TMI Blog2008 (4) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Commissioner of Income-tax-I, New Delhi on perusal of assessment records found that the claim of the assessee for deduction of Rs. 83,42,990 on account of sub-letting charges was allowed without examining its nature. The Assessing Officer also did not examine as to whether sub-letting charges were deductible under section 24(1)(vii) of the Income-tax Act, 1961. Therefore, the assessment order made by the Assessing Officer being erroneous in so far as prejudicial to the interests of the Revenue, a show-cause notice under section 263(1) was issued to the assessee. During the course of proceedings under section 263 it was pleaded that amount of Rs. 83,42,990 was rightly allowed as deduction under section 24(1)(vii) of the Act, by the Assessing Officer as the amount was paid consequent upon a demand notice issued by the Delhi Development Authority (DDA) on behalf of the Government. The Government leased out lands to Mohan Co-operative Society, which was further, sub-leased to its members i.e. the assessee as perpetual sub-lease. The amount was paid to the Government through its nominee DDA as and when demanded, calculated for every year on the basis of area allotted to an individ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de in the immediate succeeding year, i.e., the assessment year 2001-02. This suggested that it was not a regular tax levied by the State Government or the DDA. Since the Assessing Officer did not examine the exact nature of claim made by the assessee, whether the same was admissible as deduction under the provisions of the Income-tax Act while computing the income from house property, the assessment order passed by the Assessing Officer was held to be erroneous in so far as prejudicial to the interests of the Revenue. He accordingly set aside the order dated March 28, 2003, with the directions to reframe the assessment after making proper enquiries as may be considered necessary after giving an opportunity of being heard to the assessee. Before us, Sh. C.S. Agarwal, the learned senior advocate for the assessee submitted that the show-cause notice dated February 28, 2005, was issued by the Income-tax Officer and not by the Commissioner of Income-tax. Under section 263(1) the Commissioner of Income-tax is empowered to pass an order and therefore, he alone can issue such notice. Neither the Assessing Officer has power to issue notice nor does the Commissioner of Income-tax have author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed and allowed as deduction under section 24(1) (vii) the assessment year 1996-97 in the assessment order made under section 143(3) on December 17, 1998. The nature of claim on account of payment of sub-letting charges is similar to the claim allowed by the Assessing Officer in the assessment year 1996-97. Once the claim of the assessee was accepted, the Revenue cannot agitate when the assessee makes a similar claim in the subsequent year in identical circumstances. He placed reliance on the decision of the hon'ble Delhi High Court in the case of CIT v. Jagson International Ltd. 214 CTR 227. He further submitted if the nature of the payment is same and no new facts emerge, the law would apply as a consistent practice. He placed reliance on the decision of the hon'ble Supreme Court in the case of Hemalatha Gargya [2003] 259 ITR 1. Placing reliance on the decision of the hon'ble Supreme Court in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 he submitted that where an Assessing Officer belied on own records for determination of an issue, reassessment was not possible. Therefore the Revenue must suffer for its own fault. The assessment order for the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the merits of the case, the learned Commissioner of Income-tax (Departmental representative) Sh. L.M. Pandey submitted that in the assessment order the Assessing Officer had not discussed the issue at all. The assessee filed information before the Assessing Officer but the assessment order was made without making any discussion about the claim of the assessee. The Assessing Officer allowed whatever was claimed. Advance payment has been allowed under section 23(1) (vii). Therefore, there was non -application of mind on the issue by the Assessing Officer. Referring to the provisions of section 263, the learned Departmental Representative submitted that the Commissioner of Income-tax under section 263 could modify or enhance or cancel the order. The learned Commissioner of Income-tax (Departmental Representative) referring to the decision of the hon'ble Gujarat High Court in the case of CIT v. M.M. Khambhatwala [1992] 198 ITR 144, submitted that the Commissioner of Income-tax could exercise power on a debatable issue. The Assessing Officer failed to examine the nature of payment whether it was additional premium or additional rent. Advance payment has been allowed as regular rent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act? Under section 24(1)(iv) annual charge is allowable where such property is subject to annual charge. The deductions allowable under section 24 are restricted to items of allowance specified in the-respective clauses of sub-section (1). The unearned lease paid by the assessee is not an item to be allowed under section 24. He further submitted the Assessing Officer has also not examined the nature of amount of Rs. 16,18,775 which was adjusted against the demand raised by the DDA. On what ground the amount received from American Express India (P.) Ltd. was adjustable was not examined. Regarding issue of notice the learned Commissioner of Income-tax (Departmental representative) submitted that no format has been prescribed in the law. The Assessing Officer has merely carried out the directions of the Commissioner of Income-tax and has merely communicated the reasons for issue of the notice. He further submitted that no technical objection about the issue of notice by the Income-tax Officer was taken at the time of hearing. If the assessee was aggrieved, he could have taken the objection about issuance of notice by the Income-tax Officer before the Commissioner of Income-tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment." From the language employed in section 263(1) it is clear that section does not require the service of notice but only the giving of an opportunity to be heard and it is a question of fact in each case whether such opportunity was given. Since the order intended to be passed would be prejudicial to the assessee, he has to be given an opportunity to be heard. The hon'ble Supreme Court in the case of CIT v. Electro House [1971] 82 ITR 824 had on an occasion to examine a similar issue. At page 827, the hon'ble Supreme Court observed as under: "This section unlike section 34 does not prescribe any notice to be given. It only requires the Commissioner to give an opportunity to the assessee of being heard. The section does not speak of any notice. It is unfortunate that the High Court failed to notice the difference in language between sections 33B and 34. For the assumption of jurisdiction to proceed under section 34 the notice as prescribed in that section is a condition precedent. But no such notice is contemplated by section 33B. The jurisdiction of the Commissioner to proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e passed order under section 263 of the Act? The Income-tax Officer (head quarters) assists the Commissioner in discharge of his judicial and administrative functions. He does not have any assessment functions. In other words as designation suggests he functions as part of secretariat or team assisting the Commissioner in discharge of his day-to-day duties of tax administration. The Income-tax Officer (headquarters) has no independent functions of his own which require delegation of powers to him under section 127 of the Act. The case of issue of notice is similar to the office of the Commissioner of Income-tax (Appeals) where notices of hearing are issued and signed by the office superintendent. In the case of the Income-tax Appellate Tribunal, the assistant registrar signs the notices of hearing. It is a settled law that revisional powers of the Commissioner are not administrative but quasi-judicial. The issue and signing of notice by the Income-tax Officer, head-quarters as part of the secretariat of the Commissioner like other appellate quasi-judicial authorities such as the Commissioner of Income-tax (Appeals) or the Income-tax Appellate Tribunal where notices are issued by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CIT v. Electro House [1971] 82 ITR 824 has held that non issue of notice by the Commissioner of Income-tax would have no bearing on assumption of his jurisdiction. Therefore, the assumption of jurisdiction under section 263 cannot be held to be bad in law merely on the ground that notice was issued and signed by the Income-tax Officer, headquarter-I, New Delhi on behalf of the Commissioner. Thus the plea raised by learned counsel for the assessee is dismissed. Now coming to the merits of the case, the Assessing Officer while completing the assessment under section 143(3) of the Act allowed the claim of the assessee on account of payment made to the DDA at Rs. 83,42,919. In order to assume jurisdiction under section 263, the Commissioner has to satisfy the twin conditions namely (i) the order of the Assessing Officer sought to be revised should be erroneous; (ii) it should be prejudicial to the interests of the Revenue. Both the conditions must be satisfied. In case the order of the Assessing Officer is erroneous but is not prejudicial to the interest of the Revenue, the Commissioner would not be competent to exercise jurisdiction under section 263. An assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the order of the Assessing Officer. The hon'ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 held that the Commissioner could regard the Income-tax Officer's order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further enquiries before accepting the statements made by the assessee in his return. The hon'ble court observed as under: "It is not necessary for the Commissioner to make further enquiries 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 enquiries 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 different from that of a civil court. The statements 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 is neutral. It Simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... session of the plot was handed over on the same date. The building on the plot has been constructed and completion certificate has been obtained. M/s. Paramjit Kaur Sethi entered into an agreement of sale with M/s. Cama Automobiles Pvt. Ltd. on November 25, 1985. The sale was regularized subject to payment of unearned increase, composition fee and sub-letting charges. Immediately after the transfer of premises in the name of company, M/s. Cama Automobiles, requested for the sub-letting permission of the entire building in favour of American Express India Ltd. The matter has been under consideration since then as some issues have cropped up requiring the deliberations and decisions. 2. Issues 2.1 The first issue relates to how we view the manufacturing of software-an industry or service as only an industry can be accommodated in an industrial estate otherwise the problem of changing the land use will arise. (i) The activities pursued by M/s American Express India Pvt. Ltd. is development of computer software and these activities are 'industrial activities' as per various High Court judgments (CIT v. Peerless Consultancy Services P. Ltd. [1990] 186 ITR 609 (Cal) and CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... = Rs. 99,61,694. 3. Proposal: Keeping in view the above details the case is placed before the authority for consideration and approval of the following: The DDA may allow the sub-letting of the entire industrial plot, measuring 62,260.56 sq.ft. on payment of special charges at Rs. 2 per sq. ft per month from October 9, 1995 to February 9,2000 amounting to Rs. 64,75,101 and at Rs. 1 per sq. ft. per month from February 10, 2000 to October 8, 2004 amounting to Rs. 34,86,593 totalling to Rs. 99,61,694.' Item No. 11/2000 Sub: Sub-letting of plot No. A-37, Mohan Co-operative Industrial Estate to M/s. American Express India Pvt. Ltd. Proposals contained in agenda item were discussed in detail. The authority felt that this was a case of sub-letting and not of sale of property. Moreover, the applicants had come to the DDA with clean hands without concealing the fact that they have taken on long-term lease. Keeping in view these facts the proposals contained in the agenda item were approved by the authority." From the facts mentioned in the agenda the issues become crystal clear. The first payment of unearned increase, composition fee, and sub-letting charges relevant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not examined from this angle also. From the assessment order we do not find any discussion from which it can be inferred that the Assessing Officer while allowing the claim of the assessee under section 24(1)(vii) of the Act examined the nature of expenses and also the period for which they related. There is no dispute that the Assessing Officer obtained the entire information, but passed the assessment order without examining the same. It will, therefore, amount to non-application of mind to the issue. The hon'ble Rajasthan High Court in the case of CIT v. Emery Stone Mfg. Co. [1995] 213 ITR 843 held that allowance of certain deductions without proving the claim or without proper verification or in ignorance of the provisions of law are the various instances on the basis of which the order could be considered prejudicial to the Revenue and could be set right in revisional jurisdiction. The contention of the learned authorised representative for the assessee that the learned Commissioner of Income-tax (Appeals) has allowed the claim of the assessee is of no help to the assessee on the ground that the subsequent events will not be relevant for deciding the issue relating to assu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of claim of the assessee wrongly in an earlier assessment year by the Assessing Officer would provide immunity or protection cover to the assessee from all actions including exercise of power under section 263 by the Commissioner. The decision of the Supreme Court in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 was rendered in the context of reopening of assessment under section 147 of the Act and not in the context of section 263 and hence, distinguishable on facts and law. The next contention of the learned authorised representative for the assessee is that the sub-letting charge is not an advance payment of ground rent. From the facts emerging from the agenda of items approved by the DDA, it is evident that the payment of Rs. 99,61,694 relates to the period from October 9, 1995 to February 9, 2000 and the other amount of Rs. 34,86,593 for the period from October 9, 2000 to October 9, 2004. Therefore, part of the payment pertains to the year under consideration and majority of the payment either pertains to prior period or the subsequent period (advance payment). Hence we do not have any force in the arguments of the learned authorised repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42,919 was wrongly allowed under section 24(1)(vii) of the Act. The assessee in his reply dated March 20, 2005, had explained in detail the reasons for claim of deduction under section 24(1)(vii) of the Act. Therefore, adequate opportunity of being heard was provided to the assessee. The learned Commissioner of Income-tax in his order dated March 30, 2005 had cancelled the assessment on the ground that sub-letting charges could not be treated as land revenue or any other tax levied by the State Government for the purposes of deduction under section 24(1)(vii) of the Act. The assessee has not been able to substantiate how the sub-letting charges are in the nature of land revenue or any tax levied by the State Government. Since the learned Commissioner has held that sub-letting charges are not allowable as land revenue or any other tax levied by the State Government, we do not find any infirmity in holding so particularly when the learned Commissioner of Income-tax has also stated the same reasons in the show-cause notice. From the discussion made as above, it is clear that the Assessing Officer has not examined at all the nature of payment, the quantum of amount to be allowed, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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