Income Tax Appellate Tribunal - Hyderabad
M/S. Indu Fin Lands (P) Ltd, Hyd, ... vs Assessee on 17 February, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No. 739/Hyd/2012
Assessment year 2007-08
M/s. Indu Fine Lands (P) vs. The CIT (Central)
Ltd., Hyderabad Aayakar Bhavan
PAN: AABCI5036L Hyderabad
[Assessee] [Respondent]
Assessee by: Sri Mohd. Afzal
Respondent by: Sri P. Soma Sekhar Reddy
Date of hearing: 17.02.2014
Date of pronouncement: 09.04.2014
ORDER
PER CHANDRA POOJARI, AM:
This appeal by the assessee is directed against the order of the CIT (Central), Hyderabad passed u/s. 263 of Income-tax Act, 1961 dated 9.03.2012 for A.Y. 2007-08.
2. The grievance of the assessee in this appeal is with regard to assumption of jurisdiction by the CIT u/s. 263 of the Act and thereby giving direction to the AO to examine the issue relating to the receipt of Rs. 20 crores as compensation from M/s. Walden Properties Pvt. Ltd., as this amount was not offered to tax by the assessee. The CIT set aside the assessment order passed u/s. 143(3) of the Act dated 2 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== 31.12.2009 for A.Y. 2007-08 with a direction to redo the same after proper enquiry and to make appropriate addition as called for in the light of observations of the CIT(A) in his order.
3. Brief facts of the case are that the assessee-company, engaged in real estate business, filed its return of income for the Assessment year 2007-08 before DCIT, Central Circle-3, Hyderabad on 25.09.2008, in response to notice u/s 153C of Income-tax Act, 1961, declaring Nil income. The Assessing Officer completed the assessment u/s 143(3), r.w.s. 153C of the Act, on 31.12.2009 accepting the income returned. On verification of the assessment records for the Assessment year 2007- 08, it is seen that the assessee had received Rs. 20.00 crores as compensation from M/s Walden Properties (P) Ltd., and this amount was not offered to tax. As the order passed by the ACIT, Central Circle-3, Hyderabad for the Assessment year 2007-08 on 31.12.2009 is erroneous inasmuch as it is prejudicial to the interests of revenue, a show cause notice proposing to revise the order dated 31.12.2009 u/s 263 of the Income Tax Act, 1961 was issued calling for objections, if any.
3 ITA No. 739/Hyd/2012
M/s. Indu Fine Lands (P) Ltd.
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4. After going through the objection of the assessee the CIT observed that it is a fact on record that the assessee had paid an advance of Rs. 20 crores to M/s Lakshmi Engineering & Construction Company (for short M/s. LECC) as per the MOU dated 05.05.2006. The Assessing Officer at para 2 of the assessment order had stated that during the previous year relevant to assessment year 2007-08, the assessee had received an advance of Rs. 20 crores from M/s Indu Projects and has paid an advance for land of Rs. 20 crores to M/s. LECC. Thus, the observation of the Assessing Officer indicates that the advance received from M/s Indu Projects was utilized for payment to M/s. LECC as advance for procurement of land. The said advance was paid to M/s LECC by virtue of MOU dated 05.05.2006 between the assessee and LECC & others. The said MOU shows that the assessee had paid Rs. 20 crore at the time of signing of MOU, meaning thereby that the amount of Rs. 20 crore was paid to M/s LECC on or before 05.05.2006. However, at para 3 of assessment order, the Assessing Officer observed that the assessee had received an amount of Rs. 20 crores from M/s. Indu Projects Ltd., in instalments starting from 13.03.2006 to 04.07.2006 and only a transfer entry was passed on 31.03.2007. Thus, by 05.05.2006, the assessee would not have received Rs. 20 crores from M/s Indu Projects Ltd, so as to make payment of 4 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== like amount to M/s LECC. In the balance sheet as on 31.03.2007, except from M/s lndu Projects Ltd., the assessee has not shown any other major liability to explain that it had availability of the fund to make a payment of Rs. 20 crore to M/s LECC. This indicates that the assessee might have utilized unaccounted cash available with it for making payment to M/s LECC as on the date of MOU.
5. The CIT observed that the assessee had advanced an amount of Rs. 20 crores to M/s LECC, who were the Power of Attorney holders in respect of land at S. No. 302 to 307, 325 (part) to 328 (part) and 331 (part), whereas in the MOU, the land mentioned in the schedule comprises only of S. No. 326, 327 and 328. Since there is a difference in survey numbers, it is not clear as to what was the extent of land and in which survey number it was located, was required to be examined by the Assessing Officer, which he has failed to do.
6. Before the CIT the assessee submitted that assessee had entered into a joint-venture with M/s Walden Properties and had agreed to share the generated revenue after completion of the joint-venture project. However, certain disputes and adverse developments crept into the transaction and, therefore, the assessee entered into MOU with M/s LECC for termination of the agreement. The CIT did not agree with the 5 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== contention of the assessee and observed that in the MOU entered on 05.05.2006 with M/s LECC, there was clear indication that there was dispute pending between party of the second part, i.e., M/s LECC and the revenue department pertaining to the scheduled party, which the second party had agreed to resolve in a reasonable time before transfer of property. Thus it was incumbent upon the second party to clear the title before transfer and the assessee was not supposed to pay any amount, as claimed by it, for termination of the contract. It is because the existing litigation was known to the assessee before entering into the MOU with M/s LECC. To that extent, the payment made by the assessee to M/s LECC was not required to be paid in the light of alleged cancellation of the agreement, as claimed by the assessee.
7. The CIT observed that these aspects have not been examined by the Assessing Officer while framing the assessment order. As regards the compensation paid by M/s Walden Properties to the assessee, it was claimed by M/s Walden Properties that the same was to be paid due to non- completion of project plan by it. It may be mentioned that M/s Walden Properties and the assessee belong to the same group of companies, having common Directors. Even M/s 6 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== Indu Projects, from whom the assessee is stated to have received an advance of Rs. 20 crore also belongs to the same group of companies. Viewing from this angle, the entire gamut of transactions look like a colourable transaction for the purpose of evading tax. Assessing Officer has not examined the issues from the angle of colourable transaction.
8. The CIT observed that M/s Walden Properties has claimed to have made a payment of Rs. 20 crore to the assessee on the pretext that they were not able to complete the work of preparation of business plan, layout, raising of funds and obtaining necessary approvals, etc. The said payment of Rs. 20 crore was made pursuant to the MOU signed between M/s Walden Properties and the assessee, dated 08.01.2007, wherein it has been stated that M/s Indu Fine Lands Ltd had completed all formalities to acquire the scheduled property but M/s Walden Properties failed to provide business plan, etc., as agreed by it within 31.12.2006. The observation that assessee had completed all formalities is contradictory to its submissions made in response to show cause, wherein they have stated that due to litigation, the scheduled property could not be acquired. Even the fact of litigation also finds place in the MOU between the assessee and M/s LECC. Thus the transaction in entirety should have 7 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== been examined by the Assessing Officer, which has not been done.
9. The CIT further observed that the assessee has claimed to have foregone the amount of Rs. 20 crores paid by it to M/s LECC as per the MOU dated 31.03.2007. In the said MOU, M/s LECC being the party of the first part is stated to have agreed for joint development of scheduled property with the party of the second part, i.e., the assessee. However, the agreement dated 05.05.2006 nowhere states that M/s LECC had agreed for joint development of the property. Rather it was very clear from the MOU dated 05.05.2006 that M/s LECC, a registered firm, represented by its Managing Partner, Sri P. Nanda Kumar, had simply agreed to sell the scheduled property for a consideration of Rs. 162 crores. Accordingly, the MOU dated 31.03.2007 between M/s LECC and the assessee-company is in contradiction to the original MOU. In the said MOU dated 31.03.2007, the assessee has stated to have foregone Rs. 20 crore on the ground that the said M/s LECC expressed its inability to repay the amount which was already spent in the process of efforts to obtain necessary approvals.
10. The CIT was of the view that the assessment had been made by the Assessing Officer without looking into the crux 8 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== of the matter and without examining the issues from the angle of a colourable transaction. Since no detailed enquiry had been made before completion of the assessment, in his view the said order is erroneous in so far as it is prejudicial to the interests of revenue. The CIT placed reliance on the decision of Special Bench, ITAT, Chennai in the case of Rajalakshmi Mills Ltd. vs. ITO, reported in 313 ITR (AT) 182, wherein it was observed that it is not necessary for the Commissioner of Income-tax in revision to make further enquiries before cancelling the Assessing Order of the Assessing Officer. The Commissioner of Income-tax can regard the order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further enquiries before accepting the statements made by the assessee in his return. It is incumbent on the Assessing Officer to investigate the facts stated in the return when circumstances would make such an enquiry prudent. The word 'erroneous' in section 263 of the Act includes cases where there has been failure to make necessary enquiries. Accordingly, the CIT set aside the order passed u/s 143(3), dated 31.12.2009 for the assessment year 2007-08 with a direction to re-do the same after proper enquiry and to make appropriate addition as called for, in the light of his observations. Thus he directed the AO to redo the assessment 9 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== in the light of his observations. Against this, the assessee is in appeal before us.
11. The learned AR submitted that the MOU entered on 05.05.2006, states that the assessee paid an amount of Rs. 20 Crores on 05.05.2006, as observed by the CIT. However, it was clarified before the AO that the amount of Rs. 20 Crores was paid by the assessee to sister concern directly to the M/s. LECC from 13.03.2006 to 04.07.2006. The ledger account copies of Indu Projects Ltd., were submitted before the AO. On 31.03.2007 this amount i.e. the payment of advance was transferred to the account of assessee by passing journal entries in the books of Indu Projects Ltd. This fact was clearly explained to the AO, however, while recording the fact the AO inadvertently has not stated that the amount of Rs. 20 crores is paid by Indu Projects Ltd., on behalf of the assessee and the same is received by LECC on behalf of the assessee. The material submitted before the AO clearly indicates this fact. The observation of the CIT that the assessee might have paid the same from unaccounted cash available with it is only on surmises and conjectures. The subject assessment year being the first year of business and there are no transactions in the period relevant to the subject assessment year. The search party has searched the premises of the assessee and 10 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== its group of concerns and no material was found to indicate such a suspicion. Therefore, the suspicion of the CIT is only on surmises and conjectures. Suspicion cannot be a basis for invoking the provisions of section 263 of the IT Act.
12. The AR submitted that page 2 of the MOU dated 05.05.2006 between assessee and M/s. LECC it is clearly mentioned the extent of land at 50 acres in survey No's 302 to 307, 325 (P) to 328 (P) and 3331(P) situated in Puppalaguda village, Rajendranagar Mandal, Ranga Reddy District. However, in the schedule inadvertently it is mentioned only as survey No 326, 327 & 328 of Puppalaguda village, Rajendranagar Mandal Ranga Reddy District. The AR submitted that in the body of the MOU the numbers are mentioned in detail, however, in the schedule a typographical mistake occurred in advertently which will not cause the Document as invalid and the subject transaction as sham. The dispute revolves around the payment of Rs. 20 Crores to M/s. LECC by the assessee, which is supported by the ledger copies and Bank accounts of the assessee and its sisters concerns, just because a survey No, though mentioned in the body of MOU not mentioned in the schedule does not make the Document as sham and does not invite the proceedings u/s. 263 when the transaction is genuine. It is a fact that the 11 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== assessee was in the knowledge that the property is in dispute to some extent. Therefore, the assessee ventured into the deal with a confidence that there will be more profits once the property is developed, in view of its geographical location in the Hitech-City. However, the gravity of the dispute was understood more clearly only after entering into an agreement that too after making the payment of Rs. 20 Crores. The assessee to save itself from the future damages monetarily as well as to the reputation of its group companies who are in the same field of constructions and development decided to withdraw from the deal by cancelling the agreement and also foregoing the amount advanced. The decision of foregoing the amount is made as a prudent business man. Therefore, it is to be appreciated the judgment of the assessee in respect of his business. The revenue has no role to play in respect of judgments taken by the assessee as a prudent businessman.
13. In this regard it is submitted that the transaction with M/s. LECC is genuine. The payment of Rs. 20 Crores by way of cheques to M/s LECC by Indu Project Ltd., is proved beyond doubt by producing the ledger copy of Indu Projects wherein the name of Bank and cheque No. are mentioned clearly. In respect of this transaction the Indu Projects has not treated 12 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== the same as revenue expenditure. Therefore, there is no loss of revenue in the hands of Indu Projects on account of this transaction. When the agreement is terminated the assessee has foregone Rs. 20 Crores advanced to M/s LECC on account of purchase of land for the purpose of development. This expenditure though it is revenue in nature, the Assessing Officer has treated as capital in nature. The receiver of the amount Ms LECC is not at all connected to the assessee group, it is a third party. The payment made is genuine not doubted by the revenue at any stage. Therefore, it is a genuine business expenditure to the assessee and the same is allowable. If at all the receipt is to be taxable the same should be taxed in the hands of receiver i.e., M/s LECC as per the provisions of the Act. In view of the above submissions from any angle there is no revenue loss in the entire transaction. This aspect has been examined by the AO during the course of assessments proceedings. Therefore, the assumption of the Commissioner in respect of the revenue loss is totally baseless.
14. The AR submitted that the CIT's observation in respect of the wordings that the assessee completed all the formalities to acquire the property but the Walden has not fulfilled its obligations, as contradictory. He submitted that 13 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== the assessee completed the formalities in the sense that it has paid the advance and entered into an agreement with GPA holder of land, all the subsequent activities including finance are to be undertaken by the Walden. The assessee's responsibility is limited only to the extent of entering into the agreement for purchase of the property, however, failure on the part of Walden to fulfil the other conditions all resulted in compensation to the assessee. In respect of mentioning of joint development in the later agreement with M/s. LECC it is only an inadvertent omission by the writer of the agreement. It is a fact that the assessee entered into an agreement with M/s. LECC only for the purchase of the property. It is further submitted that minor inadvertent omissions in the Documents does not make the transaction sham, therefore, the AO during the course of assessment proceedings made enquiries. In respect of genuineness of the transaction and overlooked the minor inadvertent omissions and commissions. Therefore, it cannot be said that no enquiries were made by the AO.
15. The AR submitted that the Assessing Officer has examined the genuineness of the transaction from all angles and the observations of the Commissioner u/s. 263 of the Act, that Assessing Officer has not made enquiries is 14 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== baseless. The observations of the Commissioner, in respect of certain omissions and commissions in the Documents has no relevance as the transaction is proved to be genuine beyond the doubt before the Assessing Officer and also Commissioner. The AR relied on the following judicial pronouncements in support of non requirement of 263 proceedings.
(a) CIT vs Sunbeam Auto Ltd (332 ITR 167) (Del) and CIT vs Anil Kumar Sharma 335 ITR 83) wherein held that the fact as to whether the Assessing Officer has applied his mind or not need not necessarily be determined from what has been stated in the assessment order alone, it has to be examined as to whether any inquiry was at all conducted by the AO. There exists a difference between lack of inquiry and inadequate inquiry. If there were any inquiry, even inadequate that would not give an occasion to exercise jurisdiction u/s 263 of the IT Act. Assessment order cannot be revised on the ground that deeper inquiry ought to have been made or proper exercise was not done while making the assessments
(b) CIT vs. Thangamaligai (259 ITR 129) wherein held that in the absence of any finding that there is any loss of revenue interference u/s. 263 is not justified. 15 ITA No. 739/Hyd/2012
M/s. Indu Fine Lands (P) Ltd.
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(c) In Balram Manmani vs ACIT (7 SOT 368 (Luck-Trib), it was held that as details were furnished before Assessing Officer and assessment order was passed after taking into account the submissions as well as evidence, therefore, it could not be said the Assessing Officer passed the assessment order in a casual manner or without application of mind. Commissioner also could not prove on record that there was any discrepancy are falsity in evidence. Therefore, order passed by the Assessing Officer cannot be termed as erroneous and prejudicial to the interests of the revenue and as such assumption of jurisdiction u/s. 263 was illegal.
(d) In CIT Vs Budhilal Hiralal Rana 125 Taxman 455 (Guj) it was held that when there was no material brought on record to justify that there was an error or omission or failure on the part of AO so as to make an order erroneous, then the order passed by the Commissioner, invoking section 263 to set aside order of the AO was not valid in law.
(e) DCIT vs. Agarwal Global Steels Ltd. (141 ITD 76) (Hyd). The AR submitted that the assessee is the best judge to 16 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== decide the affairs of the assessee's business. The Department cannot enter into the shoe of assessee to decide the issues in a particular manner. Relevant part of the order as under:
"The contention of the Authorised Representative for the assessee that what expenditure is required to be met has to be looked into from the perspective of a businessman, has substantial force. A person carrying on business is the best person to judge what expenditure is to be incurred in the best interest of business, keeping in view the commercial expediency. The Assessing Officer certainly can raise questions regarding the genuineness and reasonableness of the expenditure incurred. However, as long as there is nexus between the expenditure incurred and the business of the assessee, the Assessing Officer cannot step into the shoes of a businessman to say that the expenditure incurred is not required in the interests of the business. The Hon'ble Supreme Court in the case of S.A. Builders Ltd.'s case have observed in no uncertain terms that what is relevant is whether the amount advanced by an assessee is as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profit."
16. The AR submitted that the presumption of the CIT in the case of assessee that the assessee paid to M/s LECC out of unaccounted money, discrepancies in the Documents regarding mentioning of survey No's and other deficiencies in the Documents and the transaction as colourable device to avoid payment of tax and also the observation that the assessee is not required to make the payment are all not supported by any material available in the record or obtained by inquiries subsequent to assessment. The assumptions are only on surmises and conjectures. Therefore, in view of the rationale of the above judicial pronouncements and facts and 17 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== circumstances of the case the Hon'ble Bench is pleaded to cancel the order of the Commissioner of Income Tax.
17. The learned DR relied on the order of the CIT.
18. We have heard both the parties and perused the material on record. We have carefully considered the rival submissions in the light of material placed before us and also gone through all the judgements cited by the parties before us. First we take up the legal issue with reference to the jurisdiction of invoking the provisions of section 263 of the Act by the learned CIT. The scheme of the IT Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the assessing officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. As held in the case of Malabar Industries Co. Ltd., Vs. CIT ( 243 ITR 83 (SC), the Commissioner can exercise revision jurisdictional u/s 263 if he is satisfied that the order of the assessing officer sought to be revised is (i)erroneous; and also (ii) prejudicial to the interests of the revenue. The word 'erroneous' has not been defined in the Income Tax Act. It has been however defined at page 562 in Black's Law Dictionary (seventh Edition) thus'; 18 ITA No. 739/Hyd/2012
M/s. Indu Fine Lands (P) Ltd.
======================== 'erroneous, adj. Involving error, deviating from the law'. The word 'error' has been defined at the same page in the same dictionary thus:
'error No. 1 : A psychological state that does not conform to Objective reality; a brief that what is false is true or that what is true is false'.
At page 649/650 in P. Ramanatha Aiyer's Law Lexicon Reprint 2002, the word 'error' has been defined to mean-
'Error: A mistaken judgement or deviation from the truth in matters of fact, and from the law in matters of judgement 'error' is a fault in judgement, or in the process or proceeding to judgement or in the execution upon the same, in a Court of Record; which in the Civil Law is called a Nullityie" (termes de la ley).
Something incorrectly done through ignorance or inadvertence S. 99 CPC and S. 215 Cr. PC.
'Error, Fault, Error respects the act; fault respect the agent, an error may lay in the judgement, or in the conduct, but a fault lies in the will or intention."
19. At page 650 of the aforesaid Law Lexicon, the scope of Error, Mistake, Blunder, and Hallucination has been explained thus:
"An error is any deviation from the standard or course of right, truth, justice or accuracy, which is not intentional. A mistake is an error committed under a misapprehension of misconception of the nature of a case. An error may be from the absence of knowledge, a mistake is from insufficient or false observation. Blunder is a practical error of a peculiarly gross or awkward kind, committed through glaring ignorance, heedlessness, or awkwardness. An error may be overlooked or atoned for, a mistake may be rectified, but the shame or ridicule which is occasioned by a blunder, who can counteract. Strictly speaking, Hallucination is an illusion of the perception, a phantasm of the imagination. The one comes of disordered vision, the other of discarded imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it 19 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== denotes an unaccountable error in judgement or fact, especially in one remarkable otherwise for accurate information and right decision. It is exceptional error or mistake in those otherwise not likely to be deceived."
20. In order to ascertain whether an order sought to be revised under Section 263 is erroneous, it should be seen whether it suffers from any of the aforesaid forms of error. In our view, an order sought to be revised under Section 263 would be erroneous and fall in the aforesaid category of "errors" if it is, inter alia, based on an incorrect assumption of facts or an incorrect application of law or non-application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interests of the revenue.
21. Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous on the ground that in the circumstances of the case, the 20 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a return, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of assessment has undergone radical changes in recent years. It deserves to be noted that the present assessment was made under Section 143(3) of the Income-tax Act. In other words, the Assessing Officer was statutorily required to make the assessment under Section 143(3) after scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section 143. Bulk of the returns filed by the assessees across the country is accepted by the Department under Section 143(1) without any scrutiny. Only a few cases are picked up for scrutiny. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of 21 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== scrutiny assessments. He should be fair not only to the assessee but also to the Public Exchequer. The Assessing Officer has got to protect, on one hand, the interest of the assessee in the sense that he is not subjected to any amount of tax in excess of what is legitimately due from him, and on the other hand, he has a duty to protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke inquiry. Arbitrariness in either accepting or rejecting the claim has no place. The order passed by the Assessing Officer becomes erroneous because an enquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim made therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but 22 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case. In taking the aforesaid view, we are supported by the decisions of the Hon'ble Supreme Court in Rampyari Devi Saraogi v. CIT (67 ITR 84) (SC), Smt. Tara Devi Aggarwal v. CIT (88 ITR 323) (SC), and Malabar Industrial Co. Ltd's case ( 243 ITR 83) (SC).
22. In Malabar Industrial Co. Ltd. case the Hon'ble Court has held as under:
"There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall the orders passed without applying the principles of natural justice or without application of mind.
In our humble view, arbitrariness in decision-making would always need correction regardless of whether it causes prejudice to an assessee or to the State Exchequer. The Legislature has taken ample care to provide for the mechanism to have such prejudice removed. While an assessee can have it corrected through revisional jurisdiction of the Commissioner under Section 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Commissioner under Section 263. Arbitrariness in decision- making causing prejudice to either party cannot therefore be allowed to stand and stare at the legal system. It is difficult to countenance such arbitrariness in the actions of the Assessing Officer. It is the duty of the Assessing Officer to adequately protect the interest of both the parties, namely, the assessee as well as the State. If he fails to discharge his duties fairly, his 23 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== arbitrary actions culminating in erroneous orders can always be corrected either at the instance of the assessee, if the assessee is prejudiced or at the instance of the Commissioner, if the revenue is prejudiced. While making an assessment, the ITO has a varied role to play. He is the investigator, prosecutor as well as adjudicator. As an adjudicator he is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a substantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefor. In S.N. Mukherjee v. Union of India AIR 1990 SC 1984, it has been observed by the Hon'ble Supreme Court as follows:
"Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances or arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge."
23. Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engg. & Mfg. Co. Ltd. v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment 24 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== on assessee, the ITO acts in a quasi-judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under Sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary. The judgments on which reliance was placed by the learned Counsel for the assessee also points to the same direction. They have held that orders, which are subversive of the administration of revenue, must be regarded as erroneous and prejudicial to the interests of the revenue. If the Assessing Officers are allowed to make assessments in an arbitrary manner, as has been done in the case before us, the administration of revenue is bound to suffer. If without discussing the nature of the transaction and materials on record, the Assessing Officer had made certain addition to the income of the assessee, the same would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. We find no reason why the same view should not be taken when an order is against the interests of the revenue. As a matter of fact such orders are prejudicial to the interests of both the parties, because even the assessee is deprived of the benefit of a positive finding in his favour, though he may have sufficiently established his case.
25 ITA No. 739/Hyd/2012
M/s. Indu Fine Lands (P) Ltd.
========================
24. In view of the foregoing, it can safely be said that an order passed by the Assessing Officer becomes erroneous and prejudicial to the interests of the Revenue under Section 263 in the following cases:
(i) The order sought to be revised contains error of reasoning or of law or of fact on the face of it.
(ii) The order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In the same category fall orders passed without applying the principles of natural justice or without application of mind.
(iii) The order passed by the Assessing Officer is a stereotype order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim which is called for in the circumstances of the case.
25. We shall now turn to the facts of the case to see whether the case before us is covered by the above said principles. A perusal of the assessment order passed by the AO shows that the AO had called for explanation on this very issue from the assessee and on furnishing the MOU dated 5.5.2006 which shows that an advance was given to M/s. LECC with the intention to buy 50 acres of land at Puppalaguda village, Rajendra Nagar Mandal, Ranga Reddy District for Rs. 150 crores. Towards this, the assessee has paid an advance of Rs. 20 crores. Detailed discussion of the AO on this issue is in paras 2, 3, 4, and 5 of his or which is as follows:
26 ITA No. 739/Hyd/2012
M/s. Indu Fine Lands (P) Ltd.
======================== "2. During the previous year relevant to the above assessment year the Company has shown to have received advance of Rs. 20 Crores from M/s. Indu Projects Limited and has paid advance for land of Rs. 20 Crores. From the details furnished it is seen that the assessee company has advanced a sum of Rs. 20 Crores to M/s. Lakshmi Engineering & Construction Company as per MOU dated 5.5.2006. The assessee company has produced a copy of the MOU dated 5.5.2006 which shows that the advance was given to M/s. Lakshmi Engineering & Construction Company with an intention to bury 50 Acres of land in Puppalaguda Village, Rajendra Nagar Mandal, Ranga Reddy District for Rs. 162 Crores.
3. The said MOU states that the assessee company has paid an amount of Rs. 20 Crores at the time of signing of the MOU.
However from the details furnished it is seen that the amount of Rs. 20 Crores has been paid by M/s. Indu Projects Limited in instalments starting from 13.3.2006 to 4.7.2006 and only a transfer entry was passed on 31.3.2007 to transfer this amount of Rs. 20 Crores to the assessee company. From the records of M/s. Walden Properties Private Limited other group company it is seen that the assessee company has been paid a compensation of Rs. 20 Crores which it has not offered for tax. The counsel of the assessee company was therefore asked why the amount of Rs. 20 Crores was not shown in accounts.
4. In reply the counsel has submitted that the assessee company has paid Rs. 20 Crores to M/s. Lakshmi Engineering & Construction Company as compensation during the year. Hence it was claimed that the receipt of compensation and payment of compensation being of same amount there was no income to the assessee company. The contention of the counsel is not acceptable since the compensation received should have been shown in accounts and if there was any expenditure for compensation paid such claim should have been made. In the assessment order passed in the case of M/s. Walden Properties P. Ltd. it has been held that the compensation paid by it to the assessee company is a capital expenditure and hence not allowable. Accordingly, the receipt of Rs. 20 crores is not being assessed here as the same will retain the nature of capital receipt in the hands of the assessee company.
5. The compensation paid by the assessee company of Rs. 20 crores to M/s. Lakshmi Engineering & Construction Company is capital expenditure as the advance was paid for acquisition of capital asset and the company has forgo the same. Details of receipts of share application money, other expenses etc. were called for and filed. After verification of the details filed the 27 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== income returned by the assessee Company is accepted.
Income returned - Nil.
Income returned accepted.
Tax thereon - Nil
This order is passed with the approval of the Addl. Commissioner of Income tax"
26. The above discussion by the AO clearly shows that the AO had undertaken the exercise of examining the impugned issue in his order. It appears that since the AO was satisfied with the explanation given by the assessee, he accepted the same. It is also noted that the CIT directed the AO to investigate the facts once again as there is failure on the part of the AO to make necessary enquiry. In our opinion, it is not so, the AO carried on the enquiry and came to the conclusion that the addition is not warranted. The CIT in his order accepted that the AO carried on the enquiry which is evident from the observation of the CIT in his order which is as follows:
"4.6 Considering all above, I am of the view that the assessment had been made by the Assessing Officer without looking into the crux of the matter and without examining the issues from the angle of a colourable transaction. Since no detailed enquiry had been made before completion of the assessment, in my view, the said order is erroneous in so far as it is prejudicial to the interest of revenue. Reliance is placed on the decision of Special Bench, ITAT, Chennai reported in 313 ITR (AT) 182, wherein it was observed that it is not necessary for the Commissioner of Income-tax in revision to make further enquiries before cancelling the Assessing Order of the Assessing Officer. The Commissioner of Income-tax can regard the order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further enquiries before accepting the statements made 28 ITA No. 739/Hyd/2012 M/s. Indu Fine Lands (P) Ltd.
======================== by the assessee in his return. It is incumbent on the Assessing Officer to investigate the facts stated in the return when circumstances would make such an enquiry prudent. The word 'erroneous' in section 263 of the Act includes cases where there has been failure to make necessary enquiries.
Consequently, I set aside the order passed u/s 143(3), dated 31.12.2009 for the assessment year 2007-08 with a direction to re-do the same after proper enquiry and to make appropriate addition as called for, in the light of my observations made in this order."
27. Thus, even the Commissioner considered the position that the AO made enquiries, elicited replies and thereafter passed the assessment order. The grievance of the CIT was that the AO should have made further enquiries rather than accepting the explanation of the assessee. Therefore, it cannot be said that it is a case of "lack of enquiry". It is also observed that the CIT is not clear as to what treatment is to be given with reference to the impugned issue. He wanted the AO to cause further enquiry and he had not stated what enquiry the AO has to do. It is not clear from the order of the CIT whether the receipt of Rs. 20 crores is to be treated as revenue receipt or as capital receipt. 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 CIT is bound to express a final view. But the least that was expected is to record the finding that the order sought to be revised is erroneous and prejudicial to the interests of the revenue. When the AO held that the amount paid to M/s. 29 ITA No. 739/Hyd/2012
M/s. Indu Fine Lands (P) Ltd.
======================== LECC vide agreement dated 5.5.2006 for purchase of land is a capital expenditure and consequent to non-acting on the MOU the assessee got refunded the said Rs. 20 crores from M/s. Walden Properties Pvt. Ltd. which cannot be said to be a revenue receipt. In this case, in our opinion, assumption of jurisdiction u/s. 263 of the Act by the CIT itself is not proper and the view taken by the AO is one of the possible views and there is no material before the CIT to vary with the opinion of the AO and ask for fresh enquiry. Being so, assumption of jurisdiction by the CIT is bad in law. Consequently, the direction of the CIT cannot be sustained.
28. In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on 9th April, 2014.
Sd/- Sd/-
(SAKTIJIT DEY) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated the 9th April, 2014
tprao
Copy forwarded to:
1. M/s. Indu Fine Lands (P) Ltd., c/o. Sri Mohd. Afzal, Advocate, 11-5-465, Sherson's Residency, Flat No. 402, Criminal Court Road, Red Hills, Hyderabad-500 004.
2. The CIT (Central), 7th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.
3. The Asst. CIT, Central Circle-3, Hyderabad.
4. The Addl. CIT, Central Range-2, Hyderabad.
5. The DR - Bench 'A', ITAT, Hyderabad