IN THE INCOME TAX APPELLATE TRIBUNAL

INDORE BENCH, INDORE

(CONDUCTED THROUGH VIRTUAL COURT)

BEFORE Ms. MADHUMITA ROY, JUDICIAL MEMBER &

SHRI BHAGIRATH MAL BIYANI, ACCOUNTANT MEMBER

I.T.A. Nos.138/Ind/2021 & 110/Ind/2021

(Assessment Year: 2016-17)

Kalpana Jain Vs. Pr.CIT-1

152, Dravid Nagar, Indore, Indore
Indore, Sudama Nagar S.O.,
Madhya Pradesh - 452001
PAN No. ACWPJ9728J

Hasanand Khemlani & Pr.CIT-1

C/o Satnam S. Sheetal, 992- Indore
Khatiwala Tank, Indore
PAN No. AKTPK8941M
(Appellant) .. (Respondent)

Assessee by : Shri Satnam Singh Sheetal, A.R.

& Shri Santosh Deshmukh, A.R.
Revenue by : Shri P. K. Mishra, CIT.D.R.

Date of Hearing 05.01.2023

Date of Pronouncement 14.03.2023

ORDER

PER Ms. MADHUMITA ROY - JM:

Both the appeals filed by different assessees are directed against the
order dated 31.03.2021 and 27.03.2021 respectively, passed by the Ld.
PCIT-1, Indore under Section 263 of the Income Tax Act, 1961 (hereinafter
referred as to ‘the Act’) arising out of the order passed by the Ld. AO dated
11.12.2018 and 25.08.2018 respectively, for Assessment Year 2016-17
under Section 143(3) of the Act which have been held to be erroneous and
prejudicial to the interest of Revenue.
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 -2-

2. As the sale and purchase of property of the two assessee’s are inter-
connected, both the matters are heard analogously and are being disposed
of by a common order for the sake of convenience.

ITA No. 138/Ind/2021 (in case of Kalpana Jain) has been taken as the lead
case.

3. The Ld. PCIT has been pleased to direct the Ld. AO to pass afresh
assessment order afresh referring the transaction of sales and purchase by
and under the exchange deed of land at Sector-C, Scheme No. 71 to the
Departmental Valuation Officer. The same is basically under challenge
before us with the following grounds:

“1) On the facts and in the circumstances of the case, and, in law, the
Hon'ble Pr. Commissioner of Income Tax, Indore -1, Indore erred in passing the
order u/s 263 by holding that the assessment order passed by the AO u/s 143(3)
of the Income Tax Act 1961 is erroneous as well as prejudicial to the interest of
Revenue and thus in setting it aside to the file of the AO for passing fresh
assessment order after referring the transaction of sale and purchase (Via
Exchange Deed of land at Sector C Scheme No. 71 to the Departmental
Valuation Officer.

2) On the facts and circumstances of the case, the learned Hon'ble Pr.
Commissioner of Income Tax, Indore- 1, Indore had erred in ignoring that the
provision of section 56(2)(vii)(b) can be invoked only where sale consideration
on sale of immovable property is less than stamp duty valuation. Therefore, the
appellant prays that the revision order u/s 263 dated 31/03/2021 be quashed
and/or annulled.

3) Without prejudice to the above, on the facts and in the circumstances of the
case and, in law, the Hon'ble Pr. CIT-1, Indore failed to see that the capital gain
issue involved was duly examined during the assessment proceedings learned
Assessing Officer as the issue under the limited scrutiny was related to capital
gains.”

4. The assessee before us, filed her return of income on 21.12.2016

declaring total income at Rs.5,08,390/-. Upon selection of the case for
limited scrutiny through CASS, notice under Section 143(2) of the Act was
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 -3-

issued on 19.09.2017, which was duly served upon the assessee through
email. He has drawn our attention at Page No. 52 of the Paper Book filed
before us. Subsequently, due to change of incumbent, notices under
Section 142(1) alongwith Questionnaire was issued on 04.06.2018,
16.10.2018 & 12.11.2018 through ITBA/E-mail. In compliance thereof,
the assessee duly filed written submission through online. The assessment
was completed finally on 11.12.2018 accepting the return of income filed
by the assessee at Rs.5,08,390/-. However, Ld. PCIT, upon verification of
the records observed that the assessee’s claim of exemption under Section
54 of the Act to the tune of Rs.7,64,60,000/- was not verified. The assessee
had exchanged her immovable property, admeasuring 675 sq. mtr. value of
which, was declared as Rs.7,64,60,000/- (Rs.1,13,244/- sq. mtr.) with the
immovable property of one Shri Hasanand Khmlani, admeasuring 1381.68
sq.mtr. value whereof is also Rs.7,64,60,000/- (Rs.55,329/-). The same
were exchanged in mutual consent without any transaction of money.
Though the property of the assessee herein having lesser area than that of
the exchanged property, and both are situated in the same locality, the
claim of equal valuation of both the property has been questioned by the
Ld. PCIT. According to her, no enquiry and / or investigation on this
particular aspect of the matter since not done by the Ld. AO, the order
passed by the Ld. AO is erroneous and prejudicial to the interest of the
Revenue. She, therefore, set aside the order passed by the Ld.AO with a
direction upon him to refer the matter to the District Valuation Officer and
then to reframe assessment order afresh.

5. Ld. Counsel appearing for the assessee at the time of hearing of the
matter submitted before us that during the course of assessment proceeding,
the Ld. AO issued notice under Section 143(2) of the Act dated 19.09.2017
and called for evidence and/or information in support of the return filed by
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 -4-

the assessee. The limited scrutiny was identified for examination as to

whether deduction from capital gains has been claimed correctly.
Subsequently, on 04.06.2018, specific queries were raised and details were
called for including the Income Tax Return alongwith computation of
income, audit report, P&L Account, balance sheet, schedules, Annexures
for A.Ys. 2015-16 & 2016-17 and statement of bank accounts maintained
by the assessee. Complete details of capital gain or loss in tabular form
during the relevant period, the sale and purchase deeds/bills of properties in
respect of capital gain or loss were directed to be filed. The assessee was
further directed to explain and justify in respect of capital gain
consideration in Income Tax Return is less than sale of property reported in
26QB/AIR or sales consideration with documentary evidences. He was
further directed to explain and justify in respect of large deduction claimed
under Section 54 of the Act with documentary evidence. Complete details
of expenses relating to transfer of property and cost of improvement with
documentary evidences were also directed to be furnished by the assessee
by and under the issuance of the notice dated 04.06.2018 under Section
142(1) of the Act. The assessee duly furnished the entire set of details as
asked for. In this regard, the Ld. AR referred Page Nos. 56 and 58 of the
Paper Book wherein the two notices dated 04.06.2018 and 16.10.2018
issued as also different documents as mentioned above are in existence. It
was further contended that the above details were duly considered and
examined by the Ld. AO and after being satisfied with the explanation
given by the assessee, the assessment was completed under Section 143(3)
of the Act. When the issue in question has already been enquired into and
examined thoroughly by the Ld. AO in the scrutiny assessment, holding the
said order erroneous so far as it is prejudicial to the interest of Revenue due
to lack of proper enquiry and investigation invoking the provision of
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 -5-

Section 263 of the Act by the Ld. PCIT is bad in law and liable to be
quashed is the core argument of the Ld. AR before us.

6. On the other hand, the Ld. DR vehemently argued in support of the

order passed by the Ld. PCIT contending that the Ld. AO has not carried
out any enquiry while accepting the equal valuation of two different size of
properties. The Ld. DR in this respect further relied upon the Explanation
2 of Section 263 of the Act which has been introduced by way of
amendment through Finance Act, 2015 with effect from June 01, 2015,
which provides that an order of the Ld. AO shall be deemed to be
erroneous insofar as prejudicial to the interest of the Revenue if the same is
passed without making enquiry. Hence, argued that the order impugned
passed by the Ld. PCIT exercising power conferred under Section 263 of
the Act holding the order passed by the Ld. AO erroneous and insofar as
the prejudicial to the interest of the Revenue is sustainable in the eye of
law.

7. We have heard rival submissions made by the respective parties. We

have also perused the materials available on record. Though, the assessee
has raised different grounds of appeal, the crux of the challenge revolves
around the impugned order passed by the Ld. PCIT setting aside the order
passed by the Ld. AO holding it erroneous and prejudicial to the interest of
the Revenue.

8. Upon perusal of entire set of documents as submitted by the assessee

before us it appears that on 19.09.2017, the ITO issued the notice under
Section 143(2) of the Act; the same is appearing at Page Nos. 50 to 53 of
the Paper Book filed before us. It appears that the limited scrutiny was for
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 -6-

examination of the issue as to whether the deduction from capital gains has
been claimed correctly. The said notice dated 19.09.2017 is reproduced
hereinbelow:
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 -7-

9. Subsequently, on 04.06.2018, further notice under Section 142(1) of

the Act was issued by the ITO directing the assessee to submit details in
respect of capital gains claimed by the assessee. The copy of the said
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 -8-

notice dated 04.06.2018 issued by the ITO under Section 142(1) of the Act
alongwith annexure, appearing at Page Nos. 56 & 57 of the Paper Book
filed before us, is reproduced hereinbelow:

“In connection with the assessment for the assessment year 2016-17 you are
required to:

a) Furnish or cause to be furnished on or before 18/06/2018 at 01:06 PM the

accounts and documents specified overleaf.

b) Furnish and verified in the prescribed manner under Rule 14 of 1.T. Rules
1962 the information called for as per annexure and on the points or matters
specified therein on or before 18/06/2018 at 01:06 PM.

c) The above mentioned evidence/information is to be furnished online

electronically in 'E-Proceeding' facility through your account in 'e-filing'
website of Income Tax Department.

d) Para(s) (a) to (c) are applicable if you have an account in e-filing website of
Income Tax Department. Till such an account is created by you, assessment
proceedings shall be carried out either through your e-mail account or manually
(if e-mail is not available). under section PARIM car

e) In cases where order has to be passed of the Income Tax Act, 1961 read with
section 143(3), assessment proceedings would be conducted manually.

ANNEXURE

1. Please furnish copy of Income Tax returns along with Computation of

income Audit report, Profit & Loss a/c, Balance sheet, Schedules,
Annexure etc. for A.Y. 2015-16 & 2016-17 Also furnish a brief note on
the nature of your business/activities/ source of income for the year
under consideration

2. Please furnish a list and copies of all types of bank account statements
maintained for the year under statements. consideration along with the
reconciliation statements.

3. Capital Gain:

a. Please submit complete details of capital gain or loss in

tabular form during the relevant period

b. Please submit sale and purchase deeds/bills of properties

in respect of capital gain or loss
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 -9-

c. Please explain and justified in respect of Capital Gains

consideration in ITR is less than sale of property reported
in 26QB/AIR or sales consideration with documentary
evidences.

d. Please explain and justified in respect of Large Deduction

claimed us 54 with documentary evidences.

e. Complete details of expenses related to transfer of

property and cost of improvement with documentary
evidences. (if any).”

10. Relevant to mention that while replying the said notice, the assessee
duly submitted the entire details, namely, income tax return, computation
of income, balance sheet & P&L Account for A.Y. 2015-16 & 2016-17,
copy of the bank statement, computation of capital gain, copy of purchase
and sale deed of property, expenses relating to transfer of property. The
entire details including the bank statement as submitted by the assessee
before the ITO is appearing from Page Nos. 63 to 82 of the Paper Book
filed before us. In fact, Page 63 is the acknowledgement of reply in respect
of the notice issued under Section 142(1) of the Act dated 04.06.2018.

11. Upon examination of the records, the Ld. AO accepted the market
value of the property owned by the assessee admeasuring 675 sq. mtr. at
Rs.1,13,244/- per sq.mtr. and the exchanged property owned by Hasanand
Khemlani admeasuring 1381.68 sq.mtr. i.e. Rs.55,324/- per sq. mtr. thereby
accepting the valuation of both the properties at Rs.7,64,60,000/-. Such
finding of the Ld. AO has found to be is not fair and the same is violation
of the provision of Section 56(2)(vii)(b)(ii) of the Act as of the ultimate
view of the Ld. PCIT. In fact, Ld. PCIT was of the opinion that no proper
enquiry or investigation has been carried out by the Ld. AO in this regard
while accepting the returned income filed by the assessee.
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 10 -

12. We further find that the Ld. PCIT issued a show cause notice dated
23.03.2021 which reads as follows:

“Please refer to the assessment order dated 11/12/2018 for the A.Y.
2016-17 in your case. On perusal of case record for the A.Y. 2016-17 it is
noticed that you have filed Income Tax Return on 21/12/2016 declaring income
of Rs. 5,08,390/- for the assessment year 2016-17. The assessment order passed
U/s 143(3) of the Income Tax Act 1961 by the ITO - 1(2), Indore, vide order
dated 11/12/2018 assessing total Income at Rs. 5,08,390/-.

2. On perusal and examination of the records it appears that the order u/s
143(3) of the I. T. Act, 1961 dated 11/12/2018 for the A.Y, 2016-17 is erroneous
in so far as it is prejudicial to the interest of revenue as the order has been
framed without making proper enquiries and investigation with respect to same
issue.
3. As per the information available on records you have claimed exemption
u/s 54 of Rs. 7,64,00,000/-. It is noted that you have exchanged an immovable
property owned by you admeasuring 675 Sq. meter with construction of 1500 Sq
Feet. The value of the property is Rs. 7,64,00,000/-. You have exchanged the
same with the immovable property of Shri Hassanand Khemlani. The value of
the property exchanged is also Rs. 7,64,60,000/-, Value of both properties is
same and exchange in mutual consent without any transaction of money. No
monetary Transaction took place between the parties.

It is further noted that the sold property area is more than the purchased
property area and hence the property exchange is not equal. During assessment
proceedings the AO failed to emphasis the area of land which is situated of the
same area. The fair market value of the property owned by you, admeasuring
675 Sq meter was fixed at Rs. 7,64,60,000/- Le. 1,13.244/- per sq. meter whereas
the fair market value of property owned by the Shri Hassanand Khemlani
admeasuring 1381.68 Sq. meter was also fixed at Rs. 7.64,60,000/- 1.0. 55,324/-
per Sq. mater which is not fair and correct. You have violated provisions of
section 56(2)(vii)(b)(i) of the Income Tax Act, 1961.

4. The AO did not examine these facts by conducting any enquiry or

Investigation. Therefore, the assessment order passed by the AO appears to be
erroneous in so far as it is prejudicial to the interest of the revenue. You are,
therefore, required to show cause as to why the provisions of section 263 should
not be invoked in your case for the reasons mentioned above.

5. You are, accordingly, given an opportunity of being heard on 26.03.2021 at

04:30 PM. You may also file your reply through mail along with all relevant
records and documents. It is not necessary to attend the office for this purpose
and the reply details may be filed by email. In case of your non compliance, the
matter would be decided on merits of the case.”
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 11 -

13. Before the Ld. PCIT, in response to the show cause notice dated
23.03.2021, the assessee submitted as follows:

"We have properly explained the deduction claimed u/s 54/54F in respect of
both house properties exchanged and in support submitted copy of registered
exchange deed during the course of assessment proceeding u/s 143(3), it is a
transaction relating to transfer and acquisition of house property along with
land appurtenant thereto, hence there is no question in respect deduction u/s
54/54F.
With due humble request it is submitted to your honour that we have exchanged
property at Rs. 7,64,60,000/- adopted by the stamp authority, which is full value
consideration for both the parties.
Because properties are not exchanged below the value adopted by stamp
valuation authority, question of taxation in respect of difference due to lower
valuation do not arise.
Because it is very well settled law u/s 50C and 56(2)(vii)(b)(ii) that: -
Section 50C (1) Where the consideration received or accruing as a result of the
transfer by an assessee of a capital asset, being land or building or both, is less
than the value adopted or assessed for assessable] by any authority of a State
Government (hereafter in this section referred to as the "stamp valuation
authority") for the purpose of payment of stamp duty in respect of such transfer,
the value so adopted or assessed for assessable] shall, for the purposes of
section 48, be deemed to be the full value of the consideration received or
accruing as a result of such transfer.
56(2)(vii)(b)(ii): Where an individual or a Hindu undivided family receives, in
any previous year, from any person or persons on or after the 1st day of
October, 2009 [but before the 1st day of April, 2017)-
b. Any immovable property, -
ii. Fora consideration which is less than the stamp duty value of the
property by an amount exceeding fifty thousand rupees, the stamp duty
value of such property as exceeds such consideration;
After analysis of above section it is very well clear that, stamp value
adopted by stamp value authority is final value if transactions are
carried on such value but if transaction is carried on below the stamp
value than stamp value will be Considered as final value, same time if
transaction value is more than stamp valuation than transaction value
will be the final value.

The Market value in Scheme no. 71 is Rs. 55338/ per square meter on which
stamp value authority fixed stamp duty, if we value both the properties as per
market value following will be the price: -

Market Value Transaction Value

ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 12 -

1. Kalpana Jain 675 * 55338 = 37353150/-

76460000/-
2. HassanandKhemlani 1381.68 * 55338 = 76460000/-
76460000/-
As Per The Indian stamp (M.P.) amendment act 2014, as amended on
06/01/2015 schedule 1, Point no. 34 is as follows:-
Copy of The Indian stamp (M.P.) amendment act, 2014 is enclosed as per
Annexure 1

34. Exchange of Property - Instrument of The same duty as conveyance (No. 25)
on the

Market value of the property of greater value, which is the subject matter of
Exchange.

In case of exchange deed the stamp duty on the value of higher consideration is
to be paid as per market value.
If you see in above case value, which will be considered as per income tax act
will be as follows-

1. Kalpana Jain -Transaction value (which is more than stamp value) Rs.
76460000/-

2. Hassanand Khemlani -Stamp Value (which is not below stamp value) Rs.
76460000/-

Because both the values are not below the value adopted by stamp value
authority, hence no additional taxability in the hands of both the parties

Your honor will appreciate the fact that location of both. The properties
are different, property owned by Kalpana Jain is in very prime location
at PhootiKothi Main road having a double value than property of Mr.
Hassanand Khemiani located on outer Ring Road inside after service
road. The learned assessing officer has considered the facts and we have
submitted the copy of exchange deed before the learned assessing officer
and it has been informed that the other party exchange has also been
assessed u/s 143(3) of the income tax act and the said party has also
submitted documents with him and explained fact, which shows that facts
have been explained and accepted.

Hence it is requested to your honour, that it is not erroneous in so for as

it is not prejudicial to the interest of revenue, hence the revision
proceedings u/s 263 of the income tax act should be dropped.

We assure your good self to furnish any further information or details as

may be required by you.
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 13 -

We have properly explained the deduction claimed u/s 54/54F in respect

of both house properties exchanged and in support submitted copy of
registered exchange deed during the course of assessment proceeding u/s
143(3), it is a transaction relating to transfer and acquisition of house
property along with land appurtenant thereto; hence there is not
question in respect of deduction u/s 54/54F"

14. Before the Ld. PCIT, as it appears from the above reply, the assessee
further contended that this is a transaction relating to transfer and
acquisition of house property alongwith land pertinent thereto. Further
that, the property was exchanged at Rs.7,64,60,000/-, the value adopted by
the Stamp Duty Authority taking full value of consideration for both the
cases. As the property was not exchanged below the value adopted by the
Stamp Valuation Authority, the question of taxation in respect of difference
due to lower valuation does not arise. It was further contended that though
the property of the assessee consisting of much lesser area, the same is
lying at Phooti Kothi, Main Road, having double valuation than the
property of other party, namely, Hasanand Khemlani located at outer Ring
Road, inside after the service Road. The locale of the property of the
assessee is having much commercial value than that of the other property
of the said Hasanand Khemlani.
In fact, this particular fact was placed before the Ld. AO. The
assessee submitted the entire details of the property including the exchange
deed and only upon proper examination of the said documents, the
assessment was finalized by accepting the return of income filed by the
assessee.

15. We further find that a second show cause notice dated 27.03.2021
was also issued by the Ld. PCIT; the same is appearing at Page Nos. 95 to
98 of the Paper Book filed before us and also being reproduced in the order
impugned. The same is also reproduced hereineblow:
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 14 -

“Please refer to the show cause notice dated 20/03/2021 in your case. In
addition to the earlier show cause notice the assessment records for the AY
2016- 17 reveals that you have sold plot (with small construction) no. BX-7,
Sector C Scheme no 71 admeasuring 675 Mtrs. for a consideration of Rs.
76460000/- to Sh. Hassanand Khemlani. The average sale price per Sq. Mtr.
comes to Rs. 113244/-. Through the same sale deed (called as exchanged deed)
you have purchased plot (with small construction) no. 7A, Sector C, scheme no
71 from the same party for a consideration of Rs. 76460000/-. The size of the
plot purchased is 1381.68 Mtrs. Accordingly, the average purchase price per
Mtr. comes to Rs. 55324/- only...

In the case of Sh. Hassanand Khemlani, the assessment passed by the AO

was reviewed and it was observed as under:

It is seen from the assessment records that the assess00 has exchanged
(sold) his plot of land bearing no. 7A, Sector C Scheme no 71 admeasuring
1381.68 Mts for a consideration of Rs. 76460000/- However, it is seen that in
the same locality without any significant difference except a few square ft. of
construction thereupon, the assessen has purchased plot no. BX-7, Sector C,
Scheme No. 71 admeasuring 675 sq. Mtr for the same consideration of Rs.
764600000/-.

It is surprising that both the transactions were of the same value. It is

also surprising that without any cogent reason, the assessee sold double area
and that too a comer plot of significant commercial value at half price. All these
facts should have been deeply enquired by the AO. It appears to be a fit case for
reference to the Valuation Authority. However, perusal of the assessment
records show that the assessee has not raised a single query on this anomalous
transaction. The AO failed to carry out basic enquiry regarding accentuating
circumstances preceding this transaction which forced the assessee to accept
less than half the value and then to buy a much smaller plot by investing the
exact amount which he received from the sale of his plot No doubt, the
transaction of sale of capital asset is governed by the provisions of section 50C.
However, Section 50C provides a yardstick regarding adoption of a minimum
sale value in case of transfer of capital asset. This is primarily to curb the
malpractices of showing the sale transaction at abysmal prices whereas the
market value is multiple times. The price adopted by the stamp valuation
authority has no direct linkage with the fair market price and it is a price for the
guidance of Registrar of properties. It is a price which the stamp valuation
authorities would use to charge stamp duty. The AO is duty bound to assess the
correct income and the rigours of Section 50C are not binding on him. The
nature of transactions, particularly the valuation of the land sold by the assessee
ought to have raised the eyebrows of the AO. However, instead of raising query
and going deep into the issue, the AO accepted whatever was submitted to him.
This approach of the AO clearly defies the purpose of scrutinizing the cases
from the point of view of protecting interests of the revenue. The least the AO
should have done was to refer the transaction for valuation as per provisions of
Section 142A. As the AO failed to make any query, cause any enquiry and refer
the transaction to the Valuation Authority for determining the fair market value,
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 15 -

the order of the AO is held to be not only erroneous but also prejudicial to the
interests of the Revenue.

The AO is directed to ascertain the facts leading to the transaction and

refer the sale of plot by the assessee to Valuation Authority for ascertaining its
fair market value."

Perusal of the case records in your case shows that the AO has not
raised any query or caused any enquiry regarding the Fair Market Value of the
Plot purchases by you vis a vis the plot sold by you in the same vicinity. In view
of above observations, the fair market value for the purchase of plot no 7A,
Sector C, Scheme No 71 should have been much higher. In this connection, the
AO should have called for details of valuation of the aforesaid plot or should
have referred the same to the valuation for arriving correct fair market value
and applicability of provision of section 56(2)(vii)(b).

Therefore, the order passed by the AO appears to be erroneous in so far

as prejudicial to the interests of the revenue.

You are therefore required to show cause why provisions of Section 263
be not invoked in your case for the reasons mentioned above.

You are, accordingly given an opportunity of being heard on 30.03.2021

at 4 PM. You may file your reply through email along with all relevant records
and documents. It is not necessary to attend the office for this purpose and the
reply/details may be filed by email. In case of your non compliance, the matter
would be decided on the merits of the case.”

16. In response to the second show cause notice dated 27.03.2021, the
assessee replied on 30.03.2021 reiterating the stand taken earlier. The crux
of the said statement is as follows:

"Received your above mentioned notice on dated 27/03/2021, in regard

with revision proceeding u/s 263 of the income tax act, 1961 issuing
show cause to invoke provisions of Section 263 of the Act, assuming that
the assessment order passed by the AO is erroneous to the prejudicial
interest of the revenue.

In this regard, it is respectfully submitted as under that the assessee has

already filed his objection for initiation of your proceeding u/s 263 of the
act vide her letter dated 26/03/2021, submitted on e-proceeding vide
acknowledgement no. 26032114559382 which may also be considered.

1. In continuation to our above reply, assessee submit that transaction has

been carried at stamp value price as applicable in exchange deed. Please
not that I have sold my residential property situated at BX-7, Sector C,
Scheme No. 71, Indore admeasuring plot area 675 Sq. meter having
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 16 -

construction thereon 1500 Sq ft. at market value. This plot is situated at

very prime location on phooti koti main road which has attained high
commercial value on the road and this property was exchanged with the
residential property situated at plot no. 7-A, Sector C, Scheme No. 71,
Indore and plot is admeasuring 1381.68 sq meter. This plot has been
situated at ring road side area and has not attained commercial nature,
therefore despite having more land could not have market value as that
of area of plot where my residential plot situated.
2. That as already informed the stamp duty has been paid on the maximum
value in the exchange deed. My residential property having commercial
nature was having the same market value as that of with the larger plot
of Shri Hassanand Khemlani therefore at market rate the exchange was
made.
3. That, I would submit that I have sold the property at market value and
purchased the property at market value therefore the case is not fit by the
provisions of section 56(2)(vii) (b) and the same is reproduced
hereunder-
1. Without consideration, the stamp duty value of which exceeds fifth
thousand rupees, the stamp duty value of such property:
2. For a consideration which is less than the stamp duty value of the
property by an amount exceeding fifty thousand rupees, the stamp duty
value of such property as exceeds such consideration:
1. Referring to above section it is very clear that the invocation of section
56(2)(vii) (b) (II) would be applicable where the consideration is less
than the stamp duty value. In my case the consideration is as per the
stamp duty value and have purchased property at market value which is
the guideline value. Since the consideration for purchase of property is
not less than the stamp duty value and therefore there is no difference in
value.
2. That in view of above it is very clear that the transaction of exchange of
residential property have been taken place at market value which is not
below the stamp value and therefore the provisions of section
56(2)(vii)(b) (II) are not attracted and your proposed action u/s 263 is
not according to the provisions of law and the assessment order
completed by the assessing officer was after verifying all the facts and
circumstances including the market value of both the properties under
exchange. Please note that during the assessment proceedings assessee
has submitted all details and submitted documents as desired by the
Assessing officer vide nis notice dated 04/06/2018 bearing no
ITBA/AST/F/142(1)/2018-19/10100006992(1) submitted along with
justification and after satisfying, he has passed the assessment order and
therefore is not erroneous order.
At your honour has mentioned in the case of Mr.
Hassanand Khemlani, the assessing officer has not referred the
matter to the valuation officer and has only in relied on stamp
duty value. In this regards, we submit that is the transaction has
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 17 -

been carried out at market value which is not below guideline

value and for the purpose of section 50C and 56(2)(vii)(b)(i) the
stamp duty value is a bench mark for market value and there no
occasion/requirement for such reference to the valuation officer
and therefore your honours observation is not as per the
provisions of the Act.

You are therefore requested to kindly drop the proceeding

u/s 263 under the Act. Power of attorney in favour of CA Santosh
Deshmuch is enclosed. "

17. While considering the second show cause notice issued by the Ld.
PCIT dated 27.03.2021 we find that the Ld. PCIT has made a reference of
the assessment order passed by the Ld. AO in the case of other party,
namely, Hasanand Khemlani. According to him, the assessee was not
raised a single query on this anomalous transaction. The Ld. AO failed to
carry out basic enquiry regarding accentuating circumstances preceding
this transaction which forced the assessee to accept less than half the value
and then to buy a much smaller plot by investing the exact amount which
he received from the sale of his plot of land to the assessee before us,
namely, Kalpana Jain. The Ld. PCIT further referred her observation on
that matter to this effect that the fair market value for the purchase of Plot
No. 7A, Sector – C, Scheme No. 71 belong to that assessee should have
been much higher and the Ld. AO should have called for details of
valuation of the said plot or should have referred to the same to the
Valuation Officer for arriving at the correct fair market value applying of
provision of Section 56(2)(vii)(b) of the Act.

18. In order to determine the fair market value of the property in

question, such approach of the Ld. AO defies the purpose of scrutinizing
the cases from the point of view of protecting the interest of Revenue. As
the Ld. AO failed to make any query, cause any enquiry and refer the
transaction to the Valuation Authority to determine the fair market value,
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 18 -

the order passed by the Ld. AO in respect of other assessee, namely,

Hasanand Khemlani, has been also held to be erroneous and prejudicial to
the interest of the Revenue.

19. We, under these facts and circumstances of the matter, have taken an
attempt to verify the assessment proceeding initiated by the Ld. AO from
the records, particularly, the paper book filed before us in the other matter
being ITA No.110/Ind/2021. It is annexed at Page No. 28 of the said Paper
Book filed by the said assessee. In fact, the following aspect coming out
from the records available before us in case of the other assessee, namely,
Shri Hasanand Khemlani:
On 11.06.2018, notice under Section 142(1) of the Act was issued
upon the said assessee by ITO-4(1), Indore directing the assessee to file
certain details.
The copy of the said notice dated 11.06.2018 alongwith annexure is
reproduced hereinbelow:

“In connection with the assessment for the assessment year 2016-17 you are
required to:
a) Furnish or cause to be famished on or before 20/06/2018 at 11:01 AM
the accounts and documents specified overleaf.
b) Funrish and verified in the prescribed manner under Rule 14 of 1.T.
Rules 1962 the information called for as per annexure and on the points or
matters specified therein on or before 20/06/2018 at 11:01 AM.
c) The above mentioned evidence/information is to be furnished online
electronically in ‘E-Proceeding’ facility through your account in 'e-filing
website of Income Tax Department.
d) Para(s) (a) to (c) are applicable if you have an account in e-filing
website of Income Tax Department. Till such an account is created by you,
assessment proceedings shall be carried out either through your e-mail account
or manually (if e-mail is not available).
e) In cases where order has to be passed under section 153A/153C of the
Income Tax Act, 1961 read with section 143(3), assessment proceedings would
be conducted manually.”
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 19 -

ANNEXURE

“1. The reason for selection for scrutiny is large deduction claimed as 548,
54B, 54G, 54A (Schedule CG of ITR). Therefore you are requested to file
the full details of property sold and its cost of acquisition and file copy of
bank statement in which sale consideration has been credited

2. In the retum of income you have shown sale of immovable property at Rs

80206000/- please file the copy of sale deed and purchase deed of the
property sold. Please also file the computation of LTCG along with
documentary evidences. Further you have claimed deduction us 54 at Rs.
7.64,60,000/- please file the proof and details of deduction claimed,

3. Please file the details of short term capital gain offered at Rs.120000/-.

4. Penubay of the computation of income led by you shows that you have
offered income from share trading us 44AD. Please file the full details
and explain nature of business 5. Please file the capital alc statement of
affair as on 31/03/2016 for current year and for last two assessment year
ie. AY. 2014-15 & 2015-16

6. Please file the copy of assessment orders passed in earlier year's us

143(3) if any.”

20. Thus, it appears that details of the property sold and its cost of
acquisition, the bank statement in which sale consideration has been
credited were directed to be submitted in view of the matter being selected
for scrutiny as large deduction was claimed under Section 54B, 54D, 54A
(Schedule CG of ITR). Apart from that as the assessee has shown the sale
of immovable property at Rs.8,02,06,000/-, the assessee was directed to file
the copy of sale deed and purchase deed of the property sold and the
computation of Long Term Capital Gain alongwith documentary evidences.
As the assessee claimed deduction under Section 54 of the Act at
Rs.7,64,60,000/-, the assessee was directed to file proof and details of
deduction claimed. Further that, the details of Short Term Capital Gain at
Rs.1,20,000/- was directed to file. The same is appearing at Page Nos. 26
& 27 of Paper Book filed by the said assessee, namely, Hasanand
Khemlani.
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 20 -

21. In reply to the same, the assessee on 20th June, 2018 filed the
following submission alongwith exchange deed:

“With reference to your notice dated 11/06/2018 issued u/s 142(1) of the Income
Tax Act 1961 for the above assessment year, it is submitted as under-

1. (a) The assessee has sold its 'property at Scheme No. 71, Indore during the
relevant assessment year.

The FMV of the property sold is Rs.7,64,60,000/- which is equal to the

FMV of the property purchased in exchange.

LTCG has been computed as under-

FMV of the property sold =Rs.7,64,60,000/-
(-) Indexed Cost of acquisition =Rs. 13,85,897/-
(-) Cost of Improvement =Rs.8,93,882/-
Capital Gain (before claiming exemption u/s 54) - Rs. 7,41,80,221/-
(b) Plot of Land at Natraj Nagar has also been sold on which the
assessee has earned Long Term Capital Gain during the relevant
assessment year.
LTCG has been computed as under:-
Sale Value =Rs.37,46,000/-
(-) Indexed Cost of acquisition =Rs.3,70,629/-
Capital Gain (before claiming exemption u/s 54) = Rs. 33,75,371/-
(a)+(b)=Total Capital Gain (before claiming exemption u/s 54)=
Rs.7,75,55,592/-
Less: Exemption u/s 54 = Rs 7,64,60,000/-
Capital Gain = Rs.10,95.592/-

Summary

STATEMENT OF LONG TERM CAPITAL GAIN

Particulars Sale Date Sale Value Purchase Cost of Indexed Cost of Total Capital
Date acquisition Cost Improvem Acquisition Gain
ent Cost

(a) Sale of 30/07/15 7,64,60,000 24/04/98 4,50,000 13,85,897 8,93,882 22,79,779 7,41,80,22
Property 1

(b) Sale of 27/05/15 37,46,000 11/06/86 48,000 3,70,629 3,70,629 33,75,371

Plot at
Natraj
Nagar

7,75,55,59
2

For your ready reference, with respect t& (a) above :-

ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 21 -

Copy of exchange deed, purchase deed of property sold in exchange

and evidence of 'cost of improvement' are attached herewith.

For your ready reference, with respect to (b) above :-

Copy of sate deed and purchase agreement are attached herewith.

2. As per our reply no. 1 above.

3. Details of Short Term Capital Gain

Particulars Name of the Sale Date Sale Value Purchase Cost of Total Sale Capital
buyer Date acquisition Considerati Gain
on

(a) Sale of Ramhet 22/01/16 6,65,000 13/03/15 12,10,000/- 13,30,000/- 1,20,000/-

Plot Meena& (6,65,000/-+
Santosh Bai 6,65,000/-)
Meena

(b) Sale of Jitnedra 22/01/16 6,65,000 13/03/15

Plot Oswal& Laxmi
Oswal

For your ready reference, copy of sale deeds and purchase deed with respect to
the property sold are attached herewith.

4. No share trading has been done by the assessee during the relevant
assessment year.
However, the assessee is involved in 'trading & repairing of TV, radios,
tape recorded, etc. from which income was camed & offered as per the
provisions u/s 44AD on sales/receipts of Rs.18,43,693/- @8% (ie, Rs.
1,47,495/-) during the relevant assessment year. Details of income earned
are attached herewith.

5. No income tax scrutiny of the assessee has been carried out in the earlier
years.”

22. The said assessee was further issued a notice under Section 142(1) of
the Act followed by notice on 22.06.2018 with a direction upon him to file
the following documents; the extract of the said notice dated 22.06.2018 is
reproduced hereinbelow:

“In connection with the assessment for the assessment year 2016-17 you are
required to:
a) Furnish or cause to be furnished on or before 28/06/2018 at 11:15 AM the
accounts and documents specified overleaf.

b) Furnish and verified in the prescribed manner under Rule 14 of T. Rules 1962 the
information called for as per annexure and on the points or matters specified
therein on or before 26/06/2018 at 11:15 AM.
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 22 -

c) The above mentioned evidence/information is to be furnished online

electronically in E-Proceeding facility through your account in e-filing website of
Income Tax Department.

d) Para(s) (a) to (c) are applicable if you have an account in e-filing website of
Income Tax Department. Till such an account is created by you, assessment
proceedings shall be carried out ether through your e-mail account or manually (if
e-mail is not available)

e) in cases where order has to be passed under section 153A/153C of the Income
Tax Act 1961 read with section 143(3), assessment proceedings would be conducted
manually.”

ANNEXURE

1. Please refer to your e-mail dated 19/06/2018 enclosing therewith clarification

letter and supporting documents to return filled and property purchased but you
have not filed any details of property purchased in exchange at Rs. 7,64,60,000/-
and claimed deduction u/s 54, therefore you are once again requested to clarify and
submit the full details of exemption claimed u/s 54 at Rs. 7,64,60,000/- Please
explain the nature of property acquired in exchange against sale of plot at Natraj
Nagar and sale of plot (Situation not mentioned).

2. The reason for selection for scrutiny is large deduction claimed u/s 54B, 54D,
54G, 54A (Schedule CG of TR). Therefore you are requested to file the full details
of property sold and its cost of acquisition and file copy of bank statement in which
sale consideration has been credited.

3. In the return of income you have shown sale of immovable property at Rs.
80206000/-; please file the copy of sale deed and purchase deed of the property
sold. Please also file the computation of LTCG along with documentary evidences.
Further you have claimed deduction u/s 54 at Rs. 7,64,60,000/- please file the proof
and details of deduction claimed.

4. Please file the details of short term capital gain offered at Rs. 120000/-

5.Perusal of the computation of income filed by you shows that you have offered
income from repairing work of TV, radios, tape recorder etc. and income has been
shown at Rs. 1,47 495/- @8% of total receipts of Rs. 18,43,693/- u/s 44AD. Please
file the full details and explain why income from profession should not be adopted
@ 50% as per the provisions of sec. 44AD?”

23. Thus, it appears from the notice dated 22.06.2018, the said Hasanand
Khemlani was directed to file the details of property purchased in exchange
at Rs.7,64,60,000/- and clarify and submit the details exemption claimed
under Section 54 of the Act at Rs.7,64,60,000/-. The Ld. AO further
directed the said assessee to explain the nature of the property acquired in
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 23 -

exchange against sale and purchase of the other property mentioned

therein. The said assessee was further directed to file the proof and details
of the deduction claimed under Section 54 of the Act to the tune of
Rs.7,64,60,000/-.

24. In reply whereto, the assessee submitted the following on

26.06.2018. The same is reproduced hereinbelow:

“With reference to your notice dated 22/06/2018 issued u/s 142(1) of the
Income Tax Act 1961 for the above assessment year, it is submitted as under:-

1. Details of property acquired in exchange :-

Properties at Scheme No. 71, Indore have been exchanged during the
relevant assessment year.
The property acquired by the assessee under exchange is situated at BX-7,
Scheme No. 71, Sector-C, Indore as evident from point no. 1 of the exchange
deed already e-filed before your honor.
The property given by the assessee under exchange is situated at 7-A,
Scheme No. 71, Sector-C, Indore as evident from point no. 2 of the exchange
deed already e-filed before your honor.

Apart from the above, a plot of land at Natraj Nagar has also been sold during the
relevant assessment year on which the assessee has earned Long Term Capital
Gain.

The details and evidences of 'plot of land at Natraj Nagar sold' and 'exchange' have
already been e-filed before your honor in our earlier reply.

Details of immovable properties sold during the relevant assessment year on which
the assessee earned Long Term Capital Gain as desired are attached herewith:-

Particulars Sale Date Sale Value Purchas Cost of Indexed Cost of Total Capital
e Date acquisitio Cost Improve Acquisition Gain
n ment Cost
(a) Sale of 30/07/15 7,64,60,000 24/04/98 4,50,000 13,85,897 8,93,882 22,79,779 7,41,80,22
Property at 1
Scheme No.
71
(b) Sale of 27/05/15 37,46,000 11/06/8 48,000 3,70,629 3,70,629 33,75,371
Plot at 6
Natraj
Nagar
7,75,55,59
2

Copy of bank statement reflecting the receipts on account of sale of plot at Natraj
Nagar as desired is attached herewith.
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 24 -

With respect to.(a) above :-

Copy of exchange deed, purchase deed of property sold in exchange and evidence of
'cost of improvement' have already been e-filed before your honor in our earlier
reply.

With respect to (b) above :-

Copy of sale deed and purchase agreement have also been e-filed before
your honor in our earlier reply.

3. (a) The assessee has sold its 'property at Scheme No. 71, Indore' during the relevant
assessment year.
The FMV of the property sold is Rs.7,64,60,000/- which is equal to the FMV of the
property purchased in exchange.

LTCG has been computed as under >

FMV of the property sold = Rs .7,64,60,000/-
(-) Indexed Cost of acquisition = Rs.13,85,897/-
(-) Cost of improvement = Rs.8,93,882/-____________________
Capital Gain (before claiming exemption u/s 54) = Rs. 7,41,80,221/-

(b) Plot of Land at Natraj Nagar has also been sold on which the assessee
has earned Long Term Capital Gain during the relevant assessment year.

LT.CG- has been computed as under :-

Sale Value = Rs.37,46,000/-
(-) Indexed Cost of acquisition = Rs.3,70,629/-/-
Capital Gain (before claiming exemption u/s 54) = Rs. 33,75,371/-

(a) + (b)-Total Capital Gain (before claiming exemption u/s 54)=

Rs.7,75,55,592/-

Less : Exemption u/s 54 = Rs.7,64,60,000/-_____________

Capital Gain =Rs.10,95,592/-_______________

Summary

STATEMENT OF LONG TERM CAPITAL GAIN

Particular Sale Date Sale Value Purchase Cost of Indexed Cost of Total Capital
s Date acquisition Cost Improvemen Acquisition Gain
t -Cost
(a) Sale of 30/07/15 7,64,60,000 24/04/98 4,50,000 13,85,897 8,93,882 22,79,779 7,41,80,221
Property
(b) Sale of 27/05/15 37,46,000 11/06/86 48,000 3,70,629 3,70,629 33,75,371
Plot at
Natraj
Nagar
7,75,55,592

With respect to (a) above :-

ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 25 -

Copy of exchange deed, purchase deed of property sold in exchange and

evidence of 'east of improvement' have already been e-filed before your honor in
our earlier reply.

With respect to (b) above :-

Copy of sale deed and purchase agreement have already been e-filed before
your honor in our earlier reply.

4. Details of Short Term Capital Gain

Particulars Name of the Sale Date Sale Value Purchase Cost of Total Sale Capital Gain
buyer Date acquisition Considerati
on

(a) Sale of Ramhet 22/01/16 6,65,000 13/03/15 12,10,000/- 13,30,000/- 1,20,000/-

Plot Meena & (6,65,000/-
Santosh Bai + 6,65,000/-
Meena )

(b) Sale of Jitnedra 22/01/16 6,65,000 13/03/15

Plot Oswal &
Laxim
Oswal

Copy of sale deeds and purchase deed with respect to the property sold
have already been e-filed before your honor in our earlier reply.

5. The assessee is involved in 'trading & repairing of TV, radios, tape

recorder, etc.' from which income was earned & offered as per the
provisions u/s 44AD on sales/receipts of Rs. 18,43,693/- @ 8% (ie, Rs.
1,47,495/-) during the relevant assessment year.
Where no books of accounts have been maintained, the assessee has
offered income at eight per cent of the total turnover/gross receipts as
per the provisions of section 44AD of the Income Tax Act 1961.
However if the assessee offers a sum higher than the aforesaid sum, then
such higher income shall be deemed to be the profits and gains of such
business chargeable to tax under the head "Profits and gains of business
or profession".
However, the department cannot apply a profit % which is higher than
8% as specified in the provisions of section 44AD of the Income Tax Act
1961.”

25. Apart from that, the bank statement reflecting the amount paid by the
assessee in respect of stamp duty valuation, income tax return filed by the
assessee for A.Y. 2016-17 showing salary income of Rs.1,97,500/- from
M/s. Sai Diya Buildcon Pvt. Ltd. during the relevant financial year which
was inadvertently left to be included in the return of income filed on
05.08.2016 were duly filed by the said Hasanand Khemlani.
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 26 -

26. As we find that the query has already been raised in respect of the
same issue in the case of Hasanand Khemlani, thus, the very basis of the
second show cause issued by the PCIT dated 27.03.2021 appears to be
baseless. We have further gone through the order passed by the Ld. AO in
the case of Hasanand Khemlani wherefrom it appears that after considering
the papers and documents available on record, the assessment was finalized
by the Ld. AO on 25.08.2018 even taking into consideration of revised
statement of return filed by the assessee. After careful reading of entire
records of the matter, we decline to observe that no enquiry has been
conducted in the case of Hasanand Khemlani which has been recorded by
the Ld. PCIT in the second show cause issued to the assessee before us on
27.03.2021 and sought to be made the basis of holding the order passed by
the Ld. AO on 11.12.2018 in the scrutiny assessment erroneous and
prejudicial to the interest of the Revenue in the case of the assessee before
us, namely, Kalpana Jain. In fact sufficient enquiry is being found to have
made by the Ld. AO in both the cases.

27. Coming back to the factual aspect of the case in hand before us, we
find that Ld. AO in the instant case duly raised queries on 04.06.2018
appearing at Page No.56 of paper book filed before us followed by
subsequent notice under Section 143(2) of the Act dated 16.10.2018
appearing at Page No. 58 of the Paper Book filed before us which have
already been reproduced hereinabove and discussed elaborately. We also
find that detailed submission and also the explanation in regard to the claim
made by the assessee were duly furnished before the Ld. AO and therefore,
upon making sufficient enquiry and upon considering the same, the Ld. AO
has finalized and/or completed the assessment accepting the returned
income filed by the assessee.
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 27 -

28. An inquiry made by the Assessing Officer, considered inadequate by

the Commissioner of Income Tax, cannot make the order of the Assessing
Officer erroneous on account of non-verification. In our view, the order can
be erroneous if the Assessing Officer fails to apply the law rightly on the
facts of the case or he has misunderstood the facts of the case. As far as
adequacy of inquiry is considered, there is no law which provides the
extent of inquiries to be made by the Assessing Officer. It is Assessing
Officer’s prerogative to make inquiry to the extent he feels proper. The
Commissioner of Income Tax by invoking revisionary powers under
section 263 of the Act cannot impose his own understanding to the extent
of inquiry. There are a number of judgments by various Hon’ble High
Courts in this regard.

29. Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167
(Del.), made a distinction between lack of inquiry and inadequate inquiry.
The Hon’ble court held that where the AO has made inquiry prior to the
completion of assessment, the same cannot be set aside u/s 263 of the Act
on the ground of inadequate inquiry. The relevant observation of Hon’ble
Delhi High Court reads as under:

“15. Thus, even the Commissioner conceded the position that the Assessing
Officer made the inquiries, elicited replies and thereafter passed the assessment
order. The grievance of the Commissioner was that the Assessing Officer should
have made further inquires rather than accepting the explanation. Therefore, it
cannot be said that it is a case of ‘lack of inquiry’.”

30. The Hon’ble Bombay High Court in case of Gabriel India Ltd.
[1993] 203 ITR 108 (Bom), discussed the law on this aspect in length in the
following manner:

“The consideration of the Commissioner as to whether an order is erroneous in

so far as it is prejudicial to the interests of the Revenue, must be based on
materials on the record of the proceedings called for by him. If there are no
materials on record on the basis of which it can be said that the Commissioner
acting in a reasonable manner could have come to such a conclusion, the very
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 28 -

initiation of proceedings by him will be illegal and without jurisdiction. The

Commissioner cannot initiate proceedings with a view to starting fishing and
roving enquiries in matters or orders which are already concluded. Such action
will be against the well-accepted policy of law that there must be a point of
finality in all legal proceedings, that stale issues should not be reactivated
beyond a particular stage and that lapse of time must induce repose in and set at
rest judicial and quasi-judicial controversies as it must in other spheres of
human activity.

31. The Mumbai ITAT in the case of Sh. Narayan TatuRane Vs. ITO,
I.T.A. No. 2690/2691/Mum/2016, dt. 06.05.2016 examined the scope of
enquiry under Explanation 2(a) to section 263 in the following words:-

“20. Further clause (a) of Explanation states that an order shall be deemed to be
erroneous, if it has been passed without making enquiries or verification, which
should have been made. In our considered view, this provison shall apply, if the
order has been passed without making enquiries or verification which a reasonable
and prudent officer shall have carried out in such cases, which means that the
opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the
nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness
in the facts and circumstances of the case. Hence, in our considered view, what is
relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed
the order after carrying our enquiries or verification, which a reasonable and
prudent officer would have carried out or not. It does not authorise or give
unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion,
the same has been passed without making enquiries or verification which should
have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that
the enquiries or verification conducted by the AO was not in accordance with the
enquries or verification that would have been carried out by a prudent officer.
Hence, in our view, the question as to whether the amendment brought in by way of
Explanation 2(a) shall have retrospective or prospective application shall not be
relevant.”

32. The Hon’ble Supreme Court in recent case of Principal

Commissioner of Income-tax 2 v. Shree Gayatri Associates [2019] 106
taxmann.com 31 (SC), held that where Pr. CIT passed a revised order after
making addition to assessee's income under section 69A in respect of on-
money receipts, however, said order was set aside by Tribunal holding that
AO had made detailed enquiries in respect of such on-money receipts and
said view was also confirmed by High Court, SLP filed against decision of
High Court was liable to be dismissed. The facts of this case were that
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 29 -

pursuant to search proceedings, assessee filed its return declaring certain

unaccounted income. The Assessing Officer completed assessment by
making addition of said amount to assessee's income. The Principal
Commissioner passed a revised order under section 263 on ground that
Assessing Officer had failed to carry out proper inquiries with respect to
assessee's on money receipt. In appeal, the Tribunal took a view that
Assessing Officer had carried out detailed inquiries which included
assessee's on-money transactions and Tribunal, thus, set aside the revised
order passed by Commissioner. The Hon’ble High Court upheld Tribunal's
order. The Hon’ble Supreme Court while dismissing the SLP filed by the
Department held as under:-

“We have heard learned counsel for the Revenue and perused the documents on
record. In particular, the Tribunal has in the impugned judgment referred to the
detailed correspondence between Assessing Officer and the assessee during the
course of assessment proceedings to come to a conclusion that the Assessing
Officer had carried out detailed inquiries which includes assessee's on-money
transactions. It was on account of these findings that the Tribunal was prompted
to reverse the order of revision. No question of law arises. Tax Appeal is
dismissed”

33. The Supreme Court in the another recent case of Principal

Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd
[2020] 114 taxmann.com 545 (SC), dismissed the Revenue’s SLP holding
that 263 proceedings are invalid when AO had made enquiries and taken a
plausible view in law, with the following observations:

“Having heard learned counsel for the parties and having perused the
documents on record, we see no reason to interfere with the view of the Tribunal.
The question whether the income should be taxed as business income or as
arising from the other source was a debatable issue. The Assessing Officer has
taken a plausible view. More importantly, if the Commissioner was of the
opinion that on the available facts from record it could be conclusively held that
income arose from other sources, he could and ought to have so held in the order
of revision. There was simply no necessity to remand the proceedings to the
Assessing Officer when no further inquiries were called for or directed”
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 30 -

34. From an analysis of the above judicial precedents, the principle

which emerges is that the phrase 'prejudicial to the interests of the revenue'
has to be read in conjunction with an erroneous order passed by the
Assessing Officer. Every loss of revenue as a consequence of an order of
the Assessing Officer cannot be treated as prejudicial to the interests of the
revenue, for example, when an Assessing Officer adopts one of the course
permissible in law and it has resulted in loss of revenue; or where two
views are possible and the Assessing Officer has taken one view with
which the Commissioner of Income-tax does not agree, it cannot be treated
as an erroneous order causing prejudice to the interests of the Revenue
unless the view taken by the Assessing Officer is unsustainable in law, or
the AO has completely omitted to make any enquiry altogether or the order
demonstrates non-application of mind.

35. The phrase “prejudicial to the interest of the Revenue” has to be read
in conjunction with an erroneous order passed by the Ld. AO. Moreso,
every order of Revenue cannot be treated as prejudicial to the interest of the
Revenue as a consequence of an order of the Ld.AO. Apart from that
where two views are possible and the ITO has taken one view with which
the Commissioner does not agree, it cannot be treated as an erroneous or
prejudicial to the interest of the Revenue unless the view taken by the ITO
is unsustainable in law. On this ground, the Ld. A.R. has relied upon the
judgment passed by the Hon’ble High Court of Gujarat in the case of CIT
vs. Nirma Chemicals Works Pvt. Ltd. Reported in (2009) 182 taxman 183
(Gujarat). It was further argued by him that upon considering the entire
documents, and upon examining different memos issued by different
authorities clarifying the distance of the land and upon exhaustive enquiry,
the Ld. AO has finalized the assessment accepting the return filed by the
assessee which is evident from the assessment order itself and also from the
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 31 -

noting made the Ld. AO in the regular order sheet entries, the same cannot
be interfered with by the Ld. PCIT. On the contrary, the Revenue pointed
out that the same is not reflecting from the order passed by the Ld.AO. In
reply, it was submitted by the assessee’s Counsel that the assessment order
cannot give detailed reasons in respect of each and every item of deduction,
which would cause impossible burden on the AO. On this count, he has
further relied upon the judgment passed by the Hon’ble High Court of
Gujarat in the case of CIT vs. Kamal Galani, reported in (2018) 95
taxmann.com 261 (Gujarat) and CIT vs. Nirma Chemicals Works (P.)
Ltd., reported in [2009] 309 ITR 67 (Guj.), wherein Hon’ble High Court
held as under:

“22. The contention on behalf of the revenue that the assessment border does not
reflect any application of mind as to the eligibility or otherwise under section 80-1
of the Act requires to be noted to be rejected. An assessment order cannot
incorporate reasons for making/granting a claim of deduction. If it does so, an
assessment order would cease to be an order and become an epic some. The
reasons are not far to seek. Firstly, it would cast an almost impossible burden on
the Assessing Officer, considering the workload that he carries and the period of
limitation within which an order is required to be made; and, secondly, the order is
an appealable order. An appeal lies, would be filed, only against disallowances
which an assessee feels aggrieved with.

23. As far as absence of discussion in the assessment order is concerned, this is

what has been laid down by this court in the case of Rayon Silk Mills v. CIT [1996]
221 ITR 155 :—

"In the first instance it was contended by learned counsel for the assessee
that the very premise on which order under section 263 was made against
the assessee, namely, that the Income-tax Officer has not at all examined the
goodwill account is not existent. According to him, it is apparent from the
record that the goodwill account was thoroughly examined by the Income-
tax Officer before making the assessment and after examining when he
accepted the contention of the assessee its discussion did not find place in
the assessment order, as no additions were going to be made or no
modifications in the return filed by the assessee were required to be made in
that regard.

This contention of the assessee appears to be well-founded. It is true that the

assessment order does not speak about the examination of goodwill
account as such. However, as we have noticed above, the assessee in his
reply to the show-cause notice under section 263 had specifically mentioned
that the entire matter was scrutinised and accepted while passing the
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 32 -

assessment order. Our attention was also drawn to annexure 'D’. A

submission made by the assessee to the Income-tax Officer, Surat, dated 18-
10-1976, regarding the assessment year 1974-75 giving detailed
chronological data of the constitution of the firm on November 11, 1968,
induction of four more partners on 7-11-1972, the creation of goodwill in
the books of account of the firm by debiting the goodwill account and
crediting the old partners' capital accounts in their profit sharing ratio on
that date, formation of a private limited company in the name of Rayon Silk
Mills (P.) Ltd., and its induction into the firm as partner by the deed of
partnership dated 27-10-1973, and the dissolution of the partnership firm
on 23-2-1974, leaving the private limited company as a sole proprietor
thereof and the valuation of the business at the book value as on that date.
After giving the chronological sequence of events, the assessee also
contended in his submission before the Income-tax Officer that there was no
actual transfer of any asset inasmuch as when a partner is admitted into the
firm no transfer takes place. It was also contended that no cash transfer
took place from person to person and the transfer and the dissolution of the
firm also did not result in accrual of capital gains. In the face of this
material on record, it is difficult to explain that the assessment order was
made without making any enquiry into the goodwill account of Rs.
10,75,000. . . ." (p. 158)

[Except the fact to be pleaded separately in this particular paragraph]

36. So far as the jurisdiction of the Ld.PCIT under Section 263 of the
Act is concerned, we have carefully considered the judgment relied upon
by the assessee in the case of CIT vs. Nirma Chemicals Works (P.) Ltd.
(supra). We find, while holding the Tribunal committed an error in
upholding the exercise of powers under section 263 of the Act by the Ld.
CIT(A) to be valid in the facts and circumstances of the case, the Hon’ble
Court has been pleased to observe as follows:

24. There is another aspect of the matter. The assessee had challenged jurisdiction
of the Commissioner of Income-tax to exercise powers under section 263 of the Act.
For an order of the Assessing Officer to be interfered with in exercise of revisional
powers the Commissioner of Income-tax has to find in the first instance that the
order is erroneous and, secondly, the order is prejudicial to the interests of the
revenue. The conditions are twin condition's as held by the Apex Court and both of
them have to be fulfilled before the Commissioner of Income-tax can exercise
jurisdiction under section 263 of the Act. In the case of Malabar Industrial Co. Ltd.
v. CIT [2000] 243 ITR 83 the Apex Court has held (headnote) : "The phrase
'prejudicial to the interests of the revenue1 has to be read in conjunction with an
erroneous order passed by the Assessing Officer. Every loss of revenue as a
consequence of an order of the Assessing Officer cannot be treated as prejudicial to
the interests of the Revenue. For example, when an Income-tax Officer adopted one
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 33 -

of the courses permissible in law and it has resulted in loss of revenue; or where
two views are possible and the Income-tax Officer has taken one view with which
the Commissioner does not agree, it cannot be treated as an erroneous order
prejudicial to the interests of the revenue, unless the view taken by the Income-tax
Officer is unsustainable in law."

25. Applying the aforesaid tests to the facts of the case it is not possible to uphold
the order of the Tribunal as regards jurisdiction after considering the law
enunciated by the Apex Court. The Assessing Officer after making due inquiries, as
noted hereinbefore, adopted one view and granted partial relief under section 80-1
of the Act. The Commissioner of Income-tax takes a different view of the matter.
However, that would not be sufficient to permit the Commissioner of Income-tax to
exercise powers under section 263 of the Act because when two views are possible
and the Commissioner of Income-tax does not agree with the view taken by the
Assessing Officer, the assessment order cannot be treated as erroneous and
prejudicial to the interests of the revenue unless the view taken by the Assessing
Officer is unsustainable in law. That is not the position in the present case. In fact
even the partial denial of relief under section 80-1 of the Act has been found to be
incorrect by the appellate authority. Therefore, existence of two views stands
established. In the aforesaid circumstances, the Commissioner of Income-tax could
not have exercised jurisdiction under section 263 of the Act as per settled legal
position.

26. The view expressed by this court in the case of Shashi Theatre (P.) Ltd. (supra),
therefore, is in consonance with not only the requirement of law but concludes the
issue insofar as the present case is concerned. Just as it is not possible to decide
grant of investment allowance in relation to one or the other item without
considering the eligibility thereof, similarly deduction under section 80-1 of the
Act cannot be considered without deciding whether a particular portion of profits
and gains has been derived from an industrial undertaking which fulfils the
requisite conditions stipulated by the section.

27. In the aforesaid set of facts and circumstances of the case and the view that the
court has adopted, it is not necessary to enter into any discussion as regards merits
of the controversy which has been brought before this court by the other questions
at the instance of the assessee and the question at the instance of the revenue. The
reference is answered accordingly by holding that the Tribunal committed an error
in upholding the exercise of powers under section 263 of the Act by the
Commissioner of Income-tax to be valid in the facts and circumstances of the case,
when not only was there a prohibition as stipulated by Explanation
(c) of section 263 of the Act but even the twin requirements, viz., pre-conditions for
exercise of jurisdiction under section 263 of the Act were not fulfilled.

28. The reference stands disposed of accordingly. There shall be no order as to

costs.”

37. So far as the invocation of Explanation 2 of Section 263 of the Act,

as argued, there is no such reference made by the Ld. PCIT either in show
cause notice issued to the assessee or in the order impugned. Even
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 34 -

otherwise, it is also held in several decisions that the said Explanation does
not give unlettered power to the PC1T to assume revisional-jurisdiction to
revise every order of the Assessing Officer to re-examine the issues already
examined during assessment-proceeding. It is judicially interpreted in
several decisions that the intention of legislature behind introduction of
Explanation 2 could not have been to enable the PCIT to find fault with
each and every assessment-order in unlimited terms, since such an
interpretation would lead to unending litigation and there would not be any
point of finality of assessment-proceeding done by Ld. AO.

38. There is no iota of doubt that the Ld. AO has made a detailed enquiry
in the case of the assessee, namely, Kalpana Jain in the scrutiny
proceeding, particularly, in regard to the issue raised by the Ld. PCIT in the
order impugned. Upon making the exhaustive enquiry and excessive
document so placed by the assessee before the Ld. AO, the return of
income filed by the assessee has been accepted. We would like to mention
that though the PCIT sought to justify his point of view in holding the order
passed by the Ld. AO erroneous so as to prejudicial to the interest of the
Revenue on the basis of the order of the assessment so passed in the other
assessee, namely, Hasanand Khemlani, whereas, we find that in the said
case also proper and adequate enquiry has been conducted by the Ld. AO
in regard to the entire aspect of the matter, particularly, the valuation of the
property qua claim of capital gain and only upon adequate examination of
the records placed by the said Hasanand Khemlani, the assessment was
completed. Thus, the order passed by the Ld. PCIT setting aside the order
passed by the Ld. AO holding it erroneous and prejudicial to the interest of
the Revenue due to lack of adequate enquiry is not sustainable in the eye of
law.
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 35 -

39. We have also fond substance in the arguments advanced by the Ld.
AR that the original order needs not to give detailed reason. We note that
this issue has already been dealt with in CIT vs. Nirma Chemicals Works
(P.) Ltd. (supra) by Hon’ble Gujarat High Court (in Paragraph No.22) and
came to a conclusion that the assessment order cannot incorporate reasons
for making/granting a claim of deduction, if it does so, an assessment order
was ceased to be an order and become an epic some. Further that, when
one possible view has been taken by the Ld.AO the said cannot be treated
as erroneous and prejudicial to the interest of the Revenue. In this regard,
we are also inspired by the ratio laid down by the Hon’ble Gujarat High
Court in the judgment passed in the matter of CIT vs. Nirma Chemicals
Works (P.) Ltd. (supra). Thus, under the particular facts and circumstances
of the case, when record reveals sufficient enquiry has been conducted by
the Ld. AO in coming to a conclusion and completing the assessment, the
impugned order invoking a provision of Section 263 of the Act is not
sustainable in law and thus quashed.

40. In the result, assessee’s appeal in the case of Kalpana Jain is allowed.

ITA No. 110/Ind/2021 (Hasanand Khemlani)

41. The assessment proceeding conducted by the Ld. AO in the instant

case has already been found to be justified since the records placed before
us by way of paper book examination whereof by us reveals sufficient
enquiry and upon examination of the documents so placed before the Ld.
AO, the assessment has been completed which has already been discussed
by us elaborately in the forgoing paragraph in ITA No.138/Ind/2021. We
also dealt with each and every notice issued by the Ld. AO to the assessee
and the rebuttal filed by the assessee. In that view of the matter, we
ITA Nos. 138 & 110/Ind/2021 [Kalpana Jain
& Hasanand Khemlani] Asst.Year.– 2016-17 - 36 -

reiterate the observation made by us in the matter of Kalpana Jain is also

reiterated in the instant case. Under the said facts and circumstances of the
matter, with the said observation, we also quash the order passed by the Ld.
PCIT under Section 263 of the Act.

42. In the result, assessee’s appeal in the case of Hasanand Khemlani is

also allowed.

43. In the combined result, both assessees’ appeals are allowed.

This Order pronounced on 14/03/2023

Sd/- Sd/-
(BHAGIRATH MAL BIYANI) (MADHUMITA ROY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Indore; Dated 14/03/2023
S. K. Sinha, Sr. PS True Copy
आदे श क  त ल प अे षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं धत आयकर आय
ु त / Concerned CIT
4. आयकर आय
ु त(अपील) / The CIT(A)-
5. िवभागीय ितिनिध, / DR, ITAT, Indore
6. गाड फाईल / Guard file.

आदे शानुसार/ BY ORDER,

(Sr. Private Secretary)

ITAT, Indore