SHRI BALAJI INDUSTRIES COMPLEX,BADAUN vs. CIT, MORADABAD

PER SUDHANSHU SRIVASTAVA, JM This appeal has been preferred by the assessee against the

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.

ITA No. 2775/Del/2015 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

ITA No. 2775/Del/2015 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

ITA No. 2775/Del/2015 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.

ITA No. 2775/Del/2015 Assessment year 2009-10 failed to assign incorrect valuations of land/building/plant and machinery by mis-reading the covenants of the instrument of sale.

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.

ITA No. 2775/Del/2015 Assessment year 2009-10 opportunity to the assessee to plead his case properly and that no notice of hearing was received by the assessee, from the office of the CIT, fixing the date of hearing. 9. Because the order passed is bad in law and deserves to be quashed.”

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

ITA No. 2775/Del/2015 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 ITA

No. 3551/Del/2015, 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

ITA No. 2775/Del/2015 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.

observations of the Ld. Pr. C.I.T. as made in the impugned order

and submitted that in view of Explanation 2 to section 263

which has been inserted w.e.f. 1.6.2015, the Ld. Pr. C.I.T. was

well within his power to have invoked jurisdiction u/s 263 of the

Act. Ld. C.I.T. DR also submitted that the department does not

accept the contention of the assessee that it was a case of slump

sale as the same was not evidenced from records. The Ld. CIT

DR vehemently argued that the provisions of section 263 have

been rightly invoked by the Ld. Pr. C.I.T. and it was submitted

that the impugned order should be upheld.

ITA No. 2775/Del/2015 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

ITA No. 2775/Del/2015 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

ITA No. 2775/Del/2015 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

ITA No. 2775/Del/2015 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

ITA No. 2775/Del/2015 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

ITA No. 2775/Del/2015 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

ITA No. 2775/Del/2015 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

ITA No. 2775/Del/2015 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

ITA No. 2775/Del/2015 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

ITA No. 2775/Del/2015 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 ITA No. 260/LKW/2016 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

ITA No. 2775/Del/2015 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.

Sd/- Sd/-

(N.K.BILLAIYA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 17th SEPTEMBER, 2018 ‘GS’