M/s Interglobe Enterprises Ltd., Gurgaon V. CIT, New Delhi

ITA 4809/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58965 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 03-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SAKSENA
• Assessee Lawyers: TAPAS RAM MISHRA; K K SAMANTORAY
• Keywords: Question of law; Fair market value; Difference of opinion; Assessment record; Change of opinion
• Section: 143(3); 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C DELHI) BEFORE SHRI G.D. AGRAWAL, HONBLE VICE PRESIDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO. 4809(DEL)2010 ASSESSMENT YEAR: 2007-08 INTERGLOBE ENTERPRISES LTD., COMM ISSIONER OF INCOME TAX, GROUND FLOOR, CENTER WING, V. DELHI I V, NEW DELHI. THAPAR HOUSE 124, JANPATH, NEW DELHI-110 001. (APPELLANT) (RESPONDENT) APPELLANT BY: S/SH RI TAPAS RAM MISHRA, ADV.& K.K. SAMANTORAY, CA RESPONDENT BY: SHRI V.K. SAKSENA, CIT(DR) ORDER PER A.D. JAIN, J.M. THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2007-08 AGAINST THE ORDER DATED 28.09.2010 PASSED BY THE LEARNED COMMIS SIONER OF INCOME TAX, DELHI IV, NEW DELHI. THE FOLLOWING EFFECTIVE GROU NDS HAVE BEEN TAKEN:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE IMPUGNED ORDER UNDER SECTION 263 OF THE INCOME TAX ACT (THE ACT) IS VAGUE, BASED ON IRRELEVANT CONSIDERATION, BEYOND JURISDICT ION, BAD IN LAW AND VOID AB INITIO. ITA 4809(DEL)2010 2 2. THAT THE CIT ERRED ON THE FACTS AND IN LAW IN S ETTING ASIDE THE ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT AL LEGING THE SAME TO BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST S OF REVENUE. 3. THAT THE CIT ERRED IN CONCLUDING THAT OMISSION OF THE ASSESSING OFFICER TO DISCUSS WHY EXPENSES CLAIMED BY THE APPE LLANT WERE ALLOWED WITHOUT APPLYING SECTION 40A(2)(B) OF THE A CT, AMOUNTED TO FAILURE IN MAKING AN ENQUIRY. 2. THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION, I.E., ASSESSMENT YEAR 2007-08, VIDE ORDER DATED 30.12.09 PASSED U/S 143(3 ) OF THE I.T. ACT, ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT ` 11,40,59,471/-, VIDE NOTICE DATED 20.7.2010, ISSUED U/S 263 OF THE ACT, THE LD. CIT OBSERVED THAT THE RECORD OF THE CASE SHOWED THAT THE FOLLOWING ASPECT S HAD NEVER BEEN CONSIDERED TO BE VERIFIED BY THE AO WHILE FRAMING THE ASSESSMENT ORDER:- 1. THE ASSESSEE COMPANY HAS PAID TO PERSONS SPECIFI ED U/S 40A(2)(B) AN AMOUNT OF ` 16,74,000/- AS RENT. ONE MRS. JYOTI BHATIA THE SIS TER OF MD, ` 94,401/- WAS PAID FOR MEETING PROPERTY TAX AT BANGA LORE. THE PROPERTY TAX AS PER STATUTE IS TO BE PAID BY THE OW NER. IT IS NOT UNDERSTOOD HOW THE SAID AMOUNT IS PAID BY THE ASSES SEE WHO IS A TENANT. THAT BEING SO, IT IS NOT CLEARLY UNDERSTO OD AS TO HOW THE SAME HAS BEEN CLAIMED AND ALLOWED AS BUSINESS EXPENDITUR E OF THE COMPANY. ITA 4809(DEL)2010 3 2. SIMILAR IS THE CASE OF MR. RAHUL BHATIA, MD. T HE AO HAS NOT TEST CHECKED WHETHER THE AMOUNT PAID DOES SATISFY THE CO NDITION TO ALLOW THE EXPENDITURE ON THAT ACCOUNT. 