2025 (1) TMI 366 - AT - Income Tax

Revision u/s 263 - under-assessment of income - Addition u/s 56(2)(x) on differential between stamp duty valuation and the purchase price - By Joint Development Agreement (JDA) proprietorship concern of this assessee (G.C Construction), being developer, would start the construction work of the proposed building after obtaining sanction of the building plan and delivery of vacant possession of the said property HELD THAT - AO enquired and apparently been satisfied by the assessee's contention. Thus, the ld. Pr. CIT is seen to have taken an adverse note of the JDA in as much as income has been determined in the assessment year under consideration, whereas the ld. AO had been convinced by the bona fide of the assessee's arguments before him and not taken any adverse view in this very same matter Operation of Section 45(5A), taxable income would arise once the project as per a JDA would obtain a certificate of completion for the whole or part of the project, from the competent authority. In this case, in the year under consideration, none of the conditions laid down in this Section are fulfilled for recognizing revenue. It is also seen that another anomaly has crept into the impugned order when the ld. Pr. CIT has resorted to several assumptions, without backing of facts, leading him to conclude that the fiscal behaviour of the appellant was allegedly not in keeping with what a prudent businessman would normally do. Thus, for example, he has presumed that just because the advance amount paid by the appellant has not been returned back then he has mentioned that no prudent businessman would block his capital for an indefinite period. Thus it is held that not only was the impugned issue considered by the ld. AO but also the provisions of Section 45(5A) of the Act would lead to the conclusion that the adverse inference drawn by the ld. CIT(A) was not justified. Also, the impugned order is based on a number of assumptions which could not possibly be used to draw any adverse conclusion against the appellant. Hence, his action cannot be supported and considering the tests discussed (supra), this matter is decided in favour of the appellant and the order of ld. Pr. CIT is quashed.

1. ISSUES PRESENTED and CONSIDERED

The primary legal issues considered in this judgment include:

Whether the Principal Commissioner of Income Tax (Pr. CIT) was justified in invoking Section 263 of the Income Tax Act, 1961, to revise the assessment order passed by the Assessing Officer (AO) on the grounds of alleged under-assessment of income.
Whether the provisions of Section 56(2)(x) of the Income Tax Act were applicable to the transaction in question, concerning the difference between the stamp duty valuation and the purchase price of immovable property.
Whether the Joint Development Agreement (JDA) and the provisions of Section 45(5A) of the Income Tax Act were correctly interpreted and applied in the assessment year under consideration.
Whether the action of the Pr. CIT in revising the assessment order was beyond his jurisdiction and contrary to the provisions of the law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Invocation of Section 263 by Pr. CIT

Relevant legal framework and precedents: Section 263 of the Income Tax Act empowers the Pr. CIT to revise an assessment order if it is erroneous and prejudicial to the interests of the revenue. Key precedents include the Supreme Court's decisions in Malabar Industrial Co. Ltd. v. CIT and CIT v. Max India Ltd., which outline the conditions under which Section 263 can be invoked.
Court's interpretation and reasoning: The court emphasized that for Section 263 to be applicable, the order must be both erroneous and prejudicial to the revenue. The court noted that the AO had conducted an inquiry and was satisfied with the assessee's explanations, thereby not making the order erroneous.
Key evidence and findings: The AO had accepted the assessee's return after considering the JDA and the provisions of Section 45(5A). The Pr. CIT's action was based on a different interpretation of the same facts.
Application of law to facts: The court found that the AO had taken a plausible view, and the Pr. CIT's disagreement with this view did not justify invoking Section 263.
Treatment of competing arguments: The court considered the Pr. CIT's argument that the AO's order was prejudicial to the revenue but found it unsubstantiated as the AO had conducted due inquiry.
Conclusions: The court concluded that the invocation of Section 263 was unjustified as the AO's order was not erroneous.

Issue 2: Applicability of Section 56(2)(x)

Relevant legal framework and precedents: Section 56(2)(x) deals with the taxation of income from other sources, including the difference between the stamp duty value and the purchase price of immovable property.
Court's interpretation and reasoning: The court determined that the provisions of Section 56(2)(x) were not applicable as the JDA did not result in any taxable income during the assessment year in question.
Key evidence and findings: The court noted that the JDA had not progressed due to the lack of a building sanction plan, and thus, no income had arisen under Section 45(5A).
Application of law to facts: The court applied Section 45(5A), which taxes capital gains in the year of completion of the project, not during the year under consideration.
Treatment of competing arguments: The court rejected the Pr. CIT's argument that the difference in valuation should be taxed, as the conditions for such taxation were not met.
Conclusions: The court concluded that Section 56(2)(x) was inapplicable, and the AO's decision not to tax the difference was correct.

Issue 3: Jurisdiction and Legality of Pr. CIT's Order

Relevant legal framework and precedents: The jurisdiction of the Pr. CIT under Section 263 is contingent upon the assessment order being erroneous and prejudicial to the revenue.
Court's interpretation and reasoning: The court found that the Pr. CIT's order was beyond his jurisdiction as it was based on assumptions and not supported by the facts or law.
Key evidence and findings: The court observed that the Pr. CIT's assumptions about the fiscal behavior of the assessee were speculative and not grounded in evidence.
Application of law to facts: The court applied the principles from Greenworld Corporation and other precedents to determine that the Pr. CIT's order was not justified.
Treatment of competing arguments: The court dismissed the Pr. CIT's arguments as speculative and unsupported by the statutory framework.
Conclusions: The court quashed the Pr. CIT's order as it was beyond his jurisdiction and not in accordance with the law.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The twin requirements of the section are manifestly for a purpose. Merely because the CIT considers on examination of the record that the order has been erroneously passed so as to prejudice the interest of the Revenue will not suffice."
Core principles established: The court reaffirmed that Section 263 cannot be invoked merely due to a difference in opinion between the AO and the Pr. CIT. The order must be both erroneous and prejudicial to the revenue.
Final determinations on each issue: The court allowed the appeal, quashing the Pr. CIT's order and upholding the AO's assessment as neither erroneous nor prejudicial to the revenue.

In conclusion, the court's detailed analysis emphasized adherence to the statutory framework and judicial precedents, ensuring that the powers under Section 263 are exercised judiciously and not based on mere differences in opinion.

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