5TH NUJS-AIFTP JUSTICE DR.

B P SARAF NATIONAL TAX MOOT

TEAM CODE : T08

5TH NUJS-AIFTP JUSTICE DR. B P SARAF NATIONAL TAX MOOT

IN THE HON'BLE SUPREME COURT OF INDIA AT NEW DELHI, INDIA

SLP NO..............................OF 2019

IN THE MATTER OF:

M/s INDIAN MINING COMPANY Ltd. .......PETITIONER

V.

PRINCIPAL COMMISSIONER OF INCOME TAX ......RESPONDENT

k

ON SUBMISSION TO THE HON’BLE SC OF INDIA

UNDER ARTICLE 136 OF THE CONSTITUTION OF INDIA

WRITTEN SUBMISSION ON BEHALF OF THE PETITIONER

COUNSEL APPEARING ON BEHALF OF THE PETITIONER

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 5TH NUJS-AIFTP JUSTICE DR. B P SARAF NATIONAL TAX MOOT

LIST OF ABBREVIATIONS

AO………………………………………………………………………........Assessing Officer
AIR…………………………………………………………………………….All India Report
All……………………………………………………………………………………Allahabad
AP…………...…………………………………………………………………Andhra Pradesh
Bom……………………….......………………………………………………………..Bombay
Cal………………….…………..………………………………………………………Calcutta
PCIT………………………………………………………………Commissioner of Income Tax
Co………………………………………………………………………………...….. Company
CTR……………………………………………………………..Currency Transaction Reports
CBDT…………………………………………………………...Central Board of Direct Taxes
Cri………………………………………………………………….………………..…Criminal
Del……………………………………………………………………………………..….Delhi
DTR……………………………………………...………………………….. Daily Tax Report
HC…………………………………………………………………………………..High Court IT
Act……………………………………………………………….…………Income Tax Act
ITO…………………………………………………………………………Income Tax Officer
ITR………………………………………………………………………... Income Tax Report
ITD……………………….……………………………………Income Tax Tribunal Decisions
Kar……………………………………………………………………………………Karnataka P
& H……………...………………………………………………………...Punjab & Haryana
SC….……………………………………………………………………………Supreme Court
SCC…...………………………………………………………………….Supreme Court Cases
SLP……………………………………………………………………...Special Leave Petition
u/s.. ……………………………………………………….……………………..Under Section
UOI………………………………………………………..….…………………Union of India

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 5TH NUJS-AIFTP JUSTICE DR. B P SARAF NATIONAL TAX MOOT

TABLE OF CONTENTS

INDEXOFAUTHORITIES……………………………………………………………………v-viii

STATEMENT OF JURISDICTION…………………………………………………………………ix

QUESTIONS PRESENTED…………………………………………………………………………...x

STATEMENT OF FACTS……………………………………………………………………………..xii

SUMMARY OF PLEADINGS…………………………………………………………………………xi

PLEADINGS

ISSUE I: WHETHER THE ASSESSEE’S SPECIAL LEAVE PETITION

IS MAINTAINABLE
……………………………………………………………………………………………..1

[1.1] . THE MATTER INVOLVES SUBSTANTIAL QUESTIONS OF LAW OF

GENERAL PUBLIC IMPORTANCE ………………………………………………………1

[1.1.1] VIOLATION OF CONSTITUTIONAL RIGHTS..............................................................2

[1.2] THE MATTER INVOLVES SUBSTANTIAL QUESTIONS OF LAW................3

[1.2.1] THE Ld. TRIBUNAL AND HON&'BLE HC FAILED TO ACKNOWLEGE

COMPENSATORY................................................................................................................3

NATURE OF SECTION 21(5) OF MMRDA ……………………………………………………………3

[1.2.2]. INAPPLICABILITY OF SEC.37 OF INCOME TAX ACT, 1961………………6

ISSUE II: WHETHER THE A.O CONDUCTED AN ADEQUATE

ENQUIRY ....................................................................................................................................7

[2.1] APPLICATION OF MIND………………………………………………………………7

[2.1.1] THAT THE A.O HAS DULY APPLIED HIS MIND..................................................7

[2.1.2] DISTINCTION BETWEEN LACK OF ENQUIRY AND INADEQUATE

ENQUIRY………………………………………………………………………………………8

[2.2 ] NO UNSUSTAINABILITY WITH LAW COULD BE DRAWN ……………….9

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[2.3]REASONING IS EASILY VIABLE…………………………………………………10

[2.4]SINE QUA NON TO SECTION 263 NOT COMPLIED WITH…………………11

[2.4.1] THAT THE IMPUGNED ASSESSMENT ORDER OF AO U/S 148 IS NEITHER

ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE………………12

ISSUE III:WHETHER THE OPINION OF PCIT CAN BE HIS PRIVATE

OPINION…………………………………………………………………………13

[3.1]THAT THE RE-OPENING WAS A MERE CHANGE OF OPINION ON PART

OF AO………………………………………………………………………………………13

ISSUE IV: WHETHER THE EXPENSE IN QUESTION IS AN

ALLOWBALE EXPENSE ………………………………………………………...15

[4.1]. THAT THE EXPENSE IN QUESTION IS AN EXPENSE FOR ILLEGAL

ACT OF MINING AND HENCE NOT FOR THE BUSINESS PURPOSE AS PER

SECTION 37 OF IT ACT………………………………………………………………………17

ISSUE V: WHETHER THE ISSUE IS DEBATABLE UNDER THE PROVISION OF

SECTION 263 OF INCOME TAX

ACT…………………………………………………………………..19

[5.1]. That CIT CATAGORICALLY POINTED OUT THE SHORTFALL DONE BY

ASSESSEE………………………………………………………………………………………………21

[5.2]. THAT THE BASIS FOR EXERCISE OF JURISDICTION UNDER SECTION 263

EXISTED..........................................................................................................................................24

PRAYER................................................................................................................................................26

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TABLE OF AUTHORITIES

Haryana State Industrial Corpn. v Cork Mfg. Co. (2007) 8 SCC

359SC………………………………………………………………………………...………......…………1

Sir Chunilal Mehta and Sons, Ltd. v. Century Spinning and Manufacturing Co. Ltd., AIR

1962 SC 1314……………………………………………………………………………….......………........1

Pawan Kumar v. State of Haryana, (2003)11 SCC

241;2007)………………………………………………………………………………........………………….2

C.C.E v. Standard Motor Products, AIR 1989

SC1298;………………………………………………………………………………………............…………2

Janshed Hormusji Wadia v. Board of Trustees, Port of Mumbai, (2004) 3 SCC 214.1955 AIR 65, 1955
SCR (1)941………………………………………………………………………….…………….......…………..2

Sir Chunilal Mehta and Sons, Ltd. v Century Spinning and Manufacturing Co. Ltd.(1962)
AIR1314(SC)…………………………………………………………..............………………………………….3

Swadeshi Cotton Mills Vs. CIT Ltd [1998 233 ITR

199SC]…………………………………………..……………………………………….............……………….5
CommonCausev.U.O.I[(2004)2SCC783]……………........................……………………………………...5

Karnataka Rare Earth v. Senior Geologist, Department of Mines & Geology [W.P No.

114 of 2014]……………………………………………………………………………………….5

10. Bharat C Gandhi, Mumbai vs Department of Income tax [ITA No. :

3685/Mum/2011]……………………………………………………………………………..…..6

Dr. T. A. Quereshi vs Commissioner Of Income Tax,5635 of

2006…………………………………………………………………………………………………7

CIT vs. Nirav Modi

138DTR81………………………………………………..……………………………………………..8

CIT vs. Sunbeam Auto Ltd [(2010) 189 Taxman

436(Del) ]……………………………………………………………………………………………….8

(2010) 189 Taxman

436(Del) ………………………………………………………………………………………………..8

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 5TH NUJS-AIFTP JUSTICE DR. B P SARAF NATIONAL TAX MOOT

Harmony Yarns Pvt. Ltd Vs CIT (ITAT Ahmedabad) ITA No. 1323/Ahd/2014…………..8

Ritesh Kumar Boyed v CIT; ITA

No.2299/Kol/2013………………………………………………………………………………………………….9

CITvs.VikasPolymers(DelhiHighCourt)….......................…………………………………………………….9

Delhi High Court - CIT vs. DLF Limited 350 ITR 555……………………….................………..……10

Gujarat High Court - CIT vs. Arvind Jewellers 259

ITR502…………………………………………………………………………………....................………….10

NIIT Vs Commissioner of Income-tax (Central-ll) [2015] 60 taxmann.com 313 (Delhi -

Trib )………………………………………………………………………………………...................…..….10

Braham Dev Gupta, vs Pr. Cit, ITA NO. 2102 /DEL/2016;13 April,

2017………………………………………………………………………………………………..................10

Subhlakshmi Vanijya (P.) Ltd. Vs CIT [2015]60 taxmann.com 60 (Kolkata -

Trib.)…………………………………………………………………………………................……………10

CIT vs. Gabriel India Ltd [(1993) 203 ITR

108(Bombay)]………………………………………………………………………………………….11

Malabar Industrial Co. Ltd. vs. CIT, (2000) 243 ITR

83(SC)……………………………………………………………………………………………….…11

(1993) 203 ITR

108(Bombay)………………………………………………………………………………………...…11

Casa Builders P.Ltd, Mumbai vs Pr Cit

6…………………………………………………………………………………………………..…12

Allahabad High Court - CIT vs. Kashi Nath & Company 170
ITR28 ………………………………………………………………………………………….……..…12

29. H.L.Sibal v CIT (1975) 101 ITR 112 (P &

H)…………………………………………………………………………….……………………..13

30. CIT v Ganpat Ram Bishnoi (2005) 198 CTR 546

(Raj)……………………………………………………………………………………..………….13

31. CIT v Trustees, Anupam Charitable Trust, (1987) 167 ITR 129

(Raj)…………………………………………………………………………………………………13

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CIT v T. Narayana Pai (1975) 98 ITR 422

(Kar);……………………………………………………………………………...................………….………13

CIT v Associated Food Products, (2006) 280 ITR 377

(MP)……………………………………………………………………………....................……………….…..13

. CIT v Jai Mewar Wine Contractors, (2001) 251 ITR 785

(Raj)………………………………………………………………………………...................…………………13

. CIT v Duncan Brothers (1994) 209 ITR 44

(Cal)………………………………………………………………………………….....................…..………….13

CIT v Kanda Rice Mills, (1989)178 ITR 446

(P&H)……………………………………………………….…………….............……………………..….13

CIT v R. K. Metal Works, (1978)112 ITR 445

(P&H)……………………………………………………………………………………..………..............13

CIT v Kalvinator of India Ltd.(2002) 174, CTR (Del)(FB)617, affirmed Kelvinator of

India Ltd 85)…………………………………………………………………………….....................………..13

Usha International v CIT (2012) 73 DTR 153

(Del);……………………………………………………………………………………………..................………13

Idea Cellular Ltd. v CIT (2008) 301 ITR

407(Bom)………………………………………………………...................………….………………………….13

CIT v Eicher Ltd.(2007) 213

CTR57(Del)……………………………………………………………….................... 14

CIT v H.P. Sharma (1980) 122 ITR

675(Del)……………………………………………………...............………..……………….......................14

Suresh Budharmal Kalyani v State of Maharashtra (1998) 7

SCC337(SC)………………………………………………………………………………………………..14

. In International Woollen Mills v M/s Standard Wool (U.K.) Ltd. (2001) 5 SCC 265

(SC)………………………………………………………………………………………………..14

CIT v Amitabh Bachchan, ITA

4646/2010(Bom)………………………………………………………………………………………………14

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. Kalvinator of India Ltd

(n105)…………………………………………………………………………………………………14

Manavedan Timmalpad v CIT (1955)28 ITR 615(Mad); Sayaji Iron & Engg. Co. Ltd. v

CIT(2002)253ITR749(Guj)………………………………………………………………………….14

LD. PCIT v. Delhi Airport Metro Express Pvt. Ltd. [ITA

No.705/2017]………………………………………………………………………………….………15.

LD. PCIT v. Modicare Limited [ITA

No.759/2017]…………………………………………………………….…………………………….16

Income Tax Officer v. DG Housing Projects Limited [343

ITR329]………………………………………………………………………………………………....16

DIT v. Jyoti Foundation [357

ITR388]…………………………………………………………………………………………………16

LD. PCIT v. Delhi Airport Metro Express Pvt. Ltd...........................................................16

Amira Pure Foods Pvt. Ltd -vs.- Pr. CIT; 29-Nov-2017-Delhi -TribITA No.

3205/DEL/2017………………………………………………………………………………….........…16

CIT Vs. Bharat Carbon & Ribbon Mfg. Co. (P)[1981 127 ITR 239(

Delhi)]……………………................................................................................................................18

CIT vs. Mamta Enterprise[(2004) 266 ITR356(Kar)]……………………………………………………18

Aziz and Abdul Shakoor Bros. V. CIT Bombay City [(1961) AIR 663, 1961 SCR
(2)651…………………………………………………………………………………………………………19

M/s Maddi Venkataram & Co. (P) Ltd. Vs. CIT [(1998) 229 ITR
534SC)…………………………………………………...........................................................................19

.CIT Vs. pt.Vishanathan …………………………………………………….............................................19

CIT Vs. Sri Kuldeep Singh S/O Arjun Singh [(2007) 208 CTR All 390;........................................ 19

Ishwar das v. CIT .[(1999) 155 CTR All 373, 2000 244 ITR146All]…………………………....…19

Soni Hinduji Kushalji and Co. v. CIT [1973 89 ITR 112AP]………………………………………..20

Duggal & Co. Vs. CIT [1996 220 ITR 456(Delhi)]………………………………………………….20

Jubilant Organosys Vs. CIT [ (2004) 187 CTR All 574, 2004 265 ITR420 All]………….21

CIT Vs. Sohana Woollen Mills [(2007) 207 CTR P H 178, 2008 296 ITR 238
PH]………………………………………………………………………………………………………23

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Gee Vee Enterprise Vs. Additional Income Tax , Delhi [ILR 1975 Delhi 53,1975 99 ITR

375 Delhi......................................................................................................................................24

CIT Vs. J.L. Morrison (India) Ltd. [ITA No. 168 of 2011; GA No. 1541 of2012]…………………24

CIT Vs. M. M. Khambhatwala [(1992) 198 ITR 14(Guj)]……………………………………………….24

CIT Vs. Krishna Narayan Naik [(1984) 150 ITR 513(Bom)]……………………………………………..24

BOOKS AND AUTHORITIES:

Constitution of India,1950

Income tax Act,1961

Mines and Minerals(Regulation and Development Act,1957

M.P Jain, Indian Constitutional Law, ( 16th edn Lexis Nexis Butterworth Wadhwa Nagpur 2011)

Arvind P.Datar, The Law and Practices of Income Tax, (10th edn. Lexis Nexis) 2193

Arvind P.Datar, The Law and Practices of Income Tax, (10th edn. Lexis Nexis) 2193

Dr. Girish Ahuja & Dr. Ravi Gupta, Income Tax, (11th edn. Bharat Law House)2013

Gabhawala & Gabhawala , Taxmann’s Tax Practice Manual, (3rd edn.Taxman 2012) 124

Gabhawala and Gabhawala, Tax Practice Manual, (3rd edn Taxmann Allied Services P.vt. 2011) 174
H.M. Seervai, Constitutional Law Of India (4th edn. Vol 1 2010)

Kanga, Palkhivala and Vyas, The Law and Practice of Income Tax (9th edn 2004)

Master Guide to Income Tax Rules: A Rule-wise Commentary on Income-Tax Rules ( 20th edn.
Taxmans 2013)

OTHER AUTHORITIES

www.manupatrafast.com

indiankanoon.org

www.taxpundit.org

www.scconline.com

www.taxmann.com

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ISSUES PRESENTED

ISSUE1]:WHETHER THE SPECIAL LEAVE PETITION IS MAINTAINABLE?

[ISSUE2]:WHETHER THE A.O'S ENQUIRY WAS ADEQUATE AND ORDER PASSED BY

THE Ld. ITAT IS LIABLE TO BE QUASHED?

[ISSUE3]:WHETHER PRE-REQUISITES FOR INVOKING SECTION 263 LISTED

UNDER EXPLAINATION (2) WERE COMPLIED WITH?

[ISSUE4]:WHETHER THE EXPENSE IN QUESTION IS AN ALLOWBALE EXPENSE ?

[ISSUE5]:WHETHER THE ISSUE IS DEBATABLE UNDER THE PROVISION OF

SECTION 263 ?

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SUMMARY OF ARGUMENTS

[ISSUE1]:WHETHER THE SPECIAL LEAVE PETITION IS MAINTAINABLE?

It is most humbly submitted before this Hon’ble Supreme Court of India [hereinafter as SC]
that the special leave petition filed by the assessee maintainable. It is an untrammeled
reservoir of power incapable of being confined to definitional bounds; the discretion
conferred on the Supreme Court being subjected to only one limitation, that is, the wisdom
and good sense or sense of justice of the Judges..The present matters raises various SQLs.

[ISSUE2]:WHETHER THE A.O'S ENQUIRY WAS ADEQUATE AND ORDER PASSED

BY THE PCIT IS LIABLE TO BE QUASHED?

It is humbly submitted before the SC that the order of the PCIT was wholly unjusjustified and
the Ld. ITAT and the Hon'ble HC have erred in their order. The order of AO was cancelled
without valid grounds.

[ISSUE3]:WHETHER PRE-REQUISITES FOR INVOKING SECTION 263 LISTED

UNDER EXPLAINATION (2) WERE COMPLIED WITH?
It is submitted that the AO counducted an adequate enquiry andeven an inadequate enquiry
doesn't give revisionary power to PCIT.
[ISSUE4]:WHETHER THE EXPENSE IN QUESTION IS ALLOWBALE EXPENSE ?
It is vehemently submitted that the deduction claimed by the assessee company is for the
compensation paid by him to the Deputy Commissioner of Income Tax and this payment
made is a loss to the business and not an expenditure and section 37 has no application
under the present case since section 37 relates to the business expenditure and in this case
the payment is not an expenditure and hence we are not concerned about the business
expenditure but with business loss.
[ISSUE5]:WHETHER THE ISSUE IS DEBATABLE UNDER THE PROVISION OF
SECTION 263 ?
It is contended that the CIT was not justified in exercising its power of revision u/s 263 for
the purpose of directing the Assessing officer to hold another investigation, based on the
facts and circumstances of the case. It is submitted that the revisionary power exercised by
PCIT u/s 263 does not exists as such the twin condition to fulfill the need first .

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 5TH NUJS-AIFTP JUSTICE DR. B P SARAF NATIONAL TAX MOOT

STATEMENT OF JURISDICTION

The petitioner herein is M/s Indian Mining Company Ltd. Under Art. 136 of the Constitution of
India, 1950, this Hon’ble Court has been vested, in its discretion, to grant special leave to appeal
from any judgment, decree, determination, sentence or order in any cause or matter passed or
made by any court or tribunal in the territory of India. In this case, the petitioner has preferred an
appeal against the impugned orders of the Ld. ITAT and Hon’ble High Court of Calcutta.

The petitioner herein submits before The Hon’ble Supreme Court Of India, The Memorandum
for the Petitioner under Article 136 Of The Constitution Of India, 1950 (Special Leave
Petition) to set forth the facts, contentions and arguments in the present case.

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STATEMENT OF FACTS

1. BACKGROUND

The assessee M/s Indian Mining Company Ltd. is a mining company headquartered in Kolkata.
It had taken iron ore mines from the Govt. of Orissa on lease in the Jajang iron and manganese
ore mining leasehold area, Dist Keonjhar, Orissa.

2. PIL WAS FILED IN REGARD TO ILLEGAL MINING AND CONNECTED

ISSUES BEFORE THE APEX COURT

A PIL was filed before the Apex court in regard to illegal mining and connected issues.
Following the interim order dated 16.05.2014 of the Hon’ble Supreme Court in the matter of
W.P.(C) No. 114 of 2014; Common Cause V. Union of India & Ors., a final report was
submitted by the CEC before the Hon’ble Supreme Court in connection with the
issue of production in relation to without or in excess of Environmental Clearance by all the
lessees in the state of Odisha during the years 2000-01 to 2010-2011. Therefore, the Deputy
Director of Mines ,Dist- Keonjhar issued a notice dated 02.09.2015 ,demanding a sum of Rs. 300
crores as a compensation u/s21(5) of Mines and Minerals Act,1957, as per the final decision
rendered in W.P.No.114 of 2014 in the matter of Common Cause v. Union of India, judgment
dated 02.08.2015.

3. THE ASSESSEE COMPANY HAD MADE THE PAYMENT AND

CLAIMED A DEDUCTION

The assessee company had made the payment which was a compensation of Rs. 300cr. Before
31.03.2016 and debited the said amount in profit and loss a/c for F/Y: 2015-16 and therefore
claimed a deduction u/s37 from its taxable profits.

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4. A.O ENQUIRED ABOUT THE DEDUCTIBILITY AND AFTER THAT

CLOSED THE MATTER AND ALLOWED THE DEDUCTION

The AO during the course of assessment proceedings ,enquired about the deductibility of the said
amount as expenses as per Income Tax Act. The assessee’s A/R submitted a short reply
stating that the amount was paid as compensation to the state govt. followed by the decision of
Apex Court decision in Common Cause’s case,W.P.(C) No.114 of 2014 and was allowable as
deduction. The A.O closed the matter and allowed the deduction.

5. THE PCIT ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE

After the A.O closed the matter ,the PCIT issued a Show Cause Notice u/s 263 of the Act. There
the PCIT stated that the A.O had disallowed the deduction ,as the purpose was an offence and
was not an allowable expense in terms of explanation I below section 37. He also stated that, no
enquiries and verifications were made by the A.O and A.O did not care to obtain the copy of
apex court decision. To that the assessee replied to the SCN and entered appearance through his
A/R C.A. R.Sen. The A/R submitted elaborate submissions. The PCIT rejected his submission
dated 30.01.2019 and directed the A.O to decide the issue after considering the provisions of the
Act and relevant decisions.

6.APPEAL DISMISSED BY Ld. ITAT AND HON'BLE HC

The assessee challenged the order of PCIT,Kolkata-1 before ITAT raising four grounds ,which
was dismissed by the Ld. ITAT. The HC of Calcutta also did not admit the appeal u/s 260A .

7 PETITION BEFORE THE HON'BLE SC BY WAY OF SPECIAL LEAVE UNDER

ARTICLE136
Now the assessee has filed an SLP before the hon'ble SC under art.136 of the constitution and
the present memorandum set forths his arguments in respect of the same.

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 5TH NUJS-AIFTP JUSTICE DR. B P SARAF NATIONAL TAX MOOT

PLEADINGS: ARGUMENTS ADVANCED

[ 1. ] THAT THE SPECIAL LEAVE PETITION IS MAINTAINABLE

1. It is humbly submitted before this Hon’ble Court that, the Special Leave Petition filed by the petitioner,
M/S Indian Company Ltd. is maintainable as the matter involves a substantial question of law of
general public importance and the HC erred in dismissing the assessee's appeal on the ground that no
substantial question of law arises from the order of tribunal. If the SC does not intervene, it will result
in gross injustice and miscarriage of justice has already occurred, by the erring judgment of the HC of
Calcutta which dismissed the assessee's appeal , with complete disregard to the violation of
assessee's socio-economic rights guaranteed by the preamble. It is contended that the jurisdiction of
Supreme Court [hereinafter as SC] under Article 136 can be invoked even on question of fact can also
be a subject matter of judicial review under Art.136and when issue is unsustainable w.r.t
judgments..Therefore, the special leave petition of the assessee must be accepted, so that the Hon’ble
Court can use its wide jurisdiction conferred under Art. 136, to correct the wrong done by the decision
given by the Ld. ITAT and HC of Calcutta.

[1.1]THAT THE MATTER INVOLVES QUESTIONS OF LAW OF GENERAL PUBLIC

IMPORTANCE

2. It is humbly submitted before the Hon’ble Court that the jurisdiction conferred under Art. 136 on the
SC is corrective one and not a restrictive one1 and can be invoked when a question of law of general
public importance arises2 by filing Special Leave Petition.

1
Haryana State Industrial Corpn. v Cork Mfg. Co. (2007) 8 SCC 359 (SC)
2
Sir Chunilal Mehta and Sons, Ltd. v. Century Spinning and Manufacturing Co. Ltd., AIR 1962 SC 1314

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3. It is well-settled that illegality must not be allowed to be perpetrated and failure by the SC to interfere
with the same would amount to allowing the illegality to be perpetuated3 , therefore a duty is enjoined
upon the SC to exercise its power by setting right the illegality in the judgments.
4. Art. 136 provides residuary power to the SC to do justice where the court is satisfied that injustice
has been done.4 The principle is that this court would never do injustice nor allow injustice
being perpetrated for the sake of upholding technicalities5

5. In Dhakeswari Cotton Mills Ltd. v. Commissioner of income Tax6,the court observed:

"when the Court reaches the conclusion that a person has been dealt with arbitrarily or that a
Court or tribunal within the territory of India has not given a fair deal to a litigant, then no
technical hurdles of any kind like the finality of finding of facts or otherwise can stand in the
way of the exercise of this power because the whole intent and purpose of this Article is that it is
the duty of this Court to see that injustice is not perpetrated or perpetuated by decisions of
Courts and tribunals because certain laws have made the decisions of these Courts or tribunals
final and conclusive".
[1.1.1 VIOLATION OF CONSTITUTIONAL RIGHTS :
6. In the instant matter ,the arbitrary order of the PCIT has violated the economic rights of the
assessee which are established as an integral provision of the Art 21 of the Indian constitution
alongside the directive principles and preamble. The PCIT has also infringed the provisions of
Audi altrem partem.Also it has been held in various cases that revenue can't charge more than
100%.

7. It is humbly contended that the order has disregards and flouts the provision of Autrefois Convict
or Double jeopardy guaranteed under Article 20(2) of the Indian constitution, which finds

3
Pawan Kumar v. State of Haryana, (2003)11 SCC 241; See also, H.M. Seervai, Constitutional Law of India, Vol. 1, 832
(4th ed., Universal Law Publishing, New Delhi, 2010); See also, Halsbury’s Laws of India, Vol. 35, 564 (2nd ed., Lexis-
Nexis Butterworth Wadhwa, Nagpur, 2007)
4
C.C.E v. Standard Motor Products, AIR 1989 SC 1298; See also, H.M. Seervai, Constitutional Law of India, Vol. 2, 845
(4th ed., Universal Law Publishing, New Delhi, 2010)
5
Janshed Hormusji Wadia v. Board of Trustees, Port of Mumbai, (2004) 3 SCC 214.
6
1955 AIR 65, 1955 SCR (1) 941

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expression in the maxim “Nemo debet bis vexari”-a man must not be put twice in peril for the same
offence. By forcing the assessee to pay twice for the same damagethis constitutional provision has
been defied,which makes this a question of law of general public importance.

8. . Also, in the light of the facts that huge amount of cases aroused under same facts and
circumstances, it is submitted that the question is indeed an open question. [ Futher discussed]

[1.2] THE MATTER INVOLVES SUBSTANTIAL QUESTIONS OF LAW

9. It is contended that the matter involves substantial question of law and hence is entitled to be maintainable.
The AO passed a fair order after holding proper enquiry and taking all the relevant facts into consideration.
The findings of Tribunal were perverse and, therefore, the High Court has erred in holding that there was no
substantial question of law involved

10. A Constitution Bench7 of this Court, while explaining the import of the said expression, observed
that: " The proper test for determining whether a question of law raised in the case is substantial
would, in our opinion, be whether it is of general public importance or whether it directly and
substantially affects the rights of the parties and if so whether it is either an open question in the
sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or
is not free from difficulty or calls for discussion of alternative views."

11. It is humbly submitted before the Hon'ble court that the present matter passes all the three tests
laid down by the Hon'ble bench in the above case as it involves a matter of general public
importance[1.1.1] and it directly and substantially affects the rights of the parties .
12. Mixed Question of facts and law: The court observes different position from those contended
against allowing of SLP when there is a mixed question of facts and law and the appeal is deemed
to be allowed8
1.2.1 THE Ld. TRIBUNAL AND HON'BLE HC FAILED TO ACKNOWLEGE
COMPENSATORY NATURE OF SECTION 21(5) OF MMRDA:

7
Sir Chunilal Mehta and Sons, Ltd. v Century Spinning and Manufacturing Co. Ltd. (1962) AIR 1314(SC)
8
Suresh Kumar Jain vs Shanti Swarup Jain & Ors on 21 November, 1996;S.L.P. (C) No. 4280 or 1995

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13. In the present case, the company was ordered to pay compensation of 300cr for mining in excess
of the Environmental clearance in the final judgement of the SC in the matter of W.P(C) NO. 114
of 2014.
14. Both the Ld. ITAT and the Hon'ble HC have failed to acknowlege the compensatory nature of the
fine imposed herein, which is implied through all the relevant statutes,SCN of PCIT and the
principal judgement9 itself.

15. [A.]INTERPRETATION OF SECTION 21(5) OF MMRDA,1957:The objective of Section

21(5) of the MMDR Act is to recover the price of the mineral that has been illegally or unlawfully
or unauthorisedly raised with an intention to compensate the State for the loss of the mineral
owned by it, the loss having been caused by a person who is not authorized by law to raise that
mineral. There is no element of penalty involved in this and recovery of the mineral or its price is
not a penal action but is merely compensatory.

[A.](i) IRRATIONAL RELIANCE ON MARGINAL NOTE OF SECTION 21 OF

MMRDA,1957 :

16. According to Justice Singh, G.P.: Principles of Statutory Interpretation (8th Edn., 2001, at p. 147),
though the opinion is not uniform but the weight of authority is in favour of the view that the
marginal note appended to a section cannot be used for construing the section. There is no
justification for restricting the section by the marginal note nor does the marginal note control the
meaning of the body of the section if the language employed therein is clear and spells out its own
meaning. In Director of Public Prosecutions v. Schildkamp10 Lord Reid opined that a sidenote is a
poor guide to the scope of a section for it can do no more than indicate the main subject with
which the section deals and Lord Upjohn opined that a sidenote being a brief précis of the section
forms a most unsure guide to the construction of the enacting section and very rarely it might
throw some light on the intentions of Parliament just as a punctuation mark.

9
W.P No. 114 of 2014
10
(1969) 3 All ER 1640 : (1970) 2 WLR 279 (HL)

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17. In the judgement of Karnataka Rare Earth11 case, the Hon'ble SC stated an unambiguous opinion
upon the same:
"We are clearly of the opinion that the marginal note “penalties” cannot be pressed into service
for giving such colour to the meaning of sub-section (5) as it cannot have in law. The recovery
of price of the mineral is intended to compensate the State for the loss of the mineral owned by it
and caused by a person who has been held to be not entitled in law to raise the same. There is no
element of penalty involved and the recovery of price is not a penal action. It is just compensatory.”
[B]JUDGMENT OF SC : The hon'ble SC in the final judgment of Common Cause v.U.O.I
12
relied on the judgment of the case of Karnataka Rare Earth v. Senior Geologist, Department of
Mines & Geology; to uphold the compensatory nature of section 21(5) of the MMRDA,1957.
[C]DEMAND NOTICE: It is clear by the language13 of the Demand Notice issued by the Deputy
Director of Mines,Odisa to the assessee dated 02.09.2015 that the price being demanded to be paid
is a compensation for the recovery of price of minerals.

18. It is submitted that it is unambiguous and explicit through the above references that the price
herein being paid of is of purely compensatory nature. It is also an established fact that the relevant
section ; i.e ; 21(5) of MMRDA is not of punitive but compensatory nature unlike section 21(1) of
MMRDA. Thus,the price paid thereof by the assessee to the Director is of purely compensatory
nature and hence, is clearly deductible.

19. In Swadeshi Cotton Mills Vs. CIT Ltd14, the Ld. court observed:
" The authority has to allow deduction under Section 37(1) of the Act, wherever such
examination reveals the concerned impost to be purely compensatory in nature. Wherever such
impost is found to be of a composite nature, i.e., partly of compensatory nature and partly of penal
nature, the authorities are obligated to bifurcate the two components of the impost and give
deduction to that component which is compensatory in nature and refuse to give deduction to
that component which is penal in nature"

11(2004)2SCC783
12
W.P No. 114 of 2014
13
See paragraph 6 of the Demand Notice
14
1998 233 ITR 199 SC

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20. In Bharat C Gandhi, Mumbai vs Department of Income tax15, the court rightly observed:"As
rightly considered by the CIT(A) fees paid is not in violation of law but an option given to the
assessee to pay compounding fees for transporting over dimensional consignments generally
termed as over loading charges. "

[1.2.2] INNAPPLICABILITY OF SEC.37 OF INCOME TAX ACT, 1961

21. . It is submitted before the hon'ble SC thatSection 37 of the Act has no application in this case
since Section 37 relates to business expenditure, and in this case we are not concerned with
business expenditure but with business loss. Hence, a request for rectification under section 154 of
the act is submitted
22. It is an undeniable fact that the assessee was doing business of mining of iron ores on lease in the
Jajang Iron and Mn Ores mines. Therefore the compensation levied due to production in excess or
without the EC should be treated as a business loss. The explanation to Section 37 has really
nothing to do with the present case as it is not a case of a business expenditure, but of business
loss.

23. . As decided in abundance of landmark judgments16, Business losses are allowable on ordinary
commercial principles in computing profits.
In the light of the above the grounds raised,it is humbly submitted before the SC that this SLP is
maintainable

[2]. THAT THE A.O CONDUCTED AN ADEQUATE ENQUIRY

24. It is humbly submitted before the hon'ble SC that the assessment order was passed by the AO after
due enquiry on all important issues by issuing a detail questionnaire which was replied by the
assessee vide its submissions during the assessment proceeding.

15 ITA No. : 3685/Mum/2011

16
Dr. T. A. Quereshi vs Commissioner Of Income Tax,5635 of 2006

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[2.1]APPLICATION OF MIND

[2.1.1] THAT THE A.O HAS DULY APPLIED HIS MIND

25. It is submitted before the hon'ble court that in the instant case, in the course of the assessment
proceedings, the Assessing Officer (A.O.) enquired about the deductibility of the said amount as
expenses as per the Income Tax Act to which the assessee’s Authorised Representative (A/R)
submitted a short reply stating that the amount in question was paid as compensation to the state
govt pursuant to Apex Court decision in Common Cause’s case, W.P.(C) No. 114 of 2014,decision
dated 02.08.2015 and was thus allowable as deduction.

26. Thus,In the light of the above facts it is well established that the A.O had applied his mind and
enquired specifically about the nature of the payment in conflict in the instant case. The A.O only
allowed the said amount for deduction after having his query satisfied from the reply of the (A/R)
of the assessee.

27. The submission of the assessee's A.R in reply to the A.O 's questionnaire, subtly clarified that the
payment in question was of compensatory nature to the state government ,which is an unarguably
settled fact by all the relevant provisions and the parent judgment itself17 .

28. The judgment of the common cause's case , dated 02.08.2015 is available in the public
domain.Also ,it has been held by the Bombay High court in that "Enquiry of a source of source is
not the requirement of law. Once the A.O. is satisfied with the explanation offered on inquiry,it is
not open to the CIT in exercise of his revisional powers to direct that further enquiry has to be
done"18.
29. Hence the allegation of the PCIT that the A.O hadn't obtained the copy of the aforesaid judgment
and holding the same as a reasoning behind holding the A.O's enquiry as inadequate, is
uncorroborated ,unfit and incompetent by large.

17
W.P.(C) No. 114 of 2014
18
CIT vs. Nirav Modi 138 DTR81

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30. It is submitted that in the instant case, A.O's enquiry was sufficient to establish the compensatory
nature of the payment made by the assesse to the state govt. in pursuant to the aforementioned
order and he allowed the deduction after drawing satisfatory conclusion from the assessee's
submissions to his queries.The A.O couldn't have enquired about the conflicted payment unless he
averted to the relevant facts and applied his mind.

31. The Assessing Officer had made inquiries in view of all necessary explanation and had allowed the
claim on being satisfied with assessee’s version and the same cannot be held erroneous merely
because the assessment sought to be revised did not contain an elaborate discussion

32. In CIT vs. Sunbeam Auto Ltd19 holds that the Assessing Officer in assessment order is not
required to give detailed reasons in respect of each and every item and rejected the revenue's
arguments

[2.1.2] DISTINCTION BETWEEN LACK OF ENQUIRY AND INADEQUATE ENQUIRY

33. Even if the court assumes that the enquiry conducted by the A.O was innadequate/insufficient ,the
distinction between “lack of inquiry” and “inadequate inquiry” is subtle and has been elaborately
asserted time and again by various courts in numerous cases.

34. It is only in cases of “lack of inquiry” that revisional powers u/s 263 can be exercised. If there was
an inquiry even inadequate that would not by itself give an occasion to the Commissioner to
invoke jurisdiction u/s. 263 of the Act.20

35. Even an inadequate inquiry would not itself give occasion to the CIT to pass order under s.
263, merely because he has a different opinion in the matter. Such a course of action is
open only in cases of "lack of enquiry".21

19
(2010) 189 Taxman 436 (Del)
20
Harmony Yarns Pvt. Ltd Vs CIT (ITAT Ahmedabad) ITA No. 1323/Ahd/2014
21
ITA No.2299/Kol/2013 ; Ritesh Kumar Boyed v CIT

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36. Further, while lack of enquiry by the AO may render the assessment order “erroneous” it is not
necessarily “prejudicial to the interests of the revenue”. The CIT must deal with the submissions of
the assessee and give reasons as to how the order is erroneous and prejudicial to the interests of the
revenue. A bare assertion is not sufficient. S. 263 proceedings cannot be initiated with a view to
starting fishing and roving inquiries22.

37. In CIT VS Nirav Modi23, the BombayHC held:" Once the A.O. is satisfied with the explanation
offered on inquiry, it is not open to the CIT in exercise of his revisional powers to direct that
further enquiry has to be done. At the very highest, the case of the Revenue is that this is a case of
inadequate inquiry and not of "no enquiry"
[2.2 ] NO UNSUSTAINABILITY WITH LAW COULD BE DRAWN AND APPARENT
MUST BE CONSIDERED AS REAL :
38. It has been held by the Apex court that apparent must be considered real until it is shown that
there are reasons to believe that the apparent is not the real. It has been settled by the apex court in
various cases24 that "what is apparent is real and unless contrary proved by person who alleges
that apparent is notreal.The onous of proof lies on the one alleging contrary" and here the PCIT
faild to do so.

39. There should be the added element of unsustainability in the order of the Assessing Officer, which
clothes the Commissioner with jurisdiction to issue notice, and proceed to make appropriate
orders25.In the present case the PCIT has failed to establish any unsustainability with law in the
A.O's order.Since the details of the enquiry is on record, and the findings about nature of the
expenditure is in public domain and a view was taken by the A.O , the mere fact that different
view can be taken should not be the basis for an action under section 26326

22
CIT vs. Vikas Polymers (Delhi High Court)
23
CIT vs. Nirav Modi 138 DTR81
24 CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC) ,Jalaram Khandsari Works, Navsari vs Assessee on 17

November, 2011 No.2809/Ahd/2009

25
Delhi High Court - CIT vs. DLF Limited 350 ITR 555

26
Gujarat High Court - CIT vs. Arvind Jewellers 259 ITR502

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40. It emerges as a broad principle from the various decisions that where the AO has reached a
rational conclusion, based on his inquiries and material on record, the Commissioner should not
start the matter afresh in a way as to question the manner of his conducting inquiries. It is not the
province of the Commissioner to enter into the merits of evidence; it has only to see whether the
requirements of essential inquires and of law have been duly and properly complied with by AO or
not.27
[2.3]REASONING IS EASILY VIABLE:

41. It is submitted before the hon'ble SC that an inquiry is needed to reach the level of satisfaction of
the AO on the given issue. The level of satisfaction would obviously mean that he has conducted
the inquiry in a manner whereby he places on record the material enough to reach the satisfaction,
which a rational person, being informed of the nuances of tax laws would reach after due
appreciation of such material28.
42. In the instant case, any rational person being informed with the nuances of tax laws, let alone an
Income tax officer,can see through the compensatory nature of the expense in question, which is
thereby allowable.

In view of the above said facts and circumstances and specific inquiry of the Assessing Officer
and equally elaborate assessee’s reply, it is evident that the instant case does not fall in the category
of lack of an enquiry.
Therefore,in light of the above facts , it is subtly discernable that the A.O has duly applied his mind
and the allegations of the PCIT about the order of the A.O being cryptic and being made without
averting to relevant facts, are predominantly irriational and groundless.

[ 2.2]SINE QUA NON TO S.263 NOT COMPLIED WITH

43. It is humbly submitted before the hon'ble SC that the order passed under section 263 of the
Income Tax Act, 1961 (in short 'the Act') by the Principal Commissioner of Income Tax , Kolkata

27
NIIT Vs Commissioner of Income-tax (Central-ll) [2015] 60 taxmann.com 313 (Delhi - Trib )

28 Braham Dev Gupta, vs Pr. Cit, ITA NO. 2102 /DEL/2016;13 April, 2017;
Subhlakshmi Vanijya (P.) Ltd. Vs CIT [2015]60 taxmann.com 60 (Kolkata - Trib.)

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(in short 'PCIT') dated 30.01.2019 is without jurisdiction and illegal as none of the condition
precedent for exercise of the power under section 263 of the Act exists and/or has been satisfied
and as such the said order is erroneous and without jurisdiction and liable to be cancelled.

2.2.1 THAT THE IMPUGNED ASSESSMENT ORDER OF AO U/S 148 IS NEITHER ERRONEOUS
NOR PREJUDICIAL TO THE INTERESTS OF THE REVENUE.

44. The opening words of Section 263 empowers the Commissioner to call for and examine the record
of any proceedings under the Act but a bare reading of Section 263 also makes it clear that the
Commissioner has to be satisfied of twin conditions, namely, (i) the order of the assessing officer
sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the revenue.

45. If one of them is absent – if the order of the Income-tax Officer is erroneous but is not prejudicial
to the revenue or if it is not erroneous but it is prejudicial to the revenue – recourse cannot be had
to Section 263(1) of the Act29 .

46. As regards the scope and ambit of the expression “erroneous”, a Division Bench of the Bombay
High Court in CIT vs. Gabriel India Ltd.30, held with reference to Black’s Law Dictionary that an
“erroneous judgment” means “one rendered according to course and practice of Court, but contrary
to law, upon mistaken view of law; or upon erroneous application of legal principles” and thus it is
clear that an order cannot be terms 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 differently or more elaborately. The Section does not visualize the substitution
of the judgment of the Commissioner for that of the Income tax Officer, who passed the order
unless the decision is not in accordance with law.

29
Malabar Industrial Co. Ltd. vs. CIT, (2000) 243 ITR 83 (SC)

30
(1993) 203 ITR 108 (Bombay)

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47. Then again, any and every erroneous order cannot be the subject matter of revision because the second
requirement also must be fulfilled. There must be material on record to show that tax which was lawfully
exigible has not been imposed [See Gabriel India Ltd. (supra)].

48. In the instant case,the Assessing Officer had made inquiries in view of all necessary explanation
and had allowed the claim on being satisfied with assessee’s version and the same cannot be held
erroneous merely because the assessment sought to be revised did not contain an elaborate
discussion.

49. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an
erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO
cannot be treated as prejudicial to the interests of the Revenue31

50. The Commissioner did not apply his mind to the relevant material on record and did not give
reasons for his conclusions that the assessment order was prejudicial to the interests of the
Revenue.32

[ISSUE3.] THAT THE OPINION OF PCIT CAN'T BE HIS PRIVATE OPINION

51. It is humbly contended that the revisionary power of Ld. PCIT is subjected to certain preliminary
requirements and unless it is proves that those grounds exist in the certain case, it cannot assert its
private opinion.

52. It is suppliantly submitted before the Hon'ble court that Explanation 2 of section 263 (inserted with
effect from 01.06.2015) cannot override the law as interpreted by the various High Courts, where

31
Casa Builders P.Ltd, Mumbai vs Pr Cit 6
32
Allahabad High Court - CIT vs. Kashi Nath & Company 170 ITR 28

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the High Courts have held that before reaching a conclusion that the order of the AO is erroneous
and prejudicial to the interest of revenue, the Commissioner himself has to undertake some enquiry
to establish that the assessment order isErroneous and prejudicial to the interest of revenue.33

53. If the Explanation is interpreted to have overridden the law as laid down by various High Courts,
then the same would empower the Pr. CIT to find fault with each and every assessment order and
also to force the AO to conduct enquiries in the manner preferred by the Pr. CIT, thus prejudicing
the mind of the AO It is humbly submitted before the hon'ble court that the power u/s 263 is a
supervisory power which states that The Commissioner may exercise such power on any
proceeding or order under the Act. This connotes the power exercised by a quasi-judicial authority
which must be exercised judicially.34 This is a power coupled with duty and in the very nature of
things; this provision for re-assessing a finally settled assessment has to be strictly construed.

54. Jurisdiction u/s 263 cannot be invoked for making short enquiries or to go into the process of
assessment again and again merely on the basis that more enquiry ought to have been conducted to
find something35
55. In the present case, the PCIT could not establish any sound reasoning behind initiating proceedings
under S.263 and being a quasi judicial body, PCIT is needed to cite reasons before invoking the
powers of this provision. The error envisaged in this section is not one which depends on
possibility or guesswork, it should be actually an error either of fact or of law.36

56. This legal proposition is also approved in the several decisions rendered in the context of section
263.37

33
Amira Pure Foods Pvt. Ltd -vs.- Pr. CIT; 29-Nov-2017-Delhi -TribITA No. 3205/DEL/2017

34
H.L.Sibal v CIT (1975) 101 ITR 112 (P & H)

35
CIT v Ganpat Ram Bishnoi (2005) 198 CTR 546 (Raj)

36
CIT v Trustees, Anupam Charitable Trust, (1987) 167 ITR 129 (Raj)

37
CIT v T. Narayana Pai (1975) 98 ITR 422 (Kar); see also CIT v Associated Food Products, (2006) 280 ITR 377 (MP); see
also CIT v Jai Mewar Wine Contractors, (2001) 251 ITR 785 (Raj); see also CIT v Duncan Brothers (1994) 209 ITR 44
(Cal); see also CIT v Kanda Rice Mills, (1989)178 ITR 446 (P&H); see also CIT v R. K. Metal Works, (1978)112 ITR 445
(P&H)

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3.1 THAT NON-LENGTHY ORDER OF THE AO DOESN'T INVOKE REVISION

Si milar view has been taken by the Hon'ble Allahabad Hi gh Court in the c as e of CIT - vs.-
Mahender Kumar Bansal38 in which resp ectfully following the decision of Allahabad Hi gh Court
in the ca se of CIT -vs.- Goyal Private F amily Specific Trust, 39has held under parano. 12 as unde
r:-
"As held by th is Court in the case of Go yal Private Family Specific Trust (supra ), we
are of th e considered opinio n that merely because the ITO had not written l engthy
order, it would not establish that the assess ment ord er passed under s ectio n
143(3)/148 of the Act is erroneo us an d prejudicial to the inter es t of the Revenu e
with out bringing assessment yea r : 200 9- 2 01 0 on record specific ins tances, which in the pres
ent case, the CIT has failed to do".
57. It is contended that any re-assessment is if there is a change of opinion on part of revenue
authorities40. The formation of opinion is premised on existing facts41 and even if AO passes non-
speaking order or does not record reasons, non-application of mind cannot be inferred42 rather
deemed opinion will be taken only if the assessee had produced all the relevant materials43.Hence,
it will be struck by ‘change of opinion’ doctrine44. The substratum of above rulings is explained
below:
58. "It does not necessarily imply that AO had discharged his duties in a perfunctory manner. The
ratio is rooted to the salutary principle that the assessee shall not be subjected to harassment if
they have furnished full particulars"45

38
CIT- vs.-Mahender Kumar Bansal, 297ITR 099

39
CIT -vs.- Goyal Private F amily Specific Trust, 171 ITR 6 98 (Alld.)
40
Dr. Girish Ahuja & Dr. Ravi Gupta, Income Tax, (11th edn. Bharat Law House)2013

41
CIT v Kalvinator of India Ltd.(2002) 174, CTR (Del)(FB)617, affirmed Kelvinator of India Ltd. (n 85).

42
Usha International v CIT (2012) 73 DTR 153 (Del); see also Idea Cellular Ltd. v CIT (2008) 301 ITR 407 (Bom)
43
CIT v Eicher Ltd.(2007) 213 CTR 57 (Del); see also CIT v H.P. Sharma (1980) 122 ITR 675 (Del).
44
Archi Agnihotri & Medha Srivastava, Interpretation of Section 147 of the Income Tax Act, 1961: Judicial Trends,
available at http://manupatra.com

45
Kalvinator of India Ltd (n 105)

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59. The presumption that official acts have been performed regularly46 is always available but such
premium to the authority exercising quasi-judicial function to take benefit of its own wrong cannot
be given47. This power is not mandatory but permissive48 and presumption is rebuttable.49 It is a
settled position of law that reviews under the garb of reassessment is not permissible50. The
intention of the legislature was not to confer power upon the AO to initiate reassessment
proceedings upon a mere change of opinion51.

[3.2] SCN WAS SERVED AS A MERE FORMALITY

60. It is submitted that the SCN was served as a mere formality and the PCIT did not respond or take
action on any grounds raised by the assessee therefore the provisions of Audi altrem partem are
violated by the rvenue.

61. It is submitted that the purpose of a show cause notice is to enable the person, against whom action
is sought to be taken, to defend his case and the same rests on the principles of natural justice.
Serving a show cause notice is not an empty formality and therefore, the principles of natural
justice are not met by merely issuing a show cause notice. The ld. PCIT has to apply his mind to
the submissions made by the assessee in response thereof and has to dispose off the objections
raised by the assessee before arriving at a finding that the order is erroneous and prejudicial to the
interest of the justice. Therefore, the ld. PCIT has himself erred by not adhering to the principles of
natural justice and it is trite law that any order passed in violation of principles of natural justice is
invalid and liable to be quashed.52

46
The Evidence Act, 1872, Section 114(e).

47
Sun Engineering (n 87)

48
Suresh Budharmal Kalyani v State of Maharashtra (1998) 7 SCC 337 (SC)
49
In International Woollen Mills v M/s Standard Wool (U.K.) Ltd. (2001) 5 SCC 265 (SC)

50
CIT v Amitabh Bachchan, ITA 4646/2010 (Bom)
51
Kalvinator of India Ltd (n 105)
52
12 ITA No. 3205/DEL/2017

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3.3 THAT ACTION OF REVENUE IS ARBITRARY

62. The assessment order is passed after due application of mind, therefore, the impugned notice and
order u/s 263 of the Act alleging that proper and adequate enquiry was not made, rendering the
Assessment Order erroneous and prejudicial to the interest of revenue, is arbitrary based on
conjecture and surmises.

3.3.1 MININUM ENQUIRY SHOULD BE HELD BEFORE REVISIONARY

JURISDICTION
The ld. PCIT has not given any finding as to how and in what manner the order of the AO on the
various issues noted in its order u/s 263 of the Act was erroneous and prejudicial to the interest of
the Revenue. The ld. PCIT has not made any enquiry on his own but simply directed the AO to
make further verification and examination therefore, the order of the ld. CIT u/s 263 of the Act
deserves to be set aside.

63. Recently, the Delhi High Court in the case of LD. PCIT v. Delhi Airport Metro Express Pvt. Ltd.53
has categorically held that for the purpose of exercising jurisdiction u/s 263 of the Act and
reaching a conclusion that the order is erroneous and prejudicial to the interest of revenue, the ld.
PCIT has toundertake some minimal inquiry and in fact where the ld. PCIT is of the view that AO
had not undertaken any inquiry, it becomes incumbent on the ld. PCIT to conduct such enquiry.

64. Further in LD. PCIT v. Modicare Limited 54, Delhi High Court has followed its decision in various
cases55 to hold that the exercise of jurisdiction u/s 263 of the Act cannot be outsourced by the CIT
to the AO and therefore, the CIT cannot direct the AO to provide details of the facts on the basis of
which the proceedings u/s 263 of the Act could have been initiated.

53
. PCIT v. Delhi Airport Metro Express Pvt. Ltd. [ITA No. 705/2017]
54
LD. PCIT v. Modicare Limited [ITA No. 759/2017]
55
Income Tax Officer v. DG Housing Projects Limited [343 ITR 329], DIT v. Jyoti Foundation [357 ITR 388] and LD.
PCIT v. Delhi Airport Metro Express Pvt. Ltd. (supra)

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65. In the instant case, the ld. PCIT, unmindful of the enquiries conducted by the AO during the
assessment proceedings and submissions made by the assessee in response to notice u/s 263 of the
Act, has merely observed that the assessment order was passed without making proper enquiries
and it is a matter of record that LD. PCIT has himself not undertaken any enquiry to reach a
conclusion that the order is erroneous and prejudicial to the interest of 17 revenue. Therefore, in
the absence of any justification for exercise of jurisdiction u/s 263 of the Act, the order of ld. PCIT
passed u/s 263 of the Act is liable to be set aside.

ISSUE 4. WHETHER THE EXPENSE IN QUESTION IS AN ALLOWBALE EXPENSE ?

66. It is vehemently submitted that the deduction claimed by the assessee company is for the
compensation paid by him to the Deputy Commissioner of Income Tax and this payment made is a
loss to the business and not an expenditure and section 37 has no application under the present case
since section 37 relates to the business expenditure and in this case the payment is not an
expenditure and hence we are not concerned about the business expenditure but with business loss.

67. It is furthermore submitted that loss incurred is a business loss that has sprung directly from
carrying on the business and even though the assessee company had been undertaking illegal
mining which is in excess or without the limit of Environmental Clearance , the compensation that
is paid to the Deputy Commissioner of Income Tax is not an expenditure to the assessee but a
business loss and hence the loss to the business the assessee company is deductible or allowable
under the profit and loss account

68. 4.1THAT THE EXPENSE IN QUESTION IS ALLOWABLE OR DEDUCTIBLE IN

PROFIT AND LOSS ACCOUNT AS BUSINESS LOSS .

69. It is most humbly submitted that deduction claimed by the company is allowable inasmuch as the
amount paid by the assessee company as compensation is a loss to business and the Hon’ble

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Supreme Court has held in a case of Dr. T. A. Qureshi vs.CIT 56that the Explanation to Section 37
has really nothing to do with the present case as it is not a case of a business expenditure but a
business loss and that business losses are allowable on ordinary commercial principles in
computing profits .
70. In Sri Ashok Kumar Agarwal Son Of Sri ... vs Commissioner Of Income Tax on 26 February,
2007......From the aforesaid decisions, it would be seen that if a person is carrying on a legal
business and also indulges in some illegal activities connected with that business, the amount of
penalty or other fine imposed for infraction of law cannot be allowed as deduction while
computing the income; where the entire business of the assessee is illegal and that income is
sought to be taxed by the Income-tax Officer then expenditure incurred in the illegal activities will
also have to be allowed as deduction while computing the income; and where, however, an
addition has been made under Sections 69, 69A, 69B and 69C the investment, in or acquisition of
gold, which had been recovered from the assessee, had not been recorded in the books of accounts
and explanation offered by the assessee was disbelieved then there does not arise any question of
treating the value of such gold, which was deemed to be the income of the assessee. as a deductible
trading loss on its confiscation, because, such deemed income did not fall under the head of
income "profits and gains of business or profession" and the activity carried on a solitary occasion
cannot be considered to be a business.

71. It is furthermore contended that it is a loss which springs directly from the carryingon of the
business and as it incidental to it and also the facts of the case are squarely covered by the decision
of the Hon’ble Supreme court in CIT V. Piara Singh . Moreover relying on the decision of the apex
court in CIT Gujarat V. S. C. Kothari it was held that for the purpose of section 10(1) of the
income tax act , 1922 a loss in carrying on an illegal business must be deducted before the true
figure of profits brought to tax can be computed Grover J. ., speaking for the Court observed :

72. “ If the business was illegal , neither the profits earned nor the losses incurred would be
enforceable in law . But, that does not take the profits out of the taxing statute . Similarly , the taint
of legality of the business cannot detract from the losses being taken into account for computation
of the amount which can be subjected to the tax as “ profits “ under section 10(1) of the Act of

56
287ITR547

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1922 . The tax collector cannot be heard to say that he will bring the gross receipts to the tax . He
can only tax profits of a trade or business. That cannot be done without deducting the losses and
the legitimate expenses of the business

73. It is furthermore vehemently contended that compensation payment made by the assessee company
for undertaking an illegal business of producing iron ore. In a decision of the Hon’ble Supreme
Court in M/S Sitalpur Sugar Works Ltd. vs. CIT the court has held that Infraction of law is not a
normal incident of business , for a business can and should be carried on without infringement or
breach of law . Anexpenditure which the assessee incurs in carrying on its business otherwise than
in accordance with law is the result of his own conduct and such an incident cannot be regarded as
incidental to the business or as an expenditure which is necessitated for carrying on the business .
In order that an amount may qualify as a revenue outgoing in computing taxable income as stated
earlier , it must be commercial loss or its nature must be contemplated as such.

74. It is contended that in this present case the assessee company has claimed deduction for the
compensation paid by the assesee company in connection with the issue of production vis-à-vis
without or in excess of Environmental Clearance , which for the assesee company is a loss and as
held by Rajasthan High Court in CIT Vs. Hiranand the revenue cannot be heard to say that it will
bring loss to tax . It can only tax profits of a trade or business and that cannot be done by deducting
losses and the legitimate expense of the business hence it essential and necessary to deduct the loss
claimed by the assessee company .

75. It is submitted that loss incurred is a business loss that has sprung directly from carrying on the
business and even though the assessee company had been undertaking illegal mining which is in
excess or without the limit of Environmental Clearance , the compensation that is paid to the
Deputy Commissioner of Income Tax is not an expenditure to the assessee but a business loss and
hence the loss to the business the assessee company is deductible or allowable under the profit and
loss account .

4.2. THAT LOSS OF THE ASSESSEE COMPANY SPRINGS DIRECTLY FROM THE
CARRYING ON OF THE BUSINESS.

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76. It is submitted that loss incurred is a business loss that has sprung directly from carrying on the
business and even though the assessee company had been undertaking illegal mining which is in
excess or without the limit of Environmental Clearance , the compensation that is paid to the
Deputy Commissioner of Income Tax is not an expenditure to the assessee but a business loss and
hence the loss to the business theassessee company is deductible or allowable under the profit and
loss account .

77. It is submitted in a case of C. Krishnalal Jain vs. CIT the Hon’ble Karnataka High Court held
that the value of the confiscated gold should be considered as a business loss which springs
directly from carrying on his activity of smuggling that clearly means the loss incurred must
materialize or emerge directly from the business and in this present case the payment of
compensation u/s 21(5) of MMRD 1922 should be considered as a loss and not an expense of the
business and this particular loss incurred is a business loss that has sprung directly from carrying
on the business of production of iron ore.
78. It is furthermore submitted before the Hon’ble Court that Infraction or violation of law is not
normal incident of trade or business and , therefore the penalty by way of confiscation of
contraband gold is not a commercial loss so as to be permissible deduction as considered by
Andhra High Court in Soni Hinduji Kushalji & Co. CIT in this present case also the loss of
the assessee company is not a commercial loss ( pilferage , theft , defective meters , errors in meter
reading , estimating un-metered supply of energy) and hence it is clear that the deduction claimed
by the assessee company is completely justifiable .
79. It is vehemently contended that any loss other than the stock-in- trade , if incidentalto the business
. will come within the purview of section 10(1) of IT Act 1961 Basantlal Sanwar Prasad Vs. CIT
as considered by the Hon’ble Patna High Court and in this present case the loss by way of
compensation towards the production of illegal mining was paid to the state Government pursuant
to the decision of the Apex Court in Common Cause’s case is contemplated as a loss incidental
to the business .

80. It is submitted that the A.O. is both an investigator and an adjudicator. If the A.O. as an
adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in

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law it can be corrected by the Commissioner in exercise of revisionary power and in this instant
case the order passed by A.O. satisfy the two cumulative condition given u/s 263 of the IT Act i.e.,
firstly the order passed by A.O. was erroneous wrong and incorrect as such the deduction allowed
by A.O. should not have been allowed under the Profit and Loss A/c and secondly it was
prejudicial to the interest of revenue .

ISSUE 5 . WHETHER THE ISSUE IS DEBATABLE UNDER THE PROVISION OF

SECTION 263 ?

81. It is submitted that when two views are possible , and the view taken by the A.O. was plausible
one , it by the CIT , that would not provide sufficient ground for CIT to assume jurisdiction u/s/
263 of IT Act merely because he had different view . In section 263 proceeding , there is no scope
for substituting one view for the other .Mere audit objection and merely because a different view
can be taken , are not enough to say that order of the Assessing Officer is erroneous or prejudicial
to the interest of revenue .

82. It is submitted that section 263 cannot be invoked to correct each and every type of mistake or
error committed by the A.O. , it is only when an order is erroneous that the section will be attracted
, an incorrect application of mind or incorrect application of law will satisfy the requirement of the
order being erroneous else the order passed by the officer will be termed as unsustainable in law
[5.1]. THAT WHEN TWO VIEWS ARE POSSIBLE REVISION UNDER SECTION 263 IS
NOT PERMISSIBLE .

83. It is most humbly submitted that if two views are possible , Revision Order u/s 263 of the IT Act is
not permissible inasmuch as decisions available in favour of the assessee at the time of issue of
notice u/s 263 and that the A.O. had taken one of the possible views does not make the order
erroneous i.e., the exercise of power by the Commissioner u/s 263 of the Act is not warranted , if it
is assumed that two views are possible on the issue as considered by the Hon’ble Delhi High Court
in CIT Vs. Dlf Power Ltd. As decided by the Hon’ble Gujarat High Court in CIT Vs. Arvind
Jewellers However , this power is not an arbitrary and uncharted power and it can be exercised on

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fulfillment of requirements laid down under sub-section 1 of section 263 of IT Act. Whether an
order of revenue is erroneous and prejudicial to the interest of the Revenue can be decided only on
materials available on record of the proceedings as held by the Hon’ble Allahabad High Court in
CIT Vs. Green Land Motors .

84. The CIT has erred in observing that the A.O. had not looked into the matter and therefore
provision of 263 of IT Act is attracted inasmuch as no proper inquiry has been done by the A.O.
That where the A.O. had made a query which had been duly explained by the assessee to the
satisfaction of the A.O. then no revision order is permissible by PCIT on the ground that no
discussion on the issue in the assessment order which lead to the assumption that the A.O. did not
apply his mind as has been considered by the Income Tax Appellate Tribunal in Shankar Tradex
Pvt.Ltd. vs. Pr. CIT .

85. It is vehemently submitted before the Hon’ble Court that the revision order given by Principal
Commissioner of Income Tax , Kolkata -1 u/s 263 of IT Act is not tenable as such this provision is
invoked merely when to correct a mistake or error committed by the A.O. unless it has caused
prejudice to the interest of the revenue It has to be shown that the order of the A.O. was not in
accordance with law , to term as erroneous as held by the Hon’ble Supreme Court in Malabar
Industrial Co. Ltd. vs. CIT .& and M/S Rassco Steels Ltd. , Kolkata vs. The PCIT , Kolkata .

86. It is furthermore submitted that the if two cumulative conditions is satisfied . Firstly order sought
to be revised should be erroneous and secondly , it should ne prejudicial to the interest of the
revenue . The expression “ prejudicial to the interest of the revenue “ is of wide import and not
confined merely to loss of tax . The term “erroneous “means a wrong/incorrect decision deviating
the law . The Commissioner cannot revise the order merely because he disagrees with the
conclusion arrived as by the Assessing Officer as to allowability of an expenditure as revenue
expenditure or because in his opinion A.O.‘s order should have been written more elaborately .

87. It is contended that every loss of revenue as a consequence of an order of the A.O. cannot be
treated as prejudicial to interest of the revenue as considered by the Hon’ble Supreme Court in CIT
Vs. Max India Ltd. Hon’ble Gujarat High Court in CIT Vs. Arvind Jewellers by relying on this

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judgment it is clear from the fact that the order passed by the A.O. cannot be said as prejudicial to
the interest of the revenue Moreover in crux of the apex court is that the CIT cannot exercise
power under section 263 of It Act in every case off loss of revenue caused as a consequence of
A.O.’s order . This section can be invoked , inter alia , where an A.O. passes order without making
further enquires to verify the representations made by the assessee are found to be untrue .

88. It is most humbly submitted before the Hon’ble Court that Bombay High Court in case of CIT Vs.
Nirav Modi has held as under :-
89. “It is settled law position in law that power under s.263can be exercisedby the CIT on satisfaction
of twin conditions viz., the assessment ordershould be erroneous and prejudicial to the revenue .
By erroneous is meant contrary to law . . Thus , this power cannot be ITA No. 2102/Del/2016
Assessment year 2011-2012 exercised unless the CIT is able to establish that the order of the A.O.
is erroneous and prejudicial to the revenue . Thus where there are two possible views and the
A.O.has taken one of the possible views , no occasion to exercise powers ofmrevision can arise .
Nor can revisional power can be exercised for directing a fuller inquiry to find out if the view
taken is erroneous ,when a view has already been taken after inquiry . The power of revision can
be exercised only where no inquiry as required under the law is done . It is not open to enquire in
cases of inadequate cases. "

5.2. THAT THE ORDER GIVEN BY THE OFFICER IS INVALID , ILLEGAL AND
UNSUSTAINABLE IN LAW

90. It is vehemently submitted before the Hon’ble Court that the revision ordergiven by Principal
Commissioner of Income Tax , Kolkata -1 u/s 263 of IT Act is not tenable as such the distinction
must be kept in mind by PCIT while exercising the jurisdiction u/s 263 of IT Act and in the
absence of the finding that the order is erroneous and prejudicial to the interest of the revenue ,
exercise jurisdiction under the said section is not sustainable .

91. It is furthermore contended that the Ld. PCIT has grossly erred in passing the order u/s 263 as
such neither the order of A.O. was erroneous nor it was prejudicial to the interest of the revenue
and hence it was sustainable in law and the claim for deduction was allowed by the Income Tax

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Officer on being satisfied with the explanation of the assessee . Such decision of the Income Tax
Officer cannot be held to be “ erroneous “ simply because in his order he did not make an elaborate
discussion in that regard as considered by Delhi High Court in CIT Vs. Nagesh Knitwears Pvt. Ltd.
and in this instant case the A.O. has enquired about the deductibility of the said amount of
compensation followed by a short reply by the Assessee’s Authorized Representative.

92. It is furthermore submitted that the A.O. had enquired about the deductibility of the said amount
as expense . Failure of the A.O. to make an inquiry before granting deduction would render the
assessment erroneous and prejudicial to the interest of revenue and in this present case the A.O.
has enquired about the deductibility of the said compensation amount and hence the power
exercised by the PCIT is not permissible . Moreover by relying on a decision of Hon’ble Delhi
High Court in the of CIT vs. Sunbeam Auto Limited where it was held as under :
“One has to keep in mind the distinction between ‘ lack of inquiry’ and ‘adequate inquiry’ . If there
was any inquiry , even inadequate , that would not , by itself , give occasion to the Commissioner
to pass orders under section 263 merely because he was different opinion in the matter . It is only
in cases of ‘ lack of inquiry ‘ that such a course of action would be open “

93. It is submitted that the A.O. is both an investigator and an adjudicator. It the A.O. as an
adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in
law it can be corrected by the Commissioner in exercise of revisionary power as considered by the
Hon’ble Delhi High Court in case of Income Tax Officer Vs. D G Housing Projects Ltd57. and in
this instant case the order passed by A.O. satisfy the two cumulative condition given u/s 263 of the
IT Act i.e., firstly the order passed by A.O. was not erroneous , wrong or incorrect as such the
deduction allowed by A.O. should not have been allowed under the Profit and Loss A/c and
secondly it was in way prejudicial to the interest of revenue . NIIT Vs. CIT & and M/s Tanish
Dealers Pvt. Ltd. Vs. PCIT

94. . Moreover in the view of the Hon’ble Supreme Court is It is only when an order is erroneous that
section will be attracted , an incorrect assumption of facts , or an incorrect application of law , will

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satisfy the requirement of the order being erroneous. The phrase prejudicial to the interest of the
revenue is not an expression of art and is not defined under the act and it is of wide import and not
merely confined to loss of tax. In case of Sarda Energy & Minerals Ltd. Vs. (Pr) CIT the
Chhattisgarh High Court held that 263 will be triggered only when the order is erroneous and
prejudicial to the interest of the revenue .

95. It is contended that the Orders which are passed without inquiry or investigation are treated as
erroneous and prejudicial to the interest of the revenue , but order which are passed after
inquiry/investigation on the question /issue are not per se or normally treated as erroneous and
prejudicial to the interest of the revenue because the revisionary authority feels and opines that
further inquiry/investigation was required or deeper or further scrutiny should be undertaken as
held by Supreme Court in the case of Director of Income Tax Vs. Jyoti foundation .
96. Hence, the PCIT din't reserved jurisdiction to excercise the said action and has acted against all the
legal principles

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PRAYER

Wherefore it is prayed, in light of the issues raised, arguments advanced, and authorities cited, that this
Hon'ble Court may be pleased to:

1. Declare that the Special Leave Petition is maintainable under Article 136 of the constitution of
India, 1950

. 2. Declare that the Hon’ble High Court of Calcutta erred in dismissing the appeal u/s 260A on the
ground that no substantial question of law is involved.

3. Declare that the Ld.PCIT was was not not justified in excercising its revisionary

4. Declare that the order passed by the Learned PCIT was perverse and is liable to be quashed since
expense in question allowable

5. Declare that the Ld. ITAT and Hon'ble HC erred in dismissing the assessee's appeal under 260A.

6. Declare that the esxceedingly inadequate enquiry and non-speaking order passed by the A.O is a
sufficient ground itself for initiating revisionary proceeding u/s 263 of the IT Act.

And Pass any other Order, Direction, or Relief that it may deem fit in the Best Interests of Justice,
Fairness, Equity and Good Conscience. For This Act of Kindness, the Appellant Shall Duty Bound
Forever Pray

Sd/-

(Counsel for the Petitioner)

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