TMI Blog2020 (4) TMI 574X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion received from a Senior Advocate regarding the character of receipt and its taxability. The appellant had also furnished a written note outlining the factual matrix and the reasons for which the receipt of liquidated damages was treated to be in the natureof capital receipt - all the requisite details were furnished by the appellant which enabled the AO to make enquiries into the nature and character of receipt and its taxability. No substance in the impugned order wherein it has been held that AO s order suffered infirmity on account of lack of enquiry. Where the CIT finds that the enquiry conducted by the AO is not in accordance with his subjective standards, then the Ld. Pr. CIT should himself conduct the investigation and thereafter record a clear finding in his order u/s. 263 that the view followed or acted upon by the AO in his order was unsustainable in law. In the given facts of the present case, as noted earlier, the AO had made due enquiries into the nature character of receipt of liquidated damages. - Decided in favour of assessee. - I.T.A. No. 468/Kol/2019 - - - Dated:- 9-8-2019 - Shri P.M. Jagtap, Vice President And Shri A. T. Varkey, JM For the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant Clause (7) Liquidated Damages of FA agreement with one of the LOC is reproduced hereunder: 7. Liquidated Damages 7.1 In the event that the LoC transfers the ownership over the Land Parcels; or grants development right in relation to the Land Parcels to any third party developer, without offering the same to LTL in the manner contemplated under Clause 3.1 ( Default Event ), then LTL shall have the right to require the LoC to pay LTL. 7.1.1 alumpsum compensation upto (a) ₹ 6,12,00,000(Rupees six crores twelve lacs), in the event the facility advanced exceed ₹ 10,00,00,000 (Rupees ten crores); or (b) ₹ 3,06,00,000 (Rupees three crores six lacs), in the event the facility advanced exceeds ₹ 5,00,00,000(Rupees five crores) but does not exceed ₹ 10,00,00,000 (rupees ten crores); or ( c) ₹ 1,50,00,000(Rupees one crore fifty lacs) or the amount advanced as Facility, whichever is lower, in the event the Facility advanced does not exceed ₹ 5,00,00000 (Rupees five crores); and 7.1.2 a default interest rate of 18% per annum ( Default Interest Rate ) on the amount advanced as of the date of the occurrence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividual Financial Assistance Agreements. On the basis of legal opinion received by the Company based on the judgement of the Hon ble Supreme Court in Oberoi Hotels Pvt.Ltd. vs. Commissioner of Income Tax (1999) 236 ITR 903(SC), the company has taken a view that the lump sum compensation are in the nature of capital receipts. Based on such legal opinion, the company has credited such amount of compensation to Capital Reserve. 5. In the course of assessment the AO vide notice u/s 142(1) dated 30.11.2016 required the appellant to furnish the details of the amount credited to capital reserve and also offer explanation as to why it was not shown as income in the year under consideration. In response the appellant furnished a detailed write-up with regard to the nature of receipt by way of liquidated damages of ₹ 16,90,00,000/- credited to Capital Reserve along with the relevant FA Agreements Arbitration Award. The appellant relying on the judgments of the Hon ble Supreme Court in the cases of Kettlewell Bullen Co. Ltd Vs CIT (53 ITR 261), Oberoi Hotel Pvt Ltd Vs CIT (supra) Karam Chand Thapar Bros Pvt Ltd Vs CIT (supra); claimed that the aforesaid receipt was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verification of the material available on records, it was found that the order of assessment was erroneous so far as it is prejudicial to the interest of revenue on the following grounds:- On perusal of Assessment record it is observed that the assessee had undergone an agreement for purchase of land with 06 (Six) other companies. During the year the assessee company was approached by the six companies with whom it had entered an agreement for the purchase and develop the land to surrender its contractual right. Subsequently, the matter was referred to the Arbitration for hearing and settlement, who granted an award requiring the land owning companies to pay compensation to the assessee company to surrender its leasehold right. The assessee has treated such compensation as received from the aforementioned companies as Capital receipt. However it has no concrete explanation as to why such receipt should not be treated as revenue receipt and why it has not been offered for taxation. 4. In light of the above, I am of the opinion that prima facie the order dated 21- 12-2016 passed u/s 143(3) of the Income Tax Act, 1961 is erroneous so far as prejudicial to the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT passed u/s. 263 of the Act. 8. Per contra, the Ld. DR argued that, in the given facts of the present case, the AO had failed to examine the important factual aspects of this transaction and therefore the view taken by the AO being patently wrong and which is apparent from the face of record the order was rightfully revised by the ld. Pr. CIT. He thus claimed that the ld. Pr.CIT was justified in invoking the provisions of section 263 of the Act. According to him, in this matter the AO failed in his duty to complete the assessment with proper enquiry and diligence. Arguing so, the Ld. DR heavily relied on the order of ld. Pr.CIT. 9. After giving a thoughtful consideration to the facts and circumstances of the case, the point that arises for our consideration is whether the finding of the ld. Pr.CIT that the AO's order is erroneous and prejudicial to Revenue on account of lack of enquiry on the part of AO was factually and legally justified and sustainable. We note that the assessee company has challenged in the first place, the very usurpation of jurisdiction by ld. Pr.CIT to invoke his revisional powers enjoyed u/s 263 of the Act. To adjudicate this issue we have to fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as prejudicial to the interest of the revenue. It further observed that when the Assessing Officer adopts one of the course permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. 10. In the given facts of the present case the only fault found by the ld. Pr. CIT to interfere with the order of AO was the alleged lack of enquiry in respect of the liquidated damages of ₹ 16,90,00,000/- which was claimed to be in the nature of capital receipt and for which he held the assessment order to be erroneous and prejudicial to interest of the Revenue. In the opinion of the ld. Pr.CIT; before completing the assessment; the AO did not conduct the enquiries which he was expected to conduct into the character of receipt. We are aware of the fact that the Assessing Officer's role while framing an assessment is not only as an adjudicator but he is also an investigator. The AO has a dual role to perform i.e. he is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice dated 26th November, 2009 under Section 263 of the Act reads as follows :- 1. During the said A.Y., you have received a sum of ₹ 18.00 Crore from M/s. Beierdorf AG., Germany (BDF) as one-time settlement for termination of contracts of producing and selling of the products of the latter company in India as well as issuing a NOC for setting up a 100% subsidiary by them in India. The said receipt should have been considered as income in the ambit of either Sec.28 or Sec.56, if the same is considered as voluntary payment on a goodwill gesture as pointed out by you. But, the said receipt has been allowed to be transferred directly to Capital Reserve Account while passing the assessment order for the A.Y. 2006-07. . 76. He drew our attention to the notice under Section 142(1) of the Act and in particular to the annexure thereto from which it would appear that the assessing officer wanted the assessee to furnish in writing and verified in the prescribed manner information called for as per annexures and on the points or matters specified therein before me at my office at 18, RabindraSarani, Poddar Court, 5th Floor, on 04.02.2008 at 11.30 AM. . The annexure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussed from time to time on the various days indicated above, appearing from the assessment records produced by Mr. Nizamuddin, leave no scope for any doubt as regards the fact that the Assessing Officer after satisfying himself passed the order dated 28th March, 2008. 79. Mr. Poddar also drew our attention to the impugned judgment of the learned Tribunal which reads as follows:- Therefore, on combined reading of the assessment order for the assessment year under consideration along with the order sheet entries, it can be said that the A.O. had carried out such enquiry as the circumstances warranted and permitted before accepting the claim of the assessee and passing assessment order accordingly. It was an entirely different matter that the Commissioner did not agree with the conclusion derived by the A.O. from the enquiries made. Failure to carry out an enquiry is one thing and in such cases the commissioner would be justified in saying that the mere failure to make any enquiry was erroneous and prejudicial to the interests of the Revenue. But it would not be open to him to hold that the assessment order was erroneous and prejudicial to the interests of the revenue m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come tax proceeding is in the nature of a judicial proceeding between contesting parties, is a matter which is not capable of even a plausible argument. The Income Tax authorities who have power to assess and recover tax are not acting as judges deciding a litigation between the citizen and the State: they are administrative authorities whose proceedings are regulated by statute, but whose function is to estimate the income of the taxpayer and to assess him to tax on the basis of that estimate. Tax legislation necessitates the setting up of machinery to ascertain the taxable income, and to assess tax on the income, but that does not impress the proceeding with the character of an action between the citizen and the State. 83. He also drew our attention to the judgment in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 /71 Taxman 585 (Bom.) 'The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 28th March, 2008 was passed without application of mind is basically a question of fact. The learned Tribunal has held that the assessment order was not passed without application of mind. The records of the assessment including the order sheets go to show that appropriate enquiry was made and the assessee was heard from time to time. In deciding the question Court has to bear in mind the presumption in law laid down in Section 114 Clause - e of the Evidence Act:- that judicial and official acts have been regularly performed; 87. Therefore, the Court has to start with the presumption that the assessment order dated 28th March 2008 was regularly passed. 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 the questions raised by him in the annexure to notice under Section 142 (1) of the Act could not have been formulated. 88. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in that case was dealing with the need on the part of the learned Tribunal to give reasons in support of its order. 94. The judgment in the case of Hindusthan Tin Works Ltd. (supra) also does not apply because there the Delhi High Court was dealing with the duty of the learned Tribunal to disclose reasons in support of its appellate order. 95. The judgment in the case of S.N. Mukherjee (supra) is clearly distinguishable. The point for consideration in that case was whether it was incumbent for the Chief of Army Staff while confirming the findings and the sentence of the General Court Martial, and for the Central Govt. while rejecting the post confirmation petition of the appellant, to record reasons for the orders passed by them. 96. The function of an Assessing Officer is to estimate the income of the assessee and to recover tax on the basis of such estimate as laid down by the Apex Court in the case of S.S Gadgil (supra). Their Lordships opined that the income tax proceedings do not partake the character of a judicial proceeding between the State and the citizen. Therefore, the principles applicable to a proceeding before a judicial or a quasi-judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in accordance with his subjective standards, then the Ld. Pr. CIT should himself conduct the investigation and thereafter record a clear finding in his order u/s. 263 that the view followed or acted upon by the AO in his order was unsustainable in law. In the given facts of the present case, as noted earlier, the AO had made due enquiries into the nature character of receipt of liquidated damages. Through his notice dated 30.11.2016, the AO had called for complete details from the appellant. After examining the specific details furnished by the appellant, the AO did not find any fault with the claim of the assessee treating the liquidated damages to be in the nature of capital receipt. We further note that when the Assistant Audit Officer had raised a memo questioning the character of receipt of liquidated damages and its taxability, the AO had let out his mind and explained his rationale behind holding such receipt to be in capital field. The relevant extracts of the AO s response dated 05.06.2017 to the audit memo is reproduced hereunder: Issue involved in Audit Query. Whether the compensation amount is required to be included in total income of the assessee as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Karam Chand Thapar Bros. Pvt. Ltd. vs- CIT reported in 80 ITR 167 (SC). Further the Supreme Court in the case of Oberoi Hotel Pvt. Ltd. vs-CIT reported in 236 ITR 903 at page 907 on applying the decisions of the Supreme Court in the case of Kettlewell Bullen Co. Ltd. vs- CIT 53 ITR 261 and Karam Chand Thapar Bros. Pvt. Ltd. vs- CIT 80 ITR 167 (SC) on similar facts wherein the amount received by the Assessee was for a consideration for giving up his right to purchase, and or to operate the property or for getting it on lease it was held not to be a settlement of rights under a trading contract but injury to loss of source of Assessee s income. It was held as under: The amount was received because the Assessee had given up its right to purchase and or to operate the property. Further, it is a loss of source of income to the Assessee and that right is determined for consideration. Obviously therefore, it is capital receipt and not a revenue receipt. Section 28 of the Income Tax Act, 1961 describes the incomes which shall be chargeable to income tax under the head Profits and gains of business or profession . Further clause (iii) says: ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
