AI Structured Summary
Not yet generated for this judgment
Judgment
Hasnain Massodi, J.â€"Through the income-tax appeals on hand stand admitted to hearing on April 30, 2002, yet a Division Bench of this court,
while admitted the appeals, has not opined whether any substantial question of law was raised, neither framed substantial question of law for
determination as required under section 260A of the Income-tax Act, 1961. Since the appeals are awaiting disposal for last 12 years, we deem it
proper to assume that the appeals have been admitted on substantial questions of law catalogued in paragraph 2 of memoranda of appeals. We,
accordingly, proceed to deal with the appeals on hand. The respondents in both the income-tax appeals on hand are private limited companies
engaged in the business of purchase and sale of shares, debentures and other securities.
M/s. Green Field Commercial P. Ltd. (respondent in I.T.A. No. 2 of 2002) filed the return on November 28, 1995, disclosing loss of Rs.
1,12,86,432. The return was processed under section 143(1)(a) of the Income-tax Act, 1961. On June 26, 1996, the Assessing Officer in
exercise of the powers under section 143(2)/143(1) addressed a questionnaire to the respondent. The Assessing Officer on March 12, 1998, after
receiving response to the questionnaire and on examination of accounts accepted the total loss as declared/provided under section 143(1)(a) at Rs.
1,12,68,432.
M/s. Rangers Commercial P. Ltd. (respondent in I.T.A. No. 1 of 2002), engaged in the business of purchase and sale of shares, debentures
and other securities. The company filed the return on November 28, 1995, disclosing a loss of Rs. 18,07,900. The return was processed under
section 143(1)(a) of the Income-tax Act, 1961. On February 2, 1996, the Assessing Officer in exercise of the powers under section
143(2)/143(1) addressed a questionnaire to the respondent. The Assessing Officer on March 12, 1998, after receiving response to the
questionnaire and on examination of accounts accepted a total loss as declared/provided under section 143(1)(a) at Rs. 8,07,900.
The Commissioner of Income-tax, Amritsar (for short ""the CIT"", Amritsar""), in exercise of the powers under section 263 of the Income-tax Act,
on March 21, 2000 set aside the assessment orders dated March 12, 1998, and directed the Assessing Officer to re-examine the matter and deal
with the issues raised in the Commissioner of Income-tax, Amritsar's order dated March 21, 2000, after giving the assessees reasonable
opportunity to bring all relevant facts and evidence to the notice of the Assessing Officer.
The issue raised by the Commissioner of Income-tax, Amritsar, while exercising the revisional powers under section 264 of the Act was
whether ""deferred revenue expenditure"" should be allowed fully in one year or be deferred according to entries made by the assessee in this regard
and whether the loss claimed by the assessee was a genuine loss and whether it was revenue or capital loss.
The assessees-respondents herein questioned the Commissioner of Income-tax, Amritsar's order dated March 21, 2000, in two separate
appeals, being I.T.A. No. 264 (ASR) 2000 and I.T.A. No. 277 (ASR) 2000. The Income-tax Appellate Tribunal, Amritsar Bench (for short ""the
Tribunal""), opining that identical issues were involved in two appeals, heard appeals together and allowed both appeals, vide its order dated
October 24, 2001. The Tribunal quashed order dated March 21, 2000, rendered by the Commissioner of Income-tax, Amritsar, whereby the
assessment orders were set aside and the Assessing Officer asked to examine the matter afresh.
The Tribunal's order dated October 24, 2001, is questioned in income-tax appeals on hand on the ground set out in the memoranda of appeals.
The learned Tribunal has taken a view that the Commissioner of Income-tax, Amritsar, while exercising the revisional power under section 263
of the Act failed to deal with the case set up by the respondents in response to the notice issued on January 24, 2000. The Tribunal held that the
Commissioner of Income-tax, Amritsar, erroneously held the Assessing Officer not to have considered the matter in depth and examined all
aspects of controversy involved. In the opinion of the Tribunal, the record available before the Commissioner of Income-tax, Amritsar, would not
justify the observation that the Assessing Officer had acted in slipshod manner, rendered a ""thumb nail"" order and that too without adequate
hearing of the matter, the Commissioner of Income-tax, Amritsar, was held to have failed to record his satisfaction that the order in respect
whereof revisional powers under section 263 of the Act were being exercised, was ""erroneous""--a pre-requisite for exercise of the said
jurisdiction. Reliance on M/s. Madras Industrial Investment Corporation Ltd. Vs. The Commissioner of Income Tax, Tamil Nadu-I, Madras, was
held to be misplaced inasmuch as the facts of the case before the Commissioner of Income-tax, Amritsar, were markedly different from the facts of
the reported case.
We have gone through the Income-tax Appellate Tribunal, Amritsar, order dated October 24, 2001, under challenge as also the record
available on the file. We have heard learned counsel for the parties.
The controversy relates to loss suffered on account of purchase and sale of non-convertible portion of debentures by the respondents
companies. The Assessing Officer did not accept the return in a mechanical manner but took it up for close scrutiny. Notices were issued under
section 143(2)/142(1) of the Act along with necessary questionnaire to the respondents companies. The companies appeared before the Assessing
Officer through their representatives and participated in the proceedings, stretching over a period of few years. The respondent companies did not
only answer the questionnaire but as evident from the assessment order, produced the books of account and other records before the Assessing
Officer, to reinforce their stand. It was not, therefore, right to conclude that the Assessing Officer ""did not give many hearings and thumb nail order
was passed"" or that the record of the assessee was not examined at the time of assessment. The Tribunal, in the circumstances, was right in
concluding that reasons/details in the Commissioner of Income-tax, Amritsar, order dated July 21, 2000, would not justify the conclusions drawn.
Section 263 of the Act confers the revisional jurisdiction on the Commissioner of Income-tax. The jurisdiction is to be exercised where the
Commissioner of Income-tax is satisfied that any order passed by the Assessing Officer is (i) erroneous, and (ii) prejudicial to interests of the
Revenue. It is, therefore, incumbent upon the Commissioner to record his satisfaction that the order of the Assessing Officer is ""erroneous"". To
arrive at such conclusion, the Commissioner obviously, has to spell out reasons that prompt and persuade him to hold do. In the case in hand, the
Commissioner of Income-tax, Amritsar, did not give any reason at all to conclude that order of the Assessing Officer was ""erroneous"". It merely
stated that the order is ""erroneous one"" without elucidating the matter. The only reason that weighed with the Commissioner of Income-tax,
Amritsar, to find fault with the order of the Assessing Officer, appears to be his perception that the Assessing Officer did not give ""many hearing
and a ""thumb nail order"" was passed by him. This observation would not make an order ""erroneous"". It does not require any emphasis that the
authority exercising the supervisory or the revisional jurisdiction, is to give reasons in support of conclusions drawn. The same is true even about
any executive order that his civil consequences for a person affected by such order. The reasons are said to be live links between the mind of
authority, making the order and the conclusions drawn on the strength of such reasons, the Commissioner of Income-tax, Amritsar, having failed to
record the satisfaction that the order in respect whereof revisional powers were exercised was ""erroneous"", lacked jurisdiction to exercise such
power. This by itself was sufficient for the Tribunal to interfere and set aside the order of the Commissioner of Income-tax, Amritsar, assailed
before it.
The Commissioner of Income-tax, Amritsar, in its notice dated January 24, 2000, sought response from respondent companies on the issues
highlighted in the notice, namely, that the loss claimed to have suffered on account of purchase and sale of non-convertible debentures was in fact
deferred expenditure"" disentitling the respondent company from any allowance on such loss in one year and that whether the loss claimed was
revenue or capital loss. The Commissioner of Income-tax, Amritsar, referred to Madras Industrial Investment Corporation Ltd.'s case (supra) in
support of his opinion as regards deferred loss. The respondent companies submitted a detailed reply to the notice issued, controverting all the
factual aspects of the case reflected in the notice and emphasis that Madras Industrial Investment Corporation Ltd.'s case (supra) was
distinguishable on facts and not applicable to the controversy raised in the notice. The Commissioner of Income-tax, Amritsar, surprisingly in his
order dated March 21, 2000, did not deal with detailed reply supported by reasons, submitted by the respondent companies. Least that was
expected of the Commissioner of Income-tax, Amritsar, was to make reasonable and fair discussion of the reply and material referred to in such
reply and given reasons for recording disagreement with the stand taken in the reply. Otherwise, granting an opportunity to the assessee was
required under section 263 of the Act would be reduced to an idle formality. This is what has been exactly done by the Commissioner of Income-
tax, Amritsar. The mode and manner in which the matter has been dealt with is in gross violation of the mandate of section 263 of the Act.
There is no scope with any disagreement with the Tribunal that facts of Madras Industrial Investment Corporation Ltd.'s case (supra) were
distinguishable from the facts before the Commissioner of Income-tax, Amritsar. In the aforementioned case, the company had issued debentures
at a discount, on which higher rate was payable on maturity. The apex court against the said backdrop held that the amount of discount was not a
loss but on expenditure incurred by the company in order to generate funds for its business activities and that as the discount was payable in the
total period of debentures issued, it was to be allowed on pro rate application of period of debentures. In the case before the Commissioner of
Income-tax, Amritsar, loss had occurred on account of sale of non-convertible debentures.
The Tribunal, while dealing with the appeals against the Commissioner of Income-tax, Amritsar, orders, has made a detailed and
comprehensive discussion on all aspects of the matter and reinforced the conclusions drawn with the details reference to the case law on the
subject. The reasons detailed by the Tribunal while allowing appeals cannot be faulted on any of the grounds urged in the appeals. For the reasons
discussed, we answer all the substantial questions of law against the appellant and in favour of respondents, we, accordingly, hold that:
(i) The Tribunal (""the ITAT, Amritsar"") was right in holding that there were no compelling reasons for interference for the Commissioner of
Income-tax, Amritsar, under section 263 of the Income-tax Act;
(ii) The Tribunal (""the ITAT"") was right in holding that the law laid down in M/s. Madras Industrial Investment Corporation Ltd. Vs. The
Commissioner of Income Tax, Tamil Nadu-I, Madras, , as not applicable to the facts of the case;
(iii) The Tribunal (""the ITAT"") did not err while interfering with the order passed by the Commissioner of Income-tax, Amritsar;
(iv) The Tribunal (""the ITAT"") was right in holding that the Commissioner of Income-tax, Amritsar, has not demonstrated as to now the Assessing
Officer has not examined the necessary documents and explanations;
(v) The Tribunal (""the ITAT"") was right in holding that the Commissioner of Income-tax, Amritsar, has left the enquiries made by the Assessing
Officer without reaching a firm conclusion.
Dismissed.