Smt. Minal Nayan Shah, Ahmedabad V. The Pr, CIT-3, Ahmedabad

ITA 643/AHD/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6345 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 01-10-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 12-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Cost of acquisition; Set aside; Capital Gains
• Section: 143(3); 54F; 201; 54EC; 54; 263

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO. 643/AHD/2019 ( ASSESSMENT YEAR : 2014-15) SMT. MINAL NAYAN SHAH E 101, ALTIUS-II, ISKON AMALI ROAD, NEAR ASHOK VATIKA, AHMEDABAD - 380058 / VS. PRINCIPAL COMMISSIONER OF INCOME TAX -3 411, C WING, 4 TH FLOOR, PRATYAKSHKAR BHAVAN, AMBAWADI, AHMEDABAD - 380015 ./ ./ PAN/GIR NO. : ACIPS6341L ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI S. N. SOPARKAR, SR. ADVOCATE WITH SHRI PARIN SHAH, A.R. / RESPONDENT BY : SHRI JITENDRA KUMAR, CIT.D.R. DATE OF HEARING 01/10/2019 !'# / DATE OF PRONOUNCEMENT 15/10/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE PRINCIPAL COMMISSIONER OF INCOME TAX-3, AHMEDABAD (PR.CIT IN SHORT), DATED 25.03.2019 ARI SING IN THE ASSESSMENT ORDER DATED 27.12.2016 PASSED BY THE ASSESSING OFFI CER (AO) UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCER NING AY 2014-15. ITA NO.643/AHD/19 [SMT. MINAL NAYAN SHAH VS. PR.CIT] A.Y. 2014-15 - 2 - 2. THE ASSESSEE IN THE PRESENT APPEAL HAS CHALLENGE D REVISIONAL JURISDICTION OF THE PR.CIT INVOKED UNDER S.263 OF T HE ACT WHEREBY ORDER OF THE AO UNDER S. 143(3) OF THE ACT DATED 27.12.2016 IS DIRECTED TO BE SET ASIDE BY THE PR.CIT FOR FRESH ASSESSMENT ON THE GRO UNDS OF LACK OF INQUIRY INTO CERTAIN VITAL ASPECTS CONCERNING ELIGIBILITY O F DEDUCTION UNDER S.54F OF THE ACT. 3. BRIEFLY STATED, THE ASSESSEE, AN INDIVIDUAL, DER IVES INCOME FROM HOUSE PROPERTY, CAPITAL GAIN AND OTHER SOURCES. TH E RETURN OF INCOME OF THE ASSESSEE FOR AY 2014-15 WAS SUBJECTED TO SCRUTINY A SSESSMENT AND CONSEQUENTLY, ASSESSMENT ORDER WAS FRAMED UNDER S.1 43(3) OF THE ACT. THE AO COMPLETED THE ASSESSMENT AND ACCEPTED THE INCOME DECLARED AS PER RETURN OF INCOME AMOUNTING TO RS.1,26,94,100/- AS A SSESSED INCOME WITHOUT ANY ADJUSTMENT. ON VERIFICATION OF ASSESSMENT RECO RDS, THE PR.CIT FOUND THAT THE ASSESSMENT ORDER PASSED BY THE AO IS ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE PR.CIT ACCORDINGL Y INVOKED REVISIONAL JURISDICTION CONFERRED UNDER S.263 OF THE ACT TO SH OW CAUSE THE ASSESSEE ON THE ALLEGED INFIRMITY IN THE ASSESSMENT ORDER WHICH IS NARRATED HEREUNDER FOR EASE OF REFERENCE: PLEASE REFER TO ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 FOR A.Y. 2014-15 ON 27.12.2016 BY THE DCIT,CI RETE-3(3), AHMEDABAD THEREBY, ACCEPTING YOUR RETURNED INCOME I .E. RS 1,26,94,100/- AS PER RETURN OF INCOME FILED ON 23.04.2015. ON EXAMINATION OF RECORDS, IT IS NOTICED THAT YOUR FATHER, LATE PRAMODBHAI RATILAL SHAH, HAD ENTERED INTO A DEVELOP MENT AGREEMENT WITH M/S SYNTHESIS ENGINEERS FOR THE DEVELOPMENT AND EVO LVING OF A PROJECT FOR CONSTRUCTION OF RESIDENTIAL FLATS ON THE LAND SITUA TED AT BODAKDEV BEARING SURVEY NO. 123/2/3 AND 123/4 AGAINST A CONSIDERATIO N OF RS.8,10,00,001/- ON 30/03/2010. UPON DEMISE OF YOUR FATHER, YOU HAVE INHERITED THE RIGHTS IN THE SAID PROPERTY ALONGWITH YOUR BROTHER-IN-LAW SHRI SANDEEP J SHAH AND BOTH OF YOU HAVE ENTERED INTO A DEED OF CONFIRM ATION WITH M/S.SYNTHESIS ENGINEERS ON 26/07/2011 THEREBY ENHAN CING YOURS CONSIDERATION TO RS 13,47,83,000/- FOR THE SAID LAN D. AS PER COMPUTATION OF INCOME AS FURNISHED BY YOU DURING THE ASSESSMENT PROCEEDING, YOU HAVE SHOWN RS.4,79,68,453/- AS YOUR SHARE OF SALE CONSID ERATION RECEIVED AGAINST THE SALE OF AFOREMENTIONED IMMOVABLE ASSET DURING THE YEAR UNDER CONSIDERATION. YOU HAVE CLAIMED RS.6,94,425/- AS I NDEXED COST OF ACQUISITION AND AS SUCH RS.4,72,74,028/- IS CALCULA TED TO BE YOUR GROSS LONG TERM CAPITAL GAIN SO ACCRUED AGAINST THE SALE OF THE IMMOVABLE ASSET. AGAINST THE GROSS LONG TERM CAPITAL GAIN, Y OU HAVE CLAIMED ITA NO.643/AHD/19 [SMT. MINAL NAYAN SHAH VS. PR.CIT] A.Y. 2014-15 - 3 - RS.1,00,00,000/- AS DEDUCTION U/S 54EC OF THE ACT A ND RS.2,51,35,374/- AS DEDUCTION U/S 54F OF ACT. UPON FURTHER VERIFICATION , IT HAS BEEN NOTICED THAT THIS DEDUCTION U/S 54F OF THE ACT HAS BEEN CLA IMED AGAINST THE PURCHASE OF ENTIRE E BLOCK [CONSISTING OF 03 RESIDE NTIAL UNITS NAMELY UNIT 101, 201 & 301 EACH ADMEASURING 4910 SQ FT (SUPER B UILT UP AREA) OF THE RESIDENTIAL PROJECT ALTIUS II WHICH WAS BEING DEVEL OPED BY M/S SYNTHESIS ENGINEERS UPON YOUR AFOREMENTIONED LAND PARCEL. FUR THER, OUT OF THE WHOLE RESIDENTIAL PROJECT, NAMED AS 'ALTIUS-II' HAV ING SIX BLOCKS, EACH CONSISTING 03 RESIDENTIAL UNITS, YOU HAD PURCHASED THE ENTIRE BLOCK E ALONGWITH SHRI SANDEEPBHAI JASWANTLAL SHAH (THE CO- OWNER OF THE LAND) WITH EQUAL SHARE FOR A SUM OF RS 4,71,23,702/-. 3. FROM THE FACTS GIVEN ABOVE, IT IS EVIDENT THAT Y OUR SAID ACTIONS TOWARDS THIS LAND DEAL ARE ADVENTURE IN NATURE OF T RADE AND SHOULD BE BROUGHT UNDER TAXATION UNDER THE HEAD INCOME FROM B USINESS. THIS FACT IS FURTHER STRENGTHEN BY FOLLOWING FACTS:- (A) TREATMENT GIVEN BY THE ASSESSES TO THE LAND PARCEL :- IT CAN BE NOTICED THAT YOU WERE TREATING THE IMPUGNED LAND AS 'STOCK IN TRADE'. IT IS PERTINENT TO MENTION HERE THAT, AS PE R THE WILL OF YOUR FATHER, LATE PRAMODBHAI RATILAL SHAH, YOU HAVE ACQU IRED UNDISPUTED RIGHT OF 50% IN THE SAID LAND UPON HIS D EATH ON 01/1 1/2010 AND SINCE, AS PER THE DEVELOPMENT AGREEMENT ENTERED BY YOUR LATE FATHER ON 30/03/2010, THE IMPUGNED LAND H AD ALREADY BEEN VALUED AT RS.8,10,00,001/- AND YOUR SHARES WOR KS OUT TO RS. 4,05,00,000/- WHICH IS ABOVE THE WEALTH TAX LIMIT. HENCE, THE MOMENT YOU HAD INHERITED THE PROPERTY, YOU BECAME L IABLE FOR PAYMENT OF WEALTH TAX. AS YOU HAD CLAIMED TO HAVE E FFECTED THE SALE TRANSACTION OF THE IMPUGNED LAND IN THE AY 2014-15, YOU SHOULD HAVE FILED WEALTH TAX RETURN FOR THE INTERMEDIATE P ERIOD BETWEEN THE TRANSACTION I.E. AY 2011-12, AY 2012-13, AY 2013-14 DULY INCLUDING THE SAID IMPUGNED INVESTMENT IN YOUR STAT EMENT OF WEALTH. AS PER RECORDS AVAILABLE WITH THE OFFICE AND CITING THE FACT THAT YOU HAVE NEVER CLAIMED) TO HAVE FILED ANY SUCH RETURN, IT CAN BE EASILY CONCLUDED THAT YOU WERE TREATING THE IMPUGNED LAND AS 'STOCK-IN- TRADE' AND GAIN ACCRUED FROM THE IMPUGNED TRANSACTI ON CAN ONLY BE TREATED AS BUSINESS INCOME AND NOT LONG TERM CAP ITAL GAIN. (B) DOES THE ACT OF THE ASSESSEE AMOUNT TO ADVENTURE IN NATURE OF TRADE :- YOU HAD INHERITED THE PROPERTY FROM YOUR FATHER UPON HIS DEMISE ON 01/11/2010 AND WITHIN 08 MONTHS, YOU HAD ENTERED INTO ANOTHER DEED OF CONFIRMATION WITH THE DEVELOPER I.E . M/S SYNTHESIS ENGINEERS THEREBY ENHANCING YOUR CONSIDERATION BY 6 6% TO THE ORIGINAL CONSIDERATION. THIS TRANSACTION CANNOT BE SAID TO BE INVESTMENT BUT IS D CLEAR CASE OF ADVENTURE, IN NAT URE OF TRADE. THE MOTIVE TO ENTER INTO DEVELOPMENT AGREEMENT BY THE F ATHER OF THE ASSESSEE AND ITS SUBSEQUENT CONFIRMATION BY THE ASS ESSEE IS A CLEAR INDICATIVE THAT THE LAND HAS BEEN ACQUIRED SOLELY T O MAKE PROFIT AT LATER STAGE BY DEVELOPING IT INTO A COMMERCIALLY VI ABLE REAL ESTATE PROJECT. THE MOTIVE OF THE LAND OWNERS INCLUDING THE ASSESS