2015 (11) TMI 584 - AT - Income Tax

Tribunal Overturns Commissioner's Order, Rules in Favor of Assessee on Capital Gains Assessment

The Tribunal quashed the Commissioner's order under section 263, allowing the appeal in favor of the assessee. The income from the sale of plots was ... Revision u/s 263 - Assessing Officer ought to have assessed the income arising to the assessee on the sale of plots under the head “business income” instead of assessing the same under the head “capital gains” - Held that:- The Assessing Officer has accepted the claim of the assessee under the head “capital gains” based on pertinent facts. The assessee has never purchased the impugned agricultural land or any other land in her life time as stated by her. The property was bestowed upon her by succession. We find no merit in the action of the Commissioner. In the background of fact narrated, mere selling of such agricultural land after its conversion into non-agricultural land and dividing the same into smaller plots for convenience and to overcome regulatory hurdles cannot be characterized as adventure in the nature of business under section 2(13) of the Act. The Commissioner is only seeking to replace the view of the Assessing Officer by indulging in long drawn and debatable process to assert his own view which is not permissible under section 263 of the Act. We do not find any error per se in taxing the income resulting from sale of plots impugned under the head “capital gains”. The Commissioner has also failed to take note of section 45(2) which helps the case of the assessee in the alternative. In our considered view, section 263 of the Act cannot be invoked only on any slightest pretext to chase a will-ò-the-wisp. - Decided in favour of assessee. Issues Involved:1. Legitimacy of the Commissioner's order under section 263 of the Income-tax Act, 1961.2. Classification of income from the sale of plots as 'business income' or 'capital gains.'3. Adequacy of the Assessing Officer's enquiry and application of mind during the assessment.Detailed Analysis:1. Legitimacy of the Commissioner's Order under Section 263:The appeal challenges the order dated 25.03.2013 by the Commissioner of Income Tax-I, Pune, under section 263 of the Income-tax Act, 1961. The Commissioner deemed the assessment order dated 29.11.2010 erroneous and prejudicial to the interest of the Revenue, as the income from the sale of plots was assessed under 'capital gains' instead of 'business income.'2. Classification of Income from Sale of Plots:The Commissioner argued that the sale of land after converting it into plots constituted a business venture, thus the income should be classified as 'business income.' The assessee contended that the land was inherited and sold after converting it into non-agricultural land to overcome regulatory hurdles, thus the income should be classified as 'capital gains.' The assessee cited judicial decisions supporting this view, including Sarojkumar Mazumdar vs. CIT, 37 ITR 242 (SC), and CIT vs. Premji Gopalbhai, 113 ITR 785 (Guj.).3. Adequacy of the Assessing Officer's Enquiry and Application of Mind:The Commissioner claimed the Assessing Officer failed to properly enquire into the nature of the income, thereby rendering the assessment order erroneous. The assessee argued that all relevant facts were presented during the assessment, and the Assessing Officer's decision was based on these facts. The Tribunal noted that the assessment under section 147/148 implies an inherent application of mind, and the facts presented did not indicate any systematic business activity.Tribunal's Findings:- The Tribunal found that the relevant facts were indeed placed before the Assessing Officer, who accepted the income as 'capital gains' based on these facts.- The Tribunal cited the Supreme Court's decision in Sarojkumar Mazumdar, supporting the classification of income from the sale of inherited land as 'capital gains.'- The Tribunal held that the Commissioner's attempt to reclassify the income as 'business income' was an impermissible substitution of the Assessing Officer's plausible view.- The Tribunal emphasized that section 263 can only be invoked when the order is both erroneous and prejudicial to the interest of the Revenue, which was not the case here.Conclusion:The Tribunal quashed the Commissioner's order under section 263, allowing the appeal in favor of the assessee. The income from the sale of plots was rightfully assessed under 'capital gains,' and the Assessing Officer's decision was neither erroneous nor prejudicial to the Revenue.