2024 (2) TMI 150 - AT - Income Tax

AO's order adding arbitral award to income following CIT direction under section 263 is appealable despite CIT(A) ruling otherwise

MSK Project (India) JV Ltd. (merged with Madhav Infra Projects Ltd) Versus ACIT, Circle-4, Baroda

ITAT Ahmedabad held that an AO's order adding Rs. 990 lakhs arbitral award to assessee's income following CIT's direction u/s 263 was appealable. The ... Appealable order before CIT(A) - scope of order passed on the basis of direction given u/s 263, revisionary proceedings - taxability of award of the Arbitral Tribunal - AO on the very next day passed order giving effect to the order of the CIT passed u/s 263 adding the amount of arbitral award to the income of the assessee but assessee's appeal against this order of the AO held to be non-maintainable since the AO’s order was simply to give effect to the findings of the ld. CIT and against which no appeal lay - CIT found that the assessee had not returned to tax the award given to it by the Arbitral Tribunal on account of loss of toll collection in connection with the construction of Bharatpur bye pass road. HELD THAT:- We are not in agreement with the CIT(A). The order of the AO is not a simple order giving effect to the order of the CIT passed u/s 263. AO was required to apply his mind to the facts of the case and then pass an assessment order on the issue. It is not that the ld. CIT in his order passed u/s 263 had categorically and specifically held that the arbitral award of Rs. 990 lakhs was taxable and be taxed by the AO in the impugned year. What he had held and directed was that the AO was to pass a fresh assessment order following the decision in the case of Gajapathy Naidu which, he noted, held that when the assessee had accrued the right to receive, it should be included or accounted for in that year. There is no factual finding by the CIT that the amount of arbitral award of Rs. 990 lakhs accrued as right to receive to the assessee in the impugned year. The entire order of the CIT does not contain any such finding. In fact, there is no possibility of such finding in the order of the CIT since he has noted in his order that the assessee did not file copy of the arbitral award before him. CIT(A)’s direction to the AO was to subject it to tax in the impugned year, subject to finding the same to have accrued to the assessee in the impugned year in accordance with the decision in the case of CIT Vs. Gajapathy Naidu [1964 (4) TMI 6 - SUPREME COURT] In terms of this direction of the CIT, the AO was required to examine the facts of the case and thereafter adjudicate upon the taxability of the arbitral award of Rs. 990 lakhs. The order passed by the AO, therefore, was not a simple order giving effect to the order of the ld. CIT. He was required to examine the facts of the case and apply the law as laid down in CIT Vs. Gajapathy Naidu [1964 (4) TMI 6 - SUPREME COURT] to it while subjecting the arbitral amount to tax. The findings of the ld. CIT(A), therefore, that the order of the AO was to give effect to the findings of the ld. CIT and, therefore, not appealable is incorrect. The assessee, we hold, is well within his rights to have filed an appeal against this order passed by the AO. Even otherwise, it has been held in the case of Kalyankumar Ray [1991 (8) TMI 291 - SUPREME COURT] that an assessment order comprises the detailed order passed by the AO as well as the computation of income done by him. Therefore, for all purposes, the computation of income by the AO giving effect to the ld. CIT’s direction is an assessment order which is appealable. The order passed by the CIT(A), we hold, therefore, holding the assessment order to be not appealable is incorrect in law. Having held so, we deem it fit to restore the issue back to the AO to verify the facts of the case and thereafter pass an order in accordance with the directions of the CIT in his order passed u/s 263 - Appeal of the assessee is allowed for statistical purposes. Issues Involved:1. Maintainability of the appeal against the order giving effect to the findings of CIT under Section 263 of the Income-tax Act, 1961.2. Addition of Rs. 9,90,00,052/- based on the arbitral award.3. Adequate opportunity to present documentary evidence.4. Levy of interest under Section 234B of the Income-tax Act, 1961.5. Condonation of delay in filing the appeal.Summary:1. Maintainability of the Appeal:The assessee challenged the maintainability of the appeal against the order giving effect to the findings of CIT under Section 263 of the Income-tax Act. The CIT(A) dismissed the appeal as non-maintainable, stating that the order passed by the Assessing Officer (AO) was merely to give effect to the CIT's findings. The Tribunal disagreed, stating that the AO was required to apply his mind to the facts and pass an assessment order, making it appealable. The Tribunal referenced the Supreme Court decision in Kalyankumar Ray Vs. CIT, which held that an assessment order comprises the detailed order and the computation of income, making it appealable.2. Addition of Rs. 9,90,00,052/-:The CIT directed the AO to tax the arbitral award of Rs. 990 lakhs on an accrual basis, following the decision in CIT Vs. Gajapathy Naidu. The AO added this amount to the assessee's income. The Tribunal noted that the CIT did not provide a factual finding that the amount accrued to the assessee in the impugned year, as the assessee had not filed the arbitral award copy. The Tribunal restored the issue to the AO to verify the facts and pass an order in accordance with the CIT's directions.3. Adequate Opportunity to Present Documentary Evidence:The assessee contended that the CIT(A) confirmed the order without giving adequate opportunity to present documentary evidence. The Tribunal did not specifically address this issue but implied that the assessee would have the opportunity to present evidence upon remand to the AO.4. Levy of Interest under Section 234B:The Tribunal did not directly address the issue of the levy of interest under Section 234B in the summarized judgment.5. Condonation of Delay:The appeal was filed with a delay of 2359 days. The assessee sought condonation of the delay, explaining that it was pursuing an alternative remedy under Section 155(16) of the Act. The Tribunal found the explanation reasonable, noting that the assessee was not grossly negligent or lacking bona fides. The Tribunal condoned the delay, emphasizing a justice-oriented approach and referencing several Supreme Court decisions advocating for liberal construction of 'sufficient cause' to advance substantial justice.Conclusion:The Tribunal allowed the appeal for statistical purposes, condoning the delay and remanding the case to the AO for verification of facts and reassessment in accordance with the CIT's directions under Section 263.