PB Asia Ltd., New Delhi V. DIT, New Delhi

ITA 2484/DEL/2010

• Counselvise Citation: 248420114 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 24-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 25-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K MAHAJAN
• Assessee Lawyers: SHIVENDRA K SINGH S; T N CHOPRA
• Keywords: Business income; Revision of order; Transfer pricing; Double taxation relief; Opportunity of being heard; Principle of natural justice; Permanent establishment; Wholly owned subsidiary; Assessment record; Right to appeal; Retraction; Revenue expenditure; Capital expenditure
• Section: 263; 63; 132; 143(3); 92; 72(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F : NEW DELHI DELHI BENCH F : NEW DELHI DELHI BENCH F : NEW DELHI DELHI BENCH F : NEW DELHI BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND SHRI C.L.SETHI SHRI C.L.SETHI SHRI C.L.SETHI SHRI C.L.SETHI, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.2484/DEL/2010 2484/DEL/2010 2484/DEL/2010 2484/DEL/2010 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2005 2005 2005 2005- -- -06 0606 06 M/S P.B.ASIA LIMITED, M/S P.B.ASIA LIMITED, M/S P.B.ASIA LIMITED, M/S P.B.ASIA LIMITED, C/O PARSONS BRINCKERHOFF C/O PARSONS BRINCKERHOFF C/O PARSONS BRINCKERHOFF C/O PARSONS BRINCKERHOFF INDIA P INDIA P INDIA P INDIA PVT.LTD., VT.LTD., VT.LTD., VT.LTD., 6 66 6 TH THTH TH FLOOR, COMMERCIAL TOWER FLOOR, COMMERCIAL TOWER FLOOR, COMMERCIAL TOWER FLOOR, COMMERCIAL TOWER STRUCTURE (WEST), STRUCTURE (WEST), STRUCTURE (WEST), STRUCTURE (WEST), LE MERIDIEN HOTEL, LE MERIDIEN HOTEL, LE MERIDIEN HOTEL, LE MERIDIEN HOTEL, WINDSOR PLACE, RAISINA ROAD, WINDSOR PLACE, RAISINA ROAD, WINDSOR PLACE, RAISINA ROAD, WINDSOR PLACE, RAISINA ROAD, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 001. 110 001. 110 001. 110 001. PAN : AADCP7124N. PAN : AADCP7124N. PAN : AADCP7124N. PAN : AADCP7124N. VS. VS. VS. VS. DIRECTOR OF INCOME TAX, DIRECTOR OF INCOME TAX, DIRECTOR OF INCOME TAX, DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION INTERNATIONAL TAXATION INTERNATIONAL TAXATION INTERNATIONAL TAXATION- -- -II, II,II, II, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T.N.CHOPRA AND SHRI SHIVENDRA K.SINGH, ADVOCATES. RESPONDENT BY : SHRI A.K.MAHAJAN, CIT-DR. ORDER ORDER ORDER ORDER PER C.L.SETHI, JM PER C.L.SETHI, JM PER C.L.SETHI, JM PER C.L.SETHI, JM : : : : THE PRESENT APPEAL, FILED BY THE ASSESSEE, IS DIRE CTED AGAINST THE ORDER DATED 26.3.2010 PASSED BY THE LEARNED DIRECTO R OF INCOME TAX (INTERNATIONAL TAXATION)-II, NEW DELHI UNDER SECTIO N 263 OF THE INCOME- TAX ACT, 1961 FOR THE AY 2005-06. 2. THE EFFECTIVE GROUND TAKEN BY THE ASSESSEE IN TH IS APPEAL IS THAT THE IMPUGNED ORDER OF THE LEARNED DIT IS INVALID, I LLEGAL AND WITHOUT JURISDICTION INASMUCH AS THE REQUISITE CONDITIONS F OR INVOKING REVISIONAL JURISDICTION UNDER SECTION 263 OF THE ACT ARE NOT F ULFILLED. 3. FACTS OF THE CASE IN BRIEF, GIVING RISE TO THE S AID APPEAL MAY BE SET OUT AS UNDER. 2 3.1 THE ASSESSEE, A NON-RESIDENT COMPANY, FILED ITS RETURN OF INCOME ON 2.2.2006 DECLARING TOTAL INCOME AT RS.NIL. THE CASE WAS SELECTED FOR SCRUTINY BY THE ASSESSING OFFICER. ACCORDINGLY, ST ATUTORY NOTICE U/S 143(2) DATED 20.9.2006 WAS ISSUED AND SERVED UPON T HE ASSESSEE. THE AO THEN COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT BY ACCEPTING THE RETURNED INCOME AS PER RETURN OF INCO ME VIDE HIS ORDER DATED 28.12.2007. THEREAFTER, A PROPOSAL U/S 263 O F THE ACT WAS RECEIVED BY THE LEARNED DIT FROM THE AO VIDE LETTER DATED 26.3.2009 ALONGWITH ASSESSMENT RECORDS RECOMMENDING INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT FOR THE REASON THAT THE S UM OF `5,60,01,600/- RECEIVED BY THE ASSESSEE FOR PROVIDING DESIGN AND E NGINEERING DRAWING IN CONNECTION WITH THE SECOND VIVEKANAND BRIDGE TOL LWAY PROJECT (SVBT PROJECT) WAS NOT OFFERED FOR TAXATION THOUGH IT SHOULD HAVE BEEN TAXED AT 20% IN THE LIGHT OF THE FACT THAT ASSESSEE RECEIVED CONSIDERATION FOR PROVIDING DESIGN AND ENGINEERING DRAWING FROM A DEPENDENT PE AND SUPERVISORY PE BASED ON AN AGREEME NT DATED 10.5.2007. THE RELEVANT ASSESSMENT RECORDS WERE TH EN EXAMINED BY THE LEARNED DIT AND THEREAFTER, NOTICE U/S 263(1) O F THE ACT WAS ISSUED TO THE ASSESSEE ON 8.4.2009. IN RESPONSE TO THE SH OW CAUSE NOTICE SO ISSUED BY THE LEARNED DIT, ASSESSEES AUTHORIZED RE PRESENTATIVE HAD APPEARED BEFORE DIT AND FILED WRITTEN SUBMISSION. AFTER GOING THROUGH THE SUBMISSION MADE BY THE ASSESSEE, A FINAL SHOW C AUSE NOTICE WAS ISSUED BY THE LEARNED DIT TO THE ASSESSEE ON 24.2.2 010 FIXING THE HEARING ON 4.3.2010. THE RELEVANT PARAGRAPH OF THE AFORESAID SHOW CAUSE NOTICE DATED 24.2.1010 IS AS UNDER:- IT IS PROPOSED TO DISPOSE OFF THE PROCEEDINGS U/S 263 OF THE IT ACT, 1961 AFTER CONSIDERING YOUR SUBMISSIONS AND THE FACTS ON RECORD WHICH INDICATE THAT THE ASSESSMENT IN QUESTION WAS FINALIZED BY THE ASSESSING OFFICER AT NIL INCOME WITHOUT PROPER ENQUIRIES ON THE RELEVANT ISS UES AS ALSO WITHOUT APPLICATION OF MIND IN SPITE OF THE FA CT THAT THE ASSESSING OFFICER HAD ISSUED ORDER U/S 195(2) OF TH E IT ACT, 1961 IN RESPECT OF THE SAME CONTRACT WHERE THE PAYM ENT TO THE ASSESSEE WAS HELD TO BE ROYALTY AND TAXABLE IN INDIA 3 @ 15% ON GROSS BASIS. THUS, FAILURE ON THE PART OF THE ASSESSING OFFICER TO CONDUCT PROPER ENQUIRIES WITH REGARD TO THE CLAIMS MADE BY THE ASSESSEE IN THE RETURN OF INCOME THAT IT HAD NO PE IN INDIA DURING THE RELEVANT YEAR AND THAT ITS INCOME WAS NOT TAXABLE OTHERWISE ALSO, MAKES TH E ORDER PASSED BY HIM ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF REVENUE. 3.2 IN RESPONSE TO THE ABOVE SHOW CAUSE NOTICE, THE ASSESSEE FILED WRITTEN SUBMISSION DATED 3.3.2010 AND 5.3.2010. 3.3 AFTER CONSIDERING THE RELEVANT RECORDS OF THE C ASE AND SUBMISSION OF THE ASSESSEE, THE LEARNED DIT PASSED THE IMPUGNED ORDER U/S 263 DATED 26.3.2010 SETTING ASIDE THE IMP UGNED ASSESSMENT MADE BY THE AO U/S 143(3) ON THE FOLLOWING GROUNDS: - (I) THE ASSESSMENT HAD BEEN MADE BY THE AO WITHOUT APPLICATION OF MIND TO THE FACTS AND ISSUES INVOLVE D IN THE CASE. (II) NO ENQUIRY WHATSOEVER WAS MADE BY THE AO ON THE ISS UES INVOLVED IN THIS CASE. (III) THE AO HAS ACCEPTED THE RETURN OF THE ASSESSEE IN DISREGARD TO THE ORDER PASSED U/S 195(2) OF THE ACT AS WELL AS THE ORDER OF THE LEARNED CIT(A) UPHOLDING THE SA ME ORDER PASSED U/S 195(2). 3.4 IT WAS FURTHER OBSERVED BY THE LEARNED DIT THAT THE DEPARTMENT HAS NOT ACCEPTED THE ORDER OF THE TRIBUNAL HOLDING THAT OUTRIGHT SALE OF DRAWINGS AND DESIGNS ARE NOT COVERED U/S 9(1)(VI) O F THE ACT, AND THE DEPARTMENT HAS FILED APPEAL BEFORE THE HIGH COURT, WHICH WAS PENDING. 4. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E THE TRIBUNAL. 4 5. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI T.N.CH OPRA, ADVOCATE HAS SUBMITTED THAT THE GROUNDS OR REASONS ADOPTED B Y THE LEARNED DIT FOR CANCELLATION OF THE IMPUGNED ASSESSMENT OF THE AO ARE FACTUALLY AND LEGALLY ERRONEOUS AND THE IMPUGNED ORDER U/S 26 3 HAS BEEN PASSED WITHOUT VALID JURISDICTION. HE FURTHER SUBM ITTED THAT THE REQUISITE CONDITIONS FOR ASSUMPTION OF JURISDICTION ARE NOT FULFILLED IN THE INSTANT CASE. HE FURTHER SUBMITTED THAT THE AO HAS MADE THE IMPUGNED ASSESSMENT U/S 143(3) AFTER CALLING FOR TH E REQUISITE INFORMATION AND DETAILS AND SCRUTINIZING THE SAME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO SPECIFICALLY CALL ED UPON THE ASSESSEE TO FILE A COPY OF THE AGREEMENT DATED 12.5 .2004 ENTERED INTO BETWEEN THE ASSESSEE AND PARSONS BRINCKERHOFF INDIA PVT.LTD. (HEREINAFTER CALLED AS PBIPL) FOR SUPPLY OF DESIG NS AND DRAWINGS FOR THE SVBT PROJECT AND THIS AGREEMENT WAS DULY FILED VIDE LETTER DATED 11.12.2007. THE LEARNED COUNSEL FOR THE ASSESSEE F URTHER POINTED OUT THAT THE AO ALSO CALLED FOR THE DETAILS OF THE WORK DONE UNDER THE CONTRACT WITH PBIPL, AND PARTICULARS OF PLACES WHER E THE WORK OF DESIGNING ETC. WAS DONE BY THE ASSESSEE. THE AO AL SO MADE SPECIFIC ENQUIRIES AS TO WHETHER PORTION OF THE WORK WAS SUB CONTRACTED BY THE ASSESSEE COMPANY AND ALSO INDICATE WHAT WAS THE PER CENTAGE OF WORK DONE BY THE REGULAR EMPLOYEES OF THE ASSESSEE. THE AO ALSO CALLED UPON THE ASSESSEE TO FURNISH DETAILS OF SUPPORT FRO M ASSOCIATE ENTERPRISES FOR EXECUTION OF THE WORK ASSIGNED TO I T UNDER THE CONTRACT. THE AO ALSO CALLED UPON THE ASSESSEE TO FURNISH TRA NSFER PRICING STUDY REPORT OF THE ASSESSEE COMPANY AND OF INDIAN COMPAN Y WITH A VIEW TO CONSIDER THE REASONABLENESS OF THE CONSIDERATION RE CEIVED BY THE ASSESSEE COMPANY FROM PBIPL. THE ENTIRE INFORMATIO N AS DESIRED BY THE AO WAS FURNISHED BY THE ASSESSEE VIDE LETTER DA TED 11.12.2007 AND 18.12.2007, AND IN THE LIGHT OF THE DETAILS SUB MITTED BY THE ASSESSEE, THE ASSESSMENT WAS MADE BY THE AO. IN TH E LIGHT OF THESE FACTS, IT WAS THUS SUBMITTED THAT THE AO COMPLETED THE ASSESSMENT AFTER MAKING NECESSARY ENQUIRIES AND APPLYING HIS M IND TO THE ISSUES 5 INVOLVED IN THE ASSESSMENT. THE LEARNED COUNSEL FO R THE ASSESSEE, THEREFORE, CONTENDED THAT THE LEARNED DIT HAS MISDI RECTED HIMSELF ON FACTS IN OBSERVING AND HOLDING THAT NO ENQUIRIES WE RE MADE BY THE AO AND THAT THERE WAS NO APPLICATION OF MIND ON THE IS SUES INVOLVED. IN THIS RESPECT, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT MERELY BECAUSE THERE WAS NO ELABORATE DISCUSSION ON THE ISSUES IN THE BODY OF THE ASSESSMENT ORDER WOULD NOT AUTOMATICALL Y LEAD TO THE CONCLUSION THAT THERE WAS NO APPLICATION OF MIND ON SUCH ISSUES BY THE AO. IN THIS RESPECT, HE RELIED UPON THE DECISION O F DIVISION BENCH OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HARI IRON & TRADING CO. 263 ITR 437 (P&H). HE ALSO RELIED UPON THE D ECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. EICHER LIMI TED 294 ITR 310 (DEL), CIT VS. ANIL KUMAR SHARMA (2010-TIOL-267-HC- DEL-IT) AND IN THE CASE OF M/S SUNBEAM AUTO (ITA NO.1399/2006). 5.1 THE LEARNED COUNSEL FOR THE ASSESSEE THEN SUBMI TTED THAT THE POWER OF SUO-MOTO REVISION U/S 263 IS IN THE NATURE OF SUPERVISORY JURISDICTION AND THE SAME CAN BE EXERCISED ONLY IF THE TWO CIRCUMSTANCES I.E. (I) THE ORDER IS ERRONEOUS AND (II) BY VIRTUE OF THE ORDER BEING ERRONEOUS, A PREJUDICE HAS BEEN CAUSED TO THE INTERESTS OF THE REVENUE, MUST EXIST IN A GIVEN CASE. IN THIS R ESPECT, HE PLACED RELIANCE UPON THE DECISION OF HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. GABRIEL INDIA LTD. 203 ITR 108. 5.2 THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER CO NTENDED THAT THE INCOME TAX APPELLATE TRIBUNAL VIDE ORDER DATED 4.7. 2008 IN AN APPEAL ARISING FROM THE ORDER PASSED U/S 195(2) OF THE ACT IN THE CASE OF PARSONS BRINCKERHOFF INDIA PVT.LTD. (PBIPL) HAS HEL D THAT PAYMENT MADE BY PBIPL TO THE ASSESSEE WAS NOT IN THE NATURE OF R OYALTY AND THEREFORE, THE VIEW TAKEN BY THE AO ACCEPTING THE A SSESSEES RETURN OF INCOME CANNOT SAID TO BE UNSUSTAINABLE OR UNTENABLE IN THE EYES OF LAW. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT 6 LEARNED DIT WAS NOT JUSTIFIED IN OVERLOOKING THE A FORESAID ORDER OF THE TRIBUNAL DATED 4.7.2008 MERELY BY MAKING A CASUAL O BSERVATION THAT THE DEPARTMENT IS IN APPEAL AGAINST THE TRIBUNALS ORDER BEFORE THE HONBLE HIGH COURT. 5.3 THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO F ILED BEFORE US THE SYNOPSIS OF SUBMISSIONS IN WRITING BEFORE US, WHICH ARE PLACED ON RECORD. 6. THE LEARNED CIT-DR, APPEARING FOR THE DEPARTMENT , HAS SUBMITTED THAT THE LEARNED DIT WAS JUSTIFIED IN INV OKING THE REVISIONAL JURISDICTION U/S 263 OF THE ACT INASMUCH AS WHILE A CCEPTING THE ASSESSEES RETURN OF INCOME, THE AO HAS NOT APPLIED HIS MIND TO THE FACTS OF THE CASE AND HAS ALSO NOT MADE NECESSARY E NQUIRY WITH REGARD TO THE ISSUES INVOLVED. THE LEARNED DR POINTED OUT THAT PERUSAL OF THE ASSESSMENT RECORDS FOR THE YEAR UNDER CONSIDERATION WOULD INDICATE THAT THE AO HAD CONDUCTED ONLY ONE HEARING IN THIS CASE I.E. ON 11.12.2006 AND ASKED THE ASSESSEE TO FILE CERTAIN D ETAILS. HOWEVER, NONE OF THE QUERIES WERE RELATED TO EXAMINE THE ISS UE FROM THE POINT OF VIEW OF ASCERTAINING WHETHER THE RELEVANT RECEIPTS BY THE ASSESSEE FROM PBIPL WERE IN THE NATURE OF FEES FOR TECHNICA L SERVICES OR ROYALTY OR BUSINESS INCOME. THE QUERIES RAISED BY THE AO DO NOT INDICATE THAT ANY ENQUIRY WAS CONDUCTED BY THE AO F OR ASCERTAINING THE EXISTENCE OR OTHERWISE OF THE ASSESSEE PE IN INDIA. HE THEN POINTED OUT THAT ON 19.12.2007, THE ASSESSEE MERELY FILED R EPLY AND NO FURTHER HEARING HAD TAKEN PLACE. HE FURTHER POINTED OUT TH AT THE ASSESSMENT ORDER HAS BEEN PASSED ONLY AFTER OBTAINING THE TRAN SFER PRICING STUDY FROM THE ASSESSEE, BUT WITHOUT REFERRING THE MATTER TO THE CONCERNED TRANSFER PRICING OFFICER. THE AO ALSO MADE NO EFFO RTS TO EXAMINE THE SERVICE AGREEMENT SIGNED BETWEEN PARSONS BRINCKERHO FF INDIA PVT.LTD. (PBIPL) AND THE ASSESSEE. THE LEARNED DR PRODUCED B EFORE US THE ASSESSMENT RECORDS TO INDICATE THAT NO ENQUIRY WHAT SOEVER WAS MADE 7 BY THE AO TO ASCERTAIN THE NATURE OF THE RECEIPTS O R TO ASCERTAIN THE EXPENSES OR OTHERWISE OF THE ASSESSEES PE IN INDIA BEFORE ACCEPTING THE ASSESSEES RETURN OF INCOME AND DETERMINING THE INCOME AS SHOWN BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE AO ACCEPTED THE ASSESSEES RETURN IN TOTAL DISREGARD TO THE VIEW TA KEN BY THE DEPARTMENT IN THE PROCEEDINGS UNDER SECTION 195(2) OF THE ACT WHERE THE AO TOOK THE VIEW THAT THE RECEIPTS WERE IN THE NATURE OF ROYALTY WITHIN THE MEANING OF ARTICLE 12 OF INDO-THAI TREAT Y AND DIRECTED THE PAYER TO DEDUCT TAX AT SOURCE @ 15% OF THE PAYMENT. HE, THEREFORE, SUBMITTED THAT IT IS THE CASE WHERE NO ENQUIRY WHAT SOEVER WAS MADE BY THE AO, AND ALSO IT IS THE CASE WHERE THE AO PAS SED THE ASSESSMENT ORDER WITHOUT APPLICATION OF HIS MIND AND THEREFORE , THE ORDER PASSED BY THE AO IS CERTAINLY ERRONEOUS AS WELL AS PREJUDI CIAL TO THE INTERESTS OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE ACT. 7. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO DELIBERATED UPON THE POSITION OF LAW AND DECIDED CASES CITED BY BOTH THE PARTIES. 8. AT THIS JUNCTURE, WE FIND IT PROPER TO TAKE NOTE OF THE PRINCIPLES LAID DOWN BY THE VARIOUS COURTS WITH REGARD TO THE SCOPE AND INTERPRETATION OF THE PROVISIONS CONTAINED IN SECTI ON 263 OF THE ACT. 9. IN THE CASE OF MALABAR INDUSTRIAL CO.LTD. VS. CI T 243 ITR 83 (SC), ON WHICH RELIANCE HAS BEEN PLACED BY BOTH THE PARTIES, IT HAS BEEN HELD THAT A BARE READING OF SECTION 263 OF THE ACT MAKES IT CLEAR THAT THE PRE-REQUISITE TO THE EXERCISE OF JURISDICT ION BY THE COMMISSIONER SUO MOTU UNDER IT, IS THAT THE ORDER O F THE INCOME-TAX OFFICER IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL T O THE INTERESTS OF THE REVENUE. THE COMMISSIONER HAS TO BE SATISFIED OF T WIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUG HT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERE STS OF THE REVENUE. IF 8 ONE OF THEM IS ABSENT, IF THE ORDER OF THE INCOME-T AX OFFICER IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUE, RECOURSE CANNOT BE HAD TO SECTION 263(1) OF THE ACT. THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE O R ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUI REMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHO UT APPLICATION OF MIND. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REV ENUE IS NOT AN EXPRESSION OF ART AND IS NOT DEFINED IN THE ACT. U NDERSTOOD IN ITS ORDINARY MEANING IT IS OF WIDE IMPORT AND IS NOT CO NFINED TO LOSS OF TAX. THE HIGH COURT OF CALCUTTA IN DAWJEE DADABHOY AND C O. VS. S.P.JAIN (1957) 31 ITR 872, THE HIGH COURT OF KARNATAKA IN C IT VS. T.NARAYANA PAI (1975) 98 ITR 422, THE HIGH COURT OF BOMBAY I N CIT VS. GABRIEL INDIA LTD. (1993) 203 ITR 108 AND THE HIGH COURT OF GUJARAT IN CIT VS. SMT. MINALBEN S.PARIKH (1995) 215 ITR 81 TREATED LOSS OF TAX AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 9.1 IN THAT CASE, IT WAS FURTHER HELD THAT THE PHRA SE PREJUDICIAL TO THE INTERESTS OF THE REVENUE HAS TO BE READ IN CON JUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE AO. EVERY LOSS OF RE VENUE AS A CONSEQUENCE OF AN ORDER OF THE AO CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN L AW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH TH E COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOU S ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE, UNLESS THE VIEW TA KEN BY THE ITO IS UNSUSTAINABLE IN LAW. IN THE SAID CASE, THE ASSESS EES CLAIM THAT THE AMOUNT WAS RECEIVED AS COMPENSATION AND DAMAGES FOR LOSS OF 9 AGRICULTURAL INCOME WAS ACCEPTED BY THE AO. THE LE ARNED CIT HAVING EXAMINED THE RECORDS OF THE ASSESSMENT FOUND THAT T HE NIL ASSESSMENT ORDER PASSED BY THE AO WAS ERRONEOUS AND IT WAS PRE JUDICIAL TO THE INTERESTS OF THE REVENUE. HE, THEREFORE, ISSUED A NOTICE U/S 263 OF THE ACT TO SHOW CAUSE WHY THE ORDER OF ASSESSMENT SHOUL D NOT BE SET ASIDE AND THE AMOUNT IN QUESTION SHOULD NOT BE ASSESSED U NDER THE HEAD INCOME FROM OTHER SOURCES. AFTER CONSIDERING THE ASSESSEES REPLY, THE LEARNED CIT CONCLUDED THAT THE SAID AMOUNT WAS UNCONNECTED WITH ANY AGRICULTURAL OPERATION ACTIVITY AND WAS LIABLE TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE COMMISSIONER N OTED THAT THE ITO PASSED THE ORDER OF NIL ASSESSMENT WITHOUT APPL ICATION OF MIND. THE TRIBUNAL ON AN APPEAL HELD THAT THERE WAS EVIDE NCE BEFORE THE CIT THAT THE ASSESSMENT ORDER WAS ERRONEOUS AND PREJUDI CIAL TO THE INTERESTS OF THE REVENUE AND THE AMOUNT IN QUESTION WAS A TAXABLE RECEIPT. INDEED, THE HONBLE HIGH COURT RECORDED T HE FINDING THAT THE ITO FAILED TO APPLY HIS MIND TO THE CASE IN ALL PER SPECTIVE AND THE ORDER PASSED BY HIM WAS ERRONEOUS. IT WAS FOUND THAT THE RESOLUTION PASSED BY THE BOARD OF THE ASSESSEE COMPANY WAS NOT PLACED BEFORE THE AO. THUS, THERE WAS NO MATERIAL TO SUPPORT THE CLAIM OF THE ASSESSEE THAT THE SAID AMOUNT REPRESENTED COMPENSATION FOR LOSS O F AGRICULTURAL INCOME. THE AO ACCEPTED THE ENTRY IN THE STATEMENT OF ACCOUNT FILED BY THE ASSESSEE IN THE ABSENCE OF ANY SUPPORTING MA TERIAL AND WITHOUT MAKING ANY ENQUIRY. ON THESE FACTS, THE CONCLUSION THAT THE ORDER OF THE AO WAS ERRONEOUS WAS FOUND TO IRRESISTIBLE. TH E HON'BLE SUPREME COURT HAS HELD THAT THE HIGH COURT HAS RIGHTLY HELD THAT THE EXERCISE OF THE JURISDICTION BY THE COMMISSIONER U/S 263 WAS JU STIFIED. 10. IN THE CASE OF CIT VS. GABRIEL INDIA LTD. 203 ITR 108, THE HONBLE BOMBAY HIGH COURT HAS HELD AND OBSERVED AS UNDER:- THE POWER TO SUO MOTU REVISION UNDER SUB-SECTION ( 1) IS IN THE NATURE OF SUPERVISORY JURISDICTION AND THE SAME CAN BE EXERCISED ONLY IF THE CIRCUMSTANCES SPECIFIED THERE IN EXIST. 10 TWO CIRCUMSTANCES MUST EXIST TO ENABLE THE COMMISSI ONER TO EXERCISE POWER OF REVISION UNDER THIS SUBSECTION , VIZ., (I) THE ORDER IS ERRONEOUS; (II) BY VIRTUE OF THE ORDER BEING ERRONEOUS PREJUDICE HAS BEEN CAUSED TO THE INTEREST S OF THE REVENUE. IT HAS, THEREFORE, TO BE CONSIDERED F IRSTLY AS TO WHEN AN ORDER CAN BE SAID TO BE ERRONEOUS. WE F IND THAT THE EXPRESSIONS ERRONEOUS, ERRONEOUS ASSESS MENT AND ERRONEOUS JUDGMENT HAVE BEEN DEFINED IN BLACK S LAW DICTIONARY. ACCORDING TO THE DEFINITION, ERRO NEOUS MEANS INVOLVING ERROR; DEVIATING FROM THE LAW. ERRONEOUS ASSESSMENT REFERS TO AN ASSESSMENT THAT DEVIATES FROM THE LAW AND IS, THEREFORE, INVALID, A ND IS DEFECT THAT IS JURISDICTIONAL IN ITS NATURE, AND DO ES NOT REFER TO THE JUDGMENT OF THE ASSESSING OFFICER IN FIXING THE AMOUNT OF VALUATION OF THE PROPERTY. SIMILARLY, E RRONEOUS JUDGMENT MEANS ONE RENDERED ACCORDING TO COURSE A ND PRACTICE OF COURT, BUT CONTRARY TO LAW, UPON MISTAK EN VIEW OF LAW, OR UPON ERRONEOUS APPLICATION OF LEGAL PRIN CIPLES. FROM THE AFORESAID DEFINITIONS IT IS CLEAR THAT AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN INCOME TAX OFFICER ACTI NG IN ACCORDANCE WITH LAW MAKES A CERTAIN ASSESSMENT, THE SAME CANNOT BE BRANDED AS ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE, ACCORDING TO HIM, THE ORDER SHOULD HAVE BEEN WRITTEN MORE ELABORATELY. THIS SE CTION DOES NOT VISUALIZE A CASE OF SUBSTITUTION OF THE JU DGMENT OF THE COMMISSIONER FOR THAT OF THE INCOME-TAX OFFICER , WHO PASSED THE ORDER, UNLESS THE DECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISUALIZED WHERE THE INCOM E-TAX OFFICER WHILE MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLES HIS MIND TO THE F ACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE IN COME EITHER BY ACCEPTING THE ACCOUNTS OR BY MAKING SOME ESTIMATE HIMSELF. THE COMMISSIONER, ON PERUSAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMATE MA DE BY THE OFFICER CONCERNED WAS ON THE LOWER SIDE AND LEF T TO THE COMMISSIONER HE WOULD HAVE ESTIMATED THE INCOME AT A FIGURE HIGHER THAN THE ONE DETERMINED, BY THE INCOM E-TAX OFFICER. THAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE-EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. IT IS BECAUSE THE INCO ME-TAX OFFICER HAS EXERCISED THE QUASI-JUDICIAL POWER VEST ED IN HIM IN ACCORDANCE WITH LAW AND ARRIVED AT A CONCLUSION AND SUCH A CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATIS FIED WITH THE CONCLUSION. IT MAY BE SAID IN SUCH A CASE THAT IN THE OPINION OF THE COMMISSIONER THE ORDER IN QUESTI ON IS 11 PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BUT T HAT BY ITSELF WILL NOT BE ENOUGH TO VEST THE COMMISSIONER WITH THE POWER OF SUO MOTU REVISION BECAUSE THE FIRST REQUIR EMENT, VIZ., THAT THE ORDER IS ERRONEOUS, IS ABSENT. SIMI LARLY, IF AN ORDER IS ERRONEOUS BUT NOT PREJUDICIAL TO THE INTER ESTS OF THE REVENUE, THEN ALSO THE POWER OF SUO MOTU REVISION C ANNOT BE EXERCISED. ANY AND EVERY ERRONEOUS ORDER CANNOT BE THE SUBJECT-MATTER OF REVISION BECAUSE THE SECOND REQUIREMENT ALSO MUST BE FULFILLED. THERE MUST BE SOME PRIMA FACIE MATERIAL ON RECORD TO SHOW THAT TAX WHI CH WAS LAWFULLY EXIGIBLE HAS NOT BEEN IMPOSED OR THAT BY T HE APPLICATION OF THE RELEVANT STATUTE ON AN INCORRECT OR INCOMPLETE INTERPRETATION A LESSER TAX THAN WHAT WA S JUST HAS BEEN IMPOSED. 10.1 IN THAT CASE, IT WAS FOUND THAT AO HAD MADE EN QUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE AS SESSEE. THE ASSESSEE HAS GIVEN DETAILED EXPLANATION IN THAT REG ARD BY A LETTER IN WRITING. ALL THESE WERE PART OF THE RECORD OF THE CASE. EVIDENTLY, THE CLAIM WAS ALLOWED BY THE AO ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. IN THE LIGHT OF THESE FACTS, IT WAS HELD THAT SUCH DECISION OF THE AO CANNOT BE HAD TO BE ERRONEOUS SIMPLY BECA USE IN HIS ORDER, HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REG ARD. 11. IN THE CASE OF CIT VS. SUNBEAM AUTO LTD. (200 9) 31 DTR (DEL) 1, THE HONBLE HIGH COURT HAS OBSERVED AS UNDER:- AS NOTED ABOVE, THE SUBMISSION OF LEARNED COUNSEL FOR THE REVENUE WAS THAT WHILE PASSING THE ASSESSMENT ORDER , THE AO DID NOT CONSIDER THIS ASPECT SPECIFICALLY WHETHE R THE EXPENDITURE IN QUESTION WAS REVENUE OR CAPITAL EXPENDITURE. THIS ARGUMENT PREDICATES ON THE ASSES SMENT ORDER, WHICH APPARENTLY DOES NOT GIVE ANY REASONS W HILE ALLOWING THE ENTIRE EXPENDITURE AS REVENUE EXPENDIT URE. HOWEVER, THAT BY ITSELF WOULD NOT BE INDICATIVE OF THE FACT THAT THE AO HAD NOT APPLIED HIS MIND ON THE ISSUE. THERE ARE JUDGMENTS GALORE LAYING DOWN THE PRINCIPLE THAT THE AO IN THE ASSESSMENT ORDER IS NOT REQUIRED TO GIVE DET AILED REASON IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTI ON, ETC. THEREFORE, ONE HAS TO SEE FROM THE RECORD AS TO WHE THER THERE WAS APPLICATION OF MIND BEFORE ALLOWING THE 12 EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. LE ARNED COUNSEL FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINCTION BETWEEN LACK O F ENQUIRY AND INADEQUATE INQUIRY. IF THERE WAS AN Y INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF G IVE OCCASION TO THE COMMISSIONER TO PASS ORDERS UNDER S ECTION 263 OF THE ACT, MERELY BECAUSE HE HAS DIFFERENT OPI NION IN THE MATTER. 12. THE AFORESAID DECISION OF THE HON'BLE DELHI HIG H COURT IN THE CASE OF SUNBEAM AUTO LTD. HAS BEEN RELIED UPON BY T HE SAME HIGH COURT IN THE CASE OF CIT VS. ANIL KUMAR SHARMA (SUP RA) WHERE THE HONBLE HIGH COURT HELD THAT THE TRIBUNAL ARRIVED A T A CONCLUSIVE FINDING THAT, THOUGH THE ASSESSMENT ORDER DOES NOT PATENTLY INDICATE THAT THE ISSUE IN QUESTION HAS BEEN CONSIDERED BY T HE AO, THE RECORD SHOWED THAT THE AO HAD APPLIED HIS MIND, AND ONCE S UCH APPLICATION OF MIND IS DISCERNIBLE FROM THE RECORD, THE PROCEEDING U/S 263 WOULD FALL INTO THE AREA OF THE COMMISSIONER HAVING A DIFFEREN T OPINION. 13. IN THE CASE OF CIT VS. ASHOK LOGANI (ITA NO.557 OF 2010, 487 OF 2011 AND 488 OF 2011), THE HONBLE HIGH COURT VIDE JUDGMENT DATED 11.5.2011 HAS UPHELD THE ORDER OF THE CIT INVOKING THE JURISDICTION UNDER SECTION 263 OF THE ACT WHEN IT WAS FOUND THAT THERE WAS NO PROPER CONSIDERATION BY THE AO TO THE ISSUE AT HAND , THE AO LEFT MANY LOOSE ENDS, THAT TOO IN A CASE WHERE HUGE CASH WAS FOUND DURING SEARCH; MOST OF WHICH WAS SURRENDERED BY GIVING STA TEMENT AT THE TIME OF SEARCH, THOUGH RETRACTED AND SOUGHT TO BE EXPLAI NED AFTERWARDS. IN THIS CASE, THE HONBLE HIGH COURT HELD THAT IT WAS NECESSARY FOR THE AO TO PROPERLY ADJUDICATE UPON THE ISSUE AND THE ASSES SMENT SHOULD HAVE AT LEAST REFLECTED THAT HE WAS SATISFIED WITH THE E XPLANATION DISCLOSING THE SOURCE OF THE CASH FOUND AND THAT THERE WAS A P ROPER AND VALID RETRACTION. THE FACTS OF THIS CASE WERE THAT IN TH E COURSE OF THE SEARCH CONDUCTED U/S 132 OF THE ACT IN THE GROUP CASES OF THE ASSESSEE, A SUM OF `62,30,300/- WAS FOUND FROM THE RESIDENCE OF THE ASSESSEE AND IN THE STATEMENT RECORDED DURING SEARCH, THE ASSESSEE OFFERED A SUM OF 13 `61.30 LAKHS FOR TAXATION AS HIS UNDISCLOSED INCOME FOR THE AY 2003-04. HOWEVER, IN THE RETURN OF INCOME FILED BY THE ASSES SEE FOR AY 2004-05, THE ASSESSEE HAD OFFERED A SUM OF `21 LAKHS ONLY AG AINST THE SURRENDERED AMOUNT OF `61.30 LAKHS AT THE TIME OF S EARCH. THE AO COMPLETED THE ASSESSMENT ACCEPTING THE ASSESSEES R ETURN OF INCOME. THEREAFTER, ON PERUSAL OF THE RECORDS, IT WAS NOTIC ED BY THE CIT THAT THOUGH THE ASSESSEE HAD OFFERED A SUM OF `61.30 LAK HS FOR TAXATION DURING SEARCH FOR AY 2003-04, BUT THE SAME WAS NOT OFFERED IN THE RETURN OF INCOME AND THE AO HAD NOT EXAMINED THIS A SPECT DURING THE ASSESSMENT PROCEEDINGS. ACCORDINGLY, THE CIT PASSE D THE ORDER U/S 263 OF THE ACT WHEREBY HE SET ASIDE THE ORDER PASSE D BY THE AO WITH DIRECTION TO HIM TO EXAMINE THE SAME IN THE LIGHT O F THE STATEMENT RECORDED AT THE TIME OF SEARCH AND SURROUNDING CIRC UMSTANCES. LIKEWISE, HE ALSO FOUND THAT IN AY 2004-05, THE ASS ESSEE HAD OFFERED A SUM OF `21 LAKHS ONLY AGAINST THE SURRENDERED AMOUN T OF `61.30 LAKHS AT THE TIME OF SEARCH. THE ASSESSEE THEN FILED APP EAL BEFORE THE TRIBUNAL CHALLENGING THE ORDER PASSED U/S 263 IN RE SPECT OF THESE TWO ASSESSMENT YEARS. THE TRIBUNAL SET ASIDE THE AFORE SAID ORDER OF THE CIT. ACCORDING TO THE TRIBUNAL, THE AO HAD EXAMINE D THE ISSUE AND HAD EVEN CONSIDERED THE STATEMENT OF THE ASSESSEE R ECORDED ON 27.5.2005. THE ASSESSEE HAD FURNISHED THE CASH BOO K OF BOTH OF HIS CONCERNS AND HAD EXPLAINED THE CASH FOUND AT THE TI ME OF SEARCH AND THE SURVEY EXCEPT A SUM OF `21 LAKHS. THE CASH AT HAND WHICH WAS AVAILABLE AS PER BOOKS OF ACCOUNT IN THE TWO CONCER NS OF THE ASSESSEE WAS `36,95,720/- AND AFTER EXCLUDING THIS CASH, REM AINING WAS ONLY `25,34,580/-. THE ASSESSEE HAD OFFERED `21 LAKHS F OR TAXATION IN THE YEAR 2004-05 AND THUS, ONLY A SUM OF `4,34,580/- RE MAINED TO BE EXPLAINED. IT WAS EXPLAINED BY THE ASSESSEE AS CAS H AS PER HIS OWN BOOKS. ACCORDING TO THE TRIBUNAL, AFTER EXAMINING THE CLAIM OF THE ASSESSEE VERIFYING THE SAME FROM THE BOOKS OF ACCOU NT, THE AO HAD ACCEPTED THE CLAIM OF THE ASSESSEE, THOUGH THERE WA S NO MENTION OF THE SAME IN THE ASSESSMENT ORDERS. ON THIS BASIS, WHILE SETTING ASIDE 14 THE ORDER OF THE CIT, THE TRIBUNAL OBSERVED THAT TH E ORDER OF THE CIT WAS MERELY ON SURMISES AND CONJECTURES. THE TRIBUN AL FURTHER OBSERVED THAT THERE ARE TWO VIEWS POSSIBLE ONE, N AMELY, THE SUBSEQUENT EXPLANATION OF THE ASSESSEE WAS AN AFTER THOUGHT AND, THE OTHER, NAMELY, SUCH AN EXPLANATION WAS REASONABLE B ECAUSE IT WAS CORROBORATED AND EVIDENCED BY THE BOOKS OF ACCOUNT DULY AUDITED. IN A CASE LIKE THIS, WHEN THE AO HAD HELD THE ENQUIRY, I T COULD NOT BE SAID THAT HIS ORDER WAS ERRONEOUS AND CALLED FOR MANY IN TERFERENCES, AND MORE SO WHEN THE ASSESSEE HAD RETRACTED THE STATEME NT AS WELL. 13.1 IN THE LIGHT OF THESE FACTS, THE HONBLE HIGH COURT FOUND THE FIRST AND FOREMOST ASPECT WHICH WOULD ARISE FOR CONSIDERA TION IS AS TO WHETHER THE AO HAD EXAMINED THE ISSUE ABOUT SURREND ER OF `61.30 LAKHS AT THE TIME OF SEARCH IN HIS STATEMENT RECORD ED DURING THE SEARCH OUT OF AN AMOUNT OF `61.30 LAKHS FOUND AT HIS RESID ENCE. IN THE LIGHT OF THIS ASPECT OF THE MATTER, THE HONBLE HIGH COURT O BSERVED THAT ADMITTEDLY, THERE WAS NO DISCUSSION ABOUT THE SAME IN THE ORDERS OF THE AO WHICH IN FACT IS EVEN TAKEN NOTE OF BY THE T RIBUNAL AS WELL. THE HONBLE HIGH COURT FURTHER OBSERVED THAT NO DOUBT, THE ORDER SHEET SHOWS THAT THE AO HAD ASKED THE ASSESSEE TO EXPLAIN CASH FOUND. HOWEVER, WHETHER THE AO HAD, IN FACT, GONE INTO THE ISSUE AND ACCEPTED THE CLAIM OF THE ASSESSEE OR NOT IS NOT DI SCERNIBLE FROM THE ASSESSMENT ORDER. NO DOUBT, THE AO IS NOT SUPPOSED TO WRITE THE ORDERS IN DETAIL IN THE SAME MANNER AS A JUDICIAL O FFICER IS SUPPOSED TO WRITE THE JUDGMENTS. AT THE SAME TIME, IT CANNOT B E IGNORED THAT HUGE CASH OF `62,30,300/- WAS FOUND AT THE TIME OF SEARC H AND ON THAT DATE, THE ASSESSEE HAD SURRENDERED A SUM OF `61.30 LAKHS AND OFFERED THE SAME FOR TAX. HOWEVER, IN HIS INCOME TAX RETURN, T HE ASSESSEE HAD OFFERED A SUM OF `21 LAKHS ONLY AGAINST THE SURREND ERED AMOUNT OF `61.30 LAKHS AT THE TIME OF SEARCH. IN SUCH SCENAR IO, THERE SHOULD HAVE BEEN AT LEAST A BRIEF DISCUSSION RECORDING A SATISF ACTION ON THE EXPLANATION OFFERED BY THE ASSESSEE. IN THE LIGHT OF THE FACT OF KEEPING 15 CASH OF `62.30 LAKHS, PART OF WHICH BELONGS TO ASSE SSEES SOLE PROPRIETORSHIP FIRM BUT ANOTHER PART TO A PRIVATE L IMITED COMPANY OF WHICH HE IS A DIRECTOR, AT HIS RESIDENCE, MAY RAISE CERTAIN DOUBTS. IT WAS FURTHER NOTED BY THE HONBLE HIGH COURT THAT TH OUGH IN THE LETTER DATED 7.1.2004, THE ASSESSEE HAD STATED THAT HE HAD KEPT THE CASH AT HIS RESIDENCE IN HIS SAFE CUSTODY, THIS ASPECT NEED ED TO BE PROPERLY EXAMINED. THE HONBLE HIGH COURT NOTED THE DISCREP ANCY IN THE EXPLANATION GIVEN BEFORE THE TRIBUNAL AND THE EXPLA NATION GIVEN IN REPLY TO THE SHOW CAUSE NOTICE ISSUED BY THE CIT WI TH REGARD TO THE SOURCE OF THE SEIZED AMOUNT. THE CONDUCT OF THE AS SESSEE GAVE AN IMPRESSION THAT IT MAY BE AN AFTER THOUGHT ON THE P ART OF THE ASSESSEE TO EXPLAIN THE CASH. THE HONBLE HIGH COURT, THERE FORE, HELD THAT UNDER THESE CIRCUMSTANCES, THE AO WAS REQUIRED TO GO INTO THIS ISSUE IN PROPER PERSPECTIVE AND COULD NOT BE PERFUNCTORY IN HIS APPROACH. THE AO IN HIS ASSESSMENT ORDER DID NOT DISCUSS THE STAT EMENT RECORDED AT THE TIME OF SEARCH. NO DOUBT, AS PER THE ASSESSEE, THIS STATEMENT WAS RETRACTED. IN A CASE LIKE THIS, IT WAS NECESSARY F OR THE AO TO AT LEAST REFLECT THAT THE RETRACTION WAS PROPER. ANOTHER FA CTOR WHICH THE HONBLE HIGH COURT HIGHLIGHTED WAS THAT THE ENTIRE CASH BELONGING TO TWO FIRMS WAS FOUND AT THE RESIDENCE. THE HONBLE HIGH COURT THEN OBSERVED THAT IN THE AFORESAID CIRCUMSTANCES, THE C IT HELD THE VIEW THAT THE MATTER WAS NOT EXAMINED BY THE AO. THE HO NBLE HIGH COURT WAS THEN OF THE OPINION THAT IT WAS REASONABLY A FI T CASE FOR EXERCISING REVISIONARY JURISDICTION U/S 263 OF THE ACT. AFTER ALL, CIT GAVE ANOTHER CHANCE TO THE ASSESSEE TO EXPLAIN THE SOURCE OF THE CASH. ONCE THE HIGH COURT WAS CONVINCED THAT THERE WAS NO PROPER C ONSIDERATION BY THE AO, THE VERY FOUNDATION OF THE ORDER OF THE TRI BUNAL WAS KNOCKED OFF. THE HONBLE HIGH COURT FURTHER OBSERVED THAT WE HAD TO KEEP IN MIND THAT AGAINST THE ORDERS PASSED BY THE AO, THE REVENUE IS NOT GIVEN RIGHT TO FILE AN APPEAL AS THERE IS NO SUCH P ROVISION. LIMITED JURISDICTION IS GIVEN TO THE CIT TO REVISE SUCH ORD ERS IF HE FINDS THAT THE SAME IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE . ON THE FACTS OF 16 THAT CASE, WHEN IT WAS FOUND THAT THERE WAS NO PROP ER CONSIDERATION BY THE AO TO THE ISSUE AT HAND, HE LEFT MANY LOOSE END S, THAT TOO IN A CASE WHERE HUGE CASH WAS FOUND DURING SURVEY MOST OF WHI CH WAS SURRENDERED BY GIVING STATEMENT AT THE TIME OF SEAR CH, THOUGH RETRACTED AND SOUGHT TO BE EXPLAINED AFTERWARDS, IT WAS NECESSARY FOR THE AO TO PROPERLY ADJUDICATE UPON THE ISSUE AND TH E ASSESSMENT ORDER SHOULD HAVE AT LEAST REFLECTED THAT HE WAS SATISFIE D WITH THE EXPLANATION DISCLOSING SOURCE OF THE CASH FOUND AND THAT THERE WAS PROPER AND VALID RETRACTION. 14. IN THE CASE OF CIT VS. NALWA INVESTMENTS LTD. ( ITA NO.270 OF 2010 WITH ITA NO.1345 OF 2010), THE HONBLE JURISDI CTIONAL HIGH COURT VIDE DECISION PRONOUNCED ON 11.5.2011 HAS HELD AS U NDER:- 13. SO FAR SO GOOD. BUT THE RELEVANT QUESTION, WH ICH IS THE CORE ONE AND LED CIT TO PASS THE ORDER UNDER SE CTION 263, OF THE ACT IS AS TO WHETHER THE AO APPLIED HIS MIND TO THE ISSUE AS TO WHETHER THE DIVIDEND INCOME COULD B E GIVEN THE CHARACTER OF BUSINESS INCOME FOR THE PURPOSE OF SET OFF. WE HAVE ALREADY TAKEN NOTE OF THE ORDER OF THE AO. HE RECORDED THAT EVEN A DIVIDEND INCOME IN QUESTION WA S SHOWN AS BUSINESS INCOME BY THE ASSESSEE. THE AO D ID NOT AGREE WITH THE SAME, AS IN THE PREVIOUS YEARS T HIS INCOME WAS SHOWN AS DIVIDEND INCOME. AFTER SAYING SO, THE AO STRAIGHTAWAY ALLOWED THE SET OFF OF THIS INC OME AGAINST THE CARRY FORWARD LOSSES. THE ASSESSMENT O RDER IS TOTALLY SILENT AND THERE IS NO DISCUSSION AS TO HOW THIS DIVIDEND INCOME WAS TO BE GIVEN THE CHARACTER OF BU SINESS INCOME FOR THE PURPOSE OF SET OFF UNDER SECTION 72 OF THE ACT. IT WAS FOR THIS REASON THAT THE CIT HELD THAT THE AO HAD NOT CONDUCTED ANY INQUIRY. THE TRIBUNAL, INSTE AD OF APPRECIATING THESE FACTS, WENT INTO THE MERITS OF T HE ISSUE WHICH THE AO IS SUPPOSED TO DEAL WITH. IT ADDRESSE D THE QUESTION AS TO WHETHER DIVIDEND INCOME COULD BE GIV EN THE CHARACTER OF BUSINESS INCOME AND THEN OBSERVED THAT THE VIEW TAKEN BY THE AO WAS PLAUSIBLE WITHOUT APPRECIA TING THAT THE AO HAD NOT EVEN TAKEN ANY VIEW ON THIS ISS UE, IT COULD NOT BE SAID THAT THE AO HAD NOT APPLIED HIS M IND. THE ENTIRE READING OF THE ASSESSMENT ORDER CLEARLY DEMONSTRATES THAT NO SUCH VIEW IS TAKEN AT ALL BY T HE AO ON THIS ASPECT. IT IS INTRIGUING, IN THE CIRCUMSTA NCES, AS TO 17 FROM WHERE THE TRIBUNAL CAME TO THE CONCLUSION THAT THE VIEW TAKEN BY THE AO WAS PLAUSIBLE OR THAT THE AO H AD APPLIED HIS MIND. 14. THE TRIBUNAL FAILED TO APPRECIATE THE LIMITED S COPE OF APPEAL; BEFORE IT, VIZ., THE VALIDITY OF THE ORDER UNDER SECTION 263 OF THE ACT. ORDER OF THE CIT CLEARLY R EVEALED THAT HE HAD APPLIED HIS MIND ON THE RELEVANT ASPECT AND HAD RIGHTLY NOTICED THAT THE CHARACTER OF THE SAID INCOME WAS NOT INVESTIGATED BY THE AO. THIS IS HIGHLIGHTE D BY THE CIT IN PARA 7 OF THE ORDER PASSED BY HIM, WHICH IS ALREADY EXTRACTED ABOVE. THEREIN, THE CIT RECORDED THAT TH E ASSESSING OFFICER HAD FAILED TO CONDUCT THE REQUIRE D ENQUIRY AND ALSO HAD FAILED IN APPLICATION OF THE P ROVISIONS OF SECTION 72(1) OF THE I.T.ACT. THIS RENDERED ORD ER PASSED BY THE AO ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE TO THAT EXTENT. THE TRIBUNAL WAS, THUS, SU PPOSED TO ADJUDGE THE VALIDITY OF SUCH AN ORDER AND NOT TO GO BEYOND WHEN THE CHALLENGE BEFORE IT WAS LIMITED TO THE SAID ORDER PASSED BY CIT IN EXERCISING THE POWERS U NDER SECTION 263 OF THE ACT. 15. MR.AJAY VOHRA, LEARNED COUNSEL APPEARING FOR TH E ASSESSEE ARGUED THAT WHEN THE VIEW TAKEN BY THE AO WAS PLAUSIBLE ONE, IT WAS NOT PROPER FOR THE CIT IN EXE RCISE OF HIS REVISIONARY JURISDICTION TO INTERFERE WITH THAT ORDER AND REFERRED TO THE JUDGMENT OF THE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MAX INDIA LTD. 268 ITR 128 WHICH IS APPROVED BY THE SUP REME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MAX INDIA LTD. 295 ITR 282. HOWEVER, THIS ARGUMENT BAS ED ON THE AFORESAID JUDGMENT IS OF NO AVAIL IN THE FACTS OF THE PRESENT CASE WHEN IT IS FOUND THAT THE AO HAD NOT EXAMINED THE ISSUE AT ALL AND THEREFORE, QUESTION O F THERE BEING A PLAUSIBLE VIEW DOES NOT ARISE. 16. WE, THUS, ANSWER THE QUESTION FORMULATED ABOVE, IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE, AS A RESULT, THE IMPUGNED ORDER PASSED BY THE TRIBUNAL I S SET ASIDE. 15. IN THE CASE OF CIT VS. HINDUSTAN MARKETING AND ADVERTISING CO.LTD. (2011) 196 TAXMAN 368 (DELHI), THE HON'BL E DELHI HIGH COURT HAS RELIED UPON ITS EARLIER DECISION IN THE CASE OF CIT VS. SUNBEAM AUTO LTD. (2009) 31 DTR (DEL) 1 AND HAS UPHELD THE ORD ER OF THE TRIBUNAL 18 CANCELLING THE ORDER OF THE CIT PASSED U/S 263 OF T HE ACT BY OBSERVING THAT THE TRIBUNAL HAS RIGHTLY HELD THAT PRESENT CAS E WAS NOT A CASE WHERE THE ENQUIRIES WERE NOT MADE BY THE AO OR THE RELEVANT MATERIAL WAS NOT COLLECTED BEFORE FRAMING ASSESSMENT ORDERS. THE OBSERVATION OF THE CIT THAT THE AO DID NOT MAKE SUFFICIENT ENQU IRIES IS TOTALLY SUBJECTIVE. IT WAS NOT A CASE OF LACK OF ENQUIRY. THE CIT JUDGED THE SUFFICIENCY OF ENQUIRY BY SUBJECTIVE STANDARDS. IT APPEARS THAT ACCORDING TO THE CIT, MORE ENQUIRIES SHOULD HAVE BE EN MADE. THE OBSERVATIONS OF THE CIT WERE GENERAL IN NATURE. 16. IN THE LIGHT OF THE AFORESAID DECISIONS, WE NOW REVERT TO THE FACTS OF THE PRESENT CASE. THE ASSESSEE COMPANY, NAMELY, P.B.ASIA LIMITED (PBAL) IS INCORPORATED UNDER THE LAWS OF THAILAND, HAVING ITS REGISTERED OFFICE IN BANGKOK. IT HAS ENTERED INTO A CONTRACT WITH PBIPL, WHICH IS A 100% SUBSIDIARY OF PARSONS BRINKERHOFF INTERNATIONA L INC., USA. THE COPY OF AGREEMENT IS PLACED AT PAGES 4 TO 12 OF THE PAPER BOOK FILED BY THE ASSESSEE. PBIPL WAS AWARDED A CONTRACT FOR RENDERING ENGINEERING CONSULTANCY SERVICES TO LARSEN & TOUBRO (L&T) IN CONNECTION WITH THE SECOND VIVEKANANDA BRIDGE TOLLW AY (SVBT) PROJECT. PBIPL HAS SUBCONTRACTED A PART OF THE CON TRACT TO ASSESSEE VIDE AGREEMENT DATED 10.5.2004. THE PREAMBLE OF TH E AGREEMENT NARRATES THAT PBIPL IS ENGAGED IN THE BUSINESS OF R ENDERING ENGINEERING CONSULTANCY SERVICES AND HAS BEEN AWARD ED A CONTRACT FOR RENDERING SUCH SERVICES TO L&T IN CONNECTION WITH S VBT PROJECT. THE PBIPLS SCOPE OF WORK UNDER THE CONTRACT INCLUDED P REPARATION OF DESIGN, DRAWINGS, AND THE ASSESSEE COMPANY HAS THE NECESSARY EXPERTISE AND WAS CAPABLE AND WILLING TO PROVIDE A PART OF DETAILED DESIGN REQUIRED TO BE PREPARED BY PBIPL FOR SVBT PR OJECT. CLAUSE (1) OF THE AGREEMENT PROVIDES THAT THE ASSESSEE COMPANY (PBAL) SHALL PROVIDE THE SERVICES TO PBIPL ON THE TERMS AND COND ITIONS AS SET FORTH IN ANNEXURE-1 TO THE AGREEMENT. CLAUSE (2) PROVIDE D THAT THE ASSESSEE COMPANY WILL CARRY OUT THE SCOPE OF WORK U NDER CLAUSE (1) 19 ABOVE FROM ITS THAILAND OFFICE. IN ORDER TO EXECUT E THE SCOPE OF WORK, THE ASSESSEE COMPANYS PERSONNEL MAY REQUIRE TO MAK E SHORT VISITS TO THE SITE IN INDIA. THE DETAILED SCOPE OF SERVICES ARE STATED IN ANNEXURE-1 TO THE AGREEMENT. IT INCLUDES DETAIL DE SIGNS SERVICES FOR THE APPROACH VIADUCT SUPERSTRUCTURE OF SVBT PROJECT INCLUDING HOWRAH AND KOLKATA MAIN LINE AND RAMP A, B, C AND D. THE DESIGN PACKAGES SHALL INCLUDE PREPARATION AND SUBMISSION OF FULLY D IMENSIONED GENERAL ARRANGEMENT DRAWINGS, SEGMENT CASTING DATA (SUCH AS BOX GEOMETRY DATA SHEET), SEGMENT REINFORCEMENT DRAWINGS, POST-T ENSIONING DRAWINGS, ETC. IT WILL ALSO INCLUDE DESIGN DATA, A ND DETAILING ELASTOMERIC BEARINGS SUPPORTING THE APPROACH VIADUC T (HORIZONTAL AND VERTICAL) AND SEISMIC BUFFERS. SITE VISITS AS NECE SSARY TO KOLKATA AND DELHI (CES OFFICE) ARE ALSO INCLUDED IN THIS PACKAG E. DETAIL DESIGN SUBMISSION PACKAGES SHALL INCLUDE CALCULATIONS, DRA WINGS AND RECORDS IN ACCORDANCE WITH APPENDIX-A OF THE DETAIL DESIGN AND CONSTRUCTION SUPERVISION AGREEMENT BETWEEN L&T AND CES-PBIPL CON SORTIUM. THE CONSTRUCTION STAGE SUPPORT TO CLARIFY DESIGN, RECTI FICATION TO DESIGN ERRORS, OMISSIONS ETC. IS ALSO INCLUDED IN THE PACK AGE. PART 2 OF ANNEXURE-1 PROVIDED FOR DESIGN REVIEW OF PILE FOUND ATION, PILE-CAPS, COLUMNS AND COLUMN-HEADS FOR THE APPROACH VIADUCT S UPERSTRUCTURE OF SVBT PROJECT INCLUDING HOWRAH AND KOLKATA MAIN LINE AND RAMP A, B, C AND D. IN ADDITION TO THE ABOVE, IT ALSO PROVIDED FOR REVIEW OF VARIOUS ELEMENTS (DESIGN BY CES) SUCH AS EMBANKMENTS, HIGHW AY ALIGNMENTS, LAND DRAINAGE, TOLLWAY BOOTHS AND WALKWAY TUNNEL, U NDERPASS BRIDGES AND TUNNELS, OVERPASS BRIDGES, RETAINING WALLS, ELE CTRICAL, BRIDGE DRAINAGE ETC. PART 3 OF ANNEXURE-1 INCLUDED THE WO RK OF DETAIL DESIGN AND PRODUCTION OF FINAL DESIGN DRAWINGS FOR PIER P1 AND P10 OF THE MAIN BRIDGE (EXCLUDING FOUNDATION), AND SUBMISSION OF MI LESTONE DATES FOR GOOD FOR CONSTRUCTION (GFC) AS COMMITTED BY PBIPL T O L&T, I.E. GENERAL ARRANGEMENT BY DATED 20.8.2004 AND REINFORC EMENT BY DATED 10.9.2004. THE PACKAGE SHALL BE SUBMITTED TO IBT F OR CHECKING 40 DAYS PRIOR TO GFC SUBMISSION DATES. CLAUSE 13 OF T HE AGREEMENT 20 PROVIDES THAT THE ASSESSEE COMPANY SHALL NOT DURING OR FOR A PERIOD OF ONE YEAR AFTER THE TERM OF THE AGREEMENT, DISCLOSE ANY TRADE SECRETS OR CONFIDENTIAL OR PROPERLY PROPRIETARY INFORMATION OF PBIPL TO ANY THIRD PERSON FOR ANY REASON OR PURPOSES WHATSOEVER NOR AS SESSEE SHALL MAKE USE OF ANY SUCH SECRETS OR INFORMATION FOR ITS OWN PURPOSE OR FOR THE BENEFIT OF A THIRD PERSON EXCEPT FOR (I) ANY SUCH S ECRETS OR INFORMATION WHICH SHALL THEN BE GENERALLY KNOWN BY THE PUBLIC O R WITHIN PBIPLS INDUSTRY; (II) ANY SUCH SECRETS OR INFORMATION WHIC H SHALL BE DISCLOSED BY THE ASSESSEE WITH PBIPLS EXPRESS CONSENT AND AN Y (III) ANY SECRETS OR INFORMATION WHICH SHALL BE REQUIRED TO BE DISCLO SED BY ASSESSEE PURSUANT TO APPLICABLE LAW OR ANY RULE OF ANY COURT OR GOVERNMENT INSTRUMENTALITY. IN THE EVENT THAT ASSESSEE COMPAN Y IS REQUIRED TO DISCLOSE ANY SECRET OR INFORMATION, IT SHALL PROMPT LY NOTIFY PBIPL. AS OF THE DATE OF TERMINATION OF THE AGREEMENT, THE ASSES SEE COMPANY SHALL REMIT AND SURRENDER TO PBIPL AT PBIPLS COST ALL CO RRESPONDENCE, DRAWINGS, MAPS, REPORTS, COMPUTER PRINTOUTS ETC. RE LATING TO THE SERVICES PROVIDED TO PBIPL BY THE ASSESSEE AND WHIC H ASSESSEE COMPANY MAY HAVE IN ITS POSSESSION OR WITHIN ITS PO WER TO ACQUIRE POSSESSION OF AT THAT TIME. IN THE TERMS OF THE SA ID AGREEMENT, PBIPL SHALL REMIT THE CONSIDERATION TO ASSESSEE COMPANY I N THAILAND. THEREFORE, PBAL MADE AN APPLICATION U/S 195(2) OF T HE ACT TO AO REQUESTING HIM TO PASS AN ORDER AUTHORIZING THE ASS ESSEE TO REMIT THE AMOUNT TO THE PRESENT ASSESSEE COMPANY WITHOUT ANY DEDUCTION OF TAX. THE AMOUNT TO BE REMITTED WAS `5,60,01,600/-. IT WAS THE PBIPLS CASE BEFORE THE AO THAT THE AMOUNT PAID TO ASSESSEE COMPANY FOR PROVIDING DESIGNS AND DRAWINGS ETC. SHALL NOT BE TA XABLE IN INDIA BECAUSE :- (A) THE PAYMENT WAS IN THE NATURE OF BUSINESS INCOME, A ND SINCE THE ASSESSEE COMPANY DID NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA, THE SAME WAS NOT TAXABLE IN INDIA 21 UNDER THE INDO-THAILAND TREATY OF AVOIDANCE OF DOUB LE TAXATION; (B) THE PAYMENT DID NOT REPRESENT FEES FOR TECHNICAL SE RVICES (FTS) SINCE THERE WAS NO SPECIFIC CLAUSE DEALING WI TH FTS IN THE ABOVE TREATY; AND (C) THE PAYMENT SHALL ALSO NOT BE COVERED AS OTHER INC OME WITHIN THE MEANING OF ARTICLE 22 OF THE TREATY. 16.1 THE AO, AFTER CONSIDERING THE APPLICATION FILE D BY PBIPL U/S 195(2) OF THE ACT, TOOK A VIEW VIDE HIS ORDER DATED 7.1.2005 THAT THE AMOUNT REPRESENTED ROYALTY WITHIN THE MEANING OF AR TICLE 12 OF THE INDIA THAILAND DOUBLE TAXATION TREATY AND DIRECTED THAT TAX BE DEDUCTED AT SOURCE AT THE RATE OF 15% OF THE REMITT ANCE. THE TDS AMOUNTING TO `84,00,240/- INCLUDING SURCHARGE AND E DUCATION CESS WAS THUS DEDUCTED AND DEPOSITED IN THE GOVERNMENT ACCOU NT ON 14.2.2005 AND 26.8.2005 AS MENTIONED IN THE TDS CERTIFICATE I SSUED BY PBIPL TO THE ASSESSEE COMPANY. HOWEVER, PBIPL FILED AN APPE AL BEFORE THE LEARNED CIT(A) U/S 248 OF THE ACT AGAINST THE ORDER OF THE AO PASSED U/S 195(2) OF THE ACT. THE LEARNED CIT(A) VIDE HIS ORDER DATED 8.5.2006 CONFIRMED THE ORDER OF THE AO. PBIPL THEN PREFERRE D FURTHER APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER OF LEARNED CI T(A) DATED 8.5.2006. AFTER HEARING BOTH THE PARTIES AND CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ITAT DECIDED THE APP EAL IN FAVOUR OF THE PBIPL VIDE ORDER DATED 4.7.2008 BY TAKING A VIEW TH AT THE DEPARTMENTAL AUTHORITIES WENT WRONG IN THEIR CONCLU SION THAT THE AMOUNT REMITTED BY PBIPL TO THE PRESENT ASSESSEE WA S ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI) OF THE IT ACT AND A RTICLE 12(3) OF THE DOUBLE TAXATION TREATY WITH THAILAND. THE DEPARTME NT IS IN FURTHER APPEAL BEFORE THE HONBLE HIGH COURT, WHICH IS STAT ED TO BE PENDING. 16.2 IN THE MEANTIME, THE PRESENT ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 2.2.2006 DECLARING TOTAL INCOME AT RS. NIL. IN THE RETURN OF 22 INCOME, THE ASSESSEE CLAIMED THE TDS AMOUNT OF `84, 00,240/- DEDUCTED BY PBIPL AS REFUNDABLE AND COPY OF TDS CER TIFICATE WAS ALSO FURNISHED ALONGWITH THE RETURN OF INCOME. IN THE R ETURN OF INCOME, THE ASSESSEE COMPANY HAS CLAIMED THAT THE INCOME ARISIN G IN THE HANDS OF THE ASSESSEE COMPANY FROM ALLEGED SUPPLY OF DESIGN AND DRAWING IS NOT CHARGEABLE TO TAX AS FEES FOR TECHNICAL SERVICE S AS THERE IS NO SPECIFIC CLAUSE FOR FTS UNDER THE INDO-THAILAND DTA A. IT WAS ALSO CLAIMED THAT THE SAME WAS TAXABLE AS BUSINESS INCOM E UNDER ARTICLE 7 OF THE INDO-THAILAND DTAA AND SUCH BUSINESS INCOME IS TAXABLE ONLY IN THAILAND UNLESS THE ASSESSEE COMPANY HAS A PERMANEN T ESTABLISHMENT IN INDIA. THE ASSESSEE FURTHER CLAIMED THAT ASSESS EE COMPANY DOES NOT HAVE ANY PE IN INDIA UNDER ARTICLE 5 AND THEREF ORE, INCOME EARNED BY THE ASSESSEE COMPANY IS NOT TAXABLE IN INDIA. A CCORDINGLY, THE ASSESSEE FILED NIL RETURN OF INCOME ON 2.2.2006. T HE AO THEN ISSUED NOTICE U/S 143(2) DATED 20.9.2006 WHICH WAS SERVED UPON THE ASSESSEE. IN THE MEANTIME, VIDE ORDER DATED 28.11. 2007, JURISDICTION OF THE ASSESSEES CASE WAS CONFERRED ON THE PRESENT AO, WHO PASSED THE ORDER U/S 143(3) OF THE ACT ON 28.12.2007. ACC ORDINGLY, HE ISSUED NOTICE U/S 143(2) AGAIN TO THE ASSESSEE. ON 11.12. 2007, THE ASSESSEES AUTHORIZED REPRESENTATIVE CA NAMRATA JUN EJA FROM S.R.BATLIBOI & CO. APPEARED BEFORE THE AO WHEREUPON SHE WAS ASKED TO FILE CERTAIN DETAILS FIXING THE MATTER ON 18.12. 2007. ON 19.12.2007, CA NAMRATA JUNEJA AND CA AKHIL SAMBHAR FROM S.R.BAT LIBOI & CO. APPEARED BEFORE THE AO AND FILED REPLY. THEREAFTER , THE AO COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT ON 28.12.2007 BY ACCEPTING INCOME RETURNED BY THE ASSESSEE. 16.3 THEREAFTER, ON EXAMINATION OF RECORD AND AFTER HEARING THE ASSESSEE, THE LEARNED CIT INVOKED HIS JURISDICTION U/S 263 OF THE ACT AND PASSED THE ORDER U/S 263 OF THE ACT ON 26.3.201 0 WHEREBY HE CANCELLED THE AOS ASSESSMENT ORDER WITH A DIRECTIO N TO THE AO TO MAKE A FRESH ASSESSMENT AFTER CONDUCTING PROPER ENQ UIRIES ON THE 23 RELEVANT ISSUES AND AFTER GIVING THE ASSESSEE ADEQU ATE OPPORTUNITY OF BEING HEARD. THE LEARNED CIT FOUND THE AOS ORDER TO BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE FOR THE FOLLOWING REASONS:- (I) THE ASSESSMENT HAS BEEN MADE BY THE AO WITHOUT APPLICATION OF MIND TO THE FACTS AND ISSUES INVOLVE D IN THE CASE. (II) NO ENQUIRIES WHATSOEVER WERE MADE BY THE AO ON THE ISSUES WHICH ARE SUBJECT MATTER OF PROCEEDINGS U/S 263 OF THE ACT. (III) THE AO HAS ACCEPTED THE RETURN OF THE ASSESSEE IN DISREGARD OF THE AOS ORDER U/S 195(2) AS WELL AS O RDER OF THE CIT(A) UPHOLDING THE SAME. (IV) THE DEPARTMENT HAS NOT ACCEPTED THE ORDER OF THE TR IBUNAL PASSED IN THE MATTER OF ORDER PASSED BY THE AO U/S 195(2) OF THE ACT WHEREBY THE TRIBUNAL HELD THAT OUTRIGHT SALE OF DESIGNS AND DRAWINGS ARE NOT COVERED U/S 9(1)(VI) O F THE ACT AGAINST WHICH DEPARTMENT HAS FIELD APPEAL BEFOR E THE HONBLE HIGH COURT WHICH IS PENDING. 16.4 NOW, WE HAVE TO SEE AS TO WHETHER THE ASSESSME NT ORDER PASSED BY THE AO ON 28.12.2009 IS WITHOUT APPLICATION OF H IS MIND AND/OR WHETHER AO HAS FAILED TO MAKE NECESSARY ENQUIRY IN RESPECT OF THE ISSUES INVOLVED IN THE CASE. 16.5 AS ALREADY NOTED ABOVE, THE ASSESSEE FILED HIS RETURN OF INCOME ON 2.2.2006 DECLARING TOTAL INCOME AT NIL. IN THE RETURN OF INCOME, THE ASSESSEE HAS GIVEN A NOTE ATTACHED TO THE STATEMENT OF TOTAL INCOME AS UNDER:- 24 1. PB ASIA LTD (PBAT) IS A COMPANY INCORPORATED IN THAILAND. IT HAS ENTERED INTO A CONTRACT WITH PARS ONS BRINCKERHOFF INDIA PRIVATE LIMITED (PBIPL) FOR SU PPLY OF DESIGN AND DRAWINGS IN CONNECTION WITH THE SECOND VIVEKANANDA BRIDGE TOLLWAY PROJECT. DURING THE PRE VIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2005-06, PBAT RECE IVED A SUM OF RS.56,001,600 AS CONSIDERATION FOR SUPPLY OF DESIGNS AND DRAWINGS. 2. THE CONSIDERATION SO RECEIVED BY PBAT IS NOT INC OME CHARGEABLE TO TAX AS DISCUSSED AS FOLLOWS: A) AS PER SECTION 90(2) OF THE ACT, IN DETERMINING THE TAXABILITY OF A PERSON WHO IS A RESIDENT OF A COUNT RY WITH WHICH INDIA HAS ENTERED INTO A DOUBLE TAXATION AVOI DANCE AGREEMENT (DTAA), THE PROVISIONS OF THE DTAA WILL PREVAIL OVER THOSE CONTAINED IN THE ACT TO THE EXTE NT THAT THE PROVISIONS OF THE DTAA ARE MORE BENEFICIAL THAN THOSE CONTAINED IN THE ACT. PBAT IS A TAX RESIDENT OF TH AILAND. ACCORDINGLY, IT SHALL BE TAXED UNDER THE PROVISIONS OF THE INDIA-THAILAND DTAA OR THE ACT, WHICHEVER IS MORE BENEFICIAL. B) THE INCOME ARISING IN THE HANDS OF PBAT FROM SUP PLY OF DESIGN AND DRAWINGS IS NOT CHARGEABLE TO TAX AS FEES FOR TECHNICAL SERVICES (FTS) AS THERE IS NO SPECIFIC CLAUSE FOR TAXATION OF FTS UNDER THE INDIA-THAILAND DTAA. THU S, THE SAME IS TAXABLE AS BUSINESS INCOME UNDER ARTICLE 7 OF THE INDIA-THAILAND DTAA AND SUCH INCOME IS TAXABLE ONLY IN THAILAND UNLESS THE PBAT HAS A PERMANENT ESTABLISHM ENT (PE) IN INDIA. AS PBAT DOES NOT HAVE ANY PE IN I NDIA UNDER ARTICLE 5, INCOME EARNED BY PBAT IS NOT TAXAB LE IN INDIA. ACCORDINGLY, NIL RETURN OF INCOME IS BEING FILED. 16.6 FROM THIS NOTE, IT IS SEEN THAT ASSESSEE IS A COMPANY INCORPORATED IN THAILAND AND IT HAS ENTERED INTO CO NTRACT WITH PBIPL FOR SUPPLY OF DESIGNS AND DRAWINGS IN CONNECTION WITH T HE SECOND VIVEKANANDA BRIDGE TOLLWAY PROJECT, IN RESPECT OF W HICH THE ASSESSEE RECEIVED A SUM OF `56,001,600/- AS CONSIDERATION FO R SUPPLY OF DESIGNS AND DRAWINGS DURING THE RELEVANT YEAR. IN THE NOTE , THE ASSESSEE CLAIMED THAT THE CONSIDERATION SO RECEIVED BY THE A SSESSEE FROM PBIPL WAS NOT CHARGEABLE TO TAX BY GIVING THE REASON THAT AS PER SECTION 92 OF THE ACT, THE AMOUNT SHALL BE TAXED ONLY WITH REF ERENCE TO THE 25 PROVISIONS OF INDIA-THAILAND DTAA OR AS PER LOCAL I NCOME-TAX ACT, WHICH IS MORE BENEFICIAL, AND THAT THE INCOME ARISING TO THE ASSESSEE FROM SUPPLY OF DESIGNS AND DRAWINGS WAS NOT CHARGEABLE T O TAX AS FEES FOR TECHNICAL SERVICES AS THERE WAS NO SPECIFIC CLAUSE FOR TAXATION OF FTS UNDER THE INDIA-THAILAND DTAA, AND THAT THE SAID RE CEIPT IS TAXABLE AS BUSINESS INCOME UNDER ARTICLE 7 OF THE INDIA-THAILA ND DTAA BUT SUCH INCOME IS TAXABLE ONLY IN THAILAND UNLESS THE ASSES SEE HAS A PE IN INDIA, AND SINCE ASSESSEE DOES NOT HAVE ANY PE IN I NDIA UNDER ARTICLE 5, THE AFORESAID INCOME IS NOT TAXABLE IN INDIA. IN T HE LIGHT OF THE AFORESAID NOTE, IT WAS THUS NECESSARY AND DESIRABLE FOR THE AO TO MAKE AN ENQUIRY AND EXAMINE THE DETAILS OR PARTICULARS A S TO WHETHER THE ASSESSEE COMPANY HAD PE IN INDIA OR WHETHER THE INC OME FROM SUPPLY OF DESIGNS AND DRAWINGS WAS A BUSINESS INCOME OR FE ES FOR TECHNICAL SERVICES OR OF ANY OTHER NATURE. IN THIS REGARD, T HE AO HAS TAKEN NOTE OF NOTE ATTACHED TO THE STATEMENT OF TOTAL INCOME, WHICH HAS BEEN PARTIALLY NARRATED BY HIM IN PARAGRAPH 3 OF THE ASS ESSMENT ORDER AS UNDER:- 3. AS PER NOTES ATTACHED TO THE STATEMENT OF TOTAL INCOME: PB ASIA LTD (PBAT) IS A COMPANY INCORPORATED IN THAILAND. IT HAS ENTERED INTO A CONTRACT WITH PARS ONS BRINCKERHOFF INDIA PRIVATE LIMITED (PBIPL) FOR SUPP LY OF DESIGN & DRAWINGS IN CONNECTION WITH THE SECOND VIVEKANANDA BRIDGE TOLLWAY PROJECT. 16.7 FROM THE SAID NARRATION MADE BY THE AO IN PARA GRAPH 3 OF THE ASSESSMENT ORDER, IT IS CLEAR TO US THAT AO HAS ONL Y NARRATED PARTIALLY THE PARAGRAPH 1 OF THE NOTE ATTACHED TO THE STATEME NT OF TOTAL INCOME, WHERE THE ASSESSEE HAS STATED ABOUT A CONTRACT ENTE RED INTO WITH PBIPL FOR SUPPLY OF DESIGNS AND DRAWINGS IN CONNECT ION WITH THE SECOND VIVEKANANDA BRIDGE TOLLWAY PROJECT. ON READ ING THE PARAGRAPH 1 OF THE NOTE VIS-A-VIS THE NARRATION MADE BY THE A O IN PARAGRAPH 3 OF THE ASSESSMENT ORDER, WE FIND THAT PARAGRAPH 1 OF T HE NOTE ATTACHED 26 TO THE STATEMENT OF TOTAL INCOME HAS NOT BEEN REPRO DUCED IN FULL BY THE AO. THE LATTER PART OF PARAGRAPH 1 THAT ASSESSEE H AD RECEIVED A SUM OF `56,001,600/- AS CONSIDERATION FOR SUPPLY OF DRA WINGS AND DESIGNS HAS NOT BEEN REPRODUCED IN PARAGRAPH 3 OF THE ASSES SMENT ORDER. IN THE ASSESSMENT ORDER, THE AO HAS ALSO NOT NARRATED THE PARAGRAPH 2 OF THE NOTE ATTACHED TO THE STATEMENT OF INCOME WHERE ASSESSEE CLAIMED THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE WAS NOT CHARGEABLE TO TAX INASMUCH AS IT WAS NOT CHARGEABLE TO TAX AS FEE S FOR TECHNICAL SERVICES AS THERE WAS NO SPECIFIC CLAUSE OF TAXATIO N UNDER FTS UNDER INDIA-THAILAND DTAA AND IT WAS NOT TAXABLE AS BUSIN ESS INCOME IN INDIA AS ASSESSEE HAS NO PE IN INDIA. IT IS ALSO TO BE N OTED THAT IN THIS NOTE ATTACHED TO THE RETURN OF INCOME, THE ASSESSEE HAS FAILED TO GIVE ANY EXPLANATION OR REASON AS TO WHY THE CONSIDERATION R ECEIVED BY THE ASSESSEE IN RESPECT OF THE CONTRACT WORK ENTERED IN TO WITH PBIPL WAS IN THE NATURE OF BUSINESS INCOME. THE ASSESSEE HAS ME RELY GIVEN A GENERAL STATEMENT THAT INCOME ARISING IN THE HANDS OF THE ASSESSEE IS TAXABLE AS BUSINESS INCOME UNDER ARTICLE 7 OF THE I NDIA THAILAND DTAA WITHOUT GIVING THE REASON OR EXPLANATION AS TO WHY IT IS TAXABLE AS BUSINESS INCOME. THE ASSESSEE HAS ALSO STATED THAT IT DOES NOT HAVE ANY PE IN INDIA UNDER ARTICLE 5 BUT HAS FAILED TO G IVE THE DETAILS AND THE BASIS IN THE LIGHT OF WHICH IT COULD BE HELD THAT A SSESSEE DOES NOT HAVE ANY PE IN INDIA. IT IS THUS A CASE WHERE, IN THE N OTES ATTACHED TO THE RETURN OF INCOME, THE ASSESSEE HAS NOT GIVEN OR FUR NISHED ANY EXPLANATION, EVIDENCES OR DETAILS OR PARTICULARS ON THE BASIS OF WHICH IT COULD BE SAID THAT THE INCOME ARISING TO THE ASSESS EE WAS IN THE NATURE OF BUSINESS INCOME OR THAT THE ASSESSEE DID NOT HAV E ANY PE IN INDIA UNDER ARTICLE 5 OF THE TREATY. AT THIS STAGE, IT I S PERTINENT TO TAKE NOTE OF THE ORDER PASSED U/S 195(2) OF THE ACT BY THE AO . IN THE APPLICATION FILED U/S 195(2) OF THE ACT, PBIPL MADE A SIMILAR C LAIM IN THE APPLICATION THAT THE PAYMENT IN QUESTION WAS IN THE NATURE OF B USINESS INCOME AND ASSESSEE DID NOT HAVE ANY PE IN INDIA, AND THAT THE PAYMENT CANNOT BE TAXED AS FTS SINCE THERE WAS NO SPECIFIC CLAUSE FOR TAXATION OF FTS IN 27 INDO-THAI TREATY AND THAT THE PAYMENT WAS ALSO NOT COVERED UNDER ARTICLE 22 OF THE DTAA AS PAYMENT DID NOT CONSTITUT E OTHER INCOME WITHIN THE MEANING OF THE SAID ARTICLE. AFTER CONS IDERING THE PBATS CLAIM, THE AO PASSED THE ORDER U/S 195(2) OF THE AC T BY HOLDING THAT THE PAYMENT IN QUESTION WAS QUALIFIED TO BE COVERED UNDER THE DEFINITION OF ROYALTY WITHIN THE MEANING OF ARTIC LE 12 OF THE DTAA BETWEEN INDIA AND THAILAND AND THUS DIRECTED THE PA YER TO DEDUCT TAX AT SOURCE AT THE RATE OF 15% BEFORE MAKING REMITTAN CE TO THE PRESENT ASSESSEE. THIS ORDER PASSED BY THE AO U/S 195(2) I S DATED 7.1.2005 AND WAS KNOWN TO THE ASSESSEE. THE RELEVANT TDS CE RTIFICATE ISSUED BY PBAT TO THE ASSESSEE WAS ALSO ENCLOSED WITH THE RET URN OF INCOME FILED BY THE PRESENT ASSESSEE. IN THE NOTE ATTACHED TO T HE STATEMENT OF TOTAL INCOME FILED ALONGWITH THE RETURN OF INCOME, THE ASSESSEE HAS NOT MADE ANY WHISPER EXPLAINING AS TO WHY THE PAYMENT I N QUESTION SHOULD NOT BE QUALIFIED AS ROYALTY WITHIN THE MEANI NG OF ARTICLE 12 OF DTAA BETWEEN INDIA AND THAILAND AS WAS SO HELD BY T HE AO IN HIS ORDER U/S 195(2) OF THE ACT. DURING THE COURSE OF ASSESS MENT PROCEEDINGS, THE AO HAS ALSO NOT RAISED ANY QUERY REGARDING THE QUESTION AS TO WHY THE CONSIDERATION RECEIVED BY THE ASSESSEE SHOULD N OT BE TREATED TO BE IN THE NATURE OF ROYALTY WITHIN THE MEANING OF ARTI CLE 12 OF DTAA BETWEEN INDIA AND THAILAND AS WAS SO HELD IN THE OR DER PASSED BY THE AO U/S 195(2) OF THE ACT. ON 11.12.2007, WHEN THE ASSESSEE WAS ASKED BY THE AO TO FILE CERTAIN DETAILS, THE ORDER PASSED BY THE AO U/S 195(2) OF THE ACT GOT CONFIRMED BY THE CIT(A) VIDE HIS ORDER DATED 8.5.2006, AND IT WAS THUS INCUMBENT ON THE PART OF THE AO TO APPLY HIS MIND TO THIS ASPECT OF THE MATTER AND TO ASK THE AS SESSEE TO SHOW REASON AS TO WHY THE AMOUNT RECEIVED BY THE ASSESSE E SHOULD NOT BE QUALIFIED TO BE IN THE NATURE OF ROYALTY AS SO HELD IN THE PROCEEDINGS U/S 195(2) OF THE ACT. BUT THE AO HAS FAILED TO MAKE A NY SUCH ENQUIRY AND LOOK TO THE ISSUE FROM THIS ANGLE COMPLETELY IN DIS REGARD TO THE VIEW TAKEN IN THE PROCEEDINGS U/S 195(2) OF THE ACT, BUT INSTEAD HE ACCEPTED THE ASSESSEES RETURN ON THE FACE OF IT. 28 16.8 DURING THE ASSESSMENT PROCEEDINGS, ON 11.12.20 07, ASSESSEES AUTHORIZED REPRESENTATIVE CA NAMRATA JUNEJA FROM S. R.BATLIBOI & CO. HAD APPEARED AND WAS ASKED TO FILE CERTAIN DETAILS. THE ORDER SHEET RECORDED BY THE AO ON 11.12.2007 READS AS UNDER:- CA NAMRATA JUNEJA FROM S.R.B. & CO. APPEARS. SHE IS ASKED TO FILE:- (I) DETAILS OF WORK DONE. (II) WHERE THE WORK OF DESIGNING ETC. WAS DONE (NAME/NAMES OF COUNTRIES). (III) ANY PORTION WAS SUBCONTRACTED? IF YES DETAILS THEREOF. (IV) DETAILS OF ALL THE HELP/SUPPORT FROM AES (INDIAN OR OTHERS) TAKEN IN ACTUAL WORK. (V) HOW MUCH % OF WORK WAS ACTUALLY DONE BY REGULAR EMPLOYEES OF PE ASIA LTD.? (VI) TP STUDY REPORT OF THIS COMPANY AND OF INDIAN COMPANY. SHE SEEKS TIME TILL 18 TH DEC., 07. ALLOWED TO FILE COMPLETE INFO. 16.9 ON 11.12.2007, THE ASSESSEE ALSO SUBMITTED A L ETTER ENCLOSING THEREWITH A COPY OF THE CONTRACT BETWEEN THE ASSESS EE AND PBIPL AND REQUESTED THE AO THAT SHOULD THE AO HAD ANY QUESTIO NS OR NEED ANY CLARIFICATIONS, ASSESSEE WOULD BE PLEASED TO PROVID E WITH THE SAME. THEREAFTER, ASSESSEES AUTHORIZED REPRESENTATIVE AP PEARED ON 19.12.2007 BEFORE THE AO AND FILED REPLY. THE ORDE R SHEET DATED 19.12.2007 RECORDED BY THE AO READS AS CA NAMRATA & CA AKHIL SAMBHAR FROM S.R.B. CO. APPEAR AND FILE REPLY. TH E REPLY FILED ON 19.12.2007 IS AS UNDER:- DECEMBER 18, 2007 THE ASSISTANT DIRECTOR OF INCOME TAX CIRCLE 2(1), INTERNATIONAL TAX 29 DRUM SHAPE BUILDING NEW DELHI. FOR KIND ATTENTION OF MR. LOVISH KUMAR SIR, RE : PARSONS BRINCKERHOFF ASIA LTD (ASSESSEE) ASSESSMENT YEAR 2005-06 WE REFER TO THE HEARING BEFORE YOUR GOODSELF ON DEC EMBER 11, 2007. IN THIS REGARD, WE, ON BEHALF OF AND UND ER INSTRUCTIONS FROM OUR ABOVE-MENTIONED CLIENT, ARE ENCLOSING HEREWITH THE FOLLOWING INFORMATION/DETAIL S AS DESIRED BY YOUR GOODSELF. 1. DETAILS OF WORK DONE THE SCOPE OF WORK UNDER THE CONTRACT BETWEEN THE ASSESSEE AND PARSONS BRINCKERHOFF INDIA PRIVATE LIM ITED (PB INDIA) IS PROVIDED HEREUNDER: PREPARATION OF DETAIL DESIGN AND DRAWINGS FOR THE SECOND VIVEKANANDA BRIDGE TOLLWAY (SVBT) PROJECT. DETAILED REVIEW OF DESIGN AND DRAWINGS FOR THE SVBT PROJECT AFTER INCORPORATING THE INPUTS FROM PB INDI A. PRODUCTION OF FINAL DESIGN AND DRAWINGS. THE DETAILED SCOPE OF WORK IS PROVIDED IN ANNEXURE 1 OF THE CONTRACT BETWEEN THE ASSESSEE AND PB INDIA, WHICH H AS BEEN SUBMITTED BEFORE YOUR GOODSELF IN OUR SUBMISSI ONS DATED DECEMBER 11, 2007. 2. WHERE THE WORK OF DESIGNING ETC WAS DONE THE SCOPE OF WORK, MENTIONED UNDER THE CONTRACT, WA S CARRIED OUT BY THE ASSESSEE IN ITS THAILAND OFFICE. 3. ANY PORTION OF WORK SUBCONTRACTED. IF YES, DETA ILS THEREOF. HOW MUCH PERCENTAGE OF WORK WAS DONE BY REGULAR EMPLOYEES OF PB ASIA. IT IS HUMBLY SUBMITTED BEFORE YOUR GOODSELF THAT TH E ASSESSEE HAS NOT SUBCONTRACTED ANY PORTION OF THE W ORK UNDER THE CONTRACT. THE ENTIRE WORK WAS EXECUTED B Y THE EMPLOYEES OF THE ASSESSEE. 30 4. DETAILS OF SUPPORT FROM ASSOCIATES ENTERPRISES T AKEN IN ACTUAL WORK. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAS NOT T AKEN SUPPORT/ASSISTANCE FROM ITS ASSOCIATED ENTERPRISES FOR EXECUTING THE WORK DONE UNDER THE CONTRACT. 5. TP STUDY REPORT A COPY OF THE TRANSFER PRICING STUDY REPORT OF PB I NDIA FOR THE SUBJECT YEAR HAS BEEN ANNEXED AS ANNEXURE I. TRUST YOU FIND THE ABOVE IN ORDER. IN CASE YOUR GO ODSELF IS NOT IN AGREEMENT WITH OUR SUBMISSIONS, WOULD REQUES T YOU TO GIVE US A FURTHER OPPORTUNITY OF BEING HEARD. S HOULD YOU REQUIRE ANY FURTHER CLARIFICATIONS AND/OR INFORMATI ON IN THIS REGARD, PLEASE FEEL FREE TO REVERT. 16.10 ON PERUSAL OF THE ORDER SHEET RECORDED BY T HE AO ON 11.12.2007 AND 19.12.2007 AND FROM REPLY SUBMITTED BY THE ASSESSEE ON 19.12.2007, WHEN HEARING OF THE CASE HAD TAKEN P LACE BEFORE THE AO, IT IS NOT DISCERNIBLE AS TO WHETHER AO HAD MADE ANY ENQUIRY OR ASKED THE ASSESSEE TO JUSTIFY THE ASSESSEES STAND THAT THE INCOME RECEIVED BY THE ASSESSEE WAS IN THE NATURE OF BUSIN ESS INCOME AND THE ASSESSEE HAD NO PE IN INDIA. IN THE REPLY SUBMITTE D BY THE ASSESSEE ON 19.12.2007, THE ASSESSEE HAS GIVEN NO EXPLANATION O R CLARIFICATION AS TO WHY THE RECEIPT SHOULD BE TREATED AS BUSINESS IN COME AND WHY IT SHOULD BE HELD THAT THE ASSESSEE HAD NO PE IN INDIA . 16.11 FROM THE NATURE OF QUERY RAISED BY THE AO A ND REPLY GIVEN BY THE ASSESSEE, IT IS CLEAR THAT A COPY OF CONTRACT B ETWEEN THE ASSESSEE AND PBIPL WAS FURNISHED DURING THE ASSESSMENT PROCE EDINGS. THE DETAILED SCOPE OF WORK IS PROVIDED IN ANNEXURE 1 OF THE SAID CONTRACT, WHICH HAVE ALREADY BEEN NARRATED ABOVE. IN THE CON TRACT AGREEMENT AND SCOPE OF WORK (ANNEXURE 1 TO THE AGREEMENT), IT IS CLEARLY STATED THAT THE DETAIL DESIGN SUBMISSION PACKAGES SHALL IN CLUDE CALCULATIONS, DRAWINGS AND REPORTS IN ACCORDANCE WITH APPENDIX-A OF THE DETAIL 31 DESIGN AND CONSTRUCTION SUPERVISION AGREEMENT BETWE EN L&T AND CES-PBIPL CONSORTIUM, BUT THE SAID DETAIL DESIGN AN D CONSTRUCTION SUPERVISION AGREEMENT BETWEEN L&T AND CES-PBIPL CON SORTIUM ALONGWITH APPENDIX-A THERETO WAS NOT FURNISHED TO T HE AO, WHICH WAS NECESSARY TO ASCERTAIN THE NATURE OF THE DETAIL DES IGN SUBMISSION PACKAGES AND THE WORK EXECUTED BY THE ASSESSEE. TH E AO HAS ALSO FAILED TO BRING THE SAME ON RECORD FOR HIS PERUSAL AND CONSIDERATION. THE ASSESSEE ALSO STATED BEFORE THE AO THAT THE SCO PE OF THE WORK MENTIONED UNDER THE CONTRACT WAS CARRIED OUT BY THE ASSESSEE IN ITS THAILAND OFFICE AND ENTIRE WORK WAS EXECUTED BY ITS REGULAR EMPLOYEES. HOWEVER, IN SUPPORT OF THE AFORESAID CONTENTION, TH E ASSESSEE DID NOT PRODUCE ANY EVIDENCES OR DETAILS BEFORE THE AO AS I S CLEAR FROM ORDER SHEET NOTING RECORDED BY THE AO ON 19.12.2007 WHICH RUNS AS CA NAMRATA AND CA AKHIL SAMBHAR FROM S.R.B.CO. APPEAR AND FILE REPLY. ON 19.12.2007, NO EVIDENCES OR RECORDS OR DOCUMENTS WERE PRODUCED BEFORE THE AO IN SUPPORT OF THE SUBMISSIONS MADE IN THE ASSESSEES REPLY. THE AO HAS SIMPLY ACCEPTED THE REPLY WITHOU T VERIFYING AND EXAMINING THE SAME WITH REFERENCE TO RELEVANT DETAI LS, DOCUMENTS, RECORDS AND EVIDENCES. 16.12 AT THIS STAGE, IT IS PERTINENT TO NOTE THAT IN THE CONTRACT AGREEMENT, IT HAS BEEN SPECIFICALLY STATED THAT TO EXECUTE THE SCOPE OF WORK, THE ASSESSEES PERSONNEL MAY REQUIRE TO MAKE SHORT VISITS TO THE SITE IN INDIA. SITE VISITS AS NECESSARY TO KOLKATA AND DELHI (CES OFFICE) WERE ALSO INCLUDED IN THE PACKAGE. THE SCOPE OF TH E WORK PROVIDED FOR PREPARATION AND SUBMISSION OF FULLY DIMENSIONED GEN ERAL ARRANGEMENT DRAWINGS, SEGMENT CASTING DATA, SEGMENT REINFORCEME NT DRAWINGS AND ALSO INCLUDED DETAILED DESIGN CALCULATIONS, DRAWING S AND REPORTS IN ACCORDANCE WITH APPENDIX-A OF THE DETAIL DESIGN AND CONSTRUCTION SUPERVISION AGREEMENT BETWEEN L&T AND CES/PBIPL CON SORTIUM AND DESIGN REVIEW OF PILE FOUNDATION, PILE-CAPS, COLUMN S AND COLUMN-HEADS FOR THE APPROACH VIADUCT SUPERSTRUCTURE OF SVBT PRO JECT INCLUDING 32 HOWRAH AND KOLKATA MAIN LINE AND RAMP A, B, C & D E TC. THE ASSESSEE HAS NOT GIVEN THE DETAILS REGARDING ITS PERSONNEL, WHO PAID VISITS TO THE SITE IN INDIA AND FOR HOW MANY DAYS. THE AO FAILED TO MAKE ANY ENQUIRY FROM THE ASSESSEE REGARDING VISITS MADE BY THE ASSESSEE PERSONNEL TO THE SITE IN INDIA WITH A VIEW TO DECID E THE ISSUE AS TO WHETHER THE ASSESSEE HAD A PE IN INDIA WITH REGARD TO VARIOUS CRITERIA LAID DOWN IN THE TREATY BETWEEN INDIA AND THAILAND. THE AO ALSO FAILED TO EXAMINE THE TERMS OF THE AGREEMENT WITH REFERENC E TO THE DETAILED PARTICULARS OF THE WORK EXECUTED BY THE ASSESSEE TO DETERMINE THE NATURE OF THE RECEIPT WHETHER BUSINESS INCOME OR RO YALTY OR ANY OTHER NATURE. THE AO HAS ACCEPTED THE ASSESSEES REPLY F ILED ON 19.12.2007 ON THE FACE OF IT WITHOUT APPLYING HIS MIND AND WIT HOUT EXAMINING AND VERIFYING THE RELATED DOCUMENTS AND PARTICULARS THE REOF. IT IS THUS A CASE WHERE AO MADE NO ENQUIRY WITH REGARD TO THE QU ESTION AS TO WHETHER THE CONSIDERATION RECEIVED BY THE ASSESSEE WAS IN THE NATURE OF ROYALTY OR BUSINESS INCOME OR ANY OTHER NATURE O R WHETHER THE ASSESSEE HAD A PE IN INDIA DURING THE YEAR UNDER CO NSIDERATION. THE AO HAS ACCEPTED THE ASSESSEES RETURN OF INCOME WIT HOUT APPLYING HIS MIND TO THE VARIOUS CRITERIA FOR DECIDING THE AFORE SAID ISSUES INVOLVED IN THE ASSESSMENT. WE ARE, THEREFORE, IN FULL AGRE EMENT WITH THE LEARNED CIT IN DRAWING THE FOLLOWING CONCLUSIONS BY HIM:- (I) NONE OF THE QUERIES RAISED BY THE AO WERE RELATED T O EXAMINING THE CASE FROM THE POINT OF VIEW OF ASCERT AINING THE RELEVANT RECEIPTS WHETHER FOR FEES FOR TECHNICA L SERVICES OR ROYALTY. (II) THE QUERIES RAISED BY THE AO DO NOT INDICATE THAT A NY ENQUIRY WAS CONDUCTED FOR ASCERTAINING THE EXISTENC E OR OTHERWISE OF ASSESSEES PE IN INDIA. (III) DESPITE A CLAIM MADE BY THE ASSESSEE THAT THE CONCE RNED RECEIPT IS TAXABLE AS BUSINESS INCOME UNDER ARTICLE 7 OF THE INDIA THAILAND DTAA AND IT COULD BE TAXED ONLY IF T HE 33 ASSESSEE HAD A PE IN INDIA, THE AO HAS NOT ADDRESSE D THE ISSUE FROM THAT ANGLE OR CONDUCTED ANY ENQUIRIES TO EITHER DETERMINE THE NATURE OF THE RECEIPTS OR THE EXISTEN CE OF PE OF THE ASSESSEE IN INDIA. (IV) THE AO HAS CONVENIENTLY IGNORED THE ORDER U/S 195(2 ) DATED 7.1.2005 WHEREIN THE SAME RECEIPTS WERE HELD TO BE IN THE NATURE OF ROYALTY INCOME AND PAYER WAS DIREC TED TO DEDUCT TAX AT SOURCE ON IT. (V) IN VIEW OF THE ABOVE, THE AO FAILED TO CONDUCT PROP ER AND REQUISITE ENQUIRIES ON THE RELEVANT ISSUES BEFORE P ASSING THE ASSESSMENT ORDER AND ACCEPTING THE RETURN FILED BY THE ASSESSEE. (VI) FURTHER, THE AO HAS PASSED ASSESSMENT ORDER IN UTTE R DISREGARD TO THE STAND TAKEN BY THE REVENUE IN THE PROCEEDINGS U/S 195(2) OF THE ACT. 17. THE LEARNED COUNSEL FOR THE ASSESSEE HAS STRO NGLY CONTENDED THAT NECESSARY ENQUIRIES WERE MADE BY THE AO REGARD ING ISSUES INVOLVED IN THE ASSESSMENT AS WOULD BE ESTABLISHED FROM THE FACT THAT THE AO SPECIFICALLY CALLED UPON THE ASSESSEE TO FIL E A COPY OF CONTRACT AGREEMENT, WHICH WAS DULY FILED BY THE ASSESSEE, AN D ASKED THE ASSESSEE TO FILE CERTAIN INFORMATION VIDE ORDER SHE ET ENTRY DATED 11.12.2007. IT WAS FURTHER SUBMITTED BY HIM THAT T HE ENTIRE INFORMATION AS DESIRED BY THE AO WERE FURNISHED BY THE ASSESSEE VIDE LETTERS DATED 11.12.2007 AND 18.12.2007 (FILED ON 1 9.12.2007). IN THE LIGHT OF THESE SUBMISSIONS, HE THEN CONTENDED THAT THE LD.CIT WENT WRONG IN CONCLUDING THAT NO ENQUIRY WHATSOEVER WAS MADE BY THE AO ON THE ISSUE INVOLVED AND THERE WAS NO APPLICATION OF MIND BY THE AO ON THE ISSUES INVOLVED. HE FURTHER SUBMITTED THAT MERELY BECAUSE THERE WAS NO ELABORATE DISCUSSION ON THE ISSUES INV OLVED, IN THE ASSESSMENT ORDER WOULD NOT AUTOMATICALLY LEAD TO TH E CONCLUSION THAT 34 THERE WAS NO APPLICATION OF MIND. IN THIS REGARD, HE RELIED UPON THE FOLLOWING DECISIONS:- (I) HARI IRON TRADING CO. VS. CIT 263 ITR 437 (P&H). (II) CIT VS. EICHER LTD. 294 ITR 310 (DELHI). (III) CIT VS. ANIL KUMAR SHARMA (ITA NO.820 OF 2009) (D ELHI HIGH COURT). (IV) M/S SUNBEAM AUTO LTD. (V) CIT VS. GOYAL PRIVATE FAMILY SPECIFIC TRUST 171 I TR 698. 17.1 THE LEARNED COUNSEL FOR THE ASSESSEE HAS CON TENDED THAT MERELY BECAUSE THERE WAS NO ELABORATE OR DETAILED DISCUSSI ON ON THE RELEVANT ISSUES IN THE ASSESSMENT ORDER, IT WOULD NOT AUTOMA TICALLY LEAD TO THE CONCLUSION THAT THERE WAS NO APPLICATION OF MIND ON SUCH ISSUES BY THE AO AND NO ENQUIRY WAS MADE BY THE AO. THERE IS NO QUARREL AS TO THE PROPOSITION, AS HELD IN THE NUMBER OF DECISIONS CIT ED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THAT THE MERE FACT THAT T HE ASSESSMENT ORDER DOES NOT GIVE ANY REASONS FOR ALLOWING THE CLAIM OF THE ASSESSEE WOULD NOT BY ITSELF INDICATE THAT THE AO HAS NOT APPLIED HIS MIND ON THE ISSUE AND/OR HAS NOT MADE ENQUIRY BEFORE ACCEPTING THE CL AIM. ONE HAS TO SEE FROM THE RECORD AS TO WHETHER THERE WAS APPLICA TION OF MIND OR WHETHER ANY ENQUIRY WAS MADE BY THE AO BEFORE ALLOW ING THE CLAIM OF THE ASSESSEE. IN THE PRESENT CASE BEFORE US, THE R ELEVANT ISSUES INVOLVED WERE:- (I) WHETHER THE CONSIDERATION RECEIVED BY THE ASSESSEE TOWARDS THE WORK EXECUTED BY IT WAS IN THE NATURE O F ROYALTY WITHIN THE MEANING OF ARTICLE 12 OF INDO- THAILAND TREATY OR WAS IT A BUSINESS INCOME; AND (II) WHETHER THE ASSESSEE HAD A PE IN INDIA. 35 17.2 IN THE PROCEEDINGS ON AN APPLICATION MADE U /S 195 OF THE ACT, THE AO PASSED AN ORDER U/S 195(2) OF THE ACT BY QUA LIFYING THE CONSIDERATION TO BE IN THE NATURE OF ROYALTY AND DIRECTED THE PAYER TO DEDUCT THE TAX AT SOURCE. ACCORDINGLY, THE DUE TAX WAS DEDUCTED AT SOURCE FROM THE PAYMENT MADE TO THE PRESENT ASSESSE E, AND THE PRESENT ASSESSEE HAD FURNISHED TAX DEDUCTION CERTIF ICATE ALONGWITH THE RETURN OF INCOME AND CLAIMED THE AMOUNT TO BE REFUN DABLE. THE ORDER OF THE AO PASSED U/S 195(2) WAS CONFIRMED BY THE LE ARNED CIT(A) VIDE HIS ORDER DATED 8.5.2006. THE ASSESSMENT ORDER IN THE CASE OF THE PRESENT ASSESSEE WAS MADE ON 28.12.2007 ACCEPTING T HE ASSESSEES RETURN. IN THE ASSESSMENT ORDER AT PARA 5, THE AO HAS MENTIONED ABOUT THE HEARING TAKEN PLACE ON 11.12.2007 AND 19. 12.2007 BY STATING THAT CASE WAS DISCUSSED & ALSO SUBMISSIONS WERE FILED BY ASSESSEE ON 11-12-07, 19-12-07. THEREAFTER, HE AC CEPTED THE RETURN FILED BY THE ASSESSEE WITH THE MERE OBSERVATION THA T WITH THESE REMARKS THE INCOME RETURNED AS PER RETURN IS ACCEPT ED. THE NATURE OF INFORMATION ASKED FOR BY THE AO VIDE ORDER SHEET EN TRY DATED 11.12.2007 AND THE NATURE OF REPLY DATED 18.12.2007 FILED ON 19.12.2007 HAS ALREADY BEEN DISCUSSED ABOVE, AND FR OM THESE DETAILS, IT IS NOT DISCERNIBLE AS TO WHETHER ANY ENQUIRY WAS MADE BY THE AO AND WHETHER ANY MIND WAS APPLIED BY HIM ON THE ISSUES I NVOLVED IN THE ASSESSMENT REGARDING NATURE OF INCOME AND WHETHER A SSESSEE HAD A PE IN INDIA. IN THE ASSESSMENT ORDER ALSO, THESE A SPECTS OF THE MATTER HAVE NOT BEEN DISCUSSED AND NO REASON HAS BEEN GIVE N BY THE AO IN ACCEPTING THE RETURN OF INCOME FILED BY THE ASSESSE E. WHETHER THE AO HAD, IN FACT, GONE IN TO THE ISSUES INVOLVED AND AC CEPTED THE RETURN FILED BY THE ASSESSEE OR NOT IS NOT DISCERNIBLE FRO M THE ASSESSMENT ORDER. NO DOUBT, THE AO IS NOT SUPPOSED TO WRITE T HE ASSESSMENT ORDER IN DETAIL. BUT, AT THE SAME TIME, THE FACT THAT TH E AO HAD ALREADY PASSED AN ORDER U/S 195(2) OF THE ACT QUALIFYING TH E INCOME TO BE IN THE NATURE OF ROYALTY AND, ON AN APPEAL, THE SAID ORDER GOT CONFIRMED BY THE LEARNED CIT(A) BY THE TIME THE AO MADE THE I MPUGNED 36 ASSESSMENT IN THE PRESENT ASSESSEES CASE CANNOT BE IGNORED WHEN THE AO HAD ACCEPTED THE ASSESSEES RETURN TO THE CO NTRARY. IN SUCH A SITUATION, THERE SHOULD HAVE BEEN AT LEAST A QUERY TO BE RAISED FROM THE AO AS TO WHY THE INCOME SHOULD NOT BE QUALIFIED TO BE IN THE NATURE OF ROYALTY AND A BRIEF DISCUSSION IN THE ASSESSMENT OR DER RECORDING A SATISFACTION ON THE CONTRARY CLAIM OF THE ASSESSEE MADE IN THE RETURN OF INCOME. FURTHERMORE, IN THE RETURN OF INCOME OR IN THE REPLY SUBMITTED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS, THERE IS NO WHISPER WHATSOEVER BY THE ASSESSEE AS TO WHY THE IN COME SHOULD NOT BE QUALIFIED TO BE IN THE NATURE OF ROYALTY OR WHY THE VIEW TAKEN BY THE DEPARTMENT IN THE PROCEEDINGS U/S 195(2) SHOULD NOT BE ADOPTED IN THE ASSESSMENT PROCEEDINGS OF THE PRESENT ASSESSEE. TH ERE IS NO ENQUIRY WHATSOEVER MADE IN THIS REGARD BY THE AO. NO EVIDE NCES OR DETAILS OR RECORDS RELATING TO THE WORK EXECUTED BY THE ASSESS EE WERE PRODUCED IN A CASE LIKE THIS, IT WAS NECESSARY FOR THE AO TO AT LEAST REFLECT THAT A DEPARTURE FROM THE VIEW TAKEN BY THE DEPARTMENT IN PROCEEDINGS U/S 195(2), WAS PROPER ON HIS PART. 17.3 THE LEARNED COUNSEL FOR THE ASSESSEE HAS FU RTHER TRIED TO DEMONSTRATE AND ESTABLISH THAT IT WAS NOT A CASE WH ERE NO ENQUIRY AT ALL WAS CONDUCTED BY THE AO AND THE AO HAD NOT APPL IED HIS MIND BEFORE ACCEPTING THE RETURN FILED BY THE ASSESSEE. IN THIS PROCESS, HE DREW A DISTINCTION BETWEEN LACK OF ENQUIRY AND L ACK OF INADEQUATE ENQUIRY AND SUBMITTED THAT IF THERE IS AN ENQUIRY, EVEN INADEQUATE, THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE CIT T O PASS ORDER UNDER SECTION 263 OF THE ACT MERELY BECAUSE HE HAS A DIFF ERENT OPINION IN THE MATTER. IN THIS RESPECT, HE STRONGLY PLACED RELIAN CE UPON THE DECISION OF HONBLE HIGH COURT IN THE CASE OF CIT VS. SUNBEA M AUTO LTD. 227 CTR 133 (DELHI) = (2009) 31 DTR (DELHI) 1. 