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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGH, VICE- & SHRI G.MANJUNATHA
order of the learned Principal CIT-1, Chennai dated 22.11.2019 and pertains to assessment year 2015-16.
Brief facts of the case are that the assessee is an individual derives income from house property, income from business or profession and income from other sources filed her return of income for assessment year 2015-16 on 07.07.2016 admitting total income of Rs.7,37,390/- . The assessment has been completed u/s.143(3) of the Income Tax Act, 1961 on 15.12.2017 and accepted income declared in the return of income filed for the year.
The case has been subsequently taken up for revision u/s.263 of the Income Tax Act, 1961, on the ground that assessment order passed by the Assessing Officer is erroneous and prejudicial to the interests of revenue, insofar as issue of computation of long term capital gain from sale of property and hence, issued show-cause notice and called upon the assessee to explain as to why assessment order passed by the Assessing Officer shall not be revised for the reasons stated in show-cause notice. In response, the assessee submitted that it had sold a property for consideration of Rs.70 lakhs along with additional consideration of Rs.22 lakhs for sale of movable assets of fixtures with its property, which is part and parcel of property sold by the assessee. Further, the assessee has computed long term capital gain by considering market value of the property as determined for payment of stamp duty by the State Govt. and has adopted sum of Rs.91,70,000/- u/s. 50C of the Act . Thereafter, the assessee has claimed exemption u/s.54 of the Act, for purchase of another residential house property and thus, computed Nil capital gain from sale of house property. As regards sale of movable assets like air-conditioner, furniture and fixtures etc., the assessee has not computed any capital gain, because they are in the nature of personal effects and as such they are exempt from tax. The Assessing Officer, after verifying relevant facts has accepted claim of the assessee and hence, the assessment order passed by the Assessing Officer cannot be termed as erroneous and prejudicial to the interests of revenue.
The Principal CIT, after considering relevant submissions of the assessee and also relied upon plethora of judicial precedents held that the assessee has failed to prove consideration received for sale of movable assets of Rs.22 lakhs and hence, opined that same needs to be brought to tax u/s.68 of the Act as unexplained cash credits. The relevant findings of the learned Principal CIT are as under:-
“7. I have perused the contents of the written submission of the Authorized Representative and in my considered view, there is a total lack of application of mind on the part of the AO and this is a fit case to invoke the provisions of Sec. 263 of the Act. Therefore, in conclusion the Assessing Officer has failed to make a complete verification with respect to the aspects as discussed supra and had passed the Assessment Order u/s 143(3) of the Act, without proper diligent application of mind and enquiry, and hence in my considered opinion the assessment order so passed is both erroneous and prejudicial to the interest of the revenue.
Thus in view of the narrated facts of the case, it is amply clear that the total consideration received for the property has been split to avoid payment of stamp duty. Tax planning is one of the recognized ways of saving income-tax. However, in the guise of tax planning no attempt should be made to save income-tax by trying to resort to improper planning. Income- tax Act (the Act) is a wonderful piece of legislation and there are number of avenues listed out in the Act for tax planning and the Courts have also been liberal in interpreting beneficial provisions in favour of taxpayers. Of late it has been noticed that sellers of capital asset - be it a plot or residential property - in order to oblige the purchasers of such capital asset for the purpose of saving State stamp duty, agree to split up the total consideration into two components-one towards sale of that immovable property and the other towards sale of movables such as furniture, fittings etc. In the case which arose before the ITAT Delhi Bench in Devinder Kumar(supra) the assessee sold a house property including furniture in the house during the assessment year 2013-14 and purchased another residential house and claimed deduction under section 54 of the Act. The assessee also did not let in any evidence to explain that value of items under sale was more than what was determined by the Assessing Officer. The Assessing Officer, therefore, held that the transaction of sale furniture
was sham and was to inflate value of furniture so as to evade stamp duty involved in the sale transaction and also to evade proper payment of long- term capital gains and, thus, treated such excess amount shown on sale of furniture as unexplained cash credit under section 68 in the hands of the assessee.lt was sought to be argued on behalf of the assessee before the Tribunal that what was sold was sale of personal effects and, therefore, no addition was warranted. The Tribunal repelled such contention raised on behalf of the assessee because the personal effects would not be included in the capital asset under section 2(14)(ii). The Tribunal, thus, held that the excess receipt had to-be considered under the residuary clause “Income from other sources’ and it was rightly taxed so by the Assessing officer.
In the instant case the assesse has not been able to establish the genuineness of the transaction with regard to sale of used movables in the revision proceedings and thus applying the decision rendered in Devinder Kumar case (supra) the sale consideration of the property in question is held to be Rs.70 lakhs and the sum of Rs.22 lakhs representing sale of used movables will be brought to tax uls.68 as unexplained cash credits and to be considered as income from Other sources in the hands of the assessee.The assessment order stands modified and the Assessing Officer shall give effect to this order and initiate and finalize penalty proceedings uls 271(1)(c) within time. It is ordered accordingly.”
The learned A.R for the assessee submitted that the Principal CIT has erred in set aside assessment order passed by the Assessing Officer by holding that order is erroneous and prejudicial to the interests of revenue, without appreciating the fact that the Assessing Officer has thoroughly examined the issue of computation of long term capital gain and further sale of movable assets like personal effects and after considering relevant facts accepted claim of the assessee.
Therefore, the Principal CIT has completely erred in revision of assessment order u/s.263 of the Act.
The learned DR, on the other hand, strongly supporting the order of the Principal CIT submitted that there is an error in the order passed by the Assessing Officer, in not considering sale of movable assets and hence, the Principal CIT has rightly revised assessment order.
We have heard both the parties, perused material available on record and gone through orders of the authorities below. The provisions of section 263 of the Act empowers the Principal CIT to revise assessment order passed by the Assessing Officer, if he feels that assessment order passed by the Assessing Officer is erroneous, insofar as it is prejudicial to the interests of the revenue. From a plain reading of section 263 of the Act, it is very clear that before exercising his jurisdiction u/s.263 of the Act, the Principal CIT should satisfy himself that the Assessing Officer has passed order which is erroneous and prejudicial to the interests of revenue. Unless the Principal CIT proves that order passed by the Assessing Officer is erroneous or which is not passed in accordance with law in right perspective of facts, the Principal CIT cannot revise assessment order passed by the Assessing Officer. Further, to invoke jurisdiction u/s.263 of the Act, twin conditions embedded u/s.263 of the Act must co-exist. In other words, if the assessment order passed by the Assessing Officer is erroneous, but it is not prejudicial to the interests of revenue, or vice-versa, then the Principal CIT does not have any power to revise the assessment order passed by the Assessing Officer.
This legal proposition is supported by plethora of judicial decisions including the decision of Hon’ble Supreme Court in the case of M/s.Malabar Industries Co.Ltd. Vs. CIT (2000) 243 ITR 83(SC).
8. In light of above legal position, if you examine facts of the present case, we find that Assessing Officer has examined the issue of computation of long term capital gain from sale of property and further, sale of movable assets like air- conditioner, furniture and fixtures etc. and accepted claim of the assessee that they are in the nature of personal effects not liable for tax. The Assessing Officer, after accepting explanation furnished by the assessee, has taken a possible view and has completed the assessment, therefore, the Principal CIT cannot assume jurisdiction u/s.263 of the Income Tax Act, 1961, to treat assessment order passed by the Assessing Officer as erroneous and prejudicial to the interests of revenue. The question whether movable assets like air- conditioner, used TVs, fridge, dining table etc. are personal effects or capital assets is debatable issue. Since the issue is debatable, the Assessing Officer has taken one of the possible view and accepted claim of the assessee that they are in the nature of personal effects and not liable for tax. The view taken by the Assessing Officer may not be correct, but the Principal CIT cannot assume jurisdiction to review the assessment order u/s.263 of the Act, unless the view taken by the Assessing Officer is unsustainable in law, because the Principal CIT cannot impose his view on the Assessing Officer . Therefore, we are of the considered view that once an issue was subject matter of assessment proceedings by the Assessing Officer in original assessment proceedings, then there is no scope for the Principal CIT to revise assessment order by holding that assessment order passed by the Assessing Officer is erroneous, insofar as it is prejudicial to the interests of revenue. This view is supported by the decision of Hon'ble Madras High Court, as relied upon by the assessee, in the case of Venkatakrishna Rice Company Vs. CIT (163 ITR 129), where the Hon’ble High Court, while dealing with the issue of revision of assessment order u/s.263 has held as under:-
“The language used by the Legislature in section 263 is to the effect that the commissioner may interfere in revision f he considers that the order passed by the Income-tax Officer is erroneous in so far, as it is prejudicial to the interests of the Revenue. It is quite clear from the above phrasing that two things must co- exist in order to give jurisdiction to the Commissioner to interfere in revision. The order of the Income-tax Officer in question must not only be erroneous but also the error in the Income-tax Officer order must be of such a kind that it can be said of it that it is prejudicial to the interests of the Revenue. In other words, merely because the officer order is erroneous, the Commissioner cannot interfere. Again, merely because the order of the officer is prejudicial to the interests of the Revenue, then again, that is not enough to confer jurisdiction on the Commissioner to interfere in revision. These two elements must co- exist.”
9. In this view of the matter and by considering facts and circumstances of the case, we are of the considered view that assessment order passed by the Assessing Officer is neither erroneous nor prejudicial to the interests of revenue. Hence, we are of the considered view that the Principal CIT has erred in revision of assessment order passed by the Assessing Officer u/s.143(3) of the Act. Hence, we quash revision order passed by the Principal CIT u/s.263 of the Act.