Commissioner ofIncome Tax-6, V. Dr.Jaehangir M.Jehangir

ITTA/96/2004

AI Insights

The case involves the Commissioner of Income Tax-6, Hyderabad, as the appellant, and Dr. Jeehangir M. Jehangir, an NRI, as the respondent. The dispute arose from the revision of the respondent's taxable income by the Commissioner under Section 263 of the Income Tax Act, 1961, based on a perceived discrepancy in the property valuation used in the original assessment. The respondent had sold his inherited property and reported the sale proceeds in his tax returns, which were initially accepted by the Assessing Officer. However, the Commissioner later contested the valuation used, leading to a revised assessment. The Tribunal found procedural lapses in the Commissioner's actions, leading to the dismissal of the appeal.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 736994 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 10-12-2014
• Assessment Year: misc
• Other Referred Cases: I.T.A.No.443/Hyd/1999
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: P KRISHNA
• Assessee Lawyers: S R ASHOK
• Keywords: Assessment; Capital Gains; Immovable Property; Market value; Suo-motu review
• Section: 263; 48

Judgement Text

"* THE HONOURABLE SRI JUSTICE L. NARASIMHA REDDY and * THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A.No.96 of 2002 % 10.12.2014 #Commissioner of Income Tax-6, Hyderabad. …. Appellant Vs. $ Dr. Jeehangir M. Jehangir, hyderabad. …. Respondent ! Counsel for the Appellant: Sri S.R. Ashok, Senior S.C for Income TAx Counsel for Respondent: Sri P. Murali Krishna Head Note: ? Cases referred: THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.No.96 of 2004 JUDGMENT: (per the Hon’ble Sri Justice L.Narasimha Reddy) The Revenue preferred this appeal feeling aggrieved by the order dated 26.02.2004 passed by the Hyderabad Bench ‘B’ of the Income Tax Appellate Tribunal (for short ‘the Tribunal’) in I.T.A.No.443/Hyd/1999. The respondent is an NRI. He inherited 1/4th share in an item of immovable property. He sold his share in the financial year 1994-95. In the returns filed by him under the Income Tax Act, 1961 (for short ‘the Act’) for the Assessment Year 1995-96, he has shown the income in the form of sale proceeds as Rs.6,45,142/-. The capital gain component was shown as Rs.3,84,567/-. The Assessing Officer processed the return and passed an order dated 15.01.1997 accepting the facts and figures furnished by the respondent. The jurisdictional Commissioner selected the case of the respondent for suo-motu review under Section 263 of the Act. A show cause notice was issued directing the respondent to explain as to why the order of assessment dated 15.01.1997, be not set aside. He opined that the market value of the property was taken as Rs.600/- per square yard by the Assessing Officer, whereas the information furnished by the Sub-Registrar discloses that it is only Rs.40/- per square yard. The respondent submitted an explanation stating that the certificate issued by the Sub-Registrar is to the effect that the value of the property is Rs.40/- per square foot for the residential area and Rs.70/- per square foot for the commercial area and not Rs.40/- per square yard. Not satisfied with the explanation offered by the respondent, the jurisdictional Commissioner passed an order dated 19.03.1999 revising the taxable income on the basis that the market value of the property to be taken into account under clause (ii) of Section 48 of the Act shall be Rs.40/- per square yard and not Rs.600/- per square yard, as allowed by the Assessing Officer. Consequential order was also passed by the Income Tax Officer. The respondent carried the matter in appeal before the Tribunal by filing I.T.A.No.443/Hyd/1999 and the same was allowed. Heard Sri S.R. Ashok, learned Senior Standing Counsel for the appellant and Sri P. Murali Krishna, learned counsel for the respondent. Section 48 of the Act provides for the procedure to be followed in computation of the income, chargeable as “Capital gains”. As a first step, the consideration that is fetched in the transfer of the property is to be ascertained and from that amount, two components, namely, a) expenditure incurred wholly and exclusively in connection with such transfer and b) the cost of acquisition of the asset and the cost of any improvement thereto, must be deducted. The further details are furnished in the form of provisos. The Explanation is devoted to define the various expressions, that are used in the Section. The second component, namely, the cost of acquisition of the asset would become important. That would cut into sale consideration and thereby, bring down the amount, which is liable to be taxed as capital gain. The following illustration would make it clear. a. A plot of 500 square yards was sold in the year referable to the Assessment Year 1995-96 at the rate of Rs.2,000/- per square yard and it fetched Rs.10,00,000/-. b. The owner of the plot incurred expenditure of Rs.1,00,000/- towards advertisement, documentation and legal opinion. c. The property was purchased in the year 1985-86 for consideration of Rs.500/- per square yard. d. Over the period, a sum of Rs.2,00,000/- was spent for construction of compound wall, watchman shed and providing electricity. A sum of Rs.1,00,000/- incurred for advertisement etc., comes under clause (i) of Section 48 of the Act. The amount representing consideration for purchase, namely, Rs.2,50,000/-, and the cost of construction of compound wall of Rs.1,00,000/-, aggregating to Rs.3,50,000/- would come under clause (ii). The amount falling into both heads which aggregates to Rs.4,50,000/- is to be deducted from the total consideration of Rs.10,00,000/-. The resultant figure, namely, Rs.5,50,000/- would become ‘capital gain’, subject, however, to further revision depending on the nature of the assessee and the nature of transactions. From the above illustration, it becomes clear that any fluctuation, in the cost of acquisition, would have its own bearing upon the capital gain. In the instant case, the respondent stated that the cost of acquisition is Rs.600/- per square yard and the same was accepted by the Assessing Officer, after verification, and passed the order of assessment dated 15.01.1997. The sole basis for the jurisdictional Commissioner to revise the order of assessment was that the cost of acquisition of the property would be only Rs.40/- per square yard and accordingly, he pointed out the difference of Rs.560/- per square yard. In his explanation, the respondent categorically stated that in the letter addressed by the Sub Registrar, the cost was mentioned as Rs.40/- per square foot, obviously, for the constructed area, and the same was mistaken by the Commissioner to be the cost of land per square yard. A perusal of the order passed by the Commissioner discloses that he got another letter from the Sub Registrar, Banjara Hills, wherein he is said to have informed that the cost of Rs.40/- mentioned by him in his earlier letter, is per square yard of land and he mistakenly mentioned it as square foot of constructed area. The difference was bound to be phenomenal. If Rs.40/- is the cost in respect of square feet of constructed area, in terms of square yards, it would not only be nine times that figure, but also subject to addition of cost of the land, be it the one, on which the building was constructed or the proportionate open land. When such is the devastating effect of the treating of the figure vis-à-vis ‘square yard’ in stead of ‘square feet’, it was basic and fundamental duty of the Commissioner to have shared that information with the respondent and to take his view point in this behalf, into account. However, he straightaway proceeded to pass the order. What happened at the stage of appeal is of some curiosity and interest. Noticing that the sole basis for the Commissioner to revise the order passed by the Assessing Officer was the information said to have been received by him from the Sub Registrar, the Tribunal asked the departmental representative to furnish a copy of the same to it for verification. The representative expressed his inability and it ultimately emerged that copy thereof was not furnished even to the department. The Tribunal, naturally, was not at all convinced about the procedure adopted by the Commissioner and accordingly, allowed the appeal. Learned counsel for the appellant is not able to point out as to how the order passed by the Tribunal suffers from any factual or legal error. The appeal is accordingly dismissed. There shall be no order as to costs. The miscellaneous petitions filed in this appeal shall also stand disposed of. ___________________________ L.NARASIMHA REDDY, J Date: 10.12.2014 ____________________________ CHALLA KODANDA RAM, J Note: L.R Copy to be marked B/o va "