Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”, HYDERABAD
Before: SHRI B. RAMAKOTAIAH & SHRI CHALLA NAGENDRA PRASAD
PER B. RAMAKOTAIAH, A.M. :
This is an appeal by assessee against the order of the Pr.Commissioner of Income Tax-5, Hyderabad dated 27-03-2017, u/s. 263 of the Income Tax Act [Act], setting aside the assessment. Assessee has raised eight grounds, questioning the jurisdiction of the Ld.CIT in setting aside the order.
- 2 - ITA No. 932/Hyd/2017
Brief facts of the case are that assessee along with Shri L. Ravinder Reddy sold immoveable property admeasuring 935 Sq. Yds., in Shaikpet Village, situated at Road No. 12, Banjara Hills, Hyderabad, vide document No. 4362/2008, dt. 12-12-2008 for a consideration of Rs. 1.50 Crores, on which stamp duty value was determined at Rs. 3,27,70,000/-. AO on receipt of information has considered that by invoking the provisions of Section 50C there will be capital gains, accordingly, issued a notice u/s. 148 of the Act. In the course of assessment proceedings, assessee has submitted that the property was disputed and that there was litigation in the court of Second Additional Chief Judge, City Civil Court, Hyderabad for the reason that transferee, M/s. CSK Realtors, failed to honour half of the sale consideration agreed upon as per the sale deed and the case was finally settled vide order dt. 21-09-2013 by the Lok Adalat by ratifying the sale deed and sale consideration was awarded at Rs. 1,40,50,000/- instead of Rs. 1,50,00,000/-. It was submitted that the title of the property issue was disputed before the Hon'ble Supreme Court as the title of original owners was under dispute. It was further submitted that since the document-in-question was subject matter of litigation, the capital gains does not arise in AY. 2009-10 and if at all it can be considered in AY. 2014-15 as there was settlement between the parties by virtue of the order of the Lok Adalat. AO seems to have accepted assessee’s contentions and in the assessment order completed u/s 143(3) rws 147, did not bring any capital gains to tax in the year under consideration.
- 3 - ITA No. 932/Hyd/2017
Ld.Pr.CIT on examination of the record was of the opinion that the said property was sold within three years from the date of acquisition and as per the definition of IT Act u/s. 2(47)(i) of the Act, there is a transfer in relation to a capital asset and since assessee has received the consideration, AO should have brought the Short Term Capital Gain of Rs. 60,12,500/- to tax. Ld. Pr. CIT considered that the order of AO is erroneous and therefore, issued a show cause notice u/s. 263 of the Act. In response to show cause notice, assessee has submitted that the facts as stated before the AO were already on record and AO has examined and accepted the contentions. It was further submitted that AO has caused enquiries and got satisfied on verification. Therefore, the order cannot be erroneous. It was further submitted that even on merits, there is no transfer of capital asset as there is no transfer of property due to litigation and dishonor of the cheques and by the interim orders of the jurisdictional High Court restraining the purchaser from alienating the land to any party. Ld.CIT, however, did not agree with the contentions of assessee and held that on the facts of the case, the provisions of Section 45(1), Section 2(47)(i) and 2(47)(v) would apply and the capital gains on sale of property are assessable in the year under consideration. His final order in para 6 is as under:
“6. The assessment order u/s. 143(3) dt. 27.03.2015 is erroneous, as it was passed in contravention of the clear, express and specific provisions of the Income Tax Act. The assessment order caused prejudice to the Revenue since the capital gains escaped assessment. Therefore, I hold the assessment order is erroneous in so far as it is prejudicial to the interests of the Revenue. The assessment order is
- 4 - ITA No. 932/Hyd/2017
setaside to be done afresh. The A.O. is directed to assess the capital gains arising from the sale of the above mentioned immovable property in the hands of the assessee in the year under consideration. Further, the assessing officer is directed to consider the applicability of the provisions u/s. 50C while computing the capital gains and pass the assessment order afresh after giving reasonable opportunity to the assessee and in accordance with law”.
Contending the above order, it was the submission of Ld. Counsel that there was dispute between the parties and assessee has entered into purchase of property from Smt. G. Pramila Devi and others. Even in the purchase document, there was mention of disputed title and the sale deed also carried the same. Referring to the sale deed, it was the submission that the original vendors are Smt. G. Pramila Devi and group whereas assessee and Shri L. Ravinder Reddy are parties as ‘agreement holders’ and the recitals clearly state that the property is purchased with a dispute and ultimately Ld. Counsel referred to the orders of the Second Additional Chief Judge, City Civil Court, Hyderabad and Lok Adalat orders to submit that capital gain did not arise in the impugned year. It was also submitted that ultimately the Hon'ble Supreme Court has held that original owner Smt. G. Pramila Devi did not have any title to the property, therefore, the entire transaction-in-question is disputed which may have to be cancelled.
4.1. Coming to the provisions of Section 263, it was submitted that explanation (2) introduced by the Finance Act, 2015 w.e.f. 01-06-2015 clearly states that the order is to be deemed to be erroneous if the order is passed without making
- 5 - ITA No. 932/Hyd/2017
any enqiry or verification, it should have been made. In this case, AO has made enquiries and assessee has submitted all the details including the disputing nature of the transaction. It was further submitted that the proceedings itself were initiated u/s. 147 on the reason that income has escaped assessment, but after due enquiry, the AO has accepted that no capital gains arose in the year under consideration. Therefore, the order cannot be considered as erroneous. Ld. Counsel relied on the principles laid down by the Jurisdictional High Court in the case of Spectra Shares & Scrips Pvt Ltd., Vs. CIT [354 ITR 35] (AP) and for various propositions on inadequate enquiry, the following judgments:
i. Infinity Infotech Parks Ltd., Vs. DCIT in ITA No. 329/Kol/2017, dt. 02-06-2017; ii. Narayan Tatu Rane Vs. ITO [70 taxmann.com 227] (Mumbai-Trib); iii. M/s. Amira Enterprises Ltd., Vs. Pr.CIT in ITA No. 3206/Del/2017, dt. 29-11-2017; iv. CIT Vs. Anand Food Products [39 taxmann.com 187] (AP); v. Shri Anil L. Todarwal Vs. Pr.CIT, in ITA No. 3498/Mum/2017, dt. 02-01-2018; vi. Sri Srinivasa Rao Kalagara Vs. Dy.CIT, in ITA No. 726/Hyd/2015, dt. 18-09-2015;
- 6 - ITA No. 932/Hyd/2017
Ld.DR, however, submitted that AO has not made property verification of the documents and are relied on the detailed order of the Pr.CIT to support that the jurisdiction was validly invoked.
We have considered the rival contentions and perused the documents placed on record and case law relied upon. It is true that the proceedings were initiated u/s. 147 on receipt of information that a particular property has been transacted and assessee in response not only filed the return of income but also explained in the course of assessment, the disputed nature of the transaction, the litigation between the parties and final compromise settlement dt. 21-09-2013 before the Lok Adalat. It is not a case where enquiries have not been done by the AO. The enquiries have been conducted and AO was satisfied that capital gains have indeed does not arise.
6.1. The opinion of the CIT that capital gains should have brought to tax in this year based on the interpretation of law, is another opinion which cannot be substituted with that of the AO in the proceedings u/s. 263 of the Act. It is trite law that CIT cannot exercise the jurisdiction u/s. 263, once AO raises queries and enquires about the issue. The Hon'ble Jurisdictional High Court in the case of Spectra Shares & Scrips Pvt Ltd., Vs. CIT [354 ITR 35 (AP)] has held that if a query was raised during the course of scrutiny by AO, it was answered to the satisfaction of AO, but neither query nor the answer was reflected in the assessment order, this would not
- 7 - ITA No. 932/Hyd/2017
by itself lead to the conclusion that the order of AO called for interference and revision.
6.2. Vide the Finance Act, 2015, the explanation-(2) was introduced w.e.f. 01-06-2015, which is as under:
“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”.
6.3. As per this, the order deemed to be erroneous under clause (a) only when the order is passed without making enquiries or verification which should have been made. In this case, there is no fining by the CIT that no query has been caused or no verification has been made. Therefore, even considering the explanation (2), the order cannot be considered as ‘erroneous’.
Similar issue was considered by the Co-ordinate Bench in the case of Infinity Infotech Parks Ltd., Vs. DCIT in
- 8 - ITA No. 932/Hyd/2017
ITA No. 329/Kol/2017, dt. 02-06-2017, wherein on similar facts, it was held as under:
“32. In respect of other items set out in the show cause notice u/s 263 of the Act where there was no allegation that there was failure on the part of the AO to make and proper enquiries before completing the assessment, the CIT in the impugned order has held that the order of the AO on those items were also liable to be set aside on that ground holding that order of the AO was erroneous and prejudicial to the interest of the revenue. In this regard it is seen that the show cause notice u/s.263 of the Act issued by the CIT was dated 20.9.2016. The Assessee had filed his reply to the said show cause notice on 12.1.2017 and on the very same date, the CIT had passed the impugned order. It is thus clear that the Assessee was not put on notice that the. CIT intends to invoke jurisdiction u/s.263 of the Act on the ground of lack of enquiry by the AO. It is also seen that when CIT's specific objection in the show cause notice u/s 263 of the Act on issues other than the issues on which the CIT in his show cause notice has alleged lack of enquiry on the part of the AO, the Assessee has given his explanation as to how on those issues the order of the AO was not erroneous. The CIT before exercising jurisdiction u1s.263 of the Act by setting aside the order of the AO, ought to have given his own specific finding on those objections and without doing so, the CIT cannot exercise jurisdiction u1s 263 of the Act. The Hon'ble Delhi High Court in the case of ITO Vs. D.G.Housing Projects Ltd. (supra) has taken the view that while the AO is both an investigator and an adjudicator, a distinction has to be drawn between a case where the AO has not conducted any enquiry or examined any evidence whatsoever (“lack of inquiry”) from one (i) where there is enquiry but the findings are erroneous, and (ii) where there.is failure to make proper or full verification or enquiry ("inadequate inquiry"). The fact that the assessment order does not give any reasons for allowing the claim is not by itself indicative of the fact that the AO has not applied his mind on the issue. All the circumstances have to be seen. A case of lack of enquiry would by itself render the order being erroneous and prejudicial to the interest of, the Revenue. In a case where there is inquiry by the AO, even if inadequate, the CIT would not be entitled to revise u/s 263 on the ground that he has a different opinion in the matter. Also, in a case where the AO has formed a wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry before passing the s. 263 order. The CIT is entitled to collect new material to show how the order of the AO is erroneous. The CIT cannot remand the matter to the AO for further enquiries or to decide
- 9 - ITA No. 932/Hyd/2017
whether the findings recorded are erroneous without a finding that the order is erroneous and how that is so. A mere remand to the AO implies that the CIT has not decided whether the order is erroneous but has directed the AO to decide the aspect which is not permissible. On facts, as the CIT had doubts about the valuation and sale consideration received, he ought to have examined the said aspect himself and given a finding on the merits on how the consideration was understated”.
The Co-ordinate Bench at Mumbai in the case of Narayan Tatu Rane Vs. ITO [70 taxmann.com 227] (Mumbai- Trib) has held that the newly inserted explanation-2A to Section 263 does not authorise or give unfettered powers to commissioner to revise each and every order, in his opinion same has been passed, without making enquiries or verification which should have been made. It was held that since the Commissioner has not brought any material on record to substantiate his inference and Commissioner has passed a revisional order only to carry out fishing and roving enquiries with the object of substituting his views with that of AO, the order of CIT was held bad in law.
Similar view was also taken in the case of M/s. Amira Enterprises Ltd., Vs. Pr.CIT in ITA No. 3206/Del/2017, dt. 29-11-2017, wherein the Pr.CIT specifically invoked the explanation-(2).
Considering the facts of the case and principles of law on the issue, it cannot be held that AO did not carry out any enquiry or verification which should have been done. Since the proceedings itself were initiated u/s. 147 for the
- 10 - ITA No. 932/Hyd/2017
purpose of bringing into tax the capital gain on the information received from the Sub-Registrar about the sale deed, AO did enquire and accepted the contentions of assessee that the transaction was in-dispute and ultimately was settled in September, 2013 before the Lok Adalat. AO has accepted the explanation and did not consider it fit enough to bring capital gains to tax in AY. 2009-10. Thus, AO has taken a plausible view on the facts and circumstances of the case. Even though Ld.CIT has drawn certain inferences about the legal provisions, yet it can be seen that they are debatable in nature. For this, CIT had not brought any material on record either making further enquiries or by verifications to substantiate his inferences. It is observed that CIT has undertaken the revisional proceedings only to substitute his views of taxability in the impugned year over the view of the AO, who accepted that it is not taxable in the impugned assessment year. Thus, the CIT was not justified in law in holding that the impugned order is erroneous.
In the case of Spectra Shares & Scrips Pvt Ltd., Vs. CIT [354 ITR 35] (AP), Hon’ble jurisdictional High Court has held as follows:
“If there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders u/s 263 merely because he has a different opinion in the matter. It is only in cases of lack of inquiry that such a course of action would be open. An assessment order made by the Income Tax Officer cannot branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. There must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of
- 11 - ITA No. 932/Hyd/2017
the relevant statute on an incorrect or incomplete interpretation, a lesser tax than was just, has been imposed. The power of the Commissioner u/s 263(1) is not limited only to the material which was available before the AO and in order to protect the interests of the Revenue, the Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of the assessment”.
The Hon'ble Supreme Court in the case of Malabar Industrial Company Ltd., Vs. CIT [243 ITR 83] (SC) held that the phrase ‘prejudicial to the interest of Revenue’ had to be read in conjunction with an erroneous order passed by AO. Every loss of Revenue as a sequence of order of the AO cannot be treated as prejudicial to the interest of Revenue. For example, when an AO adopted one of the course permissible in law, and it has resulted in loss of Revenue, or whether two views were possible and the AO taken one view which the CIT did not agree, it could not be treated as erroneous order prejudicial to the interest of Revenue, unless the view taken by the AO was un-sustainable in law.
Jurisdictional High Court in the case of CIT Vs. Anand Food Products [39 Taxmann.com 187] (AP-HC), where the AO had made enquiries on issues under consideration and assessee had given detailed explanation by the later furnishing data, concluded that the decision of the AO cannot be prejudicial to the interest of Revenue, simply because he did not make detailed discussion.
Respectfully following the principle laid down and on facts of this case, we have no hesitation to hold that order
- 12 - ITA No. 932/Hyd/2017
of AO is not erroneous and so exercise of jurisdiction by Ld. Pr. CIT u/s 263 is bad in law. Consequently we set aside the impugned order of Pr.CIT u/s 263 and restore the order of AO u/143(3) rws 147.
In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 20th July, 2018
Sd/- Sd/- (CHALLA NAGENDRA PRASAD) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 20th July, 2018 TNMM
- 13 - ITA No. 932/Hyd/2017
Copy to :
1.Sri Narasimha Reddy Peechu, C/o. Ch. Parthasarathy & Co., 1-1-298/2/B/3, 1st Floor, Sowbhagya Avenue, St.No.1, Ashoknagar, Hyderabad. 2. The Income Tax Officer, Ward-3, Hyderabad.
Pr.CIT-5, Hyderabad.
D.R. ITAT, Hyderabad.
Guard File.