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TMI Blog2021 (10) TMI 1194X X X X Extracts X X X X X X X X Extracts X X X X ..... In absence of any prejudice caused to the Revenue by the action of the Assessing Officer, the order cannot be revised even if it is momentarily considered to be erroneous. Hence, the revisionary action of the PCIT requires to be set aside on this ground alone without going into other aspect of arguments. We also take into account the other line of arguments propounded on behalf of the assessee that the nature and character of an income depends on host of factors which are required to be cumulatively weighed and thus is inherently a very highly subjective exercise. There is no straight jacket formula to determine whether an asset held by the assessee should be treated as capital asset or business asset. Such issues are inherently highly debatable and arguable in nature. One cannot definitely say with precision and more so under the revisional jurisdiction that the action of the AO in adopting one course of view is erroneous per se. There is invariably a scope of argument on determination of character of income. Indulgence on such aspect under the revisional jurisdiction is not appropriate in the absence of cogent facts adverse to the assessee. We do not see any such material whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de an addition of ₹ 19,40,000/- for the purposes of computing profit and gains from transfer of land parcels in question. The income was accordingly assessed at ₹ 22,14,670/-. 4. Subsequent to the assessment order so passed, the PCIT, in exercise of revisional powers conferred under Section 263 of the Act, called for the assessment records and observed that such order is erroneous insofar as prejudicial to the interest of the Revenue. Consequently, a show-cause notice dated 26.02.2020 was issued to show-cause as to why the assessment order in question should not be modified/set aside on the ground that such order is erroneous insofar as prejudicial to the interest of the Revenue. It was essentially alleged in the show-cause notice that the land parcels sold on 30.10.2014 and 05.11.2014 ought to have been treated as capital assets held for investment instead of business assets held as stock-in-trade. Consequently, revisional order was passed whereby the assessment order was set aside with the direction to compute capital gains on sale of such land parcels. 5. Aggrieved, the assessee preferred appeal before the Tribunal. 6. The learned Counsel for the assessee ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee-Co is in appeal before your Honors; 1.5. It is submitted that even if the contention of the ld. PCIT is correct that the land sold by the assessee-Co which is treated by the assessee-Co as 'business asset'/'stock in trade' in its regular audited books of account, has to be treated as 'capital asset held for investment' and in such a situation, 'capital gain' would arise, then, resultant/revised computation of 'business income' and 'Capital Gain' would be as under: 1.6. Working of 'business income' (i.e., excluding the alleged land sold): Revised Trading and P L account for the year ended on 31-3-15 (as per the contention of the ld. PCIT as per order u/s. 263 dt. 31-3-20) Particulars Amount Particulars Amount Share purchase 1,42,85,212 F O Sales 58,81,595 Contract Expenses 2,41,44,335 Contract Receipt 1,63,27,091 Transport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lleged land sold (as per the contention of the ld. PCIT as per order u/s. 263 dt. 31-3-20) Full value of consideration of land sold on 30-10-14 5-11-14 (₹ 40,12,000 plus ₹ 79,88,000) 1,20,00,000 Less: Transfer expenses (₹ 2,40,901 paid on 30-10-14 plus ₹ 4,94,979 paid on 5-1 1-14 as stamp duty on sale of the alleged land being borne by the seller) 7,35,880 Net consideration 1,12,64,120 Less: Cost of acquisition (₹ 25,94,091 plus ₹ 2,56,000 as stamp duty paid on alleged land at the time of purchase on 16-8- 10 23-8-10) 28,50,091 Indexed cost of acquisition: ₹ 28,50,091 x 1,024/711 (FY14-15/FY10-11) 41,04,772 LTCG on sale of land 71,59,348 1.8. Resultant/revised Computation of Total Income for the AY 15-16 would be as under: (as per the contention of the ld. PCIT as per order u/s. 263 dt. 31-3-20) Income from Business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d income has been assessed at ₹ 22,14,670 (which is not subjected to any appeal), cannot be, in any manner, termed as prejudicial to the interest of revenue; and thus, it cannot be revised u/s. 263. 1.10. From perusal of the above working as per the direction of the ld. PCIT u/s. 263 dt. 31-3-20, it is very clear that the resultant income of the assessee-Co would be come down by ₹ 32,21,450 and the assessed income of ₹ 22,14,670 u/s. 143(3) dt. 25-4-17 would be converted into income of Rs. (-)10,06,780; more so, against the alleged income assessed of ₹ 22,14,670 u/s. 143(3) dt. 25-4-17, the assessee-Co has not filed any appeal before the appellate forum and duly accepted/not disputed such assessed income of ₹ 22,14,670 and paid tax thereon; hence, it is very clearly proved that the assessment order passed u/s. 143(3) dt. 25-4-17 is not prejudicial to the interest of revenue, which is a sine qua precondition, pre-requisite for making order u/s. 263, and in absence of this, the impugned order passed u/s. 263 dt. 31-3-20 is invalid, void-ab-initio and thus, liable to be quashed. Malabar Industrial Co Ltd. (2000) (SC) had categorically held that for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l rate of 30%. Hence, only the net winnings is taxable at 30%. The net winnings is to be determined after setting off the business loss of ₹ 40.86 crores as worked out above with the 'IFOS'. We find that the ld. AR had not disputed the rate of taxability of winning from lotteries in terms of sec. 15BB. We find that even if the prize winnings from unsold lottery tickets is sought to be taxed under the head 'IFOS' as pointed out by the ld. PCIT in his s. 263 order, the business loss of ₹ 40.86 crores is still required to be set off with the prize winnings from unsold lottery tickets u/s. 71 and the net income thereon would be liable for tax at special rate of 30% in terms of sec. 15BB. As long as the tax rate under normal provisions and tax rate prescribed u/s. 115BB are same, the entire issue becomes revenue and tax neutral. Hence, there could be no prejudice that could be caused to the interest of the Revenue for the AY 14-15 even if the order of the ld. AO is found to be erroneous. We find that Malabar Industrial Co Ltd. (2000) (SC) had categorically held that for the ld. PCIT to invoke revision jurisdiction u/s. 263, the twin conditions should be cumul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... powers u/s. 263 and considered the assessment order passed by the AO as erroneous and prejudicial to the interest of the Revenue for the reasons that the assessee was having only rental income which was to be considered as IFHP and not as 'business income'. Secondly, there was no business activity therefore, expenses and the depre was wrongly allowed by the AO. Now we have to consider as to whether the view taken by the AO was a possible view in accordance with law or not. 8.1 In the present case, the AO during the course of original assessment proceedings, issued the quenaire to the assessee, in response to which the assessee furnished the reply and the documents which were considered by the AO, so it cannot be said that the enquiries were not made by the AO. The rental income shown by the assessee was considered to be business income as was done in the preceding years since inception of the business by the assessee. However, the ld. PCIT was of the view that the said view was not correct as the letting out of the shop from which the rent was received was not the main object of the assessee. 8.2 To resolve this controversy we have to consider the objects and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... think fit. Therefore, the income of the assessee received on lease out property was its business income. 8.4. On a similar issue Rayala Corporation (P) Ltd. (SC) held as under: 'that admittedly, the assessee had only one business and that was of leasing its property and earning rent therefrom. The business of the company was to lease its property and to earn rent and therefore, the income so earned should be treated as its business income. The income of the assessee was to be subject to tax under the head Profits and gains of business or profession . 8.5. Similarly, Shibani S Bhojwani (Mum-Trib) held as under: Income from composite letting of furnished flats by the assessee, after thorough vetting and scrutiny, having been accepted and assessed as 'business income' by the Deptt in the earlier years while framing regular assessments, in the absence of any new facts emerging during the year u/c, such income cannot be assessed under the head 'IFHP'; composite rental receipts are assessable as business income in the relevant AY also in view of rule of consistency. 8.6. In that view of the matter, it cannot be said that the view taken by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business expenses, as such the ld. PCIT was not justified in not considering the depre as well as the expenses to work out the income/loss of the assessee. 8.10. In view of the aforesaid discussion, in the present case, it can be said that by considering the rental income received by the assessee as Business income which was consistently claimed by the assessee in the preceding years also and the Deptt had accepted the same, the assessment order passed by the AO was not prejudicial to the interest of the Revenue, particularly when the loss would have been more at ₹ 7,70,160 instead of ₹ 3,89,226 if the rental income was to be considered as IFHP , instead of Business income , as declared by the assessee. 8.11. We therefore, by considering the totality of the facts as discussed herein above are of the view that the assessment order passed by the AO was not prejudicial to the interest of the Revenue. In that view of the matter, the impugned order passed by the ld. PCIT u/s. 263 is quashed. [as extracted from Noor Resorts (P) Ltd. (2021) 1.13. It is submitted that in Late Shri Ramavtar Gupta (2020) (Jai-Trib) dt. 13-12-19, held as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputing the capital gains, the FMV of the asset as on the date of such conversion will be deemed as 'FVC' received or accrued on transfer of capital asset and consequently, the same amount will be taken as COA of SIT. In the case in hand, the FMV of the asset shall be taken as the valuation adopted by the SD authority as provided u/s. 50C being FVC and therefore, for the purpose of computing the CG, the said amount of ₹ 1,08,25,150 would be deemed to be 'FVC' which is the actual sale consideration. Therefore, there will be no change in the capital gain computed and declared by the assessee even after applying the sec. 45(2). Resultantly, the business income, if any, from the said transfer under the sec. 45(2) would be Nil being the COA of SIT and the sale consideration of the said property is the same. Therefore, even after invoking the sec. 45(2), there would be no change in the tax liability of the assessee and hence, the order passed by the AO cannot be said prejudicial to the interest of the Revenue. It is undisputed proposition of law that for exercising the power u/s. 263, the CIT has to satisfy itself that the order passed by the AO is erroneo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter prejudice to the Revenue and the course adopted by the AO has resulted in lesser prejudice, the action of the PCIT under Section 263 falls flat on the ground. It is trite that in order to usurp jurisdiction under Section 263, both the conditions, i.e. order being erroneous as well as prejudicial to the interest of the revenue, must simultaneously coexist. In absence of any prejudice caused to the Revenue by the action of the Assessing Officer, the order cannot be revised even if it is momentarily considered to be erroneous. Hence, the revisionary action of the PCIT requires to be set aside on this ground alone without going into other aspect of arguments. 9. Notwithstanding the conclusion drawn in the preceding paragraph, we also take into account the other line of arguments propounded on behalf of the assessee that the nature and character of an income depends on host of factors which are required to be cumulatively weighed and thus is inherently a very highly subjective exercise. There is no straight jacket formula to determine whether an asset held by the assessee should be treated as capital asset or business asset. Such issues are inherently highly debatable and arguabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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