SHRI MOHAN LAL GUPTA,SHIMLA vs. PR.CIT-1, CHANDIGARH

“That in the facts and circumstances of the case the Ld. Principal Commissioner of Income Tax is not justified in setting aside the order passed by the Ld. Income Tax Officer, Ward-1, Shimla holding the same to be erroneous and prejudicial to the interest of the Revenue under section 263 of the Income Tax Act, 1961.

That the order of the Ld. Principal Commissioner of Income Tax is bad in law and facts of the case.

Being aggrieved against the said order and the findings of the Ld. Pr. CIT, the assessee is in appeal before us.

During the course of hearing, Shri Vishal Mohan, Sr. Advocate submitted that the Ld. Pr. CIT in the show cause notice and thereafter while recording his findings in the impugned order has contested the action of the AO in allowing the transfer expenses of Rs. 27,00,000/-, CLU expenses of Rs. 2,34,614/- and deduction under Section 54F of the Act while computing the Long Term Capital Gain on sale of the land. Separately, the Ld. Pr. CIT has referred to the sale of an immovable property situated at Village Jagjit Nagar(Solan) which was sold for a consideration of Rs. 23,99,000/-. 8. Firstly, it was submitted that the subject matter of reassessment proceedings and in particular, the reasons for initiating the reassessment proceedings was excess claim of deduction u/s 54F of the Act. Therefore, except for the issue pertaining to claim of deduction u/s 54F of the Act, rest all issues that have been raised by the ld PCIT have attained finality at the time of passing of the original assessment order u/s 143(3) dated 18/02/2014. It was submitted that these issues were not the subject matter of the reassessment proceedings, the period of limitation for the completion of proceeding under section 263 have to be read from the completion of the original assessment proceedings and even on this count, the order so passed is clearly barred by limitation as so provided in the statute u/s 263(2) of the Act which provides that no order shall be passed under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. 9. Regarding the sale of the immovable property situated at Village Jagjit Nagar Solan, it was further submitted that, the assessee had sold the said piece of agricultural land at Jagjit Nagar, Solan for a consideration of Rs. 23,99,000/- and the said matter was duly enquired into and examined by the AO while passing the original assessment order under section 143(3) dt. 18/02/2014. In this regard, our reference was drawn to the office note appended to the assessment order and the contents thereof read as under: “ Further, during the course of assessment proceedings, the assessee sold out agricultural land situated at Jagjit Nagar, Dharta Teh. Krishan Nagar, Disttt. Solan measuring 1-7-12 bighas for Rs. 23.99 lacs on 08.04.2010. The assessee purchased agricultural land from his brother on 18.06.2010 measuring 10 biswa situated at Jagjit Nagar, Dharta Teh. Krishan Nagar, Distt. Solan for Rs. 8 lacs and the purchases have been made from the funds lying in his Bank Account No. 55012863761 in SBOP, The Mall, Shimla.”

It was submitted that the assessee had sold agriculture land which does not fall within the definition of capital asset u/s 2(14) of the Act and the matter was duly examined by the AO while passing original assessment order dt. 18/02/2014. It was submitted that it is therefore not a case where the matter has not been examined by the AO and the Ld. Pr. CIT is thus not correct where he has held that the matter has not been examined and remain unverified by the Assessing officer.

It was submitted that merely because there is no discussion in the body of the assessment order, it does not make the assessment order as erroneous and prejudicial to the interest of the Revenue so long as the matter has been duly examined during the course of original assessment order and which also found mentioned in the office note appended as part of the assessment order which apparently has escaped the attention of the Ld. Pr. CIT.

Regarding the transfer expenses of Rs. 27,00,000/- and CLU charges of Rs. 2,34,614/-, our reference was drawn to the pages 51 to 53 of the paperbook regarding details of the transfer expenses and pages 54 to 55 regarding details of the CLU charges which were duly submitted before the AO and form part of the assessment records. It was submitted that the matter was duly examined by the AO and therefore the findings of the Ld. PCIT that no documentary evidence is available on the record is not factually correct and therefore the consequent findings that the AO has not verified this issue is again not borne out from the records and therefore, the order so passed cannot be held as erroneous and prejudicial to the interest of the Revenue 13. Regarding quantum of deduction under section 54F of the Act, it was submitted that there is no dispute that the assessee is eligible for deduction under section 54F of the Act as the same has not been disputed by the Ld. Pr. CIT. As far as the quantum of deduction is concerned wherein the Ld. Pr. CIT has determined the quantum of deduction at Rs. 30,49,998/- as against Rs. 37,00,000/- allowed by the AO, it was fairly submitted that the ld PCIT has rightly computed the quantum of deduction and he has no objection where the deduction is restricted to Rs. 30,49,998 as so computed by the ld PCIT.

Per contra, Smt. Kusum, the Ld. CIT/DR submitted that the plea of the assessee regarding limitation was duly addressed by the ld PCIT wherein he has held that reassessment proceedings were completed by passing of order u/s 147 r/w 143(3) dated 21/12/2017 and therefore, the revisionary proceedings were initiated by issuance of show-cause on 4/01/2021 within the limitation period. It was submitted that the order so sought to be revised is the reassessment order and not the original assessment order and therefore, it is open to the AO to examine any other matter which come to his notice during the course of reassessment proceedings and need not restrict himself to the matter for which the proceedings were reopened and reasons recorded. It was submitted that where the relevant facts are on record and during the reassessment proceedings, the AO failed to examine certain matter and the ld PCIT noticing the same invoked his jurisdiction u/s 263, there is no infirminity in the action of the ld PCIT in invoking his jurisdiction and passing the impugned order. It was further submitted that given the Covid 19 pandemic, the limitation period was extended by the Hon’ble Supreme Court and subsequently by the CBDT and therefore, as far as passing of the impugned order is concerned which was passed on 26/03/2021, the same is clearly within the limitation period and therefore, the contention so raised on behalf of the assessee deserve to be rejected.

Regarding sale of the immovable property at Village Jagjit Nagar, Solan, it was submitted that the reassessment order passed under section 143(3) read with section 147 is totally silent on the said matter and even there is no inquiry whatsoever which have been conducted by the AO during the reassessment proceedings and therefore the order so passed by the AO is clearly erroneous in so far as prejudicial to the interest of the Revenue.

Regarding transfer expenses and CLU charges, it was submitted that no documentary evidence in respect of transfer expenses and CLU charges have been filed by the assessee during the course of reassessment proceedings and therefore it is clearly a case where the AO did not verify the said claim of the assessee and the same has been allowed merely basis the claim made by the assessee and therefore the order so passed is clearly erroneous in so far as prejudicial to the interest of the Revenue.

Regarding claim of deduction u/s 54F, it was submitted that the ld PCIT has rightly determined the quantum of deduction which the assessee is eligible for and even in his submissions before the Bench, the ld AR has fairly accepted the quantum of deduction as so computed by the ld. PCIT.

The ld CIT/DR accordingly supported the order and the finding of the Ld. Pr. CIT and submitted that the various contentions so raised on behalf of the assessee deserve to be rejected.

We have heard the rival contentions and purused the material available on record. In the instant case the assessee originally filed his return of income declaring total income of Rs. 3,31,640/- which was assessed to tax under section 143(3) vide order dt. 18/02/2014 wherein the addition of Rs. 37,900/- was made towards interest on saving bank account and the assessed income determined at Rs. 3,69,540/- while passing the assessment order. The AO also prepared an office note which has been appended to the copy of the assessment order dt. 18/02/2014, thus part of the assessment records and the contents thereof read as under:

Therefore if any of the aforesaid issues which is found to be erroneously dealt with by the AO and therefore call for revisionary proceedings under section 263 of the Act, then the requisite action should been completed by 31/03/2016 i.e; within two years from the end of the financial Year in which the assessment order was passed which is F.Y. 2013-14.

Thereafter, instead of any revisionary proceedings being initiated u/s 263, the reassessment proceedings were initiated u/s 147 by the AO and the reasons so recorded by the AO dt. 03/06/2016 read as under:

Therefore, I have reasons to believe that, by the reason of being failure on the part of the assesssee to disclose fully and truly all material facts necessary of his assessment, for A.Y. 2011-2 the capital gain arising out of sale of Immovable property or any other income which may come to notice during assessment proceedings, income amounting to atleast Rs. 79,80,964/- on account of capital gain for A.Y. 2011-12, has escaped assessment within the meaning of section 147 of the I.T. Act. Approval for issue of notice u/s 147 is obtained from Pr. Commissioner of Income Tax, Shimla vide his office letter no. Pr. CIT/Shimla/2016- 17/151(2)/1041 dated 31/05/2016.”

It is apparent from the reasons so recorded that the case of the assessee was reopened on account of excess claim of deduction under section 54F by an amount of Rs. 79,80,694/- in respect of purchase of an immovable property situated at New Shimla.

Further, during the course of reassessment proceedings, the AO also brought the tax capital gains arising on sale of the land and super structure amounting to Rs. 2,36,10,000/-. While doing so, the AO rejected the contention advanced by the assessee that all the details / information were submitted before the AO while framing the original assessment under section 143(3) dt. 18/02/2014 and no new information has come to the notice of the AO after completion of the original assessment proceedings and as such the action under section 147 is a change of opinion. The AO also invoked explanation 3 to Section 147 which provides that for the purpose of assessment or reassessment under this section, the AO may assess or reassess the income in respect of any issue which has escaped assessment and such issue has come to his notice subsequently in the course of the proceedings under this section notwithstanding that the reasons for such issue have not been included in the reason recorded under Sub Section (2) of Section 148 of the Act. The AO accordingly brought to tax the Long Term Capital Gain on the sale of the plot and super structure situated in Mohal Sankat Mochan (Old Mohal Badai) Tehsil, Shimla amounting to Rs. 2,36,10,000/- and after allowing transfer expenses of Rs. 27,00,000/- and index cost including CLU expenses and after allowing deduction under section 54F amounting to Rs. 37,00,000/- on purchase of Flat at Panchkula, the Long Term Capital Gains were determined at Rs. 1,57,62,283/-. Therefore, as far as matter pertaining to transfer expenses, CLU expenses and claim of deduction u/s 54F of the Act, we find that the same are clearly emerging from the reassessment order passed u/s 143(3) r/w 147 of the Act and the impugned revisionary order so passed by the ld PCIT setting aside the reassessment order is thus not barred by limitation as the limitation period will start from passing of the reassessment order and not the original assessment order.

At the same time, we find that the matter relating to sale of land situated at Jagjit Ngar, Dharta, Teh. Krishan Nagar, Distt. Solan for Rs. 23.99 lacs was not the issue for which the case of the assessee was reopened under section 147 of the Act or has resulted in any escapement of income and came to the notice of the AO during the course of reassessment proceedings under section 147. Infact, we find that in the original assessment proceedings, both the transactions were not brought to tax and in the reassessment proceedings, the AO knowing fully well his powers under Explanation 3 to section 147 brought to tax the transaction relating to the sale of land for Rs 2.31 crores as having escaped assessment and not the other transaction for Rs 23.99 lacs apparently for the reason that the same has not escaped assessment and going by the findings of his predecessor in the original assessment proceedings. Accordingly, as far as the matter pertaining to the sale of the immovable property for Rs. 23.99 lacs, it is apparent that the action under section 263 is initiated for the matter which was already decided in the original assessment proceedings under section 143(3) of the Act and not in the reassessment proceedings. Therefore, in such circumstances where the Ld. Pr. CIT seek to review any issue arising out of the original assessment order, the time limit for passing the order under section 263 will run from the end of the financial year in which the original assessment order was passed under section 143(3) of the Act and not from the end of the financial year from passing of the subsequent reassessment order under section 147 of the Act.

In this regard, useful guidance can be drawn from the decision of Hon’ble Supreme Court in case of CIT Vs. Alagendran Finance Ltd. [2007] 162 Taxman 465. The issue which arose for consideration before the Supreme Court was whether, for the purpose of computing the period of limitation envisaged under sub-section (1) of Section 263, the date of the order of assessment or of the order of reassessment is to be taken into consideration. In the order of assessment, the return of the assessee under the head of "Lease Equalisation Fund" was accepted. Thereafter, the proceedings for reassessment were initiated by the Assessing Officer and orders of reassessment were passed in respect of the following items namely (i) expenses claimed for share issue; (ii) bad and doubtful debts; and (iii) excess depreciation on gas cylinders and goods containers. Though the return of income in respect of the "Lease Equalisation Fund" was not the subject matter of the reassessment proceedings, the Commissioner of Income Tax invoked his revisional jurisdiction under Section 263 and by his order came to the conclusion that the assessee had not furnished complete details and the order of the Assessing Officer was prejudicial to the interest of the Revenue. The Tribunal held that the order which was passed under Section 263 was barred by limitation. The Supreme Court upheld the order of the Tribunal and held as under: