ESCHMANN TEXTURES INDIA P.LTD, MUMBAI V. ITO WD 9(1)(3), MUMBAI

ITA 3616/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7564 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 05-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Assessee Lawyers: R I CHOKSEY
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Revision of order; Depreciation; Difference of opinion; Change of opinion
• Section: 143(3); 50C; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E BENCH BEFORE SHRI B.RAMA KOTAIAH(ACCOUNTANT MEMBER) AND SHRI VIVEK VARMA (JUDICIAL MEMBER) ITA NO.3616/MUM/2011 ASSESSMENT YEAR: 2006-07 ESCHMANN TEXTURES INDIA PRIVATE LIMITED. R.I. CHOKSEY & CO. CAS S-7, ANKITA APARTMENTS, 53 NEHRU ROAD, VILE PARLE (E), MUMBAI 400 057 PAN NO. AAACE 1819 L CIT 9 4 TH FLOOR AAYKAR BHUVAN, M.K. ROAD, MUMBAI 400 020 (APPELLANT) VS. (RESPONDENT) APPELLANT BY : MR. R.I. CHOKSEY RESPONDENT BY : MR. B.JAYA KUMAR (DR) DATE OF HEARING : 5.3.2012 DATE OF PRONOUNCEMENT : 21.3.2012 ORDER PER VIVEK VARMA, JM: THE PRESENT APPEAL IS FILLED BY THE ASSESSEE CO. A GAINST THE ORDER DATED 07.03.2011 PASSED BY CIT-9, MUMBAI U/S. 263. 2. THE FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED BY THE ASSESSEE CO., CHALLENGING THE EXERCISE OF POWERS U/S. 263. 1) THE CIT ERRED IN ASSUMING JURISDICTION U/S. 263 OF THE ACT AND PASSING THE IMPUGNED ORDER DIRECTING THE ASSESSING OFFICER TO RECOMPUTE THE INCOME ON SALE OF INDUSTRIAL UNITS BY SUBSTITUTING THE ITA NO.3616/MUM/2011 ASSESSMENT YEAR: 2006-07 2 VALUE ADOPTED BY THE STAMP DUTY AUTHORITY AS THE FU LL VALUE OF CONSIDERATION WHEREVER THE STAMP DUTY VALUATION IS HIGHER. 2) THE CIT FAILED TO APPRECIATE THAT THE ASSESSING OFFICER HAD SPECIFICALLY APPLIED HIS MIND TO THE ISSUE OF COMPU TATION OF INCOME ARISING ON TRANSFER OF THE INDUSTRIAL UNITS AND WHE THER PROVISION OF SECTION 50C CAN BE APPLIED TO GAINS ARISING ON TRAN SFER OF DEPRECIABLE ASSETS WHICH HAVE TO BE COMPUTED U/S. 5 0 WAS DEBATABLE ISSUE ON WHICH VIEW WERE POSSIBLE AND THE REFORE ASSUMPTION OF JURISDICTION U/S 263 OF THE ACT WAS N OT MAINTAINABLE. 3) THE CIT ERRED IN APPLYING THE PROVISIONS OF SECT ION 50C FOR COMPUTING THE GAINS ARISING ON TRANSFER OF INDUSTRI AL UNIT TAXABLE U/S. 50. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILE D ITS RETURN OF INCOME ON 27.11.2006 AT AN INCOME OF RS.3,18,444. THE AO PICK ED UP THE CASE FOR SCRUTINY AND THE CASE WAS FIXED FOR HEARING ON VARIOUS DATES . ON AN ORAL DIRECTION ON 04.12.2008, THE AO ASKED THE AR OF THE ASSESSEE CO. TO FILE AGREEMENT OF SALE OF DEPRECIABLE ASSETS (INDUSTRIAL UNITS & WORKER FLATS ) AND SOUGHT AN EXPLANATION FOR NON APPLICABILITY OF SECTION 50C OF THE INCOME TAX ACT. 4. VIDE LETTER DATED 10.12.2008, THE ASSESSEE CO. P ROVIDED THE SALE INFORMATION AND EXPLANATION FOR NON APPLICABILITY O F SECTION 50C. THE AO, THEREAFTER, FRAMED ASSESSMENT U/S. 143(3) ON 11.12. 2008. THE CIT, THEREAFTER, ON 11.11.2010 SENT THE PROPOSAL FOR REVISION OF ORDER FRAMED BY THE AO ON 11.12.2008, WHEREIN, THE CIT, SHOW CAUSED THE ASSES SEE CO. AS TO WHY THE ASSESSMENT ORDER DATED 11.12.2008 BE NOT REVISED ON THE ISSUE OF APPLICABILITY OF SECTION 50C ON THE SALE OF GALA INDUSTRIAL UNITS. V IDE LETTER DATED 23.11.2010, THE ASSESSEE CO. EXPLAINED TO THE CIT, THAT THE ISSUE W AS DEALT WITH BY THE AO AND THAT THE AO HAD ACTUALLY APPLIED HIS MIND ON THE IM PUGNED ISSUE. 5. THE CIT, NOT ACCEPTING THE SUBMISSIONS OF THE AS SESSEE, PASSED REVISIONARY ORDER DATED 07.03.2011 AND HELD THAT TH E ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF R EVENUE AND THUS, HE DIRECTED THE AO TO RECOMPUTED THE SHORT TERM CAPITAL GAIN O N SALE OF THE ASSETS BY ITA NO.3616/MUM/2011 ASSESSMENT YEAR: 2006-07 3 SUBSTITUTING THE VALUE ADOPTED BY THE STAMP DUTY AU THORITIES ON THE FULL VALUE OF COMPUTATION IN PLACE OF APPARENT CONSIDERATION, WHE REVER THE STAMP DUTY IS HIGHER. 6. AGAINST THE ASSUMPTION OF JURISDICTION U/S. 263 AND PASSING THE ORDER DIRECTING THE AO TO RECOMPUTED THE SALE OF INDUSTR IAL UNITS BY SUBSTITUTING THE VALUE ADOPTED BY THE STAMP DUTY AUTHORITY ON THE FU LL VALUE OF CONSIDERATION WHEREVER THE STAMP DUTY VALUATION IS HIGHER, THE A SSESSEE CO. IS BEFORE THE ITAT. 7. BEFORE US THE AR OF THE ASSESSEE CO. SUBMITTED T HAT THE ISSUE TAKEN UP BY THE CIT U/S. 263, WAS PROPERLY DEALT WITH BY THE AO BEFORE HE PASSED THE ORDER U/S. 143(3), DATED 11.12.2008. THE AR FURTHER SUBMI TTED THAT AO HAVING TAKEN ONE POSSIBLE AND CONSIDERED VIEW ON THE ISSUE, THE CIT CANNOT TAKE A DIFFERENT VIEW AND THEREBY GIVE DIRECTION TO THE AO TO RECOMP UTE THE CAPITAL GAIN BY SUBSTITUTING THE VALUE BY STAMP DUTY VALUATION. THE AR TO SUPPORT HIS CONTENTION PLACED BEFORE US THE DECISION OF HONBLE DELHI HIGH COURT PASSED IN THE CASE OF CIT VS. SUNBEAM AUTO LIMITED, REPORTED IN 227 CTR 1 33, WHEREIN THE HONBLE DELHI HIGH COURT ANSWERED THE QUESTION REFERRED TO BY THE CIT IN FAVOR OF THE ASSESSEE AND AGAINST THE REVENUE AND DISMISSED THE APPEAL. 8. THE ASSESSEE ARGUES THAT THE ASSETS TRANSFERRED DURING THE CURRENT YEAR WERE DEPRECIABLE CAPITAL ASSETS, HENCE SECTION 50 S HALL APPLY, WHICH BEING NON OBSTANTE SECTION, SHALL PREVAIL OVER ALL OTHER SECT ION / PROVISIONS. IT IS, THEREFORE, THE CASE OF THE ASSESSEE THAT SECTION 50C SHALL NOT APPLY. ON THE OTHER HAND, THE CIT HAS INVOKED SECTION 50C, WHEREIN HE OBSERVES TH AT SINCE IT IS THE SALE OF CAPITAL ASSETS AND IF THE SALE CONSIDERATION WAS LE SS THAN THE STAMP DUTY VALUATION, SECTION 50C SHALL COME INTO PLAY. 9. WE HAVE EXAMINED THE REASONING GIVEN BY BOTH THE SIDES AND HAVE ALSO REFERRED TO THE PROVISIONS CONTAINED IN SECTION 50 & 50C. IT IS APPARENTLY CORRECT THAT THE ASSESSEE WAS HOLDING ITS CAPITAL ASSETS IN THE BLOCK OF ASSETS AND ITA NO.3616/MUM/2011 ASSESSMENT YEAR: 2006-07 4 CLAIMING DEPRECIATION AND HAVE BEEN DOING SO CONSIS TENTLY OVER THE YEARS BUT DURING THE YEAR, THE ASSESSEE TRANSFERRED ITS ASSET S, WHICH ACCORDINGLY WOULD HAVE TO BE SEEN, AS TO WHICH PROVISION SHOULD PREVA IL OVER THE OTHER. 10. DURING THE COURSE OF HEARING, THE BENCH QUERIED THE AR ABOUT THE SPECIAL BENCH DECISION ON THE ISSUE OF APPLICABILITY OF SEC TION 50C ON SECTION 50. THE AR RESPONDED THAT THE ISSUE, SINCE IT WENT TO THE SPEC IAL BENCH, ITSELF PROVES THAT IT IS NOT FOR FREE FROM DISPUTE. HE FURTHER SUBMITTED THAT WITHOUT PREJUDICE TO THE FACT THAT ISSUE WENT TO THE SPECIAL BENCH, BUT AT THE RE LEVANT TIME, WHEN THE AO COMPLETED THE ASSESSMENT AND ACCEPTED THE STAND OF ASSESSEE, THERE WAS NO CONTROVERSY AND THEREFORE, AT THE RELEVANT TIME THE OPINION OF THE CIT WAS SIMPLY A CHANGE OF OPINION, WHICH WOULD INVALIDATE THE INI TIATION OF SECTION 263. 11. THE ISSUE BEFORE US ARE TWO FOLD, I.E. WHETHER THE AO APPLIED HIS MIND ON THE ISSUE OF APPLICABILITY OF SECTION 50C OR NOT AN D WHETHER THE ASSESSMENT ORDER PASSED BY THE AO IS ERRONEOUS SO FAR AS IT IS PREJU DICIAL TO THE INTEREST OF REVENUE. 12. ON THE FACT COMING OUT OF THE ORDERS PASSED BY THE TWO AUTHORITIES, AND THE WRITTEN SUBMISSIONS PLACED BEFORE THEM AND THE SUBMISSIONS MADE BEFORE THE BENCH, WE ARE OF THE CONSIDERED VIEW THAT THE A O DID APPLY HIS MIND ON THE ISSUE OF APPLICABILITY OF SECTION 50C AS THE SUBMIS SIONS DATED 10.12.2008 WERE BEFORE HIM (AS ALSO PLACED IN THE APB) AS ASKED FOR BY THE AO ORALLY ON 04.12.2008, THEREFORE, THE CIT CANNOT TAKE THE VIEW THAT THE AO HAS NOT APPLIED HIS MIND. ON THE ISSUE, WHETHER THE ORDER PASSED BY THE AO IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REV ENUE, WE HAVE TO CONSIDER THE ISSUE FIRST WHETHER THE ORDER IS ERRONEOUS. IT IS A FACT THAT THE ISSUE WAS DEALT WITH BY THE AO AND AS PER THE SUBMISSIONS MADE BEFORE TH E CIT, THE ASSESSEE CO. HAD PLEADED THAT SECTION 263 DOES NOT PERMIT SUBSTI TUTION OF THE VIEW TAKEN BY THE AO UNLESS THE SAME IS UNSUSTAINABLE IN LAW. IN THE PRESENT SET OF CIRCUMSTANCES, ORDER PASSED U/S. 143(3) CANNOT BE HELD TO BE UNSUSTAINABLE. ITA NO.3616/MUM/2011 ASSESSMENT YEAR: 2006-07 5 IN THE CASE REFERRED TO BY THE ASSESSEE CO, THE HON BLE DELHI HIGH COURT, IN SUNBEAM AUTO LIMITED HAS MADE A REFERENCE OF THE DE CISION OF HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS . CIT REPORTED IN 243 ITR 83, WHEREIN THE HONBLE APEX COURT HELD THAT WHERE TWO VIEWS WERE POSSIBLE, PROCEEDINGS U/S. 263 WERE ERRONEOUS. THE HONBLE D ELHI HIGH COURT IN PARA NO. 12 HAS REFERRED TO THE DISTINCTION BETWEEN LACK IF INQUIRY AND INADEQUATE INQUIRY WHAT WE FOUND HERE IN THE MATTER BEFORE US THAT THERE CAN BE AN ISSUE OF INADEQUATE INQUIRY BUT IS CERTAINLY NOT THE CASE OF LACK OF INQUIRY. THE HONBLE DELHI HIGH COURT HELD THAT ANY INQUIRY, EVEN INADEQ UATE THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE CIT TO PASS ORDER U/S. 263, ME RELY BECAUSE HE HAS DIFFERENT OPINION IN MATTER. IT IS ONLY IN CASE OF LACK OF I NQUIRY THAT SUCH COURSE OF ACTION WOULD BE OPEN. THE HONBLE DELHI HIGH COURT REFERRE D TO THE CASE OF CIT VS. GABRIEL INDIA LTD., (BOMBAY) REPORTED IN 203 ITR 10 8, WHEREIN THE HONBLE BOMBAY HIGH COURT HELD, CIT CANNOT REVISE ORDER MER ELY BECAUSE HE DISAGREES WITH THE CONCLUSION ARRIVED AT BY ITO. 13. THE DR, ON THE OTHER HAND, PLACED HEAVY RELIANC E ON THE VIEW TAKEN BY THE CIT AND SUPPORTED THE 263 ACTION BY THE CIT. 14. WE HAVE GIVEN A CONSIDERED THOUGHT ON THE ISSUE AND WE HAVE COME TO A CONCLUSION, THAT THE AO APPLIED HIS MIND OVER NON A PPLICABILITY OF SECTION 50C OVER DEPRECIABLE ASSETS AND THE RATIOS OF VARIOUS J UDGMENTS HAVE TO BE ACCEPTED AND GO TO THE BASICS, OF SECTION 263, I.E. WHETHER THE AO APPLIED HIS MIND OVER THE IMPUGNED ISSUE OR NOT. IN OUR CONSIDERED OPINIO N, THE AO DID APPLY HIS MIND, BESIDES, THERE ARE UMPTEEN NO. OF DECIDED CASES WHE RE IT HAS BEEN HELD THAT BOTH THE LIMBS I.E. THE ORDER MUST BE ERRONEOUS AND THAT ORDER MUST BE PREJUDICIAL TO THE INTERESTS OF REVENUE MUST BE THERE FOR THE C IT TO STEP IN TO REVISE THE ORDER. IN THE PRESENT CASE, THE CIRCUMSTANCES AS POINTED O UT DO NOT VALIDATE THE ACTION OF THE CIT TO INVOKE THE PROVISION OF SECTION 263. ITA NO.3616/MUM/2011 ASSESSMENT YEAR: 2006-07 6 15. THE DIRECTION GIVEN BY THE LD CIT IS, ERRONEOUS AND IS THEREFORE SET ASIDE AND THE ORDER PASSED BY THE AO U/S. 143(3) DATED 11 .12.2008 IS RESTORED. PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2012 SD/- SD/- (B.RAMAKOTAIAH) (VI VEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 21 ST MARCH, 2012 RASIKA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME TAX 9, MUMBAI 4. THE COMMISSIONER OF INCOME TAX, MUMBAI 5. THE DEPARTMENTAL REPRESENTATIVE, BENCH E MUMB AI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI