The case of Rangasamy Rajaram vs ACIT, heard by the Income Tax Appellate Tribunal (ITAT) Chennai, revolves around the validity of the revisionary jurisdiction invoked under Section 263 of the Income Tax Act, 1961. The Principal Commissioner of Income Tax (Pr. CIT) issued an order directing the Assessing Officer (AO) to reexamine the computation of capital gains, specifically addressing the indexed cost of improvement on the building, as it was allegedly not considered during the assessment proceedings. The appellant challenges this revisionary order.
Background and Grounds of Revision: The assessee, in joint ownership, sold a property comprising land, a factory building, and machinery. The AO, during the assessment proceedings, applied the provisions of Section 50C due to a variance between the declared sale consideration and the higher stamp duty valuation, resulting in an addition to the assessee’s income.
The Pr. CIT, upon reviewing the assessment records, identified that the AO did not examine the indexed cost of improvement on the building. The Pr. CIT argued that the indexed cost of improvement, as claimed by the assessee, was not in order and needed further substantiation. Consequently, the Pr. CIT directed the AO to reassess the issue, instructing the assessee to provide additional support for the claimed indexed cost of improvement. Dissatisfied with this directive, the assessee has appealed to the ITAT.
Assessee’s Contention: The appellant contended that the AO had thoroughly analyzed the cost of improvement during the assessment proceedings. The assessee asserted that comprehensive submissions and supporting documents were provided to substantiate the claimed indexed cost of improvement. Despite these submissions, the Pr. CIT maintained that the issue was not adequately considered by the AO, justifying the revision under Section 263.
ITAT’s Observations and Decision: Upon scrutinizing the assessment order, the ITAT noted that the issue of the cost of improvement on the building was not examined or verified by the AO. The AO did not seek submissions from the assessee on this specific aspect, and no application of mind was evident in addressing the indexed cost of improvement.
The sale deed indicated that the right over the building was held by the corporate entity, and joint owners in their individual capacity could not claim the cost of improvement on the building. The failure of the AO to consider and deliberate on this crucial issue rendered the assessment order susceptible to revision under Section 263.
In light of the above observations, the ITAT concluded that the Pr. CIT’s invocation of Section 263 was valid. The ITAT dismissed the appeal, affirming the Pr. CIT’s directive for the AO to revisit the computation of capital gains, specifically addressing the indexed cost of improvement on the building.
Conclusion: The Rangasamy Rajaram vs ACIT case underscores the importance of a thorough examination of all relevant aspects during the assessment proceedings. The failure of the AO to consider and verify the indexed cost of improvement on the building provided a basis for the Pr. CIT to exercise revisionary jurisdiction under Section 263. This case serves as a reminder for assessing officers to meticulously address all aspects of a taxpayer’s submission to ensure the integrity of the assessment order.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
1. By way of this appeal, the assessee assails the invocation of revisionary jurisdiction u/s 263 by Ld. Pr. Commissioner of Income Tax, Coimbatore-1 (Pr. CIT) vide impugned order dated 06-03-2023 in the matter of an assessment framed by Ld. AO u/s.147 r.w.s 144B of the Act on 26-03-2022 making certain additions under the head capital gains.
2. During assessment proceedings, it transpired that the assessee, as a joint holder, sold certain land with factory building and machineries. The land belonged to three directors of corporate entity viz. M/s Sri Ranga Creative Apparels India Pvt. Ltd. whereas the building was held by the corporate entity. The stamp duty valuation of the property was found to be higher. Accordingly, Ld. AO, invoking the provisions of Sec.50C, made certain addition in the hands of the assessee.
3. The Ld. Pr. CIT, upon perusal of case records, observed that the assessee reduced indexed cost of land as well as indexed cost of building while computing capital gains which makes the order erroneous and prejudicial to the interest of the revenue. This issue was not considered by Ld. AO during assessment proceedings. The assessee pleaded that the issue was thoroughly analyzed by Ld. AO making adequate enquiries. The assessee also made submissions and furnished various documents supporting the case of the assessee on cost of improvement of land. However Ld. Pr. CIT maintained that indexed cost of improvement for Rs.233.44 Lacs as claimed was not in order. Accordingly, Ld. AO was directed to redo the assessment on this issue with a direction to the assessee to substantiate its case. Aggrieved, the assessee is in further appeal before us.
4. Upon perusal of assessment order, as well as queries raised during the course of assessment proceedings, it could be seen that issue of cost of improvement on building was nowhere examined and verified by Ld. AO. No submissions were made and there was no application of mind by Ld. AO on this issue. As per sale deed, it is only the corporate entity which is having right over the building. Therefore, such cost could not have been claimed by the joint owners in individual capacity. Non-consideration of impugned issue as flagged by Ld. Pr. CIT certainly makes the order amenable to revision u/s 263. Therefore, we see no reason to interfere in the same.
5. The appeal stand dismissed.
Order pronounced on 01st December, 2023.