Brief of the Case
ITAT Kolkata held In the case of Infinity Infotech Parks Limited vs. DCIT that in view of settled law, we are of the firm view that it is a case where due inquiry was conducted by the Assessing Officer as is apparent from assessment order on this issue on which CIT invoked jurisdiction under section 263. It is not the case that the views taken by Assessing Officer are unsustainable in law.
However revision u/s 263 is duly authorized where there is a mistake apparent from the records which itself proves that the order passed on this issue by the Assessing Officer was erroneous as well as prejudicial to the interest of the revenue. There is no bar under the Income Tax Act on the power of CIT under section 263 that if the order could have been rectified under section 154, CIT could have not exercised the jurisdiction under section 263.
Facts of the Case
The original assessment under sect ion 143(3) of the Income Tax Act, 1961 was completed on 31.12.2000 which was subsequently re-opened by recording the many reasons to believe. Assessment under sect ion 143(3) read with section 147 was completed vide order dated 30.03.2013 determining the book profit at Rs.1,99,42,048/- under section 115JB of the Income Tax Act. In the said assessment, the Assessing Officer did not make any addition on account of the capital gain but took the view that no income has accrued or arisen to the assessee in the assessment year 2007-08. The book profit was determined at Rs.1,99,42,048/- as has originally been determined.
Subsequently CIT invoked the jurisdiction under sect ion 263 by issuing the show-cause notice dated 19.02.2015 to the assessee. The assessee vide its letter dated 04.03.2015 objected to the proceeding being initiated under section 263 both on legal grounds as well as on merit s stating that the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the revenue. CIT ultimately vide his order passed under section 263 set aside the assessment on both these issues relating to the chargeability of the capital gains during the impugned assessment year as well as allowance of the depreciation to the assessee and directed the Assessing Officer to complete the assessment de novo.
Contention of the Assessee
The ld counsel of the assessee submitted that the order passed under section 147 read with sect ion 143(3) dated 30.03.2013 is not erroneous as well as prejudicial to the interest of the revenue. The jurisdiction under section 263 is in excess of the powers conferred by the Act and the powers are being exercised in order to substitute the subjective opinion of the supervisory authority in place of the opinion of the assessing authority who after due consideration of the fact s and applicable legal provisions had followed one of the legal course permissible in forming the order dated 30.03.2013.
Since the assessee continued to own these plants and equipment s and the company did not receive consideration for transfer of these equipments and plant to the lessees the company was eligible to claim depreciation on these assets. The IT Park so developed is recorded in company’s books as fixed/depreciable assets. It was never shown or declared in the IT records to be current assets, but was always declared to be part of the depreciable asset and depreciation on the building as well as plant and machineries installed with the IT Park was always allowed under section 32 of the Act. In the income tax assessment under sect ion 143(3) for assessment year 2004-05 and onwards the depreciation claimed was allowed by the Assessing Officer after making thorough discussion with regard to the nature of the business conducted by the company.
It was further submitted that the assessee had obtained land parcel s on lease from West Bengal Electronic Industrial Development Corporation. It includes a plot of land admeasuring 5.5978 acres si tuated at Block DP/5, Sector-5, Salt Lake, Kolkata. The assessee decided to develop the said leasehold land through a joint venture with Godrej Group who had expertise in development of IT Park and accordingly, the Company entered into a development agreement wi th Godrej Properties Limited grant ing the said company development rights in respect of the said land.
In pursuance with the said development agreement, the assessee had received security deposit of Rs.500 lacs. The receipt had duly been accounted for in the books of the assessee and shown in the audited balance-sheet for the year as on 31.03.2006 as well as 31.03.2007. The assessment under section 143(3) was completed for the impugned assessment year on 31.12.2009. In this assessment, the Assessing Officer took into account all the relevant fact s concerning the cost of const ruction which the assessee had incurred on const ruction of the IT Park and the depreciation claimed thereon from time to time till 31.03.,2006. The Assessing officer noted that during the financial year 2006-07, the assessee transferred on long-term lease basis certain office spaces and received lump sum from the transferee. According to the Assessing officer, the company was liable to disclose short term capital gains on t ransfer of office space whereas in its computation of income the company had reduced the sale proceeds received from the t ransferee from the opening of the written down value of the building block in conformity wi th section 50 of the Act and on the resultant reduced written down value the depreciation was claimed. The Assessing Officer held that the proportionate written down value of the office block was required to be reduced from the gross sale consideration to arrive at short-term capital gains which in his opinion was liable to be assessed. The Assessing Officer accordingly assessed Rs.1,50,26,623/- under the head “short-term capi tal gains” on sale of depreciable asset s. The Assessing Officer did not consider the IT Park building to be part of company’s current assets. To the extent, part of the office building was sold, the Assessing Officer assessed short-term capital gains as on sale of depreciable asset s and on the remaining written down value of office building block and the written down value of the plant and machinery block which was installed in the IT Park; depreciation under section 32 was allowed by him.
In respect of the decision referred to by the CIT it was pointed out that the CIT’s reliance on the judicial decisions cited in the order is al so inappropriate because most of the decisions were rendered prior to the decision of the Hon’ble Supreme Court in the case of CIT –vs.- Max India Limited (292 ITR 282) and the decision of CIT –vs. – GreenWorld Corporation (314 ITR 81). In these decisions, the Hon’ble Supreme Court has held that in respect of any debatable issue the CIT cannot exercise revisionary powers if the Assessing Officer has taken one of the possible view.
In respect of the second issue relating to the depreciation it is submitted that the CIT did not deal with the submissions of the assessee challenging his jurisdiction. In this case, the issue concerning allowance of depreciation was the subject mat ter of regular assessment. The Assessing officer had allowed the depreciation in the original assessment, which was completed in 2009. In this assessment, the Assessing officer had allowed the depreciation after carrying out adjustment in the written down value of the building block. In the circumstances even if there was alleged error of allowing depreciation, it was committed in the original order and, therefore, period of limitation was requi red to be computed with reference to the order dated 31.12.2009 which expired on 31.03.2012. Reliance was placed on the decision of the Hon’ble Supreme Court in the case of CIT –vs.- Alagendran Finance Limited reported in 293 ITR 1.
Contention of the Revenue
The ld counsel of the revenue relied on the order of CIT and contended that since the assessee has executed the agreement during the impugned assessment year, therefore, the capital gain was rightly chargeable to tax in the impugned assessment year. The Assessing Officer has overlooked the relevant agreement and the conditions mentioned therein. Similarly in respect of the depreciation, reliance was placed on the order of CIT, depreciation has not been rightly allowed by the Assessing Officer to the assessee.
Held by CIT (A)
CIT (A) while deleting the addition on account of short-term capital gain on sale of depreciable assets, besides the said relief, vide his order also allowed relief on other issues.
Held by ITAT
CIT has invoked his jurisdiction under section 263 with regard to the following two issues- (i ) assessment of capital gains in relation to assessee’s development rights in respect of its leasehold property being Plot No. 5, Block DP, Sector-V, Salt Lake City, Kolkata; and (2) depreciation claimed in respect of Information Technology Park Building known as “Infinity Thinktank” situated at Plot A-3, Block GP, Sector-V, Salt Lake City, Kolkata.
Assessment of capital gains in relation to assessee’s development rights in respect of its leasehold property
It is a settled law that for invoking the provisions of section 263 the CIT must satisfy both the conditions that the order passed by the Assessing Officer is erroneous and also that it is prejudicial to the interest of the revenue. If one of the conditions is absent, the order passed by the CIT by invoking the provisions of section 263 will not be legal. The term ‘erroneous’ has not been defined under the Income-tax Act but it is well settled that each and every type of mistake or error committed by the Assessing Officer cannot be said to be an error. An order can be said to be erroneous if there is an incorrect assumption of fact or incorrect application of law in the order passed by the Assessing Officer. If the Assessing Officer after making the enquiries and examining the records, taken one of the possible views, it cannot be said that the order passed by the Assessing Officer is erroneous.
It is also apparently clear that the powers of the CIT are three folds. One is prior to the initiation of the proceedings u/s 263. Second is at the time of initiation of the proceedings. Third, is the final outcome after the initiation of the proceeding. Power of the CIT prior to the initiation includes ‘call for and examine the records’ of any proceedings under this Act. The word ‘record’ is very important, because on the basis of the record of the proceedings the CIT will form an opinion that the order passed is erroneous as well as prejudicial to the interest of the Revenue and once he forms an opinion, he has to give an opportunity to the assessee of being heard and after making or causing the enquiry he can pass an order. Moreover the inquiry is conducted once the CIT forms an opinion on the basis of record that the order passed is erroneous and prejudicial to the interest of Revenue.
The word ‘record’ has been defined under Explanation (b) of Section 263 to mean that the ‘record’ shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner. The examination of the record is to be carried by the Commissioner prior to the forming an opinion that the order is erroneous and prejudicial to the interest of the Revenue. Once the record is examined and the CIT on the basis of examination of the record forms an opinion that the order is erroneous and prejudicial to the interest of the Revenue, he is empowered after giving the opportunity to the assessee, to make such enquiry as he may deem necessary. Therefore, the enquiry to be conducted by the CIT is an act once the CIT arrives at a conclusion that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue after examining the record. Thus enquiry precedes the record and the material collected during the course of the enquiry cannot be the part of the record of the proceedings when the CIT forms an opinion that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue.
With regard to first issue, we noted that the Assessing Officer has duly considered this issue while framing the assessment under section 147 read with section 143(3) in respect of which the CIT has invoked jurisdiction under section 263. From the said assessment order, it is apparent that the Assessing Officer has duly noticed that the assessee company had entered into a development agreement with M/s/ Godrej Waterside Properties Pvt. Ltd. for development of its land and in which it has to get 39% of the total sanctioned constructed area and the proportionate car parking spaces. Even the notice under sect ion 148 was issued only on the same reason as escapement of capital gain in relation to the assessee’s development rights in the said leasehold property being Plot No. 5, Block DP, Sector-V, Salt Lake City, Kolkata. The Assessing Officer took the view that no capital gain accrues or arises to the assessee in assessment year 2007-08.
Even we noted in this regard that the Assessing Officer made a detailed note why the capital gains in relation to the assessee’s development rights are not chargeable to tax in the impugned assessment year.Thus it is a case where the Assessing Officer has examined the issue by making enquiry on the basis of which the CIT invoked jurisdiction under section 263. It is not a case of lack of enquiry on the part of Assessing Officer the Assessing Officer after making enquiries allowed the claim of the assessee on that issue. It is not necessary that the Assessing Officer should discuss in detail the finding in his order, although the Assessing Officer has given clear-cut finding in this regard.
If the Assessing Officer has not discussed the inquiry made by him in the case of assessee in respect of which, he issued show-cause to assessee, we cannot say that order is erroneous as the Assessing Officer has not made any inquiry into the matter. The assessee cannot dictate the Assessing Officer what should he incorporate in the assessment order and how he should draft the assessment order. We find that the Hon’ble Bombay High Court in the case of CIT –vs.- Gabriel India Limited reported in 203 ITR 108 has held in this regard.
Similar view has been taken by the Hon’ble Allahabad High Court in the case of CIT –vs.- Mahender Kumar Bansal, 297 ITR 099 in which respectfully following the decision of Allahabad High Court in the case of CIT –vs.- Goyal Private Family Specific Trust, 171 ITR 698 (Alld.).
Hon’ble Delhi High Court in the case of CIT –vs.- Leisure wear Exports Ltd., 341 ITR 166 (Del.) has clearly held that “The power of revision is not meant to be exercised for the purpose of direction the AO to hold another investigation without describing as to how the order of the AO is erroneous. From this it also follows that where the assessment order has been passed by the AO after taking into account the assessee’s submissions and documents furnished by him and no material whatsoever has been brought on record by the CIT which showed that there was any discrepancy or falsity in evidences furnished by the assessee, the order of the AO cannot be set aside for making deep inquiry only on the presumption and assumption that something new may come out. For making a valid order under section 263 it is essential that the CIT has to record an express finding to the effect that order passed by the AO is erroneous which has cause loss to the Revenue. Furthermore, where acting in accordance with law the AO frames certain assessment order, same cannot be branded as erroneous simply because according to the CIT, the order should be written more elaborately”.
In the case of DIT –vs.- Jyoti Foundation, 357 ITR 388 (Del.), the Hon’ble Delhi High Court has held as under:- “Revisionary power under section 263 is conferred by the Act on the Commissioner/Director of Income Tax when an order passed by the lower authority is erroneous and prejudicial to the interest of the Rev enue. Orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interest of the rev enue, but orders which are passed after inquiry/investigation on the question/issue are not per se or normally treated as erroneous and prejudicial to the interest of the revenue because the revisionary authority feels and opines that further inquiry/investigation was required or deeper or further scrutiny should be undertaken”.
It is a settled law that if the AO has taken one of the possible views, it cannot be said that there is an error in the order passed unless and until the view taken by the AO is unsustainable in law. The said view has been taken by the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC). The same views were held in Hon’ble Supreme Court in the case of CIT vs. Max India Limited, 295 ITR 282 (SC). In CIT vs. Ratlam Coal Ash Co., 171 ITR 141 (MP), Madhya Pradesh High Court and In CIT vs. Arvind Jewellers, 259 ITR 502 (Guj), Hon’ble Gujrat High Court supported the above decision on similar lines. In the case of Income-tax Officer v. DG Housing Projects Ltd. 343 ITR 329 (Del), Delhi High Court and In the case of Commissioner of Income-tax v. Sunbeam Auto Ltd. 332 ITR 167(Del), Hon’ble Delhi High court also supported the same matter.
Depreciation claimed in respect of Information Technology Park
We noted from the finding of the CIT(A) and the ITAT that both the appellate authorities had considered the nature of IT Park building and took the view that the IT Park building had consistently been considered by the Department to be part of the building block on which depreciation was allowed and in that view of the matter decided the question of determination of income assessed in the AO’s order under the head “short-term capital gains”. The ITAT’s order was passed on 08.09.2011, while the CIT(A) passed his order on 20.08.2010. Show cause notice has been issued vide letter dated 19.02.2015 i.e. much after the order passed by the CIT(Appeals) as well as ITAT. We noted that this issue was duly considered by the CIT as well as ITAT.
Clause (c) of proviso 2 to section 263 mandates that CIT does not have jurisdiction to revise the assessment on the issue which has been considered and decided by the CIT (A). The CIT by exercise his jurisdiction under sect ion 263 in respect of the issue of depreciation, in our opinion, exceeded his jurisdiction which has no leg to stand. Even otherwise also, the issue relating to depreciation claimed in respect of the Information Technology Park Building known as “Infinity Thinktank” situated at Plot A/3, Block GP, Sector-5, Salt Lake City, Kolkata was duly discussed in the order passed under section 143(3). The said order got merged with the order of the CIT(A), CIT does not have any jurisdiction to initiate the proceeding u/s 263. We therefore quash the order passed u/s 263 on this issue.
It is the settled laws in view of the decisions of Mumbai High court in the case of CIT –vs. – Jetairways 331 ITR 236( Bom), Rajasthan High court in the case of CIT Vs. Devendra Gupta 336 ITR 59 (Raj.) and that of Delhi High court in the case of Ranbaxy Laboratories Ltd Vs. CIT 336 ITR 136 (Delhi) that no addition can be made in the order passed u/s 147 r.w.s. 143(3) unless the addition has been made in respect of the escaped assessment for which the reasons were recorded for the reopening of the assessment.
