Case: Zuari Management Services Limited, Through Its Authorized Representative Shri Anandu Vithal Nayak Vs. Commissioner of Income Tax

fresh order after verifying the claim of the assessee company in respect of carry forward of the loss of Rs. 36109708/-. 6. The assessee company challenged the order of CIT by preferring appeal to the ITAT contending that invoking of jurisdiction under section 263 of the Income Tax Act by the CIT was erroneous because the assessment order was neither erroneous nor prejudicial to the interest of the revenue and that it had been passed after making detailed enquiries during the course of assessment proceedings. It was also contended that the CIT erred in ignoring the fact that the business of the appellant was set up as well as commenced during AY 2008-09 when it had borrowed money from holding company and lent it to subsidiary company, which represents one of the objects of the appellant. The ITAT dismissed the appeal by its detailed order dated 16th February, 2015. Therefore, the present appeal which is in the nature of this second appeal. 7. Before this Court, in addition to the grounds of challenge before ITAT, the assessee company, has set up two more grounds. It alleges that the order of the CIT suffers from non-application of independent mind and that the order passed by him is a non-speaking order. We find no merit in both the contentions. Though the record shows that there was a reference made by the CIT to the Assessing Officer pointing out the error in the Assessment Order, merely for that reason it cannot be said that there was no application of independent mind by the CIT. This is because under Section 263 of the IT Act, the CIT can suo motu exercise his jurisdiction thereunder. As regards the objection of the order of CIT being a non-speaking order, we find that the order though not as elaborate as the Order of the ITAT, does not suffer from lack of reasons. The order clearly makes out that the assessment order is erroneous and has adverse effect on the interest of the Revenue. 8. Mr. Kapoor the learned Senior Counsel appearing for the appellants submits that once the Assessing Officer acting in according with law makes a certain assessment the same cannot be ordered as erroneous merely because the CIT views the same differently. He also submits that there is no finding of the CIT that the order sought to be revised was erroneous or prejudicial to the interest of the Revenue. He argues that it was imperative for the CIT to give positive finding that the order of the Assessing Officer was erroneous and not in the interest of the Revenue, and for this reason, the first impugned order is invalid. Mr. Kapoor further submits that it is established principle of law that for an order to be termed as erroneous it must be not in accordance with law, also for the order to be held prejudicial to the interest of the Revenue, the consequence of the erroneous order must be, the revenue to the State either has not been realised or cannot be realised. This fact must be established on the basis of the material on record. In support of his submissions, Mr. Kapoor relies upon the following decisions of our High Court and of the Apex Court: (1) Commissioner of Income-tax vs. Gabriel India Ltd., [203 ITR 108 (Bombay)]; (2) Jewel of India vs. Assistant Commissioner of Income-tax; [2010] 325 ITR 93 (Bombay) (3) Malabar Industrial Co. Ltd. vs. CIT; [243 ITR 83 (SC)] (4) CIT vs. Max India Ltd., [295 ITR 282 (SC)]. There can be no dispute as regards the propositions of law canvassed by Mr. Kapoor on exercise of revisional jurisdiction by the CIT under Section 263 of the IT Act. Therefore, the only question that is required to be considered is whether on application of these propositions of law the two impugned orders can be sustained. 9. The first requisite for exercise of revisional jurisdiction is that the order of the Assessing Officer is erroneous on the ground of not being in accordance with law. The CIT in his order has held that the Assessing Officer has not taken into account the relevant consideration of absence of actual business activity of the appellant for the purpose of treating the expenditure claimed as an allowable expenditure. Perusal of the assessment order quoted above substantiates these observations of the CIT. Therefore, in our opinion, the first requisite of law stands satisfied. 10. The second requisite is of the loss to the revenue on account of the error in the assessment order. The impugned orders observe that the Assessing Company during the previous year, relevant to the Assessment Year 2009-10, has not commenced the business of development of SEZ/Real Estate and that the Company had merely obtained loan from the holding company amounting to Rs.49,81,00,000/- in the financial year 2007-08 and utilized it for investing in share of subsidiary company M/s. Zuari Developers Pvt. Ltd., to the extent of Rs.8,26,75,564/- and giving loans to subsidiary company to the extent of Rs.42,16,40,630/-. The interest paid on the loans amounted to Rs. 3,56,51,678/- and other incidental expenses, amounting to Rs. 4,69,544/- were charged to the Profit and Loss Account as expenses incurred during the P.Y. relevant to the assessment year 2009-10. On the basis of this business loss of Rs.36,10,09,708/- was computed and claimed as loss to be carried forward to subsequent years. In the opinion of the CIT and ITAT since the Company had not commenced its business of development of SEZ/Real Estate, the expenditure claimed could not have been treated as the expenditure incurred for the purpose of business. As such, it was denied. Since the expenditure was not allowable expenditure, it amounted to irregular allowances of loss. Such loss was allowed to be carried forward to the extent of Rs.1,78,57,950/- and involved notional tax effect of Rs. 60,69,917/- (33.99% of Rs.1,78,57,950/-). This notional tax effect is directly attributable to the error in the assessment order. Therefore, even the second requisite is satisfied.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]We find no merit in both the contentionsAs regards the objection of the order of CIT being ag order, we find that the order though not as elaborate as the Order of the ITAT, does not suffer from lack of reasons. The order clearly makes out that the assessment order is erroneous and has adverse effect on the interest of the Revenue9. The first requisite for exercise of revisional jurisdiction is that the order of the Assessing Officer is erroneous on the ground of not being in accordance with law. The CIT in his order has held that the Assessing Officer has not taken into account the relevant consideration of absence of actual business activity of the appellant for the purpose of treating the expenditure claimed as an allowable expenditure. Perusal of the assessment order quoted above substantiates these observations of the CIT. Therefore, in our opinion, the first requisite of law stands satisfied10. The second requisite is of the loss to the revenue on account of the error in the assessment order. The impugned orders observe that the Assessing Company during the previous year, relevant to the Assessment Year, has not commenced the business of development of SEZ/Real Estate and that the Company had merely obtained loan from the holding company amounting to Rs.49,81,00,000/in the financial year8 and utilized it for investing in share of subsidiary company M/s. Zuari Developers Pvt. Ltd., to the extent of Rs.8,26,75,564/and giving loans to subsidiary company to the extent of Rs.. The interest paid on the loans amounted to Rs. 3,56,51,678/and other incidental expenses, amounting to Rs. 4,69,544/were charged to the Profit and Loss Account as expenses incurred during the P.Y. relevant to the assessment year. On the basis of this business loss of Rs.36,10,09,708/was computed and claimed as loss to be carried forward to subsequent years. In the opinion of the CIT and ITAT since the Company had not commenced its business of development of SEZ/Real Estate, the expenditure claimed could not have been treated as the expenditure incurred for the purpose of business. As such, it was denied. Since the expenditure was not allowable expenditure, it amounted to irregular allowances of loss. Such loss was allowed to be carried forward to the extent of Rs.1,78,57,950/and involved notional tax effect of Rs. 60,69,917/. This notional tax effect is directly attributable to the error in the assessment order. Therefore, even the second requisite is satisfied.