Dholadhar Investments Pvt. Ltd., Himachal Pradesh V. CIT, New Delhi

ITA 628/DEL/2010

• Counselvise Citation: 62820114 RSA 2010
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-07-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 10-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KRISHNA
• Assessee Lawyers: AJAY V OHRAROHIT GARG
• Keywords: Cost of acquisition; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148; 263; 63; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI B.C. MEENA ITA NO. 628/DEL/2010 ASSESSMENT YEAR: 2002-03 DHOLADHAR INVESTMENT PVT. LTD., VS. COMMISSIONER OF INCOME-TAX, MANN FILLING STATION, (CENTRAL)-III, KOTWALI BAZAR DHARAMSHALA, NEW DELHI KANGRA (HMACHAL PRADESH) (PAN: AAACD3573A) (APPELLANT) (RESPONDENT) APPELLANT BY: S/SHRI AJAY V OHRA/ROHIT GARG, CA RESPONDENT BY: SHRI KRISHNA, CIT( DR) ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE OR DER OF LEARNED COMMISSIONER DATED 18.12.2009 PASSED UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 FOR ASSESSMENT YEAR 2002-03. THE ASSESSEE HAS RAISED FOUR GROUNDS OF APPEAL, THOUGH ITS GRIEVANCE REVOLVES AROUND A S INGLE ISSUE, THAT LEARNED COMMISSIONER HAS ERRED IN TAKING COGNIZANCE UNDER S EC. 263 INCOME-TAX ACT, 1961 AND DIRECTING THE ASSESSING OFFICER TO PA SS A FRESH ASSESSMENT ORDER UNDER SEC. 143(3) READ WITH SECTION 147 OF TH E ACT, 1961. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INVESTMENT COMPANY. IT HAS PURCHASED SHARES OF M/S. SIMBHAOLI SUGAR MILLS LTD. THROUGH SHRI SHREYA MORAKHIA. IT HAS FILED HIS RETU RN OF INCOME ON 2 30.10.2002 DECLARING AN INCOME OF RS.5,87,230. THIS RETURN WAS PROCESSED UNDER SEC. 143(1) OF THE ACT ON 24.2.2003. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE UNDER SEC. 143(2) OF THE ACT WAS ISSUED AND SERVED UPON THE ASSESSEE COMPANY. IN RESPONSE TO THE NOTICE, SHRI RAKESH SEHGAL, CA APPEARED ON BEHALF OF THE AS SESSEE FROM TIME TO TIME AND FILED THE REQUISITE DETAILS. AN ASSESSMENT ORDER UNDER SECTION 143(3) WAS PASSED ON 31.3.2005. 3. THE DEPUTY CIT, CENTRAL CIRCLE-22, RANGE-5, MUMB AI VIDE HIS LETTER DATED 16.2.2006 INFORMED THE ASSESSING OFFICER OF T HE ASSESSEE THAT A SUM OF RS.50,29,896 PAYABLE BY THE ASSESSEE TO SHRI SHREYA MORAKHIA HAD BEEN WRITTEN OFF BY SHRI MORAKHIA. FROM PERUSAL OF THE A SSESSEES ACCOUNT FOR ASSESSMENT YEAR 2002-03, IT REVEALED TO THE ASSESSI NG OFFICER THAT THE SAID AMOUNT HAD NOT BEEN DECLARED BY THE ASSESSEE COMPAN Y AS ITS INCOME, THEREFORE, HE RECORDED THE REASONS UNDER SEC. 147 A ND ISSUED A NOTICE UNDER SEC. 148 OF THE ACT. THE REASONS HAVE BEEN SUPPLIED TO THE ASSESSEE IN RESPONSE TO ITS REQUEST AND COPY OF SUCH REASONS HA VE BEEN PLACED ON PAGE 12 OF THE PAPER BOOK WHICH READ AS UNDER: F.NO.DCIT/CIRCLE 10(1)/INV./2006-07/ OFFICE OF THE DY. COMMISSIONER OF INCOME-TAX CIRCLE 10(1), NEW DELHI. 3 DATED: 5.12.2006 TO THE PRINCIPAL OFFICER, M/S. DHOLADHAR INVESTMENTS CO. PVT. LTD., C-75, BASEMENT, SURAJMAL VIHAR, NEW DELHI. SUB: REASSESSMENT PROCEEDINGS U/S.148 OF THE INCOME -TAX ACT IN CASE OF M/S. DHOLADHAR INVESTMENT CO . PVT. LTD. IN RESPECT OF ASSESSMENT YEAR 2002-03 REG. PLEASE REFER TO YOUR LETTER DATED 01.12.2006, WHERE IN REQUEST FOR CONVEYING THE REASONS FOR REOPENING THE AFORESAID C ASE WAS MADE. THE CASE WAS REOPENED U/S. 148 ON THE FOLLOWING REASONS : A SUM OF RS.50,29,896 PAYABLE BY YOU TO SHRI SHREY A MORAKHIA, TULSANI CHAMBERS, NARIMAN POINT, MUMBAI H AD WRITTEN OF THE ABOVE AMOUNT OF RS.50,29,896 IN HIS BOOKS. THIS INFORMATION WAS PASSED ON TO THIS OFFICE BY THE DCIT, CENTRAL CIRCL E 22, CENTRAL RANGE-22, MUMBAI. ON VERIFICATION OF THE RECORDS, T HE ABOVE SAID AMOUNT WAS NOT OFFERED FOR TAX AS PER THE RETURN FI LED BY YOU (THE ASSESSEE COMPANY). SINCE THE AFORESAID INCOME OF RS.50,29,896 HAD ESCA PADE ASSESSMENT, THE CASE WAS REQUIRED TO BE REOPENED. YOURS FAITHFULLY, SD/- (S.C. MITTAL) DY. COMMISSIONER OF INCOME-TAX CIRCLE 10(1), NEW DELHI 4. AFTER RECEIPT OF THE REASONS, THE ASSESSEE FILED A DETAILED REPLY ON 7.12.2006. IT WAS POINTED OUT THAT THE FIRST PRIMAR Y QUESTION FOR ADJUDICATION IS WHETHER THE AMOUNT WRITTEN OFF BY SHRI SHREYA MO RAKHIA IS TO BE TAXED AS 4 INCOME IN THE HANDS OF THE ASSESSEE. IT APPRAISED T HE ASSESSING OFFICER THE PROVISIONS CONTEMPLATED THE CONCEPT OF INCOME I.E. SECTIONS 2(24), 28 AND 41 OF THE ACT. IT ALSO POINTED OUT THAT THE ASSESSEE H AS PURCHASED THE SHARES OF SIMBHAOLI SUGAR MILLS. THESE HAVE BEEN SHOWN AS INV ESTMENT IN THE BOOKS OF ACCOUNT. IT HAS SHOWN A LIABILITY OF RS.48,86,67 6.50 AS PAYABLE TO SHRI SHREYA MORAKHIA AT THE END OF FINANCIAL YEAR 2000-0 1. AFTER THE AMOUNT WRITTEN OFF BY SHRI SHREYA MORAKHIA, THE LIABILITY CEASED OR EXTINGUISHED, THE ASSESSEE HAS REDUCED ITS INVESTMENT BY REDUCING THE COST OF PURCHASE OF SUCH SHARES, WITH THE AMOUNT OF RS.48,86,676.50 MEANING THEREBY, THERE IS NO TAX IMPLICATION. ASSESSING OFFICER HAS ISSUED NOTICE UN DER SEC. 143(2) BUT THEREAFTER DID NOT TAKE UP THE PROCEEDINGS OR PASSE D ANY ASSESSMENT ORDER UNDER SECTION 143(3) READ WITH SECTION 147 OF THE A CT. 5. ON AN ANALYSIS OF THE RECORD, LEARNED COMMISSION ER FORMED AN OPINION THAT ASSESSING OFFICER WITHOUT MAKING ANY I NQUIRY ACCEPTED THE SUBMISSIONS OF ASSESSEE AND DROPPED THE REASSESSMEN T PROCEEDINGS. THIS ACTION OF THE ASSESSING OFFICER IS ERRONEOUS AND PR EJUDICIAL TO THE INTEREST OF REVENUE. HE ISSUED A SHOW-CAUSE NOTICE UNDER SEC. 2 63 OF THE ACT. THE COPY OF SUCH NOTICE HAS BEEN PLACED ON PAGES 38 & 39 OF THE PAPER BOOK. LEARNED COMMISSIONER HAD REPRODUCED THE RELEVANT PART OF TH E SHOW-CAUSE NOTICE IN 5 PARAGRAPH 2 OF THE IMPUGNED ORDER. IN RESPONSE TO T HE SHOW-CAUSE NOTICE, ASSESSEE MADE DETAILED SUBMISSIONS WHICH HAVE BEEN REPRODUCED BY THE LEARNED COMMISSIONER IN PARAGRAPHS 3 ON PAGE NOS. 4 TO 8. LEARNED COMMISSIONER HAS SUMMARIZED THE ARGUMENTS RAISED BY THE ASSESSEE AND THE POINT IN DISPUTE IN PARAGRAPH NO.4 WHICH READS AS U NDER: 4. I HAVE CONSIDERED FACTS OF THE CASE AND HAVE AL SO GONE THROUGH THE SUBMISSIONS OF THE ASSESSEE. THE ARGUMENTS OF T HE ASSESSEE CAN BE SUMMARIZED AS UNDER: I) THERE IS NO JURISDICTION U/S.263 OF THE INCOME-TAX ACT, 1961 BECAUSE OF THE ABSENCE OF ANY ORDER PASSED BY THE ASSESSING OFFICER ON ACCOUNT OF INITIATION OF REASSESSMENT PROCEEDINGS U/S.147/148 AND ALSO NOTIC E ISSUED U/S.143(2) IN THE SAME PROCEEDINGS. THE CLAI M OF THE ASSESSEE COMPANY IS THAT NO ASSESSMENT ORDER- W AS PASSED U/S. 143(3)/147 AND CONSEQUENTLY, ANY REMEDI AL ACTION UNDER THE PROVISIONS OF SEC. 263 WILL BE CON TRARY TO LAW. II) IT IS NOT LEGALLY PERMISSIBLE TO REVIVE THE LIMITAT ION PROVIDED IN SECTION 153(2) OF THE ACT FOR REASSESSM ENT BY INVOKING THE PROVISIONS OF SEC. 263, WHICH IN THE C ASE OF THE APPELLANT EXPIRED ON 31.12.2007. III) EVEN ON MERIT, WRITE OFF OF RS.50,29,896 BY SHREYA S. MORAKHIA DOES NOT RESULT IN ANY INCOME IN THE HANDS OF 6 THE ASSESSEE COMPANY. FURTHER, THE EXCESS AMOUNT OF ALLOWANCE OF LOSS OF RS.11,23,719 ALSO WAS NOT THE ISSUE BEFORE THE ASSESSING OFFICER IN THE REASSESSMENT PROCEEDINGS AT THE TIME OF INITIATION OF SUCH PROCE EDINGS OR DROPPING OF THE SAME AND THEREFORE, ACTION OF TH E ASSESSING OFFICER FOR DROPPING OF THE REASSESSMENT PROCEEDINGS ARE NOT ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF THE REVENUE. 6. THEREAFTER LEARNED COMMISSIONER TOOK EACH PROPOS ITION RAISED BY THE ASSESSEE. HE ACCEPTED THAT NO ORDER UNDER SEC. 143( 3) READ WITH SECTION 147 WAS PASSED BY THE ASSESSING OFFICER IN THIS CASE. H OWEVER, ACCORDING TO HIM, IF PROCEEDINGS HAVE BEEN INITIATED UNDER SEC. 147 AND NOTICE WAS ISSUED UNDER SEC. 143(2) FOR SCRUTINIZING THE RETURN THEN EVEN IF THAT PROCEEDING WAS DROPPED BY AN OFFICE NOTE WOULD AMOUNT TO PASSING O F AN ORDER, WHICH IS AMENABLE UNDER SEC. 263 OF THE ACT AT THE END OF LE ARNED COMMISSIONER. WITH REGARD TO THE OTHER TWO PROPOSITIONS, LEARNED COMMISSIONER HAS OBSERVED THAT BY INVOKING SEC. 263, HE IS NOT EXTEN DING THE TIME LIMIT FOR PASSING THE REASSESSMENT ORDER, RATHER HE IS CORREC TING THE PREJUDICE SUFFERED BY THE DEPARTMENT ON ACCOUNT OF ERRONEOUS ACTION OF THE ASSESSING OFFICER. THE BASIC OBJECT OF SECTION 263 IS TO HAVE ADMINIST RATIVE SCRUTINY OF ACTION OF ASSESSING OFFICER, IN CASE IT IS FOUND THAT THE ASS ESSING OFFICER ACTED 7 ERRONEOUSLY WHICH CAUSED A PREJUDICE TO THE REVENUE THEN SUCH ACTION WOULD BE CORRECTED BY REVISIONARY PROCEEDINGS UNDER SEC. 263 OF THE ACT. WITH REGARD TO THE THIRD PROPOSITIONS, LEARNED COMMISSIO NER WAS OF THE OPINION THAT EVEN IF NO INCOME RESULTED IN THE HANDS OF ASS ESSEE BECAUSE IT HAS REDUCED THE COST OF INVESTMENT THEN ALSO (A) ASSESS ING OFFICER OUGHT TO HAVE INQUIRED THIS ASPECT; (B) THIS COST WAS NOT REDUCED FOR THE PURPOSE OF WORKING OUT AVERAGE COST OF SHARES FOR VALUING THE COST WHI CH WOULD RESULT COMPUTATION OF CAPITAL GAIN/LOSS. HE HIGHLIGHTED TH IS CALCULATION IN THE IMPUGNED ORDER. ACCORDING TO THE LEARNED COMMISSION ER, THE ASSESSEE HAD 11,66,700 SHARES AS ON 31.3.2001 WHICH WERE VALUED AT RS.2,71,33,433. THEN AS ON 31.3.2002, IT HAD 13,01,900 SHARES WHICH NORMALLY WOULD HAVE BEEN VALUED AT RS.2,76,04,956 BUT IN THE BALANCE SH EET IT HAS TAKEN THE VALUE AT RS.2,28,85,319 I.E. THE VALUE HAS BEEN REDUCED B Y RS.47,19,637, APPARENTLY, DUE TO FINAL SETTLEMENT AND REDUCTION I N LIABILITY, DUE TO SHRI SHREYA MORAKHIA. THUS, ACCORDING TO THE LEARNED COM MISSIONER, HAD THE VALUE OF THE INVESTMENT WAS WORKED OUT ON THE BASIS OF INCLUSION OF LIABILITY THEN VALUE OF EACH SHARE WOULD BE ON HIGHER SIDE. T HE CAPITAL LOSS ULTIMATELY AT THE END OF THIS YEAR WOULD BE ON A LOWER SIDE. H E WORKED OUT THE EXCESS LOSS ALLOWED TO THE ASSESSEE AT RS.11,23,719. THIS EXCESS LOSS ACCORDING TO THE LEARNED COMMISSIONER OUGHT TO HAVE NOT BEEN ALL OWED. HAD THE 8 ASSESSING OFFICER PASSED AN ORDER UNDER SEC. 143(3) READ WITH SEC. 147 OF THE ACT? THUS, IT IS A PREJUDICE TO THE REVENUE. 7. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPUG NING THE ORDER OF LEARNED COMMISSIONER RAISED MULTIFOLD SUBMISSIONS. IN HIS FIRST PROPOSITION, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AN ASSESSMENT WAS FRAMED ORIGINALLY UNDER SEC. 143(3) OF THE ACT. THE ASSESS EE IN ITS NOTE TO ACCOUNTS HAS SPECIFICALLY DISCLOSED THAT LIABILITY RELATED T O ACQUISITION OF THE SHARES OF SIMBHOULI SUGAR HAS BEEN CEASED AND THE VALUE OF CO RRESPONDING INVESTMENT HAS BEEN REDUCED. HE TOOK US THROUGH THIS NOTE WHIC H IS AVAILABLE AT PAGE 32 OF THE PAPER BOOK WHICH READS AS UNDER: 7. DURING THE YEAR LIABILITY OF RS.48,86,676.50 RE LATED TO ACQUISITION OF THE SHARES OF SIMBHAOLI SUGAR MILLS LTD. CEASED ON ACCOUNT OF A NEGOTIATED SETTLEMENT WITH THE CRE DITOR. AS THE LIABILITY WAS PURELY RELATED TO ACQUISITION OF LONG TERM INVESTMENT, VALUE OF CORRESPONDING INVESTMENT HAS B EEN REDUCED BY EQUIVALENT AMOUNT. LONG TERM INVESTMENT AFTER ADJUSTMENTS ARE VALUED AT COST IN ITEMS WITH ACCOUN TING POLICY OF THE COMPANY. 8. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSE E, THIS ASPECT WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER WHO PASSED A SCRUTINY ASSESSMENT UNDER SEC. 143(3). THEREFORE, THERE IS N O TAX IMPLICATION AND 9 THERE CANNOT BE ANY PREJUDICE TO THE REVENUE WHICH REQUIRED ACTION UNDER SEC. 263 OF THE ACT. 9. ASSESSING OFFICER HAS REOPENED THE ASSESSMENT. H E ISSUED NOTICE UNDER SECTION 143(2) OF THE ACT ALSO. THE ASSESSEE HAS RAISED OBJECTION TO REOPENING. IT HAS FILED DETAILED SUBMISSIONS. THERE AFTER, ASSESSING OFFICER MUST HAVE BEEN SATISFIED THAT THERE IS NO TAX IMPLI CATION AND HE DID NOT PROCEED TO CONTINUE WITH THE REASSESSMENT PROCEEDIN GS. IN SUCH CIRCUMSTANCES, IT IS NOT JUSTIFIABLE AT THE END OF LEARNED COMMISSIONER TO TAKE ACTION UNDER SEC. 263. EVEN THE RE-OPENING OF ASSESSMENT IS JUST ON ACCOUNT OF CHANGE OF OPINION. ALL THESE DETAILS WER E AVAILABLE TO THE ASSESSING OFFICER WHO PASSED THE ORIGINAL ASSESSMEN T UNDER SEC. 143(3). THE INFORMATION HAS BEEN DISCLOSED BY THE ASSESSEE ITSE LF. THERE IS NO NEW INFORMATION WHICH CAME TO THE NOTICE OF THE ASSESSI NG OFFICER. 10. HE FURTHER CONTENDED THAT UNDER SEC. 263 OF THE ACT, THE LEARNED COMMISSIONER MAY CALL FOR AND EXAMINED THE RECORD O F ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER, IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, HE MAY SET ASIDE SUCH ORDER, CONDUCT ANY I NQUIRY, CANCEL THE ORDER, DIRECT A FRESH ASSESSMENT ORDER ETC. AFTER AFFORDIN G AN OPPORTUNITY OF HEARING 10 TO THE ASSESSEE. HE EMPHASIZED ON THE EXPRESSION I F HE CONSIDERS THAT ANY ORDER PASSED THEREIN ACCORDING TO THE LEARNED COUN SEL FOR THE ASSESSEE, THERE IS NO ORDER PASSED BY THE ASSESSING OFFICER WHICH C AN ENABLE THE LEARNED COMMISSIONER TO TAKE ACTION U/S 263 ON THE PROCEEDI NGS OF SEC. 147. THUS, THE ORDER PASSED UNDER SEC. 263 IS NOT SUSTAINABLE. IN HIS NEXT FOLD OF SUBMISSIONS, HE POINTED OUT THAT SINCE THE ASSESSEE HAS ALREADY REDUCED THE COST OF INVESTMENT, THERE CANNOT BE ANY TAX IMPLICA TION. REASSESSMENT ORDER WOULD NOT SUSTAINABLE IN THAT WAY. LEARNED COMMISSI ONER HAS ASSIGNED ONE MORE REASON THAT ASSESSEE CLAIMED EXCESSIVE LOSS. H E POINTED OUT THAT THE ASSESSMENT WAS REOPENED ON ACCOUNT OF ESCAPEMENT OF INCOME REPRESENTING THE LIABILITY PAYABLE TO SHRI SHEREYA MORAKHIA. IF THAT AMOUNT HAS ALREADY BEEN DISCLOSED BY THE ASSESSEE AND ULTIMATELY COMES OUT THAT NO SUCH INCOME HAS ESCAPED THEN ANY OTHER ADDITION CANNOT BE MADE. FOR THIS PROPOSITION, HE RELIED UPON THE DECISION OF HON'BLE MUMBAI HIGH COU RT IN THE CASE OF CIT VS. JET AIRWAYS (I) LTD. REPORTED IN 331 ITR 236, W HICH HAS BEEN FOLLOWED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF RANB AXY LABORATORIES VS. CIT RENDERED IN ITA NO.,148 OF 2000. THIS DECISION HAS BEEN GIVEN BY THE HON'BLE DELHI HIGH COURT ON 3 RD JUNE 2011. HE PLACED ON RECORD COPY OF THE HON'BLE HIGH COURTS DECISION. ON THE STRENGTH OF T HESE DECISIONS, HE POINTED OUT THAT ONCE AN ISSUE CANNOT BE EXAMINED I N THE REASSESSMENT 11 PROCEEDINGS, THEN HOW THE LEARNED COMMISSIONER CAN TAKE UP THAT ISSUE IN A PROCEEDINGS UNDER SEC. 263 OF THE ACT, WHICH HAS BEEN TAKEN FROM REASSESSMENT PROCEEDINGS. THEREFORE, THE ORDER OF T HE LEARNED COMMISSIONER IS NOT SUSTAINABLE. 11. ON THE OTHER HAND, LEARNED DR RELIED UPON THE O RDER OF THE LEARNED COMMISSIONER. HE POINTED OUT THAT AS FAR AS DROPPIN G OF A LIVE PROCEEDINGS UNDER SEC. 147 AT THE END OF ASSESSING OFFICER, IT WOULD AMOUNT AN ORDER EVEN IF IT WAS PASSED ON AN ORDER SHEET. THUS, LEAR NED COMMISSIONER CAN TAKE COGNIZANCE UNDER SEC. 263 ON ELIMINATION OF A LIVE PROCEEDINGS UNDER SEC. 147 WHICH WAS NOT TAKEN TO THE LOGICAL END BY THE ASSESSING OFFICER. HE FURTHER SUBMITTED THAT HAD THE ASSESSING OFFICER CO NTINUED WITH THE PROCEEDINGS UNDER SEC. 147 THEN HE WOULD HAVE EXAMI NED THE EXCESS CAPITAL LOSS CLAIMED BY THE ASSESSEE. THIS ACTION OF THE AS SESSING OFFICER FOR NOT CONDUCTING THE PROPER INQUIRY IS AN ERRONEOUS ACTIO N AND IT CAN BE SET AT RIGHT IN THE PROCEEDINGS UNDER SEC. 263 OF THE ACT. IN SU PPORT OF HIS CONTENTIONS, HE RELIED UPON THE ORDER OF THE ITAT IN THE CASE OF P.K. FABRICS VS. ACIT REPORTED IN 67 TTJ 328. HE ALSO RELIED UPON THE DEC ISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF EXPORTS INDIA VS. CIT REP ORTED IN 246 ITR 1, NEW WIRE INDIA LTD. VS. DCIT (2011) 009 ITR (TRIB.) 728 . HE ALSO RELIED UPON 12 THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CAS E OF DIWAKAR ENGINEERS LTD. VS. ITO REPORTED IN 329 ITR 0028. 12. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. THE ITAT IN THE CASE OF MRS. KHA TIZA S. OOMERBHOY VS. ITO,MUMBAI, 101 TTJ 1095, ANALYZED IN DETAIL VARI OUS AUTHORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF MALABAR INDUSTRIES 243 ITR 83 AND HAS PROP OUNDED THE FOLLOWING BROADER PRINCIPLE TO JUDGE THE ACTION OF CIT TAKEN UNDER SECTION 263. THE FUNDAMENTAL PRINCIPLE WHICH EMERGE FROM THE A BOVE CASES MAY BE SUMMARIZED BELOW (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDE R OF THE A.O IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. BOTH THE CONDITIONS MUST BE FULFILLED. (II) SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AN D EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE A,O AND IT WAS ON LY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCOR RECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERR ONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION O F MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. 13 (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PRE JUDICIAL TO THE INTERESTS OF THE REVENUE AND IF THE A.O HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSI BLE AND THE A.O HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGRE E, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKE N BY THE A.O IS UNSUSTAINABLE UNDER LAW. (VI) IF WHILE MAKING THE ASSESSMENT, THE A.O EXAMI NES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME, THE CIT, WHILE E XERCISING HIS POWER UNDER S. 263 IS NOT PERMITTED TO SUBSTITUTE H IS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE A.O. (VII) THE A.O EXERCISES QUASI-JUDICIAL POWER VEST ED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARR IVES AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CO NCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER S. 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION . (IX) IF THE A.O HAS MADE ENQUIRIES DURING THE COU RSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE A.O ALLO WS THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSE E, THE DECISION OF THE A.O CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE I N HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGAR D. 13. IN THE LIGHT OF ABOVE DECISIONS, LET US EXAMINE THE FACTS OF THE PRESENT CASE. THE FIRST ISSUE FOR OUR DETERMINATION IS WHET HER DISCONTINUATION OR DROPPING OF THE REASSESSMENT PROCEEDINGS AT THE END OF THE ASSESSING OFFICER CAN BE TERMED TO BE AN ORDER WITHIN THE MEANING OF EXPRESSION ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER EMPLOYED I N SECTION 263 OF THE ACT. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTANCE S, WE FIND THAT THE 14 ASSESSING OFFICER HAS RECORDED THE REASONS FOR REOP ENING OF THE ASSESSMENT. IN RESPONSE TO THE NOTICE ISSUED UNDER SEC. 148, AS SESSEE SUBMITTED TO THE ASSESSING OFFICER THAT THE RETURN FILED ORIGINALLY BE TREATED AS RETURN FILED IN RESPONSE TO THE NOTICE UNDER SEC. 148 OF THE ACT. I N ORDER TO GIVE A LOGICAL END TO THE REASSESSMENT PROCEEDINGS, ASSESSING OFFI CER HAS ISSUED NOTICE UNDER SEC. 143(2) OF THE ACT. THE ASSESSEE HAS FILE D A DETAILED REPLY ON THE REOPENING OF THE ASSESSMENT. ALL OF A SUDDEN, THERE AFTER NO PROCEEDINGS ARE DISCERNIBLE AT THE END OF THE ASSESSING OFFICER. HE DID NOT PASS ANY ORDER UNDER SEC. 143 READ WITH SEC. 147 OF THE ACT. HE HA S DROPPED THE PROCEEDINGS VIDE OFFICE NOTE DATED 25.7.2007. THUS, THIS OFFICE NOTE FOR THE PURPOSE OF TESTING THE ACTION OF THE ASSESSING OFFI CER WHETHER IT IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVEN UE WOULD BE CONSTRUED AS AN ORDER WITHIN THE MEANING OF EXPRESSION ANY ORDER P ASSED THEREIN BY THE ASSESSING OFFICER. THUS, WE DO NOT FIND ANY FORCE IN THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THERE WAS NO ORDER PASSED BY THE ASSESSING OFFICER WHICH COULD BE REVISED OR CANCELL ED OR MODIFIED BY EXERCISING POWERS UNDER SEC. 263. IN OUR OPINION, L EARNED COMMISSIONER HAS RIGHTLY OBSERVED THAT EXTINGUISHMENTS OF A LIVE PROCEEDINGS UNDER SEC. 147 WOULD AMOUNT TO PASSING OF AN ORDER WHICH IS AM ENABLE UNDER ACTION OF LEARNED COMMISSIONER UNDER SEC. 263 OF THE ACT. 15 14. THE NEXT ISSUE IS WHETHER THERE IS ANY PREJUDIC E TO THE REVENUE WHICH CAN EMPOWER THE LEARNED COMMISSIONER TO TAKE ACTION UNDER SEC. 263. THE BASIC FOUNDATION FOR TAKING ACTION UNDER SEC. 147 A S WELL AS UNDER SEC. 263 IS THAT MR. SHREYA MORAKHIA HAS WRITTEN OFF A LIABILIT Y PAYABLE BY THE ASSESSEE RESULTANTLY THAT LIABILITY WOULD CEASE AND ASSESSEE OUGHT TO HAVE SHOWN IT AS AN INCOME. THE ASSESSEE HAS DEMONSTRATED BEFORE THE ASSESSING OFFICER THAT IT HAS ALREADY REDUCED THE COST OF ACQUISITION OF S HARES IN RESPECT OF LIABILITY PAYABLE TO SHREYA MORAKHIA. THUS, THERE IS NO TAX I MPLICATION. ASSESSING OFFICER HAS DROPPED THE PROCEEDINGS. LEARNED COMMIS SIONER HAS TERMED THIS ACTION OF THE ASSESSING OFFICER AS ERRONEOUS AS WEL L AS PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDING TO HIM, EVEN IF, THE RE CANNOT BE ANY ADDITION ON ACCOUNT OF CESSATION OF LIABILITY, ASSESSING OFF ICER COULD HAVE EXAMINED THE EXCESSIVE CAPITAL LOSS ALLOWED TO THE ASSESSEE. TO OUR MIND, ON THIS POINT, ORDER OF THE LEARNED COMMISSIONER IS NOT SUSTAINABL E. THE RETURN OF THE ASSESSEE FILED ORIGINALLY ON 30.10.2002 WAS SCRUTIN IZED AND AN ASSESSMENT UNDER SEC. 143(3) OF THE ACT WAS PASSED ON 31.3.200 5. LEARNED COMMISSIONER DID NOT TAKE ANY ACTION ON THIS ORDER. IN HIS UNDERSTANDING, THE ACTION OF THE ASSESSING OFFICER IN DROPPING OF THE REASSESSMENT ORDER IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. LET US SEE, HAD THE ASSESSING OFFICER PASSED A REASSESSMENT ORDER W HICH AMOUNT HE COULD 16 HAVE ADDED OR DISALLOWED. ASSESSING OFFICER HAS REO PENED THE ASSESSMENT ON ACCOUNT OF ESCAPEMENT OF INCOME REPRESENTING CESSAT ION OF THE LIABILITY PAYABLE TO SHREYA MORAKHIA. THE ASSESSEE HAS DEMONS TRATED THAT IT HAS ALREADY REDUCED THE COST OF ACQUISITION AND THERE I S NO TAX IMPLICATION ON THIS ISSUE, MEANING