Thursday 10 October 2013

Whether during adjudication u/s 263, CIT can bring new materials into picture to prove that order of AO is erroneous - NO: Delhi HC

THE issues before the Bench are - Whether inadequate inquiry made by assessing officer would render the order erroneous, so as CIT can exercise its power u/s 263; Whether commissioner u/s 263 can initiate proceedings on the basis enquiries, in matters or orders which are already concluded; Whether CIT can issue show cause notice merely on the basis that, AO exercising its quasi judicial powers has concluded a matter differently; Whether CIT can remand a matter to AO to decide whether the findings recorded are erroneous; Whether during adjudication u/s 263, CIT can bring new materials into picture to prove that order of AO is erroneous and Whether notice u/s 263 can be raised merely on suspicion basis.And the verdict goes against the Revenue.
Facts of the case

Assessee is an Indian commercial broadcasting television network Company. During assessment, disallowance of interest of Rs.1,83,503/- was made. Assessee had claimed deduction u/s 80HHF of Rs.14,73,12,763/- which was specifically mentioned and allowed in the assessment order. Subsequently CIT issued show cause notice u/s 263 on the basis that in AY 2002-03, deduction was claimed u/s 80HHF, for which essential conditions include export or transfer of any film software, television software, music software, telephone news software including telecast rights. There was nothing on the record to suggest that eligible items were actually exported/transferred outside the India at that time. Also verification regarding these items was not done by assessing officer (AO). In the agreement entered into between NDTV and STAR TV, there was no mention of specific item to be exported. It merely stipulates that NDTV Ltd. will produce programmes/footage/tapes to be exported to the STAR TV. It was also seen the world vide copy rights of all the material produced by the NDTV Ltd. shall remain with M/s. NDTV Ltd. only. These aspects of whether the items produced and claimed to have been exported constituted eligible item in terms of Sec. 80HHF and the admissibility of the deduction u/s 80HHF in view of copyright and ownership being continued with M/s NDTV were not examined by AO. Thus, CIT had exercised powers u/s 263.

Against the show cause notice of CIT, assessee had objected and argued that the eligibility and justification of claim u/s 80HHF was expressly examined by AO. As regards, items exported it was stated that NDTV had produced and exported television software related to news and current affairs to STAR TV as per agreement between assessee company and STAR TV Hong Kong, through INTEL SAT Satellite from its facility at New Delhi. Satellite space and up linking facility had been contracted from VSNL on NDTV. Transmission from NDTV studio to STAR TV Hong Kong was made on point to point basis without any physical or electronic interference. It was claimed that before AO, assessee had furnished large number of documents like export invoices to STAR TV, copy of bank certificate of export and realization, copy of foreign inward remittance. During proceedings u/s 263, assessee further furnished the documents like copy of bill raised by VSNL, copy of certificate from VSNL stating that satellite space segment was leased to NDTV for up-linking news signal from India to be down linked at Hong Kong and a one copy of software export declaration (Softex) from certified by official of Software Technology Park of India (STPI) to show the item exported.

After considering assessee’s arguments, CIT had recorded that evidences filed during the course of assessment proceeding merely proved that foreign exchange was received from STAR TV, Hong Kong against the invoices of export. These did not clearly establish the actual export of eligible item for the purposes of Sec. 80HHF. The evidences furnished during the course of this proceeding like certificate from VSNL and Softex from in respect one invoice were never furnished before AO. As regards, the issue of admissibility of deduction u/s 80HHF in view of world wide copy rights continued to remain with NDTV, it was contended there is no mention in section 80HHF explicitly or implicitly that in such cases deduction would not be available. Scope of section covers not only the software but also the software rights, the expressions television software includes television rights as well. In this connection, it was pertinent to note that facts of that case were different and decision of Mumbai ITAT in the above referred case had not been accepted by the department.

On appeal, Tribunal had accepted the contentions of assessee and concluded that AO had after detailed verification accepted deduction u/s 80HHF and actual proof of export of software was duly furnished and accepted by the AO. The CIT had erred in exercising power u/s 263 on mere suspicion and for re-examination of correctness of the claim.

Before HC, the Revenue’s counsel had submitted that it was a case of non-examination of the relevant facts at the time of assessment. AO did not specifically consider whether the software was exported from India, a mandatory pre-requirement or condition u/s 80HHF. Further, requirement of transfer of rights to the foreign party was not examined by AO. On the other hand, the assessee’s counsel had contested and stated that the judgments relied upon by Revenue support and affirm the ratio and reasoning in the impuged order. Decision of the Delhi HC in the case of Ashok Logani was clearly distinguishable and was a peculiar case which has been decided on its facts.

Held that,

++ we feel that the findings recorded by the Commissioner in the order dated 29.03.2007, do not meet the requirements of Section 263. Undeniably, power under Section 263 is wide and broad but it can be exercised only when twin conditions, mentioned in Section 263 are satisfied. There is difference between purported incomplete or inadequate verification or no verification whatsoever by the Assessing Officer. This distinction for the purpose of exercise of powers under Section 263 of the Act was noticed by the Delhi High Court in Sunbeam Auto Ltd. (2009-TIOL-552-HC-DEL-IT), wherein it was pointed out that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Counsel for the assessee is right in his submission that one has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of 'lack of inquiry' that such a course of action would be open;

++ in Gabriel India Ltd. (2003-TIOL-446-HC-MUM-IT), it was discussed that by reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue". It is not an arbitrary or unchartered power, it can be exercised only on fulfillment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity;

++ from the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated; the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion ... There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed;

++ in DG Housing Projects Ltd. after referring to the decision in Sunbeam Auto Ltd, (2009-TIOL-552-HC-DEL-IT), it was observed that in cases of wrong opinion or finding on the merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. The CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question;

++ the Commissioner of Income-tax must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the Commissioner of Income-tax must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the Commissioner of Income-tax 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 Commissioner of Income-tax (see CIT v. Shree Manjunathesware Packing Products and Camphor Works (2002-TIOL-892-SC-IT). Nothing bars/prohibits the Commissioner of Income-tax from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous;

++ in the present case, jurisdictional pre-conditions stipulated in Section 263 of the Act are not satisfied. The Assessing Officer did conduct investigation and accepted the claim under Section 80HHF on being satisfied that the conditions stipulated in the said Section are satisfied. It is not the case of "no investigation". It is also not a case where per-se further investigation was required. Commissioner in his order, as noticed above, has been tentative and hesitant and did not decide whether the claim under Section 80 HHF has been rightly allowed by the Assessing Officer. He has noted the stand of the respondent, before him and before the Assessing Officer, but refrained from forming any opinion as to whether the acceptance of the claim by the Assessing Officer was erroneous or not. Power of review under Section 263 of the Act can be invoked only if the order is erroneous and for this the Commissioner must record the reason that the order was erroneous and the claim under Section 80HHF was wrongly allowed. Once the said claim was considered and examined by the Assessing Officer, Commissioner cannot set aside the order without recording contrary finding. This will be contrary to Section 263 of the Act. Use of the words without elucidation indicates, that the said observation are presumptive or a suspicion and mere repetition of words but this does not satisfy the requirements under Section 263 of the Act. Order under Section 263 must be clear and must set out logical ground and reason as to why the assessment is erroneous and prejudicial to the interest of the Revenue. Decision in Gee Vee Enterprises is not applicable as enquiry was conducted by the Assessing Officer and he formed an affirmative opinion accepting the claim of the respondent. In view of the aforesaid discussion, question No.2 has to be answered against the Revenue and in favour of the respondent assessee and it has to be held that the Assessing Officer during the course of original assessment proceedings, had delved deep into the question of deduction under Section 80HHF and was satisfied that the deduction made were as per law. Question No.1 is also answered in favour of the respondent assessee and against the Revenue. Tribunal was right in setting aside the order dated 29.03.2007, passed by the Commissioner under Section 263 of the Act.The appeal is disposed of, with no order as to costs.

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