2012 (8) TMI 1035 - AT - Income Tax

Summary

Issues Involved:
1. Legality and validity of the order passed u/s 263 of the Income-tax Act, 1961.
2. Classification of income from transactions with Vansh Builders as "Business Income" or "Capital Gains."
3. Jurisdiction of the Commissioner of Income-tax to revise the assessment order.

Summary:

Issue 1: Legality and Validity of the Order Passed u/s 263
The appeal challenges the order of the Commissioner of Income-tax I, Hyderabad, dated 22.2.2012, passed u/s 263 of the Income-tax Act, 1961, for the assessment year 2008-09. The Chief Commissioner found the assessment order dated 29.12.2009, passed u/s 143(3), to be erroneous and prejudicial to the interests of Revenue. The Commissioner directed the assessing officer to tax the amount received by the assessee on cancellation of the development agreement with M/s. Vansh Builders as "business income" instead of "capital gains."

Issue 2: Classification of Income from Transactions with Vansh Builders
The assessee contended that the agreement with M/s. Vansh Builders was for investment to yield rental income and not for commercial profit. The assessee had consistently treated immovable properties as investments, and the income from these properties was assessed under "Income from House Property." The Chief Commissioner, however, concluded that the assessee acted as a builder, and the entire deal should be treated as an adventure in the nature of trade. Consequently, the income from the cancellation of the development agreement was to be taxed as business income.

Issue 3: Jurisdiction of the Commissioner of Income-tax to Revise the Assessment Order
The assessee argued that the Assessing Officer had conducted necessary enquiries and applied his mind to the issue before accepting the claim of the assessee. The Commissioner of Income-tax's revisionary power u/s 263 was questioned, as the Assessing Officer had taken one of the two possible views, which should not be considered erroneous or prejudicial to the interests of Revenue. The Tribunal held that the jurisdiction u/s 263 is supervisory and intended for special cases where the order is both erroneous and prejudicial to the interests of Revenue. The Tribunal concluded that the Assessing Officer had conducted necessary enquiries and applied his mind, and the Commissioner of Income-tax was not justified in exercising jurisdiction u/s 263.

Conclusion:
The Tribunal set aside the impugned order passed u/s 263, allowing the grounds of the assessee. The appeal was allowed, and the income from the cancellation of the development agreement was to be assessed under the head "capital gains."