSEE. 71. IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT NO R ELEVANT VERIFICATION / INQUIRY WAS CONDUCTED BY THE ASSESSI NG OFFICER AND, THEREFORE, IT WAS A CASE OF COMPLETE LACK OF I NQUIRY, WHICH JUSTIFIED THE ACTION OF THE CIT IN ASSUMING REVISIO NARY JURISDICTION UNDER SECTION 263 OF THE ACT. 72. THE CONTENTION OF THE ASSESSEE THAT THE ISSUE W AS BEYOND THE SCOPE OF SECTION 153A IS RIDICULOUS AS THESE EM AILS ETC. RELIED UPON BY THE CIT FORM PART OF SEARCH MATERIAL. IF TH ESE WERE NOT INCRIMINATING MATERIAL, WHAT ELSE COULD THE INCRIMI NATING MATERIAL? 73. THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASS ESSEE THAT NO ACTION FOR NON-DEDUCTION OF TAX CAN BE TAKEN UNL ESS A NOTICE IS FIRST ISSUED TO THE PAYEE IS REALLY OFF THE MARK. H ERE, THE QUESTION IS WHETHER THE AO WAS CORRECT IN ACCEPTING THE REPL Y OF THE ASSESSEE THAT IT WAS A REMITTANCE FOR SOFTWARE UPGR ADE WITHOUT CONDUCTING THE ENQUIRY WITH REFERENCE TO THE SEIZED MATERIAL. THE MATTER HAS BEEN SENT BACK TO THE AO FOR FRESH EXAMI NATION. THE LEARNED COUNSEL IS SEEKING TO RAISE A LEGAL ISSUE W HEN THE BASIC ENQUIRY WITH REGARD TO THE CHARACTERIZATION OF PAYM ENT TO OVERSEAS ENTITIES HAS NOT BEEN MADE ON FACTS AND TH E CLAIM OF THE ASSESSEE ACCEPTED AS SUCH HOLDING THAT THE OVERSEAS ENTITIES WERE NOT AT ALL CHARGEABLE TO TAX. THE DECISION IN THE C ASE OF MAHINDRA & MAHINDRA (SUPRA) RELIED UPON BY THE LEAR NED COUNSEL HAD BEEN RENDERED IN THE CONTEXT OF PROCEED INGS U/S 201 AND NOT WITH REGARD TO DISALLOWANCE U/S 40(A)(I) OF THE ACT. THE SAME IS WHOLLY INAPPLICABLE. AS REGARDS THE CASE OF VAN OORD ACZ INDIA ER) LTD. (SUPRA), THE INCOME WAS HELD AS NOT CHARGEABLE TO TAX IN THE CASE OF PAYEE BY ACCEPTING THE RETURN U/S 143(1). NO SUCH FACTS EXIST IN THE PRESENT CASE AND HENCE THE CASE IS DISTINGUISHABLE AND ALSO INAPPLICABLE. 211 ITA NO. 2057/DEL/10 NIIT VS. CIT 80. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE EARLIER CONSIDERED IN DETAIL THE SUBMISSIONS OF LD. COUNSEL FOR THE ASSESSEE, WHEREIN HE HAS SUBMIT TED THAT AO HAD RAISED SPECIFIC QUERIES ON THIS ISSUE AND THE ASSESSEE HAD FILED SAMPLE IMPORT DOCUMENTS, COPY OF INVOICES, DETAILS OF PAYMENT ETC . THE AO, AFTER DETAILED INQUIRY ON THIS ISSUE, CONCLUDED THAT THE PAYMENTS WERE MADE FOR IMPORT OF SOFTWARE. IN THE OFFICE NOTE THE AO SPECIFICALLY H AS GIVEN HIS CONCLUSION ON THIS POINT, WHICH WE HAVE CONSIDERED EARLIER. IT IS TRUE THAT IF IMPORT DOCUMENTS WERE AVAILABLE THEN NORMALLY THE SAME CA NNOT BE DOUBTED BUT WHERE DURING COURSE OF SEARCH SUCH DOCUMENTS ARE FO UND WHICH SHOW THAT THE ACTUAL STATE OF AFFAIR MAY BE DIFFERENT, THEN A O IS REQUIRED TO GO DEEP INTO THE ISSUE TO FIND OUT THE REAL STATE OF AFFAIR . UNDER SUCH CIRCUMSTANCES, HE IS NOT SUPPOSED TO SIMPLY ACCEPT THE DOCUMENTS A T ITS FACE VALUE. HE CANNOT ABROGATE HIS FINDINGS AS AN INVESTIGATOR. TH EREFORE, THE FACT REMAINS, WHETHER THE AO CORRECTLY APPRECIATED THE EVIDENCE F OUND DURING COURSE OF SEARCH PROCEEDINGS OR NOT. THE MOOT POINT FOR CONSI DERATION IS WHETHER AO CARRIED OUT NECESSARY ENQUIRIES NECESSITATED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IF WE CLOSELY EXAMINE THE QUERIES RAISED BY AO ON DIFFERENT DATES, WE FIND THAT QUERIES WERE RAISED ON 2-11-2005, 10-2 -2006 AND THEN ON 1-3- 2006, WHICH WERE REPLIED BY ASSESSEE. IN ITS QUERY LETTER THE AO SPECIFICALLY STATED THAT ASSESSEE WAS ACTING AS DISTRIBUTOR BUT THE DISTRIBUTORSHIP AGREEMENT WAS NOT BROUGHT ON RECORD BY ASSESSEE. IT IS PERTINENT TO NOTE THAT IN LETTER DATED 1-3-2006, THE AO HAD REFERRED TO VA RIOUS DOCUMENTS LEADING TO CONCLUSION THAT THE PAYMENTS WERE TOWARDS AMC. I N REGARD TO PAYMENT TO M/S CONVERSANT GROUP CORPORATION, THE AO HAD REFERR ED TO AGREEMENT DATED 212 ITA NO. 2057/DEL/10 NIIT VS. CIT 22-9-2000, E-MAIL DATED 17-11-2000 AND NOTE OF RAJE SH MATHUR TO NIIT GIS LTD. THE ASSESSEE IN ITS REPLY DID NOT GIVE SPECIFI C REPLIES ON THESE COUNTS AND ONLY GAVE A GENERAL REPLY. SIMILARLY, AO HAD RA ISED SPECIFIC QUERIES WITH RESPECT TO M/S RELATIVITY TECHNOLOGIES AND PAYMENT TO M/S PROSOFT TRAINING COMPANY. THE ASSESSEE DID NOT GIVE SPECIFIC REPLIES AND YET AO ACCEPTED THE REPLIES WITHOUT ASSIGNING ANY REASON. THE AO WA S REQUIRED TO GIVE PROPER REASONING BEFORE COMING TO ANY CONCLUSION. T HIS ASPECT DEFINITELY CAN BE EXAMINED BY LD. CIT BECAUSE IF AO HAS NOT PROPER LY APPRECIATED THE FACTS ON RECORD, WHICH IS DEMONSTRATED BY LD. CIT IN HIS ORDER, THEN LD. CIT CAN RESORT TO REVISIONARY PROCEEDINGS U/S 263. WE FIND THAT LD. CIT HAS GIVEN HIS FINDING WITH REFERENCE TO VARIOUS E-MAILS TO COME T O THE CONCLUSION THAT BOGUS PURCHASE ORDERS WERE RAISED TO REMIT MONEY FO R AMC CONTRACT. THEREFORE, IT IS CLEAR THAT AO HAD NOT ARRIVED AT A RATIONAL CONCLUSION. HE HAS MERELY ACCEPTED THE ASSESSEES PLEA ON THIS ISSUE WITHOUT PROPER SCRUTINY OF DOCUMENTS FOUND DURING THE COURSE OF SEARCH. WE, AC CORDINGLY, CONFIRM THE ORDER OF CIT SETTING ASIDE THE ASSESSMENT ORDER ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF AO FOR FRESH CONSIDERATION. I N THE RESULT THIS GROUND IS DISMISSED. 81. VIDE GROUND NO. 19, THE ASSESSEE HAS ASSAILED T HE FINDINGS OF LD. CIT IN HOLDING THAT SINCE IMPORT OF NET VARSITY FROM NIIT USA WAS FICTITIOUS, THE ORDER OF THE AO ALLOWING DEPRECIATION ON THE VA LUE OF NET VARSITY, WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. 81.1. IN SUPPORT OF ITS GROUND, THE ASSESSEE HAS FU RTHER TAKEN A GROUND THAT LD. CIT ERRED IN HOLDING THAT NET VARSITY WAS DEV ELOPED IN INDIA AND, THEREFORE, THE QUESTION OF IMPORTING THE SAME FROM NIIT, USA DID NOT ARISE. 213 ITA NO. 2057/DEL/10 NIIT VS. CIT 81.2. THE ASSESSEE HAS FURTHER TAKEN GROUND THAT LD . CIT ERRED IN ALLEGING THAT THE SAID SOFTWARE HAVING NOT BEEN PUT TO USE DURING THE YEAR UNDER CONSIDERATION, THE ORDER OF THE AO ALLOWING DEPRECI ATION THEREON, WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVEN UE. IN THIS REGARD THE ASSESSEE IN ITS GROUND HAS POINTED OUT THAT LD. CIT FAILED TO APPRECIATE THAT AFORESAID SOFTWARE VIZ. NET VARSITY HAD ALREADY BEEN PUT TO USE FROM FY 1997-98 AND FORMED PART OF THE BLOCK OF ASSETS THER EAFTER. THE ASSESSEE HAS ALSO TAKEN A GROUND THAT LD. CIT FAILED TO APPRECIA TE THAT THE AFORESAID ISSUE HAVING ALREADY BEEN EXAMINED AND SCRUTINIZED IN DET AIL DURING THE ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3)/ 153A OF THE ACT, THE CIT COULD NOT HAVE EXERCISED JURISDICTION IN RESPECT THERETO. 81.3. BRIEF FACTS APROPOS THIS ISSUE ARE THAT LD. C IT NOTICED FROM THE ASSESSMENT RECORDS THAT AO ACCEPTED THE CONTENTION THAT THE SOFTWARE TITLED NET VARSITY WAS IMPORTED BY M/S NIIT DELHI FROM N IIT USA IN JUNE 1997 AND AS SUCH RELATED TO THE PERIOD NOT COVERED U/S 1 53A OF THE I.T. ACT. HE FURTHER NOTICED THAT AO ALLOWED DEPRECIATION ON THE WDV AMOUNT OF THE SOFTWARE OVERLOOKING VARIOUS EVIDENCES ON RECORD WH ICH SHOWED THAT NET VARSITY WAS INDEED DEVELOPED IN INDIA BY CENTRE FO R RESEARCH IN COGNITIVE SYSTEMS (CRCS), WHICH IS PARTNERSHIP VENTURE BETWEE N NIIT/ ASSESSEE AND IIT, DELHI. HE FURTHER POINTED OUT THAT EVEN THE WE BSITE OF NIIT, DELHI DISPLAYED THE FACT THAT NET VARSITY IS AN EXAMPL E OF RESEARCH AND DEVELOPMENT WORK OF CRCS THAT HAS DEVELOPED INTO A BUSINESS FOR NIIT. 81.4. LD. CIT REFERRED TO THE REPLY FILED BY ASSESS EE IN RESPONSE TO HIS SHOW CAUSE NOTICE AND POINTED OUT FOLLOWING ASPECTS: 214 ITA NO. 2057/DEL/10 NIIT VS. CIT (A) THE ASSESSEE ONLY DEFENDED ITS CLAIM THEORETICALLY WITHOUT SUBSTANTIATING THE SAME BY THE FURNISHING ANY DOCUM ENTARY EVIDENCE IN SUPPORT THE SAME. (B) THE ASSESSEE MADE NO ATTEMPT, WHAT-SO-EVER, TO REBU T THE OBSERVATION THAT NET VARSITY WAS DEVELOPED IN INDIA AS A PART NERSHIP VENTURE OF NIIT AND IIT DELHI. (C) HE DID NOT ACCEPT THE ASSESSEES CONTENTION THAT SI NCE DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR AY 1998-99, TH IS ISSUE WAS ALREADY CONSIDERED BY AO, THEREFORE, IT WAS NOT OPE N TO THE DEPARTMENT TO DENY ITS CLAIM OF DEPRECIATION. IN TH IS REGARD HE POINTED OUT THAT EACH ASSESSMENT YEAR IS SEPARATE AND AO IS REQUIRED TO ENQUIRE THE ISSUE IN SUBSEQUENT ASSESSMENT YEAR ALS O. (D) NIIT LTD. NEW DELHI DEVELOPED THE SOFTWARE PACKAGE AND COMPUTER BASED COURSES FOR THEIR WEBSITE WWW.NETVARISITY.COM AND THESE WERE EXPORTED TO NIIT(USA) INC., ATLANTA, USA, A WHOLLY OWNED SUBSIDIARY OF M/S NIIT LTD. FROM THEIR 100% EOU-STP THROUGH SATELLITE TRANSMISSION. THIS WEBSITE PROVIDED ONLIN E EDUCATIONAL COURSE WHICH ENABLED STUDENTS IN NORTH AMERICA, EUROPE, MI DDLE EAST AND SOUTH EAST ASIA TO REGISTER ONLINE WITH THE NET VA RSITY. (E) AO FAILED TO CONSIDER THE E-MAIL DATED 8-2-2000 WHI CH APPARENTLY INDICATED THAT NET VARSITY WAS NOT AN INDIAN SITE . (F) AO OVERLOOKED THE FACT THAT IN 1996-97, NIIT USA DI D NOT HAVE FACILITY TO DEVELOP NET VARSITY. THE NET VARSIT Y WEBSITE WAS NOT AVAILABLE TO THE STUDENTS IN INDIA DURING THE YEAR UNDER CONSIDERATION. THERE WAS NO EVIDENCE TO SHOW THAT THE SOFTWARE WAS PUT TO USE 215 ITA NO. 2057/DEL/10 NIIT VS. CIT DURING THE YEAR UNDER CONSIDERATION AND THE REVENUE WAS REALIZED. HE, THEREFORE, CONCLUDED AS UNDER: A) THE NET VARSITY WAS DEVELOPED IN INDIA BY CRC S, A PARTNERSHIP VENTURE OF NIIT AND IIT. WHEN IT HAS BE EN DEVELOPED IN INDIA THE QUESTION OF IMPORTING IT FRO M M/S NIIT USA DOES NOT ARISE. B) THE NET VARSITY WAS NOT AN INDIAN SITE AND, THEREFORE, NIIT DELHI DOES NOT OWN IT. C) THE SOFTWARE WAS NOT PUT TO USE DURING THE YEAR UNDER CONSIDERATION. 81.5. LD. COUNSEL SUBMITTED THAT LD. CIT ERRED IN D OUBTING THE IMPORT OF AFORESAID SOFTWARE AND ITS USE FOR THE PURPOSES OF BUSINESS OF THE ASESSEE FOR THE FOLLOWING REASONS: THE AFORESAID SOFTWARE WAS IMPORTED BY THE ASSESSE E FROM OUTSIDE INDIA AFTER FOLLOWING PROPER IMPORT PROCEDU RES WHICH IS SUBSTANTIATED THROUGH THE FOLLOWING DOCUMENTS AVAIL ABLE ON RECORD: - COPY OF PURCHASE ORDERS RAISED BY THE ASESSEE ON NI IT, USA; - COPY OF INVOICE RAISED BY NIIT, USA ON THE ASESSEE; - COPY OF AIRWAY BILL; - COPY OF BILL OF ENTRY SUBMITTED WITH THE CUSTOMS AU THORITIES SUBSTANTIATING PHYSICAL IMPORT OF SOFTWARE THROUGH THE CUSTOMS CHANNEL. THE AFORESAID PURCHASE AND PAYMENT MADE THERE AGAIN ST IN FOREIGN CURRENCY WAS DULY VERIFIED AND ACCEPTED UND ER FERA BY SPECIAL DIRECTOR OF ENFORCEMENT, ENFORCEMENT DI RECTORATE, GOVERNMENT OF INDIA, VIDE ORDER DATED 30-4-2004 [RE FER PAGES 575-588 OF THE PAPER BOOK]. ON PERUSAL OF THE SAID ORDER, IT WILL KINDLY BE NOTICED THAT THE ED SPECIFICALLY EXAMINED / INVESTIGATED THE ISSUE/ ALLEGATION OF REMITTANCE OF US $ 7 LACS 216 ITA NO. 2057/DEL/10 NIIT VS. CIT AGAINST IMPORT OF GOODS OTHER THAN SOFTWARE TITLED NET VARSITY. AFTER EXTENSIVE EXAMINATION OF THE MATTER , THE ED AGREED WITH THE CONTENTION OF THE ASSESSEE THAT REM ITTANCE WAS MADE AGAINST ACTUAL IMPORT OF THE SOFTWARE TITLED NET VARSITY THE AFORESAID DOCUMENTS WERE FILED BEFORE THE ASSES SING OFFICER DURING THE ASSESSMENT PROCEEDINGS AND FORMS PART O F THE RECORDS, SINCE THE AFORESAID ISSUE WAS EXTENSIVELY EXAMINED BY THE ASSESSING OFFICER (AS DISCUSSED INFRA). THE AFO RESAID CONTEMPORANEOUS EVIDENCES AVAILABLE ON RECORD, IN O UR RESPECTFUL SUBMISSION, CLEARLY ESTABLISH/ PROVE, WI THOUT ANY DOUBT WHATSOEVER, THAT THE SOFTWARE WAS ACTUALLY IM PORTED BY THE ASSESSEE FROM OUTSIDE INDIA. 81.6. LD. COUNSEL SUBMITTED THAT LD CIT HAS NOT RE FERRED TO ENFORCEMENT DIRECTORATES (ED) FINDING AND TOOK A CONTRARY V IEW. HE SUBMITTED THAT THE ED ORDER IS DATED 30-4-2004 AND CITS ORDER IS DATE D 1-4-2010. THE ORDER OF ED IS AVAILABLE AT PAGE 575 OF THE PB. THE RELEVANT PORTION IS REPRODUCED BELOW: DISCUSSION AND FINDINGS: I HAVE CAREFULLY EXAMINED THE CASE RECORDS, WRITTEN AND ORAL SUBMISSIONS OF THE NOTICES. THE ALLEGATION AGAINST THE NOTICES IS THAT THEY IMP ORTED GOODS OTHER THAN THE ONE FOR WHICH THE REMITTANCE OF US$ 7,00,000 WAS MADE THROUGH INDIAN OVERSEAS BANK IN VIOLATION OF THE PROVISIONS OF SECTION 8(3) READ WITH SECTION 8(4) O F FERA, 1973. THE NOTICES IN THEIR DEFENSE DENIED THE ALLEGATIONS THAT THEY IMPORTED GOODS OTHER THAN THE GOODS FOR WHICH FOREI GN EXCHANGE HAS BEEN REMITTED ABROAD. .. . IN VIEW OF ABOVE, IN RESPECT OF REMITTANCE OF US$ 150000 THE ITEM IMPORTED IS COMPUTER SOFTWARE WITH DOCUMENTATI ONS FACELIFT WEBSITE (DESCRIPTION AS MENTIONED IN COMME RCIAL 217 ITA NO. 2057/DEL/10 NIIT VS. CIT INVOICE NO. INC/CORP/97001 DATED 13-6-97) AND FURTH ER AS CLARIFIED BY INDIAN OVERSEAS BANK THAT DESCRIPTION OF GOODS MENTIONED IS TAKEN FROM DESCRIPTION MENTIONED IN SH IPPING CHALLAN IS TOWARDS ANALYSIS, DESIGN, DEVELOPMENT OF FACELIFT NIIT WEBSITE PROTOTYPE VERSION. IN VIEW OF THE CLAR IFICATION GIVEN BY BANK THE ITEM DESCRIBED IN THE SHIPPING CH ALLAN AND COMMERCIAL INVOICES ARE SAME AS FACELIFT WEBSITE AN D BILL OF ENTRY NO. 55665 IS ALSO FILED FOR FACELIFT WEBSITE. IN RESPECT OF REMITTANCES OF US$ 275000 EACH AS PER INVOICE NO. INC/CORP/97003 DATED 30-6-97 AND NO. INC/CORP/97002 DAED 28-6-97 ITEMS SHOWN BY BANK ARE COMPUTER SOFTW ARE WITH DOCUMENTATION NETVARSITY AND BILL OF ENTRIES NO. 56 0846 AND NO. 564343 ARE FILED FOR SOFTWARE WITH DOCUMENTATIO N (UNIX PRODUCTIVITY TOOLS) AND SOFTWARE WITH DOCUMENTATION (NET VARSITY) AND THE SAID DESCRIPTION OF THE ITEMS ARE DULY REFLECTED IN THE INVOICES NOS. INC/CORP/97002 AND INC/CORP/97 003. IN THIS CASE REMITTING BANK IS INDIAN OVERSEAS, NEH RU PLACE, NEW DELHI. THE SAID BANK HAS CERTIFIED THAT REMITT ANCE OF US$ 150000 ON 24-7-97 WAS FOR IMPORT OF COMPUTER SOFTWA RE WITH DOCUMENTATION FACE LIFT WEBSITE (DESCRIPTION AS ME NTIONED IN COMMERCIAL INVOICE NO. INC/CORP/97001/ DATED 13.6.9 7), REMITTANCES OF US$ 275000 EACH WAS FOR IMPORT OF C OMPUTER SOFTWARE WITH DOCUMENTATION NET VARSITY AS PER INV OICE NO. INC/CORP/97002 DATED 28.6.97 AND INVOICE NO. INC/CORP/97003 DATED 30.6.97. THE BILL OF ENTRY NO. 556667 (INVOICE NO. INC/CORP/97001/ DATED 13.6.97), WAS FI LED BY THE NOTICE COMPANY BEFORE THE CUSTOMS AUTHORITY WAS FOR THE SAME ITEM AS PER INVOICE I.E. SOFTWARE WITH DOCUMENTATIO N FACELIFT WEBSITE). SIMILARLY THE BILL OF ENTRY NO. 560846 ( INVOICE NO. INC/CORP/97002/ DATED 28.6.97), WAS FIELD BEFORE TH E CUSTOMS AUTHORITY WAS FOR SOFTWARE WITH DOCUMENTATION (UNIX PRODUCTIVITY TOOLS) AND THE SAID ITEM IS MENTION4E D BELOW IN THE INVOICE UNDER COMPUTER SOFTWARE WITH DOCUMENTAT ION NETVARSITY. SIMILARLY, THE BILL ENTRY NO. 564343 ( INVOICE NO. INC/CORP/97003/ DATED 30.6.97), WAS FILED BEFORE TH E CUSTOMS AUTHORITY FOR THE SAME ITEM AS PER INVOICE I.E. SO FTWARE WITH DOCUMENTATION (NETVARSITY). THE BILL OF ENTRIES FI LED BEFORE THE 218 ITA NO. 2057/DEL/10 NIIT VS. CIT CUSTOMS AUTHORITY SHOWED THAT CUSTOMS AUTHORITY HAV E EXAMINED THE GOODS AS PER INVOICES REFERRED ABOVE A ND CLEARED THE SAME. THE REMITTING BANK HAS SEND THE REMITTANC ES FOR IMPORT ON THE BASIS OF ABOVE DOCUMENTS REFERRED HER EINABOVE PRESENTED TO THEM BY THE NOTICE COMPANY. IN VIEW OF ABOVE FACTUAL POSITION, I DO NOT HAVE ANY EVIDENCE TO SUP PORT THE ALLEGATION IN THE SCN THAT IMPORTED GOODS WERE OTHE R THAN THE ONE FOR WHICH REMITTANCES WERE SENT ABROAD. ON THE OTHER HAND AVAILABLE AND CITED EVIDENCES PROVES THAT THE NOTIC E HAS ONLY IMPORTED THE GOODS FOR WHICH REMITTANCES WERE RELEA SED BY THE BANK. I PASS ORDER AS UNDER. ORDER I DROP THE PROCEEDINGS INITIATED AGAINST THE NOTICE S IN THE AID SCN FOR REASONS RECORDED HEREINABOVE. 81.7. LD. COUNSEL SUBMITTED THAT IN AY 1998-99 IMPO RT WAS ACCEPTED U/S 143(3) AND DEPRECIATION ALLOWED. THE ASSET ENTERED IN BLOCK IN AY 1998-99. HE RELIED ON THE FOLLOWING DECISIONS FOR THE PROPO SITION THAT IF AN ISSUE HAS BEEN ACCEPTED IN EARLIER YEAR THAT CANNOT RESULT IN DISALLOWANCE IN SUBSEQUENT YEAR. - CIT VS. HERO AUTO LTD. 343 ITR 342 (DEL.) - CIT VS. ESCORTS LTD. 338 ITR 435. (DEL.) 81.8. LD. COUNSEL FURTHER REFERRED TO PAGE 552 OF T HE PB WHEREIN AO IN HIS QUERY LETTER DATED 2-11-2005 HAD RAISED FOLLOWING Q UERY: NIITS OWN WEBSITE STATES THAT NETVARSITY WAS DEVEL OPED AT CENTGRE FOR RESEARCH IN COGNITIVE SYSTEMS (CRCS). T HE WEBSITE WAS ORIGINALLY DEVELOPED BY NIIT DELHI AND EXPORTED TO NIIT USA. TWO EMAIL DATED 8-02-2000 AND 15-05-2000 HAVE BEEN FOUND FROM THE COMPUTERS SEIZED FROM C-125, OK HLA INDL. AREA, PHASE-1, NEW DELHI WHICH SHOWS THAT TILL MAY, 2000 NETVERSITY WAS NOT LAUNCHED AS AN INDIAN SITE BUT T HE WEBSITE 219 ITA NO. 2057/DEL/10 NIIT VS. CIT WAS BEING RUN BY NIIT USA AND IN ALL LIKELIHOOD THE REVENUES WERE ALSO BEEN RECEIVED BY NIIT USA. IN ORDER TO ME ET THE EXPENSE WHICH HAVE INCURRED IN USA TO SET UP NETVER SITY AND TO EXPEND THE OPERATION THERE, THE MANAGEMENT APPEARS TO HAVE DECIDED TO REMIT FUNDS AS PAYMENT FOR IMPORTS OF SO FTWARE FROM NIIT USA. A SUM OF US $ 7,50,000 WAS REMITTED TO NI IT USA IN JUNE 1997. APART FROM THE DEPRECIATION ON THE CAPIT ALIZED COST OF SOFTWARE TO BE DISALLOWED, THE TRANSACTION WITH A RELATED PARTY NEEDS EVALUATION OF MARKET PRICE OF THE SOFTW ARE ON THE DATE OF PURCHASE. YOUR ARE REQUIRED TO EXPLAIN THE ABOVE. 81.9. LD. COUNSEL SUBMITTED THAT THIS QUERY WAS DUL Y REPLIED BY ASESSEE WHICH IS EVIDENT FROM PAGES 556 TO 572, 573 TO 574 AND 588,WHEREIN ALL THE FACTS RELATING TO INSTALLATION AND INQUIRIES BEING CONDUCTED IN THIS REGARD WERE BROUGHT TO THE NOTICE OF AO. LD. COUNSEL FURTH ER REFERRED TO PAGES 592 TO 593, WHEREIN AGAIN AO VIDE HIS QUERY LETTER DATE D 10-2-2006 HAD RAISED FOLLOWING ISSUES: REGARDING TDS ON REMITTANCE OF USD 7,50,000 TO NII T(USA) IN JUNE 1997 NETVARSITY. IS IT TRUE THAT NIIT HAS DEVELOPED AND EXPORTED COM PUTER SOFTWARE PACKAGE TO NIIT(USA) INC.,? IS IT CORRECT TO STATE THAT NIIT IMPORTED COMPUTER SOFTWARE FROM NIIT(USA) INC., TO FUND NETVARSITY EXPENSES? IS IT EVIDENT FROM THE EMAILS SEIZED THAT NETVARSIT Y IS NOT HOSTED FROM THE INDIA SITE. PLEASE CLARIFY. 81.10. THE ASSESSEES REPLY DATED 27-2-2006 IS CONT AINED AT PAGES 597 TO 600 WHEREIN IN DETAIL THE ASSESSEE HAD CLARIFIED ALL T HE ASPECTS RAISED IN THE NOTICE AND HAD ALSO EMPATHETICALLY DENIED THE ALLEG ATION THAT ASSESSEE HAD EXPORTED COMPUTER SOFTWARE PACKAGE TO NIIT(USA) INC ., HE ALSO REFERRED TO PAGES 604 TO 607 OF THE PB, WHEREIN THE UTILITIES O F THIS SOFTWARE WAS DISCUSSED. 220 ITA NO. 2057/DEL/10 NIIT VS. CIT 81.11. LD. COUNSEL REFERRED TO OFFICE NOTE OF AO FO R AY 1999-2000 CONTAINED AT PAGES 12 TO 14 OF PB 8, IN WHICH AO, INTER ALIA, HAS TAKEN INTO CONSIDERATION THE VARIOUS INVOICES RAISED BY NIIT(U SA) AND THE PROCEEDINGS INITIATED BY FERA/FEMA AUTHORITY AND TH EREAFTER CONCLUDED THAT SINCE THE ALLEGATIONS RELATED TO THE PERIOD NO T COVERED U/S 153A OF THE IT ACT, HENCE NO ACTION WAS BEING TAKEN. 81.12. LD. COUNSEL FURTHER POINTED OUT THAT AO SPEC IFICALLY OBSERVED AS UNDER: THE ASSESSMENT ORDER HAS BEEN PASSED AFTER SUBMITT ING A DETAILED REPORT ON THE POINTS OF ALLEGATION BY THE CCIT(CENTRAL), NEW DELHI TO THE MEMBER (INV.), CBDT VIDE LETTER NO. CCIT(CENTRAL)/2006-07/136 DATED 26-05-20 06. 81.13. HE, THEREFORE, SUBMITTED THAT AO HAD DULY EX AMINED THIS ASPECT AS SPECIFIC ALLEGATION IN THIS REGARD WAS MADE IN THE ALLEGATIONS LEVIED BY MR. MEHTA. 81.14. LD. COUNSEL FURTHER SUBMITTED THAT AS FAR AS THE ISSUE OF USER OF SOFTWARE IS CONCERNED, IT HAS BEEN CLEARLY DEMONSTR ATED THAT STUDENTS HAD ACCESS TO THIS SITE. WITHOUT PREJUDICE TO ABOVE SU BMISSIONS, LD. COUNSEL FURTHER SUBMITTED THAT SINCE THIS SOFTWARE FORMED P ART OF BLOCK OF ASSET, SO NO USER WAS NECESSARY. 81.15. LD. COUNSEL REFERRED TO PAGE 610 WHICH IS E- MAIL SENT BY SHAMPI VENKATESH, A STUDENT, TO ASHOK CLEMENT T, WHEREIN THE MESSAGE IS TO MAKE NETVARSITY MORE USEFUL FOR INSTITUTION STUDENTS. LD . COUNSEL POINTED OUT THAT THIS CLEARLY SHOWS THAT SOFTWARE WAS IN USE OF STU DENTS. 221 ITA NO. 2057/DEL/10 NIIT VS. CIT 81.16. LD. COUNSEL HAS REBUTTED THE SPECIFIC ALLEGA TION MADE BY LD. CIT AS UNDER: A. THE SOFTWARE WAS DEVELOPED IN INDIA BY CRCS, A PARTNERSHIP VENTURE OF NIIT AND IIT, DELHI AND, THE RE WAS NO QUESTION OF IMPORT OF SAME FROM OUTSIDE INDIA IT IS EMPHATICALLY DENIED THAT NET VARSITY WAS DEVE LOPED IN INDIA AND THEREAFTER EXPORTED TO NIIT, USA. THERE IS NO EVIDENCE ON RECORD TO SUGGEST THAT THE AID SOFTWARE WAS DEVELOPED IN INDIA AND THEREAFTER EXPORTED TO N IIT, USA. THE CIT HAS MADE BALD ALLEGATION THAT SAME WAS EXPO RTED TO NIIT, USA EARLIER SIMPLY ON THE BASIS OF DISPLAY AT WEBSITE OF THE ASSESSEE THAT NET VARSITY WAS DEVELOPED BY CRCS , A JOINT VENTURE BETWEEN NIIT & IIT, DELHI. THE BACKGROUND BEHIND DEVELOPMENT OF THE AFORESAID SOFTWARE IS AS UNDER: DURING THE THIRD PRESIDENT CLUB CONFERENCE HELD IN MAY, 1996, A TEAM UNDER THE LEADERSHIP OF MR. CN MADHUSUSAN, P RESIDENT, NIIT, USA WAS FORMED AND CHARGED WITH THE RESPONSIB ILITY OF CONCEPTUALIZING AND POPULARIZING NET VARSITY ON I NTERNET. DR. SUGATA MITRA, HEAD OF CRCS WAS ENTRUSTED WITH THE J OB OF PROVIDING ADVICE/GUIDANCE IN SETTING UP THE NET VAR SITY PORTAL. IT IS FURTHER SUBMITTED THAT NET VARSITY SOFTWARE WAS IN FACT DEVELOPED WHOLLY OUTSIDE INDIA BY NIIT, USA AND THE SAID COMPANY WAS THE OWNER OF THE SAME. IT IS ALSO DENIED THAT CRCS WAS A PARTNERSHIP VENTU RE BETWEEN THE ASSESSEE AND IIT, DELHI, AS ALLEGED IN THE IMPU GNED ORDER. CRCS WAS A RESEARCH DEPARTMENT, WHICH WAS A PART AN D PARCEL OF THE ASSESSEE. THE BACKGROUND TO THE DEVELOPMENT OF NET VARSITY IS THAT THIS PROJECT WAS SET UP IN ORDER TO GALVANIZE NIITS EDU CATION BUSINESS TO EMBRACE THE INTERNET REVOLUTION. AT THA T TIME THE 222 ITA NO. 2057/DEL/10 NIIT VS. CIT INTERNET INFRASTRUCTURE IN INDIA WAS AT ITS NASCENT STAGE AND PROVISION OF HIGH STANDARD INTERNET HOSTING SERVICE S WITH NECESSARY BAND WIDTH WAS NOT A VIABLE OPTION IN IND IA. THESE FACTORS COUPLED WITH OTHER CONSIDERATIONS, SUCH AS PROPOSED USE OF NET VARSITY TO PENETRATE US AND EUROPEAN ECONOMI ES LED TO THE DECISION THAT THE PROJECT WAS TO BE DEVELOPED, CONTROLLED AND CARRIED OUT IN USA BY NIIT, USA. ACCORDINGLY, T HE PROJECT WAS HEADED UNDER THE DIRECTION OF PRESIDENT OF NIIT , USA IN 1995-96 AND THE FIRST VERSION OF NET VARSITY WENT L IVE IN JULY OF 1996 ON THE WORLDWIDE WEB WHILE IT WAS OWNED AND MA NAGED BY NIIT, USA. AS TIME ELAPSED AFTER THE LAUNCH OF NET VARSITY SIT E, IT BEGAN TO EMERGE THAT THE CONTENT OF THE SITE HAD TO BE STYLI ZED ACCORDING TO LOCAL REQUIREMENTS OF STUDENTS WHO WERE USING TH E SITE FOR EFFECTIVE USAGE AS A LEARNING TOOL. IT WAS FELT THA T THE SITE ALONE WAS NOT ENOUGH TO SUSTAIN LEARNING OVER THE WEB. TH E ASSESSEE ALSO WANTED TO ADD/ MODIFY THE CONTENTS OF THE SITE IN CONNECTION WITH ITS SPECIFIC REQUIREMENTS WHICH WERE NOT IN LI NE WITH THE VISION ENVISAGED BY NIIT, USA FOR ITS OUTSIDE MARKE TS. TO ADD TO THIS, THERE WAS A THREAT THAT OUTSIDE MARKET USE RS WOULD NOT PAY FOR EDUCATION OVER THE NET AT A TIME WHERE MOST INFORMATION OVER THE NET WAS FREE. IN VIEW OF NUMEROUS FACTORS, SUCH AS THOSE BRIEFLY MENTIONED ABOVE, THE ASSESSEE DCIDED TO PURCHASE THE NET VAR SITY SOFTWARE, CONSIDERING THAT THE MAXIMUM NUMBER OF RE GISTERED USERS FOR NET VARSITY WERE FROM INDIA AND ALSO TH AT IT REQUIRED CONTENT MODIFICATION FOR ITS SPECIFIC NEED S. IN VIEW OF THE ABOVE, IT IS RESPECTFULLY SUBMITTED, THAT THE PURCHASE OF NET VARSITY SOFTWARE WAS A GENUINE TR ANSACTION DRIVEN BY BUSINESS CONSIDERATIONS AND WAS NOT DEVEL OPED BY THE ASSESSEE AND EXPORTED TO NIIT, USA EARLIER AND THER EAFTER IMPORTED AGAIN. THE AFORESAID QUERY WAS RAISED BY THE ASSESSING OFF ICER, VIDE NOTICE DATED 2-11-2005 AND 10-02-2006, WHICH WAS RE PLIED TO BY THE ASSESSEE, VIDE REPLY DATED 14-11-2005 AND 27 -02-2006. 223 ITA NO. 2057/DEL/10 NIIT VS. CIT B. ANET VARSITY WAS NOT AN INDIAN SITE AND, THEREFOR E, ASSESSEE WAS NOT ITS OWNER. IN THE IMPUGNED ORDER, THE CIT, ON THE BASIS OF THE CONTENTS OF EMAIL DATED 8-2-2000 FROM MR. NICHOLAS GEORGE TO MS . NILANJANA PAUL, ALLEGED THAT NET VARSITY WAS NOT AN INDIAN WEBSITE AND, THEREFORE, THE ASSESSEE CANNOT BE CONS IDERED AS OWNER OF THAT WEBSITE. IN THIS CONNECTION, EXTRACTS OF THE SAID EMAIL, ATT ACHED AT PAGE 608 OF PAPER BOOK VOL II, IS REPRODUCED HEREUNDER F OR READY REFERENCE. ON THIS NET VARSITY HOME PAGE, CAN YOU PLEASE RE MOVE THE REFERENCE TO RS. 6,000 WHICH COMES IN BRIGHT RED? A PART FROM THE FACT THAT NET VARSITY IS NOT AN INDIAN SITE ( AND TO ANYONE ELSE A RUPEE PRICE DOESNT MAKE SENSE). IT IS DISAS TRUOUS IF THE PREFERENTIAL PRICE THAT WE OFFER IN INDIA (I.E. THE LOWEST POSSIBLE PRICE) IS ADVERTISED SO PROMINENTLY ON THE HOME PAG E. MOST OF NIIT DOES NOT DISPLAY PRICES ON WEB SITES AND BROCH URES (WITH THE EXCEPTION OF ENIIT, WHICH DISPLAYS US PRICES THE HIGHEST IN THE WORLD; SO ANY CUSTOMER IN ANY OTHER GEO IS H APPY TO FIND THAT A LOWER PRICE APPLIES TO THEIR GEO, UNLIKE HER E). IN THIS REGARD, IT IS RESPECTFULLY SUBMITTED, AS UN DER: AT THE OUTSET, IT IS SUBMITTED, THAT THE AFORESAID WEBSITE WAS PURCHASED BY THE ASSESSEE IN JUNE 1997, WHICH IS SU PPORTED THROUGH VARIOUS DOCUMENTS/ CONTEMPORANEOUS EVIDENCE S (SUPRA) FOR WHICH PAYMENTS WERE ALSO REMITTED BY TH E ASESSEE TO NIIT, USA. THE OWNERSHIP OF THE ASSESSEE CANNOT BE DOUBTED SIMPLY ON THE BASIS OF ADVERSE INFERENCE DRAWN FROM THE AFORESAID EMAIL. THE EMAIL, IT IS SUBMITTED, MERELY INSTRUCTS TO CHA NGE THE PRICING FOR THE PRODUCTS OFFERED AS NET VARSITY T O BE DONE IN NON-RUPEE TERMS AND NOT TO DISCLOSE THE LOWER PRICE S OFFERED BY THE ASSESSEE IN INDIA, TO CUSTOMERS/ BUSINESS IN OU TSIDE MARKETS. 224 ITA NO. 2057/DEL/10 NIIT VS. CIT WHILE THE SITE CONTINUED TO BE HOSTED IN USA, OWING TO THE FACT THAT INDIA DID NOT HAVE A SIMILAR LEVEL OF HOSTING INFRASTRUCTURE, THE OWNERSHIP WAS TRANSFERRED TO THE ASSESSEE. IT IS RESPECTFULLY REITERATED THAT THE SAID TRANSAC TION WAS ALSO REVIEWED BY THE FERA AUTHORITIES, WHO AFTER BEING S ATISFIED BY THE GENUINENESS OF THE TRANSACTION HAD PASSED AN OR DER DATED 30-4-2004 IN FAVOUR OF THE ASSESSEE. IN THIS CONNECTION, THE ASSESSEE HAS ALSO ATTACHED COPY OF VARIOUS PRESS RELEASES IN THE YEAR 1998 DISCLOSING LAUNCH OF VARIOUS EDUCATIONAL COURSES BY ASESSEE ON THE WEBSI TE NET VARSITY WHICH CONCLUSIVELY ESTABLISH THAT THE SAME WAS AN INDIAN SITE OWNED AND OPERATED BY THE ASSESSEE (REF ER PAGES 603-608 OF PAPER BOOK VOL II). THE AFORESAID QUERY WAS SPECIFICALLY RAISED BY THE ASSESSING OFFICER, VIDE NOTICE DATED 10-02-2006, WHICH WAS RE PLIED TO BY THE ASSESSEE, VIDE REPLY DATED 27-02-2006. C. THE SOFTWARE WAS NOT PUT TO USE DURING THE YEAR UND ER CONSIDERATION: THE CIT, IT IS SUBMITTED, HAS MADE A BALD ALLEGATIO N, WITHOUT ANY EVIDENCE BEING BROUGHT ON RECORD TO SUGGEST THA T SOFTWARE WAS NOT PUT TO USE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IT IS CATEGORICALLY DENIED THAT THE SOFTWARE WAS NO T PUT TO USE FOR PURPOSES OF BUSINESS OF THE ASSESSEE, DURING TH E RELEVANT PREVIOUS YEAR. IN THIS CONNECTION, ATTENTION IS, IN FACT, INVITED TO EMAIL DATED 15 TH MAY, 2000, SEIZED FROM THE ASSESSEES PREMISES DUR ING THE COURSE OF SEARCH AND PUT TO NOTICE BY THE ASSESSING OFFICER TO THE ASESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS , ATTACHED AT PAGE NOS. 610-611 OF THE PAPER BOOK VOL II, PERT AINING TO THE QUERY RAISED BY AN INDIAN CUSTOMER QUA USE OF THE A FORESAID WEBSITE. THE CONTENTS OF THAT MAIL FURTHER SUPPORTS THAT THE SITE 225 ITA NO. 2057/DEL/10 NIIT VS. CIT WAS USED BY INDIAN CUSTOMERS AND WAS, THEREFORE, A WEBSITE, WHICH WAS BEING PUT TO USE BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. THE AFORESAID QUERY WAS RAISED BY THE ASSESSING OFF ICER, VIDE NOTICE DATED 10-02-2006, WHICH WAS REPLIED TO BY TH E ASSESSEE VIDE REPLY DATED 27-02-2006. 82. LD. SPECIAL COUNSEL REFERRED TO LD. CITS ORDE R AND POINTED OUT THAT HE HAD TAKEN NOTE OF VARIOUS POINTS TO COME TO THE CON CLUSION THAT THIS SOFTWARE WAS NOT IMPORTED BY ASSESSEE BUT DEVELOPED IN INDIA ITSELF. HE REFERRED TO THE OFFICE NOTE OF AO, REFERRED TO EARLIER, AND POINTED OUT THAT IN THE SAID OFFICE NOTE THE AO SIMPLY CONCLUDED THAT SINCE THE IMPORT OF THE SOFTWARE WAS NOT COVERED IN THE BLOCK PERIOD, THEREFORE, THIS ISSUE WAS OUTSIDE THE SCOPE OF ASSESSMENT PROCEEDINGS U/S 153A. 82.1. LD. SPL. COUNSEL POINTED OUT THAT AO OVER LOO KED THE FACT THAT ASSESSEE HAD CLAIMED DEPRECIATION DURING THE YEAR. THEREFORE, HE WAS REQUIRED TO LOOK INTO THE DETAILS. LD. SPL. COUNSEL FURTHER REFERRED TO THE ORDER OF ENFORCEMENT DIRECTORATE AND POINTED OUT T HAT ED DID NOT CONSIDER THE ISSUE REGARDING GENUINENESS OF IMPORT AS CLAIME D BY THE ASSESSEE. HE FURTHER POINTED OUT THAT LD. CIT HAS CONSIDERED THE ISSUE OF ALLOWING DEPRECIATION QUA THE OWNERSHIP OF SOFTWARE. 82.2. THE COUNTER ARGUMENTS OF THE REVENUE BEFORE T HE BENCH IN THIS REGARD ARE AS UNDER: 80. THE REVENUE SUBMITS THAT THE ASSESSING OFFICER ACCEPTED THE ASSESSEE'S REPLY AS SUCH WITHOUT VERIF ICATION OF MATERIAL ON RECORD AND WITHOUT APPLICATION OF MIND. THE MOOT QUESTION BEFORE THE AO WAS WHETHER THE ASSESSE E BECAME THE OWNER OF THE SOFTWARE TITLED 'NET VARSIT Y' IN 1997 226 ITA NO. 2057/DEL/10 NIIT VS. CIT BY ACQUIRING IT FROM NIIT, USA, ITS OVERSEAS SUBSID IARY FOR USD 7,00,000/- AND CONSEQUENTLY WHETHER THE ASSESSE E WAS ENTITLED TO DEPRECIATION ON THE SAME DURING THE YEA R UNDER CONSIDERATION. IT IS NOT IN DISPUTE THAT THE SO CAL LED PURCHASE WAS MADE IN 1997 AND DEPRECIATION WAS ALLOWED IN TH E EARLIER YEARS. HOWEVER, THE ISSUE BECAME OPEN AS A RESULT OF MATERIAL FOUND DURING SEARCH, PARTICULARLY THE EMAI L DATED 08.02.2000 FROM MR. NICHOLAS GEORGE TO MS. NIRANJAN A PAUL. THIS EMAIL APPEARING ON PAGE NUMBER 608 VOL. VII CLEARLY STATED THAT 'NET VARSITY' IS NOT AN INDIAN SITE. IF THE PROGRAM HAD BEEN PURCHASED IN 1997, THE EMAIL COULD NOT HAVE STATED THAT THE SITE IS NOT INDIAN. THE CIT AL SO POINTED OUT IN HIS ORDER THAT THE 'NET VARSITY WAS DEVELOPE D IN INDIA BY CENTER FOR RESEARCH IN COGNITIVE SYSTEM (CRS) WH ICH IS A PARTNERSHIP VENTURE OF NIIT AND IIT DELHI. THIS A PPEARS CLEARLY ON THE WEB SITE OF NIIT DELHI AS OBSERVED B Y THE CIT. 81. WHEN THE EMAIL AS FOUND DURING SEARCH WAS ON RE CORD, IT WAS INCUMBENT UPON THE AO TO ENQUIRE AS TO WHETHER 'NET VARSITY' WAS OWNED BY NIIT INDIA OR ITS OVERSEAS EN TITY IN USA. THIS WAS A PRIMARY ENQUIRY WHICH THE AO OUGHT TO HAVE CONDUCTED BEFORE ACCEPTING THE REPLY OF THE AS SESEE ON ITS FACE VALUE. THE ALLOWANCE OF DEPRECIATION IN EA RLIER YEARS WAS NO LONGER RELEVANT AS THE PAPERS FOUND DU RING SEARCH CLEARLY INDICATED THAT THE REAL FACTS ON THE BASIS OF WHICH DEPRECIATION WAS ALLOWED WERE OTHERWISE. IN A NY CASE, THIS ASPECT OF THE MATTER DESERVED TO BE LOOK ED INTO AND THE TRUE IMPORT OF THE SEIZED PAPER WAS NEEDED TO BE ENQUIRED, WHICH WAS NOT DONE. 82. A GREAT DEAL OF EMPHASIS WAS LAID ON THE ORDER OF ED BY THE LEARNED COUNSEL OF THE ASSESSEE. THE ORDER A PPEARS ON PAGE 575 OF VOL. 11 OF THE PAPER BOOK. THIS ORDE R IS DATED 30.04.2004. THE SEARCH WAS CONDUCTED ON 10.11.2004. THE EMAIL WHICH FORMS THE BASIS OF ENQUIRY WAS FOUND LO NG AFTER THE ORDER OF ED. THE ORDER OF ED DID NOT HAVE THE B ENEFIT OF INCRIMINATING MATERIAL DISCOVER AT A LATER POINT OF TIME. FURTHER, THE ONLY ISSUE BEFORE THE ED WAS WHETHER T HE 227 ITA NO. 2057/DEL/10 NIIT VS. CIT REMITTANCE OF USD 7,00,000/- WAS MADE FOR THE PURPO SE OTHER THAN FOR WHICH IT WAS ACQUIRED (PG.577 OF PB) . THE ED, RELIED UPON THE SALE INVOICES, SHIPMENT DOCUMEN TS AND THE BANKERS CERTIFICATE. IT CAME TO CONCLUSION ON P G.588 THAT THERE WAS NO EVIDENCE TO SUPPORT THE ALLEGATION THA T THE REMITTANCE WAS FOR GOODS OTHER THAN THOSE FOR WHICH REMITTANCE WAS MADE. THE ED WAS NOT CONCERNED WHETH ER THE OWNERSHIP OF ASSET 'NET VARSITY' WAS WITH THE A SSESSEE OR NOT BUT THIS IS A PRECONDITION FOR THE ALLOWANCE OF DEPRECIATION U/S 32 OF THE ACT. 83. IN VIEW OF THE ABOVE, IT WAS URGED THAT NO RELE VANT VERIFICATION/ ENQUIRY WAS CONDUCTED BY THE ASSESSIN G OFFICER AND, THEREFORE, IT WAS A CASE OF LACK OF INQUIRY, W HICH JUSTIFIED THE ACTION OF THE CIT IN ASSUMING REVISIO NARY JURISDICTION UNDER SECTION 263 OF THE ACT. 83. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FIRST ASPECT TO BE CONSIDERED IN THI S REGARD IS WHETHER AO WAS LEGALLY JUSTIFIED IN CONCLUDING THAT SINCE THE SOFT WARE WAS ALLEGEDLY IMPORTED IN JUNE 1997, THE ISSUE OF ALLOWING DEPRECIATION IN 1999-2000 WAS BEYOND THE AMBIT OF 153A PROCEEDINGS. IN OUR OPINION, THE VIEW TAKEN BY AO IS NOT LEGALLY SUSTAINABLE. ALLOWABILITY OF DEPRECIATION H AD TO BE CONSIDERED FROM TWO PERSPECTIVES FIRSTLY, WHETHER THE ASSET IS OW NED BY ASSESSEE AND SECONDLY WHETHER IT WAS PUT TO USE OR NOT FOR BUSIN ESS PURPOSE. NORMALLY IF IN ONE YEAR DEPRECIATION HAS BEEN ALLOWED ON AN ASS ET THEN, UNLESS THE ASSET IS REMOVED FROM BLOCK OF ASSET, DEPRECIATION CANNOT BE DENIED. HOWEVER, WHEN IN COURSE OF SEARCH CERTAIN DOCUMENTS ARE FOUN D WHICH SHOW SOME CONTRARY STATE OF AFFAIR, THEN IT IS INCUMBENT UPON AO TO EXAMINE THOSE FACTS TO ARRIVE AT PROPER CONCLUSION. ELSE THE WHOLE PURP OSE OF PASSING THE ASSESSMENT ORDER UNDER SECTION 153A WOULD FRUSTRATE . THERE IS NO LAW WHICH 228 ITA NO. 2057/DEL/10 NIIT VS. CIT PROHIBITS AO TO EXAMINE THE EVIDENCE FOUND IN COURS E OF SEARCH AND DISALLOW DEPRECIATION IN SUBSEQUENT YEAR, IF THE SA ME IS NOT LEGALLY ALLOWABLE. 83.1. IN THE PRESENT CASE, AS NOTED EARLIER, AO RAI SED SPECIFIC QUERIES VIDE LETTERS DATED 2-11-2005, 10-2-2006 AND AFTER EXAMIN ING THE REPLIES FILED BY ASSESSEE CONCLUDED THAT ASSESSEES CLAIM WAS ALLOWA BLE. HE WAS REQUIRED TO GIVE FINDINGS WITH PROPER REASONING WITH REFERENCE TO QUERIES RAISED BY HIM MAINLY ON THE BASIS OF APPRAISAL REPORT PREPARED BY INVESTIGATION WING. THE AO WAS REQUIRED TO RECORD A FINDING HOW THE ALLEGAT ION OF NET VARSITY SOFTWARE BEING DEVELOPED IN INDIA, ON THE BASIS OF DETAILS FOUND AT WEB SITE OF NIIT WERE MET BY ASSESSEE AND WHETHER THE SAME W AS DULY REBUTTED ASESSEE OR NOT. THE AO WAS ALSO REQUIRED TO GIVE HI S SPECIFIC FINDINGS WITH REFERENCE TO QUERIES RAISED BY HIM IN CONNECTION WI TH E-MAIL DATED 8-2-2000 FROM MR. NICHOLAS GEORGE TO MS. NILANGANA PAUL. 83.2. THE FINDINGS OF ENFORCEMENT DIRECTORATE WERE RECORDED ON 30-4-2004 AND SEARCH TOOK PLACE ON 10-11-2004. THEREFORE, THO UGH EDS FINDINGS COULD NOT BE IGNORED, BUT THEY HAD TO BE CONSIDERED BY AO ALONG WITH MATERIAL FOUND DURING COURSE OF SEARCH. WE, THEREFORE, UPHOL D THE ORDER OF LD.CIT ON THIS ISSUE. IN THE RESULT THIS GROUND IS DISMISSED. 84. GROUND NO. 20: VIDE GROUND NO. 20 THE ASSESSEE HAS ASSAILED THE ALLEGATION OF LD. CIT THAT SINCE THE ASSESSEE HAD I MPORTED OBSOLETE CBTS FROM NETG (UK) IN ORDER TO REMIT PAYMENTS IN THE NA TURE OF ROYALTY TO NETG AND THE AO HAVING FAILED TO EXAMINE THE SAID I SSUE, THE ASSESSMENT ORDER IN THIS REGARD WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 229 ITA NO. 2057/DEL/10 NIIT VS. CIT 84.1. THE ASSESSEE IN SUPPORT OF ITS AFOREMENTIONED GROUND HAS FURTHER TAKEN A GROUND THAT LD. CIT FAILED TO APPRECIATE THAT THE AFORESAID ISSUE HAD DULY BEEN EXAMINED IN DETAIL BY THE AO IN THE ORIGINAL A SSESSMENT AND, THEREFORE, WAS NOT AMENABLE TO REVISIONARY JURISDICTION U/S 26 3. IT IS FURTHER SUBMITTED THAT LD. CIT ERRED IN EXERCISING JURISDICTION U/S 2 63 IN RESPECT OF THIS ISSUE WITHOUT APPRECIATING THAT THE CIT(A) FOR AY 2002-0 3 HAD ALLOWED THE SAID ISSUE IN FAVOUR OF THE ASSESSEE. 84.2. BRIEF FACTS APROPOS THIS ISSUE ARE THAT IN TH E SHOW CAUSE NOTICE DATED 5-2-2010, LD. CIT POINTED OUT THAT THERE WERE EVIDE NCES ON RECORD WHICH SUGGESTED THAT IN FY 2001-02 THE IMPORT OF CBTS FRO M NETG (UK) WERE NOT GENUINE COMMERCIAL TRANSACTIONS. OBSOLETE, OUT DATE D AND NON SALEABLE CBTS WERE IMPORTED IN INDIA AFTER EXPIRY OF AGREEME N BETWEEN NIIT AND NETG IN ORDER TO REMIT MONEY TO NETG FOR PAYMENT OF ROYALTY. 84.3. LD. CIT REFERRED TO FOLLOWING EVIDENCES ON RE CORD: - THERE ARE E-MAIL EXCHANGES BETWEEN KEY FUNCTION ARIES OF NIIT AND NETG, WHICH SHOWS THAT BOGUS PURCHASE ORDE RS WERE RAISED IN FY 2001-02 FOR REMITTING MONEYS FOR PAYMENT OF ROYALTY AMOUNTING TO USD 182500. - THE STATEMENT, DTD 9/12/2004, RECORDED ON OATH OF SH RAJIV KATYAL, VICE PRESIDENT OF MARKETING IN NIIT L TD. THE ABOVE EVIDENCES SHOWS THAT FICTITIOUS PURCHASE ORDERS WERE RAISED AND NON-SALEABLE AND OBSOLETE CBTS WERE IMP ORTED IN INDIA FOR REMITTING MONEY OF USD 182500. THOUGH TH E AO HAS DISALLOWED THE AMOUNT REMITTED TO NETG IN FY 2001-0 2 OF USD 207785, BUT FAILED TO RE-EXAMINE THE REAL MOTIV E AND PURPOSE FOR WHICH SAID AMOUNT WAS REMITTED. HOWEVER , EVIDENCES ON RECORD SUGGEST THAT THE REAL MOTIVE OF REMITTANCE WAS TO MAKE PAYMENT OF ROYALTY. THIS POSITION IS ALSO 230 ITA NO. 2057/DEL/10 NIIT VS. CIT REINFORCED FROM THE FACT THAT AFTER THE EXPIRY OF C ONTRACT WITH NIIT, M/S NETG ENTERED INTO A MORE OR LESS SIMILAR AGREEMENT THOUGH WORDED DIFFERENTLY WITH M/S APTECH, MUMBAI, WHEREIN M/S APTECH HAD TO MAKE PAYMENT OF ROYALTY T O NETG FOR THE RIGHT TO MARKET AND DISTRIBUTE INTERAC TIVE TRAINING PRODUCTS IN INDIA. NETG WAS RECEIVING ROYALTY RANGI NG FROM 20% TO 50% OF THE SALES MADE BY APTECH. BEFORE LD. CIT, THE ASSESSEE HAD RAISED FOLLOWING C ONTENTIONS: THE PAYMENT MADE TO NETG IN RESPECT OF CBTS PERTAI N ONLY TO PHYSICAL IMPORT OF CBTS AND THEREFORE, WAS NOT IN NATURE OF ROYALTY. ASSESSEE WAS NOT REQUIRED TO REPLICATE OR REPRODUCE D ANY MATERIAL BUT MERELY ACTED AS A DISTRIBUTOR OFNETG P RODUCT. E-MAIL RELIED ON BY THE DEPARTMENT PERTAINS TO ASSE SSMENT YEAR 2001-02 AND NO ADVERSE INFERENCE MAY DRAWN FRO M SUCH E-MAILS WITH RESPECT TO ASSESSMENT YEAR UNDER CONSIDERATION. IN ABSENCE OF ANY MATERIAL CASTING DOUBT OVER THE N ATURE OF THE TRANSACTIONS, THE ASSESSEE'S CLAIM HAD BEEN RIG HTLY ACCEPTED BY AO). PAYMENT TO NETG AFTER THE AGREEMENT WAS TOWARDS THE MINIMUM PURCHASE COMMITMENT IN TERMS OF DISTRIBUTIO N AGREEMENT. INVOICES RELATING TO IMPORT OF THE SAME HAVE BEEN P RODUCED BEFORE THE AO DURING THE COURSE OF ASSESSMENT VIDE LETTER DATED 11/05/2006. AO ACCEPTED THE CONTENTION OF THE ASSESSEE FOR ASSE SSMENT YEAR 1999-2000 TO 2002-03 THAT THE PURCHASE OF SOFT WARE FROM NETG WAS BONAFIDE TRANSACTION AND NOT PAYMENT IN THE NATURE OF ROYALTY. ONLY THE PAYMENTS MADE IN ASSESS MENT YEAR 2002-03 WERE DISALLOWED BY THE ASSESSEING OFFI CER AND 231 ITA NO. 2057/DEL/10 NIIT VS. CIT THAT TOO, ON THE GROUND THAT THE DISTRIBUTION AGREE MENT HAD EXPIRED. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL TO THE CIT(A) FOR AY 2002-03 WHICH WAS DISPOSED OFF VIDE ORDER DATED 31/0712009, ALLOWING THE APPEAL OF THE ASSESSEE. AGREEMENT OF NIIT WITH NETG WAS DIFFERENT FROM THE AGREEMENT BETWEEN APTECH AND NETG. 84.4. AS REGARDS ASSESSEES CONTENTION THAT IT WAS NOT REQUIRED TO REPLICATE OR REPRODUCE ANY MATERIAL BUT MERELY ACTED AS A DI STRIBUTOR OF NETG PRODUCTS, LD. CIT POINTED OUT THAT ASSESSEE HAD NO T FURNISHED CORRESPONDING SALES INVOICES NEITHER DURING THE COURSE OF ITS SEA RCH PROCEEDINGS (THOUGH SPECIFICALLY ASKED TO DO SO), NOR FILED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HE POINTED OUT THAT ASSESSE E ITSELF ADMITTED THAT PART OF CBTS WERE PUT TO SELF USE. AS REGARDS THE CONTEN TION OF THE ASSESSEE THAT THE EMAIL RELIED UPON BY THE DEPARTMENT PERTAINED T O AY 2001-02, LD. CIT POINTED OUT THAT MENTIONING OF EMAILS OF SUBSEQUENT YEAR WAS FOR ASCERTAINING THE TRUE NATURE OF THE PAYMENT. 84.5. AS REGARDS THE CONTENTION THAT THIS ISSUE WAS EXAMINED BY AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS IT HAD, VI DE LETTER DATED 11-5-2006, FILED ALL RELATED DOCUMENTS BEFORE THE AO, LD. CIT POINTED OUT THAT ASSESSEE FILED ONLY A CHART SHOWING PURCHASES MADE FROM NETG LTD. AND NO DETAILED SUBMISSION WAS MADE. FURTHER ASSESSEES CONTENTION WAS NOT FOUND ACCEPTABLE ON THE BASIS OF EXAMINATION OF SEIZED MA TERIAL/ STATEMENTS OF THE SENIOR OFFICERS OF THE ASSESSEE COMPANY RECORDED DU RING THE COURSE OF SEARCH PROCEEDINGS. 84.6. LD. CIT FURTHER POINTED OUT THAT NIIT HAD BEE N DEVELOPING AND EXPORTING COURSE OR COMPUTER BASED TRAINING PRODU CTS CBTS. THE 232 ITA NO. 2057/DEL/10 NIIT VS. CIT DEVELOPMENT OF THE COURSE WARE WAS BEING DONE AT TH E 100% EOU OF NIIT. NIIT WAS ALSO IMPORTING CBTS FROM NETG. LD. CIT REF ERRED TO THE RECORD FOR FY 2001-02 AND POINTED OUT THAT THE IMPORT OF C BTS FROM NETG WERE NOT GENUINE COMMERCIAL TRANSACTIONS AND WERE MADE M ERELY TO REMIT MONIES TO NETG FOR ROYALTY PAYMENT. IN THIS REGARD HE HAS REFERRED TO VARIOUS EVIDENCES AS UNDER. OBSOLETE, OUTDATED AND NON-SALEABLE CBT'S WERE IMP ORTED IN INDIA EVEN AFTER THE EXPIRY OF AGREEMENT BETWEEN NIIT & NETG. THERE ARE E-MAIL EXCHANGES BETWEEN KEY FUNCTIONARIE S OF NIIT AND NETG, WHICH SHOWS THAT BOGUS PURCHASE ORDE RS WERE RAISED IN F.Y. 2001-02 FOR REMITTING MONEYS FO R PAYMENT OF ROYALTY AMOUNTING TO USD 182500 (COPIES OF THE SAID E-RNAILS HAVE ALREADY BEEN PROVIDED TO THE ASSESSEE ON 13111/2007, BY THE THEN DCFT, C.C.-8, NEW DELHI) . IT IS PERTINENT TO MENTION HERE THAT NETG HAD APPOINTED APTECH LTD AS ITS NEW DISTRIBUTOR IN INDIA. THE 'NE TG CHANNEL AGREEMENT' WITH APTECH IS DATED 01/04/200 I I.E. PRIOR TO THE DATE ON WHICH THE PURCHASE ORDERS WERE RELEASED BY NIIT. THUS PROVING THE POINT THAT NIIT WAS NOT AUTHORIZED TO SELL THE CBTS IN INDIA AT THE TIME WH EN IT IMPORTED THE ABOVE MENTIONED CONSIGNMENTS. FROM THE PERUSAL OF THE STATEMENT, DTD 9/12/2004, R ECORDED ON OATH OF SH RAJIV KATYAL, VICE PRESIDENT OF MARKE TING IN NIIT LTD., IT IS OBSERVED THAT HE CONFIRMED THAT NE TG WAS NOT ALLOWING NIIT TO BUY NEW TITLES. AN EXTRACT OF STATEMENT IS REPRODUCED BELOW: 'Q.14 DID ANDRE HOGAN ASKED YOU OR TELL YOU THAT NI IT CANNOT BUY NEW TITLES. 233 ITA NO. 2057/DEL/10 NIIT VS. CIT ANS. ANDRE HOGAN WAS KEEN THAT NIIT NOT GO IN FOR T HE LATEST TITLES AND NIIT KNEW THAT THIS WAS IMMATERIA L AS THE TITLES, IT WANTED TO BUY WERE SALEABLE. Q.15 CAN YOU GIVE ME THE REASON WHY NETG WANTED TO AVOID SELLING NEW TITLES WITH THE BACKGROUND OF YOU R EXPERIENCE WITH NETG. ANS. I CAN NOT GUESS AS IT WAS A BUSINESS ISSUE OFN ETG'(SIC) THE REASON WHY MR. KATYAL HAD NOT GIVEN SPECIFIC AN SWER IS VERY OBVIOUS FROM THE FACT THAT NETG HAD APPOINTED A NEW DISTRIBUTOR NAMELY MLS APTECH LTD. FOR ITS PRODUCTS IN INDIA AND THE AGREEMENT WITH NIIT HAD BEEN DISCONTI NUED. THEREFORE, NIIT WAS NOT AUTHORIZED TO SALE NETG PRO DUCTS IN INDIA. THE IMPORT OF CBTS AMOUNTING TO USD 2,07,785 FROM NETG AFTER EXPIRY OF THE AGREEMENT ALSO AGAIN CONFI RMS THAT REMITTING MONEY TO NETG WAS FOR SOME OTHER PURPOSES (ROYALTY PAYMENTS).IT WAS STATED BY-THE AUTHORITIES OFNIIT (SH. AJAY WAHI AND SH. KATYAL) IN THEIR STATEMENTS THAT THE PURPOSE OF THEIR IMPORT WAS TO FULFILL A MINIMUM PU RCHASE COMMITMENT WITH NETG. HOWEVER, THEY COULD 'NOT EXPL AIN IF THE IMPORT COMMITMENT WAS ONLY FOR USD 1,82,500 THEN WHY WAS THE EVENTUAL IMPORT FOR USD 2,07,785? AND F URTHER IF NETG DISCONTINUED ITS RELATIONSHIP WITH NIIT THE N WHY DID IT INSIST ON A MINIMUM PURCHASE COMMITMENT. FOR THE PAYMENT MADE IN 2001 FOR ALLEGED IMPORT OF CBTS, INSPITE OF THE FACT THAT HUGE STOCK WAS ALREADY LYI NG AND THERE WERE NO CORRESPONDING SALE ORDERS, IT WAS SUB MITTED ~ THE ASSESSEE DURING THE COURSE OF POST SEARCH PROCE EDINGS AND ALSO BEFORE THE UNDERSIGNED, THAT THE SAME WAS DONE IN ORDER TO COMPLY WITH MINIMUM ORDER COMMITMENT, WHIC H IS DEVOID OF ANY TRUTH. IT IS SEEN THAT AS PER TERM 4 OF THE AGREEMENT MINIMUM ORDER COMMITMENT WAS NOT APPLICAB LE AFTER DEC' 1999. 234 ITA NO. 2057/DEL/10 NIIT VS. CIT 84.7. LD. CIT FURTHER POINTED OUT THAT ASSESSEES C LAIM WAS THAT THE CBTS AMOUNTING TO RS. 7,88,34,352/- WERE SOLD TO K.K. LU BRICANTS PVT. LTD. HOWEVER, PHYSICAL STOCK OF THESE CBTS WAS NOT FOUND AT THE PREMISES OF K.K. LUBRICANTS PVT. LTD. DURING THE SEARCH. THE DI RECTOR SHRI K.K. MITTAL OF K.K. LUBRICANTS PVT. LTD. ALSO FAILED TO EXPLAIN AS TO WHERE THE STOCK HAD BEEN KEPT AND ALSO THE PURPOSE FOR WHICH HE HAD PUR CHASED SUCH OLD OBSOLETE STOCK. 84.8. LD. CIT FURTHER DISPUTED THE GENUINENESS OF T HIS TRANSACTION OBSERVING THAT NIIT CONTINUED TO RELEASE OF IMPORT PURCHASE ORDER FROM NETG IN SPITE OF THEIR CARRYING A STOCK OF NETG COU RSEWARE CDS AMOUNTING TO APPROXIMATELY RS. 3.37 CRORES IN FEBRUARY 2001, WHICH PROVED THAT THE REAL INTENTION FOR MAKING PAYMENTS TO NETG WAS DIFF ERENT THOUGH THE SAME WAS CLASSIFIED AS IMPORT OF CBTS. 84.9. LD. CIT FURTHER REFERRED TO THE NEW DISTRIBU TOR AGREEMENT WITH APTECH FOR NETG PRODUCTS DATED 1-4-2001 AND POINTED OUT THAT APTECH WAS PAYING ROYALTY TO NETG FOR THE RIGHT TO MARKET AND DISTRIBUTE INTERACTIVE TRAINING PRODUCTS IN INDIA. THIS ROYALTY WAS RANGIN G FROM 20% TO 50% OF THE SALES MADE BY APTECH. LD. CIT POINTED OUT THAT A COMPARISON OF THE AGREEMENT BETWEEN NETG AND NIIT VIZ-A-VIZ AGREEMENT BETWEEN M/S NETG AND APTECH SHOWED THAT THEY WERE DIFFERENTLY WORDE D BUT THE EFFECT WAS SAME. HE POINTED OUT THAT UNDER THE AGREEMENT NIIT HAD TO PAY A MINIMUM EACH YEAR CALLED MINIMUM ORDER COMMITMENT AND EXC ESS OF THE AMOUNT CALCULATED @ 30% OF SALES MADE BY NIIT EVERY YEAR CALLED THE TARGET ORDER COMMITMENT. HE ALSO POINTED OUT THAT NIIT WA S ALSO AUTHORIZED TO REPRODUCE TRAINING RESOURCES FOR DISTRIBUTION. THUS , THE PAYMENTS WERE MADE 235 ITA NO. 2057/DEL/10 NIIT VS. CIT BY NIIT TO NETG AS A PROPORTION OF THE SALES AND, THEREFORE, WAS IN THE NATURE OF ROYALTY AND NOT PURCHASE PRICE. 84.10. LD. CIT POINTED OUT THAT AO HAD DISALLOWED T HE AMOUNT REMITTED TO NETG IN FY 2001-02 OF USD 207785, BUT FAILED TO EXA MINE THE REAL MOTIVE AND PURPOSE FOR WHICH SAID AMOUNT WAS REMITTED. WIT H REFERENCE TO ABOVE OBSERVATION, LD. CIT POINTED OUT THAT AO FAILED TO CONSIDER THIS FACT AND ERRED IN ACCEPTING THE IMPORT AS GENUINE. 84.11. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT NETG IS A MULTINATIONAL COMPANY BASED IN UK, WHICH IS ENGAGED IN THE BUSINE SS OF PRODUCING, ACQUIRING AND MARKETING TRAINING RESOURCES IN VARIO US MEDIA INCLUDING CD ROMS, INTERACTIVE VIDEO INSTRUCTION, LINEAR VIDEO I NSTRUCTORS, COMPUTER BASED TRAINING (CBT) AND RELATED TEXTS, AUDIO MATER IAL AND EQUIPMENT. HE POINTED OUT THAT THIS ISSUE IS SIMILAR TO ISSUE REL ATING TO ROYALTY/FTS, AS CONSIDERED VIDE GROUND NO. 18. HE POINTED OUT THAT ASSESSEE WAS APPOINTED AS SOLE DISTRIBUTOR BY NETG FOR DISTRIBUTION OF ITS PRODUCTS VIZ. CBTS/ TRAINING PROGRAMMES IN INDIA VIDE AGREEMENT DATED 3 1-12-1994. IN ACCORDANCE WITH THE AGREEMENT, THE ASSESSEE WAS REQ UIRED TO PURCHASE PRODUCTS FROM NETG FOR FURTHER SALE IN INDIA. THIS AGREEMENT EXPIRED IN THE PREVIOUS YEAR RELEVANT TO AY 2002-03. 84.12. LD. COUNSEL POINTED OUT THAT IN PURSUANCE T O THIS AGREEMENT, RIGHT FROM ITS COMMENCEMENT, THE ASSESSEE MADE PAYM ENTS FOR PURCHASE/IMPORT OF CBTS, WHICH WERE ALWAYS ACCEPTED AND ALLOWED AS BUSINESS DEDUCTION IN THE COMPLETED ASSESSMENTS FOR THE EARLIER YEARS. HE POINTED OUT THAT ASSESSEE ALSO PURCHASED CBTS FOR AMOUNTS AGGREGATING TO USD 207785 FROM NETG AFTER EXPIRY OF THE AGREEMENT IN AY 2002-03. THIS WAS DISALLOWED BY AO ON THE GROUND THAT THE SAME WA S MADE AFTER THE 236 ITA NO. 2057/DEL/10 NIIT VS. CIT EXPIRY OF THE AGREEMENT WITH NETG. HOWEVER, FROM AY 1999-2000 ONWARDS UP TO AY 2001-02, AO AFTER DETAILED EXAMINATION/ VE RIFICATION OF THE REPLIES AND EXPLANATIONS FURNISHED BY THE ASSESSEE ACCEPTED THE BUSINESS ARRANGEMENT OF IMPORT OF CBTS BY ASSESSEE FROM NETG . HE POINTED THAT IN AY 2002-03 LD. CIT(A) DELETED THE DISALLOWANCE ON T HE GROUND THAT PURCHASES WERE MADE BY THE ASSESSEE AS PART OF MINI MUM PURCHASE OBLIGATION UNDERTAKEN IN THE AGREEMENT. 84.13. LD. COUNSEL SUBMITTED THAT ON CONSIDERATION OF SOME E-MAILS WHICH WERE FOUND IN THE COURSE OF SEARCH AND CONFRONTED T O THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, LD. CIT HELD THAT THE ASSESSMENT ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF TH E REVENUE. 84.14. LD. COUNSEL SUBMITTED THAT THE ASSESSEE ONLY ORDERED CBTS IN CUSTOMER COPY FORMAT FROM NETG, WHICH WERE READY TO BE DELIVERED TO THE ULTIMATE CUSTOMER. THEREFORE, NIIT WAS NOT REQUIRED TO REPLICATE OR REPRODUCE ANY MATERIAL. 84.15. LD. COUNSEL RELIED ON FOLLOWING DECISIONS FO R THE PROPOSITION THAT SOFTWARE PURCHASED AND SOLD UNDER A DISTRIBUTION AR RANGEMENT WITHOUT OBTAINING ALL THE RIGHTS IN RELATION TO THE COPYRIG HT, WHICH REMAINED WITH THE LICENSOR, PAYMENT MADE THERE AGAINST WAS NOT IN THE NATURE OF ROYALTY. - DIT V. ERICSSON AB 343 ITR 470; - DIT V. NOKIA NETWORK OY 253 CTR 417(DEL.). 84.16. WITHOUT PREJUDICE TO THIS ARGUMENT, LD. COUN SEL SUBMITTED THAT THE REVENUE HAS NOT ISSUED ANY NOTICE TO THE PAYEES OR MADE ATTEMPT TO ASSESS THIS INCOME, ALLEGED TO BE CHARGEABLE TO TAX IN IN DIA IN PAYEES HANDS AND, THEREFORE, ASSESSEE/ PAYER COULD NOT BE HELD TO BE IN DEFAULT FOR NOT DEDUCTING TAX U/S 195 F THE ACT, RELYING ON FOLLOWING DECISIO NS: 237 ITA NO. 2057/DEL/10 NIIT VS. CIT - VAN OORD ACZ INDIA (P) LTD. V. CIT 323 ITR 130 (DEL .) - MAHINDRA AND MAHINDRA LTD. V. DCIT 313 ITR 263 (MUM )(SB)(AT). 84.17. LD. COUNSEL FURTHER SUBMITTED THAT SINCE LD. CIT(A) HAD ALLOWED THE ASSESSEES APPEAL IN RESPECT OF DISALLOWANCE MADE B Y AO IN RESPECT OF PURCHASES MADE IN AY 2003-04 AGGREGATING TO USD 207 785, THEREFORE, IN VIEW OF CLAUSE (C) OF EXPLANATION TO SEC. 263(1), L D. CITS JURISDICTION WAS OUSTED. HE POINTED OUT THAT AFTER EXAMINING THE E- MAILS, REFERRED TO BY THE AO AS WELL AS THE CIT, THERE WAS NO FINDING BY EITH ER OF THE AUTHORITIES THAT PAYMENT TOWARDS PURCHASE OF CBTS WAS IN THE NATURE OF ROYALTY. 84.18. LD. COUNSEL SUBMITTED THAT ASSESSMENT ORDER WAS PASSED AFTER DETAILED QUERIES RAISED BY AO AND THE REPLIES FILED BY THE A SSESSEE WERE CONSIDERED BY AO. HE REFERED TO PAGE 667 OF THE PB, WHEREIN TH E AOS QUERY LETTER DATED 1-3-2006 IS CONTAINED, IN WHICH AO HAD CONFRO NTED THE ASSESSEE WITH THE DOCUMENTS IN THE SHAPE OF E-MAILS, INVOICES ETC ., WHICH WERE NOT SEIZED FROM THE PREMISES DURING THE COURSE OF SEARCH ACTIO N ON 10-11-2004. IN THE NOTICE THE ASSESSEE HAD, INTER ALIA, OBSERVED THAT WITH REFERENCE TO THE REMITTANCE TO NIITG(UK), THE AO REFERRED TO EMAILS AND POINTED OUT THAT THE PAYMENTS WERE ON ACCOUNT OF ROYALTY AND IMPORTS WER E NOT MEANT FOR RESALE/USE. THE QUERIES OF AO ARE REPRODUCED HEREUN DER: REMITTANCE TO NIITG (UK) EVIDENCE IN SUPPORT OF THE FACT THAT THE REMITTANCE TO NETG(UK) WERE ON ACCOUNT OF ROYALTY IS IN THE FORM OF E-MAILS IS ANNEXED. THESE E-MAILS CLEARLY ESTABLISH THAT IMPORT OF COPI ES OF OLDER/OUTDATED CBTS EFFECTED BY NIIT FROM NETG(UK) MERELY FOR MAKING REMITTANCES TO NETG(UK) TOWARDS ROYALTY AND IMPORTS WERE NOT MEANT FOR RE-SELL/USE. E-MAIL DATED 06-02-2001 SENT BY MR. RAJEEV KATIYAL TO AMITA MITRA, VICE PRESIDENT, NIIT(USA)INC. & MR. AJAY WAH I 238 ITA NO. 2057/DEL/10 NIIT VS. CIT (GENERAL MANAGER, NITT WITH COPY MARKED TO MR. ARVI ND THAKUR DIRECTOR NIIT AND MR. SS ROY SR. VICE PRESID ENT, NIIT WHERE IT WAS, INTER ALIA, STATED AS UNDER: I TOLD HIM THE ONLY WAY WE CAN SEND MONEY FROM IND IA IS GETTING COURSE IN THE QUANTITIES MENTIONED IN THE P O. HIS STANCE WAS THAT THEY CANNOT SEND COURSES AS WE WILL STOCK & RESELL THEM EVEN THOUGH OUR AGREEMENT IS OVER. MY REPLY WAS THAT WE ALREADY HOLD STOCK WORTH CLOSE TO 750 KUSD (READ USD 750000/-) AND IF HE SEND SOME MORE W ORTH USD 180 K (READ 180000/-) IT CANT ADD TO OUR ABILI TY TO SELL. HE HAS NOW AGREED TO PROCESS OUR PO PROVIDED WE REV ISE IT TO INCLUDE ONLY THOSE COURSE TITLES WHICH ARE ALREADY HERE IN OUR INVENTORY THAT BY ITSELF IS NOT BAD SINCE WE HOLD QUITE A FEW OF THE LATEST VERSIONS OF THEIR COURSES IN THE INVE NTORY AND WE CAN ORDER MORE OF THOSE. SO THE ACTION TO BE TAKEN BY US IS TO FIRST SEND A LIST OF OUR INVENTORY OF COURSES TO AN DRE AND TO FOLLOW IT UP WITH A REVISED PO TO HIM. K RAJENDRAN SHOULD FAX TO ANDRE OUR INVENTORY, WHICH CONTAINS ONLY THE FOL LOWING THE LIST OF THEIR COURSE TITLES HELD BY IN OUR SOCK. TH EN WE CAN SEND THE PO. HE PROCESS AND PAYMENT IS RELEASED. EMAIL DATED 28-02-2001 (ANNEXURE .. OF MR. P. RAJE NDARAN, SR. EXECUTIVE WITH NIIT LIMITED TO MR AL MEHTA, DY. GENERAL MANAGER, NIIT, WHEREIN HE STATED AS UNDER: NIIT HAS TO PAY USD 1,83,000 AS ROYALTY TO NETG EMAIL DATED 11-9-2001 (ANNEXURE -) FROM MR. ANDRE H OGAN, DIRECTOR SALES OPERATIONS, NETG(UK) TO MR. DEVAND O F NIIT DELHI, WHEREIN IT WAS INTER ALIA STATED AS UNDER: THE PURPOSE OF THE SHIPMENT IS TO ENABLE NIIT TO RE LEASE LONG OUTSTANDING MONIES TO NETG I SUGGEST YOU REVISE Y OUR ORDER AND INCLUDE OLDER TITLES, FOR INSTANCE WORD 97 NOT WORD 2000, NT TITLES INSTEAD OF WINDOWS 2000 ETC. IN ADDITION IT WOULD BE SENSIBLE TO REDUCE THE NUMBER OF TITLES TO SAY A MA XIMUM OF 20 AND INCREASE THE QUANTITY AS THE OVER ALL EXERCISE IS NOT BEING COMPLETED TO PRODUCE CONTENT REUSABLE FOR RESALE. EMAIL DATED 12.9.2001 (ANNEXURE ---) FROM MR. SUDIP TO SINHA ROY, SR. VICE PRESIDENT, NIIT TO MR. DEVANAND TRIPA THI, SR. EXECUTIVE, NIIT (IN REPLY TO EMAIL DATED 12.9.2001) WITH COPY TO MR AJAY WAHI, GENERAL MANAGER, NIIT, MR. AMITAVA MITRA, 239 ITA NO. 2057/DEL/10 NIIT VS. CIT VICE PRESIDENT NIIT (USA) INC. MR. ARVIND THAKUR, D IRECTOR, NIIT, WHEREIN IT WAS STATED AS UNDER: SINCE WE CANNOT ANYWAY SELL THESE IN INDIA, LET US CLOSE THIS TRANSACTION BY TAKING OLDER TITLED. THOUGH THIS WAY , THEY ARE TRYING TO PROTECT THEIR CURRENT PARTNER APPREHENDIN G THAT WE MAY SELL THE NEW TITLES. EMAIL DATED 25-10-2001 (ANNEXURE ---) SENT BY MR. R AJEEV KATYAL, VICE PRESIDENT NIIT WITH COPY TO MR ANDRE H OGAN, DIRECTOR SALES OPERATIONS, NETG(UK) WHEREIN IT WAS INTER ALIA STATED AS UNDER: MY UNDERSTANDING WITH ANDRE NETG IS THAT WE CANNOT ORDER THOSE TITLES THAT ARE NOT IN OUR STOCK AND ARE NEW TITLES PRODUCED BY NETG. IF TITLES ARE ALREADY IN STOCK, WE CAN ORD ER AGAINST THOSE ITEM. THESE ITEMS ARE NOT GOING TO BE SOLD BY NIIT AS WE HAVE TAKEN THEIR PRODUCTS OFF OUR SALES LIST . THE REFORE IF TITLES ALREADY EXISTS IN STOCK WE CAN ORDER THEM. WE HAVE NO INTENTION OF RESELLING THESE. THE ABOVE EMAIL MESSAGES CLEARLY ESTABLISH HOW THE REMITTANCES WERE EFFECTED THROUGH THE IMPORT ROUTE TO SQUARE OF F THE OUTSTANDING TO NETG TOWARDS ROYALTY AND NIIT CONTIN UED RELEASE OF IMPORT PURCHASE ORDERS ON NETG IN SPITE OF THEIR CARRYING A STOCK OF NETGS CBTS AMOUNTING TO APPROX . RS. 3.37 CRORES AS IN FEBRUARY 2001 (PLEASE REFER EMAIL DATED 6-2- 2001 OF MR. RAJEEV KATYAL, VICE PRESIDENT, NIIT) SI NCE NIIT WAS PROHIBITED BY NETG DURING SUBSEQUENT COURSE OF THEIR AGREEMENT TO SELL THE STOCK IN INDIA AS NETG HAD AP POINTED M/S APTECH AS THEIR SOLE DISTRIBUTOR FOR THEIR COURSEWA RE CBTS IN INDIA. IMPORT OF CBTS WAS OF OUTDATED/ OLD TITLES, WHICH W ERE ALREADY IN STOCK WITH NIIT, WHICH GOES TO ESTABLISH THAT TH E METHODOLOGY OF IMPORT WAS ADOPTED TO REMIT AMOUNTS TOWARDS ROYALTY AND THESE WERE NOT GENUINE TRANSACTIONS OF IMPORT FOR RESALE. IT IS SEEN THAT THE IMPORT PRICES AT WHICH CBTS WER E IMPORTED BY APTECH FROM NETG WERE MUCH LESS THAN THE PRICES AT WHICH CBTS WERE IMPORTED BY NIIT FROM NETG; 240 ITA NO. 2057/DEL/10 NIIT VS. CIT STOCK STATEMENT OBTAINED FROM NIIT BY THE DEPARTMEN T FURTHER CONFIRMED THAT A HUGE INVENTORY OF NETG CBTS WERE B EING CARRIED BY NIIT, WHICH FURTHER GOES TO PROVE THAT T HE IMPORTS EFFECTED WERE ONLY FOR THE PURPOSES OF MAKING PAYME NTS FOR $207735 TO NETG TOWARDS ROYALTY AND NOT FOR GENUINE IMPORTS OF CBTS AND THEIR RESALE IN INDIA NETG AFTER HAVING APPOINTED APTECH AS THEIR SOLE SELLING DISTRIBUTOR IN INDIA H AD PROHIBITED NIIT TO SELL NETGS CBTS IN INDIA HOWEVER NIIT CONT INUED IMPORTS OF COPIES OF CBTS IN INDIA FOR THE PURPOSES OF MAKING PAYMENTS OF ROYALTY TO NETG; THE TRANSACTIONS WERE NOT AT ARMS LENGTH AS REQUIR ED UNDER SECTION 92C OF THE INCOME TAX ACT. IMPORTS OF CBTS AFFECTED THROUGH NIITS 100% OWNED SUBSIDIARY COMPANY IN UK & DIRECTLY FROM NETG WERE MANIPULATED. THE PRICE PAID IN THE INTERNATIONAL TRANSACTION WAS NOT DETERMINED IN ACC ORDANCE WITH SUB SECTIONS (1) AND (2) OF SECTION 92. 84.19. THE AO HAS ELABORATED ALL THE POINTS RAISED ABOVE IN HIS QUERY LETTER, WHICH IS CONTAINED AT PAGES 667 TO 678. THE ASSESSE ES REPLY ON ALL THE POINTS ARE CONTAINED FROM PAGES 679 TO 692. LD. COUNSEL FU RTHER POINTED OUT THAT IN COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DATED 9-1-2006, CONTAINED AT PAGES630 OF THE PB, THE ASSESSEE HAD FURNISHED COPY OF AGREEMENT WITH NETG (UK) HIGHLIGHTING MINIMUM PURCHASE COMMITMENT OF NIIT ALONG WITH NOTE ON IMPORT OF MATERIAL FROM NETG VALUING U S$ 2,07,000/-. 84.20. LD. COUNSEL FURTHER REFERRED TO PAGE 1158.45 OF PB-4 AND POINTED OUT THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS VI DE LETTER DATED 9-1-2006, THE ASSESSEE HAD SUBMITTED COPY OF A/C OF M/S K.K. LUBRICANTS PVT. LTD. AS ON 31-12-2005 REGARDING SALE AMOUNTING TO RS. 7.88 CRORES AND PAYMENT RECEIVED THEREOF. HE SUBMITTED THAT THE ADVERSE INF ERENCE DRAWN BY THE LD. CIT ON THE BASIS OF SUBSEQUENT AGREEMENT ENTERED IN TO BY NETG WITH APTECH IS COMPLETELY MISCONCEIVED BECAUSE APTEC AND ASSESSEE ARE TWO DIFFERENT ENTITIES AND THE NATURE OF INTEREST ENTER ED INTO BY NETG WITH THE 241 ITA NO. 2057/DEL/10 NIIT VS. CIT TWO PARTIES IS DIFFERENT AND AT VARIANCE BOTH IN TE RMS OF SCOPE OF AGREEMENT AS WELL AS BUSINESS CONSIDERATION. 84.21. LD. COUNSEL SUBMITTED THAT AO HAD CONDUCTED DETAILED INQUIRIES AND THEREAFTER TOOK ONE VIEW BY ACCEPTING THAT PAYMENT TOWARDS PURCHASE OF CBTS WAS NOT ROYALTY. IN THIS REGARD LD. COUNSEL RE FERRED TO FOLLOWING QUERIES AND RESPECTIVE ANSWERS FURNISHED BY ASSESSE E: (A) QUERY NO. 24 RAISED BY AO VIDE LETTER NO. 2-11-2005 AVAILABLE AT PAGE 620 OF THE PB, REPRODUCED BELOW: 24. AS PER DETAILS OBTAINED FROM THE SEIZED LAPTOP OF SH. V.K. THADANI, YOU HAVE IMPORTED CBTS (COMPUTER BASED TRA INIGN PRODUCTS) VALUING US$ 207785 VIDE THREE DIFFERENT P URCHASE ORDERS FROM NETG. YOU ARE REQUESTED TO FILE THE COM PLETE DETAILS OF INCOME FROM THE SALE/USE OF ABOVE CBTS. 84.22. ASSESSEES ANSWER TO THE AFOREMENTIONED QUER Y, VIDE LETTER DATED 14- 11-2005, CONTAINED AT PAGE 626 IS AS UNDER: 3. PROVIDE DETAILS OF OBTAINED FROM LAPTOP OF MR. V.K. THADANI, WHICH IS LYING SEIZED WITH YOU S PER POINT 24 OF YOUR QUESTIONNAIRE. (B) QUERY NO. 9 RAISED BY AO VIDE LETTER NO. 29-12-2005 AVAILABLE AT PAGE 628 OF THE PB, AS REPRODUCED BELOW: IT IS CLAIMED THAT EXPORT OF SOFTWARE IS PHYSICAL EXPORT OF ARTICLE OR THING. PLEASE EXPLAIN WITH EVIDENCE HOW THE SOFTWAR E IS PHYSICALLY EXPORTED. FURTHER CONFIRM THAT ALL EXPORTS OF SOFTW ARE TANTAMOUNT TO TRANSFER OF ALL OWNERSHIP AND PROPERTY RIGHTS WI THOUT RECOURSE TO RECALL OR RESUMPTION OF TITLES 242 ITA NO. 2057/DEL/10 NIIT VS. CIT 84.23. ASSESSEES ANSWER TO THE AFOREMENTIONED QUER Y, VIDE LETTER DATED 9-1- 2006, CONTAINED AT PAGE 630 IS AS UNDER: COPY OF AGREEMENT WITH NETG UK HIGHLIGHTING MINIMUM PURCHASE COMMITMENT OF NIIT ALONGWITH NOTE ON IMPORT OF MATERIAL FROM NETG VALUING US$ 2,07,000/- - REFER ANNEXURE III. (C) ENQUIRY NO. E REGARDING TDS ON REMITTANCES TO NETG, RAISED BY AO VIDE LETTER NO. 10-2-2006 AVAILABLE AT PAGE 654 OF THE PB, REPRODUCED BELOW: E. REGARDING TDS ON REMITTANCES A. PLEASE GIVE A BRIEF OF YOUR BUSINESS ASSOCIATION WI TH NETG, UK B. IS IT CORRECT THAT THE CBTS IMPORTED FROM NETG HAVE BEEN SHOWN IN THE NON-EOU AND THE SAME CBTS WERE EXPORTE D TO NETG FROM THE 100% EOUS? C. IS IT CORRECT THAT THE IMPORT OF CBTS FOR USD 2,07, 785 WAS DONE AFTER EXPIRY OF THE AGREEMENT? D. FURNISH EVIDENCE DETAILING EVENTUAL SALE/UTILIZATIO N OF THE CBTS IMPORTED FOR USD 2,07,785. HAVE YOU SOLD PART OF THE CBTS TO M/S K.K. LUBRICANTS E. PLEASE PROVIDE US COPIES OF INVOICES RAISED ON DOME STIC CUSTOMERS FOR SALE OF CBTS. F. HAVE YOU REPLICATED/ COPIED THE CBTS PURCHASED FROM NETG AND SOLD IN THE DOMESTIC MARKET? G. CLARIFY THE CLAUSE 5A (TARGETED ORDER COMMITMENT) MENTIONED IN THE DOCUMENT TITLED :DISTRIBUTION AGRE EMENT DATED 31-12-1994 BETWEEN NETG AND NIIT LTD. H. CLARIFY THE CLAUSE 7A & B MENTIONED IN THE DOCUMENT TITLED DISTRIBUTION AGREEMENT DATED 31-12-1994 BETWEEN NE TG AND NIIT LTD. THE CLAUSE 7A & B READS AS FOLLOWS: 7.A. NIIT SHALL ORDER ANY TRAINING RESOURCES FOR WHICH IT HAS DISTRIBUTION RIGHTS HEREUNDER EITHER I N 243 ITA NO. 2057/DEL/10 NIIT VS. CIT MASTER COPY FORMAT (WHERE AVAILABLE) OR CUSTOMER COPY FORMAT. 7B. NIIT MAY REPRODUCE TRAINING RESOURCES FOR DISTRIBUTION UNDER THIS AGREEMENT, EXCEPT IN CASES WHERE NETGS AGREEMENT WITH AN AUTHORITY OR PRODUCER, OR OTHER LEGAL RESTRICTIONS PRECLUDE SUCH REPRODUCTION. I. PROVIDE THE DETAILS OF NUMBER OF COPIES AND PRICE A T WHICH THESE CBTS WERE IMPORTED (ANNEXURE 31). 84.24. ASSESSEES ANSWER TO THE AFOREMENTIONED QUER Y, VIDE LETTER DATED 27- 2-2006, CONTAINED AT PAGE 658 IS AS UNDER: REGARDING TDS ON REMITTANCES TO NETG. IN RESPECT OF THE ABOVE, THE ASSESSEE COMPANY WOULD LIKE TO SUBMIT AS UNDER: NETG IS A MULTINATIONAL COMPANY BASED IN UK. THE CO MPANY WAS ENGAGED IN THE BUSINESS OF PRODUCING, ACQUIRING & MARKETING, TRAINING RESOURCES IN VARIOUS MEDIA INCL UDING CD- ROMS, INTERACTIVE VIDEO INSTRUCTIONS, LINEAR VIDEO INSTRUCTIONS, CBTS AND RELATED TEXTS, AUDIO MATERIA L AND EQUIPMENTS. THE BUSINESS RELATIONSHIP BETWEEN NIIT & NETG WAS F OR A LONG PERIOD AS DISTRIBUTOR OF CBT PRODUCTS OF NETG. THE AME IS EVIDENT FROM THE AGREEMENT WITH NETG WHICH HAS ALRE ADY BEEN FILED WITH THE DEPARTMENT ON 9-1-2006. AT A LATTER STAGE IN 1996, NIIT STARTED SOFTWARE D EVELOPMENT WORK FOR NETG FOR WORK ON HIRE BASIS. UNDER THIS NEW RELATIONSHIP, ON THE BASIS OF REQUIREMENT/ SPECIFIC INSTRUCTIONS OF THE CLIENT, NIIT LTD. DEVELOPED LEARNING SOFTWAR E AND CONTENTS ON ASSIGNED TOPICS WITH RIGOROUS PROJECT A ND QUALITY CONTROL BY THE CLIENT. THESE WERE PIECES OF LEARNIN G SOFTWARE, CALLED LEARNING OBJECTS. ONCE THESE SOFTWARES WERE SENT TO NETG USA, THEY ADDED THEIR PROPRIETARY COMPUTER PRO GRAM, AUDIO FILES, RECORDED IN THEIR STUDIO, GRAPHICS/ MU LTI-MEDIA, CLIPS 244 ITA NO. 2057/DEL/10 NIIT VS. CIT WHERE NEEDED AND INTEGRATE/RECOMPILE AL THESE TOGET HER TO RELEASE THE FINAL FUNCTIONAL CBT PRODUCTS, WHICH IS THEIR INTELLECTUAL PROPERTY. B. IT IS TRUE THAT IMPORTS OFCBTS FROM NETG WAS DEB ITED TO NON-EOU. THIS IS EVIDENT FROM THE MATCHING SALES AS AGAINST THE SAME PURCHASES MADE IN NON-EOU. HOWEVER, IT IS NOT CORRECT THAT THE ASSESSEE COMPANY HAVE EXPORTED THE SAME CBTS TO NETG FROM THEIR 100% EOU. THE G~TS DEVELOPED BY NIIT LIMITED FOR NETG WERE SH OWN AS EXPORTS IN THE 100% EOU (STP UNITS). THIS IS AS PER THE ARRANGEMENT WITH NETG ON 'WORK ON HIRE' BASIS. IT I S FURTHER SUBMITTED THAT THE EOU PROFITABILITY STATEMENTS ARE CORRECT AND THE SAME HAVE ALSO BEEN CERTIFIED BY MLS PRICE WATE RHOUSE. BOTH THE ABOVE ARRANGEMENTS ARE INDEPENDENT AND SEP ARATE FROM-EACH OTHER, AS EXPLAINED ABOVE IN POINT (A). C. IT IS TRUE THAT THE IMPORT OF CBTS FOR USD 2,07, 78S WAS DONE AFTER EXPIRY OF THE AGREEMENT, BUT THE IMPORT WAS TO BE MADE AS PART OF 'MINI,MUM PURCHASE COMMITMENT' AS P ER AGREEMENT. THE IMPORT WAS ROUTED THRU NORMAL CUSTOM CHANNEL AND ALL RELEVANT IMPORT DOCUMENTS HAVE BEEN FILED W ITH THE DEPARTMENT (REFER OUR LETTERS . DATED 14/ L11200S A ND 09/112006) D. SUMMARY DETAILING EVENTUAL SALE/UTILIZATION OF T HE IMPORTED PRODUCTS HAVE ALREADY BEEN PROVIDED ON 14.11.200S. THE ASSESSEE COMPANY HAVE SOLD PART OF THE CBTS TO M/S K K LUBRICANTS. FURTHER, THE ASSESSEE COMPANY HAVE OFFE RED THE MARGIN OF PROFIT FOR TAX PURPOSE. E COPY OF SALE INVOICES IS SUBMITTED TO THE DEPARTM ENT VIDE LETTER DATED . 27.2.2006 IN RESPECT OF ASSESSMENT Y EAR 200 I -02. F. NO, THE ASSESSEE COMPANY HAVE NOT REPLICATED/COP IED THE CBTS PURCHASED FROM NETG AND SOLD TO CUSTOMERS IN T HE 245 ITA NO. 2057/DEL/10 NIIT VS. CIT DOMESTIC MARKET. THE ASSESSEE COMPANY HAVE PURCHASE D THE CBTS FROM NETG AND SOLD THEM AS STOCK AND SELL ITEM S. G . THE FIRST PART OF THE SA(TARGETED ORDER COMMITM ENT) OF THE DISTRIBUTOR AGREEMENT, IS A SAFEGUARD BUILT-IN BY T HE SUPPLIER NETG TO ENSURE THAT: I. THEIR PRODUCTS ARE NOT PIRATED AND SOLD IN THE M ARKET II. THEY GET ADEQUATE ORDERS FROM THE DISTRIBUTORS BASED ON THE '. POTENTIAL OF' THE MARKET. NETG HAD APPOINTED NIIT AS THE SOLE DISTRIBUTOR OF THEIR PRODUCTS IN INDIA. AS PER THIS ARRANGEMENT, WHEN PR ODUCTS ARE BOUGHT FROM NETG, NIIT CAN SET THEIR OWN SALE PRICE IN THE MARKET. HOWEVER, THIS CLAUSE CLARIFIES THAT NIIT CA N GENERATE THEIR REVENUE OF RS.I 00 IN THE MARKET ONLY, IF THE Y HAVE PURCHASED PRODUCTS WORTH RS.30 FROM NETG. THIS MEAN S THAT THE TARGETED ORDER COMMITMENT FROM NIIT WILL BE 30% OF NILT BILLINGS (AS SHOWN IN THE EXAMPLE ABOVE) OR MI NIMUM ORDER COMMITMENT SHALL BE AS PER CLAUSE 4(B) OF THE AGREEMENT WHICHEVER IS HIGHER. H. THE CLARIFICATIONS OF 7 A & B OF THE DISTRIBUTOR AGREEMENT ARE AS FOLLOWS: 7 A. ANY DISTRIBUTOR CAN ORDER EITHER IN A MASTER C OPY FORMAT OR IN CUSTOMER COPY FORMAT. IN CASE MASTER COPY FORMAT IS ORDERED, THE DISTRIBUTOR HAS TO REPRODUCE THE MATERIAL AND P ACKAGE IT AND SELL IT. 7B. IN OUR CASE, NIIT ALWAYS ORDERED IN THE CUSTOME R COPY FORMAT ONLY WHICH COULD BE DELIVERED IMMEDIATELY TO THE CUSTOMER. BECAUSE OF THIS, THE ISSUE OF REPRODUCTIO N AS PER 7B DID NOT ARISE. ANNEXURE-31 IS NOT APPLICABLE FOR THE ASSESSMENT YE AR 1999- 2000. 246 ITA NO. 2057/DEL/10 NIIT VS. CIT IN VIEW OF THE REASONS STATED ABOVE, THE ASSESSEE C OMPANY WOULD LIKE TO SUBMIT THAT TDS IS NOT APPLICABLE ON THE REMITTANCES EFFECTED TO NETG, BECAUSE IT IS NOT ROY ALTY PAYMENT BUT PHYSICAL IMPORT OF CBTS ITEMS, WHICH WERE PURCH ASED AND SOLD AS 'STOCK AND SELL' ITEMS. THESE CBTS ARE STAN DARD PRODUCTS AND NOT CUSTOMIZED. RELEVANT COPIES OF IMP ORT DOCUMENTS HAVE ALREADY BEEN FILED WITH THE DEPARTME NT VIDE OUR LETTER DATED 14.11.2005. . THE ASSESSEE COMPANY WOULD ALSO LIKE TO SUBMIT THAT THEY HAVE NOT COPIED ANY OF THE CBT ITEMS IMPORTED FROM NETG, BUT HAVE PURCHASED AND SOLD THEM IN THE DOMESTIC MARKET AS STOCK AND SELL ITEMS. 84.25. THE ASSESSEE FURTHER VIDE LETTER DATED 6-3-2 006 SUBMITTED AS UNDER: TOPIC-1: REMITTANCE TO NETG (UK) THE REPLY TO THE QUERY IS AS UNDER: BACKGROUND : NETG IS A MULTINATIONAL COMPANY BASED IN UK. THE CO MPANY AS ENGAGED IN THE BUSINESS OF PRODUCING, ACQUIRING & MARKETING, TRAINING RESOURCES IN VARIOUS MEDIA INCL UDING CD- ROM, INTERACTIVE INSTRUCTIONS, LINEAR INSTRUCTIONS, CBTS AND RELATED TEXTS, AUDIO MATERIALS AND EQUIPMENTS. THE BUSINESS ASSOCIATION BETWEEN NIIT LTD. & NETG W AS FOR A LONG PERIOD AS DISTRIBUTOR OF CBT PRODUCTS OF NETG. UNDER THE ARRANGEMENT, THE ASSESSEE COMPANY ARE IMPROTING CBT S FOR SELLING THEM IN THE INDIAN MARKET. LATER ON, NIIT S TARTED SOFTWARE DEVELOPMENT WORK FOR NETG IN ITS EOUS UNDE R WORK ON HIRE BASIS. UNDER THIS ARRANGEMENT, ONCE THE AS SESSEE COMPANY DEVELOP THE SOFTWARE, THEY CANNOT RETAIN AN D USE THE PRODUCTS AT THEIR END, BECAUSE THEY DO NOT HAVE THE COPYRIGHT TO USE THEM (VIDE OUR LETTER DATED 27-2-2006). REFERRING TO REMITTANCE TOWARDS IMPORT OF CBTS FROM NETG, THE ASSESSEE COMPANY HAD ALREADY EXPLAINED VIDE OUR LETTER DATED 09-01-2006, WHEREIN IT IS STATED THAT THE REM ITTANCE IS 247 ITA NO. 2057/DEL/10 NIIT VS. CIT TOWARDS MINIMUM PURCHASE COMMITMENT AS PER THE DISTRIBUTORSHIP AGREEMENT ENTERED BETWEEN NIIT LIMI TED AND NETG. A COPY OF THE AGREEMENT HAS ALREADY BEEN FILE D WITH THE DEPARTMENT VIDE LETTER DATED 09-01-2006. THEREFORE , THE REMITTANCES EFFECTED TO NETG IS TOWARDS MINIMUM PUR CHASE COMMITMENT AND NOT ROYALTY. IN ADDITION DDIT HAVE SUMMONED SOME F THE EXECUTIVE S OF THE ASSESSEE COMPANY FOR STATEMENT. THEY HAVE RECORDED THE STATEMENTS WHICH ARE REPRODUCED BELOW. IN THE STATEMENTS RECORDED IN THE DEPARTMENT FROM M R. RAJEEV KATYAL, MR. AJAY WAHI, MR P. RAJENDRAN, IT IS VERY CLEARLY MENTIONED THAT REMITTANCES EFFECTED TO NETG WAS TOW ARDS MINIMUM PURCHASE COMMITMENT AND NOT ROYALTY AS ALLE GED IN YOUR LETTER. FURTHER, THE IMPORTS WERE MEANT FOR TH E PURPOSE OF RE-SELL/ USE IN THE INDIAN MARKET. THE RELEVANT ANS WERS OF THE ABOVE OFFICERS RECORDED BY THE DEPARTMENT IS REPROD UCED BELOW. RAJEEV KAYAL: Q: WAS NIIT PAYMENT ANY ROYALTY TO NETG? A: TO THE BEST OF MY KNOWLEDGE, WE WERE PAYING FOR THE MATERIAL AND NOT ROYALTY. AJAY WAHI: Q: WHETHER IT WAS FOR THE MINIMUM PURCHASE COMMITME NT OR SOMETHING ELSE. A: TO THE BEST OF MY KNOWLEDGE, THIS WAS MINIMUM PURCHASE COMMITMENT. P RAJENDRAN: Q. I AM SHOWING YOU CERTAIN EMAIL EXTRACS OF SOME O F YOUR EXISTING/ ERSTWHILE EMPLOYEES EMAIL MESSAGES EITHER AMONGST THEMSELVES OR WITH FOREIGN PRINCIPALS EXCHA NGED DURING THE PERIOD FEB MAR 2001 WHICH TALKS ABOUT BUSINESS LINKS BETWEEN NIIT & NETG GROUP OF 248 ITA NO. 2057/DEL/10 NIIT VS. CIT COMPANIES. IT TALKS ABOUT OUTSTANDING LIABILITY OF ROYALTY PAYMENT, TALKS ABOUT ADJUSTMENT REQUIRED TO BE MADE IN PURCHASE ORDERS AND ALSO OUTSTANDING LIABILITY OF PAYMENTS BY NIIT TO NETG GROUP UK . KINDLY GO THRU THESE EMAIL EXTRACTS AND EXPLAIN THE DISCREPANCY IN YOUR STATEMENT. A: TO THE BEST OF MY KNOWLEDGE SINCE WE WERE IMPORT ING CBT RELATED SOFTWARE FROM NETG, UK, THERE WAS NO QUESTION OF ADJUSTING ANY ROYALTY WITH NETG,UK. I. AS MENTIONED ABOVE, THE ASSESSEE COMPANY CANNOT COMMENT ON THE EMAILS REFERRED IN YOUR LETTER VIDE POINT 1(1 TO 4) II. IT IS NOT CORRECT TO STATE THAT THE CBTS IMPORTED W ERE OUTDATED/ OBSOLETE. TO THE CONTRARY, THE ASSESSEE COMPANY HAVE SOLD THESE CBTS AND ALSO USED THEM INTERNALLY AT THEIR EDUCATION CENTRES (VIDE ASSESSE ES LETTER DATED 14-11-2005). III. REGARDING COMPARISON OF IMPORT PRICES OF THE CBTS O F NIIT WITH APTECH VIDE YOUR LETTER CLAUSE-III, THE A SSESSEE COMPANY CANNOT COMPARE THE PRICE WITH THEM. AS YOU KNOW, THE TECHNOLOGY IS CHANGING VERY FAST. THE PRI CING WILL VARY FROM TIME TO TIME WITH THE CHANGE IN TECHNOLOGY. IV. REGARDING REMITTANCE OF USD 207,735 TO NETG TOWARDS AS ALLEGED IN YOUR CLAUSE IV, IT IS TRUE THAT THE A SSESSEE COMPANY HAD MADE THE REMITTANCE AFTER EXPIRY OF THE AGREEMENT BECAUSE IT WAS THE MINIMUM COMMITMENT WHICH NETG HAD REMINDED THE ASSESSEE FOR WHICH THE ASSESSEE COMPANY HAD MADE REMITTANCE. FOR THIS REMITTANCE ALSO, THE ASSESSEE COMPANY HAD IMPORTED CBTS THROUGH CUSTOM AND COPIES OF RELEVANT IMPORT DOCUMENTS HAVE BEEN SUBMITTED TO THE DEPARTMENT. THEREFORE, THE IMPORT WAS GENUINE AND FOR RESALE IN THE INDIAN MARKET. THE DETAILS OF USES ALREADY PROVIDED VIDE LETTER DT. 4-11-2005. 249 ITA NO. 2057/DEL/10 NIIT VS. CIT V. REGARDING SECTION 92C OF THE ACT AS POINTED OUT IN CLAUSE V OF YOUR LETTER, THIS IS NOT APPLICABLE AS THIS IS NOT A RELATED PARTY TRANSACTION (ASSOCIATE ENTERPRISE). THIS BUSINESS AHS BEEN AGREED UPON BETWEEN TWO INDEPENDE NT PARTIES. THE PRICE OF THE IMPORTED MATERIALS IS NOT MANIPULATED. THE IMPORTS WERE AT ARMS LENGTH. SECT ION 92C OF THE ACT IS NOT, THEREFORE, APPLICABLE IN THI S CASE. 84.26. THE ASSESSEE VIDE LETTER DATED 11-5-2006 SUB MITTED THE DETAILS OF PURCHASES MADE FROM M/S NETG AND IMPORT OF NETG PRO DUCTS FROM NIIT UK DURING ASSESSMENT YEAR ALONG WITH SAMPLE COPY OF INVOICES AS CONTAINED AT PAGES 694 TO 702 OF THE PB. 84.27. IN VIEW OF ABOVE QUERIES RAISED BY AO AND RE PLIES FILED BY ASSESSEE, LD. COUNSEL SUBMITTED THAT IT WAS ONLY AFTER EXTENS IVE EXAMINATION AND DUE APPLICATION OF MIND THAT THE AO ACCEPTED THE NATURE OF BUSINESS ARRANGEMENT AND CAME TO THE CONCLUSION THAT PAYMENTS MADE TO NE TG WERE NOT IN THE NATURE OF ROYALTY AND TO DISALLOW PURCHASES OF CBTS FOR AMOUNT AGGREGATING TO USD 2,07,785/- ON THE GROUND THAT THERE WAS NO R ATIONAL FOR PURCHASE OF THE SAME AFTER THE EXPIRY OF AGREEMENT WITH NETG. 84.28. LD. COUNSEL FURTHER SUBMITTED THAT THE AO, A FTER CONSIDERING EXACTLY THE SAME ISSUES, AS WERE RAISED IN THE IMPUGNED ORD ER AND REPLIES FILED BY THE ASSESSEE FROM THE CONCLUSION IN THE OFFICE NOTES FO R THE ASSESSMENT YEAR 2002-03, THAT THE ASSESSEE HAD MERELY ENTERED INTO A SALE AND PURCHASE TRANSACTION OF CBTS AND NO PAYMENT IN THE NATURE OF ROYALTY WAS MADE UNDER THE AGREEMENT WITH NETG WARRANTING DEDUCTION OF TAX AT SOURCE. HE REFERRED TO THE SAID OFFICE NOTE, RELEVANT PORTION OF WHICH READS AS UNDER: SINCE THE ASSESSEE HAS PURCHASED THE CBTS FOR SAL E IN INDIA, AS TRADING ITEMS FOR WHICH DETAILS HAVE BEEN SUBMIT TED BY THE ASESSEE. IT IS CLEAR THAT THIS IS A SIMPLE TRANSACT ION OF OUTRIGHT 250 ITA NO. 2057/DEL/10 NIIT VS. CIT SALE & PURCHASE AND THE ROYALTY CLAUSE IS NOT ATTRA CTED AT ALL. HOWEVER, THE IMPORT OF CBTS WORTH US$ 2,07,785/- IS DISALLOWED BECAUSE THESE CBTS WERE PURCHASED AFTER THE EXPIRY OF THE AGREEMENT WITH THE SUPPLIER. 84.29. LD. COUNSEL FURTHER SUBMITTED THAT THE ISSUE REGARDING PURCHASE OF SOFTWARE UNDER A DISTRIBUTION AGREEMENT IS NOT IN T HE NATURE OF ROYALTY HAS BEEN UPHELD BY VARIOUS DECISIONS OF COURTS, INCLUDI NG THE JURISDICTIONAL HIGH COURT IN THE CASE OF ERICSSON A.B (SUPRA) AND NOKIA NETWORKS, OY (SUPRA). HE, THEREFORE, SUBMITTED THAT SINCE THE OR DER PASSED BY THE AO WAS IN ACCORDANCE WITH THE DECISIONS OF VARIOUS HIGH CO URTS, THEREFORE, THE SAME COULD NOT BE HELD TO BE ERRONEOUS IN VIEW OF THE DE CISION IN THE CASE OF CIT VS. G.M. MITTAL STAINLESS STEEL (P) LTD. 263 ITR 25 5 (SC). 84.30. LD. COUNSEL FURTHER POINTED OUT THAT IN VIEW OF THE DECISION OF LD. CIT(A) FOR AY 2002-03, IN ANY CASE, THE ASSESSMENT ORDER FOR THE BLOCK PERIOD, COULD NOT BE REVISED ON THIS ISSUE. HE POIN TED OUT THAT ASSESSMENT PROCEEDINGS FOR AY 1999-2000 TO 2004-05 (BLOCK ASSE SSMENT OF 6 YEARS AS PER SECTION 153A OF THE CT), WERE COMPLETED ALTOGET HER. HE POINTED OUT THAT IT IS THE CASE OF THE LD. CIT IN THE IMPUGNED ORDER THAT FACTS IN ALL THE ASSESSMENT YEARS ARE SAME AND, THEREFORE, EMAILS RE LATING TO TRANSACTIONS CONDUCTED IN THE ASSESSMENT YEAR 2002-03 ARE RELEVA NT FOR DETERMINING THE TRUE NATURE OF TRANSACTION. LD. COUNSEL REITERATED HIS SUBMISSIONS AS REGARDS THE IMPUGNED ISSUE BEYOND THE SCOPE OF JURISDICTION OF THE AO U/S 153A. HE POINTED OUT THAT THE NATURE OF PAYMENT TOWARDS PURC HASE OF SOFTWARE WAS ROYALTY OR NOT IS A LEGAL ISSUE AND DID NOT EMANATE FROM ANY DOCUMENT, SUGGESTING THAT PAYMENTS TOWARDS IMPORTS OF CBTS WA S IN THE NATURE OF 251 ITA NO. 2057/DEL/10 NIIT VS. CIT ROYALTY. HE, THEREFORE, SUBMITTED THAT IT WAS BEYO ND THE SCOPE OF POWERS U/S 153A OF THE AO, AS NO INCRIMINATING MATERIAL WAS FO UND. 84.31. LD. COUNSEL FURTHER SUBMITTED THAT ASSESSEE HAD FILED DETAILED REPLY BEFORE LD. CIT BUT HE DID NOT PIN POINT THE ERROR I N THE ASSESSMENT ORDER. 85. LD. SPECIAL COUNSEL SUBMITTED THAT LD. CIT IN I TS ORDER NOTED THAT THE AO HAD FAILED TO EXAMINE THE REAL MOTIVE AND PURPOS E FOR WHICH AMOUNT WAS REMITTED TO NETG. HE SUBMITTED THAT THE EVIDENCE O N RECORD LIKE E-MAILS EXCHANGED BETWEEN KEY FUNCTIONARY OF NIIT AND NETG SHOWED THAT BOGUS ORDERS WERE RAISED AND THAT THERE WAS NO CORRESPOND ING SALE ORDERS FOR THE PAYMENT MADE IN US$. IT FURTHER SUGGESTED THAT THE REAL MOTIVE AND PURPOSE OF REMITTANCE WAS TO MAKE PAYMENT OF ROYALTY AND NO T TO PAY FOR IMPORT OF AN OUTDATED COMPUTER BASE TRAINING PRODUCT (CBTS). AO HAD FAILED TO CONSIDER THIS ASPECT AND ERRED IN ACCEPTING THE IMP ORT AS GENUINE. 85.1. LD. SPL. COUNSEL REFERRED TO PAGE 748 OF PB A ND POINTED OUT THAT THE GROUND RAISED BEFORE LD. CIT(A) WAS AS UNDER: GROUND NO. 3 RELATES TO THE DISALLOWANCE OF PURCHA SE (CBT PRODUCTS) AMOUNTING TO RS. 97,36,496/- IMPORTED BY THE APPELLANT FROM M/S NETG ON THE GROUND THAT THE APPE LLANT MADE THE PURCHASES AFTER THE EXPIRY OF THE AGREEMEN T WITH THE DISTRIBUTOR. 85.2. HE SUBMITTED THAT BASIS OF DISALLOWANCE WAS D ISPUTED BEFORE LD. CIT(A). THE DECISION OF LD. CIT(A), CONTAINED AT PA GE 757 OF THE PB, RESTS ON TWO COUNTS, FIRSTLY, THAT THE PURCHASES WERE DUL Y ACCOUNTED FOR AND EXPENSES WERE MADE FOR BUSINESS PURPOSE. HE REFERR ED TO PARA 11.3 OF CIT(A)S ORDER, WHICH READS AS UNDER: 252 ITA NO. 2057/DEL/10 NIIT VS. CIT 11.3. I HAVE GONE THROUGH THE DOCUMENTS SO PRODUC ED BEFORE ME AND FROM THE PERUSAL OF THE SAME IT IS FO UND THAT THE PURCHASE ARE ACCOMPANIED WITH THE NECESSARY IMPORT DOCUMENTS AND HAVE DULY BEEN CONSUMED BY THE APPELL ANT. FURTHER THE PURCHASE SO MADE HAVE BEEN DULY ACCOUNT ED FOR AND THE PAYMENT FOR THE SAME HAVE BEEN MADE THROUGH BANKING CHANNELS THEREFORE IT IS ALSO NOT A CASE FROM THE A SSESSING OFFICER THAT THE PURCHASE ARE NOT GENUINE. FROM THE FACTS IT IS CLEAR THAT THE PURCHASES HAVE BEEN MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND OUT OF THE COMMERCIAL EXPEDIENCY, IN VIEW OF THE TOTALLY O F THE CIRCUMSTANCES AND TAKING A SUPPORT FROM THE DECISIO N OF SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. V. CIT 289 ITR 26, THE ADDITION MADE BY THE AO DESERVES TO BE DELE TED. 85.3. LD. SPECIAL COUNSEL SUBMITTED THAT CIT IS ON A DIFFERENT ISSUE ALTOGETHER. IN THIS REGARD HE REFERRED TO PAGE 53 O F THE CITS ORDER, WHEREIN THE LD. CITS FINDING IN THIS REGARD IS CONTAINED A ND POINTED OUT THAT THE MAIN PLANK OF LD. CITS ORDER FOR HOLDING THE ASSESSMENT ORDER AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE WAS THAT PA YMENT OF ROYALTY WAS MADE IN THE GARB OF PURCHASES/ IMPORT OF SOFTWARE. HE SU BMITTED THAT LANGUAGE OF AGREEMENT WILL NOT CHANGE THE TRUE CHARACTER OF REC EIPT. 85.4. LD. SPL. COUNSEL SUBMITTED THAT IN THE AGREEM ENT , CONTAINED AT PAGE 634 OF PB, THE MODE OF CALCULATION OF PURCHASE PRIC E IS PROVIDED WHICH IS NOT NORMAL IN THE CASE OF PURCHASES BUT ONLY IN THE CASE OF ROYALTY. THIS HAS NOTHING TO DO WITH THE ASSESSMENT YEA 2002-03 WHERE THE MAIN ISSUE BEFORE THE LD. CIT(A) WAS REGARDING COMMERCIAL EXPEDIENCY AND NOT THE CHARACTER OF PAYMENT. THEREFORE, THIS ISSUE WAS REQUIRED TO B E EXAMINED IN THE YEAR AS WELL AS THE YEARS THEREAFTER. HE POINTED OUT THAT N O FINDING HAS BEEN GIVEN BY LD. CIT(A) REGARDING CHARACTER OF PAYMENT WHETHER ROYALTY OR BUSINESS 253 ITA NO. 2057/DEL/10 NIIT VS. CIT TRANSACTION, SOLELY BECAUSE OF NON-EXAMINATION OF T HE ISSUE BY AO. HE SUBMITTED THAT WHILE DRAFTING THE AGREEMENT, PHRASE OLOGY MAY BE USED BUT THE SUBSTANCE OF THE AGREEMENT HAS TO BE CONSIDERED . 85.5. LD. SPL. COUNSEL FURTHER SUBMITTED THAT NO ST OCK WAS FOUND OF THIS SOFT-WARE DURING THE COURSE OF SEARCH AT K.K. LUBRI CANTS. HE SUBMITTED THAT THIS ISSUE HAD TREMENDOUS IMPLICATIONS ON REVENUE B ECAUSE TDS HAD TO BE MADE IN CASE OF ROYALTY PAYMENT AND THE PLACE OF PA YMENT ALSO HAD TO BE TAKEN INTO CONSIDERATION FOR DETERMINING THE CORREC T TAX LIABILITIES. 85.6 LD. SPL. COUNSEL SUBMITTED THAT WHETHER THE S OFTWARE WAS REPLICATED OR NOT HAD TO BE INQUIRED. HE SUBMITTED THAT AO DID NOT CARRY OUT THE NECESSARY INQUIRIES IN ORDER TO REACH THE STAGE WHE RE HE COULD ARRIVE AT A PROPER CONCLUSION. THUS, IT WAS A CASE OF LACK OF I NQUIRY AND THE NECESSARY FACTS WHICH COULD DETERMINE THE TRUE NATURE OF PAYM ENTS. 85.7. LD. SPL. COUNSEL REFERRED TO PAGES 667 ONWARD S, WHEREIN SHOW CAUSE NOTICE DATED 1-3-2006 IS CONTAINED AND POINTED OUT THAT THE E-MAILS WERE REFERRED TO IN THE SHOW CAUSE NOTICE TO DEMONSTRATE THAT THE PAYMENT WAS TOWARDS ROYALTY IN THE GARB OF MERIT OF SOFTWARE. H E POINTED OUT THAT FROM THE E-MAILS IT IS EVIDENT THAT THE AMOUNT WAS DUE TO NE TG EVEN BEFORE THE SHIPMENT WAS MADE. 85.8. LD. SPL. COUNSEL REFERRED TO PAGE 679 ONWARDS WHEREIN THE REPLY OF THE ASSESSEE IS CONTAINED, IN WHICH ASSESSEE SOUGHT TO EXPLAIN THE E-MAILS. LD. SPL. COUNSEL POINTED OUT THAT AO DID NOT MAKE ANY DISCUSSION OF E- MAILS AND ACCEPTED THE ASSESSEES PLEA WITHOUT PROP ER VERIFICATION REGARDING IMPORT OF SOFTWARE THOUGH THE PAYMENT WAS TOWARDS R OYALTY. HE POINTED OUT 254 ITA NO. 2057/DEL/10 NIIT VS. CIT THAT THE REPLY FILED BY THE ASSESSEE, THREW NO RE PLY ON ISSUES RAISED IN THE SHOW CAUSE NOTICE. THE AO DID NOT COMMENT UPON MATE RIAL FOUND DURING SEARCH. 85.9. LD. SPL. COUNSEL REFERRED TO THE OFFICE NOTE AND POINTED OUT THAT AT PAGES 38 TO 41 OF THE PB, THERE IS NO DISCUSSION AS TO WHY AO ACCEPTED THIS AS SIMPLE TRANSACTION OF OUTRIGHT SALE AND PURCHASE HOLDING THAT ROYALTY CLAUSE WAS NOT ATTRACTED AT ALL. HE POINTED OUT TH AT FROM THESE OBSERVATIONS, IT IS CLEAR THAT AO ACCEPTED THE ASSESSEES REPLY W ITHOUT PROPER INQUIRY. HE SUBMITTED THAT APPLICATION OF MIND HAS TO BE CLEAR FROM THE ORDER ITSELF. 85.10. AS REGARDS THE ASSESSEES PLEA THAT IN VIEW OF THE FINDINGS OF LD. CIT(A) FOR AY 2002-03, THIS ISSUE GOT MERGED WITH THE ORDER OF LD. CIT(A), LD. SPL. COUNSEL SUBMITTED THAT LD. CIT WAS DECIDIN G DIFFERENT ISSUE. HE POINTED OUT THAT THOUGH AO TOOK THIS ISSUE IN SHOW CAUSE NOTICE BUT LEFT IT UNCONCLUDED. THE WRITTEN SUBMISSIONS FILED BY SPL. COUNSEL ARE REPRODUCED HEREUNDER: 92. THE REVENUE REFERRED TO VARIOUS QUERIES AND RE PLIES FILED IN THE COURSE OF ASSESSMENT, AND SUBMITTED THAT THE ASSESSING OFFICER ACCEPTED ASSESSEE'S REPLY AS SUCH WITHOUT P ROPER APPLICATION OF MIND. IT WAS URGED THAT WHETHER THE ASSESSEE HAD THE RIGHT TO USE THE SOFTWARE LEADING TO THE CHARAC TERIZATION OF PAYMENTS MADE TO NETG AS ROYALTY OR WAS'A MERE DIST RIBUTOR OF THE SAME WAS A MATTER OF FACT, WHICH NEEDED TO BE I NVESTIGATED BY THE ASSESSING OFFICER TO DETERMINE WHETHER ANY T AX WAS REQUIRED TO BE DEDUCTED AT SOURCE BY THE ASSESSEE. 93. DURING SEARCH OPERATIONS, CERTAIN MATERIAL IN T HE FORM OF EMAILS AND THE STATEMENT OF RESPONSIBLE EMPLOYEES W AS GATHERED. KIND ATTENTION IS INVITED TO EMAIL EXTRAC TED ON ~ 668, VOL. 11 OF PB. THIS EMAIL FROM MR. ANDRE HOGAN, DIR ECTOR, SALES OPERATIONS, NETG UK TO MR. DEVANAND OF NIIT D ELHI READS AS UNDER: 255 ITA NO. 2057/DEL/10 NIIT VS. CIT 'THE PURPOSE OF THE SHIPMENT IS TO ENABLE NIIT TO R ELEASE LONG OUTSTANDING MONIES TO NETG. I SUGGEST YOU TO R EVISE YOUR ORDERS AND INCLUDE OLDER TITLES, FOR INSTANCE WORD 97, NOT WORD 2000 ..... IN ADDITION, IT WOULD BE SENS IBLE TO REDUCE THE NUMBER OF TITLES TO SAY A MAXIMUM OF 20 AND INCREASE THE QUANTITY AS THE OVERALL EXERCISE IS NO T BEING COMPLETED TO PRODUCE CONTENT REUSABLE FOR SALE .... ' THE EMAIL DATED 28.02.2001 FROM P.RAJENDRAN OF NIIT TO MR. AL MEHTA OF NIIT REPRODUCED ON THE SAME PAGE READS AS UNDER: 'NIIT HAS TO PAY USD 1,83,0001- AS ROYALTY TO NETG' 94. FURTHER EMAILS ON PAGE 669 OF PB 11 INDICATE TH AT THESE IMPORTS FROM NETG WERE OF OBSOLETE AND UNSALEABLE M ATERIALS. THESE ORDERS WERE SENT AND IMPORTS MADE TO COVER TH E PAYMENT FOR ROYALTY WHICH NIIT WAS TO PAY TO NETG. IN THEIR INTERNAL CORRESPONDENCE, NIIT CLEARLY STATES THAT THE AMOUNT OF ROYALTY IS PAYABLE. THE EMAIL OF ANDRE HOGAN CLEARLY BRINGS OUT THE ENTIRE PURPOSE OF THESE SHIPMENTS AND ALSO SUGGESTS WAY TO REDUCE THE COST OF SUCH BOGUS SALES (AND SHIPMENTS) . THESE DOCUMENTS BRING OUT VERY CLEARLY THAT REMITTANCE FO R ROYALTY WAS BEING MADE IN THE GARB OF PRICE FOR IMPORTS IN ORDER TO AVOID THE TAXABILITY OF NON-RESIDENT IN INDIA AND T HE PAYMENT OF WITHHOLDING TAX. THESE EMAILS MAY HAVE DATES RELEVA NT TO AY 2002-2003 BUT THROW LIGHT ON THE NATURE OF THE TRAN SACTION AND CHARACTERIZATION OF PAYMENT. THE TRANSACTION MAY BE IN ONE OR MORE YEARS BUT IF THE NATURE OF THE TRANSACTION IS THE SAME, THE CHARACTERIZATION OF PAYMENT (OR INCOME) WILL NOT VA RY. 95. THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD A ND MADE NO ENQUIRIES WITH REFERENCE TO THE MATERIAL GATHERE D DURING SEARCH BEFORE ACCEPTING THE BALD AND UNSUBSTANTIATE D REPLY OF THE ASSESSEE THAT THE PAYMENT TO NETG REPRESENTED CONSIDERATION OF IMPORT OF GOODS. 256 ITA NO. 2057/DEL/10 NIIT VS. CIT 96. THE CIT HAS ALSO POINTED OUT THAT DURING THE RE LEVANT PERIOD, ANOTHER ENTITY APTECH WAS APPOINTED BY NETG FOR SIMILAR RIGHTS IN INDIA AND APTECH WAS PAYING ROYAL TY TO NETG. IT IS A STRANGE SUGGESTION THAT ONE SO CALLED DISTRIBUTOR PAYS ROYALTY AND THE OTHER DOES NOT OR THE ONE HAS THE RIGHT TO REPLICATE AND THE OTHER DOES NOT. THE AO COULD NOT HAVE PUT BLINKERS ON SUCH VITAL ISSUES AND ACCEPTED THE CLAI M WITHOUT ANY ENQUIRY WHATSOEVER. 97. THE CIT ALSO POINTS OUT THAT INVESTIGATION WING OF THE DEPARTMENT CARRIED OUT SEARCH AT THE PREMISES OFM/S KK LUBRICANTS TO WHOM CBTS IMPORTED FROM NETG WERE SUP POSED TO HAVE BEEN SOLD BY THE ASSESSEE BUT FOUND NO SUCH STOCK OF CBTS AS CLAIMED TO HAVE BEEN SOLD. THE AO TURNS A B LIND EYE TO ALL SUCH VITAL MATERIAL. 98. THE RELIANCE OF THE LEARNED COUNSEL FOR THE ASS ESSEE ON DECISIONS TO THE EFFECT THAT NO TAX WOULD BE DEDUCT IBLE AS THE PAYMENT FOR THE PURCHASE OF SOFTWARE DOES NOT AMOUN T TO ROYALTY ARE OF NO CONSEQUENCE AS THE LAPSE ON THE P ART OF THE AO TO MAKE RELEVANT ENQUIRY TO PLACE MATERIAL FACTS ON RECORD CAN NOT BE MADE GOOD BY CITING DECISIONS TO SAY THAT TH E AMOUNT WAS NOT TAXABLE. IN ALL SUCH DECISIONS, THE COURTS HAVE HELD THAT THE ELEMENT OF ROYALTY IS MISSING. IN THE PRESENT C ASE, THE EM AIL SHOWS THAT THE AMOUNT OF ROYALTY IS PAYABLE. THE LE GAL ARGUMENT CAN ONLY BE RAISED IN THE BACKGROUND OF FACTS. THE CASE LAWS CAN NOT CHANGE THE FACTUAL MATRIX OF A GIVEN CASE. 99. AS REGARDS THE CONTENTION OF THE ASSESSEE THAT THE ISSUE IS BEYOND THE SCOPE OF SECTION 153A, IT IS SUBMITTED T HAT THE ISSUE AROSE AS A RESULT OF SEARCH MATERIAL AND HENCE WAS WELL WITHIN THE SCOPE OF SECTION 153A. 100. IN VIEW OF THE ABOVE, IT IS URGED THAT IT IS A COMPLETE CASE OF LACK OF INQUIRY, WHICH JUSTIFIED THE ACTION OF T HE CIT IN ASSUMING REVISIONARY JURISDICTION UNDER SECTION 263 OF THE ACT. 101. AS REGARDS THE OTHER OBJECTION OF THE ASSESSEE THAT THE AFORESAID ISSUE MERGED WITH THE ORDER OF CIT(APPEAL S) IN THE 257 ITA NO. 2057/DEL/10 NIIT VS. CIT ASSESSMENT YEAR 2002-03, THE REVENUE URGED THAT THE ISSUE BEFORE CIT(APPEALS) IN THAT YEAR WAS LIMITED TO ISS UE OF PURCHASE OF PRODUCTS AFTER THE EXPIRY OF AGREEMENT (PAGES 748/757 - VO1.2) AND DID NOT DEAL WITH THE ISSUE RA ISED BY THE CIT ON A DIFFERENT ASPECT, I.E. ROYALTY PAID TO NET G IN THE GARB OF PURCHASE OF SOFTWARE. IN OTHER WORDS, CIT(APPEALS) ONLY EXAMINED WHETHER THE PURCHASE OF SOFTWARE COULD BE MADE AFTER THE EXPIRY OF AGREEMENT, BUT DID NOT EXAMINE THE CH ARACTER OF PAYMENT, I.E. WHETHER IT WAS ROYALTY OR A PAYMENT F OR PURCHASE. THEREFORE, IT IS URGED THAT DOCTRINE OF MERGER IS N OT APPLICABLE TO THE AFORESAID ISSUE. 86. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE PRIMARY REASON FOR EXERCIS ING REVISIONARY JURISDICTION BY LD. CIT WAS ON THE GROUND THAT AO F AILED TO EXAMINE THE REAL MOTIVE AND PURPOSE FOR WHICH AMOUNT WAS REMITTED T O NETG. THE ASSESSEES CLAIM FOR MAKING PAYMENTS TOWARDS IMPORT OF CBTS CAME WITHIN SHADOW OF DOUBT IN VIEW OF E-MAILS EXCHANGED BETWEE N RESPONSIBLE EMPLOYEES OF NIIT, FOUND IN COURSE OF SEARCH, WHICH SUGGESTED THAT THE PAYMENT WAS MADE TOWARDS ROYALTY IN THE GARB OF PUR CHASES OF CBTS. THE STATEMENTS RECORDED OF VARIOUS EMPLOYEES ALSO POINT ED TO THIS ASPECT. IT CANNOT BE DENIED THAT TRUE CHARACTER OF PAYMENT TO NETG HAD WIDE REVENUE IMPLICATIONS. THEREFORE, IT WAS INCUMBENT UPON AO T O RECORD SPECIFIC FINDINGS WITH REFERENCE TO THE E-MAILS AND STATEMEN TS KEEPING IN VIEW THE REPLY FILED BY ASSESSEE. MERELY ACCEPTING THE REPLY WITHOUT PROPER REASONING CANNOT BE COUNTENANCED. THE AO PERFORMS QUASI JUDIC IAL FUNCTIONS AND, THEREFORE, HAS TO COMPLY WITH THE BASIC CANONS OF J UDICIAL PROCESS. FURTHER, THE AO SHOULD HAVE BECOME MORE INVESTIGATIVE WHEN H IS QUERIES REGARDING SALES OF CBTS WERE NOT SUITABLY REPLIED BY ASSESSE E, INASMUCH AS NO STOCK OF CBTS WAS FOUND WITH K.K. LUBRICANT TO WHOM ALLE GED SALES AGGREGATING 258 ITA NO. 2057/DEL/10 NIIT VS. CIT TO RS. 7.98 CRORES WERE MADE. NO SATISFACTORY EXPL ANATION WAS GIVEN BY DIRECTOR K.K. MITTAL. THEN A FURTHER ASPECT OF DAT E OF PO BEING SUBSEQUENT TO THE DATE OF AGREEMENT BETWEEN NETG AND APTECH, WHICH UNDER ALMOST SIMILAR TERMS OF AGREEMENT WAS PAYING ROYALTY TO NE TG, SHOULD HAVE PROMPTED THE AO TO SPECIFICALLY DEAL WITH THESE QUE RIES. AT THIS JUNCTURE ASSESSEE WAS NOT ENTITLED TO SELL CBTS IMPORTED FR OM NETG. OBVIOUSLY AO SHOULD HAVE RECORDED HIS FINDINGS ON NATURE OF PAYM ENT MADE. FURTHER, THE STATEMENTS OF SHRI RAJIV TAYAL VP OF MARKETING IN N IIT LTD. CONFIRMED THAT NETG WAS NOT ALLOWING NIIT TO BUY NEW TITLES. IF TH IS WAS THE STATE OF AFFAIR, THE AO WAS REQUIRED TO RECORD A FINDING AS TO HOW P OS WERE RAISED AND WHY PAYMENTS MADE. THEN A FURTHER ASPECT ON WHICH AO SH OULD HAVE RECORDED HIS FINDINGS EMNATED FROM STATEMENT OF SHRI AJAI WA HI AND SHRI KATYAL. AS PER THEIR STATEMENT THE PAYMENT WAS MADE TOWARDS MI NIMUM PURCHASE COMMITMENT OF USD 182500. BUT ACTUAL PAYMENT WAS FO R USD 207785 AND FURTHER IF NETG DISCONTINUED ITS RELATIONSHIP WITH NIIT THEN WHY DID IT INSIST ON A MINIMUM PURCHASE COMMITMENT. THE ASSESS EE DID NOT GIVE ANY PROPER EXPLANATION FOR HUGE STOCK LYING OF RS. 3.37 CRORE IN FEB. 2001 AND, STILL ASSESSEE IMPORTED. FURTHER, WHEN TERMS OF PAY MENT WERE IN PROPORTION TO SALES, AO SHOULD HAVE RECORDED SPECIFIC FINDINGS FOR ACCEPTING ASSESSEES EXPLANATION. THE E-MAILS SUGGESTED THAT THE REAL MO TIVE AND PURPOSE OF REMITTANCE WAS TO MAKE PAYMENT OF ROYALTY AND NOT T O PAY FOR THE IMPORT OF AN OUTDATED COMPUTER BASED TRAINING PRODUCT (CBTS) . THE AO ERRED IN ACCEPTING THE IMPORT AS GENUINE. DURING SEARCH OPER ATIONS CERTAIN E-MAILS WERE FOUND AND THE STATEMENT OF EMPLOYEES WAS GATHE RED. THE DETAILED SCRUTINY OF THESE E-MAILS WAS NECESSARY TO FIND OUT THE TRUE IMPORT OF THE E- MAILS AS TO WHETHER THE PAYMENT MADE WAS TOWARDS RO YALTY OR TOWARDS 259 ITA NO. 2057/DEL/10 NIIT VS. CIT PURCHASE OF SOFTWARE. LD. COUNSEL SUBMITTED THAT PA YMENT MADE TO NETG WAS IN TERMS OF DISTRIBUTORSHIP AGREEMENT AND IN RE SPECT OF PHYSICAL IMPORT OF CBTS ONLY FOR WHICH INVOICES RELATING TO IMPORT WERE PRODUCED BEFORE AO. HOWEVER, IN COURSE OF SEARCH PROCEEDINGS, CERTA IN EVIDENCES WERE BROUGHT ON RECORD, WHICH SUGGESTED A CONTRARY STATE OF AFFAIR AND, THEREFORE, IT WAS INCUMBENT UPON THE AO TO RESORT TO DETAILED INQUIRY AND NOT ACCEPT THE ASSESSEES CONTENTION BASED ON DOCUMENTS AVAILA BLE WITH IT ON THE BASIS OF WHICH IT HAD EARLIER ADVANCED ITS CLAIM. PROPER APPRECIATION OF EVIDENCE ON RECORD IS SINE QUA NON UNDER SUCH CIRCUMSTANCES. 86.1. MERELY BRINGING THE EVIDENCE ON RECORD WITHOU T PROPER APPRECIATION OF IMPORT OF SUCH DOCUMENTS CANNOT BE SAID TO BE A CASE OF PROPER INQUIRY. UNDER SUCH CIRCUMSTANCES, LD. CIT WAS FULLY JUSTIFI ED IN RESTORING THE MATTER TO THE FILE OF AO. AS REGARDS THE ISSUE RAISED WITH REFERENCE TO DOCTRINE OF MERGER, WE HAVE ALREADY CONSIDERED THIS ASPECT WHIL E DECIDING GROUND NO. 11 AND, THEREFORE, WE REFRAIN FROM MAKING ANY FURTHER COMMENTS ON THIS ISSUE. 86.2. IN VIEW OF ABOVE, WE CONCUR WITH THE FINDING OF LD. CIT IN RESTORING THE MATTER TO THE FILE OF AO AS IT FALLS WITHIN THE AMBIT OF LACK OF INQUIRY. THIS GROUND IS DISMISSED. 87. VIDE GROUND NO. 21, THE ASSESSEE HAS ASSAILED C ITS ACTION IN ALLEGING THAT THE AO HAVING ALLOWED DEDUCTION U/S 35D OF THE ACT IN RESPECT OF PUBLIC ISSUE EXPENSES WITHOUT VERIFICATION/ INQUIRY THE AS SESSMENT ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. 88. LD. COUNSEL REFERRED TO SHOW CAUSE NOTICE DATED 5-2-2010 ISSUED BY LD. COMMISSIONER ( CONTAINED AT PAGE 193 OF PB, AND POI NTED OUT THAT LD. COMMISSIONER REFERRED TO THE CLAIM OF RS. 12,01,249 /- MADE BY THE ASSESSEE IN REGARD TO WRITE OFF OF SHARE ISSUE EXPENSES U/S 35D. HE SUBMITTED THAT LD. 260 ITA NO. 2057/DEL/10 NIIT VS. CIT CIT POINTED OUT THAT SINCE THE EXPENDITURE HAD BEEN EXPENDITURE AFTER THE COMMENCEMENT OF THE BUSINESS, THE SAME CAN BE ALLOW ED IF THE CONDITIONS LAID DOWN IN THE PROVISIONS OF SECTION 35D ARE FULF ILLED. HOWEVER, THE AO ALLOWED THE CLAIM WITHOUT VERIFYING ITS ADMISSIBILI TY. 89. LD. COUNSEL REFERRED TO PAGE 295 OF PB, WHEREIN THE ASSESSEES REPLY DATED 23-3-2010 IS CONTAINED, IN WHICH ASSESSEE HAD GIVEN DETAILED REPLY TO THE ISSUE RAISED BY LD. CIT, WHICH HAS BEEN SUMMARI ZED AS UNDER: DURING FINANCIAL YEAR 1992-93, RELEVANT TO THE ASS ESSMENT YEAR 1993-94, THE ASSESSEE HAD COME OUT WITH AN INITIAL PUBLIC OFFER (IPO) OF 36,07,500 EQUITY SHARES OF RS. 50/- PER SH ARE. THE ASSESSEE INCURRED EXPENDITURE OF RS. 1,20,12,490 AS SHARE ISSUE EXPENSES AND CLAIMED DEDUCTION IN RESPECT OF THE SA ID EXPENSES UNDER SECTION 35D OF THE ACT, AMORTIZED OVER A PERI OD OF 10 YEARS, COVERING THE IMPUGNED ASSESSMENT YEAR. THE AFORESAID CLAIM OF THE ASSESSEE HAS BEEN ALLOWE D AS DEDUCTION U/S 35D OF THE ACT FROM ASSESSMENT YEAR 1 993-94 AND ONWARDS. THE APPARENT FACTS RELATING TO THE AFO RESAID CLAIM BEING MADE IN THE RETURN OF INCOME WERE FULLY AND T RULY DISCLOSED BY THE ASSESSEE IN THE FOLLOWING MANNER: - SCHEDULE 14 OF AUDITED ACCOUNTS RELATING TO MISCELL ANEOUS EXPENDITURE/ SHARE ISSUE EXPENSES WRITTEN OFF. - SCHEDULE 19 OF AUDITED ACCOUNTS RELATING TO ADMINIS TRATION AND OTHER EXPENSES, CONTAINING WRITE OFF OF SHARE ISSUE EXPENSE; - IN PARA 15 READ WITH ANNEXURE 3 OF THE TAX AUDIT RE PORT, CLAIM OF DEDUCTION UNDER SECTION 35D WAS DULY CERTIFIED B Y THE AUDITOR. IN THE IMPUGNED ORDER, THE CIT ALLEGED THAT THE ASS ESSING OFFICER DID NOT VERIFY THE AFORESAID CLAIM OF THE A SSESSEE AND, THEREFORE, THE ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IMPUGNED ISSUE BEYOND THE SCOPE OF JURISDICTION OF ASSESSING OFFICER 261 ITA NO. 2057/DEL/10 NIIT VS. CIT IN THIS REGARD, IT IS SUBMITTED, THAT THE CLAIM OF DEDUCTION UNDER SECTION 35D OF T HE ACT HAVING BEEN ACCEPTED IN THE ASSESSMENT YEAR 1993-94, IT WAS BEYOND THE POWER OF THE ASSESS ING OFFICER TO EXAMINE THE CLAIM IN THE SUCCEEDING YEAR(S)/ IMP UGNED YEAR, WITHOUT DISTURBING/ DISALLOWING THE SAME IN THE INI TIAL YEAR. RELIANCE, IN THIS REGARD, IS PLACED ON THE FOLLOWIN G DECISIONS, WHEREIN THE CONTEXT OF ADMISSIBILITY OF DEDUCTION U /S 80HH/80- I OF THE ACT, THE COURTS HAVE HELD THAT THE REVENUE COULD NOT SEEK TO WITHHOLD THE BENEFIT UNDER THE SAID SECTION IN THE LATER YEAR(S) WITHOUT DISTURBING THE INITIAL YEAR. - CIT V. KOPRAN CHEMICALS CO. LTD. 112 ITR 893 (BOM.) ; - SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. V. CIT 123 ITR 669 (GUJ.); - DCIT V. GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. 215 TAXMAN 72 (GUJ.); - L.G. BALAKRISHNAN & BROS. LTD. V. CIT 151 ITR 270(M AD.); - CIT V. NIPPON ELECTRONICS (INDIA)(P) LTD. 181 ITR 5 18 (KAR.) - CIT V. PAUL BROTHERS 216 ITR 548 (BOM) - DIRECT INFORMATION (P) LTD. V. ITO 2011 TIOL 664 HC MUM IT (BOM) - CIT V. WESTERN OUTDOOR INTERACTIVE (P) LTD. 2012 TI OL 625 (BOM) - ITO V. SMT. KAUSHALYA DEVI 112 TAXMAN 72 (CHAND.)(TRIB.)(MAG.) - DESAI BROS LTD. V. DCIT 66 ITD 203 (PUNE) - GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD. 112 TTJ 9 4 (CHD.) - TAHREEN ELECTRICALS (P) LTD. V. ACIT 112 TJ 586 - GODHAVAT PAN MASALA (INDIA) P LTD. V. JCIT 108 ITD 603(PUNE) - STEEL FAB ENGG. CORPN. INDIA VS. ACIT 54 SOT 79 (MU M) THE DELHI HIGH COURT IN THE RECENT DECISION OF RIO TINTO INDIA P. LTD. (2013) 212 TAXMAN 139 @ 1609 -1620 VOL. V] HELD THAT IT IS UNFAIR ON THE PART OF REVENUE TO CONTEND THAT ASSESSEE MUST ESTABLISH DATE OF COMMENCEMENT OF BUSINESS IN EACH SUCCESSIVE YEAR. IT WAS HELD THAT SUCH ISSUE ATTAINED FINALITY WHEN THE ASSESSING OFFICER FRAMED ASSESSMENT FOR FIRST YEAR AND THE AID ISSUE, ONCE SETTLED, CANNOT BE REOPENED EVERY YEAR. 262 ITA NO. 2057/DEL/10 NIIT VS. CIT 89.1. LD. SPL. COUNSEL RELIED ON THE ORDER OF CIT O N THIS GROUND 90 WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT IT IS NOT DISPUTED THAT THE CLAIM OF ASSESSEE WAS ACCEPTED IN AY 1993-94 AND, THEREFORE, WE ARE IN AG REEMENT WITH LD. COUNSEL FOR THE ASSESSEE THAT MERE NON-EXAMINATION OF THIS ISSUE BY AO WILL NOT RENDER THE ASSESSMENT ORDER AS ERRONEOUS AND PR EJUDICIAL TO THE INTEREST OF REVENUE, PARTICULARLY WHEN ASSESSEES CLAIM WAS LEGALLY ALLWOABLE. WE, ACCORDINGLY, DO NOT CONCUR WITH THE FINDING OF LD. CIT ON THIS ISSUE. IN THE RESULT, THIS GROUND IS ALLOWED. 91. VIDE GROUND NO. 22 THE ASSESSEE HAS ASSAILED LD . CITS ACTION IN SETTING ASIDE THE ISSUE OF LOAN TRANSACTIONS BETWEE N THE ASSESSEE AND VARIOUS BUSINESS AND OTHER PARTIES, ALLEGING THAT THE SAID ISSUE WAS NOT EXAMINED BY THE AO. 91.1. LD. COUNSEL SUBMITTED THAT LD. CIT IN THE SHO W CAUSE NOTICE DATED 5-2- 2010 POINTED OUT THAT ASSESSEE HAD SHOWN UNSQUARED LOANS RECEIVED AS WELL AS UNPAID. MANY OF LOANS RECEIVED WERE SQUARED UP W ITHIN THE YEAR ITSELF. HE POINTED OUT THAT AO FAILED TO EXAMINE THE GENUINENE SS OF THESE TRANSACTIONS AND THE IDENTITY AND CREDITWORTHINESS OF THE PARTIE S. THE MAIN CONTENTION WAS THAT AS PER THE CLAUSE 24(A) OF THE AUDIT REPORT T HE AUDITOR WAS REQUIRED TO FURNISH THE PAN OF THE SAID PARTIES BEING AVAILABLE WITH THE ASSESSEE. HOWEVER, IN NONE OF THE CASES THE PAN HAD BEEN MENT IONED. AO ALSO FAILED TO EXAMINE THE PURPOSE OF ACCEPTING THESE LOANS AND WHETHER ANY INTEREST HAS BEEN PAID ON THE SAME AND IF HE HAS THE ALLOWABILIT Y OF THE SAME AS BUSINESS EXPENDITURE. FURTHER, AO FAILED TO VERIFY FACTS WHE THER THE PROVISIONS OF SECTION 269SS AND 269T WERE ATTRACTED OR NOT. 263 ITA NO. 2057/DEL/10 NIIT VS. CIT 91.2. LD. COUNSEL REFERRED TO PAGE 1073 OF THE PB, WHEREIN THE TAX AUDIT REPORT IS CONTAINED AND REFERRED TO ANNEXURE 8 CONT AINED FROM PAGES 1088 TO 1093 OF THE PB TO DEMONSTRATE THAT THE AUDITORS HAD GIVEN COMPLETE DETAILS ALONG WITH ADDRESS OF THE PARTIES FROM WHOM THE AMO UNT OF LOAN OR DEPOSIT OF RS. 20,000/- OR MORE WAS ACCEPTED DURING THE YEA R. 91.3. LD. COUNSEL REFERRED TO PAGE 1011, WHEREIN TH E AO HAD, INTER ALIA, RAISED FOLLOWING QUERY ON THIS ISSUE ) 7. PLEASE ALSO SUBMIT THE DETAILS OF THE OD LIMIT, IF ANY, WITH ANY BANK, WITH REQUISITE DETAILS. 8. PLEASE INDICATE ALL THE LOANS TAKEN OR GIVEN BY YOU DURING THE YEAR. PLEASE STATE THE NAME(S) AND ADDRESS OF T HE PERSONS FROM/ TO WHOM SUCH LOANS WERE TAKEN/GIVEN. PLEASE A LSO INDICATE THE MODE OF SUCH RECEIPTS/ GIVING SUCH LOA NS. YOU ARE ALSO REQUESTED TO INDICATE THE ASSESSMENT PARTICULA RS OF SUCH PERSONS. 10. PLEASE FURNISH THE DETAILS OF ALL THE LOANS SQUARED UP DURING THE YEAR, TOGETHER WITH THE NAME, ADDRESS AND THE A SSESSMENT PARTICULARS OF ALL SUCH PERSONS. 91.4. HE REFERRED TO ASSESSEES REPLY TO THE ABOVE QUERY CONTAINED AT PAGE 1017 ALONG WITH ANNEXURE TO THE ASSESSEES REPLY CO NTAINED AT PAGE 1018 TO 1023, WHEREIN ALL THE DETAILS WERE FURNISHED BY ASS ESSEE. HE SUBMITTED THAT AFTER CONSIDERING THE ASSESSEES REPLY THE AO ACCEP TED THE ASSESSEES CLAIM. HE SUBMITTED THAT IT IS THE JUDGMENT OF AO AS TO HO W TO PROCEED WITH ASSESSMENT. 91.5. LD. COUNSEL REFERRED TO LD. CITS FINDING AND POINTED OUT THAT LD. CIT DID NOT POINT OUT ANY ERROR IN THE REPLIES FILED BY ASSESSEE AND, THEREFORE, THERE COULD NOT BE ANY BLANKET SET ASIDE. HE SUBMIT TED THAT LOANS WERE COMING FROM EARLIER YEARS AND, THEREFORE, LD. CIT S HOULD HAVE GIVEN SPECIFIC 264 ITA NO. 2057/DEL/10 NIIT VS. CIT INSTANCES ON REFUND OF LOAN IN CASH TO ATTRACT SECT ION 269T. HE SUBMITTED THAT THIS ISSUE HAS BEEN RAISED FOR THE FIRST TIME IN SH OW CAUSE NOTICE. 91.6. LD. COUNSEL REFERRED TO ASSESSEES REPLY CONT AINED AT PAGE 308 AND 309 OF PB IN WHICH IT WAS, INTER ALIA, POINTED OUT THAT LOANS WERE TAKEN FROM REPUTED BANKS LIKE ICICI, AXIS, HDFC BANK, BANK OF AMERICA AND KOTAK MAHINDRA. SEPARATE CHART OF DETAILS OF LOAN GIVEN D URING THE YEAR WAS ALSO FURNISHED BEFORE THE AO, INCLUDING THE ADDRESS AND PAN OF THE PARTIES TO WHOM SUCH LOANS WERE GIVEN. 91.7. LD. COUNSEL ALSO REFERRED TO ASSESSEES REPLY DATED 30-3-2010, CONTAINED AT PAGE 345, WHEREIN IT WAS SUBMITTED AS UNDER: FRESH LOAN TRANSACTION: THE ASSESSEE HAD, VIDE LETTER DATED 29-03-2010, FIL ED REPLY TO THE SHOW-CAUSE NOTICE DATED 5-02-2010 IN RESPECT OF THE AFORESAID ISSUE. HOWEVER, DURING THE COURSE OF HEAR ING ON 30- 03-2010 YOUR HONOUR HAD REQUIRED THE ASSESSEE TO EX PLAIN, WITH REFERENCE TO ANNEXURE 8 OF THE TAX AUDIT REPORT, TH E NATURE OF LOANS/ DEPOSITS TAKEN FROM VARIOUS PARTIES (APART F ROM THE PARTIES WHOSE DETAILS WERE FILED IN THE LETTER DATE D 29-03-10) DURING THE YEAR WHICH WERE REPAID/ SQUARED OFF DURI NG THE SAME YEAR ITSELF. IN THIS REGARD, IT IS RESPECTFULLY SUBMITTED THAT THE AFORESAID PARTIES LIKE JAV VEE YES COMPUTER, ALMORA INFOTECH ETC. ARE ALL BUSINESS PARTNERS/ FRANCHISEES OF THE ASSESSEE FROM WHOM REFUNDABLE/ ADJUSTABLE SECURITY DEPOSITS WERE TAKEN . THE ADDRESSES OF THE AFORESAID PARTIES ARE ALREADY PART OF THE TAX AUDIT REPORT AND WERE SCRUTINIZED BY THE ASSESSING OFFICER THEREFROM. 91.8. LD. COUNSEL SUBMITTED THAT LD. CIT IGNORED TH E ABOVE REPLIES AND WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE, ALLEGED THAT THERE WAS VARIANCE IN THE LIST OF PARTIES/ DETAILS FURNISHED IN THE TAX AUDIT REPORT AND THAT FURNISHED BEFORE THE AO IN THE COU RSE OF ASSESSMENT 265 ITA NO. 2057/DEL/10 NIIT VS. CIT PROCEEDINGS. THEREFORE, THE AO FAILED TO EXPLAIN (1) GENUINENESS OF THE TRANSACTION AND IDENTITY AND CREDITWORTHINESS OF TH E PARTIES; (2) PURPOSE OF ACCEPTING THESE LOANS AND WHETHER ANY INTEREST HAS BEEN PAID ON THE SAME; AND (3) WHETHER LOANS WERE TAKEN AND REPAID IN ACCO RDANCE WITH THE PROVISIONS OF SECTION 269SS/T OF THE ACT. 92. LD. SPECIAL COUNSEL REFERRED TO PAGE 59 OF LD. CITS ORDER AND POINTED OUT THAT HIS MAIN OBJECTION WAS WITH REFERE NCE TO RESIDUARY LOANS. HE SUBMITTED THAT AO WAS REQUIRED TO MAKE THE INQUIRIE S AS CONTEMPLATED U/S 68 OF THE I.T. ACT AND SINCE HE FAILED TO DO SO, IT WA S A CASE OF COMPLETE LACK OF INQUIRY. HIS SUBMISSIONS AS CONTAINED IN WRITTEN SU BMISSIONS ARE AS UNDER: 109. WITH RESPECT THE DEPOSITS RECEIVED FROM FRANC HISES / DISTRIBUTORS, IT IS SUBMITTED THAT NO DETAILS WERE FURNISHED BY THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS AN D, THEREFORE, NO ENQUIRY QUA APPLICABILITY OF SECTIONS 269 SS/T TO SUCH DEPOSITS WAS CONDUCTED BY THE ASSESSING OFFICE R. IT IS, THEREFORE, URGED THAT IT WAS A CASE OF LACK OF INQU IRY, WHICH JUSTIFIED THE ACTION OF THE CIT IN ASSUMING REVISIO NARY JURISDICTION UNDER SECTION 263 OF THE ACT. AS REGAR DS THE CLAIM OF THE ASSESSEE THAT THE RELEVANT YEAR WAS NOT THE FIRST YEAR OF ACCEPTING DEPOSITS FROM BUSINESS PARTNERS/FRANCHISE ES, IT IS SUBMITTED THAT THE PRINCIPLE OF RESJUDICATA IS NOT APPLICABLE IN THE INCOME TAX PROCEEDINGS MORE SO WHEN THE DEPOSIT ORS AND THE AMOUNTS VARY IN EACH YEAR. THE ASSESSEE FILED D ETAILS OF BORROWINGS FROM BANKS AND FINANCIAL INSTITUTIONS BU T DID NOT FURNISH DETAILS OF SMALLER TRANSACTIONS FROM INDIVI DUAL PERSONS/ENTITIES. THE AO SHOULD HAVE BROUGHT THE NE CESSARY MATERIAL ON RECORD AFTER CONDUCTING RELEVANT ENQUIR IES. 110. THE ISSUE IS NOT BEYOND THE SCOPE OF SECTION 1 53A OF THE ACT SINCE ACCOUNTS FOR THE YEAR WERE FOUND DURING T HE SEARCH OPERATION. 111. IT IS ALSO SUBMITTED THAT CIT HAD NOT EXCEEDED HIS JURISDICTION SINCE IT WAS A FRESH PROCEEDINGS NOT B ARRED BY 266 ITA NO. 2057/DEL/10 NIIT VS. CIT LIMITATION. IN THIS REGARD, THE REVENUE HAS MADE A DETAILED SUBMISSIONS UNDER GROUND NO. 10. 93. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. AS FAR AS PRELIMINA RY ISSUE RAISED BY LD. COUNSEL FOR THE ASSESSEE, REGARDING SCOPE OF SHOW C AUSE NOTICE BEING EXPANDED BY THE CIT IN THE SECOND ROUND OF PROCEEDI NG IN CONSEQUENT TO SET ASIDE ORDER PASSED BY THE HONBLE HIGH COURT, IS CO NCERNED, WE DO NOT FIND ANY MERIT IN THE SAID SUBMISSION, BECAUSE WE HAVE A LREADY HELD THAT LD. CIT HAD TAKEN UP FRESH PROCEEDING IN CONSEQUENCE TO THE ORDERS PASSED BY THE HONBLE HIGH COURT. ACCORDINGLY, THIS OBJECTION RAI SED BY THE LD. COUNSEL IS REJECTED. 93.1. AS REGARDS THE ISSUE RAISED BY LD. CIT IN REG ARD TO ACCEPTING OF ALL THE LOAN TRANSACTIONS BY AO WITHOUT ANY VERIFICATION IS CONCERNED, WE FIND FROM THE FOREGOING SUBMISSIONS OF ASSESSEE THAT QUERIES WERE RAISED BY THE AO, WHICH HAVE BEEN REPRODUCED EARLIER. A BARE PERUSAL OF THE INQUIRIES RAISED BY THE AO MAKES IT CLEAR THAT AO HAD RAISED SPECIFIC Q UERIES ON THIS ISSUE. HOWEVER, LD. CIT HAS POINTED OUT THAT NO DETAILS WE RE FURNISHED WITH REGARD TO ANNEXURE 8 WITH REFERENCE TO CLAUSE 24(A) OF FOR M 3CD REPORT, WHEREIN THERE WAS A LONG LIST OF PERSONS FROM WHOM LOANS AN D DEPOSITS OF RS. 20,000/- OR MORE WERE TAKEN OR ACCEPTED DURING THE YEAR UNDER CONSIDERATION. HIS OBJECTION IS THAT THOUGH THE ASS ESSEE HAD FURNISHED DETAILS OF LOANS TAKEN FROM BUSINESS AND GROUP COMPANIES BU T THESE DETAILS WERE NOT FURNISHED. HE FURTHER POINTED OUT THAT IN NONE OF T HE CASES PAN HAD BEEN MENTIONED. THEREFORE, IT IS CLEAR THAT AO FAILED TO VERIFY THE NECESSARY DETAILS IN REGARD TO THE GENUINENESS OF THE TRANSAC TIONS, IDENTITY AND CREDITWORTHINESS OF THE PARTIES. HE FURTHER POINTED OUT THAT AO DID NOT VERIFY 267 ITA NO. 2057/DEL/10 NIIT VS. CIT WHETHER IN THIS CASE THE PROVISIONS OF SECTIONS 269 SS AND 269T OF THE ACT WERE ATTRACTED OR NOT. THE ASSESSEES CLAIM WAS THA T THE LOANS TAKEN WERE FROM BUSINESS PARTNERS/ FRANCHISES FROM WHOM NO INT EREST BEARING LOANS WERE TAKEN. THE AO MERELY ACCEPTED THE ASSESSEES CONTEN TION WITHOUT CARRYING OUT NECESSARY INQUIRIES IN THIS REGARD. LD. CIT, AS NOTED EARLIER, HAS POINTED OUT THAT IN NONE OF THE CASES DETAILS OF PAN WERE G IVEN. THEREFORE, IT CANNOT BE SAID THAT LD. CIT HAS RESTORED THE MATTER WITHO UT RECORDING ANY SPECIFIC FINDING AS TO HOW THE ASSESSMENT ORDER WAS ERRONEOU S AND PREJUDICIAL TO THE INTEREST OF REVENUE ON ACCOUNT OF INADEQUATE INQUIR IES CARRIED OUT BY THE AO. WE, ACCORDINGLY, CONFIRM THE ORDER OF LD. CIT ON TH IS ISSUE FOR THE DETAILED REASONS GIVEN BY THE LD. CIT IN HIS ORDER. IN THE R ESULT, THIS GROUND IS DISMISSED. 93. VIDE GROUND NO. 23, THE ASSESSEE HAS ASSAILED T HE ACTION OF LD. CIT IN HOLDING THAT CREDIT FOR TAXES PAID/ DEDUCTED ABROAD WAS CLAIMED BY THE ASSESSEE AND ALLOWED BY THE AO WITHOUT VERIFICATION AND ENQUIRY AND, THEREFORE, THE ORDER OF AO IN THIS REGARD WAS ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 93.1. FURTHER ADDITIONAL GROUND IN RESPECT OF ABOVE GROUND IS THAT LD. CIT FAILED TO APPRECIATE THAT ALL CERTIFICATES IN RESPE CT OF FOREIGN TAXES PAID/ DEDUCTED WERE DULY FURNISHED BEFORE THE AO AND THE AO AFTER BEING SATISFIED ALLOWED CREDIT FOR SUCH TAXES WHILE PROCE SSING THE RETURN OF INCOME U/S 143(1) OF THE ACT. 94. LD. COUNSEL POINTED OUT THAT DURING THE RELEVAN T PREVIOUS YEAR THE ASSESSEE HAD PAID TAX AMOUNTING TO RS. 1781828 IN F OREIGN JURISDICTIONS AS PER THE APPLICABLE LAWS OF THE SAID COUNTRIES. WHIL E COMPUTING THE TAX PAYABLE BY THE ASSESSEE UNDER THE ACT, THE ASSESSEE HAD AVAILED CREDIT FOR 268 ITA NO. 2057/DEL/10 NIIT VS. CIT SUCH TAXES PAID ABROAD IN TERMS OF SECTION 90 OF TH E ACT READ WITH THE RELEVANT DTAA. HOWEVER, IN THE RETURN OF INCOME THE ASSESSEE HAD INADVERTENTLY MENTIONED THE SECTION UNDER WHICH THE CLAIM WAS MADE AS SECTION 91 INSTEAD OF SECTION 90, WHILE PROCESSING THE RETURN OF INCOME U/S 143(1). 94.1. THE ASSESSEE SUBMITTED AS UNDER: IN THIS REGARD IT IS SUBMITTED THAT THE AFORESAID CLAIM WAS VERIFIED AT THE TIME OF PROCESSING THE RETURN OF IN COME UNDER SECTION 143(1) AND AFTER BEING SATISFIED WITH THE G ENUINENESS OF CLAIM, CREDIT WAS ALLOWED FOR THE TAXES PAID ABROAD IN TERMS OF SECTION 90 OF THE ACT. A STATEMENT OF SUCH INCOME EARNED/ RECEIVED AND TAX ES PAID ABROAD IS PROVIDED AS UNDER: COUNTRY NATURE OF INCOME GROSS INCOME ACTUAL TAX DEDUCTED ACTUAL TAX DEDUCTED IN INR RELIEF CLAIMED USA DIVIDEND USD 120,000 USD 18,000 INR 761,400 INR 761,400 USA INTEREST USD 97,500 USD 14,625 INR 618,638 INR 618,638 SINGAPORE DIVIDEND SGD 192,881 SGD 50,149 INR 1,222,133 1,222,133 UK INTEREST USD 160,952 USD 32,190 INR 1,323,688 1,323,688 USA INTEREST USD 145,602 USD 21,840 INR 855,969 INR 855,969 TOTAL INR 4,781,828 MERELY BECAUSE WRONG SECTION WAS INADVERTENTLY MENT IONED IN THE RETURN OF INCOME, CANNOT, BY ITSELF BE THE BASI S TO DENY LEGITIMATE CLAIM OF THE ASSESSEE. REFERENCE IN THIS REGARD CAN 269 ITA NO. 2057/DEL/10 NIIT VS. CIT ALSO BE MADE TO THE RECENT DECISION OF THE INDORE B ENCH OF THE TRIBUNAL IN THE CASE OF PARAMJEET SINGH CHHABRA: TS -293- ITAT-2013: @VOL. VII: 270-276], WHEREIN IT WAS HELD THAT WRONG MENTION OF SECTION BY THE ASSESSEE IN THE RET URN OF INCOME CANNOT BE A GROUND TO DENY LEGITIMATE CLAIM OF THE ASSESSEE. 94.2. LD. COUNSEL FURTHER REITERATED HIS SUBMISSION S IN REGARD TO THE SCOPE OF JURISDICTION OF AO U/S 153A, SCOPE, EXPANDED BY CIT IN THE SECOND ROUND AND NO SPECIFIC FINDING/ PIN POINTING OF ERROR AND PREJUDICE BY THE CIT. 95. LD. SPL. COUNSEL HAS SUBMITTED AS UNDER: IT IS URGED THAT THE AO DID NOT CONDUCT ANY ENQUIRY QUA VERIFICATION OF CLAIM OF CREDIT OF TAXES MADE BY TH E ASSESSEE U/S 91 OF THE ACT. THEREFORE, IT WAS A CASE OF LACK OF INQUIRY, WHICH JUSTIFIED THE ACTION OF THE CIT IN ASSUMING REVISI ONARY JURISDICTION U/S 263 OF THE ACT. IT IS ALSO SUBMITTED THAT CIT HAD NOT EXCEEDED HIS JURISDICTION SINCE IT WAS FRESH PROCEEDINGS, NOT BARRED BY LIMI TATION. IN THIS REGARD, THE REVENUE HAS MADE A DETAILED SUBMISSIONS UNDER GROUND NO. 10. 96. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. AS FAR AS PRELIMINA RY ISSUE RAISED BY LD. COUNSEL FOR THE ASSESSEE, REGARDING SCOPE BEING EXP ANDED BY THE CIT IN THE SECOND ROUND OF PROCEEDING CONSEQUENT TO SET ASIDE ORDER PASSED BY THE HONBLE HIGH COURT, IS CONCERNED, WE DO NOT FIND AN Y MERIT IN THE SAID SUBMISSION, BECAUSE WE HAVE ALREADY HELD THAT LD. C IT HAD TAKEN UP FRESH PROCEEDING IN CONSEQUENCE TO THE ORDERS PASSED BY T HE HONBLE HIGH COURT. ACCORDINGLY, THIS OBJECTION RAISED BY THE LD. COUNS EL IS REJECTED. 270 ITA NO. 2057/DEL/10 NIIT VS. CIT 96.1. THE ASSESSEE HAD CLAIMED CREDIT OF RS. 47,81, 828/- IN RESPECT OF TAX PAID IN FOREIGN JURISDICTION AS PER THE APPLICABLE LAWS OF THE SAID COUNTRIES. THE AO HAD NOT VERIFIED THIS CLAIM AND ALLOWED RELI EF TO ASSESSEE AND, THEREFORE, LD. CIT RIGHTLY HELD THAT ASSESSMENT ORD ER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE, IN THE ABSE NCE OF PROPER VERIFICATION. WE, ACCORDINGLY, UPHOLD THE FINDING OF LD. CIT ON THIS ISSUE. 97. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN OPEN COURT ON 27-03-2015. SD/- SD/- (C.M. GARG ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27-03-2015. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR
Other Referred Cases
-
Laws Referred To
-
1:1 Consultation with family dentist -Your Smile Deserves the Best Care!
₹250
360 Brand Audit (30 mins)
₹299
Consultation on Entity Formation
₹0
No Objection Letter for Use of Property – Partnership Firm
₹0
Startup Valuation Certificate
₹0
Residency Rules: Income Tax Act, 1961 vs Income Tax Bill, 2025 — A Subtle Yet Significant Shift!
Team Counselvise - February 18, 2026
Minimum Alternate Tax (MAT): Comprehensive Overview and Key Changes under Finance Bill, 2026
Team Counselvise - February 06, 2026
Why Meesho got ₹1,500 Crore Tax Demand ?
Team Counselvise - March 09, 2026