Sri Pramod Kumar Gupta,, Hyderabad vs Assessee

2. Briefly stated facts are, the assessee in the present case is an individual. A search and seizure action under section 132 was conducted in his case on 11.03.2010. Consequently, notices under section 153A were issued by the A.O. on 26.10.2010 in response to which, the returns of income for the years under consideration were filed by assessee on 02.05.2011 declaring total income of Rs.4,21,167 and Rs.19,05,214 for A.Ys. 2005-06 and 2006-07 respectively.

2 ITA.No.1102 & 1103/Hyd/2014 Mr. Pramod Kumar Gupta, Hyderabad.

In the assessments completed under section 143(3) read with section 153A vide orders dated 30.12.2011, the total income declared by the assessee was accepted by the A.O. The records of the said assessments were subsequently examined by the Ld. CIT and on such examination, the Ld. CIT was of the opinion that the assessments made by the A.O. for both the years under consideration suffered from the following errors :

"A.Y.2005-06

The assessee with 5 others executed a Development Agreement cum GPA 0001-06-2004 for development of 2915 Sq. Yds (3085 Sq. Yds. Minus 175 Sq. Yds surrendered to Municipality) of land at Begumpet, Hyderabad.Out of this land the assessee's share is 693 Sq Yds. As per the agreement cum GPA for foregoing his land, the assessee received Flat No. 105 (50% share), flat No. 405 and Flat No. 505 (Total super built area of 5350 Sq feet of 3 Oats 104.84 Sq.Yds respectively. There was no endorsement of registration authorities on the reverse of the Development Agreement cum GPA which indicate that the agreement on the registered in the absence of which the compliance to Section 50 C of IT Act is not assessable. However, as the date of Development agreement cum GPA was on 01-06-2004 (FY 2004-05 relevant to A.Y. 2005-06), there was transfer during A Y 2005-06 and capital gains needs to be taxed in the A.Y. 2005-06.This fact was not verified during the assessment proceedings.

A.Y.2006-07

(i) It is seen from the computation of the assessee for the AY 2006-07 that an amount of 34,77,500/- (Calculated @ 650 per Sq.Foot cost of construction x 5350 Sq. feet area received) was shown as received for surrendering 432.55 Sq. Yds of land to the builder. The assessee sold Flat NO.

405 and received 20,00,000/- out of which the assessee exhibited the value of un-divided share of land of 104.18 Sq. Yds for 6,09,000/- which works out to 5,845/- per Sq. Yd. Compliance of Sec.50C is not verifiable as the document was not registered. In a similar case of Sri Kailash Chand Gupta, the rate adopted was Rs. 14,485/-

3 ITA.No.1102 & 1103/Hyd/2014 Mr. Pramod Kumar Gupta, Hyderabad.

per Sq.Yd. At this rate the Capital gains Should work out to Rs.62,66,395/- (432.55 Sq.Yds. surrendered x 14,485/-).

(ii) Also, the assessee claimed exemption u/s 54F in respect of Flat No. 505 andFlatNo.105. As the assessee is eligible for exemption for 1 flat only u/s 54F there is excess allowance of claim u/s S4F which was allowed to the assessee. These facts have not been verified during the assessment proceedings."

3. Accordingly, show cause notices were issued by the Ld. CIT requiring the assessee to explain as to why the assessment orders passed by the A.O. should not be revised under section 263 of the Act. In reply to the said notices, the following explanation was offered by the assessee in writing.

"A. Y. 2005-06

Assessee's reply dated 24.03.2014 is as under:

"Registration of Development Agreement:

You may note that the endorsement of registration behind the development agreement (as per the seized material on page 352 of Annexure A/EBPL/OFF/01) is very much there. This information was very much available and considered by A.O already.

Computation of Capital Gains and revision u/s 263 of 1.T. Act; 1961:

With regard to taxation of capital gains in A. Y 2006-07, we would like to affirm that all the facts of the Development agreement were considered by the A. a in past for which explanations were sought by him. We had provided valid explanations for all the queries raised and they were considered by the A.O correctly. Hence, the order given by the A.O. u/s 143(3) r.w.s 153C dated 26.12.2011 is correct."

A. Y.2006-07

Assessee's reply dated 21. 03.2014 is as under:

4 ITA.No.1102 & 1103/Hyd/2014 Mr. Pramod Kumar Gupta, Hyderabad.

Registration of Development Agreement:

You may note that the endorsement of registration behind the development agreement (as per the seized material on page 1 of Annexure AjEBPLlaFFj01) is very much there. This information was very much available and considered by A.O already.

Explanation w.r.t rate adopted for transfer of Land:

With regard to your calculation in the notice, on the basis of cost assigned to un-divided share of land of 104.18 sq. yds (Rs. 6,09,000) worked out to be Rs.5,845/- per sqyd, we would like you to note that the cost assigned is only a balancing figure arrived after reducing cost of built-up area from the Total sale consideration of the flat (Rs. 20,00,000) and NOT actual cost of the land.

Total consideration Rs.20,00,000 Less: Cost of building the flat 405 Rs.13,91,000 (2140 sq. ft. * Rs.650/- per sq. ft.

Cost of undivided share in land Rs.6,09,000 admeasuring 104.18 (Balancing Figure).

You may note that, after construction the land is only an undivided portion and the sale is always made not on what land comes as undivided share, but on the basis of built-up area. Hence, just for giving the break-up as requested by the department, the cost of building was taken on the basis of Construction cost. No one would sell a building at cost of construction. The flat was sold for Rs. 934.58/- per sft (Rs. 934.58*2140 SFT= Rs. 20,00000/-).

You may note that the government rates for sale of flat is only on the composite basis (Land & Building) and no calculation of land is taken, as this is how the sale of flats are done. We reiterate that the flat was sold for Rs. 934.58/- per sft only and the AO has correctly taken the value of Land on date of agreement.

Hence, the cost so arrived (Rs. 5,845 per sq. yd) cannot be assigned to the land for determining the sale consideration.

5 ITA.No.1102 & 1103/Hyd/2014 Mr. Pramod Kumar Gupta, Hyderabad.

The sale consideration actually computed is on the basis of cost of construction (5350 sq. ft* Rs. 650/- per sqtt) of built-up area developed and received by the assessee in exchange of land given for development. All these facts have been considered by the A.O and have been clarified already and all the above workings were given in detail.

With respect to the rate arrived (Rs.1",485/- per sq.yd) in case of Sri Kailash Chand Gupta, it is not a comparable situation because the consideration received for the sale of flat (305) in case of Sri Kailash Chand Gupta was Rs.29,00,000/- and hence the cost of undivided share in land admeasuring 104.18 (balancing figure) will certainly be higher.

Explanation w.r.t Exemption claimed u/s.54F:

As per Sec 54F of Income Tax Act, if the sale consideration of the long term assets (other than residential house) if invested for purchase/construction of a residential house and if the amount invested in residential house is equal to or more than the sale consideration is less than the invested in residential house the capital gain shall be charged proportionately. (Section extract is enclosed as Annexure-I )

Further the assessee should not own more than one residential house as on the date of transfer. You may note that Honourable Karnataka High Court in CIT Vs. Smt. K.G.Rukminiamma (Copy enclosed as Annexure-It has held that all the flats acquired by the assessee in one building under development agreement is considered as one residential house for the purpose of Section 54.

The assessee was owner of 733 SQ Yds of land of which 40 SQ Yds were surrendered to MCH for road alignment.

Now out of the 693 SQ yds available with him, the assessee has entered into development agreement and has got flats (5350 sft) constructed in exchange of 432.55 SQ yds of land. For the purpose of calculation of capital gain on notional sale of land, the cost of construction of flats (5350 stt) as per builder certificate is taken as notional sale consideration for the sale of 432.55 yds land. Further as the assessee is getting flat in exchange of land the sale consideration is automatically invested in a residential house.

6 ITA.No.1102 & 1103/Hyd/2014 Mr. Pramod Kumar Gupta, Hyderabad.

Hence the assessee is entitled to claim deduction u/s. 54F for the investment in residential property while calculating capital gain on sale of land as :

1. Assessee is an individual transferring long term assets i.e. land (other than residential house).

2. The sale consideration is invested in the residential house.

3. The assessee does not own any other residential house on the date of transfer.

Further the assessee has also not claimed deduction for investment in part of the building Flat No.405) which is sold during the year.

Explanation w.r.t revision u/s.263 of I.T. Act, 1961:

In this regard we would like to affirm that all the above facts were considered by the A.O in Scrutiny Proceedings for which explanations were sought by him. We had provided valid explanations for all the queries raised and they were considered by the A.O. correctly. Hence notice u/s.263 is not valid."

4. Ld. CIT, however, found no merit in the explanation offered by the assessee and held the orders passed by the A.O. to be erroneous and prejudicial to the interests of the Revenue for the following reasons given in para 4 of the order.

"4. I have gone through the submission of the assessee. It is evident from the assessment orders that the issues raised in the notices for the above referred assessment years were not examined by the Assessing Officer in the proper perspective and the assessment orders were passed. It was held in number of cases that it is well established that where the Assessing Officer fails to make the necessary enquiries which he is legally required to make and decide the issues without making such enquiries then the order of the Assessing Officer would be erroneous in Law. This was so held in the case of Desai Brothers Ltd. Vs. DCIT, Pune Tribunal. Similar view was also taken by many other Tribunals and High 7 ITA.No.1102 & 1103/Hyd/2014 Mr. Pramod Kumar Gupta, Hyderabad.

Courts wherein it was held that on failure of Assessing Officer to make enquiry as expected, Commissioner was justified in invoking provision of Section 263 because the orders passed as such by the Assessing Officer was erroneous as well as prejudicial to the interest of Revenue. Reference in this regard can also be made to the decision of Special Bench, !TAT, Chennai reported in 313 !TR (AT) 182, Chennai S8 wherein it was observed that it is not necessary for the Commissioner of Income-tax in revision to make further enquiries before cancelling the Assessment Order of the A.O. The Commissioner of Income-tax can regard the order as erroneous on the ground that in the circumstances of the case, the A.O. should have made further enquiries before accepting the statements made by the assessee in his return. It is incumbent on the A.O. to investigate the facts stated in the return when circumstances would make such an enquiry prudent. The word erroneous in Sec.263 of Income-tax Act, 1961 includes cases where there has been failure to make necessary enquiries. Considering the above, the order passed by Assessing Officer without examining the issues narrated above are definitely erroneous and prejudicial to the interest of Revenue."

5. For the reasons given above, the assessment orders passed by the A.O. for both the years under consideration were set aside by the Ld. CIT with a direction to him to make the assessments afresh after examining the issues in proper perspective and after considering the explanation offered by the assessee during the course of revised proceedings. Aggrieved by the orders of Ld. CIT passed under section 263, assessee has preferred these appeals before the Tribunal.

6. At the time of hearing before us, none has appeared on behalf of the assessee. These appeals of the assessee therefore are being disposed of exparte after considering the arguments of the learned D.R. and perusing the relevant material on record. It is observed that the solitary 8 ITA.No.1102 & 1103/Hyd/2014 Mr. Pramod Kumar Gupta, Hyderabad.

ground raised by the assessee, which is identical in both the present appeals, reads as under :

"For that in the facts and circumstances of the case, the Ld. CIT erred in not passing a speaking order against the submissions of the appellant. As such, the order passed u/s. 263 as void abinitio. The action of the Ld. CIT was wholly unreasonable, uncalled for and bad in law."

7. As is clearly evident from the common ground raised by the assessee in both the appeals, assessee is mainly challenging the impugned orders of the Ld. CIT on the ground that the same have been passed without considering the explanation offered during the course of revision proceedings and without applying his mind in the matter. In this regard, it is observed that certain issues were raised by the Ld. CIT in the notices issued under section 263 pointing out that the same were not properly enquired into or examined by the A.O. during the course of assessment proceedings. In reply to the said notices, a detailed submission was filed by the assessee explaining as to how the issues raised by the Ld. CIT in the notices issued under section 263 were not relevant for the purpose of completing the assessments in the case of the assessee for all the four years under consideration. On the basis of this explanation offered in respect of each and every issue, it was contended on behalf of the assessee before the Ld. CIT that it was not the case of assessments having been completed by the A.O. without making proper and adequate enquiries as required in the facts and circumstances of the case. A perusal of the operative portion of the Ld. CIT's impugned order however shows that he has neither considered this explanation of the assessee nor made any comment/ observation thereon pointing out specifically that it was still a 9 ITA.No.1102 & 1103/Hyd/2014 Mr. Pramod Kumar Gupta, Hyderabad.

case of failure on the part of the A.O. to make proper and adequate enquiries before completing the assessments as were required in the facts and circumstances of the case. He has not pointed out specifically even a single enquiry which A.O. ought to have made in the facts and circumstances of the case but has failed to do. We, therefore, fully agree with the stand of the assessee that the impugned order has been passed by the Ld. CIT under section 263 without considering the explanation offered by the assessee and without applying his mind. In our opinion, this failure of the Ld. CIT, however, does not constitute any legal infirmity to make the order passed by him under section 263 invalid or void abinitio as sought to be made out by the assessee in the ground raised in these appeals. We are of the view that it would be just and proper in the facts and circumstances of the case, to set aside the impugned order of the Ld. CIT passed under section 263 and remit the matter back to him with a direction to pass fresh order under section 263 after duly taking into consideration the explanation offered by the assessee and after applying his mind. Needless to observe that the Ld. CIT(A) shall pass well discussed and well reasoned order after giving proper and sufficient opportunity of being heard to the assessee.

8. In the result, appeals of the assessee are treated as allowed for statistical purposes.

Order pronounced in the open Court on 20.02.2015.

Sd/- Sd/- (SAKTIJIT DEY) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER th Hyderabad, Dated 20 February, 2015 VBP/- 10 ITA.No.1102 & 1103/Hyd/2014 Mr. Pramod Kumar Gupta, Hyderabad.

Copy to

1. Mr. Pramod Kumar Gupta, 3-5-784/B & C Nageena Building, King Koti Road, Hyderabad - 500 001.

2. Commissioner of Income Tax (Central), 7th Floor, Aayakar Bhavan, Hyderabad.

3. Addl. CIT, C.R. 3, Hyderabad

4. Asst. Commissioner of Income Tax, CC.8, Hyderabad.

5. D.R. I.T.A.T. "B" Bench, Hyderabad.