2014 (8) TMI 862 - AT - Income Tax

Jurisdiction of CIT u/s 263 - revision - erroneous order - nature of receipt of compensation - revenue or capital receipt Held that - The scheme of the IT Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue - If due to erroneous order of the assessing officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue relying upon Malabar Industries Co. Ltd., Vs. CIT 2000 (2) TMI 10 - SUPREME Court while making assessment on assessee, the ITO acts in a quasi-judicial capacity - An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under Sections 263 and 264 - the AO carried on the enquiry and came to the conclusion that the addition is not warranted - even the Commissioner considered the position that the AO made enquiries, elicited replies and thereafter passed the assessment order. The grievance of the CIT was that the AO should have made further enquiries rather than accepting the explanation of the assessee - it cannot be said that it is a case of lack of enquiry - the CIT is not clear as to what treatment is to be given with reference to the issue - He wanted the AO to cause further enquiry and he had not stated what enquiry the AO has to do - It is not clear from the order of the CIT whether the receipt of ₹ 20 crores is to be treated as revenue receipt or as capital receipt - No doubt, in certain cases it may not be possible to come to a definite finding and, therefore, it is not necessary that in all cases, the CIT is bound to express a final view. But the least that was expected is to record the finding that the order sought to be revised is erroneous and prejudicial to the interests of the revenue - When the AO held that the amount paid to M/s. LECC vide agreement dated 5.5.2006 for purchase of land is a capital expenditure and consequent to non-acting on the MOU the assessee got refunded the ₹ 20 crores from M/s. Walden Properties Pvt. Ltd. which cannot be said to be a revenue receipt - assumption of jurisdiction u/s. 263 of the Act by the CIT itself is not proper and the view taken by the AO is one of the possible views and there is no material before the CIT to vary with the opinion of the AO and ask for fresh inquiry - assumption of jurisdiction by the CIT is bad in law Decided in favour of Assessee.

Summary

Issues Involved:
1. Assumption of jurisdiction by the CIT u/s 263 of the Income Tax Act.
2. Examination of the receipt of Rs. 20 crores as compensation and its taxability.
3. Validity and genuineness of the transactions involving M/s. Walden Properties Pvt. Ltd., M/s. Indu Projects Ltd., and M/s. Lakshmi Engineering & Construction Company (LECC).
4. Examination of the MOU and related transactions.
5. Alleged failure of the Assessing Officer (AO) to conduct a detailed enquiry.

Detailed Analysis:

1. Assumption of Jurisdiction by the CIT u/s 263:
The CIT invoked Section 263 of the Income Tax Act, arguing that the AO's order was erroneous and prejudicial to the interests of revenue. The CIT believed that the AO failed to conduct a detailed enquiry into the receipt of Rs. 20 crores from M/s. Walden Properties Pvt. Ltd. and the subsequent payment to M/s. LECC. The CIT directed the AO to redo the assessment after proper enquiry.

2. Examination of the Receipt of Rs. 20 Crores as Compensation:
The CIT observed that the assessee received Rs. 20 crores from M/s. Walden Properties Pvt. Ltd. as compensation, which was not offered to tax. The CIT noted that the AO accepted the assessee's explanation without further enquiry, which led to a potential revenue loss. The CIT emphasized that the AO should have examined whether the transaction was a colourable device to evade tax.

3. Validity and Genuineness of Transactions:
The CIT questioned the genuineness of the transactions involving M/s. Walden Properties Pvt. Ltd., M/s. Indu Projects Ltd., and M/s. LECC. The CIT noted discrepancies in the MOU, such as the difference in survey numbers and the timing of payments. The CIT suspected that the assessee might have used unaccounted cash for the payment to M/s. LECC and viewed the transactions as potentially colourable.

4. Examination of the MOU and Related Transactions:
The CIT scrutinized the MOU dated 05.05.2006 between the assessee and M/s. LECC, highlighting inconsistencies such as the difference in survey numbers and the timing of payments. The CIT also examined the MOU dated 31.03.2007, where the assessee claimed to have foregone Rs. 20 crores. The CIT argued that the AO failed to investigate these discrepancies and the overall genuineness of the transactions.

5. Alleged Failure of the AO to Conduct a Detailed Enquiry:
The CIT contended that the AO did not make necessary enquiries into the transactions and accepted the assessee's explanations without proper scrutiny. The CIT relied on the decision of the Special Bench, ITAT, Chennai in the case of Rajalakshmi Mills Ltd. v. ITO, which held that the Commissioner can regard an order as erroneous if the AO failed to make necessary enquiries.

Findings and Conclusion:
The Tribunal examined the CIT's invocation of Section 263 and the AO's assessment order. The Tribunal noted that the AO had conducted an enquiry into the transactions and accepted the assessee's explanations. The Tribunal observed that the CIT's concerns were based on surmises and conjectures without concrete evidence. The Tribunal concluded that the AO's order was one of the possible views and that the CIT's assumption of jurisdiction u/s 263 was not proper. Consequently, the Tribunal set aside the CIT's order and allowed the assessee's appeal.

Order:
The appeal of the assessee was allowed, and the order of the CIT was set aside. The Tribunal emphasized that the AO had conducted an enquiry and that the CIT's concerns were not supported by concrete evidence. The Tribunal concluded that the assumption of jurisdiction by the CIT was not proper and that the AO's order was not erroneous or prejudicial to the interests of revenue.