2022 (4) TMI 284 - AT - Income Tax

Revision u/s 263 by CIT- case was selected under scrutiny through CASS and the assessment u/s 143(3) was completed - Correct head of income - business income or capital gain - HELD THAT - Not only that there is no discussion about the issue of show cause notice in the assessment order and its submission of the assessee on that reply. Why this fact has not been discussed in the assessment order which itself suggests that the order is non-speaking order and this order is prejudicial to the interest of Revenue and looking to this basic error in the order, the assessment order passed is prejudicial order and the invoking of provision section 263 is correct and no interference in the order of ld. PCIT-1, Jaipur is required. AO had erred in accepting the total income of the assessee under the head Business Profession instead of income declared under the head Capitals Gains without mentioning anything in the assessment order. It is clear from the assessment order that the AO had not examined or verified the reason for which the case was selected under CASS and even the specific show cause notice is not mentioned in the assessment order. When the case of the assessee was selected under CASS to examine the capital gains then the AO was required to examine the case meticulously on all the issues including the applicability of Section 50C for determining the correct income of the assessee and should pass a speaking order. Not only that the claim of income under business head cannot be made in ITR-2. Looking to all these apparent error in the order of the AO, it leaves the assessment open to the invocation of provision of Section 263. Pr. CIT has rightly invoked the provisions of Section 263 of the Act in the case of the assessee - Appeal of assessee dismissed.

Issues Involved:
1. Validity of the order passed under Section 263 of the Income Tax Act, 1961.
2. Characterization of income as business income versus capital gains.
3. Applicability of Section 50C of the Income Tax Act, 1961.
4. Alleged lack of enquiry and non-application of mind by the Assessing Officer (AO).
5. Relevance of previous assessment years and audit observations.

Detailed Analysis:

1. Validity of the order passed under Section 263 of the Income Tax Act, 1961:
The assessee challenged the order passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263, arguing that the original assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The Pr. CIT initiated proceedings under Section 263, stating that the AO's order was passed in a routine and perfunctory manner without making necessary enquiries and verifications, particularly regarding the head under which the income was declared and taxed. The Tribunal upheld the Pr. CIT's decision, stating that the AO's failure to scrutinize the case properly and the non-speaking nature of the assessment order justified the invocation of Section 263.

2. Characterization of income as business income versus capital gains:
The assessee declared income from the sale of plots as business income, whereas the Pr. CIT argued that it should be treated as capital gains under Section 50C. The AO accepted the assessee's claim without proper verification. The Tribunal found that the AO did not justify why the income was taxed as business income despite being declared as capital gains in the return. The Tribunal agreed with the Pr. CIT that the AO's order was erroneous and prejudicial to the interest of the Revenue due to this mischaracterization.

3. Applicability of Section 50C of the Income Tax Act, 1961:
The Pr. CIT argued that the AO failed to apply Section 50C, which mandates that the value adopted by the Sub-Registrar for stamp duty purposes should be considered as the full value of consideration for capital gains calculation. The Tribunal noted that the AO did not discuss the applicability of Section 50C in the assessment order and failed to address the discrepancies in the declared values. The Tribunal upheld the Pr. CIT's view that the AO's omission to apply Section 50C rendered the assessment order erroneous and prejudicial to the Revenue's interest.

4. Alleged lack of enquiry and non-application of mind by the Assessing Officer (AO):
The Pr. CIT contended that the AO's order was passed without proper enquiries and verification, making it a non-speaking order. The Tribunal found that the AO did not document any discussion or verification regarding the reason for selecting the case for scrutiny or the change in the head of income. The Tribunal concluded that the AO's mechanical acceptance of the assessee's submissions without critical examination justified the invocation of Section 263.

5. Relevance of previous assessment years and audit observations:
The Pr. CIT referred to the previous assessment year (2012-13), where the income from similar transactions was treated as capital gains, not business income. The Tribunal noted that the AO did not consider the previous year's assessment or audit observations, which highlighted the erroneous adoption of the assessee's statements without verification. The Tribunal agreed with the Pr. CIT that the AO's failure to consider these relevant records contributed to the erroneous and prejudicial nature of the assessment order.

Conclusion:
The Tribunal upheld the Pr. CIT's order under Section 263, directing the AO to reassess the case after making necessary enquiries and verifications. The Tribunal found that the AO's original assessment was erroneous and prejudicial to the interest of the Revenue due to the mischaracterization of income, non-application of Section 50C, and lack of proper enquiry and documentation. The appeal of the assessee was dismissed.

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