IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI

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BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND

SHRI B.R. BASKARAN, ACCOUNTANT MEMBER

ITA NO.3325/Mum/2014 Assessment year: - 2009-10

Elder IT Solutions Pvt. Ltd. 6, Ground Floor, Hanumanta Apartment, Bamanwada, Nr. Chakala Cigarette Factory, Andheri (East) Mumbai – 400007.

Vs.`

Commissioner of Income Tax -4, Aayakar Bhavan, Mumbai.

PAN:- AABCE9586F

Appellant Respondent

ORDER

Per Vijay Pal Rao, JM

This appeal by the assessee is directed against the revision order

dated 28.3.2014 of Commissioner of Income Tax, passed u/s 263 of the

Income Tax Act for the A.Y. 2009-10. The assessee has raised following

grounds:-

Assessee By Shri Arvind Sonde and Shri Jitendra Sanghvi

Revenue By Shri R. Manjunatha Swamy

Date of hearing 12.11.2014

Date of pronouncement 12-12-2014

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“GROUNDS OF APPEALS

GROUND NO. I: l. On the facts and in the circumstances of the case and in law, the Hon'ble CIT erred in issuing show cause notice u/s. 263 of the Act and later in passing the order u/s. 263 in the name of “Elder Infotech Pvt. Ltd.', even though the company by the said name is no more in existence having been dissolved upon its amalgamation with the Appellant.

2. The Appellant prays that the order passed in the name of an assessee not in existence be struck down and annulled as ab-initio or otherwise null and void. WITHOUT PREJUDICE TO GROUND NO.1: GROUND NO. II: 1. The Hon'ble CIT further erred in holding that the Appellant had indicated that an assessment of Elder Infotech Pvt. Ltd. could be made in respect of the Assessment Year 2009-10 against the Appellant whereas the Appellant had submitted that the Assessment of Elder Infotech Pvt. Ltd. for the Assessment Year 2009-10 could not be made on any person (including the Appellant) and that there were no provisions in the Income Tax Act which would permit the making of such an Assessment or the recovery of any consequential demand. 2. The Hon'ble CIT failed to appreciate and ought to have held that Elder Infotech Pvt. Ltd. was dissolved on August 23,2011 with effect from April 1,2010 and consequently, or otherwise in the absence of any enabling provision no proceeding relating to the determination of tax liability of Elder Infotech Pvt. Ltd. could be commenced under the Income-tax Act on Elder Infotech Pvt. Ltd. or on any other person including the Appellant.

3. The Appellant prays that order passed under section 263 of the Act be struck down as authorities below-initio or otherwise, null and/or void and/or of no effect. WITHOUT PREJUDICE TO GROUND NO. 1/11:

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GROUND NO. III: 1. On the facts and in the circumstances of the case and in law, the Hon'ble CIT erred in invoking the provisions of section 263 of the Act and setting aside the assessment order passed under section 143(3) of the Act restoring it back to the file of the A.O. for fresh consideration on the ground that the said assessment order was erroneous and prejudicial to the interest of revenue. WITHOUT PREJUDICE TO GROUND NO. I/II/III: GROUND NO. IV: 1. On the facts and in the circumstances of the case and in law, Hon'ble CIT erred in setting aside the assessment order passed under section 143(3) of the Act by the AO on the ground that the AO had not examined the nature of rights (i.e. intangible asset) acquired by Agreement with Reliance Communications Limited and observing that on a prima facie basis Elder Infotech Pvt. Ltd. has not acquired any capital asset and does not own it fully or partially. 2. The Appellant prays that it be held that, in the facts and in the circumstances of the case, the amount paid against acquiring the commercial rights is an 'intangible asset' and depreciation on the same is allowable under section 32(1) of the Act and has correctly been allowed after due verification in the assessment made under See 143(3) in the case of Elder Infotech Pvt. Ltd for the Assessment Year 2009-10 and that there is no warrant for setting aside the order on this count and that the order is neither erroneous nor prejudicial to the interest of the Revenue. GROUND NO. V: On the facts and in the circumstances of the case and in law, Hon'ble CIT erred in setting aside the assessment order passed under section 143(3) of the Act by the AO on the ground that the AO had not adequately examined the amount received by Elder Infotech Pvt. Ltd. through issue of preference shares and by way of unsecured loan. The Appellant prays that it be held that in the facts and in the circumstances of the case, the amounts received by Elder Infotech

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Pvt. Ltd. through issue of preference shares and unsecured loan have been duly examined by the AO in the assessment proceedings of that Company and that there is no warrant for setting aside the order on this count and that the order is neither erroneous nor prejudicial to the interest of the Revenue.

3. Without prejudice the Hon'ble CIT erred in failing to appreciate that in the facts and circumstances of the case, the source of the funds received by way of application for Preference Shares and unsecured loans was adequately established and the nature of the transactions was confirmed by the counterparties and consequently or otherwise there was no case whatsoever for any addition to the income of Elder Infotech Pvt. Ltd.

2. The assessee challenged the validity of revision order passed u/s 263

on various grounds. First we will consider the issue on which the

Commissioner has invoked the provisions of section 263 as raised in

ground no. 3 to 5 in this appeal. The assessee filed its return of income for

A.Y. under consideration on 30.09.2009 declaring a net loss of Rs.

19,82,57,889/-. The assessment was completed u/s 143(3) on 9.12.2011 at

nil income against the loss of Rs. 19,82,57,889/-. Subsequently, on

verification of the assessment records, the CIT found that during the year

under consideration, the assessee was having commission income of Rs.

6.06 crore from the services rendered to Reliance Communication Ltd.,

with a view to create the potential to revive the relationship with such

dormant subscribers and to augment the revenue to Reliance

Communication Ltd, the assessee had debited in its P&L account, a sum of

Rs. 25.89 crores on account of purchase of Dormant subscribers. The

assessee paid a sum of Rs. 517.94 cores to Reliance Communication Ltd. in

the nature of purchase of intangible asset and claimed depreciation on the

said amount at the rate of 25% for 73 days amounting to Rs. 25.90 crores.

The depreciation claimed by the assessee on the rights being purchase of

dormant subscribers. The Assessing Officer restricted the claim of the

assessee to the extent of commission income earned by it in pursuant to the

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agreement of revival of dormant subscribers. The Commissioner was of the

view that the Assessing Officer while examining the details has not

considered whether the revival of the dormant subscribers is a commercial

right or not for the purpose of allowing depreciation u/s 32(1)(ii). The

second claim which was found by the CIT(A) as wrongly allowed by the

Assessing Officer is regarding the preference share application money of

Rs. 139.86 crore and Rs. 4,87,55,68,401/- as unsecured loan. Accordingly,

the Commissioner issued a show cause notice dated 20.03.2014 u/s 263

and asked the assessee as to why the order passed by the Assessing Officer

should not be revised being erroneous and prejudicial to the interest of

revenue. The grounds for invoking the provisions of section 263 as stated

in the show cause notice is that these two issues have not been examined

by the Assessing Officer while passing the order for the A.Y. 2009-10. The

assessee submitted its reply to show cause notice and raised various

objections including a technical legal objection that the company Elder

Infotech got merged with the Elder IT solutions Pvt. Ltd. w.e.f 1.4.2010

and, therefore, as per the provisions of section 170(2), the assessment of

income of the previous year shall be made on successor and not on the

Elder Infotech solutions Pvt. Ltd. The assessee also raised the objection on

jurisdiction to revise the assessment u/s 263 of the Income Tax Act., on the

ground that when the Assessing Officer has examined the issue and taken

a possible view. It was contended by the assessee that the entire material

was available before the Assessing Officer during the course of assessment

proceedings and the Assessing Officer after examination of the relevant

material restricted the claim of depreciation and allowed the share

application money against the preferential shares of Elder Infotech Pvt.

Ltd.. as well as the unsecured loans. The Commissioner did not accept the

contention of the assessee. As regards the issue of depreciation on

commercial right, the Commissioner observed that the assessee has to

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specify that either they are covered under the specific business asset as

described u/s 32(1)(ii) of the Act., or having similar nature. He has

expressed his disagreement in accepting the payment made by the assessee

to Reliance Communication for any commercial right of similar nature as

provided u/s 32(1)(ii) and 32(1)(iii). The Commissioner concluded that the

agreement for revival of dormant subscribers is not commercial asset and

the payment made by the assessee company is not for acquiring the capital

asset.

3. On the second issue of share premium money and unsecured loan,

the Commissioner held that the order of the Assessing Officer suffers from

several defects as the Assessing Officer has not raised any question while

recording the statement with respect to the credentials of the applicant

companies. The statement recorded in stereo type and no question has

been asked by the Assessing Officer with respect to the capacity of

companies who have given the loan to the assessee. Thus the

Commissioner has questioned the justification of payment of premium of

Rs. 999 on a face value of Rs. 1 per share when the assessee company does

not have any credentials in the market to attract the huge premium on its

preferential share. Accordingly, the commissioner held that the order

passed by the Assessing Officer is erroneous and prejudicial to the interest

of revenue with respect to the claim of depreciation on revival of dormant

subscribers and acceptance of unsecure loans of Rs. 487.55 crores and

preference share of Rs. 139.86 crores. Therefore, the Commissioner set

aside the assessment order and remanded the matter back to the file of

Assessing Officer for a fresh consideration after giving reasonable

opportunity to the assessee of being heard.

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4. Before us, the Ld. Authorized Representative of the assessee had

advanced the arguments at length and referred the voluminous records

filed before the Assessing Officer. On the issue of depreciation on

commercial rights being an intangible asset, the Ld. Authorized

Representative has submitted that the payment in question has been made

by the assessee under the agreement dated 1.8.2008 for revival of dormant

subscribers as identified by Reliance Communication. The assessee

acquired the right to revive the dormant subscribers of Reliance

Communication under the said agreement and made one time payment of

Rs. 320.04 crores towards the payment of EITPL as an Exclusive Reviving

Agent of RCOM and further Rs. 199 per subscriber inclusive of applicable

taxes and levies, if any, payable under the law. Thus the Ld. Authorized

Representative has submitted that as per clause 3.1 and 3.2, the business

right to revive the dormant subscribers of RCOM was acquired by the

assessee against the payment of Rs. 517.09 crores for doing the business of

providing the services of revival and generating the income in the shape of

service charges as provided under the terms of the agreement. He has

referred the assessment order and submitted that the Assessing Officer in

the scrutiny assessment has examined the issue and restricted the claim of

depreciation on the said amount to the extent of commission income

earned by the assessee during the year against the services provided for

revival of dormant subscribers. Thus the Assessing Officer restricted the

claim of depreciation from Rs. 25.9 crores to 6.06 crores and made the

addition on account of disallowance amounting to Rs. 19,82,57,889/-. The

Ld. Authorized Representative has submitted that the Commissioner has

revised the order of Assessing Officer on the ground that the assessee has

not acquired any capital asset in the nature of business or commercial

right and, therefore, the Assessing Officer has wrongly allowed the claim of

the assessee even to the extent of Rs. 6.06 croes as depreciation on

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intangible assets. He has referred the decision of Hon'ble Supreme Court in

