9911796707
TMI Blog2014 (10) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... tal loss was declared at Rs. 41,60,48,185/- and income u/s 115JB was declared at Rs. 149,11,23,887/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) r.w.s. 144C vide order dated 28.10.2010 and the total income was determined at Rs. 51,43,37,718/-. Subsequently, on examination of records of assessment, Ld. CIT noticed that Assessee had availed and given foreign currency loans and had claimed expenses of Rs. 5,65,95,469/- as "exchange rate fluctuation loss". Ld. CIT was of the view that the loss on account of foreign exchange fluctuation was capital in nature and therefore cannot be allowed under the provisions of the Act. He accordingly issued notice and called upon the Assessee to show cause as to why the order u/s 263 of the Act not be passed in response to which Assessee interalia objected to the initiation of proceedings u/s 263 and on merits submitted that the exchange rate fluctuation loss was allowable as deduction on Revenue account in view of the decision of Hon'ble Supreme Court in the case of Woodword Governor India Pvt. Ltd. (2009) 312 ITR 254 (SC). The submission of the Assessee was not found acceptable to the Ld CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onducted necessary inquiries and was therefore of the view that the order passed by the A.O was erroneous and prejudicial to the interest of the Revenue and therefore cancelled the assessment order dated 23.2.2012 framed u/s 143(3) of the Act and directed the A.O to make the fresh assessment of the total income of the Assessee. 7. Aggrieved by the order of CIT, Assessee is now in appeal before us. 8. Before us, the ld. A.R. submitted that in the present case for both the years, the pre-requisite conditions specified u/s 263 were not satisfied and therefore the proceedings u/s 263 lacks jurisdiction and are bad in law. He submitted that u/s 263, the CIT can revise an order passed by the AO only on the satisfaction of twin conditions namely (i) the order is erroneous and (ii) it is prejudicial to the interest of Revenue. If one of them is absent i.e. if either the order of the Revenue is erroneous but is not prejudicial to the interest of the Revenue or if it is not erroneous but is prejudicial to the interest of Revenue - recourse cannot be had to s. 263(1). He further submitted that the error envisaged by s. 263 is not one which depends on possibility or guesswork but it should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by following the decision of Hon'ble Supreme Court in the case of Woodword Governor (supra) and other decisions. 10. With respect to the issue of treatment of remuneration received from Zydus Healthcare Sikkim in AY 2008-09, the Ld AR submitted that Rs. 4.73 crore was received by the assessee as remuneration from Zydus Healthcare, the firm, where the assessee was a partner. While computing the total income of the firm, the remuneration of Rs. 4.73 crore was disallowed u/s 40(b) because as per Explanation 4 to s. 40(b) "working partner" means only an individual who is actively engaged in conducting the affairs of the business or profession of the firm. While computing the total income in the hands of the assessee, the remuneration of Rs. 4.73 crore received from the firm was excluded in view of the provisions of s. 28(v) of the Act because as per proviso to the section, the amount of interest, salary, bonus, commission or remuneration, by whatever name called and which has not been allowed to be deducted u/s 40(b) needs to be adjusted to the extent of the amount not allowable. Since the amount of Rs. 4.73 crore was disallowed in the case of firm u/s 40(b), the amount was right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner simply because according to him the order should have been written more elaborately. This section does not visualise a case of substitution of judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where ITO while making an assessment examines 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 estimates himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and, left to the Commissioner, he would have estimated the income at a higher figure than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er can be exercised even in a case where the issue is debatable. He further submitted that by setting aside the order of A.O no prejudice would be caused to Assessee as the Assessee will be getting an opportunity to represent its case once again. He thus supported the order of CIT. 12. We have heard the rival submissions and perused the material on record. The issue in the present case is above the invoking of provisions of Section 263 by CIT. 13. S. 263(1) of the Act, the powers under which CIT has assumed power for revision reads as under: "The 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 ITO is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing 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 assessment and directing a fresh assessment." 14. The reading of the above provisions makes it very clear that the power of suo motu revision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi- judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interest of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interest of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be subject- matter of revision because the second requirement also must be fulfilled." 17. In the present case for AY 2006-07, it is seen that during the course of assessment proceedings AO had raised query with respect to the exchange fluctuation loss and in response to which the Assessee has sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by A.O, it is seen that specific query was raised by the A.O about the loss on account of exchange fluctuation and the query was also replied to by the Assessee and the decisions of the Apex Court on which the Assessee had relied upon was also pointed out by the Assessee. After considering the submission of the Assessee, it appears that the reply of Assessee was found to be acceptable by the AO because no addition on account of exchange rate fluctuation was made by the AO in the assessment order. 19. With respect to the issue of allowing of remuneration of Rs. 4.73 crore in AY 2008-09, it is seen that during the course of assessment proceedings AO vide notice issued u/s 142(1) dated 19.9.2011 and 24.10.2011 had raised the query and sought the explanation from the Assessee to which the Assessee vide reply dated 13.10.2011 and 19.12.2011 has furnished the replies. For ready reference, the query of the AO vide notice dated 19.9.2011 (which is placed at page 1 of the paper book)reads as under: "3. Rs. 4,73,19,405 have been claimed as exempt in the statement of Total Income under the head "remuneration from partnership firm since disallowed u/s 40(b) in firm's income". Please g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 40' as against the wording 'disallowed under clause (b) of section 40'. In other words the Section 40(b) provides for disallowance of certain amounts in excess of certain limits, which the AO will disallow and the intention is not to allow the assessee to disallow the entire amount to misuse the proviso for deriving undue and unintended benefit. Therefore the amount, more so the full amount disallowed by you in Zydus Healthcare, Sikkim to claim exemption here in the Company being Rs. 4,73,19,405 is proposed to be disallowed and added back to income. Please file your objections if any." In response to the query, Assessee vide its submission dated 19.12.2011 (copy placed at page 19 to 24 of the paper book) submitted as under: "1. In the Statement of Total Income for A.Y. 2008-09, the assessee company has excluded the amount of Rs. 4,73,19,405/- representing remuneration received by the company from the partnership firm of M/s. Zydus Healthcare Sikkim, in view of the provisions of Sec. 28(v) of the Income-tax Act. 2. It is a matter of record that the said remuneration of Rs. 4.73 crores was disallowed u/s. 40(b) while computing the Total Income of the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oved. Partners are not liable to tax in respect of the share of income from the firm. However, remuneration and interest allowed to partners will be charged to income-tax in their respective hands. The only distinction between professional and non-professional firms will be in respect of slabs for allowing deduction to firms in respect of remuneration. 48.2 The share of the partner in the income of the firm will not be included in computing his total income [section 10(2A)]. However, interest, salary, bonus, commission or any other remuneration allowed by the firm to a partner will be liable to be taxed as business income in the partner's hand, [section 2(24)(ve) and section 28(v)]. An Explanation has been added to the newly inserted clause (2A1 of section 10 to make it clear that the remuneration or interest which is disallowed in the hands of the firm will not suffer taxation in the hands of the partner. In case any remuneration paid to a partner is disallowed in the hands of the firm or the amount is varied in subsequent proceedings, the partner's assessment can be rectified [section 155(1A)]. 48.3 The gross total income of the firm is to be determined in the normal wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in any case as per Sec. 10(2A). The entire business income of the firm, out of which the share of profit is allocated to the partner, is also in any case entitled to the benefit of deduction u/s. 80-IE. Therefore, it is grossly incorrect to observe that "the disallowed amount (of remuneration) in the hands of the firm has gone to increase the eligible benefit u/s. 10C (erroneously referred in place of Sec.80-IE)." Whether or not remuneration paid by the firm to the partner is disallowed, the same has no bearing or impact on the eligibility and extent of the claim of the firm under Sec.80-IE. 9. You have observed in the notice to the effect that, "Sec.40(b) is protection for the revenue from excess claim of remuneration in the hands-of the firm and the proviso placed under Sec.28(v) is a safety for the assessee against double taxation of the amount which the Assessing Officer disallows as per Sec.40(b)." We wish to submit that the words "which the Assessing Officer disallows" as inserted in your observation are in no manner justified. The intention of the proviso to Sec.28(v) is meant to avoid double taxation of any disallowance under Sec.40(b), whether made by the assessee su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords "has not been allowed to be deducted under Sec.40(b)." Our logical reasoning and explanation in regard to the underlying legislative intention and due clarification in the matter under the CBDT Circular, as elaborately discussed herein before, should be considered by your goodself on merits. 12. We have to earnestly request your goodself to kindly appreciate the merits of our submissions herein above and we are confident that you will be pleased to drop your proposal to disallow and add-back Rs. 4,73,19,405/-. In case you are still inclined to take a different view in the matter, we shall be obliged if you will kindly point out any flaws in our logical reasoning and justification submitted herein above, so that we can specifically meet with the same point by point." 20. Considering the aforesaid facts it is seen that for A.Y. 2006-07 and A.Y. 2008-09, AO had had made full inquiries by raising the queries with respect to the issue under consideration and the same were also replied by the assessee and on receipt of the replies accepted the claim of the assessee. We further find that H'ble Apex Court in the case of CIT vs. Max India Ltd. (2007) 295 ITR 282 (SC) has held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
