KUSUMLATA SONTHALIA ,KOLKATA vs. PRINCIPAL CIT, CENTRAL - 1, KOLKATA , KOLKATA

आदेश / O R D E R Per Dr. A.L. Saini, AM:

The captioned appeal filed by the Assessee, pertaining to assessment year 2010-11, is directed against the order passed by the Pr. Commissioner of Income Tax, Central-1, Kolkata, under section 263 of the Income Tax Act, 1961 (in short the ‘Act’) dated 15/01/2018.

Kusumlata Sonthalia ITA No.1151/Kol/2018 Assessment Year:2010-11 appearance by the assessee, the appeal is being disposed of ex parte qua the assessee, after hearing Ld. DR for the Revenue on merits in terms of Rule 24 of the Income Tax Appellate, Tribunal, Rules, 1963.

Kusumlata Sonthalia ITA No.1151/Kol/2018 Assessment Year:2010-11 Later on, ld Principal Commissioner of Income Tax (PCIT) exercised his jurisdiction under section 263 of the Act. The ld PCIT,on examination of assessment order along with the assessment record, noticed that the assessee sold two offices at Dhanbad (relating to his share) and also sold shares of Shree Ram Electrostat Pvt. Ltd.which resulted in Long Term Capital Gain (LTCG) of Rs.10,18,394/- on sale of two offices and Rs.37,10,000/- on sale of shares. Total LTCG earned by the assessee is computed at Rs.47,28,394/- (Rs.10,18,394+Rs.37,10,000). Against this LTCG earned by the assessee, she claimed exemption u/s.54 and 54F of the Act on account of purchase of Flat at Sahara Grace, Gurgaon. As per the submission of the assessee made on 02.12.2016 during the course of assessment proceeding, the offices at Dhanbad was sold on 31.07.2009 and shares were sold on 04.02.2010 and investment for purchase of flat at Gougaon was claimed to have been made vide sale deed dated 09.03.2009.

Kusumlata Sonthalia ITA No.1151/Kol/2018 Assessment Year:2010-11 house within three years after the date of transfer of original assets or house property. Even as per Circular No.471 dated 15.10.1986 and further modified vide Circular No.672 dated 16/12/1993 such allotment house under construction is to be treated as case of construction. In the assessee`s case, the construction of new house has commenced about six year before the sale of a house property and certain shares and even the sale agreement for the new flat and possession of new flat was taken before the date of sale of old house property and shares on which LTCG was computed. Therefore, ld PCIT held that the assessee in present case had not been found to be eligible for deduction u/s.54 and 54F of the Act because the assessee had been found to have constructed a house prior to the date of transfer/sale of old house property and shares.

Thus, ld PCIT noted that the AO had wrongly allowed deduction u/s.54 and 54F of the Act without examining the full facts of the case, whether acquiring of new house property by the assessee is construction of flats or purchase of flats (which prima facie on the basis of details available on record has been found to be construction) and accordingly, all the conditions of section 54 and 54F of the Act have not been fulfilled.Therefore, assessment order passed by AO u/s 153A/143(3) of the Act dated 30.12.2016 is erroneous in so far as it is prejudicial to the interest of revenue, hence assessment order needs to be revised as per the provision of Section 263 of the Act.

In response, the assessee submitted the written submission before the ld PCIT which is reproduced below:

Kusumlata Sonthalia ITA No. ITA No.1151/Kol/2018 Assessment Year: Assessment Year:2010-11

Kusumlata Sonthalia ITA No.1151/Kol/2018 Assessment Year:2010-11 8. However, the ld. PCIT rejected the contention of the assessee and held as follows:

5.2 I have considered the above arguments of the Id. AR. His entire arguments are based on acquisition of a new house by way of "Purchase" for which courts have held that the date of possession is deemed to be date of purchase. As per the provision of section 54 and 54F, for being eligible to claim deduction under these two sections, (i) the new house should have been purchased by the assessee within a period of one year before or two years after the date on which transfer took place (of old house property or original asset) or as the case may be (ii) the new house should have been constructed within a period of three years after the date on which transfer took place (of old house property or original asset as the case may be).

Considering the above two conditions provided in the provisions of section 54 and 54F, the first thing the AO should have decided is whether booking of new flat made with Sahara Grace, Gurgaon in F.Y.2003-04 was for construction or for purchase of flat already constructed. In this regard, no written query raised by the AO is found on record. The submission of the assessee dated 22/12/2016 filed during assessment proceeding on which the Id. AR has relied upon to put his argument that the issue of eligibility u/s.54/54F has been examined by the AO while passing the assessment order, is reproduced as under:

"Details of Long Term Capital Gain along with supporting documents are enclosed herewith and marked as per Annexure-C. The sale of shares of Shree Ram Electrocast Private Limited was made on 27/02/2010 and the payment was received on 08/03/2010. Copy of journal and bank statement are enclosed herewith and marked as per Annexure-D.

The assessee has claimed under section 54F of the Act on Long Term Capital Gains on sale of shares and offices as per details, consequent to entering into agreement with Sahara India Commercial Corporation Limited for purchase of Flat at Gurgoan in terms of agreement dated 09.03.2009. Supporting documents for flat at Gurgoan is enclosed herewith and marked as per Annexure-E. Supporting calculations for exemption under section 54F of the Act are enclosed herewith and marked as perAnnexure-F." 5.3 From the above submission, it is clear that the issue whether the booking of flat made by the assessee with Sahara Grace, Gurgaon in F.Y.2003-04 was for construction of flat or was for purchase of ready built house, had never been under his consideration. He had already accepted such new flat as being purchased on the basis of earlier submission dated 02.12.2016 made by the assessee before him and only wanted to know the date of purchase of the new flat to ascertain only that whether new flat was purchased within a period of one year prior to the date of transfer of old house property or shares. In this regard, the assessee in her submission clarified as the date of purchase being 09.03.2009 on the basis of registered purchase deed being dated 09.03.2009 that is within one year of the date of transfer of old house property and shares and accordingly, claim of deduction u/s.54 and 54F has been justified. Page | 6

Kusumlata Sonthalia ITA No.1151/Kol/2018 Assessment Year:2010-11 5.4 Considering the above facts as available in assessment record, I find that the contention of the Ld. AR that the issue of eligibility u/s.54 /54F was examined by the AO is only with respect to examination of "date of purchase" taking into account the date of possession of flat and not examining the issue whether booking of flat is for "construction" or for "buying ready built house".

The real issue involved in this case is that the new house under consideration was booked in May 2004 after taking Home Loan from ICICI Home Finance Limited and paid installments from F.Y.2003-04 onwards till March 2010. Construction of flats started in F.Y.2003-04 after booking and possession of flat is given on 09.03.2009 after construction is completed. Acquiring of any flat in the manner as it was acquired by the assessee discussed above has been clarified by the CBDT in Circular No.672 dated 16/12/1993. In this Circular, it has been clarified that acquisition of flat through allotment by DDA was to be treated as construction of flat would apply to cooperative societies and other institutions. The most, important point of consideration is whether purchase of flat from the private builders would fall in the categories of "Other Institutions" as has been held by various courts in following judgments as cited and relied upon the assessee as under:

i) Kishor H. Galaiya vs. Income Tax Officer, Ward-8(2)(3) [2002] 24 com 11 (Mumbai) Assistant Commissioner of Income Tax, Circle-25(3) Smt. Sunder Kaur ii) Sujan Singh Gadh [2005] 3 SOT206 (Mumbai) Sri Ved Prakash Rakhra vs. Assistant Commissioner of Income tax, iii) Circle-6(1), Bangalore (ITAT) iv) Mrs. Jyoti Arun Kothari VITO, (TS-737-ITAT-2014(Mum) v) CIT V Smt. Brinda Kumari (2001) 114 Taxmann 266(Del.) vi) CIT v Kuldeep Singh (2014) 49 Taxmann.com 167 (Del.) vii) Farida A Dungurpurwala v ITO (2014) 52 Taxmann.com 227 (Mum. Tribunal) In the above cases, the competent courts have held that the flates constructed by the private developers are also covered by Circular 471 & 672 and, therefore, entitled for deduction u/s 54. The most question is whether the agreement with builder to purchase a flat there is going to be constructed, is the case of purchase or construction. In this regard Hon’ble Court of Mumbai in the case of Hilla J. B. Vadia 216 ITR 376 held that it is a case construction. Further, on identical question, i.e. whether the booking of flat with the builder is to be considered a case of purchase or construction was considered by Mumbai Bench of Tribunal in the case of ACIT vs. Sardar Kaur Sujan Singh and it was held to be a case of construction.

5.7 After discussing the legal position as held in various judgements of courts with regard to nature of acquiring a house/flat from a builder after its booking with builder at the time of starting of construction and then paying the cost of construction in installments, if facts of present case is examined, it is prima facie found that it is the case of "Construction" and not "Purchase" because the assessee booked the flat in May, 2004 with Sahara Grace, Gurgaon (builder) when it started constructing flats. The flat was booked after taking home loan from ICICI Home Finance Ltd. Thereafter, payments were made to builder in installments to meet the cost of construction and finally, possession of flat was handed over on 09.03.2009. The original asset being house and shares were sold on 21.07.2009 & 04.02.2010 and 27.02.2010 respectively and LTCG earned on their sale has been computed. Both assets are sold after taking possession of constructed flat while as per the provisions Page | 7

Kusumlata Sonthalia ITA No.1151/Kol/2018 Assessment Year:2010-11 of section 54 and 54F, deduction under these two sections are allowable only when the new house is constructed within a period of three years from the date of sale of original asset. Therefore, prima-facie, it is clear that the assessee is not eligible for deduction either u/s.54 or 54F. However, in the interest of natural justice, the assessee should be given an opportunity to show that her case of acquisition of new house is not of "Construction" but of "purchase" to justify her claim for deduction u/s.54 and 54F. The AO should then, after examining the entire facts of the case and taking into consideration the explanation of the assessee, determine whether the assessee acquired the new flat by way of "Construction" or by way of "purchase" after taking into account the judgements and the CBDT's Circular No.471 dated 15.10.1986 and 672 dated 16.12.1993 discussed in the previous paras of this order and accordingly, decide about allowing or disallowing the deduction u/s.54 and 54F of the Act, keeping in view of my findings discussed in this order also. Thereafter, a fresh assessment order is to be passed by the Assessing Officer in speaking manner discussing entire facts and circumstances of the case along with the explanation of the assessee and his decision on allowing or disallowing the deduction u/s 54 or 54F. 6. In view of my above decision, the assessment order passed u/s 153A / 143(3) dated 30/12/2016 for A.Y. 2010-11 is set aside and restored to the file of the Assessing Officer to the extent of examining the allowability of deduction u/s 54 and 54F keeping in view the directions given by me in previous para and then pass a fresh assessment order. Other additions made in original assessment order dated 30.12.2016 shall remain intact.”

Kusumlata Sonthalia ITA No.1151/Kol/2018 Assessment Year:2010-11 of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to theinterest of the revenue’’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law”.

Kusumlata Sonthalia ITA No.1151/Kol/2018 Assessment Year:2010-11 11.It would be necessary here to address the preliminary issue of whether the addition could be framed u/s 153A of the Act in respect of a concluded proceeding without the existence of any incriminating materials found in the course of search. The scheme of the Act provides for abatement of pending proceedings as on the date of search. It is not in dispute that the assessment for the Asst. Year 2010-11 was originally completed and thereafter a search and seizure action was conducted on 05.03.2015, therefore, assessment year 2010-11 is an unabated assessment. Hence unless there is any incriminating material found during the course of search relatable to such concluded year, the statute does not confer any power on the ld AO to disturb the findings given thereon and income determined thereon, as finality had already been reached thereon, and such proceeding was not pending on the date of search to get itself abated. For that we rely on the judgment of the Hon’ble Delhi High Court in the case of CIT vs Kabul Chawla reported in (2016) 380 ITR 573 (Del) held as under:- '37. On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: (i) Once a search takes place under section 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the LD AOs as a fresh exercise. (iii) The LD AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The LD AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". (iv) Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the LD AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." (v) In absence of any incriminating material, the completed assessment can be Page | 10

Kusumlata Sonthalia ITA No.1151/Kol/2018 Assessment Year:2010-11 reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to complete assessment proceedings. (vi) Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the LD AO. (vii) Completed assessments can be interfered with by the LD AO while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment."

Therefore, in assessee`s case original assessment was completed much prior to search and seizure therefore the assessment year under consideration, that is, A.Y. 2010-11 is unabated and in unabated proceedings, the AO cannot disturb the findings given thereon in the original assessment unless there is incriminating material unearthed by the search team, since in assessee`s case under consideration there is no incriminating material therefore order passed by the assessing officer is neither erroneous nor prejudicial to the interest of Revenue.

“2.It transpires during the course of hearing that the PCIT has assumed his revision jurisdiction whilst setting aside the assessment in question dated 25.12.16 as under: “5. As per details available on record, the assessee had sold a flat at Dhanbad on 18.12.2009 and land and building at Dahiya on 24 12.2009 earning long term capital gain (LTCG) of Rs Page | 11

Kusumlata Sonthalia ITA No.1151/Kol/2018 Assessment Year:2010-11 5,72,502 and Rs 23,11,098 respectively totalling to Rs 28,63,600/-. Against such long term Capital gain earned by the assessee., he has claimed deduction u/s 54 & 54F, on account of purchase of right in a flat at Uniworld City Horizons by Bengal Unitech in New Town, Kolkata being built by Bengal Unitech on 10th June 2010 from Shri Ram Multicom Pvt Ltd by paying Rs.40,00,000/-. There is no detail available on the record to show that as to when the flat was acquired by the assessee from Bengal Unitech. Just by purchasing of any right in the flat under construction, it cannot be said that the assessee has acquired any flat by way of 'Purchase or "Construction. Therefore, the AO has wrongly allowed deduction u/s 54 & 54F, only on the basis of purchase of right in a flat under construction. From examination of record of AY 2014-15, it has been found that this right has been sold by the assessee in September, 2013. Therefore, I found that prima facie deduction u/s 54 & 54E, was wrongly allowed by AO without examining the detail of nature of acquisition made by the assessee of a flat from Bengal Unitech. Considering the above facts and circumstances of the case, as discussed above and taking Into account the fact that no submission has been made by the assessee against my notice u/s 263, I set aside the assessment order passed by the AO u/s 143(3)/153A dated 30/12/2016 and restore it to the file of the AO to the extent of examining the issue relating to allowing deduction to assessee u/s 54 & 54F after examining the nature of right purchased by assessee in a flat under construction at Uniworld City Horizon in New Town Kolkata being built whether it is within the time period given in the provisions of 54 & 54DF or not and whether the said flat was sold by the assessee after the time limit of three year or not, after taking the possession of the flat and accordingly determine, the eligibility of assessee to allow deduction u/s 54 & 54F of the Act and then pass a fresh assessment order in this regard by computing correct amount of taxable Long Term Capital Gain in the hand of the assessee. Other additions made by the AO in original assessment order shall remain intact. 6. In the result, the assessment order dated 30.12.2016 is set aside to the extent of examination of deduction u/s.54 and 54F and passing of a fresh assessment order as directed above.” 3. We now advert to the basic relevant facts. There is hardly any dispute that we are in assessment year 2009-10. The department had carried out search in question dated 05.08.2014 in M/s Kushal Group, Kolkata. The same culminated in initiation of section 153A proceedings vide notice dated 20.03.2015. The assessee filed his return on 15.05.15 stating income of Rs.18,62,070/-. The Assessing Officer then completed the regular assessment accepting the above return income. Suffice to say, it is the said assessment which has been subjected to revision proceedings in PCIT’s order under challenge on the ground that the Assessing Officer has wrongly accepted the assessee’s section 54 & 54F deduction claim (supra). 4. Both the learned representatives reiterated their respective pleadings against and in support of the PCIT’s assumption of revision jurisdiction. Hon’ble apex court’s landmark decision in Malabar Industries Co. vs. CIT 243 ITR 83 holds that before an assessment is sought to be revised in proceedings u/s 263 of the Act, the same has to be erroneous as well as caused prejudice to interest of the Revenue; simultaneously. And also an assessment cannot be termed as erroneous causing prejudice to interest of the Revenue in case the Assessing Officer adopts one of the possible view. Reverting back to impugned regular assessment, we notice that the Assessing Officer had claimed yet another regular assessment on 30.11.10 invoking section 153A/143(3) proceedings whilst assessing the total income ofRs.18,62,400/- only. That being the case, it is sufficiently clear that the impugned second assessment dated 25.12.16 pertained to the search dated 05.08.14 only qua the alleged incriminating material found/seized. It emerges from the case records that the assessee had claimed the impugned section 54 and 54F deduction relief at the first instance in former assessment. This issue nowhere formed subject matter of deduction in the latter assessment therefore. We conclude in these facts that since the Assessing Officer could not have even taken up the assessee’s above deduction claim during latter assessment, the PCIT has erred in law and on facts in terming the same as erroneous causing prejudice to interest of the Revenue. We therefore restore the Assessing Officer’s regular assessment dated 25/30.12.16 and reverse the PCIT’s revision directions under challenge.”

Kusumlata Sonthalia ITA No.1151/Kol/2018 Assessment Year:2010-11 13. We also note that the Assessing Officer has adopted one of the courses permissible in law and even if it has resulted in loss to the revenue, the said decision of the Assessing Officer cannot be treated as erroneous and prejudicial to the interest of the revenue as held by Hon’ble Supreme Court in Malabar Industries Ltd. vs. CIT (supra). Since the order of the Assessing Officer cannot be held to be erroneous as well as prejudicial to the interest of the revenue, in the facts and circumstances narrated above, the usurpation of jurisdiction exercising revisional jurisdiction by the Principal CIT is ‘’null’’ in the eyes of law and, therefore, we are inclined to quash the very assumption of jurisdiction to invoke revisional jurisdiction u/s 263 by the Principal CIT.

14.Before parting, it is noted that the order is being pronounced after 90 days of hearing. However, taking note of the extraordinary situation in the light of the Covid-19 pandemic and lockdown, the period of lockdown days need to be excluded. For coming to such a conclusion, we rely upon the decision of the Co- ordinate Bench of the Mumbai Tribunal in the case of DCIT vs. JCB Limited in ITA No. 6264/Mum/2018 and ITA No. 6103/Mum/2018 for A.Y. 2013-14 order dated 14.05.2020.

Order pronounced in the Court on 17.06.2020

Sd/- Sd/- (S.S.GODARA) (A.L.SAINI) �या�यकसद�य / JUDICIAL MEMBER लेखासद�य / ACCOUNTANT MEMBER �दनांक/ Date: 17/06/2020 (SB, Sr.PS)

Kusumlata Sonthalia ITA No.1151/Kol/2018 Assessment Year:2010-11

Copy of the order forwarded to: 1. Kusumlata Sonthalia 2. Pr. CIT-Central, Kolkata 3. C.I.T(A)- 4. C.I.T.- Kolkata. 5. CIT(DR), KolkataBenches, Kolkata. 6. Guard File.