9911796707
TMI Blog2021 (10) TMI 456X X X X Extracts X X X X X X X X Extracts X X X X ..... agriculture land. The assessee also earned income from other sources. In the return of income for the year under consideration, the assessee had declared total income of Rs. 74,31,560/- . The AO completed the assessment on 26/12/2018 determining totaling total income of the assessee at Rs. 1,07,35,280/-. Thereafter, the ld. PCIT had issued a show cause notice dated 22/02/2021 which was served upon the assessee. In response to the notice U/s 263 of the Act, the assessee submitted reply before the ld. PCIT and finally the ld. PCIT passed the order U/s 263 of the Act on the ground that the order U/s 143(3) of the Act dated 11/12/2018 passed by the A.O. is found to be erroneous in so far as it is prejudicial to the interests of the Revenue. The order passed is based on incorrect/mistaken assumption of the facts of the case by way of accepting the statement of the assessee without due verification/erroneous application of provisions of the Act. 3. Now the assessee is in appeal before the ITAT on the grounds mentioned above. 4. Both the grounds raised by the assessee in this appeal are interrelated and interconnected and mainly relates to challenging the order of the ld. PCIT passed U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for better understanding "Further, the assessee has claimed Rs. 70,04,902/- against cost of improvement. The whole land is improved (levelling, land filing and development) simultaneously because the part which is sold has lower level of sand that the part which is left with assessee. Therefore the cost of improvement of 70 lacs is for whole land of 10.84 hectare. The assessee is failed to explain how he bifurcate the expenses of improvement between the land sold and the land left with him. The ledgers produced by him and the amounts paid by cheques clarifies it that the whole amount of improvement is calculated to 70 lacs which is for whole land of 10.84 hectare. Therefore only 58.30% (part of land sold) of expenses of cost of improvement is allowable and the remaining 41.7% of cost of improvement i.e. Rs. 29,21,044- (41.7% of 7004902) is disallowed and added to the short term capital gain of the assessee. On perusal of documents submitted by assessee, it is found that the assessee claimed Rs. 70 lacs as cost of improvement. Out of these 70 lacs the assessee made payments of Rs. 20 lacs in cash. Further it is worthwhile to mention here that the assessee had purchased this lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of land was converted. The same figures contained at point no 4. The accounts of the assessee are maintained in such a way that the account get changed upon the change in nature/use of the property in question. The agriculture land at khara bypass was purchase for Rs. 10903818.00 and stamp duty of Rs. 709060.00 was paid thereon. The total cost thereof worked out to Rs. 11612878.00. When a part of aforesaid land measuring 9.88 hectare was converted for industrial use and the balance land of 0.83 hectare was retained as agriculture land then the overall cost of the land was apportioned between the two types of lands. In order to reflect the action of conversion and retention of agriculture land in its original character the agriculture land at khara bypass credited and squared up by debiting the new accounts namely agri land at khara bypass 0.83 hectare by Rs. 899971.00 and land at khara bypass 9.88 hectare by Rs. 10712907.00. The conversion is not a sale therefore the action of crediting of the agriculture land at khara bypass was not shown as such. As mentioned earlier that land at khara bypass a/c measuring 9.88 hectare was debited by Rs. 10712907.00 and conversion charges am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83 hectare and land at khara 3.56 hectare has already been deliberated upon in length at point no. 2 of this letter. These two are basically offset accounts which cot debited and consiquencely came into existence by crediting the existing property account. There is no fresh funds involved in these two new accounts. During the year the plot at panchsati circle plot no. 53 for Rs. 17446411.00 came into existence. The payment of aforesaid plot was made in the preceding years to the UIT Bikaner. The assessee has purchase the aforesaid plot from UIT, Bikaner through the process of open bidding. There was no fresh investment on the purchase of the aforesaid plot baring the payment of stamp duty registration charges UIT fees etc. The investment on account of such incidental charges was made through the regular channel of the assessee and the total value of such investment was reflected in the financial statement which is available on records. The assets of the assessee had its source in capital and liability. Each and every entry falling in that category is fully verifiable. Tubewell at khara bypass was constructed during the year for Rs. 334425.00. The investment in tubewell stand re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of assessment proceedings the detailed interest account, bank account, duly confirmed account statements of cash creditors were furnished. The authenticity of lenders and genuineness of interest are established beyond any shadow of doubt as the same is also proved by the third party evidence. There has not been any payment of interest in cash. The rate of interest was not unreasonable or exorbitant having regard to the nature and type of loan. Further out of the total interest payment of Rs. 39,12,624.00, a sum of Rs. 32,83,916.00 was capitalized. The Fixed assets chart furnished corroborates the factum of capitalisation. Thus 80 to 85 percent of the interest payment does not have any implication on the taxable income. The Ld AO examined the interest account, bank statement, fixed asset chart in a cohesive manner. Hence the order passed by the Ld. Pr. CIT is bad in law and is requires to be quashed. Issue/Point 6: As per details available in Form 26AS, the assessee has received payment u/s 194 of Rs. 2,00,00,000/- as dividend from M/s. Kunjvarji Warehousing and Logistics Pvt. Ltd. The amount has not been declared by the assessee in his return of income under this hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and development account of Rs. 7004902, questionnaire raised in notice dated 17/12/2018, acknowledgement of documents submitted on 20/12/2018, land chart, various query letters, acknowledgment of replies of query letters, acknowledgement of documents, query dated 26/12/2018 regarding disallowance of development expenses up to 41.7%, computation sheet, notice of hearing U/s 263 dated 22/02/2021, acknowledgement of replies of query letters, reply of notice u/s 263 alongwith documents, intimation order U/s 263 and Form 26AS. We found that the ld. PCIT has held that the order of A.O. U/s 143(3) dated 26/12/2018 is erroneous in so far as it is prejudicial to the interests of the Revenue on the basis of six issued points as mentioned in its order, therefore, now we will deal with all points separately. From perusal of the record, we observed that the matter relating to Short Term Capital Gain on sale of land was dwelt upon by the AO in detail. The detail of property purchased and sold viz Purchase Deed, sale deed & Cost to improvement amounting to Rs. 70.04 Lacs under the ledger Land Filling, levelling, development account, conversion order were called upon and furnished before the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acs. Further the assessee paid the whole amount of water tankers in cash and failed to produce any documentary evidence of payment other than self made vouchers. Therefore, as per above discussion, the 58.3% (as per para 4.1. part of land sold) payment of Rs. 6,56,400 i.e. Rs. 3,82,680/- claimed against water tanker is disallowed and added to the total income of assessee in the head of capital gain under short term capital gain for the relevant year." However, after analyzing the order of assessment, the ld. PCIT directed that the sale of land be booked under the head Business and Profession rather than STCG. In our view, such type of subjectivity which propagates one line of action and negates another is nothing but a change in opinion. The courts across the spectrum have unanimously held that the order of AO can be brandished as 'erroneous' if it is unsustainable in the eyes of law and in case, if there are two views plausible on the facts of the case and the AO takes one view which is in accordance of law, then in that eventuality, the PCIT does not assume jurisdiction. 7. As far as point No. 2 of the order of the ld. PCIT is concerned, in that it was pointed out by the ld. PC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sale a/c (khara bypass) and land retained at khara bypass(3.56 hq). The cost of land sold which signifies the cost attributable to the land sold was debited by Rs. 7021255.00 and new account namely land at khara bypass 3.56 hq which underlies the cost of retained land was debited by Rs. 3955012.00. Thus, in this way, the action of crediting the land at khara bypass was necessitated by the apportionment of the cost of converted land into two parts namely one attributable to land sold and another one relating to land retained. Thus, mere act of apportioning the cost of land by way of splitting the cost into two heads does not constitute sale, therefore, there was no question of showing the same as sale in the return of income. Since, the order of ld. PCIT is not based on correct appreciation of factual position, therefore, the same is not sustained in the eyes of law. 8. Now while dealing with point/issue No. 3, it was observed by the ld. PCIT that the assessee has made investment in following immovable properties S.No. Particular Amount 1. Agri land at Gangangar (0.556 Hq) 1,49,153 2. Agri land at Ganganagar (1.202 Hq) 1,43,320 3. Agri land at Khara Bypass (.83 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years to the UIT Bikaner. The assessee has purchase the aforesaid plot from UIT, Bikaner through the process of open bidding. There was no fresh investment on the purchase of the aforesaid plot during the year baring the payment of stamp duty registration charges UIT fees etc. The investment on account of such incidental charges was made through the regular channel of the assessee and the total value of such investment was reflected in the financial statement which is available on records. The assets of the assessee had its source in capital and liability. Each and every entry falling in that category is fully verifiable. Tubewell at khara bypass was constructed during the year for Rs. 334425.00. The investment in tubewell stand reflected in the financial statement of the assessee available on records. Thus, in this way when all the facts supported with evidences were placed on record before the A.O. and A.O. being satisfied, passed order, therefore, the same cannot be interfered by the PCIT. 9. Now while dealing with point/issue No. 4, we observed that during the year under consideration, the assessee has obtained unsecured loans amounting to Rs. 1,95,34,000 from various persons, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hered from them, satisfied the three ingredients embedded in Section 68 of the Act. Apart from making sweeping statements, which have been found to be factually erroneous, no objective material has been brought on record by the Ld. Pr. CIT to implicate the assessee or the AO per se of being guilty of non-enquiry. We further find that when confronted with the reasons set out in the SCN, the assessee had led before the Ld. Pr. CIT sufficient documentary evidence which proved that the SCN had proceeded on assumption of incorrect facts which were not borne out from the assessment records. It was also established before the Ld. Pr. CIT that before completion of assessment the AO had indeed made enquiries from all the loan creditors' u/s 133(6) and only after objective consideration of the evidences furnished, order u/s 143(3) of the Act was passed. On receipt of these objections, the Ld. Pr. CIT himself did not make any effort to prove any factual or legal infirmity in the documents or explanations furnished nor he was able to prove that any of the documents or evidences were false so as to establish that the AO's order was erroneous as well as prejudicial to the Revenue's inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t furnished corroborates the factum of capitalisation. Thus 80 to 85 percent of the interest payment does not have any implication on the taxable income. The AO examined the interest account, bank statement, fixed asset chart in a cohesive manner and thus, when once the A.O. has thoroughly examined all details including source of interest payment, therefore, PCIT has no jurisdiction to invoke the provisions of Section 263 of the Act. 11. Now we deal with point/issue No. 6 raised by the ld. PCIT, in this regard, the ld. PCIT observed that as per details available in Form 26AS, the assessee has received payment u/s 194 of Rs. 2,00,00,000/- as dividend from M/s. Kunjvarji Warehousing and Logistics Pvt. Ltd. The amount has not been declared by the assessee in his return of income under this head. In this regard, the ld. AR has drawn our attention to the records and submitted that the assessee has not received any payment of dividend of Rs. 2,00,00,000.00 from Kunjvarji ji warehousing and Logistics Pvt. Ltd. The aforesaid payment of Rs. 2 crore was received as a sale consideration of land to the company. This sale of this land is a subject matter of STCG & the detailed discussion at Po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the stock-in-trade was a plausible and permissible view and therefore, the CIT could not exercise his powers u/s 263." Even otherwise a bare perusal or bare reading of Section 263 of the Act, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo moto under it, is that the order of ITO/AO is erroneous in so far as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied or twin condition and in case if one of them is absent then recourse cannot be had to Section 263 of the Act and thus in this way the provisions cannot be invoked to correct each and every type of mistake or error committed by the A.O.. It is only when an order is erroneous then the Section will be attracted. Even the Coordinate bench of ITAT in the decision of Sir Dorabji Tata Trust Vs DCIT(E) 188 ITD 38 had discussed and explained the nature and scope of provisions of explanation 2(a) of Section 263 of the Act and held as under: "19. The question that we also need to address is as to what is the nature of scope of the provisions of Explanation 2(a) to Section 263 to the effect that an order is deemed to be "erroneous and prejudicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s so justify or warrant. In a democratic welfare state, all the powers vested in the public authorities are for the good of society. A fortiorari, neither can a public authority decline to exercise the powers, to help anyone, when circumstances so justify or warrant, nor can a public authority exercise the powers, to the detriment of anyone, unless circumstances so justify or warrant. What essentially follows is that unless the Assessing Officer does not conduct, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be, Commissioner cannot legitimately form the view that "the order is passed without making inquiries or verification which should have been made". The true test for finding out whether Explanation 2(a) has been rightly invoked or not is, therefore, not simply existence of the view, as professed by the Commissioner, about the lack of necessary inquiries and verifications, but an objective finding that the Assessing Officer has not conducted, at the stage of passing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lopes said, in the case of Re Kingston Cotton Mills [(1896) 2 Ch 279,], in respect of the role of an auditor, would equally apply in respect of the role of the Assessing Officer as well. His Lordship had said that an auditor (read Assessing Officer in the present context) "is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a watch-dog, but not a bloodhound.". Of course, an Assessing Officer cannot remain passive on the facts which, in his fair opinion, need to be probed further, but then an Assessing Officer, unless he has specific reasons to do so after a look at the details, is not required to prove to the hilt everything coming to his notice in the course of the assessment proceedings. When the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bona fide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable faith in the assessee and not doubting everything coming to the Assessing Officer's notice in the assessment proceedings cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion carried out by the AO vis-a-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have claimed out or not. It does not authorise or give unfettered powers to the Ld. Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made." 22. Having said that, we may also add that while in a situation in which the necessary inquiries are not conducted or necessary verifications are not done, Commissioner may indeed have the powers to invoke his powers under section 263 but that it does not necessarily follow that in all such cases the matters can be remitted back to the assessment stage for such inquiries and verifications. There can be three mutually exclusive situations with regard to exercise of powers under section 263, read with Explanation 2(a) thereto, with respect to lack of proper inquiries and verifications. The first situation could be this. Even if nec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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