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TMI Blog1990 (11) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... started computation on the basis of the net loss as per profit and loss account, to which he added certain inadmissible expenses. The Assessing Officer thereafter added agricultural income from coconut garden and Woddaegooda estate. Thereafter, he added back the donation, interest to partners etc., including coconut garden expenses. The Assessing Officer computed the income at Rs. 2,48,730 net. The agricultural income included was considered at Rs. 2,79,475. 3. For assessment year 1985-86, the assessment was made on similar lines. The assessee filed the return showing a loss of Rs. 2,77,430. Similar disallowances were made. The ITO started computation after considering the net profit as per profit and loss account at Rs. 5,52,379. Gross income after allowing investment allowance etc., was shown at Rs. 16,46,791, in the assessment order, from which the ITO deducted agricultural income from coconut garden income and profit from Woddaegooda estate amounting to Rs. 14,33,657. Thus, the net income worked out to Rs. 2,13,134, from which certain admissible allowances were allowed. 4. For the assessment year 1986-87, the assessee filed a return showing an income of Rs. 1,56,516 before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price paid for acquiring the standing trees and that the transaction cannot be bifurcated into separate deals depending on what was there on the estate at the time of the purchase. Reference was made to the decision in CIT v. Alanickal Co. Ltd. [1986] 158 ITR 630/28 Taxman 504 (Ker.). It was the case of the assessee that the consideration paid by it being for the estate as a whole, no separate cost of acquisition for the timber or the trees can be reckoned. It was then contended that if the cost cannot be determined, then it is not an asset at all relying on the decision in Syndicate Bank Ltd. v. Addl. CIT [1985] 155 ITR 681 (Kar.). It was as such urged that there was no error in the ITO's order for not considering the non-existent income under the head 'capital gains'. As far as the omission of income from coconut garden, the Commissioner noted that the assessee had stated that it had no objection to the assessment thereof but in respect of the allocation of loss amongst the partners, it was urged that there was no error. 6. The assessee also claimed that since racks and frames were used in the assessee's business of tile manufacture, the investment allowance was proper. In res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erala v. Karimtharuvi Tea Estate Ltd. [1966] 60 ITR 275 (SC), Beverley Estates Ltd. v. CIT [1979] 117 ITR 302 (Mad.) and CIT v. M. Ramaiah Reddy [1986] 158 ITR 611/24 Taxman 764 (Kar.). 11. The Commissioner also took into account the submissions of the assessee that since there was no cost for acquiring the trees and hence sale of the same cannot be charged to capital gains. This view was not accepted by the Commissioner as the payment of consideration made for acquiring the estate was not only for the land but for all the other assets standing on the estate. He cited one case decided by the Appellate Tribunal which decision was approved by the Hon'ble High Court in Beverley Estates Ltd.'s case in which the cost of trees had been fixed on estimate by the Appellate Tribunal. 12. The Commissioner observed that it was not the case of the assessee that when the estate was acquired, no price was payable for the trees standing on the land or that the existence of the trees was not in the contemplation while fixing the purchase price of the estate. He, therefore, did not accept the contention of the assessee that there was no cost of acquisition for the trees. The Commissioner also re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 80J. He observed that this issue was, therefore, required to be gone into further, which requires to be remitted to the ITO. 16. The next point related to the allowance of depreciation on building. The Commissioner observed that it was only in the case of approved hotels that extra shift allowance was allowable on machinery or plant excluding the building. The claim was not accepted by the Commissioner after considering the details available in the Appendix I, Part I under Rule 5. According to the Commissioner, there was absolutely no case for allowing extra shift depreciation on buildings. 17. The Commissioner, therefore, concluded that the action of the ITO for those years was erroneous and prejudicial to the interest of the revenue. The regular allowances would have to be withdrawn. The objections of the assessee were rejected. The CIT set aside the assessment orders for fresh disposal by the ITO as per law. Hence, these appeals by the assessee. 18. The common contentions and grounds of appeal by the assessee for different years are that the order of the Commissioner is against law, materials and evidence on the facts of the case and that the Commissioner erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal relied on by the assessee requires to be re-considered. 20. It is the appeal by the assessee that the Commissioner was not justified in not considering the contention of the assessee on the basis of the decision of the Hon'ble Kerala High Court in the case of Syndicate Bank Ltd. that when the cost of acquisition in the given case cannot be determined, there cannot be any liability to capital gains tax. 21. The assessee also challenges the direction given by the Commissioner in respect of extra shift depreciation allowance on buildings. 22. At the time of hearing, the assessee's learned counsel sought permission of the Bench to submit an additional ground, common to all the years, as reproduced below : "The exercise of the jurisdiction by the Commissioner under section 263 of the Act is without jurisdiction as he has no power under the said section to take any action in regard to escaped income. He failed to note that the liability to capital gains regarding sale of shade trees in the appellant's case has not been considered at all by the Income-tax Officer, and, therefore, the income must be considered as an 'escaped income' which can be assessed by the Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present case of the assessee, there was no cost of acquisition of the trees at the time of its purchase, which was the subject matter of the sale by the assessee during the year. It is repeatedly urged that in the absence of any cost of acquisition, no capital gains is attracted and, therefore, the Commissioner went wrong in coming to the conclusion as he did in the present case and as mentioned earlier. The assessee's learned counsel made extensive arguments in respect of other points also which we are taking into account. 26. The learned Departmental Representative supports the order of the Commissioner while highlighting some of the points noted by him that the order of the assessment was erroneous and that the jurisdiction of the Commissioner under section 263 is quite extensive. It is also argued that the case laws relied on by the assessee's learned counsel would have no application to the facts of the present case as most of them are under different laws and statutes. In respect of other points raised by the assessee, it is urged that the Commissioner had dealt with the various aspects of those different points also and has given appropriate directions wherever called fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 300. The Appellate Tribunal held that although the sale was of the business as a going concern, the value of the stock-in-trade could be traced. But the Hon'ble Supreme Court held that the sale was the sale of the whole concern and no part of the price paid was attributable to the cost of the land and no part of the price was taxable. It was observed at page 305 of the said decision that the mere fact that in the schedule the price of land is stated does not lead to the conclusion that part of the slump price was necessarily attributable to the land sold and that there was no evidence that any attempt was made to evaluate the land on the date of sale. As the vendors were transferring the concern to the company constituted by the vendors themselves, no effort would ordinarily have been made to evaluate the land on the date of the sale. 30. In the case of Syndicate Bank Ltd. the Hon'ble High Court has, amongst other things, observed that if the cost of acquisition and/or the date of acquisition of the asset cannot be determined, then it cannot be described as an "asset" and, therefore, its transfer is not subject to income-tax under the head "capital gains". The Hon'ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x has escaped assessment for that year. In the present case, it is no body's case that there was failure on the part of the assessee to make a return under section 139 for the year under consideration or to disclose fully and truly all the material facts necessary for assessment for that year. It has been held by the various courts that the duty is on the assessee to disclose fully and truly the material facts necessary for assessment and the duty of the assessee does not extend so as to put the obligation on the assessee to inform the ITO as to what inference he should form from those facts and materials available. Thus, it could be seen that the power prescribed under section 147 are for specific and cogent reasons. In fact, the Assessing Officer would have to record reasons as to why action under section 147 should be taken. Sufficiency of such reasons may not be questioned, but reasons will have to be recorded. As far as we could see from the facts and materials placed before us and as we could gather from the orders of the authorities below as well as from the submissions made, it could not be said that the assessee has failed to furnish any material fact necessary for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on his part to levy penal interest cannot be construed under any circumstances as an act of waiver. The Hon'ble High Court further held that the Tribunal was justified in sustaining the order of the Commissioner under section 263 directing the ITO to consider the levy of penal interest. Similar view was expressed by the Hon'ble Allahabad High Court in the case of Addl. CIT v. Saraya Distillery [1978] 115 ITR 34, in which on the facts of that case, it was observed that the Tribunal held that the omission or failure of the ITO to pass positive order refusing to assess interest could not be said to be erroneous. That view of the Tribunal was taken by the Hon'ble High Court as not correct. It was observed that an order can be said to be erroneous either when it does not decide a point or record a finding on an issue which ought to have been done or decided it wrongly. 36. In the case of Beverley Estates Ltd. the Hon'ble Madras High Court on the facts of that case noted that the assessee owning coffee estates, sold certain trees, which had been planted and nurtured by it for providings shade to the coffee plants, as standing trees though they had fallen down due to natural causes.T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he husband of the assessee, was erroneous and prejudicial to the interest of the revenue. It was observed that since no enquiry was made by the ITO, the assessment must be held to be prejudicial to the interest of the revenue. The order under section 263 was held to be correct. Similar view was expressed by the Hon'ble Patna High Court in the case of CIT v. Belal Nisa [1988] 171 ITR 643/39 Taxman 167. 40. In the preceding paragraphs, we have given our opinion that on the facts of the present case, it could not be said that there was escapement of income as contemplated by section 147. Even if action under section 147 has been taken that would not effect the jurisdiction of the Commissioner under section 263, as expressed by the Hon'ble Madhya Pradesh High Court in the case of Jiwajirao Sugar Co. Ltd. v. CIT [1989] 176 ITR 182. 41. In the paper book placed before us along with other connected papers, in the copy of the sale deed made on 3-11-1965, details about the properties purchased by the assessee from the previous owner were mentioned. Amongst other things, the vendor concerned transferred to the purchaser by way of sale, the coffee estate known as Woddaegooda Estate and mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that any attempt was made to evaluate the land on the date of sale. The Hon'ble High Court, as mentioned earlier, in the case of Syndicate Bank Ltd. has held amongst other things, that the cost of acquisition has to be examined by the Appellate Tribunal in the particular case or at its instance by any other authority having regard to the facts of the case in the light of the decision dealt with by the Hon'ble High Court. The Hon'ble High Court has further directed in the case of Syndicate Bank Ltd. that if this aspect of the matter is found against the assessee, then the assessee may be afforded opportunity to exercise the option under section 55(2) of the IT Act, 1961. 43. In the case of A.N. Transports v. CIT [1990] 185 ITR 134, the Hon'ble Kerala High Court on the facts of that case, noted the facts regarding the capital gains tax. The assessee-company obtained route permits which were transferred to a firm, partners of which were shareholders of the company. Capital gains was held to be attributable to route permits which was liable to be taxed and that the cost of acquisition of the route permits was not nil and could be worked out. In that Kerala case, a portion of the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t if the finding on this point is against the assessee, the assessee should be given opportunity to exercise his option under section 55(2) of the IT Act, as applicable to the assessee for the year 1984-85. To that extent the order of the Commissioner is modified as far the capital gains arising out of the sale of trees is concerned. The assessing officer would take up the above directions to ascertain the cost of the trees etc. in his fresh order. There are other grounds for which the Commissioner has taken action under section 263 and as discussed by us in the earlier preceding paragraphs. The assessee has also given his objections at the appropriate places. We are of the opinion that the conclusion of the Commissioner in respect of those other points, like consideration of income from coconut garden, allocation of loss between the partners, investment allowance etc., we are of the opinion that the Commissioner's direction in respect of those items were also reasonable and proper. 46. Thus, having regard to the entirety and the totality of the facts and circumstances of the case, we are of the view that the order of the Commissioner under section 263 is proper and sustainable. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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