Rinki Shashikant Gandhi, Vadodara V. The Deputy Commissioner of Income Tax, Circle-2(1)(2), Baroda

ITA 1333/AHD/2018

AI Insights

The case involves an appeal by Rinki Shashikant Gandhi against the order of the Principal Commissioner of Income Tax-2, Vadodara, which set aside the assessment order passed by the Assessing Officer under section 143(3) for the assessment year 2013-14. The dispute centered on the deduction claimed by the assessee for a payment of 1.50 crores made to Titco Ltd for removing a charge on the property sold, which the Principal CIT deemed erroneous and prejudicial to the interest of the revenue, citing a Supreme Court decision. The Tribunal, however, found that the Assessing Officer had adequately considered the issue during the assessment, and the Principal CIT's intervention was an overreach of his revisionary powers under section 263.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131410 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 12-06-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 22-05-2018
• Other Referred Cases: VSMR Jagadish Chandran 227 ITR 240, J.B. Engg. Works 82 taxmann.com 326, CIT Vs. Sunbeam Auto 332 ITR 167, Gabriel India Ltd. [1993] 203 ITR 108, Sh. Narayan Tatu Rane Vs. ITO, I.T.A. No. 2690/2691/Mum/2016
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Set aside; Capital Gains
• Section: 263; 2; 143(3); 2(A)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Ms. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Rink i Shashikant Gandhi, 19, Kalpan a Society, Race Co urse Circle, Vad odara PAN: AB YPG097 1B (Appellant) Vs Deputy Co mmis sioner of Inco me Tax, Circle-2(1)(2 ), Vadodara (Resp ondent) Asses see b y : Shri M. J. Shah, A. R. , Shri Jimi Patel, A. R. & Shri Rushi n Pa tel, A. R. Revenue by : Shri M. Anand Kumar, Sr. D. R. Date of hearing : 15-06 -2 023 Date of pronouncement : 05-07 -2 023 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the assessee against the order of the ld. Principal Commissioner of Income Tax-2, Vadodara, in proceeding u/s. 263 vide order dated 26/03/2018 passed for the assessment year 2013-14. 2. The assessee has raised the following grounds of appeal:- ITA No. 1333/Ahd/2018 Assessment Year 2013-14 I.T.A No. 1333/Ahd/2018 A.Y. 2013-14 Page No. Rinki Shashikant Gandhi vs. Dy. CIT 2 “1. The learned Commissioner of Income Tax erred in law and on facts in invoking the provision of section 263 to set aside the order passed by Assessing Officer u/s. 143(3) by holding it as erroneous and prejudicial to the interest of revenue, without appreciating the law and facts of the case properly. The appellant reserves its right to add, amend, alter or modify any of the grounds stated hereinabove either before or at the time of hearing.” 3. The brief facts of the case are that the assessee filed his return of income for assessment year 2013-14 declaring total income of 25,000/-. The assessment under section 143 (3) of the Act was completed at a total income of 3,15,05,000/-. During the year under consideration, the assessee sold the immovable property for sale consideration of 5,50,00,000/- and out of same, he deducted, as expenses incurred in connection with transfer, a sum of 3,25,00,000/- being payment made to various illegal occupants and a sum of 1,50,00,000/ - being payment to made to Titco Ltd for removing the charge created on the property. In the assessment order, the AO did not accept deduction claimed of 3,25,00,000/- towards payment to illegal occupants. However, the assessing officer allowed deduction of payment of 1,50,00,000/- made to Titco Ltd. Thereafter, the Principal CIT initiated 263 proceedings on the ground that the AO had incorrectly allowed deduction of payment made to Titco Ltd amounting to 1.50 crores, in light of the decision of Honourable Supreme Court in the case of VSMR Jagadish Chandran 227 ITR 240 wherein the Supreme Court held that in case where property was not mortgaged by previous owner but by assessee himself, then amount paid to discharge mortgage debts could not be treated as cost of acquisition so as to allow same as deduction. Accordingly, Principal CIT set aside the assessment order on the ground that the order has been passed without making enquiries I.T.A No. 1333/Ahd/2018 A.Y. 2013-14 Page No. Rinki Shashikant Gandhi vs. Dy. CIT 3 on verification which should have been made in terms of Explanation 2 to section 263 of the Act. 4. The assessee is in appeal before us against the aforesaid order passed by Principal CIT. Before us, the counsel for the assessee submitted that the facts of the case of VSMR Jagadish Chandran 227 ITR 240 are distinguishable, since the assessee did not create a mortgage on the aforesaid property and the assessee had not taken any finance on loan from Kitco Ltd. In the instant facts, the land sold by the assessee was under attachment due to personal guarantee given by the assessee and the account was settled by the purchaser by making a direct payment to Titco Ltd towards liability clearance of the said land. The said payment was made directly by the purchaser to Titco Ltd. to have clear title of immovable property under the said agreement. Accordingly, the aforesaid amount was deducted from the sale consideration of land, while computing capital gains tax. Further, the counsel for the assessee submitted that all these facts were placed on record by the assessee before the AO during the course of assessment proceedings, and after appreciation on the facts placed on record and the submissions filed by the assessee, the AO did not make any addition/disallowance with respect to the aforesaid claim of deduction while computing capital gains tax. It was submitted that it is not a case where no enquiry was made by the AO or there was a lack of enquiry on part of the AO, but it is a case where Principal CIT is seeking to substitute his own view with that of the view taken by the AO during the course of assessment proceedings. I.T.A No. 1333/Ahd/2018 A.Y. 2013-14 Page No. Rinki Shashikant Gandhi vs. Dy. CIT 4 5. In response, the Ld. DR placed reliance on the observations made by the Principal CIT in the 263 order. 