2014 (1) TMI 236 - AT - Income Tax

Validity of revision order u/s 263 - Whether sale of immovable properties constitute business income - Held that - The Ld CIT appears to be under the impression that if the gains are assessed as Business income , the assessee would be disclosing the value of Closing stock of immovable properties and it will increase the profit amount declared by the assessee Whether the gain arising on sale of immovable properties is assessed as Business income or as Short term Capital gain , what is required to be deducted is the cost relatable to the portion of land sold by the assessee - The closing stock is credited to the Profit and Loss account only for the purpose of matching the cost relatable to sales under Revenue - Cost matching Principle - The closing stock value will not increase the profit from business as presumed by the Ld CIT - Since no prejudice is caused to the revenue on assessing the gain arising on sale of immovable properties, one of the twin conditions does not get satisfied, in which case, the revision order passed by Ld CIT on this issue shall fail The order was set aside on this issue. Peak fund Deficiency - Held that - For A.Y. 2008-09 - The amount of deficiency assessed by the AO was ₹ 12,48,040 for this year, whereas the Ld CIT has worked out the deficiency at ₹ 20,85,111 - There is difference between the two figures, which needs to be reconciled. For A.Y. 2007-08 - The Ld CIT has worked out the peak fund deficiency at ₹ 37,92,295/-, where as the AO has made addition to the extent of about ₹ 20.00 lakhs - The reasons for the difference were not spotted by both Ld CIT and the assessee - The excess portion of the cash outflow requires examination at the end of the AO - The order of Ld CIT was justified on this issue to the extent of items of cash outflow, which were not considered by the AO - The issue was restored to AO with a direction that the AO should examine the above said issue in both the years independently without being influenced by the observations or workings made by the Ld CIT.

Summary

Issues:
1. Validity of revision order passed by Ld. CIT.
2. Assessment of gains arising on sale of immovable properties.
3. Determination of peak fund deficiency.

Issue 1: Validity of revision order passed by Ld. CIT:
The appeals challenge the revision order by Ld. CIT under section 263 of the Act for the assessment years 2007-08 and 2008-09. Ld. Counsel for the assessee argues that the revision order should satisfy two conditions: the assessment order should be both erroneous and prejudicial to the revenue. Citing legal precedents, the counsel contends that assessing the gain from the sale of immovable properties as business income instead of short term capital gain does not prejudice revenue. The argument emphasizes that the Assessing officer's view is a valid interpretation, and the revision proceedings are unwarranted.

Issue 2: Assessment of gains arising on sale of immovable properties:
Ld. CIT directed the Assessing officer to treat the immovable property transactions as a business venture, leading to the revision proceedings. The Ld. AR argues that assessing the gains as business income or short term capital gain does not affect the tax rate, hence causing no revenue prejudice. The Tribunal concurs, noting that the closing stock value does not directly impact profit calculation. Consequently, the revision order on this issue is set aside.

Issue 3: Determination of peak fund deficiency:
For the assessment year 2008-09, the peak fund deficiency discrepancy between the AO and Ld. CIT is acknowledged. As the assessee did not appeal the deficiency assessment, the Tribunal upholds the Ld. CIT's direction to reconcile the differing figures. In the assessment year 2007-08, the peak fund deficiency issue is deemed not merged with previous orders, requiring independent examination by the AO. The Tribunal supports the Ld. CIT's order on this issue, emphasizing the need for unbiased reevaluation.

In conclusion, the Tribunal partly allows the appeal for the assessment year 2007-08 and dismisses the appeal for the assessment year 2008-09. The judgment provides detailed analysis on the validity of the revision order, assessment of gains from immovable properties, and determination of peak fund deficiency, ensuring a comprehensive review of the legal issues involved.