J L Morison (India) Ltd Vs ACIT (Kolkata ITAT) – 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.
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- A, KOLKATA
Before Shri B.R.Mittal, Judicial Member & Sri C.D. Rao, Accountant Member
ITA No. 786 (Kol) of 2010
Assessment Year 2006- 07
M/s. J.L.Morison (India) Ltd Versus Asstt.Commissioner of Income-tax
(C.D. Rao), Accountant Member :
The appeal by the assessee is directed against the order dated 01.03.2010 of ld. C.I.T., Central-I, Kolkata passed u/s. 263 of the Act for assessment year 2006-07. The assessee has raised several grounds, which are all directed against setting aside the assessment order dated 28/03/2008 passed u/s. 143(3) of the Act by the ld. C.I.T. by invoking jurisdiction u/s. 263 of the Act.
2. The brief facts of the case are that in the notice issued u/s. 263 of the Act dated 26/11/2009, the ld. C.I.T. mentioned four grounds on the basis of which he formed an opinion that the assessment order was erroneous and hence prejudicial to the interest of revenue and thus proposed to revise the same. According to him, the assessment order suffered from following defects :-
1) During 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 under the said head while passing the assessment order for the A.Y. 2006-07.
3) It is now judicially well settled that the expenditure towards payment of Royalty for the reasons discussed above is partly capital in nature and hence, one-fourth i.e.25% of the same is required to be disallowed for being capital in nature. But, no such dis allowance has been made while passing the assessment order for the A.Y. 2006-07.
4) You have been allowed to debit an amount of Rs.9,29,14,375/- towards cost of ‘Raw & Packing Material consumed’, which can be bifurcated as Rs.5,14,48,363/- towards Raw Materials & Rs.4,14,66,012/- towards Packing Materials consumed as per Sch. 10 to the Accounts. However, from Sl. 14(D) of Sch. 17 of Notes forming part of the Accounts, value of Raw Materials consumed appears to be Rs. 3,57,89,000/-. Hence, an additional amount of Rs.1,56,59,363/- has clearly been allowed to be debited in the assessment order for the ÀY. 2006-07.
3. In response to the said notice u/s. 263 of the Act, the assessee made point-wise submissions before the ld. C.I.T. and the contents of the same have been mentioned at page-2 of ld. C.I.T.’s order. The ld. C.I.T. has cited several case laws in his impugned order justifying his assumption of jurisdiction u/s. 263 of the Act. According to him, it is apparent from the record that the A.O. did not examine/verify or consider the matter at the time of passing of the order which led him to hold that the assessment order passed u/s. 143(3) of the Act was erroneous and also prejudicial to the interests of revenue and hence recourse to action u/s. 263 was warranted. He, therefore, directed the A.O. to pass fresh assessment order after giving reasonable opportunity of being heard to the assessee on such matters. The observations of the ld. C.I.T. in this regard are as under :-
“The submissions of the assessee on the issue have been carefully examined. It is seen from the copy of the agreement dated 22/03/2005, para-1 & 2, also from the NOC granted by the assessee company to BDF, that payments are not only for settlement for termination of the agreements but also for repositioning on termination w.e.f. 31/12/2005 and future business relationship. Para-2(i) stipulates that BDF will use the services of assessee company’s Waluj Plant for manufacturing of products by BDF India. The assessee company was also appointed agent for channels for 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 asses see 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- dis allowance of Royalty paid to BDF in excess of 1% of the net sales:
The asses see 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 is not the same thing as allowance of use of know-how. Besides, it is apparent from the record that the AO did not examine/verify or consider the matter at the time of passing the order.
3) Non-dis allowance of 25% of royalty paid of Rs.32,11,353/- as capital expenditure:-
The asses see has contended that royalty paid is simply for use of trade mark of foreign collaborator with use of know-how for a short period only and there is no enduring benefit. The royalty paid is for use of trade mark & know-how and not for setting up a factory. The user was not available after termination of the agreement. Hence, there is no capital expenditure in payment of royalty by the assessee.
The contentions of the assessee are not reasonable since it has been held by the Hon’ble Supreme Court in the case of Southern Switch Gear Ltd. V. CIT, 224 ITR 342 that expenditure towards payment of royalty for exclusive right to manufacture and sale in India or to obtain know-how was partly capital in nature and 25% was to be disallowed. Besides, it is apparent from the record that the AO did not examine/verify or consider the matter at the time of passing the order.
4) Addition on account of Raw Material:
The contentions of the assessee are as follows. The difference in the figures of raw material consumed as debited in the P/L account and as shown in schedule-10 on the one hand and as shown in schedule-17 of notes on the other hand is due the reason that as per item no.3(ii)(a) of Part-II of Schedule-VI to the Companies Act,1956, the quantitative details as given in schedule of notes are provided in respect of those items only which individually account for 10% or more of the total raw material consumption and not in respect of each and every item of raw material consumed audit is quite natural that the figure of only major raw material shown in schedule of notes to accounts will not match with the total figure of raw material consumed reflected in P/L account but that difference is due to disclosure requirements of quantitative details of raw materials only and does not reflect any discrepancy in accounts so as to call for any addition on this count.
The contentions of the assessee are not reasonable since there is nothing in the Notes that consumption of major raw material items only were reflected in Sl. 14(D) of Sch. 17. Moreover, the matter was not examined/verified or considered by the AO while passing the assessment order.
It is clear that the assessment order passed is both erroneous vis-à-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 the submissions made before the ld. C.I.T., a copy of which is placed on pages 2 to 7 of the assessee’s paper book. It is further submitted by the ld. counsel that the A.O. has completed the assessment after hearing the assessee on several dates and on proper verification/inquiry of various documents furnished as per requirement. In support of the said submissions, he invited attention of the Bench on the date-wise entries recorded in the order sheet, a copy of which is also filed before us. Referring pages 51 & 52 of the paper book, which is a copy of notice u/s. 142 dated 2 1/1/2008, the ld. counsel pointed out that the A.O. had made queries on 17 issues, which included the issues in respect of receipt of Rs. 18 crores from foreign company for grant of NOC for establishment of wholly owned subsidiary in India by the foreign collaborator, details of purchases for more than Rs. 1 lakh, royalty payments and raw materials purchased, etc. He also referred to pages 53 & 54 of the paper book, which is a reply of the assessee to the said notice of A.O., explaining the issues. He further pointed out that in addition to the above reply, the assessee submitted along with the said reply copies of several agreements! supplementary agreement with BDF, ‘NOC’ by the assessee- company to BDF, Press Note etc., which are also filed in the paper book submitted before the Tribunal. The ld. counsel further submitted that the A.O. being satisfied with the replies of the assessee did not make any addition in respect of receipt of Rs. 18 crores from BDF. He also accepted the assessee’s entire claim of royalty paid as revenue expenditure as the same was not for set up of any factory or use was not permitted after termination of agreement. Referring to pages 16 to 50, 116 to 123, 91 to 115 and 124 of the paper book, the ld. counsel submitted that as the royalty agreement with BDF was duly approved by RBI and agreements with Dr. Wild & Co., Switzerland was under automatic approval route, as was accepted in past years also and there being no change in the year under consideration, the A.O. accepted the whole amount of royalty paid and raw material consumed after being satisfied about disclosure requirement of Schedule VI to the Companies Act, 1956. The learned counsel referring to pages 81 to 83 of the paper book further submitted that after passing of the assessment order u!s. 143(3) of the Act dated 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!1 1!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 prejudicial to the interests of the revenue and in such circumstances, the ld. C.I.T. in total violation of such established position in law has arbitrarily and illegally assumed his jurisdiction u/s. 263 and passed order accordingly on the plea that the A.O. did not verify/examine the matter at the time of passing the assessment order, which is clearly beyond the actual facts of the case. The ld. counsel further brought to our notice by referring to pages 135 to 137 of the paper book a similar notice u/s. 154 of the Act dated 8/5/2008 for the immediately preceding assessment year 2005-06 on the issue of royalty and raw materials, which was also duly replied by the assessee vide letters all dated 16/5/2008 (pages 138 to 141 of the paper book) and submitted that no addition on the above issues was made by the A.O. for A.Y. 2005-06, implying thereby that the A.O. was satisfied that there was no mistake in original assessment order for A.Y. 2005-06. He, therefore, submitted that the ld. C.I.T. was wrong in invoking the provisions of sec. 263 of the Act on the given facts and circumstances of the case and his order is unsustainable in law. In support of his submissions, the ld. counsel placed reliance on the following decisions :-
CIT vs. Sunbeam Auto Ltd. [227 CTR 133 (Del)
Dhruv N. Shah vs. DCIT [88 ITD 118 (Mum-TM)
Jet Electronics vs. ACIT [116 TTJ 225 (Ahd.)]
CIT vs. Vinod Kumar Gupta [165 Taxman 225 (P&H)]
6. The ld. Departmental Representative, on the other hand, supported the order of ld. C.I.T. passed u/s. 263 of the Act and further submitted that the impugned assessment order itself will show that it was a very brief one and no discussions on such vital issues pointed out by the ld. C.I.T. were made in the assessment order. It thus goes to establish that the A.O. did not apply his mind and/or verify/examine the matters in proper perspective before passing the impugned assessment order and this has resulted in erroneous order causing prejudice to the interests of the revenue. He further submitted that the ld. C.I.T. has elaborated the reasons which rendered the assessment order passed without proper enquiry to be erroneous and hence prejudicial to the interest of the revenue. Therefore, the order of ld. C.I.T. directing the A.O. to pass fresh assessment order after examining/verifying the issues pointed out by 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 pre¬requisite 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 erroneous but is prejudicial to the Revenue, recourse cannot be had to section 263(1) of the Act just to re-examine or re-verify the issues already examined/verified at the assessment level. It is only when an order is erroneous that the section will be attracted. From the copy of order sheet filed before us, we find that hearing during assessment proceedings took place as many as five times on 14/2/2008, 18/2/2008, 4/3/2008, 19/3/2008 and 26/3/2008. It is also evident from the assessment order that the assessee on requisition from the A.O. appeared from time to time and in response to notice u/s. 142(1) of the Act submitted the written note in support of the claim, which, inter alia, included the following documents :-
a) Agreement dated 22/3/2005 with BDF [pages 8-10 of the paper book]
b) No Objection Certificate by the company to BDF [page-11 of p/b]
c) Press Note No.1 of 2005 series [pages 12-15 of the paper book]
d) Agreement with BDF dated 14.9.1995 [pages 16-46 of the paper book]
e) Supplementary agreement dated 1.4.1996 with BDF [pages 47-49 of p/b]
f) Supplementary agreement dated 4.3.1999 with BDF [pge-50 of p/b]
We further observe that the A.O. issued notice u/s. 154 of the Act dated 08/5/2008 for the assessment year under appeal, which was earlier to the order passed u/s. 263, proposing to rectify the mistakes which are akin to the shortfalls pointed out by the ld. C.I.T. in his order passed u/s.263 and the assessee gave its point-wise replies to the A.O. on 16/8/2008, which are filed on pages 84 to 89 of the paper book. We further observe that after considering the replies/explanations of the assessee, the A.O. dropped proceeding initiated u/s. 154 of the Act as, according to him, the issues raised in 154 notice were debatable and his above observation was duly recorded in the order sheet vide entry dated 09/11/2009. We further observe that a similar notice u/s. 154 was also issued for A.Y. 2005-06 on the issues of royalty and raw materials consumed and order u/s. 154 was passed and no addition on the above issues was made in that order. It, therefore, can be said that the A.O. was satisfied that there was no mistake in original assessment order for A.Y. 2005-06 in respect of the above issues. We observe that the issues in A.Y. 2005-06 were similar to the assessment year under consideration. Therefore, on combined reading of the assessment order 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 inquiries made. Failure to carry out an inquiry 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 inquiries are required to be made and he could not agree with the conclusion arrived at by the A.O. from the inquiries 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 assessment u/s. 143(3) of the Act. In such circumstances, the view taken by the A.O. cannot be said to be prejudicial to the Revenue nor can it be said to be erroneous simply because in his order the A.O. did not make any elaborate discussions in that regard.
7.1. The ld. Departmental Representative submitted that there was no discussions of the issues raised by the ld. C.I.T. in the brief assessment order passed u/s. 143(3) of the Act which has rendered the assessment order erroneous and hence prejudicial to the interests of the revenue. We are unable to endorse the above submission of the ld. Departmental Representative. In this connection, we may refer to the decision of Hon’ble Bombay High Court in the case of CIT vs. Gabrial India Ltd. [203 ITR 108 (Bom)] wherein it has been held that the decision of the I.T.O. could not be held to be ‘erroneous’ simply because in his order, the I.T.O. did not make an elaborate discussion in that regard. The relevant portion of the observation is as under :-
“This decision of the Income-tax Officer could not be held to be “erroneous” simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That was not permissible. The Tribunal was justified in setting aside the order passed by the Commissioner of Income-tax under section 263.”
At this juncture, in addition to the above, we would like to mention some of the opinions expressed by the Tribunal, High Courts and Supreme Court in this regard.
7.2. In the case of CIT vs. Max India Ltd. (supra), the Hon’ble Supreme Court held as under :-
“The phrase “prejudicial to the interests of the Revenue” in section 263 of the Income-tax Act, 1961, has to be read in conjunction with the expression “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 the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two 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 inquiries, 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 inquiry 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 according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgement of CIT for that of an ITO, who passed the order, unless, the decision is held to be ‘erroneous’. The CIT has no power to exercise revisionary jurisdiction under s. 263 in the given facts and circumstances of the present case.”
7.5. Further, the Ahmedabad Bench of ITAT in the case of Jet Electronics vs. ACIT, reported in 116 TTJ 225 (Ahd) relying on Hon’ble Supreme Court decision in the case of Malabar Industrial Co. Ltd. vs. CIT [243 ITR 83 (SC) and CIT vs. Gabriel India Ltd. (supra) held as under :-
“The record and the evidences produced during the course of hearing clearly reflect that the inquiry in the impugned case has been carried out by the AO on both the issues relating to the GP as well as the investment by the partners and cash credit on the basis of which the CIT treated the assessment to be erroneous. The AC, after appreciating the submissions made by the assessee on these issues from time to time, took the view that no addition is required to be made in the case of the assessee and accordingly the assessment order was passed. The AO had issued the query letters to the assessee from time to time on both the issues relating to the GP as well as the investment by partners and cash credit the assessee has duly replied all the queries raised by the AO. Merely that the AC has not discussed the inquiry carried out and its outcome in the assessment order does not mean that the assessment order passed by the AO is erroneous. There is no provision under the IT Act which requires that the AO should pass the assessment order in the manner so that all the queries raised by him as well as the submissions made by the assessee along with the decision of the AO should be incorporated in the assessment order. Where the AO takes a view against the assessee, the AO should discuss the same in the assessment order so that the party against whom the adverse view is taken, can know the reasons for the same. In this case the AO after examining both the issues preferred not to make the addition in the case of the assessee, therefore, there is no error in the order if he has not discussed the issues in the assessment order. It is only the queries raised by the AO and the submissions made by the assessee will speak of whether the AO has applied his mind or not. An assessee cannot compel the AO to incorporate each and every issue in respect of which the AO made the inquiry 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 inquiries 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 inquiry 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 aside on both the issues to be made de novo and the assessee will have another chance to agitate these issues again is not sustainable. If the action of the CIT is illegal, the order passed by CIT cannot be sustained. All the subsequent actions carried out on the illegal order are void. The AO in the impugned case has decided not to make the addition on both the issues. The view taken by the AO was one of the possible views and cannot be regarded to be the view unsustainable in the law. By passing the impugned order CIT tried to impose his view on the AO. This tantamounts to be the change of opinion, which is not permissible under s. 263.”
7.6. In the case of CIT vs. Vinod Kumar Gupta (supra), the facts were that the assessee received certain sum of Rs.34, 143/- as compensation from the Insurance company which was claimed to be not taxable in the return filed treating the same as capital receipt. In the assessment framed u/s. 143(3), the A.O. did not include the amount in the taxable income. Treating the order passed by the A.O. to be erroneous and prejudicial to the interest of revenue, the ld. C.I.T. exercising powers u/s. 263 of the Act revised the order and directed the A.O. to include the sum in the revenue receipt and charge tax accordingly. The assessee on appeal before the Tribunal was successful and the order of ld. C.I.T. was set aside. The Tribunal noticed that before issuance of notice u/s. 263 of the Act, even the proceedings u/s. 154 of the Act were also initiated but were dropped. It was found by the Tribunal that the ingredients required for exercise of power u/s. 263 of the Act were not available in the facts and circumstances of the case. On further reference by the department, the Hon’ble Punjab & Haryana High Court held as under :-
“After hearing learned counsel for the Revenue, we find no substance in the present petition. The AO at the relevant time, while framing assessment under s. 143(3) of the Act had treated the receipt to be capital receipt. Merely because there was a second opinion possible on the same facts, in those circumstances, the powers under s. 263 could not be exercised.”
8. In view of our above discussions and considering the facts and circumstances of the case and evidences produced by the assessee during assessment as well as 154 proceedings, it cannot be said that the view taken by the A.O. is not one of the possible views. The ld. C.I.T. may be of the view that some more dis allowance/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 inquiries, 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 Tribunal, High Courts and Supreme Court (supra), we hold that the ld. C.I.T. was not justified in treating the assessment order dated 28/3/2008 to be erroneous and prejudicial to the interests of the revenue and thus setting aside the same to the A.O. to pass fresh assessment order after making further inquiries/verifying the matters afresh. We, therefore, quash the order passed by the ld. C.I.T. u/s.263 and restore the assessment order dated 28/3/2008.
10. In the result, the appeal of the assessee is allowed.
This order is pronounced in open Court on 13.04.2011