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AFR

RESERVED

INCOME TAX APPEAL No. 107 of 2015

Commissioner of Income Tax, Meerut

Vs.

Vam Resorts & Hotels Pvt. Ltd.

*****

Hon’ble Bharati Sapru,J.

Hon’ble Rohit Ranjan Agarwal, J.

(By Rohit Ranjan Agarwal,J.)

1.This appeal under Section 260-A of the Income Tax Act,

1961 (hereinafter referred to as the Act) has been filed assailing

the judgment and order dated 14.11.2014 passed by the Income

Tax Appellate Tribunal, Delhi Bench “H”, New Delhi. This appeal

was admitted on 16.2.2017 on the following questions of law:

(1)Whether the ITAT passed a perverse order in setting aside the

order U/s 263 on grounds that A.O. had already conducted inquiry on

issues on which order U/s 263 was passed when no such embargo

has been put in the language of the Section, the intention of the

legislature was never such so as to render the revenue remediless

against erroneous orders of the A.O. nor make the revenue suffer a

continuous wrong.

(2)Whether the ITAT erred in law in interpreting the provisions of

Section 263 which says “Commissioner may call for and examine the

records of the proceedings if he considers any order passed therein,

by the A.O. is erroneous in so far as prejudicial to the interest of

revenue” hence the view of the ITAT in the present case that A.O. had

already conducted inquiry is unsustainable.

(3)Whether the ITAT erred in law in curbing the power of the CIT

granted by the legislature to examine and correct the orders of the

A.O. especially when this is the only remedy available with the

department to correct the wrong of the A.O.

(4) Whether the ITAT erred in law in deleting the order U/s 263 on

the issue of development expenses when it was clear that only a small

portion of such development expenses was actually related to land

development receipts.

Neutral Citation No. - 2019:AHC:139256-DB

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(5)Whether the ITAT erred in law in deleting the order U/s 263 on

the issue of agricultural income when it was clear that assessee had

only purchased a land on which crops were shown and sale proceeds

of such crops does not constitute agriculture income.

(6)Whether the ITAT erred in law in allowing the appeal of the

assessee ignoring the fact that there was a difference between the

Gross Receipts as per 26AS and Gross Receipts declared by the

assessee when the assessee did not furnish any reconciliation

statement to explain the difference.

2.The case relates to the assessment year 2008-09. The

assessee which is a Company, filed return of income on 27.9.2008

declaring income at Rs.14,71,900/-. The said return was

processed under Section 143(1) of the Act. The case of the

Company was selected for scrutiny and notices under Section

143(2) and 142(1) were issued. The assessee produced the

books of account and replied the various queries raised by the

Assessing Officer. As the assessee had shown development

expenses of Rs.7,16,62,142/- in the profit and loss account, the

A.O. found Rs.1,20,000/- as excessive and disallowed the same,

and added to the income of the assessee. The Order under

Section 143(3) of the Act was passed by the assessing officer on

18.11.2010.

3.The assessee challenged the assessment order passed

under Section143(3) of the Act by filing Appeal No.192/10–11

before the CIT(A) under Section 250 of the Act. On 5.6.2013, the

CIT(A) allowed the appeal of the assessee on the ground that

addition made by A.O. was without any basis, as the word

“appear” to be excessive was stated in the order of the A.O. and

such addition made in a cavalier and casual manner cannot be

sustained.

4.During the pendency of the appeal the Commissioner of

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Income Tax, Meerut exercising power under Section 263 of the

Act, issued notice to the assessee. The notice was replied by the

assessee, and on 25.3.2013 Commissioner of Income Tax

directed the A.O. to look into applicability of Section 40-A(3) and

Section 40(a)(ia) of the Act.

5.After the remand A.O. again issued notice under Section

142(3)/263 of the Act to the assessee. It appears that the

assessee did not appear before the assessing authority and the

assessing officer passed assessment order on 7.3.2014 under

Section 263/143(3) of the Act on total income of

Rs.17,47,323,650/-.

6.While the remand proceedings were pending before the

assessing authority the assessee approached the Income Tax

Appellate Tribunal, (Delhi Bench “H”), New Delhi (hereinafter

called as “ITAT”) challenging the order under Section 263 of the

Act passed by the Commissioner of Income Tax, Meerut. The ITAT

allowed the appeal of the assessee setting aside the order passed

by the CIT, Meerut under Section 263 of the Act.

7.Sri Subham Agarwal defending the order passed by the

Commissioner of Income Tax, Meerut under Section 263 of the Act

submitted that the assessing officer has disallowed the expenses

of Rs.1,20,000/- only, without any inquiry and has accepted the

restb of the amount as land development expenses in the profit

and loss account, as such, the CIT had rightly remanded the

matter to the assessing authority exercising revisional power as

the order of A.O. was erroneous and pre-judicial to the interest of

revenue. He further submitted that after the remand order, A.O.

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again has passed assessment order on 7.3.2014 and now the

addition of Rs.7,16,62,142/- on account of land development

expenses had been made as the assessee did not avail the

opportunity despite repeated reminders and failed to produce the

books of account and comply the order of the assessing authority.

He contended that Tribunal has passed the order impugned after

assessment order has been passed by the assessing authority

after remand, and Tribunal should not have set aside the same,

but should have relegated the matter to assessing authority

directing the assessee to appear before the same and produce

books of account to verify the queries so raised.

8.Per contra, counsel for the assessee submitted that the

assessment order dated 18.11.2010 was passed after notice

under Sections 143(2) and 142(1) of the Act was issued to

assessee raising various queries and the assessee had appeared

before the Assessing Officer number of times and furnished books

of account and replied. Further, the CIT in its show cause notice

dated 6.2.2013 has accepted the fact that on examination of

record, assessment order was passed after inquiry which

according to him was not proper. Thus, proceedings under Section

263 of the Act cannot be invoked by the CIT when there is no

material to hold that order was erroneous and pre-judicial to the

interest of revenue and it would not be invoked to correct each

and every type of mistake and error committed by A.O. He further

relied upon paragraph nos.7 and 9 of judgment of the Apex Court

in the case of Malabar Industrial Co. Ltd. vs. Commissioner of

Income Tax, 243 ITR 83 (SC), which are extracted hereunder:

“7. There can be no doubt that the provision cannot be invoked

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to correct each and every type of mistake or error committed by

the Assessing Officer; it is only when an order is erroneous that

the section will be attracted. An incorrect assumption of facts

or an incorrect application of law will satisfy the

requirement of the order being erroneous. In the same

category fall orders passed without applying the principles of

natural justice or without application of mind.

9. 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 Assessing Officer cannot be treated as

prejudicial to the interests of the revenue, for example,

when an ITO adopted one of the courses permissible in law

and it has resulted in loss of revenue; or where two views

are possible and the ITO has taken one view with which the

Commissioner does not agree, it cannot be treated as an

erroneous order prejudicial to the interests of the revenue

unless the view taken by the ITO is unsustainable in law.”

9.The second limb of argument of counsel for the assessee is

that appeal before the CIT(A) was pending, as such, the CIT has

no jurisdiction to revise the order, in view of Clause (c) of

Explanation-1 to Section 263 of the Act, which provides that when

appeal is pending before the Commissioner, the exercise of

jurisdiction under Section 263 of the Act is barred. He relied upon

the judgment in the case of Smt. Renuka Philip vs. ITO

(2018)409 ITR 567 (Mad), the relevant paragraphs of which are

extracted hereunder:

“21. With regard to the merits of the case, the learned counsel

for the assessee referred to a decision of the Division Bench

of this Court in Dr.P.K.Vasanthi Rangarajan v. CIT [2012] 23

taxmann.com 299/209 Taxman 628 (Mad.) , wherein, the

Hon'ble Division Bench held that there is no inhibition in the

assessee claiming the benefit of investment made in four flats

thereby gaining the benefit under Section 54F of the Act. The

Court took note of the decision in TCA No. 656 of 2005 dated

04.01.2012. However, we are not examining the merits of the

matter at this juncture since, we are only called upon to

answer the Substantial Question of Law with regard to the

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assumption of jurisdiction of the Commissioner under Section

263 of the Act. The power under Section 263 of the Act is not

exercisable under certain circumstances. In this regard, we

refer to Section 263(1) explanation 1(c), which reads as

follows:

“Revision of orders prejudicial to revenue

263(1)...

(a) to (b)

(c)Where any order referred to in this sub-section and

passed by the Assessing Officer had been the subject

matter of any appeal [filed on or before or after the 1st

day of June, 1988], the powers of the Commissioner

under this Sub-section shall extend and shall be deemed

always to have extended to such matters as had not

been considered and decided in such appeal.”

22. The above explanation makes it clear that when the

appeal is pending before the Commissioner, the exercise of

jurisdiction under Section 263 of the Act is barred. The

Commissioner in the order dated 14.03.2012 states that the

appeal pertains to the claim made by the assessee under

Section 54 of the Act and it has got nothing to do with the

order passed by the Assessing Officer under Section 54F of

the Act. The said finding rendered by the Commissioner is

wholly unsustainable, since the assessee went on appeal

against the re-assessment order dated 31.12.2009 stating

that his claim for deduction under Section 54 of the Act

should be accepted.”

10.It has also been contended that remand by the CIT as far as

the non-deduction of TDS is concerned, was wrong, as payment

was made by the Company, i.e., ERA Land-mark Ltd., and as per

Section 194(c) of the Act the TDS was deducted.

11.It was further submitted that all the documents in evidence

as proofs and the queries so raised by the assessing officer was

submitted and replied by the assessee and the CIT wrongly

invoked the jurisdiction under Section 263. Reliance has been

placed upon the decision of this Court in the case of CIT vs.

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Krishna Capbox Ltd, (2015) 372 ITR 310, relevant paragraphs of

which are extracted hereunder:

9. The Tribunal further considered the question whether

discussion of queries and reply received from assessee, in

assessment order, is necessary or not. Relying on two

judgments of Delhi High Court in CIT Vs. Vikash Polymers

[2012] 341 ITR 537/ [2010] 194 Taxman 57 and CIT v.

Vodafone Essar South Ltd. [2012] 28 taxmann.com 273/

[2013] 212 Taxman 184 (Delhi), it held that once inquiry was

made, a mere non discussion or non- mention thereof in

assessment order cannot lead to assumption that Assessing

Officer did not apply his mind or that he has not made inquiry on

the subject and this would not justify interference by

Commissioner by issuing notice under Section 263 of the Act.

10. In Vikash Polymers (supra) relevant part of the

observations in this regard read as under (page 548 of 341 ITR):

"This is for the reason that if a query was raised during the

course of scrutiny by the Assessing Officer, which was

answered to the satisfaction of the Assessing Officer, but

neither the query nor the answer was reflected in the

assessment order, that would not, by itself, lead to the

conclusion that the order of the Assessing Officer called for

interference and revision."

11. Further, the relevant observation made in Vodafone Essar

South Ltd. (supra) in this regard reads as under (page 531 of 1

ITR-OL):

"The lack of any discussion on this cannot lead to the

assumption that the Assessing Officer did not apply his

mind."

12. Learned counsel for the Department could not place any

other authority before this Court wherein any otherwise view has

been taken. On the contrary, learned counsel for assessee has

placed before us a decision of Bombay High Court in Income

Tax Appeal No.296 of 2013 (CIT v. Fine Jewellery (India) Ltd.)

[2015] 372 ITR 303/230 Taxman 641/55 taxmann.xom 514

(Bom.) decided on February 3, 2015, wherein also Bombay

High Court, following its earlier decision in Idea Cellular Ltd.

Vs. Dy. CIT [2008] 301 ITR 407 (Bom.) has taken a similar view

and said as under (page 307 of 372 ITR):

"…...if a query is raised during assessment proceedings

and responded to by the assessee, the mere fact that it is

not dealt with in the Assessment Order would not lead to a

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conclusion that no mind had been applied to it."

