PIONEER E COM FASHIONS LTD, MUMBAI V. ITO WD 9(2)(4), MUMBAI

ITA 3536/MUM/2010

• Counselvise Citation: 353619914 RSA 2010
• Duration Of Justice: 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2003-2004
• Appeal Filed On: 05-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M DAYASAGAR
• Assessee Lawyers: R G DOSHI
• Keywords: Business income; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Retrospective amendment; Fair market value; Scheme of amalgamation; Assessment record
• Section: 263; 143(3); 142(1); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHR I MANOJ KUMAR AGGARWAL , ACCOUNTANT MEMBER ITA NO. 3536 / MUM./2010 ( ASSESSMENT YEAR : 20 11 12 ) PIRAMAL ENTERPRISES LTD. (AS SUCCESSORS TO PHL HOLDINGS PVT. LTD.) PIRAMAL TOWER, GANPATRAO KADAM MARG LOWER PAREL, MUMBAI 400 013 PAN AAACN4538P . APPELLANT V/S INCOME TAX OFFICER WARD - 7(1)(2), MUMBAI . RESPONDENT ASSESSEE BY : SHR I J.D. MISTRI, SR. COUNSEL A/W SHRI M.A. AGARWAL AND SHRI R.G. DOSHI REVENUE BY : SHRI M. DAYASAGAR DATE OF HEARING 22 .0 9 .2016 DATE OF ORDER 15.12.2016 O R D E R PER SAKTIJIT DEY, J.M. AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE ASSAILING THE ORDER DATED 30 TH MARCH 2016, PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) BY THE PRINCIPAL COMMISSIONER OF INCOME TAX - 7, MUMBAI, FOR THE ASSESSMENT YEAR 2011 - 12. 2 . IN TOTAL, THE ASSESSEE HAS RAISED FIVE EFFECTIVE GROUNDS. 3 . GROUND NO.(I) IS O N VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. 2 PIRAMAL ENTERPRISES LTD. 4 . G ROUND NO.(II) IS CHALLENGING THE VALIDITY OF EXERCISE OF POWER U/S 263 OF THE ACT. 5 . GROUNDS NO.(III), (IV) AND (V) ARE CONCERNING THE MERITS OF THE ISSUES ON WHICH THE LEARNED CIT(A) REVISED THE ASSESSMENT ORDER . 6 . BEFORE DECIDING THE ISSUES RAISED IN THE GROUNDS, IT IS NECESSARY TO DEAL WITH THE RELEVANT FACTS LEADING TO THE FILING OF THE PRESENT APPEAL. 7 . AN INDIAN COMPANY IN THE NAME AND STYLE OF M/S. PHL HOLDINGS PVT. LTD., (HEREIN AFTER CALLED OLD PHL ) WAS HAVING TWO DIVISIONS , NAMELY ; PHARMACEUTICAL (PHARMA) AND NON - PHARMACEUTICAL (NON - PHARMA). T HE HON'BLE BOMBAY HIGH COURT WHILE DISPOSING OFF A BUNCH OF PETITION S FILED U/S 391 TO 394 R/W SECTIONS 100 TO 103 OF COMPANIES ACT, 1956 , PASSED AN ORDER FOR DISSOLUTION AND AMALGAMATION OF TH IS COMPAN Y . AS PER THE SCHEME OF AMALGAMATION APPROVED BY THE HON'BLE BOMBAY HIGH COURT, THE NON - PHARMA DIVISION WAS DEMERGED INTO PIRAMAL ENTERPRISES LTD., SUBSEQUENTLY, RENAMED AS PIRAMAL CORPORATE SERVICES LTD. AND TH E PHARMA DIVISION DEMERGED INTO PIRAMAL INTERNATIONAL PVT. LTD., THE PRESENT ASSESSEE , WHICH AFTER AMALGAMATION WAS RENAMED AS PHL HOLDINGS PVT. LTD., AND THEREAFTER, AS PIRAMAL ENTERPRISES LTD. . FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESSEE FILE D ITS RETURN OF INCOME ON 30 TH SEPTEMBER 3 PIRAMAL ENTERPRISES LTD. 2011, DECLARING INCOME OF ` 94,397. THE RETURN O F INCOME WAS PICKED UP FOR SCRUTINY AND THE ASSESSING OFFICER AFTER VERIFYING THE DETAILS CALLED FOR VIDE ORDER DATED 31 ST JANUARY 2014, PASSED AN ORDER OF ASSESSMENT UNDER SECTION 143(3) OF THE ACT ACCEPTING THE RETURNED INCOME. LEARNED PRINCIPAL CIT, IN EXERCISE OF POWER UNDER SECTION 263 OF THE ACT, CALLED FOR THE ASSESSMENT RECORD FOR THE IMPUGNED ASSESSMENT YEAR AND HAVING EXAMINED THE SAME, WAS OF THE VIEW THAT T HE ASSESSING OFFICER HAS NOT VERIFIED THE FOLLOWING ISSUES. I ) NETTING OFF OF INTEREST FOR THE PURPOSE OF CALCULATION OF DISALLOWANCE UNDER SECTION 14A R/W RULE 8D; II ) NON - REFLECTION OF INVESTMENTS AND GAIN / INCOME THEREOF AS A CONSEQUENCE OF AMALGAMATION; AND III ) CREDITING OF RESERVES DIRECTLY TO THE GENERAL RESERVES IN THE BALANCE SHEET WITHOUT ROUTING THROUGH THE PROFIT & LOSS ACCOUNT CREATED UPON AMALGAMATION FOR THE COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 8 . BEING OF THE OPINION THAT NON - EXAMINATION OF THE AFORESAID ISSUES HAS RENDERED THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE ISSUED A NOTICE TO THE ASSESSEE TO SHOW CAUSE WHY THE ASSESSMENT ORDER SHOULD NOT BE SET ASIDE. THE SAID NOTICE UNDER SECTION 263 OF THE ACT WAS ISSUED IN THE NAME OF PHL HOLDING PVT. LTD. ON 21 ST MARCH 2016, WITH A DIRECTION TO SUBMIT OBJECTION AND APPEAR 4 PIRAMAL ENTERPRISES LTD. FOR HEARING ON 28 TH MARCH 2016. AS IT APPEARS, AGAINST THE AFORESAID NOTICE ISSUED UNDER SECTION 263, THE ASSESSEE RAISED A PRELIMI NARY OBJECTION CONTENDING THAT THE NOTICE ISSUED IN THE NAME OF PHL HOLDING PVT. LTD. IS INVALID AS IT IS NOT IN EXISTENCE HAVING MERGED WITH PIRAMAL ENTERPRISES LTD. BY VIRTUE OF ORDER DATED 13 TH JUNE 2013 OF HON'BLE JURISDICTIONAL HIGH COURT. IT WAS SUBMITTED, THIS FACT OF MERGER WITH PIRAMAL ENTERPRISES LTD. WAS ALSO BROUGHT TO THE NOTICE OF ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2013 - 14. WHEN THIS FACT WAS B ROUGHT TO THE NOTICE OF LEARNED CIT ON 29 TH MARCH 2016, HE ISSUED ANOTHER NOTICE UNDER SECTION 263 OF THE ACT DATED 29 TH MARCH 2016 ON THE VERY SAME REASONING AND CALLED UPON THE ASSESS EE APPEAR FOR PERSONAL HEARING BEFORE HIM ON 29 TH MARCH 2016. IN REPLY TO THE SAID SHOW CAUSE NOTICE, THE ASSESSEE RAISED OBJECTIONS TO THE HURRIED MANNER IN WHICH NOTICE WAS ISSUED WITHOUT ALLOWING PROPER OPPORTUNITY TO THE ASSESSEE TO REPRESENT ITS CASE. NEVERTHELESS, THE ASSESSEE ALSO