Pratima Pramod Nagrecha, Mumbai vs Assessee

आयकर अपीलीय अिधकरण, अिधकरण मुंबई IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES 'C' MUMBAI सव ौी आय.पी. बंसल, याियक सदःय एवं ौी चं पुजारी, लेखा सदःय के सम । BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER

ITA NO.3647/Mum/2013 (A.Y.2008-09)

Mrs. Pratima Pramod Nagrecha The Income tax Officer-23(3)(1), 601, Avdhoot Darshan C-10,3rd Floor Off Navghar Mithagar X Road, Vs. Pratyakshakar Bhavan Mulund-(W) Bandra Kurla Complex Mumbai- 81. Bandra (E) GIR No./PAN : AADPN 7292 C Mumbai-400 051. (Appellant ) (Respondent)

Appellant by : Shri K. Shivaram and Shri Rahul Hakani Respondent by : Mrs. Parminder Kaur - CIT-DR

Date of hearing : 26/02/2015 Date of pronouncement : 04/03/2015

ORDER

PER CHANDRA POOJARI, A.M:

This appeal by the assessee is directed against the order dated 28/3/2013 passed under section 263 of the Income Tax Act, 1961.

2. Facts of the case are that the assessment under section 143(3) was completed on 19.11.2010. On perusal of the assessment records it was noticed that the assessee had claimed compensation received of Rs.53,00,000/- from Reliance Gas Transportation Infrastructure Ltd. (RGTI 2 ITA No.3647/M/13

Ltd.) as agricultural income and which was accepted by the AO in the assessment order passed by him on 19.11.2010. The assessee had received compensation for acquisition of right of user in land, for laying pipeline for transportation of petroleum, in the portion of the land belonging to the assessee . The end use however was clearly for non agricultural purposes. As per the judicial decision in this regard the compensation received cannot be assessed as agricultural income. As the impugned assessment order was erroneous and prejudicial to the interests of revenue, the assessee was asked to furnish an explanation as to why the assessment order should not be set aside/modified or a suitable order under section 263 of the IT Act be passed.

3. After hearing the ld. Counsel for the assessee CIT observed that the assessee filed most of the submissions which were filed before the AO. From the submissions it is seen that the two pieces of land were described in the 7/12 extracts as 'Gairan' (i.e. land for cattle rearing) and 'Ranshet'(i.e. open land with weeds only). This shows that the land was not utilized for cultivation/agricultural purposes. As against these the assessee had produced four panchnamas signed by Talati of Pune dated 24/4/2007, wherein it was stated that the pipeline had been laid down in these areas. The number of trees, their age etc. were also given in these panchnama. However, it was observed by the CIT that this document did not bear the any seal or stamp of the authorities/Talati and the AO did not seem to have applied his mind to the contradiction manifest in these submissions of the assessee.

3 ITA No.3647/M/13 3.1 The CIT observed that the assessee received notice dated 19/4/2005 from officer of Reliance Gas Transportation Infrastructure Ltd. (RGTICL) project for acquiring the right of user of land wherein it was specifically mentioned that any objection should be brought to the notice of Reliance Gas Transportation Infrastructure Ltd.(RGTIL )within 21 days. It was after a span of two years vide letter dated 17/4/2007, the assessee had applied for compensation. It was seen from the panchnamas dated 24.4.2007, that the pipeline had been laid down.

3.2 Chronology of events taken from assessee's submission are as follows:-

a) RGTIL issued notice dated 19.4.2005 to be replied within 21 days.

b) Assessee did not reply

c) Another notice was sent by RGTIL dated 2.5.2006 seeking documentary evidence for crops on the land, for the purpose of determining compensation.

d) No reply was received from assessee, neither any documentary evidence filed.

e) Assessee sent letter on 17.4.2007 - but never mentioned about the notice received by her.

f) Assessee simply informed that mere 10 acres of land were taken on which there were trees and fruits. Since the work of pipeline had been completed, assessee requested for compensation for land and trees.

g) Assessee prepared four panchnamas for both the lands on 25.4.2007, giving the number of trees, age of trees etc. Two Panchas sign the document, and the same is signed by Talati but there is no official seal affixed to it. Talati is from Pune and not from Karjat, the land is located in Mandvone village which are in Karjat Taluka.

h) Before the digging work for pipeline started or at any point of time, upon receiving the notice, the assessee had not lodged her claim of existence of specific trees on the lands.

4 ITA No.3647/M/13 i) It was further observed by the CIT that after the work of pipeline is over, the assessee cannot make a panchnama stating that so many trees aged so many years existed on the land. This appears to be an after thought.

j) Similarly the panchnamas did not bear any official stamp or seal of the relevant Govt.

office. If the Talati certifies anything, it should be based on land records. Authenticity of assessee's claim was not got verified by the AO by making enquiries with the Talati of Karjat. The assessee should have produced authentic records in support of fruit bearing trees claimed to have existed on the land.

k) On 27.10.2007 the assessee issued several receipts for having received compensation.

3.2.1 CIT also observed that the assessee did not produce the order passed by the competent authority determining the compensation to be paid for land and trees.

3.3 Further it was observed by the ld.CIT that the assessee had mentioned that she had received Rs.8,69,812/- vide cheque No.001224 dated 27/10/2007 drawn on Bank of India as per Xerox copy of the cheque on record and another cheque of the same amount vide cheque No.001228 dated 27/10/2007. The AO never verified as to why the amount of Rs.8,69,812/- received by cheque No.001224 is not accounted for by the assessee in the total compensation amount received.

3.4 The assessee's only proof of agricultural produce is the panchnamas and the receipts dated 27/10/2007 issued by the assessee. In all these receipts dated 27/10/2007 there was only mention of fruits and forest trees and no specific details of trees were given. No other relevant records in support of trees frown on land were produced by the assessee . Sale bills of the agricultural produce were also not produced. The panchnamas dated 24.4.2007 appeared to be self-serving and self-generated documents. The 5 ITA No.3647/M/13

AO had not made any effort to check the genuineness of these documents submitted by the assessee. The AO should have verified the same from the Land Revenue Records of the Gram Panchayat of Mandvane Village, Karjat Taluka about the status or existence of cultivation, at any time, on these lands. The assessee had not produced any authentic records such as proof of expenses incurred for cultivation, manpower employed, sale of produce to APMC etc. The ld. CIT was of the opinion that mere claim of the assessee that in the earlier years also she had shown agricultural income in her returns could not be taken as proof, in the absence of maintenance of accounts, sales bills of the produce etc. for yester years.

3.5 Ld. CIT observed that the assessee had also claimed that there was no transfer of land as she had retained ownership of the land and the same lands were shown as assets in her returns. It was thus, contended by the assessee that there is no liability to pay capital gain tax, there being no transfer/conveyance of the land.

3.6 As per the provisions of section 2(47)(ii) and (iii) of the Act the 'extinguishment of right therein' or 'the compulsory acquisition thereof under any law' amounts to transfer of capital asset.

3.7 It was observed by the ld. CIT that in the case of the assessee the agricultural land on being acquired by the Govt. had lost its character of agricultural land, as it was used for laying pipeline and moreover compulsory acquisition under any law is nothing but a transfer. Therefore, 6 ITA No.3647/M/13

the compensation received by the assessee on such transfer is liable for tax on capital gains.

3.8 The ld. CIT while setting aside the assessment order dated 19.11.2010 for fresh assessment directed the AO to verify the situation of the land with reference to actual distance from Municipal limits, by making independent enquiries. The assessee was directed to produce before documentary evidence which existed during the period when the trees were grown/existed and not the panchnamas prepared subsequent to the felling of the trees, in support of her claim of agricultural produce. The assessee was also directed to produce order of the competent authority determining the full and final compensation, with interest if any, before the AO along with particulars of the appeal filed and progress if any. The assessee had shown Rs.18,92,800/- towards land based on the receipts issued by the assessee and the balance amount towards trees which needs to be verified by the AO. Ld. CIT further directed the AO to examine the correctness of the compensation amount received by the assessee, bifurcate the amount toward agricultural produce based on documentary evidence, apportion the amount towards land and then assess capital gain. Against this, the assessee is in appeal before us.

4. We have heard both the parties and perused the material on record. We have carefully considered the rival submissions in the light of material placed before us and also gone through all the judgements cited by the parties before us. First we take up the legal issue with reference to the jurisdiction of invoking the provisions of section 263 of the Act by the 7 ITA No.3647/M/13

learned CIT. The scheme of the IT Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the assessing officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the revenue. As held in the case of Malabar Industries Co. Ltd., Vs. CIT ( 243 ITR 83 (SC), the Commissioner can exercise revision jurisdictional u/s 263 if he is satisfied that the order of the assessing officers sought to be revised is (i)erroneous; and also (ii) prejudicial to the interests of the revenue. The word 'erroneous' has not been defined in the Income Tax Act. It has been however defined at page 562 in Black's Law Dictionary (seventh Edition) thus; ' erroneous, adj. Involving error, deviating from the law'. The word 'error' has been defined at the same page in the same dictionary thus: 'error No. 1 : A psychological state that does not conform to Objective reality; a brief that what is false is true or that what is true is false'.

4.1 At page 649/650 in P. Ramanatha Aiyer's Law Lexicon Reprint 2002, the word 'error' has been defined to mean-

Error: A mistaken judgement or deviation from the truth in matters of fact, and from the law in matters of judgement 'error' is a fault in judgement, or in the process or proceeding to judgement or in the execution upon the same, in a Court of Record; which in the Civil Law is called a Nullityie" (termes de la ley).

Something incorrectly done through ignorance or inadvertence S.99 CPC and S.215 Cr.PC.

'Error, Fault, Error respects the act; fault respect the agent, an error may lay in the judgement, or in the conduct, but a fault lies in the will or intention."

8 ITA No.3647/M/13 4.2 At page 650 of the aforesaid Law Lexicon, the scope of Error, Mistake, Blunder, and Hallucination has been explained thus:

"An error is any deviation from the standard or course of right, truth, justice or accuracy, which is not intentional. A mistake is an error committed under a misapprehension of misconception of the nature of a case. An error may be from the absence of knowledge, a mistake is from insufficient or false observation. Blunder is a practical error of a peculiarly gross or awkward kind, committed through glaring ignorance, heedlessness, or awkwardness. An error may be overlooked or atoned for, a mistake may be rectified, but the shame or ridicule which is occasioned by a blunder, who can counteract. Strictly speaking, Hallucination is an illusion of the perception, a phantasm of the imagination. The one comes of disordered vision, the other of discarded imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it denotes an unaccountable error in judgement or fact, especially in one remarkable otherwise for accurate information and right decision. It is exceptional error or mistake in those otherwise not likely to be deceived."

4.3. In order to ascertain whether an order sought to be revised under Section 263 is erroneous, it should be seen whether it suffers from any of the aforesaid forms of error. In our view, an order sought to be revised under Section 263 would be erroneous and fall in the aforesaid category of "errors" if it is, inter alia, based on an incorrect assumption of facts or an incorrect application of law or non-application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the revenue.

4.4. Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings 9 ITA No.3647/M/13

either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warrant ed. The Commissioner will be well within his powers to regard an order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a return, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of assessment has undergone radical changes in recent years. It deserves to be noted that the present assessment was made under Section 143(3) of the Income-tax Act. In other words, the Assessing Officer was statutorily required to make the assessment under section 143(3) after scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section 143. Bulk of the returns filed by the assessees across the country is accepted by the Department under Section 143(1) without any scrutiny. Only a few cases are picked up for scrutiny. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of 10 ITA No.3647/M/13

scrutiny assessments. He should be fair not only to the assessee but also to the Public Exchequer. The Assessing Officer has got to protect, on one hand, the interest of the assessee in the sense that he is not subjected to any amount of tax in excess of what is legitimately due from him, and on the other hand, he has a duty to protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke inquiry. Arbitrariness in either accepting or rejecting the claim has no place. The order passed by the Assessing Officer becomes erroneous because an enquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have bee n made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim mad e therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo-typed order which simply accept s what the assessee has stated in his return and fail s to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the ca se. In taking the aforesaid view, we are supported by the decisions of the Hon'ble Supreme Court in Rampyari Devi Saraogi 11 ITA No.3647/M/13

v. CIT (67 ITR 84) (SC), Smt. Tara Devi Aggarwal v. CIT (88 ITR 323) (SC), and Malabar Industrial Co. Ltd's case ( 243 ITR 83) (SC).

4.5 In Malabar Industrial Co. Ltd. case the Hon'ble Supreme Court has held as under:

"There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall the orders passed without applying the principles of natural justice or without application of mind. In our humble view, arbitrariness in decision- making would always need correction regardless of whether it causes prejudice to an assessee or to the State Exchequer. The Legislature has taken ample care to provide for the mechanism to have such prejudice removed. While an assessee can have it corrected through revisional jurisdiction of the Commissioner under Section 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Commissioner under Section 263. Arbitrariness in decision-making causing prejudice to either party cannot therefore be allowed to stand and stare at the legal system. It is difficult to countenance such arbitrariness in the actions of the Assessing Officer. It is the duty of the Assessing Officer to adequately protect the interest of both the parties, namely, the assessee as well as the State. If he fails to discharge his duties fairly, his arbitrary actions culminating in erroneous orders can always be corrected either at the instance of the assessee, if the assessee is prejudiced or at the instance of the Commissioner, if the revenue is prejudiced. While making an assessment, the ITO has a varied role to play. He is the investigator, prosecutor as well as adjudicator. As an adjudicator he is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a substantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefor. In S.N. Mukherjee v. Union of India AIR 1990 SC 1984, it has been observed by the Hon'ble Supreme Court as follows: "Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, 12 ITA No.3647/M/13

would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances or arbitrariness and ensures a degree of fairness in the process of decision- making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge."

4.6 Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engg. & Mfg. Co. Ltd. v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the ITO acts in a quasi- judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under Sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary. It was held that orders, which are subversive of the administration of revenue, must be regarded as erroneous and prejudicial to the interests of the revenue. If the Assessing Officers are allowed to make assessments in an arbitrary manner, the administration of revenue is bound to suffer. If without discussing the nature of the transaction and materials on record, 13 ITA No.3647/M/13

the Assessing Officer had made certain addition to the income of the assessee, the same would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. As a matter of fact such orders are prejudicial to the interests of both the parties, because even the assessee is deprived of the benefit of a positive finding in his favour, though he may have sufficiently established his case.

4.7 In view of the foregoing, it can safely be said that an order passed by the Assessing Officer becomes erroneous and prejudicial to the interests of the Revenue under Section 263 in the following cases: (i) The order sought to be revised contains error of reasoning or of law or of fact on the face of it. (ii) The order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In the same category fall orders passed without applying the principles of natural justice or without application of mind. (iii) The order passed by the Assessing Officer is a stereotype order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim which is called for in the circumstances of the case.

5. In this case the AO issued notice to the assessee under section 143(3) on 6.8.2009 and notice under section 142(1) notice on 27/7/2010. The assessee participated in the assessment proceedings. To various enquiries of the AO the assessee furnished information to the satisfaction 14 ITA No.3647/M/13

of the AO specifically vide assessee's counsel dated 27/7/2010. The assessee furnished full details of income derived at Rs.53,23,339/- from agricultural land located at Mondvane Village and it was stated to the AO that the said amount of Rs.53,23,339/- received as compensation on acquisition of rights of use from the owner of the land was exempt in view of agricultural land under section 10(1) read with section 2(1A) and section 2(14) of the I.T. Act.

5.1 After considering the reply of the assessee and material brought on record the AO came to the conclusion that the impugned receipt is not taxable and treated as exempt from tax. For this view of the AO, CIT cannot find fault and he cannot impose his view on AO when the AO has taken one possible view. More so, when a transfer of land in similar area was considered, by Co-ordinate Bench of this Tribunal in the case of ITO vs. Amrutilal B. Shah 22 ITR (Trib.) 668(Mum.), it was held as follows:

"7. We have heard both the parties, perused the orders of the Revenue authorities and the papers filed before us. We find that it is not the case of the Revenue that the land in question is located within 8 kms from the municipal limits of Jamnagar or not. The land in question is located beyond 8 kms of the municipal limits of the Jamnagar. It is also an undisputed fact that the land in question was located beyond 19 krns from the centre of the city of Jamnagar. On this issue alone, the definition of capital asset provided in section 2(14)(iii) is not met. There is no notification issued by the Central Government in this regard calling the same being a capital asset. Under these circumstances, the land in question is rightly held by the assessee as agricultural land. It is borne out from the records of the Revenue Department that the lands in question are described by the District Collector, Jamnagar as agricultural lands as evident from the extraction given above. As such, there is no incriminating material in the possession of the Assessing Officer to hold that the land in question is capital asset within the meaning of section 2(14) of the Act. Regarding the onus related issues, we find that the same keep changing depending on the 15 ITA No.3647/M/13

information furnished by the assessee and also gathered by the Revenue from time to time. Considering the fact that the Assessing Officer has no information contrary to the claim of the assessee, we are of the opinion that the decision of the Commissioner of Income-tax (Appeals) does not call for any interference. Accordingly, the grounds raised by the Revenue are dismissed."

5.2 In view of the above discussion we are inclined to annul the order passed by ld. CIT u/s. 263 and allow the appeal of the assessee.

6. In the result, appeal of the assessee in ITA No.3647/Mum/13 is allowed.

Order pronounced in the open court on 04/03/2015 आदे श क घोषणा खुले यायालय म# $दनांकः 04/03/2015 को क गई ।

Sd/- Sd/- (आय.पी. बंसल / I.P. BANSAL) (चं पुजारी /CHANDRA POOJARI ) याियक सदःय / JUDICIAL MEMBER लेखा सदःय / ACCOUNTANT MEMBER मुंबई Mumbai; $दनांक Dated 04/03/2015 व.िन.स./Jv, Sr. PS

आदे श क ूितिल*प अमे*षत/Copy षत of the Order forwarded to : 1. अपीलाथ- / The Appellant 2. ू.यथ- / The Respondent. 3. आयकर आयु/(अपील) / The CIT(A)- 4. आयकर आयु/ / CIT 5. *वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 6. गाड फाईल / Guard file. आदे शानुसार/ ार BY ORDER, स.या*पत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai.