I.T.A. No. 1329/Kol/2016. Case: Riverbank Developers Pvt. Ltd. Vs Commissioner of Income Tax, Kolkata - 4. ITAT (Income Tax Appellate Tribunal)

Case NumberI.T.A. No. 1329/Kol/2016
CounselFor Appellant: D.S. Damle, FCA and Akkal Dudhwewala, ACA and For Respondents: Anand Baiwar, CIT, DR
JudgesA.T. Varkey, Member (J) and Waseem Ahmed, Member (A)
IssueIncome Tax Act, 1961 - Sections 142(1), 143(3), 14A, 260A, 263, 40A(2), 40A(2)(b); Indian Evidence Act, 1872 - Section 114
Judgement DateMarch 31, 2017
CourtITAT (Income Tax Appellate Tribunal)


A.T. Varkey, Member (J), (ITAT Kolkata 'B' Bench)

  1. This appeal is filed by the assessee against the order passed by the Principal Commissioner of Income-tax-4, Kolkata u/s. 263 of the Income-tax Act, 1961 dated 31.03.2016 for the Assessment Year 2011-12. In the Memorandum of Appeal, the following grounds have been raised.

  2. That on the facts and in the circumstances of the case, the Learned CIT erred in initiating the revision proceedings under Section 263 of the Act, by holding that the Assessing Officer was erroneous and prejudicial to the interests of the Revenue.

  3. That on the facts and in the circumstances of the case, the Learned CIT erred in restoring the matter back to the Assessing Officer, without giving a clear finding on the issue on which the proceedings u/s. 263 of the Act, was initiated.

  4. That on the facts and in the circumstances of the case, the Learned CIT erred in initiating revision proceedings u/s. 263 of the Act, on the same issue which was already considered and detailed enquiry made in the course of assessment proceedings u/s. 143(3) of the Act.

  5. That on the facts and in the circumstances of the case, and without prejudice to the other grounds, the Learned CIT erred in appreciating the fact that complete details in relation to the matters for which proceedings u/s. 263 of the Act has been initiated were submitted before the Assessing Officer during the course of assessment proceedings.

  6. That on the facts and in the circumstances of the case, and without prejudice to the other grounds, the Learned CIT erred in restoring back the matter to the file of the Assessing Officer.

  7. That on the facts and in the circumstances of the case, and without prejudice to the other grounds, the Learned CIT did not give reasonable opportunity of being heard to the appellant.

  8. The appellant has challenged validity of the Revision order passed by the Ld. CIT's order on the plea that the AO's order u/s. 143(3) dated 28.03.2016 was neither erroneous nor prejudicial to the interest of the Revenue and therefore did not warrant passing of the revision order u/s. 263 of the Act. Before dealing with the grounds on merit, it is relevant to set out the facts giving rise to the dispute involved in the present appeal.

  9. The appellant is a private limited company which was set up as joint venture promoted by Bata India Ltd. ('BIL') and Calcutta Metropolitan Group Limited ('CMGL') for developing a township project on the land belonging to BIL at Batanagar. As in the past, during the relevant year the appellant was engaged in development of land, construction & management of properties, buildings & assets and the principal project undertaken during the year was 'Calcutta Riverside' township at Batanagar. For the AY 2011-12 the appellant filed its return of income and thereafter the return was selected for scrutiny assessment. Notice u/s. 142(1) was issued by the AO on 19/07/2013 calling upon the assessee to furnish information, details & documents with regard to various issues specified in the questionnaire annexed with the notice. After considering the submissions, information and documents furnished from time to time, order u/s. 143(3) was passed assessing net loss of Rs. 7,81,44,753/- as opposed to declared loss of Rs. 7,99,47,129/-. Subsequently Pr.CIT-4, Kolkata issued a show cause notice ('SCN' herein after) dated 17.02.2016 requiring the assessee to show cause as to why the assessment order should not be revised, since in his opinion the order was erroneous in so far as prejudicial to the interest of the Revenue. In response the Ld. AR of the assessee argued that the order u/s. 143(3) could not be held to be erroneous for the reasons set out in show cause notice and requested the Ld. CIT not to proceed with revision proceedings. Rejecting the explanations and the details furnished, the Ld. CIT passed the impugned order setting aside the assessment and directing the AO to examine the case properly after giving opportunity of being heard to the assessee. Being aggrieved by the Ld. CIT's order the assessee is in appeal before us.

  10. At the time of hearing, the appellant filed a paperbook containing 184 pages which consisted of documents which were filed before the lower authorities in the course of assessment and revision proceedings. At Page 1 & 2 of the Paperbook was the SCN dated 17.02.2016, which contained the reasons for initiation of the proceedings u/s. 263. For better understanding, reasons set out in SCN are extracted below:

    "On perusal of the Annexure - C under the head particulars of payments made to the persons specified in Section 40A(2)(b) of the Tax Audit report of the assessee for the financial year 2010-11, it is seen that during the year under consideration the assessee company has made payments to its related party as under:

    i. Hiland Projects Ltd.: Share of the Manpower & Office Infrastructure Cost: Rs. 42,48,756/-

    ii. Hiland Projects Ltd.: Reimbursement of Expenses: Rs. 22,71,375/-

    iii. Bat a India Ltd: Reimbursement of taxes and other expenses - Rs. 2,08,24,734/-

    iv. Bat a India Ltd: Communication Charges: Rs. 63,59,366/-

    v. Riverbank Holdings Pvt. Ltd.: Reimbursement of Expenses and Interest on Unsecured Loan of Rs. 7,09,494/- & Rs. 43,93,972/- respectively.

    It is also seen from the P & L Account of the assessee that the construction expenses was increased from Rs. 17.73 crs to Rs. 168.77 crs. The major expenses under the head 'Construction Expenses' were as under:

    i. Cost of Land Development: Rs. 28.23 crores (Last year Nil)

    ii. Cost of acquisition of Land development rights: Rs. 90,00,00,000/- (Last year NIL)

    iii. Registration Fees: Rs. 4.85 crore (Last Year Nil)

    iv. Contractor Expenses: Rs. 38.98 crore (Last Year 14 crore)

    v. Rates & Taxes: Rs. 1.34 crore (Last Year Nil)

    vi. Delayed Delivery charges: Rs. 63.59 lacs (nil)

    The assessee company has not submitted copy of joint venture agreement between the assessee company, Bata India Ltd. and Calcutta Metropolitan Group Limited and without going through the terms and conditions of the Joint Venture Agreement, the facts of the case remained verified. The AO had also not submitted the copy of agreement between the associate/sister/group concerns and without the requisite agreement, the related party transactions u/s. 40A(2)(b) remained unverified. The major expenses under the head 'Construction Expenses' were not verified by the AO during the assessment.

    (2) The assessee company had made payment of Rs. 90 crore to Bata India Limited on account of cost of acquisition of land development rights and debited in its P & L A/c under the head "Construction Expenses". Prima facie the above expenses seemed to be capital in nature. Also the assessee company had not submitted any copy of agreement/documents between the assessee company &Bata India Limited to verify the nature of expenses i.e. Capital or Revenue. The nature of the above expenses remained unverified during the assessment.

    (3) During the year under consideration, the company had taken term loan from a body corporate of Rs. 1,30,00,00,000/- and unsecured loans from inter corporate of Rs. 3.6 crore (last year 16.10 crore) against which interest of Rs. 16.17 crore was paid (last year 45.23 lac) by the assessee company. The a above transactions was also not verified by the A.O."

  11. With reference to these reasons, the Ld. CIT ultimately considered the assessment order u/s. 143(3) erroneous for the following reasons.

    3(iii) Here in the case of assessee company entered into in joint venture agreement with Bata India Ltd. and Calcutta Metropolitan Group Ltd. for developing project. Further the assessee company paid Rs. 90 crores to Bata India Ltd. for getting development right. AO passed the assessment order without examining the details of agreement and nature of payment, which is the utmost important document. It is very clear that assessment was passed without asking copy of agreement and examining the same, which evidences of no enquiry on this issue. Further the assessee in its written submission furnished details of expenses debited in P & L Account on various head. However, no supporting evidences were produced, which were required to do so. It is worthwhile to note that even after providing opportunity, the assessee company did not furnish the complete details with supporting evidences.

  12. At the time of hearing of the appeal, the Ld. AR for the appellant assailed the Ld. CIT's order on various grounds. He submitted that in Para 1 of the SCN, the Ld. CIT enumerated five heads of expenses which were paid to related parties. In the same Para, the Ld. CIT also listed six major heads of expenses grouped under the head 'Construction Expenses'. After setting out this information, the Ld. CIT alleged that the assessee did not submit copy of the joint venture agreement between the assessee, BIL & CMGL and without going through the terms of the JV Agreement, facts of the case remained unverified. In this regard, our attention was drawn to the scrutiny assessment order passed u/s. 143(3) dated 16.12.2010 for the AY 2008-09 wherein the AO had observed as under:

    "The assessee is engaged in Development of Land, Construction and Management of Properties, Building, Land & Estates. This is the first year of business operation of the assessee. The Calcutta Riverside Township is being developed by the assessee as joint venture between Bata India Limited and Calcutta Metropolitan Group Limited. This is an integrated township on the bank of the river Ganges consisting of 237 acres and is located at Batanagar, Maheshtala Municipality, Kolkata - 700140. The land on which the project is being developed is freely held by Bata India Limited, which has given the Development Rights to Riverbank Developers Pvt. Ltd."

    6.1 The Ld. AR pointed out that the above observations were verbatim copied by the Ld. CIT in Para 1 of his SCN. He submitted that the JV between BIL & CMGL did not come into...

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