9911796707
TMI Blog2011 (4) TMI 1556X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the said A.Y., you have received a sum of Rs. 18.00 Crore from M/S Beierdorf AG., Germany (BDF) as an one-time settlement for termination of contracts of producing and selling of the products of the latter company in India as well as issuing a NOC for setting up a 100% subsidiary by them in India. The said receipt should have been considered as income in the ambit of either Sec. 28 or Sec. 56, if the same is considered as voluntary payment on a goodwill gesture as pointed out by you. But, the said receipt has been allowed to be transferred directly to Capital Reserve Account while passing the assessment order for the A.Y. 2006-07. 2) You have been allowed to debit Rs. 1,32,11,353/- as Royalty paid to BDF during the said A.Y. for exclusive use of their Trade Mark, copy rights, know-how to manufacture their products etc. in India as per agreements entered time to time. But, as per the guidelines laid down by the Ministry of Commerce Industry. Govt. of India, the amount of Royalty required to be allowed for payment in such a case is l% of Net Sales Value , which comes to Rs. 84,49,525/- in your case. So, you have been allowed an additional amount of Rs. 46,61,828/- to be debited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the products manufactured or imported by BDF India in India. The assessee company agreed not to cause any hindrance to BDF successfully setting up 100% subsidiary and indirectly consented not to share the know how etc. and not to manufacture similar products. In the NOC vide para-3 it is mentioned that the new proposal would not in any way jeopardize the interest of the assessee company. Therefore, the contentions of the assessee that the receipts can not be taxed as income u/s 28 or 56 are not tenable. Besides, admittedly the amount received is a voluntary payment by BDF as a goodwill gesture. The case laws cited by the assessee are distinguishable on facts. Moreover, it is apparent from the record that the AO did not examine/verify or consider the matter at the time of passing the order. 2) Non-disallowance of Royalty paid to BDF in excess of 1% of the net sales: The assessee has contended that the limit of 1% is applicable where there is no technology transfer but in the assessee s case the licence agreement clearly permits use of know-how of the foreign collaborator by the assessee company. The contentions of the assessee company are not reasonable since technology transfer i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO while passing the assessment order. It is clear that the assessment order passed is both erroneous vis- -vis legal provisions and also prejudicial to the interests of revenue. Hence recourse to action u/s 263 is warranted as per conditions set out by the Apex Court in Malabar Industrial Company Ltd. V. CIT (2000) 243 ITR 83 (SC). Moreover, non application of mind by the AO to the issues stated above also justifies action u/s 263 CIT V. Emery Stone Mfg. CO. (1995) 213 ITR 843 (Raj.) In view of the discussions made in the earlier paragraphs, the assessment order u/s 143(3) passed by the AO on 28/03/2008 is considered to be erroneous and prejudicial to the interest of the revenue so far as the above mentioned issues are concerned. Accordingly, the assessment order is set aside on the above mentioned issues and the AO is directed to pass fresh assessment order after giving reasonable opportunity of being heard to the assessee on such matters. 4. Being aggrieved by the aforesaid observations and directions of ld. C.I.T. in his order passed u/s. 263 of the Act, the assessee is in appeal before us. 5. At the time of hearing before us, the ld. counsel for the assessee reiterated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 28/3/2008, the A.O. of his own issued notice u/s. 154 of the Act dated 08/5/2008 proposing to rectify the alleged mistakes, which, inter alia, included the points raised by the ld. C.I.T. for assuming jurisdiction u/s. 263 of the Act. He also referred to pages 84 to 89 which are copies of replies given by the assessee in response to notice u/s. 154 of the Act. He submitted that after considering the replies of the assessee, the A.O. vide order sheet entry dated 09/11/2009 dropped the proceeding by stating that the issues involved in the proceeding u/s. 154 dated 08/5/2008 is debatable and also require further investigation/ enquiry and hence the proceeding initiated u/s. 154 of the Act is being dropped. A copy of the said order sheet entry is also filed before us. The learned counsel, therefore, submitted that the A.O. himself has found the issues debatable and for which he on his own perception dropped the proceeding. Therefore, when the issues are debatable and two views are possible on such issues and the ITO has taken one such view with which the ld. C.I.T. does not agree, no proceeding u/s. 263 can be initiated as per law treating such action of the I.T.O. as erroneous or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him and after affording opportunity to the assessee was justified and the same should be upheld. 7. We have carefully considered the arguments of both the sides and perused the material placed before us. The reason as pointed out by the ld. C.I.T. to justify his invoking jurisdiction u/s. 263 of the Act was that the A.O. while making scrutiny assessment did not investigate into the aspects pointed out in his order passed u/s. 263 which made the assessment order erroneous and prejudicial to the interest of revenue. He, therefore, directed for proper verification and examination afresh the points raised in the impugned order. A bare reading of section 263 of the Act makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the A.O. is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the A.O. sought to be revised is erroneous ; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent, i.e. if the order of the A.O. is erroneous but is not prejudicial to the Revenue or if it is not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for the assessment year under consideration along with the order sheet entries, it can be said that the A.O. had carried out such enquiry as the circumstances warranted and permitted before accepting the claim of the assessee and passing assessment order accordingly. It was an entirely different matter that the Commissioner did not agree with the conclusion derived by the A.O. from the enquiries made. Failure to carry out an enquiry is one thing and in such cases the Commissioner would be justified in saying that the mere failure to make any enquiry was erroneous and prejudicial to the interests of the Revenue. But it would not be open to him to hold that the assessment order was erroneous and prejudicial to the interests of the revenue merely because he is of the opinion that some more enquiries are required to be made and he could not agree with the conclusion arrived at by the A.O. from the enquiries made. It was after verifying the books of account and various materials gathered from the assessee during assessment proceeding and after considering the explanation offered by the assessee that the A.O. had exercised a judicial discretion in the matter while completing the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law. 7.3. In the case of CIT vs. Sunbeam Auto Ltd. (supra), the Hon ble Delhi High Court held as under :- AO having made enquiries, elicited replies and thereafter allowed the expenditure on tools and dyes as revenue expenditure, it cannot be said that it is a case of lack of enquiry and, therefore, the assessment order passed by the AO allowing deduction of said expenditure could not be revised under s. 263 more so, as the view taken by the AO was one of the possible views and the CIT himself was not clear as to whether the said expenditure is to be treated as capital or revenue expenditure. 7.4. The Third Member Bench of I.T.A.T., Mumbai in the case of Dhruv N. Shah vs. DCIT (supra) relying on the decision of Hon ble Bombay High Court in the case of CIT vs. Gabriel India Ltd. (supra) held as under :- If an ITO acting in accordance with law, makes a certain assessment, the same cannot be branded as erroneous by the CIT simply because accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied his mind or not. An assessee cannot compel the AO to incorporate each and every issue in respect of which the AO made the enquiry with the assessee even if the AO got satisfied that no addition is required to be made in the assessment. A perusal of the order passed by the CIT indicates that the assessment orders passed by the AC under s. 143(3) have been set aside on the ground that the desired enquiries have not been made. This cannot be a sufficient ground for setting aside of the assessments. While making the assessment order, it is the satisfaction of the AO who made enquiry and it should be the touchstone to base the validity of the assessment order passed by him. The CIT cannot substitute his subjective view in place of the findings of the AO until and unless the view taken by the AO is unsustainable in law. No cogent material evidence was brought to knowledge by the Departmental Representative which may prove that the decision taken by the AO not to make the addition on both the issues in the case of the assessee was unsustainable in law. The submission of the Departmental Representative that no prejudice is caused to the assessee as the assessment order has been set as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. C.I.T. may be of the view that some more disallowance/addition would have been justified considering the expenditure as capital in nature and receipts as revenue in nature and/or additional amount has been allowed to be debited for the assessment year under appeal. However, that by itself will not make the assessment to be erroneous and prejudicial to the interests of the Revenue. The course adopted by the A.O. is certainly one of the possible views. Similarly, it is also not pointed out before us that the expenditure and other transactions were not recorded in the books of accounts which were produced before the A.O. It is now settled law that if, while making the assessment, the AO examines the accounts and other details, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the ld. C.I.T., while exercising his power under sec. 263 of the Act, is not permitted to substitute his own view about the computation of income in place of the income assessed by the A.O., unless the order of the A.O. is patently unsustainable in law. 9. Keeping in view the facts mentioned above and respectfully following the ratios laid down by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
