Income Tax Appellate Tribunal - Ahmedabad
Jay Infrastructure & Properties Pvt. ... vs Assessee on 12 February, 2016
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'C' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, AHMEDABAD
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.605/Ahd/2015
नधा रण वष /Asstt. Year: 2010-11
Jay Agriculture & Horticulture Pvt.Ltd. Pr.CIT-2
Ambuja Tower Vs Ahmedabad.
Opp: Memnagar Fire Station
Ahmedabad 380 052.
PAN : AABCJ 6890 M
आयकर अपील सं./ ITA No.606/Ahd/2015
नधा रण वष /Asstt. Year: 2010-11
Jay Infrastructure & Properties P.Ltd. Pr.CIT-2
Ambuja Tower Vs Ahmedabad.
Opp: Memnagar Fire Station
Ahmedabad 380 052.
PAN : AABCJ 6891 L
अपीलाथ!/ (Appellant) "#यथ!/ (Respondent)
Assessee by : Shri Tushar Hemani
Revenue by : Mrs.Vibha Bhalla, CIT-DR
सन
ु वाई क तार ख/ Dateof Hearing : 29/01/2016
घोषणा क तार ख / Date of Pronouncement: 12/02/2016
आदे श/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 2 The present two appeals are directed at the instances of the assessees against the orders of the ld.Pr.CIT-2, Ahmedabad dated 11.2.2015 and 17.2.2015 passed on the respective cases of the assessees for the Asstt.Year 2010-2011.
2. Since the legal issue involved in both the appeals is common, therefore, we heard them together and deem it appropriate to dispose of them by this common order. First we take up ITA No.605/Ahd/2015.
3. The grievance of the assessee is that the ld.Commissioner has erred in taking cognizance under section 263 of the Income Tax Act, and thereby setting aside the assessment order dated 31.10.2012 for re-adjudication of the issues.
4. Brief facts of the case are that the assessee has filed its return of income on 28.9.2010 declaring total income at Rs.9,100/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the Income Tax Act was issued upon the assessee on 5.9.2011. He passed an assessment order under section 143(3) on 31.10.2012. The ld.AO has accepted the returned income of the assessee. On perusal of the record, the ld.commissioner harboured a belief that the AO did not examine the issues properly, and therefore, he took cognizance under section 263 of the Income Tax Act. He issued show cause notice to the assessee on 18.9.2014. The show cause notice issued by the ld.Commissioner reads as under:
"OFFICE OF THE COMMISSIONER OF INCOME-TAX, AHMEDABAD-II 1st Floor, Navjeevan Trust Building B/h. Gujarat Vidyapith, Ahmedabad 380 014. No.CIT-II/ABD/Tech/263/07/2014-15 Date :18th September, 2014 ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 3 To, Principal Officer Jay Agriculture & Horticulture Products P. Ltd. Ambuja Tower, Opp. Memnagar Satation Vijay Char Rasta Navrangpura Ahemdabad.
Sir, Sub: Notice u/s.263 of the I.T.Act 1961 A.Y.2010-11.
Kindly refer to the above.
1. The assessee filed its return of income for A.Y.2010-11 on 28 Sept 2010 declaring income of Rs.9100/-. The assessee is a company which has not commenced its business during the AY 2010-11 and has only Long Term Capital Gain during the year. The assessment u/s.143(3) of the Act was finalized on 31/10/2012 by the ITO.Wd.4(2), Ahmedabad accepting the returned income at Rs. 9,100/-.
2. A perusal of the case records, shows that :
i) In computation of income, assessee computed book profit of Rs. 2,07,15,478/- and tax liability of Rs.36,33,544/-
(including interest). Assessee claimed to have payment made as Rs.34,00,000/- as advance tax payment and Rs.2,35,000/- as self-assessment tax. However, no proof in this respect was furnished by assessee,
ii) In the assessment order, the income was computed at Rs.79,100/- without any reference of tax liability u/s 115JB. In I.T.N.S. 150, the returned income was computed as "NIL" with no tax.
iii) In computation of income, assessee did not claim expenditure of Rs,10,14,133/- apparently due to no business being done by the company during the AY. It was stated by assessee in the computation of income that income of Rs. 2,17,29,927/- was considered separately.
ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 4 However, it is noticed that such income was not shown/considered separately.
iv) It was noticed that assessee has LTCG of Rs. 2,17,29,927/- on account of sale of 6,25,074 shares of Royal Export Limited(REL) of Srilanka back to REL. As LTCG on transfer of shares of listed companies is liable for tax @ 20 percent u/s 112 of the Act, such LTCG on Rs. 2,17,29,927/- is worked out at Rs. 49,24,001/-by which assessee's total income computed under regular provisions of I.T. has remained to be brought to tax.
3. On perusal of the case records, it is also seen that as per assessee's own submission, its main object was business of planting, growing and other agricultural activities (The said object had been inserted w.e.f. 19.04.2007 in the Memorandum of Association). In this context, the proceeds on sale of shares, held as capital assets, was chargeable to tax under the head 'Capital Gains'. However, it is pertinent to mention that the aforesaid clause was inserted subsequent to acquisition of the shares in question and therefore, the tax liability of the Profit from acquisition and sale (through buyback) was to be verified more closely. Other issues related to the same transaction (which is the only revenue generating transaction in its books of a/cs) are listed hereunder :
i) Assessee has stated that the equity shares in question were acquired on 31.12.2004 but the assessee company itself was incorporated on 06.06.2006.
ii) There were no verification/inquiry or at least calling for the information and supporting evidence w.r.t the 'cost of acquisition' of shares in question,
iii) No verification/inquiry was made w.r.t the 'buyback' offer price at which assessee claimed to have sold partial equity holding.
iv) No inquiry was made w.r.t the 'cost' of equity share in Indian currency nor the 'sale price' in Indian currency and the Exchange rate applied by assessee in this regard.
v) No inquiry was made to check veracity of assessee's claim w.r.t the date and quantity of acquisition of shares or w.r.t the date and quantity of buyback offer in the company in which assessee claimed to have purchased equity shares, ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 5
vi) Since the acquisition of shares pertained to foreign company, inquiry ought to have been made w.r.t the source of investment and whether such investment was made with RBI approval and on what terms and conditions.
4. Clearly, all the above mentioned factors ought to have been verified by the AO before finalization of the assessment proceedings and failure to do so resulted in non-assessment of the profit from the sale of equity shares.
5. Considering the facts and circumstances as mentioned above, it is clearly established that the order dated 31/10/2012 passed by the ITO. Wd.4(2), Ahmedabad is erroneous in so far as it is prejudicial to the interest of Revenue.
6. You are, therefore, hereby given an opportunity to represent your case and show cause as to why the assessment order dated 31.10.2012 should not be set aside and income assessable to tax be modified to the extent of under assessment for the year under consideration. You are requested to attend the office of the undersigned on 30.09.2014 at 11 AM either personally or through an Authorised Representative and may also file written submissions, if any, on the said date.
Yours faithfully, Sd/-
(P.C. MODY) Commissioner of Income Tax Ahmedabad-II, Ahmedabad."
5. In response to the show cause notice, the assessee has filed a reply and annexed the following documents before the ld.commissioner:
SN. DESCRIPTION OF PAPERS Pg. No.
1 Copy of Incorporation certificate of Jay Trading & Investment 1
Services Pvt. Ltd. dated 06-06-2006
2 Copy of fresh certificate dated 23-04-2007 for incorporation 2
consequence upon change of the name from Jay Trading & Investment Services Pvt. Ltd. to Jay Agriculture & Horticulture Products Pvt. Ltd.
3 Copy of Debit Note for purchase of 2083580 shares of Royal 3 Exports Ltd. from M/s. Jupiter Corporate Services Ltd. by Jay Agriculture & Horticulture Products Pvt. Ltd.
ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 6 4 Copy of letter dated 21-02-2007 for approval of transfer of shares 4 given by Board of Investment of Sri Lanka 5 Copy of Bank book of Jay Trading & Investment Services Pvt. Ltd. 5 to 6 6 Copy of share certificate with memorandum of transfer of shares 7&7A Copy of letter of company and Board of Investment for approval of 8 to 9 buyback of 30% equity shares of the company @ 95/- per share (Sri-Lankan Rupee) 8 Agreement for re-purchase of 625074 shares between M/s. 10 to 14 Royale Export Ltd and Jay Agri dated 09/12-06-2009 9 Remittance letter from M/s. Royale Export Ltd. for re-purchase / 15 buyback of shares 10 Copy of letter filed by company for FIRC with PNB in the matter of 16 Buyback of shares dated 26-06-09 11 Copy of FIRC issued by PNB dated 07-07-09 17 12 Copy of intimation filed by company for buyback of shares to RBI in 18 compliance to FEMA dated 08-07-09 13 Copy of abstract of article of DTAA 19&20 14 Copy of computation of income, tax challans and Form no. 26AS 21 to 26
6. After analysis of the record, the ld.Commissioner has held that the AO failed to carry out adequate inquiry, and therefore, the assessment order is erroneous and prejudicial to the interest of the Revenue. Accordingly, the ld.Commissioner has set aside the assessment order with direction to the AO to pass a fresh assessment order determining the total taxable income of the assessee. While impugning the order of the ld.Commissioner, ld.counsel for the assessees has raised three fold submissions, viz. -
ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 7
(a) That there is a distinction between inadequacy or lack of inquiry. The inadequacy of inquiry cannot be a ground to take action under section 263 of the Income Tax, because if the AO after conducting an inquiry adopted one of the possible views in law than that view cannot be disturbed. But, if there is a total lack of inquiry, only then, the assessment order can be termed as erroneous;
(b) Before terming any order as erroneous, the ld.Commissioner was bound to verify facts and circumstances and conduct an inquiry in order to arrive at a firm conclusion, demonstrating the erroneous nature of the assessment order;
(c) That as far as the taxability of alleged long term capital gain on sale of shares is concerned, such transaction is covered under Article 13 (4) and (5) of the DTTA between India and the Sri Lanka. Capital gain is taxable in Sri Lanka, and therefore, even after re-verification of the transaction, the ultimate gain would not be taxable in India, and therefore, there is no prejudice to the Revenue. The ld.Commissioner failed to take cognizance of this argument of the assessee raised before him, which has duly been noted in para-6(iii). As per the DTAA between Republic of India and Republic of Sri Lanka gains from alienation of stocks/shares of the company may be taxed in the contracting State in which they have been issued.
7. Let us examine these fold of submissions raised by the ld.counsel for the assessee.
8. Brief facts of the case are that the assessee was incorporated on 6.6.2006, originally with the name "Jay Trading & Investment Services ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 8 P. Ltd." Thereafter, its name was changed to "Jay Agriculture and Horticulture Products Pvt. Ltd.". M/s.Jupiter Corporate Services Ltd. (JCSL) had acquired shares of Royale Exports Ltd. The assessee has acquired 20,83,580 shares of Royale Exports Ltd., Sri Lanka from JCSL at the rate of Rs.4.655/- per share aggregating to Rs.97.00 lakhs. These shares were acquired on 1.2.2007. Approval for purchase of shares as mentioned above was received from Board of Investment of Sri Lanka on 21.2.2007. Such approval has been placed on page no.4 of the paper book. The share certificate in the name of the assessee was received from Royale Exports Ltd. On 9.6.2009, the Royale Exports Ltd. addressed a letter to the assessee stating that it has received approval from Board of Investment of Sri Lanka as regards buy-back of 30% shares, according to which, 6,25,074 shares held by the assessee (20,83,580 x 30% = 6,25,074) shall be bought back by Royale Exports Ltd. An agreement dated 12.6.2009 in respect of such buy-back was entered into between the assessee and Royale Exports Ltd. The assessee has sold shares. Remittance letter dated 23.6.2009 was sent by Royale Exports Ltd. through SBI, Colombo. A copy of the letter dated 23.6.2009 with regard to inward remittance of US dollar 5,07,935 was forwarded by the assessee to Punjab National Bank, which is placed at page no.16 of the paper book. The assessee intimated RBI about such buy-back vide letter dated 8.7.2009. In response thereto, certificate of foreign inward remittance was received from PNB as per which, a sum of Rs.2,46,38,132/- was credited against inward remittance made by Royale Exports Ltd. The cost of 6,25,074 shares sold by assessee work out to Rs.29,08,205/-, and hence profit on sale of such shares as per the book is Rs.2,17,29,927/-. The long term capital gain on such shares as per DTAA was taxable in Sri Lanka and not in India. Hence, the assessee was not liable for any capital gain on sale of shares held in Sri Lankan Company. While filing the return of income, the assessee has disclosed all these facts. It offered income at ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 9 book profit, because, under the regular provision no capital gain was to be taxable in the hands of the assessee. The ld.AO had issued a show cause notice under section 143(2)/142(1) of the Income Tax Act on 9.8.2012. A copy of this notice has been placed at page no.87 and 88 of the paper book. Thereafter, the assessee has submitted the details with regard to buy-back of shares by Royale Exports Ltd. vide letter dated 22.10.2012. The ld.AO has passed the assessment order on 31.12.2012. The ld. counsel for the assessee while impugning the order of the ld.CIT submitted that the assessee has placed on record complete details with regard to the sale of shares of Sri Lankan Company. This was the only transaction in this year. The assessee has not carried out any other business activity. In the computation of income, the assessee has offered taxes on these receipts under MAT provision. The ld. counsel for the assessee took us through computation of income available at page no.37. He, thereafter, he drew our attention towards page no.54 of the paper book, where the profit & loss account for the year ending 31.3.2010 has been placed on record. Under the schedule of income, only income is profit on buy-back of long term investment. Thus, according to the ld.counsel for the assessee, once the AO has called for information on this issue, then, it cannot be said that this issue was not examined by the AO or it escaped from his knowledge. On the strength of the Hon'ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd., 332 ITR 167, CIT Vs. Anil Kumar Sharma, 335 ITR 83 and CIT Vs. Vikas Polymers, 341 ITR 537 (Delhi), the ld. counsel for the assessee contended that inadequacy of inquiry by the AO cannot be a ground for taking action under section 263.
9. With regard to second fold of submissions, he contended that though the ld.Commissioner has harboured a belief that the assessment order is erroneous on the ground that the AO has not conducted any inquiry with regard to the sale of shares of Sri Lankan Company, but ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 10 the ld.CIT was required to record a firm finding as to how the order is erroneous. In other words, the ld.counsel for the assessee submitted that once the assessee has placed on record complete details before the AO, then, the CIT ought to have recorded a finding, demonstrating the fact as to how the AO failed to conduct a proper inquiry. In support of his contentions, he relied upon the decision of the Hon'ble Delhi High Court in the case of ITO Vs. D.G. Housing projects Ltd., 343 ITR 329 (Delhi).
10. With regard to his last proposition, the ld.counsel for the assessee drew our attention towards Article 13(4) and (5) of the DTAA between Republic of India and Republic of Sri Lanka. On strength of this Article, he submitted that gain from alienation of stock/shares of the company may be taxed in the contracting State in which they have been issued. Thus, the gain from buy-back of shares of Sri Lankan is taxable in the country in which they have been issued. Had the ld.Commissioner has considered this issue, then, probably, he would not have set aside the assessment order and restore this issue to the file of the AO, because, ultimately, even after carrying out the whole exercise the result will be the same, which will be adopted by the AO. No long term capital gain would be taxable in the hands of the assessee. In support of his contentions, the decision of the Hon'ble Karnataka High Court in the case of CIT vs. D.G. Gopala Gowda, 354 ITR 501 was brought to our notice.
11. On the other hand, the ld.CIT-DR relied upon the order of the CIT and contended that the AO has not carried any inquiry, therefore, CIT was justified in taking cognizance under section 263 of the Income Tax.
12. On our query with regard to the proposition of applicability of DTAA on the transaction and taxability of gains in Sri Lanka, the ld.DR ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 11 contended that this aspect is also not discernible from the assessment order.
13. We have duly considered rival contentions and gone through the record carefully. Section 263 has a direct bearing on the controversy, therefore, it is pertinent to take note of this section. It reads as under:-
"263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
[Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-
tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;
(b) "record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 12 under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded."
14. On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 13 particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon'ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263.
(i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.
(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.
(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 14 be treated as an erroneous order, unless the view taken by the AO is unsustainable under law
(vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO.
(vii) The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.
(viii) The CIT, before exercising his jurisdiction under s.
263 must have material on record to arrive at a satisfaction.
(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.
15. Apart from the above principles, we deem it appropriate to make reference to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Sun Beam Auto reported in 227 CTR 113 referred by ld. Counsel for the assessee, and Gee Vee Enterprises Ltd vs. Addl. Commissioner of Income Tax (99 ITR 375). In the case of Sun Beam Auto, the Hon'ble High Court has pointed out a distinction between lack of inquiry and inadequate inquiry. If there is a lack of enquiry, then the assessment order can be branded as erroneous. The following observations of the Hon'ble Delhi High Court are worth to note:
"12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 15 Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open".
16. In the case of Gee Vee Enterprise vs. Commissioner of Income Tax reported in 99 ITR page 375, the Hon'ble court has expounded the approach of ld. Assessing Officer while passing assessment order. The observation of the Hon'ble court on pages 386 of journal read as under:-
"... it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return.
The reason is obvious. The position and function of the Income-tax Officer is very diffident from that of a civil court. The statement made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 16 is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only on adjudicator but also an investigator. He cannot remain passive in the face of the return which is apparently in order but called for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry... It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would made such an inquiry prudent that the word 'erroneous' in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct."
17. In the light of the above, let us examine the facts of the present case. As far as the first proposition of assessee is concerned, the ld.AO has duly called for details and examined the record. We deem it pertinent to take note of the show cause notice issued by the AO. It reads as under:
"Date : 9 August, 2012 The Principal Officer JAY AGRICULTURE & HORTICULTURE PRODUCTS P.LTD. AMBUJA TOWER, OPP MEMANAGAR FIRE STATION NR. VIJAY CHAR RASTA NAVRANGPRUA, AHMEDABAD.
Sir/Madam, Sub: Scrutiny assessment for the A.Y.2010-11. Ref: (i) Return of income filed in your own case for A.Y.2010-11 (ii) Notice u/s.143(2) of the IT Act, dated 5.9.2011.
Kindly refer to the above.
2. Please find herewith the formal/statutory notice u/s 142(1) of the IT Act 1961, calling for details enclosed with this letter. You are requested to submit the following details in respect of your assessment for A.Y. 2010-11 relevant to F.Y. 2009-10.
ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 17
(a) Copy of Capital Account, Balance Sheet, Profit and Loss Account etc. along with Audit Report (if applicable) along with its enclosures.
(b) Copy of return of income.
(c) Statement of Total Income.
(d) Complete details of all the bank accounts maintained by the assessee, viz. the Account No., Name and addresses of the bank, along with the Dr./Cr. Balances as on 31.03.2010.
(e) Details of immovable/movable property held by you with supporting evidences.
(f) Director's details along with share holding, PAN etc.
(g) Copy of Memorandum/Article of Association.
(h) Complete details of addresses of all the business premises occupied by the assessee, viz. office/factory /godown/warehousing premises. Explain whether these premises are owned by the assessee or taken on rent. If the same is taken on rent, then kindly submit for each rented premises the details of rent paid and TDS deducted thereon, details of the land lord and submit a copy of rental agreement, if any.
3. The case is fixed for hearing on 22.8.2012 at 1.00, PM. You are requested to submit all the same date. I am also enclosing a notice u/s 142(1) of the IT Act, notice u/s 143(2) of the IT Act dated 5.9.2011 and you are requested to submit any details/explanations/evidences which you want to product in support of various claimed by you in the R/I filed on the same date. Kindly note this is time barring case and hence no adjournment will be granted. In case of non/partial compliance of the notice u/s.142(1), the case will be decided on the facts available on the record.
Yours faithfully, Sd/-
ITO
18. During the course of the assessment proceedings, the assessee further submitted the details vide letter dated 22.10.2012. It reads as under:
"Pramodkumar Dad & Associates CHARTERED ACCOUNTANTS "KAISER"
110-112, Ashwamegh Avenue Nr. Mithakhali Under Bridge ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 18 Navrangpura, AHMEDABAD 380 009 Phone No. (O) 26466027, Fax: (079) 26447906 Mobile: 98240-31207 Email:[email protected]
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22-10-2012 To, The Income Tax Officer Ward 4(2), 1st Floor, Navjivan Trust Bhavan, Ahmedabad.
Dear Sir, Sub: Submission in response to your notice U/s. 142(1) of the Act for A.Y.2010-11 Reg: Jay Agriculture and Horticulture Products Pvt. Ltd. PAN: AABCJ6890M Kindly refer to our submissions regarding general information, in continuation to the same, the following submissions with regard buyback of shares by Royal Export Limited (REL), Sri Lanka.
The REL allotted 2083580 shares each on 31-12-2004 and out of these shares 625074 shares were buyback on 19-06-2009. The profits on buyback of these shares are in the nature of LTCG &the working of the same are as under:
No. of Sales Purchas Profit Remark
shares Price e Price
buyback
625074 246381 290820 217299 Copy of Bank
32 5 27 Statement
furnished in Exb-1
The above details, information and evidences are filed for your kind consideration. Kindly do the needful and oblige.
Thanking you, Yours faithfully, SD/-
CA PRAMOD DAD)"
ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 19
19. Apart from the above, the assessee has filed computation of income, profit & loss account etc. The assessee has further filed details before the ld.Commissioner exhibiting the purchase of shares, sale of shares, approval for the Board of Investment of Sri Lanka, as discernible from the index reproduced above. The ld.commissioner, has not recorded a firm conclusion as to how it can be demonstrated that the AO has not examined the record. The observations of the Hon'ble Delhi High Court in the case of ITO Vs. D.G. Housing Projects Ltd. is worth to take note at this stage. It reads as under:
"18. This distinction must be kept in mind by the Commissioner of Income-tax while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous."
ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 20
20. On due consideration of these facts, we are of the view that the AO has examined the issue, though not discussed elaborately in the assessment order. But on record, he has called for information from the assessee and thereafter accepted. It is the prerogative of the AO what to discuss in the assessment order and the assessee cannot force the AO to draft the assessment order in a particular manner. The assessment order cannot be termed erroneous as well as prejudicial to the interest of the Revenue on the ground that inquiry was not conducted by the AO.
21. Let us examine the last fold of submission raised by the ld. counsel for the assessee. It is pertinent to take note of Article 13 (4) and (5) of the DTAA between India and Sri Lanka. It reads as under:
"ARTICLE-13 .....
4. Gains from the alienation of shares of the capital stock of a company the property of which consists \i directly or indirectly principally of immovable property situated in a Contracting State may be taxed in that State.
5. Gains from the alienation of shares other than those mentioned in paragraph 4 in a company which is a | resident of a Contracting State may be taxed in that State."
22. A perusal of the above Article would indicate that gains from alienation of the shares of capital stock of the company the property of which consists directly or indirectly principally of immovable property situated in a contracting State may be taxed in that State. The situs of the shares was in Sri Lanka. The Royale Exports Ltd. is a resident of Sri Lanka, and therefore, the transfer of shares of that company held by the assessee company in India would be taxable in Sri Lanka and if gain is to be taxed in Sri Lanka, then that will not be taxed in India as per ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 21 the DTAA. Thus, even after setting aside the issue to the AO, the result will be same i.e. gain will not be taxed in India. The Hon'ble Karnataka High Court in the case of D.G. Gopala Gowda (supra) had an occasion to examine similar aspect, i.e. if after exercise of power u/s.263, no taxable income is unearthed in the hands of the assessee, then, action u/s.263 should not be upheld. The facts in that case are noticed by Hon'ble Court in para-2 which read as under:
"2. The assessee had purchased a site at Rupena Agrahara in the financial year 1995-96 for a consideration of Rs.3,46,520/-. He started construction of the building in April 1999. He agreed to sell the said property under the agreement dated 9-9-2000 in unfinished condition. Under the terms of agreement, the assessee should complete the construction of the building before execution of sale deed with the help of the funds provided by the purchaser. On 22-11-2000 the assessee executed a sale deed in favour of the purchaser for a consideration of Rs.1,38,00,000/-. The assessee received a sum of Rs.40,00,000/- at the time of agreement. The total cost of construction was Rs.1,04,30,425/-. Thereafter, the assessee purchased another property at Koramangala. The Assessing Officer computed the income from the long term capital gains at Rs.22,17,940/- for the sale of the property. However, the assessee was exempted from paying tax since the fund was utilized fully towards purchase of another property at Koramangala. The Commissioner of Income Tax issued notice under Section 263 of the Act stating that the Assessing Officer was not justified in treating the sale as long term capital gain and according to him, it should have been treated as short term capital gain. The assessee filed his reply to the show cause notice. Thereafter, the Commissioner proceeded to pass the order setting aside the order of assessment on the ground that it is prejudicial to the interest of the revenue. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal. The Tribunal went into the factual aspects and took note of the legal position as settled in various judgments of the courts and in fact, calculated both the short term and long term capital gain and then found that the assessee is not liable to pay any tax. Therefore, it recorded the finding that even if the order of the Assessing Authority is erroneous, it is not ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 22 prejudicial to the interest of the revenue. Therefore, set aside the order of the revisional authority and granted relief to the assessee.
9. The Hon'ble High Court while upholding the order of the ITAT has observed as under:
" Even if it is erroneous, unless the said erroneous order is prejudicial to the interest of the Revenue, the Commissioner could not have exercised the said power. From the admitted material on record, the amount that is ordered to be refunded to the assessee is not the amount, which is lawfully due to the Revenue at all, it was an amount which is Revenue legitimately should have refunded if only the claim had been in the return enclosing the certificates under Section 203. the said amount should have been refunded to the assessee. Because he was handicapped by such certificates not being forwarded to him, consequently not able to make the claim, such a claim was not made. The moment he got possession of those certificates on 12.02.2001, within two years from the date of the end of the assessment year he has put forth the claim. The said amount was not a lawful amount to the Government. It was an amount which should have been refunded to the assessee. Therefore, the condition precedent for exercising the revisional power under Section 263 of the Act is that the order under revision should not only be erroneous, but such erroneous order should result in prejudice to the interest of the revenue. Mere error would not confer jurisdiction to exercise revisional power under Section 263 of the Act. We have gone through the order passed by the revisional authority. It is a very cryptic order. It neither points out an error nor prejudice which has caused to the revenue. After declaring that the order is prejudicial, it refers to the notice being issued to the assessee and the assessee filing reply to the said notice and then review authority feels that it is a matter to be readjudicated by the Assessing Authority and therefore, the matter was remanded for fresh consideration. This is not the way, the revisional authority should exercise their power under Section 263 of the Act. The order of revisional authority should indicate the error committed by the Assessing Authority and consequential prejudice caused to the revenue because of the erroneous order. Unless these two conditions exist, the revisional authority does not get jurisdiction to pass any order under Section 263 of the Act. Once these two conditions are set out in the order, then it is open to the revisional authority to consider the case on ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 23 merits and pass final order or in its view, requires some adjudication or enquiry, the matter can be remanded to Assessing Authority. But such remand should be only after setting out the facts which show erroneous nature of the order and the consequential prejudice to the revenue which confer jurisdiction on the revisional authority. Seen from that angle, in the impugned order though we could make out what is the error committed by the revisional authority, certainly there is no iota of evidence to show how it is prejudicial to the interest of the revenue. On the contrary, in the reply to the notice, the assessee had filed a statement. Even if the assessment is to be made separately for the land on long term basis and to the building on short term basis, the assessee is not liable to pay any tax for the building. The assessee has demonstrated that in no event the order passed by the Assessing Officer is prejudicial to the interest of the revenue. That aspect has not been considered and there is no reference to that aspect in the entire order passed by the revisional authority and by a cryptic order, the matter is remanded to the Assessing Authority. Though the Tribunal was not expected to go into the merits of the case, in order to demonstrate that the order passed by the Assessing Authority even if it is erroneous, is not prejudicial to the interest of the revenue, they have set out computation of capital gains and demonstrated that the order was not prejudicial. Therefore, the order passed by the revisional authority is illegal and rightly it has been set aside. In the light of what we have stated above, the substantial question of law is answered in favour of the assessee and against the revenue."
The Hon'ble High Court has held that fulfillment of twin condition is must i.e. assessment order should be erroneous and it should cause a prejudice to the Revenue. If any one condition is lacking, then action u/s 263 would not be justified. In the above case, the assessment order was erroneous because the learned Assessing Officer failed to compute the long term capital gain and short term capital gain separately. But the Tribunal ultimately arrived at a conclusion that even if this exercise is being done, then there will not be any tax liability and therefore, there is no need to set aside the assessment order. The Hon'ble High Court has upheld this finding of the Tribunal.
ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 24
23. In view of the above discussion, we allow the appeal of the assessee and quash the order passed by the ld. Commissioner under section 263 of the Income Tax.
24. Now we take up the ITA No.606/Ahd/2015. In this case, the assessee has filed its return of income on 12.10.2010 declaring total income at Rs.6,10,690/-. The case of the assessee was selected for scrutiny assessment and assessment order was passed under section 143(3) on 31.10.2012. The ld.AO has accepted the income disclosed by the assessee. After perusal of the record, the ld.Commissioner harboured a belief that the AO has not conducted adequate inquiry, therefore, he took cognizance under section 263 of the Income Tax Act on 11.12.2014. The contents of the notice issued by the ld.Commissioner read as under:
"OFFICE OF THE COMMISSIONER OF INCOME-TAX, AHMEDABAD-2 1st Floor, Navjeevan Trust Building B/h. Gujarat Vidyapith, Ahmedabad 380 014. No.CIT-2/ABD/Tech/263/20/2014-15 Date :11th December, 2014 To, Principal Officer Jay Infra & Properties P. Ltd.
Ambuja Tower, Opp. Memnagar Station Vijay Char Rasta Navrangpura Ahmedabad.
Sir, Sub : Notice u/s 263 of the I. T. Act 1961 for A.Y. 2010-11 PAN: AABCJ6891L Kindly refer to the above
1. The assessment u/s 143(3) of the IT Act was finalized on 31/10/2012 by the ITO, Ward-2(1)(2), Ahmedabad, by ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 25 accepting the returned income as assessed income at Rs. 6,10,690/-
2. On verification of the records it has been observed that the Company was incorporated with the object of construction and acquiring and its related incidental and ancillary activities. The assessee company was intended to perform "instruction business. But, during this year under consideration, the assessee company had not performed any business activity.
During the period under consideration, it has only rent income of Rs. 15,97,860/-from other income of Rs.9.097/-, As assessee was having only rent income and income from other sources, after allowing deduction of 30% of rent income and interest expenses of Rs. 3045/-, income should have assessed at Rs. 11,18,157/-. But, the same was assessed at Rs. 6,10,690/-. The expenditure debited against rent income by assessee company were required to be capitalized as prior period expenditure as the company was incorporated with the object of construction and acquiring and its related incidental and ancillary activities.
3. The A.O. has neither called for any explanation on above issues nor furnished by you during the course of assessment proceedings which shows that the Assessing Officer while finalizing the assessment proceedings has not applied the relevant and correct provisions of law which has resulted in the under assessment of income.
4. In light of the above, the assessment order finalized on 31/10/2012 is considered to be erroneous to the extent it is prejudicial to the interest of revenue. Hence the said assessment order is proposed to be set aside for fresh assessment.
5. You are, therefore, hereby given an opportunity to represent your case and show cause as to why the Assessment order u/s 143(3) dtd. 31/10/2012 should not be set aside and income assessable to tax be modified to the extent of wrong claim of expenses claimed against the income from house property in profit and loss account. The hearing is fixed on 19.12.14 at 11.00 AM, in the office of the undersigned either personally or through an Authorized Representative and may also file written submissions, if any. on the said date.
ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 26
25. With the assistance of the ld. representative, we have gone through the record. In the light of the position of law, we have discussed in the aforegoing paragraphs, while disposing of the appeal being ITA No.605/Ahd/2015. Let us examine the facts of the present case.
26. Notice issued by the ld.AO on 9.8.2012 is available at page no.96 of the paper book, which reads as under:
"Date : 9 August, 2012 The Principal Officer JAY INFRA & PROPERTIES P.LTD.
AMBUJA TOWER, OPP MEMANAGAR FIRE STATION NR. VIJAY CHAR RASTA NAVRANGPRUA, AHMEDABAD.
Sir/Madam, Sub: Scrutiny assessment for the A.Y.2010-11. Ref: (i) Return of income filed in your own case for A.Y.2010-11 (ii) Notice u/s.143(2) of the IT Act, dated 5.9.2011.
Kindly refer to the above.
2. Please find herewith the formal/statutory notice u/s 142(1) of the IT Act 1961, calling for details enclosed with this letter. You are requested to submit the following details in respect of your assessment for A.Y. 2010-11 relevant to F.Y. 2009-10.
(a) Copy of Capital Account, Balance Sheet, Profit and Loss Account etc. along with Audit Report (if applicable) along with its enclosures.
(b) Copy of return of income.
(c) Statement of Total Income.
(d) Complete details of all the bank accounts maintained by the assessee, viz. the Account No., Name and addresses of the bank, along with the Dr./Cr. Balances as on 31.03.2010.
ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 27
(e) Details of immovable/movable property held by you with supporting evidences.
(f) Director's details along with share holding, PAN etc.
(g) Copy of Memorandum/Article of Association.
(h) Complete details of addresses of all the business premises occupied by the assessee, viz. office/factory /godown/warehousing premises. Explain whether these premises are owned by the assessee or taken on rent. If the same is taken on rent, then kindly submit for each rented premises the details of rent paid and TDS deducted thereon, details of the land lord and submit a copy of rental agreement, if any.
3. The case is fixed for hearing on 23.8.2012 at 11.00, AM. You are requested to submit all the same date. I am also enclosing a notice u/s 142(1) of the IT Act, notice u/s 143(2) of the IT Act dated 5.9.2011 and you are requested to submit any details/explanations/evidences which you want to product in support of various claimed by you in the R/I filed on the same date. Kindly note this is time barring case and hence no adjournment will be granted. In case of non/partial compliance of the notice u/s.142(1), the case will be decided on the facts available on the record.
Yours faithfully, Sd/-
ITO"
27. We find that the assessee has placed on record computation of income, details of expenditure and all other details called for by the AO. The assessee has an income of Rs.906/- under the head "Business Income". This income was earned by the assessee from renting of weigh-bridge. In our opinion, the ld.Commissioner was of the view that against an income of Rs.906/- from the operation of weigh-bridge, the expenditure of Rs.2,98,212/- towards salary and Rs.1,16,067/- towards depreciation of weigh-bridge are prima facie on the higher side and this aspect has been accepted by the AO without verification. In our opinion, the assessee has placed on record the details. If the logic of the ld.Commissioner is accepted that against a miniscule income, expenses of more than Rs.4,16,000/- has been claimed by the assessee, then no assessee would ever suffer loss. Certain expenditure ITA No.605 and 606/Ahd/2015 Asstt.Year 2010-2011 28 are to be given to the assessee, even if in a particular year no business activity was carried out. The assessee has shown operation of weigh- bridge and income therefrom. Therefore, the ld.Commissioner is not justified in taking action under section 263 of the Income Tax Act. We allow this appeal of the assessee also and quash the order passed by the ld.Pr.Commissoner.
28. In the result, both appeals of the assessees are allowed.
Order pronounced in the Court on 12th February, 2016 at Ahmedabad.
Sd/- Sd/- (ANIL CHATURVEDI) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 12/02/2016
आदे श क& " त(ल)प अ*े)षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं धत आयकर आयु!त / Concerned CIT
4. आयकर आयु!त(अपील) / The CIT(A)
5. $वभागीय 'त'न ध, आयकर अपील य अ धकरण / DR, ITAT,
6. गाड* फाईल / Guard file.
ु ार/ BY ORDER, आदे शानस //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation- 02.02.2016
2. Date on which the typed draft is placed before the Dictating Member 03.02.2016
3. Date on which the approved draft comes to the Sr.P.S./P.S. -
4. Date on which the fair order is placed before the Dictating Member for Pronouncement ....................
5. Date on which the file goes to the Bench Clerk .. : 12.2.16
6. Date on which the file goes to the Head Clerk..................................
7. The date on which the file goes to the Assistant Registrar for signature on the order..........................
Date of Despatch of the Order..................