C I T KOTA vs. SHRI GOPI LAL

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 132 / 2014 Commissioner of Income Tax, Kota ----Appellant Versus Shri Gopi Lal S/o Sh. Ram Chandra, Village Borkhera, Kota. ----Respondent Connected With D.B. Income Tax Appeal No. 139 / 2014 C I T, Kota ----Appellant Versus Shri Ram Sukh S/o Sh. Ram Chandra, Village Borkhera, Kota. ----Respondent _____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain with Ms. Shiva Goyal For Respondent(s) : Mr. Aditya Bohra for Mr. Gunjan Pathak _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 06/02/2018 1. In both these appeals common question of law and facts are involved hence they are decided by this common judgment. 2. By way of these appeals, the appellant has challenged the judgment and order of the tribunal whereby tribunal has allowed the appeal of the assessee. 3. This court while admitting the appeals framed following substantial question of law:-

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3.1 Appeal No.132/2014 & 139/2014 admitted on 14.9.2015:- “Whether the Tribunal was legally justified in setting aside the order passed u/s 263 by the CIT by which the assessing officer was directed to pass a fresh assessment order considering that the transaction were an adventure in the nature of trade and deduction u/s 54F and 54B were not allowable?” 4. The facts of the case are that the Assessing Officer came to know that the assessee alongwith two other co-owners had sold land and received his share of Rs.82.50 lacs in December, 2006. According to him, the ground had converted their ancestral agricultural land into various small plots before selling the same to different persons and therefore the selling activities were clearly an adventure in the nature of trade. The nature and volume of transactions indicated that the assessee was enjoying the taxable income during the previous year relevant to assessment year under consideration but had not filed any return of income. He, therefore, initiated the proceedings u/s 147 of the IT Act, 1961 (hereinafter referred to as the Act) by issue notice u/s 148 of the Act on 29.10.2009. Since the assessee failed to comply with the notice, the AO asked the assessee to explain as to why the assessment proceedings in his case should not be finalized as per the provisions of Section 144 of the Act . The assessee requested to consider the return of income filed by him on 4.3.2010 before

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the ITO Ward 2(1), Kota, in response to the notice issued to him u/s 148 of the Act. 5. We have heard counsel for the appellant. 6. Taking into consideration, the tribunal while considering the matter has observed as under:- “12. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is noticed that the Assessing Officer issued the notice u/s 148 of the Act dated 29/10/2009 only on this basis that the assessee sold the land in various small plots to different persons, so it was an adventure in nature of trade, therefore, the provisions of Section 54B and 54F of the Act were not applicable. Thereafter, the Ld. CIT on the proposal dated 04/03/2011 moved by the DCIT, Circle- Sawai Madhopur issued a show cause notice dated 01/1/2013 and consequently passed the order u/s 263 of the Act on 06/3/2013. 13. In the present case, the Ld. CIT exercised his revisionary powers of the Ld. CIT u/s 263 of the Act. The said powers may be summarized as under:- (i) “The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interests 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 is 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 for the requirement or 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 interest of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible andthe AO has taken one view -with which the CIT does not agree, it cannot be

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treated as an erroneous order, unless the view taken by the AO is unsustainable under the law. (vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the CIT, while exercising his power under s. 263, is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. (viii) The CIT, before exercising his jurisdiction under s. 263, must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allowed the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. 14. In the present case, the Assessing Officer during the course of assessment proceedings, made the enquiries relating to the sale of ancestral agricultural land by the assessee & the co-owners and thoroughly examined this fact as to whether it was adventure in nature of trade for sale of capital asset. The issue regarding the development expenditure was also thoroughly examined by theAssessing Officer, the above said fact is also clear from the reason for reopening the assessment itself, as mentioned at page Nos. 1 and 2 of the assessment order, which read as under:- “The group has converted their ancestral agricultural land into various small plots before selling the same to different persons and therefore the selling activities were clearly an adventure in the nature of trade. The nature and volume of transactions indicated that the assessee was enjoying the taxable income during the previous year relevant to assessment. Year

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2007-08 however, he had not filed any return of income for the A.Y. 2007-08. Therefore, proceedings u/s 147 of the Income Tax Act, 1961 were initiated in his case by issuing notice u/s 148 on 29/10/2009.” 15. In the instant case, after issuing the notice u/s 148 of the Act and during the course of assessment proceedings, the Assessing Officer made the proper enquiries, discussed the submissions of the assessee and examined the circumstances in which the land was old in pieces. He also examined the claim of the assessee for development charges incurred on the land and thereafter computed the income of the assessee. So, it can be said that the Assessing Officer after making proper enquiry and examining the case, framed the assessment u/s 147/143(3) of the Act. 16. On a similar issue, the Hon'ble jurisdictional High Court in the case of CIT Vs. Sohan Khan (2008) 304 ITR 194 (Raj.) held as under:- “that the most significant consideration to conclude whether the transaction gave rise to capital gains or not would be the regularity of transactions of purchase and sale. The mere fact that there was a series of transactions of sale only by selling part of the land, purchased in one go, or purchased once upon a time, piecemeal, would not render the activity of sale “adventure in thenature of trade”. There was nothing to show that the land was purchased with the intention to sell it at a profit, or with requisite intention, to bring it within the parameters of “stock-in-trade”. It was also not shown that the assessee was a regular dealer in real estate. The transaction was to a capital asset only and not a transaction of any “stock-in-trade. Therefore, the sale proceeds were liable to be taxed as capital gains.” In the present case also, the land in question was an ancestral land and was not converted as stock in trade. The assessee after making certain development, sold the land in pieces to fetch maximum price and the Assessing Officer after proper examination and on being satisfied, was of the view that it was not an adventure in trade. He also reduced the claim of the assessee for development expenditure and after taking a possible view worked out the capital gain. The said view was in consonance with the ratio laid down by the Hon'ble Jurisdictional High Court in

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the aforesaid referred to case, therefore, it cannot be said that the assessment order passed by the Assessing Officer was either erroneous or prejudicial to the interest of the revenue. We, therefore, considering the totality of the facts as discussed hereinabove are of the view that the Ld. CIT by invoking the provisions of Section 263 of the Act was not justified in setting aside the assessment order passed by the Assessing Officer. Accordingly, the impugned order is set aside and the assessment order framed by the Assessing Officer is restored. 17. In other appeals i.e. ITA Nos. 422 & 423/JP/2013, the facts are similar even the assessees are co-owner of the land in question and the brothers of Shri Nathu Lal, whose appeal has been adjudicated in ITA No. 421/JP/2013 in the former part of this order, therefore, our findings in the cases of these assessees shall apply mutatis mutandis.” 7. We are in complete agreement with the view taken by the tribunal. No case is made out for interference. 8. In that view of the matter, the issue is answered in favour of the assessee and against the department. 9. The appeals stand dismissed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Brijesh 99-100.