Revision of assessment order under section 263 not justified if the assessment orders are neither erroneous nor prejudicial to the interest of revenue

Following three issues are involved in impugned order framed u/s 263 as below:

(a) To adopt the sales value as per section 50C of Rs. 72,00,000/- (as on date of registry) in place of actual sales consideration of Rs. 38,29,600/- (as on date of sale agreement)
(b) Allegedly for the reason that condition for allowability of deduction under section 54B of the Act in respect of Rs. 5,73,025/- was not fulfilled. Since, the land was purchased prior to the sale of land by the assessee.
(c) Allegedly for the reason that condition of section 54F are not satisfied in respect of Rs. 17,36,091/- allowed as deduction.

Submission by assessee

Issue-1:

• The assessee has entered into sale agreement for land with Sh. Vijay Mirchandani on behalf of M/s Global Developers. The sale consideration was fixed for his land at Rs. 38,29,600/-. In para-5 of the sale agreement, it was clearly mentioned that the seller is bound to execute registry in favour of the buyer or in the name of any other persons as suggested by the buyer. The sale agreement as entered was never cancelled. The amount as received was quoted in the sales registry.
• Since, the assessee had received advance against the sale of land in terms of sale agreement as executed on 31-03-2006 and therefore he has executed registry in a later year in the name of M/s Coral Infrastructure Private Limited as directed by the buyer.
• Thus, in view of the above facts, the Ld. PCIT was not justified in adopting the guideline as applicable in the year in which final registry was executed. The Ld. PCIT rejected submission merely for the reason that sale agreement was executed by the assessee with another firm and registry was executed in the name of another firm.
• The Ld. PCIT failed to appreciate that in the sale agreement itself it was stated that the seller is bound to execute registry in the name of buyer or in the name of any other person as instructed by the buyer.
• The date of agreement of sale is to be considered for determination of value as per section 50C. Following judicial precedents are quoted:

• In Sanjeev Lal vs. CIT [2014] 365 ITR 389/225 Taxmann 239/46 taxmann.com 300 (SC), the Hon’ble Supreme Court held that once an agreement to sell is executed in favour of some person, the said person gets a right to get the property transferred in his favour and, consequently, some right of the vendor is extinguished.
• Explanation 2 to section 2(47) of the Act clearly provides that transfer of an asset includes disposing of or parting with an asset by way of an agreement.
• In the light of the aforesaid provision, it is apparently clear that the moment an agreement to sell is executed and part consideration is received, the transfer for the purpose of section 50C of the Act takes place and computation u/s 48 of the Act will start accordingly.
• Though the first and second proviso to section 50C(1) of the Act was inserted w.e.f. 01-04-2017 but these proviso was inserted to explain the date of valuation as applicable as on the date of agreement and not on the date on which registry was actually executed. Hence, both these provisos having retrospective effect from the date on which provision of section 50C of the Act inserted in the Act i.w. 01-04-2003. Cases referred:

Issue-2:

• The Ld. PCIT has denied the claim of deduction u/s 54B of the Act merely on the ground that the payment towards purchase of new agricultural land was made by the assessee prior to the execution of the sale deed but in the case of deduction under section 54B of the Act, amount paid after the date of registry is eligible to claim deduction u/s 54B.
• The assessee first entered into an agreement for sale of land on 31-03-2006 and in pursuance to that sale agreement, registry was executed in later years. The consideration as received by the assessee was utilised towards purchase of new agricultural land. Hence, the claim of assessee u/s 54B is legal and proper.
• The Hon’ble Jaipur Bench of ITAT in case of Smt. Rukmani Devi Agarwal vs. ITO [Appeal No. ITA no. 557/Jp/2018 dated 18-09-2018] held that:

 “The requirement for availing the benefit of section 54B is to use the capital gain for the purchase of new agricultural land and if the assessee does not received the sale consideration then the question of purchasing new agricultural land does not arise and the very object of section 54B of the Act would be defeated. Hence, the receipt of compensation and payment of consideration for purchase of new asset are the relevant dates for determining the conditions of section 54B of the Act.”

• In view of the above, the Ld. PCIT was not justified in setting aside the order as passed by the A.O.

Issue-3:

• The assessee had also claimed a deduction of Rs. 17,36,091/- for construction of residential house from the sale proceeds of the sale of impugned immovable property.
• The claim for deduction was allowed by the learned A.O. based on the various documentary evidences and submissions of the assessee such as Affidavit in support of construction, withdrawal of amount from bank for construction, physical existence of new house confirmed by the valuation report by chartered engineer.
• The PCIT raised the issue that the valuation report is dated 22-03-2016 and therefore the however, the construction was done in 2008. Based on this isolated fact the PCIT observed that the claim of deduction has been allowed erroneously by the A.O.
• It is submitted that the A.O. not only considered valuation report for allowing deduction us. 54F but also verified the physical existence of new property and made enquiries in course of assessment, payment made for construction from corresponding withdrawal from bank. Thus, it is established that the action of AO was not erroneous and prejudicial to the interest of revenue.

Legal submissions on section 263:

• The assessment order as passed by the A.O. was neither erroneous nor prejudicial to the interest of revenue. Hence, the Ld. PCIT was not justified in setting aside the order as passed by the A.O in consideration of all the above discussions.

Tribunal’s Observation:

• Referring Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC):There can be no doubt that section 263 cannot be invoked to correct each and every type of mistake or error committed by the A.O., it is only when an order is erroneous that the section will be attracted.
  (a) An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous.
  (b) The phrase ‘prejudicial to the interest of revenue’ has to be read in conjunction with an erroneous order passed by the A.O.
  (c) Every loss of revenue as consequence of an order of the A.O. cannot be treated as prejudicial to the interests of the revenue.
  (d) Where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law.

• In the light of the provisions of section 263 of the Act and a settled position of law, powers u/s 263 of the Act can be exercised by the PCIT/CIT on satisfaction of twin conditions:
  (a) The assessment order should be erroneous and
  (b) Prejudicial to the interest of revenue.

By erroneous is meant contrary to law. Thus, where there are two possible views and the A.O. has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only when no enquiry, as required under the law is done. It is not open to enquire in case of inadequate enquiry.

• We find that the Hon’ble Delhi High Court in the case of CIT vs. Anil Kumar reported in 335 ITR 83 has held that where it was discernible from record that A.O. has applied his mind to the issue in question, the Ld. CIT cannot invoke section 263 of the Act merely because he has different opinion.
• Further, the Tribunal accepted the submissions by the Ld. AR on behalf of the assessee in respect of Issue No. 1,2 & 3.

Held that in the given facts and circumstances invoking provisions of section 263 of the Act on this issue so as to give direction to revise the assessment order was unjustified and uncalled for. Therefore, since the assessment order in question are neither erroneous nor prejudicial to the interest of revenue, the Ld. PCIT erred in assuming jurisdiction u/s 263 of the Act and was thus unjustified in setting aside the order passed by the Ld. A.O. u/s 143(3) read with section 147 of the Act.

Read complete order: Kamal Kishore Mukati vs. PCIT