TaxTMI 
TaxTMI 
2017 (5) TMI 1273
X X X X Extracts X X X X
X X X X Extracts X X X X
....holding that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue. 3. Facts that led the Ld Principal CIT to revise the assessment order are discussed in brief. During the year under consideration, the Balance sheet sheet of the assessee disclosed "capital reserve on revaluation of land a/c" in the liability side with a balance of Rs. 187.08 crores and corresponding amount was shown in the asset side as "inventory of residential land". During the course of assessment proceedings, the assessee explained the nature of these entries. It was submitted that the assessee is having land area of 38322.45 square meters. After excluding compulsory set back area etc., land admeasuring 37181.10 square meters was available for development. Out of the same, 8126 square meters was earmarked for the proposed hotel building and 29055.10 square meters was allocated for development of residential complex. It was submitted that the land was held by the assessee as a capital asset in the earlier years and the same was converted into stock in trade from 1.4.2010. On such conversion, land was revalued and the surplus amount was credited to the capital....
X X X X Extracts X X X X
X X X X Extracts X X X X
....econd valuation report was obtained for the purpose of determining fair market value as on the date of conversion for valuing the stock in trade. The assessee also furnished a copy of the development agreement dated 10.4.2010 entered with M/s. Sashwat Construwell Pvt. Ltd. 5. Learned Principal CIT noticed that the assessee itself has revalued the asset as on 1.4.2010 i.e. the date on which the capital asset was converted into stock in trade. Further the assessee itself has obtained valuation report to determine fair market value as on 1.4.1981. The learned Principal CIT took the view that the transfer has been completed immediately upon entering into development agreement. In this regard, he relied upon the provisions of section 2(47)(v) of the Act and also decision rendered by Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia (260 ITR 491). Accordingly, he took the view that the assessee would be liable to pay capital gains tax since the necessary events making the assessee liable have occurred during the year under consideration, viz., (a) conversion of capital asset into stock in trade and (b) transfer of such asset has been completed as per the provis....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... case. Thus the order of the Assessing Officer is erroneous. That he has omitted to apply his mind to an issue which on examination of legal and factual matrix, could have resulted in additional tax become payable, makes the order prejudicial to the interest of the revenue." With regard to the claim of weighted deduction u/s 35(1)(ii) of the Act also, the Ld Principal CIT took the view that the AO has allowed the claim without examining the compliance of conditions. 7. Accordingly he set aside the assessment order passed by the AO and directed him to pass a fresh assessment order after affording opportunity of being heard to the assessee. Aggrieved, the assessee has filed this appeal before us. 8. The Ld A.R submitted that the Ld Principal CIT has placed reliance on the provisions of sec. 2(47)(v) of the Act to come to the conclusion that the transfer of the land has been completed during the year under consideration upon entering into the development agreement. He submitted that the assessee has converted its capital asset into Stock in trade and hence as per the provisions of sec. 45(2), the capital gain incidence would arise only upon the sale or transfer of the stock i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....interest in the property to the developer in general law and, therefore, s. 2(47)(v) has been enacted." He submitted that the Hon'ble Bombay High Court has explained that there would be no transfer of asset under the General law upon entering into a development agreement and it is so taken in view of the provisions of sec. 2(47)(v) of the Act. He submitted that the assessee has entered into a development agreement in respect of stock in trade and hence the provisions of sec. 2(47)(v) would not apply and hence there would not be any transfer under the General law. He further submitted that the cost of TDR is indeterminable in the hands of the assessee and on that count also there is no liability to capital gain tax. In this regard, he relied upon the decision rendered by the Hon'ble Bombay High Court in the case of CIT Vs. Sambhaji Nagar Co-op Hsg. Society Ltd (ITA No.1356 of 2012 dated 11-12-2014)(Bom), wherein it was held that no capital gain would arise, if the cost is not ascertainable. Accordingly he submitted that the AO has taken a possible view of the matter and the Ld Principal CIT was legally not correct in presuming that the transfer has been completed. 10. With reg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be "erroneous in so far as it is prejudicial to the interests of the Revenue". This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision "cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer" and "it is only when an order is erroneous that the section will be attracted". The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression "prejudicial to the interests of the Revenue", the Supreme Court held, it is of wide impor....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income tax officer. That would not vest the Commissioner with power to examine the accounts and determine the income himself at a higher figure. It is because the Income tax officer has exercised the quasi judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion.... There must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed" 15. On the background of above said legal propositions, we shall now examine the issues before us. With regard to the first issue of taxability of capital gain, if any, arising on transfer of land upon entering into the development agreement, we notice that the Ld Principal CIT himself has recorded in page 8 of his order that the assessing officer has examined the issue. However, the Ld Princ....