2021 (9) TMI 619 - AT - Income Tax

Revision u/s 263 - assessee s case was selected for scrutiny under CASS - Whether assessment order passed by the assessing officer under section 143(3) of the Act is erroneous nor prejudicial to the interest of the Revenue? - HELD THAT - From the question and answer, between assessing officer and assessee about the computation of capital gain in respect of immovable property as proved beyond doubt that assessee has replied the queries asked by the assessing officer and the assessing officer after getting the details from the assessee, applied his mind and framed order under section 143(3) of the Act, dated 26.02.2015. Therefore, order passed by the Assessing Officer should not be erroneous. Conversion of the immovable property into stock-in-trade - It is clear that during the assessment stage, the AO has examined the issue raised by the PCIT, about the conversion of the immovable property into stock-in-trade in F.Y. 2010-11 i.e. A.Y.2011-12. We note that when transferred asset was held as stock in trade, in that situation, section 50C would not apply, as held by Hon ble Gujarat High Court in the case of Mukesh Kishor Barot Coowners, 2013 (10) TMI 147 - GUJARAT HIGH COURT . Hence order passed by the assessing officer is neither erroneous nor prejudicial to the interest of the Revenue. Sale consideration received on transfer of said immovable property - assessee is found to have shown contract amount of ₹ 60,00,000/- and has claimed expenses under various heads. The ld PCIT noticed that these are not contract receipts but sale consideration received on transfer of said immovable property - We note that during the assessment stage, the assessing officer had verified this issue. The assessing officer, (vide his notice under section 142(1) of the Act), has asked the assessee to furnish details of expenses, Trading account, Profit and loss account and Balance Sheet etc. The assessing officer has examined the nature of amount of ₹ 60,00,000/-, therefore, order passed by him under section 143(3) of the Act, is neither erroneous nor prejudicial to the interest of revenue. Since, we find that the Assessing Officer has made enquiries and the action of Assessing Officer in accepting the claim of assessee, after detailed enquiry, is a plausible view, so , we do not find that the twin conditions required for exercising the jurisdiction u/s 263 of the Act is found missing /absent and, therefore, the Ld. PCIT ought not to have exercised his revisional jurisdiction under section 263 - Decided in favour of assessee.

Summary

Issues Involved:
1. Valuation of property as per circle rate/stamp duty rate and applicability of section 50C.
2. Taxation of capital gains on conversion of immovable property into stock-in-trade as per section 45(2).
3. Classification of contract receipts versus sale consideration of immovable property.

Issue-wise Detailed Analysis:

1. Valuation of Property as per Circle Rate/Stamp Duty Rate and Applicability of Section 50C:
The Principal Commissioner of Income Tax (PCIT) exercised jurisdiction under section 263 of the Income Tax Act, 1961, asserting that the Assessing Officer (AO) failed to make requisite inquiries regarding the valuation of the property sold by the assessee. The PCIT noted that the assessee declared a sale consideration of ?60,00,000 against a valuation of ?1,69,26,000 as per the stamp duty/circle rates, thereby attracting the provisions of section 50C. However, the Tribunal found that the AO had indeed raised this issue during the assessment proceedings by issuing a notice under section 142(1) requesting details of the sale deed and computation of capital gains. The assessee responded, explaining that the property was part of trading stock, and thus, the sale consideration was treated as business income, not capital gains. The Tribunal concluded that the AO had applied his mind and examined the issue, rendering the assessment order neither erroneous nor prejudicial to the interest of the Revenue.

2. Taxation of Capital Gains on Conversion of Immovable Property into Stock-in-Trade as per Section 45(2):
The PCIT contended that the AO did not address the capital gains arising from the conversion of the immovable property into stock-in-trade in the financial year 2010-11, which should have been taxed in the year of conversion as per section 45(2). The Tribunal observed that the AO had examined the details of opening and closing stock during the assessment proceedings, as evidenced by the AO's order and the notice issued under section 142(1). The Tribunal also noted that when an asset is held as stock-in-trade, section 50C does not apply, referencing a ruling by the Gujarat High Court. Consequently, the Tribunal determined that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue regarding this issue.

3. Classification of Contract Receipts versus Sale Consideration of Immovable Property:
The PCIT argued that the AO failed to verify whether the ?60,00,000 shown by the assessee as contract receipts were actually sale consideration from the transfer of immovable property. The Tribunal found that the AO had scrutinized this issue during the assessment by requesting details of expenses, trading account, profit and loss account, and balance sheet through a notice under section 142(1). The AO had examined the nature of the ?60,00,000 and concluded it was business income. Therefore, the Tribunal held that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue.

Conclusion:
The Tribunal referred to the Supreme Court's ruling in Malabar Industries Ltd. vs. CIT, emphasizing that for the PCIT to exercise revisional jurisdiction under section 263, the AO's order must be both erroneous and prejudicial to the interest of the Revenue. The Tribunal found that the AO had conducted necessary inquiries and applied his mind to the issues raised by the PCIT. Since the AO's actions were based on plausible views and did not result in an erroneous or prejudicial order, the Tribunal canceled the PCIT's revisional order and allowed the assessee's appeal. The appeal was pronounced in favor of the assessee on 23/08/2021.