TMI Blog2022 (6) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... ied for limited scrutiny for examination. The AO again directed the assessee to furnish the information during the course of assessment proceedings vide letter dt. 09/02/2017, copy of which is placed at page no. 195 and 196 of the assessee s compilation, in the said letter, at Sl.No. 8 the AO asked the information relating to large deduction claimed under section 54B, 54C, 54D, 54G and 54GA of the Act and at Sl. No. 11 the AO asked the details of substantial increase in capital in a year. The assessee furnished all the requisite details which we have already mentioned in the former part of this order, so it cannot be said that the AO did not make the inquiries relating to the increase in capital account or did not examine the issues. In the present case the Ld. Pr. CIT on the one hand mentioned that the assessee did not provide details of substantial increase in capital in a year, on the other hand, she mentioned that the reply was furnished by the assessee relating to addition in capital account which was reproduced in para 6 of the impugned order. In the present case, it cannot be said that the AO did not make inquiries / verification relating to increase in capital account of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed is neither erroneous nor it is prejudicial to the interest of revenue. 2. That the appellant craves, leaves to alter, amend and add to substitute any ground of appeal before or at the time of hearing. 3. The only grievance of the assessee in this appeal relates to the action taken by the Ld. Pr. CIT under section 263 of the Income Tax Act, 1961 (hereinafter referred to as Act ). 4. Facts of the case in brief are that the assessee filed his return of income on 30/10/2015 declaring an income of Rs. 3,04,29,420/-, subsequently, the case was selected for scrutiny. The AO mentioned that the assessee furnished the requisite details and documents which were examined and the books of accounts relating to real estate development were examined on test check basis. The AO observed in the assessment order that as per the information available on record and reply submitted by the assessee the case was discussed with the counsel for the assessee and the returned income was accepted. Thereafter the Ld. Pr. CIT exercised his jurisdiction under section 263 of the Act and issued the notice dt. 24/02/2020 to the assessee which read as under: Please refer to your return o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 In view of the facts stated above, it appears that the assessment framed u/s 143(3) on 29.12.2017 for A.Y. 2015-16 is erroneous in so far as prejudicial to the interest of the revenue in terms of provisions of section 263 of the Income Tax Act, 1961. You are, therefore, requested to show cause as to why assessment framed vide assessment order dated 29.12.2017 u/s 143(3) of the Income Tax Act, 1961 for A.Y2015-16 should not be cancelled by invoking the provisions of section 263 of the Income Tax Act, 1961. 7. Your case is fixed for hearing before the undersigned on 28.02.2020 at 11:00 A.M. In case of non-compliance, it would be presumed that you have nothing to say in this regard and order u/s 263 would be passed on merits on the basis of material available on record. 4.1 In response to the aforesaid notice, the assessee furnished the written submissions on 05/03/2020 which read as under: 1. There is no denial to the fact that return of income filed on 30.10.2015 at an income of Rs.3,04,29,420/- in respect of assessment year 2015-16 has been accepted at returned income in the assessment order passed u/s 143(3) of the I.T Act, 1961 on 29.12.2017 by Dy. CIT, Cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the assessment orders for respective assessment years 2011-12 2012-13 and have allowed the deductions u/s 54B as well as 54F of the I. T.Act, 1961. Therefore, having following the consistency in A.Y. 201516 under similar facts have neither made the assessment order as erroneous nor it has caused any prejudice to Revenue. Copies of assessment orders, ITRs and Computation Statements of Income both these years are attached at pages Nos. 6 to 23 of this submissions. The Computation Statements of Income of respective years are indicative of similar facts, similar deductions u/s 54B 54F and duly allowed u/s 143(3) of the Income Tax Act, 1961. Kind attention is invited to case law of Hon'ble IT AT Panji in the case of Deputy commissioner of I. Tax Vs. Ramdas Haribhan Kakade Ors; ITA No. 60/PUN/2015 assessment year 2010-11 (attached at page nos. 24 to 36 of the submission). The Hon'ble IT AT has categorically held that transfer envisaged under section 45(2) of the Act, would arise only when stock in trade is sold or otherwise transferred by him and not in the year in which he converted his stock in trade.... Kind attention is also drawn to case law of Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one by A. 0. is contrary to fact. Even the Registering Authority has verified it for the purposes of stamp duty. 9. Last but not the least, even for arising at indexed cost of acquisition, cost inflation index has to be taken for the year under consideration, the year in which sales have actually taken place. The same has also been held by Hon'ble High Court of Karnataka in the case of Commissioner of Income Tax ANR Vs. Rudra Industrial Commercial Corporation reported in (2011) 244 CTR 0304: (2011)55 DTR 0005 (attached at page no. 47 to 54 of the submissions). The head note of case law placed at page no. 47 of the submissions states as under: Capital gains- computation- Relevant date for applying cost inflation index assessee firm which owned an immovable property, converted the same into stock in trade in the year 1987-88 and entered into an agreement with a company to develop the property and construct flats thereon-At that stage Revenue did not treat the said arrangement as a transfer capital gain was computed only when the assessee executed registered sale deeds in favour of the purchasers of flats in the F. Y. 1992-93. It is the market value on the date of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepting returned income. 2. Your case was selected for limited scrutiny and the following issues were identified for examination. i. Interest expenses ii. Sales Turnover Mismatch iii. Sundry Creditors iv. Increase in Capital v. Deduction claimed under the head Capital gains 3. In the questionarire issued on 09.02.2017 vide question No. 11 you were asked to furnish details of substantial increase in capital in a year. However, from the documents submitted by you it is seen that only names of the person from whom loan were received were provided. The identity and credit worthiness of these persons have not been established. No supporting documents have been provided. Accordingly the addition to capital account amounting to Rs. 2,68,78,741/- in the Jamuna Developers and Rs. 2,45,23,486/- in Mehak Enterprises has remained unexplained. Please show cause as to why the addition to the capital account may not be treated as unexplained income and added to your income. 4. Perusal of assessment record in your case for A. Y. 2015-16 shows that a computation of income has been provided during the course of assessment proceedings. It is seen that deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 263 of the Income Tax Act, 1961. 12. You are, therefore, requested to show cause as to why assessment framed vide assessment order dated 29.12.2017 u/s 143(3) of the Income Tax Act, 1961 for A. Y2015-16 should not be cancelled by invoking the provisions of section 263 of the Income Tax Act, 1961. 4.4 In response to the aforesaid notices, the assessee furnished the reply which is reproduced verbatim as under: ''This is with reference to aforesaid notice pertaining to assessment year 2015-16regarding proceeding u/s 263. In this regard, it is stated as under: Part-I i) Addition in Capital A/c in M/s Jamuna Developers amounting to Rs.2,68,78,741/-. The detail of the addition stands verified by then Ld. A.O. and how it isnot found on assessment record is really a matter of surprise to us. However, for your immediate reference and record, the detail of addition in capital account of Rs. 26878741/- is furnished as under: Date Amount Remarks 28-05-2014 3573297.00 From Saving A/c No. BOB-7238 29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Addition in Capital in Mehak Enterprises Amounting to Rs.24523486/- Similar are the facts in this case also. The detail of addition is as under: Date Amount Remarks 04.10.2014 200841.00 From Saving A/c No. SBI3109 07.11.2014 900000.00 From Saving A/c No. BOB 7238 07.11.2014 150000.00 From Saving A/c No. BOB 7238 15.11.2014 5000.00 TDS through assessee 01.12.2014 5000.00 Cash 30.12.2014 13381645.00 Land transferred to Mehak Enterprises at cost. The papers of land are attached as annexure B. 16.01.2015 1100000.00 From Saving A/c No. BOB 7238 21.01.2015 25000.00 From Saving A/c No. SBI 3109 31.01.2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us in so far as it was prejudicial to the interest of the Revenue as the following inquiries / verification were not conducted by the AO: 1. The details of addition to capital account were not called for. 2. In the Bank account statements there are credit entries just before the transfer in capital account. The Credit entries in the Bank account of the assessee from where the capital is stated to have been introduced were not subjected to verification. 3. There are certain entries which have narration different to what is being claimed by the assessee and these were not subjected to verification/examination. 4. The ownership of land as on date of introduction to Mehak Enterprise was not verified from Revenue Record. 4.6 As regards to the claim for deduction under section 54B and 54F of the Act was concerned the Ld. Pr. CIT observed that the details of capital gain disclosed by the assessee in the computation of income filed during the assessment proceedings were as under: Property No. 1 Property No.2 Property No. 3 Property No.4 Year of purchase (as claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it was prejudicial to the interest of the revenue as the following inquiries / verifications were not conducted by the AO: 1. The date of purchase of properties has been accepted without verification of facts even from the assessee inspite of the fact that the case was picked up under scrutiny for this specific reason. 2. The value of capital gain disclosed by the assessee was accepted without verification of the fact that the transaction was short term capital gain or long term gain. 3. That the value of the property in the purchase year has been accepted without obtaining relevant sale deed to verify the year of purchase and the amount for which purchased. 4. If the property is ancestral then the indexed cost of acquition as declared by the assessee is not correct as the indexation has been claimed as per value of F.Y.2004-05 and 2005-06 and in which case provisions of section 49 will apply i.e as the property did not cost anything to the inheritor, therefore, for calculation of capital gain the cost to the previous owner is considered as the cost of acquisition of the property and the year of acquisition of the previous owner is considered for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct by the Assessing Officer without examining the fact that after converting the land in Stock in trade, the assessee constructed Residential Flats/ Commercial sites/ School on that land. What was ultimately sold was not agricultural land but the Residential Flats/ Commercial sites/ School. As the assessee did not actually sell the agricultural land the provisions of section 54 B were not applicable and thus no deduction u/s54B was allowable to the assessee on sale of Residential Flats/ Commercial sites/ School. 10.9 The claim of deduction u/s54 F was allowed without calling for the details of investment made in construction of house. In the reply dated 12/06/2017, the assessee has merely stated that he has invested Rs.96,37,71II- in construction of house. No verification was made by the Assessing Officer on this issue. Bank statement from where payments for construction was made were not called for. Bills for construction were not called for or examined. 10.10 The assessee in the reply has also relied on Mahendra Rajnikant Zaveri Vs. Income Tax Officer (para 10.3 above). The decision is primarily based on circular No.791 of dated 02/06/2000. The decision has been consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and for calculating the capital gain arising from the sale of stock as per the provisions of Section 45(2) of the Act and that for the purpose of section 48 of the Act, the fair market value of the asset on the date of conversion shall be deemed to be full value of consideration received or accruing as a result of the transfer of the capital asset. She further observed that the assessee while computing the capital gain had adopted sale consideration for which no documentary evidence was provided and the AO did not make any verification or inquiry in this regard, therefore, the sale consideration over and above the fair market value as in the year of conversion shall be treated as business income of the assessee. She mentioned that the collector rate of the land in the year of conversion i.e; F.Y. 200607 was Rs. 9,50,000/- per acre and accordingly the fair market value of the land now sold as stock in trade should have been worked out for the F.Y. 2006-07 which would be much less than what had been claimed by the assessee in the computation of income, the difference has to be taxed as business income but the AO made no inquiry on this aspect. She, therefore held that the order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. It was stated that the Ld. Pr. CIT while issuing the notice dt. 24/02/2020 did not touch the issue relating to increase in capital and only mentioned the issue relating to the deduction under section 54B and 54F of the Act, a reference was made to page no. 2 of the impugned order wherein the notice issued under section 263 of the Act by the Ld. Pr. CIT has been reproduced. 6.1 It was further submitted that another notice dt. 02/01/2021 was issued to the assessee wherein the addition to the capital account amounting to Rs. 2,68,78,741/- in M/s Jamuna Developers and R.s 2,45,23,486/- in M/s Mehak Enterprises were raised by the Ld. Pr. CIT and the assessee duly explained both issues to the Ld. Pr. CIT alongwith relevant evidences. It was contended that there was change in opinion of the Ld. Pr. CIT who in the first notice raised the question relating to the exemption under section 54B and 54F of the Act and later on she asked about the increase in capital account. It was stated that the Ld. Pr. CIT in one notice observed that the assessee had not furnished a requisite information / evidence before the AO in another notice she observed that the AO had not inquired properly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO mentioned as under: the case was discussed with the counsel of the assessee as per the information available on record and reply submitted by the assessee, the returned income of the assessee is hereby accepted 6.3 The Ld. Counsel of the Assessee also drew our attention towards page no. 203 of the assessee s compilation which in the copy of the office note in assesse s case wherein the AO vide item no. 3 clearly mentioned that this case was selected for complete scrutiny under CASS for large deduction claimed under section 54B, 54C etc. vide Item No. 6 she mentioned that the reason for complete scrutiny was substantial increase in capital in the year and that during the course of assessment proceedings the requisite documents were called for and examined, no adverse inference was drawn. He therefore submitted that the assessee furnished all the documents which were asked by the AO who thoroughly examined the same and made the proper inquiries therefore it was neither the case of lack of inquiry or nor of improper inquiries. 6.4 Ld. Counsel for the assessee made reference to page no. 157 to 180 of the assessee s paper book which are the copies of capital account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 54B and 54F of the Act was concerned, it was stated that under similar facts the then respective AO s had allowed deduction of the agriculture land converted into stock in trade in the A.Y s. 2011-12 and 2012-13 and even for the preceding A.Y. 2013-14 when the Ld. Pr. CIT passed the order under section 263 of the Act the issue was decided in favour of the assessee by the ITAT and the order passed by the Ld. Pr. CIT under section 263 was annulled. It was also pointed out that in the succeeding A.Y 2018-19 under the faceless scrutiny the AO again allowed the deduction under section 54B 54F of the Act, the reference was made to page no. 181 and 182 of the assessee s compilation which is the copy of the assessment order for the A.Y 2018-19. 7.1 It was submitted that facts for the year under consideration are similar to the facts involved in the A.Y s. 2011-12, 2012-13, 2013-14 and 2018-19 therefore, the second issue relating to the deductions claimed under section 54B and 54F of the Act, which was considered to be erroneous and prejudicial to the interest of the Revenue by the Ld. Pr. CIT stands covered in favour of the assessee vide order dt. 08/07/2021 of the ITAT Chandi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant details had been mentioned by the Ld. Pr. CIT at page no. 9 10 of the impugned order. The addition amounting to Rs. 2,45,23,486/- in M/s Mehak Enterprises was from the Saving Bank Account maintained with Bank of Baroda and State Bank of India and Rs. 1,33,81,645/- was on account of land transferred at cost on 30/12/2014. The AO during the course of assessment proceedings issued the Questionnaire vide notice under section 142(1) of the Act issued on 09/02/2017 and the case of the assessee was selected for scrutiny only to examine the increase in capital, the assessee furnished the details to the AO copy of which is placed at page no. 157 to 159 of the assessee s paper book for increase in capital in the firm M/s Mehak Enterprises. The assessee also furnished the copy of bank account wherein the entries were reflected for depositing the amount in M/s Mehak Enterprises in the capital account of the assessee, the copy of the same is placed at page no. 160 to 171 for Bank of Baroda and at page nos. 172 to 175 for State Bank of India. The AO verified those details which is evident from the assessment order wherein it has been mentioned that Shri Sudeep Gupta, C.A attended the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said that the AO did not make the inquiries relating to the increase in capital account or did not examine the issues. In the present case the Ld. Pr. CIT on the one hand mentioned that the assessee did not provide details of substantial increase in capital in a year, on the other hand, she mentioned that the reply was furnished by the assessee relating to addition in capital account which was reproduced in para 6 of the impugned order. In the present case, it cannot be said that the AO did not make inquiries / verification relating to increase in capital account of the assessee as alleged by the Ld. Pr. CIT. 9.1 As regards to the certain entries which the Ld. Pr. CIT pointed at page no. 12 13 of the impugned order that there was mismatch, the Ld. Counsel for the assessee in his written synopsis clarified that those entries were verifiable from the records and the assessee himself introduced addition in capital from his own bank account maintained with SBI Saving Bank Account 3109, Bank of Baroda Saving Bank Account 7238 and 3109. As regards to the mismatch pointed out by the Ld. Pr. CIT the Ld. Counsel for the Assessee had given the explanation as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tlement for claiming deduction u/s 54B(1) and 54(B)(2) of the Act would be seen in the year in which the deemed transfer is to be taxed in the hands of the assessee. Further, the Pune Bench of the Tribunal in the case Mahendra Rajnikant Zaveri (supra), in the light of the CBDT Circular No 791 dated 02.06.2000 and taking into consideration the impossibility of the assessee being able to invest the amount, has held that the period of 6 months for the purposes of investment in specified assets must be reckoned from the date of receipt of consideration. So, we are of the considered view that since the AO had taken a possible view after hearing the assessee in the light of the cases relied upon by the assessee, the Ld. PCIT has wrongly exercise the jurisdiction u/s 263 of the Act and set aside the assessment order. 11. Further as per the settled law u/s 263 of the Act, the CIT has power to examine an assessment order to ascertain as to whether it is erroneous and prejudicial to the interest of the revenue. Section 263 of the Act does not confer jurisdiction to rectify each and every mistake in the assessment order. Therefore, the assessment order can be revised only where the order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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