Income Tax Appellate Tribunal - Kolkata
M/S Luxmi Township & Holdings Ltd., ... vs A.C.I.T.,Circle-11(2), Kolkata on 9 August, 2019
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ITA No. 468/Kol/2019
M/s. Luxmi Township & Holding Ltd. AY- 2014-15
आयकर अपील य अधीकरण, यायपीठ - "B" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH: KOLKATA
(सम ) ी पी. एम.जगताप, उपा य एवं ी ए.ट . वक!, या"यक सद$य)
[Before Shri P.M. Jagtap, Vice President & Shri A. T. Varkey, JM]
I.T.A. No. 468/Kol/2019
Assessment Year: 2014-15
M/s. Luxmi Township & Holding Ltd. Vs. Assistant Commissioner of Income-tax,
(formerly known as M/s. Luxmi Circle-11(2), Kolkata.
Township Ltd.) (PAN:AAACL5480C)
Appellant Respondent
Date of Hearing 11.07.2019
Date of Pronouncement 09.08.2019
For the Appellant Shri Soumitra Choudhury, Advocate
For the Respondent Shri Radhey Shyam, CIT, DR
ORDER
Per Shri A. T. Varkey, JM:
This appeal preferred by the assessee is against the revision order of the Ld. Pr. CIT- 4, Kolkata passed u/s. 263 of the Income-tax Act, 1961 (hereinafter referred to as the "Act") dated 21.02.2019 for AY 2014-15.
2. Brief facts of the case are that the assessee company is engaged in the business of development of real estate and construction. Beginning from the year 2007, the appellant entered into identical worded Finance Assistance Agreements ('FA Agreements') with six different land owning companies ('LOCs') to enable them to purchase tracts of land in the vicinity of Darjeeling. In lieu of such financial assistance, the appellant was provided the first right of refusal to purchase the land parcels and/or acquire the developments rights in these land parcels for undertaking a real estate project. The rights which were conferred on the appellant for providing such financial assistance were set out in Clause (3) of the FA Agreement. The relevant clause (3) of the FA agreement with one of the LOC is reproduced hereunder:
2 ITA No. 468/Kol/2019M/s. Luxmi Township & Holding Ltd. AY- 2014-15
"3. RIGHTS OF LTL 3.1 In consideration of LTL making available the Aggregate Financial Assistance Amount, the LOC agrees and acknowledges that, in he even the LOC proposes to transfer the ownership over the land parcels or the development right over the Land Parcels to any third party, whichever is earlier, LTL shall have the right but not the obligation to, acquire all of the Land Parcels at a mutually agreed value or have the exclusive development right over all of the Land Parcels, as the case may be, and the consideration payable by LTL to the LOC for acquiring ownership over such Land Parcels or development right, as contemplated in this Agreement, shall be adjusted against the amount drawn-down under the Facility and outstanding as of the date of payment."
3. All the six FA agreements also contained a clause for payment of liquidated damages in the event of default by the LOCs. In the event of default i.e. if the LOC did not transfer the ownership in land and/or the development right or transferred it to third party without affording the first right of refusal to the appellant, then the LOC was required to pay liquidated damages in the manner as prescribed in the Agreement. The relevant Clause (7) - Liquidated Damages of FA agreement with one of the LOC is reproduced hereunder:
"7. Liquidated Damages 7.1 In the event that the LoC transfers the ownership over the Land Parcels; or grants development right in relation to the Land Parcels to any third party developer, without offering the same to LTL in the manner contemplated under Clause 3.1 ("Default Event"), then LTL shall have the right to require the LoC to pay LTL.
7.1.1 alumpsum compensation upto
(a) Rs.6,12,00,000(Rupees six crores twelve lacs), in the event the facility advanced exceed Rs.10,00,00,000 (Rupees ten crores); or
(b) Rs.3,06,00,000 (Rupees three crores six lacs), in the event the facility advanced exceeds Rs.5,00,00,000(Rupees five crores) but does not exceed Rs.10,00,00,000 (rupees ten crores); or ( c) Rs.1,50,00,000(Rupees one crore fifty lacs) or the amount advanced as Facility, whichever is lower, in the event the Facility advanced does not exceed Rs.5,00,00000 (Rupees five crores); and 7.1.2 a default interest rate of 18% per annum ("Default Interest Rate") on the amount advanced as of the date of the occurrence of the Default Event, commencing from the date of initial disbursement. For the avoidance of doubt it is clarified that, such Default Interest Rate would be also payable in relation to any amount repaid by the LoC to LTL prior to the occurrence of the Default Event, in relation to which, no interest has been paid by the LoC.
The aggregate of such amount payable under Clause 7.1.1.and 7.1.2 be collectively referred to herein after as "Liquidated Damages Due"."
3 ITA No. 468/Kol/2019M/s. Luxmi Township & Holding Ltd. AY- 2014-15
4. Thereafter, in the year 2013, all the six LOCs entered into a Development Agreement with M/s Lumi Portfolio Limited ('LPL') instead of the appellant and accordingly assigned the development rights in the land parcels purchased by them in favour of a third party developer. Since the LOCs had defaulted in transferring the rights in land to the appellant or for that matter not affording the first right of first refusal to the appellant prior to entering into Development Agreement with LPL; the appellant invoked Clause (7) of the FA Agreements and demanded payment of liquidated damages. The issue however could not be settled amicably and hence the same was referred for arbitration. Shri Bhaskar Sen Bar at Law,the Sole Arbitrator by his separate awards granted liquidated damages aggregating to Rs.16.90 crores to the appellant. The assessee claimed this amount as capital receipt in its return of income and pleaded that the said receipt was not chargeable to tax as income in India since it is in the nature of windfall received on loss of a source of income / capital asset. In the audited financials for the year ended 31st March 2014, the said receipt of liquidated damages was directly credited to the Capital Reserve and the following disclosure was given in Note No. 5.14 accompanying the annual financial statements.
"5.14- Addition to Capital Reserve Luxmi Township Ltd. had entered into Financial Assistance Agreements with six companies for providing financial assistance to such companies to help them purchase land parcels in consideration of right to purchase or develop such land parcels.
Subsequently all the six companies transferred the right of development over the land parcels to another company by virtue of six tripartite agreement to which this company was a party. These agreements provided for liquidated damages in favour of this company in accordance with the provisions of the individual Financial Assistance Agreements.
On the basis of legal opinion received by the Company based on the judgement of the Hon'ble Supreme Court in Oberoi Hotels Pvt.Ltd. vs. Commissioner of Income Tax (1999) 236 ITR 903(SC), the company has taken a view that the lump sum compensation are in the nature of capital receipts. Based on such legal opinion, the company has credited such amount of compensation to Capital Reserve."
5. In the course of assessment the AO vide notice u/s 142(1) dated 30.11.2016 required the appellant to furnish the details of the amount credited to capital reserve and also offer explanation as to why it was not shown as income in the year under consideration. In response the appellant furnished a detailed write-up with regard to the nature of receipt by way of liquidated damages of Rs.16,90,00,000/- credited to Capital Reserve along with the 4 ITA No. 468/Kol/2019 M/s. Luxmi Township & Holding Ltd. AY- 2014-15 relevant FA Agreements & Arbitration Award. The appellant relying on the judgments of the Hon'ble Supreme Court in the cases of Kettlewell Bullen & Co. Ltd Vs CIT (53 ITR
261), Oberoi Hotel Pvt Ltd Vs CIT (supra)& Karam Chand Thapar & Bros Pvt Ltd Vs CIT (supra); claimed that the aforesaid receipt was in the nature of capital receipt and hence not liable to tax. No adverse inference thereafter was drawn by the AO in this regard while passing assessment order u/s 143(3) on 21.12.2016. Thereafter, an audit memo dated 01.06.2017 was issued by the Assistant Audit Officer. Referring to the assessment records, the Audit Officer observed that the liquidated damages received by the appellant, was in the nature of business income assessable under Section 28(ii) and not a capital receipt. According to the audit officer the appellant was engaged in the business of real estate and therefore any loss of source of revenue generation in the same field was a taxable as business income. It is noted that the AO in his reply dated 05.06.2017 set out his views and objected to the aforesaid audit memo. After setting out the facts of the case, the AO stated that he was of the view that the liquidated damages paid by the LOCs were towards the loss of the source of income since the appellant was denied to obtain the rights in the land parcels to carry out a real estate project. Placing reliance on the judgment of the Hon'ble Supreme Court in the case of Oberoi Hotel Pvt Ltd Vs CIT (236 ITR 903)&Karam Chand Thapar& Bros Pvt Ltd Vs CIT (80 ITR 167), the AO pleaded that the amount received by the appellant was for giving up the right to purchase and/or operate the property which was a loss of source of income and hence in the nature of capital receipt. The AO further referred to the relevant clauses of Section 28 of the Act and claimed that the provisions of Section 28(ii) were not applicable in the given facts of the case. The Assistant Audit Officer however did not agree with the observations of the AO and rebutted the same. Thereafter the Ld. Pr. CIT invoked section 263 of the Act and show caused the assessee vide notice dated 25.01.2019 wherein it was stated as follows:
"2. In the instant case, the assessee company filed its return of income for the assessment year 2014-15 on 26-09-2014 declaring total income at Rs.7,51,43,490/-. Subsequently the case was selected for scrutiny under CASS and assessment order under section 143(3) of the Income Tax Act, 1961 (to be referred to as Act hereinafter) was passed on 21-12-2016 at an assessed income of Rs.8,16,97,480/-.
3. Subsequently, the assessment records of the assessee were called for & on the basis of the verification of the material available on records, it was found that the order 5 ITA No. 468/Kol/2019 M/s. Luxmi Township & Holding Ltd. AY- 2014-15 of assessment was erroneous so far as it is prejudicial to the interest of revenue on the following grounds:-
"On perusal of Assessment record it is observed that the assessee had undergone an agreement for purchase of land with 06 (Six) other companies. During the year the assessee company was approached by the six companies with whom it had entered an agreement for the purchase and develop the land to surrender its contractual right. Subsequently, the matter was referred to the Arbitration for hearing and settlement, who granted an award requiring the land owning companies to pay compensation to the assessee company to surrender its leasehold right. The assessee has treated such compensation as received from the aforementioned companies as Capital receipt. However it has no concrete explanation as to why such receipt should not be treated as revenue receipt and why it has not been offered for taxation.
4. In light of the above, I am of the opinion that prima facie the order dated 21- 12-2016 passed u/s 143(3) of the Income Tax Act, 1961 is erroneous so far as prejudicial to the interest of revenue. You are, therefore, requested to appear personally or through your Authorised Representative before me at my Room 6th floor, AayakarBhawan, P-7, Chowringhee Square, Kolkata-700069 on 04.02.2019 at 12.30 P.M. along with your written submissions, if any to sow as to why the assessment made u/s. 143(3) of the Income Tax Act, 1961 on 21-12-2016 should not be revised u/s 263 of the Income Tax Act, 1961."
6. In reply, the appellant furnished its objections on 11.02.2019. The Ld. Pr. CIT was however not agreeable to the contentions put forth and by his order dated 21.02.2019 he revised the assessment order holding that the AO never enquired into the correct character of the receipt and that the issue raised in the SCN required verification afresh. He accordingly held the assessment order dated 21.12.2016 passed by the AO to be erroneous in so far as it was prejudicial to the interests of the Revenue on the ground of lack of enquiry. Aggrieved by therevision order of ld. Pr.CIT, the appellant is now in appeal before us.
7. We have heard the rival submissions of both the parties. It is the argument of the Ld. AR that from the facts of the case it cannot be said that the AO did not enquire into the specific issue regarding the character of the receipt of liquidated damages of Rs.16,90,00,000/-. Inviting our attention to the notice u/s 142(1), the reply submitted by the appellant and the AO's response to the audit memo, the Ld. AR submitted that it was not at all a case of lack of enquiry in as much as the AO had applied his mind to the facts of the case to arrive at a plausible view that the receipt of Rs.16,90,00,000/- being capital in nature 6 ITA No. 468/Kol/2019 M/s. Luxmi Township & Holding Ltd. AY- 2014-15 and therefore was not liable to tax. He further submitted that there are at least two perspectives which are forthcoming viz., perspective of capital receipt propounded by the assessee, and the perspective of business income proposed by the ld. Pr.CIT. According to him, when more than one view is legally possible and the AO has taken one of such possible view which cannot be said to be unsustainable in law, it is not open for the CIT to invoke jurisdiction u/s. 263 of the Act only to superimpose his opinion on an otherwise plausible opinion of the AO which was also quite probable having regard to the facts and circumstances of the case. For these reasons, he prayed to quash the order of ld. Pr.CIT passed u/s. 263 of the Act.
8. Per contra, the Ld. DR argued that, in the given facts of the present case, the AO had failed to examine the important factual aspects of this transaction and therefore the view taken by the AO being patently wrong and which is apparent from the face of record the order was rightfully revised by the ld. Pr. CIT. He thus claimed that the ld. Pr.CIT was justified in invoking the provisions of section 263 of the Act. According to him, in this matter the AO failed in his duty to complete the assessment with proper enquiry and diligence. Arguing so, the Ld. DR heavily relied on the order of ld. Pr.CIT.
9. After giving a thoughtful consideration to the facts and circumstances of the case, the point that arises for our consideration is whether the finding of the ld. Pr.CIT that the AO's order is erroneous and prejudicial to Revenue on account of lack of enquiry on the part of AO was factually and legally justified and sustainable. We note that the assessee company has challenged in the first place, the very usurpation of jurisdiction by ld. Pr.CIT to invoke his revisional powers enjoyed u/s 263 of the Act. To adjudicate this issue we have to first see whether the requisite jurisdiction necessary to assume revisional jurisdiction existed before the Pr. CIT exercised his powers. For that, we have to examine whether in the first place the order of the Assessing Officer found fault by the Principal CIT, was erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon'ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions should be satisfied before jurisdiction u/s 263 of the Act is exercised by the CIT. The twin conditions which need to be satisfied are that (i) the order of the Assessing Officer must be 7 ITA No. 468/Kol/2019 M/s. Luxmi Township & Holding Ltd. AY- 2014-15 erroneous and(ii) as a consequence of passing an erroneous order, prejudice is caused to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous i.e. (i) if the Assessing Officer's order was passed on assumption of incorrect facts; or assumption of incorrect law; (ii) Assessing Officer's order is in violation of the principles of natural justice; (iii) if the AO's order is passed by the without application of mind; or (iv) if the AO has not investigated the issue before him. In the circumstances enumerated above only the order passed by the Assessing Officer can be termed as erroneous for the purpose of S.263 of the Act. Coming next to the second limb, the AO's erroneous order can be revised by the CIT only when it is shown that the said order is prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction with an "erroneous" order passed by the Assessing Officer. For invoking powers conferred by S.263; the CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but CIT must also further show that as a result of an erroneous order some real and tangible loss is caused to the interest of the revenue. Their Lordship in the said judgment therefore held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. It further observed that when the Assessing Officer adopts one of the course permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law.
10. In the given facts of the present case the only fault found by the ld. Pr. CIT to interfere with the order of AO was the alleged lack of enquiry in respect of the liquidated damages of Rs.16,90,00,000/- which was claimed to be in the nature of capital receipt and for which he held the assessment order to be erroneous and prejudicial to interest of the Revenue. In the opinion of the ld. Pr.CIT; before completing the assessment; the AO did not conduct the enquiries which he was expected to conduct into the character of receipt. We 8 ITA No. 468/Kol/2019 M/s. Luxmi Township & Holding Ltd. AY- 2014-15 are aware of the fact that the Assessing Officer's role while framing an assessment is not only as an adjudicator but he is also an investigator. The AO has a dual role to perform i.e. he is an investigator as well as an adjudicator and therefore, if he fails in any one of the two roles as afore-stated, his order can be termed as erroneous. From the order of the Ld. Pr. CIT, we note that he found fault with the AO's role of an investigator and that he did not properly investigate into the facts of the case before taking a view that the liquidated damages received by the assessee being capital receipt was not liable to tax.
11. Keeping the above in mind, we note that in the given facts of the present case the AO had made specific enquiry regarding the nature of liquidated damages. Vide notice u/s 142(1) dated 30.11.2016 which is available at Page 7 of the paper book, the AO had required the appellant to furnish the following details:
"3. You have shown an addition to the Capital Reserve of Rs.16,90,00,000/- in your audited Financial Statement/Balance Sheet and you are requested to submit the documents/evidences regarding this and offer your explanation as to why this amount has not been shown as your income for the year under consideration."
12. We note that in compliance with the AO's notice u/s.142(1) the appellant furnished the required details along with an explanation vide its submission dated 30.11.2016. The appellant furnished copies of the FA agreements, arbitration award and the legal opinion received from a Senior Advocate regarding the character of receipt and its taxability. The appellant had also furnished a written note outlining the factual matrix and the reasons for which the receipt of liquidated damages was treated to be in the natureof capital receipt. On examination of the details furnished, we find that all the requisite details were furnished by the appellant which enabled the AO to make enquiries into the nature and character of receipt and its taxability. Hence we do not find any substance in the impugned order wherein it has been held that AO's order suffered infirmity on account of lack of enquiry.
13. In order to understand the difference between "lack of inquiry" and "inadequate inquiry" and when it can be termed as erroneous, let us look at the judgment of the Hon'ble Calcutta High Court in the case of CIT Vs J.L. Morrison (I) Ltd (366 ITR 593), wherein on 9 ITA No. 468/Kol/2019 M/s. Luxmi Township & Holding Ltd. AY- 2014-15 similar facts & circumstances, their Lordships explained the difference between the two as follows:-
"14. The case of the CIT in his notice dated 26th November, 2009 under Section 263 of the Act reads as follows :--
"1. During the said A.Y., you have received a sum of Rs.18.00 Crore from M/s. Beierdorf AG., Germany (BDF) as one-time settlement for termination of contracts of producing and selling of the products of the latter company in India as well as issuing a NOC for setting up a 100% subsidiary by them in India. The said receipt should have been considered as income in the ambit of either Sec.28 or Sec.56, if the same is considered as voluntary payment on a goodwill gesture as pointed out by you. But, the said receipt has been allowed to be transferred directly to Capital Reserve Account while passing the assessment order for the A.Y. 2006-07."
....
76. He drew our attention to the notice under Section 142(1) of the Act and in particular to the annexure thereto from which it would appear that the assessing officer wanted the assessee to "furnish in writing and verified in the prescribed manner information called for as per annexures and on the points or matters specified therein before me at my office at 18, RabindraSarani, Poddar Court, 5th Floor, on 04.02.2008 at 11.30 AM.". The annexure to the notice under Section 142(1) of the Act reads as follows:--
'Requisition u/s 142(1) of the IT Act '61.
M/s. J. L. Morison (India) Ltd. - AY 06-07.
(1) A write-up on receipt of Rs.18 crore from foreign co.
(2) A write-up on Sales Tax Department loan from Maharastra Govt.
(3) Details of addition to Fixed Assets.
(4) Name & Address of S/Cr.
(5) Details of Bank A/c with address & A/c No. of Bank.
(6) Details of Advances & other deposits.
(7) Name & address of S/Cr.
(8) Details of other deposits - proof of payment of 43B items.
(9) Proof of payment of dividend tax if any.
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ITA No. 468/Kol/2019
M/s. Luxmi Township & Holding Ltd. AY- 2014-15
(10) Details of Misc Income.
(11) Details of purchases for more than Rs. One lakh.
(12) "" of Trading Goods.
(13) " "of Repair to others.
(14) " "of Travelling Expense - if foreign Travel details thereof.
(15) Name & address of commission of Royalty payees.
(16) Details of Damages.
(17) quot; of Misc Expenses.'
77. Mr. Poddar also drew our attention to the reply dated 19th March 2008 given by the assessee to the notice, dated 21st January 2008, under Section 142(1) of the Act. He contended that all the requisite particulars were furnished together with documents.
Thereafter, the matter was heard from time to time by the assessing officer as would appear from the List of Dates submitted by Mr. Nizamuddin, learned advocate for the appellant. From the list of dates it appears that on 21st January, 2008 notice under Section 142(1) was issued. On 4th February, 2008 the Assessee appeared and filed details and particulars. On 18th February, 2008, 4th March, 2008, 19th March, 2008 and 26th March, 2008 the matter was heard. The Assessing Officer has recorded in the order sheet that the case was discussed and the official documents and particulars were filed by the Assessee.
78. Mr. Poddar contended that the fact that the Assessing Officer had issued the notice under Section 142(1) of the Act requiring the assessee to give particulars and to furnish documents in respect of seventeen items indicates that the Assessing Officer had in fact applied his mind. Without application of mind, according to him, the aforesaid notice itself could not have been issued. The fact that all the requisite papers required by the Assessing Officer were duly furnished and the matter was discussed from time to time on the various days indicated above, appearing from the assessment records produced by Mr. Nizamuddin, leave no scope for any doubt as regards the fact that the Assessing Officer after satisfying himself passed the order dated 28th March, 2008.
79. Mr. Poddar also drew our attention to the impugned judgment of the learned Tribunal which reads as follows:--
"Therefore, on combined reading of the assessment order for the assessment year under consideration along with the order sheet entries, it can be said that the A.O. had carried out such enquiry as the circumstances warranted and permitted before accepting the claim of the assessee and passing assessment order accordingly. It was an entirely different matter that the Commissioner did not agree with the conclusion derived by the A.O. from the enquiries made. Failure to carry out an enquiry is one thing and in such cases the commissioner would 11 ITA No. 468/Kol/2019 M/s. Luxmi Township & Holding Ltd. AY- 2014-15 be justified in saying that the mere failure to make any enquiry was erroneous and prejudicial to the interests of the Revenue. But it would not be open to him to hold that the assessment order was erroneous and prejudicial to the interests of the revenue merely because he is of the opinion that some more enquiries are required to be made and he could not agree with the conclusion arrived at by the A.O. from the enquiries made. It was after verifying the books of account and various materials gathered from the assessee during assessment proceeding and after considering the explanation offered by the assessee that the A.O. had exercised a judicial discretion in the matter while completing the assessment u/s 143(3) of the Act. In such circumstances, the view taken by the A.O. cannot be said to be prejudicial to the Revenue nor can it be said to be erroneous simply because in his order the A.O. did not make any elaborate discussions in that regard."
80. Mr. Poddar contended that neither before the Tribunal nor in the present appeal has any question has been suggested that the assessment order was bad because the same did not disclose any reasons. The contention raised and the judgments cited by Mr. Nizamuddin, as regards exercise of power u/s. 263 of the Act, are misconceived, and also out of the context.
81. Mr. Poddar contended that the finding of the learned Tribunal that the order dated 28th March, 2008 was not passed without application of mind has not been challenged before this Court. No attempt far less any serious attempt was made on behalf of the revenue to demonstrate that the order passed on 28th March, 2008 by the Assessing Officer was wrong either on facts or law. The appellant has also not been able, nor in fact has made any attempt to establish that the finding of the learned Tribunal that the order dated 28th March, 2008 was not passed without the application of mind is based otherwise than on evidence. On the contrary, the records of assessment, the list of dates produced by Mr. Nizamuddin go to establish that the assessment order was passed after due application of mind.
82. Mr. Poddar contended that there is no provision in the Income Tax Act which requires the Assessing Officer while accepting the claim of the assessee to pass a reasoned order. The reasons, according to him, are required only when an issue is decided against the assessee. He also drew our attention to the judgment in the case of S.S Gadgil v. Lal & Co. [1964] 53 ITR 231, wherein the Apex Court held as follows :--
"A proceeding for assessment is not a suit for adjudication of a civil dispute. That an income tax proceeding is in the nature of a judicial proceeding between contesting parties, is a matter which is not capable of even a plausible argument. The Income Tax authorities who have power to assess and recover tax are not acting as judges deciding a litigation between the citizen and the State: they are administrative authorities whose proceedings are regulated by statute, but whose function is to estimate the income of the taxpayer and to assess him to tax on the basis of that estimate. Tax legislation necessitates the setting up of machinery to ascertain the taxable income, and to assess tax on the income, but that does not impress the proceeding with the character of an action between the citizen and the State."
83. He also drew our attention to the judgment in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 /71 Taxman 585 (Bom.) '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.
12 ITA No. 468/Kol/2019M/s. Luxmi Township & Holding Ltd. AY- 2014-15 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.'
84. The aforesaid views expressed by the Bombay High Court was quoted in the case of CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167/[2010] 189 Taxman 436 (Delhi).
85. He also drew our attention to a judgment of the Punjab & Haryana High Court in the case of Hari Iron Trading Co. v. CIT [2003] 263 ITR 437/131 Taxman 535, wherein the following views were expressed:--
"The expression "record" has also been defined in clause (b) of the Explanation so as to include all records relating to any proceedings available at the time of examination by the Commissioner. Thus, it is not only the assessment order but the entire record which has to be examined before arriving at a conclusion as to whether the Assessing Officer had examined any issue or not. The assessee has no control over the way an assessment order is drafted. The assessee on its part had produced enough material on record to show that the matter had been discussed in detail by the Assessing Officer. The least that the Tribunal could have done was to refer to the assessment record to verify the contentions of the assessee. Instead of doing that, the Tribunal has merely been swayed by the fact that the Assessing Officer has not mentioned anything in the assessment order. During the course of assessment proceedings, the Assessing Officer examines numerous issues. Generally, the issues which are accepted do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made. As already observed, we have examined the records of the case and find that the Assessing Officer had made full inquiries before accepting the claim of the assessee qua the amount of Rs.10 lakhs on account of discrepancy in stock. Not only this, he has even gone a step further and appended an office note with the assessment order to explain why the addition for alleged discrepancy in stock was not being made. In the absence of any suggestion by the Commissioner as to how the inquiry was not proper, we are unable to uphold the action taken by him under section 263 of the Act."
86. Whether the assessment order dated 28th March, 2008 was passed without application of mind is basically a question of fact. The learned Tribunal has held that the assessment order was not passed without application of mind. The records of the assessment including the order sheets go to show that appropriate enquiry was made and the assessee was heard from time to time. In deciding the question Court has to bear in mind the presumption in law laid down in Section 114 Clause - e of the Evidence Act:--
"that judicial and official acts have been regularly performed;"
87. Therefore, the Court has to start with the presumption that the assessment order dated 28th March 2008 was regularly passed. There is evidence to show that the assessing officer had required the assessee to answer 17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind the questions raised by him in the annexure to notice under Section 142 (1) of the Act could not have been formulated.
88. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain his income and to levy appropriate tax on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under
no obligation to justify as to why was he satisfied. On the top of that the Assessing Officer by 13 ITA No. 468/Kol/2019 M/s. Luxmi Township & Holding Ltd. AY- 2014-15 his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He was as such under no obligation in law to give reasons.
89. The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous and was also considered both by the Tribunal as also by us to be a possible view, strengthens the presumption under Clause (e) of Section 114 of the Evidence Act. A prima facie evidence, on the basis of the aforesaid presumption, is thus converted into a conclusive proof of the fact the order was passed by the assessing officer after due application of mind.
90. The judgments cited by Mr. Nizamuddin do not really support his contention. The judgment in the case of Meerut Roller Flour Mills (P.) Ltd. (supra) does not apply because the High court in that case was satisfied that the assessment order was passed without enquiry.
91. The judgment of Cochin Bench of Income Tax Appellate Tribunal in ITA No. 116 /Coch/ 2012 relied upon by Mr. Nizamuddin is evidently based on an erroneous impression that "the proceedings before the Assessing Officer are judicial proceedings". This impression, which is patently contrary to the views expressed by Apex Court in the case of S.S. Gadgill (supra), was responsible for the views taken by the Tribunal. When the premise is wrong, the conclusion is bound to be wrong.
92. The judgment in the case of Infosys Technologies Ltd. (supra) is distinguishable on facts. The step taken by the CIT under Section 263 in that case was justified because the Income Tax records produced before him did not show that the assessing officer had considered the double taxation avoidance agreement on the basis whereof the claims were made by the assessee. Therefore, that was a clear case to show that the assessment order was passed without considering the relevant pieces of evidence.
93. The judgment in the case of Anusayaban. A. Doshi (supra) does not apply because the High Court in that case was dealing with the need on the part of the learned Tribunal to give reasons in support of its order.
94. The judgment in the case of Hindusthan Tin Works Ltd. (supra) also does not apply because there the Delhi High Court was dealing with the duty of the learned Tribunal to disclose reasons in support of its appellate order.
95. The judgment in the case of S.N. Mukherjee (supra) is clearly distinguishable. The point for consideration in that case was whether it was incumbent for the Chief of Army Staff while confirming the findings and the sentence of the General Court Martial, and for the Central Govt. while rejecting the post confirmation petition of the appellant, to record reasons for the orders passed by them.
96. The function of an Assessing Officer is to estimate the income of the assessee and to recover tax on the basis of such estimate as laid down by the Apex Court in the case of S.S Gadgil (supra). Their Lordships opined that the income tax proceedings do not partake the character of a judicial proceeding between the State and the citizen. Therefore, the principles applicable to a proceeding before a judicial or a quasi-judicial authority where there are two contesting parties cannot be made applicable to the proceedings before an Assessing Officer.
14 ITA No. 468/Kol/2019M/s. Luxmi Township & Holding Ltd. AY- 2014-15
97. Mr. Nizamuddin contended the judgments cited by Mr. Poddar indicate that the Assessing Officer is not required to write an elaborate judgment. He contended that the assessing officer may not have any such obligation but it cannot be said, according to him, that the Assessing Officer is under no obligation to record anything in his assessment order. It is not in the first place a fact that he has not recorded anything. From the assessment order, the following facts and circumstances appear:--
"Return was filed on 29/11/06 showing total income of Rs.3,80,66,940/-. In response to notices u/s. 143(2) and 142(1) of the I. T. Act, 1961, Sri P. R. Kothari, A/r appeared from time to time and explained the return. Necessary details and particulars were filed. The business of the assessee is manufacturing and trading of cosmetics and dental care products as in earlier years. In view of above total income is computed is under:"
98. Unless the aforesaid recital is factually incorrect or the computation is legally wrong, it is not possible to hold that the assessment order was passed without application of mind. On the top of that when the Assessing Officer accepted the contention of the assessee there was no occasion for him to make any discussion in his order.
99. If the assessing officer cannot be shown to have violated any form prescribed for writing an assessment order, it would not be correct to hold that he acted illegally or without applying his mind. The third question is, for the reasons discussed above, answered in the negative."
14. We note that the sheet anchor on which the ld. Pr. CIT has found fault with the AO's order in the present case is the lack of enquiry on the part of the AO in not enquiring into the character of receipt of liquidated damages. In this context we find that there is a clear distinction between "lack of enquiry" and "inadequate enquiry". If there is an enquiry, even if inadequate, that would not by itself give occasion to the ld. Pr.CIT to interdict and interfere by exercising his revisional jurisdiction merely because he is of the opinion that some more enquiries should have been conducted in the matter. In a case where the CIT finds that the enquiry conducted by the AO is not in accordance with his subjective standards, then the Ld. Pr. CIT should himself conduct the investigation and thereafter record a clear finding in his order u/s. 263 that the view followed or acted upon by the AO in his order was unsustainable in law. In the given facts of the present case, as noted earlier, the AO had made due enquiries into the nature & character of receipt of liquidated damages. Through his notice dated 30.11.2016, the AO had called for complete details from the appellant. After examining the specific details furnished by the appellant, the AO did not find any fault with the claim of the assessee treating the liquidated damages to be in the nature of capital receipt. We further note that when the Assistant Audit Officer had raised a memo questioning the character of receipt of liquidated damages and its taxability, the AO 15 ITA No. 468/Kol/2019 M/s. Luxmi Township & Holding Ltd. AY- 2014-15 had let out his mind and explained his rationale behind holding such receipt to be in capital field. The relevant extracts of the AO's response dated 05.06.2017 to the audit memo is reproduced hereunder:
"Issue involved in Audit Query.
Whether the compensation amount is required to be included in total income of the assessee as per section 28 instead of capital receipt as treated by the assessee.
Reply regarding the Audit Query Facts of the issue involved:
Luxmi Township Ltd (hereinafter referred to as "LTL") entered into "Financial Assistance Agreement"(FA Agreement) with six land owning Companies i.e. (i) Rupsing Realtors Pvt. Ltd on 05.10.2007 (ii) Gossainpur Real Estate Pvt. Ltd. on 03.04.2009 (iii) Bagdogra Realtors Pvt. Ltd. on 10.12.2010 (iv) Balason Realtors Pvt. Ltd. on 09.05.2011 (v) Hillcart Realtors Pvt Ltd. on 30.09.2010 and (vi) Windstar Realtors Pvt. Ltd on 18.01.2012 (hereinafter referred collectively/severally as "LoC") for financing of Rs.15.00 Crores, Rs.15.00 Crores, Rs.25.00 Crores, Rs.40.00 Crores, Rs.15.00 Crores and Rs.60.00 Crores respectively for the purpose of acquisition of Land Parcels by Land Owning Companies (LoC).
In reference to one such LoC namely Rupsing Realtors Pvt. Ltd., the Assessee Company reproduced the relevant clauses for collaboration between "LTL" and "LoC" as per the "FA Agreement"
dated 05.10.2007 of Rupsing Relators Pvt. Ltd. as an illustrative example at the time of assessment proceedings. The FA Agreement provided liquidated damages. In the event that the LoC transfers the ownership over the Land Parcels or grants development right in relation to the Land Parcels to any third party developer, without offering the same to LTL in the manner contemplated under Clause 3.1 ("Default Event"), then LTL shall have the right to reqire the RUPSING to pay LTL liquidated damages.
As per Clause 3 of the "FA Agreement", "LTL was entitled to have rights to acquisition and also rights to Development of the Land Parcels to be acquired by "LoC", and in the event of default of the Clause "LoC" was to pay to "LTL" Liquidated Damages s per Clause 7 of the "FA Agreement".
The ultimate principle in respect of the treatment of loss of source of income has been laid down by the Supreme Court in the case of Kettlewell Bullen & Company Ltd. -VS-CIT reported in 53 ITR 261 of Page 281 may be broadly stated that what is received for loss of capital is a capital receipt; what is received as profit in a trading transaction is taxable income.
The principle as laid down in the decision of the Supreme Court in the case of Kettlewell Bullen & Co. Ltd. -vs- CIT 53 ITR 261 has been reiterated by the Supreme Court in the case of Karam Chand Thapar& Bros. Pvt. Ltd.-vs- CIT reported in 80 ITR 167 (SC).
Further the Supreme Court in the case of Oberoi Hotel Pvt. Ltd. -vs-CIT reported in 236 ITR 903 at page 907 on applying the decisions of the Supreme Court in the case of Kettlewell Bullen & Co. Ltd. -vs- CIT 53 ITR 261 and Karam Chand Thapar& Bros. Pvt. Ltd. -vs- CIT 80 ITR 167 (SC) on similar facts wherein the amount received by the Assessee was for a consideration for giving up his right to purchase, and or to operate the property or for getting it on lease it was held not to be a 16 ITA No. 468/Kol/2019 M/s. Luxmi Township & Holding Ltd. AY- 2014-15 settlement of rights under a trading contract but injury to loss of source of Assessee's income. It was held as under:
The amount was received because the Assessee had given up its right to purchase and or to operate the property. Further, it is a loss of source of income to the Assessee and that right is determined for consideration. Obviously therefore, it is capital receipt and not a revenue receipt.
Section 28 of the Income Tax Act, 1961 describes the incomes which shall be chargeable to income tax under the head "Profits and gains of business or profession". Further clause (iii) says:
Any compensation or other payment due to or received by -
(a) Any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian Company, at or in connection with the termination of his management or the modifications of the terms and conditions relating thereto.
(b) Any person, by whatever name called, managing the whole or substantially the whole of the affairs in Indian of any other Company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto;
(c) Any person, by whatever name called, holding any agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto;
(d) Any person, for or ion connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of an property or business.
From the above it may kindly be observed that the liquidated damages awarded by the Arbitrator to the tune of Rs.16,90,00,000/- payable by three Land Owning Companies to Luxmi Township Ltd. is not covered under the provisions of clause 9ii) of section 28 of the Income Tax Act, 1961.
Considering the facts of the matter and judicial pronouncements referred to hereinabove, it may be kindly appreciated that the liquidated damages of Rs.16,90,00,000/- received by the Arbitrator to the Luxmi Township Ltd. is a Capital Receipt.
Therefore, it is submitted that the discrepancies as pointed out in your Audited Memo is explained in reference to the provisions of IT Act, 1961. Hence, the above mentioned Audit Query may please be treated as settled."
15. On the above set of facts, we are of the firm view that not only did the AO enquire into the issue of liquidated damages received by the assessee but had consciously applied his mind to the facts made available before him and adopted one of the plausible view permissible in law. For these reasons, we are of the considered view that the assessment order is not the result of non-application of mind or wrong assumption of facts or without any enquiry. We are also of the considered opinion that while passing the assessment order the AO did not follow a view which can be said to be 'unsustainable in law'. In the circumstances therefore, the jurisdictional facts for usurping the jurisdiction, being absent, 17 ITA No. 468/Kol/2019 M/s. Luxmi Township & Holding Ltd. AY- 2014-15 we hold that the action of Ld. Pr. CIT was without jurisdiction and all subsequent actions are 'null' in the eyes of law. We therefore quash the order impugned before us.
16. In the result, the appeal of assessee is allowed.
Order is pronounced in the open court on 9th August, 2019.
Sd/- Sd/-
(P. M. Jagtap) (Aby. T. Varkey)
Vice President Judicial Member
Dated : 9th August, 2019
Jd.(Sr.P.S.)
Copy of the order forwarded to:
1. Appellant - M/s. Luxmi Township & Holding Ltd. (formerly known as M/s. Luxmi Township Ltd.)17, R. N. Mukherjee Road, 7th floor, Kishore Bhawan, Kolkata-700 001. .
2 Respondent - ACIT, Circle-11(2), Kolkata.
3. Pr. CIT-4, Kolkata
4. ACIT, Circle-11(2), Kolkata.
5. DR, ITAT, Kolkata. (sent through e-mail) /True Copy, By order, Assistant Registrar