2022 (10) TMI 72 - AT - Income Tax

Appeal partially allowed on indexation issue; directions given on valuation, Section 54G claim, and unrecorded cash payment.

The Tribunal partly allowed the appeal, setting aside the Pr. CIT's order regarding the indexation of the cost of acquisition. It upheld the observations ... Revision u/s 263 by CIT - entitlement for indexation of the ‘cost of acquisition’ qua the property in question, for the reason that the property transferred was a building, i.e a depreciable asset, on which depreciation @5% of WDV had been claimed by the assessee - HELD THAT:- On a perusal of the assessment order, we find that there is nothing discernible therefrom which would reveal that the cost of acquisition of land as on 01.04.1981 that was adopted by the assessee as per “Explanation (b)(i)” to Sec. 55(2) pf the Act was verified by the AO before summarily accepting the same as such. As per “Explanation 2(a)” of Sec. 263(1), if the order is passed by the AO without making inquiries or verification which should have been made by him, then, the same is to be deemed to be erroneous in so far it is prejudicial to the interests of the revenue. As the AO while passing the order under Sec. 143(3), dated 24.12.2018 had failed to make any inquiries or verification as regards the F.M.V of land in question on 01.04.1981 that was taken by the assessee therefore, the order so passed by him as per “Explanation 2(a)” of Sec. 263(1) of the Act is to be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue. We, thus, in terms of our aforesaid observations uphold the order passed by the Pr. CIT u/s.263 of the Act qua the aforesaid issue. Whether Pr. CIT had erred in setting aside the order passed by the AO u/s. 143(3), dated 24.12.2018, for the reason that he had wrongly allowed the assessees’s claim of deduction u/s.54G? - As the assessee had failed to place on record any material which would irrefutably substantiate its claim that the capital gain on the transfer of land in question, i.e, land at Wani had arisen on transfer of land (that was used for the purposes of its business of an industrial undertaking situate in an urban area) in the course of, or in consequence of, the shifting of the said industrial undertaking to a non-urban area, therefore, the Pr. CIT had rightly observed that the summarily allowing of the assessee’s claim for deduction under Sec. 54G by the AO had rendered the order passed by him under Sec. 143(3), dated 24.12.2018 as erroneous in so far it is prejudicial to the interest of the revenue under Sec. 263 of the Act. Although we principally concur with the aforesaid observation of the Pr. CIT, but are of the considered view that the issue in hand, i.e, entitlement of the assessee towards claim of deduction u/s 54G in the absence of the requisite details requires to be revisited by the AO for de novo examination. We, thus, in terms of our aforesaid observations modify the order passed by the Pr. CIT on the aforesaid issue under consideration and, direct the AO to re-examine the assessee’s claim for deduction u/s 54G after calling for the necessary details and affording a reasonable opportunity of being heard to him. Accordingly, the order passed by the Pr. CIT as regards the aforesaid issue is modified in terms of our aforesaid observations. We are of the considered view, that the summarily acceptance of the sale consideration as was shown by the assessee in its return of income, and not taking cognizance on the aforesaid impounded document which referred to a receipt of an amount from the aforesaid purchaser, viz. Shri. Srikant Swaikar had rendered the order passed by the AO u/s. 143(3), dated 24.12.2018 as erroneous in so far as it is prejudicial to the interest of the revenue u/s.263 - We, thus, in terms of our aforesaid observations, finding no infirmity in the view taken by the CIT who had rightly observed that the failure on the part of the Assessing Officer to consider the aforesaid amount as was discernible from the impugned document impounded notepad had rendered his order as erroneous in so far as it is prejudicial to the interests of the revenue u/s. 263 uphold the same. ORDER:- We herein, viz. (i). set-aside the order of the Pr. CIT u/s. 263, to the extent he had concluded that the assessee had wrongly sought indexation of cost of acquisition; (ii). uphold the order of the Pr. CIT, on the ground, that the summarily acceptance by the AO of the F.M.V of land as on 01.04.1981 at Rs. 36,65,327/-, i.e, as adopted by the assessee for computing the LTCG on transfer of the same had rendered the order passed by him u/s 143(3), dated 24.12.2018 as erroneous in so far as it was prejudicial to the interests of the revenue u/s 263; (iii). though principally concur with the Pr. CIT that as the assessee had failed to establish its entitlement for claim of deduction u/s 54G of the Act, therefore, the summarily allowing of its claim of deduction by the AO had rendered the order passed by him u/s 143(3), dated 24.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue u/s 263 of the Act, but at the same time have modified the order of the Pr. CIT by directing the AO to re-examine the assessee’s claim for deduction u/s 54G, i.e, after calling for the requisite details and affording a reasonable opportunity of being heard to the assessee; and (iv). uphold the order of the Pr. CIT, on the ground, that the failure on the part of the AO in not considering the contents of an impounded document, i.e, a notepad which referred to receipt of ‘on money’ of Rs.11 lacs by the assessee on sale of flat from the purchaser, viz. Shri Srikant Swaikar had rendered the order passed by the AO u/s 143(3), dated 24.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue u/s 263 of the Act. Issues Involved:1. Entitlement to indexation of the cost of acquisition.2. Failure to refer the valuation of the land to the valuation officer.3. Claim for deduction under Section 54G of the Income-tax Act.4. Consideration of unrecorded cash payment in the sale of flats.Detailed Analysis:1. Entitlement to Indexation of the Cost of Acquisition:The Tribunal examined whether the assessee was entitled to indexation of the cost of acquisition of the property sold. The Pr. CIT had concluded that the property was a depreciable asset (a building) and hence not eligible for indexation. However, the Tribunal found that the assessee had sold land, not a building, and thus, the land, being a non-depreciable asset, was eligible for indexation. The Tribunal set aside the Pr. CIT's order on this issue, restoring the Assessing Officer's (AO) original order.2. Failure to Refer the Valuation of the Land to the Valuation Officer:The Pr. CIT observed that the AO had accepted the cost of acquisition of the land as on 01.04.1981 without referring it to the valuation officer, which rendered the order erroneous and prejudicial to the interest of the revenue. The Tribunal upheld this observation, citing 'Explanation 2(a)' of Sec. 263(1), which deems an order erroneous if it is passed without necessary inquiries or verification.3. Claim for Deduction Under Section 54G:The assessee claimed a deduction under Section 54G for shifting its industrial undertaking from an urban area to a non-urban area. The Pr. CIT contended that there was no shifting of an industrial undertaking, merely a sale of a closed factory and purchase of another factory, thus disallowing the deduction. The Tribunal found that the assessee failed to provide sufficient evidence of shifting the industrial undertaking. The Tribunal concurred with the Pr. CIT's observation but modified the order, directing the AO to re-examine the claim for deduction under Section 54G after obtaining necessary details and providing the assessee a reasonable opportunity to be heard.4. Consideration of Unrecorded Cash Payment in the Sale of Flats:The Pr. CIT noted that the AO had failed to consider an impounded document indicating an unrecorded cash payment of Rs. 11 lacs received by the assessee on the sale of flats. The Tribunal upheld the Pr. CIT's observation, agreeing that the AO's failure to consider this document rendered the order erroneous and prejudicial to the revenue's interest.Conclusion:The Tribunal partly allowed the appeal, setting aside the Pr. CIT's order regarding the indexation of the cost of acquisition and upholding the observations on the failure to refer the valuation of the land, the claim under Section 54G, and the unrecorded cash payment. The AO was directed to re-examine the claim under Section 54G with requisite details and a reasonable opportunity for the assessee to be heard.