IN THE ITAT DELHI BENCH ‘B’
Eldeco Infrastructure & Properties Ltd.
v.
Commissioner of Income-tax, Delhi-IV
IT Appeal NO. 3677 (DELHI) OF 2011
[ASSESSMENT YEAR 2008-09]
MARCH 30, 2012
ORDER
Rajpal Yadav, Judicial Member
The assessee is in appeal before us against the order of Learned Commissioner dated 22.06.2011 passed for assessment year 2008-09 under section 263 of the Income-tax Act, 1961. The grounds of appeals taken by the assessee are not in consonance with Rule 8 of the ITAT’s Rules, they are descriptive and argumentative in nature. In brief, the grievance of the assessee is that Learned Commissioner has erred in taking cognizance under section 263 of the Act and thereby modifying the assessment order, directing the Assessing Officer to substitute full value of consideration with the alleged fair market value of Rs. 33,47,66,257 for computing the capital gain on transfer of the capital assets.
2. The brief facts of the case are that the assessee is a limited company. It has filed its return of income electronically on 26.09.2008 declaring total income at Rs. 22,42,86,363 after claiming deduction under section 80IB of the Income-tax Act, 1961 of Rs. 22,20,17,423. Learned Assessing Officer has passed an assessment order under section 143(3) of the Act on 26.4.2011. The assessee company had purchased a leasehold plot. Measuring 302.90 sq.mtr. in an open auction held by the DDA on 19.1.2005 for a consideration of Rs.700,85,000. The FAR allowed to the assessee on this plot was 1160.125 sq. mtr. in four stories. The assessee has constructed the building and shown the assets as a capital asset. The assessee had rented out the property to ICICI Prudential Life Insurance Company for a sum of Rs. 23.40 lacs per month vide leasehold agreement dated 28.6.2007. The lease was for nine years w.e.f. 28.6.2007 with monthly rental increase @ 15% every three year’s term. The lease was terminated by ICICI Prudential Life Insurance Co. vide letter dated Ist of October 2009. The assessee company had valued the property after construction at Rs. 11,58,81,000 through an independent valuer’s report dated 20.6.2007. It had entered into an agreement for sale with Smt. Asha Bajaj, mother of Managing Director of the Co. on 31.7.2007. The sales consideration was settled at Rs. 11.70 crores. A sum of Rs. 25 lacs was taken from Smt. Asha Bajaj on 16.5.2007. During the assessment proceedings, it revealed that Learned Commissioner, Delhi-IV, appointed a special auditor in the case of the assessee company under section 142(2A) of the Act. The special auditor has determined the F.M.V. of this property as on 31.7.2007, by net maintainable rent capitalization method at Rs. 29,83,50,000. Assessing Officer after considering the recommendations of the special auditor referred the matter to the Valuation Officer on 16.3.2011. The V.O. has submitted his report on 19.4.2011 wherein he has determined the fair market value of the property at Rs. 12,78,79,481. Assessing Officer has computed the capital gain by adopting this value instead of sales consideration shown by the assessee at Rs.11.70 crores.
3. Learned Commissioner on an analysis of this record, formed an opinion that the valuation officer determined the fair market value of the property after taking into consideration the sales instances of Dwarka, whereas auction of similar type of property had been carried out by the DDA in Vasant Kunj itself. According to the Learned Commissioner, DDA auctioned a comparable plot of land in Vasant Kunj on 17.1.2007. This plot is almost similar to that of the assessee. He discussed the similarity of both the plots and the price at which plot at Vasant Kunj was auctioned. The auction had taken place on 17.1.2007, plot area is of 2885 sq. mtr. The permissible FAR is 4688. The rate at which this plot was sold is Rs.02,70,950. Learned Commissioner formed an opinion that assessment order is erroneous and prejudicial to the interest of the revenue because the Assessing Officer failed to take cognizance of sales instances of a adjoining property which is similar to the assessee while determining the fair market value of the plot sold by the assessee for the purpose of computing capital gain. Thus, this action is prejudicial to the interest of the revenue also. He issued a show-cause notice under sec. 263. In response to the show-cause notice, assessee has pointed out various difference between the two properties in their size, geographical location, their commercial potentiality etc. The assessee thereafter pointed out that Assessing Officer has made a reference to the V.O. and it is obligatory for him to complete the assessment inconformity with the estimated value of the DVO. It also pointed out that once a reference has been made to the V.O. under sec. 16A(1) of the Wealth-tax Act, the valuation made by the V.O. is binding on the WTO, implying that it is binding under the Income-tax Act, 1961 also upon the Assessing Officer. There was no scope for the Assessing Officer to deviate from the FMV estimated by the V.O. and, therefore, the Assessing Officer cannot be said to have committed an error. The exercise of valuation is subjective and any valuation carried out by the expert cannot be said to be erroneous. Apparent consideration agreed and negotiated between the two parties cannot be substituted with the fair market value of the property. Learned Commissioner rejected all the contentions of the assessee and pointed out that fair market value of the property would be computed by adopting the rate at which Vasant Kunj plot was sold, it comes out to Rs.33,47,66,257. He modified the assessment order directed the Assessing Officer to adopt this fair market value in place of full consideration received by the assessee and shown for the computation of capital gain under section 48 of the Income-tax Act, 1961. In other words, Learned Commissioner has substituted full value of consideration shown by the assessee with the fair market value.
4. The learned counsel for the assessee while impugning the order of Learned Commissioner raised number of propositions. In his first proposition, he pointed out that section 45 of the Act provides that any profit or gains arising from the transfer of a capital assets effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E etc. be chargeable to income-tax under the head “capital gains” and shall be deemed to be the income of the previous year in which the transfer took place. He further pointed out that section 48 of the Act provides the mode of computation and it states that the income chargeable under the head “capital gain” shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital assets, the amounts, namely (a) expenditure incurred wholly and exclusively in connection with such transfer; (b) the cost of acquisition of the assets and the cost of any improvement thereto. He emphasized that this section contemplates expression “full value of the consideration”. This full value cannot be substituted by fair market value. There is no provision for such substitution as suggested by the Learned Commissioner in the impugned order. In support of his contentions, he relied upon the decision of the Hon’ble Supreme Court in the case of KP Verghese v. ITO reported in 131 ITR 597. He further relied upon the decision of Hon’ble Delhi High Court in the case of CIT v. Smt. Nilofer I. Singh reported in 309 ITR 233. In his next fold of submissions, he pointed out that for the purpose of computing capital gain, Assessing Officer cannot take help of section 55A of the Act and he cannot make any reference to the VO. Though the Assessing Officer has made the reference and computed the capital gains on the basis of the valuer’s report. The assessee is challenging that the aspect in the appeal which is a separate issue. In that issue, assessee is impugning whether the full value of the sales consideration is to be taken at Rs.11.70 crores disclosed by the assessee or Rs.12,78,79,481 adopted by the Assessing Officer on the basis of valuation report. In support of his contentions, he relied upon the decision of Ahmedabad Bench of the ITAT in the case of Chandrakant R. Patel & Ors. reported in 131 ITD 1 wherein ITAT has considered the scope and interpretation of section 50C, 55A for the purpose of computing capital gain under sec. 48 of the Act, on transfer of a capital assets. In his next fold of submissions, he submitted that the Assessing Officer cannot adopt F.M.V. which is higher than the stamp duty valuation as provided in sec. 50C of the Act. The learned counsel for the assessee while elaborating his arguments pointed out that in section 50C, a deeming fiction has been created which authorized the Assessing Officer to deem full sales consideration received by an assessee or accrued to an assessee as a result of the transfer of a capital assets, equivalent to the amount adopted by the stamp valuation authority for the purpose of payment of stamp duty while registering the sales deed on such transfer. The learned counsel for the assessee submitted that the Assessing Officer can only adopt the valuation determined by the stamp valuation authority for the purpose of payment of the stamp duty. If an assessee has an objection about adoption of a higher valuation for the purpose of stamp duty then under sub-section(2) a mechanism has been provided for making a reference to the V.O. If an assessee has disclosed consideration higher than the stamp duty valuation then there cannot be any further substitution with F.M.V. In support of his contentions, he relied upon the decision of ITAT, Delhi Bench in the case of Ravikant v. ITO reported in 110 TTJ 297. In his next fold of submissions, he pointed out that Assessing Officer could not deviate from estimate made by the V.O. therefore, there is no apparent error in the order of the Assessing Officer which authorized the Learned Commissioner to take cognizance under sec. 263 of the Act.
5. In his next fold of submissions, he pointed out that assessment order cannot be termed as erroneous for not taking action which he was not empowered to do so in law. According to the learned counsel for the assessee, the Assessing Officer adopted the rates mentioned in the report. He was not supposed to deviate from the report and further took into consideration the sale deed of adjoining plot. He further pointed out that Assessing Officer has acted in accordance with law. His order cannot be termed as erroneous, therefore, no action under sec. 263 is permissible. For buttressing his contentions, he relied upon the order of the Special Bench of the ITAT in the case of Simbhaoli Industries Ltd. v. DCIT reported in 78 ITD 161. He also relied upon the decision of Hon’ble Rajasthan High Court in the case of Rajasthan Spinning & Weaving Mills v. DCIT reported in 281 ITR 177.
6. Learned DR on the other hand submitted that the expression “full value of consideration” referred in section 48 of the Act does not mean the sales consideration disclosed in the sale deed only. The true import of this expression would be the fair market value of an asset which were sold by an assessee. Had that was an intention ? Then the legislature would have incorporated the expression “consideration disclosed in the registered deed”. In order to ascertain fair market value, learned Assessing Officer has made a reference under sec. 55A of the Act to the V.O. However, learned V.O. determined the fair market value by not taking into consideration the sale deed of adjoining plot, thus, the error committed by him has been amplified by inaction of the Assessing Officer. He further submitted that section 263 authorizes the Learned Commissioner to call for and examine the record of any proceedings under this Act, therefore, the action committed at the end of the V.O. would come within the ambit of expression, “the record of any proceedings” employed in section 263 and the Learned Commissioner has rightly taken cognizance of section 263 of the Act. He further pointed out that Hon’ble Delhi High Court in the case of Gee Vee Enterprises reported in 99 ITR 373 propounded the role required to be played by an Assessing Officer. In this case, Assessing Officer failed to conduct a proper inquiry while computing the capital gain shown by the assessee.
7. We have duly considered the rival contentions and gone through the record carefully. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy v. ITO, Mumbai, 101 TTJ 1095, has analyzed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 as well as Hon’ble Bombay High Court rendered in the case of Gabriel India Ltd. reported in 203 ITR 108 and has propounded the following broader principle to judge the action of CIT taken under section 263.
(i) The CIT must record satisfaction that the order of the A.O is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.
(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the A,O and it was only when an order is erroneous that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice 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 treated as prejudicial to the interests of the Revenue and if the A.O has adopted one of the courses permissible under law or where two views are possible and the A.O has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the A.O is unsustainable under law.
(vi) If while making the assessment, the A.O 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 s. 263 is not permitted to substitute his estimate of income in place of the income estimated by the A.O.
(vii) The A.O exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrives at a 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 s. 263 must have material on record to arrive at a satisfaction.
(ix) If the A.O has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the A.O allows the claim on being satisfied with the explanation of the assessee, the decision of the A.O cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.”
8. Before embarking upon an inquiry about the facts of the present case and how those facts have been considered by the learned revenue authorities below, we deem it appropriate to make a reference of the observations of the Hon’ble Delhi High Court in the case of Vee Gee Enterprises reported in 99 ITR 373 wherein Hon’ble High Court has expounded the approach of the Assessing Officer while passing assessment order. The observations of the Hon’ble High Court read as under:-
“It is not necessary for the Commissioner to make further inquiries before canceling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statement made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of the return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the ITO to further investigate the facts stated in the return when circumstances would made such an inquiry prudent that the word “erroneous” in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.”
9. In the light of above proposition, let us examine the facts of the present case. Section 263 of the Income-tax Act, 1961 contemplates that the Learned Commissioner may call for and examine the record of any proceedings under this Act, and if, he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving an opportunity of hearing to the assessee and after making an inquiry pass such order thereon as the circumstances of the case justify. He may enhance the assessment order by modifying it, he may cancel it and he may direct a fresh inquiry. In the present case, Learned Commissioner has modified the assessment order by enhancing the capital gain disclosed by the assessee. Learned V.O. failed to take cognizance of a similarly situated sales instances which were available to him at the time of determining the fair market value. The auction at Vasant Kunj is prior to the sales effected by the assessee, therefore, to the extent that he failed to take cognizance of a similarly situated sales instances, the report of the V.O. can be termed as an erroneous one which has been effected in the assessment order and which resulted the assessment order as erroneous. The cognizance taken by the Learned Commissioner to that extent can be justified and we uphold the action to this extent.
10. The next fold of issue agitated before us is whether the Learned Commissioner is justified in substituting full value of consideration disclosed by the assessee on transfer of a capital asset with the fair market value. Sections 45, 48 and 50C of the Act have a direct bearing on the issue, therefore, we deem it appropriate to take note of the relevant part of these sections. The same are as under:
“Capital gains.
45. (I) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H be chargeable to income tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place”.