RAISED OBJECTIONS TO THE REASONING / I SSUES ON WHICH THE LEARNED CIT SOUGHT TO REVISE THE ASSESSMENT ORDER. THE AFORESAID OBJECTION TO THE SHOW CAUSE NOTICE WAS FILED BEFORE THE LEARNED CIT ON 30 TH MARCH 2016. A S FAR AS NETTING OFF OF INTEREST EXPENSES FOR THE PURPOSE OF DISALLOWANCE UNDER SEC TION 14A R/W RULE 8D, LEARNED COMMISSIONER NOTED THAT ASSESSEE HAD DECLARED BUSINESS INCOME OF ` 52,559 AFTER DISALLOWANCE OF EXPENDITURE OF ` 43,23,76,225, TOWARDS INTEREST ON LOAN AND THEREAFTER REDUCED 5 PIRAMAL ENTERPRISES LTD. DIVIDEND INCOME TO THE TUNE OF ` 42,59,61,921. HE N O TICED FROM THE PROFIT & LOSS ACCOUNT THAT ASSESSEE HAS CREDITED INTEREST INCOME OF ` 1,36,24,110 AND DEBITED INTEREST EXPENDITURE OF ` 44,59,58,497. HE OBSERVED, THE ASSESSING OFFICER WHILE ALLOWING NETTING OFF OF INTEREST EXPENDITURE FOR THE PURPOSE OF SECTION 14A R/W RULE 8D HAS NOT EXAMINED THE NATURE OF INTEREST EXPENSES AND SOURCE OF INTEREST INCOME. HE OBSERVED, AS FAR AS DISALLOWANCE UNDER SECTION 14A R/W RULE 8D IS CONCERNED, THERE IS NO PROVISION IN THE ACT FOR EITHER TAKING THE INTEREST EXPENDIT URE ON GROSS BASIS OR NET BASIS. ACCORDING TO HIM RULE 8D(2)(II) ONLY SPEAKS OF DISALLOWANCE OF INTEREST EXPENDITURE. RELYING UPON CERTAIN DECISIONS OF THE TRIBUNAL HE OBSERVED, THE USE OF WORD SHALL IN SECTION 14A(2), MAKES IT MANDATORY FOR THE ASSESSING OFFICER TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME AS PER THE METHOD PRESCRIBED UNDER RULE 8D. BEING OF THE OPINION THAT THE ASSESSING OFFICER HAS NOT EXAMINED THE I SSUE OF NETTING OFF OF INTEREST WHILE COMPUTING THE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D, H E SET ASIDE THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE WITH A DIRECTION TO EXAMINE THE ALLOWABILITY OF NETTING OFF OF INTEREST FOR DISALLOWANCE TO BE MAD E UNDER SECTION 14A R/W RULE 8D. 9 . FURTHER, HE OBSERVED AS PER SCHEME OF AMALGAMATION AND ARRANGEMENT SANCTIONED BY THE HON'BLE BOMBAY HIGH COURT EFFECTIVE FROM 1 ST APRIL 2010, THE PROPERTY OF TRANSFEROR COMPANY BECAME THE 6 PIRAMAL ENTERPRISES LTD. PROPERTY OF THE ASSESSEE. HE OBSER VED, AS PER SCHEDULE - IV OF THE BALANCE SHEET OF PHL HOLDINGS PVT. LTD. (TRANSFEROR) PERTAINING TO INVESTMENTS SHOWS THAT AS ON 31 ST MARCH 2010, TOTAL INVESTMENT WAS ` 921,09,62,830, INCLUSIVE OF 73,74,517 SHARES OF PIRAMAL LIFE SERVICES LTD. COSTING ` NIL. INVESTMENTS AS ON 31 ST MARCH 2011 (AFTER AMALGAMATION AND AFTER SALE OF ` 23,86,593 COSTING ` NIL) WAS 49,87,924 SHARES. HOWEVER, THE COST OF SHARES WAS SHOWN AT ` 79,93,14,831 INSTEAD OF NIL. HE ALSO OBSERVED, FOLLOWING SHARES WERE NOT REFLECTED IN THE B ALANCE SHEET . SR. NO. NAME OF THE COMPANY NO. OF SHARES COST 1. DELTA CORPORATION LTD. 18,20,000 6,64,30,000 6,64,30,000 2. UNQUOTED SHARE OF 8 COMPANIES OTHER THAN SUBSIDIARIES 10,30,034 2,82,00,627 2,82,00,627 3. PREFERENCES SHARES OF 5 COMPANIES 45,51,478 27,04,25,306 26,88,73,196 LESS PREFERENCES SHARES OF PIRAMAL ENTERPRISES LTD., APPEARED IN THE BALANCE SHEET 1,55,211 15,52,110 10 . HE OBSERVED, THE COMPUTATION OF INCOME DOES NOT INDICATE SALE OF THESE SHARES, HENCE, THE SAME SHOULD HAVE BEEN REFLECTED UNDER THE HEAD INVESTMENT . THOUGH, THE ASSESSEE IN ITS EXPLANATION TRIED TO RECONCILE THE DISCREPANCIES POINTED OUT BY THE LEARNED C IT BY STATING THAT THE SHARES NOT REFLECTED AS INVESTMENT BELONG TO NON - PHARMA DIVISION WHICH DID NOT MERGE WITH THE ASSESSEE . H OWEVER, LEARNED CIT DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE. HE OBSERVED, THE 7 PIRAMAL ENTERPRISES LTD. ASSESSING OFFICER DID NOT CAUSE NECE SSARY ENQUIRY IN RELATION TO THE INVESTMENTS TO FIND OUT WHY CERTAIN SHARES WERE NOT REFLECTED IN THE BALANCE SHEET BY COMPARING THE BALANCE SHEET BEFORE AND AFTER AMALGAMATION , THEREBY , NOT TAKING COGNIZANCE OF INVESTMENTS AND ASSETS TRANSFERRED AS AT 1 ST APRIL 2010 AND 31 ST MARCH 2011. ACCORDINGLY, HE DIRECTED THE ASSESSING OFFICER TO EXAMINE THE BALANCE SHEETS WITH RESPECT TO THE DETAILS SUBMITTED BY THE ASSESSEE AND TO FURTHER EXAMINE WHETHER ASSETS / INVESTMENTS HAVE BEEN TRANSFERRED AND DULY ACCOUNTED FOR AS PER THE SCHEME OF AMALGAMATION / ARRANGEMENT SANCTIONED BY THE HONBLE BOMBAY HIGH COURT. 11 . AS FAR AS COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB IS CONCERNED, THE ASSESSEE IN ITS EXPLANATION SUBMITTED THAT CREDIT WAS MADE TO THE GENERAL RESERVE AMOUNTING TO ` 3556.33 CRORE WHICH WAS THE CLOSING BALANCE AS ON 31 ST MARCH 2010 AND WHICH INCLUDES A RESERVE OF ` 3602.64 CRORE CREDITED ON VALUATION OF SHARES TAKEN OVER BY THE SCHEME OF MERGER. IT WAS SUBMITTED, THIS RESERVE WAS CREATED AS PER THE TREA TMENT OF MERGER APPROVED BY THE HONBLE BOMBAY HIGH COURT WHILE SANCTIONING SCHEME OF AMALGAMATION. IN SUPPORT OF HIS CONTENTION, ASSESSEE ALSO RELIED UPON A DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN ITO V/S UNITED ESTATE PRIVATE LTD., 51 SOT 61 (MUM.). THE LEARNED CIT, HOWEVER, REJECTED THE CONTENTION OF THE ASSESSEE ON THE OBSERVATION THAT THE ASSESSING OFFICER HAS NOT 8 PIRAMAL ENTERPRISES LTD. EXAMINED THE CREDIT OF RE - VALUATION OF SHARES T O THE GENERAL RESERVE AND ITS IMPACT ON THE BOOK PROFIT AS PER PROVISIONS OF SECTION 115JB. ACCORDINGLY, HE DIRECTED THE ASSESSING OFFICER TO EXAMINE THE ISSUE OF DETERMINATION OF BOOK PROFIT UNDER SECTION 115JB. WHILE DOING SO, HE OBSERVED THAT THE DECISI ON OF THE TRIBUNAL RELIED UPON BY THE ASSESSEE HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. 