2023 (3) TMI 317 - AT - Income Tax

Revision u/s 263 - Correct head of income - compensation received by the assessee is required to be assessed - Income from Other Sources OR Income from Capital Gains as per Section 2(14) - PCIT held that the income from Capital Gain can only be arisen if there is transfer of capital asset in the case of the assessee, there is neither capital asset in assessee's hand as far as booking of the Villa is concerned nor transferred of the said asset. Therefore the provisions of Section 45 of the Act will not be applicable in assessee's case - HELD THAT - During the assessment proceedings, the ld. AO. vide his notice u/s.142(1) called for various details which were submitted by the assessee. A.O. passed the assessment order after taking into consideration the submissions of the assessee and by verifying the documentary evidences produced before him. As seen from record as against the Revenue Audit Objection raised by the Department, the Assessing Officer himself replied to the Revenue Audit Objection by relying upon decision of the Mumbai Tribunal in Ashwin S. Bhalekar case on identical facts namely compensation received by the assessee was treated as Long Term Capital Gain. Thus the Ld. A.O. requested the Audit Party to withdraw/drop the Revenue Audit Objection As relying on cases Smt. Abha Bansal 2021 (5) TMI 1001 - ITAT DELHI and Indu Fine Lands (P.) Ltd. 2014 (8) TMI 862 - ITAT HYDERABAD we have no hesitation in holding that the assessment order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue. It is been held by the Co-ordinate Benches of the Tribunal that compensation received by the assessee from the proposed building by way of allotment is actually extinguishment of a right in relation to capital asset, in view of the provisions of section 2(47)(vi) of the Act. This clearly falls within the definition of transfer and hence provisions of section 45 is applicable. Therefore the Revision proceedings initiated by the Ld. CIT (IT TP) is liable to be quashed. Thus, the grounds raised by the assessee are hereby allowed.

Summary

Issues Involved:
1. Whether the compensation received by the assessee should be assessed as "Income from Other Sources" or "Income from Capital Gains."
2. Whether the assessment order passed by the Assessing Officer (A.O.) was erroneous and prejudicial to the interest of Revenue.
3. Whether the Pr. CIT was justified in invoking revisionary jurisdiction under section 263 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Whether the compensation received by the assessee should be assessed as "Income from Other Sources" or "Income from Capital Gains":

The assessee received compensation from a developer for a failed villa project. The compensation was awarded by the National Consumer Disputes Redressal Commission (NCDRC). The Pr. CIT argued that since the assessee was not in possession of a capital asset, the compensation should be assessed as "Income from Other Sources." The assessee contended that the compensation was a capital receipt, as it was related to the extinguishment of rights in a capital asset (the villa), relying on the allotment letter and subsequent payments to the developer. The assessee cited various judgments, including "Chheda Housing Development Corporation Vs ACIT" and "Bhojison Infrastructure Pvt. Ltd. Vs ITO," which supported the view that compensation for the extinguishment of rights in a capital asset is a capital receipt not liable to tax.

2. Whether the assessment order passed by the Assessing Officer (A.O.) was erroneous and prejudicial to the interest of Revenue:

The Pr. CIT held that the A.O. failed to verify the high ratio of refund and did not make proper inquiries, thus passing an erroneous order prejudicial to the interest of Revenue. The assessee argued that the A.O. had conducted detailed inquiries during the original assessment proceedings, considering all relevant details and documentary evidence. The assessee also highlighted that the A.O. had responded to a Revenue Audit Objection, citing the Mumbai Tribunal's decision in "Ashwin S. Bhalekar," which supported the treatment of compensation as a capital receipt. The Tribunal found that the A.O. had indeed made detailed inquiries and applied his mind before passing the assessment order.

3. Whether the Pr. CIT was justified in invoking revisionary jurisdiction under section 263 of the Income Tax Act, 1961:

The Tribunal noted that for the Pr. CIT to invoke section 263, the assessment order must be both erroneous and prejudicial to the interest of Revenue. The Tribunal referred to various judgments, including "PCIT Vs. Shreeji Prints (P.) Ltd." and "CIT vs. Vinod Kumar Goel HUF," which established that an order is not erroneous if the A.O.'s view is a possible one and has been arrived at after due inquiry. The Tribunal concluded that the A.O.'s order was neither erroneous nor prejudicial to the interest of Revenue, as the A.O. had conducted a detailed examination and the view taken was a plausible one.

Conclusion:

The Tribunal quashed the revision proceedings initiated by the Pr. CIT under section 263, holding that the assessment order was neither erroneous nor prejudicial to the interest of Revenue. The compensation received by the assessee was deemed to be a capital receipt related to the extinguishment of rights in a capital asset, thus falling within the provisions of section 45 of the Income Tax Act, 1961. The appeal filed by the assessee was allowed.