M/s. Eveready Industries India Ltd., Kolkata V. Pr.CIT-4, Kolkata

ITA 805/KOL/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1564 (ITAT-KOLKATA)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-10-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 16-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: DILIP S DAMLE
• Keywords: Sale consideration of property below Jantri Value; Business income; Depreciation; Transfer pricing; Search and seizure; Opportunity of being heard; Principle of natural justice; International transaction; Period of limitation; Fair market value; Valuation report; Assessment record; Revenue expenditure; Capital expenditure; TDS; Set aside; Capital Gains
• Section: 143(3); 50C; 142(1); 92E; 14A; 37(1); 201; 80IC; 143(2); 208; 44AB; 113; 80IC; 48; 2(A); 13; 32; 263

Judgement Text

1 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 , A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA ( ) . . , . ' # $% % , '( ) [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] ITA NO.805 /KOL/2019 ASSESSMENT YEAR: 2014-15 EVEREADY INDUSTRIES INDIA LTD. (PAN: AAACE5778N) VS. PRINCIPAL COMMISSIONER OF INCOME-TAX, KOLKAT-4, KOLKATA. APPELLANT RESPONDENT DATE OF HEARING 22.10.2019 DATE OF PRONOUNCEMENT 13.12.2019 FOR THE APPELLANT SHRI DILIP S. DAMLE, FCA FOR THE RESPONDENT DR. P. K. SRIHARI, CIT, DR ORDER PER SHRI A.T.VARKEY, JM THIS APPEAL PREFERRED BY THE ASSESSEE IS AGAINST TH E REVISION ORDER OF THE LD. PR. CIT- 4, KOLKATA DATED 26.02.2019 FOR AY 2014-15. 2. IN THE MEMORANDUM OF APPEAL THE ASSESSEE HAS RAI SED THE FOLLOWING GROUNDS OF APPEAL: 1) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE PRINCIPAL COMMISSIONER OF INCOME TAX (THE CIT) WAS UNJUSTIFIED IN LAW AND ON FACTS IN EXERCISING HIS REVISIONAL JURISDICTION U/S. 263 OF THE INCOME TAX ACT FOR SET TING ASIDE THE ASSESSMENT ORDER IN RESPECT OF THE ISSUES SET OUT IN THE SCN EVEN THOUGH THE ASSES SMENT ORDER WITH REGARD TO THOSE ISSUES WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST O F THE REVENUE. 2) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT WAS UNJUSTIFIED IN SETTING ASIDE THE ASSESSMENT ORDER IN EXERCISE OF HIS POWER S U/S 263 WITH RESPECT TO ISSUES SET OUT IN THE SCN WITHOUT DEALING ON MERITS WITH THE SUBMISSI ONS MADE BEFORE HIM WHICH PROVED THAT THE ASSESSMENT ORDER U/S. 143(3) FOR THE A.Y. 2014- 15 WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE AND FURTHER THE CIT HIM SELF HAVING NOT RECORDED ANY SPECIFIC FINDING AS TO IN WHAT MANNER HE FOUND THE AO'S ORDE R TO BE ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE; HE WAS NOT JUSTIFIED IN SETTING IT ASIDE AND DIRECTING AO TO PASS THE ORDER AFRESH. 3) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT ERRED IN CONSIDERING THE ASSESSMENT TO BE ERRONEOUS ON ACCOUNT OF ALLEGED MI SMATCH IN TURNOVER EVEN THOUGH BOTH BEFORE THE AO AS WELL AS BEFORE THE CIT COGENT EXPL ANATIONS WERE FURNISHED EXPLAINING THAT THERE WAS NO ALLEGED MISMATCH FOR WHICH THE ASSESSM ENT ORDER U/S 143(3) COULD BE HELD TO BE ERRONEOUS & PREJUDICIAL TO THE REVENUE'S INTEREST. 2 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 4) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, FOR THE REASONS SET OUT IN PARA 2(A) OF THE SCN, THE CIT WAS UNJUSTIFIED IN TREATIN G THE ASSESSMENT ORDER TO BE ERRONEOUS WITHOUT ESTABLISHING IN ANY SPECIFIC MANNER IN WHIC H HE FOUND THAT THE ASSESSMENT ORDER WAS ERRONEOUS FOR ALLEGED MISMATCH IN TURNOVER. 5) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT WAS UNJUSTIFIED IN LAW AND ON FACTS IN CONSIDERING THE ASSESSMENT ORDER TO BE ERRONEOUS FOR THE REASONS SET OUT IN PARA 2(B) OF THE SCN WITHOUT IN ANY MANNER PROVING AS TO HOW FOR NOT MAKING REFERENCE TO THE TRANSFER PRICING OFFICER RESULTED IN THE ORDER PASS ED U/S. 143(3) TO BE ERRONEOUS CAUSING PREJUDICE TO THE INTEREST OF THE REVENUE. 6) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT FAILED TO APPRECIATE AND UNDERSTAND THAT IN THE COURSE OF ASSESSMENT PROCEED INGS; THE AO HAD SPECIFICALLY CONSIDERED THE ISSUE OF MAKING REFERENCE TO THE TPO FROM THE P ERSPECTIVE OF INSTRUCTION NO.3 OF 2016 AND HAVING FOUND THAT SUCH REFERENCE WAS NOT MANDATORY IN TERMS OF THE SAID CBDT INSTRUCTIONS PROCEEDED TO COMPLETE THE ASSESSMENT AND IN THAT VI EW OF THE MATTER THE CIT COULD NOT CONSIDER THE ASSESSMENT ORDER U/S 143(3) TO BE ERRO NEOUS FOR THE PURPOSES OF SEC.263 OF THE ACT. 7) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE AO HAVING APPLIED HIS MIND JUDICIOUSLY TO THE APPELLANT'S CASE AS ALSO TO CBDT INSTRUCTION ISSUED IN 2016 AND THEREAFTER HAVING TAKEN ONE OF THE PERMISSIBLE COURSE IN LAW T HE CIT COULD NOT CONSIDER THE ASSESSMENT TO BE ERRONEOUS WITHIN THE PARAMETERS OF SEC. 263 OF T HE ACT. 8) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT WAS UNJUSTIFIED IN LAW IN CONSIDERING THE ASSESSMENT ORDER TO BE ERRONEOUS FO R THE REASONS SET OUT IN PARA 2(C) OF THE SCN AND FOR NOT MAKING THE DISALLOWANCE U/S 14A OF THE ACT. 9) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE APPELLANT HAVING NOT EARNED ANY TAX-FREE DIVIDEND DURING THE RELEVANT YEAR FOR WHICH THE AO REFRAINED FROM MAKING DISALLOWANCE U/S 14A AND IN THAT REGARD HAVING FOLL OWED THE JUDICIAL PRECEDENTS AVAILABLE ON THE SUBJECT, THE CIT WAS UNJUSTIFIED IN LAW IN CONS IDERING THE ASSESSMENT TO BE ERRONEOUS FOR THE PURPOSE OF SEC. 263 OF THE ACT. 10) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT WAS UNJUSTIFIED IN LAW IN CONSIDERING THE ASSESSMENT ORDER TO BE ERRONEOUS FOR THE REASONS SET OUT IN PARA 2(D) OF THE SCN, BUT FAILED TO APPRECIATE THE FACTS OF THE APPE LLANT'S CASE AND APPLICABLE LEGAL PROVISION GOVERNING SALE OF FACTORY BUILDING WHICH DID NOT RE QUIRE EXECUTION OF CONVEYANCE. 11) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT FAILED TO UNDERSTAND THAT AS PER THE APPLICABLE LEGAL PROVISION SALE OF FACTORY BUILDING DID NOT REQUIRE EXECUTION OF REGISTERED SALE DEED, REQUIRING STAMP DUTY PAYMENT AND FURTHER THERE BEING NO MATERIAL BROUGHT ON RECORD WHICH PROVED THAT STAMP DUTY VALU E OF THE FACTORY BUILDING WAS HIGHER THAN THE DECLARED SALE CONSIDERATION THE CIT WAS UNJUSTI FIED IN CONSIDERING THE ASSESSMENT ORDER TO BE ERRONEOUS ON THE ISSUE OF NOT MAKING REFERENCE T O THE REGISTERED VALUER FOR DETERMINING VALUE OF FACTORY BUILDING. 12) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT WAS UNJUSTIFIED IN CONSIDERING THE ASSESSMENT ORDER TO BE ERRONEOUS FO R NOT REFERRING THE VALUATION OF THE BUILDING AND ASSETS SITUATED THEREIN TO THE REGISTE RED VALUER EVEN THOUGH THERE WAS NO STATUTORY PROVISION IN TERMS OF WHICH THE REFERENCE WAS PERMISSIBLE TO THE REGISTERED VALUER BY THE AO. 13) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT WAS UNJUSTIFIED IN LAW AND ON FACTS IN CONSIDERING THE ASSESSMENT ORDER TO BE ERRONEOUS FOR, REASONS SET OUT IN PARA 2(E) OF THE SCN, NOT ADDING BACK SUM OF RS.42,93,04 9/- BEING VALUE OF FIXED ASSETS WRITTEN OFF EVEN THOUGH NO DEDUCTION FOR SUCH AMOUNT WAS ALLOWE D BY THE AO IN THE ORDER U/S. 143(3). 3 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 14) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT ERRED IN LAW IN TREATING THE ASSESSMENT ORDER TO BE ERRONEOUS FOR REASON SET OUT IN PARA 2(F) OF THE SCN THAT THE DEDUCTION U/S 80IC OF THE ACT WAS ALLOWED AGAINST I NCOME FROM OTHER SOURCES AND RATIONALE BEHIND SUCH CLAIM WAS NOT EXAMINED BY THE AO. 15) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT'S ORDER ON THIS ISSUE IS BEREFT OF ANY MERIT IN AS MUCH AS THE CIT HAS NOT B EEN ABLE TO ESTABLISH ANY FACTUAL OR LEGAL INFIRMITY IN THE AO'S ACTION OF ALLOWING DEDUCTION U/S 80IC AND HOLDING THE ASSESSMENT ORDER TO BE ERRONEOUS FROM ALLEGED NON APPLICATION OF MIN D. 16) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEGAL POSITION WITH REGARD TO ALLOWABILITY OF DEDUCTIONS UNDER CHAPTER - VIA OUT OF GROSS TOTAL INCOME HAVING BEEN CRYSTALLISED THROUGH VARIOUS JUDICIAL PRECEDENTS AN D THE AO HAVING ALLOWED THE DEDUCTION UNDER SECTION 80IC OUT OF THE GROSS TOTAL INCOME TH E CIT WAS UNJUSTIFIED IN LAW IN SETTING ASIDE THE ASSESSMENT FOR THE REASONS SET OUT IN PAR A 2(F) OF THE SCN. 17) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT WAS UNJUSTIFIED M LAW AND ON FACTS IN CONSIDERING THE ASSESSMENT ORDER TO BE ERRONEOUS FOR THE REASONS SET OUT IN PARA 2(G) OF THE SCN WITHOUT IN ANY MANNER PROVING THAT THE ASSESSMENT ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE FOR THE SAID REASONS. 18) FOR THAT THE APPELLANT CRAVES LEAVE TO FILE ADD ITIONAL GROUNDS AND/OR AMEND OR ALTER THE GROUNDS ALREADY TAKEN EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3. BRIEF FACTS OF THE CASE ARE THAT FOR THE AY 2014 -15 THE ASSESSEE HAD FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 12,10,19,584/- . LATER THE CASE WAS SELECTED FOR SCRUTINY THROUGH CASS ON THE FOLLOWING PARAMETERS: 1. LARGE DEDUCTION CLAIMED UNDER CHAPTER VI A 2. LARGE REFUND CLAIMED OUT OF ADVANCE TAX 3. HIGH RATIO OF REFUND TO TDS 4. LARGE OTHER EXPENSES CLAIMED IN THE PROFIT & LOSS A /C 5. LARGE ANY OTHER DEDUCTION CLAIMED IN SUCH BP CREATI NG A LOSS WITHOUT ANY INCOME IN PROFIT & LOSS A/C 6. DEPRECIATION CLAIMED AT HIGHER RATES/HIGHER ADDITIO NAL DEPRECIATION CLAIMED 7. LARGE VALUE SALE OF CONSIDERATION OF PROPERTY IN IT R IS LESS THAN SALE CONSIDERATION OF PROPERTY REPORTED IN TDS RETURN UNDER SECTION 194IA 8. MISMATCH IN SALES TURNOVER REPORTED IN AUDIT REPORT AND ITR 9. MISMATCH IN AMOUNT PAID TO RELATED PERSONS U/S 40A( 2)(B) REPORTED IN AUDIT REPORT AND ITR 4. AFTER CONDUCTING ENQUIRIES WITH REFERENCE TO THE FOREGOING ISSUES AND AFTER VERIFICATION OF DETAILS FURNISHED BY THE ASSESSEE T HE AO COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT ON 29.12.2016 AT A TOTAL INCOME OF RS.12 ,15,42,352/-. SUBSEQUENT TO COMPLETION 4 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 OF THE ASSESSMENT, THE PR. CIT ISSUED TWO IDENTICAL LY WORDED SHOW CAUSE NOTICES (HEREINAFTER SCN) U/S 263 OF THE ACT DATED 16.05.2017 AND 19.0 7.2017 PROPOSING TO INTERFERE WITH THE ASSESSMENT ORDER SINCE HE FOUND FAULT WITH THE AOS ORDER DATED 29.12.2016 FOR THE FOLLOWING REASONS : SUBSEQUENTLY, THE ASSESSMENT RECORDS OF THE ASSESS E WERE CALLED FOR & ON THE BASIS OF THE VERIFICATIO N OF THE MATERIAL AVAILABLE ON RECORDS, IT WAS FOUND THAT THE ORDER OF ASSESSMENT WAS ERRONEOUS SO FAR A S IT IS PREJUDICIAL TO THE INTEREST OF REVENUE ON THE FOLLOWING GROUNDS:- (A) ONE OF THE REASONS FOR SELECTION OF SCRUTINY WAS M ISMATCH IN TURNOVER. IT IS NOTICED FROM REPLY OF ASSESSE DATED 16-12-2016 THAT RECEIPTS AGAINST DEDU CTION OF TDS WAS DISCLOSED AT RS.9.72 CRS. HOWEVER, AS PER ACCOUNTS THERE WERE THREE CATEGORI ES OF REVENUE EARNED BY THE ASSESSE E DURING THE YEAR VIZ. (I) SALES OF PRODUCTS (SCH. 18A OF P&L AC COUNT), (II) SALES OF SCRAP (SCH. 18B OF P&L ACCOUNT), AND (III) OTHER INCOME (SCH. 19 OF P&L AC COUNT). HENCE, INCIDENCE OF TDS CAN APPLY ONLY TO OTHER INCOME, WHICH AS PER THE ACCOUNTS WAS TO T HE TUNE OF RS. 8.40 CRORES (RS. 873.53L LESS FOREIGN EXCHANGE GAIN OF RS. 33.82L). THUS, EVEN IF TDS WAS DEDUCTED ON ENTIRE OTHER INCOME, THERE WAS A SHORT CREDIT INCOME. THE SAME WAS NOT PROPERL Y VERIFIED BY THE A.O. (B) ONE OF THE REASONS FOR SELECTION OF SCRUTINY WAS MI SMATCH IN AMOUNT PAID TO RELATED PERSONS U/S 40A (2) (B) REPORTED IN AUDIT REPORT (FORM 3CEB) AND IT R. HOWEVER, THE CASE WAS NOT REFERRED TO TPO. AS PER PARA 3.2 OF CBDTS. INSTRUCTION NO. 3 OF 201 6, THE INSTANT CASE HAD TO BE MANDATORILY REFERRED TO THE TPO (THE TRANSFER PRICING OFFICER) BY THE A.O AFTER OBTAINING THE APPROVAL OF PRINCIPLE CIT. HOWEVER, THE A.O HAS COMPLETED ASSES SMENT U/S 143(3) OF THE ACT ON 29-12-2016 WITHOUT REFERRING THE MATTER TO TRANSFER PRICING OF FICER. (C) DISALLOWANCE U/S 14A OF THE ACT WAS NOT MADE BY THE A.O KEEPING IN VIEW THE CIRCULAR NO. 5/2014 (F.NO. 225/182/2013-ITA.II) DATED 11-02-2014 AS WEL L AS PROVISIONS LAID DOWN IN THE ACT. (D) IT IS SEEN FROM CLAUSE 17 OF TAR THAT THE ASSESSE D ID NOT TAKE VALUATION OF PROPERLY SOLD AS PER PROVISIONS OF SECTION 50C OF THE ACT. HOWEVER, LARG E VALUE SALE OF CONSIDERATION OF PROPERTY REPORTED IN TDS RETURN UNDER SECTION 194IA WAS ONE OF THE CR ITERIA FOR SELECTION OF THE CASE IN SCRUTINY. THE SAME WAS NOT PROPERLY VERIFIED BY THE A.O. (E) IT IS FURTHER SEEN THAT WRITE OFF OF FIXED ASSET OF RS. 42,93,049/- AS PER CLAUSE 21(A) OF TAR WAS NOT ADDED BACK BY THE A.O DURING THE COURSE OF ASSESSME NT. (F) IT IS SEEN THAT THE ASSESSE CLAIMED DEDUCTION U/S 8 01C OF THE ACT ON INCOME FROM OTHER SOURCES AMOUNTING TO RS. 34, 61,750/-. RATIONALE BEHIND SUC H CLAIM WAS NOT VERIFIED BY THE A.O DURING THE COURSE OF ASSESSMENT PROCEEDINGS. (G) ONE OF THE CRITERIA FOR SELECTION IN SCRUTINY WAS L ARGE OTHER EXPENSES IN P&L ACCOUNT, EVEN HEAD- WISE BREAK UP OF MISCELLANEOUS EXPENSES OF RS. 21.5 6 CRORES WAS NOT CALLED FOR BY THE A.O. 5. IN RESPONSE TO THE LATER SCN, THE ASSESSEE SUBMI TTED ITS REPLY DATED 29.08.2017 ALONG WITH SEVERAL DOCUMENTS IN SUPPORT OF ITS AVERMENTS AND WHICH WAS