IN INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O. P. MEENA, ACCOUTANT MEMBER I.T.A. No. 323/Ind/2014 Assessment Year Shri Kailash Chand Commissioner of Agarwal HUF Income Tax-II, Indore 6, AF, Devansh Building, Scheme No.54, Indore Vs. PAN:AAAHA 9014 J APPELLANT RESPONDENT Appellant by Shri C.P. Rawka , CA Respondent by Shri Rajeev Varshney, CIT (DR) Date of hearing 16.08.2016 Date of pronouncement .09.2016 ORDER PER O.P.MEENA, ACCOUTANT MEMBER. This appeal by assessee for assessment year 2009-10 filed against order under section 263 of Income-tax Act, 1961, (in short Act) dated 31.03.2014, passed by I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 2 of 19 ld. Commissioner of Income-tax-II, Indore. (Hereinafter referred to as ld. CIT) 2. Ground No.1 to 4 have been taken against invoking provisions of section 263 and passing order u/s.263 of I T Act stating that order passed u/s.263 is without jurisdiction, arbitrary, illegal as order under section 143(3) was passed after proper enquiry and appreciation of various documents. Hence, order passed by AO is not erroneous and prejudicial to interest of revenue. order passed u/s.263 after taking counter comments of A.O. is deserve to be annulled and set-aside. 3. brief facts of case are that assessee HUF has shown income under head of business, house property, and capital gains. return of income filed on 31.03.2010 declaring total income at Rs. 7,41,370/- which was assessed u/s. 143(3) at Rs.9,25,370/- on 29.12.2011. Subsequently, on examination of assessment records and facts of case, ld. CIT found that assessment order passed by Assessing Officer, is erroneous in as much as prejudicial to interest of revenue as no inquiry/ I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 3 of 19 investigation were made in respect of allowing claim of benefit u/s. 54F of Act, particularly, when assessee was found indulging in business activities, allowing of sale of land as capital gain, rather than treating same as trade in nature of business. AO has failed to examine applicability of provisions of Wealth Tax Act, interest income on heavy advances etc. Accordingly, notice under section 263 of Act was issued on 26.11.2013 wherein assessee was asked to show cause as to why order of Assessing Officer for assessment year 2009-10 be not be revised being erroneous and prejudicial to interest of revenue. 4. ld. CIT has sought to revise assessment order on following grounds :- (1) claim of exemption u/s. 54F of Act on sale of land was allowed whereas land was agricultural land which was sold after obtaining colonizer license and residential colony was developed in name of Rameshwar Dham , wherein plots were sold to different persons, hence, assessee was doing business of developing colony and income from sale of plots was chargeable as business income and therefore exemption u/s. 54F was I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 4 of 19 not allowable. (2) assessee has sold another land on which short-term capital gains of Rs. 7,81,000/- was shown and expenses of Rs. 4,50,000/- was claimed on improvement. This was allowed without examining claim (3) Therefore, if sale of land is considered then turn over works out to Rs. 62,19,00-/ accordingly, applicability of provision of section 44AA and 44AB arises and consequently penalty proceedings u/s 271A and 271B were required to be initiated. (4) No enquires were made in respect of HUF properties shown in balance sheet (5) assessee has shown various properties in balance sheet, hence liability under Wealth Tax Act was required to be examined. (6)It was also found that assessee has given loans to various person amounting to Rs. 41,05,177/- and shown bank balance at Rs. 25,49,204/- but no interest income is shown. AO failed to examine above facts; hence, order was erroneous and prejudicial to interest of revenue. Therefore, show cause notice under section 263 was issued. assessee replied that assessee has never applied for colonizer license. expenses on account improvement were duly examined by AO and in I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 5 of 19 fact sum of Rs.1,00,000/- were disallowed in assessment order passed. Hence, issue cannot be revised under revision power. As regard applicability of section 44AB, it was submitted that assessee has carried out business of which income has been fully disclosed u/s. 44AE and 44AF of Act. As regards advances and loans it was submitted that no interest was charged from debtor hence question of interest income does not arise. bank balance is under current account in which no interest income was earned. Ld. CIT has referred reply of assessee to AO for his counter comments, wherein AO submitted that contention of assessee is incorrect, as assessee has obtained colonizer license bearing No. 2 dtd. 17.12.2004 from O/o Sub Divisional Officer (Revenue) Sanwer, Dist. Indore and developed colony in name of Rameshwar Dham as could be seen from sale deed dtd. 31. 03. 2009, after considering submission of assessee, ld. CIT found that comments of assessee are not specific. ld. CIT observed that detailed examination of claim of improvement of land with regard to short-term capital gains, wealth taxability and I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 6 of 19 details of unsecured loans and advances were not carried out during course of assessment proceedings. ld. CIT, therefore, set-aside assessment to file of AO on all issues raised vide notice u/s. 263 of Act dtd 26.11.2013 with direction to re-examine above point and assessment be made de novo. 5. Aggrieved with order, assessee has preferred this appeal before us. 6. ld. Authorized Representative of assessee submitted before us that assessee HUF has never applied for colonizer license and never engaged in business of real estate. AO has canvassed wrong theory that assessee possessed colonizer license, which is factually incorrect. Thus, ld. CIT has set-aside assessment order under wrong notion and phraseology used by ld. CIT clear beyond doubt that ld. CIT was not satisfied on question of assessment being erroneous and prejudicial to interest of revenue. Instead, she has just set-aside to please revenue and placing burden on assessee to put forth his case again. ld. A. R. submitted that facts of individual case of Kailash I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 7 of 19 Chandra Agarwal have been incorporated by ld. CIT to set- aside assessment of HUF which is framed after due examination of issue and due investigation by AO. ld. A.O. has made addition of Rs. 4, 50,000/- under head short-term capital gains after detailed examination. Body of assessment order does not indicate firm satisfaction of ld. CIT. ld. CIT has not pointed out any error in assessment order framed and accepted report of A.O. on face value. ld. CIT has questioned applicability of section 44AA and 44AB without appreciating that assessee has offered income u/s. 44AE and 44AF. 7. Per contra, ld. CIT (DR) submitted that AO, has made only semblance enquires and that too in siphoned manner and accepted version of assessee without making proper enquiry regarding nature of land sold and allowed deduction u/s. 54F of Act without any enquiry. AO also did not enquire nature of expenses of Rs. 4.50 lakh incurred sale of another land, which was sold after developing and landscaping and labelling. ld. CIT (DR) has also relied upon following case laws viz; CIT vs. I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 8 of 19 Deepak Kumar Garg (2008) 299 ITR 435 (MP, CIT vs. Mahavar Traders (1996) 220 ITR 167 (MP), Renu Gupta vs. CIT [2008] 301 45 (Raj), PT. Lashkari Ram vs. CIT [2005] 272 ITR 309 (ALL), CIT vs. Himachal Pradesh Financial Corpn. [2010] 186 Taxman 105 (HP), CIT vs. Sunil Goyal [2009] 176 Taxman 184 (Uttarakhand), Mofussil Warehouse Trading Co. Ltd vs. CIT [1999] 238 ITR 867 (Mad), Duggal & Co. Vs. CIT [1994] 77 Taxman 331 (Del), CIT vs. Active Traders (P.) Ltd. [1993] 69 Taxman 281 (Cal), Addl CIT vs. Mukur Corporation [19978] 111 ITR 312 (GUJ.) in support of his contention. 8. We have heard rival submissions and perused material available on record. perusal of para 3.1 of assessment order shows that assessee has shown sale of immovable property at Rs.31,56,000/- of which sale consideration was considered to be at Rs.33,53,000/-. assessee has claimed indexation cost at Rs. 3,02,959/- and dalali expenditure of Rs. 94,680/-. Thus assessee has shown long term capital gains at Rs. 29,55,361/-, against which assessee has claimed to have been invested in residential house at Rs. 30,50,000/- on which deduction u/s. I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 9 of 19 54F was claimed and allowed by AO without making any inquiry regarding nature of land sold. ld. CIT observed in her notice under section 263 that exemption u/s. 54F is not allowable as nature of land sold is agricultural land, and same was sold after developing residential colony named as Rameshwar Dham after obtaining colonizer license and sold in from of plots to different persons. Thus, assessee was doing business of developing of colony, which can be said as adventure in nature of trade. 9. ld. A. R. has claimed that order u/s.263 is mixed up of two different cases. assessee is being assessed in his individual capacity vide PAN AAAZPA9222B and HUF Kailash Chandra Agarwal is separately assessment to tax vide PAN AAAHA9014J. assessee HUF has never applied for colonizer license and has never engaged in business of real estate, whereas AO has canvassed theory that assessee has possessed colonizer license. This argument looks very attractive at first flush but loses its shine when we analyse issue in depth. relevant extract of assessee`s I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 10 of 19 reply dtd. 30.03.2014 submitted in response to notice under section 263 reads as under: Income Tax Officer has levelled submission of assessee as totally wrong. assessee has never denied that it does not possess colonizer license. But this cannot be ground to hold that sale of land is in nature of business> 10. above reply of assessee show that assessee HUF had possessed colonizer license. Therefore, argument of ld. A.R., is contradictory to facts of case. Further sale deed dtd. 31.03.2009 also maintained name of seller as Kailash Chand Agarwal with PAN No. AAAHA9014J. This PAN belong to assessee HUF , which means assessee HUF is doing business of developing of colony. AO also in his counter comments in para no.4, dtd. 29.03.2014 stated that this sale deed relates to HUF and these properties are appearing in balance sheet of HUF appearing, these are acquired out of HUF`s fund. Further perusal of sale agreement dtd 31.03.2009 also showed that assessee had purchased agricultural land and after developing I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 11 of 19 residential colony named as Rameshwar Dham sold same in form of plots. As per page 2 & 3 of sale deed also stated that assessee HUF has obtained colonizer license on 17.12.2004 from SDO (Revenue) Sanwar, and permission for development was taken vide letter No.Sn/R-1/05/dtd. 09.02.2005 for developing residential colony in name Rameshwar Dham . Thus, it is palpable that assessee had been carrying on business of real estate business. Therefore, nature of land sold was in nature of adventure in nature of trade & business, hence, income arising out of such activity is very much assessable as business income and not as long- term capital gains. AO has accepted claim of assessee without making or causing any enquiry. Therefore, deduction allowed u/s. 54F was patently wrong /incorrect. These facts establish that order passed by AO was erroneous in so far as it prejudicial to interest of revenue. ld. CIT has rightly observed in his show cause notice dtd. 26.11.2013 that as per para 4 of assessment order dtd. 29.12.2011 for A.Y. 2009-10 is erroneous, prejudicial to interest of revenue, and required to be set-aside under I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 12 of 19 revisionary power u/s.263 of Act. Therefore, contention of ld. A. R. that ld. CIT was not satisfied on question of assessment being erroneous and prejudicial to interest of revenue is not tenable in law and on facts. argument of ld. A. R. that ld. CIT merely set-aside to AO without satisfaction is not correct. argument of ld. A. R. that order is set-aside after obtaining counter comments of A.O. is also does not hold water as section 263 provides commissioner can cause or make any enquiry as deem fit. ld. CIT(DR), has relied in case of CIT vs. Mahavar Traders (1996) 220 ITR 167 (MP), wherein Hon ble Jurisdictional High Court has held that on perusal of record of I.T.O., it appeared that he has not examined matter in light of conditions laid down for grant of relief under section 80HH and under section 80J. I T O proceeded to assess liability of assessee and that was not correct approach. In instant case AO has also failed to examine condition laid down u/s. 54F of Act. 11. Therefore, assessment order made by AO in accepting claim of assessee without causing any I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 13 of 19 inquiry whatsoever is erroneous as well as prejudicial to interest of revenue. This view is also supported by decision of Hon ble M.P. High Court in case of CIT vs. Deepak Kumar Garg (2008) 299 ITR 435 (MP)wherein it was observed that where from order of Assessing Officer, it was clear that for want of time. Assessing Officer has done only semblance enquiry and that too, in very slipshod manner and Assessing Officer had accepted version of assessee without proper enquiry, as result of which substantial amount of taxable income was not brought to tax, commissioner rightly held assessment order as erroneous and prejudicial to interest of revenue. 12. Second issue is that AO allowed short-term capital gains claim of assessee after making ad-hoc disallowance of Rs.1 lakh out cost of improvement without verification and making field enquires. ld. A. R. submitted in his written submissions that AO had made addition of Rs.4, 50,000/- under head short-term capital gains after detailed investigation. ld. CIT guided by AO`s report assessment I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 14 of 19 cannot be set-aside just because she wanted enquiry to be conducted in particular fashion. 13. We find from assessment order that assessee has purchased plot of land for Rs. 15,50,000/- on 18.06.2007. assessee has claimed expenditure of Rs. 4, 50,000/- incurred because of landscaping, labelling, and other expenses as cost of improvement. assessee has also claimed brokerage expenses of Rs. 85,000/-. Thus cost of improvement was worked out to Rs. 20, 85,000/- . assessee has sold this plot of land for Rs. 28, 66,000/- on 14.12.2008. Thus, assessee has disclosed short-term capital gains at Rs. 7, 81,000/- [28, 66,000-20, 85,000]. AO asked to furnish details and evidences of expenses of Rs. 4,50,000/-. However, no details or evidences in respect of expenses incurred on landscaping and labelling was furnished. AO observed that value of land has been is appreciated by 85% within span of 18 months, there might be possible that some landscaping and labelling was done. AO therefore observed that in view of inability of assessee to furnish details of such expenses, disallowance of Rs. I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 15 of 19 1,00,000/- is made and short term capital gains was computed at Rs. 8,81,000/-. These facts show that AO desired to cause enquiry but his efforts was blocked by Assessee by not furnishing required information. Thus AO has failed to make any inquiry and investigation regarding nature of land sold, nature of expenses incurred on landscaping and labelling. How land price has appreciated by 85% within short span of 18 months and simply accepted version of assessee, on face of it, without any evidence whatsoever and made symbolic disallowance of Rs. 1 lakh. AO do observed that it is possible that Assessee will have done landscaping and labelling. Thus, observation of A.O. shows that due to non-submission of details of cost of improvement on account of landscaping and labelling of land, AO did not make any inquiry regarding nature of land sold. How appreciation of 85% in land sale of land has happen within shot span of time, accepted version of assessee on face of it, and made symbolic disallowance of Rs.1 lakh taken for want of verification of expenses. AO computed short term capital I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 16 of 19 gains at Rs. 7,82,000/- . Therefore, submission of assessee that AO has made addition of Rs. 4, 50,000/- under head capital gains is not correct. Further, assessee has not furnished any details in respect of cost of improvement; therefore, AO had perforce to make ad-hoc addition of Rs. 1 lakh. This fact itself shows that no enquiry and investigation was made by AO, whereas land in question was sold after plotting due to which price of which has been highly appreciated to 85%. Thus in such circumstances, assessment order so passed is erroneous and prejudicial to interest of revenue. 14. Third issue is regarding applicability of provisions of section 44AA or 44AB. We find that ld. CIT has observed that turnover of assessee is worked out to Rs. 62, 19,000/- . In such circumstances, applicability to above provisions does arise and consequently, penalty proceeding u/s. 271A and 271B were required to be initiated. Failure to initiate penalty property renders order as erroneous and prejudicial to interest of revenue. Hon ble coordinated bench Cochin in case of Mohandas P K vs Income Tax Officer in I. T. A. I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 17 of 19 No. 243/Coch/20109AY06-07) dtd. 19.04.2012 has held that assessment order can be revised on account of dropping of penalty proceeding u/s. 271B without passing speaking order. Whereas in case in hand penalty proceeding u/s. 271A and 271B were remained to be initiated. 15. Fourth and fifth issue relates to contention of assessee that ld. CIT has failed to note that real estate business pertains to Kailash Chand in his individual capacity and not of HUF. However, as discussed above par 9 of this order that sale deed clearly mentioned PAN of HUF, which is also born out from report of AO and various immovable properties were reflected in balance sheet of assessee HUF. 16. Sixth issue relates that assessee has shown loans and advances of Rs. 41, 05,177/- and bank balance at Rs. 25, 49,204/- but no interest is charged. However, no argument is made in this regard, but it is seen that it was claimed in revision proceeding that bank account is current account. However, this issue appears to have not examined by AO nor nature of loans was enquired. Therefore, on this score I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 18 of 19 assessment order is found to be erroneous and prejudicial to interest of revenue. 17. In light of above discussion, we find that AO had not considered all relevant aspects of case carefully while passing order. mere fact that failure on part of A.O. in not examining matter carefully would render his order erroneous as well as prejudicial to interest of revenue. In our view, aforesaid submission of assessee must fail for reasons already explained in foregoing paras of this order as order, which is sought to be revised under Section 263 reflects no proper application of mind by AO and thus be amenable to revision under Section 263. In this case, before us, assessment order passed by AO lacks judicial strength to stand. It is in this view of matter that we feel that learned Commissioner has correctly exercised his revisional jurisdiction under Section 263. Therefore, all grounds of appeal of assessee are rejected. I.T.A.No.323/Ind/2014/A.Y.:09-10/Kailash Chand Agarwal, HUF Page 19 of 19 18. In result, appeal of assessee is dismissed. order pronounced in open court on 22.09.2016 Sd/- Sd/- (D.T.GARASIA) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 22nd September, 2016. OPM Kailash Chand Agarwal HUF v. Commissioner of Income-tax-II, Indore