ORDER
N.K. SAIni, A.M.:
This is an appeal by the assessee against the order of the learned Commissioner, dated 22-3-1999, passed under section 263 of the Income Tax Act, 1961, for assessment year 1993-94.
2. This appeal was barred by limitation by about 20 months. This Bench of the Tribunal vide order dated 14-7-2003 condoned the delay, by following the decisions of the Hon’ble Supreme Court in the cases reported in Collector, Land Acquisition v. Mst. Katiji & Ors. (1987) 167 ITR 471 (SC) and Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh & Ors. (1979) 118 ITR 326 (SC). The registry was directed to fix the appeal in due course of time and now the case has been fixed to be decided on merits.
3. The facts of the case in brief are that the assessee filed his return on 29-10-1996 declaring an income of Rs. 23,820. The case was reopened by issuing notice under section 148 dated 31-8-1994. The summon was also issued under section 131 and in compliance of that the assessee appeared in person. The assessing officer made the enquiry from him. The assessee received a sum of Rs. 3.91 lakhs for leaving his rights on the land which he was using for agricultural purposes. The land was purchased by S/Sh. Chetan Parkash, Suresh Chopra, Bali Mohan Singh from S/Sh. Champa Lal, Gobind Dass, Rattan Lal and Chagan Lal. The assessee submitted to the assessing officer that an agreement was made on 12-10-1990 for leaving the possession of the land and the assessee was given a sum of Rs. 3.91 lakhs, out of which his share was 50 per cent. The assessee stated that the compensation was exempt under section 55(2) because this amount was received for leaving the rights in agricultural land.
It was also stated that the amount received in lieu of land development could not be considered as income. The assessing officer recorded the statement of the assessee and asked certain searching questions in respect of the compensation of Rs. 3.91 lakhs. The land in question was in possession of the assessee for the last 30 years, The assessing officer after considering the submissions of the assessee and the material on record observed that the assessee was asked about the expenses of Rs. 50,000, which was spent by him for construction of one room and a well and enquired as to whether the evidence had been furnished as regards to the expenses amounting to Rs. 50,000 for levelling of the land and construction of room, etc. on the agricultural land. It was stated before the assessing officer that the assessee was a tenant of the land belonging to S/Sh. Champa Lal, Gobind Dass, Rattan Lal and Chagan Lal and the amount which had been received related to the tenancy rights. As such, the same was not taxable under section 55(2)(a). The reliande was placed on the decisions of the Hon’ble Supreme Court reported in Bawa Shiv Charan Singh v. CIT (1984) 149 ITR 29 (SC) and CIT v. Panbari Tea Co. Ltd. (1965) 57 ITR 422 (SC). The assessing officer after making thorough enquiry came to the conclusion that the amount received by the assessee was capital receipt on which the assessee had not shown the interest income. The assessing officer worked out the interest by applying the rate of 12 per cent and made the addition of Rs. 36,200 to the income declared by the assessee at Rs. 23,700. As such, the income was assessed at Rs. 59,900.
4. Later on, the Commissioner issued notice under section 263 to the assessee and proposed to modify the assessment order dated 26-3-1997. The main reason for the modification was that the assessing officer was not justified in accepting the claim of the assessee that the payment of Rs. 3.91 lakhs was for obtaining the vacant possession of the land, i.e., for giving the tenancy rights. In response to that notice, the assessee stated that all the relevant material along with evidence had been furnished before the assessing officer and that the amount was not liable to capital gains. It was stated that the amount of Rs. 3.91 lakhs was not related to the expenses incurred by the assessee for levelling the land, etc., because those expenses were related to the agricultural work. Accordingly, it was submitted that there was no need to review the assessment order. The Commissioner set aside the assessment order and directed the assessing officer to reframe the same in accordance with law. The Commissioner observed in paras 3-4 of the impugned order as under :
“3. The decisions relied upon by the assessee before the assessing officer related to the receipt of money on account of goodwill or tenancy rights. These decisions were clearly not applicable to the facts of this case. Besides even the decision on the tenancy rights were decided on the consideration of the fact that there was no cost of acquisition for the tenancy rights and as such capital gains could not be computed. In the instant case, even if the contention of the assessee about the tenancy rights was to be considered, the decisions relied upon were not applicable inasmuch as there was cost of acquisition of tenancy rights and as such, capital gains could be computed.
4. The assessing officer also did not examine the possibility that even if the income could not be assessed as capital gains, the same was liable to be considered as income from other sources. On this ground also the order passed by the assessing officer is erroneous and prejudicial to the interest of the revenue.”
Now the assessee is in appeal against the order of the Commissioner passed under section 263.
5. The learned counsel for the assessee reiterated the submissions made before the lower authorities and further stated that the order passed by the assessing officer was neither erroneous nor prejudicial to the interests of the revenue. As such, it was outside the purview of section 263. It was vehemently argued that the assessee furnished written submissions along with evidence before the assessing officer, who, after proper verification, adjudicated the case and accepted the claim of the assessee. It was stated that there was an agreement between the owner of the land and the purchasers, wherein it was stated that the assessee had tenancy rights as sub-tenant in the revenue records and the parties agreed to pay the compensation. He drew our attention towards pp. 6-7 of the paper book. He further submitted that the assessee surrendered his right by way of surrender deed written on 24-6-1992, which was registered in the register of the notary on 29-6-1992 and, therefore, the amount received was related to the surrender of tenancy rights. He drew our attention towards pp. 15-16 of the paper book, which are copies of the statements of the assessee recorded by the assessing officer on 26-8-1994. Our attention was drawn towards the question by which the assessing officer asked the assessee that as per his knowledge the sum of Rs. 3.91 lakhs was received in May/June, 1992 from S/Sh. Chetan Parkash, Suresh Chopra, Bali Mohan Singh for vacating the land, which was registered in the names of S/Sh. Champa Lal, Gobind Dass, Rattan Lal, Chagan Lal, etc. While giving reply to the aforesaid question, the assessee stated that the above facts were correct and as regards to the nature of receipt, it was stated that the same was in lieu of leaving the possession of the land. The assessing officer also asked about the expenses incurred on the land. The assessee replied that about Rs. 50,000 was spent for constructing one room, boundary wall and well, which was spent 4/5 years ago. On the basis of the above statement, the learned counsel for the assessee stated that the assessing officer after making thorough enquiry was satisfied that the amount received by the assessee was not taxable as a capital gain and after his satisfaction the claim of the assessee was accepted. Therefore, the Commissioner was not justified in observing that *the assessing officer did not examine the record and decided the issue on wrong facts without appreciating the facts and without taking into consideration the material on record. The learned counsel vehemently argued that the order passed by the Commissioner was illegal because the order passed by the assessing officer was neither erroneous nor prejudicial to the interests of the revenue. The reliance was placed on the following case law :
(i) CIT v. Goyal Private Family Specific Trust (1988) 171 ITR 698 (All)
(ii) Vinod Kumar Gupta v. Income Tax Officer (1990) 36 TTJ (Chd) 65
(iii) CIT v. Gabriel India Ltd. (1993) 203 ITR 108 (Born)
(iv) Venkatakrishna Rice Factory v. CIT (1987) 163 ITR 129 (Mad)
(v) Nirfabrics Ltd. v. Dy. CIT 124 Taxation 35 (Bom)
(vi) CIT v. Kanda Rice Mills (1989) 178 ITR 446 (P&H)
(vii) CIT v. Kanshi Nath & Co. (1988) 170 ITR 28 (Al.1)
In his rival submissions, the learned Departmental Representative supported the order of the Commissioner and stated that the order passed by the assessing officer was erroneous and prejudicial to the interests of the revenue, because he had not considered that the compensation received by the assessee was for the construction done by him and not for leaving the tenancy rights.
6. We have considered the rival submissions and carefully gone through the material available on record along with various citations quoted by the learned counsel for the assessee. In the instant case, it is noticed that the assessing officer conducted proper enquiry for the receipt of Rs. 3.91 lakhs which the assessee received in lieu of the tenancy rights. The assessing officer also recorded the statement of the assessee and asked specific questions which were directly related to the amount in question. Therefore, it cannot be said that the assessing officer had not enquired and not considered the material on record. It is also noticed that the Commissioner while setting aside the assessment order passed by the assessing officer was not sure as to whether the amount was taxable under the head ‘capital gains’ or under the head ‘income from other sources’ because in para 4 of the impugned order he stated that ‘the assessing officer also did not examine the possibility that even if the income could not be assessed as. capital gain, the same was liable to be considered as income from other sources’. From the above observations of the Commissioner, it would be clear that he was not knowing as to whether the assessee was liable to pay the tax on the income under the head ‘capital gains’ or ‘income from other sources’.
6.1 The Hon’ble Bombay High Court in the case of Gabriel India Ltd. (supra) held as under :
“…… that the Income Tax Officer, in this case, had made enquiries with regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing that these were part of the record of the case. Evidently, the claim was allowed by the assessing officer on being satisfied with the explanation of the assessee. This decision of the Income Tax Officer could not be held to be ‘erroneous’ simply because in his order he did not make an elaborative discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income Tax Officer to re-examine the matter. That was not permissible. The Tribunal was justified in setting aside the order passed by the Commissioner under section 263;.
In the instant case also, the Commissioner even after initiating proceedings for review and hearing the assessee could not say that the compensation received was taxable under the head capital gains or income from other sources. He simply asked the assessing officer to re-examine the matter. Therefore, the ratio laid down by the High Court is applicable to the facts of the present case. As such, the Commissioner was not justified in setting aside the order passed by the assessing officer.
6.2 The Hon’ble Madras High Court in the case of Venkatakrishna Rice Co. (supra) held as under :
“….. that as in the instant case, the order of assessment of the Income Tax Officer was in accordance with law, it could not be held to be erroneous in law and consequently, it could not be prejudicial to the interest of the revenue and hence, the action of the Commissioner was not justified. The Tribunal was, therefore, not right in upholding the order of the Commissioner.
The scope of interference under section 263 is not to set aside merely unfavourable orders and bring to tax some more money to the treasury nor is the section meant to get at sheer escapement of revenue which is taken care of by other provisions in the Act. The prejudice that is contemplated under section 263 is prejudice to the income-tax administration as a whole. Section 263 is to be invoked not as a jurisdictional corrective or as a review of a subordinate’s order in exercise of the supervisory power but it is to be invoked and employed only for the purpose of setting right distortions and prejudices to the revenue which is a unique conception which has to be understood in the context of and in the interest of revenue administration. Such a power cannot in any manner be equated to or regarded as approaching in any way the appellate jurisdiction or even the ordinary revisional jurisdiction conferred on the Commissioner under section 264″.
In the instant case also, the Commissioner invoked the provisions of section 263 to review the order passed by his subordinate by exercising his supervisory powers although the assessing officer after making thorough enquiry and considering the case law quoted by the assessee came to the firm conclusion that the compensation received was not taxable. Therefore, the order passed by the assessing officer was not erroneous or prejudicial to the interests of the revenue. As such, the Commissioner was not justified in setting aside the assessment order.
6.3 The Hon’ble Punjab and Haryana High Court in the case of Kanda Rice Mills (supra) held as under :
“Held that a reading of the entire order of the Commissioner clearly showed that he did not furnish his opinion or consider the cited cases or the argument raised and merely observed that these were the points which deserved consideration and after setting aside the order of the Income Tax Officer, issued a direction for making assessment afresh, which was not permissible under the provisions contained in section 263 of the Act. The Commissioner had to come to a firm decision that the order of the Income Tax Officer was erroneous and was prejudicial to the interests of the revenue.
Since no decision about the erroneous nature of the order was firmly taken, the Tribunal was right in vacating the order of the Commissioner under section 263.
In the instant case also, the Commissioner was not sure as to whether the income was to be assessed as capital gains or income from other sources, as per his finding in para 4 of the impugned order. It clearly shows that the Commissioner merely observed that those points deserve consideration and after setting aside the order of the assessing officer he issued directions to reframe the assessment and since no decision about the erroneous nature of the order was firmly taken by the Commissioner, he, therefore, was not justified in setting aside the assessment order for fresh adjudication. Therefore, keeping in view the ratio laid down by the Hon’ble High Court also, the order passed by the Commissioner under section 263 deserves to be set aside.
7. Considering the totality of facts as discussed hereinabove, we are of the firm opinion that the order passed by the assessing officer was neither erroneous nor prejudicial to the interests of the revenue. In fact, the assessing officer passed the order after considering all the relevant material on record and after making proper enquiry and came to the firm conclusion that the compensation received by the assessee for leaving his tenancy rights was not taxable. We, therefore, set aside the order passed by the Commissioner and restore that of assessing officer.
8. In the result, the appeal is allowed.