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TMI Blog2022 (8) TMI 514X X X X Extracts X X X X X X X X Extracts X X X X ..... there is another view possible. At this juncture we would like to rely on the CBDT s circular F.No.225/12/2016/ITA.II dated 02.05.2016 which state that once the stand taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent year also and the taxpayers shall not be allowed to adopt a different / contrary stand in this regard in the subsequent years. This circular is issued by the CBDT to avoid litigation which the department should not use to create litigations. Thus, the view taken by the assessee that a particular investment is of capital in nature and declared the same since the amount invested same subsequent to that at the time of sale merely the assessee, he divided in to small plot to sell that capital asset cannot be termed as business assets. As in our considered view, as the A.O while framing the assessment had taken a plausible view, and treated the gain as Capital Gain and consequent thereupon allowed the assesseeıs claim for deduction under section 54F of the Act also. Therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 for dislodging the same. Accordingly, we find no justification on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen assessee was in need of funds, he decided to sell the said capital asset being land. Since the land was converted for use for petrol pump usage and could not be sold easily, the assessee got the land converted into residential and commercial use on 28.03.2016 (total area 4426.13 sq. mt.). Out of this assessee sold 2977.68 sq. mt. land in the year under consideration after plotting to 9 persons for Rs.59,27,500/-, DLC value of which is Rs.66,82,981/- and claimed deduction u/s 54F for investing in flat at Rs.77,25,000/-. 5. The learned AR of the assessee drawn our attention to the questionnaire issued by the AO during the course of assessment proceedings, the AO vide notice u/s 142(1) dt. 30.11.2019, in Q. No.12 required the assessee to furnish following details 12. Please furnish the complete details in respect of property sold during the year under consideration along with copy of sale deed, if any and furnish the evidence in support of deduction claimed u/s. 54,54B, 54C, 54D, 54G, 54GA, 54F and the source thereof and income thereof. 5.1 In response assessee submitted the required details and explained that for claiming exemption u/s 54F, a flat has been purchased for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld out to various persons points towards the fact that the transaction comes under the ambit of adventure in nature of trade. In this regard, reliance is placed on Hon'ble Supreme Court decision in the case of G.Venkatswamy Naidu vs. CIT(1959) 35 ITR 594(SC). Hence, it is held that the profit from activities undertaken by the assessee are in the nature of trade and therefore, the income so generated was to be computed under the head business income. Accordingly, the AO was required to disallow the indexation and deduction claim u/s. 54F also, which the AO failed to do. 10. As discussed above, the Assessing Officer failed to apply his mind and failed to invoke the applicable provisions of law. This in turn has resulted in passing of an erroneous order by the Assessing Officer in the case due to non-application of mind to relevant material and an incorrect assumption of facts which is prejudicial to the interest of the revenue and hence liable for revision under section 263 of the Income Tax Act. The Hon'ble Supreme Court in the case of Malabar Industrial Limited V/s CIT 243 ITR it has held as under- .... An incorrect assumption of facts or an incorrect application of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is placed on the following cases:- Sir Dorabji Tata Trust Vs. DCIT(E) 188 ITD 38 dt. 28.12.2020 (Mum.) (Trib.) The relevant findings at Para 19-21 is as under:- 19. The question that we also need to address is as to what is the nature of scope of the provisions of Expln. 2(a) to s. 263 to the effect that an order is deemed to be erroneous and prejudicial to the interests of the Revenue when CIT is of the view that the order is passed without making inquiries or verification which should have been made . 20. Undoubtedly, the expression used in Expln. 2 to s. 263 is when CIT is of the view, but that does not mean that the view so formed by the CIT is not subject to any judicial scrutiny or that such a view being formed is at the unfettered discretion of the CIT. The formation of his view has to be in a reasonable manner, it must stand the test of judicial scrutiny, and it must have, at its foundation, the inquiries, and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant-that an AO is expected to be. If we are to proceed on the basis, as is being urged by the learned Departmental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voked or not is, therefore, not simply existence of the view, as professed by the CIT, about the lack of necessary inquiries and verifications, but an objective finding that the AO has not conducted, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant that the AO is expected to be. 21. That brings us to our next question, and that is what a prudent, judicious, and responsible AO is to do in the course of his assessment proceedings. Is he to doubt or test every proposition put forward by the assessee and investigate all the claims made in the IT return as deep as he can ? The answer has to be emphatically in negative because, if he is to do so, the line of demarcation between scrutiny and investigation will get blurred, and, on a more practical note, it will be practically impossible to complete all the assessments allotted to him within no matter how liberal a time-limit is framed. In scrutiny assessment proceedings, all that is required to be done is to examine the IT return and claims made therein as to whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able faith in the assessee and not doubting everything coming to the AO's notice in the assessment proceedings cannot be said to be lacking bona fide, and as long as the path adopted by the AO is taken bona fide and he has adopted a course permissible in law, he cannot be faulted-which is a sine qua non for invoking the powers under s. 263. In the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) , Hon'ble Supreme Court has held that Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law. The test for what is the least expected of a prudent, judicious and responsible AO in the normal course of his assessment work, or what constitutes a permissible course of action for the AO, is not what he should have done in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessees and the assessees having appeared before the AO and produced the books of accounts and other records besides submitting replies to the questionnaire, it cannot be said that the AO did not give many hearings and thumb nail order was passed or that the record of the assessee was not examined at the time of assessment and therefore, CIT was not justified in exercising revisional power u/s 263, without elucidating as to how the assessment order was erroneous. Nalco Company Vs. CIT (2021) 200 DTR 275 (Pune) (Trib.) If the AO makes inquiry, examines the issue which is borne out from the record of the assessment proceedings and then reaches a conclusion in favour of the assessee which is legally possible, the assessment order cannot be characterized as erroneous and prejudicial to the interest of the Revenue. Since none of the four clauses of the Expln. 2 to sec. 263(1) applies to the case under consideration, revisionary power even under the enlarged scope of the Expln. 2 was not legally exercisable. Torrent Pharmaceuticals Ltd. Vs. DCIT (2018) 173 ITD 130 (Ahd.) (Trib.) Even after the insertion of Explanation 2, the Revisional Commissioner is expected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o have been made by AO which would have resulted into income or disallowance or any other adverse action. Thus, none of the conditions of clause (a) (b) of Explanation 2 to section 263 is attracted. Hence, the order passed by AO can t be branded as erroneous and prejudicial to the interest of revenue. 2. Otherwise also, it is a settled that where two views are possible and the AO has taken one view, his order cannot be treated as erroneous or prejudicial to the interest of revenue. For this purpose reliance is placed on the following cases:- CIT Vs. Kwality Steel Suppliers Complex (2017) 157 DTR 1/ 250 Taxman 23 (SC) Where two views are possible and the AO has taken one view, the assessment order cannot be treated as erroneous or prejudicial to the interest of revenue. This is for the reason that while exercising the revisionary jurisdiction, the CIT is not sitting in appeal. In the instant case, the assessee firm was constituted with two partners viz., mother and son. It stood dissolved by the operation of law in view of the death of one of the partners, i.e. the mother but the business did not come to an end as the other partners, viz., son who inherited the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself. The Ld. PCIT cannot blow hot and cold in the same breathe. In this connection, reliance is placed on paragraph 22 of the order of Mumbai Bench of Tribunal in case of Sir Dorabji Tata Trust Vs. DCIT(E) 188 ITD 38 dt. 28.12.2020 (Mum.) (Trib.) where it was observed as under:- 22. Having said that, we may also add that while in a situation in which the necessary inquiries are not conducted or necessary verifications are not done, CIT may indeed have the powers to invoke his powers under s. 263 but that it does not necessarily follow that in all such cases the matters can be remitted back to the assessment stage for such inquiries and verifications. There can be three mutually exclusive situations with regard to exercise of powers under s. 263, r/w Expln. 2(a) thereto, with respect to lack of proper inquiries and verifications. The first situation could be this. Even if necessary inquiries and verifications are not made, the CIT can, based on the material before him, in certain cases straight away come to a conclusion that an addition to income, or disallowance from expenditure or some other adverse inference, is warranted. In such a situation, there will be no point in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any adventure or concern in the nature of trade, commerce or manufacture. To consider the question of business, there must be regular activity of purchasing and selling. In the present case, there is nothing on record to show that the land when acquired was with an intention to sell it by plotting. In various cases it has been held that purchase of land once upon a time and thereafter selling the same in piecemeal after development, the profit arising would be taxed under the head capital gain and cannot be treated as adventure in the nature of trade. Some of these decisions are as under:- CIT Vs. Sohan Khan Mohan Khan [2008] 304 ITR 194 (Raj.) (HC) The held part of the order is as under:- In our view, one of the most significant considerations would be, the regularity of transaction of purchase and sale. Mere fact that there was a series of transactions of sale only, by selling the part of the whole land, purchased in one go, or purchased once upon a time, in piecemeal, would not render the activity of sale to be an adventure in the nature of trade . In the present case, there is nothing to show that the land was purchased with intention to sell it at a profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit from adventure in nature of trade. Janki Ram Bahadur Ram Vs. Commissioner of Income Tax 57 ITR 21 (SC) Section 2(13) read with section 28(i) of the Income-tax Act, 1961 - Adventure in nature of trade - Assessee agreed to purchase a jute press from company subject to litigation pending in High Court - Possession of property except premises in occupation of tenant was obtained and sale deed was executed - Assessee agreed to sell that press to one P - Later, assessee was substituted as plaintiff in suit filed by company against tenant - After obtaining possession of demised premises, assessee executed a sale deed conveying property and delivered possession to P - Whether purchase of property by assessee was an isolated transaction not related to its business - Held, yes - Whether admitting that assessee made a profitable bargain when he purchased property and further that assessee had when he purchased it a desire to sell property, if a favourable offer was forthcoming, could not without other circumstances justify an inference that assessee intended by purchasing property to start a venture in nature of trade - Held, yes - Whether surplus received by assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sale of the property by the assessee was with the view to earn profits through trading transaction. The circumstances relied on by learned counsel for the Revenue only throw suspicion on the assessee's act of purchasing a property which did not immediately yield any income. But there are no materials to further prove that the assessee intended to indulge in a trading activity. Similarly, from the fact that the assessee converted the property into small house sites and after leaving space for roads sold the rest of the plots, the Revenue wanted to draw an inference that the assessee, even at the time of purchase of the property, had this idea of indulging in an adventure in the nature of trade to make maximum profits. Suppose an owner of a property finds that the sale of the entire property in one lot is not beneficial and instead enters into an agreement with a civil engineer and plans to put up flats and after retaining a portion for his own requirement, sells the excess floors to third parties, can it be said that he has plunged into the waters of trade to make huge profits? It may be that for realising the maximum price, he undertakes certain acts which any other owner wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the assessee tried to obtain maximum price for his land. Intendments to plot out and get the lay out approved by the Gram Panchayat are only in that direction. There is, therefore, no hesitation to come to the conclusion that the whole of the transactions would only amount to endeavor to realize the maximum from out of the capital asset which would give rise only to capital gains tax. ACIT Vs. Narendra J. Bhimani (2018) 169 ITD 245 (Rajkot) (Trib.) Assessee purchased agricultural land in 1960. With passage of time and rapid urbanization, said land being in residential area, become non-agricultural land. Assessee contended that since he found it difficult to sell entire land to one single buyer at reasonable price, he had to divide the land in small sellable pieces by way of bifurcation and plotting activity. This was not commercial activity or adventure in nature of trade. Whatever was done by way of activity of dividing lands into small unit sizes was one off activity to facilitate sale of land. Assessee urged to AO to treat gains on sale of plot as capital gains. AO however, rejected submissions of assessee. CIT(A) reversed stand of AO and held that gains on sale of plot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee that the said issue was subject- matter of appeal before the First Appellate Authority was rejected. The Commissioner set aside the assessment order directing the Assessing Officer to withdraw the relied allowed under section 80-I on duty draw back. Thus, the CIT passed order u/s 263 wherein the assessment order was set aside directing the AO that to withdraw the relied allowed under section 80-I on duty draw back on goods manufactured and exported out of India. The appeal of the assessee against this order u/s 263 was dismissed. ii) Saroj Prints Arts ITAT Mumbai 113 taxman.com 264 Relevant year, Assessing officer completed assessment under section 144 wherein he allowed deduction towards interest and remuneration paid to partners- Commissioner opined that when Assessing Officer completed assessment under section 144 he was required to disallow interest and remuneration paid to partners as per section 184(5) - He thus passed a revisional order setting aside assessment Principal Commission observed that when the Assessing Officer has completed the assessment under section 144 of the Act he was required to disallow the interest and remuneration paid to partner as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument is not tenable. iii) ................ It is hence set aside to be made afresh by the Assessing Officer accordingly to law after giving opportunity to the assessee of being heard. Hon'ble Tribunal set aside the order observing that the CIT had not held and come to the conclusion or given a finding that the actual receipt of consideration was more than what was declared in the return (i.e. CIT has not given a concrete finding or conclusion). Hon'ble Delhi High Court observed that the CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is erroneous . The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. The Hon ble Delhi then dismissed the appeal of Revenue. From the above case laws, it is clear that CIT need to give a clear cut finding on the merits of the case before setting aside the assessment to be done afresh. So, the argument of the appellant that once CIT decides and give a clear cut finding then there is nothing left for the AO to do is liable to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the cost of acquisition is required to be assessed under the head capital gain Further, sales realization of the stock-in-trade over such fair market value is required to be assessed as business income. In the instant case, after the death of his father, the assessee had inherited his share of ancestral agriculture land. As already held above such inheritance is in his individual capacity and not in capacity of his HUF. Thereafter, the assessee had taken a series of steps whereby he has developed the agricultural land into 34 smaller plots, developed access road within the plotted land and sold to individual purchasers as residential plots over a period of 3 years. As per assessee's own submissions dated 23-3-2015, the development of plots took about 12 months and completed at the end of financial year 2009 and gravel road developed. There is report of the Inspector on record who has visited the place on 19-3-2015 and has given a finding that about 40-50 residential houses have already been built where people are staying roads have been laid down, a hospital by name of Shyam Hospital is running on one of the plots, a school by name of little star school is also running ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly allowed. 11. We have heard the rival contentions and perused the material available on record and decisions relied upon by both the parties to drive home to their contentions so raised before us. It is not disputed by both the parties that when the land purchased by the assessee it was for his business use and was capital investment. As the assessee purchased the land in 2003-04 and got concerted to it for petrol pump usage is also not disputed by lower authorities. So, at the time of purchase the intension of the assessee was to treat the asset as capital assets. After passage of time the assessee could not start the petrol pump decided to sell the land. As the land purchased for specific purpose and to sell it off assessee converted for selling it in small plots. This specific act will not convert the capital assets into commercial assets. Specifically, when the assessee is holding it so far from FY 2003- 04 to 2016-17, his intention was to treat the assets for capital investment purpose and that is why he hold the land for so much period. Merely, the assessee has made it sellable and divided into plots that activity itself will not change the capital asset into business a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset. Thus, the contentions raised by the revenue is not in accordance with the facts of this case. The other decision relied upon are Nahar Spinning Mills 117 Taxmann.com 40 where in the issue is related to deduction of 80 I on duty draw back allowed by the AO. The Second decision relied upon by the revenue is decision in the case of Saroj Prints Arts ITAT Mumbai benches where in while passing the order u/s. 144 the AO has not considered amount disallowable in that case and where in this case the AO has already applied his mind and called for the details on the issue before him. The third decision relied upon is Kerala State Electricity 111 Taxman.com 353 related to disallowable amount of electric city duty u/s. 40(a)(iib) and the fact are thus different. 13. Be that as it may, in our considered view, as the A.O while framing the assessment had taken a plausible view, and treated the gain as Capital Gain and consequent thereupon allowed the assesseeıs claim for deduction under section 54F of the Act also. Therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 of the Act for dislodging the same. Accordingly, we find no justification on the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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