NAVINCHANDRA K. PATEL,SURAT vs. PRINCIPLE COMMISSIONER OF INCOME TAX -1 , SURAT, SURAT

The grounds of appeal

raised by the assessee are as follows: “1. On the facts and circumstances of the case as well as law on the subject, the learned Pr. Commissioner of Income-Tax has erred in passing revisionary order u/s 263 of the I.T. Act setting aside the order of ld. assessing officer passed u/s 143(3) of the Act dated 24.11.2017 for the year under consideration although said order is neither erroneous nor prejudicial to the interest of revenue.

Succinctly, the factual panorama of the case is that assessee before us is an Individual and had filed his return of income for A.Y. 2015-16 on 21.03.2017 declaring total income at Rs.7,71,620/-. Thereafter, the assessee`s case was selected for scrutiny through CASS; and scrutiny assessment under section 143(3) of the Act was finalized on 24.11.2017 accepting return of income.

Later on, Learned Principal Commissioner of Income Tax, Surat (in short “ld. PCIT”], exercised his jurisdiction under section 263 of the Income Tax Act, 1961. On verification of details, it was noticed by ld PCIT that assessee had sold an immovable property (a land situated at Vill. Saniya Remand, Khata No. 169, R.S. No. 130/1, Block No. 145 having area hectare 273.16 sq. meter lying in T.P. Scheme No. 52) for a sale consideration of Rs.7,78,52,500/- on 28.08.2014. The assessee calculated indexed cost of acquisition of Rs.2,23,77,267/-. The assessee had claimed deduction of Rs.3,11,41,000/- as expenses on premium for conversion of agriculture land to non-agriculture land. He had also claimed deduction of Rs.5,46,02,050/- u/s 54B of the I.T. Act for purchase of agriculture land and deduction u/s 54F of Rs.44,48,230/- for purchase of new residential house. On verification of case records, it was noted by ld PCIT that while computing indexed cost of acquisition, the assessee had taken the cost of land at Rs. 80/- per sq. meter as per registered valuer's report. The AO has opined that the value adopted by the assessee as per registered valuer is higher than the prevailing market value as on 01.04.1981. Therefore, AO referred the issue to the Departmental Valuation officer for estimation of fair market value of the said property as on 01.04.1981.

The ld PCIT further noted that before execution of sale deed of the land at VIill. Saniya Remand, Khata No. 169, R.S. No. 130/1, Block No. 145, the assessee had taken the permission from the competent Authority on 10.06.2014 for selling the agricultural land as non-agricultural commercial purpose and paid premium of Rs.3,11,41,000/-. Thus the nature of land sold was not agricultural land but it was non-agricultural for commercial purpose. During the course of assessment proceeding, no details in respect of the agricultural land carried out on said land in previous two years have been submitted by the assessee. While finalizing the assessment proceedings, the AO has erred allowing deduction claimed under section 54B of the Act.

The ld PCIT also noted that assessee has purchased a new house property at Palsana district at “Avadh Shangrila” for a consideration of Rs.44,48,230/- or 16.10.2015 and claimed deduction under section 54F of the I.T. Act. Payment was made as under – Date Cheque Bank Amount 18.09.2014 003132 Dena Bank Rs.10,00,000 28.09.2015 605279 Rs.16,00,000 30.09.2015 619241 Rs.16,00,000 Total Payment Rs.42,00,000

In response to the show-cause notice dated 25.03.2021, the assessee submitted his reply through ITBA system. The assessee replied that during the course of assessment proceeding, all the required details have been submitted to the Assessing Officer; the AO has duly examined these details and found them satisfactory. The assesse also stated that agricultural activities were being done during the last 2 previous years on the land sold. In his reply, the assessee has also relied upon the various case laws and judicial pronouncement. The assessee also replied that the land sold was being cultivating till date of sale, however, ld PCIT noted that assessee has not submitted any documentary evidences i.e. method of irrigation, copy of invoices for sale of agriculture products, copy of the purchase of bills for purchasing of fertilizers, seed etc. The assessee submitted copy of 7/12 for F.Y. 2011-12 to 2013-14 which shows the land was ITA.57/SRT/2021/AY.2015-15 Navinchandra K. Patel growing 'sugar cane' during the F.Y. 2011-12 to 2013-14. The assessee has sold the land on 28.08.2014, however, copy of the 7/12 has not submitted F.Y. 2014- 15, the year in which the land was sold. In absence of 7/12 documents, it is not established that the land was being used for agriculture purpose before date of the sale.

The ld PCIT noted that assessee had claimed deduction u/s 54B of Rs.5,46,02,050/- in respect to land purchased and transfer expenses of Rs.3,11,41,000/-, so even if FMV adopted by the DVO, as Zero, even then it will not affect income offered under the head of Long Term Capital Gain. The contention of the assessee was not accepted by ld PCIT as it is not established that any agricultural activities were being done on the land sold, therefore, the assessee is not eligible for deduction u/s 54B of the Act. During the assessment proceeding, fair market value of the land sold was determined by the Registered Valuer at Rs.80 per square meter and value of the same land was determined by the DVO at Rs.4 per square meter. As per the registered valuer indexed value of the land calculated at Rs.2,33,77,267/- whereas as per the value determined by the DVO, indexed cost of the land is calculated at Rs.11,19,232/-, and the assessee is not eligible to getting deduction u/s 54B of the Act, therefore, there is under assessment to the tune of Rs.2,12,58,035/- in respect of Long Term Capital Gain.

The ld PCIT observed that in respect of claim of the 54F of the Act, no reply has been submitted by the assessee; therefore the matter has been decided on merit and the material available on record. The assessee has purchased a new house property at Palsana district at “Avadh Shangrila” for a consideration of Rs.44,48,230/- on 16.10.2015 and paid Rs.10,00,000/- on 18.09.2014 and the balance amount of Rs.32,00,000/- was paid (Rs.16,00,000/- on 28.09.2014 and Rs.16,00,000/- on 30.09.2015) i.e. after the due date (i.e. 07.09.2015 for AY.2015-16) of furnishing of return of income as per sub section (1) of section 139 of the I.T. Act. Thus, ld PCIT observed that in view of the provisions of ITA.57/SRT/2021/AY.2015-15 Navinchandra K. Patel section 54F(4), the assessee is not entitled for getting deduction u/s 54F of the Act.

In view of the above facts, ld PCIT held that this is not a case of lack of inquiry, but no inquiry in respect of valuation of the impugned land was made. It is also a case where the AO got carried away with submission of the assessee without application of mind. Therefore, ld PCIT held that assessment order in this case passed under section 143(3) of the Act on 24.11.2017 is found to be erroneous and prejudicial to the interest of revenue. Therefore, the assessment order under section 143(3) of the Act dated 24.11.2017 was set-aside by ld PCIT to the AO to be decided de novo with a direction to examine the issue of Capital Gain and deduction under section 54B and 54F of the Act.

Aggrieved by the order of Ld. PCIT, the assessee is in appeal before us.

Shri Sapnesh Sheth, Ld. Counsel for the assessee, submitted that assessee under consideration, has sold his agricultural land after converting the land into non-agriculture land. Prior to sale of such land, the assessee was doing agricultural activities, therefore, assessee is eligible to claim deduction under section 54B of the Act. Therefore, Ld. Counsel also contended that if the indexed cost of acquisition is treated as if it is Nil, then also assessee is eligible to claim the deduction u/s 54B of the Act and after claiming deduction u/s 54B of the Act, the tax payable by the assessee comes to nil. Therefore assessee’s case under consideration is revenue neutral. The computation submitted before the Bench, by ld Counsel, is reproduced below:

On the other hand, Learned Departmental Representative (Ld. DR) for the Revenue relied on the order of the Ld. PCIT and submitted that Ld. PCIT has passed an elaborate order therefore it should be upheld.

We have given our thoughtful consideration to rival contention. We have perused case file as well as paper books furnished by assessee We find that one key issue arises for our apt adjudication in the instant lis, which is, whether the assessee is eligible to claim deduction under section 54B of the Act or not? Before us, the assessee submitted the submission made before the Ld. PCIT during the revision proceedings under section 263 of the Act, which is placed at paper book page nos. 15 to 17. The assessee also submitted the notice issued under section 142(1) by Assessing Officer dated 20.11.2017 which is placed at paper book page no.20 wherein the Assessing Officer asked the question about the confirmation of weight of sugar cane, dated 01.10.2013 which was cultivated on land. The proof of doing agricultural activities were submitted. In response to the notice under section 142(1), the assessee has also submitted its reply, which is placed at paper book page no.18. The assessee submitted the details of sugar cane sold to the Co-operative Khand Udyag Mandli Limited. The assessee also submitted the evidence that prior to sale of the land, the assessee was the owner of the land and for that he submitted, the Form 7/12 and 8A of land holding before the Bench. The assessee also submitted the reply furnished to the Assessing Officer dated 17.10.2017, which is placed at paper book page nos.27. The Assessing Officer issued further show cause notice,

Based on these facts, narrated above, we note that Assessing Officer during the assessment proceedings made adequate inquiries and applied his mind, and examined the entitlement of the assessee to claim deduction under section 54B of the Act. Moreover, the ld Counsel also submitted before the Bench that if the Revenue takes the cost of acquisition at Rs. Nil, the position remains the same. Therefore assessee’s case under consideration is revenue neutral. The computation submitted before the Bench, by ld Counsel, is reproduced by us in above para. The deduction under section 54F may be allowed in accordance with law. Therefore, based on the above facts, we are of the view that assessee is entitled to claim deduction under section 54B of the Act and the assessing officer has correctly allowed the claim of the assessee, hence order passed by the assessing officer is neither erroneous nor prejudicial to the interest of Revenue.

We note that when there is an application of mind and a decision has been taken by the A.O., the assessment order cannot be said to be erroneous unless the same is potentially wrong or unlawful. For that we rely on the judgment of the Hon’ble Supreme Court in the case of M/s. Malabar Industrial Co. Ltd. Vs CIT (2000) 243 ITR 83 (SC).

In any event, we note that the Assessing Officer has adopted one of the courses permissible in law and even if it has resulted in loss to the revenue, the said decision of the Assessing Officer cannot be treated as erroneous and prejudicial to the interest of the revenue as held by Hon’ble Supreme Court in Malabar Industries Ltd. vs. CIT (supra). Since the order of the Assessing Officer cannot be held to be erroneous as well as prejudicial to the interest of the revenue, in the facts and circumstances narrated above, the usurpation of jurisdiction exercising revisional jurisdiction by the Principal CIT is ‘’null’’ in the eyes of law and, therefore, we are inclined to quash the very assumption of jurisdiction to invoke revisional jurisdiction u/s 263 by the Principal CIT. Therefore, we quash the order of the Principal CIT dated 31.03.2021, being ab initio void.

In the result, appeal filed by the assessee is allowed.