SHRI RABINDER KRISHAN NIGAM, MUMBAI V. THE ACIT 19(2), MUMBAI

ITA 2777/MUM/2008

• Counselvise Citation: 277719914 RSA 2008
• Duration Of Justice: 3 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 20-01-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 23-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B SENTHIL KUMAR
• Assessee Lawyers: HARI S RAHEJA
• Keywords: Valuation report; Revised return
• Section: 54F; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 2777/MUM/2008 (ASSESSMENT YEAR: 2003-04) SHRI RABINDER KRISHAN NIGAM COMMISSIONER OF INCOME TAX -19 KANARA BUSINESS CENTRE, B-WING ROOM NO. 402, PIRAMAL CHAMBERS ROOM NO. 313, LAXMI NAGAR VS. LALBAUG, MUMBAI 400012 GHATKOPAR (E), MUMBAI 400075 PAN - AABPN 7656 Q APPELLANT RESPONDENT APPELLANT BY: SHRI HARI S. RAHEJA RESPONDENT BY: DR. B. SENTHIL KUMAR O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT XIX-, MUMBAI UNDER SECTION 263 DATED 19.03.2008. ASSESSEE HAS RAISED VARIOUS GROUNDS ON THE ISSUE RAISED BY THE UNDER SECTION 26 3 INCLUDING THE JURISDICTION OF THE CIT TO INVOKE PROVISIONS OF SEC TION 263. 2. BRIEFLY STARTED, ASSESSEE FILED RETURN OF INCOME ON 12.12.2003 DECLARING TOTAL INCOME OF ` 10,11,180/-. SUBSEQUENTLY REVISED RETURN WAS FILED INCREASING THE TOTAL INCOME TO ` 12,33,278/-. DURING THE SCRUTINY PROCEEDINGS THE A.O. NOTICED THAT ASSESSEE AND HIS BROTHER HAD ENTERED INTO AN AGREEMENT WITH M/S. KUKREJA CONSTRUCTION CO. ON 12.07.2002 AND HAS DEVELOPED A PLOT SITUATED AT VILLAGE WADAVLI, CHEMB UR, MUMBAI. AS PER THE TERMS OF THE SAID AGREEMENT ASSESSEE ALONGWITH HIS BROTHER WAS GOT PERMISSION SELL ON THEIR OWN ACCOUNT 40% OF THE PRE MISES CONSTRUCTED BY THE DEVELOPERS ON THE SAID PROPERTY. IT WAS NOTED B Y THE A.O. THAT THE ASSESSEE RECEIVED FLAT NOS. 501,502 AND 50% OF FLAT NO 102 AND MONETARY CONSIDERATION OF THE FLATS ALLOTTED WAS CALCULATED AT ` 33,54,000/-. THEREAFTER ASSESSEE WORKED OUT THE CAPITAL GAIN AND CLAIMED DE DUCTION UNDER SECTION 54F AND OFFERED LONG TERM CAPITAL GAIN OF ` 2,98,167/-. DURING THE SCRUTINY PROCEEDINGS ASSESSEE WAS ASKED TO FILE DETAILED DOC UMENTARY EVIDENCES FOR ITA NO. 2777/MUM/2008 SHRI RABINDER KRISHAN NIGAM 2 THE TRANSACTIONS AND THE CLAIMS MADE AND THE A.O. R EWORKED OUT THE COST OF THE ASSESSEES SHARE AND FULL VALUE OF CONSIDERATIO N WAS ADOPTED AT ` 34,02,791/-. HE ALSO DISALLOWED DEDUCTION UNDER SEC TION 54F THEREBY DETERMINED THE CAPITAL GAIN AT ` 24,69,491/-. IT SEEMS THAT THE ASSESSEE HAS ACCEPTED THE SAID ORDER. THE CIT, AFTER EXAMINING T HE RECORD, HAS INITIATED PROCEEDINGS UNDER SECTION 263. THE CIT HAS RAISED T WO ISSUES; (A) THAT AS PER THE AGREEMENT DATED 12.07.2002 ASSESSEE HAS TO GET 2982 SQ.FT. WHEREAS THE ASSESSEE OFFERED ONLY 2530 SQ.FT. THEREFORE, TH E AREA OF OFFERED FLAT WAS REDUCED TO THAT EXTENT. AFTER DISCUSSION HE DIRECTE D THE A.O. TO ADOPT THE AREA OF THE FLAT OBTAINED BY THE ASSESSEE AT 2982 S Q.FT. AS PER THE TERMS OF AGREEMENT FOR COMPUTING THE CAPITAL GAIN. THE OTHER ISSUE RAISED BY THE CIT IS WITH REFERENCE TO THE VALUE ADOPTED FOR ARRIVING AT THE MONETARY CONSIDERATION. HE DID NOT AGREE WITH THE A.O. ADOPT ING 50% ON THE BASIS OF THE VALUATION REPORT AT ` 34,02,791/- WHEREAS HE WAS OF THE OPINION THAT THE VALUE IS HIGHER THAN WHAT THE DETERMINED BY THE A.O . HE RELIED ON THE SALE VALUE STATED BY THE DEVELOPER AND DIRECTED THE A.O. TO DECIDE THE MARKET RATE AND IF CONSIDERED NECESSARY REFER THE MATTER TO THE VALUATION OFFICER TO FIND OUT THE MARKET VALUE OF THE FLATS AS ON 12.07.2002 AND COMPUTE THE LONG TERM CAPITAL GAIN. ASSESSEE IS AGGRIEVED ON THE SAI D ORDER OF THE CIT. 3. REFERRING TO THE ORDER OF THE A.O. AND THE CIT IT W AS SUBMITTED THAT ASSESSEE HAS ENTERED INTO A DEVELOPMENT AGREEMENT A LONGWITH HIS BROTHER AND AS PER THAT AGREEMENT ASSESSEE WAS TO GET ABOUT 40% OF THE PREMISES CONSTRUCTED BY THE DEVELOPERS AS PER CLAUSE 2 OF TH E AGREEMENT. BY CLAUSE 3 OF THE AGREEMENT THE FSI WAS TAKEN APPROXIMATELY 29 82 SQ.FT. HOWEVER, IT WAS SUBMITTED THAT THE BUILDER HAS GOT LESSER FSI B ECAUSE OF VARIOUS SET BACKS AT THE TIME OF APPROVAL AND CONSEQUENTLY ASSE SSEE HAS GOT ONLY 2580 SQ.FT. AS PER THE FOLLOWING TABLE: - FLAT NO. AREA (SQ.FT. ALLOTTED TO ASSESSEE) AREA (SQ.FT. ALLOTTED TO ASSESSEES BROTHER 501 1,230 502 900 102-(50%) 450 701 1,230 ITA NO. 2777/MUM/2008 SHRI RABINDER KRISHAN NIGAM 3 702 900 102-(50%) 450 TOTAL 2,580 2,580 4. IT WAS HIS SUBMISSION THAT THE A.O. HAS ENQUIRED AB OUT THE TERMS AND CONDITIONS OF THE AGREEMENT AND DEVELOPMENT OF THE PROPERTY AND HAS ACCEPTED THAT ASSESSEE HAS RECEIVED ONLY 2580 SQ.FT . AND NOT 2982 SQ.FT. THEREFORE, DIRECTING THE A.O. TO ADOPT 2982 SQ.FT. WAS NOT CORRECT ACCORDING TO THE FACTS OF THE CASE. WITH REFERENCE TO THE RAT E ADOPTED ALSO IT WAS HIS SUBMISSION THAT THE A.O. HAS ASKED FOR COMPUTATION OF CAPITAL GAIN AND REFERRED TO THE ASSESSMENT ORDER PASSED BY THE A.O. PARTICULARLY WITH REFERENCE TO ITEM NOS. 2 & 3 IN PAGE NO. 2 OF THE A SSESSMENT ORDER SUBMITTED THAT THE A.O. HAS EXAMINED THE VALUATION REPORT AND THE VALUE OF M/S. S.S. JOSHI & ASSOCIATES AND ADOPTED THE VALUE OF ` 68,05,581/- AND ACCORDINGLY THE SALES PRICE WAS TAKEN AT ` 34,02,791/-. SINCE THE A.O. HAS EXAMINED THE ENTIRE VALUATION OF THE PROPERTY TRANS FERRED THE OPINION OF CIT IS SUBSTITUTION OF OPINION AND THE CIT IS NOT EMPO WERED TO COME TO A DIFFERENT CONCLUSION UNLESS THERE ARE EVIDENCE ON R ECORD. IT WAS SUBMITTED THAT THE AGREEMENT WITH THE DEVELOPER WAS ONLY FOR DEVELOPING BASE STRUCTURE AND IT IS ON RECORD THAT ASSESSEE HAS INC URRED MORE AMOUNT FOR MAKING THE FLAT OPERATIONAL, THE FACT OF WHICH WAS ALSO NOTED BY THE A.O. IN ACCEPTING THE MARKET VALUE. HE REFERRED TO THE SUBM ISSIONS MADE BEFORE THE CIT THAT ASSESSEE HAS INCURRED EXPENDITURE OF ` 7,53,255/- IN RESPECT OF KHOKA FLATS (BEFORE CONSTRUCTION OF PARTITION WALLS , FLOORING, TILING, ETC.). IT WAS SUBMITTED THAT THE DIRECTION OF THE CIT TO TAKE THE SALE PRICE OF THE DEVELOPER AFTER FULL CONSTRUCTION OF THE APARTMENT AT MARKET RATE IS NOT CORRECT AS WHAT THE ASSESSEE GOT IS ONLY KHOKA FLAT S AND ACCORDINGLY THE A.O., AFTER EXAMINATION, HAS CORRECTLY TAKEN THE VA LUE AT ` 1,300/- PER SQ.FT. IT WAS SUBMISSION THAT THE CITS DIRECTION ON THE I SSUE, WHICH WAS EXAMINED AND ACCEPTED BY THE A.O. IS NOT CORRECT AND THEREFO RE THE ORDER UNDER SECTION 263 IS BAD IN LAW. ITA NO. 2777/MUM/2008 SHRI RABINDER KRISHAN NIGAM 4 5. THE LEARNED D.R., IN REPLY SUBMITTED THAT THE CITS ORDER WAS CORRECT AS THE A.O. FAILED TO EXAMINE THE AREA OBTAINED BY THE ASSESSEE AS WELL AS THE CORRECT MARKET VALUE TO BE ADOPTED FOR ARRIVING AT THE CAPITAL GAINS. HE SUPPORTED THE ORDER OF THE CIT. 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINE THE RECORD . IT IS AN ADMITTED FACT THAT THE ASSESSEE ALONGWITH HIS BROTH ER ENTERED INTO AN AGREEMENT DATED 12.07.2002 BY VIRTUE OF WHICH THE A SSESSEE AND HIS BROTHER ARE TO GET 50% OF THE PREMISES CONSTRUCTED BY THE D EVELOPERS. AT THE TIME OF ENTERING INTO THE AGREEMENT THE FSI AVAILABLE ON TH E FLAT WAS DETERMINED AT 15383 SQ.FT AND THE TOTAL AREA OF THE FLAT WAS 1491 0 SQ.FT., HENCE THE ASSESSEE WAS ENTITLED TO 20% THEREOF AT 2982 SQ.FT AS HIS SHARE. ASSESSEE WAS TO RECEIVE THE CONSTRUCTED AREA BEING FLATS IN THE BUILDING IN LIEU OF THE SALE CONSIDERATION. THESE FLATS ARE GIVEN TO THE AS SESSEE IN KHOKA CONDITION, I.E, WITHOUT PARTITION WALLS, FLOORING, DOORS, ETC. AFTER THE BUILDING WAS CONSTRUCTED THE ASSESSEE RECEIVED 2 FLATS AS DETA ILED ABOVE WHICH INDICATES THAT HE GOT ONLY 2580 SQ.FT. INSTEAD OF 2 982 SQ.FT. IT IS ON RECORD THAT THE TOTAL OF 40% OF THE CONSTRUCTED AREA WAS G IVEN TO THE TWO BROTHERS AT 20% EACH AND THERE IS NO DISPUTE THAT WHAT THE A SSESSEE HAS RECEIVED WAS ONLY 2580 SQ.FT. IT MAY BE TRUE THAT AT THE TIM E OF ENTERING INTO THE AGREEMENT THE ASSESSEE MIGHT HAVE EXPECTED 2982 SQ. FT. BASED ON THE FSI AVAILABLE BUT UNLESS THE MUNICIPAL AUTHORITIES PERM ITTED THE SAME, THE SAME CANNOT BE CRYSTALLISED AS HAVING RECEIVABLE BY THE ASSESSEE. AS SUBMITTED THE FSI WAS REDUCED AND ASSESSEE GOT ONLY 2580 SQ.F T. WHICH WAS ENQUIRED BY THE A.O. AND ACCEPTED AS SUCH. IT IS NOT CORRECT ON THE PART OF THE CIT TO DIRECT THE A.O. TO ADOPT 2982 SQ.FT. ON THE BASIS O F THE AGREEMENT WHEN IN FACT ASSESSEE HAS RECEIVED ONLY 2850 SQ.FT. IT IS N OT THE CASE OF THE CIT THAT ASSESSEE HAS IN TURN RECEIVED MORE THAN WHAT WAS AC TUALLY RECEIVED AND ACCOUNTED. IN THE ABSENCE OF ANY EVIDENCE THAT THE ASSESSEE HAS REDUCED THE ENTITLEMENT, AND ON THE BASIS OF THE EVIDENCE ON RE CORD THAT ASSESSEE HAS RECEIVED ONLY 2580 SQ.FT. AS AGAINST 2982 SQ.FT. OR IGINALLY PROPOSED, WE ARE NOT IN A POSITION TO AGREE WITH THE FINDINGS OF THE CIT IN DIRECTING THE A.O. TO ADOPT THE AREA AVAILABLE AT 2982 SQ.FT. THEREFORE, THIS DIRECTION OF THE CIT(A), ITA NO. 2777/MUM/2008 SHRI RABINDER KRISHAN NIGAM 5 IN OUR VIEW IS WITHOUT ANY BASIS. TO THAT EXTENT TH E DIRECTION IS NOT CORRECT AND HAS TO BE MODIFIED. 7. WITH REFERENCE TO THE OTHER ISSUE OF ADOPTING THE M ARKET RATE, THIS ISSUE WAS EXAMINED BY THE A.O. AT THE TIME OF COMPL ETION OF ASSESSMENT. THE ASSESSMENT ORDER ITSELF INDICATES THAT AS AGAIN ST ` 33,54,000/- ADOPTED BY THE ASSESSEE THE A.O. REVISED THE VALUATION TO ` 34,02,791/-. NOT ONLY THAT HE ALSO EXAMINED THE PROVISIONS OF SECTION 45F AND DENIED THE ALLOWANCE TO THE ASSESSEE UNDER THAT SECTION. IN VIEW OF THIS WE ARE OF THE OPINION THAT THE ISSUE ON WHICH THE CIT UNDERTOOK 263 WAS EXAMI NED BY THE A.O. IN DETAIL AND, THEREFORE, SUBSTITUTION OF CITS OPINIO N IN THE PLACE OF ASSESSING OFFICERS OPINION IS NOT PERMITTED UNDER THE PROVIS IONS OF SECTION 263. 8. THE ITAT IN THE CASE OF MRS. KHATIZA S. OOMERBHOY V . ITO (2006) 101 TTJ (MUM.) 1095, ANALYSED IN DETAIL VARIOUS AUTHORI TATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT (2000) 243 ITR 83 AS WEL L AS HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT V. GABRIEL INDIA LTD. (1993) 203 ITR 108 AND HAS PRONOUNCED THE FOLLOWING BROADER PRINCIPLES TO JUDGE THE ACTION OF CIT TAKEN UNDER SECTION 263. 'THE FUNDAMENTAL PRINCIPLE WHICH EMERGE FROM THE AB OVE CASE MAY BE SUMMARISED BELOW.' I. THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. II. SECTION 263 CANNOT BE INVOKED TO CORRECT EACH AND E VERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. III. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT AP PLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEO US. 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 TREATED AS PREJUDIC IAL TO THE INTERESTS OF THE REVENUE AND IF THE ASSESSING OFFIC ER HAS ADOPTED ONE OF THE COURSE PERMISSIBLE UNDER LAW OR WHERE TW O VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VI EW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS U NSUSTAINABLE UNDER LAW. ITA NO. 2777/MUM/2008 SHRI RABINDER KRISHAN NIGAM 6 VI. IF WHILE MAKING THE ASSESSMENT, THE ASSESSING OFFIC ER EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME, THE CIT, WHILE EXERCISING HIS POWER UNDER SECTION 263 IS NOT PERMI TTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIM ATED BY THE ASSESSING OFFICER. VII. THE ASSESSING OFFICER EXERCISES QUASI-JUDICIAL POWE R VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH L AW AND ARRIVES AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED T O BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CONCLUSION. VIII. THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER S ECTION 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION . IX. IF THE ASSESSING OFFICER HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND T HE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITI NG AND THE ASSESSING OFFICER ALLOWS THE CLAIM ON BEING SATISFI ED WITH THE EXPLANATION OF THE ASSESSEE, THE DECISION OF THE AS SESSING OFFICER CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HI S ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD.' AS PER THE PRINCIPLES ESTABLISHED THEREIN, SINCE TH E A.O. NOT ONLY RAISED THIS SPECIFIC QUERY REGARDING VALUATION OF THE SALE VALU E BUT ALSO ADOPTED HIGHER SALE VALUE AFTER APPLICATION OF HIS MIND, IT CANNOT BE STATED THAT THERE IS NO APPLICATION OF MIND BY THE A.O. THEREFORE, UNDER TH E PROVISIONS OF SECTION 263 AND IN THE ABSENCE OF ANY EVIDENCE, SUBSTITUTIO N OF THE OPINION OF THE CIT IS NOT CORRECT. 9. NOT ONLY ON THE LEGAL PRINCIPLES BUT ALSO ON THE FA CTS THE CITS DIRECTION IS NOT CORRECT. IT WAS THE SUBMISSION OF THE ASSESSEE THAT ASSESSEE OBTAINED ONLY KHOKA FLATS WHEREAS THE SAID DEVELOPE R SOLD THE APARTMENTS AFTER MAKING NECESSARY DEVELOPMENT OF THE FLATS BY WAY OF WALLS, FLOORING, PARTITION, ETC. WHICH WERE UNDERTAKEN BY THE ASSESS EE AT HIS OWN COST. THEREFORE, THE CITS OPINION THAT THE VALUE TAKEN F OR THE PURPOSE OF WORKING OUT THE CAPITAL GAIN IN THE ASSESSMENT ORDER IS NOT IN ORDER AND AS MUCH AS THE A.O. HAS TAKEN 50% OF THE VACANT LAND OF ` 68,05,581/- FOR WORKING OUT THE CAPITAL GAIN AS FULL CONSIDERATION. SINCE THE A .O. ADOPTED THE VALUE ON EXAMINATION AND ON THE BASIS OF THE VALUATION REPOR T, WE ARE OF THE OPINION THAT THE CIT DOES NOT HAVE ANY JURISDICTION TO DIRE CT DIFFERENTLY. THE ORDER PASSED BY THE AO IS NEITHER ERRONEOUS NOR PREJUDICI AL TO THE INTERESTS OF REVENUE. FOR THESE REASONS, THE ORDER OF THE CIT UN DER SECTION 263 LACK ITA NO. 2777/MUM/2008 SHRI RABINDER KRISHAN NIGAM 7 JURISDICTION AND, THEREFORE, THE ORDER IS SET ASIDE . ASSESSEES GROUNDS ARE ALLOWED. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH APRIL 2011. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 27 TH APRIL 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XIX, MUMBAI 4. THE CIT XIX, MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.