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Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: MS. SUCHITRA KAMBLE & SHRI MAKARAND V. MAHADEOKAR
आयकर अपीलीय अिधकरण, अहमदाबाद "ायपीठ “डी“, अहमदाबाद " IN THE INCOME TAX APPELLATE TRIBUNAL “ D ” BENCH, AHMEDABAD सु"ी सुिच"ा का"ले, "ाियक सद" एवं "ी मकरंद वसंत महादेवकर, लेखा सद" के सम"। ] ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं / Year : 2019-20 Arjun Das Jasuja The CIT (IT & TP) बनाम/ 16, Nayagaon, Rampur Circle-2 v/s. Jebalpur Ahmedabad Madhya Pradesh – 462 008 "थायी लेखा सं./PAN: AEHPJ 3059 D अपीलाथ&/ (Appellant) '( यथ&/ (Respondent) Assessee by : Shri Sapan Usrethe, AR Revenue by : Shri V. Nand Kumar, CIT-DR सुनवाई की तारीख/Date of Hearing : 03/10/2024 घोषणा की तारीख /Date of Pronouncement: 15/10/2024 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM:
The present appeal by the assessee arises out of the revisionary order dated 20/02/2024 passed by the Commissioner of Income Tax (IT & TP), Ahmedabad (hereinafter referred to as "the learned CIT") under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), for the Assessment Year 2019-20, in respect of the order passed by the Assessing Officer (hereinafter referred to as "the AO") under Section 143(3) of the Act, dated 29.09.2021. Arjun Das Jasuja vs. CIT (IT & TP) Asst. Year : 2019-20 2 Facts of the case: 2. The assessee, Non-Resident, filed his return of income for AY 2019-20 on 27.09.2019, declaring a total income of Rs.24,51,708/-. The case was selected for scrutiny under the Complete Scrutiny category through CASS (Computer Assisted Scrutiny Selection) for the verification of capital gains on the sale of immovable property and refund claim. The AO completed the assessment on 29.09.2021 under Section 143(3) of the Act, accepting the returned income without making any adjustments.
2.1. The AO examined the sale of an immovable property located at 16, Nayagaon, Rampur, Jabalpur, which was sold on 11.04.2018 for Rs.2,51,00,000/-. The assessee claimed a cost of improvement of Rs.68,90,000/- in the computation of capital gains, including expenses for interior work, kitchen appliances, plywood laminating flooring, and tiles. After indexing the cost, the assessee offered long-term capital gains (LTCG) of Rs.24,04,665/-. The AO, after obtaining all relevant details like the purchase deed, sale deed, computation of capital gains, bank statement, and valuation report, accepted the cost of improvement and assessed the income as returned.
2.2. Subsequently, the learned CIT, upon perusal of the records, found that the AO had allowed the assessee’s claim for the cost of improvement without conducting detailed inquiries or verifying supporting documentary evidence such as bills, vouchers, or confirmation from the contractor. As per the learned CIT, the assessment order was passed without verifying the allowability of the cost of improvement as per Section 55(1)(b)(2) of the Act, and the failure to conduct this inquiry rendered the order erroneous and Arjun Das Jasuja vs. CIT (IT & TP) Asst. Year : 2019-20 prejudicial to the interests of the Revenue under Explanation 2 to Section 263 of the Act. Accordingly, a notice under Section 263 of the Act was issued, and after considering the assessee's reply, the learned CIT passed an order setting aside the assessment and directing a de-novo assessment.
Aggrieved by the order under Section 263 of the Act, the assessee filed an appeal before us with following grounds of appeal:
1. The learned COMMISSIONER OF INCOME TAX IT & TP), AHMEDABAD (hereinafter referred to as 'the learned CIT') has erred in initiating proceedings under section 263 of Income Tax Act, 1961 ('the Act') since when the assessment order passed by the learned assessing officer was neither erroneous nor prejudicial to the interest of Revenue.
The learned CIT did not appreciate that section 263 does not confer any power on the CIT a quasi-judicial authority to substitute his own judgment over that of the Assessing officer another quasi-judicial authority, because assessment order passed by the Assessing Officer is not of his liking.
3. The learned CIT failed to appreciate that appellant has discharged his onus before the assessing officer by filing the replies, Documents and after applying mind, the AO has passed the order under section 143(3) of the Act.
4. The learned CIT was not justified in completing the revisionary proceedings under section 263 of the Act merely because the learned CIT was having different view as of AO without appreciating that AO has made detailed verification of the submission in respect of the deduction claimed and after examination only; the AO accepted the appellant's contention.
5. The learned CIT was not justified in completing the revisionary proceedings under section 263 of the Act merely because the learned PCIT was having different view as of AO without appreciating that it is already settled by higher authorities that if the AO has taken one of the possible views, it cannot be said that there is an error in the order passed unless and until the view taken by the AO is unsustainable in law.
6. The learned CIT was not justified in completing the revisionary proceedings under section 263 of the Act by wrongly holding that cost of improvement is not capital asset within the meaning of section 55(1)(b) (2) of the I.T. Act whereas the cost of improvements have been incurred for the property and not movable appliances and details of improvements have been specifically mentioned in the valuation report of the valuer and all the payments were made through the banking channel and merely Arjun Das Jasuja vs. CIT (IT & TP) Asst. Year : 2019-20 4 on the basis that bill and vouchers are not available it cannot be denied as it is not possible to keep bills and voucher for such a long period of 14 years and when appellant has already shifted to abroad.
The appellant craves for leave to amend, add to omit any grounds up to the time of hearing of appeal.
During the course of hearing before us the Authorised Representative (AR) of the assessee, stated that the AO had made all necessary inquiries regarding the cost of improvement and had applied his mind to the details furnished by the assessee and the revisionary proceedings were initiated merely because the learned CIT held a different view from the AO. The AR further explained the details of cost of improvement as per statement and corresponding entries in bank statements which were already submitted to lower authorities. Reliance was placed on the decision of the Jaipur Bench of the ITAT in case of Sourabh Sharma vs. PCIT (ITA No. 240/JP/2023), where it was held that if the AO takes a plausible view after making inquiries, Section 263 cannot be invoked.
The Departmental Representative (DR), on the other hand, submitted that the cost of improvement is substantial and as observed by the CIT in his order the assessee has not submitted any documentary evidence to prove genuineness of the expenditure. The DR relied on the order of CIT.
We have heard the rival submission and note that the case was selected for scrutiny specifically to verify the capital gains arising from the sale of immovable property and the refund claim. During the assessment proceedings, the AO issued notices under Section 142(1) of the Act on various dates, and the assessee duly responded by submitting the Computation of Arjun Das Jasuja vs. CIT (IT & TP) Asst. Year : 2019-20 capital gains, showing the cost of acquisition and cost of improvement, Purchase deed of the property (purchased in FY 2002-03), Bank statement reflecting payments made for the cost of improvement, Valuation report of an independent valuer, specifying the details of improvements made and Sale deed for the property. The AO, after verifying these documents, allowed the claim for the cost of improvement and accepted the capital gains computation as correct. The AO’s decision was based on the facts and evidence submitted by the assessee, and it reflects a plausible view, particularly in light of the fact that the scrutiny was specifically for the verification of capital gains.
6.1. The learned CIT, in his order under Section 263 of the Act, emphasized that the AO should have conducted a more in-depth inquiry into the cost of improvement, especially by asking for bills and invoices. The learned CIT cited Explanation 2 to Section 263 of the Act, which allows revision of an order that is passed without proper inquiry or verification.
6.2. Section 55 of the Act deals with the determination of the cost of acquisition and cost of improvement of capital assets for the purposes of computing capital gains. In the present case, the relevant provision is Section 55(1)(b)(2) of the Act, which defines cost of improvement as follows: (2) in relation to any other capital asset,— (i) where the capital asset became the property of the previous owner or the assessee before the 1st day of April, 2001, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset on or after the said date by the previous owner or the assessee, and (ii) in any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the Arjun Das Jasuja vs. CIT (IT & TP) Asst. Year : 2019-20 6 assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in sub- section (1) of section 49, by the previous owner, but does not include any expenditure which is deductible in computing the income chargeable under the head "Interest on securities", "Income from house property", "Profits and gains of business or profession", or "Income from other sources", and the expression "improvement" shall be construed accordingly.
6.3. It is important to note that capital expenditure under Section 55(1)(2) must be incurred to enhance or improve the value of the property. Such expenditure must be distinguishable from revenue expenditure (e.g., repairs or maintenance), which is generally allowable as a deduction from other heads of income, such as "Income from House Property" or "Business Income."
6.4. The property in question was purchased by the assessee in FY 2002-03 and was sold in FY 2018-19. The assessee claimed a cost of improvement of Rs.68,90,000/- incurred in FY 2008-09, consisting of interior work, kitchen appliances, plywood flooring, and tiles. These items are typically considered capital in nature as they add permanent value to the property and are incurred to improve the property’s condition. The assessee also submitted a valuation report from an independent valuer who personally inspected the property and provided a detailed breakdown of the improvements made. The expenditure was supported by bank statements showing payments made through the banking channel, which the AO examined. t is evident from the assessment order that the AO exercised his judicial discretion and adopted a plausible view based on the material on record. The AO was satisfied with the evidence submitted and did not find it necessary to call for further Arjun Das Jasuja vs. CIT (IT & TP) Asst. Year : 2019-20 documentary proof, such as bills or vouchers, for expenses incurred 14 years ago.
6.5. The learned CIT, in his order under Section 263 of the Act, emphasized that the AO should have conducted a more in-depth inquiry into the cost of improvement, especially by asking for bills and invoices. The learned CIT cited Explanation 2 to Section 263 of the Act, which allows revision of an order that is passed without proper inquiry or verification. However, it must be noted that Section 263 of the Act cannot be invoked merely because the AO did not carry out the inquiry in the manner the CIT would have preferred. The AO had asked for the necessary documents to substantiate the assessee’s claim and, after considering the bank statements and the valuer’s report, came to a reasoned conclusion.
6.6. The Jaipur Bench of the Tribunal in the case of Sourabh Sharma vs. PCIT (ITA No. 240/JP/2023) held that if the AO conducts adequate inquiries and adopts one of the possible views, the CIT cannot substitute his own opinion under Section 263 of the Act. In the present case, the AO's acceptance of the cost of improvement was a possible view based on the material provided by the assessee, and the learned CIT’s revisionary jurisdiction cannot be invoked simply because the inquiry was not conducted to his satisfaction.
6.7. In light of the above analysis, we find that the AO conducted adequate inquiries into the assessee’s claim for the cost of improvement and took a plausible view based on the documents submitted, such as the valuation report and bank statements. The assessee’s claim for the cost of improvement Arjun Das Jasuja vs. CIT (IT & TP) Asst. Year : 2019-20 is allowable under Section 55(1)(b)(2) of the Act, as the expenses incurred were of a capital nature. The revisionary proceedings under Section 263 of the Act were unjustified, as the AO’s order was neither erroneous nor prejudicial to the interests of Revenue. Accordingly, we quash the revisionary order passed by the learned CIT under Section 263 of the Act, and the appeal of the assessee is allowed.