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TMI Blog2011 (5) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... fore there was no error in the impugned assessment order so as to justify action under section 263 of the Act. Under the circumstances the very assumption of power under section 263 of the Act is unjustified and bad in law and therefore, order under section 263 of the Act deserved to be quashed. (3) Ld. CIT grossly erred in revising the impugned reassessment order which itself is subject matter of challenge both on merits as well as on jurisdiction under section 147 of the Act before CIT(A) and therefore the action of CIT in revising an order under appeal is erroneous and unlawful. In any case if the appeal before the CIT(A) reopening is held to be without jurisdiction the impugned order under section 263 revising such order itself becomes infructuous and non est. (4) Alternatively and without prejudice to the grounds raised hereinabove on merits, ld. CIT has erred in artificially bifurcating the sales consideration between the land and building without there being any basis for the same. ld. CIT further erred in treating Rs. 17,61,205 as gross short term capital receipt. Under the facts and circumstances of the case the entire capital gain ought to have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- "For the year under consideration, long term capital gain has been shown by the assessee at Rs. 14,55,213. The above comprised long term capital gain of Rs. 40,863 on account of compulsory acquisition of land by Surat Municipal Corporation and long term capital gain of Rs. 14,14,350 on account of sale of a part of immovable property. The gross consideration on sale of the part of immovable property in upper ground floor has been shown at Rs. 19,40,000. The assessee has claimed an amount of Rs. 38,800 by way of brokerage and also taken an amount of Rs. 4,86,850 as indexed cost of acquisition. These two amounts have been deducted from the gross sale consideration in order to arrive at long term capital gain on the sale of the part of immovable property at Rs. 14,14,350. The subject property which has been sold during the year leading up to receipt of long term capital gain is the upper ground floor construction in a property Sl. No. 194, Paikee and Sl. No. 150 of Ward No. 11, Bhaga Talav, Surat. The valuation report for valuing the property as on 1-4-1981 in terms of section 55(2)(a) has been made by Central Circle Gandhi & Co. The report of the valuers annexed to the return sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per ground floor Sale proceeds Rs. 19,40,000 Less: brokerage paid @ 2% Rs. 38,800 Rs. 19,01,200 Less: Indexed cost - (i) cost of land Rs. 1,38,647 (ii) cost of construction Rs. 74,752 Rs. 2,13,399 Rs. 16,87,801 The working was done like this. Earlier in the original order indexed cost is taken at Rs. 4,86,850. This comprised of cost of land at Rs. 1,38,647 leaving the balance sum of Rs. 3,48,203 for superstructure of upper ground flood sold by the assessee. Its cost was later found at Rs. 74,752 as recorded in the reasons above, which resulted in showing higher cost of the construction of the upper ground floor by Rs. 2,43,451 (taken by the Assessing Officer at Rs. 2,73,551 apparently by mistake). Assessment under section 147/143(3) was completed on 14-2-2005. The ld. CIT considered that this order of the Assessing Officer dated 14-2-2005 is erroneous insofar as it is prejudicial to the interest of revenue and accordingly he issued a show cause notice to the assessee under section 263 as under :- "To Shri Arvindlal Lamidas Kabrawala (HUF), 21-A, Prit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) the shop on the upper ground floor, (2) 1/5th portion of the open undivided land in plot No. 194, and (3) parking right in the open parking space of plot No. 150. Out of the above, the sale consideration attributable to the shop on the upper ground floor gave rise to short term capital gains which was wrongly assessed by the Assessing Officer in his order under section 147 read with section 143(3), dated 14-2-2005 as long term capital gains. It was despite the fact that in case of composite sale of old land and new building, it is settled that the proportionate amount of capital gain attributable to sale of land gives rise to long term capital gains whereas the capital gains attributable to the sale of building gives rise to short term capital gains. Reference in this regard may be made to CIT v. Dr. D.L. Ramchandra Rao 236 ITR 51 (Mad.) and CIT v. Vimal Chand Hirwat 201 ITR 442 (Raj). Thus, the net of the Assessing Officer of assessing the entire capital gains as long term capital gains has resulted into the assessment order being erroneous insofar as it was prejudicial to the interests of the revenue within the meaning of section 263(1) of the Act. 5. In the circumstances, you ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year and in that order dated 14-2-2005 Assessing Officer has substituted cost of Rs. 74,752 as against cost shown at Rs. 3,48,203. Assessee had complete bills and payment details and the Assessing Officer had correctly calculated long term capital gains and he has also accepted the working of the value of the land as computed by the assessee. (4) The assessee owned old structure which had ground and 3 upper floors. It was demolished in 1995 and new RCC structure was constructed in the year 1996-97. This was necessitated on account of notice issued by Surat Municipal Corporation for carrying out renovation and improvement. Since it was only renovation and improvement it would give rise to long term capital gains only. (5) The assessee has worked out the cost of construction at Rs. 409.65 per sft. and it has sold an area of 850 sft. resulting in cost of construction of the portion sold at Rs. 3,48,203. The total cost of construction of 4582 sft. is Rs. 18,77,000 which is on the basis of bills raised by M/s. Manish Builders. The copy of the valuation report etc., have been submitted during the course of original assessment proceedings. 5. The ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e this issue was originally discussed and considered in the assessment order dated 6-3-2000 then limitation for revising the order under section 263 will have to be reckoned from 6-2-2000. If limitation is, therefore, counted from 6-3-2000 then order of ld. CIT under section 263 passed on 29-6-2005 is barred by limitation. The ld. AR relied on the decision of Hon'ble Bombay High Court in Ashoka Buildcon Ltd. v. Asstt. CIT [2010] 325 ITR 574/191 Taxman 29 for the proposition that limitation for revising the order under section 263 cannot be reckoned from the date of the order passed under section 147/143(3) if the issues on which order is sought to be revised were not the subject matter of reassessment. Similar view was taken by Hon'ble Supreme Court in CIT v. Alagendran Finance Ltd. [2007] 293 ITR 1/162 Taxman 465 wherein it is held that if an issue in a reassessment order sought to be revised under section 263 was not the subject-matter of reassessment proceedings then same cannot be said to have merged in the reassessment order and thereon limitation of two years under section 263 will have to be reckoned from the date of original assessment order. 7. The ld. AR further referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for revising the order on the issue of section 80J cannot be counted from the order of the Assessing Officer dated 24-8-1984 as this issue was not touched by him but was only considered in the original order dated 26-3-1981. Thus the subject matter of further revision by ld. CIT under section 263 vide his order dated 6-1-1987 was different and, therefore, his order was considered barred by limitation. 9. We have considered the rival submissions and perused the material on record. There is no dispute with the proposition laid down by the Hon'ble Bombay High Court in Ashoka Buildcon Ltd.'s case (supra), by Hon'ble Supreme Court in Alagendran Finance Ltd.'s case (supra) and by Hon'ble Gujarat High Court in Gujarat Forging (P.) Ltd.'s case (supra). If the subject matter of revision under section 263 was not considered in the reassessment order or was not the subject matter of reassessment then limitation available to the ld. CIT for taking action under section 263 cannot be counted from that order of re-assessment but it will go back to original assessment where the subject matter was not at all considered. In other words as per doctrine of merger only that subject matter will merge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer to consider an item which he discovers after reopening of the assessment as having escaped assessment. Then he is duty bound to tax such additional item to tax in the reassessment order. In other words section 147 has two parts one is jurisdictional part which relates to acquisition of jurisdiction by the Assessing Officer on an item of income which has escaped assessment and the other is machinery part i.e., to also tax an item of income which comes to his notice during reassessment and which has also escaped assessment. Thus the Assessing Officer is required to make addition in respect of both items (1) on the basis of which he has reopened the assessment and which is not found satisfactorily explained during reassessment and (2) the other which he discovers during reassessment proceedings and which is also not found satisfactorily explained. For the sake of convenience we reproduce section 147 as under :- "147. Income escaping assessment.-If the (Assessing) Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of section 148 to 153 assessee or reassess such income and also any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal gains. 13. Now it is settled law if a duty cast on the Assessing Officer either to enquire or to assess a particular item of income, and if he fails to carry out his duty then his order would be erroneous and prejudicial to the interest of revenue. In our considered view the period of construction and sale is available to the Assessing Officer. As a result, a duty is cost on him and to consider whether capital gains chargeable would be short term or long term capital gains. It is the same subject matter and section 147 also empowers to consider the same. Our view that where Assessing Officer does not carry out the duty cast on him, his order would be erroneous insofar as it is prejudicial to the interest of revenue is supported by following authorities: (1) Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC) (2) Rajiv Agnihotri v. CIT [2009] 23 DTR 476 (Delhi)(ITAT) (3) CIT v. Deepak Kumar Garg [2008] 299 ITR 435 (MP) (4) Duggal & Co. v. CIT [1996] 220 ITR 456/[1994] 77 Taxman 331 (Delhi) (5) Addl. CIT v. Mukur Corpn. [1978] 111 ITR 312 (Guj.) (6) Gee Vee Enterprises v. Addl. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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