Shri Tarun S.Verma(Ind.), Ahmedabad V. The CIT-IV, Ahmedabad

ITA 1157/AHD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80410 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 23-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 25-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIMALENDU VERMA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Opportunity of being heard; Principle of natural justice; Source of fund; Capital receipt
• Section: 143(3); 68; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD , , , , BEFORE SHRI G. C. GUPTA , VICE PRESIDENT AND .., !'# $% $% $% $% SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER &'(, )* + ) # , ) # , ) # , ) # , ITA NO. 1157 /AHD/2013 ASSESSMENT YEAR :2008-09 SHRI TARUN S VARMA (IND.) 307-308, SARTHIK SQUARE, OPP. NEW U S PIZZA, S G HIGHWAY, AHMEDABAD V/S . CIT-IV, PRATAYKSHA KAR BHAVAN, POLYTECHNIC, AMBAWADI, AHMADABAD-380015 PAN NO. A A IPV6427C ITA NO. 1158/AHD/2013 ASSESSMENT YEAR :2008-09 SHRI TARUN S VARMA L/H OF LATE SANTARAMDAS K VARMA 307-308, SARTHIK SQUARE, OPP. NEW U S PIZZA, S G HIGHWAY, AHMEDABAD V/S . CIT-IV, PRATAYKSHA KAR BHAVAN, POLYTECHNIC, AMBAWADI, AHMADABAD-380015 PAN NO. AAIPV6428P ITA NO. 1160/AHD/2013 ASSESSMENT YEAR :2008-09 SHRI GAURAV S VARMA 307-308, SARTHIK SQUARE, OPP. NEW U S PIZZA, S G HIGHWAY, AHMEDABAD V/S . CIT-IV, PRATAYKSHA KAR BHAVAN, POLYTECHNIC, AMBAWADI, AHMADABAD-380015 PAN NO. ADEPV3361L (APPELLANT) .. (RESPONDENT) + - . ) / BY REVENUE SHRI VIMALENDU VERMA, CIT D.R. ) - . ) / BY ASSESSEE SHRI S. N. SOPARKAR, A.R. / - '* /DATE OF HEARING 23.07.2014 012 - '* /DATE OF PRONOUNCEMENT 17.10.2014 O R D E R ITA NOS.1157 & 1158/AHD/13 (SHRI TARUN S.VARMA VS.C IT) & ITA NO. 1160/AHD/13 (SHRI GAURAV S VARMA VS. CIT) ( A.YS. 08-09) PAGE 2 PER BENCH THESE APPEALS ARE FILED BY ASSESSEE AGAINST THE ORD ER U/S. 263 OF THE ACT OF CIT DATED 25.03.2013 FOR THE ASSESSMENT YEAR 2008-09. 2. BEFORE US AT THE OUTSET THE LD. A.R. SUBMITTED T HAT THOUGH THE APPEALS ARE OF 3 DIFFERENT ASSESSEES BUT ALL ARE FAMILY MEM BERS AND THE FACTS AND CIRCUMSTANCES OF ALL THE 3 CASES ARE SIMILAR EXCEPT FOR THE AMOUNTS AND THEREFORE HE HAS COMMON SUBMISSIONS TO MAKE AND THE REFORE ALL THE 3 APPEALS CAN BE HEARD TOGETHER. WE THEREFORE PROCEED TO DISPOSE OF ALL THE THREE APPEALS TOGETHER FOR THE SAKE OF CONVENIENCE BY PASSING A CONSOLIDATED ORDER AND THUS PROCEED WITH THE FACTS IN THE CASE O F TARUN VERMA (ITA NO.1158/AHD/2013) FOR CONVENIENCE. 3. ASSESSEE IS AN INDIVIDUAL STATED TO BE HAVING IN COME FROM DIRECTOR REMUNERATION, BUSINESS, CAPITALS GAINS AND OTHER SO URCES. ASSESSEE ELECTRONICALLY FILED HIS RETURN OF INCOME FOR A.Y. 2008-09 ON 29.9.2008 DECLARING TOTAL INCOME OF RS 30,63,390/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 22.12.2010 AND THE TOTAL INCOME WAS ASSESSED AT RS. 30,63,390/- BEING THE RETURNED INCOME. 4. SUBSEQUENTLY ON VERIFICATION OF THE ASSESSMENT R ECORDS, CIT OBSERVED THAT ASSESSEE HAD SHOWN SHORT TERM GAINS OF RS. 97, 618/- AND LONG TERM GAINS OF RS. 27,20,071/- RESPECTIVELY FROM SALE OF PLOTS OF LAND. ON FURTHER VERIFICATION, HE NOTICED THAT VARIOUS PIECES OF LAN D (15 PLOTS) (CLAIMED TO BE AGRICULTURAL LAND) WERE PURCHASED BY THE ASSESSEE A S CO-OWNER ALONG WITH HIS ITA NOS.1157 & 1158/AHD/13 (SHRI TARUN S.VARMA VS.C IT) & ITA NO. 1160/AHD/13 (SHRI GAURAV S VARMA VS. CIT) ( A.YS. 08-09) PAGE 3 FAMILY MEMBERS IN THE PAST, HAD INCURRED HUGE DEVEL OPMENT EXPENSES FOR DEVELOPING THE LAND, THE SOURCE OF FUNDING OF EXPEN SES WAS CASH ADVANCE RECEIVED FROM CO-OPERATIVE SOCIETIES AND THE AGRICU LTURAL INCOME SHOWN FROM THE LAND PURCHASED IN EARLIER YEARS WAS MINUSCULE, ALL THE FAMILY MEMBERS AND THE ASSESSEE WERE ENGAGED IN THE BUSINESS OF LAND D EVELOPMENT AND REAL ESTATE THROUGH VARIOUS COMPANIES AND PARTNERSHIP FI RMS. HE ALSO NOTICED THAT ALL THE PIECES OF THE LAND WERE SOLD BY THE ASSESSE E ALONG WITH THE CO-OWNERS TO ASSESSEES FLAGSHIP COMPANY (SWAGAT INFRASTRUCTU RE (P) LTD) WHOSE DIRECTORS WERE ASSESSEE AND HIS FAMILY MEMBERS AND THUS ACCORDING TO LD. CIT THE AO HAS ACCEPTED THE RETURNED INCOME WITHOUT EXAMINING THE TAXABILITY OF SALE OF LAND AS BUSINESS RECEIPTS AS AGAINST THE CAPITAL RECEIPTS SHOWN BY THE ASSESSEE. IN VIEW OF THE AFORESAID FACTS, LD. C IT WAS OF THE VIEW THAT AO HAS FINALIZED THE ASSESSMENT WITHOUT MAKING DUE INQ UIRY AND ANALYZING THE NECESSARY DETAILS AND THEREFORE THE ORDER OF THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. LD. CIT IS SUED SHOW CAUSE NOTICE ON 4.2.2013 IN RESPONSE TO WHICH THE ASSESSEE INTER AL IA SUBMITTED DETAILED EXPLANATION AND OBJECTED TO INITIATION OF PROCEEDIN GS U/S. 263. THE OBJECTIONS OF THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO LD. CI T. HE THEREAFTER VIDE ORDER DATED 25.03.2013 HELD THAT THE ORDER PASSED B Y THE A.O. WAS ON THE WRONG ASSUMPTION OF FACTS, INCORRECT APPLICATION OF LAW AND WITHOUT MAKING INQUIRY AND THUS THE ORDER OF THE AO PASSED U/S 143 (3) DATED 22/12/2010 WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E AND THEREFORE THE PROVISIONS OF SECTION 263 BECOMES APPLICABLE AND AC CORDINGLY SET ASIDE THE ASSESSMENT ORDER DATED 22/12/2010 PASSED BY THE AO AND DIRECTED THE A.O. ITA NOS.1157 & 1158/AHD/13 (SHRI TARUN S.VARMA VS.C IT) & ITA NO. 1160/AHD/13 (SHRI GAURAV S VARMA VS. CIT) ( A.YS. 08-09) PAGE 4 TO DECIDE THE ISSUE AFRESH BY TREATING THE PROFIT O N SALE OF LAND AS INCOME FROM BUSINESS, EXAMINE THE GENUINENESS OF CASH ADVANCE R ECEIVED BY THE ASSESSEE AND THE GENUINENESS OF THE EXPENSES INCURR ED ON IMPROVEMENT AND DEVELOPMENT OF LAND. 5. AGGRIEVED BY THE ORDER OF THE CIT, THE ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS. 1. LD. CIT ERRED IN LAW AND ON FACTS INVOKING PROV ISIONS OF SECTION 263 OF THE ACT HOLDING ASSESSMENT FRAMED IN SCRUTINY PROCEEDINGS U /S 143 (3) AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE TO THE E XTENT OF FAILURE OF AO TO EXAMINE TAXABILITY OF SALE PROCEEDS OF THE LAND AS BUSINESS INCOME AS AGAINST CAPITAL GAINS AS OFFERED IN RETURN OF INCOME. THIS ORDER OF CIT SEEKING TO REVISE SCRUTINY ASSESSMENT ORDER NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE IS UNJUST, UNTENABLE AND AGAINS T THE PRINCIPLES OF NATURAL JUSTICE THAT DESERVES TO BE QUASHED. 2. LD. CIT ERRED IN LAW AND ON FACTS IN DIRECTING A O TO TREAT PURCHASE AND SALE TRANSACTIONS OF THE PROPERTY NARRATED AS ADVENTURE IN THE NATURE OF TRADE AND TO TAX UNDER THE HEAD PROFITS AND GAINS FROM BUSINE SS OR PROFESSION AT NORMAL RATE. LD. CIT FAILED TO APPRECIATE THAT INVESTMENT IN LAND PURCHASED FROM OWN FUNDS SUBJECTED TO AGRICULTURAL ACTIVITY OFFERING A GRICULTURAL INCOME FOR RATE PURPOSES AMPLY DEMONSTRATED INTENTION OF INVESTMENT . AO PASSED ORDER AFTER PROPER INQUIRY AND VERIFICATION OF THE CLAIM MADE B Y THE APPELLANT AND HENCE ORDER OF CIT IS ERRONEOUS THAT OUGHT TO BE QUASHED. 