Rajasthan High Court - Jaipur
C I T-1 Jaipur vs M/S Green Triveni Developer on 24 October, 2017
Author: K.S. Jhaveri
Bench: K.S. Jhaveri
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT
JAIPUR
D.B. Income Tax Appeal No. 114 / 2015
Commissioner of Income Tax-I, New Central Revenue Building ,
Statue Circle Jaipur Raj
----Appellant
Versus
M/s The Green Triveni Developer, 309-310, City Pearl, Opp. Hotel
Gangaur, M.I. Road, Jaipur
----Respondent
Connected With D.B. Income Tax Appeal No. 256 / 2016 Principal Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj.)
----Appellant Versus M/s the Green Triveni Developer, 309-310, City Pearl, Opp. Hotel Gangaur, M.I. Road, Jaipur
----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay For Respondent(s) : Mr. Siddharth Ranka with Mr. Mujjfar Iqbal _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 24/10/2017
1. By way of these appeals, the appellants have challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeals preferred by the assessee.
2. This Court while admitting the ITA No.114/2015 on 30.09.2016 framed following substantial question of law:
"Whether in the facts and circumstances of the (2 of 23) [ ITA-114/2015] case and in the law the Tribunal was justified in setting aside the order passed by CIT and quashing the finding that the assessment order is erroneous in so far as prejudicial to the interest of revenue and thereby deleting the addition of Rs.1,46,08,190/- made by the Assessing Officer by disallowing the provision for development expenses made by the assessee, ignoring the provision of Section 37(1) of the Act and wrongly holding the same to an ascertained liability?"
3. This Court while admitting the ITA No.256/2016 on 22.03.2017 framed following substantial question of law:
" Whether the Tribunal as well as CIT(A) were justified in quashing the assessment order and thereby deleting the disallowance of development expenses of Rs.1,46,08,190/- without any application of mind by merely relying upon the earlier order of the Tribunal dated 24.02.2015, ignoring that the said order is under challenge before the Hon'ble High Court?"
4. Counsel for appellant contended that the Tribunal has seriously committed error. However, counsel for respondent has relied upon the observations made by the Tribunal, wherein it has been observed as under:-
"2.6 We have heard the rival contentions and perused the material available on record. The first finding of the ld. CIT is to the effect that assessment order has been passed in a casual manner and without application of mind. In our consideration with the above correspondence, evidence and discussions during the course of assessment proceedings do not substantiate these adverse observations of ld. CIT. Consequently we are unable to agree that assessment order is erroneous or prejudicial to the interest of revenue on this score.
2.7 Apropos the allowability of JDA development charges as business expenditure, ld. CIT has no objection on assessee's following mercantile (3 of 23) [ ITA-114/2015] system of accounting in that eventuality even the accrued liabilities are to be allowed. Assessee has demonstrated that per square yard working of JDA expenses was provided to ld. AO during the assessment proceedings which is part of the record. Once the liability is accrued as per JDA circulars and AO allows the claim based on working provided by assessee; it demonstratively means that AO allowed the claim after due application of mind. Ld. CIT has not even disputed that liability is allowable as clearance has been give about liability qua the sale proceeds offered. It has been lost sight of that assessee follows mercantile method, liability is statutory and working of quantum is provided. With all this available on record we hold that the assessment order can neither be called as erroneous or prejudicial to the interest of revenue. Our views are fortified by the catena of judgments cited above, consequently the 263 order is quashed and assessee's grounds are allowed."
and decision of this Court passed in Income Tax Appeal No.147/2014, CIT v. M/s Shree Salasar Overseas (P) Ltd., passed on 29.04.2016, wherein it has been observed as under:
"7. We have already taken into consideration the salient features of the business being carried on by the assessee being a coloniser/builder, developing various colonies, developing the lands, cutting the plots and selling thereof, and have also named the colonies which have been developed by the assessee. It is admitted fact on perusal of the orders that the assessee is not charging anything over and above towards development of the internal roads electrification, sewer lines or other similar expenses for developing of the land from the ultimate buyers of plots. Equally important fact is that a plot owner would purchase a land only when it is satisfied that the plot in question would have all basic facilities of internal development not only of the plot but also of the colony which is being developed by the coloniser (assessee). Both the (4 of 23) [ ITA-114/2015] Appellate Authorities have taken into consideration the scheme of JDA for private townships wherein it has been expressly stated that the coloniser cannot charge separate charges from the buyers of the plots in addition to the cost of the land for the internal development work to be carried out by it.
Though the JDA carries out external development work, such as providing Sector Road for the colony etc. but at the expense of the coloniser. Now it is option of the coloniser to carry out the development work by itself or through the JDA. In case the coloniser opts to carry out internal development work in the colony through the JDA, it has to pay the amount to the JDA at predetermined rate prescribed by the JDA. However, if a coloniser opts to carry out internal development work of the colony by itself, then the work has to be carried out under the supervision of the JDA and the JDA monitors the quality control of the work. As per the norms of the JDA, if a coloniser opts to carry out the internal development works by itself, then the JDA takes 12.5% of the total plots as security against the internal development work of the colony to be carried out by the coloniser. The JDA releases there 12.5% plots only after completion of entire internal development by the coloniser in accordance with the quality control being specified by the JDA. In case the coloniser does not do the work of internal development, the JDA is free to sell these 12.5% plots in open market and do the work of internal development of the colony from the sale proceeds of these plots for the benefit of the plot owners. It is only when the JDA is satisfied about the infrastructural development, 'Patta' is issued and unless a 'Patta' is issued, a plot may not be salable even, as 'Patta' in a case of immovable asset in most vital and important for having ownership of a immovable asset.
8. Admittedly, the assessee is following the mercantile system of accounting and it is recognising the same on accrual basis as and (5 of 23) [ ITA-114/2015] when the possession of the plot is passed/given. The sale of plot is subject to liability of development work to be carried out in the colony in future. This liability accrues as soon as sale of a plot is made. The assessee, admittedly made a provision for development of land for the plots sold during the years under reference and actual expenses on development work incurred in the colony accounted for by reversing the provision made in respect of the plots sold by it.
9. The Appellate Authority in the instant case have taken into consideration the directives of the JDA to develop the colonies by the various works which we have already referred to hereinbefore and naturally a prospective buyers of a plot gets attracted the moment a developer/builder specifies that the land in question would be provided with basic infrastructure, such as internal roads, waterlines, sewer lines, electrification, boundary walls etc. so that once a plot holder, wants to construct a house, then for these things one need not look to other agencies. Once a sale price has been received and accounted for, the expenses which are obligatory and int eh nature of committed liability, ordinarily has to be accounted for. The development expenses as found by the Appellate Authorities, in our view as well are ascertained committed legal liability."
and following decisions, which reads as under:
1. CIT v. Max India Ltd. (2007) 295 ITR 282 (SC), wherein it has been observed as under:
2. At this stage we may clarify that under paragraph 10 of the judgment in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 this Court has taken the view that the phrase "prejudicial to the interests of the revenue " under Section 263 has to be read in conjunction with the expression "erroneous" order passed by the assessing officer. Every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the interests (6 of 23) [ ITA-114/2015] of the revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue ; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue , unless the view taken by the Income Tax Officer is unsustainable in law.
2. CIT v. Rajiv Arora (DBITA 283/2010 dated 28.08.2017 Rajasthan High Court), wherein it has been observed as udner:
11.1 Before proceeding with the matter, we may record that in view of order passed by AO and CIT(A) and taking into account the powers which are conferred under Section 263, in view of the law discussed hereinabove, we are of the considered opinion that when the assessee has filed reply dated 31.08.2009 and when he was specifically contended that in the assessment proceedings, he has filed different reply than what has been referred by the assessee in its reply before the CIT(A) on different dates which has not been considered by the CIT(A), even the explanations which are given of all the six grounds are not considered, therefore rejection of contention of the assessee and then without consideration of remaining questions remanding the matter back and passing the order Section 263 requires to be considered and the Tribunal has not committed any error in setting aside the order of CIT u/s 263.
