TMI Blog2009 (10) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.01 crores in the expenditure for self-consumption - Considering the fact that in respect of the issues mentioned by him as well as other crucial issues, since no information was given by the assessee, the Assessing Officer had no opportunity to look into them and examine - Similarly, the schedule showing cost of goods sold as well as the cost of services gives a fair view about the expenses incurred by the assessee - If the Assessing Officer is able to locate such leakages, but then fails to make further enquiry, then it would be an error on his part which may render the order passed by him to be erroneous and prejudicial to the interests of revenue - while dealing with the aspect of profits, the CIT has not been able to show a single error in the order of the Assessing Officer - Appeal is partly allowed - IT APPEAL NO. 1280 (MAD.) OF 2006 - - - Dated:- 20-10-2009 - PRADEEP PARIKH, U.B.S. BEDI, ABRAHAM P. GEORGE, SHAMIM YAHYA, JJ. R. Venkatanarayanan, R. Vijayaraghvan and Pradeep for the Appellant. Mahendra Singh, K.R. Meena and Sriram Barathan for the Respondent. Order Per Shamim Yahya, Accountant Member. This appeal by the assessee is directed agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or after the 1st day of June, 1988, the powers of the Commissioner 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, 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. 3.2 Further, the land mark decision of the Hon ble Apex Court on this issue in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 can be referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee that only old provisions had to be applied. However, he was of the opinion that computation of vacancy allowance in respect of Calcutta property should be done after taking 1/4th of such annual value for repairs, etc. For this proposition, the learned CIT also referred to the decision of Hon ble Bombay High Court in Pannalal Silk Mills (P.) Ltd. v. CIT [1992] 194 ITR 270. 5.2 We have carefully considered the issue. We find that the learned CIT has referred to Hon ble Bombay High Court decision and accordingly directed the Assessing Officer to re-compute the income from house property. He also directed that Assessing Officer should also verify whether any municipal tax was payable or paid by the assessee and if he has, the same should first be reduced from the ALV and then the deduction for repairs and vacancy allowance be given. We find that the direction by the learned CIT is in consonance with the legal provisions and case law from Hon ble Bombay High Court. Hence, on this issue we do not find any infirmity in the order of the learned CIT in this regard. 6. Property at Adyar : 6.1 On this issue, the learned CIT noted that the Adyar house was let out on a monthly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Act. Considering the present issue involved on the anvil of aforesaid, we find that the Assessing Officer has made the assessment on the same basis as in the previous years. Just because there is a change in the parties to whom the AC s were leased, it will not be a conclusive premise to change the assessment of the same from the head Business Income to Income from Other Sources . 6.3 This decision of the Tribunal was affirmed by the Hon ble Jurisdictional High Court in the case of CIT v. Pathy Cine Enterprises [2007] 292 ITR 495 (Mad). Hence, in the background of aforesaid discussion and precedents, in our opinion, the Order under section 263 passed by the learned CIT on this issue is not sustainable. 7. Agricultural Income : 7.1 On this issue, the learned CIT noted that assessee had received agricultural income of Rs. 5,83,82,831. The assessee was asked to explain as to why Rule 7B should not be applied. Apart from that, the learned CIT also found that the agricultural income included Rs. 2 crores received on sale of agricultural land. Further, Rs. 26.64 lakhs was received on sale of shade trees. The assessee submitted that Rule 7B was applicable only fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsels and perused the relevant records. The assessee s contention in this regard is that there are many decisions where it was held that expenditure incurred on leasehold property is revenue in nature. As two views are possible on this issue, the issue is not exigible to revision under section 263. In this regard, we note that Explanation (1) to section 32 is admittedly applicable for the impugned assessment year. Hence, it cannot be said that Assessing Officer has examined the said issue correctly. Under such circumstances, if the learned CIT is directing the Assessing Officer to examine this issue and arrive at the correct quantum, the same cannot be said to be not correct. 9. Relief under sections 80HHC 80-IB : 9.1 On Show-Cause Notice on this issue, assessee replied as under : We have several divisions and income of each division is separately computed and added in the consolidated annual report and also for the purpose of filing the Income-tax Return and computation of total income. Deduction under section 80HHC was claimed in respect of the Sugar Division and deduction under section 80-IB was claimed in respect of Speciality Chemicals Divisions engaged in the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal was constituted later on this issue. Hence, on this aspect the Revision Order under section 263 is not sustainable. Moreover, the issue now has been decided in favour of the assessee by the Hon ble Jurisdictional High Court by the order in the case of SCM Creations v. Asstt. CIT [2008] 304 ITR 319 (Mad.). Hence, the Assessing Officer will consider this issue de novo as directed by the learned CIT and also keep in mind the case law cited above. 10. Reconciliation of Profits : 10.1 On this issue, the learned CIT noted that in spite of additional extraordinary income of more than Rs. 8 crores, the total income of the assessee had come down. The learned CIT further noted that, The assessee is having more than two dozen divisions, each having a turnover of crores. For the first time at the time of revision petition hearing, they were asked to give division-wise P L Account and Balance Sheet. They have been now furnished. The assessee has never furnished such details earlier. These details need deep scrutiny for understanding the accounts of the assessee and then to reconcile the issue mentioned in the show-cause notice. As pointed out earlier in Agricultural Divisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this regard, we place reliance upon Hon ble Bombay High Court decision in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 that, in the garb of exercising power under section 263, the Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in matters of orders which are already concluded. Such action will be against the well-accepted policy of law that there must a point of finality in all legal proceedings. 10.5 We further find that Hon ble Jurisdictional High Court in the case of Venkata Krishna Rice Co. v. CIT [1987] 163 ITR 129 (Mad.) had held as under : The expression prejudicial to the interests of the revenue must be regarded as involving a conception of facts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the ITO which might set a bad trend or pattern for similar assessment which on a broad reckoning the Commissioner might think to be prejudicial to the interests of revenue administration. The scope of the interference under section 263 is not to set aside merely unfavourable orders and bring to tax some more money to the treasury nor is the sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. - Despite best persuasion of myself, I have not been able to agree with the findings and the conclusions as drawn by the ld. Accountant Member in the appeal of the assessee with respect to issues relatable to (i) Property at Adyar and (ii) Reconciliation of Profits and also with some observation in para 9.4, but so far as other issues are concerned, I agree with the conclusions as drawn by the ld. A.M. 12.1 As regards first issue regarding Property at Adyar is concerned, in response to notice under section 263 by the ld. CIT, the assessee submitted that this property was let out on a monthly rental of Rs. 3,500 and hence this amount has been offered to tax. The municipal taxes paid in respect of this property actually amounted to Rs. 48,988, but the same was restricted to Rs. 42,000 and the entire balance was disallowed while computing the income under the head business . The annual value fixed by the Corporation in respect of this property is Rs. 2,04,968 for the purpose of levy of property tax. 12.2 The ld. CIT has passed order under section 263 in this regard, as per para 4.3, as under : 4. 3 On careful consideration of the assessee s submission, it is evident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head Income from house property and determination of annual value has been provided in section 23(1), which provides that for the purposes of section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year-to-year and other situations which are not relevant for the case. It is undisputed fact that annual letting value of the property has been fixed by the Municipal Corporation of Chennai at Rs. 2,04,968, whereas, the assessee has declared the same at Rs. 42,000 only. Moreover, it is found to be an admitted fact that this property has been let out to a group concern of the assessee, viz., MCC Finance Limited and municipal tax levied on such property is Rs. 48,988, which is even more than the stated rent being received. Therefore, the rental received has rightly been held to not on the basis of an agreement entered into at arm s length and cannot be deemed to be the sum for which property might reasonably be expected to let from year-to-year. And in this context, the Hon ble Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 263, no such plea has been taken and before this Bench though plea has been taken, yet, the same has not been substantiated by adducing necessary evidence in this regard so not worth considering and otherwise also, correct income is required to be offered and assessed as per provisions of law, which has not been done especially when the value assessed by the Municipal Corporation, as conveyed by the assessee himself is around five times of the value declared and which is even less than the Municipal tax payable and stated tenant is also group concern of the assessee. In view of the facts and circumstances, the Hon ble Madras High Court in the case of M.R. Alagappan (supra) has held that value fixed by the Municipal Corporation is a relevant consideration for determining annual letting value of properly for computing income from property, which view finds further support from the Hon ble Delhi High Court in which two of Hon ble Supreme Court have been relied upon and the assessee has not been made out a case to show that invoking of provisions of section 263 are not correct, therefore, it is held that order of ld. CIT under section 263 on this point is perfectly justified a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned in the show-cause notice. As pointed out earlier in Agricultural Division, the assessee had shown sale price of land as agricultural income. How the administrative expenses have been allocated to each division also needs to be scrutinized. Similar is the case with the computation of profits arising on sale of shares and the nature of income arising on that account i.e., whether business profits or short-term capital account. Again in the construction division no profits have been shown though substantial construction activity is undertaken by the assessee as a developer. There are unclaimed dividends of Rs. 37,53,627.14 since many years. Can they be recognized as revenues? In agricultural business Misc. expenses of 1.88 crores for interest amortization. No notes or information is available. Why interest expenditure has gone up? Have the borrowals been made for earning tax-free or exempt income? 9. In all these and many other crucial issues no information has been given by the assessee. Hence, the Assessing Officer had no opportunity to look into them and examine. Therefore, the entire assessment is set aside for de novo consideration and arrive at true and correct profits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer while giving some examples also and probable queries were also pointed out, as such, the order of the ld. CIT is proper and justified which has rightly been revised by setting aside the issue on the file of the Assessing Officer. Since lack of enquiry renders the assessment to be erroneous and prejudicial to the interest of the revenue, therefore, in view of various decisions on the point, the action of the ld. CIT could be upheld. It is, neither a case where two views are possible nor the ld. Commissioner directed the Assessing Officer to make out any roving enquiry, when definite finding is giving relevant examples, therefore, his order should be upheld. 13.4 After having heard both the sides and considering the material on record, it is seen that as regards, reconciliation of profits, the assessee himself has in response to notice under section 263, furnished various details, which needs scrutiny for understanding the accounts of the assessee and than to do the reconciliation of the profits, which exercise has not been done by the Assessing Officer at the time of finalizing the assessment. Since direction is with respect to specific point and the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Commissioner of Income-tax was valid. Further, the Hon ble Delhi High Court in the case of Duggal Co. v. CIT [1996] 220 ITR 456, has held as under : The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is incumbent on the Income-tax Officer to further investigate the facts stated in the return, when circumstances would make such an inquiry product and the word erroneous in section 263 of the Income-tax Act, 1961, 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. The Hon ble Allahabad High Court in the case of Swarup Vegetable Products v. CIT [1991] 187 ITR 412 has observed as under : It is beyond dispute that, under section 263 of the Income-tax Act, 1961, the Commissioner has power to set aside the assessment order and send the matter for fresh assessment if he is satisfied that further enquiry is necessary and that the order of Income-tax Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the Bench in some of the issues involved in this appeal, the following questions are formulated and referred for nominating Third Member : (i) Whether in view of the facts and circumstances, the order under section 263 with respect to Property at Adyar could be held to be not sustainable or upheld. (ii) In view of the facts and circumstances, whether the order under section 263 with respect to Reconciliation of Profits could be set aside or upheld. Third Member Order Per Pradeep Parikh, Vice-President (As a Third Member). - There being a difference of opinion between the two Members who heard this appeal, the Hon ble President was pleased to nominate the Zonal Vice-President as the Third Member vide his order dated 12-3-2009. Accordingly, the parties are heard and I proceed to resolve the difference between the two Members. The points of difference formulated and referred to the Third Member are as follows : (1) Whether in view of the facts and circumstances, the order under section 263 with respect to Property at Adyar could be held to be not sustainable or upheld. (2) In view of the facts and circumstances, whether the order under section 263 with resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the view taken by the ld. A.M. In the alternative, it was contended that even if the ALV is to be enhanced, the rent receivable from MCC Finance was not recoverable as it had gone into liquidation. Therefore, loss should be allowed to the assessee as per clause (x) of sub-section (1) of section 24 of the Act as was applicable to the year under consideration. 6. The contention of the ld. D.R. was that even though in earlier years the ALV of Rs. 42,000 was adopted, it was inconsistent with the provisions of law and hence, the decision of the ld. J.M. should be upheld. So far as the claim of loss is concerned, it was submitted that it was not the issue before the Third Member and it was not material in so far as the determination of ALV was concerned. 7. I have duly considered the rival contentions and the material on record. Consistency is undoubtedly a sound principle but it cannot be in violation of the express provision of the Act. It is expressly provided in section 23(1) that the ALV of any property shall be deemed to be the sum for which the property might reasonably be excepted to let from year-to-year. However, if the property is let out, then the actual rent received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and then to reconcile the issue mentioned in the show-cause notice. The CIT went on to point out certain specific issues which according to him needed scrutiny. Considering the fact that in respect of the issues mentioned by him as well as other crucial issues, since no information was given by the assessee, the Assessing Officer had no opportunity to look into them and examine. Accordingly, he set aside the entire assessment for de novo consideration and arrive at true and correct profit of the assessee. 9. The contention of the ld. counsel was that under section 263, the CIT cannot ask the Assessing Officer to re-do the assessment merely because the profit is low. Moreover, no specific issues have been raised by him to point out any error which could render the assessment order to be erroneous and prejudicial to the interests of revenue. Some of the points raised by him are mere illustrations and by setting aside the entire assessment, the CIT has directed the Assessing Officer to conduct fishing and roving enquiries in an assessment which is otherwise completed after detailed scrutiny. In support of this contention, he pointed out from the paper book the details that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT sitting in revisionary proceedings. The entire annual accounts are before the Assessing Officer. From the annual accounts itself he can probe into various aspects wherever he feels the need to do so. The schedule of sales and services gives a break up of revenues earned from various activities. Similarly, the schedule showing cost of goods sold as well as the cost of services gives a fair view about the expenses incurred by the assessee. A proper scrutiny of these schedules can prompt the Assessing Officer to make further enquiries. But before making such detailed enquiry, he should be satisfied that a particular expenditure is wrongly claimed or a particular revenue item is suppressed and so on. If the Assessing Officer is able to locate such leakages, but then fails to make further enquiry, then it would be an error on his part which may render the order passed by him to be erroneous and prejudicial to the interests of revenue. In the instant case, it is not only the detailed published accounts that were before him but, in the course of assessment proceedings also the Assessing Officer has looked into several aspects requiring his attention. He has enquired about the increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tartling in the marginal drop in profits and for that reason the CIT held his order to be erroneous. This is not envisaged under section 263 of the Act. Again, in the same judgment it was observed that there must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. In the present case, no such material is there for the CIT to hold the order to be erroneous. The various points noted by him are mere illustrations which according to him should have been looked into by the Assessing Officer. As a matter of fact, while dealing with the aspect of profits, the CIT has not been able to show a single error in the order of the Assessing Officer. Therefore, in the light of the foregoing discussion, I agree which the view taken by the ld. A.M. and disagree with the view of the ld. J.M. 12. The matter shall now be put before the regular Bench for the disposal of the appeal in accordance with the opinion of the majority. Order Per U.B.S. Bedi, Judicial Member. - Since there was difference of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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