TMI Blog2014 (8) TMI 862X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee - it cannot be said that it is a case of "lack of enquiry" - the CIT is not clear as to what treatment is to be given with reference to the 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 ₹ 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. 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 ₹ 20 crores from M/s. Walden Properties Pvt. Ltd. which cannot be said to be a revenue receipt - 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing 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 ₹ 20 crores from M/s Indu Projects and has paid an advance for land of ₹ 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 ₹ 20 crore at the time of signing of MOU, meaning thereby that the amount of ₹ 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 ₹ 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 ₹ 20 crores from M/s Indu Projects Ltd, so as to make payment of like amount to M/s LECC. In the balance sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Indu Projects, from whom the assessee is stated to have received an advance of ₹ 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 ₹ 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 ₹ 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 ₹ 20 Crores on 05.05.2006, as observed by the CIT. However, it was clarified before the AO that the amount of ₹ 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re clearly only after entering into an agreement that too after making the payment of ₹ 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 ₹ 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, that Assessing Officer has not made enquiries is 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 v. G.R. Thangamaligai [2003] 259 ITR 129 (Mad.) wherein held that in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djudicator. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is deprived of the benefit of a positive finding in his favour, though he may have sufficiently established his case. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 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 ₹ 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 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 exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck 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 ₹ 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. 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 ₹ 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 ..... 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