VIVEK AGNIHOTRI,MUMBAI vs. ITO 16 (1)(5), MUMBAI

Vivek Agnihotri, Mumbai. - 5 -

In your case for the aforementioned assesseement year, assesseement was completed under 143(3) of the Income tax Act 1961 vide order dated 28.02.2015.

On perusal of the records for A.Y.2012-13 the fallowing discrepancies are found.

You have sold immoveable property on 07.06.2011 for a consideration of Rs.2,07,00,000/- whereas the stamp duty valuation of the sold property was Rs.2,68,05,200/- During the assessment proceedings the assessee requested to refer the matter to valuation cell for arriving at the Fair Market Value The valuation cell arrived at the FMV of the property at Rs.2,39,73,600/-. As per the assessee the cost of the property was Rs10,00,000/- and selling expense was Rs4,50,000/-While passing the assessment order the working has been done as under:-

Particulars Amount in Rs. Sale Consideration 2,39,73,600 Less: Selling Expenses 4,50,000 Less: Indexed Cost of acquisition 78,50,000 1,56,73,600 Less: Amount deposited in Capital Gain 1,30,00,000 Account

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Long Term Capital Gains 26,73,600 Perusal of records goes to show that the assessee took the cost of acquisition at Rs10,00,000/-The assessee acquired the property by way of will. The property was acquired by his father on 27.11.1969As provided in Section 49 of the Income-tax Act he cost for which the original owner acquired it. No documentary evidences were found on record to suggest as to how the cost of acquisition has arrived at Rs10,00,000/-As regards, selling expenses of Rs.4,50,000/- the assessee submitted copy of bill of one Shri Praveen Sharma, advocate which pertains to Civil Suit No.366A/09, the bill does not specify the details of the property etc, hence no link could be found. Further, the assessee deposited Rs. 1,30,00,000/-, to the capital gains account on 26.09.2012 and in turn transferred to M/s.Zee Entertainment Ltd for acquiring new property on 26.12.2012The contention of the assessee is that since he has deposited Rs. 1,30,00,000/- in capital gains account and in turn transferred for acquiring new property, the capital gains is exempted.

Further, on perusal of return of income goes to show that the assessee did not disclosed the entire transaction in the return of income The assessee did not claim any exemption u/s 54 in the return of income. The Hon'ble Supreme Court, in the case of Goetze India Ltd Vs. CIT [284 ITR 323] (SC) precludes entertainment of such deduction which is not claimed in the return of income This has resulted in underassessment of income of Rs.2,39,73,600/-.

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Inview of the above, you are requested to show cause as to why the assesseement order dated 28.02.2015 should not be cancelled with a direction to the A.O.to pass fresh order.

3. In response to the same, Shri Anil Sekhri, CA, the Authorized representative attended and submitted the written submission vide dated 03.01.2019. The relevant portions of the written submission are reproduced below:-

"............1. During the year under assessment, the assessee disposed of a disputed family property situated at Bhopal for a consideration of Rs 2,07,00,000/- as against the Stamp Duty Value of Rs 2,68,05,200/-. The assessment proceedings were reopened by the Assessing Officer u/s 147 to invoke the provision of Section 50C so 'as to tax the alleged difference of value between the sale consideration and the ready reckoner value amounting to Rs 61,05,200/-At the request of the assessee, the AO referred the matter to the Valuation Officer, Income-tax Department, Bhopal.

During the valuation proceedings, the assessee made submission to the valuation officer vide letter dated 21.11.2016 After considering all the relevant facts, the valuation officer revised the valuation of the property at Rs.2,39,73,600/-. The assessee was not satisfied with the valuation made by the valuation officer and therefore, filed a letter dated 05.12.2016 with the AO at the time of completion of revised assessment proceedings However,

Vivek Agnihotri, Mumbai. - 8 - the Ld.AO completed the assessment proceedings adopted by the valuation made by the DVO at Rs 2,39,73,600/- The assessee recently appointed another valuation officer viz ErAnupam Soni to arrive at Fair Market Value of the property considering the fact that the property was partly occupied by the brother-in-law of the Appellant and the matter was disputed in Court at the time of sale in the year 2011It is further, submitted that subsequently the case of the assessee was dismissed by the District Court, Bhopal vides order dated 28.01.2014.....

2. After assessment order 147 r.w.s 143(3) was passed by the assessing officer on 08.12.2016, the assessee has filed an appeal before the CIT(A) on 12.01.2017(copy of the grounds of appeal enclosed as per Annexure A)It is respectfully submitted that the Ld CIT(A) has part heard the matter. During the appellant proceedings the CIT (A)- 4, Mumbai asked the AO to send a remand report to ask for his comments on the valuation report(copy enclosed vide Annexure B)submitted by the assessee before the CIT(A) during the appellate proceedingsThe Ld AO i.e Addl.CIT Range 16(1), Mumbai has submitted his remand report vide letter dated 15.05.2015......

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3.1 The written submission made by the assessee's representative was forwarded to the concerned AO requiring him to offer his comments/report on the sameIn this regard, the AO vide letter dated 19.11.2018 duly endorsed by the Addl.C.I.T vide letter dated 13.02.2019 made submission, the relevant part of submission is reproduced as under :-

"The AO has stated that only the valuation report of DVO Bhopal needs to be adopted and not of any private valuer. Further, assessee is in CIT(A), only on the issue of the adaption of the valuer of the property by the AO determined by DVO, Bhopal. However, the proposal u/s 263 was sent on a totally different issue of cost of acquisition of the property which was taken on estimated basis and on the issue of selling expenses, which are not before the Ld.CIT(A)......

Taking into consideration the explanation offered by the assessee in respect of cost of acquisition of the property and on the issue of selling expenses and comments of A.O Further, it is necessary to mention here that the assessee has not disclosed the entire transaction in the return of income and also not claimed any exemption u/s.54 of the Act. Reliance is placed on the judgment of Hon'ble Supreme Court in the case of Geotze (India Ltd vs CIT 284 ITR 323](SC)In this regard, the undersigned is fully convinced and satisfied that issues need to be verified and therefore, same is restored to the file of A.O with a direction to decide the issue a fresh after giving an opportunity of being heard to the assessee. Further, it is necessary to mentioned here that Ld.CIT(A) vide order no.CIT(A)-4/IT-210/ITO- 16(1)(5)/2016-17 dated 28.02.2019 dismissed the assessee's appeal and confirmed the Bhopal DVO's Valuation Report.

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4.I have gone through facts on record and considered the submission of the Authorized representative The explanation offered on issues mentioned in the show- cause notice dated 21.12.2018 are not found to be satisfactory for the reasons mentioned. Since, on these issues AO should have enquired before finalizing the assessment order. It is found that the assessment order in question is erroneous and prejudicial to the interest of the revenue Accordingly, assessment order passed by the A.O is set-aside with the direction to pass fresh assessment order after giving assessee the opportunity of being heard as per act and law in terms of the above referred issues Finally the Pr.CIT has passed order u/s 263 of the Act dated 06.03.2019. Aggrieved by the order of the Pr.CIT, the assessee has filed an appeal before the Honble Tribunal.

Vivek Agnihotri, Mumbai. - 12 - and has not conducted the enquiry on claims/deductions made by the assessee and the Ld.DR relied on the order of the Pr.CIT.

11.We rely on the decision of the Honble High Court of Bombay in the case of M/S Grasim Industries Ltd Vs CIT (321 ITR 92) considered the law laid down by the Honble Supreme Court on the scope of the revisionary proceedings initiated under sec263 of the Act and the observations are read as under:

“Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of Vivek Agnihotri, Mumbai. - 16 - the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be “erroneous in so far as it is prejudicial to the interests of the Revenue”. This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision “cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer” and “it is only when an order is erroneous that the section will be attracted”. The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression “prejudicial to the interests of the Revenue”, the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) :

“The phrase ‘prejudicial to the interests of the Revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view

Vivek Agnihotri, Mumbai. - 17 - with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.”

The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282.”

“Thus, in cases of wrong opinion or finding on merits, the Commissioner of Income tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order is not sustainable in law and the said finding must be recorded. The Commissioner of Income tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In Vivek Agnihotri, Mumbai. - 18 - cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Income tax must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Income tax and he is able to establish and show the error or mistake made by the Assessing officer, making the order unstainable in law. In some cases possibly though rarely, the Commissioner of Income tax can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/ssie to the Assessing Officer would imply and mean the Commissioner of Income tax has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question….” Similar view has been expressed by Hon’ble Madras High Court in the case of CIT Vs. Amalgamations Ltd (238 ITR 963).

Considering the ratio of decisions of the Honble High courts, it is clear the Pr.CIT before holding the order of the A.O. is erroneous should conduct necessary inquiries. The Ld.AR submitted that the Pr.CIT has not considered the facts that the A.O has called for Vivek Agnihotri, Mumbai. - 19 - the information as evident from letters referred in the paper book and there cannot be any non application of mind by the A.O.

Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment years 1994-95 to 1996-97 - Assessee's assessment for assessment years in question was completed by Assessing Officer accepting its claim relating to certain expenses and income shown by assessee under head 'Lease equalization fund' on 27-2-1997, 12-5-1997 and 30-3-1998, respectively - Subsequently, reassessment proceedings were initiated in respect of only items relating to expenses claimed by assessee and reassessment order was passed on 28-3-2002 - Commissioner taking view that part of assessment order relating to lease equalization fund was prejudicial to interest of revenue, passed order under section 263 on 29-3-2004 - Assessee's case was that order passed under section 263 was barred by limitation with reference to orders passed under section 143(3) by Assessing Officer - However, revenue's case was that in view of doctrine of merger, computation of period of limitation as provided in section 263(2) was to commence from date of passing of order of reassessment and not from date of initial assessment - Whether since only that part of order of assessment was found to be prejudicial to interest of revenue which related to lease equalization fund and proceedings for reassessment had Vivek Agnihotri, Mumbai. - 20 - nothing to do with said head of income, doctrine of merger would not apply in instant case - Held, yes - Whether since Commissioner in exercising its revisional jurisdiction reopened order of assessment in relation to lease equalization fund, which was not subject of reassessment proceedings, period of limitation provided for in section 263(2) would begin to run from date of order of original assessment and not from order of reassessment - Held, yes 14. We Considering the overall facts, circumstances, ratio of the judicial decisions and the details submitted in the course of hearing are of the view that the if any query is raised in the assessment proceedings and it was responded by the assessee, mere fact that it is not dealt within by the A.O. in the order cannot implied that there is no application of mind and the A.O. has applied one of the possible view. On the legality of issue of notice u/sec263 of the Act, the Pr.CIT has issued the notice dated 28.02.2018 for revision of assesseement order U/sec143(3) of the Act dated 28.02.2015 and reassessment order was passed on 8.12.2016. Whereas the original assesseement order ceases to exist after reassessment was completed on 8.02.2016 and there is no fresh revision notice. Further the revision order U/sec263 of the Act was passed beyond

Vivek Agnihotri, Mumbai. - 21 - the period of two years from the end of the financial year in which the order U/sec143(3) of the Act dated 28.02.2015 was passed. Accordingly, the revision order passed is barred by limitation and is quashed and we allow the grounds of appeal in favour of the assessee.

Order pronounced in the open court on 01.05.2023.