M/s. Bhagyanagar India Ltd., Secunderabad V. Addl.CIT, Range-1, Hyderabad

ITA 599/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66456 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 26-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: K C DEVADAS
• Keywords: Business income; Rectification of order; Principle of natural justice; Assessment record

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL M EMBER ITA NO.599/HYD/2012 : ASSESSME NT YEAR 2008-09 M/S. BHAGYA NAGAR INDIA LTD., SECUNDERABAD. (PAN AAACB 8963 C) (APPELLANT) V/S. ADDL. COMMISSIONER OF INCO M E - TAX RANGE-1, HYDERABAD. (RESPONDENT) APPELLANT BY : SHRI K. C.DEVADAS RESPONDENT BY : SHRI V.SRINIVAS DATE OF HEARING 8 .8.2012 DATE OF PRONOUNCEMENT O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX I, HYDERABAD, DATED 22.2.2012 PASSED UNDER S.263 OF THE INCOME-TAX ACT, 1961, FOR THE AS SESSMENT YEAR 2008-09. 2. THE EFFECTIVE GROUNDS OF THE ASSESSEE IN THIS A PPEAL READ AS FOLLOWS- 1. 2. THE LEARNED C.I.T.-1, HYDERABAD ERRED IN DIRECTING THE ASSESSMENT OF SURPLUS INCOME ARISING FROM TRANSACTI ONS WITH VANSH BUILDERS AS BUSINESS INCOME AS AGAINST THE HEAD CAPITAL GAINS AS DECLARED BY THE APPELLANT. ITA NO.599/HYD/2012 M/S. BHAGYANAGAR INDIA LTD., SECUNDERABAD. . 2 3. THE LEARNED C.I.T-I, HYDERABAD, FAILED TO TOE THAT THE AGREEMENT WITH M/S. VANSH BUILDERS WAS TO DEVELOP T HE PROPERTY AS AN INVESTMENT TO YIELD RENTAL INCOM E AND WAS NOT TO EARN PROFITS AS A COMMERCIAL VENTURE. 4. THE LEARNED C.I.T-I, HYDERABAD, FAILED TO NOTE THAT THE APPELLANT HAD IN THE PAST BEEN ACQUIRING IMMOVABLE PROPERTY AS INVSTMENT THE INCOME FROM WHICH WAS ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY . 5. THE LEARNED C.I.T-I, HYDERABAD, FAILED TO NOTE THAT THE ASSESSMENT OF SURPLUS INCOME ARISING FROM TRANSFER OF IMMOVABLE PROPERTY WAS VEXED ISSUE HIGHLY DEBATABLE CONCEIVABLY ON WHICH TWO VIEWS ARE POSSIBLE AND THEREFORE, WAS NOT AMENABLE TO JURISDICTION U/S. 26 3 OF THE INCOME TAX ACT 1961 AND THEREFORE THE ORDER PAS SD MUST BE QUASHED. 6. THUS, THE POINT IN DISPUTE IN THIS APPEAL RELATES T O THE LEGALITY AND VALIDITY OF THE ORDER PASSED BY THE CHIEF COMMISSIO NER OF INCOME-TAX ACT UNDER S.263 OF THE ACT, DIRECTING THE ASSESSING OFFICER TO TAX THE AMOUNT RECEIVED BY THE ASSESSEE ON CANCELLATION OF THE DEVELOPMENT AGREEMENT ENTERED INTO BY IT WITH M/S. VANSH BUILDE RS AS INCOME FROM BUSINESS, AS AGAINST THE ASSESSEES CLAIM FOR ASSES SING IT UNDER THE HEAD CAPITAL GAINS WHICH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF COPPER P RODUCTS, JELLY FILLED TELEPHONE CABLES AND REAL ESTATE. FOR THE ASSESSMEN T YEAR 2008-09, ASSESSEE FILED RETURN OF INCOME ON 29.9.2008 DECLAR ING AN INCOME OF RS.18,74,72,770. THE RETURN WAS INITIALLY PROCESSE D UNDER S.143(1) OF THE ACT ON 16.11.2009, AND LATER, ON 18.12.2009, AN ORDER UNDER S.154 OF THE ACT WAS PASSED GIVING CREDIT TO TAX, AND REF UND OF RS.36,56,900 (INCLUDING INTEREST OF RS.4,90,710) WAS ISSUED. TH EREAFTER, ANOTHER RECTIFICATION ORDER UNDER S.154 WAS PASSED ON 17.5. 2010 GRANTING ITA NO.599/HYD/2012 M/S. BHAGYANAGAR INDIA LTD., SECUNDERABAD. . 