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TMI Blog2021 (11) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... t it is prejudicial to the revenue - recourse cannot be had to Section 263 of the Act as held by Hon'ble Supreme Court in Malabar Industrial Co. Ltd. V/s CIT [243 ITR 83 10/02/2000] & noted by Hon'ble Delhi High Court in CIT V/s Vikas Polymers [194 Taxman 57 16/08/2010]. The Hon'ble Supreme Court in Malabar Industrial Co. Ltd. V/s CIT (supra) has held that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed 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 interest of the revenue. For example, 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, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. The said principal has been reiterated by Hon'ble Court in its subsequent judgment titled as CIT V/s Max India Ltd. (295 ITR 282). Similar p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The exercise of the power is limited to cases where the Commissioner on examining the records comes to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interest of the revenue and that fresh determination of the case is warranted. There must be material to justify the Commissioner's finding that the order of the assessment was erroneous insofar as it was prejudicial to the interest of the revenue. 1.4 The Hon'ble Delhi Court, in the cited decision, further observed that there is a fine though subtle distinction between "lack of inquiry" and "inadequate inquiry". It is only in cases of "lack of inquiry" that the Commissioner is empowered to exercise his revisional powers by calling for and examining the records of any proceedings under the Act and passing orders thereon. In Gabriel India Ltd. (supra), it was expressly observed: - "The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Act has to be exercised within the areas specifically delineated by the Act and the exercise of power under one provision cannot trench upon the powers available under another provision of the Act. In this regard, it must be specifically noticed that against an order of assessment, so far as the revenue is concerned, the power conferred under the Act is to reopen the concluded assessment under section 147 and/or to revise the assessment order under section 263. The scope of the power/jurisdiction under the different provisions of the Act would naturally be different. The power and jurisdiction of the revenue to deal with a concluded assessment, therefore, must be understood in the context of the provisions of the relevant sections. While doing so, it must also be borne in mind that the legislature had not vested in the revenue any specific power to question an order of assessment by means of an appeal. Regarding applicability of Section 263, what has to be seen is that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the revenue is the basic pre-condition for exercise of jurisdiction under section 263. Bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and in law, the learned Principal Commissioner of Income Tax-8 (hereinafter referred to as CIT) Order u/s.263 of the Act is bad in law, illegal, ultra-virus 1. erred in passing the order under section 263 of the Income-tax Act, 1961 (the Act), by holding that the Assessment Order passed by the Deputy Commissioner of Income Tax-8(1)(1), Mumbai (hereinafter referred to as AO) u/s.143(3) r.w.s. 144C(3) of the Act dated 24.01.2018 is erroneous and prejudicial to the interest of the revenue; 2. erred in holding that AO has failed to make necessary enquiry and bring on record all facts without appreciating that specific query was raised in the assessment proceedings on issue under consideration of claim of Long Term Capital Loss of Rs. 73,45,76,474/- and all relevant details in response thereof was filed; 3. failed to appreciate that the assessment order was neither erroneous nor prejudicial to the interest of the revenue and thus order u/s 263 is bad in law, illegal, ultra-virus, in excess of and/or in want of jurisdiction and otherwise void; Claim of long term capital loss on transfer of shares of RLS Inc 4. erred in doubting claim of long term capital loss on tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt proceeding and the assessee's response thereto. Our adjudication to the issue, in the light of settled legal position as enumerated in opening paragraphs, would be as given in succeeding paragraphs. Assessment Proceedings 3.1 The material facts are that an assessment for the year under consideration was framed by Ld. AO u/s 143(3) r.w.s. 144C(3) of the Act on 24/01/2018. While framing the assessment, the assessee has been saddled with certain Transfer Pricing (TP) Adjustment as well as disallowance u/s 