Appeal details
Counselvise Citation
[2017] 128 COUNSELVISE.COM (IT) 1675 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 month(s) 14 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
02-06-2017
Appeal Filed By
Assessee
Bench Allotted
D
Assessment Year
2012-2013
Appeal Filed On
17-02-2017
Judgement Text
ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 1 OIN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & SHRI WASE EM AHMED, AM] I.T.A NO. 329/KOL/2017 ASSES SMENT YEAR : 2012-13 INFINITY INFOTECH PARKS LTD. -VS.- D.C.I.T., CIRCLE-2(1), KOLKATA KOLKATA [PAN : AABCI 0692 J] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SH RI DILIP S.DAMLE, FCA & SHRI AKKAL DUDHWEWALA, ACA FOR THE RESPONDENT : SHRI NIRAJ KUMAR, CIT(DR) DATE OF HEARING : 24.05.2017 DATE OF PRONOUNCEMENT : 02.06.2017. ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 12.01.2017 OF COMMISSIONER OF INCOME TAX-I (CIT), KOLKATA PASSED U/S 263 OF THE INCOME TAX ACT, 1961 (ACT). 2. THE FACTS AND CIRCUMSTANCES UNDER WHICH THE OR DER U/S 263 OF THE ACT WAS PASSED BY CIT ARE AS FOLLOWS :- THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSI NESS OF DEVELOPMENT OF SOFTWARE TECHNOLOGY PARK AND RELATED INFRASTRUCTURE. FOR A.Y .2012-13, THE ASSESSEE FILED RETURN OF INCOME ON 28.09.2014 DISCLOSING A TOTAL INCOME O F RS.17,55,09,500/-. AN ORDER OF ASSESSMENT DATED 23.09.2014 U/S 143(3) OF THE ACT W AS PASSED BY THE AO DETERMINING THE TOTAL INCOME AT RS.17,55,09,500/-. 3. THE CIT IN EXERCISE OF HIS POWERS U/S 263 OF THE ACT WAS OF THE VIEW THAT THE AFORESAID ORDER OF THE AO WAS ERRONEOUS AND PREJUDI CIAL TO THE INTEREST OF THE REVENUE FOR THE FOLLOWING REASONS :- ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 2 1.IN FORM NO. 3 CD OF TAX AUDIT REPORT (TAR), THE ASSESSEE HAD CLAIMED EXEMPTION OF RS. 76,00,000/- U/S 35 AC OF THE I.T. ACT, 1961 APART FROM CLAIM OF EXEMPTION U/S 35(1)(III) OF RS. 1,04,50,000/-. HOWE VER, THERE WAS NO MENTION OF CLAIM OF EXEMPTION U/S 35AC OF THE ACT IN POINT NO 29 OF 'COMPUTATION OF INCOME FROM BUSINESS AND PROFESSION'. EXEMPTION O F RS. 76,00,000/- U/S 35AC OF THE IT ACT HAS BEEN ALLOWED IN ASSESSMENT BUT TH E SAME HAS NOT BEEN CLAIMED IN THE IT RETURN, AS FOUND FROM THE RECORDS. 2. IN THE AUDITED BALANCE SHEET THERE WAS HUGE LIAB ILITY TOWARDS LONG TERM BORROWINGS AND SHORT TERM BORROWINGS. THE ASSESSEE HAD INCURRED FINANCE COST OF RS.22.51 CRORES FOR AY 2012-13 IN RESPECT OF SUCH B ORROWINGS. 3. THE ASSESSEE HAD GIVEN SHORT TERM LOANS AND ADVA NCES, THE CLOSING BALANCES OF WHICH AS ON 31.03.12 AND 31.03.11 WERE RS. 173.40 C RS AND RS. 58.30 CRS RESPECTIVELY. THE ASSESSEE HAD NOT CHARGED ANY INTE REST FOR SUCH HUGE ADVANCES MADE TO THE RELATED PARTIES. HOWEVER WHILE COMPUTI NG THE DISALLOWANCE U/S.14A OF THE ACT IN RESPECT OF EXPENSES INCURRED TO EARN EXEMPT INCOME, RS. 75,24,000/- ONLY WAS DISALLOWED. THE FACT THAT THE ASSESSEE HA D UTILIZED MAJOR PART OF THE LONG TERM BORROWINGS AND SHORT TERM BORROWING FOR G IVING ADVANCES TO THE RELATED PARTIES HAS NOT BEEN CONSIDERED IN THE ASSESSMENT O RDER. THEREFORE, IN A.Y 2012- 13, THE PROPORTIONATE INTEREST, WHICH SHOULD BE DIS ALLOWED, SHOULD HAVE BEEN COMPUTED @ 66%, SINCE THE ASSESSEE HAD ADVANCED 66% OF LOAN TAKEN FROM THE PARTIES, AS FOUND FROM THE AUDITED ACCOUNTS. 4. IN THE COMPUTATION OF TOTAL INCOME THE ASSESSEE HAD SHOWN LONG TERM CAPITAL GAIN OF RS. 60.05 CRS, HOWEVER IT WAS NOT CLEAR HOW SUCH FIGURE OF CAPITAL GAIN WAS ARRIVED AT, SINCE NO DETAILS OR DOCUMENTARY EVI DENCES IN THIS REGARD IS ON RECORD. THE A.O HAD EXAMINED NOTHING. 5. THE ASSESSEE HAD DEBITED A SUM OF RS. 1,16,10,61 5/- UNDER THE HEAD 'COMMISSION & BROKERAGE'. THE ASSESSEE HAD ADDED B ACK COMMISSION PAID RS. 67,97,440/- IN THE COMPUTATION STATING SUCH EXPENSE S WERE INCURRED IN CONNECTION WITH LONG TERM LEASE. IT IS NOT CLEAR UNDER WHAT BA SIS YOU HAD MADE BIFURCATION OF COMMISSION EXPENSES AND ADDED A CERTAIN SUM STATING THAT IT WAS INCURRED IN CONNECTION WITH LONG TERM LEASE. THE A.O HAD NEITHE R QUESTIONED YOU NOR HAD EXAMINED ANYTHING REGARDING THIS. 6. THE ASSESSEE WAS IN THE BUSINESS OF DEVELOPMENT OF IT PARK AND PROVIDING SERVICES RELATING THERETO WHICH INCLUDED DEVELOPING , CONSTRUCTING AND SELLING OF BUILDING 'UNIT WISE' AND 'FLOOR SPACE WISE'. THE AS SESSEE HAD CLAIMED AND WAS ALLOWED DEPRECIATION ON THE UNSOLD BUILDINGS BUILT BY IT LEADING TO ALLOWANCE OF DEPRECIATION ON 'TRADING STOCK' AND NOT ON 'CAPITAL ASSET' USED FOR THE PURPOSE OF BUSINESS. ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 3 FOR THE ABOVE REASONS, THE CIT CONSIDERED THE ORDER OF THE AO ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND HE A CCORDINGLY ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE DATED 20.9.2013 TO THE ASSES SEE CALLING UPON THE ASSESSEE TO SHOW CAUSE WHY THE ORDER OF THE AO SHOULD NOT BE RE VISED IN EXERCISE OF THE POWERS OF THE CIT U/S.263 OF THE ACT. 4. THE ASSESSEE BY REPLY DATED 11.01.2017 POINTE D OUT THAT THERE WAS NO ERROR IN THE ORDER OF AO AND THAT ALL THE ABOVE ISSUES HAVE BEEN PROPERLY EXAMINED AND DEALT WITH BY THE AO IN THE ORDER OF ASSESSMENT. THE CIT AFTER RECEIPT OF THE AFORESAID REPLY DID NOT GO INTO THE CORRECTNESS OR OTHERWISE OF THE CON TENTION OF THE ASSESSE IN THE REPLY DATED 11.01.2017 TO THE SHOW CAUSE NOTICE U/S 263 O F THE ACT, BUT CAME TO THE CONCLUSION THAT THE AO DID NOT MAKE PROPER ENQUIRIE S ON THE VARIOUS ISSUES SET OUT IN THE SHOW CAUSE NOTICE ISSUED U/S 263 OF THE ACT. TH E FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE CIT :- IN RESPONSE TO THE SAID NOTICE THE ASSESSEE SUBMIT TED WRITTEN REPLY ON 12.01.2017. THE ASSESSEE HAS SOUGHT TO JUSTIFY ITS CLAIM. HOWEVER, HE COULD NOT DISAGREE THAT THE NECESSARY INQUIRIES WHICH WERE CA LLED FOR AND EXPEDIENT ON THE SET OF FACTS AND CIRCUMSTANCES WERE NOT CARRIED OUT BY THE ASSESSING OFFICER. NEVERTHELESS, THE ASSESSEE'S LD A/R HAS MADE A VALI D POINT ON THE ISSUE OF DISALLOWANCE OF INTEREST PAID BY THE ASSESSEE BECAU SE THE LD. CIT(A) - 1, KOLKATA IN APPEAL NO.828/CIT(A)-1/C-2(1)/2014-15 O RDER DATED 10.03.2016 HAD DETECTED THE INTEREST DISALLOWANCE MADE BY THE AO. THEREFORE, THE ISSUE CONCERNING ALLOWABILITY OF INTEREST PAID ON BORROW ED FUNDS WAS CONSIDERED AND DECIDED BY THE LD. CIT(A) IN HIS APPELLATE ORDER AN D AS A COROLLARY TO IT AND IN TERMS OF CLAUSE (C) OF THE EXPLANATION TO SECTION 2 63 OF I TACT, 1961 SHOW CAUSE NOTICE ON THE LIMITED ISSUE OF ALLOWABILITY OF INTE REST MAY NOT BE PROCEEDED WITH FURTHER. THE ASSESSEE HAS ARGUED VEHEMENTLY ON THIS ISSUE. BUT REGARDING OTHER ISSUES, DURING ASSESSMENT PROCEEDINGS ALL DETAILS W ERE NOT FURNISHED BEFORE THE AO. THE AO PASSED THE IMPUGNED ASSESSMENT ORDERS DA TED 23.09.2014 WITHOUT MAKING INQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE BY THE AO. HE HAS FAILED TO APPLY PROVISIONS OF SECTION 14A OF I TAC T, 1961 READ WITH RULE 8D OF IT RULES, 1962 CORRECTLY AND FAITHFULLY. 5. THE CIT THEREAFTER REFERRED TO SEVERAL JUDICI AL PRONOUNCEMENTS PARTICULARLY THAT OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF GEE VEE ENTERPRISES VS ADDL. CIT 99 ITR 375 (DELHI) WHEREIN IT WAS HELD TH AT FAILURE ON THE PART OF THE AO TO MAKE AN ENQUIRY ON AN ISSUE WHICH CALLS FOR AN ENQU IRY, IN THE GIVEN FACTS AND ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 4 CIRCUMSTANCES OF A CASE, RENDERS THE ORDER OF AO ER RONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CIT THEREAFTER SET ASI DE THE ORDER OF ASSESSMENT AND REMANDED TO THE AO THE VARIOUS ISSUES REFERRED TO I N THE ORDER U/S.263 OF THE ACT FOR FRESH CONSIDERATION BY THE AO AFTER AFFORDING OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE. THE CIT IN THIS REGARD GAVE THE FOLLOWIN G DIRECTIONS TO THE AO :- 12. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES O F THE CASE AND IN THE LIGHT OF THE AFORESAID DECISIONS OF HON'BLE SUPREME COURT AN D HON'BLE HIGH COURT AND IN ACCORDANCE WITH THE AMENDMENT MADE IN SECTION-263 O F THE ACT WITH EFFECT FROM 01.06.2015, I HOLD THAT THE IMPUGNED ASSESSMENT ORD ER DATED 23.09.2014 PASSED BY THE A.O. IS ERRONEOUS SO FAR AS IT IS PREJUDICIA L TO THE INTERESTS OF THE REVENUE. I FURTHER HOLD, AFTER GIVING THE ASSESSEE AN OPPORTUN ITY OF BEING HEARD, THAT THE IMPUGNED ASSESSMENT ORDER DATED 23.09.2014 IS LIABL E TO SET-ASIDE. THEREFORE, I SET ASIDE THE SAID ASSESSMENT ORDER DIRECTING THE P RESENT A.O. TO FRAME THE ASSESSMENT AFRESH AFTER CONSIDERING THE AFORESAID H ON'BLE SUPREME COURT AND HON'BLE HIGH COURT DECISIONS AND AFTER COMPLETING I NQUIRIES AND VERIFICATION, AS DISCUSSED IN THIS ORDER, EXCEPT ON THE ISSUES DECID ED BY LD. CIT(A) AND AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. 13. IN THE RESULT, THE ASSESSMENT ORDER 143(3) DATE D 23.09.2014 FOR A.Y. 2012-13 IS SET-ASIDE TO THE FILE OF THE ASSESSING OFFICER W ITH A DIRECTION TO PASS A FRESH ASSESSMENT ORDER AFTER CONDUCTING INQUIRIES AND VER IFICATION WHICH ARE CALLED FOR AND DISCUSSED IN THIS ORDER AND AS PER LAW AND AFTE R GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. AGGRIEVED BY THE ORDER OF CIT THE ASSESSEE HA S PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. BEFORE WE SET OUT VARIOUS CONTENTIONS RAISED BEFORE US IT HAS TO BE CLARIFIED THAT WITH REFERENCE TO THE INTEREST COST OF RS.22.51 CRO RES REFERRED TO IN ITEM-2 & 3 OF THE SHOW CAUSE NOTICE U/S 263 OF THE ACT DATED 20.09.20 16 OF CIT, THE CIT AGREED THAT THE ISSUE WITH REGARD TO THE DISALLOWANCE OF INTEREST U /S.14A OF THE ACT WAS THE SUBJECT MATTER OF THE APPEAL BY THE ASSESSEE BEFORE CIT(A) AND THAT THE CIT(A) HAD ALSO CONSIDERED THE AFORESAID ISSUE AND THEREFORE THE OR DER OF AO TO THAT EXTENT WOULD MERGE WITH THE ORDER OF CIT(A) AND THEREFORE JURISD ICTION U/S 263 OF THE ACT CANNOT BE EXERCISED BY CIT IN VIEW OF CLAUSE-C OF EXPLANATIO N TO SECTION 263 OF THE ACT. THE CIT, HOWEVER, HAS STILL THOUGHT IT FIT TO COME TO T HE CONCLUSION THAT THE PROVISIONS OF ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 5 SECTION 14A OF THE ACT WERE NOT FULLY AND PROPERLY APPLIED BY THE AO WHILE CONCLUDING THE ASSESSMENT. 8. THE LD. COUNSEL FOR THE ASSESSEE FIRSTLY POIN TED OUT THAT IN THE SHOW CAUSE NOTICE U/.S 263 OF THE ACT DATED 20.09.2016 THE CIT HAD NO T RAISED THE ISSUE OF LACK OF ENQUIRY ON THE PART OF THE AO BEFORE COMPLETING THE ASSESSMENT EXCEPT ON ITEM-4 WITH REGARD TO THE COMPUTATION OF LONG TERM CAPITAL GAIN AND ITEM-5 WITH REGARD TO THE EXPENDITURE DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD COMMISSION AND BROKERAGE. IN RESPECT OF THE OTHER ISSUES RAISED BY CIT IN HIS SHOW CAUSE NOTICE DATED 20.09.2016 U/S 263 OF THE ACT, THE ASSESSEE HAS GI VEN A SPECIFIC REPLY POINTING OUT AS HOW THE ORDER OF AO ON THESE ISSUES WAS NOT ERRONEO US AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CIT WITHOUT DEALING WITH THOSE OBJECTIONS, HAS PROCEEDED TO PASS THE IMPUGNED ORDER ON THE GROUND OF LACK OF ENQUIRY BY THE AO. IT WAS SUBMITTED BY HIM THAT EVEN IN RESPECT OF COMPUTATION OF LONG TER M CAPITAL GAIN AND EXPENDITURE ON ACCOUNT OF COMMISSION AND BROKERAGE EVEN PROPER ENQ UIRIES WERE MADE BY THE AO WHILE COMPLETING THE ASSESSMENT. IT WAS THEREFORE S UBMITTED BY HIM THAT THE IMPUGNED ORDER SHOULD BE QUASHED FOR THE REASON THAT (A) THE AO BEFORE COMPLETING THE ASSESSMENT HAD MAD E PROPER ENQUIRIES WITH REGARD TO COMPUTATION OF LONG TERM CAPITAL GAIN AND EXPEND ITURE ON ACCOUNT OF COMMISSION AND BROKERAGE. (B) IN RESPECT OF OTHER ITEMS THE SHOW CAUSE NOTICE U/S 263 OF THE ACT DID NOT CONTAIN THE ALLEGATION THAT THERE WAS FAILURE ON THE PART O F THE AO TO MAKE AND PROPER ENQUIRIES BEFORE COMPLETING THE ASSESSMENT BUT THE ORDER HAS BEEN PASSED ON THAT GROUND HOLDING THAT ORDER OF THE AO WAS ERRONEOUS A ND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT WAS HIS SUBMISSION THAT THE ASSESSE E WAS NOT PUT TO NOTICE AT ANY STAGE OF THE PROCEEDINGS U/S.263 OF THE ACT, WITH REGARD TO THE OTHER ISSUES SET OUT IN THE SHOW CAUSE NOTICE U/S 263 OF THE ACT, ON THE ASPECT OF LACK OF ENQUIRY BY THE AO BEFORE COMPLETING THE ASSESSMENT AND THEREFORE ORDE R OF CIT SHOULD BE QUASHED. IN THIS REGARD IT WAS ALSO POINTED OUT THAT THE HONBL E SUPREME COURT IN THE RECENT DECISION RENDERED IN THE CASE OF CIT VS. AMITABH BH ACHAN 384 ITR 200 (SC) HAS ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 6 TAKEN THE VIEW THAT THE CIT CAN GO INTO ANY ISSUES WHICH ARE NOT SET OUT IN THE SHOW CAUSE NOTICE U/S 263 OF THE ACT, BUT THE ASSESSEE H AS TO BE PUT ON NOTICE, IN THE COURSE OF PROCEEDINGS U/S 263 OF THE ACT, ON THE ISSUE WHI CH IS NOT SET OUT IN THE SHOW CAUSE NOTICE U/S 263 OF THE ACT. IN THIS REGARD THE LD. C OUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS OF THE TRIBUNAL A) DAMODAR VALLEY CORPN VS CIT 72 TAXMANN 127 (ITAT KO L) B) VESUVIUS INDIA LIMITED VS CIT 54 SOT 172 (ITAT KOL) C) B.S.SANGWAN VS ITO 67 SOT 447 (ITAT DELHI) (C ) THAT THE AO HAD IN FACT MADE PROPER AND DUE EN QUIRIES OF ALL THE ASPECTS SET OUT BY THE CIT IN THE SHOW CAUSE NOTICE U/S 263 OF THE ACT. IN THIS REGARD HE DREW OUR ATTENTION TO THE VARIOUS PAGES OF THE PAPER BOOK WH ICH WOULD THROW LIGHT ON THE FACT AS PROPER AND DUE ENQUIRIES WERE MADE BY THE AO, TO WH ICH WE WILL MAKE REFERENCE IN THE LATTER PART OF THIS ORDER. 9. THE NEXT SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE WAS THAT WHEN CITS SPECIFIC OBJECTION IN THE SHOW CAUSE NOTICE U/S 263 OF THE ACT WAS MET WITH ADEQUATE EXPLANATION HE OUGHT TO HAVE GIVEN HIS OWN SPECIFIC FINDING ON THOSE OBJECTIONS AND WITHOUT DOING SO, THE CIT CANNOT EXERCISE JURISDICT ION U/S 263 OF THE ACT. IN THIS REGARD THE LD. COUNSEL FOR THE ASSESSE PLACED RELIA NCE ON THE FOLLOWING DECISIONS :- - DIT VS JYOTI FOUNDATION (357ITR 388) (BOM HC) - ITO VS D.G. HOUSING PROJECTS LTD (343 ITR 329) (B OM HC) - CIT VS LEISURE WAR EXPORTS LTD (341 ITR 166) (DEL HC) - C.S.E. LTD VS CIT (ITA NO. 268/K/15) (ITAT KOL) - CRISIL LTD VS ADDL.CIT (142 TIK 62) (ITAT MUM) 10. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT THE AO IN THE NOTICE ISSUED U/S 142(1) OF THE ACT DID NOT CALL FOR THE BOOKS OF ACC OUNTS OF THE ASSESSEE. HOWEVER IN THE ORDER OF ASSESSMENT, HE HAS MADE REFERENCE TO T HE FACT THAT BOOKS OF ACCOUNTS WERE PRODUCED BY THE ASSESSEE. HE DREW OUR ATTENTION TO PARA-8 OF THE IMPUGNED ORDER OF CIT WHEREIN THE CIT HAS OBSERVED THAT THE AO FAILED TO EXAMINE THE BOOKS OF ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 7 ACCOUNTS MAINTAINED BY THE ASSESSEE. ACCORDING TO H IM THE POWER VESTED WITH CIT U/S 263 OF THE ACT IS A POWER TO SUPERVISE THE PROPER W ORKING BY THE AO AND IF THE AO PASSED AN ORDER WITHOUT PROPER ENQUIRY THAT WOULD S ET A WRONG PRECEDENT. THE CIT THEREFORE WAS RIGHT IN EXERCISING HIS POWER U/S263 OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE ALSO DREW OUR ATTENTION TO THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS- MAITHAN INTERNATIONAL REPORTED IN (2015) 375 ITR 123 (CAL) WHEREIN IT WAS HELD THAT IF THE EXTENT OF ENQUIRY C ONDUCTED BY THE AO, BEING AS GOOD AS NO ENQUIRY, THEN THAT WOULD BE SUFFICIENT GROUND TO EMPOWER THE CIT TO INVOKE HIS JURISDICTION U/S 263. UNDER SUCH CIRCUMSTANCES, ONE CANNOT CAST AN IMPOSSIBLE BURDEN ON THE CIT TO SHOW POSITIVE LEAKAGE OF INCOME IN CO NCRETE TERMS, WHEN HE HAS SIMPLY SET ASIDE THE ASSESSMENT ORDER AND RESTORED CERTAIN ASPECT OF THE ASSESSMENT TO THE FILE OF AO FOR MAKING A PROPER ENQUIRY AND THEN DECIDING . 11. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. WE SHALL DEAL WITH EACH OF THE ISSUES SET OUT IN THE SHOW CA USE NOTICE DATED 20.09.2016 OF CIT AND DEAL WITH THEM INDIVIDUALLY. 12. THE FIRST ISSUE RAISED BY CIT IN THE SHOW CAUS E NOTICE DATED 20.09.2016 IS THAT IN FORM NO. 3 CD OF TAX AUDIT REPORT (TAR), THE ASSESS EE HAD CLAIMED EXEMPTION OF RS. 76,00,000/- U/S 35 AC OF THE I.T. ACT, 1961 APA RT FROM CLAIM OF EXEMPTION U/S 35(1)(III) OF RS. 1,04,50,000/-. HOWEVER, THERE WAS NO MENTION OF CLAIM OF EXEMPTION U/S 35AC OF THE ACT IN POINT NO 29 OF THE FORM OF R ETURN OF INCOME 'COMPUTATION OF INCOME FROM BUSINESS AND PROFESSION'. EXEMPTION O F RS. 76,00,000/- U/S 35AC OF THE IT ACT HAS BEEN ALLOWED IN ASSESSMENT BUT THE S AME HAS NOT BEEN CLAIMED IN THE IT RETURN, AS FOUND FROM THE RECORDS. 13. IT IS SEEN FROM THE PAPER BOOK FILED BY THE AS SESSEE THAT TAX AUDIT REPORT FILED BEFORE THE AO BY THE ASSESSEE IN PARA - 15 SPECIFIC ALLY STATES THAT THE AMOUNT ADMISSIBLE U/S 35AC WAS RS.76 LACS. IN PARA - 15(A) THE AUDITOR HAS PROVIDED THE FOLLOWING SPECIFIC INFORMATION: ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 8 15.(A). DEBITED TO THE PROFIT AND LOSS ACCOUNT (SH OWING THE AMOUNT DEBITED AND DEDUCTION ALLOWABLE UNDER EACH SECTION SEPARATELY); DEBITED RS.L,04,50,000/- AND RS.4,65,000/- AND DEDU CTION ALLOWABLE RS.L,30,62,500/ - AND RS.8, 13, 750/ - U/ S 35(1)(I II) AND U/ S 35(1)(II) RESPECTIVELY. DEBITED AND DEDUCTION ALLOWABLE RS. 76,00, 000/ - U / S 35AC. THE AMOUNTS FOR WHICH DEDUCTION WAS PERMISSIBLE U/S 35(1)(III), U/S 35(I)(II) & U/S 35AC WERE ALL DEBITED TO THE PROFIT & LOSS A/C FOR THE F.Y. 2011-12. THE NET PROFIT OF RS.15,04,56, 915/- AS PER THE PROFIT AND LOSS AC COUNT WAS THE STARTING POINT FOR THE PURPOSE OF COMPUTATION OF TOTAL INCOME AND THIS WAS ARRIVED AT AFTER TAKING INTO ACCOUNT THE AFORESAID SUMS DEBITED IN THE PROFIT & LOSS A/C. AS FAR AS COLUMN NO.29 OF THE FORM OF RETURN OF INCOME IN RESPECT OF CLAIM OF DEDUCTION U/S.35AC OF THE ACT IN WHICH THE ASSESSEE HAD SHOWN DEDUCTION CLAIMED W AS NIL, IT HAS BEEN EXPLAINED BY THE ASSESSEE THAT IT WAS ADVISED THAT SEPARATE D ISCLOSURE IN CLAUSE-29 OF THE COMPUTATION OF BUSINESS INCOME AS CONTAINED IN RETU RN FORM WAS NECESSARY ONLY IF THE AMOUNT ALLOWABLE AS A DEDUCTION U/S 35AC WAS MORE T HAN THE AMOUNT DEBITED IN THE PROFIT & LOSS A/C. THIS INTERPRETATION WAS BASED ON SUB-CLAUSES (A), (B) & (C) OF CLAUSE - 29 OF THE RETURN OF INCOME AND COMPUTATION OF INCOME PART OF THE RETURN. SINCE IN THE ASSESSEE'S CASE THE AMOUNT DEBITED TO THE PROFIT & LOSS A/C AND THE DEDUCTION PERMISSIBLE U/S 35AC WAS ONE AND THE SAME I.E. RS.76 LACS THE SAME WAS NOT SEPARATELY DISCLOSED IN THE RETURN FORM. HOWEVE R, THIS FACT IN ITSELF DOES NOT LEAD TO CONCLUSION THAT THE DEDUCTION U/S. 35AC WAS NOT PER MISSIBLE OR NOT ALLOWABLE NOR CLAIMED BY THE ASSESSEE. IT IS ALSO SEEN THAT IN T HE COURSE OF ASSESSMENT, THE AO HAD ISSUED A DETAILED QUESTIONNAIRE U/S 142(1) OF THE I NCOME TAX ACT DATED 28.07.2014. IN PARA-29 OF THE QUESTIONNAIRE, THE AO REQUIRED THE A SSESSEE TO SUBMIT THE EXPLANATION ALONG WITH RELEVANT PROOF ETC., RELATED WITH DEDUCT IONS CLAIMED U/S 35, 35(2AA)-, 35(2AB)OF THE ACT. IN RESPONSE TO THE AO'S SPECIFIC REQUISITION THE ASSESSEE HAD FURNISHED BEFORE HIM THE RELEVANT INFORMATION & SUP PORTING DOCUMENTS. COPY OF THE DETAILS WHICH WERE FURNISHED BEFORE THE AO ARE IN T HE PAPER BOOK AND SHOWS THAT DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE MAD E PAYMENTS TO FOLLOWING APPROVED INSTITUTIONS FOR CLAIMING DEDUCTION U/S 35AC OF THE ACT. ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 9 S.NO. NAME OF THE INSTITUTION AMOUNTS PAID 1. THE AKSHAY PATRA FOUNDATION RS.12,00 ,000.00 2. BHARAT SEVASHRAM SANGHA RS. 3,00,000.00 3. NANA PALKAR SMRITI SAMITY RS.1 L,00,000.00 4. SHREC BHAGWANMAHAVIR VIKLANG SAHAYATU SAMITY RS .50,00,000.00 RS.76,00,000.00 ALONG WITH THE DETAILS OF PAYMENTS MADE TO QUALIFYI NG INSTITUTIONS THE ASSESSEE HAD ALSO DISCLOSED COPIES OF THE RECEIPTS & CERTIFICATE S ISSUED IN THE PRESCRIBED FORM BY THE RESPECTIVE ENTITIES, WHEREIN THE PARTICULARS PR ESCRIBED FOR CLAIMING DEDUCTION U/S. 35AC WERE PROVIDED BY THE PAYEE INSTITUTIONS. THE L D. DR IN HIS SUBMISSIONS HAS POINTED OUT THAT IN COL.29 OF THE RETURN OF INCOME WITH REGARD TO DEDUCTION U/S 35AC OF THE ACT THE ASSESSEE HAS SHOWN A SUM OF NIL. IT IS ALSO EXPLAINED BY THE ASSESSEE THAT THE ASSESSEE UNDER THE IMPRESSION THAT FILLING UP O F CLAUE-29 WAS NECESSARY ONLY IF THE AMOUNT ALLOWABLE AS DEDUCTION U/S 35AC OF THE ACT WAS MORE THAN THE SUM DEBITED IN THE PROFIT AND LOSS ACCOUNT THAT THE ASSESSEE WAS R EQUIRED TO MENTION THE EXCESS FIGURE IN THAT COLUMN AND THEREFORE HAD SHOWN THE FIGURE A S NIL IN THE RETURN OF INCOME. IN OUR OPINION, THIS EXPLANATION OF THE ASSESSEE IS A PLAU SIBLE EXPLANATION AND IN ANY EVEN THE AO BEFORE COMPLETING THE ASSESSMENT WAS FULLY CONSC IOUS OF THE FACT THAT THE ASSESSEE HAD MADE A CLAIM OF DEDUCTION U/S 35AC AND 35(1)(II I) OF THE ACT AND THEREFORE IT CANNOT BE SAID THAT ORDER OF THE AO WAS ERRONEOUS O N THIS COUNT. THE ACTION OF CIT IN INVOKING JURISDICTION U/S 263 OF THE ACT ON THIS IS SUE IS HELD TO BE UNSUSTAINABLE. 