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TMI Blog2017 (5) TMI 1562X X X X Extracts X X X X X X X X Extracts X X X X ..... d in law and on facts in making an observation that" in view of the above facts and applicable provisions of law, it is amply clear that STCG on sale of land was required to be considered at Rs. 4,09,82,337/- and not Rs. 5,04,668/- as shown in the return of income. Under the circumstances, it is evident that the AO has erred in accepting the figure of STCG of Rs. 5,04,668/- shown by the assessee in the return of income and as a result thereof, there was substantial loss of revenue to the exchequer since the income of the assessee was assessed at a lower figure". 3. The Ld. C1T has erred in law and on facts in failing to consider the fact that during the course of assessment proceedings, the AO has verified all the details filed before the Ld. A.O in respect of sale of land and hence the assessment order passed u/s. 143(3) of the Act cannot be considered as erroneous and prejudicial to the interest of revenue. 4. The Ld. CIT has erred in law and on facts in failing to properly consider the various case laws relied upon by the appellant. 2. Briefly stated facts as called out in the records are that, the assessee is an individual and has earned short term capital gain and income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce as per the provisions of section 2(47)(v) of the IT Act 1961 and 53A of Transfer of property Act the transfer of asset took place on 25.03.2009. The assessee had claimed that the said land was sold to Melody complex Pvt Ltd. vide initial agreement dated 15.09.2008 for Rs. 38,74,431/-. It is evident that the actual transfer took place vide Kabja Karar dated 23.03.2009 in favor of Gatil Properties Ltd. for a consideration of Rs. 4,43,52,100/-. The STCG would therefore be Rs. 4,09,82,337/- instead of Rs. 5,04,668/- disclosed by the assessee in the return of income. 2. In view of the above, it appears to the undersigned that the order dated 28.12.2011 passed under section 143(3) of the I.T. Act, 1961 by the ITO Ward 2(1), Ahmedabad is erroneous and prejudicial to the interests of Revenue within the meaning of Section 263(1) of the I.T. Act, 1961. 3. You are, therefore, requested to show cause as to why appropriate order under section 263(1) of the I.T. Act, 1961 be not passed in your case to eliminate the above error. For this purpose, the hearing in your case is fixed on 18/12/2013 at 12.30 P.M. at the above address. You may attend personally or through an authorized represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le dated 25-3-2009 has not been taken into consideration in the notice u/s 263 and that is why the entire consideration of Rs. 4,43,52,100/- is considered in the hands of the assessee which is a factually incorrect observation. 5.2 It is further contended that during the course of assessment proceedings, the AO has verified all the details filed before him pertaining to sale of land and hence the assessment order passed cannot be considered as erroneous and prejudicial to the interest of revenue. The AR has placed reliance on the Supreme Court judgment in the case of Malabar Industrial Company (243 ITR 83) wherein it is held that when two views are possible on a issue and the AO has adopted one view with which the CIT does not agree, then such order cannot be treated as erroneous order unless the view taken by the AO is unsustainable in law. The AO has also placed reliance on Gujarat High Court order in the case of Arvind Jewellers (259 ITR 502). Several other judgments on similar lines have also been quoted. 5. However learned Commissioner of Income Tax (Appeals) was not convinced with the submissions made by the Authorised Representative of the assessee and was of the firm bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct". Moreover, in the case of Malabar Industrial Co. ltd. (243 ITR 83) the Supreme Court has clearly spelt out that incorrect assumption of facts and incorrect application of law as also non application of mind will satisfy the requirement of the order being erroneous. As per the provisions of section 263(1), any proceeding under the Income Tax Act and any order passed therein comes within the ambit of revision u/s 263. If the stand taken by the A.O. were final, then there was no need to have section 263 on the statute book at all. Such interpretation would render the section superfluous which could never ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing deduction of interest. 7. Coming to the arguments on merit, the assessee's assumption that there is an inadvertent mistake in the notice u/s 263 as the Banakhat/Agreement to sale dated 25-3-2009 has not been taken into consideration is misplaced. The assessee has not contemplated the contents of the notice u/s 263 thoroughly. The Banakhat/Agreement to sale dated 15-9-2008 as well as 25-3-2009 are the prime documents on the basis of which notice u/s.263 dated 4-12-2013 has been issued. Hence, there is no inadvertent mistake as pointed out by the assessee. 7.1 The assessee has explained all the factual aspects of the transaction of sale of land executed by the assessee during the previous year. The assessee has thus concluded that Melody Complex Pvt. Ltd., had acquired all the rights of the land belonging to the assessee and has accordingly relinquished these rights in favour of Gatil Properties Ltd. The assessee has resorted to the provisions of section 2(14) and section 2(47) of the Income-tax Act and contended that transfer includes relinquishment of a capital asset as defined under section 2(14). The submissions made by the assessee have been considered. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained in any part performance of a contract of the nature referred to in section 53 A of the Transfer of Property Act, 1882 shall be considered as a transfer of a capital asset. In this case, the possession of the land has been handed over by the assessee by executing the possession document dated 25-3-2009 therefore, it is clear that the actual transfer of capital asset took place on 25-3-2009 between the assessee and Gatil Properties Ltd. Since Gatil Properties Ltd., has made the payment of Rs. 4,43,52,100/-, the said amount is required to be treated as sale consideration for the purpose of computation of capital gain in the case of the assessee. Accordingly, STCG in the case of the assessee will be Rs. 4,09,82,337/- (Sale consideration Rs. 4,43,52,100/- minus cost of acquisition Rs. 33,69,763/-). From the assessment records, it is seen that the AO has simply called for certain documents of sale/purchase of property but has not gone into the details of the chain of transactions executed by the assessee with different entities. The AO was expected to conduct a thorough inquiry to unearth the actual profit made by the assessee in the form of STCG. It is obvious that such inquiry h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal sale consideration of Rs. 4,43,52,100/- has been duly acknowledged as revenue by both the parties i.e. the assessee and Melody Complex Pvt. Ltd. as per the agreement to sale dated 15.09.2008 and 25.03.2009. Further learned Assessing Officer has adjudicated the issues in detail and accepted the declared income as assessed income. In these circumstances learned Commissioner of Income Tax (Appeals) has erred in setting aside holding the order of learned Assessing Officer as erroneous and prejudicial to the interest of revenue. 8. In support of his contention learned Authorised Representative referred and relied on following judgment:- (1) Malabar Industrial Co. reported at 243 ITR 83 (Supreme Court) (2) Arvind Jewellers reported at 259 ITR 502 (Gujrat High Court) (3) CIT VS. R.K. Construction Co. [2009] 313 ITR 65 (Guj.) (4) Commissioner of Income Tax vs. Gabriel India Ltd. 203 ITR 108 (HC Bombay). (5) Commissioner of Income-tax-l vs. Amit Corpn. [2012] 21 taxmann.com 64 (Guj.) 9. On the other hand learned Departmental Representative vehemently argued supporting the order of learned Commissioner of Income Tax (Appeals). 10. We have heard the rival contentions an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and he accordingly worked out that the short term capital gain at Rs. 4,09,82,337/- instead of Rs. 5,04,668/- disclosed by the assessee in the return of income. Learned Commissioner of Income Tax (Appeals) set aside the order of Assessing Officer and directed to assess afresh on the basis of observations made by him. Now assessee is in appeal challenging the validity of order of learned Commissioner of Income Tax (Appeals) u/s. 263 of the Act. 13. Before adjudicating the fact vis-à-vis the impugned order u/s 263 of the Act, we will first like to go through land mark judgment of Hon'ble Apex Court in the case of Malabar Industrial Co. (supra) wherein following ratio has been laid down:- "A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motto under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interest of the Revenue. The Commissioner has to be satisfied of twin conditions, namely (i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax-l vs. Amit Corpn. [2012] 21 taxmann.com 64 (Guj.) has held that jurisdiction under section 263 does not permit latitude to the authority to exercise powers for further inquiry on processed issues adjudicated upon in assessment. Para 5 reads as under: - "We are of the opinion that the Tribunal committed no error. When, during the course of framing of the assessment, the Assessing Officer had access to all the records of the assessee, after perusing such record the Assessing Officer framed the assessment, such assessment could not have been re-opened in exercise of revision power under Section 263 of the Act for making further inquiries. In the facts of the case, in our opinion, Tribunal rightly interfered with such order. No question of law arises. Tax Appeal is, therefore, dismissed". 16. Now in light of the ratio laid down by Hon'ble Apex Court and Hon'ble jurisdictional High Court as referred above, we will first examine that whether there was sufficient inquiry of the impugned transaction by the learned Assessing Officer and whether all the relevant facts were placed before him for examining the impugned transaction. 17. From perusal of record we find that notice u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09. The case for A.Y. 08-09 was also covered under scrutiny assessement. Copy of the Order for the A.Y. 08-09 is enclosed herewith as per Exhibit - IV. 7. Your honour has asked to furnish details of dividend income. In this regard, I have inform your honour that copy of ledger account for the same has been enclosed herewith as per Exhibit - V. 8. Your honour has asked to furnish details of movable and immovable assets. In this regard, I have inform your honour that details for all the assets is available from my personal Balance Sheet. Copy of balance sheet is already submitted to your honour. So your honour is requested to refer the same. 9. Your honour has asked to furnish details of investment in land. In this regard, I have inform your honour that details for all the Land is provided as per Exhibit -II. I hope the above details/explanations will suffice your honour's requirements. I shall be happy to furnish any other details/explanations that may be required by your honour. 18 From going through the above reply of assessee dated 14.10.2011 we notice that in para three assessee has given the detail of the transaction leading to short term capital gain attaching the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resulted in loss of revenue. Also it was held that where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree it cannot be treated as an erroneous order prejudicial to the interest of revenue. Now in the present case in order to examine as to whether the decision taken by the learned Assessing Officer in the assessment proceedings order u/s. 143(3) was permissible in law or not, we observe that Coordinate bench in the case of Sapna Ben, Deepak Bhai Patel Vs. Commissioner of Income Tax vide ITA No. 2414/A/2013 dated 13.01.2016 in which the author of this order was one of the signatory and in this order similar facts came for adjudication in which assessee entered into agreement for sale of land to a party and thereafter another agreement to sale was entered at a very high amount with the secured party and in this agreement the first party was a confirming party. In this case also assessee offered short term capital gain on the agreed sale consideration shown in the first agreement to sale whereas Assessing Officer was of the view that assessee should have offered short term capital gain by taking the higher sale consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee vide agreement dated 4.4.2008 and 2.3.2009, meaning thereby, no transfer has taken place. The ld.First Appellate Authority further put reliance upon the judgment of the Hon'ble Supreme Court in the case of Suraj Lamp & Industries Pvt. Ltd. Vs. State of Haryana, 14 taxmann.com 103. 24. On due consideration of the above reasoning, we are of the view that as far as the judgment of the Hon'ble Supreme Court in the case of Suraj Lamp & Industries (supra) is concerned, it is altogether in different context. There is no dispute with regard to the proposition that transfer of an immovable property having value of more than Rs. 100/- can only be completed by way of registered sale deed, as contemplated in section 17 of the Registration Act. This judgment deals with the concept of power of attorney, lease, licence etc. Definition of expression "transfer" provided in section 2(47) is more wider than in the general law. As observed earlier, while dealing with the issue no.(ii), the expression "transfer" employed in section 2(47) includes (a) any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ateral purposes, i.e. for tendering the agreement into evidence for suit for specific performance, etc. it is to be treated as valid agreement. A controversy in this aspect had arisen whether such non-registered agreement can be entertained in evidence or not in a suit for specific performance. A reference was made before the Division Bench of Punjab & Haryana High Court in regular Second appeal No.4946 of 2011 in the case of Ram Kishan Vs. Bijeder Mann. The Hon'ble High Court has resolved the controversy and held that such unregistered agreement can be produced as evidence in suit for specific performance. It can be made basis of suit for specific performance. The finding recorded by the Hon'ble Punjab & Haryana High Court in this case reported in (2013) 1 PLR 195 as under: "11. A conjoint appraisal of sections 53A of the Transfer of Property Act, 1882, sections 17(1A) and 49 of the Indian Registration Act, 1908, particularly the proviso to section 49 of the Indian Registration Act, in our considered opinion, leaves no ambiguity that, though, a contract accompanied by delivery of possession or executed in favour of a per- son in possession, is compulsorily registrable un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een appreciated by the ld.CIT(A) while holding that since the agreements are unregistered, therefore, they are nongenuine. 27. Let us examine the issue with different angles. For example, the assessee refuses to honour her agreement dated 4.4.2008 and SDS/Capital Consultancy files a suit for specific performance. A decree for performance of the contract is being granted in favour of the SDS. In that situation, the assessee has to register sale deed in favour of SDS. On such registration she would get the amounts only agreed upon by way of agreement dated 4.4.2008. She could be charged for capital gain on this amount only. Even for argument's sake, the reasons of the Revenue authorities are being accepted that the agreements dated 4.4.2008 and 2.3.2009 are unregistered, therefore they shall not goad the adjudicator to construe part performance of the contract u/s.53A of T.P. Act and no transfer of the land could be construed within the meaning of section2(47)(v) of the Act. In that situation, only the year of taxability could be shifted i.e. effective date for transfer of capital asset could be taken to 27.1.2010. How the AO can bring the amount for taxation in the hands of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nforcing that contract. The contractee can enforce contract in favour of a person who is an agriculturist. It is important to note that the land transacted by the parties was within the vicinity of Ahmedabad City. It was going to be converted into urban land under the Town Planning scheme and ultimately before the agreement dated 2.3.2009, the status of the land was changed from agriculture land. When SDS has assigned his right under the agreement dated 2.3.2009, the land was already converted into a non-agriculture land. Thus, this section has no bearing as a corroborative piece of evidence to goad any authority to conclude that agreements were not genuine. 29. Next reasoning given by the ld.First Appellate Authority is that there is a huge change in the price of land between a short span of time. When the assessee acquired the land, she incurred a cost of Rs. 67,96,432/-. She had acquired the land in between 18.12.2007 utpo 4.3.2008. She had agreed to sell this land on 4.4.2008 to SDS for consideration of Rs. 76,75,413/-. The rate of land upto this stage was Rs. 62.03 per sq.meters, whereas, when the agreement dated 2.9.2009 was executed, it was at the rate of Rs. 860/- per sq. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13/-. There is no substantial change or appreciation of the value of the land in just short span. The ld.Revenue authorities have failed to compare this figure while evaluating the evidence. The change in the value taken place only at the moment, when, the land was converted into a non-agriculture land. From analysis of the orders, it revealed that approach of the Revenue authorities for appreciating the genuineness and veracity of the agreement is guided by the tax liability. According to the Revenue authorities, since tax liability has been avoided by the parties, therefore, their agreements are not genuine. In our opinion, genuineness of any agreement is not depended upon the actual payment of tax resulted on account of execution of these agreements. It is other way round. First genuineness of the agreements has to be ascertained, and then, in consequence of these agreements, if any tax liability has arisen, it is to be fastened upon the right persons. According to the AO, SDS has shown Rs. 9,87,33,247/- on account of profit on sale of land, and against this, he claimed loss of Rs. 9,17,78,957/- from his business of trading of shares and securities. These losses have been allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a subterfuge clothed with apparent dignity." This accords with our own view of the matter. In CWT v. Arvind Narottam , a case under theWealth Tax Act, three trust deeds for the benefit of the assessee, his wife and children in identical terms were prepared under section 21(2) of the Wealth Tax Act. Revenue placed reliance on McDowell . Both the learned Judges of the Bench of this Court gave separate opinions. Chief Justice Pathak, in his opinion said (at p.486): "Reliance was also placed by learned counsel for the Revenue on McDowell and Company Ltd. v. CTO (1985) 154 ITR 148(SC). That decision cannot advance the case of the Revenue because the language of the deeds of settlement is plain and admits of no ambiguity." Justice S. Mukherjee said, after noticing McDowell's case, (at page 487): "Where the true effect on the construction of the deeds is clear, as in this case, the appeal to discourage tax avoidance is not a relevant consideration. But since it was made, it has to be noted and rejected." In Mathuram Agrawal v. State of Madhya Pradesh another Constitution Bench had occasion to consider the issue. The Bench observed: "The intention of the legislature i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ordinary course of business. Similarly, the AO has raised a point that the funds to the assessee were provided by Tarang Reality Pvt. Ltd. which is also family concern. The assessee has contended that she has taken loan from Tarang Reality Pvt. Ltd. of Rs. 66,55,000/- and on receipt of sale consideration of Rs. 73,75,413/-, she had repaid the loan to Tarang Reality Pvt. Ltd. In the case of the assessee, no phenomenal rise in the value of the land has arisen. She has purchased at Rs. 67,96,342/- for the period starting from 18.12.2007 upto 4.3.2008. She had agreed to sell this property on 4.4.2008, just in a span of 3-4 months. She has earned small amount of capital gain which has been offered for taxation. An analysis of all the facts and circumstances, discussed by the ld.Revenue authorities, we are of the view that setting of surrounding facts and circumstances, even as a whole, does not suggest that agreement dated 4.4.2008 or 2.3.2009 are sham or bogus. Their enforceability in the law cannot be ignored. The alleged gains on sale of property calculated in the hands of the assessee are not sustainable. We allow the appeal of the assessee and delete the addition of Rs. 6,83,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner, he would have estimated the income at a higher figure than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. This is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interest of the Revenue. But that by itself will not be enough to vest the Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X
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