Shri A.T.Varkey, JM-This appeal is filed by the assessee against the order passed by the Principal Commissioner of Income-tax-4, Kolkata u/s 263 of the Income-tax Act, 1961 dated 31.03.2016 for the Assessment Year 2011-12. In the Memorandum of Appeal, the following grounds have been raised.
1. That on the facts and in the circumstances of the case, the Learned CIT erred in initiating the revision proceedings under Section 263 of the Act, by holding that the Assessing Officer was erroneous and prejudicial to the interests of the Revenue.
2. That on the facts and in the circumstances of the case, the Learned CIT erred in restoring the matter back to the Assessing Officer, without giving a clear finding on the issue on which the proceedings u/s 263 of the Act, was initiated.
3. That on the facts and in the circumstances of the case, the Learned CIT erred in initiating revision proceedings u/s 263 of the Act, on the same issue which was already considered and detailed enquiry made in the course of assessment proceedings u/s 143(3) of the Act.
4. That on the facts and in the circumstances of the case, and without prejudice to the other grounds, the Learned CIT erred in appreciating the fact that complete details in relation to the matters for which proceedings u/s 263 of the Act has been initiated were submitted before the Assessing Officer during the course of assessment proceedings.
5. That on the facts and in the circumstances of the case, and without prejudice to the other grounds, the Learned CIT erred in restoring back the matter to the file of the Assessing Officer.
6. That on the facts and in the circumstances of the case, and without prejudice to the other grounds, the Learned CIT did not give reasonable opportunity of being heard to the appellant.
2. The appellant has challenged validity of the Revision order passed by the Ld CIT’s order on the plea that the AO’s order u/s 143(3) dated 28.03.2016 was neither erroneous nor prejudicial to the interest of the Revenue and therefore did not warrant passing of the revision order u/s 263 of the Act. Before dealing with the grounds on merit, it is relevant to set out the facts giving rise to the dispute involved in the present appeal.
3. The appellant is a private limited company which was set up as joint venture promoted by Bata India Ltd (‘BIL’) and Calcutta Metropolitan Group Limited (‘CMGL’) for developing a township project on the land belonging to BIL at Batanagar. As in the past, during the relevant year the appellant was engaged in development of land, construction & management of properties, buildings & assets and the principal project undertaken during the year was ‘Calcutta Riverside’ township at Batanagar. For the AY 2011-12 the appellant filed its return of income and thereafter the return was selected for scrutiny assessment. Notice u/s 142(1) was issued by the AO on 19/07/2013 calling upon the assessee to furnish information, details & documents with regard to various issues specified in the questionnaire annexed with the notice. After considering the submissions, information and documents furnished from time to time, order u/s 143(3) was passed assessing net loss of Rs. 7,81,44,753/- as opposed to declared loss of Rs. 7,99,47,129/-. Subsequently Pr.CIT-4, Kolkata issued a show cause notice (‘SCN’ herein after) dated 17.02.2016 requiring the assessee to show cause as to why the assessment order should not be revised, since in his opinion the order was erroneous in so far as prejudicial to the interest of the Revenue. In response the Ld AR of the assessee argued that the order u/s 143(3) could not be held to be erroneous for the reasons set out in show cause notice and requested the Ld CIT not to proceed with revision proceedings. Rejecting the explanations and the details furnished, the Ld CIT passed the impugned order setting aside the assessment and directing the AO to examine the case properly after giving opportunity of being heard to the assessee. Being aggrieved by the Ld CIT’s order the assessee is in appeal before us.
4. At the time of hearing, the appellant filed a paperbook containing 184 pages which consisted of documents which were filed before the lower authorities in the course of assessment and revision proceedings. At Page 1 & 2 of the Paperbook was the SCN dated 17.02.2016, which contained the reasons for initiation of the proceedings u/s 263. For better understanding, reasons set out in SCN are extracted below:
“On perusal of the Annexure – C under the head particulars of payments made to the persons specified in Section 40A(2)(b) of the Tax Audit report of the assessee for the financial year 2010-11, it is seen that during the year under consideration the assessee company has made payments to its related party as under:
i. Hiland Projects Ltd : Share of the Manpower & Office Infrastructure Cost : Rs. 42,48,756/-
ii. Hiland Projects Ltd : Reimbursement of Expenses : Rs. 22,71,375/-
iii. Bata India Ltd : Reimbursement of taxes and other expenses – Rs. 2,08,24,734/-
iv. Bata India Ltd : Communication Charges : Rs. 63,59,366/-
v. Riverbank Holdings PvtLtd : Reimbursement of Expenses and Interest on Unsecured Loan of Rs. 7,09,494/- & Rs. 43,93,972/- respectively.
It is also seen from the P&L Account of the assessee that the construction expenses was increased from Rs. 17.73 crs to Rs. 168.77 crs. The major expenses under the head ‘Construction Expenses’ were as under:
i. Cost of Land Development : Rs. 28.23 crores (Last year Nil)
ii. Cost of acquisition of Land development rights : Rs. 90,00,00,000/- (Last year NIL)
iii. Registration Fees : Rs. 4.85 crore (Last Year Nil)
iv. Contractor Expenses : Rs. 38.98 crore (Last Year 14 crore)
v. Rates & Taxes : Rs. 1.34 crore (Last Year Nil)
vi. Delayed Delivery charges : Rs. 63.59 lacs (nil)
The assessee company has not submitted copy of joint venture agreement between the assessee company, Bata India Ltd and Calcutta Metropolitan Group Limited and without going through the terms and conditions of the Joint Venture Agreement, the facts of the case remained verified. The AO had also not submitted the copy of agreement between the associate/sister/group concerns and without the requisite agreement, the related party transactions u/s 40A(2)(b) remained unverified. The major expenses under the head ‘Construction Expenses’ were not verified by the AO during the assessment.
(2) The assessee company had made payment of Rs. 90 crore to Bata India Limited on account of cost of acquisition of land development rights and debited in its P&L A/c under the head “Construction Expenses”. Prima facie the above expenses seemed to be capital in nature. Also the assessee company had not submitted any copy of agreement/documents between the assessee company&Bata India Limited to verify the nature of expenses i.e. Capital or Revenue. The nature of the above expenses remained unverified during the assessment.
(3) During the year under consideration, the company had taken term loan from a body corporate of Rs. 1,30,00,00,000/- and unsecured loans from inter corporate of Rs. 3.6 crore (last year 16.10 crore) against which interest of Rs. 16.17 crore was paid (last year 45.23 lac) by the assessee company. The a above transactions was also not verified by the A.O.”
5. With reference to these reasons, the Ld CIT ultimately considered the assessment order u/s 143(3) erroneous for the following reasons.
“3(iii) Here in the case of assessee company entered into in joint venture agreement with Bata India Ltd and Calcutta Metropolitan Group Ltd for developing project. Further the assessee company paid Rs. 90 crores to Bata India Ltd for getting development right. AO passed the assessment order without examining the details of agreement and nature of payment, which is the utmost important document. It is very clear that assessment was passed without asking copy of agreement and examining the same, which evidences of no enquiry on this issue. Further the assessee in its written submission furnished details of expenses debited in P&L Account on various head. However, no supporting evidences were produced, which were required to do so. It is worthwhile to note that even after providing opportunity, the assessee company did not furnish the complete details with supporting evidences.”
6. At the time of hearing of the appeal, the Ld AR for the appellant assailed the Ld CIT’s order on various grounds. He submitted that in Para 1 of the SCN, the Ld CIT enumerated five heads of expenses which were paid to related parties. In the same Para, the Ld CIT also listed six major heads of expenses grouped under the head ‘Construction Expenses’. After setting out this information, the Ld CIT alleged that the assessee did not submit copy of the joint venture agreement between the assessee, BIL & CMGL and without going through the terms of the JV Agreement, facts of the case remained unverified. In this regard, our attention was drawn to the scrutiny assessment order passed u/s 143(3) dated 16.12.2010 for the AY 2008-09 wherein the AO had observed as under:
“The assessee is engaged in Development of Land, Construction and Management of Properties, Building, Land & Estates. This is the first year of business operation of the assessee. The Calcutta Riverside Township is being developed by the assessee as joint venture between Bata India Limited and Calcutta Metropolitan Group Limited. This is an integrated township on the bank of the river Ganges consisting of 237 acres and is located at Batanagar, Maheshtala Municipality, Kolkata – 700140. The land on which the project is being developed is freely held by Bata India Limited, which has given the Development Rights to Riverbank Developers Pvt Ltd.”
6.1 The Ld AR pointed out that the above observations were verbatim copied by the Ld CIT in Para 1 of his SCN. He submitted that the JV between BIL & CMGL did not come into being for the first time during the year under consideration but the JV pre-existed since AY 2008-09. Referring to historical facts, the Ld AR submitted that in FY 2005-06 an agreement was entered into between BIL & CMGL in terms of which both the companies had agreed to collaborate with each other for undertaking development of a township on land belonging to BIL at Batanagar after obtaining permission from the Govt of West Bengal. In terms of the arrangement agreed upon, the appellant was incorporated in 2007 (25 Oct 2007) as an SPV, in which BIL & CMGL held equity shares equally. After incorporation, the assessee entered into a deed of novation & assignment dated 08.12.2007 pursuant to which it received the development rights over 237 acres of land at Batanagar from Riverbank Holdings Pvt Ltd (‘RHPL’) which was originally holding the development rights over the said property by earlier development agreement dated 18.12.2006 between BIL & RHPL. In the course of assessment proceedings for AY 2008-09, the JV agreement evidencing the arrangement was furnished and after examining the relevant agreements in the assessment order for AY 2008-09, the AO had recorded findings which were cited by the CIT in the SCN dated 17.02.2016. The Ld AR therefore submitted that the Ld CIT was factually wrong in claiming that the AO had never examined the JV Agreement and the assessment order was passed without verification. The Ld AR further submitted that during the year under consideration BIL & CMGL being the only shareholders of the appellant revised terms of their original understanding by entering into a Variation Agreement dated 20.04.2010.Under the Variation Agreement, the original terms between the parties were substantially varied. BIL which was holding 50% equity in the appellant company agreed to divest its equity stake for a consideration in favour of promoters of CMGL..Simultaneously, BIL transferred development rights in Batanagar property in favour of the appellant for a lump sum consideration of Rs. 90 crores by a registered development agreement. The Ld AR submitted that in Note No. 11 of Schedule 17 of the audited accounts, full disclosure of the relevant facts was made and therefore it was inappropriate on the Ld CIT’s part to hold that the AO did not gather relevant information prior to passing of the order. The Ld AR further submitted that taking note of Schedule 17 of Annual accounts, in the notice u/s 142(1) dated 19.07.2013, the AO had required the assessee to furnish copy of the Joint Venture Agreement. In response the assessee had furnished copies of the Variation Agreement & Development Agreement before the AO under the cover of its letter dated 20.10.2013. The assessee also furnished its explanation with regard to nature of payments made to BIL by its letters before the AO. The Ld AR therefore submitted that the Ld CIT was factually wrong in holding that the AO did not verify the relevant agreements or the facts.
6.2 The Ld AR submitted that the appellant had paid expenses to its group and associate concerns. Full & proper disclosure of these payments was made in the Tax Audit Report as well as in Note No. 8 of Schedule 17 to audited accounts. In the course of assessment the AO had examined these payments. He further submitted that similar payments were made in the earlier and subsequent years also and no adverse inferences were drawn in respect of these payments in any of the assessments. He further submitted that the expenses were incurred in relation to development and construction of Batanagar Project and expenses incurred for the year were included in the value of Work-in-Progress A/c at the end of the relevant year. He submitted that the payments in most of the cases were in the nature of reimbursement of actual expenses incurred on cost sharing basis amongst group companies and therefore not excessive or unreasonable. The Ld CIT according to him did not point out even a single specific instance where the payment was found by him to be excessive or unreasonable. The Ld AR further submitted that the Ld CIT considered the order to be erroneous only because the assessee did not submit the agreements with the associate concerns. He argued that there was no legal requirement of having agreements between the associate concerns before deduction was allowed for expenses paid to related parties. The Ld AR submitted that for mere absence of written agreement between the assessee and its associate concerns, the assessment order could not be considered to be erroneous by the Ld CIT.
6.3 The Ld AR submitted that the Ld CIT erroneously alleged that major expenses under the head Construction Expenses were not verified by the AO during the assessment. Drawing attention to SCN and the break-up of construction expenses, the Ld AR submitted that the expenses inter alia included following major heads:
1) Cost of Land Development : Rs. 28.23 crores
2) Cost of acquisition of Land development rights : Rs. 90,00,00,000/-
3) Registration Fees : Rs. 4.85 crore
4) Contractor Expenses : Rs. 38.98 crore
5) Rates & Taxes : Rs. 1.34 crore
6) Delayed Delivery charges : Rs. 63.59 lacs
6.4 Drawing our attention to the notice u/s 142(1) and the replies filed in response thereto, the Ld AR submitted that in respect of each of the above heads of expense, the assessee had furnished detailed break-up at the time of assessment and furnished copies of the same in the paper-book. The AR further stated that entire construction expense incurred during the relevant year and debited to the Profit & Loss Account of FY 2010-11 was ultimately carried to the WIP A/c at the close of the previous year. Referring to notice u/s 142(1), he pointed out that the AO required the assessee to furnish the working of WIP, as on the close of previous year which was furnished before the AO from which it was evident that the construction expenses incurred during the relevant year were taken into account in arriving at the closing value of WIP. He therefore submitted that the CIT’s allegation that the AO did not examine major component of construction expenses was factually wrong.
6.5 Drawing our attention to Para 2 of SCN, the Ld AR submitted that the Ld CIT erroneously observed that the payment of Rs. 90 crores to BIL was not permissible as revenue expenditure since it was capital in nature and in absence of agreement with BIL, the nature of expenditure i.e. capital or revenue remained unverified. The AR submitted that the reason set out in Para 2 was contrary to Ld CIT’s own observations in Para 1 of the SCN. In the first Para, the Ld CIT admitted that the assessee was executing project of developing integrated township on the banks of River Ganges on land admeasuring 237 acres which was owned by BIL and development rights thereof were given to the assessee. The AR further submitted that in the assessment order for the year as also in the prior years the AOs had found the assessee to be engaged in developing a township at Batanagar. Expenses incurred on development of the township were carried through assessee’s P&L A/c from year to year and sale of constructed spaces was credited in the P&L A/c. These facts cumulatively proved that the expenditure incurred on acquiring development rights was a revenue expenditure incurred in connection with assessee’s real estate business. The AR submitted that assessee’s business of developing Batanagar township could not have been carried on but for acquiring development rights in land from BIL and therefore the expenditure was revenue in nature and could not be considered to be capital. He also pointed out that the value of closing WIP credited in the P&L A/c included value of development rights of Rs. 90 crores paid to BIL and therefore this fact also proved that the deduction was not allowed to the assessee even though construction expenses debited inter alia included Rs. 90 crores paid to BIL.
6.6 Referring to Para 3 of SCN, the Ld AR submitted that the Ld CIT was factually wrong in holding that the AO did not verify the assessee’s transaction of taking loan of Rs. 130 crores from a body corporate, unsecured loans in the form of ICDs and payment of interest. Referring to notice u/s 142(1), the AR pointed out that the AO had required the assessee to provide details of secured and unsecured loans and furnish confirmations. In response, the assessee by its letter dated 31.08.2013 had furnished details of secured and unsecured loans and also furnished supporting documentary evidences. With regard to secured loan of Rs. 130 crores, the AR submitted that it was received from HDFC Ltd for Batanagar Project. Sanction letter issued by HDFC Ltd was furnished before the AO. He also submitted that date-wise particulars of secured loan released by HDFC Ltd as furnished before AO. The AR also stated that the details of interest & finance charges paid for the relevant year were furnished vide Annexure 20 of its letter filed before the AO and entire interest paid for the year was considered in the closing value of WIP. The AR therefore submitted that Ld CIT’s SCN proceeded on erroneous presumption that no enquiry was conducted by the AO prior to completion of assessment.
