TaxTMI 
TaxTMI 
2026 (4) TMI 1183
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was given 3. The Ld. CIT(A) erred in sustaining the action of AD of denying the of improvement amounting to Rs 1,04,08,220 Visakhapatnam land. 4. The Ld. CIT(A) erred in sustaining the action of AG of denying cost of acquisition of Rs 89,04,600/-as on 1.4.2001 and also denying the cost of improvement of Rs 68,48,232/- in respect of Jagi Road Land. 5. The Ld. CIT(A) erred in sustaining the action of treating gross rent of Rs 33,98,834/- as income of current year whereas rent was taxed in proceeding year on accrual basis. 6. The Ld. CIT(A) erred in sustaining the action of AD of disallowing dub membership and business promotion expenses of Rs 3,18,000/-. 7. The Ld. CIT(A) erred in sustaining the disallowance of Rs 12.75,893 under section 14A. 8. The appellant crave leave to add, modify, delete any ground at on before hearing." 3. The issue raised in ground no.1 is against the invalid notice issued u/s 143(2) of the Act, which is not in accordance with the format issued by CBDT Circular No. F.NO.225/157/2017/ITA-11 on 23.06.2017. 3.1. The facts in brief are that the assessee filed the return of income on 27.10.2022, declarin....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 1961, has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 of the Act which are binding on the authorities in the administration of the Act. Under section 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Hard cases Which can be properly categorized as belonging to a class, can thus be given the benefit of relaxation of law by Issuing circulars binding on the taxing authorities. In order to aid proper determination of the income of money lenders and banks, the Central Board of Direct Taxes issued a circular dated October 6, 1952, providing that where interest accruing on doubtful debts is credited to a suspense account, It need not be included in the assessee's taxable income, provided the I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tice has been issued by an authority who has no jurisdiction over the assessee on this ground notice u/s. 143(2) of the Act is quashed and I do so. 7. It is also noticed that the notice issued u/s. 143(2) of the Act is not in line with the Circular issued by the CBDT in respect of e-notice. This being so, respectfully following the decision of the coordinate bench of the Tribunal in the case of M/s Durga Automotives Pvt. Ltd., referred to supra, the notice is found to be invalid and consequently the same stands quashed. Since there is no valid notice issued u/s. 143(2) of the Act to the assessee before completion of the assessment u/s. 143(3) of the Act, the consequential assessment order passed by the Assessing Officer also stands quashed." 3.3.3. Considering the facts of the instant case in the light of the decision of the co-ordinate bench, we are inclined to hold that notice issued u/s 143(2) of the Act is invalid notice and accordingly, the assessment framed consequentially to that is also invalid and is hereby quashed. 4. The issue raised in Ground No.2 is against the order of ld. CIT(A) sustaining the addition made by the Ld. AO by computing the capital gain i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntentions of the assessee and the AO computed the capital gain and added the same to the income of the assessee. 4.2. The ld. CIT(A) dismissed the appeal of the assessee by observing and holding as under: "10.1 These grounds are mainly about the issue of capital gain. An issue of capital gain has been decided earlier in case of land parcels at Jagi Road. Assam and Vizag. Now, the issue of capital gain is being adjudicated for the sale of offices at BGTA Mumbai. The main claim of the assessee is that the same gain has already been computed in the computation of AY 2016-17. Assessee claimed that registry of the same has been taken place in AY 2022-23 only. However, AO has observed that the agreement for sale was executed in AY 2016-17 but such agreement was not registered. Recent amendments and judicial pronouncements clearly support the AO's conclusion that transfer under section 2(47)(v) of the Income Tax Act, 1961, in relation to section 53A of the Transfer of Property Act. 1882, now strictly requires that the agreement for sale must be registered to be enforceable in law. It is to be noted that after the Registration and Other R....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to assessment year 2018-19 as the purchase/sale/transfer of the said rice mill took place in the previous year relevant to the assessment year 2017-18 and not in the assessment year 2018-19 ? b. Whether Ld. ITAT erred in law in not appreciating that the de-facto transfer of immovable property in terms of section 2(47)(ii) read with and 2(47)(vi) of the Act took place on the date of 'AGREEMENT FOR SALE' (i.e. December 30, 2016), as the total sale consideration of Rs. 86 Lac was paid by your petitioner (second party/purchaser) to the first party (seller) through banking channel and possession of rice mill and all rights and benefits accruing therefrom were surrendered by the first party in favor of your petitioner and production of the said rice mill was started by your petitioner and the resulting profit was earned therefrom was offered to income tax by your petitioner for the assessment year 2017-18 ? c. Whether Ld. ITAT erred in law in not appreciating that as per section 2(47)(ii) of the