M/S BHADRA EDUCATION TRUST,DAVANGERE vs. CIT, DAVANGERE

PER S. JAYARAMAN, ACCOUNTANT MEMBER :

This is an appeal filed by the assessee against the order passed by

the CIT, Davangere ,dt.12.03.2014 , u/s.263 of the Income Tax Act, 1961

for the assessment year 2010-11.

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Davangere, issued a notice u/s 263 dated 19/11/2013 stating, inter

alia, as under :

"On verification of the assessment records, it is noticed that you have given a lease advance of Rs. 10,00,000/- for an accommodation of 1785 Sq. Ft. Apart from this, you are paying a rent of Rs. 10,000/- per month. Even if 10 months rent is considered as rental advance, which is usually paid in all similar cases, assessee could not have paid more than Rs. 1,00,000/- as advance. On going through the rental agreement it is noticed that the lessor (first party) Sri S.R. Girish is one of the authors of the trust. Hence, there is a violation of the provisions of section 13(3).

In view of the interest at 12% per annum is required to be charges on the excess payment of advance of Rs. 9,00,000/- which works out to Rs. 1,08,000/- and brought to tax. The AO failed to examine this issue. Failure on the part of the AO to examine the above issue has rendered the assessment erroneous and prejudicial to the interest of the revenue".

inter alia, held that in so far as the AO failed to examine this aspect, the

assessment order made on 27.03.2013 by the Income Officer , Ward-1,

Davangere is erroneous and prejudicial to the interests of revenue.

Accordingly, he set aside the assessment to be redone in accordance with

law. Aggrieved by that order, the assessee filed this appeal with the

following grounds of appeal :

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counts, viz (i) want of jurisdiction, ie when two views are possible, then the

view taken by the AO has to be considered and (ii) on merits. The AR

submitted that the appellant’s authorized representative appeared

before the learned assessing officer and submitted documents, books,

records and other information called for from time to time. The learned

assessing officer after considering the details produced by the

appellant’s authorized representative viz., books, records and other

documents passed the order under section 143(3) , on 27/0/2013, by

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accepting the income as NIL as declared by the appellant in the return.

There was no lack of inquiry or inadequate inquiry by the learned

assessing officer while passing the assessment order. The assessment

order is not erroneous nor prejudicial to the interests of revenue as the

AO has passed it after proper enquiry and application of mind. The CIT

can assume jurisdiction u/s 263 only when the assessment order is

erroneous and prejudicial to the interests of revenue. The rent advance

paid at Rs.10,00,000/- is more than generally accepted norms which

will be 10 months’ rent as advance, the order of assessment cannot be

treated as erroneous and prejudicial to the interests of revenue . The

AR also relied on the decisions of CIT v Amit Corporation (2012) 21

taxmann.com 64 (Guj), CIT v Sun Beam Auto Ltd 322 ITR 167 Delhi,

CIT v Gabriel India Ltd 203ITR 108 (Mumb) , CIT v Vikas Polymers

194 Taxman 57 Delhi , Malabar Industrial Co Ltd v CIT SC etc. On

merits, the AR submitted that this is the first year of commencement

of college of their Trust. Initially, they wished to run the pre-university

and degree college in the outskirts of city. As it is new college, if they

start in outskirts , it was difficult to get good faculties as well as students.

To overcome the problem of admission of students, finally they decided

to run the college in the extension area. Getting permission to run

college in extension area was difficult and it was difficult to get students

in the outskirts area and hence finally they started functioning in

Siddaveerappa Layout, Davangere. The assessee has taken this premise

on rent from Sri S R Girish, one of the authors of the trust. It had an

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intention to take the complete building having cellar, Ground, first

and second floors for running and maintaining the college. Hence,

lease advance of Rs.10 Lakhs was paid. However, during the year the

assessee had occupied the ground floor admeasuring 1785 sq ft and

paid a monthly rent of Rs.10,000/-only. In the subsequent year for

acquiring and using the additional floors viz first and second floors ,

the assessee has paid a monthly rent of Rs.30,000/- (TDS is made

accordingly) without paying any further lease deposit. The advance

estimate made by the CIT at 10 times of the rent at Rs.1,00,000/- may be

applicable to residential usages. In fact, it is very difficult to get building to

run colleges as it disturbs the residents of that area. Normal way of

estimation of advance is not applicable to non-residential usages. The

area provided by the land lord is around 6000 sft now for the same rent

advance. Whatever rent advance paid is that of prevailing practice for

non-residential usage. The AR pleaded that by its letter dt 10.12.2013

it submitted the above facts to the CIT . In spite of it , the CIT rejected

its plea and set aside the assessment order to be redone in accordance

with law. Further, the AR pleaded that although the CIT proposed in the

show cause notice to charge interest @ 12% p.a on the excess lease deposit

of Rs.9,00,000/, in the order passed u/s 263 he did not do it but simply set

aside the assessment order and directed the AO to redo in accordance

with law. The AR pleaded that is also not in accordance with law and hence

pleaded to set aside the order of the CIT.

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the CIT. The CIT duly examined the record and found that the AO has not

properly examined the impugned aspect and hence issued a show cause

notice to the assessee. From the rental agreement dt 29.03.2009, it

was found that the deposit of Rs.10 lakhs was non-refundable. When

this was brought to the assessee’s notice by the CIT , the assessee

filed a letter dt 10.3.2014 from Shri S R Girish to the effect that by

oversight there is non mention of refund of rent advance and Shri S

R Girish has taken refundable advance of Rs.10 lakhs only. Thereafter

only , the assessee furnished copies of subsequent agreements .

Therefore, the CIT rightly held that

“Subsequent agreement can not form basis for deciding issues for A Y 2010-11. The Assessing Officer failed to examine the rental agreement properly and failed to notice that the amount of Rs.10 lakhs given as advance as per the agreement dated 29.03.2009 (enclosed as Annexure-1) is Non-refundable in nature. This is in violation of the provisions of section 13(1)( c) and Non examination of this aspect renders the assessment erroneous and prejudicial to the interests of revenue.

In so far as the AO failed to examine this aspect, the assessment order made on 27.03.2013 by the Income Officer, Ward-1, Davangere is erroneous and prejudicial to the interests of revenue. Accordingly, the assessment is set aside to be redone in accordance with law.

For doing the above, the AO shall afford reasonable opportunity of being hearing to the assessee before coming to any conclusion .”

6.1 From the above facts, the DR submitted that it is clear that the AO

has not examined the impugned issue as it should have been and hence

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his order was erroneous and prejudicial to the interests of revenue as held

by the CIT. With regard to the assessee’s submission that the CIT has not

followed his proposal to charge interest @ 12% p.a on the excess lease

deposit of Rs.9,00,000/- etc , the DR pointed out para 10 of the

judgment in the case of CIT, Mumbai V Amitabh Bachchan 384 ITR 200,

(2016) 69 taxmann.com 170 SC, (relevant portion only is extracted as

under) :

“10. Reverting to the specific provisions of Section 263 of the Act what has to be seen is that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the Revenue is the basic pre- condition for exercise of jurisdiction under Section 263 of the Act. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise the power would be available subject to observance of the principles of natural justice which is implicit in the requirement cast by the Section to give the assessee an opportunity of being heard. It is in the context of the above position that this Court has repeatedly held that unlike the power of reopening an assessment under Section 147 of the Act, the power of revision under Section 263 is not contingent on the giving of a notice to show cause. 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 ”.

and submitted that it meets the assessee’s contention. The DR also

invited our attention to para 24, 26 etc of the judgment of the Hon’ble

jurisdictional High Court in the case of CIT V Infosys Technologies Ltd 17

taxmann.com 203 (Kar), for brevity sake para 24, 26 alone are extracted

as an under :

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“24. In the present situation, the Commissioner having only directed the assessing authority to compute it or re-compute it and make it explicit as to the entitlement of the assessee, an order of this nature, in fact, could not have been contended as detrimental to the interest of the assessee, as it was always open to the assessee to justify the claim in terms of the double taxation avoidance agreements. In a situation of this nature, we are also of the opinion that it was not a case which warranted interference by the tribunal, more so for setting aside the order of the commissioner and for ensuring that the order passed by the assessing authority was left in tact.

and submitted that when the AO has not examined the impugned issue and

did not record a finding in his order, his order clearly falls within the scope

of Section 263 of the Act . In pursuance of S 263, when the CIT passed an

order directing the AO to redo the assessment in accordance with law and

before coming to any conclusion to afford a reasonable opportunity of being

heard to the assessee etc, such an order could not have been contended

as detrimental to the interest of the assessee, as it was always open to it to

justify its claim as held by the Hon’ble jurisdictional High Court, supra.

and materials. We find merit in the contentions of the DR and hence

dismiss the assessee’s appeal.

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Order pronounced in the open court on 23rd day of November, 2016.

Sd/- Sd/-

(VIJAY PAL RAO) (S. JAYARAMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN*

Copy to: 1. The assessee 2. The Assessing Officer 3. The Commissioner of Income Tax 4. The Commissioner of Income Tax (A) 5. DR 6. GF, ITAT, Bangalore By Order

Assistant Registrar