SANGEETA AGARWAL,JAIPUR vs. PR. CIT-2, JAIPUR

lquokbZ dh rkjh[k@ Date of Hearing : 16/09/2020 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 17 /09/2020 vkns'k@ ORDER PER SANDEEP GOSAIN, J.M. The present appeal has been filed by the assessee against the order of ld. Pr.CIT - 2, Jaipur dated 13.09.2020 for the Assessment Year 2010- 11 passed under section 263 of the Income Tax Act, 1961 on the grounds mentioned hereinbelow. ‘’1. Under the facts and circumstances of the case, the ld. Pr.CIT erred in passing the order u/s 263 of the I.T. Act, 1961 which is void ab initio deserves to be quashed.

Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur 2. Under the facts and circumstances of the case the ld. Pr.CIT has erred in passing the order u/s 263 of the Act on the grounds which are not prejudicial to the interest of Revenue or erroneous.

3. Under the facts and circumstances of the case the ld. Pr.CIT has erred in giving the findings on the issues which has already been decided by the AO.

4. Under the facts and circumstances of the case the ld. Pr.CIT has erred in giving direction for following issues which has already dealt by the AO in the order passed u/s 148/143(3) of the I.T. Act, 1961. (i) Issue regarding sale of land as business income. (ii) Expenditure incurred on brokerage and commission for sale of land. (iii) Interest income (iv) Proprietor’s capital.

2.1 During the course of hearing, ld.AR of the assessee submitted that he has filed the revised grounds of appeal under rule 11 r.w.s. 22 of the Income Tax Appellate Tribunal Rules, 1963.The revised grounds of appeal of the assessee are as under:-

‘’1. For that the order u/s 263 is bade in law for the reason that the proceedings u/s 147 initiated itself was bad in law, the order u/s 147/143(3) was not maintainable since no assessment can be made for making rowing and fishing enquiry and an invalid assessment cannot be set aside u/s 263.

2.2 Since the assessee has filed the revised grounds of appeal under rule 11 r.w.s. 22 of the Income Tax Appellate Tribunal Rules, 1963, therefore, the Bench does not find any adverse reason to reject the same being the legal grounds as prayed by the ld.AR that it goes to the root of the matter. Although the ld. DR contested the revised grounds and submitted that the assessee is not entitled to take the same at this stage.

However, we are of the view that revised grounds so raised by the assessee are legal in nature and do not require any separate evidence for adjudication. Hence, the revised grounds of appeal filed by the assessee is admitted in accordance with the provisions of Income Tax Appellate Tribunal Rules, 1963 for which the ld. DR has no objection.

3.1 First of all, we take up the original grounds of appeal filed by the assessee for adjudication.

4.1 Apropos Ground No. 1 to 4 of the assessee, the brief facts of the case are that the assessee is an individual and the assessee has filed her return of income for the year under consideration on 29-09-2020 declaring her total income at Rs. 45,45,440/-. Subsequently, the notice u/s 148 was issued on 29-03-2017 and proceedings for reopening the Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur assessment were initiated and assessment was completed u/s 148/143(3) on 7-12-2017. Thereafter the ld. Pr. CIT initiated the proceedings u/s 263 of the Act by issuing the notice and after hearing the parties, order u/s 263 of the Act was passed on 13-03-2000 thereby the order of assessment dated 7-12-2017 was set aside by considering the same to be erroneous and prejudicial to the interest of Revenue. The observation of the ld. Pr.

CIT at para 6 of her order is as under:-

‘’6. In view of the above, I hold that the order passed by the AO on 7-12-2017 was passed without conducting necessary inquiries and without verifying necessary details which AO ought to have done considering the issues involved and the facts of the case as mentioned in para 5 above. The order passed by the AO on 7-12-2017 is therefore, held to be erroneous and prejudicial to the interest of the Revenue. The order passed by the AO is also held to be erroneous and prejudicial to the interest of Revenue in terms of clause (a) & (b) of Explanation (2) to Section 263 of the Act. The order passed by the AO, thus deserves to be set aside to be made a fresh after giving opportunity to the assessee. The order of the AO is, accordingly, set aside.’’ 4.2 Against this order of the ld. Pr. ld. CIT, the assessee has preferred an appeal before us on the grounds mentioned hereinabove.

4.3 The ground Nos. 1 to 4 raised by the assessee are interrelated and interconnected and relate to challenging the order of the ld. Pr.CIT passed Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur u/s 263 of the Act. Therefore, we thought it fit to dispose off these grounds through a common order.

4.4 During the course of hearing, the ld.AR of the assessee reiterated the same arguments as were raised by him before the ld Pr.CIT and he has also filed the written submissions to this effect as under:-

‘’Main Ground No. 1 to 4–

1. Under the facts and circumstances of the case the learned Pr.CIT erred in passing the order u/s 263 of the IT Act 1961 which is void ab-initio deserves to be quashed.

2. Under the facts and circumstances of the case the Learned Principal Commissioner of Income Tax has erred and passing the order U/s 263 of Income Tax Act, 1961 on the grounds which are not prejudicial to the interest of the Revenue or erroneous.

The assessee is an individual and the assessee has filed return for assessment year 2010-11 originally on 29.09.2010 declaring total income at Rs. 45,52,440/-. A copy of the IT return along with the computation of income is available on paper book page number 1 to 7. Subsequently notice u/s 148 was issued on 29.03.2017 and in compliance thereof the assessee filed the income tax return on 03.11.2017 declaring the income at Rs. 45,52,440/-. A copy of the IT return along with the computation of income field on 03.11.2017 is available on paper book page number 8 to 12. The assessment 5 Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur was completed u/s 148/143(3) dated 07.12.2017 on the same income. Copy of assessment order is available on paper book page no. 13 to 15. Subsequently the learned Pr. CIT-2 has issued notice on 07.08.2019. Copy of notice is available on paper book page no. 16 to 19. The assessee replied the notice vide reply dated 22.08.2019. Copy of reply is available on paper book page no. 20 to 23. But the Learned Pr. CIT not convinced with the reply filed by the assessee and set aside the order passed by learned AO on 07.12.2017. The order passed by the Learned Pr. CIT is unlawful, illegal and unjust because of the following reasons-

1. The learned AO has completed the re-opened assessment by considering the reasons recorded for re-opening of the assessment. The reasons recorded are as under: -

As per AST System (AIR information), it has been found that the above mentioned person has not filed return of income for AY 2010-11. Further issued letter regarding information sought u/s 133(6) of the Act is also not complied by the said person. Later on, it was noticed that the assessee sold immovable property valued of Rs. 23,40,000/- and further sub registrar valued (final value) this property at Rs. 46,80,000/-. Since, return has not been filed by the assessee therefore, verification canoe been possible at this time. Looking to the facts mentioned above, I have reasons to believe that the income to the extent of Rs. 46,80,000/- has escaped assessment within the meaning of section 147 of the IT Act, 1961. Therefore it is fit case to issue notice u/s 148 of the Income Tax Act, 1961.

In the reasons recorded in the first para the learned AO has mentioned that the assessee not filed the return which is not correct. The assessee has originally filed return on 29.09.2010 copy of which is placed on paper book page no.

1. The learned AO further mentioned that he issued letter u/s 133(6) of the Act for calling some information, this letter was never received by the assessee.

In the next para of reasons recorded the learned AO further mentioned that it was noticed that the assessee sold immovable property valued of Rs. 23,40,000/- and further sub registrar valued (final value) this property at Rs. 46,80,000/-. This fact was correct and the assessee has shown this transaction of sale of property in the return filed originally on 29.09.2010. So the reasons were not recorded by appreciating the correct facts as well as proper application of mind.

Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur In the last para of the reasons recorded the learned AO further mentioned that Since, return has not been filed by the assessee therefore, verification canoe been possible at this time. Looking to the facts mentioned above, I have reasons to believe that the income to the extent of Rs. 46,80,000/- has escaped assessment within the meaning of section 147 of the IT Act, 1961. Therefore it is fit case to issue notice u/s 148 of the Income Tax Act, 1961.” The above reasons are also not correct since the assessee has filed the return duly disclosing the transaction, therefore the reasons recorded for reopening of the assessment proceedings are invalid and are not sustainable. Therefore where the very initiation of reassessment proceedings are not sustainable the order passed by learned PCIT u/s 263 of the Income Tax Act, 1961 is void ab- initio. 4.5 It was submitted that during the reassessment proceedings the AO has made proper enquiries which are necessary according to reasons recorded. The ld.AR further submitted that the order passed by the AO is not erroneous and not prejudicial to the interest of the revenue. The ld.AR relied upon following case laws.

(i) Malabar Industrial Co Ltd. vs. CIT (2000) 243 ITR 83 (SC) (ii) Vesuvius India Ltd vs. CIT (2002) 54 SOT 172 (ITAT- Kolkata) (iii) C I T-1 Jaipur vs M/S Green Triveni Developer on 24 October, 2017- HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT - D.B. Income Tax Appeal No. 114 / 2015 (iv) CIT v. Honda Siel Power Products Ltd. (2011) 33 ITR 547 (Delhi), Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur 4.6 On the other hand, the ld. DR relied on the order of the ld.Pr.CIT and filed the written submission to this effect praying that the findings recorded by the ld.Pr.CIT in the impugned order is in order for which the ld. DR relied on the following case laws.

4.7 We have heard the ld. counsels for both the parties and we have also perused the materials placed on record, deliberated upon judgements cited by the parties as well as the orders of the Revenue authorities. From the facts, we noticed that the assessee is an individual and had filed return for the year under consideration originally on 29.09.2010 declaring total income at Rs. 45,52,440/-. Subsequently notice u/s 148 was issued on 29.03.2017 and in compliance thereof the assessee filed the income tax return on 03.11.2017 declaring the income at Rs. 45,52,440/-. Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur Copy of the IT return along with the computation of income is available on paper book page number 8 to 12. The assessment was completed u/s 148/143(3) dated 07.12.2017 on the same income. Subsequently the ld Pr.

CIT-2 had issued notice u/s 263 of the Act on 07.08.2019. for which assessee replied the notice vide reply dated 22.08.2019. However, the ld Pr. CIT was not convinced with the reply filed by the assessee and therefore, set aside the order passed by AO dated 07.12.2017. We noticed from the record that during the reassessment proceedings the AO had made all the necessary inquires and investigation which were necessary to complete the assessment. During the assessment proceeding, the AO had issued various questioners and notice u/s 143(2), 142(1) of the Income Tax Act, 1961. Notice issued u/s 142(1) dated 10.11.2017 was replied by the assessee on 30.11.2017. Copy of reply dated 30.11.2017 is placed on paper book page no.

Therefore the observation in this regard while passing the order u/s 263 by ld PCIT that order passed by the AO on 07.12.2017 was passed without conducting necessary inquiries and without verifying necessary details was without any basis or without any evidence on record.

4.7.1 We are further of the view that If on a particular issue there are two views and one possible view was taken by the AO then in that eventuality it cannot be said as erroneous. As per the facts of present case, which we have discussed above, the assessee had purchased agriculture land, got it converted into the industrial land and developed it and sold it. The transaction is of purely commercial nature and the income/profit earned out of this transaction is purely business income.

The assessee has wrongly shown this income under the head of capital gain which was actually business income. So the AO has accepted this as business income. The finding of the ld Pr. CIT in this regard may be other possible view as categorized as capital gain income but this does not mean that the order passed by the AO is erroneous because the AO has taken the view which is possible one. On this proposition, we draw strength from the following decisions. Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur

(i) Malabar Industrial Co Ltd. vs. CIT (2000) 243 ITR 83 (SC) (ii) Vesuvius India Ltd vs. CIT (2002) 54 SOT 172 (ITAT- Kolkata)

(iii) C I T-1 Jaipur vs M/S Green Triveni Developer on 24 October, 2017- HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT - D.B. Income Tax Appeal No. 114 / 2015 wherein it has been observed as under:-

18. From the aforesaid discussion, it is apparent that the expression prejudicial to the interest of revenue appearing in Section 263 has to be read in conjunction with the expression 'erroneous' and that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. In cases where the Assessing Officer adopts one of the courses permissible in law or where two views are possible and the Income Tax Officer has taken one view, the Commissioner of Income Tax cannot exercise his powers under Section 263 to differ with the view of the Assessing Officer even if there has been a loss of revenue. Of course, if the Assessing Officer takes a view which is patently unsustainable in law, the Commissioner of Income Tax can exercise his powers under (23 of 23) [ ITA- 114/2015] Section 263 where a loss of revenue results as a consequence of the view adopted by the Assessing Officer. It is also clear that while passing an order under Section 263, the Commissioner of Income Tax has to examine not only the assessment order, but the entire record of the profits. Since the assessee has no control over the way an assessment order is drafted and since, generally, the issues which are accepted by the Assessing Officer do not find mention in the assessment order and only those points are taken note of on which the assessee's explanations are rejected and additions / disallowances are made, the mere absence of the discussion of the provisions of Section 80IB(13) read with Section 80IA(9) would not mean that the Assessing Officer had not applied his mind to the said provisions. As pointed out in Kelvinator of India (supra), when a regular assessment is made under Section 143(3), a presumption can be raised that the order has been passed upon an application of mind. No doubt, this presumption is rebuttable, but there must be some material to indicate that the Assessing Officer had not applied his mind. 12 Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur

(iv) CIT v. Honda Siel Power Products Ltd. (2011) 33 ITR 547 (Delhi), wherein it has been observed as under:-

Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the ld. Pr. CIT does not agree, it cannot be treated as an erroneous order prejudicial to the Interests of the Revenue unless the view taken by the ITO is unsustainable in law. An order of assessment passed by the ITO without making necessary enquiries on certain important points connected with the assessment would be erroneous and prejudicial to the interests of the Revenue, when the ITO is expected to make an enquiry of a particular item of income and he does not make an enquiry as expected, that would be a ground for the ld. Pr. CIT to interfere with the order passed by the ITO since such an order passed by the ITO is erroneous and prejudicial to the interests of Revenue, but the ITO had made enquiries in regard to the nature of the expenditure incurred by the assessee who had given detailed explanation in that regard by a fetter in writing and all these are part of the record of the case and the claim was allowed by the ITO on being satisfied with the explanation 15 Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur of the assessee such, decision of the ITO cannot be held to be erroneous simply because in his order he did not make elaborate discussion in that regard. It is a settled principle of law that in order to invoke, the provisions of section 263 of the I.T.Act, 1961, the ld. Pr. CIT shall ascertain from the records that twin conditions embedded in said provision i.e, the order of the AO is erroneous and it is prejudicial to the interest of the revenue are to be satisfied. In light of above legal position, if we examine the facts of the present case, it can be said that it is only clause (a) and (b) are relevant and other two clauses are not relevant to decide, whether the order passed by the AO is erroneous, in light of newly inserted Explanation (2). Clause (a) deals with circumstances where the order has been passed without making enquiries or verification, which should have been made. In this case, from the facts, it can be seen that there was an enquiry by the AO in respect of all issues and the assesee had also furnished a detailed reply. Therefore, we can say that this clause is not applicable in this case. Clause (b) of the Explanation deals with circumstances, where the order is passed allowing any relief without enquiring into the claim. In this case, from the facts, it can be seen that the relief (non application of provisions of section 50C of the income-tax Act) has been allowed only after making enquiries. Therefore, 16 Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur this clause is also not applicable in this case. Therefore, it is proved that the conditions to invoke the powers u/s 263 of the Act are not satisfied and hence, the ld. Pr. CIT had erred in invoking the scope of provisions of 263 of the I.T.Act, 1961. Further, assuming for a moment, but not accepting in order to invoke section 263 of the Act , the other conditions, which is to be satisfied is that the order should be prejudicial to the interest of the revenue because in respect of categorization of income under the head business income versus capital gain income. The nature of transaction was very clear that it was a commercial transaction and it did not fall under the category of capital gain income. Therefore, invocation of jurisdiction u/s 263 on these issues are also incorrect.

4.7.2 The first objection for which the order was passed by the ld Pr. CIT that the assessee has sold the land of same area which was purchased and in the original return filed the transaction for the land sale was shown under the head capital gain whereas in the return filed in reopening proceedings it was shown as business income and the same was accepted by the AO and he had not examined this issue.

4.7.3 The finding of the ld. Pr. CIT are not correct because the assessee has purchased agriculture land measuring 36/68 part of 0.86 hectare Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur whereas she sold the 3600 square meter industrial plot. So the land sold and land purchased was not same and the finding in the order u/s 263 is not correct. The important fact which has been ignored by the ld. PCIT is that in computation of income filed with the original return the assessee has made a mistake that he has shown the land transactions under the head capital gain income whereas the transaction was purely a business transaction. The object behind the purchase of land is to convert it into the industrial land and after development sale it on good price for earning profit. The assessee has purchased agriculture land on 30.01.2008. Copy of purchase deed is available on paper book page no. 28 to 33.

Subsequently she got it converted into the industrial land and deposited Rs. 72,000/- and Rs. 21,600/- as conversion charges to RIICO and District Collector Jaipur. Copy of receipts of payment of conversion charges is placed on paper book page no. 34 to 35. Copy of sale deed is available is on page no. 36 to 43. In the sale deed on page 38 of the paper book all the details of conversion are duly mentioned and the sale deed was executed for industrial land. The nature of transaction is also business transaction as the assessee purchased the land on 30.01.2008 and he immediately filed the application for conversion and has taken advance from seller just after seven months of purchase i.e. on 18 Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur 31.07.2008 he has taken advance of Rs. 10,00,000/- which is mentioned in sale deed on page no. 39 of the paper book and immediately after conversion the assessee executed the sale deed of industrial land. So the transaction of purchase and sale and conversion is purely a business transaction and the assessee has wrongly shown it as capital gain which has been corrected vide filing the revised return copy of which is placed on paper book page no. 9 to 12. By filing return in response to notice u/s 148 the assessee has corrected her mistake and shown this transaction in business income. The AO has examined all the issues regarding sale of lands. All the details were submitted before the learned AO. The assessment order passed by AO was neither erroneous, nor prejudicial to the interest of the revenue. Revision under section 263 by PCIT was not justified as all the four issues questioned by PCIT were thoroughly examined by AO during the assessment proceedings, and after considering relevant facts and explanations furnished by assessee had chosen to accept the claim of the assessee and hence, the same could not be termed as non consideration of issues or AO had failed to carry out required enquiries, which ought to have been carried out in accordance with law. Thus the order passed by the learned PCIT deserves to be quashed. 19 Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur 4.7.4 The second objection of the ld PCIT was that the AO did not verify details in respect of brokerage and commission payment of Rs. 150800/-.

During the reassessment proceedings the assessee has submitted details of brokerage payment the vouchers and other details are placed on paper book page no. 64 & 65 and TDS was also deducted on brokerage payment treating the transaction as business transaction. Therefore the expenditure incurred on brokerage and commission was fully verifiable and the detail was submitted during the reassessment proceedings.

Therefore this objection was also not sustainable.

4.7.5 The third objection of the ld PCIT was that Interest received are shown as Rs. 5,28,165/- as against the interest received of Rs. 3,30,030/-. The other income shown Rs. 7,42,196/- as against the Rs. 1,63,925/-. During the assessment proceedings the assessee has submitted details of interest received and other incomes which are as under: - Particulars Individual Entered in Difference Reason capacity the books of the firm Interest 528165 331030 197135 Rs. 331030/- are shown in credit of received P&L A/c of the firm Other 163925 742196 578271 The income of Rs. 163925/- is not shown income in Gupta Trading Co and directly shown in individual computation. Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur The reason for the difference was duly explained and the learned AO has verified the same. Therefore again this objection was not acceptable for invoking the provisions of section 263 of the Income Tax Act, 1961.

4.7.6 The last objection of the Learned PCIT was that Proprietor’s capital is shown at Rs. 1,23,40,013/- against the capital shown in earlier return at Rs. 26,21,641/-. In this regard it was clarified that the assessee was maintaining books of account for his business of M/s Gupta Engineering Works separately and individual books are kept separately.

The individual capital of the assessee was Rs. 1,23,40,013/- out of which the assessee has invested capital of Rs. 26,21,641/- in M/s Gupta Engineering Works. So the capital in individual capacity was Rs. 1,23,40,000/- and capital of M/s Gupta Engineering was Rs. 26,21,641/-.

Copy of balance sheet, Profit & Loss A/c and other relevant documents are placed on paper book page no. 71 to 82. Therefore the difference in the figures of other income and interest income was duly explained and the objection in this regard is also not sustainable.

4.7.7 It is also noteworthy to mention that the case laws relied on (supra) by the Revenue in the present facts and circumstances of the case Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur are not applicable. However, to this effect, the following case relied on support the case of the assessee.

(i) Indian Shaving Products Ltd vs. BIFR (1996) 218 ITR 140 (SC) (ii) CIT vs. Lakshmi Machine Works Ltd (2020) 422 ITR 235 (Mad) (iii) CIT vs. Madhura Coats Ltd (2020) 422 ITR 390 (Mad)

In view of the above facts, circumstances, case laws relied on (supra), we find that it is not a fit case for passing the order u/s 263 of the Act by the ld. Pr.CIT . The order passed u/s 143(3) r.w.s. 148 of the Act by the AO was neither erroneous nor prejudicial to the interest of the revenue. Thus the order passed by the AO is confirmed and the main grounds of appeal of the assessee are allowed.

5.0 As regards the revised grounds raised by the assessee (supra), we find that it is not required to adjudicate upon as the main grounds no. 1 to 4 has been dealt with by us deciding the same in favour of the assessee.

Thus the revised grounds raised by the assessee are infructuous. Hence, the same are dismissed. Smt. Sangeeta Agarwal vs Pr.CIT, Circle2, ,Jaipur 6.0 In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 17/09/2020.