2016 (8) TMI 105 - HC - Income Tax

Revision u/s 263 - whether AO failed to make detailed inquiry with respect to issue of capital gain - Held that - From the record we can see that the Assessing Officer had examined entire transaction including from the point of view of the confirming party receiving considerable portion of the sale proceeds. This is not a case where the Assessing Officer failed to enquire into the transaction at all. Further, the Revenue has not brought anything on record to suggest how the sale proceeds of ₹ 3.69 crores in the hands of Genus Commu Trade Pvt Ltd. was treated. Surely on the receipt of sale proceeds of ₹ 3.69 against the price of ₹ 1.60 crores paid by the Genus Commu Trade Pvt Ltd. on 23.11.2004, the said company also would be answerable to and subjected to capital gain. Without any murmur about how the Revenue treated such proceeds in the hands of the Genus Commu Trade Pvt Ltd., it would not be proper to question the very transaction and seek to tax the difference in the hands of the assessee.

Summary

Issues:
Challenge to the judgment of the Income Tax Appellate Tribunal on the quashing of the revision order passed by the Commissioner of Income Tax under Section 263 of the Act due to alleged lack of detailed inquiry by the Assessing Officer regarding the issue of capital gain.

Analysis:
The case involved a challenge by the Revenue against the judgment of the Income Tax Appellate Tribunal regarding the taxation of capital gain arising from the sale of nonagricultural land. The Assessing Officer had accepted the assessee's stand during scrutiny assessment, computing the capital gain based on the sale proceeds received. However, the Commissioner, in a revision under Section 263 of the Act, found fault with the Assessing Officer for not conducting thorough inquiries into the transaction, specifically concerning a confirming party who received a significant portion of the sale consideration.

The Commissioner set aside the assessment, directing a fresh assessment with proper inquiries. The Tribunal, in the impugned judgment, allowed the assessee's appeal, noting that the Assessing Officer had raised specific queries during assessment, which were duly answered by the assessee. The Tribunal held that the Assessing Officer had not failed to inquire into the transaction, and the decision to treat the confirming party as such was not erroneous or prejudicial to the Revenue's interest.

The Revenue contended that the Assessing Officer had accepted the assessee's version without adequate inquiries, especially regarding the confirming party's interest under an unregistered sale deed. Citing a decision of the Delhi High Court, the Revenue argued for further inquiries. However, the High Court found that the Assessing Officer had examined the entire transaction, including the confirming party's involvement, and no evidence was presented by the Revenue on how the proceeds in the hands of the confirming party were treated for taxation.

The High Court dismissed the appeal, emphasizing that without clarity on the treatment of the proceeds received by the confirming party, questioning the transaction and seeking to tax the difference in the assessee's hands would be unwarranted. The judgment upheld the Tribunal's decision, highlighting the importance of proper inquiries and evidence in tax assessments to prevent unjust taxation.