2019 (11) TMI 77 - AT - Income Tax

Revision u/s 263 - sale of the land treated as business income or capital gains - AO has not assessed the said income from sale consideration of undivided interest in the land under the head Business as is of the view of the ld.PCIT - HELD THAT - This property is held by the assessee for more than seven years. It is an admitted fact that the assessee had proposed to start a Software Technology Park, and on it is failure to do so, the assessee had sold the said undivided interest in its land to various flat owners. The business of the assessee is not of purchase and sale of the land. The assessee has in its return claimed the same as giving rise to long term capital gains, which has also been examined by the Assessing Officer in the course of original assessment. The same has also been examined by the Assessing Officer in the course of Wealth Tax Assessment. What is the error in the finding of the Assessing Officer has not been pointed out by the ld. PCIT in his impugned order passed u/s.263 of the Act. Just because, the Assessing Officer has not assessed the said income from sale consideration of undivided interest in the land under the head Business as is of the view of the ld.PCIT, cannot term the assessment order passed by the Assessing Officer to be one done by non-application of mind, or one done without making due verification, or one done without making necessary enquiries. Just because by shifting the head of income, the assessee would be hit by tax liability cannot be ground enough for shifting the capital gains disclosed by the assessee to the business head, especially when the property has been shown as an investment by the assessee and the same has also been clearly demarcated and the assessee has also not done any business activity of construction in respect of the said property. In this circumstance, we are of the view that the order of PCIT passed u/s.263 of the Act is unsustainable - Decided in favour of assessee.

Summary

Issues: Appeal against order u/s.263 of the Income Tax Act for assessment year 2014-15 regarding treatment of income from sale of undivided interest in land as capital gains or business income.

Analysis:
1. Background: The appeal was filed against the order of the Principal Commissioner of Income-tax-1, Chennai, regarding the treatment of income from the sale of undivided interest in land for the assessment year 2014-15.

2. Assessee's Submission: The assessee claimed the income from the sale of undivided interest in land as long-term capital gains, as the land was held as an investment and not for business purposes. The assessee had purchased the land in 2007 with the intention to develop a Software Technology Park but later sold the undivided interest due to funding constraints. The Assessing Officer had accepted this treatment during the original assessment u/s.143(3) of the Act.

3. Revenue's Argument: The Revenue contended that the income should be treated as business income, alleging a lack of application of mind by the Assessing Officer in assessing it as capital gains.

4. Judgment: The ITAT Chennai observed that the land was held by the assessee for over seven years and the sale of undivided interest was not part of a business activity but a result of the failed Software Technology Park project. The Assessing Officer had appropriately assessed the income as capital gains, which was also consistent with the Wealth Tax Assessment. The ITAT found no error in the original assessment and disagreed with the PCIT's view that the income should be treated as business income. The ITAT held that shifting the income head for tax purposes was not justified, especially when the property was an investment and no construction activity was undertaken. Consequently, the ITAT allowed the appeal, quashing the order passed u/s.263 of the Act.

5. Conclusion: The ITAT Chennai ruled in favor of the assessee, upholding the treatment of income from the sale of undivided interest in land as long-term capital gains and rejecting the Revenue's argument to treat it as business income.