A R BUILDERS & DEVELOPERS P LTD, CHENNAI V. DCIT, CORP CIRCLE-1(1), CHENNAI

ITA 3298/CHNY/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4403 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 03-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S BHARATH IRS PCIT
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Capital asset; Audit objection; Cost of acquisition; Revised return; Set aside; Capital Gains
• Section: 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH : CHENNAI . , ! ' # ' $ . %& , ( * + [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBE R AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] ./I.T.A. NO.3298/CHNY/2018. / ASSESSMENT YEAR : 2014-2015. M/S. A.R. BUILDERS & DEVELOPERS P. LTD, 148, ACROPOLIS BUILDING, DR. RADHAKRISHNAN ROAD, MYLAPORE, CHENNAI 600 004. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(1) CHENNAI. [PAN AABCE 3953A] ( ,- / APPELLANT) ( ./,- /RESPONDENT) / APPELLANT BY : SHRI. A.S. SRIRAMAN, ADVOCATE /RESPONDENT BY : SHRI. S. BHARATH, IRS, PCIT. /DATE OF HEARING : 13-03-2019 ! /DATE OF PRONOUNCEMENT : 20-03-2019 0 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ASSESSEE THROUGH THIS APPEAL ASSAILS AN ORDER DA TED 13.11.2018 PASSED BY LD. PRINCIPAL COMMISSIONER OF INCOME TAX, CHENAI-1, U/S.263 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. FACTS APROPOS ARE THAT ASSESSEE A BUILDER HAD FILE D ITS RETURN FOR THE IMPUGNED ASSESSMENT YEAR DISCLOSING INCOME OF A79,29,320/-. ITA NO.3298/2018 :- 2 -: THE SAID INCOME WAS REVISED TO A4,34,23,280/- THROU GH A REVISED RETURN. ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT ON 30.12.2016 ACCEPTING THE RETURNED INCOME. THEREAFT ER ON 17.10.2018, LD. PRINCIPAL COMMISSIONER OF INCOME TA X (IN SHORT THE PCIT) ISSUED A NOTICE TO THE ASSESSEE U/S.263 OF THE ACT STATING THAT ORDER OF THE D. ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDING TO THE LD. PCI T, ASSESSEE HAD ACQUIRED 182723.52 SQ.FT. OF LAND FOR A CONSIDERATI ON OF A9,50,00,000/- DURING THE FINANCIAL YEAR 2004-05. AS PER THE LD. PCIT, THE SAID LAND WAS REVALUED BY THE ASSESSEE DURING FINANCIAL YEAR 2010-2011 AND THROUGH SUCH VALUATION THE VALUE OF THE LAND WAS B ROUGHT UP TO A38,68,00,000/-. LD. PCIT NOTED THAT ASSESSEE HAD S OLD 36932.02 SQ.FT OUT OF THE ABOVE LAND DURING THE PREVIOUS YEAR RE LEVANT TO THE IMPUGNED ASSESSMENT YEAR FOR A CONSIDERATION OF A18 ,85,00,000/- AND COMPUTED LONG TERM CAPITAL GAINS, THEREON CLAIMING INDEXED COST OF ACQUISITION, TAKING PRORATA VALUE OF THE REVALUED FIGURE AS THE BASE. ACCORDING TO HIM, THE INDEXED COST CLAIMED BY THE A SSESSEE CAME TO A8,08,33,000/- FOR LAND, APART FROM A SUM OF A1,92, 05,000/- CLAIMED ON IMPROVEMENTS MADE DURING PREVIOUS YEARS 2010- 2011 AND 2011- 2012. LD. PCIT WAS OF THE OPINION THAT INDEXED COS T OUGHT HAVE BEEN DONE WITH REFERENCE TO THE ORIGINAL COST OF THE LAN D AND NOT WITH REFERENCE TO THE REVALUED AMOUNT. AS PER THE LD. PC IT, THE ASSESSING ITA NO.3298/2018 :- 3 -: OFFICER HAD ACCEPTED THE CAPITAL GAINS COMPUTED BY THE ASSESSEE WITHOUT VERIFYING THIS ASPECT. THUS, ACCORDING TO HIM, THERE WAS AN ERROR WHICH WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE IN THE ASSESSMENT DONE BY THE LD. ASSESSING OFFICER. 3. ON THE NOTICE, ISSUED TO THE ASSESSEE ON THE ABOVE LINES, ITS REPLY AS UNDER:- 'WE HAVE RECEIVED SHOW CAUSE NOTICE UNDER SECTION 263 OF THE INCOME-TAX ACT 1961, DATED 17.10.2018, ON 03.11.2018, PERTAINING TO THE ASSESSMENT YEAR 2014- 15, AND IN THIS CONNECTION THE ISSUE RAISED IS RELA TING TO CORRECTNESS OF THE ACCEPTED COMPUTATION OF LONG TER M CAPITAL GAINS IN THE SCRUTINY ASSESSMENT ORDER DATE D 30.12.2016 THE CORE OBJECTION IS ON THE ACCEPTANCE OF INDEXE D COST OF ACQUISITION OF THE LAND BY RECKONING REVALU ED COST AND IN THE SHOW CAUSE NOTICE AT PARA 2.10, THE SAID ISSUE IS CAPTURED AND SOUGHT TO BE REVISED ON THE GROUNDS NAMELY, NO PROPER EXAMINATION BY THE ASSESSING OFFICER WHILE COMPLETING THE SCRUTINY ASSESSMENT AND THE ' INTERPRETATION OF SECTION 48 OF THE INCOME TAX ACT, 1961. ON THE FIRST ISSUE RAISED IN PARA 3 OF THE SHOW CAUSE NOTICE, IT IS SUBMITTED THAT THE ISSUE RELATING TO THE REPORTED COMPUTATION OF LONG TERM CAPITAL GAINS WAS EXAMINED IN THE SCRUTINY ASSESSMENT AND THE NECESSARY DOCUMENTS INCLUDING SALE DEEDS, COMPUTATION SHEETS WERE PLACED ON RECORD FOR THE PERUSAL OF THE ASSESSING OFFICER. MOREOVER, THE SCOPE OF REVISION UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 IS NARROW AND USING THE POWER OF REVISION, THERE CANNOT BE SUBSTITUTION OF THE VIEW TAKEN BY THE ASSESSING OFFICER ON THE ISSUE ON HAND. THE POWER OF REVISION CANNOT BE ASSUMED FOR REVIEWING THE ORDER OF THE ASSESSING OFFICER IN AS MUCH AS THE POWER OF REVISION CANNOT BE STRETCHED SO AS TO ITA NO.3298/2018 :- 4 -: INCLUDE THE POWER OF REVIEW. FURTHER, THE POWER OF REVISION CANNOT BE INVOKED WI TH A VIEW TO QUESTION THE ASSESSING OFFICER'S IMPROPER APPLICATION OF MIND AND IN ANY EVENT THERE CANNOT B E ANY SUCH PRESUMPTION ON THE FACTS OF THE CASE. ANOTHER INTERESTING ASPECT IS ON THE ADMITTED FACT OF THE AG AUDIT RAISING THE SAID ISSUE OF GRANTING HIGHER DEDUCTION OF THE COST OF ACQUISITION WITHIN THE SCO PE OF SECTION 48 OF THE INCOME-TAX ACT 1961, AND AT THAT POINT IN TIME, THE ASSESSEE WAS GIVEN AN OPPORTUNIT Y TO STATE THEIR STAND. IN FACT, THE ASSESSEE AVAILING T HE OPPORTUNITY FILED THE LETTERS DATED 29.06.2017 AND 26.09.2018. THEREFORE, THE ISSUE ON HAND HAD GONE THROUGH THE F ULL CIRCLE OF EXAMINATION AT THE ORIGINAL STAGE. GOING BY THIS FACTUAL POSITION, THE ASSUMPTION OF JURISDICTION U/ S.263 OF THE INCOME TAX ACT 1961, IMMEDIATELY THEREAFTER IS ONLY PROMPTED BY THE AG AUDIT OBJECTION ON THE INTERPRETATION OF SECTION 48 OF THE INCOME TAX ACT 1961. THERE ARE TWO ISSUES EMERGING FROM THE ABOVE FACTS AND IN THE ABSENCE OF INDEPENDENT SATISFACTION ON T HE POINT OF ERROR COMMITTED BY THE ASSESSING OFFICER W HICH CAUSED PREJUDICE TO THE INTEREST OF THE REVENUE AND ADMITTEDLY PROMPTED BY AG AUDIT, THE CONTINUATION O F PRESENT PROCEEDINGS IN SUCH CIRCUMSTANCES IS BAD IN LAW. THE SCOPE OF SEC 48 WAS CORRECTLY UNDERSTOOD BY THE ASSESSING OFFICER WHILE WRONGLY PROJECTED IN THE SH OW CAUSE NOTICE UNDER CONSIDERATION. THE TERM 'COST OF ACQUISITION' SHOULD BE RECKONED IN THE WIDEST POSSI BLE TERMS AND THEREFORE ,CANNOT BE NARROW INTERPRETATIO N AS ADOPTED IN THE SHOW CAUSE NOTICE ONLY TO RECKON ORIGINAL PURCHASE COST. THE TERM 'ACQUISITION' ESPECIALLY DENOTES FOR UNDERSTANDING THE WHOLE TRANSACTION STARTING FROM S HARE PURCHASE AGREEMENT AND ENDING WITH SALE OF UDS AFTE R DEVELOPMENT OF THE LAND. THEREFORE, THE REVALUATION OF LAND IS WRONGLY UNDERSTOOD AS A NOTIONAL REVALUATIO N AS AGAINST ACTUAL OUT-FLOW OF MONEY FOR THE DEVELOPMEN T OF THE PROJECT. IN FACT, THE PURCHASE COST IN THE HAND S OF THE SHAREHOLDERS IS FULLY DISCLOSED AND IT IS REFLE CTED .IN THE BALANCE SHEET OF THE ASSESSEE. FURTHER, THE SEL LERS ITA NO.3298/2018 :- 5 -: OF SHARES HAVE PAID THE APPROPRIATE CAPITAL GAINS T AX FORTIFYING THE ADOPTION OF COST AT THE ENHANCED VAL UE, WHICH IS NOT NOTIONAL, BUT ACTUAL. FURTHER, THE PRINCIPAL COMMISSIONER OF INCOME-TAX, TRIES TO IMPOSE ADDITIONAL BURDEN ON THE: ASSESSEE ON AN INCOME IN THE FORM OF CAPITAL GAINS WHICH HAD ALREA DY BEEN SUFFERED TAX IN THE HANDS OF THE SELLERS OF SH ARES. THE ASSESSEE COMPANY POSSESSED NO OTHER ASSET OTHER THAN THE LAND AND THEREFORE, THE VALUE OF LAND DETERMINES THE VALUE OF SALE CONSIDERATION OF SHARE S SOLD. THE COROLLARY IS ALSO TRUE THAT THE SALE CONSIDERATION PAID TO ACQUIRE THE SHARES IS DIRECTL Y MADE TO ACQUIRE THE SAID LAND. FURTHER, THERE IS AN ATTEMPT TO RESTRICT THE COST O F LAND TO THE EXTENT OF THE VALUE OF LAND IN THE HANDS OF THE PREVIOUS OWNER. AS STATED EARLIER, THE 100% SHAREHOLDING OF THE COMPANY M/S. ECCI KOYA LTD., WA S ACQUIRED AND THEREFORE, THERE IS A COMPLETE CHANGE IN THE OWNERSHIP OF THE COMPANY. IT IS NOT THE CASE OF SUCCESSION. COST TO THE PREVIOUS OWNER WOULD BE COS T TO THE SUCCESSOR ONLY WHEN TRANSACTIONS ARE COVERED BY MODES SPECIFIED UNDER SEC 49(1) OF THE ACT. THE TRANSFER IN THE CASE UNDER CONSIDERATION IS NOT GOV ERNED BY ANY OF THE MODES SPECIFIED IN SEC 49(1)(I)TO 49(1)(IV). THEREFORE WHEN THE CAPITAL ASSET HAS BEC OME THE PROPERTY OF THE ASSESSEE IN MODES OTHER THAN TH E ONES MENTIONED IN SEC 49(1), ADOPTING THE COST OF THE PREVIOUS OWNER TO BE THAT OF PRESENT OWNER IS PRINCIPALLY INCORRECT. FURTHER, THE SELLERS OF THE SHARES HAD PAID TAX ON CAPITAL 9.AINS THAT CORRESPONDS TO THE REVALUATION RESERVE AND IF THE CORRESPONDING COST IS NOT ALLOWED TO THE PRESEN T OWNER, IT WOULD TANTAMOUNT TO TAXATION OF THE SAME INCOME TWICE, FIRSTLY IN THE HANDS OF THE SELLERS O F SHARES AND ONCE AGAIN IN THE HANDS OF THE SUCCESSOR. THE INTENTION OF THE STATUTE IS NOT TO IMPOSE TAX ON TH E SAME INCOME TWICE. IN ANY EVENT, THE INTERPRETATION OF SECTION 48 OF THE INCOME-TAX ACT 1961 MAY LEAD TO COMPLEXITY AND DEBATE WHICH IN TURN VITIATE THE ASSUMPTION OF JURISDICTION U/S.263 OF THE ACT. THE DABATABLE ISSU ES WOULD BE THE OUTSIDE SCOPE OF SEC 263 OF THE INCOME - TAX ACT 1961. THEREFORE, THE ATTEMPT TO SET ASIDE THE ORIGINAL ITA NO.3298/2018 :- 6 -: ASSESSMENT ORDER DATED 30.12.2016 IS NOT WARRANTED AND THE ASSESSEE COMPANY IS ACCORDINGLY PLEADING FO R DROPPING THE PROPOSED ACTION PERTAINING TO ASSESSME NT YEAR 2014/15 IN THE INTEREST OF JUSTICE'. 4. HOWEVER, LD. PCIT WAS NOT IMPRESSED BY THE CONTENTI ONS OF THE ASSESSEE. ACCORDING TO HIM, THERE WAS TOTAL LA CK OF APPLICATION OF MIND ON THE PART OF THE LD. ASSESSING OFFICER WITH REGARD TO COMPUTATION OF INDEXED COST OF ACQUISITION. RELYI NG ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD VS. CIT 243 ITR 83 AND THAT OF MUMBAI BENCH OF THE TRIBUNAL IN THE CAS E OF MRS. KHATIZA S. OOMERBHOV VS. ITO, (2006) 100 ITD 1 73, LD. PCIT SET ASIDE THE ORDER OF THE LD. ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE ASPECT OF COST OF ACQUISITION AND TO PASS A F RESH ORDER. 5. NOW BEFORE US, THE LD. AUTHORISED REPRESENTATIVE STRONGLY ASSAILING THE ORDER OF THE LD. PCIT SUBMITTED THAT LD. ASSESSING OFFICER HAD TAKEN ONE OF THE POSSIBLE TWO VIEWS AFTER VERI FYING THE LONG TERM CAPITAL GAINS RETURNED BY THE ASSESSEE. ACCORDING TO HIM, BY VIRTUE OF THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF CIT VS. MAX INDIA LTD, 295 ITR 282, LD. PCIT COULD NOT SUBSTITUTE A LAWFUL VIEW TAKEN B Y THE LD. ASSESSING OFFICER. AS PER THE LD. AUTHORIS ED REPRESENTATIVE, SHARES OF THE ASSESSEE COMPANY HAD CHANGED HANDS IN THE YEAR 2010-2011 AND NEW SHAREHOLDERS HAD PAID PRICES FOR ACQUIRING THE SHARES, CONSIDERING THE REVALUATION DONE ON THE LAN D. ACCORDING TO ITA NO.3298/2018 :- 7 -: HIM, THE SELLERS OF THE SHARES HAD PAID CAPITAL GAI N TAX ON THE SURPLUS ARISING ON SALE OF THEIR SHARES AND IF THE CAPITA L GAINS ARISING ON THE SALE OF THE LAND WAS COMPUTED WITHOUT RECKONING TH E REVALUED COST, IT WOULD RESULT IN DOUBLE TAXATION OF THE SAME AMOU NT. TO A QUESTION FROM THE BENCH, LD. COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE ONLY INCOME RETURNED BY THE ASSESSEE FOR THE IMPUGNED AS SESSMENT YEAR WAS CAPITAL GAINS ARISING ON THE SALE OF THE LAND. 6. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT LD. ASSESSING OFFICER ORDER WAS CRYPTIC. ACCORDING TO HIM, LD. ASSESSING OFFICER HAD NOT EXAMINED HOW THE ORIGINAL COST WAS COMPUTED. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT LD. ASS ESSING OFFICER HAD SIMPLY ACCEPTED THE CLAIM OF THE ASSESSEE WITHOUT V ERIFYING IT AND THUS, ACCORDING TO HIM, THE ORDER WAS ERRONEOUS AND PREJU DICIAL TO THE INTERESTS OF THE REVENUE. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUTED THAT ASSESSEE HAD REVALUED THE LAND DURING FINANCIAL YEAR 2010-2011 A ND COMPUTATION OF INDEXED COST OF ACQUISITION FOR WORKING OUT THE CA PITAL GAINS, STARTED WITH THE REVALUED AMOUNT. LD. AUTHORISED REPRESENT ATIVE HAS SUBMITTED BEFORE US THAT THE ONLY INCOME OF THE A SSESSEE FOR THE IMPUGNED ASSESSMENT YEAR WAS CAPITAL GAINS ARISIN G ON THE SALE OF THE LAND. THIS WAS NOT DISPUTED BY THE LD. DEPARTME NTAL ITA NO.3298/2018 :- 8 -: REPRESENTATIVE. THUS THE ONLY ISSUE THAT COULD HA VE BEEN EXAMINED BY THE LD. ASSESSING OFFICER DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS WAS COMPUTATION OF CAPITAL GAINS ON THE SALE OF THE LAND. HENCE, IN OUR OPINION, IT WILL BE DIFFICULT TO ACCE PT THE CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE, THAT THE LD. ASSES SING OFFICER HAD NOT APPLIED HIS MIND TO THIS ISSUE. NON APPLICATION OF MIND COULD HAVE BEEN CONSIDERED AS A VALID GROUND FOR REVISION, IF THE ASSESSEE HAD RETURNED ANY INCOME OTHER THAN THE CAPITAL GAINS A RISING ON THE SALE OF LAND. ASSESSEE HAVING ONLY ONE HEAD OF INCOME, WE CANNOT SAY THAT LD. ASSESSING OFFICER WAS OBLIVIOUS OF THE COMPUTAT ION OF SUCH INCOME IN A SCRUTINY ASSESSMENT. IT IS SPECIFICALLY STATED BY THE LD. ASSESSING OFFICER THAT HE HAD EXAMINED THE DETAILS FILED BY THE ASSESSEE WHILE COMPLETING THE ASSESSMENT ACCEPTING RETURNED INCOME . THUS THOUGH ASSESSMENT ORDER IS CRYPTIC, WE CANNOT SAY THAT THE LD. ASSESSING OFFICER HAD NOT APPLIED HIS MIND WHILE ACCEPTING T HE INCOME RETURNED BY THE ASSESSEE. ASSESSEE HAD ALSO POINTED OUT BEF ORE LD. PCIT THAT THE AUDIT OBJECTION BY ITSELF COULD NOT BE A REASON TO COME TO A CONCUSSION THAT ORDER OF THE LD. ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT IS ALSO NOT DISPUTED THAT ERSTWHILE SHARE HOLDERS OF M/S. ECCI KOYA LTD AS IT WAS KNOWN EARLIER HAD PAID CAPITAL GAINS ON THE CONSIDERATION RECEIV ED BY THEM FROM SALE OF SHARES, AFTER RECKONING THE REVISED VALUE O F THE LAND IN THE ITA NO.3298/2018 :- 9 -: HANDS OF THE ASSESSEE COMPANY. IN SUCH A SITUATION , WE CANNOT SAY THAT ACCEPTANCE OF THE RETURNED INCOME BY THE LD. A SSESSING OFFICER WAS BASED ON AN ERRONEOUS VIEW OF LAW. BY VIRTUE OF THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF MAX INDIA LTD, 295 ITR 282 (SUPRA) WHERE TWO VIEWS ARE POSSIBLE AND THE LD. ASSESSI NG OFFICER HAD TAKEN ONE OF SUCH VIEWS, TO WHICH CIT DID NOT AGREE, WO ULD NOT BE A REASON FOR TREATING THE ORDER OF THE ASSESSING OFFICER AS ONE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE CANN OT SAY THAT THE VIEW TAKEN BY THE LD. ASSESSING OFFICER IN THE CASE BEFO RE US WAS UNSUSTAINABLE IN LAW. THE ORDER OF THE LD. PCIT IS SET ASIDE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS A LLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 20TH DAY OF MARCH, 2019, AT CHENNAI. SD/- SD/- ( ' # ' $ . %& ) ( DUVVURU RL REDDY ) ( / JUDICIAL MEMBER ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED:20TH MARCH, 2019. KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / PCIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / PCIT 6. .01 / GF