SHRI BALAJI INDUSTRIES COMPLEX,BADAUN vs. CIT, MORADABAD

order dated 26.02.2015 passed by the Ld. Principal Commissioner of Income Tax, Moradabad pertaining to assessment year 2010-11 wherein vide the impugned order passed u/s 263 of the Income Tax Act, 1961 (hereinafter called 'the Act'), the Ld. Pr. Commissioner of Income Tax has cancelled and set aside the assessment order dated 17.02.2014 and has directed the Assessing Officer to frame the assessment de novo.

Assessment year 2009-10 2.0 Brief facts of the case are that the assessment for the year was completed u/s 143(3) r/w 147 wherein the short term capital gain was computed at Rs. 22,86,227/-. The assessee had sold an entire cold storage plant consisting of land, building and plant and machinery for a sum of Rs. 99,30,000/-. The Assessing Officer, while making the assessment, calculated the short term capital gain by calculating the difference between sale price of composite property and the value shown by the assessee in its balance sheet as on 31.03.2009. Subsequent to the assessment order, the revisionary jurisdiction was invoked by the Ld. Commissioner of Income Tax u/s 263 of the Act on the ground that the Assessing Officer had ignored that out of the three items i.e. land, building and plant and machinery, capital gain on land could either be short term or long term, depending on the period of holding, as it was not a depreciable asset, whereas building and plant and machinery being depreciable items had to be taxed under ‘short term capital gains’. The Ld. Pr. C.I.T. was also of the view that the stamp duty value of the property was to be deemed as full value of the consideration for the purpose of section 48 r/w section 50C of the Act. The Ld. Pr. C.I.T. directed the Assessing Officer to examine the issue afresh and frame the 2 Assessment year 2009-10 assessment order de novo. The observations of the Ld. Pr. CIT, while cancelling the assessment order, were as under:-

(a) The Sale deed of the property shows that the total area of the land is 4922 Sq. Mtr. and as per the sale deed the circle rate of the vacant land is Rs. 500/Sq. Mtr. According to this calculation, the stamp duty valuation of vacant land of 4922 sq meter comes to Rs. 24,61,000/-.The AO is directed to gather date and purchase of Land and will calculate Long Term Capital Gain or Short term Capital Gain on the basis of period of holding taking the value of full consideration of the Land at Rs. 24,61,000/-.

The Sale value of plant & machinery has not been (b) given as the entire composite sale is appearing in the documents provided by the assessee. As per the sale deed the valuation of planting machinery has been shown at Rs. 24,96,000/-. The AO is directed to calculate the Short Term Capital Gain after taking sale price of plant & machinery at Rs. 24,96,000/-.

(c) . The Sale deed of the property shows stamp duty valuation of the entire property at Rs. 2,89,93,000/- and as the stamp duty value of Land is Rs. 24,61,000/- and the valuation of Planting &Machinery is at Rs. 24,96,000/-, the remaining is being considered as stamp duty value of building and it comes to Rs. 2,40,39,000/-. The AO is directed to calculate Short Term Capital Gain after taking the value of full consideration of the building u/s 50C of IT Act at Rs. 2,40,39,000/-.”

2.1 Aggrieved by the order of the Ld. Pr. Commissioner of Income Tax), the assessee has now approached the ITAT challenging the revisionary proceedings and has raised the following grounds of appeal:-

3. Assessment year 2009-10 “1. Because the impugned order passed by Ld. Principal Commissioner of Income Tax, Moradabad, u/s 263, is without jurisdiction as the same do not address on the requirements of law, demonstrating as to how the order of assessment is erroneous as well as prejudicial to the interest of Revenue and that the twin conditions u/s 263, stand cumulatively satisfied in the case of the assessee, whence the matter of sale of assets was under detailed discussion by the Assessing Officer.

4. Because the learned Pr. CIT Moradabad, further failed to appreciate that the Assessing Officer has duly examined the transaction and has chosen to treat the same as “Slump Sale”, hence the substitution of his opinion by the CIT is impermissible in law being a pure change of opinion.

6. Because without prejudice, the learned Pr.CIT Moradabad, grossly erred in Law, while directing the Assessing Officer to compute the Capital Gains as per Section 50C, without having a reference thereof being made to the DVO without giving proper opportunity of hearing to the assessee and without considering the report of the registered Valuer/SDM or the fact that asset in question was sold by UPFC for Rs. 9.75L some time back.

6.1 Because Without Prejudice the learned Pr. CIT Moradabad, grossly erred in Law, while directing the Assessing Officer to compute the Capital Gains on Sale of BUILDING as per provisions of Section 50C, when the same constitutes DEPRICIABLE ASSETS and forms part of BLOCK of ASSETS, hence provision of Section 50C has no application, thereto.

6.2 Because Without Prejudice the learned Pr. CIT Moradabad, grossly erred in Law in directing the AO to calculate Capital Gains in relation to Sale of Building on a stand-alone basis, whereas it is impermissible under law to, exclusively value, BUILDING for the purpose of Section 50C.

3.0 The Ld. AR submitted that the impugned property was purchased from Uttar Pradesh Finance Corporation (UPFC) in the year 2004 for a total consideration of Rs. 9,75,000/- vide sale deed dated 28.09.2004, a copy of which was placed at pages 29 to 347 of the paper book filed by the assessee. The Ld. AR also drew our attention to page no. 46 of the paper book which contained description/schedule of the property which was purchased. The Ld. AR also drew our attention to the original assessment order dated 17.02.2014 and submitted that the issue of capital gains was duly considered by the Assessing Officer at the time of the original assessment proceedings and, thereafter, the short term capital gain was computed at Rs. 22,86,227/- and it was submitted that, therefore, it is not the case of the department that the Assessing Officer had not conducted any inquiry on the issue. The Ld. AR further drew our attention to the fact that finding no relief at the level of the Assessment year 2009-10 Ld. CIT (A) against the addition made on account of capital gains in the original assessment, the assessee had approached the ITAT and the ITAT Delhi Bench, vide order dated 9.4.2018 in had restored the issue to the file of the Ld. C.I.T. (A) with a direction to decide the appeal on merits as the Ld. C.I.T. (A) had passed the order ex parte qua the assessee.

The Ld. AR further submitted that in the case of the assessee this was a case of composite sale which would attract the provisions of section 50B of the Act and not section 50C of the Act and, therefore, the Ld. Pr. C.I.T. was patently wrong in directing the Assessing Officer to re-compute the value of capital gains in terms of section 50C of the Act. The Ld. AR further submitted that whether the provisions of section 50C were applicable in the case of the assessee or not was a debatable issue and, therefore, the Ld. Pr. C.I.T. had no power to assume jurisdiction u/s 263 as the Assessing Officer had taken recourse to one of the possible courses before him. The Ld. AR also submitted that section 50B was introduced by Finance Act, 1999 to facilitate the computation of capital gain in the case of transfer of undertaking as a whole and the same was defined in section 2(42C) of the Act as slump sale which would make 7 Assessment year 2009-10 transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales as a slump sale. It was submitted that since the assessee had sold the entire business at one go, it was the case of slump sale and, accordingly, the provisions of section 50B would apply and not the provisions of section 50C. Ld. AR also placed reliance on a plethora of judicial precedents to support his contention that the order passed u/s 263 deserves to be quashed.

Assessment year 2009-10 5.0 We have heard the rival submissions and have also perused the material on record. The Ld. CIT DR has submitted that Explanation 2 to section 263 will be applicable in the case of the assessee. However, we note that this explanation has been inserted in section 263 w.e.f. 1.6.2015 only whereas the impugned order has been passed on 26.02.2015. It is undisputed that this amendment is not retrospective but prospective and, therefore, we are unable to accept the contention of the Ld. CIT DR on the issue that the assessee’s case will be covered by Explanation 2 to section 263.

5.1 Further, a perusal of the original assessment order shows that the issue of capital gains was duly considered by the Assessing Officer and he proceeded to compute the short term capital gain at Rs. 22,86,227/- whereas it was the assessee’s claim during the course of assessment proceedings that no capital gains had been earned. Thus, it is not the case of the department that no information regarding the impugned transaction was called for by the Assessing Officer or that the transaction was not enquired into by the Assessing Officer. It is very much evident that relevant details in this regard were submitted by the assessee during the course of assessment 9 Assessment year 2009-10 proceedings and the same form part of the record. Therefore, no inference can be drawn that the Assessing Officer has not examined the issue although he may not have expressed it in as many terms as may be considered appropriate by his superior authority and even if the inquiry was inadequate, the same cannot be a ground for revision. It is settled law that an order cannot be termed as erroneous unless it is not in accordance with law. Section 263 does not visualise the substitution of judgment of the Ld. C.I.T. for that of the Assessing Officer.

5.2 It will be expedient to reiterate the governing principles laid down by the Hon’ble Courts with regard to the exercise of power by the Commissioner under the provisions of Section 263 of the Act. The power of suo moto revision exercisable by the Commissioner is undoubtedly supervisory in nature. The opening words of Section 263 empower the Commissioner to call for and examine the record of any proceedings under the Act. A bare reading of Section 263 also makes it clear that the Commissioner has to be satisfied of twin conditions, namely, (i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the revenue.

If one of them is absent - if the order of the Assessing Officer is 10 Assessment year 2009-10 erroneous but is not prejudicial to the revenue or if it is not erroneous but it is prejudicial to the revenue - recourse cannot be had to Section 263(1) of the Act [See Malabar Industrial Co.

Ltd. vs. CIT, (2000) 243 ITR 83 (SC)].

5.3 It is also trite that there is a fine, though subtle distinction, between "lack of inquiry" and "inadequate inquiry". It is only in cases of "lack of inquiry" that the Commissioner is empowered to exercise his revisionary powers by calling for and examining the records of any proceedings under the Act and passing orders thereon. In Gabriel India Ltd. (supra), it was expressly observed:-

"The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity [see Parashuram Pottery Works Co. Ltd. vs. ITO, (1977) 106 ITR 1 (SC)].” It was further observed as under:-

"From the aforesaid definitions as it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This 11 Assessment year 2009-10 section does not visualize a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualized where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. x x x x There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.”

5.4 From the above it is clear that in the ultimate analysis it is a pre-requisite that the Commissioner must give reasons to justify the exercise of suo moto revisionary powers by him to re-open a concluded assessment. A bare reiteration by him that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to Assessment year 2009-10 the interest of the revenue, will not suffice. The exercise of the power being quasi-judicial in nature, the reasons must be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to the conclusion that the order of the Income- tax Officer was not only erroneous but was prejudicial to the interest of the revenue.

Thus, while the AO is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suo moto revisionary powers unless supported by adequate reasons for doing so.

5.5 The Hon’ble Madras High Court held in the case of CIT v Valliammal (D.) (1998) 230 ITR 695 (Mad) that assessment order made after considering all fact and information cannot be revised.

Where the assessee had furnished the requisite information and the Assessing Officer had completed the assessment after considering and the facts but the commissioner revised the assessment order on the ground that the Assessing Officer had not made proper enquiries, the Tribunal was held justified in reversing the order of the commissioner and restoring that of the 13 Assessment year 2009-10 assessing officer. Commissioner cannot re-examine accounts and substitute his judgment for that of the Assessing Officer. An order cannot be termed as erroneous unless it is not in accordance with law. If assessing officer makes assessment in accordance with law, the same cannot be branded as erroneous by the commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the commissioner for that of the Assessing Officer unless the decision is held to be erroneous. Cases may be visualized where the Assessing Officer examines the accounts, makes enquires, applies his mind to the facts and circumstances of the case and determines the income either by making the accounts or by making some estimates himself. The commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer was on lower side and, left to the commissioner, he would have estimated the income at a higher figure that the one determined by the Assessing Officer. That would not vest the Commissioner with the power to re-examine the accounts and determine the income himself at a higher figure. Further in the case of Infosys Technologies Vs. JCIT (Asst) (2006) 286 ITR (AT) 14 Assessment year 2009-10 211, the Bangalore Bench of the ITAT held that where the A.O as examined and considered and issue, though not mentioned in the assessment order, it cannot be said that the order passed was erroneous. In CIT v Gabriel India Ltd. (1993) 203 ITR 108 (Bom), the Hon’ble Bombay High Court held that once the Assessing Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion, such a conclusion cannot be considered erroneous simply because the commissioner does not feel satisfied with the conclusion. It may be that in the opinion of the commissioner, the order in question is prejudicial to the interests of the revenue. But that by itself would not be enough to vest the commissioner with the powers of suo motu revision because the first requirement, namely, that the order is erroneous, is lacking.

5.6 The Hon’ble Delhi High Court in CIT vs. Sunbeam Auto Ltd 332 ITR 167 (Del) has opined in Para 17 of its order as under:-

“17. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income- tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, 15 Assessment year 2009-10 the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of “lack of inquiry” that such a course of action would be open.” 5.6 In the instant appeal before us, it is not the Department’s case that no information regarding the sale of assets was called for by the AO. That relevant details and documents were furnished by the assessee during the assessment proceedings and forms part of the record. Hence, no inference can be drawn that the AO has not examined the issue although he has not expressed it in as many terms as may be considered appropriate by his superior authority and even if the same is found to be 16 Assessment year 2009-10 inadequate the same cannot be a ground for revision. It is clear that an order cannot be termed as erroneous unless it is not in accordance with law. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the AO. Therefore, it cannot be held that in the instant case the AO’s order was erroneous and prejudicial to the interest of the revenue within the terms of section 263 of the Act. Once the issue of sale of assets was considered and examined by the Assessing Officer, the Ld. Pr. Commissioner cannot set aside the order without recording a contrary finding. This will be contrary to Section 263 of the Act.

5.7 We also note that the Hon’ble Apex Court in the case of C.I.T. vs. Equinox Solutions (P) Ltd. reported in 393 ITR 566 (SC) has held that that when the entire business with assets and liabilities is sold by the assessee in one go, such sale cannot be considered as sale of short term capital assets and where the entire business is sold in one go, it will be a case of slump sale of a long term capital asset which would be covered by the provisions of section 50B of the Act. Although, the issue of slump sale has not been examined by any of the lower authorities, from facts on record, it is very much evident that the 17 Assessment year 2009-10 impugned transaction would fall under the definition of slump sale. We find that an identical issue was examined by the Lucknow Bench of the ITAT in the case of Laxmi Ice & Cold Storage vs. ITO in for assessment year 2009-10 wherein, vide order dated 21.02.2018, the Lucknow Bench held that section 50C speaks about transfer of land or building or both and the adoption of deemed valuation being valuation of stamp purposes as the full value of consideration but this does not include plant. The ITAT Lucknow Bench observed that the term plant has been interpreted as cold storage building also and, accordingly, the Bench was of the view that provisions of section 50C would not be applicable to the cold storage building so as to substitute actual sales consideration by deemed sales consideration and, accordingly, the order of the Assessing Officer passed u/s 147/143(3) of the Act could not be a subject matter of revisionary proceedings u/s 263 of the Act. The case of the assessee is identical and for this reason also, we are unable to agree with the directions of the Ld. Pr. C.I.T. in setting aside the assessment order and requiring it to be framed de novo. Therefore, on facts, it is our considered opinion that in the instant case, the Assessing Officer’s order 18 Assessment year 2009-10 cannot be held to be erroneous and prejudicial to the interest of the revenue within the meaning of section 263. Therefore, in view of the factual matrix of the case and respectfully following the ratio of the various judicial pronouncements as discussed above, we hold that the impugned action of the Ld. Pr. C.I.T. u/s 263 of the Act was patently illegal and is liable to be quashed.

The proceedings u/s 263 of the Act are accordingly quashed.

Order pronounced in the open court on 17th September, 2018.