SUSHILA BHAURAO DESHMUKH,AMRAVATI vs. PRINCIPAL COMMISSIONER OF INCOME TAX-1, NAGPUR

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR

BEFORE SHRI V. DURGARAO, JUDICIAL MEMBER AND SHRIK.M. ROY, ACCOUNTANT, MEMBER

ITAno.76/Nag./2022 (Assessment Year : 2017–18) Sushila Bhaurao Deshmukh no.3, Suboda Colony ……………. Appellant VidarbhaMahavidyalaya Road Amravati 444 604 PAN – AIWPD6908J v/s Principal Commissioner ……………. Respondent of Income Tax, Nagpur Assessee by :ShriK.P. Dewani Revenue by :Shri Sandeep Salunke

Date of Hearing – 11/09/2024 Date of Order – 20/09/2024

O R D E R PERK.M. ROY, A.M.

The assessee has filed this appeal challenging the impugned order dated 15/03/2022, passed under section 263 of the Income Tax Act, 1961 ("the Act") by the learned Principal Commissioner of Income Tax, Nagpur–1, Nagpur, [―learned PCIT‖], for the assessment year 2017–18.

―1) The order passed by learned PCIT, Nagpur-1 u/s 263 of I.T. Act 1961 is illegal, invalid and bad in law. 2) The learned PCIT erred in holding that no proper enquiry has been made in framing regular assessment u/s 143(3) of I.T. Act 1961.

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3) The learned PCIT erred considering the detailed submission and evidence placed on record ought not to have exercised power u/s 263 of I.T. Act 1961 to set aside the assessment framed. 4) Order passed by A.O. u/s 143(3) of I.T. Act 1961 was after proper enquiries and taking possible view on facts and evidence on record. Thus order passed cannot be termed as erroneous and prejudicial to the interest of revenue for invoking provisions of sec. 263 of I.T. Act 1961. 5) Any other ground shall be prayed at the time of hearing.‖

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The PCIT noted that the assessee purchased REC Bonds in the year 2015 i.e., two years before the said transaction. Thus exemption claimed under section 54ECof the Act is said to be not allowable to the assessee. Further, Assessing Officer has accepted the cost of improvement of the property (being on a considerable higher side) as claimed by the assessee at `1,12,00,000, without referring the matter to Valuation Cell of the Department. The learned PCIT was of the view that lack of enquiry by the Assessing Officer on the aforesaid crucial aspects has made the assessment order erroneous as well as prejudicial to the interest of revenue. In such circumstances, the provision of section 263 of the Act can be invoked. Therefore, notice under section 263(1) of the Act was issued to the assessee on 16/02/2022, giving an opportunity of being heard and in response to which the assessee filed written submission. The relevant portion of the submission by the assessee are is follows:–

―Land sold was an agricultural land and still it is an agricultural land. I am enclosing herewith latest copy of 7/12 extract to support my claim. On perusal of sale deed it can be seen that copy of 7/12 extract dt.18.03.2017was a part of sale deed. House was constructed on the part of the land only and balance land was under cultivation. Further on perusal of Annexure No.1 of valuation report, it can be seen that valuation as on 01.04.1981 is made for a piece of agricultural land bearing S.No.11/1 MoujeNavsari admeasuring 1 H.92R. Total market valuation as per prevailing ready reckoner of Government of Maharashtra was Rs. 35399450/- (32387000:00+3012450.00) only as against sale deed of Rs. 42500000/- From above submission, it is clear that the property sold was an agricultural land alongwith a small house constructed thereon. As regards allowability of exemption u/s. 54ECis concerned, theBond was purchased on 04.12.2015 and till that date an amount of Rs.2,97,00,000/- was received as a sales consideration. Bonds waspurchased out of advance money received on account of property sold. Claim of New Agricultural land for Rs.17332940/- is correctly allowable as assessee has sold 1H. 92R Agricultural Land alongwith House constructed on part of land admeasuring of about 58.55 Sq. Mts. Onlyand land sold

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which is still as on day is a Agricultural Land. As per provision of section 54B of I.T. Act, 1961, exemption is correctly claimed and allowed by the assessing officer. Cost of improvement as claimed as per list is correctly allowed as all the payment are made by account payee cheques and all these transaction are reflected in bank statement and are explained to Assessing Officer at the time of assessment proceedings. The assessee enclosed copies of 07/12 extracts, bank statement and copy of major bills towards cost of construction.‖

―4. I have carefully considered the submission of the assessee and perused the assessment record, analysed the factual and legal matrix of the case. The admitted fact is that in the order passed by the AO u/s. 143(3) of the I.T. Act, 1961 for the year AY 2017-18 the above aspect has not been properly examined. There are few aspects in the above sale transaction and claim of exemption / deductions which is as under: i) There are two aspects in the said sale transaction. The sale of property consists of land and a house property constructed on it. The provisions of Sec.54B specifically mention about capital gain arising from transfer of a Capital asset being land which, in the two years immediately preceding the date on which the transfer took place was being used for agricultural purpose. This obviously means that the AO should have verified this aspect carefully. Further, the exemption u/s 54B if at all is claimed allowed should not have been extended to sale of house property constructed on the said land. The AO has failed to verify the above issue and also whether the said land was used by the assessee. for agricultural purpose in the two years immediately preceding the date on which the transfer took place. The assessee has provided 7/12 extracts for FY 1980-81, 2011-12, 2016-17, and from 2017-18 to 2019- 20 and did not provide any documents to justify as to whether the said land was used for agricultural purpose in the two year immediately preceding the date of transfer viz. FY 2014-15 & 2015-16. ii) Further, the investment with regard to the claim u/s 54EC has to be made at any time within a period of six months after the date of transfer of a capital asset which in the instant case was not made by the assessee as per the requirement of provisions of Sec.54EC. This

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issue has not been verified by the AO during the course of assessment proceecings and allowed the claim u/s 54EC of the Act. iii) The AO has also failed to carry out proper verification in respect of huge amount claimed by the assessee towards cost of improvement at Rs.11200000/- nor the matter was considered to be referred to the Valuation Cell. 5. However, the AO has not examined the above issues properly relating to deduction / exemption claimed by the assessee. Therefore, the order passed by the Assessing Officer is erroneous and prejudicial to the revenue in view of Explanation 2 to Section 263 of the I.T. Act. Reliance is placed on the following decisions of Hon'ble Courts. 5.1 The Hon'ble ITAT Bench in the case of Apollo Tyres Ltd vs Assistant Commissioner of Income Tax, as reported in the 65 ITD 263 (Delhi) has held as under: It is a well-settled law that where the Assessing Officer fails to make proper inquiries and investigation, such failure on the part of the Assessing Officer will result in prejudice to interests of the revenue and initiation of action under section 263 by the Commissioner under such circumstances will be perfectly valid and justified. 5.2 Rajmandir Estates Private Limited V. Principal Commissioner of Income Tax'-2016 (5) TMI 801-CALCUTTA HIGH COURT- The High Court held that lack of enquiry, where enquiry is necessary, can be treated as prejudicial to the interest of the Revenue so as to justify revisional jurisdiction. It was for non inquiry, the validity of action under Section 263 was held justified in a case of non verification of share capital contribution when there was evidence to suggest that the transaction could not be genuine. 5.3 The Hon'bleITAT Ahmedabad Bench in the case of M/s. Sonalank Investment & Trading Pvt. Ltd. Vs. CIT, (ITA No. 1343/AM/2011) had relied on following observations: "An assessment order can be erroneous either in law or in fact. An assessment order can be an erroneous one when prima facie a claim is allowed which according to the learned CIT was against the provisions of law. An assessment order can be held as prejudicial to the interest of the revenue if in the opinion of the learned CIT the inquiry was not adequate or no inquiry at all has been made. In a landmark decision in the case of G.V. Enterprises, 99 ITR 375, theHon'ble Delhi High Court has held that "inadequacy of inquiry is a good reason for invoking the proceedings under section 263 of the Act." If the reasoning is lacking in an assessment order, then also the learned CIT can invoke the revisionary powers." 6. In view of the above and the factual and legal matrix, I am satisfied that the order passed u/s.143(3) of the IT Act, 1961 for the A.Y. 2017-18 on 21.09.2019 is erroneous in so far as it is prejudicial to the interest of revenue and therefore the same deserves to be revised u/s.263 of the I T Act, 1961. The AO failed to examine the issues of claim of deduction / exemption as discussed in preceding paras on which he is directed to

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enquire into. Therefore, in exercise of power vested in me u/s. 263 of the I.T. Act, 1961, I hereby set aside the order dated 23.11.2019 of the I.T.O. Ward- 1(4), Nagpur, passed u/s. 143(3) of the IT Act, 1961 for the assessment year 2017-18 with a direction to pass a fresh Assessment Order after giving opportunity of being heard to the assessee and conducting necessary inquiries.‖

The assessee being aggrieved with the order so passed by the learned PCIT preferred appeal before the Tribunal.

i) Assessment order u/s 143(3) for A.Y. 2017–18; ii) Notice u/s 142 dated 04/06/2019; iii) Reply dated 23/08/2018 to ITO in response to his notice dated 14/08/2018, u/s 143(2); iv) Certificate of REC 54EC Capital Gain Bonds Series and Bank Statement; v) Copy of Purchase Deed dated 23/06/2017; vi) Reply to ITO, Ward–2, Amravati; vii) Copy of acknowledgment of Income Tax Return & computation of income for A.Y. 2017–18; viii) Sale Deed dated 22/03/2017; ix) Detailed Note on the sources of funds for the purchase of property along with bank statement; x) Statement of particulars regarding income from other sources, capital gain and deductions claimed u/s 80C; xi) Reply to ITO, Ward–2, Amravati dated 20/09/2018; xii) Copy of bank statements and working sheet to explain payment of cost of improvement; xiii) Copy of sample bills & ledger account;

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xiv) Notice for hearing dated 16/02/2022; xv) Assessment order u/s 143(3) r/w section 263 r/w section 144B in assessee‘s case for A.Y. 2017–18, order dated 27/03/2023; and xvi) Order u/s 155(15) in assessee‘s case for A.Y. 2017–18.

i) CIT v/s Max India Ltd., [2007] 295 ITR 282 (SC); ii) CIT v/s Gabrial India Ltd. [1993] 203 ITR 108 (SC); iii) M/s. Ashok ShrichandDaryani (HUF), ITAno.110/Nag./2018, order dated 27/07/2023 (ITAT–Nagpur); iv) PCIT v/s Kanin (India), [2022] 141 taxmann.com 83 (P&H); v) VipulModi v/s PCIT [2022] 139 taxmann.com 89 (Mum.); and vi) CIT v/s Mr.Subhash Vinayak Supnekar, Income Tax Appeal no.1009 of 2014, judgment dated 14/12/2016 (Bom.)

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accordance with law. The learned Counsel for the assessee, in support of these arguments, placed reliance on the following judicial pronouncements:–

i) Dreams Business Solutions Pvt. Ltd. v/s PCIT(Del. Trib.) 2023 ITL 4669, ITAno.382/Del./2021, order dated 04/08/2023; ii) ITO v/s D.G. Housing Projects Ltd., [2021] 343 ITR 329 (Del.); iii) PCIT v/s Britannia Industries Ltd., [2022] 145 taxmann.com 618 (Cal.); iv) Pato Builders Ltd. v/s DCIT [2024] ITL 1042 (Ranchi) ITA no. 73/Ran./2021, order dated 29/02/2024; and v) Tirupati Buildcon Pvt.Ltd.v/s ACIT, ITA no.74/Jab./2024, order dated 28/06/2024 (Jabalpur–Trib.).

―A) Order u/s 263 has been passed on 15/03/2022 setting aside assessment framed u/s 143(3) of I.T. Act 1961 dated 21/09/2019 for making necessary enquiries without specifying nature of enquires to be made. B) Hon'ble PCIT at para 3 has noted that A.O. has not verified the issues and lack of enquiry has rendered assessment order erroneous. At para 4 it has been noted that A.O. has not properly examined. At para 6 it is noted that A.O. failed to examine and therefore order is set aside for conducting necessary enquiries. C) The assessment framed u/s 143(3) of I.T. Act 1961 on 21/09/2019 was for limited scrutiny through CASS selection for examination of deduction/exemption from capital gains and investment in immovable property. A.O. has framed assessment after due verification. At page 1 of assessment order issues for limited scrutiny are noted as deduction/ exemption from gains and investment in immovable property. It has been noted in the assessment order as to issue of notice u/s 142(1) seeking information on the issues under examination and same are verified and placed on record D) Notice u/s 142(1) dated 04/06/2019 seeking details on issue of limited scrutiny. E) Notice of hearing u/s 263 dated 16/02/2022 issued indicates three issues for which jurisdiction is sought to be assumed. It has been noted as under: i) Accepted the claim of exemption 54EC of I.T. Act 1961.

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ii) Allowed exemption u/s 54B in respect to purchase of new agricultural land. iii) Cost of improvement claimed at Rs.112lacsis considerably on higher side. a) Purchase of agricultural land was verified by A.O. by obtaining Purchase Deed including source of investment in agricultural land. b) Exemption u/s 54EC was granted as earnest money received was deposited for purchase of bond and same is in accordance with judicial view rendered by Hon'ble Jurisdictional High Court in the case of CIT, Pune Vs. Subhash Vinayak Supnekar in ITA No. 1009 of 2014 vide judgement dated 14/12/2016. c) Cost of improvement examined at Rs. 1,12,00,000/- was verifiable from the bank account and bills placed on record. i) P- 60-64 Bank Statement ii) P-85-105) Details of Expenses iii) P– 196 – 134 Bills & Vouchers F) It is evident that all the issues have been examined in detail and A.O. has taken possible view of the matter at the time of framing regular assessment u/s 143(3) of I.T. Act 1961. The order passed by A.O. cannot be termed as erroneous and prejudice to the interest of revenue. Reliance on: i) CIT v/s Max India Ltd.(2007) 295 ITR 282 (SC); ii) CIT v/s Gabrial India Ltd. (1993) 203 ITR 108 (Bom.); iii) M/s. Ashok Shrichand Daryani (HUF), ITA No.110/Nag/2018 order dated 27/07/2023; G) Order u/s 143(3) r.w.s. 263 of I.T. Act 1961 has been passed on 27/03/2023 and aforesaid order has been subsequently modified u/s 155(15). In the order passed consequent upon order u/s 263 claim of exemption u/s 54EC and cost of improvement has been accepted. Thus the aforesaid issues cannot be said to have been not been verified at the time of framing of regular assessment. Order cannot be said to be erroneous and prejudicial to the interest of revenue in so far as the aforesaid two issues. H) Assessee has sold agricultural land and same is not in dispute that agricultural land was held by assessee for more than 20 years and was used for agricultural operations. Extract of 7/12 is matter of record. Agricultural land purchased by assessee is not in dispute. Acceptance of exemption u/s 54B cannot be concluded as erroneous and prejudice to the interest of revenue;

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I) The 7/12 extract of agricultural sold clearly indicate that agricultural was used for the purpose of agricultural activity; J) Computation of income indicates that assessable capital gain is Rs.170.72lacs. Exemption u/s 54EC is Rs.50lacs and balance amount is allowed u/s 54B. K) Order passed u/s 263 of I.T. Act 1961 does not indicate as to what enquiry has not been made on the facts and evidence on record. In show cause notice and in order passed u/s 263 no inquiries as are required is specified. Condition precedents for invoking provisions of section 263 are absent. Reliance on: i) PCIT v/s Kanin (India), (2022) 141 taxmann.com 83 (P & H);and ii) VipulModi vs. PCIT (2022) 139 taxmann.cm 89 (Mum.);

L) A.O. has made due verification and thus order passed by A.O. cannot be termed as erroneous or prejudicial to the interest of revenue for which jurisdiction u/s 263 could be invoked.‖

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―Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases.

54B. (1) Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee being an individual or his parent, or a Hindu undivided family for agricultural purposes (hereinafter referred to as the original asset), and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—

(i) if the amount of the capital gain is greater than the cost of the land so purchased (hereinafter referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be nil; or

(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be reduced, by the amount of the capital gain.

(2) The amount of the capital gain which is not utilised by the assessee for the purchase of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub- section (1), the amount, if any, already utilised by the assessee for the purchase of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase of the new asset within the period specified in sub-section (1), then,—

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(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of two years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

Explanation.—[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]‖

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‖10. The Commissioner of Income Tax (Appeals) has given several peripheral reasons for rejecting the claim of the assessee. The objections raised by Commissioner of Income Tax (Appeals) in rejecting the claim of assessee are of trivial nature and would not impact adjudication of care issue. In our opinion the same are not warranted when the entries made in the revenue records clearly show that there was cultivation on the land. In so far as determination of two years period is concerned, the period of two is to be determined from date of sale and not the immediately two preceding financial years. The date of sale of land is 03-01-2012. Thus, the period of two years have to be reckoned from January, 2010 onwards. As has been pointed earlier that the land of the assessee is ‗Jirayat Land‘. The assessee could cultivate Kharif crop only on the land during the period starting from April to September. The assessee has shown from the records that the land was under cultivation during the immediately two preceding years and the assessee had grown Soyabean and Jowar crops on the land. The assessee has satisfied the conditions that the land is being used in two immediately preceding years for the purpose of agriculture before the date of sale. 11. The assessee has placed reliance on the decision of Co-ordinate Bench of the Tribunal in the case of Ramesh Narhari Jakhadi Vs. Income Tax Officer (supra) to suggest that it is not necessary that the land should have used for agricultural purposes for full two years immediately preceding the date of transfer. Even if the land is used for some days in the year earlier to preceding year it would be sufficient for compliance of the provisions of section 54B of the Act. The relevant extract of the findings of Tribunal are reproduced here-in-below :

―9. Another aspect that is required to be considered is that the section contemplates user of agricultural land in the two years immediately preceding the date of transfer and therefore, the reference is to the years and not during the whole period of two years as viewed by the authorities. In other words, if the asset has been used for the whole of the immediately preceding year and some days of the year earlier to the preceding year, still the requirement of s. 54B would be satisfied. Applying the definition of short term capital asset with reference to the word "held", it could be said that any asset held in the two years immediately preceding the date of transfer would be eligible for relief under s. 54B on the capital gains arising on its sale.‖ Thus, even if the assessee has cultivated only Kharif crop in the immediately preceding two years from the date of sale of land, the condition set out in Section 54B for claiming benefit of exemption is complied with.‖

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two years the period would be from April 2015 to March 2017. For the period 2016-17 the 7/12 extract annexed along with Sale Deed itself demonstrate that agricultural activities were carried out on the agricultural land. In the past assessment years agricultural activities were carried out is not disputed by PCIT as is evident from the order under section 263 of the Act at Para–4. The agricultural land can be reasonably said to have been used for agricultural purpose in between the years in the absence of anything contrary on record. In view of above conclusion of Assessing Officer at the time of original assessment that agricultural land was used for preceding two years is reasonable conclusion and cannot be said to be an erroneous decision.

―Capital gain not to be charged on investment in certain bonds. 54EC. (1) Where the capital gain arises from the transfer of a long-term capital asset, being land or building or both, (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified 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 long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer 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 acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45: Provided that the investment made on or after the 1st day of April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees: Provided further that the investment made by an assessee in the long-term specified asset, from capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are

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transferred and in the subsequent financial year does not exceed fifty lakh rupees. (2) Where the long-term specified asset is transferred or converted (otherwise than by transfer) into money at any time within a period of three years from the date of its acquisition, the amount of capital gains arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such long-term specified asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head "Capital gains" relating to long-term capital asset of the previous year in which the long-term specified asset is transferred or converted (otherwise than by transfer) into money: Provided that in case of long-term specified asset referred to in sub-clause (ii) of clause (ba) of the Explanation occurring after sub-section (3), this sub- section shall have effect as if for the words "three years", the words "five years" had been substituted. Explanation.—In a case where the original asset is transferred and the assessee invests the whole or any part of the capital gain received or accrued as a result of transfer of the original asset in any long-term specified asset and such assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have converted (otherwise than by transfer) such specified asset into money on the date on which such loan or advance is taken. (3) Where the cost of the long-term specified asset has been taken into account for the purposes of clause (a) or clause (b) of sub-section (1),— (a) 15[***] (b) a deduction from the income with reference to such cost shall not be allowed under section 80C for any assessment year beginning on or after the 1st day of April, 2006. Explanation.—For the purposes of this section,— (a) "cost", in relation to any long-term specified asset, means the amount invested in such specified asset out of capital gains received or accruing as a result of the transfer of the original asset; (b) "long-term specified asset" for making any investment under this section during the period commencing from the 1st day of April, 2006 and ending with the 31st day of March, 2007, means any bond, redeemable after three years and issued on or after the 1st day of April, 2006, but on or before the 31st day of March, 2007,— (i) by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988 (68 of 1988); or (ii) by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956), and notified by the Central Government in the Official Gazette for the purposes of this section with such conditions (including the condition for providing a limit on the amount of investment by an assessee in such bond) as it thinks fit: Provided that where any bond has been notified before the 1st day of April, 2007, subject to the conditions specified in the notification, by the Central Government in the Official Gazette under the provisions of clause (b) as they

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stood immediately before their amendment by the Finance Act, 2007, such bond shall be deemed to be a bond notified under this clause; (ba) "long-term specified asset" for making any investment under this section,— (i) on or after the 1st day of April, 2007 but before the 1st day of April, 2018, means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 but before the 1st day of April, 2018; (ii) on or after the 1st day of April, 2018, means any bond, redeemable after five years and issued on or after the 1st day of April, 2018,by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988 (68 of 1988) or by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956) or any other bond notified in the Official Gazette by the Central Government in this behalf.‖

―3. The short question that arises for our appeal is whether an amount received on sale of a consideration in capital asset a as an advance as on the basis of Agreement to Sale and the same being invested in specified bonds before the final sale, would entitle the respondent assessee to the benefit of Section 54EC of the Act. 4. The impugned order of the Tribunal records the fact that an Agreement to Sale for the subject property was entered into on 21stFebruary, 2006. The final sale took place under a Sale Deed dated 5th April 2007. The respondent assessee had invested an amount of Rs.50 lakhs from the advance received under the Agreement to Sale in the Rural Electrification Corporation Ltd. bonds on 2ndFebruary, 2007. The Assessing Officer as well as the Commissioner of Income Tax (Appeals) held that the respondent assessee is not entitled to the benefit of Section 54EC of the Act as the amounts were invested in the bonds prior to the sale of the subject property on 5th April, 2007. The impugned order of the Tribunal placed reliance upon the decision of its co-ordinate bench in Bhikulal Chandak HUF Vs. Income Tax Officer,0126 TTJ 545 wherein it has been held that where an assessee makes investment in bonds as required under Section 54EC of the Act on receipt of advance as per the Agreement to Sale, then the assessee is entitled to claim the benefit of Section 54EC of the Act. 5. The grievance of the Revenue before us is that the Agreement to Sale dated 21 February, 2006 was never produced before the authorities. Therefore, the respondent assessee is not entitled to the respondent assessee benefit of Section 54EC of the Act.

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―Estimation of value of assets by Valuation Officer.

142A. (1) The Assessing Officer may, for the purposes of assessment or reassessment, make a reference to a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit a copy of report to him.‖

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Assessing Officer has accepted the claim of assessee at ` 112 lakh in set aside proceedings. The learned PCIT has no authority to direct reference to the Valuation Cell, because he does not have the power. At this stage, we refer to Para–5 of the impugned order passed by the learned PCIT vis–a–vis Explanation 2 to section 263 of the Act. The said provision is reproduced below:–

―Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 3[or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.‖

―5. On a perusal of the orders passed by the Authorities, it appears that before the assessment order was passed, a notice was served on the assessee under Section 142 (1) of the Act and 20 queries pertaining to different heads were made therein. The ninth query in the notice under Section 142 (1) of the Act pertains to the expenditure for the Corporate Social Responsibility. By the said query, the assessee was directed to give a detailed note of expenditure for the Corporate Social Responsibility along with bifurcation of the expenses under different heads. An exhaustive reply was submitted by the assessee to the notice under Section 142 (1) of the Act. In paragraph 8 of the reply, the assessee gave the detailed note pertaining to the expenditure for the Corporate Social Responsibility under different heads that runs into several pages. The heads under which the expenses were made towards the Corporate Social Responsibility were specifically mentioned as health, environment, sports, education etc. and for each of the different heads, particulars were given in respect of every minor or major expenses. A detailed

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note on the expenditure on the Corporate Social Responsibility claim was given in paragraph 8 which runs into more than five pages. It is not disputed that the appellant - assessee is a Government of India undertaking and the Government has a control over the expenses of the undertaking. It is pertinent to note that during the previous assessment years, similar claims were made by the assessee - Company and the assessment orders allowing the claims have attained finality. We have minutely perused the assessment order. The claims for deductions were made by the assessee at least under 20 heads and queries were made in the notice under Section 142 (1) of the Act to the assessee in respect of nearly all of them. We, however, find from the assessment order that the Assessing Officer has dealt with nearly nine claims of deductions. These claims have been specifically mentioned in the assessment order and they have been discussed therein because the Assessing Officer appears to have disallowed those claims either partially or totally. In respect of the claim for the Corporate Social Responsibility and some other claims that were allowed by the Assessing Officer, the Assessing Officer has not made a specific reference in the assessment order. It is apparent from the assessment order that the Assessing Officer has expressed in detail about the claims that were disallowable. Where the claims were allowable, as we find from the reading of the assessment order, the Assessing Officer has not referred to those claims. The Corporate Social Responsibility claim is one of them. It is apparent from the notice under Section 142 (1) of the Act that a specific query in regard to the claim pertaining to the Corporate Social Responsibility was made and a detailed note after giving bifurcation of the expenses under different heads was sought. We have perused the response in respect of this query which is exhaustive. We find that the assessee has given the details, as are sought under query no.9 in the notice under Section 142 (1) of the Act. If that is so, the judgments, reported in Fine Jewellery TANVI (India) Ltd. (supra) and Nirav Modi (supra) and on which the learned Counsel for the assessee has placed great reliance would come into play. It is held in the judgments referred to herein above by relying on the judgment in the case of Idea Cellular Ltd. (supra) that if a query is raised during the assessment proceedings and the query is responded to by the assessee, the mere fact that the query is not dealt with in the assessment order would not lead to a conclusion that no mind has been applied to it. In the case of Fine Jewellery (India) Ltd. (supra) this Court found that from the nature of the expenditure as explained by the assessee in that case the Assessing Officer took a possible view and therefore, it was not a case where the provisions of Section 263 of the Act could have been resorted to. Considering the explanation of the assessee in this case, we are also of the view that the Assessing Officer had taken a possible view. In the case of Nirav Modi (supra) this Court held that the Tribunal was justified in that case in cancelling the order under Section 263 of the Act as the assessee had responded to the query made to it during the assessment proceedings and merely because the assessment order did not mention the same, it would not lead to a conclusion that the Assessing Officer had not applied his mind to the case. In the instant case, we find that the Assessing Officer has applied his mind to the claims made by the assessee and wherever the claims were disallowable they have been discussed in that assessment order and there is no discussion or reference in respect of the claims that were allowed. In view of the law laid down in the judgments in the case of Fine Jewellery (India) Ltd. (supra) and Nirav Modi (supra) it would be necessary to hold that in the circumstances of the case, it cannot be said that merely because the

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Assessing Officer had not specifically mentioned about the claim in respect of the Corporate Social Responsibility, the Assessing Officer had passed the assessment order without making any enquiry in respect of the allowability of the claim of Corporate Social Responsibility. In our view, the provisions of Section 263 of the Act could not have been invoked by the Commissioner of Income Tax in the circumstances of this case. The Tribunal was not justified in holding that the query under Section 142 (1) of the Act was very general in nature and the reply of the assessee was also very general in nature. In our considered view, the query pertaining to Corporate Social Responsibility was exhaustively answered and the appellant - assessee had provided the data pertaining to the expenditure under each head of the claim in respect of Corporate Social Responsibility, in detail. The Tribunal was not justified in holding that the reply/explanation of the assessee was not elaborate enough to decide whether the expenditure claim was admissible under the provisions of the Income Tax Act. The Assessing Officer is not expected to raise more queries, if the Assessing Officer is satisfied about the admissibility of claim on the basis of the material and the details supplied. In the facts and circumstances of the case, we answer the question of law in the negative and against the Revenue.‖

i) ITO v/s D.G. Housing Projects Ltd., [2012] 343 ITR 329 (Del.) ―14. The aforesaid observations have to be understood in the factual background and matrix involved in the said two cases before the Supreme Court. In the said cases, the Assessing Officer had not conducted any enquiry or examined evidence whatsoever. There was total absence of enquiry or verification. These cases have to be distinguished from other cases (i) where there is enquiry but the findings are incorrect/erroneous; and (ii) where there is failure to make proper or full verification or enquiry. 15. In the case of Commissioner of Income Tax vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del), Delhi High Court was considering the aspect, when there isno proper or full verification, and it was held as under:- "We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any

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reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. 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 a different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113): ―…….. From a reading of sub–section (1) of section 263, it is clear that the power of suo–motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue". It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub-section (1). 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. (See Parashuram Pottery Works Co. Ltd. v. ITO[1977] 106 ITR 1 (SC) at page 10)... 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

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exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed 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 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. We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be erroneous? simply because in his order he did not make an elaborate discussion in that regard. 16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. 17. This distinction must be kept in mind by the CIT while exercising jurisdiction under section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide

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whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. 18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, (2000) 243 ITR 83 (SC), had observed that the phrase "prejudicial to the interest of 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 interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue. 19. In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent‘s computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct

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further enquiry to verify and find out whether the order passed is erroneous or not.‖ ii) Pato Builders Ltd. v/s DCIT [2024] ITL 1042 (Ranchi) ITAno.73/Ran./2021, order dated 29/02/2024 ―7. We find that the issues in the present case considered by the Ld. CIT for exercising revisionary proceedings u/s 263 of the Act are purely on facts which are verifiable from the records of the assessee. Moreover, the same have been examined by the Ld. AO in the course of assessment proceedings for which all the relevant details and explanations were placed on record which also forms part of the paper book before us. We do find force in the submissions made by the Ld. Counsel. Further, Ld. CIT, DR could bring any material on record to controvert the factual position as submitted before us. 8. Accordingly, on the issue raised by the Ld. PCIT in the revisionary proceedings, no action u/s 263 of the Act is justifiable which in our considered view cannot be sustained under the fats and circumstances of the present case and judicial precedents dealt herein above. We, therefore, quash the impugned order u/s 263 of the Act and allow the ground raised by the assessee.‖

iii) Tirupati Buildcon Pvt.Ltd. v/s ACIT, ITAno.74/Jab./2024, order dated 28/06/2024 (Jabalpur–Trib.) 8. Insofar as second issue of non-examination or genuineness of commission payment is concerned, it is observed, in course of assessment proceedings, the Assessing Officer issued a notice under section 142(1) of the Act accompanied by a questionnaire, wherein, the assessee has specifically inquired into the commission payment. In response to the query raised, the assessee had furnished a detailed reply with regard to commission payment. Thus, prima facie, it appears that the Assessing Officer did inquire into the commission of payment. Thus, it has to be concluded that the Assessing Officer has found the commission payment to be genuine after making necessary inquiry. Whereas, learned revisionary authority has raised the issue of non-examination and genuineness of commission payment without explaining the basis, on which, he considers the commission payment to be non-genuine. 9. in fact, except saying that the Assessing Officer has not examined the genuineness of commission payment, learned PCIT has not given any clear-cut finding regarding the genuineness of the commission payment. On the contrary, he has directed the Assessing Officer to inquire into the genuineness of the commission payment. When, in course of assessment proceedings, the Assessing Officer has inquired into the commission payment, it is not understood what more inquiry is required to be conducted by him. Even, learned PCIT has not specified what inquiry the Assessing Officer is required to make. Thus, the directions of learned PCIT are nothing, but to make a roving and fishing inquiry. This, in our view, is not permissible under section 263 of the Act. Thus, on overall consideration of facts and materials on record, we are of the view that the exercise of jurisdiction under section 263 of the Act, in the present case, is

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invalid, as the assessment order cannot be considered to be erroneous and prejudicial to the interest of Revenue. Accordingly, we quash the order passed under section 263 of the Act and restore the assessment order.‖

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Sd/- Sd/- V. DURGARAO K.M. ROY ACCOUNTANT MEMBER JUDICIAL MEMBER

NAGPUR, DATED: 20/09/2024 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Sr. Private Secretary ITAT, Nagpur