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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Rajesh Kumar & Shri Sonjoy Sarma]
क$ �त&थ Date of Pronouncement/ 21.04.2023 आदेश उ)घोषणा क$ �त&थ For the Appellant/ Shri Soumitra Choudhury, A.R Shri Jaydeep Chakraborty, A.R �नधा�/रती क$ ओर से For the Respondent/ Shri Subhrajyoti Bhattacharjee, CITDR राज�व क$ ओर से ORDER / आदेश Per Rajesh Kumar, AM: This appeal is preferred by the assessee against the order of the Ld. Principal Commissioner of Income Tax –4, Kolkata (hereinafter referred to as the Ld. PCIT”] passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act) dated 25.02.2019 for the AY 2014-15.
In the various ground of appeal, the assessee has raised a single issue challenging the initiation of revisionary proceedings u/s 263 of the Act and consequent revisionary order passed u/s 263 of the Act on the ground of invalid exercise of jurisdiction and thus proceedings being nullity and void.
Assessment Year: 2014-15 Swach Environment Pvt. Ltd.
Facts in brief are that the assessment in the instant assessment year was framed u/s 143(3) of the Act vide order dated 13.12.2016 determining total loss at Rs. 2,26,86,631/- as against returned loss vide income tax return filed on 30.09.2014 at Rs. 2,30,61,501/-. The Ld. PCIT upon perusal of the assessment records observed that the order passed by the AO is erroneous insofar as prejudicial to the interest of the revenue for the reason that compensation awarded to the assessee company tothe tune of Rs. 24.10 crores pursuant to arbitration award to be paid by M/s Optimum Infratel Pvt. Ltd. for breach of terms and condition of MOU qua procurement of land has not been credited in the profit and loss account and as such receipt have to be treated as income from other source and liable to taxed. But the AO has failed to make enquiry into this issue. Consequently a notice u/s 263 of the Act dated 31.01.2019 was issued to the assesse calling upon to show cause as to why the assessment framed u/s 143(3) of the Act dated 13.12.2016 should not be set aside and revised. The said notice was replied by the assessee vide written submission as extracted by ld. PCIT in the revisionary order from page 2 to 5. In the said submission the assessee submitted that during the course of assessment proceedings, the AO has specifically raised a query on the said issue and the assessee has filed necessary evidences which have been examined by the AO. The AO has also asked the assessee to furnish the details regarding capital work-in progress written off which was replied by the assessee vide letter dated 27.10.2016. It was submitted before the AO that the assessee has appended a note to be schedule of fixed asset wherein it was stated that claim of compensation has been lodged against M/s Optimum Infratel Pvt. Ltd. for non- fulfillment of terms and conditions relating to land procurement and compensation was awarded amounting to Rs. 24.10 crores under arbitration in favour of the assessee. The said compensation has been reduced from capital work-in-progress and the balance amount of Rs. 2,12,571/- has been written off. However the said reply of the assessee did not find favour with the Ld. PCIT and ld. PCIT has revised and set aside the order passed u/s 143(3) of the Act dated 13.12.2016 vide revisionary order u/s 263 of the Act vide order dated 25.02.2019.
Assessment Year: 2014-15 Swach Environment Pvt. Ltd.
The Ld. A.R vehemently submitted before us that exercise of jurisdiction u/s 263 of the Act by the ld PCIT and consequent order passed u/s 263 of the Act are invalid and bad in law as the jurisdiction has been assumed by the PCIT invalidly. The Ld. A.R submitted that the issue on which the assessment was revised and set aside by ld PCIT has been examined and enquired by the AO during the course of assessment proceedings by specifically raising a query and calling upon the assessee to furnish evidences/details thereof. The AO has taken a plausible view only after examination of reply of the assessee and evidences filed therewith. The Ld. A.R submitted that the assessee has been awarded compensation of Rs. 24.10 crores for non-fulfillment of terms and conditions of MOU by M/S Optimum Infratel Pvt. Ltd. qua land acquisition. The Ld. A.R submitted that compensation so received for non- fulfillment was merely received by the assessee in the form of compensation towards interest on loan taken by the assesse which was utilized for giving advances for procurement of land. Therefore, it was not taxable under the head income from other sources and is liable to be reduced from the cost incurred by the assessee on acquisition of assets. The Ld. A.R also contended that the receipt of compensation cannot be taxed under the head income from other sources since the assessee has entered into MOU with M/S Optimum Infratel Pvt. Ltd. for procuring land and such land would form part of capital asset of the assessee which would help in carrying on the business activities of the assessee such as setting up of solid waste management facility. The ld AR submitted that expenses incurred in respect of such land have been capitalized by the assessee under the head capital work-in-progress and hence any compensation received against the same has to be adjusted against the same head. The Ld. A.R also drew our attention to the Bench to the statement of fixed asset and note appended thereto wherein it has been stated that the addition in capital work in progress includes borrowing cost Rs. 21,66,89,777 (which was Rs. 2,45,22,794/- on 31.03.2013) incurred during the year on acquisition of land to set up solid waste management and re-cycling facility. In the second note the assessee has stated that the compensation received from M/s Optimum Infratel Pvt. Ltd. for non-fulfillment of terms and condition of MOU relating to land procurement under arbitration has been Assessment Year: 2014-15 Swach Environment Pvt. Ltd.
reduced from the capital work-in-progress and the balance amount has been written off. The Ld. A.R submitted that the assessee has entered into a loan agreement with Srei Infrastructure Pvt. Ltd. under which the said company had granted loan of Rs. 225 crores to the assesse for the development of various water supply and sanitation projects. The Ld. A.R submitted that the said loan was partially disbursed during the year AY 2013-14 and balance was disbursed and used in the assessment year under consideration. The Ld. A.R submitted that the assessee has entered with MOU for acquisition of 1800 acre of land to set up an integrated solid waste and recycle facility . Pursuant to the said the assesse MOU, the assesse has made advance to M/s Optimum Infratel Pvt. Ltd. of Rs. 199.00 Crore out of disbursement of above said loan. The assessee has incurred a financial cost by way of interest of Rs. 24.12 crores in respect of said advance of Rs. 199.00 crores which has been capitalized under head capital work in progress in AY 2013-14 and 2014-15. The ld AR submitted that the compensation received for non-fulfillment of terms and condition of MOU was reduced from the capital work in progress. The Ld. A.R submitted that the issue has been examined at length by the AO in the assessment proceedings by referring to the reply of the assessee dated 27.10.2016wherein the issue has been elaborately discussed at great length. The Ld. A.R submitted that it is only after examination of said reply and evidences furnished by the assesse, the AO has accepted the plea of the assessee that the compensation received of Rs. 24.10 crores was rightly accounted. The Ld. A.R therefore submitted that the jurisdiction assumed by the PCIT is not valid and bad. However the Ld. A.R while referring to Para 6 of the revisionary order passed u/s 263 of the Act submitted that in the concluding para the PCIT has set aside the order of AO for some different reason wherein it has been stated that the assessment has been passed without making reference to the transfer pricing officer which should have been made as per CBDT Instruction No. 3 of 2016 dated 10.03.2016 and directed the AO to initiate fresh assessment proceedings and refer TP risk parameters to the TPO after obtaining prior permission of PCIT. The Ld. A.R therefore vehemently argued that the PCIT himself was not clear as to on what ground the assessment framed by the AO is being revised whether it is on account of wrong
Assessment Year: 2014-15 Swach Environment Pvt. Ltd. accounting of compensation received by the assessee or for TP parameters. The Ld. A.R therefore prayed that the exercise of jurisdiction and consequent order passed u/s 263 may kindly be quashed. In defense of his argument the Ld. A.R relied on the various decisions: i) Malabar Industrial Co. Ltd. vs. CIT in 243 ITR 83 (SC) ii) CIT vs. Greenworld Corporation in 314 ITR 81 (SC) iii) CIT vs. Bangiya Gramin Vikash Bank (Cal-HC) iv) Bangiya Gramin Vikash Bank vs. CIT (Kol-Trib) in v) Luxmi Township & Holding Ltd. (Kol-Trib) in ITA No. 468 /Kol/2019
The Ld. D.R relied heavily on the order of PCIT by submitting that no prejudice is going to be caused to the assessee by way of revising the assessment by PCIT as the assessee would get fresh and enough opportunity in the set aside proceedings to put across and explain his viewpoints on the issue raised by the PCIT. The Ld. D.R therefore prayed that the revisionary jurisdiction has rightly been exercised by the PCIT and the appeal of the assessee may kindly be dismissed.
We have heard the rival contentions and perused the material on record as placed before us. We observe from the facts before us that in this case the issue on which the assessment was revised was qua the compensation received by the assessee of Rs. 24.10 crores not being examined by the AO which should have been assessed as income from other sources in the opinion of ld. PCIT. The facts qua this issue has already dealt with at length in the preceding paragraphs and are not being repeated.We note that the assessee has entered into an agreement with M/s Optimum Infratel Pvt. Ltd. for acquisition of 1800 acres land for setting up integrated solid waste management and recycling facility and accordingly the assessee advanced a sum of Rs. 199.00 crores to the said company. We note that the assessee has borrowed a sum of Rs. 225.00 crores from Saphire Infrastructure Pvt. Ltd. for developing and setting
Assessment Year: 2014-15 Swach Environment Pvt. Ltd. up water supply and sanitary projects. The assessee incurred interest cost of Rs. 24.12 crores in respect of money advance to M/s Optimum Infratel Pvt. Ltd. which was capitalized capital work in progress during the year in AY 2013-14 and 2014-15. When M/s Optimum Infratel Pvt. Ltd. did not honor the terms and conditions, the assessee company referred to the matter to arbitration and arbitrator has awarded Rs. 24.10 crores as compensation for non-fulfillment of terms and conditions of the MOU and the assessee reduced the said compensation from the capital work in progress for the reason that the interest incurred was also capitalized in capital work in progress. The AO during the course of assessment proceedings examined this issue after calling for information on this point and thereafter having examined evidences filed by the assessee accepted the treatment given by the assesse in its books of accounts and accordingly framed this assessment. Now the issue before us is whether the ld. PCIT can unsettle the already settled assessment on the plea that AO has not examined the issue in the assessment proceedings when the AO has taken a view based on the reply and evidences furnished by the assesse which is neither incorrect based on the facts of the case nor against the provisions of the Act. We have also perused Para 6 of the revisionary order ,wherein the ld. PCIT has revised the assessment citing the reasons that the AO has passed the order without making reference to transfer pricing officer whereas as a matter of fact there was no such issue in the revisionary proceedings either in the show cause notice or during the proceedings. Thus we note that there is a complete non-application of mind on the part of PCIT. In our opinion, the assessment is neither erroneous nor prejudicial to the interest of revenue and therefore assumption of jurisdiction is invalid in the eyes of law. The case of the assessee finds support from the decision of Hon’ble Supreme court in the case of Malabar Industrial Co. Ltd. (supra) wherein it has been held that the PCIT has to satisfy twin condition namely i) the order of AO sought to be revised is erroneous and ii) it is prejudicial to the interest of the revenue. If one of the conditions is absent i.e. if the order is erroneous but not prejudicial to the interest of the revenue or vice versa , the recourse cannot be had to section 263(1) of the Act. In the present case also, the assessment framed by the AO is neither erroneous nor prejudicial to the interest of the revenue, therefore, exercise of Assessment Year: 2014-15 Swach Environment Pvt. Ltd. jurisdiction u/s 263 of the Act is invalid. The Hon’ble Supreme Court in the case of Greenworld Corporation Ltd. (supra) has laid down the same ratio. The Hon’ble Calcutta High Court in the case of CIT vs. Bangiya Gramin Vikash Bank (supra) has held that where the AO has made enquiry during the course of assessment proceedings, the PCIT has no jurisdiction to invoke the provisions of Section 263 of the Act. Considering these facts of the case in the light of the ratio laid down in the aforesaid decisions, we are inclined to quash the revisionary proceedings as well as the order passed u/s 263 by the PCIT .
In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 21st April, 2023