LYCOS INTERNET LIMITED ,HYDERABAD V. DY. COMMISSIONER OF INCOME TAX , CIRCLE-16(1), HYDERABAD

ITA 1769/HYD/2018

AI Insights

The case involves two appeals: one by the Department against the order of the CIT (A) and another by the assessee against the revision order passed by the Pr. CIT under section 263 of the I.T. Act, 1961. The primary issues revolved around the disallowance made under section 14A, which was deleted by the CIT (A), and the belated payment of employees' contribution towards PF, which was initially allowed by the CIT (A) but contested by the Department. The Tribunal examined the applicability of section 14A in the absence of any exempt income and the timing of the PF contributions in relation to the due date of filing the return of income under section 139(1).

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 40180 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2012-2013
• Other Referred Cases: CIT vs. Chettinad Logistics (P) Ltd, Pr.CIT vs. Oil Industries Development Board, Maxopp Investment Ltd vs. CIT, Cheminvest Ltd vs. CIT, Hero Cycles Ltd vs. CIT, Spectra Share & Scrips (P) Ltd vs. CIT, Development Credit Bank vs. CIT, Income Tax Officer vs. D.G. Housing Project Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Set aside; Business income; Difference of opinion; Change of opinion; Opportunity of being heard; Transfer pricing; International transaction; Depreciation; Earning of tax free income; Assessment record; Unabsorbed depreciation; Double taxation relief; Rule 8D; Revision of order
• Section: 143(3); 142(1); 250; 263; 22; 13; 10; 14A; 43B; 2(A); 115JB; 10AA; 20

Judgement Text

" ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 1 of 32 आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad Before Shri Vijay Pal Rao, Vice-President A N D Shri Madhusudan Sawdia, Accountant Member आ.अपी.सं /ITA No.1550/Hyd/2017 (िनधाŊरण वषŊ/Assessment Year: 2012-13) Asstt. Commissioner of Income Tax, Circle 16 (1) Hyderabad Vs. Lycos Internet Ltd Hyderabad PAN:AAACL5827B (Appellant) (Respondent) आ.अपी.सं /ITA No.1769/Hyd/2018 (िनधाŊरण वषŊ/Assessment Year: 2012-13) Lycos Internet Ltd Hyderabad PAN:AAACL5827B Vs. Asstt. Commissioner of Income Tax, Circle 16 (1) Hyderabad (Appellant) (Respondent) िनधाŊįरती Ȫारा/Assessee by: Shri P Murali Mohan Rao, CA राज̾ व Ȫारा/Revenue by:: Shri B Bala Krishna, CIT(DR) सुनवाई की तारीख/Date of hearing: 16/12/2024 घोषणा की तारीख/Pronouncement: 22/01/2025 आदेश/ORDER Per Vijay Pal Rao, Vice President These are two appeals, one by the Department against the order dated 23/06/2017 of the learned CIT (A) and another by the assessee against the revision order dated 26/02/2018 passed ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 2 of 32 by the learned Pr. CIT u/s 263 of the I.T. Act, 1961 respectively for the A.Y 2012-13. 2. First, we take up the appeal filed by the Department in ITA No.1580/Hyd/2017, wherein the Department has raised the following grounds: 3. Ground No.1 is regarding non-payment of self- assessment tax. At the time of hearing, the learned DR has accepted the fact that the assessee has already paid the self - assessment tax and therefore, this ground becomes infructuous. In view of the fact that the assessee paid the tax due on return of ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 3 of 32 income, therefore, no specific finding is required on Ground No.1 of Revenue’s appeal. 4. Ground of appeal 2 to 4 are regarding disallowance made by the Assessing Officer u/s 14A was deleted by the learned CIT (A). The learned DR has submitted that the learned CIT (A) has deleted the addition on the ground that no exempt income was earned by the assessee in respect of the investment made in the shares of subsidiary/group entities of the assessee. He has referred to the CBDT Circular No.5/2024 dated 11/02/2024 and submitted that if the investment is capable of yielding exempt income, provisions of section 14A are applicable in so far as expenditure incurred by the assessee in respect of exempt income irrespective of the fact whether the assessee has actually earned any exempt income or not. The mandate of section 14A is to curb the practice of claiming deduction of expenditure incurred in relation to exempt income against taxable income. He has relied upon the order of the Assessing Officer. 5. On the other hand, the learned AR submitted that the Assessing Officer has not disputed the fact that the assessee has not earned any dividend income during the year under consideration and therefore, in view of the binding precedent, no disallowance u/s 14A of the Act is called for. In support of his contention, he has relied upon the judgment of the Hon'ble Supreme Court in the case of CIT vs. Chettinad Logistics (P) Ltd (2018) 95 taxmann.com 250 (SC)as well as the judgment in the ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 4 of 32 case of Pr.CIT vs. Oil Industries Development Board (SPECIAL LEAVE PETITION (CIVIL) Diary No(s). 2755/2019 dated 8/2/2019 and submitted that section 14A can only be triggered if the assessee seeks to claim expenditure incurred against the income which does not form part of the total income. He has further submitted that Rule 8D provides only a method of determining the amount of expenditure incurred in relation to income which does not form part of the total income and it cannot go beyond what is provided in section 14A. Thus, it has been held that where no exempt income was earned for the relevant A.Y by the assessee, section 14A should not be invoked. Thus, the learned AR has submitted that the learned CIT (A) has rightly deleted the disallowance made by the Assessing Officer u/s 14A of the Act when there is no exempt income earned by the assessee from alleged investment. He has further submitted that even there is no fresh investment made by the assessee but the investment, in question, as shown in the balance sheet of the assessee are only in pursuant to the share held by the assessee in foreign companies including the foreign subsidiaries and therefore, the dividend from foreign companies is taxable. He has further submitted that except the shares in one Indian company namely Lanco Net Ltd, all other investment are in the subsidiaries of the assessee which are foreign company. Even the Indian company Lanco Net Ltd has not declared any dividend and the investments are made in the earlier years and not during the year under consideration. ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 5 of 32 6. We have considered the rival submissions as well as the relevant material available on record. The Assessing Officer has not disputed the fact that the assessee has not earned any dividend income from the investment in shares of the subsidiaries companies of the assessee as well as in the shares of M/s. Lanco Net Ltd. Though the Assessing Officer has not given the details of the investment except the total amount of investment shown in the balance sheet, however, this fact has been accepted by the Assessing Officer that the assessee has not received any dividend income during the year under consideration. The learned CIT (A) deleted the addition by considering the fact that the assessee has not received any dividend income during the year under consideration and therefore, when no exempt income is earned by the assessee during the year, no disallowance can be made u/s 14A. The relevant findings of the learned CIT (A) in para 5 reads as under: ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 6 of 32 7. We further note that the Hon'ble Supreme Court in the case of Maxopp Investment Ltd vs. CIT (402 ITR 640) has held in Para 39 and 40 as under: “39. In those cases, where shares are held as stock-in-trade, the main 38 purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would naturally be treated as 'income' under the head 'profits and gains from business and profession'. What happens is that, in the process, when the shares are held as 'stock-in-trade', certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10 (34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share and Stock Brokers P Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. 40. We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court.” 8. We further note that in the case of the assessee, the details of the investment in shares of various subsidiaries as well as the other companies are given in Note (13) to the financial statement as under: ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 7 of 32 9. Thus, all these investments are in the foreign based subsidiaries and the dividend income, if any, is taxable and not exempt u/s 10(34) of the I.T. Act, 1961. Therefore, the disallowance to the extent of these investments in the foreign subsidiaries cannot be made u/s 14A of the I.T. Act, 1961. The only investment in the Indian company is made by the assessee in the preceding year and not during the year under consideration and therefore, when there is no dividend income for the year under consideration, the provisions of section 14A are not applicable. Hence, in view of the various judgments on this point ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 8 of 32 including the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd (2015) 378 ITR 33 (Del.) as well as the judgment of the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Hero Cycles Ltd (2010) 323 ITR 518 (P&H), no disallowance u/s 14A is called for when the assessee has not earned any dividend income during the year under consideration. Accordingly, in view of the facts as discussed above, we do not find any error or illegality in the impugned order of the learned CIT (A) qua on this issue. The same is upheld. 10. With regard to grounds of appeal No.5 & 6 are concerned, the Assessing Officer has made an addition on account of belated payment of employees’ contribution towards PF u/s 36(1)(va) r.w.s. 2(24)(x) of the I.T. Act, 1961. In appeal, the learned CIT (A) has deleted the said addition by following various decisions of the Hon'ble High Courts wherein it was held that if the assessee has made the payment on or before the due date of filing the return of income u/s 139(1), then the same is allowable u/s 43B of the Act. 11. We have heard the learned DR as well as the learned AR and considered the relevant material available on record. At the outset, we note that this issue is now covered by the judgment of the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd vs CIT (2022) 448 ITR 518. Thus, the issue now stands decided against the assessee by the Hon'ble Supreme Court in the case of Checkmate Services (P) vs. CIT (Supra), wherein it has ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 9 of 32 been held that the employees’ contribution to PF & ESI, if not remitted before the due date prescribed in the respective enactments, cannot be allowed as a deduction. Accordingly, the impugned order of the learned CIT (A) qua this issue is set aside and the order of the Assessing Officer is also restored. ITA No.1769/Hyd/2018 (Assessee’s appeal) 12. In assessee’s appeal, the following grounds are raised: ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 10 of 32 ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 11 of 32 ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 12 of 32 13. The assessee company filed its return of income for the A.Y under consideration on 29/09/2012 admitting Nil income after claiming deduction u/s 10AA of the Act and after setting off brought forward depreciation loss. However, the assessee declared the book profit u/s 115JB of the Act at Rs.32,82,86,986/-. The assessment u/s 143(3) was completed on 29/03/2016 at a total income of Rs.3,37,52,244/- under the normal provisions of the Act and book profit at Rs.32,82,86,986/- u/s 115JB of the Act. Thereafter, on perusal of the assessment record, the learned Pr. CIT noted that the net profit as per P&L Account furnished in the annual report of the assessee company which stood at Rs.59,84,33,318/- whereas as per the P&L Account furnished in the return of income, the net profit is declared at Rs.32,82,86,986/-. The learned Pr. CIT further noted that from the fixed asset schedule as per the books of account, the assessee has assets in US Branch indicating the possibility that the variation in the net profit is due to exclusion of the profit of US Branch. Referring to Article 7 & 25 of the DTAA between India and USA, the Pr. CIT observed that the profit of the US Branch would be taxable in India and the assessee would be entitled to credit of taxes paid by the assessee in USA. However, there is no evidence of tax paid in USA and also the assessee has not claimed credit of such taxes. The learned Pr. CIT further observed that the assessment was completed u/s 143(3) of the Act without examining/verifying the above issue. Therefore, the order passed by the Assessing Officer without making inquiries or verification which should have been made is erroneous and prejudicial to the ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 13 of 32 interest of the Revenue. Accordingly, a show-cause notice u/s 263 of the Act, dated 20/12/2017 was issued by the learned Pr. CIT. The assessee filed a reply to the show-cause notice and questioned the jurisdiction of the learned Pr. CIT to invoke provisions of section 263 of the I.T. Act, 1961 when the Assessing Officer has duly carried out the inquiry by issuing notice u/s 142(1) of the Act which were duly replied by the assessee by furnishing the relevant record and details. It was contended by the assessee that the Assessing Officer was satisfied with the reply filed by the assessee and hence it is not a case of lack of inquiry on the part of the Assessing Officer. The learned Pr. CIT was not impressed with the reply of the assessee and passed the impugned order whereby the order of the Assessing Officer has been held as erroneous on account of lack of inquiry on the part of the Assessing Officer on the issue of discrepancy between the net profit as per P&L account forming part of the Annual Report of the assessee as well as P&L account filed along with return of income by the assessee for the year under consideration. Accordingly, the assessment order was set aside with the direction to the Assessing Officer to examine the discrepancies and assess the correct income by redoing the assessment afresh after affording opportunity of being heard to the assessee. 14. Before the Tribunal, the learned AR of the assessee has submitted that in the return of income, the assessee admitted nil income after claiming exemption u/s 10AA of the Act. The assessee also set off brought forward unabsorbed depreciation of ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 14 of 32 Rs.11,68,93,844/- and book profit u/s 115JB of the Act was admitted at Rs.32,82,86,986/-. During the scrutiny assessment u/s 143(3), the Assessing Officer has made various disallowances and computed the taxable income under the normal provisions of the Act at Rs.3,37,52,244/- and book profit as per MAT provisions for Rs.32,82,86,986/-. The assessee challenged the order of the Assessing Officer before the learned CIT (A) which was partly allowed vide order dated 23/06/2017 and the Revenue has filed an appeal against the order of the learned CIT (A) in ITA No.1550/Hyd/2017. Thus, the learned AR has submitted that all the details and return of income was under the scrutiny assessment u/s 143(3) and further it was subjected to scrutiny by the learned CIT (A). He has referred the show-cause notice issued by the Assessing Officer u/s 142(1) of the Act dated 15/06/2015 and 06/07/2015 and submitted that the Assessing Officer has issued exhausted questionnaire and raised as many as 30 questions in one notice and 6 questions in another notice issued u/s 142(1) of the Act. He has further submitted that specific questions were raised by the Assessing Officer about the details of the addresses of all offices i.e. registered, corporate, factory site, branches etc., of the assessee company and reconciliation from revenue from operations as well as non-operating revenue which were duly explained and replied by the assessee. Thus, the learned AR has submitted that the learned Pr. CIT wrongly invoked the jurisdiction u/s 263 of the Act without appreciating the facts and circumstances of the case that the Assessing Officer has duly conducted an inquiry and only on satisfaction of the ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 15 of 32 reply filed by the assessee he has accepted the book profit u/s 115JB of the Act though various additions have been made in computation of income under the normal provisions of the Act which were challenged before the learned CIT (A) by the assessee. He has further contended that the assessment order passed by the Assessing Officer can be revised only after satisfying the twin conditions namely (i) the order of the Assessing Officer sought to be erroneous and (ii) it is prejudice to the interest of the Revenue. These conditions are mutually exclusive. He has further contended that during the course of assessement proceedings, the Assessing Officer has examined all the issues including the issue in question, taken by the learned Pr. CIT in the proceedings u/s 263 of the Act. Thus, the assessment order was passed by the Assessing Officer after due application of mind. The assessee explained the issue before the learned Pr. CIT, however, the same was rejected merely on the presumption that there was no inquiry by the Assessing Officer about the discrepancy between the net profit as per P&L Account forming part of Annual Report and schedule to profit & loss account of ITR-6. The Assessing Officer has issued a questionnaire regarding the taxability of income of the US Branch and the assessee explained the same. After considering the explanation of the assessee, the Assessing Officer has taken a view for not disturbing the book profit of the assessee. The learned AR has thus, contended that once the Assessing Officer has examined the return of income and financial statements filed before him, he need to record each and every aspect of the assessement proceedings and therefore, it cannot be ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 16 of 32 presumed that the order passed by the Assessing Officer is erroneous for want of inquiry. In support of his contentions, he has relied upon the decision of the Hon'ble Andhra Pradesh High Court in the case of Spectra Share & Scrips (P) Ltd vs. CIT (36 Taxmann.com 348) and submitted that the Hon'ble High Court has clarified that the Assessing Officer is not required to give detailed reasonings and once it is clear that there was application of mind by an inquiry, Commissioner merely because he entertained a different opinion in matter, cannot invok his power u/s 263 of the I.T. Act, 1961. He has also relied upon the decision of the Hon'ble Bombay High Court in the case of CIT vs. Development Credit Bank (196 Taxmann.com 329) as well as the decision of the Hon'ble Delhi High Court in the case of Income Tax Officer vs. D.G. Housing Project Ltd reported in 29 Taxmann.com 587. Thus, the learned AR has submitted that the order of the Assessing Officer cannot be held to be erroneous as he has duly applied his mind. The learned AR has further contended that since the relevant record and material was available before the Assessing Officer as well as before the learned Pr. CIT, therefore, setting aside the order of the Assessing Officer without examining the issue and conducting further inquiry to prove that the order of the Assessing Officer is erroneous is not sustainable in law. 15. On the other hand, the learned DR has submitted that the assessee has not disputed the discrepancies in the profit & loss account reported by the assessee in the return of income in comparison to the P&L Account forming part of the Annual Report ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 17 of 32 of the assessee. He has referred to the show cause notice issued by the learned Pr. CIT and submitted that these facts have been duly recorded in the show cause notice. However, the Assessing Officer has passed the assessment order without conducting a proper inquiry on this issue. It is a clear case of lack of inquiry on the part of the Assessing Officer while passing the assessment order and therefore, the question of change of opinion, on the part of the learned Pr. CIT does not arise. He has relied upon the order of the learned Pr. CIT passed u/s 263 of the I.T. Act, 1961. 16. We have considered the rival submissions as well as the relevant material available on record. The learned Pr. CIT has invoked the provisions of section 263 of the I.T. Act, 1961, on the premises that there is a discrepancy in the net profit shown in the P&L Account forming part of the Annual Report in comparison to the P&L Account schedule to the ITR-6. The relevant reasons for invoking the provisions of section 263 are recorded in Para-2 of the impugned order: “2. On perusal of Return of Income and other financial statements filed by assessee company for the Asst. Year 2012-13, It seen that the net profit asper profit and loss account furnished in the Annual Report of the assessee company amounted to Rs.59,84,33,318/ whereas as per P&L Ac furnished in the Return of Income (Part A P&L) the net profit amounted to Rs.37 82,86.986/-. In the computation of taxable income, the net profit was taken as Rs.32,82,86,986/-. Book profit us115JB was also computed on the basis of P&L A/c furnished in the ROI It is seen that figures of all incomes credited (sales etc.) and expenses debited in the two P&L Account are different. Reasons for adopting lower figures are not ascertainable from the record. !t is seen from the fixed assets schedule as per books of account that the assessee has assets in US Branch, indicating the possibility that the variation in net ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 18 of 32 profit due to exclusion of profits of the US Branch It is observed in Audit that in view of Article 7 of the DTAA between India and USA, the assessee company being a resident of Inda. the profits of the US branch would be taxable in Indía and as per clause 2(a) to Article25 of the DTAA agreement. the assessee would be entitled to credit of taxes paid by the assessee in USA, in respect of profits attributable to US Branch. However, as seen from the assessment record. there was no evidence of taxes paid in USA and also the assessee has not claimed credit of such taxes. Hence. the income of US branch is includable in income of the assessee and needs to be brought to tax. Certificate in Form 29B certifying computation of book profit was not found on record.” 17. The assessee objected to the invoking the provisions of 263 by the learned Pr. CIT and filed a detailed reply/written submissions which are reproduced by the learned Pr. CIT in the impugned order. The written submission of the assessee are reproduced from page No.2 to 8 of the impugned order and therefore, 6 pages of the impugned order are nothing, but reproduction of written submissions filed by the assessee. The Pr. CIT has not dealt with the objections raised by the assessee in the written submission and reply to the show cause notice issued u/s 263 of the Act and set aside the order of the Assessing Officer on the grounds and reasons as stated in para 5 of the impugned order as under: “5. I have gone through the above written submissions, facts and circumstances of the case and material available on record. As seen from the notices u/s 1421) dated 15.06.2015, 06.07.2015 issued by the A.O. no query was raised regarding the discrepancies between the incomes, expenses and net profit as per profit and loss account forming part of the annual report of the assessee for F.Y 2011-2012 and the schedule P&. account of ITR-6 filed for A.Y 2012-2013. Further, as seen from the replies ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 19 of 32 furnished oy the assessee to the said notices, no information on the above discrepancies was furnished. Further, during the course of hearings conducted on 26.02.2016 and 29 03 2016 nether the assessing officer examined the above discrepancies nor the assessee furnished any reconciliation explaining the discrepancies. In the written submissions reproduced above it is not even contended by the assessee that the above discrepancies were inquired into or examined by the A.O. during the assessment proceedings. As the assessing officer failed to examine the above discrepancies, the assessment order passed by him u/s 143(3) of the Income Tax Act, 1961 on 29.03.2016 shall be deemed to be erroneous in So far it is prejudicial to the interests of Revenue as per clause(a) and (c) of Expl. 2 to Sec.263 of the I.T Act, 1961. The same is therefore, set aside in terms of the provisions of section 263 of the I.T Act, 1961 and the assessing officer is directed to examine the above discrepancies and assess the correct income by redoing the assessment afresh after affording an opportunity of being heard to the assessee. The assessment order dated 29 03 2016 stands revised accordingly”. 18. Thus,, the order of the Assessing Officer was set aside/revised on the premise that the Assessing Officer has not conducted any inquiry on this issue. There is no quarrel on the point that, a complete lack of inquiry on the part of the Assessing Officer renders the assessment order erroneous in so far as it is prejudice to the interest of the Revenue. However, in the case in hand, the Assessing Officer has issued notice u/s 142(1) on 16/06/2015 and 06/07/2015 raising various queries as under: ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 20 of 32 ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 21 of 32 ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 22 of 32 ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 23 of 32 19. Thus, the Assessing Officer asked the assessee to file computation of total income statement including MAT computation and enclosures, copy of Annual Report, Audit Report, balance sheet, P&L Account and relevant schedules. All audit reports as applicable and prescribed under the IT Act such as 44AB, form 3CB, Form CEB etc., The detailed note on the business activities carried out during the year under consideration along with details and present addresses of all offices i.e. registered, corporate, factory site, branches etc., of the company. Further, the Assessing Officer has also issued a ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 24 of 32 questionnaire running into 30 questions and asked the assessee to furnish details of other operating revenue and non-operating income, details of forex income. The assessee has filed a reply as under: ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 25 of 32 20. Thereafter, the assessee has also furnished the relevant details and explanations in response to the notices issued u/s 142(1) of the I.T. Act, 1961. Even the comparative financial statements of the past years were also furnished by the assessee. Thus, all the records including the P&L Account forming part of the Annual Report as well as expenses in respect of the alleged US Branch were also furnished before the Assessing Officer. It is pertinent to note that the assessee is having various foreign subsidiaries including 100% subsidiaries in US and other countries, the details of which have already been reproduced in in para No.8 of this order. The subsidiaries of the assessee in US and other foreign countries are separate tax entities under the foreign tax jurisdiction and therefore, their income cannot be considered as income of the assessee for the purpose of income tax Act. However, the assessee may report the income of the 100% subsidiaries in the Annual Report for disclosure purpose and other compliances. Therefore, merely because the assessee is having an entity in the foreign country does not ipso fact liable to tax on the income, such entity assessable to tax in foreign jurisdiction. Further, the international transactions of the assessee were subject to transfer pricing proceedings and were found to be at Arms’ Length and therefore, it is apparent that the Assessing Officer has conducted a thorough inquiry on all these issues including the issue of the income of US entity reported in the consolidated and standalone financial statements as per of the annual report. Once all the relevant record was available before the Assessing Officer as well as before the Pr. CIT, then the ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 26 of 32 learned Pr. CIT ought to have given a conclusive findings as to how the discrepancy has resulted a loss of revenue falling in the ambit of prejudicial to the interest of Revenue. The learned Pr. CIT has not disputed that the income of the US based branch of the assessee is taxable in US and therefore, even if the said income is included in the income of the assessee, the assessee would get tax rebate as per the provisions of the Income Tax Act as well as DTAA between India and US. 21. Since the income of the assessee was assessed u/s 115JB of the I.T. Act, 1961, therefore, it is also required that the alleged discrepancy in the profit is liable to be adjusted as per the provisions of section 115JB of the Act. The learned Pr. CIT has not given any finding as to whether this discrepancy is liable to be added while computing the book profit u/s 115JB of the Act or not. 22. Once the Assessing Officer has conducted an inquiry, then the case does not fall in the category of complete lack of inquiry on the part of the Assessing Officer while passing the assessment order and therefore, the order of the Assessing Officer cannot be set aside on the ground of lack of inquiry. It is a settled proposition of law that when the Assessing Officer has conducted an inquiry and accepted the claim of the assessee, then it is not mandatory for the Assessing Officer to give a finding on each and every issue he has undertaken during the scrutiny proceedings. The Hon'ble jurisdictional High Court in the case of Spectra ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 27 of 32 Shares & Scrips (P) Ltd vs. CIT (Supra) has held in para 34 and 35 as under: “34. It may be that in the Assessment Order, the Assessing Officer has not made an elaborate discussion on the issue as to the nature of activity of the assessee i.e. whether it is an investment or whether it is business income and did not refer to his query on the issue to the assessee before passing the order (in his letter dt.4.8.2008) or the reply given by the assessee to his query (vide it's letter dt.29.8.2008). As held in Vikas Polymers (supra), Sunbeam Auto (supra) and Gabriel India Ltd. (supra), when it is not incumbent on the Assessing Officer to pass a detailed order, merely because the order does not contain reasons as to why he accepted that the assessee is a trading company, his order does not become susceptible for revision. The Assessing Officer while making an assessment had examined the accounts, made inquiries, applied his mind to the facts and circumstances of the case and determined the income of the assessee. Therefore, it is not open to the Commissioner, on the ground that a different view is possible, to reopen the assessment on the ground that the Assessing Officer did not make an elaborate discussion in that regard. 35. Admittedly, the assessee had given full details of these transactions in its letter/reply dated 29.08.2008 to the Assessing Officers letter dated 04.08.2008, giving details of dates of acquisition of the shares in question and dates of sale of shares. As such this material was available before the Assessing Officer. In its reply dt. 09-03-2011 to the revised show cause notice issued by the respondent also, the appellant had enclosed the list of transactions in relation to the scrips of M/s. Amara Raja Battery, M/s. Reliance Industries, M/s. Gujarat NRE Coke and M/s. Andhra Sugars Limited contending that having purchased the shares of the said companies, it had retained them for periods ranging from 1 year 2 months to 3 years 6 months before selling them. The counsel for the appellants has taken us through the said statements/list of transactions.” 23. Therefore, merely because, the Assessing Officer has not given an elaborate reasoning and findings does not lead to the conclusion that the order of the Assessing Officer is erroneous for want of an inquiry. A similar view has been taken by the Hon'ble ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 28 of 32 Bombay High Court in the case of CIT vs. Development Credit Bank (Supra). The Hon'ble Delhi High Court in the case of Income Tax Officer vs. DG Housing Projects Ltd (Supra) has discussed this issue of not giving the conclusive findings on the part of the Commissioner in Para 16 to 19 as under: “16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases, possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. 17. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged \"inadequate investigation\", it will be difficult to hold that the order of the Assessing Officer, who had conducted ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 29 of 32 enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/ inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore, CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT v. Shree Manjunathesware Packing & Products Camphor Works [1998] 231 ITR 53 / 98 Taxman 1 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. 18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, [2000] 243 ITR 83 / 109 Taxman 66 (SC), had observed that the phrase 'prejudicial to the interest of Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue. 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 that the order passed by ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 30 of 32 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 given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that 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 examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry 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 latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the 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 the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not.” 24. Therefore, once the Assessing Officer has adopted one of the courses permissible and available to him, and this has resulted in loss to the Revenue to which the learned Pr. CIT may not agree, the said order cannot be treated as an erroneous order prejudice to the interest of the Revenue unless the view taken by the Assessing Officer is unsustainable in law. In setting aside the matter, the learned Pr. CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and therefore, the order is erroneous. The setting aside the order for doing fresh exercise on the part of the Assessing Officer reveals that the ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 31 of 32 learned Pr. Cit was not sure about the correctness of the claim of the assessee and therefore, the learned Pr. CIT must be not sure about the correctness and erroneousness of the order passed by the Assessing Officer. Accordingly, in view of the facts and circumstances as discussed above, we are of the considered opinion that once the Assessing Officer has conducted an inquiry and the case of the assessee does not fall in the category of complete lack of inquiry, the learned Pr. CIT while passing the revision impugned order u/s 263 ought to have given a conclusive findings about the taxability of the income in India as well as the loss of revenue for not including the said income as part of the P&L declared in the ITR. Hence, the impugned order is not sustainable and liable to be quashed. We order accordingly. 25. In the result, appeal filed by the assessee is allowed. 26. To sum up, the appeal by Revenue is dismissed and appeal by assessee is allowed. Order pronounced in the Open Court on 22nd January, 2025. Sd/- Sd/- (MADHUSUDAN SAWDIA) ACCOUNTANT MEMBER (VIJAY PAL RAO) VICE-PRESIDENT Hyderabad, dated 22nd January, 2025 Vinodan/sps ITA Nos 1550 and 1769 LYCOS Internet Ltd Page 32 of 32 Copy to: S.No Addresses 1 ACIT, Circle 16(1) Room No.121, 1st Floor, Block B IT Towers, Masab Tank, Hyderabad 2 M/s. Lycos Internet Ltd, 5th Floor, Holiday Inn Express & Suites, Road No.2, Nanakramguda, Gachibowli, Hyderabad 500032 3 Pr. CIT -Hyderabad 4 DR, ITAT Hyderabad Benches 5 Guard File By Order "