2023 (6) TMI 219 - AT - Income Tax

Revision u/s 263 - long term capital gains returned by the assessee with a direction to AO to re-do the same by referring to the valuation of the property to DVO and also to reclassify the income as business income instead of long term capital gains as returned by the assessee and after giving an opportunity of hearing to the assessee - HELD THAT - In the instant case, the assessee has not disputed the value of the estate as per the Stamp Valuation Authority but has preferred to adopt sale consideration actually received at Rs. 6,34,23,000/- as against the value of the Stamp Valuation Authority for the purpose of computing Capital gains. It is also admitted that the AO has not looked into these aspects while framing the assessment u/s. 143(3) r.w.s 144C(3) of the Act. Since the Ld. AO has failed to cause any enquiry on the above issues before passing the assessment order, Pr. CIT has held that the order of the Ld. AO passed u/s.143(3) r.w.s 144C(3) of the Act is not only erroneous but also prejudicial to the interest of the Revenue and accordingly, we are of the considered view the jurisdiction exercised by the Ld. Pr. CIT U/s. 263 of the Act is valid in law. Treatment of the income as capital gains or business income arising out of the sale of the industrial land by the assessee by converting it into various parts - From the plain reading of the 3rd proviso to section 50C(1) of the Act, we find that the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and ten percent 110% of the consideration received or accruing as a result of the transfer. Accordingly, the consideration received shall be deemed to be the full value of consideration for the purposes of section 48 of the Act. In the instant case, the Ld. DVO has valued the property at Rs. 6,96,36,350/- which is less than 110% of the value of sale consideration received by the assessee as declared in the sale deeds. Since the character of the land has not been recategorized and has been sold as a fixed asset by the assessee, we hereby direct the Ld. AO to compute the income of arising out of the sale of the parts of the industrial land as capital gains of the assessee by considering the actual consideration received by the assessee. Thus, the grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Validity of revisionary jurisdiction exercised under Section 263 of the Income Tax Act.
3. Classification of income from the sale of land as capital gains or business income.
4. Application of Section 50C regarding the valuation of the property.

Summary:

1. Condonation of Delay:
The Tribunal acknowledged a delay of 509 days in filing the appeal. The assessee explained the delay through a condonation petition, citing a genuine and bona fide belief that no appeal was needed since no fresh demand was raised by the Pr. CIT's order. The Tribunal found a reasonable and sufficient cause for the delay and decided to condone it, allowing the appeal to be adjudicated on merits.

2. Revisionary Jurisdiction under Section 263:
The Pr. CIT exercised revisionary jurisdiction under Section 263, finding the original assessment order erroneous and prejudicial to the interest of the Revenue. The Pr. CIT noted that the assessee did not adopt the valuation as per the Stamp Valuation Authority while calculating capital gains and reclassified the income from the sale of subdivided plots as business income. The Tribunal upheld the Pr. CIT's exercise of jurisdiction, agreeing that the original assessment lacked necessary inquiries, thus validating the revision under Section 263.

3. Classification of Income:
The Tribunal examined whether the income from the sale of industrial land should be classified as capital gains or business income. The assessee argued that the land was a fixed asset and sold due to the inability to find a buyer for the entire plot. The Tribunal noted that the land was categorized as fixed assets in the assessee's financials and sold after obtaining approval for subdivision from APIIC. The Tribunal concluded that merely subdividing and selling the land without altering its industrial character does not constitute an adventure in the nature of trade. Therefore, the income should be treated as capital gains.

4. Application of Section 50C:
The Pr. CIT directed the AO to refer the property to the Departmental Valuation Officer (DVO). The DVO valued the property at Rs. 6,96,36,350, which is within 110% of the actual sale consideration received by the assessee. The Tribunal applied the 3rd proviso to Section 50C(1), which states that if the DVO's valuation does not exceed 110% of the sale consideration, the consideration received shall be deemed the full value for computing capital gains. Consequently, the Tribunal directed the AO to compute the income as capital gains based on the actual consideration received.

Conclusion:
The Tribunal allowed the appeal, directing the AO to treat the income from the sale of the industrial land as capital gains and compute it based on the actual consideration received by the assessee.