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TMI Blog2014 (12) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO is not permissible under the law. The issue of tangible asset being business or commercial right as per section 32(1)(ii) of the Act is a debatable issue - any business or commercial right which is obtained for carry on business with effectiveness is likely to fall or comes within the sweep meaning of tangible asset –in AREVA T & D INDIA LTD. Versus THE DEPUTY COMMISSIONER OF INCOME-TAX [ 2012 (4) TMI 79 - DELHI HIGH COURT] it has been held that the term business or commercial right of similar nature has been additionally used under the category of intangible asset referred to section 32(1)(ii) clearly demonstrates that the legislature did not intend to provide for depreciation only in respect of specified intangible asset but also to other categories of intangible assets which were neither feasible nor possible to exhaustively enumerate - the expression any business or commercial rights cannot be restricted to only the six categories of the assets as mentioned in section 32(1)(ii) - it cannot be said that the claim of the assessee and view of the AO is absolutely contrary to law but the issue of allowability of depreciation on intangible asset being business or commer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t had submitted that the Assessment of Elder Infotech Pvt. Ltd. for the Assessment Year 2009-10 could not be made on any person (including the Appellant) and that there were no provisions in the Income Tax Act which would permit the making of such an Assessment or the recovery of any consequential demand. 2. The Hon'ble CIT failed to appreciate and ought to have held that Elder Infotech Pvt. Ltd. was dissolved on August 23,2011 with effect from April 1,2010 and consequently, or otherwise in the absence of any enabling provision no proceeding relating to the determination of tax liability of Elder Infotech Pvt. Ltd. could be commenced under the Income-tax Act on Elder Infotech Pvt. Ltd. or on any other person including the Appellant. 3. The Appellant prays that order passed under section 263 of the Act be struck down as authorities below-initio or otherwise, null and/or void and/or of no effect. WITHOUT PREJUDICE TO GROUND NO. 1/11: GROUND NO. III: 1. On the facts and in the circumstances of the case and in law, the Hon'ble CIT erred in invoking the provisions of section 263 of the Act and setting aside the assessment order passed under section 143(3) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and consequently or otherwise there was no case whatsoever for any addition to the income of Elder Infotech Pvt. Ltd. 2. The assessee challenged the validity of revision order passed u/s 263 on various grounds. First we will consider the issue on which the Commissioner has invoked the provisions of section 263 as raised in ground no. 3 to 5 in this appeal. The assessee filed its return of income for A.Y. under consideration on 30.09.2009 declaring a net loss of ₹ 19,82,57,889/-. The assessment was completed u/s 143(3) on 9.12.2011 at nil income against the loss of ₹ 19,82,57,889/-. Subsequently, on verification of the assessment records, the CIT found that during the year under consideration, the assessee was having commission income of ₹ 6.06 crore from the services rendered to Reliance Communication Ltd., with a view to create the potential to revive the relationship with such dormant subscribers and to augment the revenue to Reliance Communication Ltd, the assessee had debited in its P L account, a sum of ₹ 25.89 crores on account of purchase of Dormant subscribers. The assessee paid a sum of ₹ 517.94 cores to Reliance Communication Ltd. in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation on commercial right, the Commissioner observed that the assessee has to specify that either they are covered under the specific business asset as described u/s 32(1)(ii) of the Act., or having similar nature. He has expressed his disagreement in accepting the payment made by the assessee to Reliance Communication for any commercial right of similar nature as provided u/s 32(1)(ii) and 32(1)(iii). The Commissioner concluded that the agreement for revival of dormant subscribers is not commercial asset and the payment made by the assessee company is not for acquiring the capital asset. 3. On the second issue of share premium money and unsecured loan, the Commissioner held that the order of the Assessing Officer suffers from several defects as the Assessing Officer has not raised any question while recording the statement with respect to the credentials of the applicant companies. The statement recorded in stereo type and no question has been asked by the Assessing Officer with respect to the capacity of companies who have given the loan to the assessee. Thus the Commissioner has questioned the justification of payment of premium of ₹ 999 on a face value of ₹ 1 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rized Representative has submitted that the Commissioner has revised the order of Assessing Officer on the ground that the assessee has not acquired any capital asset in the nature of business or commercial right and, therefore, the Assessing Officer has wrongly allowed the claim of the assessee even to the extent of ₹ 6.06 croes as depreciation on intangible assets. He has referred the decision of Hon'ble Supreme Court in the case of Techno Shares and Stock Ltd. (327 ITR 323) and submitted that the issue of commercial right has been discussed by the Apex Court and it has been held that the right of a membership which allowed the non-defaulting member to participate in the trading season on the floor of the exchange is a business or commercial right conferred by the Rule of BSE on such member. The right to participate in the market had an economic and money value. It was an expense incurred by the assessee which satisfied the test of being a licence or any other business or commercial right of similar nature in terms of S. 32(1)(ii) as held by the Hon'ble Supreme Court. Without the right in the agreement, the assessee could not approach the dormant subscribers for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the relevant evidence allowed the claim as correct and genuine. He has referred the relevant part of the revision order wherein the Commissioner has recorded the financial details of all these share applicant companies and also recorded the fact that the Assessing Officer called for the financial details of all these companies but no examination of accounts of these companies has been done by the Assessing Officer. Therefore, the assessment order to the extent of share application was treated as erroneous and prejudicial to the interest of revenue only on the suspicion and justification of payment of share premium. He has contended that when all the relevant material was available with the Assessing Officer as it was produced during the assessment proceedings, then accepting the share premium by the Assessing Officer does not suffer from any error. The Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in the matter or orders which already concluded. When the Assessing Officer has allowed the claim after considering the relevant evidence and materials filed by the assessee then the commissioner cannot held the order erroneous sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner in the impugned order and submitted that the Commissioner has given a finding that the assessee has not acquired any capital asset or owned any capital asset uder the agreement, therefore, no depreciation is allowable. The Assessing Officer has not made any enquiry on this issue, therefore, there is a lack of application of mind on the part of the Assessing Officer which renders the order erroneous so far as prejudicial to the interest of revenue. In support of his contention he has relied upon the order of Hon ble Karnataka High Court in the case of CIT Vs. Infosys Technologies (341 ITR 293) that in the absence of any discussion either in the assessment order or in the computation claim to the extent of relief claimed by the assessee, the order is erroneous and prejudicial and in such a situation the Commissioner has the jurisdiction to exercise the power u/s 263. He has further submitted that the issue is not at all examined by the Assessing Officer, therefore, the Commissioner can direct the assessing authorities to compute or re-compute the same. He has then relied upon the decision of Hon'ble Jurisdictional High Court in the case of CIT Vs. Hindustan Liver (343 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived from these companies. He has forcefully contended that the Commissioner has discussed the fact as to how the Assessing Officer has not made any enquiry on the issues which are subject matter of revision. He has referred the decision of Hon'ble Supreme Court in the case of South India Steel Rolling Mills v CIT [1997] 224 ITR 654 and submitted that the exercise of power conferred u/s 263 by the Commissioner was held to be justified when the Assessing Officer while granting the benefit of development rebate u/s 33(1A), failed to note that the condition provided u/s 34(3)(A) were not fulfilled by the assessee as the firm was dissolved and ceased to exist before the expiry of period of eight years. Thus the Ld. DR has strongly supported the revision order and submitted that the Commissioner was justified in revising the assessment order when the Assessing Officer has not applied its mind on the issues in question. 7. In rebuttal, the ld. Authorized Representative has submitted that the share applicant companies are NBFC registered with RBI, therefore, there is no question of doubting the identity and availability of funds with the share applicant companies. 8. We have c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication money and unsecured loans for the year ending 31.03.2010. The assessee company, M/s Elder IT solutions Pvt. Ltd has received the unsecured loan of ₹ 48,75,56,8401/- and share application money of ₹ 1,39,86,00,000/-. The above two issues have not been examined by the Assessing Officer while passing the order of Elder Infotech Pvt. Ltd. for A.Y. 2009-10. On the issues as stated above a show cause is being given to you as to why the order passed by JCIT (OSD)-Cir. 8(1), Mumbai dtd 09.12.2011 should not be revised u/s 263 of the Act being order erroneous one ad prejudicial to the interest of revenue. Please submit your reply either in person or through authorize representative on 25.03.2014 at 11.30 A.M. 9. The Commissioner proposed to revise the assessment order dated 9.12.2011 in respect of these two issues on the ground that the Assessing Officer has not examined these issues while passing the order for the A.Y. under consideration. There may be two broad scenario in which section 263 can be invoked. Firstly, in a case where the claim of the assessee needed inquiry and examination but the Assessing Officer failed to conduct any inquiry. Such a case woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and inSmt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). 10. In the case in hand, the Assessing Officer has made an enquiry regarding the claim of depreciation on tangible asset and after considering the relevant agreement under which the assessee had acquired the right for revival of dormant subscribers of RCOM Ltd., has decided the issue in para 3.3 of the assessment order as under:- 3.3 The submissions of the assessee have been considered but the same are not acceptable. The assessee furnished the ledger account of advance towards purchase of subscribers', perusal of which shows that during the year the assessee has given advance of ₹ 402,44,00,000/- on 23.10.2008 and ₹ 115,50,00,000/- on 20.01.2009 to Reliance Communication Limited on account of purchase of subscribers. Thus, during the year, the assessee has - paid a sum of ₹ 517,94,00,000/- to Reliance Communication Limited on account of 'purchase of subscribers'. However, at the end of the year itself i.e. on 31st March, 2009, the assessee has written off a sum of ₹ 25,89,70,000/- being 5% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after giving reasonable opportunity of being heard to the assessee. 12. When the matter was restored back to the file of Assessing Officer for a fresh consideration after giving reasonable opportunity of hearing to the assessee then it is apparent that the Commissioner has not arrived to a concluding finding that the view taken by the Assessing Officer is not permissible under the law. Moreover, the issue of tangible asset being business or commercial right as per section 32(1)(ii) of the Act., is a debatable issue in view of the various judgments including the judgment of Hon'ble Supreme Court in the case of Techno Shares Stocks (supra), referred by assessee wherein, the stock exchange membership was considered as a right akin to a license which is one of the item which falls under section 32(1)(ii) of the Income Tax Act. The Hon'ble Supreme Court has observed that right to practice in market has an economic and money value. It was an expense incurred by the assessee which satisfied the test of being a licence or any other business or commercial right of similar nature in terms of S. 32(1)(ii) of the Income Tax Act. In the case of B. Raveendran Pillai Vs. CIT (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely on the ground that in the books of account it was mentioned as goodwill and nothing else. As has been held by the Apex Court in Malabar Industrial Co. Ltd. s case (supra), Max India Ltd. s case ( supra) and CIT v. Vimgi Investment (P.) Ltd. [2007] 290 ITR 505 (Delhi) once a plausible view is taken, it is not open to the Commissioner to exercise the power under section 263 of the Act. 13. The meaning as understood by the Hon ble High Court that any business or commercial right which is obtained for carry on business with effectiveness is likely to fall or comes within the sweep meaning of tangible asset. Similarly in the case of AREVA T D India Ltd. (Supra), the Hon ble Delhi High Court has held that the term business or commercial right of similar nature has been additionally used under the category of intangible asset referred to section 32(1)(ii) clearly demonstrates that the legislature did not intend to provide for depreciation only in respect of specified intangible asset but also to other categories of intangible assets which were neither feasible nor possible to exhaustively enumerate. Therefore, the expression any business or commercial rights cannot be restricted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee under consideration. The Commissioner has further recorded at page no. 10 of the impugned order as under:- The above companies financial details have been called for by the AO but no examination of the accounts of these companies have been done when it is required by the AO to examine the transaction pertaining to these companies because these companies do not have any operational income and creating entries in their books of accounts by way of loans and premium on issue of shares. The AO has recorded the statement of some of the persons but the statement recorded by the AO was also stereotype and no worthwhile question has been asked while recording the statement of the concerned parties. Al the statement recorded by the AO is stereotype. Even the confirmation filed by the parties who have given money to the assessee has not been examined by the AO with respect to source of money of depositors. In the background of above stated facts, it needs to be discussed the requirement of Sec.263 of the Act. The section 263 of the I.T. Act, 1961 speaks two things: (i) Order should be prejudicial to the interest of the revenue (ii) Order should be erroneous one. 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application of mind. According to the Commissioner, the claim of the assessee required examination as to whether the expenditure in question was a revenue or capital expenditure. In that view of the matter, he cancelled the order of the ITO in this regard and directed him to make a fresh assessment on the lines indicated by him. ******************* ******************* From a reading of sub-section 1 of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the ITO is 'erroneous insofar as it is prejudicial to the interests of the revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no better. A bare perusal of the aforesaid provision shows that the Commissioner can exercise powers under sub-section (1) of section 263 of the Act only after examining the record of any proceedings under the Act . The expression record has also been defined in clause (b) of the Explanation so as to include all records relating to any proceedings available at the time of examination by the Commissioner. Thus, it is not only the assessment order but the entire record which has to be examined before arriving at a conclusion as to whether the Assessing Officer had examined any issue or not. The assessee has no control over the way an assessment order is drafted. The assessee on its part had produced enough material on record to show that the matter had been discussed in detail by the Assessing Officer. The least that the Tribunal could have done was to refer to the assessment record to verify the contentions of the assessee. Instead of doing that, the Tribunal has merely been swayed by the fact that the Assessing Officer has not mentioned anything in the assessment order. During the course of assessment proceedings, the Assessing Officer examines numerous issues. Generally, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon ble Delhi High Court in the case of Lovely Exports (299 ITR 268) which has been confirmed by the Hon'ble Supreme Court by dismissing the SLP filed by the department. 19. One more reasons for setting aside the assessment order in respect of the share premium is the justification of payment of huge premium in comparison to the prospective earnings of the assessee. It is pertinent to note that as per the provisions of section 68, the addition can be made if the transaction of cash credit is not properly explained by the assessee by establishing the identity of the creditor and the capacity of the creditor and genuineness of the transactions to the satisfaction of the Assessing Officer. Therefore, the justification of payment cannot be a sole ground for addition u/s 68. Though the same may be the reason for enquiry and investigation by the assessing authorities to find out the genuineness of the transactions. There is not dispute about the identity of the parties as it was also not disputed by the Commissioner, the source and capacity of these parties were prima facie established by the assessee by producing their financial statements and bank accounts etc. The Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed the deduction without considering the earlier assessment orders, wherein, the said deduction was disallowed. Thus it was clear case of overlooking a mandatory aspect of the assessment and the fact that the deduction was earlier disallowed. The Assessing Officer failed to consider the earlier assessment orders and, therefore, the action of the Assessing Officer was absolutely not permissible under law. The said case is entirely distinguishable on fact and not applicable in the facts of the present case. In the case of Major Metals Ltd. Vs. Union of India (supra), is a judgment of the Hon ble High Court against the finding of the settlement commission, which was based on the material and evidence on record. Therefore, the said analogy cannot be applied in the case of revision order passed u/s 263. It was purely a finding of fact and hence have no applicability in the facts of the present case. 19. In view of the above, facts and circumstances of the case as well as above discussion , we are of the view that the Commissioner has travelled beyond the jurisdiction as prescribed u/s 263 and accordingly, the impugned revision order is not sustainable and, therefore, the same is se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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