TaxTMI 
TaxTMI 
TaxTMI 
2021 (4) TMI 201
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....sment proceedings, the claim of the assessee for such higher amount of Long Term Capital Loss was examined by the Assessing Officer. On such examination, he found that the higher amount of Long Term Capital Loss on the transfer of Government Securities was claimed by the assessee by applying Cost Inflation Index on the cost of the Government Securities. In this regard, he noted that a similar claim of the assessee for the benefit of indexation was initially allowed by the Assessing Officer in the assessment year 2010-11, but the same was finally disallowed by the Assessing Officer in pursuance of the order passed by the concerned ld. CIT under section 263 of the Act. He also noted that an appeal was filed by the assessee against the order passed by the Assessing Officer under section 143(3) read with section 263 of the Act before the ld. CIT(A), but the same was still pending. Following the stand taken in assessee's own case for A. Y. 2010-11 on a similar issue, the claim of the assessee for Long-Term Capital Loss on the sale of Government Securities by applying Cost Inflation Index was rejected by the Assessing Officer. He also rejected the claim of the assessee for set off of cap....
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....alue of the consideration received or accruing as a result of such transfer, as per section 50 C. While assessing the STCG from these four properties, the sale value should have been deemed to be Rs. 9,91,43,740/-, which would result in STCG of Rs. 5,05,46,267 /-. This omission had resulted In underassessment of income of Rs. 1,89,42,140 /-and the tax effect would be Rs. 65,67,201 /-without surcharge and cess". The ld. Principal CIT accordingly issued a show-cause notice to the assessee on 20.11.2018 pointing out the above errors and seeking explanation as to why the assessment made by the Assessing Officer under section 143(3) of the Act should not be revised by invoking the provisions of section 263. Thereafter another notice was issued by the ld. Principal CIT on 19. 02. 2019 under section 263 of the Act pointing out the further error allegedly committed by the Assessing Officer in the assessment completed under section 143(3) of the Act as under :- "During the course of assessment of Return of AY 2015 -16 it was found that Right on Property being 37 flats of different configurations, having an approximate total area of 50051 sqft, in a then upcoming housing project named 4 S....
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....e by the assessee in respect of each and every error allegedly pointed out by the ld. Principal CIT in the order of the Assessing Officer passed under section 143(3):- "Set off of LTCG of Rs. 86,39.024 /-from Sale of Bonds and LTCG of Rs. 11,302,064 /-from sale of Right to Property against LTCL of Rs. 111,33,28,388!-from sale of Government Securities not permissible to the assessee. During the year the assessee has earned Long Term Capital Gains (LTCG) of Rs. 86,39,024 /-from Sale of Bonds and L TCG of Rs. 1,13,02,064 /-from sale of Right to Property, totalling to Rs. 1,99,41, 088 /-. The said LTCG of Rs. 1,99,41,088 /-was set off by the assessee against Long Term Capital Loss of Rs. 1,11,33,28,388 /-from sale of Government Securities in the current year. In the notice issued u/ s 263 of the Act, your goodself has mentioned that as per the return of income filed by the assessee, indexation benefit on sale of Government securities was taken which resulted in Long Term Capital Loss (LTCL) of Rs. 1,11,33,28,388 /-. However, indexation benefit should not have been allowed on Government Securities as the same are 'bonds and debentures'and instead, gains of Rs. 16, 17,578 /-, befor....
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....e forms specified in clause (2) of section 2 of the Public Debt Act, 1944 (18 of 1944); Further, section 2 (2) of the Public Debt Act, 1944 defines " Government security" as follows: "Government security" means- (a) a security, created and issued, I by the Government] for the purpose of raising a public loan, and having one of the following forms, namely:- (i) stock transferable by registration in the books of the Bank; or (ii) a promissory note payable to order: or (iii) a bearer bond payable to bearer; or (iv) a form prescribed in this behalf; (b) any other security created and issued by the Government] in such form and for such of the purposes of this Act as may be prescribed; The Government securities which were sold during the year were stocks being of the nature described in clause (i) to section 2 (a) of the Public Debt Act, 1944. The third proviso to section 48 of the Act restricts the indexation in the case of long term capital assets, being bonds or debentures other than Capital Indexed Bonds issued by the Government. The term debenture has been defined in section 2 (30) of the Companies Act'2013 which reads as under: "debenture" includes debenture s....
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....26,92,609 36,46,400 44,67,800 17,75,191 TOTAL 36,67,790 As evident from the above table, the assessee in computation of capital gains from sale of the above three properties has considered the Stamp Duty Valuation u/ s 50 C of the Act as the sale consideration to arrive at the STCG of Rs. 36,67,790 /-. The said short term capital gains of Rs. 36,67,790 /-was offered for taxation in the computation of total income. With regard to the 4th property, being flat at 5, Lala Lajpat Rai Sarani, it was submitted during assessment that the said flat was acquired in the year 1989 and was therefore a Long Term Capital Asset by virtue of section 2 (29 A) of the Act. In support, reliance was placed on the judgment of the Hon'ble Bombay Hlgh Court in the case of CIT vs Ace Builders reported in 281 ITR 210 (copy enclosed at page 5 -12) where it was held that- Held, dismissing the appeal, that there was nothing in section 50 to suggest that the fiction created in section 50 is not only applicable to sections 48 and 49 but also applies to other provisions. On the contrary, this section makes it explicitly clear that the deeming fiction created in sub-se....
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....efore the learned CIT(A) against this disallowance and the same is pending for adjudication. In the notice issued u/ s 263 of the Act, your goodself has raised the ground that the assessee has not considered the Stamp Duty Valuation of Rs. 9,91,43,740 /-in computation of STCG in this case which has resulted in underassessment of income of Rs. 1,89,42,140 /-which has rendered the assessment order as erroneous. In this regard, please note that during assessment, it was submitted before the learned AO that immediately before the sale, the property was valued by M/ s N K Chakravarty and Co, registered valuer at a value of Rs. 5,84,00,000 /-. A copy of the Valuation report is enclosed at page 19 -20. The said flat didn't had a car parking space and also there was no scope of getting a high voltage electric connection. As such, it was very difficult to g4 t buyers who would have paid such a high price for the said flat at par with the stamp duty valuation. In the assessment stage, it was therefore requested before the AO to consider the actual sale consideration of Rs. 7,00,80,000 /-received by the assessee which was more than the FMV of the property. Further it was also requested ....
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....nd prejudicial to the interest of revenue. Applying this explanation to the facts of the assessee, it is clear that proper enquiries were conducted by the learned AO with regard to the sale of depreciable assets/ flats. The assessee has filed written submissions before the learned AO explaining the reasons as to why the stamp duty valuation should not be considered for computing the Capital Gains with regard to the 4th property during the course of assessment and the same was duly considered by the ld. AO. As such, the assessment order cannot be said to be erroneous in this case. Your goodself noted that the assessee has acquired a Right on property, being 37 flats upon execution of the agreement for sale and MOU on 26 -08 -2011 and the same right was transferred to the third party individuals by execution of tripartite agreement for sale in FY 2011 -12, 2012 -13, 2013 -14 and 2014 -15. As the assessee follows mercantile system of accounting your goodself opined that business income accrued to the assessee from the sale of 'Right'to the 37 buyers on the day of signing the tripartite agreement. During the course of assessment of AY 2015 -16, the learned AO alleged that the mot....
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....on 18.02.2015. Accordingly, the appellant considered the indexed cost of acquisition of the right of respective 37 flats as per provisions of sec. 48 r.w.s. 2 (14), 2 (29 A) and 2 (47) of the Act and computed long term capital loss on transfer of the said rights at Rs. 36,60,000 /-in AY 2015 -16. The said investment being a capital asset and disclosed as such in the audited accounts of the company was duly disclosed before the department in AY 2012 -13, 2013 -14 and 2014 -15 and assessments for all these years were completed after proper examination and scrutiny of the books of accounts u/ s 143 (3) of the Act. In the present case, the assessee entered into a 'Tripartite Agreement for sale'with respect to these 37 f lats in AY 2012 -13, 2013 -14, 2014 -15 an 2015 -16 and received the sale consideration from the buyers on different dates as per the terms and conditions of the agreement entered into with the respective parties. The Rights over these said 37 flats were transferred at a total consideration of Rs. 16, I 0,57,288 /-after receipt of the final instalment of sale consideration on 18.02.2015, i.e. AY 2015 -16. The assessee entered into'Deed of Conveyance'or the 'Sale Dee....
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....16,10,57,228 /-as sale consideration. The last date of payment in all 37 cases/ flats was 18.02.2015. This was after 3 years. This position was accepted in earlier years. Thus following the decision in Radha Soami Satsang. I have no option but to go by the decision: Radha Soami Satsang on the principles of consistency. Reliance is also placed on the decision of Calcutta ITAT in the case of DCIT vs. M/ s. ABCI Infrastructure Pvt. Ltd. (ITA No. 990 / Kolkata/ 2013). " In light of the aforesaid facts, let us now examine the provisions of section 263 of the Act and the show cause notice issued by your goodself. Here, it is relevant to quote section 263 of the Act. 263. Revision of orders prejudicial to revenue. -. (j) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order....
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....be considered and decided in the appeal. The submission of counsel appearing on behalf o J the Revenue that the Cf T(A) has not decided the issue, while dealing with the question oJ enhancement, cannot be accepted. The submission which has been urged on behalf of the Revenue is that the CIT(A) was requested to exercise his power of enhancement in pursuance of the request made by the Addl. CIT on 20 th May, 2005 and that the request which was made was to carry out an estimation of the initial investment for the first year of the block period. Now, the power of the CIT(A) is structured by the provisions of s. 251. Sec. 251 inter alia provides that in disposing of an appeal the CIT(A) shall have the power in an appeal against an order of assessment to confirm, reduce, enhance or annul the assessment. Consequently, when a request for enhancement was made to the CIT(A), he had the jurisdiction, in terms of s. 251, to confirm, reduce, enhance or annul the assessment. A reading of the order passed by the CIT(A), particularly para 16.5 of the order, would lead to the conclusion that the CIT(A) had considered and decided the issue. Once the issue was considered and decided by the CIT(A), ....
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....d ETF (short term capital gain 5,90,55,635 5,77,97,364 12,58,271 The assessee as was deptt. Treated it L.T. capital loss of Rs. 46,43,572/- after applying const. Indexation. Short term capital gain (without STT) 12,58,271 In this connection, the assessee has pointed out that the issue at hand was before the CIT(A). Needless to say, it is trite law that the PCIT can exercise revisionary proceedings on a matter which is still pending before CIT(A) for adjudication. The assessee further proceeds to explain how 'government securities are not " bonds or debentures'to support its claim of indexation benefit. These are mere assertions. Further without prejudice, assessee claims to have earlier years LTCL brought forward of Rs. 3,50,28,74,344 /-. Be that as it may, the Aa should ascertain this claim of the assessee. As for the LTCL claimed by the assessee, the same requires to be calculated afresh in the light of the aforesaid discussion. (ii) GOLD ETF:- The assessee had claimed indexed LTCL to the tune of Rs. 46,43,572 /-from sale of gold ETF which was allowed in the impugned order. However, the details filed by assessee during assessment proceedings....
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.... City star Housing Project Pvt. Lt. For purchase of 37 flats. The entire consideration of Rs. 12,57,82, 542 /-was paid on 30.08.2011 thereby acquiring a right on the 37 flats. This investment was claimed as a capital asset and shown in the audited accounts as 'Investment in Right to Property'ur.cer the head 'Investment -current and non-current." During this year under consideration, these 37 flats were sold as per tri-partite agreement and the total receipt of Rs. 16,10,57,288 /-thereon was indexed resulting is long term capital loss of Rs. 36,60,000 /-. The assessee has contended that the right over the flats were transferred a.ter more than three year from date of its acquisition to respective individuals after receipt of the final sale consideration on 18.07.2015. It was also stated that the said investment in 'Right to Property'was never converted into stock-in-trade in any of the years. That this conversion now of its capital asset into stock-in-trade is deemed as transfer of capital asset attracting the provision of Sec.45 (2). Few questions arises. The Mo U with the developer was signed on 26.08.201 l. However, the assessee has not provided the dates on which the various T....
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....ot only if it contain some apparent error of reasoning or of law or of fact on the face of i t but also because the Assessing Officer has failed to make enquiries which are called for in the circumstances of the case and it is an order which simply accepted what the assessee has stated in his return of income on the said issue. It is not necessary for the CIT to make further enquiries before cancelling the assessment order. The Commissioner can regard the order erroneous on the ground that the Assessing Officer should have made further enquiries. 7. Hon 'ble Karnataka High Court in the case of Thalibai F. Jain vs. ITO 101 ITR 1, 6 (Karn) has held that where no enquiries made by the Assessing Officer on the relevant issue, assessment must be held to be prejudicial to the interests of the revenue and what is prejudicial to the interest of the revenue must be held to be erroneous though the converse may not always be true. 8. Hon'ble Supreme Court in the case of Malabar Industrial Co. Pvt. Ltd vs. CIT reported in (2000) 243 ITR 83, 87 -88 (SC) affirming the Hon'ble Kerala High Court decision (198 ITR 611) has held that the phrase " Prejudicial to the Interests of the Revenue" is o....
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.... i.e. why revisionary powers have been given to the Commissioner and such power were held to be of wide amplitude by the Hon'ble Supreme Court in the case of CIT v. Shree Manjunathesware Packing Products & Camphor Works [1998 ] 231 ITR 53 / 96 Taxman 1. Therefore, normally when Assessing Officer has not made any enquiry on a particular issue, then such order in view of the above detailed discussion has to be construed as erroneous and prejudicial to the interest of Revenue and therefore, the impugned assessment order is erroneous and prejudicial to the interest of Revenue as Assessing Officer has failed to make any enquiry. 11. Having regard to the facts and circumstances of the case and in the l ight of the aforesaid decisions of Hon'ble Supreme Court and Hon'ble High Court, and in accordance with the amendment made in Section-263 of the Act with effect from 01.06.2015, I hold that the impugned assessment order dated 28.12.2016 passed by the A.O. is erroneous in so far as it is prejudicial to the interests of the revenue. I further hold, after giving the assessee an opportunity of being heard, that the impugned assessment order dated 28.12.2016 is l iable to set-aside. Therefore....
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....n such relief(s) as prayed for". 7. As submitted by the ld. Counsel for the assessee, Grounds No. 1, 2, 6, 7 & 8 raised by the assessee in this appeal are general in nature, which do not call for any specific adjudication. 8. As far as the issue involved in Ground No. 3 relating to the assessee's claim for set off of Long-Term Capital Gain from sale of Bonds and right to property against Long Term Capital Loss on sale of Government Securities, the ld. Counsel for the assessee submitted that even though the Long term Capital Loss on sale of Government Securities as claimed by the assessee after applying Cost Inflation Index was disallowed by the Assessing Officer in the assessment completed under section 143(3) vide an order dated 28. 12.2016, the ld. CIT(A) while disposing of the appeal filed by the assessee against the order of the Assessing Officer under section 143(3) allowed the Long-Term Capital Loss on transfer of Government Securities as claimed by the assessee by applying the Cost Inflation Index. He contended that since the said order was passed by the ld. CIT(A) on 28. 02.2019, i.e. before 25.03. 2019 when the impugned order was passed by the ld. Pr. CIT under section 2....
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.... Assessing Officer in disallowing its Long-Term Capital Loss arising from the sale of Government Securities by applying the Cost Inflation Index was challenged by the assessee in the appeal filed before the ld. CIT(A) against the order passed by the Assessing Officer under section 143(3) and the said appeal was disposed of by the ld. CIT(A) vide his appellate order dated 28. 02. 2019 allowing the claim of the assessee for Long-Term Capital Loss arising from sale of Government Securities by applying Cost Inflation index. Since the said order was passed by the ld. CIT(A) on 28. 02.2019, the order of the Assessing Officer under section 143(3) on this issue was already merged with the order of the ld. CIT(A) on 28. 02.2019 itself, i. e. before 25.03.2019 when the impugned order under section 263 came to be passed by the ld. Pr. CIT and it was, therefore, beyond the scope of revision under section 263 in terms of Explanation (1)(c) below sub-section (1) of section 263, which clearly provides that where any order referred to in sub-section (1) of section 263 and passed by the Assessing Officer had been the subject matter of any appeal, the powers of the ld. Pr. CIT under section 263 shal....
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....02. 2019 was yet to be passed by the ld. CIT(A) disposing of the said appeal, the factual position as prevalent then was pointed out by the assessee in the written submission on 16. 01.2019. Keeping in view all these facts and circumstances of the case, we find merit in the contention of the ld. Counsel for the assessee that it was the duty of the ld. Pr. CIT to ascertain the actual position of the appeal stated to be filed by the assessee against the order passed by the Assessing Officer under section 143(3) on this issue and had he done that, he would have found that the order passed by the Assessing Officer under section 143(3) on this issue was already merged in the appellate order of the ld. CIT(A) and the claim of the assessee for Long-Term Capital Loss arising from the sale of Government Securities after applying the Cost Inflation Index having been already allowed by the ld. CIT(A), there was no error in the order of the Assessing Officer in allowing the set off of such loss against the Long-Term Capital Gain arising from the Bonds and Right to Property. 12. It is also pertinent to note here that the claim of the assessee for Long-Term Capital Loss arising from the sale o....
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....a Registered Valuer M/ s. M.K. Chakravorty & Company at Rs. 5. 84 crores. The actual consideration of the said flat received by the assessee, however, was Rs. 7,00,80, 000/-and the same was taken into consideration while computing the capital gain. He submitted that the said sale consideration was less than the stamp duty valuation and when the assessee was called upon by the Assessing Officer to explain this difference with reference to section 50C it was submitted on behalf of the assessee that the said flat did not have a car parking space and there was also no scope of getting a high voltage electric connection. He contended that the sale consideration received by the assessee which was lower than the stamp duty valuation, accordingly was justified by the assessee and a request was made to the Assessing Officer that i f the explanation offered in this regard was no acceptable, a reference may be made to the DVO under section 50C(2) of the Act. He submitted that no such reference was made by the Assessing Officer to the DVO and after having satisfied himself about the explanation offered by the assessee, the sale consideration actually received by the assessee was taken into con....
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....e than 36 months, the actual sale consideration received by the assessee amounting to Rs. 7,00, 80, 000/-was less than the stamp duty valuation and the same was adopted by the assessee for computation of capital gain. As submitted by the ld. Counsel for the assessee, a specific query was raised by the Assessing Officer in this regard during the course of assessment proceedings and the assessee was called upon by him to explain and justify the actual sale consideration received and adopted for computation of capital gain which was lower than the stamp duty valuation with reference to section 50C. The ld. Counsel for the assessee has also invited our attention to the letter dated 23.12. 2016 (copy placed at page 18 of the paper book), wherein the following explanation was offered by the assessee in this regard:- "4. In the computation of the short term capital gain on the sale of the flat at 5, Lala Lajpat Rai Sarani, the sale proceed of the flat has been taken at Rs. 8,02,01,600 /-as per sale deed (copy enclosed) as against the stamp duty valuation of Rs. 8,81,25,600 /-. The stamp duty valuation has not been taken into account in computing the short term capital gain as the asses....
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....t of the Registered Valuer, a possible view was taken by the Assessing Officer accepting the stand of the assessee. 17. In the case of R.K. Construction Co. (supra) cited by the ld. Counsel for the assessee, it was held by the Hon'ble Gujarat High Court that when the necessary details and documents were furnished by the assessee to the Assessing Officer and a particular view was taken by the Assessing Officer on the basis of the same, it was not open for the Commissioner to take a different view in the revision proceedings under section 263 of the Act. If the facts of the present case as discussed above are considered in the light of the decision of the Hon'ble Gujarat High Court in the case of R.K. Construction Co. (supra), we find that there was no error in the order of the Assessing Officer on this issue as alleged by the ld. Pr. CIT and the impugned order passed by the ld. Pr. CIT revising the order of the Assessing Officer on this issue is not sustainable. We accordingly set aside the impugned order passed by the ld. Pr. CIT under section 263 on this issue and restore that of the Assessing Officer. Ground No. 4 of the assessee's appeal is accordingly allowed. 18. As regards ....
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....of the assessee thus was clear to sale the right in the said flats immediately to earn profit and it was thus a clear case of business transactions representing trading, the profit of which was chargeable to tax under the head "profit and gains of business or profession". He contended that the accounting treatment given by the assessee to the said flats as investment is not conclusive to decide the nature of the relevant transactions and keeping in view all the facts of the case as well as the intention of the assessee to transfer the right in the 37 flats to earn profit, the income arising from these transactions was clearly in the nature of business profit. He contended that this issue in any case was not at all considered and examined by the Assessing Officer during the course of assessment proceedings for the year under consideration and since right was acquired by the assessee in the residential flats, it cannot be said that the same was in the nature of capital asset being purchased by the assessee for its office purpose. He accordingly strongly supported the impugned order passed by the ld. Pr. CIT under section 263 of the Act on this issue. 20. We have considered the rival....