Smt. Harpreet Kaur, Mohali vs Assessee

Smt.Harpreet Kaur, Vs. The CIT-II, #1610, Sector 79, Chandigarh. Mohali. PAN: AAWPK4507E (Appellant) (Respondent)

Appellant by : Shri Tej Mohan Singh Respondent by : Smt.Jyoti Kumari,CIT DR

Date of hearing : 27.05.2015 Date of Pronouncement : 03.06.2015

PER BHAVNESH SAINI, J.M. :

This appeal filed by the assessee is directed against the

order of the learned Commissioner of Income Tax-II,

Chandigarh dated 5.2.2014 for assessment year 2009-10,

challenging the order under section 263 of the Income Tax

Act.

2. Briefly, the facts of the case are that the assessee

filed return of income for assessment year under appeal i.e.

2009-10 on 31.7.2009 declaring taxable income of

Rs.31,66,210/- consisting of capital gains and income from 2

other sources. The case of the assessee was selected for

scrutiny. The Assessing Officer issued statutory notice to

the assessee alongwith questionnaire and the assessee

furnished details/information called for by the Assessing

Officer. The Assessing Officer noted that the assessee

derived long term capital gains and income from other

sources. The assessee also invested part of capital gains in

accordance with section 54 of the Act. The details furnished

during the course of assessment proceedings were examined

by the Assessing Officer and after making investigation and

enquiries the Assessing Officer noted that the assessee sold

farm house during the year. The property was acquired by

the assessee during the year 1996-97. The assessee has

claimed benefit of indexation on expenses incurred for the

construction work carried out in the years 1997-98 and 1998-

99. The assessee was asked to furnish the evidence of

incurring expenses on construction of farm house. It was

submitted by the assessee that the construction was incurred

way back in 1997-98 and 1998-99 and it is not possible to

provide the requisite evidence of expenses at the stage. The

learned counsel for assessee further submitted that the

assessee has been showing rental income from this property

regularly in the return of income and, therefore, the cost of

construction may be accepted. The Assessing Officer after

detailed discussion with the learned counsel for assessee

noted that the assessee agreed for addition of Rs.2 lacs to the

long term capital gains to cover up any discrepancy on

account of cost of construction shown by the assessee. The 3

Assessing Officer accordingly made addition of Rs.2 lacs

towards long term capital gains and after examining the

details accepted the claim of the assessee by making part

addition on the same issue.

3. The learned Commissioner of Income Tax-II,

Chandigarh, however, issued a show cause notice dated

10.1.2014 under section 263 of the Act (Pb-60) intimating the

assessee that as per record the assessee has sold farm house

on 24.10.2008 for total sale consideration of Rs.4,10,00,000/-

on 22.10.2008 and declared long term capital gains of

Rs.3,70,43,706/- The detail is reproduced in the notice. It

was further noted that out of the above declared long term

capital gains of Rs.3,70,43,706/-, the assessee has claimed

benefit of exemption under section 54 of the Act to the tune of

Rs.3,56,96,300/-, whereas the assessee had purchased House

No.54, Sector 69, Mohali for consideration of

Rs.1,65,00,000/- on 18.6.2009 and incurred expenses of

Rs.9,80,000/- on stamp duty. Further the assessee also

purchased a 12 marla plot No.1610, Sector 79, Mohali for

consideration of Rs.69,00,000/- on 23.7.2009 and spent

Rs.10,82,812/- for re-allotment of the same from GAMADA.

It was, therefore, noted that overall the assessee claimed

wrong exemption of Rs.3,56,96,300/- against the total

investment of Rs.2,54,62,812/- under section 54 of the Act.