MADE AVAILABLE TO US AT PAGES 3 TO 79 OF THE PAPER BOOK. ALTHOUGH EXPLANATI ONS WERE FURNISHED IN AUGUST 2017, THE LD. PR. CIT PASSED THE IMPUGNED ORDER ONLY ON 26/02 /2019, WHEREIN HE HELD THE AOS ORDER 5 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 TO BE ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTERESTS OF THE REVENUE WITH REFERENCE TO ALL THE ISSUES SET OUT IN CLAUSES (A) TO (G) OF SCN. IN THE IMPUGNED ORDER, THE LD. PR. CIT SET ASIDE THE AOS ORDER WITH RESPECT TO ALL THE SE VEN POINTS INTER ALIA DIRECTING AO TO MAKE A REFERENCE TO THE TPO, AFTER OBTAINING THE APPROVA L OF THE LD. PR. CIT, IF CONSIDERED NECESSARY. AGGRIEVED BY THE ORDER OF THE LD. PR. CI T THE ASSESSEE IS NOW BEFORE US CHALLENGING THE EXERCISE OF REVISIONARY JURISDICTIO N BY THE PR. CIT U/S 263 OF THE ACT. 6. ASSAILING THE DECISION OF THE LD. PR. CIT, TO EX ERCISE HIS POWER OF REVISION THROUGH GROUND NOS. 1 & 2, THE LD. AR, SH. DILIP S DAMLE AR GUED THAT THE ASSUMPTION OF JURISDICTION BY THE LD. PR. CIT AND CONSEQUENT ORDE R PASSED U/S 263 OF THE ACT WAS BAD IN LAW BECAUSE THE CONDITIONS PRECEDENT FOR INVOKING T HE REVISIONARY JURISDICTION WERE NEVER SATISFIED. IT WAS ARGUED THAT THE LD. PR. CIT EXERC ISED HIS POWER AND THE JURISDICTION MECHANICALLY AND WITHOUT PROVING THAT THE AOS ORDE R WAS IN FACT ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR THE REASONS SET OUT IN THE SCN. HE FURTHER CONTENDED THAT THE LD. PR. CIT HAD CONSIDERED THE O RDER TO BE ERRONEOUS FOR REASONS SPECIFIED IN THE SCN BUT WHEN THE ASSESSEE HAD PLAC ED BEFORE HIM ITS EXPLANATIONS, SUPPORTED BY REQUISITE EVIDENCE TO PROVE THAT THE O RDER WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE LD. PR. CIT FA ILED TO RECORD HIS INDEPENDENT FINDING TO SHOW THAT THE AOS ORDER WAS IN FACT ERRONEOUS AS W ELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. RATHER, THE LD. PR. CIT MERELY SET ASIDE T HE AOS ORDER AND DIRECTED HIM TO FRAME THE ASSESSMENT AFRESH. 7. ON THE OTHER HAND, THE LD. CIT, DR APPEARING ON BEHALF OF THE REVENUE, DRAWING SUPPORT FROM THE EXPLANATION (2) INSERTED IN SECTIO N 263 BY THE FINANCE ACT, 2015, ARGUED THAT THE LD. PR. CIT HAD RIGHTLY INVOKED HIS POWERS UNDER SECTION 263 OF THE ACT SINCE IN HIS OPINION, THE AO HAD NOT CONDUCTED THE ENQUIRIE S IN THE MANNER AS DESIRED BY THE LD. PR. CIT AND CONSEQUENT TO WHICH THE PREJUDICE HAD BEEN CAUSED TO THE REVENUE. HE FURTHER CLAIMED THAT SINCE THE LD. PR. CIT DID NOT HIMSELF RECORD ANY ADVERSE FINDING NOR HAD GIVEN SPECIFIC DIRECTION FOR MAKING ADDITIONS/DISALLOWANC ES BUT HAD MERELY SET ASIDE THE ASSESSMENT, REQUIRING THE AO TO PASS THE ASSESSMENT AFRESH AFTER CONDUCTING PROPER ENQUIRIES AND AFTER GIVING OPPORTUNITY OF BEING HEA RD, NO PREJUDICE WAS CAUSED TO THE ASSESSEE AT THIS STAGE AND THEREFORE THERE WAS NO M ERIT IN THE APPEAL PREFERRED BY THE APPELLANT. HE THEREFORE URGED THAT THE ORDER OF THE LD. PR. CIT SHOULD NOT BE INTERFERED WITH. 6 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 8. HAVING HEARD BOTH THE PARTIES, AND ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES , WE FIND THAT IN THE CASE IN HAND TH E LD. PR. CIT INVOKED JURISDICTION U/S 263 OF THE ACT PRINCIPALLY ON THE BROAD ALLEGATION THAT THERE WAS FAILURE TO CONDUCT ENQUIRIES WHICH THE FACTS OF THE CASE REQUIRED THE AO TO MAKE . ACCORDING TO LD. PR. CIT ASSESSMENT ORDER SUFFERED FROM LACK OF ENQUIRY & APPLICATION O F MIND TO THE FACTS AS ALSO BY INCORRECT APPLICATION OF APPLICABLE LEGAL PROVISIONS TO THE F ACTS OF THE CASE. AS A RESULT, IN THE OPINION OF LD. PR. CIT, AOS ORDER WAS ERRONEOUS AND THEREF ORE LIABLE FOR REVISION U/S 263 OF THE ACT. THE SAID FINDINGS OF THE LD PR. CIT HAVE BEEN SERIOUSLY CONTESTED BY THE APPELLANT IN GR. NOS. 1&2. IN THE CIRCUMSTANCES THEREFORE BEFORE ADJUDICATING THE ISSUES ARISING FROM THE IMPUGNED ORDER, WE HAVE TO FIRST EXAMINE THE SCOPE OF REVISIONAL JURISDICTION U/S. 263 OF THE ACT. FOR THAT, LET US TAKE THE GUIDANCE OF JUDICIA L PRECEDENCE LAID DOWN BY THE HON'BLE APEX COURT IN MALABAR INDUSTRIES LTD. VS. CIT [2000] 243 ITR 83(SC) WHEREIN THEIR LORDSHIP HAVE HELD THAT TWIN CONDITIONS SHOULD BE SATISFIED BEFORE JURISDICTION U/S 263 OF THE ACT IS EXERCISED BY THE LD. CIT. THE TWIN CONDITIONS WHICH NEED TO BE SATISFIED ARE THAT (I) THE ORDER OF THE ASSESSING OFFICER MUST BE ERRONEOUS AND(II) AS A CONSEQUENCE OF PASSING AN ERRONEOUS ORDER, PREJUDICE IS CAUSED TO THE INTEREST OF THE R EVENUE. IN THE FOLLOWING CIRCUMSTANCES, THE ORDER OF THE AO CAN BE HELD TO BE ERRONEOUS I.E. (I ) IF THE ASSESSING OFFICER'S ORDER WAS PASSED ON ASSUMPTION OF INCORRECT FACTS; OR ASSUMPT ION OF INCORRECT LAW; (II) ASSESSING OFFICER'S ORDER IS IN VIOLATION OF THE PRINCIPLES O F NATURAL JUSTICE; (III) IF THE AO'S ORDER IS PASSED BY THE WITHOUT APPLICATION OF MIND; OR (IV) IF THE AO HAS NOT INVESTIGATED THE ISSUE BEFORE HIM. IN THE CIRCUMSTANCES ENUMERATED ABOVE O NLY THE ORDER PASSED BY THE ASSESSING OFFICER CAN BE TERMED AS ERRONEOUS FOR THE PURPOSE OF S.263 OF THE ACT. COMING NEXT TO THE SECOND LIMB, THE AO'S ERRONEOUS ORDER CAN BE REVISE D BY THE LD. CIT ONLY WHEN IT IS SHOWN THAT THE SAID ORDER IS PREJUDICIAL TO THE INTEREST OF REVENUE. WHEN THIS ASPECT IS EXAMINED ONE HAS TO UNDERSTAND WHAT IS PREJUDICIAL TO THE IN TEREST OF THE REVENUE. THE HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES (SU PRA) HELD THAT THIS PHRASE I.E. 'PREJUDICIAL TO THE INTEREST OF THE REVENUE'' HAS T O BE READ IN CONJUNCTION WITH AN 'ERRONEOUS' ORDER PASSED BY THE ASSESSING OFFICER. THE HONBLE SUPREME COURT, HELD THAT FOR INVOKING POWERS CONFERRED BY S.263; THE CIT SHOULD NOT ONLY SHOW THAT THE AO'S ORDER IS ERRONEOUS AS A RESULT OF ANY OF THE SITUATIONS ENUMERATED ABO VE BUT CIT MUST ALSO FURTHER SHOW THAT AS A RESULT OF AN ERRONEOUS ORDER, SOME LOSS IS CAUSED TO THE INTEREST OF THE REVENUE. THEIR LORDSHIP IN THE SAID JUDGMENT HELD THAT EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER 7 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 OF ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICI AL TO THE INTEREST OF THE REVENUE. IT WAS FURTHER OBSERVED THAT WHEN THE ASSESSING OFFICER AD OPTS ONE OF THE COURSE PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS TO THE REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE LD. CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ORDER PREJUDICIAL TO THE INTEREST OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW . IN THE CIRCUMSTANCES IT WAS NECESSARY FOR THE LD. PR. CIT TO SHOW IN THE IMPUGNED ORDER THAT THE AOS ORDER WAS ERRONEOUS BECAUSE THE VIEW FOLLOWED BY HIM IN RESPECT OF EACH OF THE REASON SE T OUT IN CLAUSES (A) TO (G) OF SCN WAS UNSUSTAINABLE IN LAW AND THEREFORE THE ORDER WAS LI ABLE FOR REVISION U/S 263 OF THE ACT. 9. WE ALSO NOTE THAT BOTH IN THE REASONS SET OUT IN SCN AS WELL AS IN THE IMPUGNED ORDER, THE LD. PR. CIT OBSERVED THAT IN RESPECT OF ISSUES SET OUT IN CLAUSES (A), (B), (D), (F) AND (G), PROPER ENQUIRY WAS NOT CONDUCTED BY THE A O WHICH THE CIRCUMSTANCES OF THE CASE DEMANDED AND FOR ABSENCE OF PROPER ENQUIRY, THE ASS ESSMENT ORDER WAS CONSIDERED BY THE LD. PR. CIT TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IT IS TRUE THAT THE COURTS HAVE HELD THAT AN ORDER OF ASSESSMENT CAN BE CONSIDERED TO BE ERRONEOUS IF THERE WAS LACK OR TOTAL ABSENCE OF ENQUIRY WITH REGARD TO AN ISSUE WHICH HAS MATERIAL BEARING ON THE ASSESSMENT OF TOTAL INCOME FOR THE RELEVANT YEAR. H OWEVER IN SUCH A CASE THE CIT HAS TO FIRST DEMONSTRATE THAT NO ENQUIRY AT ALL WAS CONDUCTED AN D CONSEQUENT TO WHICH NOT ONLY THE ORDER BECAME ERRONEOUS BUT SUCH AN ERROR ALSO CAUSE D PREJUDICE TO THE REVENUE. IN OUR CONSIDERED VIEW ONE ALSO HAS UNDERSTAND THE DIFFERE NCE BETWEEN 'LACK OF INQUIRY' AND 'INADEQUATE INQUIRY' AND WHEN IT CAN BE TERMED AS E RRONEOUS FOR USURPATION OF JURISDICTION U/S 263 OF THE ACT. FOR BETTER UNDERSTANDING OF THI S ASPECT, WE CAN TAKE HELP OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL CALCUTTA HIGH COURT I N THE CASE OF CIT VS J.L. MORRISON (I) LTD (366 ITR 593), WHEREIN THEIR LORDSHIPS EXPLAINE D THE DIFFERENCE BETWEEN THE TWO AS FOLLOWS:- '86. WHETHER THE ASSESSMENT ORDER DATED 28TH MARCH, 2008 WAS PASSED WITHOUT APPLICATION OF MIND IS BASICALLY A QUESTION OF FACT. THE LEARNED T RIBUNAL HAS HELD THAT THE ASSESSMENT ORDER WAS NOT PASSED WITHOUT APPLICATION OF MIND. THE REC ORDS OF THE ASSESSMENT INCLUDING THE ORDER SHEETS GO TO SHOW THAT APPROPRIATE ENQUIRY WAS MADE AND THE ASSESSEE WAS HEARD FROM TIME TO TIME. IN DECIDING THE QUESTION COURT HAS TO BEAR IN MIND THE PRESUMPTION IN LAW LAID DOWN IN SECTION 114 CLAUSE - E OF THE EVIDENCE ACT:-- 'THAT JUDICIAL AND OFFICIAL ACTS HAVE BEEN REGULARL Y PERFORMED;' 8 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 87. THEREFORE, THE COURT HAS TO START WITH THE PRES UMPTION THAT THE ASSESSMENT ORDER DATED 28TH MARCH 2008 WAS REGULARLY PASSED. THERE IS EVIDENCE TO SHOW THAT THE ASSESSING OFFICER HAD REQUIRED THE ASSESSEE TO ANSWER 17 QUESTIONS AND TO FILE DOCUMENTS IN REGARD THERETO. IT IS DIFFICULT TO PROCEED ON THE BASIS THAT THE 17 QUEST IONS RAISED BY HIM DID NOT REQUIRE APPLICATION OF MIND. WITHOUT APPLICATION OF MIND THE QUESTIONS RAISED BY HIM IN THE ANNEXURE TO NOTICE UNDER SECTION 142 (1) OF THE ACT COULD NOT HAVE BEE N FORMULATED. 88. THE ASSESSING OFFICER WAS REQUIRED TO EXAMINE T HE RETURN FILED BY THE ASSESSEE IN ORDER TO ASCERTAIN HIS INCOME AND TO LEVY APPROPRIATE TAX ON THAT BASIS. WHEN THE ASSESSING OFFICER WAS SATISFIED THAT THE RETURN, FILED BY THE ASSESSEE, W AS IN ACCORDANCE WITH LAW, HE WAS UNDER NO OBLIGATION TO JUSTIFY AS TO WHY WAS HE SATISFIED. O N THE TOP OF THAT THE ASSESSING OFFICER BY HIS ORDER DATED 28TH MARCH, 2008 DID NOT ADVERSELY AFFE CT ANY RIGHT OF THE ASSESSEE NOR WAS ANY CIVIL RIGHT OF THE ASSESSEE PREJUDICED. HE WAS AS S UCH UNDER NO OBLIGATION IN LAW TO GIVE REASONS. 89. THE FACT, THAT ALL REQUISITE PAPERS WERE SUMMON ED AND THEREAFTER THE MATTER WAS HEARD FROM TIME TO TIME COUPLED WITH THE FACT THAT THE VIEW TA KEN BY HIM IS NOT SHOWN BY THE REVENUE TO BE ERRONEOUS AND WAS ALSO CONSIDERED BOTH BY THE TRIBU NAL AS ALSO BY US TO BE A POSSIBLE VIEW, STRENGTHENS THE PRESUMPTION UNDER CLAUSE (E) OF SEC TION 114 OF THE EVIDENCE ACT. A PRIMA FACIE EVIDENCE, ON THE BASIS OF THE AFORESAID PRESUMPTION , IS THUS CONVERTED INTO A CONCLUSIVE PROOF OF THE FACT THE ORDER WAS PASSED BY THE ASSESSING OFFI CER AFTER DUE APPLICATION OF MIND. 90. THE JUDGMENTS CITED BY MR. NIZAMUDDIN DO NOT RE ALLY SUPPORT HIS CONTENTION. THE JUDGMENT IN THE CASE OF MEERUT ROLLER FLOUR MILLS (P.) LTD. (SUPRA) DOES NOT APPLY BECAUSE THE HIGH COURT IN THAT CASE WAS SATISFIED THAT THE ASSESSMENT ORDE R WAS PASSED WITHOUT ENQUIRY. 91. THE JUDGMENT OF COCHIN BENCH OF INCOME TAX APPE LLATE TRIBUNAL IN ITA NO. 116 /COCH/ 2012 RELIED UPON BY MR. NIZAMUDDIN IS EVIDENTLY BAS ED ON AN ERRONEOUS IMPRESSION THAT 'THE PROCEEDINGS BEFORE THE ASSESSING OFFICER ARE JUDICI AL PROCEEDINGS'. THIS IMPRESSION, WHICH IS PATENTLY CONTRARY TO THE VIEWS EXPRESSED BY APEX CO URT IN THE CASE OF S.S. GADGILL (SUPRA), WAS RESPONSIBLE FOR THE VIEWS TAKEN BY THE TRIBUNAL. WH EN THE PREMISE IS WRONG, THE CONCLUSION IS BOUND TO BE WRONG. 92. THE JUDGMENT IN THE CASE OF INFOSYS TECHNOLOGIE S LTD. (SUPRA) IS DISTINGUISHABLE ON FACTS. THE STEP TAKEN BY THE CIT UNDER SECTION 263 IN THAT CASE WAS JUSTIFIED BECAUSE THE INCOME TAX RECORDS PRODUCED BEFORE HIM DID NOT SHOW THAT THE A SSESSING OFFICER HAD CONSIDERED THE DOUBLE TAXATION AVOIDANCE AGREEMENT ON THE BASIS WHEREOF T HE CLAIMS WERE MADE BY THE ASSESSEE. THEREFORE, THAT WAS A CLEAR CASE TO SHOW THAT THE A SSESSMENT ORDER WAS PASSED WITHOUT CONSIDERING THE RELEVANT PIECES OF EVIDENCE. 93. THE JUDGMENT IN THE CASE OF ANUSAYABAN. A. DOSH I (SUPRA) DOES NOT APPLY BECAUSE THE HIGH COURT IN THAT CASE WAS DEALING WITH THE NEED ON THE PART OF THE LEARNED TRIBUNAL TO GIVE REASONS IN SUPPORT OF ITS ORDER. 94. THE JUDGMENT IN THE CASE OF HINDUSTHAN TIN WORK S LTD. (SUPRA) ALSO DOES NOT APPLY BECAUSE THERE THE DELHI HIGH COURT WAS DEALING WITH THE DUT Y OF THE LEARNED TRIBUNAL TO DISCLOSE REASONS IN SUPPORT OF ITS APPELLATE ORDER. 95. THE JUDGMENT IN THE CASE OF S.N. MUKHERJEE (SUP RA) IS CLEARLY DISTINGUISHABLE. THE POINT FOR CONSIDERATION IN THAT CASE WAS WHETHER IT WAS INCUM BENT FOR THE CHIEF OF ARMY STAFF WHILE CONFIRMING THE FINDINGS AND THE SENTENCE OF THE GEN ERAL COURT MARTIAL, AND FOR THE CENTRAL 9 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 GOVT. WHILE REJECTING THE POST CONFIRMATION PETITIO N OF THE APPELLANT, TO RECORD REASONS FOR THE ORDERS PASSED BY THEM. 96. THE FUNCTION OF AN ASSESSING OFFICER IS TO ESTI MATE THE INCOME OF THE ASSESSEE AND TO RECOVER TAX ON THE BASIS OF SUCH ESTIMATE AS LAID DOWN BY T HE APEX COURT IN THE CASE OF S.S GADGIL (SUPRA). THEIR LORDSHIPS OPINED THAT THE INCOME TAX PROCEEDINGS DO NOT PARTAKE THE CHARACTER OF A JUDICIAL PROCEEDING BETWEEN THE STATE AND THE CIT IZEN. THEREFORE, THE PRINCIPLES APPLICABLE TO A PROCEEDING BEFORE A JUDICIAL OR A QUASI-JUDICIAL AU THORITY WHERE THERE ARE TWO CONTESTING PARTIES CANNOT BE MADE APPLICABLE TO THE PROCEEDINGS BEFORE AN ASSESSING OFFICER. 97. MR. NIZAMUDDIN CONTENDED THE JUDGMENTS CITED BY MR. PODDAR INDICATE THAT THE ASSESSING OFFICER IS NOT REQUIRED TO WRITE AN ELABORATE JUDGM ENT. HE CONTENDED THAT THE ASSESSING OFFICER MAY NOT HAVE ANY SUCH OBLIGATION BUT IT CANNOT BE S AID, ACCORDING TO HIM, THAT THE ASSESSING OFFICER IS UNDER NO OBLIGATION TO RECORD ANYTHING I N HIS ASSESSMENT ORDER. IT IS NOT IN THE FIRST PLACE A FACT THAT HE HAS NOT RECORDED ANYTHING. FRO M THE ASSESSMENT ORDER, THE FOLLOWING FACTS AND CIRCUMSTANCES APPEAR:-- 'RETURN WAS FILED ON 29/11/06 SHOWING TOTAL INCOME OF RS.3,80,66,940/-. IN RESPONSE TO NOTICES U/S. 143(2) AND 142(1) OF THE I. T. ACT, 1961, SRI P. R. KOTHARI, A/R APPEARED FROM TIME TO TIME AND EXPLAINED THE RETURN. NECESSARY DETAILS AND PAR TICULARS WERE FILED. THE BUSINESS OF THE ASSESSEE IS MANUFACTURING AND TRADING OF COSMETICS AND DENTAL CARE PRODUCTS AS IN EARLIER YEARS. IN VIEW OF ABOVE TOTAL INCOME IS COMPUTED IS UNDER: ' 98. UNLESS THE AFORESAID RECITAL IS FACTUALLY INCOR RECT OR THE COMPUTATION IS LEGALLY WRONG, IT IS NOT POSSIBLE TO HOLD THAT THE ASSESSMENT ORDER WAS PASSED WITHOUT APPLICATION OF MIND. ON THE TOP OF THAT WHEN THE ASSESSING OFFICER ACCEPTED THE CONTENTION OF THE ASSESSEE THERE WAS NO OCCASION FOR HIM TO MAKE ANY DISCUSSION IN HIS ORDE R. 99. IF THE ASSESSING OFFICER CANNOT BE SHOWN TO HAV E VIOLATED ANY FORM PRESCRIBED FOR WRITING AN ASSESSMENT ORDER, IT WOULD NOT BE CORRECT TO HOLD T HAT HE ACTED ILLEGALLY OR WITHOUT APPLYING HIS MIND. THE THIRD QUESTION IS, FOR THE REASONS DISCUS SED ABOVE, ANSWERED IN THE NEGATIVE.' 10. THIS ASPECT WAS ALSO EXPLAINED BY THE HONBLE D ELHI HIGH COURT IN ITS JUDGMENT IN THE CASE OF CIT VS SUNBEAM AUTO LTD (332 ITR 167). THE RELEVANT EXTRACTS OF THE JUDGMENT IS AS FOLLOWS: 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE COUNSEL ON THE OTHER SIDE AND HAVE GONE THROUGH THE RECORDS. THE FIRST ISSUE THAT ARISES FOR OUR CO NSIDERATION IS ABOUT THE EXERCISE OF POWER BY THE COMMISSIONER OF INCOME-TAX UNDER SECTION 263 OF THE INCOME-TAX ACT. AS NOTED ABOVE, THE SUBMISSION OF LEARNED COUNSEL FOR THE REVENUE WAS THAT WHILE P ASSING THE ASSESSMENT ORDER, THE ASSESSING OFFICER DID NOT CONSIDER THIS ASPECT SPECIFICALLY WHETHER T HE EXPENDITURE IN QUESTION WAS REVENUE OR CAPITAL EXPENDITURE. THIS ARGUMENT PREDICATES ON THE ASSESS MENT ORDER WHICH APPARENTLY DOES NOT GIVE ANY REASONS WHILE ALLOWING THE ENTIRE EXPENDITURE AS RE VENUE EXPENDITURE. HOWEVER, THAT BY ITSELF WOULD NOT BE INDICATIVE OF THE FACT THAT THE ASSESSING OF FICER HAD NOT APPLIED HIS MIND ON THE ISSUE. THERE ARE JUDGMENTS GALORE LAYING DOWN THE PRINCIPLE THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS NOT REQUIRED TO GIVE DETAILED REASON IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTION, ETC. THEREFORE, ONE H AS TO SEE FROM THE RECORD AS TO WHETHER THERE WAS APPL ICATION OF MIND BEFORE ALLOWING THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. LEARNED COUNSEL FO R THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINCTION BETWEEN 'LACK O F INQUIRY' AND 'INADEQUATE INQUIRY'. IF THERE WAS 10 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 ANY INQUIRY, EVEN INADEQUATE, THAT WOULD NOT BY ITS ELF, GIVE OCCASION TO THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 OF THE ACT, MERELY BECAUSE HE HAS DIFFERENT OPINION IN THE MATTER. IT IS ONLY IN CASES OF 'LACK OF INQUIRY', THAT SUCH A COURSE OF A CTION WOULD BE OPEN. IN GABRIEL INDIA LTD.'S CASE (SUPRA), LAW ON THIS ASPECT WAS DISCUSSED IN THE FO LLOWING MANNER : '. . . FROM A READING OF SUB-SECTION (1) OF SECTION , IT IS CLEAR THAT THE POWER OF SUOMOTU REVISION CA N BE EXERCISED BY THE COMMISSIONER ONLY IF, ON EXAMINA-T ION OF THE RECORDS OF ANY PROCEEDINGS UNDER THIS ACT, HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE INCOME-TAX OFFICER IS 'ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE'. IT IS NOT AN ARBITRARY OR UNCHARTERED POWER. IT CAN BE EXERCISED ONLY ON FULFILMENT OF THE REQUIREMENTS LA ID DOWN IN SUB-SECTION (1). THE CONSIDERATION OF TH E COMMISSIONER AS TO WHETHER AN ORDER IS ERRONEOUS IN SOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE MUST BE BASED ON MATERIALS ON THE RECORD OF THE PROCEEDINGS CALLED FOR BY HIM. IF THERE ARE NO MATERIALS ON RECORD ON THE BASIS OF WHICH IT CAN BE SAID THAT THE COMMISSIONER ACTING IN A REASONABLE MANNER COULD HAVE COME TO SUCH A CONCLUSION, THE VE RY INITIATION OF PROCEEDINGS BY HIM WILL BE ILLEGAL AND WITHOUT JURISDICTION. THE COMMISSIONER CANNOT I NITIATE PROCEEDINGS WITH A VIEW TO STARTING FISHING AND ROVING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE ALREADY CONCLUDED. SUCH ACTION WILL BE AGAINST THE WELL-ACCEPTED POLICY OF LAW THAT THERE MUST BE A POINT OF FINALITY IN ALL LEGAL PROCEEDINGS, THAT STALE ISSUES SHOULD NOT BE REACTIVATED BEYOND A PARTICULA R STAGE AND THAT LAPSE OF TIME MUST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI-JUDICIAL CONT ROVERSIES AS IT MUST IN OTHER SPHERES OF HUMAN ACTIVITY. [SEE :PARASHURAM POTTERY WORKS CO. LTD. V . ITO[1977] 106 ITR 1 (SC) AT PAGE 10]. ****** FROM THE AFORESAID DEFINITIONS IT IS CLEAR THAT AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NO T IN ACCORDANCE WITH LAW. IF AN INCOME-TAX OFFICER AC TING IN ACCORDANCE WITH LAW MAKES A CERTAIN ASSESSMENT, THE SAME CANNOT BE BRANDED AS ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE, ACCORDING TO HIM, THE ORDER SHOULD HAVE BEEN WRITTE N MORE ELABORATELY. THIS SECTION DOES NOT VISUALISE A CASE OF SUBSTITUTION OF THE JUDGMENT OF THE COMMI SSIONER FOR THAT OF THE INCOME-TAX OFFICER, WHO PASSED THE ORDER UNLESS THE DECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE THE INCOME-TAX OFFICER WHILE MAKING AN ASSESSMENT EXAMI NES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACCEPTING THE ACCOUNTS OR BY MAKING SOME ESTIMATE HIMSELF. THE CO MMISSIONER, ON PERUSAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY THE OFFICER C ONCERNED WAS ON THE LOWER SIDE AND LEFT TO THE COMMISSIONER HE WOULD HAVE ESTIMATED THE INCOME AT A FIGURE HIGHER THAN THE ONE DETERMINED BY THE INCOME-TAX OFFICER. THAT WOULD NOT VEST THE COMMISS IONER WITH POWER TO RE-EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. IT IS BECAUSE THE INCOME-TAX OFFICER HAS EXERCISED TH E QUASI-JUDICIAL POWER VESTED IN HIM IN ACCORDANCE WI TH LAW AND ARRIVED AT CONCLUSION AND SUCH A CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE CONCLUSION. . . . THERE MUST BE SOME PRIMA FACIE MATERIAL ON RECORD TO SHOW THAT TAX WHICH WAS LAWFULLY EXIGIBLE HAS NOT BEEN IMPOSED OR THAT BY THE APPLICATION OF THE RELEVANT STATUTE ON AN INCORRECT OR INCOMPLETE INTERPRETATION A LESSER TAX THAN WHAT WAS JUST HAS BEEN IMPOSED. ****** WE MAY NOW EXAMINE THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE POWERS OF THE COMMISSIONER SET OUT ABOVE. THE INCOME-TAX OFFICER IN THIS CASE HAD MADE ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN DETAILED EXPLANATION ON THAT REGARD BY A LETTER IN WRITING. ALL THESE ARE PART OF THE RECORD OF THE CASE. EVIDENTLY, THE CLAIM WAS ALLOWED BY T HE INCOME-TAX OFFICER ON BEING SATISFIED WITH THE EXPL ANATION OF THE ASSESSEE. SUCH DECISION OF THE 11 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 INCOME-TAX OFFICER CANNOT BE HELD TO BE 'ERRONEOUS' SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD . . .' (PP. 113 -117) 13. WHEN WE EXAMINE THE MATTER IN THE LIGHT OF THE AFORESAID PRINCIPLE, WE FIND THAT THE ASSESSING OFFICER HAD CALLED FOR EXPLANATION ON THIS VERY ITE MS, FROM THE ASSESSEE AND THE ASSESSEE HAD FURNISHE D HIS EXPLANATION VIDE LETTER DATED 26-9-2002. THIS F ACT IS EVEN TAKEN NOTE OF BY THE COMMISSIONER HIMSELF IN PARA 3 OF HIS ORDER DATED 3-11-2004. THI S ORDER ALSO REPRODUCES THE REPLY OF THE RESPONDENT IN PARA 3 OF THE ORDER IN THE FOLLOWING MANNER : 'THE TOOLS AND DIES HAVE A VERY SHORT LIFE AND CAN PRODUCE UP TO MAXIMUM 1 LAKH PERMISSIBLE SHORTS AND HAVE TO BE REPLACED THEREAFTER TO RETAIN THE AC CURACY. MOST OF THE PARTS MANUFACTURED ARE FOR THE AUTOMOBILE INDUSTRIES WHICH HAVE TO WORK ON COMPLET E ACCURACY AT HIGH SPEED FOR A LONGER PERIOD. SINCE IT IS AN ONGOING PROCEDURE, A COMPANY HAD PRO DUCED 10,75,000 SETS WHOSE SELLING RATES IS INCLUSIVE OF THE REIMBURSEMENT OF THE DIES COST. TH E PURCHASE ORDERS INDICATING THE COSTING INCLUDES THE REIMBURSEMENT OF DIES COST ARE BEING PRODUCED B EFORE YOUR HONOUR. SINCE THE SALE RATE INCLUDES THE REIMBURSEMENT OF DIES COST AND TO HAVE THE MATC HING EFFECT THE COST OF THE DIES HAS BEEN CLAIMED A S A REVENUE EXPENDITURE.' 14. THIS CLEARLY SHOWS THAT THE ASSESSING OFFICER H AD UNDERTAKEN THE EXERCISE OF EXAMINING AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE REPLACEMENT OF DYES AND TOOLS IS TO BE TREATED AS REVENUE EXPENDITURE OR NOT. IT APPEARS THAT SINC E THE ASSESSING OFFICER WAS SATISFIED WITH THE AFORESAID EXPLANATION, HE ACCEPTED THE SAME. THE CI T IN HIS IMPUGNED ORDER EVEN ACCEPTS THIS IN THE FOLLOWING WORDS : 'ASSESSING OFFICER ACCEPTED THE EXPLANATION WITHOUT RAISING ANY FURTHER QUESTIONS, AND AS STATED EARLIER, COMPLETED THE ASSESSMENT AT THE RETURNED I NCOME.' 15. THUS, EVEN THE COMMISSIONER CONCEDED THE POSITI ON THAT THE ASSESSING OFFICER MADE THE INQUIRIES, ELICITED REPLIES AND THEREAFTER PASSED THE ASSESSME NT ORDER. THE GRIEVANCE OF THE COMMISSIONER WAS THAT THE ASSESSING OFFICER SHOULD HAVE MADE FURTHER INQUIRES RATHER THAN ACCEPTING THE EXPLANATION. THEREFORE, IT CANNOT BE SAID THAT IT IS A CASE OF ' LACK OF INQUIRY'. 11. BEFORE US THE LD. CIT, DR SUPPORTED THE INVOCA TION OF REVISIONARY JURISDICTION BY THE LD. PR. CIT U/S 263 OF THE ACT, BY RELYING ON THE A MENDMENT TO SECTION 263 WHEREBY EXPLANATION 2 TO SUB-SECTION (1) OF SEC. 263 OF THE ACT WAS INSERTED WITH EFFECT FROM 01.06.2015. THE SAID AMENDMENT INSERTED THE WORDS IN THE OPINION OF PRINCIPAL COMMISSIONER OR COMMISSIONER . ACCORDING TO LD. CIT, DR, AFTER THIS AMENDMENT W AS BROUGHT INTO STATUTE, THE ORDER PASSED BY THE AO CA N BE DEEMED TO BE ERRONEOUS INSOFAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE IF IN TH E OPINION OF THE PR. CIT OR CIT, THE ORDER HAS BEEN PASSED WITHOUT MAKING ENQUIRIES OR VERIFICATIO N WHICH SHOULD HAVE BEEN MADE. ACCORDING TO US, HOWEVER, THE INSERTION OF THE AMEN DMENT WHICH INTRODUCED THE WORDS IN THE OPINION OF PRINCIPAL COMMISSIONER OR COMMISSION ER CANNOT BE READ IN ISOLATION. IT HAS TO BE KEPT IN MIND THAT EXPLANATION CANNOT OVER-R IDE THE SUBSTANTIVE PROVISION OF THE LAW WHICH THE EXPLANATION ONLY TRIES TO EXPLAIN/CLARIFY . 12 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 12. BEFORE WE ADVERT FURTHER, LET US LOOK AT SECTIO N 263 OF THE ACT, WHICH IS REPRODUCED AS UNDER:- 263. (1) THE PRINCIPAL COMMISSIONER OR] COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORD OF 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 INT ERESTS OF THE REVENUE, HE MAY, AFTER GIVING THE ASS ESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING OR CAUS ING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSM ENT AND DIRECTING A FRESH ASSESSMENT. [EXPLANATION 1.]FOR THE REMOVAL OF DOUBTS, IT IS H EREBY DECLARED THAT, FOR THE PURPOSES OF THIS SUB- SECTION, (A) AN ORDER PASSED [ON OR BEFORE OR AFTER THE 1S T DAY OF JUNE, 1988] BY THE ASSESSING OFFICER SHALL INCLUDE (I) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT COMMISSIONER OR DEPUTY COMMISSIONER] OR THE INCOME-TAX OFFICER ON THE BASI S OF THE DIRECTIONS ISSUED BY THE [JOINT] COMMISSIONER UNDER SECTION 144A; (II) AN ORDER MADE BY THE [JOINT] COMMISSIONER IN EXERCISE OF THE POWERS OR IN THE PERFORMANCE OF THE FUNCTIONS OF AN ASSESSING OFFICE R CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTIONS ISSUED BY THE BO ARD OR BY THE [PRINCIPAL CHIEF COMMISSIONER OR] CHIEF COMMISSIONER OR [PRINCIPAL D IRECTOR GENERAL OR] DIRECTOR GENERAL OR [PRINCIPAL COMMISSIONER OR] COMMISSIONER AUTHORISED BY THE BOARD IN THIS BEHALF UNDER SECTION 120; (B) 'RECORD' [SHALL INCLUDE AND SHALL BE DEEMED A LWAYS TO HAVE INCLUDED] ALL RECORDS RELATING TO ANY PROCEEDING UNDER THIS ACT AVAILABLE AT THE TIME OF EXAMINATION BY THE [PRINCIPAL COMMISSIONER OR] COMMISSIONER; (C) WHERE ANY ORDER REFERRED TO IN THIS SUB-SECTI ON AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTEROF ANY APPEAL [FILED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988], THE POWERS OF THE [PRINCIPAL COMMISSIONER OR] COMMISSIO NER UNDER THIS SUB -SECTION SHALL EXTEND [AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED] TO SU CH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL.] [EXPLANATION 2.FOR THE PURPOSES OF THIS SECTION, I T IS HEREBY DECLARED THAT AN ORDER PASSED BY THE ASSESSING OFFICER SHALL BE DEEMED TO BE ERRONEOUS I N SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF T HE REVENUE, IF, IN THE OPINION OF THE PRINCIPAL COMMIS SIONER OR COMMISSIONER, (A) THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE; (B) THE ORDER IS PASSED ALLOWING ANY RELIEF WITHO UT INQUIRING INTO THE CLAIM; (C) THE ORDER HAS NOT BEEN MADE IN ACCORDANCE WIT H ANY ORDER, DIRECTION OR INSTRUCTION ISSUED BY THE BOARD UNDER SECTION 119; OR (D) THE ORDER HAS NOT BEEN PASSED IN ACCORDANCE W ITH ANY DECISION WHICH IS PREJUDICIAL TO THE ASSESSEE, RENDERED BY THE JURISDICTIONAL HIGH COURT OR SUPREME COURT IN THE CASE OF THE ASSESSEE OR ANY OTHER PERSON.] [(2) NO ORDER SHALL BE MADE UNDER SUB-SECTION (1) A FTER THE EXPIRY OF TWO YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE ORDER SOUGHT TO BE REVI SED WAS PASSED.] (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (2), AN ORDER IN REVISION UNDER THIS SECTION MAY BE PASSED AT ANY TIME IN THE CASE OF AN ORDER WHICH HA S BEEN PASSED IN CONSEQUENCE OF, OR TO GIVE EFFECT TO, ANY FINDING OR DIRECTION CONTAINED IN AN ORDER OF T HE APPELLATE TRIBUNAL, [NATIONAL TAX TRIBUNAL,] THE HIGH COURT OR THE SUPREME COURT. EXPLANATION.IN COMPUTING THE PERIOD OF LIMITATION FOR THE PURPOSES OF SUB-SECTION (2), THE TIME TAKEN IN GIVING AN OPPORTUNITY TO THE ASSESSEE TO BE REHEARD UNDER THE PROVISO TO SECTION 129 AND ANY PERIOD DURING WHICH ANY PROCEEDING UNDER THIS SECTION IS S TAYED BY AN ORDER OR INJUNCTION OF ANY COURT SHALL BE EXCLUDED.' 13 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 13. FROM BARE READING OF SECTION 263 OF THE ACT AND THE EXPLANATION THERETO INTRODUCED THROUGH THE FINANCE ACT, 2015, W.E.F. 01.06. 2015, WE NOTE THAT EXPLANATION -2, IS A DEEMING PROVISION. THE WELL SETTLED POSITION OF LAW IS THA T WHILE CONSTRUING A DEEMING PROVISION, IT HAS TO BE STRICTLY INTERPRETED AND THAT THE LEGAL F ICTION SHOULD NOT BE STRETCHED BEYOND THE PURPOSE FOR WHICH IT IS ENACTED AND SHOULD NOT EXT END THAT LEGITIMATE FIELD (RAYMOND VS. STATE OF CHATTISGARH AIR 20-07 SC 2854). IT SHOULD BE KEPT IN MIND THAT DEEMING PROVISION SHOULD BE IN RESPECT OF FACTS, FROM WHICH LEGAL CON SEQUENCES WILL FOLLOW. HOWEVER, THE LEGAL CONSEQUENCE CANNOT BE DEEMED [DCM VS. STATE OF RAJASTHAN (1996) 2 SCC 449. AIR 1996 SC 2930 (3 JUDGES OF HONBLE SUPREME COURT) AND SAM E VIEW REITERATED IN STATE OF KARNATAKA VS. STATE OF TAMIL NADU (2017) 3 SCC 362. SO WHEN WE LOOK AT EXPLANATION-2, WE NOTE THAT DEEMING FICTION OF LAW THAT THE ORDER OF THE ASSESSING OFFICER IS DEEMED TO BE ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTER EST OF THE REVENUE ONLY IF IN THE OPINION OF THE LD. CIT, WHICH NECESSARILY HAS TO BE A FINDING OF FACT IN THE FOLLOWING FOUR EVENTS. THEN LEGAL CONSEQUENCE FOLLOWS, IF NOT, IT DOES NOT. SO , THE CIT HAS TO MAKE A FINDING OF FACT IN THE FOLLOWING: (A) THE ASSESSMENT ORDER PASSED BY THE ASSESSING OF FICER IS WITHOUT INQUIRY OR VERIFICATION, (B) THE ASSESSING OFFICER ALLOWED A CLAIM WITHOUT E NQUIRY, (C) THE ASSESSING OFFICER PASSED THE ORDER WHICH IS NOT IN ACCORDANCE WITH ANY ORDER, DIRECTIONS OR INSTRUCTIONS ISSUED BY THE CBDT U/S 1 19 OF THE ACT, (D) THE ASSESSING OFFICER PASSED THE ORDER WHICH I S NOT IN ACCORDANCE TO THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT OR THE HONBLE SU PREME COURT, WHICH IS PREJUDICIAL TO THE ASSESSEE, WHICH IS RENDERED EITHER IN THE ASSESSEE S CASE OR ANY OTHER PERSON. 14. THE AMENDMENT BROUGHT BY THE FINANCE ACT, 2015, BY WAY OF INSERTION OF EXPLANATION-2, CAN COME TO THE AID OF THE LD. PR. C IT OR LD. CIT ONLY WHEN ANY ONE OR MORE OF THE FOUR CONDITIONS, IS SATISFIED AND A CLEAR FI NDING OF FACT TO THAT EFFECT IS RECORDED BY THE LD. CIT. IT IS ONLY AFTER THE CIT RECORDS A CLEAR F INDING OF FACT BRINGING THE ASSESSEES CASE WITHIN THE AMBIT OF ANY ONE OR MORE CONDITION SPECI FIED IN THE EXPLANATION, ONLY THEN THE 14 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 LEGAL CONSEQUENCE ENVISAGED IN THE EXPLANATION CAN BE DEEMED OR ELSE IT CANNOT BE DEEMED. ONLY IN THE CASE WHERE THE CIT RECORDS A CLEAR FIND ING OF FACT ESTABLISHING ANY OF THE FOUR CONDITIONS POSTULATED ABOVE IS SATISFIED THEN THE O RDER FRAMED BY THE ASSESSING OFFICER CAN BE DEEMED TO BE ERRONEOUS INSOFAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE, AND NOT OTHERWISE. TO SAY IT DIFFERENTLY, THE OPINION OF L D. PR. CIT OR CIT CANNOT BE READ IN ISOLATION, AND IT HAS TO BE READ CO-JOINTLY WITH TH E FOUR CONDITIONS STIPULATED UNDER EXPLANATION-2 CLAUSES (A) TO (D) . IT IS ONLY IN TH E EVENT THAT ANY ONE OF THE SITUATION IS SATISFIED AND THERE IS A FINDING OF FACT BY THE LD. CIT TO THAT EFFECT IN HIS REVISION ORDER, THEN ONLY THE DEEMING PROVISION OF EXPLANATION-2 CAN BE PRESSED INTO SERVICE FOR RENDERING AN ASSESSMENT ORDER AS ERRONEOUS, INSOFAR AS PREJUDICI AL TO THE REVENUE, WHICH IS THE JURISDICTIONAL FACT & LAW REQUIRED FOR THE LD. PR. CIT/CIT TO INVOKE REVISIONAL JURISDICTION U/S 263 OF THE ACT. 15. COMING TO THE EXPRESSION IN EXPLANATION -2 IN THE OPINION OF THE LD. CIT,IT MUST BE THE CONSIDERED OPINION OF THE CIT WHICH IS BASED ON THE CORRECT FACTS AND IN ACCORDANCE WITH THE PRINCIPLES OF LAW. IT CANNOT BE AN ARBITR ARY OPINION BEREFT OF FACTS OR LAW. THE AFORESAID CLAUSE ONLY PROVIDES FOR SITUATION WHERE INQUIRIES OR VERIFICATIONS SHOULD BE MADE BY REASONABLE AND PRUDENT OFFICER IN THE CONTEXT OF THE CASE. SUCH CLAUSE CANNOT BE READ TO AUTHORIZE OR GIVE UNFETTERED POWERS TO THE COMMISSI ONER TO REVISE EACH AND EVERY ASSESSMENT ORDER. THE APPLICABILITY OF THE CLAUSE I S THUS ESSENTIALLY CONTEXTUAL. IT HAS TO BE THE OPINION OF A PRUDENT PERSON PROPERLY INSTRUCTED IN LAW. THE HONBLE SUPREME COURT IN MANEKA GANDHI VS. UNION OF INDIA REPORTED IN 1978 A IR (SC) 597 HAS LAID DOWN THE LAW THAT A PUBLIC AUTHORITY SHOULD DISCHARGE HIS DUTIES IN AFAIR, JUST AND REASONABLE, MANNER AND THE PRINCIPLE OF DUE PROCESS OF LAW WAS RECOGNIZED BY THE HONBLE SUPREME COURT. THEREFORE THE OPINION OF THE LD. CIT HAS TO BE IN C ONSONANCE WITH THAT OF THE WELL SETTLED JUDICIAL PRINCIPLES AND CANNOT BE ARBITRARILY MADE DISCARDING THE JUDICIAL PRECEDENT ON THE SUBJECT. THE OPINION OF THE LD. PR. CIT HAS TO BE REASONABLE AND THAT OF A PRUDENT PERSON INSTRUCTED IN LAW AND WHICH FOUNDED ON THE CORRECT FACTS BORNE OUT FROM RECORDS. THE CITS OPINION SHOULD BE BASED ON OBJECTIVE CONSIDERATION OF MATERIAL FACTS AND NOT ON HIS SUBJECTIVE NOTIONS OF THE FACTS WRONGLY PRESUMED OR INFERRED BY HIM. MOREOVER, IT HAS TO BE KEPT IN MIND THAT AN EXPLANATION TO SUBSTANTIVE SEC TION SHOULD BE READ AS TO HARMONIZE WITH AND CLEAR UP ANY AMBIGUITY IN THE MAIN SECTION AND SHOULD NOT BE SO CONSTRUED AS TO WIDEN 15 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 THE AMBIT OF THE SECTION CONFERRING POWERS OR AUTHO RITY LARGER THAN WHAT IS ENVISAGED IN THE PRINCIPAL PROVISION. IT IS SO HELD BY THE HONBLE S UPREME COURT IN BIHTA COOPERATIVE DEVELOPMENT CANE MARKETING UNION LTD. VS. BANK OF B IHAR, AIR 1967 SC 389 AND M/S. OBLUM ELECTRICAL INDUSTRIES PVT. LTD., HYDERABAD VS . COLLECTOR OF CUSTOMS, BOMBAY - AIR 1997 SC 3467 AT PAGE 3471 AND ALSO SEE JUSTICE G. P . SINGH, PRINCIPAL OF STATUTORY INTERPRETATION 234 LEXUS 2016. IT HAS TO BE KEPT I N MIND THAT WHILE THE COMMISSIONER IS EXERCISING HIS REVISIONAL JURISDICTION OVER THE ASS ESSMENT ORDER, HE HAS TO EXERCISE HIS POWER IN AN OBJECTIVE MANNER AND NOT ARBITRARILY OR SUBJE CTIVELY SINCE HE IS DISCHARGING QUASI- JUDICIAL POWERS VESTED IN HIM WHILE DOING SO. THUS ACCORDING TO US, EXPLANATION (2) INSERTED BY THE PARLIAMENT U/S. 263 CANNOT OVERRIDE THE MAIN SECTION I.E. SEC. 263(1) OF THE ACT. THE LD. CIT CAN EXERCISE HIS REVISIONAL JURIS DICTION IN THE EVENT THE ASSESSMENT ORDER IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AS DISCUSSED ABOVE AND NOT OTHERWISE. 16. IN THE INSTANT CASE WE FIND THAT IN THE SCN, TH E LD. PR. CIT SET OUT SEVEN SPECIFIC REASONS FOR WHICH HE HAD CONSIDERED THE AOS ORDER TO BE ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. WE ALSO NOTE THAT IN RESPONSE, THE ASSESSEE HAD SUBMITTED BEFORE THE LD. PR. CIT DETAILED EXPLANATIONS SUPPOR TED BY TANGIBLE DOCUMENTARY EVIDENCE TO PROVE THAT THE SCN HAD PROCEEDED ON ASSUMPTION OF S OME INCORRECT FACTS AND WRONG INTERPRETATION OF APPLICABLE LEGAL PROVISIONS. THE ASSESSEE ALSO EXPLAINED WITH COGENT MATERIAL THAT BEFORE COMPLETION OF ASSESSMENT, THE AO HAD INDEED MADE ENQUIRIES WITH REFERENCE TO SPECIFIC ISSUES RAISED IN THE SCN AND THE ORDER U/S 143(3) OF THE ACT WAS PASSED ONLY AFTER CONSIDERING THE OUTCOME OF THE ENQUIRY. ACCORDING TO LD. AR, ON RECEIPT OF THE OBJECTIONS FROM THE ASSESSEE, THE LD. PR. CIT OUGHT TO HAVE EXAMINED THE ASSESSMENT RECORDS AND CONDUCTED HIS OWN ENQUIRY AND THEREAFTE R SHOULD HAVE RECORDED HIS OWN FINDING PROVING THAT THE EXPLANATIONS FURNISHED BY THE ASSE SSEE SUFFERED FROM ANY FACTUAL OR LEGAL INFIRMITY AND BECAUSE OF WHICH HE FOUND THAT THE VI EW ADOPTED BY THE AO WAS UNSUSTAINABLE IN LAW MAKING HIS ORDER AS ERRONEOUS WITHIN THE MEA NING OF SECTION 263 OF THE ACT. IN OUR OPINION, ONCE THE LD. CIT INITIATES THE PROCEEDINGS U/S 263 OF THE ACT FOR SPECIFIC REASONS AND THESE REASONS ARE MET BY THE ASSESSEE, THEN IT IS INCUMBENT UPON THE LD. CIT TO HIMSELF INDEPENDENTLY DEAL WITH THE OBJECTIONS AND RECORD H IS OWN SATISFACTION TO PROVE THAT THE AOS ORDER IS IN FACT ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR THE 16 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 REASONS OUT IN THE SCN. THE LD. CIT IN SUCH A SITUA TION CANNOT MERELY SET ASIDE THE ASSESSMENT ORDER DIRECTING AO TO PASS THE ORDER OF ASSESSMENT AFRESH, EFFECTIVELY GIVING THE AO A SECOND INNINGS WITHOUT ESTABLISHING THAT THE I NITIAL ORDER WAS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN THI S REGARD, IT IS PERTINENT TO REFER TO THE OBSERVATIONS AND THE DECISION RENDERED BY THE HONB LE DELHI HIGH COURT IN THE CASE OF ITO VS DG HOUSING PROJECTS LTD IN 343 ITR 329, WHICH IS REPRODUCED BELOW: 19. IN THE PRESENT CASE, THE FINDINGS RECORDED BY THE TRIBUNAL ARE CORRECT AS THE CIT HAS NOT GONE INTO AND HAS NOT GIVEN ANY REASON FOR OBSERVING THA T THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS. THE FINDING RECORDED BY THE CIT IS THAT 'ORDER PASSED BY THE ASSESSING OFFICER MAY BE ERRONEOUS'. THE CIT HAD DOUBTS ABOUT THE VALUATION AND SALE CONSIDERATION RECEIVED BUT THE CIT SHOULD HAVE EXAMINED THE SAID ASPECT HIMSELF AND GI VEN A FINDING THAT THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS. HE CAME TO THE CON CLUSION AND FINDING THAT THE ASSESSING OFFICER HAD EXAMINED THE SAID ASPECT AND ACCEPTED THE RESPO NDENT'S COMPUTATION FIGURES BUT HE HAD RESERVATIONS. THE CIT IN THE ORDER HAS RECORDED THA T THE CONSIDERATION RECEIVABLE WAS EXAMINED BY THE ASSESSING OFFICER BUT WAS NOT PROPERLY EXAMINED AND THEREFORE THE ASSESSMENT ORDER IS 'ERRONEOUS'. THE SAID FINDING WILL BE CORRECT, IF THE CIT HAD EX AMINED AND VERIFIED THE SAID TRANSACTION HIMSELF AN D GIVEN A FINDING ON MERITS. AS HELD ABOVE, A DISTINC TION MUST BE DRAWN IN THE CASES WHERE THE ASSESSING OFFICER DOES NOT CONDUCT AN ENQUIRY; AS LACK OF ENQ UIRY BY ITSELF RENDERS THE ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND CASES WHERE THE ASSESSING OFFICER CONDUCTS ENQUIRY BUT FINDING RECORDED IS ERRONEOUS AND WHICH IS ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN LAT TER CASES, THE CIT HAS TO EXAMINE THE ORDER OF THE ASSE SSING OFFICER ON MERITS OR THE DECISION TAKEN BY TH E ASSESSING OFFICER ON MERITS AND THEN HOLD AND FORM AN OPINION ON MERITS THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF THE REVENUE. IN THE SECOND SET OF CASES, CIT CANNOT DIRECT THE ASSESSING OFFICER TO C ONDUCT FURTHER ENQUIRY TO VERIFY AND FIND OUT WHETHER THE ORDER PASSED IS ERRONEOUS OR NOT. 17. THE ABOVE VIEW IS ALSO SUPPORTED BY THE FOLLOWI NG DECISIONS: - DIT VS JYOTI FOUNDATION REPORTED IN 357 IT R 388 (DEL) - CIT VS ASHISH RAJPAL REPORTED IN 320 ITR 6 74 (DEL) - CIT VS R.K. CONSTRUCTION CO. REPORTED IN 3 13 ITR 65 (GUJ) 18. HAVING BROADLY DISCUSSED AND SET OUT ABOVE THE SETTLED JUDICIAL PRINCIPLES FOR USURPATION OF JURISDICTION U/S 263 OF THE ACT, WE N OW PROCEED TO EXAMINE WHETHER FOR THE REASONS SET OUT IN CLAUSES (A) TO (G) OF THE SCN, T HE LD. PR. CIT WAS ABLE TO JUSTIFY HIS FINDING IN THE IMPUGNED ORDER THAT THE AOS ORDER W AS INDEED ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE NECESSITATING HIS INTE RFERENCE U/S 263 OF THE ACT WITH REFERENCE TO EACH OF THE SEVEN ISSUES SET OUT IN THE SCN. 17 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 19. IN GROUND NOS. 3 & 4 THE ASSESSEE OBJECTED TO L D. PR. CITS FINDING WITH REFERENCE TO REASONS SET OUT IN CLAUSE 3(A) OF THE SCN WHICH REA D AS UNDER: ONE OF THE REASONS FOR SELECTION OF SCRUTINY WAS M ISMATCH IN TURNOVER. IT IS NOTICED FROM REPLY OF ASSESSE DATED 16-12-2016 THAT RECEIPTS AGAINST DEDU CTION OF TDS WAS DISCLOSED AT RS.9.72 CRS. HOWEVER, AS PER ACCOUNTS THERE WERE THREE CATEGORI ES OF REVENUE EARNED BY THE ASSESSE E DURING THE YEAR VIZ. (I) SALES OF PRODUCTS (SCH. 18A OF P&L AC COUNT), (II) SALES OF SCRAP (SCH. 18B OF P&L ACCOUNT), AND (III) OTHER INCOME (SCH. 19 OF P&L AC COUNT). HENCE, INCIDENCE OF TDS CAN APPLY ONLY TO OTHER INCOME, WHICH AS PER THE