2021 (4) TMI 201 - AT - Income Tax

Tribunal Rules in Favor of Taxpayer, Restores Original Assessment Order

The Tribunal allowed the appeal, setting aside the Principal CIT's order under section 263 and restoring the original assessment order passed by the AO. ... Revision under section 263-limits where issue considered and decided in appeal (Explanation 1(c)) - Merger of assessment order with appellate order - Applicability of indexation to Government Securities - Deemed full value under section 50C-stamp duty valuation and DVO reference - Characterisation of receipt-capital gains v. business income - Treatment of Gold ETF-short term capital gain if held less than 36 monthsRevision under section 263-limits where issue considered and decided in appeal (Explanation 1(c)) - Merger of assessment order with appellate order - Applicability of indexation to Government Securities - Validity of Pr. CIT's revision under section 263 in relation to disallowance of indexation benefit on Government Securities and consequent set off of LTCG/LTCL where the issue had been decided in appeal. - HELD THAT: - The Tribunal held that the claim of the assessee for long term capital loss on sale of Government Securities by applying cost inflation index had been disallowed by the AO but was allowed by the CIT(A) by an appellate order dated 28.02.2019 prior to the Pr. CIT's revision order dated 25.03.2019. Explanation 1(c) to section 263 restricts the Pr. CIT's revisional power to matters not 'considered and decided' in an appeal. Since the appellate order in favour of the assessee stood merged with the AO's order before the Pr. CIT acted, the Pr. CIT could not validly revise the assessment on that issue. The Tribunal therefore found no error in the AO's order, insofar as it comported with the appellate decision, and allowed the assessee's ground; it noted that the Tribunal had also decided the like issue earlier in the assessee's own case for AY 2010 11 and declined to re examine the merits.Pr. CIT's revision under section 263 on this issue unsustainable; ground allowed and AO's order restored to the extent consistent with the appellate order.Deemed full value under section 50C-stamp duty valuation and DVO reference - Deemed full value under section 50C-stamp duty valuation and DVO reference - Whether the Pr. CIT rightly set aside the assessment on the ground that AO failed to adopt stamp duty valuation under section 50C in computing capital gains on sale of flats. - HELD THAT: - The Tribunal analysed the assessment record and found that the AO had specifically queried the lower sale consideration and the assessee had furnished a registered valuer's report and an explanation (including absence of car parking and limitation on high value buyers) and had requested reference to the DVO under section 50C(2) if the AO did not accept the explanation. The AO accepted the explanation and adopted the actual sale consideration for computing capital gains. Relying on precedent that where detailed documents and a possible view are placed before the AO and a considered view is taken, the Commissioner in revision cannot supplant that view, the Tribunal held that the Pr. CIT's exercise of revision was not justified. The AO had made enquiries and taken a possible view on evidence on record; mere difference of opinion in revision cannot overturn such a conclusion.Pr. CIT's revision on the section 50C issue set aside; AO's assessment on this point restored.Characterisation of receipt-capital gains v. business income - Merger of assessment order with appellate order - Whether the Pr. CIT could revise the assessment treating profit on sale of 'rights' in 37 flats as business income and changing year of taxability, when the assessee had offered the income as long term capital gain for AY 2015 16 and the appellate authorities had decided otherwise. - HELD THAT: - The Tribunal noted the factual matrix that the assessee acquired rights by agreement and received the last instalments in the previous year relevant to AY 2015 16; the assessee offered the receipts as long term capital gains in AY 2015 16. The CIT(A) allowed the assessee's claim and the Tribunal itself had upheld that view in ITA No. 1470/KOL/2019. Given that the issue of head of income and year of taxability had been considered and decided by the appellate authorities in the assessee's favour, the Pr. CIT could not validly revisit the matter under section 263 for the assessment year under consideration. Accordingly, the Tribunal found no infirmity in the AO's order as consonant with the appellate view.Pr. CIT's revision on the characterisation and year of taxability issue set aside; AO's order restored.Treatment of Gold ETF-short term capital gain if held less than 36 months - Correct treatment of gain on sale of Gold ETFs which were held for less than 36 months. - HELD THAT: - Both parties and the Pr. CIT recognised that Gold ETFs held for periods below 36 months should be taxed as short term capital gains under the law applicable prior to 31.05.2015. The assessee accepted this adjustment. The Tribunal recorded that the indexed long term capital loss claimed in the assessment should in fact be reclassified as short term capital gain taxable at the applicable rate, and treated the error in the assessment as accepted.Error in the assessment acknowledged; gains from sale of Gold ETF to be treated as STCG.Final Conclusion: The assessee's appeal is allowed. The Tribunal set aside the Principal CIT's revisional order under section 263 insofar as it sought to revisit (i) the indexation/set off issue that had been considered and allowed in appeal (merging the AO's order), (ii) the characterisation and year of taxability of receipts from sale of rights in 37 flats which had been upheld on appeal, and (iii) the section 50C stamp duty valuation objection where the AO had made enquiries, considered evidence and taken a possible view; the Tribunal confirmed that gains on Gold ETFs held for less than 36 months are STCG. The AO's assessments are restored to the extent consistent with these findings. Issues Involved:1. Set off of Long-Term Capital Gains (LTCG) against Long-Term Capital Loss (LTCL).2. Treatment of gains from the sale of Gold ETFs.3. Applicability of Section 50C for computing Short-Term Capital Gains (STCG) on the sale of depreciable assets.4. Treatment of income from the sale of rights in property under the head 'Capital Gains' or 'Business Income'.Detailed Analysis:1. Set off of Long-Term Capital Gains (LTCG) against Long-Term Capital Loss (LTCL):The assessee claimed set off of LTCG from the sale of Bonds and Right to Property against LTCL from the sale of Government Securities. The Principal CIT found that the Assessing Officer (AO) had allowed the set off without disallowing the indexation benefit on Government Securities, which should have been treated as bonds or debentures, thus not eligible for indexation. The Tribunal noted that the CIT(A) had already allowed the assessee's claim for LTCL on Government Securities by applying the Cost Inflation Index in an earlier appeal, thus merging the AO's order with the appellate order. Therefore, the Principal CIT's revision under section 263 was beyond scope as per Explanation 1(c) below sub-section (1) of section 263. The Tribunal found no error in the AO's order allowing the set off of such loss against LTCG from Bonds and Right to Property.2. Treatment of gains from the sale of Gold ETFs:The Principal CIT observed that the AO had incorrectly treated the gains from the sale of Gold ETFs as LTCG instead of STCG, as the holding period was less than 36 months. The assessee accepted this error, and the Tribunal upheld the Principal CIT's finding that the AO's order was erroneous in this regard.3. Applicability of Section 50C for computing Short-Term Capital Gains (STCG) on the sale of depreciable assets:The Principal CIT found that the AO had failed to consider the stamp duty valuation while computing STCG on the sale of four depreciable flats. The Tribunal noted that the AO had raised specific queries regarding the sale consideration, and the assessee had provided explanations supported by a valuation report from a registered valuer. The AO, after being satisfied with the explanation, did not refer the matter to the DVO under section 50C(2). The Tribunal held that the AO had taken a possible view after due consideration, and it was not open for the Principal CIT to take a different view under section 263. The Tribunal set aside the Principal CIT's order on this issue and restored the AO's order.4. Treatment of income from the sale of rights in property under the head 'Capital Gains' or 'Business Income':The Principal CIT treated the income from the sale of rights in 37 flats as business income, arguing that the assessee's intention was to sell at a profit, and the transactions were in the nature of trade. The Tribunal noted that the assessee had offered the income as long-term capital gain in AY 2015-16, and the CIT(A) had accepted this treatment. The Tribunal had also upheld the CIT(A)'s decision in a previous order. Since the issue had already been decided by the Tribunal, the AO's order for the year under consideration, which was in line with the Tribunal's view, could not be said to be erroneous. The Tribunal set aside the Principal CIT's order on this issue and restored the AO's order.Conclusion:The Tribunal allowed the appeal filed by the assessee, setting aside the Principal CIT's order under section 263 and restoring the original assessment order passed by the AO.