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TMI Blog2018 (5) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the aforesaid items. The copies of the order sheet entries is available on record. From the order sheet of the Ld CIT we note that that is no allegation that order of the AO in respect of the aforesaid items is erroneous in so far prejudicial to the interest of Revenue. Consequently it can be inferred that the order of the AO has been held as erroneous in so far prejudicial to the interest of Revenue in respect of the aforesaid items without giving portability to the assessee. Therefore in such circumstances we are of the view that the Ld CIT has exceeded his jurisdiction u/s 263 - Decided in favour of assessee - ITA No. 1011/Kol/2017 - - - Dated:- 27-4-2018 - Shri Waseem Ahmed, Accountant Member And Shri S.S.Viswanethra Ravi, Judicial Member By Appellant : Shri S.M. Surana, Advocate By Respondent : Shri P.K. Srihori, Ld. CIT, DR ORDER Per Waseem Ahmed, Accountant Member The assessee has filed this appeal disputing the order of Commissioner of Income Tax (IT TP), Kolkata passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) dated 30.03.2017 who set aside assessment order dated 17.03.2015 for assessment year 2012-13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se was selected under scrutiny and accordingly the assessment was framed under section 143(3) of the Act by the AO wherein the income declared in the income tax return was accepted vide order dated 17.03.2015. However, the Ld CIT u/s 263 of the Act was of the view that the income of the assessee has been under assessed on account of the following. 1. The assessee entered into an agreement with Smt. Indu Kocher and others who are the legal heirs of Shri Mohan Lal Kochers vide agreement dated 09.08.2009 on certain terms and conditions to acquire the rights in the properties under litigation. In-fact Smt. Indu Kocher and others acquired the legal right in the partnership firm namely Bharat Industries Commercial Corporation (for short BICC) after the demise of Shri Mohan Lal Kochers. In fact late Shri Mohan Lal Kochers constituted a partnership firm namely BICC on 23-12- 1972 in which he was holding 50% shares. BICC was the owner of certain immovable properties which were to be transferred to the legal heirs of Mohan Lal Kochers. But some litigation in respect of such properties was pending in the court of law. The assessee has taken the right from the legal heirs of Shri Moh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been treated as PE/AE of the star Consortium Pte. Ltd. 7. The assessee has also suffered loss of ₹ 11,10,854.00 on account of difference in the exchange rate in foreign currency. However as per the learned CIT there was no agreement with the party for bearing the loss on account of difference in the exchange rate. Thus the same should not have been allowed by the AO as deduction while computing the income under the head business and profession. 8. The assessee was entitled to claim reimbursement of travelling expenses from Darjeeling organic tea estates Pvt. Ltd. But the assessee without showing any reimbursement of expenses has claimed travelling expenses of ₹ 1,52,104.00 only. 9. The assessee has shown a receipt of a gift of ₹ 73,62,570.00 from his father Shri Zoravar Singh. As per the learned CIT the assessee was required to provide the details of the donor s such as identity, capacity and genuineness of the gifts. In view of above, a notices u/s 263 of the Act was issued vide letter number CIT/IT TP/Kol/263/2016- 17/2724 dated 10 March 2017 and CIT/IT TP/Kol/263/2016- 17/4776 dated 15.3.2017 to the assessee for holding the order of the AO as e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial investors and institutions in all countries, except Singapore and/or India, from which such fund raising can be had ( Investors ) to complete the transaction. iii. Advising the Mandator on approaching, meeting and engaging with Investors to complete the Transaction. iv. Advising the Mandator in evaluating, negotiating, finalizing and closing the Transaction. v. Advising the Mandator in structuring the Transaction to mitigate risks with respect to financial, regulatory, legal and taxation etc. vi. Any other assistance as required not covered above would be provided subject to mutual agreement and in keeping with the exigencies of successful completion of this Mandate. 3.2 The following activities shall be outside the Scope of Services; a. Commercial, legal or financial Due Diligence. b. Accounting advisory / taxation advisory / legal advisory support c. Any other support (in any form) with any statutory, legal, regulatory or sovereign authority. d. All affairs with regard to the Mandate to be executed and implemented in India will be carried out solely by the Mandator - the Advisors will only be responsible for and will carry out the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee but in the course of the business. 4.2 The remaining queries raised in the show cause notices were not answered by the assessee due to paucity of time as the matter relates to about 4-5 years earlier. The Ld CIT u/s 263 of the Act after considering the submission of the assessee held that the order passed by the AO u/s 143(3) of the Act is erroneous and prejudicial to the interest of Revenue on account of the following reasons:- 1. The amount of expenses incurred by the assessee under the head finance charges and legal expenses are capital in nature as these relate to the capital assets which have been acquired by the assessee from Smt. Indu Kochar others. As such Smt. Indu Kochar others have relinquished their rights, title and interest in the firm namely BICC in favour of assessee. The assessee has incurred an expenditure of ₹33,47,700 for the purpose to acquire the shares held by Shri Indu Kochar and others in the immovable properties of BICC. As such the assessee adopted different method of acquiring the immovable properties held by BICC. The business as claimed by the assessee was not supported on the basis of any trade licence or any other licence from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld this opinion that in this case the assessment order passed u/s 143(3) of Income Tax Act, 1961 on 17.03.2015 at an income of ₹ 11,52,020/- has been passed without making inquiries or verification which should have been made by the Deputy Commissioner of Income Tax (International taxation), Circle 1(1), Kolkata (Assessing Officer) during assessment proceedings. 35. The Assessing Officer has passed an erroneous order which is prejudicial to the interest of revenue and accepting that order and not setting aside the same will cause loss to the revenue, all the more when the same has been passed without proper documents, enquiries, verification of facts, investigation, application of law etc. If this kind of order is not subject to review, it may hamper the implementation of the provisions of Income Tax Act, 1961 in true and correct manner. The Principal Commissioner/Commissioner of Income Tax u/s. 263 has been assigned the duty in the interest of justice to review such kind of orders. The order of the Commissioner of Income Tax passed u/s 263, itself is subject to judicial scrutiny by judicial authorities and order of the Assessing Officer made u/s 143(3) in furtherance to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,2009 with Indu Kochar and others for recovery on their valuable properties on certain terms and conditions including that all expenses shall be met by the assessee. The assessee shall keep refundable security deposit of ₹ 1.25 crores or shall be pay non-refundable amount of ₹ 1.25 lakhs each month in lieu of the security deposit. If no recovery of the asset was made, the assessee was not entitled to any fees and the expenses incurred shall also not be recoverable from Indu Kochars and others. In case the assets or part of the assets were recovered then Smt Indu Koacher others shall first Pay all the expenses incurred by the assessee on litigation and 50% of the value of the assets so recovered as fee of the assessee and if they fail to pay the fee then the assessee shall be entitled to retain and sale 50% of such assets for his remuneration. The assessment was completed on 17.3.2015 u/s 143(3) and there was no discussion in the assessment Older on any issue. However effective hearing took place on at least 8 occasions and all the details called for were filed vide paper book page 68, 97, 141, 165, 166, 193 and 241. The Show cause notice issued on 10.3.2017 by PC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred by the assessee's on the properties held by them as capital assets. Reply for the 2nd show cause notice All the details were filed before the AO as well as the Ld Pr CIT. All the 4 issues were explained vide page 294-295 of the paper book. On issue no. 1 of the second notice which was with regard to the set off brought forward details were filed. The same was correctly claimed and the same was subject matter of records requiring no set aside of assessment. There is no adverse comment of the Ld Pr CIT on other 3 issues. Rather the said 3 issued were dropped in the final order. The Ld Pr CIT has taken up some other issues vide Para 20(c) to Para 20(n). On the said issues, the Pr CIT never felt that the decision of the AO on those issues were erroneous or prejudicial to the interest of revenue. The same does not find place in both the show cause notices. Not only that vide order sheet entry on 21.3.2107 on the issues raised in show cause notice various details were required. The order sheet specifically states that only the details are required on certain matter. There is no whisper that the decision of the AO on those issues was erroneous or prejudicial to the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration has stayed for the period of more than 187 days in India who was also the employee of SCPL, therefore the assessee should have been treated as PE of SCPL. The Ld CIT u/s 263 of the Act has just given a direction to verify certain facts therefore the assessee should not have any grievance on the order passed u/s 263 of the Act. The assessee was having opportunity to represent his case before the AO against the directions given by the Ld CIT u/s 263 of the Act. The Ld DR vehemently supported the order of Ld CIT. 6. We have heard the rival contentions of both the parties and perused and carefully considered the materials available on record; including the judicial pronouncements cited and placed reliance upon. In the present case the order of the AO has been held as erroneous in so for the prejudicial to the interest of revenue on account of several counts which have already been discussed in the preceding paragraph. Therefore, we are not inclined to repeat the same for the sake of brevity. The assessee has incurred financial charges and legal expenses in relation to the disputed properties as discussed above. These expenses were claimed by the assessee as the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That in the premises stated herein and in consideration of the terms as under:- (a) That the Assignee shall be only entitled to the Assignors 50% of the ultimate realized value of the Assignors shares so restored subject to certain agreed deductions as outlined in this Agreement; and (b) That the Assignee having agreed to advances to the Assignor interest free total sum of ₹ 1.25 Crores simultaneously with the execution of the instant Agreement which was to be retained by the Assignors till the successful completion of the instant Agreement the Assignee has in lieu thereof agreed at the Assignors request to instead give to the Assignor the economic benefit of 1% of the value of the above stated advance amount on monthly basis till the successful attainment of the object of instant Agreement; and (c) That he Assignee shall incur all litigation and other costs with regards to pursuing the litigations and the pursuit of legal and other avenues available to ensure that the Assignors share is restored back to the Assignors. The Assignee shall also make payment of upto ₹ 15 lacs only (Rupees Fifteen lacs only) to Anita Kocher and Sharan Kocher (the expressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovable properties. The realizable value of property was the basis of settlement between the assessee and the owners of the properties. The assessee did not acquire any absolute right upon the settlement of the dispute that he would acquire such immovable properties. Therefore, the finance charges and legal expenses claimed by the assessee as revenue in nature are as per the provisions of law. Moreover, it was also not ascertainable that the assessee would get any benefit out of the properties which are under litigation at the time of incurrence of the expenses as discussed above. The year in which such expenditures were incurred there was no clarity whether the assessee will succeed or not. Therefore, the income of the assessee was dependent upon the event of the case which is going to take place in future. In case the assessee does not succeed in the court of law then there would be no benefit to the assessee out of such expenditures. 6.1 There is also no allegation of the Ld CIT u/s 263 of the Act that the expenditures are not in connection with the business of the assessee. The limited dispute before us is as to whether the expenditure incurred by the assessee is the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HARTAJ SEWA SINGH MEWS III, TIVOLI COURT, 1C BALLYGUNGE CIRCULAR ROAD KOLKATA-70019 Ref: No.: IT/HSS/03/2014-15 Date:20.08.2014 To DDIT(IT)-1(1) Aayakar Bhawan Poorva 110, Shanti Pally Kolakata-700 017 Dear Madam, Ref; PAN No.ABHPS9122R Sub: Documents for the AY 2012-2013 With reference to your above, we would like to submit the following documents and explanation relating to financial year 2011-2012- 1. Details of Business Loss as per annexure-XIII 2. Photocopy of Agreement between Kocher s and Mr Hartaj Sewa Singh Photocopy of Special power of Attorney form Kocher s to Mr. Hartaj Sewa Singh as per annexure-XIV. 3. Photocopy of Reimbursement of Expenses bills of Paras Kuhad Associates and PKA Advocates- as per annexure-XVI. 4. Photocopy of Invoice raised by the Safe Consortium to Darjeeling Organic Tea Estates Private Limited along with Mandate Letter as per annexure-XVI 5. Photocopy of KPMG agreement with invoice and printout of e-mail for their opinion about fees paid to Star Consortium Pte Ltd by the Safe Consortium. We have made the details on the basis of our books of accounts and we hope tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kolkata-700 017 Dear Sir, Ref. PAN No.ABHPS 9122R Sub: Documents for the AY 2012-2013 With reference to above, we would like to submit the following documents and explanation relating to financial year 2011-2012- 1. Capital Assets acquired from Overseas Income: In last 3 years i.e. AY 2009- 2010, 2010-2011 2011-2012 no capital assets acquired from Income earned in overseas. 2. Self Attested photocopy of passport of last 3 years as per annexure-XX. 3. Last 2 years i.e. AY 2010-2011 2011-2012 Balance Sheets with Tax Audit Report-as per annexure-XXI. 4. Wealth Tax Return for AY 2012-2013 as per annexure-XXII. These details are made on the basis of books of accounts and we hope that this will help your honour to complete the assessment proceeding. We assure to reply your any other query in this regards. Thanking You Yours faithfully For Hartaj Sewa Singh Sd/- Lalit Choudhury (Authorized Representative) 3rd Feb, 2015 The Deputy Commissioner of Income Tax Cir-1(1)/Kolkata Aaykar Bhawan Purva Kolkata Dear Sir, Our Client: Mr. Hartaj Seva Singh PAN:-ABHPS 9122R Asst/. Yr: 2012-13 Re:- Scrut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009 between Mr. Hartaj Sewa Singh and Smt. Indu Kocher, Sri Shashank Kocher and Sri Mayank Kocher (Photocopy of the agreement has been already submitted to you on 20.08.2014 as per annexure-XIV), it was agreed that MR. Hartaj Sewa Sigh shall pay as advance to Kocher s interest free sum of ₹ 1.25 crore simultaneously with the execution of the above agreement which was too be retained by the Kochers till the successful completion of the above agreement. The Kocher s has in lieu thereof agreed at Mr. Hartaj Sewa Singh request to instead give to the Kocher s 1% of the value of the above stated advance on monthly basis till the successful attainment of the object of above referred agreement. During the year Mr. Hartaj Sewa Singh has paid ₹ 15,00,00,000/- (Rupees fifteen lacs only) i.e. ₹ 1.25 lac per month. This ₹ 15,00,000/- has been debited to Finance Charges. We have deducted tax at source @ 10% u/s. 194A of the Income Tax Act, 1961 and deposited to the credit of the Central Government within due dates. 6. Details of Legal Charges As per Article no (c), Page No. 3 of agreement dated 09.08.2009 between Mr. Hartaj Sewa Singh and Smt. Indu Kocher, Sri Shas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 In respect of the above issues we find that no notice u/s 263 of the Act has been issued to the assessee before holding that the order passed by the AO is erroneous in so far prejudicial to the interest of revenue. 7. On perusal of order sheet entries maintained by the Ld CIT u/s 263 of the Act it was revealed that the necessary details were called for by the Ld CIT which were duly filed by the assessee. Thereafter the order was passed by the Ld CIT u/s 263 of the Act holding the order of the AO as erroneous in so far prejudicial to the interest of the revenue in respect of the aforesaid items. The copies of the order sheet entries is available on record. From the order sheet of the Ld CIT we note that that is no allegation that order of the AO in respect of the aforesaid items is erroneous in so far prejudicial to the interest of Revenue. Consequently it can be inferred that the order of the AO has been held as erroneous in so far prejudicial to the interest of Revenue in respect of the aforesaid items without giving portability to the assessee. Therefore in such circumstances we are of the view that the Ld CIT has exceeded his jurisdiction u/s 263 of the Act. In holding s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice. From the above judgment, it is revealed that the assessee must be afforded an opportunity of being heard. In the instant case the learned CIT called for the details as noticed from the order sheet entries in respect of the aforesaid items. The necessary details were duly submitted by the assessee before the Ld CIT. But thereafter there was no mention either in the notice or in the order sheet that the order of the AO in respect of the aforesaid items is erroneous and prejudicial to the interest of the revenue. As per the provisions of law it is not necessary to issue notice u/s 263 of the Act but it is obligatory for the Ld CIT to afford the opportunity of hearing before holding the order of the AO as erroneous insofar as prejudicial to the interest of the revenue. In view of above, we hold that the order passed by the learned CIT u/s 263 of the Act is not sustainable and accordingly we quash the same. Hence the grounds of appeal of the assessee are allowed. 8. In the result, assessee s appeal stands allowed. Order pronounced in open court on 27/04/2018. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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