Section 54 Gair mumking shed is residential house

By | September 2, 2015

Q :Whether Gair mumking shed is residential house and  capital gain arising on its sale is eligible for section 54 ?

Assessee was entitled to exemption under section 54 in respect of long-term capital gain on sale of a farm house which in revenue records was mentioned as gairmumkin shed and house and income from letting out a portion thereof was assessed as income from house property

IN THE ITAT CHANDIGARH BENCH ‘A’

Smt. Harpreet Kaur

v.

Commissioner of Income-tax-II, Chandigarh

BHAVNESH SAINI, JUDICIAL MEMBER
AND T.R. SOOD, ACCOUNTANT MEMBER

IT APPEAL NO. 293 (CHD.) OF 2014
[ASSESSMENT YEAR 2009-10]

JUNE  3, 2015

Tej Mohan Singh for the Appellant. Smt. Jyoti Kumari, CIT DR for the Respondent.

ORDER

Bhavnesh Saini, Judicial Member – This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax-II, Chandigarh dated 5.2.2014 for assessment year 2009-10, challenging the order under section 263 of the Income Tax Act.

2. Briefly, the facts of the case are that the assessee filed return of income for assessment year under appeal i.e. 2009-10 on 31.7.2009 declaring taxable income of Rs.31,66,210/- consisting of capital gains and income from other sources. The case of the assessee was selected for scrutiny. The Assessing Officer issued statutory notice to the assessee alongwith questionnaire and the assessee furnished details/information called for by the Assessing Officer. The Assessing Officer noted that the assessee derived long term capital gains and income from other sources. The assessee also invested part of capital gains in accordance with section 54 of the Act. The details furnished during the course of assessment proceedings were examined by the Assessing Officer and after making investigation and enquiries the Assessing Officer noted that the assessee sold farm house during the year. The property was acquired by the assessee during the year 1996-97. The assessee has claimed benefit of indexation on expenses incurred for the construction work carried out in the years 1997-98 and 1998- 99. The assessee was asked to furnish the evidence of incurring expenses on construction of farm house. It was submitted by the assessee that the construction was incurred way back in 1997-98 and 1998-99 and it is not possible to provide the requisite evidence of expenses at the stage. The learned counsel for assessee further submitted that the assessee has been showing rental income from this property regularly in the return of income and, therefore, the cost of construction may be accepted. The Assessing Officer after detailed discussion with the learned counsel for assessee noted that the assessee agreed for addition of Rs.2 lacs to the long term capital gains to cover up any discrepancy on account of cost of construction shown by the assessee. The Assessing Officer accordingly made addition of Rs.2 lacs towards long term capital gains and after examining the details accepted the claim of the assessee by making part addition on the same issue.

3. The learned Commissioner of Income Tax-II, Chandigarh, however, issued a show cause notice dated 10.1.2014 under section 263 of the Act (Pb-60) intimating the assessee that as per record the assessee has sold farm house on 24.10.2008 for total sale consideration of Rs.4,10,00,000/- on 22.10.2008 and declared long term capital gains of Rs.3,70,43,706/- The detail is reproduced in the notice. It was further noted that out of the above declared long term capital gains of Rs.3,70,43,706/-, the assessee has claimed benefit of exemption under section 54 of the Act to the tune of Rs.3,56,96,300/-, whereas the assessee had purchased House No.54, Sector 69, Mohali for consideration of Rs. 1,65,00,000/- on 18.6.2009 and incurred expenses of Rs. 9,80,000/- on stamp duty. Further the assessee also purchased a 12 marla plot No.1610, Sector 79, Mohali for consideration of Rs.69,00,000/- on 23.7.2009 and spent Rs.10,82,812/- for re-allotment of the same from GAMADA. It was, therefore, noted that overall the assessee claimed wrong exemption of Rs.3,56,96,300/- against the total investment of Rs.2,54,62,812/- under section 54 of the Act. The learned Commissioner of Income Tax also noted in the show cause notice that the assessee had sold farm house, therefore, cannot claim deduction under section 54 of the Act and further the assessee is not entitled for deduction under section 54F of the Act because of the proviso provided in the above section 54F of the Act. It was further noted in the notice that the assessee had failed to provide any proof in respect of the amount to the tune of Rs.8,70,000/- claimed to have been incurred on transfer expenses in respect of sale of property. It was also seen that the assessee failed to provide the corroborative evidence justifying the claim of having incurred Rs.4,50,000/- and Rs.12,00,000/- in financial years 1997-98 and 1998-99 respectively for construction purposes under the head “construction cost”. It was also noted that no documentary evidence was called for by the Assessing Officer in respect of the carry forward long term capital loss of Rs.23,057/- pertaining to assessment year 2005-06. In view of the above facts, the learned Commissioner of Income Tax held that the assessment framed under section 143(3) on 27.5.2011 is erroneous in so far as prejudicial to the interest of the Revenue. Therefore, the explanation of the assessee was called for. The assessee in response to this notice filed reply on 29.1.2014, which is reproduced in the impugned order highlighting all the facts to challenge that the revision of proceedings under section 263 of the Act are not called for and the matter may be dropped. The assessee relied upon several decisions in support of the contention. We would deal with the reply of the assessee later on in this order. The learned Commissioner of Income Tax, however, was not satisfied with the explanation of the assessee and cancelled the assessment order under section 143(3) of the Act dated 27.5.2011 and directed the Assessing Officer to pass assessment order afresh after making necessary enquiries in accordance with law by giving opportunity of being heard to the assessee. The findings of the learned Commissioner of Income Tax in paras 3 to 6 of his order are reproduced as under :

“3. Replies of the assessee have been considered. However, the same are not acceptable in view of the following reasons: —

3.1 No supporting documents have been attached to the above reply.

3.2 As per registered sale deed dated 17.10.2008, the type of land sold is “Gairmumkin Shed” whereas assessee is claiming it to be a residential house. As no document has been furnished by the assessee in respect to his claim of the property sold being a residential house, so his claim remains unsubstantial and thus he has been unable to prove that what is apparent (‘A shed’ as per registered sale deed) is not the real. For claiming exemption u/s 54, the assets sold must be ‘residential house’ and thus the order passed u/s 143(3) by the assessing officer allowing exemption u/s 54 to the assessee is erroneous and prejudicial to the interest of the revenue.

3.3 Not withstanding the above, though the assessee has claimed vide para 2(b) of his reply that he has invested Rs.1,00,00,000/- in the FDR under ‘Capital Gain Scheme’ but there is no documentary evidence on the assessment record and the assessee has also not submitted now any proof of the amount of Rs.1,00,00,000/- invested in the ‘Capital Gains Account’. So, this plea of the assessee has also remained unsubstantiated by him.

3.4 The assessee, vide para 2(c) of his reply has again submitted that amount of Rs.8,70,000/- was given to one Shri Kesar Singh through bank on 07.11.2008. But there is still no document on record to prove the genuineness of this claim as assessee has not brought on record any evidence regarding rendering of any service by the said person or even of any involvement of this person in any manner for sale of the said property during assessment proceedings as well as in reply to this show cause.

3.5 The assessee, vide para 2(d) of his reply, has claimed that expenses in the construction was made of Rs.4,50,000/- and of Rs.12,00,000/- in F.Y. 1997- 98 and F.Y 1998-99 respectively and assessee could not save the vouchers/bills after the sale of the said house. Again the facts on record suggest that no construction has taken place as is evident from entries in purchase as well as sale deed of this property where type of land has been mentioned as “Gairmumkin Shed”. Therefore, only a shed existed at the time of purchase as well as sale of the alleged land/farm house. In view of the above, the claim of the assesee that this issue was explained by him and got examined by the Assessing Officer is contrary to facts on record and assessee has not brought on record any evidence to that what is apparent is not the real and Assessing Officer has also failed to examine the issue properly.

3.6 Though the assesee claimed that long term capital loss was declared in her return for A.Y. 2005-06 but there is no document in assessment record or submitted by the assessee now to support his claim/submission.

3.7 The assessee has not been able to explain the transactions discussed in the foregoing paragraphs so much so that the assessee has not brought on record the bank accounts involved in these transactions. From the aforesaid, it is also clear that the Assessing Officer has failed to conduct the enquiries emanating from the material and issues before him which were necessary for the assessment.

3.8 The assessee has relied upon the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd.v. CIT (SC) 243 1TR 83. He has inter-alia, mentioned that “where two views are possible and the ITO has taken one view with which the commissioner does not agree. It cannot be treated as an erroneous order prejudicial to the interest of revenue.” However, it is seen that no view was taken by the assessing officer on the issue as detailed above during the assessment proceedings. The fact remains that the Assessing Officer failed to make inquiries necessary for making a proper assessment.

Further, the assessee has mentioned that “The Hon’ble Supreme Court has also held that there must be some grievous error in the order passed by the ITO which might set a bad trend or pattern for similar Assessments”. The assessee’s contention is misplaced. The Hon’ble Supreme Court in this case (supra ) has rather observed that “In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue.”

The assessee has also stated that “It is therefore most respectfully prayed that the notice issued under section 263 does not fulfill the requisites attached to it and therefore be vacated in the interest of justice.” The assessee’s contention is not correct because the assessing officer has not made enquiry on the various issues as detailed in the notice dated 10.01.2014. Hence, the order is erroneous in so far as prejudicial to the interest of revenue. Similar view was taken by the Hon’ble Allahabad High Court in the case of Swarup Vegetable Products Industries Limited v. Commissioner of Income Tax (1990) 187 ITR 412 where it was held that “It is beyond dispute that, under section 263 of the Income-tax Act, the Commissioner does have the power to set aside the assessment order and send the matter for a fresh assessment if he is satisfied that further enquiry is necessary, and that the order of the Income-tax Officer is prejudicial to the interests of the Revenue.”

4. Other case laws as referred to by the assessee in his reply are distinguishable on the facts of the case and same are not discussed here again for the simple reason that the assessee has not even brought on record the necessary evidences in support of his claims/explanations either before the AO or before the undersigned as discussed above.

5. The explanation of the assessee could, therefore, not be said to be satisfactory as held by the Hon’ble Punjab & Haryana High Court in the case of CIT v. Lal Chand Tirath Ram 225 ITR 675 that mere offering explanation is not sufficient; explanation is to be substantiated by cogent and reliance evidences.

6. In view of the above, it is held that the said assessment order is erroneous in so far as prejudicial to the interest of revenue for the reasons mentioned above. Accordingly, the assessment order u/s 143(3) dated 27.05.2011 is cancelled with a direction to the Assessing Officer to pass an order afresh after making necessary enquiries in accordance with law keeping in view the above observations and allowing opportunity of being heard to the assessee.”

4. The assessee feeling aggrieved against the impugned order under section 263 of the Act filed the present appeal.

5. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The learned D.R for the Revenue produced assessment record as well as revision folder of Commissioner of Income Tax under section 263 of the Act and also placed on record copies of the order- sheet of the Assessing Officer and Commissioner of Income Tax under section 263 of the Act. The learned counsel for assessee reiterated the submissions made before the learned Commissioner of Income Tax and also referred to various documents and replies filed before the Assessing Officer and submitted that the Assessing Officer after making detailed enquiries on the issue of long term capital gains correctly accepted the claim of the assessee under section 54 of the Act and made part addition. Therefore, the learned Commissioner of Income Tax should not have revised the assessment order. The learned counsel for assessee referred to various details and replies placed on the Paper Book and also filed copy of acknowledgement of filing of the returns of income alongwith computation of income of earlier years in support of the contention. The learned counsel for assessee also submitted that the issue of two properties purchased by the assessee was not raised in show cause notice issued by the learned Commissioner of Income Tax under section 263 of the Act and no findings have also been recorded by the learned Commissioner of Income Tax. Therefore, such issue cannot be raised by the learned D.R for the Revenue during the course of arguments. The learned counsel for assessee submitted that the learned Commissioner of Income Tax merely raised the issue of difference of Rs.1 crore, which was invested under Capital Gain Scheme, for which proper evidence was filed before the Assessing Officer and was also explained before the learned Commissioner of Income Tax. Therefore, the assessment order could not be said to be erroneous in so far as prejudicial to the interest of the Revenue.

6. On the other hand, the learned D.R for the Revenue relied upon the impugned order under section 263 of the Act and submitted that the assessee has sold only the farm house, which is not substantiated because the sale deed contained ‘gairmumkin shed’. Therefore, it cannot be treated as residential house and as such, the assessee would not be entitled for exemption under section 54 of the Act. The learned D.R for the Revenue also submitted that since the assessee has purchased two properties, therefore, the assessee would not be entitled for exemption as claimed. The learned D.R for the Revenue relied upon the following decisions :

(i ) Decision of Hon’ble Rajasthan High Court in the case of Rajesh Surana v. CIT [2008] 306 ITR 368 , in which it was held that “A plot with boundary walls and a garage- cum-room constructed over it is not a residential house, hence capital gain arising from sale thereof is not exempt under section 53”.
(ii ) Decision of the Hon’ble Punjab & Haryana High Court in the case of Ashok Syal v. CIT [2012] 209 Taxman 376/24 taxmann.com 274 in which it was held that “Exemption u/s 54 is not available when property in question is not a “house” or “dwelling unit”.
(iii ) Decision of the Hon’ble Punjab & Haryana High Court in the case of Dr. A.S. Atwal v. CIT [2005] 277 ITR 462/146 Taxman 171 , in which it was held that “Property sold by assessee i.e., plot with a tin shed, was not a house as the tin shed had not bathroom or kitchen or electricity connection, and even if the same is considered as a house, assessee is not entitled to exemption under s. 54 on the sale of said property as it was not occupied by the assessee or a parent of his for their residence in the two years immediately preceding the date of transfer”.
(iv ) Order of I.T.A.T., Hyderabad Bench in the case of ITO v. Smt. Rohini Reddy [2010] 122 ITD 1 , in which it was held that :
“Benefit of exemption under s. 54 is allowable only when the property sold as well as the property purchased by the assessee are intended to be used as residential house; neither the roofed structure built on the land sold by the assessee was self- occupied or let out or intended to be used as residence, nor the two plots purchased by the assessee with small temporary structures covered with asbestos roofing were meant to be used as residential houses and, therefore assessee is not entitled to exemption under s. 54.”
(v ) Decision of the Hon’ble Punjab & Haryana High Court in the case of Pawan Arya v. CIT [2011] 11 taxmann.com 312/200 Taxman 66 , in which it was held that :
“Capital gains- Exemption under s. 54-Investment in two houses-Exemption under s. 54 is available in respect of one house only – Tribunal was therefore justified in holding that the assessee was not entitled to exemption in respect of two independent residential houses situated at different locations-CIT v. D. Ananda Basappa (2009) 223 CTR (Kar) 186 :(2009) 309 ITR 329 (Kar) distinguished.”
(vi ) Order of the I.T.A.T. Mumbai (Special Bench) in the case of ITO v. Ms. Sushila M. Jhaveri [2007] 107 ITD 327in which it was held that :
“Expression “a residential house” in ss. 54 and 54F means one residential house; assessee having invested capital gains in two residential houses situated in different localities of the same city, she was entitled to exemption under s. 54/54F in respect of investment in one house as per her choice but was not entitled to exemption in respect of investment in both the residential houses.”

7. The learned D.R for the Revenue, therefore submitted that the appeal of the assessee may be dismissed.

8. We have considered the rival submissions. The learned Commissioner of Income Tax noted that the record revealed that since the assessee had sold farm house, therefore, cannot claim exemption under section 54 of the Act. The assessee in reply to this objection submitted before the learned Commissioner of Income Tax that the farm house is nothing else but residential house and land appurtenant thereto. The assessee had constructed a residential house on a piece of land and had been occupying the same and also earning rental income upto 31.3.2008 from portion of such house. The assessee has been regularly showing the rental income from such house under the heading “income from house property” in her income tax returns upto assessment year 2008-09. The assessee referred language of section 54 of the Act, which provides that in case of an assessee being an individual or HUF, the capital gain arises from the transfer of a long term capital asset being building or land appurtenant thereto and being a residential house, the income of which is chargeable under the head “income from house property”. The assessee submitted that since the house was occupied by the assessee and his parents and rental income was also earned from letting out of some portion and was duly declared in the return of income, therefore, the assessee was entitled for benefit contained under section 54 of the Act. The assessee also relied upon the order of the I.T.A.T., Delhi Bench in the case of Mahavir Prasad Gupta v. Jt. CIT [2006] 5 SOT 353 on the proposition that ‘even farm house can be a residential house and investment is eligible for benefit under section 54 of the Act’. The learned Commissioner of Income Tax, however, considered the sale deed of the property in question dated 17.10.2008 and found that the type of the land sold is ‘gairmumkin shed’, whereas the assessee claimed it to be residential house and as per the sale deed, since it was a shed, therefore, the assessee cannot claim exemption under section 54 of the Act because for making such claim under section 54 of the Act the asset sold must be residential house. We have gone through the copy of the sale deed in question which pertained to the property situated in village Balomajra and in the sale deed the type of the land is mentioned as ‘gairmumkin shed’, the copy of the same is filed on pages 5 to 19 of the Paper Book. In the sale deed the property described was referred to as is mentioned in jamabandi for the year 2003-04. The copy of the jamabandi is also placed on record alongwith translated copy in which the property in question is shown as “gairmumkin shed and house”. It, therefore, appears that the learned Commissioner of Income Tax has not properly gone through the sale deed of the property in question because when the details of the property are mentioned as per jamabandi for assessment year 2003-04 under sale, the learned Commissioner of Income Tax should have also gone through the copy of the jamabandi for the year 2003-04 as noted above and since the jamabandi shows the property in question as “gairmumkin shed and house”, therefore, there is no question of considering it to be only ‘gairmumkin shed’. The assessee has also placed copy of the acknowledgement of furnishing of the returns from assessment years 2003-04 to 2008-09 alongwith computation of income, in which the assessee has declared rental income from the property in question situated in village Balomajra. Since the assessee has been declaring rental income from the same property in question under the head “income from house property”, which is also not disputed by the Revenue Authorities in earlier years, would clearly show that the Revenue Department has accepted the property in question to be residential house property. Therefore, when the residential house is surrounded by lands, which were under sale, would be entitled for deduction under section 54 of the Act. It may also be noted here that the assessee had filed copy of estimated assets and liabilities statements as on 1.4.2008 and 31.3.2009 in the Paper Book at pages 20 and 21, which according to the learned counsel for assessee were filed with the return of income, would show that the farm house situated at village Balomajra was having value of Rs.18,10,000/-. These facts would clearly indicate that the property in question was ‘gairmumkin shed’ and house, on which on letting out part of its portion income was also assessed under the head “income from house property”. Therefore, the assessee has been able to prove that the capital gains arises from transfer of long term capital assets being building or land appurtenant thereto and being a residential house, the income of which is chargeable under the head “income from house property”. Therefore, the conditions of section 54 of the Act have been satisfied in the case of the assessee. Therefore, the decisions relied upon by the learned D.R for the Revenue would not support the case of the Revenue.

9. The learned Commissioner of Income Tax noted that even in the above facts when the property sold was farm house, the assessee would not be entitled for deduction under section 54F of the Act because the proviso is against the assessee. Since the assessee claimed long term capital gains on transfer of residential house, therefore, the learned counsel for assessee argued that the claim of the assessee would fall under section 54 of the Act. The provisions of section 54F of the Act do not apply in the case of the assessee. Therefore, there is no question of applying the proviso of section 54F of the Act in the case of the assessee. We find force in the submission of the learned counsel for assessee that since the case of the assessee falls under section 54 of the Act, therefore, the provisions of section 54F of the Act would not apply in the case of the assessee. Thus this objection of the learned Commissioner of Income Tax would not be relevant and is also against the computation of income filed by the assessee alongwith the return of income, copy of which is filed at page 22 of the Paper Book.

10. The learned Commissioner of Income Tax further objected to the investment in a sum of Rs.3,56,96,300/- as according to him, the total investment made by the assessee under section 54 of the Act was Rs.2,54,62,812/-. The assessee explained before the learned Commissioner of Income Tax that the investment was made in the FDR under Capital Gain Scheme for Rs.1 crore and certain other investments made by the assessee for availing benefit under section 54 of the Act as explained in the reply given before the Assessing Officer during the scrutiny proceedings, have not been considered while issuing notice under section 263 of the Act. The correct details of investment made under section 54 of the Act as explained by the assessee is reproduced at page 4 of the impugned order, in which the assessee has given complete details of investment made in the properties and also explained that Rs.1 crore is deposited in the FDR under Capital Gain Scheme Account for construction of the above plot. Thus according to the assessee, the total investment eligible under section 54 of the Act was Rs.3,56,96,300/- as was claimed in the return of income as well as in the computation of income. The learned Commissioner of Income Tax instead of examining the details available on record, merely noted that no documentary evidence of making FDRs is available on record for investing Rs.1 crore in Capital Gain Account. The learned CIT DR produced assessment record before us during the course of hearing from which we find that the copy of FDR under Capital Gain Scheme of Rs.1 crore is available on record, copy of which is also filed in the Paper Book at page 42. Therefore, the findings of the learned Commissioner of Income Tax are wholly incorrect and cannot be sustained. Thus the assessee would be entitled for benefit of Rs.1 crore under section 54 of the Act on making FDR under Capital Gain Scheme. The learned Commissioner of Income Tax thus has not properly examined this issue before taking any adverse view against the assessee.

11. The learned Commissioner of Income Tax also noted that the assessee has failed to provide any proof in respect of the amount to the tune of Rs.8,70,000/- claimed as transfer expenses in respect of sale of property. The assessee submitted before the learned Commissioner of Income Tax that the copies of all the bank accounts with narrations of debit and credit entries were given to the Assessing Officer alongwith reply, which shows that this amount was paid through account payee cheque drawn on Punjab & Sind Bank, Phase-5, Mohali to Shri Kesar Singh for facilitating the completion of the said deal. This point was also clarified to the Assessing Officer. The learned Commissioner of Income Tax, however, noted that no document is filed on record to prove the genuineness of the claim of the assessee. The assessee in the Paper Book has filed copy of the same bank account at page 3, which shows that the amount in question has been paid as commission for transfer of property through banking channel. This bank account was placed before the Assessing Officer and the Assessing Officer on examining the same was satisfied with the contention of the assessee. Therefore, the learned Commissioner of Income Tax was not justified in taking adverse view against the assessee on this issue.

12. The learned Commissioner of Income Tax further noted that the assessee has also failed to provide any corroborative evidence for incurring Rs. 4,50,000/- and Rs. 12,00,000/- in financial years 1997-98 and 1998-99 respectively for construction purposes under the head “cost of construction”. The assessee explained that the construction was raised so many earlier years back and the Assessing Officer after discussing the issue at length has made addition of Rs.2 lacs on this issue. Therefore, when the Assessing Officer examined the issue in detail, the learned Commissioner of Income Tax should not substitute the opinion of the Assessing Officer with his opinion when part addition is made by the Assessing Officer on this issue and when the return of income shows that the assessee earned rental income from the house property, it should have been inferred that the assessee has raised construction on the farm house. Therefore, the view of the Assessing Officer was correct in following the rule of preponderance of probabilities. Therefore, the learned Commissioner of Income Tax should not substitute his opinion to that of the Assessing Officer for the purpose of making addition only.

13. The learned Commissioner of Income Tax further noted that no documentary evidence have been called for by the Assessing Officer in support of carried forward long term capital loss of Rs.23,057/- pertaining to assessment year 2005-06. The assessee submitted that the long term capital loss of Rs.23,057/- occurred for assessment year 2005-06 and was declared in the income-tax return for assessment year 2005-06 and during the course of assessment proceedings, the Assessing Officer was satisfied about such claim made in the return of income for assessment year 2005-06. The learned counsel for assessee placed copy of the acknowledgement of returns and computation of income for many years on record to show that from the assessment year 2005-06 such claim of capital loss was made in the returns of income in all the earlier years. Therefore, there was no question of examining such issue which has happened in the earlier years 2005-06 onwards. Since all informations have been given in the computation of income and returns of income to the Revenue Department and the Assessing Officer examined the issue of long term capital gain in detail, therefore, no fault could be found with the order of the Assessing Officer.

14. The learned D.R for the Revenue filed copy of order-sheet from the assessment record, which would show that the Assessing Officer issued several statutory notices to the assessee and also issued questionnaire to the assessee for claiming deduction under section 54 of the Act in respect of long term capital gain. The Assessing Officer conducted enquiries on several dates of hearing and after examining the issue of long term capital gain in detail has made the addition of Rs.2 lacs on that account. The copy of the order-sheet of the learned Commissioner of Income Tax is also filed on record, which shows that after issue of show cause notice under section 263 of the Act dated 10.1.2014, the assessee filed reply before the learned Commissioner of Income Tax on 29.1.2014 and thereafter straightaway the impugned order has been passed on 5.2.2014. It is, therefore, appeared that the detailed reply filed before the learned Commissioner of Income Tax was not considered properly and no further query was raised by the learned Commissioner of Income Tax. The reply of the assessee dated 29.1.2014 is quoted in detail in the impugned order supports the case of the assessee that each and every objection raised by the learned Commissioner of Income Tax have been properly explained which were also taken into consideration by the Assessing Officer. Therefore, if the learned Commissioner of Income Tax was not satisfied with the reply of the assessee, he should have called for further explanation of the assessee and should have gone into the details of material produced before him as well as available on assessment record. The learned Commissioner of Income Tax, however, failed to consider the reply of the assessee in proper perspective. Since the explanation of the assessee in response to the notice under section 263 of the Act has not been considered by the learned Commissioner of Income Tax in proper perspective, therefore, the order of revision without considering the explanation of the assessee would not be valid. We rely upon the decision of the Hon’ble Gauhati High Court in the case of Smt. Lila Choudhury v. CIT [2007] 289 ITR 226/[2008] 167 Taxman 1 , in which it was held as under :

“Held, that in the order the Commissioner had not recorded any opinion that the order of assessment of the petitioner for the assessment year 1992-93 was erroneous and prejudicial to the interests of the Revenue. That was the opinion recorded in the notice dated August 14/19, 1996, but the opinion being recorded in a notice issued to the petitioner asking to show cause, must be understood to be rebuttable. Such opinion was required to be reiterated after hearing the petitioner and after holding the necessary enquiry. On receipt of the show-cause notice, the petitioner submitted an elaborate reply. The Commissioner on receipt of the reply of the petitioner could not have ignored the same. Rather, it was incumbent on the Commissioner to consider the explanations offered and on that basis to record his opinion/conclusion. Moreover, the competent criminal court had exonerated the son-in-law of the petitioner from any liability on account of the house property in question holding it to belong to the petitioner. The findings recorded by the criminal court in this regard could not be brushed aside. Hence, any de novo proceedings at this stage would be futile. The order of revision had to be quashed. The assessment of the petitioner for the assessment year 1992-93 made by order dated May 16, 1994, had to be considered complete and final.”

15. Considering the above discussion and material on record, it is clear that the specific queries were raised by the Assessing Officer at assessment stage regarding long term capital gains and the Assessing Officer was satisfied with the explanation of the assessee. This itself would be an indication of application of mind by the Assessing Officer while passing the assessment order. When the Assessing Officer was satisfied with the explanation of the assessee with regard to the claim made under section 54 of the Act and he made part addition on the same, therefore, no fault could be found with the order of the Assessing Officer. When the Assessing Officer has adopted one of the courses permissible in law and the Commissioner do not agree with him, it cannot be treated as erroneous order prejudicial to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law. We rely upon the decision of the Hon’ble Bombay High Court in the case of CIT v. Fine Jewellery (India) Ltd. [2015] 372 ITR 303/230 Taxman 641/55 taxmann.com 514 , in which it was held as under :

‘Held, dismissing the appeal, that the order of the Tribunal did record the fact that specific queries were made during the assessment proceedings with regard to the details of expenditure claimed under the head “miscellaneous expenses” aggregating to Rs. 2.94 crores. The assessee had responded to the queries and on consideration of its response, the Assessing Officer held that only an amount of Rs. 17.98 lakhs incurred on account of repairs and maintenance out of Rs. 2.94 crores was capital expenditure. This itself would an indication of application of mind by the Assessing Officer while passing the order. The fact that the assessment order did not contain any discussion with regard to the balance amount of expenditure of Rs, 1.76 crores, i.e., Rs.2.94 crores less Rs. 17.98 lakhs claimed as revenue expenditure would not by itself indicate non- application of mind to this issue by the Assessing Officer in view of the specific queries made during the assessment proceedings and the assessee’s response to it. Moreover, from the nature of expenditure as explained by the assessee to the Assessing Officer during the assessment proceedings the view that the expenses were in the realm of revenue expenditure, was a possible view. Therefore, there was no fault in the order of the Tribunal having followed the binding decision of the Supreme Court while allowing the appeal before it.’

16. The Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 , in which it was held as under :

“Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer had taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.”

17. Same view has been taken by the Hon’ble Supreme Court in its subsequent decision in the case of CIT v. Max India Ltd.[2007] 295 ITR 282/[2008] 166 Taxman 188 . The Hon’ble Punjab & Haryana High Court in the case of CIT v. Deepak Mittal [2010] 324 ITR 411 , has held as under :

“Change of opinion by reappraising the evidence is not within the parameters of revisional jurisdiction of the Commissioner under section 263 of the Income-tax Act, 1961.

Held, dismissing the appeal, that the Tribunal had found that the Assessing Officer had given a categorical finding that the assessee was engaged in the process of manufacturing of products and accordingly he had granted concession under section 80-IB. The claim of the assessee had been found to be genuine. The Assessing Officer had also examined the various workers of the assessee and then recorded the finding. The Assessing Officer was justified in granting the special deduction under section 80-IB. The order of revision disallowing the special deduction was not valid.”

18. The learned D.R for the Revenue lastly argued that since the assessee purchased two properties, therefore, the assessee would not be entitled to claim of exemption under section 54 of the Act in respect of the two residential houses. The learned counsel for assessee submitted that this issue is not raised in the show cause notice issued by the learned Commissioner of Income Tax under section 263 of the Act and no findings have been given. Therefore, such an issue cannot be raised before the Tribunal. We agree with then submission of the learned counsel for assessee that the issue which is not raised in the show cause notice under section 263 of the Act could not be subject matter of revision by the learned Commissioner of Income Tax. The Hon’ble Madras High Court in the case of CIT v. Smt. R.G. Umaranee [2003] 262 ITR 507/127 Taxman 265 , in which it was held as under :

“Held, (i ) that in the absence of any notice by the Commissioner to treat the cost of construction of the building as undisclosed income of the assessee it was not open to the Commissioner to hold that the cost of construction of the building would represent undisclosed income of the assessee and hence the Commissioner was not justified in directing the Income-tax Officer to initiate an enquiry regarding the cost of construction of the building, and after ascertaining the valuation, treat the unexplained investment as the undisclosed income of the assessee.”

19. In the present case, this issue is not raised in the show cause notice under section 263 of the Act as well as the learned Commissioner of Income Tax did not pass any order. Therefore, the learned CIT DR could not raise this point before the Tribunal. The learned Commissioner of Income Tax merely found that the assessee had made excess claim with regard to the investment of Rs.1 crore in FDR under Capital Gain Scheme. Therefore, such an issue cannot not be raised by the learned CIT DR at this stage. The contention of learned CIT DR on this point is accordingly rejected.

20. Considering the totality of the facts and circumstances in the light of the above discussion, we are of the view that the Assessing Officer examined the issue of long term capital gain in accordance with section 54 of the Act at assessment stage, therefore, assessment order cannot be said to be erroneous in so far as prejudicial to the interests of the assessee. The learned Commissioner of Income Tax was, therefore, not justified in cancelling the assessment order under section 143(3) of the Act. He should not have exercised the jurisdiction under section 263 of the Income Tax Act.

21. In view of the above, we set aside the impugned order dated 5.2.2014 under section 263 of the Act and quash the same. Resultantly the assessment order under section 143(3) dated 27.5.2011 is restored.

22. In the result, the appeal filed by the assessee is allowed.

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