TaxTMI 
TaxTMI 
2021 (2) TMI 29
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....s not warranted in view of the fact that at the Assessment stage the A.O. had made detailed scrutiny and made thorough enquiry after obtaining all the relevant documents from the Assessee and applied his mind before accepting the payment of free hold charges as cost of improvement of the lease hold land and hence cancellation of the Assessment order dated 24.06.2016 by CIT is not as per law. 2. Notwithstanding the above, Because the learned CIT has failed to appreciate the fact that conversion of lease hold property into Free hold by paying the conversion charges has immensely increased the value of the property sold and has fetched much higher price than it would have fetched as a lease hold property and therefore it was rightly considered as cost of improvement by the A.O. 3. Because the learned CIT failed to appreciate the fact that the payment of free hold conversion charges was done as per the Registered Agreement to sell dt. 15.7.2011 and not in terms of Agreement of sale dt. 15.7.2011 as quoted by CIT in his notice under section 263 and further that the source of fund which in this case was the advance received from the byer, did not change the fact that it....
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....arket value. Thus, learned Pr. CIT was prima-facie of the view that reassessment order dated 24.06.2016 passed by AO u/s 143(3) read with Section 147 of the 1961 Act was erroneous so far as is prejudicial to the interest of Revenue, which led to issuance of show cause notice u/s 263 of the 1961 Act by ld. Pr. CIT which was admittedly served on assessee , on 08.11.2017. The assessee objected to issuance of show cause notice u/s 263 of the 1961 Act by learned Pr. CIT during course of revisionary proceedings. It was argued by assessee during revisionary proceedings conducted u/s 263 of the 1961 Act before learned Pr. CIT that the assessee has duly complied with all the queries of AO during re-assessment proceedings and it is only after detailed enquiry/scrutiny and after due application of mind that AO allowed claim of the assessee towards cost of improvement of property by way of conversion charges from leasehold to freehold of the land . The assessee also contended before ld. Pr. CIT that AO also sought directions from Addl. CIT on certain issues u/s 144A of the 1961 Act while undertaking assessment proceedings for ay: 2013-14, and thereafter re-assessment proceedings were initiated....
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....s to whether expenditure of Rs. 41,57,076/- claimed to be conversion charge of land from leasehold to freehold is the expenditure of the assessee comes within the concept of cost of improvement u/s 48 of the Income Tax Act or not. Apparently, the Assessing Officer has not considered this expenditure with reference to various facts available on record nor has properly applied provision of law u/s 48. The background fact of the issue under consideration is that there was a joint ownership property namely House No. 9 and 9/2 new no. 10 and 41 respectively at Minto Road, Allahabad including 3 out houses bearing Nos. 42/9/1, 39/9/3 & 38/9/4 which are situated at plot no. 6 Rajapur, Bandhwa, Allahabad. The total area of land was of 2593.58 Sq. Meter. Shri Narain Das Majumdar was the lessee of this property vide lease deed dated 18.10.1937 executed by the then Collector of Allahabad. Shri Narain Das Majumdar died on 31.10.1983 hence legal heirs became the owner/inherent lessee of the property. Subsequently these 4 joint owners/lessee have entered into agreement to sell with M/s Amity Infra Developers Pvt. Ltd. on 15.07.2011 for the sale consideration and Rs. 4,53,62,000/- of these propert....
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....permits certain deductions from the sale consideration received by the assessee. In this case, facts are very peculiar which were not properly appreciated by the Assessing Officer. 3.3 The above finding and observation based on peculiar fact is unearthed while verifying the records show that while considering the issue, Assessing Officer has not considered as to how Rs. 4,53,62,000/- is full sale consideration of the property under reference whereas the sale deed executed subsequently on 25.04.2012, reveals the fact that fair market value of the property was of Rs. 6,02,01,000/- and stamp duty payable was of Rs. 42,14,100/-. Thus, it is very evident that fair market value of the property was not taken into consideration by the Assessing Officer. This fact noticed from the records fortify the above observation and finding. Thus it becomes very obvious that an amount of Rs. 41,57,076/- is not at all the expenditure of the assessee claimed to be cost of acquisition or improvement incurred out of advance of sale consideration for getting converted the leased land to freehold land. Thus it is not simple case that leasehold land has been converted into freehold land and improvem....
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....s registered on 25.04.2012. Thus it is very evident that when sale agreement was made on 15.07.2011 no improvement was made nor was any conversion from leasehold to freehold. Thus such expenditure under reference is not at all to be regarded as cost of improvement. 3.6 The Ld. AR has further placed reliance over various case laws, as mentioned in para 3 herein above. The facts of the case in hand are altogether different than the cases relied upon by the Ld. AR. The proposition given by Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs CIT (Supra 2000) 243 ITR 83 (SC) goes against the assessee. If incorrect assumption of facts or incorrect application of law is there, it will satisfy the exercise of power u/s 263 as because such assessment order is erroneous and prejudicial order to the interest of Revenue. Here it is not the case where Assessing Officer had chosen one of the views over such issue, but is the case where Assessing Officer has not unearthed the fact that such conversion charge was not incurred before selling the property through agreement on 15.07.2011, and further such expenses were incurred from the advances/sale proceeds and, that sa....
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....mption of facts or assessment has been made on the basis of insufficient material or wrong application of law, CIT can exercise revisional jurisdiction u/s 263. Further, in the case of Gee Vee Enterprises Vs. Addl. CIT, (1975) 99 ITR 0375, it is held that the ITO being not only an ad judicature but also an investigator, if there is lack of a logical enquiry, the assessment order passed should be treated as erroneous order u/s 263. 3.8 In view of above discussion and on facts and circumstances, it is found that Assessing Officer has not made proper investigation from Amity Infra Developers Pvt. Ltd. as to what is the cost of acquisition shown by it in its books of accounts. Further, it is found that there is mis-application, rather improper application of law of section 48. Further, it is found that after agreement of sale dated 15.07.2011 leasehold property has been converted on behalf of the purchaser from the advance given by it, hence it cannot be presumed as cost of improvement incurred by the assessee selling property. Thus, obviously the assessment order passed by the Assessing Officer u/s 143 r.w.s. 147 dated 24.06.2016 is erroneous in so far as prejudicial to the i....
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....el for the assessee that said agreement to sale dated 15.07.2011 and sale deed dated 24.04.2012 are placed in paper book filed with tribunal , at page 48-88 and Annexure -1( of 148 pages). The learned counsel for assessee also submitted that copy of deed of free holding dated 13.03.2012 is also filed in paper book filed with tribunal at page 89-132.It was submitted by ld. Counsel for assessee that freehold conversion charges are improvement of property for better title of property and was rightly claimed as deductions towards cost of improvement of the property while computing long term capital gains chargeable to tax. 5.2 The Ld. CIT-DR, on the other hand, submitted that ld. Pr. CIT has only set aside reassessment order u/s 147 read with Section 143(3), dated 24.06.2016 passed by AO as proper enquiries were not made by AO while passing reassessment order dated 24.06.2016 , u/s 143(3) read with Section 147 of the 1961 Act. It was submitted by ld. CIT-DR that assessee has claimed cost of conversion of land from leasehold to freehold and indexation by applying cost inflation index towards such freehold charges was also claimed which is not correct. Our attention was drawn to reass....
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....ars, so that total period of lease was 90 years. Shri Narain Das Majumdar was also the owner of the house which stood on that land. Shri Narain Das Majumdar died on 31.10.1983 , hence legal heirs became the owner/inherent lessee of the said property. The assessee is one of the four surviving legal heirs of said Shri Narain Das Majumdar, who has now sold his share in the aforesaid property viz. 25%. There is no dispute between rival parties as to share of the assessee being 25% in the aforesaid property. 6.3 The aforesaid surviving four aforesaid legal heirs ( including assessee) of Shri Narain Das Majumdar have entered into an registered agreement to sell with M/s Amity Infra Developers Private Limited on 15.07.2011 , for a total consideration of Rs. 4,53,62,000/- , which sale consideration amount includes freehold premium, freehold conversion stamp duty amounting to Rs. 1,43,62,000/- . Thus, as per agreement the consideration value included freehold charges. The relevant clauses as is recorded in agreement to sell dated 15.07.2011, are reproduced hereunder: "AND WHEREAS the Second Party aforesaid wants to purchase the aforesaid leasehold property including House No. 9 ....
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.... of House No.9 and 9/2 (New Nos.40 and 41 respectively) Minto Road, Allahabad, alongwith Nazul Plot No. 6, Rajapur Bandhawa, Allahabad and the Total Area of the aforesaid Nazul Land as stated above, is 3102 Sq. Yards = 2593.58 Sq. Metres, and buildings standing thereon alongwith all rights title and interest, to the Second Party for a sale consideration of Rs. 4,53,62,000/- (Rupee's Four Crores Fifty Three Lakhs and Sixty Two thousand Only) and the Second Party has paid a sum of Rs. 2,37,29,000/- (Rupees Two Crores Thirty Seven Lakhs and Twenty Nine Thousand only) as advance through the following cheques/banker' s cheque (1) Banker's Cheque No. 000928 dated 15 July 2011 Drawn on INS Vyaya Bank, Civil lines branch, Allahabad, for an amount of Rs. 50,00,000/- (Rupees Fifty lacs only ), (2) Banker's Cheque No 000929 dated 15 July 2011 Drawn on ING Vysya Bank, Civil lines branch, Allahabad, for an amount of Rs. 50,00,000/- (Rupees Fifty lacs only) , (3) Banker's Cheque No.000930 dated 15 July 2011 Drawn on ING Vysya Bank, Civil lines branch, Allahabad, for an amount of Rs. 50,00,000 /- (Rupees Fifty lacs only) (4) Banker's Cheque No 000931 dated 15 July 2011 Dra....
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....s passed by U.P. Government in connection with Nazul land , in the freehold deed executed by His Excellency Governor of State of U.P. in favour of sellers which are applicable to the aforesaid Nazul land. 6.6 The agreement to sell further provided that execution and registration of the transfer/sale deed is possible in terms of the lease deed or could be transferred after getting it converted into freehold. The relevant clause in agreement to sell are reproduced hereunder: "2. As mentioned above, the execution and registration of the transfer / sale deed is possible in terms of the lease deed or could be transferred after getting it converted into freehold land; 3. That the First Party shall file an application for conversion of the aforesaid Nazul Plot No.6 Rajapur Bandhawa, Allahabad to freehold measuring 3102 Sq. yards = 2593.58 Sq. Meters along with the application money (part payment of frehold premium) out of the money advanced as provided herein. 4. The liability for payment of the application money and further conversion charges / premium of conversion from nazul to freehold land of the aforesaid property, including all charges,expenses, stamp ....
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....getting the leased 'Nazul land' converted into freehold in their names, for which the buyers have agreed to fund the same to sellers as and when demand is raised by State Government but it is clearly provided that it was the obligation of the sellers to get the said leased 'Nazul Land' converted into freehold within the currency of the agreement to sell dated 15.07.2011 , so that the land can be transferred to the buyers. Thus, there was clearly an impediment in the sale of the aforesaid leased 'Nazul land', which impediment to selling of the land can be removed by getting the said leased 'Nazul land' converted into freehold land, before being transferred to the buyers. Further, the conversion of leased Nazul land into freehold property shall certainly improve the title of the owners which shall become perfect on being converted into freehold property. The property consists of bundle of right and getting the said leased 'Nazul land' converted into freehold will certainly improve the title and marketability of the said land. Moreover, since it was a leased Nazul land , the ownership vested with Government till it is converted into freehold land and in that eventuality , the complete....
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.... Second Party shall be fully responsible for conversion of the aforesaid Nazul land to freehold and shall get the necessary paperwork in this regard completed and filed before the concerned authorities of the Government and pursue the matter for expeditious conversion of the land to freehold so that the land becomes freehold within a period of thirty five (35) calendar months from the date of this deed of agreement to sell. The First Party shall extend full cooperation and sign every lawful paper required for the said purpose." Thus, what transpires from this clause is that the buyers have taken the onus for getting the said leased 'Nazul land' converted into freehold including follow up with Government authorities , for which the sellers have to extend full co-operation so that it can be expeditiously converted into freehold , including signing of all documents etc. required in connection therewith. The funding was done by buyers for said conversion of land to freehold , such as payment of stamp duty, conversion charges etc. , but the same was paid out of the total sale consideration agreed upon in the agreement to sell , dated 15.07.2011 viz. Rs. 4,53,62,000/-, as is emerging ....
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....e above clauses that period of validity of agreement to sell is thirty six months and immediately thereafter, the amount paid under agreement to sell shall be forfeited by sellers . Under this eventuality Section 51 of the 1961 Act as was applicable for impugned ay shall got applicable and will take care of that eventuality . It is also provided in the agreement to sell that in case due to any unforeseen reasons such as government policy , the aforesaid property could not be converted into freehold within 18 months, then the buyers can pay the balance consideration of Rs. 1,10,00,000/- ( exclusive of remaining unpaid freehold conversion charges, stamp duty etc as provided in agreement of sale ) to the sellers and get the possession of the property in their favour and at their option get the transfer/sale deed executed in their favour. It also provided that in case, the freehold conversion charges, stamp duty etc. are increased by Government, then the buyers will pay for the same. This clause also takes care of the sellers getting assured net consideration for their property and since the period of agreement to sale is fairly long period of thirty six months, in the eventuality of c....
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....uyers. This also strengthen the view that sale consideration included freehold conversion charges, stamp duty etc. and as agreed upon the funding was done by sellers but the payments were made out of the sale consideration found mentioned in the agreement to sell. Thus, the assessee has rightly claimed the deduction on account of his share of freehold conversion charges, stamp duty etc. for converting the said property into freehold, being improvement in the property or otherwise as paid for removing impediment in the transfer/sale of the property. Thus, provisions of Section 48 of the 1961 Act were rightly applied with by the assessee, while computing income from long term capital gains chargeable to tax. 6.11 We have also gone through sale deed , dated 25.04.2012 . This sale deed was executed by sellers in favour of the buyers, after the said property was converted into a freehold property. There is nothing in the registered sale deed which can led us to any conclusion other than that the freehold conversion charges, stamp duty etc. were borne by the buyers which form part of the sale consideration as is agreed upon. The agreement to sell was valid for 36 months and sale deed ....
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....sions of the 1961 Act and consequentially income-tax payable by the assessee. 6.12. The ld. PCIT was of the view that AO has not conducted proper enquiries more- so no enquiries were conducted with the buyers and hence the assessment order is erroneous so far as is prejudicial to the interest of Revenue and hence revisionary proceedings u/s 263 of the 1961 Act were sought to be justified. In our considered view, the AO has made proper enquiries in the instant case. There was assessment proceedings going on for ay: 2013-14 and during the assessment proceedings for ay: 2013-14, two references were made by ITO , 1(5), Allahabad to Additional Commissioner of Income-tax,Range 1, Allahabad dated 30.10.2015 and 04.01.2016 , both u/s 144A of the 1961 Act in connection with sale/transfer of this property , which references were disposed of by Addl. CIT vide orders dated 18.12.2015 and 28.01.2016 respectively , which ultimately led to reopening of the assessment u/s 147/148 of the 1961 Act for the impugned ay: 2012-13. We have also gone through the reassessment order passed by AO u/s 147 read with Section 143(3) , dated 24.06.2016 and an order dated 27.02.2017 passed u/s 147 read with Sec....