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Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
Before: Before Shri Rama Kanta Panda & Shri Laliet Kumar
O R D E R Per Laliet Kumar, J.M. These are the two connected appeals filed by the assessee feeling aggrieved by the order of ld.Principal Commissioner of Income Tax (Central), Hyderabad, (hereinafter referred as “ld.PCIT”) passed on 19.08.2021 for A.Ys. 2014-15 and 2017-18, respectively.
2. It was submitted by the ld.AR that the issue raised in both the appeals are common and therefore, the appeal in will be taken as lead case, in which the ld.DR has raised no objection. 2.1. The grounds raised by the assessee in ITA No.395/Hyd/2022 reads as under :
“1. The Learned Principal Commissioner of Income Tax-Central / Hyderabad erred on facts of the case and the Law involved in so far as it is prejudicial to the interest of the Appellant.
2. The Principal CIT-Central/Hyd, has erred in passing orders U/s. 263, directing the Assessing Officer to invoke provisions of Section 56(2)(viib) without considering submissions made by the assessee.
3. On the facts and in the circumstances of the case, the Ld.DR. Principal CIT (Central), Hyderabad erred in assuming jurisdiction u/s. 263 of the Act in order to impose his own views on the Ld.DR. A.O. when the A.O. had taken a possible view.
4. For AY 2014-15, There being no incriminating material discovered pursuant to search in this case an as per proviso 2 to sec.153A the assessment in this case was not pending, the Ld.DR. Pr. CIT erred alleging that the A.O. failed to carry out necessary enquiry and investigation, more so when the impugned assessment pertains to unabated assessment of the assessee.
5. The impugned order passed by the A.O. originally being neither erroneous nor prejudicial to t interest of the revenue, the Ld.DR. Pr. CIT wrongly invoked jurisdiction by making allegation which is not supported by any contra evidence or by law.
6. The Ld.DR. Pr. CIT erred on facts as also in law in having exercised revisionary power u/s.263 on issues which were beyond the jurisdiction of A.O. while framing original assessment as interpreted by various Courts and hence the order passed u/s. 263 is totally unjustified on also in law and liable to be quashed.
7. To modify the Grounds raised or to raise any other Ground(s) not raised with the permission Honourable Members of the Income Tax Appellate Tribunal, Hyderabad.”
3. Ld.AR had made primarily three contentions before us :
i. The ld.PCIT has not applied his mind to the facts and circumstances of the case as he had issued the show cause notice on the basis of deeming provision of section 56(2)(vii)(b) of the Act. ii. The Assessing Officer had made elaborate enquiries from the assessee and thereafter the order u/s 143(3) r.w.s. 153A was passed. iii. The Assessing Officer before passing the assessment order had taken the approval from Add. CIT.
4. Before we deal with the issue, it is essential to note down the facts. 4.1 In this matter, a search and seizure operation was conducted in the premises of assessee on 21.11.2017 and thereafter, the assessee was called for to file the return of income. The assessee in response to the notice had filed return of income admitting the total income of Rs.62,84,500/-. 4.2 Thereafter, a notice u/s 142(1) is placed at Pages 11 to 13 of the paper book was issued to the Assessee. In response to the notice u/s 142(1), the assessee had filed a reply at Sl.Nos.6, 12, 13, 14, 15 and 16 wherein it was mentioned as under : “6. Land admeasuring 400 sq.yards out of 2,700 sq. yards covered by Commercial block by name Anand Silicon chip in S.y no.14, Shaikpet Village and Mandal, Hyderabad in the premises bearing G.H.M.C. no.8-1-305 & 306 situated at Tolichowki, Hyderabad. (Doc No.1044/08) (Construed 6 shops in the ground floor out of which shop no.3 sold in A.Y. 2012-13 and shop nos.4, 5 and 6 sold in A.Y. 2013-14.
12. Land admeasuring 4,840 Sq. yards with M.no.8-1-328/1, Situated at Shaikpet village, Hyderabad(2161/13)(1/2 Share).
13. Land in S. y no.17, admeasuring A.0.09 gts situated at Gachibowli Village, R.R Dist. (Half share)(Doc no.13032/13) 14. Premises 5-4-184/2/a, admeasuring 299 Sq.yards out of total land of 599 Sq.yards in S.y no.110/1 of Bholakpur village, Situated at Ranigunj Main Road, Secunderabad. (Doc No.2341/13) 15. Land in S.Y no.17, admeasuring Ac.0.18 gts, Situated at Gachibowli village, Serilingampally Mandal, R. R. Dist. (Doc No.3035/14)(1/2 Share) 16. Premises bearing m.no.5-4-177, admeasuring 95.05 sq. yards situate at Ginwala Compound, Ranigunj, and Secunderabad. (Doc no.365/14)”
4.3 The Assessing Officer after considering reply and the documents submitted by the assessee during the course of assessment proceedings had accepted the claim made during the assessment proceedings.
4.4 Further the assessment order was passed by the Assessing Officer after obtaining approval from the Additional Commissioner of Income Tax, Central Range – 3, Hyderabad u/s 153D of the Income Tax Act, 1961. 5. After completion of the assessment proceedings, the ld.PCIT has issued notice on 05.02.2021 and in the said notice at Para 2 it was mentioned as under :
“2. During the year under consideration, you have purchased 5 properties, the stamp duty value of which is more than the amounts paid by you to the tune of Rs.2,40,41,000/- as detailed below : Property Sold Purchase value by SRO value Difference the assessee amount to be brought to tax u/s 56(2)(vii)(b) Doc 8,71,20,000 8,71,20,000 0 No.2161/2013 Doc 1,50,00,00 3,26,70,000 88,35,000 No.13032/2013 (being 50% share of Rs.1,76,70,000) Doc 1,50,000 3,26,70,000 52,87,000 No.2341/2013 Doc 1,00,00,000 1,52,87,000 10,84,000 No.365/2014 Total 38,02,000 48,86,000 2,40,41,000
In response thereof, after receiving a notice from the ld.PCIT the assessee had filed a detailed reply to the notice and in the reply on facts it was submitted as under : “1. There are legal cases pending against the above properties. The details are given below: a) There are no litigations against the property mention in Sl. No. 1 of the above table and there is no difference of amount as the assessee has purchased the property at SRO value. b) With regard to properties mentioned in SI. No. 2 & 3 in the above table, there was a litigation with regard to title of the property and possession of the property. A legal suit is filed in the court of IV Additional District Judge (FTC), Ranga Reddy District. And later appeal filed before High Court of Telangana. Final verdict by HC in favour of assessee, The copies of the Documents and the details of the legal suites and Oder of HC of Telangana are attached as Annexure for your kind perusal. c) With regard to properties mentioned in SI. No. 4 & 5 in the above table, there was a litigation with regard to title of the property and possession of the property. A Writ Petition No. 486 of 1966 is pending in High court of Andhra Pradesh. The copies of the Documents and the details of the legal suites are attached as Annexure for your kind perusal.
The properties in question are under litigations and the consideration fixed for the properties is not same as the value determined by the Revenue Authorities for the purpose of collecting registration fees/property taxes. The major issue under consideration is the SRO value adopted in determining the fair market value of the property. The SRO value adopted by the Revenue Authorities is same in respect of the properties in one area/location irrespective of the actual value of the properties in general. Irrespective of the actual value of the properties, SRO value is determined only for the purpose of collecting registration fees and property taxes. Without considering the fact that the properties are in litigation due to which the value of the properties are very less and traded at under value, That doesn’t mean that the buyer of the property got benefited by purchasing the under-valued properties at lower price.
In view of presence litigation in connection with title of the property, the property received by the assesses is not immovable property, it’s rights to fight legal battle.
Sec 56(2)(viib) is applicable where any person receives in any previous year, from any person or person any property received for a consideration which is less than the aggregate fair market value and the difference is more than Rs. 50,000/ -, the such difference is taxable. However, the fair market value of the above said properties which have litigations have very low market value comparatively other properties in the surrounding areas. Hence, the provisions of Sec 56(2)(viib) are not applicable in this case.
Apart from the solid evidences produced before your good offices, the fact that there are legal cases pending on the subject properties are also mentioned in the sale deeds. That shows that the title of the properties are not clear and the assessee did not get the full right over the subject properties. Moreover, it was also mentioned in sale deeds that the assessee has to bare the losses if any comes in the future in respect of the properties upon out-come of the suits pending before the court. (please refer page no.2 of the Doc. No. 3035/2014,
page no.2 of the Doc. No. 13032/2013, page no. 6 of the Doc. No. 2341/2013 and page NO. 4 of the Doc. No.365/2014).
From the above facts of the case, it is clear that the properties mention above are under legal suits and the title of the property is not clear. Hence, the value adopted for the stamp duty collection i.e S.R.O value should not be applied in the above cases as the property does not have free hold rights. Here, the assessee has only got the rights to possession but not get the clear title over the properties.”
6. The ld.PCIT was not convinced with the reply submitted by the assessee and thereafter, he passed the impugned orders which are subject to challenge before us on the grounds mentioned herein above.
Submissions of the Assessee
The ld.AR made the following statements that the order passed by the ld.PCIT is bad in law on account of the fact that the Assessing Officer has passed order after seeking an approval of the ACIT, u/s 153D of the Act. For the above proposition, AR relied on the decision of co-ordinate Bench of the Tribunal in the case of Dhariwal Industries Limited, Pune Vs. CIT wherein at paras 14 and 15 it was held as under :
“14. We find merit in the above submission of the Ld.DR. Counsel for the assessee. We find the Lucknow Bench of the Tribunal in the case of Mehtab Alam Vs. ACIT vide to 294/Lkw/2014 order dated 18-11-2014 while deciding an identical issue has observed as under : “31. Besides other judgments were also referred by the assessee in this regard and we have also carefully examined the same and we find that similar views were expressed by various judicial authorities.
We have also examined the judgment of the Hon’ble jurisdictional High Court in the case of CIT vs. Dr. Ashok Kumar (supra) on an issue whether the assessment order was passed with the approval of the Addl. CIT and their Lordships have held that the Assessing Officer was fully alive about the facts of the case and that is why he got necessary approval of the Addl. CIT before completing the assessment orders for all the assessment years and once that is not disputed by the Revenue, then the ld.DR. Commissioner of Income-tax would not be justified in interfering 8 ITA Nos.1108 to 1113/PUN/2014 in the approval according by the Addl. CIT for framing the assessment order and thus there was no case for setting aside the assessment order for the assessment years in question.” 14.1 We find the Hyderabad Bench of the Tribunal in the case of CH. Krishna Murthy Vs. ACIT vide order dated 13- 02-2015 following the decision of the Lucknow Bench of the Tribunal in the case of Mehtab Alam (Supra) held that CIT(A) is not justified in assuming jurisdiction u/s.263 when the order has been passed in terms of section 153D of the Act. 14.2 We find the Hyderabad Bench of the Tribunal in the case of M/s. Trinity Infra Ventures Ltd. (Supra) had an occasion to decide an identical issue and it held that the assessment order approved by the Addl.CIT u/s.153D cannot be subject to revision u/s.263 of the I.T. Act. The relevant observation of the Tribunal at Para 5.4 of the order reads as under : “5.4. The Ld.DR. Counsel for the assessee has further submitted that the assessment under section 143(3) read with section 153C was passed after getting approval of Addl. CIT under section 153Dof the I.T. Act and therefore such an assessment cannot be revised without revising the directions of the Addl. CIT under section 153D of the I.T. Act. The Ld.DR. Counsel for the assessee, has relied upon the decisions of this Tribunal in the case of Ch. Krishna Murthy vs. ACIT, C.C.3, Hyderabad in ITA.No.766/Hyd/2012 dated 13.02.2015 and also the decision of Lucknow Bench of ITAT in the case of Mehtab Alam 288/Luck/2014 dated 18.11.2014 in support of this contention. He has also placed reliance upon the decision of Hon’ble Allahabad High Court in the case of CIT vs. Dr. Ashok Kumar in I.T. Appeal No. 192 of 2000 wherein it has been held that the assessment order approved by the Addl. CIT under section 153D, cannot be subjected to revision under section 263of the I.T. Act. In view of the above decision also, we hold that the revision order under section 263 of the I.T. Act is not sustainable. Accordingly, we allow the grounds of the assessee.”
Since in the instant case also the Assessing Officer has passed the order after obtaining necessary approval from Addl.CIT u/s.153D of the I.T. Act, therefore, respectfully following the above-mentioned decisions of the Coordinate Benches of the Tribunal we are of the 9 ITA Nos.1108 to 1113/PUN/2014 considered opinion that the CIT has no power to revise the order u/s.263 of the I.T. Act in the instant case since the same has been passed with the approval of the Addl.CIT u/s.153D of the I.T. Act.
Further ld.AR had admitted that details of the property were disclosed by the assessee in pursuant to the notice issued u/s 142(1) of the Act and the same was duly examined by the Assessing Officer and no additions were made on the basis of the documents filed by the assessee. Moreover it was submitted that notice u/s 153A r.w.s 143(3), the addition can only be made by the Assessing Officer in respect of the documents / incriminating material found during the course of search. For the above said purpose, the ld.AR relied upon the decision of Kolkata Tribunal in the case of M/s. Indian Roadways Corporation Ltd. Vs. PCIT, Central-I, wherein in Para 26 at Page 175 of the paper book it was held as under :
“26. We are aware of the fact that the Assessing Officer’s role while framing an assessment is not only an adjudicator. The AO has a dual role to dispense with i.e. he is an investigator as well as an adjudicator; therefore, if he fails in any one of the role as afore-stated, his order will be termed as erroneous. We note that in this case since there was no incriminating material unearthed during the search, the Assessing Officer has not made any additions in his assessment order dated 31.03.2016, based on incriminating material since there was none unearthed. We take note that it is not the case of ld.DR. Principal CIT that AO failed to made any additions/disallowances based on incriminating material seized/unearthed during search. On this finding of fact by us, we cannot term the assessment order passed by the AO u/s 153A/143(3) dated 31.03.2016 as erroneous. It is important here to note that revision u/s 263 of the Income Tax Act, 1961 has to be made within well-defined limits subject to satisfaction of pre- conditions, as explained by us above, and therefore, similar limitation may have to be read in the instant provision. In relation to the years whose assessment is completed, it is laid down by law that in such situations of completed assessment, assessment u/s 153A of the Income Tax Act, 1961 however shall be to the extent of undisclosed income which is found during the course of search with reference to the valuable articles or things found or documents seized during the search which are not disclosed in the M/s Indian Roadways Corporation Ltd. IT A No . 78 7/ K o l/ 2 01 8 A. Y : 2009-10 original assessment. The power given by the 1st proviso of section 153A of the Income Tax Act, 1961 to ‘assess’ income for six assessment years has to be confined to the undisclosed income unearthed during search and cannot include items which are disclosed in the original assessment proceedings. Items of regular assessment cannot be added back in the proceedings u/s 153A when no incriminating documents were found in respect of the disallowed amounts in the search proceedings. A search assessment under section 153A should be evidence based. Therefore, we are of the view that assessment order passed by the AO u/s 153A/143(3) dated 31.03.2016 is neither erroneous nor prejudicial to the interest of the Revenue and therefore, ld.DR. Pr. CIT erred in exercising his revisional jurisdiction u/s 263 of the Act and therefore, we quash the impugned order of ld.DR. Pr. CIT passed under section 263 of the Act.”
Beside the above, ld.AR had submitted that in the present case, the additions were proposed by the ld.PCIT by directing invoking section 56(2)(vii)(b) of the Act . It was submitted that during the course of proceedings before ld.PCIT, assessee has raised specific objection that no addition can be made on the basis of the notational valuation of the property as the property was the subject matter of litigation and when the documents including the decree of the civil court were available and therefore Ld.PCIT was not correct in invoking powers under section 263 of the Act. In support of this our attention was drawn to Para 18 of the order passed by the Hon’ble Madras High Court in the case of CIT Vs. Smt. Padmavathi wherein the hon’ble High Court held as under : “18. The PCIT, has not dealt with this specific objection, but, would fault the Assessing Officer for not invoking section 56(2)(vii)(b)(ii) merely on the ground that the market value was higher. As point out earlier, the guideline value is only an indicator and that will always not represent the fair market value of the property and therefore, the invocation of the power under section 263 of the Act by the PCIT is not sustainable in law.”
The ld.AR had submitted that the stamp valuation of a property under litigation and other property based on SRO value cannot be equated and therefore, the provisions of section 56 in respect of the property under litigation cannot be the basis of proposing addition under section 263 of the Act. 11. Lastly, the ld.AR had submitted that twin conditions of section 263 of the Act are required to be fulfilled namely that (a) the order must be erroneous and (b) it must be prejudicial to the interest of the Revenue.
Per contra, the ld.DR had submitted the Assessing Officer have not applied his mind and passed a detailed order considering the documents of the assessee received by the Assessing Officer pursuant to the reply.
In rebuttal, ld.AR had submitted that the Assessing Officer is not required to write detailed order in respect of facts on which he was convinced for and in support thereof, ld.AR relied upon the decision of ITAT, Hyderabad in the case of Futuretech Industries Vs. DCIT. Further, the ld.AR had submitted that even the issuance of the notice by the ld.PCIT is not in accordance with law as notice was sent even for the property where admittingly there was no difference between the SRO value and the purchasing price, hence the order passed by the ld.PCIT. FINDING 14. We have heard the rival submissions and perused the documents available on record. The show cause notice issued to the assessee clearly shows that the Assessing Officer has called upon the assessee to furnish the details of the property details during the year under consideration. In response thereto, the assessee vide reply dt.01.03.2019 had submitted the details to the Assessing Officer along with all the documents. The details are separately mentioned in para 4.2 hereinabove. 14.1 From the contents of notice under section 142(1) and the reply submitted by the assessee dated 01.03.2019, it is clear that documents in respect to these properties were not part of the seized documents recovered during the course of search carried out by the Revenue at the premises of the assessee. Hence, it is not necessary to deal with these documents in the regular search assessment.
14.2. However, ld.PCIT had given a finding in para 4.1 stating that the Assessing Officer has neither enquired about the claim of the assessee that the property was under litigation during the course of assessment proceedings nor brought to the notice of the Assessing Officer by the assessee.
14.3. In our considered opinion, during the assessment proceeding u/s 153A r.w.s. 143(3), the Assessing Officer is duty bound to make the addition in respect of the incriminating documents found during the course of search or in respect to the additions which are relatable to the material seized during the search. The Assessing Officer is not required to make any addition in respect of the material / document came to its possession on account of post search enquiries, though this issue may be debatable within the jurisdiction of Hon’ble Telangana High court. 14.4 Ld.PCIT in the impugned orders had nowhere stated that the documents were filed by the assessee in response to notice under section 142(1) of the Act and that the documents found during the course of search were incriminating in nature. Unless the requirement of law, namely existence of the incriminating document is fulfilled, the Assessing Officer could not make the addition and therefore, the Assessing Officer has rightly not made any addition. 14.5 The reliance on explanation 2 to section 263 of the Act by the ld.PCIT was incorrect, as Assessing Officer had made enquiries from the assessee and assessee had provided all information to the Assessing Officer, therefore, ld.PCIT’s finding in para 4.1 was factually incorrect, as it was not born out of the record. Moreover, we agree with the view taken by the Kolkata Tribunal in the case of M/s. Indian Roadways Corporation Ltd. Vs. PCIT (supra) wherein the identical view was decided by the Kolkata Tribunal in favour of the assessee. Therefore, on this count alone, the order passed by the ld.PCIT is required to be annulled . 14.5 However, there is another reason for annulling the order passed by the ld.PCIT, as in the present case, the Assessing Officer before passing the assessment order has taken the approval of ld.ACIT under section 153D of the Act. The coordinate Bench in the case of Dhariwal Industries Limited, Pune Vs. CIT (supra) on similar facts, had annulled the order passed by ld.PCIT. Therefore, we have no hesitation to take a similar view, more particularly, when one of us (namely Hon’ble A. M.) was a party to the decision. 14.6 There is yet another reason to annul the order passed by the ld.PCIT was that the ld.PCIT had directed the Assessing Officer to make the additions after invoking the provisions of section 56(2)(vii)(b) of the Act on the premise that there is difference in consideration for which the property was purchased vis-à-vis the SRO value. In our view, the addition under section 56(2)(vii)(b) is a deeming provision, based on this notional addition can be made, however Hon’ble Madras High Court (supra), in case of CIT Vs. Smt. Padmavathi Tax in Appeal No. 350/2020 had held in paras 15-18 as under :- “15. The substantial question nos.1 and 2 are interconnected namely, the power of the PCIT under section 263 of Act and whether he could have set aside the assessment on the ground that the assessing officer did not invoke Section 56(2)(vii)b(ii). The reading of the assessment order shows that the case was selected for limited scrutiny only on this aspect regarding the sale consideration paid by the assessee for purchase of the immovable property and the source of funds. The assessing officer has noted that the sale consideration paid by the assessee was Rs. 41,50,000/- and she has paid stamp duty and other expenses of Rs. 5,75,000/-. The source of funds was verified and the assessing officer was satisfied with the same. The PCIT while invoking his power under section 263 of Act, faults the assessing officer on the ground that he did not make proper enquiry. It is not clear as to what in the opinion of the PCIT is ‘proper enquiry’. 12
By using such expression, it presupposes that the assessing officer did conduct an enquiry. However, in the opinion of the PCIT, the enquiry was not proper in absence of not clearly stating as to why in the opinion of PCIT, the enquiry was not proper, we have to necessarily hold that the invocation of the power under section 263 of the Act was not justified.
16. The only reason for setting aside the scrutiny assessment was on the ground that the guide line value of the property, at the relevant time, was higher than the sale consideration reflected in the registered document. The question would be as to what is the effect of the guideline value fixed by the State Government. There are long line of decisions of the Hon’ble Supreme Court holding that guideline value is only an indicator and the same is fixed by the State Government for the purposes of calculating stamp duty on a deal of conveyance. Therefore, merely because the guideline was higher than the sale consideration shown in the deed of conveyance, cannot be the sole reason for holding that the assessment is erroneous and prejudicial to the interest of revenue.
The assessing officer in his limited scrutiny, has verified the source of funds, noted the sale consideration paid, the expenses incurred for stamp duty and other charges. Furthermore, the assessee in their reply dated 11-1-2019 to the show cause notice dated 26-10-2018 issued by the PCIT has specifically stated that the assessment was getting time barred, assessing officer took upon himself the role of a valuation officer under section 50LD.DR(2) and found that the guideline value was not actual fair market value of the property and the actual consideration paid was the fair market value and therefore, he did not choose to make any addition under section 50LD.DR of the Act. 18. The PCIT, has not dealt with this specific objection, but, would fault the assessing officer for not invoking Section 56(2)(vii)(b)(ii) merely on the ground that the market value was higher. As point out earlier, the guideline value is only an indicator and that will always not represent the fair market value of the property and therefore, the invocation of the power under section 263 of the Act by the PCIT is not sustainable in law.”
14.7 In the light of above Judgment, we hereby hold invocation of jurisdiction section 263 of the Act by ld.PCIT was not correct. In our considered opinion, once all the material including the sale deeds and other litigation documents were available on the record before the ld.PCIT, then it is the duty of the ld.PCIT to give a specific finding as to how the provisions under section 56(2)(vii)(b) are applicable and why the order of Assessing Officer was passed without proper enquiry. Therefore, ld.PCIT’s finding that the order passed by Assessing Officer was erroneous and prejudicial to the interest of the Revenue, can not be upheld. 14.8 Considering the case from any angle, we do not find any justification in passing the order u/s 263 of the Act by the ld.PCIT. In light of the above discussion, we hereby quash the order passed by the ld.PCIT for A.Y. 2014-15. In the result, the appeal of the assessee is allowed.
15. Now, coming to the appeal in for A.Y. 2017-18, as the facts of this appeal are identical to ITA No 395/2021, therefore respectfully following the very reasoning given in A.Y. 2014-15 we quash the order passed by the ld.PCIT for A.Y. 2017-18 also.
In the result, both the appeals of the assessee are allowed. A copy of this common order be placed in respective case files.
Order pronounced in the Open Court on 22nd June, 2022.