TaxTMI 
TaxTMI 
2022 (10) TMI 1169
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appreciated the fact that initiation of proceeding u/s 263 by 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....background of these facts. 2.2 The assessee filed a letter on 09-03-2016 stating that with an intention to do business, the land 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 decla....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the share of the developer included undivided share in land. Vide registered development agreement cum general power of attorney dated 02.08.2007, all rights over the 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 d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ount. Since the capital asset was converted into stock in trade, the capital gains arising. from this transaction would be chargeable to tax only when the stock in trade was sold or otherwise transferred. The assessee 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "6.7 We are supported by the decision rendered by Delhi Tribunal in the case of Brahma Centre Development Private Limited, ITA nos. 4341 & 4342/Delhi/2019 dated 18.12.2019 wherein the Tribunal in paragraphs 12, 13 & 14 has held as under:- "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 agai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Revenue in ITA No. 116 of 2021 and ITA No. 118 of 2021 before Delhi High Court and the Hon'ble Delhi High Court had confirmed the order passed by the Tribunal. We are reproducing hereinbelow of the findings of the Delhi High Court in paragraphs 10 & 11 which are to be following 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) bei....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsofar as it is prejudicial to the interests of the revenue must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of 'lack of inquiry'." 10.2. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that as the Assessing Officer has failed to exercise the jurisdiction and examine the record and had allowed the claim of the assessee in violation of the provision of law, therefore, the action on the part of the PCIT was in accordance with law. It was submitted that the Assessing Officer was having no time to verify the factual matrix 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 ki....
X X X X Extracts X X X X
X X X X Extracts X X X X
....after transfer of land through JDA. 5. The Pr CIT examined the record and noticed that the assessee was never into any business of construction or real estate and the claim was not supported by any evidence, The Pr CIT therefore issue a notice for revision u/s 263. Even before the Pr CIT, the assessee did not file any verifiable evidence to substantiate his claim. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....racter of trade in the present transaction. The fact that the assessee filed return in ITR-2 itself indicates that there was no business of real estate let alone conversion of land into stock in trade. Reliance in this regard is placed on the decision of the Jurisdictional High Court in the case of Devineni Avinash ([2018] 100 taxmann.com 75), wherein amongst other points, the fact that filing 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nversion of capital asset into stock-in-trade as on 02.05.2007. The AO has rightly taken one view by duly considering the fact that the impugned Land was nothing but a stock in trade and can be evidenced from the financial statements of the assessee. Thus, once the view has been taken by the AO after thorough examination any other view taken by the ld.PCIT would form change of Opinion and is not possible U/s 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 INCOM....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Brahma Center Development Pvt Ltd Vs. PCIT (supra) was upheld by the Hon'ble High Court of the Delhi in ITA No. 116 of 2021. 10. In view of the above the assessment order passed under the proviso of section 143(3) r.w.s 147 of the Act, cannot be said as erroneous. For the purpose of satisfying the requirement of invocation of power u/s 263 of the Act, it is necessary to satisfy the twin condition mentioned in section 263 of the Act. Moreover, while issuing the show cause notice, the PCIT sought to tax the assessee for alleged capital gain on the basis of the statement recorded u/s 131 of the Act on 28.01.2015. The said statement and the question put to the assessee (question No. 4 and its answer) was duly considered by the Assessing Officer and thereafter, the order was passed. 11. In the present case, the Revenue fails to satisfy the first condition i.e., the order passed by the Assessing Officer was erroneous. We may fruitfully rely upon the decision in the case of Olive Hospital private limited Vs. PCIT ITA No. 770/Hyd/2017, (Para 7), decided by the Hon'ble ITAT Hyderabad Bench, wherein it was held as under: "7. The Hon'ble Madras High Court in the ca....