2015 (1) TMI 1382 - AT - Income Tax

Tribunal rules in favor of assessee, classifying land sale profit as LTCG for consistency. Uniform tax treatment upheld.

Narsinghdas Surajmal Properties (P.) Ltd. Versus Assistant Commissioner of Income-tax, Circle-1, Assam,

The tribunal ruled in favor of the assessee, holding that the profit from the sale of land should be classified as Long Term Capital Gain (LTCG) for ... Treating the profit on sale of land as business income - nature of income - Held that:- In the earlier years when parts of land were sold the AO had accepted that profit arising out of the transaction had to be assessed under the head LTCG. It is not that the earlier AO.s. had not applied their minds to arrive at the conclusion of taxing the income under as LTCG. AO.s. had for three AY.s. had reached to the conclusion that income accrued to the assessee was not income from business. While deciding the issue for the year under consideration the AO has not mentioned that there was material change in the facts or legal position as far as selling of portion of plot of land is concerned. In absence of such categorical finding, he should not have disturbed the finding given by his predecessors. Where a fundamental aspect continuing during the different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not at all be appropriate to allow the position to be changed in the subsequent years. FAA was not justified in confirming the order of the AO and holding that the incoming arising out of sale of plot of land was to not be assessed as LTCG - Decided in favour of assessee Issues Involved:1. Validity of reopening the assessment under Section 148 of the Income Tax Act.2. Classification of income from the sale of land as business income or Long Term Capital Gain (LTCG).3. Consistency in tax treatment across different assessment years.4. Application of the principle of res judicata in income tax proceedings.Detailed Analysis:1. Validity of Reopening the Assessment:The assessee challenged the reopening of the assessment under Section 148, arguing that the notice was issued due to a change of opinion without any new material. The Assessing Officer (AO) believed that the income had escaped assessment based on the audit report, which indicated that the assessee's business involved land trading and investment. The AO issued a notice under Section 148, and the assessee contended that this reopening was invalid as it was based on the same material available during the original assessment. The First Appellate Authority (FAA) upheld the reopening, citing that the AO had recorded reasons and obtained necessary approvals before issuing the notice.2. Classification of Income from Sale of Land:The primary issue was whether the profit from the sale of land should be classified as business income or LTCG. The AO treated the profit as business income, arguing that the assessee's intention was to sell the land for profit, as indicated by the agreement and the pattern of transactions. The assessee contended that the land was held as a fixed asset and not as stock-in-trade, and the profit should be treated as LTCG, as it had been in previous years. The FAA upheld the AO's decision, stating that the intention to sell the land for profit indicated a trading activity.3. Consistency in Tax Treatment:The assessee argued for consistency in tax treatment, pointing out that in previous assessment years, the profit from the sale of land was treated as LTCG. The AO, however, did not follow the earlier years' treatment, citing that the principle of res judicata does not apply to income tax proceedings. The tribunal emphasized the importance of consistency, referencing several judicial precedents that support uniformity in tax treatment when facts remain unchanged across different years.4. Application of the Principle of Res Judicata:Although the principle of res judicata does not strictly apply to income tax proceedings, the tribunal highlighted the necessity of consistency in tax assessments. The tribunal referred to several cases where courts have held that uniform treatment should be maintained when the facts and circumstances are identical. The tribunal concluded that there was no change in the factual or legal position in the assessee's case, and thus, the AO should have maintained the treatment of the income as LTCG, consistent with previous years.Conclusion:The tribunal ruled in favor of the assessee, reversing the FAA's decision. It held that the profit from the sale of land should be treated as LTCG, maintaining consistency with previous assessment years. The tribunal emphasized the importance of uniformity in tax treatment and found that there was no justification for the AO's deviation from the earlier treatment. Consequently, the appeals filed by the assessee for all the assessment years were allowed.