SHRI VIJAYBHAI HATHISING SHAH,AHMEDABAD vs. THE PR. CIT-1 , AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member

ITA No. 97/Ahd/2021 Assessment Year 2015-16

Shri Vijaybhai The Pr.CIT-1, Hathising Shah Ahmedabad C/o. M/s. Shah Vs Enterprise, (Respondent) Dena Bank Building, Pritam Nagar, Ahmedabad-380006 PAN No:ADFPS0868J (Appellant) Appellant by : Ms. Arti N Shah, A.R. Respondent by : Shri James Kurian, CIT/D.R. Date of hearing : 28-09-2022 Date of pronouncement : 21-12-2022 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-

This is an appeal filed by the Assessee as against the Revision order dated 12.03.2021 passed by the Principal Commissioner of Income Tax, Ahmdabad-1, under section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2015-16.

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3.1. On perusal of the above assessment record by the Ld. PCIT, it is noticed that the assessee had sold two non-agricultural lands namely Land bearing plot number 149 and plot number 52 both at Ambli Village. The first land was sold on 14.10.2014 for a consideration of Rs. 54,45,38,800/- wherein assessee’s share of interest is 35%. The second land was sold on 22.01.2015 for a consideration of Rs. 5,28,30,000/- wherein assessee’s share of interest is 50%. Out of the total capital gains on account of sale of aforesaid two lands, the assessee claimed deduction of Rs. 3,96,79,796/- u/s. 54F of the Act on purchase of new residential house. However on perusal of statement of fixed assets being part of balance sheet for the financial year 2014-15, the assessee was the owner of the two residential houses namely one at Ambli Gam, Tal House with book value of Rs. 15,73,000/- and another Residential Bungalow with book value of Rs. 1,02,53,518/-. Therefore as on the date of purchase of new house, the assessee was in possession and ownership of two residential houses. As per the provisions of section 54F deduction would not be admissible, if the assessee, at the time of transfer of original asset, owns more than one residential house, other than the new residential house acquired by him. Thus the Assessing Officer did not bring any documents on record that he had made enquiry or verification before allowing the deduction u/s. 54F of the Act. Similarly, on perusal of indexation benefit claimed by the assessee, it appears that the same has not been correctly computed with regard to improvement of cost incurred during the financial year 2010-11. Accordingly a show cause notice dated 17.02.2020 was issued

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requiring the assessee to show cause as to why the assessment order passed by the A.O. be revised u/s. 263 of the Act by directing the A.O. to make the fresh assessment.

3.2. The assessee filed its reply dated 06.03.2020 that the house situated at Ambli Gam, Tal House has been inhabitable on the date of transfer of the assts. The aforesaid house was not used for resident at all, as the said property was purchased without civic amenities. Therefore the assessee’s entitled for deduction u/s. 54F of the Act, as the assessee had effectively only one residential house before purchase of the new property. The assessee sold Ambli Gam property on 05.04.2020 as an open plot of land with no structure existing thereon. Therefore the property cannot called as a house or residential property. Thus the assessee pleaded that it had submitted all required details before the Assessing Officer before passing the final assessment order. Therefore the order passed by the Assessing Officer is not an erroneous order and not prejudicial to the interest of the Revenue. Therefore the assessee pleaded to drop the Revision proceedings initiated u/s. 263 of the Act.

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property as on the date of the transfer only i.e. 04.03.2020. It is pertinent to mention here that on perusal of sale deed of the aforesaid property at Page No. 2 and 3, it has been mentioned that the said property was originally in the possession of Shri Ranchodbhai Aatmaram Patel. Thereafter, the said property was transferred to three co-owners being Lelaben Ranchodbhai Patel, Shantaben Ranchodbhai Patel & Kantaben Ranchodbhai Patel. After that, the said property was/ purchased by assessee from these three co-owners vide deed number 3380/ dated 01.06.2013. At Page No. 3 of the sale deed dated 04.03.2020, it ha6 been clearly stated that the said property purchased by assessee on 01.06.2013 vide deed number 3380 from aforesaid three co-owners consisted of house/home alongwith land. Therefore, as on the date of purchase1 of property in the FY 2013-14 (immediately preceding previous year to "the relevant previous year), the said immovable property consisted of a house alongwith land and not merely an open plot of land as claimed by assessee now. Therefore, as on the date of sale of aforesaid lands, assessee was the owner of two residential houses one being Ambali Gam, Tal House and other being Residential Bungalow with book values Rs. 15,73,5007- and Rs. 1,02,53,5187-respectively. (ii) It has further been stated by the assessee that the said house was inhabitable as on the date of transfer. In this regard it is pertinent to mention here that nowhere in section 54F of the Act it has been contemplated that the house owned by the assessee should be habitable for it to qualify as a residential house. Without prejudice to the above, assessee has not demonstrated that how the house purchased on 01.06.2013 became inhabitable ort 14.10.2014 (date of transfer of original assets) so that it could not be said to be a residential house. In this regard, the relevant provisions of the Act are reproduced hereunder:- “ Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house. 54F, (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,— (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;

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(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: Provided that nothing contained in this sub-section shall apply where- (a) The assessee, - (i) Owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property". Explanation,—For the purposes of this section,— "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capita! asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer." In view of the above provisions of the Act, it is observed that deduction u/s. 54F of the Act shall not be admissible if the assessee, at the time of transfer of original asset, owns more than one residential house, other than the new asset acquired by him. Here the word "owns" has been mentioned in the proviso which means if the assessee is owner of more than one residential house, he shall not be eligible for deduction u/s. 54F of the Act which is the case of present assessee. (iii) It has also been contended by the assessee that AO had made thorough enquiry with regard to allowbility of deduction u/s. 54F of the Act. However, it is observed that the inquiry made by the AO is insufficient. The AO had not made any examination of the fact as to whether the assessee was in possession of more than one residential house or not. The AO had not applied his mind with regard to ownership of two residential houses by the assessee despite the fact that the ownership of two houses by assessee as on 31.03.2015 is reflected in the balance sheet. No conclusive evidence with regard to ownership of only one residential house by the assessee was available on record to suggest that inquiry in this regard has been made and

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necessary satisfaction was drawn by the AO. Moreover, the record does not show any other evidence with regard to investment in new house property except showing the property as 'investment' being part of balance sheet./ The AO did not bring on record any document which could demonstrate that thef possession of new residential house property was acquired within the stipulated date in terms of section 54F of the Act. Therefore, in the absence of inquiries or verification which should have been made, the opinion formed by the AO regarding allowbility of deduction u/s. 54F of the Act is premature as the same is based on incomplete evidences and inference so drawn is not proper. (iv) Further, with regard to case laws relied upon by the assessee, it is seen that in the case of CIT vs. Vam Resorts & Hotels Pvt. Ltd., the Hon'ble Allahabad High Court has held that where appeal before CIT(A) is pending on certain matters, such matters cannot be subject matter of revision by CIT. However, in the instant case, the matter of deduction u/s. 54F of the Act has not been litigated before CIT(A) therefore the facts of this case are distinguishable in view of Explanation 1(c) of section 263 of the Act. (v) Also, in the cases of CIT vs. Gabriel India Ltd & CIT vs. Design & Automation Engineers (Bombay) Pvt. Ltd, the Hon'ble Bombay High Court has observed that the AO had taken one of the two possible views and that the condition precedent for invoking jurisdiction under section 263 by the CIT did not exist. However, in the instant case, the AO has not inquired about the ownership of two residential houses by the assessee and thus no view in this regard had been formed. Thus, the issue has remained to be examined by the AO properly and the same is based on incomplete evidences and hence inference so drawn is incorrect. Similarly, in the case of Max India Ltd. vs. CIT, the Hon'ble Supreme Court had held that section 80HHC has been amended several times and different views exists on the day the order was passed by CIT. Therefore, this order relates to amendment to section 80HHC made in 2005 and applicability of provisions of section 263 of the Act thereon which is not the case here.

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6.1. The ld. Counsel for the assessee reiterated the same submissions made before the Ld. PCIT and further brought to our notice reply filed by the assessee in response to 142(1) notice dated 26.07.2017 wherein the Assessing Officer vide Serial No. 6 “please justify the deduction claim in computation of capital gain along with supporting evidence”. The assessee in his reply letter dated 03.08.2017 which is available at page no. 7 to 11 of the Paper Book as follows:

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(Point No. 6) You have asked to justify the deduction claimed in computation of capital gain with supporting evidences. In this connection, I have to state that the said details are furnished in Exhibit-II & III of this submission. Please refer the same.

6.2. The Ld. Counsel further submitted that the assessee made further details to the Assessing Officer vide his letter dated 16/08/2017 which is available at page no. 46 & 47 of the Paper Book. Thus the ld. Counsel submitted the A.O. after verification of all the details placed before him allowed the deduction u/s. 54F of the Act. Therefore the assessment order is neither an erroneous order and nor prejudicial to the interest of the Revenue and pleaded that the Revision proceedings is liable to be quashed.

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Assessed u/s. 143(3) of the I.T. Act accordingly. Allowed credit for pre- paid taxes, if any, after due verification charged interest u/s.234 as applicable. Demand Notice &, Challan are issued accordingly.

7.1. Thus the Assessing officer has not discussed any details either in the assessment order or in the notices issued to the assessee whether the assessee fulfills the conditions as prescribed u/s. 54F of the Act. The Assessing Officer had not applied his mind with regard to the ownership of two residential houses by the assessee as on 31.03.2015, which are reflected in the balance sheet, but simply granted the deduction u/s. 54F on purchase of a new property which is against the provisions of Section 54F of the Act. Thus literally the Assessing Officer has not made necessary inquires and verification before allowing deduction u/s. 54F of the Act. Since the Assessing Officer failed to conduct such enquires and draw inference based on the correct legal provision and passed the assessment order without inquiring into the correctness of deduction claimed by the assessee. It is certainly erroneous order in the eyes of law and also prejudicial to the interest of Revenue which is correctly revised u/s. 263 of the Act by the ld. PCIT. Therefore the same does not require any interference. Thus the ld. D.R. pleaded to dismiss the appeal filed by the assessee.

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the claim is to the extent of Rs. 3,96,79,796/- by the assessee. Though the Ld. A.O. asked the assessee to justify the deduction claimed in computation of capital gain along with supporting evidences through notice issued u/s. 143(2) of the Act and the assessee made simple rely which is extracted in Para 6.1 above. The same does not details about the already existing property details, other information.

8.1. Thus in our considered opinion that the Assessing Officer has not conducted necessary inquiry before allowing deduction u/s. 54F, but simply allowed the claim made by the assessee. Section 54F of the Act is not applicable, if the assessee at time of transfer of original assets, owns more than one residential house, other than the new assets acquired by him. Thus without applications of the provisions of law, the assessing officer has granted the relief to the assessee which otherwise the assessee is not eligible for the claim of deduction u/s. 54F of the Act.

8.2. In this connection it is appropriate to quote the Five Judges Constitutional Bench Judgment rendered by Hon’ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai vs. M/s. Dilip Kumar Company and Ors. vide judgment dated 30/07/2018 in C.A. No. 3277 of 2007 as follows: “……….. 51. In Hari Chand Case (supra), as already discussed, the question was whether a person claiming exemption is required to comply with the procedure strictly to avail the benefit. The question posed and decided was indeed different. The said decision, which we have already discussed supra, however, indicates that while construing an exemption notification, the Court has to distinguish the conditions which require strict compliance, the non−compliance of which would render the assessee

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ineligible to claim exemption and those which require substantial compliance to be entitled for exemption. We are pointing out this aspect to dispel any doubt about the legal position as explored in this decision. As already concluded in para 50 above, we may reiterate that we are only concerned in this case with a situation where there is ambiguity in an exemption notification or exemption clause, in which event the benefit of such ambiguity cannot be extended to the subject/assessee by applying the principle that an obscure and/or ambiguity or doubtful fiscal statute must receive a construction favouring the assessee. Both the situations are different and while considering an exemption notification, the distinction cannot be ignored. 52. To sum up, we answer the reference holding as under – (1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. (3) The ratio in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export Case (supra) stands over ruled.

8.3. Similarly, the Hon’ble Supreme Court in the case of Daniel Merchants Pvt. Ltd. vs. Income Tax Officer in SLP(C) No. 27799/2017 and Ors. dated 29.11.2017 while dismissing the assessee’s appeal held as follows: In all these cases, we find that the Commissioner of Income Tax had passed an order under Section 263 of the Income Tax Act, 1961 with the observations that the Assessing Officer did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry. It is this order which is upheld by the High Court. We see no reason to interfere with the order of the High Court. The Special Leave Petitions are dismissed.

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Pending application(s), if any, stands disposed of accordingly.

8.4. In our considered opinion, the ld. PCIT has invoked the provisions of Section 263 thereby set aside the erroneous assessment order passed by the Assessing Officer and directed the A.O. to pass a fresh assessment order after allowing adequate opportunities to the assessee in accordance with law following the prescribed procedure and duly examining the issue of allowability of deduction u/s. 54F of the Act. We do not find any infirmity in the order passed by the ld. PCIT therefore it does not require any interference. Thus the Grounds raised by the Assessee are hereby rejected.

Order pronounced in the open court on 21-12-2022 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 21/12/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद