JUDGMENT
K.K. Boliya, Accountant Member
1. These two appeals have been filed by the assessee against the common order dated 1-3-2005 of CIT-XVII, Mumbai passed under Section 263 of the Income-tax Act, for the assessment years 1997-98 and 1998-99. Since the facts are identical, both the appeals are disposed of by this common order.
2. The relevant facts are that assessments for the two assessment years were originally made under Section 143(1)(a) of the Act. Subsequently, the assessments were reopened under Section 147 and notice under Section 148 were issued on 10-5-2001 for both the years. Thereafter, the assessments were completed under Section 143(3) read with Section 147. The question relating to determination of the income chargeable to tax under the head ‘Capital gains’ was examined by the Assessing Officer during the course of reassessment proceedings. On this issue, the Assessing Officer has recorded the following findings in the assessment order for the assessment year 1997-98:
It is explained that the assessee had 20 undivided share in a plot of land with structure thereon along with the four other corners with equal shares to co-owners sold their 20 per cent share to M/s. United Builders. During the previous year relevant to assessment year 1997-98, the assessee converted her share in the plot of land and structure standing thereon into stock-in-trade and development and concession (sic) of building started jointly with M/s. United Builders as per the agreement entered into by them. It was agreed by the assessee and the other co-owners that they would contribute towards the cost of construction of the building in the ratio of their interest in the property i.e., 20 per cent each. The balance 40 per cent would be borne by M/s. United Builders.
It is further explained that the development agreement entered into M/s United Builders the assessee was entitled to Flat Nos. 302, 801, 1101 and 1102 of 882 sq. ft. each and one-third share in Flat No. 802 of 535 sq. ft. It is explained that the assessee kept Flat No. 1101 and 1102 for own residence and the remaining flats were sold. During the year relevant to assessment year 1997-98, the assessee sold her one-third share in flat No. 802, flat No. 801 and flat No. 302 was sold during the assessment year 1999-2000. The assessee’s representative explained that the assessee has offered the long-term capital gain for taxation on conversion of the land and structure as stock-in-trade and shown business income on sale of the flats.
On conversion of the property, the assessee worked out the taxable capital gain at Rs. 1,95,500 after claiming the exemption under Section 54 in respect of the amount invested in self-occupied are of the flat. Out of the taxable long-term capital gain, a sum of Rs. 1,06,710 was offered for taxation in assessment year 1997-98 in proportion to the area of flat sold during the year. The balance long-term capital gains of Rs. 88,790 was offered for taxation in assessment year 1999-2000 when flat No. 302 was sold.
The assessee has estimated the total profit on area sold of 1060 sq.ft. at Rs. 4,24,000. One third of this amount i.e., Rs. 1,41,333 was offered for taxation during the assessment year 1997-98 based on the degree of work completed and the balance amount in the subsequent assessment year, following the percentage completion method. It is stated that the construction was started in July, 1996 and completed in June, 1999.
During the course of hearing, the assessee’s representative Shri R.R. Vora was asked to explain why the entire long-term capital gain should not be taxed in assessment year 1997-98 as against partly offered for taxation in this year and part in assessment year 1999-2000. No proper explanation has been given by the assessee’s representative. Since the land is converted into stock-in-trade during the year under consideration, the profit arising out of such transfer is taxable in this year. Therefore, the entire long-term capital gain of Rs. 1,95,500 is taxed in this year.
For both the assessment years, the assessments were made on 30-1-2003.
3. On 31-7-2003, the CIT issued a common show-cause notice under Section 263 of the Income-tax Act. The basis for the issue of the said notice was indicated as under:
You have computed the value of the land converted into stock in trade at Rs. 1,61,21,100. From this, indexed cost of Rs. 46,36,000 has been reduced. The net capital gain computed is Rs. 1,14,85,100. As the assessee has retained flats measuring 1764 sq.ft., the value of them amounting to Rs. 1,12,89,600 has been claimed as benefit under Section 54 of the Act and the balance amount of Rs. 1,95,500 has been offered as long-term capital gain.
The first error in the computation is the claim under Section 54 of the Income-tax Act. You have paid towards the cost of flat only. However, you have calculated the land price also in it. The land was already owned by you and no investment has been made in the land. The land component in this calculation will be Rs. 76,73,400 (1,764 X 4,350). In other words, the Assessing Officer has granted excess benefit under Section 54 of the Act amounting to Rs. 76,73,400.
The cost of construction has been taken at Rs. 2,260 sq. ft. based on a letter from a C.A. This is abnormal cost. Even as on the date of the cost of construction of a building ranges between 400 to 800 per sq. ft. depending on the quality of construction. The Assessing Officer has erred in accepting it without applying her mind and referring to valuation cell.
The cost of the land and building as on 1-4-1981 has been taken at Rs. 76 lakhs. This is based on a certificate of a registered valuer. This certificate is based on so many presumptions which are not well founded. For example, though this building was a plot of land and a very old Mangalore tiled building, whose future life, as mentioned by the valuer himself was 10 to 15 years, the valuer has taken the value of new flats which could be constructed on this plot and applied the market rates to those flats. Further, this plot of land is a leased plot for a period of 99 years. This lease period is starting from 23-4-1907. Therefore, as on 1-4-1981, the unexpired portion of the lease period is 25 years and on the date of conversion it was much less. However, the rates adopted are as if it was freehold property. If the Municipal tax is taken as a criteria for valuation, the value of the property will be very less. No discount was given for joint ownership. The working of this ought to have been referred to the Departmental valuer.
The assessee filed detailed written submission vide letters dated 15-11-2003 and 17-12-2003. The main contention raised before the CIT was that during the course of reassessment proceedings, the Assessing Officer examined all the issues in great detail and the assessee furnished detailed explanation regarding computation of capital gain and the assessments were finalized after duly considering the facts and the submissions made by the assessee. It was contended that the CIT has no jurisdiction to invoke his powers under Section 263 of the Act. The Id. CIT rejected this submission and held that the assessment orders passed by the Assessing Officer were erroneous and prejudicial to the interests of the Revenue. He, therefore, set aside the assessments directing the Assessing Officer to make fresh assessments after duly examining the various points discussed in the order passed by the CIT under Section 263 of the Act.
4. In the backdrop of the abovementioned factual position, the Id. counsel appearing for the assessee forcefully argued before us that the Id. CIT has no jurisdiction to set aside the duly completed assessments by resorting to Section 263. It is submitted that every point was explained before the Assessing Officer as also before the Id. CIT. Inviting our attention to the show-cause notice issued under Section 263, the Id. counsel submitted that the first ground indicated in the aforesaid notice is that deduction under Section 54 of the Act was not correctly worked out and the component of land price was also added to the cost, which is not permissible. It is submitted that complete details regarding deduction available under Section 54 were filed before the Assessing Officer and proper explanation was also submitted in response to the show-cause notice issued by the CIT. It was explained to the CIT that the entire transaction has to be considered from the development activity angle. The assessee converted her 20 per cent share into stock-in-trade. The assessee would have sold her 20 per cent share and thereafter could have purchased the flat for her use and in that case, the cost of the flat would have included cost of construction as well as the cost of land. For the purpose of section 54, cost of flat is always inclusive of cost of land. The second objection raised by the CIT was with regard to the cost of construction. The Id. counsel submitted that this issue was properly explained and it was pointed out that the entire cost of construction was incurred by M/s. United Builders and the cost of construction was reimbursed by the co-owners to the extent of their shares in the property. The books of account of M/s. United Builders are duly audited. It was also explained that these issues were raised by the Assessing Officer during the course of assessment proceedings and detailed replies were filed before the Assessing Officer. Copies of these replies were also filed before the CIT. The Id. counsel submitted before us that insofar as the assessee is concerned, the actual cost of construction was reimbursed. Regarding the valuation of land as on 1-4-1981, it was pointed out that the valuation was duly supported by a report of registered valuer. Further, in the case of other co-owners, the valuation and the cost has been accepted by the Department.
5. The Id. counsel for the assessee invited our attention to the various replies filed by the assessee before the Assessing Officer during the course of assessment proceedings. At page 8 of the Paper Book is a copy of letter dated 9-11 -2002. With this letter, the following papers/documents were filed before the Assessing Officer:
(i) Capital Account and balance sheet as on 31-3-1997 and 31-3-1998.
