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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