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Facts
The assessee entered into agreements to sell immovable properties, initially with M/s Hemali Resorts Pvt. Ltd., which then assigned its rights to the final purchaser. While the registered sale deeds showed higher consideration, the assessee received only a portion, with differential amounts paid directly by the buyer to M/s Hemali Resorts Pvt. Ltd. The PCIT initiated revision proceedings under Section 263 for AY 2015-16 and 2017-18, contending that the AO failed to examine the taxability of these differential payments, which the PCIT considered as part of the assessee's consideration.
Held
The Tribunal held that the differential amounts paid to M/s Hemali Resorts Pvt. Ltd. did not accrue to or were received by the assessee, as Hemali Resorts had enforceable contractual rights and the payments were taxed in their hands. The Tribunal found that the earlier reassessment, based on a prior Section 263 order, had already comprehensively examined the facts, and the PCIT's second revision amounted to a mere change of opinion without fresh material. Therefore, the twin conditions for invoking Section 263 (order being erroneous and prejudicial to revenue) were not satisfied.
Key Issues
Whether differential payments made by a buyer directly to a confirming party, who held prior contractual rights, constitute consideration accruing to the assessee for capital gains purposes, and if the PCIT can invoke Section 263 for a second revision on the same issue without new material.
Sections Cited
263, 143(3), 48
AI-generated summary — verify with the full judgment below
िनधा"रती की ओर से/Assessee by : Shri Ajay Jain, CA and Shri Lovesh Bansal, C.A राज" की ओर से/ Revenue by : Smt. Kusum Bansal, CIT, DR (Virtual Mode) सुनवाई की तारीख/Date of Hearing : 02/06/2025 उदघोषणा की तारीख/Date of Pronouncement : 04/06/2025 आदेश/Order PER LALIET KUMAR, J.M:
These two appeals by the assessee are directed against separate orders passed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") by the PCIT, Chandigarh-1, dated 20.03.2024 and 17.03.2022 for the assessment years 2015–16 and 2017–18 respectively. Since common issues are involved and facts are interlinked, both appeals are being disposed of by this consolidated order.
2 2. Briefly the facts of the case are that the assessee is an individual who entered into agreements to sell immovable properties in both assessment years under appeal. The original agreements were executed with M/s Hemali Resorts Pvt. Ltd., who subsequently assigned its rights to M/s APG Intelli Homes Pvt. Ltd., in whose favour the final registered sale deeds were executed. 2.1 In both years, the consideration mentioned in the sale deeds exceeded the amounts received by the assessee. The differential amounts were paid by the buyer directly to the confirming party, M/s Hemali Resorts Pvt. Ltd., under independent contractual arrangements. 2.2 In A.Y. 2015–16, the PCIT held that the reassessment order dated 23.09.2021 was erroneous and prejudicial to the interest of the Revenue as the Ld. AO failed to examine the taxability of Rs. 25,59,41,336/- paid by the purchaser to the confirming party. 2.3 Similarly, for A.Y. 2017–18, the PCIT observed that the AO had not scrutinized the capital gains arising from the transaction, particularly the amount of Rs. 4,37,58,661/- paid to Hemali Resorts Pvt. Ltd., which the PCIT considered as part of the assessee’s consideration. 2.4 The PCIT invoked Explanation 2(a) to Section 263, holding that the assessment orders were passed without proper enquiry and thus were erroneous in law.
The AR submitted that binding and legally enforceable agreements to sell had been executed by the assessee in favour of M/s Hemali Resorts Pvt. Ltd., with earnest money received Rs. 10 crores in A.Y. 2015–16 and Rs. 5 lakhs in A.Y. 2017–18. 3.1 The said agreements empowered Hemali Resorts to assign or nominate purchasers. The final registered deeds were executed with M/s APG Intelli Homes Pvt. Ltd., and the assessee received Rs. 81,05,58,664/- and 5,81,41,340/- 3 respectively, through banking channels with appropriate TDS reflected in Form 26AS. 3.2 The balance amounts were paid directly to M/s Hemali Resorts Pvt. Ltd., which had acquired enforceable rights under the agreements. These payments were made in lieu of site development services and relinquishment of rights and were not received or receivable by the assessee. 3.3 The AR relied on the judgment in Sanjeev Lal v. CIT [(2014) 365 ITR 389 (SC)] to argue that agreement to sell confers enforceable rights. Reliance was also placed on K.P. Varghese v. ITO (131 ITR 597), Paramjit Singh v. ITO (323 ITR 588), and Malabar Industrial Co. Ltd. v. CIT (243 ITR 83) to contend that no real income accrued to the assessee and there was no prejudice to the Revenue. 3.4 It was further pointed out that the amounts paid to Hemali Resorts were subjected to tax in their hands and therefore there was no loss to the exchequer. Consequently, the twin conditions for invoking section 263 — namely “erroneous” and “prejudicial to the interest of the Revenue” were not satisfied.
Per contra, the Ld. CIT DR supported the revision orders, arguing that the AO had failed to examine the full transaction, especially the differential amounts paid to the confirming party. 4.1 It was contended that in the absence of a registered deed between the assessee and Hemali Resorts, the latter could not have had enforceable rights. The inclusion of Hemali Resorts as a confirming party was therefore alleged to be a device to divert income. 4.2 The DR maintained that the full consideration mentioned in the sale deed should be taxed in the hands of the assessee, invoking the principle of substance over form and tax avoidance.
We have carefully considered the rival submissions and perused the material available on record. The central issue in both assessment years is whether the amounts paid by the buyer to the confirming party M/s Hemali 4 Resorts Pvt. Ltd. can be said to have accrued to the assessee and whether the Assessing Officer failed to conduct adequate inquiry to warrant revision under Section 263. 5.1 In this regard, the chronology of events assumes significance and is reproduced as under:
S. No. Date Event 1 29.09.2014 Agreement to sell executed with Hemali Resorts Pvt. Ltd. (AY 2015– 16) 2 05.11.2014 Agreement to sell executed with Hemali Resorts Pvt. Ltd. (AY 2017– 18) 3 12.02.2015 Registered sale deed executed with APG Intelli Homes Pvt. Ltd. (AY 2015– 16) 4 31.03.2016 Return of income filed for AY 2015–16 5 20.09.2016 Case selected for limited scrutiny through CASS 6 26.10.2017 Scrutiny converted to complete scrutiny with PCIT approval 7 29.12.2017 Assessment completed u/s 143(3); addition of ₹79.17 crore LTCG 8 19.03.2020 First revision order passed u/s 263 by PCIT, Shimla 9 23.09.2021 Reassessment completed u/s 143(3) r.w.s. 263; no variation in income 10 28.12.2023 Second show cause notice u/s 263 issued by PCIT, Chandigarh-1 11 20.03.2024 Second revision order passed u/s 263 (AY 2015– 16) 12 17.03.2022 Revision order passed u/s 263 (AY 2017–18)
5.2 The above chronology clearly reflects that the Assessing Officer, pursuant to the first 263 revision dated 19.03.2020, had reopened and re-examined the assessment in detail and passed a reassessment order under section 143(3) read 5 with section 263 on 23.09.2021. This reassessment did not lead to any variation in the assessed income and was based on a comprehensive examination of all material facts, including the sale consideration, the role of the confirming party, and the flow of funds. 5.3 The assessee had valid agreements with Hemali Resorts which conferred enforceable contractual rights. These rights were assigned in favour of the final purchaser, who compensated Hemali Resorts separately. 5.4 There is no material to suggest that the amounts paid to Hemali Resorts ever accrued to or were received by the assessee. The sums received by the assessee were through banking channels and subjected to TDS, thereby satisfying the test of real income. The moot question is whether the amount paid by the buyer to Hemali Resorts Pvt. Ltd. (confirming party) constitutes consideration accruing to the assessee under section 48 for the purposes of capital gains computation. 5.5 As per Section 48, capital gains are computed based on the full value of consideration received or accruing to the assessee. In the instant case, the assessee received Rs. 81,05,58,664/- through banking channels, and TDS was deducted thereon. 5.6 The amount of Rs. 25,59,41,336/- was not received by the assessee and was paid directly to Hemali Resorts for certain site-related obligations. There is no evidence to show that this amount accrued to or was for the benefit of the assessee. 5.7 When a third-party (confirming party) with a pre-existing contractual right receives payment for extinguishing its rights or rendering services, the same does not automatically become part of the assessee’s consideration unless it was routed through or legally accrued to the assessee. 5.8 The decision in Sanjeev Lal (supra) affirms the binding nature of an agreement to sell and the consequent rights arising therefrom. Hemali Resorts 6 had acquired such enforceable rights and was not a mere name-lender or intermediary. 6 The second invocation of Section 263, by the PCIT, Chandigarh-1, seeks to revisit the very same issue without pointing out any fresh material or omission and effectively amounts to a change of opinion. This is impermissible in law as held by the Hon’ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT (243 ITR 83), which mandates that for valid exercise of jurisdiction under Section 263, the twin conditions (i) the order must be erroneous, and (ii) it must be prejudicial to the interests of the Revenue must coexist. 6.1 Further, the amounts in question i.e; Rs. 25,59,41,336/- in AY 2015–16 and Rs. 4,37,58,661/- in AY 2017–18 were paid by the purchaser to M/s Hemali Resorts Pvt. Ltd. pursuant to contractual obligations and not received by the assessee. There is no evidence to suggest that these amounts were ever due to or accrued to the assessee, or that the confirming party was not a genuine stakeholder in the transaction. 6.2 The Hon’ble Supreme Court in Sanjeev Lal v. CIT (365 ITR 389) has categorically held that an agreement to sell confers enforceable rights. The assessee had validly executed such agreements in both years and received earnest money. Hemali Resorts, therefore, had acquired specific rights under the Specific Relief Act and was legally entitled to compensation or assignment benefits. The payment made to Hemali Resorts has been duly taxed in its hands. Therefore, there is no loss to the Revenue. In the absence of any real income accruing to the assessee, or any tax leakage, the invocation of Section 263 cannot be justified. The decision in K.P. Varghese (supra) limits capital gains tax to real income. In Malabar Industrial Co. (supra), the Hon’ble Supreme Court clarified that both conditions of Section 263 “erroneous” and “prejudicial” — must be satisfied cumulatively. In the present case, even assuming some irregularity in the AO’s approach, there is no prejudice to the interests of 7 Revenue, as the amount in question has been taxed in the hands of Hemali Resorts Pvt. Ltd. 6.3 Furthermore, the earlier reassessment was completed pursuant to directions under a prior 263 order, and the AO had verified the relevant documents. The current revision lacks any new or tangible material and appears to be a mere change of opinion.
In light of the foregoing discussion, judicial precedents, and factual matrix: The revision order dated 20.03.2024 passed under section 263 for A.Y. 2015–16 is quashed. The revision order dated 17.03.2022 passed under section 263 for A.Y. 2017–18 is also quashed.
In the result, both the above appeals filed by the assessee are allowed.
Order pronounced in the open Court on 04/06/2025. मनोज कुमार अ"वाल लिलत कुमार (MANOJ KUMAR AGGARWAL) (LALIET KUMAR) लेखा सद"/ ACCOUNTANT MEMBER "ाियक सद" /JUDICIAL MEMBER