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TMI Blog2019 (12) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... mittedly made on 10.04.2015 and is beyond the period of limitation making the Assessment Order a nullity. When the original Assessment Order passed u/s. 143 (3) of the Act was null and void in the eyes of law, the Commissioner could not have assumed jurisdiction under law to make revision of a non-est order and therefore the impugned order passed u/s. 263 of the Act by the Commissioner is also nullity in the eyes of law. Further, we do not see any minimal enquiries conducted by the Ld. Pr.CIT before coming to the conclusion that the Assessment Order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. The detailed submissions made by the assessee along with the evidences were not even examined by the Ld. Pr.CIT before arriving at the conclusion that the Assessment Order passed is erroneous. Thus, in view of the above reasons the order passed u/s.263 of the Act by the Ld. Pr.CIT is hereby quashed. - ITA NO.3156/MUM/2018 (A.Y: 2011-12) - - - Dated:- 30-9-2019 - SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI N.K. PRADHAN, HON'BLE ACCOUNTANT MEMBER Assessee by: Shri Vijay Mehta Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .92 crores, ₹ 14.17 crores was allocated to non-tonnage business. Therefore, he was of the view that the same is in the nature of capital expenditure and not to be allowed. 4. A detailed reply dated 20.03.2018 was filed assailing the correctness of the issues raised in the notice u/s. 263 of the Act. The Ld. Pr. CIT, however, not accepted the submissions made by the assessee and, issued the following directions vide his order dated 28.03.2018: 5. I have perused the relevant record and also considered the submissions made on behalf of the assessee company. The assessee claimed interest expenditure of ₹ 123,10,57,100/- which was allocated to the tonnage and non-tonnage business. The interest expenditure of R. 81,36,80,821/- allocated to non-tonnage business included interest expenditure of ₹ 39,61,61,644/- and ₹ 27,57,66,170/-related to NCD and FCCB respectively, which should have been allocated to tonnage as well as non-tonnage business in the ratio of turnover. The Ld. AR submitted that the borrowed fund in the form of NCD and FCCB was utilized for giving Inter Corporate Deposit and for investment in wholly-owned subsidiary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st was anyway allowable u/s. 36(1)(iii). The above discussion clearly suggested that the AO allowed the claims of interest expenditure allocated to non-tonnage business without carrying out proper investigation so as to ascertain the relevant facts which rendered the assessment erroneous in so far as it is prejudicial to the interest of the revenue within the meaning of section 263. The AO passed the assessment order without making inquiries or verifications as stated above which should have been made thereby attracting the provisions of clause (a) of Explanation 2 to section 263(1) and therefore the assessment order shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue. I therefore invoke the provisions of section 263 and set aside the impugned assessment order u/s. 144C(1) read with section 143(3) passed on 10.04.2015 and direct the AO to conduct proper investigation in the issues involved as narrated above and then frame fresh assessment after allowing reasonable opportunity to the assessee. 5. Against the above order of the Ld. Pr.CIT the assessee filed appeal before us. The assessee has taken the following grounds in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the assessee submits that since the Assessing Officer made reference u/s. 92CA(1) on 23.10.2013 to TPO which is prior to obtaining the approval from Commissioner i.e. on 28.10.2013 and passed final Assessment Order u/s. 144C(1) r.w.s. 143(3) of the Act on 10.04.2015, the reference made by the Assessing Officer is bad in law as it is in contravention to the provisions of section 92CA(1) of the Act. Ld. Counsel for the assessee submits that since the reference made to TPO is invalid the extended time limit to pass the assessment order as per the provisions of section 153 would not be applicable. Therefore, he submits that as per the provisions of section 153(1)(a) the time limit for completion of assessment shall be two years from the end of the assessment year in which the income was first assessable and since the assessment year involved in the present case is A.Y. 2011-12 the outer time limit for passing the Assessment Order shall be 31.03.2014 but Assessment Order u/s. 144C(1) r.w.s. 143(3) of the Act was passed on 10.04.2015. Therefore, Ld. Counsel for the assessee submits that since the order which is subject matter of proceedings u/s. 263 of the Act was passed beyond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, it is submitted that the moneys borrowed by the assessee in the form of NCD and FCCB has been utilized for using ICD and for investments in wholly owned subsidiary company. Thus, it has been submitted that the said amount has been wholly utilized for non-tonnage business. Learned Counsel for the assessee submitted that, the moneys borrowed in the form of FCCB had been invested in its wholly owned subsidiary company M/s. Essar Oilfield Services Limited, Mauritius [EOSL]. Ld. Counsel for the assessee submits that a direct nexus between money received by the assessee and the investment made in preference shares of ESOL can be established from FIRC showing money received by the assessee company and outward remittance. It is submitted that a copy of FIRC and outward remittance were also furnished before the Ld. Pr.CIT establishing this fact. Ld. Counsel for the assessee submits that the amount received from NCD and FCCB has been utilized only for non-tonnage business and hence it should not be split between tonnage business and non-tonnage business as proposed by the Ld. Pr.CIT. 10. In respect of the disallowance of the interest expenses of ₹ 14.17 Crores u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee referring to Page No. 1 of the Paper Book which is the computation of income and note mentioned therein submitted that, the shipping logistics and oilfield business were demerged into the assessee company from M/s. Essar Shipping Ports and Logistics w.e.f. 01.10.2010 as per the composite scheme of arrangement sanctioned by the Hon'ble Gujarat High Court by order dated 01.03.2011. Due to demerger the allocation was bifurcated between assessee company and M/s. Essar Shipping Ports and Logistics equally for six months each. This allocation has been accepted by the Assessing Officer while completing the assessment u/s. 143(3) of the Act in the case of M/s. Essar Ports Limited which is the predecessor of the assessee company. 12. Ld. Counsel for the assessee submitted that the Ld. Pr.CIT did not make any enquiry before holding that the order of the Assessing Officer to be prejudicial to the interest of the Revenue which is one of the essential condition for passing the order u/s. 263 of the Act. Ld. Counsel for the assessee submits that the issues which were raised in the statutory notice were adequately dealt with and explained by the assessee and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the tonnage and non-tonnage business counsel submits that, assessee has shown bifurcation of Profit and Loss Account between tonnage and non-tonnage business and the details of the interest of ICD offered as business income. Ld. Counsel for the assessee referring to Page No. 15 and 16 of the Paper Book submits that the Assessing Officer in the course of the assessment proceedings issued notice u/s.142(1) of the Act dated 16.12.2014 calling for various details and documents. Referring to Point No. 9 of the questionnaire in the notice wherein the Assessing Officer called for party wise details of security deposits and advances to subsidiary with details of interest charged therein. Referring to Page No. 17 of the Paper Book which is the reply furnished by the assessee the Ld. Counsel for the assessee submits that, bifurcation of interest cost between Tonnage and non-tonnage business were provided to the Assessing Officer. Referring to the reply dated 02.01.2015 Ld. Counsel for the assessee submits that the assessee explained that during the year the shipping business of M/s. Essar Ports Limited had been demerged into assessee company effective from 01.10.2010 as per the scheme ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in logistics business (non-tonnage activity) 27.57 27.57 This allocation has been accepted by the AO u/s. 143(3) of the Act in A.Y, 2011-12 (in the case of Essar Ports Ltd predecessor). 4, Balance interest expenditure allocated between tonnage and non-tonnage income in the ratio of funds utilised 19.92 5.75 14.17 Accepted as revenue expenditure by the AO u/s. 143(3) of the Act in A.Y. 2011-12 (in the case of Essar Ports Ltd -predecessor). 5. Total interest expenditure 123.10 41.75 81.35 - Referring to the above chart, it is submitted that interest paid on NCD issued by LIC amounts to ₹ 39.61 Crores and the proceeds of the LIC were used for g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot applied his mind to the issues. Therefore, there is complete non application of mind by the Assessing Officer and this renders the Assessment Order erroneous and prejudicial to the interest of Revenue and hence the Ld. Pr. CIT has rightly invoked the provisions of section 263 of the Act. 20. We have heard the rival submissions, perused the orders of the authorities below. The preliminary contention of the assessee is that, the assessment framed by the Assessing Officer u/s. 144C(1) r.w.s. 143(3) of the Act dated 10.04.2015 is time barred and bad in law and consequently when the foundation i.e. order u/s. 144C(1) r.w.s. 143(3) of the Act being non-est in the eyes of law the proceeding initiated by the Ld. Pr.CIT u/s. 263 of the Act and the order passed is illegal and bad in law. 21. We observe that for the previous year relevant to the Assessment Year under consideration i.e. A.Y. 2011-12 a return of income was filed by the assessee declaring loss of ₹ 47,85,08,570/- which was initially processed u/s.143(1) of the Act and subsequently selected for scrutiny proceedings. Assessing Officer passed draft assessment order on 05.03.2015 framed u/s. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from the above, if the assessee entered into any international transactions in any previous year in order to compute the arm s length price in relation to such international transactions the Assessing Officer with the prior approval of the Commissioner refer to TPO for determination of the arm s length price. 24. Admittedly in this case the approval of the Commissioner was obtained on 28.10.2013 which is after the date of reference made by the Assessing Officer to the TPO on 23.10.2013. As there is no valid reference, the extended time limit to pass the Assessment Order as per section 153 would not be applicable and consequently the time limit for completion of assessment u/s. 153(1)(a) will be two years from the end of the Assessment Year. The present Assessment Year involved is 2011-12, the assessment should have been completed on or before 31.03.2014 but in this case the assessment was completed on 10.04.2015 u/s. 144C(1) r.w.s. 143(3) of the Act . 25. We further observe that the third proviso to section 153(1) of the Act which gives extended time limit to pass the Assessment Order where a reference under sub section (1) of section 92CA was made, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non est assessment order? In our considered view, since these issues are jurisdictional issues and go to the root of the matter, therefore before dealing with any other issue, we shall first deal with all above three issues one by one, as under: 8. Challenging the jurisdictional defects of assessment order for assailing the jurisdictional validity of the revision order passed u/s 263: The first issue that arises for our consideration is - whether the assessee can challenge the jurisdictional validity of order passed u/s 143(3) in the appellate proceedings taken up for challenging the order passed u/s 263? If we analyse the nature of both of these proceedings, which are under consideration before us, we find that the original assessment proceedings can be classified in a way as 'primary proceedings'. These are, in effect, basic / foundational proceedings and akin to a platform upon which any subsequent proceedings connected therewith can rest upon. The proceedings initiated u/s 263 seeking to revise the original assessment order is off shoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e subsequent proceedings in turn would also be illegal, but in absence of a remedy to contest the same, it may give rise to an 'enforceable' tax liability without authority of law. Therefore, the Courts have taken this view that jurisdictional aspects of the order passed in the primary proceedings can be examined in the collateral proceedings also. This issue is not res integra. This issue has been decided in many judgments by various courts, and some of them have been discussed by us in f ollowings paragraphs. 8.2. In a matter that came up before Hon'ble Supreme Court in the case of Kiran Singh Ors. v. Chaman Paswan Ors., [1955] 1 5CR 117 the facts were that the appellant in that case had undervalued the suit at ₹ 2,950 and laid it in the court of the Subordinate Judge, Monghyr for recovery of possession of the suit lands and mesne profits. The suit was dismissed and on appeal it was confirmed. In the second appeal in the High Court the Registry raised the objection as to valuation under Section 11. The value of the appeal was fixed at ₹ 9,980. A contention then was raised by the plaintiff in the High Court that on account of the valuat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar view has been taken by Hon'ble Supreme Court by following aforesaid judgments recently in the case of Indian Bank vs Manual Govindji Khona reported in 2015 (3) SCC 712. Further, similar view was emphasized by Hon'ble Bombay High Court (GOA Bench) in the case of Mavany Brothers vs CIT (Tax Appeal No 8 of 2007) in its order dt 17th April, 2015 wherein it was held that an issue of jurisdiction can be raised at any time even in appeal or execution. 8.5. The aforesaid principles, enunciated by the Apex Court in the case of Kiran Singh Ors. v. Chaman Paswan Ors, supra were reiterated by the Apex Court in the cases of Superintendent of Taxes vs Onkarmal Nathmal Trust (AIR 1975 SC 2065) and Dasa Muni Reddy v. Appa Rao (AIR 1974 SC 2089). In the first of these decisions it was pointed out that revenue statutes protect the public on the one hand and confer power upon the State on the other, and the fetter on the jurisdiction is one meant to protect the public on the broader ground of public policy and, therefore, jurisdiction to assess or reassess a person can never be waived or created by consent. This decision shows that the basic principle recognized in K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he point regarding the jurisdictional aspect was not open before the Assessing Officer. According to the Tribunal, the assessee having raised the point in the first round and having given it up could not revive it in the second round of proceedings where the issue was limited to the merits of the additions. In this view, the Tribunal accepted the Revenues plea. The assessee thereafter carried order of the Tribunal in reference before the Gujarat High Court. The High Court after considering various judgments of the Supreme Court on the point of jurisdiction to reopen the assessment and also after specifically discussing the judgment of the Supreme Court in Onkarmal Nathmal Trust (supra) and Dasa Muni Reddy (supra) held that the Tribunal was in error in holding that the question of jurisdiction became final when it passed the earlier remand order. It was held that neither the question of res judicata nor the rule of estoppel could be invoked where the jurisdiction of an authority was under challenge. According to Hon'ble Gujarat High Court, the rule of res judiccitci cannot be invoked where the question involved is the competence of the Court to assume jurisdiction, either pecuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had determined the tax liability of the assessee on the basis of which penalty was levied subsequently. The revenue objected with respect to the ground of the assessee raising jurisdictional issues of assessment proceedings in the appeal against the penalty order. After analysing the legal position, as clarified by Hon'ble Gujrat High Court in the case of P.V. Doshi, supra and Hon'ble Bombay High Court in the case of Jainaravan Babulal vs CIT. 170 ITR 399, the bench held as that if the block assessment itself is without jurisdiction then there is no question of levy of any penalty u/s. 158BFA(2) and therefore it is open to the assessee to set up the question of validity of the assessment in the appeal against the levy of penalty. 8.9. We also derive support from another judgement of Hon'ble Bombay High Court in the case of Inventors Industrial Corporation Ltd vs CIT 194 ITR 548 (Bombay) wherein it was held that assessee was entitled to challenge the jurisdiction of the AO to initiate re-assessment proceedings before the CIT(A) in the second round of proceedings, even though he had not raised it in earlier proceedings before the Assessing Officer or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner revises such an assessment order, then it would imply extending/ granting fresh limitation for passing fresh assessment order. It is settled law that by the action of the authorities the limitation cannot be extended, because the provisions of limitation are provided in the same. 20. In view of above discussion, ground no.3 is allowed and revision order passed u/s 263 is quashed. 10.2. It is further noticed by us that similar view has been taken by Chandigarh Bench of the Tribunal in the case of Steel Strips Ltd (supra). 11. Thus, after taking into account all the facts and circumstances of the case, we find that in this case, the original assessment order passed u/s 143(3) dt 24-10-2013 was null void in the eyes of law as the same was passed upon a non -existing entity and, therefore, the Ld. CIT could not have assumed jurisdiction under the law to make revision of a non est order and, therefore, the impugned order passed u/s 263 by the Ld.CIT is also nullity in the eyes of law and therefore the same is hereby quashed. 12. Since we have quashed the impugned order passed u/s 263 by Ld. CIT on jurisdictional ground, we do no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non est assessment order? 9. On question no. 1 and 3 which is relevant to the present case the Hon ble Mumbai bench of the Tribunal has taken the view that when the original assessment proceedings are null and void in the eyes of law for want of proper assumption of jurisdiction then such validity can be challenged even in collateral proceedings. The Mumbai bench took the view that the proceedings u/s 147 of the Act are primary proceedings and proceedings u/s 263 of the Act are collateral proceedings and in such collateral proceedings, the validity of initiation of the original proceedings u/s 147 of the Act can be challenged. The Mumbai bench of the Tribunal in this regard has placed reliance on several decisions, the principal decision being that of the Hon ble Supreme Court in the case of Kiran Singh Ors. V. Chaman Paswan Ors. [1955] 1 SCR 117 wherein the Hon ble Supreme Court observed as follows :- It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder. It is settled law that by the action of the authorities the limitation cannot be extended. Because the provisions of limitation are provided in the same 20. In view of above discussion ground no.3 is allowed and revision order passed u/s 263 is quashed. 11 The learned DR relied on the order of the CIT(A). We have considered the rival submissions. We are of the view that the validity of the order u/s 147 of the Act depends upon the AO assuming jurisdiction to make an order of assessment u/s 147 of the Act after fulfilling the conditions laid down in the said section namely reason to believe the income chargeable to tax for that assessment year has escaped assessment. If this condition is not satisfied then it cannot be said the AO has validly assumed jurisdiction u/s 147 of the Act. If the validity of proceedings u/s 147 of the Act has not been challenged by the assessee by filing appeal against the order u/s.147 of the Act, can it be challenged in the appeal against an order u/s 263 of the Act revising the invalid order u/s 147 of the Act. This issue has been analysed by the Hon ble Mumbai Bench of the tribunal in the case of M/s. Westlife ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions made by the assessee, without making any preliminary enquiries by him he simply concluded that the Assessment Order is erroneous as the Assessing Officer has failed to examine the submissions which the assessee made before him. 31. In the case of Pr.CIT v. Delhi Airport Metro Express Pvt. Ltd., (supra), the Hon'ble Delhi High Court held as under: 9. It is seen, in the order dated 30th March 2016, the PCIT has proceeded by setting out the contents of the SCN and the contents of the reply given by the Assessee. It appears that no inquiry, as such, was undertaken by the PCIT to come to the conclusion that the original assessment order was erroneous and prejudicial to the interests of the Revenue. 10. For the purposes of exercising jurisdiction under Section 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the PCIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. All that PCIT has done in the impugned order is to refer to the Circular of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer in accepting its claim of Assessment Year: 2012-2013 derivative loss as non-speculation loss on merit. In this regard, reliance was placed by the assessee on the decision of the Hon'ble Calcutta High Court in the case of Asian Financial Services Limited -vs.- CIT [70 taxmann.com 9 (Calcutta)], wherein it was held that derivative loss can be set off against other profits. It was also brought to the notice of the ld. Principal CIT by the assessee that the said decision was rendered by the Hon'ble Jurisdictional High Court after considering the decision of the Hon'ble Delhi High Court in the case of DLF Commercial (supra), which was referred to in the notice issued under section 263. Reliance was also placed by the assessee on some other judicial pronouncements as well as the relevant provisions of section 43(5) in support of its contention that dealing in derivative was separate kind of transaction, which did not involve any purchase and sale of shares and, therefore, the derivative loss could not be treated as speculative loss. It is observed that although the ld. Principal CIT in his impugned order passed under section 263 reproduced the submission made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which could not be the intention of the legislature inserting Explanation 2 to section 263. It was held that it could lead to unending litigation and there would not be any point of finality in the legal proceeding. 10. In the case of ITO -vs.- D.G. Housing Projects Limited (supra) cited by the ld. counsel for the assessee, the Hon'ble Delhi High Court has held that in cases of wrong opinion or finding on merits, the ld. CIT has to arrive at the conclusion and himself decide that the order is erroneous by conducting necessary enquiry, if required, before order under section 263 is passed. It was held that the ld. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. It was further held that in some cases, the ld. CIT can also show and establish that the facts on the record or inference drawn from the facts on record per se justified and mandated further enquiry or investigation, but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, un-ambiguous and not debatable and the matter cannot be remitted for a fresh decision to the Assessing Assessment Year: 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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