2022 (8) TMI 514 - AT - Income Tax

Revision u/s 263 - AO was required to disallow the indexation and deduction claimed u/s 54F which he failed to do - HELD THAT - Merely, the assessee has made it sellable and divided into plots that activity itself will not change the capital asset into business asset. The appreciation in the price is done over a period of holding by the assessee in the same character and therefore, on sale of that asset the relevant benefit of the capital assets cannot be considered as business profit. This sale transactions cannot be considered in isolation without considering the intention of the assessee so far holding it as capital asset, consequent to that income arising from that asset also in the nature of capital gain. AO has called for all the details related to capital gain and details on which the deduction u/s. 54F was claimed verified and taken a view is based on the facts supported by records placed before AO and he has applied his mind on the issue. Thus, we our considered view the AO has made inquiry call for the records upon which he has passed the order and that order cannot be revised merely there is another view possible. At this juncture we would like to rely on the CBDT s circular F.No.225/12/2016/ITA.II dated 02.05.2016 which state that once the stand taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent year also and the taxpayers shall not be allowed to adopt a different / contrary stand in this regard in the subsequent years. This circular is issued by the CBDT to avoid litigation which the department should not use to create litigations. Thus, the view taken by the assessee that a particular investment is of capital in nature and declared the same since the amount invested same subsequent to that at the time of sale merely the assessee, he divided in to small plot to sell that capital asset cannot be termed as business assets. As in our considered view, as the A.O while framing the assessment had taken a plausible view, and treated the gain as Capital Gain and consequent thereupon allowed the assesseeıs claim for deduction under section 54F of the Act also. Therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 for dislodging the same. Accordingly, we find no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263 had dislodged the view that was taken by the A.O as regards chargeability of gain and consequent there upon allowability of deduction on the capital gain, we set-aside his order and restore the order passed by the A.O under Sec. 143(3) - Assessee appeal allowed

Summary

Issues Involved:
1. Legality of the order passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act.
2. Classification of the income from the sale of land as capital gains or business income.
3. Validity of the Pr. CIT's direction to reassess the income.

Issue-wise Detailed Analysis:

1. Legality of the Order Passed by the Pr. CIT Under Section 263:
The assessee challenged the legality of the Pr. CIT's order under Section 263, arguing it was "illegal & bad in law." The Pr. CIT had held that the capital gain declared by the assessee should be classified as business income, thus disallowing indexation and deduction under Section 54F. The assessee contended that the Assessing Officer (AO) had already examined these issues during the assessment proceedings and accepted the claims after due consideration. The Tribunal noted that the AO had indeed issued a detailed questionnaire and received comprehensive responses from the assessee, including sale deeds and purchase deeds. The AO had applied his mind and taken a plausible view based on the evidence presented. Therefore, the Tribunal found that the AO's order was not erroneous and prejudicial to the interest of the revenue merely because the Pr. CIT held a different view.

2. Classification of the Income from the Sale of Land:
The Pr. CIT argued that the activity of selling the land in plots was in the "nature of trade," thereby classifying the income as business income. The Tribunal examined the facts and found that the land was initially purchased for opening a petrol pump and held as a capital asset for over 12 years. The land was later converted for residential and commercial use to facilitate its sale. The Tribunal held that merely converting and selling the land in plots did not change its character from a capital asset to a business asset. The Tribunal cited various judicial precedents, including decisions from the Supreme Court and High Courts, which supported the view that selling land after plotting for better realization does not constitute an adventure in the nature of trade.

3. Validity of the Pr. CIT's Direction to Reassess the Income:
The Pr. CIT had set aside the AO's assessment order and directed a fresh assessment, arguing that the AO failed to apply the correct provisions of law. The Tribunal noted that the AO had made necessary inquiries and verifications, and his order was based on a plausible view. The Tribunal emphasized that the Pr. CIT could not invoke Section 263 merely because another view was possible. The Tribunal also highlighted that the Pr. CIT's direction to reassess the income was contradictory, as it concluded that the indexation and deduction should be disallowed but also directed the AO to re-examine the issues. The Tribunal found this approach inconsistent and unjust.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the Pr. CIT's order under Section 263 and restoring the AO's original assessment order. The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interest of the revenue, as it was based on a plausible view supported by evidence and judicial precedents. The income from the sale of land was rightly classified as capital gains, and the deduction under Section 54F was correctly allowed.