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Insta Exhibitions Pvt. Ltd., C/o. Chachan & Lath, 303, Garg Plaza, Chowki No. 2, Gulabi Bagh, New Delhi Vs. DCIT Circle -11(1), New Delhi
May, 19th 2014
                      INCOME TAX APPELLATE TRIBUNAL
                         DELHI BENCH "C": NEW DELHI
                 BEFORE SHRI B.C.MEENA, ACCOUNTANT MEMBER
                                     AND
                     SHRI A. T. VARKEY, JUDICIAL MEMBER

                                     ITA No. 3055/Del/2013
                                   (Assessment Year: 2008-09)

                Insta Exhibitions Pvt. Ltd.,         DCIT
                C/o. Chachan & Lath,             Vs. Circle -11(1),
                303, Garg Plaza, Chowki No. 2,       New Delhi
                Gulabi Bagh, New Delhi
                PAN: AABCI1085P
                (Appellant)                           (Respondent)

                              Appellant by : Kapil Goel, Adv
                             Respondent by : R. S. Gill, CIT DR

                                        ORDER
PER A. T. VARKEY, JUDICIAL MEMBER
      This is an appeal preferred by the assessee against the order of the ld Commissioner
of Income Tax, IV, New Delhi dated 14.03.2013 for the Assessment Year 2008-09.

2.     The grounds of appeal are as follows:-

      "1.    That on the facts and in the circumstances of the case and in law, learned
             CIT erred in the assuming jurisdiction u/s 263 of the Act without establishing
             that underlying assessment order under revision is unsustainable as held to be
             must for revision u/s 263 in case of DLF Limited.
      2.     That on the facts and in the circumstances of the case and in law, learned
             CIT erred in assuming jurisdiction u/s 263 of the Act without establishing that
             present case falls in category of total lack of enquiry to justify invocation of
             section 263 as held to be must be Delhi High Court in Sun Beam Case.
      3.     That on the facts and in the circumstances of the case and in law, learned
             CIT erred in assuming jurisdiction u/s 236 of the Act as to how the underlying
             order is erroneous and prejudicial to interests of revenue on only left of
             charging of interest and finally leaving the matter open which vitiates the
             jurisdiction:-
             "Thus, in cases of wrong opinion or finding on the merits the Commissioner of
             Income-tax 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 Commissioner
             of Income-tax cannot remand the matter to the Assessing Officer to decide
             whether the findings recorded are erroneous.
      4.     That on the facts and in the circumstances of the case and in law, learned
             CIT erred in treating the assessee's explanation on non charging of interest
             (on adopted loans originally advanced by Petersen & family to companies
                                          Page No. 2
               acquired by assessee) as non satisfactory and wrongly directing the ld
               Assessing Officer to re-examine the issue."
3.      Apropos assuming jurisdiction u/s 263 of the Income Tax Act, 1961(herein after ,,the
Act).




4.      Brief facts of the case is as follows. The ld CIT while examining the assessment
records of the assessee for the relevant assessment year under consideration was of the
opinion that certain aspects were not considered or verified by the Assessing Officer while
completing the assessment of the assessee. According to the ld CIT the Assessing Officer
has not enquired or investigated about certain transactions as stated below which is
reproduced for convenience:

        "ii.   It is seen from Schedule-J of the Balance sheet that during the year under
        consideration the assessee has given a loan of Rs. 2,40,71,000/- to its overseas
        subsidiary company on which no interest has been charged which is evident from
        Schedule-O of the profit and loss account. However, interest has been paid on
        borrowed funds which is evident from Schedule-V of the Profit and Loss account. The
        matter is to be examined whether the assessee has diverted its interest bearing funds
        towards interest free loan and advances."
5.      Thereafter, the ld CIT(A) pointed out that the aforesaid lack of enquiry/ investigations
on the part of the Assessing Officer resulted in under- assessment of the income, and has
held that the order of the Assessing Officer ,,s order both as erroneous as well as prejudicial
to the interest of the revenue. Thereafter, after hearing the assessee , an order u/s 263 was
passed wherein, the ld CIT held that he was not satisfied with the explanation of the assesse
in respect of advancing loan interest free to overseas subsidiary company and was of the
opinion that since the assessee company has utilized its borrowed fund to advance the
loan to subsidiary company and remitting interest on the borrowed funds, proportionate
interest is liable to be disallowed and was pleased to set aside this issue alone and directed
the AO to reframe this issue and to conduct a detailed enquiry and examine and to pass
order. Aggrieved by the said order of ld CIT, the assessee is before us.

6.      The ld AR stated that during the relevant assessment year the assessee company
has acquired 100% shareholding in Expo Display Holding AG and Expo Product Trading AG,
companies based in Switzerland from Mr. Petersen & family, Swiss nationals at a total
purchase price of 37 lakhs CHF. The purchase price consisted to 31 lakhs CHF against equity
capital and 6 lakhs CHF against purchase/ replacement of interest free loans extended by
Petersen & family to the above said companies. The acquiring company was under an
obligation to replace the interest free loans extended by Petersens on the existing terms
and conditions and it was part and parcel of acquisition cost, and hence no interest has
been charged on that.
                                           Page No. 3
Name of Borrower           Amount o/s at the time Amount (in CHF)            Amount (in Rs.)
                           of acquisition
Expo Display Holding       CHF 496600.00          CHF 196600.00              78,87,415.00
Expo Product Trading       CHF 1003400.00         CHF 403400.00              1,61,84,045.00
Total                      CHF 1500000.00         CHF 600000.00              2,40,71,460.00
According to the ld AR from a perusal of the purchase agreement it will be clear that the
loan granted to subsidiary company was part & parcel of acquisition agreement and given
on the same terms and condition as extended by previous promoter of the company to
the acquired company. Therefore in the said circumstances question of chargeability of
interest does not arise.

7.     The ld AR contended that CIT erred in assuming jurisdiction u/s 263 of the Act without
establishing that original assessment order which was under revision was erroneous and
unsustainable in the eyes of law as held in the case of DLF Limited by the jurisdictional High
Court reported in CIT Vs. DLF Ltd. 350 ITR 555 (Del).

8.     According to the ld AR the ld CIT erred in assuming jurisdiction u/s 263 of the Act
without establishing that the present case falls in category wherein the assessment order
was a product of total lack of enquiry on the part of Assessing Officer, as held by
jurisdictional High Court in Income Tax v. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del).
According to the ld AR the ld CIT could not have assumed jurisdiction u/s 263 of the Act,
without a clear finding that the assessment order was erroneous and prejudicial to the
interest of revenue and in the present case finally the CIT ordered only setting aside the
assessment order for a limited purpose, and the issue in respect of interest on loan to
subsidiary company was left open to the Assessing Officer for enquiry and was directed to
pass fresh order on this said limited issue, which according to the ld AR is not permissible.
According to the ld AR, therefore this order is bad in law as was held by the jurisdictional
High Court in ITO Vs. DG Housing Projects Ltd. 343 ITR 329. The ld AR stated that CIT erred in
ignoring the assessees explanation on non-charging of interest (on adoption of the loans
originally advanced by Petersen & family to the company acquired by assessee) as non-
satisfactory and wrongly directed the ld Assessing Officer to re-examine the issue, which
according to the ld AR was not permissible under the law and therefore the assumption of
jurisdiction u/s 263 was bad in law and the direction to ld CIT is vitiated and therefore must
be set-aside.

9.     On the other hand the ld DR contended that the assessee company utilized its
borrowed fund for advancing loan to the subsidiary company and paying interest on the
borrowed funds, therefore proportionate interest was liable to be disallowed. According to
the ld DR, there is no whisper of the said issue in the assessment order and therefore this was
a case where Assessing Officer failed to conduct any enquiry, which he was incumbent to
do. Therefore the ld CIT was fully justified to assume jurisdiction u/s 263 after recording that
                                         Page No. 4
the order of the Assessing Officer was erroneous and prejudicial to the interest of revenue.
Therefore ld DR does not want us to disturb the order of the ld CIT.

10.    We have heard both the parties and have perused the records and have gone
through the case laws cited by both the sides.
11.    On a perusal of the records, we find that the ld CIT while invoking revisional
jurisdiction u/s 63 of the Act, had recorded the following issues which he felt was not
investigated nor any inquiry was conducted. It would be apposite to reproduce the same.

       "On examination of the income tax assessment record of M/s Insta Exhibition Pvt.
       Ltd. for Assessment Year 2008-09, it has been revealed that during the assessment
       proceedings, the following aspects were considered and verified by the Assessing
       Officer while completing assessment. Further, no inquiry/ investigation seems to have
       been carried out in respect of the undermoted points:-
       i)     The assessee has incurred expenses of Rs. 52,14,898/- towards acquisition of
              Expo Display Holding AG, Switzerland and Expo Products Trading AG,
              Switzerland. The Assessing Officer has amortized the expenses over a period
              of 5 years and allowed 1/5 of such expenses during the year under
              consideration. Since the assessee has acquired companies and their market
              share and trade marks & patents will provide enduring benefit to the assessee
              company, the expenses in acquiring such companies should have been
              capitalized and the Assessing Officer had failed to do so. Instead the
              expenses have been amortized over a period of 5 years which is erroneous
              and prejudicial to the interest of revenue.
       ii)    It is seen from Schedule-J of the Balance sheet that during the year under
              consideration the assessee has given a loan of Rs. 2,40,71,000/- to its overseas
              subsidiary company on which no interest has been charged which is evident
              from Schedule-O of the profit and loss account. However, interest has been
              paid on borrowed funds which is evident from Schedule-V of the Profit and
              Loss account. The matter is to be examined whether the assessee has
              diverted its interest bearing funds towards interest free loan and advances.
       iii)   It is further seen that during the year under consideration the assessee has
              deduction u/s 80IC of the IT Act to the extent of Rs. 1,45,02,276/- and as per
              10CCB Certificate this is the first year of the commencement of the business
              and claim of deduction. On perusal of the case records and details filed by
              the assessee during the course of assessment proceedings, it is found that the
              Assessing Officer has not examined the allowability of the claim by
              conducting enquiries to ascertain as to whether the assessee has fulfilled all
              the conditions laid down in the aforesaid section.
              It is settled position of law that the aforesaid lack of inquiry/ investigation
       apart from the under assessment of income pointed out in above paragraph has
       made the order of the Assessing Officer both erroneous as well as prejudicial to the
       interest of revenue.
12.   We find that after due inquiry, the ld CIT has concluded about the above issues as
under:-
      "The assessee submission is duly considered. With regard to the first issue namely the
      treatment of expenses incurred under the head acquisition expenses for acquiring
      the two Switzerland companies namely Expo Display Holding AG, Switzerland and
      Expo Products Trading AG Switzerland, it is found that the issue is squarely covered
      by the decision of the ld CIT(A)-XV, New Delhi in order dated 24.10.2011 in Appeal
                                          Page No. 5
       No. 377/10/CIT(A)-XV for the Assessment Year 2008-09 in the case of the assessee.
       Hence, the issue has merged with the order of the ld CIT(A) as per section 263(1)
       Explanation (d) and as such I refrain from deciding this issue.
       As regards, the third issue namely the assessee's claim of deduction u/s 80IC, I find
       that the Assessing Officer for the Assessment Year 2009-10 in the assessment order
       dated 29.12.2011 in assessee's own case has allowed the deduction u/s 80IC after a
       detailed discussion. It is stated that after commission was issued the ADIT(Inv.),
       Dehradun has conducted a detailed enquiry about the business activity of the
       assessee located at SIDCUL, Haridwar and submitted a report on the basis of which
       the Assessing Officer has allowed the claim of deduction u/s 80IC. In view of the
       same I am of the opinion that the claim of the assessee for deduction u/s 80IC has
       been rightly allowed and no interference is called for."
13.    So we find that only one issue regarding advancing of loan by the assessee
company to its overseas subsidiary company on which no interest was charged was
decided as follows:-
       "As regards to the issue of advancing loan to its overseas subsidiary company on
       which on interest is charged which is evident from the Schedule-O of the P&L A/c. I
       find that the explanation offered by the assessee is not satisfactory. Since the
       assessee company has utilized its borrowed fund advancing loan to the subsidiary
       company and paying interest on the borrowed fund, proportionate interest is liable
       to be disallowed. In view of the same the assessment is set aside on this limited issue
       to be reframed by the Assessing Officer after detailed enquiry and examination and
       after giving opportunity of being heard to the assessee."

14.    Revisional power of the ld CIT has been provided because, against the order of the
Assessing Officer, the revenue will not able to file appeal before the ld CIT(A).
Against an order of assessment passed by Assessing Officer, the revenue cannot file an
appeal that is why the revisional powers are given to the CIT u/s 263. As per the judicial
pronouncements, it is clear that the ld CIT before exercising the revisional jurisdiction in a
case, has to record a finding that the Assessing Officers order un der revision is an
erroneous order and prejudicial to the interest of revenue. It has been also held that non-
investigation/ inquiry on an issue relevant in the case, if not investigated by the Assessing
Officer, then that itself will amount to an erroneous order and the CIT can exercise his
revisional jurisdiction. However, if an enquiry was undertaken by the Assessing Officer, and
after considering the explanation or materials adduced by the assessee, if the Assessing
Officer, after application of mind finds the explanation plausible and is correct and valid in
the eyes of law decides an issue, then the ld CIT after evaluating the materials on records
which were before the Assessing Officer and any other additional materials collected
during proceeding while exercising revisional jurisdiction has to record reasons and
demonstrate that the view taken by the Assessing Officer was not plausible, being legally
unsustainable and incorrect. So in a case where there is absence of inquiry or failure on the
part of the Assessing Officer to investigate an issue/ claim arising during assessment is one
occasion wherein, the CIT can exercise his jurisdiction u/s 263. The other occasion is that
                                         Page No. 6
after an enquiry the Assessing Officer comes to a conclusion to allow or disallow a claim
and in such case, if the CIT feels that he has to exercise revisional power u/s 263, then from
the assessment records and any other information before him, he has to first record the
reason prima facie why he is of the opinion that the assessment order is erroneous and
prejudicial to the interest of the Revenue. This is the first step necessary to initiate the
revisional jurisdiction, thereafter, if it is a case, wherein, no inquiry or investigation is
conducted he can cancel the assessment order and direct the Assessing Officer to
conduct enquiry on the issue or he can himself inquire and pass even orders enhancing the
assessment, of course after notice to the assessee. However, when the Assessing Officer has
conducted an inquiry and has sought explanation and documents from the assessee and
has applied his mind, and allowed the claim of the assessee, then the ld CIT while
exercising the revisional jurisdiction may differ from the view of the Assessing Officer,
provided he is able to demonstrate that the views taken by the Assessing Officer is
incorrect, invalid and not sustainable in the eyes of law. For that the CIT has to record
reason and finding in this respect. So, when a CIT after a perusal of the assessment records
finds that there is no investigation or inquiry conducted by the Assessing Officer on an issue
relevant to a case, the CIT can straight away record this fact of non-inquiry and hold that
the order of the Assessing Officer suffers from the said lack of inquiry and record a finding
that the order of the Assessing Officer is erroneous and prejudicial to the interest of revenue
and invoke revisional jurisdiction u/s 263 of the Act. However when he peruse the
assessment records he finds that an inquiry in the form of questionnaire was sought by the
Assessing Officer and explanation and supporting documents were furnished by the
assessee, then the CIT has to examine whether the view taken by the Assessing Officer
after examination of explanation and documents are a plausible, correct view, legally
tenable as per the Act. If the answer is in the affirmative, then he cannot pass an order u/s
263 even if he does not agree. But if the answer is in the negative, then the CIT has to
demonstrate that the view of the Assessing Officer in the facts and circumstances of the
case, is wrong, incorrect, invalid and legally unsustainable in the eyes of law, then after
recording the said reasons and after recording the finding that the Assessing Officers order
is erroneous and prejudicial to the interest of the Revenue, can proceed and pass orders
u/s 263.
15.    Coming to the case on hand we see that the ld CIT has taken note of 3 issues of
which 1st and 3rd issue he records his satisfaction and agrees with the Assessing Officer.
However in respect of the 2nd issue the ld CIT records his initial reasoning to initiate the
revisional jurisdiction that the assessment order on the 2nd issue was erroneous and
prejudicial to the interest of Revenue and he assumed the jurisdiction, which is as follows:-
                                          Page No. 7
        "ii)   It is seen from Schedule-J of the Balance sheet that during the year under
        consideration the assessee has given a loan of Rs. 2,40,71,000/- to its overseas
        subsidiary company on which no interest has been charged which is evident from
        Schedule-O of the profit and loss account. However, interest has been paid on
        borrowed funds which is evident from Schedule-V of the Profit and Loss account. The
        matter is to be examined whether the assessee has diverted its interest bearing funds
        towards interest free loan and advances."




16.     Regarding the said issue the assessee replies as follows:-
        2.    Clarification regarding loan given to overseas subsidiary without charging
        interest thereof:-
               In this regard we submit that the said issue was raised by ld Assessing Officer
        and we have filed our reply as follows:
               "During the year, the assessee company has acquired 100% shareholding in
        Expo display Holding AG and Expo Product AG companies based in Switzerland
        from Mr. Petersen & family, Swiss national at a total purchase price of 37 lakhs CHF.
        The purchase price consisted of 31 lakhs CHF against equity capital and 6 lakhs CHF
        against purchase/ replacement of interest free loan extended by pertersen & family
        to the above said companies. The acquiring company was under an obligation to
        replace the interest free loans extended by Ptersens on the existing terms &
        conditions and it was part and parcel of acquisition cost, and hence no interest has
        been charged on that.
        Name of Borrower        Amount o/s at the      Amount (in CHF)       Amount (in Rs.)
                                time of acquisition
        Expo Display Holding    CHF 496600.00          CHF 196600.00         78,87,415.00
        Expo Product Trading    CHF 1003400.00         CHF 403400.00         1,61,84,045.00
        Total                   CHF 1500000.00         CHF 600000.00         2,40,71,460.00

        The share purchase agreement is enclosed herewith as per annexure-1
        From the share purchase agreement it is clear that loan granted to subsidiary
        company was part and parcel of acquisition agreement and given on the same
        terms and condition as extended by previous promoter of the company. Hence
        question of chargeability of interest does not arise.

17.     The reason given by the ld CIT for finally setting aside the assessment on limited issue
is as follows:-
        "As regards to the issue of advancing loan to its overseas subsidiary company on
        which on interest is charged which is evident from the Schedule-O of the P&L A/c. I
        find that the explanation offered by the assessee is not satisfactory. Since the
        assessee company has utilized its borrowed fund advancing loan to the subsidiary
        company and paying interest on the borrowed fund, proportionate interest is liable
        to be disallowed. In view of the same the assessment is set aside on this limited issue
        to be reframed by the Assessing Officer after detailed enquiry and examination and
        after giving opportunity of being heard to the assessee."

18.     So from a perusal of the reasons given by the ld CIT, we find that, after enquiry
conducted by the ld CIT, he has recorded a bald statement that he was not satisfied with
the explanation offered by the assessee. During the revisional proceedings the assessee
has brought to the notice of the ld CIT, that the said issue was inquired into by the Assessing
Officer and it has filed the said reply before the Assessing Officer during the course of
                                          Page No. 8
assessment proceedings, so the aforesaid reply submitted to the AO must have been part
of the assessment records. Therefore we can safely assume that the Assessing Officer had
conducted enquiry into this issue. So it is not a case wherein, no enquiry whatsoever was
carried out by the Assessing Officer. Now the question is whether the revisional jurisdiction
could have been initiated by the Assessing Officer or not. Here we have to take note of all
the issues that were before the ld CIT. Admittedly, there were three issues, which the ld CIT
thought to be erroneously decided by the Assessing Officer ; however we find that issue 1
and in respect to issue 2, (the issue before us) inquiries were conducted by the Assessing
Officer, however, we find that in respect of issue no. 3 no inquiry was conducted i.e., in
respect to the claims of the assessee in respect of claim of deduction u/s 80IC as per
10CCB Certificate. Regarding the said 3rd issue, the ld CIT has recorded a finding that
Assessing Officer has not examined the allowability of the claim by conducting enquiries to
ascertain as to whether the assessee has fulfilled all the conditions laid down in the
aforesaid section. We find that in the original assessment order there is no mention of this
claim at all. However, we find that the ld CIT has recorded his satisfaction about this claim
after taking note of the fact that in the subsequent Assessment Year 2009-10, Assessing
Officer has conducted detailed investigation and was in possession of the detailed enquiry
by ADIT (Inv.) Dehradun. We take note of the fact that during revisional proceeding the AR
of the assessee while responding to this issue has stated that the Assessing Officer has orally
discussed this issue with him during assessment proceeding which obviously means there
was no records to substantiate that the Assessing Officer had orally enquired about the
said claim and we find that the AR did not produce or point out from the copy of the
order-sheet of the Assessing Officer to substantiate this fact which means that ld CIT was
justified in assuming that there was no investigation/ enquiry into this aspect and led the ld
CIT to believe that there was no inquiry into this aspect by the Assessing Officer to find out
whether the assessee had fulfilled all the conditions necessary to qualify deduction u/s 80IB
. Therefore it is a case wherein, the ld CIT, finding that on the 3rd issue no inquiry was
conducted was justified in invoking revisional jurisdiction u/s 263 and therefore is valid.
19.    However we find that in respect to the sole issue which was sent back to the
Assessing Officer to be reframed, we find that the Assessing Officer though had not
mentioned the same in the assessment order still have called upon the assessee to furnish
documents and explain the said transaction. We find that the assessee had furnished its
explanation and the share purchase agreement was also duly filed by the assessee to
support its claim that the purchase price consisted of Rs.31 lakhs CHF against equity capital
and 6 lakhs CHF against purchase/ replacement of interest-free loan extended by Petersen
& Family to the above said companies; And explained that since the acquiring company
(Assessee Company) was under an obligation to replace the interest free loan extended
                                              Page No. 9
by Petersen (vendor) on the agreed terms and conditions and it was also part of the
acquisition cost and therefore no interest has been charged with. Though the Assessing
Officer has not mentioned anything about this issue, however, we find that the aforesaid
explanation was before the Assessing Officer, who in his own wisdom after inquiry must
have applied his mind, and must have been satisfied with the explanation of the assessee.
However we find that the ld CIT has not mentioned any reason in his revisional order to
demonstrate that the implied acceptance of the claim by the Assessing Officer after
investigation/ inquiry conducted by him was incorrect, wrong, invalid or unsustainable. The
ld CIT after examining the agreements and the explanations furnished before him on the
2nd issue, ought to have recorded reason to demonstrate that the view taken by the
Assessing Officer (in this case though implied) is incorrect, and unsustainable in law and
consequently ought to have recorded a finding that the order of the Assessing Officer was
erroneous and prejudicial to the interest of Revenue. Here we find that ld CIT did not record
any reason to hold that the implied view of the Assessing Officer is unsustainable in law and
therefore erroneous and prejudicial to the interest of the Revenue, which exercise has not
been found to have taken place in this case. Therefore the impugned order of the ld CIT
without recording the reason to demonstrate that the view of the Assessing Officer after
enquiry as incorrect, unsustainable in law and consequently ought to have recorded a
finding that the implied view of the Assessing Officer was erroneous and prejudicial to the
interest of Revenue, which is absent in the impugned order and therefore vitiates the
revisional order impugned before us and therefore we set aside the order of the ld CIT and
allow the appeal preferred by the assessee.
20.        In the result the appeal is allowed.
           Order pronounced in the open court on 15.05.2014.
           -Sd/-                                                   -Sd/-
         (B.C.MEENA)                                            (A. T. VARKEY)
       ACCOUNTANT MEMBER                                     JUDICIAL MEMBER
 Dated :15 /05/2014
A K Keot

Copy forwarded to
      1.   Applicant
      2.   Respondent
      3.   CIT
      4.   CIT (A)
      5.   DR:ITAT
                                                                   ASSISTANT REGISTRAR
                                                                    ITAT, New Delhi

 
 
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