Kumar Rajaram, CHENNAI V. ITO, CHENNAI

ITA 1876/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8028 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 19-01-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 20-08-2015
• Court: TRIBUNAL
• Assessee Lawyers: T N SEETHARAMAN MR PARASHIV
• Keywords: Capital asset; Gift; Principle of natural justice; Diversion of income; Cost of acquisition; Right to appeal
• Section: 143(3); 263; 15

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , ! ' #! ' $ . %& ' () BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.1876 /MDS./2015 ( / ASSESSMENT YEAR :2012-13) SHRI KUMAR RAJARAM, BY.P.O.A- HOLDER K.VASUDEVAN CHENNAI 600 020. VS. THE INCOME TAX OFFICER, INERNATIONAL TAXATION-2(1), CHENNAI. PAN BDWPR 4473 G ( *+ / APPELLANT ) ( ,-*+ / RESPONDENT ) / APPELLANT BY : MR.T.N.SEETHARAMAN,ADVOCATE / RESPONDENT BY : MR.PARASHIVAIAH,CIT, D.R / DATE OF HEARING : 19.01.2016 ! /DATE OF PRONOUNCEMENT : 10.02.2016 . / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (IN TERNATIONAL ITA NO.1876/MDS/2015 2 TAXATION), CHENNAI DATED 02.07.2015 PERTAINING T O THE ASSESSMENT YEAR 2011-12. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE SOLD HIS HOUSE PROPERTY AT 38, DEFENCE OFFICERS COLONY, HAR-IL ST AGE, INDIRA NAGAR, BANGALORE FOR A CONSIDERATION OF ` 8,80,00,000/- VIDE SALE DEED DATED 10-11-2011. THIS PROPERTY WAS ORIGINALLY PURCHASED BY ASSESSEES FATHER ON 26-07-1979, AND INHERITED BY THE ASSESSEE AFTER THE DEMISE OF HIS FATHER ON 11-06-2011 THROUGH A WILL. THE AS SESSEE CLAIMED ` 68,02,500/- AS EXPENDITURE ON TRANSFER OF THE ABOVE PROPERTY, THE DETAILS OF WHICH ARE AS UNDER:- PAYMENT MADE TO SRI SAI SPIRITUAL CENTER TRUST : RS.10,00,000 PAYMENT MADE TO HELP AGE INDIA : RS.25,00,000 CRY (CHILD RIGHTS AND YOU) : RS.15,00,000 SRI RAMANA ASHRAMAM THIRUVANNAMALAI : RS.10,00, 000 PAYMENT MADE TO SRI M.S. NARAYANAN : RS. 50,000 PROFESSIONAL FEES PAID TO SRI M.S.NARAYANAN : RS . 3,20,000 COMMISSION PAID TO N D BASAVARAJA : RS. 4,00,00 0 OTHER EXPENSES : RS. 32,500 AFTER DEDUCTING THE ABOVE EXPENSES, THE ASSESSEE SH OWED A SUM OF ` 8,11,97,500/- AS NET SALE CONSIDERATION. LD. CIT OP INED THAT AS THESE EXPENSES WERE NOT INCURRED WHOLLY AND EXCLUSIVELY I N CONNECTION WITH THE TRANSFER, THE SAME IS NOT ALLOWABLE AS DEDUCTIO N, THE CLAIM OF EXPENSES OF ` 68,02,500/- NOT RELATING TO THE SALE WAS NOT DISALL OWED AND ADDED TO THE SALE CONSIDERATION WHILE COMPUTING THE CAPITAL GAINS IN THE SCRUTINY ORDER U/S 143(3). HENCE A SHOW CAUS E NOTICE WAS ISSUED TO THE ASSESSEE U/S 263 OF THE INCOME-TAX AC T, 1961 ON 12-03- ITA NO.1876/MDS/2015 3 2015 FOR THE ABOVE REASONS BY THE LD.CIT. IN RESPO NSE, THE ASSESSEE SUBMITTED HIS REPLY DATED 18-03-2015 OBJEC TING TO THE EXERCISE OF POWERS U/S 263 BY LD.CIT AND ON MERITS IN REGARD TO ALLOWABILITY OF THE CLAIM OF EXPENSES OF ` 68,02,500/-. AFTER EXAMINING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT VIEWED THAT THE ASSESSING OFFICER TOOK THE SALE CONSIDERATION OF TH E PROPERTY AS ` 8,11,97,500/- INSTEAD OF ` 8,80,00,000/-. THE FACT THAT THE ACTUAL SALE CONSIDERATION RECEIVED BY THE ASSESSEE IS ` 8,80,00,000/- AS EVIDENCED BY THE DEED OF SALE EXECUTED FOR SALE OF THIS PROPERTY. THUS THE ASSESSMENT FRAMED BY THE ASSESSING OFFICER IS N OT IN ACCORDANCE WITH THE LAW AND IS ERRONEOUS. DUE TO THIS ERROR, L AWFUL REVENUE DUE TO THE STATE HAS NOT BEEN REALIZED. THEREFORE, IT IS D ETERMINED THAT THE ASSESSMENT ORDER FRAMED BY THE ASSESSING OFFICER IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LD. CIT PLACED REL IANCE ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CA SE OF MIS ASHOK LEYLAND LTD. VS COMMISSIONER OF INCOME-TAX (260 ITR 599) WHEREIN THE COURT HELD THAT FAILURE ON THE PART OF THE ASSE SSING OFFICER TO EXAMINE IN DEPTH THE CLAIM OF THE ASSESSEE AND HIS FAILURE TO DO SO IS NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTE REST OF REVENUE. HE ALSO DREW SUPPORT FROM THE JUDGEMENT OF HONBLE APE X COURT IN THE CASE OF MALABAR INDUSTRIAL COMPANY LTD VS CIT (2000 ) (243 ITR 83) (SC) HAS HELD THAT, IF DUE TO AN ERRONEOUS ORDER OF THE ITO, THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY THE PERSO N, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. HENC E, HE WAS OF THE VIEW THAT THIS IS A FIT CASE FOR INTERVENTION BY TH E CIT U/S 263 OF THE ITA NO.1876/MDS/2015 4 INCOME-TAX ACT, 1961. THUS THE OBJECTIONS RAISED BY THE ASSESSEE ON THE VALIDITY OF THE PROCEEDINGS ARE NOT ACCEPTED BY LD.CIT. FURTHER, LD. CIT OBSERVED THAT THE COPY OF SALE DEED DATED 10-11-2011 AVAILABLE ON RECORD SHOWS THAT ASSESSEE HAD ALREADY OBTAINED KATHA CERTIFICATE OF THIS PROPERTY FROM BRUHAT BANGALORE MAHANAGAR PALIKE ON 26-10-2011 ITSELF WHICH IS BEFORE THE DATE OF SA LE I.E. ASSESSEE WAS ABSOLUTE OWNER OF THE PROPERTY AND THUS THERE I S NO DIVERSION BY OVERRIDING TITLE FURTHER, THE SAID PROPERTY WAS SOL D BY ASSESSEE AND NOT BY THE EXECUTOR TO THE WILL THIS CONTRADICTS TH E CLAIM OF ASSESSEE THAT HE GOT ONLY THE BALANCE AMOUNT AFTER MAKING TH E PAYMENT OF RS 60,50,000/- AS PER WILL. FURTHER, AS PER THE WILL T HE EXECUTOR CAN SELL THE PROPERTY ONLY ONE YEAR AFTER DEMISE OF SHRI A V RAJARAM WHEREAS SALE WAS MADE WITHIN 5 MONTHS. A!L THESE FACTORS GO TO PROVE THAT THE SALE WAS NOT MADE AS PER WILL AND THE ASSESSEE AS S OLE OWNER, SOLD THE IMPUGNED PROPERTY FOR A CONSIDERATION OF ` 8,80,00,000/-. MOREOVER, THE PAYMENTS SAID TO HAVE BEEN MADE AS PE R WILL CAN NEITHER BE CONSIDERED AS DIVERSION BY OVERRIDING TI TLE NOR EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER IN VIEW OF THE BINDING DECISIONS OF JURISDICTIONAL HIGH COU RT ON IDENTICAL SITUATIONS IN THE FOLLOWING CASES: 1. RUGMANI VARMA VS CIT (MAD) 222 ITR 357 2. CIT VS A VENKATARAMAN (MAD) 137 ITR 846 FROM THE ABOVE FACTS, THE LD.CIT WAS OF VIEW THAT NO IN-DEPTH ENQUIRY HAD BEEN MADE ABOUT PAYMENT OF PROFESSIONA L FEES PAID TO SHRI M S NARAYANAN ( ` 3,20,000/-), COMMISSION PAID TO N D ITA NO.1876/MDS/2015 5 BASAVARAJA ( ` 4,00,000/-) AND OTHER EXPENSES ( ` 32,500/-) CLAIMED AS EXPENSES DEDUCTION. HOW EACH OF THESE EXPENSES FALL IN THE CATEGORY OF EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER IS NOT EXPLAINED BY ASSESSEE AND EXAMINED BY THE AO. HENCE, LD. CIT CAME TO A CONCLUSION THAT THE WHOLE CLAIM OF ` 4,68,02,500/- MADE IN THE RETURN OF INCOME AS EXPE NDITURE ON TRANSFER NEEDS TO BE DISALLOWED. AGAINST THIS, TH E ASSESSEE IS IN APPEAL BEFORE US. 3.1 THE LD.A.R SUBMITTED THAT AS PER WILL, THE A SSESSEE HAS PAID A SUM OF ` 60 LAKHS TO VARIOUS PERSONS AND THIS SHOULD BE A D IVERSION BY OVERRIDING TITLE. SINCE THE SAID SUM WAS PAID A S A CONDITION PRECEDENT SUBJECT TO WHICH ONLY SAID PROPERTY STOOD BEQUEATHED TO, AMONG OTHERS. FURTHER, LD.A.R DREW ATTENTION TO TH E LETTERS DATED 18.03.2015 AND 31 .03.2015 STATING THE REASON FOR E XCLUSION OF THE SUM OF RS.68,02,500/- WITH REFERENCE TO THE TERMS O F THE ASSESSEES FATHERS WILL DATED 30.10.2008 AND THE SALE DEED DA TED 10.11.2011 OF THE BANGALORE PROPERTY, CITING JUDICIAL DECISIONS I N SUPPORT, WHICH THE COMMISSIONER HAS FAILED TO APPRECIATE. FURTHER, THE A.R DISTINGUISHED THE JURISDICTIONAL HIGH COURT DECISIONS RELIED ON B Y THE COMMISSIONER IN PARA 7 OF HIS IMPUGNED ORDER. THE LD.A.R FURTHER PLEADED THAT THE ITA NO.1876/MDS/2015 6 OBSERVATIONS OF THE COMMISSIONER VIZ., THAT THE APP ELLANT HAD OBTAINED KATHA CERTIFICATE OF THE BANGALORE PROPERT Y IN HIS NAME BEFORE THE SALE, THAT THE PROPERTY WAS SOLD BY THE APPELLANT AND NOT BY THE EXECUTOR AND THAT THE SALE WAS EFFECTED BEFO RE THE PERIOD OF ONE YEAR AFTER HIS DEMISE STIPULATED IN THE WILL BY THE TESTATOR ARE MATTERS OF NO CONSEQUENCE AND IN NO WAY MILITATE AG AINST THE SALE AS PER THE SUBSTANCE OF THE WILL OR DEDUCTIBILITY OF T HE TOTAL SUM OF ` 68,02,500/- BEING PAYMENTS TO CHARITIES ETC., AS PE R THE WILL IN COMPUTING THE LONG TERM CAPITAL GAINS ON SALE OF TH E INHERITED PROPERTY. THE LD.A.R FURTHER PRAYED THAT ON MERIT S THE SUM OF ` .68,02,500/- HAS BEEN PROPERLY ALLOWED BY THE INCOM E TAX OFFICER AND THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3 ) DATED 25.09.2014 IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF REVENUE TO WARRANT THE COMMISSIONERS INTERFERENCE UNDER SECTION 263 OF THE ACT. 3.2 REGARDING INVOKING THE PROVISIONS OF THE SECTI ON 263 OF THE ACT BY THE LD. CIT, LD.A.R SUBMITTED THAT IN THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS THE INCOME TAX OFFICER HAD I SSUED QUESTIONNAIRE DATED 12.05.2014 AND HEARD THE CASE O N 29.05.2014; ITA NO.1876/MDS/2015 7 IN RESPONSE TO THE QUESTIONNAIRE AND THE ENQUIRY DU RING THE HEARING ON 29.05.2014 THE LD.A.R HAD SUBMITTED LEGAL OPINI ON (DATED 30.11.2011); THE INCOME TAX OFFICER HAD ACCEPTED TH E OPINION AND REFERRING IN THE ASSESSMENT ORDER TO THE CLAIM OF E XCLUSION OF PAYMENTS OF AMOUNTS TO VARIOUS CHARITIES AS PER WIL L DATED 30.10.2008 OF THE ASSESSEES FATHER, PROFESSIONAL F EES, COMMISSION PAID AND OTHER EXPENSES ADOPTED THE NET CONSIDERAT ION OFFERED BY THE ASSESSEE FOR PURPOSES OF COMPUTATION OF LONG T ERM CAPITAL GAINS ON SALE OF THE IMMOVABLE PROPERTY AT BANGALOR E BEQUEATHED TO THE APPELLANT BY HIS FATHER; IN SUCH CIRCUMSTANCES THE SECTION 263 IN RESPECT OF THE ISSUE REGARDING NET SALE CONSIDERAT ION IS CONTRARY TO THE SCHEME OF THE ACT AND IS WHOLLY UNJUSTIFIED. TH E ASSESSEE IS ADVISED TO SUBMIT THAT THE JUDICIAL DECISIONS RELIE D ON BY THE COMMISSIONER IN PARA 5 OF HIS IMPUGNED ORDER TO OVE RRULE THE OBJECTIONS RAISED BY THE APPELLANT ON THE VALIDITY OF THE PROCEEDINGS UNDER SECTION 263 HAVE NO RELEVANCE ON THE FACTS AN D CIRCUMSTANCES OF THE PRESENT APPELLANTS CASE. HENCE, THE APPELLA NT SUBMITS AND URGES THAT THE IMPUGNED ORDER OF THE COMMISSIONER D ESERVES TO BE ITA NO.1876/MDS/2015 8 STRUCK DOWN ON THE GROUND OF WANT OF JURISDICTION A ND ON THE BASIS OF THE GROUNDS SETOUT ABOVE ALONE. 3.3 REGARDING THE VALIDITY OF INVOKING THE PROVISI ONS OF SEC.263 OF THE ACT, LD.A.R RELIED ON THE DECISIONS OF THE HON BLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL COMPANY LTD. REPORTE D IN (2000) 243 ITR 83(SC) AND OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S.ASHOK LEYLAND LTD., REPORTED IN 260 ITR 599( MAD.). 3.4 ON THE OTHER HAND , LD.D.R RELIED ON THE ORDER OF THE LD.CIT. 4. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS IN THE LIGHT OF MATERIAL PLACED BEFORE US AND ALSO GONE THROUGH ALL THE JUDGMENTS CITED BY THE PARTIES BEFORE US. FIRST WE TAKE UP TH E LEGAL ISSUE WITH REFERENCE TO THE JURISDICTION OF INVOKING THE PROVI SIONS OF S. 263 OF THE ACT BY THE LEARNED CIT. THE SCHEME OF THE IT ACT IS TO LEVY AND COLLECT TAX IN ACCORDANCE WITH THE PROVISIONS OF TH E ACT AND THIS TASK IS ENTRUSTED TO THE REVENUE. IF DUE TO ERRONEOUS ORDER OF THE AO, THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE ITA NO.1876/MDS/2015 9 PREJUDICIAL TO THE INTEREST OF THE REVENUE. AS HELD IN THE CASE OF MALABAR INDUSTRIES CO. LTD. VS. CIT (SUPRA) THE CIT CAN EXERCISE REVISION JURISDICTIONAL UNDER S. 263 IF HE IS SATIS FIED THAT THE ORDER OF THE AO SOUGHT TO BE REVISED IS (I) ERRONEOUS AND AL SO (II) PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE WORD 'ERRONEOUS' HAS NOT BEEN DEFINED IN THE IT ACT. IT HAS BEEN HOWEVER DEFINED AT P. 562 IN BLACK'S LAW DICTIONARY (SEVENTH EDITION) THUS; 'ERRONEOUS, ADJ. INVOLVING ERROR, DEVIATING FROM THE LAW'. THE WORD 'ERROR' HA S BEEN DEFINED AT THE SAME PAGE IN THE SAME DICTIONARY THUS : 'ERROR NO. 1 : A PSYCHOLOGICAL STATE THAT DOES NOT CONFORM TO OBJECTIVE REALITY; A BRIEF THAT WHAT IS FALSE IS TRUE OR THAT WHAT IS TRUE IS FALSE'. AT P . 