JAP INFO SYSTEMS PRIVATE LIMITED, JAIPUR V. PCIT 2, JAIPUR

ITA 244/JPR/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2904 (ITAT-JAIPUR)
• Duration Of Justice: 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 09-11-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Revision of order; Opportunity of being heard; Earning of tax free income; Competent authority; Assessment record; TDS; Set aside
• Section: 263; 12; 10; 11; 143(3); 2(14); 80HHC; 115JB; 2(A); 20

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 244/JP/2021 fu/kZkj.k o"kZ@Assessment Year :2015-16 M/s JAP Info Systems Pvt. Ltd., 45-46, Katewa Chambers, Shastri Nagar, Jaipur cuke Vs. Principle Commissioner of Income Tax-2, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCJ 2844 D vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Manish Agarwal (CA) jktLo dh vksj ls@ Revenue by : Sh. Sanjay Dhariwal (CIT) lquokbZ dh rkjh[k@ Date of Hearing : 08/09/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 26/09/2022 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, A.M. This appeal is filed by the assessee aggrieved from the order of the Principal Commissioner of Income Tax-2, Jaipur [ Here in after referred as Ld. PCIT ] for the assessment year 2015-16 dated 26.02.2022 which in turn arises from the order passed by the DCIT, Circle- 4, Jaipur passed under Section 143(3) of the Income tax Act, 1961 (in short 'the Act') dated 14.12.2017. ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 2 2. Aggrieved form the order of the ld. PCIT the assessee has marched this appeal on the following grounds; 1. The order u/s 263 passed by the Pr.CIT is contrary to the facts, evidence on record and the provisions of Income tax Act, and is therefore perverse. It is therefore prayed that the impugned order may kindly be cancelled. 2. The Pr.CIT has erred in passing order u/s 263 without following the Principles of Natural justice in as far as not providing adequate opportunity to the appellant to place its cards. 3. The Pr.CIT has erred in passing order u/s 263 without going through the assessment record which contained all evidence in support of the income claimed as exempt. 4. The Pr.CIT has erred in passing order u/s 263 holding the order passed by the AO to be erroneous and prejudicial to the interest of Revenue, observing that here is nothing on record to show that the land under acquisition was not a capital asset, particularly when the Acquisition order clearly mentions the alleged land as CHAHI situated in Village - Ullawas, tehsil - Sohna, distt. - Gurgaon, which is further fortified by the Tehsildar's certificate as to distance from Municipal limits, was annexed with the assessee's reply dated 04/12/2017. 5. The Pr.CIT has erred in passing the order completely ignoring the mandate of sub-section 1 of section 263 which envisages making of inquiry or causing to be made such inquiry as it deems fit. Since no such inquiry was made, or caused to be made, the order passed is void-ab-initio. 6. The Pr.CIT has erred in exercising jurisdiction u/s 263 in coming to the conclusion that the order of the AO is erroneous and prejudicial to the interest of Revenue, ignoring the fact that such a conclusion has to be preceded by some minimal inquiry as held by the Delhi ITAT, in the case of Dwarkadhish Buildwell Pvt. Ltd. 7. That the Appellant reserves its right to add, amend/modify the grounds of appeal. 3. Ground No. 2 of the appeal raised by the assessee is not pressed and therefore, the same is dismissed. ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 3 4. Ground Nos. 1 and 3 to 7 of the appeal are common inextricably interlinked or in fact interwoven and therefore, the parties argued them together and disposed by us together. 5. The brief fact as culled out from the records is that assessee is Private Company Ltd. and has e-filed its original return of income on 29.03.2017 declaring total income of Rs. 41,17,900/-. The case of the assessee company selected for scrutiny under CASS and accordingly notices were issued and served upon the assessee. Thereafter, the case was transferred to DCIT, Central Circle-04, Jaipur from ITO, Ward 4(1), Jaipur as total income of the assessee was exceeding 15 lakhs. DCIT, Central Circle-04, Jaipur also has also issued notices from time to time, the assessee attended the proceedings submitted required details/documents and also produced books of accounts. 5.1 During the year under consideration, the assessee company has earned compensation of agriculture land, agriculture income, interest on FDR and interest on compensation. During the course of assessment proceedings written submissions were filed and ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 4 placed on record and other details were produced which were examined by the AO. After discussion with the AR of the assessee, the returned income was accepted by the AO. 6. After culmination of the assessment proceedings, the Pr. CIT called for the assessment records of the assessee company. From the record ld. Pr.CIT observed that in the year under consideration, the case was selected under complete scrutiny through CASS which included claim of large exempt income as one of the grounds for selection. The assessment was completed u/s. 143(3) of the Act accepting the returned income. It is seen that in the year under consideration assessee received compensation on acquisition of land amounting to Rs. 88,98,605/- and have also shown agricultural income of Rs. 1,66,086/- which were credited to the profit & loss account as other income. While computing book profit u/s 115JB of the Act it is seen that the assessee reduced sum of Rs. 90,64,691/- from the profit as per the profit and loss account exempt income which also included compensation received on compulsory acquisition of land amounting to Rs. 88,98,605/-. The ld. PCIT further observed that ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 5 the assessee had claimed compensation received as exempt. The ld. Pr.CIT further noted that there is nothing on record to show that the land under acquisition was agriculture land and not a capital asset in terms of provision of section 2(14) of the Act. Therefore, the ld. Pr.CIT noted that it appears that compensation received on acquisition of land which was claimed as exempt under normal provision and so reduced while computing book profit was not in order. 7. The show cause notice based on this observation was issued u/s 263 of the Act by the ld. Pr.CIT and further notice was issued vide letter dated 09.02.2020 nobody attended. In response that notice no submission were filed in these regards. Therefore, the ld. Pr.CIT based on the assessment records hold a view that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue. The relevant finding of ld. PCIT is reiterated herein below:- “5. It is seen from the details of other income of Rs. 1,62,86,749/- credited to the Profit & Loss account that it includes agricultural income of Rs. 1,66,086/- and compensation on acquisition of agricultural land amounting to Rs.88,98,065/-. It is seen that while computing book profit u/s 115JB of the Act you have reduced exempt income of Rs. 90,64,691/- (Rs. 88,98,065 +1,66,086) from the net profit as per P&L account of Rs. 1,47,02,945/-. It is seen that the ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 6 clause (ii) of explanation (1) to sub-section (2) to section 115JB provides that the book profit as computed in the statement of Profit & Loss shall be reduced by "the amount of income to which any of the provisions of [section 10 (other than the provisions contained in clause (38) thereof)] or section 11 or section 12 apply, if any such amount is credited to the [statement of profit and loss])]." In order to reduce any amount from the profit as shown in Profit & Loss account, it is required that the said amount should be exempt u/s 10 of the Act (other than section 10(38)). Agricultural income of Rs. 1,66,086/ which is exempt u/s 10(1) is required to be reduced from the Profit and has been rightly done so by the assessee. However assessee has not specified as to under which sub-section of section 10 the compensation so received on acquisition of agricultural land amounting to Rs. 88,98,605/- would be exempt. It is also noted that there is nothing on record to show that the land under acquisition was not a capital asset in terms of provisions of section 2(14) of the Act. Assessee was issued a show cause to this effect vide letter dated 19.02.2020 but no reply has been filed in response thereto. It is important to visit the provisions relevant for the issue in hand. Agricultural income is defined in sub-section 1A to section 2 of the Act. The explanation 1 to this sub-section provides that the revenue derived from land shall not include any income arising from the transfer of any land refered to in item (a) or item (b) of sub clause (iii) of clause (14) of section 2. The explanation 1 to section 2(1A) is reproduced below for ready reference. "[[Explanation 11-For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this section.]" It is clear from the above that income arising from the transfer of any land as mention in item (a) or (b) of sub-clause (iii) of clause (14) of section 2 shall not be included or treated as revenue derived from land and therefore the same shall not be agricultural income. Further sub- section (37) of section 10 deals with the exemption granted in respect of transfer of agricultural land. Sub section (37) of section 10 is reproduced below: "in the case of an assessee, being an individual or a Hindu undivided family, any income chargeable under the head ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 7 "capital gains" arising from the transfer of agricultural land, where (1) Such land is situate in any area referred to in item (a) or item (b) of sub clause (iii) of clause (140 of section 2; (ii) Such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such Hindu undivided family or individual or a parent of his; (iii)Such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India; (iv)Such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 2004. Explanation-For the purposes of this clause, the expression "compensation or consideration" includes the compensation or consideration enhanced or further enhanced by any court, Tribunal or other authority” As it may be seen from the above that as per section 10(37) exemption is granted if the conditions set out through different clauses are satisfied and most importantly this exemption is available to individuals & HUFS and not to a company. Assessee being a company cannot be allowed any exemption under this clause. It emerges from the above that the AO did not inquire about if the land under compulsory acquisition was an agricultural land in terms of provisions of section 2(14)(iii) of the Act and that the compensation received on compulsory acquisition of land was allowed to be reduced while computing income under normal provisions and also while computing book profit u/s 115JB of the Act without verifying if the said compensation was exempt u/s 10 or not. 6. In view of the above, I hold that the order passed by the AO on 14.12.2017 was erroneous and prejudicial to the interest of the revenue. The order passed by the AO is also held to be erroneous and prejudicial to the interest of revenue in terms of clause (a) & (b) of explanation 2 to section 263 of the Act. The order passed by the AO u/s 143(3) of the Act on 14.12.2017, thus, deserves to be set-aside to be assessed a fresh after taking into account issues mentioned in Para 5 above and after giving opportunity to the assessee. The order of the AO is, accordingly, set aside.” ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 8 8. Aggrieved from the said order of the ld. Pr. CIT the assessee carried the matter in appeal before us challenging the order passed u/s. 263 of the Act. On merits the ld. AR appearing on behalf of the assessee submitted a detailed written submission and the same is extracted herein below: “Brief facts of the case are that assessee is a private limited company. During the year under consideration, no business activity was carried out by the assessee and only income generated was from interest, agriculture income and compensation plus interest on compulsory acquisition of agricultural land owned by it. Return of Income for the year under consideration was filed on 29.03.2017 declaring total income at Rs.41,17,990/- under normal provisions of the Act (APB 2-5) and book profit of Rs.69,65,538/- u/s 115JB of the Income Tax Act (APB 2-5). Case of assessee was selected for scrutiny assessment for the reason that it has shown large exempt income. Ld. AO called for various details and information which were submitted. After examination of details and being satisfied from details vis-à-vis the income shown in the return, ld. AO passed order u/s 143(3) of the Income Tax Act dated 14.12.2017 at Returned Income. Subsequently, ld. Pr. Commissioner of Income Tax-2, Jaipur on the observation that while computing Book profit, assessee has reduced a sum of Rs.90,64,691/- from profit as per Profit & Loss Account as exempt income which includes compensation received on compulsory acquisition of agricultural land amounting to Rs.88,98,605/- and treated the Assessment order passed u/s 143(3) as erroneous and prejudicial to the interest of the revenue. Accordingly, ld. PCIT vide order dated 26.02.2020 issued directions for Revision of the Assessment completed u/s 143(3) of the Income Tax Act. Aggrieved of the order passed by ld. PCIT, assessee has preferred present appeal. With this background, ground-wise submission is made as under: Ground of Appeal No.2: In this ground of appeal, assessee has challenged the action of ld. PCIT in concluding Revision proceedings without providing adequate opportunity of being heard. ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 9 In this regard, it is submitted that ld. PCIT had issued show cause notice dated 03.02.2020 (due date 10.02.2020) which could not be complied with, due to marriage of daughter of counsel held on 18.02.2020 and an adjournment was filed specifically mentioning that adjournment may be allowed for any date after 23.02.2020. However, ld. PCIT issued another notice on 19.02.2020 (due date 24.02.2020), which skipped the attention of the counsel as he was occupied with personal obligations due to marriage of daughter. Thereafter, ld. PCIT proceeded to conclude Revision proceedings without affording any further opportunity and passed order on 26.02.2020. Thus, order was passed by ld. PCIT without affording adequate opportunity which is against the principle of law and such order deserves to be quashed. Grounds of Appeal No. 1 & 3 to 6: In all these grounds of appeal, assessee has challenged the action of ld. PCIT in holding the Assessment order passed u/s 143(3) as erroneous and prejudicial to the interest of Revenue and issuing directions for Revision of the same. Brief facts of the case are that during the year under consideration, agriculture land (CHAHI) held by assessee situated in Village Ullawas, Tehsil Sohana, Distt. Gurgaon was compulsorily acquired by Land Acquisition Collector, Urban Estate, Gurgaon under Section 4 of the Land Acquisition Act, 1894. Assessee received compensation of Rs.88,98,605/- in respect of said agriculture land so compulsorily acquired. As the land acquired was Agriculture land and was outside the purview of capital asset, as provided under Section 2(14)(iii) of Income Tax Act, compensation received thereon was not an income to be included in book profit and was reduced from profit as per Profit & Loss account while computing book profit u/s 115JB. Ld. CIT in the order passed u/s 263 has observed that the AO did not inquire about if the land under compulsory acquisition was an agricultural land in terms of the provisions of section 2(14)(iii) of the Act and that the compensation received on compulsory acquisition of land was allowed to be reduced while computing income under normal provisions and also while computing book profit u/s 115JB of the Act and without verifying if the said compensation was exempt u/s 10 or not. In this regard, it is submitted that during the course of assessment proceedings, ld.AO specifically sought documentary evidences for acquisition of Agriculture land and interest paid on compensation. In response to such query, assessee vide letter dated 04.12.2017 (APB- 17) submitted copy of notice of land Acquisition officer (APB 18-25) as per which the land was acquired u/s 4 of the Land Acquisition Act, 1894 and since the land was used as agriculture. It is thus submitted that ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 10 issue was thoroughly examined by ld.AO that said land was agricultural land in terms of provisions of Section 2(14)(iii). Ld. CIT at para 5 of her order has observed that: “.....................Agricultural income is defined in sub section 1A to section 2 of the Act. The explanation 1 to this sub section provides that the revenue derived from land shall not include any income arising from the transfer of any land referred to in item (a) or item (b) of sub clause (iii) of clause (14) of section 2. The explanation 1 to section 2(1A) is reproduced below for ready reference. ............................ ........................... It is clear from the above that income arising from the transfer of any land as mentioned in item (a) or (b) of sub clause (iii) of clause (14) of section 2 shall not be included or treated as revenue derived from land and therefore the same shall not be agriculture income. Further sub section (37) of section 10 deals with the exemption granted in respect of transfer of agricultural land ................................. ........................... most importantly this exemption is available to individual and HUF and not to a company. Assessee being a company cannot be allowed any exemption under this clause....................”. It is seen that in explanation 1 to sec. 2(1A), transfer of land referred to in item (a) or (b) of sub-clause (iii) of section 2(14) has been treated to be not the revenue derived from agriculture land. On this presumption the ld. PCIT has considered that the revenue derived from transfer of this agriculture land is not the agricultural income and thereby not exempt and thus the Assessment Order is erroneous. However, the facts of the instant case are that the subject land is not falling in item (a) or (b) of sub-clause (iii) of section 2(14) which is very much clear from the Certificate of the Tehsildar which clearly states that said land is around 20 Kms. away from municipality (APB 26). Accordingly, this reasoning of the ld. PCIT is incorrect. Another reason considered by PCIT is that exemption u/s 10(37) is not available in the instant case as appellant is neither individual nor HUF. However, it is clear that exemption u/s 10(37) is not relevant in the case of appellant as this exemption u/s 10(37) is for urban Agriculture land falling in item (a) as (b) of sec. 2(14)(iii) and satisfying certain conditions enumerated therein, whereas land of appellant was Rural Agriculture Land, which is not the Capital Asset and thereby gain on transfer / compulsory acquisition is not at all chargeable to tax. Further the ld. CIT herself has excluded the agriculture income earned from such land to be included in the book profit for Mat u/s 115JB which otherwise established that the said land was agricultural land and the income arisen from such land is exempt from tax. Moreover, ld.PCIT has not doubted the assessment done under the normal provisions of ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 11 Income Tax where such income was claimed as exempt. Once the income is admitted as exempt for the purpose of levy of normal tax than how it could be taxable for the purpose of MAT u/s 115JB. In this regard reliance is placed on the decision of hon’ble ITAT, Vizag branch in the case of M/s Agri Gold Foods and Farms Products Ltd. Vs. CIT in ITA No.451/JP/2012 dt. 30.7.2014 wherein the hon’ble bench in para 7 of the order has observed as under: (case law compilation pages 34- 37) 7. After hearing rival submissions, we hold as follows: The undisputed fact in the case of the assessee is that, the land transferred is agricultural land. This is so because the assessing officer has not assessed the income arising out of those lands under the regular provisions of Income-tax Act. In fact, the Ld. CIT Vijayawada has accepted the correctness of computation of total income under the regular provisions of the Act. Consequently, the profit on sale of agricultural land would become agricultural income u/s 2(1A) of the Act and hence not part of total income as per provisions of section 10 under provisions of Income tax Act, 1961. This profit has to be excluded from the computation of total income. In our view, it should be reduced from the net profits as per profit & loss account while computing the book profits for the purposes of 115JB of the Act. The facts of the present case are identical as ld. PCIT has not doubted the computation of income done under regular provisions of the Act. Accordingly, both the reasoning so taken by ld. PCIT is devoid of any merits. It is reiterated that assessee has not claimed exemption u/s 10(37), rather land compulsorily acquired being Rural Agriculture land is not capital asset, therefore compensation thereof is not chargeable to tax. Your honours would appreciate that for any receipt/gain to be taxable, it is prerequisite that same should be in the nature of “Income”. Unless it is income within the meaning as provided in Section 2(24) and is covered within the scope of income in accordance with section 5, the same cannot be subjected to tax. Accordingly, compensation received on compulsory acquisition of Rural Agriculture land is outside the purview of taxability under normal provisions of Act. So far as provisions of section 115JB are concerned, it is submitted that it is merely a mechanism, which is alternative to normal provisions. Section 115JB begins with a non obstante clause and deems the book profit of the company to be the total income under the Act. In other words, if a particular sum is not chargeable to tax as per normal provisions of the tax, same cannot be taxed in accordance with section 115JB of the Act. In this regard, reliance is placed on decision dated 20.02.2020 of Hon’ble Jaipur Bench of ITAT in the case of DCIT vs Motisons Buildtech Pvt. Ltd., in ITA No.1323/JP/2018 wherein it is held that (case law compilation pages 1-6): ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 12 “12. In view of the above facts and circumstances, we do not find any infirmity in the order of the ld. CIT(A) for holding that the gain arising from sale of agricultural land cannot be taxed u/s 115JB of the Act. The detailed finding so recorded by the ld. CIT(A) after applying judicial pronouncements are as per the material on record which do not require any interference on our part. Hence, we uphold the same. 13. In the result, the appeal of the revenue is dismissed.” Hon’ble Cochin bench of ITAT in the case of The Nilgiri Tea Estate Ltd. Vs ACIT [TS-345-ITAT-2014 (COCH)], (case law compilation pages19- 24) has held that capital profit on sale of rural agricultural land had to be excluded for computing minimum alternate tax (MAT), having observed that section 115JB contained in Chapter XII-B did not extend to cover section 5 of the Income Tax Act, 1961 (the Act). Chapter XII-B only provided an alternate mechanism for computation of tax and could not be invoked to cover transactions which were not intended to be taxed. Hon’ble Cochin bench of the Tribunal in the case of Harrisons Malayalam Ltd. Vs. ACIT[2009] 32 SOT 497 (case law compilation pages 25-33) and hon’ble ITAT Mumbai Bench in the case of Shivalik Venters Pvt. Ltd. in ITA No. 208/Mum/2012 dt. 19.08.2015 (case law compilation pages 7-18) also expressed the same view. In view of the above factual background of the case, it is humbly submitted that essential conditions necessitated for invoking section 263 are not fulfilled. The basic ingredients to be fulfilled before invoking section 263 have been explained by the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT reported in 243 ITR 83 (SC) in the following words: “A bare reading of section 263 of the Income Tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income Tax Officer is erroneous is so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent – if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue – recourse cannot be had to section 263(1) of the Act.” It is thus submitted that the order of Ld. AO is neither erroneous nor prejudicial to the interest of revenue. At this juncture, kind attention of Hon’ble bench is invited to Explanation 2 inserted in section 263 by Finance Act, 2015, w.e.f. 01.06.2015, which has widened the powers of CIT to revise the already completed assessment and has been taken shelter by the ld.CIT (Admn.) in the present case also, which reads as under: ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 13 Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] A perusal of above clarifies that order passed by assessing officer shall be “deemed to be erroneous and prejudicial to the interest of the revenue if AO has passed such order without making inquiries or verification which should have been made; It is worthwhile to note here that the phrase “which should have been made” here in no way means that enquiries should have been made in manner as desired by CIT, rather it means that assessing officer should conduct necessary enquiries or verification which a reasonable and prudent officer shall carry out in normal circumstances. This phrase in no way means that enquiries should have been conducted in the manner Principal Commissioner wishes the same to be. In this regard reliance is placed on the following decisions: (1) Shri Narayan Tatu Rane vs ITO ITA No.2690 & 2691/Mum/16 dated 06.05.2016 “20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying out enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 14 to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.” (2) Sanjeev Kr. Khemka vs Pr. CIT (Kolkatta ITAT) “5.1 In view of the above we find that Ld. CIT has passed impugned order u/s. 263 of the Act by holding the order of AO as erroneous in so far as prejudicial to the interest of revenue on account of inadequate enquiry made by AO while passing order u/s. 143(3) of the Act. However, we find that proper and sufficient enquiries were conducted by the AO at the time of assessment as evident from the order of AO. Therefore it cannot be concluded that no proper enquiry has been conducted by the AO at the time of assessment proceedings. The AO has taken conscious view after considering the facts and circumstances of the case and giving proper opportunity to the assessee. Thus, the view expressed by AO in the form in his assessment order cannot be replaced with the view of Ld. CIT u/s 263 of the Act. In holding so, we find support and guidance from the judgment of Hon'ble jurisdictional High Court in the case of CIT vs. M/s. J.L. Morrison (India) Ltd.(ITA No 168 of 2011) in GA No 1541 of 2012 dated 15.05.2014, wherein it was held as under:- “By sections 3 and 4, the Indian Income-tax Act, 1922, imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision.” We also rely on the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Max India Limited reported in 295 ITR 282 wherein it was held as under : “When the CIT passed the impugned order under s. 263, two views were inherently possible on the word "profits" occurring in the proviso to s. 80HHC(3) and therefore, subsequent amendment of s. 80HHC made in the year 2005, though retrospective, did not render the order of the ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 15 AO erroneous and prejudicial to the interest of the Revenue, and CIT could not exercise powers under s. 263.” In view of the above proposition, and respectfully following principle laid down by the Hon'ble courts and keeping in view all these discussion, as also bearing in mind entirety of the case, we deem it fit and proper to uphold the grievance of the assessee and quash the impugned revision order as devoid of jurisdiction. The assessee gets the relief, accordingly.” In view of above, it is submitted that : 1. The Order of Ld. AO is not erroneous: It has already been established above that Ld. AO had made inquiry regarding nature of land compulsorily acquired and complete details as asked for by the Ld. AO were submitted by assessee during the course of assessment proceedings and, as submitted above, the Ld. AO passed the assessment order after taking into consideration all those details and evidences. It is therefore, submitted that the Ld. AO has taken a legal and correct view of the entire material available before him and after due application of mind on law and on facts had reached to a reasonable satisfaction of concluding the assessment, without taking any adverse view on these issues, thus the order of Ld. AO is not erroneous on any count nor prejudicial to the interest of revenue. It is further submitted that, the Hon’ble Bombay High Court in the case of CIT Vs. Gabrial India Ltd., reported in 203 ITR 108, has held that, “CIT cannot revise order merely because he disagrees with the conclusion arrived at by the ITO”. Further, in the case of CIT Vs. Sunbeam Auto Ltd., reported in 227 CTR 133, the Hon’ble Delhi High Court drew a distinction between “Lack of inquiry” and “inadequate enquiry” and held that, ‘in the case of inadequate enquiry, provisions under section 263 cannot be invoked.’ It may however, be noted that the instance case is neither the case of inadequate enquiry nor lack of enquiry during assessment proceedings as it can be seen that due, necessary and pertinent enquiries to various issues including the issue of the land being agricultural land and thereby compensation received not being taxable under normal provisions of Income Tax Act, 1961 and also not includible u/s 115JB as income, were conducted by the Ld. AO. Therefore, in view of such factual and legal position, no action u/s 263 could have been taken. It is a well established law by now that section 263 does not contemplate mere substitution of the opinion of AO with that of CIT. It has further been held by the Courts that where two views are possible in the matter and the AO has chosen any one of them, then revision ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 16 cannot be made merely because the CIT is of the opinion that the other view should have been taken by the AO. 2. The Order of Ld. AO is not prejudicial to the interest of revenue: In light of the facts of the present case, it is submitted that the land compulsorily acquired was an agriculture land and thus it was not the Capital Asset within the meaning of sec. 2(14)(iii) of Income Tax Act and therefore amount received as compensation on compulsory acquisition of this agriculture land is neither an income nor the Capital gain as prescribed under Income Tax Act and thereby does not fall within the charging section of Income Tax Act read with section 5 of Income Tax Act. Thus, the action of the Ld. AO was not at all prejudicial to the interest of revenue. Section 263 cannot be permitted to be brought into play unless both the conditions are satisfied i.e. the order has to be prejudicial as well as erroneous both, meaning thereby that the twin conditions are to be cumulatively satisfied before proceeding to revise an assessment order. In the instant case it is submitted as above that the order of ld. AO is neither erroneous nor it is prejudicial to the interest of revenue and thereby none of the conditions are satisfied, what to talk about twin conditions to be cumulatively satisfied. In view of above facts and in the circumstances and various judicial pronouncements which are directly on the issue, it is submitted that compensation received by assessee on compulsory acquisition of Rural Agriculture land (which is not a Capital Asset) is also Agriculture income and is thus outside the purview of taxability under normal provisions as well as of section 115JB of the Income Tax Act. Therefore order passed by ld. AO u/s 143(3) after due examination of documentary evidences in support of such facts, is neither erroneous nor prejudicial to the interest of Revenue and Revision of such order by ld. PCIT u/s 263 is not in accordance with law and consequently order u/s 263 deserves to be quashed.” 8. In support, reliance was placed on the following decisions: • Copy of order of Hon'ble ITAT, Jaipur Bench "A" in the case of Dy. Commissioner of Income Tax, Central Circle-2, Jaipur vs. M/s Motisons Buildtech Pvt. Ltd. in ITA No. 1323/JP/2018. • Copy of order of Hon'ble ITAT Bench "E", Mumbai in the case of M/s Shivalik Venture Pvt. Ltd. vs. Dy. Commissioner of Income Tax- 8(3) in ITA No. 2008/Mum/2012. ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 17 • Copy of order order of Hon'ble ITAT, Cochin Bench in the case of Asstt. Commissioner of Income Tax, Circle-1, Kottayam vs. M/s The Nilgiri Tea Estate Ltd. in ITA No. 37/coch/2014. • Copy of order of Hon'ble ITAT, Cochin Bench in the case of Harrisons Malayalam Ltd. vs. ACIT in ITA No. 54/coch/2009 and others. • Copy of order of Hon'ble ITAT, Visakhapatnam Bench in the case of Agri Gold Foods & Farms Products Ltd. Vijayawada vs. CIT Vijayawada in ITA No. 451/Vizag/2012 9. In addition to the written submission and decisions relied upon by the ld. AR of the assessee, he submitted that during the year under consideration no business activities carried out as it is evident from the audited accounts placed on record. It is the only agriculture compensation and interest income that company has received during the year under consideration. The ld. AR of the assessee argued before us that while assessing agriculture income, the ld. PCIT is considering that the assessee is holding the agriculture land but when the matter comes before him for compensation of the said land, he is of the view that the asset is not agriculture land for which the assessee has received the compensation in the year under consideration. The ld. AR argued that the ld. DR has not pointed out any judicial pronouncement so as to substantiate the view that why the compensation received on ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 18 agricultural land is not to be considered as agricultural income. The ld. AR of the assessee further submitted that in response to various notices, the specific questions were raised about the exempted income claimed by the assessee and the same was replied vide letter dated 14.11.2017 & 04.12.2017. The relevant reply is extracted herein below. Extract from the letter dated 14.11.2017 4. Exempted Income As narrated in above para 1, the assessee company has received compensation of Rs. 88,98,605/- on acquisition of agriculture land which is exempted under income tax act and thus the assessee has correctly shown the same in their return of income. As regards the supporting documents and power of attorney are concern, we will submit the same in next date of hearing; as the directors of the company are presently out of station. Extract from the letter dated 04.12.2017 During the course of assessment proceedings, you have asked us to submit documentary evidence for acquisition of agriculture land and interest paid on compensation. In this regard, we are submitting copy of notice of Land Acquisition officer, with copy of award and details of interest payment made on compensation with details of TDS deducted. 10. The ld. AR further argued that the contention of ld. Pr.CIT is only about the compensation received by the assessee company for consideration of the tax as per provision of section 115JB of the Act. Here also, the ld. Pr.CIT accept that while considering the show cause in the proceeding before him, the said income is not chargeable to tax in lieu of the compensation paid on account of ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 19 compulsory acquisition. But at the same time he is of the view that this compensation amount is required to be considered for the purpose of calculation of book profit as per provision of section 115JB of the Act. The ld. AR of the assessee further submitted that the ld. Pr.CIT is adopting the contrary view which is also not permitted that once he accepted the fact that the assessee has earned the agriculture income but for the same agriculture land compensation, he is not considering it as sourced under the head agriculture income merely on the ground that assessee received it as compensation and not any agriculture income. The ld. AR of the assessee further submitted that during the assessment proceedings on 4.12.2017, the assessee has already provided the documentary evidence for acquisition of agriculture land and relevant award and the interest received on such compensation along with the certificate of competent authority specifying the fact that the land is 20 KM away from Gurgav. Therefore, even the ld. Pr.CIT has considered the income as agriculture income and not disputed these facts. The ld. AO based on the verification of documentary evidence for acquisition of land and relevant documentary evidence considered this compensation as also part ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 20 of agriculture income which is the only view that can be taken by Prudent Officer which the ld. AO has taken. To support his view, the ld. AR of the assessee relied on the judgment of this Co- ordinate Bench in the case of DCIT vs. Moti Sons Built Tech Pvt. Ltd. in ITA No. 1323/JP/2018. The relevant relied upon para of the decision is as under:- “12. In view of the above facts and circumstances, we do not find any infirmity in the order of the ld. CIT(A) for holding that the gain arising from sale of agricultural land cannot be taxed U/s 115JB of the Act. The detailed finding so recorded by the ld. CIT(A) after applying judicial pronouncements are as per the material on record which do not require any interference on our part. Hence, we uphold the same.” 11. Based on the above written submission relied upon the decision and the above argument placed by the ld. AR of the assessee. He emphasized that the order is neither erroneous nor prejudicial in the interest of the Revenue and therefore, the order is required to be quashed. 12. Per contra, the ld. DR appearing on behalf of revenue submitted that the provision of the Act does not include the compensation received on land. Therefore, while computing the profit u/s 115JB of the Act same is wrongly excluded by the assessee and there upon by the AO. This provision are alternative ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 21 taxation provision they requires seriously attention so as to achieve the object behind such alternative taxation scheme under the Act. These all provisions are deeming provisions and are required to be treated separately from the normal provision of the Act. Section 115JB specifically gives certain exclusion and not which the income of the assessee which specifically does not fall under that provision of law are not required to be excluded. Therefore, ld. Pr.CIT has rightly invoked provision of section 263 of the Act. Even the law considered that in case of the corporate assessee profit is required to be determined under the Companies Act and that profit is to be adjusted as per the provision of section 115JB of the Act strictly and in that process no further adjustment which are not prescribed is to be considered. The ld. AO cannot remove any provision or alter them while assessing the income of the assessee for this view, the ld. AR of the assessee brought to our notice that the provision of section 10(1) of the Act excludes only agriculture income and does not include any compensation received which is also not an agriculture income. Therefore, the view of ld. PCIT to exclude them is in accordance with the various provisions of the Act, for this contention the ld. DR relied on the decision of Apolo ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 22 Tyres Ltd. reported at 122 taxman 562 Supreme Court wherein the Apex Court held that the alternative provision of taxation does not empower the Assessing Officer to make addition deductions on its own and Assessing Officer does not have jurisdiction to go behind what is stated in the provision. He just as to follow the provisions strictly since these are the alternative tax provision and law has already given the adjustment to be made and that the same are required to be viewed accordingly when in the profit and loss account the profit on account of compensation is already included and it is not an agriculture income as per provision of section 10(1) of the Act. The assessee cannot take the benefit considering it, as agriculture income though it is compensation amount. Therefore, the compensation amount exclusion made by the Assessing Officer is out of purview of the provision of the Act. The ld. Assessing Officer although has not raised the issue and not discussed. Therefore, the invocation of provision u/s 263 rightly made by the Pr. CIT and therefore, he supported heavily on the order of ld. PCIT. ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 23 13. In the rejoinder, the ld. AR of the assessee submitted that section 115JB of the Act starts with the book profit deemed to be income but when the credit made in the profit and loss. Itself is not an income as per provision of section 10. The ld. AR of the assessee further differentiated the decision of Apollo Tyers Ltd. relied upon by the ld. DR and stated that considering the fact of the case. The decision is differentiated and will not apply to the fact in the case of hand. The same is rightly excluded by the assessee and rightly allowed by the Assessing Officer and for that he has relied upon the decision of Cochin Bench of ITAT in ITA No. 37/Coch/2014 in the case of ACIT Vs. M/s. The Nilgiri Tea Estate Limited, wherein the similar issue has been dealt with at length and relevant extract and relied upon finding of the Co-ordinate Bench decision is reiterated herein below. “7. There should not be any dispute that the Profit arising on sale of agricultural land, which does not fall in the category of “Capital Asset” as defined under sec. 2(14) of the Act does not come under the purview of the Income tax Act at all. For example, the profit arising on sale of personal effects is not exigible to Income tax Act. In the similar manner, the profit arising on sale of agricultural land, which is not a Capital asset, is also not exigible to Income tax. Hence, in our view, an item of income which does come under the purview of Income tax cannot be subjected to tax under any of the provisions of the Act. Hence, the Tribunal, in the assessee’s own case referred above, has expressed the following view:- “The provisions of Chapter XII-B of the Act do not, in our view, operate to extend the scope of `total income’ per section 5 on which the charge to tax u/s. 4 is attracted, but is only toward providing an alternative basis for computing the same.” ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 24 Accordingly, we are of the view that the profit from sale of agricultural land, which is not a “Capital Asset”, cannot be included for the purpose of computing book profit u/s 115JB of the Act. Accordingly, we uphold the decision taken by Ld CIT(A).” 14. We have heard the rival contentions, carefully considered the finding recorded in the impugned order passed under S. 263, the rival contentions raised by both the parties and the material placed on record as well as gone through the judicial pronouncements relied upon by both the parties to drive home to their contentions. From the fact, we noticed that the assessee is a private limited company, filed return for the year under consideration which was taken up for complete scrutiny. For this year the ld. AO has called for the details required to complete the assessment based on the reasons of selection under CASS for the reasons that it has shown large exempt income. The ld. AR of the assessee submitted that the details called for by the AO. The ld. AO based on the submission placed on record taken a plausible view on the calculation exempt income and thereby the computation of tax under section 115JB of the Act. Whereas the ld. Pr. CIT considered that the same has not been seen by the AO in light of the observations made by him in the proceedings before him. It is not disputed that the assessee is holding agricultural land ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 25 and accordingly received the agricultural income which is also not disputed by the revenue in the proceedings. The ld. AO also raised the issue about the exempt income and the assessee has submitted all relevant proof in relation to compensation in question and has after considering the submission and evidence placed on record, the ld. AO taken plausible view which is not controverted that why the view taken by the ld. AO is not correct view, considering the compensation received by the assessee company as the agriculture income and also exempt. The ld. DR merely argued that section 10(1) exclude only agriculture income and it does not include compensation but he has not referred the definition of section 2(14)(iii) of the Act which exclude the agriculture land as a capital asset and these facts is also not disputed that the assessee is having land which is agriculture land when the ld. AO and ld. PCIT accepted that the assessee earns agriculture income the compensation received on account of compulsory acquisition of land why cannot be considered as part of agriculture income. He has not pointed out any provision of the law to support their views so as to show that the same is required to be excluded while computing the book profit u/s. 115JB of the ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 26 Act. The bench notes that the prerequisite exercise of jurisdiction by the learned Principal CIT under section 263 of the Act is that the order of the AO is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The Principal CIT has to be satisfied of twin conditions, namely (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e., if the assessment order is not erroneous but it is prejudicial to the Revenue, provision of section 263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to Revenue's interest, then the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. It is pertinent to mention that if the AO has adopted one of the two or more courses permissible in law and it has ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 27 resulted in loss of revenue, or where two views are possible and AO has taken one view with which the Pr. CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. In this regard, we draw strength from the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83 (SC). We also draw strength from the decision of the Hon'ble Supreme Court in the case of CIT vs. Max India Ltd. (2007) 213 CTR (SC) 266: (2007) 295 ITR 282 (SC) wherein it was held that: "The phrase 'prejudicial to the interests of the Revenue' in s. 263 of the IT Act, 1961, has to be read in conjunction with the expression 'erroneous' order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when the AO adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law." 15. Thus, when it is very much evident and clear from the record that compensation that the assessee has received is on account of agriculture land on which the agriculture income is already ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 28 considered and therefore, the action of the assessee and thereby the ld. AO is in accordance with provision of the Act and there is no mistake apparent on record on account of exclusion of the same while computing the book profit under the provisions of section 115JB of the Act. These views are fortified by the Cochin Bench and in fact decisions relied upon by the ld. AR of the assessee. Being consistent with that order of the coordinate bench in ITA No. 37/Coch/2014 in the case of ACIT Vs. M/s. The Nilgiri Tea Estate Limited, we hold that the order passed by the ld. PCIT u/s 263 is neither erroneous and not prejudicial to the interest of the Revenue and therefore, the same is required to be quashed. Resultantly, the appeal filed by the assessee is allowed. Order pronounced in the open Court on 26/09/2022. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 26/09/2022 *Ganesh Kr. ITA No. 244/JP/2021 JAP Info Systems Private Limited vs. PCIT-2, Jaipur 29 vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- JAP Info Systems Pvt. Ltd., Jaipur 2. izR;FkhZ@ The Respondent- Principle Commissioner of Income Tax-2, Jaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur. 6. xkMZ QkbZy@ Guard File {ITA No. 244/JP/2021} vkns'kkuqlkj@ By order, lgk;d iathdkj@ Asst. Registrar