Act, extinguishment of right in capital asset, in the present case, took place on the date of execution of 'AGREEMENT FOR SALE' being December 30, 2016, as the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the agreement states that on payment of Rs. 86 lakhs on 30.12.2016 the assessee shall have a right to run the business in the factory premises. The tribunal does not dispute the fact that the entire sale consideration was paid by the assessee on the date when the agreement for sale was executed and that the assessee was put in possession of the rice mill along with the plant and machinery and they were also commenced production in the rice mill. If such is the nature of the transaction what is required to be seen is whether this will qualify to be construed as transfer as defined under section 2(47) of the Act. 5. The Hon'ble Supreme Court in Sanjeev Lal v. CIT Sanjeev Lal v. CIT [2014] 46 taxmann.com 300/225 Taxman 239/365 ITR 389 (SC) (SC) considered this issue and the question which fell for consideration before the Hon'ble Supreme Court was whether the entire property (therein) can be said to have been sold at the time when an agreement to sell is entered into. The Hon'ble Supreme Court pointed out that in normal circumstances the afore-stated question has to be answered in the negative. However, looking into the provision of section 2(47) of the Act which....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l while considering the second issue as to the applicable circle rate of the property has held in favour of the assessee by taking note of the fact that the entire sale consideration has been paid at the time of execution of the agreement of sale and, therefore, the stamp duty value/circle rate as applicable on 30.12.2016 has to be applied in the assessee's case. Therefore, this finding on the second issue is contrary to the finding rendered by the tribunal on the first issue which is the preliminary issue. Thus, we are of the view that the learned Tribunal committed an error in coming to the conclusion that the transfer did not take place in favour of the assessee on and from the date of execution of the agreement of sale pursuant to which the entire sale consideration was paid and the assessee was put in possession of the property which was purchased by them. 6. For the above reasons, the appeal is allowed. The order passed by the learned tribunal is set aside and the substantial questions of law are answered in favour of the assessee. 4.3.1. Similar view has been taken by the co-ordinate bench in the case of Maimoon Fashion Accessories (P.) Ltd. vs. Income-tax Of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....e. the residential house had been transferred. In normal circumstances by executing an agreement to sell in respect of an immovable property, a right in personam is created in favour of the transferee/vendee. When such a right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because the vendee, in whose favour the right in personam is created, has a legitimate right to enforce specific performance of the agreement, if the vendor, for some reason is not executing the sale deed. Thus, by virtue of the agreement to sell some right is given by the vendor to the vendee. The question is whether the entire property can be said to have been sold at the time when an agreement to sell is entered into. In normal circumstances, the aforestated question has to be answered in the negative. However, looking at the provisions of Section 2(47) of the Act, which defines the word "transfer" in relation to a capital asset, one can say that if a right in the property is extinguished by execution of an agreement to sell, the capital asset can be deemed to have been transferred. Relevant portion of Section 2(47), defining the word "transfer" is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....neutralized by the parties through subsequent contract or conduct leading to no transfer of the property to the proposed vendee but that is not the case at hand. 22....... 23. Consequences of execution of the agreement to sell are also very clear and they are to the effect that the appellants could not have sold the property to someone else. In practical life, there are events when a person, even after executing an agreement to sell an immovable property in favour of one person, tries to sell the property to another. In our opinion, such an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation we can say that some right, in respect of the said property, belonging to the appellants had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed. 24. Thus, a right in respect of the capital asset, viz. the property in question had been transferred by the appellants in favour of the ve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t year and levy of interest under section 234B of the Act are consequential in nature and therefore, do not need any separate adjudication. 18. In the result, the appeal by the assessee is allowed." 4.3.2. Consequently, we set aside the order of Ld. CIT(A) and direct the ld. AO to delete the addition, as the assessee has already sold the property in A.Y. 2016-17 and offered the capital gain to tax as per the provision of income tax in that year. The ground no. 2 is allowed. 5. The issue raised in ground no.3 is against the order of the ld. CIT (A) sustaining the action of the ld. AO in denying the cost of improvement amounting to Rs.1,04,08,220/- in respect of Vishakhapatnam land. 5.1. The facts in brief are that the assessee had purchased land in Vishakhapatnam, long back on 08.10.1999 for a consideration of Rs.1,39,355/- + registration expenses. Over the years the said asset/land continued to be shown in the audited balance sheets of the company along with the development expenses incurred on the said land amounting to Rs.1,04,08,220/- which continued to be shown in the successive balance sheets. During the year the assessee has sold the said piece of land and t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sts in earlier years' scrutiny assessments does not create res judicata in income-tax proceedings. Each assessment year is separate and independent. Moreover, there is no evidence that the earlier scrutiny specifically examined and accepted the alleged cost of improvement in question. Hence, this plea cannot override the statutory requirement of evidence. Also, for Vizag property, the original purchase cost as per the deed dated 08/10/1999 (Rs. 1,39,355 plus registration charges) is available. That alone should be taken as cost of acquisition in absence of a valid FMV certificate as on 01/04/2001 For Jagi Road, in the absence of a valid registered valuer's report for 2001, the appellant's backward calculation is inadmissible. In the background of above discussion and the assessment order, the stand taken by the AO is upheld. Further, as valuation report is pending from the DVO as mentioned at Para- 4.5.6.3 of the assessment order, AO is directed to revise the computation of capital gain, if required, on receipt of the valuation report from the DVO. Therefore, Grounds No. 7,8,9,10 and 11 are dismissed" 5.3. After hearing the rival c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... rival contentions and perusing the materials on records we find that so far as question of allowability of costg of improvement is concerned, we have decided a similar issue in ground no 3. In this issue also we note the assessee had incurred the improvement cost in the preceding years and duly shown the amount spent in the respective balance sheets which were duly audited and were placed along with the return of income before the deptt. We note that the cost was incurred long ago and assessee is not required to preserve the books of accounts either under the companies Act or under the Income Tax Act. Therefore, the facts being similar, our decision in ground no 3 would, apply to this part of ground no. 4 as well. We have also examined the issue of cost of land and indexed cost. Apparent the cost of land of Rs. 39,547/- cannot be taken as cost on 1.4.2001 and indexed cost based upon is also wrong and cannot be sustained. The assessee got the land valued from approved registered valuer in the year 2009 and calculated backward the fair market value of land as on 1.4.2001 based on the index table in the Income Tax Act. In our opinion the said fair market value cannot be rejected by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ground no.6 is against the order of ld. CIT (A) upholding the disallowance of Rs.3,18,000/- as made by the ld. AO on account of club membership and related expenses. 11. We have heard the rival contentions and perused the materials on records. We observe that the AO disallowed the expenses which were confirmed by the ld. CIT(A). It was submitted that the expenses were incurred out of commercial expediency for the purpose of business of the assessee as it has to entertain the company's guest also. We find merit in the plea of the assessee. Consequently, we set aside the order of ld. CIT(A) on this issue and direct the AO to delete the addition. The ground no. 6 is allowed. 12. The issue raised in ground no.7 is regards to the disallowance u/s 14A of the Act is not pressed and therefore, the same is dismissed as not pressed. 13. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 15.04.2026. ============= Document 1 Notice under section 143(2) of the Income-tax Act, 1961 GOVERNMENT OF INDIA Income Tax Departmen MINISTRY OF FINANCE INCOME TAX DEPARTMENT PAN: AACCA2035J Name: ABC INDIA LIMITED Address: 40/8, BALLYGUANGE ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....•à¥‡ अनà¥à¤¸à¤¾à¤° संवीकà¥à¤·à¤¾ मूलà¥à¤¯à¤¾à¤‚कन के लिठचà¥à¤¨à¤¾ गया है। While acknowledging the care you may have taken in preparing the return of income, there are certain issues. on which further clarification is required. Therefore, the return of income has been selected for scrutiny assessment in accordance with the provisions of the Income-tax Act, 1961. ख. आपको कà¥à¤¯à¤¾ करने की आवशà¥à¤¯à¤•à¤¤à¤¾ है? B. What you need to do? आप ई-फाइलिंग वेबसाइट (www.incometax.gov.in) में इलेकà¥à¤Ÿà¥à¤°à¥‰à¤¨à¤¿à¤• रूप से अपने खाते के माधà¥à¤¯à¤® से 'ई-पà¥à¤°à¥‹à¤¸à¥€à¤¡à¤¿à¤....
X X X X Extracts X X X X
X X X X Extracts X X X X
....न जारी किया जा सकता है। जब à¤à¥€ आपको पà¥à¤°à¤¶à¥à¤¨à¤¾à¤µà¤²à¥€ या संचार जारी किया जाता है, आपको निरà¥à¤¦à¤¿à¤·à¥à¤Ÿ समयावधि में बिनà¥à¤¦à¥à¤µà¤¾à¤° पà¥à¤°à¤¤à¤¿à¤•à¥à¤°à¤¿à¤¯à¤¾ देने की आवशà¥à¤¯à¤•à¤¤à¤¾ है। It is advised that you should gather all the information, documents, evidences, etc. in respect of various financial transactions you have entered during the Assessment Year under consideration, which may be relevant for the scrutiny proceedings. Detailed questionnaire(s) or communication may be issued during the course of assessment proceedings. As and when questionnaire(s) or communication is issued, you are required to provide specific p....