649/650 IN P. RAMANATHA AIYER'S LAW LEXICON, REPRINT 2002, THE WO RD 'ERROR' HAS BEEN DEFINED TO MEAN' 'ERROR. A MISTAKEN JUDGMENT OR DEVIATION FROM THE TRUTH IN MATTERS OF FACT, AND FROM THE LAW IN M ATTERS OF JUDGMENT 'ERROR' IS A FAULT IN JUDGMENT, OR IN THE PROCESS O R PROCEEDING TO JUDGMENT OR IN THE EXECUTION UPON THE SAME, IN A CO URT OF RECORD; WHICH IN THE CIVIL LAW IS CALLED A NULLITYIE' (TERM ES DE LA LEY)' SOMETHING INCORRECTLY DONE THROUGH IGNORANCE OR INA DVERTENCE S. 99 CPC AND S. 215 CR.PC. 'ERROR, FAULT, ERROR RESPECT S THE ACT; FAULT ITA NO.1876/MDS/2015 10 RESPECT THE AGENT, AN ERROR MAY LAY IN THE JUDGMENT , OR IN THE CONDUCT, BUT A FAULT LIES IN THE WILL OR INTENTION.' 5. AT P. 650 OF THE AFORESAID LAW LEXICON, THE SCO PE OF ERROR, MISTAKE, BLUNDER, AND HALLUCINATION HAS BEEN EXPLAI NED THUS : 'AN ERROR IS ANY DEVIATION FROM THE STANDARD OR COU RSE OF RIGHT, TRUTH, JUSTICE OR ACCURACY, WHICH IS NOT INTENTIONAL. A MI STAKE IS AN ERROR COMMITTED UNDER A MISAPPREHENSION OF MISCONCEPTION OF THE NATURE OF A CASE. AN ERROR MAY BE FROM THE ABSENCE OF KNO WLEDGE, A MISTAKE IS FROM INSUFFICIENT OR FALSE OBSERVATION. BLUNDER IS A PRACTICAL ERROR OF A PECULIARLY GROSS OR AWKWARD KI ND, COMMITTED THROUGH GLARING IGNORANCE, HEEDLESSNESS, OR AWKWARD NESS. AN ERROR MAY BE OVERLOOKED OR ATONED FOR, A MISTAKE MAY BE R ECTIFIED, BUT THE SHAME OR RIDICULE WHICH IS OCCASIONED BY A BLUNDER, WHO CAN COUNTERACT. STRICTLY SPEAKING, HALLUCINATION IS AN ILLUSION OF THE PERCEPTION, A PHANTASM OF THE IMAGINATION. THE ONE COMES OF DISORDERED VISION, THE OTHER OF DISCARDED IMAGINATI ON. IT IS EXTENDED IN MEDICAL SCIENCE TO MATTERS OF SENSATION, WHETHER THERE IS NO CORRESPONDING CAUSE TO PRODUCE IT. IN ITS ORDINARY USE IT DENOTES AN ITA NO.1876/MDS/2015 11 UNACCOUNTABLE ERROR IN JUDGMENT OR FACT, ESPECIALLY IN ONE REMARKABLE OTHERWISE FOR ACCURATE INFORMATION AND R IGHT DECISION. IT IS EXCEPTIONAL ERROR OR MISTAKE IN THOSE OTHERWISE NOT LIKELY TO BE DECEIVED.' 6. IN ORDER TO ASCERTAIN WHETHER AN ORDER SOUGHT TO BE REVISED UNDER S. 263 IS ERRONEOUS, IT SHOULD BE SEEN WHETHE R IT SUFFERS FROM ANY OF THE AFORESAID FORMS OF ERROR. IN OUR VIEW, A N ORDER SOUGHT TO BE REVISED UNDER S. 263 WOULD BE ERRONEOUS AND FALL IN THE AFORESAID CATEGORY OF 'ERRORS' IF IT IS, INTER ALIA, BASED ON AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW OR NON- APPLICATION OF MIND TO SOMETHING WHICH WAS OBVIOUS AND REQUIRED APPLICATION OF MIND OR BASED ON NO OR INSUFFICIENT MATERIALS SO AS TO AFFECT THE MERITS OF THE CASE AND THEREBY CAUSE PRE JUDICE TO THE INTEREST OF THE REVENUE. 7. SEC. 263 OF THE IT ACT SEEKS TO REMOVE THE PRE JUDICE CAUSED TO THE REVENUE BY THE ERRONEOUS ORDER PASSED BY THE AO . IT EMPOWERS THE CIT TO INITIATE SUO MOTU PROCEEDINGS EITHER WHE RE THE AO TAKES A ITA NO.1876/MDS/2015 12 WRONG DECISION WITHOUT CONSIDERING THE MATERIALS AV AILABLE ON RECORD OR HE TAKES A DECISION WITHOUT MAKING AN ENQUIRY IN TO THE MATTERS, WHERE SUCH INQUIRY WAS PRIMA FACIE WARRANTED. THE C IT WILL BE WELL WITHIN HIS POWERS TO REGARD AN ORDER AS ERRONEOUS O N THE GROUND THAT IN THE CIRCUMSTANCES OF THE CASE, THE AO SHOULD HAV E MADE FURTHER INQUIRIES BEFORE ACCEPTING THE CLAIM MADE BY THE AS SESSEE IN HIS RETURN. THE REASON IS OBVIOUS. UNLIKE THE CIVIL COU RT WHICH IS NEUTRAL IN GIVING A DECISION ON THE BASIS OF EVIDENCE PRODU CED BEFORE IT, THE ROLE OF AN AO UNDER THE IT ACT IS NOT ONLY THAT OF AN ADJUDICATOR BUT ALSO OF AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE I N THE FACE OF A RETURN, WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER ENQUIRY. HE MUST DISCHARGE BOTH THE ROLES EFFECTIVELY. IN OTHER WORDS, HE MUST CARRY OUT INVESTIGATION WHERE THE FACTS OF THE CASE SO REQUIRE AND ALSO DECIDE THE MATTER JUDICIOUSLY ON THE BASIS OF MATERIALS COLLECTED BY HIM AS ALSO THOSE PRODUCED BY THE ASSESSEE BEFOR E HIM. THE SCHEME OF ASSESSMENT HAS UNDERGONE RADICAL CHANGES IN RECENT YEARS. IT DESERVES TO BE NOTED THAT THE PRESENT ASS ESSMENT WAS MADE UNDER S. 143(3) OF THE IT ACT. IN OTHER WORDS, THE AO WAS STATUTORILY REQUIRED TO MAKE THE ASSESSMENT UNDER S . 143(3) AFTER ITA NO.1876/MDS/2015 13 SCRUTINY AND NOT IN A SUMMARY MANNER AS CONTEMPLATE D BY SUB-S. (1) OF S. 143. BULK OF THE RETURNS FILED BY THE ASSESSE ES ACROSS THE COUNTRY ARE ACCEPTED BY THE DEPARTMENT UNDER S. 143 (1) WITHOUT ANY SCRUTINY. ONLY A FEW CASES ARE PICKED UP FOR SCRUTI NY. THE AO IS THEREFORE, REQUIRED TO ACT FAIRLY WHILE ACCEPTING O R REJECTING THE CLAIM OF THE ASSESSEE IN CASES OF SCRUTINY ASSESSMENTS. H E SHOULD BE FAIR NOT ONLY TO THE ASSESSEE BUT ALSO TO THE PUBLIC EXC HEQUER. THE AO HAS GOT TO PROTECT, ON ONE HAND, THE INTEREST OF TH E ASSESSEE IN THE SENSE THAT HE IS NOT SUBJECTED TO ANY AMOUNT OF TAX IN EXCESS OF WHAT IS LEGITIMATELY DUE FROM HIM, AND ON THE OTHER HAND , HE HAS A DUTY TO PROTECT THE INTERESTS OF THE REVENUE AND TO SEE THA T NO ONE DODGED THE REVENUE AND ESCAPED WITHOUT PAYING THE LEGITIMA TE TAX. THE AO IS NOT EXPECTED TO PUT BLINKERS ON HIS EYES AND MEC HANICALLY ACCEPT WHAT THE ASSESSEE CLAIMS BEFORE HIM. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED AND THE GENUINENESS OF TH E CLAIMS MADE IN THE RETURN WHEN THE CIRCUMSTANCES OF THE CASE ARE S UCH AS TO PROVOKE INQUIRY. ARBITRARINESS IN EITHER ACCEPTING OR REJECTING THE CLAIM HAS NO PLACE. THE ORDER PASSED BY THE AO BECO MES ERRONEOUS BECAUSE AN ENQUIRY HAS NOT BEEN MADE OR GENUINENESS OF THE CLAIM ITA NO.1876/MDS/2015 14 HAS NOT BEEN EXAMINED WHERE THE INQUIRIES OUGHT TO HAVE BEEN MADE AND THE GENUINENESS OF THE CLAIM OUGHT TO HAVE BEEN EXAMINED AND NOT BECAUSE THERE IS ANYTHING WRONG WI TH HIS ORDER IF ALL THE FACTS STATED OR CLAIM MADE THEREIN ARE ASSU MED TO BE CORRECT. THE CIT MAY CONSIDER AN ORDER OF THE AO TO BE ERRON EOUS NOT ONLY WHEN IT CONTAINS SOME APPARENT ERROR OF REASONING O R OF LAW OR OF FACT ON THE FACE OF IT BUT ALSO WHEN IT IS A STEREOTYPED ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS STATED IN HIS RETURN AND FAILS TO MAKE ENQUIRIES OR EXAMINE THE GENUINENESS OF THE CLAIM W HICH ARE CALLED FOR IN THE CIRCUMSTANCES OF THE CASE. IN TAKING THE AFORESAID VIEW, WE ARE SUPPORTED BY THE DECISIONS OF THE HON'BLE SUPRE ME COURT IN RAMPYARI DEVI SARAOGI VS. CIT (1968) 67 ITR 84(SC); SMT. TARA DEVI AGGARWAL VS. CIT 1973 CTR (SC) 107: (1973) 88 ITR 323(SC) AND MALABAR INDUSTRIAL CO. LTD'S CASE (SUPRA). 8. IN MALABAR INDUSTRIAL CO. LTD. (SUPRA) CASE THE HON 'BLE COURT HAS HELD AS UNDER : 'THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE O R ERROR COMMITTED BY THE AO, IT IS ONLY WHEN AN ORDER IS ER RONEOUS ITA NO.1876/MDS/2015 15 THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT AS SUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATIS FY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SA ME CATEGORY FALL THE ORDERS PASSED WITHOUT APPLYING TH E PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATIO N OF MIND.' IN OUR HUMBLE VIEW, ARBITRARINESS IN DECISION-MAKIN G WOULD ALWAYS NEED CORRECTION REGARDLESS OF WHETHER IT CAUSES PRE JUDICE TO AN ASSESSEE OR TO THE STATE EXCHEQUER. THE LEGISLATURE HAS TAKEN AMPLE CARE TO PROVIDE FOR THE MECHANISM TO HAVE SUCH PREJ UDICE REMOVED. WHILE AN ASSESSEE CAN HAVE IT CORRECTED THROUGH REV ISIONAL JURISDICTION OF THE CIT UNDER S. 264 OR THROUGH APP EALS AND OTHER MEANS OF JUDICIAL REVIEW, THE PREJUDICE CAUSED TO T HE STATE EXCHEQUER CAN ALSO BE CORRECTED BY INVOKING REVISIONAL JURISD ICTION OF THE CIT UNDER S. 263. ARBITRARINESS IN DECISION-MAKING CAUS ING PREJUDICE TO EITHER PARTY CANNOT THEREFORE BE ALLOWED TO STAND A ND STARE AT THE LEGAL SYSTEM. IT IS DIFFICULT TO COUNTENANCE SUCH A RBITRARINESS IN THE ACTIONS OF THE AO. IT IS THE DUTY OF THE AO TO ADEQ UATELY PROTECT THE INTERESTS OF BOTH THE PARTIES, NAMELY, THE ASSESSEE AS WELL AS THE STATE. IF HE FAILS TO DISCHARGE HIS DUTIES FAIRLY, HIS ARBITRARY ACTIONS CULMINATING IN ERRONEOUS ORDERS CAN ALWAYS BE CORRE CTED EITHER AT THE ITA NO.1876/MDS/2015 16 INSTANCE OF THE ASSESSEE, IF THE ASSESSEE IS PREJUD ICED OR AT THE INSTANCE OF THE CIT, IF THE REVENUE IS PREJUDICED. WHILE MAKING AN ASSESSMENT, THE ITO HAS A VARIED ROLE TO PLAY. HE I S THE INVESTIGATOR, PROSECUTOR AS WELL AS ADJUDICATOR. AS AN ADJUDICATO R HE IS AN ARBITRATOR BETWEEN THE REVENUE AND THE TAXPAYER AND HE HAS TO BE FAIR TO BOTH. HIS DUTY TO ACT FAIRLY REQUIRES THAT WHEN HE ENQUIRES INTO A SUBSTANTIAL MATTER LIKE THE PRESENT ONE, HE MUST RE CORD A FINDING ON THE RELEVANT ISSUE GIVING, HOWSOEVER BRIEFLY, HIS R EASONS THEREFOR. IN S.N. MUKHERJEE VS. UNION OF INDIA AIR 1990 SC 1984 IT HAS BEEN OBSERVED BY THE HON'BLE SUPREME COURT AS FOLLOWS : ' REASONS, WHEN RECORDED BY AN ADMINISTRATIVE AUTHORI TY IN AN ORDER PASSED BY IT WHILE EXERCISING QUASI-JUDICIAL FUNCTIONS, WOULD NO DOUBT FACILITATE THE EXERCISE OF ITS JURISDICTIO N BY THE APPELLATE OR SUPERVISORY AUTHORITY. BUT THE OTHER CONSIDERATIONS , REFERRED TO ABOVE, WHICH HAVE ALSO WEIGHED WITH THIS COURT IN H OLDING THAT AN ADMINISTRATIVE AUTHORITY MUST RECORD REASONS FOR IT S DECISION ARE OF NO LESS SIGNIFICANCE. THESE CONSIDERATIONS SHOW THA T THE RECORDING OF REASONS BY AN ADMINISTRATIVE AUTHORITY SERVES A SALUTARY PURPOSE, NAMELY, IT EXCLUDES CHANCES OR ARBITRARINE SS AND ENSURES A DEGREE OF FAIRNESS IN THE PROCESS OF DECISION-MAK ING. THE SAID PURPOSE WOULD APPLY EQUALLY TO ALL DECISIONS AND IT S APPLICATION CANNOT BE CONFINED TO DECISIONS WHICH ARE SUBJECT T O APPEAL, REVISION OR JUDICIAL REVIEW. IN OUR OPINION, THEREF ORE, THE ITA NO.1876/MDS/2015 17 REQUIREMENT THAT REASONS BE RECORDED SHOULD GOVERN THE DECISIONS OF AN ADMINISTRATIVE AUTHORITY EXERCISING QUASI-JUD ICIAL FUNCTIONS IRRESPECTIVE OF THE FACT MAY, HOWEVER, BE ADDED THA T IT IS NOT REQUIRED THAT THE REASONS SHOULD BE AS ELABORATE AS IN THE DECISION OF A COURT OF LAW. THE EXTENT AND NATURE OF THE REA SONS WOULD DEPEND ON PARTICULAR FACTS AND CIRCUMSTANCES. WHAT IS NECESSARY IS THAT THE REASONS ARE CLEAR AND EXPLICIT SO AS TO INDICATE THAT THE AUTHORITY HAS GIVEN DUE CONSIDERATION TO THE POINTS IN CONTROVERSY. THE NEED FOR RECORDING OF REASONS IS GREATER IN A C ASE WHERE THE ORDER IS PASSED AT THE ORIGINAL STAGE. THE APPELLAT E OR REVISIONAL AUTHORITY, IF IT AFFIRMS SUCH AN ORDER, NEED NOT GI VE SEPARATE REASONS IF THE APPELLATE OR REVISIONAL AUTHORITY AG REES WITH THE REASONS CONTAINED IN THE ORDER UNDER CHALLENGE.' 9. SIMILAR VIEW WAS EARLIER TAKEN BY THE HON'BLE S UPREME COURT IN SIEMENS ENGG. & MFG. CO. LTD. VS. UNION OF INDIA AI R 1976 SC 1785. IT IS SETTLED LAW THAT WHILE MAKING ASSESSMENT ON A SSESSEE, THE ITO ACTS IN A QUASI-JUDICIAL CAPACITY. AN ASSESSMENT OR DER IS AMENABLE TO APPEAL BY THE ASSESSEE AND TO REVISION BY THE CIT U NDER SS. 263 AND 264. THEREFORE, A REASONED ORDER ON A SUBSTANTIAL I SSUE IS LEGALLY NECESSARY. THE JUDGMENTS ON WHICH RELIANCE WAS PLAC ED BY THE LEARNED COUNSEL FOR THE ASSESSEE ALSO POINT TO THE SAME DIRECTION. THEY HAVE HELD THAT ORDERS, WHICH ARE SUBVERSIVE OF THE ADMINISTRATION OF REVENUE, MUST BE REGARDED AS ERRO NEOUS AND ITA NO.1876/MDS/2015 18 PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF THE AOS ARE ALLOWED TO MAKE ASSESSMENTS IN AN ARBITRARY MANNER, AS HAS BEE N DONE IN THE CASE BEFORE US, THE ADMINISTRATION OF REVENUE IS BO UND TO SUFFER. IF WITHOUT DISCUSSING THE NATURE OF THE TRANSACTION AN D MATERIALS ON RECORD, THE AO HAD MADE CERTAIN ADDITION TO THE INC OME OF THE ASSESSEE, THE SAME WOULD HAVE BEEN CONSIDERED ERRON EOUS BY ANY APPELLATE AUTHORITY AS BEING VIOLATIVE OF THE PRINC IPLES OF NATURAL JUSTICE WHICH REQUIRE THAT THE AUTHORITY MUST INDIC ATE THE REASONS FOR AN ADVERSE ORDER. WE FIND NO REASON WHY THE SAME VI EW SHOULD NOT BE TAKEN WHEN AN ORDER IS AGAINST THE INTERESTS OF THE REVENUE. AS A MATTER OF FACT SUCH ORDERS ARE PREJUDICIAL TO THE I NTERESTS OF BOTH THE PARTIES, BECAUSE EVEN THE ASSESSEE IS DEPRIVED OF T HE BENEFIT OF A POSITIVE FINDING IN HIS FAVOUR, THOUGH HE MAY HAVE SUFFICIENTLY ESTABLISHED HIS CASE. 10. IN VIEW OF THE FOREGOING, IT CAN SAFELY BE SA ID THAT AN ORDER PASSED BY THE AO BECOMES ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNDER S. 263 IN THE FOLLOWING CASES : (I) THE ORDER SOUGHT TO BE REVISED CONTAINS ERROR O F REASONING OR OF LAW OR OF FACT ON THE FACE OF IT. ITA NO.1876/MDS/2015 19 (II) THE ORDER SOUGHT TO BE REVISED PROCEEDS ON INC ORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW . IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PR INCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. (III) THE ORDER PASSED BY THE AO IS A STEREOTYPE OR DER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS STATED IN HIS RETURN OR WHERE HE FAILS TO MAKE THE REQUISITE ENQUIRIES OR E XAMINE THE GENUINENESS OF THE CLAIM WHICH IS CALLED FOR IN THE CIRCUMSTANCES OF THE CASE. 11. WE SHALL NOW TURN TO THE FACTS OF PRESENT CASE OF THE ASSESSEE. THE ASSESSEE IN THIS CASE CLAIMED THE IMPUGNED AMOU NT AS A DEDUCTION OUT OF THE TOTAL CONSIDERATION CLAIMED FR OM SALE OF CAPITAL ASSET STATING THAT IT IS A PART OF THE COST OF TRAN SFER OF SAID PROPERTY. THE LD. ASSESSING OFFICER OBSERVED THAT OUT OF SALE CONSIDERATION OF ` 8,80,00,000/-, THE ASSESSEE HAS RECEIVED ONLY ` 8,19,50,000/- AS THE ASSESSEE HAS TO PAY TOWARDS CHARITY AMOUNT OF ` 45,50,000/-. HOWEVER, THERE IS NO DISCUSSION WHATSOEVER REGARDIN G THE BALANCE AMOUNT ` 22,52,500/- AND THE AO HAS CONSIDERED ONLY ` 8,19,50,000/- AS TOTAL CONSIDERATION RECEIVED BY THE ASSESSEE. T HOUGH IT WAS ` 8,80,00,000/-, CRORES, THERE WAS NO DISCUSSION HOW HE CAME TO A ITA NO.1876/MDS/2015 20 CONCLUSION THAT TOTAL CONSIDERATION WAS ONLY ` 8,19,50,000/-. AS SUCH THERE IS AN ERROR IN THE ORDER OF THE LD. ASSESSING OFFICER TO CONSIDER THE CORRECT SALES CONSIDERATION AND IT WAS ONLY CAP ITAL GAINS ON WHICH THERE WAS ESCAPEMENT OF TAX ON IT. 12. WE ARE ALSO UNABLE TO ACCEPT THE SUBMISSION OF THE LEARNED COUNSEL FOR TWO OTHER REASONS ALSO. FIRST REASON IS THAT THE VIEW SO TAKEN BY THE AO WITHOUT MAKING THE REQUISITE INQUIR IES OR EXAMINING THE CLAIM OF THE ASSESSEE WILL PER SE BE AN ERRONEO US VIEW AND HENCE WILL BE AMENABLE TO REVISIONAL JURISDICTION UNDER S . 263. SECOND REASON IS THAT IT IS NOT TAKING OF ANY VIEW THAT WI LL TAKE THE MATTER UNDER THE SCOPE OF S. 263. THE VIEW TAKEN BY THE AO SHOULD NOT BE A MERE VIEW IN VACUUM BUT A JUDICIAL VIEW. IT IS WELL ESTABLISHED THAT THE AO BEING A QUASI-JUDICIAL AUTHORITY CANNOT TAKE A V IEW, EITHER AGAINST OR IN FAVOUR OF THE ASSESSEE/REVENUE, WITHOUT MAKIN G PROPER INQUIRIES AND WITHOUT PROPER EXAMINATION OF THE CLA IM MADE BY THE ASSESSEE IN THE LIGHT OF THE APPLICABLE LAW. AS ALR EADY STATED EARLIER, WE ARE NOT ABLE TO APPRECIATE ON WHAT MATERIAL WAS PLACED BEFORE THE AO AT THE ASSESSMENT STAGE TO TAKE SUCH A VIEW. THE ASSESSEE HAS ITA NO.1876/MDS/2015 21 ALSO NOT BEEN ABLE TO LEAD ENOUGH EVIDENCE TO SHOW TO US THAT ANY INQUIRY WAS MADE BY THE AO IN THIS REGARD. THEREFOR E MERE ALLEGATION THAT THE AO HAS TAKEN A VIEW IN THE MATTER WILL NOT PUT THE MATTER BEYOND THE PURVIEW OF S. 263 UNLESS THE VIEW SO TAK EN BY THE AO IS A JUDICIAL VIEW CONSCIOUSLY BASED UPON PROPER INQUIRI ES AND APPRECIATION OF ALL THE RELEVANT FACTUAL AND LEGAL ASPECTS OF THE CASE. THE JUDICIAL VIEW TAKEN BY THE AO MAY PERHAPS PLACE THE MATTER OUTSIDE THE PURVIEW OF S. 263 UNLESS IT IS SHOWN TH AT THE VIEW SO TAKEN BY THE AO CONTAINS SOME APPARENT ERROR OF REASONING OR OF LAW OR OF FACT ON THE FACE OF IT. 13. THE LEARNED COUNSEL HAS STRONGLY RELIED UPON TH E FOLLOWING OBSERVATIONS MADE IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. (SUPRA) AND SUBMITTED THAT THE LEARNED CIT WAS NOT JUSTIFIE D IN SUBSTITUTING HIS VIEW FOR THAT OF THE AO : '... EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN O RDER OF THE AO CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS O F THE REVENUE. FOR EXAMPLE, WHEN AN ITO ADOPTED ONE OF THE COURSES PER MISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TW O VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT D OES NOT AGREE, IT ITA NO.1876/MDS/2015 22 CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE ITO IS UN SUSTAINABLE IN LAW.' 14. WE HAVE CAREFULLY GONE THROUGH THE AFORESAID OB SERVATIONS. 'ADOPTING' ONE OF THE COURSES PERMISSIBLE IN LAW NE CESSARILY REQUIRES THE AO TO CONSCIOUSLY ANALYSE AND EVALUATE THE FACT S IN THE LIGHT OF RELEVANT LAW AND BRING THEM ON RECORD. IT IS ONLY T HEN THAT HE CAN BE SAID TO HAVE 'ADOPTED' OR CHOSEN ONE OF THE COURSES PERMISSIBLE IN LAW. THE AO CANNOT BE PRESUMED OR ATTRIBUTED TO HAV E 'ADOPTED' OR CHOSEN A COURSE PERMISSIBLE IN LAW WHEN HIS ORDER D OES NOT SPEAK IN THAT BEHALF. SIMILARLY, 'TAKING' ONE VIEW WHERE TWO OR MORE VIEWS ARE POSSIBLE ALSO NECESSARILY IMPORTS THE REQUIREMENT O F ANALYSING THE FACTS IN THE LIGHT OF APPLICABLE LAW. THEREFORE, PR OPER EXAMINATION OF FACTS IN THE LIGHT OF RELEVANT LAW IS A NECESSARY C ONCOMITANT IN ORDER TO SAY THAT THE AO HAS ADOPTED A PERMISSIBLE COURSE OF LAW OR TAKEN A VIEW WHERE TWO OR MORE VIEWS ARE POSSIBLE. IT IS ON LY AFTER SUCH PROPER EXAMINATION AND EVALUATION HAS BEEN DONE BY THE AO THAT HE CAN COME TO A CONCLUSION AS TO WHAT ARE THE PERMISS IBLE COURSES AVAILABLE IN LAW OR WHAT ARE THE POSSIBLE VIEWS ON THE ISSUE BEFORE HIM. IN CASE HE COMES TO THE CONCLUSION THAT MORE T HAN ONE VIEW IS ITA NO.1876/MDS/2015 23 POSSIBLE THEN HE HAS NECESSARILY TO CHOOSE A VIEW, WHICH IS MOST APPROPRIATE ON THE FACTS OF THE CASE. IN ORDER TO A PPLY THE AFORESAID OBSERVATIONS TO A GIVEN CASE, IT MUST THEREFORE FIR ST BE SHOWN THAT THE AO HAS 'ADOPTED' A PERMISSIBLE COURSE OF LAW OR, WH ERE TWO VIEWS ARE POSSIBLE, THE AO HAS 'TAKEN' ONE SUCH POSSIBLE VIEW IN THE ORDER SOUGHT TO BE REVISED UNDER S. 263. THIS REQUIRES TH E AO TO TAKE A CONSCIOUS DECISION; ELSE HE WOULD NEITHER BE ABLE T O 'ADOPT' A COURSE PERMISSIBLE IN LAW NOR 'TAKE' A VIEW WHERE TWO OR M ORE VIEWS ARE POSSIBLE. IN OTHER WORDS, IT IS THE AO WHO HAS TO A DOPT A PERMISSIBLE COURSE OF LAW OR TAKE A VIEW WHERE TWO OR MORE VIEW S ARE POSSIBLE. IT IS DIFFICULT TO COMPREHEND AS TO HOW THE AO CAN BE ATTRIBUTED TO HAVE 'ADOPTED' A PERMISSIBLE COURSE OF LAW OR 'TAKEN' A VIEW WHERE TWO OR MORE VIEWS ARE POSSIBLE WHEN THE ORDER PASSED BY HI M DOES NOT SPEAK IN THAT BEHALF. WE CANNOT ASSUME, IN ORDER TO PROVIDE LEGITIMACY TO THE ASSESSMENT ORDER, THAT THE AO HAS ADOPTED A PERMISSIBLE COURSE OF LAW OR TAKEN A POSSIBLE VIEW WHERE HIS ORDER DOES NOT SAY SO. THE SUBMISSIONS MADE BY THE LEARNE D COUNSEL, IF ACCEPTED, WOULD REQUIRE US TO FORM, SUBSTITUTE AND READ OUR VIEW IN THE ORDER OF THE AO WHEN THE AO HIMSELF HAS NOT TAK EN A VIEW. IT ITA NO.1876/MDS/2015 24 COULD HAVE BEEN A DIFFERENT POSITION IF THE AO HAD 'ADOPTED' OR 'TAKEN' A VIEW AFTER ANALYSING THE FACTS AND DECIDI NG THE MATTER IN THE LIGHT OF THE APPLICABLE LAW. HOWEVER, IN THE CASE B EFORE US, THE AO HAS NOT AT ALL EXAMINED AS TO WHETHER ONLY ONE VIEW WAS POSSIBLE OR TWO OR MORE VIEWS WERE POSSIBLE AND HENCE, THE QUES TION OF HIS ADOPTING OR CHOOSING ONE VIEW IN PREFERENCE TO THE OTHER DOES NOT ARISE. THE AFORESAID OBSERVATIONS OF THE HON'BLE SU PREME COURT DO NOT, IN OUR VIEW, HELP THE ASSESSEE; AND RATHER THE Y ARE AGAINST THE ASSESSEE. 15. IN THE CASE OF PADMASUNDARA RAO VS. STATE OF T AMIL NADU & ORS. (2002) 176 CTR (SC) 104 : (2002) 255 ITR 147 ( SC) THE HON'BLE SUPREME COURT HAS HELD THAT : '... THERE IS ALWAYS PERIL IN TREATING THE WORDS OF A SPEECH OR JUDGMENT AS THOUGH THEY ARE WORDS IN A LEGISLATIVE ENACTMENT, A ND IT IS TO BE REMEMBERED THAT JUDICIAL UTTERANCES ARE MADE IN THE SETTING OF THE FACTS OF A PARTICULAR CASE, SAID LORD MORRIN IN HARRINGTON V S. BRITISH RAILWAYS BOARD (1972) 2 WLR 537 (HL) CIRCUMSTANTIAL FLEXIBILITY, O NE ADDITIONAL OR DIFFERENT FACT MAY MAKE A WORLD OF DIFFERENCE BETWEEN CONCLUS IONS IN TWO CASES....' THEREFORE, THE OBSERVATIONS OF THE HON'BLE SUPREME COURT IN MALABAR INDUSTRIAL CO. LTD'S CASE (SUPRA) ON WHICH RELIANCE HAS BEEN PLACED BY THE LEARNED COUNSEL CANNOT BE READ IN ISOLATION. THE JU DGMENT DESERVES TO BE READ IN ITS ENTIRETY TO CULL OUT THE LAW LAID DOWN BY THE HON'BLE SUPREME ITA NO.1876/MDS/2015 25 COURT. IF SO READ, IT IS QUITE EVIDENT THAT THE ORD ERS PASSED ON AN INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW OR WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATIO N OF MIND WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS AND PREJUD ICIAL TO THE INTEREST OF THE REVENUE. IF THE ORDER SOUGHT TO BE REVISED UNDE R S. 263 SUFFERS FROM ANY OF THE AFORESAID VICES, IT CANNOT BE SAID THAT THE AO HAS 'ADOPTED', IN SUCH AN ORDER, A COURSE PERMISSIBLE IN LAW OR 'TAKE N' A VIEW WHERE TWO OR MORE VIEWS ARE POSSIBLE.' 16. IT WAS NEXT CONTENDED BY THE LEARNED AUTHORISE D REPRESENTATIVE THAT THE AO HAD CONSIDERED ALL THE R ELEVANT ASPECTS OF THE CASE CAREFULLY WHILE PASSING THE ORDER. ACCORDI NG TO HIM, THE MERE FACT THAT THE ASSESSMENT ORDER PASSED BY THE AO WAS SHORT WOULD NEITHER MEAN FAILURE ON HIS PART IN NOT EXAMINING T HE MATTER CAREFULLY NOR WOULD RENDER HIS ORDER ERRONEOUS SO LONG AS THE VIEW TAKEN BY HIM WAS A POSSIBLE VIEW. IN OUR VIEW, THE AFORESAID SUBMISSION OF THE ASSESSEE MUST FAIL FOR THE REASONS ALREADY EXPLAINE D IN THE FOREGOING PARAS OF THIS ORDER AS THE ORDER, WHICH IS SOUGHT T O BE REVISED UNDER S. 263 REFLECTS NO PROPER APPLICATION OF MIND BY TH E AO AND THUS BE AMENABLE TO REVISION UNDER S. 263. IN THIS CASE BEF ORE US, THE ASSESSMENT ORDER PASSED BY THE AO LACKS JUDICIAL ST RENGTH TO STAND. IT IS NOT A CASE WHERE THE ORDER IS SHORT BUT IS NO T SUPPORTED BY ITA NO.1876/MDS/2015 26 JUDICIAL STRENGTH. IT IS IN THIS VIEW OF THE MATTER THAT WE FEEL THAT THE LEARNED CIT HAS CORRECTLY EXERCISED HIS REVISIONAL JURISDICTION UNDER S. 263. IN OUR OPINION, THE AO HAS BEEN ENTRUSTED THE ROLE OF AN INVESTIGATOR, PROSECUTOR AS WELL AS ADJUDICATOR UND ER THE SCHEME OF THE IT ACT. IF HE COMMITS AN ERROR WHILE DISCHARGIN G THE AFORESAID ROLES AND CONSEQUENTLY PASSES AN ERRONEOUS ORDER CA USING PREJUDICE EITHER TO THE ASSESSEE OR TO THE STATE EXCHEQUER OR TO BOTH, THE ORDER SO PASSED BY HIM IS LIABLE TO BE CORRECTED. AS MENT IONED EARLIER, THE ASSESSEE CAN HAVE THE PREJUDICE CAUSED TO HIM CORRE CTED BY FILING AN APPEAL; AS ALSO BY FILING A REVISION APPLICATION UN DER S. 264. BUT THE STATE EXCHEQUER HAS NO RIGHT OF APPEAL AGAINST THE ORDERS OF THE AO. SEC. 263 HAS THEREFORE BEEN ENACTED TO EMPOWER THE CIT TO CORRECT AN ERRONEOUS ORDER PASSED BY THE AO WHICH HE CONSID ERS TO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CIT HAS ALSO BEEN EMPOWERED TO INVOKE HIS REVISIONAL JURISDICTION UND ER S. 264 AT THE INSTANCE OF THE ASSESSEE ALSO. THE LINE OF DIFFEREN CE BETWEEN SS. 263 AND 264 IS THAT WHILE THE FORMER CAN BE INVOKED TO REMOVE THE PREJUDICE CAUSED TO THE STATE THE LATTER CAN BE INV OKED TO REMOVE THE PREJUDICE CAUSED TO THE ASSESSEE. THE PROVISIONS OF S. 263 WOULD ITA NO.1876/MDS/2015 27 LOSE SIGNIFICANCE IF THEY WERE TO BE INTERPRETED IN A MANNER THAT PREVENTED THE CIT FROM REVISING THE ERRONEOUS ORDER PASSED BY THE AO, WHICH WAS PREJUDICIAL TO THE INTEREST OF THE RE VENUE. IN FACT, SUCH A COURSE WOULD BE COUNTER-PRODUCTIVE AS IT WOULD HA VE THE EFFECT OF PROMOTING ARBITRARINESS IN THE DECISIONS OF THE AOS AND THUS DESTROY THE VERY FABRIC OF SOUND TAX DISCIPLINE. IF ERRONEO US ORDERS, WHICH ARE PREJUDICIAL TO THE INTEREST OF THE REVENUE, ARE ALL OWED TO STAND, THE CONSEQUENCES WOULD BE DISASTROUS IN THAT THE HONEST TAXPAYERS WOULD BE REQUIRED TO PAY MORE THAN OTHERS TO COMPEN SATE FOR THE LOSS CAUSED BY SUCH ERRONEOUS ORDERS. FOR THIS REASON AL SO, WE ARE OF THE VIEW THAT THE ORDERS PASSED ON AN INCORRECT ASSUMPT ION OF FACTS OR INCORRECT APPLICATION OF LAW OR WITHOUT APPLYING TH E PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND OR W ITHOUT MAKING REQUISITE INQUIRIES WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE WITHIN THE MEANING OF S. 263. THUS THE ORDER PASSED BY ASSESS ING OFFICER IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THUS, THE LD. CIT IS JUSTIFIED IN EXERCISING THE JURISDICTION PROVIDED T O HIM U/S.263 OF THE ITA NO.1876/MDS/2015 28 ACT. ACCORDINGLY, THE LEGAL ISSUE RAISED BY THE RE GARDING VALIDITY OF EXERCISING JURISDICTION U/S.263 BY CIT IS REJECTED. 17. NOW, REFER TO THE MERIT OF THE ADDITIONS, THE PLEA OF LD.A.R WAS PRINCIPALLY WITH REGARD TO THE APPLICATION OF THE P RINCIPLE OF DIVERSION OF INCOME BY OVERRIDING TITLE. HE SUBMITTED THAT ONLY BECAUSE OF PAYMENT OF RS.68,02,500/- TO VARIOUS PARTIES AS DISCUSSED I N THE EARLIER PARA, THE PROPERTY HAS DEVOLVED ON THE ASSESSEE. LD.D.R SUBMITTED THAT THE CLAIM OF ASSESSEE DOES NOT FALL EITHER UNDER CL AUSE(I) OR CLAUSE(II) OF SEC.48 OF THE ACT. LET US EXAMINE SECTION 48 OF THE INCOME TAX ACT. SECTION 48: MODE OF COMPUTATION THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS ' SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF THE C ONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS, NAMELY:-- (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER; (II) THE COST OF ACQUISITION OF THE ASSET AND THE C OST OF ANY IMPROVEMENT THERETO: ITA NO.1876/MDS/2015 29 18. AS PER THIS PROVISION, NO DEDUCTION, APART FRO M FALLING WITHIN SCOPE OF SEC.48, IS TO BE ALLOWED IN THE COMPUTATIO N OF CAPITAL GAINS. FURTHER WITH REFERENCE TO THE OBLIGATION CAST ON A LEGATEE UNDER THE TERMS OF THE INSTRUMENT ON THE BASIS OF WHICH THE P ROPERTY, WHICH IS THE SUBJECT MATTER OF TRANSFER, DEVOLVES ON HIM. I T IS THE ENTIRE BUNDLE OF RIGHTS AS ACQUIRED BY PREVIOUS OWNER THAT CONSTI TUTE THE ASSET OR THE PROPERTY UNDER REFERENCE AND IT IS ITS COST TO THE PREVIOUS OWNER AS PER SEC.49(I)(A), WHICH IS DEEMED TO BE THE COST OF ACQUISITION TO THE LEGALITY AND WHICH CONTINUES UNABATED AS LONG A S THE PROPERTY IS TRANSFERRED UNDER ANY OF THE MODES SPECIFIED U/S. 49 OF THE ACT. IN THE CASE OF CIT VS. MANJULA J.SHAH REPORTED IN 35 S OT 105, SPECIAL BENCH OF MUMBAI TRIBUNAL WHICH WAS UPHELD BY THE BO MBAY HIGH COURT IN THE CASE OF CIT VS. MANJULA J.SHAH REPORTE D IN 204 TAXMANN 691(BOM.) WHEREIN IT WAS HELD THAT WHEN TH E ASSESSEE SELLS HIS IMMOVABLE PROPERTY WHICH IS ACQUIRED UNDE R GIFT OR WILL, WHILE COMPUTING THE CAPITAL GAIN THE INDEX COST OF ACQUIS ITION HAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH PREVIO US OWNER FIRST HELD THE ASSET AND NOT THE YEAR IN WHICH THE ASSESS EE BECAME THE OWNER OF THE ASSET. THERE IS, THUS, NO SCOPE FOR F URTHER ADDING ANY ITA NO.1876/MDS/2015 30 'COST OF ACQUISITION', IF ANY, INCURRED BY THE ASSE SSEE, TO THAT BY THE PREVIOUS OWNER. THAT IS, THE DEEMING AS TO THE 'COS T OF ACQUISITION' AND 'HOLDING PERIOD' IS TO BE GIVEN FULL EFFECT TO, TAKING IT TO ITS LOGICAL CONCLUSION. THE COST INCURRED BY THE LEGATEE/S, IF ANY, AS TOWARD DISCHARGE OF A MORTGAGE CREATED EITHER BY HIM OR EV EN BY THE PREVIOUS OWNER WOULD NOT QUALIFY TO BE CONSIDERED O R INCLUDED AS A PART OF THE COST OF ACQUISITION U/S. 48(II). IN THE CASE OF SMT S. VALLIAMMAI V. CIT [198L] 127 ITR 713/ 6 TAXMAN 240 (MAD.) (FB), THE ISSUE INVOLVED WAS THE DEDUCTIBILITY OF ESTATE DUTY , CHARGE IN RESPECT OF WHICH IS CREATED ON THE IMMOVABLE PROPERTY PASSI NG ON THE DEATH OF ITS OWNER. NEGATING THE CLAIM FOR ITS DEDUCTION IN THE COMPUTATION OF THE CAPITAL GAINS ON ITS TRANSFER BY A LEGATEE, IT WAS HELD BY THE HON'BLE COURT THAT NON-PAYMENT OF ESTATE DUTY DID N OT RESULT IN THEIR (LEGATEES) GETTING AN IMPERFECT OR INCOMPLETE TITLE TO THE PROPERTY. IT IS ONLY WHEN THE TITLE IS DEFECTIVE, INCOMPLETE OR IMP ERFECT THAT THE COST OF MAKING THE TITLE COMPLETE AND PERFECT COULD BE T REATED AS THE COST OF ACQUISITION. LIKE VIEW STANDS ALSO ALMOST UNIFOR MLY EXPRESSED BY THE HON'BLE COURTS IN THE CONTEXT OF THE SIMILAR OB LIGATIONS, INCLUDING THOSE FLOWING FROM THE INSTRUMENT CONFERRING OR VES TING TITLE IN THE ITA NO.1876/MDS/2015 31 SUCCESSOR, AS A PARTITION OR GIFT DEED, SO THAT THE SAME WERE CONSIDERED AS NOT QUALIFYING FOR DEDUCTION EITHER A S COST OF ACQUISITION OR AS COST OF IMPROVEMENT U/S. 48(II). THE LATTER, I.E., THE COST OF IMPROVEMENT, HAS AGAIN BEEN UNIFORMLY UNDERSTOOD TO IMPLY A PHYSICAL OR TANGIBLE IMPROVEMENT TO THE ASSET SINCE ITS ACQUISITION BY THE TRANSFEROR OR, FOR THAT MATTER, EVEN THE PREVIO US OWNER. 19. HERE IT WOULD BE RELEVANT TO STATE AND CLARIFY THAT THE OBLIGATION THAT DEVOLVES OR IS CAST ON THE PREVIOUS OWNER HIMS ELF, I.E., IN ACQUIRING THE CAPITAL ASSET, WHETHER DISCHARGED SUB SEQUENTLY BY HIM OR ANY OF HIS SUCCESSOR/S, WOULD STAND TO BE CONSID ERED AS A PART OF HIS COST OF ACQUISITION AND, THUS, BY DEFINITION, T HE COST OF ACQUISITION OF THE SUCCESSOR, DEDUCTIBLE U/S. 48(II). THE SAME, EVEN APART FROM BEING SO CONSIDERED IN VIEW OF THE CLEAR PROVISIONS OF LAW, WOULD ALSO BE SO CONSTRUED ON FIRST PRINCIPLES. NO ONE CAN BES TOW OR CONFER A TITLE BETTER THAN WHAT HE HAS. AS SUCH, IF THE TITL E OF THE PREVIOUS OWNER WAS ITSELF DEFECTIVE OR SUBJECT TO SOME ENCUMBRANCE , THE COST INCURRED ON ITS REMOVAL OR DISCHARGE WOULD QUALIFY FOR DEDUCTION U/S. 48(II). THE SAME ALSO FOLLOWS CONSIDERING THE PRINC IPLE OF PARITY ITA NO.1876/MDS/2015 32 INASMUCH AS IT IS THE COST OF THE UN-ENCUMBERED ASS ET THAT WOULD STAND TO BE ADJUSTED OR SET OFF AGAINST ITS SALE OR TRANSFER CONSIDERATION IN COMPUTING INCOME BY WAY OF CAPITAL GAIN ARISING THUS, I.E., ON ITS TRANSFER. THIS ASPECT STANDS PAR TICULARLY TAKEN NOTE OF BY THE HON'BLE HIGH COURT IN THE CASE OF SMT. RUGMA NI VARMA REPORTED IN 222 ITR 357(MAD.) (REFER PGS. 369-370). IT IS, THUS, ONLY THE COST, WHERE SO, AS INCURRED BY THE PREVIOUS OWN ER, OR THAT WHICH WOULD STAND TO HAVE BEEN INCURRED BY HIM, THAT WOUL D QUALIFY FOR DEDUCTION U/S. 48(II). THE LAW IN THE MATTER IS WEL L SETTLED, AND THIS ALSO PERHAPS EXPLAINS THE COMPLETE NON-REFERENCE TO ANY OF THE DECISIONS RELIED UPON BY THE REVENUE BY THE ID. AR EITHER BEFORE THE FIRST APPELLATE AUTHORITY OR EVEN BEFORE US. 20. IN OUR OPINION, THE EXPRESSION IN CONNECTION WITH SUCH TRANSFER, AS APPEARING IN SECTION 48(I), IS WIDER THAN THE EX PRESSION FOR THE TRANSFER, THE SAID EXPOSITION MEAN THAT APART FROM THAT STATED IN SECTION 48, COULD BE ALLOWED IN THE COMPUTATION OF CAPITAL GAINS CHARGEABLE U/S.45. IT IS THE INTERPRETATION OF THE WORDS FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE ITA NO.1876/MDS/2015 33 CAPITAL ASSET AS APPEARING IN SECTION 48. THE SAME STANDS INTERPRETED TO EXCLUDE PAYMENTS THAT ARE ABSOLUTELY NECESSARY, SO AS TO ARRIVE AT THE REAL AND EFFECTIVE CONSIDERATION. 21. IN OUR OPINION AS SEEN FROM THE CLAUSE NO.7, T HE ASSESSEES FATHER, A.V RAJARAM BEQUEATHED THE ENTIRE SALE CON SIDERATION RECEIVED FROM THE SALE OF IMMOVABLE PROPERTY ABSOL UTELY TO HIS SECOND SON I.E. KUMAR RAJARAM AND THEREAFTER HE SA ID HE HAS TO DISTRIBUTE THE SALE PROCEEDS AFTER PAYING PROPERTY TAXES IF FOUND DUE AND SHALL MAKE PAYMENT OUT OF THE SALE CONSIDERATIO N AND ALSO SAID HOW TO DISTRIBUTE THE SALE CONSIDERATION. BEING SO , IT IS ONLY APPLICATION OF SALE CONSIDERATION RATHER THAN DIVER SION OF INCOME BY CREATING OVERRIDING TITLE. THE HONBLE APEX COURT I N THE CASE OF CIT, BOMBAY CITY II V. SITALDAS TIRATHDAS REPORTED IN [ 1961] 41 ITR 367 (SC) HAS EXPLAINED THAT THE TRUE TEST FOR THE APPLI CATION OF THE RULE OF DIVERSION OF INCOME BY AN OVERRIDING CHARGE IS WHET HER THE AMOUNT SOUGHT TO BE DEDUCTED IN TRUTH NEVER REACHED THE AS SESSEE AS HIS INCOME. FURTHER, OBLIGATIONS, NO DOUBT, THERE ARE IN EVERY CASE, BUT IT IS THE NATURE OF THE OBLIGATION WHICH IS THE DECISI VE FACT. THERE IS A ITA NO.1876/MDS/2015 34 DIFFERENCE BETWEEN AN AMOUNT WHICH A PERSON IS OBLI GED TO APPLY OUT OF HIS INCOME AND AN AMOUNT WHICH BY THE NATURE OF THE OBLIGATION CANNOT BE SAID TO BE A PART OF THE INCOME OF THE AS SESSEE. WHERE BY THE OBLIGATION INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT IS DEDUCTIBLE; BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE AN OBLIGATION AFTER SUCH INCOME REACHES T HE ASSESSEE, THE SAME CONSEQUENCE, IN LAW, DOES NOT FOLLOW; IT IS TH E FIRST KIND OF PAYMENT WHICH CAN TRULY BE EXCUSED AND NOT THE SECO ND. THE SECOND PAYMENT IS MERELY AN OBLIGATION TO PAY ANOTHER A PO RTION OF ONE'S OWN INCOME, WHICH HAS BEEN RECEIVED AND IS SINCE APPLIE D. 22. IN OUR VIEW, THEREFORE, THE EXCLUSION OF THE P AYMENT MADE BY THE ASSESSEE, IN THIS CASE, BY APPLYING THE PRINCIP LE OF DIVERSION OF INCOME BY OVERRIDING TITLE CANNOT BE ALLOWED. HOWEV ER, IN OUR OPINION THE ENTAILING A COST TO THE LEGATEE/S IF ONLY THE COST TO THE PREVIOUS OWNER THAT WOULD STAND TO BE CONSIDERED AS THE COS T OF ACQUISITION , AND THERE IS NO SCOPE FOR ADDING THERETO THE COST , IF ANY, INCURRED ON ACQUISITION BY THE SUCCESSOR, WHICH WOULD BE IN FAC T HIS COST. THE SAME COULD NOT BE CONSIDERED AS A COST OF IMPROVEME NT SO AS TO ITA NO.1876/MDS/2015 35 QUALIFY, FOR DEDUCTION U/S.48 OF THE ACT. EVEN THE RE IS NO EVIDENCE WITH REGARD TO EXPENSES LIKE PROFESSIONAL FEES PAID TO SHRI M.S.NARAYANAN ` 3,20,000/-, COMMISSION PAID TO SHRI N.D.BASAVARAJA ` 4,00,000/- AND OTHER EXPENSES ` 32,500/-. HENCE, THESE EXPENSES CANNOT BE ALLOWED AS A COST TO TRANS FER THE CAPITAL ASSET. 23. IN THE RESULT, THE APPEAL OF ASSESSEE IS DISMIS SED. ORDER PRONOUNCED ON WEDNESDAY, THE 10 TH OF FEBRUARY,2016 AT CHENNAI. SD/- SD/- ( ' #! ' $ . %& ) ( DUVVURU RL REDDY ) ) ( ( ' # $ % ) ) &'()*+,)-.//0),12- JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 10 TH FEBRUARY,2016 . K S SUNDARAM. 34-- 56-76 /COPY TO: - 1. /APPELLANT 2. /RESPONDENT 3. - 8-&2 /CIT(A) 4. - 8 /CIT 5. 69:- ; /DR 6. :<-= /GF