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2013 (2) TMI 505 - AT - Income TaxBenefit of deduction under section 54F denied - Jurisdiction u/s 263 by Commissioner stating that assessee was engaged in business of sale and purchase of properties thus he could not claim benefit of deduction under section 54F - The assessee was deriving income from dealing in property transactions - as per CIT(A) claim qua sale of some plots/land could not have been treated by the AO as capital gain - Held that - AO had himself treated the main income of the assessee from purchase and sale of plots/land. The assessee himself has disclosed this fact over the years. The Assessing Officer has made proper inquiries in this regard & the Commissioner (Appeals) has proceeded on a notion that an assessee, whose main business was purchase and sale of plots/lands, could not claim LTCG on the sale of some plot/land even if these were held for quite some time and the sale consideration even from those plots to be treated as assessee s business income. There is no dispute regarding the source of income of the assessee which was mainly from the business of purchase and sale of plots/lands. Yet, it did not mean that assessee was debarred from purchasing and holding some plots/land as capital asset and claim benefit under section 54F. The entire facts regarding this aspect go to prove that the assessee had kept the impugned asset and has earned LTCG, which has been invested in terms of provisions of section 54F. The AO action did not call for any enquiry in this regard as he had taken one of the possible view keeping in view the entire facts. The Commissioner can have his own view and that may be other possible view. But in such situations, the order cannot be treated as erroneous.The Commissioner cannot revise the order on this aspect. AO has also made requisite enquiries regarding other aspects of investments made and liabilities shown by the assessee and other expenses, which is clearly explained by the assessee - the order of the Commissioner is set aside and that of the Assessing Officer is restored - in favour of assessee.
Issues Involved:
1. Whether the assessment order was erroneous and prejudicial to the interest of the Revenue. 2. Whether the gains from the sale of plots should be treated as business income or long-term capital gains (LTCG). 3. Validity of the deduction claimed under Section 54F for investment in a residential house. 4. Verification of investments and liabilities shown in the balance sheet. 5. Examination of withdrawals and LIC premium payments. Issue-Wise Detailed Analysis: 1. Whether the assessment order was erroneous and prejudicial to the interest of the Revenue: The appeal concerns the order passed by the Commissioner of Income Tax (CIT) under Section 263 of the Income-tax Act, 1961, which revised the original assessment order. The CIT found the assessment order erroneous and prejudicial to the interest of the Revenue due to inadequate inquiries and investigations by the Assessing Officer (AO). The CIT's power under Section 263 is to revise orders that are both erroneous and prejudicial to the Revenue. Courts have established that an order can be revised if it meets both conditions. The CIT must have material to form a prima facie opinion that the AO's order is erroneous and prejudicial to the Revenue. 2. Whether the gains from the sale of plots should be treated as business income or long-term capital gains (LTCG): The CIT argued that the AO erroneously accepted the assessee's claim of LTCG on the sale of plots without proper investigation, despite the assessee's main business being the purchase and sale of plots. The CIT believed that the gains should be treated as business income. However, the assessee contended that the plots were held as investments for over five years and were shown as investments in the balance sheets, not as stock-in-trade. The AO applied Section 50C, substituting the sale value with the value adopted for stamp duty purposes, and treated the gains as LTCG. The Tribunal found that the AO had made proper inquiries and that the assessee's treatment of the plots as investments was justified. The Tribunal held that the AO's view was one of the possible views and could not be considered erroneous. 3. Validity of the deduction claimed under Section 54F for investment in a residential house: The CIT argued that if the gains from the sale of plots were treated as business income, the deduction under Section 54F would not be allowable. The assessee claimed the deduction for investment in a residential house at Shastri Nagar, Jodhpur. The Tribunal found that since the AO had correctly treated the gains as LTCG, the deduction under Section 54F was justified. The investment in the residential house was not disputed, and the AO's decision to allow the deduction was upheld. 4. Verification of investments and liabilities shown in the balance sheet: The CIT noted that the AO accepted the investments and liabilities shown in the balance sheet without proper inquiry. The assessee provided details and explanations for the investments and liabilities, including investments in land, residential house, car, and other assets. The Tribunal found that the AO had verified these details during the original assessment, and the assessee had provided necessary evidence. The Tribunal concluded that the AO's acceptance of the investments and liabilities was not erroneous. 5. Examination of withdrawals and LIC premium payments: The CIT argued that the AO did not properly examine the withdrawals and LIC premium payments. The assessee provided evidence of withdrawals and LIC premium payments, which were debited in the capital account and verifiable from the books of accounts. The Tribunal found that the AO had made requisite inquiries and accepted the assessee's explanations. The AO's decision was not found to be erroneous on this account. Conclusion: The Tribunal concluded that the AO had made proper inquiries and taken a correct decision regarding the treatment of gains as LTCG, the deduction under Section 54F, and the verification of investments, liabilities, and withdrawals. The CIT's order to revise the assessment was set aside, and the original assessment order was restored. The appeal of the assessee was allowed.
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