TaxTMI 
TaxTMI 
2016 (11) TMI 324
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....S. Divatia, Authorised Representatives (AR) on behalf of the Assessee and by Shri G.M. Doss, Departmental Representative (CIT-DR) on behalf of the Revenue. First we shall take up appeal of M/s Vithalnagar Cooperative Housing Society Ltd. in ITA No.3656/Mum/2014 for A.Y. 1995-96: The assessee has filed its appeal on following grounds: "1.The Learned Commissioner of Income Tax erred in exercising jurisdiction and passing Order u/s 263 of the Act, in respect of the Order u/s. 143(3) r.w.s.147, which was had in law as notice u/s. 147 was not served upon the assessee. 2. The learned Commissioner of Income Tax erred in exercising jurisdiction under the provisions of Section 263 of the Act. 3. The Learned Commissioner of Income Tax erred in holding that the provisions of Section 50C were not applied by the Assessing Officer. 4. The Learned Commissioner of Income Tax, Mumbai erred in exercising jurisdiction regarding the applicability of Section 50C, when the issue of computation of Capital Gains in respect of the same transaction had been adjudicated upon by the CIT (A)-32, Mumbai. 5. The assessee craves leave to add to or amend the grounds of appeal and file a detail....
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....assed u/s 147/143(3) as well as assessment records of the assessee. "On verification of the records, it is observed that Stamp Duty was paid on a valuation of Rs. 11,88,43,200/- as determined by the Stamp Duty Authorities. As per the provisions of 50C, this value should have been considered as the sale value. Thus the amount taxable as 'Capital Gains' in the hand of the assessee would stand at Rs. 1,18,84,320/- as against the amount of Rs. 7,41,789/- as determined by the Assessing Officer". 3.3. The assessee contested the show cause notice of Ld. CIT and filed detailed submissions challenging the validity of aforesaid show cause notice. The relevant part of submissions filed by the assessee in response to show cause notice, vide its letter dated 02.01.2014 is reproduced hereunder: "3. It is submitted that the valuation of Rs. 11,88,43,200/- as determined by the stamp duty authorities cannot be the basis for determining the sale consideration as Rs. 1,18,84,320/-for said computation of capital gain for the following reasons: a) This plot was under acquisi t ion by the Government of Maharashtra as the same was reserved for Recreation Ground, Garden, Police Quarter....
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....full value of consideration received or accruing as a result of such transfer for computing capital gain" (emphasis supplied) It is humbly submitted that where a Reserved Plot is sold pursuant to possession being taken by a Government Authority and / or where it can be sued only for a public purpose like providing housing for Government employees (in the instant case for Pol ice Quarters) there cannot be any leakage of revenue. Under the said circumstances and going by the mischief sought to be addressed, the provision of Section 50C of the Act cannot be made applicable on the instant case. d) The Indenture dated 14th May 2003 clearly specifies that the said plot was sold on "as is where basis is". In the alternative and without prejudice it is submitted that the value adopted or assessed by the Stamp Valuation Authority under sub Section (2) exceeds the Fair Market Value of the plot on the date of transfer a plot of land subject to reservation without encumbrances. Further, in the instant case, the encumbrance was use of plot for Police Quarters. Hence, the said plot of land had no value for anybody other than the employees of the police department and was subject to necessa....
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.... 2. The Nutan Laxmi Co-operative Housing Society Ltd. 3655/Mum/2014 3. The Navyug Co-operative Housing Society Ltd. 3655/Mum/2014 4. Vallabhnaghar Co-operative Housing Society Ltd. 3659/Mum/2014 5. The Suvarnagar Co-operative Housing Society Ltd. 3658/Mum/2014 3.6. Similarly, detailed arguments were made by Shri S. Divatia on behalf of M/s Jai Hind Cooperative Housing Society Ltd. (ITA No.2363/Mum/2014). On the other hand, arguments were made by Mr. G.M. Doss (CIT-DR) on behalf of the Revenue. The arguments made by the counsels appearing on behalf of the appellants can be summarized as under: (i). It has been firstly argued that in this case, the impugned assessment order had merged into the order of the Ld. CIT(A) and therefore, applying the Doctrine of Merger, Ld. CIT had no jurisdiction for invoking provisions of section 263. It could not have held the assessment order to be erroneous and prejudicial to the interest of revenue and therefore, it could not have been set aside. It has been submitted that issue of section 50C was involved before the CIT(A) in the appellate proceedings of the Association i.e. M/s Juhu Vile Parle Development Co-operative Housing As....
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....der dated 27.11.2015 (ITA No.194/hyd/2014 and others) and Smt. D. Anitha v. ITO 55 taxmann.com 538(Hyd). (iii). It has been also argued by the Ld. Counsels on behalf of the assessee that in this case Ld. CIT has passed the impugned revision order without any independent application of mind. It was submitted that the revision order has been passed by the Ld. CIT without giving any reasoning and it is very brief and cryptic and therefore it is illegal in the eyes of law. In nutshell, Ld. Counsels vehemently submitted that order passed u/s 263 is not valid in the eyes of law and therefore it should be quashed. 3.7. Per contra, Ld. CIT-DR, appearing on behalf of the Revenue, vehemently assailed all the arguments of the counsels of the assessee and his arguments are briefed hereunder: (i) With regard to the argument of the assessee on the merger of the original assessment order with the order of the Commissioner of Income Tax-(Appeals) by applying 'Doctrine of Merger', it has been submitted by the Ld. CIT-DR that the said Doctrine is not applicable here upon the given facts of this case. It was submitted that during the course of assessment proceedings, no issue with regard to app....
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....t matter of appeal. It was thus argued by him that since aspect of application or examination of section 50C had never been subject matter of assessment order nor of appeal before the Commissioner of Income Tax-(Appeals) and therefore, to this extent, the impugned assessment order was open for revision by Ld. CIT and has been rightly done so. (ii) With regard to the second argument of the Ld. Counsels that section 50C was not applicable in this case as transfer had already taken place, Ld. CIT-DR drew our attention upon the assessment order to show that the position of taxability of capital gain on transfer of plot of land arising in the impugned year has been accepted by the assessee. Thus, the only dispute was with regard to determination of cost of acquisition, and therefore, assessee is not allowed now to take U-turn at this stage. Without prejudice to these submissions, Ld. CIT-DR drew our attention on the Memorandum of Understanding dated the 25.01.2000 and submitted that it was merely an Agreement to Sale which did not give rise to any transfer of the impugned property. It was submitted that this agreement was entered into for sale of impugned plot of land, subject to ful....
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.... issued by Ld CIT. In response of the same, assessee had submitted its reply which was duly considered by Ld. CIT before reaching on the conclusion that assessment order passed by the AO was erroneous and prejudicial to the interest of revenue on the ground that mandatory provisions of section 50C were omitted to be applied by the AO while computing taxable amount of capital gains in the hands of the assessee. It was lastly submitted by the Ld. CIT-DR that Ld. CIT has merely directed the AO to examine the provisions of section 50C and thus objections on determination of correct sale value raised by the assessee before the tribunal can very well we raised while these provisions are applied by AO/CIT(A). Thus, in principle, the provisions of section 50C must be applied and the issues regarding the value to be adopted and other similar objections can very well be adjudicated while applying the provisions of section 50C. But, in absence of any examination of application of section 50C, the assessment order was erroneous and prejudicial to the interest of revenue and therefore, revision order passed by the Ld. CIT was perfectly valid in the eyes of law and facts of this case. 3.8. In....
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....e ownership rights of the 14 society members in its books of account. As the assessee is the owne r of the said plo t and shar e of the asse sse e amount ing to Rs. 5,93,424/- is credi ted to assessees account, the same has escaped assessment for the year under consideration. Therefore, I have reasons to believe that the an amount of Rs. 5,93,424/- has escaped assessment." 3.10. During the course of assessment proceedings, the assessee submitted following reply (taking a sample reply in the case of M/s. Vithalnagar Cooperative Housing Society Ltd.): "The assessment in the aforesaid case is proposed to be made pursuant to the notice issued under Section 148 dated 28.03.2011. the aforesaid notice has been issued pursuant to the decisions of the Hon'ble ITAT Bench "J", Mumbai in ITA No.3232/Mum/2009 for A. Y. 2004-05 in the case of ACIT Cir.21(1) vs. Juhu Vile Parle Development Housing Association Ltd. the issue in the above matter was pertaining to the assessment of the capital gains on sale of the common plot, which is not the subject matter of assessment in the hands of the society, to the extent of its share in the said pot. The area of the land comprising the aggregate ....
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....il." 3.12. Thereafter, the said Commissioner of Income Tax- (Appeals) considered the submissions of the assessee with respect to determining appropriate amount of cost and accepted the submissions of the assessee and deleted the addition made by the AO, vide his appeal order 27.11.2012, with following observations: "3.3. I have considered the arguments of Ld. AR and perused the assessment order. The indenture dated 26.4. 1960 by which all the 14 societies were allotted plot by Bombay Housing Board, on payment of certain amounts by all the 14 societies was available before the AO. It was as per the said indenture dated 26/4/1960 that the ownership of the plot to all 14 societies was conferred. The said indenture is a registered agreement which is a valid evidence indicating the ownership by 14 societies. Even in the conveyance deed dated 14/5/2003, there is mention of the indenture dated 26/4/1960 by which the 14 societies had become the owner of the said plot. Hence the claim of the AO that there was no evidence of payment of cost to acquire the ownership is misplaced. On page 3 of the said indenture dated 26/4/1960, it is clearly mentioned that the said plot was allotted to ....
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....f the deduction of indexed cost as per registered valuer's report dated 26/7/2006 is allowed for the share of appellant, it will result in Long term capital loss. Accordingly the addition of LTCG of Rs. 7,41,789 made by AO is directed to be deleted. In the result appeal is allowed." 3.13. Thus, perusal of the 'Reasons' recorded by the AO, reply of the assessee filed in the course of assessment proceedings, assessment order passed by the AO, grounds of appeal filed by the assessee before the Commissioner of Income Tax- (Appeals), submissions made before the CIT(A) as well as appeal order passed by the Ld. CIT(A) reveal that issue with regard to section 50C had never been subject matter of discussion. It has been fairly admitted by both the parties before us that no query whatsoever with regard to application of section 50C was ever raised by the AO in any manner and during the course of assessment proceedings, issue with regard to application of section 50C never came up for discussion. Similarly, during the course of appellate proceedings before the CIT(A) also, no inquiry was made with respect to application or examination of provisions of section 50C. The limited aspect in....
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....fore, Doctrine of Merger applied upon the assessment order. Under these peculiar facts of the said case, Hon'ble High Court was pleased to hold that assessment order on this issue was not open for revision by the CIT since the CIT(A) had examined and adjudicated the issue of deduction u/s 80I. Similarly, in the other judgment of Sonal Garments, (supra) the issue involved was that of computation of deduction u/s 80HHC and it was held by the Hon'ble Bench that since this issue was subject matter of consideration before the CIT(A), therefore, it could not be subject matter of revision u/s 263. Similar facts were involved in the case of Merico Industries Ltd. (supra) where the subject matter under consideration was about allowbility of deduction u/s 80IB. Thus, these judgments have different factual situations. Reliance was also placed by the Ld. Counsel on the decision of Hyderabad Bench in the case of Ms. Pushpa Devi Tibrewala. We have gone through this judgment. It is noted that the issue under consideration in the said case was with regard to determination of nature of capital gains. It was observed by the bench while analyzing the facts of the said case that the whole issue of cap....
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.... shall be deemed to always have extended to such matters as had not been considered and decided in an appeal. This judgment was given by the Bench comprising of three Hon'ble Judges had come up again for consideration before the Hon'ble Supreme Court in the case of CIT v. Jaykumar B. Patil wherein the Revenue had sought the reference of following two questions before Hon'ble Supreme Court: "(1) Whether, on the facts and in the circumstances of the case the Tribunal was right in law, in holding that the Commissioner of Income Tax had no jurisdiction and powers to initiate proceedings under section 263 of the Income tax Act 1961, in respect of issues not touched by the Commissioner of Income Tax (Appeals) in this appellate order? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that not only the issues dealt with in the assessment order but also the order issues were merged in the Commissioner of Income Tax (Appeal)'s order ignoring the provisions contained in clause (c) of Explanation to sub-section (1) of section 263 of the Income Tax Act, 1961?" 3.18. Hon'ble Supreme Court after considering these two questions he....
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.... assessee against which the assessee filed an appeal before the CIT(A). Subsequently, notice u/s 263 was issued by the Ld. CIT questioning the very eligibility of deduction u/s 10B in the impugned assessment order. The assessee filed writ against the notice u/s 263 before the Hon'ble High Court on the ground that in view of 'Doctrine of Merger', Ld. CIT was ousted from its jurisdiction to invoke provisions of section 263 with regard to claim of deduction u/s 10B. On the other hand, the Revenue pleaded that in the given facts 'Doctrine of Merger' did not apply because the issue of very applicability/eligibility of deduction u/s 10B was not examined by the AO and was therefore not subject matter of appeal before the Ld. CIT(A). Hon'ble High Court after analyzing aforesaid two judgments of Hon'ble Supreme Court observed as under: "29. In EIMCO K.C.P. Ltd. vs. C.I.T. [(2000) 242 ITR 659 (SC)], a question arose whether Commissioner can exercise power under Section 263 of Act, 1961, while agreeing with the order of assessment against which appeal is pending before Commissioner (A), involving the point upon which notice under Section 263 is issued, the Court up held the notice issued u....
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....rned, the same was not a subject matter of the appeal before the Commissioner of Income-tax (Appeals). Factually, in this case, the doctrine of merger could not have been applied by the Tribunal to that part of the order which was not a subject matter of appeal as indicated, so as to exclude revisional jurisdiction of the Commissioner of Income-tax under section 263 of the Act." 33. On behalf of petitioner, reliance has been placed on a Division Bench decision of Karnataka High Court in CIT Vs. Tata Elxsi Ltd. [2012 (247) CTR 334], but having gone through the aforesaid decision, we find no application thereof to the issues which which we are concerned in this writ petition. The aforesaid decision therefore renders no help to petitioner at all. 34. In the circumstances, questions no. 1 and 2, are answered against petitioner. The question no. 3 is returned in favour of Revenue, holding that notice issued by Commissioner under Section 263 of Act, 1961, impugned in this writ petition is perfectly valid and in accordance to law. 35. In the result writ petition lacks merit Dismissed. 3.20. From the above analysis it is noted that Hon'ble Allahabad High Court took note of judg....
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.... the correct amount of cost of acquisition, was subject matter of appeal before the CIT(A). The AO did not touch at all the applicability of mandatory provisions of section 50C nor was so done by the CIT(A). Thus, mandatory provisions of section 50C were not subject matter of appeal before the CIT(A). It is noted by us that provisions of section 50C are deeming provisions and stand on an independent basis de-horse the aspect of determination of cost of acquisition, also because determination of sales consideration, in accordance with the provisions of the statute, is a distinct exercise. Under these circumstances, it would be too far to stretch the argument based upon an imagination that since cost of acquisition has been determined by the AO, and then it should be presumed that AO has determined the sales consideration also in accordance with law. No such exercise was shown to have been done by the AO. The records also did not indicate any such exercise having been done by the AO. Under these circumstances, there could not have been any appeal on this aspect before the CIT(A). The CIT(A) had also not touched the issue of application of section 50C. In our opinion, according to the....
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....PD Association was not owner of the plot and therefore, there was no question of assessing the capital gain in the hands of JVPD Association. Further, once it was held that JVPD Association was not owner of the plot, then whatever observations were given by the CIT(A) in the case of JVPD Association, that would have no bearing in the hands of present assessee who is admittedly legal owner of the impugned plot of land. Even otherwise, the order passed by the CIT(A) in the case of JVPD Association is not part of the proceedings before the AO who had passed the impugned assessment order. Further, there is nothing on record to show that the Assessing Officer while passing the impugned assessment order had applied his mind and took conscious decision for not applying the provisions of section 50C and that too by relying upon the order of the CIT(A) of JVPD Association. Therefore, under these circumstances, the jurisdiction of CIT in exercising its power u/s 263 is not excluded from examining the applicability of provisions of section 50C in the hands of present assessee. 3.23. Now, we shall deal with other arguments of the assessee with regard to its objections about applicability of....
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....e observations of the Tribunal contained in its order dated 4th November, 2010 in ITA No.3132/M/2009 is reproduced as under: "On appeal, the CIT(A) noticed that conveyance deed was executed between the proposed society of the Police Officers and the 14 society members on 14.05.2003 for a total consideration of Rs. 77,14,920/- and that the 14 members societies agreed to deposit the sale consideration with the assessee in proportion to their ownership in the plot. The amount was so deposited with the assessee society which after deducting the expenses incurred on development and maintenance of the plot credited the balance of Rs. 74,17,895/- in the ratio of the ownership rights to the accounts of the 14 societies members in its books of account. The CIT(A) further found that the memorandum of understanding had been entered into between the 14 members societies and the proposed Vasundhara Co-operative Housing Society and finally conveyance deed was executed on 14.05.2003. On these facts, he held that the Assessing Officer was right in considering the net sale proceeds of Rs. 74,17,895/- for the purpose of working out the capital gains, but held that if the 1.4.1981 value was adopte....
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....ty Ltd. formed by the Maharashtra Cadre of IPS. Earlier to this conveyance, there was a memorandum of understanding entered into between these parties on 26.1.2000, a copy of which is at pages 75 to 104 of the paper book. A perusal of the memorandum of understanding shows that it was executed between the 14 co-operative housing societies, the assessee and the promoters of Vasundhara Cooperative Housing Society Ltd. Clause (iii) of the preamble states that the society was formed by the 14 societies and registered under the Maharashtra Co-operative Societies Act to take possession of the property from the managing committees of the 14 cooperative housing societies and to hold and utilise the property for providing suitable utilities and amenities such as play ground, schools, colleges etc. and to do all such acts and things as are of common interest to the 14 societies. The memorandum of understanding does not show the assessee as a owner of the property. Capital gains can arise to a person only if he owns the plot and transfers the same for consideration. The assessee not being the owner of the plot but merely holding possession thereof on behalf of the 14 co-operative societies and....
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....er these circumstances, the only dispute that could have been raised was with regard to the various aspects related to adoption of correct amount of sales consideration, cost of acquisition of plot and determining the correct amount of capital gain to be taxed in the hands of the assessee. 3.26. It is noted that provisions of section 50C are deeming provisions and mandatory in nature. The application of such provisions is made by operation of law. Exception to these provisions can be made only in accordance with law, as provided in section 50C only. It is noted that AO did not raise any query with regard to application of section 50C, as has been fairly admitted by both the parties during the course of hearing. Under these circumstances, the AO committed a mistake of law and thus, it rendered the order of the AO as erroneous and since non application of section 50C would also amount to under assessment of income and tax payable thereon, therefore, it was prejudicial to the interest of revenue. Thus, in the given facts of the case, it can be undoubtedly said that the impugned assessment order was erroneous and prejudicial to the interest of revenue. 3.27. Further, various obje....