TMI Blog2016 (8) TMI 641X X X X Extracts X X X X X X X X Extracts X X X X ..... giving an opportunity to the assessee. Considering all these, we have no hesitation in upholding the order of CIT. Disallowance as capital expenditure - Held that:- Disallowance made by the AO was for a reason that advances written off by the assessee were for purchasing capital assets. Similar issue had come up in the case of Khoday India Ltd, which was a sister concern of the assessee. The claim was allowed by the Tribunal on assessee’s appeal and the matter was carried to the Hon’ble jurisdictional High Court wherein held that since Section 37 does not incorporate such a condition and it expressly excludes all expenditure in the nature of capital expenditure, the contention raised by the learned counsel for the respondent cannot be accepted and hence, the substantial questions of law raised in this appeal have to be answered in favour of the appellant. Accordingly, the order of the tribunal is set aside by allowing his appeal and answering the questions of law in favour of the revenue. Disallowance of expenditure incurred in an earlier year - Held that:- AO has listed the items of expenditure at page 3 of the assessment order. The dates of expenditure clearly show that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id bring to the notice of the AO that Tribunal in the case of its sister concern, namely Khoday Breweries Ltd, in ITA.374/Bang/2012, dt.29.04.2004, had held that such claim be allowed. However the AO was of the opinion that claim for capital expenditure could not allowed. Out of the total sum of ₹ 1,84,59,060/- a disallowance of ₹ 49,07,454/- was made by the AO for this, and assessment concluded accordingly. 03. Subsequently CIT issued a notice u/s.263 of the Act, to the assessee, citing a reason that assessee had received a sum ₹ 6.29 crores as compensation which was mentioned in Schedule 13 of its audited account statements, and had claimed it as capital receipt relying on the judgment of Hon ble Bombay High Court in the case of Bombay Burmah Trading Corporation Ltd. V. CIT [81 ITR 777]. As per the CIT, AO while completing the assessment had not applied his mind whether the judgment of Hon ble Bombay High Court in Bombay Burmah Trading Corporation Ltd (supra) was applicable to the facts before him. In reply to the above notice, assessee mentioned that there was an agreement dt.22.09.2006 entered by one M/s. Daatha Builders and six others, who were the owners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the assessee has divided the grounds to two, one in respect of jurisdiction and the other in respect of merits. Ld. AR has filed two sets of submission. In the first set of submission filed on 07.06.2011 it is stated that the development agreement between M/s. Daatha Builders and M/s. Prestige Estates Projects Ltd, was dt.22.09.2004 whereas agreement of the assessee with M/s. Daatha Builders was dt.27.10.2004. As per the Ld. AR cancellation was done on 02.06.2005. Ld. AR submitted that assessment order was passed after scrutiny of statement of accounts and audit reports and that too after four hearings. As per the Ld. AR, AO had taken a possible view that the amount received was not taxable being capital in nature. Relying on the judgment of Hon ble Apex Court in the case of Malabar Industrial Co. Ltd, v. CIT [243 ITR 83] and CIT v. Max India Ltd, [295 ITR 282], Ld. AR submitted that CIT could not substitute a lawful view taken by the AO. As per the Ld. AR, CIT did not indicate how the facts in assessee s case were different from that of Hon ble Bombay High Court judgment in the case of Bombay Burmah Trading Corpn. Ltd, (supra). Ld. AR submitted that compensation received in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without making any enquiries on an important aspect reflected in the accounts of the assessee. As per the Ld. DR, the agreement by virtue of which assessee bought 27.5% in M/s. Daatha Builders and the cancellation of the agreement were all done within a short span of eight months. What the assessee had paid on the date of entering into agreement was ₹ 50 lakhs to M/s. Daatha Builders, whereas on cancellation of the agreement it received a huge amount of ₹ 6.29 crores. As for the reliance placed by the Ld. AR on the decision of S. Zoraster Co., (supra) of Hon ble Rajasthan High Court, Ld. DR submitted that the concerned assessee there was a seller who had received compensation from the purchaser, where the agreement contained a specific condition for payment of compensation in the case of default of purchaser. As per the Ld. DR judgment of Hon ble Bombay High Court in the case of Bombay Burmah Trading Corporation Ltd (supra), was also not applicable since in the said case what was received by the assessee was compensation in lieu of surrender of forest lease thereby sterilising the very source of its profit making apparatus, since concerned assessee was trading in teak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee along with the return of income filed for the impugned assessment year had filed balance sheet, its schedules and tax audit return u/s.44AB of the Act. Schedules to the balance sheet were thirteen in number. 