2022 (3) TMI 1404 - AT - Income Tax

Revision u/s 263 - Nature of land sold - agricultural land or capital asset - reopening of assessment u/s 147 concluded against assessee - HELD THAT - When the land was sold by the assessee, the status of land was agricultural land. This fact has been adequately inquired and examined by the assessing officer during the reassessment proceedings and having examined the said fact, the assessing officer has dropped the re-assessment proceeding initiated u/s 147 of the Income Tax Act. Hence, assessing officer, having examined the assessee s fact (that land is an agricultural land therefore it is not subject to capital gain tax), and legal position in relation to the fact, decided not to initiate the reassessment proceedings under section 147 of the Act, therefore, such order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue. It is well established that the impugned order passed u/s. 143(3) r.w.s.147 of the Act dated 18.10.2016, was passed by assessing officer, after calling for relevant information and after detailed examination of the same. The Assessing Officer has passed the assessment order after calling for details on the issue and after considering the reply and documents and after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. PCIT s finding fault, with the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue, on account of lack of inquiry, has to fail - we quash the order passed by the ld PCIT under section 263 - Decided in favour of assessee.

Issues Involved:
1. Initiation of proceedings under Section 263 of the Income Tax Act, 1961.
2. Assumption of jurisdiction under Section 263.
3. Violation of principles of natural justice.
4. Non-passing of a speaking order.
5. Allegation of "change in opinion."
6. Verification of chargeability of capital gain.
7. Validity of proceedings under Section 143(3) read with Section 147.
8. Whether the assessment order was erroneous and prejudicial to the interest of revenue.

Issue-wise Detailed Analysis:

1. Initiation of proceedings under Section 263 of the Income Tax Act, 1961:
The assessee challenged the initiation of proceedings under Section 263, arguing that the Principal Commissioner of Income Tax (PCIT) erred in initiating these proceedings. The Tribunal noted that the PCIT exercised jurisdiction under Section 263 after examining the case records and finding that the Assessing Officer (AO) had not verified the chargeability of capital gain during the reassessment proceedings.

2. Assumption of jurisdiction under Section 263:
The assessee contended that the PCIT wrongly assumed jurisdiction under Section 263. The Tribunal examined whether the requisite jurisdiction existed for the PCIT to exercise his power. It referred to the Supreme Court's decision in Malabar Industries Ltd. vs. CIT, which requires that an order must be both erroneous and prejudicial to the interest of revenue for the PCIT to assume jurisdiction under Section 263.

3. Violation of principles of natural justice:
The assessee argued that the PCIT violated the principles of natural justice by not mentioning the grounds for initiating action under Section 263 in the show cause notice. The Tribunal found that the PCIT had issued a show-cause notice dated 12.02.2018 to the assessee, explaining the transaction and inviting a response.

4. Non-passing of a speaking order:
The assessee claimed that the PCIT did not pass a speaking order against the submissions made. The Tribunal observed that the PCIT considered the assessee's written submissions but ultimately rejected the contentions, holding that the AO's order was erroneous and prejudicial to the interest of revenue.

5. Allegation of "change in opinion":
The assessee argued that the PCIT's order was merely a change in opinion and that the original assessment order was not erroneous. The Tribunal noted that the AO had dropped the reassessment proceedings after verifying the facts and documents submitted by the assessee, concluding that the land in question was agricultural land and not subject to capital gain tax.

6. Verification of chargeability of capital gain:
The PCIT found that the AO had not verified the chargeability of capital gain during the reassessment proceedings. The Tribunal examined the facts and found that the AO had adequately inquired into and examined the status of the land as agricultural land at the time of sale, thus not subjecting it to capital gain tax.

7. Validity of proceedings under Section 143(3) read with Section 147:
The assessee contended that the entire proceedings were invalid as the assessment order under Section 143(3) read with Section 147 was framed after due inquiry. The Tribunal found that the AO had indeed conducted a detailed examination and verification of the facts before dropping the reassessment proceedings.

8. Whether the assessment order was erroneous and prejudicial to the interest of revenue:
The Tribunal applied the principles laid down by the Supreme Court in Malabar Industries Ltd. vs. CIT, concluding that the AO's order was neither erroneous nor prejudicial to the interest of revenue. The AO had adopted a permissible course of action based on a detailed examination of the facts, and the PCIT's differing view did not render the AO's order erroneous.

Conclusion:
The Tribunal quashed the order passed by the PCIT under Section 263, holding that the AO's order was not erroneous or prejudicial to the interest of revenue. The appeal of the assessee was allowed.

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