2015 (9) TMI 1342 - AT - Income Tax

Revision u/s 263 - whether the capital gains can be taxed in AY 2009-10 or not? - Held that - There is no prejudice caused to the Revenue in the entire transaction as the capital gains gets taxed in either of the years @ 20% only. Even though Ld.CIT considered that agreement of sale cum irrevocable G.O. was registered on 31-03-2009, he could have invoked the powers to bring the capital gains offered in later year to this assessment year, if assessee has given possession as contended by assessee to the extent of first part of transaction. CIT causes prejudice to the Revenue, not the order AO which was considered by the CIT as prejudicial to the interest of Revenue. Not only that, assessee also justified that the loss which was incurred during the year, would be eligible to set-off to the business profits earned in AY 2011-12 onwards, wherein assessee offered positive incomes, offering the tax at 30% of the total income surcharge there on. Action of the CIT would result in refund of tax to assessee and is beneficial to assessee. Therefore, the second condition prescribed u/s. 263, that the order of AO is prejudicial to the interest of Revenue, does not satisfy either in this year or in the later years. As seen from the consequential order passed, even the small tax offered by assessee was to be refunded. Considering these facts, it cannot be stated that the order of the AO is prejudicial to the interest of Revenue. It is in fact the order of CIT which is prejudicial to the interest of Revenue. In view of this, keeping in view of the principles laid down in the case of Spectra Shares and Scrips Pvt. Ltd., Vs. CIT 2013 (6) TMI 173 - ANDHRA PRADESH HIGH COURT to hold that there is no justification in exercising the jurisdiction u/s. 263 by the CIT. - Decided in favour of assessee.

Summary

Issues:
1. Jurisdiction of CIT under section 263 of the Income Tax Act regarding the assessment of capital gains offered by the assessee in different assessment years.

Analysis:
The judgment involves an appeal by the assessee against the Commissioner of Income Tax's order under section 263 of the Income Tax Act. The assessee, engaged in manufacturing air conditioners and refrigerators, filed a return admitting total income. The Commissioner noticed discrepancies in the assessee's computation of Long Term Capital Gains related to the sale of land. The Commissioner contended that the entire transaction of selling 2,600 sq. yds. of land should have been considered in a single assessment year. The Commissioner set aside the assessment, invoking jurisdiction under section 263, to tax the capital gains in a specific assessment year.

The assessee argued that the transactions were separate, even though with the same buyer, and that the capital gains were offered in different assessment years as per the transactions' conclusion. The assessee contended that there was no prejudice to the Revenue as the entire capital gain was offered as Long Term Capital Gain in both years. The Commissioner, however, disagreed and modified the assessment, directing the Assessing Officer to tax the capital gains in a different assessment year.

The Tribunal analyzed the issue and records, noting that the transaction was a single one, but the capital gains were offered in two assessment years. The Tribunal found no difference in computation or tax rate between the years, concluding that no prejudice was caused by the assessee's approach. The Tribunal clarified that the issue of when the capital gains should be taxed was not under consideration. The Tribunal further explained that the Commissioner's exercise of jurisdiction under section 263 was not justified as the Assessing Officer's order was not erroneous or prejudicial to the Revenue.

The Tribunal emphasized that the Assessing Officer had examined the capital gains computation, and the Revenue was not prejudiced by the assessee's actions. The Tribunal highlighted that the Commissioner's order caused prejudice to the Revenue by excluding the income offered by the assessee. Referring to relevant case law, the Tribunal held that the Commissioner's jurisdiction under section 263 was not justified. Consequently, the Tribunal set aside the Commissioner's order and restored the Assessing Officer's decision, allowing the assessee's appeal.

In conclusion, the Tribunal ruled in favor of the assessee, emphasizing that the Commissioner's exercise of jurisdiction under section 263 was not valid in this case. The judgment highlighted the importance of ensuring that the Assessing Officer's order is both erroneous and prejudicial to the Revenue before invoking section 263 of the Income Tax Act.