2006 (2) TMI 201 - AT - Income Tax

Revision - powers of the CIT u/s 263 - reopening of assessment u/s 147 - issued notice u/s 148 - determination of the income chargeable to tax under the head Capital gains on conversion of the land and structure as stock-in-trade - HELD THAT - The Bombay High Court decision in the case of Gabriel India Ltd. 1993 (4) TMI 55 - BOMBAY HIGH COURT has clearly held that if the Assessing Officer has raised queries and the assessee has filed written submission/explanation merely because there is no elaborate discussion in the Assessing Officer s order it cannot be said that such order becomes erroneous. No new material came to the notice of the ld. CIT and he made certain assumptions without any basis or material. In our view the powers vested in the CIT u/s 263 are extraordinary powers and completed assessment proceedings cannot be reopened unless there is some cogent material to show that there is total non-application of mind on the part of the Assessing Officer or that the Assessing Officer has committed any glaring mistake of fact or law. The assessee filed proper explanations with regard to the cost of construction assessee s claim for deduction u/s 54 and the valuation as on 1-4-1981 which was supported by valuation report of registered valuer. The entire material was available before the Assessing Officer during the course of the assessment proceedings. As a matter of fact all this material was filed before the Assessing Officer in response to the queries raised by him. In our view there is hardly any basis to assume that there was non-application of mind on the part of the Assessing Officer. Thus we hold that the ld. CIT has wrongly invoked his jurisdiction u/s 263 of the Income-tax Act. We therefore quash his common order passed u/s 263 for the assessment years 1997-98 and 1998-99. In the result the assessee s appeals stand allowed.

Summary

Issues Involved:
1. Jurisdiction of CIT under section 263 of the Income-tax Act.
2. Correctness of the computation of capital gains and deductions under section 54.
3. Validity of the cost of construction and valuation of land as on 1-4-1981.
4. Application of mind by the Assessing Officer during the reassessment proceedings.

Detailed Analysis:

1. Jurisdiction of CIT under section 263:
The CIT issued a common show-cause notice under section 263, challenging the Assessing Officer's (AO) assessment orders for being erroneous and prejudicial to the interests of the Revenue. The CIT argued that the AO did not properly apply the law or examine relevant facts, particularly concerning the computation of capital gains and deductions under section 54. The CIT set aside the assessments and directed fresh assessments.

2. Correctness of the computation of capital gains and deductions under section 54:
The AO initially assessed the income chargeable under the head 'Capital gains' during the reassessment proceedings. The assessee converted her 20% share in a plot of land into stock-in-trade and started a joint development project with M/s. United Builders. The AO found that the entire long-term capital gain of Rs. 1,95,500 should be taxed in the assessment year 1997-98. However, the CIT argued that the deduction under section 54 was incorrectly computed, as the cost of land was included in the cost of flats, which was not permissible. The CIT also raised issues regarding the cost of construction being abnormally high and the valuation of land as on 1-4-1981.

3. Validity of the cost of construction and valuation of land as on 1-4-1981:
The AO accepted the cost of construction based on a certificate from a Chartered Accountant and the valuation of land as on 1-4-1981 based on a registered valuer's report. The CIT contended that the cost of construction was abnormally high and should have been referred to the valuation cell. The CIT also questioned the valuation of land, arguing that it was based on presumptions and did not consider the leasehold nature of the property.

4. Application of mind by the Assessing Officer during the reassessment proceedings:
The assessee's counsel argued that the AO had examined all relevant issues in detail during the reassessment proceedings, and the assessee provided detailed explanations and documents. The AO's acceptance of the assessee's computation was based on these submissions. The CIT's invocation of section 263 was challenged as being based on assumptions without any new material or evidence. The tribunal held that the AO had applied his mind and made a quasi-judicial decision, which could not be termed erroneous simply because the CIT disagreed with the conclusion.

Conclusion:
The tribunal quashed the CIT's order under section 263, holding that the AO had duly examined the relevant issues, and there was no material to show that the AO's order was erroneous or prejudicial to the interests of the Revenue. The assessee's appeals were allowed.