2024 (6) TMI 972 - AT - Income Tax

Revision u/s 263 - assessee sold and claimed capital loss on sale of car by indexing the purchase price of car and adjusting the loss against long-term capital gain - PCIT initiated 263 proceedings by observing that according to Section 2(14) a car is a personal asset/effect and capital loss by the assessee on sale of car was required to be added by the assessing officer, at the time of finalizing the assessment - Whether a motorcar, which has been used by the assessee for his personal use, would qualify as a capital asset and the assessee would be eligible to claim benefit of set off of loss on sale of motor car against other capital gains made by the assessee HELD THAT - Whether a motor car is a capital asset or not, or would qualify as a personal effect and hence falling outside, the purview of a capital asset would depend upon the use to which the motor car has been put by the assessee. In case, as held in the aforesaid decision NARENDRA I. BHUVA 2003 (5) TMI 519 - ITAT MUMBAI the motor car is not at all used for personal purposes, but has been held as an asset i.e. possession of pride as a collector s item, then the sale thereof would attract capital gains. Similarly, if it is found that the motor car is for business purposes, then the assessee would be eligible to claim depreciation on such asset and sale would be exigible to capital gains tax provisions. If it is seen that the motor car has been used by the assessee for purely personal purposes/usage on regular basis, then, in our considered view, the same would not come within the purview of the capital asset and would fall within the exclusion of personal effect . In the instant facts, the PCIT has correctly observed that the assessee has not been able to demonstrate that the car was used by the assessee for its business purposes so asked to be eligible for capital gains/losses on sale thereof. The asset was not held as an antique item or possession of pride and again would not qualify as a capital asset for this reason as well. In this case, the PCIT has correctly observed that the assessee was using the car for his daily/personal purposes and hence qualified as personal effects i.e. movable property held for personal use by the assessee. Therefore, in the instant facts, PCIT has correctly observed that from the facts apparent on the face of record, the motor car qualified as a personal effect of the assessee, and was falling outside, the purview of capital asset and was coming under the definition of exclusions to Section 2(14) of the Act. It is well settled law that even if the issue has been examined by the assessing officer, but a view has been taken, which is apparently an incorrect position of law as evident from the facts of the case, then as held in the case of Shri Babula Solanki 2019 (4) TMI 694 - ITAT AHMEDABAD such cases will come within the review of Section 263 of the Act. Appeal of the assessee is dismissed.

Summary

Issues Involved:
The issue in this case revolves around whether a motor car used for personal purposes qualifies as a capital asset and whether the assessee can claim a set off of loss on the sale of the motor car against other capital gains.

Summary of the judgment:
The assessee claimed a capital loss on the sale of a car, which the Principal Commissioner of Income Tax (PCIT) deemed as erroneous and prejudicial to the interest of revenue. The PCIT initiated proceedings under section 263 of the Income Tax Act, stating that a car is a "personal asset/effect" and the capital loss should have been added by the assessing officer during the assessment. The PCIT set aside the order, emphasizing that the car was not used for business purposes and allowing the capital loss was a contravention of the Act. The PCIT rejected the assessee's arguments citing relevant case laws and upheld the order as erroneous and prejudicial to revenue.

The Appellate Tribunal considered the arguments presented by the Departmental Representative (DR) who relied on legal precedents to support the contention that the car should not be considered a capital asset for set off of loss. The Tribunal referred to Supreme Court and ITAT decisions to analyze the definition of "personal effects" and the use of assets for personal purposes.

The Tribunal concluded that the classification of a motor car as a capital asset or a personal effect depends on its use by the assessee. If the car is used solely for personal purposes, it falls under the exclusion of personal effects and not as a capital asset. The Tribunal agreed with the PCIT's observation that the car was used for personal purposes, making it a personal effect and not a capital asset. The Tribunal also highlighted that even if the assessing officer had examined the issue, an incorrect legal position warrants review under section 263 of the Act.

Therefore, the Tribunal dismissed the appeal of the assessee, upholding the PCIT's order as correct and in line with the provisions of the Income Tax Act.