RAKSHITA PATEL ,DELHI vs. AO WARD 49(2), DELHI

PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-

2. The sum and substance of the grievance of the assessee is that the ld. PCIT erred in law as well as on facts in assuming jurisdiction u/s 263 of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] and setting aside the assessment order dated 31.12.2019 framed u/s 143(3) of the Act.

3. The representatives of both the sides were heard at length, the case records carefully perused. Relevant documentary evidences brought on record carefully perused in light of Rule 18(6) of ITAT Rules.

4. Vide notice dated 21.11.2019, the Assessing Officer sought the following information / documents from the assessee:

“1. Please furnish brief Note on the business activities undertaken by you and sources of your income during the year under consideration.

2. Computation of income.

3. Details of all immovable assets sold or purchased during the year alongwith copy of Sale/Purchase Deed and also give sources of income for the purchase of Immovable assets.

4. Documentary evidence with regard to deductions claimed on transfer of Immovable/Capital assets, if any.

Copy of bank statements giving narration of all debit and credit entries related to transfer of Immovable property/capital asset.”

5. Again, vide notice dated 13.12.2019, the Assessing Officer sought the following details from the assessee :

“1. On perusal of Return filed for the A Y 2017-18 and materials and documentary evidences available on record, it is observed that you have earned Rs. 1,35,23,142 /-income under the head Long term Capital Gains, from the sale of a property the sale consideration of which is Rs. 3,48,31,638/-.

You have claimed a deduction of Rs 3,08,121 on account of cost of acquisition of the property.

You have also claimed a deduction u/sec 54 of Rs 2,10,00,375 from the Income from Capital Gains.

However in response to the previous notices issued under section 142(1),you have failed to submit any documentary evidence of the Sale deed of the property , or the Purchase Deeds of the Property evidencing you claim for deduction of Cost of Acquisition and your claim of Deduction under section 54 .

2. Kindly provide the copy of the Registered Sale deed of the Property sold for Rs 3,48,31,638.

3. Kindly provide the copy of the registered purchase deeds for the property for your claim of deduction under, Sector 54 pf, Rs,2r10,00,375/-. Kindly provide the sources of funds used to purchase the property which is claimed as deduction u/sec 54.

4. Kindly provide the copy of the registered purchase deed of the property for claim of deduction of Rs 3,08,121 on account of cost of acquisition of the property .Kindly provide the sources of fund used for the purchase amt of Rs 3,08,121 /-

5. Kindly provide the bank statement evidencing receipt of the Sale Consideration of Rs 3,48,31,638 /- and payment for purchase of property of Rs 2,10,00,375 /- for claim of deduction under section 54.

6. Please note that as per provisions of Sec 54 of the Income Tax Act to qualify & claim deduction under this section, the assessee should not own/purchase/construct more than one residential house, other than the new asset acquired on the date of transfer of the original asset.

Please explain with documentary evidence that you have fulfilled all the specified conditions section 54 to claim the deduction under the specified section.

Your reply in the matter may please be furnished latest by 15- 12-2019; failing which your case may be decided exparte on the basis of material/information available on record u/s 144 of the Act to the best judgment of the undersigned. It may please be noted that no further adjournment shall be given as already sufficient time has been allowed to file your reply.”

“That I have become the owner of plot bearing number 25/14 situated in the area of village Nangli Sakrawati Colony known as Nangli Vihar in Block 8 New Delhi - 110059 by virtue of gift deed entered on the 4th day o October 2011 by Smt. Radha P Patel in favour of me. Thus the immovable plot has come to n r existence by way of gift deed for which no money or any sore ot consideration were paid for purchase of the same, it is pertinent to mention here in the so-called plot measuring 455 square yards was originally purchased for Rs. 2,15,000 wide, have also been shown by me in my Statement of affairs as the cost of acquisition or - indexation as per Act has been done based on the same cost.

That, the plot mentioned in Para (2) above have been compulsorily acquired by DMRC limited on a sale consideration of Rs 3,48,31,638/- and the payment of Rs. 3,41,35,004/- have duly- been credited in my bank account with Axis Bank limited after inter-aiia deducting 1% IDS under section 194- IA in addition to further deduction of 1% for non execution of sale deed as the plot was situated in an u reauthorized colony. That there have arisen a long term capital gain on the sale of this plot. I have purchased a piot and spent a sum of Rs 2,10,00,375/- for the construction of whole of the building on such plot to claim exemption u/s 54F to avoid payment of taxes.

That the necessary documents as regards to construction of plot under consideration are hereby enclosed for your necessary perusal and records. The long term capital gains have been calculated and worked out as under.

Particulars Amount(inRs.) Sales Consideration 3,48,31,638 Less: indexed Cost of Acquisition Property received under will 3,08,121 (lndexed Cost)

Gross Long Term Capital Gains 3,45,23,517 Less: Cost of Investment u/s 54F 2,10,00,375 Taxable Long Term Capital Gains 1,35,23,142

That I have paid necessary taxes and dues on my taxable income besides deduction of tax at source.

Bank Statements:

That the copy of my bank statement during the year under consideration with narration of ail debit and credit entries are enclosed herewith this letter for your perusal and records.

Others:

That the copies of agreement for providing turnkey projects towards building of house in the plot purchased are enclosed herewith this letter evidencing the construction. Also enclosed copy of ownership documents of the plot purchased to claim exemption u/s 54F of the Act.”

9. All the details furnished by the assessee alongwith documentary evidences were examined by the Assessing Officer thoroughly and after thoroughly scrutinizing the details/documents, the Assessing Officer computed the taxable income by observing as under:

“6. Finally a Show cause notice was issued to the assessee on date 20/12/2019. The Assessee submitted her online reply to the show cause through e-proceedings on ITBA module.

On verification of the documents submitted by assessee in response to the Show cause notice, it was observed that the assessee has claimed a deduction of Rs. 2,10,00,375 under section 54 from the Income under the head long term capital gains on account of purchase and construction of a residential house property. The source of funds for purchase and construction of the residential house came from the sale proceeds of an immoveable property sold by the assessee during the year. The Assessee duly submitted the proofs of purchase of the residential property in her name and the proofs of construction expenses incurred by her on the residential house property in order to claim the deduction under section 54 of Rs 2,10,00,375/-

It was observed that the Assessee has spent an amount of Rs 45,00,000 on account of Purchase of a Residential Plot of land and further the assessee had spent an amount of Rs 1,65,00,000 on account of the various expenses incurred for the construction of a residential house property on the residential Plot of land. The amount of construction expenses of Rs 1,65,00,000 claimed to have been incurred by assessee also formed a major part of the deduction under section 54 claimed by assessee in her income tax return of A Y 2017-18. Though, the assessee has submitted the copy of the contract for building-construction entered into by her with the contractor/builder alongwith the bills for construction of the residential house property .however since a major part of the expenses have been paid /incurred by assessee in cash via cash withdrawals made by the assessee from her bank account .therefore an amount equal to 5 % of the total expenses of construction of Rs. 1,65,00,000/- is disallowed from the deduction under section 54 to cover any leakage of revenue. Therefore an amount of Rs 8,25,000/- {which is 5 % of Rs 1,65,00,000/-} is being added to total income of the assessee under the head long term capital gains to cover any leakage of revenue.

Therefore I am of the considered view that an amount of Rs 8,25,000 /- is liable to be added to the assessee's total income under the head long term capital gains for the AY 2017-18.

(Addition of Rs 8,25,000/-)

Total Income as per return filed (to be taxed under normal provisions) Rs. 1,39,35,090/-

ADD: Addition under the head long term capital gains (chargeable to tax at a special rate of @ 20 % ) Rs. 8,25,000/-

Total Taxable Income Rs.1.47.60.090/-

With the above remarks and after discussions, income of the assessee is assessed at a Total Income of Rs 1,47,60,090/-

“Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the THE INCOME TAX ACT, 1961 - Assessment Year 2017-18.

In this regard, a hearing in the matter is fixed on 20/01/2021 at 03:30 PM You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions/representations filed in this office, on or before the said due date, then your personal attendance is not required You also have the option to file your submission from the e-filing portal using the ink incometaxindiaefiling.gov.in

The assessment records of Rakshita Prabhudas Patel for the AY 2017-18 were called for and examined.

3. On perusal of the assessment record in the case of the assessee, it is noticed that the case of the assessee was selected for limited scrutiny through CASS for the reason-Large deduction/exemption claimed from capital gains.

of Rs. 3,48,31,638/- and claimed a deduction of Rs. 2,10.00,375/- u/s 54 of the IT Act, 1961, on account of purchase and construction of a residential property. The assessee has submitted that she had purchased a residential plot of Rs. 45,00,000/- and spent an amount of Rs. 1,65,00,000/-for construction the house. The AO has added an amount of Rs. 8,25,000/-, which is 5% of the amount of Rs. 1,65,00.000/-, without making any enquiry. On perusal of the assessment record, the following points are noticed:-

1 The AO was failed to record the registered sale deed entered into by the assessee.

2 The AO was failed to record the registered agreement for construction of the building entered into by the assessee.

3. The AO has not examined the details of the completion certificate of the building/house to verify the claim of deduction u/s 54 of the IT Act, 1961.

4 The assessee has paid cash above Rs. 20000/- to the contractor for construction f the building. The AO was failed to record the same and has not passed information to initiate penalty proceedings u/s 271D and 271E of the IT Act, 1961.

12. The Hon'ble Supreme Court in Malabar Industrial Co. Ltd., 243 ITR 83, has laid down the following ratio:

"A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent--if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-- recourse cannot be had to section 263(1) of the Act. 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 ".

“The power of suo motu revision under subsection (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary. According to the definition, "erroneous" means "involving error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, "erroneous judgment" means "one rendered according to course and practice of court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles".

should have been written more elaborately This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income- tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income-tax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power.

It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority.

The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate 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, in our opinion, is not permissible. Hence the provisions of section 263 of the Act were not applicable to the instant case and, therefore, the commissioner was not justified in setting aside the assessment order.”

“if assessment order were to incorporate the reasons for upholding the claim made by an assessee, the result would be an epitome and not an assessment order. In this case, during the assessment proceedings for both the Assessment Years, the Assessing . A.Y. 2009-10 Officer issued a query memo to the assessee, calling upon him to justify the genuineness of the gifts. The Respondent-Assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their Bank accounts. On perusal, the Assessing Officer was satisfied about the creditworthiness/capacity of the donors, the source from where these funds have come and also the creditworthiness/ capacity of the donor. Once the Assessing Officer was satisfied with regard to the same, there was no further requirement on the part of the Assessing Officer to disclose his satisfaction in the Assessment Order passed thereon. Thus, this objection on the part of the Revenue cannot be accepted.”

“We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the CIT under s. 263 of the IT Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the AO did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open”.

Considering the facts of the case in totality from all possible angles, we failed to persuade ourselves to accept the contention of the ld. DR who had strongly supported the findings of the PCIT. We are of the considered view that the order framed u/s 263 of the Act deserves to be set aside and that of the Assessing Officer deserves to be restored. We order accordingly.”

The order is pronounced in the open court on 02.02.2023.