Income Tax Appellate Tribunal - Lucknow
A.K.G. Consultants (P.) Ltd vs Ito on 3 August, 2007
Equivalent citations: (2008)117TTJ(LUCK)424
ORDER
D.C. Agrawal, Accountant Member
1. This is an appeal filed by the assessee against the order of the learned Commissioner (Appeals) in cancelling the assessment of the assessing officer and directing him to do the assessment de novo.
2. The facts of the case are that the learned CIT found that the assessee filed return of income for the assessment year 2003-04 on 31-10-2004 on an income of Rs. 29,22,340. The return was accepted under Section 143(1) on 24-3-2005. It was subsequently completed under Section 143(3) on 31-3-2005 on an income of Rs. 32,67,745. On examination of the record of the assessment passed under Section 143(3), the learned CIT found following facts:
1. The computation of long-term capital gain in sale of immovable property to Sri Harish Saluja has been made on sale consideration of Rs. 24 lakhs. On perusal of sale deed the market value of property for stamp duty purposes was Rs. 33,53,000.
2. Computation of long-term capital gain on sale of immovableproperty to Smt. Veena Saran has been made on sale considerationof Rs. 5,15,000, the market value of the property for stamp dutypurposes was Rs. 7,87,107.
3. In Schedule-6 of the Balance Sheet attached with the Profit & LossAccount the investment in Chintels House has been shown asunder:
Opening stock Rs. 66,91,978.39 Purchases Rs. 11,26,381.55 Sales Rs. 40,68,600.00 Closing stock Rs. 66,18,812.41 The closing stock as per above opening stock purchases and sales should have been Rs. 37,49,759.94. The increased valuation of the closing stock is not reflected in the Profit & Loss Account as a profit.
3. According to the learned CIT, the assessing officer did not consider the seissues while passing the assessment order and completed the assessment in a routine marmer. He considered the order passed on 31-3-2005 as erroneous insofar as it is prejudicial to the interest of revenue and issued a notice under Section 263 of the Income Tax Act on the assessee on 28-8-2006. One Sri Ajay Gupta, F.C.A. attended on 19-10-2006 before the learned CIT and furnished a reply. The reply of the assessee before the learned CIT was as under:
That with regard to the long-term capital gain on sale of property insection 50C, it has been provided that in case the assessee claims beforethe assessing officer that the value adopted or assessed exceed the fairmarket value as on the date of transfer and the value so adopted orassessed has not been disputed. The assessing officer may refer thevaluation of capital asset to the Valuation Officer. The assessee in hiswritten submission has also stated that in a commercial complex, forstamp duty purposes, the rates fixed are general in a nature for a whole area, while the rates will vary based on the location, proximities, visibility from the road sides, size of the property, on which floor the property is situated, year of construction, quality of construction, demand and supply position, requirements of wire etc.
4. The learned CIT after considering the submissions of the assessee, held that the assessing officer did not invoke the provisions of Section 50C(2)/50C(1) and he, thus, failed to follow the proper process in making the assessment and also he failed to make proper enquiries in this direction. Similarly, the learned CIT held that the assessing officer did not make enquiries with regard to correct sales and purchase of property (Chintels House). No details regarding increase of closing stock as shown in the Schedule VI of the Balance Sheet were furnished. The papers in accordance with the sale and purchase of shares/properties and other income are placed on record by the assessing officer without making any enquiries which could throw light on genuineness of the income shown in the return of income. Thus, after relying on the decision of Hon'ble Delhi High Court in Gee Vee Enterprises v. Addl. CIT ; the learned CIT held the order of the assessing officer as erroneous due to failure to make necessary enquiries. He accordingly set aside the order of the Assessing Officer for being made de novo. He also directed that proper opportunity be given to the assessee of being heard and to pass a reasoned order.
5. Against this, the learned A.R. submitted that: the learned CIT has not pointed out any error in the order of the assessing officer. Whatever mistakes, the learned CIT has thought to have occurred in the order of the assessing officer are only as a result of misappreciation of facts, firstly regarding alleged difference in the account of Chintels House, the learned A.R. submitted that the learned CIT has not considered the profit earned in Chintels House while arriving at a conclusion that stock shown in the balance sheet is of Rs. 66,18,812.41 and whereas as per working from opening stock and purchases and sales it is coming at Rs. 37,49,759.94. The learned CIT has not considered the profit earned by the assessee on sale and purchase of flats in which the assessee is dealing as investment. If the profit earned is included, then closing stock shown in the Balance Sheet would tally. He tried to take us to various documents, filed in the Paper Book. Regarding applicability of Section 50C of Income Tax Act, the learned A.R. submitted that the learned CIT has not considered the provisions of Section 50C(2) inasmuch as the assessee has worked out capital gains on the basis of sale consideration shown by him in the sale deeds and the learned Assessing Officer has accepted the same and did not consider it necessary to refer the property to the Valuation Cell. Once the assessing officer has consciously not considered it necessary to refer the properties to Valuation Cell, then it should be taken as if he has accepted the sale consideration shown by the assessee in the sale deeds. The provisions of Section 50C(1) cannot be read in isolation from Section 50C(2). Once provisions of Section 50C(2) are invoked, then provisions of Section 50C(1) is automatically taken care of. By accepting the sale considerations shown by the assessee in the sale deeds, the assessing officer has invoked the provisions of Section 50C(2) and did not consider it necessary to refer the properties to Valuation Cell. Further, there is no requisite format in which the assessee could have staked his claim for invoking the provisions of Section 50C(2). He could do it only by way of filing return which he has done and the learned Assessing Officer has accepted the same.
6. On the other hand, the learned D.R. did not argue the matter on the ground that the case pertains to the domain of CIT(DR), who is not present.
7. We have considered the rival submissions and perused the material on record. In our considered view, the assessing officer has not carried out the necessary enquiries into the two aspects raised by the learned CIT in his order. Even, we were not able to appreciate as to how the figures given by the learned CIT in his order about opening stock, purchases, sales, closing stock are reconcilable. If we add opening stock and purchases and reduce sales therefrom, then figure of closing stock would come to Rs. 37,49,759.94 as pointed out by the learned CIT. The assessee has taken a figure of Rs. 66,18,812.41 in the Balance Sheet. How this figure is coming has not been reconciled. We repeatedly asked the assessee to submit a trading account so as to show quantity-wise flats purchased by the assessee during this year and those in the opening stock and also how many flats, the assessee has sold during this year and how many flats were left in the closing stock. The assessee was not able to give us any reconciliation. He referred to page 52 of his Paper Book wherein a profit of Rs. 17,85,551 is shown. It was claimed by the learned A.R. that this is the profit earned by the assessee from business in flats. But even if we add this figure to the figures of opening stock and purchase and reduce therefrom from the figure of sales, still we will not be able to come at the figure of closing stock of Rs. 66,18,812.41. Thus, quantity-wise, year-wise and money-wise details of opening stock, purchases, sales, closing stock and their reconciliation with the Balance Sheet was not forthcoming even before us. We, therefore, consider that the order of the assessing officer was erroneous because all the figures which the assessee is required to reconcile regard-ing dealing in flats were not forthcoming even before us. On this issue, we confirm the order of the learned CIT in setting aside the order of the assessing officer.
8. Regarding the issue relating applicability of Section 50C(1)/50C(2), we are of the considered view that Section 50C(1) is mandatory and creates* a deeming fiction whereby the assessing officer is required to substitute the valuation shown by Stamp Valuation authority in place of sale consideration shown by the assessee in the sale deeds. In this regard, it would be pertinent to refer to Sections 50C(1), 50C(2) and 50C(3):
50C. Special provision for fuil value of consideration in certain cases.
(1) Where the consideration received or accruing as a result of thetransfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed by any authority of a State Government (hereafter in this Section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall, for the purposes of Section 48 be deemed to be the full value of the consideration received or accruing as a result of such transfer.
(2) Without prejudice to the provisions of Sub-section (1), where
(a) The assessee claims before any assessing officer that the value adopted or assessed by the stamp valuation authority under Sub-section (1) exceeds the fair market value of the property as on the date of transfer;
(b) The value so adopted or assessed by the stamp valuation authority under Sub-section (1) has not been disputed in any appeal or revision or no ref erence has been made before any other authority, court or the High Court, the assessing officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of Sub-sections (2), (3), (4), (5) and (6) of Section 16A, Clause (i) of Sub-section (1) and Sub-sections (6) and (7) of Section 23A, Sub-section (5) of Section 24, Section 34AA, Section 35 and Section 37 of the Wealth Tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the assessing officer under Sub-section (1) of Section 16A of that Act.
Explanation.For the purposes of this Section, "Valuation Officer" shall " have the same meaning as in Clause (r) of Section 2 of the Wealth Tax Act, 1957 (27 of 1957).
(3) Subject to the provisions contained in Sub-section (2), where the valueascertained under Sub-section (2) exceeds the value adopted or assessedby the stamp valuation authority referred to in Sub-section (1), the valueso adopted or assessed by such authority shall be taken as the full valueof the consideration received or accruing as a result of the transfer.
9. From reading of the above provisions, it is clear that Section 50C(1) is mandatory whereby there is no option to the assessing officer but to adopt the valuation done by the Stamp Valuation Authorities in place of consideration shown by the assessee if valuation done by the Stamp Valuation Authorities is more than the consideration shown by the assessee. However, where the assessee stakes a claim that market value of the immovable property is less than the valuation shown by the Stamp Valuation Authorities, then the assessing officer may, if he so considers necessary, refer the property to the District Valuation Officer for deter-mining the market value thereof. If this is so, then provisions of Sections 50C(2) and 50C(3) would be applicable. Thus, where valuation done by the District Valuation Authority is more than the valuation done by the Stamp Valuation Authorities, then valuation done by the Stamp Valuation Authorities will be adopted as sale consideration in place of sale consideration shown by the assessee in the sale deeds, but where valuation done by the District Valuation Authority is lower than the valuation shown by the Stamp Valuation Authorities, then valuation shown by the District Valuation Officer will be adopted as sale consideration in place of actual sale consideration shown by the assessee in the sale deeds. It is statutory duty of the assessing officer to invoke Section 50C(1) when f acts on the record fairly suggest that valuation done by the Stamp Valuation Authorities is more than the sale consideration shown by the assessee in the sale deeds. If the assessing officer fails to discharge statutory duty, then it would be an error and CIT would be within his jurisdiction to set aside the order of the assessing officer as erroneous insofar as it is prejudicial to the interest of revenue. We do not agree with the learned A.R. that once the assessee has shown sale consideration as per sale deed and the assessing officer has accepted that under Section 143(3), then it is deemed that the assessee has put up a claim under Section 50C(2) and the assessing officer has accepted the same. If we presume that it is so, then certainly it has been done without invoking the provisions of Section 50C(1) and without referring the property to the Valuation Cell. In the present case, we notice that two properties were sold by the assessee which were held as investment liable to capital gain. In one case, the sale consideration was shown at Rs. 24 lakhs while valuation done by Stamp Valuation Authority was Rs. 33,53,000. In respect of other property the sale consideration was Rs. 5.15 lakhs whereas the Stamp Valuation Authorities have valued it at Rs. 7,07,107. Thus, in both cases, sale consideration was less than the valuation done by Stamp Valuation Authorities. The assessing officer has to give explicit reasons before exercising discretion as to why he is not referring the property to the Valuation Cell in spite of the sale consideration being lower than the valuation shown by the Stamp Valuation Authorities lower there is no explicit claim by the assessee that market value of the properties are lower than the valuation done by the Stamp Valuation Authorities. We do not find any record of any reference to market values of the properties so as to come to the conclusion that, market value of the property is lower than shown by the Stamp Valuation Authorities and therefore, the assessing officer is exercising discretion in referring the properties to the Valuation Cell. The exercise of discretion by the assessing officer is not arbitrary, but has to be objective. There has to be sufficient application of mind, which should be apparent from the record as to why he is exercising discretion either in favour of the assessee or in favour of the revenue. This is more necessary when Statute casts a duty on the assessing officer to adopt the valuation done by the Stamp Valuation Authorities in place of sale consideration shown by the assessee. Hon'ble Andhra Pradesh High Court in CIT v. G.K. Kabra ' held that an incorrect assessment of f acts or incorrect application of mind can be regarded 'as erroneous being orders passed without application of principles of natural justice or without application of mind. Hon'ble Delhi High Court in Gee Vee Enterprises v. Addl CIT held that the assessing officer is required to make further enquiries before accepting the submissions made by the assessee in the return. Hon'ble Allahabad High Court in Swarup Vegetable Products Industries Ltd v. CIT held that the CIT can set aside the assessment if he is satisfied that further enquiry is necessary. Hon'ble Madras High Court in KA. Ramaswamy Chettiarv. CIT held that when the Income Tax Officer is expected to make an enquiry on a particular item and if he does not make an enquiry as expected then that will be a ground for the Commissioner to interfere under Section 263. The learned A.R. has relied ón the decision of Hon'ble Rajasthan High Court in CIT v. Mangilal Didwania . In that case, the Tribunal was satisfied that the assessing officer has carried out proper investigation before completing the assessment.
But in the present case, our considered view is that the assessing officer has f ailed to carry out proper investigation on the issues raised by the CIT. Therefore, the case of Hon'ble Rajasthan High Court is distinguishable on facts.
10. Erroneous assessment refers to an assessment that deviates from the law and hence invalid. The erroneous assessment pertains to a defect which is prejudicial in nature. It means rendered according to courts and practice of court but contrary to law, upon the mistaken view of law or upon an erroneous application of legal principles. (B. & A. Planations &Industries Ltd. v. CIT ). An incorrect assessment of facts or incorrect application of law can be regarded as erroneous or order passed without applying the principles of natural justice or without application of mind. It is not necessary for the CIT to point out exact error so that the assessee has proper opportunity to explain before the, assessing officer (CIT v. G.K. Kabra ). When the assessing officer is expected to make an enquiry on a particular item of income and if he does not make an enquiry as expected that would be a ground for the CIT to interfere under Section 263 of the Income Tax Act with the order passed by the assessing officer (KA. Ramaswamy Chettiar v. CIT (1965) 220 ITR 6572(Mad.)). It is incumbent on the part of the assessing officer to investigate the facts stated in the return when the circumstances would make such enquiry prudent and the word "erroneous" in Section 263 of the Income Tax Act, 1961 includes the failure to make such an enquiry. The order becomes erroneous because such an enquiry has not been made and not because there is anything wrong in the order if all the facts stated therein are assumed to be correct (Duggal & Co. v. CIT (1996) 220 ITR 4563 (Delhi)).
11. There are three conditions to be satisfied for the CIT to exercise the power under Section 263. (z) There must be an order of the Assessing Authority; (ii) It is not erroneous; (m) The error has caused prejudice to the interest of revenue. It is fairly clear that power under Section 263 is in the nature of supervisory jurisdiction. It is also clear from the expression "prejudicial to the interest of revenue" that it is not merely loss to the revenue that is contemplated under Section 263. It must be prejudicial to the revenue administration. Of course, loss of revenue is prejudicial to the interests of revenue. The non-application of mind by the assessing officer and ignoring settled principles of law in the matter of computation of income and resultant assessment order is certainly erroneous and prejudicial to the interests of revenue both in terms of loss of tax and in terms of prejudice to the revenue Administration (Panchamanv. CIT (2006) 283 ITR 504 (Ker.)). The word "prejudice" must be judicially examined. What constitutes prejudice to the revenue has been subject-matter of judicial debate. One view is that it does not mean loss of revenue. The expression is not to be construed in a petty fogging manner but must be given a dignified construction. The interests of revenue are not to be equated to Rupees and Paise merely. There must be some grievous error in the order passed by the Income Tax Officer which might set a bad trend or pattern for similar assessments which, on a broad reckoning, the Commissioner might think to be prejudicial to the revenue administration. (Bismillah Trading Co. v. Intelligence Officer ).
12. In the present case, non-invoking of Section 50C(1) is a failure of exercising statutory duty by the assessing officer. In our considered view, it will set a bad trend to the revenue administration so far as these provisions are concerned. When we see explanatory note when these provisions were introduced, we notice that Legislature thought it fit to introduce this Section only to curb the tendency to understate the sale consideration for evading Stamp Duty and thereby laundering black money in sale and purchase of immovable properties. Once it is provided in the Statute by way of Section 50C(1) that valuation done by the Stamp Valuation Authority shall be substituted in place of sale consideration shown by the assessee, then it was clear that Legislature intended to plug these shortcomings and thereby opportunities available to launder black money and evading capital gains which would have otherwise been chargeable if reflecting correct sale consideration is reflected. We hold that the order of the learned Assessing Officer was not only erroneous but also prejudicial to the interests of revenue and in particular to the revenue administration as a whole. We, therefore, confirm the order of the learned CIT and dismiss the appeal filed by the assessee.