SANDIP KANUBHAI PATEL,AHMEDABAD vs. THE PR.CIT-3, AHMEDABAD

आदेश/O R D E R

PER WASEEM AHMED, ACCOUNTANT MEMBER:

The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Principal Commissioner of Income Tax-3, Ahmedabad, dated 30/03/2022 arising in the matter of assessment order passed under s. 263 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2017-2018.

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declared income from agricultural activity does not substantiate that the land transferred was used for agricultural activities. But, the AO accepted the claim of the assessee without making verification in this regard. Thus, according to the ld. PCIT, the AO erred in framing the assessment which is causing prejudice to the assessee.

4.1 Similarly, no verification was made whether the new property purchased by the assessee is an agricultural property and furthermore, whether the assessee intended to use the purchased land for the agricultural activity for reasonable span of time. There was no detail or evidence submitted by the assessee establishing the use or intended use for agricultural activity whereas from town planning scheme of the municipal corporation of the Ahmadabad, it was clear that new property purchased by the assessee is developed property. But the AO neither considered this fact nor made any enquiry which is erroneous and causing prejudice to the assessee.

4.2 There was the inspector deputed by the learned Pr. CIT to verify whether the impugned property sold/transferred by the assessee was used for agricultural operation as evident from the copy of extract 7/12 form, Google map from 2010 to 2021 and a report of Talati Gota. As per Talati Report and 7/12 extract, there was no mention of agricultural activity carried out in said land since 2011. The Talati specifically stated that no crop grown on said land from 2014-15 to 2019. The day inspector visited on land, there was housing project going on said land.

4.3 Similarly, with respect to new property, the inspector submitted that the land is vacant and there was boundary wall constructed on the same. The inspector also received report from Talati stating that no crop was grown on said land. The said land on the date of purchase by the assessee already included in the town planning scheme and was allotted final plot number 50 by Ahmadabad Urban Development Authority.

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4.4 The learned Pr. CIT also received a report from Bhaskaracharya National Institute for Space Application & Geo-Informatics Gandhinagar under the Ministry of Electronics and Information Technology which is being used to remote sensing technology, provides data with respect to any particular survey numbers and activity carried out at that survey number. As per the report, the land bearing survey number 131 at Gota Taluka Daskori sold by the assessee, there was construction work carried out from 2014 to 2018. Similarly, the land bearing old survey number 376/2 purchased by the assessee was largely vacant and from 2015 some construction activity was carried out.

4.5 Thus, it was clear that neither the land sold/transferred by the assessee was neither used for the agricultural activity nor the new land property purchased by the assessee is intended to be used for agricultural purposes. However the AO without considering and verifying this necessary fact relating to the allowances and disallowances of exemption under section 54B of the Act accepted the claim of the assessee merely on basis of copy of sale and purchased deed furnished by the assessee along with claim that he has shown agricultural income. Therefore, there was absolute failure on the part of the AO to make proper and right inquiry which is erroneous insofar prejudicial to the interest of the Revenue. The learned Pr. CIT also referred the judgment Hon’ble Supreme Court in case of Deniel Merchant Pvt. Ltd vs. ITO (Appeal No. 2396/2017) and held that the issue on hand squarely covered by the said decision. The learned Pr. CIT also referred the explanation 2 brought in section 263 with effect from 1st June 2015 and held that assessment order was passed without making proper inquiries which should have been done. Hence, the learned Pr. CIT exercised his power and confirmed the order under section 263 of the Act by setting aside the assessment order passed under section 143(3) of the Act and directed to make fresh assessment.

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6.1 The learned AR in support of his contention drew attention on pages 34 to 36, page 89 to 90 and pages 93 to 94 of the paper book where the notices under section 142(1) of the Act were placed. Likewise, the learned AR also drew our attention on pages 37 to 38, page 91 to 92 and page 95 of the paper book where the reply of the assessee in response to the notice issued under section 142(1) of the Act and annexure thereto were placed. Thus, the learned AR contended that there cannot be said that the assessment order is erroneous and causing prejudice to the interest of revenue in the given facts and circumstances.

8.1 An inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to

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apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer’s prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various Hon’ble High Courts in this regard.

8.2 Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate inquiry. The Hon’ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry. The relevant observation of Hon’ble Delhi High Court reads as under: “12. ….. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open. ——— From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re- examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which

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was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of ‘lack of inquiry’.”

8.3 The Hon’ble Bombay High Court in case of Gabriel India Ltd. [1993] 203 ITR 108 (Bom), discussed the law on this aspect in length in the following manner: “The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.

8.4 The Mumbai ITAT in the case of Sh. Narayan Tatu Rane Vs. ITO, I.T.A. No. 2690/2691/Mum/2016, dt. 06.05.2016 examined the scope of enquiry under Explanation 2(a) to section 263 in the following words:- “20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provison shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis- à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.”

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8.5 The Hon’ble Supreme Court in recent case of Principal Commissioner of Income-tax 2 v. Shree Gayatri Associates*[2019] 106 taxmann.com 31 (SC), held that where Pr. CIT passed a revised order after making addition to assessee's income under section 69A in respect of on-money receipts, however, said order was set aside by Tribunal holding that AO had made detailed enquiries in respect of such on-money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed. The facts of this case were that pursuant to search proceedings, assessee filed its return declaring certain unaccounted income. The Assessing Officer completed assessment by making addition of said amount to assessee's income. The Principal Commissioner passed a revised order under section 263 on ground that Assessing Officer had failed to carry out proper inquiries with respect to assessee's on money receipt. In appeal, the Tribunal took a view that Assessing Officer had carried out detailed inquiries which included assessee's on-money transactions and Tribunal, thus, set aside the revised order passed by Commissioner. The Hon’ble High Court upheld Tribunal's order. The Hon’ble Supreme Court while dismissing the SLP filed by the Department held as under:- “We have heard learned counsel for the Revenue and perused the documents on record. In particular, the Tribunal has in the impugned judgment referred to the detailed correspondence between Assessing Officer and the assessee during the course of assessment proceedings to come to a conclusion that the Assessing Officer had carried out detailed inquiries which includes assessee's on-money transactions. It was on account of these findings that the Tribunal was prompted to reverse the order of revision. No question of law arises. Tax Appeal is dismissed”

8.6 The Supreme Court in the another recent case of Principal Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd[2020] 114 taxmann.com 545 (SC), dismissed the Revenue’s SLP holding that 263 proceedings are invalid when AO had made enquiries and taken a plausible view in law, with the following observations: “Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere with the view of the Tribunal. The question whether the income should be taxed as business income or as arising from the other source was a debatable issue. The Assessing Officer has taken a plausible view. More importantly, if the Commissioner was of the opinion that on the available facts from record it could be conclusively held that income arose from other sources, he could and ought to have so

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held in the order of revision. There was simply no necessity to remand the proceedings to the Assessing Officer when no further inquiries were called for or directed”

8.7 From an analysis of the above judicial precedents, the principle which emerges is that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Assessing Officer adopts one of the course permissible in law and it has resulted in loss of revenue; or where two views are possible and the Assessing Officer has taken one view with which the Commissioner of Income-tax does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law, or the AO has completely omitted to make any enquiry altogether or the order demonstrates non-application of mind.

8.8 Now in the facts before us, in the case of the assessee the AO during the course of assessment proceedings, made enquiries on this issue and after consideration of written submissions filed by the assessee and documents / evidence placed on record, the Ld. AO framed assessment under section 143(3) accepting the return of income. This fact can be verified from the notices under section 142(1) of the Act by the AO and submission in reply of such notices. i. Notice dated 17-01-2019: Please furnish working of capital gain along with copy of purchase and sale deed thereof. Please justify the claim of exemption u/s.54B of Rs.24830920/- Please also furnish copy of purchase deed. ii. Notice dated 18-04-2019 Please also furnish details of agricultural income shown in return of income A.Y. 2017-18, A.Y. 2015-16. Please furnish the evidences regarding purchase property for claiming exemption u/s.54B is agriculture land as on date of purchase. iii. Notice date 29-04-2019

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Please furnish copy of purchase deed of Agricultural Land for which exemption u/s.54B has been claimed.

 Reply of the assessee i. vide letter dated 29-01-2019 As desired by your honor the details showing working of Capital gain on Sale of Agriculture Land as well as Purchase and Sale Deeds are enclosed herewith as per Annnexure-6. As regards the exemption u/s.54B of the Act, I am enclosing herewith Xerox copy of Purchase Deed of new Agriculture Land as per annexure -7. ii. vide letter dated 24-04-2019 1. As regards evidence of property sold to have been used for agricultural purpose, I have to submit that I have shown agricultural income of Rs. 2,09,773 in AY 2015-16 and Rs. 12,36,217 in AY 2016-17. The copy of the computation of income for the said two assessment years are enclosed herewith as per Annexure-1 of this reply. 2. As regards agricultural income shown in AY 2015-16. 2016-17 and 2017-18 I have to submit that I have shown agricultural income of Rs. 2,09,773 in AY 2015-16 and Rs. 12,36,217 in AY 2016-17. Since the land was sold in AY 2017-18 I have not earned any agricultural income from it. The copy of the computation of income for the said two assessment years are already enclosed herewith as per Annexure-1 of this reply. 3. As regards evidence of purchase of Property being agricultural land for "•which exemption is claimed u/s 54B of the Act, I am submitting herewith the / Xerox copy of the purchase deed for your kind perusal. The same is given as per / Annexure-2 of this reply.

iii. vide letter dated 06-05-2019 As desired by your honor, the Xerox copy of purchase deed of agricultural Land of Rs.4,77,61,700 for which exemption has been claimed u/s.54B of the Act is enclosed herewith for your kind perusal.

8.9 From the above it is revealed it is not the case that the AO has not made enquiry. Indeed the Pr. CIT initiated proceedings under section 263 of the Act on the ground that the AO has not made enquiries or verification which should have been made in respect of exemption claimed under section 54B of the Act. It is not the case of the Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. In the instant set of facts, the Ld. AO had made enquiries and after consideration of material placed on record accepted the genuineness of the claim of the assessee.

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8.10 In view of the above and after considering the facts in totality, we hold that there is no error in the assessment framed by the AO under section 143(3) causing prejudice to the interest of revenue. Thus, the revisional order passed by the learned PCIT is not sustainable and therefore we quash the same. Hence the ground of appeal of the assessee is allowed.

Order pronounced in the Court on 24/06/2022 at Ahmedabad.

Sd/- Sd/- (SUCHITRA KAMBLE) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 24/06/2022 Manish