TaxTMI 
TaxTMI 
2013 (9) TMI 638
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....ief facts of the case are as under : The assessee-company is in the business of executing construction contracts and housing projects and also manufacture of cement hollow blocks. The return of income was filed declaring income of Rs. 54,18,33,000 and the same was processed under section 143(1) of the Act. Scrutiny assessment under section 143(3) was concluded on December 24, 2008 determining the income at Rs. 70,65,43,646 and later on rectification order under section 154 was made determining the income at Rs. 70,81,40,570 on September 18, 2009. On perusal of the assessment records, the Commissioner of Income-tax noticed that a sum of Rs. 40,33,65,510 was allowed as deduction under section 80-IB as against the claim of Rs. 56,80,76,159. Disallowance of a sum of Rs. 9,37,05,963 (out of Rs. 16,47,10,649, i.e., Rs. 56,80,76,159 ƒ_" Rs.40,33,65,510) was also made under section 80-IB by denying the deduction in respect of profits derived from undivided share of lands. The Commissioner of Income-tax has narrated the facts emerging from the assessment order as under : (i) The land on which the housing projects came up was not owned by the assessee-company. This is evident f....
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....om deduction under section 80-IB. He held that this clearly shows that the provisions of section 80-IB have not been properly applied in the assessment order itself. The Commissioner of Income-tax held that assessment order can be revised under section 263 on the question of eligibility of deduction under section 80-IB since these are two different issues. Therefore, the Commissioner of Income-tax held that the assessment order is erroneous and prejudicial to the interests of the Revenue. Hence, he directed the Assessing Officer to make necessary enquiries and verify the submissions of the assessee in the light of his discussions and arrive at a conclusion in the matter. Aggrieved, the assessee is in appeal before us with the grounds of appeal as under : 1. The learned Commissioner of Income-tax failed to appreciate that there was no error much less an error prejudicial to the interest of the Revenue in the order passed by the learned Assessing Officer warranting revision under section 263 of the Act and consequently the order passed by the Commissioner of Income-tax is opposed to law and facts of the appellant's case and requires to be cancelled. 2. The learne....
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.... of principle of merger. With regard to the aforesaid contentions, the learned authorised representative for the assessee submitted that the Assessing Officer, while passing the order of assessment for the assessment year 2006-07, has relied on the findings arrived at for the assessment year 2005-06. He submitted that in fact, in paragraph 3.1.6 of the assessment order the Assessing Officer has noticed the following facts: (a) That the land, on which the projects were developed, belonged to a sister concern of the assessee and that the said sister concern had sold the undivided interest in land to the customers of the assessee and by virtue of the said arrangement, the assessee is not the owner of the land and the agreement to sell entered into by the sister concern with the assessee was only a paper transaction. Hence, the assessee was only a builder and the sister concern happened to be a land owner. (b) From the purchase deeds of the lands by the sister concerns of the assessee, it was seen that substantial portion of the land cost has been paid as development charges by the assessee's sister concerns. Hence, the development of the land was done by the seller of t....
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....ITR 282 (SC). With regard to the merger of assessment order with that of the Commissioner of Income-tax (Appeals), the learned authorised representative for the assessee submitted that the Assessing Officer considered the deduction claimed by the assessee and took a view that the assessee is not entitled to deduction in respect of part of profits relating to the income from sale of undivided interest of land. On appeal, the learned Commissioner of Income-tax (Appeals) has allowed the deduction following the order of the Income-tax Appellate Tribunal in the assessee's own case for the assessment year 2005-06. It was submitted that inasmuch as the issue relating to deduction under section 80-IB(10) of the Act was considered by the Commissioner of Income-tax (Appeals), there is a merger of the order of the Assessing Officer with that of the Commissioner of Income-tax (Appeals) and the jurisdiction under section 263 of the Act is not available to the Commissioner of Income-tax. In support of this submission, the learned authorised representative relied on the decision of the hon'ble Supreme Court in the case of CIT v. Shri Arbuda Mills Ltd. [1998] 231 ITR 50 (SC). With re....
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....ant of exemption under section 80-IB(10) of the Act. Further, paragraphs 37 and 38 of the judgment has also considered as to whether the assessee in that case could be regarded as a contractor or builder. It has been held that the assessee in that case had undertaken the development of the housing project at his own risk and cost and the land owner had accepted only the full price of the land and nothing further. Hence, it was held that the assessee in that case could not be regarded as a contractor. The ratio of the aforesaid judgment is squarely applicable to the facts of the assessee's case as well. The assessee has developed the housing project at his own risk and investments and the landowners are not entitled to anything apart from the full price of the land. This aspect of the matter is not in dispute at all, as the entire project expenses have been incurred by the assessee and the sales of the apartment and the resultant profit has been shown as income of the assessee. The profit or loss accrues to the assessee alone. The sister concerns who owned the land are merely entitled to the price for the land and nothing beyond. Under the circumstances, it would not be justified to....
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....has given details of various projects that were undertaken by the assessee in respect of which deduction under section 80-IB(10) of the Act was claimed, agreements with sister concerns, development expenditure on land incurred by the transferors (associated companies of the assessee) on which housing projects were constructed by the assessee, etc. We have heard rival submissions and considered the facts and material on record including the decisions cited before us. We find force in the contention of the assessee that when an issue which has been agitated before the Commissioner of Income-tax (Appeals) who, in turn, after due application of mind, decided the issue either way, there was no jurisdiction under section 263 of the Act precisely on the ground that the assessment order passed by the Assessing Officer got merged with the appellate order of the Commissioner of Income-tax (Appeals). Here, it is more appropriate to recall the ruling of the hon'ble Supreme Court in the case of Shri Arbuda Mills Ltd. [1998] 231 ITR 50 (SC). In that case, the hon'ble Supreme Court has observed as under (headnote) : ". . . the Explanation to section 263(1) which was substitut....
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....e of land from deduction under section 80-IB. This clearly shows that the provisions of section 80-IB have not been properly applied in the assessment order itself. The findings of the Commissioner of Income-tax (Appeals) does not cover this issue. Hence, the question of merger of the order of the Commissioner of Income-tax (Appeals) with that of the Assessing Officer does not arise. This view is supported by the decision of the Delhi Bench of the hon'ble Income-tax Appellate Tribunal in the case of Modi Xerox Ltd. v. Deputy CIT [1998] 67 ITD 252 (Delhi) wherein it was held that the issue before the Commissioner of Income-tax (Appeals) was quantification of section 80-I deduction. The Commissioner can revise under section 263 on the question of eligibility of deduction under section 80-I since these are two different issues." On a careful consideration of the views of the Commissioner of Income-tax, we are of the firm view that the Assessing Officer had considered the provisions of section 80-IB(10) in its totality and on the basis of which the Commissioner of Income-tax (Appeals) analysed the issue in depth and negated the stand of the Assessing Officer for the reasons recorded i....
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....ial Co. Ltd., it has been held by the hon'ble apex court that : "A bare reading of the provisions of section 263 makes it clear that the prerequisite to exercise of jurisdiction by the Commissioner of Income-tax suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner of Income-tax has to be satisfied of the twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is 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). There can be no doubt that 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. 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 prin....