SRI HARTAJ SEWA SINGH,KOLKATA vs. DCIT(IT), CIRCLE-1(1), KOLKATA, KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “A” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “A” KOLKATA Before Shri Waseem Ahmed, Accountant Member and Shri S.S.Viswanethra Ravi, Judicial Member ITA No.1011/Kol/2017 Assessment Year:2012-13

Sri Hartaj Sewa Singh DCIT, (IT), Circle1(1), बनाम Mews III, Tivoli Court, Aayakar Bhawan / V/s. 1C, Ballygunge Circular (Poorva), 110, Road, Kolakta-19 Shantipally, Near Ruby [PAN No.ABHPS 9122 R] Hospital, E.M. Bye Pass,Kolkata-107 .. अपीलाथ� /Appellant ��यथ� /Respondent

Shri S.M. Surana, Advocate अपीलाथ� क� ओर से/By Appellant Shri P.K. Srihori, Ld. CIT, DR ��यथ� क� ओर से/By Respondent 17-04-2018 सुनवाई क� तार�ख/Date of Hearing 27-04-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- The assessee has filed this appeal disputing the order of Commissioner of Income Tax (IT&TP), Kolkata passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.03.2017 who set aside assessment order dated 17.03.2015 for assessment year 2012-13 with a direction to re-do the assessment in respect of issue therein.. Shri S.M. Surana, Ld. Advocate appeared on behalf of assessee and Shri P.K. Srihori, Ld. Departmental Representative appeared on behalf of Revenue. 2. The grounds raised by the assessee per its appeal are as under:-

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 2 “1. For that the order of the Ld. Pr. CIT is arbitrary, illegal and bad in law. 2. For that the order of the Ld. Pr CIT erred in setting aside the entire assessment order when as per the show cause notice the order passed by the AO was erroneous and prejudicial to the interest of Revenue only in respect of two issues viz. with regard to the claim of the assessee in the profit and loss account in respect of legal charges and finance charges. 3. For that the Ld. Pr. CIT erred in invoking the provisions of sec. 263 when the assessment was completed by the AO after calling for the details and applying his mind to the issues involved. 4. For that the Ld. Pr. CIT erred in drawing the inferences by misinterpretation the agreement in respect of the recovery services giving rise to the expenses incurred by the assessee and as such the order passed under sec. 263 was bad in law. 5. For that on the fact and circumstances of the case the Ld. Pr. CIT erred in passing the order u/s. 263 when the order was not erroneous and prejudicial to the interest of Revenue. 6. For that on the facts and circumstances of the case the order of the Pr. CIT(A) be modified and the assessee be given the relief prayed for. 7. For that the assessee craves leave to add, alter or amend y ground before or at the time of hearing.” 3. Though assessee has raised as many as 7 grounds of appeal, however as per our considered view sole and substantial ground of appeal is that Ld. CIT(IT/TP) erred in holding the order framed by Assessing Officer u/s. 143(3) of the Act is erroneous in so far as prejudicial to the interest of Revenue.

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 3 litigation. In-fact Smt. Indu Kocher and others acquired the legal right in the partnership firm namely “Bharat Industries & Commercial Corporation” (for short BICC) after the demise of Shri Mohan Lal Kochers. In fact late Shri Mohan Lal Kochers constituted a partnership firm namely BICC on 23-12- 1972 in which he was holding 50% shares. BICC was the owner of certain immovable properties which were to be transferred to the legal heirs of Mohan Lal Kochers. But some litigation in respect of such properties was pending in the court of law. The assessee has taken the right from the legal heirs of Shri Mohan Lal Kocher to represent the dispute in the court of law on the understanding that in case he succeeds the case in the court then he will take certain percentage in the property by way of profit. It was also agreed between the assessee and legal heirs of Mohan Lal Kochers that all the litigation expenses shall be borne by the assessee besides the monthly payment of Rs.1.25 lacs per month to the legal heirs of Mohan Lal Kochers. Thus, the assessee has incurred an expense of Rs.15 Lacs by way of payment to the legal heirs of late Mohan Lal Kochers during the year which was claimed in its profit and loss account as the finance charges. 2. Similarly, the assessee has also claimed an expense of Rs.18,47,700/- under the head legal charges. The assessee claimed to have incurred the litigation expenses in relation to the disputed properties which are pending in the court of law. The ld. CIT u/s 263 of the Act was of the view that the above expenditures incurred by the assessee are capital in nature as these relate to the immovable properties. As per the Ld CIT the assessee was interested to purchase the aforesaid properties in future. Therefore, the aforesaid expenditures being capital in nature cannot be allowed as deduction while computing the business income of the assessee. 3. There was brought forward business loss of Rs. 33,271.00 pertaining to the assessment year 2011-12 which was eligible for set off against the future income of the assessee as per the provisions of law. However, the assessee has set off the loss of Rs. 89,438.00 only against the income pertaining to the year under

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 4 consideration. Thus, the assessee has claimed set off excess loss of Rs. 56,167.00 (Rs. 89438.00 – 33271.00) only. 4. The assessee during the year has contributed capital of Rs.30 Lacs but the AO has not made any enquiry to verify the source of such receipts. 5. The assessee during the year has earned exempted income but failed to make any disallowance as per the provisions of section 14A of the Act. 6. The assessing during the year has shown the receipt of Rs. 93,37,500.00 from M/s Darjeeling Organic Tea Estates Private Limited. Out of such receipts the assessee has paid a sum of Rs. 80,43,964.00 to M/s STAR Consortium Pte Ltd Singapore in which the assessee is holding 50% shares. As per the Ld CIT the assessee should have been treated as PE/AE of the star Consortium Pte. Ltd. 7. The assessee has also suffered loss of Rs.11,10,854.00 on account of difference in the exchange rate in foreign currency. However as per the learned CIT there was no agreement with the party for bearing the loss on account of difference in the exchange rate. Thus the same should not have been allowed by the AO as deduction while computing the income under the head business and profession. 8. The assessee was entitled to claim reimbursement of travelling expenses from Darjeeling organic tea estates Pvt. Ltd. But the assessee without showing any reimbursement of expenses has claimed travelling expenses of Rs.1,52,104.00 only. 9. The assessee has shown a receipt of a gift of Rs. 73,62,570.00 from his father Shri Zoravar Singh. As per the learned CIT the assessee was required to provide the details of the donor’s such as identity, capacity and genuineness of the gifts. In view of above, a notices u/s 263 of the Act was issued vide letter number CIT/IT& TP/Kol/263/2016- 17/2724 dated 10 March 2017 and CIT/IT& TP/Kol/263/2016- 17/4776 dated 15.3.2017 to the assessee for holding the order of the AO as erroneous insofar as prejudicial to the interest of Revenue for the reasons as discussed above. The assessee vide letter dated 23rd of March 2017 submitted that he has been 4.1 claiming the expenses under the head the Finance charges and legal expenses in the

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 5 earlier years as the well as in the subsequent years. The necessary details of such expenses claimed by the assessee stands as under : Assessment year Finance charges Legal expenses 2010-11 1,000,001 2011-12 1,500,000 1,499,407 2012-13 1,500,000 1,847,701 2013-14 1,5000,000 1,499,407 2014-15 1,500,000 1,971,449 2015-16 1,500,000 2,496,625 2016-17 791,666 96,182

As per the assessee, the financial charges were paid in pursuance to the agreement dated 09.08-2009. Similarly, the legal charges incurred by the assessee represent the cost paid to the most senior advocates to appear before the Hon’ble High Court and Supreme Court. It was also submitted that the assessee has been in the business of investment banker and strategic management consultant for more than 30 years. The assessee was incurring the litigation expenses on behalf of the clients and he was eligible for the fees from the clients only if he succeeds in the cases pending in the Courts of Law. Thus, there was no outcome of any capital assets out of such expenditures. Therefore there is no question of treating the above expenses as capital in nature. The amount was paid to M/s Star Consortium Pte Ltd, Singapore (for short SCPL) against the services provided by it in terms of the mandate letter dated 09.02.2011. The necessary details of the services to be provided by the SCPL and the fee to be paid by the assessee stands as under:- “3. Scope of services 3.1 The advisors scope of work shall include: i. Building a business case for expansion and consolidation of DOTEPL’s tea business in Darjeeling. ii. Liaisoning with potential investors and institutions in all countries, except Singapore and/or India, from which such fund raising can be had (“Investors”) to complete the transaction. iii. Advising the Mandator on approaching, meeting and engaging with Investors to complete the Transaction.

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 6 iv. Advising the Mandator in evaluating, negotiating, finalizing and closing the Transaction. v. Advising the Mandator in structuring the Transaction to mitigate risks with respect to financial, regulatory, legal and taxation etc. vi. Any other assistance as required not covered above would be provided subject to mutual agreement and in keeping with the exigencies of successful completion of this Mandate. 3.2 The following activities shall be outside the Scope of Services; a. Commercial, legal or financial Due Diligence. b. Accounting advisory / taxation advisory / legal advisory support c. Any other support (in any form) with any statutory, legal, regulatory or sovereign authority. d. All affairs with regard to the Mandate to be executed and implemented in India will be carried out solely by the Mandator - the Advisors will only be responsible for and will carry out the services in all countries, except in Singapore and/or in India, as required to complete the Transaction. e. All fund raising in India and/or in Singapore and all services required to be rendered in India and/or in Singapore will be outside the scope of services of the Advisors. 3.3 It is explicitly understood that the Mandator and/or DOTEPL shall be fully responsible for establishing the legal, tax, technical and commercial feasibility of the Transaction. 3.4 The services shall be rendered in co-operation with the Mandator and the Mandator and/or DOTEPL shall provide all related documents (including commercial or legal due-diligence conducted by the Mandator) as may be needed by the Advisors for this Mandate. 3.5 The following are preconditions to the successful implementation of the services; a) Advisors to have the liberty to appoint outside professionals at such terms and conditions that may be negotiated by the Advisors (terms to be pre fact approved by Mandator) – lawyers / experts / accountants / advisors / etc. b) Advisors to have the liberty to enter into negotiations / build relationships with key potential Investors. 4. Fee. 4.1.1. Mandator will pay to the Advisors a total Advisory fee of 0.75% of the amount of funding raised under the Transactions. The Advisory fee shall be payable by the Mandator to the Advisors immediately on the date of draw down of the funds raised under the Transaction in tranches till the complete Euro 30 million or equivalent as envisaged under the Transaction is raised. 4.2 The above payments will be subject to Tax Deduction at Source as applicable. Service tax and other taxes as applicable to the above fees in clauses 4.1.1 & 4.1.2 will be to the account of the Mandator over and above the Advisory fee.” The assessee also submitted that SCPL does not have any PE in India. It does not provide any services through its employees. Similarly it is not managed and controlled from India. The loss on account of exchange fluctuation in foreign currency was occurred due to the depreciation in the rate of Indian currency against the USD. In-

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 7 fact when the invoice was received from SCPL the exchange rate was for 44.50 per USD whereas on the date of payment it has gone up to Rs. 51.63 per USD. As a result the loss on account of difference in the foreign exchange occurred to the assessee but in the course of the business. 4.2 The remaining queries raised in the show cause notices were not answered by the assessee due to paucity of time as the matter relates to about 4-5 years earlier. The Ld CIT u/s 263 of the Act after considering the submission of the assessee held that the order passed by the AO u/s 143(3) of the Act is erroneous and prejudicial to the interest of Revenue on account of the following reasons:- 1. The amount of expenses incurred by the assessee under the head finance charges and legal expenses are capital in nature as these relate to the capital assets which have been acquired by the assessee from Smt. Indu Kochar & others. As such Smt. Indu Kochar & others have relinquished their rights, title and interest in the firm namely BICC in favour of assessee. The assessee has incurred an expenditure of ₹33,47,700 for the purpose to acquire the shares held by Shri Indu Kochar and others in the immovable properties of BICC. As such the assessee adopted different method of acquiring the immovable properties held by BICC. The business as claimed by the assessee was not supported on the basis of any trade licence or any other licence from the government. It was also submitted that there was no certainty for the winning of the cases. In fact the activity of the assessee was representing speculation business. 2. There was no verification in the assessment order on account of the losses set off by the assessee for Rs. 89,438.00 whereas brought forward loss was shown for Rs.33271.00 only. Thus, there was excess the claim of the loss of Rs.56,167.00 made by the assessee during the year. 3. The assessment records do not show the services received by the assessee from M/s SCPL, Singapore. The assessee was the employee of SCPL and he has stayed in India for more than 180 days during the relevant financial year under consideration. Therefore the assessee should be treated as PE of SCPL. The

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 8 assessee was holding 50% shares of SCPL but the above facts were not verified by the AO during the assessment proceedings under section 143(3) of the Act. 4. There was no enquiry on account of the loss claimed by the assessee due to the difference in the currency rate for Rs.11,10,854.00 only. 5. There was no discussion during the assessment proceedings about the reimbursement of travelling expenses to be claimed from M/s Darjeeling Organic Tea Estates Pvt. Limited whereas the assessee has claimed travelling expenses of Rs.1,52,104 only. 6. There was no verification carried out by the AO with regard to the gifts received by the assessee as discussed above. In view of above the Ld CIT u/s 263 held the order of the AO as erroneous and prejudicial to the interest of Revenue by observing as under:- “34. The Assessing Officer has passed the assessment order without taking all the documents on record, conducting enquiry, examining the legal issues involved & interpretation, examination of material on record etc. The Explanation 2 to sub- section 1 of section 263 of Income Tax Act, 1961 has been amended w.e.f. 1st June, 2015 and the word in the opinion of the Principal Commissioner or Commissioner has been inserted. Now an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if in the opinion of the Principal Commissioner or Commissioner, the order has been passed without making inquiries or verification which should have been made. On the basis of the discussion supra, I am fully satisfied and hold this opinion that in this case the assessment order passed u/s 143(3) of Income Tax Act, 1961 on 17.03.2015 at an income of Rs.11,52,020/- has been passed without making inquiries or verification which should have been made by the Deputy Commissioner of Income Tax (International taxation), Circle 1(1), Kolkata (Assessing Officer) during assessment proceedings. 35. The Assessing Officer has passed an erroneous order which is prejudicial to the interest of revenue and accepting that order and not setting aside the same will cause loss to the revenue, all the more when the same has been passed without proper documents, enquiries, verification of facts, investigation, application of law etc. If this kind of order is not subject to review, it may hamper the implementation of the provisions of Income Tax Act, 1961 in true and correct manner. The Principal Commissioner/Commissioner of Income Tax u/s. 263 has been assigned the duty in the interest of justice to review such kind of orders. The order of the Commissioner of Income Tax passed u/s 263, itself is subject to judicial scrutiny by judicial authorities and order of the Assessing Officer made u/s 143(3) in furtherance to the order u/s 263 is also further subject to judicial scrutiny by the appellate authorities, thereby giving the full opportunity to the assessee to express its views before the appropriate authorities. The Department will not have an opportunity if this wrong order of the Assessing Officer has to be accepted although erroneous and prejudicial to the interest of revenue because the Assessing Officer has gone wrong on assumption of

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 9 facts and application of law in the absence of proper enquiries and verification which should have been made in a complete scrutiny case selected by CASS for scrutiny. The case selected through CASS has data which certainly requires enquiry, verification, investigation and proper application of law. This case was selected for Complete Scrutiny through CASS. The various points discussed supra shows that the Assessing Officer has failed in its duty and has passed an erroneous order which is also prejudicial to the interest of revenue. 36. The Assessing Officer is directed to analyse all the documents, conduct enquiries on various issues as discussed above, do verification of facts and conduct necessary investigation, apply the law, examine the various contracts, expenditure, status of M/s. STAR Consortium Pte Limited, Singapore vis a vis India for PE/AE, deduction of TDS, if required from M/s. STAR Consortium Pte Limited as the CEO is in India too frequently and having 50% shares in the Company etc. In view of facts and legal position stated above, it is hereby held that the assessment order u/s 143(3) of Income tax Act, 1961 on 17.03.2015 by the Deputy Commissioner of Income Tax (International taxation), Circle 1 (1), Kolkata for Assessment Year 2012-13 in the case of Sh. Hartaj Sewa Singh is erroneous in so far as it is prejudicial to the interest of revenue. Consequently, in exercise of the power conferred in the Sec. 263 of the Income Tax Act, 1961 on the undersigned, the said assessment order dated 17.03.2015 is set aside. The Assessing Officer is directed to pass a fresh assessment order and re-compute the assessee's income after making further enquiries as directed in the foregoing paragraphs and after giving due opportunity to the assessee & perusing the necessary evidence.” Aggrieved by this, the assessee has come in appeal before us.

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 10 8 occasions and all the details called for were filed vide paper book page 68, 97, 141, 165, 166, 193 and 241. The Show cause notice issued on 10.3.2017 by PCIT was on two issues namely payment of Finance Charges and legal expenses. The hearing was fixed on 17.3.2017 on the ground that the same were not revenue expenditure but capital expenditure relying on certain judgment. Another show cause notice was issued on 15.3.2017 covering four more issues namely wrong figures of Brought forward losses considered by the AO, capital account credit in proprietorship business, disallowance u/s 14A and negative balance in Royal Bank. There was no other show cause notice issued for any other reasons. However Pr CIT asked for various details in connection with the hearing on the above issues as mentioned in the copy of order sheet enclosed. There was no whisper that the Ld PCIT also found the order erroneous and prejudicial to interest of revenue with regard to the details asked for during the proceedings. Finally entire assessment set aside to be completed de-novo. Reply by the assessee to first show cause notice dated 10.3.2017:- (a) The AO specifically called for the agreement with Kochars which was filed on 20.8.2014 vide page 97 and 164 including all the details of expenses for legal charges paid. (b) Specific query was raised about finance charges and legal expenses which were replied vide paper book page 240 at page 241 explaining the payment made. Therefore all the enquiries were made by the AO and the AO allowed the expenses as revenue expenses. The expenses were also revenue expenses since the assessee was not the owner of the property, nor there was any intention to purchase the property, the expenses were not recoverable. If the assessee failed to recover the property for the owners, the property on recovery shall belong to the owners and not to the assessee and the assessee was entitled to recover only his fee equivalent to the 50% of the value of property and reimbursement of expenses. The fee when recovered shall be the income in the year of accrual and the reimbursement of expenses received shall be income u/s 41 (1).

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 11 Even if there is no discussion in the assessment order, the same cannot be a ground nor such ground is raised by the Ld Pr CIT. In fact the issue is covered by the decision of ITAT Kolkata in the case of Sethia Finance & trading co wherein the judgment of jurisdictional High Court in J L Morrison has been followed. In the case laws relied on by the Pr. CIT expenses were incurred by the assessee's on the properties held by them as capital assets. Reply for the 2nd show cause notice All the details were filed before the AO as well as the Ld Pr CIT. All the 4 issues were explained vide page 294-295 of the paper book. On issue no. 1 of the second notice which was with regard to the set off brought forward details were filed. The same was correctly claimed and the same was subject matter of records requiring no set aside of assessment. There is no adverse comment of the Ld Pr CIT on other 3 issues. Rather the said 3 issued were dropped in the final order. The Ld Pr CIT has taken up some other issues vide Para 20(c) to Para 20(n). On the said issues, the Pr CIT never felt that the decision of the AO on those issues were erroneous or prejudicial to the interest of revenue. The same does not find place in both the show cause notices. Not only that vide order sheet entry on 21.3.2107 on the issues raised in show cause notice various details were required. The order sheet specifically states that only the details are required on certain matter. There is no whisper that the decision of the AO on those issues was erroneous or prejudicial to the interest of revenue. Even when the details were filed on 24.03.2017 some further details were required in connection with the proceedings already going on. Firstly assessment cannot be set aside on the issues if the same were not the subject matter of the show cause notice as has been held in the case of Tirupati Construction by Kolkata ITAT. The department did not file any appeal u/s 260A though on some other issues in the same order appeal was filed which was dismissed. The Hon'ble Supreme Court in the case of Amitabh Bachhan in para11 has held that full opportunity of hearing has to be given to the assessee. In the case of the assessee there is no whisper of the Ld.Pr CIT that on other issues he considered the order erroneous and prejudicial to the interest of revenue. Hence on those issues assessment cannot be set aside or for that matter the entire assessment cannot be set aside.

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 12 Moreover, even the details also were not asked for with regard to the issues in Para 20(d)(e) 20(g), 20(i) 20(k) 20(i) and 29(m) . This shows that the order u/s 263 is not maintainable for setting aside the assessment to be made de novo. Moreover, on all the issues the Ld AO made enquiries vide paper book page 97, 141, 165, 16, 193 and 204. The proceedings were also taken as a result of audit objection on the interpretation given on law by the audit party that the expenses on account of finance charges and legal expenses were capital expenses. On the other hand, the ld. DR submitted that the order of the AO is silent and non- speaking. The assessee has filed certain details before the AO during the assessment proceedings but there is no evidence suggesting that the AO has applied his mind on the submissions of the assessee. Moreover, the details filed by the assessee were not relevant to the issues raised by the Ld CIT u/s 263 of the Act. The case law relied by the Ld. AR in the case of CIT vs. Amitabh Bachchan reported in 384 ITR 200 (SC) is in favour of Revenue, therefore no-reliance can be placed on the decision rendered by the Hon’ble Supreme Court in such case. There was International transaction between the assessee and SCPL, which are associated Enterprises therefore the same should have been transferred to the Transfer Pricing Officer for determining the Arm Length’s Price for the transactions as discussed above. The assessee during the year under consideration has stayed for the period of more than 187 days in India who was also the employee of SCPL, therefore the assessee should have been treated as PE of SCPL. The Ld CIT u/s 263 of the Act has just given a direction to verify certain facts therefore the assessee should not have any grievance on the order passed u/s 263 of the Act. The assessee was having opportunity to represent his case before the AO against the directions given by the Ld CIT u/s 263 of the Act. The Ld DR vehemently supported the order of Ld CIT.

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 13 6. We have heard the rival contentions of both the parties and perused and carefully considered the materials available on record; including the judicial pronouncements cited and placed reliance upon. In the present case the order of the AO has been held as erroneous in so for the prejudicial to the interest of revenue on account of several counts which have already been discussed in the preceding paragraph. Therefore, we are not inclined to repeat the same for the sake of brevity. The assessee has incurred financial charges and legal expenses in relation to the disputed properties as discussed above. These expenses were claimed by the assessee as the revenue in nature where as the Ld. CIT u/s 263 of the Act was of the view that these should be treated as capital in nature and accordingly no deduction for the same should be allowed while computing the profit under the head business and profession. In the case on hand the assessee by vide agreement dated 09-08-2009 has acquired rights in the properties held by the Smt. Indu Kocher and others in BICC. In fact Smt. Indu Kochers & others had acquired rights in the partnership firm -BICC after the demise of Shri Mohan Lal Kocher. The firm was holding certain immovable properties. There was dispute in respect of such properties in the courts of law. The assessee in terms of the agreement as discussed above has acquired interest from Smt. Indu Kocher & others along with the litigation in the firm BICC. Consequently, the assessee acquired the interest in the properties in respect of which the court proceedings were pending. The relevant extract of the agreement is reproduced below:- “AND WHREAS:- The assignors are ready and willing to assign all and any of their subsisting and future interest and rights in the Assignors’ hare along with all their interest in the litigations and the Assignee is ready and willing to adopt all such interests and rights in the Assignors’ Share along with all the interests in all the litigations. NOW TDHIS INDENTURE WITNESSETH AS UNDER: That in reference to the instant Agreement it is agreed and settled between the parties that: ‘1(a) “Transaction Costs” would mean all litigation and other costs with regard to pursing the litigations and the pursuit of legal and other avenues available to ensure that the Asignors’ share is restored back to the Assignors and will also include the payent of upto Rs 15 lacs (Rupees Fifteen lacs only) by the Assignee to Anaita Kocher and Sharan Kocher (the expression shall include their heirs, successors, representatives, administrators and assigns) for relinquishing their entire rights, title and interest in the firm.

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 14 1(b) “Minimum Realizable Value” also referred as “Floor Value” would mean for the purposes of the instant agreement the value of the assets/immovable property on “as is where is basis” as on the date of execution of the instant Agreement. Both the Assignors and the Assignee agree and covenant that the minimum Realizable Value is Rs. two crores forty lacs. 2. That in the premises stated herein and in consideration of the terms as under:- (a) That the Assignee shall be only entitled to the Assignors 50% of the ultimate realized value of the Assignors’ shares so restored subject to certain agreed deductions as outlined in this Agreement; and (b) That the Assignee having agreed to advances to the Assignor interest free total sum of Rs.1.25 Crores simultaneously with the execution of the instant Agreement which was to be retained by the Assignors till the successful completion of the instant Agreement the Assignee has in lieu thereof agreed at the Assignors request to instead give to the Assignor the economic benefit of 1% of the value of the above stated advance amount on monthly basis till the successful attainment of the object of instant Agreement; and (c) That he Assignee shall incur all litigation and other costs with regards to pursuing the litigations and the pursuit of legal and other avenues available to ensure that the Assignors’ share is restored back to the Assignors. The Assignee shall also make payment of upto Rs.15 lacs only (Rupees Fifteen lacs only) to Anita Kocher and Sharan Kocher (the expression shall include their heirs, successors, representatives, administrators and assigns) for relinquishing their entire rights, title and interest in the firm; and 4.(a) The Assignee shall as per the consideration terms in clause ‘2’ of the instant Agreement for taking over the Assignors Share from the Assignors, make a monthly payment under due receipt and acknowledgement of Rs.1.25 lacs (Rupees one lac twenty-five thousand) to the Assignors till the continuance and operation of the instant indenture by the 10th of every month. (b) The Assignee shall in consultation with Anita Kocher and Shran Kocher and with co-operation of the Assignors to that effect, make efforts to arrive at a settlement for relinquishment of rights and share by Anita Kocher and Sharma Kocher in the Firm and in the event of such relinquishment of rights and share by Anita Kocher and Sharan Kocher the rights and share of Anita Kocher and Sharan Kocher will be deemed to vest with the Assignee who would then hold 25% share in said 50% share of MLK in the Firm on which the Assignee would have full rights and interests as per the instant indenture/Assignment. However, in the event of failure of the instant agreement, the said 25% share so vesting in the Assignee will be reassigned by the Assignee to the Assignor. 5. The Assignee shall first adjust the amounts paid as Transaction costs above from the final recovery amount after monetization of the Assignors share or sale of such Assignors share in physical form; the balance mount after such adjustments shall be divided equally between the Assignors and Assignee.(Emphasis supplied) 6. In the event of n award/settlement in reference to the share and interest in the firm held by the Assignors, which is now with the Assignee, the Assignors shall retain 50% of such share, after reduction of the Transaction cost to the extent it is in monetized form and to the extent such an award/settlement is in the form of fixed assets as in land then the following process will be followed for the monetization of such assets:- (Emphasis supplied)”

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 15 From the above agreement, it is revealed that the assessee was entitled to take his share of profit after the settlement of the dispute and on the basis of realizable value of the properties. It was not mentioned anywhere that the assessee upon the settlement of the dispute shall acquire immovable properties. The realizable value of property was the basis of settlement between the assessee and the owners of the properties. The assessee did not acquire any absolute right upon the settlement of the dispute that he would acquire such immovable properties. Therefore, the finance charges and legal expenses claimed by the assessee as revenue in nature are as per the provisions of law. Moreover, it was also not ascertainable that the assessee would get any benefit out of the properties which are under litigation at the time of incurrence of the expenses as discussed above. The year in which such expenditures were incurred there was no clarity whether the assessee will succeed or not. Therefore, the income of the assessee was dependent upon the event of the case which is going to take place in future. In case the assessee does not succeed in the court of law then there would be no benefit to the assessee out of such expenditures.

6.1 There is also no allegation of the Ld CIT u/s 263 of the Act that the expenditures are not in connection with the business of the assessee. The limited dispute before us is as to whether the expenditure incurred by the assessee is the revenue in nature or capital in nature. As we have already noted that no capital asset is arising to the assessee after incurring such expenses therefore in our considered view same cannot be treated as capital in nature thus these expenditures are eligible for deduction under section 37(1) of the act. The Ld CIT u/s 263 while holding the finance charges and legal expenses as capital in nature has relied on the judgment of Hon’ble Bombay High Court in the case of Hardiallia Chemicals Ltd v. CIT reported in 87 taxmann 108 (Bom). However on perusal of the same, we find that the facts of the case are different with the case on hand. The decision rendered by the Hon'ble Bombay High Court was based on the expenses incurred by the assessee over and above the lease consideration by way of making payment to the villagers to evict the properties was held as capital in nature. But in the case on hand, there is no relationship between the assessee and Smt. Indu

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 16 Kocher and others as of the lessor and lessee. Therefore, no reliance in our considered view can be placed on the judgment of Hon’ble Bombay High Court in the case of Hardiallia chemicals Ltd. (supra). 6.2 The Ld AR also submitted that the necessary verification was made by the AO during the assessment proceedings as evident from the submission of the assessee which is placed on pages 97 to 140 of the paper book. The remaining issues raised by the Ld CIT u/s 263 vide notice number CIT/IT& TP/Kol/263/2016- 17/4776 dated 15.3.2017 are detailed as under : 1. Set off brought forward loss in excess by Rs. 56,167.00 only. 2. Capital contribution of Rs. 30 Lacs by the assessee in his proprietorship firm. 3. No disallowance as per the provisions of section 14A of the Act was offered though the assessee had exempted income. 4. The assessee has shown negative bank balance in his personal balance sheet but the AO has made no enquiry during the assessment proceedings. In respect of aforesaid issues it was alleged by the Ld CIT u/s 263 of the Act that no enquiry was made by the AO during the assessment proceedings. However, on perusal of the records we note that the AO has made enquiries in respect of the aforesaid issues as evident from the submission of the assessee which is placed on pages the 68, 97, 141, 165, 166, 193 and 241 of the paper book. The relevant extract is reproduced as under:- “ HARTAJ SEWA SINGH MEWS III, TIVOLI COURT, 1C BALLYGUNGE CIRCULAR ROAD KOLKATA-70019 Ref: No.: IT/HSS/03/2014-15 Date:20.08.2014 To DDIT(IT)-1(1) Aayakar Bhawan Poorva 110, Shanti Pally Kolakata-700 017 Dear Madam, Ref; PAN No.ABHPS9122R Sub: Documents for the AY 2012-2013 With reference to your above, we would like to submit the following documents and explanation relating to financial year 2011-2012- 1.Details of Business Loss – as per annexure-XIII

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 17 2. Photocopy of Agreement between Kocher’s and Mr Hartaj Sewa Singh & Photocopy of Special power of Attorney form Kocher’s to Mr. Hartaj Sewa Singh – as per annexure-XIV. 3. Photocopy of Reimbursement of Expenses bills of Paras Kuhad & Associates and PKA Advocates- as per annexure-XVI. 4. Photocopy of Invoice raised by the Safe Consortium to Darjeeling Organic Tea Estates Private Limited along with Mandate Letter – as per annexure-XVI 5. Photocopy of KPMG agreement with invoice and printout of e-mail for their opinion about fees paid to Star Consortium Pte Ltd by the Safe Consortium. We have made the details on the basis of our books of accounts and we hope that this will help your honour to complete the assessment proceeding. We assure to reply your any other query in this regards. Thanking you Yours faithfully For Hartaj Sewa Singh Sd/- Lole Choudhury (Authorized Representative)

“ HARTAJ SEWA SINGH MEWS III, TIVOLI COURT, 1C BALLYGUNGE CIRCULAR ROAD KOLKATA-70019 Ref: No.: IT/HSS/03/2014-15 Date:15.12.2014 To The Deputy Commissioner of Income Tax International Taxation, Circle 1(1) Aayakar Bhawan Poorva 110, Shanti Pally Kolkata-700 017 Dear Sir, Ref. PAN No.ABHPS 9122R Sub: Documents for the AY 2012-2013 With reference to above, we would like to submit the following documents and explanation relating to financial year 2011-2012- 1. Details of Last 3 years income/Assessed Income/Appeal Filed as per annexure- XVII 2. Current Ye Issues: During the Financial Year, I had two proprietorship concern in India namely “The Safe Consortium” and “Sharp Business Services”. The Safe Consortium was providing Management Consultancy Services to its clients and there was no business activity in the other proprietorship concern Sharp Business Services. The Safe Consortium had received Success fees of Rs.93,37,500.00 from M.s Darjeeling Organic Tea Estates Private Limited as per Mandate Letter dated 20.01.2009 signed between the parties. The Safe consortium had paid a sum of Rs.80,43,954.00 as Advisory Fees to M/s Star Consortium Pte. Ltd. (Singapore) as per mandate letter dated 09.02.2011.

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 18 3. Details of Last 3 years Income in India and Income Outside India – as r annexure- XVIII. 4. During the financial year no Capital Assets acquired from Income earned in India. 5. Date wise Synopsis of submitted documents – as per annexure-XIX. These details are made on the basis of books of accounts and we hope that this will help your honour to complete the assessment proceedings. We assure to reply your any other query in this regards. Thanking you, Yours faithfully, For Hartaj Sewa Singh Sd/- Lalit Choudhary (Authorized Representative) HARTAJ SEWA SINGH MEWS III, TIVOLI COURT, 1C BALLYGUNGE CIRCULAR ROAD KOLKATA-70019 Ref: No.: IT/HSS/04/2014-15 Date:24.12.2014 To The Deputy Commissioner of Income Tax International Taxation, Circle 1(1) Aayakar Bhawan Poorva 110, Shanti Pally Kolkata-700 017 Dear Sir, Ref. PAN No.ABHPS 9122R Sub: Documents for the AY 2012-2013 With reference to above, we would like to submit the following documents and explanation relating to financial year 2011-2012- 1. Capital Assets acquired from Overseas Income: In last 3 years i.e. AY 2009- 2010, 2010-2011 & 2011-2012 no capital assets acquired from Income earned in overseas. 2. Self Attested photocopy of passport of last 3 years – as per annexure-XX. 3. Last 2 years i.e. AY 2010-2011 & 2011-2012 Balance Sheets with Tax Audit Report-as per annexure-XXI. 4. Wealth Tax Return for AY 2012-2013 – as per annexure-XXII. These details are made on the basis of books of accounts and we hope that this will help your honour to complete the assessment proceeding. We assure to reply your any other query in this regards. Thanking You Yours faithfully For Hartaj Sewa Singh Sd/- Lalit Choudhury (Authorized Representative) 3rd Feb, 2015 The Deputy Commissioner of Income Tax Cir-1(1)/Kolkata

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 19 Aaykar Bhawan Purva Kolkata Dear Sir, Our Client: Mr. Hartaj Seva Singh PAN:-ABHPS 9122R Asst/. Yr: 2012-13 Re:- Scrutiny Assessment During the course of hearing a question was raised as to whether our client is NRI or not. We reproduce section 6(1) of the Act with Explanation (a) attached to that section which read as under:- ‘6. Reside in India.- For the purposes of this Act,- (1) A individual is said to be resident in India in any previous year, if he- (a) Is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or (b) ,…., (c) Having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty five days or more, is in India for a period or period amounting in all to sixty days or more in that year. Explanation: In the case of an individual,- (a) Being a citizen of India, who leaves India in any previous year as a member of the crew of an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or for the purposes of employment outside India, the pres of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted; HARTAJ SEWA SINGH MEWS III, TIVOLI COURT, 1C BALLYGUNGE CIRCULAR ROAD KOLKATA-70019 10th February, 2015 To Deputy Commissioner of Income Tax International Taxation, Circle 1(1) Ayakar Bhawan Poorva 110, Shanti Pally Kolkata-700 017 Dear Sir, Ref. PAN No.ABHPS 9122R Sub: Documents for the AY 2012-2013 With reference to above, we would like to submit the following documents and explanation relating to financial year 2011-2012- 1. Reconciliation statement of AIR Transactions provided in the ITI Data Sheet-as per annexure A&B 2. Reconciliation statement of individual Transaction statement in the ITI Data Sheet- as per annexure C. 3. Details of Security Deposit – as per annexure D.

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 20 These details are made on the basis of books of accounts and we hope that this will help your honour to complete the assessment proceeding. We assure to reply your any other query in this regards. Thanking You Yours faithfully Foir Hartaj Sewa Sngh Sd/- Lalit Choudhary (Authorized Representative) 5. Details of Finance Charges – As penalty Article no 2(b), Page No. 3 of agreement dated 09.08.2009 between Mr. Hartaj Sewa Singh and Smt. Indu Kocher, Sri Shashank Kocher and Sri Mayank Kocher (Photocopy of the agreement has been already submitted to you on 20.08.2014 as per annexure-XIV), it was agreed that MR. Hartaj Sewa Sigh shall pay as advance to Kocher’s interest free sum of Rs.1.25 crore simultaneously with the execution of the above agreement which was too be retained by the Kochers till the successful completion of the above agreement. The Kocher’s has in lieu thereof agreed at Mr. Hartaj Sewa Singh request to instead give to the Kocher’s 1% of the value of the above stated advance on monthly basis till the successful attainment of the object of above referred agreement. During the year Mr. Hartaj Sewa Singh has paid Rs.15,00,00,000/- (Rupees fifteen lacs only) i.e. Rs.1.25 lac per month. This Rs.15,00,000/- has been debited to Finance Charges. We have deducted tax at source @ 10% u/s. 194A of the Income Tax Act, 1961 and deposited to the credit of the Central Government within due dates. 6. Details of Legal Charges – As per Article no (c), Page No. 3 of agreement dated 09.08.2009 between Mr. Hartaj Sewa Singh and Smt. Indu Kocher, Sri Shashank Kocher and Sri Mayank Kocher (Photocopy of the agreement has been already submitted to you on 20.08.2014 as per annexure-XIV), it was agreed that Mr. Hartaj Sewa Singh shall incur all litigation and other costs with regards to pursuing the litigations and the pursuit of legal and other avenues to ensure that the Kocher’s share is restored back to the Kocher’s. these legal expense of Rs.18,47,700.93 (Rupees eighteen lacs forty seven thousand seven hundred and paise ninety three only) has been incurred as per the agreement only, on which tax has been deducted (Details of TDS has been already submitted to you as per annexure-X) and paid to the Central Government within due dates where ever applicable.

From the above, it is clear that order was passed by the AO under section 143(3) of the Act after conducting necessary enquiries and considering the submission filed by the assessee during the assessment proceedings. It is undisputed fact that the order the AO was nonspeaking and returned income was accepted under the assessment proceedings but in our considered view non discussion of the issues in the assessment order cannot render the order as erroneous and prejudicial to the interest of Revenue on account of non-verification of the issues. In this regard we find support and guidance from the order of Hon’ble ITAT the in the case of Sethia Finance Trading

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 21 Co. Vs. ACIT in ITA number 783/Kol/ 2013 vide order dated 7.8.2017 wherein it was held as under :- “… … Merely because that the AO did not discuss these details in the assessment order does not mean that he has not applied his mind. Therefore, considering the factual position, we are of the view that the order passed by the AO u/s 143(3) is neither erroneous nor prejudicial to the interest of revenue. Therefore, we quash the order passed by the CIT u/s. 263 of the Act.” 6.3 For the remaining issues, we note that no notice was issued by the learned CIT u/s 263 of the Act for holding the order of the AO as erroneous and prejudicial to the interest of revenue. The details of the other issues stand as under : 1. Payment to SCPL for Rs. 80,43,964.00 2. Loss on account of exchange fluctuation for Rs. 11,10,854.00 3. Reimbursement of travelling expenses not claimed by the assessee for Rs. 1,52,104.00 4. Gifts received by the assessee from his father for Rs. 73,62,570.00 In respect of the above issues we find that no notice u/s 263 of the Act has been issued to the assessee before holding that the order passed by the AO is erroneous in so far prejudicial to the interest of revenue.

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 22 Co-ordinate Bench of this Tribunal in the case of Vesuvius India Ltd. Vs. CIT in ITA 663/Kol/2010 wherein it was held as under:- “…Revision under section 263- erroneous and prejudicial order Revision order passed on different ground—After finalization of the re-assessment proceedings, a show-cause notice was served upon assessee by CIT on the ground that the order passed by AO was erroneous and prejudicial to the interest of revenue because AO did not assess the amount of Rs.55,00,000 received by assessee as repairs of machinery charges and he did not assess a sums of Rs.2,41,81,436 being contract receipts for assessment year 2002-03, while in the revision order, CIT merely directed AO to call for the original vouchers as well as the original ledger containing the sales account as well other sub-accounts in which assessee claims to have made entries regarding such income. assessee challenged the revision order. Held: where the revision order was passed on the ground other than the grounds for which revision proceedings were initiated the same could not be sustainable in law. Since there was a shirt in the stand of the commissioner as to whether it was a case for revision on the ground that income on account of repairs of machinery and contract receipts was required to be added to the income assessed in the hands of assessee or whether it was a case for revision on the ground that AO did not make necessary verification about the related transactions. Therefore, the impugned revisional order was not sustainable.” 7.1 We also draw support and guidance from the judgement of Honourable Supreme Court in the case of CIT Vs. Amitabh Bachchan reported in 384 ITR 200 wherein it was held as under : “In fact, section 263 has been understood not to require any specific show-cause notice to be served on the assessee. Rather, what is required under the said provision is an opportunity of hearing to the assessee. The two requirements are different; the first would comprehend a prior notice detailing the specific grounds on which revision of the assessment order is tentatively being proposed. Such a notice is not required. 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.”

From the above judgment, it is revealed that the assessee must be afforded an opportunity of being heard. In the instant case the learned CIT called for the details as noticed from the order sheet entries in respect of the aforesaid items. The necessary details were duly submitted by the assessee before the Ld CIT. But thereafter there was no mention either in the notice or in the order sheet that the order of the AO in respect of the aforesaid items is erroneous and prejudicial to the interest of the revenue. As per the provisions of law it is not necessary to issue notice u/s263 of the

ITA No.1011/Kol/2017 A.Y. 2012-13 Sh Hartaj Sewa Singh vs. DCIT(IT) Cir-1(1) Kol. Page 23 Act but it is obligatory for the Ld CIT to afford the opportunity of hearing before holding the order of the AO as erroneous insofar as prejudicial to the interest of the revenue. In view of above, we hold that the order passed by the learned CIT u/s 263 of the Act is not sustainable and accordingly we quash the same. Hence the grounds of appeal of the assessee are allowed. 8. In the result, assessee’s appeal stands allowed. Order pronounced in open court on 27/04/2018 Sd/- Sd/- (�या%यक सद'य) (लेखा सद'य) (S.S.Viswanethra Ravi) (Waseem Ahmed) Judicial Member Accountant Member *Dkp, Sr.P.S )दनांकः- 27/04/2018 कोलकाता / Kolkata आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-Sri Hartaj Sewa Singh, Mews III, Tivoli Court, 1C, Ballygunge Circular Road, Kolkata-19 2. ��यथ�/Respondent-DCIT (IT) Circle1(1), Aayakar Bhawan (Poorva),110, Shantipally, Nr. Ruby Hospital, E.M. Bye Pass, Kolkata-107 3. संबं,धत आयकर आयु-त / Concerned CIT 4. आयकर आयु-त- अपील / CIT (A) 5. .वभागीय �%त%न,ध, आयकर अपील�य अ,धकरण कोलकाता / DR, ITAT, Kolkata 6. गाड2 फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary Head of Office/DDO आयकर अपील�य अ,धकरण, कोलकाता