TaxTMI 
TaxTMI 
2009 (11) TMI 621
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....ovisions of s. 263 of the IT Act can be gainfully reproduced as under: "263. (1) The CIT may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation: For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the AO shall include- (i) an order of assessment made by the Asstt. CIT or Dy. CIT or the ITO on the basis of the Directions issued by the Jt. CIT under s. 144A; (ii) an order made by the Jt. CIT in exercise of the powers or in the performance of the functions of an AO conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief CIT or Director General or....
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....tegory fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, if the AO has adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the AO is unsustainable in law." 4. We now deal with issues addressed by the learned CIT as under: 5. Vacancy allowance: 5.1 On this issue, the learned CIT held that there is no dispute on the facts. He observed that the only issue to be decided is on the interpretation of s. 2(24)(ix) [sic-24(1)(ix)] as it existed for an earlier period i.e., asst. yr. 2001-02. He found that the law has been amended w.e.f. 1st April, 2002 and provisions of s. 24(1)(ix) have been inserted in s. 23 instead of s. 24. The o....
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.... no change in the facts or law in the present assessment year. In this regard, we draw support from the decision of this Tribunal in ITA Nos. 1249 and 1250/Mad/2004 for asst. yrs. 2000-01 and 2002-03 in the case of Pathy Cine Enterprises (P) Ltd. vs. ITO. In this case, vide order dt. 17th March, 2006 following was observed: "In our opinion, when the nature of business and the method of accounting has been the same, the order of the AO on the lines as followed in earlier years cannot be said to be erroneous. It is true that there is no res judicata in the income-tax proceedings but there has to be a semblance of consistency. Further, the cash receipt in one lump sum as income cannot ipso facto mean that expenditure recorded is incorrect. Moreover, the expenditures incurred by the assessee have further been ignored due to the only reason that they are high as compared to the income. And the learned CIT(A) has put his own estimate of expenditure allowable as percentage of income. We find that there is no law in statute that expenditure has to be allowed as percentage of income. This is a mere surmise of the learned CIT(A) and cannot form the basis of a revision order under s. 263 of....
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....We note that the learned CIT has already observed that the agricultural income includes sale of land and trees. The assessee has accepted this mistake. Hence, the final direction of the CIT to examine in detail all the issues relating to agricultural income and taxability of non-agricultural portion of income and computation of capital gains, if any, cannot be said to be improper. 8. Expenditure on leasehold property: 8.1 On this issue, the learned CIT noted that assessee has incurred a sum of Rs. 46,77,709 on account of furniture and furnishing in the leasehold property and the same was claimed as revenue expenditure. The said expenditure consisted of expenditure on partition work, false ceiling, indoor light fittings, light fixtures and lamps and network switches. The learned CIT referred to Expln. 1 to s. 32 of the IT Act. He concluded that expenditure incurred by the assessee in the above new asset was capital in nature. He directed the AO to examine this issue and arrive at the correct quantum and allow proper depreciation. 8.2 We have heard both the counsel and perused the relevant records. The assessee's contention in this regard is that there are many decisions where it ....
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....regard, the assessee has submitted that, "In computing the relief under s. 80HHC whether relief under s. 80-IB should be deducted or not is a debatable one, on which two views are possible. In view of conflicting views, the issue was referred to Special Bench which was decided in the year 2007. Hence, this issue is not amenable to revision under s. 263." 9.4 Upon a careful consideration, we find that learned CIT's direction for de novo consideration in this regard cannot be said to be not proper as learned CIT has referred to certain important legal points and factual issues relating to sale to group concerns which should have been considered by the AO while granting the said deductions. However, as regards computation of relief under ss. 80HHC and 80-IB, with reference to provisions of s. 80-IA(9) are concerned, we are in agreement with the view that the issue was debatable. Hence, Special Bench of Tribunal was constituted later on this issue. Hence, on this aspect the revision order under s. 263 is not sustainable. Moreover, the issue now has been decided in favour of the assessee by the Hon'ble jurisdictional High Court by the order in the case of SCM Creations vs. Asstt. CIT ....
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....ited and admitted in the regular assessment and the order of the learned CIT is in the nature of a roving enquiry calling for second assessment without pointing out any error. Such directions are not permissible in an order of revision under s. 263. 10.4 We have heard both the counsel and perused the relevant records. We find that other than the item discussed hereinabove individually in paras 5 to 9, the learned CIT is merely putting his view that the assessed income is very low. There is no provision or precedent that after examining the various expenditure or items, the AO has to write in his order that he has examined the same, even if he docs not find anything adverse. In our opinion, the fact that the income is very low cannot be reason for assuming jurisdiction under s. 263 without pointing any particular infirmity found in the assessment order. In this regard, we place reliance upon Hon'ble Bombay High Court decision in the case of CIT vs. Gabrial India Ltd. (1993) 114 CTR (Bom) 81 : (1993) 203 ITR 108 (Bom) that, in the garb of exercising power under s. 263, the CIT cannot initiate proceedings with a view to start fishing and roving enquiries in matters of orders which ar....
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....of the CIT under s. 263 must be one which is objectively justifiable and cannot be the mere ipse dixit of the CIT." 10.8 In the background of aforesaid discussion and precedents, we hold that the learned CIT's direction to set aside the entire assessment and de novo consideration cannot be sustained except for the matters which c have been dealt by the learned CIT and adjudicated by us in the paras hereinabove. Hence, we sustain the order of the learned CIT under s. 263 on following aspects only (i) Vacancy allowance, (ii) Agricultural income, (iii) Expenditure on leasehold property, and (iv) Relief under ss. 80HHC and 80-IB. On the issue of computation of income from Adyar property and reconciliation of profits, we set aside the order of the learned CIT. 11. In the result, this appeal by the assessee is partly allowed. U.B.S. BEDI, J.M.: 4th Feb., 2009 12. Despite best persuasion of myself, I have not been able to agree with the findings and the conclusions as drawn by the learned AM in the appeal of the assessee with respe....
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....ssessed is proper and not erroneous." Whereas, the learned Departmental Representative relied upon the order of the learned CIT and pleaded that nowhere in response to notice under s. 263, the assessee took any plea that, this amount is being assessed in earlier years. So, this is a new plea having been raised, whereas, various Hon'ble Supreme Court and High Court decisions support the view taken by the learned CIT that minimum municipal valuation in such circumstances has to be adopted as annual letting value as provided under s. 23(1) of the IT Act, it was thus, pleaded for confirmation of the impugned order. 12.4 After having heard both the sides, considering the material on record, we find that s. 22 deals with income from house property and provides that the annual value of the property consisting of any building or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property" and determination of annual value has been provide....
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....n Daulat Rai Kapoor vs. New Delhi Municipal Committee (1980) 122 ITR 700 (SC) that the valuation for the purposes of the Municipal Act has also to be based on the self-same standard rent. This means that the Supreme Court by two separate judgments has made the basis of the valuation the same to the IT law and to the Municipal Act. The result is that we have no difficulty in answering the question referred to us which is whether the value adopted for municipal valuation has also to be adopted for the purposes of income-tax. On the above reasoning, these two have to be the same." 12.5 Considering the entirety of facts and circumstances, ratio of the above noted decisions and material on record, it is found that the assessee during the hearing as well as in the written submissions has pleaded for offering similar income in earlier years, but, before the learned CIT, in response to notice under s. 263, no such plea has been taken and before this Bench though plea has been taken, yet, the same has not been substantiated by adducing necessary evidence in this regard so not worth considering and otherwise also, correct income is required to be offered and assessed as per provisions of la....
