PR COMMISSIONER OF IT JAIPUR-II vs. M/S VINAYAK DEVEKOPERS

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ITA/16/2017HC RajasthanRJHC02094611201725 July 20173 pages
AI SummaryAllowed

What did the High Court hold?

The Tribunal held that the order of the CIT was not justified and accordingly set aside the same. The Tribunal observed that the basis for revising the original assessment order was the acceptance of an audit objection by the CIT, who treated two transactions separately, whereas the AO had treated them as a single transaction. The Tribunal noted that the assessee offered capital gains during assessment proceedings upon realizing the land was not agricultural, and this offer was accepted by the AO. The Tribunal found that the CIT failed to appreciate the relevant clause of the sale deeds and the order of the SDM court. The sale deed contained a clause for refund of sale consideration if possession was not given. The assessee had refunded Rs. 1,21,79,000/- for not handing over possession of a portion of the land, and title was regained. The SDM court order supported this action. The Tribunal concluded that the CIT's order was erroneous and prejudicial to the revenue, and therefore, the powers under Section 263 were not correctly exercised. The claim of the assessee was allowed.

What were the facts?

The assessee, M/s. Vinayak Developers, is in appeal before the ITAT against an order passed by the CIT(A) under Section 263 of the Income Tax Act, 1961. The Principal Commissioner of Income Tax (PCIT), Jaipur-2, is the appellant before the High Court. The assessment year(s) are not explicitly stated. The PCIT is challenging the ITAT's decision to set aside the CIT(A)'s order. The dispute arose because the assessee initially did not declare capital gains in its original return but offered them during assessment proceedings. The CIT invoked Section 263, treating the order as erroneous and prejudicial to the revenue, by separating two transactions, whereas the Assessing Officer (AO) had treated them as a single transaction. The ITAT allowed the assessee's appeal.

What were the issues?

1. Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in allowing the appeal of the assessee and setting aside the order of the CIT(A) passed under Section 263 of the IT Act, ignoring the fact that the assessee had not declared capital gain in the original return and only revised it during assessment proceedings, which was not valid under Section 139(5) of the Act? Assessee's Contention: The ITAT allowed the appeal, finding that the CIT erred in invoking Section 263. The assessee had offered capital gains during assessment proceedings because the land transferred was not agricultural. The ITAT noted that the CIT accepted an audit objection and treated two transactions separately, while the AO treated them as one. The ITAT found that the CIT failed to consider the terms of the sale deed and an SDM court order regarding a dispute over possession and a subsequent refund of sale consideration by the assessee. The ITAT concluded that the CIT's order was not justified. Revenue's Contention: The revenue, represented by the PCIT, argued that the ITAT was not justified in setting aside the CIT(A)'s order. The primary ground raised is that the assessee revised its return during assessment proceedings, which the revenue contended was not valid under Section 139(5) of the Act, and that the ITAT ignored this fact.

Which sections of the Income-tax Act were involved?

Section 139(5),Section 263

AI-generated summary — verify with the full judgment below

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 16 / 2017 Principal Commissioner of Income Tax, Jaipur-2, Jaipur ----Appellant Versus M/s. Vinayak Developers, B-123, Model Town, Jagatpura Road, Malviya Nagar, Jaipur PAN: AAFFV 1348 D ----Respondent _____________________________________________________ For Appellant(s) : Mr. K.D. Mathur for Mr. R.B. Mathur For Respondent(s) : _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 25/07/2017

1.

By way of this appeal, the appellant has assailed the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal preferred by the assessee. 2. Counsel for the appellant has framed the following substantial question of law:- “Whether on the facts and in the circumstance of the case and in law the ITAT was justified in law in allowing the appeal of the assessee and in setting aside the order of CIT(A) passed u/s 263 of the IT Act, ignoring the fact that in original return the assessee has not declared he capital gain but only during the assessment proceeding it revised its return of income which was not valid in terms of section 139 (5) of the Act.” 3. Counsel for the appellant has taken us to the order of the

(2 of 3) [ITA-16/2017] CIT(A) where while issuing notice, the authority has clearly stated what is prejudicial to the interest of the assessee. 4. Taking into consideration, the order passed by the SDM and refund amount which is on record, the Tribunal observed as under:- “4.2. We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. The basis of revising the original assessment order in this case is that the ld. CIT has accepted the audit objection and treated the two transactions separately. There is no dispute with regard to the fact that powers under section 263 can be exercised if twin conditions are satisfied. The order sought to be revised is erroneous and prejudicial to the interests of the revenue. In the case in hand, the assessee during the assessment proceedings finding that the land which was transferred was not agricultural land, therefore, it offered the capital gains arising out of such transfer for taxation. This offer of the assessee was accepted by the AO. It is also not the case of the ld. CIT that the entire sale consideration was an undisclosed amount. The ld. CIT has himself taken it as a sale consideration and directed the AO to recompute the long term capital gain on the basis of sale consideration of Rs. 3,61,58,999/- without giving set off of the amount refunded by the assessee. The ld. CIT has taken two transactions differently. However, the AO has taken the two transactions as a single transaction. We find that ld. CIT has not considered the terms of the original sale deed. As per one of the conditions of the Sale Deed, in case the buyer losses the possession or does not get entire land or part of the land, in that event the buyer was entitled to recover the fair market value along with cost thereon from the seller. It is demonstrated by the assessee that there was a dispute with regard to possession of the land. Subsequently, a compromise deed was executed between the assessee and the buyer on 07.07.2008 wherein it had expressly been agreed between the parties that in case the assessee fails to provide the physical possession of the entire land transferred, a refund of the sale consideration to the extent of the land not physically handed over will be made by the assessee. Accordingly in terms of this agreement, the

assessee

refunded

amount

of Rs.1,21,79,000/- to the buyer for not giving

(3 of 3) [ITA-16/2017] physical possession of a portion of the land and title to land was regained back by assessee vide Sale Deed dated 14.07.2009. This action of the assessee finds support from the order dated 19.05.2009 of Hon’ble Court of SDM passed on the civil suit filed by M/s. Renaissance Builders, wherein it is held that out of the 3.02 hectares land initially sold to the buyer, the possession of the portion of land measuring 0.77 hectares could not be taken by buyer and, therefore, the assessee was legally bound to refund the sale consideration amount in respect of the land, possession of which could not be handed over to the buyer in terms of the sale deeds. In this regard, the ld. CIT has failed to appreciate the relevant clause of the sale deeds and also consider the order of Hon’ble Court of SDM on the civil suit filed by the buyer. At the time of hearing, the ld. D/R could not controvert these aspects of the matter, therefore, we find no force in the argument of ld. D/R. In view of the above, the order of ld. CIT is hereby set aside. The claim of the assessee is allowed. 5. In view of the observations made above, we see no reason to interfere with the matter, no substantial question of law arise. 6. The appeal being devoid of merit deserves to be dismissed. The same is dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. A.Sharma/29

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