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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI MAHAVIR PRASAD & SHRI MANISH BORAD
PER MANISH BORAD, A.M: The above captioned appeal filed at the instance of the Assessee for Assessment Year 2015-16 is directed against the order of Ld. Pr. Commissioner of Income Tax(Appeals) (in short ‘Ld. Pr. CIT]-I, Indore dated 31.03.2021 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 11.12.2017 framed by ITO-4(4) Indore.
SBD Developers ITANo.124/Ind/2021 2. Brief facts of the case as culled out from the records are that the assessee is a partnership firm engaged in the business of builder and developer. Return of income for A.Y.2015-16 filed on 28.09.2015 declaring total income of Rs.13,36,312/-. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. Detailed questionnaire issued to the assessee. In reply detailed written submissions were filed in reply to each/query raised by the Ld. AO. Books of accounts were produced and examined on test check basis by Ld. CIT(A), Assessment u/s 143(3) of the Act completed on 12.12.2017 accepting the returned income. Subsequently Ld. Pr. CIT assuming jurisdiction u/s 263 of the Act issued a show cause notice dated 19.09.2019 which reads as follows:
“Please refer to the assessment order u/s 143(3) of the IT Act, 1961 dated 11.12.2017 for A.Y. 2015-16 in your case. On perusal of case record in your case for the A.Y. 2015-16 it is noted you’re you have furnished your return of income declaring total income at Rs.13,36,312/- on 28.09.2015. Assessment in your case u/s 143(3) of the I.T. Act 1961 was completed by the ITO-4(4), Indore vide order dated 11.12.2017 assessing total income at Rs.13,36,312/-.
The entire records were gone through by me and on perusal and examination of records it appears that the order dated 11.12.2017 for A.Y.2015-16 is erroneous as also prejudicial to the interest of revenue on account of passing of the order without making proper enquiries/investigations.
As per the information available on records you were engaged in the development of plots and real estate business and shown total receipts from sale of plots of Rs.3,65,83,190/- during relevant financial year. Further it is observed that your received booking SBD Developers ITANo.124/Ind/2021 advance from customers of Rs.3,96,25,61200/- as on 31.03.2015. The AO had called for reasons for non-recognition of revenue receipts of advance received from customers with regard to revised 2012 guidelines issued by the ICAI fore real estate business. The guideline provides a guidance not to recommend the accounting treatment by enterprise dealing in real Estate as sellers of developers. The term real estate refers to land as well as buildings and rights in relation thereto. Enterprises who undertake such activity are generally referred to by different terms such as real estate developers or property developers. In your case, you adopted the policy of recognizing the revenue in respect of sales only after the completed receipt thereof. Further, you did not calculate the revenue recognition properly and a detail of closing balance of advance booking of plots shown at Rs.3,83,29,630/- against shown in the balance sheet at Rs.3,96,25,612/-. This fact should have been examined. Further it has been revealed that you have credited total sale consideration of Rs.3,65,83,190/- in P&L Account. As per details submitted for sale of plots, the market value adopted by the Stamp Value Authority was of Rs.3,80,95,690/- which was more than the sale consideration shown in the P & L account. This fact should have been examined. The AO has not examined these facts/issued and no enquiry/investigation has been made, therefore, the assessment order passed by the AO appears to be erroneous in so far as it is prejudicial to the interest of the revenue. You are therefore, required to show cause why provisions of section 263 be not invoked in your case for the reasons mentioned above.
4. You are, accordingly, given an opportunity to attend my office on 11.10.2019 at 04:00PM and produce necessary evidences, explanation etc. in support of your contentions and arguments. If your fait to attend the hearing it shall be presumed that you have nothing to say in the matter and order u/s 263 shall be passed on merit and on the basis of facts available on record.
SBD Developers ITANo.124/Ind/2021 3. The assessee gave detailed reply to the show cause notice and after considering the same Ld. Pr. CIT was satisfied with regard to some points raised in the show cause notice. However, Ld. Pr. CIT was not satisfied with reply to one of the issue as per which there were certain transaction of immovable property during the year. Assessee declared sale consideration at Rs.3,65,83,190/- but the market value adopted by the Stamp Valuation Authority was Rs. 3,80,95,690/-. The difference amounted to Rs. 15,12,500/-. It was submitted by the assessee that over all variation between the sale consideration and market price is less than 10% and in view of the decision of Coordinate Bench Mumbai in the case of Maria Fernandes Cheryl vs. ITO [ITANo.4850/Mum/2019, dated 15.01.2021, the amendment brought by the Finance Act 2020 w.e.f. 01.04.2021 substituting 110% in place of 105 % for the difference in consideration between the valuation as per Stamp Valuation Authority and the sale consideration actually received was held to be retrospective in nature. However, Ld. Pr. CIT was not satisfied and he was of the considered view that the difference of Rs.15,12,500/- should have been brought to tax and as this exercise was not carried out by the Ld. AO, the assessment order is erroneous and prejudicial to the interest of revenue and for arriving so Ld. Pr. CIT observed as follows:
“4. I have carefully considered the facts and the submission of the assessee. On the issue of difference of Rs. 1295982/- between the closing balance of booking advance as per its submission during the assessment and as appearing in the Balance Sheet, the reply of the assessee seems to be acceptable. It is noted that the issue was duly examined by the AO during the course of assessment 4 SBD Developers ITANo.124/Ind/2021 proceedings and no further interference is called for on this. On the issue of difference of RS. 1512500/- between sale value of 15 plots and value as per stamp valuation authority, the assessee has submitted that the transactions were done at the prevailing market rates in earner year in which payments were received through banking channels. The assessee has also submitted the list containing the market value for the purpose of stamp valuation and also furnished relevant extracts of the bank statements showing payments received in earlier years. It is seen that the assessee has not submitted copies of agreements executed with these 15 parties in earlier years prior to the registries in the year under consideration. There are also differences in the value adopted by the assessee as market value in its reply and the market values adopted for the purpose of stamp valuation by the Registrar. For instance stamp duty valuation as per the reply of the assessee for plot no 126 ( 1100 sq. ft.) for the AY 2014-15 is Rs. 613162 and Rs. 715352 for the AY 2015-16. However, it is seen from the Registry document that the market value for the purpose of stamp valuation is shown at Rs. 10230001- for the AY 2015-16. Hence, the submission of the assessee is not acceptable due to non furnishing of agreements in earlier years and error in the market value shown by the assessee in its reply. The assessee further stated that the deviation in the market value and sale value is less than 10%. Finance Act 2020 has amended Section 50C (applicable to 43CA as well). As per this amendment, a deviation of 10% has been permitted to the developers. The assessee has/cited the decision of the Hon'ble Mumbai ITAT in the case of Maria Fernandes Cheryl Vs ITO ( dated 15.01.2021) in which it was held that the amendment in Section 50C(1) is retrospectively applicable. This contention of the assessee is also not acceptable as the issue has not been finalized by the jurisdictional High Court of the Hon'ble Supreme Court. What is relevant is that the AO totally failed to notice that the sale value reported by the assessee in 15 cases was lower than the market value and thus provisions of Section 43CA were applicable. Despite the fact that the details were available on record, the AO failed to raise any query or cause any enquiry on this issue. The failure on the part of the AO has resulted in assessment at a lesser value. Hence, the order of the AO is held to be erroneous as well as prejudicial for failing to apply provisions Of Section 43CA. Apart from facts of the case, I would like to draw inference from the following case law which support the initiation of proceedings u/s 263 i this SBD Developers ITANo.124/Ind/2021 case:- Jagdish Kumar Gulati [2004] 139 T AXMAN 369 (ALL.) When an assessment is done under section 143(3), it is expected that the Assessing Officer will make a detailed enquiry to find out the correct income of the assessee and not to take the facts placed by the assessee on their face value. No proper enquiry appeared to have been made by the Assessing Officer in the instant case. It is well settled that if the Assessing Officer fails to make a proper enquiry this is erroneous and prejudicial to the interest of the revenue. [Para 13] 6. Therefore, in view of the above discussions, I am of the considered opinion that the order dated 11.12.2017 for A.Y. 2015-16 is erroneous in so far as it is also prejudicial to the interest of revenue on account of passing of the order without making required inquiries/ investigations. Accordingly, I am satisfied that provisions of section 263 of I.T. Act 1961 required to be invoked. Therefore assessment for A.Y. 2015-16 framed on 11.12.2017 is hereby set-aside to the file of AO to re-examine the issue, as indicated in the preceding discussion and for passing an order as per the law after making necessary verification, inquiries and investigations. It would be not out of place to mention that the AO shall re-examine only the issue which has been indicated for further investigation.
Aggrieved assessee is now in appeal before this Tribunal. Ld. counsel for the assessee vehemently argued referring to the detailed written submissions filed before the Ld. Pr. CIT on 15.02.2021 and also took us through various documents filed in the paper book dated 17.01.2022 containing 78 pages. Ld. counsel for the assessee also stated that the Ld. AO has examined complete transactions of sale of immovable property shown in profit and loss account during the course of assessment proceedings and Ld. AO took one of the view permissible in law for accepting the sale consideration SBD Developers ITANo.124/Ind/2021 disclosed by the assessee and therefore assessment order is neither erroneous nor prejudicial to the interest of revenue.
Per contra, Ld. DR vehemently argued supporting the order of Ld. Pr. CIT.
We have heard rival contentions, perused the records placed before us. Through this appeal assessee has challenged the validity of the order u/s 263 of the Act, on the ground that Ld. Pr. CIT wrongly assumed jurisdiction and also erred in holding that the order of the Ld. AO dated 11.12.2017 is erroneous and prejudicial to the interest of revenue. We notice that only issued raised by the Ld. Pr. CIT relates to the difference between sale consideration from sale of immovable property, shown by the assessee in the profit and loss account as against the valuation adopted by the Stamp Valuation Authority for charging stamp duty. Ld. Pr. CIT has referred to the difference of Rs.15,12,500/- which escaped tax as the difference between the value adopted by the Stamp Valuation Authority at Rs.3,80,95,690/- and the sale consideration shown profit and loss account at Rs.3,65,83,190/-. Now for examining this issue we will first go through the provisions of section 263 of the Act which reads as follows:
(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the 2 Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the 7 SBD Developers ITANo.124/Ind/2021 circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 3 Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub- section,- (a) an order passed 4 on or before or after the 1st day of June, 1988 ] by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or the Income- tax Officer on the basis of the directions issued by the Deputy Commissioner under section 144A; (ii) an order made by the Deputy Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under section 120; (b)" record" shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub- section and passed by the Assessing Officer had been the subject- matter of any appeal, filed on or before or after the 1st day of June, 1988 ] the powers of the Commissioner under this sub- section shall extend 1 and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.]
On perusal of the above section 263 of the Act apart from other conditions Ld. Pr. CIT have to first come to the conclusion that order of the Ld. AO is erroneous and secondly it is prejudicial to the interest of revenue.
SBD Developers ITANo.124/Ind/2021 8. Now to examine this aspect we have to first see whether this issues come for examination before Ld. AO. We find that assessee’s case was selected for scrutiny proceedings and complete books of account and financial statements were filed. The copy of statement showing details of sales made during the year along with details of guidelines and market value were filed before Ld. AO. Copies of vouchers along with relevant bank statements of assessee firm evidencing to accept all advances/sale consideration were filed before Ld. AO. Copy of Margdarshak issued by the Collector, Indore in respect of Village Jakhya, Tehsil Sanwer, District Indore) were also filed before Ld. AO. Ld. AO has examined all these transactions and details and on finding that the variation between valuation adopted by the Stamp Valuation Authority and the sale consideration is within the range of 110% did not made any addition in the hands of assessee. This fact is further supported by the details filed on page 30 of the paper book which shows the total details of 37 plots sold during the year out of which in case of 22 transactions, there is no difference between the sale value and the market value as per registered sale deed. Over all the difference is just 103.8952%. Now question arises that whether the Ld. AO was justified in accepting the sale consideration disclosed by the assessee.
We find that Ld. AO took one of the permissible view permitted under the law and on observing that there is no major difference between the value as per stamp valuation as per sale consideration shown by the assessee accepted the book results. Similar view has 9 SBD Developers ITANo.124/Ind/2021 also been taken by the Coordinate Bench Mumbai in the case of Maria Fernandes Cheryl vs. ITO (supra) wherein it has been held that third proviso to section 50C(1) shall have retrospective effect and the provisions of section 50C shall have no application when the difference between the stated consideration vis-à-vis stamp duty valuation is less than 10% of the stated consideration. In the instant case also assessee firm is duly covered by the first proviso of section 1 of section 43CA of the Act and the consideration was received by the assessee firm from sale of flats during the relevant provisions years shall be deemed to be full value of consideration. Therefore, in our view Ld. AO has duly considered the stamp duty valuation of the flats sold by the assessee firm during the relevant previous year and also the relevant provision of section 43CA of the Act and after due application of his mind has passed the impugned order.
Our view is further supported by judgment of Hon'ble Supreme Court in the case of Malabar Industrial vs. CIT (2000) 243 ITR 83 (Hon'ble Supreme Court) wherein Hon'ble court held that “the phrase prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be 10 SBD Developers ITANo.124/Ind/2021 treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue. Rampyari Devi Saraogi Vs. Commissioner of Income-tax [67 ITR 84] and in Smt. Tara Devi Aggarwal Vs. Commissioner of Income-tax, West Bengal [88 ITR 323].
We, therefore, in light of judgment revered hereinabove, are of the considered view that order of the ld. AO dated 11.12.2017 is neither erroneous nor prejudicial to the interest of revenue as Ld. AO has examined the transactions of sale consideration received during the year, in light of the provision of section 43CA of the Act as well as section 50C of the Act and since difference between the sale consideration received and the valuation as per stamp valuation authority is less than 10% in few cases and in some cases there is no difference. There was no reason for the Ld. AO to doubt the correctness of the sale consideration shown by the assessee and has rightly accepted the same. Therefore, Ld. Pr. CIT erred in assuming jurisdiction u/s 263 of the Act which in our view is liable to be quashed. We, accordingly quash the impugned order framed u/s 263 of the Act and restore the assessment order u/s 143(3) of the Act dated 11.12.2017.
SBD Developers ITANo.124/Ind/2021 12. In the result, appeal of the Assessee in ITANo.124/Ind/2021 for A.Y. 2015-16 is allowed.
The order pronounced as per Rule 34 of ITAT Rules, 1963 on 11.02.2022.