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Income Tax Appellate Tribunal, MUMBAI BENCHES “C”, MUMBAI
Before: SHRI JASON P. BOAZ (AM) & SHRI SANDEEP GOSAIN (JM)
This appeal by the assessee is directed against the order of the CIT -17, Mumbai passed u/s 263 of the Income Tax Act, 1961 ( in short ‘the Act’) on 11/11/2011 for Asst. Year 2007-08.
The facts of the case, briefly, are as under:-
2.1 The assessee filed its return of income for Asst. year 2007-08 on 27/03/2008 declaring total income of Rs. 87,770/- The return was processed u/s 143(1) of the Act and the case was subsequently taken up for scrutiny. The assessment was concluded u/s 143(3) of the Act vide order dt. 24/12/2009 accepting the income of Rs. 87,770/- as declared by the assessee in his return of income. The order of assessment reads as under:- The assessee has filed the return of income for A.Y. 2007-08 on 27/03/2008 declaring the total income at Rs. 87,770/-. The same was processed under sec. 143(1) of the I.T. Act. The case was selected for scrutiny and notice under sec. 143(3) of the I.T. Act was issued on 30/09/2008 and served on the assessee. Subsequently another notice u/s 142(1) of the I.T. Act was issued on 04/09/2009 and duly served on the assessee. In reason to the notices, Mr. Rajesh Shah, C.A. attended and furnished the various details. The assessed has income from other sources. After discussion, the total income of the assessed is computed as under:
Income From Other Sources (As per statement) Rs. 1,15,965 Gross total Income Rs. 1,15,965 Less Deduction under Chapter VIA Rs. 28,195 Total Income Rs. 87,770
Assessed u/s 143(3) of the I.T. Act. Give credit for prepaid taxes after due verification. Charge interest u/s 234A, 234B, 234C & 234D if applicable. Issue D.N. ITNS 150 accordingly.
Sd/- (N.N. Kulkarni) Income Tax Officer 17(2)(3) Mumbai
The Ld. CIT on an analysis of the record of assessment observed that in respect of sale of the assessee’s flat on 26/12/2006 for a consideration of Rs. 39,50,000/-, the capital gains chargeable to tax was worked out at Rs. 27,08,107/- which was entirely claimed to be exempt u/s 54 of the Act on the ground that the assessee had purchased a flat at Akruti Kiran on 09/06/2008 for a consideration of Rs. 27 lakhs . The Ld. CIT case to the conclusion that the assessee’s claim of exemption u/s 54 of the Act was erroneously allowed by the Assessing Officer (‘AO’) as the assessee did not fulfill the requisite conditions specified in the Act. According to the Ld. CIT, the AO did not examine the correctness or genuineness of the factual and legal aspects assessee’s claim for exemption u/s 54 of the Act at all and granted the exemption without any application of mind. In that view of the matter, the Ld. CIT issued a show cause notice u/s 263 of the Act dt. 22/09/2011, calling for the explanation of the assessee as to why its claim for exemption u/s 54 of the Act not be rejected. In response thereto, the Ld. AR for the assessee appeared before the CIT and submitted a written explanation dt. 20/10/2011. It was contended that the assessee had sold the flat at ‘Shiv. Kailash’ on 26/12/2006 for Rs. 39,50,000/- and subsequently purchased a new flat at ‘Akruti Kiran for Rs. 27.11 lakhs in March, 2007, at which time as per the allotment letter, the assessee had paid Rs. 10 lakhs on23/03/2007. It was submitted that the balance payment of Rs. 17.00 lakhs was made; Rs. 4,87,500/- on 23/05/2007 and Rs. 12,23,500/- on 28/03/2008 after which the agreement for sale was entered into on 02/06/2008. It was submitted that since the assessee had made the payments for purchase of the new flat before 25/12/2008, he was entitled to the exemption claimed u/s 54 of the Act. The Ld. CIT after considering the submissions, and details filed by the assessee and making an analysis of the record came to the conclusion that the assessee’s claim for deduction u/s 54 of the Act was not in accordance with the provisions of the Act and that the AO had allowed the assessee’s claim without any enquiry or application of mind. In that view of the matter, the Ld. CIT held that the order of assessment for Asst. year 2007-08 is erroneous and prejudicial to the interests of revenue.
The Ld. AR for the assessee submitted before us, that the assessee’s claim for exemption u/s 54 of the Act finds mention in the statement of computation of income filed alongwith the return of income for Asst. year 2007-08. It was submitted that in response to AO’s notice u/s 142(1) dt. 16/06/2009 calling for copy of sale agreement of property sold for Rs. 39,50,000/-, a copy of this agreement was made available to the AO. It was contended by the Ld. AR that in the light of the above submissions, all the details required for considering its claim for claiming exemption u/s 54 of the Act were duly considered and only thereafter, the assesssee’s claim for exemption u/s 54 of the Act was accepted by the AO. It was contended by the Ld. AR, replying on the decision in the case of Max India Ltd. (295 ITR 282)(SC), that the AO took one possible view in the matter, with which the Ld. CIT did not agree and that this cannot render the order of assessment erroneous or prejudicial to the interest of revenue. In this context, the Ld. AR also placed reliance on the decision of the co-ordinate bench of ITAT, Mumbai in the case of Dhruv N. Shah (88 ITD 118) (Mum). It was submitted that the Ld. CIT’s revision was only a change of opinion on an issue which has already been considered and allowed by the assessee. The Ld. AR also contended that even on merits, the assessee’s claim for exemption u/s 54 of the Act was to be allowed in view of the following decisions:- (i) L N Nagda (211 ITR 804) (Bom) (ii) Hilla Wadia (216 ITR 376) (Bom) (iii) Madhu Kaul (363 ITR 54) (P & H) (iv) Seetha Subramanian (59 ITD 94) (Mad) The Ld. AR contends that in view of the above submissions, the impugned order u/s 263 of the Act ought to be cancelled.
Per contra, the Ld. DR emphatically supported the impugned order of the Ld. CIT. It was submitted that a perusal of the order of assessment for Asst. year 2007-08 dt. 24/12/2009 would prima facie indicate that the assessee’s claim for exemption u/s 54 of the Act has been accepted by the AO without any inquiry about the veracity of the assessee’s claim. The only details admittedly filed by the assessee before the AO was the sale agreement of the property sold. The assessee has failed to advance any evidence to show that entire required details were filed in respect to enquiry made by the AO in respect of the assessee’s claim for exemption u/s 54 of the Act. According to the Ld. DR is evident from the impugned order of the Ld. CIT that details in respect of the assessee’s claim for exemption u/s 54 of the Act were called for and examined only in revision proceedings. It is submitted that lack of inquiry and non application of mind by the AO in this regard rendered the order of assessment for Asst. year 2007-08 as erroneous and prejudicial to the interest of revenue.
We have duly considered the rival contentions and perused and carefully considered the material on record. Before embarking upon an inquiry about the facts available on record and how to construe then, we deem it necessary to take note of the fundamental principles for judging the action of the Ld. CIT taken u/s 263 of the Act. A co- ordinate bench of the ITAT Mumbai in the case of Mrs. Khatiza S. Oomerbhoy vs. ITO reported in 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of the Hon’ble Apex Court in the case of Malabar Industries Co. vs. CIT (243 ITR 83) (SC) and propounded the following broader tests:- (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of revenue. Bothe conditions must be fulfilled.
(ii) Sec. 263 of the Act cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is enoreous that the Section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of the order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous orders. (v) Every loss of revenue cannot be treated as prejudicial to the interests of Revenue. If the AO has adopted one of the courses permissible in law or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable in law. (vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the CIT while exercising his power u/s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial powers vested in him and if he exercises such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. (viii) The CIT, before exercising his jurisdiction u/s 263 of the Act must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanations by a letter in writing on the said issue and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in this regard.
Apart from the above principles, we deem it appropriate to make reference to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Sun Beam Auto reported in 227 CTR 113 wherein the Hon'ble High Court has propounded a distinction between lack of inquiry and inadequate inquiry. If there is a lack of enquiry, then the assessment order can be branded as erroneous. The following observations of the Hon'ble Delhi High Court are worth to note:
"12. 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 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 different opinion in the matter. It is only in cases of “lack of inquiry", that such a course of action would be open".
The Hon'ble Delhi High Court in the case of Gee Vee Enterprises Vs. Addl. CIT & Ors. (1975) 99 ITR 375 (Del.) has propounded the role required to be played by the Assessing Officer.
"The reason is obvious. The position and function of the Income Tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may he accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263' emerges out of this contract. It is because it is incumbent on the Income Tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is any thing wrong with the order if all the facts stated therein are assumed to be correct".
In the light of the above proportions, if we examine the material on record, we find that the exercise of jurisdiction u/s 263 of the Act was called for in the case on hand as the AO has accepted the assessee’s claim for exemption u/s 54 of the Act without making any investigation or inquiry to ascertain the veracity of the claim made, which in our considered view he failed to do. While it is true that the assessee has no control over the AO for passing the order of assessment which is the prerogative of the AO, the assessee has failed to demonstrate that the AO had issued any show cause notice in respect of its claim for exemption u/s 54 of the Act and that he has filed a reply in this regard. If this discussion is not discernible from the order of assessment on a particular issue, then in order to ascertain whether the AO has applied his mind or not to the concerned issue at hand, the higher forum can go through the show cause notice, if any, issued by the AO and the reply given by the assessee, that would indicate that though the assessment order is silent, the issue must have been discussed in the course of assessment proceedings. In the case on hand, we find that no such material is available to show that the AO examined the veracity of the assessee’s claim for exception u/s 54 of the Act. The Hon’ble Apex Court in the case of Malabar Industries Co Vs. CIT (243 ITR 83) has observed that acceptance of accounting entries as it is, without causing any inquiry by the AO would render the order erroneous and prejudicial to the interest of revenue. In our considered view, the Ld. CIT has considered all these aspects while taking action u/s 263 of the Act.
We are, however, of the view that the Ld. CIT ought to have set aside the order of the AO and remanded the issue of the assessee’s claim for exemption u/s 54 of the Act for fresh consideration; ought not to have directed the AO to revise the order of assessment by directing the AO to withdrew the exemption allowed to the assessee u/s 54 of the Act and reverse the assessment by bringing to tax the entire capital gains resulting from the sale of flat at ‘Shiv Kailash’ on 26/12/2006. We therefore modify the impugned order of the Ld. CIT and hold that the direction of the CIT to the AO to withdraw the Assessment Year: 2007-08 exemption u/s 54 of the Act on sale of flat at ‘Shri. Kailash’ on 26/12/2006 be deleted. Instead, we direct that the order of assessment for Asst. year 2007-08 dt. 24/12/2009, allowing the assessee, the exemption claimed u/s54 of the Act is set aside and remanded to the file of the AO for fresh consideration after affording the assessee adequate opportunity of being heard and to file details/submissions in this regard which shall be duly considered. It ordered accordingly.
In the result, the assessee’s appeal is treated as partly allowed for statistical purposes.