The learned Commissioner of Income Tax also noted in the

show cause notice that the assessee had sold farm house,

therefore, cannot claim deduction under section 54 of the Act 4

and further the assessee is not entitled for deduction under

section 54F of the Act because of the proviso provided in the

above section 54F of the Act. It was further noted in the

notice that the assessee had failed to provide any proof in

respect of the amount to the tune of Rs.8,70,000/- claimed to

have been incurred on transfer expenses in respect of sale of

property. It was also seen that the assessee failed to provide

the corroborative evidence justifying the claim of having

incurred Rs.4,50,000/- and Rs.12,00,000/- in financial years

1997-98 and 1998-99 respectively for construction purposes

under the head "construction cost". It was also noted that

no documentary evidence was called for by the Assessing

Officer in respect of the carry forward long term capital loss

of Rs.23,057/- pertaining to assessment year 2005-06. In

view of the above facts, the learned Commissioner of Income

Tax held that the assessment framed under section 143(3) on

27.5.2011 is erroneous in so far as prejudicial to the interest

of the Revenue. Therefore, the explanation of the assessee

was called for. The assessee in response to this notice filed

reply on 29.1.2014, which is reproduced in the impugned

order highlighting all the facts to challenge that the revision

of proceedings under section 263 of the Act are not called for

and the matter may be dropped. The assessee relied upon

several decisions in support of the contention. We would

deal with the reply of the assessee later on in this order. The

learned Commissioner of Income Tax, however, was not

satisfied with the explanation of the assessee and cancelled

the assessment order under section 143(3) of the Act dated 5

27.5.2011 and directed the Assessing Officer to pass

assessment order afresh after making necessary enquiries in

accordance with law by giving opportunity of being heard to

the assessee. The findings of the learned Commissioner of

Income Tax in paras 3 to 6 of his order are reproduced as

under :

3. Replies of the assessee have been considered.

However, the same are not acceptable in view of the following reasons: -

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

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

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

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

3.5 The assessee, vide para 2(d) of his reply, has claimed that expenses in the construction was made of Rs.4,50,000/- and of Rs.12,00,000/- in F.Y. 1997- 98 and F.Y 1998-99 respectively and assessee could not save the vouchers/bills after the sale of the said house. Again the facts on record suggest that no 6

construction has taken place as is evident from entries in purchase as well as sale deed of this property where type of land has been mentioned as "Gairmumkin Shed". Therefore, only a shed existed at the time of purchase as well as sale of the alleged land/farmhouse. In view of the above, the claim of the assesee that this issue was explained by him and got examined by the Assessing Officer is contrary to facts on record and assessee has not brought on record any evidence to that what is apparent is not the real and Assessing Officer has also failed to examine the issue properly.

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

3.7 The assessee has not been able to explain the transactions discussed in the foregoing paragraphs so much so that the assessee has not brought on record the bank accounts involved in these transactions.

From the aforesaid, it is also clear that the Assessing Officer has failed to conduct the enquiries emanating from the material and issues before him which were necessary for the assessment.

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

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

The assessee has also stated that "It is therefore most respectfully prayed that the notice issued under section 263 does not fulfill the requisites attached to it and 7

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

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

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

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

4. The assessee feeling aggrieved against the impugned

order under section 263 of the Act filed the present appeal.

5. We have heard the learned representatives of both

the parties, perused the findings of the authorities below and

considered the material available on record. The learned

D.R for the Revenue produced assessment record as well as

revision folder of Commissioner of Income Tax under section 8 263 of the Act and also placed on record copies of the order-

sheet of the Assessing Officer and Commissioner of Income

Tax under section 263 of the Act. The learned counsel for

assessee reiterated the submissions made before the learned

Commissioner of Income Tax and also referred to various

documents and replies filed before the Assessing Officer and

submitted that the Assessing Officer after making detailed

enquiries on the issue of long term capital gains correctly

accepted the claim of the assessee under section 54 of the Act

and made part addition. Therefore, the learned Commissioner

of Income Tax should not have revised the assessment order.

The learned counsel for assessee referred to various details

and replies placed on the Paper Book and also filed copy of

acknowledgement of filing of the returns of income alongwith

computation of income of earlier years in support of the

contention. The learned counsel for assessee also submitted

that the issue of two properties purchased by the assessee

was not raised in show cause notice issued by the learned

Commissioner of Income Tax under section 263 of the Act and

no findings have also been recorded by the learned

Commissioner of Income Tax. Therefore, such issue cannot

be raised by the learned D.R for the Revenue during the

course of arguments. The learned counsel for assessee

submitted that the learned Commissioner of Income Tax

merely raised the issue of difference of Rs.1 crore, which was

invested under Capital Gain Scheme, for which proper

evidence was filed before the Assessing Officer and was also

explained before the learned Commissioner of Income Tax. 9

Therefore, the assessment order could not be said to be

erroneous in so far as prejudicial to the interest of the

Revenue.

