Bilt Paper Holdings Ltd., Secunderabad V. CIT, Hyderabad

ITA 403/HYD/2008

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5850 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-02-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 10-03-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V NAGAPRASAD
• Assessee Lawyers: SURESH ANANTARAMAN
• Keywords: Principle of natural justice; Cost of acquisition; Speculation loss; Prejudicial to interest; Capital expenditure; Speculative transactions
• Section: 143(3); 115JB; 43(5); 263; 63

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI G.C.GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.403/HYD/2008 : ASSTT. YEAR : 2003-04 BILT PAPER HOLDINGS LTD., SECUNDERABAD. PAN - AACCA 5467E VS COMMISSIONER OF INCOME-TAX, CIRCLE 1, HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SURESH ANANTARAMAN, CA RESPONDENT BY : SHRI V.NAGA PRASAD, CIT-DR O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2003-04 IS DIRECTED AGAINST THE ORDER OF THE CIT, HYDE RABAD-1 DATED 31-1-2008 PASSED U/S 263 OF THE INCOME TAX ACT, 1961 (TH E ACT). 2. FOLLOWING ARE THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE IN THE PRESENT APPEAL. 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE ORDER PASSED U/S 263 OF THE INCOME TAX ACT, 1961 IS WRONG, ERRONEOUS AND BAD IN LAW. 1.2 THAT THE LEARNED CIT WAS WRONG IN HOLDING THAT THE ASSESSMENT ORDER PASSED U/S 143(3) ON MARCH 29, 2006 WAS PREJUDICIAL TO THE INTEREST OF REVENUE. 1.3 THAT THE LEARNED CIT WAS WRONG IN INVOKING PROC EEDINGS U/S 263 IGNORING THE FACTS THAT DURING THE ASSESSMENT PROCE EDINGS THE ASSESSING OFFICER HAD EXAMINED THE ACCOUNTS, MADE ENQUIRIES A ND APPLIED HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE IMPUGNED ISSUES AND DETERMINES THE INCOME. 1.4 THAT THE LEARNED CIT WAS WRONG IN HOLDING THAT THE ORDER PASSED U/S 143(3) OF THE ACT IS WITHOUT APPLICATION OF MIND BY THE ASSESSING OFFICER. 2 1.5 THAT THE LEARNED CIT WAS WRONG IN SETTING ASIDE THE ASSESSMENT FOR FRESH ADJUDICATION WITHOUT FINDING ANY MATERIAL FAC TS ADDITIONAL AND AFRESH. 1.6 THAT THE LEARNED CIT HAS FAILED TO VERIFY THE F ACTS WITH REFERENCE TO RECORDS AVAILABLE WITH HIM AND WRONG IN CONCLUDING THAT THE ASSESSMENT IS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE ATTRACTING THE PROVISION OF SEC.263. 2. THAT THE DIRECTION GIVEN OF THE CIT TO THE ASSES SING OFFICER TO TREAT THE TRADING LOSS AS SPECULATION LOSSAND TO APPLY THE PROVISION OF SECTION 73 OF THE ACT AS WRONG AND NOT TO THE PREJUDICIAL INTERES T OF REVENUE. 3. THAT THE ORDER OF THE LEARNED CIT SETTING ASIDE THE ASSESSMENT ON THE ISSUE OF ALLOWABILITY OF PROFESSION EXPENSES RS.34, 96,790 IS INVALID AND WITHOUT JURISDICTION. 4.THAT THE LEARNED CIT WAS WRONG IN TREATING THE H OLDING COST RS.30,77,88,622 AS A PART OF CONSIDERATION RECEIVED FOR SALE OF 32,20,69,427 SHARES. 5. THAT THE ORDER OF LEARNED CT SETTING ASIDE THE A SSESSMENT ON RE- COMPUTATION OF CAPITAL GAIN WAS WRONG AND INVALID. GENERAL 6.THAT THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOU T PREJUDICE TO EACH OTHER. 7. THAT THE ORDER OF THE LEARNED CIT IS AGAINST THE FACTS AND OTHERWISE BAD IN LAW. 3. BRIEFLY STATED, FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY HAVING ITS REGISTERED OFFICE AT HYDERABA D. ASSESSEE COMPANY DERIVES ITS INCOME MAINLY FROM EXPORT OF GOODS A ND MERCHANDISE AND INCOME BY WAY OF DIVIDEND. IN RESPECT OF THE ASSESSMENT YEAR UNDER APPEAL VIZ., 2003-04, THE ASSESSING O FFICER COMPLETED THE ASSESSMENT VIDE HIS ORDER DT. 29-3-2006 IN ACCORDANCE WITH SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT ). BREAK UP OF ASSESSED INCOME IS AS UNDER: A) PROFITS AND GAINS FROM BUSINESS (LOSS) RS.4 ,97,74,115 B) CAPITAL GAINS (LONG TERM) (BEFORE SETTING OFF OF UNABSORBED CAPITAL LOSS R S. 3,96,48,935 3 C) BOOK PROFIT U/S 115JB (NOT CONSIDERING EXPENSES OF RS.1,30,28,745 DEBITED TO PROFIT AND LOSS ACCOUNT RS.1,32,79,974 TO ARRIVE AT THE SAID COMPUTATION, THE ASSESSING OFFICER HAS DISALLOWED/ADJUSTED THE FOLLOWING: A) RENT IN RESPECT OF ACCOMMODATION PROVIDED TO A DIRECTOR OF THE COMPANY RS. 3,0 0,000 B) COST FOR ARRANGING FUND TREATED AS A PART OF SALES CONSIDERATION SINCE RECOVERED ALONG WITH SALES CONSIDERATION RS.30,77,88,662 C) EXPENDITURE UNDER THE HEAD PRIOR YEAR ADJUSTMENT DEBITED TO P&L A/C WAS NOT CONSIDERED