AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (11) TMI 573
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....ough a proprietary concern under the name and style 'M/s Fashion Club Global', had filed her return of income on 30.09.2013, declaring total income of Rs. 2,64,51,220/-. The return was processed under Section 143 (1) of the Act and was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS). A notice under Section 143 (2) of the Act was issued on 10.09.2014 and was duly served on the assessee. On 19.08.2015, a notice under Section 142 (1) of the Act was issued with a questionnaire forming part of it. 4. In response to the aforesaid notices, the assessee informed the learned Assessing Officer [hereafter 'the AO'], inter alia, that she had earned long term capital gain of Rs. 10,72,76,180/- on sale of agricultural land, which was situated beyond the prescribed limits of Sohna District in Haryana. To support the same, she had enclosed a certificate issued by Tehsilar, Sohna, which, as claimed by her, was to the effect that the land was situated beyond 8 kms of the municipal limits. The prescribed limit for Sohna District was 5 kms. Thus, the assessee claimed that the land did not qualify as a capital asset defined under Section 2 (14) of the Act, and was thus exempt....
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....iven an opportunity of being heard and to show cause as to why the order passed by the AO be not modified or set aside under Section 263 of the Act by the PCIT. 8. During the course of proceedings, the PCIT found that necessary details regarding the land were not sought by the AO from the District Town Planner (Planning), Gurugram [hereafter 'DTP, Gurugram']. The PCIT noted that the report of DTP, Gurugram confirmed that the land was within both the old and extended municipal limits of Gurugram, contradicting the assessee's claim of land being agricultural land. When confronted with this evidence, the assessee could not provide any satisfactory explanation. The PCIT also highlighted that the land was sold to one M/s Vallabham Buildcon Pvt. Ltd. [hereafter 'Vallabham Buildcon'] for Rs. 17,96,15,625/-, and the same was being aggregated for township development. Additionally, the sale deed executed between the assessee and Vallabham Buildcon mentioned that the land was not fit for agricultural purposes. The PCIT concluded that the evidence provided by the assessee had no evidentiary value compared to the substantial evidence possessed by the department, which proved that no agricul....
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.... 07.12.2015, which mentions that the ld. counsel for the assessee appeared on behalf of the assessee and explained the case and submitted all the details as called for during the proceedings. It is evident from the assessment order that the assessee was provided ample opportunities and the ld. counsel for the assessee appeared over various dates of hearing i.e. 21.07.2015, 19.10.2015, 05.11.2015 and on other dates as per the order sheet. The Assessing Officer further mentioned in the' assessment order that details were provided on behalf of the assessee which were checked and verified on test check basis and were placed on record. It is further noticed that a letter was filed by the assessee in the assessment proceedings giving explanation about the non-taxability of the capital gain of Rs. 2,10,72,76,180/- arising on the sale of subject land. It was explained in the letter placed at page 54 and 55 of the paper books that the subject agricultural land was situated beyond prescribed limits of Sohna and that it was not a capital asset as the land was situated beyond the prescribed limit of concerned municipal limit and thus capital gain arising on the sale of such agricultural la....
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....in first 15 pages of the order has mentioned about the show cause notices, replies given on behalf of the assessee and then in paras 18 to 20 of the order u/s 263, CIT held that the objections raised by the assessee as regards the invocation of section 263 of the Act are not tenable. There is no finding recorded by the ld. CIT (A) after the receipt of the replies from the assessee that the assessment order was erroneous and prejudicial to the interest of the revenue. Therefore, absence of such finding is also fatal to the validity of the order u/s 263 and we are fortified by Guwahati High Court decision in the case of Smt. Lila Chaudhary Vs. CIT 289 ITR 226, Hon'ble Bombay High Court in the case of Jewel of India Vs. CIT 325 ITR 92, Hon'ble Delhi High Court in CIT Vs. International Travel House Ltd reported in 344 ITR 554, Hon'ble Delhi High Court in CIT Vs. Bharat Aluminum Co. Ltd 303 ITR 256, therefore, from this stand point also, order passed u/s 263 is not sustainable and is therefore, quashed. 7. Appellant's counsel Dr. Rakesh Gupta raised one more issue that CIT could not have taken upon himself to deny the exemption and best power of CIT could have to se....