3. LD. CIT ERRED IN LAW AND ON FACTS IN DIRECTING A O TO EXAMINE GENUINENESS OF CASH ADVANCE SHOWN FROM TWO CO-OPERATIVE SOCIETIES AS ADVANCE AGAINST LAND AND TO VERIFY THEIR IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION AS PER SECTION 68 ALONG WITH APPLICABIL ITY OF PROVISIONS OF SECTION 269SS OF THE ACT WITHOUT APPRECIATING THE SUBMISSIO NS MADE DURING THE ASSESSMENT AS WELL REVISIONAL PROCEEDINGS. LD. CIT OUGHT TO HAVE ACCEPTED THAT CONFIRMATION ON THE LETTERHEAD OF THE CO OPERA TIVE SOCIETY FOR ADVANCES RECEIVED AGAINST BANAKHAT AGREEMENT DISCHARGED THE PRIMARY ONUS U/S 68 OF THE ACT. 4. LD. CIT ERRED IN LAW AND ON FACTS IN DIRECTING A O TO VERIFY GENUINENESS OF EXPENSES INCURRED FOR THE COST OF IMPROVEMENT OF TH E PROPERTIES FAILING TO APPRECIATE THAT AO FULLY SCRUTINIZED BOTH BANK AND CASH TRANSACTIONS OF ITA NOS.1157 & 1158/AHD/13 (SHRI TARUN S.VARMA VS.C IT) & ITA NO. 1160/AHD/13 (SHRI GAURAV S VARMA VS. CIT) ( A.YS. 08-09) PAGE 5 EXPENSES INCURRED WITH LIST GIVING DETAILS OF EACH PERSON WITH NAME AND FULL ADDRESS. THIS DIRECTION OF ID. CIT IS UNCALLED FOR AND COMPLETELY AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 5. LD. CIT IN LAW AND ON FACTS IN DIRECTING AO TO M AKE DETAILED INQUIRY IN RESPECT OF GENUINENESS OF CO OPERATIVE SOCIETIES OBSERVING THEM TO BE USED BY THE APPELLANT & CO OWNERS AS CONDUIT TO INTRODUCE THEIR UNACCOUNTED MONEY FOR ADVANCING CASH AGAINST BANAKHAT AGREEMENT IGNORING THE DETAILS AND EXPLANATIONS SUBMITTED DURING REVISIONAL PROCEEDING S AND FAILING TO APPRECIATE THE FACT THAT ALL SUCH DETAILS AND SUBMISSIONS WERE BEFORE AO AND CONSIDERED AT THE TIME OF PASSING THE ORDER UNDER SCRUTINY ASS ESSMENT. 6. BEFORE US, LD. A.R. SUBMITTED THAT THOUGH ASSESS EE HAS RAISED VARIOUS GROUNDS BUT THE ONLY EFFECTIVE GROUND IS CHALLENGIN G THE ORDER OF CIT PASSED U/S. 263 OF THE ACT. 7. BEFORE US THE LD. A.R. APART FROM REITERATING TH E SUBMISSIONS MADE BEFORE CIT SUBMITTED THAT IN THE PRESENT CASE THE A SSESSEE WAS HOLDING ALL THE LAND FOR MORE THAN 36 MONTHS, THE LAND WAS NOT HELD AS STOCK IN TRADE AND THEREFORE THE ASSESSEE HAD RIGHTLY CONSIDERED THE P ROFIT ON THE SALE OF LAND AS CAPITAL GAINS. HE ALSO SUBMITTED THAT IN THE PRES ENT CASE THE PREREQUISITE CONDITIONS SPECIFIED U/S 263 ARE NOT SATISFIED. HE SUBMITTED THAT THE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO HAD RAISED THE QUERY, THE QUERY WAS REPLIED BY THE ASSESSEE AND ON BEING SATISFIED BY T HE REPLY OF THE ASSESSEE, A.O. HAD PASSED THE ASSESSMENT ORDER U/S. 143(3). HE FURTHER SUBMITTED THAT IT IS NOT NECESSARY FOR THE A.O. TO NOTE IN THE ASS ESSMENT ORDER EACH OF THE QUERIES RAISED BY HIM AND THE REPLIES THERETO WHICH WERE RECEIVED BY HIM FROM THE ASSESSEE. HE ALSO POINTED TO PAGE NO.3 BEING TH E LETTER OF THE AO DATED 30.10.2010 ASKING THE ASSESSEE TO FILE THE COPY OF PURCHASE AND SALES DEED AND QUERY FOR EXPENSES FOR IMPROVEMENT OF LAND, AT PAGE NO. 6 OF THE PAPER ITA NOS.1157 & 1158/AHD/13 (SHRI TARUN S.VARMA VS.C IT) & ITA NO. 1160/AHD/13 (SHRI GAURAV S VARMA VS. CIT) ( A.YS. 08-09) PAGE 6 BOOK BEING THE REPLY DATED 7.12.2010 IN RESPONSE TO THE AO'S QUERY. HE ALSO POINTED TO THE DETAILS OF CONFIRMATIONS OF THE PART IES FROM WHOM THE ASSESSEE HAD TAKEN ADVANCE (WHICH WAS PLACED AT PAGE 35 & 36 OF THE PAPER BOOK), THE DETAILS OF LAND DEVELOPMENT EXPENSES (PAGE 40 ONWAR DS OF THE PAPERBOOK). APART FROM CHALLENGING THE ORDER PASSED U/S. 263 OF THE ACT, LD. A.R. ALSO SUBMITTED THAT CIT IN THE ORDER CANNOT GIVE DIRECTI ONS TO AO TO CONSIDER THE PROFIT ON SALE OF LAND AS BUSINESS INCOME AND NOT A S CAPITAL GAINS. HE THEREFORE URGED THAT SINCE THE ASSESSMENT ORDER WAS PASSED BY THE AO AFTER EXAMINING ALL THE FACTS, THE ORDER PASSED BY CIT U/ S 263 BE QUASHED. HE ALSO PLACED RELIANCE ON THE DECISION IN THE CASE OF CIT VS AMIT CORP 213 TAXMAN 19 (GUJ). THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT LD. CIT HAS BY A VERY DETAILED AND REASONED ORDER HAS RIGHTLY HELD THAT T HE ORDER PASSED BY THE A.O. WAS WITHOUT APPLICATION OF MIND AND WAS THEREFORE E RRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. HE FURTHER SUBMITTED TH AT THE PRESENT CASE WAS LACK OF INQUIRY AND THEREFORE CIT HAS RIGHTLY INVOK ED THE PROVISIONS OF SECTION 263. HE THUS SUPPORTED THE ORDER OF CIT. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS ABOUT THE INVOKING OF THE PROVISIONS OF SECTION 263 BY THE CIT. 9. S. 263(1) OF THE ACT, THE POWERS UNDER WHICH CIT HAS ASSUMED POWER FOR REVISION READS AS UNDER: THE COMMISSIONER MAY CALL FOR AND EXAMINE THE RECO RD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ITO 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 MA KING OR CAUSING TO BE MADE ITA NOS.1157 & 1158/AHD/13 (SHRI TARUN S.VARMA VS.C IT) & ITA NO. 1160/AHD/13 (SHRI GAURAV S VARMA VS. CIT) ( A.YS. 08-09) PAGE 7 SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR M ODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASS ESSMENT. 10. THE READING OF THE ABOVE PROVISIONS MAKES IT VERY C LEAR THAT THE POWER OF SUO MOTU REVISION U/S 263(1) IS IN THE NATURE OF SUPERVISORY JURISDICTION AND THE SAME CAN BE EXERCISED ONLY IF THE CIRCUMSTANCES SPECIFIED THEREIN EXIST. TWO CIRCUMSTANCES MUST EXIST TO ENABLE THE COMMISSI ONER TO EXERCISE POWER OF REVISION U/S 263, NAMELY (I) THE ORDER IS ERRONE OUS (II) BY VIRTUE OF BEING ERRONEOUS PREJUDICE HAS BEEN CAUSED TO THE INTEREST S OF THE REVENUE. 11. THE HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT (2000) 243 ITR 83 (SC) HAS OBSERVED AS UNDER:- A BARE READING OF SECTION 263 OF THE I.T. ACT, 196 1, MAKES IT CLEAR THAT THE PRE- REQUISITE FOR THE EXERCISE OF JURISDICTION BY THE C IT SUO MOTU UNDER IT, IS THAT THE ORDER OF THE ITO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIA L TO THE INTERESTS OF THE REVENUE. THE CIT HAS TO BE SATISFIED OF TWIN CONDITIONS, NAM ELY (I) THE ORDER OF THE AO SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDIC ED TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENT- IF THE ORDER OF THE ITO IS E RRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIA L TO THE REVENUE- RECOURSE CANNOT BE LEAD TO SECTION 263(1) OF THE ACT. THE PROVISIO N CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED B Y THE A.O., IT IS ONLY WHEN AN ORDER IS ERRONEOUS, THAT THE SECTION WILL BE ATTRAC TED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATIS FY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. TH E PHRASE PREJUDICIAL TO THE INTEREST OF REVENUE IS NOT AN EXPRESSION OF ART AND IS NOT DEFINED IN THE ACT. UNDERSTOOD IN ITS ORDINARY MEANING IT IS OF WIDE IMPORT AND IS NO T CONFIRMED TO LOSS OF TAX.. IN THE PRESENT CASE, BEFORE US, IT IS LD. A.R'S. SU BMISSION THAT AO HAS MADE THE NECESSARY INQUIRIES DURING THE COURSE OF ASSESS MENT PROCEEDINGS AND THEREAFTER CONSIDERED THE PROFIT ON SALE OF LAND TO BE CAPITAL GAINS AND THEREFORE THE A.O. AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE AND AFTER ITA NOS.1157 & 1158/AHD/13 (SHRI TARUN S.VARMA VS.C IT) & ITA NO. 1160/AHD/13 (SHRI GAURAV S VARMA VS. CIT) ( A.YS. 08-09) PAGE 8 APPLICATION OF MIND HAS DECIDED THE ISSUE AND THERE FORE THE REVISIONARY PROCEEDINGS U/S. 263 CANNOT BE INITIATED IN THE PRE SENT CASE. IN THE CONTEXT OF THE AFORESAID SUBMISSION IT WOULD BE RELEVANT TO SE E THE RELEVANT QUERY RAISED BY THE AO VIDE NOTICE DATED 30.11.2010 WHICH READS AS UNDER: 'ON VERIFICATION OF DETAILS FURNISHED BY YOU IT IS GATHERED THAT YOU HAD NOT FURNISHED THE COPY OF THE SALE AGREEMENT AND PURCHASE AGREEME NT OF LAND SITUATED AT MOTERA SURVEY NO 2/2 ON WHICH YOU HAVE CLAIMED LONG TERM C APITAL GAIN OF RS 3,50,421/-. IN THE ABSENCE OF ANY DETAILS YOU ARE REQUESTED TO SHO W CAUSE AS TO WHY SATES CONSIDERATION OF SAID LAND SHOULD NOT BE TREATED AS YOUR INCOME. YOU HAVE ALSO NOT FURNISHED COPY OF PURCHASE AGREEM ENT OF LAND SITUATED AT HADMATIA SURVEY NO 4 AND LAND SITUATED AT KUDSAN SU RVEY NO 189. IN ABSENCE OF SAID YOU ARE REQUESTED TO SHOW CAUSE AS TO WHY AMOUNT OF SALE CONSIDERATION SHOULD NOT BE TAXED IN YOUR HANDS. ON VERIFICATION OF SALE AGREEMENT AND PURCHASE AGRE EMENT IT IS GATHERED THAT YOUR PURCHASE PRICE OF LAND SITUATED AT SHILAJ BEARING S URVEY NO 370 / 372 / 377 / 378 / 367 / 368 / 373 / 374 / 360 / 386 / 388 / 355 / 369 DIF FERS WITH THE PURCHASE PRICE SHOWN IN COMPUTATION OF INCOME. YOU ARE REQUESTED TO SHOW CA USE AS TO WHY THE DIFFERENCE OF AMOUNT SHOULD NOT BE TREATED AS YOUR INCOME. AT THE TIME OF CALCULATION OF LONG TERM CAPITAL GAI N YOU HAVE SHOWN EXPENSES FOR IMPROVEMENT OF LAND SITUATED AT HODMATIA, KUDSAN, S HILAJ ETC. EVIDENCE OF THESE EXPENSES WERE NOT PRODUCED. YOU HAVE NOT PRODUCED D ETAILS OF IMPROVEMENT. IN THE ABSENCE OF SAME YOU ARE REQUESTED TO SHOW CAUSE AS TO WHY THE AMOUNT SHOULD NOT BE REDUCED FROM THE COST OF ASSETS AND CALCULATE IN COME OF THE SAME. IN REPLY TO THE QUERY OF A.O., ASSESSEE VIDE LETTER DATED 7.12.2010 SUBMITTED THE DETAILS, THE RELEVANT PORTION BEING AS UNDER: 1. WE SUBMIT A CHART SHOWING FULL PARTICULARS OF T HE VARIOUS PLOTS OF LAND SOLD BY THE ASSESSEE IN THE FORMAT DESIRED BY YOUR GOODSELF . WE STATE THAT ALL THE PLOTS OWNED BY THE ASSESSEE A ND SOLD BY HIM ARE OWNED JOINTLY WITH THE CO-OWNERS AS MENTIONED THE CHART O F THE CAPITAL GAIN. THE SNARE OF ALL THE CO-OWNERS IS EQUAL I. E. 1/6. ITA NOS.1157 & 1158/AHD/13 (SHRI TARUN S.VARMA VS.C IT) & ITA NO. 1160/AHD/13 (SHRI GAURAV S VARMA VS. CIT) ( A.YS. 08-09) PAGE 9 WE LIKE TO BRING TO YOUR KIND NOTICE THAT THE OUT O F THE TOTAL AREA OF BLOCK NO. 4 I.E. OUT OF 32,375 SQ. MTRS., AN AREA OF 13,199 IS ACQUIRED BY THE GOVERNMENT AT A PRICE OF RS. 11,36,053. AS THE TOTAL COST OF THE PLOT IS ADJUSTED AGAINST THE SALES CONSIDERATION, THE TOTAL AMOUNT OF RS. 1.89,3 42 (I. E. THE PROPORTIONATE SHARE OF THE ASSESSEE BEING 1/6 TH OF THE TOTAL PRICE) IS TREATED AS LONG TERM CAPITAL GAIN. 2. WE SUBMIT HEREWITH THE SALE AND PURCHASE DOCUMEN TS OF LAND SITUATED AT MOTERA SURVEY NO. 2/2 ON WHICH THE ASSESSEE HAS A LONG TERM CAPITAL GAIN OF RS. 3,50,421. 3. WE FURNISH HEREWITH THE COPY OF THE PURCHASE AGR EEMENT OF THE LAND SITUATED AT HADMATIA SURVEY NO. 4 AND LAND SITUATED AT KUDASAN SURVEY NO. 189 AS DESIRED. 4. WE LIKE TO MENTION THAT THE PURCHASE DOCUMENTS A RE INCLUSIVE OF PLOTS WHICH ARE NOT SOLD AS DESCRIBED HEREUNDER: (A) PURCHASE DOCUMENT FOR PLOTS NO. 364. 370,372.37 7 AND 378 IS FOR TOTAL 12,748SQ. MTRS. OF LAND. AS AGAINST THIS, THE PLOT NO. 364 (1,315 SQ.RNTRS.) IS NOT SOLD. AS SUCH THE PURCHASE PRICE CLAIMED AS DEDUCTION IS ONLY FOR THE PLOTS NO. 370,372, 377 AND 378. THE DIFFERENCE AS PER THE PURCHASE DOCUMENT AND THE PURCHASE PRICE CLAIMED AS DEDUCTIO N, IS ON ACCOUNT EXCLUSION OF THE PLOT NO. 364 WHICH IS THERE IN THE PURCHASE DOCUMENT BUT NOT M SALE DOCUMENT. THE COST OF PURCHASE CLAIMED A S DEDUCTION IS EXCLUDING THE COST OF PLOT NO. 364 AND HENCE THE DI FFERENCE. (B) SIMILARLY, PURCHASE DOCUMENT FOR PLOTS NO. 367 , 368, 373, 374 AND 385 IS FOR TOTAL 8,296 SQ. MTRS. OF LAND. AS AGAINST THIS, THE PLOT NO. 385 (810 SQ.MTRS.) IS NOT SOLD. AS SUCH THE PURCHASE PRICE C LAIMED AS DEDUCTION IS ONLY FOR THE PLOTS NO 367, 368, 373 AND 374. THE DI FFERENCE AS PER THE PURCHASE DOCUMENT AND THE PURCHASE PRICE CLAIMED AS DEDUCTION IS ON ACCOUNT OF EXCLUSION OF THE PLOT NO. 385 WHICH IS T HERE IN THE PURCHASE DOCUMENT BUT NOT IN SALE DOCUMENT. THE COST OF PURC HASE CLAIMED AS DEDUCTION IS EXCLUDING THE COST OF PLOT NO. 385 AND HENCE THE DIFFERENCE. (C) SIMILARLY, PURCHASE DOCUMENT FOR PLOTS NO. 366 , 386 AND 388 IS FOR TOTAL 10,522 SQ, MTRS. OF LAND. AS AGAINST THIS, THE PLOT NO. 366 (6,879 SQ.MTRS.) IS NOT SOLD. AS SUCH THE PURCHASE PRICE CLAIMED AS DEDUCTION IS ONLY FOR THE PLOTS NO. 366 AND 386. THE DIFFERENCE AS PER TH E PURCHASE DOCUMENT AND THE PURCHASE PRICE CLAIMED AS DEDUCTION IS ON A CCOUNT OF EXCLUSION OF ITA NOS.1157 & 1158/AHD/13 (SHRI TARUN S.VARMA VS.C IT) & ITA NO. 1160/AHD/13 (SHRI GAURAV S VARMA VS. CIT) ( A.YS. 08-09) PAGE 10 THE PLOT NO. 386 WHICH IS THERE IN THE PURCHASE DOC UMENT BUT NOT IN SALE DOCUMENT. THE COST OF PURCHASE CLAIMED AS DEDUCTION IS EXCLUDING THE COST OF PLOT NO 385 AND HENCE THE DIFFERENCE. (D) THE DIFFERENCE IN THE COST AS PER PURCHASE DOC UMENT AND AS PER THE DEDUCTION CLAIMED FOR THE COST OF LAND IS ALSO ON A CCOUNT OF THE STAMP DUTY AND REGISTRATION CHARGES PAID ON THE RESPECTIVE LAN D. WE UNDERSTAND AND BELIEVE THAT THE CHART ATTACHED H EREWITH SHOWING THE DETAILS COMPUTATION OF CAPITAL GAIN WILL CLARIFY THE DOUBTS RAISED. 5. WE SUBMIT HEREWITH THE DETAILS OF EXPENSES INCUR RED' BY THE ASSESSEE ON THE DEVELOPMENT OF RESPECTIVE PLOTS OF LAND. IN ADDITION TO THE ABOVE, WE ALSO SUBMIT THE DETAIL S CALLED FOR BY YOUR GOODSELF BY YOUR EARLIER LETTER, WHICH COULD NOT BE FURNISHED ALONGWITH OUR LETTER DATED 2 ND NOVEMBER, 2010. 12. ON PURSUING THE QUERY RAISED BY THE A.O. AND IT S REPLY BY THE ASSESSEE DATED 7.12.2010 REPRODUCED HEREINABOVE IT IS SEEN, THAT NO SPECIFIC QUERY WAS RAISED BY THE AO ABOUT THE AMOUNTS RECEIVED ON SALE OF LAND AS INCOME FROM BUSINESS. IT IS FURTHER SEEN THAT EVEN AFTER THE RE CEIPT OF REPLY DTD 7.12.2010 ABOUT THE DETAILS ABOUT THE SALE OF VARIOUS PIECES OF LAND, NO FURTHER QUERY WAS RAISED BY THE A.O. ABOUT THE TREATMENT OF TAX OF TH E RECEIPTS ON SALE OF LAND AND THE A.O. HAD ACCEPTED THE SUBMISSIONS OF THE AS SESSEE. IN THE PRESENT CASE WE FIND THAT A.O. HAS NOT INQUIRED ABOUT THE D ETAILS OF THE LAND DEVELOPMENT EXPENSES, AMOUNT OF ADVANCE RECEIVED BY THE ASSESSEE, DETAILS OF SALES MADE TO PARTIES. 13. BEFORE US, ONE OF THE ARGUMENTS PUT FORTH BY TH E LD. A.R. WAS THAT IT IS NOT NECESSARY FOR THE A.O. TO NOTE IN THE ASSESSMEN T ORDER EACH OF THE QUERIES RAISED BY HIM AND THE REPLIES THERETO WHICH WERE RE CEIVED FROM THE ASSESSEE. ITA NOS.1157 & 1158/AHD/13 (SHRI TARUN S.VARMA VS.C IT) & ITA NO. 1160/AHD/13 (SHRI GAURAV S VARMA VS. CIT) ( A.YS. 08-09) PAGE 11 IT WOULD BE RELEVANT TO REPRODUCE THE ENTIRE ASSESS MENT ORDER PASSED U/S 143(3) ON 22.12.2010 WHICH READS AS UNDER: THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS 30,63,390/- WAS FILED ELECTRONICALLY ON 29.9.2008 VIDE ACKNOWLEDGMENT NO . THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE IT ACT. ON SELECTION OF THE CASE FOR SCRUTINY UNDER CASS, NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 11.9.200 9 BY ACIT, CENT. CIR 2(4), AHMEDABAD. THEREAFTER THE CASE WAS DECENTRALIZED TO THIS CIRCLE. DUE TO CHANGE OF JURISDICTION A FRESH NOTICE U/S 143(2) WAS ISSUED O N 11.10.2010. 