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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”, HYDERABAD
Before: SHRI RAMA KANTA PANDA & SHRI LALIET KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B”, HYDERABAD BEFORE SHRI RAMA KANTA PANDA, ACCOUNTANT MEMBER & SHRI LALIET KUMAR, JUDICIAL MEMBER
ITA No. 1357/Hyd/2018 (Assessment Year: 2008-09) Sri V. Rajasekhar, Vs. The Income Tax Officer, Hyderabad Ward-14(5), [PAN No. AADPR0797E] Hyderabad Appellant Respondent
Assessee by: Shri P.Murali Mohan Rao, AR Revenue by: Shri Vijay Bhaskar Reddy, CIT-DR
Date of hearing: 22/09/2022 Pronouncement on: 31/10/2022
ORDER PER LALIET KUMAR, JM: Aggrieved by the order dated 27/03/2018 passed by the learned Principal Commissioner of Income Tax-6, Hyderabad (“Ld. PCIT”), in the case of Shri V. Rajasekhar (“the assessee”) for the assessment year 2008-09, assessee preferred this appeal, raising the following grounds of appeal:
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The order u/s 263 of the Income Tax Act, 1961, passed by the Ld. Pr. CIT is bad both in law and on facts. 2. The Ld. Pr.CIT erred in initiating proceeding u/s 263 of the Act by holding that the assessment order passed by the AO u/s 143(3) r.w.s 147 dt. 31.03.2016 is erroneous and prejudicial to the interest of revenue, which makes the order u/s 263 as 'void abinitio' 3. The Ld. Pr.CIT ought to have appreciated the fact that initiation of proceeding u/s 263 by him is only based on change of opinion and on certain apprehensions which makes the proceeding u/s 263 beyond the jurisdiction of the Ld. Pr.CIT. 4. The Ld. Pr.CIT ought to have appreciated the fact that only when the view taken by the AO is unsustainable in law, the order of the AO can be treated as erroneous & prejudicial to the interest of revenue. 5. The Ld. Pr.CIT erred in passing the order u/s 263 of the Act directing the AO to pass assessment order afresh without considering the merits of the case. 6. The Ld. Pro CIT erred in treating. the assessment order as erroneous without appreciating the fact that the AO had completed the assessment after considering and verifying all the relevant facts, explanations and submissions placed before him. 7. The Ld. Pr. CIT ought to have appreciated the fact that the appellant had converted his Land into stock in trade and same was shown as closing stock in the P & L account even before entering into agreement for development of the land. 8. The Ld. Pr. CIT ought to have appreciated the fact that the taxation arises only when stock in trade is sold or transferred and no such transaction has taken place during the FY 2007-08, relevant AY 2008-09. 9. The Ld. Pr. CIT erred in issuing directions to the assessing officer to examine the issue afresh without giving specific finding on the Issue. 10. The Ld. Pr. CIT erred in not affording reasonable opportunity of being heard to the appellant before setting aside the assessment.
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The Ld. Pro CIT erred in not passing the order on the issue on which proceeding u/s 263 were initiated which makes the order passed u/s 263 'void abinitio'. 12. The assessee carves space to add, alter or modify any ground before or at the time of proceedings before the Hon’ble ITAT.”