EE WAS TO EARN PROFIT THROUGH ACTIVITY OF DEVELOPMENT OF L AND WHICH IS ADVENTURE IN THE NATURE OF BUSINESS. IN THIS CONTEX T, RELIANCE IS PLACED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF C VENKTASWAMI NAIDU AND CO VS CIT [1959] 35 ITR 594 IN WHICH THE HON'BLE APEX COURT HELD THAT IN A GIVEN CASE, E VEN AN ISOLATED ITA NO.643/AHD/19 [SMT. MINAL NAYAN SHAH VS. PR.CIT] A.Y. 2014-15 - 4 - TRANSACTION CAN SATISFY THE DESCRIPTION OF AN ADVEN TURE IN THE NATURE OF TRADE PROVIDED AT LEAST SOME OF THE ESSEN TIAL FEATURES OF TRADE ARE PRESENT IN THE ISOLATED OR SINGLE TRANSAC TION. (E) ACT OF THE ASSESSEE IN FURTHERANCE OF THE DEVELOPME NT AGREEMENT ENTERED INTO BY HIS LATE FATHER :- FROM THE CASE RECORDS, IT IS CLEAR THAT THE ASSESSEE ALONGWITH THE OTHER C O- INHERITOR HAS ENTERED INTO ANOTHER SUPPLEMENTARY DEED OF CONFIRMA TION THEREBY ENHANCING THE CONSIDERATION RECEIVABLE BY 66% IN CO MPARISON TO THE ORIGINAL DEVELOPMENT AGREEMENT. THIS ACT OF THE ASSESSEE IS ALSO AN INDICATIVE OF THE FACT THAT YOU HAVE AVAILED THE OPPORTUNITY TO ENHANCE YOUR RECEIPTS WHICH IS CLEARLY AN ACT OF AD VENTURE IN NATURE OF TRADE. 3.1 FROM THE ABOVE, IT IS CRYSTAL CLEAR THAT YOUR A CTIONS TOWARDS THIS LAND DEAL ARE IN ADVENTURE IN NATURE OF TRADE AND T HE ASSESSING OFFICER SHOULD HAVE TREATED THE INCOME OF RS 4,77,77,003/-[SALE PROCEEDS LESS COST OF ACQUISITION WITHOUT INDEXATION] ARISEN ON S ALE OF THE LAND AT SURVEY NO 123/2/3 & 123/4 SHOULD HAVE BEEN TAKEN AS YOUR BUSINESS INCOME WITH RESULTANT DISALLOWANCE OF YOUR CLAIM OF DEDUCTIONS U/S 54F AND 54EC OF THE ACT OF TOTAL AMOUNTS OF RS 3,51,35, 374/-. THIS FACT HAS NOT BEEN CONSIDERED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER PASSED ON 27.12.2016 AND HENCE THE ORDER IS ERRONEO US AND PREJUDICIAL TO THE INTEREST OF REVENUE. YOU ARE THEREFORE REQUESTE D TO SHOW CAUSE AS TO WHY THE ASSESSMENT MADE U/S. 143(3) ON 27.12.2016 SHOULD NOT BE MODIFIED U/S. 263 OF THE ACT BY DIRECTING A FRES H ASSESSMENT. 4. WITHOUT PREJUDICE TO THE ABOVE AND AS AN ALTERNATIV E RECOURSE, IT HAS FURTHER BEEN NOTICED FROM THE CASE RECORDS THAT THE DEDUCTION U/S 54F HAS BEEN CLAIMED ON ACCOUNT OF PURCHASED OF THE ENT IRE BLOCK E OF THE SCHEME IN THE NAME AND STYLE ALTIUS-II. VIDE PARA 3 OF YOUR SUBMISSION DATED 14.12.2016 YOU HAVE MENTIONED THAT YOU ALONG WITH SHRI SANDEEP J SHAH HAVE PURCHASED THE ENTIRE SUPER STRUCTURE OF E BLOCK WHICH CONSISTS OF 3 UNITS FOR A CONSIDERATION OF RS 4,71,23,702/- AND HAD ACCORDINGLY CLAIMED DEDUCTION U/S 54F OF THE ACT. 4.1 IN THIS CONNECTION, YOUR ATTENTION IS DRAWN TOW ARDS THE CONDITIONS LAID DOWN TO CLAIM DEDUCTION U/S 54F OF THE ACT, EX TRACT OF WHICH IS GIVEN AS UNDER:- WHERE, IN THE CASE OF AN ASSESSES BEING AN INDIVIDU AL, THE CAPITAL GAIN ARISES FROM THE TRANSFER OF ANY LONG-TERM CAPI TAL ASSET, NOT BEING A RESIDENTIAL HOUSE (HEREAFTER IN THIS SECTIO N REFERRED TO AS THE ORIGINAL ASSET), AND THE ASSESSEE HAS/ WITHIN A PERIOD OF ONE YEAR BEFORE OR AFTER THE DATE ON WHICH THE TRANSFER TOOK PLACE PURCHASED, OR HAS WITHIN A PERIOD OF THREE YEARS AF TER THAT DATE CONSTRUCTED, A RESIDENTIAL HOUSE (HEREAFTER IN THIS SECTION REFE RRED TO AS THE NEW ASSET) , THE CAPITAL GAIN SHALL BE DEAL WITH IN ACCORDANCE WITH THE FOLLOWING PROVISIONS OF THIS SE CTION, THAT IS TO SAY, (A) IF THE COST OF THE NEW ASSET IS NOT LESS THAN T HE NET CONSIDERATION IN RESPECT OF THE ORIGINAL ASSET, THE WHOLE OF SUCH CAPITAL GAIN SHALL NOT BE CHARGED UNDER SECTIO N 45; ITA NO.643/AHD/19 [SMT. MINAL NAYAN SHAH VS. PR.CIT] A.Y. 2014-15 - 5 - (B) IF THE COST OF THE NEW ASSET IS LESS THAN THE N ET CONSIDERATION IN RESPECT OF THE ORIGINAL ASSET, SO MUCH OF THE CAPITAL GAIN AS BEARS TO THE WHOLE OF THE CAPITAL G AIN THE SAME PROPORTION AS THE COST OF THE NEW ASSET BEARS TO THE NET CONSIDERATION, SHALL NOT BE CHARGED UNDER SECTION 4 5: PROVIDED THAT NOTHING CONTAINED IN THIS SUB-SECTION SHALL APPLY WHERE THE ASSESSEE OWNS ON THE DATE OF THE TRANSFER OF THE ORIGINAL ASSET, OR PURCHASES, WITHIN THE PERIOD OF ONE YEAR OFFER SUCH DATE, OR CONSTRUCTS, WITHIN THE PER IOD OF THREE YEARS OFFER SUCH DATE, ANY RESIDENTIAL HOUSE, THE INCOME FROM WHICH IS CHARGEABLE UNDER THE HEAD 'INC OME FROM HOUSE PROPERTY', OTTER THAN THE NEW ASSET. 4.2 IF THE ABOVE VIEW IS TAKEN, IT IS EVIDENT THAT YOU HAVE PURCHASED THE ENTIRE SUPER STRUCTURE OF E BLOCK CONSISTING OF 03 INDEPENDENT, UNITS, AND NOT A RESIDENTIAL HOUSE AND HENCE AS PER THE APPLIC ABILITY CLAUSE OF SECTION 54F OF THE ACT, YOU ARE-NOT ELIGIBLE FOR TH E CLAIM OF DEDUCTION U/S 54F OF THE ACT AND ACCORDINGLY , YOUR CLAIM OF SUCH DEDUCTION U/S 54F OF THE ACT AMOUNTING TO RS 2,51,35,374/- SHOULD HAVE B EEN DISALLOWED . HOWEVER, YOU MAY KINDLY NOTE THAT IF THIS VIEW IS T AKEN, IT MAY RESULT IN DRAWING APPROPRIATE INFERENCE ON YOU'RE THE WEALTH TAX LIABILITY UNDER WEALTH TAX ACT FOR AY 2011-12, AY 2012-13 & AY 2013 -14 AND MAY LEAD TO INITIATION SUITABLE ACTION AS PER LAW. 4.3 THESE FACTS HAVE NOT BEEN CONSIDERED BY THE AS SESSING OFFICER IN THE ASSESSMENT ORDER PASSED ON 27.12.2016 AND HENCE THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. YOU ARE THEREFORE REQUESTED TO SHOW CAUSE AS TO WHY THE ASSESSMENT MA DE U/S. 143(3) ON 27.12.2016 SHOULD NOT BE MODIFIED U/S.263 OF THE AC T BY DIRECTING A FRESH ASSESSMENT. 5. IN CASE YOU HAVE ANY OBJECTION TO THE ACTION PRO POSED, YOU ARE REQUESTED TO FURNISH YOUR REPLY ON THE PROPOSED ACT ION BY 29/01/2019 AT MY OFFICE AT ROOM NO. 411, C-WING, PRATYAKSHKAR BHA VAN, AMBAWADI, AHMEDABAD 380 015.. YOU MAY ALSO AVAIL OPPORTUNITY OF HEARING, EITHER IN PERSON OR THROUGH YOUR AUTHORIZED REPRESENTATIVE, O N 29/01/2019 AT 12.30 PM. HOWEVER, IT IS CLARIFIED THAT PERSONAL APPEARAN CE IS NOT COMPULSORY AND FURNISHING OF WRITTEN SUBMISSION COMPLETED IN A LL RESPECT SHALL BE TREATED AS SUFFICIENT COMPLIANCE. 4. THE PR.CIT, IN ESSENCE, RAISED TWO GROUNDS FOR I NVOKING JURISDICTION UNDER S.263 OF THE ACT; (I) GAIN ARISING BY VIRTUE OF DEVELOPMENT AGREEMENT IN RELATION TO LAND PARCEL IS IN THE NATURE OF BUS INESS INCOME AS AGAINST THE CAPITAL GAINS CLAIMED BY THE ASSESSEE AND (II) DEDUCTION CLAIMED UNDER S.54F OF THE ACT ON ACCOUNT OF THE ENTIRE BLOCK OF THE RESIDENTIAL PROJECT SO DEVELOPED IS NOT IN ACCORDANCE WITH LAW AND WRONGLY ALLOWED BY THE AO WITHOUT REQUISITE INQUIRY. HOWEVER, AS STATED ON B EHALF OF ASSESSEE IN THE COURSE OF HEARING BEFORE TRIBUNAL, THE ASSESSEE IS NO LONGER AGGRIEVED BY ITA NO.643/AHD/19 [SMT. MINAL NAYAN SHAH VS. PR.CIT] A.Y. 2014-15 - 6 - THE FIRST GROUND CONCERNING DETERMINATION OF NATURE OF INCOME ARISING FROM DEVELOPMENT AGREEMENT. THE ONLY CONTROVERSY THUS R EVOLVES AROUND ELIGIBILITY OF DEDUCTION UNDER S.54F OF THE ACT ONL Y. 5. AS REGARDS THE SECOND ISSUE TOWARDS ELIGIBILITY OF DEDUCTION UNDER S.54F OF THE ACT WITH WHICH WE ARE PRESENTLY CONCER NED WITH, THE PR.CIT OBSERVED THAT THE ENTIRE SUPER STRUCTURE OF THE BLO CK IN THE PROJECT NAMED ALTIUS-II COMPRISES OF 3 INDEPENDENT UNITS AND THUS CANNOT BE REGARDED AS A RESIDENTIAL HOUSE CONTEMPLATED UNDER S.54F OF T HE ACT AND HENCE, THE ASSESSEE IS NOT ELIGIBLE FOR CLAIM OF DEDUCTION UND ER S.54F OF THE ACT TO THE EXTENT OF RS.25,35,374/-. IT WAS ALSO ALLEGED THAT THE AO COMMITTED ERROR IN ADMITTING THE CLAIM OF DEDUCTION OF THE ASSESSEE IN CONTRAVENTION OF SECTION 54F OF THE ACT. IT WAS ALSO ALLEGED THAT T HE AO HAS WRONGLY ACCEPTED THE AFORESAID CLAIM UNDER S.54F OF THE ACT WITHOUT MAKING ANY REQUISITE INQUIRY IN THIS REGARD. THE PR.CIT ACCOR DINGLY PASSED ORDER UNDER S.263 OF THE ACT AND SET ASIDE THE ASSESSMENT PASSE D UNDER S.143(3) OF THE ACT WITH A DIRECTION TO THE AO TO PASS A FRESH ASSE SSMENT ORDER AFTER PROPER INQUIRY AND AFTER ASCERTAINING THE FACTS RELEVANT T O THE ELIGIBILITY OF DEDUCTION IN QUESTION. 6. AGGRIEVED BY THE ACTION OF THE PR.CIT CANCELLING THE ASSESSMENT EARLIER MADE, THE ASSESSEE PREFERRED APPEAL BEFORE THE TRIBUNAL AND CHALLENGED THE USURPATION OF REVISIONAL JURISDICTIO N BY THE PR.CIT. 7. IN ITS DEFENSE, THE LEARNED SENIOR COUNSEL FOR T HE ASSESSEE SUBMITTED AT THE OUTSET THAT THE NECESSARY BACKGROUND FOR EXE RCISE OF REVISIONAL POWER OF PR.CIT DOES NOT EXIST. THE LEARNED SENIOR COUNS EL REFERRED TO A NOTICE ISSUED BY THE AO UNDER S.142(1) OF THE ACT DATED 09 .11.2016 TO SUBMIT THAT THE AO DID INITIATE INQUIRY WITH RESPECT TO WORKING OF THE LONG/SHORT TERM CAPITAL GAINS WHICH INCLUDED CLAIM OF THE EXEMPTION UNDER S.54F OF THE ACT. IN FACT, QUESTION NO. 8 OF THE QUESTIONNAIRE CLEARLY REFLECTS THE CONSCIOUSNESS OF THE AO TOWARDS EXISTENCE OF CLAIM OF EXEMPTION UNDER S.54F OF THE ACT. THE LEARNED SENIOR COUNSEL THERE AFTER REFERRED TO THE REPLY THEREOF BY THE ASSESSEE IN RESPONSE TO THE AF ORESAID NOTICE AND ITA NO.643/AHD/19 [SMT. MINAL NAYAN SHAH VS. PR.CIT] A.Y. 2014-15 - 7 - SUBMITTED THAT ALL THE QUESTIONS RAISED IN THE NOTI CE ISSUED UNDER S.142(1) OF THE ACT HAS BEEN APPROPRIATELY DEALT WITH. THE LEARNED SENIOR COUNSEL THEREAFTER ADVERTED TO THE CONVEYANCE DEED DATED 04 .02.2014 PLACED BEFORE AO WHEREBY THE DEVELOPER AGREED TO TRANSFER TO THE ASSESSEE THE ENTIRE CONSTRUCTION OF SUPER STRUCTURE OF BLOCK E IN THE RESIDENTIAL PROJECT FOR A TOTAL CONSIDERATION OF RS.4.71 CRORES. THE COST OF LAND BELONGING TO THE ASSESSEE WAS SUITABLY REDUCED AND EXEMPTION UNDER S .54F OF THE ACT TO THE EXTENT OF RS.2.51 CRORE WAS CLAIMED WHICH ESSENTIAL LY HAS BEEN CONTROVERTED BY THE PR.CIT. THE LEARNED SENIOR COU NSEL ALSO REFERRED TO THE DEVELOPMENT AGREEMENT FOR TRANSFER OF LAND BELO NGING TO THE ASSESSEE ALONGWITH ATTENDANT SUPPLEMENTAL AGREEMENT AND DEED OF CONFIRMATION TO EXPLAIN THE WHOLE GAMUT OF TRANSACTIONS PERTAINING TO TRANSFER OF LAND PARCEL AND THEREAFTER RETRIEVING BACK A PART OF THE LAND TOGETHER WITH SUPER STRUCTURE CONSTRUCTED BY THE DEVELOPER. 7.1 IT WAS SUBMITTED THAT THE CONTROVERSY IN THE PR ESENT CASE IS LIMITED TO THE ELIGIBILITY OF DEDUCTION UNDER S.54F OF THE ACT WHERE THE SUPER STRUCTURE COMPRISES OF 3 RESIDENTIAL UNITS. THE LEARNED SENI OR COUNSEL EMPHASIZED THAT NOTWITHSTANDING THE FACT THAT THE SUPER STRUCT URE OF BLOCK E PURCHASED BY THE ASSESSEE COMPRISES OF 3 RESIDENTIAL UNITS, T HE ENTIRE STRUCTURE HAS BEEN PURCHASED BY THE ASSESSEE BY A COMMON DEED OF CONVEYANCE. AS REFERRED TO EARLIER, ALL THE 3 RESIDENTIAL UNITS IS REQUIRED TO BE UNDERSTOOD COMBINEDLY AS A RESIDENTIAL HOUSE FOR THE PURPOSE S OF CLAIM OF DEDUCTION UNDER S.54F OF THE ACT. THE LEARNED SENIOR COUNSEL SUBMITTED THAT THE PR.CIT HAS WRONGLY CONSTRUED 3 RESIDENTIAL UNITS AS 3 RESIDENTIAL HOUSES INSTEAD OF 1 CONJOINT RESIDENTIAL HOUSE AND CONSEQU ENTLY, DISPUTED THE ELIGIBILITY OF DEDUCTION UNDER S.54F OF THE ACT ON THE GROUNDS OF NOT MEETING THE CRITERIA FOR ELIGIBILITY OF ONE RESIDEN TIAL HOUSE. IN THE CONTEXT, THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE REFERRE D TO THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CIT VS. SMT. K. G. RUKMINIAMMA (2011) 331 ITR 211 (KARNATAKA); CIT VS. GITA DUGGAL (2013) 357 ITR 153 (DELHI); CIT VS. GITA DUGGAL (2014) 52 TAXMANN.COM 246 (SC), CIT VS. SYED ALI ADIL (2013) 352 ITR 418 (AP) AND CIT VS. SMT. V. R. KARPAGAM (2015) 373 ITR 127 (MADRAS) FOR CONSTRUCTION OF THE EXPRESSION A RESIDENTIAL HOUSE ITA NO.643/AHD/19 [SMT. MINAL NAYAN SHAH VS. PR.CIT] A.Y. 2014-15 - 8 - IN THE CONTEXT OF SECTION 54 AND SECTION 54F OF THE ACT. IT WAS POINTED OUT THAT IN THE LIGHT OF ALL THE JUDICIAL PRECEDENTS CI TED, THE RESIDENTIAL UNITS FORMING PART OF THE BLOCK ACQUIRED BY THE ASSESSEE COULD NOT BE CONSTRUED AS 3 RESIDENTIAL HOUSES BUT IS TO BE REGARDED AS ON LY A RESIDENTIAL HOUSE. IN THE LIGHT OF THE JUDICIAL PRECEDENTS, IT WAS SUB MITTED THAT THE ASSESSEE WAS FULLY ENTITLED TO BENEFIT UNDER S.54F OF THE AC T IN RESPECT OF WHOLE CONSIDERATION PAID FOR PURCHASE OF THE BLOCK COMPRI SING OF VARIOUS RESIDENTIAL UNITSAND THEREFORE NO ERROR CAN BE ATTR IBUTED TO THE ACTION OF THE AO. 7.2 IT WAS NEXT SUBMITTED BY THE LEARNED SENIOR COU NSEL THAT IT IS TRITE THAT TWIN CONDITIONS MUST CO-EXIST FOR INVOKING JUR ISDICTION UNDER S.263 OF THE ACT. IT WAS SUBMITTED THAT IN THE ABSENCE OF A NY ERROR PER SE IN THE ACTION OF THE AO, THE ALLEGED LACK OF REQUIRED INQU IRY WILL HAVE NO CONSEQUENCE. IT WAS FURTHER POINTED OUT THAT WITHO UT PREJUDICE TO THE SUBMISSIONS MADE, THE ISSUE TOWARDS CONSTRUCTION OF THE EXPRESSION A RESIDENTIAL HOUSE IS SURELY A HIGHLY DEBATABLE ISS UE HAVING REGARD TO THE SERIES OF DECISIONS LEANED IN FAVOUR OF THE ASSESSE E AT THE TIME OF THE ASSESSMENT. IN SUCH A SCENARIO, WHEN THE ISSUE IS DEBATABLE, CANNOT BE REGARDED AS ERRONEOUS AS CONTEMPLATED UNDER S.263 OF THE ACT. IN SUCH CIRCUMSTANCES, THE CIT(A) IS NOT ENTITLED TO INVOKE JURISDICTION UNDER S.263 OF THE ACT OWING TO NON-SATISFACTION OF ONE OF THE INDISPENSIBLE PRE- CONDITION OF ASSESSMENT ORDER BEING ERRONEOUS . 7.3 THE LEARNED SENIOR COUNSEL ACCORDINGLY CONCLUDED TH AT THE EXERCISE OF SUPERVISORY JURISDICTION OF REVIEW BY THE PR.CIT IS NOT COMPATIBLE WITH THE SCOPE AND SWEEP OF SECTION 263 OF THE ACT. IT WAS THUS SUBMITTED THAT THE PR.CIT WAS NOT JUSTIFIED IN INVOKING ITS POWER UNDER S.263 OF THE ACT TO SET ASIDE THE ASSESSMENT FRAMED IN THE ABSENCE OF C AUSE OF ACTION. 8. THE LEARNED CIT.DR, ON THE OTHER HAND, RELIED UP ON THE ORDER OF THE PR.CIT. IN FURTHERANCE, THE LEARNED DR SUBMITTED T HAT THE RESIDENTIAL BLOCK PURCHASED BY THE ASSESSEE COMPRISES OF THREE NON-CO NTIGUOUS UNITS WITH SEPARATE ENTRANCES ETC. LOCATED ON DIFFERENT FLOOR ALBEIT IN THE SAME BLOCK ITA NO.643/AHD/19 [SMT. MINAL NAYAN SHAH VS. PR.CIT] A.Y. 2014-15 - 9 - AND THEREFORE EACH UNIT IS INDEPENDENT OF ANOTHER. CONSEQUENTLY, ALL THE THREE UNITS CANNOT BE REGARDED AS A RESIDENTIAL HO USE. THE LEARNED DR ACCORDINGLY SUBMITTED THAT THE AO HAS WRONGLY ENTER TAINED THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER S.54F OF THE ACT RESUL TING IN ERROR WHICH HAS CAUSED PREJUDICE TO THE INTEREST OF THE REVENUE. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. SECTION 263 OF THE ACT CONFERS POWER UPON THE PR.CIT/CIT TO CALL F OR AND EXAMINE THE RECORDS OF A PROCEEDING UNDER THE ACT AND REVISE AN Y ORDER IF HE CONSIDERS THE SAME TO BE ERRONEOUS AND PREJUDICIAL TO THE INT ERESTS OF THE REVENUE. THE PR.CIT CAN TAKE RECOURSE TO REVISION UNDER SECT ION 263 OF THE ACT WHERE THE ASSESSMENT ORDER IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE. THE TWIN CONDITIONS ARE REQUI RED TO BE SATISFIED SIMULTANEOUSLY. THE PR.CIT IN THE PRESENT CASE HAS PURPORTED TO ACT IN EXERCISE OF POWER UNDER S.263 OF THE ACT AND THEREB Y HAS SOUGHT TO CANCEL THE ASSESSMENT ORDER OF THE AO PASSED UNDER S.143(3 ) OF THE ACT. THE PR.CIT ESSENTIALLY OBSERVED THAT THE AO HAS WRONGLY ALLOWED DEDUCTION UNDER S.54F OF THE ACT IN CONTRAVENTION OF THE PROV ISION OF THE ACT. THE GROUND FOR IMPUGNED ACTION UNDER S.263 OF THE ACT I S THAT THE AO HAS FAILED TO MAKE REQUISITE INQUIRY INTO THE CLAIM OF DEDUCTI ON OF THE ASSESSEE UNDER S.54F OF THE ACT AND IN THE ABSENCE OF PROPER INQUI RY ON THE ELIGIBILITY OF DEDUCTION INVOLVED, THE ORDER OF THE AO IS ERRONEOU S IN SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 9.1 AS POINTED OUT ON BEHALF OF THE ASSESSEE, TWO P RE-REQUISITES MUST COEXIST BEFORE THE DESIGNATED AUTHORITY COULD EXERC ISE THE REVISIONAL JURISDICTION CONFERRED ON HIM NAMELY; THE ORDER SHO ULD BE (I) ERRONEOUS & (II) THE ERROR MUST BE SUCH THAT IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HOWEVER, AN ERRONEOUS ORDER DOES NOT NECE SSARILY MEAN AN ORDER WITH WHICH THE PR.CIT IS UNABLE TO AGREE. THE AO W HILE PASSING AN ORDER OF ASSESSMENT, PERFORMS JUDICIAL FUNCTIONS. AN ORD ER OF ASSESSMENT PASSED BY THE AO CANNOT BE INTERFERED ONLY BECAUSE AN ANOT HER VIEW IS ALSO POSSIBLE ON THE ISSUE AS HELD IN CIT VS. GREENWORLD CORPORATION (2009) 181 TAXMAN 111 (SC) . IF IN GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, TWO ITA NO.643/AHD/19 [SMT. MINAL NAYAN SHAH VS. PR.CIT] A.Y. 2014-15 - 10 - VIEWS ARE POSSIBLE AND ONE VIEW AS LEGALLY PLAUSIBL E HAS BEEN ADOPTED BY THE AO THEN EXISTENCE OF OTHER POSSIBLE VIEW ALONE WOULD NOT BE SUFFICIENT TO EXERCISE POWERS UNDER S.263 OF THE ACT BY THE PR .CIT / CIT CONCERNED. HENCE, THERE CAN BE NO DOUBT THAT THE PROVISION CAN NOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COM MITTED BY THE AO. IT IS ONLY WHEN AN ORDER IS ERRONEOUS AND CAUSING PREJUDI CE, THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACT S OR INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENTS OF THE ORDER B EING ERRONEOUS. 9.2 IN THE INSTANT CASE, IT IS DEMONSTRATED ON BEHA LF OF THE ASSESSEE THAT NECESSARY INQUIRIES WERE MADE TOWARDS COMPUTATION O F LONG TERM CAPITAL GAIN AND CLAIM OF DEDUCTION UNDER S.54F OF THE ACT. THE ISSUE OF ELIGIBILITY OF CLAIM OF DEDUCTION WAS THUS PRESENT TO THE MIND OF THE AO. RELEVANT DOCUMENTS WERE ALSO SHOWN TO HAVE BEEN FILED IN THE ASSESSMENT PROCEEDINGS. WE ALSO SIMULTANEOUSLY NOTICE THAT THE ASSESSEE HAS PLACED RELIANCE UPON SEVERAL JUDICIAL PRECEDENTS NAMELY; CIT VS. SMT. K. G. RUKMINIAMMA (2011) 331 ITR 211 (KARNATAKA); CIT VS. GITA DUGGAL (2013) 357 ITR 153 (DELHI); CIT VS. GITA DUGGAL (20 14) 52 TAXMANN.COM 246 (SC), CIT VS. SYED ALI ADIL (2013) 352 ITR 418 (AP) AND CIT VS. SMT. V. R. KARPAGAM (2015) 373 ITR 127 (MADRAS) FOR THE CONSTRUCTION OF EXPRESSION A RESIDENTIAL HOUSE IN THE CONTEXT OF SECTION 54 & 54F OF THE ACT. DIFFERENT COURTS NOTED ABOVE HAVE ECHOED THAT EXPRESSION A RESIDENTIAL HOUSE WOULD ENCOMPASS DIFFERENT RESIDE NTIAL UNITS LOCATED ON THE DIFFERENT FLOORS OF THE SAME BUILDING. ON FACT S, WE NOTE THAT ALL THE THREE UNITS ARE LOCATED ON THE DIFFERENT FLOORS OF THE SAME STRUCTURE AND PURCHASED BY THE ASSESSEE BY A COMMON DEED OF CONVE YANCE. IN THE FACTS AND CIRCUMSTANCES, PLURALITY OF OPINION ABOUT THE A LLOWABILITY OF DEDUCTION SURELY EXISTS EVEN IF IT IS PRESUMED FOR A MOMENT T HAT VIEW ADOPTED BY THE AO IN FAVOUR OF THE ASSESSEE IS NOT SINGULAR OR ABS OLUTE. IN THE CIRCUMSTANCES, WHERE THE LANGUAGE COUCHED IN SECTIO N 54F OF THE ACT HAS BEEN INTERPRETED IN A MANNER FAVOURABLE TO ASSESSEE AND MULTIPLE RESIDENTIAL UNITS WERE INCLUDED WITHIN THE SPHERE OF SECTION 54 F OF THE ACT, WE SEE NO WRONG IN THE ACTION OF THE AO IN SEEING THE ISSUE I N A WIDER SPECTRUM. THUS, WHEN THE ISSUE OF ELIGIBILITY OF DEDUCTION UN DER S.54F OF THE ACT IS ITA NO.643/AHD/19 [SMT. MINAL NAYAN SHAH VS. PR.CIT] A.Y. 2014-15 - 11 - TESTED ON THE TOUCHSTONE OF PREVAILING JUDICIAL DIC TA, THE ACTION OF THE AO CANNOT BE DISCREDITED AS INCORRECT APPLICATION OF L AW OR WRONG ASSUMPTION OF FACTS. AS NOTED EARLIER, THE RELEVANT FACTS CON CERNING THE PURCHASE OF SUPER STRUCTURE COMPRISING OF THREE DIFFERENT UNITS WERE DULY PLACED AND AVAILABLE ON RECORD. THE AO WAS NOT FOUND TO BE TO TALLY OBLIVIOUS OF THE RELEVANT FACTS. THUS, THERE IS AN APPARENT PLAUSIB ILITY ABOUT THE ASSENT OF MIND OF AO ON ADMISSIBILITY OF CLAIM HAVING REGARD TO THE LAW EXISTING AT THE RELEVANT TIME. IN THESE CIRCUMSTANCES, THE AO CAN BE SAFELY PRESUMED TO HAVE ADOPTED A VIEW WHICH WAS PLAUSIBLE THOUGH N OT NECESSARILY AGREEABLE TO THE REVISIONAL COMMISSIONER. 9.3 AN INQUIRY ON THE ISSUE CONTEMPLATED UNDER S.26 3 R.W. EXPLANATION 2 OF THE ACT HAS ITS LIMITS IMPLICIT IN IT. IT IS ON LY A VERY GROSS CASE OF INADEQUACY IN INQUIRY OR WHERE INQUIRY IS PER SE MA NDATED ON THE BASIS OF RECORD AVAILABLE BEFORE AO AND SUCH INQUIRY WAS NOT CONDUCTED WHICH RESULTED AN ERROR FATAL TO THE INTEREST OF THE REVE NUE, THE REVISIONAL POWER SO CONFERRED CAN BE EXERCISED TO INVALIDATE THE ACT ION OF THE AO. THE AO IS NOT EXPECTED TO CHASE WILL O THE WISP TO FIND OUT SOMETHING ADVERSE TO THE ASSESSEE ON EACH AND EVERY TRANSACTION. WHAT I S SIGNIFICANT IS THE LACK/INADEQUACY OF INQUIRY SHOULD RESULT IN A SUBST ANTIVE ERROR OR A VISIBLE ABNORMALITY RESULTING IN LOSS OF REVENUE. THE CLAI M OF THE ASSESSEE TOWARDS DEDUCTIBILITY UNDER S.54F OF THE ACT CANNOT BE REGARDED TO BE ERRONEOUS IN THE LIGHT OF JUDICIAL PRECEDENTS AND T HEREFORE LESSER DEGREE OF INQUIRY MADE ON THE ISSUE PER SE WOULD NOT COVER TH E SITUATION IN THE SWEEP OF EXPRESSION ERRONEOUS. A PLAUSIBLE VIEW ADMITT ED IN ASSESSMENT STAGE IN EXERCISE OF QUASI-JUDICIAL FUNCTION CANNOT BE DISLODGED IN A LIGHT HEARTED MANNER IN THE NAME OF INADEQUACY IN INQUIRIES OR VE RIFICATION AS PERCEIVED IN THE OPINION OF THE REVISIONAL AUTHORITY. 9.4 ON A BROADER RECKONING OF FACTS AND LAW ENUNCIA TED IN THIS REGARD, WE FIND MERIT IN BOTH THE PLEAS RAISED ON BEHALF OF TH E ASSESSEE I.E. THE ALLEGED INADEQUACY IN INQUIRY HAS NOT RESULTED IN PERCEPTIB LE ERROR WHEN TESTED IN THE LIGHT OF JUDICIAL PRECEDENTS, SECONDLY AND WITH OUT PREJUDICE, THE CLAIM OF THE ASSESSEE UNDER S.54F OF THE ACT IS CERTAINLY PLAUSIBLE IN LAW AND THUS ITA NO.643/AHD/19 [SMT. MINAL NAYAN SHAH VS. PR.CIT] A.Y. 2014-15 - 12 - THE ACTION OF THE AO IS NOT OPEN TO ATTACK ON THE G ROUNDS OF BEING ARBITRARY AND CAPRICIOUS. SECTION 263 OF THE ACT DOES NOT VI SUALIZE A CASE OF SUBSTITUTION OF THE JUDGMENT OF THE REVISIONAL COMM ISSIONER FOR THAT OF AO UNLESS THE DECISION OF THE AO IS FOUND TO BE ERRONE OUS. THE CLAIM UNDER S.54F OF THE ACT BEING PLAUSIBLE, THE FOUNDATION FO R EXERCISE OF REVISIONAL JURISDICTION IN OUR VIEW DOES NOT EXIST. WE THUS F IND MERIT IN THE PLEA OF THE ASSESSEE TOWARDS LACK OF AUTHORITY OF PR.CIT TO EXERCISE JURISDICTION CONFERRED UNDER SE.263 OF THE ACT IN THE INSTANT CA SE. THE REVISIONAL ORDER IS ACCORDINGLY SET ASIDE AND QUASHED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 15/10/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 15/10/2 019