(ii) Working of capital gain and business profit for assessment year 1997-98 and 1998-99.
(iii) Note on working of capital gains and business profit for assessment year 1997-98 and 1998-99.
(iv) Copy of development agreement entered into with M/s. United Builders.
(v) Copy of agreement of sale entered with Sheriton Properties Pvt. Ltd.
At page 13 of the PB is the computation of income under the head ‘Capital gains’ for the assessment year 1997-98. The Id. counsel submitted that the detailed working was placed before the Assessing Officer. Further, a detailed note regarding capital gains was submitted before the Assessing Officer, copy of which is compiled at page 15 of the PB. In this note, the following facts were placed before the Assessing Officer:
The assessee held 20 per cent undivided right, title, interest in plot of land with structure thereon known as ‘Baug E Roohi’ having CTS No. 1654 situated at Byculla Division at Club Back Street Mumbai – 8. During the previous year 1996-97 relevant assessment year 1997-98 assessee along with other co-owners converted her share in plot of land and structures standing thereon into stock-in-trade. Thereafter, she has started business of development of real estate and construction and has undertaken a project to construct a building on the said plot of land.
The assessee has claimed deduction under Section 54 of the Act as she has undertaken to construct new house within a period of three years from the date of transfer of original house property known as ‘Baug E Roohi’. Out of the total constructed area of 3706 sq.ft., she has retained 1764 sq.ft. for self-occupation and thereby complied with the conditions of Section 54. A detailed working of capital gains arising as a result of conversion of land into stock-in-trade is enclosed herewith.
As per the provisions of Section 54, capital gains arising on conversion of an asset into stock-in-trade is taxable in the year when the stock-in-trade is sold. Accordingly, assessee has offered for taxation capital gains in the year which flats (stock-in-trade) were sold.
During the year assessee offered proportionate share of estimated total profit on the area sold during the year worked out as under:
Sale price 6,800 per sq. ft.
Less: cost of land 4,350 per sq. ft.
Less: estimated cost of construction 2,050 per sq. ft.
---------
400
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Total area sold during the assessment year 1997-98 is 1060 sq. ft. after approval from appropriate authority. Estimated total profit on area sold 1060 X 400 = Rs. 4,24,000.
l/3rd of the above offered during the year Rs. 1,41,333 based on the degree of work completed. Similarly, proportionate capital gain on sale of 1060 sq. ft. of Rs. 1,06,710 is offered for taxation.
With regard to the various factual aspects of the relevant transaction, a detailed reply was filed before the Assessing Officer vide letter dated 20-1-2003 (copy at page 17 of the PB). The relevant portion of this letter is reproduced below:
(i) The date of conversion of the property by our client is 15-7-1996 and commencement of development and construction of the building was started immediately.
(ii) The construction of building was completed by June 1999 and flats were occupied by the purchases.
(iii) Entire building was developed and constructed by M/s. United Builders who had 40 per cent share in the project. The assessee was bound to share the cost of construction towards her 20 per cent share therein. Accordingly, construction cost was paid to them as and when raised by them as per the term of development agreement entered into with United Builders (copy already filed). Accordingly, assessee had not maintained any particular account for construction cost but a bank account is maintained for making payment to United Builders towards share in construction cost and copies of bank statement are enclosed.
(iv) As mentioned earlier, entire construction work has been done and supervised by M/s. United Builders and the assessee has paid her share towards construction cost as per certification done by Chartered Accountants for construction cost. We are enclosing herewith a letter from United Builders dated 25-3-2000 determining assessee’s share in construction cost along with C.A.’s certificate dated 24-3-2000 certifying the cost of construction which give the total cost of construction.
(v) As per the development agreement entered into with United Builders, the assessee was entitled to the following flats i.e., 302, 801, 1101 and 1102 of 882 sq. ft. each and l/3rd share in flat No. 802 of 535 sq. ft. Out of the above, the assessee had decided to keep flat Nos. 1101 and 1102 for her own residence and other 3 flats were sold as under:
———————————————————————-
Flat Date of Name of Total Sale Amount Amount
No. sale Purchaser considera- received receivable
tion
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802 3-3-1997 Sheriton 12,12,667 10,91,400 1,21,267
Properties
l/3rd
share Ltd.
801 3-3-1997 -do- 59,97,600 53,97,840 5,99,760
302 Assessment -do- 62,50,000 62,50,000 NIL
year 1999-
2000
----------------------------------------------------------------------
134,60,267 127,39,240 7,21,027
----------------------------------------------------------------------
The copies of agreement with Sheriton Properties are already furnished and copy of agreement for flat No. 302 will be filed separately.
(vi) The land was jointly owned by five co-owners equally viz. Rashid Oomerbhoy, Afzal Oomerbhoy, Imtiaz Oomerbhoy, Salim S. Oomerbhoy and Khatiza S. Oomerbhoy (assessee) having 20 per cent rights each.
Two of the co-owners ie., Rashid S. Oomerbhoy and Afzal S. Oomerbhoy sold their 20 per cent share to United Builders @ Rs. 4,350 per sq.ft. after obtaining approval from appropriate authority (copy enclosed). This being the market rate, has been adopted by the assessee for computing capital gains. In addition to the above, we are also enclosing herewith valuation report from registered valuer M/s. Parlekar and Dallas who has valued the Fair Market Value of land and building at Rs. 76 lakhs as on 1-4-1981 and this also mentions that fact of rate of Rs. 4,350 per sq. ft.
(vii) Since the entire construction work was done under supervision of M/s. United Builders, no Architect’s certificate is available with the assessee. However, same will be filed after obtaining it from United Builders.
Regarding the cost of construction, detailed certificate from the C.As. was filed, copy of which is at pages 19 and 20 of the PB. The Id. counsel pointed out that in the case of another co-owner, Shri Afzal Abdul Sattar Oomerbhoy, certificate under Section 269UL(3) of the Income-tax Act was issued by the Appropriate Authority, accepting the value and copy of this certificate is at pages 21 and 21A of the PB. The correct value as on 1-4-1981 was determined by the Registered Valuer and a copy of valuation report is at pages 22 to 29 of the PB. The Id. counsel submitted that all these voluminous details and documents were filed before the Assessing Officer during the course of reassessment proceedings. It is submitted that the assessee attended before the Assessing Officer on 6-7 occasions during the course of assessment proceedings and filed complete details, replies and explanations in response to various queries raised by the Assessing Officer. It is submitted that the Assessing Officer completed assessment after due application of mind and there is no basis whatsoever for the Id. CIT to hold that the assessments made by the Assessing Officer are erroneous and prejudicial to the interests of the Revenue. It is argued that the Id. CIT has proceeded only on the basis of certain surmises and presumptions and there was no material before him, on the basis of which his conclusions are drawn. It is also pointed out that the show-cause notices were issued by the Id. CIT in the month of July, 2003 and thereafter no action was taken and when the proceedings were getting time-barred, the impugned order was passed in the month of March, 2005. The Id. counsel submitted that the Id. CIT has no jurisdiction to substitute his own view for the view adopted by the Assessing Officer after due application of mind. The Id. counsel placed reliance on the following cases:
(i) Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 109 Taxman 66 (SC)
(ii) CIT v. Gabrial India Ltd.
(iii) Girdharilal B. Rohra v. CIT[2004] 86 TTJ (Mum.) 177
(iv) Triveni Engg. Works Ltd. v. Dy. CIT [2004] 87 TTJ (Delhi) 93 [2000] 131 Taxman 32 (Mag).
(v) ITAT Mumbai T Bench order dated 24-3-2004 in the case of Atlanta Agencies [IT Appeal No. 671 (Mum.) of 2003]
(vi) ITAT, Mumbai ‘H’ Bench order dated 31-3-2005 in the case of Bipin P. Shah v. ITO [IT Appeal No. 5992 (Mum.) of 2003]
(vii) ITAT, Mumbai ‘H’ Bench order dated 31-3-2004 in the case of Ambalal B. Patel [IT Appeal No. 5993 (Mum.) of 2003]
(viii) ITAT, Mumbai ‘A’ Bench order dated 27-4-2004 in the case of Ausia Properties Development Ltd. [IT Appeal No. 3653 (Mum.) of 2003].
6. The Id. DR strongly relied on the order passed by the Id. CIT under Section 263. He contended that various relevant and important issues have not been examined by the Assessing Officer at all. His main focus was on the issue as to whether the income by way of capital gain should be brought to the charge of tax in the assessment year 1997-98 or partly in this year and partly in some other assessment year. The Assessing Officer did not record any finding on various important issues and he concluded that the entire income was to be brought to the charge of tax in the assessment year 1997-98. The Id. DR invited our attention to the Supreme Court decision in the case of Malabar Industrial Co. Ltd. (supra) and submitted that an incorrect assumption of fact or an incorrect application of law would render the Assessing Officer’s order erroneous. The order also becomes erroneous if it is passed without applying the principles of natural justice or without application of mind. Drawing support from the same case, the Id. DR submitted that if due to erroneous order of the Assessing Officer, the Revenue is losing tax which is lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The Id. DR contended that there was no application of mind on the part of the Assessing Officer. With regard to the deduction available under Section 54, the cost of construction and the market value as on 1-4-1981, the Assessing Officer accepted various contentions without any discussion in the order and without examining the relevant facts. It is submitted that even the valuation report of the registered valuer was not reliable as the valuer failed to consider that the relevant property had been acquired on a lease for a period of 99 years and the unexpired period of lease was merely 25 years. It is submitted that the Assessing Officer ought to have made a reference to the Departmental Valuation Officer and since he did not do so, his order become erroneous and prejudicial to the interests of the Revenue.
7. We have given a careful consideration to the rival submissions made before us and have gone through the relevant facts. We have also considered the various cases cited before us. First of all, the legal position regarding the powers of the CIT under Section 263 may be considered. In this connection, a reference to the leading decision of the Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) is inevitable. It would be appropriate to reproduce below the relevant part of the ratio of this case from the headnote:
A bare reading of Section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (z) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent–if the order of the ITO is erroneous but is hot prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue – recourse cannot be had to Section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase ‘prejudicial to the interests of the Revenue’ is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the ITO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase ‘prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the 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 ITO adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO 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 ITO is unsustainable in law.
A reference may also be made to the Bombay High Court decision in the case of Gabriel India Ltd. (supra). The ratio of this case may also be reproduce below from the headnote:
The power of suo motu revision under Sub-section (1) of Section 263 of the Income-tax Act, 1961, is in the nature of supervisory jurisdiction and can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise the power of revision under this Sub-section, viz., (z) the order should be erroneous; and (it) by virtue of the order being erroneous prejudice must have been caused to the interests of the Revenue. An order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualized where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a higher figure than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. This is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself would not be enough to vest the Commissioner with the power to suo motu revision because the first requirement, namely, that the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interests of the Revenue, then the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully eligible has not been imposed or that by the application of the relevant statute, on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed. When exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority.
Held that the ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. This decision of the ITO could not be held to be ‘erroneous’ simply because in his order he did not make an elaborate discussion in that regard.
The fundamental principles which emerge from the above cases may be summarixed below:
(i) The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. Both the conditions must be fulfilled.
(ii) Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.
(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order, unless the view taken by the Assessing Officer unsustainable under law.
(vi) If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the Commissioner, while exercising his power under Section 263 is not permitted to substitute his estimate of income in place of the income estimated by the Assessing Officer.
(vii) The Assessing Officer exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion.
(viii) The CIT, before exercising his jurisdiction under Section 263, must have material on record to arrive at a satisfaction.
(ix) If the Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the Assessing Officer allows the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.
A reference to the Mumbai, ITAT decision in the case of Girdharilal B. Rohra (supra) may also be fruitful and the ratio of this case is as under (reproduced from the headnote):
It is now well-settled position of law that in order to assume jurisdiction under Section 263, the CIT must satisfy himself prima facie that the order of the Assessing Officer is erroneous and prejudicial to the interests of revenue. Such satisfaction must be based on the material on record. The assumption of jurisdiction under Section 263 cannot be made in a casual and arbitrary manner and if there is no material on record to satisfy prima facie that the aforesaid two conditions are present then the provision of Section 263 cannot be invoked. While passing the order under Section 263, it is expected that the CIT should be prima facie satisfied about the erroneous nature of the assessment which has caused prejudice to the revenue. Beyond stating that no further enquiries are made, there should be some material which must be pointed out to show how lack of an enquiry has caused prejudice to the revenue.
The courts have held that jurisdiction under Section 263 cannot be utilized as an instrument for reopening concluded proceedings on flimsy grounds or on assumptions. This was the view expressed by the ITAT, Delhi Bench in the case of Triveni Engineering Works Ltd. (supra). The ratio of this case may also be reproduced below from the headnote:
A bare reading of the provisions of Section 263 makes it clear that the prerequisite to the exercise of jurisdiction by the CIT under it is that order of the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the Revenue. The CIT has to be satisfied of twin conditions, namely (t) order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the Revenue. The revisional jurisdiction of the CIT as a supervisory authority is intended to correct the mistakes of fact and law, which may be committed by the Assessing Officer and which result in causing prejudice to the Revenue. The failure of the Assessing Officer to make enquiries into facts on record, which are glaring, apparently unusual and staring in the face from the record would clearly make the order of the Assessing Officer erroneous and prejudicial to the interest of Revenue. However, the proposition enunciated as above, cannot be extended to confer unrestricted and unfettered powers on the CIT to set aside or modify an assessment merely on the basis of difference of opinion. The jurisdiction under Section 263 cannot obviously be utilized as an instrument for reopening concluded proceedings on flimsy grounds or on mere subjective notions of the CIT. The CIT is not entitled to assume revisional jurisdiction merely because he is not happy with the quality of the assessment or the drafting of the assessment order. The CIT cannot invoke Section 263 for upsetting a concluded assessment framed by the Assessing Officer merely because he feels that a particular line of investigation which would have been effective and useful for the Revenue has not been adopted by the Assessing Officer. The conditions enacted under the provisions of Section 263 are obviously intended to avoid element of pure subjectivity or arbitrariness on the part of the CIT in taking resort to revisional powers under Section 263.
The various other cases relied upon by the Id. counsel for the assessee only reiterate the basic principles which have been stated by us above.
8. The facts of the present case may now be examined in the light of the legal position as indicated above. During the course of reassessment proceedings, the Assessing Officer raised several relevant queries regarding computation of income under the head ‘Capital gains’ and in response to such queries, the assessee filed detailed replies/explanation supported by documents like valuation reports, copy of development agreement etc. In the order passed by him, the Assessing Officer has referred to these relevant facts and also referred to the deduction claimed by the assessee under Section 54. The relevant part of the assessment order for the assessment year 1997-98 has already been reproduced by us above. The Assessing Officer accepted the computation made by the assessee and recorded a finding that the income is taxable in the year 1997-98. The Bombay High Court decision in the case of Gabriel India Ltd. (supra) has clearly held that if the Assessing Officer has raised queries and the assessee has filed written submission/explanation, merely because there is no elaborate discussion in the Assessing Officer’s order, it cannot be said that such order becomes erroneous. No new material came to the notice of the Id. CIT and he made certain assumptions without any basis or material. In our view, the powers vested in the CIT under Section 263 are extraordinary powers and completed assessment proceedings cannot be reopened unless there is some cogent material to show that there is total non-application of mind on the part of the Assessing Officer or that the Assessing Officer has committed any glaring mistake of fact or law. The assessee filed proper explanations with regard to the cost of construction, assessee’s claim for deduction under Section 54 and the valuation as on 1-4-1981, which was supported by valuation report of registered valuer. The entire material was available before the Assessing Officer during the course of the assessment proceedings. As a matter of fact, all this material was filed before the Assessing Officer in response to the queries raised by him. In our view, there is hardly any basis to assume that there was non-application of mind on the part of the Assessing Officer. Considering the entire facts and circumstances, we hold that the Id. CIT has wrongly invoked his jurisdiction under Section 263 of the Income-tax Act. We, therefore, quash his common order passed under Section 263 for the assessment years 1997-98 and 1998-99.
9. In the result, the assessee’s appeals stand allowed.