12 . AS FAR AS THE OBJECTIONS OF THE ASSESSEE, WITH REGARD TO THE VALIDITY OF INITIATION OF PROCEEDINGS OF SECTION 263 OF THE ACT, THE LEARNED CIT OBSERVED EXPLANATION 2 T O SECTION 263 OF THE ACT, THOUGH, IT WAS BROUGHT TO THE STATUTE BY FINANCE ACT, 2015, HOWEVER, THE SAID AMENDMENT BEING DECLA RA TORY AND CLARIFICATORY IN NATURE, WILL APPLY RETROSPECTIVELY EVEN TO THE IMPUGNED ASSESSMENT YEAR. HE OBSERVED, AS PER THE SAID E XPLANATION, IF THE ORDER SOUGHT TO BE REVISED WAS PASSED WITHOUT MAKING ENQUIRIES OR VERIFICATIONS WHICH SHOULD HAVE BEEN MADE , THE ORDER SHALL BE DEEMED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. HE OBSERVED, AS PER THE MATERIAL ON RECOR D, THE ASSESSING OFFICER DID NOT MAKE ENQUIRIES WHICH WAS WARRANTED AND ASSESSING OFFICER HAS NOT SOUGHT FOR THE DETAILS WHICH ARE REQUIRED WHILE VERIFYING THE ISSUES. HE, THEREFORE, ULTIMATELY HELD , AS THE ASSESSING OFFICER IN HIS OPINION HAD NOT CONDUCTE D NECESSARY ENQUIRY PROCEEDINGS INITIAT ED UNDER SECTION 263 OF THE ACT IS VALID. 9 PIRAMAL ENTERPRISES LTD. 13 . SHRI J.D. MISTRI , LEARNED SR. COUNSEL, APPEARING FOR THE ASSESSEE STRONGLY OBJECTING TO THE MANNER IN WHICH THE PROCEEDINGS UNDER SECTION 263 WAS INITIATED AND THE IMPUGNED O RDER W AS PASSED BY THE LEARNED CIT, SUBMITTED THAT THE LEARNED CIT HAD ISSUED THE FIRST SHOW CAUSE NOTICE UNDER SECTION 263 OF THE ACT ON 21 ST MARCH 2016, DIRECTING THE ASSESSEE TO FILE HIS OBJECTION BY 28 TH MARCH 2016. HE SUBMITTED, WHEN THE ASSESSEE RAIS ED OBJECTIONS WITH REGARD TO THE INADEQUACY OF TIME GRANTED FOR FILING OBJECTION AS WELL AS INITIATION OF PROCEEDING IN THE NAME OF A COMPANY WHICH IS NO LONGER IN EXIST ENCE, CIT ISSUED A FRESH NOTICE UNDER SECTION 263 OF THE ACT ON 29 TH MARCH 2016 AND SERVED ON THE REPRESENTATIVE OF ASSESSEE WHEN HE HAD GONE TO HIS OFFICE FOR FILING OBJECTION AGAINST THE FIRST SHOW CAUSE NOTICE, WITH A DIRECTION TO FILE HIS SHOW CAUSE BY 03:30 PM ON THE VERY SAME DAY I.E., 29 TH MARCH 2016. HE SUBMITTED, WHEN THE NO TICE ITSELF WAS SERVED ON THE ASSESSEE AT 05:30 PM IT WAS IMPOSSIBLE TO SUBMIT T HE REPLY TO THE SHOW CAUSE NOTICE ON THAT DAY . LEARNED SR. COUNSEL SUBMITTED , SINCE THE FIRST NOTICE WAS NONEST , WHICH THE LEARNED CIT ALSO IMPLIEDLY ACCEPTED BY ISSUING THE SE COND SHOW CAUSE NOTICE , THE REPLY TO THE FIRST SHOW CAUSE NOTICE ALSO HAS TO BE TREATED AS NONEST. THEREFORE, IF THE SECOND SHOW CAUSE NOTICE ISSUED ON 29 TH MARCH 2016, IS TO BE HELD AS THE ONLY VALID NOTICE , THEN THE TIME GRANTED IS GROSSLY INADEQUATE, HE NCE, IN VIOLATION OF RULES OF NATURAL JUSTICE. THEREFORE, THE ORDER PASSED WITHOUT GRANTING PROPER OPPORTUNITY OF BEING HEARD TO THE 10 PIRAMAL ENTERPRISES LTD. ASSESSEE SHOULD BE QUASHED. IN THIS CONTEXT, HE REFERRED TO A DECISION OF THE TRIBUNAL, PUNE BENCH, IN IDEA CELLULAR LTD. V /S CIT (TDS), [2016] 65 TAXMANN.COM 116. LEARNED SR. COUNSEL SUBMITTED, EVEN OTHERWISE ALSO, THE INVOKING OF JURISDICTION UNDER SECTION 263 OF THE ACT IS GROSSLY IRREGULAR AND INVALID AS THE ASSESSING OFFICER HAVING COMPLETED THE ASSESSMENT AFTER CONDUCTIN G NECESSARY ENQUIRY AND PROPER APPLICATION OF MIND, THE ASSESSMENT ORDER CANNOT BE HELD TO BE EITHER ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF REVENUE ONLY BECAUSE THE CIT FEELS THAT SOME MORE ENQUIRIES SHOULD HAVE BEEN CONDUCTED OR THE ENQUIRY MADE BY THE ASSESSING OFFICER WAS NOT SUFFICIENT. THE LEARNED SR. COUNSEL REFERRING TO THE REPLY SUBMITTED TO THE QUER IES RAISED BY THE ASSESSING OFFICER ON THE ISSUES ON WHICH THE CIT SOUGHT TO REV IS E THE ASSESSMENT ORDER SUBMITTED , IN THE NOTICE DATED 17 TH JULY 2013, ISSUED UNDER SECTION 142(1) OF THE ACT, THE ASSESSING OFFICER HAD SPECIFICALLY CALLED FOR VARIOUS DETAILS AS ENUMERATED THERE IN. REFERRING TO ITEM NO.1 OF THE SAID NOTICE, THE LEARNED SR. COUNSEL SUBMITTED, THE ASSESSING OFFICER HAD CALLED UPON THE A SSESSEE TO FURNISH REGULAR COMPUTATION OF TOTAL INCOME. DRAWING OUR ATTENTION TO THE COMPUTATION OF TOTAL INCOME, LEANED SR. COUNSEL SUBMITTED, THE ASSESSEE ITSELF HAS DISALLOWED INTEREST EXPENDITURE UNDER SECTION 14A OF THE ACT AFTER NETTING OFF AGAINST T HE INTEREST INCOME EARNED. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAD NOT MADE ENQUIRY OR HAD NOT EXAMINED THE ISSUE OF NETTING OFF. HE 11 PIRAMAL ENTERPRISES LTD. SUBMITTED, IN NOTICE DATED 27 TH SEPTEMBER 2013, ISSUED UNDER SECTION 142(1) OF THE ACT THE ASSESSING OFFICER HAD SPECIFICALLY CALLED UPON THE ASSESSEE TO DISCUSS ON THE ISSUE OF CREATION OF GENERAL RESERVE. HE SUBMITTED IN THE SAME NOTICE THE ASSESSING OFFICER HAD ALSO CALLED UPON THE ASSESSEE TO FURNISH COMPUTATION OF DISALLOWANCE UNDER SECTION 14A R/W RULE 8D AND ALSO ASKED FOR COPY OF THE AMALGAMATION ORDER. HE SUBMITTED, ON MERITS ALSO NETTING OFF OF INTEREST IS WITHIN THE FRAMEWORK OF LAW AS HELD IN DECISIONS OF THE ITAT. IN THIS CONTEXT HE RELIED UPON THE FOLLOWING DECISIONS: - I ) ADITYA MEDIS ALES LTD. V/S ACIT, [2016] 67 TAXMANN.COM 270 (AHD.); AND II ) M/S. FOUR DIMENSIONS SECURITIES (INDIA) LTD. V/S ACIT, ITA NO.6935/MUM./2011, DATED 12.6.201. 14 . THE LEARNED C OUNSEL SUBMITTED, THE CIT HAS NOT DISPUTED THE FACT THAT THE ASSESSEE HAS DISALLOWED INTE REST UNDER SECTION 14A. ONLY DIRECTION HE HAS GIVEN TO THE ASSESSING OFFICER IS TO VERIFY WHETHER DISALLOWANCE OF INTEREST UNDER SECTION 14 A READ WITH RULE 8D IS TO BE ON GROSS OR NET BASIS. AS FAR AS THE ALLEGATION OF NON - REFLECTION OF INVESTMENT AND INC OME / GAIN THEREOF IS CONCERNED THE LEARNED C OUNSEL SUBMITTED, CIT HAS COMPLETELY MISCONCEIVED THE FACTS. HE SUBMITTED, AS PER THE SCHEME OF AMALGAMATION APPROVED BY THE HONORABLE HIGH COURT , ONLY THE PHARMA DIVISION MERGED WITH THE ASSESSEE. IN THIS CONTE XT HE DREW OUR ATTENTION TO ORDER DATED 29 12 PIRAMAL ENTERPRISES LTD. OCTOBER 2010 OF THE HONORABLE HIGH COURT AS WELL AS SCHEME OF AMALGAMATION. HE ALS O DREW OUR ATTENTION TO A CHART SUBMITTED BEFORE THE CIT, S HO WING TRANSFER OF INVESTMENTS FROM THE BOOKS OF THE DEMERGED COMPANY TO THE ASSESSEE , A COPY OF WHICH IS AT PAGE 164 OF THE PAPER BOOK. THE LEARNED COUNSEL SUBMITTED , THE DETAILS OF SHARES REFERRED TO BY THE LEARNED COMMISSIONER IN HIS SHOW CAUSE NOTICE AS WELL AS A T P ARA 4 OF HIS ORDER ARE OF NON - PHARMA DIVISION WHICH ARE TRANSFERRED TO ANOTHER COMPANY. THEREFORE, THERE IS NO QUESTION OF THOSE SHARES BEING REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE COMPANY AS INVESTMENTS. HE SUBMITTED, EVEN OTHERWISE ALSO THE ASSESSING OFFICER IN COURSE OF ASSESSMENT PROCEEDINGS HAD SPECIFICALLY CALLED FOR THE ORDER OF THE HONORABLE HIGH COURT APPROVING AMALGAMATION AS WELL AS THE SCHEME OF AMALGAMATION. ONLY AFTER EXAMINING THE ISSUE IN THE CONTEXT OF FACTS AND MATERIALS ON RECORD THE ASSESSING OFFICER COMPLETED THE ASSESSMENT. THEREFORE, THE ASSESSMENT ORDER CANNOT BE TREATED AS EITHER ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE. HE SUBMITTED, THE TRANSFER OF SHARES AND ACCOUNTING TREATMENT GIVEN TO IT BEING COMPLETELY IN TERMS WITH THE SCHEME OF AMALGAMATION APPROVED BY THE HONORABLE HIGH COURT NO - FAULT CAN BE FOUND WITH THE ASSESSMENT ORDER FOR HAVING ACCEPTED THE INVESTMENTS SHOWN BY THE ASSESSEE IN THE BALANCE SHEET. A S FAR AS THE ALLEGATION OF THE CIT THAT THE ASSESSING OFF ICER WHILE COMPUTING BOOK PROFIT HAS NOT EXAMINED THE CREDIT OF REVALUATION OF SHARES TO THE 13 PIRAMAL ENTERPRISES LTD. GENERAL RESERVE IN THE BALANCE SHEET WITHOUT ROU TING THROUGH THE PROFIT AND LOSS ACCOUNT, LEARNED C OUNSEL SUBMITTED, THE SCHEME OF AMALGAMATION APPROVED BY THE HON ORABLE HIGH COURT ITSELF PROVIDED THE ACCOUNTING TREATMENT TO BE GIVEN TO THE MERGER OF PHARMA DIVISION. IN THIS CONTEXT HE REFERRED TO CLAUSE 4.3 OF THE SCHEME OF AMALGAMATION. HE SUBMITTED, AS PER CLAUSE 4.3.1 OF THE SCHEME OF AMALGAMATION THE ASSETS AND LIABILITIES OF THE PHARMA DIVISION VESTED WITH THE ASSESSEE SHALL BE RECORDED AT THE FAIR MARKET VALUE AS ON THE DATE OF APPROVAL OF THE SCHEME BY THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY. HE SUBMITTED , AS PER CLAUSE 4.3.4 THE DIFFERENCE BETWEEN THE EXCESS OF NET ASSETS VALUE OF SHARES TRANSFERRED BY THE DEMERGED COMPANY AND RECORDED BY THE ASSESSEE IN ITS BOOKS AS PER CLAUSE 4.3.1 , AFTER NECESSARY ADJUSTMENT AS PER CLAUSE 4.3.3 WOULD BE RECORDED AS GENERAL RESERVE AND SHORTFALL IF ANY SHALL BE DEBIT ED IN THE BOOKS OF ASSESSEE AS GOODWILL. THUS, IT WAS SUBMITTED , THE TRANSFER OF SHARES TO GENERAL RESERVE IS IN STRICT COMPLIANCE TO THE SCHEME OF AMALGAMATION APPROVED BY THE HONORABLE HIGH COURT. THEREFORE, THERE IS NO NECESSITY TO ROUT THE TRANSFER OF SHARES THROUGH PROFIT AND L OSS ACCOUNT. HE SUBMITTED, THE ASSESSING OFFICER COULD NOT HAVE TINKERED WITH THE PROFIT & LOSS ACCOUNT WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB. IN THIS CONTEXT , LEARNED COUNSEL RELIED UPON THE FOLLOWING DECISIONS: - 14 PIRAMAL ENTERPRISES LTD. I ) ITO V/S UNITED ESTATE (P) LTD., [2012] 51 SOT 61; II ) APOLLO TYRES LTD V/S CIT, [2002] 255 ITR 273 (SC). 15 . H E SUBMITTED, EVEN OTHERWISE ALSO THE ASSESSING OFFICER HAS PASSED THE ASSESSMENT ORDER AFTER EXAMINING THE SCHEME OF AMALGAMATION APPROVED BY THE HONORABLE HIGH COURT. THEREFORE, IT CANNOT BE SAID THAT THE AO HAS NOT ENQUIRED INTO THE MATTER. L EARNED C OUNSEL SUBMITTED , THOUGH, THE CIT HAS OBSERVED THAT THE ASSESSING OFFICER SHOULD HAVE MADE FURTHER ENQUIR Y ON THE ISSUES ON WHICH HE HELD THE ASSESSMENT ORDER T O BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE , H OWEVER , HE HAS NOT POINTED OUT WHAT FURTHER ENQUIRIES ARE TO BE CONDUCTED BY THE AO. THE OBSERVATIONS OF THE CIT ARE GENERAL IN NATURE. THE L EARNED COUNSEL SUBMITTED, EXPLANATION 2 TO SECTION 263 REFERRED TO BY THE CIT WAS INTRODUCED TO THE STATUTE BY FINANCE ACT 2015 WITH EFFECT FROM 16 2015, HENCE IT WILL NOT APPLY TO THE IMPUGNED ASSESSMENT YEAR. HE SUBMITTED , EVEN ASSUMING THAT THE SAID EXPLANATION APPLIES TO THE IMPUGNED ASSESSMENT YEAR, THE CIT CANNOT REVISE THE ASSESSMENT ORDER MERELY ON THE ALLEGATION THAT THE ASSESSING OFFICER HAS NOT MADE ENQUIRY WHICH HE SHOULD HAVE MADE. HE SUBMITTED, IN A CASE WHERE THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT AFTER CONDUCTING NECESSARY ENQUIRY A ND PROPER APPLICATION OF MIND, THE CIT CANNOT TAKE RECOURSE TO E XPLANATION 2 TO SECTION 263 , WITHOUT POINTING OUT THE DEFICIENCIES AND DEFECTS IN THE ENQUIRY CONDUCTED BY THE ASSESSING OFFICER AND AT THE SAME TIME ALSO CLEARLY 15 PIRAMAL ENTERPRISES LTD. AND CATEGORICALLY STATING WHA T FURTHER