18. WE HAVE CAREFULLY GONE THROUGH THE SAID DECIS ION WHERE IT HAS BEEN HELD THAT IT IS ONLY IN THE CASE OF LACK OF E NQUIRY THAT A COURSE OF 37 EXERCISING REVISIONARY JURISDICTION UNDER SECTION 2 63 OF THE ACT WOULD BE OPEN AND WHILE HOLDING SO, THEIR LORDSHIPS HAVE CONSIDERED THE EARLIER DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF GEE VEE ENTERPRISES VS. ADDL.CIT (1975) 99 ITR 375 (DELHI ), AND IF THERE WAS ANY ENQUIRY, EVEN INADEQUATE, THAT WOULD NOT BY ITS ELF GIVE OCCASION TO CIT TO EXERCISE HIS POWERS UNDER SECTION 263 OF THE ACT MERELY BECAUSE HE HAS DIFFERENT OPINION IN THE MATTER. IN THE CASE OF CIT VS. SUNBEAM AUTO LTD. (SUPRA), THE ISSUE INVOLVED IN TH E ASSESSMENT WAS AS TO WHETHER THE EXPENDITURE IN QUESTION WAS REVEN UE OR CAPITAL EXPENDITURE. THE AO ACCEPTED THE CLAIM OF THE ASSE SSEE OF THE EXPENDITURE BEING REVENUE IN NATURE. THE CIT INVOK ED HIS JURISDICTION U/S 263 OF THE ACT AND SET ASIDE THE ASSESSMENT FOR THE REASON THAT THE ORDER PASSED BY THE AO WAS ERRONEOUS AS WELL AS PRE JUDICIAL TO THE INTERESTS OF THE REVENUE. THE HONBLE HIGH COURT T OOK NOTE OF THE FACT THAT THE AO HAD CALLED FOR EXPLANATION ON THIS VERY ITEM FROM THE ASSESSEE AND THE ASSESSEE HAD FURNISHED HIS EXPLANA TION VIDE LETTER DATED 26.09.2002. THIS FACT WAS EVEN TAKEN NOTE OF BY THE CIT HIMSELF IN PARA 3 OF HIS ORDER DATED 3.11.2004, WHERE REPLY OF THE ASSESSEE WAS REPRODUCED. FROM THE REPLY GIVEN BY THE ASSESS EE BEFORE THE AO, THE HONBLE HIGH COURT HAS OBSERVED IN PARA 14 OF T HE JUDGMENT THAT THIS CLEARLY SHOWS THAT THE AO HAD UNDERTAKEN THE E XERCISE OF EXAMINING AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE REPLACEMENT OF DYIES AND TOOLS IS TO BE TREATED AS REVENUE EXPENDITURE OR NOT, AND IT APPEARS THAT SINCE THE A O WAS SATISFIED WITH THE AFORESAID EXPLANATION, HE ACCEPTED THE SAME. T HE CIT IN HIS IMPUGNED ORDER EVEN ACCEPTED THE SAID POSITION BY O BSERVING THAT THE AO ACCEPTED THE EXPLANATION WITHOUT RAISING ANY FUR THER QUESTIONS AND COMPLETED THE ASSESSMENT AT THE RETURNED INCOME. I N THE LIGHT OF THESE FACTS, THE HONBLE HIGH COURT HAS OBSERVED TH AT THE GRIEVANCE OF THE CIT WAS THAT THE AO SHOULD HAVE MADE FURTHER EN QUIRIES RATHER THAN ACCEPTING THE EXPLANATION. THEREFORE, IT CANN OT BE SAID THAT IT WAS A CASE OF LACK OF ENQUIRY. HOWEVER, IN THE PRE SENT CASE BEFORE US, 38 AS ALREADY DISCUSSED AND OBSERVED ABOVE, THE AO HAS MADE NO ENQUIRY AS TO THE ASCERTAINMENT OF THE NATURE OF INCOME AND WHETHER ASSESSEE HAD A PE IN INDIA BEFORE ACCEPTING THE ASSESSEES R ETURN PARTICULARLY IN THE LIGHT OF THE FACT THAT THE NATURE OF INCOME WAS QUALIFIED TO BE IN THE NATURE OF ROYALTY IN THE PROCEEDINGS U/S 195(2) OF THE ACT BY THE DEPARTMENT, WHICH WAS UPHELD BY THE LEARNED CIT(A) BY THE TIME WHEN THE ASSESSMENT WAS MADE. THE DIT HAS BEEN ABLE TO MAKE OUT THAT THE PRESENT CASE IS A CASE OF LACK OF ENQUIRY AND N ON-APPLICATION OF MIND BY THE AO. THUS, ON FACTS, THIS DECISION OF H ON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUNBEAM AUTO LTD. IS O F NO ASSISTANCE TO THE ASSESSEES CONTENTION. 19. A FURTHER RELIANCE WAS PLACED BY THE ASSESSE E UPON THE DECISION OF HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. HINDUSTAN MARKETING AND ADVERTISING LTD. (2011) 196 TAXMAN 368 (DELHI), WHERE THE DECISION OF SAME HIGH COURT IN THE CASE O F CIT VS. SUNBEAM AUTO LTD. HAS BEEN REFERRED TO, IN SUPPORT OF THE C ONTENTION THAT MERELY BECAUSE THE CIT EXPECTED THAT THE AO SHOULD HAVE GO NE DEEPER INTO THE MATTER, THE EXERCISE OF JURISDICTION U/S 263 OF THE ACT WAS NOT PROPER. IN THAT CASE, IT WAS HELD BY THE HONBLE H IGH COURT THAT WHEN THE AO HAD MADE REASONABLY DETAILED ENQUIRIES, COLL ECTED RELEVANT MATERIAL AND DISCUSSED VARIOUS FACETS OF THE CASE W ITH THE ASSESSEE, THE ORDER OF THE CIT TO DIRECT FRESH ASSESSMENT BY GOING DEEPER INTO THE MATTER WOULD NOT FORM A VALID OR LEGAL BASIS TO EXERCISE JURISDICTION UNDER SECTION 263 OF THE ACT. IN THAT CASE, IT WAS OBSERVED BY THE TRIBUNAL THAT NOT ONLY THE AO ASKED FOR THE REQUIRE D DETAILS, BUT THOSE DETAILS WERE SUPPLIED AS WELL, AND THEREAFTER, IN T HE ASSESSMENT ORDER PASSED BY THE AO, THESE FACTS WERE RECORDED. IN TH AT CASE, IT WAS FOUND BY THE TRIBUNAL THAT THE CIT RAISED THE SUFFI CIENCY OF ENQUIRY BY SUBJECTIVE STANDARDS. THUS, THIS DECISION IS NOT A PPLICABLE TO THE PRESENT CASE WHERE, AS ALREADY OBSERVED ABOVE, NO E NQUIRY ON VARIOUS FACETS OR ASPECTS OF THE CASE TO ASCERTAIN THE NATU RE OF INCOME AND 39 WHETHER THE ASSESSEE HAD A PE IN INDIA WERE MADE BY THE AO AND THE RETURN OF INCOME FILED BY THE ASSESSEE WAS ACCEPTED ON THE FACE OF IT WITHOUT APPLICATION OF MIND AND WITHOUT MAKING DUE ENQUIRY AND EXAMINING THE RELEVANT EVIDENCES, RECORDS, DETAILS AND INFORMATION. 20. THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANIL KUMAR SHARMA (2010-TIOL-267-HC-DEL-IT) IS ALSO OF ANY ASSISTANCE TO THE ASSESSEES CASE AS, IN THAT CASE, IT WAS FOUND BY THE TRIBUNAL THAT IT WAS NOT A CASE OF LACK OF ENQUIRY INASMUCH AS THE AO HAD ASKED THE ASSESSEE TO SUBMIT THE PURCHASE DEED IN RESPECT OF THE LAND AT VILLAGE TUGHLAKABAD AND THAT THE ASSESSEE I N RESPONSE THERETO HAD SUPPLIED REQUISITE DETAILS AND SUBMITTED A COPY OF THE HIGH COURTS DECISION IN RELATION TO THE AWARD OF COMPENSATION E TC. IT WAS CONCLUDED BY THE TRIBUNAL THAT THE COMPLETE DETAILS WERE FILED BEFORE THE AO AND THAT HE APPLIED HIS MIND TO THE RELEVANT MATERIAL AND FACTS, ALTHOUGH SUCH APPLICATION OF MIND IS NOT DISCERNIBL E FROM THE ASSESSMENT ORDER. HOWEVER, IN THE PRESENT CASE, AS DISCUSSED ABOVE, THE NECESSARY DETAILS AND EVIDENCES WERE NOT FILED BEFORE THE AO TO ASCERTAIN THE NATURE OF RECEIPT AND TO DECIDE THE Q UESTION WHETHER THE ASSESSEE HAD A PE IN INDIA PARTICULARLY IN VIEW OF THE FACT THAT A VIEW WAS EARLIER TAKEN BY THE DEPARTMENT IN THE PROCEEDI NGS U/S 195(2) OF THE ACT THAT THE RECEIPT WAS IN THE NATURE OF ROYAL TY, AND TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE. 21. ONE MORE PLEA HAS BEEN RAISED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ORDER OF THE AO ACCEPTING THE ASS ESSEES RETURN CANNOT BE TREATED AS ERRONEOUS ORDER AS WELL AS PRE JUDICIAL TO THE INTERESTS OF THE REVENUE INASMUCH AS THE AO HAS TAK EN ONE POSSIBLE VIEW, WHICH IS IN CONFORMITY WITH THE VIEW OF THE T RIBUNAL TAKEN IN AN APPEAL ARISING FROM THE ORDER OF THE LEARNED CIT(A) PASSED IN THE MATTER OF AN ORDER MADE BY THE AO U/S 195(2) OF THE ACT. AS ALREADY OBSERVED ABOVE, ON AN APPLICATION MADE BY THE PAYER OF THE AMOUNT 40 PAID TO THE PRESENT ASSESSEE, THE AO TOOK THE VIEW THAT THE AMOUNT REPRESENTED ROYALTY WITHIN THE MEANING OF ARTICLE 12 OF INDO-THAILAND TREATY AND DIRECTED THAT TAX BE DEDUCTED AT SOURCE @ 15% OF THE REMITTANCE VIDE ORDER DATED 7.1.2005. THE PAYER PB IPL FILED AN APPEAL BEFORE THE CIT(A), WHO HAD TAKEN THE VIEW THAT THE AMOUNT CONSTITUTED ROYALTY UNDER SECTION 9(1)(VI) OF THE ACT AS WELL A S ARTICLE 12(3) OF THE TREATY VIDE HIS ORDER DATED 8.5.2006. BEING AGGRIE VED, THE PAYER PREFERRED FURTHER APPEAL BEFORE THE TRIBUNAL AND TH E TRIBUNAL VIDE ITS ORDER DATED 4.7.2008 HAD TAKEN A VIEW THAT THE DEPA RTMENTAL AUTHORITIES WENT WRONG IN THEIR CONCLUSION THAT THE AMOUNT REMITTED BY THE PAYER PBIPL TO THE ASSESSEE WAS ROYALTY WITHI N THE MEANING OF SECTION 9(1)(VI) OF THE ACT AND ARTICLE 12(3) OF TH E INDO-THAILAND TREATY. NOW, THE DEPARTMENT IS IN APPEAL BEFORE THE HONBLE HIGH COURT, WHICH IS STATED TO BE PENDING. THE ASSESSMENT ORDER IN T HE PRESENT ASSESSEES CASE WAS MADE ON 28.12.2007, WHEN THE AF ORESAID ORDER OF THE TRIBUNAL DATED 4.7.2008 PASSED SUBSEQUENTLY WAS NOT AVAILABLE TO SUPPORT THE VIEW CONTENDED BY THE ASSESSEE. AS ALR EADY OBSERVED AND DISCUSSED ABOVE, THE AO, IN THE PRESENT CASE, HAS N OT MADE ANY ENQUIRY AS TO THE ASCERTAINMENT OF THE NATURE OF RE CEIPT OR RAISED ANY QUERY AS TO WHY THE RECEIPT SHOULD NOT BE QUALIFIED TO BE IN THE NATURE OF ROYALTY NOR THE ASSESSEE HAD GIVEN ANY EXPLANA TION ON THIS QUESTION AS TO WHY THE RECEIPT SHOULD NOT BE TREATE D IN THE NATURE OF ROYALTY, AS WAS SO HELD BY THE AO IN HIS ORDER PASS ED U/S 195(2) OF THE ACT AND FURTHER UPHELD BY THE LEARNED CIT(A), AND T HE AO HAS FAILED TO EXAMINE ALL ASPECTS OF THE MATTER WITH REGARD TO TH E ASCERTAINMENT OF THE NATURE OF RECEIPT OR WHETHER THE ASSESSEE HAD A PE IN INDIA, AND ALL RECORDS, EVIDENCES, MATERIALS, DETAILS OR INFORMATI ON RELATING TO WORK UNDERTAKEN BY THE ASSESSEE WERE NOT PRODUCED BY THE ASSESSEE FOR AOS PERUSAL AND VERIFICATION. IN SUCH A SCENARIO, IT CANNOT BE SAID THAT THE AO HAD EVEN TAKEN ANY VIEW ON THE ISSUES INVOLV ED AND HAD APPLIED HIS MIND THEREUPON. THE ENTIRE READING OF THE ASSESSMENT ORDER AND PERUSAL OF THE RECORD CLEARLY DEMONSTRATE S THAT NO VIEW HAS 41 BEEN TAKEN AT ALL BY THE AO. IN THESE CIRCUMSTANCE S, WHERE THE AO HAD FAILED TO CONDUCT THE REQUIRED ENQUIRY AND ALSO FAI LED IN APPLYING HIS MIND BEFORE ACCEPTING THE RETURN OF INCOME OF THE A SSESSEE ON THE FACE OF IT, THE QUESTION OF THERE BEING A PLAUSIBLE VIEW TAKEN BY THE AO DOES NOT ARISE. IN SUPPORT OF THE VIEW WE HAVE TAK EN ABOVE, A RELIANCE IS PLACED UPON THE DECISION DATED 11.5.2011 IN THE CASE OF CIT VS. M/S NALWA INVESTMENTS LTD. (SUPRA). THEREFORE, THIS AR GUMENT OF THE ASSESSEES COUNSEL IS OF NO AVAIL ON THE FACTS OF T HE PRESENT CASE, AND IS THUS REJECTED. 22. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ADVANC ED ONE MORE CONTENTION THAT THE LEARNED DIT WAS NOT JUSTIFIED I N OVERLOOKING THE ORDER OF THE TRIBUNAL DATED 4.7.2008 PASSED IN THE PROCEEDINGS U/S 195(2) OF THE ACT MERELY BY MAKING A CASUAL OBSERVA TION THAT THE DEPARTMENT IS IN APPEAL AGAINST THE TRIBUNALS ORDE R BEFORE THE HONBLE HIGH COURT. IN THIS CASE, WE ARE CONCERNED WITH TH E ISSUE AS TO WHETHER THE AO HAS FAILED TO MAKE NECESSARY ENQUIRY BEFORE ACCEPTING THE RETURN OF INCOME FILED BY THE ASSESSEE AND WHET HER THE AO HAS FAILED TO APPLY HIS MIND TO THE ISSUES INVOLVED IN THE ASSESSMENT, IN ACCEPTING THE ASSESSEES RETURN OF INCOME. WE ARE NOT CONCERNED ABOUT THE FINAL ASCERTAINMENT OF THE ISSUE AS TO WH ETHER THE RECEIPTS RECEIVED BY THE ASSESSEE WERE IN THE NATURE OF ROYA LTY OR BUSINESS INCOME OR ANY OTHER INCOME OR WHETHER THE ASSESSEE HAD A PE IN INDIA. IN THE PRESENT CASE, WHEN THE DIT HAS PASSED THE OR DER U/S 263 OF THE ACT, BY SETTING ASIDE THE AOS ASSESSMENT ORDER FOR THE REASON THAT THE AO HAS FAILED TO MAKE NECESSARY ENQUIRY AND HAS FAI LED TO APPLY HIS MIND, AT THAT STAGE, THE DIT WAS ONLY REQUIRED TO F IND OUT AS TO WHETHER THE AO FAILED TO MAKE NECESSARY ENQUIRY AND APPLY H IS MIND TO THE ISSUES INVOLVED. IN THIS APPEAL, WE ARE CONCERNED ABOUT THE PROPRIETY OF ORDER PASSED BY THE LEARNED DIT INVOKING HIS JUR ISDICTION OR POWER U/S 263 OF THE ACT KEEPING IN VIEW THE SCOPE OF THA T PROVISION. THEREFORE, THIS CONTENTION OF THE ASSESSEE THAT THE ORDER OF THE 42 TRIBUNAL ON THE MERITS OF THE ISSUE IS REQUIRED TO BE FOLLOWED BY THE DIT IS OF NO AVAIL IN THE PRESENT PROCEEDINGS. THUS, T HIS CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE IS REJECTED. 23. IN THE AFORESAID CIRCUMSTANCES, WE, THEREFORE, UPHOLD THE VIEW OF THE DIT THAT THE MATTER WAS NOT EXAMINED BY THE AO AND THE AO HAS NOT APPLIED HIS MIND BEFORE ACCEPTING THE RETURN OF INCOME OF THE ASSESSEE. WE ARE, THEREFORE, OF THE CONSIDERED OPI NION THAT IT WAS A REASONABLY FIT CASE FOR EXERCISING REVISIONARY JURI SDICTION UNDER SECTION 263 OF THE ACT. WE, THEREFORE, UPHOLD THE ORDER OF THE LEARNED DIT IN CANCELLING THE ASSESSMENT ORDER AND RESTORING THE M ATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR HIS ASSESSMENT AF TER CONDUCTING PROPER ENQUIRIES ON THE RELEVANT ISSUES AND AFTER GIVING T HE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 20 TH SEPTEMBER, 2011. SD/- SD/- ( (( (G.E.VEERABHADRAPPA) G.E.VEERABHADRAPPA) G.E.VEERABHADRAPPA) G.E.VEERABHADRAPPA) (C (C(C (C.L.SETHI .L.SETHI .L.SETHI .L.SETHI) )) ) VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 20.09.2011 VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR