2018 (6) TMI 832 - AT - Income Tax

Tribunal Upholds Business Income Classification

The Tribunal found that the AO's assessment order was not erroneous or prejudicial to the revenue. The categorization of the receipt as business income ... Revision u/s. 263 by CIT - failure of AO to make relevant enquiry in respect to sale of rights in the immovable property - order erroneous and prejudicial to the interest of revenue - Held that:- Twin conditions which needs to be satisfied before exercising revisional jurisdiction u/s 263 by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue - Here AO in her assessment order has acknowledged the fact that assessee’s accountant has appeared before her several times and explained the return of income and assessee has filed various details, accounts and evidences to explain the return. In such a scenario, we cannot agree with the Ld. Pr. CIT that the AO did not issue questionnaire on this issue and thereby failed to carry out necessary inquiries or verification. So the main plank on which the ld. Pr. CIT usurped the revisional jurisdiction fails - hence the decision of the AO cannot be treated as erroneous and prejudicial to the interest of revenue as held in case of MALABAR INDUSTRIAL CO. LTD. VERSUS COMMISSIONER OF INCOME-TAX [2000 (2) TMI 10 - SUPREME COURT] - Decided in favor of assessee. Issues:Jurisdiction of Principal CIT under section 263 of the Income-tax Act, 1961.Analysis:The appeal was filed against the revision order of the Principal CIT-1, Kolkata for the assessment year 2012-13. The issue revolved around the AO's failure to inquire into the receipt of a significant amount by the assessee from another entity against the surrender of booking of an office space. The Principal CIT held that this receipt should have been characterized as 'Income from Capital Gain' instead of 'Business Income,' and therefore set aside the AO's assessment order. The assessee challenged this decision, arguing that the AO had conducted relevant inquiries and the receipt was correctly categorized as business income. The assessee contended that even if the receipt was considered as capital gains, it would not be prejudicial to the revenue. The Tribunal analyzed the jurisdiction of the Principal CIT under section 263 by referring to the Malabar Industries case, which established that the AO's order must be both erroneous and prejudicial to the revenue for revisional jurisdiction to be exercised.The Tribunal found that the AO had indeed inquired into the matter through a notice under section 142(1) and the assessee had provided necessary details. The Tribunal disagreed with the Principal CIT's assertion that the AO had failed to carry out necessary inquiries. Additionally, the Tribunal noted that the categorization of the receipt as business income was a plausible view and not unsustainable in law. Furthermore, the Tribunal determined that taxing the receipt as short-term capital gains would not exceed the tax rate applicable to business income. Therefore, the Tribunal concluded that the AO's order was not erroneous or prejudicial to the revenue. Consequently, the Tribunal quashed the assumption of jurisdiction by the Principal CIT under section 263 and allowed the assessee's appeal.In summary, the Tribunal's detailed analysis focused on the jurisdiction of the Principal CIT under section 263 in the context of the AO's assessment order, the categorization of the receipt, and the potential impact on revenue. By applying legal principles and examining the facts of the case, the Tribunal determined that the Principal CIT's revisional jurisdiction was unfounded, leading to the allowance of the assessee's appeal.