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....sel appearing for the Revenue assailed the impugned order on the ground that the learned ITAT has committed an error by not considering clause (a) of Explanation 2 to Section 263 of the Act, which provides that jurisdiction can be exercised by the PCIT in case the AO has passed the order without making inquiries or verification which should have been made. It is argued that a perusal of the order passed by the AO would reveal that it did not conduct inquiries with regard to the claims of the assessee, and did not obtain information from concerned authorities for verification of distance of the land in question from the municipal limits, which is essential for determining whether it is a capital asset. 16. He states that the certificate issued by Tehsildar, relied upon by the assessee, was not a certificate, which was issued after conducting any inquiry by Tehsildar in respect of the land in question, and the AO ought not to have relied upon the said certificate which, in effect, contained no information, and thus, the reliance placed by the AO on the Tehsildar's certificate, which lacked essential information regarding the land's distance from the municipal area, was misplaced. ....
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....regard on the basis of facts and documents presented before it, which revealed that the land in question was agricultural land situated beyond prescribed distance from Sohna District in Haryana. It is also contended that though the PCIT had issued notice under Section 263 of the Act and sought a response from the assessee, once the replies were filed, the PCIT did not specifically hold that the order passed by the AO was erroneous and prejudicial to the interests of the Revenue. She argues that unless such twin findings are recorded by the PCIT, after the receipt of response from the assessee, a valid order under Section 263 of the Act could not be passed. 21. Ms. Chopra also contends that the certificate issued by the Tehsildar is unequivocal and unambiguous, and once it is issued by the said authority, there was no need for the AO for seeking any further corroboration by way of any other evidence or documentary proof. It is stated that the certificate clearly mentions that the land in question is agricultural land and, therefore, it was rightly held by the learned ITAT that in absence of any proof that the land was non-agricultural land, the same could not have been assessed o....
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....et and the assessee would be liable to pay the capital gains tax; otherwise, the land would be treated as agricultural land, which does not fall within the meaning of 'capital assets'. 27. The assessee had claimed that the land in question was agricultural land, and thus not a capital asset, and she had earned long-term capital gain from its sale, which was exempt from tax. In support of this claim, the assessee had placed reliance on the certificate issued by the Tehsildar in the year 2012. Notably, a perusal of the said certificate reveals that the same is a letter written by the assessee to the Tehsildar in which she had herself mentioned that she resided at Araji Waka Mauza Sohna, Tehsil Sohna, District Gurugram, and was requesting the Tehsildar to order the Patwari to give "certificate of distance from Sohna border of the above municipality of Araji". Under normal circumstances, upon receiving such a letter, it would be the duty of the Tehsildar to undertake an inquiry and then to tender information or certify as to what is the distance of the land from the municipal limit. However, in the present case, the Tehsildar's certificate, which is only in the form of two liner end....
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....uld certify the agricultural nature of the land. A sale deed primarily reflects the transaction between the parties and the terms of sale, but it does not, in itself, verify the land's classification as agricultural for the taxation purposes. Therefore, heavy reliance on the sale deed to establish the agricultural character of the land would be misplaced. However, even if we consider the contents of the sale deed, it shall be important to note that though the sale deed dated 20.04.2012 executed between the assessee and Vallabham Buildcon mentioned the land as 'agricultural land', it was specified in the contents of the sale deed itself that the land was not beneficial for the purposes of sowing and cultivation. This fact was also taken note of by the PCIT, alongwith the fact that the Vallabham Buildcon, in its reply, had informed the PCIT that it was in process of aggregating the land for the development of integrated township and group housing projects at Sohna. 31. Further, the assessee had purchased the land on 03.05.2011 and sold the same on 20.04.2012 i.e. within nine months from the date of purchase. Undisputedly, the assessee did not show any agricultural income for the A....
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.... fact that the land is assessed to land revenue as agricultural land under the State Revenue Law is a strong piece of evidence of its character as an agricultural land. On Appeal, a Constitution Bench of this Court held that; (a) inasmuch as agricultural land is exempted from the purview of the definition of the expression "assets", it is "impossible to adopt so wide a test as would obviously defeat the purpose of the exemption given". The idea behind exempting the agricultural land is to encourage cultivation of land and the agricultural operations. "In other words this exemption had to be necessarily given a more restricted meaning than the very wide ambit given to it by the Full Bench of the Andhra Pradesh High Court", (b) What is really required to be shown is the connection with an agricultural purpose and user and not the mere possibility of user of land by some possible further owner or possessor, for an agricultural purpose. It is not the mere potentiality but its actual condition and intended user which has to be seen for purposes of exemption, (emphasis added), (c) "The person claiming an exemption of any property of his from the scope of his as....
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....ator Nos. 6,7 and 8 as merely negative in character. It disagreed with (1) and (4) and observed that only the 5th indicator was a relevant one though not conclusive. There was no controversy regarding indicator No. 3. Inasmuch as the matter was not examined from the correct point of view, it was remitted to the High Court for a fresh decision. The decision of Gujarat High court in Commissioner of Income Tax, Gujarat-II v. Siddharth J. Desai 139 I.T.R. 628, relied upon strongly by the learned Counsel for the appellant, reviewed the several earlier decisions of the Gujarat High Court as well as the decision of this Court in Begumpet Palace and has evolved the following 13 factors/indicators applying which the question has to be answered. The 13 factors are the following : (1) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue? (2) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? (3) Whether such user of the land was for a long period or whether it was of a temporary character or by way of a stop-gap arrangement? ....
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....e reached on a balanced consideration of the totality of circumstances. In Commissioner of Income-Tax v. V.A. Trivedi [1988] 172 I.T.R. 95 a Division Bench of the Bombay High Court, of which one of us (S.P. Bharucha, J.) was a member, considered this question again. In this case the assessee had purchased the land of an extent of seven acres in February 1966. The land was covered by the Nagpur Improvement Trust Scheme. In August 1966 he obtained permission to convert the said land to non-agricultural use. In June 1968 he entered into an agreement with a Housing Cooperative Society to sell three acres out of it. The sale-deed was executed in October 1968. In this assessment proceedings the assessee claimed that the surplus income arising from the sale of land was exempt from tax inasmuch as it was agricultural land at the time of its sale. The matter reached the High Court. The Division Bench referred to several facts established from the record. Some of them supported the assessee's stand while some others militated against his contention. The facts found in favour of the assessee were: (1) at the time of its purchase by the assessee, the Ajni land was agricul....
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....ication of land as agricultural depends on multiple factors, not just one. It was emphasized that each case must be evaluated based on its specific facts. A wide range of indicators would include the actual use of the land, whether the land is classified as agricultural in revenue records, and whether it is used for agriculture over a long period of time. Factors such as the land being under cultivation, being assessed as agricultural in revenue records, and the owner's intent to use it for agriculture plays a crucial role. However, conversion of the land to non-agricultural use, selling it for housing development, and the absence of agricultural activities for several years weigh against it being classified as agricultural land. 35. In the backdrop of the above-noted principles discussed by the Hon'ble Supreme Court, we note that following facts were brought to light during the proceedings before the PCIT: (i) The Tehsildar who had issued the certificates in favour of the assessee did not appear before PCIT to provide any documents in support of the certificate issued by him. (ii) The land in question, which had been sold by the assessee to Vallabham Buildcon,....
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....d 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 enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment..." 40. Section 263 of the Act, as it reads on date, including Explanation 2 inserted by virtue of Finance Act, 2015, is extracted hereunder: "263. Revision of orders prejudicial to revenue. (1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or 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 or the Transfer Pricing Officer, as the case may be, 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....
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.... to the said amendment, stipulated the mandatory requirement of the order being 'erroneous' as well as 'prejudicial to the interests of the Revenue'. Therefore, what manifests from the above is the fact that the twin conditions have to be met for assuming jurisdiction under Section 263 of the Act, and the PCIT has to form an opinion that the order passed by the AO is 'erroneous' and 'prejudicial to the interests of the Revenue'. 44. Further, even prior to the amendment, though it was not explicitly explained in the Act as to how the PCIT will reach a conclusion that the AO had passed an 'erroneous' order which was also 'prejudicial to interests of the Revenue', the scope of these words was explained by the Hon'ble Supreme Court and the Coordinate Benches of this Court in various decisions. It will be useful to refer to a few decisions, without burdening the present judgment with all the authorities on the said issue. 45. The Hon'ble Supreme Court, in case of Malabar Industrial Co. Ltd. (supra) has ruled that an order passed by an assessing officer can be deemed erroneous if it is based on incorrect assumption of facts or an incorrect application of law, and also if it is pass....
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....ere is anything wrong with the order if all the facts stated therein are assumed to be correct." (Emphasis added) 47. In case of Commissioner of Income-tax v. Toyota Motor Corporation: (2008) 306 ITR 49, the assessing officer had passed an order dropping the penalty proceedings initiated in the assessee's case. The Commissioner had exercised powers under Section 263 of the Act and concluded that the assessing officer had not verified several issues and facts as mentioned in the order passed by him, nor had he carried out necessary investigations to come to a conclusion that penalty was not leviable. Consequently, he had found that the order was erroneous and prejudicial to the interest of the revenue. However, on appeal, the Tribunal had held that the penalty proceedings were not dropped casually by the assessing officer but after verification of full facts disclosed by the assessee in the reply. This Court, in judgment dated 02.04.2008 held that the order passed by the assessing officer was cryptic and non-reasoned. The relevant observations are extracted below: "10. We are unable to appreciate this reasoning given by the Tribunal simply because that the Assessi....
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.... PCIT took a view that the land sold by the assessee was not agricultural land, and thus, the assessee was not entitled for long-term capital gains tax exemption. However, the learned ITAT in the impugned order opined in the present case that the AO had considered the issue of capital gains taxability and had accepted the submissions of the assessee. 51. However, the critical issue remains whether the inquiry made by the AO in this case can be actually considered as an inquiry required to be conducted by the AO. The fact that the AO neither read the contents of the certificate issued by the Tehsildar, which is discernible from the fact that the certificate did not even mention the distance of the land from the municipal limits which is a criteria for determining the agricultural status of land under the Act, nor sought any additional evidence or document from the relevant authorities like the DTP, Gurugram, undoubtedly, suggests that the AO failed to undertake any inquiry or even apply his mind to the documents submitted by the assessee to arrive at the conclusion regarding the long-term capital gains exemption. 52. There is no cavil that the PCIT would not have jurisdiction ....
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....ion is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would n....
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.... from capital gain. In fact, there is no mention of this aspect at all in the order passed by the AO under Section 143 (3) of the Act. Thus, it is not clear as to what had weighed in the mind of the AO since the order passed by the AO is totally silent on this aspect. 58. Therefore, the present case would be one where the absence of any effective inquiry and a total non-application of mind by the AO is evident, and thus, the order passed by the AO would clearly fall within the meaning of an 'erroneous order'. The order is also, undisputedly, prejudicial to the interests of the Revenue inasmuch as it results in loss of the Revenue in the form of tax. 59. We are thus of the view that the PCIT had exercised the jurisdiction under Section 263 of the Act correctly and legally, in view of the fact that the order passed by the AO was erroneous and prejudicial to the interest of the Revenue since the same was passed without conducting any enquiries and applying mind to the claims of the assessee. We are also of the view that the learned ITAT erred in setting aside the order passed by the PCIT under Section 263 of the Act on the ground that the PCIT had wrongly exercised jurisdiction ....
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