2015 (1) TMI 732 - AT - Income Tax

Revision u/s 263 - as per CIT(A) capital gain on sale of land should be taxed as business income - Held that - As seen from the order of A.O. and statements recorded during the survey, the aspect of gains on sale of lands was thoroughly examined by A.O. Therefore, the prima facie objection that it is change of opinion by the Ld. CIT on the given set of facts has to be accepted as a valid one. A.O. not only accepted the capital gain but also denied cost of improvement in the order which was also confirmed by Ld. CIT(A). Therefore, order of CIT that income has to be treated as business income that too in this year only, ignoring the fact that in earlier two years similar incomes were quantified and accepted cannot be upheld. Therefore, the order of CIT on Dommara Pochampally gain in the hands of Mahindra has to be set aside. - Decided in favour of assessee. Gain on agreement with M/s Victory Avenues Ltd., (VAPL) should be taxed entirely in the year under consideration as against the income offered to the extent of sales made by VAPL as stated by CIT(A) - Held that - The stand of CIT cannot be supported. First of all, the agreement with VAPL is a GPA agreement without handing over possession. This stand gets support by the stamp duty paid and accepted by Registration authority. The agreement was registered as GPA agreement and not as a sale agreement. Thus on facts the agreement cannot be considered as sale agreement so as to bring entire capital gain tax in the impugned year. Moreover, there was a statement from Manager of VAPL recorded by A.O. during survey which indicate that there were lot of unsold plots and detailed statement was recorded about sale of various plots and how the monies are accounted. This indicates that the said VAPL is only acting as an agent in sale of property and it did not acquire the property. Therefore, stand of CIT that the land/property in question was sale cannot be accepted. Lastly, the CIT himself accepted that gains on sale of Medchal land has to be assessed under the head Long term capital gains . The gain is taxable at the rate of 20% only. Whether it is taxed in A.Y. 2007-08 or in later years, the tax rate is at 20% only. Thus, there is no prejudice caused to Revenue. Therefore, the twin conditions for invoking jurisdiction under section 263 have not been satisfied. For these reasons, we are of the opinion that the orders of CIT cannot be justified and so they are accordingly set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Classification of gains from the sale of lands as either capital gains or business income.
2. Correct assessment year for taxing the gains from the sale of land to Victory Avenues Private Limited (VAPL).
3. Validity of the Commissioner of Income Tax (CIT)'s invocation of Section 263 for revising the assessment orders.

Issue-wise Detailed Analysis:

1. Classification of Gains from the Sale of Lands:
The primary issue was whether the gains from the sale of lands at Medchal and Dommara Pochampally should be classified as capital gains or business income. The assessees, father and son, along with others, purchased land and later sold it, declaring the gains as long-term capital gains. The Assessing Officer (A.O.) accepted this classification. However, the CIT, upon reviewing the assessment, questioned whether these gains should be treated as business income, especially for the land at Dommara Pochampally, where the land was developed into plots and sold over several years. The CIT argued that this activity indicated a business operation. The Tribunal, however, found that the A.O. had thoroughly examined the transactions and concluded that the gains were capital in nature. It was noted that the CIT's stance was inconsistent, as similar gains in previous years were accepted as capital gains. The Tribunal set aside the CIT's order, reaffirming that the gains were correctly classified as long-term capital gains.

2. Correct Assessment Year for Taxing Gains from Sale to VAPL:
Another critical issue was the correct assessment year for taxing the gains from the sale of land to VAPL. The CIT directed that the entire gain from the sale of 60742 sq. yds to VAPL should be taxed in the assessment year 2007-08, arguing that the transaction constituted a transfer under Section 2(47)(v) of the IT Act, 1961. The Tribunal, however, found that the agreement with VAPL was a General Power of Attorney (GPA) agreement without handing over possession, which was supported by the stamp duty paid and accepted by the registration authority. The Tribunal also noted that VAPL acted as an agent in selling the property, not as the owner. Therefore, the Tribunal concluded that the CIT's direction to tax the entire gain in the assessment year 2007-08 was not justified.

3. Validity of CIT's Invocation of Section 263:
The CIT invoked Section 263, arguing that the A.O.'s order was erroneous and prejudicial to the interests of revenue. The Tribunal examined whether the twin conditions for invoking Section 263 were satisfied. It was found that the A.O. had thoroughly examined the transactions and made a conscious decision to classify the gains as long-term capital gains. The Tribunal noted that the CIT's action was a change of opinion rather than correcting an error. Additionally, the Tribunal pointed out that the tax rate for long-term capital gains was 20%, regardless of the assessment year, implying no prejudice to revenue. Consequently, the Tribunal set aside the CIT's orders, concluding that the invocation of Section 263 was not justified.

Conclusion:
The Tribunal allowed the appeals of the assessees, setting aside the CIT's orders. The gains from the sale of lands were upheld as long-term capital gains, and the CIT's directions to tax the entire gain from the sale to VAPL in a single assessment year and to treat the gains from Dommara Pochampally as business income were rejected. The Tribunal emphasized that the A.O.'s original assessment was thorough and not erroneous, thus invalidating the CIT's invocation of Section 263.