2. IN RESPONSE TO THE NOTICES, SHRI BHARATBHAI MEHT A CA ATTENDED FROM TIME TO TIME AND FURNISHED THE REQUISITE DETAILS. THE ASSES SEE HAS SHOWN INCOME MAINLY FROM SALARY, INCOME FROM HOUSE PROPERTY AND SHARE O F PROFIT FROM FIRM ETC. 3. AFTER DISCUSSION, AND FROM THE DATA MADE AVAILA BLE, TOTAL INCOME OF THE ASSESSEE FIRM IS COMPUTED AS UNDER: TOTAL INCOME AS PER RETURN OF INCOME RS 30,63,390 ASSESSED U/S 143(3) OF THE INCOME TAX ACT. ISSUE DE MAND NOTICE/CHALLAN. GIVE CREDIT FOR PREPAID TAXES AFTER DUE VERIFICATION. CHARGE IN TEREST U/S 234A/234B/234C/234D AS APPLICABLE. A LOOK AT THE ASSESSMENT ORDER FOR THE RELEVANT ASS ESSMENT YEAR 2008-09 AS REPRODUCED HEREINABOVE WOULD SHOW THAT IT IS A BRIE F DOCUMENT AND CONSISTS OF THREE PARAGRAPHS IN ALL AND THERE IS NO DISCUSSI ON ABOUT THE PROFIT EARNED FROM SALE OF LAND ETC. IN VIEW OF THE AFORESAID FAC TS WE ARE OF THE VIEW THAT AO HAD NOT MADE THE INQUIRIES ABOUT THE PROFIT EARNED BY THE ASSESSEE ON THE SALE OF LAND AND OTHER CONNECTED ISSUES. IN THIS CONNECTION WE WOULD LIKE TO REFER TO THE DE CISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF GEE VEE ENTERPRISES VS. ADDL C IT & ORS.(1975) 99 ITR 375 (DEL) WHERE THE HBLE HIGH COURT HAS OBSERVED A S UNDER: 'THE ITO IS NOT ONLY AN ADJUDICATOR BUT ALSO AN INV ESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FACE OF A RETURN WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER INQUIRY. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED IN THE RETURN WHEN THE ITA NOS.1157 & 1158/AHD/13 (SHRI TARUN S.VARMA VS.C IT) & ITA NO. 1160/AHD/13 (SHRI GAURAV S VARMA VS. CIT) ( A.YS. 08-09) PAGE 12 CIRCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOKE AN INQUIRY. THE MEANING TO BE GIVEN TO THE WORD 'ERRONEOUS' IN S. 263 EMERGES OUT OF THIS CONTEXT. IT IS BECAUSE IT IS INCUMBENT ON THE ITO TO FURTHER INVESTIGATE THE FAC TS STATED IN THE RETURN WHEN CIRCUMSTANCES WOULD MAKE SUCH AN INQUIRY PRUDENT TH AT THE WORD 'ERRONEOUS' IN S. 263 INCLUDES THE FAILURE TO MAKE SUCH AN INQUIRY. T HE ORDER BECOMES ERRONEOUS BECAUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT B ECAUSE THERE IS ANYTHING WRONG WITH THE ORDER IF ALL THE FACTS STATED THEREI N ARE ASSUMED TO BE CORRECT' HBLE HIGH COURT AFTER REFERRING TO THE DECISIONS O F SUPREME COURT IN THE CASE OF RAMPYARI DEVI SAROGI VS CIT (1968) 67 ITR 84 (SC ) AND TARA DEVI AGGARWAL VS CIT (1973) 88 ITR 323 (SC) HAS FURTHER NOTED THAT THE COMMISSIONER CAN REGARD THE ORDER ERRONEOUS ON THE GROUND THAT IN THE CIRCUMSTANCES OF THE CASE, THE ITO SHOULD HAVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE STATEMENTS MADE BY THE ASSESSEE IN HI S RETURN. 14. IN THE CASE OF K.A. RAMASWAMY CHETTIAR & ANR. V S. CIT (1996) 220 ITR 657 (MAD) THE HBLE HIGH COURT AFTER RELYING ON THE DECISIONS IN THE CASE OF GEE VEE ENTERPRISES VS. ADDL. CIT (1975) 99 ITR 375 (DEL), SMT. TARA DEVI AGGARWAL VS. CIT (1973) 88 ITR 323 (SC) AND ADDL. C IT VS. MUKUR CORPORATION (1978) 111 ITR 312 (GUJ) HAS HELD THAT WHEN THE ITO IS EXPECTED TO MAKE AN ENQUIRY OF A PARTICULAR ITEM OF INCOME A ND HE DOES NOT MAKE AN ENQUIRY AS EXPECTED, THAT WOULD BE A GROUND FOR THE CIT TO INTERFERE WITH THE ORDER PASSED BY THE ITO SINCE SUCH AN ORDER PASSED BY THE ITO IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. 15. IN THE CASE OF MEERUT ROLLER FLOUR MILLS LTD.V. CIT [2013] 35 TAXMANN.COM 183 (ALL), THE HBLE HIGH COURT HAS HEL D THAT THE COMMISSIONER MAY CONSIDER AN ORDER OF THE AO TO BE ERRONEOUS N OT ONLY IF IT CONTAINS SOME APPARENT ERROR OF REASON OR LAW OR FACT ON THE FACE OF IT BUT ALSO BECAUSE IT IS ITA NOS.1157 & 1158/AHD/13 (SHRI TARUN S.VARMA VS.C IT) & ITA NO. 1160/AHD/13 (SHRI GAURAV S VARMA VS. CIT) ( A.YS. 08-09) PAGE 13 STEROTYPE ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSES SEE HAS STATED IN HIS REPORT AND FAILS TO MAKE INQUIRY WHICH ARE CALLED F OR IN THE CIRCUMSTANCES OF THE CASE. 16. CONSIDERING THE TOTALITY OF THE FACTS AND THE D ECISIONS CITED HEREIN ABOVE WE ARE OF THE VIEW THAT CIT HAS RIGHTLY EXERCISED T HE POWERS BY INVOKING THE PROVISIONS OF SECTION 263 AND FOR WHICH WE ALSO FIN D SUPPORT BY THE DECISION OF HON'BLE HIGH COURT OF HIMACHAL PRADESH IN THE CASE OF CIT VS. ALBORZ INDUSTRIES REPORTED IN (2011) 56 DTR (HP) 334 : (20 11) 198 TAXMAN 419 WHERE THE H'BLE HIGH COURT HAS HELD AS UNDER: IT IS TRUE THAT THE AO IS NOT REQUIRED TO PASS A VE RY DETAILED ORDER BUT HIS ORDER MUST SHOW THAT HE HAS DEALT WITH VARIOUS ASPECTS OF THE MATTER AND SHOULD NOT BE A GENERAL ORDER AS IN THE PRESENT CASE. IN THE CASE OF CIT VS. SOUTH INDIA SHIPPING CORPORA TION LTD. (1998) 233 ITR 546 (MAD) THE H'BLE MADRAS HIGH COURT HAS HELD AS U NDER: 'EVEN ASSUMING THAT THE ITO HAD CALLED FOR THE PART ICULARS, WHICH WERE ALSO FURNISHED BY THE ASSESSES, IF THE ITO WITHOUT PROBING THE MAT TER FURTHER AND ALLOWED THE CLAIM OF THE ASSESSES FOR WEIGHTED DEDUCTION AND IF THE CIT ON THE BASIS OF MATERIALS FORMS AN OPINION THAT THE GRANT OF ALLOWANCE MADE BY THE OFFICER WAS ERRONEOUS AND NOT WARRANTED BY LAW, THE JURISDICTION OF THE CIT UNDER S. 263 IS NOT OUSTED.' IN THE PRESENT CASE, WE HOWEVER FIND THAT WHILE SET TING ASIDE THE ASSESSMENT, CIT HAS DIRECTED THE A.O. TO COMPUTE THE ASSESSEE'S INCOME BY TREATING THE PROFIT ON SALE OF LAND AS INCOME FROM BUSINESS INST EAD OF SHORT TERM OR LONG TERM GAINS. WE ARE OF THE VIEW THAT CIT CANNOT DIRE CT THE A.O. TO MAKE THE ASSESSMENT IN A PARTICULAR WAY. WE THEREFORE MODIFY HIS ORDER TO THE EXTENT OF DELETING THE DIRECTION OF CIT TO TREAT THE PROFITS AS BUSINESS INCOME AND THUS MODIFY THE DIRECTION TO A.O. TO DECIDE THE MATTER O F TAXATION ON SALE OF LAND AS PER LAW. IN THE RESULT THE GROUND OF ASSESSEE IS DI SMISSED. ITA NOS.1157 & 1158/AHD/13 (SHRI TARUN S.VARMA VS.C IT) & ITA NO. 1160/AHD/13 (SHRI GAURAV S VARMA VS. CIT) ( A.YS. 08-09) PAGE 14 17. THUS, THE APPEAL OF THE ASSESSEE IS DISMISSED. ITA NOS. 1157 & 1160/AHD/2013 18. BEFORE US, SINCE BOTH THE PARTIES HAVE SUBMITTE D THAT THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THAT OF TARUN VERMA ( ITA NO.1158/AHD/2008), WE THEREFORE FOR THE SIMILAR REASONS GIVEN HEREINABOVE WHILE DECIDING THE APPEAL IN ITA NO. 1158/AHD/2013 IN THE CASE OF TARUN VARMA , ALSO DISMISS THE GROUNDS OF ASSESSEE IN THE PRESENT APPEALS. THUS, THE APPEALS OF ASSESSEE ARE DISMISSED. 19. IN THE RESULT ALL THE APPEALS OF THE ASSESSEE ARE DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 17/10/2014 SD/- SD/- (G.C.GUPTA) (ANIL CHATURV EDI) VICE PRESIDENT ACCOUNTANT MEMB ER TRUE COPY S.K.SINHA )3 )3 )3 )3 - -- - 4'5 4'5 4'5 4'5 6)52' 6)52' 6)52' 6)52' / COPY OF ORDER FORWARDED TO:- 1. + / REVENUE 2. ) / ASSESSEE 3. %% ' : / CONCERNED CIT 4. :- / CIT (A) 5. 5> 4' , , / DR, ITAT, AHMEDABAD 6. @A / GUARD FILE. BY ORDER/ )3 ), !/ % , ,