PCIT Vs Shivshahi Punarvasan Prakalp Ltd (Bombay High Court)
Bombay High Court held that present case is not a case of lack of enquiry, however, it can be a case of inadequate enquiry. Accordingly, inadequacy of enquiry does not give jurisdiction to the CIT to invoke provisions of Section 263 prior to the insertion of Explanation 2.
Facts- The assessee had filed its ROI for A.Y. 2006-07 on 11th November, 2006. The case was selected for scrutiny and assessment order dated 28th December, 2011 came to be passed u/s. 143(3) of the Act. On 18th March, 2011, the Department issued a notice u/s. 263 calling upon the assessee to show cause as to why the order u/s. 143(3) dated 16th December, 2008 should not be treated as erroneous and prejudicial to the interest of revenue. The assessee responded by a detailed reply, in nuce, stating that AO had during the original assessment proceeding enquired into various issues including the aforesaid two issues and formed an opinion as to the correctness of the claim made by the assessee. The Commissioner by his order dated 31st March, 2011 rejected the submissions of the assessee.
Being aggrieved, the assessee carried the matter to the Tribunal. The Tribunal vide its order dated 16th January, 2017 allowed the appeal of the assessee and set aside the order of the Commissioner u/s. 263 of the Act.
Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that an enquiry was made by the Assessing Officer and the assessment order passed. Therefore, the CIT could not invoke jurisdiction under Section 263 as the view taken by the Assessing Officer was a possible/plausible view. It was only if the Assessing Officer had not made any enquiry then it could be said that the order passed was erroneous. This is not a case of lack of enquiry though it may be a case of inadequate enquiry. Inadequacy of enquiry as elucidated above does not give jurisdiction to the CIT to invoke provisions of Section 263 prior to the insertion of Explanation 2.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
This is an appeal filed under Section 260-A of the Income Tax Act, 1961 (‘the Act’) by the Appellant-revenue impugning the order dated 16th January, 2017 passed by the Income Tax Appellate Tribunal (‘ITAT/Tribunal’) in Appeal No.3314/Mum/2011 for the assessment year 2006-07 thereby allowing the appeal filed by the Respondent assessee. The Tribunal set aside the order dated 31st March, 2011 of the jurisdictional Commissioner of Income Tax exercising powers under Section 263 of the Act holding the assessment order dated 16th December, 2008 as erroneous and prejudicial to the interest of the revenue, as it allowed the claim for deduction made by the assessee in respect of the following :-
(i) Deduction under Section 36(1)(vii) of the Act with respect to write off of interest receivable of Rs.6,01,84,862/- forgone under the One Time Settlement (‘OTS’) entered into by the assessee with its borrowers and
(ii) Deduction under Section 36(1)(iii) of the Act with respect to Interest expenditure of Rs.2,49,53,390/- incurred with respect to borrowings made for the slum rehabilitation project at Dindoshi.
2. Earlier, the assessee had filed its return of income for the previous year relevant to assessment year 2006-07 on 11th November, 2006. The case was selected for scrutiny and assessment order dated 28th December, 2011 came to be passed under Section 143(3) of the Act. On 18th March, 2011, the Department issued a notice under Section 263 calling upon the assessee to show cause as to why the order under Section 143(3) dated 16th December, 2008 should not be treated as erroneous and prejudicial to the interest of revenue. The assessee responded by a detailed reply, in nuce, stating that the Assessing Officer had during the original assessment proceeding enquired into various issues including the aforesaid two issues and formed an opinion as to the correctness of the claim made by the assessee. The Commissioner by his order dated 31st March, 2011 rejected the submissions of the assessee. The relevant portion of the order of the Commissioner is quoted as under :-
“4. I have carefully considered the submissions made by the assessee and have also gone through the case records for the assessment year 2006-2007. On examination of the records. It is seen that the assessee was never called upon to explain the loss under OTS of Rs. 6.01,84,862/- debited to the profit and loss account under the head ‘Administration & Other expenses’. The records do not contain the copy of the One Time Settlement Scheme under which the assessee is stated to have given concession to private developers only in respect of the outstanding interest. Vide letter dated 15.09.2008, the authorized representative has furnished certain details in support of the return of income and at Sr. No. 26 of the said letter. It is mentioned that details of the amount of interest receivable & written off under One Time Settlement Scheme are enclosed. However the said details are not found enclosed in the record. The Assessing Officer has also not verified as to how the interest written off has been offered as income in the earlier years. The Assessing Officer has also not examined as to whether the interest expenses of Rs. 2,49,53,390/- on Dindoshi project was allowable as deduction u/s 36(1)(iii) or was required to be capitalized to the WIP of the said project.”
3. Being aggrieved, the assessee carried the matter to the Tribunal. The Tribunal vide its order dated 16th January, 2017 allowed the appeal of the assessee and set aside the order of the Commissioner under Section 263 of the Act. Paragraphs 8, 8.1 and 8.2 of the said order are relevant and are usefully quoted as under :-
”8. The first issue in respect of which the Commissioner of Income Tax has exercised the jurisdiction u/s 263 of the Act relates to the loss under OTS amounting to Rs.6,01,84,862/-. We noted from pages 1 to 3 of the paper book that the assessee has duly filed the details regarding the OTS. The Assessing Officer has issued the notice to the assessee u/s 142(1). In the said notice at Item No. 34, the Assessing Officer has specially raised the following query:
”34. Details of bad debts as to when the income on such transaction was offered to tax, evidences regarding efforts made by the assessee company to recover the debts and evidences of write off of the same in the books of account.”
8.1 In reply thereto, the assessee vide his letter dated 12/12/2008 submitted the details of write off and also how the income on such transaction was offered to tax. This fact is apparent from page Nos. 11, 16, 17 and 21 to 24 of the paper book. Similarly, in respect of second issue i.e. claim of interest expenditure, we noted that the Assessing Officer made the following query:
“26. In case, interest expenditure is claimed, details thereof must include name of the person to whom paid, rate of interest, amount of interest, period for which paid and copy of account of such person in your books.”
8.2 In reply thereto, the assessee vide his letter dated 15th September, 2008 gave the details in respect of the interest as well as drawn the addition of the Assessing Officer to Schedule-O, interest on Dinoshi Site as appearing at pages 19 & 20 of the paper book. This proves that the Assessing Officer was duly informed by the assessee during the course or hearing in respect of the loss on OTS as well as claim of interest in respect of Dindoshi Site. This is not a case where the Assessing Officer has not made the inquiry and completed the assessment just accepting the return filed by the assessee. In our opinion, the CIT cannot enter into the shows of the Assessing Officer if the Assessing Officer has taken one of the possible views. Until and unless the view taken by the Assessing Officer is unsustainable in law, the CIT cannot take action u/s 263 of the Act holding that the order passed by the Assessing Officer to be erroneous. Prior to insertion of the Explanation 2 with effect from 01/06/2015, it is the prerogative of the Assessing Officer to determine what inquiries he wants to make while completing the assessment. If the Assessing Officer has made the inquiry and duly considered the evidence as submitted and on the basis of such inquiry he has taken the view in favour of the assessee, that does not empower the CIT to invoke the jurisdiction u/s 263 of the Act unless the view taken by the Assessing Officer is unsustainable in law. If the Assessing Officer has not carried out any inquiry in respect of these points, it cannot be said that the order passed is erroneous as due process of law have not been followed. From the show cause notice of the CIT, it is apparent that the CIT(A) has treated the order to erroneous as well as prejudicial to the interest of the Revenue as the Assessing Officer has allowed the excessive relief by allowing the loss under OTS amounting to Rs.6,01,84,862/- and interest on Dindoshi Site amounting to Rs.2,49,53,390/- as revenue expenditure while they relate to the projects under work-in- progress and hence, required to be capitalized. Learned counsel for the assessee relied in this regard on certain decisions also and submitted that inadequacy of the inquiry according to whims and caprice did not give jurisdiction to the CIT to invoke the provisions of section 263 and set aside the assessment. The impugned case is not lack of inquiry.”
4. Aggrieved by the aforementioned order of the Tribunal, the revenue is in appeal before us proposing the following questions as substantial questions of law :-
“A. Whether on the facts and circumstances of the case and in law, the Tribunal was justified in holding that the CIT was not correct in law in exercising the jurisdiction u/s. 263 without appreciating the fact that the Assessing Officer passed the order without proper enquiry, resulting in an incorrect assumption of fact and an incorrect application of law thereby making the order of AO erroneous and also prejudicial to the interest of the revenue?
B. Whether on the facts and circumstances of the case and in law, the Tribunal was justified in holding that lack of enquiry pursuant to notice u/s 142(1) amounts to inadequacy of inquiry by the A.O.?”
5. Mr. Suresh Kumar, learned counsel for the Appellant-revenue relies upon the order of the Revisional Commissioner. He draws the attention of this Court to paragraph 4 of the said order (quoted above) to submit that from the records it was observed that the assessee was never called upon to explain the loss under OTS debited to the profit and loss account under the head ‘Administration & other expenses’. That the records did not contain a copy of OTS scheme under which the assessee is stated to have given concession to private developers only in respect of outstanding interest, nor any details with respect to the amount of interest receivable and written off under the OTS were found on record. He submits that the Assessing Officer in the original assessment under Section 143(3) has also not verified as to how the interest written off has been offered as income in the earlier years nor has the Assessing Officer examined as to whether the interest expenses of Rs.2,49,53,390/- on the Dindoshi project was allowable as deduction under Section 36(1)(iii) or was required to be capitalised to the Work-in-Progress of the said project.
6. Mr. Suresh Kumar relies upon the order of the Revisional Commissioner to submit that the order dated 16th December, 2008 under Section 143(3) is both erroneous and prejudicial to the interest of revenue and urges that the order of cancellation of the assessment order by the learned Commissioner and direction for a fresh assessment be restored by this Court.
7. Mr. Nishant Thakkar, learned counsel for the assessee would submit that the appeal does not raise any substantial question of law in as much as the Tribunal has returned a finding of fact that the Assessing Officer duly enquired into the claim of loss on OTS as well as on the claim of interest in respect of Dindoshi site. He refers to paragraph 8.2 of the impugned order. He submits that this finding of fact has not been challenged by the revenue. Learned counsel submits that once an enquiry had been made during the assessment proceeding into the claim, insufficient or inadequate enquiry or improper enquiry, would not be a ground to invoke powers under Section 263 of the Act. Learned counsel submits that this is not a case of no enquiry. He relies upon the following decisions in support of his contention :-
(i) Commissioner of Income-Tax v/s. Sunbeam Auto Ltd., (2011) 332 ITR 167 (Delhi).
(ii) Commissioner of Income-Tax v/s. Chandan Magraj Parmar, 285 Taxman 565 (Bombay).
(iii) Commissioner of Income-Tax v/s. M/s. Shreepati Holdings & Finance Pvt. Ltd., (ITXA No.1879 of 2013)(Bom.).
(iv) Commissioner of Income-Tax v/s. Future Corporate Resources Ltd., 284 Taxman 122 (Bombay).
8. Mr. Thakkar further submits that the view taken by the Assessing Officer in allowing deduction with respect to the loss of / write off of interest receivables under the OTS as well as in respect of the interest attributable to the Dindoshi site was a possible view and therefore once an officer has taken a possible view, the powers under Section 263 of the Act cannot be exercised in as much as a possible view cannot be an erroneous view prejudicial to the interest of the revenue. Learned counsel relies upon the following decisions in support of his contention:-
(i) Commissioner of Income-Tax (Central), Ludhiana v/s. Max India Ltd., 295 ITR 282 (SC).
(ii) Commissioner of Income-Tax v/s. M/s. Shreepati Holdings & Finance Pvt. Ltd. (supra)
9. Learned counsel for the assessee would therefore submit that the appeal deserves to be dismissed as it does not raise any substantial question of law.
