Rita Manchhani , Jabalpur V. Pr. CIT-1 Jabalpur, Jabalpur

ITA 19/JAB/2021

AI Insights

The case involves Rita Manchhani, who, along with her husband, purchased a bungalow for Rs. 6 crore, with their respective shares being 60% and 40%. The purchase was based on a sale agreement dated March 29, 2011, but the property was officially transferred on August 14, 2014. The Pr. CIT reviewed the original assessment and found that the Assessing Officer (AO) had not examined the applicability of section 56(2)(vii)(b), which could potentially deem the purchase consideration at the market value as of the date of purchase, significantly higher than the transaction value. The Tribunal agreed with the Pr. CIT that the AO had not conducted a proper inquiry regarding this section, leading to the dismissal of the appeal.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 112963 (ITAT-JABALPUR)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 05-09-2022
• Assessment Year: 2015-2016
• Appeal Filed On: 13-06-2021
• Other Referred Cases: Naina Saraf vs. Pr. CIT, Manoj Kumar Biswas vs. Pr. CIT, Keshav Mills Ltd. v. CIT, Vinod Kumar Chate vs. ITO, Alankar & Anr. vs. Pr. CIT, Nitin Sharma vs. Pr. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Source of fund; Fair market value; Set aside
• Section: 263; 56(2)(vii)(b); 143(3); 50C; 48

Judgement Text

1 | P a g e IN THE INCOME TAX APPELLATE TRIBUNAL JABALPUR BENCH, JABALPUR (through web-based video conferencing platform) BEFORE SHRI SANJAY ARORA, HON‘BLE ACCOUNTANT MEMBER & SHRI MANOMOHAN DAS, HON'BLE JUDICIAL MEMBER I.T.A. No. 19/JAB/2021 (Asst. Year: 2015-16) Appellant by : Shri Rahul Bardia, FCA Respondent by : Shri Sanjay Kumar, CIT-DR Date of hearing : 06/09/2022 Date of pronouncement : 29/11/2022 O R D E R Per Sanjay Arora, AM: This is an Appeal by the Assessee agitating the Order under section 263 of the Income Tax Act, 1961 ( ̳the Act‘ hereinafter) dated 19/03/2021 in respect of the assessee‘s assessment u/s. 143(3) of the Act dated 10/11/2017 for the Assessment Year (AY) 2015-16. 2. The brief facts of the case are that the assessee, along with her husband, Sh. Shankerlal Manchani, purchased an immovable property, being a single storied bungalow (constructed area 1765 sq.ft. and leasehold land appurtenant thereto admeasuring 28428 sq. ft.) during the relevant year at a consideration of Rs. 6 cr.; their respective shares being defined at 60% (Rs. 3.69 cr.) and 40% (Rs. 2.31 cr.) Rita Manchhani, 2982, South Civil Lines, In front of Hotel Rishi Regency, Jabalpur. [PAN : AIAPM 0613 M] vs. Principal CIT-1, Jabalpur. (Appellant) (Respondent) ITA No. 19/JAB/2021 (AY: 2015-16) Rita Manchhani v. Pr. CIT 2 | P a g e respectively. This was in pursuance to a sale agreement dated 29/3/2011 (PB pgs. 16-20), on which date the Fair Market Value (FMV) (guideline value under Stamp Act) of the property was at Rs. 6 cr., as against the FMV of Rs. 12.09 cr. as on the date of sale (14/8/2014), which fell within the stipulated period of 48 months within which the conveyance of the property was envisaged to be made under the agreement. The assessee‘s return was selected for scrutiny for verification of the source of funds for purchase. The same was explained by the assessee as financed through bank borrowings (at Rs. 2.75 cr.) and the balance Rs. 94 lacs through banking channel, i.e., by way of two cheques for Rs. 50 lacs and Rs. 44 lacs passed on 01/10/2014 and 19/12/2014 respectively. The assessment was accordingly completed accepting the returned income of Rs. 8,50,370. The ld. Pr. CIT was, on a review of the assessment order, of the view that the Assessing Officer (AO) had failed to examine the applicability of sec. 56(2)(vii)(b) of the Act, in which case, the purchase consideration is deemed at Rs. 1208.61 lacs, i.e., at the market value as on the date of purchase. He, accordingly, set aside the assessment for a de novo consideration. Aggrieved, the assessee is in appeal, raising the following grounds:- (1) The order passed by the ld. PCIT is illegal and bad in law and hence be set aside. (2) The Ld. PCIT has erred in passing the order u/s. 263 on the ground that the order passed by the ld. AO is erroneous and prejudicial to the interest of the revenue. (3) It was proved before the ld. PCIT that the assessment was framed after due scrutiny of facts and after verification of the details. The ld. Pr.CIT vide para 2.2. accepts that the agreement for sale of property was submitted before the AO, which was verified & accepted. Hence provision of section 56(2)(vii)(b) is not applicable. Ld. Pr.CIT only opinion is that the agreement submitted is neither registered nor notarised. After verification and detailed scrutiny, the ld.AO framed the assessment and as such the same cannot be treated as erroneous and prejudicial and as such action u/s. 263 is bad in law. (4) The order passed by the ld. PCIT be quashed. 3.1 Before us, Shri Bardia, the ld. counsel for the assessee, was at pains the emphasize that the matter was examined by the AO during the assessment proceedings, even as he had admittedly omitted to make any reference thereto in ITA No. 19/JAB/2021 (AY: 2015-16) Rita Manchhani v. Pr. CIT 3 | P a g e his order. Toward the same, Shri Bardia would refer to the order-sheet entries dated 08/10/2017 & 11/10/2017 (PB pg.13); copy of agreement dated 29/3/2011 (PB pgs.16-20); copy of the bank statement exhibiting the clearing of the cheques prior to the date of the Agreement (PB pg.27); copy of the stamp valuation during f.y. 2010-11 (PB pg.71). All these documents, he explained, form part of the AO‘s record, even as certified below the paper-book, being in fact obtained from the AO‘s file through RTI Act (PB pg.12). It is in this view of the matter, he would continue, that the AO was satisfied as to the non-application of s. 56(2)(vii)(b) of the Act. It was, on query, explained by Shri Bardia that the Agreement was for two bungalows (for a total constructed area 6035.5 sq.ft. and leasehold land at 81175 sq.f.t ), for a total consideration of Rs. 16 cr., with the second bungalow having been conveyed to Shri Shankerlal Manchhani (SM) (co-owner) alone. This, he would submit, also explains the non-reference to any of three cheques for advance amount of Rs. 1.25 cr. in the conveyance deed dated 14/08/2014 for the subject property, all of which stand referred to and adjusted in the consideration for the second bungalow, for which reference was made by him to it‘s conveyance deed, executed, again, on 14/8/2014 at the agreed consideration of Rs. 10 cr. in favour of SM. He could not though explain the absence of any reference to the Agreement dated 29/3/2011 in either of the conveyance deeds. Further, he would continue, in the case of SM, the co-owner, though no appeal was preferred against the sec. 263 order, similarly passed, he was successful in the ensuing set-aside assessment, wherein the income assessed earlier u/s. 143(3) was adopted vide order dated 30/3/2022 (PB pgs.128-137). Even in the case of the seller-vendor, Shri Surendra Singh (SS), in whose case also the corresponding provision of s. 50C was applied by the Revenue, he was successful in first appeal (PB pgs.99-127). It is, thus, only in the assessee‘s case that the matter survives, and which needs therefore to be put closure to. We were, accordingly, urged by him to set aside the impugned order (IO) or, in the ITA No. 19/JAB/2021 (AY: 2015-16) Rita Manchhani v. Pr. CIT 4 | P a g e alternative, direct the ld. Pr. CIT to make verification and satisfy himself with regard to the satisfaction of the conditions of s. 56(2)(vii)(b) in the instant case. 3.2 The ld. CIT-DR, on the other hand, pleaded for no interference with the IO inasmuch as it was patent that no verification qua s. 56(2)(vii)(b) had been carried out by the AO. The only verification required, he would though, on it being put across to him, admit; the genuineness of the agreement dated 29/03/2011 being not in dispute or doubt, is the satisfaction of the conditions of s. 56(2)(vii)(b)(ii). 4. We have heard the parties, and perused the material on record. 4.1 We shall begin by addressing the assessee‘s preliminary objections. Toward this, we may firstly reproduce section 56(2)(vii)(b), which reads as under:- Income from other sources. 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub- section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :— (i) to (vi) xxxxxxxxxxx (vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017,— (a) xxxxxxx (b) any immovable property,— (i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property; (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration: Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause: Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any ITA No. 19/JAB/2021 (AY: 2015-16) Rita Manchhani v. Pr. CIT 5 | P a g e mode other than cash on or before the date of the agreement for the transfer of such immovable property; 4.2 The relevant part of the order u/s. 143(3) r/w s. 263 dated 30/3/2022 in the case of SM (PB pgs. 128 - 138), the co-owner, reads as under: ̳7. After perusal of the all the reply and relevant documents available on record, it is found that the submission of the assessee on the issue of provisions of section 56(2)(vii)(b) as the order of the ld. CIT(A) in the case of seller Sh. Surendra Singh was decided on this issue and it was mentioned in the para 4 of the order and sale value was taken as Rs. 16,00,00,000/-. Thus, after perusal of all the relevant facts of the case and submissions of the assessee in above paras, income as assessed u/s. 143(3) at Rs. 19,33,350/- is hereby accepted. The assessee also confirms the same and it was mentioned in the reply which was reproduced in para 3 above.‘ The acceptance of the assessee‘s case in SM is, as apparent, based on the order by the first appellate authority in the case of seller-SS (PB pgs. 99 – 127), the relevant part of which reads as under:- ̳4.1.6 As per provision section 2(47) of the Income Tax Act read with section 53A of the Transfer of Property Act, the ownership of the plot was transferred from the appellant during the previous year relevant to the Asst. Year 1996-97. The provision of section 50C of the Income Tax Act comes in the statute w.e.f. 01/01/2003 i.e. from the Asst. Year 2003-04. However, in this case, the appellant has transferred the property prior to the Asst. Year 2003-04. Hence, provision of section 50C of the Act was not applicable. In view of the above facts, the assessing officer is not justified in increasing the sale price by adopting the provision of section 50C of the Act more so when the said provision is not applicable on the facts of the present case. Therefore, the AO is directed to take sale value as Rs. 16,00,00,000/- for calculation of capital gain. Therefore, the appeal on this ground is allowed.‘ Again, as apparent, the same has been on the basis that the transfer u/s. 2(47) took- place during the previous year relevant to AY 1996-97, i.e., prior to the amendment to s. 50C w.e.f. AY 2003-04. How, one wonders, could the same be of any assistance in the instant case (or in the case of SM), whereby the transfer took place on 14/08/2014 in pursuance of an agreement dated 29/3/2011? Though the said finding by the first appellate authority in the case of seller (vendor) is de hors the submissions before him, and which submissions correspond to the facts of the ITA No. 19/JAB/2021 (AY: 2015-16) Rita Manchhani v. Pr. CIT 6 | P a g e instant case, the finding afore-referred – on which the assessment in the case of SM is based, being not relevant and, further, without any independent finding by the assessing authority, would be of no consequence. The decision in the case of co-owner and the seller, thus, would be of no assistance to the assessee‘s case and, in fact, considering the findings therein, reliance thereon is itself unfortunate and, rather, misleading. 5. The second preliminary objection before us is legal in nature. Reference is made to the decision by the Tribunal in Naina Saraf vs. Pr. CIT (in ITA No. 271/Jp/2020, dated 14/9/2021), wherein it is held that the amendment to s. 56(2)(vii)(b) qua inadequate consideration, which is by Finance Act, 2013, w.e.f. 01/04/2014, i.e., AY 2014-15 onwards, shall have no application where the date of agreement referred to therein is prior to the relevant previous year, i.e., fy 2013-14, as in the instant case. To the same effect is the decision by the Tribunal in Manoj Kumar Biswas vs. Pr. CIT [2021] 214 TTJ (Kol) 340 [207 DTR_Trib (Kol) 145]. A closer look at these decisions, however, reveal that the Tribunal is of the clear view that the provision of s. 56(2)(vii)(b) is applicable when the assessee can be said to have received the subject property, and which may or may not coincide with the date of registration of the same in favour of assessee-purchaser/recipient. This, in fact, is also apparent from a mere browse of the said decisions, which were read out by Shri Bardia during hearing, the relevant part of which we reproduce for ready reference:- ―In the present case a valid and lawful agreement was entered by the parties long back in asst. yr. 2010-11 only, when subject property was transferred and substantial obligation were discharged.‖ ―Thus, it is apparently clear that the transfer of the property took place in the year 2013 when the provision of sub-cl.(ii) in s. 56(2)(vii)(b) was not in existence.‖ We could not agree more. The taxable event u/s. 56(2)(vii) is the ̳receipt‘ of the subject property. The Apex Court in Keshav Mills Ltd. v. CIT [1953] 23 ITR 230 ITA No. 19/JAB/2021 (AY: 2015-16) Rita Manchhani v. Pr. CIT 7 | P a g e (SC), explained the concept of receipt in terms of gaining control over the subject property. The payment of full consideration is in fact not a condition even for sale under the Transfer of Property Act, 1982 (s.54). In fact, a part of the price, as Rs. 94 lakhs by the assessee, stood paid even after the registration of the conveyance deed on 14/8/2014. It is again trite law that the law as on the first day of the assessment year shall apply for that year. Accordingly, it is the year of the receipt of the property, i.e., of the taxable event, for which the section shall be attracted where it falls on or after 01/4/2013, i.e., the previous year relevant to AY 2014-15 onwards. To say, therefore, that the section shall become applicable from an earlier year, even though the property was received in a later year, is a contradiction in terms. The date of the agreement is relevant only from the stand point of valuation, according recognition to the fact that contract for purchase stands entered into prior to the date of receipt. Apart therefrom this date is per se of no relevance except of course where the same itself marks the receipt of the property making the provision applicable with reference thereto. It is in the instant case undisputed that the transfer or the receipt of the property under reference took place in f.y. 2014- 15, i.e., on the substantial compliance of the agreement dated 29/3/2011. Para 3 of the said agreement, in fact, makes it abundantly clear that the vacant possession thereof shall be given by the vendor only at the time of execution and registration of sale deed. Para 5 of the Agreement obliges the seller (vendor) to bear all the dues in relation to the subject property, viz. taxes, ground rent, land revenue, etc., till the completion of the sale deed. Also, the entire payment of the sale consideration has also been during f.y. 2014-15, i.e., the previous year relevant to the current assessment year (AY 2015-16). How could, one wonders, then it be said that there has been a substantial discharge of the obligations arising under the Agreement dated 29/3/2011, conspicuous by the absence of any reference thereto in the sale deed, and, thus, a ‘receipt’ of the subject property in a previous year relevant to an earlier assessment year? The said decisions would, thus, not be of any assistance to the assessee‘s case. So, however, we may hasten to add that ITA No. 19/JAB/2021 (AY: 2015-16) Rita Manchhani v. Pr. CIT 8 | P a g e the forgoing was only to meet the assessee‘s reliance before us on the said decisions holding the subject property as received prior to the current year, so that section 56(2)(vii)(b) is not applicable. The said section, vide provisos thereto, castes an exception where an agreement has been entered fixing the price of the property transferred and a part of the purchase consideration has been paid on or before such agreement. Satisfaction of the provision with reference to the agreement dated 29/3/2011 forms the substance of the assessee‘s case. 6. We, next, consider the assessee‘s case on merits, i.e., of the set aside by the ld. Pr. CIT to the AO for a de novo consideration. His principal objection, however, is with regard to the failure on the part of the AO to conduct proper enquiry/investigation with regard to the applicability of s. 56(2)(vii)(b) (para 8 of the IO). We cannot, again, agree more. There is nothing on record to exhibit any enquiry by the AO in the matter (for which we have also gone through the notice u/s. 142(1)/143(2)/PB pgs.55-60), the order sheet entries (PB pgs. 13-14), as well as the assessee‘s replies in its respect in the assessment proceedings. Even if, therefore, the assessee has submitted the copy of the agreement and bank statement/s before the AO, it does not mean that he was seized of the matter and had applied his mind thereto. There is, accordingly, no whisper of sec. 56(2)(vii)(b) in his order, much less any enquiry in its respect and, consequently, any finding by him in the matter. The reference to the assessee‘s case qua s. 56(2)(vii)(b) at para 8 of the IO is, contrary to what Shri Bardia would suggest during hearing, is as made out before the ld. Pr. CIT. 7. We are, however, not in agreement with the ld. Pr. CIT that the matter requires a de novo consideration. The only aspect found wanting by him in the impugned assessment is the absence of any verification qua the applicability of s. 56(2)(vii)(b) and, consequently, non-recording of satisfaction in its respect. We, accordingly, while approving his order in principle, modify it to that extent. This would also meet the assessee‘s reliance on the decision in CIT vs. Padmavathi (in ITA No. 19/JAB/2021 (AY: 2015-16) Rita Manchhani v. Pr. CIT 9 | P a g e Tax Case Appeal No. 350/2020, dated 06/10/2020) by the Hon'ble Madras High Court (PB pgs. 139-147). Again, we are in agreement with the ld. Pr. CIT that the agreement referred to in s. 56(2)(vii)(b) is to be a valid agreement in law (for which reference is made to the decisions in ITO v. Vinod Kumar Chate (in ITA No. 60/JAB/2017 and 134/JAB/2018, dated 01/04/2022), rendered in the context of the analogous provision of s.50C, and Naina Saraf (supra), to cite two. We, as afore-stated, agree that the only question that survives is the applicability of the section 56(2)(vii)(b), in view of the provisos thereto, in the instant case. It is open for the revisionary authority to examine the same himself proceedings or direct the assessing authority to do so. However, once he adopts the latter course, it is not for us to interfere with the exercise of his discretionary power. We have clarified that the only aspect open for adjudication is if the agreement dtd.29/3/2011 qualifies to be an agreement referred to in the proviso to section 56(2)(vii)(b). 8. Finally, we may, though no issue in its respect stands raised before us, inasmuch as the assessee‘s return was selected for limited scrutiny, clarify that it is in our view within the competence of the ld. Pr. CIT to, as the revisionary authority, extend the scope of enquiry, requiring the assessing authority to enquire into areas impinging on matters at hand, or which comes to the notice of the AO in the course of his examination, and warrant further verification, as in the instant case. Reference for the purpose may be made to the decisions by the Jabalpur Bench of the Appellate Tribunal in Alankar & Anr. vs. Pr. CIT (in ITA Nos. 22/Jab/2022 & 15/Jab/2021, dated 31/08/2022) and Nitin Sharma vs. Pr. CIT [2020] 60 CCH 415 (Jbp). 9. In the result, the assessee‘s appeal is dismissed on the afore-said terms. Order pronounced in open Court on November 29, 2022 Sd/- Sd/- (Manomohan Das) (Sanjay Arora) Judicial Member Accountant Member Dated: 29/11/2022 ITA No. 19/JAB/2021 (AY: 2015-16) Rita Manchhani v. Pr. CIT 10 | P a g e vr/- Copy to: 1. The Appellant : Rita Manchhani, 2982, South Civil Lines, 2. In front of Hotel Rishi Regency, Jabalpur. 3. The Respondent: Principal CIT-1, Jabalpur. 4. The CI T-D.R., I TAT, Jabalpur. 5. Guard file. By order (VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Jabalpur.