3. THE ASSESSEE HAS ALSO GIVEN RENT TO M/S. GALILE O INDIA PVT. LTD. AN ASSOCIATE COMPANY. THE AO EVEN FAILED TO CHECK WH ETHER TDS HAS BEEN DEDUCTED. 4. THE COMPANY ASSESSEE HAS PAID PROFESSIONAL FEE UNDER THE HEAD BUILDING REPAIR, GENERAL CHARGES, REPAIR/RENEWAL/R EPLACEMENT, RUNNING AND MAINTENANCE OF GENERATOR AND OFFICE MAINTENANCE TO M/S. ZELOS REAL ESTATE DEVELOPERS PVT. LTD., A COMPANY IN WHIC H DIRECTORS ARE INTERESTED. THE AO FAILED TO INVESTIGATE WHETHER THESE EXPENDITURE ARE ACTUALLY INCURRED FOR THE PURPOSE OF BUSINESS O R WHETHER THE ASSESSEE SIPHONING OFF THE MONEY, WHICH MAY ATTRACT THE PROVISION OF DISBURSEMENT OF DIVIDEND BY THE ASSESSEE COMPANY. IT IS NOT UNDERSTOOD HOW THE ASSESSEE COMPANY IS PAYING EXPEN SES ON BUILDING REPAIR OF THE OTHER COMPANY? 3. THUS CONSIDERING THE ASSESSMENT ORDER AS APPEARI NG TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND PROPOSING TO MODIFY THE ASSESSMENT ORDER ACCORDINGLY U/S 263 OF THE ACT, T HE LD. CIT ASKED THE ASSESSEE TO FILE OBJECTION, IF ANY, TO THE SAID PRO POSED REMEDIAL ACTION. 4. IN RESPONSE, THE ASSESSEE SUBMITTED BEFORE THE L D. CIT THAT IN THE ASSESSMENT PROCEEDINGS, VARIOUS DETAILS HAD BEEN AS KED FOR AND VARIOUS ITA 4809(DEL)2010 4 ENQUIRIES WERE CONDUCTED BY THE AO AND THE ASSESSME NT WAS COMPLETED ONLY THEREAFTER; THAT THE DETAILS OF PAYMENT MADE TO PER SONS SPECIFIED IN SECTION 40A(2)(B) OF THE ACT HAD BEEN CALLED FOR BY THE AO AND THE ASSESSEE HAD BEEN ASKED TO JUSTIFY THAT THE PAYMENTS WERE NOT EX CESSIVE; THAT THE ASSESSEE HAD SUBMITTED, IN RESPONSE, THAT THE PAYMENTS WERE THE SAME AS THOSE MADE IN THE IMMEDIATELY PRECEDING YEAR; THAT THESE PAYME NTS WERE MADE AS PER THE BUSINESS REQUIREMENTS; THAT THE NOMINAL VARIANCE WA S DUE TO THE AGREEMENT AND THE MARKET CONDITIONS; THAT THE RELATED EXPENSE S WERE THOSE AS LISTED AS ANNEXURE X TO FORM CD OF THE TAX AUDIT REPORT U/S 4 4 AB DATED 22.10.2007, WHICH MAINLY COMPRISED OF EXPENSES UNDE R THE HEAD RENT, BESIDES THE EXPENSES FOR PROFESSIONAL FEES CHARGED UNDER THE HEAD BUILDING REPAIR, OF ` 31,174 /-, GENERAL CHARGES OF ` 15,936/- AND REPAIR/RENEWAL/REPLACEMENT OF ` 23,135/-; THAT IN THE ASSESSMENT PROCEEDINGS, THE AO HAD ISSUED A QUESTIONNAIRE DATE D 15.9.2009, SEEKING INFORMATION AND DETAILS; THAT QUERY NO.9 OF THE SAI D QUESTIONNAIRE SOUGHT DETAILS OF THE PAYMENTS MADE TO PERSONS SPECIFIED I N SECTION 40A(2)(B) OF THE ACT, BESIDES ASKING THE ASSESSEE COMPANY TO SUBSTAN TIATE AND JUSTIFY THAT THE PAYMENTS MADE WERE NOT EXCESSIVE; THAT IN RESPONSE TO THE SAID QUERY NO. 9 RAISED BY THE AO IN THE QUESTIONNAIRE, THE ASSESSEE HAD CONTENDED THAT THE ASSESSEE WAS FILING PHOTOCOPY OF ANNEXURE X TO FORM CD OF THE TAX AUDIT ITA 4809(DEL)2010 5 REPORT U/S 44AB OF THE ACT FOR THE ASSESSMENT YEAR 2007-08, DEPICTING THE PAYMENTS COVERED BY THE PROVISIONS OF SECTION 40A(2 )(B) OF THE ACT, ALONG WITH A PHOTOCOPY OF THE SIMILAR STATEMENT FILED FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, I.E., ASSESSMENT YEAR 20 06-07; THAT THESE STATEMENTS CLEARLY DEPICTED THAT AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR, NO NEW TYPE OF PAYMENT HAD BEEN MADE FOR ANY EXPENDITURE TO ANY PARTY; THAT THE EXPENDITURE WAS PRIMARILY OF THE NA TURE OF RENT WHICH WAS PAID IN ACCORDANCE WITH THE BUSINESS REQUIREMENTS O F THE ASSESSEE COMPANY AND THE BENEFITS DERIVED BY THE ASSESSEE COMPANY FR OM THE SAME; THAT THE NOMINAL VARIANCE IN PAYMENT OF RENT WERE IN ACCORDA NCE WITH THE EXISTING AGREEMENTS AND THE PREVAILING MARKET CONDITIONS; TH AT SO FAR AS REGARDS THE EXPENDITURE PERTAINING TO PROFESSIONAL FEE PAID TO ZELOS REAL ESTATE DEVELOPERS PVT. LTD. FOR ARCHITECTURAL/DESIGNING AN D RELATED SERVICES FOR BUILDING REPAIRS, ETC., THE AGREEMENT FOR ASSESSMEN T YEAR 2007-08 WAS ON THE SAME LINES AS THOSE FOR THE PRECEDING YEAR, A COPY WHEREOF WAS BEING ATTACHED AND PROVIDED FOR CONSULTANCY FEE @ 5% IN A CCORDANCE WITH THE PREVAILING MARKET CONDITIONS; AND THAT THEREFORE, T HE EXPENSES WERE INCURRED FOR THE LEGITIMATE BUSINESS NEEDS OF THE ASSESSEE C OMPANY AND THE PAYMENTS MADE WERE REASONABLE, HAVING REGARD TO THE FAIR MAR KET VALUE OF THE SERVICES, FACILITIES, ETC., AS ALSO THE BENEFITS DERIVED BY O R ACCRUING THERE-FROM. IT WAS ITA 4809(DEL)2010 6 FURTHER CONTENDED BEFORE THE CIT THAT ATTENTION OF THE AO WAS ALSO DRAWN, DURING THE ASSESSMENT PROCEEDINGS, TO THE ASSESSMEN T RECORDS FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEARS, ESPECIALLY FOR THE ASSESSMENT YEAR 2006-07, DURING THE ASSESSMENT PROCEEDINGS OF WHICH YEAR, A DETAILED SUBMISSION HAD BEEN MADE IN CONNECTION WITH THE PAY MENTS MADE FOR EXPENSES TO PERSONS SPECIFIED U/S 40A(2)(B) OF THE ACT. 5. THE LD. CIT, HOWEVER, REJECTED THE STAND TAKEN B Y THE ASSESSEE AND HOLDING THAT THERE WAS AN ERROR IN THE ASSESSMENT D UE TO LACK OF ENQUIRY, RENDERING THE ASSESSMENT ORDER PREJUDICIAL TO THE I NTERESTS OF THE REVENUE FOR IMPROPER ALLOWANCE WITHOUT APPLYING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT, THE LD. CIT REMITTED THE MATTER TO THE FIL E OF THE AO FOR RECONSIDERATION. AGGRIEVED, THE ASSESSEE IS IN APP EAL. 6. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTEND ED THAT THE LD. CIT HAS ERRED IN REMITTING THE MATTER TO THE FILE OF TH E AO FOR FRESH ADJUDICATION; THAT THE ASSESSMENT ORDER WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF THE REVENUE; THAT THE AO HAD MADE DUE AND COMPLETE ENQUIRY IN THE MATTER BY CALLING FOR DETAILS AND EXPLANATIONS AND EXAMINING THE CLAIM VIS--VIS THE PAST HISTORY OF ADMISSIBILITY OF THE SAME EXPENSES. THE LD. CIT DID NOT BRING ANYTHING ON RECORD TO SUGGEST THAT AN Y PAYMENT MADE TO A RELATED PARTY WAS IN EXCESS OF COMPARABLE PAYMENT T O AN UNRELATED PERSON; ITA 4809(DEL)2010 7 THAT AS SUCH, THE PROVISIONS OF SECTION 40A(2)(B) O F THE ACT COULD NOT BE INVOKED; THAT THE LD. CIT HAS ERRED IN HOLDING THA T THE SILENCE OF THE AO AS TO WHY THE ASSESSEE CLAIMED CERTAIN EXPENSES WAS AL LOWED WAS MEANT THAT THERE WAS NO APPLICATION OF MIND BY THE AO; AND THA T THERE WAS NO DISALLOWANCE IN THE EARLIER YEAR ON THE SAME ISSUE. THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT RENDERED ON 1.3.2012 IN ITA NO. 179/2011 FOR THE ASSESSMENT YEAR 2004-05, IN THE CASE OF ITO V. DG HOUSING PRO JECTS LTD. (COPY PLACED ON RECORD), FOR THE PROPOSITION THAT WHERE T HERE IS INADEQUATE ENQUIRY BUT NOT LACK OF ENQUIRY, THE CIT MUST GIVE A FINDIN G THAT THE ORDER/ENQUIRY MADE IS ERRONEOUS, BY HIMSELF CONDUCTING AN ENQUIRY AND ESTABLISH THE ERROR MADE BY THE AO; AND THAT THE MATTER CANNOT BE REMIT TED FOR A FRESH DECISION TO THE AO FOR FURTHER ENQUIRY WITHOUT SUCH A FINDIN G. IT HAS BEEN CONTENDED THAT IN THE PRESENT CASE, NO SUCH ENQUIRY WAS CONDU CTED BY THE CIT AND NO SUCH FINDING ON THE BASIS THEREOF TO THE EFFECT THA T THE ASSESSMENT ORDER WAS ERRONEOUS, HAS BEEN RECORDED BY THE LD. CIT. THE LEARNED COUNSEL HAS, FURTHER, SOUGHT TO RELY ON THE ORDER DATED 29.2.201 2, PASSED IN ITA NO. 5655(DEL)2011, FOR THE ASSESSMENT YEAR 2006-07, IN THE CASE OF M/S. GALILEO INDIA (P)LTD. V. CIT (COPY PLACED ON RECOR D), TO CONTEND THAT THE CIT HAS TO GIVE REASONS TO JUSTIFY THE EXERCISE OF SUO MOTU REVISIONAL POWERS ITA 4809(DEL)2010 8 TO REOPEN A CONCLUDED ASSESSMENT AND THAT A CHANGE OF OPINION OR VIEW WOULD NOT ENABLE THE CIT TO EXERCISE THE REVISIONAL JURISDICTION, PARTICULARLY WHEN THE AO HAD CONSIDERED THE DETAILS AND EXPLANAT IONS OFFERED BY THE ASSESSEE. 7. THE LEARNED DR, ON THE OTHER HAND, HAS CONTENDED THAT WHILE CONSIDERING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT, THE AO HAS TO SEE WHETHER THE PAYMENT IS EXCESSIVE OR UNREASONABLE; T HAT IN THE PRESENT CASE, AS AVAILABLE FROM QUERY NO. 9 CONTAINED IN THE QUES TIONNAIRE ISSUED TO THE ASSESSEE BY THE AO (COPY AT PAGES 22 TO 24 OF THE A SSESSEES PAPER BOOK , APB FOR SHORT) , THE AO HAD ASKED THE ASSESSEE T O SUBSTANTIATE AND JUSTIFY THAT THE PAYMENTS WERE NOT EXCESSIVE BY PRODUCING P URCHASE/PROCUREMENT DETAILS OF THE PARTIES COMING U/S 40A(2)(B) OF THE ACT, AS WELL AS OTHER PARTIES; THAT THIS WAS NECESSARY FOR MAKING A COMPA RISON TO ARRIVE AT THE FAIR MARKET VALUE; THAT THE ASSESSEE DID NOT GIVE ANY SU CH DETAILS; THAT THE AO DID NOT MAKE ANY FURTHER EFFORT TO ARRIVE AT THE FAIR M ARKET VALUE; AND THAT THE AO MERELY RELIED ON THE EARLIER YEARS ORDER, THOUGH A SUBSTANTIAL QUESTION OF LAW, NAMELY, REASONABLENESS OF THE EXPENSES U/S 40A(2)(B ) OF THE ACT, WAS INVOLVED . CONTENDING THAT MERELY ON THE BASIS OF CONSISTENCY, THE CLAIM CANNOT BE ALLOWED, WHERE A SUBSTANTIAL QUESTION OF LAW IS INVOLVED, THE LD. DR HAS SOUGHT TO RELY ON THE DECISION IN THE CASE O F OSWAL AGRO, 313 ITR ITA 4809(DEL)2010 9 24 (SC). FURTHER, RELYING ON SMT. TARA DEVI AGGA RWAL V. CIT, WEST BENGAL, 88 ITR 323 (SC), IT HAS BEEN CANVASSED THA T WHERE THERE IS MATERIAL BEFORE THE COMMISSIONER TO JUSTIFY HIS FINDING THAT THE ORDER OF THE ASSESSMENT YEAR WAS ERRONEOUS INSOFAR AS IT WAS PRE JUDICIAL TO THE INTERESTS OF THE REVENUE, THE ASSESSMENT CAN BE CANCELLED IN REV ISION. 8. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE M ATERIAL ON RECORD. JURISDICTION U/S 263 WAS SOUGHT TO BE INVOKED QUA P AYMENTS MADE BY THE ASSESSEE U/S 40 A(2)(B) OF THE ACT. IN THIS REGARD , IT IS SEEN, THAT IN THE ASSESSMENT PROCEEDINGS, VIDE QUERY NO.9 OF THE QUES TIONNAIRE (SUPRA), THE AO HAD ASKED THE ASSESSEE AS FOLLOWS:- 9. PLEASE FURNISH DETAILS OF PAYMENTS MADE TO PE RSONS SPECIFIED IN SECTION 40A(2)(B). SUBSTANTIATE AND JUSTIFY THAT THE PAYMENTS ARE NOT EXCESSIVE BY PRODUCING PURCHASE/PROCUREMENT DEALS ( SIC DETAILS)OF THE PARTIES AS WELL AS OTHER PARTIES. PLEASE ALSO FILE DETAILS OF ALL THE TRANSACTIONS WITH ASSOCIATE CONCERN. (APB -23) 9. IN RESPONSE, THE ASSESSEE SUBMITTED AS FOLLOWS:- FOR READY REFERENCE A PHOTOCOPY IS ATTACHED OF ANN EXURE X TO FORM 3CD OF THE TAX AUDIT REPORT U/S 44AB OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2007-08 DEPICTING THE PAYME NTS COVERED BY ITA 4809(DEL)2010 10 THE PROVISIONS OF SECTION 40A(2)(B) ALONG WITH A PH OTOCOPY OF A SIMILAR STATEMENT FILED FOR THE IMMEDIATELY PRECEDI NG ASSESSMENT YEAR 2006-07 (VIZ. ANNEXURE IX TO FORM 3CD) MARKED ANN EXURE V. PERUSAL OF THE ATTACHED STATEMENTS CLEARLY DEPICT T HAT, AS COMPARED TO THE IMMEDIATELY PRECEDING ACCOUNTING YEAR ENDED 31 ST MARCH, 2006, NO NEW TYPE OF PAYMENT HAS BEEN MADE FOR ANY EXPEND ITURE TO ANY NEW PARTY DURING THE YEAR ENDED 31 ST MARCH, 2007. THE EXPENDITURE LISTED IN THE ATTACHED STATEMENT IS PRIMARILY OF TH E NATURE OF RENT WHICH IS BEING PAID IN ACCORDANCE WITH THE BUSINESS REQUI REMENTS OF THE ASSESSEE COMPANY AND THE BENEFITS DERIVED BY THE AS SESSEE COMPANY FROM THE SAME. THE NOMINAL VARIANCE IN PAYMENT OF RENT ARE IN ACCORDANCE WITH THE EXISTING AGREEMENTS AND THE PRE VAILING MARKET CONDITIONS. AS REGARDS THE EXPENDITURE PERTAINING TO PROFESSIONAL FEE PAID TO ZELOS REAL ESTATE DEVELOPERS PVT. LTD. FOR ARCHITECTURAL/DESIGNING AND RELATED SERVICES FOR BU ILDING REPAIRS ETC. IT MAY BE POINTED OUT THAT THE AGREEMENT FOR THE FINAN CIAL YEAR 2006-07 IS ON THE SAME LINES AS THAT FOR THE PRECEDING FINA NCIAL YEAR 2005-06 (PHOTOCOPY ATTACHED) AND PROVIDES FOR CONSULTANCY F EE @ 5% IN ACCORDANCE WITH THE PREVAILING MARKET CONDITIONS. ITA 4809(DEL)2010 11 THE FACTS EXPLAINED ABOVE CLEARLY JUSTIFY THAT THE EXPENSES WERE INCURRED FOR THE LEGITIMATE BUSINESS NEEDS OF THE A SSESSEE COMPANY AND THE PAYMENTS MADE FOR THE SAME ARE REASONABLE H AVING REGARD TO THE FAIR MARKET VALUE OF THE SERVICES, FACILITIES E TC. LISTED IN THE STATEMENTS AS ALSO THE BENEFITS DERIVED BY OR ACCRU ING THEREFROM. IN CASE YOU REQUIRE ANY FURTHER CLARIFICATION/SUPPOR TING EVIDENCE, THE SAME SHALL BE PROVIDED ON HEARING FROM YOU. (APB 27, PARA 8) 10. FURTHER, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE DREW ATTENTION OF THE AO TO THE ASSESSMENT RECORD FOR TH E ASSESSMENT YEAR 2006- 07, I.E., THE IMMEDIATELY PRECEDING ASSESSMENT YEAR , FOR WHICH YEAR, THE ASSESSMENT ORDER DATED 31.12.2008, HAD BEEN PASSED U/S 143(3) OF THE ACT. IT WAS POINTED OUT THAT IN THE ASSESSMENT PROCEEDIN GS FOR THE ASSESSMENT YEAR 2006-07, A DETAILED SUBMISSION HAD BEEN MADE WITH R EGARD TO THE AOS QUERY, REGARDING PAYMENTS MADE FOR EXPENSES TO PERS ONS SPECIFIED U/S 40A(2)(B) OF THE ACT, VIDE LETTER DATED 16.6.08. A N EXTRACT OF THE SAID LETTER WAS REPRODUCED BEFORE THE LD. CIT IN THE ASSESSEES REPLY DATED 28.8.2010 (COPY AT APB 3 TO 20, RELEVANT PORTION AT APB 5 TO 11). 11. THE LD. CIT, HOWEVER, OBSERVED THAT ONLY BECAUS E SIMILAR PAYMENTS WERE ALLOWED IN THE EARLIER YEAR, THE PAYMENTS IN T HE YEAR UNDER ITA 4809(DEL)2010 12 CONSIDERATION SHOULD NOT BE MADE AUTOMATICALLY ALLO WABLE, RES JUDICATA NOT APPLYING TO INCOME TAX PROCEEDINGS AND THE ISSUE OF REASONABILITY OF THE CLAIM BEING SUBJECT TO EXAMINATION VIS--VIS FACTS RELATING TO EACH PAYMENT AND THE CORRESPONDING MARKET RATE; THAT THE AO, FOR THE YEAR UNDER CONSIDERATION, HAD NOT ENQUIRED INTO THE MATTER AS SUCH; THAT ALTHOUGH THE AO COLLECTED THE DETAILS FROM THE ASSESSEE IN THE ASSE SSMENT PROCEEDINGS, HE FAILED TO EXAMINE THE PAYMENTS OF THE RENT TO AN AS SOCIATE CONCERN IN THE LIGHT OF THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT; THAT THE AO HAD MERELY ACCEPTED THE CLAIM OF THE ASSESSEE ON THE PR INCIPLE OF CONSISTENCY; THAT THE AO FAILED TO APPLY THE PROVISIONS OF SECTI ON 40A(2)(B) OF THE ACT, RENDERING THE ORDER ERRONEOUS AND PREJUDICIAL TO TH E INTERESTS OF THE REVENUE. 12. WE ARE NOT ABLE TO PERSUADE OURSELVES TO CONCUR WITH THE FINDINGS RECORDED BY THE LD.CIT. THIS IS A CASE WHERE THE LD. CIT HAS BEEN OF THE OPINION THAT THE AO, THOUGH HE DID CARRY OUT ENQUIRY, HE DID NOT CARRY OUT FURTHER ENQUIRY WHICH WAS, IN THE VIEW OF THE LD. C IT, REQUIRED TO BE DONE. THE COMMISSIONER SAYS, INTER ALIA, THAT THE ENQUIRY CONDUCTED BY THE AO DID NOT GO THE WHOLE HOG. AND THAT THE AO DID NOT CARRY THE ENQUIRY TO ITS LOGICAL CONCLUSION. 13. NOW, IN DG HOUSING PROJECTS LTD.(SUPRA), IT HAS BEEN OBSERVED, INTER ALIA, THAT IN CASES WHERE THERE IS INADEQUATE ENQUIRY, BUT NOT LAW OF ITA 4809(DEL)2010 13 ENQUIRY, CIT MUST GIVE A RECORD OF FINDING THAT THE ORDER/ENQUIRY MADE IS ERRONEOUS; THAT THIS CAN HAPPEN IF AN ENQUIRY AND V ERIFICATION IS CONDUCTED BY THE CIT AND HE IS ABLE TO ESTABLISH AND SHOW THE ERROR OR MISTAKE MADE BY THE AO, MAKING THE ORDER UNSUSTAINABLE IN LAW; THAT IN SOME RARE CASES, THE CIT CAN SHOW AND ESTABLISH THAT THE FACTS ON RECORD OR INFERENCE DRAWN FROM THE FACTS ON RECORD PER SE JUSTIFY AND MANDATE FURT HER ENQUIRY OR INVESTIGATION, BUT THE AO HAD ERRONEOUSLY NOT UNDER TAKEN THE SAME; THAT HOWEVER, THE SAID FINDING MUST BE CLEAR, UNAMBIGUOU S AND NOT DEBATABLE; THAT THE MATTER CANNOT BE REMITTED FOR A FRESH DECI SION TO THE AO TO CONDUCT FURTHER ENQUIRIES WITHOUT A FINDING THAT THE ORDER IS ERRONEOUS; THAT FINDING THAT THE ORDER IS ERRONEOUS IS A CONDITION OR REQUI REMENT WHICH MUST BE SATISFIED FOR EXERCISE OF JURISDICTION UNDER SEC. 2 63 OF THE ACT; THAT IN SUCH MATTERS, TO REMAND THE MATTER/ISSUE TO THE AO WOULD IMPLY AND MEAN THE CIT HAS NOT EXAMINED AND DECIDED WHETHER OR NOT THE ORDER IS ERRONEOUS BUT HAS DIRECTED THE AO TO DECIDE THE ASPECT/QUESTION; AND THAT THE ORDER IS NOT ERRONEOUS, UNLESS THE CIT HOLDS AND RECORDS THE REASONS WHY IT IS ERRONEOUS. 14. IN THE PRESENT CASE, WE FIND THAT DURING THE AS SESSMENT PROCEEDINGS, IN RESPONSE TO THE QUERY RAISED BY THE AO, THE ASSESSE E HAD SUBMITTED COMPLETE DETAILS OF THE PAYMENTS MADE TO PERSONS COMING U/S 40A(2)(B) OF THE ACT. NO ADVERSE COMMENT THERETO WAS MADE BY THE AO. TH ERE IS NOTHING ON ITA 4809(DEL)2010 14 RECORD TO SHOW THAT THE DETAILS FURNISHED BY THE AS SESSEE WERE NOT DULY TAKEN INTO CONSIDERATION BY THE AO. WHAT IS EVIDENT FRO M THE RECORD IS THAT THE AO DID ASK A SPECIFIC QUERY TO THE ASSESSEE AND THAT THE ASSESSEE DID FURNISH COMPLETE DETAILS IN RESPONSE THERETO. IT WAS BESID ES FILING THESE COMPLETE DETAILS THAT THE ASSESSEE BROUGHT THE ASSESSMENT RE CORD FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, I.E., ASSESSMENT YEAR 20 06-07, TO THE NOTICE OF THE AO, TO CONTEND THAT EXACTLY SIMILAR ALLOWANCES HAD BEEN MADE IN THAT YEAR, UNDER SCRUTINY ASSESSMENT. IT IS PERTINENT TO MENT ION HERE THAT UNDISPUTEDLY, AS POINTED OUT ON BEHALF OF THE ASSESSEE, THE AO FO R BOTH THE ASSESSMENT YEARS, I.E., ASSESSMENT YEAR 2006-07 AND 2007-08, WAS ONE AND THE SAME. 15. MOREOVER, AS OBSERVED, THE LD. CIT IS HIMSELF O F THE OPINION THAT THOUGH ENQUIRY HAS BEEN CARRIED OUT BY THE AO, THE AO HAS NOT GONE THE WHOLE HOG AND ENQUIRY HAS NOT BEEN CARRIED TO ITS L OGICAL CONCLUSION. AS TO HOW IT IS SO, NO COMMENT HAS BEEN MADE BY THE LD. C IT, BUT FOR OBSERVING THAT THE AO HAD MERELY ACCEPTED THE CLAIM OF THE A SSESSEE ON THE GROUND THAT IN THE EARLIER YEAR, SUCH PAYMENTS WERE ALLOWE D, WITHOUT APPLYING THE CORRECT LAW BY EXAMINING THE PAYMENTS MADE OF THE R ENT TO ASSOCIATE CONCERNS IN THE LIGHT OF THE REQUIREMENTS OF SECTIO N 40A(2)(B) OF THE ACT. IT MUST BE TAKEN NOTE HERE THAT HOW AN ASSESSMENT ORDE R IS WRITTEN IS BEYOND THE POWERS OF THE ASSESSEE. ITA 4809(DEL)2010 15 16. IN GALILEO INDIA (P)LTD. (SUPRA), THE QUESTIO NNAIRE WAS ISSUED BY THE AO AND THE ASSESSEE SUBMITTED A DETAILED REPLY AND ANSWERED THE QUERY TO THE SATISFACTION OF THE AO, BUT NEITHER THE QUERY, NOR THE ANSWER WERE REFLECTED IN THE ASSESSMENT ORDER. IT WAS HELD THA T THIS, BY ITSELF, WOULD NOT LEAD TO THE CONCLUSION THAT THE ORDER OF THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE; THAT THE AO HAD NO T SHIRKED HIS RESPONSIBILITY OF EXAMINING AND INVESTIGATING THE CASE; THAT APPAR ENTLY, THE AO WAS SATISFIED WITH THE EXPLANATION OF THE ASSESSEE; AND THAT A CHANGE OF OPINION OR VIEW WOULD NOT ENABLE THE CIT TO EXERCISE REVISIONA L JURISDICTION, WHEN THE AO HAD CONSIDERED THE DETAILS AND EXPLANATIONS OFFE RED BY THE ASSESSEE. THE FACT SITUATION IN THE CASE BEFORE US IS IN PARI MATERIA WITH THAT IN GALILEO INDIA(P)LTD.(SUPRA), AS DISCUSSED. THEREFORE, GAL ILEO INDIA(P)LTD.(SUPRA), IS SQUARELY APPLICABLE. 17. SO FAR AS REGARDS OSWAL AGRO(SUPRA), THERE IS NO DENYING THAT MERELY ON THE BASIS OF CONSISTENCY, A CLAIM CANNOT BE ALLOWED WHERE A SUBSTANTIAL QUESTION OF LAW IS INVOLVED. HOWEVER, THE ISSUE REGARDING THE REASONABLENESS OF THE EXPENSES U/S 40A(2)(B) OF THE ACT, CAN HARDLY BE SAID TO BE A QUESTION OF LAW, MUCH LESS A SUBSTANTIAL QU ESTION OF LAW. SUCH ITA 4809(DEL)2010 16 REASONABLENESS, BESIDES, WOULD DEPEND ON THE FACTS OF EACH CASE. THEREFORE, OSWAL AGRO(SUPRA), IS NOT APPLICABLE. 18. APROPOS TARA DEVI AGGARWAL(SUPRA), THE ORDER UNDER APPEAL DOES NOT EVINCE ANY MATERIAL AS BEING BEFORE THE LD. COM MISSIONER TO SUPPORT HIS FINDING THAT THE ASSESSMENT ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. TARA DEVI AGGARWAL(SU PRA), AS SUCH, ALSO DOES NOT APPLY. 19. IN VIEW OF THE ABOVE DISCUSSION, THE GRIEVANCE OF THE ASSESSEE IS FOUND TO BE JUSTIFIED AND IS ACCEPTED AS SUCH. WE HOLD THAT IN THE ABOVE DISCUSSION, THE LD. CIT WAS NOT JUSTIFIED IN HOLDIN G THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF TH E REVENUE. THE LD. CITS ORDER IS, HENCE, CANCELLED. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.03.2012. SD/- SD/- (G.D. AGRAWAL) (A.D. JAIN) VICE PRESIDENT JUDICIAL MEMBER DATED:23.03.2012. *RM ITA 4809(DEL)2010 17 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER ASSISTANT REGISTRAR