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TMI Blog2022 (6) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... ease in capital as well as deduction claimed under the head capital gain were the issues identified for limited scrutiny for examination. The AO again directed the assessee to furnish the information during the course of assessment proceedings vide letter dt. 09/02/2017, copy of which is placed at page no. 195 and 196 of the assessee s compilation, in the said letter, at Sl.No. 8 the AO asked the information relating to large deduction claimed under section 54B, 54C, 54D, 54G and 54GA of the Act and at Sl. No. 11 the AO asked the details of substantial increase in capital in a year. The assessee furnished all the requisite details which we have already mentioned in the former part of this order, so it cannot be said that the AO did not make the inquiries relating to the increase in capital account or did not examine the issues. In the present case the Ld. Pr. CIT on the one hand mentioned that the assessee did not provide details of substantial increase in capital in a year, on the other hand, she mentioned that the reply was furnished by the assessee relating to addition in capital account which was reproduced in para 6 of the impugned order. In the present case, it cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ginal order passed is neither erroneous nor it is prejudicial to the interest of revenue. 2. That the appellant craves, leaves to alter, amend and add to substitute any ground of appeal before or at the time of hearing. 3. The only grievance of the assessee in this appeal relates to the action taken by the Ld. Pr. CIT under section 263 of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). 4. Facts of the case in brief are that the assessee filed his return of income on 30/10/2015 declaring an income of Rs. 3,04,29,420/-, subsequently, the case was selected for scrutiny. The AO mentioned that the assessee furnished the requisite details and documents which were examined and the books of accounts relating to real estate development were examined on test check basis. The AO observed in the assessment order that as per the information available on record and reply submitted by the assessee the case was discussed with the counsel for the assessee and the returned income was accepted. Thereafter the Ld. Pr. CIT exercised his jurisdiction under section 263 of the Act and issued the notice dt. 24/02/2020 to the assessee which read as under: Please refer to your return of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts stated above, it appears that the assessment framed u/s 143(3) on 29.12.2017 for A.Y. 2015-16 is erroneous in so far as prejudicial to the interest of the revenue in terms of provisions of section 263 of the Income Tax Act, 1961. You are, therefore, requested to show cause as to why assessment framed vide assessment order dated 29.12.2017 u/s 143(3) of the Income Tax Act, 1961 for A.Y2015-16 should not be cancelled by invoking the provisions of section 263 of the Income Tax Act, 1961. 7. Your case is fixed for hearing before the undersigned on 28.02.2020 at 11:00 A.M. In case of non-compliance, it would be presumed that you have nothing to say in this regard and order u/s 263 would be passed on merits on the basis of material available on record." 4.1 In response to the aforesaid notice, the assessee furnished the written submissions on 05/03/2020 which read as under: 1. There is no denial to the fact that return of income filed on 30.10.2015 at an income of Rs.3,04,29,420/- in respect of assessment year 2015-16 has been accepted at returned income in the assessment order passed u/s 143(3) of the I.T Act, 1961 on 29.12.2017 by Dy. CIT, Circle-6(1), Mohali. 2. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges Nos. 6 to 23 of this submissions. The Computation Statements of Income of respective years are indicative of similar facts, similar deductions u/s 54B & 54F and duly allowed u/s 143(3) of the Income Tax Act, 1961. Kind attention is invited to case law of Hon'ble IT AT Panji in the case of Deputy commissioner of I. Tax Vs. Ramdas Haribhan Kakade & Ors; ITA No. 60/PUN/2015 assessment year 2010-11 (attached at page nos. 24 to 36 of the submission). The Hon'ble IT AT has categorically held that "transfer envisaged under section 45(2) of the Act, would arise only when stock in trade is sold or otherwise transferred by him and not in the year in which he converted his stock in trade...." Kind attention is also drawn to case law of Hon'ble IT AT Jaipur in the case of Mahendra Rajnikant Zaveri Vs. Income Tax Officer; reported in (2017) 51CCH0028 Jaipur Trib. Head note (attached at page 37 to 46 of the submissions) is very clear to hold that: " Held, sale consideration was received much after due date of filing of return of income which made impossible for assessee to make investment on/before due date of filing of return. On issue of impossibility of pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax & ANR Vs. Rudra Industrial Commercial Corporation reported in (2011) 244 CTR 0304: (2011)55 DTR 0005 (attached at page no. 47 to 54 of the submissions). The head note of case law placed at page no. 47 of the submissions states as under: "Capital gains- computation- Relevant date for applying cost inflation index assessee firm which owned an immovable property, converted the same into stock in trade in the year 1987-88 and entered into an agreement with a company to develop the property and construct flats thereon-At that stage Revenue did not treat the said arrangement as a transfer capital gain was computed only when the assessee executed registered sale deeds in favour of the purchasers of flats in the F. Y. 1992-93. It is the market value on the date of transfer that is relevant for computation of capital gains, and for arriving at that market value the prescribed cost inflation index relevant to the date of transfer is to be taken into account and not that on the date of conversion. Therefore, A.O. committed error in taking the cost inflation index of 1987-88 instead of cost inflation index applicable to the F. Y. 1992-93." Under such facts & circumstances, ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porting documents have been provided. Accordingly the addition to capital account amounting to Rs. 2,68,78,741/- in the Jamuna Developers and Rs. 2,45,23,486/- in Mehak Enterprises has remained unexplained. Please show cause as to why the addition to the capital account may not be treated as unexplained income and added to your income. 4. Perusal of assessment record in your case for A. Y. 2015-16 shows that a computation of income has been provided during the course of assessment proceedings. It is seen that deduction u/s 54F and 54B of the IT Act have been claimed in respect of four properties. The Agricultural land, as per the computation, in respect of two properties, was purchased in F. Y. 2004-05 and F. Y. 2005-06 These properties were converted into stock in trade in the F. Y. 2006-07. Accordingly, as on the date of conversion, the transfer of these properties resulted in short term holding and the Capital Gain on these properties was therefore not eligible for deduction u/s 54F of the Income Tax Act. 5. It is further seen that the said properties were converted into stock in trade during the F. Y. 2006-07. Deduction u/s 54F and 54B of the IT Act has been claimed by maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The detail of the addition stands verified by then Ld. A.O. and how it isnot found on assessment record is really a matter of surprise to us. However, for your immediate reference and record, the detail of addition in capital account of Rs. 26878741/- is furnished as under: Date Amount Remarks 28-05-2014 3573297.00 From Saving A/c No. BOB-7238 29-05-2014 500000.00 From Saving A/c No. SBI-3109 29-05-2014 1000000.00 From Saving A/c No. SBI-3109 30-06-2014 750200.00 From Saving A/c No. BOB-7238 22-07-2014 1000000.00 From Saving A/c No. BOB-1315 11-08-2014 260500.00 From Saving A/c No. BOB-7238 30-09-2014 562070.00 From Saving A/c No. BOB-1315 22-10-2014 12080.00 From Saving A/c No. BOB-7238 21-11-2014 2820.00 From Saving A/c No. BOB-7238 04-12-2014 725150.00 From Saving A/c No. BOB-1315 05-12-2014 37000.00 From Saving A/c No. BOB-7238 07-12-2014 2500000.00 From Saving A/c No. BOB-7238 03-01-2015 8918.00 From Saving A/c No. BOB-1315 10-01-2015 3000000.00 From Saving A/c No. SBI-3109 10-01-2015 3950000.00 From Saving A/c No. SBI-3109 22-01-2015 71902.00 Through credit card for vehicle expenses 04-02-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue. Therefore, proceedings initiated u/s 263 of the I. Tax Act, 1961 may please be filed. 4.5 The Ld. Pr. CIT after considering the reply / submissions of the assessee observed that the view taken by her was based upon independent perception of the assessment record. She further observed that the increase in capital was one of the issue identified for examination as there was substantial increase in the capital account and the assessment was framed by the AO without examining the issue. She further observed that the assessee furnished copy of bank account from where the capital was stated to have been introduced which revealed that immediate before the withdrawal / transfer there were credit entries of large amount and the source of credit entries in those account remained to be examined. Ld. Pr. CIT was of the view that the order passed by the AO was erroneous in so far as it was prejudicial to the interest of the Revenue as the following inquiries / verification were not conducted by the AO: 1. The details of addition to capital account were not called for. 2. In the Bank account statements there are credit entries just before the transfer in capital account. The Credit e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the year 1981-82 and not in the year when these had been transferred in the name of the assessee, therefore, the order issued by the AO was not only erroneous but had been issued without examination of any facts. 4.7 The Ld. Pr. CIT held that the order passed by the AO was erroneous in so far as it was prejudicial to the interest of the revenue as the following inquiries / verifications were not conducted by the AO: 1. The date of purchase of properties has been accepted without verification of facts even from the assessee inspite of the fact that the case was picked up under scrutiny for this specific reason. 2. The value of capital gain disclosed by the assessee was accepted without verification of the fact that the transaction was short term capital gain or long term gain. 3. That the value of the property in the purchase year has been accepted without obtaining relevant sale deed to verify the year of purchase and the amount for which purchased. 4. If the property is ancestral then the indexed cost of acquition as declared by the assessee is not correct as the indexation has been claimed as per value of F.Y.2004-05 and 2005-06 and in which case provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose in the immediate preceding two years. The claim was thus allowed without verification and inquiries. 10.8 There is one more aspect regarding deduction u/s54B of the Income Tax Act. The assessee has claimed and was allowed deduction u/s54 B of the Income tax Act by the Assessing Officer without examining the fact that after converting the land in Stock in trade, the assessee constructed Residential Flats/ Commercial sites/ School on that land. What was ultimately sold was not agricultural land but the Residential Flats/ Commercial sites/ School. As the assessee did not actually sell the agricultural land the provisions of section 54 B were not applicable and thus no deduction u/s54B was allowable to the assessee on sale of Residential Flats/ Commercial sites/ School. 10.9 The claim of deduction u/s54 F was allowed without calling for the details of investment made in construction of house. In the reply dated 12/06/2017, the assessee has merely stated that he has invested Rs.96,37,71II- in construction of house. No verification was made by the Assessing Officer on this issue. Bank statement from where payments for construction was made were not called for. Bills for construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no inquiries/ verifications were conducted by the Assessing Officer in allowing deduction claimed u/s54B and 54F of the Income Tax Act as discussed above. 4.9 The Ld. Pr. CIT observed that as per the sale deed dt. 26/12/2006 the collector rate of the land was Rs. 9,50,000/- per acre and for calculating the capital gain arising from the sale of stock as per the provisions of Section 45(2) of the Act and that for the purpose of section 48 of the Act, the fair market value of the asset on the date of conversion shall be deemed to be full value of consideration received or accruing as a result of the transfer of the capital asset. She further observed that the assessee while computing the capital gain had adopted sale consideration for which no documentary evidence was provided and the AO did not make any verification or inquiry in this regard, therefore, the sale consideration over and above the fair market value as in the year of conversion shall be treated as business income of the assessee. She mentioned that the collector rate of the land in the year of conversion i.e; F.Y. 200607 was Rs. 9,50,000/- per acre and accordingly the fair market value of the land now sold as stock in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Ld. Pr. CIT while invoking the provisions of Section 263 of the Act considered the two issues, one issue was relating to the substantial increase in capital account of the assessee in M/s Jamuna Developers and M/s Mehak Enterprises and the another issue related to the claim of deduction under section 54B and 54F of the Act. It was stated that the Ld. Pr. CIT while issuing the notice dt. 24/02/2020 did not touch the issue relating to increase in capital and only mentioned the issue relating to the deduction under section 54B and 54F of the Act, a reference was made to page no. 2 of the impugned order wherein the notice issued under section 263 of the Act by the Ld. Pr. CIT has been reproduced. 6.1 It was further submitted that another notice dt. 02/01/2021 was issued to the assessee wherein the addition to the capital account amounting to Rs. 2,68,78,741/- in M/s Jamuna Developers and R.s 2,45,23,486/- in M/s Mehak Enterprises were raised by the Ld. Pr. CIT and the assessee duly explained both issues to the Ld. Pr. CIT alongwith relevant evidences. It was contended that there was change in opinion of the Ld. Pr. CIT who in the first notice raised the question relating to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o concerns. It was contended that the AO after examining the details furnished by the assessee and making the proper inquiries, accepted the same and income, was assessed at the returned income, a reference was made to copy of the assessment order dt. 29/12/2017 placed at page no. 201 and 202 wherein the AO mentioned as under: " the case was discussed with the counsel of the assessee as per the information available on record and reply submitted by the assessee, the returned income of the assessee is hereby accepted" 6.3 The Ld. Counsel of the Assessee also drew our attention towards page no. 203 of the assessee's compilation which in the copy of the office note in assesse's case wherein the AO vide item no. 3 clearly mentioned that this case was selected for complete scrutiny under CASS for large deduction claimed under section 54B, 54C etc. vide Item No. 6 she mentioned that the reason for complete scrutiny was substantial increase in capital in the year and that during the course of assessment proceedings the requisite documents were called for and examined, no adverse inference was drawn. He therefore submitted that the assessee furnished all the documents which were asked b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed and allowed in the A.Y. 2011-12, therefore, the observations of the Ld. CIT(A) relating to the increase in capital of the assessee was erroneous or prejudicial to the interest of the Revenue, has no legs to stand. 7. As regards to the another issue relating to the deduction under section 54B and 54F of the Act was concerned, it was stated that under similar facts the then respective AO's had allowed deduction of the agriculture land converted into stock in trade in the A.Y's. 2011-12 and 2012-13 and even for the preceding A.Y. 2013-14 when the Ld. Pr. CIT passed the order under section 263 of the Act the issue was decided in favour of the assessee by the ITAT and the order passed by the Ld. Pr. CIT under section 263 was annulled. It was also pointed out that in the succeeding A.Y 2018-19 under the faceless scrutiny the AO again allowed the deduction under section 54B & 54F of the Act, the reference was made to page no. 181 and 182 of the assessee's compilation which is the copy of the assessment order for the A.Y 2018-19. 7.1 It was submitted that facts for the year under consideration are similar to the facts involved in the A.Y's. 2011-12, 2012-13, 2013-14 and 2018-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to Rs. 2,45,23,486/-. As regards to the issue relating to the addition in capital account in M/s Jamuna Developers amounting to Rs. 2,68,78,741/- it is noticed that the amount was received from Saving Bank account maintained with Bank of Baroda and State Bank of India. The relevant details had been mentioned by the Ld. Pr. CIT at page no. 9 & 10 of the impugned order. The addition amounting to Rs. 2,45,23,486/- in M/s Mehak Enterprises was from the Saving Bank Account maintained with Bank of Baroda and State Bank of India and Rs. 1,33,81,645/- was on account of land transferred at cost on 30/12/2014. The AO during the course of assessment proceedings issued the Questionnaire vide notice under section 142(1) of the Act issued on 09/02/2017 and the case of the assessee was selected for scrutiny only to examine the increase in capital, the assessee furnished the details to the AO copy of which is placed at page no. 157 to 159 of the assessee's paper book for increase in capital in the firm M/s Mehak Enterprises. The assessee also furnished the copy of bank account wherein the entries were reflected for depositing the amount in M/s Mehak Enterprises in the capital account of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 54C, 54D, 54G and 54GA of the Act and at Sl. No. 11 the AO asked the details of substantial increase in capital in a year. The assessee furnished all the requisite details which we have already mentioned in the former part of this order, so it cannot be said that the AO did not make the inquiries relating to the increase in capital account or did not examine the issues. In the present case the Ld. Pr. CIT on the one hand mentioned that the assessee did not provide details of substantial increase in capital in a year, on the other hand, she mentioned that the reply was furnished by the assessee relating to addition in capital account which was reproduced in para 6 of the impugned order. In the present case, it cannot be said that the AO did not make inquiries / verification relating to increase in capital account of the assessee as alleged by the Ld. Pr. CIT. 9.1 As regards to the certain entries which the Ld. Pr. CIT pointed at page no. 12 & 13 of the impugned order that there was mismatch, the Ld. Counsel for the assessee in his written synopsis clarified that those entries were verifiable from the records and the assessee himself introduced addition in capital from his own ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. Further, the Pune Bench of the Tribunal in the case Mahendra Rajnikant Zaveri (supra), in the light of the CBDT Circular No 791 dated 02.06.2000 and taking into consideration the impossibility of the assessee being able to invest the amount, has held that the period of 6 months for the purposes of investment in specified assets must be reckoned from the date of receipt of consideration. So, we are of the considered view that since the AO had taken a possible view after hearing the assessee in the light of the cases relied upon by the assessee, the Ld. PCIT has wrongly exercise the jurisdiction u/s 263 of the Act and set aside the assessment order. 11. Further as per the settled law u/s 263 of the Act, the CIT has power to examine an assessment order to ascertain as to whether it is erroneous and prejudicial to the interest of the revenue. Section 263 of the Act does not confer jurisdiction to rectify each and every mistake in the assessment order. Therefore, the assessment order can be revised only where the order is erroneous as well as prejudicial to the interest of the revenue and not for rectification of mistakes in the order. 12. So far as the applicabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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