14A. 3.2 In the computation of income, the assessee reflected Long-Term Capital Losses of Rs. 73.45 Crores which have been carried forward to subsequent years. This loss has arisen on shares of wholly owned subsidiary namely M/s Reliance Life Sciences Inc. USA (RLS Inc.) held by the assessee. These were reflected as trade investments in the Balance Sheet. The value of the investment as on 31/03/2013 was Rs. 5559.68 Lacs which has ultimately been reduced to 'Nil' as on 31/03/2014. In computation of income, the consideration of the shares has been shown as 39.97 Lacs as against purchase cost of Rs. 7385.74 Lacs and capital loss has been computed at Rs. 7345.76 Lacs. As per assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils of the addition/movement in investment in foreign subsidiary from the initial year of purchase along with documentary evidence. (3) Please provide complete details of the conversion of any other security into investment in foreign subsidiary along with documentary evidence. (4) Please provide complete details with documentary evidence for sale of equity in foreign subsidiary. (5) In your submission, it has been mentioned that capital gain is arising from dissolution of foreign subsidiary. Please provide complete details of such dissolution along with documentary evidence. (6) Please provide the valuation report for the equity shares transferred. 3.5 Vide reply dated 25/12/2017, the assessee furnished explanation and supplied the following information as well as documentary evidences in support of the claim: - We wish to inform that the company after taking into account its expansion and diversification programme in the field of Clinical development and in research service such as Pre-clinical Studies, Bio Equivalence / Bio-Availability Studies (BA/BE), Early Phase Clinical Studies / Phase-1 Studies across the globe and more specifically in United States of America (U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the cash flow statement under the head 'cash flow from financing activities' USD 40518/- is shown as paid to shareholders. Also a sum of Rs. 1510706/- (USD 24579/-) was outstanding as amount payable in the vendor account of Reliance Life Sciences Inc in our books of accounts which was on account of write back of liabilities. This sum was also considered part of the sale consideration. Accordingly the total sale consideration for these investment was considered at Rs. 39,97,668/-(24,86,962+15,10,706). We are attaching herewith the bank statement of Reliance Life Sciences Inc showing the transfer of USD 40517/- as Annexure 8(xi) and the copy of ledger account in our books of Reliance Life Sciences Inc showing the adjustment of the outstanding sum of Rs. 1510706/- as Annexure 8(xii) In view of the above facts and provisions of section 46 of the Income Tax Act, the assessee company has accordingly claimed long term capital loss computed by reducing the amount received on dissolution and winding up of RLS Inc from the cost of investment in equity made by the assessee. Also since the balance sheet on dissolution date did not possess any accumulated profits but in fact had ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, in the garb of conversion from loan to equity, was irregularly allowed Long-Term Capital losses of Rs. 7345.76 Lacs. The application for winding up of foreign subsidiary was filed with US authorities on 23/12/2013. The termination document was to become effective from the date when it was filed with Secretary of State. Since the documents was filed with that authority on 03/01/2014, the cut-off date should have been taken as 03/01/2014 and therefore the transaction was not to be regarded as long-term in nature and no indexation benefit would be allowable to the assessee. The aforesaid aspects, which prima facie warranted inquiry on facts, were not inquired into while completing the assessment and therefore, the order suffers from error within the meaning of Section 263. The error has prejudiced the revenue in as much as the claim of the assessee has been allowed in excess and / or income has been under-assessed. Accordingly, a show cause notice was issued to the assessee on 10/03/2021. 4.2 In response thereof, it was submitted by the assessee that due inquiries were made by Ld. AO during the course of assessment proceedings and the matter was duly examined. The attention w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome and necessary disclosures were made at appropriate places in the financial statements. These transactions were also reflected in Form No.3CEB which has been subjected to benchmarking before Ld. TPO. Not only this, specific enquiries were made by Ld. AO by issuance of notice u/s 142(1) wherein elaborate information was sought from the assessee with respect to this claim. The assessee responded to the queries comprehensively along with requisite information and documentary evidences. All these facts have already been noted by us in preceding paras 3.4 to 3.6. After verifying the details and having satisfied with assessee's submissions, Ld. AO accepted the claim and chose not to disturb the assessee's computations. The claim was accepted with due application of mind and the claim made by the assessee was in accordance with law. There is nothing on record which would suggest that the claim was inadmissible claim or the same was not in accordance with law. 6. On the basis of the above, we would hold that the allegation of Ld. Pr. CIT that the assessment order was passed without making requisite enquiries do not have any sound basis rather the same is based more on surmises and conj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that revisional jurisdiction as exercised by Ld. Pr. CIT u/s 263 is bad in law and is liable to be quashed in terms of settled legal position as enumerated by us in opening paragraphs. Ground nos. 1 to 3 stands allowed. Consequently, delving into the merits of the case has become merely academic in nature and therefore, not gone into. Ground Nos. 4 to 8 has been rendered infructuous. The appeal stand allowed in terms of our above order. ITA No.534/Mum/2021, AY 2015-16 9.1 In this year, an assessment was framed against the assessee u/s 143(3) r.w.s. 144C(3) on 04/01/2019. However, the order was subjected to revision u/s 263 vide order dated 22/03/2021. The same stem from the observation of Ld. Pr. CIT that the assessee advanced certain loan to its AE namely Reliance Life science BV (RLS BV) during the period 01/04/2009 to 31/03/2013. The assessee accounted interest of Rs. 2451.44 Lacs on accrual basis. The Ld. TPO made adjustments to the amount of interest for FYs 2009-10 to 2010-11 but accepted the benchmarking done for FYs 2011-12 to FY 2013-14. In AY 2015-16, an adjustment of Rs. 513.74 Lacs was proposed for interest not accounted and not offered to tax. The assessee wrote-off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is in further appeal before us with following grounds of appeal: - Order u/s.263 of the Act is bad in law, illegal, ultra-virus 1. erred in passing the order under section 263 of the Income-tax Act, 1961 (the Act), by holding that the Assessment Order passed by the Deputy Commissioner of Income Tax -8(1 )(1), Mumbai (hereinafter referred to as AO) u/s. 143(3) r.w.s. 144C(3) of the Act dated 04.01.2019 is erroneous and prejudicial to the interest of the revenue; 2. erred in holding that AO has failed to make necessary enquiry and bring on record all facts without appreciating that specific query was raised in the assessment proceedings on issue under consideration of claim of bad debts on account of write off of unrecoverable interest income of Rs. 24,51,44,873/- and all relevant details in response thereof was filed; 3. failed to appreciate that the learned Transfer Pricing Officer has also verified the claim of write off of unrecoverable interest income and being satisfied had accepted the same; 4. failed to appreciate that the assessment order was neither erroneous nor prejudicial to the interest of the revenue and thus order u/s 263 is bad in law, illegal, ultra- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The detail of interest income offered to tax in earlier years was also attached. Since RLS BV was unable to pay interest, the amount was written-off as bad debts in terms of the provisions of Sec.36(1)(vii) as supported by the decision of Hon'ble Supreme Court in TRF Ltd. V/s CIT (323 ITR 397). It is discernible from the assessment order and other material on record that Ld. AO did not raise any further enquiry and accepted the claim of the assessee. Therefore, it could be concluded that after verifying the details and having satisfied with assessee's submissions, Ld. AO accepted the claim and chose not to disturb the same. The claim was accepted with due application of mind and the claim made by the assessee was in accordance with law. There is nothing on record which would suggest that the claim was inadmissible claim or the same was not in accordance with law. It is nowhere in dispute that the interest on loan was offered as well as accepted as 'Business Income' of the assessee. 12. Later on, the assessment order has been subjected to revision by Ld. Pr. CIT on the ground that interest was taxable u/s 56 to 59 as 'Income from Other Sources' and therefore, the claim made u/s 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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