13th schedule gave significant account policies and notes on accounts. Note No.h, forming a part of such schedule 13 is reproduced hereunder : Sales and other income are recognised on accrual basis. Sales Tax Service Tax and Excise Duty collected is not included in sales. Amount of ₹ 629 lakhs being compensation for not exercising the right of specific performance has been treated as capital receipt in view of the decision of the Bombay High Court in the case of Bombay Burmah Trading Corporation Ltd v. CIT (1971) 81 ITR 777. The above note appears as item number h of Schedule 13. Notes prior to that ran into a number of pages. Question is whether the receipt of ₹ 6.29 crores by the assessee as capital receipt was in the mind of the AO during the course of assessment proceedings, has to be seen in the above perspective. As mentioned by us, what was before the AO was the audited final account statements with 13 schedules, in which the thirteenth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) 67 DTR 33]. In the said case also argument of the assessee was that CIT could not have exercised jurisdiction u/s.263 of the Act unless it was shown that the order passed by the AO was both erroneous and prejudicial to the interests of Revenue. Reliance was placed by the concerned assessee in the said case on the very same judgments mentioned by the Ld. AR before us. Argument of the assessee in the said case was that CIT could not exercise the power of revision, unless prejudice was also caused, even when there was absence of proper enquiry. Question before the Hon ble jurisdictional High Court was interpretation of Article 23 of the DTAA between India and Canada and whether the assessing authority had correctly considered the said article while doing the assessment. Paras 9 to 29 of the above judgment is reproduced hereunder : 9. However, per contra, Mr. G. Sarangan, learned senior counsel appearing for the assessee vehemently urged that it was not open to the CIT to examine the matter within the scope of s. 263 of the Act particularly, when the assessing authority had in fact shown his awareness for the deductions as claimed by the assessee and had allowed the same and tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trates that the assessing authority had violated any statutory provision nor having indicated the precise loss of revenue and that was perhaps only a possibility, the order of the assessing authority did not qualify for being subjected to revisional jurisdiction under s. 263 of the Act and therefore submits that the Tribunal was very correct in setting aside the order being of the opinion that the CIT should not have acted under s. 263 of the Act in a situation of the present nature. 12. Sri Sarangan also submits that it is also not open to the CIT to go into the details of lack of jurisdiction when the assessing authority was allowing deduction as claimed by the assessee in respect of the tax deducted in a foreign country with reference to the relevant articles in the DTAA and if the assessing authority had opined that the assessee was entitled to claim such deduction, the CIT cannot opine to the contrary to say that the assessee was either not entitled to some part of it or was not entitled to the entire amount, more so when it was not demonstrated in terms of the order of the CIT and therefore the Tribunal was fully justified in setting aside the order of the CIT. 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Max India Ltd. (2007) 213 CTR (SC) 266: (2007) 295 ITR 282(SC) ]. (vi) There is no requirement of issuance of a notice before commencing proceedings under s. 263 of the Act. What is required is adherence to the principles of natural justice by granting to the assessee an opportunity of being heard before passing an order under s. 263. [See CIT vs. Electro House (1971) 82 ITR 824(SC)]. (vii) If the AO acts in accordance with law his order cannot be termed as erroneous by the CIT, simply because according to him the order should have been written more elaborately . Recourse cannot be taken to s. 263 to substitute the view of the AO with that of the CIT. [See CIT vs. Gabrial India Ltd. (1993) 114 CTR (Bom) 81: (1993) 203 ITR 108(Bom)]. (viii) The exercise of statutory power under s. 263 of the Act is dependent on existence of objective facts ascertained from prima facie material on record. The evaluation of such material should show that tax which was lawfully eligible was not imposed. [See CIT vs. Gabrial India Ltd. (supra)]. 14. Sri Suryanarayana submits that even on facts, the present case is almost on par with the case as was examined both by the Bombay H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... realize that the provision is intended to plug leakage to the Revenue by a erroneous orders passed by the lower authorities, whether by mistake or in ignorance or even by design. It makes little difference as to for what reasons the order is passed by the lower authority, so long as it becomes erroneous and prejudicial to the interest of the Revenue. Ultimately. the object is to ensure that leakage to the Revenue is plugged and some tax due to the State not reaching the coffers of the State is prevented by exercise of revisional jurisdiction of the CIT. 19. The observation as contained in the case of Electro House (supra), extracted above, and as has been particularly pointed out by Sri Indrakumar in the case of Malabar Industrial Co. Ltd. vs. CIT (supra), though this decision was relied upon on behalf of the assessee, particularly to the passage/observation of the Supreme Court at p. 88 reading as under : Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkata Krishna Rice Co. vs. CIT (1987) 62 CTR (Mad) 152: (1987) 163 ITR 129(Mad) interpreting 'prejudicial to the interests of the Revenue.' The High Court held (p. 138) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and without making any inquiry. On these facts the conclusion that the order of the ITO was erroneous is irresistible. We are. therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the CIT under s. 263(1) was justified. The second contention has to be rejected in view of the finding of fact recorded by the High Court. It was not shown at any stage of the proceedings, the amount in question was fixed or quantified as loss of agricultural income and admittedly it is not so found by the Tribunal. The further question whether it will be agricultural income within the meaning of s. 2(1A) of the Act as elucidated by this Court in CIT vs. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466(SC), does not arise for consideration. It is evident from the order of the High Court that the findings recorded by the Tribunal that the appellant stopped agricultural operation in November, 1982, and the receipt under consideration did not relate to any agricultural operation carried on by the appellant, were not questioned before it. Though, we do not agree with the High Court that the said amount was paid for breach of contract as indeed it was pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, we are of the clear opinion that it cannot be characterized as a situation beyond the realm of s. 263 of the Act, as the order being erroneous and prejudicial is a clear possibility particularly the assessing authority not disclosing the basis. 22. To test this proposition, if an order which is explicit is passed by the assessing authority and indicating that the assessee is entitled to a particular extent of relief, but if it is with reference to relevant articles of the DTAA and if it is not either a proper computation or not fully in consonance with the same and if it has resulted in a situation of granting a greater relief than the assessee is otherwise entitled to under these agreements and if the CIT can revise such an order without any hassle in the exercise of revisional jurisdiction under s. 263 of the Act and can correct the order which is erroneous and prejudicial to the interest of the Revenue, just because the assessing authority does not spell out the reasons and therefore can avoid scrutiny under s. 268 of the Act, is an argument which is not logical or rational and not acceptable and at any rate on the authority of the Supreme Court in the case of Malabar I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that the authority has applied his mind to the same and there was no question of the CIT interfering by taking a different view etc. 27. Assessing authority performs a quasi-judicial function and the reasons for his conclusions and findings should be forthcoming in the assessment order. Though it is urged on behalf of the assessee by its learned counsel that reasons should be spelt out only in a situation where the assessing authority passes an order against the assessee or adverse to the interest of the assessee and no need for the assessing authority to spell out reasons when the order is accepting the claim of the assessee and the learned counsel submit that this is the legal position on authority, we are afraid that to accept a submission of this nature would be to give a free hand to the assessing authority, just to pass orders without reasoning and to spell out reasons only in a situation where the finding is to be against the assessee or any claim put forth by the assessee is denied. 28. We are of the clear opinion that there cannot be any dichotomy of this nature as every conclusion and finding by the assessing authority should be supported by reasons, howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced hereunder : 13. Ground 1 concerns a disallowance of ₹ 36,50,750/-, made as capital expenditure. Ld. AR submitted that the claim was on expenditure incurred by the assessee on writing off advances given for purchase of various assets. As per the Ld. AR, the supplies in pursuance to such advances which were given in the earlier years, were not forthcoming. According to him this was a pure business loss for the assessee, and had to be allowed. 14. Per contra, Ld. DR submitted that assessee in its ground was relying on a decision of the Tribunal in the case of a sister concern, named Khoday Breweries Ltd, [ITA.374/Bang/2012, dt.29.04.2004]. According to Ld. DR, Revenue had moved an appeal against the above decisions before the Hon ble jurisdictional High Court. As per the Ld. DR, Hon ble jurisdictional High Court in CIT v. Khoday India Ltd, [ITA.10/2005, dt.02.06.2010], had reversed the finding of the Tribunal and upheld the order of AO and CIT (A). 15. We have perused the orders and heard the rival contentions. Disallowance made by the AO was for a reason that advances written off by the assessee were for purchasing capital assets. Similar issue had c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t expressly excludes all expenditure in the nature of capital expenditure, the contention raised by the learned counsel for the respondent cannot be accepted and hence, the substantial questions of law raised in this appeal have to be answered in favour of the appellant. Accordingly, the order of the tribunal is set aside by allowing his appeal and answering the questions of law in favour of the revenue. Consequently the order passed by the Commissioner of Income tax (Appeals) and the Assessing Officer are confirmed. 18. By virtue of the above judgment we are of the opinion that assessee s ground in this regard cannot succeed. Ground.1 is therefore dismissed. 19. Second issue raised by the assessee is with regard to disallowance of expenditure of ₹ 5,29,000/-, incurred in an earlier year. AO has listed the items of expenditure at page 3 of the assessment order. The dates of expenditure clearly show that all these pertained to an earlier year. Another contention taken by the assessee is that some of the amounts were shown twice. The amounts seen as repeating are ₹ 292/- paid to Ernakulam Sales Tax and ₹ 8,553/- paid at Jaipur as sales-tax. One other argumen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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