6. On the other hand, the learned D.R for the Revenue

relied upon the impugned order under section 263 of the Act

and submitted that the assessee has sold only the farm house,

which is not substantiated because the sale deed contained

'gairmumkin shed'. Therefore, it cannot be treated as

residential house and as such, the assessee would not be

entitled for exemption under section 54 of the Act. The

learned D.R for the Revenue also submitted that since the

assessee has purchased two properties, therefore, the

assessee would not be entitled for exemption as claimed. The

learned D.R for the Revenue relied upon the following

decisions :

i) Decision of Hon'ble Rajasthan High Court in the

case of Rajesh Surana Vs. CIT, 306 ITR 368, in which it

w a s h e l d t h a t " A p l o t wi t h b o u n d a r y wa l l s a n d a g a r a g e -

c u m- r o o m c o n s t r u c t e d o v e r i t i s n o t a r e s i d e n t i a l h o u s e ,

hence capital g ain ar is ing f ro m sale thereof is not exe mp t

under section 53".

ii) Decision of the Hon'ble Punjab & Haryana High

Court in the case of Ashok Syal Vs. CIT, 209 Taxman

376, in which it was held that "Exe mp tion u/s 54 is not

a v a i l a b l e wh e n p r o p e r t y i n q u e s t i o n i s n o t a " h o u s e " o r

" d we l l i n g u n i t " .

10

iii) Decision of the Hon'ble Punjab & Haryana High

Court in the case of Dr.A.S. Atwal Vs. CIT, 277 ITR 462,

in which it was held that "Property sold by assessee i.e.,

p l o t wi t h a t i n s h e d , wa s n o t a h o u s e a s t h e t i n s h e d h a d

not bathroom or kitchen or electricity connection, and even

i f t h e s a me i s c o n s i d e r e d a s a h o u s e , a s s e s s e e i s n o t

entitled to exemption under s.54 on the sale of said

property as it was not occupied by the assessee or a

parent of his for their residence in the t wo years

immediately preceding the date of transf er".

iv) Order of I.T.A.T., Hyderabad Bench in the case of

ITO Vs. Smt.Rohini Reddy, 122 ITD 1, in which it was

held that :

" B e n e f i t o f e x e m p t i o n u n d e r s . 5 4 i s a l l o wa b l e o n l y wh e n the property sold as we l l as the property purchased by the assessee are intended to be used as residential house; neither the roof ed structure b u i l t o n t h e l a n d s o l d b y t h e a s s e s s e e wa s s e l f -

occupied or let out or intended to be used as residence, nor the t wo plots purchased by the assessee wi t h small te mpor ary structures covered with asbestos roof ing we r e me a n t to be used as residential houses and, theref ore assessee is not entitled to exemption under s. 54.

v) Decision of the Hon'ble Punjab & Haryana High

Court in the case of Pawan Arya Vs. CIT, 237 CTR 210,

in which it was held that : 11

"Cap ital g ains- Exemp tion u n d e r s . 5 4 - I n v e s t me n t i n t wo houses-Exemption under s.54 is available in

r e s p e c t o f o n e h o u s e o n l y - T r i b u n a l wa s t h e r e f o r e jus tif ied in holding that the assessee wa s not e n t i t l e d t o e x e m p t i o n i n r e s p e c t o f t wo i n d e p e n d e n t r e s i d e n t i a l h o u s e s s i t u a t e d a t d i f f e r e n t l o c a t i o n s - C IT vs. D.Ananda Basappa (2009), 223 CTR (Kar) 186 : ( 2 0 0 9 ) 3 0 9 IT R 3 2 9 ( K a r ) d i s t i n g u i s h e d . "

vi) Order of the I.T.A.T. Mumbai (Special Bench) in the case of ITO Vs. M/s Sushila M.Jhaveri, 107 ITD 321 (SB) in which it was held that :

"Expression "a residential house" in ss.54 and 54F means one residential house; assessee having invested capital gains in t wo residential houses s i t u a t e d i n d i f f e r e n t l o c a l i t i e s o f t h e s a me c i t y , s h e was en titled to exemp tion under s.54/54F in respect of investment in one house as per her choice but was not entitled to e xe mp tion in respect of investment in both the residential houses."

7. The learned D.R for the Revenue, therefore

submitted that the appeal of the assessee may be dismissed.

8. We have considered the rival submissions. The

learned Commissioner of Income Tax noted that the record

revealed that since the assessee had sold farm house,

therefore, cannot claim exemption under section 54 of the Act.

The assessee in reply to this objection submitted before the

learned Commissioner of Income Tax that the farm house is

nothing else but residential house and land appurtenant

thereto. The assessee had constructed a residential house on

a piece of land and had been occupying the same and also 12

earning rental income upto 31.3.2008 from portion of such

house. The assessee has been regularly showing the rental

income from such house under the heading "income from

house property" in her income tax returns upto assessment

year 2008-09. The assessee referred language of section 54

of the Act, which provides that in case of an assessee being an

individual or HUF, the capital gain arises from the transfer of

a long term capital asset being building or land appurtenant

thereto and being a residential house, the income of which is

chargeable under the head "income from house property".

The assessee submitted that since the house was occupied by

the assessee and his parents and rental income was also

earned from letting out of some portion and was duly declared

in the return of income, therefore, the assessee was entitled

for benefit contained under section 54 of the Act. The

assessee also relied upon the order of the I.T.A.T., Delhi

Bench in the case of Mahavir Prasad Gupta Vs. CIT, 5 SOT

355 on the proposition that 'even farm house can be a

residential house and investment is eligible for benefit under

section 54 of the Act'. The learned Commissioner of Income

Tax, however, considered the sale deed of the property in

question dated 17.10.2008 and found that the type of the land

sold is 'gairmumkin shed', whereas the assessee claimed it to

be residential house and as per the sale deed, since it was a

shed, therefore, the assessee cannot claim exemption under

section 54 of the Act because for making such claim under

section 54 of the Act the asset sold must be residential house.

We have gone through the copy of the sale deed in question 13

which pertained to the property situated in village Balomajra

and in the sale deed the type of the land is mentioned as

'gairmumkin shed', the copy of the same is filed on pages 5 to

19 of the Paper Book. In the sale deed the property

described was referred to as is mentioned in jamabandi for the

year 2003-04. The copy of the jamabandi is also placed on

record alongwith translated copy in which the property in

question is shown as "gairmumkin shed and house". It,

therefore, appears that the learned Commissioner of Income

Tax has not properly gone through the sale deed of the

property in question because when the details of the property

are mentioned as per jamabandi for assessment year 2003-04

under sale, the learned Commissioner of Income Tax should

have also gone through the copy of the jamabandi for the year

2003-04 as noted above and since the jamabandi shows the

property in question as "gairmumkin shed and house",

therefore, there is no question of considering it to be only

'gairmumkin shed'. The assessee has also placed copy of the

acknowledgement of furnishing of the returns from

assessment years 2002-04 to 2008-09 alongwith computation

of income, in which the assessee has declared rental income

from the property in question situated in village Balomajra.

Since the assessee has been declaring rental income from the

same property in question under the head "income from house

property", which is also not disputed by the Revenue

Authorities in earlier years, would clearly show that the

Revenue Department has accepted the property in question to

be residential house property. Therefore, when the 14

residential house is surrounded by lands, which were under

sale, would be entitled for deduction under section 54 of the

Act. It may also be noted here that the assessee had filed

copy of estimated assets and liabilities statements as on

1.4.2008 and 31.3.2009 in the Paper Book at pages 20 and

21, which according to the learned counsel for assessee were

filed with the return of income, would show that the farm

house situated at village Balomajra was having value of

Rs.18,10,000/-. These facts would clearly indicate that the

property in question was 'gairmumkin shed' and house, on

which on letting out part of its portion income was also

assessed under the head "income from house property".

Therefore, the assessee has been able to prove that the capital

gains arises from transfer of long term capital assets being

building or land appurtenant thereto and being a residential

house, the income of which is chargeable under the head

"income from house property". Therefore, the conditions of

section 54 of the Act have been satisfied in the case of the

assessee. Therefore, the decisions relied upon by the learned

D.R for the Revenue would not support the case of the

Revenue.

9. The learned Commissioner of Income Tax noted that

even in the above facts when the property sold was farm

house, the assessee would not be entitled for deduction under

section 54F of the Act because the proviso is against the

assessee. Since the assessee claimed long term capital gains

on transfer of residential house, therefore, the learned 15

counsel for assessee argued that the claim of the assessee

would fall under section 54 of the Act. The provisions of

section 54F of the Act do not apply in the case of the

assessee. Therefore, there is no question of applying the

proviso of section 54F of the Act in the case of the assessee.

We find force in the submission of the learned counsel for

assessee that since the case of the assessee falls under

section 54 of the Act, therefore, the provisions of section 54F

of the Act would not apply in the case of the assessee. Thus

this objection of the learned Commissioner of Income Tax

would not be relevant and is also against the computation of

income filed by the assessee alongwith the return of income,

copy of which is filed at page 22 of the Paper Book.

10. The learned Commissioner of Income Tax further

objected to the investment in a sum of Rs.3,56,96,300/- as

according to him, the total investment made by the assessee

under section 54 of the Act was Rs.2,54,62,812/-. The

assessee explained before the learned Commissioner of Income

Tax that the investment was made in the FDR under Capital

Gain Scheme for Rs.1 crore and certain other investments

made by the assessee for availing benefit under section 54 of

the Act as explained in the reply given before the Assessing

Officer during the scrutiny proceedings, have not been

considered while issuing notice under section 263 of the Act.

The correct details of investment made under section 54 of the

Act as explained by the assessee is reproduced at page 4 of

the impugned order, in which the assessee has given complete 16

details of investment made in the properties and also

explained that Rs.1 crore is deposited in the FDR under

Capital Gain Scheme Account for construction of the above

plot. Thus according to the assessee, the total investment

eligible under section 54 of the Act was Rs.3,56,96,300/- as

was claimed in the return of income as well as in the

computation of income. The learned Commissioner of Income

Tax instead of examining the details available on record,

merely noted that no documentary evidence of making FDRs is

available on record for investing Rs.1 crore in Capital Gain

Account. The learned CIT DR produced assessment record

before us during the course of hearing from which we find

that the copy of FDR under Capital Gain Scheme of Rs.1 crore

is available on record, copy of which is also filed in the Paper

Book at page 42. Therefore, the findings of the learned

Commissioner of Income Tax are wholly incorrect and cannot

be sustained. Thus the assessee would be entitled for benefit

of Rs.1 crore under section 54 of the Act on making FDR

under Capital Gain Scheme. The learned Commissioner of

Income Tax thus has not properly examined this issue before

taking any adverse view against the assessee.

11. The learned Commissioner of Income Tax also noted

that the assessee has failed to provide any proof in respect of

the amount to the tune of Rs.8,70,000/- claimed as transfer

expenses in respect of sale of property. The assessee

submitted before the learned Commissioner of Income Tax that

the copies of all the bank accounts with narrations of debit 17

and credit entries were given to the Assessing Officer alonwith

reply, which shows that this amount was paid through

account payee cheque drawn on Punjab & Sind Bank, Phase-5,

Mohali to Shri Kesar Singh for facilitating the completion of

the said deal. This point was also clarified to the Assessing

Officer. The learned Commissioner of Income Tax, however,

noted that no document is filed on record to prove the

genuineness of the claim of the assessee. The assessee in

the Paper Book has filed copy of the same bank account at

page 3, which shows that the amount in question has been

paid as commission for transfer of property through banking

channel. This bank account was placed before the Assessing

Officer and the Assessing Officer on examining the same was

satisfied with the contention of the assessee. Therefore, the

learned Commissioner of Income Tax was not justified in

taking adverse view against the assessee on this issue.

12. The learned Commissioner of Income Tax further

noted that the assessee has also failed to provide any

corroborative evidence for incurring Rs.4,50,000/- and

Rs.12,00,000/- in financial years 1997-98 and 1998-99

respectively for construction purposes under the head "cost of

construction". The assessee explained that the construction

was raised so many earlier years back and the Assessing

Officer after discussing the issue at length has made addition

of Rs.2 lacs on this issue. Therefore, when the Assessing

Officer examined the issue in detail, the learned

Commissioner of Income Tax should not substitute the opinion 18

of the Assessing Officer with his opinion when part addition is

made by the Assessing Officer on this issue and when the

return of income shows that the assessee earned rental

income from the house property, it should have been inferred

that the assessee has raised construction on the farm house.

Therefore, the view of the Assessing Officer was correct in

following the rule of preponderance of probabilities.

Therefore, the learned Commissioner of Income Tax should not

substitute his opinion to that of the Assessing Officer for the

purpose of making addition only.

13. The learned Commissioner of Income Tax further

noted that no documentary evidence have been called for by

the Assessing Officer in support of carried forward long term

capital loss of Rs.23,057/- pertaining to assessment year

2005-06. The assessee submitted that the long term capital

loss of Rs.23,057/- occurred for assessment year 2005-06 and

was declared in the income-tax return for assessment year

2005-06 and during the course of assessment proceedings, the

Assessing Officer was satisfied about such claim made in the

return of income for assessment year 2005-06. The learned

counsel for assessee placed copy of the acknowledgement of

returns and computation of income for many years on record

to show that from the assessment year 2005-06 such claim of

capital loss was made in the returns of income in all the

earlier years. Therefore, there was no question of examining

such issue which has happened in the earlier years 2005-06

onwards. Since all informations have been given in the 19

computation of income and returns of income to the Revenue

Department and the Assessing Officer examined the issue of

long term capital gain in detail, therefore, no fault could be

found with the order of the Assessing Officer.

14. The learned D.R for the Revenue filed copy of order-

sheet from the assessment record, which would show that the

Assessing Officer issued several statutory notices to the

assessee and also issued questionnaire to the assessee for

claiming deduction under section 54 of the Act in respect of

long term capital gain. The Assessing Officer conducted

enquiries on several dates of hearing and after examining the

issue of long term capital gain in detail has made the addition

of Rs.2 lacs on that account. The copy of the order-sheet of

the learned Commissioner of Income Tax is also filed on

record, which shows that after issue of show cause notice

under section 263 of the Act dated 10.1.2014, the assessee

filed reply before the learned Commissioner of Income Tax on

29.1.2014 and thereafter straightaway the impugned order has

been passed on 5.2.2014. It is, therefore, appeared that the

detailed reply filed before the learned Commissioner of Income

Tax was not considered properly and no further query was

raised by the learned Commissioner of Income Tax. The reply

of the assessee dated 29.1.2014 is quoted in detail in the

impugned order supports the case of the assessee that each

and every objection raised by the learned Commissioner of

Income Tax have been properly explained which were also

taken into consideration by the Assessing Officer. Therefore, 20

if the learned Commissioner of Income Tax was not satisfied

with the reply of the assessee, he should have called for

further explanation of the assessee and should have gone into

the details of material produced before him as well as

available on assessment record. The learned Commissioner of

Income Tax, however, failed to consider the reply of the

assessee in proper perspective. Since the explanation of the

assessee in response to the notice under section 263 of the

Act has not been considered by the learned Commissioner of

Income Tax in proper perspective, therefore, the order of

revision without considering the explanation of the assessee

would not be valid. We rely upon the decision of the Hon'ble

Gauhati High Court in the case of Smt.Lila Choudhury Vs.

CIT & Others, 289 ITR 226, in which it was held as under :

" H e l d , t h a t i n t h e o r d e r t h e Commissioner had not recorded any opinion that the order of assessment of the petitioner for the assessment year 1992-93 was erroneous and prejudicial to the interests of the Revenue. That was the opinion recorded in the notice dated August 14/19, 1996, but the opinion being recorded in a notice issued to the petitioner asking to show cause, must be understood to be rebuttable. Such opinion was required to be reiterated after hearing the petitioner and after holding the necessary enquiry. On receipt of the show-cause notice, the petitioner submitted an elaborate reply. The Commissioner on receipt of the reply of the petitioner could not have ignored the same. Rather, it was incumbent on the Commissioner to consider the explanations offered and on that basis to record his opinion/conclusion. Moreover, the competent criminal court had exonerated the son-in-law of the petitioner from any liability on account of the house property in question holding it to belong to the petitioner. The findings recorded by the criminal court in this regard could not be brushed aside. Hence, any de novo proceedings at this stage would be futile. The order of revision had to be quashed. The assessment of the petitioner for the assessment 21

year 1992-93 made by order dated May 16, 1994, had to be considered complete and final."

15. Considering the above discussion and material on

record, it is clear that the specific queries were raised by the

Assessing Officer at assessment stage regarding long term

capital gains and the Assessing Officer was satisfied with the

explanation of the assessee. This itself would be an

indication of application of mind by the Assessing Officer

while passing the assessment order. When the Assessing

Officer was satisfied with the explanation of the assessee with

regard to the claim made under section 54 of the Act and he

made part addition on the same, therefore, no fault could be

found with the order of the Assessing Officer. When the

Assessing Officer has adopted one of the courses permissible

in law and the Commissioner do not agree with him, it cannot

be treated as erroneous order prejudicial to the interests of

the Revenue unless the view taken by the Assessing Officer is

unsustainable in law. We rely upon the decision of the

Hon'ble Bombay High Court in the case of CIT Vs. Fine

Jewellery (India) Ltd., 372 ITR 303, in which it was held as

under :

Held, dismissing the appeal, that the order of the Tribunal did record the fact that specific queries were made during the assessment proceedings with regard to the details of expenditure claimed under the head "miscellaneous expenses" aggregating to Rs. 2.94 crores. The assessee had responded to the queries and on consideration of its response, the Assessing Officer held that only an amount of Rs. 17.98 lakhs incurred on account of repairs and maintenance out of Rs. 2.94 crores was capital expenditure. This itself would an indication of 22

application of mind by the Assessing Officer while passing the order. The fact that the assessment order did not contain any discussion with regard to the balance amount of expenditure of Rs, 1.76 crores, i.e., Rs.2.94 crores less Rs. 17.98 lakhs claimed as revenue expenditure would not by itself indicate non-

application of mind to this issue by the Assessing Officer in view of the specific queries made during the assessment proceedings and the assessee's response to it. Moreover, from the nature of expenditure as explained by the assessee to the Assessing Officer during the assessment proceedings the view that the expenses were in the realm of revenue expenditure, was a possible view. Therefore, there was no fault in the order of the Tribunal having followed the binding decision of the Supreme Court while allowing the appeal before it."

16. The Hon'ble Supreme Court in the case of Malabar

Industrial Co. Ltd. Vs. CIT, 243 ITR 83, in which it was held

as under :

"Every loss of revenue as a consequence of an order of the Assessing Of f icer, cannot be treated as prejudicial t o t h e i n t e r e s t s o f t h e R e v e n u e f o r e x a m p l e , wh e n a n I n c o me - t a x O f f i c e r a d o p t e d o n e o f t h e c o u r s e s p e r m i s s i b l e i n l a w a n d i t h a s r e s u l t e d i n l o s s o f r e v e n u e , o r wh e r e t wo v i e ws a r e p o s s i b l e a n d t h e I n c o me - t a x O f f i c e r h a d t a k e n o n e v i e w wi t h w h i c h t h e C o m m i s s i o n e r d o e s n o t a g r e e , i t cannot b e treated as an erroneous order prejudicial to the interests of the Revenue unless the vie w taken by the I n c o me - t a x O f f i c e r i s u n s u s t a i n a b l e i n l a w. "

17. Same view has been taken by the Hon'ble Supreme

Court in its subsequent decision in the case of CIT Vs. Max

India Ltd., 295 ITR 282. The Hon'ble Punjab & Haryana High

Court in the case of CIT Vs. Deepak Mittal, 324 ITR 411, has

held as under :

23

"Change of opinion by reappraising the evidence is n o t wi t h i n t h e p a r a m e t e r s o f r e v i s i o n a l j u r i s d i c t i o n o f t h e C o m m i s s i o n e r u n d e r s e c t i o n 2 6 3 o f t h e I n c o me - t a x A c t , 1961.

Held, dismissing the appeal, that the T ribunal had f ound that the Assessing Off icer had given a c ategoric al f i n d i n g t h a t t h e a s s e s s e e wa s e n g a g e d i n t h e p r o c e s s o f manuf acturing of products and accordingly he had granted con cession under section 80-IB. The claim of the assessee had been f ound to be genuine. T he Assessing Off icer had a l s o e x a m i n e d t h e v a r i o u s wo r k e r s o f t h e a s s e s s e e a n d then recorded the f inding. T h e A s s e s s i n g O f f i c e r wa s jus tif ied in gran ting the special deduction under section 80-IB. T h e o r d e r o f r e v i s i o n d i s a l l o wi n g t h e s p e c i a l d e d u c t i o n wa s n o t v a l i d . "

18. The learned D.R for the Revenue lastly argued that

since the assessee purchased two properties, therefore, the

assessee would not be entitled to claim of exemption under

section 54 of the Act in respect of the two residential houses.

The learned counsel for assessee submitted that this issue is

not raised in the show cause notice issued by the learned

Commissioner of Income Tax under section 263 of the Act and

no findings have been given. Therefore, such an issue cannot

be raised before the Tribunal. We agree with then

submission of the learned counsel for assessee that the issue

which is not raised in the show cause notice under section

263 of the Act could not be subject matter of revision by the

learned Commissioner of Income Tax. The Hon'ble Madras

High Court in the case of CIT Vs. Smt.R.G. Umaranee, 262

ITR 507, in which it was held as under :

24

"Held, (i) that in the absence of any notice by the Commissioner to treat the cost of construction of the b u i l d i n g a s u n d i s c l o s e d i n c o me o f t h e a s s e s s e e i t wa s n o t open to the Commissioner to hold that the cost of c o n s t r u c t i o n o f t h e b u i l d i n g wo u l d r e p r e s e n t u n d i s c l o s e d i n c o me o f t h e a s s e s s e e a n d h e n c e t h e C o m m i s s i o n e r wa s n o t j u s t i f i e d i n d i r e c t i n g t h e I n c o me - t a x O f f i c e r t o i n i t i a t e an enquiry regarding the cost of construction of the b u i l d i n g , a n d af t e r a s c e r t a i n i n g t h e v a l u a t i o n , t r e a t t h e unexplained investment as the undisclosed income of the assessee."

19. In the present case, this issue is not raised in the

show cause notice under section 263 of the Act as well as the

learned Commissioner of Income Tax did not pass any order.

Therefore, the learned CIT DR could not raise this point

before the Tribunal. The learned Commissioner of Income

Tax merely found that the assessee had made excess claim

with regard to the investment of Rs.1 crore in FDR under

Capital Gain Scheme. Therefore, such an issue cannot not be

raised by the learned CIT DR at this stage. The contention of

learned CIT DR on this point is accordingly rejected.

20. Considering the totality of the facts and

circumstances in the light of the above discussion, we are of

the view that the Assessing Officer examined the issue of long

term capital gain in accordance with section 54 of the Act at

assessment stage, therefore, assessment order cannot be said

to be erroneous in so far as prejudicial to the interests of the

assessee. The learned Commissioner of Income Tax was,

therefore, not justified in canceling the assessment order 25

under section 143(3) of the Act. He should not have exercised

the jurisdiction under section 263 of the Income Tax Act.

21. In view of the above, we set aside the impugned

order dated 5.2.2014 under section 263 of the Act and quash

the same. Resultantly the assessment order under section

143(3) dated 27.5.2011 is restored.

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

allowed.

Order pronounced in the open court on this 3rd day

of June, 2015.

Sd/- Sd/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated : 3 r d June, 2015

*Rati*

Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.

Assistant Registrar, ITAT, Chandigarh