Case Law Details
Brief of the Case
ITAT Mumbai held In the case of M/s Vidyasagar Enterprises LLP vs. Principal CIT that AO accepted the loss s263ustained by the assessee in this project to be allowed to be set off against other income of the assessee after application of mind and considering relevant material on record which was one of the plausible view taken by the AO which view cannot be considered as an erroneous view. The CIT also has not brought on record that how the view undertaken by the AO could be considered as erroneous and prejudicial to the interest of Revenue. We, therefore, hold that the order passed by the CIT u/s 263 is not sustainable in law.
Facts of the Case
The assessee company is engaged in the business of renting of immovable property and development of property. The assessee company case was selected for scrutiny and the assessment order dated 01st March 2013 was passed by the AO u/s 143(3). Further notice u/s. 263 was issued to the assessee on 13th March 2015 by the CIT and the assessee company was called upon to explain about inadequate sale price in case of sale of immovable property. The assessee submitted that it was a disputed property so there was no proper realization. The CIT, there-after, examined the records of assessment and observed that the Assessing Officer has not examined two issues, in the course of assessment proceedings and they have important bearing on the assessment of the correct income of the assessee company. The CIT held that the AO has failed to verify the correctness of loss declared by the assessee company in the construction project. The AO has also not examined the comparative selling rate of immovable properties in Dist. Gandhinagar, Gujarat. Thus, the loss of construction project declared by the assessee company has been accepted by the AO without verification.
Further the CIT called for and examined the assessment records and observed that the AO has issued two notices u/s 133(6) calling for details from M/s. Silverline Enterprise which notices were duly served but there are no evidence on record of compliances of these notices and hence, creditworthiness of M/s Silverline Enterprise was not examined by AO. Thus, the CIT held that the assessment order dated 01.03.2013 passed u/s 143(3) by the AO is considered erroneous and prejudicial to the interest of the Revenue and is set aside to the extent mentioned in the reasons given above for which the directions were issued to AO to examine these issue afresh and issue fresh assessment order.
Contention of the Assessee
The ld counsel of the assessee submitted that during the original assessment proceedings u/s 143(3), there was discussions at length by the AO about this project which is the only one project undertaken by the assessee company and the Revenue has all the details about this project before it while framing original assessment order dated 01.03.2013 u/s 143(3).
Further submitted that the AO had before it all the relevant details about this project including cost of project , details and circumstances about this project , dispute and suit filed against the assessee company and the manner in which the sale of the project was undertaken by the assessee company during the original assessment proceedings u/s 143(3) read with Section 143(2) which culminated into an assessment order date 01-03-2013 which order has been passed by the AO after applying mind to all the details about this project which was before AO during assessment proceedings and accordingly loss was allowed by the AO.
The assessee company also submitted that the additions of Rs.75,00,000/- made by the AO in the assessment order dated 01.03.2013 u/s 143(3) on account of failure of the assessee company to deduct TDS on payment of out of court settlement amount directly by M/s Silverline Enterprise to M/s Sarovar Developers Private Limited on behalf of the assessee company has already been deleted by Hon’ble Mumbai Tribunal in ITA No. 6764/Mum/2013 in the case of Vidyasagar Investments Private Limited v. ITO for assessment year 2010-11.
The assessee company submitted that the CIT is acting beyond its jurisdiction by asking to verify the creditworthiness of buyer of the project Silverline Enterprise. Thus, the assessee company submitted that the CIT cannot substitute his opinion to the opinion formed by the AO during assessment proceedings which was a plausible view adopted by the AO after due application of mind and hence orders passed by the AO dated 01-03-2013 u/s 143(3) are neither erroneous nor prejudicial to the interest of revenue and the orders dated 26th March 2015 passed u/s 263 by CIT are bad in law and liable to be set aside.
Contention of the Revenue
The ld counsel of the revenue relied upon the orders dated 26th March 2015 u/s 263 of the CIT and submitted that the cost of construction of the project needs to be verified as held by the CIT. The Ld. DR relied upon decision of Hon’ble Supreme Court in Malabar Industrial Company Limited v. CIT (2000) 243 ITR 83(SC) and Mumbai Tribunal in Arvee International v. Addl. CIT (2006) 101 ITD 495(Mum.) and also upon the judgment of Hon’ble Karnatka High Court in CIT v. Infosys Technologies Limited (2012) 17 taxmann.com 203(Kar.) as well judgment of Hon’ble Allahabad High Court in Jagdsih Kumar Gulati v. CIT (2004)139 Taxmann 369(All.) to contend that orders u/s 263 are proper and legal as the AO has not verified the cost of construction of the project and hence the assessment orders dated 01-03-2013 u/s 143(3) is erroneous and prejudicial to the interest of Revenue which has been rightly set aside by the CIT with directions to consider these matter afresh and frame fresh assessment order. The Ld. DR contended that so far as observation of CIT to verify credit worthiness of Buyer is concerned, the same is not pressed before the Tribunal.
Held by ITAT
We have observed that there are discussions in the order of assessment dated 1-3-2013 u/s 143(3) passed by AO whereby the details about this project are discussed by the AO. Further the AO after discussions made additions of Rs 75,00,000/- u/s 40(a)(ia) with respect to payment of Rs.75,00,000/- made directly by the buyer M/s Silverline Enterprise to M/s Sarovar Developers Private Limited on behalf of the assessee company being out of court settlement amount without deduction of TDS which was considered by the AO as having paid towards the development of the said property which addition was finally deleted by Mumbai Tribunal in ITA No. 6764/Mum/2013 in Vidyasagar Investments Private Limited v. The ITO for assessment year 2010-11. It was also noted by the AO that the assesssee company has made balance payment of Rs.6,05,60,000/- to M/s Sarovar Developers Private Limited towards construction of the project after deducting TDS as per the Act. Thus, it could not be said that the AO has not considered this project , its cost of construction, sale of project and other facts and circumstances surrounding this project which is the sole project undertaken by the assessee company, while framing the assessment order dated 01-03-2013 u/s 143(3).
Also the AO accepted the loss sustained by the assessee company in this project to be allowed to be set off against other income of the assessee after application of mind and considering relevant material on record which was one of the plausible view taken by the AO which view cannot be considered as an erroneous view. The CIT also has not brought on record that how the view undertaken by the AO could be considered as erroneous and prejudicial to the interest of Revenue.
Regarding the second contention of the CIT for passing orders dated 26th March 2015 u/s 263 about the verification of credit worthiness of the buyer, the same is stated before us by the Ld. DR to be not pressed by the Revenue. We, therefore, hold that the order passed by the CIT dated 26th March 2015 u/s 263 is not sustainable in law and is hereby set aside and the orders dated 01st March 2013 passed u/s 143(3) by the AO are restored.
Accordingly appeal of the assessee allowed.
