HUBTOWN LTD.,MUMBAI vs. PR. CIT (CENTRAL)-4, MUMBAI

The ld. AR contended that in the notice under section 263 of the Act, the PCIT only mentioned about the disallowance of deduction under section 80IB(10) of the Act. However, while passing the order under section 263 of the Act, the PCIT also rattled the issue of assessee’s transaction with M/s Four Zone Realtors Pvt. Ltd. for sale of FSI. The ld. AR pointed that on this issue no show-cause notice was given to the assessee, no opportunity of hearing was afforded to the assessee by the PCIT nor opportunity of hearing in accordance with the provisions of Sec.92CA of the Act was given before making reference to TPO. Further, a perusal of the impugned order would show that there was no application of mind by the PCIT while taking up this issue in revisional proceedings. The ld. AR in support of his submissions placed reliance on the decision in the case of Damodar Valley Corporation Vs. DCIT, 72 taxmann.com 127 (Kolkata – Trib.).

We have heard the submissions made by rival sides and have examined the orders of authorities below. We have also considered the decisions and documents furnished by the assessee in the Paper Book (PB).

A perusal of the show-cause notice issued under section 263 dated 01.08.2019 (at page 18 to 20 of the PB) would show that the only issue on which PCIT proposed to exercise revisional jurisdiction was assessee’s claim of deduction under section 80IB(10) of the Act on account of sale of FSI generated from project at Mayanagar, Worli, Mumbai, constructed under Development Control (DC) Regulation 33(10). Undisputedly, on the very same project the assessee had claimed deduction for the first time in the AY 2003- 04, the same was denied for the reason that the project was incomplete. The assessee did not agitate disallowance further. Thereafter, the assessee claimed deduction u/s.80IB(10) of the Act in respect of same very project in AY 2013- 14, the AO again disallowed assessee’s claim of deduction under section 6 आअसं. 696/मुं/2021 (िन.व. 2015-16) (A.Y. 2015-16) 80IB(10) in respect of Mayanagar project. In first appeal, the assessee succeeded. The Revenue carried the issue in appeal before the Tribunal in (supra). The Co-ordinate bench discussed the issue threadbare on facts and legal requirements and thereafter upheld the findings of CIT(A). For the sake of completeness the relevant extract of the order by Co- ordinate Bench is reproduced herein below: “10. We have heard both the parties, perused the material available on record and gone through orders of the authorities below along with case laws cited by both the parties. The main dispute between the assessee and the Assessing Officer is with regard to availability of the benefit of deduction u/s 80IB(10) of the Act, in light of proviso to section and also more particularly in light of clause (a) and (b) of said proviso. As per the said proviso, clause (a) and (b) regarding date of commencement and date completion of project has no application, if such project is approved by central or state Government under any laws. It is an admitted fact that the project on which the benefit of deduction was claimed u/s 80IB(10) of the Act, was approved by the state Govt. of Maharashtra, under SRA scheme. In this factual background, if you examine the claim of the assessee, we find that the Government does not compensate the developers the cost of construction of the tenements in slum development projects but only grants FSI, which could be utilized by them either for construction of saleable area in other projects, or sold in open market as per their choice. Since, the assessee did not utilize the FSI of 29,050 sq. feet granted by the government in lieu of the cost suffered in undertaking the Mayanagar project as per DCR 33(10), it was entitled to sell it to anyone without any restriction. The assessee, therefore, sold the FSI generated from its Mayanagar project to Fourjone Realtors Pvt Ltd., a group concern, as per the then prevailing market rate.

Most importantly, in A.Y. 2015-16 also, a similar claim for deduction u/s. 80-IB(10) of the Act was preferred in respect of the FSI granted and sold in identical fact-situation. We find that after taking note of the entire scheme, statutory provisions and notifications cited hereinabove, the Assessing Officer himself had granted the deduction sought for vide his order dated 28.12.2017 passed u/s. 143(3) of the Act. The following findings recorded by the Assessing Officer in the aforesaid order dated 28.12.2017 are noteworthy:

We further noted that in arriving at his decision to delete the disputed disallowance during the year under consideration, the CIT(A) has also taken note of the aforesaid order dated 28.12.2017 passed u/s. 143(3) of the Act for A.Y. 2015-16 in paragraph 4.21 of his order. For all the above reasons, we are of the view that the denial of deduction claimed u/s. 80-IB(10) of the Act was unwarranted and unjustified. The reasoned order of the CIT (A) deleting the disallowance is in order and it does not call for any interference.

In regard to the other objection raised by the Assessing Officer that the FSI granted was sold to a group entity at an inflated rate, we find that the statute does not prohibit such sale to group concern. Further, the ready reckoner rate is not sacrosanct, and there might be innumerable reasons for demanding higher price. In any case, the transaction under consideration is supported by a valuation report submitted to A.O. in which the rate of FSI was supported with the help of three comparable instances. Further, the inference drawn by the Assessing Officer is based upon his own theory, and neither supported by any independent verification nor after discrediting the valuation submitted by the assessee for valid reasons. We, therefore, are of the considered view that the CIT(A) was justified in refuting the aforesaid stand taken by the Assessing officer.

The other objection raised by the Assessing Officer vide ground No. 4, is that since the order of the Tribunal in the case of Aarti Projects and Constructions v. DCIT [ITA No. 4190/Mum/2016 dated 05.01.2017] was not accepted by the Department and appeal there against was filed before the Hon'ble Bombay High Court and the CIT (A) ought not have relied upon the same. In this regard, it is noted that until and unless the order of the 10 आअसं. 696/मुं/2021 (िन.व. 2015-16) (A.Y. 2015-16) jurisdictional Tribunal is set aside or reversed by the Hon'ble High Court, it holds the field and the authorities functioning within their jurisdiction are bound to follow the same.

Last but not the least, we may also refer to the brief note of the Addl. CIT, C.R-5, Mumbai dated 02.08.2019. As per this note, the disputed claim was rejected by the Assessing Officer in A.Y. 2003- 04 and it was also accepted by the assesses, and the disallowance made in the year under appeal was pursuant to Notification No. 02/2011/Income Tax dated 25.01.2011, The other stand taken by the Addl. CIT was that in A.Y. 2015-16 the assessee had suppressed relevant facts relating to claim u/s. 80-IB(10) of the Act for securing the relief from the Assessing Officer, and the CIT (A) had followed such an order while granting the relief. Lastly, it is stated in this note that the order for A.Y. 2015-16 has been made subject to proceedings u/s, 263 of the Act. In this regard, we are of the view that all the above points, except that concerning initiation of proceeding u/s. 263 of the Act for A.Y. 2015-16, which is separate and distinct, have been discussed in the preceding paragraphs and, hence, they are not repeated for the sake of brevity. The reason for which the disallowance made in A.Y. 2003-04 was not challenged in further proceedings, and as to why the claim was made in A.Y, 2013-14 have been considered by the CIT (A) and also discussed elaborately in the preceding paragraphs. For the reasons already stated, the assertions made in the aforesaid note of the Addl, CIT deserve to be rejected.

In this view of the matter and considering facts and circumstance of this case, we are of the considered view that the limitations prescribed in clause (a) and (b) of proviso to section 80IB(10) of the Act, in respect of date of commencement and completion of the project has no application to projects undertaken under the scheme of Central or State Govt. Thus, in view of the fact that the project on which the benefit of deduction was claimed u/s 80IB(10) of the Act, was approved under DC regulation 33(10) of Govt. of Maharashtra, and also notified by the CBDT u/s 80IB(10) of the Act, we are of the considered view that the assessee is entitled for deduction towards sale of FSI/TDR. The CIT(A) after considering relevant facts, has rightly allowed the benefit and deleted addition made by the AO. Hence, we are inclined to uphold the order of the ld. CIT(A) and dismissed appeal filed by the revenue.” [Emphasised by us] 7. Thus, the issue of assessee’s eligibility to claim deduction under section 80IB(10) of the Act at Mayanagar SRA Project was decided in favour of the assessee in the AY 2013-14. No doubt while adjudicating appeal for AY 2013- 14, the Tribunal has referred to the Assessment Order for AY 2015-16 which is now subject of revision, nevertheless, the Co-ordinate Bench decided the issue 11 आअसं. 696/मुं/2021 (िन.व. 2015-16) (A.Y. 2015-16) in favour of assessee on merits and not solely by placing reliance on the assessment order for AY 2015-16. The reference to Assessment Order for AY 2015-16 is for giving impetus to the independent findings given in the order. The Tribunal de-hors the assessment order for AY 2015-16 has come to the conclusion that the assessee is eligible to claim deduction u/s 80IA(10) of the Act on SRA project at Mayanagar, Worli approved under DC Regulation 33(10). Once, the issue has been decided in favour of the assessee in preceding AY by the Tribunal, it was incumbent upon the PCIT to follow the order of Tribunal, a superior Appellate Authority. The PCIT in the impugned order does mention the fact about the order of Tribunal in assessee’s own case for AY 2013-14, but, decline to follow the same on the premise that the sole reason for allowing claim of deduction u/s. 80IB(10) of the Act was the assessment order for AY 2015-16. The reason given by PCIT to disregard the order of Tribunal for AY 2013-14 is misconceived, hence, unsustainable.

The Hon’ble Jurisdictional High Court emphasising the requirement and importance to follow judicial discipline in the case of Bank of Baroda vs. H.C. Shrivatsava observed: “16. ……….it will not be out of place to mention that ‘in the hierarchical system of Courts’ which exists in our country, ‘it is necessary for each lower tier’ including the High Court, ‘to accept loyally the decisions of the higher tiers’. ‘It is inevitable in hierarchical system of Courts that there are decisions of the supreme Appellate Tribunals which do not attract the unanimous approval of all members of the judiciary. But the judicial system only works if someone is allowed to have the last word, and that last word once spoken is loyally accepted’. The better wisdom of the Court below must yield to the higher wisdom of the Court above as held by the Supreme Court in the matter of CCE v. Dunlop India Ltd. AIR 1985 SC 330.” [Emphasized by us] The PCIT instead of mechanically rejecting the order of Tribunal ought to have applied the same on identical set of facts in assesse’s own case in impugned (subsequent) assessment year.

The twine conditions sine qua non for exercise of revisional jurisdiction, are: (i) the assessment order should be erroneous; and (ii) prejudicial to the interest of Revenue. If only one of the twin condition is satisfied, the order passed by the assessing officer cannot be revised u/s. 263 of the Act. In the instant case, we find that the view taken by the assessing officer in allowing assessee’s claim of deduction under section 80IB(10) is one of the possible views backed by the order of Tribunal in assessee’s own case in respect of the same very project in the AY 2013-14. Therefore, the assessment order cannot be said to be erroneous. The impugned order is unsustainable and is liable to be quashed.

Another issue that has been raised by the PCIT in exercise of revisional jurisdiction is transaction of sale of FSI to FourZone Realtors Pvt. Ltd. A perusal of the notice issued under section 263 shows that this issue was not subject of revision. The contention of the assessee is that no opportunity of hearing was 13 आअसं. 696/मुं/2021 (िन.व. 2015-16) (A.Y. 2015-16) given by the PCIT before referring the issue to TPO. The Hon’ble Apex Court in the case of CIT vs. Amitabh Bachchan reported as 384 ITR 200 has held that, “What is contemplated by Section 263, is an opportunity of hearing to be afforded to the assessee. Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice.” In the case of Damodar Valley Corporation Vs. DCIT (supra), the Kolkata Bench of Tribunal referring to the decision rendered in the case of CIT Vs. Amitabh Bachchan (supra) held that CIT can adjudicate issues other than what is mentioned in the original show-cause notice but the same could be done after affording opportunity of hearing to the assessee on the new issue taken up in revisional jurisdiction.

In the instant case, no material is available on record to suggest that on the fresh issue raised while passing the order under section 263 of the Act, the PCIT had granted opportunity of hearing to the assessee. Thus, without affording opportunity of hearing to the assessee on the fresh issue, the PCIT could not have taken up the issue in exercise of his revisional powers. Adjudicating fresh issue without affording opportunity of hearing to the assessee makes the order unsustainable and hence, liable to be quashed. 13. Another argument raised by the ld. AR is that the revisional powers have been invoked by the PCIT consequent to proposal of revision received from Addl. CIT, hence, revision order is unsustainable. Before proceeding further it would be imperative to refer to the relevant provisions of section 263 of the Act. For quick reference, the same are reproduced herein below: “ Section 263: (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any 14 आअसं. 696/मुं/2021 (िन.व. 2015-16) (A.Y. 2015-16) 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.” A bare reading of provisions of section 263 of the Act would show, that for initiating revisional powers under section 263, the primary requirement of section is that the PCIT/CIT has to examine records and consider the order passed by the assessing officer. In other words, section 263 mandates two pre- conditions to be complied before coming to the conclusion that the assessment order is erroneous and prejudicial to the interest of revenue. These two primary conditions are, (i) examination of records by the PCIT/CIT, and (ii) consideration by the PCIT/CIT of the order passed by assessing officer. Thus, it is the action of PCIT/CIT to examine records and consideration of order that opens the gate for exercising revisional powers u/s. 263 of the Act. From reading of above provisions of the section it is explicitly clear that the section does not give leverage to PCIT/CIT to exercise revisional jurisdiction on proposal received from any other authority under the Act. The key to unlock passage for exercising revisional powers is examination of records and consideration of assessment order by the PCIT/CIT.

In the instant case, in para 5 of the impugned order the PCIT has recorded that proceedings u/s. 263 of the Act are initiated consequent to proposal received from Addl. CIT. The relevant extract of the impugned order is reproduced herein below: “5. The office of Pr. CIT (Central)-3, Mumbai had received proposal of revision of assessment u/s 263 of the Act from the Range Head, Addl. CIT Central Range-5, Mumbai on 31.07.2019. Consequently, the proceedings u/s. 263 of the Income Tax Act, 1961 were initiated and notice……issued………..”

In the light of our above findings we hold the impugned order untenable, hence, the same is quashed.