2019 (12) TMI 1552 - AT - Income Tax

Revision u/s 263 by CIT - Profit on Sale of Ancestral Property as taxable under Capital gain - assessee has sold the ancestral property - deemed full value consideration u/s 50C of the Act cannot be applied in the case of the assessee where the sale consideration shown in the sale deed and declared by the assessee is equivalent to the stamp duty valuation - HELD THAT - The fair market value of the asset shall be taken as the valuation adopted by the stamp duty authority as provided u/s 50C of the Act being full value consideration and therefore, for the purpose of computing the capital gains the said amount would be deemed to be full value consideration which is the actual sale consideration - There will be no change in the capital gains computed and declared by the assessee even after applying the provisions of section 45(2) of the Act. Resultantly, the business income, if any, from the said transfer under the provisions of Section 45(2) of the Act would be Nil being the cost of acquisition of stock in trade and the sale consideration of the said property is the same. Even after invoking the provisions of Section 45(2) of the Act, there would be no change in the tax liability of the assessee and hence the order passed by the AO cannot be said prejudicial to the interest of the Revenue. It is undisputed proposition of law that for exercising the power u/s 263 of the Act, the Commissioner has to satisfy itself that the order passed by the AO is erroneous as well as prejudicial to the interest of the Revenue. Without satisfaction of the twin conditions that the order passed by the AO is erroneous as well as prejudicial to the interest of the Revenue, the provisions of Section 263 cant be invoked. Therefore, in the case in hand, when there will be no Revenue loss even if provisions of section 45(2) is applied then in such a situation the Commissioner is not allowed to exercise its power u/s 263 of the Act merely because the AO has accepted the capital gains declared by the assessee. Hence, in the facts and circumstances of the case, the impugned ex-parte order passed by the ld.PR. CIT without proper opportunity of hearing to the assessee and without establishing the order of the AO is prejudicial to the interest of the Revenue is not sustainable in law and consequently the same is quashed and set aside.- Decided in favour of assessee.

Summary

Issues:
1. Taxability of profit on sale of ancestral property under Capital gain.
2. Applicability of Apex Court Judgment.
3. Scope of revisionary jurisdiction of Pr. CIT.
4. Assessment order's impact on revenue interest.
5. Legality of revision based on a mere change in opinion.
6. Consideration of two passable views.
7. Provision of proper opportunity for representation.
8. Adequacy of the inquiry conducted by the AO.

Detailed Analysis:

1. The appeal concerned the tax treatment of profit from the sale of an ancestral property. The Pr. CIT contended that the transaction should be treated as business income instead of capital gains, invoking Section 45(2) of the IT Act. The AO initially accepted the capital gains declared by the assessee, leading to the revision order under Section 263 by the Pr. CIT.

2. The assessee challenged the Pr. CIT's reliance on an Apex Court judgment and argued that the facts were not identical. The assessee emphasized that the sale was of a capital asset, not a business transaction, and the AO's decision was legally permissible.

3. The issue of the Pr. CIT's limited power was raised, questioning the validity of substituting the AO's opinion and conducting a roving enquiry. The Tribunal assessed whether the Pr. CIT exceeded the scope of revisionary jurisdiction.

4. The impact on revenue interest was scrutinized, with the Pr. CIT alleging that the AO's order did not consider the proper valuation of the property, leading to potential revenue loss. The Tribunal evaluated whether the AO's decision was indeed prejudicial to the revenue's interest.

5. The legality of the revision based on a mere change in opinion was deliberated. The Tribunal analyzed whether the Pr. CIT's decision was solely based on a different opinion without substantial grounds for revision.

6. The Tribunal considered the principle of two passable views, emphasizing that the AO's decision, even if debatable, should not be revised unless it significantly impacts revenue interest. Precedents were cited to support the argument against arbitrary revision.

7. The lack of providing a proper opportunity for representation was raised, highlighting the violation of natural justice principles. The Tribunal assessed whether the assessee was denied a fair chance to present their case, as mandated by law.

8. The adequacy of the inquiry conducted by the AO was a crucial aspect of the appeal. The Tribunal examined whether the AO's assessment lacked proper investigation, leading to potential errors in the decision-making process.

In conclusion, the Tribunal allowed the assessee's appeal, emphasizing that the Pr. CIT's revision order lacked a substantial basis and did not demonstrate prejudice to the revenue's interest. The decision was quashed, emphasizing the importance of following due process and ensuring fair treatment in tax assessments.