Recently,High Court of Delhi, in Globus Infocom Ltd VS. Commissioner of Income-tax, Delhi- IV held that where Assessing Officer had specifically examined issue relating to apportionment of common expenditure and was fully satisfied with apportionment made, Commissioner cannot invoke provision under section 263 merely on assumption that order passed by Assessing Officer could possibly have been erroneous

“From a reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is „erroneous in so far as it is prejudicial to the interests of the Revenue”.The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded.

Facts of the case:

 The assesse was a company engaged in the business of providing small, medium and high end enterprise solutions all over the country. The assesse had filed its return under normal provisions. However, the return was taken up for scrutiny and the Assessing Officer had made additions to the income of assessee on both substantive and protective basis. The Assessing Officer had carried out due verification and scrutiny and was satisfied that the bifurcation/apportionment was justified and correct.

Subsequently, a notice was issued by the Commissioner under section 263. The Commissioner had issued notice by observing that commission required to be disallowed under section 36(1)(ii), as it was paid to the two Managing Directors. The Commissioner also observed that assessee had booked majority of expenses against the unit carrying out trading operations and thereby had inflated profits of the manufacturing unit for claiming exemption under section 80-IC, whereas expenses booked for eligible unit under section 80-IC were lesser than the amount as against expenses on account of trading activities.

The assesse submitted that the commission paid was duly approved by the shareholders of the company, and therefore, section 36(1)(ii) was not applicable. It  also submitted that assessee has been maintaining separate books of account for manufacturing unit receipts and expenditure which was exempt under section 80-IC and the trading activities. However, there were certain common expenses, which were to be segregated, as common expenses were not unusual, abnormal or unique in such cases. In order to carry out the said segregation, the assessee had made apportionment and the ratio thereof was indicated and informed to the Assessing Officer.

It was held that:

 High Court held that it is clear from the order passed by the Commissioner (Appeals) under section 263 that the issue relating to apportionment of common expenditure was specifically gone into and examined by the Assessing Officer, who was fully satisfied with the apportionment made. Thus, it was not a case of ‘no inquiry’ but specific and pointed enquiries by the Assessing Officer. The said finding and apportionment could have been set aside and negated only with a finding by the Commissioner, that the Assessing Officer was erroneous and wrong. The Commissioner should have examined and gone into the question of apportionment on merits, which he failed to do. Mere statement that there was a possibility that the Assessing Officer was erroneous, is not sufficient and does not meet the requirement stipulated by law.

It was held that the order of the Tribunal upholding the order of Commissioner passed under section 263 cannot be sustained. However, as the Tribunal has not considered the factual matrix or the various documents on record and has not examined the scope of section 36(1)(ii), it will be proper and appropriate if the Tribunal re-examines and re-hears the appeal on merits once again. Hence, order of remand was passed. The question of law was accordingly answered in favour of the assessee and against the respondent-revenue but with an order of remand.