2014 (2) TMI 795 - HC - Income Tax

Exercise of jurisdiction by the CIT u/s 263 of the Act Held that - The income derived by the assessee is in the nature of capital one as it was connected with main activity - this cannot be said to be income, as rightly held on fact finding by the Assessing Officer initially and thereafter by the Tribunalthe Tribunal has taken a correct view of the matter as the Commissioner of Income Tax has no jurisdiction to reopen this case, because one of the two possible views was taken by the Assessing Officer and such change of view cannot be any ground to reopen the issue under Section 263 of the Income Tax Act thus, the CIT had passed the order in total illegal exercise of jurisdiction thus, there was no merit in the appeal decided against Revenue.

Issues:
1. Formulation of substantial question of law under Section 260-A of the Income Tax Act.
2. Acceptance of return showing nil income by Assessing Officer.
3. Jurisdiction of Commissioner of Income Tax under Section 263 of the Income Tax Act.
4. Appeal before the Tribunal challenging the order of the revisional authority.
5. Tribunal's fact finding regarding the income derived by the assessee.
6. Determination of income as capital one connected with the main activity.
7. Correctness of the view taken by the Assessing Officer and Tribunal.
8. Jurisdiction of Commissioner of Income Tax to reopen the case under Section 263.
9. Dismissal of the appeal and absence of costs.

Analysis:
1. The High Court noted that the appeal was admitted without formulating substantial questions of law as required under Section 260-A of the Income Tax Act. The court observed that had they decided in favor of the appellant, such questions would have been formulated. However, upon reviewing the impugned judgment, it was found that the case was not fit for admission due to specific reasons outlined in the judgment.

2. The assessee had filed a return for the assessment year 1995-96 showing nil income, stating that there was no income after commencing business. The Assessing Officer accepted the return, noting that the assessee was engaged in developing a film project and the income returned was accepted. The Revenue did not appeal this decision, but the Commissioner of Income Tax, under Section 263, reversed the order, directing the income to be taxed under 'income from other sources.'

3. An appeal was filed before the Tribunal against the revisional authority's order. The Tribunal found that the income derived by the assessee was linked to development activities and had a direct connection with the main activity. The Tribunal's fact-finding supported the claim that the income was capital in nature and connected to the primary activity of the assessee.

4. The High Court upheld the Tribunal's decision, stating that the Commissioner of Income Tax had no jurisdiction to reopen the case as one of the possible views was already taken by the Assessing Officer. The change in view cannot be a ground for reopening under Section 263. The court found no merit in the appeal and dismissed it, without ordering costs.

5. Another appeal (ITTA No. 31 of 2007) with similar issues and involving the same parties was also dismissed in line with the judgment in the first appeal (ITTA No. 60 of 2010). The court reiterated that there would be no order as to costs in this appeal as well, aligning with the previous decision.

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