TaxTMI 
TaxTMI 
2022 (8) TMI 514
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....e assessable under the head business income and therefore, AO was required to disallow the indexation and claim of deduction u/s 54F and at the same time setting aside the assessment order to be made afresh holding the same to be erroneous in so far as prejudicial to the interest of the revenue ignoring that the AO in course of assessment proceedings has examined this issue and thereafter accepted the claim of assessee." 3. The facts related to this case as culled out from the record is that the assessee is an authorized dealer of Bharat Petroleum Corporation Ltd. (BPCL) and is running a proprietorship concern in the name M/s Sada Shiv Bharat Gas. He filed the return declaring total income of Rs.13,35,300/-. 4. The assessee intended to open a petrol pump and therefore, he purchased an agricultural land in the FY 2003-04 for Rs.1,95,000/-. This land was converted for being used for petrol pump on 29.06.2004. However, due to certain reasons the assessee could not open the petrol pump. After around 12 years when assessee was in need of funds, he decided to sell the said capital asset being land. Since the land was converted for use for petrol pump usage and could not be sold eas....
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....r. Against this notice assessee filed detailed reply vide letter dt. 15.03.2022. 7. The Ld. Pr. CIT, however, at Para 9, Page 5 of the order observed that exploitation of the land purchased for commercial gain is very much evident as the land was divided into smaller plots and almost simultaneously sold out to various persons which points towards the fact that the transaction comes under the ambit of adventure in the nature of trade. The AO was required to disallow the indexation and deduction claimed u/s 54F which he failed to do. Accordingly, by invoking clause (a) & (b) of Explanation 2 to section 263, the assessment order is set aside to be made afresh in light of the observation made in her order. The exact version from the order of the ld. PCIT is extracted here in below for the sake of brevity of the facts: "9. In view of the discussion in the above paras, the exploitation of the land purchased for commercial gain is very much evident as the land was divided into smaller plots and almost simultaneously sold out to various persons points towards the fact that the transaction comes under the ambit of adventure in nature of trade. In this regard, reliance is placed ....
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....peal raised by him are extracted in below; "1. From the facts stated above it can be noted that AO vide notice u/s 142(1) dt. 30.11.2019 (PB 17) specifically required the assessee to furnish complete details of property sold during the year under consideration along with the copy of sale deed and furnish the evidence in support of deduction claimed u/s 54F. In response to same assessee submitted that 9 plots was sold for Rs.59,27,500/-, DLC value of which is Rs.66,82,981/- and for claiming exemption u/s 54F, a flat has been purchased for Rs.77,25,000/- (PB 19-22). In support of the same 9 sale deeds and 1 purchase deed was also filed (PB 23). The AO after considering the reply of assessee and examining the documents accepted the claim of assessee. Thus, when the AO has made necessary inquiry/ verification which he should have made and has applied his mind, his order cannot be said to be erroneous so far as it is prejudicial to the interest of revenue only for the reason that the Ld. PCIT holds a different view. For this purpose, reliance is placed on the following cases:- * Sir Dorabji Tata Trust Vs. DCIT(E) 188 ITD 38 dt. 28.12.2020 (Mum.) (Trib.) The re....
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....on, when a public authority has the powers to do something against any person, such an authority cannot exercise that power unless it is demonstrated that the circumstances so justify or warrant. In a democratic welfare state, all the powers vested in the public authorities are for the good of society. A fortiorari, neither can a public authority decline to exercise the powers, to help anyone, when circumstances so justify or warrant, nor can a public authority exercise the powers, to the detriment of anyone, unless circumstances so justify or warrant. What essentially follows is that unless the AO does not conduct, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant-that an AO is expected to be, CIT cannot legitimately form the view that "the order is passed without making inquiries or verification which should have been made". The true test for finding out whether Expln. 2(a) has been rightly invoked or not is, therefore, not simply existence of the view, as professed by the CIT, about the lack of necessary inquiri....
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....at akin to a conventional statutory auditor in real-life situations. What Justice Lopes said, in the case of Re Kingston Cotton Mills (1896) 2 Ch.D 279, 288), in respect of the role of an auditor, would equally apply in respect of the role of the AO as well. His lordship had said that an auditor (read AO in the present context)" is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a watch-dog, but not a bloodhound". Of course, an AO cannot remain passive on the facts which, in his fair opinion, need to be probed further, but then an AO, unless he has specific reasons to do so after a look at the details, is not required to prove to the hilt everything coming to his notice in the course of the assessment proceedings. When the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bona fide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable faith in the assessee and not doubting everything coming to the AO's notice in the assessment proceedings can....
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....the facts and circumstances of the case. Hence, in our considered view, what is relevant for cl. (a) of Expln. 2 to s. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have claimed out or not. It does not authorise or give unfettered powers to the learned Principal CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made." * CIT Vs. Vijay Kumar Koganti (2020) 275 Taxman 394 (Mad.) (HC) Where AO examined issue regarding substantial increase in capital investment reflected by assessee in balance sheet in scrutiny assessment and passed assessment order, in absence of any finding by Pr. Commissioner as to how assessment order was erroneous, Tribunal rightly set aside revisional order passed by Pr. Commissioner on said issue. * CIT Vs. Green Fields Commercial Pvt. Ltd. (2015) 119 DTR 303 (J&K) (HC) AO having issued notices u/s 143(2)/142(1) along with necessary questionnaire to the assessees and the assessees having appeared before the AO and produced the books of accounts and ....
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....ds Pvt. Ltd. Vs. PCIT (2017) 51 CCH 473 (Del.) (Trib.) Explanation 2 to s. 263 inserted w.e.f. 01.06.2015 does not override the law as interpreted by the various High Courts whereby it is held that the CIT cannot treat the AO's order as being erroneous and prejudicial to the interest of revenue without conducting an enquiry and recording a finding. If the Explanation is interpreted otherwise, the CIT will be empowered to find fault with each and every assessment order and also to force the AO to conduct enquiries in the manner preferred by the CIT, thus prejudicing the mind of the AO. This will lead to unending litigation and no finality in the legal proceedings which cannot be the intention of the legislature in inserting the Explanation. The principles laid down in these decisions when applied to the facts of assessee's case it is evident that in the assessee's case AO has made all the necessary enquiry and verification as can be expected of a of a prudent, judicious and responsible AO in normal course of his assessment work. The Ld. CIT has not specified as to what type of enquiry ought to have been made by AO which would have resulted into income or disall....
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....s to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of Revenue ; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the ITO is unsustainable in law. 3. It is further submitted that at Para 9 of its order, the Ld. PCIT at one hand is concluding that AO was required to disallow the indexation and deduction claimed u/s 54F which he failed to do and on the other hand is directing the AO to examine and verify the issues in light of the observation made in this order and thereby set aside the assessment order to the AO. Thus once the Ld. PCIT concludes that the indexation benefit and deduction claimed u/s 54F is required to be disallowed, her finding at the same time directing the AO to examine and verify the issues is contradictory in itself. The Ld. PCIT cannot blow hot a....
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....ding, the CIT, in the exercise of his powers under s. 263, can set aside an order, for lack of proper inquiry or verification, and ask the AO to conduct such inquiries or verifications afresh." In view of above, the findings of the Ld. PCIT setting aside the assessment order should be expunged and the issue involved be decided by the Hon'ble ITAT on merit, otherwise in the guise of the directions given by the Ld. PCIT, the AO will be left with no alternative except to make the disallowance which will cause injustice to the assessee. 4. It may also be noted that assessee acquired the land as capital asset and not as stock in trade. The only purpose for which the land is acquired is to run a petrol pump on it. Thereafter, after a gap of around 12 years, assessee converted the said land for residential and commercial use and to have a better realisation of the capital asset, the same was sold after plotting. Selling of land after plotting in order to secure better price is not an adventure in the nature of trade or business. The word "business" has been defined u/s 2(13) of the IT Act, 1961 which includes any trade, commerce or manufacture or any adventure or concern....
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....aroj Kumar Mazumdar Vs. Commissioner of Income Tax 37 ITR 242 (SC) Section 2(13) of the Income-tax Act, 1961 - Adventure in nature of trade - Whether where transaction under examination is not in line of business of assessee and is an isolated or a single instance of a transaction like that, burden lies on revenue to bring case within words of statute, namely, that it was an adventure in nature of trade - Held, yes - Assessee entered into agreement with a society to purchase plot of land under development scheme offered by society and paid 25% of estimated price - Assessee finding no immediate prospect of land in question being derequisitioned by Government, negotiated for assignment of his rights under agreement with society to a third party and received a sum in excess of amount paid by him to society - Whether since dealing in landed estate was not in line of assessee's business and sale transaction in question was only one of its kind and department failed to make out that dominant intention of assessee was to embark on a venture in nature of trade when he entered into said transaction which resulted in profits, such profits could not be taxed in hands of assessee ....
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....f adventure in the nature of trade and business. The main earning on the sale of the land was in the nature of capital gain and, therefore, not assessable as income from business and this question is essentially a question of fact". * CIT Vs. A Mohammed Mohideen 176 ITR 393 (Madras) (HC) Para 11 of this order is reproduced as under:- "Bearing in mind the principles laid down by the Supreme Court, it is necessary to examine the facts of the present case. Already we have noticed the contentions urged for the Revenue. The first contention is that the Tribunal is in error in holding that the Department has not established by evidence that the intention of the assessee in purchasing the property was not by way of investment but to trade in house sites. It is pointed out by learned counsel for the Revenue that the Tribunal has not considered all the aspects before holding that it was not established that the assessee intended to trade in house sites. We are of the view that this does not vitiate the conclusion reached by the Tribunal. In this context it is worthwhile to notice the principle laid down by the Supreme Court that the Revenue should establish by positive evi....
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.... purchase any land or did not sell any land. He was purely an agriculturist. The land in question represents his ancestral property. He thought that he would profit very much or would get maximum by plotting out the land and getting a lay out approved by the Gram Panchayat and, therefore, he got sanctioned the lay out from the Gram Panchayat. He converted the land into plots and sold them as house sites. He wanted to take all advantages due to fast urbanization of the area. Can it be said under those circumstances that the assessee is carrying on an adventure in the nature of trade, simply because he wanted to realize the maximum out of the sale of his ancestral land? Without any reservation, one could come to the conclusion that the assessee never intended to do any business in the real estate and that the sale of plots of land held by him does not amount to an adventure in the nature of trade. There is no material, let alone positive material, produced by the Revenue to show that the assessee intended to carry on trade in real estate. Therefore, the ordinary presumption that sale of immovable property would give rise only to capital accretion would be applied to the case of the a....
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.... on sale of these plots was to be treated as capital gains. In view of above, order passed by Ld. PCIT u/s 263 is illegal & bad in law and be quashed. " 9. Per contra, the ld. DR justifies the order of the Pr. CIT in opposition and has submitted his written submission dated 12.06.2022 which is extracted here in below for the sake of convenience: "Please refer to the above mentioned subject. It is seen that in the written submission, the Ld AR has raised several legal questions. In this regard, his submission of this office is as given below: One argument has been given by the appellant that once PCIT has given a concrete finding then the case need not be set aside and sent back to the AO for assessing income de-novo as AO is left with no option but to follow the directions of the PCIT. In this regard, the following judicial pronouncements are brought to the notice of the Hon'ble bench where similar action was taken by CIT/PCIT and the action has been confirmed. i) Nahar Spinning Mills (P&H) 117 taxman.com 40 In this case, CIT was of the opinion that Assessing Officer erred in allowing deduction under section 80-I....
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....aside. The appeal of the assessee against this order u/s 263 was dismissed. Decision on merits need to be given by the CIT in order u/s 263:- Now another case law is relevant. In this case, specific finding on merits was not given by the CIT in the order 263 of the Act and it was held that the order u/s 263 is not proper and the order u/s 263 was quashed. ITO Vs DG Housing projects Ltd. (Delhi) ITA No. 79/2011 dated 1- Mar-2012 In this case, CIT held, inter alia. as quoted below: "Para 4 (i) ............................................................................................................. It is clear that the aspect of full value of consideration receivable has not been properly examined by the Assessing Officer and the assessment order is erroneous and prejudicial to the interest of the revenue. ii) ............... However, reference need not be made to the Valuation officer when the value of the asset is determinable as per the formula laid down in Scheduled -Ill of the Wealth Tax Act. Only when it cannot make a reference by this method does the Assessing Officer make a reference to the Valuation O....
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....initial acquisition, is converted or treated as stock-in-trade of business carried on by the assessee. In such cases, the intention at the time of purchase or acquisition would not be of much relevance. What is of more relevance is to determine the intention at the subsequent point in time, through conduct and affirmative actions, that the capital asset so purchased initially has been converted or treated as stock-in trade of the business carried on by the assessee. The legislature has since envisaged such a situation and has brought on the Statue books the provisions of section 45(2) by virtue of the Taxation laws (Amendment) Act, 1984 with effect from 1-4-1985 and there is now a statutory recognition that even asset initially acquired as investment can be subsequently converted into stock-in-trade. As per section 45(2), profits & gains arising from the transfer by way of conversion by the owner of a capital asset into or its treatment by him as stock-in-trade of business carried on by him, shall be chargeable to tax as income of the previous year in which such stock-in-trade is sold or otherwise transferred and for the purpose of section 48, the fair market value of the ....
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....is case, the assessee itself has developed residential plots and then sold it to individual buyers. Therefore, the findings of the Assessing Officer that by such plotting of land, the agriculture land has been converted into stock-in-trade (in form of residential plots) of assessee's business are affirmed. The development of residential colony and said conversion has happened by assessee's own admission during financial year 2009 and the intent of the assessee has this been demonstrated through his own actions. The fair market value of the asset on the date of conversion as reduced by the cost of acquisition is required to be assessed under the head 'capital gain in the year(s) the stock-in-trade is sold/transferred. Further, sales realization of the stock-in-trade over such fair market value is required to be assessed as 'business income'. During the year under consideration, it is an admitted position that 15 plots have been sold for a consideration of Rs. 54.93 lakhs. Therefore, the taxability arising on conversion of agricultural land into stock-in trade to the extent it has been sold during the year, arises during the impugned assessment year. The matter is acc....
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....2016/ITA.II dated 02.05.2016 which state that once the stand taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent year also and the taxpayers shall not be allowed to adopt a different / contrary stand in this regard in the subsequent years. This circular is issued by the CBDT to avoid litigation which the department should not use to create litigations. Thus, the view taken by the assessee that a particular investment is of capital in nature and declared the same since the amount invested same subsequent to that at the time of sale merely the assessee, he divided in to small plot to sell that capital asset cannot be termed as business assets. 12. We have persuaded the case laws relied upon by the revenue wherein the fact that assessee converted asset into stock in trade and in the case of Shri Mahavir Yadav, Co-ordinate Bench has held that these asset till its conversion chargeable to as capital gains and subsequent profit arising is required to be charged as business income. Whereas in this case fact is different that the assessee is continuously holding this asset as capital asset and has not converted it into stock in trade and in fact ....