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TMI Blog2005 (5) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... neous insofar as it is prejudicial to the interest of Revenue" and in cancelling the assessment with the direction to the AO to reframe the assessment order. 2. Because the assessment order dt. 28th March, 2002, as had been passed by the Asstt. CIT, Range-II, Allahabad, accorded fully with the provisions of law (except to the extent the same has been contested in appeal before the learned first appellate authority) and the learned CIT could not have held the said order to be "erroneous and prejudicial to the interest of Revenue" within the meaning of s. 263 in cancelling the assessment as a whole on that ground. 3. Because all such inquiries as were called for on the facts and circumstance of the case, on all the issues as had been referred to in the notice under s. 263(1) and the regular assessment order dt. 28th March, 2002, could not have been faulted with on that reasoning and ground so as to vest with the learned CIT to assume his revisionary jurisdiction and to cancel the assessment as a whole for being reframed. 4. Because in any case, in response to the notice under s. 263, the appellant had made detailed submissions on each and every "ground" that had been taken up in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to this year, but paid in the succeeding year. Thereafter, a second revised return (hereinafter referred to as third return) was filed on 30th Oct., 2001. In the third return, the assessee excluded long-term capital gain arising out of the transaction with M/s Wilkinson Sword (India) Limited. In the letter dt. 29th Oct., 2001, accompanying the said return, it was claimed that "intellectual property assets" as had been transferred by the assessee, in the nature of 'trademarks', trade names, etc., as per the agreement dt. 25th Nov., 1988 itself, which came within the ambit of taxation under the head 'Capital gain' w.e.f. 1st April, 2002, by virtue of insertion of the term 'trademark' or 'brand name' in s. 55(2)(a) of the Act. Therefore, the long-term capital gain in relation to the transfer of 'trademark' should be excluded from the overall computation of income, as stood included in the original return as well as in the first revised return (second return). As per the said letter, it was also contended that in any case computation of income (as shown in the original return as well as in the second return) was liable to be corrected by excluding the effect of assessee's transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30th Dec., 1999. 4. In the return so filed by us under s. 139(1) and so also in the first revised return filed on 30th Nov., 2000, i.e., within the period specified under s. 139(5), the said sum had been offered for taxation by way of long-term capital gain which worked out to Rs. 29,99,34,132 as per the working given in the schedule attached with the statement showing computation of income (filed alongwith the return on 30th Dec., 1999). 5. We have now been advised that the said consideration of Rs. 55 crores for transferring the trademarks, trade names, etc., as got associated with our business as had been carried on over a number of decades did not fall in the category of taxable gains; the basis of such an advice being the express provision which got inserted in s. 55(2)(a) by the Finance Act, 2001. 6. It is further submitted that the said amendment was brought in terms of cl. (32) of the Finance Bill, 2001, true import of which was explained in the memorandum of notes on clauses which reads as under: 'Clause 32 seeks to amend s. 55 of the IT Act relating to meaning of the expressions 'adjusted', 'cost of improvement' and 'cost of acquisition'. Under the existing provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Court observed as under: 'In the second place, there is a duty cast on the ITO to apply the relevant provisions of the Indian IT Act for the purpose of determining the true figure of the assessee's taxable income and the consequential tax liability. Merely because the assessee fails to claim the benefit of a set off, it cannot relieve the ITO of his duty to apply s. 24 in an appropriate case. 10. In case any clarification and/or information is required to be submitted we request your goodself to kindly specify the same so as to enable us to do the needful. Yours faithfully, For Shervani Industrial Syndicate Limited Sd/- Tahir Hasan Whole Time Director" 4. During the course of "regular assessment" proceedings, the AO took due note of the second revised return as well as abovereferred letter dt. 29th Oct., 2001, whereby the claim for exemption for capital gain was made and even made further queries from the assessee. After that, he accepted the assessee's claim, after recording the following findings in this respect: "6. Regarding taxability of sale consideration against sale of intellectual property asset the assessee-company vide its letter dt. 27th March, 2002, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the validity of third return. In relation to the taxability of consideration received from Wilkinson Sword (India) Ltd., it was specifically submitted that the sum of Rs. 55 crores had been received by the assessee, on transfer of "Intellectual property asset" which represented "trademark" or "brand name" and at any stage, there was no ambiguity about the nature of "Asset" as the same stood defined in the agreement dt. 25th Nov., 1988 itself. As s. 55(2)(a) of the Act was amended w.e.f. 1st April, 2002, only so as to provide that 'cost of acquisition' in case of "trademark" and "brand name" associated with the business of the assessee, would be treated as Nil, for the purposes of computation of capital gain under s. 45 of the Act. Therefore, the sum in question could not have been subjected to taxation in the asst. yr. 1999-2000 in view of the principle laid down by the apex Court in the case of CIT vs. B.C. Srinivasa Setty. No error of law had been committed by the AO by granting the said exemption in the assessment order dt. 28th March, 2002, so far as it contained exclusion of long-term capital gain in relation to this "property". On other issues also, it was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth erroneous as well as prejudicial to the interests of the Revenue, as a result of enquiries made by him. In this respect, apart from referring to the provisions of law, the learned counsel referred to the decision of Hon'ble Allahabad High Court in the case of CIT vs. Late Sunder Lal Through Bankey Behari Lal (1974) 96 ITR 310 (All) and our attention was specifically drawn to the following passage: "It will be seen that the CIT can exercise his power under this section only in case he considers the order passed by the ITO to be 'prejudicial to the interest of the Revenue'. The revisional power conferred on the CIT is undoubtedly a quasi-judicial power. Although the case deals with the nature of the powers conferred on the CIT under s. 33A(2) of the Act, we see no difference in that power and the one exercised under s. 33B of the Act. This being so, he must give his own reasons for being satisfied that the order passed by the ITO is prejudicial to the interest of the Revenue. This conclusion is further strengthened by the use of the words 'if he considers' used in the sub-section which postulates a scrutiny by the CIT of all the relevant facts holding that the order is prejudici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (All) and J&K High Court in Rattan Lal Tiku vs. CIT (1974) 97 ITR 553 (J&K), the Rajasthan High Court in the decision in CIT vs. Gyan Prakash Gupta (1986) 54 CTR (Raj) 69 : (1987) 165 ITR 501 (Raj) relied upon by the learned Departmental Representative, had held that an assessment passed without issuing notice under s. 143(2) of the Act, was invalid but the invalidity was not of such nature that could not be cured. However, by the Direct Tax Laws (Amendments) Act, 1987, a proviso was introduced to section issuing notice under s. 143(2) of the Act, was invalid but the invalidity was not of such nature that could not be cured. However, by the Direct Tax Laws (Amendment) Act, 1987, a proviso was introduced to s. 143(2) which, after the amendment w.e.f. 1st Oct., 1991, provided that the said notice cannot be served on the assessee after the expiry of 12 months from the end of the month in which the return is furnished. The said proviso imposed a statutory fetter upon the AOs and controlled their jurisdiction. The effect of the proviso is that a notice under s. 143(2) if issued after the expiry of the period of limitation would be bad in law. In the present case, the right of the AO to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... another return (revising the return filed on 30th Nov., 2000), was available and the AO had validly taken cognizance of the said return, before completing the assessment on 28th Feb., 2002. 12. In any case, even if the third return was not to be treated as a valid return, statement showing the computation of income as appended thereto was liable to be treated as corrected computation of income. In fact, it was so pleaded specifically vide para 9 of the letter dt. 29th Oct., 2001. Such a corrected computation of income, is distinguishable from a revised return and was liable to be taken into account by the AO before completing the assessment, as held by the Hon'ble Allahabad High Court in the case of Gopa1 Das Parshottam Das vs. CIT (1941) 9 ITR 130 (All). In case an assessee, under ignorance of law, has offered a sum as a taxable income, he can seek correction of the same. The AO is duty-bound, not only to look into such claim but also to accept the same if the claim was in accordance with the provisions of law. In the present case, the subject-matter of 'transfer' was 'trademark' or 'brand name', which undisputedly did not have any 'cost'. Transfer of such an asset could not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility was accepted. No doubt, the Asstt. CIT made direct enquiries from the parties concerned, rather belatedly, on 21st March, 2002, but the result of such enquiries too did not alter the situation even by a bit. The payers had duly confirmed that so far as the assessee was concerned, the payment of Rs. 55 crores had been made in pursuance of the agreement dt. 25th Nov., 1998, and for transfer of 'intellectual property assets' as had been defined in para 2.1.1 of the said agreement itself, relevant portions of which are contained in the assessee's letter dt. 29th Oct., 2001, as have been reproduced by us in para 3 above. It is also a settled law that in case even on further enquiries, the taxability of a transaction is not affected, no interference is called for by the CIT under s. 263, on the ground that there was failure on the part of the AO to make due enquiries or enquiries were made belatedly. Reliance in this regard was placed on the decision of the Hon'ble Madras High Court in the case of CIT vs. Shakti Charities (2000) 160 CTR (Mad) 107 : (2000) 244 ITR 226 (Mad) (as has been cited in the gist of case law), wherein it has been held that "Where the material relied upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (1991) 99 CTR (Del) 40 : (1991) 192 ITR 287 (De1)-Commissioner set aside the assessment order on the alleged ground that the officer did not make enquiries with regard to the genuineness of the subscription of the share capital. CIT's action was held not proper. This judgment got confirmed from the Hon'ble Supreme Court in the case of CIT vs. Steller Investment Ltd. (iii) Kewal Ram Chauhan vs. ITO (1997) 91 Taxman 167 (Chd)(Mag)-Assessment could not be cancelled on ground that desired enquiries had not been made by AO. This was not a sufficient ground for cancellation of assessments. It was mainly the satisfaction of the AO who made enquiries as evident from record and accepted the returned income. On entirety of facts, orders passed by the CIT under s. 263 could not be held to be proper and valid. No valid conclusion had been arrived at by the CIT. Hence, the order of the CIT under s. 263 was quashed. (iv) CIT vs. Smt. D. Valliammal (1997) 140 CTR (Mad) 433.: (1998) 230 ITR 695 (Mad)-"Held, that the CIT set aside the order passed by the ITO on the ground that verification of account was needed. This could not be a ground for invoking jurisdiction under s. 263." 16. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must establish that the said error is prejudicial to the interest of Revenue. He should see that the justice is done. There cannot be anything of greater consequence than to keep the stream of justice clear and pure, that parties may proceed with safety both to themselves and their characters. (ii) Ram Nath Export Ltd. vs. Dy. CIT (1999) 104 Taxman (Del)(Mag) 87. "................The scope of interference under s. 263 is not to set aside merely unfavourable orders and bring to tax some more money to the treasury nor is the section meant to get sheer escapement of revenue which is taken care of by other provisions in the Act. The prejudice that is contemplated under s. 263 is prejudice to the income-tax administration as a whole. Sec. 263 is to be invoked not as a jurisdiction corrective or as a review of a subordinate order in exercise of the supervisory power, but it is to be invoked and employed only for the purpose of setting right distortions and prejudices to the Revenue which is a unique conception which has to be understood in the context of and in the interest of the Revenue administration. For making a valid order under s. 263(1), it is sine qua non, for the CIT to recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re necessary before granting exemption from long-term capital gain. Without making timely enquiries from the other party, the AO could not have granted exemption, as had been sought for by the assessee. Such a failure itself has rendered the assessment to be erroneous and prejudicial to the interests of Revenue. 20. As regards various disallowances (as have been made in the assessment), again there was a distinct failure at the part of the AO, to apply his mind to the of disallowances. After finding out unverifiability and inadmissibility of large number of expenses, he could not have felt contended just by making token disallowance only. In view of his own observations as are contained in the assessment order, the AO was obliged to make appropriate and specific disallowances, instead of making just taken disallowances. 21. Similarly, the observations made by the statutory auditor to the effect that parties' accounts remained unconfirmed, called for enquiries from the parities concerned, atleast on sample basis. Undisputedly, there was a failure at his part to make such enquires. Such a failure has again rendered the assessment to be erroneous and prejudicial to the interest of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was prejudicial to the interest of Revenue. Before doing so, he is also required to give an opportunity of being heard to the assessee. If after hearing the assessee in pursuance of the notice issued by him under s. 263(1) of the Act, he is not satisfied, he may pass the necessary orders. Of course, the order thus passed will contain the grounds for holding the order of the ITO to be erroneous, as contemplated under s. 263(1) of the Act. Feeling aggrieved, therefore, the assessee may file an appeal against the same, as provided under s. 253(1)(c) of the Act. In the memorandum of appeal, the assessee is supposed to attach the order of the CIT and to challenge the grounds for decision given by him in his order. At the time of the hearing, if the assessee can satisfy the Tribunal that the grounds for decision given in the order by the CIT are wrong on facts or are not tenable in law, the Tribunal has no option but to accept the appeal and to set aside the order of the CIT. The Tribunal cannot uphold the order of the CIT on any other ground which, in its opinion, was available to the CIT as well. If the Tribunal is allowed to find out the grounds available to the CIT to pass an order u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, the assessment was made on 28th March, 2002. However, the period of one year (as calculated from the end of the relevant assessment year) had expired on 31st March, 2001. The revised return, therefore, in the instant case could be filed before 31st March, 2001. Therefore, we hold that the second revised return filed on 30th Oct., 2001, is not a valid return at all. The law did not require that in relation to such an invalid return also, notice under s. 143(2) should have been served on the assessee before completion of assessment under s. 143(3). The regular assessment order dt. 28th March, 2002, is, therefore, a valid assessment order and, in principle, the learned CIT could have exercised his revisionary powers under s. 263 in relation to the same. 26. However, such a revisionary powers as has been granted to the CIT, can be exercised only when the order (which is sought to be subjected to revision under s. 263) is both erroneous as well as prejudicial to the interests of Revenue. In case the order is not erroneous, it cannot be subjected to revision under s. 263, howsoever grave is the prejudice caused to the Revenue. Plethora of case law are available on thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Dawjee Dadabhoy & CO. vs. S.P. Jain & Anr. (1957) 31 ITR 872 (Cal) at p. 881, "the words 'prejudicial to the interests of the Revenue' have not been defined, but it must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. It can mean nothing else"? The aforesaid observations were also applied by the Gujarat High Court in Addl. CIT vs. Mukur Corporation (1978) 111 ITR 312 (Guj). We are of the opinion that the aforesaid interpretation given by the Calcutta High Court to the expression 'prejudicial to the interests of the Revenue' is the correct interpretation." With the said proposition of law, we proceed to examine multiple contentions, putforth by the parties before us. 28. First of all, we proceed to examine as to whether the assessment order dt. 28th March, 2002, is 'erroneous' as not being in accordance with the provisions of law, for, if it is not in accordance with the provisions of law, then only it can be treated to be erroneous. 29. The first and foremost issue which needs to be decided is as to whether the assessee could succe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciated with a business", purchase price shall be taken at Nil in the hands of the owner/transferor if he himself has not purchased it earlier. There is no ambiguity about the applicability of the said provision w.e.f. the asst. yr. 2002-03 and for this contention relevant extract from the "Memorandum of notes on clauses of the Finance Bill, 2001," as reported in (2001) 166 CTR (St) 113 : (2001) 248 ITR (St) 126 was specifically brought to the notice of the AO. Relevant portion is produced hereunder: "Clause 32 seeks to amend s. 55 of the IT Act relating to meaning of the expressions 'adjusted', cost of improvement" and "cost of acquisition". Under the existing provision contained in cl. (a) of sub-s. (2), the cost of acquisition in relation to a capital asset, being goodwill of a business or a right to manufacture, produce or process any article or thing, tenancy rights, stage carriage permits or loom hours, shall be taken to be the purchase price in case the asset is purchased by the assessee from a previous owner and in any other case such cost shall be taken to be nil. It is proposed to amend cl. (a) of sub-s. (2) to provide that the cost of acquisition in relation to a trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income." In order to cover up the situation arising out of the said judgment, cl. (a) of s. 55 (2) was substituted w.e.f. 1st April, 1995, whereby the goodwill of business, tenancy right, stage carriage permits or loom hours were placed within the purview of the computational provisions, by providing that in case such capital assets do not have any cost of acquisition, the same shall be treated as Nil. Thereafter, the scope of this clause was extended from time to time, as may be seen from the following: (a) Right to manufacture, produce or process any article or thing, was brought at par with other capital asset, namely, goodwill, tenancy right, stage carriage permits or loom hours, etc., but w.e.f. 1st April, 1998; (b) Again, there was an addition of "trademark" or Brand name associated with a business", effective from 1st April, 2002; and (c) Finally, as the position stands today, "right to carryon any business" was ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under by reiterating its earlier stand: "In the second place, there is a duty cast on the ITO to apply the relevant provisions of the Indian IT Act for the purpose of determining the true figure of the assessee's taxable income and the consequential tax liability. That the assessee fails to claim the benefit of a set off cannot relieve the ITO of his duty to apply s. 24 in an appropriate case." 33. It is also relevant to mention here that in a recent decision, the Hon'ble J&K High Court in the case of Smt. Sneh Lata Jain vs. CIT (2004) 192 CTR (J&K) 50 : (2004) 140 Taxman 156 (J&K), has held that no tax can be levied or recovered without an authority of law. Article 265 imposes an embargo on imposition of collection of tax if the same is without authority of law. 34. The facts of the said case are that the assessee bad offered surplus arising on sale of land, for capital gain tax. After completion of his assessment on the basis of his own return, he invoked the revisionary jurisdiction of CIT by filing a petition under s. 264. In the said petition, it was claimed that the assessee was entitled for exemption from capital gain, by virtue of applicability of the provisions of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider the question of law arising from the facts which are on record in the assessment proceedings, we fail to see as to why such question should not be allowed to be raised when it is necessary to consider that question 'in order to correctly assess the tax liability on the assessee'." 37. The true import of the said principles is that the assessee's tax liability to tax should be worked out correctly, irrespective of the admission made by it in the return; the only restriction being that the relevant facts and other material should be on record, If such a plea is applicable arid even enforceable at the appellate stage, we fail to understand as to why the AO himself cannot grant such relief as is admissible to him on the basis of facts, material and information on record, even if the assessee has not claimed the same. The assessee's case here is on the better footing. While the assessment proceedings were in progress and much before the conclusion thereof, it had made a claim before the AO himself that the receipts in question were not exigible to tax and in support of its claim, all the relevant details/informations were placed on record. Thus, on a consideration of totality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in A. Salomon vs. A. Salomon & Co. (1897) AC 22, 38 (HL), "intention of the legislature' is a common but slippery phrase". In ITO vs. T.S. Devinatha Nadar & Ors. (1968) 68 ITR 252 (SC) : AIR 1968 SC 623, the Supreme Court of India observed that the rule that : "we must look to the general scope and purview of the statute, and at the remedy sought to be applied, and consider what was the former state of the law, and what it was that the legislature contemplated" was made while construing a non-taxing statute. The said rule had only a limited application in interpreting a taxing statute. It follows from this decision that the mischief rule laid down in Heydon's case (1584) 3 Co. Rep 7a has only a limited application to taxing statutes. Hence, there is no question of looking into the legislative intent or spirit of the law in a taxing statute. We have only to see the actual words used. In other words, in a taxing statute we have to go by the letter of the law and not its spirit or intent." If the said proposition of law is applied in this case, it will be seen that the "trademark" or "brand name associated with the business of the assessee" came within the purview of computation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereof the lawful revenue dies to the State has not been realized or cannot be realized. It can mean nothing else"? The aforesaid observations were also applied by the Gujarat High Court in Addl. CIT vs. Mukur Corporation (1978) 111 ITR 312 (Guj). We are of the opinion that the aforesaid interpretation given by the Calcutta High Court to the expression "prejudicial to the interests of the Revenue" is the correct interpretation." 41. The learned CIT has also set aside the assessment, inter alia, on the ground that proper disallowances under various heads of expenses have not been made. It is seen from the discussions appearing in the assessment order that the AO has examined each and every item very carefully and thereafter he made disallowances according to his own opinion and judgment. The learned CIT could not have thrust his own finding in this respect, even if such an opinion, if implemented, can fetch some more revenue. Unless and until some specific error of law is pointed out, as has not been done here, the learned CIT's order under s. 263, will have to be held to be based on extraneous material/consideration. In his order, the learned CIT has also observed that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interfering with the finality of assessment, the learned CIT carried out a statutory duty to deal with and decide the objections of the affected person. In the present case, we find that the assessee had duly participated in the proceedings under s. 263 and had even made ground-wise objections to the proposal mooted under s. 263. The assessee's objections have not been displaced or subjected to "counter" in any manner, except that he has made a casual observation that the issue of disallowances/inadequate disallowances of various expenses had not been agitated by the assessee. The said observation is factually incorrect as is evident from para 11 of the submissions of the assessee as have been reproduced in para 41 above. Thus, the fact remains that the objection raised by the assessee, to the proposal under s. 263 remains unrebutted from the' side of the learned CIT. In such a situation, objections are liable to be treated as 'admitted facts' in view of the following principles as laid down by the Hon'ble Allahabad High Court in the case of Ravi Iron Industries vs. Director of Investigation and Ors. (2003) 185 CTR (All) 8 : (2003) 264 ITR 28 (All), wherein 'their Lordships have ob ..... X X X X Extracts X X X X X X X X Extracts X X X X
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