TaxTMI 
TaxTMI 
2016 (3) TMI 289
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.... Spiritual Center Trust : Rs.10,00,000 Payment made to Help age India : Rs.25,00,000 CRY (Child Rights and You) : Rs.15,00,000 Sri Ramana Ashramam Thiruvannamalai : Rs.10,00,000 Payment made to Sri M.S. Narayanan : Rs. 50,000 Professional fees paid to Sri M.S.Narayanan : Rs. 3,20,000 Commission paid to N D Basavaraja : Rs. 4,00,000 Other expenses : Rs. 32,500 After deducting the above expenses, the assessee showed a sum of Rs. 8,11,97,500/- as net sale consideration. Ld. CIT opined that as these expenses were not incurred wholly and exclusively in connection with the transfer, the same is not allowable as deduction, the claim of expenses of Rs. 68,02,500/- not relating to the sale was not disallowed and added to the sale consideration while computing the capital gains in the scrutiny order u/s 143(3). Hence a show cause notice was issued to the assessee u/s 263 of the Income-tax Act, 1961 on 12-03- 2015 for the above reasons by the Ld.CIT. In response, the assessee submitted his reply dated 18-03-2015 objecting to the exercise of powers u/s 263 by Ld.CIT and on merits in regard to allowability of the claim of expenses of Rs. 68,02,500/-. After examining the ....
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....ty for a consideration of Rs. 8,80,00,000/-. Moreover, the payments said to have been made as per Will can neither be considered as diversion by overriding title nor expenditure incurred wholly and exclusively in connection with the transfer in view of the binding decisions of jurisdictional High Court on identical situations in the following cases: 1. Rugmani Varma Vs CIT (Mad) - 222 ITR 357 2. CIT Vs A Venkataraman (Mad) - 137 ITR 846 From the above facts, the Ld.CIT was of view that no in-depth enquiry had been made about payment of "Professional fees paid to Shri M S Narayanan (Rs. 3,20,000/-), Commission paid to N D Basavaraja (Rs. 4,00,000/-) and Other expenses (Rs. 32,500/-) claimed as expenses deduction. How each of these expenses fall in the category of "expenditure incurred wholly and exclusively in connection with the transfer" is not explained by assessee and examined by the AO. Hence, Ld. CIT came to a conclusion that the whole claim of Rs. 4,68,02,500/- made in the Return of income as "expenditure on transfer" needs to be disallowed. Against this, the assessee is in appeal before us. 3.1 The ld.A.R submitted that as per Will, the assessee has paid a sum of Rs. 6....
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....e for purposes of computation of Long Term Capital Gains on sale of the immovable property at Bangalore bequeathed to the appellant by his father; in such circumstances the section 263 in respect of the issue regarding 'net sale consideration' is contrary to the scheme of the Act and is wholly unjustified. The assessee is advised to submit that the judicial decisions relied on by the Commissioner in Para 5 of his impugned order to overrule the objections raised by the appellant on the validity of the proceedings under section 263 have no relevance on the facts and circumstances of the present appellant's case. Hence, the appellant submits and urges that the impugned order of the Commissioner deserves to be struck down on the ground of want of jurisdiction and on the basis of the grounds setout above alone. 3.3 Regarding the validity of invoking the provisions of Sec.263 of the Act, ld.A.R relied on the decisions of the Hon'ble Apex Court in the case of Malabar Industrial Company Ltd. reported in (2000) 243 ITR 83(SC) and of the Hon'ble Jurisdictional High Court in the case of M/s.Ashok Leyland Ltd., reported in 260 ITR 599(Mad.). 3.4 On the other hand , ld.D.R relied on the order....
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.... case. An error may be from the absence of knowledge, a mistake is from insufficient or false observation. Blunder is a practical error of a peculiarly gross or awkward kind, committed through glaring ignorance, heedlessness, or awkwardness. An error may be overlooked or atoned for, a mistake may be rectified, but the shame or ridicule which is occasioned by a blunder, who can counteract. Strictly speaking, hallucination is an illusion of the perception, a phantasm of the imagination. The one comes of disordered vision, the other of discarded imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it denotes an unaccountable error in judgment or fact, especially in one remarkable otherwise for accurate information and right decision. It is exceptional error or mistake in those otherwise not likely to be deceived." 6. In order to ascertain whether an order sought to be revised under s. 263 is erroneous, it should be seen whether it suffers from any of the aforesaid forms of error. In our view, an order sought to be revised under s. 263 would be erroneous and fall in the aforesaid category of ....
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....ax in excess of what is legitimately due from him, and on the other hand, he has a duty to protect the interests of the Revenue and to see that no one dodged the Revenue and escaped without paying the legitimate tax. The AO is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke inquiry. Arbitrariness in either accepting or rejecting the claim has no place. The order passed by the AO becomes erroneous because an enquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim made therein are assumed to be correct. The CIT may consider an order of the AO to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereotyped order which simply accepts what the assessee has stated in his return....
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....he present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefor. In S.N. Mukherjee vs. Union of India AIR 1990 SC 1984 it has been observed by the Hon'ble Supreme Court as follows : "Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances or arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judici....
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....ts of the Revenue under s. 263 in the following cases : (i) The order sought to be revised contains error of reasoning or of law or of fact on the face of it. (ii) The order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In the same category fall orders passed without applying the principles of natural justice or without application of mind. (iii) The order passed by the AO is a stereotype order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim which is called for in the circumstances of the case." 11. We shall now turn to the facts of present case of the assessee. The assessee in this case claimed the impugned amount as a deduction out of the total consideration claimed from sale of capital asset stating that it is a part of the cost of transfer of said property. The ld. Assessing Officer observed that out of sale consideration of Rs. 8,80,00,000/-, the assessee has received only Rs. 8,19,50,000/- as the assessee has to pay towards charity amount of Rs. 45,50,000/-. However, there is no discussion whatsoever regarding th....
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....enue. 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 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 ITO is unsustainable in law." 14. We have carefully gone through the aforesaid observations. "Adopting" one of the courses permissible in law necessarily requires the AO to consciously analyse and evaluate the facts in the light of relevant law and bring them on record. It is only then that he can be said to have "adopted" or chosen one of the courses permissible in law. The AO cannot be presumed or attributed to have "adopted" or chosen a course permissible in law when his order does not speak in that behalf. Similarly, "taking" one view where two or more views are possible also necessarily imports the requirement of analysing the facts in the light of applicable law. Therefore, proper examination of facts in the light of relevant law is a necessary concomitant in order to say that the AO has adopted a permissible course of law or taken a view where tw....
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.... in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morrin in Harrington vs. British Railways Board (1972) 2 WLR 537 (HL) circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases...." Therefore, the observations of the Hon'ble Supreme Court in Malabar Industrial Co. Ltd's case (supra) on which reliance has been placed by the learned counsel cannot be read in isolation. The judgment deserves to be read in its entirety to cull out the law laid down by the Hon'ble Supreme Court. If so read, it is quite evident that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind will satisfy the requirement of the order being erroneous and prejudicial to the interest of the Revenue. If the order sought to be revised under s. 263 suffers from any of the aforesaid vices, it cannot be said that the AO has "adopted", in such an order, a course permissible in law or "taken" a view where two or more views are po....
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....roductive as it would have the effect of promoting arbitrariness in the decisions of the AOs and thus destroy the very fabric of sound tax discipline. If erroneous orders, which are prejudicial to the interest of the Revenue, are allowed to stand, the consequences would be disastrous in that the honest taxpayers would be required to pay more than others to compensate for the loss caused by such erroneous orders. For this reason also, we are of the view that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind or without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the Revenue within the meaning of s. 263. Thus the order passed by Assessing Officer is prejudicial to the interest of the Revenue. Thus, the Ld. CIT is justified in exercising the jurisdiction provided to him u/s.263 of the Act. Accordingly, the legal issue raised by the regarding validity of exercising jurisdiction u/s.263 by CIT is rejected. 17. Now, refer to the merit of the additions, the plea of ld.A.R was principally with re....
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....rred by the legatee/s, if any, as toward discharge of a mortgage created either by him or even by the previous owner would not qualify to be considered or included as a part of the cost of acquisition u/s. 48(ii). In the case of Smt S. Valliammai v. CIT [198l] 127 ITR 713/ 6 Taxman 240 (Mad.) (FB), the issue involved was the deductibility of estate duty, charge in respect of which is created on the immovable property passing on the death of its owner. Negating the claim for its deduction in the computation of the capital gains on its transfer by a legatee, it was held by the Hon'ble court that non-payment of estate duty did not result in their (legatees) getting an imperfect or incomplete title to the property. It is only when the title is defective, incomplete or imperfect that the cost of making the title complete and perfect could be treated as the cost of acquisition. Like view stands also almost uniformly expressed by the Hon'ble courts in the context of the similar obligations, including those flowing from the instrument conferring or vesting title in the successor, as a partition or gift deed, so that the same were considered as not qualifying for deduction either as....
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....that are absolutely necessary, so as to arrive at the real and effective consideration. 21. In our opinion as seen from the clause No.7, the assessee's father, A.V Rajaram bequeathed the entire sale consideration received from the sale of immovable property absolutely to his second son i.e. Kumar Rajaram and thereafter he said he has to distribute the sale proceeds after paying property taxes if found due and shall make payment out of the sale consideration and also said how to distribute the sale consideration. Being so, it is only application of sale consideration rather than diversion of income by creating overriding title. The Hon'ble Apex Court in the case of CIT, Bombay City II v. Sitaldas Tirathdas reported in [1961] 41 ITR 367 (SC) has explained that the true test for the application of the rule of diversion of income by an overriding charge is whether the amount sought to be deducted in truth never reached the assessee as his income. Further, obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by th....