Rajendrakumar Kantilal Patel Vs PCIT (ITAT Surat)
ITAT Surat held that issues raised by PCIT in his order u/s 263 are already examined by AO and AO passed the assessment order after calling for all the details and considering the reply/ documents. Accordingly, assessment order passed after due application of mind cannot be termed as erroneous and prejudicial to the interest of the revenue.
Facts- The present appeal is preferred by the appellant against the order passed by the Principal Commissioner of Income Tax (PCIT) mainly contesting initiation of revision proceedings u/s 263 by holding that assessment order was erroneous and prejudicial to the interests of the revenue. Appellant also contested that complete details in the matter was submitted before AO during the course of assessment proceedings.
Conclusion- Held that issues raised by ld PCIT in his order under section 263 of the Act have been examined by the assessing officer and the assessment order was passed by assessing officer, after calling for relevant information and after detailed examination of the same. The Assessing Officer has passed the assessment order after calling for details on the issue and after considering the reply and documents and after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. PCIT’s finding fault, with the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue, on account of lack of inquiry, has to fail. Based on these facts and circumstances, we quash the order dated 19.03.2018 passed by the ld PCIT under section 263 of the Act and allow the appeal of the assessee.
FULL TEXT OF THE ORDER OF ITAT SURAT
Captioned appeal filed by assessee, pertaining to Assessment Year (AY) 2013-14, is directed against the order passed by the Learned Principal Commissioner of Income Tax-1, Surat (in short “ld. PCIT”], under section 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 11.12.2017.
2. Grounds of appeal raised by the assessee are as follows:
“(1) On the facts and in the circumstances of the case, as well in law, the learned CIT erred in initiating the revision proceedings u/s 263 of the Act, by holding that the assessment order was erroneous and prejudicial to the interests of the Revenue and hence, the order passed u/s 263 of the Act is without jurisdiction, bad in law, illegal, invalid, arbitrary and liable to be quashed or annulled in toto.
(2) On the facts and in the circumstances of the case as well in law, the learned CIT erred in initiating revision proceedings u/s 263 of the Act, on the same issue which was already considered and detailed enquiry in the course of assessment proceedings u/s 143(3) of the Act and therefore, the jurisdiction assumed to invoke the provisions of Sec. 263 of the Act is bad in law and liable for void ab initio.
(3) On the facts and in the circumstances of the case as well in law, and without prejudice to the other grounds, the learned CIT erred in appreciating the fact that complete details in relation to the matters for which proceedings u/s 263 of the Act has been initiated were submitted before the Assessing Officer during the course of assessment proceedings.
(4) On the facts and in the circumstances of the case as well as in law, the learned CIT erred in restoring the matter back to the Assessing Officer, without giving a clear findings on the issue on which the proceedings u/s 263 of the Act, was initiated and hence, not justified.
(5) The appellant craves leave to add, amend, alter, delete, change or modify any ground of appeal before or at the time of hearing.”
3. In the assessee’s appeal under consideration, Learned Principal Commissioner of Income Tax has raised three issues and stated that order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue. The facts relating to these three issues are narrated below.
4. Facts relating to issue no. 1: The assessee has filed his return of income for AY.2013-14 on 30.07.2013 showing total income at Rs.23,43,910/-. Scrutiny assessment in the case for AY.2013-14 was finalized vide order u/s 143(3) of the I.T. Act dated 28/03/2016 at an income of Rs.23,67,760/- by making addition of Rs. 23,850/- u/s 50 C of the I.T. Act.
5. Later, Ld. PCIT exercised his jurisdiction under section 263 of the Act, it was noticed by Ld. PCIT from the details in the computation of income submitted by the assessee during the scrutiny assessment proceedings that, a plot of land situated at 129 Palanpore, district Surat, in which he had 10% share, was sold during the year for Rs. 5,70,00,000/- and his share of the sale proceeds @ 10% was Rs. 57,00,000/-. On the said transaction, the assessee has declared LTCG of Rs. 21,73,388/-. The purchase cost of his share of the said property is shown by him at Rs. 24,09,024/- and the indexed cost is claimed at Rs.35,26,612/-. The date of purchase of the said land is shown by him as on 17/04/2008 and the date of sale of the same is shown by him as 02/03/2013. Accordingly, the assessee has treated the said land as long term capital asset and paid 20% of tax on the LTCG. In the above context, it was found by Ld. PCIT from details in the sale deed, that initially there were two joint owners of the property viz. (i) Shri Rasikbhai B Gadhiya and (ii) Chetanbhai M. Rana. The assessee’s share of the said land is found to have been purchased by him from Shri Rasikbhai B Gadhiya vide deed registered on 17/05/2010. Thus, the correct date of purchase of the property by him is 17/05/2010 and not 17/04/2008 as shown by him in the computation of capital gains from sale of this land. Since the said property has been purchased by the assessee on 17/05/2010 and sold by him on 02/03/2013, it has been held by the assessee for less than 36 months and thus it is a short term capital asset in the hands of assessee. The capital gains arising from sale of the property is therefore short term capital gains and not long term capital gains as shown by him. However in the assessment order u/s 143(3) dated 28.03.2016 for the A.Y 2013-14 in his case, the capital gains from sale of the 129, Palanpur district Surat, plot has been wrongly accepted by the AO as Long Term Capital Gains.
6. It was also observed by Ld. PCIT that, besides the transaction in respect of the land at Palanpur as discussed in the preceding paras, there is another plot of land situated in Asarma Village which has been sold during the year by the assessee and short term capital gain of Rs.2,08,797/- has been shown. This plot of land has been shown as purchased on 17/07/2007 at cost of Rs.86,666/- and sold on 29/06/2012 for Rs.40,70,500/-. The Asarma village plot sale registration deed shows the registered sale value at Rs.81,41,000/- and stamp duty paid of Rs.5,44,500/-. Since, in the state of Gujarat, the stamp duty is 4.9 % of the Jantri value, the estimated value of the property by the Sub-Registrar office is Rs.1,11,12,245/-. The AO during the course of assessment had referred the case for valuation to the Valuation Cell of the department. As per the valuation report of the Valuation Officer, Valuation Cell, the Fair Market Value of the property is Rs.1,00,01,800/- as on 29/06/2012. It was noticed that the share of assessee in the Asarma Village plot is 50% and therefore his share is Rs.50,00,900/-(Rs.1,00,01,800/2) in the total sale consideration of Rs.1,00,01,800/- and not Rs.40,70,500/- as shown by the assessee in the computation of income. The Short Term Capital Gains will accordingly be enhanced in view of the difference in sale consideration by Rs.9,30,400/- (50,00,900-40,70,500). However in the assessment order u/s 143(3) dated 28.03.2016 for the A.Y 201314 in the case of assessee, the short term capital gains from sale of the Asarma village plot as shown by him was wrongly accepted by the AO. As the above irregularities to the extent of points discussed above, was considered as erroneous and prejudicial to the interest of Revenue, a show cause letter dated 11/01/2018 was issued to the assessee to explain as to why in the above discussed facts and circumstances, which have duly discussed in show cause notice, action u/s 263 of the I .T. Act should not be taken for A.Y 2013-14.
7. In response, the assessee made a submission dated 25.01.2018 wherein objections have been raised by the assessee on the following grounds against the action to assume jurisdiction u/s 263 of the IT Act:
“(i) That the land bearing R S No, 86/1, 86/2 and 86/3 Block no. 129 Palanpore, District Surat has actually been transferred on 17.4.2008 and not on 17.05.2010 as stated in the show cause notice. The plea of the assessee is that the payment of consideration as also possession of the land had been completed in the F.Y. 2007-08 and the possession of the land had also been handed over during the AY.2007-08 as clearly demonstrated in the registered purchase deed. The assessee has argued that merely because the purchase deed registration procedures had been completed and the purchase deed has been executed on 17.05.2010, it could not be presumed that the assessee had purchased the said land on 17.05.2010 since from the registered purchase deed, it is very much clear that the land in question had already been transferred to the assessee and other co purchasers on 17.04.2008 and legal formalities for registration with the Joint Sub Registrar, Surat had already been completed on 17.04.2008.”
8. However, Ld. PCIT rejected the above contention of the assessee and observed that it was found mentioned on page-15 of the purchase deed registered on 17.05.2010 that an amount of Rs.8,50,000/- has been paid by the assessee and other co-purchasers on various dates in February and March-2008 to the sellers of the land. In fact, the registered sale value as per the purchase deed is Rs.8,50,000/- only. From the payment details mentioned on page-15 of the purchase deed it is seen that the sum of Rs.8,50,000/- has been paid to four co-sellers of the property. Contrary to this fact found mentioned in the purchase deed, the assessee in the computation of long term capital gains submitted with the computation of income for the year has claimed the purchase cost of the said land at Rs.24,09,024/- and the indexed cost of acquisition at Rs.35,26,612./-. It was thus observed that the assessee has claimed higher amount as purchase cost than what is mentioned in the purchase deed. On the other hand, if the claim of the assessee that the purchase cost is Rs.24,09,024/- is accepted as correct then only part of the payment to extent of Rs 8,50,000/- can be said to have been received during February and March-2008. It cannot be said that the purchase consideration has been wholly paid in year, 2008. It is only on 17.05.2010, when the purchase deed was registered that the purchase can be said to have been finalized. Despite this fact, it is still not to be overlooked that although the registered purchase value is shown at Rs.8,50,000/- the claim of the assessee regarding purchase cost in the computation of capital gain is a much higher figure of Rs.24,09,024/-. The contentions of the assesses regarding payment made of entire purchase cost in Feb/March, 2008 therefore not proved. The actual purchase date is to be considered as 17.05.2010.
(ii) The assessee has also claimed that the possession of the land has been handed over in the F.Y. 2007-08. This claim of the assessee is again proved to be incorrect, from the contents of page-16 of the purchase deed dated 17.05.2010, where it is mentioned that possession of the land was being handed over then, that is, the possession of the land was being handed over only on the date of registration of the purchase deed, that is, on 17.05.2010.
It has been held by various Courts that date of possession or date of allotment is the date with effect from which the period of holding of a property is to be calculated for the purpose of computing capital gains on sale of the property. In the assessee’s case, the date of possession is the same as the date of registration of the purchase deed ie. 17.05.2010, since there is no other document presented by the assessee to prove that possession of the land has been handed over to him prior to 17.05.2010. Reliance in this regard is placed on the decisions in the cases of Commissioner of Income Tax-XVI vs K. Ramakrishnan (decided on 18.03.2014)(High Court of Delhi), Madhu Kaul vs CIT, decided on 17.01.2014)( High Court of Punjab and Haryana), Commissioner of Income Tax Vs S. R. Jayashankar (decided on 25.11.2014)( Madrash High Court), Vinod Kumar Jain Vs CIT 344 ITR 501 (Punjab and Haryana High Court). It has been decided in all these cases that date of possession or date of allotment is the date with effect from which the period of holding of a property is to be calculated for the purpose of computing capital gains on sale of the property. As discussed above, in the case of the assessee, the date of possession is the same as the date of registration of the purchase deed i.e. 17.05.2010, since there is no other document presented by the assessee to prove that possession of the land has been handed over to him prior to 17.05.2010. Therefore, Ld. PCIT directed to Assessing Officer to verify the above discussed facts relating to correct date of purchase and the correct purchase consideration and to calculate the correct capital gains that has accrued to the assessee from sale of the land.
9. The facts relating to second issue raised by ld PCIT are as follows:
“With regard to the sale transaction by the assessee of the other plot of land at Village Asarma, the contention of the assessee is that the question of enhancement of the sale consideration on the basis of the valuation made by the DVO, at Rs.1,00,01,800/- vis-a-vis the sale consideration claimed by the assessee of Rs. 81,41,000 /- does not arise, since the detailed explanation duly substantiated by cogent evidence was given to the AO vide submissions dated 6.8.2015, 04.01.2016, and 22.3.2016 and the same has been rightfully accepted by the AO. The assessee has argued that it is not a case of non-application of judicious and fair mind on the part of the AO as the matter has been duly considered by the AO at the time of assessment proceedings. The assessee has also contended that even after consideration of the report of the DVO and enhancement of Rs.9,30,400/- to the sale consideration share of the assessee, the difference between the valuation by the DVO and the actual sale consideration would be below 10 %.”
10. However, Ld. PCIT observed that the plot of land situated in Asarma Village has been sold during the year by the assessee and short term capital gain of Rs.2,08,797/- has been shown. This plot of land has been shown as purchased on 17.07.2007 at cost of Rs.86,666/- and sold on 29.06.2012 for Rs.40,70,500/-. The Asarma village plot sale registration deed shows the registered sale value as Rs.81,41,000/- and stamp duty paid of Rs. 5,44,500/-. Since, in the state of Gujarat, the stamp duty is 4.9 % of the Jantri value, the estimated value of the property by the Sub-Registrar office is Rs.1,11,12,245/-. The AO during the course of assessment had referred the case for valuation to the Valuation Cell of the department. As per the valuation report of the Valuation Officer, Valuation Cell, the Fair Market Value of the property is Rs.1,00,01,800/- as on 29.06.2012. The share of the assessee in the Asarma Village plot is 50% and therefore his share is Rs.50,00,900/-in the total sale consideration of Rs.1,00,01,800/- and not Rs.40,70,500/- as shown by him in the computation of income. The Short Term Capital Gains will accordingly be enhanced in view of the difference in sale consideration by Rs.9,30,400/- (5000900 – 4070500). However in the assessment order u/s 143(3) dated 28.03.2016 for the A.Y 2013-14 the short term capital gains from sale of the Asarma village plot as shown by the assessee has been wrongly accepted by the AO without verifications. Therefore, Ld. PCIT directed the Assessing Officer to verify the above discussed facts and determine the correct sale consideration and to calculate the correct capital gain that has accrued to the assessee from sale of the land.
11. Facts relating to issue no.3 are as follows:
“The assessee has further argued that the claim made by the assessee for deduction u/s 54 B of the Act on investment in agricultural land is in accordance with the provisions of Law and even if addition is made for the alleged deemed capital gain derived on the basis of valuation made by the DVO in respect of the Asarma Village plot, then also there is no question of the treating the assessment order as erroneous and prejudicial to the interest of the Revenue because, after deduction u/s 54B of the Act which has been allowed by the AO after due verification, there would be no tax liability.”
12. However, Ld. PCIT rejected the contention of assessee and observed that as per provisions of section 54B(1) of the Act, subject to the provisions of section 54B(2) of the Act, where the capital gain arises from the transfer of a capital asset being land which, in the two year immediately preceding the date of which the transfer took place was being used by the assessee being an individual or his parents or a Hindu undivided family for agricultural purpose, and the assessee has with in a period of two years after the date, purchased any other land for being used for agricultural purposes. Then the capital gains would be charged to tax in accordance with the provisions of those sections. In the above context it is observed in respect of the capital gains from sale of the Asarma Village which has been treated by the assessee as exempt u/s 54B that the AO has not raised any effective query either vide any letter or vide any notice or vide any note sheet entry to enquire about satisfaction of the conditions specified for allowance of deduction u/s54B of the Act. The only question asked by the AO with regard to deduction claimed of Rs.39,36,490/-section 54B, is question No. 14 of the questionnaire dated 01/12/2015 vide which the assessee has been required to furnish of purchased deed. Section 54B envisages the satisfaction of many qualifying conditions before allowance of deduction under that section. The AO has not raised any query to examine whether the said land was being used by the assessee or his parents or his HUF for agricultural purpose. The AO has similarly not raised any query to examine whether the assessee has purchased any other land purchased within two years of sale of the original asset was for agricultural purpose. It is also important to note that the Asarma village plot viz. the original asset, has been sold on 29/06/2012. The assessee was required to purchase within a period of two year after that date i.e. between 30/06/2012 to 29/06/2014, any other land for the use of agricultural purposes. However it is found from the copy of a purchase deed furnished with the letter dated 25/01/2018 that the assessee has purchased a piece of land at T.P 9 Palanpur Bhesan block No 132A on 04/05/2012. So it is seen that this land has not been purchased between 30/06/2012 to 29/06/2014. So the assessee cannot claim to have satisfied the condition of having purchased land to be used for agriculture purpose within two year of sale of Asarma village plot. The AO was require to verify whether the assessee has purchased any other land to be used for agricultural purpose within two years of sale of the Asarma village plot. In view of lack of enquiry and verification of eligibility of the assessee for allowance of deduction u/s 54B, the assessment order is rendered erroneous and prejudicial to the interest of revenue. The assessing officer was accordingly directed by Ld. PCIT to verify the above discussed facts and decide the correctness of allowance of deduction of 54B of the IT Act.
13. The Ld. PCIT also observed from the purchase deed of the land, purchased by the assessee on 04/05/2012 that the stamp duty determined by the stamp duty valuation authority is Rs.34,00,100/-. Since, in the state of Gujarat, the stamp duty is 4.9% of the Jantri value, the estimated value of the property by the Sub-Registrar office is Rs.6,93,89,795/-. However, the property has been registered at purchase price of Rs.3,54,61,200/- only marking thereby a difference of Rs. 3,39,28,595/- between the Jantri value and the registered value. The AO has not applied his mind to this aspect which is required to be verified thoroughly. In the light of the above discussions, the assessment order in the case of the assessee dated 28.03.2016 passed u/s 143(3) of the I T Act for A.Y. 201314 was found to be erroneous and prejudicial to the interest of revenue and accordingly the same was set aside with directions to the assessing officer to frame the assessment afresh in accordance with the discussion and directions of Ld. PCIT.
14. Aggrieved by the order of Ld. PCIT, the assessee is in appeal before us.
15. Regarding first issue, Ld. Counsel for the assessee submitted that the main issue is that the assessee has shown Long Term Capital Gain instead of short term capital account. The Ld. Counsel submitted that assessee purchased property on 17.04.2008, however the documents were released on a later date by registering authority. The Ld. PCIT has exercised his jurisdiction based on the audit objection only. The Ld. Counsel took us through page no.22 of the paper book wherein the details of sales and purchases are mentioned. The Ld. Counsel submitted that during the assessment proceedings, the Assessing Officer issued notice under section 142 (1) of the Act, raising the query to assessee, which is placed at paper book page nos.17. In response to notice under section 142(1) of the Act, the assessee has submitted its reply which is placed at paper book page no.18. The Ld. Counsel also submitted that Assessing Officer has also issued notice to examine facts of the same land, under section 50C, of the Act, which is placed at paper book pave no.75. Therefore, entire information was with the Assessing Officer, therefore, Ld. Counsel contended that issue raised by the Ld. PCIT has been examined by the Assessing Officer and took a possible view, therefore order passed by the Assessing Officer should not be erroneous.
16. In respect of second issue, which relates to section 50C of the Act. The ld. Counsel submitted that this issue has been examined by the Assessing Officer, as the Assessing Officer has issued notice to examine this issue, which is placed at paper book page nos.174 to 176. The assessee submitted market value report, and the assessee has also replied the show cause notice under section 142(1) of the Act, which is placed at paper book page no.178, therefore, issue has been examined by the Assessing Officer in detail therefore the order passed by the ld. PCIT in exercising jurisdiction u/s 263 of the Act, should not be sustained.
17. Regarding third issue (deduction under section 54B of the Act) raised by the Ld. PCIT, the Ld. Counsel, pleaded that assessee purchased land within two years. The Assessing Officer issued notice under section 142(1) of the Act to examine this issue, which is placed at paper book page nos.18. In response to the notice under section 142(1) of the Act, the assessee has replied to the Assessing Officer, which is placed at paper book page nos.23. The Ld. Counsel submitted that assessee made the payment to purchase the land out of payment received from sale of the property. Apart from this, Ld. Counsel also states that this third issue raised by the Ld. PCIT is squarely covered by the judgment of the Coordinate Bench of ITAT, Surat, in the case of Shri Atul Kantilal Patel, in ITA No.267/SRT/2018, wherein it was held as follows:
“10. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ldPCIT and other materials brought on record. We note that Assessing Officer has asked from the assessee, during the assessment stage, by way of a letter dated 25.02.2016, to submit the details in respect of agricultural land and the exemption claimed by the assessee under section 54B of the Act. The relevant para of letter dated 25.02.2016, of assessing officer ( to the extent useful for our analysis), is reproduced below:
“3……The agricultural land should be used by the individual or his parents for agricultural purpose at least for a period of two years immediately preceding the date of transfer.From the submitted details and documents, it is found that you had not shown any agriculture income in last two years i.e.2012-13 & 2013-14, also not submitted the proof of Agriculture activity or agriculture income from the land bearing R.S. No. Block No. 197 & R.S. No. 86/1, Sp. Mtr.12346/ of Olpad, till date to this office.
4. Thus, the amount claimed as exemption in the computation of income for the AY.2013-14 is not offered for the taxation has thereby escaped from the assessment. In this circumstances, you are requested, please show cause as to why the amount of claimed as exemption u/s 54B of the Act should not be treated as unexplained, exemption and added back to your total income for the year under consideration.”
11. In response to the above said notice, the assessee had submitted its reply before the Assessing Officer. The Assessing Officer after considering the reply of the assessee has framed assessment order under section 143(3) of the Income Tax Act, dated 11.03.2016. The reply of the assessee against the show cause notice, which is placed at paper book page no. 127, (the relevant part of the reply ), is reproduced below:
“4. Detail of the property sale and purchase during the year under consideration along with the source of the purchase of property, copy of the sale deed and purchase deed and Valuation report for the property sold during the year under consideration are enclosed herewith in “Annexure: 4.”
12. Therefore, we note that during the assessment stage, the Assessing Officer raised the specific query, and the assessee has submitted its reply along with documentary evidences, which is placed at paper book page no.127. The assessing officer has examined these documents relating to land and exemption under section 54B of the Act, and thereafter framed the assessment order under section 143(3) of the Act,hence order passed by the Assessing Officer should not be erroneous.
13. The contention of the ld. PCIT that sale deed in writing was executed on 20.03.2012, therefore capital gain should be assessable in the A.Y.2012-13 instead of A.Y.2013-14. We note that in assessee’s case, no doubt, the sale deed in writing was executed on 20.03.2012 and part payment of the land so sold by assessee, was received by the assessee, in the Financial Year 2011-12, which is placed at paper book page no.57. The part payment so received by assessee, was utilized by him to purchase the another agricultural land on 20.04.2012. Therefore, the assessee purchased another agricultural land out of the sale consideration received in FY.2011-12. Of course, some part payment was also received in the F.Y.2012-13 and finally the sale deed was registered on 28.06.2012. Therefore, we note that Assessing Officer has applied his mind and noted that part payment of the land so sold by assessee, was utilized by him to purchase the another agricultural land on 20.04.2012, therefore assessee has rightly offered the capital gain in the assessment year 2013-14. Having examined these facts, the assessing officer had allowed the claim of the assessee.
14. The Assessing Officer has also discussed the issue of agricultural land and exemption under section 54B of the Act in his order, vide para no.4 & 5 of the assessment order wherein the Assessing Officer after taking into account entire facts of the assessee, framed the assessment under section 143(3) of the Act, dated 11.03.2016, therefore order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue.
15. We note that Hon`ble Bombay High Court in the case of Mrs. Parveen Bharuchavs 2 Union Of India, WRIT PETITION NO. 10437 OF 2011, dated 27 June, 2012 held that an investment made in Bonds out of advance received for transfer of land before the actual date of transfer would be entitled to the benefit of exemption under Section 54B of the Act. The findings of the Hon`ble Court is as follows:
“8 The Tribunal in the case of Ramesh NarhariJakhdi (supra) while construing Section 54B of the said Act applied the Circular No.359 dated 10.5.1983 to hold that an investment made in Bonds out of advance received for transfer of land before the actual date of transfer would be entitled to the benefit of exemption under Section 54B of the said Act. Therefore, the view taken by Respondent No.1 in the order dated 28.11.2008 is a possible view in law and the notice issued to reopen the assessment is only on account of change of opinion. In fact in the affidavit in reply dated 19.12.2012 the Respondent No. 1 has stated that reassessment SNC 14 WP 10437-11(final).doc proceedings within a period of 4 years can be initiated on account of change of opinion. This is in the face of the decision of the Apex Court in the matter of Kelvinator (supra). The reasons recorded for reopening the assessment refer only to facts which were already on record at the time when assessment order dated 28.11.2008 was passed.
9 Further, at the hearing Mr. Vimal Gupta contended that Respondent No.1 while passing the order of the assessment dated 28.11.2008 did not apply his mind and/or consider the fact that Rs. 90.84 lacs had been invested in terms of Section 54EC prior to the completion of sale. The basis of his aforesaid submission is that the same is not discussed in the order dated 28.11.2008. This ground urged by Mr. Gupta during the hearing is a new ground which does not find mention in the reasons recorded for reopening of assessment. As held by this Court in the matter of Hindustan Lever Ltd. v. R.B. Wadkar reported in 268 ITR page 332, it is not open to improve upon the reasons recorded at the time of reopening the assessment by filing an affidavit and/or making oral submissions at the hearing of the Petition. The Court very categorically held that the reasons recorded must clearly establish some facts or material which lead to escapement of income. In any view of the matter the SNC 15 WP 10437-11(final).doc aforesaid submission is not sustainable for the reason that if a query is raised during assessment proceedings and the assessee meets the query and/or supplies the information called for, it must be presumed that the officer was satisfied before allowing the claim and there is no need to discuss the matter in his assessment order. As observed by the Gujarat High Court in the matter of CIT v. Nirma Chemical Works reported in 309 ITR 67. “The contention on behalf of the Revenue that the assessment order does not reflect any application of mind as to the eligibility otherwise under section-80-I of the Act requires to be noted to be rejected. An assessment order cannot not incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic tome. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the Assessing Officer, considering the workload that he carries and the period of limitation within which an order is required to be made; and secondly the order is an appealable order. An appeal lies, would be filed, only against disallowances which an assessee feels aggrieved with”.
10 Further the reasons recorded by Respondent No.1 for reopening the assessment do not state that the deduction under Section 54E was not considered in the assessment proceedings. In fact from the reasons, it appears that all facts were available on record and according to the respondents was only erroneously SNC 16 WP 10437-11(final).doc granted. This is a clear case of review of an order. The application of law or interpretation of a statue leading to a particular conclusion cannot lead to a conclusion that tax has escaped assessment for this would then certainly amount to review of an order which is not permitted unless so specified in a statue. The order dated 14.11.2011 disposing of the Petitioner’s objection to initiation of proceedings under Section 147 of the said Act also proceeds on the view that there has been non application of mind during the original proceedings for assessment. This is unsustainable and as held this court in Asian Paints Ltd. v. Dy. C.I.T. 308 ITR 195 a fresh application of mind by the Assessing officer on the same set of facts amounts to a change of opinion and does not warrant reopening. In fact our court followed the Full Bench decision of the Delhi High Court in the matter of Kelvinator (supra) wherein it has been held as under: “We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under Section 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub section (1)of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a SNC 17 WP 10437-11(final).doc presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own wrong”.
11. One more point very strenuously urged by Mr. Gupta for the Revenue was that the court should not at this stage quash the proceedings as the only obligation of the Revenue is to establish that prima facie material exists to show that income has escaped assessment and the party can thereafter establish in reassessment proceedings that the deductions as allowed in the original assessment proceedings are valid.
12 The issue here is one of jurisdiction to issue notice and not sufficiency of reasons in issuing a notice for reassessment. We are considering the jurisdiction to issue a notice under Section 148 to reopen proceedings. In view of what is stated earlier, we do not find any merit in this contention.”
16. We note that Coordinate Bench of ITAT Ahmedabad in the case of Rahul G. Patel [2018] 97 taxmann.com598 (Ahd.Trib) held that where assessee invests earnest money or advance received on sale of capital assets in specified assets before date of transfer of asset, amount received will qualify for exemption under section 54EC of the Act. The important findings of the Coordinate Bench is reproduced below:
“19. In the next ground of appeal, grievance of the assessee is that the ld.CIT(A) has erred in not granting deduction/exemption under section 54EC of the Act amounting to Rs.50 lakhs.
20. Brief facts of the case are that after agreement to sell the assessee has received sale consideration from the vendee. He has made investment in NHAI bonds and claimed deduction under section 54EC. The ld.AO has observed that such investments were made before the registration of sale deed, and therefore, he is not entitled for the exemption. The issue is, whether investment made from the advance received on sale of capital asst will qualify for grant of exemption under section 50EC or not. Board has issued a circular whereby it has laid down that such assessee would be entitled for exemption. Circular bearing no.359 dated 10.5.1983 reads as under:
CIRCULAR : NO. 359 [F.NO. 207/8/82-IT(A-ll)], DATED 10-5-1983
1. Section 54E provides for exemption of long-term capital gains if the net consideration is invested by the assessee in specified assets within a period of six months after the date of such transfer. A technical interpretation of section 54E could mean that the exemption from tax on capital gains would not be available if part of the consideration is invested prior to the date of execution of the sale deed as the investment cannot be regarded as having been made within a period of six months after the date of transfer.
2. On consideration of the matter in consultation with the Ministry of Law, it is felt that the foregoing interpretation would go against the purpose and spirit of the section. As the section contemplates ITA No.2767/Ahd/2016 investment of the net consideration in specified assets for a minimum period and as earnest money or advance is a part of the sale consideration, the Board have decided that if the assessee invests the earnest money or the advance received in specified assets before the date of transfer of asset, the amount so invested will qualify for exemption under section 54E.
21. Considering the above circular, we allow this ground of appeal and direct the AO to grant exemption under section 54EC of the Act. Ground no.3 is allowed.”
17. Therefore, taking into account the ratio laid down in the above cited precedents, we note that in assessee`s case under consideration, the assessee has received part payment in advance in the financial year 2011-12, and the said part payment so received in advance, was utilized by the assessee in purchasing another agricultural land therefore assessee is entitled to claim exemption under section 54B of the Act. These facts were examined by the assessing officer while making the assessment under section 143(3) of the Act, therefore, assessment framed by the assessing officer should not be erroneous.
18. We are very much conscious of Hon’ble Apex Court’s landmark decision in the case of Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to theinterest of the revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law”.
19. In the conclusion, we are of the view that none of the reasons set out by the ld PCIT for invoking the jurisdiction u/s 263 of the Act are sustainable. The impugned order of theldPCIT has to be quashed for the reason that order of the Assessing Officer sought to be revised in the impugned order was neither erroneous nor prejudicial to the interest of the revenue for the reason of any lack of inquiry that the Assessing Officer ought to have made in the given facts and circumstances of the case. We accordingly quash the order u/s 263 of the Act and allow the appeal of the assessee.”
18. On the other hand, Ld. Departmental Representative (Ld. DR) for the Revenue relied on the findings of Ld. PCIT, in his revision order under section 263 of the Act and prayed the Bench that findings of ld PCIT may be upheld.
19. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. PCIT and other material brought on record. We note that so far first issue is concerned we note that during assessment proceedings, more particularly, for the queries raised by the AO and the compliances to the detailed explanations substantiated with evidences regarding LTCG on transfer of the piece of agriculture land situated at Village: Palanpor, R.S. No. 86/1, 86/2, 86/3, Block No.129, Dist: Surat through various written submissions, as detailed below:
