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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: MS. SUCHITRA R. KAMBLE & SHRI BHAGIRATH MAL BIYANI
PER BHAGIRATH MAL BIYANI, A.M: This appeal by assessee is directed against the revision-order dated 25.03.2021 passed by Ld. PCIT-1, Bhopal, [“Ld. PCIT” for short] u/s 263 of Income-tax Act, 1961 [“the Act” for short] for Assessment Year 2015-16.
The assessee has raised following Grounds:
“1. The order passed by the Ld. PCIT u/s 263 is illegal and bad in law and hence be set aside. Page 1 of 12
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The Ld. PCIT has erred in passing the order u/s 263 on the ground that the order passed by the Ld. AO is erroneous and prejudicial to the interest of the revenue. 3. It was proved before the Ld. CIT that the assessment framed after due scrutiny of the facts and as such the order passed is not erroneous and prejudicial and as such no action u/s 263 can be taken. The appeal is delayed. The due date was 22nd May 2021. However, 4. because of COVID-19 pandemic and ill health of the assessee, the appeal could not be filed in time. The delay may kindly be condoned. 5. The order passed by the Ld. CIT be quashed.”
At the start of hearing, the Ld. AR submitted that the present appeal is delayed by 182 days and therefore the assessee has filed an application, supported by an affidavit, praying for condonation of delay. The reasons of delay, as submitted by the assessee, are two-folds, viz. (i) ill-health of assessee and (ii) Covid-19 pandemic, due to which the assessee could not deliver the order appealed against to his counsel in time. Regarding ill- health, it is the submission of assessee that he had been suffering from diabetics, high blood pressure and kidney impairment for over 25 years. In support, the assessee has also placed on record, a medical certificate issued by Shreya Clinic. Regarding Covid-19 pandemic, it is the submission of assessee that the Hon’ble Supreme Court has, in Suo Motu Writ Petition (C) No. 3 of 2020 read with Misc. Applications, granted suo motu extension of the limitation-period for filing of appeals w.e.f. 15.03.2020 under all laws. Since the present appeal was due to be filed on 22.05.2021, it has the benefit of suo motu extension granted by Hon’ble Supreme Court and resultantly there is no delay in fact. We observe that both of the reasons advanced by the Ld. AR are sufficient and convincing. We confronted the Ld. DR who did not show any objection. In view of this, the delay is condoned and the appeal is proceeded with for hearing. Page 2 of 12
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The assessee submitted original return on 31.10.2015 at a total income of Rs. 2,74,75,700/- and revised return on 17.08.2016 at a total income of Rs. 3,76,76,850/-. The case of assessee was selected under scrutiny through CASS and statutory notices u/s 143(2) and 142(1) were issued from time to time. In response thereto, the assessee attended hearings from time to time and submitted written submissions. Finally, the Ld. DCIT-4(1), Bhopal [“Ld. AO” for short] completed assessment u/s 143(3) vide order dated 29.09.2017 at a total income of Rs. 3,76,76,850/-.
Subsequently, the Ld. PCIT invoked the provisions of section 263 of the Act by issuing notice dated 16.03.2021, the relevant extract of which is reproduced below:
“Notice u/s 263 of Income-tax Act for AY 2015-16 – Show Cause – reg.
Please refer to the assessment order u/s 143(3) of the Income Tax Act, 1961 dated 29.09.2017 passed by DCIT-4(1) Bhopal for A.Y. 2015-16.
On perusal of the assessment order and case records, it has been observed that the assessee had owned land admeasuring areas 10.41 acre which was acquired by the Bhopal Development Authority during the F.Y. 2009-10. The Bhopal Development Authority has transferred 42 developed plots to the assessee admeasuring area 1,30,767 sq. feet during the financial year 2013-14. The assessee has sold 11 plots admeasuring areas 25567.48 Sq.feet during the F.Y. 2015-16 and hold closing stock 81958.40 Sq. Feet on 31.03.2015 with the intention to sell it at profit. Therefore, the income was to be held as adventure in the nature of trade and profit and gains therefrom was liable for taxation as business income whether from sale of land or plots.
Keeping in view of the above, the assessment order passed by the Assessing Officer is considered to be erroneous in so far as it is prejudicial to the interest of revenue and therefore, I propose to invoke power vested u/s 263 of the Income Tax Act, 1961 in respect of the order referred to above.”
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Finally, the Ld. PCIT passed revision-order u/s 263 of the Act on 25.03.2021 and set aside the order of assessment. Aggrieved by this revision-order of Ld. PCIT, the assessee has filed present appeal and now before us.
Submissions of Ld. A/R:
7.1 Before us, the Ld. AR submitted that the crux of various grounds raised by the assesse is that the revision-order passed by Ld. PCIT u/s 263 is bad in law, illegal and deserves to be quashed since the same has been passed even when the order of assessment is neither erroneous nor prejudicial to the interest of revenue. The Ld. AR, therefore, instantly carried our attention to following paras of the revision-order where the Ld. PCIT has observed:
“4. On perusal of the assessment order and related records, it is observed that the assessing officer did not enquire into the issue stated in SCN which should have been made during the assessment proceedings. It is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to complete the assessment as per law. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word ‘erroneous’ includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made. As per the amendment made to Clause (a) to Explanation 2 (inserted by Finance Act, 2015 w.e.f. 1.6.2015) of section 263(1) of I.T. Act which is reproduced here below -
“For the purpose of this, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue, if in the opinion of the 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; Page 4 of 12
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(c) …. (d) …”
For the above reasons I am satisfied that this is a fit case where action u/s 263 is justified and inescapable. This view of mine further gains strength and support by the ratio of the decisions in the case laws mentioned here below:
Ram Pyari Devi Saraogi vs. CIT (1968) 67 ITR 84 (SC) - the Hon'ble Supreme court has held that assessment made in undue haste and without making inquiries which are called for the circumstances of the case in erroneous and prejudicial to the interest of revenue.
Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) - Hon'ble Supreme court has held that non-application of mind by the assessing authority on a particular issue, renders the assessment order susceptible to revision.
CIT v. Bhagwan Das (2005) 272 ITR 367 (All.) (HC) – the Hon'ble High Court has held that non-application of mind by the Assessing Officer was prejudicial to the interest of the revenue.
Pratap Footwear v. ACIT (2003) SOT 638 (Jabalpur) Trib. - the Hon'ble Tribunal has held that non-application of mind by the Assessing Officer was prejudicial to the interest of revenue.
CIT vs. Jawahar Bhattacharjee (2012) 341 ITR 434 (Gauhati) (HC) (FB) - the Hon'ble High court has held that error in assessment order arising by ignoring relevant material or on incorrect assumption of facts or incorrect application of law - Amenable to revision u/s 263.
(2017) (Himachal Pradesh) / (2017) 298 CTR 393 Virbhadra Singh (HUF) vs. Principal commissioner of Income Tax (Himachal Pradesh): Where no inquiry was conducted by Assessing Officer in passing assessment order after accepting revised return filed by assessee, Commissioner was well within his power under section 263 to direct fresh assessment.
In view of the detailed reasons given and discussions made herein above, the assessment order u/s 143(3) dated 29.09.2017 made by the DCIT-4(1), Bhopal for the A.Y.2015-16 is hereby set aside u/s 263 with the direction to
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the AO to make it de novo after proper examination, inquiry and verification on all aspects, after giving reasonable opportunity to the assessee of being heard and after bringing on records the relevant supporting material and evidences in support of the action of the AO.”
Analysing these paras, the Ld. AR submitted that the Ld. PCIT has conducted revision on the premise that the Ld. AO did not enquire into the issue that the profit on sale of plots declared by the assessee was a business income. Thus, the revision has been done on the ground of lack of enquiry, applying Explanation 2 to section 263(1) of the Act. Thereafter the Ld. A/R carried our attention to following paras of the assessment- order, passed by Ld. AO:
ln response to the above notices, Shri Nasiruddin, Advocate & “2. Authorized representative attended the hearings from time to time and filed written submissions which are placed on record. The written submissions were considered, and the case was discussed with A.R.
The assessee is a Timber merchant. During the assessment proceedings, the assessee has furnished copy of Income Tax Return, Computation of Income, copy of capital account, P&L A/c and Balance- Sheet, copies of purchase/ sale deeds, copy of bank statements etc. which are placed on record.
The perusal of the submission of the assessee, it was noticed that in original recturn of income, the assessee offered income of Rs. 2,71,32,716/- on account of Long Term Capital Gain. Subsequently the return was revised on 17.08.2016 declaring income of Rs. 3,73,33,850/- from Long Term Capital Gain. After perusal of revised calculation of Long Term Capital Gain, copies of sale and purchase deeds and bank account, revised return of income filed by the assessee is accepted.”
The Ld. A/R submitted that Para No. 2 of assessment-order makes it very clear that the Authorised Representative of assessee attended hearings from time to time and filed written submissions and the Ld. AO considered
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those submissions. Thereafter Para No. 3 clearly states that the assesee is a timber merchant. It further states that the assessee has furnished not only the copy of income-tax return, computation of income, copy of capital account, P&L A/c, Balance-Sheet, etc. but also filed copies of purchase deeds and sale-deeds of plots. Thereafter Para No. 4 clearly demonstrates that the Ld. AO has perused those documents. The last sentence of this para clearly states “After perusal of revised calculation of Long Term Capital Gain, copies of sale and purchase deeds and bank account, revised return of income filed by the assessee is accepted”. The Ld. AR strongly contended that when the Ld. AO has perused all documents and thereafter accepted the income declared by the assessee, how can one say that the order has been passed without making enquiries or verification?
7.2 The Ld. AR further carried our attention to the Computation of Total Income and working-sheet of profit on sale of plots submitted by assessee before Ld. AO and placed at Page No. 9 to 13 of the Paper-Book. Ld. AR submitted that the working-sheet on Page No. 12, clearly demonstrates that the assesse purchased 10.41 acres of land in the year 1994-95 and 2001- 02. This land was acquired by Bhopal Development Authority during the financial year 2009-10, who allotted 42 developed plots to the assessee during the financial year 2013-14. Out of those 42 plots, the assessee sold a few plots during the financial year 2013-14 relevant to immediately preceding assessment-year 2014-15, 11 plots during the financial year 2014-15 relevant to the assessment year 2015-16 under consideration and the balance plots remained unsold as on 31.03.2015. The Ld. A/R submitted that these facts clearly demonstrate that the assessee had
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purchased lands of 10.41 acres long back in the year 1994-95 and 2001-02 and since then held the same as capital asset only. It is Bhopal Development Authority which acquired those lands under the statutory rules, the assessee did not step to sell. The Ld. AR further submitted that 42 developed plots is merely an allotment by Bhopal Development Authority against 10.41 acres of lands held as capital asset by the assessee and it is after such allotment that the assessee had to sell those plots from time to time as and when suitable buyers were available. But this is a fact that the assessee is not engaged in real estate or plotting activity at all. The Ld. A/R submitted that in such a circumstance how can it be inferred that there was an adventure in the nature of trade undertaken by the assessee?
7.3 Thereafter, the Ld. A/R invited our attention to the facts of immediately preceding assessment-year 2014-15 which, according to him, were very relevant and determinative. The Ld. AR submitted that the Bhopal Development Authority allotted 42 plots to the assessee, out of which the assessee sold a few plots during the financial year 2013-14 relevant to assessment-year 2014-15. The Ld. A/R referred to the copy of assessment-order dated 31.12.2019 for the assessment-year 2014-15 placed at Page No. 27-29 of the Paper Book and submitted that the assessment of that year was also completed as a scrutiny-assessment u/s 143(3) of the Act and the profit on plots sold in that year was also assessed by Ld. AO as long-term capital gain. The Ld. A/R further submitted that even the assessment-order of that year was also examined by the Ld. PCIT u/s 263 of the Act and the revision-order was passed on 14.01.2019, a copy of which is placed on Page No. 30 of the Paper-Book. The Ld. AR
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submitted that while passing revision-order, the Ld. PCIT has not raised any objection against the long-term capital gain assessed by Ld. AO, though he had objected to the deduction of brokerage expenditure claimed by the assessee u/s 48 and set aside the assessment-order with a direction to Ld. AO to examine the claim of brokerage expenditure. According to Ld. A/R, this clearly goes to show that the Ld. PCIT has accepted the profit on sale of plots as long-term capital gain in the very same circumstances. The Ld. AR, therefore, submitted forcefully that the nature of income as long- term capital gain stands accepted in the immediately preceding assessment-year of the assessee’s own case and there is no reason to deviate in the current year because there is no change in facts.
7.4 With these submissions, the Ld. AR submitted that the assessee has rightly declared profit from sale of 11 plots as long-term capital gain and the Ld. AO has rightly assessed the same as capital gain after verification of documents. Hence the order of assessment passed by Ld. AO is neither erroneous nor prejudicial to the interest of revenue. Therefore, the Ld. PCIT has wrongly invoked section 263.
Submissions of Ld. DR:
8.1 Per contra Ld. DR referred to the very same Para No. 4 of the assessment-order reproduced above and submitted his analysis. Ld. DR submitted that the Ld. AO has, although perused the documents submitted by the assessee yet not enquired into the issue whether the profit on sale of plots was actually in the nature of capital gain or adventure in the nature of trade. In the course of arguments, the Ld. DR read out the following provision contained in Explanation 2 to Section 263(1) of the Act:
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“For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of revenue, if, in the opinion of the Principal Commissioner or Commissioner – (a) the order is passed without making inquiries or verification which should have been made:” Arguing forcefully, the Ld. DR submitted that the words used in this provision are “in the opinion of” and not “being satisfied”. Therefore, once the Ld. PCIT is of the opinion that the assessment-order has been passed without making enquiries or verification, he is justified to invoke section 263.
8.2 Finally, the Ld. D/R placed heavy reliance on the order of Ld. PCIT and submitted that the Ld. PCIT has rightly invoked section 263 and therefore the revision-order must be upheld.
We have considered the rival contentions of both sides and carefully perused the material available on record. We observe that the Para No. 2 to 4 of the assessment-order, reproduced above, clearly state that the assessee has made written submissions and filed not only the working of capital gain but also the purchase and sale deeds. The Ld. AO has clearly mentioned in the assessment-order that he has perused those submissions and documents and thereafter accepted the long-term capital gain declared by the assessee. We also observe that during assessment proceedings, hearings were conducted from time to time and attended by the assessee and the assessment-order has not been passed in haste. It is true that in Para No. 4 of assessment-order, it would have been better if the Ld. AO had made an elaborate discussion which he did not make, but still the assessment-order clearly transpires that the Ld. AO has perused the working of capital gain as well as the evidences of capital gain in the form Page 10 of 12
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of purchase and sale deeds and it is thereafter that he accepted the long- term capital gain. Thus, there is no lack of enquiry on the part of Ld. AO. We observe that the opening language of Explanation 2 to section 263(1) uses the words “in the opinion of”, as claimed by Ld. DR, but it is equally true that such opinion must be well-founded and not illusory. Further we cannot stop to this opening language of Explanation 2, we have to step further to Clause (a) which requires that the order sought to be revised must have been passed without making inquiries or verifications. As observed earlier, this requirement of this Clause (a) is not satisfied because the Ld. AO has verified the working of capital gain as well as purchase- deed and sale-deed placed by the assessee before him and only thereafter accepted the capital gain. We further observe that the cases laws relied upon by Ld. CIT(A) hold good in the situations where the AO has made assessment in undue haste without making enquiries or the AO has not applied mind or the assessment has been made by ignoring relevant material or on incorrect assumption of facts or incorrect application of law, but these features are absent in present case. Lastly, we also observe that out of 42 plots allotted by Bhopal Development Authority, the assessee sold a few plots in the immediately preceding assessment-year 2014-15 and declared the profit arising therefrom as long-term capital gain, which stand accepted by Ld. AO and also not disturbed by Ld. PCIT in revision- proceedings of that year. As the assessee has sold 11 plots during the assessment-year 2015-16 under consideration out of the very same bunch of 42 plots, the nature of income being long-term capital gain as accepted by revenue in the assessment-year 2014-15 must be accepted in the assessment-year 2015-16 under consideration too.
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In view of foregoing discussion, we are of the considered view that the Ld. PCIT was not justified in invoking section 263 to the present matter of assessee. Being so, we quash the order passed by Ld. PCIT u/s 263.
In the result this appeal of assessee is allowed.
Order pronounced as per Rule 34 of I.T.A.T. Rules 1963 on 09 /03 / 2022.
Sd/- Sd/-
(SUCHITRA R. KAMBLE) (BHAGIRATH MAL BIYANI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Indore; �दनांक Dated : 09 /03 / 2022
Patel/Sr. PS
Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file.
By order
Sr. Private Secretary, Indore
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