M/s. Bharti Airtel Limited, Gurgaon V. CIT, New Delhi

ITA 3120/DEL/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0020 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 20-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR; A MISHRA
• Assessee Lawyers: S K TULSIYAN; AB HA AGRA WAL
• Keywords: Capital asset; Business income; Depreciation; Charitable institution; Opportunity of being heard; Cost of acquisition; Wholly owned subsidiary; Fair market value; Difference of opinion; Valuation report; Scheme of amalgamation; Assessment record; Capital receipt; Revised return; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 115JB; 147; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SH. C. M. GARG , JM ITA NO. 3120 /DEL/201 4 : ASSTT. YEAR : 2008 - 09 M/S BHARTI AIRTEL LTD., AIRTEL CENTRE, PLOT NO. 16, UDYOG VIHAR, P HASE - IV, GURGAON, HARYANA - 122001 VS COMMISSIONER OF INCOME TAX, DELHI - I, NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AA ACB2894G ASSESSEE BY : SH. S. K. TULSIYAN, ADV. & MS. AB HA AGRA WAL, CA REVENUE BY : MS. A. MISHRA, CIT DR & MS. Y. KAKKAR, SR. DR DATE OF HEARING : 02.03 .2015 DATE O F P RONOUNCEMENT : 06. 05 .2015 ORDER PER N.K . SAINI , A.M. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 30.03.2014 PASSED BY THE LD. CIT, DELHI - I, NEW DELHI U/S 263 OF THE INCOME TAX ACT, 196 1, (HEREINAFTER REFERRED TO AS THE ACT). 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: I. 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 SETTING ASIDE THE A SSESSMENT FRAMED UNDER SECTION 143(3)/L44C OF THE INCOME TAX ACT, 1961 ('THE ACT') AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON THE 2 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. ALLEGED GROUND THAT TAX IMPLICATIONS ARISING ON TRANSFER OF PASSIVE TELECOM INFRASTRUCTURE UNDER THE NORMA L PROVISIONS OF THE ACT HAVE NOT BEEN EXAMINED BY THE ASSESSING OFFICER/DRAFT RESOLUTION PANEL (DRP), IS WITHOUT JURISDICTION, BAD IN LAW AND VOID - AB - INITIO. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE PROCEEDINGS UNDER SECTION 263 OF THE ACT HAVING BEEN INITIATED ON THE BASIS OF INCORRECT FACTS, THE IMPUGNED ORDER PASSED PURSUANT THERETO IS WITHOUT JURISDICTION, ILLEGAL AND BAD IN LAW. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT FAILED TO APPRECIATE THA T - THE ORDER PASSED UNDER SECTION 144C(13), IN PURSUANCE OF THE DIRECTIONS OF THE DRP NOT BEING AN ORDER PASSED BY THE ASSESSING OFFICER, THE SAME CANNOT BE REVISED UNDER SECTION 263 OF THE ACT. 3.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT ERRED IN EXERCISING JURISDICTION UNDER SECTION 263 OF THE ACT WITHOUT APPRECIATING THAT THE ORIGINAL ASSESSMENT ORDER UNDER SECTION 143(3)/144C OF THE ACT HAVING BEEN PASSED WITH THE APPROVAL/SANCTION OF THE DRP, COMPRISING OF A COLLEGIUM OF TH REE CITS, SUCH AN ASSESSMENT WAS NOT AMENABLE TO REVISION UNDER SECTION 263 OF THE ACT. 3.2. THAT ON THE FACTS AND CIRCUMSTANCES OF - THE CASE AND IN LAW, THE CIT FAILED TO APPRECIATE THAT THE ORDER OF THE ASSESSING OFFICER STOOD MERGED WITH THE ORDER/DIR ECTIONS OF THE DRP QUA THE SPECIFIC ISSUE OF DETERMINATION AND ALLOWABILITY OF 'CAPITAL LOSS' 3 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. SUFFERED BY THE ASSESSEE PURSUANT TO THE SCHEME OF ARRANGEMENT SANCTIONED BY THE HIGH COURT AND THUS THE CIT HAD NO JURISDICTION UNDER SECTION 263 OF THE ACT TO R EVISE SUCH ORDER. 3.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT FAILED TO APPRECIATE THAT THE SPECIFIC ISSUE OF DETERMINATION AND ALLOWABILITY OF 'CAPITAL LOSS' SUFFERED BY THE ASSESSEE PURSUANT TO THE SCHEME OF ARRANGEMENT SANC TIONED BY THE HIGH COURT WAS ALSO BEFORE THE APPELLATE TRIBUNAL AND THUS THE CIT HAD NO JURISDICTION UNDER SECTION 263 OF THE ACT TO REVISE SUCH ORDER. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN ALLEGING THAT THE ORDE R OF ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE IN AS MUCH AS HE HAD NOT EXAMINED AS TO WHETHER THE TRANSACTION OF TRANSFER OF PASSIVE TELECOM INFRASTRUCTURE BY THE APPELLANT TO ITS 100% SUBSIDIARY FOR NIL CONSIDERATION, RESULTED IN CAPITAL GAINS/BUSINESS INCOME TO THE APPELLANT AND WHETHER THE SAID TRANSACTION WAS A COLORABLE DEVICE TO EVADE TAX. 4.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN NOT APPRECIATING THAT THE ASSESSING OFFICER AND THE DRP WHILE FRAMING THE ASSESSMENT UNDER SECTION 143(3)/ 144C OF THE ACT, HAVING HELD THAT THE TRANSACTION OF TRANSFER OF PASSIVE TELECOM INFRASTRUCTURE RESULTED IN CAPITAL LOSS TO THE APPELLANT, IT WAS NOT OPEN TO HOLD THAT THE ASSESSMENT ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE ON THE GROUND THAT THE 4 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. ASSESSING OFFICER HAD NOT EXAMINED AS TO WHETHER ANY INCOME AROSE TO THE APPELLANT PURSUANT TO THE VERY SAME TRANSACTION. 4.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE REVISIONARY PROCEEDINGS UNDER SECTION 263 OF THE ACT HAVING BEING INITIATED BY THE CIT ON A MERE 'CHANGE OF OPINION' AS REGARDS THE TAX IMPLICATION OF THE TRANSACTION OF 'TRANSFER OF PASSIVE TELECOM INFRASTRUCTURE', THE IMPUGNED ORDER PASSED PU RSUANT THERETO IS WITHOUT JURISDICTION AND BAD IN LAW. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT ERRED IN SETTING ASIDE THE ASSESSMENT ORDER WITHOUT RECORDING ANY PRIMA FACIE FINDING AS TO HOW THE TRANSACTION OF TRANSFER OF P ASSIVE TELECOM INFRASTRUCTURE TO A WHOLLY OWNED SUBSIDIARY OF THE APPELLANT, PURSUANT TO WHICH THE INVESTMENT IN SUBSIDIARY WAS REVALUED UPWARDS IN THE BOOKS OF' THE APPELLANT, GAVE RISE TO ANY TAXABLE INCOME IN THE HANDS OF THE APPELLANT. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE IMPUGNED ORDER IS BAD IN LAW A S THE CIT WAS HIMSELF NOT CERTAIN AS TO THE TAX IMPLICATIONS OF THE TRANSACTION OF TRANSFER OF PASSIVE TELECOM INFRASTRUCTURE, AS WOULD BE CLEAR ON PERUSAL OF PARA 20 OF THE IMPUGNED ORDER ALONGWITH THE FIRST SHOW CAUSE NOTICE ISSUED BY THE CIT ON 2 5.11.20 13 AND THE SECOND SHOW CAUSE NOTICE ISSUED ON 29.03.2014. WITHOUT PREJUDICE: 5 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. 7. THE CIT ERRED IN HOLDING THAT THE 'NOTIONAL' DIFFERENCE BETWEEN THE BOOK VALUE AND THE FA IR MARKET VALUE OF THE 'PASSIVE TELECOM INFRASTRUCTURE' TRANSFERRED BY THE APPELLANT TO BHARTI INFRATEL LTD. (BIL), CONSTITUTED CONSIDERATION FOR TRANSFER OF SUCH INFRASTRUCTURE AND WAS EXIGIBLE TO CAPITAL GAINS UNDER SECTION 45 OF THE ACT. 7.1 THAT THE CIT ERRED IN OBSERVING THAT SINCE THE VALUE OF INVESTMENT IN SUBSIDIARY COMPANY HAD GONE UP ONLY BECAUSE OF TRANSFER OF ASSETS BY THE APPELLANT TO THE SUBSIDIARY AT FAIR MARKET VALUE, THE CONSIDERATION FOR TRANSFER OF ASSETS WAS NOT NIL BUT RS. 8,218 CRORE S. 7.2 THAT THE CIT FAILED TO APPRECIATE THAT IN THE ABSENCE OF RECEIPT OF ANY CONSIDERATION ON TRANSFER OF THE PASSIVE TELECOM INFRASTRUCTURE, THE ISSUE OF APPLICABILITY OF CAPITAL GAINS TAX UNDER SECTION 45 DID NOT ARISE IN VIEW OF THE SPECIFIC EXCLUSI ON PROVIDED IN SECTION 47(III) OF THE ACT. 7.3 THAT THE CIT FAILED TO APPRECIATE THAT IN ABSENCE OF RECEIPT OF ANY CONSIDERATION FOR TRANSFER OF THE TELECOM INFRASTRUCTURE, THE QUESTION OF ATTRIBUTING ANY NOTIONAL SUM AS CONSIDERATION AND BRINGING THE TR ANSACTION TO CAPITAL GAINS TAX DID NOT ARISE AND SUCH AN ACTION HAD ABSOLUTELY NO BASIS IN LAW. 7.4 THAT THE CIT FAILED TO APPRECIATE THAT THE TRANSFER OF THE TELECOM INFRASTRUCTURE FOR NIL CONSIDERATION ONLY RESULTED IN LOSS OF RS.5,739 CRORES TO THE AP PELLANT, WHICH HAD BEEN RIGHTLY HELD BY THE 6 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. ASSESSING OFFICER AND THE DRP AS 'CAPITAL LOSS' IN THE ORDER PASSED UNDER SECTION 143(3)/144C OF THE ACT. 7.5 THAT THE CIT FAILED TO APPRECIATE THAT ACCOUNTING ENTRIES ARE NOT DETERMINATIVE OF THE TAXABILITY OF ANY CLAIM OF INCOME OR DEDUCTIBILITY OF EXPENDITURE UNDER THE PROVISIONS OF THE ACT. 7.6 THAT THE CIT FAILED TO APPRECIATE THAT THE BONUS SHARES ISSUED BY BIL IN THE SUBSEQUENT YEARS HAD NO NEXUS WITH THE TRANSFER OF THE PASSIVE TELECOM INFRASTRUCTURE A ND THE SAME COULD NOT BE HELD TO BE CONSIDERATION RECEIVED ON TRANSFER OF THE TELECOM INFRASTRUCTURE. 8. WITHOUT PREJUDICE, THAT THE CIT ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE ASSESSING OFFICER HAD FAILED TO EXAMINE THE IMPLICATIONS OF SECTION 5 0 AND SECTION 43(6) OF THE ACT IN RELATION TO THE TRANSACTION OF TRANSFER OF PASSIVE TELECOM INFRASTRUCTURE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. 9. THAT THE CIT ERRED ON FACTS AND IN L AW IN HOLDING THAT THE NOTIONAL DIFFERENCE BETWEEN THE BOOK VALUE OF THE ASSET, TRANSFERRED TO THE SUBSIDIARY AND THEIR FAIR MARKET VALUE, WHICH WAS CONSIDERED FOR REVALUING THE INVESTMENT IN THE SUBSIDIARY BY THE APPELLANT, 'APPEARS TO BE ARISING IN THE COURSE OF CARRYING ON BUSINESS' AND MAY BE LIABLE TO TAX U/S 28(IV) OF THE ACT. 9.1 THAT THE CIT FAILED TO APPRECIATE THAT THE INGREDIENTS OF SECTION 28(IV) OF THE ACT WERE NOT FULFILLED IN AS MUCH, AS (I) THERE WAS NO 'BENEFIT OR 7 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. PERQUISITE' ACCRUING TO THE APPELLANT ON TRANSFER OF THE TELECOM INFRASTRUCTURE, AN D (II) THE TRANSACTION WAS PURELY A CAPITAL TRANSACTION WHICH WAS NOT IN THE APPELLANT'S REGULAR COURSE OF BUSINESS. 10. THAT THE CIT ERRED ON FACTS AND IN LAW IN SETTING ASIDE THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3)/144 OF THE ACT AS REGARDS ALLOWABILITY OF THE EXPENDITURE INCURRED BY THE APPELLANT TOWARDS AMOUNT PAID TO BIL, FOR USAGE OF THE PASSIVE TELECOM INFRASTRUCTURE, ALLEGING THAT THE ASSESSING OFFICER HAS FAILED TO EXAMINE IF SUCH AMOUNT WAS PAYABLE IN TERMS OF T HE SCHEME AND WAS ALLOWABLE DEDUCTION. 10.1 THAT THE CIT FAILED TO APPRECIATE THERE WAS NO EMBARGO IN THE TERMS OF THE SCHEME, PROHIBITING THE APPELLANT FROM MAKING PAYMENT TO BIL FOR USAGE OF THE TRANSFERRED TELECOM INFRASTRUCTURE AND THERE WAS NO SCOPE FOR DISALLOWANCE OF SUCH EXPENDITURE UNDER THE ACT. 10.2 THAT THE CIT FAILED TO APPRECIATE THAT THERE WAS NO PREJUDICE CAUSED TO THE REVENUE IN THE AFORESAID TRANSACTION IN AS MUCH AS THE AMOUNT ALLOWED AS DEDUCTION IN THE HANDS OF THE APPELLANT WAS ULT IMATELY TAXED IN THE HANDS OF BIL AT THE SAME RATE. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AMEND OR VARY THE AFORESAID GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 8 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. 3. FROM THE ABOVE GROUNDS IT IS GATHERED THAT THE ONLY GRIEVANCE OF THE ASS ESSEE RELATES TO THE ACTION OF THE LD. CIT U/S 263 OF THE ACT IN SETTING ASIDE THE ASSESSMENT ORDER FRAMED BY THE AO U/S 143(3) R.W.S. 144C OF THE ACT. 4. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED E - RETURN OF INCOME ON 30.09.2008 DECLARING A N INCOME OF RS. 16,085,805,679/ - WHICH WAS PROCESSED U/S 143(1) OF THE ACT ON 31.03.2010. SUBSEQUENTLY THE ASSESSEE FILED ITS REVISED RETURN ON 22.04.2011 DECLARING AN INCOME OF RS. 19,980,629,260/ - UNDER NORMAL COMPUTATION AND THE SAME WAS PROCESSED U/S 1 43(1) OF THE ACT ON 09.11.2010 RESULTING A REFUND OF RS. 12,90,886,170/ - . SUBSEQUENTLY , THE CASE WAS SELECTED FOR SCRUTINY. 5. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROVIDING TELECOMMUNICATION SERVICES, LIKE MOBILE, FIXED LINED, LONG DISTANCE AND D ATA SERVICES ACROSS THE COUNTRY. THE ASSESSEE AND M/S BHARTI INFRATEL LTD. (BIL IN SHORT ) FILED SCHEME OF ARRANGEMENT (SOA) BEFORE THE HON BLE DELHI HIGH COURT FOR TRANSFER OF PASSIVE INFRASTRUCTURE UNDERTAKING (PI UNDERTAKING), ALL ASSETS AND LIABILITIES WERE TRANSFERRED FROM ASSESSEE TO BIL (A WHOLLY OWNED SUBSIDIARY OF THE 9 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. ASSESSEE) . ALL THE PLANT AND MACHINERY, CURRENT ASSETS AND LIABILITIES RELATING TO THE TOWERS AND OTHER RELATED TELECOM ASSETS/LIABILITIES WERE ALSO TRANSFERRED TO BIL IN PURSUANCE OF THE SOA WHICH WAS SANCTIONED BY THE HON BLE HIGH COURT ON 26.11.2007. T HE ASSESSEE TRANSFERRED THE PI UNDERTAKING TO BIL AT NIL CONSIDERATION WHICH RESULTED INTO CAPITAL LOSS OF RS. 5739 CRORES BUT THE ASSESSEE DID NOT CLAIM SUCH LOSS AS DEDUCTIBLE EXPENDI TURE IN ITS RETURN OF INCOME BEING LOSS OF CAPITAL NATURE. THE ASSESSEE REVALUED ITS INVESTMENT IN BIL TO RS. 8218 CRORES FROM RS. 5,00,000/ - AND THE CORRESPONDING AMOUNT (I.E. DIFFERENCE BETWEEN THE FAIR VALUE AND THE BOOK VALUE OF THE INVESTMENT) WAS CRE DITED TO RESERVE FOR BUSINESS RESTRUCTURING , OUT OF THE SAID RESERVE AN AMOUNT OF RS. 5739 CRORES CORRESPONDING TO CAPITAL LOSS ARISING OUT OF TRANSFER OF PI UNDERTAKING FOR NIL CONSIDERATION WAS CREDITED TO THE P & L A/C. 6. IN THE PRESENT CASE, T HE A O PROPOSED THE DRAFT ASSESSMENT ORDER U/S 144C(1) OF THE ACT ON 16.11.2011 DETERMINING TOTAL INCOME AT RS. 10315,95,74,410/ - UNDER NORMAL PROVISIONS AFTER ALLOWING DEDUCTION UNDER CHAPTER - VIA OF RS. 5056,74,26,301/ - AND BOOK PROFIT U/S 115JB OF THE ACT WAS DETERMINED AT RS. 7055,48.15,808/ - . AGGRIEVED 10 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. BY THE PROPOSED ADDITIONS IN THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTION BEFORE THE DISPUTE RESOLUTION PANEL ( DRP ) ON 15.12.2011 AND THE DRP VIDE DIRECTIONS DATED 30.08.2012 HELD THAT THE DISALLOW ANCE OF RS. 5739 CRORES BY THE AO BEING CAPITAL LOSS ON TRANSFER OF PI UNDERTAKING BY THE ASSESSEE TO BIL AT NIL CONSIDERATION WAS PERFECTLY IN ORDER. AT THE SAME TIME, THE AO WAS DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE FOR NOT REDUCING THE EQUIVALENT SUM FROM THE COMPUTATION OF INCOME ON ACCOUNT OF AMOUNT TRANSFERRED FROM THE RESERVES . T HE DRP PASSED AN ORDER U/S 144C(5) OF THE ACT ON 30.08.2012 WHICH WAS IMPLEMENTED BY THE AO AS PER THE DIRECTIONS GIVEN IN THE SAID ORDER AND THE ASSESSMENT WAS FRAMED AT AN INCOME OF RS. 7819,34,10,410/ - VIDE ASSESSMENT ORDER DATED 30.10.2012 . THE AO HELD THAT THE ASSESSEE TRANSFERRED PI UNDERTAKING TO BIL AT NIL CONSIDERATION RESULTING IN A CAPITAL LOSS OF RS. 5739 CRORES WHICH WAS NOT ALLOWABLE UNDER NORMAL COMPUTATI ON PROVISIONS. THE AO ADDED BACK THE LOSS OF RS. 5739 CRORES TO THE INCOME OFFERED BY THE ASSESSEE. BEING AGGRIEVED THE ASSESSEE FILED THE APPEAL BEFORE THE ITAT ON THE ISSUE OF DISALLOWANCE MADE BY THE AO. IN THE MEANTIME, THE LD. CIT EXERCISED HIS REVISI ONARY POWER U/S 263 OF THE ACT AND I SSUED A SHOW CAUSE NOTICE TO THE ASSESSEE ON 11 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. 25.11.2013 ASKING IT TO SUBMIT THE OBJECTION IF ANY AGAINST THE PROPOSED REVISION. THE CONTENTS OF THE AFORESAID SHOW CAUSE NOTICE ISSUED TO THE ASSESSEE ARE REPRODUCED VERBAT IM AS UNDER: ON PERUSAL OF THE ASSESSMENT RECORDS AND OTHER RECORDS AVAILABLE WITH UNDERSIGNED, BEFORE COMING TO THE EXACT ISSUES INVOLVED, THE BRIEF FACTS AND RELEVANT POR TION FRO M THE SCHEME OF ARRANGEMENT ENTERED INTO BY THE ASSESSEE; SHARE HOLDER S AGR EEMENT; AUDITOR S REPORT FOR F.Y. 07 - 08, 08 - 09 IN THE CASE OF BHARTI AIRTEL LTD. (BAL) AND ITS SUBSIDIARY COMPANY M/S BHARTI INFRATEL LTD. (BIL), AND INDEFEASIBLE RIGHT TO USE AGREEMENT (IRU) ARE BEING DISCUSSED/NOTED/REPRODUCED BELOW: SCHEME OF ARRANGE MENT (SOA) (DATED NIL) THE MAIN FACTS RELATED TO THE ISSUES UNDER CONSIDERATION ARE NOTED BELOW. - I) THE SOA DATED NIL HAS BEEN ENTERED INTO BETWEEN BAL (TRANSFEROR) &BIL (TRANSFEREE), APPROVED BY THE HON'BLE DELHI HIGH COURT VIDE ORDER DATED 26.11.2001 . II) BIL HAS BEEN IN CORPORATED AS A WHO IIY OWNED SUBSIDIARY OF THE TRANSFEROR COMPANY WITH AUTHORIZED AND PAID UP SHARE CAPITAL OF RS.5 LACS ........1.2.2 III) FREE RESERVES MEANS UNCOMMITTED RESERVES, NOT BEING CAPITAL RESERVES, AVAILABLE WITHOUT LIM ITATION FOR ALL PURPOSES INCLUDING DECLARATION OF DIVIDENDS AND BONUS SHARE. ......1.1.5 12 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. IV) TELECOM INFRASTRUCTURE MEANS THE UNDERTAKING/DIVISION OF THE TRANSFEROR COMPANY WHICH IS INCLUSIVE OF BUT NOT LIMITED TO: . . . . . . . .. ALL CURRENT ASSETS AN D CURRENT LIABILITIES (INCLUDING CONTINGENT LIABILITIES) RELATING TO THE TOWERS (EXCLUDING ANY LOAN LIABILITIES TAKEN BY THE TRANSFEROR COMPANY FOR ACQUIRING THE ASSETS COMPRISED IN THE TELECOM INFRASTRUCTURE UNDERTAKING) AND RELATED TELECOM ASSETS/LIABILI TIES, WHETHER MOVABLE , IMMOVABLE OR INCORPOREAL; AND.........1.1. 6 V) THE PURPOSE FOR CREATING BIL BY THE ASSESSEE INCLUDED RESTRUCTURING WITHIN THE GROUP OF COMPANIES CONTROLLED BY THE TRANSFEROR COMPANY, THE HOLDING OF TELECOM INFRASTRUCTURE UNDERTAKIN G IN A MORE EFFICIENT MANNER CONSISTENT WITH THE DIVERSE NEED OF THE BUSINESS. ........3.1.1 VI) AS PER TILE SCHEME OF ARRANGEMENT, IT DOES NOT INVOLVE ANY MOVEMENT OF ASSETS OR LIABILITIES TO ANY COMPANY OUTSIDE THE GROUP CONTROLLED BY THE TRANSFEROR CO MPANY. ......3.1.1 VII) THEREFORE, AS PER THE SOA, THE TRANSFEREE COMPANY WAS NOT REQUIRED TO ISSUE ANY SHARES OR PAY ANY CONSIDERATION TO THE TRANSFEROR COMPANY OR ITS SHARE HOLDERS. .....3.1.1 VIII) AS PER THE SOA, THE SCHEME WAS SUBJECT TO NON - EXCLU SIVE RIGHT OF THE TRANSFEROR COMPANY TO USE THE TELECOM INFRASTRUCTURE FOR THE PURPOSES OF ITS BUSINESS WITHOUT ANY OBLIGATION TO PAY FOR THE SAME OR ON PAYMENT OF SUCH CHARGES AS MAYBE REASONABLE 13 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. AND ACCEPTABLE TO THE TRANSFEROR COMPANY AND THE TRANSFEREE COMPANY. ........C(5) IX) THE TRANSFEREE COMPANY WAS TO CREDIT AN AMOUNT EQUAL TO FAIR VALUE OF TELECOM INFRASTRUCTURE AS GENERAL RESERVE WHICH SHALL CONSTITUTE FREE RESERVES AVAILABLE FOR ALL PURPOSES AS THE TRANSFEREE COMPANY AT ITS OWN DISCRETION CON SIDERS PROPER. .......3.2.2 X) THE TRANSFEROR COMPANY SHALL REVALUE IN PARTICULAR THE INVESTMENT IN THE TRANSFEREE COMPANY AT ITS FAIR VALUE AND THE DIFFERENCE BETWEEN THE BOOK VALUE OF INVESTMENTS AND FAIR VALUE OF INVESTMENTS WILL BE ACCOUNTED AS RESER VES FOR BUSINESS RESTRUCTURING, AVAILABLE TO MEET THE INCREASED DEPRECIATION, COST, EXPENSES AND LOSSES, INCLUDING ON ACCOUNT OF IMPAIRMENT OF OR WRITE DOWN OF ASSETS WHICH MAY BE SUFFERED BY THE TRANSFEROR COMPANY, PURSUANT TO THIS SCHEME OR OTHERWISE IN COURSE OF ITS BUSINESS OR IN CARRYING OUT SUCH RESTRUCTURING OF OPERATIONS OF THE TRANSFEROR COMPANY OR ANY OF ITS SUBSIDIARIES, AS THE TRANSFEROR COMPANY CONSIDER NECESSARY OR APPROPRIATE. SUCH RESERVE FOR BUSINESS RESTRUCTURING SHALL BE WITHDRAWN AND WIL L BE CREDITED TO PROFIT AND LOSS ACCOUNTS PREPARED FOR THE QUARTER IN WHICH THE SCHEME BECOMES EFFECTIVE. SUCH RESERVES FOR BUSINESS RESTRUCTURING SHALL BE ARISING OUT OF THIS SCHEME AND SHALL NOT BE CONSIDERED AS RESERVES CREATED BY THE TRANSFEROR COMPANY . .........3.3.1 XI) THE TRANSFEROR COMPANY SHALL REDUCE FROM ITS ACCOUNT THE BOOK VALUE OF THE DEMERGED TELECOM INFRASTRUCTURE UNDERTAKING AND SHALL BE DEBITED BY THE TRANSFEROR COMPANY TO ITS P&L A/C PREPARED FOR 14 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. THE QUARTER IN WHICH THE SCHEME BECOMES EFFECTIVE. ...........3.3.2 XII) ON DEMERGER ON 31.01.2008 OF THE TELECOM INFRASTRUCTURE UNDERTAKING OF THE TRANSFEROR COMPANY, THE ASSETS STAND TRANSFERRED TO AND VESTED IN THE TRANSFEREE COMPANY AT NIL VALUE, FREE FROM ANY CHARGES AND ENCUMBRANCES, S UBJECT HOWEVER TO THE RIGHTS RETAINED BY THE TRANSFEROR COMPANY AND ACCEPTED BY THE BOARD OF DIRECTORS OF THE TRANSFEREE COMPANY. SHAREHOLDERS AGREEMENT DATED 08.12.2007. THE MAIN PORTIONS RELATED TO THE ISSUES UNDER CONSIDERATION ARE NOTED BELOW: - I . AFTER THE APPROVAL OF THE SOA AS NOTED ABOVE, BY THE HON BLE DELHI HIGH COURT'S ORDER DATED 26.11.2007, A SHARE HOLDERS AGREEMENT WAS ENTERED ON 08.12.2007 AMONG VODAFONE ESSAR LIMITED(VEL), BHARTI AIRTEL LIMITED(BAL), BHARTI INFRATEL LIMITED(BHARTI), ID EA CELLULAR INFRASTRUCTURE SERVICES LIMITED(IDEA), IDEA CELLULAR LIMITED(ICL) AND INDUS INFRATEL LIMITED(INDUS). II. AS PER THIS SH AREHOLPERS AGREEMENT VEL, BHARTI; AND IDEA HAVE AGREED TO ESTABLISH INDUS AS AN INDEPENDENTLY MANAGED JOINT VENTURE COMPANY TO CONDUCT THE BUSINESS OF BUILDING OPERATING AND MAINTAINING NEW AND EXISTING INFRASTRUCTURE. 15 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. III. THE PASSIVE INFRASTRUCTURE MEANS ANY INFRASTRUCTURE LOCATED AT ANY TELECOMMUNICATION SITE, PERMITTED BY LAW TO BE SHARED BY THE PARTIES. IV. THE NUMBER OF SHARES TO BE ISSUED TO VEL AND IDEA IS 50,000 AND 19047 SHARES RESPECTIVELY SO THAT VEL GROUP, BHA R TI GROUP AND IDEA GROUP HOLD THE INITIAL VEL PERCENTAGE INTEREST, THE BHARTI PERC ENTAGE INTEREST AND THE INITIAL I DEA'S PERCENTAGE INTEREST. V. THE BUS INESS OF THE INDUS COMPANY IS TO OPERATE AND MAINTAIN THE EXISTING PASSIVE INFRASTRUCTURE OF THE SHAREHOLDERS IN THE TERRITORY UNTIL THE DATE OF MERGER OF THE ABOVE ASSETS IN INDUS AND AFTER THE MERGER TO OWN THE ABOVE ASSETS. THE ANNUAL REPORT OF BHARTI LNFRATEL LIMITED FOR F.Y. 2007 - 08 AND F.Y. 2008 - 09. THE MAIN FACTS RELATED TO THE ISSUES UNDER CONSIDERATION ARE NOTED BELOW: - I. INVESTMENTS OF 1.35 BILLION USD FROM LEADING INTERNATIONAL INVESTORS WERE RECEIVED IN BIL DURING THE FINANCIAL YEAR 2007 - 08. II. THE ANNUAL REPORT OF F. Y.2007 - 08 SHOWS THAT DURING THE FINANCIAL YEAR ITSELF, AFTER THE TRANSFER OF PASSIVE INFRASTRUCTURE ON 31.1.2008 TO BIL FROM BAL, 4050 EQUITY SHARES OF RS.L0 EACH HAS BEEN CALLED BY BIL THROUGH PRIVATE PLACEMENT FROM FOREI GN ENTITIES. 3825 EQUITY SHARES WERE ISSUED IN MARCH, 2008 ITSELF AT A SHARE PREMIUM OF 16 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. RS.2017,04,62,000/ - AND THE BALANCE OF 225 SHARES WERE ISSUED IN APRIL, 2008 IN THE NEXT FINANCIAL YEAR AT A SHARE PREMIUM OF RS. 118, 64,98,000/ - . THE SHARE PREMIUM P ER EQUITY SHARE WORKS OUT TO RS.52, 73,324/ - TAKEN BY BIL WITHIN LESS THAN TWO MONTHS, AFTER THE TRANSFER OF PASSIVE INFRASTRUCTURE BY THE TRANSFEROR COMPANY ON 31.1.2008. BESIDES THIS 32,03,550 FULLY AND COMPULSORY CONVERTIBLE NON - CUMULATIVE UNSECURED AND INTEREST FREE DEBENTURES OF RS.10,000/ - EACH HAS ALSO BEEN ISSUED, OUT OF WHICH 30,25,575 DEBENTURES HAVE BEEN ISSUED IN THE MARCH, 2008 ITSELF. III. DURING F.Y.2008 - 09, BIL BAS ISSUED BONUS SHARES IN THE RATIO OF 1:9999, INCREASING THE SHARE HOLDING OF M/S BAL TO 50,00,00,00,000 SHARES FROM SHARE PREMIUM RECEIVED IN THE LAST FINANCIAL YEAR. ANNUAL REPORT ON BHARTI AIRTEL LIMITED. THE MAIN FACTS RELATED TO THE ISSUES UNDER CONSIDERATION ARE NOTED BELOW: - I. AS PER THE ANNUAL REPORT OF 2007 - 08, THE A SSESSEE HAS ENTERED INTO A JOINT VENTURE AGREEMENT WITH VEL AND IDEA CELLULAR LIMITED TO FORM AN INDEPENDENT TOWER COMPANY BY THE NAME OF INDUS TOWER LIMITED TO PROVIDE PASSIVE INFRASTRUCTURE SERVICES IN 16 CIRCLES OF INDIA. II. BAL AND VODAFONE WILL HOL D SHARES APPROXIMATELY 42% EACH IN INDUS TOWER AND BALANCE 16 PERCENT WILL BE HELD BY THE IDEA. 17 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. III. PURSUANT TO THE JOINT VENTURE AGREEMENT BHARTI INFRATEL LIMITED HAS SUBSCRIBED 50,000 EQUITY SHARES OF RS. 10 EACH IN INDUS TOWER LIMITED ON17.12.2007 FO R AN AGGREGATE VALUE OF RS.500000/ - IV. IT IS FURTHER MENTIONED THAT FOR THIS PURPOSE, BHARTI INFRATEL VENTURES LIMITED HAS BEEN INCORPORATED AS A WHOLLY OWNED SUBSIDIARY OF BHARTI INFRATEL LIMITED. THE TELECOM PASSIVE VENTURES WERE FOR ULTIMATE MERGER I N INDUS TOWER LIMITED. V. BAL HAD APPROXIMATELY 52,000 TOWERS AS ON 31.03.2008 OF WHICH APPROXIMATELY 30,000 TOWERS TO BE TRANSFERRED TO INDUS TOWERS LIMITED. VI. BAL HAS SHOWN THE VALUE OF 50,000 EQUITY SHARES OF BHARTI INFRATEL LIMITED AT RS. 5,00,000 AS ON 31.03.2007 WHILE AFTER THE TRANSFER OF THE PASSIVE INFRASTRUC TURE TO BIL ON THE EFFECTIVE DAT E I.E. 31. 1.2008 THE VALUE OF 50000 EQUITY SHARES HAS BEEN SHOWN AT RS. 82,181,703,000 AS ON 31.03.2008. THE INCREASE IN VALUE HAS BEEN EXPLAINED TO BE ON ACCOUNT OF THE VALUE OF THE FAIR MARKET VALUE OF TRANSFERRED ASSETS TO BIL. VII. THE COMPANY HAS TRANSFERRED THE TELECOM INFRASTRUCTURE WORTH RS.57,396,005,000 TO BIL AT NIL VALUE AND THE FAIR MARKET VALUE HAS BEEN RECORDED AT RS.82,181,203,000. THE RESE RVE FOR BUSINESS RESTRUCTURING ARISING THERE ON: NET OF ABOVE, STANDS AT RS.24, 785, 198,000 IN ITS BALANCE SHEET AS OF MARCH 31, 2008 18 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. VIII. AS PER ANNUAL REPORT OF BAL FOR F. Y.2008 - 09, DURING THE FINANCIAL YEAR ENDING ON MARCH 31, 2009, THE COMPANY, BA SED ON FINAL RECONCILIATION WITH BIL, TRANSFERRED IN/OUT CERTAIN ASSETS AND ACCOUNTED THESE IN ACCORDANCE WITH THE ACCOUNTING PRESCRIBED IN THE SCHEME RESULTING INTO NET INCREASE IN THE BUSINESS RESTRUCTURING RESERVE (BRR) AND DECREASE IN NET LIABILITIES O F THE COMPANY BY RS.126, 831,000 FOR THE YEAR ENDED ON MARCH 31,2009. IX. IN THE FINANCIAL YEAR ENDING ON 31 MARCH 2009, THE ASSESSEE COMPANY WAS HAVING 500,000,000 EQUITY SHARES, AND THE TOTAL VALUE OF THE INVESTMENTS AS ON 31.3.2009 HAS BEEN SHOWN SAM E I.E. RS. 82,181,703,000/ - AS ON 31.03.2008. BONUS SHARES TOTALLING TO 499,950,000 WERE ALLOTTED TO THE ASSESSEE COMPANY BY BIL DURING THE FINANCIAL YEAR ENDING ON 31.03.2009. X. THE RELEVANT PORTION HOW THE RESERVE HAS BEEN CREATED IS REPRODUCED BELOW: 'THE ASSETS AND LIABILITIES HAVE BEEN RECORDED AT FOLLOWING FAIR VALUES [BASED ON INDEPENDENT FAIR VALUATION REPORT FOR FIXED ASSETS AND CAPITAL WORK IN PROGRESS AND MANAGEMENT ESTIMATE FOR OTHERS} AND THE AMOUNT OF THE GENERAL RESERVE IS COMPUTED AS BELOW:' PARTICULARS AMOUNT FAIR V ALUE OF ASSETS AND LIABILITIES 89,600,620 FIXED ASSETS, CAPITAL WORK IN PROGRESS (INCLUDING CAPITAL ADVANCES) 2,502,324 CURRENT ASSETS 2,423,048 19 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. CURRENT LIABILITIES (10,608,193) DEFERRED TAX LI ABILITY - 1,558,143 AMOUNT TR ANSFERRED TO GENERAL RESERVE 82,359,656 THE INDEFEASIBLE RIGHT TO USE AGREEMENT (19.12.2008) ENTERED INTO BY BHARTI LNFRATEL LIMITED & INDUS TOWERS LIMITED. EFFECTIVE DATE 1.1.2009 THE MAIN FACT RELATED TO THE ISSUE UN DER CONSIDERATION IS NOTED BELOW: - (I) INDUS WISHES TO USE THE PASSIVE INFRASTRUCTURE LOCATED AT THE SITES OWNED OR ACQUIRED OR POSSESSED BY THE OPERATOR, TO THE EXTENT PERMITTED BY APPLICABLE LAWS IN INDIA, TO PROVIDE ACCESS TO SUCH PASSIVE INFRASTRUCT URE TO VARIOUS TELECOMMUNICATIONS OPERATORS IN INDIA ON A NON - DISCRIMINATORY BASIS. (II) THE OPERATOR IS WILLING TO PROVIDE TO INDUS AN INDEFEASIBLE RIGHT TO USE THE PASSIVE INFRASTRUCTURE TO THE EXTENT PERMITTED BY APPLICABLE LAWS IN INDIA AND SUBJECT TO THE TERMS 'AND CONDITIONS OF THIS AGREEMENT. (III) THIS AGREEMENT SETS FORTH THE MUTUALLY AGREED TERMS AND CONDITIONS UNDER WHICH THE IRU GRANTOR PARTY GRANTS AND INDUS ACCEPTS, WITH EFFECT FROM THE EFFECTIVE DATE, AN INDEFEASIBLE RIGHT TO USE IN RESP ECT OF THE PASSIVE INFRASTRUCTURE LOCATED AT EACH OF THE SITES (THE IRU ). - 2.1.1 (IV) PURSUANT TO THE I RU, INDUS SHALL HAVE THE EXCLUSIVE, UNRESTRICTED AND INDEFEASIBLE RIGHT TO USE 20 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. THE PASSIVE INFRASTRUCTURE LOCATED AT EACH SITE FOR ANY LEGAL PURPOSE , INCLUDING THE RIGHT TO PROVIDE ACCESS TO THE PASSIVE INFRASTRUCTURE AT A SITE, IN ITS SOLE DISCRETION, TO VARIOUS TELECOMMUNICATIONS OPERATORS IN INDIA, FOR PURPOSES OF SHARING SUCH PASSIVE INFRASTRUCTURE. PROVIDED, HOWEVER, THAT INDUS' RIGHT TO UNRESTRI CTED USE OF THE PASSIVE INFRASTRUCTURE AT EACH SITE IS SUBJECT TO THE PROVISIONS OF CLAUSE 4.1. - 2.1.2 (V) INDUS SHALL UNDERTAKE THE OPERATION AND MAINTENANCE OF THE PASSIVE INFRASTRUCTURE LOCAT ED AT EACH SITE. SUBJECT TO THE PROVISIONS OF ANY MASTER SE RVICES AGREEMENT BETWEEN THE PARTIES IN RELATION TO USE THE PASSIVE INFRASTRUCTURE AT THE SITES, INDUS SHELL BE RESPONSIBLE FOR PAYING (I) ELECTRICITY/POWER CHARGES (II) DIESEL CONSUMPTION CHARGES, (III) ANY FEES/TAXES/DUTIES LEVIED BY ANY GOVERNMENTAL AUT HORITY IN CONNECTION WITH SETTING UP, OPERATION, MAINTENANCE OR SHARING OF THE PASSIVE INFRASTRUCTURE AT ANY SITE. - 3.4.1 (VI) NEITHER THIS AGREEMENT OR ANY OF THE RIGHTS, INTERESTS OR OBLIGATIONS HEREUNDER SHALL BE ASSIGNED OR TRANSFERRED BY EITHER OF THE PARTIES WITHOUT THE PRIOR WRITTEN CONSENT OF THE OTHER PART, PROVIDED HOWEVER, THAT THE DEMERGER OF PASSIVE INFRASTRUCTURE BY THE IRU GRANTOR PARTY INTO ANOTHER ENTITY BY WAY OF ONE OR MORE SCHEMES OF ARRANGEMENT UNDER SECTIONS 391 TO 394 OF THE COMPAN IES ACT (A 'DEMERGER'), SHALL NOT REQUIRE THE PRIOR WRITTEN CONSENT OF INDUS. - 4.3 21 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. (VII) DURING THE TERM, THE IRU GRANTOR PARTY SHALL NOT TRANSFER, ASSIGN, SELL, ALIENATE OR OTHERWISE DISPOSE OF OR CREATE ANY THIRD PARTY INTERESTS IN THE SITES OR THE PA SSIVE INFRASTRUCTURE LOCATED AT THE SITES WITHOUT THE PRIOR WRITTEN APPROVAL OF INDUS, PROVIDED HOWEVER, THAT A DEMERGER SHALL NOT REQUIRE THE PRIOR WRITTEN APPROVAL OF INDUS. - 4.5 (VIII) THIS AGREEMENT SHALL EXPIRE UPON THE COMPLETION OF THE TERM. NO P ARTY SHALL BE ENTITLED TO TERMINATE AND/OR REVOKE THIS AGREEMENT AT ANY TIME DURING THE TERM, EXCEPT AS SET OUT IN CLAUSE 6.1.2. - 6.1 7 . THE LD. CIT OBSERVED THAT FROM THE SHAREHOLDERS A GREEMENT DATED 08.12.2007 , A NNUA L REPORT OF M/S BHARTI INFRATEL LT D. FOR THE FINANCIAL YEARS 2007 - 08 AND 2008 - 09, ANNUAL REPORT OF THE ASSESSEE AND THE AGREEMENT, IT WAS CLEAR THAT THE ASSESSEE HAD NOT DISCLOSED THE FULL AND TRUE INTENTION IN THE SOA APPROVED BY THE HON BLE HIGH COURT. HE POINTED OUT THAT IN THE SOA, IT WAS MENTIONED THAT THE PASSIVE INFRASTRUCTURE OF THE ASSESSEE IS BEING TRANSFERRED TO WHOLLY OWNED SUBSIDIARY AND AS THERE IS NO MOVEMENT OF ASSETS OF THE COMPANY OUTSIDE THE GROUP , NEITHER ANY SHARES ARE TO BE ISSUED , NOR ANY CONSIDERATION IS TO BE PAID T O THE SHAREHOLDERS FOR TRANSFER OF THE ASSETS. HE FURTHER POINTED OUT THAT WITHIN LESS THAN 15 DAYS OF APPROVAL OF SOA BY THE 22 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. HON BLE HIGH COURT AND EVEN BEFORE THE TRANSFER OF ASSETS BY T HE ASSESSEE TO BHARTI INFRATEL L TD., A SHAREHOLD ER AGREEMENT DATED 0 8.12.2007 WAS ENTERED INTO WHICH CLEARLY DISCLOSED THE INTENTION OF THE TRANSFE ROR COMPANY THAT A JOINT VENTURE COMPANY IN THE NAME OF INDUS INFRATEL LTD. WAS TO BE CREATED IN WHICH THE PASSIVE INFRASTRUCTURE OF THE TRANSFEROR COMPANY HAS TO ULTIMATELY REA CH THROUGH THE INTERMEDIARIES I.E. BHARTI INFRATEL LTD. AND BHARTI INFRATEL VENTURES LTD. THE LD. CIT POINTED OUT THAT AS PER THE SHAREHOLDERS AGREEMENT, THE PASSIVE INFRASTRUCTURE TRANSFERRED BY THE ASSESSEE COMPANY , BEFORE THE EFFECTIVE DATE AND AFTER TH E EFFECTIVE DATE WAS TO BE MANAGED AND OPERATED BY INDUS INFRATEL LTD. ONLY AND NOT EVEN FOR A SIN GLE DAY TO BE HANDLED BY BHARTI INFRATEL LTD. AS SUBMITTED BEFORE THE HON BLE HIGH COURT THROUGH THE SOA FILED . IT WAS FURTHER STATED THAT THE ASSESSEE COMPAN Y KEPT THE STATUS OF ITS SUBSIDIARY AS 100% SUBSI DIARY TILL THE TIME OF TAKING APPROVAL OF SOA, BUT SOON AFTER THE APPROVAL FOR THE TRANSFER OF THE ASSETS ON 31.01.2008 IN THE SAME FINANCIAL YEAR ITSELF THROUGH PRIVATE PLACEMENTS , SHARES AND COMPULSORY CON VERTIBLE DEBENTURES WERE ISSUED TO FOREIGN INVESTORS BY BHARTI INFRATEL LTD. AT HUGE PREMIUM IN MARCH, 2008 ITSELF. HE ALSO POINTED OUT THAT THE ASSESSEE COMPANY 23 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. IN THE SOA SUBMITTED THAT THE DIFFERENCE IN BOOK VALUE OF INVESTMENTS AND FAIR VALUE OF INVEST MENTS WILL BE WITHDRAWN FROM THE RESERVE TO THE CREDIT OF PROFIT AND LOSS ACCOUNT FOR THE QUARTER IN WHICH IT BECAME EFFECTIVE, HOWEVER NO SUCH AMOUNT HAD BEEN CREDITED BY THE ASSESSEE COMPANY IN PROFIT AND LOSS ACCOUNT OF THE MARCH QUARTER, IN WHICH THE S CHEME BECAME EFFECTIVE . THE LD. CIT OBSERVED THAT THE ASSESSEE COMPANY IN ITS SOA HAD INCORRECTLY SUBMITTED THAT NO SHARES WERE TO BE ISSUED BECAUSE IN THE NEXT FINANCIAL Y EAR ITSELF BONUS SHARES TO THE T UNE OF RS. 49,00,00,50,000/ - HAD BEEN ISSUED TO THE ASSESSEE COMPANY BY THE TRANSFEREE COMPANY AND THAT THE ASSETS HAD BEEN PASSED TO ANOTHER JOINT VENTURE COMPANY I.E. INDUS , CREATED FOR THIS PURPOSE ONLY, WHILE BEFORE THE HON BLE HIGH COURT, IT HAD BEEN SUBMITTED THAT THE TRANSFERRED ASSETS DID NOT INVOLV E ANY MOVEMENT OF ASSETS OR LIABILITIES TO ANY COMPANY OUTSIDE THE GROUP. THE LD. CIT WAS OF THE VIEW THAT THE ASSESSEE COMPANY HAS TOTALLY MISREPRESENTED BEFORE THE HON BLE HIGH COURT AND THAT THE SCHEDULE 6 OF THE BALANCE SHEET FOR THE FINANCIAL YEAR 200 7 - 08 REVEALED THAT THE ASSESSEE HAD INCREASED THE VALUE OF ITS INVESTMENT IN M/S BHARTI INFRATEL LTD. (BIL) FROM RS. 500,000/ - TO RS. 82,181,703,000/ - WHICH HAD BEEN EXPLAINED BY WAY OF NOTE 2(B) OF SCHEDULE 24 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. 21 OF THE BALANCE SHEET , TO BE DUE TO TRANSFER O F PASSIVE INFRASTRUCTURE ASSETS AT FAIR MARKET VALUE TO BIL. THE LD. CIT OBSERVED THAT THE VALUE INVESTMENT OF SUBSIDIARY COMPANY HAD GONE UP ONLY AND ONLY FOR THE REASON OF TRANSFER OF ASSETS BY THE ASSESSEE COMPANY TO ITS SUBSIDIARY COMPANY AT FAIR MARKE T VALUE AND AS PER THE ACCOUNTING STANDARD - 13, PARA NO. 29, IF AN INVESTMENT IS ACQUIRED IN EXCHANGE OF OTHER ASSETS, THE ACQUISITION COST OF THE INVESTMENT SHOULD BE DETERMINED BY REFERENCE TO THE FAIR VALUE OF THE ASSET GIVEN UP. THE LD. CIT FURTHER OBSE RVED THAT THE COST OF INVESTMENT IN BIL HAD BEEN REVISED FROM RS. 5,00,000/ - BEFORE THE TRANSFER OF ASSETS BY THE ASSESSEE COMPANY TO THE TRANSFEREE COMPANY TO RS. 82,181,703,000/ - ON TRANSFER , AFTER ADDING THE FAIR MARKET VALUE OF PASSIVE INFRASTRUCTURE T RANSFERRED TO BIL IN THE FINANCIAL YEAR ENDING ON 31.03.2008. THUS, THE CONSIDERATION FOR TRANSFER OF ASSETS TO BIL HAD BEEN RECEIVED BY THE ASSESSEE DIRECTLY AND CREDITED BY IT TO THE INVESTMENTS IN THE NAME OF BIL IN THE BALANCE SHEET WITHOUT PROPERLY RO UTING IT THROUGH P & L A/C. THE LD. CIT FURTHER POINTED OUT THAT IF THE CROSS ENTRIES WERE TO BE IGNORED, THE FINAL EFFECT IN THE BALANCE SHEET AS ON 31.03.2008 OF THE ASSESSEE WAS THAT THE VALUE OF INVESTMENT HAD INCREASED TO THE TUNE OF RS. 8218 CRORES A ND 25 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. THE VALUE OF ITS PASSIVE INFRASTRUCTURE ASSETS HAD DECREASED BY RS. 5739 CRORES AND THE DIFFERENCE THEREOF AMOUNTING TO RS. 2479 CRORES WAS SHOWN DURING THE ASSESSMENT YEAR 2008 - 09 AND RS. 126,831,000/ - IN THE ASSESSMENT YEAR 2009 - 10. IN THIS MANNER, T H E DIFFERENCE OF RS. 2492 CRORES ARISING ON TRANSFER OF THOSE ASSETS WHICH HAD BEEN CREDITED TO BUSINESS RESTRUCTURING RESERVE HAD NOT BEEN OFFERED TO TAX NOR CREDITED TO THE P & L A/C OF THE QUARTER IN WHICH THE ASSETS HAD BEEN TRANSFERRED AS PER THE SCH EME OF ARRANGEMENT. THE LD. CIT WAS OF THE VIEW THAT THE INCREASE OF DIFFERENCE IN THE VALUE OF TRANSFER RED ASSETS , CREDITED TO BUSINESS RESTRUCTURING RESERVE BY THE ASSESSEE WAS NOTHING BUT THE CAPITAL GAINS ACCRUING TO IT , WHICH SHOULD HAVE BEEN OFFERE D TO TAX U/S 45 OF THE ACT AND THAT IT HAD NOT BEEN EXAMINED BY THE AO D URING THE C OURSE OF ASSESSMENT PROCEEDINGS, T HEREFORE, THIS ISSUE PRIMA FACIE MADE THE ORDER NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF REVENUE. THE LD. CIT FURTHER OBS ERVED THAT IN THE SCHEME OF ARRANGEMENT AT POINT NO. V II, IT HAD BEEN STATED THAT THE TRANSFEROR COMPANY I.E. THE ASSESSEE HAD GOT NON - EXCLUSIVE RIGHT TO USE THE TELECOM INFRASTRUCTURE FOR THE PURPOSE OF ITS BUSINESS WITHOUT ANY OBLIGATION TO PAY FOR THE S AME OR PAYMENT OF SUCH CHARGES AS MAY BE REASONABLE AND 26 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. ACCEPTABLE. HOWEVER, THE ASSESSEE HAD PAID TO THE TRANSFEREE COMPANY, THE CHARGES AT THE MARKET RATE FOR USE OF ASSETS TRANSFERRED BY IT TO THE TRANSFEREE COMPANY WHICH WAS CLEAR FROM THE REVENUE EARN ED BY BIL , THIS ISSUE HAD ALSO NOT BEEN EXAMINED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THEREFORE, THE ASSESSMENT ORDER WAS NOT ONLY ERRONEOUS BUT ALSO WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE TO THE AMOUNT OF EXPENDITURE PAID BY THE ASSESSEE TO THE TRANSFEREE COMPANY. THE LD. CIT OBSERVED THAT THE ASSESSMENT ORDER DATED 30.11.2012 FOR THE ASSESSMENT YEAR 2008 - 09 PASSED BY THE AO PRIMA FACIE APPEARS TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON THE FOLLOWING TWO ISS UES: (A) THE AO FAILED TO EXAMINE THE TAXABILITY OF THE DIFFERENCE BETWEEN THE COST OF ASSETS AND FAIR MARKET VALUE OF THE ASSETS, SHOWN DIRECTLY CREDITED TO THE RESERVES BY THE ASSESSEE COMPANY IN ITS BALANCE SHEET, OF THE ASSETS TRANSFERRED BY IT ON 31 .01.2008 TO ITS SUBSIDIARY COMPANY, WHICH NO LONGER REMAINED A WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE COMPANY AS ON 31.03.2008. (B) THE AO FAILED TO EXAMINE THE ALLOWABILITY OF THE EXPENDITURE CLAIMED BY THE ASSESSEE COMPANY FOR THE USAGE OF ITS TRANSFER RED ASSETS TO ITS SUBSIDIARY COMPANY CONTRARY TO THE ASSESSEE COMPANY HAVING A 27 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. NON - EXCLUSIVE RIGHT OF USE OF ITS TRANSFERRED ASSETS TO BIL, WITHOUT ANY OBLIGATION TO PAY OR ON PAYMENT OF SUCH CHARGES AS MAY BE REASONABLE AND ACCEPTABLE TO BOTH TRANSFEROR A ND TRANSFEREE COMPANY, AS PER THE SOA APPROVED BY THE HON BLE HIGH COURT. 8 . THE LD. CIT ASKED THE ASSESSEE TO SUBMI T OBJECTION, IF ANY. I N RESPONSE , THE ASSESSEE SUBMITTED THAT THE LEGAL OBJECTION RAISED TO THE INITIATION OF PROCEEDINGS U/S 263 OF T HE ACT, NEED TO THE DISPOSED OFF BEFORE DEALING WITH THE MERITS OF THE ISSUES RAISED IN THE SHOW CAUSE NOTICE. A REFERENCE WAS MADE TO THE FOLLOWING CASE LAWS: M/S GKN DRIVESHAFTS (INDIA) LTD. VS ITO & OTHERS 259 ITR 19 (SC) JANAKI EXPORTS INTERNATIONAL V S UOI 278 ITR 296 (DEL) (HC) 9 . THE LD. CIT AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE DECISIONS CITED BY THE ASSESSEE WERE NOT APPLICABLE FOR THE PROCEEDINGS U/S 263 OF THE ACT AND THERE IS NO REQUIREMENT FOR THE COMMISSIONER BEF ORE INITIATING THE PROCEEDINGS U/S 263 OF THE ACT TO BE SATISFIED WHICH IS THE REQUIREMENT FOR THE PROCEEDINGS UNDER SECTIONS 147 AND 158BD OF THE ACT. A REFERENCE WAS MADE TO THE FOLLOWING CASE LAWS: 28 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. RENUSAGAR POWER COMPA NY LTD. VS CIT 234 ITR 782 (ALL. ) CIT VS ELECTRO HOUSE 82 ITR 824 (SC) SHAKUNTALA DEVI VS CIT (1971) 82 ITR 416 (CAL.) 10 . THE LD. CIT AGAIN ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE ON 27.03.2014 , CONTENTS OF THE SAME ARE REPRODUCED VERBATIM AS UNDER: PLEASE REFER TO THIS OFFICE EAR LIER SHOW CAUSE NOTICE DATED 25.11.2013 AND SUBSEQUENT HEARING BEFORE UNDERSIGNED ON VARIOUS DATES (LAST BEING 17.02.2014). WHEREAS, THE SUBMISSIONS AND ARGUMENTS ADVANCED BY YOU AGAINST THE SHOW CAUSE NOTICE REFERRED ABOVE ARE UNDER ACTIVE CONSIDERATION, YOU ARE HEREBY BEING GIVEN AN ADDITIONAL SHOW CAUSE NOTICE TO SUBMIT AS TO WHY THE ASSESSMENT ORDER DATED 30.10.2012 PASSED BY AO MAY NOT BE TREATED ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE ON ONE MORE GROUND (OTHER THAN GROUND MENTIONED IN TH E SHOW CAUSE NOTICE DATED 25.11.2013) THAT HE FAILED TO CONDUCT ANY ENQUIRY AND EXAMINATION OF RECORDS TO ASCERTAIN AS TO WHETHER THE AMOUNT OF RS. 2479 CRORES REPRESENTING THE INCREASE IN YOUR BALANCE SHEET ONLY DUE TO TRANSFER OF THE PASSIVE INFRASTRUCTU RE ASSETS UNDER REFERENCE TO BHARTI INFRATEL LTD. IS TAXABLE AS YOUR INCOME FOR A.Y. 2008 - 09 AS PER PROVISIONS OF SECTION 28(IV) OF THE IT ACT OR NOT. 29 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. 11 . IN RESPONSE TO THE SAID SHOW CAUSE NOTICE, THE ASSESSEE RAISED THE FOLLOWING OBJECTIONS ON THE ISS UE OF JURISDICTION: (A) ISSUE SPECIFICALLY EXAMINED BY DISPUTE RESOLUTION PANEL/DRAFT ASSESSMENT ORDER STANDS MERGED WITH THE DIRECTION OF DISPUTE RESOLUTION PANEL. (B) ASSESSMENT ORDER PASSED PURSUANT TO DIRECTIONS OF DISPUTE RESOLUTION PANEL. (C) ORD ER NOT PASSED BY THE ASSESSING OFFICER. (D) NOTICE IS ISSUED ON MERE CHANGE OF OPINION. (E) NOTICE IS ISSUED ON FACTUALLY INCORRECT PREMISE. 1 2 . THE ASSESSEE ALSO SUBMITTED TO THE LD. CIT AS UNDER: 6(I) IN THE ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER AFTER EXAMINING THE SCHEME AND THE ACCOUNTING ENTRIES PASSED IN THIS REGARD BY THE ASSESSEE, DISALLOWED LOSS OF RS. 5,739 CORES DEBITED TO THE PROFIT& LOSS ACCOUNT PURSUANT TO TRANSFER OF THE TELECOM INFRASTRUCTURE, HOLDING THE SAME TO BE CAPITAL LOS S IN THE DRAFT ASSESSMENT ORDER PASSED UNDER SECTION 144C(1) OF THE ACT. IN PURSUANCE OF THE NEW SCHEME OF ASSESSMENT, THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRP UNDER SECTION 144C (2) OF THE ACT WHICH, INTER - ALIA, INCLUDED OBJECTIONS AGAINST THE ERR ONEOUS ADD BACK OF 'CAPITAL LOSS' AMOUNTING TO RS. 5,739 CRORES MADE BY THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER DATED 16.11.2011, RESULTING IN 30 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. DOUBLE ADDITION AND ALL FACTS PERTINENT TO THE SAID ISSUE, WHICH INCLUDED THE SCHEME OF ARRANGEMENT, THE AUDITED ACCOUNTS AND THE COMPUTATION OF INCOME ETC., WERE DISCLOSED/FILED BEFORE THE DRP. AFTER CONSIDERING THE FACTS AND ABOVE DOCUMENTS IN THEIR ENTIRETY, THE DRP AGREED WITH THE FINDING OF THE ASSESSING OFFICER THAT THE ASSESSEE - COMPANY HAD INCURRED 'CAPITAL LOSS' OF RS.5,739 CRORES, PURSUANT TO THE SCHEME OF ARRANGEMENT, WHICH WAS NOT ALLOWABLE DEDUCTION FOR THE PURPOSE OF COMPUTATION OF BUSINESS INCOME OF THE ASSESSEE - COMPANY IN THE ASSESSMENT YEAR UNDER CONSIDERATION. FURTHER, ON THE ISSUE OF RED UCTION OF THE PROPORTIONATE AMOUNT WITHDRAWN FROM THE BUSINESS RESTRUCTURING RESERVE WHICH WAS AGITATED BY THE ASSESSEE, THE DRP DIRECTED THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE AND TAKE NECESSARY ACTION. THE DRP WHILE DISPOSING OFF THE O BJECTIONS RAISED BY THE ASSESSEE TO THE DRAFT ASSESSMENT ORDER HAS, UNDER THE ACT, PLENARY POWERS; THE POWER OF THE DRP ARE, IN OTHER WORDS, CO - TERMINUS WITH THOSE OF AO AND TRAVERSE OVER THE WHOLE ASSESSMENT. THE POWERS OF THE DRP ARE AKIN TO THE POWERS V ESTED IN THE CIT(A) WHILE DISPOSING OF AN APPEAL. SINCE THE DRP SITS IN JUDGMENT OVER THE DRAFT ASSESSMENT ORDER AND THE POWER OF DRP (INCLUDING POWER OF ENHANCEMENT) TRAVERSES OVER THE WHOLE ASSESSMENT, THE DRAFT ASSESSMENT ORDER MERGERS WITH THE DIRECTIO NS OF THE DRP. THE FINAL ASSESSMENT ORDER PASSED BY THE AO IS IN CONSONANCE WITH THE BINDING DIRECTIONS OF THE DRP. THEREFORE, QUA ISSUES WHICH ARE CONSIDERED AND DECIDED BY THE DRP[AS IN THE CASE OF ORDER PASSED BY THE CIT(A)], THE JURISDICTION UNDER SECT ION 263 OF THE ACT IS OUSTED IN RESPECT OF SUCH ISSUES 31 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. MATTERS. IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE DRP HAS, ON DETAILED EXAMINATION OF THE ISSUE AND ON DUE APPLICATION OF MIND, AFFIRMED THE FINDING OF THE ASSESSING OFFICER AND HAS CATEGORICALL Y HELD THAT THE ASSESSEE HAD SUFFERED 'CAPITAL LOSS', PURSUANT TO THE SCHEME ARRANGEMENT AND HAS ALSO TAKEN NOTE OF THE FACT THAT AN AMOUNT PROPORTIONATE TO THE LOSS SUFFERED BY THE ASSESSEE, PURSUANT TO THE SCHEME OF ARRANGEMENT WAS WITHDRAWN FROM THE BUS INESS RESTRUCTURING RESERVE AND CREDITED TO THE PROFIT AND LOSS ACCOUNT IN THE ASSESSMENT YEAR UNDER CONSIDERATION. (II) WHERE THE ASSESSMENT ORDER IS PASSED WITH THE APPROVAL OF THE DRP, IT IS NOT OPEN TO THE CIT TO REVISE SUCH AN ASSESSMENT IN TERMS OF SECTION 263 OF THE ACT. IN OTHER WORDS, A COMMISSIONER OF CO - ORDINATE RANK CANNOT SIT IN JUDGMENT TO DETERMINE WHETHER THE FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 144C(13) OF THE ACT AFTER INCORPORATING DIRECTIONS OF THE DRP, WHICH IS A HIGH POWERED BODY CONSISTING OF THREE COMMISSIONERS, IS ERRONEOUS AND PREJUDICIAL 'TO THE INTEREST OF THE REVENUE. FOR THIS ARGUMENT THE ASSESSEE HAS DRAWN SUPPORT FROM THE FOLLOWING CASE LAWS: - HARI IRON TRADING CO. V, CIT: 263 ITR 437 (P&H) - CIT V. HASTINGS PROPERTIES: 253 ITR 124 (CAL.) - FESTOELGI (P) LIMITED V. CIT: 246 ITR 705 (MAD.) A REFERENCE TO THE RECENT DECISION RENDERED BY THE MADRAS HIGH COURT IN THE CASE OF R. SRINIVASAN VS. ACIT: ITA NO. 354 OF 2006, WAS ALSO MADE WHEREIN 32 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. THE HIGH COURT HELD THAT WHERE ORDER UNDER SECTION 158BC OF THE ACT WAS PASSED BY THE ASSESSING OFFICER, WITH THE STATUTORY APPROVAL OF THE CIT UNDER SECTION 158BG OF THE ACT, IT WAS NOT OPEN TO ANOTHER CIT TO ASSUME JURISDICTION UNDER SECTION 263 OF THE A CT TO REVISE SUCH AN ASSESSMENT ON THE GROUND THAT THE SAME WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. (III) THE POWER OF REVISION AVAILABLE UNDER SECTION 263 OF THE ACT IS RESTRICTED ONLY TO ORDERS WHICH ARE PASSED BY THE 'ASSESSING O FFICER', UNDER THE NEW SCHEME OF ASSESSMENT, A DRAFT ORDER IS PASSED BY THE ASSESSING OFFICER AGAINST WHICH THE ASSESSEE MAY FILE OBJECTIONS BEFORE THE DRP. THE DRP, AFTER HEARING THE OBJECTIONS OF THE ASSESSEE ISSUES DIRECTIONS QUA SUCH OBJECTIONS RAISED BY THE ASSESSEE AS WELL AS ON OTHER ISSUES WHICH MAY COME TO ITS NOTICE DURING THE PENDING PROCEEDINGS. FURTHER, THE DIRECTIONS ISSUED BY THE DRP ARE, IN VIEW OF THE SECTION 144C(10) OF THE ACT, BINDING ON THE ASSESSING OFFICER AND THE FINAL ORDER IS PASSE D BY THE ASSESSING OFFICER WITHOUT FURTHER GOING INTO THE MERITS OF THE CASE. ON PERUSAL OF THE ABOVE PROVISIONS, IT MAY BE NOTED THAT SECTION 144C(13) PROVIDES THAT UPON RECEIPT OF THE DIRECTIONS, THE ASSESSING OFFICER SHALL, IN CONFORMITY WITH THE DIRECT IONS, COMPLETE THE ASSESSMENT WITHOUT PROVIDING ANY FURTHER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, IT IS CLEAR THAT THE ASSESSING OFFICER HAS NO CHOICE, BUT TO PASS AN ORDER STRICTLY IN CONFORMITY WITH THE DIRECTIONS OF THE DRP. THUS WHERE AN OR DER IS PASSED UNDER SECTION 144C OF THE ACT, THE SAME CULMINATES INTO AN ORDER PASSED IN PURSUANCE OF THE DIRECTIONS OF THE DRP AND CEASES TO 33 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. REMAIN THE INITIAL DRAFT ORDER WHICH WAS PASSED BY THE ASSESSING OFFICER. IN OTHER WORDS, WHERE AN ORDER IS PASSED UNDER SECTION 144C(13) OF THE ACT, IN PURSUANCE OF THE DIRECTIONS OF THE DRP, REVISIONARY POWERS CANNOT BE EXERCISED UNDER SECTION 263 OF THE ACT, AS SUCH ORDER CANNOT BE CONSTRUED TO BE AN ORDER PASSED BY THE ASSESSING OFFICER. (IV) THE ASSESSING OFFIC ER HAD AFTER EXAMINATION AND AFTER DUE APPLICATION OF MIND AS REGARDS THE NATURE OF INCOME/LOSS ARISING IN RELATION TO THE TRANSACTION OF TRANSFER OF PASSIVE TELECOM INFRASTRUCTURE WITHOUT CONSIDERATION TO BHARTI INFRATEL LTD., CONCLUDED IN THE ORDER PASSE D UNDER SECTION 143(3) R.W.S. 144 OF THE ACT, THAT THERE WAS TRANSFER OF THE PASSIVE TELECOM INFRASTRUCTURE PURSUANT TO THE SCHEME OF ARRANGEMENT, WHICH RESULTED IN 'CAPITAL LOSS' TO THE ASSESSEE. WHEN ON A PARTICULAR ISSUE THE ASSESSING OFFICER DID CONDUC T ENQUIRES DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND RETURNED A CONCLUSIVE FINDING THAT THE ASSESSEE SUFFERED CAPITAL LOSS IN THE TRANSACTION OF TRANSFER OF THE PASSIVE TELECOM INFRASTRUCTURE, ON ACCOUNT OF NIL CONSIDERATION RECEIVED ON SUCH TRANSFER , THERE WAS, NO WARRANT TO ASSUME REVISIONARY JURISDICTION UNDER SECTION 263 OF THE ACT, FOR THE PURPOSE OF SUBSTITUTING THE VIEW OF THE ASSESSING OFFICER, MORE SO WHEN THE VIEW OF THE ASSESSING OFFICER HAS BEEN AFFIRMED BY THE HON'BLE DISPUTE RESOLUTION P ANEL (DRP). IN THE AFORESAID SHOW CAUSE NOTICE DATED 25.11.2013, THE CONCLUSION DRAWN BY THE ASSESSING OFFICER IS SOUGHT TO BE SUBSTITUTED WITH A TOTALLY DIFFERENT VIEW INASMUCH AS THE TRANSACTION OF TRANSFER OF PASSIVE TELECOM INFRASTRUCTURE IS ALLEGED TO HAVE RESULTED IN 'CAPITAL 34 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. GAINS' TO THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE AFORESAID ACTION, TANTAMOUNT TO MERE 'CHANGE OF OPINION'. SECTION 263 OF THE ACT DOES NOT VISUALIZE A CASE OF SUBSTITUTION OF OPINION OF COMMISSIONER FOR THAT OF THE ASSESSING OFFICER, IF THE VIEW OF THE ASSESSING OFFICER IS A PLAUSIBLE VIEW. ONCE THE ASSESSING OFFICER HAS ACCEPTED THE FACT THAT THE ASSESSEE RECEIVED 'NIL' CONSIDERATION ON TRANSFER OF THE PASSIVE TELECOM INFRASTRUCTURE, WHICH CONSEQUENTLY RESUL TED IN CAPITAL LOSS OF RS. 5,739 CRORES, THE ATTEMPT TO NOW CONSIDER THE REVALUED AMOUNT OF SUCH ASSETS AT RS. 8,218 CRORES, AMOUNTS TO CHANGE OF OPINION. (V) THE PRIMARY OBSERVATION MADE IN THE ABOVE SHOW CAUSE NOTICE, THAT THE DIFFERENCE IN THE BOOK VA LUE AND FAIR MARKET VALUE OF THE INVESTMENTS AMOUNTING TO RS.2479 CRORES HAD TO BE COMPULSORILY WITHDRAWN FROM RESERVE AND CREDITED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE - COMPANY IN THE QUARTER IN WHICH THE SCHEME BECAME EFFECTIVE IS FACTUALLY INCO RRECT AND DENIED. THE TERMS OF THE SCHEME NOWHERE PROVIDED THAT THE ENTIRE AMOUNT OF 'BUSINESS RESTRUCTURING RESERVE' SHOULD BE WITHDRAWN AND CREDITED TO THE PROFIT AND LOSS ACCOUNT IN THE QUARTER IN WHICH THE SCHEME BECOMES EFFECTIVE, BUT ONLY STIPULATED THAT THE RESERVE TO THE EXTENT NECESSARY TO COMPENSATE THE LOSS INCURRED BY THE ASSESSEE, PURSUANT TO THE SCHEME WAS TO BE WITHDRAWN AND CREDITED TO THE PROFIT AND LOSS ACCOUNT. THE PRESENT SHOW CAUSE NOTICE PRIMARILY PROCEEDS ON THE AFORESAID WRONG FACTUA L PREMISE THAT THE ASSESSEE - COMPANY HAD FAILED TO COMPLY WITH THE TERMS STIPULATED IN THE SCHEME. THUS, THE VERY FOUNDATION OF 35 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. SHOW CAUSE NOTICE ALLEGING NON - DECLARATION OF CAPITAL GAINS TAX BY THE ASSESSEE - COMPANY IN THE ASSESSMENT YEAR 2008 - 09 CEASES TO EXIST. THUS, ON THIS PRELIMINARY GROUND ITSELF, THE REVISIONARY PROCEEDINGS INITIATED TO SET ASIDE/ CANCEL THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER CALL FOR BEING DROPPED. 13 . THE LD. CIT AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE OBS ERVED THAT THIS CLAIM OF THE ASSESSEE THAT THE AO AFTER EXAMINATION AND AFTER DUE APPLICATION OF MIND HAD CONCLUDED THAT THE ASSESSEE RECEIVED NIL CONSIDERATION ON TRANSFER OF PASSIVE TELECOM INFRASTRUCTURE AND THAT THE AO AFTER EXAMINING THE SCHEME AND TH E ACCOUNTING ENTRIES PASSED IN THIS REGARD BY THE ASSESSEE HAD CONCLUDED THAT THE ASSESSEE IN THE TRANSACTION OF TRANSFER OF PASSIVE TELECOM INFRASTRUCTURE SU FFERED A CAPITAL LOSS, WAS NOT FACTUALLY CORRECT. THE LD. CIT ALSO OBSERVED THAT THE CLAIM OF THE ASSESSEE THAT THE AO HAD ALREADY GIVEN A FINDING IN THE ASSESSMENT ORDER THAT SUCH CAPITAL LOSS WAS NOT ALLOWABLE WHICH CONCLUSIVELY PROVED THAT HE HAD APPLIED HIS MIND AND REACHED A CONCLUSION THAT THE TRANSACTION HAD RESULTED INTO CAPITAL LOSS OF RS. 573 9 , WAS NOT FACTUALLY CORRECT. THE LD. CIT ALSO REFERRED TO THE QUERY RAISED BY THE AO IN THE DRAFT ORDER AND THE SUBMISSIONS OF THE ASSESSEE , IN PARAS 8 AND 8.1 36 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. OF THE IMPUGNED ORDER , FOR THE COST OF REPETITION , THE SAME IS NOT REPEATED HEREIN. THE LD. CIT OBSERVED THAT THE AO RAISED THE QUERY ONLY ABOUT ACTIO N OF THE ASSESSEE IN REDUCING AN AMOUNT OF RS. 5739 CRORES FROM THE NET PROFIT AS PER P & L A/C WHICH WAS CREDITED TO THE P & L A/C AS TRANSFER FROM THE REVALUATION RESERVE AND ASKED AS TO WHY THE SAID ACTION OF THE ASSESSEE MAY NOT BE DISAPPROVED WHILE COMPUTING THE BOO K PROFIT U/S 115JB OF THE ACT, I N VIEW OF THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF INDO RAMA SYNTHETICS (2011) 196 TAXMAN 539 AND AFTER RECEIVING THE REPLY FROM THE ASSESSEE THAT ITS ACTION OF REDUCING THE AMOUNT OF RS. 5739 WAS NOT IN LINE WITH THE DECISION OF THE HON BLE APEX COURT, THE AO SIMPLY ADDED BACK THE SAID AMOUNT IN THE COMPUTATION OF BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT. ACCORDINGLY, THE LD. CI T WAS OF THE VIEW THAT THE TRANSACTION OF TRA NSFER OF ASSET AND TAXABILITY THEREOF WAS NOT AT ALL RAISED BY THE A O IN HER DRAFT ASSESSMENT ORDER AS FAR AS THE COMPUTATION OF BOOK PROFIT FOR THE PURPOSES OF SECTION 115JB OF THE ACT WAS CONCERNED. AS REGARDS TO THE COMPUTATION OF TOTAL INCOME AS PER NORMAL PROVISIONS, THE LD. CIT OBSERVED THAT THE AO HAD SIMPLY ASKED WHY THE LOSS OF RS. 5739 CRORES DEBITED IN THE P & L A/C MAY NOT BE DISALLOWED AND AFTER CONSIDERING THE 37 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. REPLY OF THE ASSESSEE HELD THAT THE ASS ESSEE OFFERED FOR TAX THE ENTIRE AMOUNT OF RS. 5739 CRORES AS PER PROVISIONS OF THE I.T ACT WHICH REVEALED THAT EVEN FOR NORMAL COMPUTATION , THE AO HAD N OT EXAMINED THE TRANSACTION PER - SE, CORRECTNESS OF THE CONSIDERATION AT NIL OR AS TO WHETHER TH IS TRANS ACTION HAD RESULTED INTO CAPITAL LOSS OR GAIN. 14 . AS REGARDS TO THE CLAIM OF THE ASSESSEE THAT THE DRP HAD, ON DETAILED EXAMINATION OF THE ISSUE AND ON DUE APPLICATION OF MIND AFFIRMED THE FINDING OF THE AO THAT THE ASSESSEE HAD SUFFERED CAPITAL LOSS PU RSUANT TO A SCHEME OF ARRANGEMENT, T HE LD. CIT HELD THAT IT WAS NOT FACTUALLY CORRECT. HE ALSO POINTED OUT THAT THE DRP HAD GIVEN THE FINDING ONLY ABOUT NON - ALLOWABILITY OF THE AMOUNT OF RS. 5739 CRORES WHICH WAS ON ACCOUNT OF TRANSFER OF CAPITAL ASSET AND IN THAT CONTEXT HAD OBSERVED THAT THIS LOSS DEBITED IN P & L A/C WAS NOT AN ALLOWABLE ITEM. ACCORDING TO HIM THE ISSUE AS TO WHETHER THE TRANSACTION HAD R ESULTED INTO CAPITAL LOSS OR NOT AND AS TO WHETHER SUCH CAPITAL LOSS WAS ALLOWABLE OR NOT. THE LD. CI T POINT ED OUT THAT THE ASSESSEE DID NOT RAISE ANY ISSUE BEFORE THE DRP RELATING TO CORRECTNESS OF THE CONSIDERATION , TAXABILITY ON ACCOUNT OF TRANSFER OF ASSET S, IMPACT OF REVALUATION OF ASSET S SO 38 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. TRANSFERRED . T HEREFORE, THE ISSUE FOR WHICH SHOW CAUSE NOTI CE HAD BEEN ISSUE D WAS NOT AT ALL BEFORE THE DRP. THE LD. CIT OBSERVED THAT IT CANNOT BE SAID THAT TO THE EXTENT OF ISSUES NOT EXAMINED BY THE DRP, CIT CANNOT INVOKE PROVISIONS OF SECTION 263 OF THE ACT. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: CIT VS SHRI ARBUDA MILLS LTD. 231 ITR 50 (SC) CIT VS JAYKUMAR B. PATIL (1999) 236 ITR 469, 470 (SC) 15 . THE LD. CIT OBSERVED THAT THE AO HAD NOT EXAMINED THE ASPECT RELATING TO TAXABILITY OF TRANSFER OF PASSIVE ASSET OF THE ASSESSEE TO BIL. HE ALSO OBSER VED THAT THE AO THOUGH IN THE ASSESSMENT ORDER HAD MENTIONED THAT CAPITAL LOSS ON TRANSFER OF PASSIVE ASSET TO BIL AT NIL CONSIDERATION WAS NOT ALLOWABLE AND THIS OBSERVATION HAD BEEN CONFIRMED BY THE DRP ALSO BUT THIS WAS NOT AT ALL AN ISSUE AS THE ASSESS EE ITSELF HAD ADDED BACK THE AMOUNT OF CAPITAL LOSS SO DEBITED IN P & L A/C WHILE COMPUTING THE INCOME AND THE AO HAD NOT GIVEN FINDING IN THE ASSESSMENT ORDER THAT THE TRANSACTION H AD RESULTED INTO A CAPITAL LOSS. T HEREFORE, IT CANNOT BE SAID THAT THE AO HAD APPLIED HIS MIND ON THIS ISSUE AND CAME TO THE CONCLUSION THAT THE SAID TRANSACTION HAD RESULTED A CAPITAL LOSS. HE ALSO MENTIONED THAT THE 39 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. ASSESSMENT ORDER WAS PASSED IN PURSUANT OF DIRECTIONS OF DRP BUT DIRECTIONS WERE ONLY ON THE OBJECTION S RAISED B EFORE THE DRP, THEREFORE, THE PRINCIPLE OF MERGER APPLIES ONLY TO THE ISSUES WHICH WERE RAISED AND ASKED BY THE DRP. THE LD. CIT HELD THAT THE DECISIONS CITED BY THE ASSESSEE WERE NOT APPLICABLE ON THE FACTS OF THE CASE. HE ALSO DID NOT ACCEPT THIS CONTENT ION OF THE ASSESSEE THAT THE SHOW CAUSE NOTICE WAS ISSUED UNDER WRONG PRESUMPTION OF THE FACT AND SO IT WAS NOT VALID SHOW CAUSE NOTICE AND THEREFORE, THE PROCEEDINGS SHOULD HAVE BEEN DROPPED. THE LD. CIT ALSO DISCUSSED THE SUBMISSIONS OF THE ASSESSEE AT P ARA 15 OF THE IMPUGNED ORDER WHICH ARE REPRODUCED VERBATIM AS UNDER: 15(I) TWIN CONDITIONS OF SECTION 263 NAMELY ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE ARE NOT SATISFIED. THE ASSESSMENT ORDER DATED 30.10.2012 FOR THE ASSESSMENT YEAR 2008 - 09, IS NEITHER 'ERRONEOUS' NOR 'PREJUDICIAL TO THE INTEREST OF THE REVENUE IN RELATION TO THE TWO ISSUES REFERRED TO IN THE ABOVE NOTICE. THE AFORESAID, TWO CONDITIONS MUST BE SHOWN TO SIMULTANEOUSLY EXIST BEFORE THE COMMISSIONER MAY LAWFULLY BE VESTED WITH JURISDICTION UNDER SECTION 263 OF THE ACT AND FOR THIS RELIANCE WAS PLACED ON THE LANDMARK DECISION OF THE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT ; 2431TR 83 (SC). IN THE INSTANT CASE, THE ASSESSING OFFICER, AFTER EXAMI NATION/VERIFICATION OF TERMS OF THE SCHEME, THE ACCOUNTING TREATMENT 40 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. PROVIDED IN THE BOOKS OF THE ASSESSEE, THE COMPUTATION OF INCOME AND DUE APPLICATION OF MIND AS REGARDS THE NATURE OF INCOME/ LOSS ARISING IN RELATION TO THE AFORESAID TRANSACTION OF TRAN SFER OF PASSIVE TELECOM INFRASTRUCTURE UNDERTAKING WITHOUT CONSIDERATION TO BHARTI INFRATEL LTD., CONCLUDED THAT THERE WAS SALE OF THE TELECOM INFRASTRUCTURE PURSUANT TO THE SCHEME OF ARRANGEMENT, WHICH RESULTED IN CAPITAL LOSS OF RS.5,739 CRORES, WHICH WA S PROPORTIONATE TO THE AMOUNT WITHDRAWN BY THE ASSESSEE FROM THE BUSINESS RESTRUCTURING RESERVE AND CREDITED TO THE PROFIT AND LOSS ACCOUNT . FURTHER, THE ASSESSING OFFICER ONCE AGAIN ADDED BACK THE CAPITAL LOSS OF RS.5,739 CRORES, WHICH WAS ALREADY SUO - MOT O ADDED BACK BY THE ASSESSEE IN ITS COMPUTATION OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. (II) IN THE PRESENT CASE, THERE IS NO LACK OF ENQUIRY TOO. WHERE AN ISSUE HAS BEEN EXAMINED BY THE ASSESSING OFFICER, THE CIT CANNOT SET ASIDE THE ASSE SSMENT MERELY BECAUSE ACCORDING TO THE CIT ENQUIRIES SHOULD HAVE BEEN CONDUCTED IN A PARTICULAR MANNER AND/ OR FURTHER ENQUIRIES OUGHT TO HAVE BEEN CONDUCTED BY THE ASSESSING OFFICER. AS A NECESSARY COROLLARY, WHEN ON A PARTICULAR ISSUE THE ASSESSING OFFIC ER DID CONDUCT CERTAIN ENQUIRES DURING THE COURSE OF ASSESSMENT PROCEEDINGS, SUCH ORDER CANNOT BE REGARDED AS ERRONEOUS SO AS TO EXERCISE REVISIONARY JURISDICTION UNDER SECTION 263 OF THE ACT. (III) FURTHER, IN THE ABOVE NOTICE, IT HAS BEEN OBSERVED THAT THE INCREASE IN THE VALUE OF INVESTMENT IN BHARTI INFRATEL LTD. FROM RS.5,00,000/ - TO RS. 82,181,703,000/ - IN THE ASSESSMENT YEAR UNDER 41 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. CONSIDERATION, BY VIRTUE OF REVALUATION OF ASSETS REPRESENTED THE 'CONSIDERATION' RECEIVED BY THE ASSESSEE - COMPANY ON T RANSFER OF SUCH ASSETS, WHICH WAS REQUIRED TO BE CREDITED TO THE PROFIT AND LOSS ACCOUNT THE REVALUATION UNDERTAKEN BY THE ASSESSEE - COMPANY WAS MERELY IN ORDER TO GIVE EFFECT TO THE SCHEME OF ARRANGEMENT, WHICH WAS MANDATED BY THE HON'BLE HIGH COURT. THE C ONSEQUENTIAL INCREASE IN THE VALUE OF INVESTMENT IN BHARTI INFRATEL LTD. WAS NOT ON ACCOUNT OF RECEIPT OF ANY ADDITIONAL SHARES IN THE SAID COMPANY, BUT WAS MERELY A NOTIONAL BOOK ENTRY. IT MAY BE PERTINENT TO NOTE HERE THAT THE INVESTMENT OF THE ASSESSEE - COMPANY IN BHARTI INFRATEL LTD. PURSUANT TO THE SCHEME REMAINED INTACT I.E. IN OTHER WORDS, PRIOR TO THE TRANSFER OF TELECOM INFRASTRUCTURE THE ASSESSEE - COMPANY HELD 50,000 SHARES OF RS. 10 EACH IN BHARTI INFRATEL LTD., WHICH REMAINED UNCHANGED EVEN ON TRA NSFER OF THE TELECOM INFRASTRUCTURE AND NO ADDITIONAL SHARES WERE, IT IS SUBMITTED, RECEIVED BY THE ASSESSEE IN PURSUANCE OF THE SCHEME OF ARRANGEMENT FURTHER, THE ANALOGY DRAWN BY YOUR HONOUR IN THE ABOVE NOTICE BY PLACING RELIANCE ON THE PROVISIONS CONTA INED IN PARA 29 OF AS - 13 IS ALSO MISPLACED, IN AS MUCH AS THERE WAS VIRTUALLY NO FRESH INVESTMENT RECEIVED BY THE ASSESSEE - COMPANY ON TRANSFER OF THE ASSETS. PARA 29 OF AS - 13 PROVIDES FOR THE DETERMINATION OF VALUE OF 'INVESTMENT', WHEN THE SAME IS ACQUIRE D IN EXCHANGE FOR ANOTHER ASSET. IN THE CASE OF THE ASSESSEE, IT IS AN ACCEPTED FACT THAT NO ADDITIONAL SHARES WERE RECEIVED FROM BHARTI INFRATEL LTD. ON TRANSFER OF THE TELECOM INFRASTRUCTURE AND THE SHARE - HOLDING OF THE ASSESSEE - COMPANY IN BHARTI INFRATE L LTD. REMAINED UNCHANGED. THUS, THE QUESTION OF RECEIVING ANY 'INVESTMENT' IN 42 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. EXCHANGE OF TRANSFER OF ASSETS DOES NOT ARISE. AT ALL AND THERE CAN, THEREFORE, BE NO APPLICATION OF THE AFORESAID ACCOUNTING STANDARD. EVEN OTHERWISE, IT IS RESPECTFULLY SUBMIT TED, THAT WHEN THE REVALUATION OF INVESTMENT OF THE ASSESSEE - COMPANY IN BHARTI INFRATEL LTD. WAS IN ITSELF NOT IN TERMS OF AS - 13, AS ELABORATED SUPRA, THE QUESTION OF HOLDING THAT CONSIDERATION TO THE EXTENT OF SUCH REVALUED AMOUNT OF INVESTMENT HAD BEEN RECEIVED BY THE ASSESSEE, DOES NOT ARISE AT ALL. FURTHER, MERE ACCOUNTING ENTRIES AMOUNTING TO REVALUATION OF AN EXISTING ASSET HELD BY AN ASSESSEE, CANNOT BE SAID TO CONSTITUTE RECEIPT OF ACTUAL CONSIDERATION. (IV) THE ASSESSMENT ORDER PASSED BY THE ASS ESSING OFFICER IS NOT ERRONEOUS, MUCH LESS PREJUDICIAL TO THE INTEREST OF REVENUE WARRANTING REVISION MODIFICATION UNDER SECTION 263 OF THE ACT THE TRANSFER OF THE PASSIVE TELECOM INFRASTRUCTURE RESULTED IN LOSS TO THE ASSESSEE - COMPANY AGGREGATING TO RS.5, 739 CRORES, WHICH HAS BEEN RIGHTLY HELD BY THE ASSESSING OFFICER AS CAPITAL LOSS IN THE ASSESSMENT ORDER DATED 16. - 11.2011, PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT FOR THE ASSESSMENT YEAR 2008~09.LN THIS REGARD, IT IS PERTINENT TO NOTE THAT INCO ME - TAX IS A LEVY ON INCOME. THOUGH THE INCOME - TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED, VIZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPT, BUT THE SUBSTANCE OF THE MATTER IS INCOME. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK KEEPING, AN ENTRY IS MADE ABOUT A 'HYPOTHETICAL INCOME', WHICH DOES NOT MATERIALIZE. THIS PROPOSITION HAS BEEN LAID DOWN BY THE SUPREME COURT IN THE CASE OF SHOORJI VALLABHDAS & CO: 46 43 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. ITR 144 AND IN THE CASE OF GODHRA ELECTRICITY CO. LTD. V. CIT: 225 ITR 746. (V) REGARDING THE ISSUE OF NON - EXAMINATION OF ALLOWABILITY OF THE EXPENDITURE INCURRED BY TH E ASSESSEE AS CHARGES PAID TO M/ S BHARTI INFRATEL LIMITED, FOR USAGE OF THE PASSIVE TELECOM INFRASTRUCTURE BY THE ASSESSING OFFICER, IT IS SUBMISSION OF THE ASSESSEE THAT THE ASSESSING OFFICER CANNOT BE SAID TO HAVE NOT EXAMINED THE CLAIM OF EXPENSES AT THE TIME OF MAKING ASSESSMENT. THE AUDITED ACCOUNTS, TAX AUDIT REPORT AND THE DOCUMENTS IN RELATION TO THE CLAI M OF VARIOUS EXPENSES WERE BEFORE THE ASSESSING OFFICER AND IT CANNOT BE PRESUMED THAT HE DID NOT EXAMINE THE SAME MERELY BECAUSE THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER IN THIS REGARD. THE TERMS OF THE SCHEME NOWHERE PROVIDED THAT THE ASSESSEE HAD THE RIGHT TO USE THE TELECOM INFRASTRUCTURE, WITHOUT PAYMENT OF CHARGES . THE PARTIES WERE, IN FACT TO DECIDE WHETHER ANY PAYMENT WAS TO BE MADE FOR USE OF THE AFORESAID INFRASTRUCTURE. THERE WAS NO EMBARGO, IN THE TERMS OF THE SCHEME, PROHIBITING THE ASSES SEE FROM MAKING PAYMENT TO M/S BHARTI INFRATEL LIMITED, FOR USAGE OF THE TRANSFERRED TELECOM INFRASTRUCTURE. AS PER THE TERMS OF THE SCHEME, THE USAGE OF THE TRANSFERRED TELECOM INFRASTRUCTURE BY THE ASSESSEE - COMPANY WAS ALLOWABLE ON PAYMENT OF REASONABLE CHARGES. THE PAYMENT MADE BY THE ASSESSEE - COMPANY TO BHARTI INFRATEL LIMITED IN THE ASSESSMENT YEAR UNDER CONSIDERATION, FOR THE USAGE OF THE TELECOM INFRASTRUCTURE WAS AS PER MARKET RATES, HAS BEEN NOTED BY YOUR HONOUR, IN PARA 7 OF THE SHOW CAUSE NOTICE ITSELF. ONCE IT IS ACCEPTED THAT THE USAGE 44 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. CHARGES PAID BY THE ASSESSEE - COMPANY WAS AS PER THE PREVALENT MARKET RATES AND THERE WAS NO EMBARGO AS SUCH IN MAKING SUCH PAYMENTS UNDER THE SCHEME, THERE IS NO SCOPE FOR DISALLOWANCE OF SUCH EXPENDITURE UNDER T HE ACT. (VI) AS REGARDS, SHOW CAUSE NOTICE DATED 21.03.2014, THE MAIN SUBMISSION OF ASSESSEE, OTHER THAN CHALLENGING THE VALIDITY OF 263 PROCEEDINGS ON JURISDICTION ISSUE, IS THAT THE VIEW THAT THE NOTIONAL DIFFERENCE BETWEEN THE BOOK VALUE AND THE FAIR MARKET VALUE OF THE 'PASSIVE TELECOM INFRASTRUCTURE UNDERTAKING' TRANSFERRED BY THE ASSESSEE - COMPANY TO BHARTI INFRATEL LTD., CONSTITUTES REVENUE RECEIPT UNDER SECTION 28(IV) OF THE ACT, IS NOT VALID AND UNSUSTAINABLE IN LAW. SECTION 28(IV) PROVIDES TWO PR ECONDITIONS TO BE SATISFIED: (A) THERE SHOULD BE A NON - MONETARY 'BENEFIT OR PERQUISITE' ACCRUING TO THE ASSESSEE; AND (B) SUCH BENEFIT OR PERQUISITE SHOULD ARISE FROM THE BUSINESS OR THE EXERCISE OF A PROFESSION. IN THE PRESENT CASE, BOTH THE AFORESAID INGREDIENTS OF SECTION 28(IV) OF THE ACT ARE NOT FULFILLED. IN THE ABSENCE OF RECEIPT OF ANY CONSIDERATION FOR TRANSFER OF THE ABOVE UNDERTAKING, THE QUESTION OF ATTRIBUTING ANY NOTIONAL SUM AS CONSIDERATION AND BY HOLDING THE SAME TO BE REVENUE RECEIPT D OES NOT ARISE AND SUCH AN ACTION IS TOTALLY CONTRARY TO THE PROVISIONS OF THE ACT. RELIANCE IN THIS REGARD IS PLACED ON THE LANDMARK DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD: 358 ITR 295, WHERE THE APEX COURT HAS CATEGORICA LLY HELD THAT HYPOTHETICAL INCOME CANNOT BE BROUGHT TO TAX UNDER 45 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. SECTION 28(IV) OF THE ACT AND IT IS ONLY REAL INCOME, WHICH HAS ACTUALLY ACCRUED TO THE ASSESSEE THAT CAN BE TAXED UNDER THE SAID SECTION. FURTHER THERE WAS NO BENEFIT WHICH AROSE TO THE AS SESSEE PURSUANT TO UPWARD REVALUATION OF INVESTMENT IN BHARTI INFRATEL LTD. OR ON TRANSFER OF THE TELECOM INFRASTRUCTURE UNDERTAKING TO BHARTI INFRATEL LTD. FOR SECTION 28(IV) OF THE ACT TO APPLY THERE SHOULD BE A BENEFIT ARISING IN THE COURSE OF CARRYING ON BUSINESS AND SUCH BENEFIT SHOULD FLOW TO THE ASSESSEE FROM A THIRD PARTY, WHICH IS NOT THE CASE HERE. THUS, SECTION 28 ONLY REFERS TO THE 'INCOME' WHICH CAN BE CHARGED TO INCOME TAX UNDER THE HEAD 'PROFIT AND GAINS FROM BUSINESS OR PROFESSION', AND, T HEREFORE, WHEN A PARTICULAR ADVANTAGE, PERQUISITE OR RECEIPT IS NOT IN THE NATURE OF INCOME, THERE CANNOT BE ANY OCCASION TO BRING THE SAME TO TAX UNDER SECTION 28(IV). FURTHER, IT IS SETTLED LAW THAT A CAPITAL RECEIPT, IN PRINCIPLE, IS OUTSIDE THE SCOPE O F INCOME CHARGEABLE TO TAX. THE TRANSACTION WAS PURELY A CAPITAL TRANSACTION WHICH WAS NOT IN THE COURSE OF THE ASSESSEE'S REGULAR BUSINESS DEALING. IN VIEW OF THE AFORESAID, BY NO STRETCH OF ARGUMENT, THE ASSESSMENT ORDER COULD, BE REGARDED AS ERRONEOUS SO AS TO WARRANT EXERCISE OF REVISIONARY JURISDICTION UNDER SECTION 263, ON THE ALLEGED GROUND THAT THE ASSESSING OFFICER HAS NOT EXAMINED THE ISSUE WHETHER ANY INCOME AROSE UNDER SECTION 28(IV) OF THE ACT IN THE AFORESAID TRANSACTION OF TRANSFER OF TELEC OM INFRASTRUCTURE UNDERTAKING. 46 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. 16 . HOWEVER, T HE LD. CIT AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE WAS OF THE VIEW THAT THE AO HAD NOT APPLIED HIS MIND AND SIMPLY TOOK THE LOSS AS DEBITED IN THE P & L A/C FOR DISALLOWANCE PURPOSES IN THE COMPUTATIO N OF INCOME WHICH WAS ADDED BACK BY THE ASSESSEE ALSO IN ITS COMPUTATION OF INCOME. AS REGARDS TO THE TWIN CONDITIONS REQUIRED FOR PASSING THE ORDER U/S 263 OF THE ACT, THE LD. CIT REFERRED TO THE FOLLOWING CASE LAWS: CIT(CENTRAL - II) VS GOETZ (INDIA) PVT. LTD. (DEL.) (HC) ORDER DATED 09.12.2013 CIT VS NAGESH KNITWEAR PVT. LTD. 345 ITR 135 (2012) (DEL.) MALABAR INDUSTRIAL CO. LTD. VS CIT 243 ITR 83 (SC) NABHA INVESTMENTS PVT. LTD. VS UNION OF INDIA 246 ITR 41 (DEL.) ITO VS DG HOUSING PROJECT LTD. 343 ITR 329 (DEL.) GEE VEE ENTERPRISES VS ACIT, DELHI - I, (1975) 99 ITR 375 (DEL.) RAMPYARI DEVI SARAOGI VS CIT (1968) 67 ITR 84 (SC) TARA DEVI AGGARWAL (SMT) VS CIT (1973) 88 ITR 323 (SC) CIT VS JAYKUMAR B. PATIL (1999) 236 ITR 469 (SC) 17 . THE LD. CIT OBSERVED THA T THE AO WAS DUTY BOUND TO EXAMINE THE FACTS OF THE CASE IN TOTALITY NOT ONLY OF THE ASSESSEE BUT OF BIL, T O ARRIVE AT THE CONCLUSION ABOUT 47 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. CORRECTNESS OF THE CLAIM OF STATED CONSIDERATION RELATING TO TRANSFER OF PASSIVE ASSET OF THE ASSESSEE TO BIL AT NIL AND THEN COME TO A CONCLUSION AS TO WHETHER THE APPARENT TRANSACTION OF TRANSFERRING THE PASSIVE INFRASTRUCTURE IN THE FORM OF TOWERS BY THE ASSESSEE TO M/S BHARTI INFRATEL LTD. (BIL) AT NIL CONSIDERATION IN PURSUANT TO SCHEME OF AGREEMENT (SOA) , WAS TO B E ACCEPTED AS SUCH AS CORRECT OR FURTHER ENQUIRIES WERE REQUIRED TO ASCERTAIN THE CORRECT NATURE OF THE TRANSACTION BY LIFTING THE CORPORATE VEIL. THE LD. CIT WAS OF THE VIEW THAT WHAT WAS APPARENT WAS NOT REALT Y ON ACCOUNT OF FOLLOWING FACTS AND FINDINGS: (A) THE ASSESSEE COMPANY HAS TRANSFERRED THE TELECOM INFRASTRUCTURE WORTH RS. 57,396,005,000 TO BIL AT NIL VALUE AND THE FAIR MARKET VALUE HAS BEEN RECORDED AT RS. 82,181,203,000. THE RESERVE FOR BUSINESS RESTRUCTURING ARISING THERE ON, NET OF ABOVE ST ANDS AT RS. 24,785,198,000 IN ITS BALANCE SHEET AS OF MARCH, 31 ST 2008. THUS, THE BALANCE SHEET OF ASSESSEE HAS GONE UP BY RS. 24,785,198,000 ON ACCOUNT OF THIS TRANSACTION. THOUGH IT IS CLAIMED BY ASSESSEE THAT IT IS ONLY ON ACCOUNT OF REVALUATION OF ASSE T AND THERE IS NO ACTUAL CONSIDERATION RECEIVED, SAME DOES NOT APPEAR TO BE CORRECT IF FACTS EXAMINED IN DEPTH. THIS IS SO AS THE ASSESSEE (BAL) HAS SHOWN THE VALUE OF 50,000 EQUITY SHARES OF BHARTI INFRATEL LIMITED AT RS. 5,00,000/ - AS ON 31.03.2007 WHILE AFTER THE TRANSFER OF THE PASSIVE INFRASTRUCTURE TO BIL ON THE EFFECTIVE DATE I.E. 31.1.2008, THE VALUE OF 48 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. 50000 EQUITY SHARES HAS BEEN SHOWN AT RS. 82,181,703,000 AS ON 31.03.2008. THE INCREASE IN VALUE HAS BEEN EXPLAINED TO BE ON ACCOUNT OF REVALUATION OF THE TRANSFERRED ASSETS TO BIL AT FAIR MARKET VALUE. THUS, EFFECTIVELY THE ASSET NAMELY PASSIVE INFRASTRUCTURE WORTH RS. 57,396,005,000 HAS BEEN REPLACED IN THE ASSET SIDE OF BALANCE SHEET BY INCREASE OF INVESTMENT IN BHARTI INFRATEL LIMITED WORTH RS. 82 ,181,203,000/ - . IN SIMPLE TERMS, IF THE CROSS ENTRIES ARE IGNORED, THE FINAL EFFECT IN THE BALANCE SHEET AS ON 31.03.2008 OF THE ASSESSEE IS THAT THE VALUE OF INVESTMENT (IN THE FORM OF INVESTMENT IN BIL) HAS INCREASED TO THE TUNE OF RS.8.218 CRORES AND TH E VALUE OF ITS PASSIVE INFRASTRUCTURE ASSETS HAS DECREASED BY RS.5739 CRORES. THE DIFFERENCE THEREOF AMOUNTING TO RS.2479CRORES, DURING THE AY.2008 - 09 HAS BEEN CREDITED TO BUSINESS RESTRUCTURING RESERVE. THIS INCREASE IN VALUE OF INVESTMENT HAS BEEN EXPLAI NED IN THE BALANCE SHEET BY WAY OF NOTE 2(B) OF SCHEDULE 21 OF THE BALANCE SHEET, TO BE DUE TO THE TRANSFER OF PASSIVE INFRASTRUCTURE ASSETS AT FAIR MARKET VALUE TO BIL. IN OTHER WORDS, THE VALUE OF INVESTMENT IN THE SUBSIDIARY COMPANY HAS GONE UP ONLY AND ONLY FOR THE REASON OF TRANSFER OF ASSETS BY THE ASSESSEE COMPANY TO ITS SUBSIDIARY COMPANY AT FAIR MARKET VALUE. THEREFORE, IT APPEARS THAT CONSIDERATION FOR TRANSFER OF ASSET IS NOT NIL BUT RS. 82,181,203,000/ - . (B) IT IS CLAIMED BY ASSESSEE THAT THE INCREASE IN INVESTMENT IN BIL IS NOTIONAL AS IT IS ON ACCOUNT OF REVALUATION OF ASSET OF BIL AND NO FRESH SHARE WERE ISSUED. THIS APPEARS CORRECT APPARENTLY BUT DOES NOT APPEAR TO BE CORRECT IF EXAMINED IN DEPTH AND 49 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. BALANCE SHEET OF SUBSEQUENT YEAR IS PERU SED. THE FACT IS THAT DURING F.Y.2008 - 09, BIL HAS ISSUED BONUS SHARES IN THE RATIO OF 1:9999, INCREASING THE SHARE HOLDING OF ASSESSEE TO 50, 00,00,000 SHARES. THUS IN THE FINANCIAL YEAR ENDING ON 31 MARCH 2009, THE ASSESSEE COMPANY WAS HAVING 50,00,00,000 EQUITY SHARES, AND THE TOTAL VALUE OF THE INVESTMENTS AS ON 31.3.2009 HAS BEEN SHO WN SAME I.E. RS. 82,181,703,000/ - AS ON 31.03.2008. THUS THE NO. OF SHARES HAS ALSO GONE UP AND THIS INCREASE IN SHAREHOLDING IS ONLY ON ACCOUNT OF THE TRANSFER OF PASSIVE IN FRASTRUCTURE ASSETS. (C) FURTHER, ASSESSEE IS CLAIMING EXPENDITURE FOR THE USE OF ITS TRANSFERRED ASSET TO BIL AT MARKET RATE THOUGH IT IS CLAIMED THAT ASSET HAS BEEN TRANSFERRED AT NIL VALUE. IN THE SCHEME OF ARRANGEMENT IT HAS BEEN STATED THAT THE TRAN SFEROR COMPANY I.E. BAL HAS GOT NON - EXCLUSIVE RIGHT TO USE THE TELECOM INFRASTRUCTURE FOR THE PURPOSE OF ITS BUSINESS WITHOUT ANY OBLIGATION TO PAY FOR THE SAME OR ON PAYMENT OF SUCH CHARGES AS MAY BE REASONABLE AND ACCEPTABLE. HOWEVER, THE ASSESSEE HAS PA ID TO THE BIL, THE CHARGES AT THE MARKET RATE FOR USE OF ASSETS TRANSFERRED BY IT TO BIL AT NIL STATED CONSIDERATION. THIS ALSO SUGGESTS THAT EFFECTIVELY ASSET HAS BEEN TRANSFERRED NOT AT NIL VALUE WHICH IS APPARENT BUT AT RS. 82,181,203,000 WHICH IS THE M ARKET VALUE OF THE ASSET AS PER REVALUATION OF ASSET SHOWN BY BIL. HAD IT NOT BEEN SO, ANY PRUDENT BUSINESSMAN WILL NOT TRANSFER ITS ASSET WORTH BOOK VALUE OF RS. 5379 CR. TO ITS 100% SUBSIDIARY (WHICH IMMEDIATELY BECOMES. NON 100% SUBSIDIARY)AT NIL CONSID ERATION AND THEN 50 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. PAY USER CHARGES FOR THE SAME ASSET TO THIS SUBSIDIARY AT MARKET RATE. 18 . THE LD. CIT WAS OF THE VIEW THAT THE AFORESAID FACTS NEEDED ENQUIRY , EXAMINATION AND INVESTIGATION TO LIFT THE CORPORATE VEIL FROM THE APPARENT TO THE REAL TRANS ACTION AND ACT UAL CONSIDERATION, THEN EXAMINE THE TAXABILITY OF REAL TRANSACTION/ACTUAL CONSIDERATION AND IT WAS IMPORTANT DUTY OF THE AO BEFORE ACCEPTING THE CLAIM OF THE ASSESSEE TO PIERCE THE CORPORATE VEIL. THE RELIANCE WAS PLACED ON THE JUDGMENT OF TH E HON BLE SUPREME COURT IN THE CASE OF JIYAJEERAO COTTON MILLS LTD. VS CIT AIR (1959) (SC) 270. THE LD. CIT OPINED THAT THE AO SHOULD HAVE BEEN EXAMINED THE TRANSACTION IN TOTALITY TO ARRIVE AT AS TO WHAT WAS SUBSTANCE IN THE TRANSACTION OVER THE FORM. HE SHOULD HAVE ALSO EXAMINED WHETHER THE TAX PLANNING OF THE ASSESSEE IN THE INSTANT TRANSACTION WAS COLOURABLE DEVICE OR NOT WHICH HAD NOT BEEN DONE AT ALL . HE ALSO OPINED THAT WHAT WAS APPARENT HAD BEEN ACCEPTED BY THE AO AND NO ENQUIRY WHATSOEVER HAD BEEN DONE TO ARRIVE AT THE EXACT NATURE OF THE TRANSACTION AND REAL CONSIDERATION. HE FURTHER OBSERVED THAT SINCE THE AO HAD NOT MADE ANY ENQUIRY TO PIERCE THE CORPORATE VEIL, HE ALSO FAILED TO EXAMINE THE TAXABILITY OF TRANSFER OF ASSET AT A FAIR MARKET VALUE AND FAILED TO EXAMINE 51 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. AS TO HOW PROVISIONS OF SECTION 45 OF THE ACT WILL BE APPLICABLE ON THE ASSET TRANSFER RED TO BIL AND THAT THE AO ALSO FAILED TO EXAMINE HOW AND WHETHER EFFECT OF PROVISIONS OF SECTION 50 OF THE ACT WILL BE REQUIRED TO BE GIVEN OR WHET HER THE EFFECT OF THIS TRANSACTION OF TRANSFER AT FAIR MARKET VALUE WILL BE REFLECTED BY CHANGE IN ALLOWABILITY OF DEPRECIATION DUE TO CHANGE IN WRITTEN DOWN VALUE AS PER SECTION 43(6) OF THE ACT, IF IT WAS CLAIMED THAT THE PASSIVE INFRASTRUCTURE ASSETS SO TRANSFERRED WERE DEPRECIABLE ASSET. 19 . AS REGARDS TO THE OBJECTION OF THE ASSESSEE FOR THE APPLICABILITY OF PROVISIONS OF SECTION 28(IV) OF THE ACT TO RS. 2479 CRORES REPRESENTING AN AMOUNT BY WHICH , ASSESSEE S BALANCE SHEET HAD GONE UP. THE LD. CIT OB SERVED THAT THE SAID AMOUNT WAS NOT HYPOTHETICAL BUT REAL IF THE TRANSACTION WAS TO BE EXAMINED IN TOTALITY. THE LD. CIT OBSERVED THAT THE ASSET OF THE ASSESSEE IN THE FORM OF INVESTMENT IN ITS SUBSIDIARY NAMELY BIL HAD ACTUALLY GONE UP BY RS. 2479 CRORES WHICH WAS EVIDENT FROM THE FACT THAT IN THE SUBSEQUENT YEAR ASSESSEE HAD BEEN ALLOTTED BONUS SHARES OF M/S BIL IN THE RATIO OF 1:9999 AND THEREBY MAINTAINING THE TOTAL VALUE OF SHAREHOLDING AT RS. 8218 CRORES WHEREAS ASSET IN FORM OF PASSIVE INFRASTRUCTURE HAD 52 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. GONE DOWN BY RS. 5739 CRORES THUS GIVING NET EFFECT OF ACTUAL INCREASE OF RS. 2479 CRORES WHICH WAS THE REAL BENEFIT AROSE TO THE ASSESSEE AND NOT HYPOTHETICAL. AS REGARDS TO THE ARGUMENT OF THE ASSESSEE THAT SINCE THE TRANSACTION WAS PURELY A CAPITAL TRANSACTION WHICH WAS NOT IN THE COURSE OF THE ASSESSEE S REGULA R BUSINESS DELAING, THEREFORE A CAPITAL RECEIPT ON ACCOUNT OF SUCH TRANSACTION , IN PRINCIPLE WAS OUTSIDE THE SCOPE OF INCOME CHARGEABLE TO TAX. THE RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS T. V. SUNDARAM IYENGAR & SONS LTD. (1996) 88 TAXMAN 429. THE LD. CIT POINTED OUT THAT IN THE ASSESSEE S CASE, THE TRANSFER OF THE PASSIVE INFRASTRUCTURE ASSET TO BIL WAS PART OF BIGGER BUSINESS PLAN AS CLAIMED BY THE ASSESSEE TO USE THE ASSETS MORE EFFICIENTLY AND THEREFORE, IT CAN BE SAID THAT THE TRANSFER HAPPENED IN THE PROCESS OF CONDUCT OF BUSINESS AND THE ASSESS EE ALSO BECAME RICHER BY RS. 247 9 CRORES IN THIS PROCESS. THE LD. CIT HELD THAT THE AO OUGHT TO HA VE EXAMINED THE EVIDENCES ON RECORD AND CONDUCTED ENQUIRIES AND INVESTIGATION TO ASCERTAIN AS TO WHETHER THIS AMOUNT OF RS. 2479 CRORES COULD BE TREATED AS INCOME OF THE ASSESSEE U/S 28(IV) OF THE ACT. THE LD. CIT ALSO HELD THAT THE ASSESSMENT ORDER DATED 30.10.2012 PASSED BY THE AO WAS 53 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. LIABLE TO BE TREATED AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDINGLY, THE ASSESSMENT ORDER WAS SET ASIDE WITH A DIRECTION TO THE AO TO VERIFY THE TAXABILITY OF TRANSACTION NAMELY TRANSFER OF PASSIVE ASSET BY THE ASSESSEE TO BIL AND ALSO EXAMINE THE ALLOWABILITY OF THE EXPENDITURE CLAIMED BY THE ASSESSEE IN THE USAGE OF ITS TRANSFERRED ASSETS TO ITS SUBSIDIARY COMPANY. 20 . BEING AGGRIEVED THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSE SSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT AND FURTHER SUBMITTED THAT THE ORDER PASSED BY THE AO WAS NOT AMENABLE TO REVISIONARY JURISDICTION OF THE LD. CIT U/S 263 OF THE ACT ON THE ISSUE ALREADY CONSIDERED BY THE DISPUTE RESOLUTION PANEL (DR P). IT WAS STATED THAT THE ISSUE S RELATING TO THE TAX IMPLICATION OF TRANSACTIONS PERTAINING TO TRANSFER OF PI UNDERTAKING TO BIL, THE REVALUATION OF INVESTMENTS IN BIL, THE CREATION OF RESERVES FOR BUSINESS RESTRUCTURING, THE AMOUNT TRANSFERRED FROM SUCH RESERVE TO P & L A/C WERE ALL CONSIDERED B Y THE DRP AND THAT THE ASSESSMENT ORDER U/S 143(3) R.W.S. 144C(13) WAS PASSED BY THE AO AFTER TAKING INTO CONSIDERATION THE DIRECTIONS OF THE DRP. IT WAS FURTHER STATED THAT THE AO AS WELL AS THE DRP HELD IN CLEAR TERMS 54 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. THAT THE TRANSFER OF THE TELECOM INFRASTRUCTURE BY THE ASSESSEE TO BIL RESULTED IN A CAPITAL LOSS OF RS. 5739 CRORES TO THE ASSESSEE COMPANY AND SINCE THE SAID LOSS WAS CAPITAL IN NATURE, T HE ASSESSEE COMPANY SUO - MOTU ADDED BACK THE SAME WHILE COMPUT ING INCOME UNDER NORMAL PROVISIONS OF THE ACT. IT WAS CONTENTED THAT THE AO ALTHOUGH CORRECTLY HELD THAT THE SAID TRANSFER RESULTED IN A CAPITAL LOSS OF RS. 5739 WHICH WAS NOT ALLOWABLE UNDER NORMAL PROVISIONS OF THE ACT , HOWEVER, WHILE COMPUTING BUSINESS INCOME, HE ADDED BACK THE SAID LOSS ONCE AGAIN TO THE INCOME RETURNED BY THE ASSESSEE AFTER DISALLOWING SUCH LOSS, THUS, RESULTING IN DOUBLE DISALLOWANCE OF THE SAME AMOUNT WHICH WAS LATER ON RECTIFIED BY THE HON BLE ITAT VIDE ORDER DATED 11.03.2014 BY CA TEGORICALLY HOLDING THAT IT WAS A CASE OF DOUBLE ADDITION BY THE AO. IT WAS STATED THAT T HE ITAT SPECIFICALLY HELD THAT THE IMPUGNED TRANSFER RESULTED IN A CAPITAL LOSS OF RS. 5739 CRORES TO THE ASSESSEE WHIC H WAS NOT A TAX DEDUCTIBLE ITEM AND THAT THE SAI D ENTRIES WERE ABSOLUTELY PROFIT NEUTRAL. IT WAS FURTHER STATED THAT THE FINDINGS OF THE AO AND THE DRP TO THE EFFECT THAT THE TRANSFER OF TELECOM INFRASTRUCTURE RESULTED IN A CAPITAL LOSS OF RS. 5739 CRORES TO THE ASSESSEE COMPANY WERE HELD TO BE IN ORDER BY THE ITAT. IT WAS ALSO STATED THAT THE ITAT , EVEN 55 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. BEFORE THE ORDER DATED 30.03.2014 OF THE LD. CIT U/S 263 OF THE ACT, VIDE ITS ORDER DATED 11.03.2014 U/S 254(1) OF THE ACT TOOK NOTE OF THE FOLLOWING FACTS IN PARA 10 OF THE SAID ORDER: (I) THE SOA BETW EEN BAL (ASSESSEE) AND BIL FOR TRANSFER OF ASSETS AND LIABILITIES OF PASSIVE TELECOM INFRASTRUCTURE UNDERTAKING WAS APPROVED BY THE HON BLE HIGH COURT OF DELHI VIDE ORDER DATED 26.11.2007 AND FILED WITH ROC, DELHI & HARYANA ON 31.01.2008 I.E. THE EFFECTIVE DATE OF THE SCHEME. (II) THE ASSESSEE COMPANY HAD TRANSFERRED THE TELECOM INFRASTRUCTURE WORTH RS. 57,39,60,05,000/ - TO BIL AT NIL VALUE. (III) THE AFORESAID TRANSACTION RESULTED IN LOSS OF RS. 5739 CRORES TO THE ASSESSEE COMPANY WHICH WAS OF CAPITAL NA TURE. (IV) THE ASSESSEE COMPANY REVALUED ITS INVESTMENTS IN BIL AND RECORDED THE SAME AT ITS FAIR VALUE OF RS. 82,18,12,03,000/ - . (V) THE RESERVE FOR BUSINESS RESTRUCTURING ARISING THEREON NET OF THE ABOVE STOOD AT RS. 24,78,51,98,000/ - IN THE BALANCE SHE ET AS ON 31.03.2008. (VI) THE ABOVE TREAT MENT WAS IN ACCORDANCE WITH THE SCHEME SANCTIONED BY THE HON BLE HIGH COURT AND THERE WAS NO IMPACT OF IT IN THE PROFIT & LOSS ACCOUNT. 56 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. 21 . IT WAS FURTHER STATED THAT THE ITAT DELETED THE ADDITION OF RS. 5739 C RORES BY OBSERVING AS UNDER: (I) THE ADDITION OF RS. 5739 CRORES MADE BY THE AO IN ASSESSMENT ORDER U/S 143(3) R.W.S 144C(13) WAS WHOLLY ERRONEOUS AND DEVOID OF ANY LEGALLY SUSTAINABLE MERITS. IT WAS A CASE OF DOUBLE ADDITION. (II) THE DISPUTE RESOLUTIO N PANEL HAD ALSO BEEN SOMEWHAT SUPERFICIAL IN ITS APPROACH IN CONFIRMING THE ADDITION MADE BY THE AO. (III) ALL THE RELATED FACTS, INCLUDING ACCOUNTING ENTRIES AND TREATMENT GIVEN IN THE COMPUTATION OF TAXABLE INCOME WERE PLACED BEFORE THE DRP. (IV) THE LOSS ON TRANSFER OF ASSETS OF RS. 5739 CRORES WAS NOT A TAX DEDUCTIBLE ITEM. SIMILARLY, THE AMOUNT TRANSFERRED FROM RESERVES OF RS. 5739 CRORES WAS ALSO NOT A TAXABLE ITEM. (V) THESE WERE PURELY FACTUAL ISSUES WHICH WERE ADEQUATELY DEALT BY THE DRP. 2 2 . IT WAS CONTENDED THAT THE LD. CIT WHILE EXCERCISING THE POWERS CONFERRED U/S 263 OF THE ACT CLEARLY EXCEEDED HIS JURISDICTION IN DIRECTING THE AO TO VERIFY THE MATTERS ALREADY COVERED IN TOTALITY BY THE ITAT, DELHI VIDE ORDER DATED 11.03.2014 IN THE ASSES SEE S CASE IN ITA NO. 5816/DEL/2012. IT WAS ALSO CONTENDED THAT THE TRIBUNAL IS THE FINAL FACT FINDING AUTHORITY AND ON QUESTIONS OF FACT, ITS 57 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. DECISION IS FINAL. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: PATNAIK & CO. LTD. VS CIT, (1986) 161 ITR 365 (SC) K. S. SUBBIAH PILLAI VS CIT (1999) 152 CTR (SC) 428 : (1999) 237 ITR 11 (SC) CIT VS D.L.F UNITED (2000) 243 ITR 855 (SC) CIT VS MANNA RAMJI & CO. (1972) 86 ITR 29 (SC) 23 . IT WAS FURTHER CONTENDED THAT IN THE PRESENT CASE THE TRIBUNAL BEING THE FINA L FACT FINDING AUTHORITY HAD GIVEN AN UNDISPUTED FINDING OF FACT ON THE ISSUE RELATING TO TRANSFER OF PASSIVE INFRASTRUCTURE. THEREFORE, THE LD. CIT HAS NO POWER TO DIFFER OR TO GO BEHIND SUCH FINDING OF FACT GIVEN BY THE TRIBUNAL OR PROPOSED TO REVISE ORD ER OF ASSESSMENT ON THE ISSUES ALREADY CONSIDERED AND ADJUDICATED BY THE ITAT. IT WAS EMPHASIZED THAT THE TRIBUNAL HELD IN CLEAR TERMS THAT THE TELECOM INFRASTRUCTURE WAS TRANSFERRED BY THE ASSESSEE TO BIL FOR NIL CONSIDERATION RESULTING IN A CAPITAL LOSS OF RS. 5739 CRORES AND THAT THE REVALUATION OF INVESTMENT S IN BIL AT ITS FAIR VALUE OF RS. 8218 CRORES BY THE ASSESSEE WAS IN ORDER. IT WAS ALSO STATED THAT THE TRIBUNAL HAD PARTICULARLY TAKEN NOTE OF THE BALANCE OF RS. 2479 CRORES STANDING TO THE BUSINESS RESTRUCTURING RESERVE IN THE BALANCE SHEET AS ON 31.03.2008 AND HELD THE SAME TO BE IN ORDER . IT WAS ARGUED 58 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. THAT THE TRIBUNAL HAS UPHELD THE ASSESSEE S STAND THAT SUCH BALANCE IN RESERVE ACCOUNT BEING A NOTIONAL BOO K ENTRY HAS NO TAX IMPLICATIONS, T HEREFO RE, THE ALLEGATION S OF THE LD. CIT IN THE ORDER U/S 263 OF THE ACT WERE COMPLETELY CONTRARY TO THE EXPRESS FINDINGS OF THE FACT GIVEN BY THE ITAT VIDE ORDER DATED 11.03.2014. IT WAS FURTHER ARGUED THAT WHERE THERE IS A DECISION OF A HIGHER APPELLATE AUTHOR ITY, THE SUBORDINATE AUTHORITY IS BOUND TO FOLLOW SUCH DECISION. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: RUSSELL PROPERTIES PVT. LTD. VS CHOWDHURY (A.), CIT (ADDL), (1977) 109 ITR 229 (CAL.) AGRAWAL (K.N) VS CIT (1991) 189 ITR 769 (ALL) 24 . I T WAS REITERATED THAT THE TRANSACTIONS VIZ. TRANSFER OF PI UNDERTAKING AT NIL CONSIDERATION TO BIL, REVALUATION OF INVESTMENTS IN BIL, THE CREATION OF BUSINESS RESTRUCTURING RESERVE, THE TRANSFER FROM THE SAID RESERVE TO PROFIT AND LOSS A/C ETC. WERE ALL C ARRIED OUT PURSUANT TO THE SCHEME OF ARRANGEMENT (SOA) CONSIDERED IN LENGTH AND APPROVED BY THE HON BLE HIGH COURT OF DELHI AND THE SAID TRANSACTIONS WERE ALSO TAKEN NOTE BY THE ITAT, DELHI AND THAT THE TREATMENT OF THE IMPUGNED TRANSACTIONS GIVEN BY THE A SSESSEE IN ITS ACCOUNTS AND COMPUTATION OF INCOME WERE 59 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. HELD TO BE IN ORDER. HOWEVER, THE LD. CIT DOUBTED THE ASSESSEE S MOTIVE BEHIND THE VERY SAME TRANSACTIONS AND ALLEGED TH E SAME TO BE COLO RABLE DEVICE. IT WAS STATED THAT THE LD. CIT BEING A SUBORDINATE OFFICER WAS NOT EMPOWERED TO RE CONSIDER AND REVIEW THE SAME SET OF TRANSACTION CARRIED OUT BY THE ASSESSEE PURSUANT TO SOA APPROVED BY THE HON BLE HIGH COURT. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: CIT VS BHARAT BIJLEE LTD. (2014) 365 ITR 25 8 (BOM) CIT VS J. S. ELECTRONICS (P) LTD. (2009) 311 ITR 311 (DEL.) UNION OF INDIA VS AZADI BACHAO ANDOLAN (2003) 263 ITR 0706 (SC) BANYAN AND BERRY VS CIT (1996) 222 ITR 831 (GUJ.) 25 . IT WAS FURTHER STATED THAT THE TRANSACTIONS PERTAINING TO TRANSFER OF PI UNDERTAKING TO BIL, THE REVALUATION OF INVESTMENTS IN BIL, THE CREATION OF RESERVES FOR BUSINESS RESTRUCTURING, THE AMOUNT TRANSFERRED FROM SUCH RESERVE TO P & L A/C WERE ALL CONSIDERED BY THE DISPUTE RESOLUTION PANEL (DRP) AND THE ASSESSMENT ORDER U/S 143(3) R.W.S 144C(13) WAS PASSED BY THE AO AFTER TAKING INTO CONSIDERATION THE DIRECTIONS OF THE DRP. A REFERENCE WAS MADE TO PAGE NO. 243 OF THE PAPER BOOK AND IT WAS STATED 60 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. THAT THE DRP VIDE THEIR ORDER DATED 30.08.2012 IN PARA 3.9.3 HELD IN CLEAR TERMS THAT THE TRANSFER OF THE TELECOM INFRASTRUCTURE BY THE ASSESSEE COMPANY TO BIL RESULTED IN A CAPITAL LOSS OF RS. 5739 CRORES AND THE AO HELD THAT THE CAPITAL LOSS OF RS. 5739 CRORES WAS NOT ALLOWABLE UNDER NORMAL PROVISIONS OF THE ACT BUT HE ADDED THE SAI D LOSS ONCE AGAIN TO THE INCOME RETURNED BY THE ASSESSEE AFTER DISALLOWING SUCH LOSS, THUS, RESULTING IN DOUBLE DISALLOWANCE OF THE SAME AMOUNT. HOWEVER, THE ITAT VIDE ORDER DATE D 11.03.2014 CATEGORICALLY HELD THAT IT WAS A CASE OF DOUBLE ADDITION BY THE A O AND THAT THE CAPITAL LOSS OF RS. 5739 CRORES TO THE ASSESSEE COMPANY WHICH WAS NOT A TAX DEDUCTIBLE ITEM AND TRANSFERRED FROM THE RESERVES WAS NOT TAXABL E . IT WAS CONTENDED THAT THE ASSESSMENT ORDER U/S 143(3) R.W.S 144C(13) STOOD MERGED WITH THE ORDER/D IRECTIONS OF THE DRP IN RESPECT OF SPECIFIC ISSUE OF THE DETERMINATION AND ALLOWABILITY OR OTHERWISE OF GAIN/LOSS ON TRANSFER OF PASSIVE INFRASTRUCTURE TO BIL, THEREFORE, SUCH ORDER WAS NOT AMENABLE TO REVISION U/S 263 OF THE ACT. IT WAS CONTENDED THAT THE FACT THAT ALL THE RELATED MATERIALS, INCLUDING THE SOA, ACCOUNTING ENTRIES AND TREATMENT GIVEN IN THE COMPUTATION OF TAXABLE INCOME IN RESPECT OF THE IMPUGNED TRANSFER WERE PLACED BEFORE THE AO AND THE DRP , 61 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. THE SAME WERE CONSIDERED BY THEM AND HAS ALSO BE EN AFFIRMED BY THE ITAT , VIDE ORDER DATED 11.03.2014. THUS, THE ALLEGATION OF THE LD. CIT THAT THE AO AND DRP DID NOT APPLY THEIR MINDS ON THE IMPUGNED ISSUE AND HAD NOT GIVEN FINDING THAT THE IMPUGNED TRANSACTION RESULTED IN CAPITAL LOSS OF RS. 5379 CRORE S , WAS ERRONEOUS, MISPLACED AND CONTRARY TO THE FACTS ON RECORD. THE RELIANCE WAS PLACE ON THE FOLLOWING CASE LAWS: HARI IRON TRADING CO. VS CIT (2003) 263 ITR 437 (P&H) CIT VS HASTINGS PROPERTIES (2002) 253 ITR 124 (CAL.) 26 . IT WAS FURTHER STATED THAT THE LD. CIT INITIATED THE PROCEEDINGS U/S 263 OF THE ACT ON THE FOLLOWING TWO ISSUES: (I) THAT THE AO ALLEGEDLY FAILED TO EXAMINE THE TAXABILITY OF THE DIFFERENCE BETWEEN THE COST OF ASSETS AND FAIR MARKET VALUE OF THE ASSETS, SHOWN DIRECTLY CREDITED TO RESERVE FOR BUSINESS RESTRUCTURING BY THE ASSESSEE COMPANY IN ITS BALANCE SHEET, OF THE ASSETS TRANSFERRED BY IT ON 31.01.2008 TO ITS SUBSIDIARY COMPANY. (II) THAT THE AO ALLEGEDLY FAILED TO EXAMINE THE ALLOWABILITY OF THE EXPENDITURE CLAIMED BY THE ASS ESSEE COMPANY FOR USAGE OF ITS TRANSFERRED ASSETS TO ITS SUBSIDIARY COMPANY CONTRARY TO THE ASSESSEE 62 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. COMPANY HAVING A NON - EXCLUSIVE RIGHT TO USE , ITS TRANSFERRED ASSETS TO BIL, WITHOUT ANY OBLIGATION TO PAY OR ON PAYMENT OF SUCH CHARGES AS MAY BE REASONABL E AND ACCEPTABLE TO BOTH THE TRANSFEROR AND TRANSFEREE COMPANY, AS PER SOA APPROVED BY THE HON BLE HIGH COURT. 27 . IT WAS SUBMITTED THAT ACCORDINGLY TO THE LD. CIT , THE FINAL EFFECT IN THE BALANCE SHEET AS ON 31.03.2008 WAS THAT THE VALUE OF INVESTMENT H AD INCREASED TO THE TUNE OF RS. 8218 CRORES AND VALUE OF ITS PASSIVE INFRASTRUCTURE ASSETS HAD DECREASED BY RS. 5739 CRORES , THE DIFFERENCE THEREOF AMOUNTING TO RS. 2479 CRORES ARISING ON TRANSFER OF THOSE ASSETS STANDING TO THE CREDIT OF BUSINESS RESTRUCT URING RESERVE WAS ALLEGEDLY IN THE NATURE OF CAPITAL GAINS ACCRUING TO THE ASSESSEE WHICH SHOULD HAVE BEEN OFFERED TO TAX U/S 45 OF THE ACT AND ALTERNATIVELY, SUCH AMOUNT WAS ALLEGEDLY TAXABLE U/S 28(IV) OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE SUMMARI ZED THE ALLEGATIONS OF THE LD. CIT ON THE ISSUE OF TRANSFER OF PI UNDERTAKING AS UNDER: (I) THE ORDER OF THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. (II) THE AO FAILED TO EXAMINE THE ISSUE OF TAXABILITY OF CAPITAL GAINS ALLEGEDL Y ACCRUING ON THE IMPUGNED TRANSFER OF PI UNDERTAKING. 63 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. (III) THE CONSIDERATION FOR TRANSFER OF IMPUGNED UNDERTAKING WAS NOT NIL AND THE REVALUATION OF INVESTMENTS TO FAIR VALUE OF RS. 8218 CRORES CORRESPONDING TO THE FAIR VALUE OF ASSETS TRANSFERRED WAS TO BE TAKEN AS CONSIDERATION FOR TRANSFER. (IV) THE IMPUGNED TRANSFER RESULTED IN CAPITAL GAINS CHARGEABLE U/S 45 OF THE ACT. (V) THE AMOUNT OF RS. 2479 CRORES REPRESENTING THE RESULTANT INCREASE IN THE BALANCE SHEET OF THE COMPANY DUE TO TRANSFER OF PI UNDERTAKING (I.E. DIFFERENCE BETWEEN FAIR VALUE OF ASSETS TRANSFERRED AND THEIR BOOK VALUE) WAS THE CAPITAL GAINS ACCRUING TO THE ASSESSEE U/S 45. (VI) ALTERNATIVELY, THE SAID AMOUNT OF RS. 2479 CRORES REPRESENTED BUSINESS INCOME U/S 28(IV) OF THE ACT. 28 . IT WAS SUBMITTED THAT THE ISSUE OF TRANSFER OF PI UNDERTAKING TO BIL WAS FULLY COVERED BY THE ORDER OF THE ITAT, DELHI BENCH I IN ITA NO. 5816/DEL/2012 FOR THE ASSESSMENT YEAR 2008 - 09 IN THE ASSESSEE S OWN CASE AND THE ISSUE OF REVALUATION OF INVES TMENTS AND CREDIT OF RESERVE FOR BUSINESS RESTRUCTURING TO THE P & L A/C WAS FULLY COVERED BY THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF INDO RAMA SYNTHETICS VS CIT (2011 ) 330 ITR 363. IT WAS STATED THAT IN THE INSTANT CASE, PURSUANT TO THE D EMERGER, TWO 64 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. DISTINCT SETS OF ENTRIES REPRESENTING TWO FACETS OF TRANSACTIONS/BOOK ADJUSTMENTS WERE RECORDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT AS UNDER: LOSS ON TRANSFER OF ASSETS ON DEMERGER... .. DR. RS. 5739 CRORES TO NET ASSETS (TRANSFER RED) RS. 5739 CRORES PROFIT & LOSS A/C ..DR. RS. 5739 CRORES TO LOSS ON TRANSFER OF ASSETS ON DEMERGER RS. 5739 CRORES 29 . IT WAS CONTENDED THAT THE AFORESAID ENTRIES WERE APPROVED BY THE ITAT IN ITA NO. 5816/DEL/2012 IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2008 - 09 ORDER DATED 11.03.2014. IT WAS FURTHER STATED THAT PURSUANT TO THE SOA APPROVED BY THE HON BLE DELHI HIGH COURT, THE ASSESSEE REVALUED ITS INVESTMENTS IN BIL FROM RS. 5 LACS TO RS. 8218 CRORES STOOD ADDED TO THE COST OF THE CORRESPONDING ASSETS I.E. INVESTMENT IN SUBSIDIARY ON THE ASSET SIDE OF THE BALANCE SHEET AND TO EQUALIZE BOTH SIDES THEREOF, A REVALUATION RESERVE IN THE NAME OF BUSINESS RESTR UCTURING RESERVE WAS CREATED ON THE LIABILITY SIDE AND TH E ADJUSTMENT ENTRY RECORDED FOR GIVING EFFECT TO THE ABOVE IN THE BOOKS OF THE ASSESSEE WAS AS UNDER: INVESTMENT IN SUBSIDIARY A/C ..DR. RS. 8218 CRORES TO BUSINESS RESTRUCTURING RESERVE (BRR) RS. 8218 CRORES 65 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. 30 . IT WAS STATED THAT IN THE AF ORESAID ENTRY THE FIGURE OF PROFIT REMAINED UNTOUCHED IN SO FAR AS THE REVALUATION OF INVESTMENTS TO THE TUNE OF RS. 8218 CRORES WAS CONCERNED. IT WAS CONTENDED THAT THE ITAT IN ASSESSEE S OWN CASE CATEGORICALLY HELD THAT THE TRANSFER OF PI UNDERTAKING TO BIL AT NIL CONSIDERATION RESULTED IN A CAPITAL LOSS OF RS. 5739 CRORES AND THE AMOUNT TRANSFERRED TO THE P & L A/C FROM BUSINESS RESTRUCTURING RESERVE OF RS. 5739 CRORES TO RECOUP SUCH LOSS WAS MERELY IN THE NATURE OF CONTRA ADJUSTMENT IN THE P & L A/C AND WAS ALSO NOT A TAXABLE ITEM AND THAT THE HON BLE SUPREME COURT IN THE CASE OF INDO RAMA SYNTHETICS (SUPRA) GAVE A CATEGORICAL FINDING THAT CREATION OF REVALUATION RESERVE WAS MERELY AN ADJUSTMENT ENTRY TO BALANCE BOTH SIDES OF THE BALANCE SHEET HAVING NO IMPACT WHATSOEVER ON THE PROFITS OF THE ASSESSEE COMPANY. IT, THUS, FOLLOWS THAT THE BALANCE AMOUNT OF RS. 2479 CRORES STANDING TO THE CREDIT OF BUSINESS RESTRUCTURING RESERVE (BEING THE DIFFEREN CE BETWEEN THE ORIGINAL REVALUATION RESERVE OF RS. 8218 CRORE S AND AMOUNT TRANSFERRED THERE FROM OF RS. 5739 CRORES TO THE P & L A/C) WAS ALSO MERELY A NOTIONAL CREDIT STANDING IN THE BOOKS OF THE ASSESSEE TO BALANCE BOTH THE SIDES OF THE BALANCE SHEET HAVING NO IMPACT WHATSOEVER O N THE P & L A/C OF THE ASSESSEE. IT WAS 66 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. CONTENDED THAT BOTH THE ASPECT S RELATING TO (I) THE TRANSFER OF PASSIVE INFRASTRUCTURE ASSETS AND (II) BOOK ADJUSTMENTS RELATING TO CREATION OF REVALUATION RESERVE, UTILIZATION THEREOF, AND BALANCE REMAINING IN SUCH RESERVE HAVE REACHED FINALITY IN VI EW OF THE DIRECT FINDINGS OF THE HON BLE SUPREME COURT AND THE ITAT. THEREFORE, THE ORDER OF THE LD. CIT U/S 263 OF THE ACT CRASHES AT THE VERY THRESHOLD ON ACCOUNT OF BEING CONTRARY TO THE EXPRESS JUDGMENTS OF THE HON BLE APEX COURT IN THE CASE OF INDO RA MA SYNTHETICS (SUPRA) AND THE ITAT IN THE ASSESSEE S OWN CASE. IT WAS EMPHASIZED THAT THE DIRECT APPLICABILITY OF THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF INDO RAMA SYNTHETICS (SUPRA) WAS CATEGORICALLY TAKEN NOTE OF AND ADMITTED TO BY THE A O, THE DRP AND THE LD. CIT IN THE ORDER U/S 263 OF THE ACT AND THAT BEING SATISFIED WITH THE DIRECT APPLICABILITY OF THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF INDO RAMA SYNTHETICS (SUPRA) TO THE CASE OF THE ASSESSEE COMPANY, THE LD. CIT DID NOT ISSUE ANY DIRECTIONS TO THE AO FOR ADJUSTMENT/CHANGE IN BOOK PROFIT S AS OFFERED BY THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS AND THAT THE AO WHILE COMPUTING THE BOOK PROFITS FOR THE PURPOSE OF SECTION 115JB HAD TAKEN THE NET PROFIT AS PER P & L A/C AS THE STARTING POINT AND CERTAIN 67 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. ADJUSTMENTS IN TERMS OF EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT WERE MADE . IT WAS FURTHER STATED THAT THE P & L A/C OF THE ASSESSEE COMPANY WAS DEBITED WITH THE LOSS OF RS. 5739 CRORES ON TRANSFER OF TELECOM I NFRASTRUCTURE AND CREDITED WITH A EQUIVALENT AMOUNT OF RS. 5739 CRORES ON ACCOUNT OF TRANSFER FROM BRR, THUS, HAVING A NIL IMPACT ON THE P & L A/C. ADMITTEDLY, NEITHER THE LOSS ON TRANSFER OF ASSETS DEBITED TO THE P & L A/C NOR THE AMOUNT TRANSFERRED FROM REVALUATION RESERVE CREDITED TO THE P & L A/C WERE REQUIRED TO BE ADDED BACK OR REDUCED FROM THE NET PROFIT AS PER THE P & L A/C TO ARRIVE AT THE BOOK PROFITS IN TERMS OF EXPLANATION TO SECTION 115JB(2) OF THE ACT AND THAT HAVING ACCEPTED THE SAID COMPUTAT ION OF BOOK PROFITS U/S 115JB OF THE ACT ON THE BASIS OF THE AFORESAID JUDGMENT OF THE HON BLE SUPREME COURT, THE LD. CIT MISDIRECTED HIMSELF AND ERRED IN LAW IN ISSUING CONTRARY DIRECTIONS FOR THE PURPOSE OF COMPUTATION OF INCOME UNDER NORMAL PROVISIONS. ON THE OTHER HAND, IF THE LD. CIT ASSUMED THAT THE CONSIDERATION FOR TRANSFER OF THE TELECOM INFRASTRUCTURE UNDERTAKING WAS NOT NIL BUT RS. 8218 CRORES RESULTING IN A PROFIT OF RS. 2479 CRORES TO THE ASSESSEE COMPANY, HE SHOULD HAVE ISSUED DIRECTIONS TO TH E AO TO INCREASE THE BOOK PROFITS TO THAT EXTENT BUT THE SAME WAS NOT DONE. THUS, THE LD. CIT ADOPTED 68 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. CONTRADICTORY STANDS FOR THE PURPOSE OF COMPUTING BOOK PROFITS U/S 115JB OF THE ACT AND FOR THE PURPOSE OF COMPUTATION OF INCOME UNDER NORMAL PRO VISIONS. THEREFORE, THE ACTION OF THE LD. CIT WAS ERRONEOUS AND UNSUSTAINABLE IN LAW AND HENCE DESERVES TO BE QUASHED. 31 . IT WAS FURTHER STATED THAT THE POWER OF SUO - MOTU REVISION UNDER SUB - SECTION (1) OF SECTION 263 OF THE ACT IS IN NATURE OF SUPERVISORY JURISD ICTION AND THE SAME CAN BE EXERCISED ONLY IF THE CIRCUMSTANCES SPECIFIED THEREIN EXIST. IT WAS FURTHER STATED THAT TWO CIRCUMSTANCES MUST EXIST TO ENABLE THE COMMISSIONER TO EXERCISE THE POWER OF REVISION UNDER THIS SUB - SECTION VIZ., (I) THE ORDER IS ERRON EOUS (II) BY VIRTUE OF THE ORDER BEING ERRONEOUS, PREJUDICE HAS BEEN CAUSED TO THE INTEREST OF THE REVENUE. HOWEVER, T HE SAID POWER IS NOT AN ARBITRARY OR UNCHARTED POWER, I T CAN BE EXERCISED ONLY ON FULFILLMENT OF THE REQUIREMENTS LAID DOWN IN THE SAID SE CTION. A REFERENCE WAS MADE TO THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES CO. LTD. VS CIT 243 ITR 83 (SC). IT WAS CONTENDED THAT THE CONSIDERATION OF THE LD. CIT AS TO WHETHER AN ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUD ICIAL TO THE INTEREST OF THE REVENUE MUST BE BASED ON MATERIALS ON 69 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. THE RECORD OF THE PROCEEDINGS CALLED FOR BY HIM. BUT IN THE PRESENT CASE THE ASSESSMENT ORDER PASSED BY THE AO WAS NOT ERRONEOUS MUCH LESS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT WAS STATED THAT THE LD. CIT HAS CLAIMED THAT THE AO HAD NOT EXAMINED THE ISSUE OF TAXABILITY OF TRANSFER OF PI UNDERTAKING FROM THE ASSESSEE COMPANY TO BIL AS A RESULT OF WHICH PREJUDICE HAS BEEN CAUSED TO THE INTEREST OF THE REVENUE INSO FAR AS ALLEGED CAPITA L GAINS/BUSINESS INCOME AMOUNTING TO RS. 2479 CRORES HAD ESCAPED TAXATION, THUS RENDERING THE ORDER OF THE ASSESSMENT ERRONEOUS. IT WAS STATED THAT THE AO HAD MADE DUE ENQUIRIES AND APPLIED HIS MIND ON THE AFORESAID ISSUE, THEREFORE, ORDER OF THE ASSESSMEN T WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT WAS CONTENDED THAT THE ASSESSEE FURNISHED FOLLOWING DOCUMENTS BEFORE THE AO WHO EXAMINED THOSE BEFORE FRAMING ASSESSMENT U/S 143(3) R.W.S . 144C(13) OF THE ACT: (I) THE SCHEME OF ARRANGEMENT ENTERED INTO BETWEEN THE ASSESSEE COMPANY AND BIL FOR TRANSFER OF IMPUGNED PI UNDERTAKING AND ORDER OF THE HON BLE DELHI HIGH COURT SANCTIONING SUCH SCHEME. (II) THE RETURN OF INCOME INCLUDING COMPUTATION OF TOTAL INCOME OF THE APPELLANT COMPA NY. 70 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. (III) THE FINANCIAL STATEMENTS INCLUDING THE AUDITOR S REPORT, BALANCE SHEET AND PROFIT & LOSS A/C OF THE ASSESSEE COMPANY. (IV) THE ANNUAL REPORTS OF THE ASSESSEE COMPANY. (V) THE BOOKS OF ACCOUNTS OF THE APPELLANT COMPANY INCLUDING THE ENTRIES PASS ED THEREIN PERTAINING TO THE TRANSFER OF IMPUGNED UNDERTAKING. (VI) CIRCLE WISE DETAILS OF ALL ASSETS TRANSFERRED TO BIL UNDER THE SOA. 32 . THE LD. COUNSEL FOR THE ASSESSEE ALSO REFERRED TO THE DISCLOSERS MADE IN THE AUDITED ACCOUNTS WHICH WERE PLAC ED BEFORE THE AO AND THE ENQUIRIES CONDUCTED BY HIM ( DETAIL IS MENTIONED AT PAGE NO. 53 OF THE ASSESSEE S WRITTEN SUBMISSION). IT WAS STATED THAT THE ASSESSEE VIDE NOTE 6 & 7 WHICH ARE FORMING INTEGRAL PART OF THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION CATEGORICALLY DISCLOSED THE FACT OF DEMERGER AS UNDER: (6) COMPANY HAS ENTERED INTO A SCHEME OF ARRANGEMENT (SOA) WITH BHARTI INFRATEL LIMITED (BIL) FOR TRANSFER OF ASSETS AND LIABILITIES OF PASSIVE TELECOM INFRASTRUCTURE UNDERTA KING, AS DEFINED IN THE SCHEME, FROM THE COMPANY TO BIL, WHICH HAS BEEN DULY APPROVED BY THE HON BLE HIGH COURT OF DELHI VIDE ORDER DATED NOVEMBER 26, 2007 AND FILED WITH THE REGISTRAR OF COMPANIES, DELHI & HARYANA ON 71 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. JANUARY 31, 2008 I.E. THE EFFECTIVE DA TE OF THE SCHEME. PURSUANT TO THE TERMS OF THE SCHEME; THE COMPANY HAS TRANSFERRED THE TELECOM INFRASTRUCTURE WORTH RS. 57,396,005,089 TO BIL. THE DEPRECIATION ON ASSETS TRANSFERRED TO BIL HAVE BEEN COMPUTED IN ACCORDANCE WITH THE FIFTH PROVISO TO SECTION 32 OF THE INCOME TAX ACT, SINCE ASSETS HAVE BEEN USED BY BOTH THE LEGAL ENTITIES DURING THE YEAR. HENCE THE DEPRECIATION ON SUCH ASSETS FOR THE ASSESSMENT YEAR 2008 - 09 HAS BEEN APPORTIONED BETWEEN THE TWO COMPANIES IN THE RATIO OF NUMBER OF DAYS FOR WHICH THE ASSETS WERE USED BY RESPECTIVE COMPANIES, COMPUTED AS FOLLOWS: TOTAL DEPRECIATION ON ASSETS TRANSFERRED TO BIL FOR F/Y = RS. 8,683,809,952/ - DEPRECIATION ON ABOVE ASSETS FOR 306 DAYS (I.E. UPTO JAN 31 ST ) = RS. 7,260,234,550/ - THE AFORESAID DEPRECIATI ON OF RS. 7,260,234,550/ - THE BALANCE DEPRECIATION FOR 60 DAYS AMOUNTING TO RS. 1,423,575,402/ - HAS BEEN CLAIMED BY BIL IN ITS RETURN OF INCOME. (7) PURSUANT TO THE SOA, THE LOSS ON TRANSFER OF SUCH UNDERTAKING DOES NOT REQUIRE ANY ADJUSTMENT FOR COMPUTI NG BOOK PROFITS U/S 115JB. 3 3 . IT WAS ALSO STATED THAT IN THE DIRECTOR S REPORT WHICH FORMED THE PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDING 31.03.2008, THE DISCLOSER WAS MADE FOR MERGERS, ACQUISITIONS & SCHEME OF ARRANGEMENT (SOA) AND IN THE 72 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. CORPORATE GOVERNANCE REPORT FORMING PART OF THE AUDITED FINANCIAL STATEMENTS, THE DISCLOSER ON ACCOUNTING TREATMENT WAS MADE. IT WAS FURTHER STATED THAT IN SCHEDULE 2 FORMING PART OF AUDITED ACCOUNTS, THE PARTICULARS OF RESERVE FOR BUSINESS RESTRUCTURING W ERE DISCLOSED AS UNDER: RESERVE FOR BUSINESS RESTRUCTURING OPENING BALANCE . ADDITIONS DURING THE YEAR 82,181,203 TRANSFERRED TO PROFIT AND LOSS ACCOUNT DURING 57,396,005 THE YEAR (REFER NOTE 2(B) OF SCHEDULE 21) 24,785,198 34 . IT WAS SUBMITTED THAT IN THE AUDITOR S REPORT DISCLOSURE WAS MADE REGARDING THE REVALUATION OF INVESTMENTS IN BIL AT FAIR VALUE , RECOGNITION OF THE DIFFERENCE BETWEEN THE BOOK VALUE AND FAIR VALUE OF RS. 2479 CRORES AS RESERVE FOR BUSINESS RESTRUCTURING AND UTILIZATION OF THIS RESERVE FOR WRITE OFF OF LOSSES ON TRANSFER OF TELECOM INFRA S TRUCTURE UNDERTAKING AT RS. 5739 CRORES. 3 5 . IT WAS ALSO CONTENDED THAT THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS DIRECTED THE ASSESSEE TO FURNISH DETAILS/DOCUMENTS OF THE SCHEME OF ARRANGEMENTS ENTERED INTO BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND IN RESPONSE THE ASSESSEE FILED COMPLETE 73 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. DETAILS VIDE LETTER DATED 15.11.2011 ALONGWITH THE COPY OF SCHEME OF ARRANGEMENTS SANCTIONED BY THE HON BLE D ELHI HIGH COURT AND VIDE REPLY DATED 16.11.2011, THE ASSESSEE ALSO FURNISHED CIRCLE WISE DETAILS OF ALL ASSETS WHICH WERE TRANSFERRED TO BIL UNDER THE SOA AND VIDE LETTER DATED 23.01.2012, THE ASSESSEE COMPANY DEMONSTRATED OVERALL IMPACT OF THE SCHEME OF A RRANGEMENT AND AFTER DUE PERUSAL , CONDUCTING REQUISITE ENQUIRIES AND EXAMINATION OF THE AFORESAID RECORDS , THE AO HELD THAT: (I) THE PI UNDERTAKING WAS TRANSFERRED BY THE ASSESSEE COMPANY TO ITS SUBSIDIARY COMPANY TO BIL AT NIL CONSIDERATION PURSUANT T O SOA SANCTIONED BY THE HON BLE HIGH COURT OF DELHI. (II) THE BOOK VALUE OF THE ASSETS TRANSFERRED WAS RS. 5739 CRORES. (III) THE SAID TRANSFER RESULTED IN A LOSS OF RS. 5739 CRORES WHICH WAS OF CAPITAL NATURE. (IV) THE SAID LOSS WAS NOT ALLOWABLE AS DE DUCTION FROM THE BUSINESS INCOME OF THE APPELLANT. (V) AS SUCH CAPITAL LOSS OF RS. 5739 CRORES DEBITED IN THE P & L A/C WAS REQUIRED TO BE ADDED BACK TO THE COMPUTATION OF INCOME. (VI) OUT OF THE TOTAL RESERVES FOR BUSINESS RESTRUCTURING CREATED IN PURSU ANCE OF THE SOA, AN 74 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. AMOUNT OF RS. 5739 CRORES BEING EQUAL TO THE LOSS INCURRED ON TRANSFER OF PI UNDERTAKING WAS CREDITED TO THE P & L A/C PURSUANT TO THE TERMS OF THE SOA. 3 6 . IT WAS STATED THAT THE CONCLUSIONS ARRIVED AT BY THE AO IN THE DRAFT ASSESSM ENT ORDER WERE ALSO AFFIRMED BY THE DRP VIDE DIRECTIONS DATED 30.08.2012 AND THE ITAT , DELHI BENCH VIDE ORDER DATED 11.03.2014 PARTICULARLY TOOK NOTE OF THE SOA AND ALL THE AFORESAID RECORDS OF THE ASSESSEE AND UPHELD THAT THE ASSESSEE HAD INCURRED A CAPIT AL LOSS OF RS. 5739 CRORES ON THE TRANSFER OF THE PI UNDERTAKING TO BIL AT NIL CONSIDERATION PURSUANT TO THE SOA APPROVED BY THE HON BLE DELHI HIGH COURT AND THAT THE ASSESSEE COMPANY HAD REVALUED ITS INVESTMENTS IN BIL AND RECORDED THE SAME AT ITS FAIR VA LUE OF RS. 8218 CRORES AND FURTHER WENT ON TO OBSERVE THAT THE SAID RESERVE STOOD AT RS. 2479 CRORES IN THE BALANCE SHEET OF THE ASSESSEE COMPANY AS ON 31.03.2008 AND THERE WAS NO IMPACT OF IT IN THE PROFIT AND LOSS OR TAXABLE INCOME OF THE ASSESSEE. THERE FORE, IT WAS PROVED BEYOND DOUBT THAT THE AO AFTER EXAMINING ALL THE RECORDS OF THE ASSESSEE COMPANY INCLUDING THE SOA AND AFTER DUE APPLICATION OF MIND, HELD THAT THE TRANSFER OF TELECOM INFRASTRUCTURE UNDERTAKING TO BIL AT NIL CONSIDERATION RESULTED IN C APITAL LOSS OF RS. 5739 CRORES AND THAT THE SAID 75 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. AMOUNT DEBITED IN THE PROFIT AND LOSS ACCOUNT WAS NOT ALLOWABLE AS REVENUE DEDUCTION. THUS, THE BASIC PREMISE TAKEN BY THE LD. CIT FOR INITIATION OF PROCEEDINGS U/S 263 OF THE ACT THAT THE AO FAILED TO EXAMI NE THE TAXABILITY OF THE IMPUGNED TRANSFER OF PI UNDERTAKING WAS INCORRECT AND DEVOID OF ANY MERIT, PARTICULARLY WHEN THE ISSUE HAS BEEN EXAMINED BY THE AO AND THERE WAS NO LACK OF ENQUIRY, THE LD. CIT CANNOT SET ASIDE THE ASSESSMENT MERELY BECAUSE ACCORDI NG TO HIM , THE ENQUIRIES SHOULD HAVE BEEN CONDUCTED IN A PARTICULAR MANNER OR FURTHER ENQUIRIES SHOULD HAVE BEEN CONDUCTED BY THE AO AND THAT THE LD. CIT CANNOT INITIATE PROCEEDINGS WITH A VIEW TO START FISHING AND ROVING ENQUIRIES IN MATTERS OR ORDERS WHI CH ARE ALREADY CONCLUDED. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: CIT VS GABRIAL INDI A LTD. (1993) 203 ITR 108 (BOM) RAYLON SILK MILLS V S CIT (1996) 221 ITR 155 (GUJ) CIT VS GEORGE WILLAMSON (ASSAM) LTD. (2001) 250 ITR 747 (GAU) 3 7 . IT WAS F URTHER STATED THAT THE LD. CIT CANNOT SUBSTITUTE HIS OPINION FOR THAT OF THE AO AS TO THE MANNER IN WHICH ENQUIRIES SHOULD HAVE BEEN CONDUCTED DURING THE COURSE OF ASSESSMENT AND WHEN ON A PARTICULAR ISSUE THE AO 76 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. CONDUCTED CERTAIN ENQUIRIES IN THE COURSE O F THE ASSESSMENT PROCEEDINGS, THE SAID ORDER CANNOT BE REGARDED AS ERRONEOUS SO AS TO EXERCISE REVISIONARY JURISDICTION U/S 263 OF THE ACT. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: CIT VS HERO AUTO LTD. (2012) 343 ITR 342 (DEL) CIT VS JAIN CONS TRUCTION CO. (2013) 257 CTR (RAJ.) 336 CIT - I VS AMIT CORPORATION (2012) 81 CCH 069 (GUJ.) CIT VS SUNBEAM AUTO LTD. 332 ITR 167 (DEL) CIT VS ANIL KUMAR SHARMA 335 ITR 83 (DEL) CIT VS VIKAS POLYMERS 341 ITR 537 (DEL) CIT VS INTERNATIONAL TRAVEL HOUSE 344 ITR 554 (DEL) CIT VS VODAFONE ESSAR 212 TAXMAN 184 (DEL) 38 . IT WAS FURTHER STATED THAT THE PROCEEDINGS INITIATED BY THE LD. CIT U/S 263 OF THE ACT WERE MERE A CHANGE OF OPINION AS REGARDS TO TAX IMPLICATION OF TRANSACTION OF TRANSFER OF PASSIVE TELECOM I NFRASTRUCTURE . AS SUCH THERE WAS NO JUSTIFICATION IN ASSUMING REVISIONARY JURISDICTION U/S 263 OF THE ACT FOR THE PURPOSE OF SUBSTITUTING THE VIEW OF THE AO WITH THE VIEW OF THE LD. CIT IN AS MUCH AS THE SAME TRANSACTION OF TRANSFER OF PI UNDERTAKING RESU LTING IN A CAPITAL LOSS WAS ALLEGED TO HAVE RESULTED IN CAPITAL GAINS OF RS. 2479 CRORES TO THE ASSESSEE BY THE LD. CIT. IT WAS STATED 77 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. THAT THE LD. CIT ACTED ON MERE SUSPICION DOUBTING THE INTENTIONS/MOTIVE OF THE ASSESSEE BEHIND TRANSACTIONS CARRIED OUT P URSUANT TO THE SOA APPROVED BY THE HON BLE DELHI HIGH COURT, H E FAILED TO POINT OUT ANY ERROR IN THE ORDER PASSED BY THE AO U/S 143(3) R.W.S. 144C(13) OF THE ACT AND THE LD. CIT FAILED TO PROVE THAT SUCH ORDER WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE . IT WAS FURTHER STATED THAT THE LD. CIT PASSED A CONFUSING ORDER DIRECTING THE AO TO CONDUCT FURTHER ENQUIRY AND RE - EXAMINE THE MATTER TO DETERMINE WHETHER THE IMPUGNED TRANSACTION RESULTED IN CAPITAL GAINS U/S 45 OR WHETHER THE SAME WAS ASSESSABLE AS PRO FIT AND GAINS FROM BUSINESS OR PROFESSION U/S 28 OF THE ACT. HE ALSO DIRECTED THE AO TO EXAMINE THE IMPACT OF THE IMPUGNED TRANSACTION UNDER VARIOUS OTHER SECTIONS OF THE ACT. THEREFORE, IT WAS CLEAR THAT THE LD. CIT HIMSELF FAILED TO ARRIVE AT A DEFINITE CONCLUSION AND FORM AN OPINION REGARDING THE TAX IMPLICATION OF THE IMPUGNED TRANSACTIONS. IT WAS CONTENDED THAT THE MATTER WHICH HAS ALREADY BEEN CONCLUDED UNDER THE LAW CANNOT BE RE - EXAMINE D . THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: 78 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. CIT VS IN TERNATIONAL TRAVEL HOUSE LTD. (2012) 344 ITR 554 (DEL.) CIT VS HOTZ INDUSTRIES LTD. (2014) 89 CCH 192 (DEL) CIT VS GABRIAL INDIA LTD. (1993) 203 ITR 108 (BOM) SIRPUR PAPER MILLS LTD. VS ITO (1978) 114 ITR 404 (AP) CIT VS TRUSTEES ANUPAM CHARITABLE TRUST (1 987) 167 ITR 129 (RAJ.) 39 . T HE LD. COUNSEL FOR THE ASSESSEE ANALYZED THE CASE OF THE ASSESSEE VIS - - VIS THE CRUX OF AFORESAID RULING S AS UNDER: (I) IN THE INSTANT CASE, THERE WAS NO MATERIAL WHATSOEVER TO PROVE THAT THE ORDER PASSED U/S 143(3) R.W.S. 1 44C(13) WAS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. (II) PROCEEDINGS U/S 263 WERE INITIATED WITH A VIEW TO START FISHING AND ROVING ENQUIRIES AND RE - EXAMINE THE TRANSACTIONS PERTAINING TO TRANSFER OF PI UNDERTAKING, ALREADY CONSIDERED BY THE AO, THE DRP AND FINALLY BY THE HON BLE TRIBUNAL. THE SAID TRANSFER EFFECTED FOR NIL CONSIDERATION AND RESULTING IN A LOSS OF RS. 5739 CRORES TO THE APPELLANT COMPANY WAS ALLEGED BY THE CIT TO HAVE BEEN EFFECTED FOR A CONSIDERATION OF RS. 8218 CRORES RESULTING IN A CAPITAL GAIN OF RS. 2479 CRORES. THE AO WAS DIRECTED TO RE - EXAMINE THE MATTER AND VERIFY THE TAXABILITY OF THE TRANSFER OF PI UNDERTAKING U/S 45 AND U/S 28(IV) AND ALSO RESULTANT EFFECT U/S 50 AND 43(6) OF THE ACT. THUS CIT ACTED ON MERE SUS PICION AND FAILED TO PROVE THAT THE ORDER OF 79 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. THE AO WAS ERRONEOUS IN SO FAR AS BEING PREJUDICIAL TO THE INTEREST OF THE REVENUE. (III) THE CIT HIMSELF FAILED TO COME TO A DEFINITE CONCLUSION AS TO WHETHER THE SO - CALLED PROFIT BEING NOTIONAL BOOK ENTRY OF RS. 2479 CRORES WAS TAXABLE AS CAPITAL GAINS OR WHETHER THE SAME WAS ASSESSABLE AS BUSINESS INCOME TAXABLE U/S 28. THEREFORE, EVEN THE NATURE OF THE ALLEGED GAINS, WHICH WAS ACTUALLY HYPOTHETICAL INCOME ARISING FROM NOTIONAL BOOK ENTRIES, WAS NOT CLEAR TO THE LD. CIT. SUCH AN ACTION ON THE PART OF THE CIT WAS UNWARRANTED AND BAD - IN - LAW. (IV) ON ACCOUNT OF REASONS ELABORATED SUPRA, IT IS A CLEAR CASE OF SUBSTITUTION OF THE JUDGMENT OF THE CIT FOR THAT OF THE AO WITHOUT PROVING THAT THE ASSESSMENT ORDER WAS ERRONEOUS IN SO FAR AS BEING PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THIS AGAIN RENDERS THE PROCEEDINGS U/S 263 UNLAWFUL AND VOID. (V) THE AO AFTER EXERCISING THE QUAS I - JUDICIAL POWER VESTED IN HIM IN ACCORDANCE WITH LAW AND AFTER EXAMINATION OF RECO RDS OF THE ASSESSEE ARRIVED AT A CONCLUSION THAT THE IMPUGNED TRANSFER RESULTED IN A CAPITAL LOSS OF RS. 5739 CRORES TO THE APPELLANT COMPANY. THE SAID VIEW WAS ALSO UPHELD BY THE HON BLE DRP AND SUBSEQUENTLY BY THE HON BLE ITAT. SUCH A CONCLUSION COULD NO T BE CONSIDERED AS ERRONEOUS MERELY BECAUSE THE CIT WAS NOT SATISFIED WITH THE CONCLUSION ARRIVED AT BY THE AO. THE LD. CIT SOUGHT TO REVISE THE ASSESSMENT ON THE BASIS OF REAPPRAISAL OF THE SAME SET OF DOCUMENTS SUBMITTED 80 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. AT THE TIME OF ASSESSMENT PROCEED INGS BY TAKING A COMPLETELY DIFFERENT VIEW IN RESPECT OF THE VERY SAME TRANSACTION. (VI) THUS, CIT WAS NOT PERMITTED UNDER THE LAW TO DIRECT FRESH ASSESSMENT ON THE IMPUGNED ISSUE MERELY BECAUSE HE ENTERTAINED A DIFFERENT VIEW ON THE GIVEN FACTS AND DREW A DIFFERENT INFERENCE CONTRARY TO THAT OF THE AO FROM THE FACTS AND CIRCUMSTANCES OF THE CASE. (VII) THE AO AND DRP, IN COURSE OF FRAMING OF ASSESSMENT, HAD ACCESS TO ALL RECORDS OF ASSESSEE AND AFTER PERUSING SUCH RECORD, THE DRP ISSUED ITS DIRECTION AND THE AO FRAMED ASSESSMENT PURSUANT TO SUCH DIRECTIONS. SUCH AN ASSESSMENT COULD NOT BE REOPENED IN EXERCISE OF REVISIONARY POWERS U/S 263 FOR MAKING FRESH INQUIRIES. THE ERROR ENVISAGED BY S. 263 IS NOT ONE WHICH DEPENDS ON POSSIBILITY OR GUESSWORK BUT IT SHOULD BE ACTUALLY AN ERROR EITHER OF FACT OR OF LAW. THE CIT FAILED TO CONCLUSIVELY PROVE ANY SUCH ERROR EITHER OF FACT OR OF LAW IN THE ORDER PROPOSED TO BE REVISED BY HIM. 40 . IT WAS ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD. CIT U/S 263 OF THE A CT DESERVES TO BE QUASHED. AS REGARDS TO THE ADDITION S PROPOSED BY THE LD. CIT ON MERIT S . THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SECTION 45 OF THE ACT BRINGS TO CHARGE ANY PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET UNDER THE HEA D CAPITAL GAINS AND THE MODE OF COMPUTATION OF CAPITAL GAINS IS CONTAINED U/S 48 81 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. OF THE ACT. THEREFORE, IN THE PROCESS OF COMPUTATION OF CAPITAL GAINS, THE FIRST ITEM TO BE CONSIDERED IS FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING TO THE ASSESSEE AND FROM THE SAID VALUE, THE DEDUCTIONS SPECIFIED IN SECTION 48 OF THE ACT ARE TO BE MADE FOR ASCERTAINING CAPITAL GAINS. A REFERENCE WAS MADE TO THE FOLLOWING CASE LAWS: CIT VS GEORGE HENDERSON & C O. LTD. (1967) 66 ITR 622 (SC) CIT VS GILLANDERS ARBUTHNOT & CO. (1973) 87 ITR 407 (SC) CIT VS B. M. KHARWAR (1969) 72 ITR 603 (SC) CIT VS MOTORS & GENERAL STORES (P) LTD. (1967) 66 ITR 692 (SC) CIT VS SMT. NILOFER I. SINGH (2009) 309 ITR 233 (DEL.) K. P. VERGHESE VS ITO 131 ITR 597 (SC) 41 . IT WAS FURTHER SUBMITTE D THAT THE TERMINOLOGY FULL VALUE OF CONSIDERATION USED IN SECTION 48 OF THE ACT DOES NOT HAVE ANY REFERENCE TO THE MARKET VALUE OF ASSETS TRANSFERRED BUT IT IS THE CONSIDERATION IN THE FORM OF MONEY S WORTH THAT THE TRANSFEROR RECEIVES IN LIEU OF THE AS SET HE PARTS WITH. IT WAS STATED THAT THE VIEW OF THE LD. CIT THAT THE FAIR VALUE OF THE ASSETS TRANSFERRED I.E. RS. 8218 CRORES WAS TO BE TAKEN AS THE CONSIDERATION FOR TRANSFER OF SUCH ASSETS GOES COMPLETELY AGAINST THE CLEAR VERDICT OF THE 82 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. HON BLE APEX COURT. IT WAS FURTHER STATED THAT THE HON BLE SUPREME COURT IN THE CASE OF CIT VS GEORGE HENDERSON & CO. LTD. (SUPRA) APTLY POINTED OUT THAT THE LEGISLATURE ITSELF MADE DISTINCTION BETWEEN THE TWO EXPRESSIONS FULL VALUE OF THE CONSIDERATION AND FAIR MAR KET VALUE OF THE CAPITAL ASSET TRANSFERRED AND THE MARKET VALUE OF THE ASSET TRANSFERRED , THOUGH NOT EQUIVALENT TO THE FULL VALUE OF THE CONSIDERATION FOR THE TRANSFER MAY BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION ONLY IN SPECIFIED CIRCUMSTANCE S ON SATISFACTION OF SPECIFIED CONDITIONS. IT WAS STATED THAT FOR IMPOSING CHARGE ON THE CAPITAL GAIN LEGISLATURE HAS INDICATED DETAILED PROVISIONS IN ORDER TO COMPUTE PROFITS OR GAINS UNDER THE HEAD CAPITAL GAINS. HOWEVER, IF , FOR SOME REASON COMPUTATION U/S 48 OF THE ACT IS NOT POSSIBLE, THEN THE CHARGE U/S 45 OF THE ACT FAILS BECAUSE IT CANNOT BE EFFECTUATED. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: CIT VS B. C. SRINIVASA SHETTY (1981) 128 ITR 294 ACIT VS GLAD INVESTMENTS (P) LTD. 102 ITD 227 CIT VS MOHANBHAI PAMABHAI 91 ITR 393 42 . IT WAS SUBMITTED THAT IN THE INSTANT CASE , SINCE NO CONSIDERATION WAS PAYABLE BY BIL TO THE ASSESSEE COMPANY 83 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. FOR TRANSFER OF PI UNDERTAKING, NO CAPITAL GAINS AROSE ON SUCH TRANSFER AND IT HAS ALSO BEEN CONSISTENTL Y RULED BY THE HON BLE SUPREME COURT THAT THE FAIR VALUE OF TRANSFERRED UNDERTAKING CANNOT BE PRESUMED TO BE THE FULL VALUE OF CONSIDERATION FOR THE PURPOSE OF SECTION 48 OF THE ACT AND CONSEQUENTLY IN THE INSTANT CASE, THE DIFFERENCE BETWEEN THE FAIR VA LUE AND BOOK VALUE OF THE TRANSFERRED ASSETS CANNOT BE HELD TO BE CAPITAL GAINS EXIGIBLE TO TAX U/S 45 OF THE ACT AS ALLEGED BY THE LD. CIT. ACCORDINGLY, IT WAS SUBMITTED THAT THE VIEW TAKEN BY THE LD. CIT WAS CONTRARY TO THE JUDGMENTS RENDERED BY THE HON BLE SUPREME COURT. THEREFORE, THE VERY REASONING ADVANCED BY THE LD. CIT FOR ASSUMING JURISDICTION U/S 263 OF THE ACT I.E. THE ASSESSEE BEING TAXABLE U/S 45 OF THE ACT ON THE DIFFERENCE BETWEEN THE FAIR VALUE AND BOOK VALUE OF THE ASSETS TRANSFERRED HAS NO LEGS TO STAND. IT WAS FURTHER STATED THAT THE REVALUATION OF INVESTMENTS OF BIL WAS ONLY A NOTIONAL A DJUSTMENT MADE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY IN ORDER TO COMPLY WITH THE STATUTORY REQUIREMENTS OF THE MANDATE OF THE SOA APPROVED BY TH E HON BLE DELHI HIGH COURT. IT WAS STATED THAT BY NO STRETCH OF IMAGINATION CAN IT BE DEEMED TO BE CONSIDERATION RECEIVED FROM THE TRANSFEREE COMPANY IN LIEU OF ASSETS TRANSFERRED TO IT BY THE ASSESSEE COMPANY. THEREFORE, THE 84 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. RESERVE CONSEQUENTLY CREATED W AS NOT IN THE NATURE REALIZED PROFITS BUT MERELY UNREALIZED NOTIONAL CREDIT CREATED IN THE BOOKS OF ACCOUNT AS PER THE DIKTAT OF THE HON BLE HIGH COURT. IT WAS STATED THAT THE MARKET VALUE OF THE INVESTMENT CONTINUES TO VARY WITH THE MARKET FORCES BUT THE TAXABILITY OF CAPITAL GAIN/LOSS DOES NOT ARISE WITH EVERY SUCH FLUCTUATION AND IT WAS ONLY WHEN THE INVESTMENT WAS ACTUALLY SOLD/TRANSFERRED THAT THE VALUE OF SUCH INVESTMENT WOULD CRYSTALLIZE AND HAVE RELEVANCE FOR THE PURPOSE OF COMPUTATION OF CAPITAL GA INS U/S 45 OF THE ACT BUT ANY PRIOR FLUCTUATION IN THE BOOKS OF ACCOUNT WOULD HAVE NO RELEVANCE FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS/LOSS. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: SHINHAN BANK VS DCIT (INTERNATIONAL TAXATION) (2012) 54 SOT 140 (MUM.) SMT. GEETA DEVI VS ITO (2000) 68 TTJ (JD) 729 INDIAN OVERSEAS BANK VS CIT (1990) 183 ITR 200 (MAD) CIT VS SHOORJI VALLABHDAS & CO. (1962) 46 ITR 144 (SC) GODHRA ELECTRICITY CO. LTD. VS CIT (1997) 225 ITR 746 (SC) UCO BANK VS CIT 237 ITR 8 89 KESHKAL CO - OPERATIVE MARKETING SOCIETY LTD. VS CIT (1987) 165 ITR 437 (MP) CIT VS BIRLA GWALIOR (P) LTD. 89 ITR 266 (SC) 85 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. CIT VS A. RAMAN & CO. 67 ITR 11 (SC) POONA ELECTRICITY SUPPLY CO. LTD. VS CIT 57 ITR 521 (SC) 43 . IT WAS FURTHER STATED THAT THE AC COUNTING ENTRIES ARE NOT DETERMINATIVE OF THE TAXABILITY OF ANY CLAIM OF INCOME OR DEDUCTIBILITY OF EXPENDITURE. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: KEDARNATH JUTE MANUFACTURING CO. LTD. VS CIT 82 ITR 363 (SC) CIT VS INDIA DISCOUNT CO. LTD . 75 ITR 191 (SC) PULLANGODE RUBBER PRODUCE CO. LTD. VS STATE OF KERALA & ANR. (1973) 91 ITR 18 (SC) SUTLEJ COTTON LTD. VS CIT 116 ITR 1 (SC) 44 . IT WAS FURTHER STATED THAT THE LD. CIT ALLEGED THAT THE ASSE SSEE HAD NOT DISCLOSED THE FULL AND TRUE INTENTIO N IN THE SOA APPROVED BY THE HON BLE DELHI HIGH COURT FOR THE FOLLOWING REASONS: (I) TILL THE TIME OF TAKING APPROVAL OF SOA BY THE HON BLE HIGH COURT, THE TRANSFEROR COMPANY KEPT THE STATUS OF ITS SUBSIDIARY AS 100% SUBSIDIARY, BUT SOON AFTER THE APPROV AL AFTER THE TRANSFER OF ASSETS ON 31.01.2008, IN THE SAME FINANCIAL YEAR ITSELF, THROUGH PRIVATE PLACEMENTS, SHARES AND COMPULSORY CONVERTIBLE DEBENTURES WERE ISSUED TO FOREIGN INVESTORS BY BIL AT HUGE PREMIUM IN MARCH 2008. 86 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. (II) THE TRANSFEROR COMPANY I N ITS SOA HAD ALLEGEDLY INCORRECTLY SUBMITTED THAT NO SHARES WERE TO BE ISSUED BECAUSE IN THE NEXT FINANCIAL YEAR ITSELF BONUS SHARES TOTALING TO 49,99,50,000 HAD BEEN ISSUED TO THE TRANSFEROR COMPANY BY THE TRANSFEREE COMPANY. (III) THE PASSIVE INFRASTRU CTURE TRANSFERRED BY THE TRANSFEROR COMPANY WERE TO BE MANAGED AND OPERATED BY INDUS INFRATEL LTD., A JOINT VENTURE COMPANY, AND NOT EVEN FOR A SINGLE DAY TO BE HANDLED BY BIL AS PER THE SHAREHOLDER S AGREEMENT. FURTHER, THE SHAREHOLDER S AGREEMENT DISCLOS ED THE INTENTION OF THE TRANSFEROR COMPANY THAT A JOINT VENTURE COMPANY IN THE NAME OF INDUS INFRATEL LTD. WAS TO BE CREATED IN WHICH THE PASSIVE INFRASTRUCTURE OF THE TRANSFEROR COMPANY WAS TO ULTIMATELY REACH THROUGH INTERMEDIARIES I.E. BIL AND BHARTI IN FRATEL VENTURES LTD. THIS WAS APPARENTLY AGAINST THE SOA WHEREIN IT WAS SUBMITTED THAT THE TRANSFER OF ASSETS DID NOT INVOLVE ANY MOVEMENT OF ASSETS OR LIABILITIES TO ANY COMPANY OUTSIDE THE GROUP. (IV) THE TRANSFEROR COMPANY, IN THE SOA, HAD APPARENTLY S UBMITTED THAT THE DIFFERENCE BETWEEN THE BOOK VALUE OF INVESTMENTS AND FAIR VALUE OF INVESTMENTS WOULD BE WITHDRAWN FROM THE RESERVE AND CREDITED IN THE P & L A/C FOR THE QUARTER IN WHICH THE SCHEME BECAME EFFECTIVE, HOWEVER NO SUCH AMOUNT HAD BEEN CREDITE D BY THE COMPANY IN P & L A/C OF THE MARCH QUARTER (2008). 45 . IT WAS CONTENDED THAT ON THE BASIS OF THE ABOVE, THE LD. C IT DIRECTED THE AO TO CONDUCT FURTHER ENQUIRY AND 87 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. INVESTIGATION INTO THE IMPUGNED TRANSACTION AND PIERCE THE CORPORATE VEIL TO DETE RMINE THE REAL NATURE OF THE TRANSACTIONS. IT WAS FURTHER CONTENDED THAT THE ASSESSEE DID NOT IN ANY MANNER WHATSOEVER MISREPRESENT ED FACT BEFORE THE HON BLE HIGH COURT AND THE TRANSACTIONS WERE CARRIED OUT IN ACCORDANCE WITH AND PURSUANT TO THE SCHEME SAN CTIONED BY THE HON BLE HIGH COURT. THE SCHEME WAS INTENDED TO RESTRUCTURE WITHIN THE GROUP OF COMPANIES CONTROLLED BY THE TRANSFEROR COMPANY AND T HE HOLDING OF THE TELECOM INFRASTRUCTURE U NDERTAKING IN A MORE EFFICIENT MANNER CONSISTENT WITH THE DIVERSE NE EDS OF THE BUSINESS, FOR THAT PURPOSE BIL WAS INCORPORATE D AS A WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE COMPANY WITH A VIEW TO VEST IN IT THE PASSIVE TELECOM INFRASTRUCTURE OF THE GROUP. IT WAS POINTED OUT THAT DURING THE RELEVANT PREVIOUS YEAR ONLY 3 , 875 SHARES OF BIL WERE ISSUED TO THIRD PARTIES WHEREAS THE ASSESSEE CONTINUED TO HOLD 50,000 SHARES (ACCOUNTING FOR ALMOST 93% OF THE TOTAL SHARES OF THAT COMPANY ) . THUS, THE ASSESSEE CONTINUED TO HAVE CONTROLLING INTEREST OVER THE BIL AND CONSEQUENTLY OVER TH E IMPUGNED PASSIVE TELECOM INFRASTRUCTURE TRANSFERRED WITH THE SAID COMPANY AND THE FACT THAT BIL WAS CONTEMPLATING TO INDUCT STRATEGIC PARTNERS WAS DULY DISCLOSED BEFORE THE HON BLE HIGH COURT EVEN BEFORE 88 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. THE SCHEME WAS SANCTIONED . IT WAS POINTED OUT THAT OUT OF THE 23 CIRCLES OF WHICH PASSIVE TELECOM INFRASTRUCTURE WAS TRANSFERRED BY THE ASSESSEE COMPANY TO BIL UNDER THE SOA, ONLY 12 CIRCLES WERE MANAGED BY M/S INDUS INFRATEL LTD. AND THE BALANCE 11 CIRCLES CONTINUED TO BE MANAGED BY M/S BIL. THUS, T HE AL LEGATION OF THE LD. CIT THAT THE PASSIVE INFRASTRUCTURE WAS NOT HANDLED/MANAGED BY BIL EVEN FOR THE SINGLE DAY WAS FACTUALLY INCORRECT. IT WAS FURTHER STATED THAT THE ASSESSEE INCURRED A CAPITAL LOSS OF RS. 5739 CRORES ON ACCOUNT OF THE TRANSFER OF PI UNDE RTAKING AND SUO - MOTU ADDED BACK THE SAME TO THE TAXABLE INCOME, THEREFORE, NO TAX BENEFIT WAS CLAIMED BY THE ASSESSEE IN PURSUANCE TO THE SAID SCHEME IN THE FORM OF EXEMPTION/DEDUCTION UNDER THE ACT. THE LD. COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE ISSU ANCE OF BONUS SHARES BY BIL HAD NO CONNECTION WHATSOEVER WITH THE TRANSFER OF PI UNDERTAKING WHICH IS ALSO FORTIFIED BY THE FACT THAT THE FAIR VALUE OF ASSETS TRANSFERRED AND THE AMOUNT OF BONUS SHARES HAD NO CORRELATION. IT WAS SUBMITTED THAT THE BONUS SH ARES WERE NOT ISSUED IN PURSUANCE OF THE SCHEME OF REORGANIZATION, T HEREFORE, THE ISSUE OF BONUS SHARES WAS A SEPARATE AND INDEPENDENT ACT DEHORS THE TRANSFER OF PI UNDERTAKING. IT WAS CONTENDED THAT IN THE PRESENT CASE, THE ISSUE OF BONUS SHARES ONLY RESU LTED IN THE INCREASE IN CAPITAL 89 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. BASE OF BIL AND CONSEQUENT REDUCTION IN RESERVES WITHOUT ANY CHANGE IN THE HOLDING RATIO. THEREFORE, THE ACTION OF THE LD. CIT CORRELATING THE ISSUE OF BONUS SHARES BY THE TRANSFEREE COMPANY IN THE SUBSEQUENT YEAR WITH THE S O - CALLED CONSIDERATION FOR TRANSFER OF THE PI UNDERTAKING IN THE PREVIOUS YEAR IS WHOLLY ERRONEOUS, ILLOGICAL AND UNWARRANTED. AS REGARDS TO THE OBSERVATION OF THE LD. CIT THAT THE BALANCE OF RS. 2479 CRORES STANDING TO THE CREDIT OF BUSINESS RESTRUCTURI NG RESERVES AT THE YEAR END, BEING THE DIFFERENCE IN THE FAIR VALUE AND BOOK VALUE OF INVESTMENTS HAD TO BE COMPULSORILY WITHDRAWN FROM RESERVE AND CREDITED TO THE P & L A/C OF THE ASSESSEE IN THE QUARTER IN WH ICH THE SCHEME BECAME EFFECTIVE. T HE LD. COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE SAID ALLEGATION WAS MISPLACED AND HAS ARISEN FROM A FRIVOLOUS AND IMPROPER READING OF THE SOA. IT WAS CONTENDED THAT THE ACCOUNTING TREATMENT IN THE BOOKS OF THE ASSESSEE WAS FULLY IN ACCORDANCE WITH THE TERMS OF THE SCHEME AND THERE WAS NO REQUIREMENT TO WITHDRAW THE ENTIRE AMOUNT OF RESERVES IN THE YEAR UNDER CONSIDERATION. CONSEQUENTLY, THERE WAS NO VIOLATION OF THE TERMS OF THE SCHEME WHICH HAS ALSO BEEN CERTIFIED BY THE AUDITORS WHO OBSERVED THAT THE BOOKS OF THE ASSESSEE COMPANY HAVE BEEN DRAWN IN COMPLIANCE WITH THE TERMS OF THE SCHEME OF 90 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. ARRANGEMENT SANCTIONED BY THE HON BLE DELHI HIGH COURT AND THERE IS NO IMPACT OF IT IN THE P & L A/C. THEREFORE, THE OBSERVATION OF THE LD. CIT THAT THE ASSESSEE COMPANY FAILED TO COMPLY WITH THE TERMS OF THE SCHEME WAS MISPLACED AND FACTUALLY INCORRECT. ACCORDINGLY, IT WAS SUBMITTED THAT THERE WAS NO CONCEALMENT OR MISREPRESENTATION OF THE FACTS BEFORE THE HON BLE HIGH COURT. IT WAS FURTHER STATED THAT THE LD. CIT IN THE ADDITIO NAL SHOW CAUSE NOTICE DATED 27.03.2014 ASKED THE ASSESSEE TO SUBMIT AS TO WHY THE ASSESSMENT ORDER DATED 30.10.2012 PASSED BY THE AO MAY NOT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON ONE MORE GROUND THAT THE AO FAILED TO CON DUCT ENQUIRY OF RECORDS TO ASCERTAIN AS TO WHETHER THE AMOUNT OF RS. 2479 CRORES REPRESENTING THE INCREASE IN THE BALANCE SHEET OF THE ASSESSEE ONLY DUE TO TRANSFER OF PASSIVE INFRASTRUCTURE ASSETS UNDER REFERENCE TO BIL WAS TAXABLE AS ITS INCOME FOR THE A SSESSMENT YEAR 2008 - 09 AS PER THE PROVISIONS OF SECTION 28(IV) OF THE ACT OR NOT. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SECTION 28(IV) OF THE ACT POSTULATES FOLLOWING PRECONDITIONS TO BE SATISFIED: (A) THERE SHOULD BE A NON - MONE TARY BENEFIT OR PERQUISITE ACCRUING TO THE ASSESSEE; AND 91 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. (B) SUCH BENEFIT OR PERQUISITE SHOULD ARISE FROM THE BUSINESS OR EXERCISE OF A PROFESSION. 4 6 . IT WAS SUBMITTED THAT THE VIEW OF THE LD. CIT WAS BASED ON MERE CHANGE OF OPINION AS THE VERY SAME TRANSACTION OF TRANSFER OF PI UNDERTAKING WHICH WAS HELD BY THE AO TO BE IN THE NATURE OF CAPITAL TRANSACTION RESULTING INTO A CAPITAL LOSS TO THE ASSESSEE WAS BEING ALLEGED TO BE IN THE NATURE OF R EVENUE RECEIPT BY THE LD. CIT RESULTING IN BUSINES S INCOME U/S 28 OF THE ACT AND SUCH AN ACTION IS NOT PERMISSIBLE U/S 263 OF THE ACT. IT WAS FURTHER SUBMITTED THAT THE FACT THAT THE IMPUGNED BALANCE OF RS. 2479 CRORES STANDING TO THE CREDIT OF THE RESERVE FOR BUSINESS RESTRUCTURING ACCOUNT AS AT 31.03.20 08 HAS NO TAX IMPLICATION HAS BEEN UPHELD BY THE ITAT, DELHI BENC H VIDE ORDER DATED 11.03.2008 , A REFERENCE WAS MADE TO PAGE NO. 408 OF THE ASSESSEE S PAPER BOOK FOR THE AFORESAID CONTENTION. IT WAS SUBMITTED THAT FINDING OF THE FACT GIVEN BY THE ITAT ON T HE IMPUGNED ISSUE WAS FINAL AND IRREFUTABLE AND THE SAID AMOUNT OF RS. 2479 CRORES WAS A PART OF RS. 8218 CRORES ORIGINALLY CREDITED TO REVALUATION RESERVE WHICH HAD BEEN SPECIFICALLY HELD TO BE IN THE NATURE OF ADJUSTMENT/NOTIONAL ENTRY AS PER THE RATIO L AID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF INDO RAMA SYNTHETICS (I) LTD. VS CIT (2011) 330 ITR 363. 92 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. ACCORDINGLY, IT WAS SUBMITTED THAT THE SAID TRANSACTION DID NOT FALL WITHIN THE MISCHIEF O F SECTION 28(IV) OF THE ACT AS NO BENEFIT WAS ACCRUING T O THE ASSESSEE PURSUANT TO UPWARD REVALUATION OF INVESTMENTS IN BIL AND A NOTIONAL BOOK ENTRY CANNOT BE TREATED AS INCOME FOR THE PURPOSE OF SECTION 28(IV) OF THE ACT. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: CIT VS EXCEL INDUSTRIES LTD. (2013) 358 ITR 295 (SC) CIT VS WOLKEM PVT. LTD. (1997) 228 ITR 129 (RAJ.) ITO VS SHREYANS INVESTMENTS (P) LTD. ITA NO. 1485 OF 2011 (KOL TRI) ITO VS KYAL DEVELOPERS (P) LTD., ITA NO. 627 OF 2012 (KOL TRI) 4 7 . THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT T HE ANOTHER GROUND TAKEN UP BY THE LD. CIT FOR INITIATING THE PROCEEDINGS U/S 263 OF THE ACT WAS THAT THE AO HAD ALLEGEDLY FAILED TO EXAMINE THE ALLOWABILITY OF THE EXPENDITURE CLAIMED BY THE ASSESSEE COMPANY FOR THE USES OF ITS TRANSFERRED ASSETS TO ITS SU BSIDIARY COMPANY CONTRARY TO THE ASSESSEE COMPANY HAVING A NON - EXCLUSIVE RIGHT TO USE OF ITS TRANSFERRED ASSETS TO BIL WITHOUT ANY OBLIGATION TO PAY OR ON PAYMENT OF SUCH CHARGES AS MAY BE REASONABLE AND ACCEPTABLE TO BOTH THE ASSESSEE AND THE TRANSFEREE 93 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. C OMPANY AS PER THE SOA APPROVED BY THE HON BLE HIGH COURT. IT WAS STATED THAT THE LD. CIT ALLEGED THAT THE AO HAD NOT EXAMINED THE ALLOWABILITY OF SUCH EXPENDITURE INCURRED BY THE ASSESSEE AT MARKET RATE, THEREFORE, THE ASSESSMENT ORDER DATED 30.10.2012 PAS SED U/S 143(3) OF THE ACT ALLOWING SUCH DEDUCTION OF EXPENSES WAS NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT WAS POINTED OUT THAT THE LD. CIT HAD NOTED THAT THE ASSESSEE HAD PAID TO THE TRANSFEREE COMPANY, CHARGES AT MARKET RATE FOR USE OF ASSETS TRANSFERRED BY IT TO THE TRANSFEREE COMPANY. HOWEVER, AT POINT NO. (VIII) OF THE SOA, IT HAD BEEN STATED THAT THE ASSESSEE COMPANY HAD NON - EXCLUSIVE RIGHT TO USE THE TELECOM INFRASTRUCTURE FOR THE PURPOSE OF ITS BUSINESS WITHOUT ANY OBLIGATION TO PAY FOR THE SAME ON PAYMENT OF SUCH CHARGES AS MAY BE REASONABLE AND ACCEPTABLE . IT WAS FURTHER STATED THAT THE LD. CIT ALLEGED THAT THE AO HAD NOT EXAMINED THIS ISSUE WHICH RENDERED THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTER EST OF THE REVENUE. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE LD. CIT FAILED UTTERLY IN PROVING THAT THE ORDER OF THE AO ALLOWING SUCH EXPENDITURE WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THAT THE LD. CIT WAS REQUIRED TO PROV E THAT (I) EITHER THE IMPUGNED EXPENSES CLAIMED TO HAVE 94 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. BEEN PAID BY THE ASSESSEE WERE IN FACT NOT PAID OR PAID AT A RATE DIFFERENT FROM THE CLAIM MADE BY THE ASSESSEE (II) OR THAT THE IMPUGNED EXPENSES CLAIMED AS ALLOWABLE WERE ACTUALLY NOT ALLOWABLE AS D EDUCTION FROM THE BUSINESS INCOME , HOWEVER, THE LD. CIT FAILED TO PROVE ANY SUCH ERROR IN THE CLAIM OF THE ASSESSEE AND ACTED MERELY ON SUSPICION AND GUESSWORK BUT FAILED TO BRING OUT ANY ERROR EITHER OF FACT OR OF LAW IN THE ASSESSMENT ORDER PASSED BY THE AO FOR ALLOWING SUCH EXPENDITURE. IT WAS FURTHER STATED THAT THE AO COULD NOT BE PRESUMED TO HAVE NOT EXAMINED THE MATTER MERELY BECAUSE THERE IS NO SEPARATE DISCUSSION IN THE ASSESSMENT ORDER IN THIS REGARD. IT WAS STATED THAT THE SOA, AUDITED ACCOUNTS, TAX AUDIT REPORT AND DOCUMENTS IN RELATION TO THE CLAIM OF SUCH EXPENSES WERE BEFORE THE AO, SO IT CANNOT BE SAID THAT HE HAD NOT EXAMINED THE ASSESSEE S CLAIM IN RESPECT OF SUCH EXPENDITURE AND SINCE THE AO APPLIED HIS MIND TO THE AFORESAID MATERIALS IN S UPPORT OF THE ASSESSEE S CLAIM AND THE PAYMENT OF THE IMPUGNED CHARGES AT MARKET RATE WAS FOUND TO BE IN ORDER BY THE AO, THEREFORE, THE LD. CIT WAS NOT JUSTIFIED TO CONCLUDE THAT THE INCOME HAD ESCAPED ASSESSMENT WHICH NEED TO BE REOPENED. THE RELIANCE WA S PLACED ON THE FOLLOWING CASE LAWS: 95 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. HARI IRON TRADING CO. VS CIT 263 ITR 437 (P&H) CIT VS EICHER LTD. 294 ITR 310 (DEL.) 4 8 . THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS PER THE TERMS OF THE SOA, THE ASSESSEE WAS ALLOWED TO USE THE TELECOM INFRAST RUCTURE ON PAYMENT OF REASONABLE CHARGES BUT THE LD. CIT FAILED TO APPRECIATE THAT THERE WAS NO EMBARGO IN TERMS OF THE SCHEME PROHIBITING THE ASSESSEE FROM MAKING PAYMENT TO BIL FOR USAGE OF TELECOM INFRASTRUCTURE. IT WAS CONTENDED THAT UNDER THE TAXING S YSTEM, IT IS UP TO THE ASSESSEE TO CONDUCT BUSINESS IN HIS WISDOM AND THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARMCHAIR OF THE BUSINESSMAN OR JUDGE HOW BUSINESS SHOULD BE CONDUCTED AND THAT NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS P ROFITS. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: S. A. BUILDERS LTD. VS CIT(A) & ANR (2007) 288 ITR 1 (SC) D. S. BIST & SONS VS CIT (1984) 149 ITR 276 (DEL) CIT VS GABRIAL INDIA LTD. (1993) 203 ITR 108 (BOM) CIT VS HOTZ INDUSTRIES LTD. (2014) 8 9 CCH 192 (DEL) CIT - I VS AMIT CORPORATION (2012) 81 CCH 069 (GUJ) CIT VS BHARAT ALUMINIUM CO. LTD. (2007) 212 CTR (DEL) 296 96 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. 49 . IT WAS STATED THAT THE LD. CIT FAILED TO PROVE HOW THE CLAIM OF THE ASSESSEE OF HAVING PAID CHARGES AT MARKET RATE WHICH WAS MU TUALLY ACCEPTED BY THE PARTIES AND AS PER THE SOA WAS INCORRECT AND DISALLOWABLE UNDER THE ACT AND HOW PAYMENT OF SUCH CHARGES AT MARKET RATE BY THE ASSESSEE MADE THE ASSESSMENT ORDER ALLOWING SUCH CLAIM ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REV ENUE. IT WAS STATED THAT ON THIS BASIS THAT THE MATTER REQUIRED FURTHER ENQUIR Y AND EXAMINA TION BY TH E AO, THE ASSESSMENT ORDER CAN NOT BE REGARDED ERRONEOUS AND THE LD. CIT WAS NOT EMPOWERED TO ASSUME JURISDICTION U/S 263 OF THE ACT TO INITIATE SUO - MOTU PO WER OF REVISION BECAUSE THE LD. CIT AT HIS WHIMS , FELT THAT THE ASSESSEE HAD EITHER NOT PAID SUCH CHARGES OR PAID CHARGES AT A DIFFERENT RATE AND THE SAME REQUIRED FURTHER VERIFICATION. SUCH AN ACTION OF THE LD. CIT WAS IMPERMISSIBLE AND COULD NOT BE ALLOW ED U/S 263 OF THE ACT AS THE LD. CIT WAS REQUIRED TO REACH A DEFINITE FINDING THAT THE ASSESSMENT ORDER ALLOWING THE CHARGES AS CLAIMED BY THE ASSESSEE WAS ERRONEOUS AND INCORRECT . IT WAS CONTENDED THAT SINCE DURING THE COURSE OF FRAMING THE ASSESSMENT, TH E AO HAD ACCESS TO ALL RECORDS OF ASSESSEE AND AFTER PERUSING SUCH RECORDS, THE AO FRAMED THE ASSESSMENT, SUCH ASSESSMENT COULD NOT BE REOPENED IN EXERCISE OF REVISION ARY POWER U/S 97 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. 263 OF THE ACT FOR MAKING FURTHER ENQUIRIES BECAUSE THE ERROR ENVISAGED BY SECTION 263 OF THE ACT IS NOT ONE WHICH DEPENDS ON POSSIBILITY OR GUESSWORK BUT IT SHOULD BE ACTUALLY AN ERROR EITHER OF FACTS OR OF LAW. HOWEVER, THE LD. CIT IN THE INSTANT CASE FAILED TO REACH A CONCLUSIVE FINDING THAT THE CLAIM MADE BY THE ASSESSEE AND ACCEPTED BY THE AO WAS ERRONEOUS OR INCORRECT. IT WAS ALSO STATED THAT THE ASSESSEE COMPANY HAD NOT GAINED IN ANY MANNER BY MAKING PAYMENT OF INFRASTRUCTURE USER CHARGES TO BIL AND NO PREJUDICE WAS CAUSED TO THE REVENUE IN AS MUCH AS THE AMOUNT ALLOWED AS DEDUCTION IN THE HANDS OF THE ASSESSEE WAS ULTIMATELY TAXED IN THE HANDS OF BIL AT THE SAME RATE AS THE ASSESSEE. IN SUPPORT OF THE ABOVE CONTENTION OUR ATTENTION WAS DRAWN TOWARDS PAGE NOS. 561 TO 563 OF THE ASSESSEE S PAPER BOOK WHICH ARE THE COPIES OF T HE INCOME TAX RETURN AND COMPUTATION OF INCOME OF BIL FOR THE A.Y. 2008 - 09. IT WAS EMPHASIZED THAT THE ASSESSEE CLAIMED DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF IT S TELECOM OPERATIONS AND THE CLAIM OF THE IMPUGNED EXPENDITURE HAS ONLY RESULTED IN A REDU CED CLAIM OF DEDUCTION U/S 80IA OF THE ACT. IT WAS ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD. CIT U/S 263 OF THE ACT IS UNSUSTAINABLE IN LAW AND DESERVES TO BE QUASHED . THE RELIANCE WAS ALSO PLACED ON THE 98 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. JUDGMENT OF THE HON BLE SUPREME COURT IN THE C ASE OF CIT VS GLAXO SMITHKLINE ASIA (P) LTD. (2010) 195 TAXMANN 35. 50 . IN HER RIVAL SUBMISSIONS THE LD. CIT DR REITERATED THE OBSERVATIONS MADE BY THE LD. CIT AND STRONGLY SUPPORTED THE IMPUGNED ORDER . SHE FURTHER SUBMITTED THAT THE ASSESSEE DID NOT FULF ILL THE CONDITIONS LAID DOWN I N SOA BY THE HON BLE HIGH COURT AND THAT THE SCHEDULE 6 OF THE BALANCE SHEET FOR THE FINANCIAL YEAR 2007 - 08 REVEALED THAT THE ASSESSEE HAD INCREASED THE VALUE OF ITS INVESTMENT IN BIL FROM RS. 5,00,000/ - TO RS. 8218 CRORES, TH E VALUE OF INVESTMENT IN THE SUBSIDIARY COMPANY HAD GONE UP ONLY AND ONLY FOR THE REASON OF TRANSFER OF ASSETS BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY AT FAIR MARKET VALUE. THUS, THE CONSIDERATION FOR TRANSFER OF ASSETS TO BIL HAD BEEN RECEIVED BY THE AS SESSEE WHICH WAS DIRECTLY CREDITED TO THE INVESTMENTS IN THE NAME OF BIL IN THE BALANCE SHEET WITHOUT PROPERLY ROUTING IT THROUGH P & L A/C AND THIS FACT HAS NOT BEEN EXAMINED BY THE AO. IT WAS FURTHER STATED THAT IN THE BALANCE SHEET OF THE ASSESSEE AS ON 31.03.2008, THE VALUE OF INVESTMENT HAD INCREASED TO THE TUNE OF RS. 8218 CRORES AND THE VALUE OF ITS PASSIVE INFRASTRUCTURE ASSETS HAD DECREASED BY RS. 5739 CRORES. THE DIFFERENCE THEREOF AMOUNTING TO RS. 2479 CRORES 99 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. SHOWN IN THE ASSESSMENT YEAR UNDER CO NSIDERATION AND RS. 12.68 CROR E SHOWN IN THE ASSESSMENT YEAR 2009 - 10 TOTALING TO RS. 2492 CRORES ARISING ON TRANSFER OF THESE ASSETS HAD BEEN CREDITED TO BUSINESS RESTRUCTURING RESERVE BUT THE SAME HAD NOT BEEN OFFERED TO TAX . IT WAS SUBMITTED THAT THE AFO RESAID AMOUNT WAS NOT CREDITED TO THE P & L A/C OF THE QUARTER IN WHICH THE ASSETS HAD BEEN TRANSFERRED AS PER THE SOA AND AS THE AO HAD NOT EXAMINED THIS ISSUE AT ALL ALONGWITH THE ISSUE RELATING TO THE S HARE PREMIUM OF RS. 2136 CRORES, T HEREFORE, THE LD. CIT WAS JUSTIFIED IN CONSIDERING THE ASSESSMENT ORDER PASSED BY THE AO AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LD. CIT DR ALSO REFERRED TO PARAS 7 & 8 OF THE IMPUGNED ORDER AND SUBMITTED THAT THE ASSESSMENT ORDER DATED 30.1 1.2012 PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON THE FOLLOWING TWO ISSUES: (A) THE AO FAILED TO EXAMINE THE TAXABILITY OF THE DIFFERENCE BETWEEN THE COST OF ASSETS AND FAIR MARKET VALUE OF THE ASSETS, SHOWN DIRECTLY CREDITED TO THE RESERVES BY THE ASSESSEE COMPANY IN ITS BALANCE SHEET, OF THE ASSETS TRANSFERRED BY IT ON 31.1.2008 TO ITS SUBSIDIARY COMPANY, WHICH NO LONGER REMAINED A 100 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE COMPANY AS ON 31.3.2008. (B) THE AO FAILED T O EXAMINE THE ALLOWABILITY OF THE EXPENDITURE CLAIMED BY THE ASSESSEE COMPANY FOR THE USAGE OF ITS TRANSFERRED ASSETS TO ITS SUBSIDIARY COMPANY CONTRARY TO THE ASSESSEE COMPANY HA V ING A NON EXCLUSIVE RIGHT OF USE OF ITS TRANSFERRED ASSETS TO BIL, WITHOUT A NY OBLIGATION TO PAY OR ON PAYMENT OF SUCH CHARGES AS MAY BE REASONABLE AND ACCEPTABLE TO BOTH TRANSFEROR AND TRANSFEREE COMPANY, AS PER THE SOA APPROVED BY THE HON BLE HIGH COURT. 