MADANLAL LODHA,RAIPUR vs. PR. COMMISSIONER OF INCOME TAX, RAIPUR-1

The captioned appeal is filed against the order of Ld. PCIT, Raipur-1 u/s 263 of the I.T. Act, 1961(herein after referred to as “Act”) dated 11/02/2022 for the AY 2017-18, wherein the order of Ld. AO passed u/s 143(3) dated 29/12/2019 was sought to be revised.

The grounds of appeal raised by the appellant assessee are as under: i). In the facts and circumstances of the case, Ld. Pr. CIT erred in invoking provision sec. 263 and in setting aside the assessment order. The assessment order is neither erroneous nor prejudicial to the interest of Revenue. The revision order is illegal, arbitrary, and not sustainable.

The brief facts of the case culled out from records are that the assessee, who is an individual has filed his return of income for the AY 2017-18 on 28/02/2018 declaring the total income of Rs. 99,93,230/-. Subsequently, case of the assessee was selected for limited scrutiny through Computer Aided Scrutiny Selection (CASS). Statutory notices were issued and compliances in the form of online return submissions have been made by the assessee. A short order was passed by the Ld. AO stating that considering the submission of the assessee and income declared in the return of income filed, the return income of the assessee is found acceptable. Ld. AO’s order u/s 143(3) in the assessee’s case for the year under consideration was in due course of time has been examined by Ld. PCIT, thereby on the basis of certain discrepancies revealed in the order of Ld. AO, which was considered as erroneous so far as prejudicial to the interest of revenue, Ld. PCIT invoked the powers conferred upon him by virtue of section 263 of the Act. Notice u/s 263 dated 16/08/2021 was issued, following with another notice for hearing dated 17/08/2021. Issues pertaining to receipt of secured loan of Rs. 15 Crore from Kotak Mahindra Bank, receipt of unsecured loan and its verification in light of provision of section 68 of the Act and issue

With respect to, the unsecured loan creditors M/s Alishan Estate Pvt. Ltd., Kolkata, M/s Ensign Mercantiles Pvt. Ltd. and Goodman trade Link, it was the observation of the Ld. PCIT that M/s Alishan Estate Pvt. Ltd and Goodman trade Link are companies of Mr. Praveen Agrawal and Mr. Manohar Lal Nangaliaor, respectively, who are entry operators and engaged in the business of proving bogus unsecured loan, share capital, accommodation entry through companies manage by them. The assessee has neither paid any interest or repaid the principal of Unsecured loan. Ld. PCIT further mentioned that the AO failed to verify the genuineness of transaction by cross verification of the lenders. It was also the apprehension of the Ld. PCIT that it is beyond the imagination of human probability that any concern shall pay such huge amount of loan to a person who has no close relation with it or without any documentation.

Ld. PCIT at para 9 of the order u/s 263 has accepted the response of the assessee pertaining to the issue of secured loan received from the bank and unsecured loans of Rs. 30 Lakh from M/s Arihant Complex Pvt. Ltd. With regard to collateral securities offered towards loan from Kotak Mahindra bank, wherein the assessee was a co-borrower, and the other borrowers are his wife and son. Since, the collateral securities were purchased by the assessee in FY 2010-11, therefore, source of funds used for purchasing of such properties were not found to be relevant for the enquiries for the transactions relevant to AY 2017-18, therefore, no adverse inference was drawn. Further, the issue pertaining to loans received from Kolkata based shell companies was also considered as a relevant since such loans were received in the years prior to AY 2017-18.

Ld. PCIT, however, not accepted the contention of the assessee with respect to compensation received under the provisions of RFCTLARR Act, 2013. Ld. PCIT has opined that the onus is on the assessee to establish with supporting documents that acquisition of land has not taken by any of the Acts, mentioned in the fourth schedule of the RFCTLARR Act, 2013. Considering the aforesaid facts and based on various case laws, it was concluded that on account of no enquiry on the issue shows non application of mind for reaching at a conclusion leads the order of Ld. AO to be held as erroneous so far as prejudicial to the interest of revenue. With such observations Ld. PCIT recorded his satisfaction and remanded the order of Ld. AO back for verification to the extent of issue of compensation under the RFCTLARR Act, 2013 and OM dated 06/06/2019 of CBDT for conducting necessary enquiries in the case of assessee for framing fresh assessment order after affording adequate opportunities to the assessee.

Dissatisfied with the aforesaid order of the Ld. PCIT now the assessee is in appeal before ITAT to challenge the validity of the initiation

At the outset, Ld. Authorized Representative on behalf of the assessee (herein after referred to as “AR”) has submitted a written synopsis the same is extracted as under:

Further, the Ld. AR drew our attention to page no. 91 of Assessee’s Paper Book, containing copy of notice issued u/s 142(1) of the I.T. Act, 1961 dated 29/08/2019, wherein a questioner is enclosed as annexure to decide notice and question no. 18 of questioner was pertaining to the issue raised by the Ld. PCIT for invoking the provisions of revisionary proceedings u/s 263. The specific question asked under question no. 18 was “details of compensation received on compulsory acquisition of immovable properties during the year along with computation of capital gain/ loss.” Ld. AR also has shown us the reply submitted towards the said question by the Ld. AO the same was furnished at page 94 of PB having reply dated 14/11/2019 and the assessee’s response to query no. 18 was as under:

Ld. AR Further drew our attention to page no. 35 of the assessee’s PB showing that the acquisition was made under RFCTLARR Act, 2013. Ld. AR also furnished the copy of award u/s 23 of RFCTLARR Act, dated 12/02/2016 showing khasra No. 418/3 of the land of the assessee. Copy of notice u/s 37(2) of the RFCTLARR Act dated 18/03/2016 is extracted here under:

On the basis of aforesaid submission, Ld. AR argued that since the issue has already been examined by the Ld. AO the same is not open for the revision u/s 263 of the I.T. Act. Ld. AR placed is reliance on the following case laws:

Ld AR further explained that the provisions of RFCTLARR Act and its applicability for land acquisition and granting of compensation therein. It is submitted that the acquisition in the case of assessee is not made under any enactments listed in Fourth schedule to RFCTLARR Act, 2013. Since the acquisition was for the purpose of construction of Railway crossing Bridge at Shankar Nagar, VIP Colony, which was acquired by the notice issued by Bhu-arjan-adhikari (Land Acquisition Officer) and Anu-vibhagiya-adhikari (Sub-Divisional Officer),Raipur (C.G.), accordingly, the only possibility is that the case of assessee, in case if could have fall under any enactments listed in Fourth schedule to RFCTLARR Act, 2013, the same may have fall under National Highways Act, or Railways Act, 1989. But, in absence of any such information in the orders of acquisition, the compensation received by the assessee is covered by section 96 of the RFACTLARR Act, 2013 and, therefore, the benefit of exemptions as clarified under the CBDT’s Circular No. 36/2016 dated 25/10/2016, shall be available to the assessee. Ld. AR further contradicted the observations of Ld. PCIT that it is the onus on the assessee to establish that the compensation on acquisition of land under the RFCTLARR Act, 2013, does not fall under the enactments listed in Fourth schedule to RFCTLARR Act, 2013, which is impossible to be substantiated in absence of existence of any such information. It was the further contention of the Ld. AR that under such facts and circumstances there was no evidence on the basis of which it can be interpreted that the acquisition was made under any of the enactment mentioned in the Fourth Schedule of RFCTLARR Act, 2013. With regard to reliance of the Ld. PCIT on Office Memorandum (OM) dated 06/06/2019, it was the submission that the said office memorandum is applicable only in the cases where acquisition was made under Fourth Schedule enactments, however, in the present case assessee has explained each and every aspect to establish that the acquisition was not covered by any such enactment. It is also submitted that the OM referred to deals with acquisitions other than the acquisitions under RFCTLARR Act, 2013 and in context of Section 105(1) and (3) of the RFCTLARR Act, 2013 which deals with Fourth schedule enactments, whereas the acquisition in the case of assessee was under the RFCTLARR Act, 2013 and the same is not covered by any such enactment.

Ld. AR also furnished before us the assessment order u/s 143(3) r.w.s. 263, r.w.s. 144B of the I.T. Act. Dated 24/02/2023, in the case of Shri Mahendra Kumar Lodha, who is the co-owner in the said property for which the compensation was jointly received by the assessee and the other to co-owners, who are also brothers of the assessee. Extract of the finding in the case of Shri Mahendra Kumar Lodha is extracted as under: “From the perusal of the reply, it has been observed that the compulsory acquisition of land was made for construction of railway crossing bridge and land was owned jointly by the assessee and his two brothers holding equal shares. As per section 96 of RFCTLARR Act “income tax shall not be levied on any award agreement made under the Act except as provided u/s 46 of the Act. The above compensation receipt was exempt u/s 96 of RFCTLARR Act as the land of assessee was acquired under the provisions of RFCTLARR Act. The fact may be verified from notice dated 18.03.2016 issued by Land Acquisition Authority u/s 37(2) of RFCTLARR Act. A copy of the same has also been attached by the assessee. The assessee also Land Acquisition Officer and Sub Divisional Officer wherefrom the fact of delectation of compensation on compulsory acquisition of land.”

With the aforesaid submissions it was the submission of Ld. AR that since the order of the Ld. AO was not found to be erroneous so far as prejudicial to the interest of revenue, therefore, the proceedings initiated u/s 263 and order passed are extraneous, illegal, arbitrary, thus, are to be rendered as not sustainable.

In contradiction, opposing the contentions raised by the assessee Ld. CIT DR has vehemently supported the order of Ld. PCIT, has submitted that Ld. PCIT has rightly invoked the provisions of sections 263 in initiating the revisionary proceedings against the assessee, since the AO was completely failed to apply his mind and made necessary enquiry pertaining to allowability of exemption on the compensation received under the RFCTLARR Act, which is further dependent upon the examination of certain conditions mentioned in OM of CBDT dated 06/06/2019 and provisions of RFCTLARR Act. Under such circumstances when the necessary enquiries were not conducted by the AO, though the query was raised and responded by the assessee, but no further enquiries with respect to satisfaction of applicable provisions of law to allow the impugned exemption of Income tax were carried out, the exemption claimed by assessee has been abruptly allowed without any speaking observations in the assessment order, which shows that there

We have considered the rival contentions, perused the material available on record and case laws referred to. In the present case, the contentions of Ld. AR pertaining to allowability of exemption from Income Tax on the receipt of compensation under RFCTARR Act, which were not found acceptable by the Ld. PCIT saying that the acquisition of land was to build a railway bridge on railway crossing of Shankar Nagar, Raipur, thus, the onus is on the assessee to state with supporting documents that acquisition of land has not taken by any of the Acts mentioned in Fourth Schedule of RFCTLARR Act. It was the observation of Ld. PCIT that the Ld. AO was unable to make necessary enquiries which were mandatory under the provisions of RFCTLARR Act, as well as CBDT’s OM dated 06/06/2019, such observation of the PCIT are found to be correct and justified on perusal of the queries raised by Ld. AO, reply by the assessee and thereafter no further enquiries by the Ld. AO on the aspects pointed out by the Ld. PCIT, thus proceedings initiated assuming the powers conferred upon the Ld PCIT in terms of explanation 2 to section 263 of the I.T. Act, we, therefore, do not observe any substance in the contention raised by the Ld. AR in this respect that enquiries were conducted by the Ld. AO and the issue was examined, therefore once the issue is examined by the AO the same is not available for invoking the revisionary proceedings. Accordingly, the first limb of the conditions required for re- 263 that the order of the AO should be erroneous has been satisfied in the present case.

However, whether the order which is considered as erroneous was likewise prejudicial to the interest of the Revenue, which is to be necessarily determined according to the second limb of conditions as prescribed by section 263 of the Act. On perusal of the order u/s 263, it is observed that the said order is silent on the issue and also found to be deficient in proving as to how the order of Ld. AO, which is held as erroneous is also prejudicial to the interest of the Revenue. Ld. PCIT has entrusted the onus on the assessee to prove that the acquisition of land on which the compensation was received is not comprised by the enactments mentioned in Fourth Schedule of RFCTLARR Act, 2013. To this specific query, the assessee has tried to explain each and every aspect before the Ld. PCIT, the response of the assessee is extracted as under:

On perusal of the aforesaid response of assessee wherein the assessee has submitted an exhaustive response explaining all the possible point of view those could possibly have involved pertaining to the query of Ld. PCIT to satisfy him that the award of the compensation to the assessee was under RFCTLARR Act, and there was no nexus with any of the enactments as prescribed under Fourth Schedule of the RFCTLARR Act, and accordingly, the exemption available under section 96 of the RFCTLARR Act, cannot be denied.

After giving a thoughtful consideration to the submissions of the Ld. AR and on perusal of various information, documents and evidence, mainly notice u/s 37(2) of RFCTLARR Act, dated 18/03/2016, award u/s 23 of RFCTLARR Act, dated 12/02/2016 and other supporting documents like Ekrar-nama, Bhugtan-patrak etc issued by Bhu-arjan-adhikari and Anuvibhagiya Adhikari, Raipur, C.G. All such information was duly furnished by the assessee and were available before the Ld. PCIT. The Ld. PCIT apart from putting the liability on the shoulder of the assessee to substantiate it otherwise, was unable to surface any cogent information/evidence to prove that the acquisition of land of the assessee is connected and acquired under any of the enactments prescribed under Fourth Schedule of the RFCTLARR Act, accordingly, the contentions raised by the Ld. AR, are found to be justifiable, having material substance, which constitutes that the acquisition of land in the case of assessee was under RFCTLARR Act, and is not covered by any of the enactments as prescribed under Fourth Schedule of the RFCTLARR Act, which is further substantiated by the department itself, when the same issue in the case of co-owner of the land Mr. Mahendra Lodha, who has received 1/3 share of the impugned compensation a/w the assessee, which is disputed in the present case, wherein the exemption from income tax has been allowed, without any adverse inference, considering that the receipt of compensation was exempt u/s 96 of RFCTLARR Act.

In terms of aforesaid discussions, deliberations and observations, we are of the considered opinion that the order of the Ld. AO, though found to be erroneous but could not be established by any supporting material that the same is also prejudicial to the interest of revenue. The prejudice from the order of Ld. AO was only an anticipation / presumption of the Ld. PCIT, which can not be the basis for initiation of proceedings

In the result, appeal of the assessee stands allowed.