TO ARRIVE THE BOOK PROFIT AT RS.1,30,28,745 RS. 1,32,79,974 3.1. FINDING THAT THE ABOVE ORDER OF ASSESSMENT MADE BY THE ACIT, CIRCLE 1(3), HYDERABAD WAS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, THE CIT, HYDERABAD-1 HAD ISSUED A NOTICE U/S 263 OF THE ACT ON 11-7-2007 AFTER PERUSING THE ASSESSM ENT ORDER DT.29-3-2006 MADE U/S 143(3) OF THE ACT FOR THE YEAR UNDER CONSIDERATION. IT WAS OBSERVED BY THE LEARNED CIT THAT THE ASSESSEE COMPANY HAS SHOWN GROSS SALES OF RS.7,91,48,720 AGAINST WHI CH THE PURCHASES WERE SHOWN AT RS.7,91,00,046. THE ABOVE TRANSACT ION WAS A SINGLE TRANSACTION AND WAS NOT A NORMAL PURCHASE AND SA LE TRANSACTION AND HENCE THE RESULTING LOSS WAS SPECULATIVE IN NATURE AND THE PROVISIONS OF SEC.73 OF THE AC WERE APPLICABLE. TH E LEARNED CIT OBSERVED THAT DESPITE NO OTHER TRADING ACTIVITY EXCEPT THE ABOVE, THE COMPANY CLAIMED HUE EXPENDITURE WHICH MAY NOT BE ENTIR ELY RELATABLE 4 TO THE TRADING ACTIVITY DONE BY THE COMPANY AND AS SUCH THE CLAIM OF EXPENDITURE WAS LIABLE TO BE DISALLOWED. IT WAS OBSER VED BY HIM THAT AS PER THE ASSESSMENT ORDER DT.29-3-2006, AS AGAINST LOSS O F RS.15,09,44,979 ADMITTED BY THE COMPANY, THE INTEREST RESETTING FREE CLAIMED IN THE CAPITAL GAIN COMPUTATION OUGHT TO HAVE BEEN ADDED BACK. LIKEWISE, THE CAPITAL GAIN COMPUTATION TOO NEEDE D FURTHER REVISION BECAUSE THE HOLDING COSTS DO NOT FORM PART OF Q UALIFYING EXPENSES I.E. THE COST OF IMPROVEMENT FOR THE COMPUTATI ON OF CAPITAL GAINS. WHEN IT AS PROPOSED THAT THE AFORESAID LOSS OF RS.4,21,148 WAS TO BE TREATED AS SPECULATION LOSS, IT WAS CONTENDED TH AT MERE CHANGE OF HEAD OF INCOME U/S 14 OF THE ACT DOES NOT WARR ANT EXERCISE OF JURISDICTION U/S 263 MORE PARTICULARLY WHEN THE ASSESSEE WAS LOADED WITH HUGE AMOUNT OF UNABSORBED LOSS ETC.AS PER RECORD AND EVEN IF THE ORDER WAS ERRONEOUS, IT WAS NOT PREJUDICIAL TO THE INTE REST OF REVENUE. IT WAS OPINED BY THE LEARNED CIT THAT IT WAS NOT DISPU TED BEFORE HIM THAT THE TRANSACTION IN QUESTION WAS SPECULATIVE IN NA TURE AND THE LOSS WAS GOVERNED BY SEC.73 OF THE ACT. HENCE, THE SAME CAN O NLY BE ALLOWED TO BE SET OFF ONLY AGAINST THE PROFITS AND GAI NS OF ANOTHER SPECULATION BUSINESS IN THE SAME ASSESSMENT YEAR AND IF IT CANNOT BE SET OF FROM INCOME OF ANOTHER SPECULATION INCOME IN THE SAME ASSESSMENT YEAR, IT WILL BE CARRIED OVER TO BE CLAIMED AS SET OFF N THE SUBSEQUENT YEARS ONLY AGAINST THE INCOME OF ANY SPECULATIO N BUSINESS. BY NOT INDICATING THE SAME AS SPECULATION LOSS, THE ORDE R OF THE ASSESSING OFFICER HAS BECOME ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF REVENUE AS IT HAS IMPLICATION IN SUBSEQUENT ASSESSMENT Y EARS. FURTHER, THERE ARE OTHER ISSUES ALSO WHICH HAVE RESULTED IN MAKING THE ORDER ERRONEOUS AND CAUSING PREJUDICE TO THE INTEREST O F REVENUE. THUS REJECTING THE CLAIM OF THE ASSESSEE, THE CIT DIRECTED THE ASSESSING OFFICER TO TREAT THE LOSS OF RS.41,21,148 AS SPECUL ATION LOSS 5 AND DEAL THE SAME AS PER PROVISIONS OF SEC.73 OF THE ACT. THE CIT DEALT WITH THE OTHER ISSUES AS FOLLOWS. 4. AS REGARDS CLAIM OF LOSS ON CAPITAL GAIN ON SALE OF SHAR ES AT RS.3,96,48,935, THE CIT AFTER CONSIDERING THE SUBMISSION S MADE ON BEHALF OF THE ASSESSEE OPINED THAT IT IS NOT DISPUTED T HAT ON SALE OF 32,20,69,27 SHARES (OUT OF TOTAL OF 53,71,06,144 SHARE S) IN THE ASSESSMENT YEAR UNDER APPEAL, THE COMPANY RECEIVED TOTAL CONSIDERATION OF RS.1,77,26,56,582. AS PER THE ASSESSEE, T HE HOLDING COST BEING THE REIMBURSEMENT OF EXPENSE WAS RIGHTLY NOT CLAIMED IN THE COMPUTATION OF CAPITAL LOSS (AFTER COST OF 32,20,69,4 27 SHARES WAS INDEXED) WHEREAS AS PER PROPEL U/S 263, THE ALLEGED HO LDING COST BEING PART OF SALE CONSIDERATION WAS TO BE INCLUDED IN SALE RECE IPTS, THE HOLDING COST HAD NO RELEVANCE TO COST OF ACQUISITION AS IT WAS IN THE NATURE OF MAINTENANCE. THE CORRECT CAPITAL GAIN ACCORDIN GLY SHOULD HAVE BEEN AS UNDER: TOTAL CONSIDERATION (SALE PROCEEDS) RS.177,2 6,56,582 LESS: COST OF ACQUISITION (AFTER INDEXING) RS.161,2 8,52,981 CAPITAL GAINS RS. 15,98,03,601 RS. 161,28,52,981 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN ITS REPLY TO THE NOTICE ISSUED U/S 263 OF THE ACT BY THE CIT IN RE PLY TO PARA 1 AND 2 OF THE NOTICE DT.5-12-2007 WHETHER OR NOT THE TRANSACTION IS SPECULATIVE IN NATURE, IT WAS SUBMITTED THAT THOUGH TH E LANGUAGE INSEC.43(5) OF THE ACT IS PLAIN AND IT DOES NOT