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TMI Blog2025 (1) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered view that impugned order is bad in law void ab intio and deserves to be set aside - Appeal of the assessee is allowed. - Shri Shamim Yahya, Accountant Member And Shri Sudhir Pareek, Judicial Member For the Assessee : Sh. Ajay Vohra, sr. Adv.; Sh. Deepanshu Grover, CA; Sh. Akash Uppal, CA; Ms. Anjali Pareek, CA For the Department : Ms. Nidhi Singh, CIT(DR); Sh. Satya Prakash Sharma Sr. DR ORDER PER SUDHIR PAREEK, J.M: This appeal, preferred by the assessee, for assessment year 2018-19, is directed against the Principal Commissioner of Income Tax (PCIT), Delhi-1 s DIN order no. ITBA/REV/REV5/2023-24/1063713094(1), dated 30.03.2024 in revision no. PCIT, Delhi-1/Revision-263/100000617494/2023 u/s 263 of the Income-tax Act, 1961, hereinafter referred to as the Act . The assessee has raised following grounds of appeal: 1. On the facts and circumstances of the case, the order passed by Principal Commissioner of Income Tax 1, New Delhi ('PCIT') is without jurisdiction, bad in law and void-ab-initio. 2. On the facts and circumstances of the case and in law, the PCIT erred in setting aside the assessment on the following issues: (a) verification for loans taken (INR130 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g loss of (-) Rs. 40,10,37,756/-. Subsequently the return of income was revised on 28.03.2019 disclosing loss of (-) Rs. 40,29,85,156/-. The case was selected for scrutiny under CASS and statutory notices u/s 143(2) and 142(1) of the Act were issued. In response, the assessee filed requisite details. The Assessing Officer noticed that during A.Y. 2018-19, the assessee had undertaken international transactions with its associated enterprises. Accordingly, the case was referred to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price u/s 92CA of the I.T. Act. The TPO vide his order dated 31.07.2021 u/s 92CA(3) made adjustment of Rs. 35,24,63,309/- to the value of international transactions entered into by the assessee company on substantive basis and Rs. 1,27,78,40,734/- on protective basis u/s 92CA(3) of the Act. Subsequently, a Draft Order under section 144C(1) r.w.s. 143(3) of the Act was passed on 18.09.2021 [vide DIN Order No: ITBA/AST/F/144C/2021- 22/1035697113(1)] as per provisions of section 92CA(4) of the Act addition of Rs. 35,24,63,309/- on substantive basis and addition of Rs. 1,277,840,734/- on protective basis has been proposed to be made to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined and verified as was required in this case. The AO is directed to call for and verify full details of all the assets and the proof of putting such assets to use by the prescribed timelines. The specific requirements for claim of higher depreciation as per sec 32 and 32AC may be examined for the rate of depreciation claimed and allow such claim only after full verification of genuineness and admissibility of the claim. 4. Custom duty paid and claimed as expenditure amounting to Rs. 30.02 crores have not been examined by the AO. The AO is directed to call for complete breakup and details of this expenditure along with documentary proofs of the same and examine their nature and allowability of the same as per sec 37 and its explanation. 5. Various claims consisting of Stock obsolesce claim of Rs. 24830660/-, debtors written off against the provision for doubtful debts of Rs. 14234651/- and provision for doubtful debts recovered back of Rs. 35633929/- remain unverified and unexamined by the AO despite being part of the issues on the basis of which the case was taken up in scrutiny. The AO is directed to call for complete details of these items and verify and examine their genui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iries or verification which should have been made. 7.1 Learned AR further submitted that assessee has obtained loan from its foreign AE-Jim Beam Brands Co. for working capital purposes and to repay its existing loans and in this regard RBI has approved the loan provided by Jim Beam Brands Co. to assessee and for which loan registration number issued by RBI is well placed at page 57 of paper book. Jim Beam Brands Co. is a tax paying entity in India and is filing tax returns in India disclosing interest income earned on such loan from the assessee and TDS duly deducted by the assessee on interest paid to Jim Beam Brands Co., which is well placed at pages 52 to 56 and 58 of the paper book. Jim Beam Brands Co. provided a written confirmation that it has utilized its own internal funds/ retained earnings for the purpose of providing loan to the assessee, for which he referred to loan confirmation available at page 45 of the paper book. As per his submissions Jim Beam Brands Co. is an operating entity having sales of INR 14,300 crores approx during the calendar year 2017 and retained earnings as on January 01, 2017 is INR 2,383 crores approx while the bank balance was INR 79 crores appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. He submitted that learned PCIT has failed to point out any error in the assessment order allowing claim of depreciation, much less causing prejudice to the interest of the Revenue. Since no deduction under section 32AC of the Act has been allowed in the completed assessment, the direction of the Ld. PCIT to examine deduction claimed under section 32AC of the Act is clearly erroneous. 7.5 On the issue of disallowance of custom duty paid under protest of INR 30,02,63,120 made under section 143(1) of the Act, learned AR referred Pages 144-146 of Paper Book and submitted that on this issue appeal is pending before Learned CIT(A). He further submitted that it is an admitted position that the goods had landed in India and were appraised by the Custom authority, bill of entry property and goods released against payment of custom duty (which is disputed in appeal). He submitted that custom duty paid under protest / advance is allowable under section 43B of the Act on payment basis. To buttress his contention learned AR relied on the ratio of decisions of Hon'ble Supreme Court in CIT v. United Glass MGF Co. Ltd. (SLP no. 30146 of 2008); and Hon'ble Delhi High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, 2009-10, 2011-12, 2015-13 2013-14; 6. Observations and Qualification made by the statutory auditors; 7. Cost of material consumed and valuation of inventory; 8. Increase in Trade Payables; 9 PF and TDS; 10. Bad Debts; 11. Foreign exchange loss; 12. Claim u/s 14A of the Act; 13. Adjustments u/s 143(1) of the Act; 8.1 He submitted, as the Assessing Officer failed to conduct enquiries on above mentioned points even where the case had been selected for complete scrutiny under CASS parameters, the PCIT was right in invoking Provisions of Section 263 of the Act. 9. In rebuttal, learned AR pointed out that it is pertinent to point out that insofar as items 1 to 9 and 11 are concerned, the same are not part of the final show cause notice under section 263 of the Act issued by the successor Ld. PCIT. The impugned order has proceeded solely on the points mentioned in the said notice, dated March 23, 2024 and has taken no cognizance of earlier notice issued by the predecessor Ld. PCIT. It is not open to the revenue to seek to sustain the impugned order on any issue other than that specifically pointed out therein (Refer: page 38 of the impugned Ld. PCIT's order). In that view of the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 129 interpreting 'prejudicial to the interests of the revenue'. The High Court held, In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the Order passed by the ITO, which might set a bad trend or pattern for similar assessments, which on abroad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration . In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the ITO the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. 9. 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 interests of the revenue, for example, when an ITO adopted one of the courses pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;profit' in that section. The problem with section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of section 263 particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated 5-3-1997 in purported exercise of his powers under section 263 of the Income-tax Act. 12. In the course of hearing, referred J.P. Srivastava Sons (Kanpur) Ltd. v. CIT [1978] 111 ITR 362 (All.), the Hon ble Allahabad High Court held as under :- It is now well settled that a question which, even though not raised by the assessee, is dealt with by the Tribunal is a question which arises out of the appellate order of the Tribunal; See Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC). Moreover, we find that the argument advanced before us does not raise, a new question. It is merely one of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the merits of the objection raised by the assessee. He cannot delegate that power to the Income-tax Officer by setting aside the assessment order and directing him to make a fresh assessment after taking into consideration the objection of the assessee. Now, in the instant case, the assessee claimed that a sum of rupees one lakh was not taxable. The Commissioner should have examined that plea on merits. He could take the action that he did only if he rejected the plea of the assessee. It must not be forgotten that under section 33B the Commissioner can himself modify or enhance the assessment and that he can only do if he considers and decides on merits the objection raised by the assessee. We are, therefore, of opinion that without going into the merits of the claim of the assessee it was not possible for the Commissioner to say that the order of the Income-tax Officer had caused any prejudice to the interests of the revenue and, as such, he was not competent to set aside the assessment order and remand the matter to the Income-tax Officer. 13. In course of hearing, referred Income-tax Officer v. D.G. Housing Projects Ltd. [2012] 20 taxmann.com 587 (Delhi) Hon ble Delhi High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eous and prejudicial to the interest of the Revenue because the revisionary authority feels and opines that further inquiry/investigation was required or deeper or further scrutiny should be undertaken. In ITO v. D.G. Housing Projects Ltd. (20121 343 ITR 329/20 taxmann.com 587/120131212 Taxman 132 (Mag.,) it has been observed: '11. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word 'erroneous' includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits. 16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT v. Shree Manjunathesware Packing Products, [1998] 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.' 15. In course of hearing, referred PCIT v. Mohak Real Estate (P) Ltd. [2024] 16 taxmann.com 388 (Delhi), Hon ble Delhi High Court held as under : 7. In the order under section 263 of the Act, the PCIT also did not record the reasons for a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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