SHRI RIDDHISHBHAI B.TRIVEDI,AHMEDABAD vs. THE CIT-III,, AHMEDABAD

आदेश/O R D E R

PER PRADIP KUMAR KEDIA - AM:

263, respectively of the Income Tax Act, 1961 (the Act) concerning AY 2008-09.

2. As pointed out at bar, the 263 of the Act relevant to AY 2008- 09 whereas concerns challenge to additions/disallowances in the second round of quantum proceedings by the AO pursuant to revisional directions of the Pr.CIT challenged in ITA No. 1226/Ahd/2013(supra). Thus, there exists discernable common thread on factual aspects in both the appeals. Consequently, both the matters were heard together and disposed of by this common order.

3.1 The assessee in the present appeal has challenged revisional jurisdiction of the Pr.CIT invoked under s.263 of the Act whereby the order of the AO under s.143(3) of the Act dated 30.09.2010 has been impugned by the Pr.CIT on the grounds of lack of inquiry into certain vital aspects concerning eligibility of deduction claimed under s.54B of the Act.

3.2 Briefly stated, the assessee, an individual, has derived income inter alia under the head ‘capital gains’ on sale of certain land parcels held as ‘capital asset’. The return filed by the assessee for AY 2008- 09 in question was subjected to scrutiny assessment and consequently assessment order was framed under s.143(3) of the Act. The AO completed assessment and accepted the income declared as per return of income amounting to Rs.54,61,040/- as assessed income without any adjustment. However, on verification of assessment records, the Pr.CIT found that the assessment order passed by the AO to be erroneous and prejudicial to the interest of the Revenue. The Pr.CIT accordingly invoked jurisdiction conferred under s.263 of the Act to show cause the assessee on alleged infirmity in the assessment order. The show cause notice under s. 263 of the Act is reproduced hereunder for ease of reference:

“1. On verification of your case record for the A.Y. 2008-09, it is seen that the assessment order dated 30/09/2010 passed by the AC1T Circle-6, Ahmedabad, u/s. 143(3) of the Income Tax Act, 1961, determining income of Rs. 54,61,040/-, is erroneous and prejudicial to the interest of the Revenue for the reasons mentioned in the subsequent paragraphs.

3. Further, you deposited Rs.31,00,000/- (upto 07/12/2007) in a Capital Gain savings account of Oriental Bank of Commerce and claimed exemption u/s. 54B for the amount so deposited. It was noticed from the account statement that you had withdrawn a sum of Rs.30,95,000/- on 12/12/2007. As per provisions of Section 54B, the amount so deposited in the Capital Gain savings account, has to be utilized for the purchase of new asset and within the specified period. In your case, though you had withdrawn the amount from the account, there was no proof in the assessment records to ascertain that the amount withdrawn was invested in the specified asset i.e. purchase of any agricultural land. Thus, out of Rs.31,00,000/- claimed exempt u/s.54B, Rs.30,95,000/- was required to be disallowed and added back

to your income. This being not done, resulted in underassessment of Capital Gain of 30,95,000/- with consequent short levy of lax of Rs. 9,11,725/-. From the discussion above, it may be seen that the assessment order passed u/s.143(3) of the Income Tax Act, 1961 on 30/09/2010 for the A.Y.2008-09 is clearly erroneous and hence prejudicial to the interests of the Revenue. You are therefore requested to show cause as to why action u/s.263 of the Income Tax act, 1961 should not be initiated for modifying or even cancelling the said assessment order.”

3.3 The Pr.CIT, in essence, raised two grounds for invoking jurisdiction under s.263 of the Act; (i) the deduction claimed under s.54B of the Act has not been properly examined by the AO and the deduction claimed amounting to Rs.31 Lakhs under s.54B of the Act has been allowed without meeting the pre-requisites of Section 54B of the Act & (ii) the amount of capital gains amounting to Rs.31 Lakhs claimed as exemption under s.54B of the Act has not been kept deposited in specified capital gains accounts scheme and the AO has also failed to make any proper inquiry in this regard. It was thus alleged by the Pr.CIT that the AO has wrongly allowed the claim of assessee under s.54B of the Act without requisite inquiry. After taking note of the written submissions made by the assessee in its defense to the show cause notice, the Pr.CIT observed that the assessee has not sold the land which was actually used for agricultural purpose immediately before transfer. The land sold was alleged to be a non-agricultural land at the time of transfer and accordingly, the assessee was held as not eligible for deduction available under s.54B of the Act. It was alleged by the Revisional Commission that the AO has not made any pertinent inquiry on the issue and perfunctorily allowed deduction under s.54B of the Act. The Pr.CIT accordingly directed the AO to disallow the claim of Rs.31 Lakhs made under s.54B of the Act and recompute the chargeable income of the assessee.

3.4 On the second issue, the Pr.CIT noted the defense of the assessee that there was no withdrawal of money from the capital gain deposits scheme when seen in perspective. The assessee claimed before the Pr.CIT that he had deposited Rs.31 Lakhs in the capital gains saving accounts of the Oriental Bank of Commerce and claimed exemption under s.54B of the Act for the amount so deposited. A sum of Rs.30,95,000/- however was withdrawn from designated account ‘capital gains saving scheme’ to capital gain ‘deposit scheme’. A certificate was placed before the Pr.CIT to vouch for such assertions. On these facts, the Pr.CIT set aside this aspect to the file of the AO for relevant inquiry in this regard. The assessment order was accordingly modified to the aforesaid extent.

3.5 Aggrieved by the revisional action of the Pr.CIT for modification in the assessment order so framed after scrutiny, the assessee preferred appeal before the Tribunal and challenged the usurpation of revisional jurisdiction by the Pr.CIT.

3.6 In its defense, the learned counsel for the assessee submitted at the outset that the necessary background for exercise of revisional power of Pr.CIT does not exist in the instant case. The learned counsel referred to the provisions of Section 54B of the Act and contended that the provisions of Section 54B applied to sale of land which is used for agricultural purpose for a certain period. The provision does not require the sale of an agricultural land per se. It only requires sale of land which is used for agricultural purpose. In this background, the learned counsel adverted to the facts and contented that the land sold was cultivated which is reflected in copy of 7/12 showing that there was a ‘jawar crop’ produced in the said land. Talati certificate was also referred to support its claim towards cultivation. It was thus contented that land was used for agriculture purpose prior to sale and substantial amount was received as advance against sale while the land was used for agricultural purposes. The land was converted into non-agricultural land on 14.05.2007 by the potential purchaser after execution on MOU (Banakhat) on 15.02.2007. It was claimed that the assessee had received Rs.1,21,00,000/- prior to conversion of land into non-agricultural land. The sale deed was however executed on 08.06.2007 and thus the land was sold only after 24 days from conversion into and N.A. land. It was thus submitted that the assessee duly complied with the pre- requisites for claim of deduction under s.54B of the Act and consequently the order of assessment is not erroneous on this score.

3.7 As regards the second aspect of claim made under s.54B of the Act, the assessee harped that certificate from the bank for transfer of fund from one account to another is testimony to fact that the money remained deposited in the designated account and therefore there was no breach of condition specified under s.54B(2) of the Act. The learned counsel accordingly submitted that in the absence of fulfillment of twin conditions of the assessment order being both erroneous and prejudicial to the interest of the Revenue, the revisional powers could not be invoked by the Pr.CIT.

4.1 Adverting to the issues involved, the learned DR vehemently supported the conclusion drawn by the Pr.CIT and submitted that admittedly, the land sold was not an agricultural land at the time of transfer. It was further pointed out that the land in question was a ‘fallow land’ which means nothing could be produced on such land. The learned DR referred to the certificate issued by the Talati dated 28.02.2014 from the paper book filed on behalf of the assessee to confirm such observation of land being fallow. The learned DR further pointed out that there was no reliable evidence placed on record to show the activity of cultivation on the land. It was further pointed out that although the land stood converted officially as non- agricultural land on 14.05.2007, it is common knowledge that the process for conversion takes its own time and the application for conversion must have been made well in advance. It was further pointed out that total consideration agreed for sale was Rs.7,81,00,000/- whereas the assessee has only received Rs.1,21,00,000/- at the time of execution of Banakhat and remaining amount has been naturally received about the time of execution of sale deed on which date the land was neither an agricultural land nor it was used or capable of being used for agricultural purposes.

4.2 Adverting to the second aspect, the learned DR submitted that in the absence of any documentary evidence placed before the AO for mere transfer of fund from one account to other designated account as claimed, the Pr.CIT was correct in sending matter back to the file of the AO to examine this aspect. The learned DR accordingly submitted that the revisional order of the Pr.CIT does not call for any interference in the facts and circumstances of the case.

5.1 It is the case of the assessee that the pre-requisites of Section 54B of the Act have been complied with and there is no contravention of law in this regard. Controversy hinges around availability of deduction under s.54B of the Act against long term capital gain earned on sale of land. On a perusal of 54B of the Act, it is noticed that Section 54B of the Act is divided into two parts. First part deals with exemption of capital gains from transfer of land (original asset) used for agricultural purpose in the two years immediately preceding the date on which the transfer took place. The second part deals with the manner of utilization of gains arising from transfer of such land used for agricultural purposes. The Pr.CIT has impugned the eligibility of deduction under s.54B of the Act in both the parts. It is an admitted fact that on the date of transfer of land (which is broadly the legislative expression used in Section 54B of the Act), the land in question was neither agricultural land nor was used for agricultural purposes. The land has been admittedly declared as ‘fallow land’ on which no agricultural produce is plausible. Thus, as per the certificate of Talati as produced by the assessee himself, the viability of carrying out agricultural activity was quite dismal. We also find that the assessee has not declared any worthwhile agricultural income in the earlier years from such a large track of land (9286 sq.mtr.). Some expenses voucher produced for expenditure incurred on Tractor does not inspire any confidence. Such material was not produced before the lower authorities as well. The assessee has failed to adduce any satisfactory evidence that the land was subjected to any systematic agricultural operation in last two years immediately preceding the date of transfer as required in law indeed. The reply of the assessee and evidence relied thereupon appears to be cosmetic. The AO has failed to make any inquiry on this vital aspect while admitting the claim of the assessee and allowed the claim summarily. The Pr.CIT in our view correctly appreciated the facts and applied the law in perspective to draw an adverse conclusion on eligibility of deduction. We see no error in the conclusion drawn by the Pr.CIT to hold that the claim under s.54B of the Act has been allowed without fulfillment of prescribed conditions. We thus decline to interfere with the revisional order of the Pr.CIT on this score.

5.2 Notwithstanding that claim of deduction under s.54B of the Act is found to be in contravention with law and therefore the second aspect of the assessee need not to be gone into, we would however deal with the second aspect of controversy as well, for the sake of completeness.

5.3 The assessee claims to have transfer an amount of Rs.30,45,500/- from ‘capital gains saving scheme’ to ‘capital gain deposit scheme’ on same stipulations and claims to have not diverted the money for the purposes other than specified under s.54B(2) of the Act. However, it is the admitted position that no evidence in this regard was filed before the AO to substantiate the assertions being made. The AO has accepted the claim without looking into this aspect which has direct bearing on maintainability of deduction. The Pr.CIT, in the circumstances, has rightly remitted the issue back to the file of the AO for requisite verification action of Pr.CIT has shunned prejudice to Revenue without any perceptible prejudice to assessee. We see no error in such direction and hence decline to interfere.

8.1 The facts concerning the issue have been recorded while dealing with the revisional action of the Pr.CIT in . As noted in (supra), the ingredients of Section 54B of the Act were found to remain unfulfilled by the assessee. The assessee could not demonstrate that the land was subjected to agricultural activity before the date of transfer of land in question. Therefore, in our view, the AO as well as CIT(A) has rightly dealt with the issues and applied the law in correct perspective. We do not find any force in the claim of the assessee for eligibility of deduction under s.54B of the Act on capital gains arising from sale of the land in question.

8.2 The AO in second round of proceedings pursuant to Section 263 of the Act has, however, also disallowed brokerage of Rs.3,12,500/- which is not seen to be emanating from the direction given by the Pr.CIT under s.263 of the Act. In the second round of proceedings, the AO was governed by the revisional order of the Pr.CIT and in view of the specific directions given therein, the AO could not expand the scope of inquiry while passing the order under s.143(3) r.w.s. 263 of the Act. Therefore, the AO was in error in making disallowance of Rs.3,12,500/- towards brokerage in the second round of proceedings. The AO has clearly travelled beyond the scope of inquiry under s. 263 of the Act guided to him by the Pr.CIT. The action of the CIT(A) confirming the addition is therefore set aside and the AO is directed to delete the disallowance of brokerage amounting to Rs.3,12,500/-.

8.3 In view of the above discussion, appeal of the assessee in is partly allowed.

This Order pronounced in Open Court on 17/01/2020

Sd/- Sd/- (MAHAVIR PRASAD) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 17/01/2020 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।