TMI Blog2015 (4) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... of the possible views. It is also not a case where the CIT has not recorded reasons or has not given a finding that the order of the AO was liable to revisionary provisions on both counts i.e.it was not sustainable legally and it was prejudicial to the interest of revenue. He successfully established that there was non-application of mind as well as non examination of the details by the AO while framing assessment. In short, on the touch stone of the principles enumerated at paragraph no.9 of our order, the revisionary order passed by the CIT succeeds and hence we are of the opinion that it does not need any interference from us. - Decided against the assessee. - ITA No.199/Mum/2009 - - - Dated:- 11-3-2015 - S/Sh.Joginder Singh And Rajendra JJ. For the Appellant : Ms. Komal For the Respondent : Shri Manjunatha Swamy Order u/s.254(1)of the Income- tax Act,1961(Act) Per Rajendra, A.M. Challenging the order of CIT-7,Mumbai,passed u/s.263 of the Act,the assessee has raised following grounds of appeal: On the facts and in the circumstances of the case and in law, the learned Commissioner of Income tax has erred in holding that the assessment order dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax Act, 1961. (i) The learned CIT erred in observing that the amount paid by the appellant company to Nelco and THDC Ltd. against the right to exploit premises and create market in respect of the said premises was capital in nature and was not deductible as expenditure against license fee receipt while working out the income from business. (ii) He failed to appreciate that the amount paid to Nelco and THDC was in the nature of license fees and the same is spread over a period of 10 years for the purpose of claiming deduction in accordance with the matching concept. (i) He erred in holding that the income being license fees from leased premises was assessable under the head income from other sources. (ii) He failed to appreciate that the appellant is engaged in the business of managing a business centre and therefore license fees receipt was correctly assessed under the head profits and gains from business/profession. The appellant craves to leave to add, alter, amend or delete any of the aforesaid grounds of appeal. Before proceeding further, we would like to give the history of the adjournments sought by the assessee for last five years. For the first ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Range-7(3) , Mumbai ( incorrectly mentioned as DCIT-7(3) ) , Mumbai was deficient in further following respect and is considered to be erroneous and prejudicial to the interest of revenue : - i ) As per the P L A/c. filed with the return, license fees received (net ) is shown at ₹ 7,39,09,198/ - and after reducing license fees paid written off of ₹ 2,53,88,546/ - , the net license fees shown is ₹ 4,85,20,652/ - . In the statement of total income, the license fee income in respect of 2nd floor Philips area has been taken at ₹ 3,43,48,737/ - and that of 3rd floor Castrol has been shown at Rs ,1,90,98,288/ - while arriving income from house property . Apart from the same, an amount of ₹ 2,23,09,011/ - has been shown as license fees from various parties ( including other income) while computing income/ loss from income from business and profession. No reconciliation of the amount shown in P L a/c. and that in the statement of total income was f i led or even examined by the A. O. I t was not examined as to how the license fee written off has been reduced while working out the income from house property. Fur the r, in the computation of los s from b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the figures do not appear to be directly co- relatable with the items debited in P f t L al c. Please reconcile the same. iv) You have claimed long term capital loss of ₹ 5,88,16,636/ - on sale of 2nd floor Phi lips area. The cost of garages have been excluded. The agreement with the tenant shows you were getting rental income under 3 different categories viz . ( i ) license fee, ( ii ) charges for amenities provided f t ( iii ) car parking charges. Please specify which are the car parking spaces for which the service charge s were being received and why this is not part of sale agreement dated 12.01.2004. v) It is found from the papers filed during the course of hearing that the proper ty was sold by Nelco and THDC being a confirming par ty whereas you were never a part of sale agreement dated 12.1.2004. It is only after the sale that a supplemental agreement was executed on 12.3.2004 whereby you surrendered your claim in the property and you forgo al l your rights in the property from the very beginning. In these circumstances , can it be said that what was being shown by you surrender of rights was the sale value of the property and how can this kind of agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s.48 of the Act, but had only been reduced from the sale price since the agreement was a composite one including the sale of premises as well as the car parking which did not belong to the assessee. Reference was also made to supplementary agreement entered into between assessee and THDC, dated 12.03.2004whereunder net sale consideration of ₹ 26,37,27,127/-(27,60,27,127/-1,23, 00,000) had been transferred to the assessee. As regards reducing the sum of ₹ 1,49,12,928/- from the sale price, it was submitted that the assessee had paid ₹ 2,35,00,000/- as lease rent for 11 years to NL for the land on which TKP was constructed, that the lease was deferred in the books of account over a period of 11 years, that to arrive at capital gains/loss cost of assets sold was reduced from the sale price. According to the assessee, the net sale price as above was ₹ 26,37,27,127/ -f rom which the indexed cost of construct ion of ₹ 30,76,30,835/- was reduced and the net figure was further reduced by the cost of land i.e. unexpired lease rent of ₹ 1,49,12,928/- to arrive at the taxable capital gains/loss. 4.In response to further clarification asked in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the same, that it was only after effecting the sale that a supplemental agreement was executed on 12.03.2004 whereby the assessee surrendered its claim in the property. 