Sh. Chandra Prakash Goel vs Pr. CIT

PER S.RIFAUR RAHMAN,AM:

The assessee has filed appeal against the order of the Learned Pr. Commissioner of Income-Tax, Ghaziabad [“Ld. CIT(A)”, for short] dated 08.03.2021 for the Assessment Year 2010-11 and 2011-12 passed under section 263 of the Income-tax Act, 1961 (for short ‘the Act’).

Both the appeals are interconnected having common issues. Both the appeals are heard together and disposed off by this common order. We take the lead appeal as ITA NO. 883/Del/ 2021 (AY 2010-11)

Brief facts of the case are that, the assessee converted his agricultural land into residential plots, built service road and sold these plots to different persons on different dates i.e. developed colony in the name of Prahalad Nagar. Total amount of Rs. 66,50,000/- received during the year. Total area including road comes at 6141 Sq. Yards and assessee purchased the above piece of land on 19/04/1977, the land measuring 4.33 bighas for Rs. 32,000/- and other expenditure including stamp was Rs.3705/-. Thus total cost comes at Rs. 35,705/-and share of cost for Khasra no.309/2 is Rs.4120/-, the Proportionate cost of acquisition of 6141 Sq. yards used during the year out of 14873 Sq. yards (10vishwa) at Rs. 1890/-. This amount of cost of acquisition as on 19/04/1977 is taken as cost of acquisition on 01/04/1981. Assessee has converted his land to stock in trade during the financial year 2009-10. After indexing (1890x563/100) cost of the agriculture land converted into stock in trade as on 01/04/2009 comes at Rs. 10,641/-. Assessee has claimed expense of Rs.4,00,300/- for development of colony etc. Thus reducing total amount of Rs. 4,10,941/- (10641+400300) from sale receipts of Rs. 66,50,000/-, net business income being adventure in the nature of trade was determined at Rs. 62,39,059/- (66,50,000-4,10,941). In view of the facts discussed above the amount of Rs.62,39,059/- is added to income of the assessee treating income from business in the nature of trade.

In the set aside proceedings, the Assessing Officer completed the assessment u/s 143(3)/ 254 of the Act and passed the assessment order on 24.12.2018, determining the total loss of Rs. 2,29,920/-. While verification of the assessment records, Ld. PCIT, Ghaziabad observed that the assessment order passed u/s 143(3) of the Act/ 254 of the Act wherein the Assessing officer had assessed the total income of the assessee, determined the loss of Rs. 2,29,920/- as against returned income of Rs. 2,87,080/-. Further, he observed various issues in completing the above assessment order at page 3 and 4 of the impugned order. A notice u/s 263 of the Act was issued to the assessee on 05.01.2021 to show cause as to why the assessment order passed by Assessing Officer may not be treated as erroneous and prejudicial to the interests of the revenue. In response, the Ld. AR of the assessee attended and submitted to relevant submissions dated 11.02.2021 and 12.02.2021, the same is reproduced at pages 5 to 11 of the impugned order.

After considering the detailed submissions of the assessee, ld. PCIT observed that the assessee has sold total land of 13969 square yards, out of which 24 plots, having a total area of 5765 square yards including land used for development of roads etc. were sold during the year under consideration. The total land area of about 14873 square yards in village Patna, Hapur was purchased by the assessee in the year 1977 for Rs. 40,000/-. The cost of acquisition in the year 1977 was about Rs. 2.70 per square yard. The land was away from the road side, and was used by the assessee for the purpose of Brick-kiln. The above said land is highly degraded due to indiscriminate excavation. In respect of earth-filling the assessee has claimed expenses on account of development at Rs. 4,00,300/-, separately in the working of business income on sale of plots after conversion. Thus, he observed that the cost of acquisition as on 01.04.1981 adopted by the Ld. AO @ Rs. 160/- per square yard on the basis of Valuation Report is unrealistic and made without consideration of the nature and location of the land which should have been questioned by the Assessing Officer. Further, he observed that no comparable sale deed was brought on record by the valuer of the assessee. The circle rate of Rs. 160 per sq. yard adopted by the valuer was in respect of developed residential land as on 01.04.1981, the assessee’s land was undeveloped and being used for brick-kiln. Further, he observed that in the assessment year 2011-12, the assessee had himself taken the cost of acquisition of land as on 01.04.1981 @ Rs. 25 per sq. yard. Therefore, before accepting revised rate of Rs. 160 per sq. yard on the basis of valuer’s report, the Ld. AO should have referred the matter to the valuation cell of the Income Tax Department for ascertaining the actual cost as on 01.04.1981, more so when the valuation report is found to suffer from many inaccuracies as under:

After considering the submissions and case laws relied by the assessee, Ld. PCIT observed that the submissions of the assessee is not acceptable and the case law relied are distinguishable and came to the conclusion that the assessment order is erroneous and prejudicial to the interest of the revenue and accordingly he set aside the order and directed the assessing officer to refer the issue for valuation of land to DVO and complete the assessment afresh as per the terms of the direction of Co-ordinate Bench decision vide order dated 21.06.2017 to assess the market value of land in accordance with the law and compute the capital gain u/s 45(2) of the Act and the business income from the said transaction.

Aggrieved with the above order, the assessee is in appeal before us raising following grounds of appeal:

At the time of hearing, Ld. AR brought to notice page 35 of the paper book, which is the computation filed by the Assessee and further brought to our notice pages 55-79, 80, 81-84 are the copies of circle rates furnished with registered valuer report, letter furnished to AO and the order sheet entries and further brought to our notice pages 36-38, is the copy of assessment order passed by AO on 24/12/2018 in which AO has mentioned that the Assessee filed the submission along with supporting documentary evidence and further noticed that circle rate of the property as on 01/04/1981 was Rs. 160/-per sq. yard and the Registered valuer Mr. Atul Goel vide his report dated 25/5/2013 has certified market value of the property as Rs 160 per sq yard which was so accepted by A.O as FMV of the property as on 01/04/1981 and thereafter AO computed Capital Gain and Business Income.

Further, he brought to our notice pages 39-43 is the copy of the notice u/s 263 dated 05/01/2001 in which Ld. PCIT has mentioned that section 143(2) does not visualize assessment at an income which is less than the income shown by the assessee in his Return of Income and thus completing the assessment at loss of Rs 2,29,920/- by AO as against returned income of Rs 2,87,080/- is not in harmony with the mandate of CBDT circular No. 549 dated 31/12/1989. In para 5.12. Ld PCIT further noted that in set aside proceeding, AO adopted FMV at Rs.160 per sq yard as on 01/04/1981 which according to Ld PCIT was assessee's claim made under assessment proceeding otherwise than through the revised return and was thus contrary to the decision of Hon'ble Supreme Court in the case of Goetzz India Ltd vs. CIT 284 ITR 323 and he submitted that according to PCIT, A.O in the set aside proceeding has permitted the Assessee to substitute and replace the facts by set of new facts and A.O in the set aside proceeding did not appreciate that. He submitted that A.O in the original assessment proceeding had collected and placed on record a clinching documentary evidence in the shape of certified copy of purchase deed dated 19/4/1977 and A.O did not make necessary enquiry through D.V.O to test the authenticity of valuation made by Registered Valuer.

On the other hand, Ld. DR submitted that Ld PCIT, in a detailed order spanning 16 pages, held the AO’s assessment order erroneous and prejudicial to revenue for failing to conduct the required inquiry. The PCIT set aside the order and directed the AO to refer the valuation to the DVO for independent assessment. Further, she submitted that the departmental valuation officer independently assessed the FMV on 01.04.1981 at Rs. 9.82 per sq. meter (approximately Rs. 1,14,678 total, or roughly Rs. 25 per sq. yard), essentially vindicating the original AO’s position. The fresh assessment was completed at Rs. 41,71,057/-, substantially higher than the set-aside order’s figure.

AO's order if it is erroneous and prejudicial to the interests of the revenue, including where the order is passed Statutory Framework: Section 263(1) read with Explanation 2(a) empowers the Commissioner to revise without making inquiries or verification which should have been made. She further submitted as under:

Twin Conditions Satisfied: The Supreme Court in Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 established that an order becomes erroneous when there is (G) incorrect assumption of facts. (ii) incorrect application of law, or (iii) absence of application of mind. All three are present here.

Further she submitted that Critical Failure: No DVO Reference Despite Requirement: The assessee in the set aside proceedings, this dramatic shift, supported only by an assessee-appointed private valuer's report, demanded rigorous scrutiny. The material facts diverge is to obtain an independent departmental valuation officer's assessment. Section 222B of the IT Act defines FMV as the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date. The assessee's valuation lacking comparable transaction evidence and ignoring the land's undeveloped, non-road-touching, brick-kiln-business character, was not credible without independent verification. Further, she brought to our notice page 15 of 263 Order: There is no comparable sale deed referred to by the valuer for arriving at the value of Rs. 160 per sq. yard. The assessee's claim was accepted without (a) examining the purchase deed of 1977 showing cost of only Rs. 2.70 per sq. yard, (b) evaluating the land's industrial use and non-developed status as on 01.04.1981, or (c) cross-checking against circle rates with adjustments for undeveloped/non-road-touching property.

Further, she submitted that ITAT's Direction did not Preclude Inquiry; It Mandated In Accordance with Law.

She submitted that the appellant misreads the ITAT direction. The ITAT said examine in accordance with law-not accept assessee's version. The ITAT made no comment whatsoever on whether the FMV should be Rs. 25 or Rs. 160, leaving the matter open for lawful determination. In accordance with law includes following:

 Prescribed procedures (DVO reference for material disputes)

 Statutory definition under s.2228

 Judicial principles established in Goetze India Limited v. CIT

 CBDT guidelines

Considered the rival submission and material placed on record. We observed that, in the set aside proceedings to the file of AO the co-ordinate Bench, in its order of ITA No. 3032/Del/2014, remitted the issue back to the file of AO with the direction to complete the assessment by computing capital gains in terms of Section 45(2) of the Act and business income from the transaction, in view of the findings given in the above order. While computing the capital gains, the AO was directed to examine the fair market value of the land in accordance with law. The main issue raised by both the parties is that the Assessing Officer has accepted Rs. 160 per sq. yard based on the valuation report submitted by the Assessee for the cost of acquisition as on 01.04.1981. The Ld. PCIT was of the view that the Assessing Officer should not have accepted the revised rate of Rs. 160 per sq. yard based on valuation report submitted by the assessee and AO should have referred the matter to the DVO.

Further, the Ld. PCIT observed that the valuer has not taken into account the nature of the land being under-developed and away from the road and the details of circle rates submitted varies widely and there is no clarity regarding the period for which circle rates were applicable and also there is no comparable sale deed referred by the valuer.

On the other hand, Ld. AR objected to the findings of Ld. PCIT and distinguished the decision relied by the PCIT in the case of Goetzz India Ltd. (supra) and submitted the above decision is not applicable in the case of the assessee. With regard to the findings of the ld. PCIT on various issues raised in the impugned order. Ld. AR submitted that the matter was set aside by the Tribunal to compute capital gain and business income in terms of Section 45(2) of the Act and directed the AO to examine the FMV of the land in accordance with law and the same direction was followed by the Assessing Officer by appreciating the valuation report of registered valuer and applied his mind. With regard to the observation that the AO should have referred the matter to the DVO to determine the FMV as on 01.04.1981 is not tenable in law reference u/s 55A of the Act alone could be made to determine FMV only when Ld. AO was of the belief that FMV adopted by Registered Valuer was less, in this regard relied on the decision of Anil Kripalani vs. PCIT (supra). He further submitted that when there is registered valuer report AO was bound to follow the same.

After considering the submissions of both sides, we observed that the main issue under dispute is adoption of Rs. 160 per sq. yard as on 01.04.1981 to determine the cost of acquisition. The assessing officer in the set aside proceedings accepted the value of Rs. 160 per sq. yard. At the same time, we observed that the assessing officer considered the submissions made by the assessee during the set aside proceedings. It is clearly recorded in the order sheet during the proceedings, on careful reading of the same, we noticed that the AO had discussed the various issues with regard to valuation report. We observed that the issue is related to the valuation of land as on 1.4.1981, it is being done on the basis of application of estimation based on the various factors as existed at that point of time. The registered valuer had valued the same specially and specifically for the purpose of capital gains and the same was mentioned in the face of the valuation report itself. Further, the valuer had adopted the stamp duty value based on the prevailing circle rate existed at that point of time. On page 54 of the paper book, it was brought to the notice of the Ld PCIT that the standard stamp duty rate existed at that point of time was Rs. 220/- to 330/- per sq yard for the lands which touch the road whereas the rates for the lands away from the roads existed were between Rs. 90/- to Rs. 160/-. The registered valuer had considered the above aspect and chose to adopt the value of Rs. 160/-. We observed from the order sheet recorded shows that the AO had applied his mind and accepted the valuation report. Now the Ld PCIT finds that the acceptance of such report is erroneous and expressed his views that the AO should have referred the matter to the DVO, it is more like post view or taking different view which the AO had taken at that point of time. It is observed that the AO had made verification whereas the Ld PCIT is of the view that the AO had not taken the proper view. He may be right now but after application of mind, AO had taken one of the possible views going with the certified valuer. Ld PCIT is of the view that the valuer had not followed certain possible view and not disclosed the comparable instance as per his opinion. In our view, Ld PCIT is of the view that both the parties ie., AO as well as the registered valuer had passed the assessment order as well as the valuation report are erroneous. After considering the information on record, in our view, the AO had taken one of the possible views, which may not be acceptable to the PCIT. In our considered view, the assessment order is not erroneous but may be prejudicial to the interest of revenue. As per the provisions of section 263, both the twin conditions must be satisfied. As held in the case of Malabar Industrial Co. Ltd (supra). Further we observed that in the case of Hindustan Marketing & Advertising Co. Ltd (28 ITD 231) the coordinate bench held that when income tax officer collected evidences, discuss the points with the representative of the assessee, got clarification from them and thereafter drew conclusion to make the assessment, it cannot be said that the order was erroneous. Further, the coordinate bench held in the case of Mannesmann Demag A.G (53 ITD 533) that probability of contrary view cannot be said to make assessment order erroneous.

Further we observed that while filing the original return of income, the assessee had declared the income without their being any valuation of the land, the return may not be accurate, since the matter was set aside to determine the value as per section 45(2) of the Act, the assessee had obtained the valuation from the registered valuer. At this stage, proper value of the land as it existed at 01.04.1981 was available for consideration. It is obvious that the return of income filed by the assessee at that point in time was only on estimate basis and it cannot be said that it was accurate. When the proper valuation was available at the time of setting aside proceedings, the actual income must be determined. This is based on the settled position of law that only the actual income must be subjected to tax. In our view, the AO had taken possible view and there is possibility of difference in the actual income declared in the original return of income and on reassessment proceedings, when the actual information is available, the AO had to determine the actual income earned by the assessee, which is subjected to tax.

Considering the peculiar facts, record and reliance on the decision of Anil Kripalani, as per ratio of the above decision, it was held that the provisions of Section 55A(a) of the Act cannot be applied and no reference is possible to be made to the DVO for determining the market value of the property at a figure less than that shown by the Assessee. However, in our considered view, in this case also the income declared by the assessee in the original return of income was without the valuation report, in the set aside proceedings, the AO had the convenience to appreciate the actual valuation to determine the actual income under the head’s capital gain and business income. There is no possibility to refer to the DVO since the AO had accepted the valuation report moreover, the estimation was made not for the present value, but it is for value as on 01.04.1981. Even the DVO would have estimated based on the value as existed at that point of time and again it is also subject to adoption of estimations. It is evident from the fact that the Assessing Officer in the order giving effects to the proceedings under Section 263 of the Act, it is brought to our notice that the Assessing Officer has obtained the report from the DVO, who assessed the FMV as on 01.04.1981 at Rs. 9.82 per sq. meters (Rs.25 per sq. yards). In our considered view, the above report was not challenged by the assessee at this stage. Both the reports are extreme to each other. Considering the overall facts on record, both the valuers adopted different estimates to value which as existed at 01.04.1981. As discussed above, there is certain FMV based on stamp duty, which varies from Rs. 90 to Rs. 330 based on whether the land is adjacent to the road or not. Considering the overall information available with the registered valuer had estimated the FMV for specific purpose of capital gain.

Considering the above facts on record and the case law relied by the Ld DR are distinguishable, in our considered view, the order passed by the AO may be prejudicial to the interest of the revenue but not erroneous, therefore, the order passed u/s 263 is set aside. Therefore, the assessment order passed u/s 143(3)/254 of the Act dated 24.12.2018 is not erroneous in so far as it is prejudicial to the interest of the Revenue. Accordingly, we are inclined to allow the appeal filed by the assessee.

With regard to ITA No. 884/Del/2021, we observed that the issue involved is exactly similar to the facts in ITA No. 883/Del/2021and the findings are applicable mutatis mutandis to ITA No. 884/Del/2021, accordingly, the appeal filed by the assessee is allowed.

In the result, both appeals of the assessee are allowed.