ADMIT AN Y DOUBT OR AMBIGUITY, THIS PROCEEDINGS TO TREAT THE TRANSACTION A S SPECULATIVE IN NATURE IS A FUTILE EXERCISE SIMPLY BECAUSE THE ORDER PASSE D BY THE ASSESSING OFFICER MAYBE SAID AS ERRONEOUS BUT UNDER NO CIRCU MSTANCES 6 IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. MERE CH ANGE OF HEAD OF INCOME U/S OF THE ACT DOES NOT ADDRESS THE CAUSE FOR MODI FICATION OF ASSESSMENT U/S 263 MORE PARTICULARLY WHEN THE ASSESSEE IS LOAD ED WITH HUGE AMOUNT OF UNABSORBED LOSS ETC. AS PER RECORD. THUS, THE ISSUE RAISED BY THE LEARNED CIT IS PURELY AN ACADEMIC ONE IN NATURE. WITH REGARD TO INTEREST RE-SETTING OF RS.75,38,174 IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE CLAIM WAS MA DE IN THE RETURN FILED IN RELATION TO ASSESSMENT YEAR 202-03 SIMPL Y BECAUSE SUCH EXPENDITURE, BEING REVENUE IN NATURE, WERE INCURRED IN THE YEAR RELEVANT TO ASSESSMENT YEAR 2002-03. HOWEVER, ASSESSEE COMPA NYS CLAIM WAS NOT ACCEPTED AND THE CLAIM WAS DISALLOWED VIDE ORDER DT.24- 3-2005 PASSED U/S 143(3) OF THE ACT. THEREFORE, PROPO SED ADDITION OF INTEREST RE-SETTING FEE OF RS.65,38,17 IN THE ASSESSMENT Y EAR 003-04 IS NOT CALLED FOR. WITH REGARD TO ADDITION MADE ON ACCOU NT OF CAPITAL GAINS, IT AS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE COMPA NY IS ONE OF THE PROMOTERS OF BALLARPUR INDUSTRIES LTD. COMMO NLY KNOWN AS BILT. BILT WAS INCORPORATED IN THE YEAR 1945 AND IS ENGAGED IN MANUFACTURING PAPER-PULP AND VARIOUS KINDS OF PAPER S. BILT OWNED 5 MILLS AND HAD AN ANNUAL PRODUCTION CAPACITY OF APPROX 3 LAKH TONES AND IT CONTROLLED APPROXIMATELY 20% OF THE COUNTRYS P APER MARKET DURING THE YEAR UNDER CONSIDERATION. BILT GRAPHICS PAP ERS LTD. ALSO KNOWN AS BGPL, WAS ONE OF THE BEST PAPER PRODUCING UNIT S LOCATED IN MAHARASHTRA. THIS STATE OF ART MANUFACTURING UNIT WAS ST ARTED PRODUCTION A FEW YEARS EARLIER CATERING THE NEEDS OF CU STOMERS IN FOREIGN COUNTRY. IN OTHER WORDS, ITS AN EXPORT ORIENT ED PAPER MANUFACTURING UNIT. BILT BEING A PIONEER IN THE FI ELD OF PAPER MANUFACTURING AREA WAS DESIROUS OF ACQUIRING THE ABOV E SAID STATE OF ART MACHINERY IN ITS FOLD SO AS TO STRENGTHEN ITS POSITI ON IN THE COUNTRY AND THAT TOO WITHOUT LOSING THE REQUIRED MINIMUM TIM E FOR ERECTING OF 7 A PLANT OF ITS SIZE. HOWEVER, THERE WERE MANY LEGAL CONSTRAINTS FOR BILT, BEING A LISTED COMPANY IN THE COUNTRY, IN ACQUIR ING SHARES OF BGPL. ON THE CONTRARY, THIS ASSESSEE DID NOT HAVE REQUISI TE EXPERTISE TO RUN ANY PAPER MANUFACTURING BUSINESS EFFECTIVELY, S MOOTHLY AND PROFITABLY. FINANCIAL STATEMENTS LYING IN THE RECORDS ALSO SUGGEST THAT THE ASSESSEE COMPANY NEITHER HAD THE FINANCIAL STRENGTH A BSOLUTELY NECESSARY FOR SUCH ACQUISITION NOR IT HAD THE REQUISITE STR ENGTH OF MANPOWER IN VARIOUS AREAS IN ORDER TO ACQUIRE SHARES OF BGPL. HAVING THIS BACKGROUND, THE ASSESSEE COMPANY BEING A PROMOTER, STA RTED ACQUIRING SHARES OF BILT GRAPHIC PAPER LTD. ALSO KNOWN AS BGPL WITHOUT LOSS OF ANY TIME. AS THIS ASSESSEE HAD ACQUIRED 64,76,21,81 1 EQUITY SHARES IN BILT GRAPHIC PAPERS LTD. (BGPL) IN THE YEAR 2 001-02 RELEVANT TO THE ASSESSMENT YEAR 2002-03 PENDING CERTAIN FORMALITI ES BOTH LEGAL AND FINANCIAL. UNDER THE CIRCUMSTANCES AND AS PER ARRANGE MENT, SHARES IN BGPL WAS TRANSFERRED TO BILT AT AN ACQUISITION COST PLUS COST FOR CERTAIN OTHER EXPENDITURE INCURRED FOR ARRANGEMEN T OF FUND AND OTHER LEGAL FACILITIES. HOWEVER, THIS TRANSFER OF SHARE S TOOK PLACE BY WAY OF SALE, THE ONLY ALTERNATIVE AVAILABLE TO THIS ASSESSEE. THE EXPENDITURE INCURRED FOR ARRANGEMENT OF FUND AND OTH ER LEGAL FACILITIES ARE IN REALITY WAS REIMBURSEMENT OF EXPENDITURE. HOWE VER, THIS EXPENDITURE DESCRIBED IN ACCOUNT AS HOLDING COST WAS RECO VERED AS AGREED UPON FROM BILT. MOREOVER, THIS EXPENDITURE W AS NOT TREATED AS INVESTMENTS NOR ANY CLAIM WAS THERE IN ANY YEAR AS R EVENUE FOR THE PURPOSE OF ALLOWANCE IN COMPUTING THE INCOME UNDER THE LAW. RATHER, DOCUMENTS RESTING WITH THE ASSESSING OFFICER CLEARL Y SHOW THAT EXPENSES WERE BOOKED AS LOANS AND ADVANCE IN THE BOOK S OF ACCOUNT. THU, SUCH LOANS AND ADVANCES DO NO HAVE ANY DIRECT BEARIN G TO THE ACQUISITION OF ASSET I.E. SHARES OF BGPL FOR PURPOSE OF I NVESTMENT, SUCH EXPENSES SHOULD NOT AND MUST NOT FORM PART OF THE COST OF SHARES. AS 8 EXPLAINED, THE ASSESSEE COMPANY DID NOT HAVE REQUISITE FU ND TO HOLD THE ENTIRE SHARES OF BGPL AS AN INVESTMENT AND INSTEAD THEREOF, AS PER ARRANGEMENT, THE ASSESSEE HAD TRANSFERRED THE SHARES TO BI LT IMMEDIATELY AFTER ACQUISITION. FINANCIAL STATEMENTS FOR THE EARLIER YEARS AS WELL AS FOR THIS YEAR TESTIFY THIS POSITION. MO REOVER, PRINCIPLE OF CHARGEABILITY TO TAX ON ANY RECEIPTS IS DEPENDENT UP ON THE VERY FACTOR INCOME AND IN TURN, INCOME IS DEPENDENT UPON F ACTORS SUCH AS EXPLOITATION OF ASSET, CAPITAL ETC. EXPENDITURE INCUR RED FOR SPECIFIC PURPOSE OTHER THAN FOR INVESTMENT AND COLLECTION/REALIZ ATION OF FUND FROM BILT AS AGAINST CORRESPONDING EXPENDITURE ARE THE ELEMENTS IN THIS CASE AND THESE TWO BASIC ELEMENTS DO NOT ENCOMPASS THE B ASICS OF INCOME FOR THE PURPOSE OF COMPUTATION OF INCOME AND THAT TOO CHARGEABILITY TO TAX UNDER THE LAW. 6. REITERATING HIS SUBMISSIONS, THE LEARNED COUNSEL FOR T HE ASSESSEE WITH REGARD TO TREATING THE HOLDING COST OF SHARES AS PA RT OF COST OF IMPROVEMENT HAS NO BASIS AS IT IS ADMITTED POSITION THAT EXPENDITURE THAT RS.30,77,38,662 WAS INCURRED BY THE ASSESSEE FOR SPECIF IC PURPOSE AS EXPLAINED IN DETAILS I.E FOR RAISING THE FU ND BUT THE NOMENCLATURE GIVEN TO SUCH EXPENDITURE WAS HOLDING COST. IT WAS ALSO SUBMITTED THAT IT IS ADMITTED POSITION THAT AFORESA ID EXPENDITURE WAS RECOVERED/REIMBURSED AS AND WHEN THE ASSESSEE HAD TRAN SFERRED THE SHARES BY WAY OF SALE AT A COST PRICE (BUT NOT AT A P ROFIT) PARTICULARLY WHEN THERE WAS NO OTHER OPTION UNDER THE LAW FOR MODE OF TRANSFER OF SHARES IN THE GIVEN CASE. ASSESSEES COUNSEL SUMMED UP HIS ARGUMENT BY CONCLUDING THAT TAX IS PAYABLE ON INCO ME NOT ON RECEIPT THAT TOO ON RECOVERY OF MONEY SPENT EARLIER, T HAT MERE A BOOK ENTRY THAT TOO AS LOANS AND ADVANCE DOES NOT ENTAIL CO LLECTION OF TAX 9 BY THE REVENUE. HE PRAYED THAT THE PROCEEDINGS MADE U/S 263 OF THE ACT BE DROPPED. 7. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENT ATIVE SUBMITTED THAT PRIMA FACIE, PROCEEDINGS U/S 263 OF THE A CT WERE INITIATED FOR THE FOLLOWING REASONS. A) THE ASSESSEE COMPANY HAS SHOWN GROSS SALES OF RS.7,91,48,720 AGAINST WHICH THE PURCHASES WERE SHOWN AT RS.7,91,00,046. THE ABOVE TRANSACTION WAS A SINGLE TRANSACTION AND WAS NOT A NORMAL PURCHASE AND SALE TRANSACTION AND HENCE THE RESULTING LOSS W AS SPECULATIVE IN NATURE AND THE PROVISIONS OF SEC.73 OF THE ACT WERE APPLICABLE. B) DESPITE NO OTHER TRADING ACTIVITY EXCEPT THE ABOVE , THE COMPANY CLAIMED HUGE EXPENDITURE WHICH MAY NOT BE ENTIRELY RE LATABLE TO THE TRADING ACTIVITY DONE BY THE COMPANY AND AS SUCH THE CLA IM OF EXPENDITURE WAS LIABLE TO BE DISALLOWED. C) AS PER THE ASSESSMENT ORDER DT.29-3-2006, AS AGAINST LO SS OF RS.15,09,4,979 ADMITTED BY THE COMPANY, THE INTEREST R ESETTING FEE CLAIMED IN THE CAPITAL GAIN COMPUTATION OUGHT TO HAVE BEEN ADDED BACK. D) THE CAPITAL GAIN COMPUTATION NEEDED FURTHER REVISIO N BECAUSE THE HOLDING COSTS DO NOT FORM PART OF QUALIFYING EXPENSES I. E. THE COST OF IMPROVEMENT FOR THE COMPUTATION OF CAPITAL GAINS. FU RTHER, THE EXPENDITURE INCURRED TOWARDS PROFESSION FEE HAS NOT BEEN FURNISHED WITH FULL DETAILS OF THE EXPENDITURE. 10 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT AS REGARDS SALES OF RS.7,91,48,920 (GROSS) AS APPEARING UND ER SCHEDULE 12 TO P& A/C AS LOSS FROM SPECULATIVE BUSINESS IN PLACE O F TRADING LOSS AT RS.41,21,148 AS HAS BEEN RIGHTLY HELD BY THE LE ARNED CIT, IT WAS NOT DISPUTED THAT THE TRANSACTION WAS SPECULATIVE IN NATURE AND THE LOSS WAS GOVERNED BY SEC.73 OF THE ACT. CONSEQUENTLY, THE SAME CAN ONLY BE ALLOWED TO BE SET OFF ONLY AGAINST THE PR OFITS AND GAINS OF ANOTHER SPECULATION BUSINESS IN THE SAME ASSESSMENT YEAR AND IF IT CANNOT BE SET OFF FROM INCOME OF ANOTHER SPECULATION INCO ME IN THE SAME ASSESSMENT YEAR, IT WILL BE CARRIED OVER TO BE CLAIME D AS SET OFF IN THE SUBSEQUENT YEARS ONLY AGAINST THE INCOME OF ANY SP ECULATION BUSINESS. BY NOT INDICATING THE SAME AS SPECULATION LOSS, T HE ORDER OF THE ASSESSING OFFICER HAS BECOME ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AS IT HAS IMPLICATION IN SUBSEQUENT ASSESSMENT YEARS. HENCE THE LOSS OF RS.41,21,148 AS SPECULATION LOSS WAS RIGHTLY ORDERED TO BE TREATED AS SPECULATION LOSS. 9. WITH REGARD TO CLAIM OF HUGE EXPENDITURE AT RS.6,7 5,09,210 IT WAS SUBMITTED BY THE LEARNED DR THAT FOR ASSESSMENT YEAR 2003-04 RS.6,75,09,210 WERE SPENT AS EXPENSES AGAINST GROSS RECEIPTS OF RS.15,74,54,144 WHICH INCLUDED TRADING SALES OF