2021 (10) TMI 405 - AT - Income Tax

Revision u/s 263 - nature of income earned - characterisation of the income as 'capital gain' - assessee in treating the gains as capital gains chargeable u/s 45 - HELD THAT - The law is well settled that where the A.O. has taken a view which is plausible in law, cannot be displaced and substituted by the subjective view of a superior authority. In the instant case, the PCIT has not shown as to how the A.O. has gone wrong while admitting the nature of income declared by the assessee. There is nothing on record to show that the A.O. acted arbitrarily in exercise of quasi judicial powers. A.O. had merely adopted one of the courses permissible in law and backed by a long line of judicial precedents holding such income to be capital gains. In contrast, the PCIT has adopted erroneous measurement of land giving the impression of large parcel of land which is not true. The basic features of a capital asset were also overlooked. Secondly, it was open for the PCIT to examine the facts himself and come to a conclusion of un-debatable nature. We fail to understand what kind of enquiries is needed in such cases when the relevant facts are available on record both before the A.O. as well as the PCIT and only warrants a relook at the same. Explanation-2 to section 263 of the Act does not give a uncontrolled unbridled power to the revisional Commissioner to reopen a completed assessment to conduct further enquiries to verify and find out whether order passed is in fact erroneous or not. The facts explained on behalf of the assessee gives an infallible impression that the course adopted by the assessee in treating the gains as capital gains chargeable under section 45 of the Act and endorsed by the A.O. to be plausible. The revisional power exercised in the facts of the case is plainly without authority of law. Consequently, the revisional order passed under section 263 is liable to be quashed and set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the Principal Commissioner of Income Tax (PCIT) invoking revisional jurisdiction under section 263 of the Income Tax Act, 1961.
2. Characterization of income arising from the sale of land as 'business income' versus 'capital gains'.
3. Adequacy of the Assessing Officer’s (A.O.) enquiries during the original assessment proceedings.

Issue-wise Detailed Analysis:

1. Validity of PCIT's Revisional Jurisdiction under Section 263:
The PCIT invoked section 263 to revise the assessment order passed by the A.O. on the grounds that the order was erroneous and prejudicial to the interest of the revenue. The PCIT contended that the A.O. failed to make proper enquiries regarding the nature and character of income from the sale of land, which should have been taxed as 'business income' instead of 'capital gains'. The PCIT issued a show cause notice to the assessee, alleging that the A.O. did not conduct adequate verification of the transaction, thus necessitating a fresh assessment.

2. Characterization of Income from Sale of Land:
The PCIT argued that the profit from the sale of land should be classified as 'business income' because the assessee's intention was to acquire and sell the land for profit, which constitutes an adventure in the nature of trade. The PCIT cited Supreme Court judgments to support this view. However, the assessee contended that the land was held as a capital asset, and the gain arose due to the natural appreciation of the land's value over time, not from any business activity. The assessee had never engaged in real estate business, and no development expenses were incurred on the land.

3. Adequacy of A.O.’s Enquiries:
The assessee argued that the A.O. had conducted necessary enquiries during the original assessment, including verifying the nature of the capital gains. The A.O. had issued a query letter and reviewed the documents provided by the assessee. The assessee claimed that the A.O. adopted a plausible view supported by judicial precedents, and the PCIT could not substitute his opinion on a debatable issue without demonstrating a legal error by the A.O. The Tribunal noted that the PCIT did not conduct any further enquiries himself and relied on incorrect facts regarding the size of the land.

Tribunal's Findings:
The Tribunal found that the A.O. had taken a plausible view in treating the income as 'capital gains', which is a debatable issue. The Tribunal emphasized that the PCIT did not show how the A.O.'s view was legally erroneous. The Tribunal also noted that the PCIT relied on incorrect facts and did not conduct any further enquiries himself. Consequently, the Tribunal held that the revisional power exercised by the PCIT was without authority of law and quashed the revisional order under section 263.

Separate Judgments for Co-owners:
The Tribunal delivered a separate judgment for the co-owner of the land, applying the same reasoning and conclusions as in the case of the primary assessee. The revisional order for the co-owner was also quashed and set aside.

Conclusion:
In conclusion, the appeals of both assessees were allowed, and the revisional orders passed by the PCIT under section 263 were quashed and set aside. The Tribunal upheld the original assessment orders passed by the A.O., treating the income from the sale of land as 'capital gains'.