PRAVIN L. MANANIA, MUMBAI V. ITO 17(2)(3), MUMBAI

ITA 123/MUM/2012

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3288 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 31-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 06-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M DAYASAGAR
• Keywords: Opportunity of being heard; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 54; 263; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI JASON P. BOAZ (AM) AND SHRI SANDEEP GOS AIN (JM) ITA NO. 123/MUM/2012 ASSESSMENT YEAR: 2007-08 MR. PRAVIN L. MANANIA. 401/12, 288 MERU HEIGHTS, TENANG ROAD, MATUNGA (E), MUMBAI- 400019. PAN- AALPM7847A VS. THE COMMISSIONER OF INCOME TAX - 17, AAYAKAR BHAVAN, MUMBAI- 400020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. BHUPENDRA SHAH RESPONDENT BY : SHRI. M. DAYASAGAR. DATE OF HEARING: 19/01/2016 DATE OF PRONOUNCEMENT: 29/01/2016 O R D E R PER JASON P. BOAZ, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER OF THE CIT -17, MUMBAI PASSED U/S 263 OF THE INCOME TAX A CT, 1961 ( IN SHORT THE ACT) ON 11/11/2011 FOR ASST. YEAR 2007- 08. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER:- 2.1 THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASS T. YEAR 2007-08 ON 27/03/2008 DECLARING TOTAL INCOME OF RS. 87,770/- T HE RETURN WAS PROCESSED U/S 143(1) OF THE ACT AND THE CASE WAS SU BSEQUENTLY TAKEN UP FOR SCRUTINY. THE ASSESSMENT WAS CONCLUDED U/S 1 43(3) OF THE ACT VIDE ORDER DT. 24/12/2009 ACCEPTING THE INCOME OF R S. 87,770/- AS 2 ITA NO. 123/MUM/2012 ASSESSMENT YEAR: 2007-08 DECLARED BY THE ASSESSEE IN HIS RETURN OF INCOME. T HE ORDER OF ASSESSMENT READS AS UNDER:- THE ASSESSEE HAS FILED THE RETURN OF INCOME FOR A.Y . 2007-08 ON 27/03/2008 DECLARING THE TOTAL INCOME AT RS. 87, 770/-. THE SAME WAS PROCESSED UNDER SEC. 143(1) OF THE I.T. AC T. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U NDER SEC. 143(3) OF THE I.T. ACT WAS ISSUED ON 30/09/2008 AND SERVED ON THE ASSESSEE. SUBSEQUENTLY ANOTHER NOTICE U/S 142(1 ) OF THE I.T. ACT WAS ISSUED ON 04/09/2009 AND DULY SERVED ON THE ASSESSEE. IN REASON TO THE NOTICES, MR. RAJESH SHAH, C.A. ATTENDED AND FURNISHED THE VARIOUS DETAILS. THE ASSESSED HAS INCOME FROM OTHER SOURCES. AFT ER DISCUSSION, THE TOTAL INCOME OF THE ASSESSED IS COM PUTED AS UNDER: INCOME FROM OTHER SOURCES (AS PER STATEMENT) RS. 1,15,965 GROSS TOTAL INCOME RS. 1,15,965 LESS DEDUCTION UNDER CHAPTER VIA RS. 28,195 TOTAL INCOME RS. 87,770 ASSESSED U/S 143(3) OF THE I.T. ACT. GIVE CRED IT FOR PREPAID TAXES AFTER DUE VERIFICATION. CHARGE INTEREST U/S 2 34A, 234B, 234C & 234D IF APPLICABLE. ISSUE D.N. ITNS 150 ACCO RDINGLY. SD/- (N.N. KULKARNI) INCOME TAX OFFICER 17(2)(3) MUMBAI 3 ITA NO. 123/MUM/2012 ASSESSMENT YEAR: 2007-08 3. THE LD. CIT ON AN ANALYSIS OF THE RECORD OF AS SESSMENT