AI Drafter 
TaxTMI 
TaxTMI 
2022 (6) TMI 594
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing. 3. The only grievance of the assessee in this appeal relates to the action taken by the Ld. Pr. CIT under section 263 of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). 4. Facts of the case in brief are that the assessee filed his return of income on 30/10/2015 declaring an income of Rs. 3,04,29,420/-, subsequently, the case was selected for scrutiny. The AO mentioned that the assessee furnished the requisite details and documents which were examined and the books of accounts relating to real estate development were examined on test check basis. The AO observed in the assessment order that as per the information available on record and reply submitted by the assessee the case was discussed with the counsel for the assessee and the returned income was accepted. Thereafter the Ld. Pr. CIT exercised his jurisdiction under section 263 of the Act and issued the notice dt. 24/02/2020 to the assessee which read as under: Please refer to your return of income filed on 30.10.2015 at an income of Rs.3,04,29,420/- and the assessment order u/s 143(3) passed by the Dy. Commissioner of Income Tax, Circle-6(1), Mohali (the assessing officer concerned in your case)....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... terms of provisions of section 263 of the Income Tax Act, 1961. You are, therefore, requested to show cause as to why assessment framed vide assessment order dated 29.12.2017 u/s 143(3) of the Income Tax Act, 1961 for A.Y2015-16 should not be cancelled by invoking the provisions of section 263 of the Income Tax Act, 1961. 7. Your case is fixed for hearing before the undersigned on 28.02.2020 at 11:00 A.M. In case of non-compliance, it would be presumed that you have nothing to say in this regard and order u/s 263 would be passed on merits on the basis of material available on record." 4.1 In response to the aforesaid notice, the assessee furnished the written submissions on 05/03/2020 which read as under: 1. There is no denial to the fact that return of income filed on 30.10.2015 at an income of Rs.3,04,29,420/- in respect of assessment year 2015-16 has been accepted at returned income in the assessment order passed u/s 143(3) of the I.T Act, 1961 on 29.12.2017 by Dy. CIT, Circle-6(1), Mohali. 2. It is also a matter of fact that deduction u/s 54B and 54F of the I. T.Act has been claimed in respect of four properties as under: Deducti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 23 of this submissions. The Computation Statements of Income of respective years are indicative of similar facts, similar deductions u/s 54B & 54F and duly allowed u/s 143(3) of the Income Tax Act, 1961. Kind attention is invited to case law of Hon'ble IT AT Panji in the case of Deputy commissioner of I. Tax Vs. Ramdas Haribhan Kakade & Ors; ITA No. 60/PUN/2015 assessment year 2010-11 (attached at page nos. 24 to 36 of the submission). The Hon'ble IT AT has categorically held that "transfer envisaged under section 45(2) of the Act, would arise only when stock in trade is sold or otherwise transferred by him and not in the year in which he converted his stock in trade...." Kind attention is also drawn to case law of Hon'ble IT AT Jaipur in the case of Mahendra Rajnikant Zaveri Vs. Income Tax Officer; reported in (2017) 51CCH0028 Jaipur Trib. Head note (attached at page 37 to 46 of the submissions) is very clear to hold that: " Held, sale consideration was received much after due date of filing of return of income which made impossible for assessee to make investment on/before due date of filing of return. On issue of impossibility of performan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Income Tax & ANR Vs. Rudra Industrial Commercial Corporation reported in (2011) 244 CTR 0304: (2011)55 DTR 0005 (attached at page no. 47 to 54 of the submissions). The head note of case law placed at page no. 47 of the submissions states as under: "Capital gains- computation- Relevant date for applying cost inflation index assessee firm which owned an immovable property, converted the same into stock in trade in the year 1987-88 and entered into an agreement with a company to develop the property and construct flats thereon-At that stage Revenue did not treat the said arrangement as a transfer capital gain was computed only when the assessee executed registered sale deeds in favour of the purchasers of flats in the F. Y. 1992-93. It is the market value on the date of transfer that is relevant for computation of capital gains, and for arriving at that market value the prescribed cost inflation index relevant to the date of transfer is to be taken into account and not that on the date of conversion. Therefore, A.O. committed error in taking the cost inflation index of 1987-88 instead of cost inflation index applicable to the F. Y. 1992-93." Under such facts & cir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....were provided. The identity and credit worthiness of these persons have not been established. No supporting documents have been provided. Accordingly the addition to capital account amounting to Rs. 2,68,78,741/- in the Jamuna Developers and Rs. 2,45,23,486/- in Mehak Enterprises has remained unexplained. Please show cause as to why the addition to the capital account may not be treated as unexplained income and added to your income. 4. Perusal of assessment record in your case for A. Y. 2015-16 shows that a computation of income has been provided during the course of assessment proceedings. It is seen that deduction u/s 54F and 54B of the IT Act have been claimed in respect of four properties. The Agricultural land, as per the computation, in respect of two properties, was purchased in F. Y. 2004-05 and F. Y. 2005-06 These properties were converted into stock in trade in the F. Y. 2006-07. Accordingly, as on the date of conversion, the transfer of these properties resulted in short term holding and the Capital Gain on these properties was therefore not eligible for deduction u/s 54F of the Income Tax Act. 5. It is further seen that the said properties were conver....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5-16regarding proceeding u/s 263. In this regard, it is stated as under: Part-I i) Addition in Capital A/c in M/s Jamuna Developers amounting to Rs.2,68,78,741/-. The detail of the addition stands verified by then Ld. A.O. and how it isnot found on assessment record is really a matter of surprise to us. However, for your immediate reference and record, the detail of addition in capital account of Rs. 26878741/- is furnished as under: Date Amount Remarks 28-05-2014 3573297.00 From Saving A/c No. BOB-7238 29-05-2014 500000.00 From Saving A/c No. SBI-3109 29-05-2014 1000000.00 From Saving A/c No. SBI-3109 30-06-2014 750200.00 From Saving A/c No. BOB-7238 22-07-2014 1000000.00 From Saving A/c No. BOB-1315 11-08-2014 260500.00 From Saving A/c No. BOB-7238 30-09-2014 562070.00 From Saving A/c No. BOB-1315 22-10-2014 12080.00 From Saving A/c No. BOB-7238 21-11-2014 2820.00 From Saving A/c No. BOB-7238 04-12-2014 725150.00 From Saving A/c No. BOB-1315 05-12-2014 37000.00 From Saving A/c No. BOB-7238 07-12-2014 2500000.00 From Saving A/c No. BOB-7238 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he detail about no mistake and no loss to revenue on account of these deductions stands filed. These are enclosed once again for your immediate reference and record as Annexure 'C1, 'C2' '03' & Annexure 'D' respectively. Conclusion It is submitted that assessment order passed by Ld. A.O. is neither erroneous nor it has caused any prejudice to Revenue. Therefore, proceedings initiated u/s 263 of the I. Tax Act, 1961 may please be filed. 4.5 The Ld. Pr. CIT after considering the reply / submissions of the assessee observed that the view taken by her was based upon independent perception of the assessment record. She further observed that the increase in capital was one of the issue identified for examination as there was substantial increase in the capital account and the assessment was framed by the AO without examining the issue. She further observed that the assessee furnished copy of bank account from where the capital was stated to have been introduced which revealed that immediate before the withdrawal / transfer there were credit entries of large amount and the source of credit entries in those account remained to be examined. Ld. P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he name of the assessee was transferred in the F.Y 2004-05 and 2005-06 therefore the capital gain was Long Term Capital Gain (LTCG) and deduction under section 54F was rightly claimed. The assessee also claimed that the land at Sl. No. 3 was ancestral, the evidence of land being used for agriculture purposes was also furnished. The Ld. Pr. CIT on the other hand observed that even if these were ancestral property the claim was contrary to facts emerging from the sale deed and that the value was to be taken in the year 1981-82 and not in the year when these had been transferred in the name of the assessee, therefore, the order issued by the AO was not only erroneous but had been issued without examination of any facts. 4.7 The Ld. Pr. CIT held that the order passed by the AO was erroneous in so far as it was prejudicial to the interest of the revenue as the following inquiries / verifications were not conducted by the AO: 1. The date of purchase of properties has been accepted without verification of facts even from the assessee inspite of the fact that the case was picked up under scrutiny for this specific reason. 2. The value of capital gain disclosed by the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of section 54B and 54 F as discussed above. Accordingly the assessee was not eligible for deduction u/s54B and 54 F of the Income Tax Act. 10.7 There is another aspect regarding deduction u/s54B of the Income Tax Act. As per the provisions of the section 54B for claiming deduction u/s54B the land should have been used for agricultural purpose in the two years immediately preceding the date on which the transfer took place. The Assessing officer has made no inquiry from the Revenue Authorities to verify as to whether the land was being used for agricultural purpose in the immediate preceding two years. The claim was thus allowed without verification and inquiries. 10.8 There is one more aspect regarding deduction u/s54B of the Income Tax Act. The assessee has claimed and was allowed deduction u/s54 B of the Income tax Act by the Assessing Officer without examining the fact that after converting the land in Stock in trade, the assessee constructed Residential Flats/ Commercial sites/ School on that land. What was ultimately sold was not agricultural land but the Residential Flats/ Commercial sites/ School. As the assessee did not actually sell the agricultural la....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Statute from the language used. What one may believe or think to be the intention of Parliament cannot prevail if the language of the Statute does not support that view." 10.13 One of the reasons for selection of the case for scrutiny was "deduction claimed under the head capital gain". The Assessing office allowed the deductions claimed u/s54F and 54B without examining the facts and without any verification as mentioned in preceding paras. The Order passed by the Assessing Officer is therefore erroneous in so far as it is prejudicial to the interest of the Revenue as the no inquiries/ verifications were conducted by the Assessing Officer in allowing deduction claimed u/s54B and 54F of the Income Tax Act as discussed above. 4.9 The Ld. Pr. CIT observed that as per the sale deed dt. 26/12/2006 the collector rate of the land was Rs. 9,50,000/- per acre and for calculating the capital gain arising from the sale of stock as per the provisions of Section 45(2) of the Act and that for the purpose of section 48 of the Act, the fair market value of the asset on the date of conversion shall be deemed to be full value of consideration received or accruing as a result of the tran....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ure of the AO to make inquiry / verification to arrive at the correct and complete fact and to apply the correct law makes the assessment order erroneous in so far as prejudicial to the interest of the revenue. She therefore cancelled the assessment order dt. 29/12/2017 for the A.Y 2015-16 under section 143(3) of the Act with a direction to the AO to pass the order afresh in accordance with law after allowing opportunity of being heard to the assessee. 5. Now the assessee is in appeal. 6. The Ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the Ld. Pr. CIT while invoking the provisions of Section 263 of the Act considered the two issues, one issue was relating to the substantial increase in capital account of the assessee in M/s Jamuna Developers and M/s Mehak Enterprises and the another issue related to the claim of deduction under section 54B and 54F of the Act. It was stated that the Ld. Pr. CIT while issuing the notice dt. 24/02/2020 did not touch the issue relating to increase in capital and only mentioned the issue relating to the deduction under section 54B and 54F of the Act, a reference was made to p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....formation with respect to assessment proceedings for the year under consideration, in the said letter, item No. 8 related to details of large deduction claimed under section 54B & 54C etc. and vide item No. 11 the AO asked the assessee to furnish the details of substantial increase in capital in the year. It was submitted that the assessee furnished the details relating to the addition in the capital account copy of which is placed at page no. 199 to 200 of the assesse's paper book which are the copies of the assessee's account in M/s Mehak Enterprises and M/s Jamuna Developers and the increase in capital was on account of amount received from those two concerns. It was contended that the AO after examining the details furnished by the assessee and making the proper inquiries, accepted the same and income, was assessed at the returned income, a reference was made to copy of the assessment order dt. 29/12/2017 placed at page no. 201 and 202 wherein the AO mentioned as under: " the case was discussed with the counsel of the assessee as per the information available on record and reply submitted by the assessee, the returned income of the assessee is hereby accepted" 6.3 T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the addition in capital account was by the assessee himself being Proprietor of the Firm and there was no unsecured loan from any other person. The Ld. Counsel for the assessee referred to page no. 157 to 159 of the assessee's paper book and submitted that the allegation of the Ld. Pr. CIT was incorrect with regard to mistake in the bank statement vis a vis capital account. It was further submitted that the addition of land in the firm M/s Mehak Enterprises was stated to be not examined and verified by the AO from the Revenue record was a vague query as the sale deed was very much on the record of the same value and even the deduction under section 54B of the Act was claimed and allowed in the A.Y. 2011-12, therefore, the observations of the Ld. CIT(A) relating to the increase in capital of the assessee was erroneous or prejudicial to the interest of the Revenue, has no legs to stand. 7. As regards to the another issue relating to the deduction under section 54B and 54F of the Act was concerned, it was stated that under similar facts the then respective AO's had allowed deduction of the agriculture land converted into stock in trade in the A.Y's. 2011-12 and 2012-13 and even for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e provisions of Section 263 of the Act and set aside the assessment framed by the AO without making proper inquiries. 9. We have considered the submissions of both the parties and perused he material available on the record. In the present case it is noticed that the Ld. PrCIT while issuing the notice under section 263 of the Act on 24/02/2020 asked the assessee about the deduction claimed under section 54F and 54B of the Act. Thereafter another notice was issued on 21/10/2020 and again on 02/01/2021 wherein another issue was raised relating to the addition of capital account in the Firm M/s Jamuna Developers amounting to Rs. 2,68,78,741/- and in M/s Mehak Enterprises amounting to Rs. 2,45,23,486/-. As regards to the issue relating to the addition in capital account in M/s Jamuna Developers amounting to Rs. 2,68,78,741/- it is noticed that the amount was received from Saving Bank account maintained with Bank of Baroda and State Bank of India. The relevant details had been mentioned by the Ld. Pr. CIT at page no. 9 & 10 of the impugned order. The addition amounting to Rs. 2,45,23,486/- in M/s Mehak Enterprises was from the Saving Bank Account maintained with Bank of Baroda and St....
X X X X Extracts X X X X
X X X X Extracts X X X X
....following issues have been identified for examination: i. Interest expenses ii. Sales Turnover Mismatch iii. Sundry Creditors iv. Increase in Capital v. Deduction claimed under the head Capital Gains From the aforesaid notice it is crystal clear that increase in capital as well as deduction claimed under the head capital gain were the issues identified for limited scrutiny for examination. The AO again directed the assessee to furnish the information during the course of assessment proceedings vide letter dt. 09/02/2017, copy of which is placed at page no. 195 and 196 of the assessee's compilation, in the said letter, at Sl.No. 8 the AO asked the information relating to large deduction claimed under section 54B, 54C, 54D, 54G and 54GA of the Act and at Sl. No. 11 the AO asked the details of substantial increase in capital in a year. The assessee furnished all the requisite details which we have already mentioned in the former part of this order, so it cannot be said that the AO did not make the inquiries relating to the increase in capital account or did not examine the issues. In the present case the Ld. Pr. CIT on the one hand menti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the another issue relating to the deductions claimed under section 54B and 54F of the Act it is noticed that an identical issue having similar facts was also a subject matter of the assessee's appeal for the A.Y. 2013-14 wherein the Ld. Pr. CIT, Chandigarh also invoked the provisions of Section 263 of the Act and this Bench of the ITAT in ITA No. 415/Chd/2018while adjudicating the issue held vide order dated 08/07/2021in para 10 to 13 as under: 10. So far as the issue regarding claim of deduction u/s 54B & 54F of the Act is concerned, as per the decision of the Pune Bench of the Tribunal in the case of DCIT vs. Sh. Ramdas Haribhau Kakade (supra), assessee's entitlement for claiming deduction u/s 54B(1) and 54(B)(2) of the Act would be seen in the year in which the deemed transfer is to be taxed in the hands of the assessee. Further, the Pune Bench of the Tribunal in the case Mahendra Rajnikant Zaveri (supra), in the light of the CBDT Circular No 791 dated 02.06.2000 and taking into consideration the impossibility of the assessee being able to invest the amount, has held that the period of 6 months for the purposes of investment in specified assets must be reckoned from th....