TaxTMI 
TaxTMI 
2022 (10) TMI 1169
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.... him is only based on change of opinion and on certain apprehensions which makes the proceeding u/s 263 beyond the jurisdiction of the Ld. Pr.CIT. 4. The Ld. Pr. CIT ought to have appreciated the fact that only when the view taken by the AO is unsustainable in law, the order of the AO can be treated as erroneous & prejudicial to the interest of revenue. 5. The Ld. Pr. CIT erred in passing the order u/s 263 of the Act directing the AO to pass assessment order afresh without considering the merits of the case. 6. The Ld. Pro CIT erred in treating. the assessment order as erroneous without appreciating the fact that the AO had completed the assessment after considering and verifying all the relevant facts, explanations and submissions placed before him. 7. The Ld. Pr. CIT ought to have appreciated the fact that the appellant had converted his Land into stock in trade and same was shown as closing stock in the P & L account even before entering into agreement for development of the land. 8. The Ld. Pr. CIT ought to have appreciated the fact that the taxation arises only when stock in trade is sold or transferred and no such transaction has taken place during the FY 2007-08, r....
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.... in question was converted into stock in trade on 02-05-2007 and as he did not have the required funds and expertise, the property was put to development. Since the capital asset was converted into stock in trade, the capital gains arising from the transaction would be chargeable to tax only when the stock in trade was sold or otherwise transferred. He had received his share of the constructed area in 2014. As on date, the constructed area was not sold but was leased out vide Lease Deed dated 29-09-2014. In support of his contentions, the assessee quoted the decisions of ITAT, Chennai Bench in the case of R. Gopinath (HUF) Vs ACIT and of ITAT, Hyderabad Bench in the case of ACIT Vs T Ashok Kumar. 2.3 Notice u/s 142(1) of the Act was issued on 14-03-2016 along with a letter calling for further details. On 28-032016, the assessee filed a letter with a request to be communicated the reasons for re-opening the assessment and also stated that he had filed a return in response to the notice issued u/s 148 of the Act. The return was filed on 2703-2016 declaring Nil income. In the P&L a/c enclosed to the return, the value of purchases (conversion) and closing stock was shown at Rs. 7,61,0....
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....e 45% of the land were given to the developer and the builder accordingly received the land. iv) In the statement given by you on 28.01.2015 before the Deputy Director of Income tax (Inv), Hyderabad, there was no mention of conversion of the land into stock in trade or carrying on any real estate 'business. Therefore, the claim of conversion is only an afterthought. 2.2 For reasons stated above, your claim of conversion of the land into stock in trade is not acceptable. It is therefore proposed to consider the land as a capital asset and assess the income arising out of the' transfer by way of development agreement as income from capital gains. 2.3 As per the development agreement cum General Power of Attorney dated 02.08.2007, the developer was given a General Power of Attorney, with inter alia, the rights over 45% of the land falling to his share for raising loans and subsequent transfe Rs. Therefore, there was a transfer within the meaning of section 2(47)(v) of the Act on the date of the development agreement and income from capital gains is taxable for the A.Y.2008-09. Since the land was held for a period not exceeding 36 months, the income is taxable as short te....
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....ssee claimed that he has received. his share of constructed area in the year 2014 and as on the date of assessment, the constructed area was not sold but leased out Based on this submission of the assessee, the AO did not bring any capital gains to tax for the year under consideration. 4.0 The assessee is a film actor by profession and was never in to any other business activity like construction. The assessee himself, in his reply dated 09.03.2016 has submitted at Para. 6 that" As I was not having sufficient funds and expertise, the same land along with the land belonging to my mother was thrown in "Joint Development" for developing the housing and commercial project with 55:45 sharing ratio. So the assessee has neither expertise nor resources to carryon the construction on the land acquired by him. Then what prompted the assessee to convert the land into stock in to trade, more so when he is not into construction business. This is nothing but a ploy to evade the payment of capital gains tax. The assessee has no evidence to prove that the land was converted into stock in trade except a self serving profit and loss account filed after issue of notice under section. The entire tra....
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....nder:- "12. In view of the above, we find it difficult to agree with the ld. DR that there was no enquiry conducted by the Ld. Assessing Officer by putting any specific question to the assessee as to the treatment given to the interest. As a matter of fact, the reason for the difference in the amount as per Form 26AS and ITR was due to the interest received from the banks that was duly accounted and considered in the financial statements of the company and was adjusted against the project expenditure. The very fact that pursuant to the scrutiny when the Ld. Assessing Officer proposed charging the interest amount received to tax, the very same explanation was offered by the assessee and was accepted by the Assessing Officer. We are, therefore, of the considered opinion that it is not a case of no enquiry and as a matter of fact, it was specifically brought to the notice of the Ld. Assessing Officer that the interest earned was adjusted against the project expenditure. 13. Further, it is an admitted fact that in this case, the business of the assessee was commenced in this case, unlike the facts in the case of M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd.(supra). The Mum....
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....owing effect. Issue No. (ii): 10. The standard to be adopted while dealing with the issue as to whether or not an AO has carried out an enquiry or verification, all that the Court is required to ascertain is as to whether the AO applied his mind. 10.1. The fact that the AO has not given reasons in the assessment order is not indicative, always, of whether or not he has applied his mind. Therefore, scrutiny of the record, is necessary and while scrutinising the record the Court has to keep in mind the difference between lack of enquiry and perceived inadequacy in enquiry. Inadequacy in conduct of enquiry cannot be the reason based on which powers under Section 263 of the Act can be invoked to interdict an assessment order. The observations made in this behalf, by the Division Bench of this Court, in Commissioner of Income-tax vs. Sunbeam Auto Ltd., [2010] 189 Taxman 436 (Delhi)/[2011] 332 ITR 167 (Delhi) being apposite, are extracted hereafter. "12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section....
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....to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. [See : Parashuram Pottery Works Co. Ltd. v. ITO[1977] 106 ITR 1 (SC) at page 10]. ****** From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order un....
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....0.2. This view was followed by another Division Bench of this Court in Commissioner of Income-tax vs. Anil Kumar Sharma, (2010) 194 taxman 504 (Delhi). Issue No. (iii): 11. The assessment order can be interdicted under Section 263 of the Act, if two conditions are met, i.e., that the order is erroneous and is prejudicial to the interests of the revenue. [See Malabar Industrial Co. Ltd. vs. Commissioner of Income-tax, [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC) and CIT vs. Max India Ltd., (2007) 295 ITR 282 (SC)] Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:06.07.2021 10:30:10 11.1. Therefore, the error should be one that is not debatable or a plausible view. Section 263 of the Act invests a power of revision in a superior officer and therefore, by the very nature of the power, does not allow for supplanting or substituting the view of the AO. The appreciation of material placed before the AO is, exclusively within his domain which cannot be interdicted by a superior officer while exercising powers under Section 263 of the Act only on the ground that if he had appraised the said material, he would have come to a different conclusion. [See Parashuram P....
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....x as submitted by the assessee in re-opening. Therefore, the action by the PCIT was correct. Ld.DR had also drawn our attention to the written submissions filed by the Revenue which is to the following effect: "1. The appeal against the decision of Pr CIT-6, Hyderabad passed u/s 263. In this case, the assessee did not file return of income. Based on information in possession of the Department that the assessee transferred land through a Joint Development Agreement, the assessment was reopened with due approval of the Range Head at Chennai. Later on, the assessee requested for transfer of the case to Hyderabad and the case was duly transferred u/s 127 to Hyderabad. 2. During the assessment proceedings, the assessee argued that he converted the land into stock in trade and hence not liable to pay capital gains tax. However, it may kindly be noted that even in the year in which he got constructed property from the developer also, he did not disclose any capital gains. The AO adopted a wrong view when two views were not possible and did not bring the capital gains to tax. In fact, the AO formed a correct view which is evident from her show cause notice dated 14/03/2016 served on th....
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..... The Pr CIT recorded a finding that between 23/04/2007 (the date of acquiring the land as gift from brother) to 02/08/2007 (date on which the property is transferred through the JDA), it is not known on which date the property was converted into stock in trade. She also stated that the AO did not record the date of such conversion. The Pr CIT also took notice of the statement u/s 131 before the DDIT(lnv), wherein the assessee never made such a claim, The Pr CIT recorded a clear finding that the claim is nothing but an afterthought. As the AO did not verify the claim, the Pr CIT set aside the assessment u/s 263. 6. It is humbly submitted thatin the present case, as already submitted above, the AO in her notice dated 14/03/2016 expressed her mind but acted quite opposite in the order dated 31/03/2016. While doing so, the AO took a view which is contrary to the facts on record as explained her in notice dated 14/03/2016 even when no verifiable evidence was before her between 14/03/2016 to 31/03/2016. Therefore, the view taken by the AO was wrong and two views were not possible in the present case if the facts are considered, Therefore, the order of the AO was erroneous and prejudic....
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....g of re urn in form ITR - 2 was also considered to treat an asset as capital asset. 9. Reliance is also placed on the decision of Hon'ble ITAT, Kolkata Bench in the case of Vikas Solvextracts Pvt Ltd [2018]192 TIJ 591 (Kolkata - Trib.) wherein it was held that unless there is a positive act to indicate conversion into stock-in-trade, section 45(2) would not apply. 10. It is also humbly submitted that the appeal is not maintainable on prima facie ground itself because the respondent cannot be ITO, Ward - 14(5) in a case where the assessee is challenging the decision of Pr CIT-6, Hyderabad. It is also submitted that the assessee filed a paper book containing various documents claiming that they were filed before the AO. Out of the said documents, documents at SI no: 5 to 8 are apparently not filed before the AO and in fact some of these documents were gathered by the Investigation wing and confronted to the assessee. The assessee may kindly be directed to produce proof to the fact that the said documents were filed before the AO by the assessee." 6. We have heard the rival contentions and perused the record. In this case, the ld.PCIT had issued the show cause notice to the a....
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.... 263 of the Act. In our view, the Pr. CIT cannot thrust upon his own thoughts, perceptions, and conclusions on the A.O. (or) direct him to pass on order in such a manner and in such a fashion as he thinks fit by setting aside the already completed assessment. It is pertinent to note here that the crux of the issue involved is that the AO has framed assessment U/s 147 and not under section 143(3), as it is purely re-opened for a specific reason and was concluded by accepting the submissions of assessee after duly verifying the records and the material available on record and on complete satisfaction of the Assessing Officer. 7. In support of the above, reliance is placed on the decision of the of Supreme Court in the case of MALABAR INDUSTRIAL CO. LTD. v. COMMISSIONER OF INCOME TAX (2000-(243)-ITR -0083 -SC) wherein it was held as under : "...Where two views are possible and the I.T.0 has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the 170 is unsustainable in law.." 8. As mentioned herein above, AO during the assessment proceedings had called for information whic....