Case Law Details
CIT Vs Cyber Park Development & Construction Ltd. (Karnataka High Court)
The issue under consideration is whether mere inadequacy of an enquiry or insufficiency of material on record can be a ground to invoke revisional powers u/s 263 of the Income Tax Act, 1961?
High Court states that, the Tribunal has found that the Assessing Officer on meticulous appreciation of evidence on record has allowed depreciation on intangible assets and the Commissioner of Income Tax (Appeals) while passing the order under Section 263 of the Act has held that the enquiry and verification made by the Assessing Officer is inadequate and the land cannot be treated as intangible asset. On the aforesaid basis, the powers under Section 263 of the Act has been exercised and the order of the Assessing Officer has been set aside. The Tribunal has held that mere inadequacy of an enquiry or insufficiency of material on record cannot be a ground to invoke powers under Section 263 of the Act. The view taken by the Tribunal is in consonance with well settled legal principles referred to supra. In view of preceding analysis, The substantial questions of law framed by this court are answered against the revenue and in favour of the assessee.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2006-07. The appeal was admitted by a bench of this Court vide order dated 04.07.2012 on the following substantial questions of law:
(i) Whether the Tribunal was correct in holding that the assessee having furnished the details that the lease hold rights were intangible assets before the Assessing Officer it should be deemed that the details was deemed to have been examined and relief granted in favour of the assessee by the Assessing Officer and the finding recorded by the Commissioner to the contrary was not correct?
(ii) Whether the Tribunal was correct in holding that the lease hold right held by the assessee amounting to Rs.2,01,69,575/- was an intangible asset and depreciation could be claimed and the interference u/s. 263 of the Act was neither erroneous or prejudicial to the interest of the revenue?
2. Facts leading to filing of the appeal briefly stated are that the assessee is engaged in the business of developing, operating and maintaining infrastructure facilities for software and related sectors. The assessee filed return of income for the Assessment Year 2006-07 declaring a loss of Rs.10,23,09,300/-. A notice was issued to the assessee under Section 143(2) of the Act.
The Assessing Officer allowed depreciation at 25% on the right to lease hold land, which was classified as an intangible asset by the assessee. The Commissioner of Income Tax (Appeals) initiated proceedings under Section 263 of the Act and directed the Assessing Officer to redo the assessment in the light of observations made in the order. Being aggrieved, the assessee filed an appeal before Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’ for short). The Tribunal by an order dated 28.12.2011 allowed the appeal preferred by the assessee. In the aforesaid factual background,, this appeal has been filed.
3. Learned counsel for the revenue submitted that the impugned order passed by the Tribunal is contrary to law and grossly erred in placing reliance on decision of the Supreme Court in ‘MALABAR INDUSTRIAL COMPANY VS. CIT’, 243 ITR 83. On the other hand, learned counsel for the assessee has supported the order passed by the Tribunal and has submitted that the Tribunal has rightly quashed the order passed by the Commissioner of Income Tax as provisions of Section 263 are not attracted in the fact situation of the case.
4. We have considered the submissions made by learned counsel for the parties and have perused the record. Before proceeding further, it is apposite to take note of the relevant extract of Section 263 of the Act, which reads as under:
263. Revision of orders prejudicial to revenue
(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
5. Thus, from close scrutiny of Section 263 it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under Section 263 of the Act firstly, the order of the Assessing Officer is erroneous and secondly, that it is prejudicial to the interest of the revenue on account of error in the order of assessment.
6. The aforesaid provision was considered by the Supreme Court in MALABAR INDUSTRIAL CO. LTD.I supra and it was held that the phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer and every loss of revenue as a consequence of the order of the Assessing Officer cannot be treated as prejudicial to the interest of revenue. It was further held that where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, the order passed by the Assessing Officer cannot be treated as erroneous order prejudicial to the interest of the revenue. The principles laid down in the aforesaid decision were reiterated by the Supreme Court in ‘CIT VS. MAX INDIA LTD.,’ 295 ITR 282 (SC) and recently in ‘ULTRATECH CEMENT LTD. AND ORS. VS. STATE OF RAJASTHAN AND ORS.’, CIVIL APPEAL NO. 2773/2020 DECIDED ON 17.07.2020.
7. The Tribunal has found that the Assessing Officer on meticulous appreciation of evidence on record has allowed depreciation on intangible assets and the Commissioner of Income Tax (Appeals) while passing the order under Section 263 of the Act has held that the enquiry and verification made by the Assessing Officer is inadequate and the land cannot be treated as intangible asset. On the aforesaid basis, the powers under Section 263 of the Act has been exercised and the order of the Assessing Officer has been set aside. The Tribunal has held that mere inadequacy of an enquiry or insufficiency of material on record cannot be a ground to invoke powers under Section 263 of the Act. The view taken by the Tribunal is in consonance with well settled legal principles referred to supra.
In view of preceding analysis, The substantial questions of law framed by this court are answered against the revenue and in favour of the assessee.
In the result, the appeal fails and is hereby dismissed.
