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2015 (7) TMI 558 - ITAT DELHI

2015 (7) TMI 558 - ITAT DELHI - TMI - Revision u/s 263 by CIT(A) - CIT while setting aside the assessment order held that the sale consideration at ₹ 35,00,000/- for shop was less than the circle rate at ₹ 69,72,402/- paid and that the stamp duty was paid on the said circle rate, therefore, the said circle rate was the most reasonable rate while accepting the sale rate - CIT invoked the provisions of section 50C - whether the provisions of section 50C of the Act are applicable to the .....

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ent order by invoking the provisions of section 263 of the Act.

In the instant case, the assessee furnished all the details relating to the business profit earned and the sale of shops. The AO specifically asked the assessee to show cause as to why the interest should not be allowed proportionately with reference to actual sale of shops as reduced by the gross profit. Accordingly, interest on loans and income from business was worked out. The ld. CIT had not doubted allowable interest .....

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view that the ld. CIT was not justified in setting aside the assessment order dated 22.12.2010 and directing the AO to frame fresh order. He was also not right in holding that the sale price of the shop should have been taken at circle rate in accordance with the provision of Section 50C of the Act instead of actual sale price disclosed by the assessee and accepted by the AO. Accordingly the impugned order passed by the ld. CIT is set aside and the assessment order framed by the AO is restored. .....

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t the assessment order framed u/s 143(3) of the Income-tax Act, 1961 dated 22.12.2010 by the Addl. Commissioner of Income-tax, Range-1, Meerut was done without proper inquiry and that it needed to be revised in terms of Section 263 of the Act, is misconceived and devoid of jurisdiction and being unfair, untenable and unjust and must be quashed. 2. That the Commissioner of Income-tax erred in revising the assessment order u/s 263 of the Act without pointing out any incorrect assumption of facts o .....

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61 to business transactions in the sale of shops and in taking the sale consideration of such shops at ₹ 69,72,402/- instead of the actual consideration of ₹ 35,00,000/- as taken by the Assessing Officer which action must be quashed as being incorrect and illegal. 5. That the Commissioner of Income-tax erred in estimating profit on sale of shops at ₹ 20,91,609/- which being erroneous and fanciful must be quashed. 6. That the Commissioner of Income-tax erred in construing income .....

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43(3) of the act on 22.12.2010 must be restored. 3. From the above grounds it is gathered that the grievance of the assessee relates to the action of the ld. CIT u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act) in considering the assessment order passed by the AO as prejudice to the interest of the Revenue 4. Facts of the case in brief are that the assessee filed his return of income on 13.01.2009 declaring an income of ₹ 29,43,650/- which was processed u/s 143(1) o .....

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377; 35,00,000/- and shown capital gain of ₹ 1,50,000/-. Again the assessee filed a revised computation of income and income from those shops was shown under the head business. The assessee claimed loss of ₹ 16,99,102/- on sale of those shops by debiting interest of ₹ 22,24,102/-. The assessee had also shown work in progress of ₹ 1,45,83,555/-. During the course of assessment proceedings, the AO asked the assessee to show cause as to why the interest should not be allowed .....

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00 = 17558555 ₹ 376836 Income from business on sale of shops =Rs.525000-Rs.376836 ₹ 148164 5. The AO also made the addition of ₹ 25,000/- on account of low withdrawals for household expenses and accordingly, the income was assessed at ₹ 30,15,270/- after allowing deduction u/s 80C & 80D of the Act. Thereafter the ld. CIT exercised his powers and issued the notice u/s 263 of the Act on the following points: (i) As per the revised return of income for the A.Y 2008-09, y .....

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ed to file the same. The AO has not verified the status of the NRI. (iii) You have claimed expenditure of ₹ 34,56,187/- against interest income of ₹ 34,20,438/-. AO has accepted the same without proper inquiry on the basis of the plea that you have taken loans to earn interest income. No nexus has been established between loan taken and interest income. 6. The ld. CIT also asked the assessee to furnish and explain the following: · Details of shop project, land purchase, MOU an .....

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s sold. How circle rate worked out? Why sale price @ less than Circle Rate acceptable? How much claimed as paid on construction of each shop? To work out properly furnishing supporting evidence of each. · DTAA under which relief u/s 90 of IT Act claimed. How and why admissible? Nature of receipts and proof in support of its claim u/s 90 of the IT Act. Proof of payment of tax in U.S. on said income, why taxable in U.S. & why not in India? Assessee is admittedly a Resident of India, the .....

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essee and that too against interest income returned? · Rates at which loans taken, Rates at which loans given. Justification and reasonableness u/s 40A(2)(b) of the IT Act, 1961. · Proof of payment of interest if any paid. The details of interest show that mere provision has been made. How liability for interest arose? Contract/Agreement with the parties, purposes for which loan on interest taken. Purposes for which loan money lent out to others? Why not breach of conditions on whi .....

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enied. Please explain why not liable for penalties u/s 271A and 271B of the IT Act and also give complete details and complete supporting material/evidence of such business. · Complete copies of Bank a/cs of the assessee-certified/true for the whole year. · How income from shops (rent) is shown as income from house property and even deduction u/s 24 is claimed while shops project is admittedly shown as business and even losses/expenses are claimed against the same? Nature of servic .....

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is reflected in such return is not clear. 7. The ld. CIT after considering the various documents and the explanation furnished by the assessee was of the view that the assessee grossly suppressed its income under different heads and had claimed the expenses which were not allowable. The ld. CIT was of the view that the order passed by the AO was erroneous and prejudicial to the interest of the Revenue, since at the time of assessment, the AO was duty bound to call for such details and to examin .....

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n his return. The ld. CIT was of the view that it was incumbent upon the AO to investigate the facts stated in the return, when circumstances would make such an inquiry prudent and that the word, erroneous in section 263 of the Act includes failure to make such an inquiry. He also observed that the order becomes erroneous because such an inquiry has not been made and not because there were anything wrong with the order if all the facts stated therein are assumed to be correct. The reference was .....

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4 (SC) Ø Tara Devi Aggarwal Vs CIT (1973) 88 ITR 323 (SC) Ø Duggal & Co. Vs CIT (1996) 220 ITR 456, 459 (Del.) Ø CIT Vs Pushpa Devi (1987) 164 ITR 639 (Pat) Ø CIT Vs Smt. Rambha Devi (1987) 164 ITR 658 (Pat) Ø CIT Vs Belal Nisa (1988) 171 ITR 643 (Pat) Ø CIT Vs Smt. Kaushalya Devi (1988) 171 ITR 686 (Pat) Ø CIT Vs Bibi Khodaija Khatoon (1988) 171 ITR (Pat) Ø CIT Vs Chandrawati Devi (1988) 171 ITR (Pat) Ø CIT Vs Smt. Devi (1987) 5 .....

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see was asked to furnish the sale deeds of all the shops where the stamp duty on Circle rate at ₹ 69,72,402/- was paid at the time of registration of sale deeds. He also pointed out that the assessee argued that section 50C of the Act had no application in his case because the profits had not been under the head capital gain but are the business profits. According to the ld. CIT the assessee could not explain as to how the market rate of shops at which the business assets had been sold to .....

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e only sold. The ld. CIT referred to the instance of various properties sold at Vasundhara property and came to the conclusion that the area of land sold by the assessee was 1170 sq. ft. Accordingly, the rate of area sold per sq. ft. was worked out of ₹ 5959 per sq. ft. The ld. CIT was of the view that the minimum margin in the construction business on the sale was at 30%. He worked out the profit on sale @ ₹ 1787 per sq. ft. (30% of ₹ 5959/-) at ₹ 20,91,609/-. The ld. CI .....

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ncome from event management at ₹ 8,44,700/-. The ld. CIT worked out the taxable income under the head indirect sources as under: From the statement of Income & Expenditure A/c Income from Indirect sources ₹ 72,82,491 Less: expenses in event management ₹ 7,25,000/- Income ₹ 65,57,491/- Accordingly, the total addition was worked out by the ld. CIT as under: 1. Income from sale of properties at Vasundhra ₹ 20,91,609 2. Advances not reflected/accounted ₹ 32,50 .....

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of the Act were not applicable and the ld. CIT was not justified in directing the AO to adopt the circle rate for the valuation purposes. The reliance was placed on the following case laws: Ø CIT Vs Kan Construction and Colonizers (P.) Ltd. 208 Taxman 478 (All.) Ø CIT Vs Mukesh & Kishor Barot Co-owners 215 Taxman 151 (Guj.) Ø CIT Vs Thiruvengadam Investments (P.) Ltd. (2010) 320 ITR 345 (Madras) 11. It was further submitted that the AO inquired the issue in detail and o .....

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T and further submitted that the AO in the assessment order has not pointed out what were the details furnished by the assessee and he had also not properly inquired the issue and had also not examined how the sale rate was less than the circle rate. Therefore, the assessment order passed by the AO was erroneous and prejudicial to the interest of the Revenue and the ld. CIT was justified in setting aside the same. 13. We have considered the submissions of both the parties and carefully gone thro .....

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the sale value of the shop at ₹ 69,72,402/- instead of ₹ 35,00,000/- disclosed by the assessee and accepted by the AO. In the present case, it is an admitted fact that the shops held by the assessee were shown as business asset i.e. stock-in-trade, which was accepted by the AO and also the ld. CIT has not doubted the same. Now question arises as to whether the provisions of section 50C of the Act are applicable to the assets held as stock-in-trade. In this regard the hon ble Madras H .....

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Taxman 151 (supra) held as under: Thus, Section 50C of the Act gives rise to a deeming fiction and such deeming fiction is to be applied in case of computation of capital gain under Section 48 of the Act. It is well known that a deeming fiction provided by the statute has to be applied for the purpose of which it is provided and no other. In the present case, if the Assessing Officer had utilized juntry rate as a starting point, to enquire further and ascertain the true market value of the land .....

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hat the assessee did was to apply a deeming fiction provided under Section 50C without admitting so, it was not in dispute that the plot was held as "stock in trade" and therefore sale thereof gives rise to the business income and not to capital gain. 15. On a similar issue the Hon ble Jurisdictional High Court in the case of CIT Vs Kan Construction and Colonizers (P.) Ltd. 208 Taxman 478 (supra) has held as under: Section 50C also uses the words 'capital asset'. For applicabil .....

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point of view. The Court has to answer the question on a consideration of all of them in a process of evolution. The inference has to be drawn on a cumulative consideration. [Para 12] In the present case, the assessee is a builder. Construction of buildings is its business. The assessee has sold number of buildings referred to above with regard to which there is no dispute. The dispute is with regard to the sale of plots. Investment in purchase and sale of plots by a builder who is indulged in .....

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k-in-trade includes all such chattels as are required for the purposes of being sold or let to hire on a person's trade. According to Stroud's judicial dictionary, stock-in-trade comprises of all such chattels as are required for the purposes of being sold, or let to hire on a person's trade. [Para 13] It has further been held that: The Commissioner (Appeals) and the Tribunal on analysis of the facts of the case have reached to the conclusion that section 50C has no application as it .....

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-in-trade and income from such transaction was held as a business income. Therefore, the ld. CIT was not justified in setting aside the assessment order only on this basis that the AO has not taken the sale value as per section 50C of the Act i.e. the circle rate. We, therefore, are of the view that the ld. CIT was not justified in setting aside the assessment order by invoking the provisions of section 263 of the Act. 17. The subject of revision under Section 263 has been vastly examined and an .....

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ower is that he must have some material(s) which would enable him to form a prima facie opinion that the order passed by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue. Once he comes to the above conclusion on the basis of the 'material' that the order of the AO is erroneous and also prejudicial to the interests of the Revenue, the learned CIT is empowered to pass an order as the circumstances of the case may warrant. He may pass an order enhancing the as .....

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audi alteram partem as envisaged in the Constitution of India as well as in Section 263 of the Act. An order can be treated as 'erroneous' if it is passed in utter ignorance or in violation of any law; or passed without taking into consideration all the relevant facts or by taking into consideration the irrelevant facts. The word 'prejudice' is contemplated under Section 263 of the Act is the prejudice to the income-tax administration as a whole. The revision has to be done for .....

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ror committed by the AO and it is only when an order is erroneous, than the said section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice for the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interest of the Revenue and if the AO has adopted one of the courses permiss .....

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ncome in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. (viii) The CIT, before exercising his jurisdiction under Section 263 of the Act, must have material on record to arrive at a satisfaction." In such type of cases, if the AO has made enqui .....

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