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Housing Development & Infrastructure Ltd. Versus Principal Commissioner of Income Tax (C) -3, Mumbai

2017 (9) TMI 1022 - ITAT MUMBAI

Revision u/s 263 - Claiming deduction u/s 80IB(10) and sec. 80IA(4) - profits related to TDR receipts less cost related thereto in the form of purchase of land, construction of flats etc. - the assessee determined the cost relating to TDR sales on estimated basis and allocated the same against the proceeds of TDR sales, accordingly it computed profit from TDR sales and claimed the same as deduction u/s 80IA(4) as it is the claim of the assessee that it is involved in development of infrastructur .....

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al expenses. - We have noticed that the assessee had earlier allocated the estimated expenses between the two streams of income, viz., (a) TDR receipts and (b) Commercial space in Airport. After cancellation of airport contract, it had allocated actual expenses against TDR receipts. It is quite common in the case of construction contracts that the income and expenses are disclosed on estimated basis in the initial years. When the whole scenario changed, the Tribunal found merit in the plea .....

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we set aside the impugned revision orders passed by Ld Pr. CIT. - Decided in favour of assessee. - I.T.A. No. 2780/Mum/2017, I.T.A. No. 2781/Mum/2017 And I.T.A. No. 2782/Mum/2017 - Dated:- 1-9-2017 - Shri B.R. Baskaran (AM) And Shri Ravish Sood (JM) For The Assessee : Shri Vijay Mehta & Shri Anuj Krisnadwala For The Department : Shri Rahul Raman ORDER Per B.R. Baskaran (AM) :- All the three appeals filed by the assessee are directed against the revision orders passed by Ld Pr. CIT u/s 263 of .....

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80.82 crores in AY 2009-10 after claiming deduction u/s 80IB(10) and sec. 80IA(4) of the Act. The AO completed the assessment at ₹ 451.88 crores, inter alia, rejecting claim for deduction u/s 80IA(4) of the Act. 3. In AY 2010-11, the assessee declared a total income of ₹ 195.35 crores after claiming deduction u/s 80IB(10) and sec. 80IA(4) of the Act. The AO completed the assessment at ₹ 733.26 crores and in this year also, the assessee s claim for deduction u/s 80IA(4) was reje .....

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for clearing the land required for the airport, since it was occupied by slum dwellers. The MIAL entered into an agreement with MMRDA to free those lands occupied by slum dwellers. Accordingly the MIAL entered into a slum rehabilitation agreement with the assessee on 15-10-2007, which contained the entire scope of work to be undertaken for the purposes of modernisation and upgradation of the Mumbai Airport and the consideration to be received by the assessee. As per the agreement, the assessee s .....

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t its activities also form part of Airport development, which is an infrastructure facility, and hence it is eligible to claim deduction u/s 80IA(4) in respect of profits related to TDR receipts less cost related thereto in the form of purchase of land, construction of flats etc. The AO rejected the claim for deduction u/s 80IA(4) and the assessee challenged the same by filing appeal before Ld CIT(A). The assessing officer also made various other additions. Before Ld CIT(A), the assessee did not .....

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the slum dwellers and handed over the same to Slum Rehabilitation Authority as per SRA scheme. The assessee got TDR rights consequent to the same. The assessee sold its TDR rights in all the three years under consideration. 8. In all the three assessment years under consideration, the assessee determined the cost relating to TDR sales on estimated basis and allocated the same against the proceeds of TDR sales. Accordingly it computed profit from TDR sales and claimed the same as deduction u/s 8 .....

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ceipts was ₹ 1307.87 crores and the assessee estimated the cost of sales at ₹ 627.61 crores. The assessee also allocated proportionate administration cost to the tune of ₹ 154.89 crores. Accordingly it computed the profit from Airport contract at ₹ 525.36 crores and claimed the same as deduction u/s 80IA(4) of the Act. As noticed earlier, the AO had rejected the above said claim, which was also upheld by Ld CIT(A) and hence the matter reached before the Tribunal. 9. When .....

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bunal that the profit computed by the assessee from Airport contract was not correct due to subsequent developments and accordingly pleaded that the profit has to be computed afresh by considering actual expenses. By that time, the actual cost incurred by the assessee in connection with this project (airport project) was available. Since the assessee brought new evidences and also put forth new plea, the Tribunal restored the matter back to the file of the AO for consideration of the claim of th .....

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store this issue back to the files of the AO for framing the assessment denovo. Since the very basis of the claim of deduction u/s 80IA(4) of the Act do not exist, the claim of deduction u/s 80IA(4) cannot be entertained and therefore rejected subject to the outcome of the arbitration proceedings and the profit arising out of the sale of TDR has to be recomputed in line with the revised computation of cost of sale of TDR as filed before us by the Ld Counsel. The AO is directed to consider the re .....

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the AO passed the consequential orders in both the years and computed total income after allowing revised cost of sales, as directed by the Tribunal. In the year relevant to AY 2009-10, the assessee s claim for deduction of additional expenses was to the tune of ₹ 184 crores and the same was allowed by the AO. In AY 2010-11, the AO allowed the claim for additional expenses of ₹ 797.15 crores in the form of Unabsorbed cost of sales of TDR. 10. In assessment year 2012-13, the assessee .....

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of the assessee in all the three years without making necessary enquiries/investigations, prima facie warranted on facts and circumstances of the case. Accordingly he considered the orders passed by AO to give effect to the orders passed by Tribunal in AY 2009-10 and 2010-11 and also the assessment order passed in AY 2012-13, as erroneous and prejudicial to the interests of the revenue. Accordingly he initiated the impugned revision proceedings. 12. Before Ld Pr.CIT, the assessee placed relianc .....

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that the assessee has not made any new claim as presumed by the Ld Pr. CIT. The expenses already incurred and which were accounted for in the books of accounts and only the basis of allocation has been changed, i.e., in the original return of income, the assessee had claimed expenses on estimated basis and allocated the same against two streams of income, whereas, it has been claimed now on actual basis and allocated to only one stream of income. Accordingly it was contended that the impugned or .....

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orting documents. He also took the view that the contract was cancelled on 06-02-2013, which falls in the period relating to AY 2013-14 and hence the loss arising from cancellation should have been considered only in AY 2013-14. The Ld Pr. CIT also expressed the view that the assessee had challenged the cancellation of contract through arbitration proceedings and hence, unless it is finalised, the expenses or loss arising on cancellation cannot be considered in AY 2013-14 and it can be considere .....

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it was observed that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the AO, the Revenue is losing tax lawfully payable by a person, it will be certainly be prejudicial to the interest of Revenue. If the order of the AO is erroneous in so far as it is prejudicial to the interest of Revenue, the CIT can invoke the provisions of sec. 263 of the Act. The Ld Pr. CIT took the view .....

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rs under consideration and directed the AO to make fresh orders after making proper enquiries, verification and bringing the relevant material on the record regarding allowability of unabsorbed cost of the TDR as directed by the ITAT in AY 2009-10 and 2010-11. In assessment year 2012-13, the Ld Pr. CIT also expressed the view that a liability depending upon a contingency is not a debt in present or in future till the contingency happens and a contingency that may arise in future is not expenditu .....

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d in the above said order, as the same would also guide us in the present cases:- 12. We have heard rival contentions and perused the record. Before going into the merits of the issue, we would like to discuss about the legal position with regard to the power of Learned CIT to invoke revision proceedings under section 263 of the Act. The scope of revision proceedings initiated under section 263 of the Act was considered by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. V CI .....

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sary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be erroneous in so far as it is prejudicial to the interests of the Revenue . This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provis .....

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rejudicial to the interests of the Revenue , the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) : The phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the .....

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Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282. ................... 16. We have noticed earlier that the Ld Pr. CIT can revised the order only if it is shown that the assessment order is erroneous in so far as prejudicial to the interests of the revenue. The question as to when an order can be termed as erroneous was explained by Hon ble Bombay High Court in the case of Gabriel India Ltd (supra .....

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, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income tax officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commiss .....

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clusion…. There must be some prima facie material on record to show that the 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 The Hon ble High Court has considered the definitions given to the words erroneous , erroneous assessment and erroneous judgment in Black s Law Dictionary and accordingly held that an order cannot be termed as erroneou .....

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Officer has taken one of the possible view, then the order cannot be held to be prejudicial to the interest of the Revenue. Since the Commissioner of Income tax could not come to a definite finding that the expenditure in question was a capital expenditure in the proceedings under section 263, in our opinion, the order of the assessing officer could not be held to be erroneous. 18. In the case of Nagesh Knitwears P Ltd (2012)(345 ITR 135), the Hon ble Delhi High Court has elucidated and explaine .....

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be erroneous because the order is not sustainable in law and the said finding must be recorded. The Commissioner of Income tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Income tax must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Income .....

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matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the Commissioner of Income tax has not examined and decided whether or not the order is erroneous but has direct .....

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ary enquiries or verification in order to show that the finding given by the assessing officer is erroneous, the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the Ld Pr. CIT has failed to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with the mandate of the provisions of sec. 263 of t .....

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ry assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the AO to conduct the enquiries in the manner preferred by Ld Pr. CIT, thus prejudicing the independent application of mind of the AO. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to sec. 263 of the Act, since it would lead to unending litigations and there would not be .....

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der shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-&agrav .....

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which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquiries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant. 18. The Ld A.R submitted that the assessee was expected to derive .....

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no scope of obtaining Commercial space in the airport as envisaged earlier. The contract was terminated on 06- 02-2013 and at that point of time, the appeals filed by the assessee were pending before Tribunal. Hence the assessee sought to reallocate the expenses against the TDR income, which was found to be acceptable to the Tribunal. Accordingly the Tribunal has restored the matter back to the file of the AO to examine the claim of the assessee after considering the various materials. 19. The .....

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The Ld A.R submitted that the assessee has furnished copies of letter issued by MIAL terminating the contract. The assessee has furnished detailed replies through letters dated 14- 02-2014, 16-05-2014, 22-05-2014, and 06-06-2014 filed before the assessing officer, wherein it has duly explained the basis of revised claim. The copies of above said letters have been placed in the paper book. The assessee has furnished revised computation of income, the original computation for allocation of costs, .....

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claim for deduction of expenses and rejected the revision of book profit. The Ld A.R further submitted that the assessing officer has discussed about the claim of the assessee in the consequential orders/assessment orders. He submitted that the question of non-genuine expenses would not arise in this case, since the issue was related to allocation of expenses already recorded in the books of account. Accordingly he submitted that the assessing officer has taken a possible view of the matter aft .....

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enquiries contemplated in Explanation 2 to sec. 263 is the kind of verification which a person properly instructed would have done. He submitted that the kind of enquiries made by the AO, in the instant cases, would show that he has made proper enquiries with regard to the additional claim of the assessee. 21. The Ld A.R submitted that the Ld Pr. CIT has discussed about the examination of provisions of sec. 40(a)(ia) of the Act in respect of additional claim. He submitted that first of all, the .....

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eld in the case of MOIL Ltd Vs. CIT (2017)(81 taxmann.com 420) has held that the non-discussion of enquiries made by the AO in the assessment order would not give power to Ld CIT to invoke revisional jurisdiction. 22. The Ld A.R further submitted that the Ld Pr. CIT has expressed the view in AY 2012-13 that the assessing officer has not examined the evidences. He submitted that the issue under consideration was not relating to evidences, but it related to only allocation of expenses. 23. The Ld .....

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the impugned proceedings, has allowed the claim of the assessee without making proper enquiries and accordingly submitted that the Ld Pr. CIT was justified in passing the impugned revision orders. 24. In the rejoinder, the Ld A.R strongly objected to the remand report obtained from the assessing officer. He submitted that the assessee is challenging the revision orders passed by Ld Pr. CIT and hence the report of the AO should not be considered at all, since the same has influenced by the revisi .....

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order passed in AY 2009-10 and 2010- 11, has allowed the additional claim in AY 2012-13 also. He submitted that the AO he has taken a possible view of the matter and accordingly contended that the impugned revision orders are beyond jurisdiction. 25. We have heard rival contentions and perused the record. We have narrated the facts relating to the case in the earlier paragraphs. The settled legal position has also been discussed in the previous paragraphs by taking assistance of the order passe .....

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nd allocated the same between TDR receipts and Commercial FSI of Airport. The assessee has given weightage point of 1 to TDR and 5 to commercial space. Accordingly the assessee has arrived at the weighted area and allocated the expenses. The assessee has estimated expenses in the form of (a) Cost of land (b) Rehabilitation cost (Cost of construction of flats for slum dwellers) (c) Approval and SRA charges. 26. After the cancellation of the airport contract, the assessee has sought to revise the .....

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sessee and accordingly restored the matter to the file of the AO for examining the same. The details of actual expenses and their allocation are given in page 55 of the paper book. A perusal of the same would show that even the constructed area has also undergone a change and the quantum of various expenses has also undergone change. As stated by Ld A.R, the necessity of revising the expenses relating to TDR sales arose mainly because of cancellation of airport contract. The plea of the assessee .....

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the assessing officer has applied his mind over the claims of the assessee and has taken his decision accordingly. Hence, we are of the view that it cannot be said that the assessing officer has accepted the claim of the assessee without making necessary enquiries or without application of mind. 28. The Ld Pr. CIT has also expressed the view that the arbitration proceedings are pending and hence the adjustments could be made only after finalization of the arbitration proceedings. The assessee h .....

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ence it is constrained to complete the construction of flats, meaning thereby, whether the assessee gets the commercial space in the airport or not, it has to necessarily incur the expenses in construction of flats. Admittedly those expenses are related to TDR rights only and it is the assessee which has decided to allocate part of expenses towards Commercial space also. Considering the peculiar facts surrounding the case, the claim of the assessee to allocate entire expenses towards TDR rights .....

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