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TMI Blog2012 (7) TMI 696X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner cannot partially revise the assessment order? (iv) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the Commissioner does not have the power to record his opinion, and direct the assessing officer to redo the assessment, but has to give final conclusions to the controversy?" 2. The assessee is engaged in the business of computer training and software development. While completing the assessment, the Assesssing Officer treated the receipts on account of exchange fluctuation as a capital receipt and the same was reduced from the profits and gains while working out the relief under Section 80HHE. Apart from this, the Assessing Officer also allowed the Staff Welfare expenditure incurred in terms of accounting policies prescribed in SEBI guidelines. While allowing the shares to the employees, the difference in the value was credited to the account of the company to be allowed as an expenditure. 3. The Commissioner of Income Tax initiated proceedings under Section 263 of the Income Tax Act to revise the order of the Assessing Authority. Among the various other issues which were the subject matter of revision, we are concerned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner did not dispute the fact that the amount received on account of exchange fluctuation was capital receipt. However, he felt in the computation of deduction under Section 80HHE, the Assessing Officer should have restricted it to 90% of the receipt. Consequently, the relief granted under Section 80HHE was bad in law. 6. Referring to the decision reported in 222 ITR 344 TVS SUNDARAM IYENGAR & SONS v. CIT., the Commissioner of Income Tax held that profits on account of exchange fluctuation would ordinarily be trading profits if the foreign currency was held by the assessee on a revenue account or as a trading asset or as part of circulating capital embarked in the business. Thus, he held that the entire amount was to be assessed as revenue receipt and the relief granted under Section 80HHE had to be recomputed. The Assessing Officer was directed to examine this and pass orders. 7. On the issue of Staff Welfare expenditure, the Commissioner pointed out that the assessee had debited a sum of Rs.66.82 lakhs under the head of Staff Welfare expenditure. The said sum was incurred by the assessee in respect of Employees Staff Option Plan and Employees Staff Purchase Scheme Guidelin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax (Appeals) himself admitted that exchange fluctuation arose out of the deposit of money raised by the assessee from the GDS issue and the show cause notice required an explanation as to why the said receipt should not be reduced to the extent of 90% in computing the deduction under Section 80HHC. On receipt of explanation from the assessee that increase due to exchange fluctuation was not included in the total income of the assessee for the purpose of claiming relief under Section 80HHE, the Commissioner changed his view through a letter to hold that the receipt is revenue in nature. In the context of the reasons given in show cause notice, while exercising with jurisdiction under Section 263 and the changed ground taken in the order, the Tribunal held that considering the scope of jurisdiction under Section 263 of the Act, the letter written by the Revenue on 21.1.2004 treating the receipt as one of revenue receipt, could not be treated as second show cause or as fresh proceedings or even as continuation of the earlier notice. The Tribunal pointed out that the letter was not signed by the Commissioner of Income Tax but by some other Officer on his behalf and this mistake was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as capital, the Commissioner changed his view taken initially at the time of initiation of proceedings under Section 263 of the Income Tax Act, and that in exercise of jurisdiction under Section 263 of the Act, there was no scope for substituting one view for the other while passing order under Section 263 of the Act. 11. As regards the second issue which is now canvassed before this Court viz., on the issue of expenditure of 66.82 lakhs towards the issue of shares to the Employees Stock Option is concerned, the Tribunal pointed out that the shares were issued to the employees only for the interest of the business of the assessee to induce employees to work in the best interest of the assessee. The allotment of shares was done by the assessee in strict compliance of SEBI regulations, which mandate that the difference between the market prices and the price at which the option is exercised by the employees is to be debited to the Profit and Loss Account as an expenditure. The Tribunal pointed out that what had been adopted was not notional or contingent as had been submitted by the Revenue. Pointing out to the Employees Stock Option Plan, the Tribunal in its order stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of law viz., whether the receipt on account of exchange fluctuation is treated as capital receipt or not is concerned, learned standing counsel for the Revenue pointed out that the Commissioner was compelled to initiate proceedings under Section 263 of the Income Tax Act on account of the fact that the Officer had not made proper enquiry. Therefore, the Commissioner had invoke his powers under Section 263 of the Act. 14. In this connection he placed reliance on the decision reported in 260 ITR 599 - ASHOK LEYLAND LTD. v. CIT, 277 ITR 346 MANNULAL MATADEEN v. CIT and [2011] 51 DTR (Madras) 228 TTK LIG LIMITED v. ASSITANT COMMISSIONER OF INCOME TAX. He also referred to the decision reported in 33 ITR 546 - GEMINI PICTURES CIRCUIT LIMITED v. COMMR. OF INC. TAX and 242 ITR 490 CIT v. SESHASAYEE PAPER AND BOARD LIMITED, on the wide amplitude of the jurisdiction of the Commissioner of Income Tax under Section 263 of the Act and submitted that the Tribunal had not taken into consideration, the various facts discussed in the order of the Commissioner, thus, the Tribunal committed serious error in granting the relief to the assessee. 15. Countering the said contention of the Revenue, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice, learned senior counsel for the assessee submits that as is evident from the above two proceedings, the Commissioner of Income Tax could not deny the fact that he himself entertained two proceedings under Section 263 of the Act. In this connection, learned senior counsel for the assessee placed reliance on the decision of Bombay High Court reported in 203 ITR 108 CIT v. GABRIEL INDIA LIMITED, the Apex Court decision reported in 243 ITR 83 MALABAR INDUSTRIAL CO., LTD v. CIT., and 295 ITR 282 CIT v. MAX INDIA LIMITED. Thus in the absence of any jurisdiction, as found by the Tribunal, which had not been challenged by the Revenue before this Court, consideration of other grounds on merits of the assessment in the order passed under Section 263 of the Act would only be an academic exercise. 19. As regards the receipts arising on account of exchange fluctuation, learned senior counsel for the assessee placed reliance on the decision of the Apex Court reported in 116 ITR 1 SUTLEJ COTTON MILLS LIMITED v. CIT as well as decision of this Court reported in 174 ITR 11 EID PARRY LIMITED v. CIT., and decision of the Delhi High Court reported in 337 ITR 21 CIT v. JAGATJIT INDUSTRIES LIMITED ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the interests of the Revenue. The Apex Court pointed out that the said provision cannot be invoked to correct each and every type of mistake or error committed 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 interests of the Revenue. Thus, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, the order of assessment cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law. The said decision was reiterated again in 295 ITR 282 CIT v. MAX INDIA LIMITED in the context of claim under Section 80HHC and held that when two views are possible on the word "profits" it is not permissible in law for the Revenue to substitute one view over the another view of the Officer so as to treat the view of the Officer as erroneous and prejudicial to the interest of the Revenue. In the decision reported in 203 ITR 108 CIT v. GABRIEL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the assessment that the Officer did not do proper enquiry at the time of assessment. Thus this warranted exercise of jurisdiction under Section 263 of the Act. As far as the decisions reported in 33 ITR 546 - GEMINI PICTURES CIRCUIT LIMITED v. COMMR. OF INC. TAX and 242 ITR 490 CIT v. SESHASAYEE PAPER AND BOARD LIMITED relied on by the learned standing counsel for the Revenue is concerned, there is no quarrel over the proposition laid down that while assuming jurisdiction under Section 263 of the Act, the Commissioner has to satisfy himself, out of statutory compulsion that as the order passed by the Officer is an erroneous one and prejudicial to the Revenue warranting exercise of power under Section 263 of the Act. 25. A reading of the order of the Tribunal as well as the Commissioner of Income Tax shows that there was no dispute that a proceedings under Section 263 of the Act was initiated as regards exchange fluctuation receipt. We agree with the assessee as well as with the Assessing Authority's view that the receipt was capital in nature. The Commissioner of Income Tax (Appeals) also originally viewed that the receipt as capital only. In the sixth paragraph of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of global depository shares by the assessee. The said shares were issued for widening its capital base. The Commissioner pointed out that printed prospectus showed that the object of issuance was with reference to the establishment of offshore software development centre at Chennai. The reminder of the net proceeds was to be used for working capital and for other general corporate purposes. On the deposit on account of exchange fluctuation, the assesee received further sum. The fact remains what was remitted was equivalent to what was received in US dollars. Thus, the receipt on account of exchange fluctuation being related to the money received on capital issue, rightly the assesee contended that the receipt was only capital in nature. In the decision reported in 174 ITR 11 EID PARRY LIMITED v. CIT.,, this Court pointed out on account of exchange fluctuation, if the assessee receives further money, the same represented capital receipt. Considering the fact that the surplus amount which arose was on account of the exchange fluctuation on the money received on capital account and not on account of any transaction by the assessee, as a trading asset or as part of circulating c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is nothing but capital and hence, we do not have any hesitation in rejecting the first question of law. 29. As far as the Employees Stock Option Plan is concerned, as rightly pointed out by the Tribunal, the assessee had to follow SEBI direction and by following such direction, the assessee claimed the ascertained amount as liability for deduction. We do not find that there exists any error to disturb the order of the Tribunal and in turn the Assessing Authority. In the circumstances, we agree with the submission of learned senior counsel appearing for the assessee in this regard by upholding the order of the Tribunal. 30. As regards question Nos 3 and 4, in the light of the order passed above, we do not think that there exists any necessity to decide on the question as to whether the Commissioner under Section 263 of the Act could pass order partially modifying or enhancing or cancelling the assessment and directing investigation. 31. In the circumstances, without expressing any opinion on the question Nos. 3 and 4, holding that the view expressed by the Tribunal cannot be taken as precedent in future, to have binding effect, we dismissed the Revenue's appeal, thereby conf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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