THEREBY, THERE WOULD NOT BE ANY ADDI TION OF THIS LIABILITY. HON'BLE MUMBAI HIGH COURT IN THE CASE OF JET AIRWAY S LTD. HAS OBSERVED THAT IF A REASSESSMENT HAS BEEN REOPENED BY RECORDI NG REASONS, EXHIBITING THE ESCAPEMENT OF INCOME AND ULTIMATELY IN THE REASSESS MENT PROCEEDINGS, IT WAS FOUND THAT NO INCOME HAS ESCAPED ASSESSMENT INCONSE QUENCE OF SUCH REASONS THEN ASSESSING OFFICER CANNOT TAKE UP ANY OTHER ISS UE FOR EXAMINATION. HONBLE COURT HAS CONSIDERED THE EXPLANATIONS APPEN DED TO SECTION 147 BY FINANCE ACT, 2009 AND OBSERVED THAT IF THE ADDITION IS BEING MADE OF THE INCOME FOR WHICH ASSESSING OFFICER HAS RECORDED THE REASONS ABOUT ITS ESCAPEMENT ONLY THEN OTHER ISSUES CAN BE LOOKED INT O. HONBLE COURT HAS EMPHASIZED THAT ONCE AFTER ISSUE OF A NOTICE UNDER SEC. 148, ASSESSING OFFICER ACCEPTED THE CONTENTION OF THE ASSESSEE AND HOLD THAT THE INCOME WHICH HE HAS INITIALLY FORMED REASONS TO BELIEF ABO UT ITS ESCAPEMENT AND ON ASSESSMENT, HE FOUND AS A MATTER OF FACT THAT NO SU CH INCOME HAS ESCAPED THEN, IT IS NOT OPEN TO HIM INDEPENDENTLY TO ASSESS SOME OTHER INCOME. IF HE INTENDS TO DO SO, A FRESH NOTICE UNDER SEC. 148 WOU LD BE NECESSARY, THE 17 LEGALITY OF WHICH WOULD BE DECIDED IN THE EVENT OF A CHALLENGE BY THE ASSESSEE. THIS JUDGEMENT OF THE HON'BLE MUMBAI HIGH COURT HAS BEEN FOLLOWED BY THE HON'BLE DELHI HIGH COURT IN THE CAS E OF RANBAXY LABORATORY RENDERED IN ITA NO.148/DEL/2008, THUS, T HE ASSESSING OFFICER WOULD NOT BE IN A POSITION TO EXAMINE THE ALLEGED E XCESS CAPITAL LOSS CLAIMED BY THE ASSESSEE. IF THE ASSESSING OFFICER WAS NOT I N A POSITION TO EXAMINE THAT ISSUE THEN IN OUR OPINION, LEARNED CIT(APPEALS ) WOULD NOT BE IN A POSITION TO TAKE COGNIZANCE OF THAT ISSUE IN SEC. 2 63 OF THE ACT. IN OTHER WORDS, EVEN IF, IT IS UPHELD THAT THE DROPPING OF P ROCEEDINGS UNDER SEC. 147 OF THE ACT IS ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF THE REVENUE THEN ALSO ON REVIVAL OF SUCH ISSUE, ASSESSING OFFICER HAS TO FIRST SEE WHETHER ANY ADDITION COULD BE POSSIBLE ON THE ESCAPEMENT OF INC OME FOR WHICH HE HAS RECORDED THE REASONS. IF IT IS ESTABLISHED ON THE R ECORD THAT THERE IS NO ESCAPEMENT OF INCOME FOR WHICH REASONS ARE RECORDED THEN IN VIEW OF TWO DECISIONS, I.E. OF HON'BLE MUMBAI HIGH COURT AS WEL L AS OF HON'BLE DELHI HIGH COURT, NO OTHER ISSUE COULD EXAMINED BY THE AS SESSING OFFICER. IN SUCH SITUATION, THE DROPPING OF THE PROCEEDINGS COULD NO T BE HOLD AS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE COUL D UNDERSTOOD THE LOGIC OF LEARNED COMMISSIONER, HAD HE REFERRED THE SCRUTINY ASSESSMENT PASSED UNDER SEC. 143(3) OF THE ACT ALSO? HE DID NOT FIND ANY ERROR IN THAT ORDER. 18 THEREFORE, WE ALLOW THE APPEAL OF THE ASSESSEE ON T HIS POINT AND QUASH THE ORDER PASSED UNDER SECTION 263 OF THE ACT BY THE LE ARNED COMMISSIONER OF INCOME-TAX. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 31.10.201 1 SD/- SD/- ( B.C. MEENA ) ( RAJ PAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31/10/2011 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR 19