YOGESHKUMAR VRAJLAL BARBHAYA ,RAJKOT vs. THE PCIT, RAJKOT-1, RAJKOT, RAJKOT

The assessee has taken the following grounds of appeals:-

2. The order passed by Pr. Commissioner of Income-tax, Rajkot-1 [hereinafter referred as to the “PCIT”] is bad in law, invalid and requires to be quashed, the same may kindly be quashed.

The brief facts of the case are that the assessee filed Return of Income for Assessment Year 2017-18 declaring total income of Rs. 45,01,700/-. The assessment was completed under Section 143 (3) of the Act on 16-09- 2019 accepting the returned income. Subsequently, Principal CIT initiated proceedings under Section 263 of the Act on ground that Shri Dalsukbhai (the assessee’s brother ) had received 3 properties in the gift from his brother Shri Yogeshbhai (the assessee) for “Nil” consideration. However, Stamp Duty was paid at time of such sale and therefore the assessed value of the property as per Stamp Duty valuation comes to Rs. 18,01,020/- and therefore, in view of the provisions of Section 50C of the Act, the assessee, being the seller, is liable to pay tax on such sale of property. Besides above, it is noticed that the assessee has received two properties as gift from his brother Shri Dalsukbhai who has debited his capital account by Rs. 11,87, 416/- and Rs. 6,87,874/-. The sale deed of the property is not available with the case records, and as the capital account is debited by Rs. 11,87, 416/- and Rs. 6,87,874/- by him, the provisions of Section 56(2)(vii)(b) of the Act are applicable in the case of the assessee. However, the AO has not verified the above issues properly while finalising the assessment under Section 143(3) of the Act. After taking the submissions of the assessee on record, Principal CIT set-aside the assessment order as being erroneous and prejudicial to the interests of the revenue, with the following observations:

The assessee is in appeal before us against the aforesaid order by Principal CIT setting aside the assessment proceedings. The primary contention of the assessee is that the Principal CIT has incorrectly observed that this is a case of sale / purchase of property. In this case, the transaction occurred between the assessee and his real brother by way of ‘gift’ of property and this was not a transaction of sale and purchase of property. He also produced copies of the gift deed and submitted that from the documents on record, it is evident that this is not a case of sale/purchase of property, but it is a case of “gift” of property between two real brothers. Accordingly, since the transacting parties were real brothers and the issue involved gift of property, and not sale/purchase of property, there is no question of invoking Section 56 of the Act in the instant set of facts, in view of the exclusion provided under Section 56(2)(vii)(b). Further, the Counsel for the assessee submitted that provisions of Section 50C would come into play only when (Shri Yogeshkumar V. Barbhaya vs. PCIT) 6 A.Y. 2017-18 the “consideration received or accruing” as a result of the transfer by an assessee of a capital asset is less than the value adopted or assessed by any authority of the State Government for the purpose of payment of Stamp Duty in respect of such transfer. In the present case, the assessee did not receive any consideration nor any consideration accrued on account of such transfer of capital asset (this being a “Gift” of property between two real brothers), the provisions of Section 50C are not attracted. In response, the Ld. DR relied upon the observations made by the Principal CIT in the 263 order.

We have heard the rival contentions and perused the material on record. In the assessment order, AO observed that in the reply dated 13-09- 2019, the assessee has submitted clarification for each of the entries made in his capital account. Accordingly, the AO being satisfied with the reply/clarification filed by the assessee, accepted the returned income of the assessee and no additions or made in the assessment order. However, considering the facts involved in the present case, where there was transfer of property between the assessee and his brother, the AO should have done more investigation into the facts at the time of assessment on this issue/aspect, which, in our view is missing in the instant set of facts. The AO, in a view, should have examined the facts in detail and after due application of mind on the facts should have decided the issue on merits of the applicability of provisions of Section 56(2)(vii)(b) and 50C of the Act. However, from the records, no such investigation was carried out by the AO during the course of assessment proceedings, which, in our view, should have been done in the instant set of facts. The AO did not call for the records regarding the transactions/transfer property between the assessee and (Shri Yogeshkumar V. Barbhaya vs. PCIT) 7 A.Y. 2017-18 his brother, and did not investigate into the nature of transaction, which should have been during the course of assessment. We observe that no documents regarding the transfer property were called for or submitted during the course of assessment proceedings. The AO did not apply his mind on the applicability of provisions of Section 50C or 56(2)(vii)(b) of the Act in the instant set of facts. Accordingly, we are of the view that says the AO did not carry out the necessary enquiries/verification during the course of original assessment proceedings, we find no infirmity in the observations of the Principal CIT that the assessment order is erroneous and prejudicial to the interests of the Revenue. Accordingly, we hold that Principal CIT has not erred in facts and in law in holding that the assessment order is erroneous and prejudicial to the interests of the Revenue.

In the result, the appeal of the assessee is dismissed.