high court of judicature for rajasthan bench at...

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR

D.B. Income Tax Appeal No. 20 / 2016

Shri Laxmi Narayan, Near Khor Darwaja Mori Walon Ki Dhani,Amer Road, Jaipur.

----Appellant

Versus

Commissioner of Income Tax, Jaipur II, New Central RevenueBuilding, Statue Circle, C-Scheme, Jaipur-302001.

----Respondent

Connected With

D.B. Income Tax Appeal No. 118 / 2017 Through L/H Shravan Lal Meena Late Sh. Bhagwanta Meena, S/o Shri Dungar, Village Bhankrota, Tehsil, Sanganer, Jaipur.

----Appellant

Versus

The Income Tax Officer, Ward 7(2), Jaipur

----Respondent

D.B. Income Tax Appeal No. 136 / 2017 Sh. Mahadev Balai, Village-Narrottampura, Tehsil-Sanganer, District-Jaipur.

----Appellant

Versus

The Income Tax Officer, Ward 7(2), Behind Vidhan Sabha, Lal Kothi, Jaipur.

----Respondent

_____________________________________________________

For Appellant(s) : Mr. Gunjan Pathak with Ms Ishita Rawat

For Respondent(s) : Mr. Prateek Kedawat and K.D. Mathur for Mr. R.B. Mathur

_____________________________________________________

HON'BLE MR. JUSTICE K.S. JHAVERI

HON'BLE MR. JUSTICE VIJAY KUMAR VYAS

Judgment

http://www.itatonline.org

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07/11/2017

1. In all these appeals common question of law and facts are

involved hence they are decided by this common judgment.

2. By way of appeal no.20/2016, the appellant has assailed the

judgment and order of the tribunal whereby tribunal has dismissed

the appeal of the assessee. In appeal No.118/2017, the tribunal

has partly allowed the appeal filed by the assessee and in appeal

no.136/2017, the tribunal has partly allowed the appeal of the

assessee.

3. This court while admitting the appeals framed following

substantial questions of law:-

Appeal no.20/2016 admitted on 25.03.2017

“Whether the Income Tax Appellate Tribunal,Jaipur was justified in law in upholding the orderpassed by the respondent under Section 263,when the original assessment order was passedby the Assessing Officer under Section 143(3) ofthe Income Tax Act, 1961, after due verification ofall the documents on record which is merelychange of opinion and nothing else?

Appeal No.118/2016 admitted on 17.05.2017

“Whether the Ld. ITAT was justified in disallowingthe exemption under Section 54B of the actwithout appreciating that the funds utilized for theinvestment for purchase of the property eligibleunder Section 54B belonged to the Appellant onlyand merely the registered document wasexecuted in the name of the wife and further, thewife had no separate source of income?

Appeal No.136/2017 admitted on 19.5.2017

“Whether the Ld. ITAT was justified in disallowingthe exemption under Section 54B of the actwithout appreciating that the funds utilized for theinvestment for purchase of the property eligible


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under Section 54B belonged to the Appellant onlyand merely the registered document wasexecuted in the name of the wife and further, thewife had no separate source of income? “

4. The facts of the case are that the assessee filed its return of

income on 24.08.2009 declaring total income of Rs.2,18,610/-

which includes income from long term capital gain on sale of

agricultural land at Rs.31,500/-. The assessment was completed

u/s 143(3) dated 05.10.2011 at total income of Rs.3,87,830/- by

assessing the income from long term capital gain at Rs.2,00,219/-

. For enhancing the income under the head long term capital gain,

the AO observed that (i) sales consideration of the land as per the

provision of section 50C is Rs.55,13,599/- as against Rs.55.00

lacs claimed by the assessee (ii) the assessee has claimed

brokerage expenses of Rs.1 lacs but has failed to prove the source

of it (iii) the assessee has claimed deduction u/s 54B at

Rs.43,50,000/- which includes Rs.11 lacs incurred on construction

of boring & pipe, rooms, boundary walls and stamp duty but has

proved the source of Rs.10,44,880/- only. The AO finally assessed

total income at Rs. 3,87,330/- which includes salary income of Rs.

2,12,340, capital gain of Rs. 2,00,219/- and income from other

sources at Rs.47,817/-. The ld. CIT-II, Jaipur had examined the

assessment and found that the order of the AO dated 5-10-2011

is erroneous and prejudicial to the interest of Revenue.

5. Counsel for the appellant has taken us to the provisions of

Section 54B & 54F which reads as under:-


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54B. (1) Subject to the provisions of sub-section(2), where the capital gain arises from thetransfer of a capital asset being land which, inthe two years immediately preceding the date onwhich the transfer took place, was being used bythe assessee being an individual or his parent, ora Hindu undivided family for agriculturalpurposes (hereinafter referred to as the originalasset), and the assessee has, within a period oftwo years after that date, purchased any otherland for being used for agricultural purposes,then, instead of the capital gain being charged toincome-tax as income of the previous year inwhich the transfer took place, it shall be dealtwith in accordance with the following provisionsof this section, that is to say,—

(i) if the amount of the capital gain is greaterthan the cost of the land so purchased(hereinafter referred to as the new asset), thedifference between the amount of the capitalgain and the cost of the new asset shall becharged under section 45 as the income of theprevious year; and for the purpose of computingin respect of the new asset any capital gainarising from its transfer within a period of threeyears of its purchase, the cost shall be nil; or

(ii) if the amount of the capital gain is equal toor less than the cost of the new asset, the capitalgain shall not be charged under section 45; andfor the purpose of computing in respect of thenew asset any capital gain arising from itstransfer within a period of three years of itspurchase, the cost shall be reduced, by theamount of the capital gain.

(2) The amount of the capital gain which is notutilised by the assessee for the purchase of thenew asset before the date of furnishing thereturn of income under section 139, shall bedeposited by him before furnishing such return[such deposit being made in any case not laterthan the due date applicable in the case of theassessee for furnishing the return of incomeunder sub-section (1) of section 139] in anaccount in any such bank or institution as may bespecified in, and utilised in accordance with, anyscheme which the Central Government may, bynotification in the Official Gazette, frame in thisbehalf and such return shall be accompanied byproof of such deposit; and, for the purposes ofsub-section (1), the amount, if any, already


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utilised by the assessee for the purchase of thenew asset together with the amount so depositedshall be deemed to be the cost of the new asset :

Provided that if the amount deposited under thissub-section is not utilised wholly or partly for thepurchase of the new asset within the periodspecified in sub-section (1), then,—

(i) the amount not so utilised shall be chargedunder section 45 as the income of the previousyear in which the period of two years from thedate of the transfer of the original asset expires;and

(ii) the assessee shall be entitled to withdrawsuch amount in accordance with the schemeaforesaid.

'54F. Capital gain on transfer of certain. capitalassets not to be charged in case of investment inresidential house.—(1) Where, in the case of anassessee being an individual, the capital gainarises from the transfer of any long-term capitalasset, not being a residential house (hereafter inthis section referred to as the original asset), andthe assessee has, within a period of one yearbefore or after the date on which the transfertook place purchased, or has within a period ofthree years after that date constructed, aresidential house (hereafter in this sectionreferred to as the new asset), the capital gainshall be dealt with in accordance with thefollowing provisions of this section, that is to say,—

(a) if the cost of the new asset is not less thanthe net consideration in respect of the originalasset, the whole of such capital gain shall not becharged under section 45;

(b) if the cost of the new asset is less than thenet consideration in respect of the original asset,so much of the capital gain as bears to the wholeof the capital gain the same proportion as thecost of the new asset bears to the netconsideration, shall not be charged under section45:

Provided that nothing contained in this sub-section shall apply where the assessee owns onthe date of the transfer of the original asset, orpurchases, within the period of one year aftersuch date, or constructs, within the period of


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three years after such date, any residentialhouse, the income from which is chargeableunder the head "Income from house property",other than the new asset.

Explanation.—For the purposes of this section,—(i) "long-term capital asset" means a capitalasset which is not a short-term capital asset;

(ii) "net consideration", in relation to the transferof a capital asset, means the full value of theconsideration received or accruing as a result ofthe transfer of the capital asset as reduced byany expenditure incurred wholly and exclusivelyin connection with such transfer.

(2) Where the assessee purchases, within theperiod of one year after the date of the transferof the original asset, or constructs, within theperiod of three years after such date, anyresidential house, the income from which ischargeable under the head "Income from houseproperty", other than the new asset, the amountof capital gain arising from the transfer of theoriginal asset not changed under section 45 onthe basis of the cost of such new asset asprovided in clause (a), or, as the case may be,clause (b), of sub-section (1), shall be deemed tobe income chargeable under the head "Capitalgains" relating to long-term capital assets of theprevious year in which such residential house ispurchased or constructed.

(3) Where the new asset is transferred within aperiod of three years from the date of itspurchase or, as the case may be, its construction,the amount of capital gain arising from thetransfer of the original asset not charged undersection 45 on the basis of the cost of such newasset as provided in clause, (a) or, as the casemay be, clause (b), of sub-section (I) shall bedeemed to be income chargeable under the head"Capital gains" relating to long-term capitalassets of the previous year in which such newasset is transferred.'.

5.1 He contended that in view of the decisions of different High

Courts:-


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1. MALABAR INDUSTRIAL CO. LTD. vs.COMMISSIONER OF INCOME TAX (SC)(2000) 243 ITR 0083

5. To consider the first contention, it will be apt toquote section 263(1) which is relevant for ourpurpose :

"263. Revision of orders prejudicial to revenue- (1) The Commissioner may call for and examinethe record of any proceeding under this Act, and ifhe considers that any order passed therein by theassessing officer is erroneous insofar as it isprejudicial to the interests of the revenue, hemay, after giving the assessee an opportunity ofbeing heard and after making or causing to bemade such inquiry as he deems necessary, passsuch order thereon as the circumstances of thecase justify, including an order enhancing ormodifying the assessment, or cancelling theassessment and directing a fresh assessment.

Explanation - * * *"

A bare reading of this provision makes it clearthat the prerequisite to exercise of jurisdiction bythe Commissioner suo moto under it, is that theorder of the Income Tax Officer is erroneousinsofar as it is prejudicial to the interests of therevenue. The Commissioner has to be satisfied oftwin conditions, namely, (i) the order of theassessing officer sought to be revised iserroneous; and (ii) it is prejudicial to the interestsof the revenue. If one of them is absent - if theorder of the Income Tax Officer is erroneous but isnot prejudicial to the revenue or if it is noterroneous but is prejudicial to the revenue -recourse cannot be had to section 263(1) of theAct.

There can be no doubt that the provision cannotbe invoked to correct each and every type ofmistake or error committed by the assessingofficer, it is only when an order is erroneous thatthe section will be attracted. An incorrectassumption of facts or an incorrect application oflaw will satisfy the requirement of the order beingerroneous. In the same category fall orderspassed without applying the principles of naturaljustice or without application of mind.

The phrase 'prejudicial to the interests of therevenue' is not an expression of art and is notdefined in the Act. Understood in its ordinarymeaning it is of wide import and is not conferred


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to loss of tax. The High Court of Calcutta inDawjee Dadabhoy & Co. v. S.P. Jain & Anr. :[1957] 31 ITR 872 (Cal) , the High Court ofKarnataka in CIT v. T. Narayana Pai : [1975] 98ITR 422 (KAR) , the High Court of Bombay in CITv. Gabriel India Ltd. : [1993] 203 ITR 108 (Bom)and the High Court of Gujarat in CIT v. Smt.Minalben S. Parikh : [1995] 215 ITR 81 (Guj)treated loss of tax as prejudicial to the interestsof the revenue.

2. Commissioner of Income Tax vs. GanpatRam Bishnoi ( RAJHC) (2008) 296 ITR 0292

11. Undoubtedly, the jurisdiction under Section263 is wide and is meant to ensure that duerevenue ought to reach the public treasury and ifit does not reach on account of some mistake oflaw or fact committed by the AO, the CIT cancancel that order and require the concerned AO topass a fresh order in accordance with law afterholding a detailed enquiry. But when enquiry infact has been conducted and the AO has reacheda particular conclusion, though reference to suchenquiries has not been made in the order of theassessment, but the same is apparent from therecord of the proceedings, in the present case,without anything to say how and why the enquiryconducted by the AO was not in accordance withlaw, the invocation of jurisdiction by the CIT wasunsustainable. As the exercise of jurisdiction bythe CIT is founded on no material, it was liable tobe set aside. Jurisdiction under Section 263cannot be invoked for making short enquiries orto go into the process of assessment again andagain merely on the basis that more enquiryought to have been conducted to find something.

3. Commissioner of Income Tax vs. SunbeamAuto Ltd. (DELHC) : (2011) 332 ITR 0167

12. We have considered the rival submissions ofthe counsel on the other side and have gonethrough the records. The first issue that arises forour consideration is about the exercise of powerby the Commissioner of Income Tax under Section263 of the Income Tax Act. As noted above, thesubmission of learned Counsel for the Revenuewas that while passing the assessment order, theAO did not consider this aspect specificallywhether the expenditure in question was revenueor capital expenditure. This argument predicateson the assessment order, which apparently does


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not give any reasons while allowing the entireexpenditure as Revenue expenditure. However,that by itself would not be indicative of the factthat the AO had not applied his mind on the issue.There are judgments galore laying down theprinciple that the AO in the assessing order is notrequired to give detailed reason in respect of eachand every item of deduction, etc. Therefore, onehas to see from the record as to whether therewas application of mind before allowing theexpenditure in question as revenue expenditure.Learned Counsel for the assessee is right in hissubmission that one has to keep in mind thedistinction between "lack of inquiry" and"inadequate inquiry". If there was any inquiry,even inadequate that would not by itself giveoccasion to the Commissioner to pass ordersunder Section 263 of the Act, merely because hehas different opinion in the matter. It is only incases of "lack of inquiry" that such a course ofaction would be open. In Gabriel India Ltd.(Supra), law on this aspect was discussed in thefollowing manner:

xxx.... From a reading of Sub-section (1) ofsection, it is clear that the power of suo moturevision can be exercised by the Commissioneronly if, on examination of the records of anyproceedings under this Act, he considers that anyorder passed therein by the Income Tax Officer is"erroneous in so far as it is prejudicial to theinterests of the Revenue". It is not an arbitrary orunchartered power. It can be exercised only onfulfilment of the requirements laid down in Sub-section (1). The consideration of theCommissioner as to whether an order iserroneous in so far as it is prejudicial to theinterests of the Revenue, must be based onmaterials on the record of the proceedings calledfor by him. If there are no materials on record onthe basis of which it can be said that theCommissioner acting in a reasonable mannercould have come to such a conclusion, the veryinitiation of proceedings by him will be illegal andwithout jurisdiction. The Commissioner cannotinitiate proceedings with a view to starting fishingand roving enquiries in matters or orders whichare already concluded. Such action will be againstthe well-accepted policy of law that there must bea point of finality in all legal proceedings, thatstale issues should not be reactivated beyond aparticular stage and that lapse of time mustinduce repose in and set at rest judicial and


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quasi-judicial controversies as it must in otherspheres of human activity. (See ParashuramPottery Works Co. Ltd. v. ITO : [1977] 106 ITR 1(SC) at page 10).

x x x

From the aforesaid definitions it is clear that anorder cannot be termed as erroneous unless it isnot in accordance with law. If an Income TaxOfficer acting in accordance with law makes acertain assessment, the same cannot be brandedas erroneous by the Commissioner simplybecause, according to him, the order should havebeen written more elaborately This section doesnot visualise a case of substitution of thejudgment of the Commissioner for that of theIncome Tax Officer, who passed the order unlessthe decision is held to be erroneous. Cases maybe visualised where the Income Tax Officer whilemaking an assessment examines the accounts,makes enquiries, applies his mind to the facts andcircumstances of the case and determines theincome either by accepting the accounts or bymaking some estimate himself. TheCommissioner, on perusal of the records, may beof the opinion that the estimate made by theofficer concerned was on the lower side and left tothe Commissioner he would have estimated theincome at a figure higher than the onedetermined by the Income Tax Officer. That wouldnot vest the Commissioner with power to re-examine the accounts and determine the incomehimself at a higher figure. It is because theIncome Tax Officer has exercised the quasi-judicial power vested in him in accordance withlaw and arrived at conclusion and such aconclusion cannot be termed to be erroneoussimply because the Commissioner does not feelsatisfied with the conclusion.

x x x

There must be some prima facie material onrecord to show that tax which was lawfully eligiblehas not been imposed or that by the applicationof the relevant statute on an incorrect orincomplete interpretation a lesser tax than whatwas just has been imposed.

x x x

We may now examine the facts of the presentcase in the light of the powers of theCommissioner set out above. The Income TaxOfficer in this case had made enquiries in regard


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to the nature of the expenditure incurred by theassessee. The assessee had given detailedexplanation in that regard by a letter in writing.All these are part of the record of the case.Evidently, the claim was allowed by the IncomeTax Officer on being satisfied with the explanationof the assessee. Such decision of the Income TaxOfficer cannot be held to be "erroneous" simplybecause in his order he did not make an elaboratediscussion in that regard.…

xxx

13. When we examine the matter in the light ofthe aforesaid principle, we find that the AO hadcalled for explanation on this very item, from theassessee and the assessee had furnished hisexplanation vide letter dated 26.09.2002. Thisfact is even taken note of by the Commissionerhimself in Para 3 of his order dated 03.11.2004.This order also reproduces the reply of therespondent in Para 3 of the order in the followingmanner:

The tools and dies have a very short life andcan produce upto maximum 1 lakh permissibleshorts and have to be replaced thereafter toretain the accuracy. Most of the partsmanufactured are for the automobile industrieswhich have to work on complete accuracy at highspeed for a longer period. Since it is an ongoingprocedure, a company had produced 10,75,000sets whose selling rates is inclusive of thereimbursement of the dies cost. The purchaseorders indicating the costing includes thereimbursement of dies cost are being producedbefore your honour. Since the sale rate includesthe reimbursement of die cost and to have thematching effect, the cost of the dies has beenclaimed as a Revenue Expenditure.

14. This clearly shows that the AO hadundertaken the exercise of examining as towhether the expenditure incurred by the assesseein the replacement of dyes and tools is to betreated as revenue expenditure or not. It appearsthat since the AO was satisfied with the aforesaidexplanation, he accepted the same. The CIT in hisimpugned order even accepts this in the followingword:

AO accepted the explanation without raisingany further questions, and as stated earlier,completed the assessment at the returnedincome.


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15. Thus, even the Commissioner conceded theposition that the AO made the inquiries, elicitedreplies and thereafter passed the assessmentorder. The grievance of the Commissioner wasthat the AO should have made further inquiriesrather than accepting the explanation. Therefore,it cannot be said that it is a case of 'lack ofinquiry'.

16. Having put the records straight on this aspect,let us proceed further. Is it a case where theCommissioner has concluded that the opinion ofthe AO was clearly erroneous and not warrantedon the facts before him and, viz., the expenditureincurred was not the revenue expenditure butshould have been treated as capital expenditure?Obviously not. Even the Commissioner in hisorder, passed under Section 263 of the Act, is notclear as to whether the expenditure can betreated as capital expenditure or it is revenue innature. No doubt, in certain cases, it may not bepossible to come to a definite finding andtherefore, it is not necessary that in all cases theCommissioner is bound to express final view, asheld by this Court in Geevee Enterprise [supra].But, the least that was expected was to record afinding that order sought to be revised waserroneous and prejudicial to the interest of therevenue. [see Sashayee Paper(supra)]. No basisfor this is disclosed. In sum and substance,accounting practice of the assessee is questioned.However, that basis of the order vanishes in thinair when we find that this very accountingpractice, followed for number of years, had theapproval of the income tax authorities.Interestingly, even for future assessment years,the same very accounting practice is accepted.

18. Let us look into the matter from anotherangel. What was the material/informationavailable with the AO on the basis of which heallowed the expenditure as revenue? It wasdisclosed to him that the assessee is amanufacturer of car parts. In the manufacturingprocess, dyes are fitted in machines by which thecar parts are manufactured. These dyes are thusthe components of the machines. These dyesneed constant replacement, as their life is notmore than a year. The assessee had alsoexplained that since these parts are manufacturedfor the automobile industry, which have to workon complete accuracy at high speed for a longerperiod, replacement of these parts at short


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intervals becomes imperative to retain accuracy.Because of these reasons, these tools and dyeshave a very short span of life and it could producemaximum one lakh permissible shorts. Thereafter,they have to be replaced. With the replacement ofsuch tools and dyes, which are the components ofa machine, no new assets comes into existence,nor is their benefit of enduring nature. It does noteven enhance the life of existing machine ofwhich these tools and dyes are only parts. Noproduction capacity of the existing machines isincreased either. The Tribunal, in thesecircumstances, relied upon the judgment ofMysore Spun Concrete Pipe Pvt. Ltd. (supra),wherein Karnataka High Court held that thereplacement of moulds was not in the nature ofreplacement of a capital machinery, but in thenature of replacement a part of the machinerywhich in turn was in the nature of maintenance ofmachinery installed in the factory. Such anexpenditure was treated as revenue expenditure.With this position in law, it is clear that view takenby the AO was one of the possible views andtherefore, the assessment order passed by the AOcould not be held to be prejudicial to the revenue.Such an order thus has rightly been set aside bythe Tribunal.

21. Thus, from whatever the matter is to belooked into, the conclusion would be that theorder of the Tribunal does not call for anyinterference as the question of law has rightlybeen decided. We, thus, answer this question infavour of the assessee and against the Revenue,consequence whereof this appeal is dismissedwith cost.

4. Commissioner of Income Tax vs.Associated Food Products P. Ltd. and PopularBread Factory (MPHC) (2006) 280 ITR 0377

8. On a scanning of the anatomy of the saidprovision, it is demonstrable that certain statutorysatisfactions are to be arrived at on acceptableparameters before exercise of the saidjurisdiction. As the provision stipulates the orderpassed by the Assessing Officer should appear tobe grossly erroneous and at the same timeprejudicial to the interests of the Revenue, boththe things should exist together and they shouldnot be considered in an isolated manner; and thatthe time gap between the act and invocation ofjurisdiction and passing of the order has to betaken into consideration. The said provision has


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been considered on many occasions. In the caseof CIT v. Gabriel India Ltd. :[1993]203ITR108(Bom) a Division Bench of theBombay High Court has expressed the view asunder (page 113) :

From a reading of Sub-section (1) of Section 263,it is clear that the power of suo motu revision canbe exercised by the Commissioner only if, onexamination of the records of any proceedingsunder this Act, he considers that any order passedtherein by the Income Tax Officer is 'erroneous inso far as it is prejudicial to the interests of theRevenue'. It is not an arbitrary or uncharteredpower. It can be exercised only on fulfilment ofthe requirements laid down in sub-section (1).The consideration of the Commissioner as towhether an order is erroneous in so far as it isprejudicial to the interests of the Revenue, mustbe based on materials on the record of theproceedings called for by him. If there are nomaterials on record on the basis of which it canbe said that the Commissioner acting in areasonable manner could have come to such aconclusion, the very initiation of proceedings byhim will be illegal and without jurisdiction. TheCommissioner cannot initiate proceedings with aview to starting fishing and roving enquiries inmatters or orders which are already concluded.Such action will be against the well-acceptedpolicy of law that there must be a point of finalityin all legal proceedings, that stale issues shouldnot be reactivated beyond a particular stage andthat lapse of time must induce repose in and setat rest judicial and quasi-judicial controversies asit must in other spheres of human activity, (seeParashuram Pottery Works Co. Ltd. v. ITO :[1977]106ITR1(SC) ).

As observed in Sirpur Paper Mills Ltd. v. ITO :[1978]114ITR404(AP) by Raghuveer J. (as hisLordship then was), the Department cannot bepermitted to begin fresh litigation because of newviews they entertain on facts or new versionswhich they present as to what should be theinference or proper inference either of the factsdisclosed or the weight of the circumstances. Ifthis is permitted, litigation would have no end,'except when legal ingenuity is exhausted'. To doso, is '. . . to divide one argument into two and tomultiply the litigation '.

The power of suo motu revision under Sub-section (1) is in the nature of supervisory


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jurisdiction and the same can be exercised only ifthe circumstances specified therein exist. Twocircumstances must exist to enable theCommissioner to exercise power of revision underthis Sub-section, viz., (i) the order is erroneous ;(ii) by virtue of the order being erroneousprejudice has been caused to the interests of theRevenue. It has, therefore, to be consideredfirstly as to when an order can be said to beerroneous. We find that the expressions'erroneous', 'erroneous assessment' and'erroneous judgment' have been defined in Black'sLaw Dictionary. According to the definition,'erroneous' means 'involving error ; deviatingfrom the law'. 'Erroneous assessment' refers to anassessment that deviates from the law and is,therefore, invalid, and is a defect that isjurisdictional in its nature, and does not refer tothe judgment of the Assessing Officer in fixing theamount of valuation of the property. Similarly,'erroneous judgment' means 'one renderedaccording to course and practice of court, butcontrary to law, upon mistaken view of law, orupon erroneous application of legal principles'.

The Division Bench proceeded further to state asunder (page 116) :

We, therefore, hold that in order to exercisepower under Sub-section (1) of Section 263 of theAct there must be material before theCommissioner to consider that the order passedby the Income Tax Officer was erroneous in so faras it is prejudicial to the interests of the Revenue.We have already held what is erroneous. It mustbe an order which is not in accordance with thelaw or which has been passed by the Income TaxOfficer without making any enquiry in unduehaste. We have also held as to what is prejudicialto the interests of the Revenue. An order can besaid to be prejudicial to the interests of theRevenue if it is not in accordance with the law inconsequence whereof the lawful revenue due tothe State has not been realised or cannot berealised. There must be material available on therecord called for by the Commissioner to satisfyhim prima facie that the aforesaid two requisitesare present. If not, he has no authority to initiateproceedings for revision. Exercise of power of suomotu revision under such circumstances willamount to arbitrary exercise of power. It is well-settled that when exercise of statutory power isdependent upon the existence of certain objective


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facts, the authority before exercising such powermust have materials on record to satisfy it in thatregard. If the action of the authority is challengedbefore the court it would be open to the courts toexamine whether the relevant objective factorswere available from the records called for andexamined by such authority. Our aforesaidconclusion gets full support from a decision ofSabyasachi Mukharji J. (as his Lordship then was)in Russell Properties Pvt. Ltd. v. A. Chowdhury,Addl. CIT : [1977]109ITR229(Cal) . In ouropinion, any other view in the matter will amountto giving unbridled and arbitrary power to therevising authority to initiate proceedings forrevision in every case and start re-examinationand fresh enquiries in matters which have alreadybeen concluded under the law. As already statedit is a quasi-judicial power hedged in withlimitation and has to be exercised subject to thesame and within its scope and ambit. So far ascalling for the records and examining the same isconcerned, undoubtedly, it is an administrativeact, but on examination 'to consider' or in otherwords, to form an opinion that the particularorder is erroneous in so far as it is prejudicial tothe interests of the Revenue, is a quasi-judicialact because on this consideration or opinion thewhole machinery of re-examination andreconsideration of an order of assessment, whichhas already been concluded and controversywhich has been set at rest, is set again in motion.It is an important decision and the same cannotbe based on the whims or caprice of the revisingauthority. There must be materials available fromthe records called for by the Commissioner.

9. In view of the aforesaid pronouncement of lawand taking into consideration the languageemployed under Section 263 of the Act, it is clearas crystal that before exercise of powers tworequisites are imperative to be present. In theabsence of such foundation exercise of a suomotu power is impermissible. It should not bepresumed that initiation of power under suo moturevision is merely an administrative act. It is anact of a quasi-judicial authority and based onformation of an opinion with regard to existenceof adequate material to satisfy that the decisiontaken by the Assessing Officer is erroneous aswell as prejudicial to the interests of the Revenue.The concept of "prejudicial to the interests of theRevenue" has to be correctly and soundlyunderstood. It precisely means an order which


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has not been passed in consonance with theprinciples of law which has in ultimate eventuateaffected realisation of lawful revenue either by theState has not been realised or it has gone beyondrealisation. These two basic ingredients have tobe satisfied as sine qua non for exercise of suchpower. On a perusal of the material brought onrecord and the order passed by the Commissionerit is perceptible that the said authority has notkept in view the requirement of Section 263 ofthe Act inasmuch as the order does not reflectany kind of satisfaction. As is manifest the saidauthority has been governed by a singular factorthat the order of the Assessing Officer is wrong.That may be so but that is not enough. What wasthe sequitur or consequence of such order quaprejudicial to the interest of the Revenue shouldhave been focussed upon. That having not beendone, in our considered opinion, exercise ofjurisdiction under Section 263 of the Act is totallyerroneous and cannot withstand scrutiny. Hence,the Tribunal has correctly unsettled and dislodgedthe order of the Commissioner.

5. Commissioner of Income Tax vs. DeepakMittal (PHHC) (2010) 324 ITR 0411

3. The Assessing Officer has given a categoricalfinding that the assessee is engaged in theprocess of manufacturing of products andaccordingly he has granted concession underSection 80-IB of the Act. The Tribunal has placedreliance on a Judgment of the hon'ble theSupreme Court in the case of Textile MachineryCorporation Ltd. v. CIT : (1977) 107 ITR 195. Inthat case the assessee was engaged in themachining of raw-casting, heat treatment of raw-crank shaft and polishing of raw casting etc. andis therefore it has been held that the assessee isengaged in manufacturing or production ofarticles. Similar view was taken by the MadrasHigh Court in the case of CIT v. Perfect Liners :(1983) 142 ITR 654. The claim of the asses-seehas been found to be genuine as the assessee hasexplained the various processes after thecomponents are received from M/s. AutoComponents Indl. Corporation, Baddi (Solan). Itshows that after the receipt of components, thefirst operation undertaken by the assessee-respondent is the vertical machining centre onCNC machine which has been explained as under:


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One this CNC machine drilling, reaming,chamfering, pad milling operation are being done,with respect to dowel hole on next machineboring machine/and tapping.

After the above operation, rear cover will beready for further assembly.

In assembly, few important parts like ramcylinder, response ball, rock shaft etc. are fitted tocomplete the sub assembly. It is in respect of twotype of rear covers received after receivingmachine from Baddi.

In respect of differential housing and reductionunit, different sets of machines are there forfurther operation to make the component readyfor assembly. As at present, these twocomponents are not in stock, as such the workingof the same cannot be shown.

4. Likewise major process is completed by theassessee-respondent and the same has beenexplained in answer to various questions.

All critical machinery operation of chassis partsi.e., rear cover, differential housing and reductionunit are being done at M/s ITL, Hoshiarpur onprecision sophisticated CNC and other specialpurpose machines.

5. The Assessing Officer has also examined thevarious workers of the assessee and have thenrecorded the finding which answer the provisionsof Section 80-IB(4) of the Act.

6. Having heard the Learned Counsel at aconsiderable length, we are of the view that theorder of the Tribunal does not suffer from anylegal infirmity or give rise to any such substantivequestion of law which may warrant admission ofthe appeal. The exercise of revisional jurisdictionby the Commissioner of Income Tax is whollywithout any justification. It has rightly been heldthat change of opinion by reappraising theevidence is not within the parameter of revisionaljurisdiction of the Commissioner of Income Taxunder Section 263 of the Act. Therefore, theappeal fails and the same is dismissed.

6. CIT vs. International Travel House Ltd.,(2012) 344 ITR 0554 (Del)

13. It has to be kept in mind that while exercisingpower under Section 263 of the Act, theCommissioner has to be satisfied that the order isprejudicial to the interest of the revenue and


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there are materials available on record whichrequire the Commissioner to satisfy him in aprima facie manner that the order is not onlyprejudicial to the interest of the revenue but alsoerroneous in nature. In the absence of any of thefactors being satisfied, he does not assumejurisdiction to initiate a suo motu power ofrevision. The exercise of such a power isdependent on the conditions precedent beingsatisfied. The Commissioner does not haveunfettered power to initiate proceeding byrevision, re-examining the matter and directingfresh on his own whim for change or having adifferent view. He has been conferred with aquasi-judicial power and the same is hedged withlimitation and, therefore, it has to be exercisedwithin the parameters of the provision. When theCommissioner is himself not able to form anopinion, he cannot direct another inquiry by theassessing officer under Section 263 of the Act. Inthis regard, we may profitably reproduce apassage from Associated Food Products P. Ltd.(supra):

"10. In view of the aforesaid pronouncement oflaw and taking into consideration the languageemployed under section 263 of the Act, it is clearas crystal that before exercise of powers tworequisites are imperative to be present. In theabsence of such foundation exercise of a suomotu power is impermissible. It should not bepresumed that initiation of power under suo moturevision is merely an administrative act. It is anact of a quasi-judicial authority and based onformation of an opinion with regard to existenceof adequate material to satisfy that the decisiontaken by the Assessing Officer is erroneous aswell as prejudicial to the interests of the Revenue.The concept of "prejudicial to the interests of theRevenue" has to be correctly and soundlyunderstood. It precisely means an order whichhas not been passed in consonance with theprinciples of law which has in ultimate eventuateaffected realisation of lawful revenue either by theState has not been realised or it has gone beyondrealisation. These two basic ingredients have tobe satisfied as sine qua non for exercise of suchpower. On a perusal of the material brought onrecord and the order passed by the Commissionerit is perceptible that the said authority has notkept in view the requirement of section 263 of theAct inasmuch as the order does not reflect anykind of satisfaction. As is manifest the said





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authority has been governed by a singular factorthat the order of the Assessing Officer is wrong.That may be so but that is not enough. What wasthe sequitur or consequence of such order quaprejudicial to the interest of the Revenue shouldhave been focussed upon. That having not beendone, in our considered opinion, exercise ofjurisdiction under section 263 of the Act is totallyerroneous and cannot withstand scrutiny. Hence,the Tribunal has correctly unsettled and dislodgedthe order of the Commissioner."

14. In Commissioner of Income-tax v. ArvindJewellers [2003] 259 ITR 502 (Guj.), it has beenheld thus:

"Coming to the facts of the present case, it is thefinding of fact given by the Tribunal that theassessee has produced relevant material andoffered explanations in pursuance of the noticesissued under section 142(1) as well as section143(2) of the Act and after considering thematerials and explanation, the Income-tax Officerhas come to a definite conclusion. TheCommissioner of Income-tax did not agree withthe conclusion reached by the Income-tax Officer.Section 263 of the Act does not empower him totake action on these facts to arrive at theconclusion that the order passed by the Income-tax Officer is erroneous and prejudicial to theinterests of the Revenue. Since the material wasthere on record and the said material wasconsidered by the Income-tax Officer and aparticular view was taken, the mere fact that adifferent view can be taken, should not be thebasis for an action under section 263 of the Actand it cannot be held to be justified."

7. Commissioner of Income Tax vs. MehrotraBrothers (MPHC) (2004) 270 ITR 0157

2. To appreciate the aforesaid questions of lawwhich are urged to be substantial questions oflaw, we have perused the order passed by theCommissioner of Income Tax (Appeals) as well asthat of the Income Tax Appellate Tribunal. TheTribunal in paragraph 10 of the order dwelt uponthe facts and came to hold as under :

"10. We have considered the citations relied onby both the parties and concluded that when theassessee has furnished requisite information andthe Income Tax Officer has .considered therecords before him and completed the assessment










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after considering the evidence filed and after hissatisfaction about the genuineness of cashcredits, the order of revision under Section 263on vague ground that the Assessing Officer didnot make proper enquiry is not valid (CIT v.Ratlam Coal Ash Co. [1988] 171 ITR 141). Theassessee furnished GIR/PAN number, address,confirmation from the creditors, the assessee hasdischarged the burden to prove the genuinenessof parties and transaction in addition to thecapacity satisfactorily as such there is no groundfor addition (Addl. CIT v. Hanuman Agarwal:[1985]151ITR150(Patna) ). In this regard theDepartment also has not brought any material todisprove the genuineness of the parties, capacityof the lenders and transactions on the basis ofcogent facts on record. The hon'ble SupremeCourt in the case of CIT v. Orissa Corporation P.Ltd. : [1986]159ITR78(SC) : 'Held, that in thiscase the respondent had given the names andaddresses of the alleged creditors. It was in theknowledge of the Revenue that the said creditorswere Income Tax assessees. Their index numberswere in the file of the Revenue. The Revenueapart from issuing notices under Section 131 atthe instance of the respondent, did not pursue thematter further. The Revenue did not examine thesource of income of the said alleged creditors tofind out whether they were credit worthy. Therewas no effort made to pursue the so calledalleged creditors. In those circumstances, therespondent could not do anything further. In thepremises, if the Tribunal came to the conclusionthat the respondent had discharged the burdenthat lay on it, then it could not be said that such aconclusion was unreasonable or perverse or basedon no evidence.'

3. The decisions of the Patna High Court in thecase of CIT v. Ram Prasad Ram Bhagat :[1987]163ITR202(Patna) ; Addl. CIT v. BahriBrothers (P.) Ltd. : [1985]154ITR244(Patna) ,the Allahabad High Court in the case of SundarLal Jain v. CIT : [1979]117ITR316(All) ; ShankarIndustries v. CIT : [1978]114ITR689(Cal) andthe Madhya Pradesh High Court in the case of CITv. Shiv Shakti Timbers : [1998]229ITR505(MP) ;CIT v. Shanti Swarup ; CIT v. Ram Narain Goel ;Instrumed (India) International v. ITO [1999] 63TTJ(Delhi) 191 assist the claim of the assessee.The assessee has explained satisfactorily the cashcredits in the books of account of the firm anddischarged the burden. The Department has not


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brought out material or evidence to rebut thesame. As such the cash credits are not the incomeof the firm."

4. In view of the aforesaid finding of fact we areof the considered view that no substantialquestion of law is involved in this appeal.

8. Commissioner of Income Tax vs. RatlamCoal Ash Company (MPHC) (1988) 171 ITR0141

4. Having heard learned counsel for the parties,we have come to the conclusion that thisreference must be answered in the affirmativeand in favour of the assessee. It is well settledthat where the Income Tax Officer made theassessment in undue hurry, accepting what theassessee stated in the return without making anyenquiries, in the circumstances of the case, theCommissioner would be justified in holding theorder of the Income Tax Officer to be erroneous.In the instant case, however, the Tribunal hasfound that the assessee had furnished all therequisite information and that the Income TaxOfficer, considering, all the facts, had completedthe assessment. The Tribunal further held that inthe circumstances of the case, it could not be heldthat the Income Tax Officer had made theassessment without making proper enquiries. Inview of these findings, the Tribunal, in ouropinion, was justified in law in reversing the orderpassed by the Commissioner of Income Tax.

9. Commissioner of Income Tax vs. DLFPower Ltd. (DELHC) (2010) 329 ITR 02889

17. In fact, having regard to the law on the point,as clarified by the Supreme Court in HCL Comnet(supra), it seems that only one view is possible.In a situation like this, under no circumstance,order under Section 263 could be passed to revisethe order passed by the AO, as observed by thisCourt in Vimgi Investment (P) Ltd. (supra) in thefollowing words:

We find that in so far as the present case isconcerned, only one view is possible and that wastaken by the Assessing Officer and that view wasvalid with reference to the assessment year 2001-02. Therefore, there was no occasion for theCommissioner to exercise his powers underSection 263 of the Act to revise the order passedby the Assessing Officer and tax the assessed on


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the ground that the transaction was an attempt toavoid tax. The purchase and sale of units by theassessed was undoubtedly bona fide and this wasaccepted by the Assessing Officer. Under thesecircumstances, the question of the Commissionerinvoking his powers under Section 263 of the Actwould not arise. Following the decision of thisCourt in Vikram Aditya and Associates P. Ltd. case: [2006] 287 ITR 268 (Delhi), we find nosubstance on the merits of the case.

In any event, in view of the decision of theSupreme Court in Malabar Industrial Co. Ltd. case: [2000] 243 ITR 83 the exercise of power by theCommissioner under Section 263 of the Act is notwarranted, if it is assumed that two views arepossible on the issue.

18. Further, even if two views were possible, andthe view taken by the AO was plausible one, it bythe CIT, that would not provide sufficient groundfor the CIT to assume jurisdiction under Section263 of the Act merely because he had a differentview in Malabar Industrial Co. (supra), theSupreme Court gave the following interpretationto this provision:

A bare reading of this provision makes it clearthat the prerequisite to exercise of jurisdiction bythe Commissioner suo moto under it, is that theorder of the Income Tax Officer is erroneousinsofar as it is prejudicial to the interests of therevenue. The Commissioner has to be satisfied oftwin conditions, namely, (i) the order of theassessing officer sought to be revised iserroneous; and (ii) it is prejudicial to the interestsof the revenue. If one of them is absent - if theorder of the Income Tax Officer is erroneous but isnot prejudicial to the revenue or if it is noterroneous but is prejudicial to the revenue -recourse cannot be had to Section 263(1) of theAct. The provision cannot be invoked to correcteach and every type of mistake or errorcommitted by the assessing officer, it is only whenan order is erroneous that the Section will beattracted. An incorrect assumption of facts or anincorrect application of law will satisfy therequirement of the order being erroneous. In thesame category fall orders passed without applyingthe principles of natural justice or withoutapplication of mind. The phrase 'prejudicial to theinterests of the revenue' is not an expression ofart and is not defined in the Act. Understood in itsordinary meaning it is of wide import and is not


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conferred to loss of tax. The scheme of the Act isto levy and collect tax in accordance with theprovisions of the Act and this task is entrusted tothe revenue. If due to an erroneous order of theIncome Tax Officer, the revenue is losing taxlawfully payable by a person, it will certainly beprejudicial to the interests of the revenue. Thephrase 'prejudicial to the interests of the revenue'has to be read in conjunction with an erroneousorder passed by the assessing officer. Every lossof revenue as a consequence of an order ofassessing officer cannot be treated as prejudicialto the interests of the revenue, for example, whenan Income Tax Officer adopted one of the coursespermissible in law and it has resulted in loss ofrevenue; or where two views are possible and theIncome Tax Officer has taken one view with whichthe Commissioner does not agree, it cannot betreated as an erroneous order prejudicial to theinterests of the revenue unless the view taken bythe Income Tax Officer is unsustainable in law.

19. Question of law Nos. (1) and (3), thus, standanswered in favour of the assessee and againstthe Revenue, which would result in dismissal ofthe present appeal. We, accordingly, dismiss theappeal with costs quantified at Rs. 25,000/-.

10. Commissioner of Income Tax vs. HondaSiel Power Products Ltd. (DELHC) (2011)333 ITR 0547

18. From the aforesaid discussion, it is apparentthat the expression prejudicial to the interest ofrevenue appearing in Section 263 has to be readin conjunction with the expression 'erroneous' andthat every loss of revenue as a consequence of anorder of the Assessing Officer cannot be treatedas prejudicial to the interest of the revenue. Incases where the Assessing Officer adopts one ofthe courses permissible in law or where two viewsare possible and the Income Tax Officer has takenone view, the Commissioner of Income Tax cannotexercise his powers under Section 263 to differwith the view of the Assessing Officer even ifthere has been a loss of revenue. Of course, if theAssessing Officer takes a view which is patentlyunsustainable in law, the Commissioner of IncomeTax can exercise his powers under Section 263where a loss of revenue results as a consequenceof the view adopted by the Assessing Officer. It isalso clear that while passing an order underSection 263, the Commissioner of Income Tax has


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to examine not only the assessment order, butthe entire record of the profits. Since theassessee has no control over the way anassessment order is drafted and since, generally,the issues which are accepted by the AssessingOfficer do not find mention in the assessmentorder and only those points are taken note of onwhich the assessee's explanations are rejectedand additions / disallowances are made, the mereabsence of the discussion of the provisions ofSection 80IB(13) read with Section 80IA(9) wouldnot mean that the Assessing Officer had notapplied his mind to the said provisions. As pointedout in Kelvinator of India (supra), when a regularassessment is made under Section 143(3), apresumption can be raised that the order hasbeen passed upon an application of mind. Nodoubt, this presumption is rebuttable, but theremust be some material to indicate that theAssessing Officer had not applied his mind.

23. In the facts of the present case, we find thatthere is no material to indicate that the AssessingOfficer had not applied his mind to the provisionsof Section 80IB(13) read with Section 80IA(9).The presumption that the assessment orderspassed under Section 143(3) passed by theAssessing Officer had been passed upon anapplication of mind, has not been rebutted by therevenue. No additional facts were necessarybefore the Assessing Officer for the purpose ofconstruing the provisions of Section 80IB(13)read with Section 80IA(9). It was only a legalconsideration as to whether the deduction underSection 80HHC was to be computed after reducingthe amount of deduction under Section 80IB fromthe profits and gains. There is no doubt that theAssessing Officer had allowed the deduction underSection 80HHC without reducing the amount ofdeduction allowed under Section 80IB from theprofits and gains. He did not say so in so manywords, but that was the end result of hisassessment order. Since he was holding in favourof the assessee, as has been observed in HariIron Trading Company (supra) and Eicher Limited(supra), generally, the issues which are acceptedby the Assessing Officer, do not find mention inthe assessment order, it cannot be said that theAssessing Officer had not applied his mind. Itcannot also be said that the Assessing Officer hadfailed to make any enquiry because no furtherenquiry was necessary and all the facts werebefore the Assessing Officer. Consequently, we are


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of the view that the decisions cited by the learnedCounsel for the revenue, wherein assessmentorders were found to be erroneous for want of anenquiry or proper enquiry, would have noapplication to the present appeals. It is also truethat the validity of an order under Section 263has to be tested with regard to the position of lawas it exists on the date on which such an order ismade by the Commissioner of Income Tax. Fromthe narration of facts in the Tribunals order, it isclear that on the date when the Commissioner ofIncome Tax passed his orders under Section 263,the view taken by the Assessing Officer was inconsonance with the views taken by severalbenches of the Income Tax Appellate Tribunal.Therefore, the conclusion of the Tribunal that theCommissioner of Income Tax could not haveinvoked his jurisdiction under Section 263 of thesaid Act was correct. As a result, we answer thequestion against the revenue and in favour of theassessee by holding that the Income TaxAppellate Tribunal was correct in law in cancellingthe order passed by the Commissioner of IncomeTax under Section 263 and in restoring the orderof the Assessing Officer by holding that theAssessing Officer had taken a possible view at therelevant point of time. The appeals areaccordingly dismissed. There shall be no order asto costs.

11. The Commissioner of Income Tax-XIIIvs. Shri Ashish Rajpal (DELHC) (2010) 320ITR 0674

17. This brings us to another aspect of the matter,which is that even though the notice dated11.05.2006 issued by the Commissioner beforecommencing the proceedings under Section 263of the Act referred to four issues, the final orderdated 18/19.01.2007 passed referred to nineissues, some of which obviously did not findmention in the earlier notice and hence resulted inthe proceedings being vitiated as a result of thebreach of the principles of natural justice.

17.1 As observed by us above, there is norequirement under Section 263 of the Act to issuea notice before embarking upon a revisionaryproceedings. To that extent the submission of thelearned Counsel for the Revenue Mr. SanjeevSabharwal has to be accepted. What is mandatedunder Section 263 of the Act is that once theCommissioner calls for and examines the record,


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pertaining to the assessee, and forms a primafacie view that the order passed by the AssessingOfficer is both erroneous and prejudicial to theinterest of the Revenue, he is obliged to afford anopportunity to the assessee before passing anorder, to the prejudice of the assessee. In theinstant case, the Commissioner sought to accordsuch an opportunity to the assessee by puttinghim to notice as regards aspects which theAssessing Officer had failed to scrutinize. Duringthe course of the revisionary proceedings this wasconveyed to the assessee by way of a noticedated 11.05.2006. It is not disputed that in theorder dated 18/19.01.2007 the Commissioner hasreferred to certain other issues which did not formpart of the initial notice dated 11.05.2006. To ourminds it was always open to the Commissioner toput such issues/discrepancies, found by himbased on material on record, to the assessee. It isto be noted, however, that the learned Counsel forthe assessee vehemently denied that theassessee had been given any opportunity to meetissues other than those to which reference hasbeen made in the Commissioner's notice dated11.05.2006. For this purpose, the learned Counselfor the assessee sought to place reliance on theimpugned judgment passed by the Tribunal,wherein this aspect of the matter has beendiscussed elaborately. In order to satisfyourselves we called upon learned Counsel for theRevenue Mr. Sanjeev Sabharwal to place onrecord any communication, order or any otherdocument which would show that the assesseehad been given an opportunity to deal with thoseaspects which did not form part of the initialnotice dated 11.05.2006, but were taken intoaccount by the Commissioner while passing hisorder dated 18/19.01.2007. In this regard, thelearned Counsel for the Revenue placed on recordorder sheet entries of the proceedings conductedby the Commissioner. We have already extractedthe order sheet entries commencing from15.06.2005 to 28.06.2006. A perusal of thoseentries would clearly demonstrate that there isnothing on record which would show that theassessee was given an opportunity to respond tothese discrepancies which formed part of theorder-in-Revision dated 18/19.01.2007 but werenot part of notice dated 11.05.2006. This was putto the learned Counsel for the Revenue, who inresponse fairly conceded that there was nothingon record which would establish the contrary. It


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was, however, urged by the learned Counsel forthe Revenue Mr. Sanjeev Sabharwal that theassessee would have his opportunity to givesatisfactory replies to the discrepancies raised inthe Revisional Order before the Assessing Officerand that such an opportunity would meet therequirements of the provision. We are afraid thatthat is not the position envisaged in law. If onewere to permit correction of such a grievous errorin the manner suggested it would tantamount to,in a manner of speaking, closing the stable doorsafter the horse has bolted. The assessments,unless reopened by paying faithful obeisance tostatutory provisions and conditionalities providedtherein, attain finality on their conclusion. Theprovisions of Section 263 mandate that an orderfor enhancing, or modifying the assessment, orcancelling the assessment and directing a freshassessment can only be passed after giving theassessee an opportunity of being heard and aftermaking or causing to be made such enquiry as isdeemed necessary. The threshold condition forreopening the assessment is that before passingan order an opportunity has to be granted to theassessee and, such an opportunity granted to theassessee is a necessary concomitant of theenquiry the Commissioner is required to conductto come to a conclusion that an order for eitheran enhancement or modification of theassessment or, as in the present case, an orderfor cancellation of the assessment is called for,with a direction to Assessing Officer to make afresh assessment. This defect cannot be cured byfirst reopening the assessment and then grantingan opportunity to the assessee to respond to theissues raised before Assessing Officer during thecourse of fresh assessment proceedings. Tobuttress his submission the learned Counsel forthe Revenue has relied upon the judgment of theSupreme Court in the case of Rampyari DeviSaraogi v. CIT, West Bengal and Ors. :[1968]67ITR84(SC) . This is a case in which, theorder issued by the Commissioner, itself revealedthat the assessment was being reopened basedon an additional supporting material. TheSupreme Court in such fact situation thus ruledthat non supply of additional supporting materialwould not effect the basic issue of assessmentbeing carried out without adequate investigation.In the instant case the Order-in-Revision refers toissues and discrepancies which did not findmention in the initial notice dated 11.05.2006 and


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not to additional or supporting material as in thecase of Rampyari Devi (supra). Therefore, tosuggest that it would be sufficient compliance ofthe provisions of Section 263 of the Act, if anopportunity to respond to the discrepanciesmentioned in the Order-in-Revision is given to theassessee in reassessment proceedings before theAssessing Officer, is according to us is completelyuntenable. It is the requirement of Section 263 ofthe Act that the assessee must have anopportunity of being heard in respect of thoseerrors which the Commissioner proposes torevise. To accord an opportunity after settingaside the assessment order, would in our view notmeet the mandate the Section 263 of the Act. Ifsuch an interpretation is accepted it would makelight of the finality accorded to an assessmentorder which cannot be reopened unless dueadherence is made to the conditionalitiesincorporated in the provisions of the Act inrespect of such powers vested in the Revenue.

12. CIT vs. Chambal Fertilizers & ChemicalsLtd., (2014) 360 ITR 0225 (RAJHC)

19. Revisional powers conferred on theCommissioner under Section 263 of the Act iswide, it enables the CIT to call for and examinethe record of the case or pass any order underthe Act and also empowers him to make or causeto be made such an inquiry as he deems fit andnecessary in order to find out, if the order passedby the Assessing Officer is erroneous in so far asit is prejudicial to the interest of Revenue,however, he has to have certain material to cometo the conclusion. Once, he comes to the aboveconclusion that there is material, the CIT isempowered to pass an order as per thecircumstances of the case which may warrant ashe is empowered to take recourse to any of thethree courses indicated in Section 263 only.Therefore, it is clear that CIT does not have un-fattered and un-chequered discretion/power toreverse the order. He can do so within the boundsof the law and has to satisfy the need of fairnessin action and fair play with due respect to theprinciple of Audi Alteram Partem as envisaged inthe Constitution. The law is well settled that theCIT cannot invoke the powers to correct each andevery mistake or error committed by theAssessing Officer. Every loss to the Revenue,cannot be treated as prejudicial to the interest of


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the Revenue and if the Assessing Officer hasadopted one of the course permissible under thelaw or where two views are possible and theAssessing Officer has taken one view which theCIT does not agree, it cannot be treated as anorder erroneous and prejudicial to the interest ofthe Revenue, the Assessing Officer exercisesquasi judicial power vested in him and if heexercises such powers in accordance with law,arrives at a just conclusion such conclusioncannot be termed to be erroneous only becausethe CIT does not feel satisfied with the conclusion.

13. Commissioner of Income Tax vs. JainConstruction Co. (RAJHC) (2013) 257 CTR0336

10. The settled legal position for limitation on therevisional powers of CIT under s. 263 of the Act isthat, firstly, they are limited in nature, andsecondly, such revisional powers are not to beinvoked merely for reviewing the order passed bythe assessing authority on a mere change ofopinion. The safeguard provided to the assesseein the said provision is that mere erroneousorders are not revisable but the revisionalauthority has to further establish with thematerial on record that such erroneous order isalso prejudicial to the interest of Revenue. Thetwin conditions of assessment order beingerroneous and it also being prejudicial to theinterest of Revenue, keeps the initial burden onthe Revenue itself, namely, the CIT, who invokessuch jurisdiction. From the following legalprecedents, it would be clear that such powersare not allowed likely to be invoked for the fall ofhat as it were, and merely because the revisionalauthority is of different opinion on the given set offacts or on the ground that assessing authoritydid not hold a sufficient enquiry during the courseof assessment proceedings unless the aforesaidtwin conditions for invoking the said jurisdictionunder s. 263 are satisfied.

6. He further relied upon the following decisions:-

1. In Commissioner of Income Tax vs. Gita Duggal(DELHC) (2013) 357 ITR 0153, it has been held as under :-


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There could also be another angle. Section54/54F uses the expression "a residentialhouse". The expression used is not "aresidential unit". This is a new conceptintroduced by the assessing officer into thesection. Section 54/54F requires theassessee to acquire a "residential house"and so long as the assessee acquires abuilding, which may be constructed, for thesake of convenience, in such a manner asto consist of several units which can, if theneed arises, be conveniently andindependently used as an independentresidence, the requirement of the Sectionshould be taken to have been satisfied.There is nothing in these sections whichrequire the residential house to beconstructed in a particular manner. The onlyrequirement is that it should be for theresidential use and not for commercial use.If there is nothing in the section whichrequires that the residential house shouldbe built in a particular manner, it seems tous that the income tax authorities cannotinsist upon that requirement. A person mayconstruct a house according to his plansand requirements. Most of the houses areconstructed according to the needs andrequirements and even compulsions. Forinstance, a person may construct aresidential house in such a manner that hemay use the ground floor for his ownresidence and let out the first floor havingan independent entry so that his income isaugmented. It is quite common to find sucharrangements, particularly post-retirement.One may build a house consisting of fourbedrooms (all in the same or differentfloors) in such a manner that anindependent residential unit consisting oftwo or three bedrooms may be carved outwith an independent entrance so that it canbe let out. He may even arrange for hischildren and family to stay there, so thatthey are nearby, an arrangement which canbe mutually supportive. He may constructhis residence in such a manner that in caseof a future need he may be able to disposeof a part thereof as an independent house.There may be several such considerationsfor a person while constructing a residentialhouse. We are therefore, unable to see how


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or why the physical structuring of the newresidential house, whether it is lateral orvertical, should come in the way ofconsidering the building as a residentialhouse. We do not think that the fact thatthe residential house consists of severalindependent units can be permitted to actas an impediment to the allowance of thededuction under Section 54/54F. It isneither expressly nor by necessaryimplication prohibited.

For the above reasons we are of the viewthat the Tribunal took the correct view. Nosubstantial question of law arises for ourconsideration. The appeal is accordinglydismissed with no order as to costs.

2. In Commissioner of Income Tax and Anr. vs. D. AnandaBasappa (KARHC) (2009) 309 ITR 0329, it has been held asunder :-

5. A plain reading of the provision ofSection 54(1) of the Income Tax Actdiscloses that when an individual-assessesor Hindu undivided family-assesses sells aresidential building or lands appurtenantthereto, he can invest capital gains forpurchase of residential building to seekexemption of the capital gains tax. Section13 of the General Clauses Act declares thatwhenever the singular is used for a word, itis permissible to include the plural.

6. The contention of the Revenue is that thephrase "a" residential house would meanone residential house and it does notappear to the correct understanding. Theexpression "a" residential house should beunderstood in a sense that building shouldbe of residential in nature and "a" shouldnot be understood to indicate a singularnumber. The combined reading of Sections54(1) and 54F of the Income Tax Actdiscloses that, a non residential building canbe sold, the capital gain of which can beinvested in a residential building to seekexemption of capital gain tax. However, theproviso to Section 54 of the Income Tax


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Act, lays down that if the assessee hasalready one residential building, he is notentitled to exemption of capital gains tax,when he invests the capital gain inpurchase of additional residential building.

7. When a Hindu undivided family'sresidential house is sold, the capital gainshould be invested for the purchase of onlyone residential house is an incorrectproposition. After all, the Hindu undividedfamily property is held by the members asjoint tenants. The members keeping in viewthe future needs in event of separation,purchase more than one residentialbuilding;, it cannot be said that the benefitof exemption is to be denied under Section54(1) of the Income Tax Act.

8. On facts, it is shown by the assessee thatthe apartments are situated side by side.The builder has also stated that he haseffected modification of the flats to make itas one unit by opening the door in betweentwo apartments. The fact that at the timewhen the inspector inspected the premises,the flats were occupied by two differenttenants is not the ground to hold that theapartment is not a one residential unit. Thefact that the assessee could have purchasedboth the flats in one single sale deed orcould have narrated the purchase of twopremises as one unit in the sale deed is notthe ground to hold that the assessee had nointention to purchase the two flats as oneunit.

3. In The Commissioner of Income Tax-III, IT Towers vs.Sri Syed Ali Adil (APHC) (2013) 352 ITR 0418, it has beenheld as under :-

9. We see no force in the said contention.As held in D. Ananda Basappa's case (1supra) by the Karnataka High Court, theexpression "a residential house" in Section54 (1) of the Act has to be understood in asense that the building should be ofresidential nature and "a" should not beunderstood to indicate a singular number


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and where an assessee had purchased tworesidential flats, he is entitled to exemptionunder Section 54 in respect of capital gainson sale of its property on purchase of boththe flats, more so, when the flats aresituated side by side and the builder haseffected modification of the flats to make itas one unit, despite the fact that the flatswere purchased by separate sale deeds.This decision was followed by the KarnatakaHigh Court in CIT Vs. Smt. K.G.Rukminiamma : (2011) 331 ITR 211(Karnataka) where a residential house wastransferred and four flats in a singleresidential complex were purchased by theassessee, it was held that all fourresidential flats constituted "a residentialhouse" for the purpose of Section 54 andthat the four residential flats cannot beconstrued as four residential houses for thepurpose of Section 54. Admittedly the twoflats purchased by the assessee areadjacent to one another and have acommon meeting point. In the impugnedorder, the Tribunal has also relied upon thedecisions in K.G. Vyas's case (2 supra), P.C.Ramakrishna, HUF's case (3 supra) andPrakash Bhutani's case (4 supra) wherein itwas held that exemption under Section 54only requires that the property should be ofresidential nature and the fact that theresidential house consists of severalindependent units cannot be an impedimentto grant relief under Section 54 even if suchindependent units were on different floors.The decision in Suseela M. Jhaveri's case (5supra) holding that only one residentialhouse should be given the relief underSection 54 does not appear to be correctand we disapprove of it. We agree with theinterpretation placed on Section 54 by theHigh Court of Karnataka in D. AnandaBasappa's case (1 supra) and Smt. K.G.Rukminiamma's case (6 supra) and thedecisions of the Mumbai, Chennai and DelhiBenches of the Tribunal in K.G. Vyas (2supra), P.C. Ramakrishna, HUF (3 supra)and Prakash Bhutani (4 supra). Wetherefore hold that the CIT (Appeals) wascorrect in setting aside the order of theassessing officer and the Tribunal rightlyconfirmed the decision of the CIT (Appeals).


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We hold that no substantial question of lawarises for consideration in this appeal andthe same is accordingly dismissed. Nocosts.

4. In Commissioner of Income Tax-XII vs. Shri KamalWahal (DELHC) (2013) 351 ITR 0004, it has been held asunder :-

7. We have no hesitation in agreeing withthe view taken by the Tribunal. Apart fromthe fact that the judgments of the Madrasand Karnataka High Courts (supra) are infavour of the assessee, the revenue fairlybrought to our notice a similar view of thisCourt in CIT Vs. Ravinder Kumar Arora :(2012) 342 ITR 38 (Del.). That was also acase which arose under Section 54F of theAct. The new residential property wasacquired in the joint names of the assesseeand his wife. The income tax authoritiesrestricted the deduction under Section 54Fto 50% on the footing that the deductionwas not available on the portion of theinvestment which stands in the name of theassessee's wife. This view was disapprovedby this Court. It noted that the entirepurchase consideration was paid only by theassessee and not a single penny wascontributed by the assessee's wife. It alsonoted that a purposive construction is to bepreferred as against a literal construction,more so when even applying the literalconstruction, there is nothing in the sectionto show that the house should be purchasedin the name of the assessee only. As amatter of fact, Section 54F in terms doesnot require that the new residentialproperty shall be purchased in the name ofthe assessee; it merely says that theassessee should havepurchased/constructed "a residentialhouse".

9. It thus appears to us that thepredominant judicial view, including that ofthis Court, is that for the purposes ofSection 54F, the new residential house neednot be purchased by the assessee in his


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own name nor is it necessary that it shouldbe purchased exclusively in his name. It ismoreover to be noted that the assessee inthe present case has not purchased the newhouse in the name of a stranger orsomebody who is unconnected with him. Hehas purchased it only in the name of hiswife. There is also no dispute that the entireinvestment has come out of the saleproceeds and that there was no contributionfrom the assessee's wife.

10. Having regard to the rule of purposiveconstruction and the object which Section54F seeks to achieve and respectfullyagreeing with the judgment of this Court,we answer the substantial question of lawframed by us in the affirmative, in favour ofthe assessee and against the revenue.

5. In CIT vs. Natarajan, (2007) 287 ITR 0271, it has beenheld as under:-

4.5 In the instant case, the assesseepurchased a house at Anna Nagar in thename of his wife Smt. Meera after sellingthe property at Bangalore. But the samewas assessed in the hands of the assessee.Hence, as correctly held by the CIT(A) aswell as by the Tribunal that the assessee isentitled for exemption under Section 54ofthe Act.

4.6 The assessee sold a property atBangalore and purchased a property atAnna Nagar in the name of his wife is only aquestion of fact. It is a settled law that thefactual findings of the Tribunal cannot bedisturbed in exercise of the powers underSection 260Aof the Act vide M. JanardhanaRao v. Jt. CIT (2005) 193 CTR (SC) 585 :(2005) 273 ITR 50 (SC). Hence, we do notsee any question of law much less,substantial question of law arises forconsideration. Accordingly, the firstquestion fails and the same is rejected.

5.4 On the other hand, the Tribunalaccepted the explanation offered by theassessee that the jewellery in question were






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gifted to his two wives on variousceremonies including the marriage andreversed the findings of the AO as well asthe CIT(A) that suspicion itself cannot be aground to reject the explanation offered bythe assessee particularly in the context thatthe assessee had two wives and their fatherwas a landlord and the jewels in question,namely, 60 sovereigns, were gifted to themduring the marriage and on variousceremonies.

5.6 In the instant case also, the Revenueauthorities have not placed any convincingmaterials to disallow the claim of theassessee. The assessee disclosed thepurchase of jewellery weighing fivesovereigns in each of the assessment yearsviz., 1987-88, 1988-89 and 1989-90 andalso the purchase of diamond jewellery.Hence, accepting the explanation offered bythe assessee, the Tribunal correctly allowedthe claim of the assessee.

6. In Director of Income Tax (International Taxation) andAnother vs. Mrs. Jennifer Bhide (KARHC) (2012) 349 ITR0080, it has been held as under :-

6. On a careful reading of section 54 as wellas section 54EC on which reliance is placedmakes it clear that when capital gains arisefrom the transfer of long-term capital assetto an assessee and the assessee has withinthe period of one year before or two yearsafter the date on which the transfer tookplace purchases or has within a period ofthree years after the date of construction ofresidential house then instead of capitalgain being charged to income-tax asincome of the previous year in which thetransfer took place, it shall be dealt with inaccordance with the provision made underthe section which grants exemption frompayment of capital gains as set outthereunder. Therefore, in the entire section54, the purchase to be made or theconstruction to be put up by the assessee,should be there in the name of theassessee, in not expressly stated. Similarly,even in respect of section 54EC, theassessee has at any time within a period of


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six months after the date of such transferinvested the whole or any part of the capitalgains in the long-term specified asset thenshe would be entitled to the benefitmentioned in the said section. There also itis not expressly stated that the investmentshould be in the name of the assessee.Therefore, to attract section 54 and section54EC of the Act, what is material is theinvestment of the sale consideration inacquiring the residential premises orconstructing a residential premises orinvesting the amounts in bonds set out insection 54EC. Once the sale consideration isinvested in any of these manner theassessee would be entitled to the benefitconferred under this provisions. In theabsence of an express provision containedin these sections that the investment shouldbe in the name of the assessee only anysuch interpretation were to be placed, itamounts to the court introducing the saidword in the provision which is not there. Itamounts the court legislating whenParliament has deliberately not used thosewords in the said section. That is the viewtaken by the hon'ble Madras High Court andthe hon'ble Punjab and Haryana High Courtand we respectfully agree with the viewexpressed in the aforesaid judgments.

7. In the instant case the assessee haspurchased the property jointly with herhusband. She has invested the money inrural bonds jointly with her husband. It isnobody's case that her husband contributedany portion of the consideration foracquisition of the property as well as bonds.The source for acquisition of the propertyand the bonds is the sale consideration. Itis not in dispute. Once the saleconsideration is utilized for the purposementioned under sections 54 and 54EC, theassessee is entitled to the benefit of thoseprovision. As the entire consideration hasflown from the assessee and noconsideration has flown from her husband,merely because either in the sale deed or inthe bond her husband's name is alsomentioned, in law he would not have anyright. In that view of the matter, theassessee cannot be denied the benefit of


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deduction of the aforesaid amount. TheTribunal on proper appreciation of thematerial on record has rightly allowed theappeal and set aside the order passed bythe assessing authority as well as theAppellate Commissioner. We do not see anyinfirmity in the order which calls forinterference. Accordingly, the appeal isdismissed.

7. In Commissioner of Income Tax vs. Ravinder KumarArora (DELHC) (2012) 342 ITR 0038, it has been held asunder:-

3. The assessee's submission wasconsidered by the AO. The AO noted thatthough all the payments were made by theassessee, the residential house waspurchased jointly in the names of theassessee and his wife. The AO then referredto Section 54F of the Act only to the extentof his right in the new residential housepurchased jointly with his wife. The AO,therefore, allowed 50% of the exemptionclaimed under Section 54F of the Act asagainst total claim of `3,18,59,276/- madeby the assessee. The AO allowed claim onlyto the extent of `1,59,29,638/- and thebalance 50% being `1,59,29,638/- wasdisallowed.

8. At the outset, important factual findingsrecorded by the Tribunal in this case arethat it was the assessee who independentlyinvested in the purchase of new residentialhouse though in his own name but alongwith the name of his wife also and that itwas the assessee who paid stamp duty andcorporation tax at the time of theregistration of the sale deed of the house sopurchased and has also paid commissionand legal expenses in connection with thepurchase of the house. The Tribunal furtherrecords that whole of the purchaseconsideration has been paid by theassessee and not even a single penny hasbeen contributed by the wife in thepurchase of the house. The Tribunal alsonoted the argument that the property was


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purchased by the assessee in the jointname with his wife for "shagun" purposeand because of the fact that the assesseewas physically handicapped. The Tribunalfurther concludes that as a matter of fact,the assessee was the real owner of theresidential house in question.

9. On the aforesaid facts, we are of theview that the conditions stipulated inSection 54F stand fulfilled. It would betreated as the property purchased by theassessee in his name and merely becausehe has included the name of his wife andthe property purchased in the joint nameswould not make any difference. Such aconduct has to be, rather, encouragedwhich gives empowerment to women. Thereare various schemes floated by theGovernment itself permitting jointownership with wife. If the view of theAssessing Officer (AO) or the contention ofthe Revenue is accepted, it would be aderogatory step.

8. In Kalya vs. Commissioner of Income Tax & Ors.(RAJHC) (2012) 251 CTR 0174

7. A bare reading of s. 54B of the IT Actdoes not suggest that assessee would beentitled to get exemption for the landpurchased by him in the name of his sonand daughter-in-law. In the facts andcircumstances of the case also aforesaidinference has not been drawn. Same isquestion of fact. No substantial question oflaw arises in appeal. Question whetherpurchase was by assessee or by son, is aquestion of fact.

8. Secondly, the word "assessee" used inthe IT Act needs to be given a 'legalinterpretation' and not a 'liberalinterpretation', as contended by theLearned Counsel for the appellant. If theword 'assessee' is given a liberalinterpretation, it would tantamount togiving a free hand to the assessee and hislegal heirs and it shall curtail the revenue of


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the Government, which the law does notpermit.

9. The Tribunal, having considered all thefacts and circumstances of the case, isfound to have rightly disallowed theexemption under s. 54B of the Act.

10. The impugned order passed by thelearned Tribunal is just and apposite, basedon cogent findings, with which we fullyconcur and thus, the same warrants nointervention.

11. For the reasons stated above, theincome-tax appeal fails and the same beingbereft of any merit deserves to bedismissed, which stands dismissedaccordingly.

12. Consequent upon the dismissal ofincome-tax appeal, the stay application,filed herewith, does not survive and thesame also stands dismissed

9. In Commissioner of Income Tax vs. Gurnam Singh(PHHC) (2010) 327 ITR 0278 it has been held as under :-

4. We have heard the counsel for theRevenue and gone through the aforesaidimpugned order. In our opinion, from theimpugned order, no substantial question oflaw is arising for consideration of this Courtas the Tribunal while recording a purefinding of fact has dismissed the appeal ofthe Revenue. Undisputedly, in this case theassessee had sold the agricultural landwhich was being used by him foragricultural purposes. Out of sale proceedsof the said sale, the assessee haspurchased other piece of land (land inquestion) in his name and in the name ofhis only son, who was bachelor anddependent upon him, for being used foragricultural purposes within the stipulatedtime. Further, it is not the case of theRevenue that from the sale proceeds of the


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agricultural land earlier owned by theassessee, the land in question waspurchased for any other purpose than theagricultural purpose. Undisputedly, thepurchased land is being used by theassessee only for agricultural purpose andmerely because in the sale deed his onlyson was also shown as co-owner, theTribunal has rightly come to the conclusionthat it does not make any differencebecause the purchased land is being usedby the assessee for agricultural purposes. Itis not the case of the Revenue that the saidland is being used exclusively by his son. Inour view, a pure finding of fact has beenrecorded by the Tribunal which does notrequire any interference in this appeal.

5. No substantial question of law is involvedin this appeal. Dismissed.

10. In Late Gulam Ali Khan vs. Commissioner of Income Tax(APHC) (1987) 165 ITR 0228, it has been held as under :-

3. Learned counsel for the assessee, Mr.Ranganatham, contended that this is a casewhere exemption ought to have beenallowed under section 54 of the Act. Section54 of the Act is as follows :

"54. Profit on sale of property used forresidence - (1) Where, in the case of anassessee, being an individual, the capitalgain arises from the transfer of a long-termcapital asset to which the provisions ofsection 53 are not applicable, beingbuildings or lands appurtenant thereto, andbeing a residential house, the income ofwhich is chargeable under the head 'Incomefrom house property' (hereafter in thissection referred to as the original asset)and the assessee has within a period of oneyear before or after the date on which thetransfer took place purchased, or has withina period of three years after that dateconstructed a residential house, then,instead of the capital gain being charged toIncome Tax as income of the previous yearin which the transfer took place, it shall be


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dealt with in accordance with the followingprovisions of this section, that is to say, -

(i) if the amount of the capital gain isgreater than the cost of the residentialhouse so purchased or constructed(hereafter in this section referred to as thenew asset), the difference between theamount of capital gain and the cost of thenew asset shall be charged under section45 as the income of the previous year; andfor the purpose of computing in respect ofthe new asset any capital gain arising fromits transfer within a period of three years ofits purchase or construction, as the casemay be, the cost shall be nil; or

(ii) if the amount of the capital gain is equalto or less than the cost of the new asset,the capital gain shall not be charged undersection 45; and for the purpose ofcomputing in respect of the new asset anycapital gain arising from its transfer within aperiod of three years of its purchase orconstruction, as the case may be, the costshall be reduced by the amount of thecapital gain.

Explanation. - For the purposes of this sub-section, 'long-term capital asset' means acapital asset which is not a short-termcapital asset."

Relying upon the expression "assessee"occurring in section 54 of the Act, it iscontended for the Department that in orderto claim the exemption, the person whosold the house must be the same as theperson who purchased the house, that is,the assessee must be one and the sameperson. The identity must be the same. Weare unable to accept this contention. Theobject of granting exemption under section54 of the Act is that a person who sells aresidential house for the purpose ofpurchasing another convenient house mustbe given exemption so far as capital gainsare concerned. As long as the sale of thehouse and purchase of another house arepart of the same scheme, the lapse of some


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time between the sale and purchase makesno difference. The word "assessee" must begiven a wide and liberal interpretation so asto include his legal heirs also. There is nowarrant for giving too strict aninterpretation the word "assessee" as thatwould frustrate the object of granting theexemption and what is more, in the instantcase, the very same assessee immediatelyafter the sale of the house, entered into anagreement for purchasing another houseand paid a sum of Rs. 1,000 as earnestmoney and subsequently the legalrepresentative completed the transactionwithin a period of one year from the date ofthe death of the deceased. The sale andpurchase are two links in the same chain.We are fortified in this view by a decision ofthe Madras High Court in C. V. Ramanathanv. CIT : [1980]125ITR191(Mad) .

We accordingly answer the question in thenegative, that is, in favour of the assesseeand against the Revenue. No costs.

11. In M.J. Kanakabai and Ors. vs. Union of India and Ors.(SC) (1968) 68 ITR 0192, it has been held as under :-

22. Coming to the plaintiff's appeal, we areof the view that the High Court erred inholding that the demand notices P-23, P. 24and P-25 were valid to the extent of Rs.21,884.81. This sum was arrived at byrevising the assessment orders, not underany provision of the Income- tax Act, butby the counsel for the revenue. Theassessment orders stand as they werebefore. We are unable to appreciate howthe assessment orders can be revisedexcept under the provisions of the Income-tax Act. Neither the counsel for thedefendant nor the High Court has power torevise any assessment order. Indeed,section 111 of the Cochin Income-tax Actinterdicts the High Court. It is true the HighCourt has not done it directly, but indirectlyit has done so. Consequently, we set asidethe findings of the High Court that thedemand notices, P-23, P-24 and P-25, werevalid to the extent of Rs. 21,884.81.


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12. Commissioner of Income Tax, Mumbai vs. AmitabhBachchan (SC) [2016] 3 Supreme 384, it has been held asunder :-

10. Reverting to the specific provisions ofSection 263 of the Act what has to be seenis that a satisfaction that an order passedby the Authority under the Act is erroneousand prejudicial to the interest of theRevenue is the basic precondition forexercise of jurisdiction Under Section 263 ofthe Act. Both are twin conditions that haveto be conjointly present. Once suchsatisfaction is reached, jurisdiction toexercise the power would be availablesubject to observance of the principles ofnatural justice which is implicit in therequirement cast by the Section to give theAssessee an opportunity of being heard. Itis in the context of the above position thatthis Court has repeatedly held that unlikethe power of reopening an assessmentUnder Section 147 of the Act, the power ofrevision Under Section 263 is notcontingent on the giving of a notice to showcause. In fact, Section 263 has beenunderstood not to require any specific showcause notice to be served on the Assessee.Rather, what is required under the saidprovision is an opportunity of hearing to theAssessee. The two requirements aredifferent; the first would comprehend aprior notice detailing the specific groundson which revision of the assessment orderis tentatively being proposed. Such a noticeis not required. What is contemplated bySection 263, is an opportunity of hearing tobe afforded to the Assessee. Failure to givesuch an opportunity would render therevisional order legally fragile not on theground of lack of jurisdiction but on theground of violation of principles of naturaljustice. Reference in this regard may beillustratively made to the decisions of thisCourt in Gita Devi Aggarwal v.Commissioner of Income Tax, West Bengaland Ors. : (1970) 76 ITR 496 and in TheC.I.T., West Bengal, II, Calcutta v. ElectroHouse : (1971) 82 ITR 824. Paragraph 4 of


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the decision in The C.I.T., West Bengal, II,Calcutta v. Electro House (supra) beingillumination of the issue indicated abovemay be usefully reproduced hereunder:

This Section unlike Section 34 does notprescribe any notice to be given. It onlyrequires the Commissioner to give anopportunity to the Assessee of being heard.The Section does not speak of any notice. Itis unfortunate that the High Court failed tonotice the difference in language betweenSections 33-B and 34. For the assumptionof jurisdiction to proceed Under Section 34,the notice as prescribed in that Section is acondition precedent. But no such notice iscontemplated by Section 33-B. Thejurisdiction of the Commissioner to proceedUnder Section 33-B is not dependent on thefulfilment of any condition precedent. Allthat he is required to do before reaching hisdecision and not before commencing theenquiry, he must give the Assessee anopportunity of being heard and make orcause to make such enquiry as he deemsnecessary. Those requirements havenothing to do with the jurisdiction of theCommissioner. They pertain to the region ofnatural justice. Breach of the principles ofnatural justice may affect the legality of theorder made but that does not affect thejurisdiction of the Commissioner. At presentwe are not called upon to consider whetherthe order made by the Commissioner isvitiated because of the contravention of anyof the principles of natural justice. Thescope of these appeals is very narrow. Allthat we have to see is whether beforeassuming jurisdiction the Commissionerwas required to issue a notice and if he wasso required what that notice should havecontained? Our answer to that question hasalready been made clear. In our judgmentno notice was required to be issued by theCommissioner before assuming jurisdictionto proceed Under Section 33-B. Thereforethe question what that notice shouldcontain does not arise for consideration. Itis not necessary nor proper for us in thiscase to consider as to the nature of theenquiry to be held Under Section 33-B.Therefore, we refrain from spelling out what


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principles of natural justice should beobserved in an enquiry Under Section 33-B.This Court in Gita Devi Aggarwal v. CIT,West Bengal ruled that Section 33-B doesnot in express terms require a notice to beserved on the Assessee as in the case ofSection 34. Section 33-B merely requiresthat an opportunity of being heard shouldbe given to the Assessee and the stringentrequirement of service of notice UnderSection 34 cannot, therefore, be applied toa proceeding Under Section 33-B. (Page827-828).[Note: Section 33-B and Section 34 of theIncome Tax Act, 1922 corresponds toSection 263 and Section 147 of the IncomeTax Act, 1961]

11. It may be that in a given case and inmost cases it is so done a notice proposingthe revisional exercise is given to theAssessee indicating therein broadly or evenspecifically the grounds on which theexercise is felt necessary. But there isnothing in the Section (Section 263) toraise the said notice to the status of amandatory show cause notice affecting theinitiation of the exercise in the absencethereof or to require the C.I.T. to confinehimself to the terms of the notice andforeclosing consideration of any other issueor question of fact. This is not the purportof Section 263. of course, there can be nodispute that while the C.I.T. is free toexercise his jurisdiction on consideration ofall relevant facts, a full opportunity tocontrovert the same and to explain thecircumstances surrounding such facts, asmay be considered relevant by theAssessee, must be afforded to him by theC.I.T. prior to the finalization of thedecision.

20. An argument has been made on behalfof the Assessee that notice Under Section69-C was issued by the Assessing Officerand thereafter on withdrawal of the claimby the Assessee the Assessing Officerthought that the matter ought not to beinvestigated any further. This, according tothe learned Counsel for the Assessee, is a


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possible view and when two views arepossible on an issue, exercise of revisionalpower Under Section 263 would not bejustified. Reliance in this regard has beenplaced on a judgment of this Court inMalabar Industrial Co. Ltd. v. CIT : (2000)243 ITR 83 (SC) which has been approvedin Commissioner of Income-tax v. Max IndiaLtd.: (2007) 295 ITR 282 (SC).

21. There can be no doubt that so long asthe view taken by the Assessing Officer is apossible view the same ought not to beinterfered with by the Commissioner UnderSection 263 of the Act merely on theground that there is another possible viewof the matter. Permitting exercise ofrevisional power in a situation where twoviews are possible would really amount toconferring some kind of an appellate powerin the revisional authority. This is a courseof action that must be desisted from.However, the above is not the situation inthe present case in view of the reasonsstated by the learned C.I.T. on the basis ofwhich the said authority felt that the matterneeded further investigation, a view withwhich we wholly agree. Making a claimwhich would prima facie disclose that theexpenses in respect of which deduction hasbeen claimed has been incurred andthereafter abandoning/withdrawing thesame gives rise to the necessity of furtherenquiry in the interest of the Revenue. Thenotice issued Under Section 69-C of the Actcould not have been simply dropped on theground that the claim has been withdrawn.We, therefore, are of the opinion that thelearned C.I.T. was perfectly justified incoming to his conclusions insofar as theissue No. (iii) is concerned and in passingthe impugned order on that basis. Thelearned Tribunal as well as the High Court,therefore, ought not to have interfered withthe said conclusion.

22. In the light of the discussions that havepreceded and for the reasons alluded weare of the opinion that the present is a fitcase for exercise of the suo motu revisionalpowers of the learned C.I.T. Under Section263 of the Act. The order of the learned


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C.I.T., therefore, is restored and those ofthe learned Tribunal dated 28th August,2007 and the High Court dated 7th August,2008 are set aside. The appeal of theRevenue is allowed.

6.1 He further relied upon the decision of this court in Tax appeal

No.140/2014 (CIT Vs. Shri Prabhati Lal Saini decided on

19.9.2017) wherein this court has taken a view in favour of the

department.

7. We have heard counsel for the parties.

7.1 On the first issue of sec.263 in view of the decision of

Malabar Industrial company Ltd. (supra) Sec.263 provisions are

taken only on the ground of prejudicial and interest loss of the

revenue to the Government. Merely change of opinion will not give

any right u/s 263 hence, the issue regarding Sec. 263 is required

to be answered in favour of the assessee and against the

department.

7.2 On the ground of investment made by the assessee in the

name of his wife, in view of the decision of Delhi High Court in

Sunbeam Auto Ltd. and other judgments of different High Courts,

the word used is assessee has to invest it is not specified that it is

to be in the name of assessee.

7.3 It is true that the contentions which have been raised by the

department is that the investment is made by the assessee in his

own name but the legislature while using language has not used

specific language with precision and the second reason is that

view has also been taken by the Delhi High Court that it can be in


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the name of wife. In that view of the matter, the contention raised

by the assessee is required to be accepted with regard to Section

54B regarding investment in tubewell and others. In our

considered opinion, for the purpose of carrying on the agricultural

activity, tubewell and other expenses are for betterment of land

and therefore, it will be considered a part of investment in the

land and same is required to be accepted.

7.4 In view of the above, all the issues are answered in favour of

the assessee and against the department.

8. The appeals stand allowed.

(VIJAY KUMAR VYAS)J. (K.S. JHAVERI)J.

Bmg 41-43.


vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj

IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR

Jh fot; ikWy jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM

vk;dj vihy la-@ITA. No. 139/JP/2016

fu/kZkj.k o"kZ@Assessment Years : 2012-13

Shri Vivek Jain, Jaipur

cuke Vs.

DCIT, Circle-7, Jaipur

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ACNPJ3952H

vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Ms. Shivangi Samadhani (CA)

& Shri Rajeev Sogani (CA) jktLo dh vksj ls@ Revenue by : Shri Rajendra Jha (Addl. CIT)

lquokbZ dh rkjh[k@ Date of Hearing : 27/11/2017

mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 08/12/2017

vkns'k@ ORDER

PER: VIKRAM SINGH YADAV, A.M.

This is an appeal filed by the assessee against the order of ld.

CIT(A)-III, Jaipur dated 16.12.2015 for Assessment Year 2012-13

wherein the assessee has challenged the action of ld. CIT(A) in

confirming the disallowance of exemption of Rs. 30,00,000/- claimed

u/s 54F of the Act.

2. Briefly stated, the facts of the case are that during the year under

consideration, the assessee has sold three agriculture lands belonging


ITA No. 139/JP/2016

Shri Vivek Jain, Jaipur, vs. DCIT, Jaipur 2

to him for a sale consideration of Rs. 99,25,000. The assessee has

purchased another agricultural land at a consideration of Rs.

32,00,000/- for which deduction u/s 54F has been claimed and same

was allowed by the Assessing Officer and is not in dispute before us.

The assessee has also purchased a residential property on 23.05.2011

for a purchase consideration of Rs. 30,00,000/- in the name of his wife,

Smt. Nikita Jain, and claimed deduction u/s 54F of the Act and which is

in dispute before us.

3. During the course of assessment proceedings, the assessee was

asked to show cause as to why the claimed u/s 54F of the Act, 1961

may not be disallowed, as the property was not owned in the name of

assessee. In response, the assessee submitted that the consideration

for such property was paid out of repayment of advance belonging to

the assessee received from Narvik Nirman & Financiars Pvt. Ltd. and it

was further submitted that the new residential house need not be

purchased by the assessee in his own name nor is it necessary that it

should be purchased exclusively in his name. It was submitted that the

assessee has not purchased the new house in the name of a stranger

and entire investment has come out of the source of the assessee and

there was no contribution from the assessee’s wife. The submission of

the assessee was considered but not found acceptable to the Assessing

Officer. As per Assessing Officer, the property which was sold was

belonging to the assessee whereas the reinvestment in property

(residential house) has been made in the name of Smt. Nikita Jain, wife

of the assessee. It was further held by the AO that Smt. Nikita Jain,

wife of the assessee, is having her PAN and filing her return of income

which is also assessed to tax, therefore, as per income tax provisions,


ITA No. 139/JP/2016


husband and wife both could not be considered as single entity and the

benefit of investment made by an individual assessee cannot be given

to another individual assessee. The AO further drawn reference to the

provisions of Section 54F of the Act and held that to claim deduction,

the investment in new asset should be in the name of assessee himself.

It was further held by the AO that in absence of the personal balance

sheet of the assessee and absence of proper documentary evidence, it

cannot be ascertained whether assessee does not own more than one

residential house, other than new asset, on the date of transfer of the

original asset. Accordingly, for these two reasons, the claim of the

assessee u/s 54F of the I.T.Act, 1961 was disallowed.

4. Being aggrieved, the assessee carried the matter in appeal before

the ld CIT(A) and submitted that the purchase of a new residential

house has to be purchased by the assessee. However, it is not

specifically required under the law that the house should be purchased

in the name of assessee only. It was further contended that liberal

construction should be given to provisions of section 54F of the Act and

if substantive requirement are fulfilled, benefit granted by the

Parliament should not be taken away for small and irrelevant

inconsistencies. Further, the assessee placed reliance on the decision of

Hon’ble Delhi High Court in case of CIT vs. Kamal Wahal (351 ITR 4),

wherein, in the context of section 54F of the Act and purchase of house

in the name of assessee’s wife, it was held that the new residential

house need not be purchased by the assessee in his name nor is it

necessary that it should be purchased and exclusively in his name.

Further, reliance was placed on the decision of Hon’ble Madras High

Court in case of CIT vs. V. Natarajan (287 ITR 271) where the house


ITA No. 139/JP/2016


was purchased in the name of the assessee’s wife, deduction under

section 54 was allowed. Further, reliance was placed on the decision of

Hon’ble Andhra Pradesh High Court in the case of Late Gulam Ali Khan

vs. CIT (165 ITR 228) wherein in the context of section 54 of the Act, it

was held that the word ‘assessee’ must be given a wide and liberal

interpretation so as to include his legal heirs also. Further, reliance was

placed on the decision of Hon’ble Karnataka High Court in the case of

DIT vs. Mrs. Jennifer Bhide (349 ITR 80) wherein it was held that where

the entire consideration has flown from her husband, merely because

either in the sale deed or in the bond, her husband’s name is also

mentioned, the assessee cannot be denied the benefit of deduction u/s

54 and 54EC of the Act. Further, reliance was placed on the decision of

Hon’ble Delhi High Court in case of CIT vs. Ravinder Kumar Arora (342

ITR 38) wherein in the context of section 54F of the Act, it was held

that where the assessee has included the name of his wife and the

property has been purchased jointly in the names, it would not make

any difference and the conditions stipulated in section 54F stand

fulfilled.

8. The ld. CIT(A) however relied on the decision of Hon’ble

Rajasthan High Court in case of Kalya vs. CIT (251 CTR 174) wherein in

the context of section 54B of the Act, it was held that the assessee

would not be entitled to get exemption for land purchase by him in the

name of his son and daughter-in-law. Further in the said decision, it

was held that the word ‘assessee’ used in the IT Act needs to be given

a ‘legal interpretation’ and not a ‘liberal interpretation, as it would

tantamount to giving a free hand to the assessee and his legal heirs and

it shall curtail the revenue of the Government, which the law does not


ITA No. 139/JP/2016


permit. Following the decision of Hon’ble Rajasthan High Court in case

of Kalya, the ld. CIT(A) upheld the rejection of claim of the assessee u/s

54F of the Act.

9. During the course of hearing, the ld. AR reiterated the

submissions made before the ld. CIT(A). Further, ld. AR also drawn our

reference to the recent decision of Hon’ble Rajasthan High Court in case

of Sh. Mahadev Balai vs. ITO (D.B. ITA No. 136/2017 & others dated

07.11.2017) wherein in the context of section 54B, it was held that

where the investment is made in the name of the wife, the assessee

shall be eligible for claim of deduction u/s 54B of the Act.

10. In the said case, the assessee has sold agricultural land and

purchased another agricultural land in the name of his wife and claimed

deduction u/s 54B of the Act. The Co-ordinate Bench vide its order in

ITA No. 333/JP/2016 dated 26.12.2016 following the decision of Hon’ble

Rajasthan High Court in case of Kalya vs. CIT(supra) had decided the

issue against the assessee and has confirmed the denial of deduction

u/s 54B of the Act. In the context of said facts, on appeal by the

assessee, the Hon’ble Rajasthan High Court has framed the following

substantial question of law:

“Where ld. ITAT was justified in disallowing the exemption u/s 54B of

the Act without appreciating that the funds utilized for the investment

for purchase of the property eligible u/s 54B belonged to the appellant

only and merely the registered document was executed in the name of

the wife and further the wife had not separate source of income.”


ITA No. 139/JP/2016


11. The Hon’ble Rajasthan High Court, after considering its earlier

decision in case of Kalya vs. CIT(supra) and the various other decisions

of Hon’ble Delhi High Court, Hon’ble Madras High Court, Hon’ble

Karnataka High Court, Hon’ble Punjab and Haryana High Court, and

Hon’ble Andhra Pradesh High Court, as also relied upon by the

assessee, has held that it is the assessee who has to invest and it is not

specified in the legislation that the investment is to be in the name of

the assessee and where the investment is made in the name of wife,

the assessee shall be eligible for deduction and has thus decided the

matter in favour of the assessee. The relevant findings of the Hon’ble

Rajasthan High Court are contained at para 7.2 and 7.3 of its order

which are reproduced as under:-

“7.2 On the ground of investment made by the assessee in the name

of his wife, in view of the decision of Delhi High Court in Sunbeam Auto

Ltd. and other judgments of different High Courts, the word used is

assessee has to invest, it is not specified that it is to be in the name of

assessee.

7.3 It is true that the contentions which have been raised by the

department is that the investment is made by the assessee in his own

name but the legislature while using language has not used specific

language with precision and the second reason is that view has also

been taken by the Delhi High Court that it can be in the name of wife.

In that view of the matter, the contention raised by the assessee is

required to be accepted with regard to Section 54B regarding

investment in tubewell and others. In our considered opinion, for the

purpose of carrying on the agricultural activity, tubewell and other


ITA No. 139/JP/2016


expenses are for betterment of land and therefore, it will be considered

a part of investment and same is required to be accepted.”

12. In light of legal proposition so laid down by the Hon’ble Rajasthan

High Court in case of Mahadev Balai (supra), where the investment in

the new house property has flown from the assessee, which is not in

dispute in the instant case, merely for the reason that the new

residential house property has been purchased by the assessee in the

name of his wife, the same cannot be basis for the denial of deduction

claimed u/s 54F of the Act.

13. Regarding the second condition of claiming the deduction u/s

54F, which as per AO, the assessee has not substantiated in the instant

case, which requires that assessee does not own more than one

residential house, other than new asset, on the date of transfer of the

original asset., the Assessing Officer has held that it cannot be

ascertained in absence of personal balance sheet of the assessee and in

absence of any other proper documentary evidence.

14. It is noted that during the course of appellate proceeding before

the ld. CIT(A), the assessee has contended that a confirmation to the

effect that not more than one residential house was filed before the AO

which was however not accepted without any cogent reason. Our

reference was also drawn to an affidavit of the assessee confirming the

said fact which was also submitted as confirming evidence before the

ld. CIT(A). The ld. AR has contended that ld. CIT(A) has not doubted

the said affidavit and has also not confirmed the disallowance on the

ground that it could not be verified and it was accordingly submitted

that since the revenue is not in appeal against the order of ld. CIT(A),


ITA No. 139/JP/2016


the contention so raised by the assessee should be accepted. The ld DR

fairly submitted that the ld CIT(A) has mainly relied on the decision of

Hon’ble Rajasthan High Court in case of Kalya (supra) and has not

objected to the confirmation and affidavit so filed by the assessee. We

have gone through the affidavit so filed by the assessee and are of the

view that the same is clear and self-explanatory wherein the assessee

has categorically stated that on the date of purchase of residential

property, which happens to be the date prior to date of sale of the

original asset, he didn’t own any other house other than the new asset.

In that view of the matter, the contention so raised by the ld AR is

accepted.

15. In light of above and respectfully following the decision of the

Hon’ble Rajasthan High Court in case of Mahadev Balai, the assessee is

held eligible for deduction under section 54F in respect of residential

house property purchased in the name of his wife.

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

Order pronounced in the open court on 08/12/2017.

Sd/- Sd/-

¼fot; ikWy jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Tk;iqj@Jaipur

fnukad@Dated:- 08/12/2017. *Ganesh Kr. vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to:


ITA No. 139/JP/2016


1. vihykFkhZ@The Appellant- Shri Vivek Jain, Jaipur 2. izR;FkhZ@ The Respondent- DCIT, Circle-07, Jaipur

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr@ CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur. 6. xkMZ QkbZy@ Guard File { ITA No. 139/JP/2016}

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar


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