RS.7,91,4 8,920. THUS, THERE WAS A SURPLUS OF RS.1,07,96,014 OVER AND ABO VE THE EXPENSES OF RS.6,75,09,210. THE LEARNED DR SUBMITTED T HAT IT WAS EXAMINED BY THE LEARNED CIT IN DETAIL OF THE SPECULAT ION LOSS OF RS.41,21,148, THE DIRECTLY RELATABLE EXPENSES WERE RS.7, 95,70,069 (COST OF GOODS RS.7,91,00,046 + CONSULTANCY CHARGES OF RS.4, 70,023) AND THE REST OF THE EXPENSES OTHER THAN ABOVE WORKED O UT TO RS.6,75,09,210 AND EVEN IF THE TRADING SALES OF RS.7,91 ,48,920 WERE EXCLUDED, THERE WERE STILL OTHER GROSS RECEIPTS/INCOME OF 11 RS.7,83,05,224 AND ASSESSEES CONTENTION WAS THAT EXPENDITU RE OF RS.6,75,09,210 COULD BE TREATED AS CORRESPONDING TO THE REMAINING RECEIPT/INCOME OF RS.7,83,05,224 WHICH IMPLIED A SURPLUS OF RS.1,07,96,014 OVER EXPENSES OF RS.6,75,09,210. HOWEVER , IT WAS NOTICED THAT MAJOR COMPONENT OF ASSESSEES OTHER INCOME COME S FROM DIVIDEND INCOME OF RS.6,70,27,766, INVESTMENT FOR WHICH APPEARS TO HAVE BEEN MADE IN EARLIER YEARS AND RS.6,75,09,210 CO ULD NOT HAVE BEEN SPENT FOR EARNING THIS INCOME. SO NOTWITHSTANDI NG THE FACT THAT DIVIDEND INCOME HAS BEEN OFFERED TO TAX, THE ONUS WAS O N THE ASSESSEE TO SHOW THAT RS.6,75,09,210 WAS SPENT OR PURPOSES OF ITS BUSINESS. IT WAS FURTHER SEEN THAT PROFESSIONAL EXPENSES O F RS.68,21,834 INCLUDED EXPENSES WHICH DID NOT APPEAR TO B E REVENUE EXPENSES APPARENTLY BEING RELATED TO MERGER AND REQUI RE CAPITALIZATION. THE LEARNED DR SUBMITTED THAT THE LE ARNED CIT AFTER CAREFUL EXAMINATION OF THE FACTS OF THE CASE AND THE RE PLIES GIVEN BY THE ASSESSEE VIDE ITS LETTERS DT.7-8-2007 AND 3-1-2008, F OUND MERIT IN ASSESSEES CONTENTION THAT CONSIDERING THE SCOEOFSEC.37 OF THE AC, THE ISSUE BECOMES DEBATABLE. SEC.14A OF THE ACT IS ALSO NOT OF MUCH HELP AS DIVIDEND INCOME WAS NOT EXEMPT IN THE HANDS OF THE A SSESSEE COMPANY IN AY 2003-04 AND CANNOT BE INVOKED. NEVERTH ELESS THE EXPENSES OF RS.34,96,790 OUT PROFESSIONAL EXPENSES OF RS.68 ,21,83 ON WHICH NO COMMENTS WERE GIVEN BY THE ASSESSEE, CALL FOR DISA LLOWANCE AS APPARENTLY NOT BEING REVENUE IN NATURE. 10. AS REGARDS CLAIM OF HOLDING COST OF SHARES AT RS.14, 79,35,061PUT FORTH BY THE ASSESSEE COMPANY, IT WAS SUBMITTED THAT THE CAPITAL LOSS FROM THE TRANSACTION OF SHARES OF M/S BILT GRAPHIC PAPE RS LTD. WAS RS.4,33,63,287 ( RS.1,81,60,19,869(-) RS.1,772,656,582 ) AS AGAINST LOSS OF RS.14,7,35,061 CLAIMED BY THE ASSESSEE. IT WAS SUBMI TTED BY 12 THE LEARNED DR THAT THE ASSESSING OFFICER, HOWEVER, DID NOT AGREE EVEN WITH THE WORKING OF CAPITAL LOSS OF RS.4,33,63,287 AND TOOK NOTE OF THE FACT THAT SINCE RS.1,28,97,338 WAS EXPENDITURE INCURRED TOWARDS HOLDING COST DURING FY 2002-03 RELEVANT TO THE AY 200 3-04, THE EFFECT OF INDEXATION ON THIS AMOUNT WAS NIL AND THERE WAS E RROR IN THE REVISED COST INDEXATION ADOPTED BY THE ASSESSEE. THE ASSESSIN G OFFICER RECOMPUTED THE INDEXED COST OF 32,20,69,427 SHARES INCLUD ING PROPORTIONATE HOLDING COST AT S.1,72,98,87,759 AND TH E SALE CONSIDERATION FOR THE SAME NUMBER OF SHARES INCLUDING HOL DING COST RECOVERED FROM BALLARPUR INDUSTRIES LTD. AT RS.1,77,2 6,56,582. FURTHER, IT WAS SUBMITTED BY THE LEARNED DR THAT AS R IGHTLY OBSERVED BY THE LEARNED CIT IT IS NOT DISPUTED THAT ON SALE OF 32,20,69,427 SHARES (OUT OF TOTAL OF 53,71,06,144 SHARES) IN THE FIN ANCIAL YEAR RELEVANT TO AY 203-04, THE COMPANY RECEIVED TOTAL CONS IDERATION OF RS.1,77,26,56,582. AS PER THE ASSESSEE, THE HOLDING COST BEING THE REIMBURSEMENT OF EXPENSES WAS RIGHTLY NOT CLAIMED IN THE COMPUTATION OF CAPITAL LOSS (AFTER COST OF 32,20,69,427 SHARES WAS INDE XED) WHEREAS AS PER PROPOSAL U/S 263, THE ALLEGED HOLDING COST BEING PART OF SALE CONSIDERATION WAS TO BE INCLUDED IN SALE RECEIPTS, THE HOLDING COST HAD NO RELEVANCE TO COST OF ACQUISITION AS IT WAS IN THE NATURE OF MAINTENANCE. THE CORRECT CAPITAL GAIN ACCORDINGLY SHOULD HAVE BEEN AS UNDER: TOTAL CONSIDERATION (SALE PROCEEDS) 177,26,56,582 LESS: COST OF ACQUISITION (AFTER INDEXING) 161,28,52,981 ----------------- CAPITAL GAINS 15,98,03,601 ----------------- 13 THE ASSESSING OFFICER, AS DISCUSSED ABOVE HAD TAKEN THE CAPIT AL GAIN AT RS.4,27,66,823 AND SO THE ORDER WAS ERRONEOUS AND PREJU DICIAL TO THE INTEREST OF REVENUE. THE SAID EXPENSES BEING IN THE NA TURE OF MAINTENANCE EXPENSES CANNOT COME IN THE COMPUTATION OF CAP ITAL GAIN. THE ASSESSEE COMPANY IS ONLY ELIGIBLE TO CLAIM EXPENDITUR E INCURRED IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 203- 04 IN CONNECTION WITH THE TRANSFER OF AFORESAID SHARES U/S 48 OF THE ACT. THIS ISSUE WAS RIGHTLY SET ASIDE TO THE FILE OF THE ASSESSIN G OFFICER FOR RE-COMPUTING CAPITAL GAIN WITHOUT ANY REFERENCE TO ALL EGED HOLDING COST. THE ASSESSEE IS ELIGIBLE TO GET BENEFIT OF PROVISION S OF SEC.48 SUBJECT TO PRODUCTION OF NECESSARY EVIDENCE. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE CONTENTION OF THE ASSESSEE COUNSEL IS THAT TH E EXPLANATION TO SECTION 73 APPLIES ONLY TO DEALING IN E QUITY SHARES IN VIEW OF THE JUDGEMENT OF HONBLE SUPREME COURT IN TH E CASE OF APOLLO TYRES LTD. VS. CIT (255 ITR 273) (SC). AND NOT TO D EALING IN GOODS OR MERCHANDISE AS THE ASSESSEE IN THIS CASE BOUGHT AND SOLD BETT ER YELLOW CORN FROM USA. THE CONTENTION OF THE ASSESSEE COU NSEL IS TOTALLY MISPLACED. IN THAT CASE THE SUPREME COURT WHI LE EXAMINING THE QUESTION WHETHER BUYING AND SELLING OF THE UNITS B Y THE ASSESSEE COMPANY CAN BE TREATED AS SPECULATED BUSINESS, IT WAS HELD THAT A DEEMING PROVISION AS IN SECTION 32(3) OF THE UTI ACT SHO ULD BE APPLIED FOR THE PURPOSE FOR WHICH THE SAID DEEMING PROVISION IS SPECIFICALLY ENACTED, WHICH IN THE PRESENT CASE CONFINED ONLY TO DEEM ING THE UTI COMPANY AND DEEMING THE INCOME FROM THE UNITS A DIVIDE ND, IF AS A MATTER OF FACT, THE LEGISLATURE HAD CONTEMPLATED MAKI NG THE UNITS ALSO DEEMED SHARE THEN IT WOULD HAVE STATED SO. IN THE ABS ENCE OF ANY SUCH SPECIFIC DEEMING IN REGARD TO UNITS AS SHARES IT WOULD BE 14 ERRONEOUS TO EXTEND THE PROVISIONS OF SECTION 32(3) OF THE UTI ACT TO THE UNITS OF THE UTI FOR THE PURPOSE OF HOLDING THAT THE UNIT IS A SHARE. ACCORDINGLY, IT WAS HELD THAT THE BUSINESS OF PURCHASE AN D SALE OF UNITS CONDUCTED BY THE ASSESSEE COMPANY CANNOT BE DEEMED TO BE A BUSINESS IN SHARES AND ACCORDINGLY PROVISION OF EXPLANATION TO SECTION 73 NOT APPLICABLE. THUS IN OUR HUMBLE OPINION, IT WA S NOT HELD THAT EXPLANATION TO SECTION 73 IS APPLICATION ONLY TO SHARES. FURTHER, IN OUR OPINION IT IS A SPECULATIVE TRANSACTION AS MENTIONED IN SE CTION 43(5) OF THE IT ACT AND MENTIONING OF THE WRONG SECTION BY CIT IS NOT FATAL AND IT CANNOT MAKE THE ORDER OF THE CIT INVALID ON THIS ISSUE. WE HAVE ALSO GONE THROUGH THE FACTS OF THIS CASE, THE ASSESSEE BOUGHT TH E BETTER YELLOW CORN FROM CARGILL INCORPORATED, USA ON 19.3.20 03 AND SAME WAS SOLD TO M/S CARGILL INTERNATIONAL SA, SWITZERLAND ON 25.3.2003. THE PAYMENT MADE AND RECEIVED WERE THE SAME DATE I.E. 16.4.2003. THERE IS NO INTENTION OF TAKING ACTUAL DELIVERY OF G OODS AND ONLY PAPER TRANSACTIONS SINCE THERE IS NO EVIDENCE OF ACTUAL DELIVERY TAKEN BY THE ASSESSEE. THE MAIN SPHERE OF ACTIVITY OF THE ASSESSEE IS NO T AT ALL DEALING WITH THE BUYING AND SELLING OF BETTER YELLO W CORN. THE ASSESSEE DEALT WITH BUYING AND SELLING OF BETTER YELLOW CORN AND THERE IS NO EVIDENCE OF TAKING THE ACTUAL DELIVERY OF THESE G OODS. THE TRANSACTIONS OF BUYING AND SELLING TOOK WITHIN A SHORT T IME OF SIX DAYS. THE TRANSACTIONS RESULTED IN A LOSS. SINCE THERE IS NO ACTU AL DELIVERY OF THE COMMODITY THE PROVISIONS OF SECTION 43(5) IS DIRECTLY APPLICABLE. IN OUR OPINION, IN THIS CASE, THE TRANSACTION IN WHICH A CONTRACT FOR PURCHASE AND SALE OF BETTER YELLOW CORN ULTIMATELY SETT LE OTHERWISE THAN BY THE ACTUAL DELIVERY OF THE COMMODITY AND THER E IS NO PHYSICAL DELIVERY OF GOODS FROM SELLER TO THE BUYER AND IN THI S EVENT, THE LOSS IF ANY, WOULD BE A LOSS IN A SPECULATIVE TRANSACTION WHICH COU LD BE ALLOWED TO BE SET OFF ONLY AGAINST A PROFIT IN A TRA NSACTION OF THE SALE 15 NATURE. THE OBJECT OF THE PROVISIONS OF SEC. 43(5) ONL Y TO BRAND THEM AS SPECULATIVE TRANSACTIONS SO AS TO PUT THEM IN A SPECIAL CATEGORY FOR INCOME TAX PURPOSES. FURTHER, THE INTENTION OF THE CIT IS TO INVOKE THE PROVISIONS OF SECTION 43(5). THE ASSESSEE ALSO UNDERSTO OD THE INTENTION OF THE CIT. THIS IS EVIDENT FROM THE REPLY GIVEN BY THE ASSESSEE TO THE CIT ON 3.1.2008 IN PARA 1 WHICH READS AS F OLLOWS: REPLY TO PARA 1 AND 2 OF THE LETTER/NOTICE DATED 5 TH DECEMBER, 2007: IN REPLY TO THE POINT RAISED BY YOUR HONOR WHETHER OR NOT THE TRANSACTION IS SPECULATIVE IN NATURE, WE SUBMIT THAT THOUGH THE LANGUAG E IN SECTION 43(5) OF THE ACT IS PLAIN AND IT DOES NOT ADMIT ANY DOUBT OR AM BIGUITY, THIS PROCEEDINGS TO TREAT THE TRANSACTION AS SPECULATIVE IN NATURE IS A FUTILE EXERCISE SIMPLY BECAUSE THE ORDER PASSED BY THE ASSESS ING OFFICER MAY BE SAID AS ERRONEOUS BUT UNDER NO CIRCUMSTANCES IT IS PRE JUDICIAL TO THE INTEREST OF REVENUE. MERE CHANGE OF HEAD OF INCOME U/S 14 OF THE ACT DOES NOT ADDRESS THE CAUSE FOR MODIFICATION OF ASSESSMENT U/S 2 63 MORE PARTICULARLY WHEN THE ASSESSEE IS LOADED WITH HUGE AMOUNT OF UNABSOR BED LOSS ETC. AS PER RECORD. THUS, THE ISSUE RAISED BY YOUR GOOD SELF MAY BE SAID AS PURELY ACADEMIC IN NATURE. 