12.Similarly in the case of CIT vs. Mahendra Kumar Bansal,

2008(297)ITR 99 (Alld), this Court held that merely because the

income tax officer had not written lengthy order, it would not

establish that the assessment order passed under Section 143(3)/

148 of the Act is erroneous and pre-judicial to the interest of the

revenue. Relevant paragraph of which is extracted hereunder:-

“In the case of Goyal Private Family Specific Trust [1988]

171 ITR 698, this court has held that the order of the Income-

tax Officer may be brief and cryptic, but that by itself is not

sufficient reason to brand the assessment order as erroneous

and prejudicial to the interests of the Revenue and it was for

the Commissioner to point out as to what error was committed

by the Income-tax Officer in having reached to its conclusion

and in the absence of which proceedings under Section 263 of

the Act is not warranted.

In the case of Belal Nisa [1988] 171 ITR 643 the Patna High

Court has held that where the Income-tax Officer had not

carried out the necessary enquiry enjoined by section 143(1) of

the Act the Commissioner is within his power in taking action in

terms of Section 263(1) of the Act. Similar view has been taken

in by the Patna High Court in the case of Smt. Kaushalya

Devi [1988] 171 ITR 686.

The principle laid down by the Patna High Court in the

aforesaid two cases are not applicable to the facts of the

present case in view of the provisions of Section 143(1) of the

Act and as the Central Board of Direct Taxes had already

issued the circular referred to above that action under Section

263 of the Act is not warranted and this circular appears to

have not been brought to the notice of the Patna High Court

which is binding upon the departmental authorities.

As held by this Court in the case of Goyal Private Family

Specific Trust [1988] 171 ITR 698, we are of the considered

opinion that merely because the Income- tax Officer had not

written lengthy order it would not establish that the assessment

order passed under Section 143(3)/148 of the Act is erroneous

and prejudicial to the interests of the Revenue without bringing

on record specific instances, which in the present case, the

Commissioner of Income Tax has failed to do.”

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13.Lastly, the counsel for the assessee submitted that the

argument of counsel for the Department relying upon fresh

assessment order made by the assessing officer under Section

263/143(3) of the Act dated 7.3.2004 for the purpose of Section

263 of the Act is not sustainable, as according to him definition of

expression “record” as per Clause (b) of Explanation to Section

263 of the Act includes all the records relating to Section 263

proceedings available at the time of examination by the CIT only,

and not in subsequent order or fresh order passed thereafter

under Section 263/143(3) of the Act, which could justify the

proceedings under Section 263 carried out by the CIT.

14.We heard Sri Shubham Agarwal, learned counsel for the

Department, Sri Suyash Agarwal, learned counsel for the

respondent-assessee and have perused the record.

15.The revenue in this appeal has tried to establish that ITAT

was not correct in setting aside the order passed by the

Commissioner under Section 263 of the Act, on the ground, that

assessee had not furnished entire details regarding the contracts,

which was cancelled and also the A.O. not looking into the

provisions of Section 40(a)(i-a) of the Act whereby such expenses

on which the T.D.S. was liable to be deducted, but was not

actually deducted were required to be disallowed and added back

under the said provisions of the Act.

16.On the other hand, the contention of assessee that the A.O.

after considering the entire books of account and the reply

furnished by the assessee passed the assessment order under

Section 143(3) of the Act. Further, from perusal of the assessment

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order dated 18.11.2010, it is clear that the A.O. had considered all

the books of account and further on 13.5.2010 it had required the

assessee, the entire information for the relevant assessment

years along with copy of bank statement, narration of debit and

credit entries, and other details.

17.On 7.7.2010, the assessee had replied the said notice and

made available all the documents as required by the A.O. The

Tribunal being the last fact finding Court, in paragraph 7 of its

judgment, had noted that details of the documents produced

before the A.O. included computation of income along with return

and details of TDS, copy of balance sheet, trading and profit and

loss account, details of sundry debtors as well as copies of the

orders issued by the debtors to the assessee.

18.Thus, the case in hand is not a case where the CIT found

that the assessment order was erroneous and it is prejudicial to

the interest of the revenue, as the A.O. after the case of the

assessee was selected in scrutiny had required the assessee to

furnish all the documents and only after the production of the said

documents and his satisfaction the assessment order was passed

under Section 143(3) of the Act. The Apex Court in the case of

Malabar Industrial Co. Ltd. (supra) while considering the pre-

requisite for exercising power by the Commissioner under Section

263 of the Act, held as under:

“A bare reading of Section 263 of the Income Tax Act, 1961 makes it

clear that the prerequisite for the exercise of jurisdiction by the

Commissioner suo moto under it, is that the order of the Income-tax

Officer is erroneous insofar as it is prejudicial to the interests of the

revenue. The Commissioner has to be satisfied of twin conditions,

namely, (i). the order of the Assessing Officer sought to be revised is

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erroneous; and (ii) it is prejudicial to the interests of the revenue. If

one of them is absent - if the order of the Income-tax Officer is

erroneous but is not prejudicial to the revenue or if it is not erroneous

but is prejudicial to the Revenue - recourse cannot be had to Section

263(1) of the Act. The provision cannot be invoked to correct each

and every type of mistake or error committed by the Assessing Officer;

it is only when an order is erroneous that the section will be attracted.”

19.Similar view has been taken by the Bombay High Court in

the case of Commissioner of Income Tax vs. Development

Credit Bank Ltd., 323 ITR 83(SC), relevant paragraph of the

same is extracted below:

“Held, dismissing the appeal, that there was no basis or justification

for the Commissioner to invoke the provisions of Section 263. The

Assessing Officer after making an enquiry and eliciting a response

from the assessee came to the conclusion that the assessee was

entitled to depreciation on the value of securities held on the trading

account. The Commissioner could not have treated this findings to be

erroneous or to be prejudicial to the interests of the Revenue. The

observation of the Commissioner that the Assessing Officer had

arrived at a finding without conducting an enquiry was erroneous,

since an enquiry was specifically held with reference to which a

disclosure of details was called for by the Assessing Officer and

furnished by the Assessing Officer and furnished by the assessee.

The Tribunal was justified in holding that recourse to the powers

under Section 263 was not warranted in the facts and circumstances

of the case.”

20.In the case of CIT vs. Arvind Jewellers, 259 ITR 502

(Gujrat), it was held that once the A.O. after issuing notice had

considered all the material on record, there was no basis for

invocation of jurisdiction under Section 263 of the Act. Relevant

paragraph of the said judgment is extracted hereunder:

‘Held, that the finding of fact by the Tribunal was that the assessee

had produced relevant material and offered explanation in pursuance

of the notices issued under Section 142(1) as well as section143(2)

of the Act and after considering the material and explanations, the

Income-tax Officer had come to a definite conclusion. Since the

material was there on record and the said material was considered by

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the Income-tax Officer and a particular view was taken, the mere fact

that different view can be taken should not be the basis for an action

under Section 263. The order of revision was not justified.”

21.The Bombay High Court in the case of CIT vs. Gabriel India

Ltd., 203 ITR 108 (Bombay), held that the order of the A.O.

would not become erroneous simply because he did not make

elaborate discussion. The relevant paragraph of the said judgment

is extracted hereunder:

“Held, that 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 were part of the record of the case. Evidently, the

claim was allowed by the Income-tax Officer on being satisfied with

the explanation of the assessee. This decision of the Income-tax

Officer could not be held to be "erroneous" simply because in his

order he did not make an elaborate discussion in that regard.

Moreover, in the instant case, the Commissioner himself, even after

initiating proceedings for revision and hearing the assessee, could

not say that the allowance of the claim of the assessee was

erroneous and that the expenditure was not revenue expenditure but

an expenditure of capital nature. He simply asked the Income-tax

Officer to re-examine the matter. That was not permissible. The

Tribunal was justified in setting aside the order passed by the

Commissioner of Income-tax under Section 263.”

22.The Division Bench of this Court in the case of

J.P.Srivastava & Sons vs. CIT, 111 ITR 326 (Alld) had taken a

similar view. The relevant paragraph is extracted hereunder:

“We are of opinion that the approach of the Commissioner is

erroneous. The failure of the Income-tax Officer to deal with the

claim of the assessee in the assessment order may be an error, but

an erroneous order by itself is not enough to give jurisdiction to the

Commissioner to revise it under Section 33B. It must further be

shown that the order was prejudicial to the interests of the revenue.

It is not each and every order passed by the Income-tax Officer

which can be revised under Section 33B.

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Section 33B contemplates a notice to the assessee. In response to

the notice the assessee may show to the Commissioner that the

order sought to be revised is not prejudicial to the interests of the

revenue. In that event, the Commissioner would have no jurisdiction

to take any further action. He would be competent to take action only

if he rejects the plea of the assessee. It thus becomes necessary for

the Commissioner to examine the merits of the objection raised by

the assessee. He cannot delegate that power to the Income-tax

Officer by setting aside the assessment order and directing him to

make a fresh assessment after taking into consideration the

objection of the assessee.”

23.In the present case, the Tribunal rightly arrived at the finding

that all the material in regard to land development expenses was

before the Assessing Officer who had required the assessee to

produce all the documents in relation to the same and after

inquiring about the details of contract and the contract executed

by assessee, the bill submitted and payment schedule made, the

Assessing Officer accepted the books of account and only

disallowed Rs.1,20,000/- and added to the income of the

assessee, which was also set aside by order of the CIT(A) while

exercising the power under Section 263 of the Act CIT did not

have any material for invoking the said provision and it merely did

the same on suspicion and presumption. The Punjab and Haryana

High Court in the case of CIT vs. Ram Narain Goel, 224 ITR 180

(P & H) held that suspicion however drawn cannot take place on

evidence or proof. This case was followed in the case of CIT vs.

Faqir Chaman Lal, 262 ITR 295 (P & H).

24.The argument raised by counsel for the revenue that the

Tribunal should have send back the matter to the assessing

authority to decide afresh is a fallacy, as the CIT itself on 5.6.2013,

while deciding the appeal of the assessee under Section 250 of

the Act set aside the assessment order dated 18.11.2010 to the

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extent of addition of Rs.1,20,000/- made in the assessment

proceedings. Further, the appeal before the Tribunal emanated

from the order of the Commissioner of Income Tax exercising

power under Section 263 of the Act, as such the Tribunal was

correct in limiting its scope to decide whether the exercise of

power made by the Commissioner was in consonance with

provision of Section 263 and relied upon the decision of Malabar

Industrial Co. Ltd. (supra).

25.As, Clause (c) of Explanation 1 to Section 263 of the Act

provides that when an appeal is pending before the

Commissioner, the exercise of jurisdiction under Section 263 of

the Act by CIT is barred. Thus, in the present case, the CIT

wrongly exercised jurisdiction under Section 263 of the Act by

remanding back the matter to assessing authority on 25.3.2013,

while the appeal was decided by CIT (A) on 5.6.2013. Thus, the

order passed by the ITAT does not suffer from any irregularity and

needs no interference.

26.As far as the word “record” appearing in Clause (b) of

Explanation-1 to Section 263 is concerned, it means the record

available at the time of examination by the Commissioner of

Income Tax and not any material or record available subsequent

to his examination or exercise of power under Section 263. Thus,

any order passed by the AO in the assessment proceedings after

the remand by the CIT cannot be looked upon and the argument

made by the counsel for the revenue for relying upon the fresh

assessment order made on 7.3.2004 under Section 263/143(3) of

the Act cannot be accepted in view of the above provision of law.

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27.In the present case, the Tribunal had recorded specific

finding of fact that the assessing authority had examined each and

every aspect of the case on which the remand order hinges, as

such the remand order was not sustainable in the eyes of law.

28.Considering the facts and circumstances of the case, we are

of the considered opinion, that the revenue has failed to make any

case for interference in the order of the ITAT, as the CIT had

proceeded to remand the matter back to the assessing authority

while the appeal of the assessee was pending under Section 250

and the power of exercise under Section 263 was barred by

Clause (c) to Explanation 1 of Section 263 of the Act. Further, the

remand order by the CIT was based merely on suspicion and

presumption.

29. The appeal is devoid of merit and is hereby dismissed. The

question of law is, therefore, answered against the revenue and in

favour of the assessee.

Dated:- 20.8.2019

AKJ