5.After considering the submissions of the assessee with regard to the transfer of parking spaces as per the sale agreement, dated 12.01.2004,the CIT held that he was not satisfied with the clarification and the replies given by it, that open parking spaces and covered parking spaces included as part of the sale agreement were not owned by the assessee, that the position was not clear in that respect from the documents which had been filed before the AO at assessment stage and now before him, that the most primary document was the agreement wherein the assessee was granted licensed area for a term of 11years subject to further renewal on the terms and conditions as enumerated therein, that the assessee was granted right to effect construction in respect of the licensed area by utilizing the FSI thereof in conjunction and conformity with the development of the said property being carried out by NL and THDC under the sale agreement (Clause (J) of the agreement),that pursuant to exercise of the said rights unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT did not find the assessee's reply acceptable due to the reason that the amount payable as per the agreement dated 16.11. 1999 to NL was being treated as deferred revenue expenditure by the assessee and proportionate amount worked out on the basis that the license granted was for 11 years was being written off in the books of account of the assessee. The assessee claimd that the payment had been made towards land which did not follow from the text of the agreement. The assessee had filed a copy of the agreement dated 15.11.1999 between NL and the assessee before the CIT. He observed that as per Clause 1(a)of the agreement, the assessee was granted permission as licensee to use and occupy specified area of the said property which would enable to him to effect construction equivalent to 47,095 sq. ft. of super built-up area for 11 years commencing from the date of the agreement. As per Clause 2(a) of the agreement, the assessee as licensee was liable to make payment to NL a sum of ₹ 2,25,96,000/- as license fee for the license and permission granted in the aforesaid respect. Considering the same he held that it was not factually correct to say that the license fee paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee produced the details of the interest paid on HDFC loan during the course of hearing, before him. From the details, he found that apart from the interest paid to HDFC, the assessee had paid loan processing charges of ₹ 28,97,722/- to HDFC. The total amount of interest debited in the P L A/c. was ₹ 5.53Crores out of which ₹ 2.50 Crores were debited against income from business and profession and the balance amount was adjusted in the computation of House Property income. Scrutiny of the details filed before him showed that the total interest amount as per the P L a/c. included loan processing fees of ₹ 28,97,722/- also, that out of the said amount, ₹ 15,56,250/- had been apportioned towards the House Property income and the balance amount of ₹ 13,41,472/- had been debited against business income, that the said amount of ₹ 15,56,250/-,which was relatable to the properties in respect of which the income had been shown as house property, was not deductible u/s.24(b) of the Act, that the said amount was also not deductible against income from business as the loan was incurred in respect of the property for which the income has been sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d THDC was not in the nature of license fees but was purely a finance arrangements. Therefore the CIT held that the assessee's treatment of the amount by writing off the same for a period of ten years and claiming the same as deduction towards computation of income from business against the license fee receipt in respect of the premises which were not owned by the assessee was not factually and legally in order,that the amount payable in terms of the said agreement was capital in nature and was not deductible as expenditure while working out the income against license fee of leased premises, that the income as License fee from the leased premises was correctly assessable under the head income from other sources as the income was in the nature of rental income only against which expenditure which was exclusively incurred in earning of the said income was al lowable. He held that the queries which were raised as per notice u/s. 263 originally vide letter dated 26.6.2008 and subsequently vide Letter dated 25.09.2008 were not raised by the AO, that the assessee had submitted most of the details as per questionnaire to notice u/s.142(1) of the Act, dated 21.8.2006,that the details f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable, has been held to be invalid by the Hon ble Courts. 9.3.The CIT can exercise the jurisdiction u/s.263 of the Act sumotu. The pre-requisite condition for exercise of such jurisdiction is that the order of the AO is erroneous and prejudicial to the interests of the revenue. The twin conditions enshrined under the provisions are composite and cannot be segregated. Where the order of the AO appears to be erroneous, but is not prejudicial to the interests of the revenue or the order is otherwise valid but prejudicial to the interests of the revenue ,that does not invite the invocation of such power by the CIT. Clearly, the revisional jurisdiction available to a CIT, u/s.263 of the Act, is essentially circumscribed by the determinant mentioned above I e error in the order and prejudice caused by it to revenue. In short, the statutory enjoinment carves out an extremely constricted ambit of the discretionary jurisdiction of the CIT. 9.4.There is a distinction between an order being erroneous and a mistake or error committed by the AO. An incorrect assumption of facts or improper application of law would satisfy the requirement of the order being erroneous. The order cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 of the Act. In other words, the CIT cannot initiate proceedings u/s.263 of the Act with a view to start fishing and roving inquiries in matters or orders which are already concluded. He is not permitted to begin a fresh litigation because of new views he entertains on the facts or new versions which he presents as to what should be the inference or proper inference either on the facts disclosed or the weight of the circumstance. 9.9.While the AO is not called upon to write an elaborate judgment giving detailed reasons in respect of each any every disallowance, deduction, etc. ,it is incumbent upon the CIT not to exercise his suomotu revisional powers, unless supported by adequate reasons for doing so. The provisions of section 263 of the Act, when read as a composite whole, make it incumbent upon the CIT before exercising revisional powers to :(i) call for and examine the record, and (ii) give the assessee an opportunity of being heard and thereafter to make or cause to be made such enquiry,as he deems necessary. It is only on fulfilment of these twin conditions that the CIT may pass an order exercising his power of revision. 9.10.Condition precedent in revisionary proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed u/s.263 by the CIT, directing the AO to decide the error of an order or its prejudice to revenue is an invalid order. In other words a matter cannot be remitted for a fresh decision to the AO, u/s.263 of the Act, without a finding that the order is erroneous. In such matters, to remand the matter to the AO would imply that the CIT has not examined and decided as to whether the order is erroneous or not, but has directed the AO to decide the question. An order of remit cannot be passed by the CIT to ask the AO to decide whether the order is erroneous-it is not permissible. 9.16.A distinction has to be drawn in the cases where the AO does not conduct an enquiry and makes some inquiry, as lack of enquiry by itself renders the order erroneous and prejudicial to the interests of the revenue and cases where the AO conducts an enquiry but the finding recorded is erroneous and which is also prejudicial to the interests of the revenue. In the latter cases, the CIT has to examine the order or the decision taken by the AO on the merits and then form an opinion on the merits that the order passed by the AO is erroneous and prejudicial to the interests of the revenue. The order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed. Limitation has to be reckoned from date of assessment order, not date of rectification. 9.22.Where the jurisdiction under section 263(1)of the Act, is sought to be exercised with reference to an issue which is covered by the original order of assessment under section 143(3) and which does not form the subject-matter of the re-assessment, limitation must necessarily begin to run from the order under section 143(3). 9.23(i) An order cannot be termed erroneous unless it is not in accordance with law. If an AO acting in accordance with law makes a certain assessment, it cannot be branded as erroneous by the CIT simply because, according to him, the order should have been written more elaborately. 23(ii)If the AO adopts one of the courses permissible under the law or where two views are possible has taken one view with which the CIT does not agree, it cannot be treated as an order erroneous and prejudicial to the interests of the Revenue. 23 (iii) While completing the assessment, the AO.s exercise quasi-judicial power vested in them in accordance with law and arrive at certain conclusions therefore, such conclusions cannot be termed to be erroneous simply because the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h cases the order of the AO can erroneous provided the CIT holds and is able to demonstrate that the view taken by the AO was not plausible, being legally unsustainable and incorrect. But, the finding must be recorded. 23(vii).There is difference between incomplete or inadequate verification and no verification whatsoever by the AO. Where the AO had adopted one of the two courses permissible and available to him and this has resulted in loss of revenue or two views were possible and the AO had taken one view with which the CIT may not agree, the order cannot be treated as an erroneous order or prejudicial to the interests of the revenue unless the view taken by the AO is unsustainable in law. If the CIT arrives at that conclusion, then the order of the CIT cannot be set aside on the ground that the two views were possible or probable. It would be incorrect to state as a broad proposition that an order of the AO cannot be erroneous, if the AO has taken one of two possible views. In such cases the order of the AO can erroneous, provided the CIT holds and is able to demonstrate that the view taken by the AO was not plausible, being legally unsustainable and incorrect-the only rider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case or the justification elucidated by the assessee, the ITAT should not allow the appeal on merits. In such matters the right and proper course for the Tribunal is to ask the CIT to examine the factual aspects rather than give its own factual finding without there being a factual examination and verification or full and proper rebuttal. 25(ii) The Tribunal, being the second appellate authority, cannot consider the validity of an assessment or reassessment order while considering the appeal filed against an order issued u/s.263 25(iii) Where the issue is not examined by the AO and on this ground the CIT revises the order without giving his own findings, but directes the AO to do the necessary exercise, it is not proper for the Tribunal to decide the issue on the merits and hold in favour of the assessee. While in cases where the AO takes a view, after applying his mind in accordance with settled norms, revisional jurisdiction may not be exercised. But, in cases where settled norms are ignored and assessment is made, it can certainly be exercised. 26(i) If a query is raised during the course of scrutiny by the AO, which was answered to the satisfaction of the AO, but nei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justify that the surrendered income had to be reduced to the declared income due to acceptable reasons. Failure of the AO to collect such details and non consideration and non analysis of them by the AO empowers the CIT to invoke his revisionary powers. Tribunal should not interfere with such orders of the CIT. 26(vii) In case of an industrial undertakings, claiming special deductions, allowance of deduction has to be allowed in light of a clear finding of the year of commencement of business. So, if the AO allows deduction without deciding the year of commencement of operation and the CIT directs him to pass fresh order to decide the issue, then the order passed by the CIT u/s.263 of the Act is within the jurisdictional limit. Tribunal should not decide such cases on merits in appellate proceedings. 26(viii) If an AO does not apply provision of section 40A(3)and40(a)(ia) in the cases where the assessees pay for purchase of non-agricultural produce in cash or make payment to transport contractors exceeding prescribed limit/without deducting tax at source, his order is erroneous. Such an order can be revised validly. 26(ix).It has to be seen that whether a particular case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the issue in question was raised before the AO and considered and verified or the course adopted was permissible. 26(xiv) When a circular is issued u/s.119 of the Act by the CBDT and its validity is upheld, it is binding on the AO. If he does not follow such circular and passes assessment order it would amount to making assessment without conducting proper inquiry and investigation. CIT will be justified in revising that order. 26(xv) If as per the order sheet no record is produced by the assessee and in the order a contrary statement is made by the AO about producing and examining the documents, the CIT can validly exercise revisionary powers u/s.263 of the Act. 26(xvi) If the AO fails to consider as to whether in computing profits derived from an industrial undertaking, the expenditure incurred by the assessee, inter alia, on research and development was proximately and directly connected with the business of the undertaking or not then the order passed by him is without application of mind. In such a situation it is a case where both the requirements of section 263 stand fulfilled. 26(xvii) .If the procedure adopted by the AO is not fair and reasonable, then th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not only mentioned as to how the order were erroneous, but has also established, by giving convincing reasons, that it was prejudicial to interest of revenue. Thus, the twin conditions were satisfied. Reasons recorded by the CIT clearly show that capital gain was not determined as per the provisions of the Act and thus the order was erroneous and prejudicial to the interest of revenue. Similarly, he proved that other two issues were erroneous and adversely affected the interest of revenue. In case of writing off of proportionate license fee the CIT came across about eight agreements that were not considered by the AO and same had bearing on taxability of the assessee. Clearly, the CIT after considering the available material reached to certain conclusions .It is not a case where two views were possible and the AO had taken one of the possible views. It is also not a case where the CIT has not recorded reasons or has not given a finding that the order of the AO was liable to revisionary provisions on both counts i.e.it was not sustainable legally and it was prejudicial to the interest of revenue. He successfully established that there was non-application of mind as well as non ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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