12. IN VIEW OF THE ABOVE, WE CONFIRM THE ORDER OF T HE CIT ON THIS ISSUE. 13. NEXT GROUND IS WITH REFERENCE TO ALLOWABILITY O F PROFESSIONAL EXPENSES AT RS.34,96,790/-. IN THE PRESENT CASE, PROFESSIO NAL EXPENSES RS.68,21,834/- INCLUDES A SUM OF RS.34,96,790/- BEING RELATED TO MERGER AND IT REQUIRED TO BE CAPITALIZED. THE CIT VIDE ITS NOTICE DATED 5.12.2007 CALLED FOR AN EXPLANATION FROM THE ASSESSEE FAILING WHICH DIRECTION FOR VERIFICATION OR DISALLOWANCE WILL BE ISSUED TO THE ASSESSING OFFICER. THE ASSESSEE HAS FILED NO COMMENTS ON THIS ISSUE. APPARENTLY IT WAS CONSIDERED AS NOT REVENUE EXP ENDITURE. BEING SO, THE CIT GIVEN DIRECTION TO ADJUDICATE THE AL LOWABILITY OF THE SAME SINCE THERE IS NO DISCUSSION BY ASSESSING OFFICER IN ITS O RDER REGARDING THE ALLOWABILITY OF THIS EXPENDITURE. ENQ UIRY BEFORE ASSESSMENT MEANS IS NOT MERELY COLLECTING OF PAPERS OR DOCUM ENTS 16 AND KEEPING THE SAME IN THE FILE. THE ASSESSING OFFICER NOT APPLIED HIS MIND ON THIS ISSUE WHICH HE IS REQUIRED TO DO SO BEFOR E COMPLETION OF THE ASSESSMENT. NON APPLICATION OF MIND BY ASSESSING OFFICER IS A REASON FOR INVOKING THE PROVISION OF SEC.263. ACCORDIN GLY, THE ACTION OF THE CIT JUSTIFIED ON THIS ISSUE. 14. THE NEXT GROUND IS WITH REFERENCE TREATMENT OF HOLDING COST AT RS.30,77,88,662/- AS A PART OF CONSIDERATION RECEI VED FOR SALE OF SHARES. THE ASSESSEE SOLD 32,20,69,427 SHARES OF M/S BI LT GRAPHIC PAPERS LTD. AT RS.1,46,49,17,920/. THIS AMOUNT IS EQUA L TO COST OF PURCHASE OF SHARES. HOWEVER, LONG TERM CAPITAL LOSS WAS CLA IMED AT RS.14,79,35,016/-. THE ASSESSEE ALSO RECEIVED HOLDING COST A T RS.30,77,838,662/-. THIS AMOUNT WAS NOT INCLUDED IN T HE SALES CONSIDERATION. THE CONTENTION OF THE ASSESSEE COUNSEL I S THAT THIS WAS NOT INCLUDED IN THE SALES CONSIDERATION THAT ON THE R EASON THAT THIS WAS THE ACTUAL COST INCURRED FOR HOLDING THE SHARES INCLUDI NG THAT AMOUNT IN THE SALES CONSIDERATION WOULD RENDER IF NECESSA RY TO INCLUDE THE AMOUNT IN THE COST OF PURCHASE AND INDEX SUCH COST AND CONSEQUENTLY THIS EXERCISE WOULD LEAD TO INCREASE IN THE L OSS FURTHER. THE CIT WAS OF THE OPINION THAT HOLDING COST TO BE INC LUDED IN THE SALES CONSIDERATION BUT SHALL NOT BE CONSIDERED AS PART OF COST OF IMPROVEMENT FOR DETERMINING THE COST OF ACQUISITION OF SHARES. NOW THE CONTENTION OF THE ASSESSEE COUNSEL IS THAT THE ASSESSEE HA D ACTUALLY INCURRED THIS EXPENDITURE AND SAME WAS NOT CLAI MED AS REVENUE EXPENSES IN ANY ASSESSMENT YEARS AND IT IS TO BE CO NSIDERED AS CAPITAL EXPENDITURE AND IT WAS SHOWN IN THE BALANCE SH EET UNDER THE HEAD LOANS AND ADVANCES AS ON 31.3.2002. ON THE OTHE R HAND THE CONTENTION OF THE DEPARTMENT IS THAT THE HOLDING COST IS NEITHER RECORDED IN THE BOOKS OF ACCOUNTS NOR IT WAS CAPITALIZED AS SUCH THERE 17 IS NO QUESTION OF CONSIDERING THE SAME IN THE COST OF ACQU ISITION OF SHARES OR AS A COST OF IMPROVEMENT. WE HAVE GONE THR OUGH THE FACTS OF THE CASE. THE ASSESSEE NOT ABLE TO DEMONSTRATE HOW THIS HOLDING COST WAS INCURRED BY THE ASSESSEE AND TO WHOM IT IS PAYABLE. THE COUNSEL NOT ABLE TO EXPLAIN THE SAME. HE FILED A DETAI LS OF LOANS AND ADVANCES AS ON 31.3.2002. BUT FAILED TO EXPLAIN HOW T HIS AMOUNT REPRESENTS THE HOLDING COST INCURRED BY THE ASSESSEE. THER E WAS NO IOTA OF EVIDENCE BROUGHT ON RECORD REGARDING INCURRING OF EXPENDITURE. THE ASSESSEE COUNSEL RELIED ON THE JUDGEMENTS IN THE CASE OF CIT VS. INDUSTRIAL ENGINEERING PROJECTS (P) LTD. (202 ITR 101 4) (DELHI HC) AND CIT VS. TEJAJI FARASRAM KHARAWALLA LTD (67 ITR 95) (S C). THESE JUDGEMENTS ARE DELIVERED ON DIFFERENT FACTS AND CANNOT BE APPLIED TO THE FACT OF THE PRESENT CASE. IN OUR OPINION CIT JUSTIF IED IN INVOKING THE PROVISIONS OF S.263 ON THIS ISSUE AND DIRECTING THE ASSESSING OFFICER INCLUDE THE RECOVERY OF THE HOLDING COST IN SALES CONSIDER ATION AND NOT TO INCLUDE THE SAME IN THE COST OF IMPROVEMENT. 15. FURTHER CONTENTION OF THE ASSESSEE COUNSEL IS THAT I NVOKING THE PROVISIONS OF S.263 IS ITSELF BAD IN LAW. THE ASSESSEE C OUNSEL RELIED ON THE FOLLOWING JUDGEMENTS: 1. MALABAR INDUSTRIES CO. LTD., VS. CIT (243 ITR 8 3) (SC) 2. CIT VS. GABRIEL INDIA LTD. (203 ITR 108) (BOMBA Y) 3. SRINIVASA HATCHERIES (P) LTD. VS. DCIT (81 ITD 36) 4. AHALYA TRADING (P) LTD. VS. CIT(MUM) (22 SOT 68 ) 5. SEAKING INFRASTRUCTURE LTD. VS. CIT (21 SOT 14 2 (MUM) 6. CIT VS. GUJARAT V. TEJAJI FARASRAM KHARAWALLA LT D. (67 ITR 95) (SC) 7. CIT VS. INDUSTRIAL ENGINEERING PROJECTS (P) LTD. (202 ITR 1014) (DEL.) 8. COCA COLA INDIA INC. VS. ADDL.CIT (FARIDABAD) (7 SOT 224) (DEL.) 9. GEE VEE ENTERPRISES VS. ADDL. CIT & OTHERS (99 I TR 375) (DELHI HC) 10. KAMAL KUMAR SAHARIA VS. CIT (216 ITR 217) (GUWA HATI HC) 18 11. HARI IRON TRADING CO. VS. CIT (263 ITR 437) (P& H HC) 12. ADDL. CIT VS. K.S. GUPTA (119 ITR 372) (AP HC) 13. CIT VS. MAITHREYI PAL (152 ITR 247) (KARNATAKA HC) 14. CIT VS. MITHLESH KUMARI (92 ITR 9) (DELHI HC) 15. ICICI BANK LTD. JCIT (118 TTJ 132) (CHENNAI) 16. CIT VS. SHIMLA V. GREENWORLD CORPORATION (181 T AXMAN 111) (SC) 17. S. BALAN ALIAS SHANMUGAM VS. DCIT (120 ITD 469 ) (PUNE) WE HAVE GONE THROUGH THE PROVISIONS OF S.263 AND ALSO THROUGH THE ORDERS OF LOWER AUTHORITIES. AS PER THE PROVISIONS OF S .263, TO EXERCISE THE JURISDICTION BY THE CIT SUO MOTO UNDER IT, IS THAT THE ORDER OF THE ITO IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE IN TEREST OF THE REVENUE. THE COMMISSIONER HAS TO BE SATISFIED TWIN CONDI TIONS, I) THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS ERR ONEOUS AND II) IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IF ONE OF THEM IS ABSENT IF THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS BUT I S NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOR ERRONEOUS BUT IS PREJUD ICIAL TO THE REVENUE RECOURSE CANNOT BE HAD TO S.263 OF THE ACT. THERE CA N BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AN D EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER. IT IS ONLY WHEN AN ORDER ERRONEOUS THAT THIS SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BE ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. AS SEEN FROM THE ORDER O F THE ASSESSING OFFICER, THERE IS INCORRECT ASSUMPTION OF FACTS AS WELL AS NO N APPLICATION OF MIND BY ASSESSING OFFICER. IT AMOUNTS TO PASSING OF ER RONEOUS ORDER AND IT RESULTED IN LOSING OF TAX LAWFULLY PAYABLE BY ASSESSEE. IT WILL CERTAINLY BE PREJUDICIAL TO THE INTEREST OF REVENUE. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE, HAS TO B E READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BYS THE ASSESSING OFFICER. 19 EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST S OF THE REVENUE. FOR EXAMPLE, WHEN AN ITO ADOPTED ONE OF THE COURSES P ERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TW O VIEWS ARE POSSIBLE AND THE INCOME TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN E RRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE, UNL ESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. IT HAS BEEN HELD B Y SUPREME COURTS THAT WHERE A SUM NOT EARNED BY A PERSON IS ASSESSED AS INCOME IN THE HANDS ON HIS SO OFFERING, THE ORDER PASSED BY THE ASSESSING OFFICER ACCEPTING THE SAME AS SUCH WILL BE ERRONEOUS AND PR EJUDICIAL TO THE INTERESTS OF THE REVENUE. RAMPYARI DEVI SARAOGI VS. CIT (67 ITR 84) (SC) AND IN SMT. TARA DEVI AGGARWAL VS. CIT (88 ITR 323 (SC). IN THE INSTANT CASE, THE CIT OBSERVED THAT ASSESSING OFFIC ER PASS THE ORDER WITHOUT PROPER APPLICATION OF MIND AND HE HAS N OT GONE INTO THE ISSUES NOTED BY THE CIT IN PROPER PERSPECTIVES AND THE O RDER PASSED BY HIM WAS ERRONEOUS. HE ACCEPTED THE VERSION OF THE ASSESSEE INSTEAD OF MAKING PROPER ENQUIRIES AND CAME TO WRONG CO NCLUSION. ON THESE FACTS, THE CONCLUSION REACHED BY THE ASSESSING OFFICER IS ERRONEOUS SO FAR AS PREJUDICIAL INTEREST TO THE REVENUE AS SUCH INVOKING THE PROVISIONS OF S.263 BY CIT IS JUSTIFIED. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED . ORDER PRONOUNCED IN THE COURT ON: 26. 3. 2010 SD/- G.C.GUPTA SD/- CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 26TH MARCH, 2010 20 COPY FORWARDED TO: 1. BILT PAPER HOLDINGS LTD., C-16, VIKRAMPURI COLONY , BESIDE BATA LANE, SECUNDERABAD500 009. 2 ACIT, CIRCLE 1(3), HYDERABAD 3. 4 CIT, AP., HYDERABAD CIT, HYDERABAD. 5. THE D.R., ITAT, HYDERABAD. VNR & NP