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TMI Blog2024 (3) TMI 378X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 139(1) of the Act on 30.11.2018 declaring total income at Rs. 1432,82,52,530/-. The case of the assessee was selected for scrutiny under CASS and the assessment was ultimately framed under section 143(3) of the Act vide order dated 22.03.2021 with an assessed income of Rs. 1470,93,38,584/-. Thereafter the ld. PCIT issued notice under section 263 of the Act dated 30.11.2022 to the assessee to explain as to why the assessment framed under section 143(3) of the Act dated 22.03.2021 should not be revised/set aside on account of being erroneous in so far as prejudicial to the interest of revenue citing five issues, which are as under:- (i) Applicability of section 56(2)(x) on acquisition of leasehold land & building; (ii) Disallowance of expenditure on scientific research u/s 35(1)(i) of the Act; (iii)Disallowance of claim u/s 43B in relation to reversal or write back of provision for liabilities; (iv) Disallowance of deduction claimed u/s 80JJAA; (v) Disallowance of prior period expenses. 4. The assessee replied to the show-cause notice vide written submissions dated 13.01.2023, 13.02.2023 & 13.03.2023, the copies of which are filed at pages no. 30 to 76 of the paper boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id down in Explanation 2 to Section 263 of the Act to validly initiate the revisionary proceedings was never met and, therefore, the jurisdiction invoked by the ld. PCIT is wrong and invalid. The ld. A.R. argued that the ld. PCIT never examined the case records himself and did not form his own independent opinion as to whether the assessment order was erroneous and prejudicial to the interests of the revenue. The ld. A.R. also submitted that the ld. PCIT forwarded the objections to the ld. Assessing Officer and called for his comments vide letter dated 03.02.2023. The ld. A.R. submitted that the ld. PCIT had only sent the issues raised at Clauses II, IV & V to the ld. Assessing Officer. The first reply furnished by the assessee dated 13.01.2023 contained the detailed objections on the said issues and the ld. Assessing Officer vide report dated 02.03.2023 informed the ld. PCIT that the explanation given by the assessee regarding these issues were found to be acceptable. The ld. A.R. therefore, submitted that the ld. PCIT again acted at the instance of ld. Assessing Officer and dropped the issues raised in Clauses II, IV & V. The ld. A.R. submitted that since the submissions qua the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the final deed of conveyance , which was registered with the stamp valuation authority, who valued the leasehold land and building at Rs. 211,63,11,850/- (for leasehold land) and Rs. 147,57,26,950/- (for leasehold in building) aggregating to Rs. 364,80,38,000/-. The ld. A.R. also submitted that apart from the above, the assessee had also acquired an undulated land parcel on freehold basis for an agreed consideration of Rs. 13,56,79,600/- vide an Agreement to Sell dated 06.09.2017. The ld. A.R. stated that due to the peculiarities of the subject property, the assessee had obtained a valuation report from a registered valuer, M/s. Vestian Global Workplace Services Pvt. Limited, who objectively assessed the true and fair market value of the subject freehold land at Rs. 12,75,00,000/-. The said property was executed by the Deed of Conveyance dated 29.09.2017 where the value assessed by the stamp valuation authorities was Rs. 30,00,33,000/-. The ld. A.R. submitted that the said acquisition, however, was not subjected to actual levy of stamp duty due to exemption available to the assessee company under the Industrial Scheme of the State of Maharashtra and even the cost paid towards t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not existing in the Statute Book and, therefore, the ld. PCIT was not justified in directing the ld. Assessing Officer to examine the same in the light of provisions of section 56(2)(x) of the Act. c) The ld. A.R. stated that the assessee had already pointed out through various replies letter dated 13.03.2023 and 23.03.2023 that the Agreement to Sell for acquisition of leasehold rights in land and building at Ranjangaon, was executed on 31.12.2016, i.e. F.Y. 2016-17, viz. Prior to the insertion of section 56(2)(x) of the Act by Finance Act, 2017 with prospective effect from 01.04.2017. The ld. A.R. contended that assignment of lease which took place on 31.12.2016 was merely registered vide deed of agreement dated 27.03.2018, which happened in the relevant year i.e. F.Y. 2017-18 (A.Y. 2018-19) and thus, if at all a cause of action existed on this issue, the same existed in the preceding F.Y. 2016-17, i.e. the year of acquisition and not the relevant A.Y. 2018-19. The ld. A.R. stated that the ld. PCIT has not objectively dealt with this contention of the assessee and merely restored this issue to the file of ld. Assessing Officer for re-examination. He further stated that it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Government. Therefore, there is no justification for invoking the provisions of section 56(2)(x) of the Act as there is no rationale for the assessee to acquire the impugned properties at prices lower than their corresponding Stamp Duty Valuations for leasehold/freehold land & building. Even if it is presumed that the assessee had entered into the deed of agreement to sell for a higher amount and executed the same for higher amount, the same would have been made good and reimbursed by the Government under the Maharashtra Package Scheme of Incentives-2013 and the assessee would not have paid any extra penny over and above that amount. Thus there is no question of the order being erroneous and prejudicial to the interest of the revenue. Therefore, the plea of the ld. PCIT for restoring the issue to the file of ld. Assessing Officer is wholly unjustified and may be quashed. The ld. A.R. finally argued that section 56(2)(x) of the Act is an anti-tax avoidance provision and has no application in the instant case. The ld. A.R. relied on the decision of the Hon'ble Calcutta High Court in support of his argument in the case of PCIT -vs.- Durgapur Projects Limited (148 taxmann.com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee's claim is allowed by the ld. Assessing Officer after conducting necessary enquiry and application of mind, then the order of assessment cannot be considered and held to be erroneous and prejudicial to the interest of revenue under section 263 of the Act on the ground of lack of enquiry or non-enquiry. The ld. A.R. also relied on the decision of the Hon'ble jurisdictional ITAT, Kolkata in the case of Peerless General Finance & Investment Company Limited -vs.- CIT (132 taxmann.com 80), in which the similar issue has been decided in favour of the assessee. The ld. A.R. also contended that the jurisdiction u/s 263 of the Act is not available to the ld. PCIT for simply restoring the issue for examination and verification to the ld. Assessing Officer, where the ld. PCIT himself has not recorded any objective satisfaction and arrived at a conclusion as to how the order passed by the ld. Assessing Officer is erroneous and prejudicial to the interest of revenue. In the present case, ld. Counsel submitted that the ld. PCIT's action of merely referring the matter back to the file of ld. Assessing Officer for examination the issue and the applicability of section 56(2)(x) of the Act wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid provisions of Rs. 14,47,32,736/-, which were disallowed under section 43B in the respective years in which they were created/debited. The ld AR submitted that the same was rightly claimed as deduction under section 43B in the year in which such provisions were written back and reversed/credited to the profit & loss Account. The ld. A.R. in defence of his argument relied on the following decisions:- (i) Pr. CIT vs Eveready Industries India Ltd (ITAT No.96/Kol/2017) [Calcutta HC] [Pages 158-162 of Judicial PB]; (ii) CIT vs Samudra Shoe Overseas Ltd (TCA No. 349 of 2016) [Madras HC] [Pages 163-170 of Judicial PB]; (iii) Dy.CIT vs K.S. Diesels Ltd (132 taxmann.com 74) [ITAT Mumbai] [Pages 171 -176 of Judicial PB]. 9. Ld. A.R. also referred to the reconciliation of the details of reversals during the year vis-a-vis the provisions made in earlier years alongwith details of disallowances made under section 43B of the Act in those respective years, filed before the ld. PCIT. The ld. A.R. also referred to the relevant extracts of the tax audit reports and income tax returns of earlier assessment years, which are available at pages no. 326 to 374 of the paper book, which proved be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us order has been passed inadvertently which cannot be remedied by the AO by taking recourse to either 154 or 147 of the Act. In the present day working, even an AO is working with inputs in the form of Assessee Information System(AIS) or inputs from other external agencies. That does not mean that he is passing an order without application of mind. Now tax computations are made on systems, but does that mean that the AO is acting on behest of the computer and is not applying his own mind? Similarly, when a glaring instance is brought to the notice of the Pr.CIT, he is acting on the primary input and after due application of mind, he is passing a revision order on the facts of the case. This is in no way acting on the behest of the AO. In fact, all officers of the department are duty bound, if at any point of time, there is detection of revenue loss or there is any information from any other agency that there has been a possible loss of revenue. Like an AO cannot act on his own and has to depend on the ITBA system, the Pr.CIT has to take inputs from subordinate officers on which he applies his mind independently for passing an order u/s 263. It would be a very narrow concept of act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the department against the valuation determined in the report of the approved valuer." The order of the AO is silent on the issue of acceptance of valuation report furnished by the assessee and is an erroneous order in view of the above judgment of Allahabad High Court. Also, since the provisions of section 56(2)(x) were not invoked, it was rightly held by the Pr.CIT that there was prejudice caused to the revenue. 12. We have heard the rival contentions and perused the material available on record including the written submissions filed by the parties before us. The undisputed facts are that the revisionary jurisdiction was invoked by ld. PCIT under section 263 of the Act by issuing notice under section 263 to revise the assessment on five issues:- (i) Applicability of section 56(2)(x) on acquisition of leasehold land & building; (ii) Disallowance of expenditure on scientific research u/s 35(1)(i) of the Act; (iii)Disallowance of claim u/s 43B in relation to reversal or write back of provision for liabilities; (iv) Disallowance of deduction claimed u/s 80JJAA; (v) Disallowance of prior period expenses. 13. We note that the revenue audit team has pointed out certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal in the case of M/s. Rapayan Udyog in ITA No. 1073/Kol/2012, dated 28th October, 2018. After noting the said decision the Tribunal points out that the appellant department has not controverted the contents of the letter of the Joint Commissioner of Income Tax dated 18th August, 2016 and has recorded that the said letter clearly brings out that the PCIT has called for proposal from the JCIT/Assessing Officer to exercise jurisdiction under Section 263 of the Act. Therefore, the Tribunal concluded that the PCIT has not exercised jurisdiction under Section 263 of the Act himself, but he exercised jurisdiction at the instance of the Assessing Officer/JCIT, which is against the provisions of law. The argument made by the learned Standing Counsel is that it is the PCIT who has exercised jurisdiction under Section 263 of the Act. From the order passed by the Tribunal we find that the department could not controvert the contents of the letter dated 18th August, 2016. If, according to the department, the contents of the letter were otherwise, then it is for the department to approach the Tribunal for necessary rectification or clarification and the correctness of the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of the Act dated 16.08.2017, it is seen that as many as 21 particulars/documents were called upon to be produced by the assessee of which the document/observations in item No. 20-21 are relevant for the purpose of this case, they being (i) large increase in investment in unlisted equities during the year and (ii) low income in comparison to very high investment. It is seen that first issue on which the information was called for by the assessing officer has not been taken as a ground by the PCIT while assuming jurisdiction under Section 263 of the Act. Thus it has to be seen as to whether assessee had furnished the requisite information with regard to the second issue namely low income in comparison to very high investments. The assessee had placed before the assessing officer many submissions in which the detail explanation has been given with regard to the said issue apart from placing reliance on various decisions of the Hon'ble Supreme Court as well as the High Courts. Apart from that, a separate reply had also been given on 21.09.2017 dealing with all the twenty-one issues. Thus it cannot be said that assessing officer did not conduct any enquiry in the matter with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the PCIT is set aside and the assessment order stands restored and the substantial questions of law are answered in favour of the appellant/assessee. 13.2. The same issue has been adjudicated by the Coordinate Bench of Kolkata in the case of Manish Chirania -vs.- PCIT (ITA No. 1161/KOL/2019), wherein the Coordinate Bench has held as under:- "9. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that ld Principal Commissioner of Income Tax (ld. PCIT) has exercised his revision jurisdiction under section 263 of the Act on the basis of the proposal for revision made by the assessing officer. At this juncture, it is relevant to quote para No.2 of the order of ld PCIT( to the extent applicable for our discussion) under section 263 of the Act, which reads as follows: "A proposal for revision of the Assessment Order u/s. 263 has been received from Assessing Officer i.e., ITO. Wd-45(3) Kolkata. On perusal of assessment order and the assessment rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the acquisition of leasehold/freehold land and building from 'BDMC' on leasehold/freehold basis at Ranjangaon pursuant to an Agreement to Sell dated 31.12.2016, whereas the registration with the local authorities was done in the instant financial year relevant to assessment year 2018-19. The second issue regarding allowing the deduction of provisions created u/s 43B of the Act upon bring written back in relation to reversal or write back of provision for liabilities. 15. We observe from the facts before us that so far as the first issue is concerned, the facts are that the assessee acquired leasehold/freehold land and building from the BDMC. The said freehold land and building situated at Ranjangaon, Maharashtra was acquired for an aggregate consideration of Rs. 168,85,00,000/-, which was calculated on the basis of valuation report from the registered valuer, who had valued the land based on the Direct Comparison Method and the building based on the Depreciated Replacement Cost Method, a copy of which is available at pages no. 132 to 178 of the paper book. We also note that the said freehold land was registered with the local authority who valued the leasehold land and build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of which is available at pages no. 93 to 95 which is extracted below for the sake of ready reference:- 16. We also note that the assessee has also furnished the valuation reports before NFAC meaning thereby that all the facts were before the JAO and the NFAC after taking into account all the facts of the case has taken a plausible view and did not refer the matter to the DVO for valuation by not invoking the provision of section 56(2)(x) of the Act. Therefore, in our opinion, the ld. PCIT is not justified in exercising the revisionary jurisdiction under section 263 of the Act setting aside the assessment to the ld. Assessing Officer for fresh examination into these issues. The case of the assessee finds support from the decision of the Hon'ble Calcutta High Court in the case of CIT -vs.- J.L. Morrison & Co. Limited (supra), wherein the Hon'ble Calcutta High Court has held that where the assessee's claim is allowed by the ld. Assessing Officer after conducting necessary enquiry and application of mind, then the order of assessment cannot be considered and held to be erroneous and prejudicial to the interest of revenue under section 263 of the Act on the ground of lack of enquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een taken into account in computing the short-term capital gain as the assessee, before the sale of this property, got it valued by a registered valuer. A copy of valuation report as on 14.04.13 showing its market value at Rs. 5,84,00,000/- is enclosed. From the report of the valuer it may kindly be seen that the flat had no car parking space or a garage without which the high value buyers were not interested in acquiring the flat. There was also no scope of getting a high voltage electric connection. Because of such defects, the assessee could not realize full market value of the sale of this flat. The assessee therefore submits that its fair market value was much less compared to the stamp duty valuation. If your Honour does not however accept the assessee's contention, it is requested that before adopting the stamp duty valuation, you may kindly refer the valuation of this /property to the DVO as provided in u/s 50C(2) of the I.T. Act". 16. As is evident from the submission made by the assessee before the Assessing Officer during the course of assessment proceedings, the actual sale consideration adopted by the assessee for computation of capital gain arising from the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Ground No. 4 of the assessee's appeal is accordingly allowed". 17. We further note that in this case ld. PCIT has simply restored the matter to the file of ld. Assessing Officer for fresh examination without recording any objective finding as to how the non-application of section 56(2)(x) has rendered the assessment to be erroneous and prejudicial to the interest of revenue. In our opinion, the jurisdiction under section 263 of the Act is not available to the ld. PCIT merely for restoring the issue to the file of ld. Assessing Officer where he has not recorded any clear-cut finding as to how the assessment is erroneous. The case of the assessee finds support from the decision of Hon'ble Delhi High Court in the case of ITO -vs.- DG Housing Projects Limited(supra) wherein the Hon'ble Delhi High Court has held that the ld PCIT cannot restore the issues to the AO for fresh examination unless he himself on the basis of contentions/replies/documents/evidences filed by the assessee has recorded a finding as to how the assessment order is erroneous. 18. We have perused the provisions of section 56(2)(x) of the Act and note that the provisions of section are not applicable to acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of (i) PCIT -vs.- Eveready Industries India Limited (supra); (ii) CIT -vs.- Samundra Shoes Overseas Limited (supra) and (iii) DCIT -vs.- K.S. Diesels Limited (supra), wherein it has been held that statutory liabilities, which were earlier disallowed under section 43B of the Act are to be excluded and allowed as deduction in the year of reversal/write back. 20. We have also examined the facts of the case qua claim of written back provisions along with supporting documents, which are available on pages no. 325 to 374 of the paper book and are of the view that the assessee has been rightly allowed the deduction in respect of reversed provisions created in the earlier assessment years while computing the income. Further ,in our opinion, the ld. PCIT has simply restored the issue to the file of ld. Assessing Officer without giving any finding on the issue as to how the deduction of the provisions written back would amount to adjustment rendering the assessment as erroneous. We note that the ld. PCIT without doing any exercise/examination of the documents filed by the assessee simply set aside the issue back to the file of NFAC directing to ascertain the liability in the light of Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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