Income Tax Appellate Tribunal - Mumbai
Ms. Rubab M. Kazerani vs The Jt. Commissioner Of I.T. on 10 September, 2004
Equivalent citations: [2004]91ITD429(MUM)
ORDER
Pramod Kumar, Accountant Member
1. When this appeal originally came up for hearing before the Bench, there was a difference of opinion between the Members who constituted the Division Bench. To resolve the controversy, Hon'ble President, in exercise of his powers under Section 255(4) of the Income Tax Act, referred the following question for the opinion of a Third Member:-
"Whether or not on the facts and in the circumstances of the case, the impugned order under Section 263 made by the learned CIT is justified and sustainable?
2. Shri J.P. Bengra, Hon'ble Vice President (M), appointed as Third Member in this case, concurred with the view taken by the learned Judicial Member and held that the learned Commissioner was not justified in assuming jurisdiction under Section 263 of the Act. The learned Third Member was thus of the view that the impugned order passed under Section 263 of the Act is not sustainable in the eye of law.
3. Following the majority view in the matter, we hold that the impugned order under Section 263 passed by the learned Commissioner is not sustainable in law. It is accordingly cancelled. The appellant, therefore, succeeds in her appeal.
4. In the result, and in accordance with the majority view, the appeal is allowed.
ORDER
1. Since there was a difference of opinion between the learned Accountant Member and the learned Judicial Member the Hon'ble President referred the following question for my opinion Under Section 255(4) of the Income-tax Act, 1961.
"Whether or nor on the facts and in the circumstances of the case the impugned order under Section 263 made by the learned CIT is justified and sustainable?"
2. Facts of the case leading to this question in appeal, briefly, are that the assessee is a spinster lady of approximately 65 years of age. The property known as "Hepburn Hall" situated in Convent Road, Bangalore, was purchased by her father in the year 1921. She received the said property from her father by way of gift in September 1955. The military authorities requisitioned the said property during the war period for the purpose of utilization of army. However, the military authorities derequestioned the said property in the year 1992. It will be pertinent to mention here that the assessee never resided in the said property and she was a resident of Bombay. On 8.06.1995 with an intention to sell this property the assessee executed a Memorandum of Understanding (MOU) with one Shri Shahrooq Alikhan of Bangalore through her General Power of Attorney Holder Shri Sameer A. Khan. As per the terms of agreement of this MOU, the assessee appointed Shri Shahrooq Alikhan (hereinafter mentioned as the second party) the sole and exclusive person to identify buyers for the property as she was not capable of attending to the interested purchasers to the scheduled property. the assessee accepted a sum of Rs. 5,50,00,000 from the second party as total sale consideration. The second party agreed to identify the buyers for the property and to obtain, if necessary, clearance certificate under the provisions of the Urban Land Ceiling Act, 1976. It will be important to note that the first party to the MOU was an Iranian National holding Iranian passport but was residing in India since birth and was resident of India.
3. The assessee conferred upon the second party irrevocable right to identify buyers to purchase the property and it was agreed that the second party shall not claim reimbursement of any expenses incurred for the purpose of developing and identifying buyers for the property. It was also agreed that the assessee was entitled to receive the sum of Rs. 5,50,00,000 only and she would have nothing to do with the profit earned or loss incurred by the second party on identifying buyers of the property and receiving the sale consideration. On 1.07.98, an agreement to sell was executed by the assessee' attorney Shri Sameer A. Khan for the said property for a total consideration of Rs. 11,87,00,726 and the assessee was referred to in the agreement as a vendor and the second party was referred to as confirming party. In this way the second party received the sum of Rs. 6,37,00,726 in the said transaction of sale. The assessee and the second party did not file any statement Under Section 269 UC of the Income-tax Act in the prescribed Form No. 37-I before the Appropriate Authority in relation to MOU dated 08.06.95. But such statement was duly filed in respect of sale agreement dated 1.07.98 for the sale consideration of Rs. 11,87,726 and clearance from appropriate authority was also obtained. The subsequent agreement to sell was registered whereas the earlier MOU was not.
4. The assessee filed its return of income declaring long term capital gain of Rs. 2,69,00,000 arising out of sale consideration of Rs. 5,50,00,000. The Assessing Officer who completed the assessment Under Section 143(3) on 10.12.98 accepted the long term capital gain declared by the assessee. The assessee while working out the long term capital gain declared by the assessee. The assessee while working out the long term capital gain disclosed fair market value of the property as on 1.4.1981 at Rs. 1 crore on the basis of the report of one Shri H.S. Vasan, a Registered Valuer. Subsequently, the learned CIT on perusal of the record found that the Assessing Officer had not examined properly the correctness of assessee's claim of long term capital gain. Therefore, he issued notice Under Section 263 of the Act requesting the assessee to file explanation/clarification on the following points:-
"a) In view of agreement for sale dated 1-7-98, Bangalore property was sold for Rs. 11,87,00,726/-. In this agreement, the assessee through her attorney Shri Sameer Ali Khan has been referred to as the vendor Shri Shahrukh Ali Khan referred to as confirming party.
b) As per the agreement dated 1-7-1998, Shri Shahrukh Ali Khan being the confirming party, received Rs. 6,37,00,726/- for this services of locating the prospective buyers of Bangalore property. The services of Shri Shahrukh do not appear to merit such payment, which is substantially more than what assessee as real owner of the property actually received.
c) While in view of MOU dated 8-8-1995 for assignment of the property for $5.5 crores no form No. 37(1) was filed to the appropriate authority under Income Tax Act, in respect of sale agreement dated 1-7-1998 showing sale consideration of Rs. 11,87,00,726, a form No. 37(1) was filed and clearance from appropriate was obtained.
d) The agreement for sale dated 1-7-1998 is duly registered with the registration authority in the month of April'99.
e) The assessee, while working out the Long-term Capital Gain on the basis of MOU dated 8-5-1995 has taken fair market value of the property as on 1-4-1981 at Rs. 1 crore as per Shri H.S. Vasan, an Approved Valuer's report. In the valuation report, no basis for adoption of rate of Rs. 300 per sq. ft. for the valuation of the property has been given. Assessing Officer did not examine the valuation report with due care and with property application of mind.
f) While working out deduction Under Section 48(1) of the Act the fair market value of the property as on 1.04.1981 is shown at Rs. 1 crore. The cost of acquisition as per Income Tax Act is 281 and indexed cost of acquisition is taken by the assessee at Rs. 2.81 crores. Here, as looking into the fact that between F.Y. 1981-82 and 1994-95, the real estate prices increased at least by 20 to 25 times, the value adopted by the assessee as on 1-04-1981 for the purpose of computation of Long-term Capital Gains not only substantially on the higher side, but its correctness was also not verified by the assessing officer properly."
In response to the show-cause notice, the assessee through her authorized representative, replied vide a detailed letter dated 23.5.2000. She submitted that the order passed by the Assessing Officer for the A.Y. 1996-97 was neither erroneous nor prejudicial to the interest of the Revenue. Therefore, for the reasons given in the said letter it was prayed that the proceedings initiated Under Section 263 be dropped. In the said reply the assessee had mentioned that during the course of assessment proceedings from 17/6/97 to 10/12/98, before the Assessing Officer, all materials necessary for assessment were produced and all the queries raised by the Assessing Officer during this period was also replied in detail. As per the terms of MOU the assessee was entitled to receive only Rs. 5,50,00,000 from Shri Shahrooq Alikhan which had been received by her on or before signing the MOU. Therefore, the transfer within the meaning of Section 2(47) of the Income-tax Act had taken placed during the financial year 1995-96 relevant to A.Y. 1996-97. The amount of Rs. 6,37,00,726 received by the second party was not only for the purpose of locating prospective buyer but also for other services and risk undertaken by him. The assessee was not liable for any duty nor was she required to obtain any kind of clearance under ULC or Income-tax Act, which was the sole responsibility of the second party. The terms and conditions also depict that the power given to the second party to identify buyers and such right was irrevocable as the second party will be incurring expenses for the purpose of developing and identifying buyers for the property. Therefore, it was the absolute liability of Shri Shahrooq Alikhan to incur such expenditure for which he received the amount of Rs. 6,37,0,726/- As regard the fair market value determined on 1.04.81 by the registered valuer at Rs. 1 crore the assessee contended that the Assessing Officer had duly considered the valuation report and had accepted the same. In this connection, Board Circular No. 495 dated 22.09.1987 was also furnish to the Assessing Officer. In the application form No. 37-I to the appropriate authority the assessee has mentioned that out of the entire sale consideration Rs. 5,50,00,000 was receivable by the assessee and additional Rs. 6,37,00,726 was receivable by the builder. The Assessing Officer after applying his mind and after seeking clarification has accepted the claim of the assessee.
5. However, the CIT was not convinced with the reply of the assessee. Therefore, he cancelled the assessment passed Under Section 143(3) and directed the Assessing Officer to examine the correct taxability of the capital gain after making necessary inquiries regarding the fair market value of the property at Bangalore, subject matter of the capital gain by passing the impugned order. He further observed that the Assessing Officer may avail services of the department's valuation cell to ascertain fair market value of the property as on 1.04.1981 for reaching the correct conclusion. The details of his finding given at para 6 to 16 of his order is as under:-
"6. I have carefully considered the learned counsel's submission. On the examination of facts and assessment records, it is evident that MOU dated 8.05.1995 executed by the assessee with Shri Shahrukh for the consideration of rs. 5,50,00,000/- was only for the limited purpose of identification of prospective buyer at Bangalore. In the MOU, amount of Rs. 5.50 crores paid to the assessee by Shri Shahrukh was referred to as Assured Security Deposit and not sale consideration. If it was full and final payment, there was no reason to mention it as security deposit. If MOU is an instrument for sale, then it should have been referred to as an agreement for sale and not as MOU.
7. The assessment records show that agreement for sale dated 01/-07-1998 for Rs. 11,87,00,726/- is on record. However, this is also a fact that this agreement for sale dated 01-07-1998 was registered with the Registering Authority in the month of April'99. Since the agreement for sale was registered in April'99, the correct assessment year for the purpose of transfer of capital asset and taxability of capital gain thereon would be A.Y. 2000-01 and not A.Y. 1996-97.
8. The agreement dated 01-07-1998 for sale of the property refers to Shri Shahrukh as the confirming party and not its owner. Therefore, the learned counsels' assertion that by virtue of MOU, Shri Shahrukh became property owner does not sand to reason. In the agreement for sale, the assessee and her attorney are referred to as vendor. The plain reading of MOU clearly indicates that Shri Shahrukh was appointed only for the purpose of locating prospective buyer at Bangalore as assessee being a lady residing at Mumbai with no infrastructures at Bangalore could do so. In this context, huge and disproportionate sum of Rs. 6,37,00,726 paid to Shri Shahrukh is definitely not commensurate with the extent of services rendered by him. The quantum of amount received by him is much more than what assessee received as a owner of the property. The extent of services rendered and the reasonableness of payment made to Shri Shahrukh has not been looked into properly by the assessing officer.
9. The assessee while working out the Long-term Capital Gain, has adopted value of the property as on 01-04-1981 at Rs. 1 crore and indexed cost of acquisition is taken at Rs. 2.81 crores accordingly. The value as on 01-04-1981 is as per approved valuer's report. The valuation report furnished by the approved valuer adopted value at Rs. 300 per sq. ft. as on 01-04-1981. He has, however, not furnished basis for doing so. His estimate has no logic or basis, unfortunately the assessing officer does not appear to have examined this aspect at all applying his mind to the points involved.
10. The fair market value of Rs. 1 crore as on 01-0401981 is evidently on the higher side. Keeping in view the graph of real estate market between the F. Yrs., 1981-82 and 1994-95, it is well known that the real estate prices increased during the period at least by 20 to 25 times. If one takes into account the fact that the property was ultimately sold for Rs. 11,87,00,726/- in F.Y. 1998-9, there is definitely a case that valuation report is grossly inflated. Here it has to be kept in view that in the last five years, there had been phenomenal rise in the price of the real estate in Bangalore in view of its becoming the most vibrant centre of software technology in the country earning for itself coveted distinction of being called the Silicon Valley of India. Hence, the final sale price of the property at Rs. 11,87,00,726 and receipt of the amount of Rs. 5,50,00,000 by the assessee as per MOU should not blinker the vision to ascertain its fair market price as on 01-04-1981 which would have been at least 20 to 25 times less than what it has fetched on the final sale. From the order sheet of the A.Y. 1996-97 it is ascertained that the Assessing Officer required the assessee's counsel Shri Contractor on 21-07-1997 to file comparable sale instances. On 4-08-1997 just after 14 days he writes that the assessee could not find comparable instances. Here the natural corollary is that in case of the assessee's inability to furnish comparable sales instances on the above date, the least that the Assessing Officer could do was to utilize the service of department valuation cell manned by senior and experienced hand sin the matter. The Assessing Officer has failed to do so.
11. Besides this, if he had applied his mind, he could have contacted one of the officers of the Department at Bangalore to find out some comparative sales instances from the registrar's office there at the relevant time to ascertain the reasonableness of the price of the property shown by the assessee at Rs. 1,00,00,000/- on the given date. The assessee's counsel did not file it even if he had it because it was not in the assessee's interest. With alertness and proper application of mind the Assessing Officer would have collected necessary material to find out the correctness of the fair market value of the property for proper taxation of capital gains in the case. Here a reference may be made to the judgment of Hon'ble Supreme Court on the applicability of the provisions of Section 263 of the Act in the case of Malabar Industrial Co. Ltd. v. CIT 243 ITR 83 specially the finding at page 87 thereof which reads as under:-
"There can be no doubt that the provision cannot be invoked to correct and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous hat the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind."
Their lordships of the Hon'ble Supreme Court have further examined in the above judgment the phrase "prejudicial to the interest of revenue" as under:-
"The phrase "prejudicial to the interest of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy and Co. v. S.P. Jain [1957] 31 ITR 872, the High Court of Karnataka in CIT v. T. Narayana Pai [1975] 98 ITR 422, the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 203 ITR 108 and the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81 treated loss of tax as prejudicial to the interests of the Revenue.."
13. In view of the above finding and observation of Hon'ble Supreme Court, acceptance of the considerably inflated air market value of the property at Bangalore (subject matter of capital gain) at Rs. 1 crore on 01-04-1981 has caused substantial loss of revenue. Hence, the assessment order for A.Y. 1996-97 is considered to be grossly erroneous and prejudicial to the interest of revenue and deserves cancellation.
14. The other important point is learned counsel's argument is that during assessment proceedings all the material necessary for the assessment and entire details for transfer of the assessee's property at Bangalore had been furnished meaning thereby that in view of this there was no cause for applying the provisions of Section 263 of the I.T. Act to the present case. It has to be kept in view that disclosure of full facts does not confer immunity from revisional jurisdiction of the C.I.T. under Section 263 of the I.T. Act. Here a reference may be made to the judgment of Hon'ble Rajasthan High Court in the case of CIT v. Emery Stone Mfg. Co. (1995) 213 ITR 843, 850 (Raj.) where their lordships of Hon'ble Rajasthan High Court held that even in a case where the facts were disclosed by the assessee to the assessing authority, the power under Section 263 can be invoked. In the case of CIT v. Emery Stone Mfg. Co. (Supra), the CIT was held justified in setting aside the assessment order with the direction to work out actual cost of the asset after applying the provisions of explanation 3 to Section 43(1) of the I.T. Act. In view of the facts and circumstances of the case already discussed in detail, in my considered opinion, it is a fit case for invoking the provisions of Section 263 of the I.T. Act as the assessment order under revision is grossly erroneous and prejudicial to the interest of the revenue. The correctness of valuation report filed by the assessee has obviously not been examined by the Assessing Officer.
15. Non application of mind by the Assessing Officer is evident from the order sheet and the assessment order itself as already mentioned in the explanation. As already indicated in the first para of this order, the 51 line assessment order contains 25 lines reproduced from the enclosure with the assessee's return. The assessment order as a matter of fact consists of hardly ten perfunctory lines which are reproduced as under for the sake of convenience:
"The assessee has filed Memorandum of Understanding dated 8-6-1995 indicating that the said property has been assigned for a consideration of Rs. 5,50,00,000. The assessee has also filed valuation report dated 30-05-1996. The assessee has submitted that an amount of Rs. 7,27,305 has been withdrawn for Household expenses and the family of the assessee consists of the assessee himself and her sister Miss. Parvin Kazrani and both are spinsters. Subject to above Income of the assessee is computed as under:
Long Term Capital Gains 26,900,000 Income from other sources 3,496,863 Less deductions: Under Section 80-I 13,000 3,483,863 Total Income 30,383,863 Rounded off to 30,383,860
Issue requisite document. Credit for prepaid taxes be given after due verification. Charge interest as per Provision of the Act."
16. From the above, it is evident that in view of the judgment of the Hon'ble Supreme Court in the case of M/s. Malabar Industrial Co. Ltd. v. CIT (supra) and judgment of Hon'ble Rajasthan High Court in the case of CIT v. Emery Stone Mfg. Co. (1995) 213 ITR 843,850 this is a fit case for applying the revisionery provisions of Section 263 of the Act as the assessment order for the A.Y. 1996-97 in the case of the petitioner is gross erroneous and prejudicial to the interests of the revenue. Hence, the assessment order Under Section 143(3) of the Act is hereby cancelled and the Assessing Officer is being directed to examine the correct taxability of the Capital Gain after making necessary enquiry regarding the fair market value of the property at Bangalore, subject matter of the capital gain. He may avail the services of the department's valuation cell to ascertain fair market value of the property as on 01-04-1981 for reaching correct conclusion. The Assessing Officer will pass detailed speaking order after giving reasonable and adequate opportunity to the assessee to be heard."
6. Aggrieved, the appeal was filed by the assessee before the Tribunal. This matter was heard by the 'D' Bench, which constituted Shri S.C. Tiwari, Accountant Member and Shri G.C. Gupta, Judicial Member. After noting the arguments from both the sides the Accountant Member concluded that the direction given by the learned CIT to the Assessing Officer was to examine correct taxability of the capital gain and after making necessary inquiries regarding the fair market value of the property at Bangalore, is only a part of his mandate. However, the CIT has controverted the MOU dated 8.6.95 and acceptance of the same as basis of the assessment order by the Assessing Officer both in the show-cause notice issued and in the subsequent part of his order justifying exercise of his powers Under Section 263. He further expressed the view that the correct assessment year was 2000-2001. He pointed out that MOU purported to be agreement for identification by the second party of buyers of the property and the sum of Rs. 5.50 crores paid by the second party to the assessee was described as "assured security deposit". So it was not a sale consideration. Neither party filed a statement of transfer in prescribed form No. 37-I before the appropriate authority nor has the registration of the documents been done. In contradiction, when the agreement of sale of the property was made on 1.7.98, the said formalities were complied with. The document was subjected to the rigours of the provisions of Section 269 UC to the Act and it was duly registered. He was of the view that the assessee purported to confer on the second party an irrevocable right of identifying buyers of the property for a consideration to be agreed upon by the second party in his sole discretion, with an irrevocable right in favour of assessee to receive a sum of Rs. 5.5 crores by way of assured security deposit. In this way the assessee parted with all her rights for a fixed consideration of Rs. 5,50,00,000. All the talk about identifying buyer or "assured security deposit" etc., appears to be for the purpose of lending certain amount of vagueness about the true intent behind the MOU. As such, the MOU has been rendered an ineffectual document under the weight of its own contradictions, inasmuch as it is not legalized by following the procedure laid down Under Section 269 UC(1). The learned Accountant Member was of the view that since these provisions were not complied with no transfer had been effected by the MOU. He concluded that the question of not undergoing the procedure laid down Under Section 269UC is an integral part of the finding of the learned CIT that assessment year 2000-2001 and not assessment year 1996-97 was the correct year in which the transfer by the assessee was carried out. He has also observed that if MOU did not transfer any rights in favour of the second party, the role of the second party remained no more than identifying the buyers of the property. The very basis on which the sum of Rs. 6.37 crores was received by the second party would appear to be under clouds. Therefore, the CIT had rightly directed the Assessing Officer to examine the correct taxability of the capital gain in the hands of the assessee. As regards the point that all relevant material had been furnished by the assessee to the Assessing Officer the learned Accountant Member was of the view that the order not erroneous and prejudicial to the interests of the revenue is a question not of merely collection of all the relevant material but of drawing correct provisions of law thereupon. If an Assessing Officer does not draw inferences which were warranted on the given facts and circumstances of the case and does not apply the provisions of law which were attracted on the facts and circumstances of the case, the order passed by him would no less be erroneous and prejudicial to the interests of the revenue even if all the relevant material had been gathered and brought on record. In the instant case, the Assessing Officer failed to examine as to whether or not MOU did bring about transfer of a capital asset so as to give rise to capital gains chargeable to tax for assessment year 1996-97. Even if the assessee voluntarily offered capital gains for tax, the obligation of the Assessing Officer to examine the implications of the assessee herself as vendor of the property entering into an agreement for sale for a much larger amount of Rs. 11.87 crores in the subsequent assessment year did not come to an end. The Assessing Officer was also required to go into the question of full value of consideration being disclosed at Rs. 5.50 crores, whereas the transfer of the property actually did take place from assessee to The Indian Society of The Church of Jesus Christ of Later-Day Saints for the sum of Rs. 11.87 crores. The learned Accountant Member agreed with the observation of the CIT that the Assessing Officer has merely disposed of the matter in ten perfunctory lines. As the Assessing Officer did not carry out the enquiry which was warranted on the facts and in the circumstances of the case, he agreed with the findings of the CIT that the order was erroneous in so far as it was prejudicial to the interests of the revenue. So he upheld the assumption of jurisdiction Under Section 263. He further held that the valuation report filed by the assessee was not found satisfactory by the Assessing Officer himself. He therefore, by his noting on the order sheet on 21.7.97 requested the assessee to file comparable sale instances and closed the matter. Therefore, the CIT has rightly opined that the Assessing Officer could have availed the services of the Valuation Cell to find out comparative sale instances as on 1.4.1981. Thus, the Accountant Member upheld the impugned order passed Under Section 263 of the Act.
7. The learned Judicial Member did not agree with the opinion of the learned Accountant Member on the basis that the assessee has received Rs. 5,50,00,000 under the MOU out of the transaction of sale and it is no ones case that the assessee has got a penny more than this amount. Therefore, as per the settled legal position of law the assessee is liable to tax on the real income only i.e. Rs. 5,50,00,000 for transfer of property and long term capital gain of Rs. 2.69 crores arising out of the transaction which was rightly declared in the return of income filed on 27.6.96. Since it is not the case of the Revenue that the assessee has not disclosed full amount of consideration received by her the transaction was bona fide transaction where full value of the consideration received by the assessee was correctly disclosed at Rs. 5,50,00,000. The assessee cannot be taxed on a rupee more than what has been declared by her.
8. The learned Judicial Member noted that the first reason of the CIT to invoke the jurisdiction Under Section 263 is that the sale agreement dated 1.7.98 drawn up with India Society of the Church of Jesus of Later Day Saints registered with the Registrar was in April 99 and, therefore, the correct assessment year for charging long term capital gain fall in A.Y. 2000-01. He opined that the CIT himself has dropped this issue in the final directions issued in the impugned order. Therefore this issue does not survive. On the other hand, the assessee on actual receipt of Rs. 5,50,00,000 declared long term capital gain of Rs. 2.69 crores in A.Y. 1996-97. Therefore, it cannot be said that the assessment order is prejudicial to the interest of the Revenue and why the long term capital gains should not be assessed in the A.Y. 1996-97. On these facts the first reason for taxability in A.Y. 2000-01 does not survive. With regard to the second reason of the CIT for invoking the jurisdiction Under Section 263 the learned Judicial Member was of the view that the reason of the CIT in invoking jurisdiction is without any merit. It is not the case of the Revenue that MOU dated 8/5/95 or the agreement dated 1/7/98 is a sham transaction. It is nobody's case that the assessee has received a penny more than the amount of Rs. 5,50,00,000. Therefore, the assessee can be taxed on long term capital gain on his amount actually received by her. She cannot be assessed on unreal income. Hence it is not understood as to how the order of the Assessing Officer taxing the assessee on the long term capital gain returned by her has become prejudicial to the interest of the Revenue. In any case the assessee cannot be taxed on any amount more than what has been received by her. Even though the second party had received substantially higher amount for his services of locating the prospective buyer and other formalities etc., there is no provision of law under which the amount paid to the second party is not deductible. So he was of the view that the order of the Assessing Officer is not erroneous was no relation to the assessee with the second party. It was further pointed Clause 16(1) of the agreement clearly mentions that only Rs. 5.5 crores were given to the assessee on which long term capital gain has been assessed in the hands of the assessed and there is no provision of law to assess the assessee on some amount which she has not received. The learned Judicial Member further placed reliance on the decision of the Hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd. v. CIT (225 ITR 746) and held that the order of the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue and accordingly rejected the second ground of the CIT for exercising jurisdiction Under Section 263. The third reason for exercising jurisdiction Under Section 263 is that the fair market value of Rs. 1 crore as on 1/4/1981 is excessive. The learned Judicial Member held that the reasoning of the CIT was without any merit. The assessee was advised by her Chartered Accountant to declare the capital gain arising out of the transaction in the A.Y. 1996-97. The assessee got the valuation report of the property from Approved Valuer, who valued the property as on 1.4.1981, at Rs. 1 crore and accordingly filed the return of income along with valuation report declaring long term capital gain of Rs. 2.69 crores. It is not the case where the Assessing Officer had made no inquiries before the completion of the assessment. He pointed out that the proceedings started on 17.6.97 and concluded on 10.12.1998. The Assessing Officer has applied his mind to the valuer's report which is clear from the fact that the Assessing Officer demanded comparable sale instances from the assessee. To this requisition the Chartered Accountant of the assessee informed the Assessing Officer that no comparable instances were available. On 12.8.98 some more details were demanded from the assessee, which were subsequently filed by the assessee. Hence, it cannot be said that there was no application of mind by the Assessing Officer. Reliance was placed on the decision of Hon'ble Madhya Pradesh High Court in the case of CIT v. Ratlam Coal Ash Co. (171 ITR 141). The learned Judicial Member opined that the valuation of the property is always a matter of estimate and in case the CIT has difference of opinion with that of the Assessing Officer with regard to the valuation of the property, it cannot be a ground to hold that the order of the Assessing Officer is erroneous or prejudicial to the interest of the Revenue. He further observed that Section 55A of the Act authorizes reference to the valuation officer only when the value declared is less than the fair market value. Hence there is no basis for exercising jurisdiction Under Section 263 of the Act. He further mentioned that MOU dated 8/6/95 tantamount to transfer or not, is not of much significance for the reason that the CIT in his order Under Section 263 has not directed to assess the long term capital gains in any other assessment year that the A.Y. 1996-97 in which the long term capital gains have been declared and assessed by the Assessing Officer. He concluded that the assessee had received an inflexible and final sale consideration of Rs. 5.5 crores, and not a penny more, which was declared to the Revenue as sale consideration. Therefore, the assessment order cannot be said to be erroneous. He further held that in the instant case, it is no one's case that the transaction and MOU entered between the assessee and the second party were not bona fide nor it was the case of the revenue that it was a sham transaction or that the price paid in respect of all the transaction to the assessee was other than the one set out in the MOU and accordingly the taxing authorities had no right to substitute any other price in place of the price or value agreed to between the parties to the transaction. In this regard he placed reliance on the decision of Hon'ble Gujarat High Court in the case of Marghabai Kishabhai Patel & Co. 108 ITR 54 and Hon'ble Bombay High Court in the case of Godavari Sugar Mills 155 ITR 306. He opined that merely because the procedure of filing form 37-I before appropriate authority was avoided at the time of registration of the agreement to sell, is not decisive of the question of taxability of the transaction in the assessee's hands. Merely because the approved valuer's report was accepted by the Assessing Officer, it cannot be said that the order of the Assessing Officer was erroneous or prejudicial to the interest of the Revenue. He accordingly cancelled the order passed by the CIT Under Section 263 of the Act.
9. The learned counsel for the assessee Shri Pardiwala pointed out that the facts in this case were not in dispute. The assessee at the time of executing the MOU was approximately 65 years of age and later on she died. The property in question was purchased by her father and it was gifted to her. On 18/6/95 the assessee entered into a MOU with Shahrooq Alikhan, a builder who was not at all related to her. It is also not in dispute that the assessee was residing in Bombay and the property in question was situated in Bangalore. As the assessee was in an advanced stage and there was no one to look after the property she wanted to dispose of the property. With this intention she entered into a MOU with Shri Shahrooq Ali Khan who paid Rs. 5.5 crores to her as sale consideration of the property and the possession was handed over to him on the same date. She also executed an irrevocable power of attorney in favour of Shri Sameer A. Khan on 6.7.95. In the background of these facts the assessee filed return of income offering Rs. 2.69 crores as capital gain arising out the above transaction. After the return was filed the assessment proceedings continued from 17.6.97 to 10.12.1998. The Assessing Officer raised several queries to which the assessee gave all the information in her possession. It is submitted that in support of her claim she also submitted the valuation report from a registered valuer. But a comparable sale instance in the same area could not be filed as it was not available with the assessee. After going through the valuation report and other aspects of the matter the Assessing Officer accepted the claim of the assessee. As per the assessee counsel the Assessing Officer could refer the case to the DVO where in his opinion the estimate by the registered valuer was less than its market value. But in the present case as per the CIT the fair market value adopted by the Assessing Officer based on the approved valuers report is excess. Under these circumstances the initiation of proceedings Under Section 263 is without any jurisdiction. So far as the other issue of taxability of capital gain in A.Y. 1996-97 or 2000-2001 is concerned there is no direction in the CIT's order. The learned Accountant Member himself has raised his issue by inferring from paragraph No. 7 that the CIT has also questioned the year of taxability. But this direction is not given in the order of the CIT. Therefore the issue of year of taxability is not in dispute. The learned counsel for the assessee further invited our attention to Section 55A(a) which reads as under:
To ascertain the fair market value of a capital asset the Assessing Officer may refer the valuation of capital asset to a Valuation Officer-
(a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of the opinion that the value so claimed is less that its fair market value"
It is submitted that reference to the valuation officer to ascertain the fair market value of a capital asset can be made if in the opinion of the Assessing Officer the valuation of the assets claimed by the assessee in accordance with the estimate made by the registered valuer is less than its fair market value. Clause (b) does not apply because the assessee has filed the registered valuer's report. Clause (b) is a case where no such report is filed. As such, the Assessing Officer could not have referred the case to the DVO. The learned counsel pointed out that could the order of the Assessing Officer be said to be erroneous only because he did not make reference to the DVO where the act itself does not give power to the Assessing Officer to refer a case, where, as per the CIT, the fair market value estimated by the registered valuer is in excess. In the present case, the assessee has submitted registered valuer's report to the Assessing Officer who has accepted the fair market value of the property after inquiring for a period of more than one and half year. Hence can it be said that the assessment order is erroneous merely because in the ipsy dixy opinion of the Commissioner the fair market value of the property as on 1.4.81 should be lower than what has been shown by the assessee, without giving any comparable instance as per his study or material which had come to his knowledge. It was thus submitted that the said order of the Assessing Officer cannot be held to be erroneous. In this connection reliance was placed on the decision of CIT v. Amalgamations Ltd. 238 ITR 963, CIT v. Trustees Anupam Charitable Trust 167 ITR 129 and Malabar Industries 243 ITR 83. It was also brought to my notice by the learned counsel that the year of 1995 was a year of terrorism and clouds of Kargil war was building up. In these circumstances the assessee thought it proper to sell of the property to the builder.
10. It was further argued that there was no dispute about the taxability of this amount in the year 1996-97. However, suppose it is accepted that the year of taxability is A.Y. 2000-01, still there is no loss to the Revenue because the index points for A.Y. 1996-97 was 28 points whereas it was 329 points in A.Y. 2000-01. If the A.Y. is taken to be 2000-01, the capital gain will go down. Therefore, there cannot be any prejudice to the interest of the Revenue. In this connection reliance was placed on the Chaturbhuj Dwarkadas Kapadia v. CIT 260 ITR 491. Reference was also made to Section 2(47) of the Income-tax Act stating that the transfer of property has taken placed as per Sub-clause (v) of the said section when the assessee received the consideration and handed over the possession to the builder Shahrooq Alikhan. It was further argued that it was no one's case that the assessee had received even a penny more than Rs. 5,50,00,000.l Therefore, she cannot be taxed on the total sale consideration of Rs. 11.87 crores unless there is material or information on record to show that the assessee had received anything more than what is shown in the MOU. She cannot be charged for capital gains on any other amount than what she had received.
11. The learned counsel brought to my notice Sub-section (1) of Section 48 which says that while computing the capital gain the expenditure incurred in connection with such transfer as a result of transfer of capital asset will be deducted. In the present case it is clear from the agreement and MOU that she had given all the power to Shri Shahrooq Alikhan including those of obtaining the necessary clearance certificates and incur all expenses in relation to this property. Therefore what Shri Shahrooq Alikhan received was the expenditure which is deductible Under Section 48(1). Shri Shahrooq Alikhan was the agent till the registration had taken place of the said property and all the expenses incurred was deductible. The opinion of the learned Accountant Member that it is excessive and unreasonable is not correct. In this connection the learned counsel placed reliance on the decisions in the case of CIT v. Garbiel India Ltd. (203 ITR 108) and CIT v. Kanda Rice Mills (178 ITR 446).
12. On the other hand, the learned Departmental Representative basically relied on the points mentioned by the learned Accountant Member in his order. Besides this he has submitted that the MOU is in the nature of assured security deposit in which the basic duty of Shahrooq Alikhan was to find out a buyer and obtain necessary clearance certificates for transfer. Therefore, the amount of Rs. 5.5 crores received by the assessee was in the nature of advance and that is why the assessee did not get the document MOU registered nor paid the stamp duty. The assessee was the sole proprietor of the property till the date of registration which is clear from the document of registration at page No. 18. In fact the total consideration of the property was Rs. 11.87 crores on which the capital gain should have been taxed. The assessee failed to give any comparable instance therefore, her claim that the property was transferred for a consideration of Rs. 5.5 crores is not correct. Reading out from the order of the Assessing Officer it was pointed out that the Assessing Officer passed the order within fourteen days and did not give detailed reasons for accepting the capital gains returned by the assessee. It was further contended that the assessment order is cryptic. Therefore when the Assessing Officer accepted the claim of the assessee without detailed inquiry in the matter, the CIT can assume jurisdiction Under Section 263 as the order of the Assessing Officer is erroneous inasmuch as prejudicial to the interest of the Revenue. In this connection my attention was invited to the word 'erroneous' and its meaning given at page 8201 in Volume 5 of Chaturvedi & Pithisaria's Book on Income Tax Law, the word erroneous in Black's Law Dictionary means 'involving error; deviating from law'. 'Erroneous assessment' refers to an assessment that deviates from the law and is therefore invalid, and is a defect that is jurisdictional in its nature, and doe snot refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, 'erroneous judgment' means 'one rendered according to course and practice of court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles'. Reliance was also placed on the decision of Malabar Industries (supra), Rampyari Devi Sarogi v. CIT 67 ITR 84 and the decision of Hon'ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT 99 ITR 375. It was further submitted that when the Assessing Officer failed to conduct inquiries the Commissioner can exercise jurisdiction Under Section 263. The learned Departmental Representative further submitted that the Assessing Officer could issue commission to DVO Under Section 131(d) if he could not do Under Section 55A. However, it is submitted that the case of the assessee could be covered under Sub-clause (ii) of Sub-Section (b) of Section 55A which the CIT has rightly adopted to estimate the fair market value of the property. The learned Departmental Representative tried to distinguish the case laws referred to by the assessee counsel.
13. The learned Departmental Representative further submitted that Section 269UC of the Income-tax Act is a non-obstante clause which says "notwithstanding anything contained in the Transfer of Property Act, 1882, or in any other law for time being in force..... "Therefore for this purpose, Section 2(47)(v) and other provisions of law do not apply. It is further submitted that for the purpose of claiming deduction Under Section 48(1) the assessee should give evidence to prove that it had incurred expenditure wholly and exclusively for the purpose of transfer of that property. But in this case the assessee could not give such evidence. Therefore, the assessee cannot claim 6.37 crores as expenditure. It is further pointed out that the assessee did not get MOU registered nor paid the stamp duty because the MOU was not treated as transfer of property. It was simply an assured security deposit. It is also submitted that the circular 495 mentioned by the learned counsel is also not applicable to the facts of the present case. The learned Departmental Representative further placed his reliance on the decisions of Rampyari Devi Sarogi (supra), Smt. Tara Devi Aggarwal v. CIT (88 ITR 323), CIT v. Emery Stone Mfg. Co. (213 ITR 843) & CIT v. Shree Manjunathesware Packing Products & Camphor Works 231 ITR 53. Lastly it was submitted that the Assessing Officer has not conducted detailed inquiry nor passed a detailed order. Therefore, the CIT was right in assuming jurisdiction Under Section 263 of the Act. On the other hand, learned counsel distinguished the facts of the case in the decisions referred to by the learned Departmental Representative in the case of Amalgamations Ltd (supra) and Emery Stone Mfg. Co. (supra) and contended that the learned Accountant Member had gone wrong in observing that the CIT has rightly assumed jurisdiction Under Section 263. He supported the view of the learned Judicial Member.
14. I have considered the rival submissions and have gone through the material available on record. On the basis of the question referred, I have to examine whether the CIT was justified in invoking the jurisdiction Under Section 263 and his order can be sustained.
15. In this case it is not in dispute that the assessee was a spinster lady of approximately 65 years of age, living at Mumbai, whereas the property in question is situated at Bangalore. She had received the property by way of gift from her father in September 1955. Since the assessee was a spinster there were no kith and kin to look after the property in question. Further this property was requisitioned during the war time by military authorities for the purpose of use by army. However, the military authorities derequisitioned the same in the year 1992. It is the case of the assessee that under these circumstances there was no one to look after the property in a proper manner and therefore, with an intention to dispose of the property entered into a MOU on 8/6/95 with Shri Shahrooq Alikhan through her general power of attorney holder Shri Sameer A. Khan. If we go through the MOU given at page 3 to 7 of the paper-book we finding the following clauses:-
"2. The First Party has informed the Second Party that the total sale consideration accepted and received by the First Party is Rs. 5,50,00,000/- (Rupees Five Crores and fifty lacs only) and that neither party shall dispute the area of the said scheduled property.
3. The Second Party agrees to identify buyers for the Schedule Property or any part thereof and has agreed to pay assured security deposit of Rs. 5,50,00,000/- (Rupees Five Crores and Fifty lacs only) to the First Party."
On reading these clauses along with other clauses of the MOU it is clear that the lady had entered into an agreement with Shri Shahrooq Alikhan to dispose of the said property for a total consideration of Rs. 5.5 crores. Thus, from the terms of MOU it is clear that the lady signed the MOU through her general power of attorney holder for Rs. 5.5 crores. The possession of the property was handed over to the builder Shri Shahrooq Alikhan and original documents were also given to him on that day with an understanding that he will obtain all necessary clearance certificate under the provision of Urban Land (Ceiling & Regulation) Act, 1976 and certificate Under Section 269 UC the Income-tax Act, 1961. Therefore it is clear that the MOU entered into between the parties was not for the purpose of simply identifying the prospective buyer or the consideration received by the assessee was only a security deposit. On reading the contents it will be clear that it was a transaction by which the assessee transferred the property in question in the manner prescribed in Clause (v) and (vi) introduced in Section 2(47) of the Income-tax Act w.e.f. April 1988. The events which had taken place constitute transfer which includes any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882, and any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property. Similarly using the nomenclature MOU will not change its character of sale agreement. Therefore, capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete for want of Registration under the general law. Under Section 2(47)(v) any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act would come within the ambit of Section 2(47)(v). In order to attract Section 53A therefore should be an agreement for consideration; it should be in writing; it should be signed by the transferor; it should pertain to transfer of immovable property; the transferee should have taken possession of the property and the transferee should be ready and willing to perform his part of contract. On consideration of the above, the Hon'ble Bombay High Court has held in its decision in the case of Chaturbhuj Dwarkadas Kapadia (supra), that even arrangements confirming privileges of ownership without transfer of title could fall under Section 2(47)(v). Therefore capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete under the general law. Therefore, the conclusion of the Accountant Member that it is merely documents to identify buyer and an assured security deposit is not correct in the eye of law.
16. Since I have held that the MOU between the assessee and Shri Shahrooq Alikhan was transfer of property in question within the meaning of Section 2(47) of the Income-tax Act, the question arises whether in he given facts and circumstances of the present case, the CIT has rightly exercised his jurisdiction Under Section 263 of the Income-tax Act. The CIT has given three reasons for invoking his jurisdiction Under Section 263. The first reason is that the sale agreement dated 1/7/98 drawn up with The Indian Society of The Church of Jesus Christ of Later-Day Saints was registered with the registration authorities in April 1999, and therefore, the taxability of charging of the long term capital gain would be the year 2000-01. The learned Accountant Member has also concurred with his view. However, if we go through the direction of the CIT we find that the CIT while setting aside the order of the Assessing Officer has not given such direction in his order. To presume the integral part of the finding of the CIT, as opined by the learned Accountant Member, is wrong on the fact of it and, I cannot justify the reasoning that he has given such a direction regarding the determination of the year of taxability of capital gains after making necessary inquiry with regard to the fair market value of the property, because nowhere in the operative part of the CIT's order, he has directed to assess the long term capital gains in A.Y. 2000-01. On facts taxability of capital gains at the hands of assessee does not fall in A.Y. 2000-01.
17. The second reason of the CIT for invoking the jurisdiction Under Section 263 is that as per the sale agreement dated 1/7/98 Shri Shahrooq Alikhan received a sum of Rs. 6.37 crores which is more than what the assessee has agreed to receive. The amount was received by Shri Shahrooq Alikhan for identifying the prospective buyers and obtaining necessary clearance certificates. The CIT was of the view that the services rendered by Shri Shahrooq Alikhan did not merit such payment, which is substantially more than what the assessee received. We have to examine this aspect of the matter in the background that the assessee is a spinster lady of approximately 65 years of age. The said property situated at Bangalore was received by her as gift from her father, which at one point of time was requisitioned by the military and later derequisitioned the same. There was no one to look after the property in a proper manner, therefore under these circumstances she decided to dispose of the property and she received Rs. 5.5 crores as total sale consideration vide MOU dated 8/6/95. There is no case by the department that the assessee had received anything more than Rs. 5.5 cores. There is no material on record to show that either the MOU dated 8/6/95 or the agreement dated 1/7/98 is a sham transaction. Under these circumstances, unless I hold that these are sham transactions and that the assessee had received more than what is purported to have been received by way of MOU, it cannot be said that the builder who received consideration more than the assessee after about three years for locating buyers and fulfilling necessary conditions to transfer is a justifiable reason for invoking the jurisdiction Under Section 263. I cannot forget that the assessee shall be assessee on the real income and not on the unreal income or the presumptive income. Here I would like to mention that day in and day out there are instances where one party sells property at throw away prices due to his difficulties/necessities whereas the purchasing party gets a better price on further sale. This not only happens in a transaction of an individual but also in a transaction where Government under its disinvestment schemes have sold companies at a much lower price whereas purchaser or bidder sold at higher price in subsequent transaction. Just because the third party has earned more profit will it be justified to invoke jurisdiction Under Section 263 in the eye of law. It is not justified in the eye of law. In the present case at the cost of repetition I shall mention here that the department has not brought any material on record to show that the assesee had received more payment under hand than what is mentioned in the MOU
18. The third reason for exercising the jurisdiction Under Section 263 by the CIT is that the Fair Market Value of the property as shown by the assessee as on 1/7/1981 based on an approved valuer's report at Rs. 1 crore is on higher side keeping in view the appreciation in real estate prices. As per the Commissioner the correctness of value as per valuation report was nor verified by the Assessing Officer properly. He was of the opinion that the approved valuer has not given any basis for adoption of rate of Rs. 300 per sq. ft. for valuation of the property. So far as this reason is concerned the Income-tax Act gives power to the Assessing Officer to refer the question of valuation of property Under Section 55A only which reads as under :-
"To ascertain the fair market value of a capital asset the Assessing Officer may refer the valuation of capital asset to a Valuation Officer-
(a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer. if the Assessing Officer is of the opinion that the value so claimed is less that its fair market value
(b) in any other case, if the Assessing Officer is of opinion- that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf; or that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do."
It is as admitted position that in the present case the assessee returned the capital gain based on the valuation report of the approved valuer. Therefore from the provision it is clear that Sub-section (a) of Section 55A would be attracted. Sub-section (b) comes into play where the assessee has nor furnished any valuation report in support of his/her claim. To say that the Assessing Officer has power to make a reference to the DVO Under Section 131 would be wrong in itself. The learned Departmental Representative had argued that Section 131 also gives power to the Assessing Officer the make reference to the DVO. However, if we go through the powers given Under Section 131 we find that it specifically gives power to the Assessing Officer, Deputy Commissioner (Appeals). Joint Commissioner, Commissioner (Appeals) and Chief Commissioner of Commissioner regarding discovery and inspection; production of evidence and issue of commissions. It does not talk about making a reference to the valuation officer for valuation of property. Therefore the only section which is relevant for making reference to DVO in Income-tax Act is Section 55A only. The Sub-section (a) Section 55A gives power to the Assessing Officer for making reference to the valuation of a capital asset to the valuation officer where the valuation of the asset claimed by the assessee is in accordance with the estimate made by the registered valuer, less than its fair market value. It does not talk about excess fair market value. In the present case what I find is that the CIT has mentioned that the fair market value disclosed by the assessee at Rs. 1 crore as on 1/7/1981 as per the valuation report furnished by the assessee was on the higher side. The CIT or the Assessing Officer assumes power under the Sub-clause (a) of Section 55A only when in his opinion the fair market value disclosed by the assessee is less. Therefore neither the Assessing Officer nor the CIT can assume power to give such a direction where the value of the property disclosed by the assessee based on the approved valuer's report is on a higher side i.e. Rs. 1 core in this case. As such, invoking jurisdiction Under Section 263 on the above basis is illegal. In this case I find that the Commissioner invoked jurisdiction Under Section 263. by mentioning that the assessment order under revision is grossly erroneous and prejudicial to the interest of the Revenue because the correctness of the valuation report filed by the assessee has not been examined by the Assessing Officer and hence there is no application of mind by the Assessing Officer and his order is not a fully discussed order In this connection, I would like to mention here that the Assessing Officer started the assessment proceedings w.e.f. 17.6.1997 and completed the same on 10/12/98 after about one and a half year. Several dates were given and several queries were raised by the Assessing Officer through the Chartered Accountant of the assessee. It clear that the Chartered Accountant filed the details called for by the Assessing Officer. The Assessing Officer had called for comparable sale instances in the vicinity of the property situated at Banglore. It is an admitted position that the assessee could not produce comparable sale instances. Therefore, from the beginning the to end thorough inquiries were made by the Assessing Officer before accepting the capital gain returned by the assessee. The assessment order reads as under:
"The assessee filed return of income for the assessment year 1996-97 on 27-6-96 declaring total income at Rs. 3,03,83,860. The return was processed under Section 143(1) (a) on 21-9-98 at the same income without making any prima facie adjustments.
In response to notice Under Section 143(3) Mr. M.H. Contractor C.A. Attended the assessment proceedings form time to time to time and filed Necessary details.
The assessee derives income form Capital Gains, Income from Other sources.
During the previous year corresponding of the assessment year 1996-97. the assessee, has sold property at Convent Road. Bangalore. The Assessee has filed alongwith the Return of Income letter dated 19-6-96 which is reproduced below:
"I am filing herewith my return of income for the aforesaid assessment year. It may be noted that my total income has exceeded the maximum amount not chargeable to tax on account of long term capital gains/arising of sale of may property at Convent Road, Bangalore.
The said property was gifted to me by may late father in the year 1955. During the time of the war the said property was acquired for occupation as tenant by Garrison Engineer a division of Indian Army. They had acquired the whole property therefore the return of income was filed on the basis of rental income. I am enclosing the assessment order for the income year 1968/69 from which it will be seen that the said Bangalore property was duly disclosed. The income from said property amounted to Rs. 3,400/-. The said rental income was received from Garrison Engineers (Military) who were the tenants in the said premises.
I am also enclosing my bank analysis with BMC bank. Null Bazar branch & Mohamedalli Road Branch from 1/4/1993. From the said bank analysis it will be seen that the deposits are the sale consideration received of the said Bangalore property and interest from the Saving Account.
I am enclosing herewith the Statement of Capital Gains in respect of Sale of said Bangalore property.
The MEMORANDUM OF UNDERSTANDING of the said Bangalore property together with the valuation report in respect of the same is enclosed herewith."
The assessee had filed Memorandum of Understanding dated 8.6.95 indicating that the said property has been assigned for a consideration of Rs. 5,50,00,000/-. The assessee has also filed valuation report dated 30-5-1996. The assessee has submitted that an amount of Rs. 7,27,305/- has been withdrawn for Household expenses and the family of the assessee consists of the assessee himself and her sister Miss. Pravin Kazrani and both are spinsters.
Subject to above income of the assessee is computed as under:
Long Term Capital Gains 26,900,000 Income from other sources 3,496,863 Less Deduction Under Section 801. 13,000 3,484,863 Total income tax 30,383,863 Rounded off to 30,383,860 Issue requisite document. Credit for prepaid taxes be given after due verification. Charge Interest as per Provision of the Act."
One should not forge that the agreement with the builder Shri Shahroq Alikhan was entered in June 1995 wheras the property in question was sold to the Indian Society of The Church of Jesus Christ of Later Day Saints in December 1998. There is a time lag of more than three years. So there is ever possibility of appreciation of price of property due to time lag to the benefit of the builder. Since the deal struck with the assessee in 1995 for lumb sum consideration of 5.5 crores as distressed sale, due to her inability it cannot be said that the assessee has received anything more in A.Y. 1996-97 than what is mentioned in the MOU. Therefore, when the assessee had received only Rs. 5.5 crores by way of agreement dated 8.6.95 with the builder, she was justified in offering the same for tax purposes.
19. I have already discussed that the Assessing Officer had conducted enquiries with regard to the taxability of the capital gains from the assessee and these proceedings lasted for about one and half year (17.6.1997 to 10/12/98) details such as comparable sale instances were called from the same vicinity/locality where the property is situated and after going through the valuation report submitted by the assessee the Assessing Officer computed the taxable capital gains. The question arises that in such circumstances whether the order of the Assessing Officer can be said to be erroneous and prejudicial to the interest of the Revenue.
20. The Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra), has laid down the principles for exercising jurisdiction Under Section 263 as follows:
"Two circumstances must exits to enable the Commissioner to exercise the power of revision under this sub-section viz, (i) the order should be erroneous; and (ii) by virtue of the order being erroneous prejudice must have been caused to the interest of the Revenue. An order cannot be termed as erroneous unless it is not in accordance with law. If and Income-tax Officer acting in accordance with law makes certain assessment, the same cannot according to him the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer who, passed the order, unless the decision is held to be erroneous. Cases may be visualized where the Income tax Officer while making as assessment examines the account, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself. The Commissioner, on perusal of records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a higher figure than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. This is because the Income-tax Officer has exercised the quasi- judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself would be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, that the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interests of the Revenue, then the power of suo-motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed. When exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy in that regard. In the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority."
It was further held "The decision of the Income-tax Officer could not be held to be "erroneous" simply because in his order he did not make an elaborate discussion in hat regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That was not permissible."
I would like to mention here that the learned Departmental Representative had made it a point that the Assessing Officer had not made elaborate discussion in that regard which according to the above decision could not be held to be erroneous especially when the Assessing Officer had made thorough inquiries. In the present case I find that the CIT without bringing any specific sale instance or material, has observed that the value of the property at Bangalore had appreciated more in the year 1995 i.e. when the MOU was entered into between the assessee and the builder. In the absence of any material the observation of the CIT is merely based on surmises, conjectures and guess-work. In the case of Trustees Anupam Charitable Trust (167 ITR 129) the Hon'ble High Court has observed that "The error envisaged by Section 263 was not one which depended on possibility or guesswork, but it should be actually an error either of fact or of law."
21. In the case the Malabar Industries Ltd. the Hon'ble Supreme Court had laid down the principle for exercising the jurisdiction Under Section 263 as under:
"A bare reading of Section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue- recourse cannot be had to Section 263(1) of the Act. The provision cannot be invoked of correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The pharse is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. 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 pharse "prejudicial to the interests of the revenue" has to be read in conjunction with an erroneous order passed by the Assessing Offer. 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 and Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of the revenue, or where two views are possible and the Income-tax Officer has 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."
Applying the principle laid down by the Hon'ble Supreme Court to the facts of the present case I are of the opinion the CIT was not justified in invoking the jurisdiction Under Section 263. The learned Departmental Representative relied on the decision of Madhya Pradesh High Court in ht case of CIT v. Ratlam Coal Ash Co. wherein it was laid down that if the Income -tax officer made the assessment in undue hurry, accepting what the assessee stated in the return without making any enquiries, in the circumstances of the case, the Commissioner would be justified in holding the order of the Income-tax Officer to be erroneous. However, I find that the facts and circumstances mentioned in that case are distinguishable from the facts and circumstances mentioned in the present case. In the present case it was found that the assessee had furnished all requisite information to the Assessing Officer and the Assessing Officer after making due enquiries had completed the assessment in a period more than one and half year. Therefore it cannot be said that the Assessing Officer has made assessment in due hurry or only by relying what had been stated by the assessee in his return.
22. So far as the case laws cited by the Departmental Representative is concerned I find the same distinguishable on facts. In the case of Gee Vee Enterprises (supra), the facts are that some of the directors and shareholders formed with some others a registered firm, the petitioner. An agreement was entered into between the company and the petitioner for erecting a multi-storeyed building on the plot after taking advances from the licensees to whom the flats were to be let and the agreement was to come to an end after the building was constructed. The Income-tax Officer granted registration to the petitioner-firm under Section 184 and 185 of the Income-tax Act, 1961, and for the very first year of assessment 1971-72, made assessments accordingly. The CIT found that the Assessing Officer had not made sufficient enquiries before granting registration to the petitioner. Under these circumstances the Hon'ble Delhi High Court held that the CIT was justified in invoking jurisdiction Under Section 263 because the Assessing Officer had not made further enquiries to the facts, when the circumstances stated in the return made such enquiries prudent. So the order of the Assessing Officer was held to be erroneous. The present case is distinguishable because the Assessing Officer had made enquiries and then accepted the claim of the Assessee. Similarly, the case of Tara Devi Aggarwal (supra), is distinguishable to the facts of the present case. In that case the assessee wanted to be assessed on a figure in order to assist some one else who would have been assessed to a larger amount and the assessment was held to be erroneous and prejudicial to the interest of the Revenue. In the case of Emery Stone Mfg. Co. (supra), the Hon'ble Rajasthan High Court has observed as follows: "The Inspecting Assistant Commissioner not having applied his mind at all and having allowed the depreciation at the enhanced value without considering Explanation 3 the order was prejudicial to the interests of the Revenue." The facts of the case are also distinguishable from the facts of the present case. So are the facts in the case of Kanda Rice Mills (178 ITR 446) and Godavari Sugar Mills (supra).
23. In view of the above discussion above, I am of the opinion that the principle laid down by the Hon'ble Supreme Court in the case law cited by the learned counsel that jurisdiction Under Section 263 can be invoked where the order of the Assessing Officer is erroneous. In the present case I find that there is no material on record to show that the assessee has received anything more than Rs. 5.5 crores. Therefore, the assessment order cannot be held to be erroneous. There is also another aspect of the matter . The Income-tax Department in the case of the assessee when reopened the assessment Under Section 143(3) r.w.s 147 by order dated 24/2/2004 has mentioned that Shir Shahrooq Alikhan in the return cost at Rs. 5.5 crores and sale consideration of Rs. 11.87 cores. Therefore it is clear that the rest of the amount has also been offered for taxation by Shri Shahrooq Alikhan. Under these circumstances the assessment order cannot be held to be prejudicial to the interest of the Revenue.
24. In view of the foregoing discussions, I am of the opinion that the order of the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue. Therefore, the CIT is not justified in assuming jurisdiction Under Section 263. of the Income-tax Act. His order is not sustainable in the eye of law. I therefore, agree with the view taken by the learned Judicial Member where he has cancelled the order passed Under Section 263
25. The matter will now go before the regular Bench for disposing of appeal in accordance with the majority opinion.