2014 (5) TMI 144 - HC - Income Tax

High Court affirms Tribunal's decision on Income Tax Act Sections 263 and 50

The High Court upheld the Tribunal's decision in favor of the Assessee, ruling that the powers under Section 263 of the Income Tax Act were not applicable ... Jurisdiction to invoke section 263 of the Act - Nature of gain – LTCG OR STCG - Validity of LTCG declared on sale of land – Land sold as part of the block – Held that:- The power u/s 263 should not have been invoked - The requisite satisfaction has not been reached - the Assessee while purchasing the assets executed a single document - It was a single composite transaction of purchase and undertaken in the year 1981 - The Assessee consistently claimed the depreciation on the entire asset including the value of land up to the Assessment Year 2000-2001, but in the Assessment Year 2001-2002 the Assessee made the valuation of land and building independently as on 01.04.1981 - The Tribunal rightly answered in favour of the Assessee because it referred to the undisputed facts that the AO right up to the AY 2000-2001 allowed the depreciation - the ITAT arrived at a conclusion that the view taken was possible and probable - in the facts and circumstances peculiar to the Assessee's case and when the land has been transferred by offering the amount of depreciation claimed earlier as income and which has been also assessed – no substantial question of law arises for consideration – Decided against Revenue. Issues:- Jurisdiction under Section 263 of the Income Tax Act, 1961- Application of Section 50 of the Income Tax Act, 1961Jurisdiction under Section 263:The case involved two Appeals filed by the Revenue challenging the Tribunal's decision in favor of the Assessee regarding the Assessment Year 2004-2005. The Commissioner of Income Tax11 had set aside the Assessment Order, alleging that the long term capital gain declared by the Assessee on the sale of land was incorrect. The Assessee argued that the Assessment Order was not erroneous, and the Commissioner had no jurisdiction under Section 263. The Tribunal found that the power under Section 263 should not have been invoked as the requisite satisfaction was not reached. It was noted that the Assessee had consistently claimed depreciation on the entire asset, including the value of land, and the Tribunal concluded that the view taken by the Assessee was possible and probable in the given circumstances. Therefore, the Tribunal allowed the Assessee's appeals, emphasizing that the powers under Section 263 were not applicable in this case.Application of Section 50:The Revenue contended that the Appeals raised a substantial question of law regarding the application of Section 50 of the Income Tax Act, 1961, as the Assessee had surrendered depreciation, which was not recognized by law. However, the Tribunal found that the Assessee's stand that Section 50 was not applicable was erroneously accepted by the Revenue. The Tribunal examined the facts of the case, where the Assessee had made a valuation of land and building independently in a single composite transaction of purchase. The Assessee offered the amount of depreciation on the land as income, which was accepted by the Assessing Officer. The Tribunal concluded that the view taken by the Assessee was reasonable and allowed the appeals. The High Court upheld the Tribunal's decision, stating that in the peculiar circumstances of the case, where the land had been transferred by offering the depreciation claimed earlier as income, no substantial question of law was raised, and the Appeals were dismissed.In conclusion, the High Court upheld the Tribunal's decision in favor of the Assessee, emphasizing that the powers under Section 263 were not applicable, and the application of Section 50 was reasonable in the given facts and circumstances of the case.