Frizair Private Limited, Secunderabad V. Dy.CIT, Central Circle-1(3), Hyderabad

ITA 574/HYD/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91761 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 03-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 23-04-2013
• Court: TRIBUNAL
• Department Lawyers: P SOMASHEKAR REDDY
• Assessee Lawyers: AJAY GANDHI
• Keywords: Capital asset; Business income; Prejudicial to interest
• Section: 143(3); 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 574/HYD/2013 ASSESSMENT YEAR: 2008-09 FRIZAIR PRIVATE LIMITED, HYDERABAD [PAN: AABCF0290M] VS DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(3), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI AJAY GANDHI, AR FOR REVENUE : SHRI P. SOMASHEKAR REDDY, DR DATE OF HEARING : 17-07-2015 DATE OF PRONOUNCEMENT : 24-07-2015 O R D E R THIS IS AN ASSESSEE'S APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX-I, HYDERABAD DT. 25-03-2013 U/S. 263 OF THE INCOME TAX ACT [ACT]. 2. BRIEFLY STATED, ASSESSEE WHO IS IN THE BUSINESS OF MANUFACTURING OF AIR CONDITIONERS AND REFRIGERATORS HAS FILED RETURN OF INCOME ADMITTING TOTAL INCOME OF RS. 36,076/-. IN ARRIVING AT THE A BOVE TOTAL INCOME, ASSESSEE OFFERED CAPITAL GAINS INCOME OF RS. 1,74,8 4,408/- AND SET OFF LOSS FROM THE BUSINESS OF RS. 1,74,48,332/-, THEREB Y TOTAL INCOME BEING LONG TERM CAPITAL GAINS AT RS. 36,076/- WAS OFFERED . THIS COMPUTATION OF INCOME FILED BY ASSESSEE WAS ACCEPTED BY ASSESSI NG OFFICER (AO) IN THE ORDER DT. 16-12-2010 U/S. 143(3) OF THE ACT. LD.CI T NOTICED THAT ON VERIFICATION OF AGREEMENT OF SALE CUM IRREVOCABLE P OWER OF ATTORNEY I.T.A. NO. 574/HYD/2013 FRIZAIR PRIVATE LIMITED :- 2 -: DT. 21-03-2009, IT IS SEEN THAT ASSESSEE-COMPANY AG REED FOR TRANSFER OF 800 SQ. YDS., OF LAND FOR AN AMOUNT OF RS. 1.75 CRO RES AND DESIRED SELLING FURTHER PLOT OF LAND OF 1,800 SQ. YDS., TO THE SAME BUYER FOR AN AMOUNT OF RS. 3.80 CRORES. THE CIT WAS OF THE OPINI ON THAT THE SALE OF ENTIRE LAND OF 2,600 SQ. YDS., WAS A SINGLE TRANSAC TION AND THE TOTAL CONSIDERATION AGREED WAS ABOUT RS. 5.75 CRORES AND THE AMOUNT PAID OF RS. 1.75 CRORES ON 12-03-2008 WAS SHOWN AS ADVANCE RECEIVED IN THE BOOKS OF ACCOUNTS. HE WAS OF THE OPINION THAT ENTI RE TRANSACTION BEING A SINGLE TRANSACTION OF SALE OF LAND ADMEASURING 2,60 0 SQ. YDS., RESULTANT CAPITAL GAIN SHOULD HAVE BEEN OFFERED IN THE AY. 20 09-10. INSTEAD, ASSESSEE OFFERED IN TWO ASSESSMENT YEARS I.E., RS. 1.75 CRORES SALE PROCEEDS IN AY. 2008-09 AND RS. 3.80 CRORES IN AY. 2009-10. HE ALSO NOTICED THAT THE SALE VALUE PER SQ YARD WORKED OUT DIFFERENTLY IN TWO DIFFERENT ASSESSMENT YEARS AND THE POSSESSION WAS NOT HANDED-OVER TO THE BUYER BY END OF 31-03-2008, CONSEQUENTLY THE EN TIRE CAPITAL GAIN SHOULD HAVE BEEN OFFERED TO TAX IN AY. 2009-10 ONLY . ACCORDINGLY, HE ISSUED NOTICE INVOKING JURISDICTION U/S. 263 ASKING ASSESSEE WHY THE CAPITAL GAIN OFFERED IN AY. 2008-09 SHOULD NOT BE TAXED IN AY. 2009-10. 2.1 ASSESSEE CONTENDED THAT THE RELEVANT DETAILS WE RE FURNISHED BEFORE THE AO AND AO HAS ACCEPTED THE CAPITAL GAINS OFFERE D IN AY. 2008-09 AND THE ASSESSMENT WAS COMPLETED AFTER DUE VERIFICA TION OF THE CAPITAL GAINS TRANSACTIONS. IT WAS SUBMITTED THAT THESE TW O ARE SEPARATE TRANSACTIONS, EVEN THOUGH WITH SAME BUYER, AS ASSES SEE SOLD A PART OF 800 SQ. YDS., IN FY. 2007-08 AND THE SAME BUYER WA NTED FURTHER LAND LATER, THEREFORE, FURTHER LAND WAS SOLD IN LATER YE AR. IT WAS ALSO SUBMITTED THAT ASSESSEE HAPPENED TO OWN MUCH MORE L AND. THESE TRANSACTIONS BEING INDEPENDENT TRANSACTIONS THOUGH CONCLUDED BY ONE AGREEMENT DT. 31-03-2009, THE CAPITAL GAINS WERE OF FERED AS PER THE TRANSACTIONS IN RESPECTIVE YEARS. IT WAS FURTHER S TATED THAT THERE IS NO I.T.A. NO. 574/HYD/2013 FRIZAIR PRIVATE LIMITED :- 3 -: PREJUDICE CAUSED TO REVENUE AS ENTIRE CAPITAL GAIN WAS OFFERED AS LONG TERM CAPITAL GAIN IN BOTH YEARS. 2.2 LD.CIT HOWEVER, DID NOT AGREE AND SET ASIDE THE ASSESSMENT BY STATING AS UNDER: 'FROM THE ABOVE IT CAN BE CLEARLY ESTABLISHED THAT NO POSSESSION OF THE PROPERTY WAS GIVEN TO THE BUYER DURING THE FINANCIAL YEAR 2007-08 AND THE AMOUNT OF RS. 1.75 CRORES WAS ONLY AN ADVANCE AND AS SUCH THE ASSESSEE COMPANY IS NOT CORRECT IN ADMITTING PART OF THE CAPITAL GAIN DURING THE ASST . YEAR 2008-09. THE ASSESSEE SHOULD HAVE OFFERED THE ENTIRE CAPITA L GAIN ARISING OUT OF TRANSFER OF LAND ADMEASURING 2600 SQ. YDS. IN T HE ASST. YEAR 2009-10. THE METHOD ADOPTED BY THE ASSESSEE IS ON LY A COLOURABLE DEVICE TO AVOID PAYMENT OF CAPITAL GAINS TAX IN TH E ASST. YEAR 2009- 10. AS SUCH, UNDER THE POWERS VESTED U/S. 263 OF THE I.T. ACT, THE ASSESSMENT MADE US 143(3) DATED 16.12.2010 IS MODI FIED BY REDUCING THE CAPITAL GAINS ADMITTED OF RS. 1,74,84 ,408/-. THE CAPITAL GAINS ARISING OUT OF THE SALE OF ENTIRE LA ND OF 2600 SQ. YDS OF LAND IS TO BE CONSIDERED FOR THE ASST. YEAR 200 9-10. THE ASSESSING OFFICER IS DIRECTED TO MODIFY THE A SSESSMENT ACCORDINGLY FOR THE ASST YEAR 2008-09'. 3. LD. COUNSEL REFERRING TO THE COMPUTATIONS FILED IN THIS YEAR AND LATER YEAR SUBMITTED THAT THERE IS NO DISPUTE WITH REFERENCE TO COMPUTATION OF CAPITAL GAINS NOR THERE IS DISPUTE A BOUT THE SALE CONSIDERATION RECEIVED. IT WAS FURTHER SUBMITTED T HAT ASSESSEE HAS OFFERED CAPITAL GAINS IN THE VERY FIRST YEAR ON 800 SQ. YDS., SOLD FOR RS. 1.75 CRORES AS THAT PART OF THE TRANSACTION HAS CON CLUDED. SUBSEQUENTLY, THE BUYER M/S. VIJAY SAI ORGANICS LTD ., WANTED SOME MORE LAND AND ACCORDINGLY, FURTHER LAND OF 1,800 SQ . YDS., WAS ALSO SOLD FOR A CONSIDERATION OF RS. 3.80 CRORES WHICH WAS IN ITIATED SEPARATELY AND EARMARKED SEPARATELY. HOWEVER, THE AGREEMENT CUM S ALE AND GENERAL POWER OF ATTORNEY WAS GIVEN BY A SINGLE DOCUMENT ON 31-03-2009 AND THE DOCUMENT CLEARLY INDICATES THAT THESE TWO TRANS ACTIONS ARE SEPARATE. I.T.A. NO. 574/HYD/2013 FRIZAIR PRIVATE LIMITED :- 4 -: HE REFERRED TO THE TERMS OF AGREEMENT OF SALE, PART ICULARLY ITEM NO. C, D & E TO INDICATE THAT THE CAPITAL GAINS WAS CALCULAT ED SEPARATELY IN THE YEAR IN WHICH THE TRANSACTION OCCURRED. THEREFORE, ASSESSEE HAS RIGHTLY OFFERED THE CAPITAL GAINS IN THE RESPECTIVE ASSESSM ENT YEARS. IT WAS FURTHER CONTENDED THAT THERE WAS NO PREJUDICE CAUSE D TO THE REVENUE AS THE CAPITAL GAINS WAS TAXED @ 20% IN EITHER OF THE YEAR AND IN FACT BY THE ORDER OF CIT U/S. 263, PREJUDICE IS CAUSED TO THE R EVENUE AS THE LOSS TO BE CARRIED FORWARD IN 2008-09, INSTEAD OF GETTING SET-OFF TO THE LONG TERM CAPITAL GAIN IN 2008-09, IS BEING SET-OFF IN A LATER YEAR TO THE BUSINESS INCOME BEING TAXED AT 30% OF TAX IN AYS. 2 011-12 AND 2012- 13. ASSESSEE HAS FURNISHED A CHART INDICATING THAT FOR A PERIOD OF SEVEN ASSESSMENT YEARS I.E., UPTO 2014-15, THE TAXES PAID ARE SIMILAR UNDER BOTH THE SITUATIONS I.E., BEFORE ORDER U/S. 263 AS FILED BY ASSESSEE IN RESPECTIVE YEARS AND AS CONSEQUENCE OF ORDER U/S. 2 63 IF MODIFIED. NOT ONLY THAT, IT WAS ALSO SUBMITTED THAT LD.CIT CANNOT HOLD THAT ORDER IS PREJUDICIAL TO INTEREST OF REVENUE TO EXCLUDE THE I NCOMES OFFERED DURING THE YEAR. HE RELIED ON VARIOUS CASE LAW INCLUDING THE JURISDICTIONAL HIGH COURT ORDER IN THE CASE OF SPECTRA SHARES AND SCRIP S PVT. LTD., VS. CIT [354 ITR 35] (AP). 4. LD. DR HOWEVER, REITERATED THE FACTS AS STATED B Y THE CIT TO SUBMIT THAT EXERCISE OF JURISDICTION IS CORRECT. 5. I HAVE CONSIDERED THE ISSUE AND EXAMINED THE REC ORDS AND DOCUMENTS PLACED ON RECORD. NO DOUBT, ASSESSEE HAS SOLD A LARGE CHUNK OF LAND IN ITS POSSESSION TO ONE PARTY. AS SEEN FR OM THE BOOKS OF ACCOUNTS, THE AMOUNT OF RS. 1.75 CRORES RECEIVED WA S SHOWN AS ADVANCE RECEIVED FOR SALE OF LAND. EVEN THE AGREEMENT OF SA LE DO INDICATE THAT IMMEDIATELY AFTER MARCH, FURTHER AMOUNT OF RS. 50 L AKHS PER MONTH WAS RECEIVED IN THE MONTH OF APRIL, MAY AND BY END OF M ARCH, 2009, THE I.T.A. NO. 574/HYD/2013 FRIZAIR PRIVATE LIMITED :- 5 -: BALANCE AMOUNT OF RS. 3.8 CRORES WAS ALSO RECEIVED ON VARIOUS DATES. THIS INDICATES THAT THE TRANSACTION IS SINGLE AND T HE CAPITAL GAIN COULD HAVE BEEN OFFERED EITHER IN AY 2008-09 OR AY. 2009- 10. HOWEVER, THE FACT IS THAT ASSESSEE OFFERED THE CAPITAL GAIN IN T WO ASSESSMENT YEARS, THEY BEING NO DIFFERENCE IN COMPUTATION IN EITHER O F THE YEARS AND THE TAX RATE BEING 20% ON THE LONG TERM CAPITAL GAIN, NO PR EJUDICE IS GENERALLY CAUSED WHETHER THE CAPITAL GAIN IS OFFERED IN AY. 2 008-09 UPON ENTERING INTO AN AGREEMENT OR IN AY. 2009-10 ON CONCLUSION O F THE AGREEMENT. 6. THE ISSUE WHETHER THE CAPITAL GAINS CAN BE TAXED IN AY 2009-10 OR NOT IS NOT BEFORE ME. WHAT I AM CONCERNED HERE I S WHETHER THE ACTION OF THE CIT IN EXERCISING JURISDICTION U/S. 263 IN A Y 2008-09 IS VALID OR NOT. PROVISION OF SECTION 263 EMPOWERS THE CIT TO EXERCISE JURISDICTION IF HE CONSIDERS THAT ANY ORDER PASSED THERE IN BY THE AO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF REV ENUE. THUS, THERE SHOULD BE TWO CONDITIONS WHICH REQUIRE TO BE SATISFIED, ( A.) THAT ORDER OF AO IS ERRONEOUS AND (B.) ALSO IS PREJUDICIAL TO THE INTER EST OF REVENUE. IF ONE EXAMINES THE FACTS OF THE CASE, KEEPING IN MIND THE ABOVE TWO CONDITIONS, THE ORDER OF CIT IS NOT JUSTIFIABLE. F IRST OF ALL, THE AO'S ORDER CANNOT BE CONSIDERED AS ERRONEOUS AS HE HAS EXAMINE D THE COMPUTATION OF INCOME AND ACCEPTED THE CAPITAL GAINS COMPUTATIO N AS SUCH. AS ALREADY STATED, THERE IS NO DISPUTE WITH REFERENCE TO THE COMPUTATION OF CAPITAL GAINS. IN FACT, ASSESSEE GETS MORE INDEXAT ION BENEFIT IN THE LATER YEAR, BUT ASSESSEE OFFERED THE SAME IN THIS ASSESSM ENT YEAR. IT MAY BE NOTED THAT ASSESSEES BUSINESS LOSS DURING THE YEAR WAS SET-OFF TO THE LONG TERM CAPITAL GAIN AS PER THE PROVISIONS OF THE ACT. SINCE ASSESSEE HAS OFFERED POSITIVE INCOME RATHER THAN A LOSS (IF CAPITAL GAINS WAS NOT OFFERED) IN THE YEAR, IT CANNOT BE HELD THAT ORDER OF THE AO IS ERRONEOUS ON THAT REASON. I.T.A. NO. 574/HYD/2013 FRIZAIR PRIVATE LIMITED :- 6 -: 7. COMING TO THE ISSUE OF PREJUDICE, THERE IS NO PR EJUDICE CAUSED TO THE REVENUE IN THE ENTIRE TRANSACTION AS THE CAPITA L GAINS GETS TAXED IN EITHER OF THE YEARS @ 20% ONLY. EVEN THOUGH LD.CIT CONSIDERED THAT AGREEMENT OF SALE CUM IRREVOCABLE G.O. WAS REGISTER ED ON 31-03-2009, HE COULD HAVE INVOKED THE POWERS TO BRING THE CAPIT AL GAINS OFFERED IN LATER YEAR TO THIS ASSESSMENT YEAR, IF ASSESSEE HAS GIVEN POSSESSION AS CONTENDED BY ASSESSEE TO THE EXTENT OF FIRST PART O F TRANSACTION. THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE O F POTLA NAGESWARA RAO VS. DY. COMMISSIONER OF INCOME TAX IN ITTA NO. 245/ 2014 DATED 09-04- 2014 COULD HAVE COME TO RESCUE OF LD.CIT. INSTEAD LD.CIT EXERCISED JURISDICTION TO DIRECT THE AO TO EXCLUDE THE CAPITA L GAIN OFFERED IN THIS ASSESSMENT YEAR, THEREBY INCOME OFFERED BY ASSESSEE WAS EXCLUDED FROM COMPUTATION DURING THE YEAR. THIS ACTION OF THE CI T CAUSES PREJUDICE TO THE REVENUE, NOT THE ORDER AO WHICH WAS CONSIDERED BY THE CIT AS PREJUDICIAL TO THE INTEREST OF REVENUE. NOT ONLY T HAT, ASSESSEE ALSO JUSTIFIED THAT THE LOSS WHICH WAS INCURRED DURING T HE YEAR, WOULD BE ELIGIBLE TO SET-OFF TO THE BUSINESS PROFITS EARNED IN AY 2011-12 ONWARDS, WHEREIN ASSESSEE OFFERED POSITIVE INCOMES, OFFERING THE TAX AT 30% OF THE TOTAL INCOME + SURCHARGE THERE ON. ACTION OF THE C IT WOULD RESULT IN REFUND OF TAX TO ASSESSEE AND IS BENEFICIAL TO ASS ESSEE. THEREFORE, THE SECOND CONDITION PRESCRIBED U/S. 263, THAT THE ORDE R OF AO IS PREJUDICIAL TO THE INTEREST OF REVENUE, DOES NOT SATISFY EITHER IN THIS YEAR OR IN THE LATER YEARS. AS SEEN FROM THE CONSEQUENTIAL ORDER PASSED, EVEN THE SMALL TAX OFFERED BY ASSESSEE WAS TO BE REFUNDED. CONSID ERING THESE FACTS, IT CANNOT BE STATED THAT THE ORDER OF THE AO IS PREJUD ICIAL TO THE INTEREST OF REVENUE. IT IS IN FACT THE ORDER OF CIT WHICH IS P REJUDICIAL TO THE INTEREST OF REVENUE. IN VIEW OF THIS, KEEPING IN VIEW OF TH E PRINCIPLES LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CAS E OF SPECTRA SHARES AND SCRIPS PVT. LTD., VS. CIT [354 ITR 35] (AP), I HOLD THAT THERE IS NO JUSTIFICATION IN EXERCISING THE JURISDICTION U/S. 2 63 BY THE CIT. IN VIEW OF I.T.A. NO. 574/HYD/2013 FRIZAIR PRIVATE LIMITED :- 7 -: THIS THE IMPUGNED ORDER IS SET ASIDE AND THAT OF AO WAS RESTORED, ALLOWING ASSESSEE'S GROUNDS. 8. IN THE RESULT, ASSESSEE'S APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JULY, 2015. SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMB ER HYDERABAD, DATED 24 TH JULY, 2015 TNMM COPY TO : 1. FRIZAIR PRIVATE LIMITED, B-47/48, INDUSTRIAL EST ATES, SANATHNAGAR, HYDERABAD. C/O. GANDHI AND GANDHI CHARTERED ACCOUNTANTS, 1002, PAIGAH PLAZA, BASHEERB AGH, HYDERABAD. 2. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(3), AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 3. CIT-I, HYDERABAD. 4. THE ADDL. CIT, RANGE-I, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.