2021 (10) TMI 1253 - AT - Income Tax

Revision u/s 263 by CIT - As per CIT no adequate inquiry was conducted by the Assessing Officer with regard to the nature of land as agricultural land and the applicability of Section 50C of the Act was also ignored - Whether the subject matter of agricultural land sold was a capital asset? - HELD THAT - AO has raised the taxability of sale transaction under capital gain. The assessee also replied the above query by way of reply at clause no. 4 of letter dated 10.09.2016 alongwith copy of sale deeds. As submitted by the assessee before the Assessing Officer that 5 acres land was transferred to seller parties as per court s order. The Assessing Officer after perusal of documents, did not find taxability of the transaction. Thus, the finding of the PCIT that no inquiries have been carried out in respect of sale transaction is factually incorrect. Assessee got registered 11 acres 9 gunthas agricultural land on 11.03.2013 along with 5 other persons jointly in their favour and on same date, 5 acres and 29 gunthas of land transferred back to the seller party. In this transaction, even the land is treated as Capital Asset, there will not be any capital gain, the stamp duty value of purchase and sale being same on the day of transaction. Invoking of Section 50C - Relevant provision has been made effective from 01.04.2003, whereas agreement for purchase of land was entered into in the year 1984 (01.10.84) as per Para B of the compromise dead (English translate copy). The compromise deed was entered into on 13.03.2013 and the land has been returned back to the seller, which has been registered by ways of sale deed. Hence, provisions of section 50C are not applicable over the facts of the case. The required conditions for invoking the Section 263 read with Explanation 2(a) of the Act are not satisfied - Decided in favour of assessee.

Summary

Issues:
1. Whether the assessment order passed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 was erroneous and prejudicial to the interest of the Revenue?
2. Whether the initiation of proceedings under Section 263 by the Principal Commissioner of Income Tax (PCIT) and directing the Assessing Officer to pass a fresh assessment order was justified?
3. Any other ground(s) that may be raised at the time of hearing.

Analysis:
1. The appellant, engaged in trading, filed a return of income for the year, which was selected for scrutiny assessment. The Assessing Officer accepted the returned income and completed the assessment. The PCIT later issued a notice under Section 263, deeming the assessment order as erroneous and prejudicial to Revenue's interest due to inadequate inquiry regarding the nature of land and applicability of Section 50C. The PCIT set aside the order and directed a fresh assessment. The appellant appealed, disputing the PCIT's findings.

2. The PCIT highlighted that the land sold by the appellant was a capital asset, subject to capital gains tax. The PCIT found the Assessing Officer's inquiry insufficient, as it did not address the taxability of the transaction comprehensively. The PCIT emphasized that the Assessing Officer failed to consider the transaction's tax implications properly, leading to an erroneous and prejudicial order. The PCIT invoked Section 263 based on these grounds.

3. The appellant contended that the Assessing Officer had conducted thorough inquiries, providing all necessary details and documents regarding the land transaction. The appellant argued that no capital gains were applicable due to a court-approved compromise and subsequent return of land to the seller. Additionally, the appellant asserted that Section 50C was not relevant as the agreement predated its applicability. The CIT(DR) supported the PCIT's decision.

4. The Tribunal disagreed with the PCIT's assessment, stating that the Assessing Officer had indeed inquired about the taxability of the sale transaction and found no tax liability. The Tribunal noted that even if the land was considered a capital asset, there would be no capital gain due to the same stamp duty value for purchase and sale. Regarding Section 50C, the Tribunal found it inapplicable based on the transaction timeline. Consequently, the Tribunal canceled the PCIT's order under Section 263, ruling in favor of the appellant.

This detailed analysis of the judgment provides a comprehensive overview of the issues raised, the arguments presented by both parties, and the Tribunal's final decision, ensuring a thorough understanding of the legal aspects involved in the case.