5 1 . IT WAS STATED THAT THE AO SHOULD HAVE CONSIDER THE DEVELOPMENT AFTER THE AMALGAMATION BUT HE FAILED TO DO SO . IT WAS FURTHER STATED THAT THE LD. CIT HAS CONSIDERED THE REPLY DATED 29.03.2014 FILED BY THE ASSESSEE AND ALL THE SUBMISSIONS AGAINS T JURISDICTION AS WELL AS MERIT ISSUE HAD BEEN CONSIDERED, A REFERENCE WAS MADE TO PARA 7 OF THE IMPUGNED ORDER. IT WAS ACCORDINGLY SUBMITTED THAT THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE AO HAD ALREADY GIVEN A FINDINGS THAT CAPITAL LOSS WAS NOT ALLOWABLE AND AS SUCH APPLIED HIS MIND WAS NOT FACTUALLY CORRECT. IT WAS ALSO STATED THAT THE AO HAD NOT EXAMINED THE FAC T S RELATING TO TAXABILITY OF TRANSFER OF PASSIVE ASSETS OF THE ASSESSEE TO BIL, IMPACT OF REVALUATION OF THE ASSETS SO TRANSFERRED AND REVALUATION BY THE ASSESSEE OF ITS INVESTMENT 101 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. IN BIL FOR THE PURPOSE OF TAXABILITY AND HAD ALSO NOT GIVEN ANY FINDING IN THE ASSESSMENT ORDER THAT THE TRANSACTION HAS RESULTED INTO A CAPITAL LOSS. THEREFORE, IT CANNOT BE SAID THAT THE AO HAD APPLIED HIS MIND ON THE ISSUE AND CAME TO THE CONCLUSION THAT THE SAID TRANSACTION HAS RESULTED IN A CAPITAL LOSS. IT WAS STATED THAT THE AO SIMPLY ASKED THE ASSESSEE AS TO WHY THE LOSS OF RS. 5739 CRORES DEBITED IN THE P & L A/C MAY NOT BE DISALLOWED BUT HE HAD NOT EXAMINED THE TRANSACTION PER SE, CORRECTNESS OF THE CONSIDERATION AT NIL OR AS TO WHETHER THIS TRANSACTION HAS RESULTED INTO CAPITAL LOSS OR GAIN. IT WAS FURTHER STATED THAT THE DRP HAD GIVEN DIRECTIONS ONLY ON THE OBJECTION RAISED BY THE ASSESSEE RELATING TO THE AMOUNT OF RS. 5739 CRORES WHICH WAS NOT INCLUDED IN THE P & L A/C A ND NO OTHER ISSUE WAS EITHER RAISED OR ADJUDICATED BY THE DRP. THEREFORE, THE PRINCIPLE OF MERGER APPLIES ONLY TO THE ISSUE WHICH WAS RAISED AND ADJUDICATED BY THE DRP NOT ON THE OTHER ISSUES, AS SUCH , IT CANNOT BE SAID THAT THE ENTIRE ASSESSMENT ORDER WAS APPROVED BY THE DRP. IT WAS FURTHER SUBMITTED THAT IN THE SHOW CAUSE NOTICE IT HAS BEEN POINTED OUT VERY CLEARLY BY THE LD. CIT THAT THOUGH THE APPARENT CONSIDERATION WAS NIL BUT IT APPEARS THAT WHAT WAS APPARENT WAS NOT REA L . THEREFORE, THE FACTS NEEDED INQUIRY, EXAMINATION AND 102 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. INVESTIGATION TO LIFT THE CORPORATE VEIL FROM THE APPARENT TO THE REAL TRANSACTION , ACTUAL CONSIDERATION AND THEN EXAMINED THE TAXABILITY OF REAL TRANSACTION BUT THE AO HAD NOT EXAMINED THE TRANSACTION IN TOTALITY. THEREFORE, THE L D. CIT RIGHTLY HELD THE ASSESSMENT ORDER PASSED BY THE AO AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT WAS FURTHER STATED THAT THE AO HAD NOT EXAMINED THE ISSUE RELATING TO THE TAXABILITY OF THE AMOUNT OF RS . 2479 CRORES AND HAD ALSO NOT EXAMINED THE SCHEME OF AMALGAMATION IN RIGHT PROSPECTIVE . IT WAS CONTENDED THAT THE AO HAS ALSO NOT CONSIDERED THIS VITAL FACT THAT THE SAID AMOUNT OF RS. 2479 CRORES WAS RECEIVED IN THE COURSE OF TRADING , SO , EVEN IF IT WAS NOT TAXABLE ORIGINALLY BEING O F CAPITAL IN NATURE IT CHANGES ITS CHARACTER WHEN IT BECAME THE ASSESSEE S OWN MONEY. IT WAS FURTHER CONTENDED THAT IF DURING THE COURSE OF CONDUCT OF BUSINESS BY ANY TRANSACTION , THE ASSESSEE BECAME RICHER , THE COMMON SENSE DEMANDS THAT IT SHOULD BE TAXAB LE U/S 28 (IV) OF THE ACT BUT THE AO HAS NOT CONDUCTED ANY INQUIRY WHATSOEVER ON THIS ISSUE. THEREFORE, THE ORDER PASSED BY THE AO WAS RIGHTLY TREATED BY THE LD. CIT AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: 103 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. CIT, CHENNAI VS ALAGENDRAN FINANCE LTD. (2007) 29 3 ITR 1 (SC) CIT VS LLOYD SALES CORP. (2000) 113 TAXMANN 546 (DELHI) CIT VS GOETZE (INDIA) LTD. (2014) 361 ITR 505 (DELHI) CIT VS ASHOK LAGANI (2012) 347 ITR 22 (DELHI) CIT VS. DLF PO WER LTD. (2012) 345 ITR 446 (DELHI) 52 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. TO RESOLVE THE PRESENT CONTROVERSY, IT IS NECESSARY TO DISCUSS THE PROVISIONS CONTAINED IN SECT ION 263(1) OF THE ACT WHICH READ AS UNDER: THE COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO TH E INTERESTS OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHA NCING OR MODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. 53 . FROM THE ABOVE PROVISIONS IT IS CLEAR THAT AN ORDER CAN BE REVISED ONLY AND ONLY IF TWIN CONDITIONS OF ERR OR IN THE 104 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. ORDER AND PREJUDICE CAUSED TO THE REVENUE , CO - EXIST. THE SUBJECT OF REVISION UNDER SECTION 263 HAS BEEN VASTLY EXAMINED AND ANALYZED BY VARIOUS COURTS INCLUDING HON BLE APEX COURT. THE REVISIONARY POWER CONFERRED ON THE LD. CIT VID E SECTION 263 OF THE ACT IS OF W IDE AMPLITUDE, I T ENABLES THE LD. CIT TO CALL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDING UNDER THE ACT. IT EMPOWERS THE LD. CIT TO MAKE OR CAUSE TO BE MADE SUCH AN ENQUIRY AS HE DEEMS NECESSARY IN ORDER TO FIND OUT IF ANY ORDER PASSED BY ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE ONLY LIMITATION ON HIS POWERS IS THAT HE MUST HAVE SOME MATERIAL(S) WHICH WOULD ENABLE HIM TO FORM A PRIMA FACIE OPINION THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ONCE HE COMES TO THE CONCLUSION ON THE BASIS OF THE MATERIAL THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE LD. CIT IS EMPOWERED T O PASS AN ORDER AS THE CIRCUMSTANCES OF THE CASE MAY WARRANT. HE MAY PASS AN ORDER ENHANCING THE ASSESSMENT OR HE MAY MODIFY THE ASSESSMENT. HE IS ALSO EMPOWERED TO CANCEL THE ASSESSMENT AND DIRECT THE AO TO FRAME A FRESH ASSESSMENT. HE IS EMPOWERED TO TAKE 105 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. RECOURSE TO ANY OF THE THREE COURSES INDICATED IN SE CTION 263 OF THE ACT. BUT THE L D. CIT DOES NOT HAVE UNFETTERED AND UNCHEQURED DISCRETION TO REVISE AN ORDER, HE IS REQUIRED TO EXERCISE REVISIONAL POWER WITHIN THE BOUNDS OF THE LAW AND HAS TO SATIS FY THE NEED OF FAIRNESS IN ADMINISTRATIVE ACTION AND FAIR PLAY WITH DUE RESPECT TO THE PRINCIPLE OF AUDI ALTERAM PARTEM AS ENVISAGED IN THE CONSTITUTION OF INDIA AS WELL AS IN SECTION 263 OF THE ACT. IN OUR OPINION, A N ORDER CAN BE TREATED AS ERRONEOUS IF IT IS PASSED IN UTTER IGNORANCE OR IN VIOLATION OF ANY LAW; OR PASSED WITHOUT TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS OR BY TAKING INTO CONSIDERATION THE IRRELEVAN T FACTS. THE WORD PREJUDICE A S CONTEMPLATED UNDER SECTION 263 OF THE ACT IS TH E PREJUDICE TO THE INCOME TAX ADMINISTRATION AS A WHOLE. THE REVISION HAS TO BE DONE FOR THE PURPOSE OF SETTING RIGHT DISTORTIONS AND PREJUDICES CAUSED TO THE REVENUE IN THE ABOVE CONTEXT. 54. THE FUNDAMENTAL PRINCIPLES WHICH EMERGE FROM THE SEVERAL CA SES REGARDING THE POWERS OF THE LD. CIT UNDER SECTION 263 OF THE ACT MAY BE SUMMARIZED AS UNDER: - 106 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. (I) THE LD. CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BOTH THE CO NDITIONS MUST BE FULFILLED. (II) SECTION 263 OF THE ACT CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS, THAN THE SAID SECTION WILL BE ATTRACTED. (II I) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SUFFICE FOR THE REQUIREMENT OF ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND IF THE ASSESSING OFFICER HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WHICH TH E LD. CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE UNDER THE LAW. (VI) IF WHILE MAKING THE ASSESSMENT, THE ASSESSING OFFICER EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLI ES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME, THE LD. CIT, WHILE EXERCISING HIS POWER UNDER SECTION 263 OF THE ACT, IS 107 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE ASSESSING OFFICER. (VII) THE ASSESSING OFFICER EXERCISES QUASI - JUDICIAL POWER VESTED IN HIM AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVES AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL S ATISFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER SECTION 263 OF THE ACT, MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. 55 . IT IS WELL SETTLED THAT I N SUCH TYPE OF CASES, IF THE ASSESSING OFFICER HAS M ADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION , BE A LETTER IN WRITING AND THE ASSESSING OFFICER ALLOWED THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, TH E DECISION OF THE ASSESSING OFFICER CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 56 . REVERTING TO THE FACTS OF THE PRESENT CASE, IT IS NOTICED THAT THE LD. CIT CONSIDERED THE ASSESSMEN T ORDER DATED 108 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. 30.10.2012 PASSED BY THE AO AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE TO THE FOLLOWING EXTENT: (I) THE AO FAILED TO EXAMINE THE TAXABILITY OF THE DIFFERENCE BETWEEN THE COST OF THE ASSETS AND FAIR VALUE OF THE ASSETS TRANSF ERRED TO BIL, SHOWN DIRECTLY CREDITED TO THE RESERVES FOR BUSINESS RESTRUCTURING BY THE ASSESSEE COMPANY IN ITS BALANCE SHEET AND THAT THE AO FAILED TO EXAMINE AS TO WHETHER THE SAID DIFFERENCE WAS TO BE ASSESSED AS CAPITAL GAIN U/S 45 OF THE ACT OR AS A BUSINESS INCOME U/S 28(IV) OF THE ACT. (II) THE AO FAILED TO EXAMINE THE ALLOWABILITY OF THE EXPENDITURE CLAIMED BY THE ASSESSEE AT MARKET RATE FOR THE USAGE OF ITS TRANSFERRED ASSETS TO ITS SUBSIDIARY COMPANY I.E. BIL WITHOUT ANY OBLIGATION TO P AY OR ON PAYMENT OF SUCH CHARGES AS MAY BE REASONABLE AND ACCEPTABLE TO BOTH THE ASSESSEE COMPANY AND THE TRANSFEREE COMPANY. 57 . AS REGARDS TO THE ABOVE SAID FIRST ISSUE ON THE BASIS OF WHICH THE ASSESSMENT ORDER WAS CONSIDERED BY THE LD. CIT AS ERRONEOUS AND PR EJUDICIAL TO THE INTEREST OF THE REVENUE, IT IS NOTICED THAT THE ASSESSEE TRANSFERRED TELECOM PASSIVE INFRASTRUCTURE UNDERTAKING TO BIL AT NIL CONSIDERATION 109 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. RESULTING IN CAPITAL LOSS OF RS. 5739 CRORES. THE SAID LOSS WAS NOT A TAX DEDUCTIBLE ITEM AND HAD B EEN SUO - MOTU ADDED BY THE ASSESSEE IN ITS COMPUTATION OF INCOME UNDER NORMAL PROVISIONS. THEREAFTER THE ASSESSEE HAD REVALUED ITS INVESTMENT IN THE SUBSIDIARY COMPANY I.E. BIL FROM RS. 5,00,000/ - TO RS. 8218 CRORES AND HAD GIVEN THE CORRESPONDING CREDIT TO THE RESERVES FOR BUSINESS RESTRUCTURING , OUT OF THE SAID RESERVES AN AMOUNT EQUAL TO THE LOSS OF RS. 5739 CRORES HAD BEEN CREDITED TO THE P & L A/C. THE ASSESSEE PASSED TWO SETS OF ENTRIES (A) LOSS ON TRANSFER OF ASSETS ON DEMERGER . DR. RS. 5739 CRORES TO NET ASSETS (TRANSFERRED) RS. 5739 CRORES (B) P & L A/C DR. RS. 5739 CRORES TO LOSS ON TRANSFER OF ASSETS ON DEMERGER RS. 5739 CRORES 58 . FROM THE ABOVE ENTRIES IT IS CLEAR THAT THE ASSESSEE H AD CLAIMED THE LOSS IN THE P & L A/C . H OWEVER, THE SAID AMOUNT WAS SUO - MOTU ADDED IN THE COMPUTATION OF INCOME BECAUSE IT WAS NOT AN ALLOWABLE LOSS. THIS FACT WAS EXAMINED BY THE AO WHO FRAMED THE DRAFT ASSESSMENT ORDER FOR THE APPROVAL OF THE DRP. THE AO PREPARED A DRAFT ASSESSMENT ORDER U/S 144C(1) OF THE ACT AND THE SAID DRAFT ASSESSMENT ORDER INTER ALIA COVERED THE ISSUE RELATING TO THE 110 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. TAXABILITY OF TRANSFER OF PI UNDERTAKING TO BIL AT NIL CONSIDERATION. THE AO REFERRED TO THE NOTES TO THE ACCOUNTS A ND COMPUTATION OF TOTAL INCOME , THEN SPECIFICALLY ASKED THE ASSESSEE ABOUT THE JUSTIFICATION OF THE CLAIM OF CAPITAL LOSS AMOUNTING TO RS. 5739 CRORES WH ICH IS EVIDENT FROM PAGE NOS. 73 TO 78 OF THE DRAFT ASSESSMENT ORDER DATED 16.11.2011 , COPY OF WHICH IS P LACED AT PAGE NOS. 125 TO 130 OF THE ASSESSEE S COMPILATION. THE ASSESSEE SPECIFICALLY EXPLAINED TO THE AO IN REPLY TO THE QUERY RAISED BY THE AO AS UNDER: (I) THAT THE ASSESSEE (BAL) HAD ENTERED INTO A SOA WITH BIL FOR TRANSFER OF PASSIVE INFRASTRUCTURE UNDERTAKING HAVING BOOK VALUE OF RS. 57,39,60,05,089/ - AT NIL CONSIDERATION. THE SOA WAS DULY APPROVED BY THE HON BLE DELHI HIGH COURT VIDE ORDER DATED 26.11.2007 AND FILED WITH THE R O C, DELHI & HARYANA ON 31.01.2008, THE EFFECTIVE DATE OF THE SCHEME. (I I) PURSUANT TO THE SOA, THE LOSS ARISING ON TRANSFER OF SUCH UNDERTAKING DID NOT REQUIRE ANY ADJUSTMENT FOR COMPUTING BOOK PROFITS U/S 115JA. (III) THE AMOUNT WITHDRAWN FROM RESERVE AND CREDITED TO P & L A/C AMOUNTING TO RS. 57,39,60,05,089/ - HAD BEEN RED UCED OUT OF THE BOOK PROFITS AS SUCH RESERVE WAS NOT CREATED IN TERMS OF EXPLANATION (I) TO SECTION 115JB OF THE ACT, BECAUSE 111 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. SUCH RESERVES HAD ARISEN PURSUANT TO THE SOA. THE SCHEME APPROVED BY THE HIGH COURT MENTIONED THAT SUCH RESERVE FOR BUSINESS REST RUCTURING SHALL BE ARISING OUT OF THIS SCHEME AND SHALL NOT BE CONSIDERED AS RESERVE CREATED BY THE TRANSFER OR COMPANY PARA 3.3.1 AT PAGE 18 OF THE SCHEME. (IV) HOWEVER, TAKING NOTE OF THE RECENT DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF INDO RAMA SYNTHETICS (2011) 196 TAXMAN 539 (SC), IN THE INTEREST OF AVOIDING LITIGATION, THE ASSESSEE REQUESTED THE AO TO FOLLOW THE SAID DECISION AND NOT REDUCE THE IMPUGNED AMOUNT OF RESERVES OF RS. 57,39,60,05,089/ - OUT OF THE BOOK PROFITS. (V) THE LOSS ON SALE OF TELECOM INFRASTRUCTURE TO BIL WAS CORRESPONDING TO THE AMOUNT CREDITED TO BUSINESS RESTRUCTURING RESERVE. IF THIS AMOUNT WAS NOT WITHDRAWN FROM THE SAID RESERVE, THE PROFIT OF THE ASSESSEE COMPANY WAS LOWERED BY RS. 5379 CRORES FOR THE YEAR UNDER C ONSIDERATION. 59 . IN THE PRESENT CASE, THE DRP AFTER EXAMINING THE SUBMISSIONS OF THE ASSESSEE DIRECTED THE AO IN PARA 3.9.3 OF THE ORDER DATED 30.08.2012 AS UNDER: 3.9.3 WE HAVE CONSIDERED THE FACTS OF THE CASE. SUBMISSION OF ASSESSEE HAS ALSO BEEN GO NE THROUGH. THE DISALLOWANCE OF RS. 5739,60,05,000/ - BY THE AO IN NORMAL COMPUTATION PROVISIONS AS CAPITAL LOSS REPRESENTING LOSS ON TRANSFER OF TELECOM INFRASTRUCTURE TO BHARTI INFRATEL LIMITED IS HELD AS 112 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. PERFECTLY IN ORDER. THEREFORE, AS FAR AS DISALLOWA NCE IS CONCERNED, NO INTERFERENCE IS CALLED FOR. HOWEVER, AS REGARDS THE CLAIM OF ASSESSEE OF NOT REDUCING THE EQUIVALENT SUM FROM THE COMPUTATION OF INCOME, IT IS NOTED THAT IT IS A MATTER OF PURE VERIFICATION. THE AO IS DIRECTED, TO VERIFY THE CLAIM OF T HE ASSESSEE FROM THE RECORDS AND TAKE NECESSARY ACTION. HOWEVER, THE AO IN THE ASSESSMENT ORDER MADE THE ADDITION . B EING AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE THE ITAT IN ITA NO. 5816/DEL/2012 WHEREIN VIDE PARA 11 OF THE ORDER DATED 11.03.2014, T HE ADDITION MADE BY THE AO WAS DELETED. THE OBSERVATION OF THE ITAT IN THE SAID ORDER ARE AS UNDER: 11. A PLAIN LOOK AT THE ABOVE MATERIAL SHOWS THAT THERE WAS NO EFFECTIVE DEBIT TO THE PROFIT AND LOSS ACCOUNT AS THE AMOUNT OF RS 5739,60,05,089 REFLECTED IN THE LOSS ON TRANSFER OF TELECOM INFRASTRUCTURE TO BHARTI AIRTEL LIMITED WAS SQUARED UP AGAINST THE CREDIT AMOUNT OF RS 5739,60,05,089 REPRESENTING AMOUNT WITHDRAWN FROM RESERVE FOR BUSINESS STRUCTURING IN THE INNER COLUMN OF THE PROFIT AND LOSS ACC OUNT. THESE ENTRIES WERE ABSOLUTELY PROFIT NEUTRAL SO FAR AS THE PROFIT AS PER PROFIT AND LOSS ACCOUNT IS CONCERNED, AND SINCE IT IS THIS PROFIT WHICH IS STARTING POINT FOR COMPUTATION OF BUSINESS INCOME, EFFECTIVELY NO ADJUSTMENTS THERETO WERE REQUIRED. E VEN IF NO ADJUSTMENT WAS CARRIED OUT IN THE COMPUTATION OF INCOME, THE RESULTANT INCOME WOULD HAVE BEEN THE SAME, BUT THE ADJUSTMENTS, IF AT ALL 113 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. REQUIRED FOR THE SAKE OF COMPLETENESS AND TRANSPARENCY, WERE REQUIRED FOR BOTH THE ENTRIES, I.E. LOSS ON TRANSF ER OF ASSETS AS ALSO AMOUNT WITHDRAWN FROM BUSINESS RESTRUCTURING. THIS IS PRECISELY WHAT THE ASSESSEE HAS DONE. AS MUCH AS THE LOSS ON TRANSFER OF ASSETS IS NOT A TAX DEDUCTIBLE ITEM, THE AMOUNT TRANSFERRED FROM RESERVES IS ALSO NOT A TAXABLE ITEM. THE AS SESSEE THUS REVERSED BOTH THESE ENTRIES, AS DEPICTED ABOVE, IN THE COMPUTATION OF INCOME. THE ASSESSING OFFICER HAS TAKEN NOTE OF THE FACT THAT IN THE COMPUTATION OF INCOME ATTACHED TO THE RETURN OF INCOME, THE ASSESSEE HAS FIRST ADDED RS 5739,60,05,089 AS LOSS ON TRANSFER OF TELECOM INFRASTRUCTURE TO BHARTI INFRATEL LIMITED AND THEN REDUCED RS 5739,60,05,089 AS AMOUNT WITHDRAWN FROM RESERVE FOR BUSINESS RESTRUCTURING , BUT THEN, INSTEAD OF TAKING NOTE OF THE UNAMBIGUOUS FACT THAT THESE TWO DISTINCT ENTR IES REPRESENTING TWO FACETS DULY REFLECTED IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSING OFFICER ASSUMES THAT SINCE DEBIT AND CREDIT OF THE SAME AMOUNT, RESULTING IN NEUTRALIZING EACH OTHER, HE IS JUSTIFIED IN ADDING THE LOSS OF TRANSFER OF TELECOM INFRAST RUCTURE TO THE PROFIT AS PER PROFIT AND LOSS ACCOUNT. NEITHER THERE WAS AN EFFECTIVE DEBIT TO THE PROFIT AND LOSS ACCOUNT, SINCE THE LOSS WAS SQUARED UP BY TRANSFER FROM RESERVE RATHER THAN BY DEBIT TO PROFIT AND LOSS ACCOUNT, NOR WAS IT OPEN TO THE ASSESS ING OFFICER TO TAKE INTO ACCOUNT LOSS ON TRANSFER OF ASSETS, THOUGH REFLECTED IN THE INNER COLUMN, WITHOUT TAKING INTO ACCOUNT ANOTHER INNER COLUMN ITEM REFLECTING TRANSFER FROM RESERVES TO SQUARE UP THIS LOSS. WHICHEVER WAY ONE LOOKS AT THESE ENTRIES, THE INESCAPABLE CONCLUSION IS THAT THE ADDITION MADE BY THE ASSESSING OFFICER IS WHOLLY 114 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. ERRONEOUS AND DEVOID OF ANY LEGALLY SUSTAINABLE MERITS. IN THIS CASE, THE DISPUTE RESOLUTION PANEL HAS ALSO BEEN SOMEWHAT SUPERFICIAL IN ITS APPROACH IN CONFIRMING THE ADD ITION BY OBSERVING THAT, THE DISALLOWANCE OF RS.5739,60,05,000 BY THE AO IN NORMAL COMPUTATION PROVISIONS AS CAPITAL LOSS REPRESENTING LOSS ON TRANSFER OF TELECOM INFRASTRUCTURE TO BHARTI INFRATEL LIMITED IS HELD AS PERFECTLY IN ORDER BECAUSE THE GRIEVAN CE RAISED BY THE ASSESSEE WAS SPECIFICALLY AGAINST THE ERRONEOUS APPROACH OF THE ASSESSING OFFICER IN NOT TAKING A HOLISTIC VIEW OF THE ACCOUNTING ENTRIES. THERE IS NO, AND THERE WAS NEVER, ANY DISPUTE ON WHETHER SUCH A LOSS IS TAX DEDUCTIBLE OR NOT. THE D ISPUTE WAS CONFINED TO THE QUESTION WHETHER, ON THE GIVEN FACTS, THE ASSESSING OFFICER COULD HAVE MADE AN ADDITION FOR THIS AMOUNT TO THE INCOME RETURNED BY THE ASSESSEE. THE CONTENTION OF THE ASSESSEE WAS THAT NO SUCH ADDITION WAS JUSTIFIED BECAUSE THE AS SESSEE HAS, ON HIS OWN, MADE APPROPRIATE ADJUSTMENTS IN THE COMPUTATION OF TAXABLE INCOME AND AN ADDITION BY THE ASSESSING OFFICER WILL RESULT IN DOUBLE DISALLOWANCE OF THE SAID AMOUNT. NO DOUBT, THE DISPUTE RESOLUTION PANEL DID MENTION THAT, AS REGARDS T HE CLAIM OF ASSESSEE OF NOT REDUCING THE EQUIVALENT SUM FROM THE COMPUTATION OF INCOME, IT IS NOTED THAT IT IS A MATTER OF PURE VERIFICATION AND DIRECTED THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE FROM THE RECORDS AND TAKE NECESSARY ACTION , BUT THEN IT WAS THE INACTION AND INABILITY OF THE ASSESSING OFFICER IN CORRECTLY DOING SO THAT THE OBJECTION WAS RAISED BEFORE THE DISPUTE RESOLUTION PANEL AND ALL THE RELATED FACTS, INCLUDING ACCOUNTING ENTRIES AND TREATMENT GIVEN IN THE COMPUTATION OF 115 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. TAXABLE INCOME, WERE PLACED BEFORE THE DISPUTE RESOLUTION PANEL. THE FACT THAT EVEN SUCH PURELY FACTUAL ISSUES ARE NOT ADEQUATELY DEALT WITH BY THE DRPS RAISES A BIG QUESTION MARK ON THE EFFICACY OF THE VERY INSTITUTION OF DISPUTE RESOLUTION PANEL. ONE CA N PERHAPS UNDERSTAND, EVEN IF NOT CONDONE, SUCH FRIVOLOUS ADDITIONS BEING MADE BY THE ASSESSING OFFICERS, WHO ARE RELATIVELY YOUNGER OFFICERS WITH LIMITED EXPOSURE AND EXPERIENCE, BUT THE DISPUTE RESOLUTION PANELS, MANNED BY VERY DISTINGUISHED AND SENIOR C OMMISSIONERS OF EMINENCE, WILL LOSE ALL THEIR RELEVANCE, IF, IRRESPECTIVE OF THEIR HEAVY WORK LOAD AND DEMANDING SCHEDULES, THESE FORUMS DO NOT RISE TO THE OCCASION AND DO NOT DEAL WITH THE OBJECTIONS RAISED BEFORE THEM IN A COMPREHENSIVE AND EFFECTIVE MAN NER. WHILE WE DELETE THE IMPUGNED ADDITION OF RS 5739,60,05,089, WE ALSO PLACE ON RECORD OUR DISSATISFACTION WITH THE WAY AND MANNER IN WHICH THIS ISSUE HAS BEEN HANDLED AT THE ASSESSMENT STAGE. LET US NOT FORGET THAT THE MAJESTY OF LAW IS AS MUCH DAMAGED BY NOT RENDERING JUSTICE TO THE CONDUCT WHICH CANNOT BE FAULTED AS MUCH IT IS DAMAGED BY A WRONGDOER GOING UNPUNISHED; NOT GIVING RELIEF IN DESERVING CASES IS AS MUCH OF A DISSERVICE TO THE CAUSE OF JUSTICE AND THE CAUSE OF NA TION AS MUCH A DISSERVICE IT I S , TO THESE CAUSES, BY GRANTING UNDUE RELIEFS. THE TIME HAS COME THAT A STRONG INSTITUTIONAL CHECK IS PUT IN PLACE FOR DEALING WITH SUCH EVENTUALITIES AND DE - INCENTIVIZING THIS KIND OF A CONDUCT. WITH THESE OBSERVATIONS, THE IMPUGNED ADDITION OF RS . 5739,6 0,05,089 IS DELETED. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 116 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. 60 . FROM THE ABOVE NOTED FACTS, IT THEREFORE, APPEARS THAT THE ISSUE ON THE BASIS OF WHICH ASSESSMENT ORDER WAS CONSIDERED BY THE LD. CIT AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE WAS EXAMINED BY THE AO IN DETAIL AND IT WAS DIRECTED BY THE DRP THAT THE ADDITION WAS NOT TO BE MADE AFTER PROPER VERIFICATION. HOWEVER, THE AO ARBITRARILY MADE THE ADDITION. O N THE APPEAL OF THE ASSESSEE, THE SAID ADDITION WAS DIRECTED TO BE DELETED BY THE ITAT VIDE ITS ORDER DATED 11.03.2014. WE, THEREFORE, DO NOT SEE MERIT IN THIS OBSERVATION OF THE LD. CIT THAT THE ASSESSMENT ORDER DATED 30.10.2012 APPEARED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE BECAUSE THE AO FAILED TO EXA MINE THE TAXABILITY OF RS. 5739 CRORES. IN THE PRESENT CASE, THE ASSESSEE SUO - MOTU ADDED THE CAPITAL LOSS OF RS. 5739 CRORES TO ITS INCOME IN THE COMPUTATION OF INCOME. THE AO THOROUGHLY EXAMINED THE ISSUE AND TREATED THE LOSS ON ACCOUNT OF TRANSFER OF TEL ECOM PASSIVE INFRASTRUCTURE UNDERTAKING TO BIL AT NIL CONSIDERATION, AS CAPITAL LOSS THE DRP WHICH IS A HIGH POWERED BODY CONSISTING OF THREE COMMISSIONERS APPROVED THE VIEW OF THE AO, THE TRANSFER OF PASSIVE TELECOM INFRASTRUCTURE WAS IN ACCORDANCE WITH T HE SOA APPROVED BY THE HON BLE HIGH COURT OF DELHI AND EVEN THE ITAT VIDE ITS ORDER DATED 11.03.2014 WHILE DECIDING THE 117 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. APPEAL FILED BY THE ASSESSEE IN ITA NO. 5816/DEL/2012 CATEGORICALLY HELD THAT AS PER THE SOA APPROVED BY THE HON BLE DELHI HIGH COURT, T HE ASSESSEE COMPANY HAD TRANSFERRED TELECOM INFRASTRUCTURE ASSETS TO BIL AT NIL CONSIDERATION RESULTING IN A CAPITAL LOSS OF RS. 5739 CRORES AND AS MUCH AS SUCH LOSS OF RS. 5739 CRORES WAS NOT A TAXABLE ITEM, THE AMOUNT TRANSFERRED FROM RESERVES OF RS. 573 9 CRORES TO THE P & L A/C WAS ALSO NOT A TAXABLE ITEM AND BOTH THOSE ENTRIES WERE ABSOL UTELY PROFIT NEUTRAL , SO FAR AS THE P & L A/C WAS CONCERNED. AS REGARDS TO THE ADJUSTMENT BY PASSING THE ENTRY , THE HON BLE SUPREME COURT IN THE CASE OF INDO RAM A SYNTHE TICS ( I ) LTD. VS CIT REPORTED AT 330 ITR 363 HAS HELD AS UNDER: THE ADJUSTMENT MADE IN THE PROFIT AND LOSS ACCOUNT WAS PRIMARILY IN THE NATURE OF CONTRA ADJUSTMENT IN THE PROFIT AND LOSS ACCOUNT AND NOT A CASE OF EFFECTIVE CREDIT IN THE PROFIT AND LOSS A CCOUNT (AS CONTEMPLATED IN CLAUSE (I) OF THE EXPLANATION). THE AMOUNT WITHDRAWN FROM ANY RESERVE MUST IN EFFECT IMPACT THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT. UNLESS AN ADJUSTMENT HAS THE EFFECT OF INCREASING THE NET PR O FIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT, THAT ENTRY CANNOT BE SAID TO BE A CREDIT TO THE PROFIT AND LOSS ACCOUNT AND, THEREFORE, THOUGH THE AMOUNT HAD BEEN LITERALLY CREDITED TO THE PROFIT AND LOSS 118 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. ACCOUNT, IN SUBSTANCE THERE WAS NO CREDIT TO THE PROFIT AND LOSS ACCOUNT. 61 . IN THE PRESENT CASE ALSO THE ASSESSEE PASSED THE ADJUSTMENT ENTRIES FOR A SUM OF RS. 5739 CRORES IN ITS BOOKS OF ACCOUNT WHICH HAD NO EFFECT ON THE PROFIT/INCOME OF THE ASSESSEE, THEREFORE, THE LD. CIT WAS NOT JUSTIFIED IN HOLDING THAT THE AO HAD NO T EXAMINED THE ISSUE RELATING TO THE LOSS ON ACCOUNT OF TRANSFER OF PASSIVE TELECOM INFRASTRUCTURE TO THE SUBSIDIARY COMPANY. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSMENT ORDER DATED 30.10.2012 WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVEN UE. 62 . AS REGARDS TO THE ADJUSTMENT ENTRY FOR REVALUATION OF INVESTMENT IN SUBSIDIARY COMPANY I.E. BIL IS CONCERNED. IT IS NOTICED THAT THE ASSESSEE PASSED THE FOLLOWING ENTRY: INVESTMENT IN SUBSIDIARY A/C ..DR. RS. 8218 CRORES TO BUSINESS RESTRUC TURING RESERVE (BRR) RS. 8218 CRORES THE ASSESSEE ALSO TRANSFERRED AN AMOUNT EQUAL TO LOSS ON TRANSFER FROM BUSINESS RESTRUCTURING RESERVE TO THE P & L A/C BY PASSING A FOLLOWING ENTRY: BUSINESS RESTRUCTURING RESERVES A/C DR. RS. 5739 CRORES TO NET ASSETS (TRANSFER) RS. 5739 CRORES 119 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. 63. HOWEVER, T HE LD. CIT WAS OF THE VIEW THAT THE RESULTANT FIGURE OF RS. 2479 CROES (RS. 8218 CRORES - RS. 5739 CRORES) WAS TO BE TAXED U/S 45 OR U/S 28(IV) OF THE ACT. IN THIS REGARD TH E STAND OF THE ASSESSEE I S THAT RS. 2479 CR ORES, BEING IN THE NATURE OF BALANCE OF NOTIONAL CREDIT , REMAINING IN THE REVALUATION RESERVE COULD NOT BE BROUGHT TO TAX , HAS ATTAINED THE FINALITY IN VIEW OF THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF INDO RAM A SYNTHETICS LTD. VS CIT (SUPRA) AND THE SAID VIEW IS ALSO FORTIFIED BY THE FACT THAT IN THE ASSESSEE S OWN CASE IN ITA NO. 5816/DEL/2012 , T HE ITAT DELHI BENCH VIDE ORDER DATED 11.03.2014 HELD THAT THE IMPUGNED TRANSFER RESULTED IN A CAPITAL LO SS OF RS. 5739 CRORES WHICH WAS NOT TAX DEDUCTIBLE , LIKEWISE THE AMOUNT TRANSFERRED FROM BUSINESS RESTRUCTURING RESERVES TO P & L A/C BEING IN THE NATURE OF NOTIONAL ADJUSTM ENT WAS ALSO NOT A TAXABLE ITEM, S INCE THE P & L A/C OF THE ASSESSEE STOOD DEBITED AND CREDITED WITH THE SAME AMOUNT AS SUCH THE ENTRIES WERE PROFITS NEUTRAL. IN THE PRESENT CASE , THE P & L A/C WAS STARTING POINT FOR COMPUTATION OF BUSINESS INCOME AND IF NO ADJUSTMENT WAS CARRIED OUT IN THE COMPUTATION OF INCOME THE RESULTANT INCOME WOUL D BE THE SAME AND EVEN IF THE ADJUSTMENT WERE TO BE DONE FOR THE SAKE OF COMPLETENESS AND TRANSPARENCY THOSE WERE REQUIRED FOR BOTH THE ENTRIES 120 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. I.E. LOSS OF RS. 5739 CRORES ON TRANSFER AND A N EQUAL AMOUNT WITHDRAWN FROM BUSINESS RESTRUCTURING RESERVES . IN THE INSTANT CASE, THE AMOUNT OF RS. 5739 CRORES TRANSFERRED FROM BUSINESS RESTRUCTURING RESERVES OF RS. 8218 CRORES WAS NOT A TAXABLE ITEM, T HE OBVIOUS COROLLARY WOULD BE THAT THE BALANCE AMOUNT OF RS. 2479 CRORES (RS. 8218 CRORES RS. 5739 CRORES) REMAIN ING IN THE SAID RESERVE ACCOUNT AFTER THE AFORESAID TRANSFER WAS NON - TAXABLE. THE SAME FINDING HAD BEEN GIVEN BY THE ITAT VIDE AFORESAID ORDER DATED 11.03.2014. T HEREFORE, THE LD. CIT WAS NOT JUSTIFIED IN HOLDING THAT THE ORDER PASSED BY THE AO WAS ERRONEO US AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE PARTICULARLY WHEN THE LD. CIT HIMSELF FAILED TO AR RIVE AT A DEFINITE CONCLUSION AND TO FORM AN OPINION REGARDING THE TAX IMPLICATION OF THE IMPUGNED TRANSACTION. IN THE PRESENT CASE, THE LD. CIT ON T HE ONE HAND, STATED THAT THE TRANSFER OF TELECOM PASSIVE INFRASTRUCTURE UNDERTAKING AT NIL CONSIDERATION RESULTED IN A CAPITAL GAIN OF RS. 2479 CRORES , ON THE OTHER HAND, THE SAME TRANSACTION WAS ALTERNATIVELY ALLEGED TO HAVE RESULTED IN A BUSINESS INCOME OF RS. 2479 CRORES U/S 28(IV) OF THE ACT. MOREOVER, THE LD. CIT DIRECTED THE AO TO RE - EXAMINE AND VERIFY THE ISSUE , HOWEVER, HE HIMSELF FAILED TO ARRIVE AT A DEFINITE CONCLUSION. THEREFORE, 121 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. WE ARE OF THE VIEW THAT THE LD. CIT WITHOUT ARRIVING AT A DEFINIT E CONCLUSION WAS NOT JUSTIFIED IN HOLDING THE ASSESSMENT ORDER DATED 30.10.2012 AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 64. ON A SIMILAR ISSUE THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GABRIEL INDIA LTD. (1993) 203 ITR 108 HELD AS UNDER: THAT THE INCOME - TAX OFFICER IN THIS CASE HAD MADE ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN A DETAILED EXPLANATION IN THAT REGARD BY A LETTER IN WRITING. ALL THESE WERE PART OF TH E RECORD OF THE CASE. EVIDENTLY, THE CLAIM WAS ALLOWED BY THE INCOME - TAX OFFICER ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. THIS DECISION OF THE INCOME - TAX OFFICER COULD NOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAK E AN ELABORATE DISCUSSION IN THAT REGARD. MOREOVER, IN THE INSTANT CASE, THE COMMISSIONER HIMSELF, EVEN AFTER INITIATING PROCEEDINGS FOR REVISION AND HEARING THE ASSESSEE, COULD NOT SAY THAT THE ALLOWANCE OF THE CLAIM OF THE ASSESSEE WAS ERRONEOUS AND THAT THE EXPENDITURE WAS NOT REVENUE EXPENDITURE BUT AN EXPENDITURE OF CAPITAL NATURE. HE SIMPLY ASKED THE INCO ME - TAX OFFICER TO RE - EXAMINE THE MATTER. THAT WAS NOT PERMISSIBLE. THE TRIBUNAL WAS JUSTIFIED IN SETTING ASIDE THE ORDER PASSED BY THE COMMISSIONER O F INCOME - TAX UNDER SECTION 263. 1 22 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. IN THE PRESENT CASE ALSO THE LD. CIT HIMSELF WAS NOT CERTAIN AS TO THE TAX IMPLICATION OF THE TRANSACTION. MOREOVER, IN ABSENCE OF RECEIPT OF CONSIDERATION OF TRANSFER OF PASSIVE INFRASTRUCTURE , NO NOTIONAL SUM WOULD BE AT TRIBUTED AS CONSIDERATION. AS SUCH THE ISSUE OF TAXABILITY OF CAPITAL GAIN DOES NOT A RISE . FURTHERMORE, IN THE ABSENCE OF ANY BENEFIT OR PERQUISITE ACCRUING TO THE ASSESSEE DURING THE COURSE OF BUSINESS AND THE IMPUGNED TRANSFER WHICH W AS PURELY A CAPITAL TRANSACTION, T HE NOTIONAL DIFFERENCE BETWEEN THE BOOK VALUE OF ASSETS TRANSFERRED AND THEIR FAIR VALUE WOULD NOT BE TAXED U/S 28(IV) OF THE ACT. 65 . IN THE INSTANT CASE, IT APPEARS THAT THE LD. CIT INITIATED THE PROCEEDINGS U/S 263 OF THE ACT MERELY ON A CCOUNT OF CHANGE OF OPINION BUT WITHOUT ARRIVING AT A DEFINITE CONCLUSION TO FORM AN OPINION REGARDING TAX IMPLICATION OF THE IMPUGNED TRANSACTION. THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS INTERNATIONAL TRAVEL HOUSE LD. 344 ITR 554 HELD AS UNDER: 'THAT AS WAS EVIDENT FROM THE ORDER OF THE TRIBUNAL, NO ADDITION TO THE INCOME OF THE ASSESSEE COULD BE MADE MERELY BECAUSE OF THE DIFFERENCE IN THE ACCOUNTING TREATMENT OF THE COMMISSION IN THE BOOKS 123 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. OF ACCOUNT OF THE ASSESSEE AS BOTH ACCOUNTIN G SYSTEMS WERE ACCEPTABLE. THE ASSESSING OFFICER HAD DULY APPLIED HIS MIND AND WAS SATISFIED WITH THE EXPLANATION OFFERED BY THE ASSESSEE AND DID NOT MAKE ANY ADDITION IN THAT REGARD. THE ASSESSING OFFICER HAD NOT INCORPORATED THE FACTS IN DETAIL IN THE OR DER BUT THAT WOULD NOT MEAN THAT THERE HAD BEEN NO APPLICATION OF MIND. THE TRIBUNAL NOTED THE FACT THAT THE DETAILS OF TAX DEDUCTED AT SOURCE DURING THE FINANCIAL YEAR HAD BEEN SHOWN AND THE INCOME THAT WAS SHOWN AS COMMISSION INCOME WAS REFLECTED IN DETA IL IN THE SHOW CAUSE AND IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER HAD ALREADY EXAMINED THIS ASPECT BUT THE COMMISSIONER HAD DIRECTED A RE - INQUIRY FOR MERELY A CHANGE OF OPINION WHICH WAS IMPERMISSIBLE UNDER SECTION 263 OF THE ACT. HE WAS REQUIRED TO ARRIVE AT A DEFINITE CONCLUSION BUT HE HAD NOT DONE SO. THERE WAS NO REASON TO INTERFERE WITH THE ORDER OF THE TRIBUNAL. 66 . SIMILARLY THE HON BLE DELHI HIGH COURT IN THE CASE OF HARI IRON TRADING CO. VS CIT (2003) 263 ITR 437 (SUPRA) HELD AS UNDER: IN THE ABSENCE OF ANY SUGGESTION BY THE COMMISSIONER AS TO HOW THE INQUIRY WAS NOT PROPER, THE ACTION TAKEN BY HIM UNDER SECTION 263 COULD NOT BE SUSTAINED. THE LETTER BY THE ASSESSING OFFICER TO THE COMMISSIONER SUPPORTED THE CONTENTION OF THE ASSESSEE THAT THE CASE WAS BEING MONITORED BY THE COMMISSIONER FROM TIME TO TIME AND THE ASSESSMENT ORDER HAD BEEN PASSED AFTER A DRAFT ORDER ALONG WITH 124 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. THE SURVEY FILE HAD BEEN FORWARDED TO THE COMMISSIONER FOR HIS APPROVAL. BOTH THE APPELLATE AUTHORITIES HAD FAILED T O TAKE THE TROUBLE OF EVEN REFERRING TO THE ASSESSMENT RECORD. ONCE THE ASSESSMENT ORDER HAD BEEN PASSED WITH THE APPROVAL OF THE COMMISSIONER, THE SUCCESSOR - COMMISSIONER COULD NOT POSSIBLY SAY THAT THE MATTER HAD BEEN DECIDED WITHOUT APPLICATION OF MIND B Y THE ASSESSING OFFICER. IN THE PRESENT CASE ALSO THE AO EXAMINED THE ISSUE RELATING TO CAPITAL LOSS ON TRANSFER OF PI UNDERTAKING BY THE ASSESSEE TO BIL FOR NIL CONSIDERATION. THE SAID ISSUE WAS ALSO CONSIDERED BY THE DRP WHO DIRECTED THE AO TO VERIFY THE CLAIM OF THE ASSESSEE. THE SAID LOSS WAS ADDED BACK BY THE ASSESSEE IN THE COMPUTATION OF INCOME AND WAS OFFERED FOR TAXATION BUT THE AO ADDED THE SAME AGAIN. THEREAFTER THE ASSESSEE PREFERRED AN APPEAL TO THE ITAT WHEREIN EXPLANATION AND CONTENTION OF THE ASSESSEE WAS ACCEPTED AND THE ADDITION MADE BY THE AO WAS DELETED. THEREFORE, THE VIEW TAKEN BY THE LD. CIT WHILE CONSIDERING THE ASSESSMENT ORDER AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE WAS MERELY A CHANGE OF OPINION, WE TH EREFORE BY KEEPING IN VIEW OF THE RATIO LAID DOWN BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE AFORESAID REFERRED TO CASE S ARE OF THE VIEW THAT THE ACTION OF THE LD. CIT WAS 125 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. IMPERMISSIBLE U/S 263 OF THE ACT PARTICULARLY WHEN HE DIRECTED THE AO TO RE - EXA MINE THE ISSUE AND PROPOSED TO TA X RS. 2479 CRORES EITHER UNDER SECTION 45 OR SECTION 28(IV) OF THE ACT. 67 . AS REGARD TO THE LAST ISSUE RELATING TO EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS AMOUNT PAID TO BIL FOR USAGE OF PASSIVE TELECOM INFRASTRUCTUR E. THE LD. CIT ALLEGED THAT THE AO HAD NOT EXAMINED THE ALLOWABILITY OF SUCH EXPENDITURE INCURRED BY THE ASSESSEE AT MARKET RATE AND ALLOWING SUCH DEDUCTION OF EXPENSES WAS NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. HOWEVER, IN THE PRESENT CASE IT APPEARS THAT THE AO APPLIED HIS MIND TO THE MATERIAL PLACED ON RECORD BY THE ASSESSEE IN THE FORM OF SOA , AUDITED ACCOUNTS, TAX AUDIT REPORT AND THE DOCUMENTS IN RELATION TO THE CLAIM OF SUCH EXPENSES WHICH WERE BEFORE HIM. THE AO FOUN D THE PAYMENT OF THE EXPENSES AT MARKET RATE , IN ORDER. IT IS ALSO NOTICED THAT IN THE SOA, IT WAS CATEGORICALLY MENTIONED THAT THE ASSESSEE HAD NON - EXCLUSIVE RIGHT TO US E THE TELECOM INFRASTRUCTURE WITHOUT ANY OBLIGATION TO PAY OR ON PAYMENT OF SUCH CHARG ES AS MAY BE REASONABLE AND ACCEPTABLE TO THE TRANSFEROR I.E. ASSESSEE AND THE TRANSFEREE I.E. BIL. T HE ABOVE SAID 126 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. PROVISION IN THE SOA, WAS AN ENABLING PROVISION AND THE PARTIES TO THE SOA CHO S E THE LATER OPT ION I.E. PAYMENT AT MARKET RATE. T HEREFORE, ALL OWING THE CLAIM OF THE CHARGES PAID BY THE ASSESSEE AT MARKET RATES WOULD NOT BE HELD AS ERRONEOUS MERELY BECAUSE THE LD. CIT AT HIS WHIMS FELT THAT THE ASSESSEE HAD EITHER NOT PAID SUCH CHARGES OR PAID CHARGES AT A DIFFERENT RATE AND THE SAME REQUIRED FUR THER VERIFICATION. IN THIS REGARD, IT IS RELEVANT TO POINT OUT THE OBSERVATION OF THE LD. CIT AT PARA 21 OF THE IMPUGNED ORDER WHICH READ S AS UNDER: 21. THE ASSESSMENT ORDER IS THEREFORE SET ASIDE TO THAT EXTENT WITH A DIRECTION T O AO TO VERIFY THE TAXAB ILITY OF TRANSACTION UNDER REFERENCE NAMELY TRANSFER OF PASSIVE ASSET BY THE ASSESSEE TO BIL IN TOTALITY IN LIGHT OF OBSERVATION GIVEN ABOVE AS WELL AS ISSUES RAISED IN SHOW CAUSE NOTICE AND ALSO EXAMINE THE ALLOWABILITY OF THE EXPENDITURE CLAIMED BY THE A SSESSEE COMPANY FOR THE USAGE OF ITS TRANSFERRED ASSETS TO ITS SUBSIDIARY COMPANY. FROM THE ABOVE OBSERVATIONS IT IS CLEAR THAT THE LD. CIT DIRECTED THE AO TO RE - EXAMINE THE ALLOWABILITY OF EXPENDITURE CLAIMED BY THE ASSESSEE BUT HE HAD NOT STATED AS TO HOW AND IN WHAT MANNER THE EXPENSES CLAIMED BY THE 127 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. ASSESSEE WERE IMPERMISSIBLE, THEREFORE, THE ACTION OF THE LD. CIT WAS NOT JUSTIFIED . 68. O N A SIMILAR ISSUE, T HE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS HERO AUTO LTD. 343 ITR 342 H AS HELD AS UNDER: THAT THERE WAS NO DISCUSSION IN THE ORDER OF THE COMMISSIONER AS TO HOW AND IN WHAT MANNER THE ENQUIRY WAS LACKING AND WHAT WAS THE FAULT AND DEFAULT COMMITTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HAD EXAMINED THIS ASPECT IN THE ORIGINAL ASSESSMENT PROCEEDINGS AND ACCEPTED THE STAND OF THE ASSESSEE. THERE WAS NO FINDING OF THE COMMISSIONER THAT THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE QUESTION OF WARRANTY CLAI M WAS REOPENED IN THE ASSESSMENT YEAR 199 9 - 2000 AFTER AN ORDER UNDER SECTION 263 OF THE ACT. THIS ORDER PASSED WAS STRUCK DOWN BY THE TRIBUNAL AND THAT DECISION HAD BEEN UPHELD BY THE HIGH COURT. 6 9 . SIMILARLY, T HE HON BLE DELHI HIGH COURT IN THE CASE O F CIT VS SUNBREAM AUTO LTD. (2011) 332 ITR 167 HELD AS UNDER: THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS NOT REQUIRED TO GIVE A DETAILED REASON IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTION, ETC. WHETHER THERE WAS 128 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. APPLICATION OF MIND BEFORE ALLOWI NG THE EXPENDITURE IN QUESTION HAS TO BE SEEN. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE COMMISSIONER TO PAS ORDERS UNDER SECTION 263 OF THE INCOME - TAX ACT, 1961, MERELY BECAUSE HE HAS A DIFFERENT OPINION IN TH E MATTER. IT IS ONLY IN CASES OF LACK OF INQUIRY THAT SUCH A COURSE OF ACTION WOULD BE OPEN. AN ORDER CANNOT BE TERMED ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN INCOME - TAX OFFICER ACTING IN ACCORDANCE WITH LAW MAKES A CERTAIN ASSESSMENT, I T CANNOT BE BRANDED AS ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE, ACCORDING TO HIM, THE ORDER SHOULD HAVE BEEN WRITTEN MORE ELABORATELY. SECTION 263 DOES NOT VISUALIZE A CASE OF SUBSTITUTION OF THE JUDGMENT OF THE COMMISSIONER FOR THAT OF THE INCOME - TAX OFFICER WHO PASSED THE ORDER UNLESS THE DECISION IS HELD TO BE ERRONEOUS. WHERE THE INCOME - TAX OFFICER HAS EXERCISED THE QUASI - JUDICIAL POWER VESTED IN HIM IN ACCORDANCE WITH LAW AND ARRIVED AT A CONCLUSION SUCH A CONCLUSION CANNOT BE FOUND TO BE ERRONEOU S SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE CONCLUSION. THERE MUST BE SOME PRIMA FACIE MATERIAL ON RECORD TO SHOW THAT TAX WHICH WAS LAWFULLY EXIGIBLE HAS NOT BEEN IMPOSED OR THAT BY THE APPLICATION OF THE RELEVANT STATUTE ON AN INCO RRECT OR INCOMPLETE INTERPRETATION A LESSER TAX THAN WHAT WAS JUST HAS BEEN IMPOSED. 70 . ON A SIMILAR ISSUE, THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS VIKAS POLYMERS (2012) 341 ITR 537 HELD AS UNDER: 129 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. IT IS PRE - REQUISITE THAT THE COMMISSIONER M UST GIVE REASONS TO JUSTIFY THE EXERCISE OF SUO MOTU REVISIONAL POWERS BY HIM TO REOPEN A CONCLUDED ASSESSMENT. A BARE REITERATION BY HIM THAT THE ORDER OF THE INCOME - TAX OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, WILL NOT SUFFICE. THE EXERCISE OF THE POWER BEING QUASI - JUDICIAL IN NATURE, THE REASONS MUST BE SUCH AS TO SHOW THAT THE ENHANCEMENT OR MODIFICATION OF THE ASSESSMENT OR CANCELLATION OF THE ASSESSMENT OR DIRECTIONS ISSUED FOR A FRESH ASSESSMENT WERE CALLED FOR, AND MUST IRRESISTIBLY LEAD TO THE CONCLUSION THAT THE ORDER OF THE INCOME - TAX OFFICER WAS NOT ONLY ERRONEOUS BUT WAS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THUS, WHILE THE INCOME - TAX OFFICER IS NOT CALLED UPON TO WRITE AN ELABORATE JUDGMENT GIV ING DETAILED REASONS IN RESPECT OF EACH ANY EVERY DISALLOWANCE, DEDUCTION ETC., IT IS INCUMBENT UPON THE COMMISSIONER NOT TO EXERCISE HIS SUO MOTU REVISIONAL POWERS UNLESS SUPPORTED BY ADEQUATE REASONS FOR DOING SO. PROVISIONS OF SECTION 263 OF THE ACT, WH EN READ AS A COMPOSITE WHOLE, MAKE IT INCUMBENT UPON THE COMMISSIONER BEFORE EXERCISING REVISIONAL POWERS TO: (I) CALL FOR AND EXAMINE THE RECORD, AND (II) GIVE THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND THEREAFTER TO MAKE OR CAUSE TO BE MADE SUCH ENQU IRY AS HE DEEMS NECESSARY. IT IS ONLY ON FULFILLMENT OF THESE TWIN CONDITIONS THAT THE COMMISSIONER MAY PASS AN ORDER EXERCISING HIS POWER OF REVISION. IF A QUERY IS RAISED DURING THE COURSE OF SCRUTINY BY THE ASSESSING OFFICER, WHICH WAS ANSWERED TO THE S ATISFACTION OF THE ASSESSING OFFICER, BUT NEITHER THE QUERY NOR THE ANSWER WERE REFLECTED IN THE 130 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. ASSESSMENT ORDER, THIS WOULD NOT BY ITSELF LEAD TO THE CONCLUSION THAT THE ORDER OF THE ASSESSING OFFICER CALLED FOR INTERFERENCE AND REVISION. 71 . IN THE PR ESENT CASE ALSO , AS WE HAVE EARLIER POINTED OUT IN THE FORMER PART OF THIS ORDER THAT THE AO IN THE ORIGINAL ASSESSMENT PROCEEDINGS HAD ACCEPTED THE CLAIM OF THE ASSESSEE AFTER PROPER EXAMINATION AND VERIFICATION OF THE CLAIM AND THE LD. CIT HAD NOT GIVEN ANY FINDING AS TO HOW AND IN WHAT MANNER THE ORDER OF THE AO ON THIS ISSUE WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE SIMPLY DIRECTED THE AO TO MAKE FURTHER VERIFICATION AND EXAMINATION FOR ALLOWING THE CLAIM WHICH THE AO HAD ALREADY DONE, THEREFORE, THE ORDER OF THE LD. CIT U/S 263 OF THE ACT DESERVES TO BE SET ASIDE ON THIS ISSUE. 72. AS REGARDS TO THE DECISIONS RELIED BY THE LD. CIT DR IS CO NCERNED, IT IS NOTICED THAT THESE ARE DISTINGUISHABLE ON FACTS BECAUSE IN THE CASE OF CIT V S LLOYD SALES CORP. REPORTED AT 113 TAXMAN 596 (DEL), T HE AO HAD NOT HELD ANY INQUIRY AND HAD ALSO NOT CONSIDERED THE APPLICABILITY OF THE PROVISIONS OF SECTION 37(3A) OF THE ACT AND SIMILARLY IN THE CASE OF CIT, CHENNAI VS ALAGENDRAN FINANCE LTD. REPORTED AT 293 ITR 1 (SC), T HE ISSUE S RELATED TO THE LIMITATION 131 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. PROVIDED U/S 263(2) OF THE ACT AND THE DOCTRINE OF MERGER , THESE FACTS ARE N OT INVOLVED IN THE PRESENT CASE. T HEREFORE, BOTH THE AFORESAID CASES RELIED BY THE LD. CIT DR ARE DISTINGUISHABLE ON FACTS. SIMILARLY, I N THE CASE OF CIT VS GO E T ZE INDIA LTD. REPORTED AT (2014) 361 ITR 505 (DEL.) , T HE LD. CIT IN HER ORDER HAD SPECIFICALLY RECORDED THAT ENHANCED DEPRECIATION ON REVALUED RESERVE WAS CLAIMED IN EARLIER ASSESSMENT YEAR AND THE PROVISO TO CLAUSE (I ) OF THE EXPLANATION TO SECTION 115JA WAS NOT APPLICABLE AS A RESERVE WAS NOT CREATED DURING THE RELEVANT PERIOD AND THAT THE AO HAD NOT APPLIED SECTION 14A OF THE ACT AND MADE NO DEDUCTION UNDER THE SAID SECTI ON . T HEREFORE, THE HON BLE HIGH COURT HELD THA T THE ORDER OF REVISION WAS VALID. HOWEVER, IN THE PRESENT CASE, THERE IS NO SUCH FACT S . I N THE CASE OF CIT VS ASHOK LOGANI REPORTED AT (2012) 347 ITR 22 (DELHI) WHICH WAS RELIED BY THE LD. CIT DR, THE FACTS INVOLVED WERE THAT T HE AO HAD GONE INTO THE ISSU E AND ACCEPTED THE CLAIM OF THE ASSESSEE OR NOT, WAS NOT DISCERNIBLE FROM THE ASSESSMENT ORDER, IT WAS HELD THAT T HERE SHOULD HAVE BEEN AT LEAST A BRIEF DISCUSSION REGARDING A SATISFACTION ON THE EXPLANATION OFFERED BY THE ASSESSEE. THUS, IT WAS A REASONAB LY FIT CASE FOR EXERCISING REVISIONARY JURISDICTION U/S 263 OF THE ACT. HOWEVER, IN THE PRESENT 132 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. CASE, THE FACTS ARE DIFFERENT BECAUSE THE AO NOT ONLY RAISED THE SPECIFIC QUERY ABOUT THE CAPITAL LOSS AND THE EXPENSES ETC. BUT ALSO CONSIDERED THE EXPLANATION OFFERED BY THE ASSESSEE AND APPLIED HIS MIND , THEN FRAMED THE ASSESSMENT. THEREFORE, THE FACTS OF THE CASE REFERRED BY THE LD. CIT DR ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. SIMI LARLY, IN THE CASE OF CIT VS DLF POWER LTD. (2012) 345 ITR 446 , RELIED BY THE LD. CIT DR THE HON BLE DELHI HIGH COURT HELD AS UNDER: IF THE ASSESSING OFFICER KEEPS A LETTER ON RECORD AND DOES NOT CARRY OUT NECESSARY INVESTIGATIONS WHICH ARE PER SE REQUIRED TO VERIFY THE CORRECTNESS OF THE AVERMENTS, THERE IS AN ERRO R IN THE SENSE THAT HE HAS FAILED TO CARRY OUT THE REQUISITE ENQUIRY WHICH CAN BE RECTIFIED IN A REVISION. HOWEVER, IN THE INSTANT CASE NO SUCH FACTS WERE INVOLVED, THEREFORE, THIS CASE IS ALSO DISTINGUISHABLE ON FACTS. 73 . IN VIEW OF THE AFORESAI D DISCUSSION AND BY KEEPING IN VIEW THE RATIO LAID DOWN IN THE VARIOUS JUDICIAL PRONOUNCEMENT WE SET ASIDE THE IMPUGNED ORDER DATED 30.03.2014 PASSED BY THE LD. CIT U/S 263 OF THE ACT AND THE ASSESSMENT ORDER DATED 30.10.2012 IS RESTORED. 133 ITA NO. 3120/DEL/2014 BHARTI AIR TEL LTD. 74 . IN THE RESULT , APPEAL OF THE ASSESSEE IS ALLOWED . ( ORDER PRON OUNCED IN THE COURT ON 06 .0 5 .2015) SD/ - SD/ - ( C. M. GARG ) ( N. K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 06 /0 5 /2015 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPO NDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR