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TMI Blog2006 (3) TMI 194X X X X Extracts X X X X X X X X Extracts X X X X ..... published by All India Federation of Tax Practitioners, where in reply to question No. 29, it has been mentioned that the assessee can make an application before the Tribunal for claiming the refund of the excess Tribunal fee paid for which directions can be issued by the Bench to the AO for granting a refund of the same. 3. The learned Departmental Representative did not make any specific submission in the matter on the ground that this relates to procedure for filing the appeal before the Tribunal. 4. We have heard both the parties. Admittedly, the appeal in this case relates to an order passed under s. 263. Therefore, the case of the assessee is covered under a residuary cl. (b) of sub-s. (6) of s. 253 of the Act. The assessee was required to pay only a fee of Rs. 500. In view of the above, the assessee is entitled to refund of excess fee paid of Rs. 5,021. The AO is directed to refund this amount either by way of adjusting the same against the outstanding demand, if any, or by way of grant of refund within a period of one month from the date of receipt of this order. We order accordingly. 5. During the course of hearing of the appeal, the assessee has made a request vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,55,697 and the property was sold at Rs. 2,61,63,000. Therefore, the capital gain liable to be assessed in the hands of the firm amounted to Rs. 2,46,07,303 as per provisions of s. 50(1) of the Act for which the necessary intimation was sent to the AO. Since the assessee had declared the long-term capital gain of Rs. 5,10,180 in his return of income, the AO assessed the same in the hands of the assessee on protective basis. 7. Subsequently, the CIT, Patiala, observed that the order passed by the AO was erroneous insofar as it was prejudicial to the interest of Revenue within the meaning of s. 263 of the Act, for the reason that the AO failed to determine the capital gain on the basis of information in her possession. He observed that some other partners of the firm had filed returns of income by taking the market value as on 1st April, 1981 at Rs. 12 lakhs as against adopted by assessee at more than Rs. 65 lakhs. The CIT, therefore, issued show-cause notice under s. 263 dt. 1st Nov., 2000 asking the assessee to indicate the basis of adopting market value as on 1st April, 19th, a copy of dissolution deed of the firm and a copy of assets and liabilities in the firm as on the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Act, 1961, on the date of sale consideration and as such it continued to be operative even though there was a dispute between the partners and the litigation was going on in the Delhi High Court. Therefore, as per law the capital gain if any arising out of the sale proceeds of the said property was required to be assessed in the hands of the firm. At the same time, it is also an admitted fact that the partners had entered into an agreement to sell their respective share out of the said property individually and only because of that agreement, each individual partner entered into a separate agreement with the third party for sale of their respective share and the capital gain if any arising out of the sale proceeds has been declared individually in their returns of income. 5. Now the point at issue is what should be the cost of acquisition and in whose hand the resultant capital gain is assessable under such circumstances. Since the firm was in existence on the date of sale deed and the assessee was admittedly a partner of that firm at that time, the WDV of the assets on the date of sale should have been taken while calculating the capital gain. The adoption of the cost of acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al before us. 8. The learned counsel for the assessee, Sh. S.K. Bansal, submitted that the assessee was a partner in M/s Deep Cinema, Wazirpur, New Delhi. The said firm acquired a plot from DDA in 1970 on which building was constructed known as Deep Cinema. As per partnership deed dt. 22nd March, 1979, there were 14 partners and first storey of the building was burnt in 1984 riots. There arose a dispute amongst the partners and suit was filed before the Delhi High Court. The Delhi High Court appointed a receiver on 24th Feb., 1983 to takeover the business and management including assets of the partnership firm. At the time when the property was burnt, the same was under the management of receiver. The receiver lodged a claim of Rs. 50 lakhs with United India Insurance Co. and the claim was settled at Rs. 25 lakhs. Rent for the ground floor was also being collected by the receiver because the dispute was going on in the Delhi High Court. The firm was not dissolved as the litigation was going on. Subsequently, the property was sold by executing 14 sale deeds. Since the assessee had also 5 per cent share in M/s Deep Cinema, he also executed sale deed. The total consideration for sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r partners of the firm who had equally sold their shares in the property were not touched. He also relied on the following judgments: (i) S.R. Koshti vs. CIT (2005) 193 CTR (Guj) 518 : (2005) 276 ITR 165 (Guj) In this case, the AO had rectified the mistake under s. 154 and the assessee had failed to claim exemption of compensation. This was allowed under s. 154 by AO. The CIT revised the order under s. 263 of the Act. The Hon'ble High Court held that the order under s. 263 of the Act was not valid because the order passed by the AO was not prejudicial to interest of Revenue. (ii) CIT vs. Mohd. Ishaq Mohd. Gulam (2004) 191 CTR (MP) 492 : (2005) 276 ITR 13 (MP) In this case, the CIT revised the order under s. 263 with a direction to the AO to make further enquiry relating to cash credits and allow commission at 7 per cent to agent. On appeal, the Tribunal reversed the order of CIT on the ground that at the time of completing the assessment, the AO had made due and proper enquiry relating to the identity and source of the creditor and the commission at the same rate had been allowed by the Tribunal in the past. (iii) CIT vs. Makal Suta Cotton Co. (P) Ltd. (2005) 198 CTR (MP) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TJ (Chd) 33 : (1999) 68 ITD 163 (Chd); (ii) Tribunal, Pune Bench, in the case of jamnadas T. Mehta vs. ITO (2002) 75 TTJ (Pune)(TM) 843 : (2002) 81 ITD 103 (Pune)(TM); (iii) Tribunal, Bombay Bench, in the case of Dhruv N. Shah vs. Dy. CIT (2004) 82 TTJ (Mumbai)(TM) 369: (2004) 88 ITD 118 (Mumbai)(TM); (iv) Tribunal, Chandigarh Bench, in the case of Haryana State Co-op. Supply Marketing Federation Ltd. vs. Dy. CIT (2004) 91 TTJ (Chd) 658 : (2004) 90 ITD 551 (Chd) (v) Tribunal, Chandigarh Bench, in the case of Sangrur Vanaspati Mills Ltd. vs. Dy. CIT (2002) 74 TTJ (Chd)(TM) 857: (2002) 80 ITD 143 (Chd)(TM) (vi) Tribunal, Chandigarh Bench, in the case of Nahar Exports Ltd. vs. Asstt. CIT (2005) 93 TTJ (Chd) 186 : (2005) 92 ITD 484 (Chd) (vii) Tribunal, Pune Bench, in the case of Mirje Family Trust vs. ITO (2000) 67 TTJ (Pune)(TM) 326 : (2000) 73 ITD 27 (Pune)(TM) (viii) Tribunal, Delhi Bench, in the case of jai Commercial Co. Ltd. vs. jt. CIT (2000) 66 TTJ (Del) 731 : (2001) 76 ITD 65 (Del). 9. The learned Departmental Representative, on the other hand, relied on the order of the CIT, Patiala, and submitted that the order under s. 263 had been rightly passed. 10. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) ...................... (i) ...................... (ii) ...................... (b) 'record' shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the CIT; (c) where any order referred to in this sub-section and passed by the AO had been the subject-matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the CIT under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-s. (1) after the expiry of two years from the end of the financial year in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e such order could not be considered as prejudicial to the interest of Revenue. Likewise, if the order is prejudicial to the interest of Revenue, but is not erroneous, the CIT would have no jurisdiction to revise such order under s. 263 of the Act. Thus, it is quite clear that in order to confer jurisdiction on the CIT under s. 263, both the conditions mentioned above must be fulfilled simultaneously. This issue was considered by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC), where it was held that prerequisite for the exercise of jurisdiction by the CIT is that the twin conditions must be satisfied, i.e., (i) the order of the AO sought to be revised is erroneous, and (ii) it is prejudicial to the interests of the Revenue. The apex Court observed that if one of these conditions is absent, i.e., if the order of AO is erroneous but is not prejudicial to the Revenue, recourse cannot be had to s. 263 of the Act. The same view has been held by the various other judgments relied upon by the learned Authorised Representative and as summarized above. 10.1 Now the aspect that requires to be considered by this Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the Revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the 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 an erroneous order of the ITO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO, cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO has taken one view with which the CIT does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of the assessee. But while making the protective assessment, the AO was required to apply her mind in regard to the computation of capital gain. The mere fact that the assessee had declared long-term capital gain at Rs. 5,10,180 in the return of income does not mean that the AO was not required to apply her mind about the computation of capital gain as to whether the same was correctly computed in accordance with the provisions of the Act or not. In para 5 of the assessment order, the AO has herself stated that capital gain in this case was required to be computed in the manner as provided under sub-s. (1) of s. 50 of the IT Act. She herself stated that WDV of the building after considering depreciation allowed in the past worked out to Rs. 15,55,697 and after adjusting the same, the net capital gain in the case of the firm worked out to Rs. 2,46,07,303. If we take assessee's 5 per cent share in the same, the same worked out to Rs. 12,30,365 as against declared at Rs. 5,10,180 in the return. Even for the purpose of making protective assessment, the AO ought to have adopted the figure at Rs. 12,30,365. Now the assessee had taken the cost as on 1st April, 1981 at 25 per cent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... His objection to the order passed by the AO was that instead of computing the capital gain at Rs. 5,10,180, the AO should have computed the same at Rs. 12,30,365 even if it was to be assessed on protective basis. In the light of these facts and circumstances of the case, we are of the considered view that CIT, Patiala, was justified in revising the order in exercise of powers conferred on him under so 263 of the Act. 10.4 However, before parting with this issue, we wish to mention that the learned counsel has relied upon a catena of judgments which have already been summarized above. Now whether the CIT was justified in exercising the powers under s. 263 or not is to be seen in the light of facts of each case. One has to see whether twin conditions necessary for exercise of powers under s. 263 in a given case are fulfilled or not. Reliance in this regard is placed on the judgment of Madhya Pradesh High Court in the case of Nazir Singh vs. CIT (2001) 170 CTR (MP) 559 : (2001) 252 ITR 820 (MP) where it was held that the criteria laid down for exercise of power under s. 263 was only demonstrative and not exhaustive and each and every case has to be treated independently on its own ..... X X X X Extracts X X X X X X X X Extracts X X X X
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