TMI Blog2017 (6) TMI 1118X X X X Extracts X X X X X X X X Extracts X X X X ..... in any specific manner as to how AO’s assessment order dated 28.03.2014 was erroneous in so far as prejudicial to the interest of the Revenue. In our considered opinion, by setting aside the assessment and directing the AO to pass fresh order of assessment, the Ld CIT has merely given the AO a second inning which is not the aim and object of Section 263 of the Act. For the reasons discussed in the foregoing therefore, we hold that the order u/s 143(3) passed by the ITO, Ward 12(3), Kolkata was not erroneous in so far as prejudicial to the interests of the revenue for the reasons set out in the CIT’s order u/s 263 of the Act - Decided in favour of assessee. - I.TA No. 1329/Kol/2016 - - - Dated:- 31-3-2017 - Shri A. T. Varkey, JM And Shri Waseem Ahmed, AM For The Appellant : Shri D.S. Damle, FCA Shri Akkal Dudhwewala, ACA For The Respondent : Shri Anand Baiwar, CIT, DR ORDER Per Shri A.T.Varkey, JM This appeal is filed by the assessee against the order passed by the Principal Commissioner of Income-tax-4, Kolkata u/s 263 of the Income-tax Act, 1961 dated 31.03.2016 for the Assessment Year 2011-12. In the Memorandum of Appeal, the following grounds have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct undertaken during the year was Calcutta Riverside township at Batanagar. For the AY 2011-12 the appellant filed its return of income and thereafter the return was selected for scrutiny assessment. Notice u/s 142(1) was issued by the AO on 19/07/2013 calling upon the assessee to furnish information, details documents with regard to various issues specified in the questionnaire annexed with the notice. After considering the submissions, information and documents furnished from time to time, order u/s 143(3) was passed assessing net loss of ₹ 7,81,44,753/- as opposed to declared loss of ₹ 7,99,47,129/-. Subsequently Pr.CIT-4, Kolkata issued a show cause notice ( SCN herein after) dated 17.02.2016 requiring the assessee to show cause as to why the assessment order should not be revised, since in his opinion the order was erroneous in so far as prejudicial to the interest of the Revenue. In response the Ld AR of the assessee argued that the order u/s 143(3) could not be held to be erroneous for the reasons set out in show cause notice and requested the Ld CIT not to proceed with revision proceedings. Rejecting the explanations and the details furnished, the Ld CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed verified. The AO had also not submitted the copy of agreement between the associate/sister/group concerns and without the requisite agreement, the related party transactions u/s 40A(2)(b) remained unverified. The major expenses under the head Construction Expenses were not verified by the AO during the assessment. (2) The assessee company had made payment of ₹ 90 crore to Bata India Limited on account of cost of acquisition of land development rights and debited in its P L A/c under the head Construction Expenses . Prima facie the above expenses seemed to be capital in nature. Also the assessee company had not submitted any copy of agreement/documents between the assessee company Bata India Limited to verify the nature of expenses i.e. Capital or Revenue. The nature of the above expenses remained unverified during the assessment. (3) During the year under consideration, the company had taken term loan from a body corporate of ₹ 1,30,00,00,000/- and unsecured loans from inter corporate of ₹ 3.6 crore (last year 16.10 crore) against which interest of ₹ 16.17 crore was paid (last year 45.23 lac) by the assessee company. The a above transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is freely held by Bata India Limited, which has given the Development Rights to Riverbank Developers Pvt Ltd. 6.1 The Ld AR pointed out that the above observations were verbatim copied by the Ld CIT in Para 1 of his SCN. He submitted that the JV between BIL CMGL did not come into being for the first time during the year under consideration but the JV pre-existed since AY 2008-09. Referring to historical facts, the Ld AR submitted that in FY 2005-06 an agreement was entered into between BIL CMGL in terms of which both the companies had agreed to collaborate with each other for undertaking development of a township on land belonging to BIL at Batanagar after obtaining permission from the Govt of West Bengal. In terms of the arrangement agreed upon, the appellant was incorporated in 2007 (25 Oct 2007) as an SPV, in which BIL CMGL held equity shares equally. After incorporation, the assessee entered into a deed of novation assignment dated 08.12.2007 pursuant to which it received the development rights over 237 acres of land at Batanagar from Riverbank Holdings Pvt Ltd ( RHPL ) which was originally holding the development rights over the said property by earlier developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar payments were made in the earlier and subsequent years also and no adverse inferences were drawn in respect of these payments in any of the assessments. He further submitted that the expenses were incurred in relation to development and construction of Batanagar Project and expenses incurred for the year were included in the value of Work-in-Progress A/c at the end of the relevant year. He submitted that the payments in most of the cases were in the nature of reimbursement of actual expenses incurred on cost sharing basis amongst group companies and therefore not excessive or unreasonable. The Ld CIT according to him did not point out even a single specific instance where the payment was found by him to be excessive or unreasonable. The Ld AR further submitted that the Ld CIT considered the order to be erroneous only because the assessee did not submit the agreements with the associate concerns. He argued that there was no legal requirement of having agreements between the associate concerns before deduction was allowed for expenses paid to related parties. The Ld AR submitted that for mere absence of written agreement between the assessee and its associate concerns, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that in the assessment order for the year as also in the prior years the AOs had found the assessee to be engaged in developing a township at Batanagar. Expenses incurred on development of the township were carried through assessee s P L A/c from year to year and sale of constructed spaces was credited in the P L A/c. These facts cumulatively proved that the expenditure incurred on acquiring development rights was a revenue expenditure incurred in connection with assessee s real estate business. The AR submitted that assessee s business of developing Batanagar township could not have been carried on but for acquiring development rights in land from BIL and therefore the expenditure was revenue in nature and could not be considered to be capital. He also pointed out that the value of closing WIP credited in the P L A/c included value of development rights of ₹ 90 crores paid to BIL and therefore this fact also proved that the deduction was not allowed to the assessee even though construction expenses debited inter alia included ₹ 90 crores paid to BIL. 6.6 Referring to Para 3 of SCN, the Ld AR submitted that the Ld CIT was factually wrong in holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessment order. Even though all the relevant material information including copies of the Agreement, sanction letters etc. were filed before the Ld CIT, he did not point out any specific infirmity in any of the documents or details furnished. Even after examining the relevant information, details and assessee s explanation, the CIT did not establish any specific ground on which he found that the assessment order was erroneous for the reason that deduction for any specific expenditure was wrongly allowed. Relying on the judgments of the Delhi High Court in the case of DIT VsJyoti Foundation (357 ITR 388) ITO Vs D.G. Housing Projects Ltd (343 ITR 329) , the Ld AR submitted that once the assessee had brought before the CIT, the relevant material, information and documents to disprove his charge in the SCN then the CIT could not merely set aside the assessment for carrying out verification of the relevant facts without himself recording factual finding that the assessment was erroneous and therefore prejudicial to the revenue s interests for specific reasons. The Ld AR therefore prayed for setting aside the impugned order passed by Ld CIT u/s 263 of the Act. 7. The Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development of a township at Batanagar on the land belonging to BIL in pursuance of an arrangement agreed upon between the parties in 2005-06. BIL and CMGL held 50% equity in the assessee company, incorporated for undertaking development of township at Batanagar. The business of development of township commenced on incorporation of the assessee in 2007.In the assessment order of the initial year i.e. AY 2008-09, the AO referred to the joint venture agreement between BIL CMGL for development of Batanagar project on the land belonging to BIL. The same project continued to be executed by the assessee during the year under consideration and the Ld CIT s observations in Para 1 of SCN were found to be substantially copied from the assessment order for AY 2008-09. We therefore find force in the Ld AR s submissions that the set of circumstances under which the assessee executed Batanagar project in the relevant year were same as in the earlier years and these were taken note of by the AO. 8.1 We note that during the relevant year even though the assessee continued to execute Batanagar project on its own, promoters of the appellant i.e. BIL CMGL varied terms of their understanding i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was paid by the Company to BIL in the month of April 2011. 8.2 We therefore find that there was disclosure of relevant facts relating to acquisition of development rights by the assessee in the annual audited final accounts filed before the AO. We also note that development rights in respect of Batanagar land were directly connected with assessee s real estate project which was being developed by the assessee as its business activity. In the questionnaire forming part of notice u/s 142(1) of the Act dated 19.07.2013, the AO had required the assessee to provide the following documents / details: 1) To produce Books of accounts as maintained including bills, vouchers etc. and all Bank Statements. 2) Copy of Joint Venture Agreement. 3) Name, present address, PAN and IT jurisdiction of the directors. 4) Details of addresses, phone number of all premises Office, Branch, Godown, Workshop etc. 5) Details of increase of share capital (if any) during the year along with names, addresses, PAN of the applicants. 6) Details of list of shareholders including share holding both in a quantitative and percentage term. Also give copy of account of shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land development rights amounting to ₹ 90 crores paid to BIL and these details were furnished as Annexure 9 which inter alia included the details of payment. From the variation Agreement produced before the AO, the consideration of ₹ 90 crores is evident, which is stated in pages 52 and 53 PB. We further find that in Clause (9) of assessee s letter dated 21.10.2013, the assessee had furnished following explanation with regard to consideration of ₹ 90 crores paid to BIL. On 28 April 2010, Riverbank Developers Private Limited (RDPL), Riverbank Holdings Private Limited (RHPL), Calcutta Metropolitan Group Limited and Bata India Limited (BIL) have entered into an development agreement for development of an integrated township. As per the terms of the development agreement, BIL has transferred and assigned development right of land for total consideration of ₹ 900,000,000 payable in cash and delivery of new employee housing aggregating 315,000 lacs square feet (approximately) and Princep Riverfront Homes aggregating to 325,000 square feet (approximately) in phases. 8.4 We also note that along with the letter dated 21.10.2013, the assessee enclosed doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was credited to P L A/c and income derived there from was assessed under the head Business . We therefore find force in the Ld AR s submission that the cost incurred by the assessee on acquiring development rights represented cost of acquiring stock-in-trade of assessee s real estate business. Even in the impugned order, the Ld CIT himself has admitted that the assessee was executing the Batanagar project under the JV. The Ld CIT also admitted that the land on which the township project was being developed belonged to BIL who had granted development rights to the assessee. Once these were the admitted facts, we do not find substance in the Ld CIT s allegation that in the absence of the JV Agreement, the AO was not in a position to verify whether the expenditure was capital or revenue in nature. On the contrary we find that there existed sufficient material on record from which it was very much evident that the development rights were acquired by the appellant in connection with its ongoing real estate business, income wherefrom was assessed under the head Business in the assessment order and therefore the expenditure on acquiring development rights was rightly considered to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter the assessee also furnished party-wise details of Construction Expenses administrative expenses, wherever the expenditure paid was in excess of ₹ 1 lac. We further note that in the questionnaire u/s 142(1), the AO had required the assessee to furnish statement of closing value of Work In Progress and the assessee had furnished such statement which reconciled with the expenses debited in P L A/c. From the Statement of valuation of Opening Closing WIP, we find that in arriving at the closing value of WIP of ₹ 298.43 crores, the assessee had taken into account expenses of ₹ 209.54 crores incurred and debited in the P L A/c of the relevant year. From the statement of valuation of WIP, we find that all the expenses, accounted as part of Construction Expenses were taken into account in arriving at Closing Value of WIP as on 31.03.2011. We also note that with regard to the expenses paid to related parties, the assessee had made full disclosure of the relevant facts in the Note No. 8 of Schedule 17 of the Annual Accounts and in Annexure - C of the Tax Audit Report. We further note that these expenses formed part of the construction expenses which were examined b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout adequate enquiry and thereby deduction or claims were erroneously allowed. On appeal the ITAT however found that in the notice u/s 142(1) the AO had required the assessee to furnish the details of various expenses inter alia including the items specified in the SCN. The order sheet entries also proved that the AO had discussed the issues covered in the SCN prior to framing of the assessment. The ITAT therefore held that in respect of issues set out in the SCN, the AO had conducted enquiry by requiring the assessee to furnish the details and after examining the relevant details and explanations, the AO had taken one of the plausible view and therefore the CIT was not justified in invoking revisionary jurisdiction u/s 263 of the Act. Accordingly CIT s order u/s 263 was held to be unsustainable. On appeal u/s 260A, the Hon ble Calcutta High Court upheld the ITAT s order, observing as follows: There is evidence to show that the Assessing Officer had required the assessee to answer 17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stantiate the expenses incurred. On the contrary the SCN proceeded on the premise that the order u/s 143(3) was passed without obtaining any details. We however find that details of the expenses incurred were furnished by the assessee both before the AO as well as before the Ld CIT. Without specifying which particular document or evidence the assessee was expected to produce but failed to produce, the Ld CIT made only a general assertion that despite opportunity the assessee did not produce any evidence. We are unable to appreciate Ld CIT s such finding since no specific instance of non-furnishing of any particular evidence or document has been highlighted in the impugned order. We find that the SCN was issued on the ground that no enquiry was conducted by the AO and in the submissions before the Ld CIT, the assessee had furnished its explanations disproving the said charge. Thereafter no fresh SCN was issued by the Ld CIT requiring the assessee to produce any evidence or document substantiating the expenses nor any SCN was issued after obtaining the relevant details as per which the Ld CIT could prove that deduction for any particular expenditure was erroneously allowed. In our op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of finished goods in closing stock furnished by the assessee but only remarked that the Assessing Officer should have made further enquiry by calling for more details. In these facts and circumstances of the said case, which are similar to the facts of the present case, the Hon'ble Delhi High Court upheld the order of the Tribunal setting aside the order of the ld. CIT passed under section 263 observing that the ld. Commissioner had not taken the order to its logically conclusion, which was his prime duty in order to justify exercise of power under section 263 . In our opinion, the ratio of this decision of the Hon'ble Delhi High Court in the case of Leisure Wear Exports Limited (supra) is squarely applicable to the facts involved in the present case and respectfully following the same, we set aside the impugned order passed by the ld. CIT under section 263 and restore that the Assessing Officer passed under section 143(3) . 10.4 A useful reference can also be made to ITAT, Guhawati in the case of AnandPoddarVs CIT (33 taxmann.com 367) wherein the facts were somewhat similar to the assessee s case. In the case before the ITAT, Guhawati; the CIT held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not come to even prima facie conclusion that for the reasons discussed by him in his impugned order, the order of the Assessing Officer should be held as erroneous. The Tribunal in the case of Plastic Concern v. Asstt. CIT [1998] 61 TTJ 87 (Cal.) held that mere possibility of gathering more material to prove the claim of the assessee wrong would not make the concluded assessment erroneous as long as the Assessing Officer had acted judiciously and conducted enquiries in the course of original assessment. 10.5 Applying the ratio laid down in the foregoing decisions we find that in the present case, the AO himself had conducted enquiry by obtaining requisite information and details with regard to each of the expense enumerated by the Ld CIT in his SCN. We find that in response to requisition u/s 142(1), the assessee had furnished details explanations and the documents on record disproved the Ld CIT s charge in the SCN that enquiry was not conducted. We further find that even before the Ld CIT, the assessee had furnished the same explanations and details which have been ignored and/or brushed aside by the Ld CIT by making general observation that no supporting evidences were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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