RAJANI VENKATA NAGA ANAVARAPU NARAYNA,NEW DELHI vs. PR.CIT-20, NEW DELHI

Per Dr. B. R. R. Kumar, Accountant Member:

2. Following grounds have been raised by the assessee:

“1. That the Ld. PCIT 20 has erred on facts and in law in invoking the provisions of sec 263 on untenable and illegal grounds. Hence, the order passed under section 263 may be vacated.

2. That the Ld PCIT 20 has erred on facts and on law in invoking the provisions of sec 263 as he is not jurisdictional PCIT of the appellant. Hence, the order passed under section 263 may be vacated.

3. That the Ld PCIT 20 has erred on facts and in law in invoking the provision of section 263 on account of 2 Rajani Venkata Naga Anavarapu Narayna calculation of capital gain on sale of property ignoring the fact that the case for scrutiny was selected on limited grounds and calculation of capital gain was not part of it. Hence, the order passed under section 263 may be deleted.

4. That the Ld PCIT has erred on facts and in law in passing the order under sec 263 ignoring the facts that the issue of capital gain was inquired by the Ld AO and hence this is not a case of erroneous order and hence order passed by Ld PCIT 20 may be quashed.

5. That the Ld PCIT 20 has erred on facts and in law in passing the order under sec 263 ignoring the facts that the capital gain has been correctly calculated and hence this Is not a case of prejudice to the revenue and hence order passed by Ld PCIT 20 may be quashed.”

3. All the grounds of appeal, in substance, relate to the contention that the proceeding initiated and order passed u/s 263 by ld. PCIT is liable to be quashed as it is bad in law, without jurisdiction.

I) Cash deposit II) Purchase of property

5. The ld. PCIT issued notice dated 31.01.2020 u/s 263 of the Act asking the assessee to furnish reply by 07.02.2020. The said notice is enclosed in the paper book at page no. 1 & 2. Para 2 to 4 of this notice is reproduced as under for ready reference:

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“2. Your case had been selected for “Limited Scrutiny” under CASS on the following reasons:

1. Large cash deposited in saving bank account.

2. Purchase of property.

The assessment was completed u/s 143(3) at total income of Rs.12,32,050/- after making the addition of Rs.11,65,000/- u/s 68 of the Income Tax Act.

3. You have purchased a property, GF-58, Ground Floor, Vardan Apartment Abhay Khand -llll, Indirapuram, Ghaziabad on 28/01/2015 for Rs. 66,50,000/-, in which you own 50% share. Also you have sold property having address “C-1/13, Mangal Co- op. Group Housing Society Ltd. Plot No. 16, Vasundhara Enclave Delhi-96 on 24/12/2014 for Rs.1,22,98,000/- in which you hold 50% ownership. The sale proceed was utilized for the purchase of property GF-58, Ground Floor, Vardan Apartment Abhay Khand -IIII, Indirdpuram, Ghaziabad. In the case of sale of property No. C-1/13, Mangal Co- operative Group/housing Society Ltd., Vasundhara Enclave, Delhi you have shown long term capital gain at Rs.38,01,397/- and the same amount has been claimed as deduction u/s 54 of the Act. On perusal of record, it is noticed that the long term capital gain on sale of this property comes to Rs.49,75,198/- (full value consideration Rs.61,49,000/- which is 50% share, less deduction u/s 48 of the Act of Rs.11,73,801/-) and the claim u/s 54 should be restricted to Rs.38,01,397/- (the 50% share cost of property purchase). Hence, the balance amount of Rs.11,73,801/- should have been brought to tax. The AO has failed to bring to tax capital gain of Rs.11,73,801/-. The above computation is as per figure provided by you during assessment proceeding.

In addition, it is further observed that you have claimed a sum of Rs.4,62,000/- towards repair and white wash of property purchased. This is not admissible as deduction u/s 54.

4 Rajani Venkata Naga Anavarapu Narayna You have also claimed cost of improvement of Rs.3,62,667/- and expenditure incurred wholly and exclusively for transfer of property of Rs.1,72,980/-. This is admissible only if evidence of such expense is produced.

Similarly expense of Rs.1,33,000/- claimed as Brokerage expense toward purchase of new house is admissible only if evidence of expense is produced. No such evidence have been found in record and to this extent the AO has failed to carry out adequate verification.

4. In view of the above, it is apparent that assessment in this case has been completed without verifying aspects. In other words, the order of the AO under discussion is erroneous in so far in the course of assessment proceeding as it is prejudicial to the interest of revenue.”

6. Heard the arguments of both the parties.

7. The primary contention of the ld. AR is that the case of the assessee has been selected for limited scrutiny on two grounds viz. verification of cash deposits, verification of Purchase of property only and expanding the scope of scrutiny by the way of order u/s 263 is legally not valid.

“In this regard, it is humbly submitted that Explanation 2 has been inserted in Section 263 of I.T. Act by Finance Act 2015 w.e.f. 01.06.2015 which is reproduced below:

5 Rajani Venkata Naga Anavarapu Narayna Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim: (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. In the above case, it is humbly submitted that the following decision may kindly be considered with regard to validity of proceedings u/s 263 of I.T. Act:

6 Rajani Venkata Naga Anavarapu Narayna Hon’ble Delhi High Court held that non-consideration of larger claim for Rs. 298.93 crores as depreciation and consideration of only a part of it being Rs. 6.45 crore by Assessing Officer, who did not go into issue with respect to whole amount, was an error, that could be corrected under section 263. Commissioner has power to consider all aspects which were subject matter of Assessing Officer's order, if in his opinion, they were erroneous, despite assessee's appeal on that or some other aspect.

4. Malabar Industrial Co. Ltd. Vs CIT [20001] 109 Taxman 66 (3C)/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC) where Hon’ble Supreme Court held that where Assessing Officer had accepted entry in statement of account filed by assessee, in absence of any supporting material without making any enquiry, exercise of jurisdiction by Commissioner under section 263(1) was justified.

7 Rajani Venkata Naga Anavarapu Narayna assessment order as erroneous and prejudicial to interest of revenue.

Hon’ble Supreme Court has dismissed SLP against High Court's ruling that where assessee with a small amount of authorised share capital, raised huge sum on account of premium, exercise of revisionary powers by Commissioner opining that this could be a case of money laundering was justified.

Where Hon’ble Supreme Court admitted the SLP of the Revenue and held that the Commissioner was justified in invoking section 263 in view of the reasons recorded in the show cause notice issued after completion of assessment proceedings since he felt the matter needed further investigation. Making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue.”

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