Back
2012 Supreme(Del) 710
High Court of Delhi
SANJIV KHANNA & R.V. EASWAR, JJ.
Income Tax Officer
Versus
DG Housing Projects Ltd.
ITA 179 OF 2011
Decided on : 01-03-2012
For the Appellant:Kamal Sawhney, sr. standing counsel with Amit Shrivastava, Advocate.
For the Respondents:Kapil Goel, Advocate.
The main legal point established in the judgment is the requirement for the Commissioner to conduct necessary inquiry before deeming an order as erroneous under Section 263 of the Income Tax Act, 1961.
Headnote:
Income Tax - Assessment Year 2004-05 - Income Tax Act, 1961, Section 263 - Summary of Acts and Sections: Income Tax Act, 1961, Section 263 - The court discussed the application of Section 263 of the Income Tax Act, 1961, which empowers the Commissioner to revise any order passed by the Assessing Officer if it is found to be erroneous and prejudicial to the interest of the Revenue. The court highlighted the wide import of the expression 'prejudicial to the interest of the Revenue' and the requirement for the order to be both erroneous and prejudicial to the Revenue. The judgment also referenced key legal principles established in earlier cases, emphasizing the distinction between lack of inquiry and inadequate inquiry by the Assessing Officer, and the necessity for the Commissioner to conduct necessary inquiry before deeming an order as erroneous.
Fact of the Case:
The case pertains to the assessment year 2004-05 and involves the sale of an immovable property by the respondent-assessee, which was yielding monthly rent. The Assessing Officer accepted the computation of the respondent-assessee, but the Commissioner of Income Tax issued notice under Section 263 of the Income Tax Act, 1961, contending that the profit on the sale of the property had not been properly assessed and the assessment order was erroneous and prejudicial to the interest of the Revenue.
Finding of the Court:
The court found that the Commissioner had not given a clear finding that the actual receipt of consideration was more than what was declared in the return. It was held that the Commissioner could not have made any addition under Section 50C as the stamp duty had not been enhanced by the registering authority and the sale deed was registered. The order under Section 263 of the Act was set aside/cancelled, and the appeal by the Revenue was dismissed.
Issues: The main issue revolved around the application of Section 263 of the Income Tax Act, 1961, and whether the order passed by the Assessing Officer was erroneous and prejudicial to the interest of the Revenue.
Ratio Decidendi: The court emphasized the necessity for the Commissioner to conduct necessary inquiry before deeming an order as erroneous and highlighted the distinction between lack of inquiry and inadequate inquiry by the Assessing Officer. It was held that the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law, and the said finding must be recorded.
Final Decision: The question of law was answered in favor of the respondent-assessee and against the Revenue, and the appeal was accordingly dismissed.
SANJIV KHANNA, J.
The present appeal by the Revenue impugns order dated 31.2.2010 passed by the Income Tax Appellate Tribunal (“Tribunal”, for short) in the case of D G Housing Projects Ltd. and relates to assessment year 2004-05.
2. Having heard counsel for the parties, the following substantial question of law is framed :
3. The assessee is a company and for the assessment year in question had filed return
“Whether Income Tax Appellate Tribunal was right in setting aside the order of the Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961?”
on 31.10.2004 declaring taxable income of Rs.3,54,712/-.
4. During the year in question the assessee had sold an immoveable property (unfortunately, the details of the said property are not mentioned in the appeal and in the annexures i.e. the assessment order, order of the Commissioner of Income Tax (CIT) and the Tribunal) and had claimed long term capital loss of Rs.35.71 lacs after indexation. The said property was purchased by the respondent-assessee in 1997 for Rs.69.63 lacs and was sold in 2003 (the date is not given in any of the orders or in the appeal) for Rs.70 lacs. The property was yielding monthly rent of Rs.2.05 lacs per month and was sold to the tenant in occupation.
5. The Assessing Officer examined the sale transaction and in the assessment order had observed:-
“During the year under consideration the assessee company has shown income from House Property and Income from Business. The assessee company was engaged in the business of sale & purchase, construction, lease or rent of property. During the year the assessee has received rent for three months only and thereafter the property was sold to the tenant who was occupying the property. Profit on the same has been declared by the assessee. The assessee was given several opportunities but the company has not filed details in respect of the various expenses claimed by it. As such to cover any possible leakage, a lump sum addition of Rs.7500/-is made.”
Reading of the aforesaid paragraph of the assessment order shows that the Assessing Officer had examined the said transaction and accepted the computation of the respondent-assessee. Addition of Rs.7,500/-was made to cover up possible leakages.
6. The CIT thereafter issued notice dated 24.2.2009 under Section 263 of the Income Tax Act, 1961 (“Act” for short) recording the following reasons:
“From the computation of income filed with the return, it appears that this profit on sale of property has neither been assessed as capital gain nor as income from business. The profit on the sale of property is reduced from the business income of the assessee company in the computation of income for separate consideration but it is not considered as income by the assessee in the computation of income. Therefore, the assessee company has not offered this profit either as business income or as capital gains. In the absence of any business, the expenses have also been incorrectly allowed. Since the assessee company was deriving income from property only, no separate deduction, except the deduction u/s 24, was admissible in respect of the expenses incurred by the assessee company for the maintenance of property or otherwise. Accordingly, notice u/s 263dated (sic) 24.2.2009 was issued the assessee.”
The respondent-assessee furnished reply and attended hearings on 24th March, 2009 and 26th March, 2009.
7. On 30th March, 2009, the CIT had passed an order, inter alia, holding:
“4. I have carefully considered the assessee’s arguments and examined the assessment record. The assessee’s submissions are not acceptable for the following reasons :
(i) There is an apparent understatement of the sale price of the property sold. The property purchased for Rs.69.63 lacs in 1997, yielding a rent of Rs.2.05 lacs per month, is being claimed to have been sold for only Rs.70 lacs in 2003. It cannot be understood how such a high-yielding asset can be disposed off at such a low value. I
