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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: Ms. MADHUMITA ROY & SHRI BHAGIRATH MAL BIYANI
O R D E R PER Ms. MADHUMITA ROY - JM: Both the appeals filed by different assessees are directed against the order dated 31.03.2021 and 27.03.2021 respectively, passed by the Ld. PCIT-1, Indore under Section 263 of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) arising out of the order passed by the Ld. AO dated 11.12.2018 and 25.08.2018 respectively, for Assessment Year 2016-17 under Section 143(3) of the Act which have been held to be erroneous and prejudicial to the interest of Revenue. & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 2 - 2. As the sale and purchase of property of the two assessee’s are inter- connected, both the matters are heard analogously and are being disposed of by a common order for the sake of convenience.
(in case of Kalpana Jain) has been taken as the lead case.
3. The Ld. PCIT has been pleased to direct the Ld. AO to pass afresh assessment order afresh referring the transaction of sales and purchase by and under the exchange deed of land at Sector-C, Scheme No. 71 to the Departmental Valuation Officer. The same is basically under challenge before us with the following grounds: “1) On the facts and in the circumstances of the case, and, in law, the Hon'ble Pr. Commissioner of Income Tax, Indore -1, Indore erred in passing the order u/s 263 by holding that the assessment order passed by the AO u/s 143(3) of the Income Tax Act 1961 is erroneous as well as prejudicial to the interest of Revenue and thus in setting it aside to the file of the AO for passing fresh assessment order after referring the transaction of sale and purchase (Via Exchange Deed of land at Sector C Scheme No. 71 to the Departmental Valuation Officer. 2) On the facts and circumstances of the case, the learned Hon'ble Pr. Commissioner of Income Tax, Indore- 1, Indore had erred in ignoring that the provision of section 56(2)(vii)(b) can be invoked only where sale consideration on sale of immovable property is less than stamp duty valuation. Therefore, the appellant prays that the revision order u/s 263 dated 31/03/2021 be quashed and/or annulled. 3) Without prejudice to the above, on the facts and in the circumstances of the case and, in law, the Hon'ble Pr. CIT-1, Indore failed to see that the capital gain issue involved was duly examined during the assessment proceedings learned Assessing Officer as the issue under the limited scrutiny was related to capital gains.”
4. The assessee before us, filed her return of income on 21.12.2016 declaring total income at Rs.5,08,390/-. Upon selection of the case for limited scrutiny through CASS, notice under Section 143(2) of the Act was & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 3 - issued on 19.09.2017, which was duly served upon the assessee through email. He has drawn our attention at Page No. 52 of the Paper Book filed before us. Subsequently, due to change of incumbent, notices under Section 142(1) alongwith Questionnaire was issued on 04.06.2018, 16.10.2018 & 12.11.2018 through ITBA/E-mail. In compliance thereof, the assessee duly filed written submission through online. The assessment was completed finally on 11.12.2018 accepting the return of income filed by the assessee at Rs.5,08,390/-. However, Ld. PCIT, upon verification of the records observed that the assessee’s claim of exemption under Section 54 of the Act to the tune of Rs.7,64,60,000/- was not verified. The assessee had exchanged her immovable property, admeasuring 675 sq. mtr. value of which, was declared as Rs.7,64,60,000/- (Rs.1,13,244/- sq. mtr.) with the immovable property of one Shri Hasanand Khmlani, admeasuring 1381.68 sq.mtr. value whereof is also Rs.7,64,60,000/- (Rs.55,329/-). The same were exchanged in mutual consent without any transaction of money. Though the property of the assessee herein having lesser area than that of the exchanged property, and both are situated in the same locality, the claim of equal valuation of both the property has been questioned by the Ld. PCIT. According to her, no enquiry and / or investigation on this particular aspect of the matter since not done by the Ld. AO, the order passed by the Ld. AO is erroneous and prejudicial to the interest of the Revenue. She, therefore, set aside the order passed by the Ld.AO with a direction upon him to refer the matter to the District Valuation Officer and then to reframe assessment order afresh.
5. Ld. Counsel appearing for the assessee at the time of hearing of the matter submitted before us that during the course of assessment proceeding, the Ld. AO issued notice under Section 143(2) of the Act dated 19.09.2017 and called for evidence and/or information in support of the return filed by & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 4 - the assessee. The limited scrutiny was identified for examination as to whether deduction from capital gains has been claimed correctly. Subsequently, on 04.06.2018, specific queries were raised and details were called for including the Income Tax Return alongwith computation of income, audit report, P&L Account, balance sheet, schedules, Annexures for A.Ys. 2015-16 & 2016-17 and statement of bank accounts maintained by the assessee. Complete details of capital gain or loss in tabular form during the relevant period, the sale and purchase deeds/bills of properties in respect of capital gain or loss were directed to be filed. The assessee was further directed to explain and justify in respect of capital gain consideration in Income Tax Return is less than sale of property reported in 26QB/AIR or sales consideration with documentary evidences. He was further directed to explain and justify in respect of large deduction claimed under Section 54 of the Act with documentary evidence. Complete details of expenses relating to transfer of property and cost of improvement with documentary evidences were also directed to be furnished by the assessee by and under the issuance of the notice dated 04.06.2018 under Section 142(1) of the Act. The assessee duly furnished the entire set of details as asked for. In this regard, the Ld. AR referred Page Nos. 56 and 58 of the Paper Book wherein the two notices dated 04.06.2018 and 16.10.2018 issued as also different documents as mentioned above are in existence. It was further contended that the above details were duly considered and examined by the Ld. AO and after being satisfied with the explanation given by the assessee, the assessment was completed under Section 143(3) of the Act. When the issue in question has already been enquired into and examined thoroughly by the Ld. AO in the scrutiny assessment, holding the said order erroneous so far as it is prejudicial to the interest of Revenue due to lack of proper enquiry and investigation invoking the provision of ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 5 - Section 263 of the Act by the Ld. PCIT is bad in law and liable to be quashed is the core argument of the Ld. AR before us.
On the other hand, the Ld. DR vehemently argued in support of the order passed by the Ld. PCIT contending that the Ld. AO has not carried out any enquiry while accepting the equal valuation of two different size of properties. The Ld. DR in this respect further relied upon the Explanation 2 of Section 263 of the Act which has been introduced by way of amendment through Finance Act, 2015 with effect from June 01, 2015, which provides that an order of the Ld. AO shall be deemed to be erroneous insofar as prejudicial to the interest of the Revenue if the same is passed without making enquiry. Hence, argued that the order impugned passed by the Ld. PCIT exercising power conferred under Section 263 of the Act holding the order passed by the Ld. AO erroneous and insofar as the prejudicial to the interest of the Revenue is sustainable in the eye of law.
We have heard rival submissions made by the respective parties. We have also perused the materials available on record. Though, the assessee has raised different grounds of appeal, the crux of the challenge revolves around the impugned order passed by the Ld. PCIT setting aside the order passed by the Ld. AO holding it erroneous and prejudicial to the interest of the Revenue.
Upon perusal of entire set of documents as submitted by the assessee before us it appears that on 19.09.2017, the ITO issued the notice under Section 143(2) of the Act; the same is appearing at Page Nos. 50 to 53 of the Paper Book filed before us. It appears that the limited scrutiny was for & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 6 - examination of the issue as to whether the deduction from capital gains has been claimed correctly. The said notice dated 19.09.2017 is reproduced hereinbelow: & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 7 -
Subsequently, on 04.06.2018, further notice under Section 142(1) of the Act was issued by the ITO directing the assessee to submit details in respect of capital gains claimed by the assessee. The copy of the said & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 8 - notice dated 04.06.2018 issued by the ITO under Section 142(1) of the Act alongwith annexure, appearing at Page Nos. 56 & 57 of the Paper Book filed before us, is reproduced hereinbelow:
“In connection with the assessment for the assessment year 2016-17 you are required to: a) Furnish or cause to be furnished on or before 18/06/2018 at 01:06 PM the accounts and documents specified overleaf. b) Furnish and verified in the prescribed manner under Rule 14 of 1.T. Rules 1962 the information called for as per annexure and on the points or matters specified therein on or before 18/06/2018 at 01:06 PM. c) The above mentioned evidence/information is to be furnished online electronically in 'E-Proceeding' facility through your account in 'e-filing' website of Income Tax Department. d) Para(s) (a) to (c) are applicable if you have an account in e-filing website of Income Tax Department. Till such an account is created by you, assessment proceedings shall be carried out either through your e-mail account or manually (if e-mail is not available). under section PARIM car e) In cases where order has to be passed of the Income Tax Act, 1961 read with section 143(3), assessment proceedings would be conducted manually.
ANNEXURE 1. Please furnish copy of Income Tax returns along with Computation of income Audit report, Profit & Loss a/c, Balance sheet, Schedules, Annexure etc. for A.Y. 2015-16 & 2016-17 Also furnish a brief note on the nature of your business/activities/ source of income for the year under consideration 2. Please furnish a list and copies of all types of bank account statements maintained for the year under statements. consideration along with the reconciliation statements.
3. Capital Gain: a. Please submit complete details of capital gain or loss in tabular form during the relevant period b. Please submit sale and purchase deeds/bills of properties in respect of capital gain or loss & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 9 - c. Please explain and justified in respect of Capital Gains consideration in ITR is less than sale of property reported in 26QB/AIR or sales consideration with documentary evidences. d. Please explain and justified in respect of Large Deduction claimed us 54 with documentary evidences. e. Complete details of expenses related to transfer of property and cost of improvement with documentary evidences. (if any).”
Relevant to mention that while replying the said notice, the assessee duly submitted the entire details, namely, income tax return, computation of income, balance sheet & P&L Account for A.Y. 2015-16 & 2016-17, copy of the bank statement, computation of capital gain, copy of purchase and sale deed of property, expenses relating to transfer of property. The entire details including the bank statement as submitted by the assessee before the ITO is appearing from Page Nos. 63 to 82 of the Paper Book filed before us. In fact, Page 63 is the acknowledgement of reply in respect of the notice issued under Section 142(1) of the Act dated 04.06.2018.
Upon examination of the records, the Ld. AO accepted the market value of the property owned by the assessee admeasuring 675 sq. mtr. at Rs.1,13,244/- per sq.mtr. and the exchanged property owned by Hasanand Khemlani admeasuring 1381.68 sq.mtr. i.e. Rs.55,324/- per sq. mtr. thereby accepting the valuation of both the properties at Rs.7,64,60,000/-. Such finding of the Ld. AO has found to be is not fair and the same is violation of the provision of Section 56(2)(vii)(b)(ii) of the Act as of the ultimate view of the Ld. PCIT. In fact, Ld. PCIT was of the opinion that no proper enquiry or investigation has been carried out by the Ld. AO in this regard while accepting the returned income filed by the assessee. & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 10 - 12. We further find that the Ld. PCIT issued a show cause notice dated 23.03.2021 which reads as follows:
“Please refer to the assessment order dated 11/12/2018 for the A.Y. 2016-17 in your case. On perusal of case record for the A.Y. 2016-17 it is noticed that you have filed Income Tax Return on 21/12/2016 declaring income of Rs. 5,08,390/- for the assessment year 2016-17. The assessment order passed U/s 143(3) of the Income Tax Act 1961 by the ITO - 1(2), Indore, vide order dated 11/12/2018 assessing total Income at Rs. 5,08,390/-.
On perusal and examination of the records it appears that the order u/s 143(3) of the I. T. Act, 1961 dated 11/12/2018 for the A.Y, 2016-17 is erroneous in so far as it is prejudicial to the interest of revenue as the order has been framed without making proper enquiries and investigation with respect to same issue.
3. As per the information available on records you have claimed exemption u/s 54 of Rs. 7,64,00,000/-. It is noted that you have exchanged an immovable property owned by you admeasuring 675 Sq. meter with construction of 1500 Sq Feet. The value of the property is Rs. 7,64,00,000/-. You have exchanged the same with the immovable property of Shri Hassanand Khemlani. The value of the property exchanged is also Rs. 7,64,60,000/-, Value of both properties is same and exchange in mutual consent without any transaction of money. No monetary Transaction took place between the parties. It is further noted that the sold property area is more than the purchased property area and hence the property exchange is not equal. During assessment proceedings the AO failed to emphasis the area of land which is situated of the same area. The fair market value of the property owned by you, admeasuring 675 Sq meter was fixed at Rs. 7,64,60,000/- Le. 1,13.244/- per sq. meter whereas the fair market value of property owned by the Shri Hassanand Khemlani admeasuring 1381.68 Sq. meter was also fixed at Rs. 7.64,60,000/- 1.0. 55,324/- per Sq. mater which is not fair and correct. You have violated provisions of section 56(2)(vii)(b)(i) of the Income Tax Act, 1961.
4. The AO did not examine these facts by conducting any enquiry or Investigation. 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 as to why the provisions of section 263 should not be invoked in your case for the reasons mentioned above.
5. You are, accordingly, given an opportunity of being heard on 26.03.2021 at 04:30 PM. You may also file your reply through mail along with all relevant records and documents. It is not necessary to attend the office for this purpose and the reply details may be filed by email. In case of your non compliance, the matter would be decided on merits of the case.”
& 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 11 - 13. Before the Ld. PCIT, in response to the show cause notice dated 23.03.2021, the assessee submitted as follows: "We have properly explained the deduction claimed u/s 54/54F in respect of both house properties exchanged and in support submitted copy of registered exchange deed during the course of assessment proceeding u/s 143(3), it is a transaction relating to transfer and acquisition of house property along with land appurtenant thereto, hence there is no question in respect deduction u/s 54/54F. With due humble request it is submitted to your honour that we have exchanged property at Rs. 7,64,60,000/- adopted by the stamp authority, which is full value consideration for both the parties. Because properties are not exchanged below the value adopted by stamp valuation authority, question of taxation in respect of difference due to lower valuation do not arise. Because it is very well settled law u/s 50C and 56(2)(vii)(b)(ii) that: - Section 50C (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed for assessable] by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed for assessable] shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. 56(2)(vii)(b)(ii): Where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 [but before the 1st day of April, 2017)- b. Any immovable property, - ii. Fora consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration; After analysis of above section it is very well clear that, stamp value adopted by stamp value authority is final value if transactions are carried on such value but if transaction is carried on below the stamp value than stamp value will be Considered as final value, same time if transaction value is more than stamp valuation than transaction value will be the final value. The Market value in Scheme no. 71 is Rs. 55338/ per square meter on which stamp value authority fixed stamp duty, if we value both the properties as per market value following will be the price: -
Market Value Transaction Value & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 12 - 1.
1. Kalpana Jain 675 * 55338 = 37353150/- 76460000/- 2. HassanandKhemlani 1381.68 * 55338 = 76460000/- 76460000/- As Per The Indian stamp (M.P.) amendment act 2014, as amended on 06/01/2015 schedule 1, Point no. 34 is as follows:- Copy of The Indian stamp (M.P.) amendment act, 2014 is enclosed as per Annexure 1 34. Exchange of Property - Instrument of The same duty as conveyance (No. 25) on the Market value of the property of greater value, which is the subject matter of Exchange. In case of exchange deed the stamp duty on the value of higher consideration is to be paid as per market value. If you see in above case value, which will be considered as per income tax act will be as follows- 1. Kalpana Jain -Transaction value (which is more than stamp value) Rs. 76460000/- 2. Hassanand Khemlani -Stamp Value (which is not below stamp value) Rs. 76460000/- Because both the values are not below the value adopted by stamp value authority, hence no additional taxability in the hands of both the parties Your honor will appreciate the fact that location of both. The properties are different, property owned by Kalpana Jain is in very prime location at PhootiKothi Main road having a double value than property of Mr. Hassanand Khemiani located on outer Ring Road inside after service road. The learned assessing officer has considered the facts and we have submitted the copy of exchange deed before the learned assessing officer and it has been informed that the other party exchange has also been assessed u/s 143(3) of the income tax act and the said party has also submitted documents with him and explained fact, which shows that facts have been explained and accepted. Hence it is requested to your honour, that it is not erroneous in so for as it is not prejudicial to the interest of revenue, hence the revision proceedings u/s 263 of the income tax act should be dropped. We assure your good self to furnish any further information or details as may be required by you. & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 13 - We have properly explained the deduction claimed u/s 54/54F in respect of both house properties exchanged and in support submitted copy of registered exchange deed during the course of assessment proceeding u/s 143(3), it is a transaction relating to transfer and acquisition of house property along with land appurtenant thereto; hence there is not question in respect of deduction u/s 54/54F"
14. Before the Ld. PCIT, as it appears from the above reply, the assessee further contended that this is a transaction relating to transfer and acquisition of house property alongwith land pertinent thereto. Further that, the property was exchanged at Rs.7,64,60,000/-, the value adopted by the Stamp Duty Authority taking full value of consideration for both the cases. As the property was not exchanged below the value adopted by the Stamp Valuation Authority, the question of taxation in respect of difference due to lower valuation does not arise. It was further contended that though the property of the assessee consisting of much lesser area, the same is lying at Phooti Kothi, Main Road, having double valuation than the property of other party, namely, Hasanand Khemlani located at outer Ring Road, inside after the service Road. The locale of the property of the assessee is having much commercial value than that of the other property of the said Hasanand Khemlani. In fact, this particular fact was placed before the Ld. AO. The assessee submitted the entire details of the property including the exchange deed and only upon proper examination of the said documents, the assessment was finalized by accepting the return of income filed by the assessee.
We further find that a second show cause notice dated 27.03.2021 was also issued by the Ld. PCIT; the same is appearing at Page Nos. 95 to 98 of the Paper Book filed before us and also being reproduced in the order impugned. The same is also reproduced hereineblow: & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 14 - “Please refer to the show cause notice dated 20/03/2021 in your case. In addition to the earlier show cause notice the assessment records for the AY 2016- 17 reveals that you have sold plot (with small construction) no. BX-7, Sector C Scheme no 71 admeasuring 675 Mtrs. for a consideration of Rs. 76460000/- to Sh. Hassanand Khemlani. The average sale price per Sq. Mtr. comes to Rs. 113244/-. Through the same sale deed (called as exchanged deed) you have purchased plot (with small construction) no. 7A, Sector C, scheme no 71 from the same party for a consideration of Rs. 76460000/-. The size of the plot purchased is 1381.68 Mtrs. Accordingly, the average purchase price per Mtr. comes to Rs. 55324/- only... In the case of Sh. Hassanand Khemlani, the assessment passed by the AO was reviewed and it was observed as under: It is seen from the assessment records that the assess00 has exchanged (sold) his plot of land bearing no. 7A, Sector C Scheme no 71 admeasuring 1381.68 Mts for a consideration of Rs. 76460000/- However, it is seen that in the same locality without any significant difference except a few square ft. of construction thereupon, the assessen has purchased plot no. BX-7, Sector C, Scheme No. 71 admeasuring 675 sq. Mtr for the same consideration of Rs. 764600000/-. It is surprising that both the transactions were of the same value. It is also surprising that without any cogent reason, the assessee sold double area and that too a comer plot of significant commercial value at half price. All these facts should have been deeply enquired by the AO. It appears to be a fit case for reference to the Valuation Authority. However, perusal of the assessment records show that the assessee has not raised a single query on this anomalous transaction. The AO failed to carry out basic enquiry regarding accentuating circumstances preceding this transaction which forced the assessee to accept less than half the value and then to buy a much smaller plot by investing the exact amount which he received from the sale of his plot No doubt, the transaction of sale of capital asset is governed by the provisions of section 50C. However, Section 50C provides a yardstick regarding adoption of a minimum sale value in case of transfer of capital asset. This is primarily to curb the malpractices of showing the sale transaction at abysmal prices whereas the market value is multiple times. The price adopted by the stamp valuation authority has no direct linkage with the fair market price and it is a price for the guidance of Registrar of properties. It is a price which the stamp valuation authorities would use to charge stamp duty. The AO is duty bound to assess the correct income and the rigours of Section 50C are not binding on him. The nature of transactions, particularly the valuation of the land sold by the assessee ought to have raised the eyebrows of the AO. However, instead of raising query and going deep into the issue, the AO accepted whatever was submitted to him. This approach of the AO clearly defies the purpose of scrutinizing the cases from the point of view of protecting interests of the revenue. The least the AO should have done was to refer the transaction for valuation as per provisions of Section 142A. As the AO failed to make any query, cause any enquiry and refer the transaction to the Valuation Authority for determining the fair market value, & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 15 - the order of the AO is held to be not only erroneous but also prejudicial to the interests of the Revenue. The AO is directed to ascertain the facts leading to the transaction and refer the sale of plot by the assessee to Valuation Authority for ascertaining its fair market value." Perusal of the case records in your case shows that the AO has not raised any query or caused any enquiry regarding the Fair Market Value of the Plot purchases by you vis a vis the plot sold by you in the same vicinity. In view of above observations, the fair market value for the purchase of plot no 7A, Sector C, Scheme No 71 should have been much higher. In this connection, the AO should have called for details of valuation of the aforesaid plot or should have referred the same to the valuation for arriving correct fair market value and applicability of provision of section 56(2)(vii)(b). Therefore, the order passed by the AO appears to be erroneous in so far as prejudicial to the interests 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. You are, accordingly given an opportunity of being heard on 30.03.2021 at 4 PM. You may file your reply through email along with all relevant records and documents. It is not necessary to attend the office for this purpose and the reply/details may be filed by email. In case of your non compliance, the matter would be decided on the merits of the case.”
In response to the second show cause notice dated 27.03.2021, the assessee replied on 30.03.2021 reiterating the stand taken earlier. The crux of the said statement is as follows:
"Received your above mentioned notice on dated 27/03/2021, in regard with revision proceeding u/s 263 of the income tax act, 1961 issuing show cause to invoke provisions of Section 263 of the Act, assuming that the assessment order passed by the AO is erroneous to the prejudicial interest of the revenue. In this regard, it is respectfully submitted as under that the assessee has already filed his objection for initiation of your proceeding u/s 263 of the act vide her letter dated 26/03/2021, submitted on e-proceeding vide acknowledgement no. 26032114559382 which may also be considered.
1. In continuation to our above reply, assessee submit that transaction has been carried at stamp value price as applicable in exchange deed. Please not that I have sold my residential property situated at BX-7, Sector C, Scheme No. 71, Indore admeasuring plot area 675 Sq. meter having & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 16 - construction thereon 1500 Sq ft. at market value. This plot is situated at very prime location on phooti koti main road which has attained high commercial value on the road and this property was exchanged with the residential property situated at plot no. 7-A, Sector C, Scheme No. 71, Indore and plot is admeasuring 1381.68 sq meter. This plot has been situated at ring road side area and has not attained commercial nature, therefore despite having more land could not have market value as that of area of plot where my residential plot situated.
2. That as already informed the stamp duty has been paid on the maximum value in the exchange deed. My residential property having commercial nature was having the same market value as that of with the larger plot of Shri Hassanand Khemlani therefore at market rate the exchange was made.
3. That, I would submit that I have sold the property at market value and purchased the property at market value therefore the case is not fit by the provisions of section 56(2)(vii) (b) and the same is reproduced hereunder- 1.
Without consideration, the stamp duty value of which exceeds fifth thousand rupees, the stamp duty value of such property: 2. For a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration: 1. Referring to above section it is very clear that the invocation of section 56(2)(vii) (b) (II) would be applicable where the consideration is less than the stamp duty value. In my case the consideration is as per the stamp duty value and have purchased property at market value which is the guideline value. Since the consideration for purchase of property is not less than the stamp duty value and therefore there is no difference in value.
2. That in view of above it is very clear that the transaction of exchange of residential property have been taken place at market value which is not below the stamp value and therefore the provisions of section 56(2)(vii)(b) (II) are not attracted and your proposed action u/s 263 is not according to the provisions of law and the assessment order completed by the assessing officer was after verifying all the facts and circumstances including the market value of both the properties under exchange. Please note that during the assessment proceedings assessee has submitted all details and submitted documents as desired by the Assessing officer vide nis notice dated 04/06/2018 bearing no ITBA/AST/F/142(1)/2018-19/10100006992(1) submitted along with justification and after satisfying, he has passed the assessment order and therefore is not erroneous order. At your honour has mentioned in the case of Mr. Hassanand Khemlani, the assessing officer has not referred the matter to the valuation officer and has only in relied on stamp duty value. In this regards, we submit that is the transaction has & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 17 - been carried out at market value which is not below guideline value and for the purpose of section 50C and 56(2)(vii)(b)(i) the stamp duty value is a bench mark for market value and there no occasion/requirement for such reference to the valuation officer and therefore your honours observation is not as per the provisions of the Act. You are therefore requested to kindly drop the proceeding u/s 263 under the Act. Power of attorney in favour of CA Santosh Deshmuch is enclosed. "
17. While considering the second show cause notice issued by the Ld. PCIT dated 27.03.2021 we find that the Ld. PCIT has made a reference of the assessment order passed by the Ld. AO in the case of other party, namely, Hasanand Khemlani. According to him, the assessee was not raised a single query on this anomalous transaction. The Ld. AO failed to carry out basic enquiry regarding accentuating circumstances preceding this transaction which forced the assessee to accept less than half the value and then to buy a much smaller plot by investing the exact amount which he received from the sale of his plot of land to the assessee before us, namely, Kalpana Jain. The Ld. PCIT further referred her observation on that matter to this effect that the fair market value for the purchase of Plot No. 7A, Sector – C, Scheme No. 71 belong to that assessee should have been much higher and the Ld. AO should have called for details of valuation of the said plot or should have referred to the same to the Valuation Officer for arriving at the correct fair market value applying of provision of Section 56(2)(vii)(b) of the Act.
In order to determine the fair market value of the property in question, such approach of the Ld. AO defies the purpose of scrutinizing the cases from the point of view of protecting the interest of Revenue. As the Ld. AO failed to make any query, cause any enquiry and refer the transaction to the Valuation Authority to determine the fair market value, & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 18 - the order passed by the Ld. AO in respect of other assessee, namely, Hasanand Khemlani, has been also held to be erroneous and prejudicial to the interest of the Revenue.
We, under these facts and circumstances of the matter, have taken an attempt to verify the assessment proceeding initiated by the Ld. AO from the records, particularly, the paper book filed before us in the other matter being ITA No.110/Ind/2021. It is annexed at Page No. 28 of the said Paper Book filed by the said assessee. In fact, the following aspect coming out from the records available before us in case of the other assessee, namely, Shri Hasanand Khemlani: On 11.06.2018, notice under Section 142(1) of the Act was issued upon the said assessee by ITO-4(1), Indore directing the assessee to file certain details. The copy of the said notice dated 11.06.2018 alongwith annexure is reproduced hereinbelow:
“In connection with the assessment for the assessment year 2016-17 you are required to: a) Furnish or cause to be famished on or before 20/06/2018 at 11:01 AM the accounts and documents specified overleaf. b) Funrish and verified in the prescribed manner under Rule 14 of 1.T. Rules 1962 the information called for as per annexure and on the points or matters specified therein on or before 20/06/2018 at 11:01 AM. c) The above mentioned evidence/information is to be furnished online electronically in ‘E-Proceeding’ facility through your account in 'e-filing website of Income Tax Department. d) Para(s) (a) to (c) are applicable if you have an account in e-filing website of Income Tax Department. Till such an account is created by you, assessment proceedings shall be carried out either through your e-mail account or manually (if e-mail is not available). e) In cases where order has to be passed under section 153A/153C of the Income Tax Act, 1961 read with section 143(3), assessment proceedings would be conducted manually.”
& 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 19 - ANNEXURE “1. The reason for selection for scrutiny is large deduction claimed as 548, 54B, 54G, 54A (Schedule CG of ITR). Therefore you are requested to file the full details of property sold and its cost of acquisition and file copy of bank statement in which sale consideration has been credited 2. In the retum of income you have shown sale of immovable property at Rs 80206000/- please file the copy of sale deed and purchase deed of the property sold. Please also file the computation of LTCG along with documentary evidences. Further you have claimed deduction us 54 at Rs. 7.64,60,000/- please file the proof and details of deduction claimed, 3. Please file the details of short term capital gain offered at Rs.120000/-.
4. Penubay of the computation of income led by you shows that you have offered income from share trading us 44AD. Please file the full details and explain nature of business 5. Please file the capital alc statement of affair as on 31/03/2016 for current year and for last two assessment year ie. AY. 2014-15 & 2015-16 6. Please file the copy of assessment orders passed in earlier year's us 143(3) if any.”
Thus, it appears that details of the property sold and its cost of acquisition, the bank statement in which sale consideration has been credited were directed to be submitted in view of the matter being selected for scrutiny as large deduction was claimed under Section 54B, 54D, 54A (Schedule CG of ITR). Apart from that as the assessee has shown the sale of immovable property at Rs.8,02,06,000/-, the assessee was directed to file the copy of sale deed and purchase deed of the property sold and the computation of Long Term Capital Gain alongwith documentary evidences. As the assessee claimed deduction under Section 54 of the Act at Rs.7,64,60,000/-, the assessee was directed to file proof and details of deduction claimed. Further that, the details of Short Term Capital Gain at Rs.1,20,000/- was directed to file. The same is appearing at Page Nos. 26 & 27 of Paper Book filed by the said assessee, namely, Hasanand Khemlani. & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 20 - 21. In reply to the same, the assessee on 20th June, 2018 filed the following submission alongwith exchange deed:
“With reference to your notice dated 11/06/2018 issued u/s 142(1) of the Income Tax Act 1961 for the above assessment year, it is submitted as under- 1. (a) The assessee has sold its 'property at Scheme No. 71, Indore during the relevant assessment year. The FMV of the property sold is Rs.7,64,60,000/- which is equal to the FMV of the property purchased in exchange. LTCG has been computed as under- FMV of the property sold =Rs.7,64,60,000/- (-) Indexed Cost of acquisition =Rs. 13,85,897/- (-) Cost of Improvement =Rs.8,93,882/- Capital Gain (before claiming exemption u/s 54) - Rs. 7,41,80,221/- (b) Plot of Land at Natraj Nagar has also been sold on which the assessee has earned Long Term Capital Gain during the relevant assessment year. LTCG has been computed as under:- Sale Value =Rs.37,46,000/- (-) Indexed Cost of acquisition =Rs.3,70,629/- Capital Gain (before claiming exemption u/s 54) = Rs. 33,75,371/- (a)+(b)=Total Capital Gain (before claiming exemption u/s 54)= Rs.7,75,55,592/- Less: Exemption u/s 54 = Rs 7,64,60,000/- Capital Gain = Rs.10,95.592/- Summary STATEMENT OF LONG TERM CAPITAL GAIN Particulars Sale Date Sale Value Purchase Cost of Indexed Cost of Total Capital Date acquisition Cost Improvem Acquisition Gain ent Cost (a) Sale of 30/07/15 7,64,60,000 24/04/98 4,50,000 13,85,897 8,93,882 22,79,779 7,41,80,22 Property 1 (b) Sale of 27/05/15 37,46,000 11/06/86 48,000 3,70,629 3,70,629 33,75,371 Plot at Natraj Nagar 7,75,55,59 2
For your ready reference, with respect t& (a) above :-
& 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 21 - Copy of exchange deed, purchase deed of property sold in exchange and evidence of 'cost of improvement' are attached herewith. For your ready reference, with respect to (b) above :- Copy of sate deed and purchase agreement are attached herewith.
2. As per our reply no. 1 above.
3. Details of Short Term Capital Gain Particulars Name of the Sale Date Sale Value Purchase Cost of Total Sale Capital buyer Date acquisition Considerati Gain on (a) Sale of Ramhet 22/01/16 6,65,000 13/03/15 12,10,000/- 13,30,000/- 1,20,000/- Plot Meena& (6,65,000/-+ Santosh Bai 6,65,000/-) Meena (b) Sale of Jitnedra 22/01/16 6,65,000 13/03/15 Plot Oswal& Laxmi Oswal For your ready reference, copy of sale deeds and purchase deed with respect to the property sold are attached herewith.
4. No share trading has been done by the assessee during the relevant assessment year. However, the assessee is involved in 'trading & repairing of TV, radios, tape recorded, etc. from which income was camed & offered as per the provisions u/s 44AD on sales/receipts of Rs.18,43,693/- @8% (ie, Rs. 1,47,495/-) during the relevant assessment year. Details of income earned are attached herewith.
5. No income tax scrutiny of the assessee has been carried out in the earlier years.”
The said assessee was further issued a notice under Section 142(1) of the Act followed by notice on 22.06.2018 with a direction upon him to file the following documents; the extract of the said notice dated 22.06.2018 is reproduced hereinbelow:
“In connection with the assessment for the assessment year 2016-17 you are required to: a) Furnish or cause to be furnished on or before 28/06/2018 at 11:15 AM the accounts and documents specified overleaf. b) Furnish and verified in the prescribed manner under Rule 14 of T. Rules 1962 the information called for as per annexure and on the points or matters specified therein on or before 26/06/2018 at 11:15 AM.
& 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 22 - c) The above mentioned evidence/information is to be furnished online electronically in E-Proceeding facility through your account in e-filing website of Income Tax Department. d) Para(s) (a) to (c) are applicable if you have an account in e-filing website of Income Tax Department. Till such an account is created by you, assessment proceedings shall be carried out ether through your e-mail account or manually (if e-mail is not available) e) in cases where order has to be passed under section 153A/153C of the Income Tax Act 1961 read with section 143(3), assessment proceedings would be conducted manually.” ANNEXURE 1. Please refer to your e-mail dated 19/06/2018 enclosing therewith clarification letter and supporting documents to return filled and property purchased but you have not filed any details of property purchased in exchange at Rs. 7,64,60,000/- and claimed deduction u/s 54, therefore you are once again requested to clarify and submit the full details of exemption claimed u/s 54 at Rs. 7,64,60,000/- Please explain the nature of property acquired in exchange against sale of plot at Natraj Nagar and sale of plot (Situation not mentioned).
2. The reason for selection for scrutiny is large deduction claimed u/s 54B, 54D, 54G, 54A (Schedule CG of TR). Therefore you are requested to file the full details of property sold and its cost of acquisition and file copy of bank statement in which sale consideration has been credited.
In the return of income you have shown sale of immovable property at Rs. 80206000/-; please file the copy of sale deed and purchase deed of the property sold. Please also file the computation of LTCG along with documentary evidences. Further you have claimed deduction u/s 54 at Rs. 7,64,60,000/- please file the proof and details of deduction claimed.
4. Please file the details of short term capital gain offered at Rs. 120000/- 5.Perusal of the computation of income filed by you shows that you have offered income from repairing work of TV, radios, tape recorder etc. and income has been shown at Rs. 1,47 495/- @8% of total receipts of Rs. 18,43,693/- u/s 44AD. Please file the full details and explain why income from profession should not be adopted @ 50% as per the provisions of sec. 44AD?”
23. Thus, it appears from the notice dated 22.06.2018, the said Hasanand Khemlani was directed to file the details of property purchased in exchange at Rs.7,64,60,000/- and clarify and submit the details exemption claimed under Section 54 of the Act at Rs.7,64,60,000/-. The Ld. AO further directed the said assessee to explain the nature of the property acquired in & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 23 - exchange against sale and purchase of the other property mentioned therein. The said assessee was further directed to file the proof and details of the deduction claimed under Section 54 of the Act to the tune of Rs.7,64,60,000/-.
24. In reply whereto, the assessee submitted the following on 26.06.2018. The same is reproduced hereinbelow:
“With reference to your notice dated 22/06/2018 issued u/s 142(1) of the Income Tax Act 1961 for the above assessment year, it is submitted as under:- 1. Details of property acquired in exchange :- Properties at Scheme No. 71, Indore have been exchanged during the relevant assessment year. The property acquired by the assessee under exchange is situated at BX-7, Scheme No. 71, Sector-C, Indore as evident from point no. 1 of the exchange deed already e-filed before your honor. The property given by the assessee under exchange is situated at 7-A, Scheme No. 71, Sector-C, Indore as evident from point no. 2 of the exchange deed already e-filed before your honor. Apart from the above, a plot of land at Natraj Nagar has also been sold during the relevant assessment year on which the assessee has earned Long Term Capital Gain. The details and evidences of 'plot of land at Natraj Nagar sold' and 'exchange' have already been e-filed before your honor in our earlier reply. Details of immovable properties sold during the relevant assessment year on which the assessee earned Long Term Capital Gain as desired are attached herewith:-
Particulars Sale Date Sale Value Purchas Cost of Indexed Cost of Total Capital e Date acquisitio Cost Improve Acquisition Gain n ment Cost (a) Sale of 30/07/15 7,64,60,000 24/04/98 4,50,000 13,85,897 8,93,882 22,79,779 7,41,80,22 Property at 1 Scheme No. 71 (b) Sale of 27/05/15 37,46,000 11/06/8 48,000 3,70,629 3,70,629 33,75,371 Plot at 6 Natraj Nagar 7,75,55,59 2 Copy of bank statement reflecting the receipts on account of sale of plot at Natraj Nagar as desired is attached herewith.
& 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 24 -
With respect to.(a) above :- Copy of exchange deed, purchase deed of property sold in exchange and evidence of 'cost of improvement' have already been e-filed before your honor in our earlier reply. With respect to (b) above :- Copy of sale deed and purchase agreement have also been e-filed before your honor in our earlier reply. 3. (a) The assessee has sold its 'property at Scheme No. 71, Indore' during the relevant assessment year. The FMV of the property sold is Rs.7,64,60,000/- which is equal to the FMV of the property purchased in exchange. LTCG has been computed as under > FMV of the property sold = Rs .7,64,60,000/- (-) Indexed Cost of acquisition = Rs.13,85,897/- (-) Cost of improvement = Rs.8,93,882/-____________________ Capital Gain (before claiming exemption u/s 54) = Rs. 7,41,80,221/- (b) Plot of Land at Natraj Nagar has also been sold on which the assessee has earned Long Term Capital Gain during the relevant assessment year. LT.CG- has been computed as under :- Sale Value = Rs.37,46,000/- (-) Indexed Cost of acquisition = Rs.3,70,629/-/- Capital Gain (before claiming exemption u/s 54) = Rs. 33,75,371/- (a) + (b)-Total Capital Gain (before claiming exemption u/s 54)= Rs.7,75,55,592/- Less : Exemption u/s 54 = Rs.7,64,60,000/-_____________ Capital Gain =Rs.10,95,592/-_______________ Summary STATEMENT OF LONG TERM CAPITAL GAIN Particular Sale Date Sale Value Purchase Cost of Indexed Cost of Total Capital s Date acquisition Cost Improvemen Acquisition Gain t -Cost (a) Sale of 30/07/15 7,64,60,000 24/04/98 4,50,000 13,85,897 8,93,882 22,79,779 7,41,80,221 Property (b) Sale of 27/05/15 37,46,000 11/06/86 48,000 3,70,629 3,70,629 33,75,371 Plot at Natraj Nagar 7,75,55,592
With respect to (a) above :-
& 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 25 - Copy of exchange deed, purchase deed of property sold in exchange and evidence of 'east of improvement' have already been e-filed before your honor in our earlier reply. With respect to (b) above :- Copy of sale deed and purchase agreement have already been e-filed before your honor in our earlier reply.
Details of Short Term Capital Gain Particulars Name of the Sale Date Sale Value Purchase Cost of Total Sale Capital Gain buyer Date acquisition Considerati on (a) Sale of Ramhet 22/01/16 6,65,000 13/03/15 12,10,000/- 13,30,000/- 1,20,000/- Plot Meena & (6,65,000/- Santosh Bai + 6,65,000/- Meena ) (b) Sale of Jitnedra 22/01/16 6,65,000 13/03/15 Plot Oswal & Laxim Oswal Copy of sale deeds and purchase deed with respect to the property sold have already been e-filed before your honor in our earlier reply.
The assessee is involved in 'trading & repairing of TV, radios, tape recorder, etc.' from which income was earned & offered as per the provisions u/s 44AD on sales/receipts of Rs. 18,43,693/- @ 8% (ie, Rs. 1,47,495/-) during the relevant assessment year. Where no books of accounts have been maintained, the assessee has offered income at eight per cent of the total turnover/gross receipts as per the provisions of section 44AD of the Income Tax Act 1961. However if the assessee offers a sum higher than the aforesaid sum, then such higher income shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession". However, the department cannot apply a profit % which is higher than 8% as specified in the provisions of section 44AD of the Income Tax Act 1961.”
25. Apart from that, the bank statement reflecting the amount paid by the assessee in respect of stamp duty valuation, income tax return filed by the assessee for A.Y. 2016-17 showing salary income of Rs.1,97,500/- from M/s. Sai Diya Buildcon Pvt. Ltd. during the relevant financial year which was inadvertently left to be included in the return of income filed on 05.08.2016 were duly filed by the said Hasanand Khemlani.
& 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 26 - 26. As we find that the query has already been raised in respect of the same issue in the case of Hasanand Khemlani, thus, the very basis of the second show cause issued by the PCIT dated 27.03.2021 appears to be baseless. We have further gone through the order passed by the Ld. AO in the case of Hasanand Khemlani wherefrom it appears that after considering the papers and documents available on record, the assessment was finalized by the Ld. AO on 25.08.2018 even taking into consideration of revised statement of return filed by the assessee. After careful reading of entire records of the matter, we decline to observe that no enquiry has been conducted in the case of Hasanand Khemlani which has been recorded by the Ld. PCIT in the second show cause issued to the assessee before us on 27.03.2021 and sought to be made the basis of holding the order passed by the Ld. AO on 11.12.2018 in the scrutiny assessment erroneous and prejudicial to the interest of the Revenue in the case of the assessee before us, namely, Kalpana Jain. In fact sufficient enquiry is being found to have made by the Ld. AO in both the cases.
Coming back to the factual aspect of the case in hand before us, we find that Ld. AO in the instant case duly raised queries on 04.06.2018 appearing at Page No.56 of paper book filed before us followed by subsequent notice under Section 143(2) of the Act dated 16.10.2018 appearing at Page No. 58 of the Paper Book filed before us which have already been reproduced hereinabove and discussed elaborately. We also find that detailed submission and also the explanation in regard to the claim made by the assessee were duly furnished before the Ld. AO and therefore, upon making sufficient enquiry and upon considering the same, the Ld. AO has finalized and/or completed the assessment accepting the returned income filed by the assessee.
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 27 - 28. An inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous on account of non-verification. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case or he has misunderstood the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer’s prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers under section 263 of the Act cannot impose his own understanding to the extent of inquiry. There are a number of judgments by various Hon’ble High Courts in this regard.
Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate inquiry. The Hon’ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry. The relevant observation of Hon’ble Delhi High Court reads as under: “15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of ‘lack of inquiry’.”
The Hon’ble Bombay High Court in case of Gabriel India Ltd. [1993] 203 ITR 108 (Bom), discussed the law on this aspect in length in the following manner: “The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 28 - initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.
The Mumbai ITAT in the case of Sh. Narayan TatuRane Vs. ITO, dt. 06.05.2016 examined the scope of enquiry under Explanation 2(a) to section 263 in the following words:-
“20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provison shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.”
The Hon’ble Supreme Court in recent case of Principal Commissioner of Income-tax 2 v. Shree Gayatri Associates [2019] 106 taxmann.com 31 (SC), held that where Pr. CIT passed a revised order after making addition to assessee's income under section 69A in respect of on- money receipts, however, said order was set aside by Tribunal holding that AO had made detailed enquiries in respect of such on-money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed. The facts of this case were that & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 29 - pursuant to search proceedings, assessee filed its return declaring certain unaccounted income. The Assessing Officer completed assessment by making addition of said amount to assessee's income. The Principal Commissioner passed a revised order under section 263 on ground that Assessing Officer had failed to carry out proper inquiries with respect to assessee's on money receipt. In appeal, the Tribunal took a view that Assessing Officer had carried out detailed inquiries which included assessee's on-money transactions and Tribunal, thus, set aside the revised order passed by Commissioner. The Hon’ble High Court upheld Tribunal's order. The Hon’ble Supreme Court while dismissing the SLP filed by the Department held as under:-
“We have heard learned counsel for the Revenue and perused the documents on record. In particular, the Tribunal has in the impugned judgment referred to the detailed correspondence between Assessing Officer and the assessee during the course of assessment proceedings to come to a conclusion that the Assessing Officer had carried out detailed inquiries which includes assessee's on-money transactions. It was on account of these findings that the Tribunal was prompted to reverse the order of revision. No question of law arises. Tax Appeal is dismissed”
The Supreme Court in the another recent case of Principal Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd [2020] 114 taxmann.com 545 (SC), dismissed the Revenue’s SLP holding that 263 proceedings are invalid when AO had made enquiries and taken a plausible view in law, with the following observations:
“Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere with the view of the Tribunal. The question whether the income should be taxed as business income or as arising from the other source was a debatable issue. The Assessing Officer has taken a plausible view. More importantly, if the Commissioner was of the opinion that on the available facts from record it could be conclusively held that income arose from other sources, he could and ought to have so held in the order of revision. There was simply no necessity to remand the proceedings to the Assessing Officer when no further inquiries were called for or directed”
& 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 30 - 34. From an analysis of the above judicial precedents, the principle which emerges is 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 the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Assessing Officer adopts one of the course permissible in law and it has resulted in loss of revenue; or where two views are possible and the Assessing Officer has taken one view with which the Commissioner of Income-tax does not agree, it cannot be treated as an erroneous order causing prejudice to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law, or the AO has completely omitted to make any enquiry altogether or the order demonstrates non-application of mind.
The phrase “prejudicial to the interest of the Revenue” has to be read in conjunction with an erroneous order passed by the Ld. AO. Moreso, every order of Revenue cannot be treated as prejudicial to the interest of the Revenue as a consequence of an order of the Ld.AO. Apart from that where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous or prejudicial to the interest of the Revenue unless the view taken by the ITO is unsustainable in law. On this ground, the Ld. A.R. has relied upon the judgment passed by the Hon’ble High Court of Gujarat in the case of CIT vs. Nirma Chemicals Works Pvt. Ltd. Reported in (2009) 182 taxman 183 (Gujarat). It was further argued by him that upon considering the entire documents, and upon examining different memos issued by different authorities clarifying the distance of the land and upon exhaustive enquiry, the Ld. AO has finalized the assessment accepting the return filed by the assessee which is evident from the assessment order itself and also from the & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 31 - noting made the Ld. AO in the regular order sheet entries, the same cannot be interfered with by the Ld. PCIT. On the contrary, the Revenue pointed out that the same is not reflecting from the order passed by the Ld.AO. In reply, it was submitted by the assessee’s Counsel that the assessment order cannot give detailed reasons in respect of each and every item of deduction, which would cause impossible burden on the AO. On this count, he has further relied upon the judgment passed by the Hon’ble High Court of Gujarat in the case of CIT vs. Kamal Galani, reported in (2018) 95 taxmann.com 261 (Gujarat) and CIT vs. Nirma Chemicals Works (P.) Ltd., reported in [2009] 309 ITR 67 (Guj.), wherein Hon’ble High Court held as under:
“22. The contention on behalf of the revenue that the assessment border does not reflect any application of mind as to the eligibility or otherwise under section 80-1 of the Act requires to be noted to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic some. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the Assessing Officer, considering the workload that he carries and the period of limitation within which an order is required to be made; and, secondly, the order is an appealable order. An appeal lies, would be filed, only against disallowances which an assessee feels aggrieved with.
As far as absence of discussion in the assessment order is concerned, this is what has been laid down by this court in the case of Rayon Silk Mills v. CIT [1996] 221 ITR 155 :— "In the first instance it was contended by learned counsel for the assessee that the very premise on which order under section 263 was made against the assessee, namely, that the Income-tax Officer has not at all examined the goodwill account is not existent. According to him, it is apparent from the record that the goodwill account was thoroughly examined by the Income- tax Officer before making the assessment and after examining when he accepted the contention of the assessee its discussion did not find place in the assessment order, as no additions were going to be made or no modifications in the return filed by the assessee were required to be made in that regard. This contention of the assessee appears to be well-founded. It is true that the assessment order does not speak about the examination of goodwill account as such. However, as we have noticed above, the assessee in his reply to the show-cause notice under section 263 had specifically mentioned that the entire matter was scrutinised and accepted while passing the & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 32 - assessment order. Our attention was also drawn to annexure 'D’. A submission made by the assessee to the Income-tax Officer, Surat, dated 18- 10-1976, regarding the assessment year 1974-75 giving detailed chronological data of the constitution of the firm on November 11, 1968, induction of four more partners on 7-11-1972, the creation of goodwill in the books of account of the firm by debiting the goodwill account and crediting the old partners' capital accounts in their profit sharing ratio on that date, formation of a private limited company in the name of Rayon Silk Mills (P.) Ltd., and its induction into the firm as partner by the deed of partnership dated 27-10-1973, and the dissolution of the partnership firm on 23-2-1974, leaving the private limited company as a sole proprietor thereof and the valuation of the business at the book value as on that date. After giving the chronological sequence of events, the assessee also contended in his submission before the Income-tax Officer that there was no actual transfer of any asset inasmuch as when a partner is admitted into the firm no transfer takes place. It was also contended that no cash transfer took place from person to person and the transfer and the dissolution of the firm also did not result in accrual of capital gains. In the face of this material on record, it is difficult to explain that the assessment order was made without making any enquiry into the goodwill account of Rs. 10,75,000. . . ." (p. 158) [Except the fact to be pleaded separately in this particular paragraph]
So far as the jurisdiction of the Ld.PCIT under Section 263 of the Act is concerned, we have carefully considered the judgment relied upon by the assessee in the case of CIT vs. Nirma Chemicals Works (P.) Ltd. (supra). We find, while holding the Tribunal committed an error in upholding the exercise of powers under section 263 of the Act by the Ld. CIT(A) to be valid in the facts and circumstances of the case, the Hon’ble Court has been pleased to observe as follows:
There is another aspect of the matter. The assessee had challenged jurisdiction of the Commissioner of Income-tax to exercise powers under section 263 of the Act. For an order of the Assessing Officer to be interfered with in exercise of revisional powers the Commissioner of Income-tax has to find in the first instance that the order is erroneous and, secondly, the order is prejudicial to the interests of the revenue. The conditions are twin condition's as held by the Apex Court and both of them have to be fulfilled before the Commissioner of Income-tax can exercise jurisdiction under section 263 of the Act. In the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 the Apex Court has held (headnote) : "The phrase 'prejudicial to the interests of the revenue1 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 the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 33 - 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 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."
Applying the aforesaid tests to the facts of the case it is not possible to uphold the order of the Tribunal as regards jurisdiction after considering the law enunciated by the Apex Court. The Assessing Officer after making due inquiries, as noted hereinbefore, adopted one view and granted partial relief under section 80-1 of the Act. The Commissioner of Income-tax takes a different view of the matter. However, that would not be sufficient to permit the Commissioner of Income-tax to exercise powers under section 263 of the Act because when two views are possible and the Commissioner of Income-tax does not agree with the view taken by the Assessing Officer, the assessment order cannot be treated as erroneous and prejudicial to the interests of the revenue unless the view taken by the Assessing Officer is unsustainable in law. That is not the position in the present case. In fact even the partial denial of relief under section 80-1 of the Act has been found to be incorrect by the appellate authority. Therefore, existence of two views stands established. In the aforesaid circumstances, the Commissioner of Income-tax could not have exercised jurisdiction under section 263 of the Act as per settled legal position.
The view expressed by this court in the case of Shashi Theatre (P.) Ltd. (supra), therefore, is in consonance with not only the requirement of law but concludes the issue insofar as the present case is concerned. Just as it is not possible to decide grant of investment allowance in relation to one or the other item without considering the eligibility thereof, similarly deduction under section 80-1 of the Act cannot be considered without deciding whether a particular portion of profits and gains has been derived from an industrial undertaking which fulfils the requisite conditions stipulated by the section. 27. In the aforesaid set of facts and circumstances of the case and the view that the court has adopted, it is not necessary to enter into any discussion as regards merits of the controversy which has been brought before this court by the other questions at the instance of the assessee and the question at the instance of the revenue. The reference is answered accordingly by holding that the Tribunal committed an error in upholding the exercise of powers under section 263 of the Act by the Commissioner of Income-tax to be valid in the facts and circumstances of the case, when not only was there a prohibition as stipulated by Explanation (c) of section 263 of the Act but even the twin requirements, viz., pre-conditions for exercise of jurisdiction under section 263 of the Act were not fulfilled. 28. The reference stands disposed of accordingly. There shall be no order as to costs.”
So far as the invocation of Explanation 2 of Section 263 of the Act, as argued, there is no such reference made by the Ld. PCIT either in show cause notice issued to the assessee or in the order impugned. Even & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 34 - otherwise, it is also held in several decisions that the said Explanation does not give unlettered power to the PC1T to assume revisional-jurisdiction to revise every order of the Assessing Officer to re-examine the issues already examined during assessment-proceeding. It is judicially interpreted in several decisions that the intention of legislature behind introduction of Explanation 2 could not have been to enable the PCIT to find fault with each and every assessment-order in unlimited terms, since such an interpretation would lead to unending litigation and there would not be any point of finality of assessment-proceeding done by Ld. AO.
There is no iota of doubt that the Ld. AO has made a detailed enquiry in the case of the assessee, namely, Kalpana Jain in the scrutiny proceeding, particularly, in regard to the issue raised by the Ld. PCIT in the order impugned. Upon making the exhaustive enquiry and excessive document so placed by the assessee before the Ld. AO, the return of income filed by the assessee has been accepted. We would like to mention that though the PCIT sought to justify his point of view in holding the order passed by the Ld. AO erroneous so as to prejudicial to the interest of the Revenue on the basis of the order of the assessment so passed in the other assessee, namely, Hasanand Khemlani, whereas, we find that in the said case also proper and adequate enquiry has been conducted by the Ld. AO in regard to the entire aspect of the matter, particularly, the valuation of the property qua claim of capital gain and only upon adequate examination of the records placed by the said Hasanand Khemlani, the assessment was completed. Thus, the order passed by the Ld. PCIT setting aside the order passed by the Ld. AO holding it erroneous and prejudicial to the interest of the Revenue due to lack of adequate enquiry is not sustainable in the eye of law. & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 35 - 39. We have also fond substance in the arguments advanced by the Ld. AR that the original order needs not to give detailed reason. We note that this issue has already been dealt with in CIT vs. Nirma Chemicals Works (P.) Ltd. (supra) by Hon’ble Gujarat High Court (in Paragraph No.22) and came to a conclusion that the assessment order cannot incorporate reasons for making/granting a claim of deduction, if it does so, an assessment order was ceased to be an order and become an epic some. Further that, when one possible view has been taken by the Ld.AO the said cannot be treated as erroneous and prejudicial to the interest of the Revenue. In this regard, we are also inspired by the ratio laid down by the Hon’ble Gujarat High Court in the judgment passed in the matter of CIT vs. Nirma Chemicals Works (P.) Ltd. (supra). Thus, under the particular facts and circumstances of the case, when record reveals sufficient enquiry has been conducted by the Ld. AO in coming to a conclusion and completing the assessment, the impugned order invoking a provision of Section 263 of the Act is not sustainable in law and thus quashed.
In the result, assessee’s appeal in the case of Kalpana Jain is allowed.
ITA No. 110/Ind/2021 (Hasanand Khemlani)
The assessment proceeding conducted by the Ld. AO in the instant case has already been found to be justified since the records placed before us by way of paper book examination whereof by us reveals sufficient enquiry and upon examination of the documents so placed before the Ld. AO, the assessment has been completed which has already been discussed by us elaborately in the forgoing paragraph in . We also dealt with each and every notice issued by the Ld. AO to the assessee and the rebuttal filed by the assessee. In that view of the matter, we & 110/Ind/2021 [Kalpana Jain & Hasanand Khemlani] Asst.Year.– 2016-17 - 36 - reiterate the observation made by us in the matter of Kalpana Jain is also reiterated in the instant case. Under the said facts and circumstances of the matter, with the said observation, we also quash the order passed by the Ld. PCIT under Section 263 of the Act.
In the result, assessee’s appeal in the case of Hasanand Khemlani is also allowed.
In the combined result, both assessees’ appeals are allowed.
This Order pronounced on 14/03/2023
Sd/- Sd/- (BHAGIRATH MAL BIYANI) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore; Dated 14/03/2023 True Copy S. K. Sinha, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, / DR, ITAT, Indore 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,
(Sr. Private Secretary) ITAT, Indore