ITA No. 236/Asr/2015; Asst. yr. 2010-11

A.D. Jain, J.M. & T.S. Kapoor, A.M .

Joginder Singh, for the Appellant:
Umesh Takyar, for the Respondent

ORDER

This is the assessee's appeal for the asst. yr. 2010-11, against the order .dt. 27th/31st March, 2015, passed by the learned Principal CIT, Jammu. The assessee has raised the following grounds of appeal :

"1. The learned Principal CIT has erred in law and facts of the case in passing order under s. 263 of the IT Act and give directions to the AO for reframing the assessment afresh on the matter covered under s. 263.

2. That order passed unaer s. 263 is wholly unreasonable. uncalled for and bad in law.

2.1 That the matter regarding capital gain on transfer of land and building at 8/56, D.B. Gupta Road, Karol Bagh, New Delhi was considered, discussed and scrutinized by the AO durtng the course of assessment proceedings under s. 143(3) of IT Act, for the asst. yr. 2010­11.

2.2 That all the relevant documents relating to sale of land and building and computation of capital gain thereon were filed before the AO durtng the course of assessment under s. 143(3) of the IT Act.

3. That order of the AO does not in any way represent erroneous order and prejudicial to the interest of the Revenue."

2. The facts of the case, as given in the order of the Principal CIT. Jammu. are as follows:

"In this case, the.assessment for the asst. yr. 2010-11 was completed under s. 143(3) of the IT Act, 1961 by the Jt. CIT. Range-2. Jammu vide order passed on 31st Dec .. 2012 and income was assessed (at) Rs. 3,94,37,080. Subsequently. a proposal under s. 263 was received from the office of Jt. CIT. Range-2. Jammu vide his office letter No. 1063. dt. 31st March. 2013 stating that during the assessment year under consideration. the assessee had sold the property No. 8/56. Desh Bandhu Gupta Road, Karol Bagh. New Delhi to M/ s Sujata Hotels (P) Ltd. Patna for a consideration of Rs. 5.50 crores through a special power of attorney executed on 26th March. 2010 and assessee has declared capital loss of Rs. 64.99.920 in its return of income. It was stated by him that the property sold was a plot measuring 1,470 Sq. Yards in the commercial belt of Karol Bagh. Delhi near Ajmal Khan Road and the plot was three side open and situated at main Desh Bandhu Gupta Road. Karol Bagh Delhi. he further stated that during the course of assessment proceedings for asst. yr. 2009-10 it was found that the said property was given as a collateral security against the loan raised by the assessee company. Further. as per the valuation report from the Canara Bank Shalamar Road. Jammu property in question was valued at Rs. 10.06.27.498 as on 18th Dec., 2004 by the registered valuer Mr.' g.L. Dua. The valuation report dt. 18th Dec .. 2004 showed that the actual area of the plot is 1,470.04 Sq. Yards. This means the value of this property in 2004-05 was Rs. 10,06.27,500. if the value of this property is calculated as per index. the cost available for capital gain during for asst. yr. 2010-11 would come to Rs. 14.90,54.484 thereby meaning that the cost of this property was not· less than Rs. 14.90,54,484 in the year 2010-11. Thus. he stated that the property located in the prime commercial area of the National Capital has been sold by the assessee to a company at the ridiculously low price than its actual value, further. during the course of investigation at the time of assessment for the asst. yr. 2009-10 had I:evealed that the purchaser M/ s Sujata Hotel (P) Ltd. is none else but a company owned by some shareholders and directors of the assessee company. Therefore, the motive of undervaluation of the above property is also abundantly dear. Thus, if the value of the property is adopted at Rs. 15 crores as worked out above, it is clear that the assessee has worked out the capital loss wrongly. The indexed cost of acquisition as shown by the assessee if accepted, the capital gain would work out to Rs. 8.85 crores whereas, the assessee had shown the capital loss of Rs. 64,99,920. This shows that there is under assessment of income to the extent of Rs. 9.50 crores.

In view of the facts mentioned above, it was seen that the assessment framed by the AO under s. 143(3) of the IT Act, 1961, for asst. yr. 2010­11 vide order dt. on 31st Dec., 2012, referred to above, was erroneous as well as prejudicial to the interest of Revenue. Accordingly, a show-cause notice vide No. 2606, dt. 6th Aug., 2013 was sent to the assessee with a request to explain as to why the above-referred assessment may not be cancelled directing a fresh assessment to be made in his case in terms of the provisions of s. 263 of the IT Act, 1961 and case was fixed for

hearing on 14th Aug., 2013. The contents of the show-cause notice are reproduced hereunder:
"Please refer to the order under s. 143(3) of the IT Act; for the asst. yr. 2010-11, dt. 31st Dec., 2012 passed by the Jt. CIT, Range-2, Jammu.

A proposal under s. 263 of the IT Act, 1961 has been received from the Jt. CIT, Range-2, Jammu vide his office letter No. 1003, dt. 31st March, 2013.

On going through the proposal and the accompanying records, it is observed that during the assessment year under consideration, you have sold the property No. 8/56 Desh Barndhu. Gupta Road, Karol Bagh, New Delhi to M/s Sujata Hotels (P) Ltd., Patna for a consideration of Rs. 5.50 crores through a special power of attorney executed on 20th March, 2010 and you have declared a capital loss of Rs. 64,99,920 in the return of income.

During the course of assessment proceedings for asst. yr. 2009-10 it was found that the property was given as a collateral security against the loan raised by your company. Further, as per the valuation report received from the Canara Bank, Shalamar Road, Jammu property in question was valued at Rs. 10,06,27,498 as on 12th Dec., 2004 by the registered valuer Mr. Q.L. Dua. This valuation report dt. 18th Dec., 2004 shows that the actual area of the plot is l/J-O.of sq. yards Instead of 1/50 Sq. yards shown by your company. The registered valuer Sh. Q.L. Dua, has elucidated the value of the said property as on 18th Dec., 2000 at Rs. 10,06,27458. Therefore the value of property as on 21st and 23.2212 should be more. It is worthwhile to mention that the registered valuer Sh. Q.L. Dua in his report at p. 3 against column 32 has elucidated the value of land at Rs. 9.92.10.275 as on 12th Dec .. 2004 on grounds:

D,D.A fIxed the minimum reserve price for auction of commercial plot of 630 sq.mtrs. at Rs. 8.17.00.000 (i.e. Rs. 1,29,683/sq.m) in nearby area of Community Centre Motia Khan, New Delhi on Desh Bandhu Gupta Road Paharganj vide their advertisement dt. 15th July. 2004 and 13th Oct., 2004 in Hindustan Times. New Delhi. As per assessor and Collestor (MCD) orders No. A § C(PC)/HQ/85/513-623, dt. 16th May. 1985. A § C(PC) /H&/88/11/64/24023, dt. 25th March, 1988, A&C(PC)/HQ­691/11/65/1428, dt. 31st Jan .. 1791.. .. And Rajya Sabha unstarred question.491, dt. 20th Feb., 1988, the land rate beyond 500 sqm. can be reduced by 15. per cent (Le .. 85% of 12.683 = Rs. 1,10,231/sqm.) and further one third deduction in cost has been made for any adverse/untoward variation in the marketability of properties in future (though chances are remote/unlikely). Thus the total land cost (area 1,229.141 sqm.) = (500 x Rs. 1.29.083 + 729.141 X 1.10,231) x (2/3)= , Rs.7,72,10,295.

Keeping in view the steep hike in the cost of land the value of commercial land at such a posh locality must have increased three to four-fold. The method of valuation ofland by Sh. Q.L. Dua, the registered valuer is very reasonable fair. Therefore. the fair value of the property as on date of transfer is taken as indexed value of property which will be on the lower side. as on date of transfer. The same is calculated on the basis of valuation dt. 18th Dec., 2004 made by Sh. Q.L. Dua, registered valuer, but after disallowing the 1/3rd deduction in cost has been made for any adverse/untoward valuation in the marketability of properties In future which is calculated as under :

Total cost of land as per valuer	: Rs. 9,92,10,295
Disallowed : 1/3rd of the cost for any adverse/ untoward variation in the marketability of properties as allowed by the valuer	Rs. 14,88,15,442

This means the value of this property owned by the company in 2004­05 was Rs. 14,88,15,442. The cost calculated as per index for capital gain the value for Rs. 22,04,32.874 will come to Rs. 22.04,32,874. From above, it is clear that the property which was valued much-much more being located In the prime commercial area of the National Capital has been sold by your company to another company at the. reduced price. Further, while going through the assessment records for the asst. yr. 2009-10. it is found that the purchaser M/s Sujata Hotel (P) Ltd. is none else but a company owned by some shareholders and director of the assessee company. Therefore, for calculating the loss of revenue at the present stage the value of the this property is Rs. 22.04 crore in place of Rs. 5.50 crore as declared by the your company. The capital gain is to be calculated taking this value at Rs. 22.04 crore, instead, your company has itself shown the indexed value of this property at Rs. 6,14,99,920.

As per the provisions of s. 50C of the IT Act, 1961, where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the 'stamp valuation authOrity' for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of s. 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

(2) Without prejudice to the provisions of sub-so (I), where-

(a) the assessee claims before any AO that the value adopted or assessed or assessable by the stamp valuation authority under sub-so (1) exceeds the fair market value of the property as on the date of transfer;

(b) the value so adopted or assessed or assessable by the stamp valuation authority under sub-so (1) has not been disputed In any appeal or revision or no reference has been made before any other authority, Court or the High Court, the AO may refer the valuation of the capital asset to a valuation officer and where any such reference is made, the provisions of sub-ss. (2), (3), (4), (5) and (6) of S. 16A. d. (1) of sub-so (1) and sub-ss. (6) and (7) of s. 23A, sub-so (5) of s. 24, s. 34AA, s. 35 and S. 37 of the WT Act, 1957, shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the AO under sub-so (1) of S. 16A of that Act.

Explanation l : For the purposes of this section, 'valuation officer' shall have the same meaning as in d. (r) of S. 2 of the WT Act. 1957.

Explanation 2 : For the purposes of this section, the expression 'assessable' means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained In any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty.

(3) Subject to the provisions contained in sub-so (2), where the value ascertained under sub-so (2) exceeds the value adopted or assessed or assessable by the stamp valuation authority referred to in sub-so (1), the value so adopted or assessed or assessable by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.

Since your company has not adopted the value assessed or assessable by authority of a State Government for the purpose of payment of stamp duty in respect of the said transfer, the value so adopted or assessed or assessable should have been for the purposes of S. 48, deemed to be the full value of the consideration received or accruing as a result of such transfer.

Even if the indexed cost of acquisition shown by your company is accepted as such. the capital gain will come to Rs. 15.90 crores. Against this capital gain you have shown the capital loss of Rs. 64.99,920 only. This means understatement of income on this account of Rs. 16.55 crores has resulted.

Further. it is seen that that you had purchased the said plot for Rs. 1,12.500 on 22nd Feb., 1975. and no construction was raised on the said plot at the Regd. Valuers. Le .. Sh. Manjit Singh Sagoo and Sh. g.L. Dua as on 1st April. 1981 and 18th Dec., 2004 at Rs. 9.28,500 and Rs. 14.17,163, respectively. It means that yourself raised the construction on the said plot; On perusal of the balance sheet it is seen that you have reduced only Rs. 1,12,500 on account of sale of land account of fIxed assets. The amount spent on construction has not been reduced from the block assets in the balance sheet. The construction has been valued at Rs. 9.28,500 as on 1st April, 1981 by the Regd. Valuer Sh. Manjit Singh Sagoo. The amount to the extent of Rs. 9,28,500 should have been reduced from the balance sheet under the land head of fIxed assets. Thus, there is difference of Rs. 9.28.500 in the balance sheet.

Keeping in view the above, it appears that the assessment framed by the Jt. CIT. Range-2. Jammu in your case referred to above is erroneous and prejudicial to the interests of Revenue and accordingly. you are requested to show-cause as to why the provisions of s. 263 may not be invoked in your case and the assessment order under consideration be enhanced or modifIed or cancelled directing a fresh assessment."

2. In response to said show-cause notice a letter from the assessee was received requesting therein to allow adjournment and accordingly the case was fixed for hearing on 4th Sept., 2013. On the said date of hearing, the counsel of the assessee attended the proceedings and filed Written reply stating therein as under :

''The assessee company carries on the business of transportation of goods and head office is at Jammu and branch office at more than 85 places throughout the country. The gross turnover amounted to Rs. 141.10 crores. The assessee filed the returned income of Rs. 3.49 crores.

That assessee was owner as lessee of plot of land at 8/56, DB Gupta Road, Karol Bagh, New Delhi which is as per the original deed dt. 3rd June, 1941 can only be used for residential purposes. Assessee had also constructed a godown on the said plot of land.

That the said leasehold land was originally allotted by Delhi Improvement Trust vide lease deed dt. 3rd June, 1941 for a period of 90 years. Thus. the lease was to terminate on 3rd June, 2031. Copy of said lease deed is enclosed. That it is pertinent to mention that as per cl. 1 (vi) of the original lease deed dt. 3rd June. 1'941 the land in question was a residential land. The clause reads as under :

'(vi) not to use the said land and buildings that may be erected thereon during the said term for any other purpose than for the purpose of residential bungalow without the consent in writing of the said lessor; provided that the lease shall become void if the land is used for any purpose other than that for which the lease is granted not being" a purpose subsequently approved by the lessor.

This shows that the business conducted by the assessee at the said leasehold land was not in consonance with the terms of the lease deed.'

That the assesset( company had purchased the said plot of land on 22nd Feb., 1975 fer Rs. 1.12.500 vide eight state deeds as per details given below:

Date	Name of seller	Amount
22/02/1975	Smt. Uma Devi/Master Sushil Kumar	42,075
22/02/1975	Smt. Uma Devi/Ms. Santosh Kumari	4,725
22/02/1975	Sh. Prem Kumar	42,075
22/02/1975	Smt. Uma Devi/Anil Kumar	4,725
22/02/1975	Smt. Uma Devi/shwani Kumar	4,725
22/02/1975	Smt. Uma Devi	4,725
22/02/1975	Smt. Uma Devi/Mr. lnder Kumar	4,725
22/02/1975	Smt. Rita Rani	4,725

Copies of sale deeds are enclosed.

That assessee company vide board resolutions dt. 30th April. and 1st May. 2005 resolved to sell the leasehold rights on the said land on account of the fact that due to business expansion and no entry restrictions for heavy vehicles imposed by Government. the working in the premises had become difficult. Copy of board resolution (is) enclosed.

It is important to mention here that in the year mentioned above. the Delhi Government had started compaign to demolish the residential properties which are being used for commercial purposes. There was also a fear of lease deed of the assessee company be cancelled on account of use of said leasehold land in violation of purpose mentioned in the original lease deed. Keeping all these factors in mind, the assessee company had decided to sell the said leasehold land.

That in terms of said resolution. the company sold the said leasehold rights to Sujata Hotels (P) Ltd .. Patna for consideration of Rs. 5.50 crores.

That the buyer made the payment of sale consideration as per following details:

Date	Amount (Rs.)
24/11/2005	11.00,000
19/12/2005	10,00,000
19/12/2005	20,00,000
11/01/2006	39,00,000
4/04/2006	1,50,00,000
31/05/2006	70,00,000
31/07/2006	15,00,000
31/09/2006	10,00,000
31/10/2006	65,00,000
31/01/2007	10,00,000
23/02/2007	30,00,000
17 /03/2007	10,00,000
31/03/2007	1,00,00,000
	5,50,00,000

That the abovesaid land was mortgaged with Canara Bank, Shalimar Road, Jammu against various credit limits of company. Therefore, agreement was not executed with the buyer and no possession was given in the financial year 2005-06, when the sale was agreed upon.

That the said property was released by the Canara bank in the financial year 2009-10 relevant to asst. yr. 2010-11. The possession was given on 15th July, 2009. The assessee company furnished copies of purchase deeds, agreements to sell, valuation report of valuer as on 1 st April, 1981 working of capital gains imd other documents vide its reply dt. 30th Oct., 2012. Copies enclosed for your information and consideration please.

That in the IT Act. there was a provision viz., s. 52. That section enabled the AO to ignore the sale price and adopt market value for purpose of computing capital gains. While interpreting the said provisions the judicial view was that there should be some under consideration and that the consideration over and aboe what has been shown in the document has been received. It was also held that where there is no evidence that more consideration has passed provisions were not applicable. Though the said section has been omitted but the principle remains the same.

In K.P. Verghese us. ITO (1981) 24 CTR (SC) 358: (1981) 131 ITR 597 (SC), the Hon'ble Supreme, Court had the occasion to deal with regard to understatement of sale consideration. The Hon'ble Court held that it is not enough to attract provisions of sub-so (2) of s. 52, that the fair market value exceeds the value of consideration received but it is further more necessary that the full value of the consideration Is understated or in other words shown at lesser figure than that actually received by the assessee.

Similar view has been held by the Hon'ble Supreme Court in CIT us. Shiuakami Co. (P) Ltd. (1986) 52 CTR (SC) 108: (1986) 159 ITR 71 (SC) and series of judgments that the sale consideration declared by the assessee has to be accepted by the Revenue as true unless it is proved to be wrongly declared. It is further held that the burden of proof is upon the Revenue to establish that the assessee has understated - the sale consideration and that the assessee has received over and above the consideration shown in the documents.

Sec. 48 contemplates 'ftill value of consideration' which is full sale price actually paid. It does not refer to the adequacy of the price nor the market value of the subject-matter of the sale.

In CIT vs. Gillanders Arbuthnot & Co. 1973 CTR (SC) 136 : (1973) 87 ITR 407 (SC). Honble Supreme Court held that for purposes of capital gains. sale consideration has to be considered.

In view of the provisions of s. 48, sale consideration as shown in the sale deed only has to go considered.

In Attili Narayana Roo vs. ITO (1986) 16 ITD 35 (Hyd). Honble Tribunal observed in para 6 that capital gains can be computed only with reference to price realized by the assessee towards the interest of the third parties in the property sold.

In DY. CIT vs. Singla EncLave Developers (P) Ltd. (2013) 156 TI'J (Chd)(UO) 1. Hon'ble Tribunal has held that in the absence of any other evidence on record addition towards undisclosed consideration on sale of shop-cum­flats could not be made simply by substituting the value of flats as recorded in mortgage deed for sale price shown in the registered sale deed.

In CIT vs. Discovery Estates (P) Ltd. (2013) 88 DTR (DeL) 238 : (2013) 356 ITR 159 (Del). the Honble Delhi High Court has held that it is not open to the AD on the basis of what he perceived to be the market conditions. to make additions to the sale price of the profits. without any evidence of understatement. Moreover, there is no other provision in the Act permitting the AD to enhance the profits or the sale price except s. 50C and s. 92BAofthe IT Act. 1961 and those sections were not applicable to the assessee.

13. That the proposal received from the Jt. crr. Range-2. Jammu. who has valued the property at Rs. 22.04 crores. is without any basis. The learned Jt. CIT. Range-2. has merely relied upon the valuation report dt. 18th Dec., 2004 of valuer Sh. Q.L. Dua which was submitted to Canara Bank by the assessee company.

That assessee got the valuation done from approved valuer on 18th Dec., 2004 and valuation of land was made at Rs. 10.06 crores. This valuation was only for loan, overdrafts, withdraw limits. security (primary. personal or collateral). surety, guarantee, mortage (legal equitable or otherwise).

That it is a known fact the valuation given to banks are normally overvalued to get additional loans and therefore value taken as I per valuation report by the learned Jt. CIT, Range-2, Jammu cannot be considered as true market value of the said leasehold property.

Sudhir industries vs. ITO (2003) 81 TTJ (Jodh) 765

Addition on account of difference in stock statement filed "with the bank. Assessee explained that the value of stock submitted to the bank is purposely shown at higher side to avail better financial help. Addition deleted.

Ruling of Hon'ble Supreme Court coupled with omission of s. 52 make the legal position clear that unless it is proved that there is some additional receipt, addition cannot be made a valuation report is only an opinion, but that does not show or prove that there is some underhand dealings and consideration has passed more than what is disclosed by the assessee. This has been so held in Britannia Industries Ltd. vs. Dy. CIT (2000) 162 CTR (Cal) 152 : (1999) 238 ITR 57 (Cal). Capital gain is thus on actual basis and not on fictitious value .

Hon'ble High Court of Jammu & Kashmir in Ashok Kumar vs. ITO (2006) 201 CTR (J&K) 178 has held that addition could not be made on the basis of difference between closing stock declared in the trading account and stock shown in the statement to the bank as stock position shown to the bank was on estimate and inflated value was shown to avail more credit from the bank.
Similar has been held in :

(i) Asstt. CIT vs. Jyoti Woollem MUls (2009) 125 TTJ (Del) 810
(ii) CIT vs. N. Swamy (2000) 241 ITR 363 (Mad)
(ii) CIT vs. Sidhu Rice & General Mills (2004) 192 CTR (P&H) 349 : (2006) 281 ITR 428 (P&H)
(iv) CIT vs. Veerdip Rollers (P) Ltd. (2010) 323 ITR 341 (Guj).

That the market value of any property is the value at whicq buyer is agreeable to buy the property and the seller is agreeable to sell the property.

That the actual area of the property is 1,467.42 sq. yards and that has been reflected in the purchase deeds, agreement to sell and all communications with the AO.

That buyer and seller had agreed to the deal with regard to said leasehold property in the financial year 2005-06 and first instalment was paid on 24th Sept., 2005. Therefore, for all intents and purposes the valuation is to be taken for the financial year 2005-06 which is the relevant year for determining the value of the said leasehold property.

That in page No. 2 para No.4, the AO has. considered the minimum reserve price for auction of commercial plot at Rs. 1,29,683 per square meter and after deductions computed the value at Rs. 9.12 crores. The  AO has not appreciated the fact that the said leiisehold land is a residential land and therefore rates of commercial property cannot be applied.

That as per the notification issued for circle rates under Delhi Stamps Rules. 2007. the value of a residential property is 1/3rd of the value of commercial property.

That the valuation of land is done generally in case of freehold land. In case of leasehold land. reasonable discount is to be allowed for remaining period of lease which in this case was 25 years if year of negotiation is considered. It will be 21 years if the date of handing over of possession is to be considered.

That the matter was considered by the Addi. CIT Jammu while making assessment for the asst. yr. 2007-08. After assessee's submissions the matter was filed. Copy of assessee's written submission and assessment order for asst. yr. 2007-08 is enclosed.

That it was observed by the learned Jt. CIT. "Range-2. Jammu that purchaser M/s Sujata Hotels (P) Ltd .. is owned by the same shareholders of Nitco Logistics (P) Ltd. The fact is that some of the shareholders of the assessee company are also shareholders in Sujata Hotels (P) Ltd.

That Your Goodself has referred to provisions of s. 50C of the IT Act where the market value for payment of stamp duty has to be taken as market value of calculation of capital gains. This provisions is applicable with regard to transfer by an assessee of a capital asset being land or building or both.

In ITO us. Prad.es Steel Rolling Mills 115 TTJ 294 and Nauneet Kumar Thakkar us. ITO (2007) 112 TTJ (Jodh) 76 it has been held that provisions of s. 50C are not applicable in case of transfer of leasehold rights.

That assessee was not the owner of the said land which belongs to Delhi Improvement Trust (Now DDA) and the assessee company is only a lessee and therefore the provisions of s. 50C are not applicable to the assessee has not transferred any capital asset being land or buildings ..

That without prejudice it is further to submit that transfer has taken place in .the financial year 2005-06 therefore valuation as per Stamp Act is to be taken as per rate applicable in that very year and not for the year in which possession was given.

That circle rates in Delhi were first introduced in 18th July. 2007 and therefore there were no circle rates for the financial year 2005-06. Copy of circle rates are enclosed.

That even if circle rates as applicable in the financial year 2007-08 are not applied, the market value works out as under:

Total area	1,467.42 Sq. yards or 1.226.94 Sq. meters
Rate of residential plot as per Delhi Circle rates 18/07/2007	Rs. 21,800 per sq. meter in category D (Karol Bagh)
As the sale transaction agreed in financial year 2005-06
Indexed value in 2007-08	551
Indexed value in 2005-06	497
The proportionate rate	21,800+497/551= Rs. 19,664 per sq. meter
The market value as per circle rate say	19,664+1,226.94= Rs. 2.,41,26,548 Rs. 2.42 crores

The above working shows that even if provisions of s. 50C are to be applied the sale value determined at Rs.2.42 crores is much less than the value at which the assessee company has sold the leasehold rights.

That assessee had purchased the said leasehold land for Rs. 1,12,500 and has constructed godown. The valuation of construction at Rs. 9,28,500 made by the registered valuers as on 1st April. 1981 and 18th Dec., 2004. is the market value only and same is neither the cost nor written down value for the purpose of accounting.

In view of the above submission, it is prayed that the proceedings under s. 263 may please be filed. The assessee shall be pleased to furnish any other information in this regard."

3. The learned CIT disposed of the assessee's appeal by virtue of the impugned order, holding as follows:

"3.2 The basic principle of interpretation is to ascertain the intention of the legislature which has to be gathered from the language used which may be clear and explicit. The Finance Act, 2002 has introduced the s. 50C which is applicable on the transfer of land or building or both. As per the said provisions of the Act, if as a result of transfer of land or building or both, tlle consideration declared to be received or accruing as a result of which transfer is less than the value adopted or assessed or assessable (the word 'assessable' has been inserted w.e.f. 1st Oct., 2009) by any authority of a State Government for the purpose of payment of stmap duty in respect of such transfer, the value also adoptdor assessed shall be deemed to be the full value of the consideration and capital gains shall be computed accordingly under s. 48 of the Act. However, w.e.f. 1st Oct., 2009 the word 'assessable' has been inserted and after such insertion even if the property is not registered, then the value assessable for stamp duty purpose can be ascertained and the same has to be taken as sale consideration for the purpose of computing capital gains in case it is higher than actual consideration. The basic rule is that capital gains are deemed to be income of the previous year in which the transfer giving rise to the gains has taken place: Thus, the year of charge is the year in which the sale, exchange, relinquishment etc. has taken place. Where the transfer is by way of allowing possession of an immovable property in part performance of a contract, it is the year in which such possession is handed over. If the handing over of the possession precedes the entering into the contract and the transferee is allowed the possession in part performance of the proposed contract, the year of taxability of the capital gain is the year in which the contract is entered into.

As per s. 50C as amended w.e.f. 1st Oct., 2009, the consideration will be deemed equal to the value assessed or assessable by registering authority for the purpose of stamp duty. Therefore, in case the registration has not yet taken place and possession has been given, the capital gain will be required to be computed w.e.f. 1st Oct., 2009 on the basis of value assessable by registering authority for the purpose of stamp duty if the same exceeds the amount of consideration as per agreement w.e.f. 1st Oct., 2009, the word 'assessable' has been inserted and after such insertion even if the property is not registered, then the value assessable for stamp duty purpose can be ascertained, the same has to be taken as sale consideration for the purpose of computing capital gains, in case it is higher than actual consideration. No specific method of valuation has been provided under s. 50C or the relevant sections of the wr Act referred to for the purpose of valuation under s. "50C by the Departmental Valuation Officer. The property has to be valued considering all relevant factors like comparable instances of sale in the locality. The Hon'ble Supreme Court in the case of Chimanlal HargouiI11idas us. Special Land Acquisition Officer AIR 1988 SC 1652 has provided some guidelines.

3.2.2 In s. 50C, the word 'transfer' has been used and for the purpose of capital gain, the said word 'transfer' has been defined under sub-so (47) of s. 2 of the IT Act, 1961 as-under:  

"Transfet in relation to a capital asset, includes :
(i) The sale, exchange or relinquishment of the asset; or
(ii) The extinguishment of any rights therein; or
(iii) The compulsory acquisition thereof under any law; or
 (iv) …………
(v) Any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of contract of the nature referred to in S. 53A of the Transfer of Property Act, 1882.

Explanation 1 : For the purpose of sub-cls. (v) and (vi) immovable property shall have the same meaning as in cl. (d) of s. 269UA.

Explanation 2 : For the removal doubts, it is hereby clarified that 'transfer' includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly; absolutely or conditionally, voluntarily or involuntarily by way of an agreement

The word 'transfer' has further been defined in sub-cl. (i) of d. (f) of s. 269UA as under:

'In relation to any immovable property referred to in sub-cl. (i) of cl. (d), means transfer of such property by way of sale or exchange or lease for a term of not less than twelve years and includes allowing the possession of such property to be taken or retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act.

Explanation : For the purpose of this sub-clause, a lease which provides for ext.ension of the terms thereof by a further term or terms shall be deemed to be a lease for a term of not less than twelve years, if the aggregate of the term for which such lease is to be granted and the further term or terms for which it can be so extended is not less than twelve years :'

3.3 From the facts, primafacie it appears that:
(a) That the provisions of s. 50C of the IT Act, 196Lare not applicable to this property being a 'leasehold property' is not correct keeping in view the fact that leasehold rights are for a period of more than twelve years;

(b) That the circle rates are not applicable keeping in view the fact property being leasehold property is not correct in view of (a) above as the word 'assessable' has been inserted in the said provisions of the Act as the value higher than the declared price in the transfer deed will be taken. However, an assessee may object and claim before the AO that the value adopted is higher than the fair market value of the property on the date of transfer, the AO may refer the valuation of the property to the Valuation Officer in the manner as mentioned in s. 50C(2) of the Act.

(c) Keeping in view (b) above, it will have no relevance.
(d) Keeping in view (b), it will have no relevance.
(e) The issue has been discussed in detail supra.

3.4 Primafacie this is a case where the AO, who passed this impugned order, has not looked into all the relevant material facts and relevant sections of IT Act, 1961 as applicable to assessee's case as on date. Therefore, I am of the view that the AO may look into all the aspects raised in the petition filed under s. 263 and consider the objections stated therein. To that extent, I hold that the order was prejudice to the interest of Revenue and therefore, needs to be made de novo on the particular issues after taking into consideration the submissions filed by the assessee and sections applicable. However, it may be emphasized here again that the assessment may be reframed only on this aspect after Providing a suitable opportunity of being heard to the assessee."

4. The learned counsel for the assessee has,. at the outset, contended that an order passed under s. 263 of the Act. like the one presently under challenge, is not sustainable in law, if the AO's order is not held to be satisfying the twin conditions of being erroneous and prejudicial to the interests of the Revenue; that for invoking the provisions of s. 263 of the Act, twin conditions must be fulfilled, Le.,
The assessment order of AO is erroneous, and

2. The assessment order of AO is prejudicial to the interest of Revenue. That both these conditions have to be fulfilled simultaneously to invoke s. 263 of the Act, that a perusal of order passed under s. 263 of the Act by the CIT, Jammu shows that the worthy CIT has concluded in para 3.4 of the order, that. the assessment order passed by the AO was prejudicial to the interest of Revenue and therefore, needs to be made de nouo; and' that thus, the assessment order has not been held to be erroneous.

5. Reliance in this regard has been placed on the'following case law:

(i) Malabar Industries Co. Ltd. us. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC)
(ii) CIT us. Vikas Polymers (2010) 236 CTR (Del) 476 : (2010) 47 DTR (Del) 348: (2012) 341 ITR 537 (Del)
(iii) CIT us. Gabriellndia Ltd. (1993) 114 CTR (Born) 81 : (1993) 203 ITR 108 (Bom)
(iv) ITO us. Arvind Jewellers (2002) 177 CTR (Guj) 546 : (2003) 259 ITR 502 (Guj).

6. On the other hand, the learned Departmental Representative has placed strong reliance on the impugned order.

7. We have heard the rival contentions and have perused the material available on record. Sec. 263 of the Act lays down that:

"the CIT may call for and examine the record of any proceedings under this Act, and if he considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such. order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

8. Thus, in order to invoke the provisions of s. 263 of the Act, the learned CIT must hold that the AO's order satisfies both the conditions of being erroneous as well as prejudicial to- the interests of the Revenue.

9. In this regard, in Malabar Industries Co. Ltd. us. CIT (supra), it has been held that:

"A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the CIT suo motu under it, is that the order of the !TO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied to twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the !TO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to s. 263(l} of the Act.

There can be no doubt that the provision cannot be invoked to· correct each and every type of mistake or error committed by the AO, it is only whelil an order is erroneous that the section will be attracted. An incorrect assumption of facts or an' incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the Revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. 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 ITO, the Revenue is losing tax lawfully payable by a person, it will certain be prejudicial to the interests of the Revenue. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the !TO 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.

10. In CIT us. Vikas Polymers (supra), it was held that CIT has to be satisfied of twin conditions, namely (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the Revenue; that if one of them is absent Le., if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue, recourse cannot be had to S., 263(1); that it is a prerequisite that the CIT must give reasons to justify the exercise of suo motu revisional powers by him to reopen a concluded assessment; that a bare reiteration by him that the order of the ITO is erroneous insofar as it is prejudicial to the interest of the Revenue will not suffice; and that if a query is raised during the course of scrutiny by the AO, which was answered to the satisfaction of the AO, but neither the query, nor the answer was reflected in the assessment order, this would not by itself lead to the conclusion that the order of the AD be called for interference and revision.

11. In CIT us. Gabriel India Ltd. (supra), it was held that power of suo motu revision under sub-so (1) of S. 263 is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist; that two circumstances must exist to enable the CIT to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous, prejudice has been caused to the interests of the Revenue; that it has, therefore, to he considered firstly as to when an order can be said to be erroneous; that an order cannot be termed as erroneous unless it is not in accordance with law; that if an lTO acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the CIT simply because accDrding to him the order should have been written more elaborately; and that this section does not visualize a case of substitution of the judgment of the crr for that of the lTO, who passed the order, unless the decision is held to be erroneous.

12. In S. Murugan us. ITO (2012) 135 ITD 527 (Chennai), it was held that an order can be revised only and only when the twin conditions of 'error in the order' and 'prejudice caused to Revenue' co exist; that once the CIT comes to a conclusion, on basis of 'material', that the order of the AD is erroneous and also prejudicial to the interests of Revenue, the CIT is empowered to pass an order as the circumstances of the case may warrant; that he may pass an order enhancing the assessment or he may modify or cancel same and direct to frame a fresh assessment; that the learned CIT is required to exercise the revisional power within the bounds of law and has to satisfy the need of fairness in administrative action and fair play with due respect to the principle of audi alteram partem. as envisaged in the Constitution of India, as well as in S. 263; that revision has to be done for the purpose of setting right distortions and prejudices caused to Revenue in above context that an assessment order can be revised if and only if the said twin conditions co-exist; that if the AO examined issue from all angles, his order cannot be said to be erroneous on account of non-application of mind, and hence, one of the twin conditions precedent to revise the order would be missing; and that resultantly, the assessment order in question could not be revised.

13. In the resent case, the learned Principal CIT has, in para 3.4 of the impugned order held as follows :   -

"3.4 Primafacie this is a case where the AD, who passed this impugned order, has not looked into all the relevant material facts and relevant sections of IT Act, 1961 as applicable to assessee's case as on date. Therefore, I am of the view that the AD may look into all the aspects raised in the petition filed under s. 263 and consider the objections stated therein. To that extent, I hold that the order was pr.ejudicial to the interest of Revenue and therefore, needs to be made de novo on the particular issues after taking into consideration the submissions filed by the assessee and sections applicable. However, it may be emphasized here again that the assessment may be refrered only on this aspect after providing a suitable opportunity of being heard to the assessee."

14. A bare perusal of para 3.4. of the impugned order shows that the learned Principal crr held the AO's order to be only prejudicial to the interests of the Revenue. It was on this sole basis that the AO was directed to make assessment de novo. Thus, obviously, the second condition of the }\O's order being erroneous is not shown to exist even by the learned Principal CIT himself. This is in direct contradiction to the· aforesaid case law. That being so, the order under appeal is not sustainable in law. The same is accordingly quashed. Consequently, the AO's order is sustained.

15. In view of the above. nothing further survives for adjudication nor anything was argued before us.

16. In the result, the appeal of the assessee is allowed .