Hari Om Anand, Meerut V. CIT, Meerut

ITA 2494/DEL/2013

• Counselvise Citation: 249420114 RSA 2013
• Duration Of Justice: 2 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 15-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 29-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK WADEKAR
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Residential status; Double taxation relief; Corroborative evidences; Revised return
• Section: 80C; 143(3); 50C; 263; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C , NEW DELHI BEFORE SH. G. C. GUPTA , VICE PRESIDENT AND SH. N. K. SAINI, AM ITA NO. 2494 /DEL/201 3 : ASSTT. YEAR : 2008 - 09 HARI OM ANAND H - 256, SHASHTRI NAGAR, MEERUT VS COMMISSIONE R OF INCOME TAX MEERUT (APPELLANT) (RESPONDENT) PAN NO. A CBPA6768N ASSESSEE BY : SH. K. SAMPATH, ADV. REVENUE BY : SH. VIVEK WADEKAR, CIT DATE OF HEARING : 15 .0 4 .2015 DATE OF PRONOUNCEMENT : 10 .07 .2015 ORDER PER N. K. SAINI, AM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 25.03.2013 OF LD. CIT , MEERUT . 2 . FOLLOWING GROUND S HAVE BEEN RAISED IN THIS APPEAL : 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THAT THE FINDING OF THE COMMISSION ER OF INCOME - TAX THAT THE ASSESSMENT ORDER FRAMED U/S 143(3) OF THE INCOME - TAX ACT, 1961 DATED 22.12.2010 BY THE ADDL. COMMISSIONER OF INCOME - TAX, RANGE - 1, MEERUT WAS DONE WITHOUT PROPER INQUIRY AND THAT IT NEEDED TO BE REVISED IN TERMS OF SECTION 263 OF T HE ACT, IS MISCONCEIVED AND DEVOID OF JURISDICTION AND BEING UNFAIR, UNTENABLE AND UNJUST AND MUST BE QUASHED. ITA NOS. 2494 /DEL /2013 HARI OM ANAND 2 2. THAT THE COMMISSIONER OF INCOME - TAX ERRED IN REVISING THE ASSESSMENT ORDER U/S 263 OF THE ACT WITHOUT POINTING OUT ANY INCORRECT ASSUMPTION O F FACTS OR INCORRECT APPLICATION OF LAW IN THE ASSESSMENT ORDER DATED 22.12.2010 PASSED BY THE ADDL. COMMISSIONER OF INCOME - TAX, RANGE - 1, MEERUT AND SO MUST BE QUASHED. 3. THAT THE COMMISSIONER OF INCOME - TAX NOT HAVING IDENTIFIED OR POINTED OUT ANY ERROR AND PREJUDICE TO THE INTEREST OF THE REVENUE AND ARBITRARILY INTERVENING IN THE SAME BY ASSUMING AUTHORITY U/S 263 OF THE INCOME - TAX ACT, 1961 MUST BE QUASHED. 4. THAT THE COMMISSIONER OF INCOME - TAX ERRED IN INVOKING SECTION 50C OF THE INCOME - TAX ACT, 196 1 TO BUSINESS TRANSACTIONS IN THE SALE OF SHOPS AND IN TAKING THE SALE CONSIDERATION OF SUCH SHOPS AT RS.69,72,402/ - INSTEAD OF THE ACTUAL CONSIDERATION OF RS.35,00,000/ - AS TAKEN BY THE ASSESSING OFFICER WHICH ACTION MUST BE QUASHED AS BEING INCORRECT AND ILLEGAL. 5. THAT THE COMMISSIONER OF INCOME - TAX ERRED IN ESTIMATING PROFIT ON SALE OF SHOPS AT RS.20,91,609/ - WHICH BEING ERRONEOUS AND FANCIFUL MUST BE QUASHED. 6. THAT THE COMMISSIONER OF INCOME - TAX ERRED IN CONSTRUING INCOME AT RS.32,50,000/ - FROM AD VANCES WHICH BEING WHOLLY ERRONEOUS AND IMAGINARY MUST BE QUASHED. 7. THAT THE COMMISSIONER OF INCOME - TAX ERRED IN CONSTRUING INCOME FROM INDIRECT SOURCES AT RS.65,37,491/ - ON WHOLLY FALLACIOUS AND UNTENABLE PREMISES WHICH MUST BE QUASHED. ITA NOS. 2494 /DEL /2013 HARI OM ANAND 3 8. THAT THE OR DER OF THE COMMISSIONER OF INCOME - TAX IN PARTLY REVISING AND PARTLY SETTING ASIDE IS WHOLLY WRONG AND UNSUSTAINABLE AND MUST BE QUASHED WHILE THE ORDER OF THE ASSESSMENT AS FRAMED BY THE ASSESSING OFFICER U/S 143(3) OF THE ACT ON 22.12.2010 MUST BE RESTORE D. 3. FROM THE ABOVE GROUNDS IT IS GATHERED THAT THE GRIEVANCE OF THE ASSESSEE RELATES TO THE ACTION OF THE LD. CIT U/S 263 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) IN CONSIDERING THE ASSESSMENT ORDER PASSED BY THE AO AS P REJUDI CE TO THE INTEREST OF THE REVENUE 4. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME ON 13.01.2009 DECLARING AN INCOME OF RS. 29,43,650/ - WHICH WAS PROCESSED U/S 143(1) OF THE ACT. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE FILED A REVISED COMPUTATION OF INCOME DECLARING TOTAL INCOME AT RS. 11,43,005/ - AFTER SET OFF OF LOSS FROM BUSINESS AND OTHER SOURCES. THE AO OBSERVED THAT THE VARIOUS DETAILS AS ASKED FOR IN SUPPOR T OF INCOME AND EXPENSES CLAIMED BY THE ASSESSEE HAD BEEN FILED WHICH HAD BEEN CAREFULLY EXAMINED. THE AO NOTICED THAT THE ASSESSEE HAD SOLD FIVE SHOPS AT VASUNDHARA, GHAZIABAD FOR RS. 35,00,000/ - AND SHOWN CAPITAL GAIN OF RS. 1,50,000/ - . AGAIN THE ASSESSE E FILED A REVISED COMPUTATION OF INCOME AND INCOME FROM THOSE SHOPS WAS SHOWN UNDER THE HEAD BUSINESS. THE ASSESSEE CLAIMED LOSS OF RS. 16,99,102/ - ON SALE OF THOSE SHOPS BY DEBITING INTEREST OF RS. 22,24,102/ - . THE ASSESSEE HAD ALSO ITA NOS. 2494 /DEL /2013 HARI OM ANAND 4 SHOWN WORK IN PROGRESS OF RS. 1,45,83,555/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE INTEREST SHOULD NOT BE ALLOWED PROPORTIONATELY WITH REFERENCE TO ACTUAL SALE CONSIDERATION OF SHOPS AS REDUCED BY THE GROSS PROFIT OF RS. 5,25,000/ - . THE AO WORKED OUT THE INTEREST OF LOANS AND INCOME FROM BUSINESS ON SALE OF SHOPS AS UNDER: SALE CONSIDERATION RS. 3500000 LESS: GROSS PROFIT RS. 525000 NET SALE CONSIDERATION RS. 2975000 ADD: WORK IN PROGRESS RS. 14583555 TOTAL RS. 17 558555 INTEREST CLAIMED ON RS.17558555 RS. 2224102 INTEREST ALLOWABLE ON RS.2975000 = 2224102 2975000 = RS. 17558555 376836 INCOME FROM BUSINESS ON SALE OF SHOPS =RS.525000 RS.376836 RS. 148164 5. THE AO ALSO MADE THE ADDITION OF RS. 25,000/ - ON ACCOUNT OF LOW WITHDRAWALS FOR HOUSEHOLD EXPENSES AND ACCORDINGLY, THE INCOME WAS ASSESSED AT RS. 30,15,270/ - AFTER ALLOWING DEDUCTION U/S 80C & 80D OF TH E ACT. THEREAFTER THE LD. CIT EXERCISED HIS POWERS AND ISSUED THE NOTICE U/S 263 OF THE ACT ON THE FOLLOWING POINTS: (I) AS PER THE REVISED RETURN OF INCOME FOR THE A.Y 2008 - 09, YOU HAVE SHOWN THE SALE CONSIDERATION OF SHOPS AT RS. 35,00,000/ - IN PLACE OF RS. 14,40,000/ - (AS PER ORIGINAL RETURN DATED 13.01.2009) AND ALSO CHAN GED THE HEAD OF INCOME FROM ITA NOS. 2494 /DEL /2013 HARI OM ANAND 5 CAPITAL GAIN TO BUSINESS INCOME. THE AO HAS ACCEPTED THE SAME WITHOUT PROPER ENQUIRY. (II) YOU HAVE CLAIMED RELIEF U/S 90 OF THE I.T. ACT 1961 WHICH HAS BEEN ALLOWED BY THE AO WHEREAS FROM THE PERUSAL OF RECORDS IT IS SEEN THAT NEITHER THE DOUBLE TAXATION AVOIDANCE AGREEMENT HAS BEEN FILED BY YOU NOR THE AO HAS ASKED TO FILE THE SAME. THE AO HAS NOT VERIFIED THE STATUS OF THE NRI. (III) YOU HAVE CLAIMED EXPENDITURE OF RS. 34,56,187/ - AGAINST INTEREST INCOME OF RS. 34,20,438/ - . AO HAS ACCEPTED THE SAME WITHOUT PROPER INQUIRY ON THE BASIS OF THE PLEA THAT YOU HAVE TAKEN LOANS TO EARN INTEREST INCOME. NO NEXUS HAS BEEN ESTABLISHED BETWEEN LOAN TAKEN AND INTEREST INCOME. 6 . THE LD. CIT ALSO ASKED THE ASSESSEE TO FURNISH AND EXPLAI N THE FOLLOWING: DETAILS OF SHOP PROJECT, LAND PURCHASE, MOU AND CONTRACTS WITH PARTIES INVOLVED IN CONSTRUCTION OF SHOPS. SALE DEED OF ALL THE SHOPS, PURCHASE PRICE AND COST OF CONSTRUCTION, HOW PROFIT HAS BEEN WORKED OUT. WHY PROFIT HAS NOT BEEN SHOWN ON ALL THE SHOPS. IF NOT SOLD, NO MONEY FROM SALE RECEIVED, HOW COST OF LAND PURCHASED AND CONSTRUCTION DEBITED, HOW WORKED OUT AND WHY EXPENSES IN INTEREST AND OTHER COSTS ARE DEBITABLE TO THE ASSESSEE AGAINST MERELY 05 SHOPS STATED TO HAVE BEEN SOLD OU T. FAIR MARKET PRICE OF SHOPS SOLD. HOW CIRCLE RATE WORKED OUT? WHY SALE PRICE @ LESS THAN CIRCLE RATE ACCEPTABLE? HOW ITA NOS. 2494 /DEL /2013 HARI OM ANAND 6 MUCH CLAIMED AS PAID ON CONSTRUCTION OF EACH SHOP? TO WORK OUT PROPERLY FURNISHING SUPPORTING EVIDENCE OF EACH. DTAA UNDER WHICH RELIEF U/S 90 OF IT ACT CLAIMED. HOW AND WHY ADMISSIBLE? NATURE OF RECEIPTS AND PROOF IN SUPPORT OF ITS CLAIM U/S 90 OF THE IT ACT. PROOF OF PAYMENT OF TAX IN U.S. ON SAID INCOME, WHY TAXABLE IN U.S. & WHY NOT IN INDIA? ASSESSEE IS ADMITTEDLY A RESIDENT OF INDIA , THEN HOW INCOME ACCUMULATED AND AROSE IN U.S.? WHAT SERVICES WERE OFFERED IN U.S. FULL DETAILS WITH PROOF? COMPLETE CONFIRMATIONS OF LOANS TAKEN WHY NOT UNEXPLAINED INCOME OF ASSESSEE ONLY, IN THE ABSENCE OF PROPER CONFIRMATIONS AND PROOF IN SUPPORT THE REOF, DETAILS AND RATES OF INTEREST. PURPOSE FOR WHICH LOANS TAKEN AND PURPOSE FOR WHICH LOANS UTILIZED. NEXUS OF MONEY BETWEEN THE LOANS TAKEN AND STATED TO HAVE BEEN GIVEN FOR DIFFERENT PURPOSES. HOW ADMISSIBLE IN THE HANDS OF ASSESSEE AND THAT TOO AGAI NST INTEREST INCOME RETURNED? RATES AT WHICH LOANS TAKEN, RATES AT WHICH LOANS GIVEN. JUSTIFICATION AND REASONABLENESS U/S 40A(2)(B) OF THE IT ACT, 1961. PROOF OF PAYMENT OF INTEREST IF ANY PAID. THE DETAILS OF INTEREST SHOW THAT MERE PROVISION HAS BEEN MADE. HOW LIABILITY FOR INTEREST AROSE? CONTRACT/AGREEMENT WITH THE PARTIES, PURPOSES FOR WHICH LOAN ON INTEREST TAKEN. PURPOSES FOR WHICH LOAN MONEY LENT OUT TO OTHERS? WHY NOT BREACH OF CONDITIONS ON WHICH LOANS WERE RAISED? WHY INTEREST CLAIMED IS ADMIS SIBLE IF NOT UTILIZED FOR THE PURPOSES THESE WERE TAKEN? ITA NOS. 2494 /DEL /2013 HARI OM ANAND 7 PURPOSES OF RAISING SECURED LOANS. SECURED LOANS FROM UTI ETC. IS TAKEN FOR VASUNDHARA PROJECT (SHOPS PROJECT) & CLAIMED. WHY ADMISSIBLE WHILE INCOME FOR PROJECT I S NOT REFLECTED NO. OF SHOPS ADMITTE DLY GOT CONSTRUCTED OUT OF WHICH MERELY 5 STATED TO HAVE BEEN SOLD. ASSESSEE HAS SHOWN BUSINESS INCOME/LOSS IN VASUNDHARA PROJECT WHEREAS BOOKS OF ACCOUNTS AND TAX AUDIT DENIED. PLEASE EXPLAIN WHY NOT LIABLE FOR PENALTIES U/S 271A AND 271B OF THE IT ACT A ND ALSO GIVE COMPLETE DETAILS AND COMPLETE SUPPORTING MATERIAL/EVIDENCE OF SUCH BUSINESS. COMPLETE COPIES OF BANK A /CS OF THE ASSESSEE - CERTIFIED/TRUE FOR THE WHOLE YEAR. HOW INCOME FROM SHOPS (RENT) IS SHOWN AS INCOME FROM HOUSE PROPERTY AND EVEN DEDUCTIO N U/S 24 IS CLAIMED WHILE SHOPS PROJECT IS ADMITTEDLY SHOWN AS BUSINESS AND EVEN LOSSES/EXPENSES ARE CLAIMED AGAINST THE SAME? NATURE OF SERVICES RENDERED TO PRS TRANSPORTATION (USA) OF WHICH RELIEF U/S 90 OF THE ACT HAS BEEN CLAIMED. TO PRODUCE ENTIRE BA NK STATEMENTS, BOOKS OF A/CS (IF AND TO WHATEVER EXTENT MAINTAINED) WITH COMPLETE BILLS, VOUCHERS, MOU, CONTRACT AGREEMENTS, EMPLOYMENT LETTERS FOR SALARIES, SALE DEEDS FOR ALL PURCHASES AND SALES EXECUTED OR RELEVANT FROM THE YEAR UNDER CONSIDERATION. WH Y IT RETURN IN US FILED IN JOINT NAMES WITH WIFE? WHETHER INCOME ACCRUED TO HER? WHETHER ASSESSEE S SALARY IS REFLECTED IN SUCH RETURN IS NOT CLEAR. ITA NOS. 2494 /DEL /2013 HARI OM ANAND 8 7 . THE LD. CIT AFTER CONSIDERING THE VARIOUS DOCUMENTS AND THE EXPLANATION FURNISHED BY THE ASSESSEE WA S OF THE VIEW THAT THE ASSESSEE GROSSLY SUPPRESSED ITS INCOME UNDER DIFFERENT HEADS AND HAD CLAIMED THE EXPENSES WHICH WE RE NOT ALLOWABLE. THE LD. CIT WAS OF THE VIEW THAT THE ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL T O THE INTEREST OF THE REVE NUE, S INCE AT THE TIME OF ASSESSMENT, THE AO WAS DUTY BOUND TO CALL FOR SUCH DETAILS AND TO EXAMINE THOSE. HE FURTHER OBSERVED THAT THE AO ACCEPTED THE VERSION OF THE ASSESSEE WITHOUT ANY INQUIRY OR VERIFICATION WHEREAS IT IS VERY WELL SETTLED THAT MERE FA ILURE TO MAKE INQUIRIES MAKES AN ORDER ERRONEOUS AND WAS NOT NECESSARY FOR THE COMMISSIONER TO MAKE FURTHER INQUIRY BEFORE CANCELLING THE ASSESSMENT ORDER OF THE AO . HE ALSO OBSERVED THAT THE ORDER CAN BE REGAR DED AS ERRONEOUS ON THE GROUND THAT THE AO SHOULD HAVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE STATEMENT S MADE BY THE ASSESSEE IN HIS RETURN. THE LD. CIT WAS OF THE VIEW THAT IT WAS INCUMBENT UPON THE AO TO INVESTIGATE THE FACTS STATE D IN THE RETURN , WHEN CIRCUMSTANCES WOULD MAKE SUCH AN INQUI RY PRUDENT AND THAT THE WORD , ERRONEOUS IN SECTION 263 OF THE ACT INCLUDE S FAILURE TO MAKE SUCH AN INQUIRY. HE ALSO OBSERVED THAT THE ORDER BECOMES ERRONEOUS BECAUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT BECAUSE THERE WERE ANYTHING WRONG WITH THE ORD ER IF ALL THE FACTS STATED THEREIN ARE ASSUMED TO BE CORRECT. THE REFERENCE WAS MADE TO THE FOLLOWING CASE LAWS: MALABAR IND. CO. LTD. VS CIT (2000) 243 ITR 83 (SC) ITA NOS. 2494 /DEL /2013 HARI OM ANAND 9 CIT VS V.N.M.A. RATHINASABAPATHY NADAR (1995) 215 ITR 309, 315 (MAD.) SWARUP VEGETABLE PRO DUCTS INDUSTRIES LTD. VS CIT (1991) 187 ITR 412, 415 - 416 (ALL.) UMASHANKAR RICE MILLS VS CIT (1991) 187 ITR 638 - 39 (ORI) JAGDISH KUMAR GULATI VS CIT 269 ITR 71 (ALL.) GEE VEE ENTERPRISES VS ADDL. CIT 99 ITR 375 (DEL.) RAMPYARI DEVI SARAOGI VS CIT (1968) 67 ITR 84 (SC) TARA DEVI AGGARWAL VS CIT (1973) 88 ITR 323 (SC) DUGGAL & CO. VS CIT (1996) 220 ITR 456, 459 (DEL.) CIT VS PUSHPA DEVI (1987) 164 ITR 639 (PAT) CIT VS SMT. RAMBHA DEVI (1987) 164 ITR 658 (PAT) CIT VS BELAL NISA (1988) 171 ITR 643 (PAT) CIT VS SMT. KAUSHALYA DEVI (1988) 171 ITR 686 (PAT) CIT VS BIBI KHODAIJA KHATOON (1988) 171 ITR (PAT) CIT VS CHANDRAWATI DEVI (1988) 171 ITR (PAT) CIT VS SMT. DEVI (1987) 59 CTR (PAT) 3 CIT VS BHAGWANT KAUR (1987) 63 CTR (PAT) 326 CIT VS PUSHPA DEVI (1988) 173 IT R 445 (PAT) 8 . THE LD. CIT POINTED OUT THAT THE ASSESSEE HAD SHOWN THE SALE CONSIDERATION OF SHOP AT RS. 14,40,000/ - AS PER ORIGINAL RETURN OF INCOME, RS. 35,00,000/ - AS PER THE REVISED COMPUTATION AND CHANGED THE HEAD OF INCOME FROM CAPITAL GAIN TO BU SINESS INCOME WHICH WAS ACCEPTED BY THE AO. HE FURTHER OBSERVED THAT DURING THE COURSE OF PROCEEDINGS U/S 263 OF THE ACT, THE ASSESSEE WAS ASKED TO FURNISH THE SALE DEED S OF ALL THE SHOPS WHERE THE STAMP DUTY ON CIRCLE RATE AT RS. 69,72,402/ - WAS PAID AT THE TIME OF REGISTRATION OF SALE DEED S . HE ALSO POINTED OUT THAT THE ASSESSEE ARGUED THAT SECTION 50C OF THE ACT HAD NO APPLICATION IN HIS CASE BECAUSE THE PROFITS HAD NOT BEEN UNDER THE HEAD CAPITAL GAIN BUT ARE ITA NOS. 2494 /DEL /2013 HARI OM ANAND 10 THE BUSINESS PROFIT S . ACCORDING TO THE LD. CIT THE ASSESSEE COULD NOT EXPLAIN AS TO HOW THE MARKET RATE OF SHOPS AT WHICH THE BUSINESS ASSETS HAD BEEN SOLD TO HAVE BEEN LESSER THAN THE CIRCLE RATE SINCE GENERALLY INVARIABLY THE MARKET RATE OF PROPERTIES ARE HIGHER THAN THE CIRCLE RATE THEREOF. THE LD. CIT CONSIDERED THE SALE VALUE OF SHOPS AT THE CIRCLE RATE OF RS. 69,72,402/ - AS THE MOST REASONABLE RATE. AS REGARDS TO THE COST OF CONSTRUC TION OF THE SHOPS , THE LD. CIT POINTED OUT THAT THE ASSESSEE HAD DEBITED ENTIRE COST OF CONSTRUCTION ON A MULTI STORIED BUILDING OUT OF WHICH MERELY FIVE SHOPS ON THE GROUND FLOOR OUT A LARGE NUMBERS OF SHOPS WERE ONLY SOLD. THE LD. CIT REFERRED TO THE INSTANCE OF VARIOUS PROPERTIES SOLD AT VASUNDHARA PROPERTY AND CAME TO THE CONCLUSION THAT THE AREA OF LAND SOLD BY THE ASSESSEE WAS 1170 SQ. FT. ACCORDINGLY, THE RATE OF AREA SOLD PER SQ. FT. WAS WORKED OUT OF RS. 5959 PER SQ. FT. THE LD. CIT WAS OF THE VIEW THAT THE MINIMUM MARGIN IN THE CONSTRUCTION BUSINESS ON THE SALE WAS AT 30%. HE WORKED OUT THE PROFIT ON SALE @ RS. 1787 PER SQ. FT. (30% OF RS.5959/ - ) AT RS. 20,91,609/ - . THE LD. CIT ALSO POINTED OUT THAT THE ASSESSEE HAD RECEIVED ADVANCES OF RS. 32.50 LAKHS WHICH WERE NOT SHOWN IN THE INCOME AND THAT AS PER THE INCOME & EXPENDITURE ACCOUNT THE ASSESSEE HAD SHOWN THE INCOME UNDER SEVERAL HEADS TO THE MAGNITUDE OF RS. 72,80,49 1/ - WHICH WAS TAXABLE AS SUCH . THE LD. CIT ALSO POINTED OUT THAT THE ASSESSEE CLAIMED RS. 7,25,600/ - AS EXPENSES IN THE EVENT MANAGEMENT WITHOUT GIVING ANY DETAILS OR SUPPORTING MATERIAL WHICH APPEAR TO B E AS SUCH HIGH FOR EARNING THE ITA NOS. 2494 /DEL /2013 HARI OM ANAND 11 INCOME FROM EVENT MANAGEMENT AT RS. 8,44,700/ - . THE LD. CIT WORKED OUT THE TAXABLE INCOME UNDER THE HEAD INDIRECT SOURCES AS UNDER: FROM THE STATEMENT OF INCOME & EXPENDITURE A/C INCOME FROM INDIRECT SOURCES R S. 72,82,491 LESS: EXPENSES IN EVENT MANAGEMENT RS. 7,25,000/ - INCOME RS. 65,57,491/ - ACCORDINGLY, THE TOTAL ADDITION WAS WORKED OUT BY THE LD. CIT AS UNDER: 1. INCOME FROM SALE OF PROPERTIES AT VASUNDHRA RS. 20,91,609 2. ADVANCES NOT REFLECTED/ ACCOUNTED RS. 32,50,000 3. INCOME FROM INDIRECT SOURCES AS PER INCOME & EXP. A/C RS. 65,57,491 TOTAL ADDITIONS MADE RS. 1,18,99,100 9. THE LD. CIT DIRECTED THE AO TO REVISE THE ASSESSMENT ORDER AND PASS THE FRESH ORDER BY CONSIDERING ALL THE AFORESAID POINTS. 10. BEING AGGRIEVED THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT AND FURTHER SUBMITTED THAT THE ASSESSEE WAS HAV ING THE SHOPS AS STOCK - IN - TRADE, T HEREFORE, PROVISIONS OF SECTION 50C OF THE ACT WERE NOT APPLICABLE AND THE LD. CIT WAS NOT JUSTIFIED IN DIRECTING THE AO TO ADOPT THE CIRCLE RATE FOR THE VALUATION PURPOSES. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: ITA NOS. 2494 /DEL /2013 HARI OM ANAND 12 CIT VS KAN CONSTRUCTION AND COLONIZERS (P.) LTD. 208 TAXMAN 478 (ALL.) CIT VS M UKESH & KISHOR BAROT CO - OWNERS 215 TAXMAN 151 (GUJ.) CIT VS THIRUVENGADAM INVESTMENTS (P.) LTD. (2010) 320 ITR 345 (MADRAS) 11. IT WAS FURTHER SUBMITTED THAT THE AO INQUIRED THE ISSUE IN DETAIL AND ONLY THEREAFTER HE ACCEPTED THE PROFITS SH OWN BY THE ASSESSEE, THEREFORE, THE LD. CIT WAS NOT JUSTIFIED IN ALLEGI NG THAT THE PROPER INQUIRIES WERE NOT MADE BY THE AO. IT WAS FURTHER SUBMITTED THAT THE LD. CIT HAD NOT POINTED OUT ANY ERROR IN THE ORDER OF THE AO AND ALSO NO INCORRECTNESS WAS POINTE D OUT, THEREFORE, THE LD. CIT WAS NOT JUSTIFIED IN SETTING ASIDE THE ASSESSMENT ORDER DATED 22.12.2010 FRAMED BY THE AO. 12. IN HIS RIVAL SUBMISSIONS THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE LD. CIT AND FURTHER SUBMITTED THAT THE AO IN THE ASSESS MENT ORDER HAS NOT POINTED OUT WHAT WERE THE DETAILS FURN ISHED BY THE ASSESSEE AND HE HAD ALSO NOT PROPERLY INQUIRED THE ISSUE AND HAD ALSO NOT EXAMINED HOW THE SALE RATE WAS LESS THAN THE CIRCLE RATE. THEREFORE, THE ASSESSMENT ORDER PASSED BY THE AO WAS E RRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THE LD. CIT WAS JUSTIFIED IN SETTING ASIDE THE SAME. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABL E ON THE RECORD. IN THE PRESENT CAS E, IT IS NOTICED THAT THE LD. CIT WHILE SETTING ASIDE THE ITA NOS. 2494 /DEL /2013 HARI OM ANAND 13 ASSESSMENT ORDER DATED 22.12.2010 HELD THAT THE SALE CONSIDERATION AT RS. 35,00,000/ - FOR SHOP WAS LESS THAN THE CIRCLE RATE AT RS. 69,72,402/ - PAID AND THAT THE STAMP DUTY W AS PAID ON THE SAID CIRC LE RATE, T HEREFORE, THE SAID CIRCLE RATE WAS THE MOST REASONABLE RATE WHILE ACCEPTING THE SALE RATE. THE LD. CIT INVOKED THE PROVISIONS OF SECTION 50C OF THE ACT AND HAD T AKEN THE SALE VALUE OF THE SHOP AT RS. 69,72,402/ - INSTEAD OF RS. 35,00,000/ - DISCLOSED B Y THE ASSESSEE AND ACCEPTED BY THE AO. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE SHOPS HELD BY THE ASSESSEE WERE SHOWN AS BUSINESS ASSET I.E. STOCK - IN - TRADE , WHICH WAS ACCEPTED BY THE AO AND ALSO THE LD. CIT HAS NOT DOUBTED THE SAME. NOW QUESTIO N ARISES AS TO WHETHER THE PROVISIONS OF SECTION 50C OF THE ACT ARE APPLICABLE TO THE ASSETS HELD AS STOCK - IN - TRADE . I N THIS REGARD THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT VS THIRUVENGADAM INVESTMENTS (P.) LTD. (2010) 320 ITR 345 HELD AS UNDER: THAT INVOCATION OF SECTION 50C CAN BE MADE IN ORDER TO FIND OUT THE TRUE VALUE OF THE CAPITAL ASSET. SINCE IN THE INSTANT CASE, THE PROPERTY IN THE HANDS OF THE ASSESSEE WAS TREATED AS BUSINESS ASSET AND NOT AS CAPITAL ASSET, THERE WAS NO QUESTION OF INVOK ING THE PROVISIONS OF SECTION 50C. 14. SIMILARLY THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS MUKESH & KISHOR BAROT CO - OWNERS 215 TAXMAN 151 (SUPRA) HELD AS UNDER: THUS, SECTION 50C OF THE ACT GIVES RISE TO A DEEMING FICTION AND SUCH DEEMING F ICTION IS TO BE APPLIED IN CASE OF ITA NOS. 2494 /DEL /2013 HARI OM ANAND 14 COMPUTATION OF CAPITAL GAIN UNDER SECTION 48 OF THE ACT. IT IS WELL KNOWN THAT A DEEMING FICTION PROVIDED BY THE STATUTE HAS TO BE APPLIED FOR THE PURPOSE OF WHICH IT IS PROVIDED AND NO OTHER. IN THE PRESENT CASE, IF THE ASSESSING OFFICER HAD UTILIZED JUNTRY RATE AS A STARTING POINT, TO ENQUIRE FURTHER AND ASCERTAIN THE TRUE MARKET VALUE OF THE LAND SO SOLD AND HAVING BROUGHT SOME EVIDENCE IN THIS DIRECTION, SURELY, THE CASE OF THE REVENUE WOULD HAVE BEEN JUSTIFIED. WE HAV E PERUSED THE ORDER OF THE ASSESSING OFFICER IN DETAIL. EXCEPT FOR MAKING REFERENCE TO THE JUNTRY RATES AND POINTING OUT THAT THE JUNTRY RATE IS 2.2 TIMES HIGHER THAN THE SALE CONSIDERATION DISCLOSED BY THE ASSESSEE, THE ASSESSING OFFICER HAS BROUGHT NO EV IDENCE ON THE RECORD TO ESTABLISH THAT THE SALE DEED DID NOT REFLECT THE FULL SALE CONSIDERATION. IN OTHER WORDS, ALL THAT THE ASSESSEE DID WAS TO APPLY A DEEMING FICTION PROVIDED UNDER SECTION 50C WITHOUT ADMITTING SO, IT WAS NOT IN DISPUTE THAT THE PLOT WAS HELD AS 'STOCK IN TRADE' AND THEREFORE SALE THEREOF GIVES RISE TO THE BUSINESS INCOME AND NOT TO CAPITAL GAIN. 15. ON A SIMILAR ISSUE THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS KAN CONSTRUCTION AND COLONIZERS (P.) LTD. 208 TAXMAN 478 (SUPRA) HAS HELD AS UNDER: SECTION 50C ALSO USES THE WORDS 'CAPITAL ASSET'. FOR APPLICABILITY OF SECTION 50C, THE ESSENTIAL REQUIREMENT IS THAT AN ASSET SHOULD BE CAPITAL ASSET. WHETHER SALE OF LAND IS SALE OF CAPITAL ASSET OR STOCK - IN - TRADE IS ESSENTIA LLY A QUESTION OF FACT. THERE IS NO RULE OF THUMB TO ADDRESS THE SAID ISSUE. SEVERAL PRINCIPLES HAVE BEEN EVOLVED IN THE JUDICIAL DECISIONS, BUT THESE ARE MORE IN THE NATURE OF GUIDELINES. THE QUESTION HAS TO BE ANSWERED IN EACH CASE HAVING REGARD TO THE C IRCUMSTANCES OF THAT CASE. THERE MAY BE FACTORS BOTH FOR AND AGAINST A PARTICULAR POINT OF VIEW. THE COURT HAS TO ANSWER THE QUESTION ON A CONSIDERATION OF ALL OF THEM IN A PROCESS OF EVOLUTION. THE ITA NOS. 2494 /DEL /2013 HARI OM ANAND 15 INFERENCE HAS TO BE DRAWN ON A CUMULATIVE CONSIDERATION. [PARA 12] IN THE PRESENT CASE, THE ASSESSEE IS A BUILDER. CONSTRUCTION OF BUILDINGS IS ITS BUSINESS. THE ASSESSEE HAS SOLD NUMBER OF BUILDINGS REFERRED TO ABOVE WITH REGARD TO WHICH THERE IS NO DISPUTE. THE DISPUTE IS WITH REGARD TO THE SALE OF PLOTS. INV ESTMENT IN PURCHASE AND SALE OF PLOTS BY A BUILDER WHO IS INDULGED IN SELLING BUILDINGS IS ANCILLARY AND INCIDENTAL TO HIS BUSINESS ACTIVITY. IT IS A MATTER OF RECORD THAT THE ASSESSEE HAS TREATED THE LAND AS STOCK - IN - TRADE WHICH FINDS CORROBORATION FROM I TS BALANCE SHEET. STOCK - IN - TRADE HAS BEEN EXCLUDED FROM THE DEFINITION OF 'CAPITAL ASSET.' ACCORDING TO THE WEBSTER'S NEW INTERNATIONAL DICTIONARY, THE 'STOCK - IN - TRADE' IS THE 'GOODS KEPT FOR SALE BY A SHOPKEEPER'; THE FITTINGS AND APPLIANCES OF A WORKMAN' . IN OTHER WORDS, THE STOCK - IN - TRADE INCLUDES ALL SUCH CHATTELS AS ARE REQUIRED FOR THE PURPOSES OF BEING SOLD OR LET TO HIRE ON A PERSON'S TRADE. ACCORDING TO STROUD'S JUDICIAL DICTIONARY, STOCK - IN - TRADE COMPRISES OF ALL SUCH CHATTELS AS ARE REQUIRED FOR THE PURPOSES OF BEING SOLD, OR LET TO HIRE ON A PERSON'S TRADE. [PARA 13] IT HAS FURTHER BEEN HELD THAT: THE COMMISSIONER (APPEALS) AND THE TRIBUNAL ON ANALYSIS OF THE FACTS OF THE CASE HAVE REACHED TO THE CONCLUSION THAT SECTION 50C HAS NO APPLICATION AS IT WAS A CASE OF TRANSFER OF PLOTS WHICH WAS STOCK - IN - TRADE. AN INCOME EARNED FROM SUCH TRANSACTION IS LIABLE TO BE TAXED AS INCOME FROM BUSINESS ACTIVITY .. THE VIEW TAKEN BY THE TRIBUNAL IS ON TERRA - FIRMA. THE INFERENCE DRAWN BY THE TRIBUNAL I S BASED ON RELEVANT CONSIDERATION. ITA NOS. 2494 /DEL /2013 HARI OM ANAND 16 16. FROM THE AFORESAID JUDICIAL PRONOUNCEMENT, IT IS CRYSTA L CLEAR THAT THE PROVISIONS OF S ECTION 50C OF THE ACT ARE NOT APPLICABLE WHEN THE SHOPS ARE TREATED AS STOCK - IN - TRADE AND INCOME FROM SUCH TRANSACTION WAS HELD A S A BUSINESS INCOME . THEREFORE, THE LD. CIT WAS NOT JUSTIFIED IN SETTING ASIDE THE ASSESSMENT ORDER ONLY ON THIS BASIS T HAT THE AO HAS NOT TAKEN THE SAL E VALUE AS PER SECTION 50C OF THE ACT I.E. THE CIRCLE RATE . WE, THEREFORE, ARE OF THE VIEW THAT THE LD. CIT WAS NOT JUSTIFIED IN SETTING ASIDE THE ASSESSMENT ORDER BY INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. 17. THE SUBJECT OF REVISION UNDER SECTION 263 HAS BEEN VASTLY EXAMINED AND ANALYZED BY VARIOUS COURTS INCLUDING HON'BLE APEX COURT. THE REVI SIONARY POWER CON FERRED ON THE LEARNED CIT VIDE SECTION 263 OF THE ACT IS OF WIDE AMPLITUDE, IT ENABLES THE LEARNED CIT TO CALL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDING UNDER THE ACT. IT EMPOWERS THE LEARNED CIT TO MAKE OR CAUSE TO BE MADE SUCH AN ENQ UIRY AS HE DEEMS NECESSARY IN ORDER TO FIND OUT IF ANY ORDER PASSED BY AO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE ONLY LIMITATION ON HIS POWER IS THAT HE MUST HAVE SOME MATERIAL(S) WHICH WOULD ENABLE HIM TO FORM A PRI MA FACIE OPINION THAT THE ORDER PASSED BY THE AO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ONCE HE COMES TO THE ABOVE CONCLUSION ON THE BASIS OF THE 'MATERIAL' THAT THE ORDER OF THE AO IS ERRONEOUS AND ALSO PREJUDICIAL TO TH E INTERESTS OF THE REVENUE, THE LEARNED CIT IS EMPOWERED TO PASS AN ORDER ITA NOS. 2494 /DEL /2013 HARI OM ANAND 17 AS THE CIRCUMSTANCES OF THE CASE MAY WARRANT. HE MAY PASS AN ORDER ENHANCING THE ASSESSMENT OR HE MAY MODIFY THE ASSESSMENT. HE IS ALSO EMPOWERED TO CANCEL THE ASSESSMENT AND DIRECT TO FRAME A FRESH ASSESSMENT. HE IS EMPOWERED TO TAKE RECOURSE TO ANY OF THE THREE COURSES INDICATED IN S. 263 OF THE ACT. BUT THE LEARNED CIT DOES NOT HAVE UNFETTERED AND UNCHEQURED DISCRETION TO REVISE AN ORDER, HE IS REQUIRED TO EXERCISE REVISIONAL POWER WITHIN THE BOUNDS OF THE LAW AND HAS TO SATISFY THE NEED OF FAIRNESS IN ADMINISTRATIVE ACTION AND FAIR PLAY WITH DUE RESPECT TO THE PRINCIPLE OF AUDI ALTERAM PARTEM AS ENVISAGED IN THE CONSTITUTION OF INDIA AS WELL AS IN SECTION 263 OF THE ACT. AN ORDER C AN BE TREATED AS 'ERRONEOUS' IF IT IS PASSED IN UTTER IGNORANCE OR IN VIOLATION OF ANY LAW; OR PASSED WITHOUT TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS OR BY TAKING INTO CONSIDERATION THE IRRELEVANT FACTS. THE WORD 'PREJUDICE' IS CONTEMPLATED UNDER SECTION 263 OF THE ACT IS THE PREJUDICE TO THE INCOME - TAX ADMINISTRATION AS A WHOLE. THE REVISION HAS TO BE DONE FOR THE PURPOSE OF SETTING RIGHT DISTORTIONS AND PREJUDICES CAUSED TO THE REVENUE IN THE ABOVE CONTEXT. THE FUNDAMENTAL PRINCIPLES WHICH EMERGE FROM THE SEVERAL CASES REGARDING THE POWERS OF THE CIT UNDER SECTION 263 OF THE ACT MAY BE SUMMARIZED AS UNDER : '( I ) THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BOTH THE CONDITI ONS MUST BE FULFILLED. ITA NOS. 2494 /DEL /2013 HARI OM ANAND 18 ( II ) SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS, THAN THE SAID SECTION WILL BE ATTRACTED. ( III ) AN INCORRECT ASSUMPTION OF FACTS O R AN INCORRECT APPLICATION OF LAW WILL SUFFICE FOR THE REQUIREMENT OF ORDER BEING ERRONEOUS. ( IV ) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. ( V ) EVERY LOSS OF REVENUE CANNOT BE TREA TED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND IF THE AO HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNL ESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE UNDER THE LAW. ( VI ) IF WHILE MAKING THE ASSESSMENT, THE AO EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME, THE CIT, WHILE EXERCI SING HIS POWER UNDER SECTION 263 OF THE ACT, IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE AO. ( VII ) THE AO EXERCISES QUASI - JUDICIAL POWER VESTED IN HIM AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LA W AND ARRIVES AT A ITA NOS. 2494 /DEL /2013 HARI OM ANAND 19 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 UNDER SECTION 263 OF THE ACT, MUST HAVE MATERIAL ON RE CORD TO ARRIVE AT A SATISFACTION.' IN SUCH TYPE OF CASES, IF THE AO HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BE A LETTER IN WRITING AND THE AO ALLOWED THE CLAIM O N 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 ELABORATE DISCUSSION IN THAT REGARD. 18 . IN THE INSTANT CASE, THE ASSESSEE FURNISHED ALL THE DETA ILS RELATING TO THE BUSINESS PROFIT EARNED AND THE SALE OF SHOPS. THE AO SPECIFICALLY ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE INTEREST SHOULD NOT BE ALLOWED PROPORTIONATELY WITH REFERENCE TO ACTUAL SALE OF SHOPS AS REDUCED BY THE GROSS PROFIT. ACCOR DINGLY, INTEREST ON LOANS AND INCOME FROM BUSINESS WAS WORKED OUT. THE LD. CIT HAD NOT DOUBTED ALLOWABLE INTEREST WORKED OUT BY THE AO, THEREFORE, HE WAS NOT JUSTIFIED IN OBSERVING THAT THE AO ACCEPTED THE BUSINESS INCOME WITHOUT MAKING PROPER INQUIRY. MOR EOVER, THE LD. CIT HAD NOT POINTED OUT HOW AND IN WHAT MANNER THE ASSESSMENT ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE SIMPLY STATED THAT THE AO HAD NOT MADE THE PROPER INQUIRY ITA NOS. 2494 /DEL /2013 HARI OM ANAND 20 BUT DID NOT POINT OUT WHICH INQUIRIES WERE TO BE M ADE BUT HAD NOT BEEN MADE BY THE AO. THEREFORE, BY CONSIDERING THE TOTALITY OF THE FACT WE ARE OF THE VIEW THAT THE LD. CIT WAS NOT JUSTIFIED IN SETTING ASIDE THE ASSESSMENT ORDER DATED 22.12.2010 AND DIRECTING THE AO TO FRAME FRESH ORDER. HE WAS ALSO NOT RIG HT IN HOLDING THAT THE SALE PRICE OF THE SHOP SHOULD HAVE BEEN TAKEN AT CIRCLE RATE IN ACCORDANCE WITH THE PROVISION OF SECTION 50C OF THE ACT INSTEAD OF ACTUAL SALE PRICE DISCLOSED BY THE ASSESSEE AND ACCEPTED BY THE AO . ACCORDINGLY THE IMPUGNED ORDER PASSED BY THE LD. CIT IS SET ASIDE AND THE ASSESSMENT ORDER FRAMED BY THE AO IS RESTORED. 19 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ( ORDER PRON OUNCED IN THE COURT ON 10 /07 /2015 ) SD/ - SD/ - (G. C. GUPTA ) (N. K. SAINI) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 10 /07 /2015 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR