GAURAV MATHRAWALA,MUMBAI vs. CIT 27, NAVI MUMBAI

The aforesaid appeal has been filed by the assessee against impugned order dated 16.02.2015, passed by Principal Commissioner of Income Tax -27 Mumbai, u/s 263 setting aside the assessment order passed u/s 143(3) dated 18.03.2013 for the assessment year 2010-11, on the ground that it is erroneous and prejudicial to the interest of the revenue.

The brief facts are that, assessee is an individual who has shown income from salary, capital gain and income from other sources. The return of income was filed on 19.07.2010 and such a 2 Gaurav Mathrawala ITA 2378/M/2015 return of income was subjected to scrutiny proceedings and assessment order u/s 143(3) was passed on 18.03.2013, accepting the return of income of Rs. 19,17,408/-. Later on, the Ld. CIT on the perusal of the assessment records found that assessee has claimed exemption u/s 54/54F of Rs. 47,27,400/- in the computation of long-term-capital-gain. He noted that, during the relevant financial year 2009-10, the assessee had sold 50,000 unquoted shares on 30.05.2009 resulting into net long-term- capital-gain of Rs. 29,75,004/-. Apart from that, the assessee had also sold a flat at Airoli on 22.10.2009 on which there was a net long-term-capital-gain of Rs. 17,52,396/-. The aggregate of such long-term-capital-gain was at Rs. 47,27,401/- which was claimed as exempt on account of investment made in purchase of a residential property. The facts qua the issue are that the assessee had executed an agreement for purchase of a residential property from Dosti Group on 06.05.2009 for a consideration of Rs.1,09,25,395/- which was registered on 18.05.2009. Similarly, the assessee had made another agreement which was executed on 31.03.2010 for purchase of flat at Hiranandani Maitry Park for a consideration of Rs. 1,72,00,000/-. The Ld. CIT in the show cause observed that, assessee has not specifically stated the name of the property against which exemption u/s 54F has been claimed. If it is presumed that exemption is claimed for the flat at Dosti, then LTCG arising from sale of shares would not qualify for exemption u/s 54F, as the assessee has purchased another flat at Maitry Park within 2 years i.e. on 31.03.2010. If it is assumed that, exemption u/s 54F is availed for the purchase of flat at Maitry Park, then the fact remains that on the date of sale of shares, i.e. May 2009, the assessee had more than one residential flats i.e. Flat at Dosti and another flat at Airoli which was sold in October, 2009. Thus, due to ownership of two flats on the date of sale of shares, the long-term-capital-gain from sale of shares is not eligible for exemption u/s 54F against house property at Maitry

In response to the show cause notice dated 21.01.2014, the assessee submitted that, during the course of the assessment proceedings, the assessee vide various letters had submitted all the details of sale and purchase of shares; proof of purchase and sale for Airoli property; property documents for purchase of flat at Dosti along with source thereof; proof for advance given for the property at Hiranandani Maitry Park along with the source thereof; bank statement; and working of LTCG. Thus, it was submitted that, all these details were before the AO and that to be in response to the various queries raised during the course of the assessment proceedings from time to time. Apart from that, the assessee had also annexed all the documents whereby, the assessee had submitted the details along with the reply relating to the capital gains which has been tabulated by the assessee in the following manner:-

Thus, it was submitted that, there has been proper application of mind by the AO and, therefore, it cannot be held that impugned assessment order passed by the AO is without any 4 Gaurav Mathrawala ITA 2378/M/2015 application of mind or is erroneous. It was further submitted that, the assessee had purchased the property at Dosti on 06.05.2009 which was registered on 18.05.2009 for a consideration of Rs. 1,09,25,395/- against which exemption u/s 54/54F was claimed. The other property for which advance payment was made i.e. for the property at Hiranandani Maitry Park, the assessee had only made advance payment which was in the joint name of assessee and his mother, Mrs. Toral B. Mathrawala. Thus, there was no violation of any condition laid down u/s 54F. AO only after verifying these facts had allowed the exemption u/ 54F on the LTCG. After clarifying the facts, the assessee referred to various decisions and submitted that, the assessment order is neither erroneous nor prejudicial to the interest of the revenue. Assessee’s detailed reply in this regard has been placed in the paper book from pages 19 to 32.

However, the Ld. CIT held that, the AO has not verified the facts in details and has passed the order without making any proper investigation or enquiries, therefore, the assessment order is erroneous in so far as it is prejudicial to the interest of the revenue and accordingly, he set aside the assessment order and directed the AO to examine the said issue in detail.

Before us, the Ld. Counsel after reiterating the entire facts, drew our attention to various notices and queries raised by the AO during the course of the assessment proceedings with regard to the details of LTCG earned and the purchase of the properties / flats while examining the claim of exemption u/s 54/54F. He submitted that once, the AO has specifically called for the details and assessee has in response filed all the documentary evidences, then it cannot be said that impugned assessment order has been passed without application of mind or enquiry. On this ground alone, he submitted that order passed by the CIT u/s 263 cannot be sustained. He further submitted that, the assessee has claimed

On the other hand, Ld. DR submitted that, application of mind by the AO has to be shown either in the assessment order or from the records. There is no specific application of mind on section 54F. The Ld. CIT has merely directed the AO to examine the issue of exemption of claim u/s 54F afresh and in accordance with the law after giving due opportunity to the assessee. Thus, there is no prejudice caused to the assessee.

We have carefully considered the rival submissions, perused the relevant finding given in the impugned order as well as material placed on record. The Ld. CIT has set aside the assessment order passed u/s 143(3) dated 18.03.2013 on the ground that assessee’s claim for exemption u/s 54/54F need to be properly examined by the AO as he has not carried out any proper enquiry or investigation of such a claim and has not verified the facts and the source of funds for making the investments in new assets. It is a trite law that the perquisite condition to exercise the revisionary jurisdiction u/s 263, by the Commissioner are that, firstly the order passed by the AO is erroneous and secondly, it should be prejudicial to the interest of the revenue. Both the conditions should be fulfilled simultaneously. In other words, if either of the conditions is lacking then Ld. CIT cannot take

Now whether it is prejudicial to the interest of revenue or not. Before the Ld. CIT as well as before us the assessee had duly demonstrated that the assessee had claimed exemption against property purchased at Dosti and another property at Hiranandani Maitry Park was under construction for which only advance was given and assessee had not acquired any possession of the said property. Otherwise also, the said property was jointly held by his mother who was the first holder and the assessee was the second holder. Once the assessee has invested the entire LTCG arising from the sale of shares and the said gain has been invested entirely in the purchase of flat in his name within the time period given in section 54F, then assessee is eligible for exemption u/s 54F from such LTCG. Ld. CIT has not disputed this contention of the assessee raised before him, but has simply set aside the assessment to the AO to examine it afresh. Such an exercise by the CIT cannot be appreciated, firstly, he should give specific finding as to why such a contention raised by the assessee is not correct or divorced from the facts and material records and secondly, how on the facts the order of the AO is actually erroneous and also prejudicial to the interest of the revenue. Simply mentioning the phrase in the order that the “assessment order is erroneous and so far as it is prejudicial to the interest of the revenue” is not