TaxTMI 
TaxTMI 
2014 (8) TMI 862
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....e are that the assessee-company, engaged in real estate business, filed its return of income for the Assessment year 2007-08 before DCIT, Central Circle-3, Hyderabad on 25.09.2008, in response to notice u/s 153C of Income-tax Act, 1961, declaring Nil income. The Assessing Officer completed the assessment u/s 143(3), r.w.s. 153C of the Act, on 31.12.2009 accepting the income returned. On verification of the assessment records for the Assessment year 2007- 08, it is seen that the assessee had received Rs. 20.00 crores as compensation from M/s Walden Properties (P) Ltd., and this amount was not offered to tax. As the order passed by the ACIT, Central Circle-3, Hyderabad for the Assessment year 2007-08 on 31.12.2009 is erroneous inasmuch as it is prejudicial to the interests of revenue, a show cause notice proposing to revise the order dated 31.12.2009 u/s 263 of the Income Tax Act, 1961 was issued calling for objections, if any. 4. After going through the objection of the assessee the CIT observed that it is a fact on record that the assessee had paid an advance of Rs. 20 crores to M/s Lakshmi Engineering & Construction Company (for short M/s. LECC) as per the MOU dated 05.05.2006.....
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.... with M/s LECC for termination of the agreement. The CIT did not agree with the contention of the assessee and observed that in the MOU entered on 05.05.2006 with M/s LECC, there was clear indication that there was dispute pending between party of the second part, i.e., M/s LECC and the revenue department pertaining to the scheduled party, which the second party had agreed to resolve in a reasonable time before transfer of property. Thus it was incumbent upon the second party to clear the title before transfer and the assessee was not supposed to pay any amount, as claimed by it, for termination of the contract. It is because the existing litigation was known to the assessee before entering into the MOU with M/s LECC. To that extent, the payment made by the assessee to M/s LECC was not required to be paid in the light of alleged cancellation of the agreement, as claimed by the assessee. 7. The CIT observed that these aspects have not been examined by the Assessing Officer while framing the assessment order. As regards the compensation paid by M/s Walden Properties to the assessee, it was claimed by M/s Walden Properties that the same was to be paid due to non-completion of proje....
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.....03.2007, the assessee has stated to have foregone Rs. 20 crore on the ground that the said M/s LECC expressed its inability to repay the amount which was already spent in the process of efforts to obtain necessary approvals. 10. The CIT was of the view that the assessment had been made by the Assessing Officer without looking into the crux of the matter and without examining the issues from the angle of a colourable transaction. Since no detailed enquiry had been made before completion of the assessment, in his view the said order is erroneous in so far as it is prejudicial to the interests of revenue. The CIT placed reliance on the decision of Special Bench, ITAT, Chennai in the case of Rajalakshmi Mills Ltd. v. ITO, [2009] 121 ITD 343/31 SOT 353, wherein it was observed that it is not necessary for the Commissioner of Income-tax in revision to make further enquiries before cancelling the Assessing Order of the Assessing Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further enquiries before accepting the statements made by the assessee in his return. It is incumbent on the....
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....dy District. However, in the schedule inadvertently it is mentioned only as survey No 326, 327 & 328 of Puppalaguda village, Rajendranagar Mandal Ranga Reddy District. The AR submitted that in the body of the MOU the numbers are mentioned in detail, however, in the schedule a typographical mistake occurred in advertently which will not cause the Document as invalid and the subject transaction as sham. The dispute revolves around the payment of Rs. 20 Crores to M/s. LECC by the assessee, which is supported by the ledger copies and Bank accounts of the assessee and its sisters concerns, just because a survey No, though mentioned in the body of MOU not mentioned in the schedule does not make the Document as sham and does not invite the proceedings u/s. 263 when the transaction is genuine. It is a fact that the assessee was in the knowledge that the property is in dispute to some extent. Therefore, the assessee ventured into the deal with a confidence that there will be more profits once the property is developed, in view of its geographical location in the Hitech-City. However, the gravity of the dispute was understood more clearly only after entering into an agreement that too after ....
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...., all the subsequent activities including finance are to be undertaken by the Walden. The assessee's responsibility is limited only to the extent of entering into the agreement for purchase of the property, however, failure on the part of Walden to fulfil the other conditions all resulted in compensation to the assessee. In respect of mentioning of joint development in the later agreement with M/s. LECC it is only an inadvertent omission by the writer of the agreement. It is a fact that the assessee entered into an agreement with M/s. LECC only for the purchase of the property. It is further submitted that minor inadvertent omissions in the Documents does not make the transaction sham, therefore, the AO during the course of assessment proceedings made enquiries. In respect of genuineness of the transaction and overlooked the minor inadvertent omissions and commissions. Therefore, it cannot be said that no enquiries were made by the AO. 15. The AR submitted that the Assessing Officer has examined the genuineness of the transaction from all angles and the observations of the Commissioner u/s. 263 of the Act, that Assessing Officer has not made enquiries is baseless. The observ....
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....e AR submitted that the assessee is the best judge to decide the affairs of the assessee's business. The Department cannot enter into the shoe of assessee to decide the issues in a particular manner. Relevant part of the order as under: "The contention of the Authorised Representative for the assessee that what expenditure is required to be met has to be looked into from the perspective of a businessman, has substantial force. A person carrying on business is the best person to judge what expenditure is to be incurred in the best interest of business, keeping in view the commercial expediency. The Assessing Officer certainly can raise questions regarding the genuineness and reasonableness of the expenditure incurred. However, as long as there is nexus between the expenditure incurred and the business of the assessee, the Assessing Officer cannot step into the shoes of a businessman to say that the expenditure incurred is not required in the interests of the business. The Hon'ble Supreme Court in the case of S.A. Builders Ltd.'s case have observed in no uncertain terms that what is relevant is whether the amount advance....
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....tate that does not conform to Objective reality; a brief that what is false is true or that what is true is false'. At page 649/650 in P. Ramanatha Aiyer's Law Lexicon Reprint 2002, the word 'error' has been defined to mean- 'Error: A mistaken judgement or deviation from the truth in matters of fact, and from the law in matters of judgement 'error' is a fault in judgement, or in the process or proceeding to judgement or in the execution upon the same, in a Court of Record; which in the Civil Law is called a Nullityie" (termes de la ley). Something incorrectly done through ignorance or inadvertence S. 99 CPC and S. 215 Cr. PC. 'Error, Fault, Error respects the act; fault respect the agent, an error may lay in the judgement, or in the conduct, but a fault lies in the will or intention." 19. At page 650 of the aforesaid Law Lexicon, the scope of Error, Mistake, Blunder, and Hallucination has been explained thus: "An error is any deviation from the standard or course of right, truth, justice or accuracy, which is ....
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....ch is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a return, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of assessment has undergone radical changes in recent years. It deserves to be noted that the present assessment was made under Section 143(3) of the Income-tax Act. In other words, the Assessing Officer was statutorily required to make the assessment under Section 143(3) after scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section 143. Bulk of the returns filed by the assessees across the country is accepted by the Department under Section 143(1) without any scrutiny. Only a few cases are picked up for scrutiny. The Assessing Officer is therefore, required to act fairly while....
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.... In the same category fall the orders passed without applying the principles of natural justice or without application of mind. In our humble view, arbitrariness in decision-making would always need correction regardless of whether it causes prejudice to an assessee or to the State Exchequer. The Legislature has taken ample care to provide for the mechanism to have such prejudice removed. While an assessee can have it corrected through revisional jurisdiction of the Commissioner under Section 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Commissioner under Section 263. Arbitrariness in decision-making causing prejudice to either party cannot therefore be allowed to stand and stare at the legal system. It is difficult to countenance such arbitrariness in the actions of the Assessing Officer. It is the duty of the Assessing Officer to adequately protect the interest of both the parties, namely, the assessee as well as the State. If he fails to discharge his duties fairly, his arbitrary actions culminating in erroneous orders can a....
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....er challenge." 23. Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engg. & Mfg. Co. Ltd. v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the ITO acts in a quasi-judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under Sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary. The judgments on which reliance was placed by the learned Counsel for the assessee also points to the same direction. They have held that orders, which are subversive of the administration of revenue, must be regarded as erroneous and prejudicial to the interests of the revenue. If the Assessing Officers are allowed to make assessments in an arbitrary manner, as has been done in the case before us, the administration of revenue is bound to suffer. If without discussing the nature of the transaction and materials on record, the Assessing Officer had made certain addition to the income of the assessee, the same would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which requ....
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....see company has produced a copy of the MOU dated 5.5.2006 which shows that the advance was given to M/s. Lakshmi Engineering & Construction Company with an intention to bury 50 Acres of land in Puppalaguda Village, Rajendra Nagar Mandal, Ranga Reddy District for Rs. 162 Crores. 3. The said MOU states that the assessee company has paid an amount of Rs. 20 Crores at the time of signing of the MOU. However from the details furnished it is seen that the amount of Rs. 20 Crores has been paid by M/s. Indu Projects Limited in instalments starting from 13.3.2006 to 4.7.2006 and only a transfer entry was passed on 31.3.2007 to transfer this amount of Rs. 20 Crores to the assessee company. From the records of M/s. Walden Properties Private Limited other group company it is seen that the assessee company has been paid a compensation of Rs. 20 Crores which it has not offered for tax. The counsel of the assessee company was therefore asked why the amount of Rs. 20 Crores was not shown in accounts. 4. In reply the counsel has submitted that the assessee company has paid Rs. 20 Crores to M/s. Lakshmi Engineering & Construction Company as com....
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....in my view, the said order is erroneous in so far as it is prejudicial to the interest of revenue. Reliance is placed on the decision of Special Bench, ITAT, Chennai Rajalakshmi Mills Ltd. v. ITO [2009] 313 ITR (AT) 182, wherein it was observed that it is not necessary for the Commissioner of Income-tax in revision to make further enquiries before cancelling the Assessing Order of the Assessing Officer. The Commissioner of Income-tax can regard the order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further enquiries before accepting the statements made by the assessee in his return. It is incumbent on the Assessing Officer to investigate the facts stated in the return when circumstances would make such an enquiry prudent. The word 'erroneous' in section 263 of the Act includes cases where there has been failure to make necessary enquiries. Consequently, I set aside the order passed u/s 143(3), dated 31.12.2009 for the assessment year 2007-08 with a direction to re-do the same after proper enquiry and to make appropriate addition as called for, in the light of my observations made in this....