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TMI Blog2014 (12) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... s been discussed by the AO to indicate that the income from sale of property is to be assessed as business income - in the past also, the assessee was offering income on purchase and sale of the property under the head “investment”. Accounting entries maintained by the assessee cannot be a guiding factor for determining the true income, but there should be strong reasons to dispel the stand of the assessee - the AO was not having any such strong reason - He, on a wrong assumption of law changed the head of income – there are certain broader tests required to be applied on any transactions for finding out, whether such transactions was a business transaction or it was a simplicitor investment - Though the tests were applied on investment in the shares, but some of the decisions can equally be applied on any other transactions - assessee in his accounts not showing the land purchased by him as stock in trade - Nowhere, from the circumstantial evidence it can be inferred that the assessee was in the business of sale and purchase of the property - therefore, there was no error in the order of the CIT - As regards the application of section 50C for computing capital gain, permission to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hased on 31st July, 2007 was sold on 2nd February, 2009. The assessee has computed the short term capital gain. The Assessing Officer while passing the assessment order has determined the income from the sale of property as busienss income instead of assessing it as a capital gain disclosed by the assessee. The assessment order is a very short order running into three pages only. On page No.3, details of the properties are noticed. For changing the heads of income from capital gain to business income, his brief finding is as under: "The contention of the assessee has not been held to be acceptable as 4 of these properties were never inherited by him and since he is in a trade related to real estate i.e. registration of properties, it is also held that the properties which have been sold by him are his stock in trade and hence this has to be treated as business income. During the course of proceeding, the assessee submitted purchase and sale deeds of the properties in question which were verifeid. The list is being reproduced below: The details of immovable properties been sold by him during the year is as follows: x.x.x.x.x.x.x.x.x.x.x.x.x.x.x.x.x.x.x.x.x.x.x.x.x.x. Hence the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salaries, (b) Income from House Property (c) Profits and Gains of business or profession (d) Capital Gains and (e) Income from other sources. For bringing any income to tax under the head profits and gains from business or profession, it must fall under one of the clauses prescribed in section 28 of the I.T. Act. As per section 28(i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year can be taxed under the said head. Similarly, for taxing income under the head "Capital Gains", section 45(1) provides that any profits and gains arising from the transfer of a capital asset affected in the previous year is chargeable under the head "Capital Gains". Thus, while concluding the assessment, the Assessing Officer is bound to follow the procedure laid down in sections mentioned supra and has to correctly segregate the income under relevant heads of income in accordance with relevant provisions, failing which such an order passed will be treated as erroneous. It is so because computation of income under each heads of income prescribed under the Act are different and in case the Assessing Officer wrongly classifies inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m sale of such fixed assets is credited to Profit and Loss Appropriation Account of the assessee. Even in earlier years, same treatment is given by the assessee and income from sale of properties have been declared by the assessee under the head "Income from Capital Gains" which has also been accepted by the Dept. For instance, in A.Y 2007-08, assessee had sold 5 immovable properties and has declared income from shortterm capital gains of ₹ 20,43,1920/- and long term capital gains of ₹ 16,72,913/- and the same has been accepted by the A.O while concluding assessment u/s 143(3). d. Now coming to the submissions made by the assessee on this issue, the crux of the submissions made is that the A.O had applied his mind to the issue involved before assessing the income under the head "Income from Business" and in such circumstances, the order passed cannot be termed as erroneous u/s 263 of the I.T. Act. It is further submitted that if the A.O had taken a particular view, there is no scope for substituting his view with that of the CIT, as it amounts to change of opinion which is not permissible u/s 263. In support of the submissions made, the assessee has relied on various j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arking upon an inquiry about the facts available on record and how to construe them, we deem it pertinent to take note of the fundamental principles for judging the action of the CIT taken u/s 263. The ITAT in the case of M/s Khatiza S. Oomerbhoy Vs. ITO,Mumbai reported in 101 TTJ 1095 analyzed in details various authoritative pronouncements including the decision of the Hon'ble Supreme Court in the case of Malabar Industries Co. vs. CIT 243 ITR 83 and propounded the following broader tests: (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open". 7. The Hon'ble Delhi High Court in the case of Gee Vee Enterprises Vs. Addl. CIT & Ors. (1975) 99 ITR 375 (Del.) has propounded the role required to be played by the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng stock or shown separately as investment or non-trading asset. (2) Whether assessee has borrowed money to purchase and paid interest thereon? Normally, money is borrowed to purchase goods for the purposes of trade and not for investing in an asset for retaining. (3) What is the frequency of such purchases and disposal in that particular item? If purchase and sale are frequent, or there are substantial transactions in that item, it would indicate trade. Habitual dealing in that particular item is indicative of intention of trade. Habitual dealing in that particular item is indicative of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment.) (4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value? Former will indicate intention of trade and later, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iry should be made for ascertaining the nature of any transaction for the purpose of assessing the receipt as business income or capital gain. Considering the facts and circumstances available on record, we are required to examine the issue with two angles. (a) whether the investment made by the appellant in the purchase of land was a business activity or a simplicitor investment; (b). If for argument sake, it was assumed that it was a business activity, then whether that was only possible conclusion one may draw from the facts and the assessment order can be revised u/s 263 by terming it as erroneous and prejudice to the interest of the Revenue. 10. Before we advert to the facts of the present case, we have a glance over the copies of the judgments filed by the assessee. We think it is not necessary to re-capitulate and recite all the decisions on the legal aspects. But suffice it to say that core of all the decisions of the Hon'ble Supreme Court or Hon'ble High Court or Tribunal is to the fact to find out when action u/s 263 taken by the learned CIT can be upheld or not. We have already propounded the broad tests required to be applied on the order of the CIT to find out ..... X X X X Extracts X X X X X X X X Extracts X X X X
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