6. We have heard the rival contentions and perused the material on record. We observe that in the case of J.B. Engg. Works 82 taxmann.com 326 (Mumbai - Trib.), the ITAT held that where by virtue of tripartite agreement between assessee (owner), trust (tenant) and purchaser of property, some consideration was directly paid to trust (tenant) for handing over vacant possession of building to assessee, said amount could not be taxed in hands of assessee. In the instant case as well, the said amount of 1.50 crores was not paid by the assessee to Kitco Ltd, but this amount of 1.50 crores was paid by the seller directly to Kitco Ltd in order to remove the encumbrance to the free title to the aforesaid property, and therefore, in light of the aforesaid decision, a plausible view could be taken that the said amount never accrued to the assessee in the first place. Therefore, given the fact that the proceedings in question are 263 proceedings, wherein the AO had given a thoughtful consideration on the issue whether the sum of 1.50 crores paid directly by the seller to Titco Ltd could be claim deduction while computing capital gains in the hands assessee, it cannot be held that there was any lack of enquiry on the part of AO while computing the assessment or that the view taken by the Assessing Officer was not a legally plausible. It may be that the view taken by PCIT was perhaps a legally more plausible view, in light of the decision rendered by the Hon'ble Supreme Court of India in the case of VSMR Jagadish Chandran supra, however, considering the fact that what is being analyzed is the scope of revisionary power vested with the PCIT under 263 of the Act, where during the course of assessment, I.T.A No. 1333/Ahd/2018 A.Y. 2013-14 Page No. Rinki Shashikant Gandhi vs. Dy. CIT 5 the Ld. Assessing Officer gave a thoughtful consideration to the material placed on record and took a view which cannot be held to be absurd or legally implausible, then, in our considered view, the PCIT is not empowered to supplant his own view, with the view taken by the Ld. Assessing Officer by taking recourse to proceedings u/s 263 of the Act. 6.1 Regarding the scope of proceedings u/s 263 of the Act, an inquiry made by the Assessing Officer is considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer’s prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various High Courts in this regard. 6.2 Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate inquiry. The Hon’ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 on the ground of inadequate inquiry “12...... 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, I.T.A No. 1333/Ahd/2018 A.Y. 2013-14 Page No. Rinki Shashikant Gandhi vs. Dy. CIT 6 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 not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather I.T.A No. 1333/Ahd/2018 A.Y. 2013-14 Page No. Rinki Shashikant Gandhi vs. Dy. CIT 7 than accepting the explanation. Therefore, it cannot be said that it is a case of ‘lack of inquiry’.” 6.3 In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113) “The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.” 6.4 The Mumbai ITAT in the case of Sh. Narayan Tatu Rane Vs. ITO, I.T.A. No. 2690/2691/Mum/2016, dt. 06.05.2016 examined the scope of enquiry under Explanation 2(a) to section 263 in the following words: “20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provison shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not I.T.A No. 1333/Ahd/2018 A.Y. 2013-14 Page No. Rinki Shashikant Gandhi vs. Dy. CIT 8 authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.” 6.5 We observe that this is not a case where there was an omission on part of the AO to examine this aspect of disallowance of the sum of 1.50 crores while computing capital gains tax. The AO had put a specific question before the assessee during the course of assessment and has taken the assessee’s reply on record. Further the assessing Officer had also discussed this aspect as part of assessment order. Therefore, in our view, this is not a case where no enquiry has been made by the assessee officer during the course of assessment proceedings. It is also not the case of the Pr. CIT that the Ld. AO failed to apply his mind to the issues on hand or he had omitted to make enquiries altogether or had taken a view which was not legally plausible in the instant facts. As held by various Courts, Principal CIT cannot in 263 proceedings set aside an assessment order merely because he has different opinion in the matter. In our view, s 263 of the Act does not visualise a case of substitution of the judgment of the Principal CIT for that of the Assessing Officer who passed the order unless the decision is held to be wholly erroneous. As noted in various judicial precedents highlighted above, the Principal CIT, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure I.T.A No. 1333/Ahd/2018 A.Y. 2013-14 Page No. Rinki Shashikant Gandhi vs. Dy. CIT 9 higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-visit the entire assessment and determine the income himself at a higher figure. We thus find no error in the order of Ld. AO so as to justify initiation of 263 proceedings by the Ld. Pr. CIT. 7. The Grounds of appeal raised by the assessee are thus allowed. 8. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 05-07-2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 05/07/2023 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद