Case Law Details
ORDER PER P.M. JAGTAP, A.M.
This appeal by the assessee is directed against the order of Id. CIT-VII, Mumbai dated 19.12.2008 passed u/s 263.
2. The assessee in the present case is an investment company which filed its return of income for the year under consideration on 29.10.04 declaring total income of Rs. 5,03,38,480/-. The said return filed by the assessee was selected for scrutiny assessment and in the assessment completed vide an order dated 29.9.2006 passed u/s 143(3), the total income of the assessee was computed by the A.O. at the same amount of Rs. 5,03,38,480/- as declared by the assessee in the return of income. Subsequently, record of the said assessment was examined by the Id. CIT and on such examination he formed a prima facie opinion that the assessment made by the A.O. u/s 143(3) was erroneous and prejudicial to the interest of the Revenue. He, therefore, issued notice u/s. 263 to the assessee pointing out such error and calling for its explanation in the matter. The relevant portion of the said notice as reproduced in the impugned order of the Id. CIT(A) is extracted below:
“The income of the assessee company is from investments in shares and house property. It is seen from the P&L Account that the assessee claimed deduction of Rs. 20,21,509/- as deduction in value of investments. A loss, which is neither suffered nor incurred in the accounting year, is not deductible against the actual receipt. Only exception to this, is that stock-in-trade may be valued at cost or market value whichever is lower, as stated in the case of Edwards & Sons Ltd. Vs. IRC (1924) 12 TC 773. The deduction of Rs. 20,21,509/- allowed as reduction in value of investments is irregular.
(ii) It is further seen that an amount of Rs. 315290/- is shown as expenditure in foreign currency on account of traveling expenses (Notes forming part of Accounts II (10). As there are no business activities in foreign countries as amount of Rs. 315290/- is not allowable as deduction.
In view of the above, the assessment order passed by the ACIT-7(2), Mumbai dated 29.6.2006 is considered to be erroneous and prejudicial to the interest of revenue. You are hereby given opportunity to state as to why the assessment be not set aside, enhanced or suitably modified. You are requested to appeal before me personally or through your authorized representative on 03.11.2008 at 4.30 P.M. or file your written submissions by said date failing which it will be presumed that you have nothing to say in the mater and decision will be taken ex parte or merits.”
3. In reply to the above notice filed vide its letter dated 1.12.2008, it was submitted on behalf of the assessee that the expenditure of Rs. 3,15,290/- on account of foreign travel was incurred for the purpose of its business and the same was rightly allowed by the A.O. as deduction. It was submitted that the mere fact that the assessee had no business activity in foreign countries could not be a bar for claiming the deduction on account of foreign travel expenses. In the further reply filed vide its letter dated 17,12.2008, the purpose of foreign travel undertaken by its Director Shri Jyotiraditya Scindia to London on 1.6.03 was also explained by the assessee by stating that the said travel was to meet various investment banks and to have a tie up with them considering the various investment opportunities available in India. It was also brought to the notice of the Id. CIT that the assessee company is a registered non-banking finance company and during his visit to London, its director had held a series of meetings with various fund houses, investment banks, private equity houses etc. in connection with business. As regards the amount of Rs. 20,21,509/- debited to its P&L Account on account of reduction in value of investments, it was pointed out on behalf of the assessee company to the Id. CIT that the said amount had already been added back in the computation of total income by the assessee and, therefore, no further adjustment was required to be made by the A.O. to the total income of the assessee for the said amount.
4. After considering the submissions made on behalf of the assessee company, the Id. CIT held that the need to undertake foreign travel by the Director of the assessee company for the purpose of its business was not satisfactorily established. According to him, going by the activities of the assessee company as well as source of its income, the need to undertake such foreign travel for the purpose of its business did not get highlighted. He noted that there was no supporting material produced by the assessee to establish such business purpose. He held that it was, therefore, incumbent upon the A.O. to have examined this issue taking into consideration the facts of the case. Accordingly, the said issue was restored by him to the file of the A.O. for examination as per law after ascertaining the relevant facts. As regards the amount of Rs. 20,21,509/- debited by the assessee company in its P&L account on account of reduction in value of investment, the reply of the assessee of having added back the said amount in the computation of total income was apparently found to be factually correct by the Id. CIT. However, keeping in view that the issue relating the foreign travel expenses has been restored by him to the file of A.O. for fresh examination, he directed the A.O. to look into the factual aspects of this issue also. Aggrieved by the order of the Id. CIT passed u/s 263, the assessee has preferred this appeal before the Tribunal.
5. The learned counsel for the assessee at the outset has invited our attention to the copies of relevant P&L Account and statement of computation of income placed at page No. 1 & 5 of his paper book to point out that the amount of Rs. 20,21,509/- shown in the P&L account on account of reduction in the value of investment was already taken into consideration by the assessee while computing its total income. He contended that no adjustment for the said amount thus was again required to be made by the A.O. and the order of the A.O. not making any such adjustment was not erroneous as alleged by the Id. CIT in the notice issued u/s 263. He contended that this position was found to be factually correct even by the Id. CIT after taking into consideration the submissions made on behalf of the assessee company, but still he directed the A.O. to look into the factual aspect of this issue which was totally unjustified. As regards the issue of foreign travel expenses, the Id. Counsel for the assessee invited our attention to page No. 2 of the order passed by the A.O. u/s. 143(3) where it was noted by the A.O. that all the details pertaining to capital gains, income from house property and business income have been taken on record in the course of assessment proceedings. He contended that the relevant details required for the purpose of assessment thus were furnished by the assessee and after verifying the said details, the claim of the assessee for deduction on account of foreign travel expenses was allowed by the A.O. taking a possible view. He contended that the Id. CIT therefore was not justified in exercising his revisionl powers u/s. 263 to substitute his own view for the view already taken by the A.O. after verifying the relevant details. He contended that even the basis of which the allowability of foreign travel expenses was disputed by the Id. CIT is not well founded. In this regard, he invited our attention to the notice issued by the Id. CIT u/s. 263 wherein it was observed that the foreign travel expenses are not allowable as deduction since there are no business activities of the assessee company in foreign countries. He contended that this basis adopted by the Id. CIT itself was in-correct since it is not necessary that for claiming deduction on account of foreign travel expenses, there has to be a business activity of the assessee in foreign countries. He contended that merely because there is no such activity in foreign countries, the claim of the assessee for foreign travel expenses cannot be disallowed and therefore it cannot be said that the order of the A.O. in allowing the said claim was erroneous merely because there were no business activities of the assessee company in foreign countries. The Id. Counsel for the assessee therefore contended that there were no errors in the order of the A.O. passed u/s. 143(3) as alleged by the Id. CIT calling for revision u/s 263. In support of this contention, he relied, inter alia, on the decision of Hon’ble Bombay High Court in the case of CIT vs, Gabriel (India) Ltd. 203 ITR 108.
6. The Id. D.R., on the other hand, submitted that there were no business activities of the assessee company in foreign countries and keeping in view this position clearly evident from record, the A.O. should have probed the matter relating to assessee’s claim for deduction on account of foreign travel expenses. He submitted that no such enquiry, however, was done by the A.O. as is clearly apparent from the assessment order passed by the A.O. He contended that it is thus not a case where a possible view was taken by the A.O. According to him, no such view could have possibly be taken without examining the relevant facts of the case. As regards the reliance placed by the learned counsel for the assessee on the decision of Hon’ble Bombay High Court in the case of Gabriel (India) Ltd. (supra), he submitted that the facts involved in the said case are different from the facts of the present case in as much as the required enquiry in the matter was found to be made by the A.O. in that case and even detailed explanation was also filed by the assessee in response to the said enquiry. He contended that the claim of the assessee for deduction on account of foreign travel expenses thus was allowed by the A.O. in the present case without making proper enquiry and there was thus an error in the order of the A.O. justifying revision by the Id. CIT u/s. 263. In support of this contention, he relied on the decision of Mumbai Bench of ITAT in the case of AVEE International vs. ACIT 101 ITD 495. He further contended that its claim for deduction on account of foreign travel expenses could not be substantiated by the assessee even during the course of proceedings u/s 263 before the CIT by producing the relevant supporting evidence.
7. In the rejoinder, the Id. Counsel for the assessee submitted that the facts involved in the case of AVEE International (supra) decided by the Tribunal and cited by the Id. D.R. are entirely different from the facts of the present case. He submitted that the proceedings u/s 263 were initiated by the Id. CIT on the specific grounds as given in the notice issued to the assessee. He invited our attention to the relevant portion of the said notice and pointed out that there was no allegation leveled by the Id. CIT to the effect that proper enquiry was not made by the A.O. before allowing the claim of the assessee for foreign travel expenses. He contended that the Id. D.R. has made an attempt to support the impugned order of the Id. CIT passed u/s. 263 on the ground different from the one given in the notice issued u/s. 263 which is not permissible. In this regard he relied on the decision of Hon’ble Punjab & Haryana High Court in the case of CIT vs. Jagadhri Electric Supply & Industrial Co., 140 ITR 490 wherein it was held that new grounds cannot be supplied even by the Tribunal to uphold the order passed by the Id. CIT u/s 263. He contended that specific reasons were given by the Id. CIT for initiating the proceedings u/s. 263 in the notice issued to the assessee and sustainability of the said order proceedings has to be decided on the basis of such reasons alone.
8. We have considered the rival submissions and also perused the relevant material on record. It is observed that the assessment order dated 29.9.06 passed by the A.O. u/s 143(3) has been revised by the Id. CIT by his impugned order holding the same to be erroneous and prejudicial to the interest of the Revenue on the following grounds as given in the notice issued to the assessee u/s 263:
“I have considered the aforesaid submissions. The note as reproduced above is not supported by any material. From the assessment records it is seen that the assessee is an investment company and during the relevant year it had income mainly from house property, income from business and capital gains. The assessee had also received dividend from Indian companies which was claimed exempt. From the details given in P&L A/c. it is found that the major sources of income shown are rent, hotel operating licence fees, interest and dividend. From the details filed before the A.O. and the facts mentioned in the assessment order, the need to undertake a foreign tour for the purposes of business does not get highlighted. Even before me, no supporting material has been produced. It is, therefore, incumbent that this issue is examined by the A.O. for decision based on facts as per law. Accordingly, this issue is restored to the file of the A.O. for being examined as per law after ascertaining proper facts in this regard.
9. As demonstrated by the Id. Counsel for the assessee before us, the amount of Rs. 20,021,509/- debited to the P&L account on account of deduction in value of investments was added back in the computation of total income by the assessee company itself and there was thus no deduction claimed by the assessee effectively for the said amount and no question of any error by the A.O. in the assessment order to allow the said deduction. As a matter of fact this position was brought to the notice of the Id. CIT by the assessee during the course of proceeding u/s 263 and as clearly mentioned by the Id. CIT in his impugned order, the same was found to be factually correct by him. There was thus no error in the assessment order passed by the A.O. on this issue as alleged by the Id. CIT warranting any revision u/s 263. At the time of hearing before us, the Id. D.R. has also not raised any contention to dispute this position.
10. As regards the other error allegedly pointed out by the Id. CIT in the assessment order passed by the A.O. allowing the expenditure of Rs. 3,15,290/-incurred by the assessee company on account of foreign travel expenses, it is observed that the allowability of the said expenditure was disputed/doubted by the Id. CIT on the basis that there was no business activity of the assessee company in foreign countries. As rightly submitted on behalf of the assessee before the Id. CIT during the course of proceeding u/s 263 as well as before us during the course of hearing, it was not necessary that for claiming deduction on account of foreign travel expenses, there has to be some business activity of the assessee in foreign countries. Merely because there was no such activity of the assessee in foreign countries during the year under consideration, it cannot be said that the claim of the assessee for foreign travel expenses has to be disallowed and the order of the A.O. allowing the said expenditure was erroneous. In this regard, the Id. D.R. has submitted that keeping in view the fact that there was no business activity of the assessee company in foreign countries, the A.O. should have examined the claim of the assessee for foreign travel expenses carefully and having failed to do so, the assessment order was erroneous which the Id. CIT was fully justified in revising by an order u/s 263. A perusal of the notice issued u/s 263, the relevant portion of which is already extracted hereinabove, however, shows that it was not an allegation of the Id. CIT that the failure of the A.O. in making the enquiry in the matter of assessee’s claim for deduction on account of foreign travel expenses made the assessment erroneous. The assessment order was held to be erroneous by him and was sought to be revised on this issue on the ground that the foreign travel expenditure was allowed wrongly despite there being no business activities by the assessee company in foreign countries. As already observed by us, his basis itself given by the Id. CIT to dispute or doubt the allowability of foreign travel expenditure was not correct and merely because there was no business activity of the assessee company in foreign countries, it cannot be said that the foreign travel expenses were to be straight-away disallowed and the A.O. was wrong in not making the said disallowance.
11. The Id. D.R., however, has made an attempt to support the impugned order of the Id. CIT passed u/s 263 on the new ground which was not there given by Id. CIT in the notice issued u/s 263 to the assessee. In the case of CIT vs. Jagadhri Electric Supply & Industrial Co., 140 ITR 490 cited by the learned counsel for the assessee, Hon’ble Punjab & Haryana High Court has held that the order of the Commissioner passed u/s 263 will contain the ground for holding the order of the A.O. to be erroneous and the Tribunal cannot uphold the said order on any other ground than given by the Commissioner which in its opinion was available to the Commissioner as well. Explaining further, it was observed by their Lordships that if the Tribunal is allowed to find out such new grounds available to the Commissioner to pass the order u/s 263, then it will amount to sharing of exclusive jurisdiction vested in the Commissioner which is not warranted under the Act. In the case of Maxpack Investment Ltd. 104 TTJ 881, it was held by the Delhi Bench of ITAT that revision u/s. 263 on a ground different from the one stated in notice u/s 263 after invoking jurisdiction conferred on CIT is invalid. In the case of S.S.I Ltd. Vs. DCIT, 85 TTJ 1049, Chennai Bench of ITAT has held that proceedings u/s 263 has to be strictly confined to the notice issued invoking the jurisdiction under that section for the reasons stated therein and the law does not permit expanding the said proceeding u/s 263 after its initiation beyond what is stated in the notice itself. It was also held that whether the impugned assessment is erroneous and prejudicial to the interest of the Revenue is to be judged only with reference to the reasons stated in the notice issued u/s 263 and it is not permissible to extend scope of proceedings beyond such notice. In the case of CIT vs. L.F.D.’Silva, 192 ITR 547, Hon’ble Karnataka High Court has held that the scope of proceeding u/s 263 has to be ascertained with reference to the purpose and basis of initiation of proceedings. Keeping in view the legal position emanating from these judicial pronouncements and having regard to the facts of the case, we are of the view that there was no error in the assessment order passed by the A.O. u/s 143(3) as alleged by the Id. CIT in the notice issued u/s 263 and this being so, the Id. CIT was not justified in revising the said assessment. In that view of the matter, we set aside the impugned order of the Id. CIT passed u/s 263 and restore that of the A.O. passed u/s 143(3).
12. In the result, appeal of the assessee is allowed.
