M/s. Ushodaya Enterprises Pvt.Ltd., Hyderabad V. ACIT, Circle-16(2), Hyderabad

ITA 765/HYD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1328 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 18-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M RAVINDER SAI
• Assessee Lawyers: H PADAMCHAND KHIMCHA
• Keywords: Reopening of assessment; Depreciation; Transfer pricing; Principle of natural justice; Cost of acquisition; Fair market value; Difference of opinion; Valuation report; Assessment record; Reason to believe; Change of opinion
• Section: 143(3); 142(1); 115JB; 147; 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 765/HYD/2012 ASST. YEAR: 2007-08 M/S USHODAYA ENTERPRISES PVT. LTD., HYDERABAD. (PAN AAACU2690P ) V/S. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 16(2), HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H. PADAMCHAND KHIMCHA RESPONDENT BY : SHRI M. RAVINDER SAI DATE OF HEARING 1 9 /12/20 12 DATE OF PRONOUNCEMENT 22/ 02/2013 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE COMMISSIONER OF INCOME-TAX-IV, HYD ERABAD DATED 28/03/2012, PASSED U/S 263 OF THE ACT, FOR TH E ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1.1 THE LEARNED COMMISSIONER OF INCOME-TAX IV, HYDERABAD HAS ERRED IN PASSING THE ORDER UNDER SECTION 263 IN THE MANNER PASSED BY HIM. THE ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 2 ORDER PASSED UNDER SECTION 263 BEING BAD IN LAW IS LIABLE TO BE QUASHED. 2.1. THE LEARNED COMMISSIONER OF INCOME-TAX IV, HYDERABAD HAS ERRED IN CONCLUDING THAT THE ORDER PASSED BY THE LEARNED ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE 16(2), HYDERABAD UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 2007-08 IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE WITHOUT DEMONSTRATING HOW IS IT SO. THE CONDITIONS OR REQUIREMENTS FOR TREATING THE ASSESSMENT ORDER AS ERRONEOUS IN SO FAR AS IT I S PREJUDICIAL TO THE INTERESTS OF REVENUE BEING NOT SATISFIED, THE ORDER PASSED UNDER SECTION 263 IS COMPLETELY BAD IN LAW AND LIABLE TO BE QUASHED. 3.1 THE LEARNED COMMISSIONER OF INCOME-TAX IV, HYDERABAD HAS ERRED IN MAKING VARIOUS AVERMENTS IN CONCLUDING THAT THE VALUATION REPORT GIVEN BY M/S. EMST & YOUNG IS NOT REALISTIC, NOT ACCEPTABLE AND CONTAINS SEVERAL CONTRADICTIONS. THE VARIOUS AVERMENTS OF THE LEARNED COMMISSIONER OF INCOME- TAX IV, HYDERABAD MADE WITHOUT ANY BASIS OR LOGIC ARE COMPLETELY INCORRECT, CONTRARY TO THE FACTS, BA D IN LAW AND LIABLE TO BE QUASHED. 4.1. THE LEARNED COMMISSIONER OF INCOME-TAX IV, HYDERABAD HAS ERRED IN- I. CONCLUDING THAT THE VALUATION REPORT ALREADY FURNISHED BY THE APPELLANT ON 18.3.22008 AT THE TIME OF ASSESSMENT , COULD NOT BE EXAMINED BY THE ASSESSING OFFICER DUE TO CHANGE IN INCUMBENT IN OFFICE. II. SETTING ASIDE THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER AFTER DULY EXAMINING THE DETAILS OF REPORT. III. CONCLUDING THAT THE ASSESSING OFFICER HAS FAILED TO EXAMINE THE APPLICABILITY OF SECTION 43(1) READ WIT H EXPLANATION 3 AND ACCORDINGLY DIRECTING HIM TO EXAMINE THE APPLICABILITY OF THE SAID PROVISION. IV. NOT APPRECIATING THAT EXPLANATION 3 TO SECTION 43(1) IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. V. NOT APPRECIATING THAT THE SOFTWARE LIBRARY WAS PURCHASED AT ARMS LENGTH PRICE AND BASED ON VALUATION REPORT OBTAINED FROM AN EXPORT PROFESSIONAL ORGANISATION. ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 3 5.1. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE, THE ORDER PASSED BY THE LEARNED COMMISS IONER OF INCOME-TAX UNDER SECTION 263 IS INCORRECT, CONTR ARY TO FACT, BAD IN LAW AND LIABLE TO BE QUASHED. 6.1. IN VIEW OF THE ABOVE AND SUCH OTHER GROUNDS TO BE ADDUCED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INC OME- TAX IV, HYDERABAD UNDER SECTION 263 OF THE INCOME- TAX ACT, 1961 BE QUASHED OR IN THE ALTERNATIVE, EXPLANA TION 3 TO SECTION 43(1) BE HELD AS INAPPLICABLE IN THE FAC TS AND CIRCUMSTANCES OF THE CASE TO THE PURCHASE OF ASSETS BY THE APPELLANT. 3. AS COULD BE CULLED OUT FROM THE GROUNDS RAISED , THE POINT OF DISPUTE IN THIS APPEAL RELATES TO THE LEGA LITY AND VALIDITY OF THE ORDER PASSED U/S 263 OF THE ACT IN SETTING ASIDE THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT H OLDING IT TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF TH E REVENUE. 4. BRIEFLY THE FACTS RELATING TO THE ISSUE IN DISP UTE ARE, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PUBLISHING OF NEWS PAPER AND SATELLITE TELEVISION BROADCASTING . FOR THE ASSESSMENT YEAR UNDER DISPUTE THE ASSESSEE FILED IT S RETURN OF INCOME ON 31/10/2007 DECLARING INCOME OF RS. 27,10, 85,700/- UNDER NORMAL PROVISIONS AND BOOK PROFIT OF RS. 104, 33,52,695/- U/S 115JB OF THE ACT. INITIALLY THE RETURN WAS PROC ESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, HOWEVER, THE ASSES SEES CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLE TED U/S 143(3) OF THE ACT VIDE ORDER DATED 31/12/2009. THE COMMISSIONER CALLED FOR THE ASSESSMENT RECORDS OF T HE ASSESSEE FOR THE IMPUGNED YEAR AND WHILE PERUSING THE ASSESS MENT RECORD, THE COMMISSIONER WAS OF THE VIEW THAT THE A SSESSMENT ORDER PASSED U/S 143(3) IS ERRONEOUS AND PREJUDICIA L TO THE INTERESTS OF THE REVENUE. HE, THEREFORE, IN EXERCIS E OF HIS POWER ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 4 U/S 263 OF THE ACT, ISSUED A NOTICE TO THE ASSESSEE TO SHOW CAUSE RAISING THE FOLLOWING ISSUES: (I) ON VERIFICATION OF THE RECORDS, IT WAS NOTICED THAT THE ASSETS PURCHASED BY YOU FROM M/S.USHAKIRAN MOVIES AND M/S. USHAKIRAN TELEVISION WERE EARLIER USED BY THEM FOR THE PURPOSE OF THEIR BUSINESS AND DEPRECIATION WAS ALSO CLAIMED BY THEM ON THESE ASSETS. THE WDV OF THESE TWO CONCERNS PUT TO GETHER AS ON 01.04.2006 IS RS.160,96,47,766. HOWEVER, THESE ASSETS WERE PURCHASED BY YOU FOR A SUM OF RS.787,80,67,883 /- AND DEPRECIATION WAS ACCORDINGLY CLAIMED ON IT. ADMITT EDLY, ALL THESE THREE CONCERNS ARE INTER-RELATED BEING GROUP CONCERNS. THEREFORE, THE MAIN PURPOSE BEHIND THIS TRANSACTION C AN BE SEEN AS ONE TO REDUCE THE LIABILITY TO INCOME-TAX ( BY CLAIMING DEDUCTION WITH REFERENCE TO AN ENHANCED COST). AND AS SUCH EXPLANATION 3 TO SEC.43 SQUARELY APPLIES TO YOUR CA SE. IN VIEW OF THE ABOVE, PLEASE SHOW CAUSE AS TO WHY T HE WDV OF RS.160,96,47,766 AS ON 01.-04-2006 IN THE HANDS OF HUFS (M/S. USHAKIRAN MOVIES AND M/S. USHAKIRAN TELEVISION) SHO ULD NOT BE TAKEN AS FMV AND DEPRECIATION IN THE HANDS OF THE C OMPANY BE ALLOWED FOR THE SAME AMOUNT AS AGAINST HE DEPRECIAT ION CLAIMED BY YOU ON RS.787,80,67,883/-. (II) ON VERIFICATION OF THE RECORD, IT WAS NOTICED THAT YOU HAVE CLAIMED DEPRECIATION @ 25% ON THE ASSETS USED FOR T HE PURPOSE OF TELECASTING THE FILMS AND TV SERIALS AND THE CIN EMATOGRAPH FILMS WHICH ARE AVAILABLE IN THE FORM OF CDS/MAGNET IC TAPES TREATING THEM AS INTANGIBLE ASSETS. THESE ASSETS A RE IN FACT, TOOLS TO THE BUSINESS ACTIVITY. THESE ASSETS INCL UDE HARD COPIES OF FEATURE FILMS AND CINE VIDEOS WHICH ARE PURCHASE D FROM OTHERS FOR THE PURPOSE OF TELECASTING WHICH ARE IN THE FORM OF CDS/MAGNETIC TAPES AND NO PATENT/PROPRIETARY RIGHTS CAN BE CLAIMED OVER THEM BY YOU ALONE AS ANYONE CAN PURCHA SE AND TELECAST THEM IN THEIR CHANNELS. THEREFORE, THESE C AN BE CLAIMED AS INTANGIBLE ASSETS BY THE PRODUCERS ONLY AND NOT BY ANYONE WHO PURCHASED IT FOR THE PURPOSE OF TELECASTING. TH ESE ASSETS AT THE BEST CAN ONLY BE TREATED AS PLANT & MACHINERY A ND NOT OTHERWISE. 5. AS IS EVIDENT FROM THE AFORESAID SHOW CAUSE NOT ICE THE COMMISSIONER WAS OF THE OPINION THAT WHILE THE WDV OF THE ASSETS PURCHASED FROM M/S USHAKIRAN MOVIES AND USHA KIRAN TELEVISION PUT TOGETHER WAS SHOWN AT RS. 160,96,47, 766/- AS ON 01/04/2006 WHEREAS THE ASSESSEE HAD PURCHASED THE V ERY SAME ASSETS FOR A SUM OF RS. 787,80,67,883/- AND CLAIMED DEPRECIATION ON IT. ALL THE PARTIES, I.E. SELLERS A ND PURCHASERS ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 5 BEING RELATED TO EACH OTHER EXPLANATION 3 TO SECTIO N 43(1) COMES INTO PLAY. SECONDLY, IT WAS OBSERVED BY THE COMMISSIONER THAT THE ASSESSEE HAD CLAIMED DEPRECIA TION @ 25% BY TREATING THEM AS INTANGIBLE ASSETS, WHICH AC CORDING TO THE COMMISSIONER BEING IN THE NATURE OF TOOLS TO TH E BUSINESS ACTIVITY SHOULD HAVE BEEN TREATED AS PLANT AND MACH INERY FOR THE PURPOSE OF CLAIMING DEPRECIATION AT THE APPROPR IATE RATE. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUB MITTED A REPLY STATING THEREIN THAT THE ASSESSEE PURCHASED A SOFTWARE LIBRARY OF FILMS AND PROGRAMMES FROM M/S USHAKIRAN MOVIES (UKM IN SHORT) AND M/S USHAKIRAN TELEVISION (UKTV I N SHORT) FOR A SUM OF RS.787,80,67,887/-. IT WAS STATED THAT THE SE TWO BUSINESS UNITS, I.E. UKM AND UKTV WERE OWNED BY SHR I RAMOJI RAO, HUF. 6. THE AUTHORISED REPRESENTATIVE FOR THE ASSESSEE , SUBMITTING A BREAK UP OF THE PURCHASE CONSIDERATION OF RS.787,80,67,887/-, SUBMITTED THAT EXCEPTING THE CO ST OF SOFTWARE LIBRARY VALUED AT RS. 775 CRORES ALL OTHER ASSETS AND LIABILITIES OF UKM AND UKTV WERE TAKEN OVER AT BOOK VALUE AS PER THE BOOKS OF ACCOUNT OF SHRI RAMOJI RAO, HUF EX CEPT THE SOFTWARE LIBRARY WHICH WAS VALUED AT RS. 775 CRORES AS PER THE VALUATION REPORT. IT WAS SUBMITTED BY THE ASSESSEE THAT SOFTWARE LIBRARY IN BROADCASTING ACTIVITY CONSISTS OF SATELLITE RIGHTS OF FEATURE FILMS AND TV PROGRAMMES SOFTWARE FOR EXPLOITATION IN TV CHANNELS. SHRI RAMOJI RAO, HUF H AD ACQUIRED SOFTWARE LIBRARY CONSISTING OF SATELLITE RIGHTS OF FEATURE FILMS AND TV PROGRAMMES SOFTWARE SPREAD OVER A PERIOD OF TIME RANGING BETWEEN 5 YEARS TO 50 YEARS AND IN SOME CAS ES THE ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 6 PERIOD IS PERPETUAL. IT WAS SUBMITTED THAT THE VALU E OF SOFTWARE RIGHTS DEPENDS ON THE MARKET DEMAND OF EXPLOITATION RIGHTS OF FEATURE FILMS AND TELE SOFTWARE. THE SUCCESSFUL FIL MS ALWAYS COMMAND A PREMIUM PRICE IRRESPECTIVE OF NUMBER OF Y EARS OF THEIR SCREENING BY VARIOUS CHANNELS. IT WAS STATED THAT THE COMPETITION AMONG CHANNELS WOULD ALONE DECIDE THE M ARKET VALUE OF FILMS AND TV PROGRAMMES. IF THE FILM IS AV ERAGE, THE PREMIUM WOULD BE LOW AND THE MARKET VALUE WILL ALSO BE LOW. THE COST OF PRODUCTION OF SOFTWARE OR ITS VALUE IN THE BOOKS OF ACCOUNT HAS NOTHING TO DO WITH THE SUCCESS OR OTHER WISE OF THE TV SOFTWARE AND MARKET VALUE OF TV SOFTWARE WOULD E NTIRELY DEPEND ON THE SUCCESS OF RELEVANT PROGRAMME BUT NOT RELATED TO THE COST OF SOFTWARE. IT WAS SUBMITTED THAT IN C ASE OF FILM PRODUCERS ONCE DEDUCTION IS CLAIMED UNDER RULE 9A/ 9B OF IT RULES, ON ANY MOTION PICTURE THERE WILL NOT BE ANY VALUE IN THEIR BOOKS BUT RIGHTS OF THE PICTURES CAN BE SOLD AND SU BSTANTIAL INCOME CAN BE THERE ON SALE OF SUCH RIGHTS. THE ASS ESSEE IN THIS CONTEXT CITED EXAMPLES OF CERTAIN MOVIES, SATELLITE RIGHTS OF WHICH WERE PURCHASED BETWEEN RS. 3.5 CRORES TO RS.5 .5 CRORES BY DIFFERENT TV CHANNELS BEFORE THEIR RELEASE TO PU BLIC. IT WAS SUBMITTED UKM AND UKTV HAVE CLAIMED THE COST OF PRO DUCTION OF FILMS OR PROGRAMMES UNDER RULE 9A/9B IT RULES IN EA RLIER YEARS UP TO THE ASSESSMENT YEAR 2002-03. THEREAFTER, FROM AY 2006- 07, DEPRECIATION WAS CLAIMED BY THEM ON THE SOFTWAR E LIBRARY TREATING IT AS AN INTANGIBLE ASSET. IT WAS SUBMITT ED THAT AT THE TIME OF SALE OF SOFTWARE LIBRARY TO THE ASSESSEE, T HE WDV OF SOFTWARE WAS A SUM OF RS. 160.96 CRORE, WHICH DOES NOT INCLUDE THE VALUE OF SOFTWARE WHICH WAS CLAIMED AS DEDUCTIO N IN FULL UNDER RULE 9A/9B OF THE IT RULES. THE SOFTWARE LIBR ARY WAS ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 7 CHARGED TO PROFIT AND LOSS ACCOUNT AND SUCH SOFTWAR E WILL HAVE VALUE FOR ITS FUTURE EXPLOITATION AND COMMANDS VALU E IN THE MARKET. 7. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE CO MPANY APPROACHED A PRIVATE EQUITY CAPITAL FROM A FOREIGN COMPANY, NAMELY, M/S BLACKSTONE FP CAPITAL PARTNER (MAURITIU S) V LTD. AND THE SAID COMPANY FOR THE PURPOSE OF INVESTING I N THE ASSESSEE COMPANY DESIRED THAT THE ASSESSEE SHOULD O WN AND ACQUIRE THE SOFTWARE LIBRARY FROM SHRI RAMOJI RAO, HUF. TO FACILITATE THE INVESTMENT, THE ASSESSEE GOT THE VAL UATION OF SOFTWARE LIBRARY DONE BY M/S ERNST & YOUNG, WHO REC OMMENDED THE VALUE OF SOFTWARE LIBRARY IN THE RANGE OF RS. 7 46.41 CRORES TO RS. 814.27 CRORES AFTER TAKING INTO CONSIDERATIO N ALL THE FILM RIGHTS AND PROGRAMMES IN THE SOFTWARE LIBRARY PROPO SED FOR SALE AT THAT TIME BY SHRI RAMOJI RAO, HUF. THE ASSESSEE HAD ACQUIRED THE ENTIRE SOFTWARE LIBRARY CONSISTING OF 47.95 LAKH MINUTES OF TV PROGRAMME AND 3778 FILMS WITH SATELLI TE RIGHTS FOR A PERIOD RANGING FROM 5 YEARS TO 50 YEARS AND S OME FILM RIGHTS FOR A PERPETUAL PERIOD FOR A SUM OF RS. 775 CRORES, WHICH IS IN BETWEEN THE VALUE RECOMMENDED BY THE VALUER M /S ERNST & YOUNG. 8. IT WAS, FURTHER, SUBMITTED THAT M/S BLACKSTONE AGREED TO INVEST SUM OF RS. 1217 CRORES FOR ACQUIRI NG 26% STAKE IN THE ASSESSEE COMPANY BY ENTERING INTO NECE SSARY AGREEMENT SUBJECT TO THE APPROVAL FROM FOREIGN INVE STMENT PROMOTION BOARD, GOVERNMENT OF INDIA. IT WAS SUBMIT TED THAT PENDING SUCH AGREEMENT WITH M/S BLACKSTONE, THE ASS ESSEE HAD ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 8 OBTAINED LOAN FROM STANDARD CHARTERED BANK AND ACQU IRED THE SOFTWARE LIBRARY FROM SHRI RAMOJI RAO, HUF DURING T HE FY 2006- 07 FOR FACILITATING THE INVESTMENT TO BE MADE BY M/ S BLACKSTONE. IT WAS SUBMITTED BY THE ASSESSEE THAT I N RESPONSE TO SPECIFIC QUERY DURING THE ASSESSMENT PROCEEDINGS A COPY OF VALUATION REPORT BY M/S ERNST & YOUNG WAS SUBMITTED BEFORE THE ASSESSING OFFICER. IT WAS SUBMITTED THAT THE FACT T HAT M/S BLACKSTONE HAD AGREED TO INVEST IN THE ASSESSEE COM PANY SUBJECT TO APPROVAL BY THE GOVERNMENT WOULD INDICAT E THAT THE PRICE AGREED TO BE PAID WAS AT ARMS LENGTH AND IN CONFORMITY WITH MARKET VALUE OF THE SOFTWARE LIBRARY. THE ASSE SSEE SUBMITTED THAT AS ULTIMATELY THE AGREEMENT WITH M/S BLACKSTONE COULD NOT BE WORKED OUT DUE TO NON OBTAINING OF APP ROVAL OF THE FOREIGN INVESTMENT PROMOTION BOARD, THE ASSESSEE EN TERED INTO NEGOTIATIONS WITH DOMESTIC INVESTOR M/S EQUATOR TRA DING ENTERPRISES PVT. LTD. WHO CAME FORWARD TO INVEST A SUM OF RS. 2604 CRORES AFTER CARRYING OUT THE DUE DILIGENCE ON THE ACTIVITIES, ASSETS AND LIABILITIES OF THE ASSESSEE COMPANY INCLUDING THE SOFTWARE LIBRARY ACQUIRED BY THE ASSE SSEE COMPANY FROM SHRI RAMOJI RAO, HUF. 9. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE FURTHER SUBMITTED THAT THE DOMESTIC INVEST OR ACQUIRED 39% OF SHARE CAPITAL OF THE ASSESSEE BY WAY OF ALLO TMENT OF SHARES FROM ASSESSEE COMPANY AND ALSO PURCHASED SHA RES FROM SHRI RAMOJI RAO, HUF. IT WAS SUBMITTED THAT THIS IN VESTMENT FROM INVESTOR ESTABLISHES THE FACT THAT THE MARKET VALUE OF THE SOFTWARE LIBRARY DETERMINED BY M/S ERNST & YOUNG IS CORRECT. IT WAS SUBMITTED THAT M/S EQUATOR TRADING ENTERPRISES PVT. LTD. ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 9 INVESTED A SUM OF RS. 2604 CRORES IN THE ASSESSEE F OR 30% OF SHARE CAPITAL AND M/S EQUATOR TRADING DESIRED THAT THE ASSESSEE COMPANY SHOULD SPLIT INTO FOUR COMPANIES AND AS SUC H THE SOFTWARE LIBRARY WAS TRANSFERRED TO ONE OF THE COMP ANIES AT THE VALUE ACQUIRED FROM SHRI RAMOJI RAO, HUF. IT WAS SU BMITTED THAT M/S EQUATOR TRADING ENTERPRISES PVT. LTD. HAS ALSO PAID NON-COMPETE FEE OF RS. 670 CRORES SUBSEQUENTLY. 10. IT WAS ALSO SUBMITTED BY THE ASSESSEE BEFORE THE COMMISSIONER OF INCOME-TAX THAT THERE WAS NO INTENT ION TO ENHANCE THE COST OF SOFTWARE LIBRARY FOR CLAIMING E NHANCED DEPRECIATION IN THE BOOKS OF ACCOUNT OF THE ASSESSE E. THE SOFTWARE LIBRARY ACQUIRED WAS GROUPED UNDER THE CUR RENT ASSETS IN THE BALANCE SHEET AND COST OF LIBRARY HAS BEEN A MORTIZED OVER A PERIOD OF TIME. IT WAS SUBMITTED THAT SHRI R AMOJI RAO, HUF IS ASSESSED TO TAX BY THE SAME ASSESSING OFFICE R AND HE WAS AWARE OF THE BOOK VALUE OF THE SOFTWARE LIBRARY AND ACCEPTED THE SALE CONSIDERATION OF SOFTWARE LIBRARY IN THE ASSESSMENT OF SHRI RAMOJI RAO, HUF, WHICH ESTABLISH ES THE FACT THAT THE MARKET VALUE OF THE SOFTWARE LIBRARY WAS A T ARMS LENGTH IN THE HANDS OF SHRI RAMOJI RAO, HUF. IT WA S FURTHER SUBMITTED THAT SHRI RAMOJI RAO, HUF HAD SHOWN THE E NTIRE SALE VALUE OF SOFTWARE LIBRARY IN ITS RETURN OF INCOME A S INCOME FROM BUSINESS BUT THE DEPARTMENT HAS ASSESSED THE SALE CONSIDERATION UNDER THE HEAD LONG TERM CAPITAL GAI N AND SHRI RAMOJI RAO, HUF HAS PAID THE TAX ON THE SALE CONSID ERATION. IT WAS SUBMITTED THAT THE OUTSIDE INVESTOR HAD INVESTE D A SUM OF RS. 2600 CRORES IN THE ASSESSEE COMPANY BY TAKING I NTO ACCOUNT OF VALUE OF VARIOUS ASSETS INCLUDING THE SOFTWARE L IBRARY. ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 10 11. WITH REGARD TO THE CLAIM OF DEPRECIATION BY AP PLYING THE RATE OF 25% THE ASSESSEE SUBMITTED THAT THE SOF TWARE LIBRARY FALLS WITHIN THE DEFINITION OF COPY RIGHT U NDER THE COPY RIGHTS ACT, 1957,HENCE, DEPRECIATION ON SOFTWARE LI BRARY @ 25% WAS RIGHTLY CLAIMED BY THE ASSESSEE. 12. THE COMMISSIONER OF INCOME-TAX, IN THE COURS E OF REVISIONARY PROCEEDINGS UNDER S.263, ISSUED TWO MOR E NOTICES RAISING FURTHER ISSUES WITH REGARD TO THE DISCREPAN CIES FOUND IN THE VALUATION REPORT AND SEEKING THE ASSESSEES CLA RIFICATION ON THEM. IN RESPONSE TO SUCH NOTICES, THE ASSESSEE MAD E FURTHER SUBMISSIONS TO THE EFFECT THAT FOR ANY MOVIE CHANNE L SOFTWARE LIBRARY IS THE MAIN ASSET WHICH HAS BEEN VALUED BY M/S ERNST & YOUNG ACCORDING TO THE INDUSTRY NORMS. IT WAS SUBMI TTED THAT WHILE EVALUATING THE MARKET VALUE OF FILMS TAX WAS NOT A FACTOR AT ALL. THE VALUE OF SOFTWARE LIBRARY IS BASED ON T HE MARKET TRENDS AND INDUSTRY PRACTICES PREVAILING AT THE TIM E OF SUBMISSION OF THE REPORT. IT WAS SUBMITTED THAT THE RIGHTS OVER A MOVIE MAY NOT APPEAR IN THE BOOKS OF ACCOUNT AFTE R WRITE OFF BUT SUCH MOVIES ARE HAVING PREDOMINANT MARKET VALUE . IT WAS SUBMITTED THAT THE ASSESSING OFFICER WHILE COMPLETI NG THE ASSESSMENT U/S 143(3) HAS EXAMINED THE VALUATION RE PORT AND ALL THE FACTS SUBMITTED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER AFTER EXAMINING THE ENTIRE ISSUE HAD ACCEPTED THE VALUE OF SOFTWARE LIBRARY DE TERMINED BY M/S ERNST & YOUNG. THE ASSESSING OFFICER HAVING CON DUCTED NECESSARY ENQUIRY AND APPLIED HIS MIND WHILE COMPLE TING THE ASSESSMENT CONSIDERATION OF THE SAME ISSUES AGAIN I N REVISION ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 11 PROCEEDINGS AMOUNTS TO CHANGE OF OPINION. IN SUPPOR T OF SUCH CONTENTIONS, THE ASSESSEE RELIED UPON VARIOUS DECIS IONS OF THE HONBLE SUPREME COURT AND DIFFERENT HIGH COURTS. 13. THE COMMISSIONER, AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE AND THE MATERIALS ON RECORD FOUND T HAT SHRI RAMOJI RAO, HUF AND HIS FAMILY MEMBERS OWNED THE EN TIRE SHARE CAPITAL OF THE ASSESSEE DURING THE RELEVANT P REVIOUS YEAR. SUBSEQUENTLY, A PORTION OF THE SHARE CAPITAL WAS GI VEN TO A PRIVATE EQUITY INVESTOR. SHRI RAMOJI RAO, HUF IS AL SO THE CHAIRMAN OF THE ASSESSEE COMPANY. THE ASSESSEE COMP ANY HAD ENTERED INTO A BUSINESS TRANSFER AGREEMENT WITH BU SINESS UNITS OF SHRI RAMOJI RAO, HUF, I.E. UKM AND UKTV ON 15/03 /2007. AS PER THE AGREEMENT UKM AND UKTV AGREED TO TRANSFER T HEIR BUSINESS AS A GOING CONCERN TO THE ASSESSEE COMPANY . THE ASSETS TRANSFERRED UNDER THE AGREEMENT ARE: (I) CON TENT RIGHTS WITH RESPECT TO FILM AND PROGRAMME LIBRARY CONSISTI NG OF RIGHTS TELECAST FILMS AND OTHER TV PROGRAMS, (II) ALL MOVA BLE ASSETS INCLUDING OFFICE, FURNITURE, PLANT & MACHINERY AND EQUIPMENT, (III) ALL LICENSES AND APPROVALS REQUIRED TO CONDUC T THE BUSINESS, (IV) ALL PENDING CONTRACTS, CURRENT ASSETS INCLUDIN G BOOK DEBTS AND STOCKS, (V) ALL TELEPHONE, FAX, TELEX, AND COMM UNICATION LINES PERTAINING TO THE BUSINESS AND (VI) SERVICES OF ALL THE PERSONNEL ATTACHED TO THE BUSINESS. THE SALE CONSID ERATION FOR TRANSFER OF THE BUSINESS UNDERTAKINGS BY SHRI RAMOJ I RAO, HUF WAS A SUM OF RS. 787,80,67,883/-. AS PER THE TERMS OF THE AGREEMENT THE SALE CONSIDERATION WAS NOT DIVISIBLE BUT IS A SINGLE UNDIVIDED SLUMP SALE CONSIDERATION FOR THE E NTIRE TV SOFTWARE BUSINESS WITH NO INDEPENDENT VALUES BEING ASSIGNED TO ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 12 THE VARIOUS COMPONENTS OF THE TV SOFTWARE BUSINESS. IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, FIXED ASSETS, SUN DRY DEBTORS, INVENTORIES, LOANS AND ADVANCES AND CURRENT ASSETS WERE RECORDED AT THE BOOK VALUE AS APPEARING IN THE BOOK S OF ACCOUNT OF SHRI RAMOJI RAO, HUF. THE ASSESSEE COMPA NY ACQUIRED THE FIXED ASSETS HAVING BOOK VALUE OF RS. 3.62 CRORES BUT SUCH ASSETS WERE VALUED AND ACQUIRED AT BOOK PR ICE WHEREAS THE SOFTWARE LIBRARY WHOSE WDV IN THE BOOKS OF ACCOUNT OF SHRI RAMOJI RAO, HUF WAS A SUM OF RS.160,96,47,766/- WAS VALUED AT RS. 775 CRORES AT THE TIME OF TRANSFER OF BUSINESS UNDERTAKING ON THE BASIS OF A VALUATION REPORT OF M/S ERNST & YOUNG. IT WAS SEEN BY THE COM MISSIONER THAT THE ENTIRE NETWORTH OF THE BUSINESS UNDERTAKIN GS TRANSFERRED BY SHRI RAMOJI RAO, HUF WAS A SUM OF RS.173,81,74,313/-. 14. THE COMMISSIONER OF INCOME-TAX, ON GOING THROU GH THE VALUATION REPORT OF M/S ERNST & YOUNG, FOUND IT TO BE NOT REALISTIC OR ACCEPTABLE AS WHILE VALUING THE SOFTWA RE LIBRARY AT THE HANDS OF THE SELLER SHRI RAMOJI RAO, HUF SEVERA L ASSUMPTIONS AND PRESUMPTIONS WERE MADE. THE COMMISS IONER WAS OF THE VIEW THAT THE MARKET VALUE DETERMINED AT THE HANDS OF THE SELLER MAY NOT BE THE MARKET PRICE OR ESTIMA TED RANGE PRICE FROM THE ANGLE OF THE PURCHASER. THE ASSESSEE COMPANY DID NOT DETERMINE THE MARKET VALUE OF THE SOFTWARE LIBRARY AND IN AN ARMS LENGTH TRANSACTION A BUYER OF THE PROPE RTY CANNOT RELY TOTALLY ON THE VALUE DETERMINED BY THE SELLER. M/S ERNST & YOUNG VALUED THE SOFTWARE LIBRARY AT THE BEHEST OF THE SHRI RAMOJI RAO, HUF AND NOT AT THE BEHEST OF THE ASSESS EE ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 13 COMPANY. THE VALUATION REPORT FURTHER MENTIONED THA T THE VALUATION OF SOFTWARE LIBRARY IS APPLICABLE TO SHRI RAMOJI RAO, HUF ONLY AND NOT TO OTHERS. IN THE SAID VALUATION R EPORT, IT HAS FURTHER BEEN MENTIONED THAT SHRI RAMOJI RAO, HUF HA S ACCUMULATED LOSSES OF RS. 1600 CRORES AND AS A RESU LT OF THIS HUGE CARRIED FORWARD BUSINESS LOSS AND UNABSORBED D EPRECIATION THE HUF WILL NOT HAVE ANY TAX LIABILITY IN FUTURE. THE COMMISSIONER WAS OF THE VIEW THAT THIS FACTOR INFLU ENCED THE VALUER TO ENHANCE THE MARKET VALUE OF THE PROPERTY AS IT WILL NOT RESULT INTO ANY TAX LIABILITY AT THE HANDS OF T HE SELLER. 15. IT WAS FURTHER NOTED BY THE COMMISSIONER OF I NCOME- TAX THOUGH THE VALUATION OF SOFTWARE LIBRARY WAS DO NE FOR THE PURPOSE OF STARTING NEW CHANNEL AND THE VALUE OF SO FTWARE LIBRARY WAS DETERMINED ON 30/09/2006 TILL THE END O F THE PREVIOUS YEAR THE ASSESSEE DID NOT START ANY NEW CH ANNEL. SHRI RAMOJI RAO, HUF ALSO DID NOT START ANY NEW CHANNEL WHEREAS THE ENTIRE VALUATION REPORT IS BASED ON THE BASIC A SSUMPTION THAT SHRI RAMOJI RAO, HUF IS GOING TO LAUNCH DEDICA TED FILM CHANNELS IN USA AND IN THE REST OF THE WORLD IN TEL UGU, KANNADA, BENAGLEE AND MARATHI LANGUAGES. THIS DID N OT HAPPEN EITHER IN THE PREVIOUS YEAR OR IN THE SUBSEQUENT YE AR. FROM THE METHOD ADOPTED FOR VALUATION OF SOFTWARE LIBRARY TH E COMMISSIONER OF INCOME-TAX FOUND THAT THE VALUATION S HAVE BEEN MADE ONLY ON ASSUMPTION. IN THE REPORT, IT HAS BEEN MENTIONED THAT TELUGU FILMS LIBRARY HAS EARNED ADVE RTISEMENT REVENUES OF RS. 7.5 CRORES FROM RE-RUN OF ITS CONTE NT ON EENADU TELUGU CHANNEL. ABOUT 16 FILMS ARE RUN DURING A WEE K AND AS EACH FILM IS FOR 3 HOURS THE TOTAL TIME FOR, WHICH FILMS ARE RUN ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 14 DURING A WEEK IS 48 HOURS, WHICH IS 1/3 RD OF TOTAL AVAILABLE TIME OF 168 HOURS ON THE EENADU TELUGU CHANNEL. THUS, WH EN A TELUGU FILM CHANNEL WOULD BE LAUNCHED, THE REVENUE WOULD BE DOUBLED TO APPROXIMATELY TO RS. 15 CRORES PER ANNUM . THE COMMISSIONER FOUND THIS METHOD OF VALUATION TO BE P URELY ON ASSUMPTIONS AS FIRSTLY NO NEW CHANNEL WAS STARTED D URING THE PREVIOUS YEAR AND SECONDLY, EVEN IF FULLY DEDICATED TELUGU FILM CHANNEL IS ALSO LAUNCHED, THE ADVERTISEMENT REVENUE S WOULD BECOME DOUBLE FROM RS.7.5 CRORES TO RS. 15 CRORES P ER ANNUM IS WITHOUT ANY BASIS. ACCORDING TO THE COMMISSIONER OF INCOME- TAX THE SOFTWARE LIBRARY SHOULD BE DETERMINED WITH REFERENCE TO THE MARKET VALUE PREVAILING ON THE DATE OF VALUATIO N I.E. 30/09/2006. THEREFORE, THERE IS NO BASIS FOR THE V ALUER TO JUMP AT THE CONCLUSION THAT THE REVENUE WILL AUTOMATICAL LY BECOME DOUBLE AND THEREBY VALUED THE TELUGU FILMS AT RS. 2 30 CRORES. 16. IT WAS FURTHER NOTICED BY THE COMMISSIONER O F INCOME-TAX THAT THE VALUER DID NOT VALUE THE SOFTWA RE LIBRARY BY ONE METHOD OF VALUATION. DIFFERENT METHODS WERE ADO PTED FOR VALUING THE FILMS IN THE SOFTWARE LIBRARY. IN RESPE CT OF TELUGU FILMS DISCOUNTED CASH FLOW METHOD WAS ADOPTED AND F OR VALUATION OF KANNADA FILM THE VALUER ADOPTED MARKET CAPITALIZATION METHOD I.E. P.E. METHOD AND FOR A PO RTION OF THE SOFTWARE LIBRARY THE VALUER ADOPTED COST PRICE METH OD. THUS, THE VALUER HAS NOT APPLIED OR FOLLOWED ANY METHOD C ONSISTENTLY. IT WAS ALSO NOTICED BY THE COMMISSIONER THAT IT WAS REPORTED IN THE VALUATION REPORT AROUND 58% OF THE FILMS OWNED BY SHRI RAMOJI RAO, HUF WERE RELEASED TO THE PRIOR TO THE Y EAR 1990. THE FILMS RELEASED AFTER THE YEAR 2000 COMPRISES AB OUT 12% OF ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 15 THE SOFTWARE LIBRARY. WHEREAS ALL THE FILMS WERE VA LUED AT AN AVERAGE PRICE WHICH ACCORDING TO THE COMMISSIONER W AS NOT APPROPRIATE. THE ASSESSEE COMPANY HAS FURNISHED THE AVERAGE COST OF ACQUISITION OF EACH FILM IN THE HANDS OF SH RI RAMOJI RAO, HUF IN SOFTWARE LIBRARY AND THE AVERAGE MARKET VALU E OF EACH FILM AS PER THE VALUATION REPORT OF M/S ERNST & YOU NG. THE AVERAGE COST OF ACQUISITION OF TELUGU FILM WAS WORK ED OUT TO A SUM OF RS. 6,43,550/- AND AVERAGE MARKET VALUE OF E ACH TELUGU FILM AS PER THE VALUATION REPORT WAS WORKED OUT TO A SUM OF RS.28,81,858/-. IN RESPECT OF KANNADA FILMS THE AVE RAGE COST OF ACQUISITION WAS WORKED OUT TO A SUM OF RS.4,08,086/ - AND THE VALUE DETERMINED THE MARKET VALUE OF EACH KANNADA F ILM AT RS.23,10,450/-. SIMILARLY FILMS OF OTHER LANGUAGES THE AVERAGE COST OF ACQUISITION OF EACH FILM WAS WORKED OUT TO A SUM OF RS.2,22,538/- AND THE MARKET PRICE OF EACH FILM WAS DETERMINED BY THE VALUER AT A SUM OF RS. 9,42,818/- . THE BASIS FOR DETERMINATION BY THE MARKET VALUE BY M/S ERNST & YOUNG IS THE DATA SUPPLIED BY SHRI RAMOJI RAO, HUF AND NO IN DEPENDENT VERIFICATION WAS CARRIED OUT BY THE VALUER. IT WAS FURTHER NOTICED BY THE COMMISSIONER THAT RIGHTS OVER 27% OF THE FIL MS IN THE FILM LIBRARY WOULD EXPIRE BEFORE 31 ST DECEMBER, 2009, WHICH IS LESS THAN TWO-AND-HALF YEARS OF VALUATION. 17. THAT THE VALUATION REPORT WAS MADE ON THE BAS IS OF ASSUMPTIONS WAS FURTHER FOUND FROM THE FACT THAT TH E TOTAL ADVERTISEMENT REVENUES ON THE UTILIZATION OF SOFTWA RE LIBRARY WILL ACCRUE TO THE HUF WHEREAS IN AN ARMS LENGTH T RANSACTION THE BROADCASTER OF SOFTWARE LIBRARY IS ALSO ENTITLE D TO RETAIN A PART OF THE ADVERTISEMENT REVENUES FOR RENDERING TH E SERVICES, ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 16 WHICH PROVES THE FACT THAT THE VALUE DETERMINED BY THE VALUER IS NOT AT ARMS LENGTH. IT WAS FURTHER NOTICED BY THE COMMISSIONER THAT THE VALUER HAS FIXED THE TOTAL SO FTWARE LIBRARY BETWEEN RS.746.41 CRORES AND RS.814.27 CROR ES WHILE THE ASSESSEE COMPANY HAS ADOPTED THE VALUE AT RS. 7 75 CRORES. THE TOTAL COST OF SOFTWARE LIBRARY IN THE HANDS OF SHRI RAMOJI RAO, HUF AS PER THE VALUATION REPORT WAS SUM OF RS. 448. 37 CRORES. THE ASSESSEE HAD EARNED REVENUE OF RS. 296.64 CRORE S FROM THE PROGRAMMES CONTAINED IN THE SOFTWARE LIBRARY. THUS, ON THE DATE OF VALUATION, I.E. 30/09/2006, THE COST OF SOF TWARE LIBRARY TO SHRI RAMOJI RAO, HUF WORKS OUT TO RS. 151.73 CRO RES (RS. 448.37 296.64) AND MOST OF THE FILMS WERE VERY OL D FILMS PRODUCED BEFORE THE YEAR 1980. IN VIEW OF THESE INCONSISTENCIES, THE VALUE ADOPTED IN THE VALUATION REPORT COULD NOT BE ACCEPTED AS CORRECT. 18. ON EXAMINING THE ASSESSMENT RECORDS, THE COMMISSIONER FOUND THAT IN THE RETURN OF INCOME FIL ED BY THE ASSESSEE, THE ASSESSEE HAS CLAIMED DEPRECIATION ON THE SOFTWARE LIBRARY ACQUIRED FROM SHRI RAMOJI RAO, HUF AT 25% ON A SUM OF RS. 778,01,07,072/-. AS THE ASSET WAS ACQU IRED IN THE LAST WEEK OF MARCH, 2007 DEPRECIATION CLAIMED WAS F OR A PERIOD OF LESS THAN 180 DAYS AND THE SAME WAS QUANTIFIED B Y THE ASSESSEE AT A SUM OF RS.98,50,13,384/-. THE TOTAL D EPRECIATION CLAIMED ON CINEMATOGRAPHY FILMS AND SOFTWARE LIBRAR Y WAS A SUM OF RS.99,01,02,307/-. THE DEPRECIATION CLAIMED BY THE ASSESSEE WAS ALLOWED BY THE ASSESSING OFFICER IN TH E ASSESSMENT COMPLETED U/S 143(3) OF THE ACT. IT WAS NOTICED BY THE COMMISSIONER THAT DURING THE COURSE OF ASSESSME NT ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 17 PROCEEDINGS, THE ASSESSING OFFICER ON 07/06/2008 HA D REQUIRED THE ASSESSEE TO FURNISH A COPY OF THE VALUATION REP ORT AND BASIS FOR THE VALUATION OF THE FILMS. HOWEVER, THE VALUAT ION REPORT STATED TO HAVE BEEN SUBMITTED BY THE ASSESSEE BEFOR E THE ASSESSING OFFICER ON 18/03/2008 WAS NOT IN THE ASSE SSMENT RECORD. IT WAS FURTHER FOUND FROM THE RECORD BY TH E COMMISSIONER OF INCOME-TAX THAT DURING THE CONTIN UATION OF THE ASSESSMENT PROCEEDINGS THERE WAS A CHANGE IN TH E INCUMBENCY AND A NEW ASSESSING OFFICER TOOK OVER TH E CHARGE. HOWEVER, FROM THE ASSESSMENT RECORD IT WAS NOT AT A LL DISCERNIBLE THAT THE SUCCEEDING ASSESSING OFFICER H AD PERUSED THE VALUATION REPORT OF M/S ERNST & YOUNG AS NOTHIN G ABOUT THE VALUATION REPORT HAS BEEN MENTIONED IN THE ORDER SH EET OR IN THE ASSESSMENT ORDER PASSED U/S 143(3). THE ASSESSM ENT RECORD FURTHER REVEALED THE FACT THAT THE ASSESSING OFFICER DID NOT EXAMINE THE APPLICABILITY OF PROVISIONS OF SECT ION 43(1), EXPLANATION 3 OF THE ACT. IT WAS ALSO A FACT THAT W HILE THE ASSESSEE COMPANY ACQUIRED THE SOFTWARE LIBRARY FOR A SUM OF RS. 755 CRORES BUT IT HAS CLAIMED DEPRECIATION ON T HE SOFTWARE LIBRARY AT A SUM OF RS. 788.01 CRORES. THIS FACT WA S NOT AT ALL VERIFIED BY THE ASSESSING OFFICER WHILE ALLOWING TH E CLAIM OF DEPRECIATION. 19. THE COMMISSIONER OF INCOME-TAX DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE ASSESSING OFFIC ER HAS CONDUCTED DUE ENQUIRY BEFORE COMPLETING THE ASSESSM ENT BECAUSE WHEN THE VALUATION REPORT DOES NOT EXIST IN THE ASSESSMENT RECORD IT IS NOT KNOWN WHETHER IT IS EXI STED AT THE TIME WHEN THE SCRUTINY ASSESSMENT ORDER WAS PASSED AND ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 18 WHETHER THE ASSESSING OFFICER HAD AN OPPORTUNITY TO LOOK INTO THE VALUATION REPORT. THE COMMISSIONER FURTHER OBSE RVED THAT THE ASSESSMENT ORDER PASSED REVEALS THAT THE ASSESS ING OFFICER HAS NOT AT ALL LOOKED INTO THE VALUATION REPORT AS OTHERWISE THE ASSESSING OFFICER CERTAINLY WOULD HAVE FOUND OUT TH E INCONSISTENCIES IN THE VALUATION REPORT. THE COMMIS SIONER FURTHER HELD THAT THE ASSESSING OFFICER TOTALLY IGN ORED TO EXAMINE THE APPLICABILITY OF EXPLANATION-3 OF S.43( 1). THE COMMISSIONER HELD THAT THOUGHT THE ASSESSING OFFICE R HAS CALLED FOR THE DETAILS HE HAS NEITHER CONDUCTED ANY PROBE WITH REGARD TO THE VALUATION OF THE SOFTWARE LIBRARY NOR HE HAS EXAMINED THE APPLICABILITY OF PROVISION AS CONTAINED IN EXPLANAT ION-3 OF S.43(1). THE COMMISSIONER, THEREFORE, HELD THE ASSE SSMENT ORDER PASSED U/S 143(3) TO BE ERRONEOUS AND PREJUDI CIAL TO THE INTERESTS OF THE REVENUE. THUS, THE COMMISSIONER SE T ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO THE ASSESSING OFFICER TO EXAMINE THE APPLICABILITY OF PROVISIONS OF SECTION 43(1) EXPLANATION 3. 20. THE COMMISSIONER OF INCOME-TAX ALSO DIRECTED THE ASSESSING OFFICER TO TAKE THE ASSISTANCE OF AN EXPE RT IN VALUATION OF SOFTWARE LIBRARY, IF NECESSARY, AND TH E ASSESSING OFFICER SHOULD OBTAIN THE PRIOR APPROVAL OF ADDITIO NAL COMMISSIONER IN RESPECT OF DETERMINATION OF SOFTWA RE LIBRARY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 43(1) EXP LANATION 3. THE COMMISSIONER FURTHER DIRECTED THE ASSESSING OFF ICER TO PROVIDE OPPORTUNITY TO THE ASSESSEE TO PROVE THAT T HE PRICE PAID BY IT WAS THE MARKET PRICE OF THE SOFTWARE LIBRARY ON THE DATE OF ACQUISITION. THE COMMISSIONER ALSO MADE IT CLEAR IN HIS ORDER ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 19 THAT THE ASSESSEE IS AT LIBERTY TO FURNISH EITHER A NY OTHER EVIDENCE OR ANOTHER VALUATION REPORT DETERMINING TH E MARKET VALUE OF SOFTWARE LIBRARY TO SHOW THAT THE PRICE AT WHICH IT HAS PURCHASED THE SOFTWARE LIBRARY IS AT ARMS LENGTH. 21. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE U S. 22. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTE D BEFORE US THAT THE ORDER PASSED BY THE COMMISSIONER OF INCOME -TAX U/S 263 OF THE ACT IS IN VIOLATION OF THE BASIC PRINCIPLES OF THE PROVISION CONTAINED U/S 263 OF THE ACT. THE LEARNED COUNSEL SUBMITTED T HAT THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT, CANNOT BE CONSI DERED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE AS THE ASSESSING OFFICER HAS PASSED THE ORDER AFTER CONDUC TING NECESSARY ENQUIRY. THE LEARNED COUNSEL REFERRING TO THE NOTIC ES ISSUED BY THE ASSESSING OFFICER IN COURSE OF ASSESSMENT PROCEEDIN GS WHICH ARE AT PAGES 142 & 146 OF THE PAPER BOOK AND THE REPLY SUB MITTED BY THE ASSESSEE IN COMPLIANCE THEREOF, WHICH ARE AT PAGES 134 AND 145 OF THE PAPER BOOK, SUBMITTED THAT THE ASSESSING OFFICER HA D NOT ONLY CONDUCTED NECESSARY ENQUIRY WITH REGARD TO THE ISSU E OF DEPRECIATION BUT HAS COMPLETED ASSESSMENT ONLY AFTER EXAMINING I N DETAIL THE REPLY SUBMITTED BY THE ASSESSEE ALONG WITH OTHER SUPPORTI NG EVIDENCES. IT WAS SUBMITTED BY THE LEARNED COUNSEL THAT ONLY BECA USE THE ASSESSING OFFICER HAS NOT MENTIONED ABOUT THE VALUATION REPOR T IN THE ASSESSMENT ORDER IT WILL NOT MEAN THAT ENQUIRY WAS NOT MADE BY HIM. THE LEARNED COUNSEL SUBMITTED THAT EVEN ASSUMING THAT THE ENQUI RIES MADE BY THE ASSESSING OFFICER ARE INADEQUATE, THE JURISDICTION U/S 263 OF IT ACT CANNOT BE ASSUMED, AS IT WAS NOT A CASE OF LACK OF ENQUIRY. THE LEARNED ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 20 COUNSEL SUBMITTED THAT IN CASE OF ALA FIRM V/S. CO MMISSIONER, 189 ITR 285, THE HONBLE SUPREME COURT HELD IN THE FOLL OWING MANNER: WE THINK THERE IS FORCE IN THE ARGUMENT ON BEHALF OF THE ASSESSEE THAT, IN THE FACE OF ALL THE DETAILS AND S TATEMENT PLACED BEFORE THE INCOME-TAX OFFICER AT THE TIME OF THE OR IGINAL ASSESSMENT, IT IS DIFFICULT TO TAKE THE VIEW HAT TH E INCOME-TAX OFFICER HAD NOT AT ALL APPLIED HIS MIND TO THE QUES TION WHETHER THE SURPLUS IS TAXABLE OR NOT. IT IS TRUE THAT THE RETURN WAS FILED AND THE ASSESSMENT WAS COMPLETED ON THE SAME DATE. NEVERTHELESS, IT IS OPPOSED TO NORMAL HUMAN CONDUCT THAT AN OFFICER WOULD COMPLETE THE ASSESSMENT WITHOUT LOOKI NG AT THE MATERIAL PLACED BEFORE HIM. IT IS NOT AS IF THE ASS ESSMENT RECORD CONTAINED A LARGE NUMBER OF DOCUMENTS OR THE CASE R AISED COMPLICATED ISSUES RENDERING IT PROBABLE THAT THE I NCOME-TAX OFFICER HAD MISSED THESE FACTS. IT IS A CASE WHERE THERE IS ONLY ONE CONTENTION RAISED BEFORE THE INCOME-TAX OFFICER AND IT IS, WE THINK, IMPOSSIBLE TO HOLD THAT THE INCOME-TAX OF FICER DID NOT AT ALL LOOK AT THE RETURN FILED BY THE ASSESSEE OR THE STATEMENTS ACCOMPANYING IT. THE MORE REASONABLE VIEW TO TAKE W OULD, IN OUR OPINION, BE THAT THE INCOME-TAX OFFICER LOOKED AT THE FACTS AND ACCEPTED THE ASSESSEE'S CONTENTION THAT THE SUR PLUS WAS NOT TAXABLE. . 23. THE LEARNED COUNSEL SUBMITTED THAT THE NOTICE S ISSUED BY THE ASSESSING OFFICER CALLING UPON THE ASSESSEE TO FURNISH DETAILS AND CLARIFICATION ON VARIOUS ISSUES AND FURNISHING OF E XPLANATION AND DETAILS BY THE ASSESSEE INDICATES THAT THE ASSESSING OFFICE R HAS UNDERTAKEN THE EXERCISE OF EXAMINING THE ISSUES IN DISPUTE AND ON BEING SATISFIED WITH THE EXPLANATION FURNISHED BY THE ASSESSEE THE ASSES SING OFFICER ACCEPTED THE SAME. THE LEARNED COUNSEL REFERRING TO THE DECISION OF THE HONBLE DELHI HIGH COURT (FULL BENCH) IN CASE OF CI T V/S. KELIVNATOR OF INDIA LTD., 256 ITR 1 SUBMITTED THAT THE HONBLE DE LHI HIGH COURT HAS HELD AS UNDER: WE ALSO CANNOT ACCEPT SUBMISSION OF MR. JOLLY TO T HE EFFECT THAT ONLY BECAUSE IN THE ASSESSMENT ORDER, DETAILED REAS ONS HAVE NOT BEEN RECORDED ON ANALYSIS OF THE MATERIALS ON THE R ECORD BY ITSELF MAY JUSTIFY THE ASSESSING OFFICER TO INITIAT E A PROCEEDING UNDER SECTION 147 OF THE ACT. THE SAID SUBMISSION I S FALLACIOUS. AN ORDER OF ASSESSMENT CAN BE PASSED EITHER IN TERM S OF SUB- SECTION (1) OF SECTION 143 OR SUB-SECTION (3) OF SE CTION 143. ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 21 WHEN A REGULAR ORDER OF ASSESSMENT IS PASSED IN TER MS OF THE SAID SUB-SECTION (3) OF SECTION 143 A PRESUMPTION C AN BE RAISED THAT SUCH AN ORDER HAS BEEN PASSED ON APPLICATION O F MIND. IT IS WELL KNOWN THAT A PRESUMPTION CAN ALSO BE RAISED TO THE EFFECT THAT IN TERMS OF CLAUSE (E) OF SECTION 114 OF THE I NDIAN EVIDENCE ACT THE JUDICIAL AND OFFICIAL ACTS HAVE BEEN REGULA RLY PERFORMED. IF IT BE HELD THAT AN ORDER WHICH HAS BEEN PASSED P URPORTEDLY WITHOUT ANYTHING FURTHER, THE SAME WOULD AMOUNT TO GIVING PREMIUM TO AN AUTHORITY EXERCISING QUASI JUDICIAL F UNCTION TO TAKE BENEFIT OF ITS OWN WRONG. 24. THE LEARNED COUNSEL SUBMITTED THAT THE AFORESA ID DECISION OF THE HONBLE DELHI HIGH COURT WAS ALSO CONFIRMED BY THE HONBLE SUPREME COURT IN CASE OF CIT V/S. KELVINATOR INDIA LTD., 320 ITR 561. THE LEARNED COUNSEL REFERRED TO A DECISION OF THE H ONBLE DELHI HIGH COURT IN CASE OF CIT V/S. EICHER LTD., 294 ITR 310 WHEREIN THE HONBLE DELHI HIGH COURT HELD IN THE FOLLOWING MANNER: IN HARI IRON TRADING CO. V. COMMISSIONER OF INCOME TAX,(2003) 263 ITR 437, A DIVISION BENCH OF PUNJAB AND HARYANA HIGH COURT OBSERVED THAT AN ASSESSED HAS NO CONTROL OVER THE W AY AN ASSESSMENT ORDER IS DRAFTED. IT WAS OBSERVED THAT G ENERALLY, THE ISSUES WHICH ARE ACCEPTED BY THE ASSESSING OFFICER DO NOT FIND MENTION IN THE ASSESSMENT ORDER AND ONLY SUCH POINT S ARE TAKEN NOTE OF ON WHICH THE ASSESSEE'S EXPLANATIONS ARE RE JECTED AND ADDITIONS/DISALLOWANCES ARE MADE. WE AGREE. APPLYING THE PRINCIPLES LAID DOWN BY THE FULL BENCH OF THIS COURT AS WELL AS THE OBSERVATIONS OF THE PUNJAB AND HARYA NA HIGH COURT, WE FIND THAT IF THE ENTIRE MATERIAL HAD BEEN PLACED BY THE ASSESSED BEFORE THE ASSESSING OFFICER AT THE TIME W HEN THE ORIGINAL ASSESSMENT WAS MADE AND THE ASSESSING OFFI CER APPLIED HIS MIND TO THAT MATERIAL AND ACCEPTED THE VIEW CAN VASSED BY THE ASSESSED, THEN MERELY BECAUSE HE DID EXPRESS TH IS IN THE ASSESSMENT ORDER, THAT BY ITSELF WOULD NOT GIVE HIM A GROUND TO CONCLUDE THAT INCOME HAS ESCAPED ASSESSMENT AND, TH EREFORE, THE ASSESSMENT NEEDED TO BE REOPENED. ON THE OTHER HAND, IF THE ASSESSING OFFICER DID NOT APPLY HIS MIND AND CO MMITTED A LAPSE, THERE IS NO REASON WHY THE ASSESSED SHOULD B E MADE TO SUFFER THE CONSEQUENCES OF THAT LAPSE. 25. THE LEANED COUNSEL REFERRING TO THE AFORESAID DECISION OF THE HONBLE DELHI HIGH COURT SUBMITTED THAT SINCE T HE ASSESSING OFFICER ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 22 ACCEPTED THE ASSESSEES EXPLANATION WITH REGARD TO VALUATION OF THE SOFTWARE LIBRARY AND CLAIM OF DEPRECIATION, HE DID NOT MENTION IT IN THE ASSESSMENT ORDER AND ONLY DEALT WITH SUCH ISSUES ON WHICH THE ASSESSEES EXPLANATION WAS CONSIDERED TO BE NOT ACC EPTABLE AND ADDITIONS AND DISALLOWANCES WERE MADE. IN THIS CON TEXT, THE LEARNED COUNSEL ALSO RELIED UPON THE FOLLOWING DECISIONS: 1. CIT V/S. GABRIEL (INDIA) LTD., [1993] 203 ITR 108 (BOM.) 2. ICICI VENTURE FUNDS MANAGEMENT COMPANY LTD. V/ S. CIT LTU, [2011] 5 TAX CORP (AT) 23878 (BANGALORE) 3. INFOSYS BPO LTD. V/S. CIT AY 2005-06 & 2006- 07- INCOME-TAX APPELLATE TRIBUNAL BANGALORE DT. 16/03/2 012 & 25/05/2012. 26. THE LEARNED COUNSEL SUBMITTED THAT EVEN THE COMMISSIONER HAS NOT DENIED THE FACT THAT THE ASSES SING OFFICER HAS CONDUCTED ENQUIRY IN COURSE OF THE ASSESSMENT P ROCEEDINGS WITH REGARD TO THE VALUATION OF THE SOFTWARE LIBRAR Y AND THE CLAIM OF DEPRECIATION. THEREFORE, IN THE FACTS OF T HE PRESENT CASE, IT CANNOT BE SAID THAT THERE IS LACK OF ENQUI RY. THE LEARNED COUNSEL SUBMITTED THAT THERE IS DIFFERENCE BETWEEN LACK OF ENQUIRY AND INADEQUATE ENQUIRY. WHILE IN CASE OF LA CK OF ENQUIRY, JURISDICTION U/S 263 CAN BE EXERCISED BUT IT IS IMPERMISSIBLE IN CASE OF INADEQUATE ENQUIRY. IN SUP PORT OF SUCH CONTENTION, THE LEARNED COUNSEL RELIED UPON THE FOL LOWING CASE LAWS: (A) CIT V/S. SUNBEAM AUTO LTD. (2009) 332 ITR 167( DEL) (B) CIT V/S. HINDUSTAN MARKETING AND ADVERTISING CO . LTD. (2011)341 ITR 180(DEL) ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 23 (C) HITENDRA A.NANAVATI V/S. CIT(2010)135 TTJ 17(AH D.) (D) SURESH K.JAJOO V/S. ACIT (2011) 5 TAX CORP. (AT ) 24079 (MUMBAI) (E) REGENCY PARK PROPERTY MANAGEMENT SERVICES (P)LT D. V/S. CIT (2010 )35 DTR 284(DEL) (F) CYBER PARK DEVELOPMENT & CONSTRUCTION LTD. V/ S. DCIT (INCOME-TAX APPELLATE TRIBUNAL BANGALORE DT.28.12.2011) (G) INFOSYS BPO LTD. V/S. CIT AY 2006-07- ITAT BANGALORE DT.25.5.2012 27. THE LEARNED COUNSEL SUBMITTED THAT THE LANGU AGE OF PROVISION AS CONTAINED U/S 142(1) & 143(2) ENVISAGE S CALLING FOR INFORMATION FOR THE PURPOSE OF ENQUIRY AS PER T HE SATISFACTION AND DESIRE OF THE ASSESSING OFFICER. T HEREFORE, AS PER THE STATUTORY PROVISION WHAT INFORMATION TO BE CALLED FOR AND THE METHOD OF ENQUIRY FOR COMPUTING THE INCOME OF THE ASSESSEE IS TOTALLY WITHIN THE JURISDICTION OF THE ASSESSING OFFICER. IN VIEW OF THIS, BY EXERCISING THE POWER U /S 263 OF THE ACT, THE COMMISSIONER IN EFFECT IS TRYING TO MAKE A FRESH ENQUIRY AT HIS LEVEL FOR SUBSTITUTING HIS OPINION W ITH THAT OF THE ASSESSING OFFICER. THE LEARNED COUNSEL SUBMITTED TH AT THIS IS NOT ENVISAGED U/S 263 OF THE ACT. IN THIS CONTEXT, THE LEARNED COUNSEL RELIED UPON THE FOLLOWING CASE LAWS: (A) CIT V/S. ASHISH RAJPAL (2010) 320 ITR 674 (DEL .) (B) B AND A PLANTATION AND INDUSTRIES LTD. AND ANR. V/S. CIT AND ORS. (2007) 290 ITR 395 (GAU.) (C) CIT V/S. GABRIEL (INDIA) LTD. (1993) 203 ITR 1 08(BOM) ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 24 (D) HARI OM BANSAL V/S.ITO(2012)6TAX CORP.(AT) 273 23 (CHENNAI) (E) AD. CIT V/S. SHIPRA ESTATE LTD. (2010) 35 SOT 256 (DEL) (F) BARRY WELMILLER INTERNATIONAL RESOURCES P. LTD. V/S. ITO (2011) TAX CORP (AT)23844(CHENNAI) 28. THE LEARNED COUNSEL FURTHER SUBMITTED THAT TH E ERSTWHILE OWNER OF THE ASSETS HAVE CLAIMED DEDUCTIO N UNDER RULE 9A/9B OF THE INCOME-TAX RULES AS INTANGIBLE AS SETS, WHICH WAS ACCEPTED BY THE ASSESSING OFFICER. IT WAS FURTH ER SUBMITTED BY THE LEARNED COUNSEL THAT ASSESSMENT FOR THE ASSE SSMENT YEAR FOR 2008-09 AND 2009-10 HAVE BEEN COMPLETED ACCEPTI NG THE VALUATION AFTER INITIATION OF THE PROCEEDINGS U/S 2 63 OF THE ACT. THE LEARNED COUNSEL SUBMITTED THAT AS THE COMMISSIO NER HAS NOT GIVEN ANY CONCLUSIVE FINDING THAT THE ASSESSMEN T ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE THE EXERCISE OF JURISDICTION U/S 263 OF THE ACT IS LEGA LLY UNSUSTAINABLE. 29. WITH REGARD TO OBSERVATION OF THE COMMISSIONE R OF INCOME-TAX THAT THE ASSESSING OFFICER HAS NOT EXAMI NED THE APPLICABILITY EXPLANATION 3 OF SECTION 43(1), THE L EARNED COUNSEL SUBMITTED THAT THE MAIN PURPOSE OF EXPLANATION 3 TO SECTION 43(1) IS TO DETERMINE THE ACTUAL COST OF ASSETS AND THE ACTUAL COST HAS TO BE DETERMINED BY THE ASSESSING OFFICER HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. THEREF ORE, IN THE FACTS OF THE PRESENT CASE THE ASSESSING OFFICER HAS DETERMINED THE ACTUAL COST AFTER CONSIDERING THE VALUATION REP ORT, HENCE, ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 25 HIS ACTION CANNOT BE TERMED ERRONEOUS AND PREJUDICI AL TO THE INTERESTS OF THE REVENUE. THE LEARNED COUNSEL SUBMI TTED THAT IT IS ONLY THE ASSESSING OFFICER WHO IS OBLIGED UNDER THE ACT TO RECORD A SATISFACTION THAT THE ASSETS WERE TRANSFER RED FOR REDUCING THE LIABILITY TO PAY INCOME TAX AND FOR TH IS PURPOSE THE COMMISSIONER CANNOT SUBSTITUTE HIS OPINION TO SUSTA IN THE APPLICABILITY OF EXPLANATION 3 TO SECTION 43(1). IN SUPPORT OF SUCH CONTENTION, THE LEARNED COUNSEL RELIED UPON TH E FOLLOWING DECISIONS: 1. ASHWIN VANASPATHI INDUSTRIES V/S. COMMISSIONER , 255 ITR 26 (GUJ.) 2. CHITRA PUBLICOMMISSIONERY CO. PVT. LTD. V/S. COMMISSIONER, [2010] 4 ITR (TRIB.) 738. 30. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON T HE OTHER HAND, SUBMITTED THAT THE MATERIAL ON RECORD S HOWS THAT THE SALE CONSIDERATION FOR TRANSFER OF BUSINESS UND ERTAKING UKM AND UKTV BY SHRI RAMOJI RAO, HUF WAS RS. 787.80 CRO RES WHICH IS NOT DIVISIBLE AND THE PURCHASE PRICE PAYABLE BY THE ASSESSEE WAS SINGLE UNDIVIDED SLUMP SALE CONSIDERATION FOR T HE ENTIRE TV SOFTWARE BUSINESS WITH NO INDEPENDENT VALUES ASSIGN ED TO THE VARIOUS COMPONENTS OF TV SOFTWARE BUSINESS. THE AGR EEMENT INDICATES THAT THE SALE WAS BY WAY OF A SLUMP SALE WITH NO INDEPENDENT VALUE ASSIGNED TO INDIVIDUAL ASSET. THE REFORE, THE VALUE OF RS. 775 CRORES ASSIGNED TO THE SOFTWARE LI BRARY IS WITHOUT ANY MATERIAL OR BASIS. THE LEARNED DEPARTME NTAL REPRESENTATIVE SUBMITTED THAT THE CONTENTION PUT FO RTH BY THE ASSESSEE WITH REGARD TO ACQUISITION OF SOFTWARE LIB RARY TO THE ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 26 EFFECT THAT THE FOREIGN INVESTOR INSISTED ON ASSESS EE OWNING THE SOFTWARE LIBRARY WAS ALSO NOT TENABLE IN VIEW OF TH E FACT THAT THE PURPOSE AND THE CONDITIONS SET BY THE FOREIGN I NVESTOR WAS ALREADY MET AND TRANSACTION TOOK PLACE AS A SLUMP S ALE WITH NO INDEPENDENT VALUE BEING ASSIGNED, THEREFORE, THERE WAS NO NECESSITY OF SPECIFICALLY ASSIGNING THE VALUE OF R S. 775 CRORES TO THE SOFTWARE LIBRARY. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THIS ACT ON THE PART OF THE ASSESSEE INDICATES THAT THE MAIN PURPOSE OF RECORDI NG ASSET WHICH HAD BOOK VALUE OF ABOUT RS. 160 CRORES AT RS. 775 CRORES WAS ONLY TO CLAIM ENHANCED DEPRECIATION, WHICH BRIN GS IT WITHIN THE AMBIT OF EXPLANATION 3 TO SECTION 43(1). THE LE ARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE APPL ICABILITY OF EXPLANATION 3 TO SECTION 43(1) NEVER OCCURRED TO TH E ASSESSING OFFICER NOR HE EXAMINED ITS APPLICABILITY. 31. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMI TTED THAT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND BEFORE COMPLETING ASSESSMENT IS FURTHER PATENT FROM THE FA CT THAT THE ASSESSEE HAD ORIGINALLY CLAIMED DEPRECIATION @ 10% AT RS. 77.50 CRORES WHICH WAS SUBSEQUENTLY CHANGED @ 25% I .E. AT RS. 99 CRORES BY TREATING THE SOFTWARE LIBRARY AS I NTANGIBLE ASSET. THIS ASPECT WAS ALSO NOT EXAMINED BY THE ASS ESSING OFFICER. THE ASSESSING OFFICER ALSO DID NOT EXAMINE WHETHER THE SOFTWARE LIBRARY IS IN THE NATURE OF INTANGIBLE ASS ET AND AT BEST WHETHER IT CAN BE TREATED AS PLANT & MACHINERY, WHI CH IS ELIGIBLE FOR DEPRECIATION @ 15%. THE LEARNED DEPART MENTAL REPRESENTATIVE SUBMITTED THAT THE VALUATION REPORT OF THE SOFTWARE LIBRARY COULD NOT HAVE BEEN EXAMINED BY TH E ASSESSING ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 27 OFFICER WHO COMPLETED THE ASSESSMENT IS REVEALED FR OM THE FACT THAT THOUGH THE VALUATION REPORT WAS SUBMITTED BEFO RE THE PREVIOUS ASSESSING OFFICER WHO INITIATED THE ASSESS MENT PROCEEDINGS, HOWEVER, WHEN THE COMMISSIONER INSPECT ED THE ASSESSMENT RECORD, NO VALUATION REPORT WAS AVAILABL E IN THE FILE. THIS INDICATES THE FACT THAT THE SUBSEQUENT ASSESSI NG OFFICER DID NOT EXAMINE THE VALUATION REPORT AT ALL. THE LEARNE D DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE SUCC EEDING ASSESSING OFFICER HAD ISSUED A NOTICE U/S 142(1) DA TED 04/12/2009 CALLING FOR CERTAIN INFORMATION, WHICH W AS FILED ON 17/10/2009. IN THIS NOTICE ALSO, THE ASSESSING OFFI CER DID NOT DWELL UPON EITHER PROVISIONS OF SECTION 43(1) EXPLA NATION 3 OR WHAT WOULD BE THE APPROPRIATE RATE OF DEPRECIATION I.E. 25% OR 15%. THE ASSESSING OFFICERS QUERY WAS CONFINED TO THE ACQUISITION OF THE BUSINESS AND THE INFORMATION SUB MITTED BY THE ASSESSEE WERE ALSO IN THAT RESPECT. 32. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMI TTED THAT OTHER GLARING INCONSISTENCIES WERE ALSO NOT DE ALT UPON BY THE ASSESSING OFFICER. THE LEARNED DEPARTMENTAL REP RESENTATIVE SUBMITTED THAT THE ASSESSEE CLAIMED DEPRECIATION ON SOFTWARE LIBRARY AT RS. 788 CRORES WHEREAS IT ACQUIRED SOFTW ARE LIBRARY FROM UKM AND UKTV AT RS. 775 CRORES. WHEN THIS ISSU E WAS RAISED BY THE COMMISSIONER IN THE COURSE OF THE REV ISION PROCEEDING, THE ASSESSEE SUBMITTED THAT SOFTWARE OT HER THAN INTANGIBLE ASSET WAS ACQUIRED BY THE ASSESSEE. IT IS APPARENT FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICE R BEFORE ALLOWING DEPRECIATION DID NOT VERIFY THE DETAILS OF PURCHASE OF FILMS BY THE ASSESSEE FROM THE MARKET AND THERE WAS NO ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 28 ENQUIRY BY THE ASSESSING OFFICER IN RESPECT OF FILM S PURCHASED FROM OTHERS. THE LEARNED DEPARTMENTAL REPRESENTATIV E SUBMITTED THAT THE COMMISSIONER HAS POINTED OUT SPE CIFIC INSTANCES OF INCONSISTENCIES AND CONTRADICTIONS IN THE VALUATION REPORT AS MENTIONED IN PARAS 15 & 16 OF HIS ORDER. IT WAS SUBMITTED BY THE LEARNED DEPARTMENTAL REPRESENTATIV E THAT THE FILMS ACQUIRED BY THE ASSESSEE WERE MOSTLY OLD. FIL MS RELEASED AFTER 2000 CONSTITUTED ONLY 12% AND RIGHTS OVER 27% OF FILMS WERE GOING TO EXPIRE ON 31/12/2009. IN SOME CASES T HE ASSESSEE ITSELF HAS WRITTEN OFF CERTAIN COSTS AS SO FTWARE MORE THAN 10 YEARS. HOWEVER, THE VALUER HAD VALUED ALL T HE FILMS BY APPLYING A STRAIGHT JACKET FORMULA WHICH ASPECT WAS NEVER EXAMINED BY THE ASSESSING OFFICER. 33. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMI TTED THAT THE VALUE OF THE SOFTWARE LIBRARY OF RS. 775 C RORES WAS ACCEPTED IN TOTO WITHOUT EVEN UNDERSTANDING THAT THE ENTIRE TRANSACTION OF ACQUIRING THE SOFTWARE LIBRARY WAS T HROUGH A SLUMP SALE WITH NO INDEPENDENT BIFURCATION OF VALUE OF ASSETS. THEREFORE, THE VALUE OF ASSETS WERE ASSIGNED WITH A CLEAR INTENTION OF CLAIMING ENHANCED DEPRECIATION. THE LE ARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT DEPRECIA TION WAS CLAIMED BY THE ASSESSEE ON THE SOFTWARE LIBRARY AT RS. 99 CRORES, WHICH WAS ALLOWED BY THE ASSESSING OFFICER. WHEREAS IF EXPLANATION 3 TO SECTION 43(1) WOULD HAVE BEEN INVO KED, THE ASSESSEE WOULD HAVE BEEN ENTITLED FOR A DEPRECIATIO N OF RS. 20 CRORES. THE LEARNED DEPARTMENTAL REPRESENTATIVE FUR THER SUBMITTED THAT ALL THE TRANSACTIONS WERE BETWEEN RE LATED PARTIES AND IT IS NOT A CASE OF ASSESSEE BUYING OR TAKING O VER THE ASSETS ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 29 FROM TOTALLY INDEPENDENT THIRD PARTIES. THEREFORE, WITHOUT PROPER ENQUIRY AND EXAMINATION THE VALUES ASSIGNED TO THE SOFTWARE LIBRARY BY THE VALUER CANNOT BE CONSIDERED TO BE AT ARMS LENGTH PRICE. THE ASSESSING OFFICER HAVING N OT PROPERLY APPLIED HIS MIND TO ALL THESE FACTS THE ASSESSMENT ORDER PASSED IS CERTAINLY ERRONEOUS AND PREJUDICIAL TO THE INTER ESTS OF THE REVENUE AND THEREFORE THE COMMISSIONER WAS JUSTIFIE D IN SETTING ASIDE THE ASSESSMENT ORDER IN EXERCISE OF POWER U/S 263 OF THE ACT. 34. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS ON RECORD AS WELL AS THE DECISIONS CITED. EXERCISE OF POWER U/S 263 OF THE ACT HAS TO BE MADE ON EXISTENC E OF TWO PRECONDITIONS. THE ORDER SOUGHT TO BE REVISED MUST BE ERRONEOUS AND AT THE SAME TIME, IT MUST BE PREJUDIC IAL TO THE INTERESTS OF THE REVENUE. THE INTENT AND PURPOSE OF THE INCOME- TAX ACT IS TO LEVY AND COLLECT TAX IN ACCORDANCE WI TH THE PROVISIONS OF THE ACT AND THIS TASK HAS BEEN ENTRUS TED TO THE REVENUE. IF DUE TO ERRONEOUS ORDER OF THE ASSESSING OFFICER THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY AN ASSESS EE, THEN, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTERESTS OF T HE REVENUE. 35. THEREFORE, TO ASCERTAIN WHETHER THE ORDER SOU GHT TO BE REVISED U/S 263 IS ERRONEOUS IT HAS TO FALL WITH IN THE FOLLOWING CATEGORY OF ERRORS, WHICH ARE (I) INCORRE CT ASSUMPTION OF FACTS, (II)INCORRECT APPLICATION OF LAW, (III) N ON APPLICATION OF MIND TO SOMETHING WHICH WAS OBVIOUS AND REQUIRED AP PLICATION OF MIND OR (IV) THE FINDING IS BASED ON NO MATERIAL OR INSUFFICIENT MATERIAL SO AS TO EFFECT THE MERITS OF THE CASE AND ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 30 THEREBY CAUSE PREJUDICE TO THE INTEREST OF THE REVE NUE. SECTION 263 OF THE IT ACT, SEEKS TO REMOVE THE PREJUDICE CA USED TO THE REVENUE BY ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. IT EMPOWERS THE COMMISSIONER OF INCOME-TAX TO INITIATE SUO MOTU PROCEEDINGS EITHER WHEN THE ASSESSING OFFICER TAKES A WRONG DECISION WITHOUT CONSIDERING THE MATERIALS AVAILABL E ON RECORD OR HE TAKES A DECISION WITHOUT MAKING AN ENQUIRY IN TO THE MATTER WHERE SUCH ENQUIRY WAS PRIMA-FACIE WARRANTED . THE COMMISSIONER IS WELL WITHIN HIS POWER TO REGARD AN ORDER AS ERRONEOUS ON THE GROUND THAT IN THE CIRCUMSTANCES O F THE CASE THE ASSESSING OFFICER SHOULD HAVE MADE FURTHER ENQU IRIES BEFORE ACCEPTING THE CLAIM MADE BY THE ASSESSEE IN HIS RET URN. THE REASON IS OBVIOUS. UNLIKE THE CIVIL COURT WHICH IS NEUTRAL IN GIVING A DECISION ON THE BASIS OF EVIDENCE PRODUCED BEFORE IT THE ROLE OF AN ASSESSING OFFICER UNDER THE INCOME-T AX ACT IS NOT ONLY AN ADJUDICATOR BUT ALSO AN INVESTIGATOR. HE CA NNOT REMAIN PASSIVE IN THE FACE OF A RETURN, WHICH APPEARS TO B E IN ORDER BUT CALLS FOR FURTHER ENQUIRY. THE ASSESSING OFFICER TH EREFORE MUST DISCHARGE BOTH THE ROLES EFFECTIVELY. IN OTHER WORD S, HE MUST CARRY OUT THE INVESTIGATION WHERE THE FACTS OF THE CASE SO REQUIRE AND ALSO DECIDE THE MATTER JUDICIOUSLY ON T HE BASIS OF MATERIALS COLLECTED BY HIM AS ALSO THOSE PRODUCED B Y THE ASSESSEE BEFORE HIM. 36. THE SCHEME OF ASSESSMENT IN RECENT YEARS HAS UNDERGONE A RADICAL CHANGE. IT DESERVES TO BE NOTED THAT THE ASSESSMENT ORDER IN THE PRESENT CASE WAS MADE U/S 1 43(3) OF THE ACT. AS PER THE SCHEME OF THE ACT THE ASSESSING OFFICER WAS STATUTORILY REQUIRED TO MAKE ASSESSMENT U/S 143(3) AFTER ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 31 SCRUTINY AND NOT IN A SUMMARY MANNER AS CONTEMPLATE D BY SUB- SECTION (1) OF SECTION 143. BULK OF THE RETURNS FIL ED BY THE ASSESSEE ACROSS THE COUNTRY ARE ACCEPTED BY THE DEP ARTMENT U/S 143(1) WITHOUT ANY SCRUTINY. ONLY A FEW CASES A RE PICKED UP FOR SCRUTINY. THE ASSESSING OFFICER IS THEREFORE RE QUIRED TO ACT FAIRLY, JUDICIOUSLY AND DILIGENTLY WHILE ACCEPTING OR REJECTING THE CLAIM OF THE ASSESSEE IN CASES OF SCRUTINY ASSESSME NT. HE SHOULD BE FAIR NOT ONLY TO THE ASSESSEE BUT ALSO TO THE PUBLIC EXCHEQUER. THE ASSESSING OFFICER HAS THE ONEROUS JO B TO PROTECT ON ONE HAND THE INTEREST OF THE ASSESSEE IN THE SEN SE THAT HE IS NOT SUBJECTED TO ANY AMOUNT OF TAX IN EXCESS OF WHA T IS LEGITIMATELY DUE FROM HIM AND ON THE OTHER HAND, HE HAS A DUTY TO PROTECT THE INTERESTS OF THE REVENUE AND TO SEE THAT NO ONE BY ADOPTING A SUBTERFUGE WITH AN INTENTION TO EVADE TAX ESCAPES WITHOUT PAYING THE LEGITIMATE TAX AS PER THE PROVIS IONS OF THE LAW. THE ASSESSING OFFICER IS NOT EXPECTED TO PUT B LINKERS ON HIS EYES AND MECHANICALLY ACCEPT WHATEVER THE ASSESSEE CLAIMS BEFORE HIM. IT IS THE DUTY OF THE ASSESSING OFFICER TO ASCERTAIN THE TRUTH OF THE FACTS STATED AND THE GENUINENESS O F THE CLAIM MADE IN THE RETURN WHEN THE CIRCUMSTANCES OF THE CA SE ARE SUCH AS TO PROVOKE ENQUIRY. ARBITRARINESS IN EITHER ACCE PTING OR REJECTING THE CLAIM HAS TO BE SHUNNED AT ALL COST. THE ORDER PASSED BY THE ASSESSING OFFICER BECOMES ERRONEOUS B ECAUSE AN ENQUIRY HAS NOT BEEN MADE OR GENUINENESS OF THE CLA IM HAS NOT BEEN EXAMINED WHERE THE ENQUIRIES OUGHT TO HAVE BEE N MADE AND THE GENUINENESS OF THE CLAIM OUGHT TO HAVE BEEN EXAMINED AND NOT BECAUSE THERE IS ANYTHING WRONG WITH HIS OR DER IF ALL THE FACTS STATED OR CLAIM MADE THEREIN ARE ASSUMED TO B E CORRECT. IN THIS CATEGORY ALSO FALLS FAILURE ON THE PART OF THE ASSESSING ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 32 OFFICER TO APPLY A PARTICULAR PROVISION OF LAW IF O THERWISE IT IS APPLICABLE. THE COMMISSIONER MAY CONSIDER AN ORDER OF THE ASSESSING OFFICER TO BE ERRONEOUS NOT ONLY WHEN IT CONTAINS SOME APPARENT ERROR OF REASONING OR OF LAW OR OF FA CT ON THE FACE OF IT BUT ALSO WHEN IT IS MECHANICAL OR STEREO TYPED ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS STATED I N HIS RETURN AND FAILS TO MAKE ENQUIRIES OR EXAMINE THE GENUINEN ESS OF THE CLAIM WHICH ARE CALLED FOR IN THE CIRCUMSTANCES OF THE CASE. IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V/S COMMISS IONER, 243 ITR 83 THE HONBLE SUPREME COURT HELD AS UNDER: 7. THERE CAN BE NO DOUBT THAT THE PROVISION CANN OT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE O R ERROR COMMITTED BY THE ASSESSING OFFICER. IT IS ONLY WHE N AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN I NCORRECT ASSUM PTION OF FACTS OR AN INCORRECT APPLICATION OF LAW W ILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN T HE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PR INCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. 37. IT IS WELL SETTLED PRINCIPLE OF LAW THAT WHIL E MAKING ASSESSMENT THE ASSESSING OFFICER ACTS IN A QUASI-JU DICIAL CAPACITY. AN ASSESSMENT ORDER IS AMENABLE TO APPEAL BY THE ASSESSEE AND SUBJECT TO REVISION BY THE COMMISSIONE R OF INCOME-TAX U/S 263 AND 264. THEREFORE, A REASONED O RDER ON A SUBSTANTIAL ISSUE IS LEGALLY NECESSARY. THE RATIO L AID DOWN BY THE HONBLE SUPREME COURT AND DIFFERENT HIGH COURTS AS WELL AS THIS TRIBUNAL, SOME OF WHICH HAVE BEEN CITED BEFORE US BY THE LEARNED COUNSEL FOR THE ASSESSEE ALSO POINTS TO THE SAME DIRECTION. IN ALL THESE DECISIONS IT HAS BEEN HELD THAT ORDERS WHICH ARE SUBVERSIVE OF THE ADMINISTRATION OF THE R EVENUE MUST BE REGARDED AS ERRONEOUS AND PREJUDICIAL TO THE INT ERESTS OF THE ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 33 REVENUE. IF THE ASSESSING OFFICER IS ALLOWED TO MAK E ASSESSMENTS IN AN ARBITRARY MANNER, AS IT APPEARS T O HAVE BEEN DONE IN THE PRESENT CASE THE ADMINISTRATION OF REVE NUE IS BOUND TO SUFFER. IF WITHOUT DISCUSSING THE NATURE OF THE TRANSACTION AND MATERIALS ON RECORD THE ASSESSING OFFICER HAD M ADE CERTAIN ADDITION TO THE INCOME OF THE ASSESSEE THE SAME WOU LD HAVE BEEN CONSIDERED ERRONEOUS BY ANY APPELLATE AUTHORIT Y AS BEING VIOLATING OF PRINCIPLES OF NATURAL JUSTICE WHICH RE QUIRE THAT THE AUTHORITY MUST INDICATE FOR AN ADVERSE ORDER. THERE FORE, THE SAME PRINCIPLE SHOULD ALSO APPLY WHEN AN ORDER IS A GAINST THE INTEREST OF REVENUE. AS A MATTER OF FACT SUCH ORDER S ARE PREJUDICIAL TO THE INTERESTS OF BOTH THE PARTIES BE CAUSE EVEN THE ASSESSEE IS DEPRIVED OF THE BENEFIT OF A POSITIVE F INDING IN HIS FAVOUR THOUGH HE MAY HAVE SUFFICIENTLY ESTABLISHED HIS CASE. THUS, IT CAN SAFELY BE SAID AN ORDER PASSED BY THE ASSESSING OFFICER BECOMES ERRONEOUS AND PREJUDICIAL TO THE IN TERESTS OF THE REVENUE U/S 263 IN FOLLOWING CASES: 1. THE ORDER SOUGHT TO BE REVISED CONTAINS ERROR O F REASONING OR OF LAW OR OF FACT ON THE FACE OF IT. 2. THE ORDER SOUGHT TO BE REVISED PROCEEDS ON INCO RRECT ASSUMPTION OF FACT OR INCORRECT APPLICATION OF LAW. 3. ORDERS PASSED WITHOUT APPLYING THE PRINCIPLE OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. 4. THE ORDER PASSED BY THE ASSESSING OFFICER IS A ST EREO- TYPED ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE STATED IN HIS RETURN OR WHERE HE FAILS TO MAKE THE REQUISITE ENQUIRIES OR EXAMINE THE GENUINENESS OF T HE CLAIM WHICH IS CALLED FOR IN THE CIRCUMSTANCES OF T HE CASE. ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 34 38. THEREFORE APPLYING THE AFORESAID PRINCIPLES W E HAVE TO SEE WHETHER THE ASSESSMENT ORDER IS ERRONEOUS AN D PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ON A P ERUSAL OF THE ORDER PASSED U/S 143(3) WE FIND THAT THERE IS NOT A WHISPER ABOUT THE VALUATION REPORT SUBMITTED BY THE ASSESSE E VALUING THE SOFTWARE LIBRARY AT RS. 775 CRORES. THERE IS NO T EVEN A SINGLE WORD MENTIONED BY THE ASSESSING OFFICER WITH REGARD TO CLAIM OF DEPRECIATION BY THE ASSESSEE ON THE SOFTWA RE LIBRARY. THE ASSESSING OFFICER HAS NOT THOUGHT IT PROPER TO EXAMINE OR ENQUIRE AS TO HOW THE ASSETS HAVING BOOK VALUE OF R S. 160 CRORES WERE ACQUIRED FOR RS. 775 CRORES SIMPLY ON T HE BASIS OF THE VALUATION REPORT SUBMITTED BY M/S ERNST & YOUNG . THE ASSESSING OFFICER HAS ALSO NOT EXAMINED HOW AND UND ER WHAT CIRCUMSTANCES THE ASSESSEE HAS CHANGED ITS STANCE B Y APPLYING THE RATE OF 25% WHILE CLAIMING DEPRECIATION ON THE SOFTWARE LIBRARY BY TREATING IT AS INTANGIBLE ASSET. IT ALSO NEVER CROSSED THE MIND OF ASSESSING OFFICER THAT ACQUISITION OF A SSET OF 160 CRORES AT AN ENHANCED VALUE OF RS. 775 CRORES CANNO T BE ACCEPTED ONLY ON THE BASIS OF THE VALUATION REPORT SUBMITTED BY THE ASSESSEE WITHOUT MAKING A DEEPER PROBE INTO THE MATTER. THE ASSESSING OFFICER ALSO FAILED TO EXAMINE THE AP PLICABILITY OF EXPLANATION 3 TO SECTION 43(1) AS THE CIRCUMSTANCES CLEARLY SUGGEST THE FACT THAT THE INTENTION BEHIND SUCH TRA NSFER OF ASSET MAY PERHAPS BE TO REDUCE THE TAX LIABILITY, BY CLAI MING HIGHER DEPRECIATION. THE COMMISSIONER IN HIS ORDER HAS POI NTED OUT SPECIFIC INCONSISTENCIES, SOME OF WHICH ARE ENUMERA TED HEREUNDER: ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 35 1. AS PER THE BUSINESS TRANSFER AGREEMENT BETWEEN THE ASSESSEE AND SHRI RAMOJI RAO(HUF), THE ENTIRE GOING CONCERNS OF UKM AND UKTV WERE TRANSFERRED TO THE ASSESSEE FOR A SALE CONSIDERATION OF RS. 787,80,67,883/- AS A SINGLE UNDIVIDED SLUMP SALE CONSIDERATION FOR THE ENTIRE TV SOFTWARE BUSINESS WITH NO INDEPENDENT VALUES ASSIGNED TO THE TV SOFTWARE BUSINESS WHEREAS THE ASSESSEE IN ITS BOOKS OF ACCOUNT HAS TAKEN FIXED ASSETS, SUNDRY DEBTORS, INVENTORIES, LOANS AND ADVANCES AND OTHER CURRENT ASSETS AT THE BOOK VALUE AS APPEARING IN THE BOOKS OF ACCOUNT OF SHRI RAMOJI RAO, HUF WHEREAS THE SOFTWARE LIBRARY WAS VALUED AT RS. 775 CRORES WHEN THE ENTIRE NET-WORTH OF BUSINESS UNDERTAKING TRANSFERRED BY SHRI RAMOJI RAO HUF WAS A SUM OF RS. 173,81,74,313/-. 2. THE VALUATION WAS MADE NOT BY THE ASSESSEE BUT AT THE BEHEST OF SHRI RAMOJI RAO, HUF AND IN THE VALUATION REPORT ALSO THE VALUERS MADE IT CLEAR THAT THE VALUATION OF SOFTWARE LIBRARY IS APPLICABLE TO SHRI RAMOJI RAO HUF ONLY AND NOT TO OTHERS. HENCE, THE ASSESSEE COULD HAVE MADE HIS OWN VALUATION OF THE SOFTWARE LIBRARY WITHOUT HAVING TO ACCEPT THE VALUATION MADE AT THE BEHEST OF SHRI RAMOJI RAO HUF. ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 36 3. THE ENTIRE VALUATION REPORT IS ON THE BASIS OF ESTIMATE ONLY. THE VALUER HAS ARRIVED AT THE REVENUE EARNING FROM ADVERTISEMENT ON HYPOTHETICAL BASIS AND ALSO HAS VALUED THE FILMS ON THAT BASIS. 4. THE VALUER HAS ADOPTED DIFFERENT METHODS FOR VALUING THE FILMS IN THE SOFTWARE LIBRARY. 5. THOUGH THE SOFTWARE LIBRARY CONTAINED FILMS 58% OF WHICH WERE RELEASED PRIOR TO 90% AND ONLY 12% WERE RELEASED AFTER 2000, THE VALUATION OF ALL THE FILMS IN THE SOFTWARE LIBRARY HAVE BEEN MADE BY APPLYING AN AVERAGE RATE. THE FILMS WHICH ARE PRETTY OLD CANNOT BE VALUED AT THE SAME RATE AS THE NEW FILMS. SIMILARLY, WITH REGARD TO EARNING OF ADVERTISEMENT REVENUE ALSO INCONSISTENCIES WERE FOUND. 39. ANOTHER CRUCIAL FACTOR NOTICED BY THE COMMISSI ONER WHICH CANNOT BE OVERLOOKED IS THAT THE ASSESSING OF FICER WHO INITIATED ASSESSMENT PROCEEDINGS AND SET INTO MOTIO N THE PROCESS OF ENQUIRY BY CALLING UPON THE ASSESSEE TO PRODUCE INFORMATION AND DOCUMENT AND BEFORE WHOM THE ASSESS EE HAS FILED THE VALUATION REPORT WAS TRANSFERRED DURING T HE CURRENCY OF THE ASSESSMENT PROCEEDINGS AND A NEW ASSESSING OFFI CER JOINED IN HIS PLACE. THE NEW ASSESSING OFFICER AFTER ASSUM ING CHARGE ISSUED A NOTICE TO THE ASSESSEE TO PRODUCE CERTAIN INFORMATION AND DOCUMENT NONE OF WHICH RELATED TO THE VALUATION REPORT OR ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 37 THE VALUATION OF THE SOFTWARE LIBRARY. THE ASSESSIN G OFFICER AFTER RECEIVING THE REPLY FROM THE ASSESSEE IN COMPLIANCE TO HIS LETTER DATED 07/09/2009 COMPLETED THE ASSESSMENT. ON PERUS AL OF ASSESSMENT RECORD, THE COMMISSIONER FOUND THAT THE VALUATION REPORT OF M/S ERNST & YOUNG WAS NOT AVAILABLE IN TH E ASSESSMENT RECORD. 40. IT IS QUITE EVIDENT THAT THE ASSESSING OFFICE R HAS NOT MENTIONED A SINGLE WORD ABOUT THE VALUATION REPORT OR THE AUTHENTICITY OF THE VALUATION MADE OF THE SOFTWARE LIBRARY IN THE ASSESSMENT ORDER. NEITHER ANY RECORDING IN THIS REG ARD HAS BEEN MADE BY HIM IN THE ORDER SHEET. THEREFORE, NON - AVAILABILITY OF THE VALUATION REPORT IN THE ASSESSM ENT RECORD COUPLED WITH THE FACT THAT THE ASSESSING OFFICER HA S FAILED TO MENTION ANYTHING ABOUT IT EITHER IN THE ASSESSMENT ORDER OR IN THE ORDER SHEET VINDICATE THE CONCLUSION ARRIVED BY THE COMMISSIONER THAT THE ASSESSING OFFICER HAS NOT AT ALL CONSIDERED THE VALUATION REPORT FOR VERIFYING THE G ENUINENESS OR AUTHENTICITY OF THE VALUATION OF SOFTWARE LIBRARY M ADE AT RS.775 CRORES. THE VALUATION MADE AT RS. 775 CRORES ASSUME S IMPORTANCE AND CALLS FOR A THOROUGH PROBE AND VERIF ICATION BECAUSE OF THE FACT THAT THE BOOK VALUE OF THE SAME ASSET WERE SHOWN AT RS. 160 CRORES AND THE TRANSACTIONS WERE B ETWEEN RELATED PARTIES. THEREFORE, THE ASSESSING OFFICER S HOULD HAVE BEEN MORE CIRCUMSPECT AND SHOULD HAVE EXAMINED THE GENUINENESS OF THE CLAIM I.E. VALUATION OF THE SOFT WARE LIBRARY TO FIND OUT WHETHER THE PRICE IS AT ARMS LENGTH OR NOT. ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 38 41. FROM THE ASSESSMENT ORDER IT IS VERY MUCH APP ARENT THAT THE ASSESSING OFFICER HAS NOT UNDERTAKEN THE E XERCISE WITH THE EARNESTNESS IN WHICH HE IS REQUIRED TO DO IT. T HE ASSESSING OFFICER HAS NOT AT ALL EXAMINED ANY ONE OF THE ISSU ES POINTED OUT BY THE COMMISSIONER IN HIS ORDER THOUGH THEY AR E VERY MUCH GERMANE FOR MAKING A VALID ASSESSMENT. THE ENT IRE ASSESSMENT ORDER HAS BEEN PASSED IN A MECHANICAL MA NNER WITHOUT PROPERLY APPRECIATING THE FACTS AND MATERIA LS ON RECORD. THE ASSESSMENT ORDER NOT ONLY REVEALS LACK OF ENQUI RY BUT ALSO DEMONSTRATES COMPLETE NON APPLICATION OF MIND BY TH E ASSESSING OFFICER. THE ASSESSING OFFICER HAS ALSO F AILED TO EXAMINE WHETHER THE TRANSACTION ATTRACTS THE PROVIS IONS CONTAINED TO EXPLANATION 3 TO SECTION 43(1). APPL ICABILITY OF EXPLANATION (3) TO S.43(1) ASSUMES IMPORTANCE CONSI DERING THE FACT THAT ASSETS HAVING BOOK VALUE OF RS.160 CRORES WERE VALUED AT RS.775 CRORES, THAT TOO AT THE INSTANCE OF THE S ELLER, AND ALSO CONSIDERING THE FACT THAT THE TRANSACTION IS BETWEE N CLOSELY RELATED PARTIES. THE DECISIONS RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD IN THE CASE OF ASHWIN VANASPATHI INDUSTRIES (SUPRA) AND CH ITRA PUBLICITY CO. P. LTD. V/S. ACIT (SUPRA), ARE FACTUA LLY DISTINGUISHABLE, IN VIEW OF THE FACT THAT IN THE PR ESENT CASE, THE ASSESSING OFFICER HAS NOT AT ALL CONSIDERED THE APP LICABILITY OF EXPLANATION (3) TO S.43(1) OF THE ACT. NONE OF THE INCONSISTENCIES IN THE VALUATION REPORT POINTED OUT BY THE COMMISSIONER OF INCOME-TAX AND THE OTHER ISSUES RAI SED BY THE COMMISSIONER APPEAR TO HAVE BEEN EXAMINED OR ENQUIR ED INTO BY THE ASSESSING OFFICER WHO COMPLETED THE ASSESSME NT, FOR WHICH THE OBVIOUS REASON MAY BE THAT THE INCUMBENT ASSESSING ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 39 OFFICER NEVER GOT AN OPPORTUNITY TO EXAMINE OR VERI FY THE VALUATION REPORT STATED TO HAVE BEEN SUBMITTED BY T HE ASSESSEE BEFORE THE EARLIER ASSESSING OFFICER, BUT WHICH WAS NOT AVAILABLE IN THE ASSESSMENT RECORD AT THE RELEVANT POINT OF TIME WHEN THE IMPUGNED ASSESSMENT WAS FRAMED. IN VIEW OF THE INCONSISTENCIES POINTED OUT BY THE COMMISSIONER OF INCOME-TAX, THE VALUATION REPORT SUBMITTED BY THE ASSESSEE CANN OT BE CONSIDERED TO BE SACROSANCT WITHOUT TESTING OR VERI FYING THE AUTHENTICITY OF THE VALUE ARRIVED THEREIN. IN THE VALUATION REPORT, VALUE OF THE SOFTWARE LIBRARY HAS BEEN RECO MMENDED TO BE BETWEEN RS.746.41 CRORES AND RS.814.27 CRORES, W HICH SUGGESTS THAT THE VALUATION HAS BEEN MADE BY ESTIMA TION, AS THE VALUER WAS NOT SURE AS TO WHAT WOULD BE THE EXA CT VALUE OF THE ASSET IN QUESTION, VIZ. SOFTWARE LIBRARY. THIS ITSELF CONSTITUTES A VALID REASON TO JUSTIFY RE-VALUATION OF THIS ASSET, BY BRINGING FURTHER CORROBORATIVE EVIDENCE, SO AS T O ARRIVE AT THE CORRECT VALUE. THIS APART, NON-CONSIDERATION OF VARIOUS ISSUES, DISCUSSED ABOVE, HAS RENDERED THE IMPUGNED ASSESSMENT ORDER ERRONEOUS AND ALSO CAUSED PREJUDIC E TO THE INTERESTS OF THE REVENUE. THEREFORE, IN OUR VIEW, T HE COMMISSIONER WAS WELL WITHIN HIS JURISDICTION WHILE EXERCISING HIS POWERS U/S 263 OF THE ACT AND SETTING ASIDE THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT. 42. THE FURTHER CONTENTION OF THE LEARNED AUTHOR ISED REPRESENTATIVE FOR THE ASSESSEE THAT THE COMMISSION ER OF INCOME-TAX CANNOT ISSUE A SECOND SHOW CAUSE NOTICE IS ALSO NOT ACCEPTABLE, IN VIEW OF THE FACT THAT THE ISSUANCE O F SECOND SHOW CAUSE NOTICE BECAME NECESSARY, AS THE VALUATION REP ORT WAS NOT ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 40 AVAILABLE IN THE ASSESSMENT RECORD AND ONLY AFTER CALLING FOR THE VALUATION REPORT AND EXAMINING IT, THE COMMISSI ONER OF INCOME-TAX COULD FIND OUT THE INCONSISTENCIES THERE IN, AND HENCE, ISSUED THE NOTICE TO THE ASSESSEE IN COMPLIA NCE WITH THE PRINCIPLES OF NATURAL JUSTICE, SO AS TO GIVE AN OPP ORTUNITY TO THE ASSESSEE TO EXPLAIN THE POSITION IN THE LIGHT OF TH E INCONSISTENCIES POINTED OUT. THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THAT IN SUBSEQUENT ASSESSMENT YEAR ALSO THE ASSESSING OFFICER HAS NOT QUESTIONED THE VALUATION OF SOFTWARE LIBRARY, EVEN AFTER INITI ATION OF REVISIONARY PROCEEDINGS FOR THE YEAR UNDER CONSIDER ATION; AND THE FURTHER CONTENTION THAT THE PURCHASE CONSIDERAT ION OF THE SOFTWARE LIBRARY HAS BEEN TREATED AS CAPITAL GAINS IN THE HANDS OF SHRI RAMOJI RAO HUF, DO NOT CONCLUSIVELY ESTABLI SH THE AUTHENTICITY OF THE VALUATION OF SOFTWARE LIBRARY, NOR CURTAIL THE POWER OF THE COMMISSIONER OF INCOME-TAX IN EXERCISI NG THE JURISDICTION UNDER S.263 OF THE ACT. 43. THE COMMISSIONER HAS ALSO ACTED IN A JUST AND FAIR MANNER WHILE DIRECTING THE ASSESSING OFFICER TO ASC ERTAIN THE VALUE OF SOFTWARE LIBRARY BY TAKING ASSISTANCE OF A N EXPERT AND ALSO EXAMINE THE APPLICABILITY OF PROVISIONS OF SEC TION 43(1) READ WITH EXPLANATION 3 THEREUNDER AND AT THE SAME TIME, THE COMMISSIONER HAS ALSO AFFORDED AN OPPORTUNITY TO AS SESSEE TO FURNISH ANY OTHER EVIDENCE OR ANOTHER VALUATION REP ORT FOR ESTABLISHING THAT THE PRICE PAID FOR ACQUISITION OF SOFTWARE LIBRARY IS THE MARKET PRICE ON THE DATE OF ACQUISIT ION. IN OUR VIEW, SUCH A DIRECTION BY THE COMMISSIONER IS JUST AND ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 41 REASONABLE, BESIDES BEING MOST APPROPRIATE, CONSIDE RING THE FACTS OF THE CASE. 44. THE DECISIONS IN THE CASE OF ALA FIRM (SUPRA) AND CIT V/S. KELVINATOR OF INDIA LTD. (SUPRA) AND CIT V /S. EICHER LTD. (SUPRA) ARE ON THE ISSUE OF LEGALITY AND VALID ITY OF REOPENING OF ASSESSMENT, AND NOT SPECIFICALLY ON TH E ISSUE OF EXERCISE OF JURISDICTION UNDER S.263 OF THE ACT. T HE SCOPE OF RE-ASSESSMENT UNDER S.147/148 AND THE SCOPE OF REVI SION UNDER S.263 ARE DIFFERENT AND THEY OPERATE IN DIFFERENT F IELDS. WHILE PROCEEDINGS UNDER S.147/148 ARE INITIATED BY AN ASS ESSING OFFICER, VIZ. ASSESSING OFFICER ITSELF, TO BRING TO TAX THE INCOME, WHICH HE HAS REASON TO BELIEVE HAS ESCAPED ASSESSME NT EARLIER, THE PROCEEDINGS UNDER S.263 ARE INITIATED BY THE CO MMISSIONER OF INCOME-TAX AN AUTHORITY HIGHER TO THE ASSESSING OFFICER- IN EXERCISE OF HIS SUPERVISORY POWERS, TO REVISE THE O RDERS OF ASSESSMENT, ETC., WHICH ACCORDING TO HIM ARE ERRONE OUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. AS SUCH, THE CONDITIONS TO BE FULFILLED FOR INVOKING THOSE PROVISIONS ARE A LSO DIFFERENT. SO FAR AS THE OTHER DECISIONS RELIED UPON BY THE LE ARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE ARE CONC ERNED, THERE IS NO QUARREL WITH THE RATIO LAID DOWN IN THO SE DECISIONS, BUT THE PECULIAR FACTS AND CIRCUMSTANCES INVOLVED I N THE PRESENT CASE, DISCUSSED ABOVE, RENDER THE RATIO LAID DOWN I N THOSE CASES INAPPLICABLE TO THE FACTS OF THE PRESENT CASE . 45. CONSIDERING TOTALITY OF FACTS AND CIRCUMSTANC ES OF THE PRESENT CASE, AFTER PERUSING THE MATERIALS ON RECOR D AND THE ORDER THE PASSED BY THE COMMISSIONER U/S 263 AS WEL L AS THE ITA NO. 765/HYD/12 USHODAYA ENTERPRISES PVT. LTD 42 ASSESSMENT ORDER PASSED U/S 143(3), WE ARE CONVINCE D THAT THE ASSESSING OFFICER HAS PASSED THE ASSESSMENT ORDER W ITHOUT MAKING PROPER ENQUIRY AND WITHOUT APPLICATION OF MI ND AS HE HAS FAILED TO CONSIDER THE AUTHENTICITY OF THE VALU ATION OF THE SOFTWARE LIBRARY AT RS. 775 CRORES WITH REFERENCE T O THE VALUATION REPORT AS WELL AS HE HAS FAILED TO EXAMIN E THE APPLICABILITY OF PROVISIONS CONTAINED IN EXPLANATIO N 3 TO SECTION 43(1) OF THE ACT. IN SUCH VIEW OF THE MATTER, THE ASSESSMENT ORDER PASSED IS ERRONEOUS AND PREJUDICIAL TO THE IN TERESTS OF THE REVENUE AND THEREFORE LIABLE TO BE SET ASIDE U/S 26 3 OF THE ACT. ACCORDINGLY, WE SUSTAIN THE ORDER OF THE COMMISSION ER PASSED U/S 263 OF THE ACT. 46. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMI SSED. ORDER PRONOUNCED IN THE COURT ON 22 ND FEBRUARY, 2013. SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED. 22 ND FEBRUARY, 2013. KV/BVS COPY FORWARDED TO: 1. M/S USHODAYA ENTERPRISES PVT. LTD., 6 - 3 - 57 - , EENADU COMPLEX, SOMAJIGUDA, HYDERABAD. 2. ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE 16(2), HYDERABAD. 3. COMMISSIONER OF INCOME - TAX - IV, HYDERABAD 4. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD.