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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: Shri Waseem Ahmed & Shri Siddhartha Nautiyal
आदेश/ORDER
PER BENCH:- This appeal has been filed by the Assessee against the order passed by the Ld. Pr. CIT-1, Rajkot vide order dated 07.02.2022 passed for Assessment Year 2017-18.
2. The assessee has taken the following grounds of appeals:-
“1. The grounds of appeal mentioned hereunder are without prejudice to one another.
(Dalsukhbhai V. Barbhaya vs. PCIT) 2 A.Y. 2017-18
The order passed by Pr. Commissioner of Income-tax, Rajkot-1 [hereinafter referred as to the “PCIT”] is bad in law, in valid and requires to be quashed, the same may kindly be quashed.
The Ld. PCIT erred in law and on facts in arriving at a conclusion to the effect that the assessment order passed by the AO was erroneous as well as prejudicial to the interest of the revenue on the ground that such order was passed without making proper enquiries/verification of applicability of section 50C of the Act in respect of properties received as gift from brother and given as gift to brother. Therefore, the order passed by PCIT is required to be quashed and may kindly be quashed.
4. The learned Pr. CIT erred on facts as also in law in setting aside the assessment order dated 19.09.2019 passed u/s. 143(3) of the Income Tax Act, 1961 directing the AO pass a fresh assessment order. The order passed u/s 263 of the Act by the learned Pr. CIT is totally unjustified on facts as also in law therefore the same may kindly be quashed.
5. Your Honour’s appellant craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.”
3. The brief facts of the case are that the assessee filed Return of Income for Assessment Year 2017-18 declaring total income of Rs. 44,18,080/-. The assessment was completed under Section 143(3) of the Act on 19-09-2019 accepting the returned income. Subsequently, Principal CIT initiated (Dalsukhbhai V. Barbhaya vs. PCIT) 3 A.Y. 2017-18 proceedings under Section 263 of the Act on ground that Shri Dalsukbhai (the assessee) had received 3 properties as gift from his brother Shri Yogeshbhai for “Nil” consideration and credited to the assessee’s capital account. However, Stamp Duty was paid at time of such transfer and therefore, the assessed value of the property as per Stamp Duty valuation comes to Rs. 18,01,020/- (i.e. the assessee’s share) and therefore, in view of the provisions of Section 56(2)(vii)(b) of the Act, the above sum should have been added to the income of the assessee. Besides the above, it is noticed that the assessee also transferred two properties in gift to his brother Shri Yogeshbhai Barbhaya and debited his capital account by Rs. 11,87,416/- and Rs. 6,87,874/-. On these transactions, the AO has not examined the applicability of provisions of Section 50C of the Act. 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:
“5. I have gone through the records and the submissions made by the assessee during the proceedings. The assessee has submitted that the issue under consideration has been duly examined in the assessment proceedings by the AO therefore there was no omission on the part of the AO and it is the change of opinion in revisionary proceedings. The assessee has submitted that during the year he has received three immovable properties in gifts from his real brother through gift deeds. Therefore the provisions of section 56(2)((vii)(b) are not applicable in the case as the gifts have been received from the real brother. The submission to this extent from non-applicability of (Dalsukhbhai V. Barbhaya vs. PCIT) 4 A.Y. 2017-18 provision of section 56(2)(vii)(b) prima-facie appears to be correct. However the assessee has submitted that his brother has purchased the property along with assessee in F.Y. 2009-10 & 2010-11. Further in support of it, it has provided the copies of the purchase deed of 02 properties only and not about the third property i.e. Celler of Tankarwala Estate(Store).
The AO has not examined the acquisition of all the 03 properties along with sources thereof to know whether the payments of the original purchase by the assessee and his brother has been made out of their own funds and not from elsewhere. Through this enquiry firstly the AO ought to have ascertained the ownership of the assessee and his brother as the same will be material for deciding the applicability of the provisions of section 56(2)(vii)(b) of IT act. He ought to have examined the purchase deeds and the gift deeds thoroughly to ascertain the facts and take the necessary action on the issue.
Similarly, the assessee has not given any details or evidences with regards to the transfer of two properties to his brother and the AO has not examined this issue as the sale deeds were not required or produced in the assessment proceedings. Thus there remains to be examined the applicability of the provisions of section 50C of IT act. Here it is worth to mention that it is a peculiar fact that the assessee is transferring two properties to his brother Shri Yogeshbhai V Barbhaya and he is getting three properties from Shri Yogehsbhai V (Dalsukhbhai V. Barbhaya vs. PCIT) 5 A.Y. 2017-18
Barbhaya. Therefore the nature of transfer in view of the relevant provisions of IT act ought to have been examined by the AO.
6. The above facts will indicate that AO has not conducted any inquiries/verification in respect of issues mentioned above. It may be mentioned that two essentials conditions for invoking the provisions of section 263 of I.T. Act are that the order passed by the AO is erroneous and prejudicial to the interest of revenue. ………. 14. Keeping in view these facts, I am of the considered view that this is a fit case for invoking section 263 of I. T. Act as the twin conditions namely, (i) the order of the Assessing Officer sought to be revised is erroneous: and (ii) It is prejudicial to the interest of the revenue are satisfied. The AO is directed to make fresh assessment keeping in view the observations made above, after conducting necessary verifications and inquiries and after providing proper opportunity of being heard.”
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, (Dalsukhbhai V. Barbhaya vs. PCIT) 6 A.Y. 2017-18 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 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 were 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 (Dalsukhbhai V. Barbhaya vs. PCIT) 7 A.Y. 2017-18 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 coursse 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 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 of 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 since 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, all grounds of the assessee’s appeal are dismissed.
Order pronounced in the open court on 28-09-2022