TMI Blog2006 (2) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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. - HON'BLE K.K. BOLIYA, ACCOUNTANT MEMBER AND SUSHMA CHOWLA, JUDICIAL MEMBER For the Appellant : R.R. Vora, Adv. For the Respondent : Durgesh Sumrott, Adv. JUDGMENT K.K. Boliya, Accountant Member. 1. These two appeals have been filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -trade and shown business income on sale of the flats. On conversion of the property, the assessee worked out the taxable capital gain at Rs. 1,95,500 after claiming the exemption under section 54 in respect of the amount invested in self-occupied are of the flat. Out of the taxable long-term capital gain, a sum of Rs. 1,06,710 was offered for taxation in assessment year 1997-98 in proportion to the area of flat sold during the year. The balance long-term capital gains of Rs. 88,790 was offered for taxation in assessment year 1999-2000 when flat No. 302 was sold. The assessee has estimated the total profit on area sold of 1060 sq.ft. at Rs. 4,24,000. One third of this amount i.e., Rs. 1,41,333 was offered for taxation during the assessment year 1997-98 based on the degree of work completed and the balance amount in the subsequent assessment year, following the percentage completion method. It is stated that the construction was started in July, 1996 and completed in June, 1999. During the course of hearing, the assessee's representative Shri R.R. Vora was asked to explain why the entire long-term capital gain should not be taxed in assessment year 1997-98 as against partly offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, this plot of land is a leased plot for a period of 99 years. This lease period p is starting from 23-4-1907. Therefore, as on 1-4-1981, the unexpired portion of the lease period is 25 years and on the date of conversion it was much less. However, the rates adopted are as if it was freehold property. If the Municipal tax is taken as a criteria for valuation, the value of the property will be very less. No discount was given for joint ownership. The working of this ought to have been referred to the Departmental valuer. 4. The assessee filed detailed written submission vide letters dated 15-11-2003 and 17-12-2003. The main contention raised before the CIT was that during the course of reassessment proceedings, the Assessing Officer examined all the issues in great detail and the assessee furnished detailed explanation regarding computation of capital gain and the assessments were finalized after duly considering the facts and the submissions made by the assessee. It was contended that the CIT has no jurisdiction to invoke his powers under section 263 of the Act. The ld. CIT rejected this submission and held that the assessment orders passed by the Assessing Officer were erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imbursed. Regarding the valuation of land as on 1-4-1981, it was pointed out that the valuation was duly supported by a report of registered valuer. Further, in the case of other co-owners, the valuation and the cost has been accepted by the Department. 6. The ld. counsel for the assessee invited our attention to the various replies filed by the assessee before the Assessing Officer during the course of assessment proceedings. At page 8 of the Paper Book is a copy of letter dated 9-11-2002. With this letter, the following papers/documents were filed before the Assessing Officer: (i) Capital Account and balance sheet as on 31-3-1997 and 31-3-1998. (ii) Working of capital gain and business profit for assessment year 1997-98 and 1998-99. (iii) Note on working of capital gains and business profit for assessment year 1997-98 and 1998-99. (iv) Copy of development agreement entered into with M/s. United Builders. (v) Copy of agreement of sale entered with Sheriton Properties Pvt. Ltd. 7. At page 13 of the PB is the computation of income under the head 'Capital gains' for the assessment year 1997-98. The ld. counsel submitted that the detailed working was placed before the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced below: (i) The date of conversion of the property by our client is 15-7-1996 and commencement of development and construction of the building was started immediately. (ii) The construction of building was completed by June 1999 and flats were occupied by the purchases. (iii) Entire building was developed and constructed by M/s. United Builders who had 40 per cent share in the project. The assessee was bound to share the cost of construction towards her 20 per cent share therein. Accordingly, construction cost was paid to them as and when raised by them as per the term of development agreement entered into with United Builders. Accordingly, assessee had not maintained any particular account for construction cost but a bank account is maintained for making payment to United Builders towards share in construction cost and copies of bank statement are enclosed. (iv) As mentioned earlier, entire construction work has been done and supervised by M/s. United Builders and the assessee has paid her share towards construction cost as per certification done by Chartered Accountants for construction cost. We are enclosing herewith a letter from United Builders dated 25-3-2000 determining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect value as on 1-4-1981 was determined by the Registered Valuer and a copy of valuation report is at pages 22 to 29 of the PB. The ld. counsel submitted that all these voluminous details and documents were filed before the Assessing Officer during the course of reassessment proceedings. It is submitted that the assessee attended before the Assessing Officer on 6-7 occasions during the course of assessment proceedings and filed complete details, replies and explanations in response to various queries raised by the Assessing Officer. It is submitted that the Assessing Officer completed assessment after due application of mind and there is no basis whatsoever for the ld. CIT to hold that the assessments made by the Assessing Officer are erroneous and prejudicial to the interests of the Revenue. It is argued that the ld. CIT has proceeded only on the basis of certain surmises and presumptions and there was no material before him, on the basis of which his conclusions are drawn. It is also pointed out that the show-cause notices were issued by the ld. CIT in the month of July, 2003 and thereafter no action was taken and when the proceedings were getting time-barred, the impugned orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 54, the cost of construction and the market value as on 1-4-1981, the Assessing Officer accepted various contentions without any discussion in the order and without examining the relevant facts. It is submitted that even the valuation report of the registered valuer was not reliable as the valuer failed to consider that the relevant property had been acquired on a lease for a period of 99 years and the unexpired period of lease was merely 25 years. It is submitted that the Assessing Officer ought to have made a reference to the Departmental Valuation Officer and since he did not do so, his order become erroneous and prejudicial to the interests of the Revenue. 11. We have given a careful consideration to the rival submissions made before us and have gone through the relevant facts. We have also considered the various cases cited before us. First of all, the legal position regarding the powers of the CIT under section 263 may be considered. In this connection, a reference to the leading decision of the Supreme Court in the case of Malabar Industrial Co. Ltd. is inevitable. It would be appropriate to reproduce below the relevant part of the ratio of this case from the hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Ltd. The ratio of this case may also be reproduce below from the headnote: The power of suo motu revision under sub-section (1) of section 263 of the Income-tax Act, 1961, is in the nature of supervisory jurisdiction and can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise the power of revision under this sub-section, viz., (i) the order should be erroneous; and (ii) by virtue of the order being erroneous prejudice must have been caused to the interests of the Revenue. An order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualized where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be 'erroneous' simply because in his order-he did not make an elaborate discussion in that regard. 13. The fundamental principles which emerge from the above cases may be summarized below: (i) The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. Both the conditions must be fulfilled. (ii) Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice 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 interests of the Revenue and if the Assessing Officer has adopted one of the courses permissible under law or 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, unless the view taken by the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or reopening concluded proceedings on flimsy grounds or on assumptions. This was the view expressed by the ITAT, Delhi Bench in the case of Triveni Engineering Works Ltd. The ratio of this case may also be reproduced below from the headnote: A bare reading of the provisions of section 263 makes it clear that the prerequisite to the exercise of jurisdiction by the CIT under it is that order of the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the Revenue. The CIT has to be satisfied of twin conditions, namely (i) order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the Revenue. The revisional jurisdiction of the CIT as a supervisory authority is intended to correct the mistakes of fact and law, which may be committed by the Assessing Officer and which result in causing prejudice to the Revenue. The failure of the Assessing Officer to make enquiries into facts on record, which are glaring, apparently unusual and staring in the face from the record would clearly make the order of the Assessing Officer erroneous and prejudicial to the interest of Revenue. However, the proposition enunciated as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain assumptions without any basis or material. In our view, the powers vested in the CIT under section 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 under section 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. Considering the entire facts and circumstances, we hold that the ld. CIT has wrongly invoked his jurisdiction under section 263 of the Income-tax Act. We, therefore, quash his common order passed under section 263 for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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