CHARM INVESTMENT PVT.LTD,NEW DELHI vs. PCIT-2 , NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’: NEW DELHI BEFORE, SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No.3505/Del/2019 (ASSESSMENT YEAR-2014-15) M/s Charm Investment Pvt. Pr.CIT-2, R.No.394, CR. Ltd. Vs. Building, 3927/28 Padam Singh Road, New Delhi. Karol Bagh, New Delhi-110005 PAN –AAACC 5167B (Appellant) (Respondent)

Appellant By Sh. Raj Kumar, CA Respondent by Sh. M. Barnwal, Sr. DR Date of Hearing 07.02.2020 Date of Pronouncement 01.05.2020

ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER:

This appeal has been preferred by the assessee against order dated

22.03.2019 passed by the Ld. Principal Commissioner of Income Tax-2,

Delhi {Pr.CIT} for Assessment Year 2014-15 and challenges the action of

the Ld. Pr. CIT in passing order u/s 263 of the Income Tax Act, 1961

(hereinafter called as ‘the Act’) wherein it was held that the assessment

order passed u/s 143(3) of the Act dated 30.06.2016 was erroneous in so

far as being prejudicial to the interest of the Revenue and was set aside.

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2.0 The brief facts of the case are that the assessee company is non-

banking Finance Company engaged in the business of providing loans to

its clients and for making investment in shares and properties. The return

of income was filed declaring an income of Rs.1,63,290/-. However, tax

had been paid on Book profit of Rs.16,07,775/- under provisions of

section 115JB of the Act. The case was selected for scrutiny through CASS

and, subsequently, the assessment was completed at an income of

Rs.1,68,565/- after making an addition on account of interest u/s 244A of

the Act.

2.1 Subsequently, the Ld. Pr. CIT issued a show cause notice dated

21.02.2019 and initiated proceedings u/s 263 of the Act on the ground

that the assessee had shown capital gains of Rs.91,834/- on sale of a

certain residential flat wherein, as per the sale deed, the circle rate of the

property sold was Rs.48,57,600/- whereas the sale consideration said to

be received was only Rs.44,00,000/-. Thus, as per the Ld. Pr. CIT, section

50C of the Income Tax Act would come into play. The show cause notice

stated that the AO was bound to refer the matter to the Departmental

Valuation Officer (DVO) but since the same was not done, the order was

liable to be set aside. It was also stated in the show cause notice that the

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cost of improvement amounting to Rs.6,88,500/- was in the nature of

repairs and maintenance and did not qualify towards cost of improvement.

2.2 In response to the show cause notice, it was submitted by the

assessee that the issue had been examined by the Assessing Officer (AO)

during the assessment proceedings wherein the details of costs of

improvement were duly submitted and the Assessing Officer had allowed

the same after proper verification. It was also submitted by the assessee

that the application of Sec.50C of the Act was not mandatory in all cases

and that the AO had chosen not to apply the provisions of section 50C in

his case and that the reference to the DVO was not mandatory.

2.3 However, the Ld. Pr. CIT did not accept the submissions of the

assessee and held that since the assessment order passed by the

Assessing Officer had been passed without making any enquiries into the

claim of the assessee and further because the AO had failed to make the

mandatory reference to the DVO, the same was prejudicial to the interest

of the Revenue. The Ld. Pr. CIT also noted that the assessee had not

deducted tax at source on the cost of improvement of Rs.6,88,500/-. The

Ld. Pr. CIT went on to hold that the assessment order passed u/s 143(3)

of the Act was erroneous in so far as being prejudicial to the interest of the

4 ITA No.3505/Del/2019 M/s Charm Investment Pvt. Ltd. Vs. PCIT

Revenue and was, therefore, to be set aside. The Assessing Officer was

directed to frame the assessment afresh by conducting proper enquiries.

2.4 Aggrieved by this order, the assessee is now before the ITAT

challenging the action of the Ld. Pr. CIT and has raised the following

grounds of appeal:

“1. That under the facts and circumstances, the asstt. order u/s. 143(3) Dtd. 30.06.16 is neither erroneous nor prejudicial to the interest of revenue, hence the Ld. PCIT wrongly assumed the jurisdiction u/s.263 of the I.T. Act.

2.1 That under the facts and circumstances, the issue of calculation of capital gain on sale of Nehru Apartment, Kalkaji flat, since examined by the A.O. u/s. 143(3) as per law, hence, the said order is neither erroneous nor prejudicial to the interest of revenue on this issue and specially w.r.t. Sec.50C of the I.T. Act.

2.2 That under the facts and circumstances, the directions of PCIT to A.O. for framing the asstt. afresh by conducting proper enquiries stands vitiated in view of specific findings of PCIT that the A.O. should had referred the valuation of flat to DVO, thus binding the A.O. to that extent thereby making it impossible to reframe the assessment on this issue by the A.O. as per law, as stands decided by him.

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3.1 That under the facts and circumstances, the order of A.O. on the issue of cost of improvement of Rs.6,88,500/- is neither erroneous nor prejudicial to the interest of revenue.

had wrongly invoked the provisions of Sec.263 by holding that the

Assessing Officer should have referred the valuation of the residential flat

to the DVO for the purpose of Sec.50C of the Act. Our attention was

drawn to provisions of section and it was submitted that the word used is

‘may’ and therefore, the same is not mandatory. It was further submitted

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that the Assessing Officer had duly raised query on the computation of

capital gains at the time of assessment proceedings and for this purpose

our attention was drawn to the notice issued u/s 142(1) of the Act dated

16.05.2016 issued by the Assessing Officer and it was submitted that it is

not a case of lack of enquiry. Our attention was also drawn to the reply of

the assessee dated 21.06.2016 wherein the assessee had submitted the

details of the sale of purchase of property. The Ld. Authorized

Representative submitted that the Assessing Officer had duly examined

the documents and details furnished by the assessee and on being

satisfied had not made any reference to the DVO as the difference was of

only Rs.4,57,600/- which was approximately a difference of 10.4% of the

declared value. It was submitted that, therefore, there was erroneous.

3.1 It was submitted that it was erroneous part of the Ld. Pr. CIT to

have invoked Explanation-2 to Section-263 of the Act because such

explanation can be invoked only where the assessment is made without

enquiry or verification or where relief is allowed or where the assessment

order is not passed in accordance with any direction or instruction of the

Board or where the assessment order is not passed in accordance with the

decision rendered by the Jurisdictional High Court or the Hon’ble Apex

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Court. It was submitted that the assessee’s case did not fall in any of the

four conditions under which Explanation-2 can be invoked.

3.2 It was also submitted that the extent of enquiry is to be decided by

the Assessing Officer and the same cannot be determined by the Ld. Pr.

CIT. It was also submitted that even if the assessment order does not

discuss the issue in detail, it cannot be inferred that no enquiry has been

made. The Ld. Authorized Representative also argued that the Ld. Pr. CIT

should have conducted the enquiry himself which he did not do and that

he had merely directed the Assessing Officer to make the enquiry which

was unsustainable in the eyes of law. Similar arguments were raised for

other ground on which the assessment order was set aside i.e. the alleged

failure of the Assessing Officer in examining the nature of cost of

improvement expenditure.

3.3 Regarding the third reason stated by the Ld. Pr. CIT for setting

aside the assessment order i.e., non deduction of TDS on cost of

improvement expenditure, the Ld. Authorized Representative submitted

that this issue was not raised in the show cause itself and, therefore, the

same was outside the scope of the impugned order and no direction could

have been given by the Ld. Pr. CIT in this regard. The Ld. Authorized

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Representative prayed that the impugned order preserved to be quashed

as the Ld. Pr. CIT had exceeded his jurisdictional in exercising his

revisionary powers.

4.0 In response to the arguments of the Ld. Authorized Representative,

the Ld. Departmental Representative vehemently supported the order of

the Ld. Pr. CIT and submitted that provisions of Section 263 had been

rightly invoked by the Ld. Pr. CIT and that it was apparent from the

assessment order that there was a complete lack of enquiry by the

Assessing Officer with respect to the issue of computation of capital gains.

5.0 We have heard the rival submissions and have also perused the

material on record. It is seen that in response to the query raised by the

Assessing Officer, the assessee had furnished copies of sale deed and

purchase deed and also the bill pertaining to renovation work carried out

in the residential flat sold by the assessee. It is undisputed fact that the

assessee has shown a lower amount as sale consideration than as

mentioned in the sale deed for the purposes of stamp duty. The Ld. Pr. CIT

was of the opinion that the Assessing Officer should have referred the

matter to the DVO as there was a variation in the two valuations and that

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the failure of the Assessing Officer to make a reference to the DVO was an

error as a result of which the assessment order became erroneous and

prejudicial to the interest of the Revenue. However, the provisions of

Section 50C(ii) lay down that where the assessee claims before any

Assessing Officer that the valuation adopted and assessed or assessable

by the Stamp Valuation Authority under sub-section (i) exceeds the fair

market value of the property as on the transfer, the Assessing Officer ‘may’

refer the valuation of the capital asset to Valuation Officer. Thus, going by

the language used, it is not mandatory in the Assessing Officer to make a

reference to the DVO in all cases where the stamp duty valuation exceeds

the fair market value. Therefore, it is our considered opinion that the order

of the Assessing Officer cannot be held to be erroneous in so far as being

prejudicial to the interest of the Revenue on this count. For, this

proposition, we draw support from the order of the Co-ordinate Bench of

ITAT Delhi Bench in the case of Jitindar S. Chadha Vs. Pr. CIT reported in

[2019] 200 TTJ (Del) 98 wherein it had been held that the powers of the

Assessing Officer u/s 55A of the Act were discretionary and that the

Assessing Officer can take plausible view of the matter. Thus, in the

present case also, it is our considered opinion that by not referring the

10 ITA No.3505/Del/2019 M/s Charm Investment Pvt. Ltd. Vs. PCIT

issue of valuation to the DVO, the Assessing Officer had taken one of the

possible views and this discretion of the Assessing Officer cannot be

termed as being erroneous as has been held by the Ld. Pr. CIT.

5.1 Similarly, the assessee had duly submitted the details of renovation

which were carried out in the flat sold by him and the Assessing Officer,

by taking one of the possible two views, accepted the same. Therefore, it

cannot be said that the Assessing Officer did not make any enquiry what

so ever in this regard. The Assessing Officer called for certain details and

the assessee submitted them. On the Assessing Officer being satisfied with

the same, the Assessing Officer took one of the possible views to which the

Ld. Pr. CIT might not been in agreement but which the Ld. Pr. CIT has no

power to change if the same has been taken after enquiry by the Assessing

Officer. Therefore, we are not in agreement with the view taken by the Ld.

Pr. CIT that the order passed by the Assessing Officer was erroneous in so

far as being prejudicial to the interest of the Revenue.

5.2 The issue of non deduction of tax on the expenditure claimed

towards cost of improvement was never a part of the show cause notice

and a perusal of the reply submitted by the assessee before the Ld. Pr. CIT

11 ITA No.3505/Del/2019 M/s Charm Investment Pvt. Ltd. Vs. PCIT

also makes it apparent that the assessee was not confronted with this

issue and was not given any opportunity to respond to the same. The

impugned order also does not mention that the assessee was later

required to respond on this issue. Thus, there was a complete lack of

natural justice on the part of the Ld. Pr. CIT while setting aside the

assessment order for this reason. Therefore, we are afraid, the same

cannot be taken as a reason for treating the assessment order as

erroneous. This is in line with the judgment rendered by the Hon’ble Apex

Court in the case of CIT vs. Amitabh Bacchan in Civil Appeal No.5009 Of

2016 [Arising out of S.L.P.(C) No.11621 of 2009] wherein it has been held

that without providing a proper opportunity on the issue the

commissioner cannot exercise the revisionary powers.

5.3 Therefore, we are of the considered opinion that the impugned

order fails to pass the tests laid down with respect to the exercise of the

revisionary powers by the Commissioner and, therefore, we have no other

option but to quash the order passed u/s 263 of the Act and allow the

assessee’s appeal.

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6.0. In the final result, the appeal of the assessee stands allowed.

Order pronounced in the Open Court on 01/05/2020.

Sd/- Sd/- (PRASHANT MAHARISHI) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 01/05/2020 PK/Ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI