9911796707
TMI Blog2004 (7) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... rore in this case. As such, invoking jurisdiction u/s 263 on the above basis is illegal. In this case I find that the Commissioner invoked jurisdiction u/s 263 by mentioning that the assessment order under revision is grossly erroneous and prejudicial to the interest of the revenue because the correctness of the valuation report filed by the assessee has not been examined by the Assessing Officer and hence there is no application of mind by the Assessing Officer and his order is not a fully discussed order. In this connection, I would like to mention here that the Assessing Officer started the assessment proceedings w.e.f. 17-6-1997 and completed the same on 10-12-1998 after about one and a half year. Several dates were given and several queries were raised by the Assessing Officer through the Chartered Accountant of the assessee. It is clear that the Chartered Accountant filed the details called for by the Assessing Officer. The Assessing Officer had called for comparable sale instances in the vicinity of the property situated at Bangalore. It is an admitted position that the assessee could not produce comparable sale instances. Therefore, from the beginning to the end thorough in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The military authorities requisitioned the said property during the war period for the purpose of utilization of army. However, the military authorities derequisitioned the said property in the year 1992. It will be pertinent to mention here that the assessee never resided in the said property and she was a resident of Bombay. On 8-6-1995 with an intention to sell this property the assessee executed a Memorandum of Understanding (MOU) with one Shri Shahrooq Ali Khan of Bangalore through her General Power of Attorney Holder Shri Sameer A. Khan. As per the terms of agreement of this MOU, the assessee appointed Shri Shahrooq Ali Khan (hereinafter mentioned as the second party) the sole and exclusive person to identify buyers for the property as she was not capable of attending to the interested purchasers to the scheduled property. The assessee accepted a sum of ₹ 5,50,00,000 from the second party as total sale consideration. The second party agreed to identify the buyers for the property and to obtain, if necessary, clearance certificate under the provisions of the Urban Land Ceiling Act, 1976. It will be important to note that the first party to the MOU was an Iranian Natio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sold for ₹ 11,87,00,726. In this agreement, the assessee through her attorney Shri Sameer Ali Khan has been referred to as the vendor Shri Shahrukh Ali Khan is referred to as confirming party. (b)As per the agreement dated 1-7-1998, Shri Shahrukh Ali Khan being the confirming party, received ₹ 6,37,00,726 for this services of locating the prospective buyers of Bangalore property. The services of Shri Shahrukh do not appear to merit such payment, which is substantially more than what assessee as real owner of the property actually received. (c)While in view of MOU dated 8-5-1995 for assignment of the property for ₹ 5.5 crores no Form No. 37-I was filed to the appropriate authority under Income Tax Act, in respect of sale agreement dated 1-7-1998 showing sale consideration of ₹ 11,87,00,726, a Form No. 37-I was filed and clearance from appropriate was obtained. (d)The agreement for sale dated 1-7-1998 is duly registered with the registration authority in the month of April';99. (e)The assessee, while working out the long-term capital gain on the basis of MOU dated 8-5-1995 has taken fair market value of the property as on 1-4-1981 at ₹ 1 crore as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also depict that the power given to the second party to identify buyers and such right was irrevocable as the second party will be incurring expenses for the purpose of developing and identifying buyers for the property. Therefore, it was the absolute liability of Shri Shahrooq Ali Khan to incur such expenditure for which he received the amount of ₹ 6,37,00,726. As regard the fair market value determined on 1-4-1981 by the registered valuer at ₹ 1 crore the assessee contended that the Assessing Officer had duly considered the valuation report and had accepted the same. In this connection, Board Circular No. 495 dated 22-9-1987 was also furnished to the Assessing Officer. In the application Form No. 37-I to the appropriate authority the assessee has mentioned that out of the entire sale consideration ₹ 5,50,00,000 was receivable by the assessee and additional ₹ 6,37,00,726 was receivable by the builder. The Assessing Officer after applying his mind and after seeking clarification has accepted the claim of the assessee. 5. However, the CIT was not convinced with the reply of the assessee. Therefore, he cancelled the assessment passed under section 143(3) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommensurate with the extent of services rendered by him. The quantum of amount received by him is much more than what assessee received as a owner of the property. The extent of services rendered and the reasonableness of payment made to Shri Shahrukh has not been looked into properly by the Assessing Officer. 9. The assessee while working out the Long-term Capital Gain, has adopted value of the property as on 1-4-1981 at ₹ 1 crore and indexed cost of acquisition is taken at ₹ 2.81 crores accordingly. The value as on 1-4-1981 is as per approved valuer';s report. The valuation report furnished by the approved valuer adopted value at ₹ 300 per sq. ft. as on 1-4-1981. He has, however, not furnished basis for doing so. His estimate has no logic or basis, unfortunately the Assessing Officer does not appear to have examined this aspect at all applying his mind to the points involved. 10. The fair market value of ₹ 1 crore as on 1-4-1981 is evidently on the higher side. Keeping in view the graph of real estate market between the F.Yrs. 1981-82 and 1994-95, it is well known that the real estate prices increased during the period at least by 20 to 25 times. If on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;;There can be no doubt that the provisions cannot be invoked to correct and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.'; Their Lordships of the Hon';ble Supreme Court have further examined in the above judgment the phrase prejudicial to the interest of revenue as under: ';The phrase prejudicial to the interest of the revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy and Co. v. S.P. Jain (1957) 31 ITR 872, the High Court of Karnataka in CIT v. T. Narayana Pai (1975) 98 ITR 422, the High Court of Bombay in CIT v. Gabriel India Ltd. (1993) 203 ITR 108and the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh (1995) 215 ITR 81treated loss of tax as prejudicial to the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t consists of hardly ten perfunctory lines which are reproduced as under for the sake of convenience: ';The assessee has filed Memorandum of Understanding dated 8-6-1995 indicating that the said property has been assigned for a consideration of ₹ 5,50,00,000. The assessee has also filed valuation report dated 30-5-1996. The assessee has submitted that an amount of ₹ 7,27,305 has been withdrawn for Household expenses and the family of the assessee consists of the assessee himself and her sister Miss. Parvin Kazrani and both are spinsters. Subject to above income of the assessee is computed as under : Long Term Capital Gains 26,900,000 Income from other sources 3,496,863 Less deductions; under section 80-L 13,000 3,483,863 Total Income 30,383,863 Rounded off to 30,383,860 Issue requisite document. Credit for prepaid taxes be given after due verification. Charge interest as per Provision of the Act.'; 16. From the above, it is evident that in view of the judgment of the Hon';ble Supreme Court in the case of M/s. Malabar Industrial Co. Ltd. v. CIT (supra) and judgment of Hon';ble Rajasthan High Court in the case of CIT v. Emery Stone Mfg. Co. (1995) 213 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y registered. He was of the view that the assessee purported to confer on the second party an irrevocable right of identifying buyers of the property for a consideration to be agreed upon by the second party in his sole discretion, with an irrevocable right in favour of assessee to receive a sum of ₹ 5.5 crores by way of assured security deposit. In this way the assessee parted with all her rights for a fixed consideration of ₹ 5,50,00,000. All the talk about identifying buyer or assured security deposit etc., appears to be for the purpose of lending certain amount of vagueness about the true intent behind the MOU. As such, the MOU has been rendered an ineffectual document under the weight of its own contradictions, inasmuch as it is not legalized by following the procedure laid down under section 269UC(1). The learned Accountant Member was of the view that since these provisions were not complied with no transfer had been effected by the MOU. He concluded that the question of not undergoing the procedure laid down under section 269UC is an integral part of the finding of the learned CIT that assessment year 2000-2001 and not assessment year 1996-97 was the correct year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reed with the findings of the CIT that the order was erroneous in so far as it was prejudicial to the interests of the revenue. So he upheld the assumption of jurisdiction under section 263. He further held that the valuation report filed by the assessee was not found satisfactory by the Assessing Officer himself. He therefore, by his noting on the order sheet on 21-7-1997 requested the assessee to file comparable sale instances and closed the matter. Therefore, the CIT has rightly opined that the Assessing Officer could have availed the services of the Valuation Cell to find out comparative sale instances as on 1-4-1981. Thus, the Accountant Member upheld the impugned order passed under section 263 of the Act. 7. The learned Judicial Member did not agree with the opinion of the learned Accountant Member on the basis that the assessee has received ₹ 5,50,00,000 under the MOU out of the transaction of sale and it is no ones case that the assessee has got a penny more than this amount. Therefore, as per the settled legal position of the law the assessee is liable to tax on the real income only i.e. ₹ 5,50,00,000 for transfer of property and long term capital gain of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of locating the prospective buyer and other formalities etc., there is no provision of law under which the amount paid to the second party is not deductible. So he was of the view that the order of the Assessing Officer is not erroneous as there was no relation of the assessee with the second party. It was further pointed out that clause 16(1) of the agreement clearly mentions that only ₹ 5.5 crores were given to the assessee on which long term capital gain has been assessed in the hands of the assessee and there is no provision of law to assess the assessee on some amount which she has not received. The learned Judicial Member further placed reliance on the decision of the Hon';ble Supreme Court in the case of Godhra Electricity Co. Ltd. (supra) and held that the order of the Assessing Officer is neither erroneous nor prejudicial to the interest of the revenue and accordingly rejected the second ground of the CIT for exercising jurisdiction under section 263. The third reason for exercising jurisdiction under section 263 is that the fair market value of ₹ 1 crore as on 1-4-1981 is excessive. The learned Judicial Member held that the reasoning of the CIT was with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale consideration. Therefore, the assessment order cannot be said to be erroneous. He further held that in the instant case, it is no one';s case that the transaction and MOU entered between the assessee and the second party were not bona fide nor it was the case of the revenue that it was a sham transaction or that the price paid in respect of all the transaction to the assessee was other than the one set out in the MOU and accordingly the taxing authorities had no right to substitute any other price in place of the price or value agreed to between the parties to the transaction. In this regard he placed reliance on the decisions of Hon';ble Gujarat High Court in the case of Marghabhai Kishabhai Patel Co. (supra) and Hon';ble Bombay High Court in the case of Godavari Sugar Mills Ltd. (supra). He opined that merely because the procedure of filing Form 37-I before appropriate authority was avoided at the time of registration of the agreement to sell, is not decisive of the question of taxability of the transaction in the assessee';s hands. Merely because the approved valuer';s report was accepted by the Assessing Officer, it cannot be said that the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder. The learned Accountant Member himself has raised this issue by inferring from paragraph No. 7 that the CIT has also questioned the year of taxability. But this direction is not given in the order of the CIT. Therefore the issue of year of taxability is not in dispute. The learned counsel for the assessee further invited our attention to section 55A(a) which reads as under: To ascertain the fair market value of a capital asset the Assessing Officer may refer the valuation of capital asset to a Valuation Officer (a)in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of the opinion that the value so claimed is less than its fair market value. It is submitted that reference to the valuation officer to ascertain the fair market value of a capital asset can be made if in the opinion of the Assessing Officer the valuation of the assets claimed by the assessee in accordance with the estimate made by the registered valuer is less than its fair market value. Clause (b) does not apply because the assessee has filed the registered valuer';s report. Clause (b) is a case where no s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he builder Shahrooq Alikhan. It was further argued that it was no one';s case that the assessee had received even a penny more than ₹ 5,50,00,000. Therefore, she cannot be taxed on the total sale consideration of ₹ 11.87 crores unless there is material or information on record to show that the assessee had received anything more than what is shown in the MOU. She cannot be charged for capital gains on any other amount than what she had received. 11. The learned counsel brought to my notice sub-section (1) of section 48 which says that while computing the capital gain the expenditure incurred in connection with such transfer as a result of transfer of capital asset will be deducted. In the present case it is clear from the agreement and MOU that she had given all the power to Shri Shahrooq Alikhan including those of obtaining the necessary clearance certificates and incur all expenses in relation to this property. Therefore what Shri Shahrooq Alikhan received was the expenditure which is deductible under section 48(1). Shri Shahrooq Alikhan was the agent till the registration had taken place of the said property and all the expenses incurred was deductible. The opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neous judgment'; means ';one rendered according to course and practice of court, but contrary to law, upon mistaken view of law, or upon erroneous applica-tion of legal principles';. Reliance was also placed on the decision of Malabar Industrial Co. Ltd.';s case (supra), Rampyari Devi Saraogi';s case (supra) and the decision of Hon';ble Delhi High Court in the case of Gee Vee Enterprises (supra). It was further submitted that when the Assessing Officer failed to conduct inquiries the Commissioner can exercise jurisdiction under section 263. The learned Departmental Representative further submitted that the Assessing Officer could issue commission to DVO under section 131(d) if he could not do under section 55A. However, it is submitted that the case of the assessee could be covered under sub-clause (ii) of sub-section (b) of section 55A which the CIT has rightly adopted to estimate the fair market value of the property. The learned Departmental Representative tried to distinguish the case laws referred to by the assessee counsel. 13. The learned Departmental Representative further submitted that section 269UC of the Income-tax Act is a non obstante clause wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere no kith and kin to look after the property in question. Further this property was requisitioned during the war time by military authorities for the purpose of use by army. However, the military authorities derequisitioned the same in the year 1992. It is the case of the assessee that under these circumstances there was no one to look after the property in a proper manner and therefore, with an intention to dispose of the property entered into a MOU on 8-6-95 with Shri Shahrooq Alikhan through her general power of attorney holder Shri Sameer A. Khan. If we go through the MOU given at pages 3 to 7 of the paper-book we finds the following clauses: 2. The First Party has informed the Second Party that the total sale consideration accepted and received by the First Party is ₹ 5,50,00,000 (Rupees Five crores and fifty lakhs only) and that neither party shall dispute the area of the said schedule property. 3. The Second Party agrees to identify buyers for the Schedule Property or any part thereof and has agreed to pay assured security deposit of 5,50,00,000 (Rupees Five Crores and Fifty lakhs only), to the First Party. On reading these clauses along with other clauses of the MOU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of the above, the Hon';ble Bombay High Court has held in its decision in the case of Chaturbhuj Dwarkadas Kapadia (supra), that even arrangements confirming privileges of ownership without transfer of title could fall under section 2(47)(v). Therefore capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective complete under the general law. Therefore, the conclusion of the Accountant Member that it is merely documents to identify buyer and an assured security deposit is not correct in the eye of law. 16. Since I have held that the MOU between the assessee and Shri Shahrooq Alikhan was transfer of property in question within the meaning of section 2(47) of the Income-tax Act, the question arises whether in the given facts and circumstances of the present case, the CIT has rightly exercised his jurisdiction under section 263 of the Income-tax Act. The CIT has given three reasons for invoking his jurisdiction under section 263. The first reason is that the sale agreement dated 1-7-1998 drawn up with the Indian Society of the Church of Jesus Christ of Later-Day Saints was regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and that the assessee had received more than what is purported to have been received by way of MOU, it cannot be said that the builder who received consideration more than the assessee after about three years for locating buyers and fulfilling necessary conditions to transfer is a justifiable reason for invoking the jurisdiction under section 263. I cannot forget that the assessee shall be assessed on the real income and not on the unreal income or the presumptive income. Here I would like to mention that day in and day out there are instances where one party sells property at throw away prices due to his difficulties/necessities whereas the purchasing party gets a better price on further sale. This not only happens in a transaction of an individual but also in a transaction where Government under its disinvestment schemes have sold companies at a much lower price whereas purchaser or bidder sold at higher price in subsequent transaction. Just because the third party has earned more profit will it be justified to invoke jurisdiction under section 263 in the eye of law. It is not justified in the eye of law. In the present case at the cost of repetition I shall mention here that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically gives power to the Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner, Commissioner (Appeals) and Chief Commissioner or Commissioner regarding discovery and inspection; production of evidence and issue of commissions. It does not talk about making a reference to the valuation officer for valuation of property. Therefore, the only section which is relevant for making reference to DVO in Income-tax Act is section 55A only. The sub-section (a) of section 55A gives power to the Assessing Officer for making reference to the valuation of a capital asset to the valuation officer where the valuation of the asset claimed by the assessee is in accordance with the estimate made by the registered valuer, less than its fair market value. It does not talk about excess fair market value. In the present case what I find is that the CIT has mentioned that the fair market value disclosed by the assessee at ₹ 1 crore as on 1-4-1981 as per the valuation report furnished by the assessee was on the higher side. The CIT or the Assessing Officer assumes power under the sub-clause (a) of section 55A only when in his opinion the fair market value disclosed by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. It may be noted that my total income has exceeded the maximum amount not chargeable to tax on account of long term capital gains/arising on sale of my property at Convent Road, Bangalore. The said property was gifted to me by my late father in the year 1955. During the time of the war the said property was acquired for occupation as tenant by Garrison Engineer a division of Indian Army. They had acquired the whole property therefore the return of income was filed on the basis of rental income. I am enclosing the assessment order for the income year 1968-69 from which it will be seen that the said Bangalore property was duly disclosed. The income from said property amounted to ₹ 3,400. The said rental income was received from Garrison Engineers (Military) who were the tenants in the said premises. I am also enclosing my bank analysis with BMC bank. Null Bazar branch Mohamedalli Road Branch from 1-4-1993. From the said bank analysis it will be seen that the deposits are the sale consideration received of the said Bangalore property and interest from the Saving Account. I am enclosing herewith the Statement of Capital Gains in respect of Sale of said Bangalore property. The M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial to the interest of the revenue. 20. The Hon';ble Bombay High Court in the case of Gabrial India Ltd. (supra), has laid down the principles for exercising jurisdiction under section 263 as follows : 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 interest of the revenue. An order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer 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 Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualized where the Income-tax Officer while making as assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by a accepti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missible. I would like to mention here that the learned Departmental Representative had made it a point that the Assessing Officer had not made elaborate discussion in that regard which according to the above decision could not be held to be erroneous especially when the Assessing Officer has made thorough inquiries. In the present case I find that the CIT, without bringing any specific sale instance or material, has observed that the value of the property at Bangalore had appreciated more in the year 1995 i.e. when the MOU was entered into between the assessee and the builder. In the absence of any material the observation of the CIT is merely based on surmises conjectures and guess-work.In the case of Trustees Anupam Charitable Trust (supra) the Hon';ble High Court has observed that The error envisaged by section 263 was not one which depended on possibility or guess-work, but it should be actually an error either of fact or of law. 21. In the case of Malabar Industrial Co. Ltd. (supra) the Hon';ble Supreme Court has laid down the principles for exercising the jurisdiction under section 263 as under : A bare reading of section 263 of the Income-tax Act, 1961, makes it cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction under section 263. The learned Departmental Representative relied on the decision of Madhya Pradesh High Court in the case of Ratlam Coal Ash Co. (supra) wherein it was laid down that if the Income-tax Officer made the assessment in undue hurry, accepting what the assessee stated in the return without making any enquiries, in the circumstances of the case, the Commissioner would be justified in holding the order of the Income-tax Officer to be erroneous. However, I find that the facts and circumstances mentioned in that case are distinguishable from the facts and circumstances mentioned in the present case. In the present case it was found that the assessee had furnished all requisite information to the Assessing Officer and the Assessing Officer after making due enquiries had completed the assessment in a period more than one and half year. Therefore it cannot be said that the Assessing Officer has made assessment in due hurry or only by relying what had been stated by the assessee in his return. 22. So far as the case laws cited by the Departmental Representative is concerned I find the same distinguishable on facts. In the case of Gee Vee Enterprises (supra), the facts are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has received anything more than ₹ 5.5 crores. Therefore, the assessment order cannot be held to be erroneous. There is also another aspect of the matter. The Income-tax department in the case of the assessee when reopened the assessment under section 143(3) r.w.s. 147 by order dated 24-2-2004 has mentioned that Shri Shahrooq Alikhan in the return filed before the ITO Bangalore has shown capital gain from sale of his property taking cost at ₹ 5.5 crores and sale consideration of ₹ 11.87 crores. Therefore it is clear that the rest of the amount has also been offered for taxation by Shri Shahrooq Alikhan. Under these circumstances the assessment order cannot be held to be prejudicial to the interest of the Revenue. 24. In view of the foregoing discussions, I am of the opinion that the order of the Assessing Officer is neither erroneous nor prejudicial to the interest of the revenue. Therefore, the CIT is not justified in assuming jurisdiction under section 263 of the Income-tax Act. His order is not sustainable in the eye of law. I therefore, agree with the view taken by the learned Judicial Member where he has cancelled the order passed under section 263. 25. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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