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....he extent of Rs. 12.57 crores has been compensated by an increase in profit on sale of shares amounting to Rs. 10 crores, thereby reducing the decrease in profit to Rs. 2.57 crores." 13.1 The learned CIT while considering the details and reply of the assessee and discussing the matter at para 8.3 has concluded to pass following order in para 9. Paras 8.3 and 9 are reproduced as under: "8.3 On the perusal of the reply and the details submitted, the assessee is having more than two dozen divisions, each having a turnover of crores. For the first time at the time of revision petition hearing, they were asked to give division-wise P&L a/c and balance sheet. They have been now furnished. The assessee has never furnished such details earlier. These details need deep scrutiny for understanding the accounts of the assessee and then to reconcile the issue mentioned in the show-cause notice. As pointed out earlier in agricultural division, the assessee had shown sale price of land as agricultural income. How the administrative expenses have been allocated to each division also needs to be scrutinized. Similar is the case with the computation of profits arising on sale of shares and the nat....
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....) 56 : (2004) 88 ITD 293 (Mumbai). 3. Part of the order of the CIT which is not tenable for the reasons stated above, can be set aside while another part which is amenable to revision under s. 263 can be sustained. Chennai Tribunal order in the case of ICICI Bank Ltd. vs. Jt. CIT in ITA Nos. 817 and 818/Mad/2003, dt. 22nd June, 2007 [reported at (2008) 118 TTJ (Chennai) 132 : (2008) 10 DTR (Chennai)(Trib) 92-Ed.]." 13.3 The learned Departmental Representative submitted that in response to notice under s. 263 with regard to the above said issue, the assessee furnished various details and fresh documents in order to substantiate its claim in the return, which have been not at all furnished before the AO and no enquiry appears to have been made by the AO. Since these details and documents are numerous and in order to understand the accounts of the assessee and then to reconcile the issue mentioned in the show-cause notice and details submitted by the assessee, the learned CIT has rightly restored the issue on the file of the AO while giving some examples also and probable queries were also pointed out, as such, the order of the learned CIT is proper and justified which has rightly ....
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...." Yet, in the case of CIT vs. Kohinoor Tobacco Products (P) Ltd. (1998) 148 CTR (MP) 536 : (1998) 234 ITR 557 (M?), the Hon'ble Madhya Pradesh High Court has held as under: "...........This failure on the part of the AO to make necessary enquiry rendered the assessment erroneous and also prejudicial to the interests of the Revenue..........." Further, the Hon'ble Madhya Pradesh High Court in the case of CIT vs. Mahavar Traders (1996) 220 ITR 167 (MP) has held as under: "Held, that the ITO should have examined the matter in the light of the conditions mentioned in both the sections before granting relief. The CIT had not given any finding but only remanded the case to the ITO for making assessment afresh. The Tribunal instead of approaching the matter in the proper perspective, had on their own started making enquiries and found that the order passed by the ITO was correct. This was erroneous. The order passed by the CIT was valid." Further, the Hon'ble Delhi High Court in the case of Duggal & Co. vs. CIT (1994) 122 CTR (Del) 171 : (1996) 220 ITR 456 (Dell has held as under: "The ITO is not only an adjudicator but also an investigator. He cannot remain passive in the face of a....
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....of s. 80-IA(9) are concerned, we are in agreement with the view that the issue was debatable. Hence, Special Bench of Tribunal was constituted later on this issue..........." 14.1 While concurring with the direction of the learned CIT to consider this issue de novo with the further direction to keep in mind the case laws of the Hon'ble jurisdictional High Court, the above observation has been made. Since, no details have been given as to how the issue is debatable with reference to s. 80-IA(9), therefore, in my considered view, such observation is unnecessary and uncalled for, as such, while not agreeing with such observation, I fully agree with the conclusion drawn by the learned AM. REFERENCE UNDER S. 255(4) OF THE IT ACT, 1961 4th Feb., 2009 Since there is difference of opinion between the Members constituting the Bench in some of the issues involved in this appeal, the following questions are formulated and referr....
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....operty was let out to a group concern viz., MCC Finance Ltd. Therefore, the rental received by the assessee was not determined on arm's length basis. According to him, the minimum ALV that could be adopted was Rs. 2,04,968. Accordingly, he directed the AO to examine this issue from all angles, keeping in view the provisions of ss. 23 and 24 of the Act. 4. The learned AM upheld the contention of the assessee on the ground that the value of Rs. 42,000 was accepted by the Revenue in the earlier years. Relying on the decision of the Chennai Bench of the Tribunal in the case of Pathy Cine Enterprises (P) Ltd. (ITA Nos. 1249 and 1250/Mad/2004, dt. 17th March, 2006), the learned AM held that though the principle of res judicata was not applicable to income-tax proceedings, consistency should be maintained when there is no change in facts. On the other hand, the learned JM referred to the provisions of s. 23(1) and also referred to certain judicial pronouncements and held that the ALV has to be the sum for which the property might reasonably be accepted (six-expected) to let from year to year. In the present case, since the value fixed by the corporation was Rs. 2,04,968 and the rental re....
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....s to the AO to examine the issue from all angles keeping in view the provisions of ss. 23 and 24 and hence no further adjudication on this point is required. 8. Reconciliation of profits: In the show-cause notice issued under s. 263 of the Act, the CIT requested the assessee to explain that in spite of additional extraordinary income of more than Rs. 8 crores, why the total income has come down especially when compared to the immediate previous year. The assessee explained that there was increase in the operating profit by Rs. 1.08 crores and also there was considerable reduction of Rs. 1.0 1 crores in the expenditure for self-consumption. There was also a fall in the non-cash expenses like depreciation and write off of miscellaneous expenses. All these had resulted in an increase in cash profit by Rs. 3.63 crores. At the same time, it was explained that administrative expenses and interest costs had gone up substantially. The CIT observed that the assessee was having more than two dozen divisions and for the first time in the course of the revision proceedings, the assessee was asked to furnish division-wise P&L a/c and balance sheet. These details had never been furnished earli....
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....on record. The perception of the CIT that the profit is low prompted him to issue show-cause notice to the assessee. Profit before taxation of the company as a whole for the year under consideration is Rs. 3,303.42 lakhs as compared to Rs. 3,561.15 lakhs for the immediate preceding year. Thus, there is a fall in profits by Rs. 257.73 lakhs. On the other hand, the total revenue has increased from Rs. 1,93,946.48 lakhs to Rs. 2,19,195.88 lakhs. The report of the directors mentions that barring a couple of divisions, the overall performance was good. The directors also considered it to be a notable achievement that the company crossed the Rs. 2,000 crores turnover mark. In such a high volume consisting of thousands of crores, from the annual accounts of the company I am unable to comprehend about which additional extraordinary income of more than Rs. 8 crores the CIT is talking about. Be that as it may, the purpose of giving the above details is to drive home the point that it is a matter of perception which varies from person to person as to whether the fall of Rs. 257.73 lakhs is really eyebrow raising or not. Therefore, when the AO, who is both, an adjudicator as well as an investi....
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..... In the instant case also, the CIT wants the AO to make the assessment in a particular manner. Madras High Court, in the case of CIT vs. Sakthi Charities (2000) 160 CTR (Mad) 107 held that the power of revision is not meant to be exercised for the purpose of directing the AO to hold another investigation when the order of the officer is not found to be erroneous. And it is in this context that the Bombay High Court held in the case of CIT vs. Gabrial India Ltd. (1993) 114 CTR (Bom) 81 : (1993) 203 ITR 108 (Bom) that in the garb of exercising power under s. 263, the CIT cannot initiate proceedings with a view to starting fishing and roving enquiry in matters or orders which are already concluded. It is well established that an order cannot be termed as erroneous unless it is not in accordance with law. Thus, if the AO has made the assessment by making such enquiries as he deemed fit, the order cannot be termed as erroneous. In this context, the Bombay High Court held in the case of Gabrial India Ltd. that s. 263 does not visualise a case of substitution of the judgment of the CIT for that of the AO. The AO in the present case did not find anything startling in the marginal drop in ....