ENQUIRIES SHOULD HAVE BEEN CONDUCTED BY HIM. HE SUBMITTED, IN THE PRESENT CASE THE MATERIAL ON RECORD SUFFICIENTLY INDICATE THAT THE ASSESSING OFFICER HAS MADE PROPER ENQUIRY ON ALL THE ISSUES ON WHICH THE CIT H AS TREATED THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. HE SUBMITTED, EVEN ON MERITS ALSO NONE OF THE ISSUES ON WHICH THE CIT HAS REVISED THE ASSESSMENT ORDER THERE CAN BE ANY ADDITION AT THE HANDS OF THE ASSESSEE IN VIEW OF THE JUDICIAL PRECEDENTS CITED BEFORE THE CIT. E VEN IF , ACCORDING TO THE CIT THE RATIO LAID DOWN IN THE DECISIONS ARE NOT ACCEPTABLE TO HIM , HOWEVER , IT CANNOT BE DENIED THAT IT IS ONE OF THE POSSIBLE VIEW. THAT BEING THE CASE THE ASSESSMENT ORDER CANNOT BE HELD TO BE EITHER ERRONEOUS O R PREJUDICIAL TO THE INTERESTS OF REVENUE. HE SUBMITTED , E XPLANATION 2 TO SECTION 263 CANNOT S ET TO NAUGHT THE PRINCIPLES LAID DOWN IN THE JUDICIAL PRECEDENTS. HE SUBMITTED, AS THE TREATMENT OF AMALGAMATION IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE IS IN TE RMS OF THE SCHEME OF AMALGAMATION APPROVED BY THE HONORABLE HIGH COURT THERE CANNOT BE ANY INADEQUACY IN ENQUIRY DONE BY THE ASSESSING OFFICER AS HE HAS PASSED THE ASSESSMENT ORDER AFTER PERUSING THE SCHEME OF AMALGAMATION. HE THEREFORE SUBMITTED, THE EXERCISE OF POWER UNDER SECTION 263 OF THE A CT IS WITHOUT JURISDICTION, HENCE, THE IMPUGNED ORDER SHOULD BE QUASHED. 16 PIRAMAL ENTERPRISES LTD. 16 . THE LEARNED DEPARTMENTAL REPR ESENTATIVE STRONGLY SUPPORTING THE ORDER OF THE CIT SUBMITTED , THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT HAS NOT AT ALL MADE ANY ENQUIRY OR EXAMIN ED THE ISSUES ON WHICH THE CIT HAS INVOKED JURISDI CTION UNDER SECTION 263 OF THE A CT . H E SUBMITTED , E XPLANATION 2 TO SECTION 263 WHICH HAS A RETROSPECTIVE EFFECT EMPOWER S CIT TO SET ASIDE THE ASSESSMENT ORDER IF IN HIS OPINION THE ASSESSING OFFICER HAS NOT MADE PROPER ENQUIRY. IN THIS CONTEXT HE RELIED UPON THE DECISION OF THE ITAT MUMBAI BENCH IN CASE OF M/S. CROMPTON GRIEVES V/S CIT, ITA NO.1994/MUM./2013 DATED 1 ST FEBRUARY 2016. 17 . WE HAVE PATIENTLY HEARD THE SUBMISSIONS OF THE PARTIES, PERUSED THE MATERIALS ON RECORD AND HAVE APPLIED OUR MIND TO THE DECISIONS RELIED UPON . THE ASSESSEE HAS CHALLENGED T HE IMPUGNED ORDER OF CIT MAINLY ON THE FOLLOWING THREE GROUNDS: - I) VIOLATION OF RULES OF NATURAL JUSTICE ; II) VALIDITY OF EXERCISE OF POWER UNDER SECTION 263 OF THE A CT ; AND III) MERITS OF THE ISSUES ON WHICH THE CIT HAS SET ASIDE THE ASSESSMENT ORDER. 18 . KEEPING ASIDE THE ISSUE VIOLATION OF RULES OF NATURAL JUSTICE FOR THE TIME BEING WE PROPOSE TO DEAL WITH THE OTHER TWO ISSUES, NAMELY, WHETHER THE PROCEEDING UNDER SECTION 263 OF THE ACT WAS VALIDLY INITIATED AND WHETHER THE ASSESSMENT ORDER CAN BE HELD TO BE 17 PIRAMAL ENTERPRISES LTD. ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE ON THE ISSUES ON WHICH CIT EXERCISED REVISIONAL POWERS. BEFORE DWELLING UPON THESE TWO ISSUES IT IS NECESSARY TO REITERATE, THE CIT HAS TREATED THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL T O THE INTEREST OF REVENUE FOR NON - EXAMINATION OF THE FOLLOWING ISSUES: - I ) NETTING OFF OF INTEREST FOR THE PURPOSE OF CALCULATION OF DISALLOWANCE UNDER SECTION 14A R/W RULE 8D; II ) NON - REFLECTION OF INVESTMENTS AND GAIN / INCOME THEREOF AS A CONSEQUENCE OF AMAL GAMATION; AND III ) CREDITING OF RESERVES DIRECTLY TO THE GENERAL RESERVES IN THE BALANCE SHEET WITHOUT ROUTING THROUGH THE PROFIT & LOSS ACCOUNT CREATED UPON AMALGAMATION FOR THE COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 19 . A READING OF THE PRO VISIONS CONTAINED UNDER SECTION 263 OF THE ACT MAKES IT CLEAR FOR EXERCISING POWER THE SAID PROVISION TWO CONDITIONS HAVE TO BE SATISFIED. FIRSTLY, THE ORDERS SOUGHT TO BE REVISED MUST BE ERRONEOUS SECONDLY IT MUST BE PREJUDICIAL TO THE INTERESTS OF REVENU E. ON CUMULATIVE SATISFACTION OF THESE TWO CONDITIONS COMMISSIONER CAN EXERCISE POWER UNDER SECTION 263 OF THE ACT. KEEPING IN PERSPECTIVE THE AFORESAID STATUTORY PROVISION WE HAVE TO EXAMINE WHETHER CIT HAS VALIDLY EXERCISED JURISDICTION UNDER SECTION 263 OF THE ACT. AS COULD BE SEEN FROM THE IMPUGNED ORDER OF THE CIT, 18 PIRAMAL ENTERPRISES LTD. HE HAS OBSERVED THAT THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT HAS NOT EXAMINED THE ISSUES ON WHICH HE HAS SOUGHT TO REVISE THE ASSESSMENT ORDER. TO FIND OUT THE CORRECTNESS OF T HE AFORESAID ALLEGATION OF THE CIT IT IS NECESSARY TO DEAL WITH SOME OF THE MATERIAL FACTS ON RECORD. AS FAR AS THE ISSUE OF DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A READ WITH RULE 8D IS CONCERNED, IT IS NOTED BY US THE ASSESSEE IN THE COMPUTATION OF INCOME ITSELF HAS DISALLOWED THE INTEREST EXPENDITURE IN TERMS OF SECTION 14A. IT IS FURTHER EVIDENT FROM THE COMPUTATION OF INCOME, AND MORE SPECIFICALLY THE COMPUTATION OF DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A, THE ASSESSEE WHILE COMPUTING THE DI SALLOWANCE HAD NETTED OF THE INTEREST INCOME EARNED DURING THE RELEVANT PREVIOUS YEAR AGAINST THE INTEREST EXPENDITURE AND THE NET INTEREST EXPENDITURE WAS ADDED BACK TO THE INCOME. IT IS ALSO EVIDENT, IN COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFI CER VIDE NOTICE DATED 17 TH JULY 2013, HAD SPECIFICALLY CALLED FOR THE COMPUTATION OF INCOME AND ASSESSEES EXPLANATION WITH REGARD TO DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A OF THE ACT. AGAIN , IN NOTICE DATED 27 TH SEPTEMBER 2013, THE ASSESSING OFFICE R HAD ASKED THE ASSESSEE TO FURNISH COMPUTATION OF DISALLOWANCE UNDER SECTION 14A R/W RULE 8D. ASSESSEE IN ITS REPLY DATED 9 TH OCTOBER 2013, HAD ALSO FURNISHED THE COMPUTATION OF DISALLOWANCE MADE UNDER SECTION 14A.IN THE SAID COMPUTATION ASSESSEE HAD NETT ED OFF THE INTEREST INCOME AGAINST THE INTEREST EXPENDITURE. THEREFORE, THE 19 PIRAMAL ENTERPRISES LTD. ASSESSING OFFICER BEING CONSCIOUS OF THE FACT THAT THE DISALLOWANCE OF INTEREST EXPENDITURE IS AFTER NETTING OFF HAS COMPLETED THE ASSESSMENT. THUS, ALLEGATION OF THE CIT THAT ASSE SSING OFFICER HAS NOT EXAMINED THE ISSUE IS NOT CORRECT. NOW, THE ISSUE BEFORE US IS, BY ALLOWING NETTING OFF OF INTEREST, WHETHER THE ASSESSMENT ORDER BECOMES ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE? 20 . WE HAVE NOTED, IN CASE OF M/S. FOUR DIMENSIONS SECURITIES (I) LTD. V/S ACIT, ITA NO.6935/MUM./2011, DATED 12 TH JUNE 2013, ITAT, MUMBAI BENCH, HAS HELD THAT WHILE COMPUTING DISALLOWANCE OF INTEREST UNDER RULE 8D, ONLY THE NET INTEREST HAS TO BE CONSIDERED. AGAIN, IN CASE OF ADITYA MEDISALES L TD. V/S ACIT, [2016] 67 TAXMANN.COM 270, THE TRIBUNAL, AHMEDABAD BENCH, WHILE CONSIDERING SIMILAR ISSUE OF EXERCISE OF POWER UNDER SECTION 263 IN THE CONTEXT OF DISALLOWANCE OF INTEREST EXPENDITURE UNDER SECTION 14A ON NET BASIS TAKING INTO CONSIDERATION T HE FACT THAT VARIOUS BENCHES OF THE TRIBUNAL HAVE CONSISTENTLY HELD THAT THE AMOUNT OF INTEREST FOR THE PURPOSE OF COMPUTING DISALLOWANCE IS TO BE TAKEN AT NET FIGURE, CONCLUDED THAT EXERCISE OF POWER UNDER SECTION 263 IS NOT VALID. THUS, CONSIDERING THE F ACT THAT THERE ARE DECISIONS OF THE TRIBUNAL HOLDING THAT DISALLOWANCE OF INTEREST UNDER SECTION 14A R/W RULE 8D HAS TO BE ON THE NET FIGURE, THE VIEW TAKEN BY THE ASSESSING OFFICER ON THE ISSUE BEING A POSSIBLE 20 PIRAMAL ENTERPRISES LTD. VIEW CANNOT BE HELD TO BE ERRONEOUS. THAT BE ING THE CASE, THE EXERCISE OF POWER UNDER SECTION 263 OF THE ACT ON THIS ISSUE IS NOT VALID. 21 . AS FAR AS THE SECOND ISSUE OF NON - REFLECTION OF INVESTMENTS AND GAIN / INCOME THEREOF, AS A CONSEQUENCE OF SCHEME OF AMALGAMATION, THE SPECIFIC ALLEGATION OF THE CIT IS THAT, CERTAIN SHARES RECEIVED BY THE ASSESSEE AS PER THE SCHEME OF AMALGAMATION HAVE NOT BEEN SHOWN IN THE BALANCE SHEET. IN THIS CONTEXT, IT IS NECESSARY TO REFER TO CERTAIN RELEVANT FACTS AVAILABLE ON RECORD. AS DISCUSSED EARLIER, AS PER THE SCHE ME OF AMALGAMATION APPROVED BY THE HONBLE BOMBAY HIGH COURT, THE SHARES OF PHARMA DIVISION OF THE AMALGAMATED COMPANY (OLD PHL) DEMERGED WITH THE ASSESSEE, WHEREAS, THE NON - PHARMA DIVISION WAS DEMERGED WITH ANOTHER COMPANY. IN FACT, FROM THE CHART SUBMITT ED BEFORE THE CIT SHOWING TRANSFER OF SHARES OF THE DEMERGED COMPANY, A COPY OF WHICH IS AT PAGE - 164 OF THE PAPER BOOK, IT IS VERY MUCH CLEAR, WHAT ARE THE SHARES WHICH CAME TO THE ASSESSEE. FROM THE SAID CHART, IT IS FURTHER EVIDENT, THE SHARES OF THE COM PANIES WHICH ACCORDING TO THE CIT, WERE NOT REFLECTED IN THE BALANCE SHEET AS AT 31 ST FEBRUARY 2011, AS MENTIONED IN PARA - 4 OF HIS ORDER, WERE NEVER INTENDED TO BE GIVEN TO THE ASSESSEE AS PER THE SCHEME OF AMALGAMATION APPROVED BY THE HONBLE BOMBAY HIGH COURT. THAT BEING THE CASE, THERE IS NO QUESTION OF REFLECTING THOSE SHARES IN THE BALANCE SHEET OF THE ASSESSEE. FURTHER, AS PER THE SCHEME OF AMALGAMATION APPROVED BY 21 PIRAMAL ENTERPRISES LTD. THE HONBLE BOMBAY HIGH COURT, THE MANNER OF A CCOUNTING TREATMENT TO BE GIVEN FOR THE MERGER IN ASSESSEES BOOKS HAVE BEEN LAID DOWN IN CLAUSE 4.3 TO 3.4.5. AS PER CLAUSE 4.3.1 OF THE SCHEME OF AMALGAMATION, ALL ASSETS AND LIABILITIES RELATING TO PHARMA DIVISION TRANSFERRED AND VESTED WITH THE ASSESSEE SHALL BE RECORDED BY THE ASSESSEE A T T HEIR FAIR VALUE DETERMINED AS ON DATE OF APPROVAL OF THE SCHEME BY THE BOARD OF DIRECTORS OF THE COMPANY. THE RE IS NO FACTUAL FINDING BY THE CIT THAT THE ACCOUNTING TREATMENT OF THE MERGER IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY IS NOT IN TERMS WIT H THE SCHEME OF AMALGAMATION APPROVED BY THE HON'BLE BOMBAY HIGH COURT. MOREOVER, IT IS EVIDENT ON RECORD, THE ORDER OF THE HONBLE BOMBAY HIGH COURT ALONG WITH THE SCHEME OF AMALGAMATION WAS SUBMITTED BEFORE THE ASSESSING OFFICER ALONG WITH THE AUDITED AC COUNTS OF ASSESSEE INCORPORATING MERGER OF PHARMA DIVISION. IT IS EVIDENT FROM THE NOTICE DATED 27 TH SEPTEMBER 2013, ISSUED UNDER SECTION 142(1) OF THE ACT, THE ASSESSING OFFICER AND ASSESSEES REPLY DATED 9 TH OCTOBER 2013, THE ASSESSING OFFICER DID ENQUIR E INTO ISSUE OF DEMERGER OF THE PHARMA DIVISION WITH THE ASSESSEE. THEREFORE, THE EXERCISE OF JURISDICTION UNDER SECTION 263 ALLEGING NON - EXAMINATION BY THE ASSESSING OFFICER IN OUR VIEW IS UNDER A WRONG NOTION OR MISCONCEPTION OF FACTS. IT IS FURTHER RELE VANT TO OBSERVE, THE DIRECTION OF THE CIT ON THE ISSUE IN PARA - 14.1 IS VERY VAGUE AND GENERAL IN NATURE. WHEN THE AUDITED ANNUAL ACCOUNT OF THE ASSESSEE AS WELL AS SCHEME OF 22 PIRAMAL ENTERPRISES LTD. AMALGAMATION WAS AVAILABLE BEFORE THE ASSESSING OFFICER AND HE HAS EXAMINED THE SA ME, IT IS NOT KNOWN WHAT FURTHER ENQUIRY THE ASSESSING OFFICER IS TO UNDERTAKE. MORE SO, WHEN THE CIT ON THE BASIS OF MATERIAL SUBMITTED BEFORE HIM BY THE ASSESSEE HAS NOT BEEN ABLE TO POINT OUT THAT THE ACCOUNTING TREATMENT GIVEN TO THE MERGER IN ASSESSEE S BOOKS OF ACCOUNT IS NOT IN TERMS WITH THE SCHEME OF AMALGAMATION APPROVED BY THE HONBLE HIGH COURT. THEREFORE, EXERCISE OF POWER UNDER SECTION 263, ON THIS ISSUE IS ALSO INVALID. 22 . THE LAST ISSUE ON WHICH THE CIT HAS HELD THE ASSESSMENT ORDER TO BE ERR ONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE IS, WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB, THE ASSESSING OFFICER HAS NOT EXAMINED THE CREDIT OF REVALUATION OF SHARES TO THE GENERAL RESERVE WITHOUT ROUTING IT THROUGH THE PROFIT & LOSS ACCOUNT. 23 . AS DISCUSSED EARLIER, AS PER THE SCHEME OF AMALGAMATION APPROVED BY THE HONBLE BOMBAY HIGH COURT, THE MERGER HAS TO BE ACCOUNTED FOR IN THE BOOKS OF THE ASSESSEE AS PER THE TERMS OF THE SCHEME OF AMALGAMATION. AS PER CLAUSE 4.3.4, THE DIFFERENCE BETWEEN E XCESS OF THE NET ASSETS VALUE OF PHL HOLDINGS TRANSFERRED AND RECORDED BY THE ASSESSEE AS PER SUB - CLAUSE 4.3.1 AND THE FACE VALUE OF PREFERENCE SHARE S ALLOTTED AS PER CLAUSE 4.2.1, AFTER CONSIDERING THE ADJUSTMENT MENTIONED IN CLAUSE 4.3.3. WOULD BE RECORD ED AS GENERAL RESERVE. THUS, AS PER THE SCHEME OF AMALGAMATION, THE VALUE OF 23 PIRAMAL ENTERPRISES LTD. SHARES HAS TO BE CREDITED TO THE GENERAL RESERVE , WHICH THE ASSESSEE HAS COMPLIED. WHEN THE SCHEME OF AMALGAMATION APPROVED BY THE HONBLE HIGH COURT, MANDATES FOR CREDITING OF SH ARES TO THE GENERAL RESERVE, THE ASSESSEE COULD NOT HAVE GIVEN A DIFFERENT TREATMENT BY ROUTING IT THROUGH THE PROFIT & LOSS ACCOUNT. THUS, THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE IS IN STRICT COMPLIANCE TO THE HONBLE HIGH COURTS DIRECTION. FURTHE R, ADMITTEDLY, THE REVALUATION OF SHARES CREDITED TO THE GENERAL RESERVE HAS NOT BEEN ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. IN FACT, THE CIT ALSO ACCEPTS THE SAID POSITION. THAT BEING THE CASE, THERE IS NO SCOPE FOR THE ASSESSING OFFICER TO CONSIDER IT FOR ADJUSTMENT WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB, A S THE PROVISION CONTAINED UNDER SECTION 115JB, DOES NOT PERMIT SO. AS HELD BY THE HONBLE SUPREME COURT IN APOLLO TYRES LTD. V/S CIT, 255 ITR 273 (SC), THE ASSESSING OFFICER WHILE COMPUT ING BOOK PROFIT HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER COMPANIES ACT, 1956, AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH COMPANIES ACT. THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTI ON TO GO BEHIND THE NET PROFIT SHOWN IN THE PROFIT & LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION TO SECTION 115J. THE TRIBUNAL, MUMBAI BENCH, IN ITO V/S UNITED ES TATE P. LTD., (2012) 20 TAXMANN.COM 588, WHILE CONSIDERING IDENTICAL DISPUTE RELATING TO CREDIT OF REVALUED SHARES TO GENERAL RESERVE AS PER SCHEME OF AMALGAMATION APPROVED BY THE HIGH 24 PIRAMAL ENTERPRISES LTD. COURT , FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN APOLLO TYRES LTD. (SUPRA), ULTIMATELY HELD THAT AN AMOUNT WHICH WAS NEVER ROUTED THRO UGH PROFIT & LOSS ACCOUNT AND NEVER DEBITED TO THE PROFIT & LOSS ACCOUNT SHOULD NOT BE CONSIDERED FOR THE PURPOSE OF DETERMINATION OF BOOK PROFITS UNDER SECTION 115JB. THOUGH, THIS DECISION WAS CITED BEFORE THE CIT, IN THE COURSE OF REVISION PROCEEDINGS, H E HAS REFUSED TO ACCEPT THE SAME ON THE REASONING THAT THE DECISION HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. THUS, IMPLIEDLY HE ADMITS THAT THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL. THAT BEING THE CASE, THE VIEW TAKEN BY THE ASSESSING OFFICER O N THE ISSUE BEING A POSSIBLE VIEW AS IT IS IN CONSONANCE WITH THE DECISION OF THE TRIBUNAL, THE ASSESSMENT ORDER CANNOT BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 24 . AT THE COST OF REPETITION, WE MAY OBSERVE, ON PERUSAL OF THE MATERI AL ON RECORD, WE ARE SATISFIED THAT THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT HAS MADE ENQUIRIES AND EXAMINED ALL THE ISSUES ON WHICH THE CIT HAS HELD THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. HAVING HELD SO, NOW IT IS NECESSARY TO EXAMINE AFTER INTRODUCTION OF EXPLANATION - 2 TO SECTION 263, WHETHER THE POWERS OF CIT HAS BEEN WIDENED SO AS TO ENABLE HIM TO EXERCISE JURISDICTION UNDER SECTION 263 OF THE ACT EVEN IN A CASE WHERE IT IS FOUND THAT THE ASSESSING OFFICER DID MAKE ENQUIRY . 25 PIRAMAL ENTERPRISES LTD. AT THIS STAGE, IT IS NECESSARY TO EXAMINE THE SAID PROVISION WHICH IS REPRODUCED HEREIN BELOW: - [EXPLANATION 2. FOR THE PURPOSES OF THIS SECTION, IT IS HEREBY DECLARED THAT AN ORDER PASSED BY THE ASSESSING OFFICER SHALL BE DEEMED TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, IF, IN THE OPINION OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER, (A) THE ORDER IS PASSED WITHOUT MAKING INQUIRIE S OR VERIFICATION WHICH SHOULD HAVE BEEN MADE; (B) THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOUT INQUIRING INTO THE CLAIM; (C) THE ORDER HAS NOT BEEN MADE IN ACCORDANCE WITH ANY ORDER, DIRECTION OR INSTRUCTION ISSUED BY THE BOARD UNDER SECTION 119 ; OR (D) THE ORDER HAS NOT BEEN PASSED IN ACCORDANCE WITH ANY DECISION WHICH IS PREJUDICIAL TO THE ASSESSEE, RENDERED BY THE JURISDICTIONAL HIGH COURT OR SUPREME COURT IN THE CASE OF THE ASSESSEE OR ANY OTHER PERSON.] 25 . ON A PLAIN READING OF THE SAID PROVISION, A S INTRODUCED TO THE STATUTE BY FINANCE ACT, 2015, W.E.F. 1 ST APRIL 2015, IT APPEARS , AN ORDER PASSED BY THE ASSESSING OFFICER SHALL BE DEEMED TO BE ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE IN SPECIFIED CIRCUMSTANCES AS ENUMERATED IN CLAUSE (A) TO (D) OF THE SAID EXPLANATION. AS IT APPEARS FROM THE ORDER OF THE CI T IN THE PRESENT CASE, HE HAS TAKE N AID OF CLAUSE (A) . W ITHOUT ENTERING INTO THE CONTROVERSY WHETHER EXPLANATION 2 OF SECTION 263 OF THE ACT, WILL APPLY RETROSPECTIVELY OR NOT, LET US EXAMINE THE SCOPE AND AMBIT OF THIS EXPLANATION. BEFORE THAT, IT IS NECE SSARY TO OBSERVE , AS PER RULES OF STATUTORY INTERPRETATION, AN EXPLANATION IS INCORPORATED IN A PROVISION TO EXPLAIN THE MEANING OF WORDS CONTAINED IN THE SECTION. AN EXPLANATION, NORMALLY SHOULD BE SO READ AS TO HARMONISE WITH AN D 26 PIRAMAL ENTERPRISES LTD. CLEAR UP ANY AMBIGUITY I N THE MAIN SECTION AND SHOULD NOT BE SO CONSTRUED AS TO WIDEN THE AMBIT OF THE SECTION. NOTWITHSTANDING THE INTRODUCTION OF THE AFORESAID EXPLANATION TO THE STATUTE, THE BASIC PRE - CONDITION S FOR EXERCISE OF POWER UNDER SECTION 263 REMAIN UNCHANGED , WHICH ARE , THE ORDER SOUGHT TO BE REVISED MUST BE ERRONEOUS AND AT THE SAME TIME IT MUST BE PREJUDICIAL TO THE INTEREST S OF REVENUE. THEREFORE, IT HAS TO BE EXAMINED WHETHER THESE TWO CONDITIONS HAVE BEEN FULFILLED FOR EXERCISING POWER UNDER SECTION 263. IN THE FACTS OF THE PRESENT CASE, WE HAVE HELD THAT IN NONE OF THE ISSUES ON WHICH THE CIT HAS INVOKED THE POWERS UNDER SECTION 263 OF THE ACT, THE ASSESSMENT OR DER CAN BE HELD TO BE ERRONEOUS . THEREFORE, IN FACTS OF THE PRESENT CASE, BOTH THE CONDITIONS O F SECTION 263 ARE NOT SATISFIED CUMULATIVELY. THEREFORE, IRRESPECTIVE OF THE FACT, WHETHER EXPLANATION - 2 TO SECTION 263 OF THE ACT IS APPLICABLE TO THE FACTS OF THE PRESENT CASE, THE EXERCISE OF POWER UNDER SECTION 263 IS INVALID. LEARNED CIT HAS OBSERVED , EXPLANATION - 2 EMPOWERS HIM TO REVISE THE ASSESSMENT ORDER IF IN HIS OPINION, THE ASSESSING OFFICER HAS NOT MADE ENQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE. IN OUR VIEW, EXPLANATION 2 IS NOT INTENDED TO CONFER UNBRIDLED POWER ON THE REVISIONAL A UTHORITY. IN A CASE, WHERE MATERIAL ON RECOD INDICATE THAT THE ASSESSING OFFICER IN COURSE OF THE ASSESSMENT PROCEEDINGS HAS MADE ENQUIRIES AND TAKEN A VIEW ON THE ISSUE, THE CIT CANNOT REVISE SUCH ORDERS, MERELY FOR THE REASON THAT IN HIS OPINION, THE ASS ESSING OFFICER SHOULD HAVE 27 PIRAMAL ENTERPRISES LTD. MADE SOME FURTHER ENQUIRY OR THE ENQUIRY MADE BY HIM IS NOT SUFFICIENT. THE OPINION TO BE FORMED BY CIT WITH REGARD TO ENQUIRY CONDUCTED BY THE ASSESSING OFFICER MUST BE ON OBJECTIVE BASIS GUIDED BY VALID REASONING . AS OBSERVED B Y THE TRIBUNAL IN NARAYAN T. RANE (SUPRA), WHAT IS RELEVANT FOR CLAUSE (A) OF EXPLANATION 2 TO SECTION 263 IS , WHETHER THE ASSESSING OFFICER HAS PASSED THE ORDER AFTER CARRYING OUT ENQUIRIES O R VERIFICATION , WHICH A REASONABLE AND PRUDENT OFFICER WOULD HAV E CARRIED OUT OR NOT. EXPLANATION 2(A) OF SECTION 263 DOS NOT POSTULATE ARBITRARY EXERCISE OF POWERS AT THE WHIMS AND CAPRICES OF THE REVISIONAL A UTHORIT Y . ON THE BASIS OF MATERIAL ON RECORD, CIT MUST SPECIFY THE DEFECTS AND DEFICIENCIES IN ENQUIRY CONDUCT ED BY THE ASSESSING OFFICER WHICH ACCORDING TO HIM, MADE THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. MERELY OBSERVING THAT THE ASSESSING OFFICER SHOULD HAVE MADE SOME FURTHER ENQUIRY OR ENQUIRY MADE BY HIM IS IN SUFFICIENT A ND WITHOUT SPECIFYING THE EXACT NATURE AND MANNER OF ENQUIRY THE CIT CANNOT REVISE THE ASSESSMENT ORDER. THE HON'BLE BOMBAY HIGH COURT IN CIT V/S GABRIAL INDIA LTD, 203 ITR 108 (BOM.) HAS HELD THAT SECTION 263 DOES NOT EMPOWER THE CIT TO DIRECT A ROVING AN D FISHING ENQUIRY BY THE ASSESSING OFFICER. THE HONBLE SUPREME COURT IN MALABAR INDUSTRIAL CO. LTD. V/S CIT, 243 ITR 83 (SC), HA S HELD , THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFF ICER. EVERY LOSS OF 28 PIRAMAL ENTERPRISES LTD. REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF REVENUE IF THE VIEW ADOPTED BY THE ASSESSING OFFICER IS PERMISSIBLE IN LAW. ONLY BECAUSE THE CIT ENTERTAINS A DIFFERENT VIEW, THE ORDER SOUGHT TO BE REV ISED CANNOT BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S NIRAB MODI, 71 TAXMANN.COM 272 (BOM.) ALSO EXPRESS ED SIMILAR VIEW. 26 . THUS, ON OVERALL CONSIDERATION OF FACTS OF THE CASE, IN T HE LIGHT OF THE RELEVANT STATUTORY PROVISIONS AND JUDICIAL PRECEDENTS, WE ARE OF THE VIEW THAT THE IMPUGNED ASSESSMENT ORDER CANNOT BE HELD TO ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE , BOTH ON LACK OF ENQUIRY AS WELL AS ON MERITS. THEREFORE, T HE EXERCISE OF POWER UNDER SECTION 263 FOR REVISING THE ASSESSMENT ORDER, IN OUR CONSIDERED OPINION, IS INVALID. THEREFORE, WE QUASH THE IMPUGNED ORDER OF THE CIT AND RESTORE THE ORDER OF THE ASSESSING OFFICER. 27 . IN VIEW OF OUR AFORESAID DECISION, IT IS NOT NECESSARY TO DEAL WITH THE ISSUE OF VIOLATION OF RULES OF NATURAL JUSTICE. 28 . IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.12.2 0 16 SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 15.12.2 0 16 29 PIRAMAL ENTERPRISES LTD. COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . ( 7 ) TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT, MUMBAI