2022 (6) TMI 1514 - AT - Income Tax

Re-characterizing the sale of the land in return filed u/s. 148 - classification of Gain on sale of land - capital gains v/s business income - gain/accretion on sale of the lands in question was to be assessed under the head Profit and Gain of Business or Profession as claimed by in his return filed u/s. 148 HELD THAT - As observed by the Hon ble Supreme Court in the case of CIT Vs. Sun Engineering Works P. Ltd. 1992 (9) TMI 1 - SUPREME COURT the jurisdiction of the A.O in the course of reassessment proceedings initiated u/s. 147 of the Act is confined to only such income which has escaped tax or has been under-assessed and does not extend to revising, reopening or reconsidering the whole assessment; or permitting the assessee to re-agitate questions which had been decided in the original assessment proceedings. Also, as observed by the Hon ble Apex Court the proceedings u/s 147 of the Act is for the benefit of the revenue and an assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision, in disguise, and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless the same was relatable to 'escaped income' - even in cases where the claims of the assessee during the course of reassessment proceedings relating to the escaped assessment are accepted, still the allowance of such claims has to be limited to the extent to which they reduce the income to that originally assessed and the income for the purposes of 'reassessment' cannot be reduced beyond that originally assessed. As in the case before us the assessee in the garb of reassessment proceedings which were initiated by the AO for assessing his escaped income u/s. 147 of the Act, had tried to seek re-characterizing the sale of the land in question as transaction of sale of stock-in-trade as against that claimed by him as sale of a capital asset in his original return of income, therefore, raising of the aforesaid claim of the assessee clearly falls beyond the realm of Section 147 of the Act, and thus, had rightly been rejected by the lower authorities. No infirmity in the view taken by the lower authorities who had rightly rejected the assessee s claim for assessing the gain/surplus arising from sale of the lands in question as his business income, uphold the view taken by them. Applicability of Section 50C of the Income-tax Act for recomputing capital gains - As the income of the sale of land in question was to be brought to tax under the head capital gains , therefore, the claim of the assessee that the provisions of section 50C would not stand triggered qua the lands in question which were held by him as stock-in-trade fails on the said count itself. Deduction u/s 54B - Also, finding no infirmity in the declining of the assessee s claim for deduction u/s. 54B of the Act by the A.O, for the reason that the same was not substantiated on the basis of any supporting documentary evidence, we uphold the order of the CIT(Appeals) to the extent he had concurred with the view taken by the AO. Thus, finding no merit in the appeal filed by the assessee before us, we dismiss the same. Decided against assessee.

Summary

Issues Involved:

1. Classification of income from sale of land as "capital gains" or "business income."
2. Applicability of Section 50C of the Income-tax Act for recomputing capital gains.
3. Eligibility for deduction under Section 54B of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Classification of Income from Sale of Land:

The primary issue was whether the income from the sale of lands at Village Sakri should be classified as "capital gains" or "business income." The assessee initially reported the income under "capital gains" in his original return filed under Section 139 of the Income-tax Act. However, upon reassessment under Section 147, the assessee sought to reclassify the income as "business income," claiming the lands were held as stock-in-trade. The lower authorities, including the Assessing Officer (A.O) and the CIT(Appeals), rejected this reclassification. They noted that the assessee had claimed a deduction under Section 54B, which pertains to capital gains, thus reinforcing the original classification as "capital gains." The Tribunal upheld this decision, emphasizing that reassessment proceedings cannot be used to re-agitate settled issues unless related to escaped income, as per the precedent set by the Supreme Court in CIT Vs. Sun Engineering Works P. Ltd.

2. Applicability of Section 50C:

The second issue concerned the applicability of Section 50C, which mandates adopting the fair market value (FMV) as the deemed sale consideration for computing capital gains. The A.O applied Section 50C, as the sale consideration reported by the assessee was lower than the FMV. The assessee contended that Section 50C should not apply since the lands were stock-in-trade. However, since the income was rightly classified as "capital gains," the Tribunal found no merit in the assessee's argument against the applicability of Section 50C. The Tribunal supported the lower authorities' decision to apply Section 50C, aligning with the statutory requirements for capital asset transactions.

3. Eligibility for Deduction under Section 54B:

The third issue was the assessee's claim for a deduction under Section 54B, amounting to Rs. 18 lakh, for the purchase of agricultural land. The A.O disallowed this claim due to a lack of supporting documentary evidence, specifically concerning the purchase of land at Village Duraghat. The CIT(Appeals) concurred with the A.O's decision, and the Tribunal upheld this view, citing the absence of substantiation as a valid ground for disallowance. The Tribunal reiterated that deductions must be supported by adequate evidence, which was lacking in this case.

Conclusion:

The Tribunal dismissed the appeal filed by the assessee, affirming the decisions of the lower authorities on all three issues. The income from the sale of land was to be taxed as "capital gains," Section 50C was applicable, and the deduction under Section 54B was rightfully disallowed due to insufficient evidence. The Tribunal's decision was consistent with established legal principles and precedents, ensuring the integrity of the reassessment process and adherence to statutory provisions.