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Income Tax Appellate Tribunal, BANGALORE BENCH C, BANGALORE
Before: SHRI. SUNIL KUMAR YADAV
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI. SUNIL KUMAR YADAV, JUDICIAL MEMBER
AND SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER M/s. Khoday Eshwarsa & Sons, No.9, Seshadri Road, Bengaluru 560 009 .. Appellant PAN : AACFK8629H v. 1. Deputy Commissioner of Income-tax, Circle – 3(1), Bengaluru 2. Commissioner of Income-tax, Bengaluru-II, Bengaluru .. Respondent Assessee by : Shri. S. Sukumar, Advocate Revenue by : Dr. Sibichen K. Mathew, CIT -III Heard on : 26.05.2016 Pronounced on : 17.06.2016 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
These are assessee’s appeals for A. Y. 2006-07. Appeal in ITA.614/Bang/2011 is against order dt.28.03.2011 of CIT, Bengaluru-II, u/s.263 of the Income-tax Act, 1961 (‘the Act’ in short). Appeal in ITA.1117/Bang/2010 is against of an order dt.23.03.2010 of CIT (A)-II, Bengaluru.
ITA. 614/Bang/2010 is taken up first for disposal. Facts apropos are assessee engaged in the business of manufacture and trading of stationery, personal care and pharmaceutical products had filed return for the impugned assessment year declaring loss of Rs.2,90,00,129/-. During the course of assessment proceedings, AO required the assessee to furnish details of expenditure. From such details, AO found that the expenditure claimed by the assessee included irrecoverable advance of Rs.1,33,40,620/- for its distillery division and Rs.51,17,440/- for stationary division. As per the AO, this expenditure could be divided into three categories namely one which was capital in nature, second which was incurred in earlier years and the third one for which no explanation was offered by the assessee. Assessee did bring to the notice of the AO that Tribunal in the case of its sister concern, namely Khoday Breweries Ltd, in ITA.374/Bang/2012, dt.29.04.2004, had held that such claim be allowed. However the AO was of the opinion that claim for capital expenditure could not allowed. Out of the total sum of Rs.1,84,59,060/- a disallowance of Rs.49,07,454/- was made by the AO for this, and assessment concluded accordingly.
Subsequently CIT issued a notice u/s.263 of the Act, to the assessee, citing a reason that assessee had received a sum Rs.6.29 crores as compensation which was mentioned in Schedule 13 of its audited account statements, and had claimed it as capital receipt relying on the judgment of Hon’ble Bombay High Court in the case of Bombay Burmah Trading Corporation Ltd. V. CIT [81 ITR 777]. As per the CIT, AO while completing the assessment had not applied his mind whether the judgment of Hon’ble Bombay High Court in Bombay Burmah Trading Corporation Ltd (supra) was applicable to the facts before him. In reply to the above notice, assessee mentioned that there was an agreement dt.22.09.2006 entered by one M/s. Daatha Builders and six others, who were the owners of a plot of property at Kensington Road, Bengaluru, with one M/s. Prestige Estates Projects Ltd. As per the assessee said M/s. Daatha Builders was entitled to 27.5% of the built-up area of the buildings to be built by M/s. Prestige Estates Projects Ltd, in the said property, by virtue of this agreement. Assessee pointed out that another agreement was entered by it on 27.10.2004 with M/s. Daatha Builders through which assessee agreed to purchase 27.5% share of M/s. Daatha Builders in the project to be built by M/s. Prestige Estates Projects Ltd, for a total consideration of Rs.17,16,00,000/-. As per the assessee on the very same day a sum of Rs.50 lakhs was paid by it as advance. Assessee further stated that on 02.06.2005 the parties agreed to cancel the agreement mentioned above and on such termination it was paid a sum of Rs.6.29 crores. Contention of the assessee was that the sum of Rs.6.29 crores was received as compensation for not exercising the right of specific performance and being a capital receipt could not be taxed by virtue of the judgment of Hon’ble Bombay High Court in Bombay Burmah Trading Corporation Ltd (supra). However as per the CIT, above mentioned cancellation agreement looked suspicious since assessee had received huge sums in lieu of surrender of its rights for specific performance. As per the CIT by virtue of agreement dt.27.10.2004 that assessee had entered with M/s. Daatha Builders, what was paid by the assessee was only Rs.50 lakhs out of the total agreed consideration of Rs.17,16,00,000/- and the balance sum of Rs.16,16,00,000/- remained payable to M/s. Daatha Builders to the assessee. According to him it could not be believed that assessee received a sum of Rs.6.29 crores within a few months, for the cancellation of the agreement. CIT also noted that Shri. K. L. Hari, who was the director M/s. Daatha Builders , was a partner of the assessee firm. He was of the opinion that AO had not examined all these issues, and it had entirely escaped his attention. He set aside the order dt.22.12.2008 of the AO with directions to pass a fresh order after giving fresh opportunity to the assessee for a personal hearing. Aggrieved on the above order of CIT, assessee is in appeal before us.
Grounds taken by the assessee are reproduced hereunder :
It can be seen from the above grounds that the assessee has divided the grounds to two, one in respect of jurisdiction and the other in respect of merits. Ld. AR has filed two sets of submission. In the first set of submission filed on 07.06.2011 it is stated that the development agreement between M/s. Daatha Builders and M/s. Prestige Estates Projects Ltd, was dt.22.09.2004 whereas agreement of the assessee with M/s. Daatha Builders was dt.27.10.2004. As per the Ld. AR cancellation was done on 02.06.2005. Ld. AR submitted that assessment order was passed after scrutiny of statement of accounts and audit reports and that too after four hearings. As per the Ld. AR, AO had taken a possible view that the amount received was not taxable being capital in nature. Relying on the judgment of Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd, v. CIT [243 ITR 83] and CIT v. Max India Ltd, [295 ITR 282], Ld. AR submitted that CIT could not substitute a lawful view taken by the AO. As per the Ld. AR, CIT did not indicate how the facts in assessee’s case were different from that of Hon’ble Bombay High Court judgment in the case of Bombay Burmah Trading Corpn. Ltd, (supra). Ld. AR submitted that compensation received in breach of agreement for sale was in the nature of damages and would be capital receipt. Similarly according to him, amount received by an agreement holder through a compromise agreement could not be considered as either revenue income or capital gains. Reliance was placed on the following judgments : i) CIT v. Hiralal Manilal Mody [131 ITR 421] (Guj) ii) CIT v. Vishaka Marketing Ltd [(1987) 164 ITR 664] iii) Salgaonkar Mining Industries v. CIT [228 ITR 183] iv) CIT v. Dhanraj Dugar [137 ITR 350] (Cal) v) CIT v. Mrs. Grace Collis & Others [248 ITR 323] (SC) vi) S. Zoraster & Co. V. CIT [322 ITR 35] (Raj) vii ) Travancore Rubber & Tea & Co. Ltd v. CIT [243 ITR 158] (SC) viii) CIT v. D. P. Sandu Bros. Chembur P. Ltd [273 ITR 1] (SC) ix) Syndicate Bank Ltd v. ACIT [(1985) 155 ITR 68] Further according to him there could be no capital gains since there was no transfer of any capital asset by virtue of agreement for sale. According to him no cost could be computed. When no cost could be computed there was no question of levy of capital gains. For this reliance was placed on judgment of Hon’ble Madhya Pradesh in the case of Kamalchand v. ITO [128 ITR 290]. Thus according to him there was no error in the order of the AO warranting invocation of jurisdiction u/s.263 of the Act, by the CIT.
6. Per contra, Ld. DR submitted that AO during the course of assessment proceedings vide notice dt.11.11.2008, u/s.142(1) of the Act, had required the assessee to provide particulars only on the following matters :
As per the Ld. DR none of these were on the sum of Rs.6.29 crores shown by the assessee in its note to accounts as capital receipts. AO had not asked anything on such huge amount claimed as exempt. Therefore according to him, CIT was justified in concluding that AO had not applied his mind in taxability of Rs.6.29 crores. Further as per the Ld. AR assessment order was passed on 22.11.008 after 41 days of issue of notice u/s.142(1) of the Act. Ld. DR pointed out that AO had passed the order in great hurry without making any enquiries on an important aspect reflected in the accounts of the assessee. As per the Ld. DR, the agreement by virtue of which assessee bought 27.5% in M/s. Daatha Builders and the cancellation of the agreement were all done within a short span of eight months. What the assessee had paid on the date of entering into agreement was Rs.50 lakhs to M/s. Daatha Builders, whereas on cancellation of the agreement it received a huge amount of Rs.6.29 crores. As for the reliance placed by the Ld. AR on the decision of S. Zoraster & Co., (supra) of Hon’ble Rajasthan High Court, Ld. DR submitted that the concerned assessee there was a seller who had received compensation from the purchaser, where the agreement contained a specific condition for payment of compensation in the case of default of purchaser. As per the Ld. DR judgment of Hon’ble Bombay High Court in the case of Bombay Burmah Trading Corporation Ltd (supra), was also not applicable since in the said case what was received by the assessee was compensation in lieu of surrender of forest lease thereby sterilising the very source of its profit making apparatus, since concerned assessee was trading in teak wood.
7. Continuing his argument, Ld. DR submitted that judgment of Hon’ble Apex Court in the case of Shapurji Broacha Mills Ltd v. CIT [78 ITR 68] would tilt the issue in favour of the Revenue. According to him compensation received for breach of an agreement for selling agency, was held to be taxable when the underlying agreement was found to be sham. Reliance was also placed on the judgment of Hon’ble Apex Court in the case of Madhowji Dharamshi Manufacturing Co. Ltd v. CIT [78 ITR 62].
Ad libitum reply of the Ld. AR was that for invoking Section 263 of the Act, order of the AO should not only erroneous but also prejudicial to the interests of the Revenue. According to him, just because an order was erroneous, revisionary jurisdiction could not be invoked here. As per the Ld. AR, Department was unable to show how the order of AO was prejudicial to the interests of Revenue. According to him the amount received by the assessee on cancellation of the agreement was capital in nature and this was specifically mentioned by the assessee in its audited financial accounts. Further according to him, there was no mention either in the show-cause notice or in the order passed u/s.263 of the Act, as to how the order of the AO was erroneous. As per the Ld. AR, CIT had not given any finding at all. In his opinion, CIT was harbouring a suspicion that the agreements were sham. Mere suspicion would not convert an order otherwise correct to an erroneous one. Further as per the Ld. AR, audit report u/s.44AB of the Act, was filed along with the return and the AO had perused such audited return while completing the assessment. Relying on the decision of Jodhpur bench of ITAT in the case of Pawan Kumar v. AO [106 TTJ 494], Ld. AR submitted that AO having examined the audit report it could not be said that he had not applied his mind to the relevant material. As per the Ld. AR the CIT had no where given a finding that the order of the AO was erroneous and prejudicial to the interests of the Revenue. Reliance was also placed on Hon’ble Rajasthan High Court in the case of CIT v. Jain Construction Co. [257 CTR 336] and also that of Hon’ble Bombay High Court in the case of Sterling Construction and Investments v. ACIT (Inv) [374 ITR 474].
We have perused the materials and heard the rival contentions. We have also gone through the written submissions carefully. Assessee along with the return of income filed for the impugned assessment year had filed balance sheet, its schedules and tax audit return u/s.44AB of the Act. Schedules to the balance sheet were thirteen in number. 13th schedule gave significant account policies and notes on accounts. Note No.h, forming a part of such schedule 13 is reproduced hereunder :
Sales and other income are recognised on accrual basis. Sales Tax Service Tax and Excise Duty collected is not included in sales. Amount of Rs.629 lakhs being compensation for not exercising the right of specific performance has been treated as capital receipt in view of the decision of the Bombay High Court in the case of Bombay Burmah Trading Corporation Ltd v. CIT (1971) 81 ITR 777.
The above note appears as item number ‘h’ of Schedule 13. Notes prior to that ran into a number of pages. Question is whether the receipt of Rs.6.29 crores by the assessee as capital receipt was in the mind of the AO during the course of assessment proceedings, has to be seen in the above perspective. As mentioned by us, what was before the AO was the audited final account statements with 13 schedules, in which the thirteenth schedule carried a mention about receipt of 629 lakhs as compensation, as item number ‘h’, which has been reproduced by us above. What was asked by the AO in the notice issued by him u/s.142(1), dt.11.11.2008 has also been reproduced by us at para seven above. Nothing whatsoever has been asked by the AO on the capital receipt of Rs.629 lakhs claimed as exempt. Naturally, the reply of assessee also had not mentioned anything regarding the above. What transpired during the assessment has been described by us at para two above. There were certain disallowances made by the AO during the course of assessment proceedings on claim of irrecoverable advance, based on the details filed by assessee. None of the details called for or submitted, related to the receipt of compensation of Rs.629 lakhs by the assessee claimed as exempt. In our opinion, absence of enquiry is explicit. AO had not noted the comment of the assessee in the notes to accounts regarding the receipt of compensation nor had he applied his mind whether such amount was taxable or not. A prudent man if put in the position of AO ought have enquired into such aspects, especially when the amount involved came to Rs.6.29 crores and was claimed exempt under a judgment of Hon’ble Bombay High Court in the case of Bombay Burmah Trading Corporation Ltd (supra). There was no attempt by the AO to verify whether the facts in the case of Bombay Burmah Trading Corporation Ltd, was similar to that of the assessee. AO did not make any enquiry with regard to the agreement entered by the assessee which resulted in receipt of Rs.629 lakhs. Thus, in our opinion, there was absolutely no enquiry by the AO. Absence of enquiry definitely renders the order of AO erroneous.
Next question to be answered is whether the order was prejudicial to the interests of Revenue. In our opinion when an order is considered erroneous for a reason that there was no enquiry by the AO, the logical consequence is that it is prejudicial as well. When a public authority vested with certain powers under a statute, which is to be exercised in a certain specified set of circumstances, fails to do so, prejudice is caused, since the purpose of the statute itself gets defeated otherwise. In taking this view we are fortified by the judgment of Hon’ble jurisdictional High Court in the case of CIT v. Infosys Technologies Ltd [(2012) 67 DTR 33]. In the said case also argument of the assessee was that CIT could not have exercised jurisdiction u/s.263 of the Act unless it was shown that the order passed by the AO was both erroneous and prejudicial to the interests of Revenue.
Reliance was placed by the concerned assessee in the said case on the very same judgments mentioned by the Ld. AR before us. Argument of the assessee in the said case was that CIT could not exercise the power of revision, unless prejudice was also caused, even when there was absence of proper enquiry. Question before the Hon’ble jurisdictional High Court was interpretation of Article 23 of the DTAA between India and Canada and whether the assessing authority had correctly considered the said article while doing the assessment. Paras 9 to 29 of the above judgment is reproduced hereunder :
9. However, per contra, Mr. G. Sarangan, learned senior counsel appearing for the assessee vehemently urged that it was not open to the CIT to examine the matter within the scope of s. 263 of the Act particularly, when the assessing authority had in fact shown his awareness for the deductions as claimed by the assessee and had allowed the same and though not necessarily by indicating in the order and submits that the assessee had placed material justifying the claim before the assessing authority and in this view of the matter, when the assessing authority had consciously allowed the deductions as claimed under the relevant articles of the avoidance agreements with the two countries, it was definitely not open to the CIT, in any manner to interfere or undo an order passed by the assessing authority, while exercising suo motu revisional jurisdiction.
10. In this regard strong reliance is placed by the learned senior counsel for the assessee on the following decisions :
(i) CIT vs. Max India Ltd. (2007) 213 CTR (SC) 266 : (2007) 295 ITR 282 (SC) (ii) CIT vs. Gabrial India Ltd. (1993) 114 CTR (Bom) 81 : (1993) 203 ITR 108 (Bom) (iii) CIT vs. Ashish Rajpal (2009) 23 DTR (Del) 266: (2010) 320 ITR (Del) 674.
Submission of Sri Sarangan, learned senior counsel appearing for the respondents-assessee, with reference to these decisions, is that the CIT can exercise jurisdiction under s. 263 of the Act only when the order is both erroneous and prejudicial to the interest of the Revenue; that it should be demonstrable that not only the orders passed by the lower authorities, which is sought to be revised, is erroneous, in the sense it is in contravention or at variance with any statutory provisions, but also that it should have resulted in a prejudice to the interest of the Revenue and while the first part of this twin requirements should be made good with reference to any statutory provisions, the second part, which has come in for interpretation, is a phrase which is not merely one of a possible loss of revenue, but a situation where it is a definite loss of revenue, in the sense, that on the possibility of a particular liability being fastened and that having not been done by the order or proceeding under revision, it has resulted in some loss of revenue, is a situation which cannot qualify for revision under s. 263 of the Act; that judicial opinion is to the effect that a mere alternative view being possible in respect of a particular statutory provision or a situation cannot be brought within the scope of the phrase 'prejudicial to the interests of the Revenue', as is indicated in the above-referred judgments and therefore submits that the order of the CIT neither demonstrates that the assessing authority had violated any statutory provision nor having indicated the precise loss of revenue and that was perhaps only a possibility, the order of the assessing authority did not qualify for being subjected to revisional jurisdiction under s.
263 of the Act and therefore submits that the Tribunal was very correct in setting aside the order being of the opinion that the CIT should not have acted under s. 263 of the Act in a situation of the present nature.
Sri Sarangan also submits that it is also not open to the CIT to go into the details of lack of jurisdiction when the assessing authority was allowing deduction as claimed by the assessee in respect of the tax deducted in a foreign country with reference to the relevant articles in the DTAA and if the assessing authority had opined that the assessee was entitled to claim such deduction, the CIT cannot opine to the contrary to say that the assessee was either not entitled to some part of it or was not entitled to the entire amount, more so when it was not demonstrated in terms of the order of the CIT and therefore the Tribunal was fully justified in setting aside the order of the CIT.
Sri T. Suryanarayana, learned counsel for the assessee, supplementing the submissions made by Sri Sarangan, has further drawn our attention to a Division Bench judgment of the Delhi High Court, in the case of Ashish Rajpal (supra), wherein the Delhi High Court had occasion to discuss various authorities on the subject i.e. scope of revisional jurisdiction of CIT under s. 263 of the Act and in particular having noticed the decisions which have been referred to and relied upon by the assessee and observed as under : "Before we advert to the submissions made by the learned counsel appearing for the parties, it would be wise to recall the parameters and principles laid down by the Courts which govern the exercise of power by the CIT under the provisions of s. 263 of the Act. (i) The power is supervisory in nature, whereby the CIT can call for and examine the assessment records.
(ii) The CIT can revise the assessment order if the twin conditions provided in the Act are fulfilled, that is, that the assessment order is not only erroneous but is also prejudicial to the interest of the Revenue. The fulfilment of both the conditions is an essential prerequisite. [See Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83(SC)]. (iii) An order is erroneous when it is contrary to law or proceeds on an incorrect assumption of facts or is in breach of the principles of natural justice or is passed without application of mind, that is, is stereo-typed, in as much as, the AO accepts what is stated in the return of the assessee without making any enquiry called for in the circumstances of the case, that is, proceeds with "undue haste". [See Gee Vee Enterprises vs. Addl. CIT 1975 CTR (Del) 61: (1975) 99 ITR 375(Del) ]. (iv) The expression "prejudicial to the interests of the Revenue" while not to be confused with the loss of tax will certainly include an erroneous order which results in a person not paying tax which is lawfully payable to the Revenue. [See Malabar Industrial Co. Ltd. (supra)]. (v) Every loss of tax to the Revenue cannot be treated as being "prejudicial to the interests of the Revenue". For example, when the AO takes recourse to one of the two courses possible in law or where there are two views possible and the CIT does not agree with the view taken by the AO which has resulted in a loss. [See CIT vs. Max India Ltd. (2007) 213 CTR (SC) 266: (2007) 295 ITR 282(SC) ]. (vi) There is no requirement of issuance of a notice before commencing proceedings under s. 263 of the Act. What is required is adherence to the principles of natural justice by granting to the assessee an opportunity of being heard before passing an order under s. 263. [See CIT vs. Electro House (1971) 82 ITR 824(SC)].
(vii) If the AO acts in accordance with law his order cannot be termed as erroneous by the CIT, simply because according to him the order should have been written "more elaborately". Recourse cannot be taken to s. 263 to substitute the view of the AO with that of the CIT. [See CIT vs. Gabrial India Ltd. (1993) 114 CTR (Bom) 81: (1993) 203 ITR 108(Bom)]. (viii) The exercise of statutory power under s. 263 of the Act is dependent on existence of objective facts ascertained from prima facie material on record. The evaluation of such material should show that tax which was lawfully eligible was not imposed. [See CIT vs. Gabrial India Ltd. (supra)]."
Sri Suryanarayana submits that even on facts, the present case is almost on par with the case as was examined both by the Bombay High Court and the Delhi High Court in the cases of Gabrial India Ltd. (supra) and Ashish Rajpal (supra) respectively, and therefore, submits that the view taken therein should commend for our acceptance and should be applied and the appeals of the Revenue should be dismissed.
15. We have perused the orders of the assessing authority, revisional CIT and the Tribunal. We have also looked into the relevant statutory provisions and bestowed our attention to the submissions made at the Bar and the authorities relied upon.
Sri E.R. Indrakumar, learned senior counsel appearing for the Revenue, while placing strong reliance on the judgment of the Supreme Court in the case of Electro House (supra), as quoted earlier, and has pointed out that the scope of exercise of revisional jurisdiction by the CIT is not one which is conditioned by any prior requirement; that it is sufficient if he is of the view or he considers that the subject order requires to be revised within the scope of s. 263 of the Act.
Insofar as the facts of the present case are concerned, it is not at all in dispute that certain deductions in the nature of tax relief had been claimed by the assessee for the two assessment years in question and with reference to DTAA in existence between the countries of India and Canada on the one hand and India and Thailand on the other, the assessing authority allowed deductions as claimed. It is true that the order of the CIT does not make it any explicit as to the manner in which it is either erroneous or prejudicial insofar as the actual amount of deduction is allowed and this is the thrust of the argument on behalf of the assessee and therefore the older of the CIT is beyond the scope of s. 263 of the Act.
We have already noticed the statutory provisions of s. 263 of the Act. Sec. 263 is a section which enables the CIT to have a look at the orders or proceedings of the lower authorities and to effect a correction, if so needed, particularly if the order or proceeding is erroneous and prejudicial to the interest of the Revenue. This provision occurs in a taxing statute, the object of which is to raise revenue for the State, and s. 263 is an enabling provision conferring jurisdiction on the CIT to revise the orders of the authorities below in certain circumstances particularly when it is erroneous and prejudicial. One can at once realize that the provision is intended to plug leakage to the Revenue by a erroneous orders passed by the lower authorities, whether by mistake or in ignorance or even by design. It makes little difference as to for what reasons the order is passed by the lower authority, so long as it becomes erroneous and prejudicial to the interest of the Revenue. Ultimately. the object is to ensure that leakage to the Revenue is plugged and some tax due to the State not reaching the coffers of the State is prevented by exercise of revisional jurisdiction of the CIT. 19. The observation as contained in the case of Electro House (supra), extracted above, and as has been particularly pointed out by Sri Indrakumar in the case of Malabar Industrial Co. Ltd. vs. CIT (supra), though this decision was relied upon on behalf of the assessee, particularly to the passage/observation of the Supreme Court at p. 88 reading as under : "Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkata Krishna Rice Co. vs. CIT (1987) 62 CTR (Mad) 152: (1987) 163 ITR 129(Mad) interpreting 'prejudicial to the interests of the Revenue.' The High Court held (p. 138) : 'In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of Revenue. There must be some grievous error in the order passed by the ITO, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the CIT might think to be prejudicial to the interests of Revenue administration,' In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is encrusted to the Revenue. If due to an erroneous order of the ITO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue. For example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot he treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the AO accepting the same as such will be erroneous and prejudicial to the interests of the Revenue'Rampyari Devi Saraogi vs. CIT (1968) 67 ITR 84(SC) and in Smt. Tara Devi Aggarwal vs. CIT 1973 CTR (SC) 107: (1973) 88 ITR 323(SC). In the instant case, the CIT noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant- company was not placed before the AO. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the ITO was erroneous is irresistible. We are. therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the CIT under s. 263(1) was justified. The second contention has to be rejected in view of the finding of fact recorded by the High Court. It was not shown at any stage of the proceedings, the amount in question was fixed or quantified as loss of agricultural income and admittedly it is not so found by the Tribunal. The further question whether it will be agricultural income within the meaning of s. 2(1A) of the Act as elucidated by this Court in CIT vs. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466(SC), does not arise for consideration. It is evident from the order of the High Court that the findings recorded by the Tribunal that the appellant stopped agricultural operation in November, 1982, and the receipt under consideration did not relate to any agricultural operation carried on by the appellant, were not questioned before it. Though, we do not agree with the High Court that the said amount was paid for breach of contract as indeed it was paid in modification/relaxation of the terms of the contract, we hold that the High Court is justified in concluding that the said amount was a taxable receipt under the head 'Income from other sources'. We find no merit in the appeal and dismiss the same with costs."
Though it is either vaguely or loosely described by the authorities, even including the Tribunal that the CIT lacked jurisdiction to exercise revisional powers in a situation of the present nature, as it was virtually in the nature of change of opinion on the part of the CIT, taking a different view from the view taken by the assessee to the effect that the authority taking the view that the assessee was entitled for deduction in full, but the CIT doubting that, that in itself does not become a situation of the order being erroneous, the question is not one of the order being erroneous directly with reference to the specific statutory provision but could be on a procedural aspect also.
In the present case, while there is no doubt that the assessee is entitled to claim deduction in terms of the arts. 23(3)(a) and 23(4) of the agreements between India with Canada and Thailand respectively, the question is one of what exactly was the entitlement ? In the absence of any discussion either in the assessment order or in the computation claim, particularly as the extent of relief that can be claimed under these two articles is only after a specific exercise and though Sri Sarangan has very vehemently urged that it is not necessary for the assessing authority to make all these things explicit, so long as he is satisfied, on the strength of the authority of the Supreme Court not only in the case of Electro House (supra) and more so on the basis of the observations and law as declared in the case of Malabar Industrial Co. Ltd. (supra), we are fully satisfied that a situation where a deduction of the present nature is allowed or in the sense deducted from out of the tax liability of the assessee without indicating the basis, can definitely be construed as an order both erroneous and prejudicial, as this is definitely a possibility and it is only because it is per se, not discernable in the revisional order, but definitely gives rise to a situation where the CIT may consider the order as erroneous and prejudicial and the CIT having remanded the matter to the assessing authority, we are of the clear opinion that it cannot be characterized as a situation beyond the realm of s. 263 of the Act, as the order being erroneous and prejudicial is a clear possibility particularly the assessing authority not disclosing the basis.
To test this proposition, if an order which is explicit is passed by the assessing authority and indicating that the assessee is entitled to a particular extent of relief, but if it is with reference to relevant articles of the DTAA and if it is not either a proper computation or not fully in consonance with the same and if it has resulted in a situation of granting a greater relief than the assessee is otherwise entitled to under these agreements and if the CIT can revise such an order without any hassle in the exercise of revisional jurisdiction under s. 263 of the Act and can correct the order which is erroneous and prejudicial to the interest of the Revenue, just because the assessing authority does not spell out the reasons and therefore can avoid scrutiny under s. 268 of the Act, is an argument which is not logical or rational and not acceptable and at any rate on the authority of the Supreme Court in the case of Malabar Industries Co. (supra) is not an acceptable submission.
Though learned counsel for the assessee have placed strong reliance on two judgments of the Bombay High Court and the Delhi High Court in the cases of Gabriel India Ltd. (supra) and Ashish Rajpal (supra) respectively and the Delhi High Court, in fact, has made reference to the decision of the Supreme Court in the case of Max India Ltd. (supra), with great respect, we are unable to apply the ratio of these two decisions to the present circumstance and we are quite satisfied that the law declared by the Supreme Court not only in the case of Electro House (supra) and also in the case at Malabar Industries Co. (supra) fully covers the situation, no further need to discuss with any greater elaboration on the view expressed by the Bombay and the Delhi High Courts.
In the present situation, the CIT having only directed the assessing authority to compute it or recompute 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 DTAA. In a situation of this nature, we arc 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 CIT and for ensuring that the order passed by the assessing authority was left in tact.
One should bear in mind that a relief which is required to be given to any litigant in any given case should be commensurate to the gravity of the situation, to the needs and necessity of the situation and warranting such relief and with reference to the governing statutory provisions. Just because the Tribunal has appellate jurisdiction over the orders passed by the CIT, it does not mean that the Tribunal should interfere with each and every order of the CIT when it is really not warranted and in a situation of the present nature, by calling in aid all legal principles, particularly questions of jurisdiction and by interpreting a statuary provision, to limit or curtail the scope and operation of the provision even when there is no need for it.
We are also not in a position to accept the submission that the materials had been placed before the assessing authority and therefore there should be a conclusion that the authority has applied his mind to the same and there was no question of the CIT interfering by taking a different view etc.
Assessing authority performs a quasi-judicial function and the reasons for his conclusions and findings should be forthcoming in the assessment order. Though it is urged on behalf of the assessee by its learned counsel that reasons should be spelt out only in a situation where the assessing authority passes an order against the assessee or adverse to the interest of the assessee and no need for the assessing authority to spell out reasons when the order is accepting the claim of the assessee and the learned counsel submit that this is the legal position on authority, we are afraid that to accept a submission of this nature would be to give a free hand to the assessing authority, just to pass orders without reasoning and to spell out reasons only in a situation where the finding is to be against the assessee or any claim put forth by the assessee is denied.
We are of the clear opinion that there cannot be any dichotomy of this nature as every conclusion and finding by the assessing authority should be supported by reasons, however brief it may be, and in a situation where it is only a question of computation in accordance with relevant articles of a DTAA and that should be clearly indicated in the order of the assessing authority, whether or not the assessee had given particulars or details of it. It is the duty of the assessing authority to do that and if the assessing authority had failed in that, more so in extending a tax relief to the assessee, the order definitely constitutes an order not merely erroneous but also prejudicial to the interest of the Revenue and therefore while the CIT was justified in exercising the jurisdiction under s. 263 of the Act, the Tribunal was definitely not justified in interfering with this order of the CIT in its appellate jurisdiction.
Therefore, we answer the question posed for our answer in the negative and against the assessee. Both appeal are allowed. Parties to bear their respective cost.
11. A reading of the above judgment of the Hon’ble jurisdictional High Court, in our opinion, does show that it is not necessary for a CIT to specifically say that the order passed by the AO was erroneous and prejudicial to the interests of Revenue when such order was passed without application of mind. This is for the simple reason that an order passed without enquiry by itself makes such order erroneous and prejudicial to the interests of Revenue. It does not matter much that CIT did not specifically mention the AO’s order as erroneous and prejudicial, when he had opened his mind and made observations which are pregnant enough to show such a state of affairs. When an assessing officer who is duty bound under law to carry out certain enquiries on a return filed by an assessee, does not do it in a manner a prudent person would have done, if placed in such a authority, this in our opinion, would definitely make the order erroneous and prejudicial to the interests of Revenue. The CIT had only set aside the assessment and directed the AO to pass a fresh order after giving an opportunity to the assessee. Considering all these, we have no hesitation in upholding the order of CIT. Appeal of the assessee in stands dismissed.
12. Now we take up appeal of the assessee in ITA.1117/Bang/2010 which is directed against an order dt.23.05.2010 of CIT (A)-VI, Bengaluru. Assessee has altogether raised three grounds. These grounds are reproduced hereunder :
13. Ground 1 concerns a disallowance of Rs.36,50,750/-, made as capital expenditure. Ld. AR submitted that the claim was on expenditure incurred by the assessee on writing off advances given for purchase of various assets. As per the Ld. AR, the supplies in pursuance to such advances which were given in the earlier years, were not forthcoming. According to him this was a pure business loss for the assessee, and had to be allowed.
14. Per contra, Ld. DR submitted that assessee in its ground was relying on a decision of the Tribunal in the case of a sister concern, named Khoday Breweries Ltd, [ITA.374/Bang/2012, dt.29.04.2004]. According to Ld. DR, Revenue had moved an appeal against the above decisions before the Hon’ble jurisdictional High Court. As per the Ld. DR, Hon’ble jurisdictional High Court in CIT v. Khoday India Ltd, [ITA.10/2005, dt.02.06.2010], had reversed the finding of the Tribunal and upheld the order of AO and CIT (A).
We have perused the orders and heard the rival contentions. Disallowance made by the AO was for a reason that advances written off by the assessee were for purchasing capital assets. Similar issue had come up in the case of Khoday India Ltd, which was a sister concern of the assessee. The claim was allowed by the Tribunal on assessee’s appeal and the matter was carried to the Hon’ble jurisdictional High Court by the Revenue. Question no.1, framed before the Hon’ble jurisdictional High Court in the said case was as under :
“ Whether the advance amount of Rs.7,97,645/- paid by the Assessee for purchase of capital assets, can be written off as business loss of the Assessee, on the ground that it is incurred in the course of business activity carried on by the Assessee.”
16. Their Lordship at paras 6 and 7 disposed off this question as under :
Having heard the learned counsel on both sides and on perusal of the material on record, we find that the details of the expenditure of Rs.7,97,645/- has been given by the Assessing Officer in the assessment. order and the same has been considered with regard to the advances made for procuring capital items. There is no dispute with regard to the nature of the expenditure as such, and the counsel for the respondent-assessee also submits that it is in the nature of the capital expenditure, but since the said capital assets is not in existence, a deduction has to be given under Section 37 of the Act. On a perusal of the said Section, we find that it is expressly mentioned that, any expenditure in the nature of capital expenditure or personal expenditure of the assessee are excluded from the purview of the expenditure and it is expenditure wholly and exclusively for the purpose of business or profession would have to be taken into account for the purpose of deduction under the same. In this view of the matter, we do not concur with the decision of the Calcutta High Court in the case stated supra since the deduction sought. by the counsel for the respondent-assessee is not mentioned in the section and on a plain reading of the same, in respect of capital expenditure cannot be read into the said section. In fact, in the said decision, while answering question No.4, the Calcutta High Court was concerned with the question as to whether the advances made for the project expenditure in petro-chemical project was for a business purpose or not and while so answering held that the deletion in disallowance was not correct.
We find that since Section 37 does not incorporate such a condition and it expressly excludes all expenditure in the nature of capital expenditure, the contention raised by the learned counsel for the respondent cannot be accepted and hence, the substantial questions of law raised in this appeal have to be answered in favour of the appellant. Accordingly, the order of the tribunal is set aside by allowing his appeal and answering the questions of law in favour of the revenue. Consequently the order passed by the Commissioner of Income tax (Appeals) and the Assessing Officer are confirmed.
18. By virtue of the above judgment we are of the opinion that assessee’s ground in this regard cannot succeed. Ground.1 is therefore dismissed.
Second issue raised by the assessee is with regard to disallowance of expenditure of Rs.5,29,000/-, incurred in an earlier year. AO has listed the items of expenditure at page 3 of the assessment order. The dates of expenditure clearly show that all these pertained to an earlier year. Another contention taken by the assessee is that some of the amounts were shown twice. The amounts seen as repeating are Rs.292/- paid to Ernakulam Sales Tax and Rs.8,553/- paid at Jaipur as sales-tax. One other argument taken by the assessee is that Customs Duty of Rs.4,08,419/- is included another sum of Rs.5,29,000/- paid on behalf of another party. In our opinion assessee was unable to produce evidence for any of the above claims before any of the lower authorities. When a claim that an expenditure normally not allowable, has to be allowed, there lies a strict onus on the assessee to prove its claim. Assessee having not done so AO in our opinion was justified in dismissing the claim. As for the decision of coordinate bench in the case of Khoday Breweries Ltd (supra) for A. Y. 1998-99 relied on by the assessee, facts were different. Resultantly, ground.2 of the assessee is dismissed.
20. Vide its ground.3 grievance raised by the assessee, is that disallowance of Rs.7,27,304/- was made for a reason that no explanation was furnished.
21. We find that even before us assessee has not shown any evidence to support the claim of expenditure. Nothing was brought by the assessee before the lower authorities also. We do not find any reason to interfere in the order of lower authorities. Ground.3 of the assessee stands dismissed.
22. To summarise the result, both the appeals of the assessee are dismissed.
Order pronounced in the open court on 17th day of June, 2016.