ACCOUNTS WAS TO T HE TUNE OF RS. 8.40 CRORES (RS. 873.53L LESS FOREIGN EXCHANGE GAIN OF RS. 33.82L). THUS, EVEN IF TDS WAS DEDUCTED ON ENTIRE OTHER INCOME, THERE WAS A SHORT CREDIT INCOME. THE SAME WAS NOT PROPERL Y VERIFIED BY THE A.O. 20. IN THE IMPUGNED ORDER THE LD. PR. CIT ADMITTED THAT THE ASSESSEE HAD FILED EXPLANATION BUT THE SAME WAS NOT REJECTED SUMMARILY ON THE GROUND THAT THE ISSUE WAS NOT LOOKED INTO NOR WERE FULL FACTS DISCUSSED. IN THE C OURSE OF HEARING, THE LD. AR DREW OUR ATTENTION TO THE FACTS AVAILABLE ON RECORD WHICH FA CTUALLY DISPROVED THE REASONS SET OUT IN CLAUSE (A). AS NOTED IN PARA 3, WE FIND THAT THE AS SESSEES CASE WAS SELECTED FOR SCRUTINY UNDER CASS INTER ALIA ON THE GROUND THAT THERE WAS A MISMATCH IN TURNOVER AS PER AUDIT REPORT AND ITR. WE NOTE THAT THIS ASPECT WAS SPECIF ICALLY ENQUIRED INTO BY THE AO AT THE TIME OF ASSESSMENT. THE ASSESSEE BY ITS LETTER DATE D 09.12.2016 [PAGES 17 TO 21 OF PAPER BOOK] HAD BROUGHT TO THE AOS ATTENTION THAT IN FAC T THERE WAS NO MISMATCH IN TURNOVER. THE LD. AR BROUGHT TO OUR ATTENTION THAT IN PART A OF T HE RETURN OF INCOME, THE ASSESSEE HAD REPORTED ITS TURNOVER AT RS.1153.407 CRORES WHICH MATCHED FULLY WITH THE NET SALES/ TURNOVER FIGURE WHICH APPEARED ON PAGE 37 OF THE AN NUAL PRINTED ACCOUNTS. FROM THESE FIGURES, WE NOTE THAT THE CASS REASON WAS EXAMINED BY THE AO AND DID NOT FIND ANY FACTUAL INFIRMITY IN THE ASSESSEES EXPLANATION. NOR ANY FA LSITY WAS FOUND BY THE LD PCIT IN THE IMPUGNED ORDER 21. WE FURTHER FIND THAT HAVING MADE A REFERENCE TO CASS REASON THE LD. PR. CITS NOTICE PROCEEDED TO HIGHLIGHT AN ALLEGED MISMATCH B ETWEEN GROSS RECEIPTS OF RS.972 LACS REFLECTED IN TDS CERTIFICATES WITH THE AMOUNT CREDI TED IN THE P&L A/C UNDER THE HEAD OTHER INCOME, REPORTED AT RS.873.88 LACS. WE FIND MERIT IN THE LD. ARS SUBMISSION THAT THE LD. PR. CIT PROCEEDED ON AN ERRONEOUS ASSUMPTION THAT T HE TAX WAS DEDUCTED AT SOURCE ONLY FROM THE RECEIPTS, REPORTED IN THE APPELLANTS P&L A/C UNDER THE HEAD OTHER INCOME AND 18 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 NO TAX WAS DEDUCTED FROM RECEIPTS REPORTED UNDER OT HER ACCOUNTING HEADS IN THE P&L A/C. ON THE CONTRARY, WE FIND THAT IN THE COURSE OF ASSE SSMENT THE ASSESSEE WAS SPECIFICALLY REQUIRED BY THE AO TO RECONCILE THE RECEIPTS REPORT ED IN STATEMENT 26AS WITH THE AMOUNTS CERTIFIED IN THE TDS CERTIFICATES AS ALSO WITH RECE IPTS REPORTED IN THE AUDITED ACCOUNTS FOR THE RELEVANT YEAR. IN RESPONSE, A STATEMENT OF RECONCIL IATION WAS PROVIDED TO THE AO UNDER THE COVER OF ASSESSEES LETTER DATED 16.12.2016 WHICH F INDS PLACE AT PAGES 40 TO 41 OF THE PAPER BOOK. WE THEREFORE FIND THAT THE RELEVANT ASPECT WA S NOT ONLY EXAMINED BY THE AO BUT BEING SATISFIED WITH THE FACT THAT THE RECEIPTS REPORTED IN STATEMENT 26AS FULLY RECONCILED WITH THE RECEIPTS REPORTED IN THE AUDITED ACCOUNTS, THE AO H AD PASSED THE ASSESSMENT ORDER U/S 143(3) OF THE ACT. WE FURTHER FIND THAT IN RESPONSE TO THE SCN, THE ASSESSEE HAD FILED A STATEMENT, RECONCILING RECEIPTS WHICH SUFFERED TAX DEDUCTION A T SOURCE DURING THE RELEVANT YEAR WITH RECEIPTS ACCOUNTED UNDER RESPECTIVE ACCOUNTING HEAD S AND WHICH WERE CREDITED IN THE RELEVANT YEARS PROFIT & LOSS ACCOUNT. COPY OF SUCH RECONCILIATION STATEMENT WAS FURNISHED BEFORE US AT PAGES 119 TO 121 OF THE PAPER BOOK. ON SCRUTINY OF THIS STATEMENT, WE FIND THAT THE ASSESSEE HAD ESTABLISHED BEFORE THE AO AS WELL AS BEFORE THE LD. PR. CIT THAT ALL RECEIPTS CERTIFIED IN THE TDS CERTIFICATES HAD BEEN FULLY AC COUNTED IN THE ASSESSEES BOOKS FOR THE RELEVANT YEAR. ALTHOUGH THESE DOCUMENTS AND EXPLANA TIONS WERE ADMITTEDLY FILED BEFORE THE LOWER AUTHORITIES, NO FACTUAL INFIRMITY OR FALSITY WAS SHOWN BY THE LD. PR. CIT OR BY THE LD. CIT, DR APPEARING ON BEHALF OF THE REVENUE. THE LD. PR. CIT SET ASIDE THE ASSESSMENT ORDER ON THIS ISSUE MERELY OBSERVING THAT THE ISSUE WAS NOT PROPERLY EXAMINED. APPLYING THE PRINCIPLES SET OUT IN PARAS 8 TO 17 ABOVE, WE THERE FORE HOLD THE ORDER U/S 263 OF THE ACT ON THIS ISSUE TO BE UNSUSTAINABLE BECAUSE NOT ONLY DID THE AO HAD ENQUIRED INTO THIS ISSUE BUT HAD CONSCIOUSLY APPLIED HIS MIND TO THE FACTS MADE AVAILABLE BEFORE HIM AND ADOPTED THE PERMISSIBLE VIEW IN LAW. ON THE CONTRARY THE LD. PR . CIT DID NOT BRING ON RECORD ANY MATERIAL TO DISPROVE THE ASSESSEES EXPLANATIONS WH ICH SHOWED THAT RECEIPTS CERTIFIED IN THE TDS CERTIFICATES TOTALING RS 972 LACS WERE FULLY AC COUNTED IN THE ASSESSEES BOOKS OF THE RELEVANT YEAR BUT MERELY RESTORED THE ISSUE FOR FRE SH EXAMINATION BY THE AO. THE ORDER OF THE LD. PR. CIT WITH REFERENCE TO ISSUE IN CLAUSE ( A) IS THEREFORE SET ASIDE. GROUND NOS. 3 & 4 ARE ACCORDINGLY ALLOWED. 22. IN GROUND NOS. 5 TO 7, THE ASSESSEE HAS OBJECTE D TO LD. PR. CITS FINDING WITH REFERENCE TO REASONS SET OUT IN CLAUSE 3(B) OF THE SCN WHICH READ AS FOLLOWS: 19 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 ONE OF THE REASONS FOR SELECTION OF SCRUTINY WAS M ISMATCH IN AMOUNT PAID TO RELATED PERSONS U/S 40A (2) (B) REPORTED IN AUDIT REPORT (FORM 3CEB) AN D ITR. HOWEVER, THE CASE WAS NOT REFERRED TO TPO. AS PER PARA 3.2 OF CBDTS. INSTRUCTION NO. 3 O F 2016, THE INSTANT CASE HAD TO BE MANDATORILY REFERRED TO THE TPO (THE TRANSFER PRICING OFFICER) BY THE A.O AFTER OBTAINING THE APPROVAL OF PRINCIPLE CIT. HOWEVER, THE A.O HAS COMPLETED ASSES SMENT U/S 143(3) OF THE ACT ON 29-12-2016 WITHOUT REFERRING THE MATTER TO TRANSFER PRICING OF FICER. 23. WE FIND THAT THE ASSESSEES CASE WAS SELECTED U NDER CASS INTER ALIA ON THE PARAMETER THAT MISMATCH IN AMOUNT PAID TO RELATED PERSONS U/S 40A (2) (B) REPORTED IN AUDIT REPORT AND ITR . WE NOTE THAT WITH REFERENCE TO THIS CASS REASON T HE ASSESSEE WAS REQUIRED TO PROVIDE ITS EXPLANATION ABOUT THE ALLEGED MISMATCH OF THE FIGURES REPORTED IN TERMS OF SECTION 40A(2)(B) IN ITR AND TAX AUDIT REPORT. WE N OTE THAT EXPLANATION IN THAT REGARD WAS FURNISHED VIDE PARA 9 OF ASSESSEES LETTER DATE D 09.12.2016 [ PAGE109 OF PAPER BOOK]. IT WAS EXPLAINED BEFORE THE LOWER AUTHORITIES AS ALSO BEFORE US THAT IN CLAUSE 9A OF PART A- OI OF THE INCOME-TAX RETURN IN ITR-6, THE ASSESSEE WAS REQUIRED TO SPECIFY THE QUANTUM OF THE AMOUNTS DEBITED TO THE PROFIT & LOSS ACCOUNT ,TO TH E EXTENT DISALLOWABLE U/S 40A, TO THE PERSONS SPECIFIED IN SECTION 40A(2)(B) OF THE ACT. IN OTHER WORDS IN THE ITR THE ASSESSEE WAS EXPECTED TO SPECIFY THE AMOUNT WHICH WAS DISALL OWABLE IN TERMS OF SECTION 40A(2)(B)OF THE ACT. ON THE OTHER HAND, IN CLAUSE 23 OF THE TAR READ WITH ANNEXURE IX THERETO, THE AUDITOR HAD REPORTED THE PAYMENTS ACTUALLY MADE BY THE ASSESSEE TO THE PERSONS SPECIFIED IN SECTION 40A(2)(B) OF THE ACT. IT WAS EXPLAINED THAT THE TAX AUDITOR, WHILE GIVING HIS REPORT IN CONFORMITY WITH THE FORM PRESCRIBED BY THE BOARD U/ S 44AB OF THE ACT, WAS REQUIRED TO REPORTONLY THE AMOUNTS PAID TO PERSONS SPECIFIED I N S 40A(2) DURING THE RELEVANT REPORTING PERIOD AND HE WAS NOT REQUIRED TO EXPRESS HIS OPIN ION AS TO WHETHER THE PAYMENTS TO THE SPECIFIED PERSONS WERE EXCESSIVE AND FOR THAT REASO N ANY PART THEREOF WAS DISALLOWABLE U/S 40A(2) OF THE ACT. THE LD. AR THEREFORE SUBMITTED T HAT THE INTENT AND PURPORT OF INFORMATION DISCLOSED IN CLAUSE 9A OF PART A- OI OF THE INCOME- TAX RETURN IN ITR-6 AND CLAUSE 23 OF THE TAR BEING MATERIALLY DIFFERENT, AND THE FIGURES REP ORTED IN ITR AND IN CLAUSE 23 OF TAR DID NOT MATCH. 24. THE LD. AR SUBMITTED THAT THE CASS PARAMETER RE FERRED ONLY TO MISMATCH OF THE FIGURES REPORTED IN TAX AUDIT REPORT IN RELATION TO PAYMENTS MADE TO PERSONS REFERRED 40A(2)(B) WITH THE FIGURES MENTIONED IN INCOME-TAX RETURN. THE CASS REASONS DID NOT MAKE REFERENCE TO THE TRANSFER PRICING AUDIT REPORT FU RNISHED IN FORM 3CEB, AS WRONGLY ALLEGED BY THE LD. PR. CIT IN HIS SCN. HE THEREFORE SUBMITT ED THAT WHEN THE REASON FOR SELECTION 20 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 UNDER CASS WAS EXAMINED AND THE AO WAS SATISFIED WI TH THE EXPLANATION FURNISHED FOR THE SAME, THE LD. PR. CIT COULD NOT JUSTIFY INVOCATION OF POWER U/S 263ON THE GROUND THAT BEFORE COMPLETION OF ASSESSMENT REFERENCE TO TPO ON TRANSFER PRICING RISK PARAMETER WAS MANDATORY IN TERMS OF PARA 3.2 OF THE CBDT INSTRUCT ION NO. 3 OF 2016. 25. HAVING CONSIDERED RIVAL SUBMISSIONS WE FIND MER IT IN THE LD. ARS PRIMARY CONTENTION THAT THE SCN PROCEEDED ON THE WRONG PRES UMPTION THAT THE ASSESSEES CASE WAS SELECTED ON A TRANSFER PRICING RISK PARAMETER. WE N OTE THAT THE PARAMETER FOR SELECTION WAS AS FOLLOWS: MISMATCH IN AMOUNT PAID TO RELATED PERSONS U/S 40A (2) (B) REPORTED IN AUDIT REPORT AND ITR 26. IT IS THUS NOTED THAT NOWHERE THE CASS REASON S TATED THE SELECTION OF THE ASSESSEES CASE WAS ON THE GROUND OF THERE BEING LARGE VALUE OF SPECIFIED DOMESTIC TRANSACTIONS OR LARGE VALUE OF INTERNATIONAL TRANSACTIONS SO AS TO WARRANT AN INFERENCE THAT THE CASE WAS SELECTED ON TRANSFER PRICING RISK PARAMETER. ON THE CONTRARY, THE CASS REASON MERELY CLAIMED THAT THERE WAS MISMATCH IN THE AMOUNT PAID TO RELATED PERSONS U/S 40A(2)(B) OF THE ACT REPORTED IN AUDIT REPORT AND ITR. FROM PLAIN RE ADING OF THE SAID CASS REASON, WE ARE OF THE VIEW THAT NO PRUDENT PERSON PROPERLY INSTRUC TED IN LAW WOULD HAVE INFERRED THAT THE AFORESAID PARAMETER CONSTITUTED TRANSFER PRICING RISK PARAMETER SO AS TO WARRANT MANDATORY REFERENCE U/S 92CA OF THE ACT IN TERMS OF THE PARA 3.2 OF CBDT INSTRUCTION NO. 3 OF 2016 AND FAILURE TO MAKE TP REFERENCE MADE THE ASSESSMEN T ORDER ERRONEOUS. WE FURTHER FIND THAT ONCE THE INCORRECT PRESUMPTION ON LD. PR. CITS PAR T WAS HIGHLIGHTED BY THE ASSESSEE IN ITS SUBMISSION THEN IN THE IMPUGNED ORDER THE LD. PR.CI T HIMSELF COMPLETELY DIGRESSED FROM THE REASON SET OUT IN THE SCN BUT NONE THE LESS JUS TIFIED HIS ACTION ON THE GROUND THAT THE REFERENCE TO TPO WAS NECESSARY BECAUSE THE ASSESSEE S CASE WAS SELECTED FOR SCRUTINY UNDER THE CATEGORY OF COMPLETE SCRUTINY. WE ARE HOWEVER UNABLE TO ACCEPT AN ALTOGETHER NEW CASE MADE OUT BY THE LD. PR. CIT WHILE PASSING THE IMPUGNED ORDER, JUSTIFYING HIS INTERFERENCE THAT FOR NOT MAKING REFERENCE TO THE T PO, ORDER OF ASSESSMENT WAS ERRONEOUS IN TERMS OF SECTION 263 OF THE ACT. IN THE FIRST INSTA NCE, WE NOTE THAT THE LD. PR. CIT HIMSELF GAVE UP THE REASON SET OUT IN SCN VIZ., THAT ONE OF THE CASS REASON FOR SELECTION OF SCRUTINY ASSESSMENT WAS A TRANSFER PRICING RISK PARAMETER. O NCE IT IS ESTABLISHED THAT THE TRANSFER PRICING RISK PARAMETER WAS NOT THE GROUND FOR SELEC TION OF SCRUTINY ASSESSMENT U/S 143(3) OF 21 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 THE ACT, THEN WE HAVE TO AGREE WITH THE LD. ARS SU BMISSION THATPARA 3.2 OF THE CBDT INSTRUCTION NO. 3 OF 2016 WAS NOT APPLICABLE IN THE GIVEN FACTS OF THE PRESENT CASE AND THEREFORE THE AOS ORDER COULD NOT HAVE BEEN HELD T O BE ERRONEOUS BY THE CIT FOR NOT MAKING REFERENCE TO THE TPO IN TERMS OF THE SAID C BDT INSTRUCTION 3 OF 2016. 27. SO FAR AS THE LD. PR. CITS FINDING JUSTIFYING HIS CASE THAT THE AOS ORDER BECAME ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE FOR NOT REFERRING THE ASSESSEES CASE TO THE TPO U/S 92CA OF THE ACT ON THE GROUND THAT T HE ASSESSEES CASE CAME WITH THE CATEGORY OF COMPLETE SCRUTINY, WE NOTE THAT THIS CONTENTION OF THE LD. PR. CIT IS IN FACT CONTRARY TO THE EXTANT INSTRUCTIONS OF THE CBDT CON TAINED IN PARAS 3.2 TO 3.3 OF INSTRUCTION NO.3/2016 WHEREIN THE BOARD HAVE SET OUT THE FOLLOW ING SPECIFIC SITUATIONS/INSTANCES WHERE THE REFERENCE TO TPO HAS BEEN MADE MANDATORY : 3.2 ALL CASES SELECTED FOR SCRUTINY, EITHER UNDER THE COMPUTER ASSISTED SCRUTINY SELECTION [CASS] SYSTEM OR UNDER THE COMPULSORY MANUAL SELECT ION SYSTEM (IN ACCORDANCE WITH THE CBDT'S ANNUAL INSTRUCTIONS IN THIS REGARD -FOR EXAMPLE. IN STRUCTION NO. 6/2014 FOR SELECTION IN F.Y 2014-15 AND INSTRUCTION NO. 8/2015 FOR SELECTION IN F.Y 201 5-16), ON THE BASIS OF TRANSFER PRICING RISK PARAMETERS [IN RESPECT OF INTERNATIONAL TRANSACTION S OR SPECIFIED DOMESTIC TRANSACTIONS OR BOTH] HAVE TO BE REFERRED TO THE TPO BY THE AO, AFTER OBTAININ G THE APPROVAL OF THE JURISDICTIONAL PRINCIPAL COMMISSIONER OF INCOME-TAX (PCIT) OR COMMISSIONER O F INCOME-TAX (CIT). THE FACT THAT A CASE HAS BEEN SELECTED FOR SCRUTINY ON A TP RISK PARAMETER B ECOMES CLEAR FROM A PERUSAL OF THE REASONS FOR WHICH A PARTICULAR CASE HAS BEEN SELECTED AND THE S AME ARE INVARIABLY AVAILABLE WITH THE JURISDICTIONAL AO. THUS, IF THE REASON OR ONE OF TH E REASONS FOR SELECTION OF A CASE FOR SCRUTINY IS A TP RISK PARAMETER, THEN THE CASE HAS TO BE MANDATORILY REFERRED TO THE TPO BY THE AO, AFTER OBTAINING THE APPROVAL OF THE JURISDICTIONAL PCIT OR CIT. 3.3 CASES SELECTED FOR SCRUTINY ON NON-TRANSFER PRI CING RISK PARAMETERS BUT ALSO HAVING INTERNATIONAL TRANSACTIONS OR SPECIFIED DOMESTIC TRANSACTIONS, SH ALL BE REFERRED TO TPOS ONLY IN THE FOLLOWING CIRCUMSTANCES: (A) WHERE THE AO COMES TO KNOW THAT THE TAXPAYER HA S ENTERED INTO INTERNATIONAL TRANSACTIONS OR SPECIFIED DOMESTIC TRANSACTIONS OR BOTH BUT THE TAX PAYER HAS EITHER NOT FILED THE ACCOUNTANT'S REPORT UNDER SECTION 92E AT ALL OR HAS NOT DISCLOSED THE S AID TRANSACTIONS IN THE ACCOUNTANT'S REPORT FILED; (B) WHERE THERE HAS BEEN A TRANSFER PRICING ADJUSTM ENT OF RS. 10 CRORE OR MORE IN AN EARLIER ASSESSMENT YEAR AND SUCH ADJUSTMENT HAS BEEN UPHELD BY THE JUDICIAL AUTHORITIES OR IS PENDING IN APPEAL; AND (C) WHERE SEARCH AND SEIZURE OR SURVEY OPERATIONS H AVE BEEN CARRIED OUT UNDER THE PROVISIONS OF THE INCOME-TAX ACT AND FINDINGS REGARDING TRANSFER PRICING ISSUES IN RESPECT OF INTERNATIONAL TRANSACTIONS OR SPECIFIED DOMESTIC TRANSACTIONS OR BOTH HAVE BEEN RECORDED BY THE INVESTIGATION WING OR THE AO. 22 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 28. FROM PERUSAL OF THE ABOVE, IT IS NOTED THAT NON E OF THE CONDITIONS PRESCRIBED IN THESE PARAS NECESSITATING MANDATORY REFERENCE TO TPO WERE SATISFIED IN THE INSTANT CASE. IN FACT, WE FIND THAT IN THE IMPUGNED ORDER, LD. PR. CIT HIM SELF DID NOT TO MAKE OUT A CASE THAT THE ASSESSEES CASE FELL UNDER ANY OF THE SITUATIONS PR ESCRIBED IN PARAS 3.2 & 3.3 REQUIRING MANDATORY REFERENCE U/S 92CA(2) OF THE ACT. THE ONL Y GROUND ON WHICH THE LD. PR. CIT ULTIMATELY JUSTIFIED HIS ORDER REQUIRING AO TO MAKE REFERENCE U/S 92CA MANDATORILY WAS THAT THE ASSESSEES CASE WAS SELECTED UNDER COMPLET E SCRUTINY CRITERIA AND THEREFORE ALL POSSIBLE ENQUIRIES SHOULD HAVE BEEN MADE BY THE AO INTER ALIA INCLUDING MAKING REFERENCE TO THE TPO. WE FIND THAT ALTHOUGH IN SUPPORT OF SUC H CONCLUSION THE LD. PR. CIT HAS PLACED RELIANCE ON THE CBDT INSTRUCTION NO. 3 OF 2016, THE SAID INSTRUCTION NOWHERE EVEN SUGGESTS LET ALONE PROVIDES THAT EVERY CASE OF AN ASSESSEE S ELECTED ON NON-TRANSFER PRICING RISK PARAMETER BUT INVOLVING COMPLETE SCRUTINY, THE RE FERENCE MUST BE MADE TO THE TPO IF SUCH AN ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACT IONS OR SPECIFIED DOMESTIC TRANSACTIONS DURING THE RELEVANT YEAR. INSTEAD IN PARA 3.3 THE B OARD HAS ENUMERATED ONLY THREE SPECIFIC INSTANCES/ SITUATIONS WHEN THE REFERENCE TO TPO HA S BEEN MADE MANDATORY EVEN THOUGH AS PER THE CASS, THE CASE OF AN ASSESSEE IS NOT SELEC TED ON TRANSFER PRICING RISK PARAMETER. WE FIND THAT IN THE IMPUGNED ORDER THE LD. PR. CIT HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE AO HAD ACTED IN VIOLATION OF THE C BDT INSTRUCTION NO. 3 OF 2016 AND FOR THAT REASON THE AOS ORDER WAS ERRONEOUS AND PREJUD ICIAL TO THE INTERESTS OF THE REVENUE. 29. EVEN WITH REGARD TO CITS ALLEGATION THAT IN CO MPLETE SCRUTINY CASE, THE AO DID NOT CONDUCT ANY ENQUIRIES WHATSOEVER WITH REGARD TO TRA NSACTIONS REFERRED TO IN SECTION 40A(2)(B) AS WELL AS SECTION 92CA OF THE ACT, WE FI ND THAT PRIOR TO COMPLETION OF ASSESSMENT THE AO HAD INDEED CONDUCTED ENQUIRIES WI TH REGARD TO CASS REASON AS ALSO THE ASSESSEES INTERNATIONAL TRANSACTIONS WITH THE AES. WE NOTE THAT BEFORE COMPLETION OF ASSESSMENT, THE ASSESSEE WAS ASKED TO PROVIDE EXPLA NATION EVEN WITH REGARD TO ITS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES. BY ITS LETTER DATED 16.12.2016 [PAGES 87 TO 89 OF PAPER BOOK], THE ASSESSEE HAD FU RNISHED ITS EXPLANATION IN RESPECT OF ITS INTERNATIONAL TRANSACTIONS. IN THE SAID LETTER IT W AS PARTICULARLY BROUGHT TO THE AOS ATTENTION THAT BASED ON THE TRANSFER PRICING AUDIT REPORT IN FORM 3CEB, WHEREIN THE AUDITORS HAD CERTIFIED ALP OF INTERNATIONAL TRANSACTIONS, THE AS SESSEE HAD SUO MOTO OFFERED ADJUSTMENTS IN 23 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 THE COMPUTATION OF INCOME ON ACCOUNT OF CORPORATE G UARANTEE FEES AND INTEREST ON LOAN TO AES WHICH WERE NOT ACTUALLY CHARGED. WE THEREFORE F IND THAT IT WAS NOT EVEN A CASE WHERE THE ORDER OF THE AO SUFFERED FROM THE CHARGE OF FAI LURE TO CONDUCT ENQUIRY INTO THE RELEVANT ISSUE AS ALLEGED BY THE LD. PR. CIT IN THE IMPUGNED ORDER. 30. LASTLY, AS POINTED OUT BY THE LD. AR, IN THE SC N, THE LD. PR. CIT HAD JUSTIFIED INVOCATION OF POWER U/S 263 WITH REFERENCE TO ASSES SEES TRANSACTIONS WITH PERSONS SPECIFIED IN SECTION 40A(2)(B) OF THE ACT. IN OTHER WORDS IN CITS OPINION ASSESSEES SPECIFIED DOMESTIC TRANSACTIONS COMING WITHIN THE AMBIT OF SE CTION 92BA(I) OF THE ACT SHOULD HAVE BEEN REFERRED FOR TRANSFER PRICING SCRUTINY. WE HOW EVER NOTE THAT THE RELEVANT PROVISIONS OF SECTION 92BA WERE AMENDED BY FINANCE ACT, 2017W.E.F . 01.04.2017 WHEREBY CLAUSE (I) OF SEC. 92BA RELATING TO ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAVE BEEN MADE OR IS TO BE MADE TO A PERSON REFERRED TO CLAUSE (B) OF SUB- SECTION (2) OF SECTION 40A OF THE ACT WAS OMITTED. NOW THE QUESTION ARISES WHETHER AFTER THE OMISSION OF CLAUSE (I) FROM THE STATUTE, THE CIT CAN JUSTIFIABLY SET ASIDE THE ORDER OF ASSE SSMENT FOR NOT MAKING A REFERENCE TO TPO FOR EXAMINING TRANSACTIONS COMING WITHIN THE AMBIT OF SECTION 92BA(I) OF THE ACT. IN THIS REGARD, OUR ATTENTION WAS INVITED TO THE DECISION O F THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DVC EMTA COAL MINES LTD &ORS VS ACIT IN ITA NOS. 2430-2432/KOL/2017 DATED 01.05.2019 WHEREIN IT WAS HELD THAT THE LEGAL EFFECT OF CLAUSE (I) OF SECTION 92BA BEING OMITTED BY SUBSEQUENT AMENDMENT, WOULD MEAN T HAT CLAUSE (I) NEVER EXISTED IN THE STATUTE AND CONSEQUENTLY NO ADVERSE INFERENCE WITH REFERENCE TO OMITTED PROVISION CAN BE DRAWN AGAINST AN ASSESSEE. WHILE OMITTING THE CLAUS E (I) OF SECTION 92BA OF THE ACT, NOTHING WAS SPECIFIED WHETHER THE PROCEEDING INITIATED OR A CTION TAKEN ON THIS COUNT CAN CONTINUE. THEREFORE, THIS TRIBUNAL HELD THAT ANY PROCEEDING I NITIATED OR ACTION TAKEN UNDER THAT CLAUSE WOULD NOT SURVIVE AT ALL AND ANY REFERENCE MADE TO TPO UNDER SECTION 92CA IN RESPECT OF TRANSACTIONS REFERRED TO IN CLAUSE (I) OF SECTION 9 2BA OF THE ACT SHALL BE INVALID AND BAD IN LAW. 31. APPLYING THE RATIO LAID DOWN IN THE FOREGOING D ECISION TO THE FACTS OF THE PRESENT CASE, WE NOTE THAT WHEN THE IMPUGNED ORDER WAS PASS ED BY THE LD. PR. CIT, CLAUSE (I) OF SECTION 92BA OF THE ACT HAD ALREADY BEEN OMITTED BY THE FINANCE ACT, 2017 AND IN THAT VIEW OF THE MATTER THE LD. PR. CIT COULD NOT SET ASIDE T HE ORDER FOR ALLEGED NON-COMPLIANCE WITH 24 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 PROVISION OF LAW WHICH NO LONGER EXISTED IN THE STA TUTE AS ON THE DATE OF ORDER. THE LD. PR. CITS DIRECTION REQUIRING THE AO TO CONSIDER MAKING A REFERENCE TO THE TPO IN THE SET ASIDE PROCEEDINGS IS ALSO CONTRARY TO THE VIEW EXPRESSED IN THE FOREGOING DECISION OF THE COORDINATE BENCH(SUPRA). FOR ALL THE FOREGOING REAS ONS THEREFORE, WE HOLD THAT THE AOS ORDER DID NOT SUFFER FROM ANY ERROR FOR THE REASON THAT HE DID NOT MAKE REFERENCE TO THE TPO. ACCORDINGLY THE LD. PR. CITS ORDER FOR THE REASON SETOUT IN CLAUSE 3(B) OF THE SCN AND FOR THE ENTIRELY NEW SET OF REASONS CONTAINED IN THE IM PUGNED ORDER, IS SET ASIDE. GROUND NOS. 5 TO 7 ARE ACCORDINGLY ALLOWED. 32. IN GROUND NOS. 8 & 9 THE ASSESSEE OBJECTED TO L D. PR. CITS FINDING WITH REFERENCE TO REASONS SET OUT IN PARA 3(C) OF THE SCN WHICH READ AS FOLLOWS: DISALLOWANCE U/S 14A OF THE ACT WAS NOT MADE BY TH E A.O KEEPING IN VIEW THE CIRCULAR NO. 5/2014 (F.NO. 225/182/2013-ITA.II) DATED 11-02-2014 AS WEL L AS PROVISIONS LAID DOWN IN THE ACT. 33. FROM THE ASSESSMENT ORDER AS ALSO FROM THE FACT S ON RECORD IT APPEARED THAT DURING THE RELEVANT YEAR THE APPELLANT DID NOT EARN ANY DIVIDE ND FROM ITS INVESTMENTS MADE IN SHARES OF OTHER BODIES CORPORATE. WE ALSO NOTE THAT BARRING I NVESTMENT OF ABOUT RS.5 LACS, THE INVESTMENTS HELD BY THE APPELLANT WERE IN FOREIGN S UBSIDIARIES FROM WHICH NO EXEMPT DIVIDEND COULD HAVE BEEN EARNED. WE ALSO NOTE THAT IN THE COURSE OF ASSESSMENT THE AO HAD SPECIFICALLY REQUIRED THE ASSESSEE TO EXPLAIN WHY D ISALLOWANCE U/S 14A OF THE ACT SHOULD NOT BE MADE. THE ASSESSEE VIDE ITS LETTER DATED 14.12.2 016 HAD EXPLAINED BEFORE THE AO THAT NO DISALLOWANCE U/S 14A WAS WARRANTED SINCE DURING THE RELEVANT YEAR IT DID NOT EARN ANY TAX FREE DIVIDEND. THE RELEVANT LETTER IS AVAILABLE AT PAGE 23 OF THE PAPER BOOK. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE AS SESSMENT ORDER WAS PASSED U/S 143(3) OF THE ACT IN WHICH NO DISALLOWANCE U/S 14A WAS MADE. WE THUS FIND THAT IT WAS NOT A CASE WHERE THE ASPECT OF DISALLOWANCE U/S 14A WAS NOT EN QUIRED INTO BY THE AO PRIOR TO COMPLETION OF ASSESSMENT. WE ALSO FIND THAT THE VIE W ENTERTAINED BY THE AO FOR NOT MAKING DISALLOWANCE U/S 14AOF THE ACT, IN ABSENCE OF EARNI NG OF TAX FREE DIVIDEND, WAS IN CONSONANCE WITH THE JUDICIAL VIEW EXPRESSED BY THE HIGH COURTS AT CALCUTTA, DELHI, GUJARAT, MADRAS& ALLAHABAD. THE RELEVANT CITATIONS ARE AS FO LLOWS: - CIT VS ASHIKA GLOBAL SECURITIES LTD (GA NO. 2122 OF 2014) DATED 11.06.2018 - CHEMINVEST LTD VS CIT (61 TAXMANN.COM 118) 25 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 - PR.CIT VS IL & FS ENERGY DEVELOPMENT PVT LTD (399 I TR 483) - CIT VS CORTECH ENERGY PVT LTD(223 TAXMAN 130) - CIT VS SHIVAM MOTORS (P) LTD (230 TAXMAN 63) - REDINGTON (INDIA) LTD VS ADDL. CIT (392 ITR 663) 34. FOR THE REASONS SET OUT ABOVE WE THEREFORE HOLD THAT THE ASSESSMENT ORDER PASSED BY THE AO IN WHICH NO DISALLOWANCE U/S 14AOF THE ACT W AS MADE, COULD NOT SAID TO BE UNSUSTAINABLE IN LAW BECAUSE THE COURSE ADOPTED BY THE AO WHILE PASSING THE ORDER U/S 143(3) OF THE ACT WAS NOT ONLY PERMISSIBLE IN LAW B UT THE SAID COURSE WAS IN CONFORMITY WITH THE VIEW EXPRESSED BY THE JURISDICTIONAL HIGH COURT. ACCORDINGLY THE IMPUGNED ORDER OF THE LD. PR. CIT WITH REFERENCE TO THE REASONS SET O UT IN CLAUSE (C) OF THE SCN IS HELD TO BE UNSUSTAINABLE AND ACCORDINGLY SET ASIDE. GROUND NOS . 8 & 9 ARE THEREFORE ALLOWED. 35. IN GROUND NOS. 10 TO 12 THE ASSESSEE HAS OBJECT ED TO LD. PR. CITS FINDING WITH REFERENCE TO REASONS SET OUT IN PARA 3(E) OF THE SC N WHICH READ AS FOLLOWS: IT IS SEEN FROM CLAUSE 17 OF TAR THAT THE ASSESSE DID NOT TAKE VALUATION OF PROPERLY SOLD AS PER PROVISIONS OF SECTION 50C OF THE ACT. HOWEVER, LARG E VALUE SALE OF CONSIDERATION OF PROPERTY REPORTED IN TDS RETURN UNDER SECTION 194IA WAS ONE OF THE CR ITERIA FOR SELECTION OF THE CASE IN SCRUTINY. THE SAME WAS NOT PROPERLY VERIFIED BY THE A.O. 36. IN THE IMPUGNED ORDER THE LD. PR. CIT CONSIDERE D THE ASSESSMENT TO BE ERRONEOUS FOR AOS FAILURE TO REFER THE VALUATION OF THE FACTORY BUILDING AND RELATED ASSETS TO THE REGISTERED VALUER FOR DETERMINATION OF THEIR FAIR MARKET VALUE . ACCORDING TO THE LD. PR. CIT, IN TERMS OF SECTION 17 OF THE REGISTRATION ACT, 1908; THE SALE OF FACTORY BUILDING WAS LIABLE TO BE EVIDENCED BY A REGISTERED DEED AND FOR THAT PURPOSE DETERMINATION OF STAMP DUTY VALUE WAS MANDATORY. IN LD. PR. CITS OPINION IN ABSENCE OF T HE VALUATION OF THE FACTORY BUILDING, THE AO COULD NOT HAVE COMPUTED THE INCOME ARISING FROM ITS SALE. HE FURTHER OPINED THAT THE AOS ORDER LACKED ENQUIRY AS ALSO LACKED INTERPRETA TION OF FACTS BECAUSE THE AO SUMMARILY ACCEPTED THE EXPLANATIONS FILED BY THE ASSESSEE AND DID NOT DWELL INTO THE MATTER AS PER THE CRITERIA FOR SELECTION OF SCRUTINY UNDER CASS. 37. IT IS NOTED FROM THE CASS REASONS THAT ASSESSEE S CASE WAS SELECTED FOR SCRUTINY ON THE GROUND THAT LARGE VALUE OF SALE CONSIDERATION OF PROPERTY IN ITR WAS LESS THAN SALE CONSIDERATION OF PROPERTY REPORTED IN TDS RETURN U/ S 194IA OF THE ACT. WE FIND THAT WITH 26 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 REFERENCE TO THIS CASS REASON, THE AO HAD SPECIFICA LLY REQUIRED THE ASSESSEE TO FURNISH ITS EXPLANATION. IN RESPONSE, THE ASSESSEE BY ITS LETTE R DATED 09.12.2016 HAD FURNISHED BEFORE THE AO THE RELEVANT EXPLANATION TOGETHER WITH SUPPORTIN G DOCUMENTARY EVIDENCES. IT WAS EXPLAINED THAT DURING THE RELEVANT YEAR THE ASSESSE E SOLD FIXED ASSETS OF ITS TEA PACKET FACTORY LOCATED AT CHAUPARA TEA ESTATE TO M/S MCLEOD RUSSEL L INDIA LTD (MRIL) FOR LUMPSUM CONSIDERATION OF RS.1200 LACS. AFTER DEDUCTING INCI DENTAL EXPENSES, THE NET CONSIDERATION REALIZED WAS RS.11,99,60,849/-. SINCE THE FIXED ASS ETS WERE SOLD FOR LUMPSUM CONSIDERATION, THE PURCHASER HAD OBTAINED A VALUATION REPORT FROM A CHARTERED ENGINEER FOR ALLOCATING THE SALE CONSIDERATION AMONGST VARIOUS CLASSES OF FIXED ASSETS FOR ACCOUNTING PURPOSES. BASED ON THE VALUATION REPORT OF THE CHARTERED ENGINEER, THE NET CONSIDERATION WAS ALLOCATED AMONGST VARIOUS ASSETS IN THE FOLLOWING MANNER: 38. IN CONFORMITY WITH THE ALLOCATION OF CONSIDERAT ION MADE BY THE PURCHASER IN ITS BOOKS, THE APPELLANT SIMILARLY APPORTIONED THE CONS IDERATION AMONGST THE VARIOUS FIXED ASSETS. THE ALLOCATED AMOUNTS WERE THEN NETTED OFF AGAINST THE WDVS OF THE RESPECTIVE BLOCK OF FIXED ASSETS. SINCE THE TEA PACKET FACTORY WAS S ITUATED ON THE LAND OWNED BY MRIL, THE AGREEMENT FOR SALE OF THE PACKET TEA FACTORY WAS NO T REGISTERED BY THE PURCHASER BECAUSE THE PURCHASER ALREADY HELD LEGAL TITLE OVER THE LAN D. IT WAS EXPLAINED BEFORE THE LOWER AUTHORITIES THAT SINCE AS PER THE VALUATION REPORT THE CONSIDERATION ALLOCATED FOR SALE OF BUILDING WAS RS.8,03,94,934/-, AT THE TIME OF PAYME NT, MRIL DEDUCTED TAX AT THE RATE OF 1% BEING RS.8,03,950/- UNDER SECTION 194-IA OF THE ACT AND ISSUED TDS CERTIFICATE IN FORM 16B FOR THE SAID SUM. COPY OF THE RELEVANT TDS CERT IFICATE WAS PLACED AT PAGE 189 OF THE PAPER BOOK FROM WHICH WE NOTE THAT SALE CONSIDERATI ON FROM WHICH TAX WAS DEDUCTED WAS CERTIFIED BY THE PAYER WAS RS. 8,03,94,934/- WHICH FULLY TALLIED WITH THE SALE CONSIDERATION ACCOUNTED BY THE ASSESSEE IN ITS BOOKS AS ALSO REP ORTED IN ITS ITR AS WELL AS TAR. THE LD. AR THEREFORE CLAIMED THAT THE SALE CONSIDERATION OF PROPERTY REPORTED IN ITR AND THE SALE CONSIDERATION OF PROPERTY REPORTED IN TDS RETURN U/ S 194IA FULLY RECONCILED AND THE CASS REASON WAS FACTUALLY INCORRECT. HE THEREFORE SUBMIT TED THAT THE AO HAD ACCEPTED THE ASSESSES EXPLANATIONS AFTER VERIFYING THE RELEVANT AGREEMENT FOR SALE, REPORT OF THE VALUER, FIXED ASSET AND DEPRECIATION SCHEDULE CERTIFIED BY THE TAX AUDITOR AS ALSO THE TDS CERTIFICATE ISSUED IN FORM 16B BY THE PURCHASER OF THE PACKET T EA FACTORY. THE LD. AR THEREFORE SUBMITTED THAT IT WAS FACTUALLY INCORRECT ON THE LD . PR. CITS PART TO HOLD THAT THE AO HAD 27 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 NOT CONDUCTED ANY ENQUIRY WITH REFERENCE TO CASS RE ASON BEFORE COMPLETION OF ASSESSMENT. THE LD. CIT, DR WAS UNABLE TO CONTROVERT THESE FACT S WHICH ARE BORNE OUT FROM THE DOCUMENTS ON RECORD. WE THEREFORE HOLD THAT FOR THE REASONS SET OUT IN THE CLAUSE 3(D) OF SCN, THE AOS ORDER CANNOT BE SAID TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 39. AS REGARDS THE LD. PR. CITS FINDING IN THE IMP UGNED ORDER HOLDING THE ORDER AS ERRONEOUS FOR NOT MAKING REFERENCE TO THE REGISTERE D VALUER, FOR DETERMINATION OF THE MARKET VALUE OF FACTORY BUILDING, THE LD. AR SUBMITTED THA T THE IMPUGNED ORDER IS SILENT WITH REGARD TO THE RELEVANT PROVISION OF THE ACT IN TERMS OF WH ICH REFERENCE TO REGISTERED VALUER WAS NECESSARY FOR DETERMINATION OF TAXABLE INCOME. ALTH OUGH IN THE CASS REASON, REFERENCE TO SECTION 50C OF THE ACT IS MADE, IN THE IMPUGNED ORD ER THE LD. PR. CIT DID NOT MAKE ANY SPECIFIC REFERENCE TO THE SAID PROVISION THOUGH HE EMPHASIZED ON THE FACT THAT UNDER THE INDIAN REGISTRATION ACT, 1908, THE SALE OF FACTORY BUILDING REQUIRED REGISTRATION AND IN THAT CONTEXT IT WAS NECESSARY TO OBTAIN STAMP DUTY VALUA TION. THE LD. AR HOWEVER POINTED OUT THAT THE ISSUE OF STAMP DUTY VALUATION OF THE IMMOV ABLE PROPERTY WOULD HAVE BEEN RELEVANT ONLY IF INCOME ARISING ON SALE OF FIXED ASSETS OF P ACKET TEA FACTORY WAS ASSESSED UNDER THE HEAD CAPITAL GAINS. DRAWING ATTENTION TO PROVISIO NS OF SECTION 43(6)(C) READ WITH SECTION 32 OF THE ACT, HE STATED THAT SINCE THE ASSETS WHIC H THE ASSESSEE SOLD DURING THE RELEVANT YEAR WERE DEPRECIABLE IN NATURE AND FORMED PART OF THE B LOCK OF ASSETS ON WHICH DEPRECIATION WAS ALLOWED IN THE PAST, IN ARRIVING AT WDV OF THE BLOC K OF DEPRECIABLE ASSETS, THE ASSESSEE DEDUCTED THE SALE VALUES REALIZED FROM MRIL FROM TH E OPENING WDV OF THE RESPECTIVE BLOCK AND ON THE RESULTANT REDUCED WDV THE DEPRECIA TION WAS CLAIMED. HE SUBMITTED THAT SINCE IN THE ASSESSEES CASE THE SALE CONSIDERATION RECEIVED WAS LESS THAN THE OPENING WDV OF THE RESPECTIVE BLOCK OF DEPRECIABLE ASSETS, THE ASSESSEE WAS ALLOWED DEPRECIATION ON THE REDUCED WDV AND NO INCOME WAS ASSESSED UNDER THE HE AD CAPITAL GAIN. HE THEREFORE SUBMITTED THAT SINCE NO INCOME WAS ASSESSED UNDER T HE HEAD CAPITAL GAINS, THERE WAS NO OCCASION FOR THE AO TO MAKE REFERENCE U/S 50C OF TH E ACT TO THE VALUATION OFFICER FOR DETERMINATION OF FAIR MARKET VALUE OF THESE ASSETS. THE LD. CIT, DR, ON THE OTHER HAND, FULLY SUPPORTED THE ORDER OF THE LD. PR. CIT. 28 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 40. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D MERIT IN THE LD. ARS SUBMISSIONS THAT, FOR THE REASONS SET OUT IN PARA 4.3 OF THE IM PUGNED ORDER, THE AOS ORDER COULD NOT BE HELD TO BE ERRONEOUS. ALTHOUGH IN THE IMPUGNED ORDE R, THE AOS ORDER WAS CONSIDERED ERRONEOUS FOR NOT MAKING REFERENCE TO THE REGISTERE D VALUER FOR DETERMINATION OF FAIR MARKET VALUE OF THE FACTORY BUILDING, THE ORDER OF THE LD. PR. CIT IS SILENT ABOUT THE APPLICABLE LEGAL PROVISION IN TERMS OF WHICH THE REFERENCE WAS REQUI RED TO BE MADE. WE FIND THAT REFERENCE TO THE DVO OR TO THE CIRCLE VALUATION ADOPTED BY STAMP DUTY AUTHORITIES WOULD HAVE BEEN RELEVANT IF INCOME ARISING FROM SALE OF ASSETS WAS ASSESSED OR ASSESSABLE UNDER THE HEAD CAPITAL GAINS. SECTION 50C OF THE INCOME-TAX ACT, 1961 CONTAINS A DEEMING FICTION WHERE- UNDER, THE AO IS PERMITTED TO TREAT THE MARKET VALU E ADOPTED BY THE STAMP DUTY AUTHORITIES TO BE THE FULL VALUE OF CONSIDERATION FOR THE PURPOSE S OF SECTION 48 OF THE ACT. SINCE SECTION 50C IS A DEEMING PROVISION OF THE ACT, IT HAS TO BE CONSTRUED STRICTLY AND ITS APPLICATION CAN ONLY MADE IN THE CASES WHERE THE INCOME UNDER THE H EAD CAPITAL GAIN IS ASSESSED OR ASSESSABLE IN ACCORDANCE WITH THE PROVISIONS OF SEC TION 48 OF THE ACT. ON THE CONTRARY HOWEVER, WE FIND THAT IN THE PRESENT CASE NO INCOME ARISING FROM SALE OF FIXED ASSETS OF PACKET TEA FACTORY WAS ASSESSED UNDER THE HEAD CAP ITAL GAINS. WE NOTE THAT IN TERMS OF SECTION 32, 43(6)(C) READ WITH SECTION 41(4) OF THE ACT, THE CONSIDERATION RECEIVED ON TRANSFER OF DEPRECIABLE ASSETS WAS REDUCED FROM THE OPENING WDV OF THE RESPECTIVE BLOCK OF ASSETS. AFTER SUCH REDUCTION, NONE OF THE BLOCKS CE ASED TO EXIST AND THEREFORE ONLY WITH REFERENCE TO THE RESULTANT REDUCED WDV, THE ASSESSE E WAS GRANTED DEPRECIATION U/S 32 OF THE ACT. IN PARTICULAR, OUR ATTENTION WAS DRAWN TO PAGE 190 OF THE PAPER BOOK, WHICH CONTAINED SCHEDULE OF DEPRECIATION ALLOWANCE U/S 32 OF THE AC T, CERTIFIED BY THE TAX AUDITOR. WE FIND THAT WDV OF THE NON-RESIDENTIAL BUILDING BLOCK AT T HE BEGINNING OF THE RELEVANT YEAR, WAS RS.26,35,55,506/- FROM WHICH THE SALE CONSIDERATION OF RS.8,03,94,934/- WAS REDUCED AND THE RESULTANT REDUCED WDV WAS RS.18,36,16,633/- AGA INST WHICH DEPRECIATION AT THE RATE OF 10% WAS ALLOWED BY THE AO. WE THEREFORE FIND THAT I N RESPECT OF SALE OF FACTORY BUILDING, NO INCOME UNDER THE HEAD CAPITAL GAIN WAS ASSESSED. WE ALSO FIND MERIT IN THE LD. ARS SUBMISSION THAT FOR COMPUTING THE WDV IN TERMS OF S ECTION 43(6)(C) OF THE ACT, THE ACT DID NOT PERMIT THE AO TO REDUCE THE STAMP DUTY VALUE OF THE PROPERTY FROM THE OPENING WDV. IN TERMS OF SECTION 43(6)(C), THE AO WAS PERMITTED TO REDUCE FROM THE WDV OF THE BLOCK ONLY THE MONIES PAYABLE. AS PER THE EXPLANATION U NDER SUB SECTION (4) OF SECTION 41 THE SAID EXPRESSION MEANS, THE PRICE FOR WHICH ASSET I S SOLD. WE FIND THAT IN THE PRESENT CASE 29 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 FACTORY BUILDING SOLD WAS PART OF THE DEPRECIABLE B LOCK OF ASSETS, WDV OF WHICH WAS REQUIRED TO BE COMPUTED IN CONFORMITY WITH SECTION 43(6)(C) OF THE ACT. IN ARRIVING AT WDV OF THE BUILDING BLOCK, THE AO COULD HAVE REDUCED O NLY THE MONIES PAYABLE IN RESPECT OF THE PACKET TEA FACTORY WHICH WAS SOLD DURING THE RELEVA NT PREVIOUS YEAR. AS PER THE EXPLANATION (4) TO SECTION 43(6), THE TERM MONIES PAYABLE HAD THE SAME MEANING AS CONTAINED IN EXPLANATION BELOW SECTION 41(4), ACCORDING TO WHICH THE SAID TERM MEANT THE PRICE FOR WHICH IT IS SOLD. WE NOTE THAT IN THE PRESENT CASE THE ASSESSEES TRANSACTION INVOLVING SALE OF FACTORY BUILDING BEING A DEPRECIABLE ASSET, WAS GOVERNED BY THE SPECIFIC PROVISIONS OF SECTION 43(6) READ WITH SECTION 41(4) OF THE ACT AN D NOT BY THE PROVISIONS OF SECTIONS 45, 48 AND 50C. WE THEREFORE FIND MERIT IN THE LD. ARS SUBMISSION THAT THE PROVISIONS OF SECTION 43(6)(C) READ WITH SECTION 41(4) OF THE ACT DID NOT PERMIT THE AO TO SUBSTITUTE THE ACTUAL PRICE AT WHICH THE FACTORY BUILDING WAS SOLD WITH THE NOTIONAL MARKET VALUE DETERMINED BY THE STAMP DUTY AUTHORITY OR BY THE DV O. IN THE CIRCUMSTANCES THEREFORE THE LD. PR. CIT COULD NOT HAVE CONSIDERED THE AOS ORDE R AS ERRONEOUS FOR NOT MAKING REFERENCE TO THE REGISTERED VALUER FOR OBTAINING MARKET VALUE OF THE PROPERTY BECAUSE SUCH NOTIONALLY DETERMINED VALUE APPARENTLY DID NOT HAVE ANY RELEV ANCE FOR DETERMINATION OF TOTAL INCOME OF THE ASSESSEE FOR THE RELEVANT YEAR. WE THEREFORE HAVE NO HESITATION IN HOLDING THAT FOR THE REASONS SET OUT IN THE PARA 4.3 OF THE IMPUGNED ORD ER, THE AOS ORDER COULD NOT BE SAID TO BE HELD AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ACCORDINGLY WE SET ASIDE THE LD. PR. CITS ORDER ON THIS ISSUE AND ALLOW GRO UND NOS. 10 TO 12 OF THE APPEAL. 41. IN GROUND NOS. 13 & 14 THE ASSESSEE HAS OBJECTE D TO LD. PR. CITS FINDING WITH REFERENCE TO REASONS SET OUT IN PARA 3(E) OF THE SC N WHICH READ AS FOLLOWS: IT IS FURTHER SEEN THAT WRITE OFF OF FIXED ASSET O F RS. 42,93,049/- AS PER CLAUSE 21(A) OF TAR WAS NO T ADDED BACK BY THE A.O DURING THE COURSE OF ASSESSME NT. 42. IN THE IMPUGNED ORDER THE LD. PR. CIT ADMITTED THAT THE ASSESSEE HAD FILED EXPLANATIONS TO COUNTER THESE REASONS BUT IN HIS OP INION ORDER WAS ERRONEOUS ON THE GROUND OF NON-ENQUIRY BECAUSE THE ISSUE IN QUESTION WAS NO T RAISED BY THE AO AND ASSESSEE DID NOT FURNISH THE EXPLANATION IN THE COURSE OF ASSESSMENT . ON THE OTHER HAND, IN THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE DREW OUR ATTENT ION TO THE AUDITED ACCOUNTS FOR THE RELEVANT FY 2013-14 TO SHOW THAT THE SUM OF RS.42,9 3,049/- BEING THE COST OF ASSETS WRITTEN OFF WAS NEVER DEBITED AS A SEPARATE LINE ITEM TO I TS PROFIT & LOSS ACCOUNT NOR ANY DEDUCTION 30 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 THERE FOR WAS CLAIMED IN THE COMPUTATION FILED WITH THE RETURN. IN THE CIRCUMSTANCES IT WAS SUBMITTED THAT WHEN THE ASSESSEE NEITHER DEBITED SU CH AMOUNT TO P&L A/C NOR CLAIMED ANY DEDUCTION IN THE RETURN OF INCOME SEPARATELY, THE Q UESTION OF THERE BEING ANY PREJUDICE CAUSED TO THE INTERESTS OF THE REVENUE ON ACCOUNT O F SUCH NON-EXISTING DEDUCTION, DID NOT ARISE. THE LD. AR OF THE ASSESSEE ALSO DREW ATTENTI ON TO THE CERTIFICATE ISSUED BY M/S D.V. AGARWAL & ASSOCIATES, CHARTERED ACCOUNTANT, IN WHIC H HE HAD CERTIFIED THAT THE ASSESSEE DID NOT SEPARATELY CHARGE SUM OF RS.42,93,049/- TO ITS PROFIT & LOSS ACCOUNT UNDER THE HEAD WRITE-OFF OF FIXED ASSETS. HE HAD FURTHER CERTIFI ED THAT FIXED ASSETS OF RS.42,93,049/- WHICH WERE WRITTEN OFF IN THE BOOKS WERE SOLD DURING THE SAME FINANCIAL YEAR AND LOSS INCURRED THEREON WAS RS.21,64,824/- AND THIS WAS NETTED OFF AGAINST GAIN ON SALE OF OTHER FIXED ASSETS AND RESULTANT NET PROFIT OF RS.7,44,52,592/- WAS SEPARATELY CREDITED IN SCHEDULE 19 UNDER THE HEAD OTHER OPERATING INCOME. THE LD. AR SUBMI TTED THAT THE SAID INCOME OF RS.7,44,52,592/- WAS CONSIDERED AND EXCLUDED IN THE COMPUTATION OF BUSINESS INCOME SINCE THE GROSS SALE PROCEEDS REALIZED FROM SALE OF FIXED ASSETS WAS REDUCED FROM THE RESPECTIVE BLOCK OF DEPRECIABLE ASSETS IN CONFORMITY WITH THE PROVISIONS OF SECTION 43(6)(C) OF THE ACT. 43. HAVING CONSIDERED THE RIVAL SUBMISSIONS, WE FIN D THAT IN THE PROFIT & LOSS ACCOUNT, THE ASSESSEE NEVER DEBITED SUM OF RS.42,93,049/- UN DER THE HEAD WRITE-OFF OF FIXED ASSETS NOR SEPARATELY CLAIMED DEDUCTION THEREFORE IN THE R ETURN OF INCOME. IN THE CIRCUMSTANCES THEREFORE WHEN THERE WAS NO CLAIM FOR DEDUCTION OF SUCH AN AMOUNT IN THE RETURN, THE ISSUE OF NON-ENQUIRY IN RESPECT OF A NON ISSUE DID NOT HA VE ANY MATERIAL IMPACT AND NO PREJUDICE CAN BE SAID TO HAVE BEEN CAUSED TO THE INTEREST OF THE REVENUE BECAUSE OF THE ALLEGED NON- ENQUIRY. WE ALSO FIND THAT BEFORE THE LD. PR. CIT T HE ASSESSEE HAD FILED THE CERTIFICATE ISSUED BY M/S D.V. AGARWAL & ASSOCIATES, CHARTERED ACCOUNT ANT IN WHICH IT WAS CERTIFIED THAT THE ASSETS WRITTEN OFF WERE SOLD DURING THE RELEVANT YE AR AND THE LOSS INCURRED ON SALE WAS NETTED OFF AGAINST PROFIT MADE ON SALE OF OTHER FIXED ASSE TS AND THE NET GAIN OF RS.7,44,52,592/- WAS SEPARATELY CREDITED UNDER THE HEAD OTHER OPERATING INCOME, AND THIS WAS SEPARATELY CONSIDERED IN THE COMPUTATION OF INCOME. NO FACTUAL INFIRMITY OR FALSITY WAS SHOWN BY THE LD. PR. CIT IN THE EXPLANATIONS PUT FORTH WHICH WAS SUPPORTED BY CORROBORATIVE EVIDENCE. APPLYING THE RATIO LAID DOWN IN THE DECISIONS OF TH E HONBLE DELHI HIGH COURT IN THE CASE OF ITO VS DG HOUSING PROJECTS LTD (SUPRA) & DIT VS JYO TI FOUNDATION (SUPRA), WE THEREFORE HOLD THAT THE ORDER OF THE LD. PR. CIT MERELY SETTI NG ASIDE THE AOS ORDER WITHOUT 31 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 INDEPENDENTLY DEALING WITH MERITS OF THE ISSUE WAS UNTENABLE AND THEREFORE THE SAME IS SET ASIDE. GROUND NOS. 13 & 14 ARE ACCORDINGLY ALLOWED. 44. IN GROUND NOS. 15 AND 16 THE ASSESSEE HAS OBJEC TED TO LD. PR. CITS FINDING WITH REFERENCE TO REASONS SET OUT IN PARA 3(F) OF THE SC N WHICH READ AS FOLLOWS: IT IS SEEN THAT THE ASSESSE CLAIMED DEDUCTION U/S 801C OF THE ACT ON INCOME FROM OTHER SOURCES AMOUNTING TO RS. 34, 61,750/-. RATIONALE BEHIND SUC H CLAIM WAS NOT VERIFIED BY THE A.O DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 45. IN THE IMPUGNED ORDER THE LD. PR. CIT ADMITTED THAT THE ASSESSEE HAD FILED EXPLANATION NEGATING THE REASONS SET OUT IN THE SCN BUT HE FOUND THAT THE ISSUE RAISED IN THE SCN WAS NEVER ADDRESSED BY THE AO BEFORE COMPLETION OF ASSESSMENT NOR THE ASSESSEE HAD FURNISHED SPECIFIC CALCULATION BY SUBMITTING THE RE LEVANT EVIDENCE DURING THE COURSE OF ASSESSMENT. FOR THIS REASON ALONE, THE LD. PR. CIT CONSIDERED THE AOS ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. 46. AFTER HEARING THE RIVAL SUBMISSIONS AND ON PERU SAL OF THE MATERIAL ON RECORD, WE NOTE THAT THE ISSUE AS RAISED IN THE SCN IN FACT DID NOT ARISE FROM THE ORDER OF THE AO. A BARE READING OF THE REASONS SET OUT IN THE SCN GIVES AN IMPRESSION THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80IC FROM THE INCOME ASSESSED UNDER T HE HEAD OTHER SOURCES AMOUNTING TO RS.34,61,750/- AND SUCH CLAIM WAS NOT EXAMINED BY T HE AO. ON SCRUTINY OF THE ASSESSMENT ORDER WE HOWEVER NOTE THAT NO INCOME WAS IN FACT AS SESSED UNDER THE HEAD OTHER SOURCES IN THE ORDER PASSED U/S 143(3) AND THE INCOME WAS A SSESSED ENTIRELY UNDER THE HEAD BUSINESS. WE ALSO NOTE THAT THE DEDUCTION U/S 80I C WAS CLAIMED AND ALLOWED BY THE AO ONLY OUT OF THE INCOME ASSESSED UNDER THE HEAD PRO FITS & GAINS OF BUSINESS AND FROM THE INCOME ASSESSED UNDER THE HEAD OTHER SOURCES. WE THEREFORE PRIMA FACIE FIND MERIT IN THE ASSESSEES PRELIMINARY OBJECTION THAT THE SCN HAD P ROCEEDED ON AN INCORRECT PREMISE WHICH DID NOT ARISE FROM THE AOS ORDER AND THEREFORE FOR THE REASON SET OUT IN THE IMPUGNED SCN THE ASSESSMENT COULD NOT HAVE BEEN REVISED UNDER SE CTION 263 OF THE ACT. 47. EVEN WITH REGARD TO THE DEDUCTION ALLOWED U/S 8 0IC FOR RS.34,61,750/-, WE NOTE THAT THE ASSESSEE HAD CLAIMED SUCH DEDUCTION IN RESPECT OF ITS TWO INDUSTRIAL UNDERTAKINGS SITUATED AT HARIDWAR AND DEHRADUN. IN SUPPORT OF TH E DEDUCTION CLAIMED THE ASSESSEE HAD 32 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 FILED REPORTS OF THE ACCOUNTANT IN PRESCRIBED FORM 10CCB, COPIES OF WHICH WERE PLACED AT PAGES 111 TO 118 OF THE PAPER BOOK. THE ASSESSEE HA D ALSO FILED COPIES OF THE STAND-ALONE ACCOUNTS OF THE ELIGIBLE UNITS FOR THE RELEVANT YEA R WHICH ARE AVAILABLE AT PAGES 209 TO 212 OF THE PAPER BOOK. IN THE STAND-ALONE ACCOUNTS, THE AS SESSEE HAD CREDITED RS.31.99 LACS AND RS.2.62 LACS UNDER THE HEAD OTHER SOURCE WHICH RE PRESENTED SCRAPS SALES EFFECTED BY THE ELIGIBLE UNITS AT HARIDWAR AND DEHRADUN RESPECTIVEL Y. SINCE THE FOREGOING RECEIPTS WERE GENERATED FROM THE OPERATIONS OF THE INDUSTRIAL UND ERTAKING, IN THE AUDIT REPORT FURNISHED THE ACCOUNTANT HAD CONSIDERED THE SAID SCRAP SALES AS I NCOME DERIVED FROM THE OPERATIONS OF THE ELIGIBLE UNDERTAKING AND THE SAME WAS INCLUDED AS P ART OF THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. WE ALSO NOTE THAT IN THE ORDER U/S 143(3) OF THE ACTTHE AO ASSESSED THE INCOME BY WAY OF SCRAP SALE EARNED BY THE ELIGIBLE UNDERTAKINGS UNDER THE HEAD PROFITS & GAINS OF BUSINESS AND SUCH ACTION WAS NOT INTERFER ED WITH BY THE LD. PR. CIT IN HIS ORDER U/S 263. IN THE CIRCUMSTANCES WE NOTE THAT NO INFIR MITY WAS COMMITTED BY THE AO WHEN THE DEDUCTION U/S 80IC WAS ALLOWED IN RESPECT OF INCOME DERIVED FROM SCRAP SALE WHICH THE AO HAD ASSESSED UNDER THE HEAD BUSINESS. WE FIND THA T THE AOS ORDER ALLOWING DEDUCTION U/S 80IC IN RESPECT OF INCOME FROM SCRAP SALES IS IN CO NFORMITY WITH THE DECISION OF THE HONBLE JURISDICTIONAL CALCUTTA HIGH COURT IN THE CASE OF R ECKITT BENCKISER INDIA LTD VS ACIT (231 TAXMAN 585). THIS VIEW IS ALSO SUPPORTED BY THE JUD GMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF FENNER INDIA LTD VS ACIT (125 TAXMAN 386), HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS SADHU FORGINGS LTD (11 TAXMANN.COM 322). WE ALSO NOTE FROM THE COMPARATIVE CHART PLACED AT PAGES 197 TO 208 OF THE PAPER BOOK THAT IN ALL THE PRECEDING FOUR INCOME-TAX ASSESSMENTS FRAMED U/S 143(3), THE AOS HAD CONSISTENTLY ALLOWED THE DEDUCTION U/S 80IC IN RESPECT OF SCRAP SALES WHICH WAS ACCOUNTED IN THE RESPECTIVE STAND- ALONE ACCOUNTS UNDER THE HEAD OTHER SOURCES. HAVI NG REGARD TO THESE FACTS AND JUDICIAL PRECEDENTS, WE DO NOT FIND MERIT IN THE SUBMISSIONS OF THE LD. CIT, DR THAT THE ORDER OF THE AO SUFFERED FROM ANY ERROR OR THAT THE VIEW TAKEN B Y THE AO WAS UNSUSTAINABLE IN LAW MAKING THE AOS ORDER LIABLE FOR REVISION U/S 263 O F THE ACT. THE LD. PR. CITS ORDER ON THIS ISSUE IS THEREFORE HELD TO BE UNSUSTAINABLE AND ACC ORDINGLY SET ASIDE. GROUND NOS. 15 & 16 ARE ALLOWED. 48. IN GROUND NO. 17 THE ASSESSEE HAS OBJECTED TO L D. PR. CITS FINDING WITH REFERENCE TO REASONS SET OUT IN PARA 3(G) OF THE SCN WHICH READ AS FOLLOWS: 33 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 ONE OF THE CRITERIA FOR SELECTION IN SCRUTINY WAS LARGE OTHER EXPENSES IN P&L ACCOUNT, EVEN HEAD- WISE BREAK UP OF MISCELLANEOUS EXPENSES OF RS. 21.5 6 CRORES WAS NOT CALLED FOR BY THE A.O. 49. IN THE IMPUGNED ORDER THE LD. PR. CIT ADMITTED THAT THE ASSESSEE DID FILE ITS EXPLANATIONS BUT ACCORDING TO HIM IN THE COURSE OF ASSESSMENT THE AO HAD NOT SOUGHT FROM THE ASSESSEE THE RELEVANT DETAILS AND KEPT IT IN TH E RECORD. THE LD. PR. CIT NOTED THAT THE COMPANYS GROSS REVENUE HAD GONE UP BY 11.236% WHER EAS INCREASE IN THE EXPENSE WAS 9.578%. ACCORDING TO LD. PR. CIT HOWEVER SUCH COMPA RISON MAY NOT ALWAYS BE CORRECT AND THE EXPENSES FOR EARNING INCOME SHOULD HAVE HAD DIR ECT CONNECTION WITH THE BUSINESS ACTIVITIES. ACCORDING TO HIM THE RECORD SHOWED THAT THE DOCUMENTS RELATED WITH THE EXPENSES LINKING WITH THE BUSINESS ACTIVITY WERE NOT PRESENT IN THE ASSESSMENT RECORDS AND THEREFORE HE WAS OF THE OPINION THAT THE ISSUE WAS NOT PROPER LY VERIFIED BY THE AO AND ALSO THE ASSESSEE DID NOT FILE THE RELEVANT DOCUMENT WITH PR OPER EVIDENCE DURING THE COURSE OF ASSESSMENT. 50. IN THE COURSE OF HEARING THE LD. AR IN THE FIRS T INSTANCE POINTED OUT THAT ONE OF THE CASS REASON FOR SELECTION OF SCRUTINY WAS LARGE OT HER EXPENSES CLAIMED IN THE P&L A/C. HE POINTED OUT THAT OTHER EXPENSES DEBITED IN THE P&L A/C INTER ALIA INCLUDED MISC EXPENSES OF RS.21.56 CRORES. HE SUBMITTED THAT WIT H REFERENCE TO SUCH CASS REASON THE ASSESSEES EXPLANATION WAS CALLED FOR BY THE AO AND THE SAME WAS SUBMITTED BEFORE THE AO VIDE ASSESSEES LETTER DATED 09.12.2016, COPY WHERE OF IS AT PAGES 17 TO 21 OF THE PAPER BOOK. IT WAS BROUGHT TO THE AOS ATTENTION THAT THE INCRE ASE IN THE EXPENDITURE DEBITED UNDER THE HEAD OTHER EXPENSES WAS MUCH LOWER THAN THE INCRE ASE IN THE TURNOVER AND SINCE IN NONE OF THE PAST INCOME-TAX ASSESSMENTS ANY DISALLOWANCE S WERE MADE OUT OF OTHER EXPENSES, THE AO HAD ACCEPTED THE EXPLANATION PUT FORTH BY TH E ASSESSEE. THE LD. AR FURTHER POINTED OUT THAT MISCELLANEOUS EXPENSES DEBITED IN THE PROF IT & LOSS ACCOUNT TOTALED RS.21.56 CRORES AND IN RESPONSE THE SCN OF THE LD. PR. CIT T HE ASSESSEE HAD FURNISHED ITS COMPLETE BREAK-UP BEFORE HIM AND COPY OF WHICH IS PLACED AT PAGE 79 OF THE PAPER BOOK. THE LD. AR ARGUED THAT HAVING FURNISHED THE COMPLETE BREAK-UP OF THE EXPENSES DEBITED UNDER THE HEAD MISCELLANEOUS EXPENSES, THE LD. PR. CIT HIMSELF DID NOT POINT OUT ANY SPECIFIC INFIRMITY NOR HE WAS ABLE TO POINT OUT EVEN ONE SPECIFIC INSTANCE WHERE THE ITEM OF EXPENDITURE WAS FOUND DISALLOWABLE OR IT WAS EXCESSIVE OR UNREASONABLE. H E FURTHER SUBMITTED THAT THE APPELLANT WAS A LISTED PUBLIC COMPANY HAVING TURNOVER IN EXCE SS OF RS.1153 CRORES AND CARRIED DIVERSE 34 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 BUSINESS ACTIVITIES ON PAN INDIA BASIS. ITS ACCOUNT S WERE SUBJECTED TO INTERNAL AUDIT, STATUTORY AUDIT, COST AUDIT, TAX AUDIT ETC. AND IN THE REPORT S FURNISHED, NO ADVERSE COMMENTS WERE MADE BY ANY OF THE AUDITORS. HE FURTHER POINTED OUT THAT THE NATURE OF BUSINESS AND NATURE OF EXPENSES INCURRED BY THE ASSESSEE IN THE PRIOR YEAR S AS WELL AS IN THE CURRENT YEAR WAS THE SAME. IN NONE OF THE PAST INCOME-TAX ASSESSMENTS, T HE AOS HAD MADE ANY DISALLOWANCE OUT OF MISCELLANEOUS EXPENSES. HE THEREFORE SUBMITTED T HAT MERELY BECAUSE THE AO DID NOT CALL FOR THE DETAILED BREAK-UP OF THE MISCELLANEOUS EXPE NSES DID NOT IPSO FACTO MADE THE ASSESSMENT ERRONEOUS ON THE GROUND OF NON-ENQUIRY, PARTICULARLY WHEN THE LD. PR. CIT HIMSELF WAS UNABLE TO SHOW AS TO HOW ANY PREJUDICE TO THE REVENUE WAS CAUSED AS A RESULT OF NON-RECEIPT OF THE BREAK-UP OF MISCELLANEOUS EXP ENSES. 51. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIE S, WE FIND MERIT IN THE LD. ARS SUBMISSIONS. WE NOTE THAT THE ASSESSEES CASE WAS S ELECTED FOR SCRUTINY UNDER CASS AND ONE OF THE REASONS FOR SELECTION WAS LARGE OTHER EX PENSES CLAIMED IN THE RETURN. IN THE COURSE OF ASSESSMENT THE EXPLANATION OF ASSESSEE WITH REGA RD TO THE SAID CASS CRITERIA WAS CALLED FOR AND THE SAME WAS FURNISHED. WE NOTE THAT DURING THE RELEVANT YEAR THE ASSESSEES REVENUE HAD GONE UP BY 11.236% WHEREAS THE OTHER EXPENSES HAD INCREASED ONLY BY 2.98% AND NOT 9.578% AS ALLEGED BY THE LD. PR. CIT. HAVING CO NSIDERED THE SUBMISSION AND THE FACTS REVEALED BY THE AUDITED ACCOUNTS, THE AO WAS PRIMA FACIE SATISFIED THAT THE OTHER EXPENSES CLAIMED WERE COMMENSURATE WITH THE REVENUE OF THE A SSESSEE AND THEREFORE DID NOT DRAW ANY ADVERSE INFERENCE. WE NOTE THAT UNDER THE BROAD HEA D OF OTHER EXPENSES, RS.21.56 CRORES WAS INCLUDED UNDER THE HEAD MISCELLANEOUS EXPENSES, BREAK-UP OF WHICH WAS NEVER CALLED FOR BY THE AO. HOWEVER MERELY BECAUSE THE AO DID N OT CALL FOR FURTHER BREAK-UP OF THE SAID SUM CANNOT BY ITSELF MAKE THE ASSESSMENT ORDER TO B E ERRONEOUS UNLESS THE LD. PR. CIT WAS ABLE TO SHOW AS TO HOW NON-VERIFICATION OF ITEM-WIS E BREAK-UP RESULTED IN PREJUDICE BEING CAUSED TO THE REVENUE. WE NOTE THAT IN RESPONSE TO SCN, THE ASSESSEE HAD FURNISHED BEFORE THE LD. PR. CIT COMPLETE BREAK-UP OF THE EXPENSES D EBITED UNDER THE BROAD OF MISCELLANEOUS EXPENSES AND COPY THEREOF WAS PLACED BEFORE US AT P AGE 79 OF THE PAPER BOOK. ON PERUSAL OF THE SAID STATEMENT WE NOTE THAT THE EXPENSES CLUBBE D UNDER THIS BROAD HEAD REPRESENTED EXPENSES SUCH AS ANNUAL GENERAL MEETING EXPENSES, S ECURITY SERVICE EXPENSES, BOOKS AND PERIODICALS, AUDIT FEES ETC. WHICH ARE INCURRED BY ANY CORPORATE ASSESSEE IN THE ORDINARY COURSE OF ITS BUSINESS. EVEN THOUGH THE ASSESSEE HA D FURNISHED THE BREAK-UP OF THE EXPENSES 35 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 BEFORE THE LD. PR. CIT, HE DID NOT POINT OUT ANY SP ECIFIC INSTANCE OF THE EXPENDITURE BEING EXCESSIVE OR NOT PERMISSIBLE BUT SIMPLY SET ASIDE T HIS ISSUE TO THE FILE OF THE AO. WE HOWEVER FIND FROM THE CHART FURNISHED BEFORE US THA T IN FACT THE EXPENDITURE DEBITED UNDER THE HEAD MISCELLANEOUS EXPENSES DURING THE YEAR UND ER CONSIDERATION WAS SUBSTANTIALLY LOWER THAN THE EXPENDITURE INCURRED IN THE PRIOR YE ARS. THIS FACT CAN BE VERIFIED FROM THE FOLLOWING CHART: PARTICULARS AY 2011-12 AY 2012-13 AY 2013-14 AY 201 4-15 TURNOVER AS PER P&L ACCOUNT 9504232206 9803015000 10353267000 11534070000 MISC. EXPENSES AS REPORTED IN P&L ACCOUNT 138297344 287340000 327981262 215639429 NET PROFIT / (LOSS) AS PER P&L ACCOUNT BEFORE TAXATION 460931952 (790411000) (7568173) 164908900 PERCENTAGE OF MISC. EXPENSE TO TURNOVER 1.87% 3.17% 2.93% 1.46% 52. WE FURTHER NOTE THAT THE EXPENSE SUCH AS DONATI ON OF RS.7,30,000/- WAS INCLUDED UNDER THE HEAD MISCELLANEOUS EXPENSES BUT BEING NOT PERMISSIBLE AS DEDUCTION U/S 37(1) OF THE ACT, THE SAME WAS DISALLOWED BY THE AO IN THE I MPUGNED ORDER WHICH SHOWED THAT THE AO HAD EXAMINED THE AMOUNTS DISALLOWABLE BUT INCLUD ED UNDER THE HEAD MISCELLANEOUS EXPENSES. WE ALSO NOTE THAT IN NONE OF THE PAST ASS ESSMENTS COMPLETED U/S 143(3) ANY PART OF THE EXPENSES DEBITED UNDER THE HEAD MISCELLANEOU S EXPENSES WAS DISALLOWED AND THEREFORE WE FIND MERIT IN THE SUBMISSIONS OF THE L D. AR THAT BY ALLOWING DEDUCTION FOR EXPENSES DEBITED UNDER THE BROAD HEAD OF MISCELLANE OUS EXPENSES, NO PREJUDICE WAS CAUSED TO THE REVENUE. FOR THE FOREGOING REASONS THEREFORE WE HOLD THAT THE ASSESSMENT ORDER PASSED BY THE AO COULD NOT BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR THE REASON SET OUT CLAUSE 3(G) OF THE S CN. ACCORDINGLY THE ORDER OF THE LD. PR. CIT ON THIS ISSUE IS SET ASIDE AND GROUND NO. 17 IS ALLOWED. 53. FOR THE REASONS ELABORATELY DISCUSSED IN THE FO REGOING, WE ARE OF THEREFORE OF CONSIDERED VIEW THAT THE ASSESSMENT ORDER WAS NOT T HE RESULT OF NON-ENQUIRY OR NON- APPLICATION OF MIND OR ASSUMPTION OF WRONG FACTS. W E ARE ALSO OF THE CONSIDERED OPINION 36 ITA NO. 805/KOL/2019 EVEREADY INDUSTRIES INDIA LTD, AY- 2014-15 THAT WHILE PASSING THE ASSESSMENT ORDER THE AO HAD FOLLOWED THE PERMISSIBLE VIEW IN LAW WHICH CANNOT BE SAID TO BE 'UNSUSTAINABLE IN LAW'. IN THE CIRCUMSTANCES THEREFORE, THE JURISDICTIONAL FACTS FOR USURPING THE JURISDICTION U/S 263 OF THE ACT, BEING ABSENT, WE HOLD THAT THE ACTION OF LD. CIT WAS WITHOUT JURISDICTION AND ALL SUBSEQUENT ACTIONS ARE 'NULL' IN THE EYES OF LAW. WE THEREFORE QUASH THE ORDER IMPUGNED BEFORE US. 54. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAN DS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 13TH DECE MBER, 2019. SD/- SD/- (DR. A. L. SAINI) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 13TH DECEMBER, 2019 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT EVEREADY INDUSTRIES INDIA LTD., 1, M IDDLETON STREET, KOLKATA- 700 071`. 2 RESPONDENT PR. CIT, KOLKATA-4, KOLKATA. 3. 4. DCIT, CIRCLE-11(1), KOLKATA DR, ITAT, KOLKATA. (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, ASSISTANT REGISTRAR