the case of Techno Shares and Stock Ltd. (327 ITR 323) and

submitted that the issue of commercial right has been discussed by the

Apex Court and it has been held that the right of a membership which

allowed the non-defaulting member to participate in the trading season on

the floor of the exchange is a business or commercial right conferred by the

Rule of BSE on such member. The right to participate in the market had an

economic and money value. It was an expense incurred by the assessee

which satisfied the test of being a ‘licence’ or ‘any other business or

commercial right of similar nature’ in terms of S. 32(1)(ii) as held by the

Hon'ble Supreme Court. Without the right in the agreement, the assessee

could not approach the dormant subscribers for revival and collect the

revival subscription and consequently in the absence of such right the

assessee could not do its business activity of revival of subscribers earning

income. Thus the Ld. Authorized Representative submitted that the right

acquired by the assessee under the agreement is in the nature of business

or commercial right for doing their specific business activity. In support of

his contention he has relied upon the decision of Hon’ble Kerala High

Court in the case of B. Raveendran Pillai Vs. CIT (332 ITR 531),

wherein, the question fell for consideration of Hon’ble High Court was

whether the purchase of Hospital by assessee with its name and trademark

as a going concern involves any purchase of good-will. The Hon'ble High

Court held that the purpose of purchasing a business concern whether it be

hospital or hotel, is to ensure continuity of business with the same

reputation. The name of the hospital is the most important after purchase

by the assessee continued to be run in the very same building in the very

same name. Therefore, the purpose of being paying a huge amount of

good-will for maintaining a continued reputation of hospital is for ensuring

the retention and continue business in the hospital and it is certainly for

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acquiring the business or commercial right comparable with trade mark,

franchise, copyright etc. The Ld. Authorized Representative then referred

the judgment of Hon’ble Delhi High Court in the case of CIT Vs.

Hindustan Coco Cola Beverages P. Ltd. (331 ITR 192) and

submitted that the Hon’ble High Court has considered the meaning of

business or commercial rights of similar nature in terms of section 32(1)(ii)

of the Act., that any right which is obtained for carry on business with

effectiveness is likely to fall or comes within the sweep meaning of

intangible asset. He has then referred the Judgment of Hon’ble Delhi High

Court in the case of Areva T & D India Limited v DCIT (345 ITR 421)

(Delhi HC), wherein, a similar view was taken by the High Court while

considering the issue of depreciation on the amount paid over and above

the book value of net tangible asset.

5. On the issue of share application money and cash credits, the Ld.

Authorized Representative has submitted that the assessee furnished all

the relevant material before the Assessing Officer during the assessment

proceedings and the Assessing Officer after considering the relevant

evidence allowed the claim as correct and genuine. He has referred the

relevant part of the revision order wherein the Commissioner has recorded

the financial details of all these share applicant companies and also

recorded the fact that the Assessing Officer called for the financial details of

all these companies but no examination of accounts of these companies has

been done by the Assessing Officer. Therefore, the assessment order to the

extent of share application was treated as erroneous and prejudicial to the

interest of revenue only on the suspicion and justification of payment of

share premium. He has contended that when all the relevant material was

available with the Assessing Officer as it was produced during the

assessment proceedings, then accepting the share premium by the

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Assessing Officer does not suffer from any error. The Commissioner cannot

initiate proceedings with a view to start fishing and roving enquiries in the

matter or orders which already concluded. When the Assessing Officer has

allowed the claim after considering the relevant evidence and materials

filed by the assessee then the commissioner cannot held the order

erroneous simply because according to him the matter should have been

written more elaborately. It is a clear case where the Assessing Officer has

made enquiries and satisfied himself about the correctness and

genuineness of the claim. In support of his contention he has relied upon

the decision of Hon'ble Jurisdictional High Court in the case of

Commissioner Of Income-Tax vs Gabriel India Ltd. He has

referred the financial accounts of these companies who has paid the share

premium as well as loan to the assessee and submitted that the assessee

has placed on record the bank statements of those companies showing the

payment from the bank accounts and source of payment. He has also

referred the return of income filed by these companies showing these

transactions therein. Therefore, when these companies have shown all

these transactions in their return of income then the question of not

accepting the claim of the premium paid to the assessee for want of source

is contrary to the well settled principle on this point. If the revenue doubts

the capacity of these companies then the issue has to be considered in their

assessment and not in the assessment of the assessee. In support of his

contention he has relied upon the decision of Hon'ble Supreme Court in the

case of Lovely Exports and submitted that when the assessee has prima

facie proved the identity of the creditors and genuineness of the

transactions through the banking channel and the creditworthiness of the

creditors/subscribers by furnishing the details of addresses, PAN nos.,

bank statements as well as return of income where the transaction is duly

reflected then if the Assessing Officer has the doubt of legitimacy of any of

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the creditors, he is free to carry out thorough investigation in the case of

the creditors. He has relied upon the following decisions:-

(i) Hari Iron Trading Co. Vs. CIT ( 263 ITR 437)

(ii) Commissioner of Income-Tax. Vs. Eicher Limited

(294 ITR 310)

(iii) CIT. vs. Development Credit Bank Limited. (323 ITR

167)

(iv) CIT Vs. Sunbeam Auto Ltd., (2011) 332 ITR 167 (Del.)

(v) CIT Vs. Anil Kumar Sharma, 335 ITR 83

6. On the other hand. The Ld. DR has submitted that the Assessing

Officer has not examined the issue whether the assessee had acquired any

capital asset in the agreement for revival of dormant subscribers of the

RCOM. He has referred the relevant finding of he Commissioner in the

impugned order and submitted that the Commissioner has given a finding

that the assessee has not acquired any capital asset or owned any capital

asset uder the agreement, therefore, no depreciation is allowable. The

Assessing Officer has not made any enquiry on this issue, therefore, there is

a lack of application of mind on the part of the Assessing Officer which

renders the order erroneous so far as prejudicial to the interest of revenue.

In support of his contention he has relied upon the order of Hon’ble

Karnataka High Court in the case of CIT Vs. Infosys Technologies (341

ITR 293) that in the absence of any discussion either in the assessment

order or in the computation claim to the extent of relief claimed by the

assessee, the order is erroneous and prejudicial and in such a situation the

Commissioner has the jurisdiction to exercise the power u/s 263. He has

further submitted that the issue is not at all examined by the Assessing

Officer, therefore, the Commissioner can direct the assessing authorities

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to compute or re-compute the same. He has then relied upon the decision

of Hon'ble Jurisdictional High Court in the case of CIT Vs. Hindustan

Liver (343 ITR 161) and submitted that an excess allowance by the

Assessing Officer by over looking the fact, the research expenditure

incurred by the inextricably linked with the business of the assessee

including business in those produces which are manufactured in the unit

entitled for deduction u/s 80I, 80IA and 80HH. Therefore, only an

appropriate part of the expenditure would have to be allocated to the

eligible unit for the purpose of aforesaid deduction. The Hon’ble High

Court held that the Commissioner was justified in setting aside the order as

erroneous and prejudicial to the interest of revenue. The Ld. DR then relied

upon the decision of Delhi Benches of this Tribunal in the case of Frick

India Ltd. Vs/. DCIT 6 ITR (Trib.) 82 (Del) and submitted that the

order of the Assessing Officer allowing deduction was erroneous and

prejudicial to the interest of revenue on the ground that the Assessing

Officer has failed to consider the assessment of the earlier years wherein a

technical know how fee was included in intangible asset and depreciation

was allowed. Thus the Ld. DR has submitted that even if the Assessing

Officer has examined the issue but when he failed to consider the decision

taken in the assessment order for earlier year, the order was considered to

be erroneous and prejudicial to the interest of revenue He has then relied

upon the decision of Hon'ble Jurisdictional High Court in the case of

Major Metals Ltd. Vs. Union of India ( 359 ITR 450) and submitted

that the Hon’ble Hon'ble Jurisdictional High Court after considering the

judgment of Hon’ble Delhi High Court as well as the judgment of Hon'ble

Supreme Court in the case of Lovely Exports has confirmed the finding of

settlement commission in respect of the addition u/s 68 of Income Tax Act

on account of cash credit of Rs. 6 crore against which the shares were

issued by the assessee at a huge premium. The Ld. DR then relied upon the

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decision of Hon'ble Supreme Court in the case of Malabar Industrial

Co. Ltd Vs. CIT (243 ITR 83) and submitted that when the Assessing

Officer accepted the claim of the assessee without any supporting material

and without making any enquiry, the Commissioner is justified in

exercising the jurisdiction u/s 263. The Assessing Officer has not applied

his mind while allowing the claim of the assessee in respect of share

application money as well as loan received from these companies. He has

forcefully contended that the Commissioner has discussed the fact as to

how the Assessing Officer has not made any enquiry on the issues which

are subject matter of revision. He has referred the decision of Hon'ble

Supreme Court in the case of South India Steel Rolling Mills v CIT

[1997] 224 ITR 654 and submitted that the exercise of power conferred

u/s 263 by the Commissioner was held to be justified when the Assessing

Officer while granting the benefit of development rebate u/s 33(1A), failed

to note that the condition provided u/s 34(3)(A) were not fulfilled by the

assessee as the firm was dissolved and ceased to exist before the expiry of

period of eight years. Thus the Ld. DR has strongly supported the revision

order and submitted that the Commissioner was justified in revising the

assessment order when the Assessing Officer has not applied its mind on

the issues in question.

7. In rebuttal, the ld. Authorized Representative has submitted that the

share applicant companies are NBFC registered with RBI, therefore, there

is no question of doubting the identity and availability of funds with the

share applicant companies.

8. We have considered the rival submissions as well as relevant material

on record. The assessment in this case was completed u/s 143(3) on

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9.12.2011. Subsequently, the Commissioner has issue a show cause notice

dated 20.03.2014 u/s 263 as under:-

“The assessee company i.e. M/s Elder Infotech Pvt. Ltd. has filed its return of income on 30.09.2009 declaring a net loss of rs. 19,82,57,889/- for A.Y. 2009-10. Thereafter, the said company i.e. M/s Elder Infotech got merged with Elder IT solutions Pvt. Ltd., 6 ground floor, Shree Hanuman Apt, Bamanwada, Nr. Chakala Cigarette Factory, Andheri (E) Mumbai – 400 009. During the year under consideration i.e. A.Y. 2009-10 (F.Y. 2008-09), the assessee was having the commission income of Rs. 25.89 crores on account of purchase of dormant subscribers. The assessee company has paid to Reliance Communication Ltd. an amount of Rs. 517.94 crores in the nature of purchase of intangible asset. The assessee company has provided depreciation @ 25% for 73 days amounting to Rs. 25.90 crores. The assessee company has claimed the depreciation on commercial rights from the period 01.04.2009 to 28.05.2009 amounting to Rs. 25.90 crores. This has been claimed on the instant that the assessee has paid to Reliance Communication Ltd., a sum amounting to Rs. 517.94 crores in the nature of purchase of intangible assets. The assessee company has claimed the depreciation for 6 months amounting to Rs. 64.74 crores but claimed only Rs. 25.90 crores. The Assessing Officer has considered this aspect and restricted the claim of the assessee to the extent of commission income earned by it in pursuance of the aforesaid agreement of revival. The Assessing Officer has not considered whether the revival of dormant subscribers is a commercial right or not. The substantive aspect of the depreciation prescribed u/s 32(1)(ii) which says that depreciation will be allowed on know-how, patents, copyrights, trade mark, licences, franchises or any other business or commercial right of similar nature being intangible assets acquired on or after the 1st day of April, 1998 has not been examined by the Assessing Officer. There is nothing on record that verification of the assessee’s technical capabilities or the infrastructure required to carry out the alleged revival was ever done. The second issue in this case is with respect to share application money and unsecured loans for the year ending 31.03.2010. The assessee company, M/s Elder IT solutions Pvt. Ltd has received the unsecured loan of Rs. 48,75,56,8401/- and share application money of Rs. 1,39,86,00,000/-.

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The above two issues have not been examined by the Assessing Officer while passing the order of Elder Infotech Pvt. Ltd. for A.Y. 2009-10. On the issues as stated above a show cause is being given to you as to why the order passed by JCIT (OSD)-Cir. 8(1), Mumbai dtd 09.12.2011 should not be revised u/s 263 of the Act being order erroneous one ad prejudicial to the interest of revenue. Please submit your reply either in person or through authorize representative on 25.03.2014 at 11.30 A.M.”

9. The Commissioner proposed to revise the assessment order dated

9.12.2011 in respect of these two issues on the ground that the Assessing

Officer has not examined these issues while passing the order for the A.Y.

under consideration. There may be two broad scenario in which section

263 can be invoked. Firstly, in a case where the claim of the assessee

needed inquiry and examination but the Assessing Officer failed to conduct

any inquiry. Such a case would fall under the category of lack of enquiry

and consequentially non application of mind on the part of the Assessing

Officer, renders the order erroneous so far as prejudicial to the interest of

revenue. Secondly, in a case where despite the inquiry the view of the

Assessing Officer is not permissible due to non consideration of crucial

relevant facts or legal provisions of law on the point. The failure on the part

of the Assessing Officer to consider the crucial facts, provisions of law or

settled legal precedent on the point renders the order erroneous and

prejudicial to the interest of revenue. However, in a case where the

Assessing Officer conducted an inquiry may be inadequate and allow the

claim by taking a view on the issue having two possible views then the CIT

cannot invoke the provisions of section 263 merely on the ground that he

does not agree with the view taken by Assessing Officer.. This position has

been settled by the Hon'ble Supreme Court in the case of Malabar

Industrial Co. Ltd. Vs. CIT (supra) as under:-

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“There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and inSmt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC).”

10. In the case in hand, the Assessing Officer has made an enquiry

regarding the claim of depreciation on tangible asset and after considering

the relevant agreement under which the assessee had acquired the right for

revival of dormant subscribers of RCOM Ltd., has decided the issue in para

3.3 of the assessment order as under:-

“3.3 The submissions of the assessee have been considered but the same are not acceptable. The assessee furnished the ledger account of advance towards purchase of subscribers', perusal of which shows that during the year the assessee has given advance of Rs 402,44,00,000/- on 23.10.2008 and Rs.115,50,OO,OOO/- on 20.01.2009 to Reliance Communication Limited on account of

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purchase of subscribers. Thus, during the year, the assessee has - paid a sum of Rs. 517,94,OO,OOO/- to Reliance Communication Limited on account of 'purchase of subscribers'. However, at the end of the year itself i.e. on 31st March, 2009, the assessee has written off a sum of Rs.25,89,70,OOO/- being 5% of the amount of 'advance towards purchase or subscribers'. To substantiate the aforesaid transaction, the assessee has furnished a Reliance Communications Limited. During the year, the assessee has earned income by way of commission of Rs.6,06,61,421/- from Reliance Communication Limited due to revival of certain subscriber contracts. The assessee also earned income in the copy of Agreement for Revival of Dormant Subscribers dated 01.08.2008 with form of consultancy fees. However, the assessee has not clearly justified the logic of claiming 5% of the total amount of subscriber contracts against the aforesaid income. Even, the perusal of Profit & Loss Account reveals that there is no other expenditure incurred to earn this income such as legal and professional charges, salary & wages, etc. In view of the same, it would be in the interest of justice to restrict the claim of assessee to the extent of commission income earned by the assessee in pursuance of the aforesaid Agreement of Revival and the balance stands disallowed.”

11. Thus it is clear that it is not a case of complete lack of enquiry on the

part of the Assessing Officer on the issue of allowing depreciation on

intangible asset being business or commercial rights acquired under the

agreement for revival of dormant subscribers of RCOM. Once the Assessing

Officer has conducted the enquiry and after examination of relevant record

as well as contention of the assessee has given a finding then the provisions

of section 263 can be invoked by the Commissioner only if the view taken

by the Assessing Officer is not permissible under the law. The

Commissioner in this case though has given the reasons for not accepting

the view of the Assessing Officer, however, at the same time he has again

left the issue to be decided by the Assessing Officer afresh in the concluding

para as under:-

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“Subject to the above discussion, I wish to conclude that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue , with respect to the claim of depreciation on revival of dormant subscribers as a commercial asset (intangibles) made by assessee company and accetance of unsecured loan of Rs. 4,87,55,68,401/- and preference share of Rs. 13,98,60,000/-. Therefore, the order is set aside and matter is resorted to the file of Assessing Officer for a fresh consideration after giving reasonable opportunity of being heard to the assessee.”

12. When the matter was restored back to the file of Assessing Officer for

a fresh consideration after giving reasonable opportunity of hearing to the

assessee then it is apparent that the Commissioner has not arrived to a

concluding finding that the view taken by the Assessing Officer is not

permissible under the law. Moreover, the issue of tangible asset being

business or commercial right as per section 32(1)(ii) of the Act., is a

debatable issue in view of the various judgments including the judgment of

Hon'ble Supreme Court in the case of Techno Shares & Stocks (supra),

referred by assessee wherein, the stock exchange membership was

considered as a right akin to a license which is one of the item which falls

under section 32(1)(ii) of the Income Tax Act. The Hon'ble Supreme Court

has observed that right to practice in market has an economic and money

value. It was an expense incurred by the assessee which satisfied the test of

being a ‘licence’ or ‘any other business or commercial right of similar

nature’ in terms of S. 32(1)(ii) of the Income Tax Act. In the case of B.

Raveendran Pillai Vs. CIT (supra), the Hon’ble Kerala High Court has

discussed the allowability of depreciation on very huge amount paid for

good will and held that it is certainly for acquiring a business or

commercial right and also comparable with the trade mark, franchise,

copyright etc,. referred to in the first part of sub clause (ii) of section 32(1).

In the case of CIT Vs. Hindustan Coco Cola (supra), the Hon’ble Delhi

High Court on the issue of depreciation on intangible asset u/s 32(1)(ii)

held that the asset which are in the definition of intangible asset includes

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along with other things any other business or commercial right of similar

nature. The meaning of business or commercial rights of similar nature

has been discussed in para 24 as under:-

“24. It is worth noting that the meaning of business or commercial rights of similar nature has to be understood in the backdrop of section 32(1)(ii) of the Act. Commercial rights are such rights which are obtained for effectively carrying on the business and commerce, as is understood, is a wider term which encompasses in its fold many a facet. Studied in this background, any right which is obtained for carrying on the business with effectiveness is likely to fall or come within the sweep of meaning of intangible asset. The dictionary clause clearly stipulates that business or commercial rights should be of similar nature as know-how, patents, copyrights, trademarks, licences, franchises, etc. and all these assets which are not manufactured or produced overnight but are brought into existence by experience and reputation. They gain significance in the commercial world as they represent a particular benefit or advantage or reputation built over a certain span of time and the customers associate with such assets. Goodwill, when appositely understood, does convey a positive reputation built by a person/company/business concern over a period of time. Regard being had to the wider expansion of the definition after the amendment of section 32 by the Finance (No. 2) Act, 1998 and the auditor’s report and the explanation offered before the Assessing Officer, we are of the considered opinion that the Tribunal is justified in holding that if two views were possible and when the Assessing Officer had accepted one view which is a plausible one, it was not appropriate on the part of the Commissioner to exercise his power under section 263 solely on the ground that in the books of account it was mentioned as ‘goodwill’ and nothing else. As has been held by the Apex Court in Malabar Industrial Co. Ltd.’s case (supra), Max India Ltd.’s case ( supra) and CIT v. Vimgi Investment (P.) Ltd. [2007] 290 ITR 505 (Delhi) once a plausible view is taken, it is not open to the Commissioner to exercise the power under section 263 of the Act.”

13. The meaning as understood by the Hon’ble High Court that any

business or commercial right which is obtained for carry on business with

effectiveness is likely to fall or comes within the sweep meaning of tangible

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asset. Similarly in the case of AREVA T&D India Ltd. (Supra), the

Hon’ble Delhi High Court has held that the term business or commercial

right of similar nature has been additionally used under the category of

intangible asset referred to section 32(1)(ii) clearly demonstrates that the

legislature did not intend to provide for depreciation only in respect of

specified intangible asset but also to other categories of intangible assets

which were neither feasible nor possible to exhaustively enumerate.

Therefore, the expression any business or commercial rights cannot be

restricted to only the six categories of the assets as mentioned in section

32(1)(ii). The Hon’ble High court has clearly foreseen the non feasible

impossibility to enumerate the intangible asset under the category of

business or commercial rights. In view of the above said decisions it

cannot be said that the claim of the assessee and view of he Assessing

Officer is absolutely contrary to law but the issue of allowability of

depreciation on intangible asset being business or commercial rights is a

debatable issue. Once the Assessing Officer has taken a possible view then

the Commissioner is not permitted to invoke the provisions of section 263

merely because he did not agree with the view taken by the Assessing

Officer.

14. Now we take up the second issue of share application money and

unsecured loan. The Commissioner has given the details of preferential

share holder of the assessee at page 9 of the impugned order as under:-

Sr. no.

Name Face value Premium Amount received

1. Mindtree Industrial Finance Ltd. Address: 60-B, 4th Floor, 9, Bhupen Chamber, Dalal Street, Fort, Mumbai – 400001.

3,50,000 34,96,50,000 35,00,00,000

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PAN : AACV1614N 2 Pearl Housing Finance

(India) Ltd. Address: 60-B, 4th Floor, 9, Bhupen Chamer, Dalal Street, Fort, Mumbai – 400001 PAN: AAACP6331J

3,50,000 34,96,50,000 35,00,00,000

3 VB Desai Securities and Finance Ltd. Address: 60-B, 4th Floor, 9, Bhupen Chamer, Dalal Street, Fort, Mumbai - 400001 PAN: AAACV3592M

3,50,000 34,96,50,000 35,00,00,000

4 Vishvakarma Equipment Finance (India) Ltd. Address: 60-B, 4th Floor, 9, Bhupen Chamer, Dalal Street, Fort, Mumbai – 400001 PAN: AAACV4286N

3,50,000 34,96,50,000 35,00,00,000

Total 14,00,000 1,39,86,00,000 1,40,00,00,000

15. One of the reasons for proposing the revision on this issue by

Commissioner is the justification of huge premium paid by these share

applicant companies. The Commissioner has stated in the order that the

source of applicant company is also the share premium and loan generated

by them and the Assessing Officer while finalizing the assessment order has

not examined the credentials of these companies and how they have

generated fund to give the assessee under consideration. The

Commissioner has further recorded at page no. 10 of the impugned order

as under:-

“The above companies’ financial details have been called for by the AO but no examination of the accounts of these companies have been done when it is required by the AO to examine the transaction pertaining to these companies because these companies do not have any operational income and creating entries in their books of accounts by way of loans and premium on issue of shares. The AO has recorded the statement of some of the persons but the statement recorded by the AO was also stereotype and no worthwhile question has been asked while recording the statement of the concerned parties. Al the statement recorded by the

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AO is stereotype. Even the confirmation filed by the parties who have given money to the assessee has not been examined by the AO with respect to source of money of depositors. In the background of above stated facts, it needs to be discussed the requirement of Sec.263 of the Act. The section 263 of the I.T. Act, 1961 speaks two things:

(i) Order should be prejudicial to the interest of the revenue (ii) Order should be erroneous one.

16. The Commissioner has not disputed the fact as recorded in the

impugned order that the above companies financial details have been

called for by the Assessing Officer but no examination of accounts of these

companies have been done when it is required by the Assessing Officer to

examine the transaction pertaining to these companies in view of the fact

that these companies do not have any operational income. It is further

recorded that the Assessing Officer has recorded the statement of some of

the persons but the statement so recorded by the Assessing Officer are

stereo type and no worthwhile questions have been asked. Thus the reason

for doubting the genuineness of the transaction of preferential shares

issued at premium as well as unsecured loans is that the Assessing Officer

has not properly conducted the enquiry. It is pertinent to mention that

when the Assessing Officer has called for all the relevant details including

financial details as well as parties for examination of genuineness of the

transaction then it is not a case of lack of enquiry or non application of

mind on the part of the Assessing Officer. The Commissioner was not

pleased with the manner in which the enquiry was conducted by the

Assessing Officer. The facts recorded by the Commissioner also

demonstrate the source of application money and loan given to the

assessee is against the share application money received by these

companies as well as certain loans generated by them. Therefore, the facts

as far as availability of source is concerned, the same is admitted by the

Commissioner but the reason for not accepting the transaction is non

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examination of the transaction of money received by the share applicant

companies. It is not the case of the Commissioner that these companies

were not having funds but since the Assessing Officer has not examined the

source of source, therefore, this issue was again restored back to the

Assessing Officer for fresh consideration. In the case of CIT Vs. Gabriel

India (supra), the Hon’ble High Court has recorded the reasons on which

the order of Assessing Officer was held as erroneous by the Commissioner

at page 112 and then held as under:-

“The Commissioner, however, did not accept the contention of the assessee. He observed that the order of the ITO did not contain discussion in regard to the allowability of the claim for deduction which indicated non-application of mind. According to the Commissioner, the claim of the assessee required examination as to whether the expenditure in question was a revenue or capital expenditure. In that view of the matter, he cancelled the order of the ITO in this regard and directed him to make a fresh assessment on the lines indicated by him.

******************* *******************

From a 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 ITO is 'erroneous insofar as it is prejudicial to the interests of the revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous insofar 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

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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- [SeeParashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC), at page 10].”

17. As it was held that the Commissioner cannot initiate proceedings

with a view to start fishing and roving enquiries in the matter or orders

which are already concluded. The order cannot be termed as erroneous

unless it is not in accordance with law. If the Assessing Officer is acting in

accordance with law and made certain assessment, the same cannot be said

erroneous by the Commissioner simply because according to him matter

should have been written more elaborately. Similar view has been taken by

the Hon’ble Delhi High Court in the case of Hari Iron Trading Vs. CIT

(supra) and observed at page 442 and 449 s under:-

“. In the light of the above factual background, we have not been able to appreciate as to how the Commissioner has recorded a finding that the assessment had been framed without application of mind or that difference in stock has not been properly examined. Unfortunately, his order is totally non-speaking and it does not convey as to what according to him should have been the proper examination by the Assessing Officer. The assessee had filed a detailed reply to his notice under section 263(1) of the Act which has been rejected without giving any reasons whatsoever. The Commissioner does not appear to have either perused the records or applied his mind to the detailed reply filed by the assessee. He has not discussed even a single contention raised therein. We have referred to the assessment recorded and find that the Assessing Officer had issued various notices on these points and had, satisfied himself that the addition of Rs. 10 lacs on account of discrepancy in stock was not called for as there was no discrepancy in stock. The Tribunal has done no better. A bare perusal of the aforesaid provision shows that the Commissioner can exercise powers under sub-section (1) of section 263 of the Act only after examining "the record of any proceedings under the Act". The expression ‘record’ has also been

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defined in clause (b) of theExplanation so as to include all records relating to any proceedings available at the time of examination by the Commissioner. Thus, it is not only the assessment order but the entire record which has to be examined before arriving at a conclusion as to whether the Assessing Officer had examined any issue or not. The assessee has no control over the way an assessment order is drafted. The assessee on its part had produced enough material on record to show that the matter had been discussed in detail by the Assessing Officer. The least that the Tribunal could have done was to refer to the assessment record to verify the contentions of the assessee. Instead of doing that, the Tribunal has merely been swayed by the fact that the Assessing Officer has not mentioned anything in the assessment order. During the course of assessment proceedings, the Assessing Officer examines numerous issues. Generally, the issues which are accepted do not find mention in the assessment order and only such points are taken note of on which the assessee’s explanations are rejected and additions/ disallowances are made. As already observed, we have examined the records of the case and find that the Assessing Officer had made full inquiries before accepting the claim of the Assessing Officer qua the amount of Rs. 10 lacs on account of discrepancy in stock. Not only this, he has even gone a step further and appended an office note with the assessment order to explain why the addition for allegation discrepancy in stock was not being made. In the absence of any suggestion by the Commissioner as to how the inquiry was not proper, we are unable to uphold the action taken by him under section 263 of the Act.”

18. In the case in hand, there is no dispute that the Assessing Officer

called for financial details of these companies and also examine the parties

in order to satisfy himself about the genuineness of the transaction.

Therefore, on the basis of the record available before him, the Assessing

Officer accepted the claim of the assessee. The Commissioner has not

found any fault with the details and records filed by the assessee in support

of the claim but has cited the reasons that the Assessing Officer has not

conducted the proper enquiry. When the entire record was available with

the Commissioner then he ought to have given a concluding finding that

the view taken by the Assessing Officer is contrary to the law as well as

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facts emerging from the records. However, the Commissioner has not given

any such finding and restored the matter to the record of the Assessing

Officer which is not permissible as per the provisions of section 263 when

the Assessing Officer has conducted the enquiry and allowed the claim of

the assessee on the basis of the examination of the record as well a the

parties in person. We further note that the assessee has also filed the bank

statements of these companies showing the transaction of payment of

share premium as well as loans to the assessee. The transactions were also

reflected in the return of income filed by these companies, therefore, in any

case if the department has any doubt about the genuineness of arranging

the funds by these share applicant companies, the enquiry and

investigation should have been conducted in those cases as held by the

Hon’ble Delhi High Court in the case of Lovely Exports (299 ITR 268)

which has been confirmed by the Hon'ble Supreme Court by dismissing the

SLP filed by the department.

19. One more reasons for setting aside the assessment order in respect of

the share premium is the justification of payment of huge premium in

comparison to the prospective earnings of the assessee. It is pertinent to

note that as per the provisions of section 68, the addition can be made if

the transaction of cash credit is not properly explained by the assessee by

establishing the identity of the creditor and the capacity of the creditor and

genuineness of the transactions to the satisfaction of the Assessing Officer.

Therefore, the justification of payment cannot be a sole ground for addition

u/s 68. Though the same may be the reason for enquiry and investigation

by the assessing authorities to find out the genuineness of the transactions.

There is not dispute about the identity of the parties as it was also not

disputed by the Commissioner, the source and capacity of these parties

were prima facie established by the assessee by producing their financial

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statements and bank accounts etc. The Commissioner has also found from

record the source of payment of share premium as the share application

money and loan generated by these companies, therefore, the availability

of fund was not disputed by the Commissioner but how that fund was

generated by these companies is the only reason for revising the

assessment order on this issue. The Commissioner himself has not given a

concluding finding about the genuineness of the transactions, therefore,

the enquiry of source of source is not warranted when the identity and

source as well as transaction through banking channel has already been

established by the assessee in view of the decision in the case of Lovely

Exports. The Commissioner has also not brought out any fact or material to

suggest or cast any doubt about the genuineness of the transaction,

accordingly, the setting aside of the assessment order and restoring back to

the file of Assessing Officer for fresh consideration is beyond the

jurisdiction u/s 263.

18. The judgment in the case of CIT Vs. Infosys Technologies (supra) as

relied upon by the Ld. DR will not help the case of the revenue as in the

said case the issue was allowability of deduction u/s DTAA with Canada

and Thailand which were not examined by the Assessing Officer while

passing the order. The Hon’ble High Court has observed that it is the duty

of the assessing authorities to do the computation in accordance with the

relevant Articles of DTAA and if it had failed in that, more so in extending a

tax relief to the assessee, the order definitely constitutes an order not

merely erroneous but also prejudicial to the interest of the Revenue.

Therefore, it was a glaring case of ignoring the mandatory provisions under

the DTAA on the part of the Assessing Officer. In the case of CIT Vs.

Hindustan Liver (supra), the Assessing Officer has completely missed

out the head office expenses to be apportioned to determine the quantum

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of profit derived from industrial undertaking. Therefore, in the said case

the point of apportionment of Head Quarter expenses was totally ignored

due to non application of mind on the part of the Assessing Officer. It was

a case of missing a crucial fact on the part of the Assessing Officer,

therefore, the said decision cannot be applied in the facts of the present

case. In the case of Frick India, Vs. DCIT (supra), the Tribunal has noted

the fact that the Assessing Officer allowed the deduction without

considering the earlier assessment orders, wherein, the said deduction was

disallowed. Thus it was clear case of overlooking a mandatory aspect of the

assessment and the fact that the deduction was earlier disallowed. The

Assessing Officer failed to consider the earlier assessment orders and,

therefore, the action of the Assessing Officer was absolutely not permissible

under law. The said case is entirely distinguishable on fact and not

applicable in the facts of the present case. In the case of Major Metals Ltd.

Vs. Union of India (supra), is a judgment of the Hon’ble High Court against

the finding of the settlement commission, which was based on the material

and evidence on record. Therefore, the said analogy cannot be applied in

the case of revision order passed u/s 263. It was purely a finding of fact and

hence have no applicability in the facts of the present case.

19. In view of the above, facts and circumstances of the case as well as

above discussion , we are of the view that the Commissioner has travelled

beyond the jurisdiction as prescribed u/s 263 and accordingly, the

impugned revision order is not sustainable and, therefore, the same is set

aside.

20. The assessee has also raised the ground no. 1 and 2 regarding validity

of the revision order passed in the name of a person who is not in existence

but amalgamated with the assessee. Since we have already set aside the

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revision order on the other grounds, therefore, this ground of assessee’s

appeal becomes academic in nature. Further we note that the

Commissioner has passed the impugned order in the name of Elder

Infotech Pvt. Ltd., merged with Elder IT Solutions Pvt., Ltd., accordingly,

we do not find any error or illegality in writing the name of the assessee

along with erstwhile company being merged with the assessee. Hence, this

ground of the assessee’s appeal is dismissed

21. In the result appeal of the assessee is allowed.

Order pronounced in the open court on 12th Day of November

2014

Sd/- Sd/-

(B.R.Baskaran) (Vijay Pal Rao)

(Accountant Member/ys[kk lnL;ys[kk lnL;ys[kk lnL;ys[kk lnL;) (Judicial Member/U;kf;d lnL;U;kf;d lnL;U;kf;d lnL;U;kf;d lnL;)

Mumbai dated 12-12-2014 SKS Sr. P.S,

Copy to:

1. The Appellant 2. The Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. The DR, “E“ Bench, ITAT, Mumbai

By Order

Assistant Registrar Income Tax Appellate Tribunal,

Mumbai Benches, MUMBAI

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