2023 (4) TMI 890 - AT - Income Tax

Revision u/s 263 - nature of land sold - transfer of capital assets was due to conversion of land to stock in trade and land converted into stock-in-trade could not have been agricultural land - As per CIT deduction u/s 54B cannot be allowed on the gain arising from transfer of such asset, which does not qualify as an agricultural land - HELD THAT - Properties were purchased by the assessee prior to the date of sale of land on 02-08-2010, and section 54B of the Act requires that the assessee should have purchased the new land after the date of transfer of such agricultural property. Therefore, even in this case as well, the complete benefit of section 54B of the Act was not available to the assessee, even if the alternate contention of the assessee that the land was sold on 02-08-2010, were to be accepted. The order of the Principal CIT, we are of the considered view that there is no infirmity in the order passed by the Principal CIT in the instant facts. Even if the alternate contention of the assessee were to be accepted, then also, we observe that in the instant facts the AO has not examined the claim of the assessee for exemption u/s 54B of the Act from correct perspective. No infirmity in the order of the Principal CIT in holding that the assessing officer has not carried out proper examination of the facts of the case and has not carried out the necessary verification at the time of passing of the assessment order in respect of the assessee s claim of deduction u/s 54B - Decided against assessee.

Summary

Issues:
The issues involved in the judgment are the jurisdiction and legality of the order passed under section 263 of the Income Tax Act, 1961, regarding the verification of Short Term Capital Gain, the conversion of agricultural land into stock in trade, and the eligibility of deduction under section 54B of the Act.

Verification of Short Term Capital Gain:
The Principal Commissioner of Income Tax (PCIT) observed that the assessee had transferred an agricultural land resulting in capital gains under section 45(3) of the Act. The assessee claimed a short-term capital gain of Rs. 80,54,870 and deduction under section 54B of the Act. However, the PCIT noted that since agricultural land cannot be converted into stock-in-trade, the deduction under section 54B cannot be allowed on the gain from the transfer of such asset.

Contentions and Observations:
The assessee contended that there was an error in the computation and the actual date of sale of the land was different. The PCIT analyzed the alternate contention regarding the date of transfer and concluded that even if the date was different, the benefit of section 54B was not available due to the timing of the purchase of new properties by the assessee. The PCIT held that the AO failed to examine the claim under section 54B correctly, leading to an erroneous and prejudicial order.

Assessment Order Review:
The ITAT upheld the order of the PCIT, stating that the assessing officer did not properly examine the claim for exemption under section 54B. Even if the alternate contention of the assessee was considered, the AO failed to verify the facts adequately. Therefore, the ITAT concluded that the assessment order was erroneous and prejudicial to the interests of revenue, affirming the decision of the PCIT.

Conclusion:
The appeal of the assessee was dismissed by the ITAT, upholding the order passed by the PCIT under section 263 of the Income Tax Act, 1961. The ITAT found no infirmity in the PCIT's decision, emphasizing the lack of proper examination and verification by the assessing officer regarding the deduction under section 54B of the Act.