SHRI BUDDHESHWAR ESTATES P. LTD., MUMBAI V. PR. CIT -3, MUMBAI

ITA 375/MUM/2021

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7914 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 23-03-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Principle of natural justice; Assessment record; Borrowed satisfaction; TDS; Set aside
• Section: 143(3); 142(1); 143(2); 13; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI MAHAVIR SINGH (VICE PRESIDENT) AND SHRI S. RIFAUR RAHMAN (ACCOUNTANT MEMBER) ITA NO. 375/MUM/2021 ASSESSMENT YEAR: 2012-13 & ITA NO. 374/MUM/2021 ASSESSMENT YEAR: 2013-14 SRI BUDDHESHWAR ESTATES PRIVATE LIMITED, FLAT NO. B-72, SAPTRISH BLDG. SRUSHTI COMPLEX, SECTOR-2, MIRA ROAD, (E), MUMBAI - 401107. VS. PR. COMMISSIONER OF INCOME TAX-3, ROOM NO. 612, 6 TH FLOOR, AAYAKAR BHAVAN, MAHARISHI KARVE ROAD, MUMBAI-400020. PAN NO. AANCS 7978 M APPELLANT RESPONDENT ASSESSEE BY : MR. SUNIL MAKHIJA , AR REVENUE BY : MR. RAHUL RAMAN, DR DATE OF HEARING : 27 /04/2021 DATE OF PRONOUNCEMENT : 2 1/06/2021 ORDER PER S. RIFAUR RAHMAN, A.M. THE CAPTIONED APPEALS FILED BY THE ASSESSEE ARE DI RECTED AGAINST THE ORDER PASSED U/S 263 OF THE INCOME TAX ACT, 1961 (IN SHOR T ACT) PASSED BY THE PR. COMMISSIONER OF INCOME TAX-3, MUMBAI (IN SHORT PR. CIT). FACTS BEING IDENTICAL, WE BEGIN WITH THE ASSESSMENT YEAR (AY) 2012-13 (ITA NO. 375/MUM/2021). SRI BUDDHESHWAR ESTATES ITA NOS. 375 & 374/M/2021 2 ITA NO. 375/MUM/2021 ASSESSMENT YEAR: 2012-13 2. BRIEF FACTS OF THE CASE ARE, THE ASSESSMENT WAS REOPENED ON THE BASIS OF INFORMATION REPORTED IN NMS MODULE. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAD SHOWN RENTAL INCOME OF RS.1.08 CRORES FROM LAND LEASED TO M/S ULTRATECH CEMENT LTD. AGAINST THE SAID INCOME, ASSE SSEE DEBITED RS.90,000/- TOWARDS WAGES AND RS.40,79,575/- ON REPAIRS AND MAI NTENANCE. NOTICES U/S 143(2) AND 142(1) OF THE INCOME TAX ACT, 1961 (IN S HORT ACT) WERE ISSUED AND SERVED ON THE ASSESSEE. IN RESPONSE, THE AR OF THE ASSESSEE ATTENDED AND FILED THE RELEVANT INFORMATION AS CALLED FOR. THE ASSESSM ENT U/S 143(3) R.W.S. 147 WAS COMPLETED ON 27.12.2017 BY MAKING ADDITION/DISA LLOWANCE AS UNDER: I. DISALLOWED RS.30,40,000/- ON ACCOUNT OF NON-PAYMENT OF TDS PAID TO DIRECTORS OF REMUNERATION. II. AD-HOC DISALLOWANCE @ 10% OF THE EXPENSES ON REPAIR S AND MAINTENANCE TO THE EXTENT OF RS.40,79,575/-. LD. CIT(A) ON VERIFICATION OF THE RECORDS IN ASSES SEES CASE FOR ASSESSMENT YEAR 2014-15, HE OBSERVED THAT ASSESSEE HAS LEASED OUT CERTAIN LAND SITUATED COSTAL REGULARITIES ZONE (CRZ) WHERE ANY CONSTRUCTI ON ACTIVITY IS ILLEGAL AS PER CRZ NORMS. THE ASSESSEE HAD CLAIMED CERTAIN EXPENSE S INCURRED ON REPAIRS AND MAINTENANCE IN ITS PROFIT AND LOSS ACCOUNT IN RESPE CT OF THE ABOVE SAID LEASED OUT LAND THE EXPENSES WERE DISALLOWED ON THE FOLLOW ING GROUNDS : I. THE CONSTRUCTION WAS ILLEGAL AS PER CRZ NORMS. II. THE PROPERTY WAS LEASED OUT AND NOT BEING USED BY T HE ASSESSEE FOR ITS OWN BUSINESS. SRI BUDDHESHWAR ESTATES ITA NOS. 375 & 374/M/2021 3 III. THE ASSESSEE HAS SUBMITTED ONLY FEW BILLS FOR TRANS PORT CHARGES AND FEW SELF-MADE VOUCHERS FOR OTHER EXPENSES. HE ALSO OBSERVED THAT NO LEASED AGREEMENT WAS FURNISHED BY THE ASSESSEE. THE LD. PR. CIT-3, MUMBAI HAD ALSO OBSERVED THAT IT WAS OBSERVED BY THE ASSESSING OFFICER IN THAT YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2012-13 EXPENSES RELATED TO LEASED OUT LAND (RS.90,000/- ON ACCOUNT OF WAGES AND RS.40,79,575/- ON MAINTENANCE AND REPAIRS) WERE ALL OWED WITHOUT PROPER ENQUIRY AND VERIFICATION AS THERE WAS NO MATERIAL C HANGE IN FACTS VIS--VIS THOSE OF ASSESSMENT YEAR 2014-15. THEREFORE, HE SUBMITTED A PROPOSAL FOR ACTION U/S 263 VIDE LETTER DATED 21.11.2019. FURTHER, HE OBSERVED THAT IN THE ASSESSMENT ORDER U NDER CONSIDERATION, THE ASSESSING OFFICER DISALLOWED THE DIRECTORS REMU NERATION OF RS.30,40,000/- ON THE BASIS OF NON-DEDUCTION OF TDS BUT HE FAILED TO VERIFY/EXAMINE THE NATURE OF SERVICE PROVIDED BY THE DIRECTOR FOR EARNING THE LEASE RENTAL FOR BUSINESS PURPOSES. HE OBSERVED THAT IT APPEARS, THE ASSESSEE HAD DIVERTED THE LEASE RENTAL IN THE HANDS OF THE DIRECTORS WITHOUT PAYING OF DDT IN TERMS OF PROVISION U/S 115 O OF THE ACT. HE ALSO FAILED TO EXAMINE T HE RETURN OF INCOME OF THE DIRECTORS. ACCORDINGLY, THE PR. CIT ISSUED NOTICE U/S 263 DAT ED 11.03.2020 ISSUED TO THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ASSESSMENT ORDER SHOULD NOT BE CONSIDERED AS ERRONEOUS AND PREJUDICIAL TO THE INTE RESTS OF THE REVENUE AND SHOULD NOT BE SET ASIDE/CANCELLED. AS NONE APPEARED ON BEHALF OF THE ASSESSEE AND NOT FILED ANY WRITTEN SUBMISSION EVEN THOUGH, T HE ASSESSEE WAS GIVEN SEVERAL OPPORTUNITIES. SINCE, NO RESPONSE FROM THE ASSESSEE, LD. PR. CIT OBSERVED THAT AO OMITTED TO VERIFY/EXAMINE THE EXPE NSES INCURRED ON THE SRI BUDDHESHWAR ESTATES ITA NOS. 375 & 374/M/2021 4 LEASED OF LAND. THEREFORE, THE ORDER BECOMES ERRONE OUS. ACCORDINGLY, BY CONSIDERING