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Income Tax Appellate Tribunal, “E” Bench, Mumbai
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the assessee is directed against the order dated 01- 01-2015 passed by Ld CIT(A)-47, Mumbai confirming the rectification order passed by AO u/s 154 of the Act for the assessment year 2002-03.
The facts relating to the case are discussed in brief. The assessee company is engaged in the business of converting Aluminum ingots into Circles, strips, wire rods etc. The assessment of the year under consideration was completed by the assessing officer on 31.12.2008 u/s 143(3) r.w.s. 153C of the Act. The provisions of sec. 153C was invoked in this case consequent to the search operations conducted on 12.09.2006 in the hands of the director of the assessee and its sister concerns.
2 M/s. Metal Rolling works Ltd.
During the year under consideration, the assessee has declared long term capital loss of Rs.1,86,41,755/- on sale of land. The details relating to the same has been described as under by the AO in the assessment order:- The assessee had a leasehold land bearing Plot No. 104, Sion-Matunga (East), Mumbai admeasuring 9620.05 sq.mtrs. by way of indenture of lease dated 25.11.1970. The assessee had constructed factory and administrative building on the said land and manufacturing activity was carried out from the said factory premises. Due to labour unrest heavy cash losses and indebtedness, the assessee company decided to transfer the said land. The assessee company entered into an MOU on 24.08.2001 with Developers (M/s. Maitri Associates) for granting development rights in respect of the said land for an upfront consideration of Rs.6 crores and 40% of the Sale proceeds from the sale of the units to be constructed by the developer M/s. Maitri Associates, For the said purpose, both the parties filed Form No.37-I for obtaining permission of the Appropriate Authority constituted under the Income tax department. According to this application the consideration as per MOU was worked out to Rs. 14,01,64316/- comprising of Rs. 6,00,00000/- (Rupees Six crore) upfront payment and Rs. 8,0164360/- being estimated consideration for 40% of the assessee. Upon receipt of the NOC from the department, agreement dated 21.03.2002 was entered into between the assessee and M/s. Maitri Associates. On receipt of the upfront amount of Rs.6 crores and suitable power of Attorney was given to the developers on the dated 21.3.2002 thereby transferring the rights in the development of the property. Thus the land by way of development rights was transferred on 21.3.2002 falling during the financial year 2001-02 corresponding to the A.Y. 2002-03. On the last due date of filing the return of income i.e. 31.10.2002 the consideration for the transfer was neither known nor was computable from the agreement for transfer of the development rights. In view of the same, the consideration as per certificate dated 26.1.2201 issued u/s. 269UL(3) of the I.T. Act amounting to ` 14,01,64,360/- has been taken for computation of long term capital gain for transfer of development rights mentioned herein above. The actual receipt as on 31.3.2007 amounted to ` 40.03 crore received for and from A.Y. 2002-03 to 2007-08.
It is stated that the assessee was entitled (a) to receive a sum of Rs.6.00 crores; (b) 40% of the sale proceeds from sale of units to be constructed by the developer viz., M/s Mythri associates and (c) 6 flats that is going to be constructed. The assessee, however, declared long term capital gain by 3 M/s. Metal Rolling works Ltd. adopting the sale consideration as Rs.14.01 crores, being the consideration shown in the certificate dated 26.11.2001 issued u/s 269UL(3) of the Act.
During the course of assessment proceedings, the assessee filed a revised return and claimed therein that the capital gains shall not be assessable in AY 2002-03, i.e., the year under consideration, but assessable in AY 2006-07 to 2008-09, i.e., the year in which sale consideration was received. In support of this claim, the assessee furnished opinion obtained from two professionals. The AO, after listing the events that occurred during the year under consideration, came to the conclusion that the transfer of rights to the developers was nothing but part performance of the contract by the owners and is therefore the same is hit by the provisions of sec. 2(47)(v) of the Income tax Act, 1961. He also took support of the decision rendered by Hon’ble Bombay High Court in the case of Chaturbhuj Dwarakadas Kapadia Vs. CIT (260 ITR 491)(Bom) in this regard. The assessee had relied upon two tribunal decisions to claim that the tax incidence would arise only in the year of receipt of consideration, but the AO held that the facts of those cases are distinguishable. Accordingly the AO concluded as under:- “In view of the facts mentioned above I hold that the head of income under which the receipts are to be taxed is Capital gains. Because these capital gains arise from the land possession of which was handed over at the time of agreement dated 21.03.02 and as the transaction is a transfer under the provisions of sec. 2(47)(v) of the IT Act 1961 read with section 53A of the Transfer of Property Act, 1882, the Capital Gains arose in the FY 2001-02.”
The AO noticed that the assessee has received sale consideration during the years relevant to the assessment year 2002-03 to 2008-09. A part of consideration was received by way of six flats also. Since the AO has proposed to assess the capital gains arising on transfer of development rights during the year under consideration, he proceeded to ascertain the present value of the 4 M/s. Metal Rolling works Ltd.
sale consideration received in subsequent years by applying the provisions of sec. 269UA(2) of the Act, which provides for determining the net present value of future payments by applying a discounting rate of 8% as provided in Rule 48I of the IT Rules. Accordingly, the AO ascertained the discounted value of sale consideration as under:- Assessment Actual Receipts Discounting factor Discounted value year 2002-03 6,00,00,000 100 6,00,00,000 2003-04 10,05,200 108 9,30,741 2004-05 3,08,91,488 117 2,64,84,472 2005-06 7,78,25,620 126 6,17,80,486 2006-07 14,68,37,499 136 10,79,29,945 *value of flats 1,72,91,558 136 1,27,14,380 2007-08 8,37,29,926 147 5,69,85,181 2008-09 2,13,06,326 159 1,34,26,600 43,88,87,617 34,02,51,805 Accordingly the AO determined the discounted value of sale consideration at Rs.34.02 crores and accordingly computed capital gain at Rs.18.14 crores.
6. Thereafter, the assessing officer initiated rectification proceedings u/s 154 of the Act, since the total amount payable to the assessee was shown by the developer M/s Mythri Associates in its books of accounts at Rs.54.22 crores, whereas the AO had taken the sale consideration as Rs.43.88 crores. The assessee contended before the AO that there is no difference between the sale consideration, as assumed by the assessing officer. The AO did not agree with the contentions of the assessee and recomputed the long term capital gain by adopting the sale consideration as Rs.46.44 crores. The assessee’s appeal filed before Ld CIT(A) did not find favour with him and hence the assessee has filed this appeal before us.
At the time of hearing, the Ld A.R furnished following statement which depicted the reason for the difference between the sale consideration of 5 M/s. Metal Rolling works Ltd.
Rs.34.02 crores (discounted value) adopted in the original assessment proceedings and the sale consideration of Rs.46.44 crores adopted in the rectification proceeding:- Consideration As per order As per order Difference Sr.No. u/s. 153C of u/s. 154 of (`) the Act (`) the Act (`)
1 Upfront 6,00,00,000 6,00,00,000 ------- 2 Value of six flats 1,72,91,558 3,69,24,382 1,96,32,824 3 40% sales 36,15,96,059 36,75,32,500 59,36,441 4 Gross consideration 43,88,87,617 46,44,56,882 2,55,69,265 (1+2) 5 Discount 8% (9,86,35,812) - 9,86,35,812 6 Net consideration value 34,02,51,805 46,44,56,882 12,42,05,077 (4 + 5)
The main contention of the Ld A.R is that the various mistakes pointed by the AO do not fall in the category of mistakes apparent from record and further two views are possible thereon. He further submitted that the assessing officer has travelled beyond the “record” to arrive at his decision and hence they cannot be considered to be “mistake apparent from record”. He submitted that the difference between the two figures of sale consideration has arisen on account of following:- (a) Value of six flats (b) 40% sale consideration (c) Adoption of Net present value of consideration by applying discounting factor.
With regard to the value of six flats received from the developer M/s Mythri Associates, the Ld A.R submitted that the assessee has valued them by adopting the average price at which the flats were sold during the relevant period.
6 M/s. Metal Rolling works Ltd.
However, the AO has adopted the value from the ledger account of M/s Mythri Associates. He contended that the records of Mythri associates cannot be taken as assessee’s record. In support of this contention, the Ld A.R placed reliance on the following case laws, wherein the term “record” has been discussed:- (i) Gammon India Ltd. v. CIT [214 ITR 50, 56 (Bom)]: "The expression 'record' has not been defined in the Act. It has, therefore, to be construed and understood in the context in which it appears. Section 154 empowers the income-tax authorities to rectify mistakes which are 'apparent from the record'. 'Record' in such a case would mean record of the case comprising the entire proceedings Including documents and materials produced by the parties and taken on record by the authorities which were available at the time of passing of the order which is the subject-matter of proceedings for rectification. They cannot go beyond the records and look into fresh evidence or materials which were not on record at the time of order sought to be rectified was passed (see Sri Pankaj Kumar Dasgupta v. State of Triura /1990] 79 STC 409 (Gauhati) (Emphasis supplied).
(ii) CIT v. Gupta Engineering Works 1213 CTR 30, 37-38 (P&H)]:
"9. It has further been held in CIT vs. Keshri Metal (P) Ltd (1999) 155 CTR (SC) 531: (1999) 237 ITR 165 (SC) by Honble the Supreme Court that under s. 154 of the Act, a reference to the word 'record' would mean material already on record. A reference to outside documents would not be permissible for invocation of jurisdiction under 5. 154 of the Act.
10. A similar view was expressed by Andhra Pradesh High Court in CWT vs. R.D. Shah (1994) 207 1TR 271 (AP) wherein following a judgment of Karnataka High Court in F.M. Viswanathan Chettiar vs. Agri ITO (1983) 35 CTR (Kar)399: (1983) 142 ITR 244 (Kar), it was held that the mistake discovered as the result of inquiry made subsequent to the assessment would not be said to be forming part of the record for the purpose of rectification.
Considering the facts of the case on record, it is the admitted case of the Revenue, as is even evident from the order passed under s. 154 of the Act by the AO that reason for issue of notice under s. 154 of the Act by the AO was the knowledge derived by the AO from the findings recorded while framing the assessment for the asst. Yr. 1982-83 and as a consequence thereof, the AO was of the view that there was violation of provisions of s.
7 M/s. Metal Rolling works Ltd. 32A(7) of the Act and the investment allowance already granted deserved to be withdrawn.
13. Keeping in view the pronunciation of law on the scope of s. 154 of the Act, we find that in the case in hand, the material which is sought to be relied upon by the AO for withdrawing the claim of deduction under 5. 32A of the Act was subsequent to the framing of assessment in the years in question, meaning thereby, the same did not form the part of the record at the time of framing of assessment. Hence, in terms of the law laid down by Hon'ble Supreme Court in Volkart Brothers' case (supra) and the views expressed by Andhra Pradesh and Karnataka High Courts, powers under s. 154 of the Act could not be exercised ..........................................
14 If the facts of the present case are examined keeping in view law on the subject, we find that the case in hand was not a fit case for invocation of power under s. 154 of the Act as neither material sought to be relied upon for invocation of power was on record on the date of framing of assessment nor the same was free from doubt even on the date when the rectification order was passed……………………” (Emphasis supplied). (iii) E.M. Viswanathan Chettiar v. Agricultural ITO [142 ITR 244, 247 (Karn)]: "Power of rectification is conferred on the ITO under s. 37 of the Act. Any apparent error can be rectified within the period prescribed in that section. An apparent error must be from the records of the case and not an error discovered from other sources. Any error discovered as a result of investigation of other records or other sources will not constitute an apparent error on the face of the records which alone confers jurisdiction on the Officer concerned to rectify any order. In the instant case the return filed by the assessee disclosed Rs. 5.50 as the cost per point in respect of coffee sold in the relevant accounting year viz, 1977-78. There was no further investigation by the respondent at the time he passed the original assessment order In other words, there was no material on record to indicate that the Coffee Board had fixed Rs. 6.00 per point as the coffee sale price for the relevant year In the result the information he respondent might have received should be something subsequent to the passing of the original assessment order and outside the records. Thus his proposition that the Coffee Board had fixed the price at Rs. 6 per point assuming that to be so, was not a matter which was on record Therefore, in that circumstance it cannot be said to be an apparent error on the face of the record On that ground alone the assessee-petitioner should succeed in having annexs. E and F set aside……… "(Emphasis supplied).
8 M/s. Metal Rolling works Ltd.
Since the AO has initiated the rectification proceedings on the basis of records of M/s Mythri Associates, the Ld A.R submitted that the order passed by the AO on this issue is illegal and bad in law.
The Ld A.R also submitted that there is no mistake in the original order in as much as the difference in the valuation of flats would not automatically become the income of the assessee. He submitted that the assessee’s valuation of six flats has been accepted by the AO in the original assessment proceedings and merely because the developer M/s Mythri Associates has followed different method, the same would not give rise any mistake, particularly when the AO has not brought on record the method followed by M/s Mythri associates to value the flats. Since the “method of valuation of flats” is a debatable one and two views are possible thereon, the same cannot be considered as “apparent mistake” which can be rectified in the proceedings initiated u/s 154 of the Act. In this regard, the Ld A.R placed reliance on the following case laws:- (1) Asian Techs Ltd. v. CIT [243 ITR 262, 266-267 (Ker)]
“In order to bring an application under section 154, the mistake must be 'apparent' from the record 'Apparent' means 'open to view, visible, evident, appears, appearing as real and true, conspicuous, manifest, obvious, seeming Section 154 does not enable an order to be reversed by revision or by review, but permits only some error which is apparent on the face of the record to be corrected.................................................................. In order to attract the power to rectify under section 154, it is not sufficient if there is merely a mistake in the orders sought to be rectified The mistake to be rectified must be one apparent from the record A decision on a debatable point of law is not a mistake apparent from the record The plain meaning of the word 'apparent' is that it must be something which appears to be so ex fade and it is in capable of argument or debate. It, therefore, follows that a decision on a debatable point of law or fact or failure to apply the law to a set of facts which remains to be investigated cannot be corrected by way of rectification...............” (Emphasis
9 M/s. Metal Rolling works Ltd. supplied). (ii) T. S. Balaram, ITO v. Volkart Brothers & Ors 182 ITR 50, 53 (SC)] “………..It was not open to the Income-tax Officer to go into the true scope of the relevant pro visions of the Act in a proceeding under section 154 of the Income-tax Act 1961. A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions................................................” (Emphasis supplied)'.
With regard to the difference in the value of 40% sale consideration, the Ld A.R submitted that the assessee has shown the sale consideration at Rs.36,15,96,059/-, while the AO has adopted the figure at Rs.36,75,32,500/-. He submitted that the difference between the two figures, viz., Rs.59,36,441/- represents “BMC and other charges” incurred by M/s Mythri Associates on behalf of the assessee. The assessee had deducted the same from the sale consideration as the same is related to the sale transaction. Accordingly he submitted that the difference amount of Rs.59,36,441/- does not represent any mistake as presumed by the AO. He submitted that the AO has not found this alleged mistake from the record of the assessee, but found the same from the record of M/s Mythri Associates. He submitted that the AO cannot travel beyond the record of the assessee in sec. 154 proceedings and submitted that the case law relied upon by him earlier would apply to this adjustment also. He further submitted the AO has not established that the difference actually represents mistake and he has merely assumed so by comparing two figures. Accordingly he submitted that there is no apparent mistake on this account, which could be rectified u/s 154 of the Act.
12. With regard to the “Discounting” given for arriving net present value of sale consideration, which was withdrawn by the AO in sec. 154 order, the Ld A.R submitted that the AO has not given show cause notice for this adjustment and 10 M/s. Metal Rolling works Ltd.
hence the rectification made by him by rejecting the discount is bad in law, since it is in violation of provisions of sec. 154(3) of the Act. In support of this proposition, the Ld A.R placed reliance on the following case law:- (1) M. Chockalingam and M. Meyyappan v. CIT 148 ITR 34, 37, 38, 40, 41 (SC)1 "Section 35 which deals with the rectification of mistakes provides that the Income-tax Officer (among other officers) may at any time within four years from the date of any assessment order, etc. passed by him, on his own motion rectify any mistake apparent from the record of the assessment and shall within the like period rectify any mistake which has been brought to his notice by an assessee. One of the provisos says that no such rectification shall be made, having the effect of enhancing an assessment or reducing the refund unless the Income- tax Officer has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard
It will appear from this that the action under section 35 may be taken in favour of the taxpayer without any notice to him but if the action has the effect of enhancing an assessment or reducing the refund, the Income-tax Officer, acting under section 35, must send a notice to the assessee and give him a reasonable opportunity of being heard............................................ It is contended that this is not a case in which we should reverse the order of the High Court because the grant of writ is discretionary and if the High Court declined to give a writ because in its opinion penal interest was payable, we should not take a contrary view and grant the writ here. The question is not whether penal interest was payable or not but whether an opportunity had to be given to the appellants as required by the proviso to section 35 to show cause against the demand for penal interest. If this opportunity was not given the High Court should have acted to rectify that error. The authorities acting under the Indian Income-tax Act have to act judicially and one of the requirements of judicial action is to give a fair hearing to a person before deciding against him...........................
A similar view was also expressed by this court in Sinha Govindji v. Deputy Chief Controller of Imports & Exports [1962] 1 S.C.R. 540. It is more so in this case where the proviso to section 35 itself makes it
11 M/s. Metal Rolling works Ltd. incumbent upon the Income-tax Officer to give notice and a hearing to an assessee when the effect of the rectification would be the enhancement of the assessment.......
In the result the appeals are allowed A writ of certiorari will issue and the order of the Income-tax Officer will be quashed" (Emphasis supplied)
(ii) ADIT v. Linklaters (Formerly known as Linklaters & Paines) (ITA No. 6556/Mum/2003 dated 09.07.2014 "5. Before us, the learned Senior Counsel Mr. S.E. Dastur, on behalf of the assessee, submitted that, first of all, in this case, the Assessing Officer has not issued any show cause notice to the assessee for enhancing the income which is in clear violation of the provisions of sub-section (3) of section 154. In support of this contention, he strongly relied upon the decision of the Hon'ble Supreme Court in M Chockalingam and M. Meyyappan v/s. CIT [1963] 48 ITR 34 (SC) and Punjab High Court in Lala Rajeshwar Pershad v/s. ITO [1959] 36 ITR 492 (Punjab)………………………………...................................
We have heard the rival contentions, perused the relevant findings of the authorities below and the material available on record It is admitted fact that the proceedings under section 154 has been initiated on the application filed by the assessee, pointing out the mistake in the quantum of the receipts taken in the original assessment order. The same has been rectified by the Assessing Officer However, the Assessing Officer without issuing any notice to the assessee, has enhanced the assessment by a sum of Rs. 3,22,378, which is in clear violation of the provisions of sub-section (3) of section 154, which provides that an amendment having effect on the enhancement of assessment shall not be made, unless a notice is given to the assessee and a reasonable opportunity of hearing is given. This contention was also raised before the learned Commissioner (Appeals) which has been treated by him as in fructuous as he has a//owed the assessee's appeal on merit On this ground alone, the impugned addition which has been made in the rectification proceedings under section 154 cannot be sustained ... ...... ....... .............. ........ "(Emphasis supplied).
12 M/s. Metal Rolling works Ltd.
He submitted that the provisions of sec. 48 uses the expression “value of consideration” and not “amount of consideration”. Since the consideration received in future was required to be taken into account for arriving at the “value of sale consideration”, the AO has rightly discounted the same to arrive at the present value of the consideration. The view taken by the AO is supported by provisions of sec. 269UA(2) of the Act. Accordingly he submitted that the view taken by the AO in the original assessment proceedings is a possible view and hence the same cannot be considered as a mistake apparent from record. He submitted that the issue of discounting requires interpretation of sec. 48 of the Act and such interpretation of law cannot be the subject matter of rectification u/s 154 of the Act. In this regard, the Ld A.R placed reliance on the decision rendered by Hon’ble Kerala High Court in the case of Asian Techs Ltd (243 ITR 262) and the decision rendered by Hon’ble Supreme Court in the case of T.S. Balaram, ITO vs. Volkart Brothers & others (82 ITR 50).
Accordingly the Ld A.R contended that the impugned rectification order passed by the AO is bad in law and the Ld CIT(A) was not justified in confirming the same.
The Ld D.R, on the contrary, submitted that the long term capital gain computed by the AO in the original assessment order, though it was in variance to the one computed by the assessee, has been accepted by the assessee. Referring to paragraph 3 of the order, the Ld D.R submitted that the AO is referring to records of the assessee and hence the ledger account was part of record only. With regard to the discounting factor of 8%, the Ld D.R submitted that the show cause notice issued u/s 154 of the Act does refer to 8%. He further submitted that the Ld CIT(A) has rightly interpreted the total consideration of the deal as “consideration receivable” by the assessee and hence there is no requirement to discount the receivable amount.
13 M/s. Metal Rolling works Ltd.
In the rejoinder, the Ld D.R submitted that the expression “value of consideration” used in sec.48 of the Act cannot be taken as “receivable amount”. He submitted that, in any case, the same is a debatable one and hence the same cannot be applied in sec. 154 proceedings. He submitted that the ledger account of M/s Mythri Associates was not part of assessee’s record. In any case the difference, if any, in the ledger accounts can be found out only by a long drawn process and hence the mistake, if any, (even though there is no mistake) cannot be taken as mistake apparent from record.
Subsequently, the Ld D.R referred to the assessment records and fairly admitted that the ledger account referred to by the AO was not part of assessment record. He submitted that these mistakes have been pointed by the revenue audit party and the AO has furnished reply to them by stating that there is no mistake apparent from record. However, with regard to the discounting factor of 8%, the Ld D.R reiterated his contention that the show cause notice issued by the AO does refer to the discounting factor of 8% and accordingly submitted that the assessing officer has issued notice to the assessee on this point also.
We have heard rival contentions and perused the record. This is an appeal challenging the order passed by the assessing officer u/s 154 of the Act. Under the provisions of sec. 154, any order passed by an income tax authority can be amended only to rectify any “mistake apparent from the record”. The questions viz., “what is a mistake apparent” and “what is the record” have been examined by the higher forums in several cases. The land mark decision rendered by Hon’ble Supreme Court in the case of T.S.Balaram ITO vs. Volkart Brothers & Others (82 ITR 50) is relevant here. The Hon’ble Supreme Court observed that it was not open to the Income tax officer to go into the true scope
14 M/s. Metal Rolling works Ltd. of the relevant provisions of the Act in a proceeding u/s 154 of the Income tax Act, 1961. A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinion. The Hon’ble Kerala High Court, in the case of Asian Techs Ltd Vs. CIT (243 ITR 262 @ 266-267) has held that section 154 does not enable an order to be reversed by revision or by review, but permits only some error which is apparent on the face of the record to be corrected. It was further held that the plain meaning of the word “apparent” is that it must be something which appears to be so ex-facie and it is incapable of argument or debate.
The meaning of the word “record” has also been examined by the higher judicial forums. The Hon’ble Punjab & Haryana High Court, in the case of CIT Vs. Gupta Engineering Works (213 CTR 30 @ 37-38), has extracted the view expressed by Hon’ble Supreme Court in the case of CIT Vs. Keshri Metal P Ltd (237 ITR 165), wherein it was observed that u/s 154 of the Act, a reference to the word “record” would mean material already on record. A reference to outside documents would not be permissible for invocation of jurisdiction u/s 154 of the Act. The Hon’ble Karnataka High Court has held in the case of E.M. Viswanathan Chettiar Vs. Agricultural ITO (142 ITR 244 @ 247) that “an apparent error must be from the records of the case and not an error discovered from other sources. Any error discovered as a result of investigation of other records or other sources will not constitute an apparent error on the face of the records which alone confers jurisdiction on the officer concerned to rectify any order.” Identical view has been expressed in the case of Gammon India Ltd (214 ITR 50 @ 56) by Hon’ble Bombay High Court, wherein it was held that “record” in such a case would mean record of the case comprising the entire proceedings
15 M/s. Metal Rolling works Ltd. including documents and materials produced by the parties and taken on record by the authorities which were available at the time of passing of the order which is the subject matter of proceedings for rectification. They cannot go beyond the records and look into fresh evidence or materials which were not on record at the time of the order sought to be rectified was passed.
Based on these legal positions, we shall now examine the facts available in this case. Admittedly, the assessing officer has initiated the impugned rectification proceedings on the basis of the “ledger account of the assessee as available in the books of M/s Mythri Associates”. It is also admitted during the course of hearing that the said document was not available in the record of the assessee at the time of passing of assessment order. Hence on this count alone, the impugned rectification order is liable to be quashed, since the assessing officer has initiated the rectification proceeding on the basis of an outside record.
We have noticed that the assessing officer has modified the sale consideration determined in the original assessment proceedings on three grounds. The first ground relates to the value of six flats received by the assessee from M/s Mythri Associates as part of sale consideration. The AO, in the original assessment proceedings, determined/accepted the value of six flats at Rs.1,72,91,558/- with the following observations:- “The value of six flats received by the assessee is taken at Rs.3,853/-per Sq. ft. inclusive of land cost. The total area of these flats work out to 4,826 Sq.ft. and thus the value works out to Rs.1,72,91,558/-.
It can be noticed that the assessing officer has duly applied his mind on this issue and accordingly decided the value of six flats received by the assessee.
16 M/s. Metal Rolling works Ltd.
We have noticed that the value of six flats which are going to be allotted in future has been estimated by the assessee by adopting average price prevailing at the relevant point of time. The AO has noticed that M/s Mythri Associates have determined the value of six flats under different method. Thus the difference between both the figures is due to adoption of two different method of estimation of value of six flats, on which conceivably two opinions are possible. Hence the same would be outside the scope of rectification proceedings as per the judicial decisions referred above.
The next item of rectification is the difference in the amount relating to 40% of the sale consideration. It has been clarified by Mythri associates itself (page 62 of the paper book) that it has paid BMC and other charges amounting to Rs.0.59 crores on behalf of the assessee and deducted the same from the aggregate consideration of Rs.36.75 crores and accordingly paid net consideration of Rs.36.15 crores. M/s Mythri associates has accounted the gross amount of Rs.36.75 crores and the assessee has accounted for the net consideration of RS.36.15 crores. Thus the difference has been reconciled by the assessee by offering proper explanations. In any case the question whether the difference represents the income of the assessee or not can be decided by carrying out further investigation and calling for explanations from the parties involving long drawn process. Hence as per the judicial decisions, this item of difference would also fall outside the scope of rectification proceedings.
The next item relates to the discounting of amount receivable in future. It is the contention of the assessee that the AO did not issue show cause notice on this issue. The Ld D.R has, however, disputed the said contention. For the sake of convenience, we extract below the relevant portion from the notice issued u/s 154 of the Act:-
17 M/s. Metal Rolling works Ltd.
“…….Particulars of mistake proposed to be rectified are as under: During the assessment Capital gains on transfer of development right in the part of land bearing plot No.104, Sion (E), Mumbai to M/s Maitry Associates was computed under the provisions of Section 269UA(2) which provide for determining the net present value of future payments by applying a discount rate of 8% as provided in Rule 48I of the I.T Rule. The actual receipt on sale of land and future payments during F.Y 2001-02 to 2007-08 was amounting to Rs.43,88,87,617 and after applying discount rate of 8%, the sale consideration was determined at Rs.34,02,51,805/-. Thus the capital gain after deducting indexed cost of acquisition was worked out at Rs.18,14,45,690/-. However, it is found that M/s Maitri Associates shown Rs.52,22,39,337/- instead of Rs.43,88,87,617/- on account of land consideration to the assessee during F.Y 2001-02 to 2007-08.”
On a careful perusal of the reasons recorded by the AO for initiating the rectification proceedings, which is extracted above, we find that the assessing officer has initially discussed about the methodology adopted by him to arrive at the capital gain of Rs.18.14 crores. The reason for reopening is discussed in the last line as under:- “However, it is found that M/s Maitri Associates shown Rs.52,22,39,337/- instead of Rs.43,88,87,617/- on account of land consideration to the assessee during F.Y 2001-02 to 2007-08.”
Thus, we notice that the assessing officer was concerned with the difference between Rs.52.22 crores as recorded by M/s Maitri Associates and Rs.43.88 crores as recorded by the assessee. Accordingly we are of the view that the AO did not issue show cause notice in respect of the discounting factor of 8%, though a reference was made to the same while discussing the methodology adopted by him in the original assessment proceedings. Accordingly we find merit in the contentions of the assessee that the AO did not issue show cause notice for rectifying the discounting factor. In the case of M.Chockalingam and M.Meyyappan Vs. CIT (supra), the Hon’ble Supreme Court has held that the AO
18 M/s. Metal Rolling works Ltd. must send a notice to the assessee and give reasonable opportunity of being heard. The provisions of sec. 154(3) also states that an amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee…. shall not be made under this section unless the authority concerned has given notice to the assessee… of its intention so to do and has allowed the assessee…. a reasonable opportunity of being heard. In the instant case, in our view, the AO has failed to issue notice on this issue and hence he could not have passed rectification order on this issue.
We further notice that the assessing officer has discounted the consideration receivable/received in future, since he has proposed to tax the future receipts in the year under consideration. The view taken by the AO also gets support from the provisions of sec.269UA(2) of the Act. Hence we are of the opinion that this issue relating to discounting of future receivables is a debatable one and hence the same would also fall outside the scope of provisions of sec. 154 of the Act.
In view of the foregoing discussions, we are of the view that the impugned revision order passed by the AO was not in accordance with the mandate of the provisions of sec. 154 of the Act and accordingly we are of the view that the Ld CIT(A) was not justified in confirming the same. Accordingly we quash the order passed by Ld CIT(A).
In the result, the appeal filed by the assessee is allowed. Order has been pronounced in the Court on 31.5.2017.