3. CIT v. Deepak Real Estate Developers (India) Pvt. Ltd. (DBITA 581/2011 dated 03.03.2014 Rajasthan High Court), wherein it has been observed as under:-
4. The Commissioner of Income-tax, Kota (for short, hereafter referred to as "the CIT"), however, in exercise of his power under section 263 of the Act issued notice to the respondent-assessee being of the opinion that the assessment of the Assessing Officer was erroneous and was further prejudicial to the interests of the Revenue. The respondent-assessee entered appearance and submitted its detailed reply to the queries, set out in the show-cause notice. The learned Commissioner of Income-tax, thereafter, by his order dated January 7, 2010, interfered with the assessment of the Assessing Officer and directed him (Assessing Officer) to verify the details/documents, as mentioned therein and to decide the issues and (7 of 23) [ ITA-114/2015] pass a speaking order as per law, after affording an opportunity of hearing. While arriving at this conclusion, the learned Commissioner of Income-tax, however, held that the sale transactions pertaining to 3,39,496 Zyden Gentec equity shares and effected on April 20, 2005, April 28, 2005, May 6, 2005, May 12, 2005, and September 8, 2005, could not be construed to be disputed as those were supported by documentary evidence and that the Assessing Officer was justified in taking a view that those shares of Overseas Capital Ltd., as appearing in sale bill, and those of Zyden Gentec Ltd. were the same. It was, however, of the view that the Assessing Officer, having drawn that conclusion, ought to have, before accepting the said transaction as long-term capital gain, examined whether the respondent-assessee was holding the same for a period of more than one year, so as to claim exemption on that count. The Commissioner of Income-tax, however, acknowledged that the learned representative of the respondent-
assessee had brought to his notice the fact that complete details of long-term gain on sale of shares, had been filed along with computation of income and was available with the Assessing Officer during the assessment proceedings and that the materials at his disposal did contain the date of purchase of the said shares. That the period of holding of the shares involved was more than one year and that those being held as investment and STT being paid while selling the same justified the claim for exemption under section 10(38) of the Act was mentioned. The Commissioner of Income-tax accepted as well the sale of 3,39,496 shares on the aforementioned dates through its broker Inventure Growth and Securities Ltd. under the aegis of the Bombay Stock Exchange for a total consideration of Rs. 3,71,81,627.01. He held as well that the Assessing Officer was correct to conclude that shareholding of 2,18,000 shares out therefrom, was for a period of more than one year, for which the respondent-assessee had been validly granted exemption from tax under section 10(38) of the Act. Vis-a-vis the balance shares, i.e., 1,21,496 (3,39,496 - 2,18,000), the Commissioner of Income- tax noticed the stand of the respondent-assessee that the same were in physical form. Referring to the supporting documents produced on behalf of the respondent-assessee, the learned Commissioner of Income-tax observed that the same had not been filed during course of the assessment proceedings (8 of 23) [ ITA-114/2015] and thus, were not verified and commented upon by the Assessing Officer. It held the view that proper verification thereof was necessary by the Assessing Officer to ensure that 1,43,000 shares of Overseas Capital Ltd., which were received and delivered in physical form to the director of the respondent- assessee, were transferred to its demat account, so as to ensure that these were held by it (respondent- assessee) in physical form for a period of more than one year to entitle it to the benefit of exemption under section 10(38) of the Act. With regard to the amount of loan of Rs. 43,28,000, taken by the respondent-assessee from one Smt. Usha Gupta, the learned Commissioner of Income-tax held that the documents and records produced before him in connection therewith, had not been laid before the Assessing Officer earlier. He, thus, concluded that in view of the lack of enquiry and non-application of mind on the part of the Assessing Officer, the assessment was erroneous and prejudicial to the interests of the Revenue. Noticeably, the learned Commissioner of Income-tax did not record any categorical finding on any aspect of the assessment made, vide order dated September 25, 2008, that the related conclusion of the Assessing Officer was either factually incorrect or unsustainable in law, having regard to the complete materials on record.
5. Be that as it may, being aggrieved by the above determination, the respondent-assessee preferred an appeal before the Income-tax Appellate Tribunal, Jaipur Bench "A", Jaipur (for short, hereafter referred to as "the Tribunal"), which by its rendering dated March 25, 2011, interfered with the above referred decision of the learned Commissioner of Income-tax. As the text of this order, impugned in the present appeal, would reveal the learned Tribunal did notice the relevant facts in extenso and observed that the only dispute was with regard to 1,43,000 shares received in physical form and eventually shown in the demat account of the respondent-assessee. Referring to the documents/records produced before the learned Commissioner of Income-tax, the learned Tribunal recorded that he (Commissioner) had not formed any opinion that these shares had not been held by the respondent-assessee for more than one year. The learned Tribunal expressed the view that in the face of the materials before him, the learned Commissioner of Income-tax could not have formed (9 of 23) [ ITA-114/2015] any opinion that the assessment order was erroneous. It recalled the findings of the Assessing Officer, as adverted to hereinabove and concluded that the learned Commissioner of Income-tax not having come to the conclusion that the assessment order was erroneous and no reasons having been recorded to demonstrate that the same was prejudicial to the interests of the Revenue, he was not justified to refer the matter back to the Assessing Officer and that too, without examining the materials produced before him on the merits.
8. Upon hearing the learned counsel for the parties and on a consideration of the materials on record, we are inclined to sustain the plea taken on behalf of the respondent-assessee. The salient facts bearing on the debate have been outlined hereinabove. To reiterate, a bare perusal of the order dated September 25, 2008, of the Income-tax Officer (OSD), Range-1, Kota, would testify that the Assessing Officer had consciously examined all relevant records in accepting the return submitted by the respondent- assessee. Noticeably, the learned Commissioner of Income-tax, in spite of his incisive analysis of the factual details, did not find fault with any of the findings of the Assessing Officer, culminating in the ultimate conclusion that the return of the respondent-assessee was acceptable as a whole. The text of the decision of the learned Commissioner of Income-tax authenticates that the respondent- assessee had furnished to him all relevant records and documents in support of its return accepted by the Assessing Officer. The learned Commissioner of Income-tax did neither reject the said documents/records to be irrelevant, nor lacking in their probative worth. It simply remanded the matter to the Assessing Officer observing that these ought to have been laid before him and examined at the time of assessment.
9.It is no longer res integra that the revisional jurisdiction available to a Commissioner under section 263 of the Act is essentially circumscribed by the determinant that the order of the Assessing Officer is erroneous so much so that it is prejudicial to the interests of the Revenue. This statutory enjoinment carves out an extremely constricted ambit of such discretionary jurisdiction. The word "considers" applied in the statutory provision involved, signifies a (10 of 23) [ ITA-114/2015] genuine satisfaction of that authority that the order of the Assessing Officer is erroneous and that the interests of the Revenue is prejudicing thereby. Any exercise of the revisional jurisdiction, bereft of such satisfaction and/or finding that the order of the Assessing Officer is erroneous and that it is prejudicial to the interests of the Revenue and that too, based on tangible materials on record, is impermissible rendering the resultant order void.
10. Judged on the above touchstone, we are of the unhesitant opinion, having regard to the materials on record, that no interference with the impugned order of the learned Tribunal is warranted, in the facts and circumstances of the case. No substantial question of law, as contemplated by section 260A of the Act, exists to be examined.
4. ITO v. D.G. Housing Projects Ltd. 2012 (343) ITR 329 (Delhi), wherein it has been observed as under:-
16. Thus, in cases of wrong opinion or finding on merits, the CIT 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. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act.
In such matters, to remand the matter/issue to the (11 of 23) [ ITA-114/2015] Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question.
5. CIT v. Sunbeam Auto (2011) 332 ITR 167 (Delhi), wherein it has been observed as under:-
15. Even the Commissioner conceded the position that the AO made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the AO should have made further inquiries rather than accepting the explanation. Therefore, it cannot be said that it is a case of 'lack of inquiry'.
16. Having put the records straight on this aspect, let us proceed further. Is it a case where the Commissioner has concluded that the opinion of the AO was clearly erroneous and not warranted on the facts before him and, viz., the expenditure incurred was not the revenue expenditure but should have been treated as capital expenditure? Obviously not.
Even the Commissioner in his order, passed under Section 263 of the Act, is not clear as to whether the expenditure can be treated as capital expenditure or it is revenue in nature. No doubt, in certain cases, it may not be possible to come to a definite finding and therefore, it is not necessary that in all cases the Commissioner is bound to express final view, as held by this Court in Geevee Enterprise [supra]. But, the least that was expected was to record a finding that order sought to be revised was erroneous and prejudicial to the interest of the revenue. [see Sashayee Paper(supra)]. No basis for this is disclosed. In sum and substance, accounting practice of the assessee is questioned. However, that basis of the order vanishes in thin air when we find that this very accounting practice, followed for number of years, had the approval of the income tax authorities. Interestingly, even for future assessment years, the same very accounting practice is accepted.
20. Likewise, whether the Commissioner should have recorded definite finding or not, may not be very relevant factor in the present case where on the facts of this case we have found that the opinion of the AO in treating the expenditure as revenue expenditure was plausible and thus there was no material before the CIT to vary that opinion and ask for fresh inquiry.
(12 of 23) [ ITA-114/2015]
6. CIT v. Vikas Polymers (2012) 341 ITR 537 (Delhi), wherein it has been observed as under:-
9. Before we undertake the exercise of answering the reference, it is deemed expedient to reiterate the governing principles laid down by Courts with regard to the exercise of power by the Commissioner under the provisions of Section 263 of the Act. The power of suo moto revision exercisable by the Commissioner is undoubtedly supervisory in nature.
The opening words of Section 263 empowers the Commissioner to call for and examine the record of any proceedings under the Act. 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. 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 Act See Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC).
13. It is also trite that there is a fine though subtle distinction between "lack of inquiry" and "inadequate inquiry". It is only in cases of "lack of inquiry" that the Commissioner is empowered to exercise his revisional powers by calling for and examining the records of any proceedings under the Act and passing orders thereon. In Gabriel India Ltd. (supra), it was expressly observed:-
"The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity see Parashuram Pottery Works Co. Ltd. v. ITO (1977) 106 ITR 1 (SC).
It was further observed as under:-
From the aforesaid definitions as it is clear that an order cannot be termed 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, (13 of 23) [ ITA-114/2015] according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the Income Tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualized where the Income Tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the commissioner he would have estimated the income at a figure higher than the one determined by the Income Tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income Tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion.
There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.
We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income Tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income Tax 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....
15. Applying the aforesaid law to the facts of the present case, we are of the view that the exercise of revisional power by the Commissioner in the instant case was uncalled for and unjustified. It was more in the nature of roving and fishing enquiry. The Commissioner has proceeded on the assumption that no such information, as was furnished to him, was furnished at the time of assessment. The Commissioner has mentioned that the Income Tax officer has not examined the cash credits of the partners or deposits of Chit Fund. Assuming this to be so (though there does not appear to be any justification for the aforesaid observation), this may make the order erroneous, but how it is prejudicial to the interest of the revenue has not been stated by the Commissioner as he did not deal with the explanation given by the assessee in the course of Section 263 proceedings.
(14 of 23) [ ITA-114/2015]
7. DIT v. Jyoti Foundation (2013) 357 ITR 388 (Delhi), wherein it has been observed as under:-
4. Revisionary power under Section 263 of the Act is conferred by the Act on the Commissioner/Director of Income Tax when an order passed by the lower authority is erroneous and prejudicial to the interest of the Revenue. Orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interest of the Revenue, but orders 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. In Income Tax Officer versus DG Housing Projects Limited, MANU/DE/0895/2012 :
(2012) 343 ITR 329 (Del) it has been observed:
11. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer 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 an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word 'erroneous' includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits.
5. In the present case, inquiries were certainly conducted by the Assessing Officer. It is not a case of no inquiry. The order under Section 263 itself records that the Director felt that the inquiries were not sufficient and further inquiries or details should have been called. However, in such cases, as observed in the case of DG Housing Projects Limited (supra), the inquiry should have been conducted by the Commissioner or Director himself to record the finding that the assessment order was erroneous. He should not have set aside the order and directed the Assessing Officer to conduct the said inquiry.
(15 of 23) [ ITA-114/2015]
8. PCIT v. Delhi Airport Metro Express Pvt. Ltd. (ITA 705/2017 dated 05.09.2017)
10.For the purposes of exercising jurisdiction under Section 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the PCIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. All that PCIT has done in the impugned order is to refer to the Circular of the CBDT and conclude that "in the case of the Assessee company, the AO was duty bound to calculate and allow depreciation on the BOT in conformity of the CBDT Circular 9/2014 but the AO failed to do so. Therefore, the order of the AO is erroneous insofar as prejudicial to the interest of revenue".
11.In the considered view of the Court, this can hardly constitute the reasons required to be given by the PCIT to justify the exercise of jurisdiction under Section 263 of the Act. In the context of the present case if, as urged by the Revenue, the Assessee has wrongly claimed depreciation on assets like land and building, it was incumbent upon the PCIT to undertake an inquiry as regards which of the assets were purchased and installed by the Assessee out of its own funds during the AY in question and, which were those assets that were handed over to it by the DMRC. That basic exercise of determining to what extent the depreciation was claimed in excess has not been undertaken by the PCIT.
5. Learned counsel for respondent has also relied upon following judgments which reads as under:-
1. CIT v. Reliance Communication Ltd.
(2016) 76 Taxmann.com 226 (SC), wherein it has been observed as under:-
"Section 68, read with section 263, of the Income- tax Act, 1961- Cash credits (FCCBs)- Assessee raised funds by way of FCCBs during year under (16 of 23) [ ITA-114/2015] consideration-Assessing Officer completed assessment accepting income declared by assessee- Commissioner noticed that no investigation was carried out by Assessing Officer to establish name and address, genuineness and creditworthiness of actual subscribers to FCCBs in terms of section 68 - He thus passed a revisional order setting aside assessment - Tribunal noted that Assessing Officer had made detailed enquiries about aforesaid aspect and mere fact that he did not make any reference to said issue in assessment order, could not make said order erroneous and prejudicial to interest of revenues - High Court by inpugned order held that finding recorded by Tribunal being a finding of fact, no substantial question of law arose therefrom - Whether Special Leave Petition filed against impugned order was to be dismissed - Held, yes."
2. CIT v. Sunbeam Auto (2011) 332 ITR 167 (Delhi), wherein it has been observed as under:-
"12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income Tax under Section 263 of the Income Tax Act. As noted above, the submission of learned Counsel for the Revenue was that while passing the assessment order, the AO did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as Revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned Counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Section 263 of the Act, merely because he has (17 of 23) [ ITA-114/2015] different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open."
3. CIT v. Nirmala Devi Choudia (DBITA 296/2013 - dated 06.12.2016-Rajasthan High Court), wherein it has been observed as under:-
"The Tribunal while considering the case of the Department in Para 2.11 has rightly held as under:-
"2.11 We have heard the rival contentions and perused the materials available on record. We find from the record that the assessee had already filed the return of income despite that she has been wrongly accused of not filing the same; this subjected the assessee to rigor of avoidable 148 proceedings. The record and submissions filed during the course of assessment proceedings did not in any manner indicate that proper enquiries and verification were not conducted. The order of the AO though short yet crisp and clear in arriving at proper findings reflecting reasonable discharge of assessment which cannot be held as erroneous. In our considered view, the case laws cited by the Id. AR in the case of CIT vs. Sun Beam Auto Ltd. (Delhi), Malabar Industrial Co. Ltd. vs. CIT (SC) and CIT vs. Max India Ltd. (supra) support assessee's contentions. We are of view that 263 proceedings cannot be invoked where reasonable inquiries are conducted with application of mind;
there is conspicuous difference between the cases of lack of enquiry and perception about the level of enquiry. In this case it emerges that Id. CIT carried a different perception about the manner of enquiry which ought to have been conducted by the AO; however it is not sufficient to hold the assessment order as erroneous and thereby prejudicial to the interest of revenue. The plethora of case laws cited by the assessee do not support such type of exercise of power under Section 263 of the Act. Hence 263 order holding the AO's order as erroneous cannot be sustained merely because the Id. CIT holds different plausible view about manner of inquiry. Consequently, we are unable to uphold the impugned order under Section 263 of the Act passed by the Id. CIT which is quashed. Thus the appeal of the assessee is allowed."
The Tribunal has held that the case under section 263 of the Act is not made out and we are in complete agreement with the view taken by the Tribunal. Power of section 263 cannot be exercised for want of enquiry in a particular manner."
(18 of 23) [ ITA-114/2015]
4. CIT v. Fine Jewellery (India) Ltd. (DBITA 296/2016-dated 03.02.2013-Bombay HC), wherein it has been observed as under:-
"8. We find that the impugned order of the Tribunal does record the fact that specific queries were made during the assessment proceedings with regard to details of expenditure claimed under the head "miscellaneous expenses" aggregating to Rs. 2.94 crores. The respondent-assessee had responded to the same and on consideration of response of the respondent-assessee, the Assessing Officer held that of an amount of Rs. 17.98 lakhs incurred on account of repairs and maintenance out of Rs. 2.94 crores is capital expenditure. This itself would be indication of application of mind by the Assessing Officer while passing the impugned order. The fact that the assessment order itself does not contain any discussion with regard to the balance amount of expenditure of Rs. 1.76 crores, i.e., Rs. 2.94 crores less Rs. 17.98 lakhs claimed as revenue expenditure would not by itself indicate non-application of mind to this issue by the Assessing Officer in view of the specific queries made during the assessment proceedings and the respondent-assessee's response to it. In fact this court in the case of Idea Cellular Ltd. v. Deputy CIT [2008] 301 ITR 407 (Bom) has held that if a query is raised during the assessment proceedings and responded to by the assessee, the mere fact that it is not dealt with in the assessment order would not lead to a conclusion that no mind had been applied to it."
5. CIT v. Anil Kumar Sharma (2011) 335 ITR 83 (Delhi), wherein it has been observed as under:-
"5. The Tribunal after examining the facts of the case observed that although it is not discernible from the assessment order whether the assessing officer had applied his mind or not, but it was the prerogative of the assessing officer to draft his order, and if he failed to record certain findings, the assessee could not be penalized therefor. The Tribunal further observed that what has to be ascertained is whether the assessing officer had investigated the issue and applied his mind to the whole record. In this behalf it noted that the assessing officer had asked the assessee to submit the purchase deed in respect of (19 of 23) [ ITA-114/2015] the purchase of land at village Tughlakabad and that the assessee in response thereto had supplied requisite details and submitted a copy of the High Courts decision in relation to the award of compensation etc. The Tribunal, therefore, came to the conclusion that the complete details were filed before the assessing officer and that he applied his mind to the relevant material and facts, although such application of mind is not discernible from the assessment order. The Tribunal held that the CIT in proceedings under Section 263 also had all these details and material available before it, but had not been able to point out defects conclusively in the said material, for arriving at a conclusion that particular income had escaped assessment on account of non-application of mind by the assessing officer. The Tribunal, therefore, allowed the appeal of the assessee and quashed the order of the CIT passed under Section 263 of the said Act.
7. In view of the above discussion, it is apparent that the Tribunal arrived at a conclusive finding that, though the assessment order does not patently indicate that the issue in question had been considered by the assessing officer, the record showed that the assessing officer had applied his mind. Once such application of mind is discernible from the record, the proceedings under Section 263 would fall into the area of the CIT having a different opinion. We are of the view that the findings of facts arrived at by the Tribunal do not warrant interference of this Court. That being the position, the present case would not be one of "lack of inquiry" and, even if the inquiry was termed as inadequate, following the decision in Sunbeam Auto Ltd. (supra), "that would not by itself give occasion to the CIT to pass orders under Section 263 of the said Act, merely because he has a different opinion in the matter." No substantial question of law arises for our consideration. Consequently, the appeal is dismissed."
6. Moil Ltd. v. CIT (2017) 81 taxmann.com 420 (Bombay), wherein it has been observed as under:-
"5. On a perusal of the orders passed by the Authorities, it appears that before the assessment order was passed, a notice was served on the assessee under Section 142 (1) of the Act and 20 queries pertaining to different heads were made therein. The ninth query in the notice under Section 142 (1) of the Act pertains to the expenditure for the (20 of 23) [ ITA-114/2015] Corporate Social Responsibility. By the said query, the assessee was directed to give a detailed note of expenditure for the Corporate Social Responsibility along with bifurcation of the expenses under different heads. An exhaustive reply was submitted by the assessee to the notice under Section 142 (1) of the Act. In paragraph 8 of the reply, the assessee gave the detailed note pertaining to the expenditure for the Corporate Social Responsibility under different heads that runs into several pages. The heads under which the expenses were made towards the Corporate Social Responsibility were specifically mentioned as health, environment, sports, education etc. and for each of the different heads, particulars were given in respect of every minor or major expenses. A detailed note on the expenditure on the Corporate Social Responsibility claim was given in paragraph 8 which runs into more than five pages. It is not disputed that the appellant - assessee is a Government of India undertaking and the Government has a control over the expenses of the undertaking. It is pertinent to note that during the previous assessment years, similar claims were made by the assessee - Company and the assessment orders allowing the claims have attained finality. We have minutely perused the assessment order. The claims for deductions were made by the assessee at least under 20 heads and queries were made in the notice under Section 142 (1) of the Act to the assessee in respect of nearly all of them. We, however, find from the assessment order that the Assessing Officer has dealt with nearly nine claims of deductions. These claims have been specifically mentioned in the assessment order and they have been discussed therein because the Assessing Officer appears to have disallowed those claims either partially or totally. In respect of the claim for the Corporate Social Responsibility and some other claims that were allowed by the Assessing Officer, the Assessing Officer has not made a specific reference in the assessment order. It is apparent from the assessment order that the Assessing Officer has expressed in detail about the claims that were disallowable. Where the claims were allowable, as we find from the reading of the assessment order, the Assessing Officer has not referred to those claims. The Corporate Social Responsibility claim is one of them. It is apparent from the notice under Section 142 (1) of the Act that a specific query in (21 of 23) [ ITA-114/2015] regard to the claim pertaining to the Corporate Social Responsibility was made and a detailed note after giving bifurcation of the expenses under different heads was sought. We have perused the response in respect of this query which is exhaustive. We find that the assessee has given the details, as are sought under query No. 9 in the notice under Section 142 (1) of the Act. If that is so, the judgments, reported in (2015) 372 ITR 303 (Bom.) and (2016) 138 DTR 81 (Bom.) and on which the learned Counsel for the assessee has placed great reliance would come into play. It is held in the judgments referred to herein above by relying on the judgment in the case of Idea Cellular Ltd. (Supra) that if a query is raised during the assessment proceedings and the query is responded to by the assessee, the mere fact that the query is not dealt with in the assessment order would not lead to a conclusion that no mind has been applied to it. In the case of Fine Jewellery (India) Ltd. (Supra) this Court found that from the nature of the expenditure as explained by the assessee in that case the Assessing Officer took a possible view and therefore, it was not a case where the provisions of Section 263 of the Act could have been resorted to.
Considering the explanation of the assessee in this case, we are also of the view that the Assessing Officer had taken a possible view. In the case of Nirav Modi (Supra) this Court held that the Tribunal was justified in that case in cancelling the order under Section 263 of the Act as the assessee had responded to the query made to it during the assessment proceedings and merely because the assessment order did not mention the same, it would not lead to a conclusion that the Assessing Officer had not applied his mind to the case. In the instant case, we find that the Assessing Officer has applied his mind to the claims made by the assessee and wherever the claims were disallowable they have been discussed in that assessment order and there is no discussion or reference in respect of the claims that were allowed. In view of the law laid down in the judgments in the case of Fine Jewellery (India) Ltd. (Supra) and Nirav Modi (Supra) it would be necessary to hold that in the circumstances of the case, it cannot be said that merely because the Assessing Officer had not specifically mentioned about the claim in respect of the Corporate Social Responsibility, the Assessing Officer had passed the (22 of 23) [ ITA-114/2015] assessment order without making any enquiry in respect of the allowability of the claim of Corporate Social Responsibility. In our view, the provisions of Section 263 of the Act could not have been invoked by the Commissioner of Income Tax in the circumstances of this case. The Tribunal was not justified in holding that the query under Section 142 (1) of the Act was very general in nature and the reply of the assessee was also very general in nature. In our considered view, the query pertaining to Corporate Social Responsibility was exhaustively answered and the appellant - assessee had provided the data pertaining to the expenditure under each head of the claim in respect of Corporate Social Responsibility, in detail. The Tribunal was not justified in holding that the reply/explanation of the assessee was not elaborate enough to decide whether the expenditure claim was admissible under the provisions of the Income Tax Act. The Assessing Officer is not expected to raise more queries, if the Assessing Officer is satisfied about the admissibility of claim on the basis of the material and the details supplied. In the facts and circumstances of the case, we answer the question of law in the negative and against the revenue."
7. CIT v. Honda Siel Power Products Ltd. (2011) 33 ITR 547 (Delhi), wherein it has been observed as under:-
18. From the aforesaid discussion, it is apparent that the expression prejudicial to the interest of revenue appearing in Section 263 has to be read in conjunction with the expression 'erroneous' and that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. In cases where the Assessing Officer adopts one of the courses permissible in law or where two views are possible and the Income Tax Officer has taken one view, the Commissioner of Income Tax cannot exercise his powers under Section 263 to differ with the view of the Assessing Officer even if there has been a loss of revenue. Of course, if the Assessing Officer takes a view which is patently unsustainable in law, the Commissioner of Income Tax can exercise his powers under (23 of 23) [ ITA-114/2015] Section 263 where a loss of revenue results as a consequence of the view adopted by the Assessing Officer. It is also clear that while passing an order under Section 263, the Commissioner of Income Tax has to examine not only the assessment order, but the entire record of the profits. Since the assessee has no control over the way an assessment order is drafted and since, generally, the issues which are accepted by the Assessing Officer do not find mention in the assessment order and only those points are taken note of on which the assessee's explanations are rejected and additions / disallowances are made, the mere absence of the discussion of the provisions of Section 80IB(13) read with Section 80IA(9) would not mean that the Assessing Officer had not applied his mind to the said provisions. As pointed out in Kelvinator of India (supra), when a regular assessment is made under Section 143(3), a presumption can be raised that the order has been passed upon an application of mind. No doubt, this presumption is rebuttable, but there must be some material to indicate that the Assessing Officer had not applied his mind.
6. In view of above, the issues are required to be answered in favour of assessee and against the department.
7. The appeals are dismissed.
(VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J.
Chouhan/23-24