TaxTMI 
TaxTMI 
2023 (4) TMI 295
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....t of garments, shoes etc. It filed its income tax return for the AY 2007-08 wherein it showed sale of the property / building "Paville House" for an amount of Rs.33 Crores. That, the building "Paville House" was constructed by the assessee on the piece of land which was purchased in the year 1972. The said house of the company was duly reflected in the balance sheet of the company. 3.1 It appears that there had been litigation between shareholders of the Company being family members. Litigations in the Company Law Board and the High Court culminated in arbitration. In the arbitration proceedings, an interim award was passed whereby an amicable settlement termed as "family settlement" was recorded between the parties. As per the interim award, three shareholders viz. (1) Asha, (2) Nandita and (3) Nikhil were paid Rs.10.35 Crores each. According to the assessee, "Paville House" was sold to discharge encumbrances from the sale proceeds to pay off the shareholders and therefore, the said discharge of encumbrances was "cost of improvement". As observed hereinabove, "Paville House" was sold for an amount of Rs.33 Crores. The assessee showed gains arising therefrom amounting to Rs.1,21....
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....he assessee in consonance with the provisions of the IT Act as discussed in the order. 3.4 The assessee approached the Income Tax Appellate Tribunal (for short "ITAT") by way of filing ITA No.16/MUM/2012 against the order passed by the Commissioner, passed under Section 263 of the IT Act. The ITAT relying upon the decision of this Court in the case of Malabar Industrial Co. Ltd. Vs. CIT [(2000) 2 SCC 718 : (2000) 243 ITR 83 (SC)] concluded that the Commissioner wrongly invoked the jurisdiction under Section 263 of the IT Act. The ITAT also observed that there was no error on facts declared. The ITAT held that every loss of revenue as a consequence of AO's order cannot be treated as prejudicial to the interest of the revenue, when two views were possible and AO took a view which CIT did not agree with. The ITAT also upheld the allowability of the assessee's claim of deduction of payment made to the shareholders relying upon the decision of the Bombay High Court in CIT Vs. Smt. Shakuntala Kantilal [(1991) 190 ITR 56 (Bombay)]. The ITAT relying on the Tribunal's order (Bombay Bench) in Chemosyn Ltd. Vs. ACIT [2012 (25) Taxxman.com 325 (Bombay)] held that the CIT's observation of ex....
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....e AO was erroneous, bad in law and prejudicial to the interest of the revenue and therefore, the same was rightly set aside by the Commissioner under Section 263 of the IT Act, which ought not to have been set aside by the ITAT. 4.2 It is further submitted that Commissioner rightly observed that the assessee company was the clear owner of the property and that there was no encumbrance preventing the sale of the said property. The family dispute among the three shareholders brother and two sisters, which resulted in a settlement by way of arbitration award, as per which the three shareholders became entitled to Rs.10.35 Crores each for transfer of shares as well as relinquishment of any right or claim to additional shares in the company had nothing to do with the improvement in the property. It is submitted that shareholders only concern was that the sale proceeds should first be utilized for making payments to them as per the arbitration award. It is submitted that therefore both, the Tribunal as well as the High Court have erred in concluding that the payment of Rs.10.35 Crores were admissible as deduction. 4.3 It is submitted that both, the ITAT as well as the High Court ha....
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....property. It was only to derive the benefit by sale of the encumbrance asset that the parties resorted to settlement through arbitration. The dispute being settled, payments having been made, the AO committed no error in allowing the claim of deduction as cost of improvement. 5.5 It is further submitted by learned Counsel appearing on behalf of the assessee that in the case of Malabar Industrial Co. Ltd. (supra), this Court has held that if the order is erroneous but is not prejudicial to the interest of the Revenue, the Commissioner cannot exercise the revisional jurisdiction under Section 263 of the IT Act. It is submitted that it is further observed and held that every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interest of revenue. As observed and held, if the AO has adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the AO has taken one view with which CIT does not agree, it cannot be treated as erroneous order prejudicial to the interest of revenue. 5.6 It is further submitted by the learned Counsel appearing on behalf of the assessee on encumbrances that....
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.... Act and in exercise of the revisional jurisdiction, set aside the assessment order by specifically observing that the assessment order was erroneous as well as prejudicial to the interest of the Revenue. However, the High Court by the impugned judgment and order has set aside the order passed by the Commissioner by observing that the Commissioner wrongly invoked the powers under Section 263 of the Act. 7.1 Learned counsel appearing on behalf of the assessee has heavily relied upon the decision of this Court in the case of Malabar Industrial Co. Ltd. (supra). It is true that in the said decision and on interpretation of Section 263 of the Income Tax Act, it is observed and held that in order to exercise the jurisdiction under Section 263(1) of the Income tax Act, the Commissioner has to be satisfied of 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. It is further observed that if one of them is absent, recourse cannot be had to Section 263(1) of the Act. "What can be said to be prejudicial to the interest of the Revenue" has been dealt with and considered in paragraphs ....
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....w taken by the Income Tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. (See Rampyari Devi Saraogi v. CIT [(1968) 67 ITR 84 (SC)] and in Tara Devi Aggarwal v. CIT [(1973) 3 SCC 482 : 1973 SCC (Tax) 318 : (1973) 88 ITR 323] .)" 7.2 Thus, even as observed in paragraph 9 by this Court in the case of Malabar Industrial Co. Ltd. (supra) that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. It is further observed that if due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. However, only in a case where two views are possible and the Assessing Officer has adopted one view, such a decision, which might be plausible and it has resulted in loss of Revenue, such an order is not revisable under Section 263. 7.3 Applying the law laid down....