Indexed Long-Term Capital Loss from Sale of Government Securities allowable

Peerless General Finance & Investment Company Limited Vs DCIT (ITAT Kolkata)

It is observed that the issue relating to the assessee’s claim for Long-Term Capital Loss arising from the sale of Government Securities by applying the Cost Inflation Index was disallowed by the Assessing Officer in the assessment completed under section 143(3). However, the set off of such loss to the extent of Rs.86,39,024/- and Rs.1,13,02,064/- being the Long-Term Capital Gain from Bonds and Right to property respectively as claimed by the assessee was allowed by the Assessing Officer and keeping in view this error allegedly committed by the Assessing Officer, the ld. Pr. CIT exercising his power conferred upon him under section 263 revised/set aside the order of the Assessing Officer passed under section 143(3) on this issue. As submitted by the ld. Counsel for the assessee before us, the action of the Assessing Officer in disallowing its Long-Term Capital Loss arising from the sale of Government Securities by applying the Cost Inflation Index was challenged by the assessee in the appeal filed before the ld. CIT(A) against the order passed by the Assessing Officer under section 143(3) and the said appeal was disposed of by the ld. CIT(A) vide his appellate order dated 28.02.2019 allowing the claim of the assessee for Long-Term Capital Loss arising from sale of Government Securities by applying Cost Inflation index. Since the said order was passed by the ld. CIT(A) on 28.02.2019, the order of the Assessing Officer under section 143(3) on this issue was already merged with the order of the ld. CIT(A) on 28.02.2019 itself, i.e. before 25.03.2019 when the impugned order under section 263 came to be passed by the ld. Pr. CIT and it was, therefore, beyond the scope of revision under section 263 in terms of Explanation (1)(c) below sub-section (1) of section 263, which clearly provides that where any order referred to in sub-section (1) of section 263 and passed by the Assessing Officer had been the subject matter of any appeal, the powers of the ld. Pr. CIT under section 263 shall extend only to such matters as had not been considered and decided in such appeal. In the present case, the issue relating to the assessee’s claim for Long-Term Capital Loss arising from the sale of Government Securities had already been considered and decided in the appeal filed against the order of the Assessing Officer passed under section 143(3) and it was, therefore, not permissible for the ld. Pr. CIT to revise the order of the Assessing Officer on this issue by exercising his powers under section 263. The order passed by the Assessing Officer under section 143(3) on this issue stood already merged in the appellate order of the ld. CIT(A) and since the claim of the assessee for Long-Term Capital Gain arising from the sale of Government Securities by applying Cost Inflation Index stood already allowed, we find that there was no error in the order of the Assessing Officer in allowing the claim of the assessee for set off of such loss against the Long-Term Capital Gain of Rs.86,39,024/- arising from the sale of Bonds as well as against the Long-Term Capital Gain of Rs.1,13,02,064/- arising from Right to property.

 At the time of hearing before us, the ld. D.R. has alleged that the fact of having passed the appellate order by the ld. CIT(A) on 28.02.2019 disposing of the appeal of the assessee filed against the order of the Assessing Officer under section 143(3) was not brought to the notice of the ld. Principal CIT by the assessee during the course of proceedings under section 263 and the same was intentionally suppressed by the assessee. We are unable to accept this contention of the ld. CIT,D.R. First of all, when the order passed by the ld. CIT(A) on this issue was in favour of the assessee allowing its claim for Long-Term Capital Loss arising from the sale of Government Securities, we find no justifiable reason for the assessee to have suppressed this fact and that too intentionally as alleged by the ld. CIT,D.R. Moreover as clarified by the ld. Counsel for the assessee, notice under section 263 pointing out the error in the order of the Assessing Officer on this issue was issued by the ld. Principal CIT on 20.11.2018 and since the written submission in response to the said notice was filed before the ld. Pr. CIT on 16.01.2019 when the appeal against the order under section 143(3) was pending before the ld. CIT(A) and the order dated 28.02.2019 was yet to be passed by the ld. CIT(A) disposing of the said appeal, the factual position as prevalent then was pointed out by the assessee in the written submission on 16.01.2019. Keeping in view all these facts and circumstances of the case, we find merit in the contention of the ld. Counsel for the assessee that it was the duty of the ld. Pr. CIT to ascertain the actual position of the appeal stated to be filed by the assessee against the order passed by the Assessing Officer under section 143(3) on this issue and had he done that, he would have found that the order passed by the Assessing Officer under section 143(3) on this issue was already merged in the appellate order of the ld. CIT(A) and the claim of the assessee for Long-Term Capital Loss arising from the sale of Government Securities after applying the Cost Inflation Index having been already allowed by the ld. CIT(A), there was no error in the order of the Assessing Officer in allowing the set off of such loss against the Long-Term Capital Gain arising from the Bonds and Right to Property.

It is also pertinent to note here that the claim of the assessee for Long-Term Capital Loss arising from the sale of Government Securities after applying the Cost Inflation Index was disallowed by the Assessing Officer in the order passed under section 143(3) for the year under consideration by relying on the order passed in assessee’s own case on the similar issue for A.Y. 2010-11 under section 143(3) read with section 263 of the Act. As pointed out by the ld. Counsel for the assessee, the said order passed by the Assessing Officer for A.Y. 2010-11 was a subject matter of appeal and the claim of the assessee for Long-Term Capital Loss arising from the sale of Government Securities after applying the Cost Inflation Index was allowed by the Tribunal and following this conclusion drawn in A.Y. 2010-11, the Tribunal has already upheld the appellate order of the ld. CIT(A) dated 28.02.2019 for the year under consideration allowing the similar claim of the assessee. This issue thus stands decided by the Tribunal on merit in assessee’s own case for A.Y. 2010-11 as well as for the year under consideration and we, therefore, do not consider it necessary or expedient to deal with the argument sought to be raised by the ld. CIT, D.R. on merit of this issue. Ground No. 3 of the assessee’s appeal is accordingly allowed.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal filed by the assessee is directed against the order of ld. Principal Commissioner of Income Tax-1, Kolkata dated 25.03.2019 passed under section 263 of the Income Tax Act, 1961.

2. The assessee in the present case is a Non-Banking Finance Company. The return of income for the year under consideration was filed by it on 26.11.2014 declaring total income of Rs.1,25,53,07,990/-. Subsequently a revised return was filed by the assessee on 04.03.2016 The Peerless General Finance & Investment Company Limited declaring the same total income but claiming higher amount of Long-Term Capital Loss of Rs.109.80 crores on transfer of Government Securities. During the course of assessment proceedings, the claim of the assessee for such higher amount of Long Term Capital Loss was examined by the Assessing Officer. On such examination, he found that the higher amount of Long Term Capital Loss on the transfer of Government Securities was claimed by the assessee by applying Cost Inflation Index on the cost of the Government Securities. In this regard, he noted that a similar claim of the assessee for the benefit of indexation was initially allowed by the Assessing Officer in the assessment year 2010-11, but the same was finally disallowed by the Assessing Officer in pursuance of the order passed by the concerned ld. CIT under section 263 of the Act. He also noted that an appeal was filed by the assessee against the order passed by the Assessing Officer under section 143(3) read with section 263 of the Act before the ld. CIT(A), but the same was still pending. Following the stand taken in assessee’s own case for A.Y. 2010-11 on a similar issue, the claim of the assessee for Long-Term Capital Loss on the sale of Government Securities by applying Cost Inflation Index was rejected by the Assessing Officer. He also rejected the claim of the assessee for set off of capital gain arising from sale of building against brought forward Long-Term Capital Loss amounting to Rs.2,79,36,337/- on the ground that the said asset being depreciable asset forming part of the block of assets ‘building’ was Short Term Capital Gain in terms of section 50 of the Act and, therefore, the Long Term Capital Loss could not be set off against the same. The Assessing Officer also made further disallowances under sections 14A and 40(a)(ia) of the Act determining the total income of the assessee at Rs.1,35,48,59,800/- in the assessment completed under section 143(3) of the Act vide an order dated 28.12.2016.

3. The records of the assessment made by the Assessing Officer under section 143(3) of the Act subsequently came to be examined by the ld. Principal CIT. On such examination, he found the following errors in the order passed by the Assessing Officer under section 143(3) of the Act:-

“Long term capital loss (without STT) of Rs.109,80,30,873/- was claimed for the relevant year. This loss was due to transaction in Government Securities and Gold ETF and loss of Rs.111,33,28,388/- was from Government Securities.

The loss of Rs.111,33,28,388/- was assessed as LTCG of Rs.16,17,578/-, the LTCG from Bond being Rs.86,39,024/- and the LTCG from Right to property being Rs.1,13,02,064/- remained unavailable for adjustment against the claimed loss of Rs.111,33,28,388/-. Therefore, LTCG (without STT) for Rs.86,39,024/- and Rs.1,13,02,064/ – should have been taxed @20%. The tax effect would be Rs.39,88,218/- without surcharge and cess.

Indexed long term capital loss of Rs.46,43,572/-was claimed from sale of Gold ETF & was allowed as such in assessment. Even though they were all held for less than 36 months. Gold ETF is a non equity fund and prior to 31.05.2015, and as per sec. 2(42A) 1st proviso, STCG tax is applicable if the units are sold within three years of purchase. Thus the indexed LTCL of Rs.46,43,572/- should actually be STCG of Rs.12,58,271/- from the sale of Gold ETF and taxable@30%. The tax effect would be Rs.3,77,481/- without surcharge and cess.

The assessee held 4 depreciable assets as house property which were sold during relevant year and STCG of Rs.3,16,04,127/- was declared. The stamp duty value of the properties was Rs.9,91,43,740/-, which for the purpose of section 48, shall be deemed to be the full value of the consideration received or accruing as a result of such transfer, as per section 50C. While assessing the STCG from these four properties, the sale value should have been deemed to be Rs.9,91,43,740/-, which would result in STCG of Rs.5,05,46,267/-. This omission had resulted In underassessment of income of Rs.1,89,42,140/- and the tax effect would be Rs.65,67,201/- without surcharge and cess ”.

The ld. Principal CIT accordingly issued a show-cause notice to the assessee on 20.11.2018 pointing out the above errors and seeking explanation as to why the assessment made by the Assessing Officer under section 143(3) of the Act should not be revised by invoking the provisions of section 263. Thereafter another notice was issued by the ld. Principal CIT on 19.02.2019 under section 263 of the Act pointing out the further error allegedly committed by the Assessing Officer in the assessment completed under section 143(3) of the Act as under :-

“During the course of assessment of Return of AY 2015-16 it was found that Right on Property being 37 flats of different configurations, having an approximate total area of 50051 sqft, in a then upcoming housing project named 4 Sight Manor at Kolkata – 700084, was acquired by the assessee upon execution of the Agreement for Sale and MOU on 26.08.2011 and the same Right was transferred to the third party individuals by execution of Tripartite Agreement for Sale in FY 2011-12, 2012-13, 2013-14 and 2014-15. Since the assessee followed a mercantile method of accounting, the full value of sale to the third-party buyers accrued as a receipt to the assessee as and when the Tripartite Agreement for Sale with the 37 third party buyers happened during the FY 2011-12, 2012-13, 2013-14 and 2014-15, in the same manner as the right on the 37 flats were acquired by the assessee on 26.08.2011. Thus business income accrued to the assessee from the sale of “Right” to the 37 buyers on the day of signing of the Tripartite Agreement with the 37 buyers in successive assessment years covering AYs 2012-13, 2013-14, 2014-15 and 2015-16 as per dates given in Annexure 10H filed during the course of assessment of AY 2015­16. During the assessment of AY 2015-16, it was found that the motive of the assessee was always to sell at profit, which was penned in the MOU very clearly. It more looked like a financial transaction having all connotation of business or venture in the nature of trade. The relevant factors and circumstances determined the distinctive character of the transactions in this case as was held by the Apex Court in the case of G. Venkataswami Naidu & Co vs. The Commissioner of Income Tax. The intention of acquiring the flats in the Property was not present in this case from the very beginning and this was evident in the MOU executed at the time of deploying the fund of the assessee in the development activity of the Owner/Developer. It was thus held that profits earned by the assessee by sale of ‘Rights’ on the property was business profit in the regular course of its financial business and other similar ventures.

ii) The assessee failed to offer such income in those years, as found during the assessment of AY 2015-16. Thus there was escapement of business income of Rs.1,52,78,585/- during AY 2014-15, which the assessee failed to disclose truly and fully, as extracted and reproduced below from annexure 10h”.

4. In response to the notices issued by the ld. Principal CIT under section 263 on 20.11.2018 and 19.02.2019, the following written  submissions, inter alia, were made by the assessee in respect of each and every error allegedly pointed out by the ld. Principal CIT in the order of the Assessing Officer passed under section 143(3):-

“Set off of LTCG of Rs.86,39.024/- from Sale of Bonds and LTCG of Rs.11,302,064/- from sale of Right to Property against LTCL of Rs.111,33,28,388!- from sale of Government Securities not permissible  to the assessee.

During the year the assessee has earned Long Term Capital Gains (LTCG) of Rs.86,39,024/- from Sale of Bonds and L TCG of Rs.1,13,02,064/- from sale of Right to Property, totalling to Rs.1,99,41,088/-. The said LTCG of Rs.1,99,41,088/- was set off by the assessee against Long Term Capital Loss of Rs.1,11,33,28,388/- from sale of Government Securities in the current year.

In the notice issued u/s 263 of the Act, your goodself has mentioned that as per the return of income filed by the assessee, indexation benefit on sale of Government securities was taken which resulted in Long Term Capital Loss (LTCL) of Rs.1,11,33,28,388/-. However, indexation benefit should not have been allowed on Government Securities as the same are ‘bonds and debentures’ and instead, gains of Rs.16, 17,578/-, before indexation benefit, should be subjected to tax. The same is tabulated follows:

The LTCL of Rs.1,11,33,28,388/- was not allowed to the assessee in the assessment order passed. However, the assessee was allowed the claim of set off of Long Term Capital Gains (LTCG) of Rs.86,39,024/- from Sale of Bonds and LTCG of Rs.1,13,02,064/- from sale of Right to Property, totalling to Rs.I,99,41,088/- from the said LTCL of 1,13,33,28,388/- in the computation of income forming part of the assessment order. As such, according to you, this has resulted in underassessment of income and less payment of tax.

In this regard, it is first pointed out that against the assessment order passed u/s 143(3) of the Act, the assessee has filed an appeal before the learned CIT(A) and the said appeal is Pending for adjudication.

Here, it is further pointed out that the assessee was disallowed the benefit of indexation in respect of Government Securities on the notion that Cost Inflation Index was not applicable on Government securities in terms of the third proviso to section 48 of the Act as these were bonds and debentures. Third proviso to section 48 read as under:

“Provided also that nothing contained in the second proviso shall apply to the long-term capital gain arising from the transfer of a long-term capital asset, being a bond or debenture other than-

(a) capital indexed bonds issued by the Government; or

(b) Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015:”

Here, it is of utmost relevance to discuss the meaning of ‘Government Security’ The term “Government security” has been defined under Explanation (b) to section 194LD(2) of the Income Tax Act, 1961 as follows:

Government security” shall have the meaning assigned 10 it in clause (b) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)

As per Section 2(b) of the Securities Contracts (Regulation) Act, 1956 “Government security” means a security created and issued, whether before or after the commencement of this Act, by the Central Government or a State Government for the purpose of raising a public loan and having one of the forms specified in clause (2) of section 2 of the Public Debt Act, 1944 (18 of 1944);

Further, section 2(2) of the Public Debt Act, 1944 defines “Government security” as follows: ” Government security” means-

(a) a security, created and issued, I by the Government] for the purpose of raising a public loan, and having one of the following forms, namely:-

(i) stock transferable by registration in the books of the Bank; or

(ii) a promissory note payable to order: or

(iii) a bearer bond payable to bearer; or

(iv) a form prescribed in this behalf;

(b) any other security created and issued by the Government] in such form and for such of the purposes of this Act as may be prescribed;

The Government securities which were sold during the year were stocks being of the nature described in clause (i) to section 2(a) of the Public Debt Act, 1944.

The third proviso to section 48 of the Act restricts the indexation in the case of long term capital assets, being bonds or debentures other than Capital Indexed Bonds issued by the Government. The term debenture has been defined in section 2(30) of the Companies Act’2013 which reads as under:

“debenture” includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not;

On a combined reading of the above sections, it emerges that Government Securities are not bonds or debentures and are therefore not covered by proviso 3 to section 48 of the Act and therefore the assessee has rightly claimed the benefit of indexation on sale of Government securities”.

“Sale of Gold ETFs to be taxed as STCG and not LTCG

In the present case, since the Gold ETFs were held for a period of less than 3 years, the gains from sale of Gold ETFs would be considered as STCG. Accordingly, the said gains of Rs.12,58,271/- would be taxable as STCG @ 30% and not L TCG. This error in the assessment order is accepted.

Stamp Duty value should have been-considered as full value of consideration for sale of house property for the purpose of section 48  of the Act.

In the present case, the assessee had sold 4 depreciable assets/f1ats during the year belonging to the same Block of Assets – Building. The opening WDV of the said Block was Rs.1,33,21,798/-. The sale consideration received from these 4 properties was more than the Opening WDV of the Block and the additions made during the year in the Block. As such, the closing WDV of the block was reduced to Nil. The computation of STCG from sale of these 4 properties is tabulated below:

Computation of capital gains taking actual sale consideration received

The relevant extract from the Tax Audit Report, ‘Calculation of Depreciation under the Income Tax Act’ is enclosed at page 4.

In continuation to the above, please note that out of these 4 flats sold during the year, 3 flats were held for a period of less than36 months and 1 flat was held for a period exceeding 36 months.

Details of 3 flats held for less than 3 years is as follows:-

As evident from the above table, the assessee in computation of capital gains from sale of the above three properties has considered the Stamp Duty Valuation u/s 50C of the Act as the sale consideration to arrive at the STCG of Rs.36,67,790/-. The said short term capital gains of Rs.36,67,790/-was offered for taxation in the computation of total income.

With regard to the 4th property, being flat at 5, Lala Lajpat Rai Sarani, it was submitted during assessment that the said flat was acquired in the year 1989 and was therefore a Long Term Capital Asset by virtue of section 2(29A) of the Act. In support, reliance was placed on the judgment of the Hon’ble Bombay Hlgh Court in the case of CIT vs Ace Builders reported in 281 ITR 210 (copy enclosed at page 5-12) where it was held that-

Held, dismissing the appeal, that there was nothing in section 50 to suggest that the fiction created in section 50 is not only applicable to sections 48 and 49 but also applies to other provisions. On the contrary, this section makes it explicitly clear that the deeming fiction created in sub-sections (1) and (2) is restricted only to the mode of computation of capital gains contained in sections 48 and 49. The legal fiction is to deem the capital gain as short-term capital gain and not to deem the asset as short-term capital asset. Section 50 did not convert a long-term capital asset into a short-term capital asset. Though section 50 was enacted with the object of denying multiple benefits to owners of depreciable assets, yet that restriction was limited to the computation of capital gains and not the exemption provisions. Thus, the exemption under section 54E could not be denied to the assessee on account of the fiction created in section 50.

The above decision was affirmed by the Hon’ble Supreme Court in the case of CIT –vs.- V.S. Dempo Company Ltd. (Civil Appeal No(s). 4797/2008) pronounced on 05-09-2016 (copy enclosed)

In the original computation filed by the assessee along with the return of income, the Capital Gains from sale of the 4th property at Lala Lajpat Rai Sarani was computed as follows:

Short Term Capital Gains (refer Table I) = Rs.3,16,04, 127/-

Less: STCG on sale of 3 properties (refer Table 2) = Rs.36,67.790/-

Therefore STCG on the sale of the 4th property = Rs.2,79,36,337/-

Set off with LTCL of the current year = Rs.2,79,36,337/- Net Taxable NIL

In the original computation, the sale consideration of Rs.8,02,01,600/-actually received by the assessee was taken in consideration. On the 3 properties which were held for less than 3 years, the assessee computed STCG of Rs.36,67,790/- taking into consideration the stamp duty value and on the 4th property which was held for more than 3 years, STCG was computed at Rs.2,79,36,337/- as explained above. Since the 4th property at Lala Lajpat Rai Sarani was held for a period of more than 3 years, the said flat was therefore a Long Term Capital Asset by virtue of section 2(29A) of the Act. In support, reliance was placed on the judgment of the Hon’ble Bombay High Court in the case of CIT vs Ace Builder (supra). The resultant STCG of Rs.2,9,36.337/- was set off with LTCL of the current year. A copy of the original computation is enclosed at page 2-3. However the same was not allowed in the assessment order on the pretext that STCG from sale of the depreciable assets cannot be set off with the Long Term Capital Loss. The assessee has tiled an appeal before the learned CIT(A) against this disallowance and the same is pending for adjudication.

In the notice issued u/s 263 of the Act, your goodself has raised the ground that the assessee has not considered the Stamp Duty Valuation of Rs.9,91,43,740/- in computation of STCG in this case which has resulted in underassessment of income of Rs. 1,89,42,140/- which has rendered the assessment order as erroneous.

In this regard, please note that during assessment, it was submitted before the learned AO that immediately before the sale, the property was valued by M/s N K Chakravarty and Co,registered valuer at a value of Rs.5,84,00,000/-. A copy of the Valuation report is enclosed at page 19-20. The said flat didn’t had a car parking space and also there was no scope of getting a high voltage electric connection. As such, it was very difficult to g4t buyers who would have paid such a high price for the said flat at par with the stamp duty valuation. In the assessment stage, it was therefore requested before the AO to consider the actual sale consideration of Rs.7,00,80,000/- received by the assessee which was more than the FMV of the property. Further it was also requested that in case the assesse’s contention is not accepted, then reference may be made to the DVO u/s 50C(2) of the Act. A copy of the submissions made before the AO dated 23.12.2016 is enclosed at page 18-20. However, no such reference was made by the AO to the DVO and on being satisfied with the submissions of the assessee, the sale consideration of Rs.7,00,80,000/- actually received was considered in computation of capital gains in the assessment order. As evident, detailed enquiries were made by the ld. QAO in this regard and the same was duly replied to by the assessee.

At this juncture, please note that vide Finance Act, 2015 w.e.f 01-06-2015 a new explanation Explanation 2′ was added to section 263 of the Act which reads’ as follows:

Explanation 2. – For the purposes of this section, it is hereby declared that an order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interests of the Revenue, if, in the opinion of the Principal Commissioner or Commissioner.:

(a) the order is passed without making inquiries or verification which should have been made;

(b) the order is passed allowing any relief without inquiring into the claim;

C) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or

(d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. “.

In simple words, following orders passed by assessing officer shall now be considered as erroneous and prejudicial to the interest of revenue w.e.f 01.06.2015, where AO passed order:-

1) without making any inquiries/verification which he/she is required to be made.

2) without making inquiry into a claim which is claimed by assessee and allowed such claim.

3) which is not in accordance with any order/direction/instruction (i.e. circulars) issued by CBDT;

4) which is not in accordance with any decision of jurisdictional High Court or Supreme Court which is prejudicial to the assessee or any other person. In other words, where jurisdictional High Court or Supreme Court’s decision is against the assessee or any other person and AO passed the order without considering such judgment then such order shall be considered as erroneous and prejudicial to the interest of revenue.

Applying this explanation to the facts of the assessee, it is clear that proper enquiries were conducted by the learned AO with regard to the sale of depreciable assets/flats. The assessee has filed written submissions before the learned AO explaining the reasons as to why the stamp duty valuation should not be considered for computing the Capital Gains with regard to the 4t^h property during the course of assessment and the same was duly considered by the ld. AO. As such, the assessment order cannot be said to be erroneous in this case.

Your goodself noted that the assessee has acquired a Right on property, being 37 flats upon execution of the agreement for sale and MOU on 26-08­2011 and the same right was transferred to the third party individuals by execution of tripartite agreement for sale in FY 2011-12, 2012-13, 2013-14 and 2014-15. As the assessee follows mercantile system of accounting your goodself opined that business income accrued to the assessee from the sale of ‘Right’ to the 37 buyers on the day of signing the tripartite agreement. During the course of assessment of AY 2015-16, the learned AO alleged that the motive of the assessee was to sell at profit which was penned down in the MOU and therefore held that profits earned by the assessee by sale of Rights were business profits in the regular course of business transactions and not ‘Capital Gains’ 0 Since the assessee failed to offer an income of Rs.1 52,78,585/- arising from sale of right to property in AY 2014-15, according to you, the assessment order is erroneous and  prejudicial to the interest of the revenue.

In this regard, the assessee humbly submits that the assessee is a Residuary Non-banking Financial Company and operates under the registration from RBI. The main business of the assessee is from interest income earned on loans and advances given as per the RBI guidelines.

The assessee also invests in real estate wherein it enters into agreements for sale with developers for acquisition of rights in a definite number of flats. In this regard, further note that the assessee entered into an ‘Agreement for purchase’ on 26.08.2011 by contracting with M/s City star Housing Project Pvt. Ltd. (Owner/Developer) for purchase of 37 flats of different configurations having approximate total area of 50051 sq.ft. in an upcoming housing project to be constructed by the developer. The assessee had paid the entire purchase consideration of Rs.12.57,82,542/-on 30.08.2011 out of its own funds to the owner/developer and thus acquired a right on the said property w.e. f. 26.08.2011. By virtue of the said’ Agreement for sale’, the assessee only acquired a right in those 37 fiats being constructed by M/s City star Housing Project Pvt. Ltd. The said investment in Right to Property was a capital asset and was shown in the Audited Accounts as Investment in Right to Property’ under the head ‘Investments – Current and Non-current investments’, refer Note II of the audited accounts. The investment in Right to Property was never considered as ‘stock in trade’ by the assessee. The assessee declared a total receipt of Rs.16,10,57,288/- in the assessment year 2015-16 as sale consideration of the property, being 37 flats. The last date of payment in all the 37 cases was 18-02-2015. Rights over the said 37 flats were transferred after more than three years from the date of its acquisition to respective individuals at a total consideration of Rs.16,10,57 ,288/- after receipt of the final instalment of sale consideration on 18.02.2015. Accordingly, the appellant considered the indexed cost of acquisition of the right of respective 37 flats as per provisions of sec. 48 r. w.s. 2( 14), 2(29A) and 2(47) of the Act and computed long term capital loss on transfer of the said rights at Rs.36,60,000/- in AY 2015-16.

The said investment being a capital asset and disclosed as such in the audited accounts of the company was duly disclosed before the department in AY 2012-13, 2013-14 and 2014-15 and assessments for all these years were completed after proper examination and scrutiny of the books of accounts u/s 143(3) of the Act. In the present case, the assessee entered into a ‘Tripartite Agreement for sale’ with respect to these 37 flats in AY 2012-13, 2013-14, 2014-15 an 2015-16 and received the sale consideration from the buyers on different dates as per the terms and conditions of the agreement entered into with the respective parties. The Rights over these said 37 flats were transferred at a total consideration of Rs.16, I 0,57,288/- after receipt of the final instalment of sale consideration on 18.02.2015, i.e. AY 2015-16. The assessee entered into’ Deed of Conveyance’ or the ‘Sale Deed’ after receiving the full payment of the property and the ownership of the property was then transferred in the name of the buyer. Since the last payment was received in AY 2015-16, the income from the sale of these 37 flats arose in AY 2015-16. Here, it is also pertinent to mention that there is a specific clause in the “Tripartite Agreement for Sale’ that the sale would be complete and the sale deed will be executed in favour of the buyers only on receiving the full payment of the property. Further note that the said investment in Right to Property was never converted into ‘Stock In Trade’ by the assessee in any of the years. The same is evident from the audited accounts of the Company for the year 2011-12, 2012-13, 2013-14 and 2014-15 enclosed with the Paper Book. More so, Section 45(2) of Income Tax Act deals with the cases where a capital asset is converted into stock in trade. Whenever a capital asset is converted into stock in trade by an assessee it is deemed as transfer of capital asset and attracts capital gain provisions, in spite of the fact that the ownership of such capital asset doesn’t change by such conversion. As such, it is a trite law that sale/transfer/conversion of a Capital Asset would automatically result in Capital Gain u/s 45 of the Act and the income from such sale cannot be treated as Business Income. Inspite of the aforesaid legal position, the learned AO in the assessment for AY 2015-16 disallowed the claim of long term indexed capital loss of Rs.36,60,000/-from sale of Rights claimed by the assessee and treated the profits on such sale as business profits. Aggrieved with the assessment order, the assessee went in appeal before the learned CLT(A) on this issue. The learned CLT(A) perused and examined the facts of the case and accepted the claim of the assessee that the impugned transactions is to be treated as Capital Gains and directed the learned AO to assess the income from the sale of Rights to Property under the head ‘Capital Gains’ The relevant extract of the CITCA) order is reproduced below:

“12. In this case 37 flats were purchased of different configuration. This was validated by an agreement. The approximate total area was 50051 sq. ft. Assessee purchased entire purchase consideration.clt was reflected in the Audited Accounts as wall. It was shown as investment.

Assessee declared total receipt of Rs. 16,10,57,228/- as sale consideration. The last date of payment in all 37 cases/flats was 18.02.2015. This was after 3 years. This position was accepted in earlier years.

Thus following the decision in Radha Soami Satsang. I have no option but to go by the decision: Radha Soami Satsang on the principles of consistency. Reliance is also placed on the decision of Calcutta ITAT in the case of DCIT vs. M/s. ABCI Infrastructure Pvt. Ltd. (ITA No. 990/Kolkata/ 2013). “

In light of the aforesaid facts, let us now examine the provisions of section 263 of the Act and the show cause notice issued by your goodself.

Here, it is relevant to quote section 263 of the Act.

263. Revision of orders prejudicial to revenue. – .

(j) The Commissioner may call for and examine the record of any proceeding 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 interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing afresh assessment.

Explanation-I — For the removal of doubts, it is hereby declared that, for the purpose of this sub- section,-

(a) ….

(b) ….

(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988J, the powers of the/Principal Commissioner or Commissioner under this sub-section shall extend land shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. “

Clause (c) of Explanation 1 clearly states that Revision under section 263 of the Act is not permissible on issues already considered by CIT(A) in appeal since the assessment order merges with the appellate order and the power of the CIT to invoke his revisional jurisdiction under section 263 of the ACI cannot extend to such matters which have been considered and decided in the appeal. Once the issue has been considered and decided by the CIT(A), the remedy of the Revenue cannot lie in the invocation of the jurisdiction under section 263 of the Act.

To buttress the contention of the assessee reliance is placed on the judgment of the Hon ‘ble Bombay High Court in the case of Ranka Jewellers Vs. Additional Commissioner Of Income Tax (2010) 328 ITR 0148 (Bombay HC) wherein it was held that,

Revision-Merger with appellate order-Issue considered and decided by CIT(A)-Where any order passed by the AO has been made a subject-matter of any appeal, the powers of the CIT under s. 261 shall extend to such matters only as had not been considered and decided in the appeal- CIT(A) had considered and decided the issue- once the issue was considered and decided by the CIT(A), the remedy of the Revenue cannot lie in the invocation of the jurisdiction under s. 263-Revisional order passed by the CIT under s. 263 was not valid “where an order passed by the AO is subject to an appeal that has been filed, the power of the CIT to invoke his revisional jurisdiction under s. 263 can only extend to such matters which have lit” been considered and decided in the appeal. The words which have been used in Expln. (c) to iub-s. (1) of s. 263 are “considered and decided”. In other words, it is not merely a consideration that disables, but tile matter has to be considered and decided in the appeal. The submission of counsel appearing on behalf oJ the Revenue that the CfT(A) has not decided the issue, while dealing with the question oJ enhancement, cannot be accepted. The submission which has been urged on behalf of the Revenue is that the CIT(A) was requested to exercise his power of enhancement in pursuance of the request made by the Addl. CIT on 20th May, 2005 and that the request which was made was to carry out an estimation of the initial investment for the first year of the block period. Now, the power of the CIT(A) is structured by the provisions of s. 251. Sec. 251 inter alia provides that in disposing of an appeal the CIT(A) shall have the power in an appeal against an order of assessment to confirm, reduce, enhance or annul the assessment. Consequently, when a request for enhancement was made to the CIT(A), he had the jurisdiction, in terms of s. 251, to confirm, reduce, enhance or annul the assessment. A reading of the order passed by the CIT(A), particularly para 16.5 of the order, would lead to the conclusion that the CIT(A) had considered and decided the issue. Once the issue was considered and decided by the CIT(A), the remedy of the Revenue cannot lie in the invocation of the jurisdiction under s. 263”.

5. In support of the submissions made before the ld. Pr. CIT as above, reliance was placed on behalf of the assessee on the various judicial pronouncements. The ld. Pr. CIT did not find merit in the said submissions and proceeded to set aside the order of the Assessing Officer dated 28.12.2016 passed under section 143(3) for the year under consideration with a direction to the Assessing Officer to pass the fresh assessment order as per law and after giving an opportunity of being heard to the assessee for the following reason given in paragraph no. 6 to 11 of his order dated 25.03.2019 passed under section 263:-

“6. I have considered the facts of the case and submissions of the assessee. These observations were raised in the show cause notice, which is discussed hereunder:-

(i) Long term capital gain(without STT):-

The assessee claimed long term capital loss (without STT) of Rs.109,80,30,8 73/-on account of loss suffered from government securities(Rs. 111,33,28,388/-), Gold ETF(Long term) (Rs. 46,43,572/-). However the AO did not allow the claim of indexation on sale of the government securities, which therefore resulted in LTCG of Rs.16,17,578/-and which was allowed to be set off fully against the brought forward LTCL. Consequently, the set off of LTCG from Bonds(Rs.86,39,024/-) and profit on sale of right to property(Rs.1,13,02,064/-) was no longer possible. Furthermore, the gold ETF were observed to have been held for less than three years(period of holding found to be between 391 to 522 days). In other words, the sale of gold ETF would be STCG instead of LTCG and as a result the indexation benefit would not be available. In this way, the under-assessment was found to be to the tune of Rs. 2,11,99,359/- as follows:  

In this connection, the assessee has pointed out that the issue at hand was before the CIT(A). Needless to say, it is trite law that the PCIT can exercise revisionary proceedings on a matter which is still pending before CIT(A) for adjudication. The assessee further proceeds to explain how ‘government securities are not “bonds or debentures’ to support its claim of indexation benefit. These are mere assertions. Further without prejudice, assessee claims to have earlier years LTCL brought forward of Rs. 3,50,28,74,344/-. Be that as it may, the Aa should ascertain this claim of the assessee. As for the LTCL claimed by the assessee, the same requires to be calculated afresh in the light of the aforesaid discussion.

(ii) GOLD ETF:- The assessee had claimed indexed LTCL to the tune of Rs.46,43,572/- from sale of gold ETF which was allowed in the impugned order. However, the details filed by assessee during assessment proceedings showed the holdings for less than 36 months. Gold ETF is a non-equity fund and prior to 31.03.2015, and as per sec. 2(42A) 1st proviso, STCG tax was applicable if sold within three years of purchase. Thus, the indexed LTCG of Rs. 46,43,572/ – should actually be STCG of Rs. 12,58,271/- from sale of Gold ETF. In his

(iii) Applicability of sec. 50C read with sec. 48 of the IT Act on the property transaction:-

The assessee had sold four depreciable properties during the year on which STCG of Rs. 3,16,04,127/- was declared and allowed by the AO. However, the copy of sale deed of four properties available in the assessment folder , the total stamp duty valuation of the properties as assessed by the stamp valuation authority was Rs. 9,91,43,740/-. This was to be the deemed full value for purpose of sec. 48 , as against Rs.8,02,01,600/ – declared by the assessee, thereby attracting the provisions of sec.50c. The assessee had also claimed depreciation and was allowed as such.

To elucidate, except for Flat 2A at Kalna, the stamp duty valuation of the other three properties were more than the sale consideration. Thus, ensuing STCG should have been determined at Rs. 5,05,46,267/- instead of Rs. 3,16,04,127/ – as claimed by assessee.

Assessee has vehemently disagreed to the above observations. The fact of the matter is the aforesaid details have been obtained from the copies of sale deeds filed by assessee in the course of assessment and which was not looked into by the AO before disposing. Clearly the AO has passed an order without applying his mind on the facts emanating from documents on records which were filed by assessee. Mechanical claim if assessee without the AO exercise his statutory duties to pass an assessment in accordance with law on the facts of each case has therefore resulted in an erroneous assessment as well as one prejudicial to the interest of revenue.

7. Now coming to the issue raised in the second show cause, it needs to be stated that there is no dispute on the facts of the case. The dispute is on the treatment of the income from sale of “Right to Property’ which had treated as capital gains. Main business of assessee is NBFC and had also forayed into real estate. On 26.08.2011, an ‘agreement for purchase was entered by contracting developer M/s City star Housing Project Pvt. Lt. For purchase of 37 flats. The entire consideration of Rs. 12,57,82,542/- was paid on 30.08.2011 thereby acquiring a right on the 37 flats. This investment was claimed as a capital asset and shown in the audited accounts as ‘Investment in Right to Property’ ur.cer the head ‘Investment – current and non-current.” During this year under consideration, these 37 flats were sold as per tri-partite agreement and the total receipt of Rs.16,10,57,288/- thereon was indexed resulting is long term capital loss of Rs.36,60,000/-. The assessee has contended that the right over the flats were transferred a.ter more than three year from date of its acquisition to respective individuals after receipt of the final sale consideration on 18.07.2015. It was also stated that the said investment in ‘Right to Property’ was never converted into stock-in-trade in any of the years. That this conversion now of its capital asset into stock-in-trade is deemed as transfer of capital asset attracting the provision of Sec.45(2).

Few questions arises. The MoU with the developer was signed on 26.08.201l. However, the assessee has not provided the dates on which the various TRIPARTITE agreements with the buyers were signed, by virtue of which the ‘Right’ to the properties were transferred. In other words, the income would have accrued to the assessee as and when a buyer signed the TRIPARTITE Agreement. However, assessee has stated that a clause in the agreement provided for the conveyance of the Deeds when the last of the flats were sold. Why?? The assessee has only purchased the ‘Right’ as emphasised; there was no intention of holding on to it as an investment as apparent from the MoU. Furthermore what were the compelling circumstances to convert the so called investment as stock-in-trade after three years? Thus it is very evident from the conduct of the assessee that the purchase of ‘Right’ had been made with the sole intention of revision as “investment” in the accounts in relevant years is not a clinching factor. The distinction whether an investment transaction is a mere realisation of the investment on an act done for making profits depends on whether the excess was enhancement of the value by realising a security or a gain in an operation of profit making. Here, the nature of transactions raises a very strong presumption towards acceptable business characters. In other words, the substantial nature of transaction clearly reveal that the venture engaged in by the assessee is clearly in the nature of trade.

In its submission, assessee has stated that the CIT(A) having already considered the issue, it could not be taken up for revision u/s 263. It would seem from the submission that the appellate order referred to is for A.Y. 2015-16. However, neither copy of the appeal order nor the grounds raised in Form No.35 have been provided. On a perusal of the impugned assessment records for A.Y. 2014-15, it is seen that the issue at hand was never examined by the AO. Needless to say, a finding or an opinion recorded by a tax authority for one assessment year has no binding effect on the issues in other assessment years. In this case at hand, it is evident that the issue relates to A.Y. 2014-15 as per discussion on the factual matrix. The AO was required to delve into the nature of the transaction by scratching the surface.

6. Hon’ble Delhi High Court in the case of GEE VEE Enterprise vs. Addl.CIT reported in 99 ITR 375, 386 (Del) has held that the CIT may consider the order of the Assessing Officer to be erroneous not only if it contain some apparent error of reasoning or of law or of fact on the face of it but also because the Assessing Officer has failed to make enquiries which are called for in the circumstances of the case and it is an order which simply accepted what the assessee has stated in his return of income on the said issue. It is not necessary for the CIT to make further enquiries before cancelling the assessment order. The Commissioner can regard the order erroneous on the ground that the Assessing Officer should have made further enquiries.

7. Hon ‘ble Karnataka High Court in the case of Thalibai F. Jain vs. ITO 101 ITR 1, 6 (Karn) has held that where no enquiries made by the Assessing Officer on the relevant issue, assessment must be held to be prejudicial to the interests of the revenue and what is prejudicial to the interest of the revenue must be held to be erroneous though the converse may not always be true.

8. Hon’ble Supreme Court in the case of Malabar Industrial Co. Pvt. Ltd vs. CIT reported in (2000) 243 ITR 83, 87-88(SC) affirming the Hon’ble Kerala High Court decision (198 ITR 611) has held that the phrase “Prejudicial to the Interests of the Revenue” is of wide import and is not confined to only loss of taxes. If the A.O. has accepted the claim of the assessee without any enquiries then such assessment order passed by the A.O. was held to be erroneous.

9. In this regard it is mentioned that mere non enquiry would also render a particular order passed by lower authority as erroneous and prejudicial to the interests of Revenue. This position has been clearly confirmed by Hon ‘ble Supreme Court in the case of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 & Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). The reasoning for this proposition has been explained by Hon’ble Delhi High Court in the case of Gee Vee Enterprise v. Addl. CIT [1975] 99 ITR 375 in the following para :-

“It is not necessary for the Commissioner to make further inquiries before cancelling 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 junction of the Income-tax Officer is very different from that of civil court. The statements made in the 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 come before it. The Income-tax Officer is not only an adjudicator but also an investigator, He cannot remain passive in the face of a 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 Income-tax Officer to further investigate the facts stated in the return when circumstances would make 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 be made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.”

10. Further to this it is noticed that there is no appeal right available to the Revenue from the order of assessment passed by Assessing Officer and i.e. why revisionary powers have been given to the Commissioner and such power were held to be of wide amplitude by the Hon’ble Supreme Court in the case of CIT v. Shree Manjunathesware Packing Products & Camphor Works [1998] 231 ITR 53/96 Taxman 1. Therefore, normally when Assessing Officer has not made any enquiry on a particular issue, then such order in view of the above detailed discussion has to be construed as erroneous and prejudicial to the interest of Revenue and therefore, the impugned assessment order is erroneous and prejudicial to the interest of Revenue as Assessing Officer has failed to make any enquiry.

11. Having regard to the facts and circumstances of the case and in the light of the aforesaid decisions of Hon’ble Supreme Court and Hon’ble High Court, and in accordance with the amendment made in Section-263 of the Act with effect from 01.06.2015, I hold that the impugned assessment order dated 28.12.2016 passed by the A.O. is erroneous in so far as it is prejudicial to the interests of the revenue. I further hold, after giving the assessee an opportunity of being heard, that the impugned assessment order dated 28.12.2016 is liable to set-aside. Therefore, I set aside the said assessment order directing the A.O. to frame the assessment afresh after considering the aforesaid observations, Hon’ble Supreme Court and Hon’ble High Court decisions and as per law”.

6. Aggrieved by the order of the ld. Pr. CIT passed under section 263, the assessee is in appeal before the Tribunal on the following grounds:-

“ (1) That on the facts and in the circumstances of the case, the learned Pr. CIT erred in passing the impugned order dated 25.03.2019 u/s. 263 of the Income-tax Act, 1961 without satisfying the necessary preconditions for invoking the provisions of the said section.

(2) That, the order of the Ld. Pr. CIT u/s.263 directing the A.O. to pass a fresh assessment order as per directions contained therein is against the settled law by various judicial pronouncements on the issue in as much as there is no incidence that tax lawfully exigible has not been imposed or a lesser tax has been imposed.

(3) That, the Ld. Pr. ClT has wrongly assumed jurisdiction u/s.263 of the Act for setting aside the original assessment order with regard to set off of Long Term Capital Gains from sale of bonds and Long Term Capital Gains from sale of Right to Property against Long Term Capital Loss claimed by the assessee on sale of Government securities.

(4) That, the Ld. Pr.CIT has wrongly assumed jurisdiction u/s.263 of the Act for setting aside the original assessment order with regard to applicability of section 50C read with section 48 of the IT Act on sale of depreciable property.

(5) That, the Ld. Pr.CIT has wrongly assumed jurisdiction uls.263 of the Act for setting aside the original assessment order with regard to treatment of the income from sale of right to property under the head ‘Profits from Business’ in spite of the fact that the said income is assessable under the head ‘Capital Gains’ as held by the learned CIT(A) in his order dated 04-03-2019 for AY 2015-16 on identical facts of the case.

(6) That, the Ld. Pr.CIT has wrongly assumed jurisdiction u/s.263 of the Act for setting aside the original assessment order on the pretext The Peerless General Finance & Investment Company Limited that the AO has passed the assessment order without making proper enquiries which he should have made.

(7) That, as the order of Ld. Pr. CIT on the above issues suffers from jurisdiction, illegality and is devoid of any merit, the same should be quashed and your appellant be given such relief(s) as prayed for”.

7. As submitted by the ld. Counsel for the assessee, Grounds No. 1, 2, 6, 7 & 8 raised by the assessee in this appeal are general in nature, which do not call for any specific adjudication.

8. As far as the issue involved in Ground No. 3 relating to the assessee’s claim for set off of Long-Term Capital Gain from sale of Bonds and right to property against Long Term Capital Loss on sale of Government Securities, the ld. Counsel for the assessee submitted that even though the Long term Capital Loss on sale of Government Securities as claimed by the assessee after applying Cost Inflation Index was disallowed by the Assessing Officer in the assessment completed under section 143(3) vide an order dated 28.12.2016, the ld. CIT(A) while disposing of the appeal filed by the assessee against the order of the Assessing Officer under section 143(3) allowed the Long-Term Capital Loss on transfer of Government Securities as claimed by the assessee by applying the Cost Inflation Index. He contended that since the said order was passed by the ld. CIT(A) on 28.02.2019, i.e. before 25.03.2019 when the impugned order was passed by the ld. Pr. CIT under section 263, this issue had already been considered and decided in the appeal by the ld. CIT(A) and it was beyond the scope of revisionary order passed by the ld. Pr. CIT under section 263 as per Explanation 1(c) below sub-section (1) of section 263.

9. The ld. CIT,D.R., on the other hand, invited our attention to the relevant portion of the impugned order passed by the ld. Pr. CIT under section 263 to show that even though the appeal against the order passed by the Assessing Officer under section 143(3) was stated to be pending before the ld. CIT(A) by the assessee, the fact that the appellate order disposing of the said appeal allowing the claim of the assessee for Long-Term Capital Loss arising from the sale of Government Securities was not brought to the notice of the ld. Pr. CIT by the assessee. He submitted that this factual position was intentionally suppressed by the assessee in order to mislead the ld. Pr. CIT or otherwise the ld. Pr. CIT would have passed an appropriate order taking cognizance of the said appellate order passed by the ld. CIT(A). The ld. CIT, D.R. also raised further contentions in support of the impugned order of the ld. Pr. CIT passed under section 263 on this issue by submitting that the claim of the assessee for Long-Term Capital Loss on sale of Government Securities by applying Cost Inflation Index is wrong on merit in view of the Amendments made in the Government Securities Act.

10. We have considered the submissions made by the ld. Representatives of both the sides and also perused the relevant material available on record. It is observed that the issue relating to the assessee’s claim for Long-Term Capital Loss arising from the sale of Government Securities by applying the Cost Inflation Index was disallowed by the Assessing Officer in the assessment completed under section 143(3). However, the set off of such loss to the extent of Rs.86,39,024/- and Rs.1,13,02,064/- being the Long-Term Capital Gain from Bonds and Right to property respectively as claimed by the assessee was allowed by the Assessing Officer and keeping in view this error allegedly committed by the Assessing Officer, the ld. Pr. CIT exercising his power conferred upon him under section 263 revised/set aside the order of the Assessing Officer passed under section 143(3) on this issue. As submitted by the ld. Counsel for the assessee before us, the action of the Assessing Officer in disallowing its Long-Term Capital Loss arising from the sale of Government Securities by applying the Cost Inflation Index was challenged by the assessee in the appeal filed before the ld. CIT(A) against the order passed by the Assessing Officer under section 143(3) and the said appeal was disposed of by the ld. CIT(A) vide his appellate order dated 28.02.2019 allowing the claim of the assessee for Long-Term Capital Loss arising from sale of Government Securities by applying Cost Inflation index. Since the said order was passed by the ld. CIT(A) on 28.02.2019, the order of the Assessing Officer under section 143(3) on this issue was already merged with the order of the ld. CIT(A) on 28.02.2019 itself, i.e. before 25.03.2019 when the impugned order under section 263 came to be passed by the ld. Pr. CIT and it was, therefore, beyond the scope of revision under section 263 in terms of Explanation (1)(c) below sub-section (1) of section 263, which clearly provides that where any order referred to in sub-section (1) of section 263 and passed by the Assessing Officer had been the subject matter of any appeal, the powers of the ld. Pr. CIT under section 263 shall extend only to such matters as had not been considered and decided in such appeal. In the present case, the issue relating to the assessee’s claim for Long-Term Capital Loss arising from the sale of Government Securities had already been considered and decided in the appeal filed against the order of the Assessing Officer passed under section 143(3) and it was, therefore, not permissible for the ld. Pr. CIT to revise the order of the Assessing Officer on this issue by exercising his powers under section 263. The order passed by the Assessing Officer under section 143(3) on this issue stood already merged in the appellate order of the ld. CIT(A) and since the claim of the assessee for Long-Term Capital Gain arising from the sale of Government Securities by applying Cost Inflation Index stood already allowed, we find that there was no error in the order of the Assessing Officer in allowing the claim of the assessee for set off of such loss against the Long-Term Capital Gain of Rs.86,39,024/- arising from the sale of Bonds as well as against the Long-Term Capital Gain of Rs.1,13,02,064/- arising from Right to property.

11. At the time of hearing before us, the ld. D.R. has alleged that the fact of having passed the appellate order by the ld. CIT(A) on 28.02.2019 disposing of the appeal of the assessee filed against the order of the Assessing Officer under section 143(3) was not brought to the notice of the ld. Principal CIT by the assessee during the course of proceedings under section 263 and the same was intentionally suppressed by the assessee. We are unable to accept this contention of the ld. CIT,D.R. First of all, when the order passed by the ld. CIT(A) on this issue was in favour of the assessee allowing its claim for Long-Term Capital Loss arising from the sale of Government Securities, we find no justifiable reason for the assessee to have suppressed this fact and that too intentionally as alleged by the ld. CIT,D.R. Moreover as clarified by the ld. Counsel for the assessee, notice under section 263 pointing out the error in the order of the Assessing Officer on this issue was issued by the ld. Principal CIT on 20.11.2018 and since the written submission in response to the said notice was filed before the ld. Pr. CIT on 16.01.2019 when the appeal against the order under section 143(3) was pending before the ld. CIT(A) and the order dated 28.02.2019 was yet to be passed by the ld. CIT(A) disposing of the said appeal, the factual position as prevalent then was pointed out by the assessee in the written submission on 16.01.2019. Keeping in view all these facts and circumstances of the case, we find merit in the contention of the ld. Counsel for the assessee that it was the duty of the ld. Pr. CIT to ascertain the actual position of the appeal stated to be filed by the assessee against the order passed by the Assessing Officer under section 143(3) on this issue and had he done that, he would have found that the order passed by the Assessing Officer under section 143(3) on this issue was already merged in the appellate order of the ld. CIT(A) and the claim of the assessee for Long-Term Capital Loss arising from the sale of Government Securities after applying the Cost Inflation Index having been already allowed by the ld. CIT(A), there was no error in the order of the Assessing Officer in allowing the set off of such loss against the Long-Term Capital Gain arising from the Bonds and Right to Property.

12. It is also pertinent to note here that the claim of the assessee for Long-Term Capital Loss arising from the sale of Government Securities after applying the Cost Inflation Index was disallowed by the Assessing Officer in the order passed under section 143(3) for the year under consideration by relying on the order passed in assessee’s own case on the similar issue for A.Y. 2010-11 under section 143(3) read with section 263 of the Act. As pointed out by the ld. Counsel for the assessee, the said order passed by the Assessing Officer for A.Y. 2010-11 was a subject matter of appeal and the claim of the assessee for Long-Term Capital Loss arising from the sale of Government Securities after applying the Cost Inflation Index was allowed by the Tribunal and following this conclusion drawn in A.Y. 2010-11, the Tribunal has already upheld the appellate order of the ld. CIT(A) dated 28.02.2019 for the year under consideration allowing the similar claim of the assessee. This issue thus stands decided by the Tribunal on merit in assessee’s own case for A.Y. 2010-11 as well as for the year under consideration and we, therefore, do not consider it necessary or expedient to deal with the argument sought to be raised by the ld. CIT, D.R. on merit of this issue. Ground No. 3 of the assessee’s appeal is accordingly allowed.

13. In support of the issue raised in Ground No. 4 relating to the error allegedly pointed out by the ld. Pr. CIT(A) in the order of the Assessing Officer in computing the short-term capital gain arising from the sale of flats without taking into consideration the stamp duty valuation, the ld. Counsel for the assessee submitted that four flats forming part of the block of assets ‘building’ were sold by the assessee during the year under consideration. He submitted that since the sale consideration of the said four flats was more than the opening W.D.V. of the block and additions made during the year, short term capital gain was computed and offered to tax by the assessee in the return of income for the year under consideration. He submitted that out of the said four flats, three flats were held by the assessee for a period of less than 36 months and the short-term capital gain arising from the sale thereof was computed by taking into consideration the stamp duty valuation as sale consideration in terms of section 50C of the Act. He submitted that the remaining forth flat which had been held by the assessee for more than 36 months was valued just before its sale by a Registered Valuer M/s. M.K. Chakravorty & Company at Rs.5.84 crores. The actual consideration of the said flat received by the assessee, however, was Rs.7,00,80,000/- and the same was taken into consideration while computing the capital gain. He submitted that the said sale consideration was less than the stamp duty valuation and when the assessee was called upon by the Assessing Officer to explain this difference with reference to section 50C it was submitted on behalf of the assessee that the said flat did not have a car parking space and there was also no scope of getting a high voltage electric connection. He contended that the sale consideration received by the assessee which was lower than the stamp duty valuation, accordingly was justified by the assessee and a request was made to the Assessing Officer that if the explanation offered in this regard was no acceptable, a reference may be made to the DVO under section 50C(2) of the Act. He submitted that no such reference was made by the Assessing Officer to the DVO and after having satisfied himself about the explanation offered by the assessee, the sale consideration actually received by the assessee was taken into consideration by the Assessing Officer while computing the gain arising from the said flats. He contended that this issue thus was examined by the Assessing Officer during the course of assessment proceedings and a well considered view was taken by the Assessing Officer after having been satisfied with the explanation offered by the assessee with regard to the sale consideration actually received, which was lower than the stamp duty valuation. He relied inter alia on the decision of the Hon’ble Gujarat High Court in the case of CIT –vs.- R.K. Construction Co. [313 ITR 65] to contend that since all the necessary details and the documents were furnished by the assessee before the Assessing Officer and on appreciation of the same, a possible view was taken by the Assessing Officer, it was not open for the ld. Pr. CIT to take a different view while exercising his powers under section 263.

14. The ld. CIT, D.R., on the other hand, strongly relied on the impugned order of the ld. Pr. CIT passed under section 263 in support of the revenue’s case on this issue. He also invited our attention to the order passed by the Assessing Officer under section 143(3) to point out that there is no discussion whatsoever made by the Assessing Officer in the said order on this issue.

15. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the short term capital gain arising from the sale of four flats being the depreciable assets forming part of the block of assets ‘building’ was computed and offered to tax by the assessee as per section 50 of the Act since the said block of assets was completely exhausted in the year under consideration as a result of sale consideration of the four flats was more than the opening value of the building of the block of assets and the additions made during the year under consideration to the said block. Out of these four flats sold by the assessee, three flats were short-term capital assets being held by the assessee for less than 36 months and the capital gain arising from the sale thereof was computed by the assessee by taking into consideration the stamp duty value wherever it was more than the sale consideration actually received in accordance with section 50C of the Act. In respect of the remaining forth flat which was long-term capital asset being held by the assessee for more than 36 months, the actual sale consideration received by the assessee amounting to Rs.7,00,80,000/-was less than the stamp duty valuation and the same was adopted by the assessee for computation of capital gain. As submitted by the ld. Counsel for the assessee, a specific query was raised by the Assessing Officer in this regard during the course of assessment proceedings and the assessee was called upon by him to explain and justify the actual sale consideration received and adopted for computation of capital gain which was lower than the stamp duty valuation with reference to section 50C. The ld. Counsel for the assessee has also invited our attention to the letter dated 23.12.2016 (copy placed at page 18 of the paper book), wherein the following explanation was offered by the assessee in this regard:-

“4.     In the computation of the short term capital gain on the sale of the flat at 5, Lala Lajpat Rai Sarani, the sale proceed of the flat has been taken at Rs.8,02,01,600/- as per sale deed (copy enclosed) as against the stamp duty valuation of Rs.8,81,25,600/-. The stamp duty valuation has not been taken into account in computing the short term capital gain as the assessee, before the sale of this property, got it valued by a registered valuer. A copy of valuation report as on 14.04.13 showing its market value at Rs.5,84,00,000/- is enclosed. From the report of the valuer it may kindly be seen that the flat had no car parking space or a garage without which the high value buyers were not interested in acquiring the flat. There was also no scope of getting a high voltage electric connection. Because of such defects, the assessee could not realize full market value of the sale of this flat. The assessee therefore submits that its fair market value was much less compared to the stamp duty valuation. If your Honour does not however accept the assessee’s contention, it is requested that before adopting the stamp duty valuation, you may kindly ref4er the valuation of this property to the DVO as provided in u/s 50C(2) of the I.T. Act”.

16. As is evident from the submission made by the assessee before the Assessing Officer during the course of assessment proceedings, the actual sale consideration adopted by the assessee for computation of capital gain arising from the sale of concerned flats which was lower than the stamp duty valuation was duly explained by the assessee and the same was also supported by a valuation report of the registered valuer, which had valued the market value of the flats at Rs.5.84 crores just before its sale by the assessee. It is also relevant to note here that a specific request was also made by the assessee to the Assessing Officer to refer the matter relating to the valuation of the property to DVO in terms of section 50C(2) of the Act if the lower sale consideration actually received by the assessee than the stamp duty value as justified by it was not acceptable.No such reference, however, was made by the Assessing Officer and keeping in view the same as well as all the facts of record, we find merit in the contention of the ld. Counsel for the assessee that the explanation/justification offered by the assessee in the matter was found acceptable by the Assessing Officer and on appreciation thereof a well considered view was taken by the Assessing Officer. This issue thus was examined by the Assessing Officer during the course of assessment proceedings and after having satisfied himself with the explanation/justification offered by the assessee, which was duly supported by the valuation report of the Registered Valuer, a possible view was taken by the Assessing Officer accepting the stand of the assessee.

17. In the case of R.K. Construction Co. (supra) cited by the ld. Counsel for the assessee, it was held by the Hon’ble Gujarat High Court that when the necessary details and documents were furnished by the assessee to the Assessing Officer and a particular view was taken by the Assessing Officer on the basis of the same, it was not open for the Commissioner to take a different view in the revision proceedings under section 263 of the Act. If the facts of the present case as discussed above are considered in the light of the decision of the Hon’ble Gujarat High Court in the case of R.K. Construction Co. (supra), we find that there was no error in the order of the Assessing Officer on this issue as alleged by the ld. Pr. CIT and the impugned order passed by the ld. Pr. CIT revising the order of the Assessing Officer on this issue is not sustainable. We accordingly set aside the impugned order passed by the ld. Pr. CIT under section 263 on this issue and restore that of the Assessing Officer. Ground No. 4 of the assessee’s appeal is accordingly allowed.

18. As regards the next issue raised in Ground No. 5 relating to the head of income and year of taxability of the profit arising to the assessee from sale of right in 37 flats, the ld. Counsel for the assessee submitted that the assessee had acquired the right in the said flats as per the agreement for sale and MoU executed on 26.08.2011. He submitted that even though right in the said flats was transferred by the assessee to third party individuals by execution of tripartite agreements in previous years relevant to assessment year 2012-13, 13-14, 14-15 & 2015-16, there was a specific clause in the tripartite agreements that sale would be complete and sale deed would be executed in favour of the buyers only on receiving the full payments against the property. Referring to the relevant details of payments placed in the paper book, he pointed out that the full payment from buyers was received in the previous year relevant to A.Y. 2015-16 and accordingly gain arising from the right in sale of 37 flats was offered by the assessee in the return of income filed for A.Y. 2015-16. He submitted that the assessee is a Non-Banking Finance Company and investment made in these flats represented capital asset. He submitted that the said flats purchased by the assessee were shown under the head ‘investment’ for A.Y. 2012-13, 13-14 & 2014-15 and this accounting treatment given by the Assessing Officer was accepted by the Assessing Officer. He contended that when the assessee offered this income as long-term capital gain in AY 2015-16, the Assessing Officer did not accept the same and assessed it as business income. He contended that on appeal, the ld. CIT(A) however allowed the claim of the assessee that this income was chargeable to tax in AY 2015-16 as long-term capital gain and the Tribunal has already upheld the order of the ld. CIT(A) on this issue vide his order dated 05.12.2019 passed in ITA No. 1470/KOL/2019. He contended that there was thus no error in the order of the Assessing Officer on this issue and the ld. Pr. CIT is not justified in revising the same under section 263.

19. The ld. CIT, D.R., on the other hand, submitted that the right in 37 flats acquired by the assessee in the previous year relevant to A.Y. 2012­13 was transferred to third party individually by way of tripartite agreements executed in A.Ys. 2012-13, 2013-14 and 2014-15. He contended that the intention of the assessee thus was clear to sale the right in the said flats immediately to earn profit and it was thus a clear case of business transactions representing trading, the profit of which was chargeable to tax under the head “ profit and gains of business or profession”. He contended that the accounting treatment given by the assessee to the said flats as investment is not conclusive to decide the nature of the relevant transactions and keeping in view all the facts of the case as well as the intention of the assessee to transfer the right in the 37 flats to earn profit, the income arising from these transactions was clearly in the nature of business profit. He contended that this issue in any case was not at all considered and examined by the Assessing Officer during the course of assessment proceedings for the year under consideration and since right was acquired by the assessee in the residential flats, it cannot be said that the same was in the nature of capital asset being purchased by the assessee for its office purpose. He accordingly strongly supported the impugned order passed by the ld. Pr. CIT under section 263 of the Act on this issue.

20. We have considered the rival submissions and also perused the relevant material available on record. It is observed that Right to the Property representing 37 flats was acquired by the assessee under the agreement for sale and MoU executed on 26.08.2011. The said right was subsequently transferred by the assessee to the third party individuals by execution of tripartite agreements from time to time in the previous years relevant to A.Y. 2013-14, 2014-15 and 2015-16. There was however a specific clause in the said tripartite agreements that sale would be complete and conveyance will be executed in favour of the buyers only on receiving the full payment of the property. As demonstrated by the ld. Counsel for the assessee from the relevant details, full payments were received by the assessee from the buyers in the previous year relevant to A.Y. 2015-16 and accordingly the income arising from the sale of flats was offered by the assessee to tax as long-term capital gain in A.Y. 2015-16. The ld. CIT, D.R. has not disputed the fact that full payment against the flats were received by the assessee in the subsequent year, i.e. A.Y. 2015­16 and not in the year under consideration. He, however, has pointed out certain facts involved in the assessee’s case to contend that the income arising to the assessee as a result of sale of these flats is chargeable to tax as business income in the earlier years including the year under consideration, when the right in the flat was transferred by the assessee to the third party individuals by execution of tripartite agreements. It is, however, observed that the issue relating to the head of income under which this income is chargeable to tax in the hands of the assessee as well as the issue relating to year of taxability of the same are already decided by the Tribunal as pointed out by the ld. Counsel for the assessee. In this regard, it is observed that the entire income arising from the sale of right in 37 flats was offered by the assessee in A.Y. 2015-16 under the had “long-term capital gain” and when the Assessing Officer assessed the same as business income of the assessee, an appeal was filed by the assessee before the ld. CIT(A), who allowed the appeal of the assessee on this issue and directed the Assessing Officer to assess the income arising to the assessee from the sale of flats under the head “long-term capital gain”. This decision rendered by the ld. CIT(A) has already been upheld by the ITAT vide its order dated December 5, 2019 passed in ITA No. 1470/KOL/2019. Keeping in view the same, we find merit in the contention of the ld. Counsel for the assessee that both these issues relating to head of income under which the income in question is chargeable to tax as well as the year of taxability of the same have already been decided by the Tribunal in assessee’s own case for A.Y. 2015-16 and consequently the order of the Assessing Officer passed for the year under consideration under section 143(3), which is in consonance with the view taken by the Tribunal, cannot be said to be erroneous as alleged by the ld. Pr. CIT. We, therefore, set aside the impugned order passed by the ld. Pr. CIT under section 263 on this issue and restore that of the Assessing Officer. Ground No. 5 of the assessee’s appeal is accordingly allowed.

21. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on March 19, 2021.