Income Tax Appellate Tribunal - Kolkata
The Peerless Gen. Fin. & Inv. Co. Ltd., ... vs Dcit, Circle-3(1), Kolkata, Kolkata on 19 March, 2021
ITA No. 892/KOL/2019
Assessment Year: 2014-2015
The Peerless General Finance & Investment Company Limited
IN THE INCOME TAX APPELLATE TRIBUNAL,
'C' BENCH, KOLKATA
Before Shri P.M. Jagtap, Vice-President
& Shri A.T. Varkey, Judicial Member
I.T .A. No. 892/KOL/2019
Assessment Year: 2014-2015
The Peerless General Finance & Inves tment Company Limited, .... Appellant
Peerless Bhavan,
3, Esplanade Eas t,
Kolkata-700069
[PAN:AABCT3043L]
-Vs.-
Deputy Commissioner of Income Tax,........ .................................... Respondent
Circle-3(1 ), Kolkata,
Aayakar Bhawan,
P-7, Chowringhee Square, Kolkata-700069
Appearances by:
Shri S.K. Tulsian Advo cate, Ms. Riya Somani, C.A, & Ms. Lata Goyal C.A., appeared
on beh alf of th e assessee
Shri Sanjay Rai, CIT, appeared on behalf of the Revenue
Date of concluding th e hearing : March 16, 2021
Date of pronouncing the order : March 19, 2021
O R D E R
Per Shri P.M. Jagtap, Vice-President:-
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 1 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 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.
2 ITA No. 892/KOL/2019Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited 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 capit al loss (witho ut STT) of Rs.109,80,30 ,873/- was claimed fo r the rel evant year. This loss was due to t ransaction in Government Securities and Gold ET F and loss of Rs.111,33,28,38 8/- 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 th e LTCG from Right to pro perty being Rs.1 ,13,02,064/- remained unavailable for adjust ment against th e claimed loss of Rs.111,33,28,3 88/-. The refo re, LTCG (without STT) fo r Rs.86 ,39,024/- and Rs.1 ,13,02,064/ - sho uld have been t axed @20%. The tax effect would be Rs.39,88,218/- without surch arge and cess.
Indexed long term capit al loss of Rs.46,43,572/- was claimed from sale of Gold ETF & was allowed as such in assessment. Even t hough they were all h eld fo r less than 36 months. Gold ET F is a non equit y fund and prior to 31.05.2015, and as per sec. 2(42A) 1 st pro viso, STCG tax is applicable if the units are sold within three years of purchase. Thus the indexed LTCL of Rs.46,4 3,572/- should actually be STCG of Rs.12 ,58,271/- from t he sale of Gold ETF and t axable@30%. The t ax effect would be Rs.3 ,77,481/- without surcharge and cess.
The assessee held 4 depreciable asset s as ho use pro perty which were sold during relevant year and STCG of Rs.3,16,04 ,127/- was decl ared. The st amp dut y value of the pro perties was Rs.9,91,43,740/-, which for the purpose of section 48, shall be deemed to be th e full val ue of the consideration received or accruing as a result of such transfer, as per sect ion 50C. While assessing the STCG from these four pro perties, th e sale value should h ave been deemed to be Rs.9,91,43,740/-, which would result in STCG of Rs.5,05 ,46,2 67/-. This omission had resulted In underassessment of income of Rs.1 ,89,42,14 0/- and the tax effect would be Rs.65,67,201/- without surch arge 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.
3 ITA No. 892/KOL/2019Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited 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 co urse o f assessment of Ret urn of AY 2015-16 it was fo und that Right on Propert y being 3 7 flats of different configurat ions, h aving an appro ximate tot al area of 50051 sqft, in a then upcoming housing project named 4 Sight Mano r at Kolkata - 700084, was acquired by the assessee upon execution of the Agreement fo r Sale and MOU on 26 .08.2011 and th e same Right was t ransferred to the third party individuals by execut ion of Tripart ite Agreement fo r Sale in FY 2011-12, 2012-13, 2013-14 and 2014-15. Since the assessee followed a mercant ile method of accounting, the full value of sale to the third-party buyers accrued as a receipt to the assessee as and when the T ripartite Agreement fo r Sale wit h the 37 third part y buyers h appened during the FY 2011-12, 2 012-13, 2013-14 and 2014-15, in the same manner as the right on the 37 flat s were acquired by the assessee on 26.08.2011. T hus business income accrued to the assessee from th e sale of "Right" to the 37 buyers on the day of signing of the T ripartite 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 2015-
16. During the assessment of AY 2015-16, it was fo und th at 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 al l connot ation of business or vent ure in the nature of t rade. T he relevant facto rs and circumst ances determined th e distinctive ch aracter of the transactions in this case as was held by the Apex Court in the case of G .
Venkat aswami Naidu & Co vs. The Commissioner of Income T ax. The int ention of acquiring the flats in t he Propert y was not present in this case from th e very beginning and this was evident in the MOU executed at th e time o f deploying th e fund of the assessee in the development act ivit y of th e Owner/Developer. It was thus h eld that profits earned by the assessee by sale of ' Rights' on the property was business profit in the regular co urse of its financial business and other similar vent ures.
ii) The assessee failed t o 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 disclo se t rul y 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 4 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited 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 o ff of LTCG o f Rs.86,39.024/- fro m Sale of Bonds and LTCG of Rs.11,302,064/- fro m sale o f Right to Property agains t LTCL o f Rs.111,33,28,388!- from sale o f Government Securities not permissible to the assessee.
During the year the assessee has earned Long Term Capital G ains (LTCG) of Rs.86,39,024/- fro m Sale of Bonds and L TCG of Rs.1,13,02,0 64/- fro m sale of Right to Pro perty, 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 C apital Loss of Rs.1,11,33,28 ,388/- from sale of Government Securit ies in the current year.
In the notice issued u/s 263 of the Act , yo ur goods elf h as mentioned that as per the return of income filed by the assessee, indexation benefit on sale of Government securities was taken which resulted i n Long Term Capital Loss (LTCL) of Rs.1 ,11,33,28,388/-. However, indexation benefit should no t have been allowed o n Government Securit ies as the same are ' bonds and debent ures' and instead, gains of Rs.1 6, 17,578/-, befo re indexatio n benefit , should be subjected to t ax. The same is tabulated follows:
Part iculars Sale price Cost Price LTCG Indexation LTCG after before cost indexatio n indexatio n Governmen 1,20,00,00,0 1,19,83,82,4 16,17,57 2,31332838 1,11,33,28,3 t Securit ies 00 22 8 8 88 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 th e claim of set off of Long Term Capit al Gains (LTCG) of Rs.86,39,024/- from Sale of Bonds and LTCG of Rs.1,13,02,064/- from sale of Right to Propert y, totalling to Rs.I,99 ,41,088/- fro m the said LTCL of 1,13,33,28,38 8/- in the comput ation of income forming part of the assessment o rder. 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 th at against the assessment order passed u/s 143(3) of the Act, th e assessee has file d an appeal before the learned CIT (A) and the said appeal is Pending fo r adjudicat ion.
Here, it is furth er pointed out that the assessee was disallowed t he benefit of indexatio n in respect of Government Securities on the notion that Cost Infl ation Index was not applicable on Go vernment securities in terms of the third proviso to section 48 of the Act as th ese were bonds and debent ures. Third pro viso to sectio n 48 read as under:5 ITA No. 892/KOL/2019
Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited "Provided also that nothing contained in t he second proviso shall appl y to the long-term capital gain arising from the transfe r of a long-term capital asset , being a bo nd o r debenture other than-
(a) capit al indexed bo nds issued by the Government ; o r
(b) So vereign Gold Bond issued by th e Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015:"
Here, it is of ut most relevance to discuss the meaning of 'Government Security' The term "Government security" h as been defined under Explanation (b) to section 194LD(2) of the Inco me Tax Act, 1961 as follows:
Government security" shall have the meaning assigned 10 it in clause (b) of section 2 of the Securities Cont racts (Regulation) Act , 1956 (42 of 1956) As per Section 2(b) of the Securities Co ntracts (Regulat ion) Act, 1956 "Government securit y" means a security created and issued, whether before o r after the co mmencement of th is Act, by the Cent ral G overnment or a St ate Government fo r the purpose of raising a public loan and having one of the forms specified in cl ause (2 ) of section 2 of the Public Debt Act , 1944 (18 of 1944);
Further, sectio n 2(2) of the Public Debt Act, 1944 defines "G overnment security" as follows:
" Government security" means-
(a) a security, created and issued, I by the Government ] fo r the purpose of raising a public loan, and having one of the following forms, namely:-
(i) stock t ransferable by registration in the books of the Bank; or
(ii) a promisso ry note payable to order: or
(iii) a bearer bond payable to bearer; or
(iv) a fo rm prescribed in this behalf;
(b) any other securit y creat ed and issued by th e Go vernment] in such form and for such of the purposes of this Act as may be prescribed;
The Government securities which were sol d during th e 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 rest rict s the indexat ion in th e case of long term capital assets, being bonds or debentures other than Capit al Indexed Bonds issued by the Government. The t erm debenture h as been defined in section 2(30) of the Companies Act'2013 which reads as under:
"debent ure" includes debent ure stock, bonds o r any other inst rument of a company evidencing a debt , whether co nstit uting a ch arge o n the assets of the company or not;6 ITA No. 892/KOL/2019
Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited On a combined reading of the above sectio ns, it eme rges th at G overnment Securities are not bo nds or debentures and are therefore not covered by pro viso 3 to section 48 of the Act and th erefo re the assessee has rightly claimed the benefit of indexation on sale of Government securities".
"Sale of Gold E TFs to be taxed as STCG and no t LTCG In the present case, since the Gold ETFs were held for a period o f less th an 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 . T his error in the assessment order is accept ed.
Stamp Du ty value should have been-c onsidered as fu ll value of consideration for sale of house property for the purpose of s ection 48 of the Act.
In th e present case, the assessee had sold 4 depreciable assets/f1at s during the year belo nging to the same Block of Assets - Buil ding. The opening WDV of t he said Block was Rs.1 ,33,21,798/-. The sale consideration received fro m these 4 properties was more than th e Opening WDV of the Block and the additio ns made during the year in the Block. As such, the closing WDV of the block was reduced to Nil . The co mputation of STCG fro m sale of these 4 properties is t abulated below:
Comput ation of capit al gains t aking act ual sale considerat ion received Part iculars Amount Amount Sale proceeds as 8,02,01,600 per books-block building Less: Opening 1,33,21,798 WDV as per books Less: Additio ns 3,52,75,675 4,85,97,473 during th e year as per books Short Term 3,16,04,127 Capit al Gains The relevant ext ract fro m th e T ax Audit Report , 'Calcul ation of Depreciation under the Income Tax Act' is enclosed at page 4.
In continuat ion to th e abo ve, please note that out of these 4 flats sold during the year, 3 flats were held fo r a period of less th an36 mo nths and 1 flat was h eld fo r a period exceeding 36 mo nths.
Details of 3 flat s hel d for less th an 3 years is as follows: -
Sr. No. Flat No . Cost of Actual sale Stamp dut y ST capital
construction proceeds valuation gains
(A) u/s 50C (B-A)
(B)
1 Fkat 21, 26,92,609 36,46,400 36,46,400 9,53,791
Kal ra Road,
Burdwan
7
ITA No. 892/KOL/2019
Assessment Year: 2014-2015
The Peerless General Finance & Investment Company Limited 2 Flat 2, 19,65,132 28,28,800 29,03,940 9,38,808 Kal ra Road, Burdwan 1 Flat 2A, 26,92,609 36,46,400 44,67,800 17,75,191 Kal ra Road, Burdwan TOTAL 36,67,790 As evident fro m the above table, the assessee in comput ation of capital gains fro m sale of the above three properties h as considered t he St amp Duty Valuation u/s 50C of the Act as th e sal e consideration to arrive at the STCG of Rs.36,67,790/-. The said short t erm capital gains of Rs.36,67,790/-
was offered for taxation in the computat ion of total inco me.
With regard to the 4t h propert y, being flat at 5, Lal a Lajpat Rai Sarani, it was submitted during assessment that th e said flat was acquired in the year 1989 and was therefo re a Long Term Capit al Asset by virtue of section 2(29A) of the Act. In suppo rt, reliance was placed on the judgment of the Hon'ble Bo mbay Hlgh Court in th e case of CIT vs Ace Builders reported in 281 ITR 210 (copy enclosed at page 5-12) wh ere it was held that-
Held, dismissing the appeal , th at there was nothing in section 50 t o suggest th at th e fict ion creat ed in sect ion 50 is not onl y applicable to sections 48 and 49 but al so applies to oth er provisions. On the contrary, this sect ion makes it explicitly clear th at the deeming fiction creat ed in sub-sections (1) and (2) is rest ricted onl y to the mode of computation of capit al gains contained in sections 48 and 49. The legal fiction is to deem the capit al gain as short-term capit al gain and not to deem th e asset as short-t erm capit al asset. Section 50 did not convert a long-term capit al asset into a sho rt-term capital asset . Though section 50 was enacted with the object of denying multiple benefits to o wners of depreciable asset s, yet that rest rictio n was limited to the co mput ation of capital gains and not the exemption provisions. Thus, th e exempt ion under section 54E could not be denied to th e assessee o n account of the fiction created in section 50.
The above decisio n was affirmed by the Ho n'ble Supreme Court in the case of CIT -vs.- V.S. Dempo Company Lt d. (Civil Appeal No(s). 4 797/2008) prono unced on 05-09-2016 (copy enclosed) In the original computation filed by the assessee along with the return of income, the Capit al G ains from sale of the 4th property at Lala Lajpat Rai Sarani was computed as follows:
Short T erm C apit al G ains (refer Table I) = Rs.3 ,16,04, 127/-
Less: STCG o n sale of 3 properties (refer T able 2) = Rs.36,67.790/-
Therefo re STCG on th e sale of the 4th property = Rs .2,79,36,337/ -
Set off with LTCL of t he current year = Rs.2,79,36,337/-
Net Taxable NIL 8 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited In the o riginal computation, th e sale consideratio n of Rs.8,02 ,01,600/- actually received by the assessee was t ak en in consideration. On the 3 pro perties which were held for less than 3 years, the assessee computed STCG of Rs.36,67,790/- t aking into consideration th e stamp duty value and on the 4th property which was hel d for more th an 3 years, STCG was comput ed at Rs.2,79,3 6,337/- as expl ained above. Si nce the 4th property at Lala Lajpat Rai Sarani was held for a perio d of mo re than 3 years, the said flat was therefore a Long Term C apit al Asset by virtue of sectio n 2(29A) of the Act. In suppo rt, reliance was placed o n the judgment of th e Hon'ble Bombay High Court in the case of C IT 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 th e same was not allowed in th e assessment o rder on th e pretext that STCG from sale o f the depreciable asset s cannot be set off with the Long Term Capital Loss. The assessee has tiled an appeal before t he learned C IT(A) against this disallowance and th e same is pending fo r adjudication.
In the notice issued u/s 263 of the Act , your goodself h as raised the ground that the assessee h as not considered t he St amp Duty Val uation of Rs.9 ,91,43,740/- in co mputation of STCG in this case wh ich has resulted in underassessment of income of Rs. 1,89,42 ,140/- which h as rendered the assessment order as erro neous.
In this regard, please note th at during assessment, it was submit ted before the learned AO that immediat ely before th e sale, the propert y was valued by M/s N K Chakravart y and Co,registered val uer at a value of Rs.5 ,84,00,000/-. A copy of the Val uatio n report is enclosed at page 19-20 . The said flat didn't had a car parking space and also there was no sco pe of getting a high voltage elect ric co nnectio n. As such , it was very difficult to g4t buyers who woul d have paid such a h igh price fo r the said flat at par with the st amp dut y valuation. In the assessment st age, it was therefore requested before th e AO to consider the act ual sale consideratio n of Rs.7 ,00,80,000/- received by the assessee which was more th an t he FMV of the propert y. 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 befo re th e AO dated 23.12.2016 is enclosed at page 18-20. H owever, no s uch reference was made by the AO to th e DVO and on being satisfied with the submissions of the assessee, the sale consideratio n of Rs.7,00,80,000/- actually received was considered in co mputation of capit al gains in the assessment o rder. As evident, detailed enquiries were made by th e ld. QAO in th is regard and the same was dul y replied to by the assessee.
At this juncture, please note th at vide Finance Act, 2015 w.e.f 01-06-2015 a new expl anation Explanat ion 2' was added to sectio n 263 of the Act which reads' as follows:
Explanation 2 . - For t he purposes of this section, it is hereby declared that an o rder passed by th e 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 o r Co mmissioner.:9 ITA No. 892/KOL/2019
Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited
(a) the order is passed witho ut making inquiries or verificat ion which should h ave been made;
(b) the o rder is passed allowing any relief without inquiring into the claim;
C) the order h as not been made in acco rdance with any order, direction o r inst ruction issued by the Board under section 119; or
(d) the order h as not been passed in accordance with any decisio n which is prejudicial to the assessee, rendered by th e jurisdictional High Court or Supreme Court in the case of the assessee o r any other person. " .
In simple words, follo wing o rders passed by assessing officer sh all now be considered as erroneous and prejudicial t o the inte rest of revenue w.e.f 01.06.2015, where AO passed o rder: -
1) without making any inquiries/ verificat ion which he/she is required to be made.
2) without making inquiry into a claim which is claimed by assessee and allowed such cl aim.
3) which is not in accordance with any order/directio n/instruction (i.e. circul ars) issued by C BDT;
4) which is not in accordance with any decisio n of jurisdictional High Court or Supreme Co urt which is prejudicial to the assessee or any other person. In other wo rds, where jurisdictional High Court o r Supreme Court's decision is against th e assessee or any other person and AO passed the o rder without co nsidering such judgment then such o rder shall be considered as erroneous and prejudicial to t he inte rest of revenue.
Applying this explanation to the fact s of the assessee, it is clear th at pro per enquiries were conduct ed by the learned AO with regard t o the sale of depreciable asset s/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 co mputing the Capit al Gains with regard to the 4 t h pro perty during the course of assessment and the same was duly considered by th e ld. AO. As such, the assessment o rder cannot be said to be erroneous in this case.
Your goodself noted that the assessee h as acquired a Right on property, being 37 flat s upon execution of the agreement for sale and MOU on 26-08- 2011 and the same right was transferred t o the third party individuals by execut ion of tripartit e agreement fo r sale in FY 2011-12, 2012-1 3, 2013-14 and 2014-15. As the assessee follows mercantile system of accounting your goodself opined that business inco me accrued to th e assessee from the sale of 'Right' to th e 37 buyers on the day of signing the t ripartite agreement. During the course of assessment of AY 2 015-16, the learned AO alleged that the motive of t he assessee was to sell at profit which was penned down in the MOU and therefo re held that profits earned by the assessee by sale of Rights were business profits in t he regular course of business 10 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited transactions and not 'Capital G ains' 0 Since the assessee failed t o 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 o f the revenue.
In this regard, th e assessee humbly submit s that th e assessee is a Residuary Non-banking Financial Company and operates under th e registration fro m RBI. The main business of the ass essee is fro m interest income earned on lo ans and advances given as per the RBI guidelines.
The assessee also invests in real estat e wh erein it enters into agreements for sale with developers fo r acquisition of rights in a definite number of flats. In this regard, further note that the assess ee entered into an 'Agreement fo r purch ase' on 26 .08.2011 by cont racti ng with M/s City st ar Housing Pro ject Pvt . Ltd. (Owner/Developer) for purch ase of 3 7 flats of different configuratio ns having approximate total area of 50051 sq.ft. in an upcoming ho using pro ject to be constructed by the developer. The assessee had paid th e entire purchase co nsideration of Rs.12.57,82,542/- on 30.08.2011 out o f its own funds to t he owner/developer and thus acquired a right on t he said property w.e. f. 26.08.2011. By virtue of the said' Agreement for sale', the assessee onl y acquired a right in those 37 fiats being constructed by M/s City st ar Ho using Pro ject Pvt. Lt d. Th e said investment in Right t o Pro perty was a capital asset and was sh own in the Audited Account s as Investment in Right to Property' under the head 'Invest ments - Current and Non-current invest ment s', refer Not e II of the audit ed accounts. T he invest ment in Right to Propert y was never considered as 'stock in t rade' by the assessee. The assessee declared a total receipt of Rs.16,10,57,288/- in th e assessment year 2015-16 as sale consideration of the pro perty, being 37 flats. The l ast date of payment in all the 37 cases was 18-02-2015. Right s over th e said 37 flats were transferred after more than three years fro m the date of its acquisition to respective individuals at a tot al considerat ion of Rs.16,10,57 ,28 8/- aft er receipt of the final inst alment of sale consideration on 1 8.02.2015. Accordingly, the appellant considered the indexed cost of acquisition of the right of respective 37 fl ats as per provisions of sec. 48 r. w.s. 2( 14), 2(29A) and 2(47) of the Act and computed long term capit al loss on transfer of the said rights at Rs.36 ,60,000/- in AY 2015-16.
The said invest ment being a capit al asset and disclosed as such in the audit ed accounts of t he company was duly disclosed before the depart ment in AY 2012-13, 2013-14 and 2014-15 and assessment s for all t hese years were completed after proper examinat ion and scrutiny of the books of account s u/s 143(3) of the Act . In the present case, the assessee entered into a 'T ripartite Agreement for sale' with respect to these 37 flats in AY 2012-13, 2013-14, 2014-15 an 2015-16 and received th e sale consideratio n from the buyers on different dates as per t he terms and conditions of the agreement entered into with the respective part ies. The Right s over th ese said 37 flats were transferred at a to tal consideration of Rs.16, I 0,57,288/- after receipt of the final instalment of sale consideratio n on 18.02.2015, i.e. AY 2015-16. The assessee entered into' Deed of Conveyance' or th e ' Sale Deed' after receiving the full payment of the pro perty and th e ownership of th e pro perty was then t ransferred in the 11 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited name of the buyer. Since the last payment was recei ved in AY 20 15-16, the income from the sale of these 37 fl ats arose in AY 2015-16. Here, it is also pertinent to mention that there is a specific cl aus e in the " Tripartite Agreement for Sale' t hat th e sale wo uld be complete and th e sale deed will be execut ed in favour of the buyers only on receiving the full payment of the pro perty. Furth er note th at the said invest ment in Right t o Property was never converted into 'Stock In T rade' by the assessee in any of the years. The same is evident from the audited account s of th e Co mpany for the year 2011-12, 20 12-13, 2013-14 and 2 014-15 encl osed with the Paper Book. More so , Sect ion 45(2) of Income T ax Act deal s with the cases where a capital asset is converted into stock in trade. Whenever a capital asset is converted into stock in t rade by an assessee it is deemed as t ransfer of capit al asset and att racts capital gain pro visions, in spite of th e fact that the ownership of such capital asset doesn't change by such conversio n. As such, it is a t rite l aw that sale/t ransfer/conversion of a Capital Asset would auto matically result in Capit al G ain u/s 45 of the Act and the income from such sale cannot be t reated as Business Income. Inspite of the aforesaid legal position, the learned AO in the assessment fo r AY 2015-16 disallowed the cl aim of long term indexed capital loss of Rs.3 6,60,000/- from sale of Rights cl aimed by th e assessee and t re ated the profits on such sale as business profits. Aggrieved with the assessment o rder, th e assessee went in appeal befo re the learned CLT(A) o n this issue. The learned CLT(A) perused and examined the facts of the case and acce pted the cl aim of the assessee th at the impugned t ransactions is to be treated as C apital Gains and direct ed the learned AO to assess the income from the sale o f Rights to Propert y under the head 'Capital G ains' Th e relevant ext ract of t he C ITCA) order is repro duced below:
"12. In this case 37 flats were purchased of different configuration. This was validated by an agreement. The approximate tot al area was 50051 sq. ft. Assessee purch ased entire purch ase co nsideration.clt was reflected in the Audited Acco unts as wall. It was shown as invest ment .
Assessee declared total receipt of Rs. 16,10 ,57,228/- as sale consideration. The last date of payment in all 37 cases/flats was 18.02.201 5. This was after 3 years. This position was accepted in earlier years.
Thus following the decision in Radha Soami Satsang. I h ave no option but to go by the decision: Radh a Soami Satsang on th e principles of consistency. Reliance is also placed on the decisio n of Calcutt a ITAT in the case of DC IT vs. M/s. ABCI Infrast ruct ure Pvt. Lt d. (ITA No. 990/Kolkata/ 2013). "
In light of the aforesaid fact s, let us now examine the provisions of sect ion 263 of the Act and the show cause notice issued by your goodself.
Here, it is relevant to quote section 263 of t he Act .
263. Revision of o rders prejudicial to revenue. - .
(j) The Commissioner may call for and examine the record of any proceeding under this Act, and if h e considers th at any o rder passed therein by the Assessing] Officer is erro neo us in so far as it is prejudicial 12 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited to the interest s of t he revenue, he, may, after giving the assessee an oppo rtunit y of being heard and after making o r causing to be made such inquiry as he deems necessary, pass such order th ereon as th e circumst ances of th e case just ify, including an ord er enhancing or modifying the assessment , o r cancelling the assessment and direct ing afresh assessment.
Explanation-I -- Fo r t he removal of do ubts, it is hereby declared that , fo r the purpose of this sub- section,-
(a) .....
(b) .....
(c) wh ere any o rder referred to in this sub-section and passed by th e Assessing Officer had been the subject matter of any appeal filed on or before o r aft er the 1st day of J une, 1988J, the powers of th e/Principal Commissioner o r Co mmissioner under this sub-section sh all extend land shall be deemed always to h ave extended t o such matt ers as h ad not been considered and decided in such appeal. "
Clause (c) of Expl anation 1 clearl y stat es t hat Revision under section 263 of the Act is not permissible on issues al ready considered by CIT(A) in appeal since the assessment o rder merges with the appellate o rder and the power of the CIT to invoke his revisional jurisdictio n under sect ion 263 of the AC I cannot extend to such matters which h ave been considered and decided in the appeal . Once the issue h as been considered and decided by the CIT(A), th e remedy of the Revenue cannot lie in the invocat ion of the jurisdiction under section 263 of the Act .
To butt ress 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 Co mmissioner Of Inco me Tax (2010) 328 ITR 0148 (Bombay HC) wherein it was held that , Revision-Merger with appellate o rder-Issue considered and decided by CIT(A)-Where any o rder passed by the AO h as 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 t he Revenue cannot l ie in the invocat ion of the jurisdiction under s. 263-Revisional order passed by th e CIT under s. 263 was not valid "where an o rder passed by th e AO is subject to an appeal th at h as been filed, the power of the CIT to invoke his revisional jurisdictio n under s. 263 can only extend to such mat ters which have lit" been co nsidered and decided in the appeal . The words which have been used in Expln. (c) to iub-s. (1) of s. 26 3 are "co nsidered and decided" .
In other wo rds, it is not merel y a considerat ion that disables, but tile matter h as to be considered and decided in the appe al. Th e submission of counsel appearing o n behalf oJ the Revenue th at the CfT(A) h as not decided th e issue, while dealing with the question oJ enhancement, cannot be accepted. Th e submission which h as been urged on beh alf of the 13 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited Revenue is th at th e CIT (A) was requested to exercise his power of enhancement in pursuance of the request made by the Addl . C IT on 20th May, 2005 and that the request which was made was to carry out an estimation of the init ial invest ment fo r the first year of the block perio d. Now, the power of th e CIT(A) is st ruct ured by the pro visio ns of s. 251. Sec. 251 inter alia provides th at in disposing of an appeal the C IT(A) shall h ave the power in an appeal against an order of assessment to co nfirm, reduce, enhance or annul t he assessment . Consequentl y, when a request fo r 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 t he CIT(A), part icularl y para 16.5 of th e order, would lead to the concl usio n th at th e C IT(A) had considered and decided the issue. Once the issue was co nsidered and decided by the CIT (A), the remedy of the Revenue cannot lie in the invocation of the jurisdictio n 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 co nsidered the fact s of th e case and submissions of th e assessee . These observations were raised in the show cause notice, which is discussed hereunder: -
(i) Long term capit al gain(without STT): -
The assessee claimed long term capital loss (without STT) of Rs.109,80,30 ,873/-on account of loss suffered from government securities(Rs.111,33,2 8,388/-), 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 Bo nds(Rs.86,39,0 24/-) and profit on sale of right to propert y(Rs.1,13,02,064/-) was no longer possible. Furthermo re, the gold ET F were observed to have been held for less th an th ree years(period of holding fo und 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 wo uld not be available. In this way, the under-assessment was found to be to the tune of Rs. 2,11,9 9,359/- as follows:
Part iculars Sale price Cost price Actual L.T . Remark s 14 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited Capit al Gain Bonds (Long 2,06,79,00,000 205,92,60,976 86,39,024 No tax was Term) levied by the depart ment Govt. Securities 1,20,00,00,000 119,83,82,422 16,17 ,578 Set off with brought forward L.T .
Capit al loss Profit on sale 113,02,064 No tax was right to pro pert y levied by the Dept .
Long term 199,41,088
capit al gain
(Without STT)
86,39,024 plus
1,13,02,064 =
Rs.1 ,99,41,088/-
Gold ET F (short 5,90,55,635 5,77,97,364 12,58,271 The assessee
term capit al as was deptt .
gain Treat ed it L.T .
capit al loss of
Rs.46 ,43,572/-
after applying
const.
Indexation.
Short term 12,58,271
capit al gain
(without STT)
In this connection, th e assessee h as pointed out that the issue at hand was before the C IT(A). Needless to say, it is trit e law th at the PC IT can exercise revisionary proceedings on a matt er which is still pending befo re C IT(A) for adjudicat ion. T he assessee furth er proceeds to explain how 'government securities are not "bo nds o r debentures' to suppo rt its claim of indexation benefit. These are mere assertions. Further without prejudice, assessee cl aims to have earlier years LTCL bro ught forward of Rs. 3 ,50,28,74,344/-. Be that as it may, the Aa shoul d ascert ain this claim of the assessee. As fo r the LTCL claimed by the assessee, th e 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 wh ich was allowed in the impugned order. However, th e det ails filed by assessee during assessment proceedings showed t he holdings fo r less t han 36 months. Gold ET F is a non-equit y fund and prior to 31.03 .2015, and as per sec. 2 (42A) 1st pro viso , STCG tax was applicable if sold within th ree years of purch ase. Thus, the indexed LT CG of Rs. 46,43,572/ - should act ually be STCG of Rs. 12,58,271/- from sal e of Gold ET F. In his submissio n, the assessee has accept ed this erro r in the impugned assessment order.
15 ITA No. 892/KOL/2019Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited
(iii) Applicability of sec. 50C read with sec. 48 of the IT Act on the pro perty transaction: -
The assessee had so ld four depreciable pro perties during th e year o n which STCG of Rs. 3,16,04,127/- was declared and allowed by the AO. However, the co py of sale deed of four pro perties avail able in the assessment folder , t he total stamp duty valuation of the pro perties as assessed by the stamp valuation authorit y 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 pro visions of sec.50c. The assessee had also claimed depreciat ion and was allowed as such .
To elucidate, except for Flat 2A at Kalna, t he st amp dut y val uation of th e other th ree properties were more than the sale consideration. Thus, ensuing STCG shoul d have been det ermined at Rs. 5,05,46 ,267/- instead of Rs. 3,16,04 ,127/ - as claimed by assessee.
Assessee h as vehemently disagreed to the above observatio ns. T he fact of the matter is th e afo resaid det ails h ave been obt ained from th e copies of sale deeds filed by assessee in the course o f assessment and which was not looked into by the AO before disposing. Clearly the AO h as passed an order without appl ying his mind on the fact s emanating from documents on records which were filed by assessee. Mech anical claim if assessee without the AO exercise his st atutory duties to pass an assessment in accordance with law on the fact s of each case has therefo re resulted in an erroneous assessment as well as one prejudicial to th e interest of revenue.
7. Now coming to th e issue raised in th e second show cause, it needs to be stated that th ere is no dispute o n the fact s of the case. The dispute is o n the t reatment of the income from sale of "Right to Pro perty' which h ad treat ed as capit al gains. Main business of assessee is NBFC and h ad also forayed into real est ate. On 26.08.2011, an 'agreement for purchase was entered by contracting developer M/s City star Housing Pro ject Pvt. Lt . Fo r purchase of 37 fl ats. The entire consideration of Rs. 12,57,82,542/- was paid o n 30.08.2011 thereby acquiring a right on the 37 flats. This investment was claimed as a capit al asset and shown in th e audited account s as ' Invest ment in Right to Propert y' ur.cer the head 'Investment -
current and non-current." During this year under considerat ion, these 37 flats were sold as per tri-partite agreement and th e tot al receipt of Rs.16 ,10,57,288/- thereon was indexed resulting is long term capit al loss of Rs.36,60,000/-. The assessee h as contended th at the right over the fl ats were t ransferred a.t er mo re than three year fro m date of its acquisition to respective individuals aft er receipt of t he final s ale considerat ion on 18.07.2015. It was also stated that the said investment in 'Right to Propert y' was never converted into stock -in-trade i n any of the years. Th at this conversion now of its capit al asset into stock-in-trade is deemed as transfer of capit al asset att ract ing the provision of Sec.45(2).
Few questions arises. The MoU with t he developer was signed o n 26.08.201l. However, the assessee h as not pro vided the dates on which the various T RIPART ITE agreements with th e buyers were signed, by virtue of 16 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited which the 'Right' to the pro perties were t ransferred. In other words, the income woul d have accrued to the assessee as and when a buyer signed th e TRIPART ITE Agreement. However, assessee has stat ed th at a clause in the agreement provided for the conveyance of the Deeds when the last of the flats were sold. Why?? The assessee h as only purchased the ' Right' as emph asised; there was no int ention of holding o n to it as an investment as apparent from the MoU. Furthermore what were the compelling circumst ances to co nvert the so called investment as stock-in-t rade aft er three years? Thus it is very evident from t he conduct of the assessee that the purchase of 'Righ t' had been made wit h the sole intention o f revisio n as " invest ment" in th e acco unts in relevant years is not a clinch ing facto r. The distinctio n wheth er an investment t ransaction is a mere real isation of the investment on an act done for making profit s de pends o n whether the excess was enh ancement of the value by realising a securit y or a gain in an operation of profit making. Here, th e nature of t ransactions raises a very strong presumption towards accept able business ch aracters. In other words, the subst ant ial nat ure of t ransaction clearly reveal that the vent ure engaged in by the assessee is clearly in the nature of t rade.
In it s submissio n, assessee has st ated that the C IT(A) having already considered th e issue, it could not be t aken up for revision u/s 263. It would seem fro m the submission th at the appell ate order referred to is for A.Y. 2015-16. However, neither copy of the appeal o rder no r the grounds raised in Form No.35 h ave been provided. On a perusal of the impugned assessment records fo r A.Y. 2014-15, it is seen th at th e issue at hand was never examined by t he AO. Needless to say, a finding or an opinion recorded by a tax aut hority fo r one assessment year h as 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 t he fact ual mat rix. The AO was required to delve into the nature of the t ransaction by scratching the surface.
6. Hon'ble Delhi High Court in th e case of G EE VEE Enterprise vs. Addl.C IT reported in 99 ITR 3 75, 386 (Del) has hel d that the C IT may consider the order of th e Assessing Officer to be erroneous not only if it co ntain so me apparent erro r of reasoning o r of law o r o f fact on the face of it but also because the Assessing Officer h as failed to make enquiries which are called for in the circumst ances of the case and it is an o rder wh ich simply accept ed wh at the assessee has st ated in his return of inco me o n the said issue. It is not necessary for the C IT to make further enquiries befo re cancelling the assessment order. The Commissioner c an regard the order erroneous on the ground that the Assessing Officer sho uld h ave made further enquiries.
7. Hon 'ble Karnat aka High Court in th e case of Thalibai F. Jain vs. ITO 101 ITR 1, 6 (Karn) has held th at where no enquiries made by th e Assessing Officer on the relevant issue, assessment must be held to be prejudicial to the interest s of the revenue and wh at is prejudicial to the interest of the revenue must be h eld to be erro neous though the con verse may not always be true.
17 ITA No. 892/KOL/2019Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited
8. Hon'ble Supreme Court in the case of Malabar Indust rial Co. Pvt. Lt d vs. CIT repo rted in (2000) 243 IT R 83, 87 -88(SC) affirming the Hon'ble Kerala High Court decision (198 ITR 611) has hel d that the ph rase "Prejudicial to the Interest s of the Revenue" is of wide import and is not confined to only loss of t axes. If the A.O. has accept ed the cl aim of th e assessee without any enquiries th en such assessment order passed by the A.O. was held to be erroneous.
9. In this regard it is mentio ned that mere non enquiry wo uld also render a particul ar order passed by lower autho rity as erroneo us and prejudicial to the interest s of Revenue. Th is position has been clearl y confirmed by Hon 'ble Supreme Court in the case of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 & Smt. T ara Devi Aggarwal v. C IT [1973] 88 IT R 323 (SC). Th e reasoning for this proposition has been explained by Hon'ble Delhi High Court in th e case of Gee Vee Enterprise v. Addl. CIT [1975] 99 ITR 375 in the following para : -
"It is not necessary fo r the Commissioner t o make further inquiries befo re cancelling the assessment order of t he Income-t ax Officer. The Commissioner can regard the o rder as erroneous o n the ground t hat in th e circumst ances of th e case the Income-t ax Officer should have made further inquiries befo re accepting th e stat ements made by th e assessee in his return. The reaso n is obvious. The positio n and junction of the Income-t ax Officer is very different fro m th at of civil court. The st atement s made in the pleading pro ved by the minimum amount of evidence may be adopted by a civil co urt in the absence of any rebut tal. The civil court is neut ral . It simply gives decision on the basis of the pleading and evidence which come before it. The Inco me-tax Officer is not o nly an adjudicator but also an investigator, He cannot remain passive in the face of a ret urn which is apparently in order but calls fo r further inquiry, It is his dut y to ascertain the t ruth of the facts st ated in the return when th e circumst ances of the case are such as to provoke an inquiry, It is because it is incumbent on the Income-t ax Officer to further investigate the facts st ated in t he return when circumstances would make such an inquiry prudent th at the word "erroneous" in sect ion 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 anyth ing wrong with the order if all th e facts st ated therein are assumed t o be co rrect."
10. Further to this it is noticed th at there is no appeal right available to the Revenue fro m the order of assessment passed by Assessing Officer and i.e. why revisionary powers h ave 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. Sh ree Manjunathesware Packing Product s & Camphor Works [1998] 231 ITR 53/96 T axman 1. Therefo re, no r mally 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 co nstrued as erroneous and prejudicial to the interest of Revenue and therefo re, the impugned assessment order is erroneous and prejudicial to the interest of Revenue as Assessing Officer h as failed to make any enquiry.
18 ITA No. 892/KOL/2019Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited
11. Having regard to the fact s and circumstances of the case and in the light of the aforesaid decisio ns of Hon'ble Supreme Court and Ho n'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 im pugned assessment order dated 28.12 .2016 passed by the A.O. is erroneous in so far as it is prejudicial to the int erest s of th e revenue. I further hold, after giving the assessee an o ppo rtunity of being heard, that the impugned assessment order dated 28.12.201 6 is liable to set -aside. Therefore, I set aside the said assessment order directing the A.O. to frame the assessment afresh aft er 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) Th at o n the facts and in the circumstances of the case, th e learned Pr. C IT erred in passing the impugned order dated 25.03.2019 u/s. 263 of the Inco me-t ax Act, 1961 without satisfying the necessary preconditions for invoking t he provisions of the said section.
(2) That , the order o f the Ld. Pr. C IT u/s.263 directing the A.O. to pass a fresh assessment o rder as per direct ions co ntained therein is against the settled l aw by various judicial pronouncements o n the issue in as much as t here is no incidence that tax lawfully exigible has not been imposed or a lesser t ax has been imposed.
(3) That , the Ld. Pr. ClT has wro ngly assumed jurisdiction u/s.26 3 of the Act fo r setting aside the o riginal assessment o rder with regard to set off of Long Term Capital Gains from sale of bonds and Long Term C apit al Gains from sale of Right to Propert y against Long Term Capit al Lo ss claimed by th e assessee on sale of Government securities.
(4) Th at, the Ld. Pr.C IT h as wro ngly assumed jurisdiction u/s.263 of the Act fo r setting aside the o riginal assessment o rder with regard to applicability of section 50C read with section 48 of the IT Act on sale of depreciable propert y.
(5) That , the Ld. Pr.C IT h as wrongly assumed jurisdiction uls.263 of the Act fo r setting aside the o riginal assessment o rder with regard to treat ment of the income from sale of right to propert y under the head 'Profit s from Business' in spite of the fact that the said income is assessable under t he head 'Capital G ains' as held by the learned CIT(A) in h is o rder dated 04-03-2019 for AY 2015-16 on identical facts of the case.
(6) Th at, the Ld. Pr.C IT h as wro ngly assumed jurisdiction u/s.263 of the Act fo r setting aside the o riginal assessment o rder o n the pretext 19 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited that the AO has passed the assessment o rder without making pro per enquiries which he sh ould have made.
(7) Th at, as the o rder of Ld. Pr. C IT o n th e above issues suffers from jurisdiction, illegalit y and is devoid of any merit, the same shoul d be quash ed and your appellant be given such relief(s) as prayed fo r" .
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 20 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited 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) 21 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited 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 orde r 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 22 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited 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.
23 ITA No. 892/KOL/2019Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited
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 sai d 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 24 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited 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 fort h 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 25 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited 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 26 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited 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 co mputat ion o f the short term capital gain on the sale of the flat at 5, Lala Lajpat Rai Sarani, the sale proceed of the flat h as been taken at Rs.8 ,02,01,600/- as per sale deed (copy enclosed) as against the st amp duty val uation of Rs.8 ,81,25,600/-. The stamp dut y valuation h as not been taken into account in computing the short term capit al gain as th e assessee, befo re the sale of this property, got it val ued by a registered valuer. A copy of valuation repo rt as on 14.04.13 showing it s market value at Rs.5 ,84,00,000/- is enclosed. From the report of the valuer it may kindly be seen that the fl at had no car parking space o r a garage without which the high value buyers were not int erested in acquiring the flat . There was also no scope of gett ing a high voltage electric connection. Because of such defects, the assessee could not realize full market val ue of the sale of th is fl at. The assessee therefo re submit s that its fair market val ue was much less compared to the stamp dut y valuation. If your Honour does not however accept the assessee's cont ention, it is request ed that before adopting the st amp duty valuation, you may kindly ref4er the valuat ion of th is pro perty to the DVO as pro vided 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.
27 ITA No. 892/KOL/2019Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited 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 28 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited 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. 2012- 13 was transferred to third party individually by way of tripartite agreements executed in A.Ys. 2012-13, 2013-14 and 2014-15. He 29 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited 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.
30 ITA No. 892/KOL/2019Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited 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. 2015- 16 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 31 ITA No. 892/KOL/2019 Assessment Year: 2014-2015 The Peerless General Finance & Investment Company Limited 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.
Sd/- Sd/-
(A.T. Varkey) (P.M. Jagtap)
Judicial Member Vice-President
Kolkata, the 19 t h day of March, 2021
Copies to :
(1) The Peerless General Finance & Inves tment Company Limited,
Peerless Bhavan,
3, Esplanade Eas t, Kolkata-700069
(2) Deputy Commissioner of Income Tax,
Circle-3(1 ), Kolkata,
Aayakar Bhawan,
P-7, Chowringhee Square, Kolkata-700069
(3) Pr. Commissioner of Income Tax-1, Kolkata;
(4) Commissioner of Inco me T ax- ,
(5) The Depart ment al Represent ative
(6) Guard File
By order
Assistant Registrar,
Income Tax Appellate Tribunal,
Kolkata Benches, Kolkata
Laha/Sr. P.S.
32