THE ISSUE, HE INVOKED THE PREMISES U/S 263 OF THE ACT. HE SET ASIDE THE ASSESSMENT ORDER PASSED U/S 143(3) R.W.S. 147 A ND GAVE THE DIRECTION TO THE ASSESSING OFFICER TO MAKE DETAILED VERIFICATION OF THE ISSUES AND COMPLETE THE ASSESSMENT AFTER GIVING PROPER OPPORTUNITY TO THE A SSESSEE OF BEING HEARD AND TO COMPLETE THE ASSESSMENT AS PER LAW. 3. AGGRIEVED WITH THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. PR. CIT, HAS ERRED IN PASSING AN ORDER U/S. 263 OF THE I.T. ACT, 1961, WITHOUT OFFERING A REASONABLE OPPORTUNITY OF BEING HEARD TH EREBY VIOLATING THE PRINCIPLES OF NATURAL JUSTICE. WITHOUT PREJUDICE TO THE ABOVE THE APPELLANT SUBMIT S THAT : 2. THE LD. PRINCIPAL CIT, HAS ERRED IN HAVING ASSUMED JURISDICTION U/S. 263 OF THE ACT IN ORDER TO SUBSTITUTE HIS VIEW IN PLACE OF JUDICIO US VIEW TAKEN BY THE A.O. ON THE SAME SET OF FACTS & EVIDENCES ON RECORD, BY HOLDING THAT THE ORDER PASSED U/S, 143(3) OF THE ACT DATED 27.12.2017 WAS ERRONEOUS AN D PREJUDICIAL TO THE INTERESTS OF REVENUE. 3. THE LD. P.CI.T. HAS ERRED IN SETTING ASIDE THE ASSE SSMENT ORDER PASSED US 143(3) OF THE IT ACT, WITH THE DIRECTION TO RE-VERIFY THE ISSUES AGAIN WITHOUT APPRECIATING THE FACT THAT BOTH THE ISSUES UNDER CONSIDERATION H AVE BEEN DULY ADJUDICATED UPON BY THE LD. ASSESSING OFFICER AS IS EVIDENT FROM THE ASSESSMENT ORDER ITSELF. 4. THE LD. P.CLT, HAS ERRED IN PASSING AN ORDER U/S 26 3 OF THE I.T, ACT, WITHOUT APPRECIATING THE FACT THAT THOUGH ACCORDING TO HIM THE ORDER PASSED BY THE LD. ASSESSING OFFICER MAY BE PREJUDICIAL TO THE INTERES T OF REVENUE IN COMPARISON TO AN ASSESSMENT ORDER PASSED FOR A.Y. 2014-15, BUT SO FAR IT IS NOT ERRONEOUS, IT DOES NOT FALLS WITHIN THE PURVIEW OF SECTION 263 OF THE I.T. ACT. SRI BUDDHESHWAR ESTATES ITA NOS. 375 & 374/M/2021 5 5. THE LD. P.C.I.T., HAS SERIOUSLY FAILED TO APPRECIAT E THAT SINCE THE TWIN CONDITIONS PRECEDENT TO PASSING AN ORDER UNDER THE SAID SECTIO N WERE NOT SATISFIED THE ORDER PASSED U/S.263 OF THE INCOME-TAX ACT IS ULTRA VIRES AND VOID, 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LEARNED PR. C.I.T. U/S 263 OF THE I.T, ACT BEING BAD IN LAW , IS AB INITIO VOID. 7. THE APPELLANT CRAVES, LEAVE TO ADD, AMEND, ALTER & OR VARY ANY OF THE GROUNDS ON OR BEFORE THE HEARING OF THIS APPEAL, 8. THE APPELLANT PRAYS THAT THE ORDER PASSED U/S 263 O F THE I.T, ACT, NOT BEING IN ACCORDANCE OF THE PROVISION OF LAW MAY PLEASE BE QU ASHED. 4. AT THE TIME OF HEARING, THE LD. AR BROUGHT TO OU R NOTICE PAGE 3 OF THE ASSESSMENT ORDER IN WHICH THE ASSESSING OFFICER HAS VERIFIED THE PAYMENT OF DIRECTOR REMUNERATION AND DISALLOWED THE SAME DUE T O NON-PAYMENT OF TDS. FURTHER, HE SUBMITTED THAT AO ALSO VERIFIED THE REP AIRS AND MAINTENANCE EXPENSES AND DISALLOWED 10% OF THE ABOVE SAID EXPEN SES DUE TO DISCREPANCIES FOUND IN THE VOUCHERS/BILLS SUBMITTED BY THE ASSESS EE. FURTHER, HE BROUGHT TO OUR NOTICE PAGE 2 OF 263 ORDER AND HE SUBMITTED THA T WHILE VERIFYING THE ASSESSMENT RECORDS OF ASSESSMENT YEAR 2014-15. WHER EIN 100% OF THE EXPENSES WERE DISALLOWED AND REFERRING TO THE ABOVE ASSESSMENT RECORDS, LD. PR. CIT WITH THE BORROWED SATISFACTION FROM THE ASS ESSING OFFICER, HE INTENDS TO TREAT THIS ASSESSMENT ORDER AS ERRONEOUS AND PREJUD ICIAL TO THE INTEREST OF THE REVENUE. HE SUBMITTED THAT ASSESSING OFFICER HAS IN DEPENDENTLY VERIFIED AND COMPLETED THE ASSESSMENT. THERE IS NO MISTAKE APPAR ENT ON RECORD. 5. ON THE OTHER HAND, THE LD. DR AGREED THAT THIS O RDER WAS PASSED EX-PARTE AND SINCE NONE APPEARED ON BEHALF OF THE ASSESSEE, THIS ORDER MAY BE REMITTED BACK TO LD. PR. CIT IN FIRST CONSIDERATION. SRI BUDDHESHWAR ESTATES ITA NOS. 375 & 374/M/2021 6 6. CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL ON RECORD. WE NOTICE THAT LD. PR. CIT AT THE TIME OF VERIFICATION OF THE ASSE SSMENT RECORDS FOR ASSESSMENT YEAR 2014-15, HE OBSERVED THAT ASSESSEE HAS LEASED OUT CERTAIN LAND SITUATED IN COSTAL REGULARITY ZONE WHICH IS PROHIBITED AREA, WH ERE CONSTRUCTION ACTIVITY IS ILLEGAL. ASSESSEE HAD INCURRED CERTAIN EXPENSES ON SUCH LEASED OUT LAND AND THOSE EXPENSES WERE DISALLOWED ON THE BASIS OF CONS IDERATION WAS ILLEGAL, THE PROPERTY WAS LEASED OUT AND NOT BEING USED BY THE A SSESSEE FOR ITS OWN BUSINESS AND SOME DISCREPANCIES WERE FOUND ON THE BILL SUBMI TTED BY THE ASSESSEE. WE NOTICED THAT ALL THIS INFORMATION WAS OBSERVED BY L D. PR. CIT WHILE VERIFYING THE RECORDS FOR ASSESSMENT YEAR 2014-15 AND WITH THE BO RROWED SATISFACTION FROM THE ASSESSING OFFICER WHO HAD CARRIED OUT AND COMPL ETED THE ASSESSMENT FOR ASSESSMENT YEAR 2012-13 AND BASED ON HIS ADVICE AND PROPOSAL, HE PROCEEDED TO INVOKE PROVISION OF SECTION 263, LD. PR. CIT SET ASIDE THE ASSESSMENT ORDER. OUR CONSIDERED VIEW, LD. PR. CIT CAN ONLY VERIFY TH E RECORDS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ALONE AND NOT FOR ANY OTHE R PAST OR SUBSEQUENT YEAR ASSESSMENT ORDER. WITH REGARD TO THIS ASSESSMENT YE AR, WE NOTICE THAT ASSESSING OFFICER HAS ALREADY VERIFIED THE INFORMAT ION AND FORMED AS OPINION. BASED ON SUCH OPINION, HE COMPLETED THE ASSESSMENT ORDER. NOW LD. PR. CIT CANNOT RE-LOOK THE ASSESSMENT ORDER PASSED BY SUCH ASSESSING OFFICER AND ALSO BASED ON THE PROPOSAL OF THE ASSESSING OFFICER TO S ET ASIDE THE ORDER, WHICH LITERALLY WILL MEAN THAT ASSESSING OFFICER WOULD LI KE TO CHANGE THIS OPINION NOW AND REVISIT THE ORDER WHICH HE HAS PASSED EARLIER. THEREFORE, IN OUR CONSIDERED VIEW, THE ORDER PASSED U/S 263 OF THE ACT IN FACT VOID AB INITIO WHICH IS BASED ON BORROWED SATISFACTION. MOREOVER, WE NOTICE THAT ASS ESSING OFFICER HAS VERIFIED THE EXPENDITURE AND NOW LD. PR. CIT CANNOT TREAT TH E SAME AS NO VERIFICATION AT ALL. SECTION 263 CAN BE INVOKED ONLY WHEN THERE IS NO VERIFICATION AT ALL, IN THE SRI BUDDHESHWAR ESTATES ITA NOS. 375 & 374/M/2021 7 CASE, AO HAS CLEARLY VERIFIED THE ISSUED INVOLVED I N THIS CASE. HOWEVER, WE NOTICE THAT THE ISSUE OF EXPENDITURE DISALLOWANCE, AO HAS APPLIED HIS MIND TO DISALLOW 10% OF THE EXPENDITURE. WHEREAS, THE REMUNERATION T O DIRECTORS, AO HAS DISALLOWED THE SAME DUE TO NON-COMPLIANCE WITH TDS PROVISIONS. AO HAS NOT REALLY VERIFIED THE GENUINENESS OF THE EXPENDITURE. ON MERIT, WE NOTICE THAT ASSESSEE HAS EARNED THE RENTAL INCOME ON THE AREA W HERE THE CONSTRUCTION ACTIVITIES ARE NOT ALLOWED. LD. PR. CIT HAS ACCEPTE D THE REVENUE DECLARED BY THE ASSESSEE BUT WANTED TO ONLY DISALLOW THE RELATED EX PENSES. WE DO NOT SEE ANY MERIT IN THIS METHOD. THE ASSESSEE HAS EARNED THE R ENTAL INCOME THAT MEANS THE ASSESSEE CAN INCUR CERTAIN EXPENSES, IN THAT PROCES S, IT HAS DECIDED TO PAY DIRECTOR REMUNERATION. WHAT IS NECESSARY FOR THE OF FICERS TO SEE, WHETHER IT IS WITHIN THE NORMS PRESCRIBED UNDER THE COMPANIES ACT . IF IT IS WITHIN NORMS, THE EXPENSES HAVE TO BE APPLIED. IN CASE, IT IS FOUND T HAT IT IS EXCESSIVE, ONLY TO THAT EXTENT ALONE, REMUNERATION CAN BE DISALLOWED. CONSIDERING THE OVERALL SITUATION, WE SET ASIDE TH E ORDER PASSED U/S 263 OF THE ACT. ACCORDINGLY, GROUNDS RAISED BY THE ASSE SSEE ARE ALLOWED. 7. FACTS BEING IDENTICAL, OUR DECISION FOR AY 2012- 13 APPLIES MUTATIS MUTANDIS TO AY 2013-14. 8. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26/06/2021. SD/- SD/- (MAHAVIR SINGH) ( S. RIFAUR RAHMAN ) VICE PRESIDENT ACCOUNTANT MEMBER SRI BUDDHESHWAR ESTATES ITA NOS. 375 & 374/M/2021 8 MUMBAI; DATED: 21/06/2021 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSISTANT REGISTRAR) ITAT, MUMBAI