3 FURTHER CREDIT TO ADVANCE TAX AND FURTHER REFUND OF RS.18,62,791 (INCLUDING INTEREST OF RS.1,21,865) WAS ISSUED ON 4 .6.2010. THEREAFTER, THE CASE WAS TAKEN UP FOR SCRUTINY IN C ASS, AND THE SCRUTINY ASSESSMENT WAS ULTIMATELY COMPLETED, AFTER MAKING CERTAIN ADDITIONS AND DISALLOWANCES WITH WHICH WE ARE NOT C ONCERNED IN THE PRESENT APPEAL, BUT MAKING NO ADJUSTMENT BY WAY OF ADDITION/DISALLOWANCE WITH REGARD TO THE ASSESSEES CLAIM IN RELATION TO THE AMOUNT RECEIVED BY IT ON CANCELLATION OF THE DE VELOPMENT AGREEMENT ENTERED INTO BY IT WITH M/S. VANSH BUILDE RS, WHICH HAS BEEN OFFERED TO TAX UNDER THE HEAD CAPITAL GAINS, ON A TOTAL INCOME OF RS.20,28,41,540, VIDE ORDER OF ASSESSMENT DATED 29. 12.2010, PASSED UNDER S.143(3) OF THE ACT. 4. THE CHIEF COMMISSIONER OF INCOME-TAX(OSD), WHIL E PERUSING THE ASSESSMENT RECORD OF THE ASSESSEE, FOU ND THAT THE ASSESSMENT COMPLETED AS ABOVE, VIDE ORDER DATED 29. 12.2009 UNDER S.143(3) WAS ERRONEOUS AS WELL AS PREJUDICIAL TO TH E INTERESTS OF REVENUE, AND ACCORDINGLY GOT ISSUED A NOTICE DATED 6.6.2011 TO THE ASSESSEE. IN THE SAID SHOW-CAUSE NOTICE, AMONG OTHE R ASPECTS, WITH REGARD TO THE ISSUE RELATING TO DEVELOPMENT AGREEME NT BETWEEN THE ASSESSEE AND M/S. VANSH BUILDERS AND THE INCOME DER IVED THEREFROM, IT WAS POINTED OUT THAT THE ASSESSING OFFICER FAILED T O BRING TO TAX THE SAME AS BUSINESS INCOME. IT WAS MENTIONED IN THE SHOW-CAUSE NOTICE ON THIS ASPECT AS FOLLOWS- (I) AS SEEN FROM THE DEVELOPMENT AGREEM ENT DATED 21.02.2003 BETWEEN THE ASSESSEE AND M/S. VANS H BUILDERS, THE ASSESSEE IS THE DEVELOPER OF THE PROP ERTY. AS PER CLAUSE 19 OF THE AGREEMENT, THE DEVELOPERS ARE ENTITLED TO OFFER FOR SALE THE PROPOSED COMMERCIAL SHOPS AND OFFICES TO PROSPECTIVE THIRD PARTIES ON SUCH TE RMS AND ITA NO.599/HYD/2012 M/S. BHAGYANAGAR INDIA LTD., SECUNDERABAD. . 4 CONDITIONS AS THEY DEEM FIT IN THEIR DISCRETION AND ALSO ENTITLED TO RECEIVE THE SALE CONSIDERATION FROM INT ENDING PURCHASERS FOR THE 50% OF THEIR SHARE OF CONSTRUCT ED AREA. THIS CLEARLY INDICATES THAT THE ASSESSEE WA S ACTING AS A BUILDER TO CONSTRUCT COM MERCIAL COMPLEX AND THEREAFTER SELL THE SHOPS/SPACE. THIS IS NOTHING BU T TRADE/ADVENTURE IN THE NATURE OF TRADE. THEREFORE, THE AMOUNT RECEIVED ON CANCELLATION OF DEVELOPMENT AGREEMENT IS ASSESSABLE AS BUSINESS INCOME. HOWEVER , THE SAME WAS OFFERED AS CAPITAL GAINS. TO THAT EXTE NT ORDER OF THE AO IS ERRONEOUS AND AS WELL AS PREJUDI CIAL TO THE INTERESTS OF REVENUE. AFTER EXTRACTING THE ABOVE PORTION OF THE SHOW-CAUS E NOTICE, THE CHIEF COMMISSIONER, IN PARA 3 OF THE IMPUGNED ORDER OBSER VED THAT SHRI K.C.DEV DAS, FCA ATTENDED AND FILED WRITTEN SUBMISS IONS STATING THAT CLAUSE 19 OF THE SAID AGREEMENT WAS ONLY AN ENTITLE MENT AND NOT MANDATORY ONE. THAT CLAUSE, HE NOTED, ENABLED THE A SSESSEE TO SELL SOME OF THE SHOPS IN CASE THERE WAS ANY NECESSITY, AND AS SUCH, THE ASSESSEE TREATED THE ENTIRE DEAL AS AN INVESTMENT O NLY, AS IT WAS HOLDING IMMOVABLE PROPERTIES AS INVESTMENT IN THE B ALANCE SHEET. IT WAS ALSO POINTED OUT TO THE CHIEF COMMISSIONER THAT INVESTMENT WAS MADE OUT OF ITS OWN FUNDS AND HAD THE PROJECT NOT F AILED, THE PROPERTY WOULD HAVE BEEN EXPLOITED TO EARN THE RENTAL INCOME . 5. THE CHIEF COMMISSIONER, THEREAFTER CONCLUDED T HE MATTER, SETTING ASIDE THE ASSESSMENT FOR BEING REDONE IN AC CORDANCE WITH LAW, WITH THE FOLLOWING OBSERVATIONS- 4, THE ARGUMENT OF THE ASSESSEE IS NOT TENABLE. TH E ARGUMENT CLEARLY SHOWS THAT HE HAD THE INTENTION TO SELL THE SHOPS AND THE UNDIVIDED SHARE OUT OF ITS 50% SHARE OF THE CONSTRUCTED AREA. THE ENTIRE DEAL SHOULD HAVE BEEN TREATED AS ADVENTURE IN THE NATURE OF TRADE. THE ASSESSEE WAS ACTING AS A BUILDER TO CONSTRUCT A COMMERCIAL COMPLEX AND THERE AFTER SELL THE SHOPS OR SPACE. ON ACCOUNT OF CANCELLATION OF DEVELOPM ENT AGREEMENT THE ENTIRE AMOUNT THAT ACCRUED TO IT SHOU LD HAVE BEEN TAXED AS BUSINESS INCOME. ITA NO.599/HYD/2012 M/S. BHAGYANAGAR INDIA LTD., SECUNDERABAD. . 5 5, IN VIEW OF THIS THE ASSESSMENT ORDER IS PREJUDI CIAL AS WELL AS ERRONEOUS TO THE INTERESTS OF REVENUE. A CCORDINGLY, THE SAME IS SET ASIDE AND THE A.O. IS DIRECTED TO P ASS A FRESH ORDER TREATING THE INCOM E FROM OUT OF THE DEVELOPMENT AGREEMENT WITH M/S.VANSH BUILDERS AS INCOME FROM BU SINESS. 6. AGGRIEVED BY THE ABOVE ORDER PASSED UNDER S.26 3 OF THE ACT, ASSESSEE PREFERRED THE PRESENT APPEAL BEFORE U S. 7. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE A SSESSEE REITERATING HIS STAND TAKEN BEFORE THE CHIEF COMMIS SIONER SUBMITTED THAT THE ASSESSEE ENTERED INTO A DEVELOPMENT AGREEM ENT-CUM- IRREVOCABLE POWER OF ATTORNEY WITH M/S. VANSH BUILD ERS ON 21.8.2003 FOR THE PURPOSE OF INVESTMENT IN BUILDING A COMMERC IAL COMPLEX FOR EARNING RENTAL INCOME. AS PER THE TERMS OF THE DEVE LOPMENT AGREEMENT, ALL THE EXPENDITURE PERTAINING TO CAPITA L ASSET WAS TO BE BORNE BY THE ASSESSEE AND AN AMOUNT OF RS.3,60,00,0 00 WERE TO BE PAID BACK IN INSTALMENTS BY M/.S, VANSH BUILDERS IN CASE THE PROJECT WAS COMPLETED. AS PER THE TERMS OF THE DEVELOPMEN T AGREEMENT, THE ASSESSEE PAID AN AMOUNT OF RS.3,71,00,000 ON 28.1.2 003 TO M/S. VANSH BUILDERS, WHICH SHOULD HAVE ENTITLED IT TO TH E OWNERSHIP OF 50%OF THE FLOOR-WISE CONSTRUCTED AREA. HOWEVER, DUE TO CE RTAIN MISUNDERSTANDINGS, DISPUTES AROSE BETWEEN THE PARTI ES AND THE PROJECT COULD NOT MATERIALIZE, RESULTING IN ULTIMATE CANCEL LATION OF THE DEVELOPMENT AGREEMENT. ON CANCELLATION OF DEVELOPM ENT AGREEMENT, THE ASSESSEE RECEIVED AN AMOUNT OF RS. 6,00,00,000 FROM M/S. VANSH BUILDERS, BY WAY OF COMPENSATION. SINCE THE DEVELO PMENT OF PROPERTY WAS TO ACQUIRE IMMOVABLE PROPERTY TO BE HELD AS INV ESTMENT TO EARN RENTAL INCOME AND NOT TO TRADE WITH, THE ASSESSEE T REATED IT AS INCOME BY WAY OF CAPITAL GAINS. THE LEARNED AUTHORISED RE PRESENTATIVE FOR THE ITA NO.599/HYD/2012 M/S. BHAGYANAGAR INDIA LTD., SECUNDERABAD. . 6 ASSESSEE SUBMITTED THAT THE ASSESSEE IN ITS ACCOUNT HAS ALSO SHOWN IT AS INVESTMENT 8. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE QUESTIONING THE ASSUMPTION OF JURISDICTION UNDER S. 263 OF THE ACT, SUBMITTED THAT THE ASSESSING OFFICER HAVING COMPLET ED THE ASSESSMENT AFTER MAKING NECESSARY ENQUIRY ON THE ISSUE, THE OR DER OF ASSESSMENT COULD NOT HAVE BEEN HELD TO BE EITHER ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF REVENUE. THE LEARNED AUTHORISED REPR ESENTATIVE FOR THE ASSESSEE SUBMITTED THAT DURING THE ASSESSMENT PROC EEDINGS, THE ASSESSING OFFICER HAS, IN A QUESTIONNAIRE ISSUED, H AS SPECIFICALLY CALLED FOR INFORMATION WITH REGARD TO RELINQUISHMENT OF PR OPERTY RIGHT, AND IN REPLY TO THE QUESTION ON THAT ISSUE, THE ASSESSEE I N ITS LETTER DATED 25.10.2010, SUBMITTED ALL THE DETAILS WITH REGARD T O THE RELINQUISHMENT OF THE PROPERTY RIGHT UNDER THE DEVELOPMENT AGREEME NT AND ALSO SUBMITTED THE DEVELOPMENT AGREEMENT CUM IRREVOCABLE GENERAL POWER OF ATTORNEY ALONGWITH THE MEMORANDUM OF COMPROMISE WITH M/S. VANSH BUILDERS. IN THIS CONTEXT, THE ASSESSEE REFERRED T O THE QUESTIONNAIRE ISSUED BY THE ASSESSING OFFICER, AT PAGE 114 OF THE PAPER-BOOK AND THE ASSESSEES REPLY AT PAGE 82 OF THE PAPER-BOOK. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE FURTHER SUBMITTED T HAT IN ITS REPLY, THE ASSESSEE HAS MENTIONED ALL THE DETAILS WITH REGARD TO THE DEVELOPMENT AGREEMENT AS WELL AS THE AMOUNT RECEIVED ON CANCELL ATION OF THE DEVELOPMENT AGREEMENT. THE LEARNED AUTHORISED REPR ESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER H AVING CONDUCTED NECESSARY ENQUIRY IN THIS REGARD, IT HAS TO BE PRES UMED THAT HE HAS PASSED THE ORDER OF ASSESSMENT, AFTER PROPER APPLIC ATION OF MIND TO THE FACTS AVAILABLE ON RECORD BEFORE HIM. THE LEARNED A UTHORISED REPRESENTATIVE FOR THE ASSESSEE FURTHER SUBMITTED T HAT EVERY ENQUIRY ITA NO.599/HYD/2012 M/S. BHAGYANAGAR INDIA LTD., SECUNDERABAD. . 7 MADE BY THE ASSESSING OFFICER MAY NOT BE REFLECTED IN THE ASSESSMENT ORDER. ONLY THING THAT REQUIRES TO BE SEEN IS WHET HER THE ASSESSING OFFICER HAS CONSIDERED A PARTICULAR ISSUE AND MADE NECESSARY ENQUIRY OR NOT. ONCE IT IS FOUND THAT THE ASSESSING OFFICE R HAS MADE ENQUIRY ON A PARTICULAR ISSUE, THEN IT HAS TO BE PRESUMED THAT THE ASSESSING OFFICER HAS TAKEN A CONSCIOUS DECISION ON THAT ISSUE AFTER DUE APPLICATION OF MIND. 9. LEARNED AUTHORISED REPRESENTATIVE FOR THE AS SESSEE FURTHER CONTENDED THAT EVEN AFTER COMPLETION OF THE ASSESSM ENT, THE ASSESSING OFFICER ON THE COMMENTS MADE BY THE INTERNAL AUDIT, AGAIN RAISED FURTHER QUERY WITH REGARD TO SELF-SAME ISSUE AND TH E ASSESSEE ON 28.1.2011 SUBMITTED A DETAILED REPLY TO THE QUERY M ADE BY THE ASSESSING OFFICER, EXPLAINING WHY THE AMOUNT RECEIV ED FROM M/S. VANSH BUILDERS WAS SHOWN AS INCOME FROM CAPITAL GAINS. IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE ASSESSEES REPLY DATED 28.1.2011, WHICH IS AT PAGE 65 OF THE PAPER- BOOK. THE LEARNED AUTHORISED REPRESENTATIVE FOR T HE ASSESSEE RELYING UPON THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V/S. GREENWORLD CORPORATION (314 ITR 81) AND MALABAR IND USTRIAL CO.; LTD. V/S. CIT (243 ITR 83), SUBMITTED THAT UNLESS THE OR DER PASSED BY THE ASSESSING OFFICER IS BOTH ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE, POWER UNDER S.263 OF THE ACT CANNOT BE INVOKED. HE FURTHER SUBMITTED THAT UNDER WHICH HEAD A PARTICULA R INCOME WILL FALL, IS A DEBATABLE ISSUE AND OUTSIDE THE SCOPE AND AMBIT O F THE REVISIONARY POWER UNDER S.263 OF THE ACT. HE FURTHER SUBMITTE D THAT THE PROJECT WAS ENTIRELY FINANCED BY THE ASSESSEE WITH ITS OWN FUNDS, AND THE DEVELOPMENT AGREEMENT WAS ENTERED INTO IN THE YEAR 2003, AND ALL ALONG, THE ASSESSEE HAS TREATED IT AS AN INVESTMENT AND NEVER SHOWN ITA NO.599/HYD/2012 M/S. BHAGYANAGAR INDIA LTD., SECUNDERABAD. . 8 AS STOCK IN TRADE, AND THEREFORE, THE COMPENSATION RECEIVED IS ASSESSABLE AS INCOME FROM CAPITAL GAINS. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMI TTED BEFORE US THAT THE ASSESSMENT ORDER DOES NOT REVEAL THA T THE ASSESSING OFFICER HAS APPLIED HIS MIND TO THIS ISSUE, SINCE T HERE IS NO MENTION ON THIS PARTICULAR ISSUE, IN THE ASSESSMENT ORDER. TH E LEARNED DEPARTMENTAL REPRESENTATIVE REFERRING TO CLAUSE 11, 11D AND 11E OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE A SSESSEE, SUBMITTED THAT THE ASSESSEE IS A NEW ENTRANT IN THE REAL ESTA TE BUSINESS AND HAS TAKEN UP THE PROJECT OF BUILDING COMMERCIAL COMPLEX UNDER THE DEVELOPMENT AGREEMENT AS A VENTURE IN THE NATURE OF TRADE. THE LEARNED DEPARTMENTAL REPRESENTATIVE REFERRING TO T HE DEVELOPMENT AGREEMENT, WHICH IS AT PAGE 88 OF THE PAPER-BOOK SU BMITTED THAT THE TERMS OF DEVELOPMENT AGREEMENT SUGGEST IT TO BE A B USINESS ACTIVITY. HE SUBMITTED THAT SINCE THE ASSESSING OFFICER HAS N OT MADE PROPER ENQUIRIES, THE ASSESSMENT ORDER IS ERRONEOUS AND PR EJUDICIAL TO THE INTERESTS OF THE REVENUE AND THE POWER UNDER S.263 HAVE BEEN RIGHTLY EXERCISED. IN SUPPORT OF HIS CONTENTIONS, THE LEAR NED DEPARTMENTAL REPRESENTATIVE RELIED ON THE FOLLOWING DECISIONS- (A) CONSOLIDATED PHOTO AND FINVEST LTD. V/S. CIT(281 IT R 394)- DEL. (B) ASHOK LEYLAND LTD. V/S CIT (260 ITR 599)-MAD. (C) CIT V/S. JAWAHAR BHATTACHARJEE (341 ITR 434)-GAU (D) CIT V/S. GANGADHAR BAIJNATH(86 ITR 19)-SC 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PE RUSED THE ORDERS OF THE LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. THE ITA NO.599/HYD/2012 M/S. BHAGYANAGAR INDIA LTD., SECUNDERABAD. . 9 POWER UNDER S.263 OF THE ACT HAS BEEN EXERCISED IN THIS CASE, ON THE GROUND THAT THE ASSESSING OFFICER HAS ACCEPTED THE ASSESSEES CLAIM AND ASSESSED THE COMPENSATION RECEIVED BY THE ASSES SEE ON CANCELLATION OF THE DEVELOPMENT AGREEMENT ENTERED I NTO BY THE ASSESSEE WITH M/S. VANSH BUILDERS, UNDER THE HEAD CAPITAL GAINS, AND NOT UNDER THE HEAD BUSINESS INCOME. IT IS THE CO NTENTION OF THE ASSESSEE THAT IT HAS BEEN HOLDING PROPERTIES BY WAY OF INVESTMENT, AND EVEN THE DEVELOPMENT AGREEMENT HAS BEEN ENTERED INT O TO DEVELOP ITS INVESTMENTS, BY ADDING THE PROPERTY TO BE CONSTRUCT ED UNDER THE AGREEMENT, AND HAD THE DEVELOPMENT AGREEMENT BEEN I MPLEMENTED, THE RESULTANT PROPERTY COMING TO THE SHARE OF THE A SSESSEE WOULD HAVE BEEN EXPLOITED BY IT FOR DERIVING RENTAL INCOME, E TC. AND THAT BEING SO, THE COMPENSATION RECEIVED ON ACCOUNT OF CANCELLATIO N OF THE DEVELOPMENT AGREEMENT, IS LIABLE TO BE TAXED AS CA PITAL GAINS ONLY. IN ANY VIEW OF THE MATTER, SINCE THE ASSESSING OFFICER HAS APPLIED HIS MIND TO THIS ISSUE IN DISPUTE, AND ALSO CONDUCTED NECESS ARY ENQUIRIES, BEFORE ACCEPTING THE CLAIM OF THE ASSESSEE, IT IS THE CONT ENTION OF THE ASSESSEE THAT SIMPLY BECAUSE THE ASSESSING OFFICER HAS TAKEN A VIEW, WHICH IS NOT ACCEPTABLE TO THE COMMISSIONER OF INCOME-TAX, I T CANNOT BE SAID THAT THE ORDER OF ASSESSMENT IS EITHER ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FURTHER, SINCE TWO VIEWS ARE POSSIBLE ON THIS ISSUE, AND THE ASSESSING OFFICER HAS ADOPTED ONE SU CH VIEW, THE COMMISSIONER OF INCOME-TAX WAS NOT JUSTIFIED IN EXE RCISING JURISDICTION UNDER S.263 OF THE ACT. 12. ON A CAREFUL CONSIDERATION OF THE CONTENTIONS RAISED BY EITHER PARTIES, WE ARE OF THE VIEW THAT EXERCISE OF POWER UNDER S.263 OF THE ACT HAS TO BE MADE ON EXISTENCE OF TWO PRECONDI TIONS. THE ORDER SOUGHT TO BE REVISED SHOULD NOT ONLY BE ERRONEOUS B UT IT MUST ALSO BE ITA NO.599/HYD/2012 M/S. BHAGYANAGAR INDIA LTD., SECUNDERABAD. . 10 PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN T HE APPEAL BEFORE US, IT IS A FACT ON RECORD THAT THE ASSESSEE IN THE RETURN FILED HAS OFFERED THE AMOUNT RECEIVED AS COMPENSATION ON CANCELLATION OF THE DEVELOPMENT AGREEMENT UNDER THE HEAD INCOME FROM CAPITAL GAINS . THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS, AS REVEALED FROM THE MATERIAL ON RECORD, THOUGH NOT MENTIONED IN ASSESSM ENT ORDER, HAS EXAMINED THIS ISSUE AND CONDUCTED NECESSARY ENQUIRY BY CALLING FOR INFORMATION FROM THE ASSESSEE. ONLY AFTER RECEIVIN G NECESSARY DETAILS FROM THE ASSESSEE, THE ASSESSING OFFICER HAS PROCEE DED TO COMPLETE THE ASSESSMENT, APPARENTLY ACCEPTING THE CLAIM OF THE A SSESSEE. IF AT ALL THERE WAS NO DISCUSSION ON THIS ISSUE IN THE BODY O F THE ASST ORDER, IT MAY BE BECAUSE NO ADDITION/DISALLOWANCE WAS TO BE M ADE IN RELATION TO SUCH ISSUE, AS THE ASSESSING OFFICER WAS SATISFIED WITH THE CLAIM OF THE ASSESSEE AS A RESULT OF THE ENQUIRIES CONDUCTED. FOR THAT MATTER, EVEN IN THE CONTEXT OF IMPUGNED PROCEEDINGS UNDER S.263 ALSO, IN THE SHOW- CAUSE NOTICE ISSUED, THE COMMISSIONER OF INCOME-TAX HAS RAISED A COUPLE OF OTHER ISSUES AS WELL. HOWEVER, AS THE CO MMISSIONER OF INCOME-TAX APPEARS TO HAVE BEEN SATISFIED WITH THE REPLIES OF THE ASSESSEE IN RELATION TO THOSE ISSUES, THE REVISIONA RY POWER UNDER S.263 WAS EXERCISED ONLY WITH REGARD TO THE ISSUE OF COMP ENSATION RECEIVED BY THE ASSESSEE ON ACCOUNT OF CANCELLATION OF DEVEL OPMENT AGREEMENT, AND IT IS FOR THAT REASON, THERE IS NOT EVEN A MENT ION IN RELATION TO THE OTHER ISSUES IN THE IMPUGNED ORDER UNDER S.263 OF T HE ACT. IN THE CIRCUMSTANCES, THEREFORE, MERELY BASED ON NON-MENTI ONING OF THE ENQUIRIES CONDUCTED BY THE ASSESSING OFFICER, IN TH E IMPUGNED ASSESSMENT ORDER, IT CANNOT BE SAID THAT THE ASSESS MENT WAS ERRONEOUS, MUCH LESS PREJUDICIAL TO THE INTERESTS O F THE REVENUE. ITA NO.599/HYD/2012 M/S. BHAGYANAGAR INDIA LTD., SECUNDERABAD. . 11 13. IN THE AFORESAID CIRCUMSTANCES, IT CANNOT BE SAID THAT EITHER THERE IS NO ENQUIRY CONDUCTED BY THE ASSESSING OFFI CER OR THERE IS NO APPLICATION OF MIND TO THE ISSUE. THE ONLY CIRCUM STANCE THAT THE ISSUE IN DISPUTE HAS NOT BEEN DISCUSSED IN THE ASSESSMENT ORDER WILL NOT LEAD TO AN AUTOMATIC INFERENCE THAT THERE WAS NO CONSIDE RATION OF THE ISSUE. AS A MATTER OF FACT, EITHER IN THE SHOW-CAUSE NOTIC E ISSUED UNDER S.263 OF THE ACT, OR IN THE IMPUGNED ORDER PASSED UNDER S .263 OF THE ACT, NO ALLEGATION HAS BEEN MADE EITHER WITH REGARD TO LACK OF ENQUIRY OR NON- APPLICATION OF MIND BY THE ASSESSING OFFICER. THE ONLY GROUND ON WHICH THE COMMISSIONER OF INCOME-TAX HAS HELD THE A SSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE IS BECAUSE OF THE FACT THAT THE AMOUNT RECEIVED FROM M/S. VANS H BUILDERS ON CANCELLATION OF DEVELOPMENT AGREEMENT, ACCORDING TO THE COMMISSIONER OF INCOME-TAX, SHOULD HAVE BEEN TAXED AS BUSINESS INCOME INSTEAD OF INCOME FROM CAPITAL GAINS. THE COMMISSIONER OF INC OME-TAX ONLY RELYING UPON A CLAUSE FROM THE DEVELOPMENT AGREEMEN T HAS DRAWN AN INFERENCE THAT THE ASSESSEE WAS ACTING AS A BUILDER TO CONSTRUCT A COMMERCIAL COMPLEX AND THEREAFTER TO SELL THE SHOPS , WHICH IS IN THE NATURE OF TRADE. IN OUR VIEW, BY RELYING UPON A PAR TICULAR CLAUSE IN ISOLATION, THE COMMISSIONER OF INCOME-TAX COULD NOT HAVE COME TO A CONCLUSION THAT THE ASSESSEE INDULGED IN A BUSINESS ACTIVITY, OR AN ADVENTURE IN THE NATURE OF TRADE, AND CONSEQUENTLY, ALL INCOME ARISING OUT OF SUCH DEVELOPMENT AGREEMENT IS ASSESSABLE UND ER THE HEAD BUSINESS. THAT APART, THE QUESTION HERE IS NOT WHETHER THE ASSESSING OFFICER IS CORRECT OR NOT IN ASSESSING THE COMPENSA TION UNDER THE HEAD CAPITAL GAINS, BUT WHETHER THE ASSESSING OFFICER HAS CONSIDERED THE ISSUE AS TO THE HEAD UNDER WHICH IT IS ASSESSABLE, APPLIED HIS MIND TO THE ISSUE, BEFORE ACCEPTING THE CLAIM OF THE ASSESS EE. ONCE IT IS SEEN THAT THE ASSESSING OFFICER HAS CONDUCTED THE ENQUIR IES AND CONSIDERED ITA NO.599/HYD/2012 M/S. BHAGYANAGAR INDIA LTD., SECUNDERABAD. . 12 THE ISSUE, SINCE HE HAS TAKEN ONE OF THE TWO POSSIB LE VIEWS, THE MATTER GOES OUT OF THE SCOPE OF THE REVISIONARY POWERS UND ER S.263 OF THE ACT, SINCE IT CANNOT BE SAID THAT THE ORDER OF ASSESSMEN T WAS EITHER ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF THE RE VENUE. 14. IT IS A WELL SETTLED PRINCIPLE OF LAW THAT THE JURISDICTION OF THE COMMISSIONER UNDER S.263 IS A SUPERVISORY JURIS DICTION. IT IS INTENDED FOR INTERFERENCE IN SPECIAL CASES TO COUNT ERACT ORDERS WHICH ARE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS O F REVENUE. THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF REVENUE IS OF WIDER IMPORT AND MUST BE REGARDED AS INVOLVING A CONCEPTION OF ACTS OR ORDERS WHICH ARE SUBVERSIVE OF THE ADMINISTRATION OF THE REVENUE . THE SCOPE OF INTERFERENCE UNDER S.263 IS NOT TO SET ASIDE MERELY UNFAVOURABLE ORDERS AND BRING INTO COFFERS OF THE REVENUE, SOME MORE MO NEY. THE REVISIONARY POWER UNDER S.263 IS ALSO NOT MEANT TO SET RIGHT ESCAPEMENT OF REVENUE FOR WHICH THERE ARE OTHER PRO VISIONS, LIKE S.147, UNDER THE ACT TO TAKE CARE OF. THE ERROR AND PREJU DICE TO THE REVENUE, AS ENVISAGED UNDER S.263, IS THUS OF WIDER IMPORT. THE ERROR MUST BE SO GRIEVOUS THAT IT CAUSES PREJUDICE TO THE REVENUE ADMINISTRATION ITSELF. THE HONBLE SUPREME COURT IN MALABAR INDUS TRIAL COMPANY V/S. CIT (SUPRA) EXAMINING THE SCOPE OF PROVISIONS OF S.263 OF THE ACT, HAS OBSERVED AS FOLLOWS- 7. THERE CAN BE NO DOUBT THAT THE PROVISION CANNO T BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COM MITTED BY THE ASSESSING OFFICER. IT IS ONLY WHEN AN ORDER IS ERR ONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUM PTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUI REMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHO UT APPLICATION OF MIND. . ITA NO.599/HYD/2012 M/S. BHAGYANAGAR INDIA LTD., SECUNDERABAD. . 13 10. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN INCOM E-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGRE E, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJ8DICAL TO THE INT ERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOM E-TAX OFFICER IS UNSUSTAINABLE IN LAW. IT HAS BEEN HELD BY THIS COU RT THAT WHERE A SUM NOT EARNED BY A PERSONS IS ASSESSED AS INCOME IN H IS HANDS ON HIS SO OFFERING, THE ORDER PASSED BY THE ASSESSING OFFICER ACCEPTING THE SAME AS SUCH, WILL BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE SAME VIEW WAS AGAIN REITERATED BY THE APEX COUR T IN CIT V/S. GREENWORLD CORPORATION (SUPRA). 15. EXAMINING THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE RATIO OF THE APEX COURT IN THE CASES DISCUSSED ABOV E, IT IS SEEN THAT THE COMMISSIONER OF INCOME-TAX HAS HELD THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE ONLY ON THE GROUND THAT THE INCOME RECEIVED ON ACCOUNT OF CANCE LLATION OF THE DEVELOPMENT AGREEMENT SHOULD HAVE BEEN ASSESSED UND ER THE HEAD BUSINESS. AT THE COST OF REPETITION, WE MAY REI TERATE THAT NEITHER IN THE SHOW CAUSE NOTICE NOR IN THE IMPUGNED ORDER PAS SED, THE COMMISSIONER OF INCOME-TAX HAS POINTED OUT ANY OTHE R DEFICIENCY, SUCH AS LACK OF ENQUIRY OR NON-APPLICATION OF MIND BY TH E ASSESSING OFFICER IN DECIDING THE ISSUE. TAKING A CUE FROM THE RATIO OF THE AFORESAID JUDGMENTS, SINCE THE ASSESSING OFFICER HAS CONDUCTE D NECESSARY ENQUIRIES ON THE ISSUE, AND HAS APPLIED HIS MIND TO THE MATERIAL ON RECORD, BEFORE TAKING A PLAUSIBLE VIEW, IT CANNOT B E SAID THE ASSESSMENT MADE BY HIM IN RELATION TO THE ISSUE IN DISPUTE IS EITHER ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF REVENUE, ONLY BECAU SE THAT VIEW IS NOT ACCEPTABLE TO THE COMMISSIONER. CONSEQUENTLY, THE C OMMISSIONER OF ITA NO.599/HYD/2012 M/S. BHAGYANAGAR INDIA LTD., SECUNDERABAD. . 14 INCOME-TAX IN OUR CONSIDERED OPINION, IS NOT JUSTIF IED IN PASSING THE IMPUGNED ORDER UNDER S.263 OF THE ACT. WE ACCORDIN GLY SET ASIDE THE SAME, ALLOWING THE GROUNDS OF THE ASSESSEE IN THIS APPEAL. 16. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 6.11.2012 SD/- SD/- (CHANDRA POOJARI) (SAKT IJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED/- 6 TH NOVEMBER, 2012 COPY FORWARDED TO: 1. M/S. BHAGYANAGAR INDIA LTD., 133/4, R.P.ROAD, SECUD NERABAD. 2 . 3. 4 ADDITIONAL. COMMISSIONER OF INCOME - TAX RANGE - I HYDERABAD COMMISSIONER OF INCOME-TAX, I, HYDERABAD DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD B.V.S.