ELDER IT SOLUTIONS P LTD, MUMBAI V. CIT 4, MUMBAI

ITA 3325/MUM/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8259 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Bench Allotted: E
• Next Hearing Date: 11-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 09-05-2014
• Court: TRIBUNAL
• Department Lawyers: ARVIND SONDE
• Keywords: Capital asset; Depreciation; Double taxation relief; Principle of natural justice; Assessment record; Capital expenditure
• Section: 143(3); 32; 68; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI JH FOT; IKY JKO] U;KF;D LNL; JH FOT; IKY JKO] U;KF;D LNL; JH FOT; IKY JKO] U;KF;D LNL; JH FOT; IKY JKO] U;KF;D LNL; ,OA ,OA ,OA ,OA JH CH JH CH JH CH JH CH- -- - VKJ VKJVKJ VKJ- -- - CKLDJ.K] YS[KK LNL; CKLDJ.K] YS[KK LNL; CKLDJ.K] YS[KK LNL; CKLDJ.K] YS[KK LNL; DS LE{K DS LE{K DS LE{K DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.3325/MUM/2014 ASSESSMENT YEAR: - 2009-10 ELDER IT SOLUTIONS PVT. LTD. 6, GROUND FLOOR, HANUMANTA APARTMENT, BAMANWADA, NR. CHAKALA CIGARETTE FACTORY, ANDHERI (EAST) MUMBAI 400007. V S. ` COMMISSIONER OF INCOME TAX -4, AAYAKAR BHAVAN, MUMBAI. PAN:- AABCE9586F APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE R EVISION ORDER DATED 28.3.2014 OF COMMISSIONER OF INCOME TAX, PASS ED U/S 263 OF THE INCOME TAX ACT FOR THE A.Y. 2009-10. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS:- ASSESSEE BY SHRI ARVIND SONDE AND SHRI JITENDRA SANGHVI REVENUE BY SHRI R. MANJUNATHA SWAMY DATE OF HEARING 12.11.2014 DATE OF PRONOUNCEMENT 12-12-2014 ELDER IT SOLUTIONS PVT. LTD 2 | P A G E GROUNDS OF APPEALS GROUND NO. I: L. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HON'BLE CIT ERRED IN ISSUING SHOW CAUSE NOTICE U/S. 263 OF THE ACT AND LATER IN PASSING THE ORDER U/S. 263 IN THE NAME OF ELDER INFOTECH PVT. LTD.', EVEN THOUGH THE COMPANY BY THE SAID NAME IS NO MORE IN EXISTENCE HAVING BEEN DISSOLVED UPON ITS AM ALGAMATION WITH THE APPELLANT. 2. THE APPELLANT PRAYS THAT THE ORDER PASSED IN THE NAME OF AN ASSESSEE NOT IN EXISTENCE BE STRUCK DOWN AND ANNULL ED AS AB-INITIO OR OTHERWISE NULL AND VOID. WITHOUT PREJUDICE TO GROUND NO.1: GROUND NO. II: 1. THE HON'BLE CIT FURTHER ERRED IN HOLDING THAT TH E APPELLANT HAD INDICATED THAT AN ASSESSMENT OF ELDER INFOTECH PVT. LTD. COULD BE MADE IN RESPECT OF THE ASSESSMENT YEAR 2009-10 AGAI NST THE APPELLANT WHEREAS THE APPELLANT HAD SUBMITTED THAT THE ASSESSMENT OF ELDER INFOTECH PVT. LTD. FOR THE ASSESSMENT YEAR 2009-10 COULD NOT BE MADE ON ANY PERSON (INCLUDING THE APPELLANT) AND THAT THERE WERE NO PROVISIONS IN THE INCOME TAX ACT WHICH WOUL D PERMIT THE MAKING OF SUCH AN ASSESSMENT OR THE RECOVERY OF ANY CONSEQUENTIAL DEMAND. 2. THE HON'BLE CIT FAILED TO APPRECIATE AND OUGHT T O HAVE HELD THAT ELDER INFOTECH PVT. LTD. WAS DISSOLVED ON AUGUST 23 ,2011 WITH EFFECT FROM APRIL 1,2010 AND CONSEQUENTLY, OR OTHERWISE IN THE ABSENCE OF ANY ENABLING PROVISION NO PROCEEDING RELATING TO TH E DETERMINATION OF TAX LIABILITY OF ELDER INFOTECH PVT. LTD. COULD BE COMMENCED UNDER THE INCOME-TAX ACT ON ELDER INFOTECH PVT. LTD. OR O N ANY OTHER PERSON INCLUDING THE APPELLANT. 3. THE APPELLANT PRAYS THAT ORDER PASSED UNDER SECT ION 263 OF THE ACT BE STRUCK DOWN AS AUTHORITIES BELOW-INITIO OR O THERWISE, NULL AND/OR VOID AND/OR OF NO EFFECT. WITHOUT PREJUDICE TO GROUND NO. 1/11: ELDER IT SOLUTIONS PVT. LTD 3 | P A G E GROUND NO. III: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HON'BLE CIT ERRED IN INVOKING THE PROVISIONS OF SEC TION 263 OF THE ACT AND SETTING ASIDE THE ASSESSMENT ORDER PASSED U NDER SECTION 143(3) OF THE ACT RESTORING IT BACK TO THE FILE OF THE A.O. FOR FRESH CONSIDERATION ON THE GROUND THAT THE SAID ASSESSMEN T ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. WITHOUT PREJUDICE TO GROUND NO. I/II/III: GROUND NO. IV: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, HON'BLE CIT ERRED IN SETTING ASIDE THE ASSESSMENT O RDER PASSED UNDER SECTION 143(3) OF THE ACT BY THE AO ON THE GR OUND THAT THE AO HAD NOT EXAMINED THE NATURE OF RIGHTS (I.E. INTANGI BLE ASSET) ACQUIRED BY AGREEMENT WITH RELIANCE COMMUNICATIONS LIMITED AND OBSERVING THAT ON A PRIMA FACIE BASIS ELDER INFOTEC H PVT. LTD. HAS NOT ACQUIRED ANY CAPITAL ASSET AND DOES NOT OWN IT FULLY OR PARTIALLY. 2. THE APPELLANT PRAYS THAT IT BE HELD THAT, IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AMOUNT PAID AGAINST ACQUIRING THE COMMERCIAL RIGHTS IS AN 'INTANGIBLE ASSET' AND DEPR ECIATION ON THE SAME IS ALLOWABLE UNDER SECTION 32(1) OF THE ACT AN D HAS CORRECTLY BEEN ALLOWED AFTER DUE VERIFICATION IN THE ASSESSME NT MADE UNDER SEE 143(3) IN THE CASE OF ELDER INFOTECH PVT. LTD F OR THE ASSESSMENT YEAR 2009-10 AND THAT THERE IS NO WARRANT FOR SETTI NG ASIDE THE ORDER ON THIS COUNT AND THAT THE ORDER IS NEITHER E RRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. GROUND NO. V: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, HON'BLE CIT ERRED IN SETTING ASIDE THE ASSESSMENT ORDER PAS SED UNDER SECTION 143(3) OF THE ACT BY THE AO ON THE GROUND THAT THE AO HAD NOT ADEQUATELY EXAMINED THE AMOUNT RECEIVED BY ELDER IN FOTECH PVT. LTD. THROUGH ISSUE OF PREFERENCE SHARES AND BY WAY OF UNSECURED LOAN. THE APPELLANT PRAYS THAT IT BE HELD THAT IN THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE, THE AMOUNTS RECEIVED BY ELDER INFOTECH ELDER IT SOLUTIONS PVT. LTD 4 | P A G E PVT. LTD. THROUGH ISSUE OF PREFERENCE SHARES AND UN SECURED LOAN HAVE BEEN DULY EXAMINED BY THE AO IN THE ASSESSMENT PROCEEDINGS OF THAT COMPANY AND THAT THERE IS NO WARRANT FOR SE TTING ASIDE THE ORDER ON THIS COUNT AND THAT THE ORDER IS NEITHER E RRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. 3. WITHOUT PREJUDICE THE HON'BLE CIT ERRED IN FAILI NG TO APPRECIATE THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E SOURCE OF THE FUNDS RECEIVED BY WAY OF APPLICATION FOR PREFERENCE SHARES AND UNSECURED LOANS WAS ADEQUATELY ESTABLISHED AND THE NATURE OF THE TRANSACTIONS WAS CONFIRMED BY THE COUNTERPARTIES AN D CONSEQUENTLY OR OTHERWISE THERE WAS NO CASE WHATSOEVER FOR ANY A DDITION TO THE INCOME OF ELDER INFOTECH PVT. LTD. 2. THE ASSESSEE CHALLENGED THE VALIDITY OF REVISION OR DER PASSED U/S 263 ON VARIOUS GROUNDS. FIRST WE WILL CONSIDER THE ISSUE ON WHICH THE COMMISSIONER HAS INVOKED THE PROVISIONS OF SECTION 26 3 AS RAISED IN GROUND NO. 3 TO 5 IN THIS APPEAL. THE ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. UNDER CONSIDERATION ON 30.09.2009 DECLARING A N ET LOSS OF RS. 19,82,57,889/-. THE ASSESSMENT WAS COMPLETED U/S 14 3(3) ON 9.12.2011 AT NIL INCOME AGAINST THE LOSS OF RS. 19,82,57,889/-. SU BSEQUENTLY, ON VERIFICATION OF THE ASSESSMENT RECORDS, THE CIT FOUND THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE WAS HAVING COMMISSIO N INCOME OF RS. 6.06 CRORE FROM THE SERVICES RENDERED TO RELIANCE CO MMUNICATION LTD., WITH A VIEW TO CREATE THE POTENTIAL TO REVIVE THE REL ATIONSHIP WITH SUCH DORMANT SUBSCRIBERS AND TO AUGMENT THE REVENUE TO REL IANCE COMMUNICATION LTD, THE ASSESSEE HAD DEBITED IN ITS P& L ACCOUNT, A SUM OF RS. 25.89 CRORES ON ACCOUNT OF PURCHASE OF DORMANT S UBSCRIBERS. THE ASSESSEE PAID A SUM OF RS. 517.94 CORES TO RELIANCE COMMUNICATION LTD. IN THE NATURE OF PURCHASE OF INTANGIBLE ASSET AND CLAIMED DEPRECIATION ON THE SAID AMOUNT AT THE RATE OF 25% FOR 73 DAYS AMOUNTING TO RS. 25.90 CRORES. THE DEPRECIATION CLAIMED BY THE ASSESSEE ON THE RIGHTS BEING PURCHASE OF DORMANT SUBSCRIBERS. THE ASSESSING OFFICER RESTRICTED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF COMMISSION INCOME EARNED B Y IT IN PURSUANT TO THE ELDER IT SOLUTIONS PVT. LTD 5 | P A G E AGREEMENT OF REVIVAL OF DORMANT SUBSCRIBERS. THE COMM ISSIONER WAS OF THE VIEW THAT THE ASSESSING OFFICER WHILE EXAMINING THE DET AILS HAS NOT CONSIDERED WHETHER THE REVIVAL OF THE DORMANT SUBSCRIBE RS IS A COMMERCIAL RIGHT OR NOT FOR THE PURPOSE OF ALLOWING DEPRECIATION U/S 32(1)(II). THE SECOND CLAIM WHICH WAS FOUND BY THE CIT(A) AS WRONGLY ALLOWED BY THE ASSESSING OFFICER IS REGARDING THE PREFERENCE SHARE A PPLICATION MONEY OF RS. 139.86 CRORE AND RS. 4,87,55,68,401/- AS UNSECU RED LOAN. ACCORDINGLY, THE COMMISSIONER ISSUED A SHOW CAUSE NOTICE DATED 20. 03.2014 U/S 263 AND ASKED THE ASSESSEE AS TO WHY THE ORDER PASSED BY THE ASSESSING OFFICER SHOULD NOT BE REVISED BEING ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF REVENUE. THE GROUNDS FOR INVOKING THE PROVISIONS OF SECTION 263 AS STATED IN THE SHOW CAUSE NOTICE IS THAT THESE TWO ISSUES HAVE NOT BEEN EXAMINED BY THE ASSESSING OFFICER WHILE PASSING THE ORDER FOR THE A.Y. 2009-10. THE ASSESSEE SUBMITTED ITS REPLY TO SHOW CAUSE NOTICE A ND RAISED VARIOUS OBJECTIONS INCLUDING A TECHNICAL LEGAL OBJECTION THAT THE COMPANY ELDER INFOTECH GOT MERGED WITH THE ELDER IT SOLUTIONS PVT. L TD. W.E.F 1.4.2010 AND, THEREFORE, AS PER THE PROVISIONS OF SECTION 170( 2), THE ASSESSMENT OF INCOME OF THE PREVIOUS YEAR SHALL BE MADE ON SUCCESSO R AND NOT ON THE ELDER INFOTECH SOLUTIONS PVT. LTD. THE ASSESSEE ALSO RAISED THE OBJECTION ON JURISDICTION TO REVISE THE ASSESSMENT U/S 263 OF THE INCOME TAX ACT., ON THE GROUND THAT WHEN THE ASSESSING OFFICER HAS EXAMINED T HE ISSUE AND TAKEN A POSSIBLE VIEW. IT WAS CONTENDED BY THE ASSESSEE TH AT THE ENTIRE MATERIAL WAS AVAILABLE BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE ASSESSING OFFICER AFTER EXAMINATI ON OF THE RELEVANT MATERIAL RESTRICTED THE CLAIM OF DEPRECIATION AND AL LOWED THE SHARE APPLICATION MONEY AGAINST THE PREFERENTIAL SHARES OF ELDER INFOTECH PVT. LTD.. AS WELL AS THE UNSECURED LOANS. THE COMMISSION ER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. AS REGARDS THE ISSUE OF DE PRECIATION ON COMMERCIAL RIGHT, THE COMMISSIONER OBSERVED THAT THE ASS ESSEE HAS TO ELDER IT SOLUTIONS PVT. LTD 6 | P A G E SPECIFY THAT EITHER THEY ARE COVERED UNDER THE SPECIFIC BUSINESS ASSET AS DESCRIBED U/S 32(1)(II) OF THE ACT., OR HAVING SIMIL AR NATURE. HE HAS EXPRESSED HIS DISAGREEMENT IN ACCEPTING THE PAYMENT MA DE BY THE ASSESSEE TO RELIANCE COMMUNICATION FOR ANY COMMERCIAL RIGHT OF SIMILAR NATURE AS PROVIDED U/S 32(1)(II) AND 32(1)(III). THE COMMISSIO NER CONCLUDED THAT THE AGREEMENT FOR REVIVAL OF DORMANT SUBSCRIBERS IS NOT COMMERCIAL ASSET AND THE PAYMENT MADE BY THE ASSESSEE COMPANY IS NOT FOR A CQUIRING THE CAPITAL ASSET. 3. ON THE SECOND ISSUE OF SHARE PREMIUM MONEY AND UNS ECURED LOAN, THE COMMISSIONER HELD THAT THE ORDER OF THE ASSESSING OF FICER SUFFERS FROM SEVERAL DEFECTS AS THE ASSESSING OFFICER HAS NOT RAIS ED ANY QUESTION WHILE RECORDING THE STATEMENT WITH RESPECT TO THE CREDENTIALS OF THE APPLICANT COMPANIES. THE STATEMENT RECORDED IN STEREO TYPE AND NO QUESTION HAS BEEN ASKED BY THE ASSESSING OFFICER WITH RESPECT TO THE CAPACITY OF COMPANIES WHO HAVE GIVEN THE LOAN TO THE ASSESSEE. THUS THE COMMISSIONER HAS QUESTIONED THE JUSTIFICATION OF PAYM ENT OF PREMIUM OF RS. 999 ON A FACE VALUE OF RS. 1 PER SHARE WHEN THE AS SESSEE COMPANY DOES NOT HAVE ANY CREDENTIALS IN THE MARKET TO ATTRACT THE HUGE PREMIUM ON ITS PREFERENTIAL SHARE. ACCORDINGLY, THE COMMISSIONER HELD THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PRE JUDICIAL TO THE INTEREST OF REVENUE WITH RESPECT TO THE CLAIM OF DEPRECIATION ON REVIVAL OF DORMANT SUBSCRIBERS AND ACCEPTANCE OF UNSECURE LOANS OF RS. 487.55 CRORES AND PREFERENCE SHARE OF RS. 139.86 CRORES. THEREFORE, THE COMMISSIONER SET ASIDE THE ASSESSMENT ORDER AND REMANDED THE MATTER B ACK TO THE FILE OF ASSESSING OFFICER FOR A FRESH CONSIDERATION AFTER GI VING REASONABLE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. ELDER IT SOLUTIONS PVT. LTD 7 | P A G E 4. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE HAD ADVANCED THE ARGUMENTS AT LENGTH AND REFERRED THE VOLUMI NOUS RECORDS FILED BEFORE THE ASSESSING OFFICER. ON THE ISSUE OF D EPRECIATION ON COMMERCIAL RIGHTS BEING AN INTANGIBLE ASSET, THE LD. AUT HORIZED REPRESENTATIVE HAS SUBMITTED THAT THE PAYMENT IN QUES TION HAS BEEN MADE BY THE ASSESSEE UNDER THE AGREEMENT DATED 1.8.2008 FOR REVIVAL OF DORMANT SUBSCRIBERS AS IDENTIFIED BY RELIANCE COMMUNICATION . THE ASSESSEE ACQUIRED THE RIGHT TO REVIVE THE DORMANT SUBSCRIBERS OF RELIANCE COMMUNICATION UNDER THE SAID AGREEMENT AND MADE ONE TIME PAYMENT OF RS. 320.04 CRORES TOWARDS THE PAYMENT OF EITPL AS AN EXCLUSIVE REVIVING AGENT OF RCOM AND FURTHER RS. 199 PER SUBSCRIBER IN CLUSIVE OF APPLICABLE TAXES AND LEVIES, IF ANY, PAYABLE UNDER THE LAW. T HUS THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT AS PER CLAUSE 3.1 A ND 3.2, THE BUSINESS RIGHT TO REVIVE THE DORMANT SUBSCRIBERS OF RCOM WAS A CQUIRED BY THE ASSESSEE AGAINST THE PAYMENT OF RS. 517.09 CRORES FO R DOING THE BUSINESS OF PROVIDING THE SERVICES OF REVIVAL AND GENERATING THE I NCOME IN THE SHAPE OF SERVICE CHARGES AS PROVIDED UNDER THE TERMS OF THE AGRE EMENT. HE HAS REFERRED THE ASSESSMENT ORDER AND SUBMITTED THAT THE A SSESSING OFFICER IN THE SCRUTINY ASSESSMENT HAS EXAMINED THE ISSUE AND RES TRICTED THE CLAIM OF DEPRECIATION ON THE SAID AMOUNT TO THE EXTENT OF COMM ISSION INCOME EARNED BY THE ASSESSEE DURING THE YEAR AGAINST THE SERV ICES PROVIDED FOR REVIVAL OF DORMANT SUBSCRIBERS. THUS THE ASSESSING OFF ICER RESTRICTED THE CLAIM OF DEPRECIATION FROM RS. 25.9 CRORES TO 6.06 CRORES AND MADE THE ADDITION ON ACCOUNT OF DISALLOWANCE AMOUNTING TO RS . 19,82,57,889/-. THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE CO MMISSIONER HAS REVISED THE ORDER OF ASSESSING OFFICER ON THE GROUND T HAT THE ASSESSEE HAS NOT ACQUIRED ANY CAPITAL ASSET IN THE NATURE OF BUS INESS OR COMMERCIAL RIGHT AND, THEREFORE, THE ASSESSING OFFICER HAS WRONGL Y ALLOWED THE CLAIM OF THE ASSESSEE EVEN TO THE EXTENT OF RS. 6.06 CROES AS DEPRECIATION ON ELDER IT SOLUTIONS PVT. LTD 8 | P A G E INTANGIBLE ASSETS. HE HAS REFERRED THE DECISION OF HO N'BLE SUPREME COURT IN THE CASE OF TECHNO SHARES AND STOCK LTD. (327 ITR 323) AND SUBMITTED THAT THE ISSUE OF COMMERCIAL RIGHT HAS BEEN DI SCUSSED BY THE APEX COURT AND IT HAS BEEN HELD THAT THE RIGHT OF A MEMBE RSHIP WHICH ALLOWED THE NON-DEFAULTING MEMBER TO PARTICIPATE IN T HE TRADING SEASON ON THE FLOOR OF THE EXCHANGE IS A BUSINESS OR COMMERCIAL R IGHT CONFERRED BY THE RULE OF BSE ON SUCH MEMBER. THE RIGHT TO PARTICIPATE IN THE MARKET HAD AN ECONOMIC AND MONEY VALUE. IT WAS AN EXPENSE INCURRE D BY THE ASSESSEE WHICH SATISFIED THE TEST OF BEING A LICENCE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE IN TERMS OF S. 32 (1)(II) AS HELD BY THE HON'BLE SUPREME COURT. WITHOUT THE RIGHT IN THE AGREEME NT, THE ASSESSEE COULD NOT APPROACH THE DORMANT SUBSCRIBERS FOR REVIVA L AND COLLECT THE REVIVAL SUBSCRIPTION AND CONSEQUENTLY IN THE ABSENC E OF SUCH RIGHT THE ASSESSEE COULD NOT DO ITS BUSINESS ACTIVITY OF REVI VAL OF SUBSCRIBERS EARNING INCOME. THUS THE LD. AUTHORIZED REPRESENTATIVE SUBMITT ED THAT THE RIGHT ACQUIRED BY THE ASSESSEE UNDER THE AGREEMENT IS IN T HE NATURE OF BUSINESS OR COMMERCIAL RIGHT FOR DOING THEIR SPECIFIC BUSINESS ACTIVITY. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HONB LE KERALA HIGH COURT IN THE CASE OF B. RAVEENDRAN PILLAI VS. CIT (332 ITR 531) , WHEREIN, THE QUESTION FELL FOR CONSIDERATION OF HONB LE HIGH COURT WAS WHETHER THE PURCHASE OF HOSPITAL BY ASSESSEE WITH ITS NAME AND TRADEMARK AS A GOING CONCERN INVOLVES ANY PURCHASE OF GOOD-WIL L. THE HON'BLE HIGH COURT HELD THAT THE PURPOSE OF PURCHASING A BUSINESS C ONCERN WHETHER IT BE HOSPITAL OR HOTEL, IS TO ENSURE CONTINUITY OF BUSINES S WITH THE SAME REPUTATION. THE NAME OF THE HOSPITAL IS THE MOST IMPORT ANT AFTER PURCHASE BY THE ASSESSEE CONTINUED TO BE RUN IN THE VERY SAM E BUILDING IN THE VERY SAME NAME. THEREFORE, THE PURPOSE OF BEING PAYING A HU GE AMOUNT OF GOOD-WILL FOR MAINTAINING A CONTINUED REPUTATION OF HOSPITAL IS FOR ENSURING THE RETENTION AND CONTINUE BUSINESS IN THE HOSPITAL AN D IT IS CERTAINLY FOR ELDER IT SOLUTIONS PVT. LTD 9 | P A G E ACQUIRING THE BUSINESS OR COMMERCIAL RIGHT COMPARABLE WITH TRADE MARK, FRANCHISE, COPYRIGHT ETC. THE LD. AUTHORIZED REPRESENT ATIVE THEN REFERRED THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. HINDUSTAN COCO COLA BEVERAGES P. LTD. (331 ITR 192) AND SUBMITTED THAT THE HONBLE HIGH COURT HAS CONSIDERED THE MEANING OF BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE IN T ERMS OF SECTION 32(1)(II) OF THE ACT., THAT ANY RIGHT WHICH IS OBTAINED FOR CARRY ON BUSINESS WITH EFFECTIVENESS IS LIKELY TO FALL OR COMES WITHIN THE SWEEP MEANING OF INTANGIBLE ASSET. HE HAS THEN REFERRED THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF AREVA T & D INDIA LIMITED V DCIT (345 ITR 421) (DELHI HC) , WHEREIN, A SIMILAR VIEW WAS TAKEN BY THE HIGH COURT WHILE CONSIDERING THE ISSUE OF DEPRECIATION ON THE AMOUNT P AID OVER AND ABOVE THE BOOK VALUE OF NET TANGIBLE ASSET. 5. ON THE ISSUE OF SHARE APPLICATION MONEY AND CASH C REDITS, THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE ASSES SEE FURNISHED ALL THE RELEVANT MATERIAL BEFORE THE ASSESSING OFFICER DUR ING THE ASSESSMENT PROCEEDINGS AND THE ASSESSING OFFICER AFTER CONSIDERI NG THE RELEVANT EVIDENCE ALLOWED THE CLAIM AS CORRECT AND GENUINE. HE HAS REFERRED THE RELEVANT PART OF THE REVISION ORDER WHEREIN THE COMMI SSIONER HAS RECORDED THE FINANCIAL DETAILS OF ALL THESE SHARE APPLICANT CO MPANIES AND ALSO RECORDED THE FACT THAT THE ASSESSING OFFICER CALLED FO R THE FINANCIAL DETAILS OF ALL THESE COMPANIES BUT NO EXAMINATION OF ACCOUNTS OF THESE COMPANIES HAS BEEN DONE BY THE ASSESSING OFFICER. THEREFORE, THE AS SESSMENT ORDER TO THE EXTENT OF SHARE APPLICATION WAS TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE ONLY ON THE SUSPICION AND JUSTIF ICATION OF PAYMENT OF SHARE PREMIUM. HE HAS CONTENDED THAT WHEN ALL THE RELEV ANT MATERIAL WAS AVAILABLE WITH THE ASSESSING OFFICER AS IT WAS PRODUC ED DURING THE ASSESSMENT PROCEEDINGS, THEN ACCEPTING THE SHARE PREMIUM BY THE ELDER IT SOLUTIONS PVT. LTD 10 | P A G E ASSESSING OFFICER DOES NOT SUFFER FROM ANY ERROR. T HE COMMISSIONER CANNOT INITIATE PROCEEDINGS WITH A VIEW TO START FISHING AN D ROVING ENQUIRIES IN THE MATTER OR ORDERS WHICH ALREADY CONCLUDED. WHEN THE ASS ESSING OFFICER HAS ALLOWED THE CLAIM AFTER CONSIDERING THE RELEVANT EVIDE NCE AND MATERIALS FILED BY THE ASSESSEE THEN THE COMMISSIONER CANNOT HELD THE ORDER ERRONEOUS SIMPLY BECAUSE ACCORDING TO HIM THE MATTER S HOULD HAVE BEEN WRITTEN MORE ELABORATELY. IT IS A CLEAR CASE WHERE THE ASSESSING OFFICER HAS MADE ENQUIRIES AND SATISFIED HIMSELF ABOUT THE CORREC TNESS AND GENUINENESS OF THE CLAIM. IN SUPPORT OF HIS CONTENTIO N HE HAS RELIED UPON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN T HE CASE OF COMMISSIONER OF INCOME-TAX VS GABRIEL INDIA LTD. HE HAS REFERRED THE FINANCIAL ACCOUNTS OF THESE COMPANIES WHO HAS PAID THE SHARE PREMIUM AS WELL AS LOAN TO THE ASSESSEE AND SUBMITTE D THAT THE ASSESSEE HAS PLACED ON RECORD THE BANK STATEMENTS OF THOSE COMP ANIES SHOWING THE PAYMENT FROM THE BANK ACCOUNTS AND SOURCE OF PAYMENT . HE HAS ALSO REFERRED THE RETURN OF INCOME FILED BY THESE COMPANI ES SHOWING THESE TRANSACTIONS THEREIN. THEREFORE, WHEN THESE COMPANIES HAVE SHOWN ALL THESE TRANSACTIONS IN THEIR RETURN OF INCOME THEN THE Q UESTION OF NOT ACCEPTING THE CLAIM OF THE PREMIUM PAID TO THE ASSESSEE FOR WANT OF SOURCE IS CONTRARY TO THE WELL SETTLED PRINCIPLE ON THIS POI NT. IF THE REVENUE DOUBTS THE CAPACITY OF THESE COMPANIES THEN THE ISSUE HAS TO BE CONSIDERED IN THEIR ASSESSMENT AND NOT IN THE ASSESSMENT OF THE ASSESSEE . IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF LOVELY EXPORTS AND SUBMITTED THAT WHEN THE AS SESSEE HAS PRIMA FACIE PROVED THE IDENTITY OF THE CREDITORS AND GENUINENESS O F THE TRANSACTIONS THROUGH THE BANKING CHANNEL AND THE CREDITWO RTHINESS OF THE CREDITORS/SUBSCRIBERS BY FURNISHING THE DETAILS OF ADD RESSES, PAN NOS., BANK STATEMENTS AS WELL AS RETURN OF INCOME WHERE THE TRANSACTION IS DULY REFLECTED THEN IF THE ASSESSING OFFICER HAS THE DOUBT OF LEGITIMACY OF ANY OF ELDER IT SOLUTIONS PVT. LTD 11 | P A G E THE CREDITORS, HE IS FREE TO CARRY OUT THOROUGH INVESTIG ATION IN THE CASE OF THE CREDITORS. HE HAS RELIED UPON THE FOLLOWING DECIS IONS:- (I) HARI IRON TRADING CO. VS. CIT ( 263 ITR 437) (II) COMMISSIONER OF INCOME-TAX. VS. EICHER LIMITED (294 ITR 310) (III) CIT. VS. DEVELOPMENT CREDIT BANK LIMITED. (323 ITR 167) (IV) CIT VS. SUNBEAM AUTO LTD., (2011) 332 ITR 167 (DEL.) (V) CIT VS. ANIL KUMAR SHARMA, 335 ITR 83 6. ON THE OTHER HAND. THE LD. DR HAS SUBMITTED THAT THE ASSESSING OFFICER HAS NOT EXAMINED THE ISSUE WHETHER THE ASSESSEE HAD ACQUIRED ANY CAPITAL ASSET IN THE AGREEMENT FOR REVIVAL OF DORMANT SUBSCRIBERS OF THE RCOM. HE HAS REFERRED THE RELEVANT FINDING OF HE COMM ISSIONER IN THE IMPUGNED ORDER AND SUBMITTED THAT THE COMMISSIONER HA S GIVEN A FINDING THAT THE ASSESSEE HAS NOT ACQUIRED ANY CAPITAL ASSET OR OWNED ANY CAPITAL ASSET UDER THE AGREEMENT, THEREFORE, NO DEPRECIATION IS ALLOWABLE. THE ASSESSING OFFICER HAS NOT MADE ANY ENQUIRY ON THIS IS SUE, THEREFORE, THERE IS A LACK OF APPLICATION OF MIND ON THE PART OF THE ASSE SSING OFFICER WHICH RENDERS THE ORDER ERRONEOUS SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE ORD ER OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. INFOSYS TECHNOLOGIES (341 ITR 293) THAT IN THE ABSENCE OF ANY DISCUSSION EITHER IN THE ASSESSMENT ORDER OR IN THE COMPUTATION CLAIM TO THE EXTENT OF RE LIEF CLAIMED BY THE ASSESSEE, THE ORDER IS ERRONEOUS AND PREJUDICIAL AND IN SUCH A SITUATION THE COMMISSIONER HAS THE JURISDICTION TO EXERCISE THE POWE R U/S 263. HE HAS FURTHER SUBMITTED THAT THE ISSUE IS NOT AT ALL EXAMINE D BY THE ASSESSING OFFICER, THEREFORE, THE COMMISSIONER CAN DIRECT THE ASSESSING AUTHORITIES ELDER IT SOLUTIONS PVT. LTD 12 | P A G E TO COMPUTE OR RE-COMPUTE THE SAME. HE HAS THEN RELIED UPON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. HINDUSTAN LIVER (343 ITR 161) AND SUBMITTED THAT AN EXCESS ALLOWANCE BY THE ASSESSING OFFICER BY OVER LOOKING THE FACT, THE RESEA RCH EXPENDITURE INCURRED BY THE INEXTRICABLY LINKED WITH THE BUSINESS OF THE ASSESSEE INCLUDING BUSINESS IN THOSE PRODUCES WHICH ARE MANUFACT URED IN THE UNIT ENTITLED FOR DEDUCTION U/S 80I, 80IA AND 80HH. THER EFORE, ONLY AN APPROPRIATE PART OF THE EXPENDITURE WOULD HAVE TO BE ALLOCATED TO THE ELIGIBLE UNIT FOR THE PURPOSE OF AFORESAID DEDUCTIO N. THE HONBLE HIGH COURT HELD THAT THE COMMISSIONER WAS JUSTIFIED IN SET TING ASIDE THE ORDER AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE . THE LD. DR THEN RELIED UPON THE DECISION OF DELHI BENCHES OF THIS TRIBUNAL IN THE CASE OF FRICK INDIA LTD. VS/. DCIT 6 ITR (TRIB.) 82 (DEL) AND SUBMITTED THAT THE ORDER OF THE ASSESSING OFFICER ALLOWING DEDUCTION WA S ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE ON THE GROUND T HAT THE ASSESSING OFFICER HAS FAILED TO CONSIDER THE ASSESSMENT OF THE E ARLIER YEARS WHEREIN A TECHNICAL KNOW HOW FEE WAS INCLUDED IN INTANGIBLE ASS ET AND DEPRECIATION WAS ALLOWED. THUS THE LD. DR HAS SUBMITTED THAT EVEN IF THE ASSESSING OFFICER HAS EXAMINED THE ISSUE BUT WHEN HE FAILED TO C ONSIDER THE DECISION TAKEN IN THE ASSESSMENT ORDER FOR EARLIER YEAR, THE O RDER WAS CONSIDERED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REV ENUE HE HAS THEN RELIED UPON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAJOR METALS LTD. VS. UNION OF INDIA ( 359 ITR 450) AND SUBMITTED THAT THE HONBLE HON'BLE JURISDICTIONAL HIGH COURT AFTE R CONSIDERING THE JUDGMENT OF HONBLE DELHI HIGH COURT AS WELL AS THE JUD GMENT OF HON'BLE SUPREME COURT IN THE CASE OF LOVELY EXPORTS HAS CONF IRMED THE FINDING OF SETTLEMENT COMMISSION IN RESPECT OF THE ADDITION U/ S 68 OF INCOME TAX ACT ON ACCOUNT OF CASH CREDIT OF RS. 6 CRORE AGAINST WHICH THE SHARES WERE ISSUED BY THE ASSESSEE AT A HUGE PREMIUM. THE LD. DR T HEN RELIED UPON THE ELDER IT SOLUTIONS PVT. LTD 13 | P A G E DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD VS. CIT (243 ITR 83) AND SUBMITTED THAT WHEN THE ASSESSING OFFICER ACCEPTED THE CLAIM OF THE ASSESSEE WITHOUT AN Y SUPPORTING MATERIAL AND WITHOUT MAKING ANY ENQUIRY, THE COMMISSIONER IS J USTIFIED IN EXERCISING THE JURISDICTION U/S 263. THE ASSESSING O FFICER HAS NOT APPLIED HIS MIND WHILE ALLOWING THE CLAIM OF THE ASSESSEE IN RES PECT OF SHARE APPLICATION MONEY AS WELL AS LOAN RECEIVED FROM THES E COMPANIES. HE HAS FORCEFULLY CONTENDED THAT THE COMMISSIONER HAS DISCUS SED THE FACT AS TO HOW THE ASSESSING OFFICER HAS NOT MADE ANY ENQUIRY ON THE ISSUES WHICH ARE SUBJECT MATTER OF REVISION. HE HAS REFERRED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SOUTH INDIA STEEL ROLLING MILLS V CIT [1997] 224 ITR 654 AND SUBMITTED THAT THE EXERCISE OF POWER CONFERRED U/S 263 BY THE COMMISSIONER WAS HELD TO BE JUSTIFIED WHEN THE ASSESSING OFFICER WHILE GRANTING THE BENEFIT OF DEVELOPMENT REBA TE U/S 33(1A), FAILED TO NOTE THAT THE CONDITION PROVIDED U/S 34(3)(A) WERE NOT FULFILLED BY THE ASSESSEE AS THE FIRM WAS DISSOLVED AND CEASED TO EXI ST BEFORE THE EXPIRY OF PERIOD OF EIGHT YEARS. THUS THE LD. DR HAS STRONGLY SUP PORTED THE REVISION ORDER AND SUBMITTED THAT THE COMMISSIONER WAS JUSTIF IED IN REVISING THE ASSESSMENT ORDER WHEN THE ASSESSING OFFICER HAS NOT AP PLIED ITS MIND ON THE ISSUES IN QUESTION. 7. IN REBUTTAL, THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE SHARE APPLICANT COMPANIES ARE NBFC REGISTERED WITH RB I, THEREFORE, THERE IS NO QUESTION OF DOUBTING THE IDENTITY AND AVAILABI LITY OF FUNDS WITH THE SHARE APPLICANT COMPANIES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL A S RELEVANT MATERIAL ON RECORD. THE ASSESSMENT IN THIS CASE WAS COMPLETED U/S 143(3) ON ELDER IT SOLUTIONS PVT. LTD 14 | P A G E 9.12.2011. SUBSEQUENTLY, THE COMMISSIONER HAS ISSUE A SHOW CAUSE NOTICE DATED 20.03.2014 U/S 263 AS UNDER:- THE ASSESSEE COMPANY I.E. M/S ELDER INFOTECH PVT. LTD. HAS FILED ITS RETURN OF INCOME ON 30.09.2009 DECLARING A NET LOSS OF RS. 19,82,57,889/- FOR A.Y. 2009-10. THEREAFTER, THE SA ID COMPANY I.E. M/S ELDER INFOTECH GOT MERGED WITH ELDER IT SOLUTIO NS PVT. LTD., 6 GROUND FLOOR, SHREE HANUMAN APT, BAMANWADA, NR. CH AKALA CIGARETTE FACTORY, ANDHERI (E) MUMBAI 400 009. DU RING THE YEAR UNDER CONSIDERATION I.E. A.Y. 2009-10 (F.Y. 2008-0 9), THE ASSESSEE WAS HAVING THE COMMISSION INCOME OF RS. 25.89 CRORE S ON ACCOUNT OF PURCHASE OF DORMANT SUBSCRIBERS. THE ASSESSEE COMPA NY HAS PAID TO RELIANCE COMMUNICATION LTD. AN AMOUNT OF RS. 517.94 CRORES IN THE NATURE OF PURCHASE OF INTANGIBLE ASSET. THE ASSESSE E COMPANY HAS PROVIDED DEPRECIATION @ 25% FOR 73 DAYS AMOUNTING TO RS. 25.90 CRORES. THE ASSESSEE COMPANY HAS CLAIMED THE DEPREC IATION ON COMMERCIAL RIGHTS FROM THE PERIOD 01.04.2009 TO 28. 05.2009 AMOUNTING TO RS. 25.90 CRORES. THIS HAS BEEN CLAIME D ON THE INSTANT THAT THE ASSESSEE HAS PAID TO RELIANCE COMMUNICATIO N LTD., A SUM AMOUNTING TO RS. 517.94 CRORES IN THE NATURE OF PUR CHASE OF INTANGIBLE ASSETS. THE ASSESSEE COMPANY HAS CLAIMED THE DEPRECIATION FOR 6 MONTHS AMOUNTING TO RS. 64.74 C RORES BUT CLAIMED ONLY RS. 25.90 CRORES. THE ASSESSING OFFICE R HAS CONSIDERED THIS ASPECT AND RESTRICTED THE CLAIM OF THE ASSESSE E TO THE EXTENT OF COMMISSION INCOME EARNED BY IT IN PURSUANCE OF THE AFORESAID AGREEMENT OF REVIVAL. THE ASSESSING OFFICER HAS NOT CONSIDERED WHETHER THE REVIVAL OF DORMANT SUBSCRIBERS IS A CO MMERCIAL RIGHT OR NOT. THE SUBSTANTIVE ASPECT OF THE DEPRECIATION PRE SCRIBED U/S 32(1)(II) WHICH SAYS THAT DEPRECIATION WILL BE ALL OWED ON KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARK, LICENCES, FRANCHIS ES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE BEI NG INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1 ST DAY OF APRIL, 1998 HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER. THERE IS NOTHING ON RECORD THAT VERIFICATION OF THE ASSESSEES TECHNICAL CAPABILITI ES OR THE INFRASTRUCTURE REQUIRED TO CARRY OUT THE ALLEGED RE VIVAL WAS EVER DONE. THE SECOND ISSUE IN THIS CASE IS WITH RESPECT TO SH ARE APPLICATION MONEY AND UNSECURED LOANS FOR THE YEAR ENDING 31.03 .2010. THE ASSESSEE COMPANY, M/S ELDER IT SOLUTIONS PVT. LTD H AS RECEIVED THE UNSECURED LOAN OF RS. 48,75,56,8401/- AND SHARE APP LICATION MONEY OF RS. 1,39,86,00,000/-. ELDER IT SOLUTIONS PVT. LTD 15 | P A G E THE ABOVE TWO ISSUES HAVE NOT BEEN EXAMINED BY THE ASSESSING OFFICER WHILE PASSING THE ORDER OF ELDER INFOTECH P VT. LTD. FOR A.Y. 2009-10. ON THE ISSUES AS STATED ABOVE A SHOW CAUSE IS BEING GIVEN TO YOU AS TO WHY THE ORDER PASSED BY JCIT (OSD)-CIR. 8(1), MU MBAI DTD 09.12.2011 SHOULD NOT BE REVISED U/S 263 OF THE AC T BEING ORDER ERRONEOUS ONE AD PREJUDICIAL TO THE INTEREST OF REV ENUE. PLEASE SUBMIT YOUR REPLY EITHER IN PERSON OR THROUGH AUTHO RIZE REPRESENTATIVE ON 25.03.2014 AT 11.30 A.M. 9. THE COMMISSIONER PROPOSED TO REVISE THE ASSESSMENT ORDER DATED 9.12.2011 IN RESPECT OF THESE TWO ISSUES ON THE GROU ND THAT THE ASSESSING OFFICER HAS NOT EXAMINED THESE ISSUES WHILE PASSING THE ORDER FOR THE A.Y. UNDER CONSIDERATION. THERE MAY BE TWO BROAD SCENARIO IN WHICH SECTION 263 CAN BE INVOKED. FIRSTLY, IN A CASE WHERE THE CLA IM OF THE ASSESSEE NEEDED INQUIRY AND EXAMINATION BUT THE ASSESSING OFF ICER FAILED TO CONDUCT ANY INQUIRY. SUCH A CASE WOULD FALL UNDER THE CATEGORY OF LACK OF ENQUIRY AND CONSEQUENTIALLY NON APPLICATION OF MIND ON THE P ART OF THE ASSESSING OFFICER, RENDERS THE ORDER ERRONEOUS SO FAR AS PREJU DICIAL TO THE INTEREST OF REVENUE. SECONDLY, IN A CASE WHERE DESPITE THE INQUIR Y THE VIEW OF THE ASSESSING OFFICER IS NOT PERMISSIBLE DUE TO NON CO NSIDERATION OF CRUCIAL RELEVANT FACTS OR LEGAL PROVISIONS OF LAW ON THE POIN T . THE FAILURE ON THE PART OF THE ASSESSING OFFICER TO CONSIDER THE CRUCIAL FACT S, PROVISIONS OF LAW OR SETTLED LEGAL PRECEDENT ON THE POINT RENDERS THE ORDE R ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. HOWEVER, IN A CASE WHERE THE ASSESSING OFFICER CONDUCTED AN INQUIRY MAY BE INAD EQUATE AND ALLOW THE CLAIM BY TAKING A VIEW ON THE ISSUE HAVING TWO POSSIBL E VIEWS THEN THE CIT CANNOT INVOKE THE PROVISIONS OF SECTION 263 MERELY O N THE GROUND THAT HE DOES NOT AGREE WITH THE VIEW TAKEN BY ASSESSING OFFIC ER.. THIS POSITION HAS BEEN SETTLED BY THE HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT (SUPRA) AS UNDER:- ELDER IT SOLUTIONS PVT. LTD 16 | P A G E THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COM MITTED BY THE ASSESSING OFFICER; IT IS ONLY WHEN AN ORDER IS ERRO NEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUI REMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS P ASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHO UT APPLICATION OF MIND. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY TH E ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN ITO ADOPTED ONE O F THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF R EVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VI EW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREAT ED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. IT H AS BEEN HELD BY THIS COURT THAT WHERE A SUM NOT EARNED BY A PERSON IS ASSESSED AS INCOME IN HIS HANDS ON HIS SO OFFERING, THE ORDER P ASSED BY THE ASSESSING OFFICER ACCEPTING THE SAME AS SUCH WILL B E ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE - RAMPY ARI DEVI SARAOGI V. CIT [1968] 67 ITR 84 (SC) AND INSMT. TARA DEVI AGGARWAL V. CIT [1973] 88 ITR 323 (SC). 10. IN THE CASE IN HAND, THE ASSESSING OFFICER HAS MAD E AN ENQUIRY REGARDING THE CLAIM OF DEPRECIATION ON TANGIBLE ASSE T AND AFTER CONSIDERING THE RELEVANT AGREEMENT UNDER WHICH THE ASSESSEE HAD ACQ UIRED THE RIGHT FOR REVIVAL OF DORMANT SUBSCRIBERS OF RCOM LTD., HAS DEC IDED THE ISSUE IN PARA 3.3 OF THE ASSESSMENT ORDER AS UNDER:- 3.3 THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN CONS IDERED BUT THE SAME ARE NOT ACCEPTABLE. THE ASSESSEE FURNISHED THE LEDGER ACCOUNT OF ADVANCE TOWARDS PURCHASE OF SUBSCRIBERS', PERUSA L OF WHICH SHOWS THAT DURING THE YEAR THE ASSESSEE HAS GIVEN A DVANCE OF RS 402,44,00,000/- ON 23.10.2008 AND RS.115,50,OO,OOO/ - ON 20.01.2009 TO RELIANCE COMMUNICATION LIMITED ON ACC OUNT OF ELDER IT SOLUTIONS PVT. LTD 17 | P A G E PURCHASE OF SUBSCRIBERS. THUS, DURING THE YEAR, THE ASSESSEE HAS - PAID A SUM OF RS. 517,94,OO,OOO/- TO RELIANCE COMMU NICATION LIMITED ON ACCOUNT OF 'PURCHASE OF SUBSCRIBERS'. HO WEVER, AT THE END OF THE YEAR ITSELF I.E. ON 31ST MARCH, 2009, THE A SSESSEE HAS WRITTEN OFF A SUM OF RS.25,89,70,OOO/- BEING 5% OF THE AMOU NT OF 'ADVANCE TOWARDS PURCHASE OR SUBSCRIBERS'. TO SUBSTANTIATE T HE AFORESAID TRANSACTION, THE ASSESSEE HAS FURNISHED A RELIANCE COMMUNICATIONS LIMITED. DURING THE YEAR, THE ASSESSEE HAS EARNED I NCOME BY WAY OF COMMISSION OF RS.6,06,61,421/- FROM RELIANCE COMMUN ICATION LIMITED DUE TO REVIVAL OF CERTAIN SUBSCRIBER CONTRA CTS. THE ASSESSEE ALSO EARNED INCOME IN THE COPY OF AGREEMENT FOR REV IVAL OF DORMANT SUBSCRIBERS DATED 01.08.2008 WITH FORM OF C ONSULTANCY FEES. HOWEVER, THE ASSESSEE HAS NOT CLEARLY JUSTIFI ED THE LOGIC OF CLAIMING 5% OF THE TOTAL AMOUNT OF SUBSCRIBER CONTR ACTS AGAINST THE AFORESAID INCOME. EVEN, THE PERUSAL OF PROFIT & LOS S ACCOUNT REVEALS THAT THERE IS NO OTHER EXPENDITURE INCURRED TO EARN THIS INCOME SUCH AS LEGAL AND PROFESSIONAL CHARGES, SALARY & WAGES, ETC. IN VIEW OF THE SAME, IT WOULD BE IN THE INTEREST OF JUSTICE TO RESTRICT THE CLAIM OF ASSESSEE TO THE EXTENT OF COMMISSION INCOME EARNED BY THE ASSESSEE IN PURSUANCE OF THE AFORESAID AGREEMENT OF REVIVAL AND THE BALANCE STANDS DISALLOWED. 11. THUS IT IS CLEAR THAT IT IS NOT A CASE OF COMPLET E LACK OF ENQUIRY ON THE PART OF THE ASSESSING OFFICER ON THE ISSUE OF ALLOWING DEPRECIATION ON INTANGIBLE ASSET BEING BUSINESS OR COMMERCIAL RIGHTS A CQUIRED UNDER THE AGREEMENT FOR REVIVAL OF DORMANT SUBSCRIBERS OF RCOM . ONCE THE ASSESSING OFFICER HAS CONDUCTED THE ENQUIRY AND AFTER EXAMINATI ON OF RELEVANT RECORD AS WELL AS CONTENTION OF THE ASSESSEE HAS GIVEN A FIND ING THEN THE PROVISIONS OF SECTION 263 CAN BE INVOKED BY THE COMMISSIONER ON LY IF THE VIEW TAKEN BY THE ASSESSING OFFICER IS NOT PERMISSIBLE UNDER THE LAW. THE COMMISSIONER IN THIS CASE THOUGH HAS GIVEN THE REASONS F OR NOT ACCEPTING THE VIEW OF THE ASSESSING OFFICER, HOWEVER, AT THE SAME TIME HE HAS AGAIN LEFT THE ISSUE TO BE DECIDED BY THE ASSESSING OFFICER AFRESH IN THE CONCLUDING PARA AS UNDER:- ELDER IT SOLUTIONS PVT. LTD 18 | P A G E SUBJECT TO THE ABOVE DISCUSSION, I WISH TO CONCLUDE THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICI AL TO THE INTEREST OF REVENUE , WITH RESPECT TO THE CLAIM OF DEPRECIATIO N ON REVIVAL OF DORMANT SUBSCRIBERS AS A COMMERCIAL ASSET (INTANGIBLES) MAD E BY ASSESSEE COMPANY AND ACCETANCE OF UNSECURED LOAN OF RS. 4,8 7,55,68,401/- AND PREFERENCE SHARE OF RS. 13,98,60,000/-. THEREFORE, THE ORDER IS SET ASIDE AND MATTER IS RESORTED TO THE FILE OF ASSESSING OFF ICER FOR A FRESH CONSIDERATION AFTER GIVING REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. 12. WHEN THE MATTER WAS RESTORED BACK TO THE FILE OF A SSESSING OFFICER FOR A FRESH CONSIDERATION AFTER GIVING REASONABLE OPPORTUN ITY OF HEARING TO THE ASSESSEE THEN IT IS APPARENT THAT THE COMMISSIONER HAS NOT ARRIVED TO A CONCLUDING FINDING THAT THE VIEW TAKEN BY THE ASSESSI NG OFFICER IS NOT PERMISSIBLE UNDER THE LAW. MOREOVER, THE ISSUE OF TA NGIBLE ASSET BEING BUSINESS OR COMMERCIAL RIGHT AS PER SECTION 32(1)(II ) OF THE ACT., IS A DEBATABLE ISSUE IN VIEW OF THE VARIOUS JUDGMENTS INCL UDING THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF TECHNO SHARES & STOCKS (SUPRA), REFERRED BY ASSESSEE WHEREIN, THE STOCK EXCHANGE MEMBER SHIP WAS CONSIDERED AS A RIGHT AKIN TO A LICENSE WHICH IS ONE OF THE ITEM WHICH FALLS UNDER SECTION 32(1)(II) OF THE INCOME TAX ACT. THE HO N'BLE SUPREME COURT HAS OBSERVED THAT RIGHT TO PRACTICE IN MARKET HAS AN EC ONOMIC AND MONEY VALUE. IT WAS AN EXPENSE INCURRED BY THE ASSESSEE W HICH SATISFIED THE TEST OF BEING A LICENCE OR ANY OTHER BUSINESS OR COMMERCIA L RIGHT OF SIMILAR NATURE IN TERMS OF S. 32(1)(II) OF THE INCOME TAX A CT. IN THE CASE OF B. RAVEENDRAN PILLAI VS. CIT (SUPRA), THE HONBLE KERAL A HIGH COURT HAS DISCUSSED THE ALLOWABILITY OF DEPRECIATION ON VERY HU GE AMOUNT PAID FOR GOOD WILL AND HELD THAT IT IS CERTAINLY FOR ACQUIRIN G A BUSINESS OR COMMERCIAL RIGHT AND ALSO COMPARABLE WITH THE TRADE MAR K, FRANCHISE, COPYRIGHT ETC,. REFERRED TO IN THE FIRST PART OF SUB CLAUSE (II) OF SECTION 32(1). IN THE CASE OF CIT VS. HINDUSTAN COCO COLA (SUPRA), THE HONBLE DELHI HIGH COURT ON THE ISSUE OF DEPRECIATION ON INTANGIBLE ASSET U/S 32(1)(II) HELD THAT THE ASSET WHICH ARE IN THE DEFINITION OF INTAN GIBLE ASSET INCLUDES ELDER IT SOLUTIONS PVT. LTD 19 | P A G E ALONG WITH OTHER THINGS ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE. THE MEANING OF BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE HAS BEEN DISCUSSED IN PARA 24 AS UNDER:- 24. IT IS WORTH NOTING THAT THE MEANING OF BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE HAS TO BE UNDERSTOOD IN TH E BACKDROP OF SECTION 32(1)(II) OF THE ACT. COMMERCIAL RIGHTS ARE SUCH RIGHTS WHICH ARE OBTAINED FOR EFFECTIVELY CARRYING ON THE BUSINE SS AND COMMERCE, AS IS UNDERSTOOD, IS A WIDER TERM WHICH ENCOMPASSES IN ITS FOLD MANY A FACET. STUDIED IN THIS BACKGROUND, ANY RIGHT WHICH IS OBTAINED FOR CARRYING ON THE BUSINESS WITH EFFECTIV ENESS IS LIKELY TO FALL OR COME WITHIN THE SWEEP OF MEANING OF INTANGI BLE ASSET. THE DICTIONARY CLAUSE CLEARLY STIPULATES THAT BUSINESS OR COMMERCIAL RIGHTS SHOULD BE OF SIMILAR NATURE AS KNOW-HOW, PAT ENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES, ETC. AND ALL THES E ASSETS WHICH ARE NOT MANUFACTURED OR PRODUCED OVERNIGHT BUT ARE BROU GHT INTO EXISTENCE BY EXPERIENCE AND REPUTATION. THEY GAIN S IGNIFICANCE IN THE COMMERCIAL WORLD AS THEY REPRESENT A PARTICULAR BENEFIT OR ADVANTAGE OR REPUTATION BUILT OVER A CERTAIN SPAN O F TIME AND THE CUSTOMERS ASSOCIATE WITH SUCH ASSETS. GOODWILL, WHE N APPOSITELY UNDERSTOOD, DOES CONVEY A POSITIVE REPUTATION BUILT BY A PERSON/COMPANY/BUSINESS CONCERN OVER A PERIOD OF TI ME. REGARD BEING HAD TO THE WIDER EXPANSION OF THE DEFINITION AFTER THE AMENDMENT OF SECTION 32 BY THE FINANCE (NO. 2) ACT, 1998 AND THE AUDITORS REPORT AND THE EXPLANATION OFFERED BEFORE THE ASSESSING OFFICER, WE ARE OF THE CONSIDERED OPINION THAT THE TRIBUNAL IS JUSTIFIED IN HOLDING THAT IF TWO VIEWS WERE POSSIBL E AND WHEN THE ASSESSING OFFICER HAD ACCEPTED ONE VIEW WHICH IS A PLAUSIBLE ONE, IT WAS NOT APPROPRIATE ON THE PART OF THE COMMISSIONER TO EXERCISE HIS POWER UNDER SECTION 263 SOLELY ON THE GROUND THAT I N THE BOOKS OF ACCOUNT IT WAS MENTIONED AS GOODWILL AND NOTHING ELSE. AS HAS BEEN HELD BY THE APEX COURT IN MALABAR INDUSTRIAL CO. LT D.S CASE (SUPRA), MAX INDIA LTD.S CASE ( SUPRA) AND CIT V. VIMGI INVESTMENT (P.) LTD. [2007] 290 ITR 505 (DELHI) ONCE A PLAUSIBLE VIEW IS TAKEN, IT IS NOT OPEN TO THE COMMISSIONER TO EXERCISE THE POWER UNDER SECTION 263 OF THE ACT. 13. THE MEANING AS UNDERSTOOD BY THE HONBLE HIGH COURT THAT ANY BUSINESS OR COMMERCIAL RIGHT WHICH IS OBTAINED FOR CAR RY ON BUSINESS WITH EFFECTIVENESS IS LIKELY TO FALL OR COMES WITHIN THE S WEEP MEANING OF TANGIBLE ELDER IT SOLUTIONS PVT. LTD 20 | P A G E ASSET. SIMILARLY IN THE CASE OF AREVA T&D INDIA LTD. (SUPRA), THE HONBLE DELHI HIGH COURT HAS HELD THAT THE TERM BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE HAS BEEN ADDITIONALLY USED UN DER THE CATEGORY OF INTANGIBLE ASSET REFERRED TO SECTION 32(1)(II) CLEA RLY DEMONSTRATES THAT THE LEGISLATURE DID NOT INTEND TO PROVIDE FOR DEPRECIATI ON ONLY IN RESPECT OF SPECIFIED INTANGIBLE ASSET BUT ALSO TO OTHER CATEGORIE S OF INTANGIBLE ASSETS WHICH WERE NEITHER FEASIBLE NOR POSSIBLE TO EXHAUSTI VELY ENUMERATE. THEREFORE, THE EXPRESSION ANY BUSINESS OR COMMERCIA L RIGHTS CANNOT BE RESTRICTED TO ONLY THE SIX CATEGORIES OF THE ASSETS A S MENTIONED IN SECTION 32(1)(II). THE HONBLE HIGH COURT HAS CLEARLY FORESEEN THE NON FEASIBLE IMPOSSIBILITY TO ENUMERATE THE INTANGIBLE ASSET UNDE R THE CATEGORY OF BUSINESS OR COMMERCIAL RIGHTS. IN VIEW OF THE ABOVE SAID DECISIONS IT CANNOT BE SAID THAT THE CLAIM OF THE ASSESSEE AND VIEW OF HE ASSESSING OFFICER IS ABSOLUTELY CONTRARY TO LAW BUT THE ISSUE OF ALLOWABILITY OF DEPRECIATION ON INTANGIBLE ASSET BEING BUSINESS OR COMMERCIAL RIGHTS IS A DEBATABLE ISSUE. ONCE THE ASSESSING OFFICER HAS TAKEN A POSSIBLE VIEW THEN THE COMMISSIONER IS NOT PERMITTED TO INVOKE THE PROV ISIONS OF SECTION 263 MERELY BECAUSE HE DID NOT AGREE WITH THE VIEW TAKEN BY THE ASSESSING OFFICER. 14. NOW WE TAKE UP THE SECOND ISSUE OF SHARE APPLICAT ION MONEY AND UNSECURED LOAN. THE COMMISSIONER HAS GIVEN THE DETAILS OF PREFERENTIAL SHARE HOLDER OF THE ASSESSEE AT PAGE 9 OF THE IMPUGNED ORDER AS UNDER:- SR. NO. NAME FACE VALUE PREMIUM AMOUNT RECEIVED 1. MINDTREE INDUSTRIAL FINANCE LTD. ADDRESS: 60-B, 4 TH FLOOR, 9, BHUPEN CHAMBER, DALAL STREET, FORT, MUMBAI 400001. 3,50,000 34,96,50,000 35,00,00,000 ELDER IT SOLUTIONS PVT. LTD 21 | P A G E PAN : AACV1614N 2 PEARL HOUSING FINANCE (INDIA) LTD. ADDRESS: 60-B, 4 TH FLOOR, 9, BHUPEN CHAMER, DALAL STREET, FORT, MUMBAI 400001 PAN: AAACP6331J 3,50,000 34,96,50,000 35,00,00,000 3 VB DESAI SECURITIES AND FINANCE LTD. ADDRESS: 60-B, 4 TH FLOOR, 9, BHUPEN CHAMER, DALAL STREET, FORT, MUMBAI - 400001 PAN: AAACV3592M 3,50,000 34,96,50,000 35,00,00,000 4 VISHVAKARMA EQUIPMENT FINANCE (INDIA) LTD. ADDRESS: 60-B, 4 TH FLOOR, 9, BHUPEN CHAMER, DALAL STREET, FORT, MUMBAI 400001 PAN: AAACV4286N 3,50,000 34,96,50,000 35,00,00,000 TOTAL 14,00,000 1,39,86,00,000 1,40,00,00,000 15. ONE OF THE REASONS FOR PROPOSING THE REVISION ON T HIS ISSUE BY COMMISSIONER IS THE JUSTIFICATION OF HUGE PREMIUM PAID BY THESE SHARE APPLICANT COMPANIES. THE COMMISSIONER HAS STATED IN THE ORDER THAT THE SOURCE OF APPLICANT COMPANY IS ALSO THE SHARE PREMIUM AND LOAN GENERATED BY THEM AND THE ASSESSING OFFICER WHILE FINALIZING THE A SSESSMENT ORDER HAS NOT EXAMINED THE CREDENTIALS OF THESE COMPANIES AND HOW THEY HAVE GENERATED FUND TO GIVE THE ASSESSEE UNDER CONSIDERAT ION. THE COMMISSIONER HAS FURTHER RECORDED AT PAGE NO. 10 OF THE IMPUGNED ORDER AS UNDER:- THE ABOVE COMPANIES FINANCIAL DETAILS HAVE BEEN CA LLED FOR BY THE AO BUT NO EXAMINATION OF THE ACCOUNTS OF THESE COMPANI ES HAVE BEEN DONE WHEN IT IS REQUIRED BY THE AO TO EXAMINE THE TRANSA CTION PERTAINING TO THESE COMPANIES BECAUSE THESE COMPANIES DO NOT HAVE ANY OPERATIONAL INCOME AND CREATING ENTRIES IN THEIR BOOKS OF ACCOU NTS BY WAY OF LOANS AND PREMIUM ON ISSUE OF SHARES. THE AO HAS RECORDED THE STATEMENT OF SOME OF THE PERSONS BUT THE STATEMENT RECORDED BY T HE AO WAS ALSO STEREOTYPE AND NO WORTHWHILE QUESTION HAS BEEN ASKE D WHILE RECORDING THE STATEMENT OF THE CONCERNED PARTIES. AL THE STAT EMENT RECORDED BY THE ELDER IT SOLUTIONS PVT. LTD 22 | P A G E AO IS STEREOTYPE. EVEN THE CONFIRMATION FILED BY TH E PARTIES WHO HAVE GIVEN MONEY TO THE ASSESSEE HAS NOT BEEN EXAMINED B Y THE AO WITH RESPECT TO SOURCE OF MONEY OF DEPOSITORS. IN THE BA CKGROUND OF ABOVE STATED FACTS, IT NEEDS TO BE DISCUSSED THE REQUIREM ENT OF SEC.263 OF THE ACT. THE SECTION 263 OF THE I.T. ACT, 1961 SPEAKS TWO TH INGS: (I) ORDER SHOULD BE PREJUDICIAL TO THE INTEREST OF THE REVENUE (II) ORDER SHOULD BE ERRONEOUS ONE. 16. THE COMMISSIONER HAS NOT DISPUTED THE FACT AS RECO RDED IN THE IMPUGNED ORDER THAT THE ABOVE COMPANIES FINANCIAL DET AILS HAVE BEEN CALLED FOR BY THE ASSESSING OFFICER BUT NO EXAMINATI ON OF ACCOUNTS OF THESE COMPANIES HAVE BEEN DONE WHEN IT IS REQUIRED BY THE ASSESSING OFFICER TO EXAMINE THE TRANSACTION PERTAINING TO THESE COMPANIES IN VIEW OF THE FACT THAT THESE COMPANIES DO NOT HAVE ANY OPERATIONAL INCO ME. IT IS FURTHER RECORDED THAT THE ASSESSING OFFICER HAS RECORDED THE STATEMENT OF SOME OF THE PERSONS BUT THE STATEMENT SO RECORDED BY THE ASSES SING OFFICER ARE STEREO TYPE AND NO WORTHWHILE QUESTIONS HAVE BEEN ASK ED. THUS THE REASON FOR DOUBTING THE GENUINENESS OF THE TRANSACTION OF PRE FERENTIAL SHARES ISSUED AT PREMIUM AS WELL AS UNSECURED LOANS IS TH AT THE ASSESSING OFFICER HAS NOT PROPERLY CONDUCTED THE ENQUIRY. IT IS PERTINE NT TO MENTION THAT WHEN THE ASSESSING OFFICER HAS CALLED FOR ALL THE RELEV ANT DETAILS INCLUDING FINANCIAL DETAILS AS WELL AS PARTIES FOR EXAMINATIO N OF GENUINENESS OF THE TRANSACTION THEN IT IS NOT A CASE OF LACK OF ENQUIRY OR NON APPLICATION OF MIND ON THE PART OF THE ASSESSING OFFICER. THE COMMISS IONER WAS NOT PLEASED WITH THE MANNER IN WHICH THE ENQUIRY WAS CONDUCT ED BY THE ASSESSING OFFICER. THE FACTS RECORDED BY THE COMMIS SIONER ALSO DEMONSTRATE THE SOURCE OF APPLICATION MONEY AND LOAN GIVEN TO THE ASSESSEE IS AGAINST THE SHARE APPLICATION MONEY RECEI VED BY THESE COMPANIES AS WELL AS CERTAIN LOANS GENERATED BY THEM . THEREFORE, THE FACTS AS FAR AS AVAILABILITY OF SOURCE IS CONCERNED, THE S AME IS ADMITTED BY THE COMMISSIONER BUT THE REASON FOR NOT ACCEPTING THE TRA NSACTION IS NON ELDER IT SOLUTIONS PVT. LTD 23 | P A G E EXAMINATION OF THE TRANSACTION OF MONEY RECEIVED BY THE SHARE APPLICANT COMPANIES. IT IS NOT THE CASE OF THE COMMISSIONER THA T THESE COMPANIES WERE NOT HAVING FUNDS BUT SINCE THE ASSESSING OFFICER HAS NOT EXAMINED THE SOURCE OF SOURCE, THEREFORE, THIS ISSUE WAS AGAIN REST ORED BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. IN THE CAS E OF CIT VS. GABRIEL INDIA (SUPRA), THE HONBLE HIGH COURT HAS RECORDED THE R EASONS ON WHICH THE ORDER OF ASSESSING OFFICER WAS HELD AS ERRONEOUS BY THE COMMISSIONER AT PAGE 112 AND THEN HELD AS UNDER:- THE COMMISSIONER, HOWEVER, DID NOT ACCEPT THE CONT ENTION OF THE ASSESSEE. HE OBSERVED THAT THE ORDER OF THE ITO DID NOT CONTAIN DISCUSSION IN REGARD TO THE ALLOWABILITY OF THE CLA IM FOR DEDUCTION WHICH INDICATED NON-APPLICATION OF MIND. ACCORDING TO THE COMMISSIONER, THE CLAIM OF THE ASSESSEE REQUIRED EX AMINATION AS TO WHETHER THE EXPENDITURE IN QUESTION WAS A REVENUE O R CAPITAL EXPENDITURE. IN THAT VIEW OF THE MATTER, HE CANCELL ED THE ORDER OF THE ITO IN THIS REGARD AND DIRECTED HIM TO MAKE A FRESH ASSESSMENT ON THE LINES INDICATED BY HIM. ******************* ******************* FROM A READING OF SUB-SECTION 1 OF SECTION 263, IT IS CLEAR THAT THE POWER OF SUO MOTU REVISION CAN BE EXERCISED BY THE COMMISSIONER ONLY IF, ON EXAMINATION OF THE RECORDS OF ANY PROCE EDINGS UNDER THIS ACT, HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ITO IS 'ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTE RESTS OF THE REVENUE'. IT IS NOT AN ARBITRARY OR UNCHARTERED POWER. IT CAN BE EXERCISED ONLY ON FULFILMENT OF THE REQUIREMENTS LAID DOWN IN SUB- SECTION (1). THE CONSIDERATION OF THE COMMISSIONER AS TO WHETHER AN ORDER IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTER ESTS OF THE REVENUE, MUST BE BASED ON MATERIALS ON THE RECORD OF THE PRO CEEDINGS CALLED FOR BY HIM. IF THERE ARE NO MATERIALS ON RECORD ON THE BASIS OF WHICH IT CAN BE SAID THAT THE COMMISSIONER ACTING IN A RE ASONABLE MANNER COULD HAVE COME TO SUCH A CONCLUSION, THE VERY INIT IATION OF PROCEEDINGS BY HIM WILL BE ILLEGAL AND WITHOUT JURI SDICTION. THE COMMISSIONER CANNOT INITIATE PROCEEDINGS WITH A VIE W TO STARTING FISHING AND ROVING ENQUIRIES IN MATTERS OR ORDERS W HICH ARE ALREADY CONCLUDED. SUCH ACTION WILL BE AGAINST THE WELL-ACC EPTED POLICY OF ELDER IT SOLUTIONS PVT. LTD 24 | P A G E LAW THAT THERE MUST BE A POINT OF FINALITY IN ALL L EGAL PROCEEDINGS, THAT STALE ISSUES SHOULD NOT BE REACTIVATED BEYOND A PARTICULAR STAGE AND THAT LAPSE OF TIME MUST INDUCE REPOSE IN AND SE T AT REST JUDICIAL AND QUASI-JUDICIAL CONTROVERSIES AS IT MUST IN OTHE R SPHERES OF HUMAN ACTIVITY- [SEEPARASHURAM POTTERY WORKS CO. LTD. V. ITO [1977] 106 ITR 1 (SC), AT PAGE 10]. 17. AS IT WAS HELD THAT THE COMMISSIONER CANNOT INITIA TE PROCEEDINGS WITH A VIEW TO START FISHING AND ROVING ENQUIRIES IN T HE MATTER OR ORDERS WHICH ARE ALREADY CONCLUDED. THE ORDER CANNOT BE TERM ED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF THE ASSES SING OFFICER IS ACTING IN ACCORDANCE WITH LAW AND MADE CERTAIN ASSESSMENT, THE SAME CANNOT BE SAID ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE ACCORDI NG TO HIM MATTER SHOULD HAVE BEEN WRITTEN MORE ELABORATELY. SIMILAR VI EW HAS BEEN TAKEN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF HARI IRON TR ADING VS. CIT (SUPRA) AND OBSERVED AT PAGE 442 AND 449 S UNDER:- . IN THE LIGHT OF THE ABOVE FACTUAL BACKGROUND, WE H AVE NOT BEEN ABLE TO APPRECIATE AS TO HOW THE COMMISSIONER HAS R ECORDED A FINDING THAT THE ASSESSMENT HAD BEEN FRAMED WITHOUT APPLICATION OF MIND OR THAT DIFFERENCE IN STOCK HAS NOT BEEN PROPE RLY EXAMINED. UNFORTUNATELY, HIS ORDER IS TOTALLY NON-SPEAKING AN D IT DOES NOT CONVEY AS TO WHAT ACCORDING TO HIM SHOULD HAVE BEEN THE PROPER EXAMINATION BY THE ASSESSING OFFICER. THE ASSESSEE HAD FILED A DETAILED REPLY TO HIS NOTICE UNDER SECTION 263(1) O F THE ACT WHICH HAS BEEN REJECTED WITHOUT GIVING ANY REASONS WHATSOEVER . THE COMMISSIONER DOES NOT APPEAR TO HAVE EITHER PERUSED THE RECORDS OR APPLIED HIS MIND TO THE DETAILED REPLY FILED BY THE ASSESSEE. HE HAS NOT DISCUSSED EVEN A SINGLE CONTENTION RAISED THERE IN. WE HAVE REFERRED TO THE ASSESSMENT RECORDED AND FIND THAT T HE ASSESSING OFFICER HAD ISSUED VARIOUS NOTICES ON THESE POINTS AND HAD, SATISFIED HIMSELF THAT THE ADDITION OF RS. 10 LACS ON ACCOUNT OF DISCREPANCY IN STOCK WAS NOT CALLED FOR AS THERE WAS NO DISCREPANC Y IN STOCK. THE TRIBUNAL HAS DONE NO BETTER. A BARE PERUSAL OF THE AFORESAID PROVISION SHOWS THA T THE COMMISSIONER CAN EXERCISE POWERS UNDER SUB-SECTION (1) OF SECTION 263 OF THE ACT ONLY AFTER EXAMINING 'THE RE CORD OF ANY PROCEEDINGS UNDER THE ACT'. THE EXPRESSION RECORD HAS ALSO BEEN ELDER IT SOLUTIONS PVT. LTD 25 | P A G E DEFINED IN CLAUSE (B) OF THEEXPLANATION SO AS TO IN CLUDE ALL RECORDS RELATING TO ANY PROCEEDINGS AVAILABLE AT THE TIME O F EXAMINATION BY THE COMMISSIONER. THUS, IT IS NOT ONLY THE ASSESSME NT ORDER BUT THE ENTIRE RECORD WHICH HAS TO BE EXAMINED BEFORE ARRIV ING AT A CONCLUSION AS TO WHETHER THE ASSESSING OFFICER HAD EXAMINED ANY ISSUE OR NOT. THE ASSESSEE HAS NO CONTROL OVER THE WAY AN ASSESSMENT ORDER IS DRAFTED. THE ASSESSEE ON ITS PART HAD PROD UCED ENOUGH MATERIAL ON RECORD TO SHOW THAT THE MATTER HAD BEEN DISCUSSED IN DETAIL BY THE ASSESSING OFFICER. THE LEAST THAT THE TRIBUNAL COULD HAVE DONE WAS TO REFER TO THE ASSESSMENT RECORD TO VERIFY THE CONTENTIONS OF THE ASSESSEE. INSTEAD OF DOING THAT, THE TRIBUNAL HAS MERELY BEEN SWAYED BY THE FACT THAT THE ASSESSING O FFICER HAS NOT MENTIONED ANYTHING IN THE ASSESSMENT ORDER. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER EXAMI NES NUMEROUS ISSUES. GENERALLY, THE ISSUES WHICH ARE ACCEPTED DO NOT FIND MENTION IN THE ASSESSMENT ORDER AND ONLY SUCH POINTS ARE TA KEN NOTE OF ON WHICH THE ASSESSEES EXPLANATIONS ARE REJECTED AND ADDITIONS/ DISALLOWANCES ARE MADE. AS ALREADY OBSERVED, WE HAV E EXAMINED THE RECORDS OF THE CASE AND FIND THAT THE ASSESSING OFFICER HAD MADE FULL INQUIRIES BEFORE ACCEPTING THE CLAIM OF THE AS SESSING OFFICER QUA THE AMOUNT OF RS. 10 LACS ON ACCOUNT OF DISCREPANCY IN STOCK. NOT ONLY THIS, HE HAS EVEN GONE A STEP FURTH ER AND APPENDED AN OFFICE NOTE WITH THE ASSESSMENT ORDER TO EXPLAIN WHY THE ADDITION FOR ALLEGATION DISCREPANCY IN STOCK WAS NOT BEING M ADE. IN THE ABSENCE OF ANY SUGGESTION BY THE COMMISSIONER AS TO HOW THE INQUIRY WAS NOT PROPER, WE ARE UNABLE TO UPHOLD THE ACTION TAKEN BY HIM UNDER SECTION 263 OF THE ACT. 18. IN THE CASE IN HAND, THERE IS NO DISPUTE THAT THE A SSESSING OFFICER CALLED FOR FINANCIAL DETAILS OF THESE COMPANIES AND ALSO EXAMINE THE PARTIES IN ORDER TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE TRANSACTION. THEREFORE, ON THE BASIS OF THE RECORD AVAILABLE BEFORE HIM, THE ASSESSING OFFICER ACCEPTED THE CLAIM OF THE ASSESSEE. THE COMMI SSIONER HAS NOT FOUND ANY FAULT WITH THE DETAILS AND RECORDS FILED B Y THE ASSESSEE IN SUPPORT OF THE CLAIM BUT HAS CITED THE REASONS THAT THE ASSESS ING OFFICER HAS NOT CONDUCTED THE PROPER ENQUIRY. WHEN THE ENTIRE RECORD WAS AVAILABLE WITH THE COMMISSIONER THEN HE OUGHT TO HAVE GIVEN A CONCLUDIN G FINDING THAT THE VIEW TAKEN BY THE ASSESSING OFFICER IS CONTRARY TO THE LAW AS WELL AS ELDER IT SOLUTIONS PVT. LTD 26 | P A G E FACTS EMERGING FROM THE RECORDS. HOWEVER, THE COMMISSIO NER HAS NOT GIVEN ANY SUCH FINDING AND RESTORED THE MATTER TO THE RECO RD OF THE ASSESSING OFFICER WHICH IS NOT PERMISSIBLE AS PER THE PROVISIO NS OF SECTION 263 WHEN THE ASSESSING OFFICER HAS CONDUCTED THE ENQUIRY AND AL LOWED THE CLAIM OF THE ASSESSEE ON THE BASIS OF THE EXAMINATION OF THE RE CORD AS WELL A THE PARTIES IN PERSON. WE FURTHER NOTE THAT THE ASSESSEE HAS ALSO FILED THE BANK STATEMENTS OF THESE COMPANIES SHOWING THE TRANSACTION O F PAYMENT OF SHARE PREMIUM AS WELL AS LOANS TO THE ASSESSEE. THE TR ANSACTIONS WERE ALSO REFLECTED IN THE RETURN OF INCOME FILED BY THESE COMP ANIES, THEREFORE, IN ANY CASE IF THE DEPARTMENT HAS ANY DOUBT ABOUT THE GENUIN ENESS OF ARRANGING THE FUNDS BY THESE SHARE APPLICANT COMPANIES, THE ENQUI RY AND INVESTIGATION SHOULD HAVE BEEN CONDUCTED IN THOSE CASES AS HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF LOVELY EXPORTS (299 ITR 268) WHICH HAS BEEN CONFIRMED BY THE HON'BLE SUPREME COURT BY DISMISSING THE SLP FILED BY THE DEPARTMENT. 19. ONE MORE REASONS FOR SETTING ASIDE THE ASSESSMEN T ORDER IN RESPECT OF THE SHARE PREMIUM IS THE JUSTIFICATION OF PAYMENT OF HUGE PREMIUM IN COMPARISON TO THE PROSPECTIVE EARNINGS OF THE ASSESSE E. IT IS PERTINENT TO NOTE THAT AS PER THE PROVISIONS OF SECTION 68, THE ADD ITION CAN BE MADE IF THE TRANSACTION OF CASH CREDIT IS NOT PROPERLY EXPLAI NED BY THE ASSESSEE BY ESTABLISHING THE IDENTITY OF THE CREDITOR AND THE CAPA CITY OF THE CREDITOR AND GENUINENESS OF THE TRANSACTIONS TO THE SATISFACTION O F THE ASSESSING OFFICER. THEREFORE, THE JUSTIFICATION OF PAYMENT CANNOT BE A S OLE GROUND FOR ADDITION U/S 68. THOUGH THE SAME MAY BE THE REASON FOR ENQUIRY A ND INVESTIGATION BY THE ASSESSING AUTHORITIES TO FIND OUT THE GENUINENES S OF THE TRANSACTIONS. THERE IS NOT DISPUTE ABOUT THE IDENTITY OF THE PARTIES AS IT WAS ALSO NOT DISPUTED BY THE COMMISSIONER, THE SOURCE AND CAPACITY OF THESE PARTIES WERE PRIMA FACIE ESTABLISHED BY THE ASSESSEE BY PRODUCING THEIR FINANCI AL ELDER IT SOLUTIONS PVT. LTD 27 | P A G E STATEMENTS AND BANK ACCOUNTS ETC. THE COMMISSIONER HA S ALSO FOUND FROM RECORD THE SOURCE OF PAYMENT OF SHARE PREMIUM AS THE SHARE APPLICATION MONEY AND LOAN GENERATED BY THESE COMPANIES, THEREFOR E, THE AVAILABILITY OF FUND WAS NOT DISPUTED BY THE COMMISSIONER BUT HOW THAT FUND WAS GENERATED BY THESE COMPANIES IS THE ONLY REASON FOR R EVISING THE ASSESSMENT ORDER ON THIS ISSUE. THE COMMISSIONER HIMSE LF HAS NOT GIVEN A CONCLUDING FINDING ABOUT THE GENUINENESS OF THE TRAN SACTIONS, THEREFORE, THE ENQUIRY OF SOURCE OF SOURCE IS NOT WARRANTED WHEN THE IDENTITY AND SOURCE AS WELL AS TRANSACTION THROUGH BANKING CHANNEL HAS ALREADY BEEN ESTABLISHED BY THE ASSESSEE IN VIEW OF THE DECISION I N THE CASE OF LOVELY EXPORTS. THE COMMISSIONER HAS ALSO NOT BROUGHT OUT ANY FACT OR MATERIAL TO SUGGEST OR CAST ANY DOUBT ABOUT THE GENUINENESS OF THE TRANSACTION, ACCORDINGLY, THE SETTING ASIDE OF THE ASSESSMENT ORDE R AND RESTORING BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH CONSIDERATION IS BEYOND THE JURISDICTION U/S 263. 18. THE JUDGMENT IN THE CASE OF CIT VS. INFOSYS TECHN OLOGIES (SUPRA) AS RELIED UPON BY THE LD. DR WILL NOT HELP THE CASE OF T HE REVENUE AS IN THE SAID CASE THE ISSUE WAS ALLOWABILITY OF DEDUCTION U/ S DTAA WITH CANADA AND THAILAND WHICH WERE NOT EXAMINED BY THE ASSESSING O FFICER WHILE PASSING THE ORDER. THE HONBLE HIGH COURT HAS OBSERVED T HAT IT IS THE DUTY OF THE ASSESSING AUTHORITIES TO DO THE COMPUTATION IN ACCORDANCE WITH THE RELEVANT ARTICLES OF DTAA AND IF IT HAD FAILED IN THA T, MORE SO IN EXTENDING A TAX RELIEF TO THE ASSESSEE, THE ORDER DEFINITELY CONS TITUTES AN ORDER NOT MERELY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTERES T OF THE REVENUE. THEREFORE, IT WAS A GLARING CASE OF IGNORING THE MANDATO RY PROVISIONS UNDER THE DTAA ON THE PART OF THE ASSESSING OFFICER. IN THE CA SE OF CIT VS. HINDUSTAN LIVER (SUPRA), THE ASSESSING OFFICER HAS COMPLETELY MISSED OUT THE HEAD OFFICE EXPENSES TO BE APPORTIONED TO DE TERMINE THE QUANTUM ELDER IT SOLUTIONS PVT. LTD 28 | P A G E OF PROFIT DERIVED FROM INDUSTRIAL UNDERTAKING. THER EFORE, IN THE SAID CASE THE POINT OF APPORTIONMENT OF HEAD QUARTER EXPENSES WAS TOTALLY IGNORED DUE TO NON APPLICATION OF MIND ON THE PART OF THE ASS ESSING OFFICER. IT WAS A CASE OF MISSING A CRUCIAL FACT ON THE PART OF THE AS SESSING OFFICER, THEREFORE, THE SAID DECISION CANNOT BE APPLIED IN THE FACTS OF THE PRESENT CASE. IN THE CASE OF FRICK INDIA, VS. DCIT (SUPRA), THE TRIBUNAL HAS NOTED THE FACT THAT THE ASSESSING OFFICER ALLOWED THE DEDUCT ION WITHOUT CONSIDERING THE EARLIER ASSESSMENT ORDERS, WHEREIN, T HE SAID DEDUCTION WAS DISALLOWED. THUS IT WAS CLEAR CASE OF OVERLOOKING A MANDATORY ASPECT OF THE ASSESSMENT AND THE FACT THAT THE DEDUCTION WAS EARL IER DISALLOWED. THE ASSESSING OFFICER FAILED TO CONSIDER THE EARLIER ASS ESSMENT ORDERS AND, THEREFORE, THE ACTION OF THE ASSESSING OFFICER WAS ABSO LUTELY NOT PERMISSIBLE UNDER LAW. THE SAID CASE IS ENTIRELY DISTINGUISHABLE ON FACT AND NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. IN THE C ASE OF MAJOR METALS LTD. VS. UNION OF INDIA (SUPRA), IS A JUDGMENT OF THE HON BLE HIGH COURT AGAINST THE FINDING OF THE SETTLEMENT COMMISSION, WHICH WAS BASE D ON THE MATERIAL AND EVIDENCE ON RECORD. THEREFORE, THE SAID ANALOGY C ANNOT BE APPLIED IN THE CASE OF REVISION ORDER PASSED U/S 263. IT WAS PU RELY A FINDING OF FACT AND HENCE HAVE NO APPLICABILITY IN THE FACTS OF THE PRESENT CASE. 19. IN VIEW OF THE ABOVE, FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS ABOVE DISCUSSION , WE ARE OF THE VIEW THAT THE COMMISS IONER HAS TRAVELLED BEYOND THE JURISDICTION AS PRESCRIBED U/S 263 AND AC CORDINGLY, THE IMPUGNED REVISION ORDER IS NOT SUSTAINABLE AND, THER EFORE, THE SAME IS SET ASIDE. 20. THE ASSESSEE HAS ALSO RAISED THE GROUND NO. 1 AND 2 REGARDING VALIDITY OF THE REVISION ORDER PASSED IN THE NAME OF A PERSON WHO IS NOT IN EXISTENCE BUT AMALGAMATED WITH THE ASSESSEE. SINCE WE HAVE ALREAD Y SET ASIDE THE ELDER IT SOLUTIONS PVT. LTD 29 | P A G E REVISION ORDER ON THE OTHER GROUNDS, THEREFORE, THIS GRO UND OF ASSESSEES APPEAL BECOMES ACADEMIC IN NATURE. FURTHER WE NOTE T HAT THE COMMISSIONER HAS PASSED THE IMPUGNED ORDER IN THE NAME OF ELDER INFOTECH PVT. LTD., MERGED WITH ELDER IT SOLUTIONS PVT ., LTD., ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN WRITING THE NAME OF THE ASSESSEE ALONG WITH ERSTWHILE COMPANY BEING MERGED WITH THE ASSESS EE. HENCE, THIS GROUND OF THE ASSESSEES APPEAL IS DISMISSED 21. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH DAY OF NOVEMBER 2014 SD/- SD/- ( B.R.BASKARAN ) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 12-12 -2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI