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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: Sri J. Sudhakar Reddy & Smt. Madhumita Roy
Appearances by: Shri S.M. Surana, Advocate, appeared on behalf of the assessee. Shri Goulen Hangshing, CIT, D/R. appearing on behalf of the Revenue. Date of concluding the hearing : September 11th, 2018 Date of pronouncing the order : September 14th , 2018 ORDER Per J. Sudhakar Reddy, AM :- This appeal filed by the assessee is directed against the order of the Learned Principal Commissioner of Income Tax -5, Kolkata, (hereinafter the ‘Ld. Pr. CIT’), dt. 19/02/2018, passed u/s 263 of the Income Tax Act, 1961 (hereinafter the ‘Act’).
The reason for initiating the proceedings u/s 263 of the Act, are given at para 4 of the ld. CIT(A)’s order, which is extracted for ready reference:- “4. On perusal of assessment record it has been found that during the A.Y. 2013-14, the assessee company had debited Rs.27,83,647/- in its Profit & Loss Account towards “Repair to Building” under “Other Expenses” which is in the opinion of the Assessing Officer nothing but on account of repairs and maintenance of DG set and rent from which is taken under the head “income from other sources”. This particular expense was not looked into properly by the Assessing Officer.”
The ld. Pr. CIT was of the opinion that, as per the provisions of the Act, where composite rent is charged for letting out of building and letting out of other assets (here DG Set), then incomes should be taxed under income from house property for letting out of building and under the head “income from business or other sources” for letting out Assessment Year: 2013-14 M/s. Megh Promoters Pvt. Ltd DG Set. He observed that the assessee has offered a 30% standard deduction of the annual a value and at the same time claimed expenses under the head “repairs of building”, which is actually repairs and maintenance cost which is not allowable under the Act. He further observed that the assessee has entered into an agreement with some of the lessees which includes maintenance fee per square ft. and that in some cases, the cost of diesel has also been charged. At para 5(i), he observed as follows:- “5.i. The assessment record of the assessee contains copy of relevant ledger accounts - . (i) Expenses - Repair & Maintenance (Balance amounting to Rs. 12,99,377/- transferred to Profit & Loss account) and (ii) Megh Tower - Expenses - Maintenance (Balance amounting to Rs. 14,84,270/- transferred to Profit & Loss account) - the balances of which amounting to Rs. 27,83,647/- has been debited in Profit & Loss account A perusal of these two accounts show that a part of the expenses are clearly related to repairs and maintenance to DG set. However, some part of these ledger accounts does not clearly snow as to which asset they are related. On the other hand the balances of these two account heads nave been allowed in totality as expenses on account of repair and maintenance to DG set. It was incumbent u on the Assessing Officer to make further inquiry etc. which was not made by him”
2.1. Thereafter he held that, in the absence of any requisite enquiries by the Assessing Officer, the assessment order dt. 31/03/2016, is erroneous and prejudicial to the interest of revenue and hence set aside u/s 263 of the Act, with a direction to the Assessing Officer to frame an assessment order, afresh after making necessary enquiries on the issue of allowance of “repairs and maintenance expenses” of Rs.27,83,647/-.
Aggrieved the assessee is before us.
The ld. Counsel for the assessee submits that the Assessing Officer at page 3 of his order had observed that the expenses were incurred in relation to “repairs and maintenance” of DG set, rent from which is taken under the head “income from other sources” and as such these expenses are allowed against the said income. He argues that on the face of these factual findings of the ld. Assessing Officer, the ld. Pr. CIT has committed an error in holding that no proper enquiry has been conducted by the Assessing Officer. He further relied on the order of the ld. CIT(A)’s order dt.24/11/2017, for this Assessment Year 2013-14, and submitted that this issue of allocation of expenses was before the ld. CIT(A) for adjudication and hence, the ld. Pr. CIT is barred under Section 263 of the Act, from reviewing the order of the Assessing Officer. Thereafter, he relied on the following judgments:-
Assessment Year: 2013-14 M/s. Megh Promoters Pvt. Ltd M/s. Electric Investment & Enterprises vs. DCIT, Circle-3, Siliguri; Assessment Year 2001-02 Saregama India Ltd., Kolkata vs. CIT-1, Kolkata, ITA No. 1254/Kol/2004; Assessment Year 2009-10, order dt. 20/09/2017 The proposition that an order u/s 263 of the Act, cannot be passed to make further enquiries and also for the proposition that when the matter is under appeal before the ld. CIT(A) no order u/s 263 of the Act, can be passed, he relied on the above case-law.
The ld. D/R, relied on the order of the ld. CIT and submitted that the assessee has not appeared before the ld. CIT(A) and co-operated in the matter. He submitted that it was not brought to the notice of the ld. Pr. CIT that the issue is pending disposal before the ld. CIT(A). He relied on the order of the ld. Pr. CIT and prayed that the same be upheld.
We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:- 7. A careful reading of the order passed u/s 263 of the Act, demonstrates that there is no allegation made by the ld. Pr. CIT, and that there is no non-application of mind or negligence on the part of the Assessing Officer. It was his case that the Assessing Officer has not made adequate enquiries. In this case, the Assessing Officer has applied his mind and his factual recordings at page 3 of his order on this issue are as follows:- “On the other hand the ledger accounts of Repair to Building (Rs.27,83,647/-) clearly shows that the expenses are in relation to the repairs and maintenance of the building and DG Set, rent from which is taken under the head “Income from Other Sources”.” 7.1. In the case of Income Tax Officer vs. D.G. Housing Projects Ltd. 343 ITR 329, the Hon’ble Delhi High Court held as follows:- “16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is Assessment Year: 2013-14 M/s. Megh Promoters Pvt. Ltd conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question.
This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT v. Shree Manjunathesware Packing & Products Camphor Works [1998] 231 ITR 53 / 98 Taxman 1 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.”(Emphasis ours)
The Kolkata ‘D’ Bench of the Tribunal in the case of M/s. Electric Investment & Enterprises (Supra), at para 7 held as follows:- “7. Heard both the parties, perused the record and find force in the contention of the Id. Counsel of the assessee that the salary register and other relating papers were also produced by the assessee before the Assessing Officer at the time of framing the assessment order u/s.143(3) of the IT Act. Before the Id.CIT the assessee has also produced the books of account and the salary register for verification. Since the Assessing Officer had passed his order after going through the relevant salary details of the employees, we are not able to agree with the finding of the ld.CIT that the Assessing Officer had not made any effort to verify the issue involved in this appeal. We are, therefore, of the view that this is not a fit case in which provision of section 263 of the Act could be invoked. As the assessment Assessment Year: 2013-14 M/s. Megh Promoters Pvt. Ltd order passed by the Assessing Officer cannot be held as erroneous and prejudicial to the interest of the revenue, the order passed by the Id.CIT u/s.263 is therefore, quashed.”
Thus, applying the propositions of law laid down in the above case-law, to the facts of this case, as admittedly the Assessing Officer has verified the issue in question, the ld. Pr. CIT, could not have exercised his jurisdiction u/s 263 of the Act, on the ground that such verification is inadequate without himself conducting the necessary enquiry and coming to a definite conclusion that there is prejudiced caused to the revenue. Thus, on this ground itself, the order passed u/s 263 of the Act, has to be cancelled. In any event, the issue was in appeal before the ld. CIT(A) and was adjudicated on 25/09/2017. The order of the Assessing Officer has merged with that of the ld. CIT(A). Thus, the issue cannot be a subject matter of review before the ld. Pr. CIT, under section 263 of the Act. In view of the above discussion, we allow this appeal of the assessee.
In the result, appeal of the assessee is allowed.
Kolkata, the 14th day of September, 2018. Sd/- Sd/- [Madhumita Roy] [J. Sudhakar Reddy] Judicial Member Accountant Member Dated : 14.09.2018 {SC SPS} Assessment Year: 2013-14 M/s. Megh Promoters Pvt. Ltd Copy of the order forwarded to: 1. M/s. Megh Promoters Pvt. Ltd Megh Synergy No. 45, Halls Road Kilpauk Chennai – 600 010 Tamilnadu 2. Deputy Commissioner of Income Tax, Central Circle-13(1), Kolkata 3. CIT(A)- 4. CIT- , 5. CIT(DR), Kolkata Benches, Kolkata.