14. WITH REGARD TO THE ISSUE ON INTEREST EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT OF RS.22.51 CRORES, THE FOLLOWING TRANSPIRED IN THE COURSE OF COMPLETION OF ASSESSMENT BY THE AO. IN THE COURSE OF ASSESSMENT, THE ASSESS EE HAD FURNISHED BEFORE THE AO FULL PARTICULARS OF THE INTEREST/FINANCE COST INCURRED D URING THE RELEVANT YEAR. THE ASSESSEE HAD ALSO FURNISHED BEFORE THE AO FULL PARTICULARS O R THE SHORT TERM & LONG TERM BORROWINGS MADE AND WHICH WERE OUTSTANDING AS ON 31 .01.2012. THE ASSESSEE HAD ALSO FURNISHED BEFORE THE AO FULL PARTICULARS OF TH E INVESTMENTS WHICH THE ASSESSEE ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 10 MADE IN ITS GROUP, ASSOCIATE & SUBSIDIARY COMPANIES TO PROMOTE ITS CORE BUSINESS OF DEVELOPMENT OF CIVIL INFRASTRUCTURE IN VARIOUS FORM ATS. THE ASSESSEE HAD ALSO FURNISHED FULL PARTICULARS OF THE ADVANCES WHICH TH E ASSESSEE HAD MADE TO ITS ASSOCIATE COMPANIES & SUBSIDIARIES. AFTER EXAMINING THESE PAR TICULARS, THE AO HAD REACHED A CONSCIOUS DECISION TO DISALLOW PART OF THE INTEREST PAID ON THE GROUND THAT LOAN FUNDS WERE INVESTED BY THE ASSESSEE IN THE MANNER WHICH DID NOT PRODUCE ANY INCOME AND THEREFORE PART DISALLOWANCE OF INTEREST EXPENSE WAS WARRANTED. ON PERUSAL OF PARA-2 OF THE IMPUGNED ORDER, IT IS APPARENT THAT THE AO W AS WELL AWARE OF THE FACT THAT THE ASSESSEE HAD PROVIDED INTEREST-FREE ADVANCES TO REL ATED PARTIES TO THE ORDER OF RS.154.19 CRORES AND THE ASSESSEE HAD INCURRED FINA NCE COST OF RS.22.51 CRORES . THE AO HAD ALSO NOTED THE FACT THAT THE ASSESSEE HAD MA DE INVESTMENT IN SHARES AMOUNTING TO RS.12.43 CRORES. BOTH THESE INVESTMENT S HAD NOT PRODUCED ANY TAXABLE INCOME DURING F.Y.2011-12. HAVING TAKEN INTO ACCOUN T THESE FACTS & AFTER TAKING INTO ACCOUNT THE ASSESSEE'S SUBMISSIONS THE AO HAD DISAL LOWED RS.75.24 LACS OUT OF INTEREST PAID AS DISALLOWANCE U/S.14A OF THE ACT. 15. IN A NOTICE DATED 28.7.2014 ISSUED U/S.142(1) OF THE ACT, THE AO HAD DURING THE COURSE OF ASSESSMENT PROCEEDINGS, SPECIFICALLY REQU IRED THE ASSESSEE TO FURNISH ITS EXPLANATION WITH REGARD TO ALLOWABILITY OF INTEREST PAID ON BORROWINGS IN ITEM NO.21 OF THE SAID NOTICE. IN THE RECORD OF PROCEEDINGS BEFO RE THE AO IN RESPECT OF HEARINGS BEFORE THE AO ON 29.08.2014 & 04.09.2014, THE AO HA D SPECIFICALLY DIRECTED THE ASSESSEE TO SUBMIT EXPLANATION FOR DISALLOWANCE OF INTEREST RELATABLE TO NON- PRODUCTIVE INVESTMENT AND HAS RECORDED THE FACT IN THE HEARING CONDUCTED ON 04.09.2014 THAT THE ASSESSEE HAD FURNISHED HIS EXPL ANATION. 16. IT IS MATERIAL TO SUBMIT THAT AGAINST THE DISA LLOWANCE MADE BY THE AO OUT OF INTEREST PAID THE ASSESSEE HAD FILED APPEAL BEFORE THE CIT (A). THE CIT (A)-1KOLKATA VIDE HIS ORDER DATED 10.03.2016 IN APPEAL NO. 828/C IT(A)-1/C-2(1)/2014-15 AFTER CONSIDERING THE AO'S FINDING, DELETED THE INTEREST DISALLOWANCE MADE BY THE AO. THEREFORE THE ISSUE WITH REGARD TO ALLOWABILITY OF THE INTEREST PAID ON BORROWINGS MADE HAD MERGED IN THE ORDER OF THE CIT (A) AND THE REFORE IN TERMS OF CLAUSE (C) OF ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 11 THE EXPLANATION TO SEC. 263 REVISION PROCEEDINGS AR E NOT PERMISSIBLE WITH REGARD TO THE ISSUE WHICH WAS CONSIDERED AND DECIDED BY THE C IT (A) PRIOR TO INVOCATION OF SEC. 263 OF THE ACT. 17. THE ABOVE DISCUSSION WOULD SHOW THAT AS FAR AS DISALLOWANCE OF INTEREST EXPENSES U/S.14A OF THE ACT, THE AO HAS APPLIED RULE 8D(2)(I I) OF THE ACT AND DETERMINED THE DISALLOWANCE U/S.14A OF THE ACT. THE DISALLOWANCE U/S.14A OF THE ACT IN TERMS OF OTHER DIRECT EXPENSES CONTEMPLATED UNDER RULE 8D(2) (I) AND OTHER EXPENSES CONTEMPLATED UNDER RULE 8D(2)(III) HAS NEITHER BEEN CONSIDERED BY THE AO NOR EXPLAINED BY THE ASSESSEE. TO THIS EXTENT THERE WA S LACK OF ENQUIRY ON THE PART OF THE AO. AS WE HAVE ALREADY SEEN IN THE SHOW CAUSE NOT ICE U/S.263 OF THE ACT DATED 20.9.2016, THE CIT WAS OF THE VIEW THAT THE DISALLO WANCE U/S.14A OF THE ACT OUGHT TO HAVE BEEN 66% OF THE INTEREST EXPENSES CLAIMED BY T HE ASSESSEE AS AGAINST A SUM OF RS.75,24,000/- DISALLOWED BY THE AO. HOWEVER IN TH E ORDER PASSED U/S.14A OF THE ACT WHEN THE ASSESSEE POINTED OUT THAT INTEREST DIS ALLOWANCE U/S.14A OF THE ACT WAS ALREADY SUBJECT MATTER OF APPEAL FILED BY THE ASSE SSEE BEFORE CIT(A) AND THAT THE ORDER OF THE AO HAD MERGED WITH THE ORDER OF THE CI T(A) AND THEREFORE JURISDICTION U/S.263 OF THE ACT CANNOT BE INVOKED BY THE AO IN VIEW OF EXPLNATION (C ) TO SEC.263(1) OF THE ACT, THE CIT HAS TAKEN THE PLEA O F LACK OF FULL ENQUIRY ON APPLICABILITY OF SEC.14A OF THE ACT. IN THIS REGAR D IT IS SEEN THAT THE SHOW CAUSE NOTICE U/S.263 OF THE ACT ISSUED BY THE CIT WAS DATED 20.9 .2016. THE ASSESSEE HAD FILED HIS REPLY TO THE SAID SHOW CAUSE NOTICE ON 12.1.2017 AN D ON THE VERY SAME DATE, THE CIT HAD PASSED THE IMPUGNED ORDER. IT IS THUS CLEAR TH AT THE ASSESSEE WAS NOT PUT ON NOTICE THAT THE CIT INTENDS TO INVOKE JURISDICTION U/S.263 OF THE ACT ON THE GROUND OF LACK OF ENQUIRY BY THE AO. IT HAS BEEN HELD BY THE ITAT KO LKATA IN THE CASE OF DAMODAR VALLEY CORPORATION VS. DCIT (2016) 72 TAXMANN.COM 1 27 (KOLKATA-TRIB.) THAT THE CIT CAN PASS ORDER U/S.263 OF THE ACT ON A GROUND O THER THAN THE ONE SET OUT IN THE SHOW CAUSE NOTICE U/S.263 OF THE ACT. THE SAID POS ITION IN LAW WAS LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. AMITAB H BACHAN (SUPRA) BUT WITH A RIDER THAT THE ASSESSEE SHOULD BE GIVEN OPPORTUNITY OF THE INTENDED GROUND TO BE ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 12 INVOKED BY THE CIT. THE TRIBUNAL HELD THAT IN THE ABSENCE OF SUCH OPPORTUNITY BEING GIVEN, THE EXERCISE OF JURISDICTION U/S.263 OF THE ACT ON A GROUND DIFFERENT FROM THE GROUND SET OUT IN THE SHOW CAUSE NOTICE WAS BAD IN LAW AND SUCH ORDER U/S.263 OF THE ACT DESERVED TO BE QUASHED. 18. IN OUR OPINION, THE ISSUE WITH REGARD TO THE D ISALLOWANCE OF INTEREST U/S 14A OF THE ACT WAS THE SUBJECT MATTER OF THE APPEAL BY THE ASS ESSEE BEFORE CIT(A) AGAINST THE ORDER OF ASSESSMENT AND THE CIT HAD ALREADY DECIDED THE SAID ISSUE PRIOR TO THE IMPUGNED ORDER OF CIT AND THEREFORE THE CIT CANNOT EXERCISE JURISDICTION ON AN ISSUE WHICH IS ALREADY MERGED WITH THE ORDER OF CIT(A). THE DISALLOWANCE U/S.14A OF THE ACT IN TERMS OF OTHER DIRECT EXPENSES CONTEMPLATED UNDER RULE 8D(2)(I) AND OTHER EXPENSES CONTEMPLATED UNDER RULE 8D(2)(III) HAS NEI THER BEEN CONSIDERED BY THE AO NOR EXPLAINED BY THE ASSESSEE. TO THIS EXTENT THER E WAS LACK OF ENQUIRY ON THE PART OF THE AO. HOWEVER SHOW CAUSE NOTICE U/S.263 OF THE ACT DATED 20.9.2016, THE CIT WAS OF THE VIEW THAT THE DISALLOWANCE U/S.14A OF THE AC T OUGHT TO HAVE BEEN 66% OF THE INTEREST EXPENSES CLAIMED BY THE ASSESSEE AS AGAINS T A SUM OF RS.75,24,000/- DISALLOWED BY THE AO. HOWEVER IN THE ORDER PASSED U/S.14A OF THE ACT WHEN THE ASSESSEE POINTED OUT THAT INTEREST DISALLOWANCE U/S .14A OF THE ACT WAS ALREADY SUBJECT MATTER OF APPEAL FILED BY THE ASSESSEE BEFORE CIT( A) AND THAT THE ORDER OF THE AO HAD MERGED WITH THE ORDER OF THE CIT(A) AND THEREFORE J URISDICTION U/S.263 OF THE ACT CANNOT BE INVOKED BY THE AO IN VIEW OF EXPLANATION (C ) TO SEC.263(1) OF THE ACT, THE CIT HAS TAKEN THE PLEA OF LACK OF FULL ENQUIRY ON A PPLICABILITY OF SEC.14A OF THE ACT. IN THIS REGARD IT IS SEEN THAT THE SHOW CAUSE NOTIC E U/S.263 OF THE ACT ISSUED BY THE CIT WAS DATED 20.9.2016. THE ASSESSEE HAD FILED HIS RE PLY TO THE SAID SHOW CAUSE NOTICE ON 12.1.2017 AND ON THE VERY SAME DATE, THE CIT HAD PASSED THE IMPUGNED ORDER. IT IS THUS CLEAR THAT THE ASSESSEE WAS NOT PUT ON NOTICE THAT THE CIT INTENDS TO INVOKE JURISDICTION U/S.263 OF THE ACT ON THE GROUND OF LA CK OF ENQUIRY BY THE AO. THEREFORE EXERCISE OF JURISDICTION U/S 263 OF THE ACT ON THE ISSUE OF DISALLOWANCE U/S.14A OF THE ACT CANNOT BE SUSTAINED AND THE IMPUGNED ORDER TO T HIS EXTENT IS QUASHED. ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 13 19. THE NEXT ISSUE CONSIDERED BY CIT IN THE SHOW C AUSE NOTICE U/S 263 OF THE ACT DATED 20.09.2016 IS WITH REGARD TO COMPUTATION OF L ONG TERM CAPITAL GAIN OF RS.60.05 CRORES. ON THIS ISSUE THE ALLEGATION OF THE CIT IN THE SHOW CAUSE NOTICE IS THAT THE AO DID NOT CALL FOR ANY DETAILS OR DOCUMENTARY EVIDENC E WITH REGARD TO LONG TERM CAPITAL GAIN AND HE DID NOT EXAMINE ANYTHING ON THIS ASPECT . EXAMINATION OF THE RECORD REVEALS THAT IN THE NOTICE ISSUED U/S 142(1) THE AS SESSEE WAS REQUIRED TO PROVIDE COMPUTATION OF TOTAL INCOME AND THE SAME WAS FURNIS HED BEFORE THE AO. THE SAID COMPUTATION STATEMENT CONTAINED A DETAILED WORKING OF THE INCOME UNDER THE HEAD 'LONG TERM CAPITAL GAIN' ASSESSABLE IN A.Y. 2012- 1 3. IN THE PROCEEDINGS BEFORE THE AO VIDE RECORD OF PROCEEDINGS (ORDER-SHEET ENTRY) D ATED 04.09.2014, THE AO DIRECTED THE ASSESSEE TO SUBMIT DETAILS OF LTCG APPEARING IN THE COMPUTATION OF INCOME. THE ORDER-SHEET ENTRY DATED 08.09.2014 FURTHER SHOWS TH AT IN THE HEARING CONDUCTED ON THAT DATE, THE ASSESSEE HAD FILED DETAILS OF LTCG A ND ALSO FURNISHED RELATED VALUATION REPORT. THE SUPPORTING DOCUMENTS WITH REFERENCE TO LONG TERM CAPITAL GAIN ARE AVAILABLE AT PAGE 128 TO 135 OF THE ASSESSEES PAPE R BOOK. AT PAGES 128 TO 130 OF THE PAPER BOOK THE ASSESSEE HAS GIVEN COMPLETE HISTORY OF THE FACT GIVING RISE TO LONG TERM CAPITAL GAIN. PAGE 131 OF THE PAPER BOOK IS THE NOT IFICATION IN THE OFFICIAL GAZETTE BY GOVERNMENT OF WEST BENGAL INCREASING THE PERMISSION FEE FOR TRANSFER OF LEASE HOLD RIGHTS IN RESPECT OF LEASE GRANTED BY THE GOVERNMEN T OF WEST BENGAL. PAGE 133 IS THE STATEMENT OF EXPENSES INCURRED ON THE CAPITAL WORK IN PROGRESS FOR THE PERIOD UPTO 31.03.2011. PAGES 134 AND 135 ARE THE LETTER OF HAN DING OVER THE POSSESSION TO THE ASSESSEE BY GODREJ WATERSIDE PROPERTIES PVT. LTD., THE PERSON WHO CARRIED OUT THE DEVELOPMENT. PAGES 136 TO 155 IS THE REPORT OF THE VALUER IN SUPPORT OF THE LONG TERM CAPITAL GAIN IN THE LIGHT OF THE DOCUMENTARY EVIDEN CE FILED BY THE ASSESSEE IT CANNOT BE SAID THAT THERE WAS NO FAILURE ON THE PART OF AO TO MAKE PROPER AND ADEQUATE ENQUIRIES WITH REGARD TO THE COMPUTATION OF LONG TERM CAPITAL GAIN. THE EXERCISE OF JURISDICTION BY CIT ON THIS GROUND IS THEREFORE HELD TO BE UNSUS TAINABLE. 20. THE NEXT ISSUE FOR CONSIDERATION RAISED IN THE IMPUGNED ORDER IS NON EXAMINATION OF COMMISSION AND BROKERAGE OF RS.1,16,10,615/- EXP ENSES BY THE AO BEFORE ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 14 COMPLETING THE ASSESSMENT. ON THIS ASPECT THE RECOR DS REVEAL THAT IN THE COURSE OF ASSESSMENT THE ASSESSEE WAS CALLED UPON BY THE AO T O FURNISH EXTRACTS FROM LEDGER A/C OF ALL REVENUE EXPENSES DEBITED IN THE PROFIT & LOSS E] VIDE CLAUSE (28) OF THE NOTICE U/S 142(1) OF THE ACT. IN RESPONSE THE ASSES SEE HAD PROVIDED THE LEDGER A/ C OF REVENUE EXPENSES AMOUNTING TO RS.52,40,44,462/ - DE BITED TO THE PROFIT & LOSS A/C. THIS AMOUNT INTER-ALIA INCLUDED COMMISSION AND BROKERAGE OF RS.1,16,L0,615/-. WHILE EXPLAINING THE INCOME DISCLOSED UNDER THE HEA D LTCG THE ASSESSEE HAD EXPLAINED THAT IT HAD DEVELOPED LT. PARKS WHICH WER E ALSO OPERATED & MAINTAINED BY THE ASSESSEE. THE SPACES CONTAINED IN THE I T PARKS WERE COMMERCIALLY EXPLOITED IN 2 WAYS. THE DEVELOPED SPACES IN THE IT PARK WERE LEAS ED BY THE ASSESSEE EITHER ON SHORT TERM BASIS OR ON LONG TERM BASIS. WHERE THE ASSESSE E LEASED THE DEVELOPED SPACES ON MONTHLY LEASE BASIS, THE ASSESSEE EARNED MONTHLY LE ASE RENT & SERVICE CHARGES FOR OPERATING & MAINTAINING THE I T PARK. IN SUCH CASES , THE GROSS REVENUE EARNED CREDITED TO THE PROFIT & LOSS A/C IS ASSESSED UNDER THE HEAD 'PROFITS & GAINS OF BUSINESS'. BROKERAGE OR COMMISSION INCURRED IN CONNECTION WITH SECURING MONTHLY LESSEES WAS CONSIDERED REVENUE EXPENSE AND DEDUCTION THEREFORE WAS CLAIMED IN THE COMPUTATION OF INCOME. HOWEVER, IN CASES WHERE THE LESSEES ACQU IRED LONG LEASE OF THE CONSTRUCTED SPACES FOR PERIOD OF 99 YEARS AGAINST LUMP SUM LEAS E PREMIUM, SUCH TRANSACTIONS WERE CONSIDERED AS TRANSFER OF THE PROPERTY IN TERMS OF SEC. 269UA READ WITH SEC. 27 OF THE ACT. ACCORDINGLY TRANSFER OF THE LEASEHOLD RIGHTS I N THE BUILDING AGAINST RECEIPT OF LEASE PREMIUMS WAS CONSIDERED AS TRANSACTION IN CAP ITAL FIELD. IN SUCH CASES LEASE PREMIUM WAS REDUCED FROM THE OPENING OF THE WDV OF THE BLOCK OF THE BUILDING. SINCE THE TRANSACTION OF GRANTING LONG TERM LEASES WAS IN THE CAPITAL FIELD, BROKERAGE & COMMISSION EXPENSE INCURRED IN CONNECTION WITH LONG TERM LEASE TRANSACTION WAS CONSIDERED AS CAPITAL EXPENSE & DEDUCTION THEREFORE WAS NOT CLAIMED. BROKERAGE & COMMISSION PAID ON LONG TERM LEASES WERE DEDUCTED F ROM THE GROSS LUMP SUM LEASE PREMIUM RECEIVED FROM THE LESSEES AND ONLY NET PREM IUM AMOUNT WAS REDUCED FROM THE OPENING WDV OF THE BUILDING BLOCK. IT IS PERTIN ENT TO SUBMIT THAT THIS METHOD OF BIFURCATING EXPENSES HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE FOR THE PAST SEVERAL YEARS AND THE SAME HAS BEEN ACCEPTED BY THE REVENUE AUTHORITIES IN ALL THE ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 15 PAST ASSESSMENTS. IN THE COURSE OF ASSESSMENT FOR T HE A.Y. 2012-13, THE ASSESSEE HAD FURNISHED FULL PARTICULARS OF SUCH BROKERAGE & COMM ISSION PAID BEFORE THE AO. IN THE DETAILS FURNISHED THE ASSESSEE HAD CLEARLY BIFURCAT ED THE COMMISSION & BROKERAGE WHICH WAS PAID FOR TRANSFER BY WAY OF LONG TERM LEA SEHOLD INTEREST IN THE BUILDING SPACE AMOUNTING TO RS.67,97,440 / - AND WHICH WAS C ONSIDERED TO BE CAPITAL EXPENSE AND FOR WHICH NO DEDUCTION WAS CLAIMED. MOREOVER, S INCE THE METHOD OF CLAIMING THE DEDUCTION FOR BROKERAGE PAID WAS SAME AND IDENTICAL IN THE PAST AND THE SAME WAS ALWAYS ACCEPTED IN THE PAST ASSESSMENTS, IT IS INCO RRECT TO STATE THAT THE AO DID NOT QUESTION OR EXAMINE THIS ISSUE PRIOR TO COMPLETION OF ASSESSMENT. THEREFORE THE ASSESSMENT ORDER FOR THE A.Y. 2012-13 CANNOT BE CON SIDERED TO BE ERRONEOUS. 21. THE EVIDENCE FILED BY THE ASSESSEE IN THE COUR SE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WERE DETAILS WITH REGARD TO BROKERAGE AND COMMISSION NAMELY COPY OF LEDGER OF REVENUE EXPENDITURE AT PAGE 156 OF THE PA PER BOOK, DETAILS OF BROKERAGE AND COMMISSION PAID DURING THE YEAR ENDED 31.03.2012 AT PAGE 157 OF THE PAPER BOOK, DETAILS OF LEGAL FEES PAID FOR THE YEAR ENDED 31.03 .2012 AT PAGE 158 OF THE PAPER BOOK. IN THE LIGHT OF THE EVIDENCE FILED AS ABOVE IT CANN OT BE SAID THAT THERE IS ANY FAILURE ON THE PART OF THE AO TO MAKE ADEQUATE AND PROPER ENQU IRIES BEFORE COMPLETING THE ASSESSMENT ON THE AFORESAID ISSUE. EXERCISE OF JURI SDICTION ON THIS ISSUE IS THEREFORE HELD TO BE NOT SUSTAINABLE AND THE ORDER U/S.263 OF THE ACT TO THIS EXTENT IS QUASHED. 22. THE LAST ISSUE SET OUT IN THE SHOW CAUSE NOTIC E U/S 263 OF THE ACT IS WITH REGARD TO DEPRECIATION ON UNSOLD BUILDING WRONGLY ALLOWED BY THE AO. ON THIS ASPECT THE FOLLOWING ASPECTS ARE NOTICED FROM PERUSAL OF THE R ECORD. WE HAVE ALREADY SEEN THAT THE ASSESSEE IS IN THE BUSINESS OF DEVELOPING IT PA RK AND EITHER SELLING THE SPACE SO DEVELOPED OR GIVING IT ON LEASE WITH ALL AMENITIES FOR OPERATING A SOFTWARE DEVELOPMENT BUSINESS. THE 'IT PARK BUILDINGS' CONS TRUCTED AND DEVELOPED BY THE ASSESSEE IS ALWAYS HELD AND ACCORDINGLY DISCLOSED I N THE ASSESSEE'S BOOKS AS 'FIXED ASSETS' AND NOT AS 'STOCK-IN-TRADE' AS ALLEGED IN T HE SHOW CAUSE NOTICE. ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 16 23. IT IS ALSO SEEN FROM THE ASSESSEES ASSESSMENT RECORDS FOR AYS 2002-03 AND ONWARDS THE BLOCK OF 'IT PARK BUILDINGS' CAME INTO BEING AND GOT RECOGNIZED FOR TAX PURPOSES FOR THE FIRST TIME IN AY 2002-03 WHEN FIRS T PHASE OF ASSESSEE'S PROJECT KNOWN AS 'INFINITY THINK TANK' GOT COMPLETED. IN TH E ASSESSMENT FOR THE YEAR UNDER CONSIDERATION AS ALSO FOR THE EARLIER YEARS, THE NA TURE OF ASSESSEE'S BUSINESS IS CONSIDERED AS 'DEVELOPMENT OF SOFTWARE TECHNOLOGY P ARKS AND RELATED INFRASTRUCTURE FACILITIES FOR IT, ITES, ELECTRONICS ETC'. FOR THE PURPOSES OF CARRYING ON THIS BUSINESS THE ASSESSEE HAD OBTAINED ON LONG TERM LEASE BASIS PLOTS OF LAND IN SECTOR V, SALT LAKE CITY FROM WEBEL A GOVT. OF WEST BENGAL UNDERTAKING, AFTER THE ASSESSEE OBTAINED THE LEASE HOLD RIGHTS IN THE LANDS THE ASSESSEE DEV ELOPED ITS FIRST INFORMATION TECHNOLOGY PARK BUILDING KNOWN AS INFINITY THINK TA NK AT PLOT NO, A3, BLOCK GP, SECTOR V, SALT LAKE CITY, KOLKATA. THE DEVELOPMENT AND CONSTRUCTION OF THE SAID IT PARK BUILDING WAS COMPLETED IN 2 PHASES. THE FIRST PHASE OF THE CONSTRUCTION COMPRISING OF TOWER I WAS COMPLETED ILL AY 2002-03 AND 2ND PHASE COMPRISING OF TOWER II WAS COMPLETED IN AY 2006-07. BESIDES COMPL ETING DEVELOPMENT OF THE SAID BUILDING THE ASSESSEE CONTINUED TO OPERATE AND MAIN TAIN THE SAID BUILDING AS INFORMATION TECHNOLOGY PARK AND DERIVE INCOME FROM LEASE RENT AND SERVICE CHARGES WHICH IS ASSESSED UNDER THE HEAD PROFITS & GAINS OF BUSINESS. THE SAID IT PARK WAS APPROVED BY THE CBDT AS AN INDUSTRIAL PARK FOR THE PURPOSE OF SEC 80IA(4) OF THE ACT. 24. THE ASSESSEE SIMILARLY DEVELOPED ANOTHER IT PA RK BUILDING KNOWN AS INFINITY BENCHMARK SITUATED AT PLOT G 1, BLOCK- EP&GP, SECTO R V, SALT LAKE CITY, KOLKATA. THE DEVELOPMENT AND CONSTRUCTION OF THIS IT PARK GO T COMPLETED IN FY 2008-09 RELEVANT TO AY 2009-10. THE SAID IT PARK BUILDING W AS ALSO APPROVED BY THE CBDT U/S 80IA(4) OF THE ACT. THE SAID I T PARK WAS ALSO .BEING OPERATED AND MAINTAINED BY THE ASSESSEE DURING AY 2012-13 AND INCOME IN THE FO RM OF LEASE RENT AND SERVICE CHARGES WAS ASSESSED AS OUR BUSINESS INCOME. THESE IT PARKS COMPRISED CONSTRUCTED SPACES WHICH WERE USED FOR CARRYING ON IT ITES BUSI NESSES. SOME PARTS OF THESE BUILDINGS WERE LEASED BY THE ASSESSEE ON LONG TERM BASIS AFTER COLLECTING LUMP SUM ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 17 LEASE PREMIUM FROM THE LESSEES. HOWEVER MAJORITY PO RTION OF THE CONSTRUCTED SPACES IN THESE IT PARKS WERE LEASED OUT BY THE ASSESSEE O N SHORT TERM BASIS TO NUMEROUS LESSEES WHO PAY MONTHLY LEASE RENT FOR USE OF OFFIC E SPACE. BESIDES PAYING MONTHLY LEASE RENT, SERVICE CHARGES ARE ALSO PAID BY ALL TH E OCCUPANTS FOR USE OF THE FACILITIES AS ALSO FOR OPERATION AND MAINTENANCE OF THE IT PARK. THE LEASE RENT, MAINTENANCE/ SERVICE CHARGES RECOVERED FROM THE LESSEES AND OCCU PANTS ARE ASSESSED IN OUR ASSESSMENT UNDER THE HEAD 'BUSINESS'. THE IT PARKS DEVELOPED AND CONSTRUCTED BY THE ASSESSEE NOT ONLY CONTAIN CIVIL STRUCTURE OF THE BU ILDING BUT SUBSTANTIAL COSTS ARE INCURRED BY THE ASSESSEE ON INSTALLATION AND COMMIS SIONING OF SOPHISTICATED PLANTS, EQUIPMENTS AND ELECTRICAL APPARATUS ETC SO AS TO MA KE THE BUILDINGS FIT FOR CARRYING ON SPECIALIZED INFORMATION TECHNOLOGY BASED BUSINESSES AND ENTERPRISES. THE COSTS INCURRED BY THE ASSESSEE ON DEVELOPMENT AND CONSTRU CTION OF IT PARKS WERE ALWAYS CAPITALIZED IN THE ASSESSEE'S BOOKS ARID SHOWN IN T HE AUDITED ANNUAL ACCOUNTS AS AND BY WAY OF 'FIXED ASSETS' AND NOT AS 'CURRENT ASSE TS' OR 'STOCK-IN-TRADE' AS ALLEGED IN SHOW CAUSE NOTICE DATED 20.9.2016 U/S.263 OF THE ACT. BY USING THESE FIXED ASSETS THE ASSESSEE REGULARLY EARNS INCOME IN THE FORM OF LEASE RENT AND SERVICE CHARGES. SINCE COMMENCEMENT OF OPERATIONS OF THE IT PARKS IN AY 2002-03 AND ONWARDS THE INCOME SO DERIVED FROM COMMERCIAL EXPLOITATION OF I T PARKS HAS BEEN ASSESSED BY THE AOS UNDER THE HEAD 'PROFITS & GAINS OF BUSINESS'. S INCE SUCH BUSINESS INCOME IS EARNED BY THE ASSESSEE BY USE OF THE 'IT PARK' OWNE D AND DEVELOPED BY THE ASSESSEE, IN TERMS OF SECTION 32 OF THE I T ACT, DEPRECIATION ON THE ACTUAL COST/ WDV OF THE DEPRECIABLE ASSETS COMPRISED IN THE IT PARK HAS ALW AYS BEEN ALLOWED IN THE ORDERS PASSED U/S 143(3) OF THE ACT. 25. IT IS ALSO SEEN THAT IN THE INCOME TAX ASSESS MENTS OF THE ASSESSEE FOR AYS 2002- 03 & 2003-04 WERE COMPLETED U/S 143(1). THE ASSESSM ENTS FOR THE AYS 2004-05 AND ONWARDS WERE HOWEVER COMPLETED U/S 143(3) OF THE AC T. WHILE COMPLETING THE ASSESSMENTS U/S 143(3) OF THE ACT, THE AOS HAVE CON SISTENTLY ALLOWED DEDUCTION FOR DEPRECIATION U/S 32 ON THE WDV OF THE BLOCK OF FIXE D ASSETS COMPRISED IN THE IT PARK -INCLUDING WDV OF THE BUILDINGS. DEDUCTION FOR DEPR ECIATION WAS ALLOWED IN THE ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 18 ORDERS FOR AY S 2004-05 & 2005-06 AFTER DISCUSSION. IN THESE YEARS THERE WERE DISPUTES WITH REGARD TO THE MANNER OF CALCULATION O F THE DEPRECIATION ALLOWABLE BUT THE AO NEVER DISPUTED THE FACT THAT THE IT PARK BUILDIN G AND PLANT & MACHINERIES INSTALLED THEREIN CONSTITUTED ASSESSEE'S 'FIXED ASSETS' ELIGI BLE FOR DEPRECIATION. IN THE ASSESSMENTS OF THESE YEARS, NO CASE WAS EVER MADE B Y THE REVENUE THAT DEPRECIATION WAS NOT PERMISSIBLE BECAUSE THE BUILDING WAS OUR TR ADING STOCK. THE ONLY DISPUTE WHICH THE AO RAISED, RELATED TO THE MANNER IN WHICH THE QUANTUM OF THE DEPRECIATION WAS TO BE ALLOWED. ON APPEAL THE ASSESSEE'S MANNER OF COMPUTATION OF DEPRECIATION ON FIXED ASSETS WAS ALLOWED BY THE CIT(A) AND BY TH E ITAT IN AYS 2004-05 & 2005- 06 RESPECTIVELY. 26. THE DISPUTE WITH REGARD TO THE CHARACTER OF TH E IT PARK BUILDING WAS AGAIN RAISED BY THE AO WHILE FAMING THE ASSESSMENT ORDER FOR THE AY 2007 -08. IN THE RETURN FILED FOR AY 2007-08 THE ASSESSEE HAD CLAIMED DEPRECIATI ON OF RS.4,17,62,205/- RESPECT OF ASSESSEE'S. IT PARK BEING INFINITY THINK TANK, TOWE RS I & 11. THE AO NOTED THAT DURING FY 2006-07 ASSESSEE GRANTED LONG TERM LEASE OF 6872 SQ. FT OF THE DEVELOPED SPACE AGAINST LUMP SUM LEASE PREMIUM OF RS. 2,40,95 ,000/-. BESIDES THE ASSESSEE RECEIVED REFUNDABLE DEPOSIT OF RS. 86,74,200/-. IN AO'S OPINION BOTH THE SUMS TOTALLING RS.3,27,69,200 WERE IN THE NATURE OF LEAS E PREMIUM AND THEREFORE HE CONSIDERED IT AS THE CONSIDERATION RECEIVED FOR GRA NTING LONG TERM LEASE. THE AO FURTHER NOTED THAT FOR THE PURPOSE OF COMPUTING DEP RECIATION ALLOWANCE ASSESSEE HAD REDUCED LEASE PREMIUM OF RS. 2,40,95,000/ - FROM TH E OPENING WDV OF THE BUILDING BLOCK AND ON THE REDUCED WDV DEPRECIATION WAS CLAIM ED. IN AO'S OPINION HOWEVER THE ASSESSEE SHOULD HAVE OFFERED 'SHORT TERM CAPITA L GAIN' ON GRANT OF LONG TERM LEASE OF 6972 SQ.FT OF OFFICE SPACE AFTER DEDUCTING PROPO RTIONATE WDV OF THE OFFICE SPACE. THE AO COMPUTED THE PRORATE WDV OF THE BUILDING ATT RIBUTABLE TO 6972 SQ.FT. AT RE.L, 77,42,577 / -. DEDUCTING SUCH PRORATA WDV OF THE BU ILDING BLOCK FROM THE GROSS LUMP SUM PREMIUM OF RS.3,27,69,200 / - (24095000 + 86742 00) THE AO ASSESSED RS.L,50,26,623/- AS ASSESSEE'S 'SHORT TERM CAPITAL GAIN'. EVEN THOUGH THE AO ASSESSED PRO RATA INCOME ON TRANSFER OF LONG TERM L EASE OF 6972 SQ.FT. OF CONSTRUCTED ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 19 SPACE UNDER THE HEAD CAPITAL GAIN HE DID NOT OUT RI GHTLY REJECT ASSESSEES DEPRECIATION CLAIM FOR THE REMAINING/UNSOLD IT PARK SPACE LEASED ON SHORT TERM BASIS TO OTHER LESSEES ON THE GROUND THAT THE IT PARK BUILDING WAS ASSESSEE'S TRADING STOCK AND NOT A DEPRECIABLE ASSET. 27. AGAINST THE ASSESSMENT ORDER FOR THE AY 2007-08 THE MATTER WAS TAKEN IN APPEAL. THE CIT(A) DELETED BOTH THE ADDITIONS MADE IN THE A SSESSMENT ORDER. THE CIT(A) IN THE FIRST INSTANCE HELD THAT REFUNDABLE DEPOSIT OF RS.86,74,200/ - REPRESENTED ASSESSEE'S LIABILITY AND COULD NOT BE TAKEN INTO ACCOUNT FOR D ETERMINATION OF THE INCOME OF THE ASSESSEE. AS REGARDS THE ASSESSMENT OF SHORT TERM C APITAL GAIN COMPUTED ON PRORATA BASIS, THE CIT(A) UPHELD ASSESSEE'S PLEA THAT THE P ROVISIONS OF SEC 50 WERE APPLICABLE ONLY WHEN SALE PROCEEDS EXCEEDED WDV OF THE BLOCK OF DEPRECIABLE ASSET AND NOT WHEN THE WDV OF ANY BLOCK WAS POSITIVE. THE RELEVAN T FINDING OF THE CIT(A) FOR AY 2007 -08 WERE AS FOLLOWS: PROVISIONS OF SECTION 50 OF THE INCOME TAX ACT, 19 61 ARE SPECIFIC AND UNDISPUTEDLY APPLICABLE IN THIS CASE. THE ASSESSING OFFICER HAS HIMSELF STATED IN THE ORDER THAT THE CAPITAL ASSET IN QUESTION IS A D EPRECIABLE ASSET. I, THEREFORE, AGREE WITH THE A/ R THAT IF PROVISION OF SECTION 50 OF THE INCOME TAX ACT. 1961 ARE APPLIED (WHICH IN THIS CASE IS APPLICABLE) THER E WILL BE NO AMOUNT OF CAPITAL GAIN CHARGEABLE TO TAX AS COMPUTED BY THE ASSESSING OFFICER. ' 28. THUS IN THE APPELLATE ORDER FOR AY 2007-08 THE CIT(A) SPECIFICALLY DEALT WITH THE NATURE AND CHARACTER OF THE IT PARK BUILDING AND HELD IT TO BE 'DEPRECIABLE ASSET' WHOSE WDV HAD TO BE DEALT WITH IN ACCORDANCE WITH P ROVISIONS OF SEC 43(6) AND SEC 50 OF THE I T ACT. SINCE THE CIT(A) FOUND THAT ONLY A PART OF THE DEPRECIABLE BLOCK WAS TRANSFERRED BY THE ASSESSEE AND THE PROCEEDS REALIZ ED ON SUCH TRANSFER DID NOT EXCEED THE OPENING WDV OF THE BUILDING BLOCK, SEC 50 WAS N OT APPLICABLE. EVEN THOUGH THE CIT(A) ALLOWED THE RELIEF BY DELETING THE ADDITION MADE ON ACCOUNT OF PRORATA COMPUTATION OF SHORT TERM CAPITAL GAIN THE COMMISSI ONER OF INCOME TAX DID NOT RECOMMEND FILING OF SECOND APPEAL AGAINST CIT(A)'S SAID FINDING. IT WILL THEREFORE BE APPRECIATED THAT IN THE AY 2007-08 THE ADMINISTRATI VE CIT IN PRINCIPLE ACCEPTED THAT THE ASSESSEE'S IT PARK BUILDING WAS ITS 'DEPRECIABL E ASSET. THE CIT HOWEVER RECOMMENDED THE APPEAL AGAINST THE RELIEF ALLOWED B Y THE CIT(A) IN RESPECT OF ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 20 REFUNDABLE DEPOSIT OF RS. 86,74,200/ - WHICH THE CI T(A) HELD TO BE ASSESSEE'S LIABILITY. WHILE DECIDING THE REVENUE'S APPEAL THE ITAT CONSIDERED THE ASSESSEE'S TRANSACTIONS WITH THE LESSEE IN ITS ENTIRETY AND RE CORDED THE FOLLOWING FINDING. WE AGREE WITH THE LD. A/ R THAT IF THE D/ RS CONTEN TION IS ACCEPTED IN THAT CASE THE WDV ATTRIBUTABLE TO THE PORTIONS SUB-LEASED BY THE ASSESSEE WILL BE AFFECTED BUT CIT(A) HAS DIRECTED THE AO TO REDUCE THE SALE P ROCEEDS OF RS.2,49,95,000/- OUT OF OPENING WDV OF RS.32,60, 17,820/- WHICH WAS BROUGHT FORWARD FROM EARLIER YEARS. IT IS A FACT THAT THE DEPARTMENT HAS NOT DISPUTED THE SAID PART OF ORDER OF CIT(A). IT IS NOT IN DISPUTE THAT SPACE CO NSTRUCTED BY THE ASSESSEE IN THE SAID TOWERS HAS BEEN CONSIDERED AS BLOCK OF ASSETS IN RESPECT OF WHICH DEPRECIATION HAS BEEN ALLOWED TO ASSESSEE IN THE PA ST ASSESSMENT YEARS'. 29. THUS IN AY 2007-08 THE CIT(A) AND THE ITAT CON CURRENTLY CONSIDERED THE NATURE AND CHARACTER OF THE IT PARK BUILDING AND HELD THE SAME DEPRECIABLE ASSET ON WHICH DEPRECIATION WAS ALLOWED. THE ORDERS OF THE AND ITA T FOR THE AY 2007-08 BECAME FINAL. 30. THE IT PARK BUILDINGS IN RESPECT OF WHICH DEPR ECIATION WAS CLAIMED AND ALLOWED IN THE ORDER FOR AYS 2012-13 WERE BROUGHT FORWARD F ROM EARLIER YEARS. IN THE REGULAR ASSESSMENTS U/S 143(3) PASSED FOR ALL THE EARLIER Y EARS DEPRECIATION ALLOWANCE U/S 32 ON ACTUAL COST/WDV OF THE BLOCK OF THE IT PARK BUIL DING AS ALSO ON THE PLANT & MACHINERIES AND FIXTURES INSTALLED THEREIN HAVE ALW AYS BEEN ALLOWED ON THE FOOTING THAT THESE ASSETS WERE 'FIXED ASSETS OF THE ASSESS EE'S BUSINESS. IN THE AUDITED ACCOUNTS OF THE ASSESSEE IT PARK BUILDING AS ALSO THE PLANT & MACHINERIES INSTALLED THEREIN HAVE BEEN CAPITALIZED. IN THE BALANCE SHEET THE IT PARK BUILDING AS ALSO THE PLANT AND MACHINERY, FIXTURES INSTALLED THEREIN HAVE ALWAYS B EEN SHOWN UNDER THE HEAD FIXED ASSETS'. AT NO POINT IN TIME IN THE PAST, ANY OF TH E IT PARK BUILDINGS WERE SHOWN IN THE ASSESSEE'S BOOKS AS FORMING PART OF THE CIRCULA TING CAPITAL OR TRADING STOCK OR AS CURRENT ASSETS, IN ALL THE PAST ASSESSMENTS BEGINNI NG FROM AYS 2002-03 AND ONWARDS THE AOS HAVE ALWAYS CONSIDERED AND TREATED THE IT P ARK BUILDINGS, PLANT & MACHINERIES, FIXTURES SITUATED THEREIN TO BE PART O F THE BLOCK OF DEPRECIABLE ASSETS AND ACCORDINGLY THE DEPRECIATION HAS ALWAYS BEEN ALLOWE D U/S 32. IN VIEW OF THE CONSISTENT ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 21 STAND TAKEN BY THE DEPARTMENT, THE ACTION OF THE CI T IN AY 2012-13 SEEKING TO CLAIM THAT DEPRECIATION WAS WRONGLY ALLOWED ON THE FOOTIN G THAT IT PARK BUILDING WAS ASSESSEES TRADING STOCK AND NOT FIXED ASSET CANNOT BE SUSTAINED. 31. IN THE LIGHT OF THE ABOVE SUBMISSIONS WE ARE O F THE FOLLOWING VIEW THAT THE ASSESSEE IS IN THE BUSINESS OF DEVELOPING, OPERATIN G & MAINTAINING IT PARKS WHICH ARE SITUATED IN SEC-V, SALTLAKE, KOLKATA. THE PARKS WER E ALSO APPROVED BY THE CBDT UNDER SECTION 80IA(4) UNDER INDUSTRIAL PARKS SCHEM E. THE IT PARKS WHICH ARE OPERATED & MAINTAINED BY THE ASSESSEE ARE SUBSTANT IALLY LEASED ON SHORT-TERM BASIS. HOWEVER SOME OF THE SPACES A TRANSFERRED ON LONG TE RM BASIS AND THE PREMIUM CHARGED IS RECOGNIZED AS 'SALE'. SINCE THE INITIAL YEAR OF OPERATION OF IT PARKS, THE COST OF DEVELOPING IT PARKS HAS ALWAYS BEEN DISCLO SED IN THE BOOKS AS 'FIXED ASSETS' AND IS NEVER CONSIDERED OR REGARDED EITHER BY THE ASSESSEE OR BY THE DEPARTMENT TO BE PART OF 'TRADING STOCK'. SINCE FIRST YEAR OF OPERAT ION I.E. A.Y. 2002-03, THE ASSESSEE HAS BEEN CLAIMING AND THE DEPARTMENT IS ALLOWING DE PRECIATION ON THE ACTUAL COST / WDV OF THE FIXED ASSETS' COMPRISED IN IT PARKS, I. E., BUILDING, P&M AND FIXTURES. THIS IS EVIDENT FROM THE ASSESSMENT ORDERS FROM AY 2004-05 AND ONWARDS [SEE PAGES 161 TO 164 OF PB]. AS SUCH THE CIT'S NOTICE PROCEED ON INCORRECT ASSUMPTION WITH REGARD TO THE CHARACTER AND NATURE OF THE IT PARK B UILDING WHICH HE ERRONEOUSLY CONSIDERED TO BE 'TRADING STOCK'. THE CIT THEREFORE COULD NOT PROCEED U/S 263 BY ASSUMING INCORRECT FACTS WHICH ARE NOT BORNE OUT FR OM RECORDS. IT IS ALSO NOTICED THAT ON SAME INCORRECT ASSUMPTION OF FACTS, THE CIT FOR AYS 2007-08 & 20. 11 HAD SIMILARLY REVISED THE ASSESSMENT ORDERS U/S 263 WHI CH WAS CANCELLED BY THE ITAT BY ITS ORDER DATED 9.6.2015 IN ITA NO. 413 & 414/KOL/2 015 FOR AY 2007-08 & 2010- 11.[SEE PAGES 282 TO 288 OF PB]. NO REVISION OR R EASSESSMENT PROCEEDINGS HAVE BEEN TAKEN FOR ANY OTHER YEARS. IN THE LIGHT OF TH E AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE, IT CANNOT BE SAID THAT THE CLAIM OF DEPRE CIATION WAS MADE ON TRADING STOCK BY THE ASSESSEE. THEREFORE EXERCISE OF JURISDICTION U /S 263 OF THE ACT ON THIS ISSUE CANNOT BE SUSTAINED AND THE IMPUGNED ORDER TO THIS EXTENT IS QUASHED. ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 22 32. IN RESPECT OF OTHER ITEMS SET OUT IN THE SHOW CAUSE NOTICE U/S 263 OF THE ACT WHERE THERE WAS NO ALLEGATION THAT THERE WAS FAILURE ON T HE PART OF THE AO TO MAKE AND PROPER ENQUIRIES BEFORE COMPLETING THE ASSESSMENT, THE CIT IN THE IMPUGNED ORDER HAS HELD THAT THE ORDER OF THE AO ON THOSE ITEMS WERE ALSO L IABLE TO BE SET ASIDE ON THAT GROUND HOLDING THAT ORDER OF THE AO WAS ERRONEOUS AND PREJ UDICIAL TO THE INTEREST OF THE REVENUE. IN THIS REGARD IT IS SEEN THAT THE SHOW CA USE NOTICE U/S.263 OF THE ACT ISSUED BY THE CIT WAS DATED 20.9.2016. THE ASSESSEE HAD F ILED HIS REPLY TO THE SAID SHOW CAUSE NOTICE ON 12.1.2017 AND ON THE VERY SAME DATE , THE CIT HAD PASSED THE IMPUGNED ORDER. IT IS THUS CLEAR THAT THE ASSESSEE WAS NOT PUT ON NOTICE THAT THE CIT INTENDS TO INVOKE JURISDICTION U/S.263 OF THE ACT O N THE GROUND OF LACK OF ENQUIRY BY THE AO. IT IS ALSO SEEN THAT WHEN CITS SPECIFIC O BJECTION IN THE SHOW CAUSE NOTICE U/S 263 OF THE ACT ON ISSUES OTHER THAN THE ISSUES ON W HICH THE CIT IN HIS SHOW CAUSE NOTICE HAS ALLEGED LACK OF ENQUIRY ON THE PART OF T HE AO, THE ASSESSEE HAS GIVEN HIS EXPLANATION AS TO HOW ON THOSE ISSUES THE ORDER OF THE AO WAS NOT ERRONEOUS. THE CIT BEFORE EXERCISING JURISDICTION U/S.263 OF THE A CT BY SETTING ASIDE THE ORDER OF THE AO, OUGHT TO HAVE GIVEN HIS OWN SPECIFIC FINDING ON THOSE OBJECTIONS AND WITHOUT DOING SO, THE CIT CANNOT EXERCISE JURISDICTION U/S 263 OF THE ACT. THE HONBLE DELHI HIGH COURT IN THE CASE OF ITO VS. D.G.HOUSING PROJE CTS LTD. (SUPRA) HAS TAKEN THE VIEW THAT W HILE THE AO IS BOTH AN INVESTIGATOR AND AN ADJUDICA TOR, A DISTINCTION HAS TO BE DRAWN BETWEEN A CASE WHERE THE AO HAS NOT CONDUC TED ANY ENQUIRY OR EXAMINED ANY EVIDENCE WHATSOEVER (LACK OF INQUIRY) FROM ON E (I) WHERE THERE IS ENQUIRY BUT THE FINDINGS ARE ERRONEOUS; AND (II) WHERE THERE IS FAILURE TO MAKE PROPER OR FULL VERIFICATION OR ENQUIRY (INADEQUATE INQUIRY). THE FACT THAT THE ASSESSMENT ORDER DOES NOT GIVE ANY REASONS FOR ALLOWING THE CLAIM IS NOT BY ITSELF INDICATIVE OF THE FACT THAT THE AO HAS NOT APPLIED HIS MIND ON THE ISSUE. ALL THE CIRCUMSTANCES HAVE TO BE SEEN . A CASE OF LACK OF ENQUIRY WOULD BY ITSELF RENDER THE ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN A CA SE WHERE THERE IS INQUIRY BY THE AO, EVEN IF INADEQUATE, THE CIT WOULD NOT BE ENTITLED T O REVISE U/S 263 ON THE GROUND THAT HE HAS A DIFFERENT OPINION IN THE MATTER. ALSO, IN A CASE WHERE THE AO HAS FORMED A WRONG OPINION OR FINDING ON MERITS, THE CIT HAS TO COME TO THE CONCLUSION AND ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 23 HIMSELF DECIDE THAT THE ORDER IS ERRONEOUS, BY COND UCTING NECESSARY ENQUIRY BEFORE PASSING THE S. 263 ORDER. THE CIT IS ENTITL ED TO COLLECT NEW MATERIAL TO SHOW HOW THE ORDER OF THE AO IS ERRONEOUS. THE CIT CANNOT REMAND THE MATTER TO THE AO FOR FURTHER ENQUIRIES OR TO DECIDE WHETHER T HE FINDINGS RECORDED ARE ERRONEOUS WITHOUT A FINDING THAT THE ORDER IS ERRON EOUS AND HOW THAT IS SO . A MERE REMAND TO THE AO IMPLIES THAT THE CIT HAS NOT DECIDED WHETHER THE ORDER IS ERRONEOUS BUT HAS DIRECTED THE AO TO DECIDE THE ASP ECT WHICH IS NOT PERMISSIBLE. ON FACTS, AS THE CIT HAD DOUBTS ABOUT THE VALUATION AN D SALE CONSIDERATION RECEIVED, HE OUGHT TO HAVE EXAMINED THE SAID ASPECT HIMSELF AND GIVEN A FINDING ON THE MERITS ON HOW THE CONSIDERATION WAS UNDERSTATED. 33. IN THE FOLLOWING CASES, SIMILAR PROPOSITION HA S LAID DOWN BY HONBLE HIGH COURTS AS WELL AS VARIOUS BENCHES OF ITAT :- - DIT VS JYOTI FOUNDATION (357ITR 388) (BOM HC) - CIT VS LEISURE WAR EXPORTS LTD (3411TR 166) (DEL HC) - C.S.E. LTD VS CIT (ITA NO. 268/K/15) (ITAT KOL) - CRISIL LTD VS ADDL.CIT (142 TIK 62) (ITAT MUM) 34. WE THEREFORE AGREE WITH THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT WHEN CITS SPECIFIC OBJECTION IN THE SHOW CAUS E NOTICE U/S 263 OF THE ACT WAS MET WITH ADEQUATE EXPLANATION HE OUGHT TO HAVE GIVE N HIS OWN SPECIFIC FINDING ON THOSE OBJECTIONS AND WITHOUT DOING SO, THE CIT CANN OT EXERCISE JURISDICTION U/S 263 OF THE ACT. EVEN ON THIS GROUND THE ORDER U/S.263 OF THE ACT, IN SO FAR IT CONCERNS, ISSUES OTHER THAN THE ISSUES FOR WHICH THE ALLEGATION IN T HE SHOW CAUSE NOTICE WAS LACK OF ENQUIRY ON THE PART OF THE AO BEFORE CONCLUDING THE ASSESSMENT RENDERING THE ORDER OF THE AO ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 35. FOR THE REASONS GIVEN ABOVE WE ARE OF THE VIEW THAT JURISDICTION U/S 263 OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE WAS NOT PROPER. ACCORDINGLY ORDER U/S 263 OF THE ACT IS QUASHED AND THE APPEAL OF THE ASSESSE E IS ALLOWED. ITA NO.329/KOL/2017 INFINITY INFOTECH PARKS LTD A.Y .2012-13 24 36. IN THE RESULT THE APPEAL BY THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE COURT ON 0 2.06.2017. SD/- SD/- [WASEEM AHMED] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 02.06.2017. [RG PS] COPY OF THE ORDER FORWARDED TO: 1. INFINITY INFOTECH PARKS LTD., PLOT A-3,BLOCK-GP, SECTOR-V, SALT LAKE ELECTRONIC COMPLEX, KOLKATA-700091. 2. D.C.I.T., CIRCLE-2(1), KOLKATA. 3. CIT-I, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY HEAD OF OFFIC E/ D.D.O. ITAT, KOLKATA BENCHES
