Income Tax Act, 1961, Section 263
Revision under section 263--Erroneous and prejudicial order--AO failed to carry out necessary verification in respect of assessee's claim of deduction under section 54B
Conclusion: Where AO at the time of passing of assessment order, did not carry out necessary verification in respect of assessee's claim of deduction under section 54B; the assessment order was erroneous and prejudicial to the interests of Revenue, which was correctly revised by PCIT by invoking power under section 263.
PCIT on examination of assessment records, found that assessee claimed deduction under section 54B, however, capital asset was held by the assessee for less than two years and the said deduction was therefore, incorrectly claimed by the assessee. PCIT further found that AO passed the assessment order without making proper inquiries or verification with regard to allowing the claim of deduction under section 54B and thus, the assessment order was erroneous and prejudicial to the interest of Revenue. Held: Since AO at the time of passing of assessment order, did not carry out necessary verification in respect of assessee's claim of deduction under section 54B; the assessment order was erroneous and prejudicial to the interests of Revenue, which was correctly revised by PCIT by invoking power under section 263.
Decision: In assessee's favour
IN THE ITAT, RAJKOT BENCH
ANNAPURNA GUPTA, A.M. & T.R. SENTHIL KUMAR, J.M.
Babubhai Naranbhai Sakhiya v. Pr. CIT
ITA No. 144/RJT/2016
15 December, 2023
Assessee by: None
Revenue by: Shramdeep Sinha, CIT-D.R.
ORDER
T.R. Senthil Kumar, J.M.
This appeal is filed by the Assessee as against the Revision Order dated 29-2-2016 passed by the Principal Commissioner, Rajkot-1, as against the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the assessment year 2011-12.
2. Today is the 20th time of hearing of the above appeal, even in the previous occasions, none appeared on behalf of the assessee. However the assessee filed a revised Form No. 36 substituting the legal heir in the place of the deceased assessee. The learned Commissioner-Departmental Representative Shri Shramdeep Sinha submitted similar is the case that of the assessee’s wife Smt. Lilaben Babubhai Sakhiya and assessee’s son Shri Kisho Babubhai Sakhiya wherein the respective appeals filed by them were also dismissed by the Co-ordinate Bench of this Tribunal vide ex-parte Order dated 19-4-2023 in ITA No. 157/RJT/2016 & ex-parte Order dated 29-4-2022 in ITA No. 145/RJT/2016. Thus learned Commissioner-Departmental Representative placed on record the above orders passed by the Co-ordinate Benches of this Tribunal on identical issues and prayed the present appeal also be decided accordingly.
3. The brief facts of the case are that the assessee is an individual and derived income from business, and remuneration from the firms M/s. J.K. Hall and J.K. Developer. For the assessment year 2011-12, assessee filed his Return of Income declaring total income of Rs. 2,70,24,780 on 28-9-2011 and then filed Revised Return declaring total income of Rs. 2,66,58,590 on 8-2-2012. The return was taken up for scrutiny assessment and completed the assessment accepting the returned income filed by the assessee vide assessment Order dated 31-10-2023 passed under section 143(3) of the Act.
4. On examination of the above assessment order and connected records, it was noticed by the Principal Commissioner that during the year the assessee had transferred capital asset which is an agriculture land situated Survey No. 71/2, Kangashiyali which resulted in capital gain within the scope of section 45(3) of the Act. As per the working given by the assessee in the statement of income, the land was acquired on 25-7-2008 for Rs. 7,62,565 and this capital asset was transferred on 15-4-2010 for a consideration of Rs. 47,00,000 and short-term capital gain of Rs. 39,37,435 was thus worked out and the same was claimed as deduction under section 54B of the Act. Further perusal of the details furnished in respect of capital gain revealed that capital asset was held by the assessee for less than two years and deduction claimed under section 54B was therefore incorrectly claimed by the assessee. The assessing officer while framing the assessment order under section 143(3) of the Act has not looked into this issue, which is erroneous and prejudicial to the interest of the Revenue.
4.1. Therefore, a show cause notice under section 263 of the Act was issued on 12-1-2016 to the assessee. The assessee after taking two adjournments filed his written submission. In Para-3 of the submission, the assessee claimed that the actual transfer of the capital asset was on 15-8-2010 and due to typographical error it was mentioned as 15-4-2010. Thus, the assessee contended that the land was held for more than two years. After considering the above submission, the learned Principal Commissioner set aside assessment order by a speaking order observing as follows:
“…..6. The assessee's submission has been carefully examined. In Para 3 of the submission the assessee has contended that the actual date of transfer of the capital asset was 15-8-2010 and due to typographical mistake it was mentioned as 15-4-2010. The assessee has thus contended that the land was held for more than 2 years. This contention of the assessee is not acceptable as in the statement of total income forming part of the return of income, the assessee has given a working of the capital gain wherein the date of transfer of capital asset is mentioned as 15-4-2010. As regards the contention that during the course of the assessment proceedings working of capital gain was given wherein the date of transfer was specifically mentioned as 15-8-2010, no such submission is found in the assessment record. In the record there is no submission to prove that an entry was passed in the books of accounts of the assessee's proprietary business on 15-8-2010 through which the land in question was converted into stock in trade.
7. In Para 4 of the submission the assessee has contended that "Finally the land was converted into non agricultural land vide N.A. Order dated 16-12-2010 passed by Collector, Rajkot District (Copy of order is attached at page 8 to 13). Thus the land was still agricultural land till 16-12-2010. Thus effectively the agricultural activity was carried out even for more than 2 years....."
8. Even if it is to be considered that agricultural activity was carried out till 16-12-2010, the period between transfer of capital asset Le 15-4-2010 and the date of the land being converted in to non agricultural land on 16-12-2010, cannot be included in the period of 2 years required under section 54B because as per the provisions of section 548 of the Act, the capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by (the assessee being an individual, or a HUF) for agricultural purposes which means that the stipulated 2 years of agricultural activity should be before the transfer of the capital asset. Therefore, the period during which agricultural activity was carried out after the assessee has transferred the land (15-4-2010 to 16-12-2010), cannot be considered for the agricultural activity stipulated to have been conducted during 2 years immediately preceding the date of transfer of capital asset, under the ownership of the transferor. Therefore, the land was not held by the assessee for a period of 2 years as required under section 54 B of the Act and the deduction of Rs. 39,37,435 was therefore wrongly allowed in the assessment.
9. In the submission dated 10-2-2016, at Para 4 thereof, the assessee has stated that the land in question was converted into Non-Agricultural land vide the Collector's Order dated 16-12-2010 and a copy of the said order has also been enclosed. On perusal of the order it is seen that the order was passed pursuant to the assessee's application dated 27-10-2010. The assessee has himself reckoned that the land was converted into non agricultural land on 16-12-2010. Since the transfer of the capital asset in this case could only have been after the capital asset was converted into non-agricultural land, the date of transfer of capital asset should be 16-12-2010. In that case the holding period of the capital asset transferred, would have been of more than 2 years.
10. However, even if the date of transfer of the capital asset is considered as 16-12-2010, the deduction under section 548 cannot be allowed due to the following reasons:
(a) In the submission dated 9-9-2013 submitted during the course of the assessment proceedings, the assessee has enclosed copies of documents in respect of land purchased for which deduction under section 54B of the Act has been claimed. The details of the investment are as follows:
|
Sr. No. |
Particulars of land |
Purchase price/investment amount as per purchase deed |
Date of purchase deed |
|
1 |
Survey No. 60/10 of Village Kanagshiali |
12,64,600 (half share 2529200/2 |
16-9-2010 |
|
2 |
Survey No. 84 of Village kanagshiali |
25,50,000 |
23-2-2011 |
(b) Of the above 2 lands on which deduction under section 54B of the Act have been claimed, the land at survey no. 60/10 was purchased before 16-12-2010. i.e. before the date of transfer of capital asset
(c) For claiming deduction under section 54B of the Act, the investment in land should have been made within a period of two years after the date of transfer of the capital asset. Deduction under section 54B of the Act cannot be allowed on lands purchased before the date of transfer of capital asset as made by the assessee.
11. The assessee cannot adopt any date as date of transfer of the capital asset into stock-in-trade just because it suits to his claim for deduction under section 54B of the Act. In Para 3 of the submission the assessee has considered 15-8-2010 as date of transfer. There is no basis for having adopted this date and as on this date the land was agricultural land and could not have been converted into stock-in-trade. Whereas, there is basis for treating the date of transfer as 16-12-2010 because on this date vide the Collector's order the land was converted into non-agricultural land and was since then eligible to be converted into stock- in-trade.
12. As per the facts discussed above, it is noticed that the assessee's claim of deduction under section 54B of the Act of Rs. 39,37,435 has been incorrectly allowed by the assessing officer. The assessing officer should therefore, verify the period for which the Capital asset in question was held by the assessee and also verify the investments made in land for claiming the deduction as discussed above.
13. In Para nos. 6, 7, 8,9,10 and 11 of the submission the assessee has challenged the issuing of the notice under section 263 of the Act and has relied on various decisions. The assessee's contention in this regard is not found to be tenable. The notice under section 263 of the Act in this case was issued on 12-1-2016. As per Explanation 2 to section 263 which was inserted with effect from 1-6-2015 by the Finance Act, 2015, an order would be deemed to be erroneous if the assessing officer has not made proper verification or has not conducted proper inquiries. The relevant part of the Explanation is reproduced hereunder:
"Explanation 2
For the purpose of this section, it is hereby declared that an order passed by the assessing officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,-
(a) The order is passed without making inquiries or verification which should have been made;
(b) The order is passed allowing any relief without inquiring into the claim;
The proceedings under section 263 of the Act are covered by the Explanation inserted by the Finance Act, 2015. The assessment order in this case was passed without making proper inquiries or verification with regard to allowing the claim of deduction under section 54B of the Act.
14. In a nutshell, the assessing officer had allowed the deduction under section 54B of the Act incorrectly as the investment in the lands were made before the date of transfer of the capital asset. In view of the above discussed facts, the assessment order passed under section 143(3) of the Act on 31-10-2013 for the assessment year 2011-12 is held as erroneous and prejudicial to the interest of the revenue. By virtue of powers vested in me under section 263 of the Income Tax Act, I cancel the order under section 143(3) of the Act dated 31-10-2013 and direct the assessing officer make a fresh assessment as per law.”
5. Aggrieved against the same, the Assessee is in appeal before us raising the following Grounds of Appeal:
“(1) The grounds of appeal mentioned hereunder are without prejudice to one another:
(2) The order under section 263 of the Income Tax Act, 1961 passed by the learned Principal Commissioner-I, Rajkot (hereinafter referred to as the "CIT") is without jurisdiction and bad in law as also on facts.
(3) The learned Commissioner erred on facts as also in law in alleging that the assessing officer (AO) has not verified the short-term capital gain of Rs. 39,37,435 arising on conversion of capital asset into stock in trade and deduction claimed under section 54B of the Act though all the requisite details were furnished at the time of assessment proceedings and verified by the assessing officer.
(4) The learned Commissioner erred on facts as also in law in holding that an agricultural land cannot be converted into stock in trade and the land converted into stock in trade could not have been agricultural.”
6. Heard the learned Departmental Representative and gone through the materials available on record including the orders passed by the Co-ordinate Bench of this Tribunal in ITA No. 145/RJT/2016 & ITA No. 157/RJT/2016. The operative portion of the decisions of the Co-ordinate Benches reads as follows:
ITA No. 145/RJT/2016
7. Heard the learned Departmental Representative and gone through the material available on record. We find that this is the twelveth hearing of the matter before the Tribunal. None appeared on behalf of the assessee. Though adjournment application has again been filed, but no paper book has been filed by the assessee giving material for considering the stand of the assessee. We find that there was no infirmity in the order of the learned Principal Commissioner for invocation of power under section 263 of the Act, vide which, the learned Principal Commissioner set aside assessment order passed under section 143(3) as being erroneous and prejudicial to the interest of the Revenue and further direction to the assessing officer to make a fresh assessment order. Even otherwise also, there is nothing before us to deviate from the view taken by the learned Principal Commissioner on this issue coupled with the fact that there is no assistance rendered by the assessee to adjudicate the issue involved in the ground raised before us without supporting evidences. As a consequence, the grounds raised by the assessee stand rejected, and the order of the learned Principal Commissioner is confirmed.
ITA No. 157/RJT/2016
8. On going through the records of the case, and the order of the Principal Commissioner, we are of the considered view that there is no infirmity in the order passed by the Principal Commissioner in the instant facts. Even if the alternate contention of the assessee were to be accepted, then also, we observe that in the instant facts the assessing officer has not examined the claim of the assessee for exemption under section 54B of the Act from correct perspective. Accordingly, we are of the considered view, that there is no infirmity in the order of the Principal Commissioner in holding that the assessing officer has not carried out proper examination of the facts of the case and has not carried out the necessary verification at the time of passing of the assessment order in respect of the assessee’s claim of deduction under section 54B of the Act and, therefore, the assessment order is erroneous and prejudicial to the interests of the revenue.
9. The assessee herein is also one of the co-owners of the land. Even in this case, the assessee and the legal heir failed to produce any material evidence in support of the grounds raised in the appeal. In the absence of the same, we do not find any infirmity in the order passed by the learned Principal Commissioner, that the assessment order passed by the assessing officer is an erroneous order and prejudicial to the interest of Revenue, which is correctly revised by invoking power under section 263 of the Act. Thus the grounds raised by the assessee are devoid of merits and the same are hereby rejected.
10. In the result, the appeal filed by the Assessee is dismissed.