2012 (12) TMI 70 - HC - Income Tax

Revision u/s 263 - erroneous or prejudicial to revenue - Setting aside Assessment - one time regulatory fee - held that - One has to keep in mind the distinction between lack of inquiry and inadequate inquiry . If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of lack of inquiry . In the present case, the records reveal that the assessee was specifically queried regarding the nature and character of the one-time regulatory fee paid by it as well as the bank and stamp duty charges. A detailed explanation in the form of statements and other documents required of by the Assessing Officer were produced at the stage of original assessment. Clearly this was not a case of No Enquiry . The lack of any discussion on this cannot lead to the assumption that the Assessing Officer did not apply his mind. The proceeding in fact shows that Assessing Officer directed his mind specifically on this aspect and then concluded that the expenditure was in the revenue field. Under these circumstances, the Commissioner could not have validly exercised his supervisory or revisionary power under Section 263. As far as the other issues i.e. bank guarantee charges and stamp duty are concerned, this Court is of the opinion that the decision in India Cements Limited Versus Commissioner Of Income-Tax, Madras 1965 (12) TMI 22 - SUPREME COURT conclude the issue. These expenses had to be regarded as falling properly in revenue filed - CIT (A) did not specifically furnish any reasons to say why the original assessment order was unsupportable in law, in the final order made by him on 30.03.2009 - question of law framed has to be answered in favour of the assessee and against the Revenue. The appeal, being meritless, has to fail and is therefore dismissed.

Summary

Issues:
1. Interpretation of Section 263 of the Income Tax Act regarding setting aside of assessment made by CIT.
2. Classification of regulatory fee and stamp duty as capital or revenue expenditure.
3. Application of the principle of two possible views in exercising power under Section 263.
4. Assessment of bank guarantee charges and stamp duty as revenue expenditure.

Analysis:
1. The main issue in this case revolves around the interpretation of Section 263 of the Income Tax Act, specifically regarding the setting aside of the assessment made by the Commissioner of Income Tax (CIT). The Revenue challenged the order of the Income Tax Appellate Tribunal (ITAT) which set aside the assessment made by the CIT under Section 263.

2. The classification of regulatory fee and stamp duty as either capital or revenue expenditure was a crucial point of contention. The CIT invoked jurisdiction under Section 263, arguing that these expenses should be considered capital expenditure. However, the ITAT allowed the appeal, considering the regulatory fee and stamp duty as revenue expenditure based on the nature and purpose of these expenses.

3. The principle of two possible views, as established in the Supreme Court judgment in Malabar Industrial Co Ltd. Vs. Commissioner of Income Tax, was pivotal in this case. The Court emphasized that if two plausible views exist, the power under Section 263 cannot be exercised. The assessee relied on precedents and tribunal rulings to support the argument that the CIT erred in setting aside the assessment.

4. Furthermore, the assessment of bank guarantee charges and stamp duty as revenue expenditure was also examined. The Court referenced past judgments to conclude that these expenses should be regarded as falling within the revenue field. The lack of specific reasons provided by the CIT (Appeals) to support the unsustainability of the original assessment order further weakened the Revenue's case.

5. In conclusion, the Court ruled in favor of the assessee, dismissing the appeal by the Revenue. The judgment highlighted the importance of considering all relevant factors, including past rulings and the principle of two possible views, in determining the validity of assessments made under Section 263 of the Income Tax Act.