6.7 The Ld AR finally submitted that each of the reason for which the Ld CIT considered the AO’s order to be erroneous was factually wrong and therefore the assessment could not have been set aside for mere re-examination. The Ld AR submitted that it was brought to Ld CIT’s attention that on each issue for which the Ld CIT considered the assessment order to be erroneous, enquiry was conducted by the AO and only after detailed examination of the facts and explanations furnished he had passed the order. Relying on the judgment of the Calcutta High Court in the case of CIT Vs J.L. Morrison (I) Ltd (366 ITR 593), he submitted that once the AO had conducted the enquiry by issuing questionnaire u/s 142(1) and the AO adopted one of the permissible course in law, then it was not open for the CIT to revise the order u/s 263 merely because he entertained another view or for the reason that enquiry was not conducted. The assessee had also submitted before the Ld CIT, relevant documents and details in support of various expenses enumerated by the Ld CIT in the SCN. Same documents & details were furnished before the AO during assessment proceedings which were examined by him prior to passing of the assessment order. Even though all the relevant material & information including copies of the Agreement, sanction letters etc. were filed before the Ld CIT, he did not point out any specific infirmity in any of the documents or details furnished. Even after examining the relevant information, details and assessee’s explanation, the CIT did not establish any specific ground on which he found that the assessment order was erroneous for the reason that deduction for any specific expenditure was wrongly allowed. Relying on the judgments of the Delhi High Court in the case of DIT VsJyoti Foundation (357 ITR 388)&ITO Vs D.G. Housing Projects Ltd (343 ITR 329), the Ld AR submitted that once the assessee had brought before the CIT, the relevant material, information and documents to disprove his charge in the SCN then the CIT could not merely set aside the assessment for carrying out verification of the relevant facts without himself recording factual finding that the assessment was erroneous and therefore prejudicial to the revenue’s interests for specific reasons. The Ld AR therefore prayed for setting aside the impugned order passed by Ld CIT u/s 263 of the Act.
7. The Ld. CIT DR, on the other hand supported the Ld CIT’s order vehemently. He submitted that both in SCN as well as in the order u/s 263, the Ld CIT had specifically referred to relevant documents which should have been examined by the AO before he allowed deduction for expenses such as acquisition of development rights, payment of interest on loans etc. He submitted that the Ld. CIT had specified in the SCN specific issues with reference to which the AO should have conducted enquiry and examination but which he had failed to do. The Ld CIT in his order had referred to specific documents such as JV Agreement with BIL which were required to be examined in detail for ascertaining true nature and character of the expenditure.. He argued that in the present case the Ld CIT had merely set aside the AO’s order directing him to re-conduct enquiries and reframe the assessment as per law after giving opportunity of hearing and therefore Ld CIT’s order did not cause any grievance or prejudice to the assessee. He therefore strongly urged for sustaining the CIT’s order of revision u/s 263 of the Act.
8. We have considered the submissions of both the parties. We have also perused the documents furnished before us in the paper book, considered the facts of the case and the judicial decisions relied upon by the parties in their submissions. From the perusal of the SCN and the impugned order, we note that the Ld CIT having set out various reasons in show cause notice, ultimately passed the order for the reasons summed up in Para 3(iii) of the impugned order. We find that in sum and substance the Ld CIT considered the order erroneous on the ground that it was passed without making enquiries or verification of the documents and details which should have been made as the facts & circumstances demanded. We note that in Para 3(iii)the CIT observed that the assessee entered into JV with BIL & CMGL for developing a project and paid Rs. 90 crores to BIL for obtaining development rights. The AO however passed the assessment order without examining the Agreement and in its absence the nature of payment remained unverified. On perusal of the material and details available on record, we however find that Ld CIT’s said finding cannot be accepted at its face value because facts on record show it otherwise. We find that the appellant was incorporated by CMGL & BIL as an SPV for undertaking development of a township at Batanagar on the land belonging to BIL in pursuance of an arrangement agreed upon between the parties in 2005-06. BIL and CMGL held 50% equity in the assessee company, incorporated for undertaking development of township at Batanagar. The business of development of township commenced on incorporation of the assessee in 2007.In the assessment order of the initial year i.e. AY 2008-09, the AO referred to the joint venture agreement between BIL & CMGL for development of Batanagar project on the land belonging to BIL. The same project continued to be executed by the assessee during the year under consideration and the Ld CIT’s observations in Para 1 of SCN were found to be substantially copied from the assessment order for AY 2008-09. We therefore find force in the Ld AR’s submissions that the set of circumstances under which the assessee executed Batanagar project in the relevant year were same as in the earlier years and these were taken note of by the AO.
8.1 We note that during the relevant year even though the assessee continued to execute Batanagar project on its own, promoters of the appellant i.e. BIL & CMGL varied terms of their understanding inter se which were evidenced by Variation Agreement and the Development Agreement both dated 28/04/2010.Under the revised terms, BIL disinvested its 50% equity in the assessee in favour of CMGL group. Simultaneously by registered Development Agreement dated 28.04.2010, BIL transferred development rights in Batanagarland in assessee’s favour for a lumpsum consideration of Rs. 90 crores which was debited in assessee’s P&L A/c under the accounting head’ “Construction Expenses”. We note that in Note No. 11 of Schedule 17 of Annual audited accounts, the assessee made the following disclosure of facts with reference to Agreement dated 28.04.2010
“On 28th April 2010, the Company, Riverbank Holdings Private Limited (RHPL), Calcutta Metropolitan Group Limited and Bata India Limited (BIL) have entered into an agreement (‘Development Agreement’) which replaced the entire understanding between the parties as contained in earlier Joint Venture Agreement, Tripartite Agreement, First Development Agreement and Assignment and Novation Agreement for development of integrated township on land admeasuring 223.80 acres and 25 acres to the Company and RHPL respectively. Under the terms of Development Agreement:
- BIL has transferred and assigned development right of above land for total consideration of Rs. 900,000,000 payable in cash and delivery of new employee housing aggregating 3.15 lacssq.ft. (approx.) by 31st March 2011 and Princep Riverfront Homes aggregating 3.25 lacssqft in phases. Out of above, consideration of Rs. 700,000,000 has been paid and bank guarantee has been provided by the Company for the balance consideration of Rs. 200,000,000 which is payable at a later date.
- Accordingly, during the current year, the Company has provided for Rs. 200,000,000 and Rs. 282,303,649 towards additional consideration for land development and revised costs of new employee housing respectively.
- The Company has also provided to BIL bank guarantee of Rs. 240,000,000 towards BIL’s balance obligation under the terms of Order dated 6th April 2006 issued by Government of West Bengal, Department of Land and Revenue.
- On delivery of new employee house by the Company, BIL has relocated 90% of its employee from their present accommodation within the project area to the new employee housing. Balance consideration of Rs. 20 crores was paid by the Company to BIL in the month of April 2011.”
8.2 We therefore find that there was disclosure of relevant facts relating to acquisition of development rights by the assessee in the annual audited final accounts filed before the AO. We also note that development rights in respect of Batanagar land were directly connected with assessee’s real estate project which was being developed by the assessee as its business activity. In the questionnaire forming part of notice u/s 142(1) of the Act dated 19.07.2013, the AO had required the assessee to provide the following documents / details:
1) To produce Books of accounts as maintained including bills, vouchers etc. and all Bank Statements.
2) Copy of Joint Venture Agreement.
3) Name, present address, PAN and IT jurisdiction of the directors.
4) Details of addresses, phone number of all premises – Office, Branch, Godown, Workshop etc.
5) Details of increase of share capital (if any) during the year along with names, addresses, PAN of the applicants.
6) Details of list of shareholders including share holding both in a quantitative and percentage term. Also give copy of account of shareholders having 10% or more shares, including their PANs and IT jurisdiction.
7) Inventory of closing stock and method of valuation, with details of valuation.
8) Party-wise details of Purchases, Sales (above Rs. 1 lakh) as appearing in the P/L Account. Specify the name and complete postal address (at present) of the parties from whom purchase and to whom sold.
9) Party-wise details of Sundry Creditors and Sundry Debtors with name, amount and complete present postal address of the parties involved.
10) Details of secured, unsecured loans & advances made and accepted with loan confirmations/statements for loans accepted as well as loans paid during the year.
11) Details of addition of fixed assets with supportingevidence of its acquisition and put to use.
12) Details of expenditure on Construction Expenses of Rs. 1,687,706,353/-, Sale promotion & advertisement of Rs. 33,910,913/-, Legal and professional charges of Rs. 4,077,049/- and Interest paid of Rs. 161,792,273/-.
13) List of persons from whom advances have been received of Rs. 457,187,007/- containing name and address and PAN.
14) Cost of Registration Fees of Rs. 48,530,398/- and contractor expenses of Rs. 389,829,139/-, salary wages and bonus of Rs. 32,659,917/- & Legal and professional fees of Rs. 19,979,648/-.
15) Details of TDS made and paid into Govt accounts during the year.
16) Details of all transactions in mutual funds during the year under consideration including opening and closing investments in Mutual Funds.
17) Details of investments made during the year explaining the sources thereof.
18) If any part of your Gross Total income includes any income not forming part of your total income (i.e. exempt income), then furnish a computation of expenditure relatable to such exempt income, applying Rule 8D with Section 14A of the I.T. Act, 1961.
19) Any other details and/or documents for the purposes of assessment.”
8.3 From the above it is therefore evident that the AO had required the assessee to produce copy of the JV agreement. At Page 148 to 150 of the Paper Book we note that the assessee’s letter dated Nil addressed to ITO filed in connection with assessment proceedings of AY 2011-12. Vide Clause (8)of the said letter, the assessee furnished details of cost of acquisition of land development rights amounting to Rs. 90 crores paid to BIL and these details were furnished as Annexure – 9 which inter alia included the details of payment. From the variation Agreement produced before the AO, the consideration of Rs. 90 crores is evident, which is stated in pages 52 and 53 PB. We further find that in Clause (9) of assessee’s letter dated 21.10.2013, the assessee had furnished following explanation with regard to consideration of Rs. 90 crores paid to BIL.
“On 28 April 2010, Riverbank Developers Private Limited (RDPL), Riverbank Holdings Private Limited (RHPL), Calcutta Metropolitan Group Limited and Bata India Limited (BIL) have entered into an development agreement for development of an integrated township. As per the terms of the development agreement, BIL has transferred and assigned development right of land for total consideration of Rs. 900,000,000 payable in cash and delivery of new employee housing aggregating 315,000 lacs square feet (approximately) and Princep Riverfront Homes aggregating to 325,000 square feet (approximately) in phases.”
8.4 We also note that along with the letter dated 21.10.2013, the assessee enclosed documents evidencing the payments of Rs. 90 crores actually made to BIL. On verification of these documents, we therefore do not find in the Ld CIT’s finding that the AO did not conduct any enquiry with regard to Rs. 90 crores paid to BIL for acquiring development rights. On the contrary we find that the assessee had made full disclosure of relevant facts in Note No. 11 of Schedule 17 of the audited accounts. The said Note provided the information with regard to agreements executed by the assessee and other parties in terms of which the original terms of the understanding between BIL & CMGL were varied and pursuant to which BIL transferred development rights in Batanagar land in assessee’s favour for Rs. 90 crores. We further find that in the notice u/s 142(1), the AO particularly required the assessee to furnish copy of the JV agreement and in response the assessee had furnished necessary details and documents. We also find that in the letter dated 21.10.2013, the assessee had clarified that the development rights were acquired for development of the integrated township which was assessee’s business activity. We also note that apart from calling upon the assessee to furnish the copy of the agreement, the AO had also required the assessee to furnish complete details of construction expenses of Rs. 168.77 crores incurred during the relevant year and also working of the closing stock along with method of valuation. The payment of Rs. 90 crores made for acquiring development rights formed integral part of Construction Expenses of Rs. 168.77 crores and these expenses were entirely taken into consideration in arriving at the closing value of WIP credited in the P&L A/c. After examining these details and having found that the cost of development rights was included in the closing value of WIP, the AO had passed the order u/s 143(3). For the reasons discussed in the foregoing therefore we do not find merit in the Ld CIT’s finding that the AO did not examine the relevant facts and agreements before passing of the assessment order.
8.5 We further find that in the assessment order for the relevant year as also for the earlier years, the AO had held that the assessee was in the business of real estate development. Batanagar project was developed as part of assessee’s real estate business. The proceeds realized from sale of properties at Batanagar was credited to P&L A/c and income derived there from was assessed under the head ‘Business’. We therefore find force in the Ld AR’s submission that the cost incurred by the assessee on acquiring development rights represented cost of acquiring stock-in-trade of assessee’s real estate business. Even in the impugned order, the Ld CIT himself has admitted that the assessee was executing the Batanagar project under the JV. The Ld CIT also admitted that the land on which the township project was being developed belonged to BIL who had granted development rights to the assessee. Once these were the admitted facts, we do not find substance in the Ld CIT’s allegation that in the absence of the JV Agreement, the AO was not in a position to verify whether the expenditure was capital or revenue in nature. On the contrary we find that there existed sufficient material on record from which it was very much evident that the development rights were acquired by the appellant in connection with its ongoing real estate business, income wherefrom was assessed under the head ‘Business’ in the assessment order and therefore the expenditure on acquiring development rights was rightly considered to be revenue in nature by the AO. For the reasons discussed in the foregoing therefore, we hold that the Ld CIT’s order on this issue is unsustainable.
9. In Para 3 (iii) of the impugned order the Ld CIT observed that the assessee in its written submissions furnished details of expenses debited in P&L A/c on various heads but no supporting evidences were produced which were required to be done. The Ld CIT further observed that even after providing opportunity, the assessee did not furnish complete details with supporting evidences. In our considered opinion however the reasons for which the Ld CIT set aside the order are not borne from the records nor from the reasons set out in the SCN. In the first instance we find that nowhere in the show cause notice, the assessee was called upon to furnish the details of expenses and substantiate it by producing supporting documents and evidences at the stage of hearing of revision proceedings. In the SCN, the Ld CIT had alleged that no details of the following i) Cost of Land Development, ii) Cost of acquisition of Land development rights, iii) Registration Fees, iv) Contractor Expenses, v) Rates & Taxes & vi) Delayed Delivery charges; which were all part of ‘Construction Expenses’ were furnished by the assessee nor the AO had examined the details of these expenses prior to passing of the assessment order. The Ld CIT had further alleged in the SCN that the payments made to related parties were not examined by the AO in the context of Section 40A(2) of the Act. From the paper book furnished at the time of hearing, we however find that in the questionnaire issued u/s 142(1) of the Act, the AO had particularly required the assessee to furnish particulars of various expenses debited in its P&L A/c which inter alia included expenses clubbed under the head ‘Construction Expenses’. From the paper book, we find that in the course of assessment, the assessee had furnished party-wise details of purchases, details of payment of development rights to BIL, details of secured & unsecured loans, details of sales promotion & advertisement expenses, details of registration fees in connection registration of development agreement, details of payments made to Contractors, details of salaries, wages & bonus, details of legal & professional fees, details of interest paid, details of travelling expenses, and others. Thereafter by another letter the assessee also furnished party-wise details of Construction Expenses & administrative expenses, wherever the expenditure paid was in excess of Rs. 1 lac. We further note that in the questionnaire u/s 142(1), the AO had required the assessee to furnish statement of closing value of Work In Progress and the assessee had furnished such statement which reconciled with the expenses debited in P&L A/c. From the Statement of valuation of Opening & Closing WIP, we find that in arriving at the closing value of WIP of Rs. 298.43 crores, the assessee had taken into account expenses of Rs. 209.54 crores incurred and debited in the P&L A/c of the relevant year. From the statement of valuation of WIP, we find that all the expenses, accounted as part of Construction Expenses were taken into account in arriving at Closing Value of WIP as on 31.03.2011. We also note that with regard to the expenses paid to related parties, the assessee had made full disclosure of the relevant facts in the Note No. 8 of Schedule – 17 of the Annual Accounts and in Annexure - C of the Tax Audit Report. We further note that these expenses formed part of the construction expenses which were examined by the AO in the course of assessment and therefore it could not said that the deduction was allowed by the AO without examining the issue about its allowability. We also note that in the impugned order the Ld CIT himself admitted that the details of expenses were furnished. Nowhere in the impugned order had the Ld CIT spelt out as to what additional documents or evidences which he had required the assessee to submit but which the assessee failed to do. On the contrary we find that in the SCN, the Ld CIT had considered the assessment to be erroneous for the reason that the AO did not call for the details nor conducted enquiry with regard to allowability of these expenses. We however find that in the course of assessment, the AO indeed conducted enquiry by issuing of notice u/s 142(1) of the Act. In response the assessee had furnished before AO details as requisitioned which inter alia included expenses enumerated by the Ld CIT in his SCN. Upon examination of the details furnished the AO had passed the assessment order and therefore we find that the reasons set out in the Ld CIT’s SCN were not supported by or borne out from the facts available in the records. Even in the course of hearing of the appeal, the Ld. CIT DR could not bring to our notice any material which could persuade us to agree with the Ld CIT’s contention in the notice that the enquiry into the facts was not conducted. On the contrary the documents filed in the paper book, particularly notice u/s 142(1) of the Act, proved that before passing of the assessment order the AO did call upon the assessee to furnish the information and details with regard to each of the head of expense set out in SCN and after examining the details furnished, the assessment order was passed.
10. On the facts set out in the foregoing therefore, we find that the assessee’ case is supportedby the decision of the jurisdictional Calcutta High Court in the case of CIT Vs J.L. Morrison (I) Ltd (366 ITR 593). In this casealso the assessment order u/s 143(3) was held by the CIT to be erroneous and prejudicial to the interests of the Revenue. In the SCN, the CIT had set out five specific heads of expense in respect of which the CIT considered the AO’s order was erroneous because deduction was not properly allowed. It was the CIT’s contention that the order was passed by the AO without calling for requisite information, without adequate enquiry and thereby deduction or claims were erroneously allowed. On appeal the ITAT however found that in the notice u/s 142(1) the AO had required the assessee to furnish the details of various expenses inter alia including the items specified in the SCN. The order sheet entries also proved that the AO had discussed the issues covered in the SCN prior to framing of the assessment. The ITAT therefore held that in respect of issues set out in the SCN, the AO had conducted enquiry by requiring the assessee to furnish the details and after examining the relevant details and explanations, the AO had taken one of the plausible view and therefore the CIT was not justified in invoking revisionary jurisdiction u/s 263 of the Act. Accordingly CIT’s order u/s 263 was held to be unsustainable. On appeal u/s 260A, the Hon’ble Calcutta High Court upheld the ITAT’s order, observing as follows:
“There is evidence to show that the Assessing Officer had required the assessee to answer 17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind the questions raised by him in the annexure to notice under section 142 (1) could not have been formulated.
The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous and was also considered both by the Tribunal as also by us to be a possible view, strengthens the presumption under Clause (e) of Section 114 of the Evidence Act. A prima facie evidence, on the basis of the aforesaid presumption, is thus converted into a conclusive proof of the fact the order was passed by the assessing officer after due application of mind.”
10.1 Applying the ratio laid down in the judgment of the Calcutta High Court, we note that in the notice u/s 142(1) dated 19.07.2013, the AO had raised 19 specific questions requiring the assessee to furnish details, documents & explanations with reference thereto. The documents which the assessee was called upon to furnish inter alia included copy of the Joint Venture Agreement, details of secured & unsecured loans, details of interest paid, details of Construction Expenses, sales promotion expenses, advertisement expenses, legal & professional expenses, Contractor’s Expenses, registration fees, salaries & wages etc. The assessee was also required to furnish details of inventory of Closing Stock and method of its valuation with detailed working of valuation. From the material placed before us, we find that the details requisition were filed before the AO and only after examination of the documents furnished the assessment was passed on 28.03.2014. On these facts therefore we are unable to accept the Ld CIT’s charge in the SCN that the AO had passed the order without obtaining any information or without conducting enquiry with regard to various items of expenses enumerated in the show cause notice.
10.2 We further find that in response to SCN, the Ld AR had furnished before the Ld CIT its explanation contending that the details of various expenses enumerated in SCN were furnished before the AO and the assessee had also furnished such details before the Ld CIT. This fact has been admitted by the Ld CIT in Para 3(iii) of the impugned order. Nowhere in the SCN nor in the order u/s 263, the Ld CIT pointed out that the assessee was also required to produce supporting documents and evidences to substantiate the expenses incurred. On the contrary the SCN proceeded on the premise that the order u/s 143(3) was passed without obtaining any details. We however find that details of the expenses incurred were furnished by the assessee both before the AO as well as before the Ld CIT. Without specifying which particular document or evidence the assessee was expected to produce but failed to produce, the Ld CIT made only a general assertion that despite opportunity the assessee did not produce any evidence. We are unable to appreciate Ld CIT’s such finding since no specific instance of non-furnishing of any particular evidence or document has been highlighted in the impugned order. We find that the SCN was issued on the ground that no enquiry was conducted by the AO and in the submissions before the Ld CIT, the assessee had furnished its explanations disproving the said charge. Thereafter no fresh SCN was issued by the Ld CIT requiring the assessee to produce any evidence or document substantiating the expenses nor any SCN was issued after obtaining the relevant details as per which the Ld CIT could prove that deduction for any particular expenditure was erroneously allowed. In our opinion once the assessee had met the Ld CIT’s objections in the SCN by furnishing explanation and details, then the onus was on the Ld CIT to prove with cogent material that the explanations put forth were not proper and the assessment was erroneous and prejudicial to the interest of the Revenue for the reasons set out in the SCN. It was not open for the Ld CIT to thereafter set aside the assessment directing the AO to re-frame the assessment after conducting enquiries and as per law.
10.3 In this regard we find support in the following observations made by the coordinate Bench of this Tribunal in the case of BhagwatiSponge Pvt Ltd Vs CIT (ITA No. 1283/Kol/2013) wherein the relevant finding of the Tribunal was as follows:
“We have considered the rival submissions and perused the relevant material available on record. It is observed that a submission in writing was filed by the assessee in reply to the notice issued by the ld. CIT under section 263 offering its explanation in respect of errors allegedly pointed out by the ld. CIT in the order passed by the Assessing Officer under section 143(3). Although in the impugned order passed under section 263, the ld. CIT has made a reference to the written submission filed by the assessee, he has neither discussed the same nor given any finding thereon so as to point out as to what exactly are the errors in the order of the Assessing officer, which were prejudicial to the interest of the Revenue. He simply brushed aside the submission made by the assessee and held the order of the Assessing Officer to be erroneous and prejudicial to the interest of the revenue on the ground that proper and sufficient enquiry on the issues raised by him in the notice issued under section 263 was not conducted by the assessee. He even did not point out as to how the enquiry made by the Assessing Officer was not sufficient and proper and even failed to point out as to what further enquiry the Assessing Officer was expected to do on the relevant issues. In the case of Leisure Wear Exports Limited (supra) cited by the ld. counsel for the assessee, there was nothing in the revisional order passed by the ld. CIT under section 263 as to how the order of the Assessing Officer was erroneous and further as to how it was prejudicial to the interest of the revenue. The ld. Commissioner also had not doubted the statement of finished goods in closing stock furnished by the assessee but only remarked that the Assessing Officer should have made further enquiry by calling for more details. In these facts and circumstances of the said case, which are similar to the facts of the present case, the Hon'ble Delhi High Court upheld the order of the Tribunal setting aside the order of the ld. CIT passed under section 263 observing that the ld. Commissioner had not taken the order to its logically conclusion, which was his prime duty in order to justify exercise of power under section 263. In our opinion, the ratio of this decision of the Hon'ble Delhi High Court in the case of Leisure Wear Exports Limited (supra) is squarely applicable to the facts involved in the present case and respectfully following the same, we set aside the impugned order passed by the ld. CIT under section 263 and restore that the Assessing Officer passed under section 143(3).”
10.4 A useful reference can also be made to ITAT, Guhawati in the case of AnandPoddarVs CIT (33 taxmann.com 367) wherein the facts were somewhat similar to the assessee’s case. In the case before the ITAT, Guhawati; the CIT held the assessment order as erroneous on the ground of lack of enquiry and non-application of mind even though the facts available in the assessment record indicated that the AO had conducted the enquiry before passing of the assessment by issuing notice u/s 142(1) of the Act. On appeal against the CIT’s order u/s 263, the coordinate Bench of this Tribunal observed as follows:
“The power envisaged under section 263 in setting aside an assessment is large and wide, but this cannot be exercised on the basis of suspicion and surmise. It is also a settled position that the proceedings under section 263 cannot be initiated by Commissioner merely in his supervisory capacity and to substitute his subjective opinion for that of the Assessing Officer. Before invoking the powers under section 263, it is necessary for Commissioner to demonstrate that Assessing Officer had committed a patent error which resulted in prejudice to the revenue. On the contrary, where the Assessing Officer has conducted enquiries and after due consideration of facts and circumstances of the case he comes to a possible conclusion, then it is not open to Commissioner to invoke revisionary jurisdiction just to re-examine or re-verify the issues already examined/verified at the assessment level; otherwise it will tantamount to give a second inning to the Assessing Officer to re-examine and re-adjudicate the concluded issues.”
In the impugned order, the Commissioner has discussed the issues and facts which according to him led to believe that the order passed by the Assessing Officer was erroneous and prejudicial to interest of revenue. He thus set aside the assessment by directing to re-examine the issues and pass fresh assessment order if found warranted after proper verification/cross verification. From the said observation of Commissioner, it is, apparent that the exercise under section 263 was made merely with a view to give a second inning to the Assessing Officer to re-examine and re-adjudicate the concluded issues. It is however, found that in the course of assessment proceedings the Assessing Officer and the Additional Commissioner had examined and considered all relevant issues and materials. It is opined that the Commissioner's own assertion to pass fresh assessment order 'if warranted' after proper verification/cross examination clearly establishes that he himself did not come to even prima facie conclusion that for the reasons discussed by him in his impugned order, the order of the Assessing Officer should be held as erroneous. The Tribunal in the case of Plastic Concern v. Asstt. CIT [1998] 61 TTJ 87 (Cal.) held that mere possibility of gathering more material to prove the claim of the assessee wrong would not make the concluded assessment erroneous as long as the Assessing Officer had acted judiciously and conducted enquiries in the course of original assessment.”
10.5 Applying the ratio laid down in the foregoing decisions we find that in the present case, the AO himself had conducted enquiry by obtaining requisite information and details with regard to each of the expense enumerated by the Ld CIT in his SCN. We find that in response to requisition u/s 142(1), the assessee had furnished details & explanations and the documents on record disproved the Ld CIT’s charge in the SCN that enquiry was not conducted. We further find that even before the Ld CIT, the assessee had furnished the same explanations and details which have been ignored and/or brushed aside by the Ld CIT by making general observation that no supporting evidences were furnished despite opportunity. We however find that no specific document or evidence was specified by the Ld CIT in his order which he had expected or required the assessee to produce but which the assessee failed to produce at the stage of revision. We therefore find that the assessment has been set aside by the Ld CIT only with a view to give the AO one more opportunity of conducting roving enquiry without establishing in any specific manner as to how AO’s assessment order dated 28.03.2014 was erroneous in so far as prejudicial to the interest of the Revenue. In our considered opinion, by setting aside the assessment and directing the AO to pass fresh order of assessment, the Ld CIT has merely given the AO a second inning which is not the aim and object of Section 263 of the Act. For the reasons discussed in the foregoing therefore, we hold that the order u/s 143(3) dated 28.03.2014 passed by the ITO, Ward 12(3), Kolkata was not erroneous in so far as prejudicial to the interests of the revenue for the reasons set out in the CIT’s order u/s 263 of the Act. Accordingly the Ld CIT’s impugned order passed u/s 263 is cancelled and the AO’s order u/s 143(3) dated 28.03.2014 is restored.
11. In the result, the appeal is allowed.