Commissioner of Income vs K.N.R. Patel (JV)

D.Y. Chandrachud, J.—Admit.

The appeal arises out of an order passed by the Tribunal on 27th Feb., 2009 pertaining to asst. yrs. 2003-04. By the order of the Tribunal, proceedings initiated by the CIT u/s 263 of the IT Act, 1961 have been set aside.

The Revenue has formulated the following questions of law in an appeal u/s 260A:

(a) Whether on the facts and circumstances of the case and in law, the Tribunal is correct in setting aside the order passed u/s 263 by the CIT, without discussing the facts of the ease and the clauses of the agreement between NHAI and the Assessee ?

(b) Whether on the facts and circumstances of the case and in law, the Tribunal is correct in ignoring relevant facts and findings in the order under appeal ?

(c) Whether on the facts and circumstances of the case and in law, the Tribunal is correct in allowing the deduction u/s 80IA(4) of the IT Act, 1961 in view of the provisions and clarifications of Section 80IA with retrospective effect from 1st April, 2000 of the IT Act, 1961 ?

In the assessment proceedings relating to asst. yr. 2003-04, the Assessee claimed the benefit of a deduction u/s 80IA. The AO by his order dt. 30th Dec, 2005 granted to the Assessee the benefit of the deduction claimed u/s 80IA(4), save and except for certain items to which it may not be necessary to advert for the purpose of this proceeding. On 28th March, 2008 the CIT invoked the provisions of Section 263 and was of the view that the order passed by the AO was erroneous as it was prejudicial to the interests of the Revenue. In arriving at this view, the CIT based his order on the following foundation: (i) The Assessee is not a developer of the project since it has not invested its own funds for development and it was the National Highway Authority of India (NHAI) which had invested its funds and had been entrusted with the task of completing and maintaining the highway infrastructure by the Union Government; (ii) There was a lack of application of mind on the part of the AO who had passed the assessment order, to this issue; (iii) The assessment order was mainly based on the decision of the Mumbai Bench of the Tribunal in Patel Engineering Ltd. v. Dy. CIT (2004) 84 TTJ 646: (2005) 94 ITD 411 (Mumbai). However, the decision in Patel Engineering (supra) was distinguishable on facts; (iv) In any event, the retrospective amendment to Section 80-IA(4) by Finance Act of 2007 would lead to the conclusion that the order passed by the AO was erroneous. The CIT has adverted to the provisions of Section 263 and after relying upon the judgment of the Supreme Court in COMMISSIONER OF INCOME TAX Vs. SHREE MANJUNATHESWARE PACKING PRODUCTS and CAMPHOR WORKS., : Commissioner of Income Tax, Bangalore Vs. Shree Manjunatheaware Packing Products and Camphor Works, held that the record would include the Explanation to Section 80IA.

The order of the CIT was the subject-matter of an appeal before the Tribunal. The Tribunal in para 3 of its order, proceeded on the basis that the revisional jurisdiction u/s 263 has been exercised by the CIT in view of the Explanation inserted into Section 80-IA by the Finance Act of 2007 with retrospective effect from 1st April, 2000. The Tribunal observed that but for the Explanation, there is no dispute that the Assessee had satisfied all the requisite conditions for claiming relief under the section. In para 5 of its judgment, the Tribunal held that the decisions of the Jaipur Bench in the case of Om Metals Infraprojects Ltd. v. CIT (2009) 26 DTR 359 and of the Mumbai Bench in Patel Engineering (supra) arose in similar circumstances and the representative appearing on behalf of the Revenue could not seriously make any distinction in the facts of the present case vis-a-vis those relied upon by the Authorized Representative.

There is merit in the submission which has been urged on behalf of the Revenue in this proceeding that the Tribunal has ex facie misconstrued the order of the CIT u/s 263 and has not dealt with either of the reasons which have been indicated by the CIT for exercising the jurisdiction u/s 263. As already noted earlier, the CIT, in the exercise of his jurisdiction u/s 263 observed that the Assessee is not a developer within the meaning of Section 80IA; that the decision in Patel Engineering (supra) is distinguishable on facts and that in any event, the Explanation to Section 80-IA inserted by Finance Act of 2007 would demonstrate that the order of the AO is erroneous. Neither of these three reasons, which form the basis of order of the CIT has been dealt with by the Tribunal. In fact, as noted earlier, the Tribunal in para 3 of its decision proceeded on the basis that the revisional jurisdiction had been exercised by the CIT only on the basis of the Explanation inserted into Section 80-IA(13) by the Finance Act of 2007. That ex facie is not a correct reading of the order passed by CIT. The Tribunal referred to the orders of its Jaipur Bench in Om Metals Industrial Co. Ltd. (supra) and of the Mumbai Bench in Patel Engineering Ltd. (supra) and then proceeded to observe that the Departmental Representative could not seriously make any distinction in the facts of the present case vis-a-vis those relied upon by Authorised Representative. That would go to suggest that an effort, as a matter of fact, was made to distinguish those cases. The Tribunal has not indicated any reasons why, if at all, it was of the view that the earlier two decisions were not distinguishable. In these circumstances, though the ultimate conclusion of the Tribunal is that the AO had taken a possible view, we are of view that the Tribunal ought to have dealt with the reasons which had weighed with the CIT in the exercise of his jurisdiction u/s 263. Unless those reasons were found to be without any basis, a case for setting aside the exercise of jurisdiction by the CIT would not be made out.

Since the Tribunal has not considered the appeal in its perspective, we are of the view that it it would be appropriate and proper to remand the proceedings back to the Tribunal for a fresh decision in the light of the observations made by us earlier. In order to facilitate a fresh exercise upon remand, the impugned order dt. 27th Feb., 2009 is set aside and the appeal pertaining to asst. yr. 2003-04 shall stand restored to the file of the Tribunal. In view of this, it is not necessary to render any findings on the questions of law as formulated by the Revenue. The appeal is disposed of accordingly. There shall be no order as to costs.