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TMI Blog2007 (8) TMI 384X X X X Extracts X X X X X X X X Extracts X X X X ..... ce under s. 263 to the assessee on 27th Jan., 2004 enumerating such errors in detail before finally summarizing the same in para No. 9 as under: "9. It is thus clear that at no stage of the assessment proceedings did the AO place on record and verify the particulars of vendors, suppliers, contractors, professionals, etc. to whom payments aggregating to Rs. 285.41 lacs were made. He accepted the expenses aggregating to as much as Rs. 285.41 lacs under as many as 15 heads in undue haste without making proper inquiry as to their genuineness, which was called for on the facts and in the circumstances of the case. It was particularly necessary to inquire into the setting expenses of Rs. 82.85 lacs given the fact that you had separately incurred expenses of Rs. 64.60 lacs on wages and consumable stores as well. It was also necessary to inquire as to whether the scrap value of the sets after they were dismantled was duly accounted for, since the value of the sets does not figure among your assets as on 31st Dec., 1999 which were transferred to the newly formed company to which all your assets and liabilities as on that date were transferred. It was further necessary to verify the genuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , however, offered herself for examination at Bombay. On 22nd March, 2005, a copy of agreement dt. 28th Feb., 2000 between the assessee and M/s Creative Eye Ltd. was filed by the assessee before the learned CIT along with a copy of valuation report dt. 24th Feb., 2000 of PWC. On examination of the said documents, the following doubts were raised by the learned CIT about the valuation: "(1) No consideration has been made for special purchaser premium, if any, that may be agreed for purchasing the business of an ongoing undertaking, which is expected to make profits without any gestation period normally required for setting up a new venture. A special purchaser is one who, for reasons such as competitive advantage, economies of scale and others, may pay a premium to purchase the business of the entity. (2) The projected income and expenses for the three years ending 31st Dec., 2002 are based on the assumption that the television serials 'Om Namah Shivay', Brahma Vishnu Mahesh' and 'Jay Jay Shree Ganesh' would be telecast on the television channels as per planned schedule. As per the terms of agreement dt. 16th June, 1996 with Creative Eye Limited for sale of ownership rights for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the valuation made by PWC was entirely based on the projection given by the assessee which was not fair. He also observed that proper valuation of assets relating to the serials 'Brahma Vishnu Mahesh' and 'Jai Shree Ganesh' was apparently not made. As noted by him in the impugned order, these serials were telecast immediately after the date of sale and therefore, the same were at the advance stage of readiness for telecast when the business of the assessee was transferred to M/s Creative Eye Ltd. He noted that this significant aspect, however, was not disclosed by the assessee to the valuer. He also noted that the entry showing amount receivable at Rs. 13.50 crores from M/s Creative Eye Ltd. on account of sale of business was made in the books of account of the assessee on 1st Jan., 2000, whereas PWC was engaged by the assessee for making the valuation on 18th Feb., 2000. He held that the valuation report prepared and furnished by PWC thus was only a self-serving document obtained to justify the valuation shown in the books. He also noted that the agreement between the assessee and M/s Creative Eye Ltd. was dt. 28th Feb., 2000 which, according to him, was leading to the belief th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to examine the admissibility and veracity of agreement between the assessee and M/s Creative Eye Ltd. He is further directed to pass a fresh assessment order after ascertaining the true value of business assets in order to compute the capital gain liable to tax." 6. The learned counsel for the assessee submitted before us that in order to assume jurisdiction under s. 263 for revising the order of assessment passed by the AO, it is incumbent upon the learned CIT to point out in the notice issued by him under s. 263 itself as to how the said order being sought to be revised is erroneous as well as prejudicial to the interest of the Revenue. Relying on the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC), he contended that the order of the AO has to be erroneous as well as prejudicial to the interest of the Revenue for giving jurisdiction to the learned CIT to revise the same and unless these two conditions are found to be satisfied by the learned CIT, he cannot exercise the powers conferred upon him to revise the assessment order under s. 263. He took us through the notice dt. 27th Jan., 2004 issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee along with brand name was not raised by the learned CIT in the notice dt. 27th Jan., 2004 issued initially while assuming jurisdiction under s. 263. He submitted that there was no reference whatsoever to the said issue in the notice dt. 27th Jan., 2004 issued by the learned CIT under s. 263 and this issue was raised only subsequently by the learned CIT on the basis of some material stated to be found during the course of survey and the further enquiries made by the learned CIT giving rise to some doubts in his mind as mentioned in his impugned order passed under s. 263. He submitted that although the assessee was informed by the learned CIT vide a so-called notice dt. 5th May, 2004 about this aspect calling for her explanation, there was nothing in the said notice pointing out any error committed by the AO in his order on this issue which was prejudicial to the interest of the Revenue. He contended that this notice thus stated to be issued by the learned CIT under s. 263 was not valid for the reasons that no error in the order of the AO was specifically pointed out therein, that the same was issued to make roving/fishing enquiry which was not permissible during the proceedings u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being no case made out by the learned counsel for the assessee to point out that the said enquiries were not required to be made by the AO or that such enquiries in fact had been actually made by the AO, it follows that the order of the AO completed without making the said enquiries was erroneous as well as prejudicial to the interest of the Revenue and the assumption of jurisdiction by the learned CIT was in accordance with law. In support of this contention, she also relied on the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. As regards the reliance of the learned CIT on the material found during the course of survey to hold the order of the AO erroneous as well as prejudicial to the interest of the Revenue on the issue of taxability of capital gain arising to the assessee as a result of transfer of her business as well as brand name, she contended that in view of cl. (b) of Explanation to s. 263(1), the learned CIT is empowered to rely upon even those information, document, report, etc. which came to light subsequent to the passing of the order of the AO. She submitted that since the said material found during the course of survey as well as furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so precisely identified by him in the said notice. In the cases of Smt. Tara Devi Aggarwal vs. CIT 1973 CTR (SC) 107 : (1973) 88 ITR 323 (SC) and Rampyari Devi Saraogi vs. CIT (1968) 67 ITR 84 (SC), it was held by the Hon'ble Supreme Court that the CIT can regard the order of the AO as erroneous on the ground that in the facts and circumstances of the case, the ITO should have made further enquiries before accepting the statements made by the assessee in his return. Following these two decisions of Hon'ble Supreme Court, Hon'ble Allahabad High Court has held in the case of Smt. Lajja Wati Singhal vs. CIT (1997) 138 CTR (All) 320 : (1997) 226 ITR 527 (All) that an assessment made on income surrendered by the assessee without making any enquiry whether the same was in fact taxable in his hands was erroneous and prejudicial to the interest of the Revenue. Further, as held by Hon'ble Delhi High Court in the cases of Gee Vee Enterprises vs. Addl. CIT 1975 CTR (Del) 61 : (1975) 99 ITR 375 (Del), Duggal CO. vs. CIT (1994) 122 CTR (Del) 171 : (1996) 220 ITR 456 (Del), it is incumbent on the AO to further investigate the facts stated in the return when circumstances would make such an enq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, find no merits in the contentions raised by him on this issue and reject the same. 14. Before us, the learned counsel for the assessee has also raised a contention that the issue raised by the learned CIT about the taxability of capital gain arising as a result of sale of her business as well as brand name by the assessee was beyond the scope of proceedings under s. 263 for the various reasons as put forth by him. In order to appreciate this contention of the learned counsel for the assessee, it is pertinent to refer to the second notice stated to be issued by the learned CIT under s. 263 on 5th May, 2004 raising this issue, the contents of which are extracted below: "Dear Madam, Please refer to the earlier notice dt. 27th Jan., 2004 issued under s. 263 of the IT Act 1961 for the above-noted assessment year. No reply or objections to the above notice have been received from you so far. You are hereby given a further opportunity of being heard in the matter on 12th May, 2004. In case there is no compliance on that date, it shall be presumed that you have no objection to the assessment order reference being set aside or appropriately modified. 2. Meanwhile, from a scrutiny ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 59.13,948 resulting in NIL capital gain'. Clearly, this note was false, understating the amount for which the business was sold by as much as Rs. 13,50,00,180. Further, the statements of account accompanying the return were as at 31st Dec., 1999 only. Even though the relevant previous year to which the return pertained was the financial year 1999-2000, yet no accounts for the period 1st Jan., 2000 to 31st March, 2000 (in which the aforesaid entries for the sale of goodwill were made) were filed. 4. You are therefore further requested to show-cause why the sale of goodwill for an amount of Rs. 13,50,00,180 should not be assessed to capital gains for the assessment year under consideration. In this connection you are also requested to produce the following: Your ledger for the period 1st Jan., 2000 to 31st March, 2000. - Ledger of the company M/s Creative Eye Ltd. for the period 1st Jan., 2000 to 31st March, 2000. - Valuation report of PWC regarding the goodwill of Namah Shivay Enterprises. - A copy of the original contract with Doordarshan pertaining to the production and telecast of the serial OM NAMAH SHIVAY along with all subsequent amendments or supplements to the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notice issued invoking the jurisdiction under s. 263 for the reasons stated therein. In the said case, the question as to whether the increase due to the exchange fluctuation was revenue in nature was not even in the mind of the CIT when he had issued the notice and as the said issue was not part of the show-cause notice issued initially by the CIT under s. 263 on 22nd Dec., 2003, it was held by the Tribunal that it was not permissible to expand the said notice by resort to letters as done therein observing that if the same is permitted, then there would be no end to the proceedings and it will go on expanded and expanded which is not permissible under law. It was held that the law does not permit expanding proceedings under s. 263 after its initiation beyond what is stated in the notice itself. To the similar effect is the decision of Hon'ble Karnataka High Court in the case of CIT vs. L.F. D'Silva cited by the learned counsel for the assessee wherein it was held that the scope of proceedings under s. 263 has to be ascertained with reference to the purpose and basis of initiation of the proceedings. In the case of Shyam Biri Works (P) Ltd. vs. Asst. CIT (2003) 79 TTJ (All) 634 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that the information or documents collected during the course of survey admittedly carried out on 27th Feb., 2004, which were totally unrelated or irrelevant to the issues raised in the said notice, could not be said to be the record available at the time of examination by the learned CIT as envisaged in Expln. (b) to s. 263 and the reliance placed by the learned CIT thereon to allege that the order of the AO was erroneous and prejudicial to the interest of the Revenue was not in accordance with law. 17. The contents of the notice dt. 5th May, 2004 issued by the learned CIT under s. 263, which are already reproduced hereinabove, also show that there was nothing given therein to suggest or indicate as to how the order of the AO was found/considered by him to be prima facie erroneous as well as prejudicial to the interest of the Revenue on the concerned issue. Such a specific finding was absent in the said notice stated to be issued under s. 263 and this essential ingredient was completely missing in the said notice. In the case of CIT vs. Sattandas Mohandas Sidhi (1998) 147 CTR (MP) 505 : (1998) 230 ITR 591 (MP) and in the case of Garden Silk Mills Ltd. vs. CIT (1996) 135 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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