TaxTMI 
TaxTMI 
2018 (7) TMI 1162
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....facts of the case are that for the AY 2012-13, return u/s 139 was filed declaring loss of Rs. 10,33,31,991/- inter alia including short term capital loss of Rs. 9,65,11,775/-. During the relevant year the assessee had sold its scrap paper manufacturing plant including Capital Work-in-Progress ('Capital WIP') at Kakinara, West Bengal for consideration of Rs. 27,50,00,000/- to M/s Ajmera Steels Pvt Ltd. ( M/s. ASPL) vide agreement dated 16.09.2011. The computation of capital gain as returned by the appellant was as under: Particulars Amount (in Rs.) Sale Consideration 27,50,00,000/- Less: Cost of Capital WIP 37,06,27,354/- WDV of the Plant & Machinery 5,38,761/- 9,61,66,115/- Less : Net Selling Expenses (13,45,660 - 10,00,000) 3,45,660/- Short Term Capital Loss 9,65,11,775/- 4. The assessment u/s 143(3) was completed on 16.01.2016 wherein short term capital loss of Rs. 9,65,11,755/- was assessed. The Ld. Pr. CIT thereafter initiated proceedings u/s 263 vide SCN dated 04.08.2016. In the Pr. CIT's opinion the assessment was completed by the AO without examining the issues concerning computation of capital gains on sale of assessee's paper manufacturing plant. In ....
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....ded 31st March 2012. 7. Drawing attention to the AO's notice u/s 142(1) dated 24.02.2014, the Ld. AR pointed out that in response to such notice, the assessee had furnished details of online auction of its plant & machinery of Kakinara factory. He further pointed out that by the notice dated 03.11.2014, the AO specifically requisitioned not only the details for loss incurred on sale of fixed assets and Capital WIP but also sought reasons for incurring such loss. In response, the assessee had furnished detailed reply along with requisite documents, copy whereof was placed at Pages 69 to71 of the paper book. The Ld. AR therefore submitted that the question of assessability of loss on sale of plant & machinery and Capital WIP was examined by the AO and only after conducting necessary enquiry, the loss as returned by the appellant was accepted by the AO and therefore it was wholly inappropriate for the Ld. Pr. CIT to allege in the show cause notice (SCN) that no enquiry in respect of this issue was carried out prior to completion of assessment. The Ld. AR also pointed out that the Ld. Pr. CIT's presumption that the entire consideration received from M/s ASPL was only for purchase of p....
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....cording to Ld. AR, is devoid of any merit. The Ld. AR contended that Section 50 of the Act contains computational provisions for assessment of gain realized on sale of depreciable asset and does not contain the definition of 'Capital Asset'. Drawing attention to Section 2(14) of the Act, the Ld. AR claimed that the expression 'capital asset' includes within its ambit and scope property of every kind, whether moveable or immovable, real or corporeal and only excludes agricultural land, stock-in-trade, personal effects and specified gold bonds. He therefore claimed the Capital WIP was indeed a 'capital asset' and which in the assessee's case amounted to Rs. 37,06,27,354/- incurred in relation to Capital WIP. 11. The Ld. AR alternatively submitted that even if the Capital WIP was not considered along with the WDV block for the purposes of Section 50(2) and the consideration was allocated on proportionate basis amongst the two, even then the net result would be the same. He illustrated the same, which is as follows: Prticulars Plant & Mach. Capital WIP Total Sale Consideration (apportioned) 3,39,172 27,46,00,827 Less : WDV/Original Cost 5,38,761 37,06,27,534 &nb....
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....Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held....
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....he time of assessment, but the Ld. Pr. CIT is permitted to take into account any material or information which may come to his attention till the passing of the order u/s. 263 of the Act and he need not confine only to the documents and information available with the AO at the time of framing of original assessment. However, it is necessary that the information and documents on the basis of which the Ld. Pr. CIT comes to conclusion that the assessment order was erroneous and prejudicial must have a tangible nexus or connection with Ld. Pr. CIT's ultimate finding that the AO's order was erroneous and which caused prejudice to the revenue. However, if it is found as a matter of fact that the Ld. Pr. CIT has proceeded to record his finding on assumption of certain facts which are not borne out or supported by the actual facts, then the assumption of jurisdiction and consequent exercise of power u/s. 263 can be said to be vitiated resulting in infirmity in the order passed u/s. 263 of the Act. Viewed from this angle, it is necessary to examine as to whether the Ld. Pr. CIT validly exercised his revisional jurisdiction in the present case. 15. As demonstrated by the ld. AR, with refere....
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....sale price received by the appellant/assessee pertained only to sale of plant and machinery was, therefore, recorded without having due regard to the transactional documents. We also note that in the audited financial statements of the appellant/assessee, the assessee had made appropriate disclosure which established that the assessee had sold both the plant and machinery and Capital WIP for a composite consideration of Rs. 27,50,00,000/- and the resultant loss of Rs. 12,65,47,945/- was declared in the P&L Account. We, therefore, find that the assessee had in fact made proper disclosure of the aforesaid facts in the audited accounts as well as in the transactional documents which proved that the assessee had in fact sold both plant & machinery and Capital WIP for a composite consideration of Rs. 27,50,00,000/-. In the aforesaid facts and circumstances, we hold that the finding of the Ld. Pr CIT that consideration received by the appellant/assessee pertained to only sale of plant & machinery and no evidence in support of sale of Capital WIP was furnished is factually incorrect and, therefore, unsustainable. 16. The second premise on which the Ld. Pr. CIT justified the invocation of....
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....mise adopted for initiating proceeding is based on incorrect understanding of facts or legal provisions, then in such case, assumption of jurisdiction is fragile in the eyes of law. It may be kept in mind that howsoever bonafide the belief an authority may entertain that, if such honest belief is based on an erroneous interpretation of the relevant statutory provisions or incorrect assumption of facts, the assessee should not be required to face the rigours of reassessment or revision merely because the authority entertains an honest belief. In order to justify the revision or reassessment proceedings, the honest belief of the authority should be based upon the material on record and should, in fact, give rise to the belief that prejudice has been caused to the revenue as a consequence of passing of an erroneous order by the AO. Since the facts of the instant case demonstrate beyond doubt that the price of Rs. 27,50,00,000/- received by the assessee was in respect of plant & machinery as well as Capital WIP, the Ld. Pr. CIT's finding that such price was paid only in respect of plant & machinery was based on no material and, therefore, the finding recorded by the Ld. Pr. CIT on inco....
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....enue to be erroneous and was also considered by the Tribunal as also by us to be a possible view, strengthens the presumption under clause (c) of section 114 of Indian Evidence Act. A prima facie evidence on the basis of the aforesaid presumption, is thus converted into a conclusive proof of the fact that order was passed by the AO after application of mind." 18. Applying the ratio laid down in the judgment of the Hon'ble Calcutta High Court, we note that notice u/s. 142(1) of the Act dated 03.11.2014, the AO had raised specific question requiring the assessee to furnish details of machinery and capital WIP sold and the reasons for low sale consideration. From the material placed before him and only after examination of the document furnished the AO passed the assessment on 16.01.2015. On these facts, therefore, we are unable to accept the Ld. Pr. CIT's allegation in the show cause notice that the AO has passed the order without obtaining any information from the assessee on the issue. 19. As far as the question whether cost of capital WIP is required to be computed for computing capital gains, we hold that the Ld. Pr. CIT's reference to section 50(2) of the Act was irrelevant. I....
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....mentation of its Cement Plant Project at Rajasthan and was also treated by the assessee as capital work-in-progress and accordingly shown in the Balance-sheet which were presented to the shareholders of the Company. In the relevant assessment year, the assessee has not claimed any of such expenditure as a revenue expenditure in the income-tax return filed with the Department. The assessee also incurred cost for preparing the Mining Plan for getting approval from Indian Bureau of Mines 12. the definition of capital assets as provided in Section 2(14) is an inclusive one, which brings within its ambit property of any kind held by the assessee, except what has been expressly excluded by Clauses (i) to (iv) thereunder, thus the expression 'capital asset' has a wide connotation. The term 'property' though has no statutory meaning but is of widest import and subject to any limitation which the context may require, it signifies every possible interest which a person can acquire, hold or enjoy. According to Stroud's judicial dictionary of the words and phrases (6th edition) 'property' is a comprehensive term indicative of every possible interest which a party....
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.... "Arguments of the assessee have been carefully considered. But the same is not acceptable. No evidence has been furnished in support of the claim that the price received was mainly for the work in progress and not towards the plant and machinery. I therefore hold that the assessment order passed by AO is erroneous and prejudicial to the interest of revenue. The same is set aside u/s. 263 with the direction to include short term capital gain of Rs. 27,41,15,579/-. The AO is also directed to disallow carried forward of short term capital loss of Rs. 9,65,11,775/-." In this regard, we, however, find that the terms of the agreement dated 16.09.2011 between the appellant and M/s. ASPL sufficiently to establish that the appellant/assessee had in fact sold the plant and machinery along with the capital WIP as cam be seen from the subject agreement. This contemporaneous piece of evidence clearly goes on to show that the sale consideration of Rs. 27.50 cr. was paid for purchasing the plant and machinery and the capital WIP lying at the appellant/assessee's Kakinara factory. We also find sufficient merit in the Ld. AR's submission that no prudent business man would spend Rs. 27.50 cr. to....