MUMBAI KAMGAR MADHYAWARTI,MUMBAI vs. PR CIT 20, MUMBAI

In this appeal, the primary grievance of the assessee is that the Commissioner has erred in exercising his jurisdiction u/s 263 of the Act without complying with the conditions prescribed therein inasmuch as the assessment order dated 30.03.2015 (supra) has not been established by the Commissioner to be erroneous and prejudicial to the interests of the Revenue within the meaning of Sec. 263 of the Act. In this context, both the parties were heard and the relevant material perused. In order to appreciate the rival stands, the following discussion is relevant.

The appellant before us is a consumer co-operative society which is engaged in wholesale and retail of food grain and groceries, provision of goods and other consumer goods and carries on such activities under the trade name ‘Apna Bazar’. For the Assessment Year 2012-13, it filed a return of income on 31.08.2012 declaring an income of Rs.6,40,31,183/-. It transpires that assessee had acquired leasehold rights for 60 years on a piece of land on 06.06.1980 from City Industrial Development Corporation (CIDCO) upon payment of a consideration of Rs.6,93,750/-. In its books of account, assessee had been amortising the cost of acquisition of leasehold rights over the period of 60 years thereby debiting Rs.12,040/- in its Profit & Loss Account whereas for the purpose of income-tax, assessee treated the consideration paid as cost of acquisition of land and no depreciation on the same was claimed by the assessee. Vide a Deed of Assignment dated 10.05.2011, which corresponds to the previous year relevant to the assessment year under consideration, assessee, inter-alia, transferred the leasehold rights on the land for a consideration of (i) Rs.42.51 crores; and, (ii) 5000 sq. ft. of built-up structure to be handed over upon completion of construction of building thereon. Initially, when the return of income was Mumbai Kamgar Madhyawarti Grahak Sahakari Sanstha Maryadit filed on 31.08.2012, assessee offered the sum of Rs.42.51 crores as ‘Business Income’ and also claimed set-off of the brought forward business loss. In the course of assessment proceedings, assessee revised the income and claimed the sum of Rs. 42.51 crores as Long Term Capital Gain and also claimed set-off of brought forward business loss as well as unabsorbed depreciation totalling to Rs.25,35,31,318/- against the Long Term Capital Gain. Thereafter, the assessment was completed u/s 143(3) of the Act on 30.03.2015 whereby the total income has been assessed at Rs.9,01,26,207/- which, inter-alia, included acceptance of Rs.42.51 crores as assessable under the head ‘Long Term Capital Gains’ as well as set-off of brought forward business loss and unabsorbed depreciation of Rs.25,35,31,318/-. Pertinently, this amount of Rs.25,35,31,318/- comprised of brought forward business loss of Rs.15.69 crores and unabsorbed depreciation of Rs.9.66 crores.

Subsequently, the Commissioner invoked his revisionary jurisdiction u/s 263 of the Act and issued a notice dated 15.03.2017 requiring the assessee to explain as to why the assessment order dated 30.03.2015 (supra) should not be treated as erroneous so far as it is prejudicial to the interests of the Revenue within the meaning of Sec. 263 of the Act. A copy of the said notice has been placed in the Paper Book at page 18 & 19 and it shows that two points were raised by the Commissioner. Firstly, as per the Commissioner, the assessee had claimed set-off of brought forward business loss and unabsorbed depreciation against the total income; that the lease of Vashi property has not been taken in the depreciation statement for income tax purpose and, therefore, Long Term Capital Gains earned by the assessee on such land was not in the nature of ‘Business Income’. As per the Mumbai Kamgar Madhyawarti Grahak Sahakari Sanstha Maryadit Commissioner, having regard to Sec. 72 of the Act, brought forward business loss can be adjusted against only ‘Business Income’ of the assessee and that adjustment of brought forward loss against Capital Gains in this case was wrong. Secondly, the Commissioner noted that as per the Deed of Assignment dated 10.05.2011, the Assignee in addition to the agreed consideration of Rs.42.51 crores was also to allot 5000 sq. ft. of built-up structure in the new building. As per the Commissioner, the market value of such 5000 sq. ft. area was also a part of the sale consideration, which has not been taken into consideration while computing the Capital Gains. For the aforesaid two points, the charge made by the Commissioner was that the Assessing Officer had failed to conduct appropriate investigation and examine the issues in proper manner, which has rendered the assessment order erroneous and prejudicial to the interests of the Revenue within the meaning of Sec. 263 of the Act.

We find that the assessee resisted the action of the Commissioner and made detailed submissions before him, inter-alia, bringing out before him the submissions that were made by the assessee on the above points originally before the Assessing Officer during the assessment proceedings. However, the Commissioner was not satisfied with the explanation furnished by the assessee and has set-aside the assessment order dated 30.03.2015 (supra) and directed the Assessing Officer to assess the income of the assessee again. The reasoning taken by the Commissioner was that the Assessing Officer had not examined as to whether brought forward business loss should be set-off against the Long Term Capital Gains; that whether the gains out of sale of leasehold rights in the land was in the nature of ‘Business Income’ or ‘Capital Gains’. As per the Commissioner, the income from sale

In the above background, the learned representative for the assessee has made varied submissions. Firstly, it is pointed out that the very basis adopted by the Commissioner to treat the assessment order as erroneous is non-existent and is contrary to the factual position. Elaborating the point, the learned representative pointed out that the Commissioner has founded his decision on the basis that the Assessing Officer relied upon the judgment of Hon'ble Supreme Court in the case of Cocanada Radhaswamy Bank (supra) in coming to accept that in terms of Sec. 72 of the Act, the brought forward business loss could be adjusted against the impugned income of Long Term Capital Gain earned on the sale of leasehold rights on the land. Referring to the relevant submissions made at the time of assessment proceedings, it has been asserted that the claim of the assessee was based on the decision of the Mumbai Bench of the Tribunal in the case of Digital Electronics Ltd. vs ACIT, [2012] 135 TTJ 419 (Mumbai) in terms of which, profits realised on sale of assets used for business, being in the nature of ‘Business Income’, was available for set-off against unabsorbed depreciation

On the other hand, the ld. CIT-DR appearing for the Revenue has primarily relied upon the discussion in the order of the Commissioner, which we have already noted in the earlier paras in some detail, and is not being repeated for the sake of brevity. In sum and substance, the impugned order has been defended by the ld. CIT-DR on the point that the Assessing Officer had failed to make “relevant and meaningful inquiries” as were required to be made. On this aspect, our attention has been drawn to para 6.1 of the order of Commissioner, which is as under :-

We have carefully considered the rival submissions. Sec. 263 of the Act devolves on the Commissioner power to revise an assessment order passed by the Assessing Officer, but such power is circumscribed by the conditions prescribed therein. The phraseology of Sec. 263 of says that the Commissioner can justifiably exercise his revisionary jurisdiction only after being satisfied that the assessment order passed is erroneous insofar as it is prejudicial to the interests of the Revenue. It is a well-settled proposition, and which has been often reiterated in the judicial pronouncements, that such twin conditions have to be cumulatively satisfied. In other words, in order to exercise his revisionary jurisdiction u/s 263 of the Act, it is incumbent upon the Commissioner to demonstrate that the assessment order was erroneous insofar as it is prejudicial to the interests of the Revenue. As per the judgment of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd v. CIT, (2000) 243 ITR 83 (SC), an incorrect assumption of facts or an incorrect application of law would satisfy the requirements of the order being erroneous. It has been further explained that even the assessment orders passed without application of mind would satisfy the requirements of being erroneous. Pertinently, while explaining the implications of conjoint satisfaction of the two conditions, the Hon'ble Supreme Court explained that every loss of revenue as a consequence of an order by the Assessing Officer cannot be treated as prejudicial to the Mumbai Kamgar Madhyawarti Grahak Sahakari Sanstha Maryadit interests of the Revenue and gave an example saying that when the Assessing Officer adopted one of the courses permissible in law, which has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, such assessment order cannot be treated as erroneous so as to be prejudicial to the interests of the Revenue unless it can be shown that the view adopted by the Assessing Officer is unsustainable in law. Shorn of other details, one legal premise which can be deduced is to the effect that where the assessing authority has adopted one of the possible views with which the Commissioner disagrees, the assessment order cannot be treated to be erroneous so far as it is prejudicial to the interests of the Revenue unless the view adopted by the Assessing Officer is “unsustainable in law”. In our view, the aforesaid proposition is quite well understood in the context of the mechanics of Sec. 263 of the Act and, in fact, the same can also be found approved by the Hon'ble Bombay High Court in the case of CIT vs Gabriel India Ltd., 203 ITR 108 (Bom.) and also again in the judgment of the Hon'ble Supreme Court in the case of CIT vs Max India Ltd., 295 ITR 282 (SC).

In the above background, now we may come back to the factual position of the manner in which the assessment order has been passed in the instant case. Before looking at the specifics, we may point-out that whether or not a particular issue has been examined in the course of assessment and a possible view taken by the Assessing Officer, is a question of fact, which is to be discerned from examination of the record of proceedings, and not merely the assessment order. The aforesaid premise is relevant in the instant case because in the assessment order per se there is a sketchy discussion on the issues raised by the Commissioner and it cannot

On this basis, it is sought to be pointed out that so far as the factual as well as legal position on the subject-issue was concerned, the matter was Mumbai Kamgar Madhyawarti Grahak Sahakari Sanstha Maryadit indeed inquired into by the Assessing Officer and only after due application of mind the same has been accepted in the assessment.

It is quite evident that the claim of the assessee before the Assessing Officer was that though the Long Term Capital Gain on sale of leasehold right in the land was chargeable to income-tax under the head ‘Income from Capital Gain’, but it was in the nature of ‘Income from Business or Profession’ which was eligible for set-off against current and brought forward business losses as well as unabsorbed depreciation. Factually, it was also asserted that the land was put to use for the purpose of business and, therefore, the nature of the impugned gain was treated to be ‘Income from Business’. The decision of the Tribunal in the case of Digital Electronics Ltd. (supra) was also pressed into service, which had considered an identical controversy. The Tribunal in the said decision had noted that under Sec. 72 of the Act there was no requirement of gains being taxable under the head ‘Profit and gains of Business or Profession’, and as long as gains are of any business or profession carried on by the assessee and assessable to tax, though under the head other than income from business or profession, the same can be set-off against loss under the head ‘Profit and gains of Business or Profession’ carried forward from earlier years. The Tribunal in the case of Digital Electronics Ltd. (supra) was considering as to whether income arising on sale of business assets, although not taxable as ‘Profits and gains of Business’ could be considered as income from business so as to entitle the assessee to set-off the unabsorbed business losses against such income. The Tribunal after referring to various decisions, including inter-alia, the judgment of the Hon'ble Supreme Court in the case of Cocanada Radhaswamy Bank (supra) held in the affirmative.

Now, as per the Commissioner, firstly the Assessing Officer did not apply the provisions of Sec. 72 of the Act correctly to allow set-off of brought forward business loss against the Long Term Capital Gain; secondly, Commissioner also records in para 6 that “Assessing Officer was required to examine that whether long term capital gain can be adjusted against brought forward loss or not. The Assessing Officer was required to examine the fact the nature of income on sale of Vashi property i.e. whether it was business income or long term capital gain.”

Thus, on the one hand, the Commissioner has sought to label the assessment order as erroneous saying that the Assessing Officer has not applied his mind on the issues involved, whereas on the other hand, he has stated that the application of Sec. 72 of the Act done by the Assessing Officer is wrong as brought forward losses could not be adjusted against the Long Term Capital Gain in question.

Insofar as the observations of the Commissioner on the merits of the controversy is concerned, we do not intend to deal with the same since at this point of time what we are examining is whether the record of proceedings show that the Assessing Officer had applied his mind and taken a view which is a possible view in law. In that context, if we examine the queries made by the Assessing Officer, it shows that he was conscious that assessee had sought adjustment of Long Term Capital Gain against the carried forward business loss. The record of proceedings also show that the Assessing Officer was aware of the computation of Capital Gains and the manner in which it has been earned, namely, sale of leasehold rights in the Mumbai Kamgar Madhyawarti Grahak Sahakari Sanstha Maryadit land. In the replies furnished, assessee had specifically pointed out that the land was used for business and though the Long Term Capital Gain was assessable under the head ‘Income from Capital Gain’, such income was in the nature of ‘Income from Business’ and eligible for set-off against the current and brought forward unabsorbed business loss and depreciation following the ratio of certain judicial decisions. It is amply clear that the Assessing Officer considered the factual situation and also the decision of the Tribunal in the case of Digital Electronics Ltd. (supra) as well as other case laws relied upon by the assessee before him, and in the final computation of income in the assessment order, he accepted the claim. So far as the factual aspects of the matter are concerned, there is no difference noted by the Commissioner so as to say that there is any wrong assumption of facts by the Assessing Officer. Pertinently, the Assessing Officer proceeds on the footing that the income from sale of leasehold rights of the land is chargeable to tax under the head ‘Income from Capital Gain’, and so is the Commissioner. The only point of difference is limited to the question as to whether brought forward business loss and unabsorbed depreciation could be set-off against such Capital Gain. The Assessing Officer treated such gain to be in the nature of ‘Income from Business’ based on a direct decision of the Mumbai Bench of the Tribunal in the case of Digital Electronics Ltd. (supra). On the contrary, the Commissioner has not noted any specific decision, and nor has made out as to how the decision of the Assessing Officer becomes unsustainable in law once the decision of the Mumbai Bench of the Tribunal in the case of Digital Electronics Ltd. (supra) was before him. In fact, the Commissioner refers to the decision of Hon'ble Supreme Court in the case of Cocanada Radhaswamy Bank (supra), which was, inter-alia, quoted by the assessee in his submissions to the Assessing

Thus, the impugned order of the Commissioner is set-aside and the assessment order is restored qua the subject dispute, having regard to the aforesaid discussion.

In the result, appeal of the assessee is allowed, as above.