2019 (12) TMI 1176 - AT - Income Tax

Challenged CIT order under Income Tax Act Section 263 for not considering Section 43CA.

The appeal challenged the CIT's order under Section 263 of the Income Tax Act, arguing that the Assessing Officer's stance in the assessment made the ... Revision u/s 263 - AO has failed to make inquiries and apply her mind with regard to the applicability of the provisions of section 43CA - HELD THAT:- In the instant case, AO had primarily changed the head of income from business to that of long term capital gains for the reason that the assessee was trying to avoid provisions of section 50C. Provisions section 50C applies with regard to the transfer of long term capital asset, whereas section 43CA applies to transfer of asset (other than capital asset). Therefore, if the transfer of asset is to be assessed under the head `income from business’ necessarily, the provisions of section 43CA would have application and the value of asset for the purpose of stamp duty valuation under the State Government laws would deemed to be the consideration received on account of transfer of such business asset. AO had failed to take note of the provisions of section 43CA and the impact of such section in the instant case. As mentioned earlier, the assessee has already filed an appeal as against the assessment order holding the transfer of land would be assessable as income from long term capital asset. In context of the appeal filed by the assessee, the application of section 43CA assumes significance. AO having failed to take notice of section 43CA while framing the assessment order, would render the assessment order erroneous and prejudicial to the interest of the revenue in view of Explanation (2) clause (a) of section 263. Therefore, since the AO has failed to cause any inquiry in this regard nor examined the impact of section 43CA we are of the view that the CIT has correctly invoked his revisionary jurisdiction u/s 263 and set aside the assessment order dated 26.12.2016. - Decided against assessee. Issues:1. Validity of CIT's order under Section 263 of the Income Tax Act.2. Application of Section 43CA of the Income Tax Act in the assessment.3. Correctness of the assessment order regarding the nature of income from the sale of property.Issue 1: Validity of CIT's order under Section 263 of the Income Tax ActThe appeal challenged the CIT's order under Section 263 of the Income Tax Act, contending that the order was erroneous and prejudicial to the interest of revenue. The appellant argued that the Assessing Officer had already taken a possible stand in the assessment, making the order not erroneous. The appellant also claimed that the order was a subject matter of appeal before the Commissioner of Income Tax (Appeals), rendering it incapable of being revised. However, the CIT found the assessment order to be erroneous as the Assessing Officer failed to consider the impact of Section 43CA of the Income Tax Act, leading to the order being set aside for a speaking order in accordance with the law.Issue 2: Application of Section 43CA of the Income Tax Act in the assessmentThe CIT issued a notice under Section 263 as the Assessing Officer did not consider the impact of Section 43CA in the assessment. The CIT held that the provisions of Section 43CA were applicable for the relevant assessment year and that the failure to consider it made the assessment order erroneous and prejudicial to the revenue's interest. The CIT relied on judicial pronouncements to support this conclusion, leading to the setting aside of the assessment order for proper consideration of Section 43CA.Issue 3: Correctness of the assessment order regarding the nature of income from the sale of propertyThe Assessing Officer treated the sale of property as a transfer of a capital asset, invoking Section 50C of the Income Tax Act. However, the appellant contended that the income arising from the sale of land should be considered as income from business and not long-term capital gain. The failure of the Assessing Officer to consider Section 43CA, which applies to the transfer of assets other than capital assets, rendered the assessment order erroneous. The Tribunal dismissed the appeal, upholding the CIT's decision to set aside the assessment order and directing a reassessment considering the provisions of Section 43CA.