2017 (9) TMI 730 - AT - Income Tax

Revision u/s 263 - treatment to income from sale of property - CIT revised the assessment order on the ground that income from sale of property should be assessed under the head Income from capital gains and not under the head Income from business - nature of property sold - Held that - The assessee though claims the impugned property is a business asset the rental income from the said property has been assessed under the head Income from house property . The asset has been considered as capital asset in the books of account of the assessee. Once the property has been treated as capital asset any surplus from sale of such property should be assessed under the head Income from capital gains . Further while computing capital gains if the sale consideration is less than the guidance value as per the provisions of section 50C guidance value shall be the full value of consideration for the purpose of computation of long term capital gain. The law is very clear. AO ignoring all the facts has simply accepted the income declared by the assessee towards sale of property under the head Income from business . Though the AO has conducted certain enquiries but failed to apply his mind to the facts of the present case in the light of provisions of the Act. The AO ought to have assessed the surplus under the head Income from capital gains . However he accepted income declared by the assessee under the head Income from business . Therefore it cannot be held that the AO has conducted necessary enquiries at the time of completion of assessment on the issues. Therefore the CIT was right in revising the assessment order u/s 263 of the Act. - Decided against assessee.

Summary

Issues:
Assessment order revision u/s 263 based on taxability of surplus from sale of property under appropriate head of income.

Analysis:
The appeal was against the order of the Commissioner of Income-tax-III, Thane passed u/s 263 of the Income-tax Act, 1961 for the assessment year 2008-09. The Commissioner proposed to revise the assessment order as the Assessing Officer (AO) had not properly examined the taxability of surplus from the sale of property under the correct head of income. The AO had accepted the income declared by the assessee under 'Income from business' without considering it as 'Income from capital gains' which was prejudicial to the revenue's interest.

In response to the show cause notice, the assessee argued that the AO had already examined the issue during assessment proceedings and had taken a plausible view. The assessee contended that the property was rightly assessed under 'Income from business' as it was a business asset. However, the Commissioner held that the AO erred in not applying the provisions of section 50C and not considering the guidance value for computation of income, leading to prejudice to the revenue's interest.

The assessee further argued that the Commissioner erred in revising the assessment order based on the AO's proposal without independent examination. The assessee cited judicial precedents to support the argument that the AO had conducted necessary enquiries. However, the Commissioner and the Departmental Representative contended that the assessment order was indeed erroneous and prejudicial to the revenue's interest as the AO had not properly applied his mind on the taxability of the surplus from the property sale.

The Tribunal noted that the property in question was considered a business asset by the assessee, yet the rental income was assessed as 'Income from house property.' The Tribunal agreed with the Commissioner that any surplus from the sale of a capital asset should be assessed under 'Income from capital gains.' The AO's failure to consider the guidance value under section 50C for computation of capital gains was deemed prejudicial to the revenue's interest.

The Tribunal upheld the Commissioner's decision to revise the assessment order u/s 263, as the AO had not conducted necessary enquiries and had incorrectly accepted the income under 'Income from business' instead of 'Income from capital gains.' The Tribunal dismissed the appeal, stating that the assessment order was indeed erroneous and prejudicial to the revenue's interest, affirming the Commissioner's revision.

In conclusion, the Tribunal found that the assessment order revision was justified as the AO's failure to apply the correct provisions and consider the property as a capital asset led to prejudice to the revenue's interest. The Tribunal upheld the Commissioner's decision to revise the assessment order under section 263 of the Income-tax Act, 1961.