OBSERVED THAT IN RESPECT OF SALE OF THE ASSESSEES FLAT ON 2 6/12/2006 FOR A CONSIDERATION OF RS. 39,50,000/-, THE CAPITAL GAINS CHARGEABLE TO TAX WAS WORKED OUT AT RS. 27,08,107/- WHICH WAS ENTIREL Y CLAIMED TO BE EXEMPT U/S 54 OF THE ACT ON THE GROUND THAT THE AS SESSEE HAD PURCHASED A FLAT AT AKRUTI KIRAN ON 09/06/2008 FOR A CONSIDERATION OF RS. 27 LAKHS . THE LD. CIT CASE TO THE CONCLUSION THAT THE ASSESSEES CLAIM OF EXEMPTION U/S 54 OF THE ACT WAS ERRONEOU SLY ALLOWED BY THE ASSESSING OFFICER (AO) AS THE ASSESSEE DID NOT F ULFILL THE REQUISITE CONDITIONS SPECIFIED IN THE ACT. ACCORDING TO THE LD. CIT, THE AO DID NOT EXAMINE THE CORRECTNESS OR GENUINENESS OF THE FACTU AL AND LEGAL ASPECTS ASSESSEES CLAIM FOR EXEMPTION U/S 54 OF THE ACT AT ALL AND GRANTED THE EXEMPTION WITHOUT ANY APPLICATION OF MIND. IN THAT VIEW OF THE MATTER, THE LD. CIT ISSUED A SHOW CAUSE NOTICE U/S 263 OF THE ACT DT. 22/09/2011, CALLING FOR THE EXPLANATION OF THE ASSE SSEE AS TO WHY ITS CLAIM FOR EXEMPTION U/S 54 OF THE ACT NOT BE REJECT ED. IN RESPONSE THERETO, THE LD. AR FOR THE ASSESSEE APPEARED BEFOR E THE CIT AND SUBMITTED A WRITTEN EXPLANATION DT. 20/10/2011. IT WAS CONTENDED THAT THE ASSESSEE HAD SOLD THE FLAT AT SHIV. KAILASH O N 26/12/2006 FOR RS. 39,50,000/- AND SUBSEQUENTLY PURCHASED A NEW FLAT A T AKRUTI KIRAN FOR RS. 27.11 LAKHS IN MARCH, 2007, AT WHICH TIME AS P ER THE ALLOTMENT LETTER, THE ASSESSEE HAD PAID RS. 10 LAKHS ON23/03/ 2007. IT WAS SUBMITTED THAT THE BALANCE PAYMENT OF RS. 17.00 LAK HS WAS MADE; RS. 4,87,500/- ON 23/05/2007 AND RS. 12,23,500/- ON 28 /03/2008 AFTER WHICH THE AGREEMENT FOR SALE WAS ENTERED INTO ON 0 2/06/2008. IT WAS SUBMITTED THAT SINCE THE ASSESSEE HAD MADE THE PAYM ENTS FOR PURCHASE OF THE NEW FLAT BEFORE 25/12/2008, HE WAS ENTITLED TO THE EXEMPTION CLAIMED U/S 54 OF THE ACT. THE LD. CIT AFTER CONSID ERING THE SUBMISSIONS, AND DETAILS FILED BY THE ASSESSEE AND MAKING AN ANALYSIS OF THE RECORD CAME TO THE CONCLUSION THAT THE ASSES SEES CLAIM FOR DEDUCTION U/S 54 OF THE ACT WAS NOT IN ACCORDANCE W ITH THE PROVISIONS OF THE ACT AND THAT THE AO HAD ALLOWED THE ASSESSEE S CLAIM WITHOUT ANY 4 ITA NO. 123/MUM/2012 ASSESSMENT YEAR: 2007-08 ENQUIRY OR APPLICATION OF MIND. IN THAT VIEW OF TH E MATTER, THE LD. CIT HELD THAT THE ORDER OF ASSESSMENT FOR ASST. YEAR 20 07-08 IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. 4. THE LD. AR FOR THE ASSESSEE SUBMITTED BEFORE U S, THAT THE ASSESSEES CLAIM FOR EXEMPTION U/S 54 OF THE ACT FINDS MENTION IN THE STATEMENT OF COMPUTATION OF INCOME FILED ALONGWITH THE RETURN OF INCOME FOR ASST. YEAR 2007-08. IT WAS SUBMITTED THAT IN RESPONSE TO AOS NOTICE U/S 142(1) DT. 16/06/2009 CALLING FOR COPY OF SALE AGRE EMENT OF PROPERTY SOLD FOR RS. 39,50,000/-, A COPY OF THIS AGREEMENT WAS MADE AVAILABLE TO THE AO. IT WAS CONTENDED BY THE LD. AR THAT IN T HE LIGHT OF THE ABOVE SUBMISSIONS, ALL THE DETAILS REQUIRED FOR CONSIDERI NG ITS CLAIM FOR CLAIMING EXEMPTION U/S 54 OF THE ACT WERE DULY CONS IDERED AND ONLY THEREAFTER, THE ASSESSSEES CLAIM FOR EXEMPTION U/S 54 OF THE ACT WAS ACCEPTED BY THE AO. IT WAS CONTENDED BY THE LD. AR, REPLYING ON THE DECISION IN THE CASE OF MAX INDIA LTD. (295 ITR 282 )(SC), THAT THE AO TOOK ONE POSSIBLE VIEW IN THE MATTER, WITH WHICH TH E LD. CIT DID NOT AGREE AND THAT THIS CANNOT RENDER THE ORDER OF ASSE SSMENT ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE. IN THIS C ONTEXT, THE LD. AR ALSO PLACED RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH OF ITAT, MUMBAI IN THE CASE OF DHRUV N. SHAH (88 ITD 118) (M UM). IT WAS SUBMITTED THAT THE LD. CITS REVISION WAS ONLY A CH ANGE OF OPINION ON AN ISSUE WHICH HAS ALREADY BEEN CONSIDERED AND ALLO WED BY THE ASSESSEE. THE LD. AR ALSO CONTENDED THAT EVEN ON M ERITS, THE ASSESSEES CLAIM FOR EXEMPTION U/S 54 OF THE ACT W AS TO BE ALLOWED IN VIEW OF THE FOLLOWING DECISIONS:- (I) L N NAGDA (211 ITR 804) (BOM) (II) HILLA WADIA (216 ITR 376) (BOM) (III) MADHU KAUL (363 ITR 54) (P & H) (IV) SEETHA SUBRAMANIAN (59 ITD 94) (MAD) THE LD. AR CONTENDS THAT IN VIEW OF THE ABOVE SUB MISSIONS, THE IMPUGNED ORDER U/S 263 OF THE ACT OUGHT TO BE CANCE LLED. 5 ITA NO. 123/MUM/2012 ASSESSMENT YEAR: 2007-08 5. PER CONTRA, THE LD. DR EMPHATICALLY SUPPORTED T HE IMPUGNED ORDER OF THE LD. CIT. IT WAS SUBMITTED THAT A PERUSAL OF THE ORDER OF ASSESSMENT FOR ASST. YEAR 2007-08 DT. 24/12/2009 WO ULD PRIMA FACIE INDICATE THAT THE ASSESSEES CLAIM FOR EXEMPTION U/ S 54 OF THE ACT HAS BEEN ACCEPTED BY THE AO WITHOUT ANY INQUIRY ABOUT T HE VERACITY OF THE ASSESSEES CLAIM. THE ONLY DETAILS ADMITTEDLY FILED BY THE ASSESSEE BEFORE THE AO WAS THE SALE AGREEMENT OF THE PROPERTY SOLD. THE ASSESSEE HAS FAILED TO ADVANCE ANY EVIDENCE TO SHOW THAT ENTIRE REQUIRED DETAILS WERE FILED IN RESPECT TO ENQUIRY MADE BY THE AO IN RESPE CT OF THE ASSESSEES CLAIM FOR EXEMPTION U/S 54 OF THE ACT. ACCORDING T O THE LD. DR IS EVIDENT FROM THE IMPUGNED ORDER OF THE LD. CIT THAT DETAILS IN RESPECT OF THE ASSESSEES CLAIM FOR EXEMPTION U/S 54 OF THE AC T WERE CALLED FOR AND EXAMINED ONLY IN REVISION PROCEEDINGS. IT IS SUBMIT TED THAT LACK OF INQUIRY AND NON APPLICATION OF MIND BY THE AO IN TH IS REGARD RENDERED THE ORDER OF ASSESSMENT FOR ASST. YEAR 2007-08 AS E RRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 6. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. BEFORE EMBARKING UPON AN INQUIRY ABOUT THE FACTS AVAILABLE ON RECORD AND HOW TO CONSTRUE THEN, WE DEEM IT NECESSARY TO TAKE NOTE OF THE FUNDAMENTA L PRINCIPLES FOR JUDGING THE ACTION OF THE LD. CIT TAKEN U/S 263 OF THE ACT. A CO- ORDINATE BENCH OF THE ITAT MUMBAI IN THE CASE OF MR S. KHATIZA S. OOMERBHOY VS. ITO REPORTED IN 101 TTJ 1095, ANALYZE D IN DETAIL VARIOUS AUTHORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIES CO. VS . CIT (243 ITR 83) (SC) AND PROPOUNDED THE FOLLOWING BROADER TESTS:- (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDE R OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. BOTHE CONDITIONS MUST BE FULFILLED. 6 ITA NO. 123/MUM/2012 ASSESSMENT YEAR: 2007-08 (II) SEC. 263 OF THE ACT CANNOT BE INVOKED TO CORR ECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO AND IT WAS ONLY WHEN AN ORDER IS ENOREOUS THAT THE SECTION WILL BE ATTRACTE D. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCOR RECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF THE ORDER BEING ERR ONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDERS. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PRE JUDICIAL TO THE INTERESTS OF REVENUE. IF THE AO HAS ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, I T CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKE N BY THE AO IS UNSUSTAINABLE IN LAW. (VI) IF WHILE MAKING THE ASSESSMENT, THE AO EXAMIN ES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME, THE CIT WHIL E EXERCISING HIS POWER U/S 263 IS NOT PERMITTED TO SUBSTITUTE HIS ES TIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE AO. (VII) THE AO EXERCISES QUASI-JUDICIAL POWERS VESTE D IN HIM AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARR IVES AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION U/S 263 OF THE ACT MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION . (IX) IF THE AO HAS MADE ENQUIRIES DURING THE COURS E OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATIONS BY A LETTER IN WRITING ON THE SAID ISSUE AND THE AO ALLOWS THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, THE DECISION OF THE AO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELA BORATE DISCUSSION IN THIS REGARD. 7 ITA NO. 123/MUM/2012 ASSESSMENT YEAR: 2007-08 7. APART FROM THE ABOVE PRINCIPLES, WE DEEM IT A PPROPRIATE TO MAKE REFERENCE TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUN BEAM AUTO REPORTED IN 227 CTR 113 WHERE IN THE HON'BLE HIGH COURT HAS PROPOUNDED A DISTINCTION BETWEEN LAC K OF INQUIRY AND INADEQUATE INQUIRY. IF THERE IS A LACK OF ENQUIRY, THEN THE ASSESSMENT ORDER CAN BE BRANDED AS ERRONEOUS. THE FOLLOWING OB SERVATIONS OF THE HON'BLE DELHI HIGH COURT ARE WORTH TO NOTE: '12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF TH E COUNSEL ON THE OTHER SIDE AND HAVE GONE THROUGH THE RECORDS. T HE FIRST ISSUE THAT ARISES FOR OUR CONSIDERATION IS ABOUT TH E EXERCISE OF POWER BY THE COMMISSIONER OF INCOME-TAX UNDER SECTI ON 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 WA S REVENUE OR CAPITAL EXPENDITURE. THIS ARGUMENT PREDICATES ON TH E ASSESSMENT ORDER WHICH APPARENTLY DOES NOT GIVE ANY REASONS WHILE ALLOWING THE ENTIRE EXPENDITURE AS REVENUE EX PENDITURE. HOWEVER, THAT BY ITSELF WOULD NOT BE INDICATIVE OF THE FACT THAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND ON T HE ISSUE. THERE ARE JUDGMENTS GALORE LAYING DOWN THE PRINCIPL E THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS NOT RE QUIRED TO GIVE DETAILED REASON IN RESPECT OF EACH AND EVERY I TEM OF DEDUCTION, ETC. THEREFORE, ONE HAS TO SEE FROM THE RECORD AS TO WHETHER THERE WAS APPLICATION. OF MIND BEFORE ALLOW ING THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. LEA RNED 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, EVE N INADEQUATE, THAT WOULD NOT BY ITSELF, GIVE OCCASION TO THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 OF TH E ACT, 8 ITA NO. 123/MUM/2012 ASSESSMENT YEAR: 2007-08 MERELY BECAUSE HE HAS DIFFERENT OPINION IN THE MATT ER. IT IS ONLY IN CASES OF LACK OF INQUIRY', THAT SUCH A COURSE O F ACTION WOULD BE OPEN'. 8. THE HON'BLE DELHI HIGH COURT IN THE CASE OF G EE VEE ENTERPRISES VS. ADDL. CIT & ORS. (1975) 99 ITR 375 (DEL.) HAS P ROPOUNDED THE ROLE REQUIRED TO BE PLAYED BY THE ASSESSING OFFICER. 'THE REASON IS OBVIOUS. THE POSITION AND FUNCTION O F THE INCOME TAX OFFICER IS VERY DIFFERENT FROM THAT OF A CIVIL COURT. THE STATEMENTS MADE IN A PLEADING PROVED BY THE MINIMUM AMOUNT OF EVIDENCE MAY HE ACCEPTED BY A CIVIL COURT IN THE ABSENCE OF ANY REBUTTAL. THE CIVIL COURT IS NEUTRAL. IT SIMPLY GIVES DECISION ON THE BASIS OF THE PLEADING AND EVIDENCE WHICH COM ES BEFORE IT. THE INCOME TAX OFFICER IS NOT ONLY AN ADJUDICAT OR BUT ALSO AN INVESTIGATOR. 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 CIRCUMSTANCES OF THE CASE ARE SUCH AS TO P ROVOKE AN INQUIRY. THE MEANING TO BE GIVEN TO THE WORD 'ERRON EOUS' IN SECTION 263' EMERGES OUT OF THIS CONTRACT. IT IS BE CAUSE IT IS INCUMBENT ON THE INCOME TAX OFFICER TO FURTHER INVE STIGATE THE FACTS STATED IN THE RETURN WHEN CIRCUMSTANCES WOULD MAKE SUCH AN INQUIRY PRUDENT THAT THE WORD 'ERRONEOUS' IN SEC TION 263 INCLUDES THE FAILURE TO MAKE SUCH AN INQUIRY. THE O RDER BECOMES ERRONEOUS BECAUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT BECAUSE THERE IS ANY THING WRONG WITH THE ORDER IF ALL THE FACTS STATED THEREIN ARE ASSUMED TO BE CORRECT'. 9. IN THE LIGHT OF THE ABOVE PROPORTIONS, IF WE EXA MINE THE MATERIAL ON RECORD, WE FIND THAT THE EXERCISE OF JURISDICTION U /S 263 OF THE ACT WAS CALLED FOR IN THE CASE ON HAND AS THE AO HAS ACCEPT ED THE ASSESSEES 9 ITA NO. 123/MUM/2012 ASSESSMENT YEAR: 2007-08 CLAIM FOR EXEMPTION U/S 54 OF THE ACT WITHOUT MAKIN G ANY INVESTIGATION OR INQUIRY TO ASCERTAIN THE VERACITY OF THE CLAIM M ADE, WHICH IN OUR CONSIDERED VIEW HE FAILED TO DO. WHILE IT IS TRUE T HAT THE ASSESSEE HAS NO CONTROL OVER THE AO FOR PASSING THE ORDER OF ASSESS MENT WHICH IS THE PREROGATIVE OF THE AO, THE ASSESSEE HAS FAILED TO D EMONSTRATE THAT THE AO HAD ISSUED ANY SHOW CAUSE NOTICE IN RESPECT OF I TS CLAIM FOR EXEMPTION U/S 54 OF THE ACT AND THAT HE HAS FILED A REPLY IN THIS REGARD. IF THIS DISCUSSION IS NOT DISCERNIBLE FROM THE ORDE R OF ASSESSMENT ON A PARTICULAR ISSUE, THEN IN ORDER TO ASCERTAIN WHETHE R THE AO HAS APPLIED HIS MIND OR NOT TO THE CONCERNED ISSUE AT HAND, THE HIGHER FORUM CAN GO THROUGH THE SHOW CAUSE NOTICE, IF ANY, ISSUED BY TH E AO AND THE REPLY GIVEN BY THE ASSESSEE, THAT WOULD INDICATE THAT THO UGH THE ASSESSMENT ORDER IS SILENT, THE ISSUE MUST HAVE BEEN DISCUSSED IN THE COURSE OF ASSESSMENT PROCEEDINGS. IN THE CASE ON HAND, WE FIN D THAT NO SUCH MATERIAL IS AVAILABLE TO SHOW THAT THE AO EXAMINED THE VERACITY OF THE ASSESSEES CLAIM FOR EXCEPTION U/S 54 OF THE ACT. T HE HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIES CO VS. CIT (243 ITR 83) HAS OBSERVED THAT ACCEPTANCE OF ACCOUNTING ENTRIES AS IT IS, WITHOUT CAUSING ANY INQUIRY BY THE AO WOULD RENDER THE ORDER ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. IN OUR CON SIDERED VIEW, THE LD. CIT HAS CONSIDERED ALL THESE ASPECTS WHILE TAKING A CTION U/S 263 OF THE ACT. 10. WE ARE, HOWEVER, OF THE VIEW THAT THE LD. CIT OUGHT TO HAVE SET ASIDE THE ORDER OF THE AO AND REMANDED THE ISSUE O F THE ASSESSEES CLAIM FOR EXEMPTION U/S 54 OF THE ACT FOR FRESH C ONSIDERATION; OUGHT NOT TO HAVE DIRECTED THE AO TO REVISE THE ORDER OF ASSESSMENT BY DIRECTING THE AO TO WITHDREW THE EXEMPTION ALLOWED TO THE ASSESSEE U/S 54 OF THE ACT AND REVERSE THE ASSESSMENT BY BRINGIN G TO TAX THE ENTIRE CAPITAL GAINS RESULTING FROM THE SALE OF FLAT AT S HIV KAILASH ON 26/12/2006. WE THEREFORE MODIFY THE IMPUGNED ORDER OF THE LD. CIT AND HOLD THAT THE DIRECTION OF THE CIT TO THE AO TO WITHDRAW THE 10 ITA NO. 123/MUM/2012 ASSESSMENT YEAR: 2007-08 EXEMPTION U/S 54 OF THE ACT ON SALE OF FLAT AT SHR I. KAILASH ON 26/12/2006 BE DELETED. INSTEAD, WE DIRECT THAT THE ORDER OF ASSESSMENT FOR ASST. YEAR 2007-08 DT. 24/12/2009, ALLOWING THE ASSESSEE, THE EXEMPTION CLAIMED U/S54 OF THE ACT IS SET ASIDE AND REMANDED TO THE FILE OF THE AO FOR FRESH CONSIDERATION AFTER AFFORD ING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TO FILE DET AILS/SUBMISSIONS IN THIS REGARD WHICH SHALL BE DULY CONSIDERED. IT ORDE RED ACCORDINGLY. 11. IN THE RESULT, THE ASSESSEES APPEAL IS TREATE D AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JANUARY, 2016 SD/- SD/- ( SANDEEP GOSAIN ) (JASON P.BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED: 29/01/2016 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. '#$ % , %' , / DR, ITAT, MUMBAI 6. $() * / GUARD FILE. + + + + / BY ORDER, + //TRUE COPY// , ,, ,/ // /+- . +- . +- . +- . (DY./ASSTT. REGISTRAR) %' %' %' %', , , , / ITAT, MUMBAI PRAMILA