AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (12) TMI 951
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....planation of assessee after making due inquiries and it is also an admitted fact that the subject land was shown as stock in trade on 01.04.2009 relevant to A.Y. 2010-11 therefore in the year under appeal the same cannot be treated as capital asset. 1.3 That, the Ld. Pr. CIT-1 has further erred in ignoring the fact that the assessee is in the business of real estate and the land purchased by him was being kept by him as stock-in-trade, and duly disclosed the same as stock in trade in the Balance Sheet prepared since acquisition of land therefore, the order passed u/s 263 deserves to be quashed and set-aside. 1.4 That, Ld. Pr. CIT-1 has further erred in ignoring the fact that it is the intention of assessee which is most important / relevant which is apparent from the facts of the case and merely because in the return of income upto A.Y. 2009-10, the same was not shown in stock-in-trade, it cannot be held that the land was not stock-in-trade of assessee particularly in the year under appeal when it is an admitted fact that the assessee is into the business of real estate and duly declared the same as stock in trade in the return filed for A.Y. 2010-11 i.e. the immediately precedin....
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.... of Section 263 and issued the show cause notice for the revision of the assessment order passed u/s 143(3) by the AO. The assessee made submissions before the ld. CIT-1 but the contentions raised in its reply were not accepted by the ld. Pr. CIT-1 and gave for the revision of the assessment order by replacing the sale consideration from the agreed sale consideration to the value determined by the stamp authorities for the stamp duty purposes. The conclusive observation of the ld. Pr. CIT-1, is as under:- ''7. In view of the above facts and circumstances, it is established beyond doubt that the books of account of earlier years were not maintained by the assessee and the same were never produced before the AO as well as during the proceedings u/s 263 of the Act. The records clearly indicate contradictory facts and claims which were not verified by the AO. Even after apparent discrepancies shown up by the documents submitted by the assessee such as the balance sheet of the earlier years not tallying with the returns filed, the AO failed to reconcile and make enquiries in the case so as to determine the genuineness of the claim of the assessee. 'Ex 2' appended to Section 263 of the ....
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....as purchased by assessee as his real estate business transaction and since its purchase, it had been held as stock-in-trade, which is clearly reflected from the Balance Sheets made for and relevant to the assessment years 2007-08 (APB 72), 2008-09 (APB 75) & 2009-10 (APB 76) prepared based on the financial records kept by the assessee. A bare perusal of these Balance Sheets would reveal that the assessee has constantly been recording this land as stock-in-trade. The intention of assessee behind the purchase of subject land and keep the same as goods in trade is apparent and manifest and there is nothing on record to prove otherwise. This assertion of the assessee is further fortified from the fact that immediately after the purchase of this land, with the intention to develop a residential township scheme on the same, the assessee had got converted its land use and got it approved from the appropriate authorities. During the process of conversion of land use, a sum of Rs. 5,62,040/- was paid which was debited to the cost of land, which fact has not been disputed by the Ld. CIT(Admn.) in the impugned order. During the financial year relevant to the Assessment Year under considerat....
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....008-09 (APB 73) the assessee had filed the returns of income in Income Tax Return Form No. IV which is meant to be used for filing the returns by a person having business income, however, while filing the same himself manually (without any assistance of professional), he inadvertently and unmindfully, being a layman failed to properly fill the Balance Sheet in the ITR-IV form. Thus, in view of these circumstances it is clear that the assessee had consistently been showing the subject land as stock-in-trade since its inception. In other words, the assessee had never held the subject land as a capital asset or investment nor the department is in possession of any contrary record or information to prove in any manner that the assessee had ever hold such land for investment purposes. Moreover, looking at the magnitude of the land i.e. 110500 sq. mtrs., the financial leverages, involvement of multiplicity of systematic business operations and the surrounding circumstances of the business of the assessee, it cannot by any stretch of imagination be assumed that the land could have been held as investment at any point of time. Substance over the form: It is further submitted that it ....
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....rejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to section 263(1) of the Act." In light of the above legal position, it is submitted that the order of Ld. AO is neither erroneous nor prejudicial to the interest of revenue which has been demonstrated as under: 1. The Order of Ld. AO is not erroneous: It has already been established above that the assessee has duly shown the subject land as 'stock-in-trade' which is apparent from the balance sheets filed by assessee in preceding assessment years. There was no possibility of holding it as investment in view of the fact that immediately after acquisition of subject land, its land use got changed from agriculture to residential and as such, the conversion further established the clear intention of the assessee who always held and disclosed t....
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.... enquiry during assessment proceedings as it can be seen that due, necessary and most pertinent enquiries to all the issues emerging from the return filed by the assessee were conducted by the Ld. AO. Therefore, in view of such legal position, no action u/s 263 could have been taken. It is a well established law by now that section 263 does not contemplate mere substitution of the opinion of AO with that of CIT. It has further been held by the Courts that where two views are possible in the matter and the AO has chosen any one of them, then revision cannot be made merely because the CIT is of the opinion that the other view should have been taken by the AO. 2. The Order of Ld. AO is not prejudicial to the interest of revenue: At this juncture, attention of the Hon'ble Bench is invited to the fact that the subject land was later on acquired by the Government; and compensation was paid to the buyer who had paid the tax on the differential amount by taking the actual purchase price i.e. Rs. 53,00,000/- as the cost of acquisition, and at the value as determined u/s 50C at the time of purchases for the subject land from the appellant, thus there occurred no loss of revenue to the ....
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....ase be quashed and held bad in law, thereby restoring the assessment order of Ld. AO. Further, reliance is placed on the following case laws: 1. CIT Vs. M/s Chambal Fertilizers & Chemicals Ltd. (Raj HC) 51 TW 157 2. CIT Vs. M/s Deepak Real Estate Developers P. Ltd. (Raj HC) 51 TW (IV) 186 3. CIT Vs. Green World Corporation 314 ITR 81 (SC) 4. M/s Emgee Cables & Communication Ltd. Vs. CIT (2014) 51 TW 197" With the above submissions, the ld. A.R. prayed for the cancellation of the order passed u/s 263. Further the ld. A/R made his alternate submission and argued that even otherwise for a moment it is accepted that the subject land was firstly shown as stock in trade in FY 2009-10 in the return of income, as per the provisions of section 45(2) there would be no loss to revenue for which it is submitted as under :- "WITHOUT PREJUDICE to the submission made above and without in any manner admitting the allegations made in the impugned revision order, and in the ALTERNATIVE it is submitted that the Ld. CIT(Admn.) in its order at page 1 para 2.1 last line, has himself observed that "in the return of income filed for A.Y. 2010-11 on 07.02.2011, the opening stock in trade o....
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....ade by the Ld. CIT(Admn.) in the impugned order passed u/s 263 of the Income Tax Act, 1961, the assessment order as passed is considered to be erroneous, it in no way was prejudicial to the interest of the revenue, thus no action u/s 263 could have been taken. Though for the sake of clarification and at the cost of repetition it is submitted that twin conditions as laid down u/s 263 i.e. erroneous and prejudicial to the interest of the revenue have to be cumulatively satisfied and in the absence of one of the conditions, not being attracted the other would become nonest for the purposes of revision." 2.3 On the other hand the ld. DR supported the order of the ld. Pr.CIT- 1 and argued that the revision order was passed only after due verification of the records and was not based on the audit objection. He further submitted that the AO had not verified the issue whether the subject land was shown as stock in trade or investment in the return of income filed and merely got swayed whatever submitted before him. In the return of income filed for the AY 2007-08 to 2009-10, no opening and closing stock was filled in and for the first time in the return for AY 2010-11, the opening stock ....
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....f the assessee and adopted a view. Now Pr. CIT does not agree with the view adopted by the AO then the law does not permit him to replace the view. Thus in our considered view the ld. Pr.CIT-1 is not justified to set aside the order of the AO. We set aside the revision order passed by the ld. Pr.CIT-1 and direct to restore the assessment order passed by the AO dated 24-03-2014. We also agree with the alternate argument of the ld. AR of the assessee that the order passed by the AO should satisfy the twin conditions as prescribed in section 263 that the assessment order should not only be the erroneous but also prejudicial to the interest of revenue. As per the ld. Pr.CIT-1 the date of conversion of the investment in the subject land to the stock in trade was 1.4.2009, as appearing in the return of income for AY 2010-11, even then this preposition will not make any adverse effect to the assessed income for the year before us in terms of provisions of section 45(2), according to which the fair market value as on the date of transfer has to be taken to compute the deemed capital gains as on the date of such conversion and by taking such value the business profit is computed. In this re....