A perusal of the order of the CIT indicates that the assessment order passed by the Assessing Officer under section 147 read with section 143(3) was set aside on these two issues. As has been discussed by us in the preceding paragraphs, these issues have duly been examined and considered by the Assessing Officer in framing the assessment. Thus, in our considered opinion, these issues cannot be sufficient ground for setting aside assessment. While making assessment order, it is the satisfaction of the Assessing Officer who made the enquiry and it should be a touchstone of the assessment order passed by him, the CIT cannot substitute his view in place of finding of the Assessing Officer until and unless the view taken by the Assessing Officer is unsustainable in law. No cogent material or evidence was brought to our knowledge by the ld. D.R., which may prove that the decision taken by the Assessing Officer is not sustainable in law. The order passed by Principal CIT is illegal without jurisdiction on these issues. So far as these issues are concerned, the order passed by the Principal CIT cannot be sustained if such type of order is sustained then this will permit the illegality to continue and the subsequent actions carried out on the illegal order are al so illegal. We, therefore, quash the order passed by the Principal CIT under section 263 of the Act.
ITA No. 414/Kol/2015
In this case, we noted that the Principal CIT has issued show-cause notice to the assessee under section 263 in respect of the two issues, one issue relates to the allowing of donation amounting to Rs.97,57,650/- under the head “general expenses” amounting to Rs.16,49,04,595/-, while in the opinion of the Principal CIT only a sum of Rs.5,00,000/- was admissible under section 35AC.
The second issue in respect of which the re-opening was proposed relates to the same issue relating to the claim of depreciation allowing the excess depreciation considering the current asset s as fixed assets.
After hearing both the parties and going through the submissions of the assessee, we noted that ultimately the Principal CIT set aside the assessment order on both these issues and directed the Assessing Officer to complete the assessment de novo. So far as the issue relating to the allowing excess depreciation considering the current asset s as fixed assets, both the parties agreed that the issue is same as has been taken while revising the issue for the assessment year 2007-08. We have already quashed the order of Principal CIT on this issue for the assessment year 2007-08 in the preceding paragraphs. Respectfully following our aforesaid order, we quash the order of Principal CIT passed under section 263 on this issue.
So far as the other issue relating to the allowing wrong deduction by the Assessing Officer in passing the order under section 143(3) in respect of the dona ion, the only submission made by the ld. A.R. is that allowing the donation to the extent of Rs.92,57,650/- while computing the business income merely a mistake apparent from record and this mistake could have been rectified by the Assessing Officer under section 154. Therefore, the invocation of the jurisdiction under section 263 is not for carrying out the rectification of the mistake.
After hearing the rival submissions and carefully considering the same, we noted that there is no bar under the Income Tax Act on the power of CIT under section 263 that if the order could have been rectified under section 154, CIT could have not exercised the jurisdiction under section 263. This is a fact that the order passed by the Assessing Officer on this issue was erroneous as the Assessing Officer has incorrectly allowed the deduction in respect of the donation amounting to Rs.92,57,650/-. This is not a case where the Assessing Officer after considering the submission of the assessee has taken a particular view which is sustainable in law or there can be two views about the allowance of deduction in respect of the donation. This submission of the ld. A.R. that it was a pure mistake apparent from record itself proves that the order passed on this issue by the Assessing Officer was erroneous as well as prejudicial to the interest of the revenue. Even the ld. A.R. has not raised any plea that this issue has been examined by the Assessing Officer. On that count also, we find that there was totally lack of enquiry on the part of the Assessing Officer. We, therefore, confirm the order of Principal CIT passed under section 263 on this issue and accordingly modify the order of CIT by holding that the assessment is set aside on the issue of allowing donation to the assessee and accordingly direct the Assessing Officer to examine the issue relating to the deduction of donation claimed by the assessee do novo in accordance with law.
Accordingly, appeals being ITA No. 413/Kol/2015 is allowed and ITA No. 414/Kol/2015 is partly allowed.