Anil Rambhai Mevada Vs PCIT (ITAT Ahmedabad)
Facts-
The assessee, an individual, filed its original ROI for A.Y. 2015-16 declaring a total income of Rs.14,89,200/-. The case was selected for scrutiny through CASS under ‘limited scrutiny’ category. As per the scrutiny notice, the case was selected for examination of following issues:-
1) Whether capital gain/loss on sale of property has been correctly shown in the return of income.
2) Whether deduction from capital gains have been claimed correctly.
The assessee, in the course of regular assessment, filed revised computation of income and withdrew the deduction claimed u/s 54B. As a sequel to revised computation, the assessee paid taxes on the enhanced income declared at Rs.2,12,73,202/- owing to withdrawal of deduction. It was pointed that the revision of the income in the course of assessment was made on realisation by the assessee that he is not entitled to deduction under section 54B against the capital gain arising from transfer of mere rights in the land parcels which cannot be equated with sale of land per se.
After the completion of assessment, the PCIT in exercise of his revisionary powers issued show cause notice dated 22.01.2020 under section 263 of the Act requiring the assessee to show cause as to why the impugned assessment so framed under section 143(3) of the Act dated 30.10.2017 should not be modified/set side on the ground that assessment order so passed is erroneous in so far as it is prejudicial to the interest of the revenue.
After taking note of the defense propagated by the assessee in response to the show cause notice under S. 263, the PCIT concluded that the order passed by the A.O. suffers from error which has resulted in prejudice to the interest of the revenue. A revisional order was accordingly passed whereby the assessment order was set aside for fresh adjudication.
Aggrieved by the revisional order, the assessee preferred appeal before the Tribunal.
Conclusion-
It is observed that the assessee has filed relevant evidence before the A.O. to substantiate the existence of gain arose to him. The only issue in dispute is towards the nature and character of such gains arising to the assessee. It is the case of the PCIT that the gains arising to the assessee ought to have been taxed under the head ‘income from other sources’ instead of ‘capital gains’ offered by the Assessee.
The source of money received is manifest. The assessee has sufficiently demonstrated that the gains arising to him is having live and direct nexus to the banakhat agreement executed way back in August 2008 and sale deed executed in Feb. 2015 and such compensation/ gains has arisen to the assessee in recognition of rights of the Assessee to sue in the land parcels which falls under the definition of ‘capital asset’, the relinquishment of which is taxable as capital gains under S. 45 of the Act.
Compensation so received on release of such right, at best, falls within the ambit of expression of ‘capital asset’ defined in section 2(14) of the Act. Pertinent to note, the expression ‘capital asset’ as defined in section 2(14) of the Act of very wide import and connotation. Needless to say, the income emanating on relinquishment of a capital asset would give rise to capital gain as claimed by the assessee. Hence, we do not see potency in the claim of PCIT that such income is chargeable under the head “income from other sources” more so, in exercise of revisional jurisdiction which debars the revisional authority to interfere with a legally plausible view taken by the A.O. The stand of PCIT prima facie appears to be quite slender and plainly contrary to law and facts of the case.
It must be borne in mind that the scope of powers under revisionary jurisdiction are not unfettered. Whereas the A.O. had rightly endorsed the corroborated claim of the assessee in this regard, the PCIT, in our view, has attempted to substitute his wisdom by views of the A.O. without any definite basis. If the view of the PCIT towards the banakhat allegedly hollow or unenforceable is accepted, no income can be recognised at all. The view taken by the A.O. is clearly plausible in law and could not have been displaced in a revisionary proceedings by a very untenable or a debatable view.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeals have been filed at the instance of the respective assessees captioned hereinabove against respective revisional orders of the PCIT-3 Ahmedabad concerning A.Ys. 2015-16.
2. As stated on behalf of the assessee, both appeals emanates from the same set of facts giving rise to the identical grievance. Both the assessee are stated to be recipient of similar compensation on release of rights in same land parcels as two different co-purchasers. Hence, the facts and issue being identical, both the captioned appeals have been heard together and are being disposed of by this common order.
3. We shall first take up ITA No.390/Ahd/2020 concerning Assessment Year 2015-16 in the case of Anil Rambhai Mevada for the purpose of adjudication.
4. The captioned appeal has been filed against the revisional order of PCIT-3, Ahmedabad dated 16.03.2020 passed under section 263 of the Act whereby the assessment order passed by the Assessing Officer (A.O.) dated 30.10.2017 concerning Assessment Year (A.Y.) 2015-16 was sought to be set aside for reframing assessment in terms of supervisory directions.
5. As per its grounds of appeal, the assessee has essentially challenged the justification of revisional action of the PCIT as a consequence of which the A.O. was directed to pass the assessment order denovo after making enquiries and verifications on points set out in the revisional order.
6. A small delay of 45 days in filing captioned appeals before the tribunal is condoned at the request on behalf of respective Assessee having regard to ongoing pandemic situation prevailing in the country at the relevant time. No prejudice is shown to have caused to revenue. The appeals were thus admitted for adjudication on merits at the time of hearing.
7. Briefly stated, the assessee, an individual, filed its original return of income for A.Y. 2015-16 declaring a total income of Rs.14,89,200/-. The case was selected for scrutiny through CASS under ‘limited scrutiny’ category. As per the scrutiny notice, the case was selected for examination of following issues:-
1) Whether capital gain/loss on sale of property has been correctly shown in the return of income.
2) Whether deduction from capital gains have been claimed correctly.
8. The assessee, in the course of regular assessment, filed revised computation of income and withdrew the deduction claimed under section 54B of the Income Tax Act, 1961 (the Act in short) in the Return of income. As a sequel to revised computation, the assessee paid taxes on the enhanced income declared at Rs.2,12,73,202/- owing to withdrawal of deduction. It was pointed that the revision of the income in the course of assessment was made on realisation by the assessee that he is not entitled to deduction under section 54B against the capital gain arising from transfer of mere rights in the land parcels which cannot be equated with sale of land per se. As stated, the A.O. in the regular assessment proceedings asked specific questions regarding capital gains accrued to the assessee vide point nos.4 & 5 of questionnaire dated 08.08.2017 placed in the Paper Book as Annexure-F. In response to the notice, the assessee filed a reply dated 23.10.2017 regarding capital gains earned on sale of certain land parcels and towards release of rights in land parcels relating to Survey No.847 registered with registering authority for a sale consideration of Rs.9.30 Crores vide sale deed dated 19.02.2015. It was pointed out that the assessee entered into a Banakhat (MOU) dated 25.08.2008 with land owners (Kiran D Patel) for purchase of land parcels bearing survey no. 847 along with other proposed co-purchasers namely Deepak R Bharwad; Dhiren R Bharwad/ Mevada. It is claimed that by virtue of the MOU, the Assessee and other proposed co-purchasers acquired certain rights in the land parcels. However, the land parcel was eventually sold by the land owners to the ultimate purchaser namely Navin Kalidas Patel. A sale deed was executed and registered for transfer of land dated 19 Feb.2015 wherein the assessee and other erstwhile co-purchasers to the banakhat agreement were made confirming parties to the sale transactions between the land owners and ultimate purchaser. The assessee and other original co-purchasers received Rs. 2.85 cr. each out of the sale consideration by virtue of being confirming parties to the sale agreement. The capital gains arising on such receipts for release of rights claimed to be vested by banakhat agreement was worked out to Rs. Rs.2,66,01,375/- by the assessee. The assessee offered such surplus under the capital gains and availed indexation benefits and concessional tax treatment associated to such long term capital gains. As noted earlier, deduction against such capital gains were claimed under S. 54B of the Act which was withdrawn in the course of assessment and additional taxes were paid thereon. The AO after making enquiries in this regard as mandated under ‘limited scrutiny’ and after taking relevant documents in the form of banakhat and sale agreement etc. endorsed the claim of capital gains and consequently assessed the income at Rs.2,12,73,200/ based on the revised computation of income.
9. After the completion of assessment, the PCIT in exercise of his revisionary powers issued show cause notice dated 22.01.2020 under section 263 of the Act requiring the assessee to show cause as to why the impugned assessment so framed under section 143(3) of the Act dated 30.10.2017 should not be modified/set side on the ground that assessment order so passed is erroneous in so far as it is prejudicial to the interest of the revenue. As per the show cause notice, the PCIT broadly observed that the receipts arising to the assessee ought to have been assessed under the residuary head ‘income from other sources’ instead of ‘capital gains’ which has the effect of withdrawal of concessions and tax rate benefits etc. associated to capital gains. It may be apt to extract the show cause notice for easy reference:
“Notice u/s. 142 (1) of the I.T. Act 1961
PAN: ABXPB1575B
Date: 08/08/2017 Reminder -I
Deepakkumar Rambhai Mevada
1, Parishram Makarba Gam,
Bharwad Vas, Ahmedabad.
Sir, ‘
Sub: Requisition for information in connection with assessment proceedings for the A.Y. 2015-16 -reg.
Please refer to this office notice u/s. 143(2) of the I.T. Act dated 05/07/2016 which has been issued and duly served on you. In this connection, you are requested to furnish the following details/submission/ evidences on 23/08/2017 at 3.30 P.M.
1. Please furnish the brief note on nature of business carried out by you during the year under consideration.
2. Please furnish the details of immovable property transferred during the year and the value of as reported in AIR is higher than the value of property transferred as reported in return of income (AIR 007) and schedule CG of ITR. Please explain the same with documentary evidence along with separate working of long term capital earned on the same.
3. Please also furnish the details of deduction claimed u/s 54B, 54C, 54G, 54GA (Schedule CG of ITR along with documentary evidences.
4. Please explain whether the capital gain has been claimed correctly with documentary evidences.
5. Please explain whether the capital gain on transfer of property has been shown correctly with documentary evidences.
6. Please reconcile the 26AS data with the income shown in ITR.
7. Please furnish copies of assessment orders for the last three years.
8. Details of bank accounts operated during the year under consideration along with Reconciliation Statements of each accounts.
Bank accounts & Reconciliation Statement:
In respect of bank accounts held by you either severally or jointly, please furnish the details of the same along with the copy of bank statement/pass-book and bank book as under:
