R/Tax Appeal v. The Principal Commissioner Of Income Tax 1 ==========================================================

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 275 of 2021 ==========================================================KANUBHAI VANMALIBHAI PATEL HUF VersusTHE PRINCIPAL COMMISSIONER OF INCOME TAX 1 ========================================================== Appearance:MR MANISH J SHAH(1320) for the Appellant(s) No. 1MR NIKUNT RAVAL, Sr. Standing Counsel for the Opponent(s) No. 1========================================================== CORAM: HONOURABLE MS. JUSTICE SONIA GOKANIandHONOURABLE MS. JUSTICE NISHA M. THAKOREDate : 29/11/2021 ORAL ORDER (PER : HONOURABLE MS. JUSTICE SONIA GOKANI) 1. Present appeal is preferred against the order dated10.06.2021 passed under section 254(1) of theIncome Tax Act ("the Act" for short) by the IncomeTax Appellate Tribunal,Surat ("the Tribunal" forshort), whereby the Tribunal has confirmed theinevocation of revisionary powers by the respondenton the order dated 13.12.2018 passed under section143(3) of the Act. However, the grievance on the partof the appellant is that while holding that theassumption of jurisdiction by the Commissionerunder section 263 of the Act was valid and whilesending the case to the file of the Commissioner forde novo adjudication, some of the observations made by the Tribunal shall prejudicialy affect therights of the appellant and hence, this appeal is preferred raising the following substantial questions of laws:- “(A)Whether on the facts and in the circumstancesof the case, the Tribunal has erred in not holding thatrevision power exercised by the commissioner u/s 263of the Act is invalid in law? (B)Whether on the facts and in the circumstances of thecase, the Tribunal has grossly erred in law in makingobservation, upholding the validity of assumption ofjurisdiction u/s.263 of the Act by the Commissioner, inits order dated 10.06.2021, while setting aside the caseto the Commissioner for de novo adjudication? While considering the request of admission from MrShah, we deemed it appropriate to decide the matterfinally at the stage of admission and, therefore, haverequested learned Senior Standing Counsel MrRaval to appear. We have heard both learnedadvocates Mr. Shah for the appellant and Mr. Raval,learned Senior Standing Counsel for the respondent.According to Mr. Shah, learned advocate for theappellant prima facie opinion expressed by theTribunal is likely to seriously prejudice the rights ofthe appellant assessee, as once having exercised thepowers of sending the matter to the DCIT, it could not have then opined on anything which is likely togiven an impression that it is not an open endedremand. According to him, the directions of passingthe order under section 263 of the Act in accordancewith law without being influenced by any of theobservations also would not serve the purpose. TheTribunal, in the first place, could not have venturedinto these details. Per contra, learned Standing Counsel Mr. Raval forthe respondent submits that for the Tribunal to holdthat the DCIT had rightly assumed the jurisdictionfor exercising the powers under section 263 of theAct, it could not have so done it without assigningthe basic reasons. According to him, beingconscious of the possibility of influence of itsobservations, it has been careful in directing theauthorities concerned to decide it in accordancewith laws with a specific direction of not to beinfluenced by its observations and, therefore, he hasurged that there is no reason for this Court toentertain this appeal. 5. Per contra, learned Standing Counsel Mr. Raval forthe respondent submits that for the Tribunal to holdthat the DCIT had rightly assumed the jurisdictionfor exercising the powers under section 263 of theAct, it could not have so done it without assigningthe basic reasons. According to him, beingconscious of the possibility of influence of itsobservations, it has been careful in directing theauthorities concerned to decide it in accordancewith laws with a specific direction of not to beinfluenced by its observations and, therefore, he hasurged that there is no reason for this Court toentertain this appeal. 5. In the present appeal, this Court is concerned withthe Assessment Year 2016-17 where on scrutinyassessment, the assessment order has been passedon 13.12.2018. We have been taken through thepaper book presented by Mr. Shah, learnedadvocate for the appellant, who has drawn ourattention to the facts as to how the liberally threetimes notices, under section 141 of the Act, hadbeen issued and at what length, attempts have beenmade by the appellant assessee to respond to thesame positively. On due consideration, the scrutinyassessment has been finalized. We could notice thatthe appellant had declared long term capital gainfrom the sale of agricultural land which is situatedat Surat and against the same, deduction undersection 54B of the Act was claimed and someproceeds from the said sale of land were invested inthe purchase of agricultural land. As mentionedabove, various details have been called for throughdifferent notices also including sale deed of theproperty sold and purchase deed of the property against which, the deduction had been claimed bythe appellant, as also the evidence of the past yearsshowing agricultural activities carried out by theassessee. The evidence of the crops grown and theagricultural expenses incurred by the appellant. TheAssessing Officer had considered the solitarytransaction of the sale of land as an income fromthe capital gain and also the deduction undersection 54B. This has been done in the scrutinyassessment accepting the return of income of theappellant. Exercise of powers under section 263 of revision wasprior to the expiry of the limitation on 31.03.2021,which is one of the grievances on the part of theappellant. Notices dated 23.03.2021, under section263(1) of the Act, had been issued nearly seven daysbefore the expiry of the period of limitation. Thisrevisional jurisdiction was assumed on the groundthat the appellant was the trader of the land on thebasis that the transaction had been in subsequentyears and he frequently entered into the sale and purchase of the land as a commodity. Therefore, hisincome was to be treated as business income ratherthan as capital gain by the Assessing Officer.Moreover, another ground raised was thepermission of the Deputy Collector under section 63of the Gujarat Tenancy and Agricultural Lands Actand according to the respondent, the same cannotbe treated as agricultural land and deduction undersection 54B of the Act cannot be allowed. Thisinvocation is challenged and eventually the matterhad travelled to the Tribunal. We could notice thatthe Tribunal, before upholding the jurisdiction ofthe DCIT, has given the reasons as under: purchase of the land as a commodity. Therefore, hisincome was to be treated as business income ratherthan as capital gain by the Assessing Officer.Moreover, another ground raised was thepermission of the Deputy Collector under section 63of the Gujarat Tenancy and Agricultural Lands Actand according to the respondent, the same cannotbe treated as agricultural land and deduction undersection 54B of the Act cannot be allowed. Thisinvocation is challenged and eventually the matterhad travelled to the Tribunal. We could notice thatthe Tribunal, before upholding the jurisdiction ofthe DCIT, has given the reasons as under: “11. We have considered the rival submission of boththe parties and gone through the orders of authoritiesbelow. We have also considered various documentaryevidence and further deliberated on case laws relied bythe learned advocate. AR for the assessee. We have alsoconsidered the detailed written synopsis furnished bylearned advocate. AR of the assessee which is runningin 27 pages. The perusal of assessment order revealsthat AO allowed the exemption/deduction of capitalgain under section 54, without discussing the nature ofasset (agriculture land). There is no dispute about thelocation of the land// impugned land sold by theassessee, which was situated in the heart of Surat City.Surat City is Metropolitan City. Further there is nodiscussion about the nature of land where furtherinvestment is made in agricultural land or not. Theassessment is silent on the various questions raised by 7. the AO. From the questionnaires raised by the AO, wefind that very nature of asset was not examined by AO.No doubt the assessee declared capital gain but,whether its exemption can be claimed on purchase ofother agriculture land, is not at all examined by theassessing officer. The question, whether the particular land is agriculturalland has to be decided on considering the facts andcircumstances of each case. The Superior Courts havelaid down certain guideline having regards to certainguideline having regard to the following frequentlyoccurring factors: sale of land for housing purpose;obtaining permission to sell the land for non-agriculturepurpose; absence of cultivation prior to sale, absence ofintention to cultivate land in future, location of landwithin in municipal area, the nature of the surroundingarea; the price at which the land was sold within themunicipal area and entry in municipal record. All thesefactors were not considered by the AO while passing theassessment order. 13.The Hon’ble Supreme Court in a well knownleading case in Malabar Industrial Co.Ltd. v. CIT [2000]ITR 832 SC) held that by reading of section 263 of theIncome-tax Act, makes it clear that the prerequisite forthe exercise of the jurisdiction by the Commissioner suomotu under it, is that the order of the Income-taxOfficer is erroneous insofar as it is prejudicial to theinterests of the revenue. The Commissioner has to besatisfied of twin conditions, namely, (I) the order of theAssessing Officer sought to be revised is erroneous; and(ii) it is prejudicial to the interests of the revenue. If oneof them is absent-if the order of the Income-tax Officeris erroneous but is not prejudicial to the revenue or if itis not erroneous but is prejudicial to the revenue-recourse cannot be had to section 273(1) of the Act. Anincorrect assumption of facts or an incorrect applicationof law will satisfy the requirement of the order beingerroneous. Every loss of revenue as a consequence of anorder of the Assessing Officer, cannot be treated asprejudicial to the interests of the revenue unless theview taken by the Income-tax Officer is unsustainable inlaw.” At the end of these reasonings, the Tribunal has concluded that prima facie, the DCIT had validly At the end of these reasonings, the Tribunal has concluded that prima facie, the DCIT had validly assumed the jurisdiction for exercising the powersunder section 236 of the Act by taking the view thatthe order of the Assessing Officer was prejudicial tothe interest of justice. Considering the short timebefore which it had exercised the revisionaljurisdiction, this peculiarity had led the Tribunal tosend it back to the DCIT for it to adjudicate it afreshas provided under the law and not being influencedby the observations. The observations, which have been reproducedhereinabove, according to us, are by way of thejustifications of the assumption of jurisdiction bythe DCIT. We see no fault in the Tribunal havingsupported the order of the DCIT. With thesereasons, we also could notice that being consciousof the appellate authority likely to be influenced bysome of these observations, it has aptly cautioned,as is required of the higher authority, to specificallydirect not to be so influenced. Hence, it is a cleardirection of the same to be decided in accordancewith law by availing the reasonable opportunities tothe parties. These are sufficient safeguards, whichdo not require any interference. It is being clarifiedfurther that directions of de novo adjudicationwould always mean looking it afresh without being 9. 10. SUDHIR in any kind of influence and without the same beingclouded by the past or any observations made bythe authorities. Not only the Tribunal has made it amply clear inthis regard, we also further reiterate that theauthority concerned, while exercising its revisionaljurisdiction, shall decide the same afresh and inaccordance with law strictly bearing in mind certainlegal principles as also availing of the opportunitiesin accordance with law and also in absence of anysubstantial question of law, the Tax Appeal is notentertained. Both the challenges under section 263 of the Act aswell as the challenge under the merit are kept openfor the appellant to adjudicate. (MS. SONIA GOKANI, J. ) (NISHA M. THAKORE,J)