KANUBHAI VANMALIBHAI PATEL HUF vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX 1

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TAXAP/275/2021HC GujaratGJHC24061962202129 November 2021Author: HONOURABLE THE CHIEF JUSTICE MS. JUSTICE SONIA GOKANI,HONOURABLE MS. JUSTICE NISHA M. THAKORE9 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the observations made by the Tribunal were by way of justification for the assumption of jurisdiction by the PCIT. The Court found no fault with the Tribunal supporting the PCIT's order. The Court noted that the Tribunal, being conscious of the appellate authority potentially being influenced by its observations, had aptly cautioned the authority to specifically direct not to be so influenced. The Court considered these sufficient safeguards and saw no need for interference. The Court clarified that directions for de novo adjudication inherently mean looking at the matter afresh without any influence or being clouded by past observations. The Court reiterated that the concerned authority, while exercising revisional jurisdiction, shall decide the matter afresh and in accordance with law, strictly bearing in mind legal principles and affording reasonable opportunities. The Court found no substantial question of law and therefore did not entertain the Tax Appeal.

What were the facts?

The assessee, Kanubhai Vanmalibhai Patel HUF, filed an appeal before the Gujarat High Court challenging an order dated 10.06.2021 passed by the Income Tax Appellate Tribunal (ITAT). The ITAT's order confirmed the Principal Commissioner of Income Tax's (PCIT) invocation of revisionary powers under Section 263 of the Income Tax Act, 1961. The PCIT had revised an assessment order dated 13.12.2018 passed under Section 143(3) for Assessment Year 2016-17. The assessee's grievance was that while the ITAT upheld the PCIT's jurisdiction and remanded the case for de novo adjudication, certain observations made by the ITAT were prejudicial to the assessee's rights. The original assessment had allowed long-term capital gain deduction under Section 54B on the sale of agricultural land, with proceeds reinvested in other agricultural land.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in not holding that the revisionary power exercised by the Commissioner under Section 263 of the Act is invalid in law? 2. Whether, on the facts and in the circumstances of the case, the Tribunal grossly erred in law in making observations, while upholding the validity of the assumption of jurisdiction under Section 263 of the Act by the Commissioner, in its order dated 10.06.2021, while setting aside the case to the Commissioner for de novo adjudication? Assessee's Contentions: The assessee argued that the Tribunal's prima facie opinion was likely to prejudice the assessee's rights. The assessee contended that once the matter was sent back for de novo adjudication, the Tribunal should not have opined on issues that could give an impression of a non-open-ended remand. The assessee also argued that directions to pass an order in accordance with law without being influenced by observations would not serve the purpose, as the Tribunal should not have ventured into such details in the first place. Revenue's Contentions: The revenue argued that for the Tribunal to hold that the PCIT rightly assumed jurisdiction under Section 263, it needed to assign basic reasons. The revenue submitted that the Tribunal was conscious of the possibility of its observations influencing the proceedings and had therefore carefully directed the authorities to decide the matter in accordance with law, without being influenced by its observations. The revenue urged that there was no reason for the High Court to entertain the appeal.

Which sections of the Income-tax Act were involved?

Section 263,Section 143(3),Section 54B,Section 254(1)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
C/TAXAP/275/2021 ORDER DATED: 29/11/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 275 of 2021 ========================================================== KANUBHAI VANMALIBHAI PATEL HUF Versus THE PRINCIPAL COMMISSIONER OF INCOME TAX 1 ========================================================== Appearance: MR MANISH J SHAH(1320) for the Appellant(s) No. 1 MR NIKUNT RAVAL, Sr. Standing Counsel for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE MS. JUSTICE SONIA GOKANI and HONOURABLE MS. JUSTICE NISHA M. THAKORE Date : 29/11/2021

ORAL ORDER (PER : HONOURABLE MS. JUSTICE SONIA GOKANI)

1.

Present appeal is preferred against the order dated 10.06.2021 passed under section 254(1) of the Income Tax Act ("the Act" for short) by the Income Tax Appellate Tribunal,Surat ("the Tribunal" for short), whereby the Tribunal has confirmed the inevocation of revisionary powers by the respondent on the order dated 13.12.2018 passed under section 143(3) of the Act. However, the grievance on the part of the appellant is that while holding that the assumption of jurisdiction by the Commissioner under section 263 of the Act was valid and while sending the case to the file of the Commissioner for de novo adjudication, some of the observations made by the Tribunal shall prejudicialy affect the rights of the appellant and hence, this appeal is preferred raising the following substantial questions of laws:- “(A) Whether on the facts and in the circumstances of the case, the Tribunal has erred in not holding that revision power exercised by the commissioner u/s 263 of the Act is invalid in law? (B)Whether on the facts and in the circumstances of the case, the Tribunal has grossly erred in law in making observation, upholding the validity of assumption of jurisdiction u/s.263 of the Act by the Commissioner, in its order dated 10.06.2021, while setting aside the case to the Commissioner for de novo adjudication?

2.

While considering the request of admission from Mr Shah, we deemed it appropriate to decide the matter finally at the stage of admission and, therefore, have requested learned Senior Standing Counsel Mr Raval to appear. We have heard both learned advocates Mr. Shah for the appellant and Mr. Raval, learned Senior Standing Counsel for the respondent.

3.

According to Mr. Shah, learned advocate for the appellant prima facie opinion expressed by the Tribunal is likely to seriously prejudice the rights of the appellant assessee, as once having exercised the powers of sending the matter to the DCIT, it could not have then opined on anything which is likely to given an impression that it is not an open ended remand. According to him, the directions of passing the order under section 263 of the Act in accordance with law without being influenced by any of the observations also would not serve the purpose. The Tribunal, in the first place, could not have ventured into these details.

4.

Per contra, learned Standing Counsel Mr. Raval for the respondent submits that for the Tribunal to hold that the DCIT had rightly assumed the jurisdiction for exercising the powers under section 263 of the Act, it could not have so done it without assigning the basic reasons. According to him, being conscious of the possibility of influence of its observations, it has been careful in directing the authorities concerned to decide it in accordance with laws with a specific direction of not to be influenced by its observations and, therefore, he has urged that there is no reason for this Court to entertain this appeal.

5.

In the present appeal, this Court is concerned with the Assessment Year 2016-17 where on scrutiny assessment, the assessment order has been passed on 13.12.2018. We have been taken through the paper book presented by Mr. Shah, learned advocate for the appellant, who has drawn our attention to the facts as to how the liberally three times notices, under section 141 of the Act, had been issued and at what length, attempts have been made by the appellant assessee to respond to the same positively. On due consideration, the scrutiny assessment has been finalized. We could notice that the appellant had declared long term capital gain from the sale of agricultural land which is situated at Surat and against the same, deduction under section 54B of the Act was claimed and some proceeds from the said sale of land were invested in the purchase of agricultural land. As mentioned above, various details have been called for through different notices also including sale deed of the property sold and purchase deed of the property against which, the deduction had been claimed by the appellant, as also the evidence of the past years showing agricultural activities carried out by the assessee. The evidence of the crops grown and the agricultural expenses incurred by the appellant. The Assessing Officer had considered the solitary transaction of the sale of land as an income from the capital gain and also the deduction under section 54B. This has been done in the scrutiny assessment accepting the return of income of the appellant.

6.

Exercise of powers under section 263 of revision was prior to the expiry of the limitation on 31.03.2021, which is one of the grievances on the part of the appellant. Notices dated 23.03.2021, under section 263(1) of the Act, had been issued nearly seven days before the expiry of the period of limitation. This revisional jurisdiction was assumed on the ground that the appellant was the trader of the land on the basis that the transaction had been in subsequent years and he frequently entered into the sale and purchase of the land as a commodity. Therefore, his income was to be treated as business income rather than as capital gain by the Assessing Officer. Moreover, another ground raised was the permission of the Deputy Collector under section 63 of the Gujarat Tenancy and Agricultural Lands Act and according to the respondent, the same cannot be treated as agricultural land and deduction under section 54B of the Act cannot be allowed. This invocation is challenged and eventually the matter had travelled to the Tribunal. We could notice that the Tribunal, before upholding the jurisdiction of the DCIT, has given the reasons as under:

“11. We have considered the rival submission of both the parties and gone through the orders of authorities below. We have also considered various documentary evidence and further deliberated on case laws relied by the learned advocate. AR for the assessee. We have also considered the detailed written synopsis furnished by learned advocate. AR of the assessee which is running in 27 pages. The perusal of assessment order reveals that AO allowed the exemption/deduction of capital gain under section 54, without discussing the nature of asset (agriculture land). There is no dispute about the location of the land// impugned land sold by the assessee, which was situated in the heart of Surat City. Surat City is Metropolitan City. Further there is no discussion about the nature of land where further investment is made in agricultural land or not. The assessment is silent on the various questions raised by the AO. From the questionnaires raised by the AO, we find that very nature of asset was not examined by AO. No doubt the assessee declared capital gain but, whether its exemption can be claimed on purchase of other agriculture land, is not at all examined by the assessing officer.

12.

The question, whether the particular land is agricultural land has to be decided on considering the facts and circumstances of each case. The Superior Courts have laid down certain guideline having regards to certain guideline having regard to the following frequently occurring factors: sale of land for housing purpose; obtaining permission to sell the land for non-agriculture purpose; absence of cultivation prior to sale, absence of intention to cultivate land in future, location of land within in municipal area, the nature of the surrounding area; the price at which the land was sold within the municipal area and entry in municipal record. All these factors were not considered by the AO while passing the assessment order.

13.

The Hon’ble Supreme Court in a well known leading case in Malabar Industrial Co.Ltd. v. CIT [2000] ITR 832 SC) held that by reading of section 263 of the Income-tax Act, makes it clear that the prerequisite for the exercise of the jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous insofar 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 273(1) of the Act. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. 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 unless the view taken by the Income-tax Officer is unsustainable in law.”

7.

At the end of these reasonings, the Tribunal has concluded that prima facie, the DCIT had validly assumed the jurisdiction for exercising the powers under section 236 of the Act by taking the view that the order of the Assessing Officer was prejudicial to the interest of justice. Considering the short time before which it had exercised the revisional jurisdiction, this peculiarity had led the Tribunal to send it back to the DCIT for it to adjudicate it afresh as provided under the law and not being influenced by the observations.

8.

The observations, which have been reproduced hereinabove, according to us, are by way of the justifications of the assumption of jurisdiction by the DCIT. We see no fault in the Tribunal having supported the order of the DCIT. With these reasons, we also could notice that being conscious of the appellate authority likely to be influenced by some of these observations, it has aptly cautioned, as is required of the higher authority, to specifically direct not to be so influenced. Hence, it is a clear direction of the same to be decided in accordance with law by availing the reasonable opportunities to the parties. These are sufficient safeguards, which do not require any interference. It is being clarified further that directions of de novo adjudication would always mean looking it afresh without being in any kind of influence and without the same being clouded by the past or any observations made by the authorities.

9.

Not only the Tribunal has made it amply clear in this regard, we also further reiterate that the authority concerned, while exercising its revisional jurisdiction, shall decide the same afresh and in accordance with law strictly bearing in mind certain legal principles as also availing of the opportunities in accordance with law and also in absence of any substantial question of law, the Tax Appeal is not entertained.

10.

Both the challenges under section 263 of the Act as well as the challenge under the merit are kept open for the appellant to adjudicate. (MS. SONIA GOKANI, J. ) (NISHA M. THAKORE,J) SUDHIR

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