2002 (10) TMI 268 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of CIT u/s 263.
2. Nature of income: Capital gains vs. Business income.
3. Validity of the assessment order under s. 143(3).
4. Impact of the order under s. 264 on subsequent proceedings under s. 263.
5. Merits of the case regarding the nature of the asset.

Summary:

1. Jurisdiction of CIT u/s 263:
The CIT's jurisdiction to revise the assessment order was challenged on the grounds that the assessment order was made under the close supervision of the then CIT, the order had already been subject to revision under s. 264, and the assessment order was made in a judicial manner after considering all aspects. The Tribunal found that the AO had consulted the CIT at various stages, and the view taken by the AO that the income was chargeable under the head "Capital gains" had the approval of the then CIT. Therefore, the subsequent CIT did not have jurisdiction to revise the assessment order under s. 263.

2. Nature of income: Capital gains vs. Business income:
The CIT argued that the income should be treated as business income, while the AO treated it as capital gains. The Tribunal held that the land was acquired for the purpose of constructing ownership flats and not for trading in land. The Tribunal found that the land was a capital asset and not a trading asset, and the AO's view was justified.

3. Validity of the assessment order under s. 143(3):
The Tribunal held that the assessment order was made after considering all material facts and circumstances. The AO's conclusion that the income was chargeable under the head "Capital gains" was based on adequate and sufficient grounds. The CIT's view that the AO's order was erroneous was not justified, as the AO had taken a permissible view in law.

4. Impact of the order under s. 264 on subsequent proceedings under s. 263:
The Tribunal found that the CIT's order under s. 264 had endorsed the AO's view that the income was chargeable under the head "Capital gains." The subsequent CIT's order under s. 263, which sought to revise this view, was not justified. The Tribunal held that the order under s. 264 had merged with the assessment order, and the subsequent CIT could not revise it under s. 263.

5. Merits of the case regarding the nature of the asset:
The Tribunal found that the land was acquired for the purpose of constructing ownership flats, and due to various constraints and disputes among partners, the business purpose was aborted. The land remained a capital asset, and the income from its sale was chargeable under the head "Capital gains." The Tribunal held that the CIT's view that the land was a trading asset was not supported by facts and circumstances.

Conclusion:
The Tribunal quashed the CIT's order under s. 263, holding that the CIT did not have jurisdiction to revise the assessment order. The Tribunal upheld the AO's view that the income was chargeable under the head "Capital gains" and not as business income. The appeal filed by the assessee was allowed.