AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (4) TMI 574
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....cels and/or acquire the developments rights in these land parcels for undertaking a real estate project. The rights which were conferred on the appellant for providing such financial assistance were set out in Clause (3) of the FA Agreement. The relevant clause (3) of the FA agreement with one of the LOC is reproduced hereunder: "3. RIGHTS OF LTL 3.1 In consideration of LTL making available the Aggregate Financial Assistance Amount, the LOC agrees and acknowledges that, in he even the LOC proposes to transfer the ownership over the land parcels or the development right over the Land Parcels to any third party, whichever is earlier, LTL shall have the right but not the obligation to, acquire all of the Land Parcels at a mutually agreed value or have the exclusive development right over all of the Land Parcels, as the case may be, and the consideration payable by LTL to the LOC for acquiring ownership over such Land Parcels or development right, as contemplated in this Agreement, shall be adjusted against the amount drawn-down under the Facility and outstanding as of the date of payment." 3. All the six FA agreements also contained a clause for payment of liquidated damages in t....
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....r to entering into Development Agreement with LPL; the appellant invoked Clause (7) of the FA Agreements and demanded payment of liquidated damages. The issue however could not be settled amicably and hence the same was referred for arbitration. Shri Bhaskar Sen Bar at Law,the Sole Arbitrator by his separate awards granted liquidated damages aggregating to Rs. 16.90 crores to the appellant. The assessee claimed this amount as capital receipt in its return of income and pleaded that the said receipt was not chargeable to tax as income in India since it is in the nature of windfall received on loss of a source of income / capital asset. In the audited financials for the year ended 31st March 2014, the said receipt of liquidated damages was directly credited to the Capital Reserve and the following disclosure was given in Note No. 5.14 accompanying the annual financial statements. "5.14- Addition to Capital Reserve Luxmi Township Ltd. had entered into Financial Assistance Agreements with six companies for providing financial assistance to such companies to help them purchase land parcels in consideration of right to purchase or develop such land parcels. Subsequently all the six com....
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.... loss of the source of income since the appellant was denied to obtain the rights in the land parcels to carry out a real estate project. Placing reliance on the judgment of the Hon'ble Supreme Court in the case of Oberoi Hotel Pvt Ltd Vs CIT (236 ITR 903)&Karam Chand Thapar& Bros Pvt Ltd Vs CIT (80 ITR 167), the AO pleaded that the amount received by the appellant was for giving up the right to purchase and/or operate the property which was a loss of source of income and hence in the nature of capital receipt. The AO further referred to the relevant clauses of Section 28 of the Act and claimed that the provisions of Section 28(ii) were not applicable in the given facts of the case. The Assistant Audit Officer however did not agree with the observations of the AO and rebutted the same. Thereafter the Ld. Pr. CIT invoked section 263 of the Act and show caused the assessee vide notice dated 25.01.2019 wherein it was stated as follows: "2. In the instant case, the assessee company filed its return of income for the assessment year 2014-15 on 26-09-2014 declaring total income at Rs. 7,51,43,490/-. Subsequently the case was selected for scrutiny under CASS and assessment order under....
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....ved by therevision order of ld. Pr.CIT, the appellant is now in appeal before us. 7. We have heard the rival submissions of both the parties. It is the argument of the Ld. AR that from the facts of the case it cannot be said that the AO did not enquire into the specific issue regarding the character of the receipt of liquidated damages of Rs. 16,90,00,000/-. Inviting our attention to the notice u/s 142(1), the reply submitted by the appellant and the AO's response to the audit memo, the Ld. AR submitted that it was not at all a case of lack of enquiry in as much as the AO had applied his mind to the facts of the case to arrive at a plausible view that the receipt of Rs. 16,90,00,000/- being capital in nature and therefore was not liable to tax. He further submitted that there are at least two perspectives which are forthcoming viz., perspective of capital receipt propounded by the assessee, and the perspective of business income proposed by the ld. Pr.CIT. According to him, when more than one view is legally possible and the AO has taken one of such possible view which cannot be said to be unsustainable in law, it is not open for the CIT to invoke jurisdiction u/s. 263 of the Act ....
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....n assumption of incorrect facts; or assumption of incorrect law; (ii) Assessing Officer's order is in violation of the principles of natural justice; (iii) if the AO's order is passed by the without application of mind; or (iv) if the AO has not investigated the issue before him. In the circumstances enumerated above only the order passed by the Assessing Officer can be termed as erroneous for the purpose of S.263 of the Act. Coming next to the second limb, the AO's erroneous order can be revised by the CIT only when it is shown that the said order is 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 that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction with an "erroneous" order passed by the Assessing Officer. For invoking powers conferred by S.263; the CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but CIT must also further show that as a result of an erroneous order some real and t....
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....o why this amount has not been shown as your income for the year under consideration." 12. We note that in compliance with the AO's notice u/s.142(1) the appellant furnished the required details along with an explanation vide its submission dated 30.11.2016. The appellant furnished copies of the FA agreements, arbitration award and the legal opinion received from a Senior Advocate regarding the character of receipt and its taxability. The appellant had also furnished a written note outlining the factual matrix and the reasons for which the receipt of liquidated damages was treated to be in the natureof capital receipt. On examination of the details furnished, we find that all the requisite details were furnished by the appellant which enabled the AO to make enquiries into the nature and character of receipt and its taxability. Hence we do not find any substance in the impugned order wherein it has been held that AO's order suffered infirmity on account of lack of enquiry. 13. In order to understand the difference between "lack of inquiry" and "inadequate inquiry" and when it can be termed as erroneous, let us look at the judgment of the Hon'ble Calcutta High Court in the case....
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....8 given by the assessee to the notice, dated 21st January 2008, under Section 142(1) of the Act. He contended that all the requisite particulars were furnished together with documents. Thereafter, the matter was heard from time to time by the assessing officer as would appear from the List of Dates submitted by Mr. Nizamuddin, learned advocate for the appellant. From the list of dates it appears that on 21st January, 2008 notice under Section 142(1) was issued. On 4th February, 2008 the Assessee appeared and filed details and particulars. On 18th February, 2008, 4th March, 2008, 19th March, 2008 and 26th March, 2008 the matter was heard. The Assessing Officer has recorded in the order sheet that the case was discussed and the official documents and particulars were filed by the Assessee. 78. Mr. Poddar contended that the fact that the Assessing Officer had issued the notice under Section 142(1) of the Act requiring the assessee to give particulars and to furnish documents in respect of seventeen items indicates that the Assessing Officer had in fact applied his mind. Without application of mind, according to him, the aforesaid notice itself could not have been issued. The f....
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....t the finding of the learned Tribunal that the order dated 28th March, 2008 was not passed without application of mind has not been challenged before this Court. No attempt far less any serious attempt was made on behalf of the revenue to demonstrate that the order passed on 28th March, 2008 by the Assessing Officer was wrong either on facts or law. The appellant has also not been able, nor in fact has made any attempt to establish that the finding of the learned Tribunal that the order dated 28th March, 2008 was not passed without the application of mind is based otherwise than on evidence. On the contrary, the records of assessment, the list of dates produced by Mr. Nizamuddin go to establish that the assessment order was passed after due application of mind. 82. Mr. Poddar contended that there is no provision in the Income Tax Act which requires the Assessing Officer while accepting the claim of the assessee to pass a reasoned order. The reasons, according to him, are required only when an issue is decided against the assessee. He also drew our attention to the judgment in the case of S.S Gadgil v. Lal & Co. [1964] 53 ITR 231, wherein the Apex Court held as follows :- "A p....
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....atter had been discussed in detail by the Assessing Officer. The least that the Tribunal could have done was to refer to the assessment record to verify the contentions of the assessee. Instead of doing that, the Tribunal has merely been swayed by the fact that the Assessing Officer has not mentioned anything in the assessment order. During the course of assessment proceedings, the Assessing Officer examines numerous issues. Generally, the issues which are accepted do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made. As already observed, we have examined the records of the case and find that the Assessing Officer had made full inquiries before accepting the claim of the assessee qua the amount of Rs. 10 lakhs on account of discrepancy in stock. Not only this, he has even gone a step further and appended an office note with the assessment order to explain why the addition for alleged discrepancy in stock was not being made. In the absence of any suggestion by the Commissioner as to how the inquiry was not proper, we are unable to uphold the action taken by him un....
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....er Flour Mills (P.) Ltd. (supra) does not apply because the High court in that case was satisfied that the assessment order was passed without enquiry. 91. The judgment of Cochin Bench of Income Tax Appellate Tribunal in ITA No. 116 /Coch/ 2012 relied upon by Mr. Nizamuddin is evidently based on an erroneous impression that "the proceedings before the Assessing Officer are judicial proceedings". This impression, which is patently contrary to the views expressed by Apex Court in the case of S.S. Gadgill (supra), was responsible for the views taken by the Tribunal. When the premise is wrong, the conclusion is bound to be wrong. 92. The judgment in the case of Infosys Technologies Ltd. (supra) is distinguishable on facts. The step taken by the CIT under Section 263 in that case was justified because the Income Tax records produced before him did not show that the assessing officer had considered the double taxation avoidance agreement on the basis whereof the claims were made by the assessee. Therefore, that was a clear case to show that the assessment order was passed without considering the relevant pieces of evidence. 93. The judgment in the case of Anusayaban. A. Doshi (su....
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.... hold that the assessment order was passed without application of mind. On the top of that when the Assessing Officer accepted the contention of the assessee there was no occasion for him to make any discussion in his order. 99. If the assessing officer cannot be shown to have violated any form prescribed for writing an assessment order, it would not be correct to hold that he acted illegally or without applying his mind. The third question is, for the reasons discussed above, answered in the negative." 14. We note that the sheet anchor on which the ld. Pr. CIT has found fault with the AO's order in the present case is the lack of enquiry on the part of the AO in not enquiring into the character of receipt of liquidated damages. In this context we find that there is a clear distinction between "lack of enquiry" and "inadequate enquiry". If there is an enquiry, even if inadequate, that would not by itself give occasion to the ld. Pr.CIT to interdict and interfere by exercising his revisional jurisdiction merely because he is of the opinion that some more enquiries should have been conducted in the matter. In a case where the CIT finds that the enquiry conducted by the AO is n....
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....at the LoC transfers the ownership over the Land Parcels or grants development right in relation to the Land Parcels to any third party developer, without offering the same to LTL in the manner contemplated under Clause 3.1 ("Default Event"), then LTL shall have the right to reqire the RUPSING to pay LTL liquidated damages. As per Clause 3 of the "FA Agreement", "LTL was entitled to have rights to acquisition and also rights to Development of the Land Parcels to be acquired by "LoC", and in the event of default of the Clause "LoC" was to pay to "LTL" Liquidated Damages s per Clause 7 of the "FA Agreement". The ultimate principle in respect of the treatment of loss of source of income has been laid down by the Supreme Court in the case of Kettlewell Bullen & Company Ltd. -VS-CIT reported in 53 ITR 261 of Page 281 may be broadly stated that what is received for loss of capital is a capital receipt; what is received as profit in a trading transaction is taxable income. The principle as laid down in the decision of the Supreme Court in the case of Kettlewell Bullen & Co. Ltd. -vs- CIT 53 ITR 261 has been reiterated by the Supreme Court in the case of Karam Chand Thapar& Bros. Pvt....