Brief facts of the case are that the assessee is a film artist did not file his return of income for the A.Y.2008- 09 within the time allowed u/s. 139 of the Act. Action u/s 147 of the Act was initiated and notice u/s 148 of the Act was issued on 26-03-2015 and served on 27-03-2015 by the ITO, Noncorporate Ward 20(5), Chennai. On the request of the assessee, the case was transferred to Hyderabad. Accordingly, the assessee was afforded a fresh opportunity as there was a change of incumbent. Assessee and his mother had entered into a Development agreement cum GPA with Phoenix Infrastructure Private Limited, Hyderabad on 02-08-2007 vide document No.3321/2007 registered with SRO, Banjara Hills for development of their land admeasuring 4375 sq yds. situated at Plot Nos. 573B and 573C, Road No.82, Jubilee Hills, Hyderabad. The market value of the land given for development was fixed by the SRO at Rs.15,31,25,000/- @ Rs.35,000/ - per sq. yd. 2.1 The assessee was the owner of Plot No.573-B admeasuring 2153 sq yards and this land was received by way of gift from his brother Sri V. Gunasekhar on 23-04-
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2007 vide document no.2519/2007 registered with the SRO, Banjara Hills. The said land was acquired by Shri V.Gunasekhar on 18-03-2005 vide Doc. No. 1038/2005 for a consideration of Rs.2,71,500/-. Since the developer was given possession of the land along with all rights to handle the construction of the proposed building, the property was deemed to have been transferred within the meaning of section 2(47)(v) of the Act and "income from capital gains was assessable for the Assessment Year 2008-09. Notice u/s. 148 of the Act was issued in the background of these facts. 2.2 The assessee filed a letter on 09-03-2016 stating that with an intention to do business, the land in question was converted into stock in trade on 02-05-2007 and as he did not have the required funds and expertise, the property was put to development. Since the capital asset was converted into stock in trade, the capital gains arising from the transaction would be chargeable to tax only when the stock in trade was sold or otherwise transferred. He had received his share of the constructed area in 2014. As on date, the constructed area was not sold but was leased out vide Lease Deed dated 29-09-2014. In support of his contentions, the assessee quoted the decisions of ITAT, Chennai Bench in the case of R. Gopinath (HUF) Vs ACIT and of ITAT, Hyderabad Bench in the case of ACIT Vs T Ashok Kumar.
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2.3 Notice u/s 142(1) of the Act was issued on 14-03- 2016 along with a letter calling for further details. On 28-03- 2016, the assessee filed a letter with a request to be communicated the reasons for re-opening the assessment and also stated that he had filed a return in response to the notice issued u/s 148 of the Act. The return was filed on 27- 03-2016 declaring Nil income. In the P&L a/c enclosed to the return, the value of purchases (conversion) and closing stock was shown at Rs.7,61,08,450/-. 2.4. The assessee also appended a footnote to the P&L a/c stating that he and his mother had decided to construct a multi-storeyed commercial complex and due to their lack of experience they had entered into the development agreement with an experienced builder and that as and when the stock in trade was converted and sold, he would be admitting capital gains u/s 45(2) of the Act. 2.5. The reasons for re-opening the assessment were communicated to the assessee on 29-03-2016. On 30-03- 2016, the assessee filed objections against the re-opening of the assessment. It was reiterated that the land was converted into stock in trade on 02-05-2007 and that he would offer the capital gains u/s 45(2) of the Act as and when such stock in trade was sold. Notice u/s 143(2) of the Act was issued on 28-03-2016 posting the case on 30-03-2016. After considering the information furnished by the learned AR,
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assessment was completed accepting the Nil income returned. 3. The ld.AR for the assessee submitted that the order passed by the PCIT u/s. 263 of the Act dated 27-03-2018 is not sustainable on account of the fact that the case of the assessee was re-opened by the Assessing Officer on the same issue which was subject matter of the proceedings u/s. 263 of the Act. 3.1. The ld.AR had submitted that the Assessing Officer had issued the show cause notice u/s. 148 of the Act calling upon the assessee to furnish the following information:
“2.1 A letter was filed by you before the undersigned on 09.03.2016 stating that the land of 2153 sq yds. received from your brother through gift on 23.04.2007 was converted into stock in trade on 02.05.2007. The claim of conversion of the land into stock in trade is not acceptable for the following reasons: i) The claim of conversion into stock in trade is not supported by any corroborative evidence. ii) The decision in the case of T Ashok Kumar relied upon by you is distinguishable on facts as in that case, the assessee was carrying on real estate business of buying and holding and developing of land into open residential layouts etc. either on his own or through somebody: iii) As per the development agreement dated 02.08.2007, 45% of the built up area falling to the share of the developer included undivided share in land. Vide registered development agreement cum general power of attorney dated 02.08.2007, all rights over the 45% of the land were given to the developer and the builder accordingly received the land.
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iv) In the statement given by you on 28.01.2015 before the Deputy Director of Income tax (Inv), Hyderabad, there was no mention of conversion of the land into stock in trade or carrying on any real estate 'business. Therefore, the claim of conversion is only an afterthought.
2.2 For reasons stated above, your claim of conversion of the land into stock in trade is not acceptable. It is therefore proposed to consider the land as a capital asset and assess the income arising out of the' transfer by way of development agreement as income from capital gains.
2.3 As per the development agreement cum General Power of Attorney dated 02.08.2007, the developer was given a General Power of Attorney, with inter alia, the rights over 45% of the land falling to his share for raising loans and subsequent transfers. Therefore, there was a transfer within the meaning of section 2(47)(v) of the Act on the date of the development agreement and income from capital gains is taxable for the A.Y.2008-09. Since the land was held for a period not exceeding 36 months, the income is taxable as short term capital gains. For working out the capital gains, the market value of the land fixed by the stamp duty authorities for the purpose of the. development agreement will be adopted as the full value of consideration”.
3.2. He had also drawn our attention to the show cause notice issued by the PCIT, wherein in paragraph 3, 3.1, 3.2 and 4 it was mentioned as under:
“3.0 On perusal of the assessment record, it: is observed that the assessee and her" mother had entered into a development agreement cum GPA with Phonenix Infrastructure Pvt Ltd on 02.08.2007 vide document No.3321/2007 registered with SRO, Banjara Hills for development of their land admeasuring 4375 Sq.Yds situated at Plot No.573B & 573C, Road No.S2, Jubilee Hills, Hvderabad. The market value of the land given for development
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was fixed by SRO at Rs.15,31,25,000/- at a rate of Rs.35,000/- per Sq.Yd. As per this development agreement Cum GPA, the builder Phoenix Infrastructure Pvt Ltd will develop this property into a commercial building at its own cost and handover 55% of the constructed area to the land owners. Out of the total land of 4375 Sq.Yds, the assessee Sri V.Rajasekhar owns 2.153 Sq.Yds, which was received by him by way of gift from his brother Sri V.Gunasekhar on 23.04.2017 vide document No.2519/2007. This land was acquired by Sri V.Gunasekhar on 18.03.2005 vide document No.1038/2005 for a consideration of Rs.2,71,500/-. 3.1. Since the developer was given possession of the land along with all rights to the handle the construction of the proposed building r the land was deemed to have been transferred within the meaning of section 2(47)(v) of the Income Tax Act, 1961. As the assessee did not file his return of income, a notice under section 148 dated 26.03.2015 issued. In response to this notice, the assessee filed return of income on 27.03.2016 admitting NIL income and the assessment was completed accepting the income returned. 3.2 During the assessment proceedings the assessee submitted that the land belonging to him was converted into stock in trade on 02.05.2007 at a value of Rs.7,61,08,450/- and the same was shown as closing stock as on 31.03.2008 in the P&L account. Since the capital asset was converted into stock in trade, the capital gains arising. from this transaction would be chargeable to tax only when the stock in trade was sold or otherwise transferred. The assessee claimed that he has received. his share of constructed area in the year 2014 and as on the date of assessment, the constructed area was not sold but leased out Based on this submission of the assessee, the AO did not bring any capital gains to tax for the year under consideration. 4.0 The assessee is a film actor by profession and was never in to any other business activity like construction. The assessee himself, in his reply dated 09.03.2016 has submitted at Para. 6 that" As I was not having sufficient funds and expertise, the same land along with the land belonging to my mother was thrown in "Joint Development" for developing the housing and commercial project with 55:45 sharing ratio. So the assessee has neither expertise nor resources to carryon the construction on the land acquired by him. Then what prompted the assessee to convert the land into stock in
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to trade, more so when he is not into construction business. This is nothing but a ploy to evade the payment of capital gains tax. The assessee has no evidence to prove that the land was converted into stock in trade except a self serving profit and loss account filed after issue of notice under section. The entire transaction is very strange that the property was acquired through a gift deed on 23.04.2007 and the land was converted into stock in trade on 02.05.2007. A statement of the assessee was recorded under section 131 of the Income Tax Act, 1961 by the Dy.Director of Income Tax(Inv),Unit- 1(1),Hyderabad on 28.01.2015. In this statement, when the assessee was asked why capital gains was not offered on the above transaction, it was replied to question No.8 as under: "No, we have not declared any capital gains on the transfer of the land vide the development agreement as we were not aware of the tax liability." If the assessee's contention of conversion of capital asset into stock in trade is true, he would have replied the same to the DDIT(Inv). As it is an after thought, the assessee could answer what was real. The Assessing Officer issued notice under section 148 to unravel the reasons why the assessee has not offered capital gains arising on this transaction. But the assessee officer with out verifying the veracity of conversion of capital asset into stock in trade completed the assessment”.
On the basis of the comparison of the two show cause notices it was submitted that it is not open for the PCIT to exercise jurisdiction in respect of the same subject matter if it has been properly examined by the Assessing Officer. He had drawn our attention to para 30 and 31 of the order passed by the Tribunal in the case of Supersonic Technologies P. Ltd., ITA No. 2269/Del/2017 (pg. 286 to 288 of the case law paper book).
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4.1. Further, it was submitted by the ld.AR that in the present case adequate enquiries were made by the Assessing Officer during the proceedings u/s. 148 of the Act and, therefore, the Ld.PCIT cannot invoke the explanation-II to section 263 of the Act for the purposes treating the order passed by the Assessing Officer is erroneous. He has drawn our attention to ITA No. 4341/Del/2019 Brahma Centres (Pg. 163 para 13, 14 and 16). He had also drawn our attention to the decision in the case of Smt. Surinder Kaur Brar Vs. ITO in ITA Nos. 204 & 205/Asr/2017 wherein the Tribunal in the para 6.7 to 6.10 had held as under:
“6.7 We are supported by the decision rendered by Delhi Tribunal in the case of Brahma Centre Development Private Limited, ITA nos. 4341 & 4342/Delhi/2019 dated 18.12.2019 wherein the Tribunal in paragraphs 12, 13 & 14 has held as under:- “12. In view of the above, we find it difficult to agree with the ld. DR that there was no enquiry conducted by the Ld. Assessing Officer by putting any specific question to the assessee as to the treatment given to the interest. As a matter of fact, the reason for the difference in the amount as per Form 26AS and ITR was due to the interest received from the banks that was duly accounted and considered in the financial statements of the company and was adjusted against the project expenditure. The very fact that pursuant to the scrutiny when the Ld. Assessing Officer proposed charging the interest amount received to tax, the very same explanation was offered by the assessee and was accepted by the Assessing Officer. We are, therefore, of the considered opinion that it is not a case of no enquiry and as a matter of fact, it was specifically brought to the notice of the Ld.Assessing Officer that the interest earned was adjusted against the project expenditure. 13. Further, it is an admitted fact that in this case, the business of the assessee was commenced in this case, unlike the facts in the case of M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd.(supra).
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The Mumbai Bench of Tribunal while noticing the decision of jurisdictional High Court in the case of CIT vs. Sunbeam Auto Ltd, 332 ITR 167 and the case of Nagesh knitwear Pvt. Ltd., 355 ITR 135 observed that the Explanation2 to section 263 inserted by Finance Act, 2015 w.e.f. 01.04.2015 would not impact the assessment earlier to 2014-15 and such a decision was followed by the Delhi Bench of Tribunal in the case of Arun Kumar Garg (HUF) vs. PCIT in ITA No. 3391/Del/2018 for the assessment year 2014-15 and by order dated 08.01.2019 held that Explanation 2 to section 263 of the Act is only prospective in nature. 14. In the case on hand, the ld. PCIT while reading the provisions of section 263 of the Act and the decision of Hon'ble Apex Court in the case of M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd.(supra) reached a conclusion that inasmuch as there was no specific inquiry by the Assessing Officer, the assessment order was erroneous in so far as it is prejudicial to the interest of Revenue. He does not conduct any independent11 enquiry to reach the conclusion that the assessment order was erroneous in so far as it is prejudicial to the interest of Revenue. If we accept the submission of the ld. DR that since all the material was available on record, there was no need for the PCIT to conduct any further inquiry, it also inures to the benefit of the assessee because all these things are available on record and the assessee specifically submitted that the difference in the ITR and 26AS occurred because of the adjustment of the interest received against the project expenditure. Admittedly, this is the only project conducted by the assessee and there is no other project. In such an event, it is not the passive submission to be recorded to the AO, but also actively pleading before him that the interest received was adjusted against the project expenditure.” 6.8 From the perusal of paragraph 13 supra it is clear that the Tribunal has held that the explanation 2 section 263 the assessing officer is only prospective in nature. 6.9 The said decision of the Tribunal was assailed by the Revenue in ITA No.116 of 2021 and ITA No.118 of 2021 before Delhi High Court and the Hon'ble Delhi High Court had confirmed the order passed by the Tribunal. We are reproducing hereinbelow of the findings of the Delhi High Court in paragraphs 10 & 11 which are to be following effect. Issue no. (ii): 10. The standard to be adopted while dealing with the issue as to whether or not an AO has carried
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out an enquiry or verification, all that the Court is required to ascertain is as to whether the AO applied his mind. 10.1. The fact that the AO has not given reasons in the assessment order is not indicative, always, of whether or not he has applied his mind. Therefore, scrutiny of the record, is necessary and while scrutinising the record the Court has to keep in mind the difference between lack of enquiry and perceived inadequacy in enquiry. Inadequacy in conduct of enquiry cannot be the reason based on which powers under Section 263 of the Act can be invoked to interdict an assessment order. The observations made in this behalf, by the Division Bench of this Court, in Commissioner of Income-tax vs. Sunbeam Auto Ltd., [2010] 189 Taxman 436 (Delhi)/[2011] 332 ITR 167 (Delhi) being apposite, are extracted hereafter. "12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:06.07.2021 10:30:10 Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently 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. In Gabriel India Ltd.'s case (supra), law on this aspect was discussed in the following manner : ". . . From a reading of sub-section (1) of
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section, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examina- tion of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is 'erroneous insofar as it is prejudicial to the interests of the revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the revenue must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. [See : Parashuram Pottery Works Co. Ltd. v. ITO[1977] 106 ITR 1 (SC) at page 10]. ****** From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income- tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:06.07.2021 10:30:10 either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer
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concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. . . . There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. ****** We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income- tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation on that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Incometax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard . . ." (pp. 113-117) xxx xxxxxx 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of 'lack of inquiry'." 10.2. This view was followed by another Division Bench of this Court in Commissioner of Income-tax vs. Anil Kumar Sharma, (2010) 194 taxman 504 (Delhi). Issue no. (iii): 11. The assessment order can be interdicted under Section 263 of the Act, if two conditions are met, i.e., that the order is erroneous and is prejudicial to the interests of the revenue. [See Malabar Industrial Co. Ltd. vs. Commissioner of Income-tax, [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC) and CIT vs. Max India Ltd., (2007) 295 ITR 282 (SC)] Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:06.07.2021 10:30:10 11.1. Therefore, the error should be one that is not debatable or a plausible view. Section 263 of the Act invests a power of revision in a superior officer and therefore, by the very nature of the power,
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does not allow for supplanting or substituting the view of the AO. The appreciation of material placed before the AO is, exclusively within his domain which cannot be interdicted by a superior officer while exercising powers under Section 263 of the Act only on the ground that if he had appraised the said material, he would have come to a different conclusion. [See Parashuram Pottery Works Co. Ltd. v. ITO, [1977] 106 ITR 1 (SC)]” 6.10 Respectfully following the decision of Delhi High Court in the matter of Brahma Centre Development Private Limited, ITA No.116 of 2021 be quash order passed under Section 263 in the case of the Assessee”.
4.2. In the light of the above said submissions, it was submitted that the order passed by the Assessing Officer was correct and the order passed by the PCIT u/s. 263 of the Act is required to be set aside.
Per contra, Ld.DR for the Revenue had submitted that the assessee had filed the ITR-2 (Income Tax return format meant for assessee without any business income) and no evidence was filed by the assessee before the Assessing Officer, demonstrating the conversion of the capital asset into stock in trade during the assessment year under consideration. It was further emphasized by the LDR that the order passed by the Assessing Officer was an order passed in hurry and for that he submitted the following chronology of events discernible from the assessment order.
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Date 14-03-2016 A notice u/s. 142(1) was issued to the assessee along with the letter 27-03-2016 The assessed filed the return of income declaring nil income 28-03-2016 The assessee requested for reasons to re-open the assessment and filed the return of income 28-03-2016 Notice u/s. 143(2) was issued for fixing the date on 30-03-2016 29-03-2016 The reasons for re-opening were communicated to the assessee 30-03-2016 The assessee filed the objections against the re- opening. It was asserted by the assessee that the land was converted into stock in trade on 02-05- 2007. 31-03-2016 Assessment order was passed by the Assessing Officer u/s.143(3) r.w.s. 147 of the Act.
It was submitted by the ld.DR that there was no material available with the Assessing Officer to conclude the alleged date of conversion of capital asset into stock in trade on 02- 05-2007. No material was either provided by the assessee or examined by the Assessing Officer during the course of assessment. It was submitted that as the Assessing Officer has failed to exercise the jurisdiction and examine the record and had allowed the claim of the assessee in violation of the provision of law, therefore, the action on the part of the PCIT was in accordance with law. It was submitted that the Assessing Officer was having no time to verify the factual matrix as submitted by the assessee in re-opening. Therefore, the action by the PCIT was correct. Ld.DR had
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also drawn our attention to the written submissions filed by the Revenue which is to the following effect:
“1. The appeal against the decision of Pr CIT-6, Hyderabad passed u/s 263. In this case, the assessee did not file return of income. Based on information in possession of the Department that the assessee transferred land through a Joint Development Agreement, the assessment was reopened with due approval of the Range Head at Chennai. Later on, the assessee requested for transfer of the case to Hyderabad and the case was duly transferred u/s 127 to Hyderabad. 2. During the assessment proceedings, the assessee argued that he converted the land into stock in trade and hence not liable to pay capital gains tax. However, it may kindly be noted that even in the year in which he got constructed property from the developer also, he did not disclose any capital gains. The AO adopted a wrong view when two views were not possible and did not bring the capital gains to tax. In fact, the AO formed a correct view which is evident from her show cause notice dated 14/03/2016 served on the assessee on 15/03/2016. In the said notice u/s'142(1), the AO clearly stated that the claim of conversion of land into stock in trade is not supported by any corroborative evidence. She also distinguished the case laws cited by the assessee. However, in the assessment order dated 31/03/2016, she took a complete U turn without any basis despite the fact that no evidence in support of the claims of the assessee were filed before her. 3. She also completely ignored the statement of the assessee before DDIT(lnv), Unit 1(1), Hyderabad recorded on 28/01/2015, wherein the assessee did not make even a whisper about conversion of land into stock in trade. In response to Question no: 4 regarding sources of his income, he stated that his only source of income is as cine artiste and rental income from M/s 0 E Shaw & Co from December, 2014. In the answer to Question no: 7, he also clearly stated that the property was given on development to M/s Phoenix Infrastructure Pvt Ltd. In response to Question no: 8, he admitted that he did not disclose any capital gains because he was not aware of the tax liability. More important, with regard to Question no: 11, he agreed to cooperate with the Department to discharge the tax liability on the development agreement. Therefore, it is clearly evident that the claim of conversion into
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stock in trade is only an after thought. The AO also completely missed out the fact that the assessee was never into real estate business. 4. It is also worthwhile to submit here that the assessee filed his return in Form ITR-2, which is meant for assesses without any business income. Even in the Balance Sheet and P&L account filed before the AO, the assessee clearly admitted that he had lack of expertise in construction of flats. It is also submitted that neither the balance sheet nor the P&L account indicate any activity of real estate nor they are part of the return of income. This clearly indicates that the assessee was only making a claim with a clear intention to evade tax even after transfer of land through JDA. 5. The Pr CIT examined the record and noticed that the assessee was never into any business of construction or real estate and the claim was not supported by any evidence, The Pr CIT therefore issue a notice for revision u/s 263. Even before the Pr CIT, the assessee did not file any verifiable evidence to substantiate his claim. The Pr CIT recorded a finding that between 23/04/2007 (the date of acquiring the land as gift from brother) to 02/08/2007 (date on which the property is transferred through the JDA), it is not known on which date the property was converted into stock in trade. She also stated that the AO did not record the date of such conversion. The Pr CIT also took notice of the statement u/s 131 before the DDIT(lnv), wherein the assessee never made such a claim, The Pr CIT recorded a clear finding that the claim is nothing but an afterthought. As the AO did not verify the claim, the Pr CIT set aside the assessment u/s 263. 6. It is humbly submitted thatin the present case, as already submitted above, the AO in her notice dated 14/03/2016 expressed her mind but acted quite opposite in the order dated 31/03/2016. While doing so, the AO took a view which is contrary to the facts on record as explained her in notice dated 14/03/2016 even when no verifiable evidence was before her between 14/03/2016 to 31/03/2016. Therefore, the view taken by the AO was wrong and two views were not possible in the present case if the facts are considered, Therefore, the order of the AO was erroneous and prejudicial to the interests of Revenue. The Pr CIT assumed valid jurisdiction and the revision is also a valid revision.
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On the point that the claim of the assessee that he was into business of real estate and converted the land into stock in trade is baseless, reliance is placed on the decision of Hon'ble Supreme Court in the case of G. Venkataswami Naidu (35 ITR 594). In the said decision, Hon'ble Supreme Court laid down certain criteria to ascertain whether a transaction is in the character of trade/business or not. The Hon'ble Apex Court held that "If, a person invests money in land intending to hold it, enjoys its income for some time, and then sells it ata profit, it would from an adventure in the nature of trade. Cases of realisation of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are treated as relevant, namely, whether the purchase~ was a trader and whether the purchase of the commodity and its resale was allied to his usual trade or business or incidental to it; the nature of the commodity purchased and resold and its quantity; whether the purchaser by any act subsequent to the purchase improved the quality of the commodity purchased and thereby made it more readily resaleable; the incidents associated with the purchase and resale; whether such incidents were similar to the operations usually associated with trade or business; whether the transactions of purchase and sale were repeated; in regard to the purchase of the commodity and its subsequent possession by the purchaser, does the element of pride of possession come into the picture; and whether the purchase made was with the intention to resell it at a profit but distinction will have to be made between initial to resell at a profit which is present but not dominant or sale". It is humbly submitted that none of the elements which are in the character of trade in the present transaction. The fact that the assessee filed return in ITR-2 itself indicates that there was no business of real estate let alone conversion of land into stock in trade. Reliance in this regard is placed on the decision of the Jurisdictional High Court in the case of Devineni Avinash ([2018] 100 taxmann.com 75), wherein amongst other points, the fact that filing of re urn in form ITR - 2 was also considered to treat an asset as capital asset. 9. Reliance is also placed on the decision of Hon'ble ITAT, Kolkata Bench in the case of Vikas Solvextracts Pvt Ltd [2018]192 TIJ 591 (Kolkata - Trib.) wherein it was held that unless there is a positive
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act to indicate conversion into stock-in-trade, section 45(2) would not apply. 10. It is also humbly submitted that the appeal is not maintainable on prima facie ground itself because the respondent cannot be ITO, Ward - 14(5) in a case where the assessee is challenging the decision of Pr CIT-6, Hyderabad. It is also submitted that the assessee filed a paper book containing various documents claiming that they were filed before the AO. Out of the said documents, documents at SI no: 5 to 8 are apparently not filed before the AO and in fact some of these documents were gathered by the Investigation wing and confronted to the assessee. The assessee may kindly be directed to produce proof to the fact that the said documents were filed before the AO by the assessee.”
We have heard the rival contentions and perused the record. In this case, the ld.PCIT had issued the show cause notice to the assessee on the premise that the Assessing Officer had failed to apply his mind on the material available on record and the Assessing Officer has wrongly concluded that the land was converted into stock-in-trade on 02.05.2007. In the opinion of the ld.PCIT, the land was transferred within the meaning of section 2(47)(v) of the Act and therefore, the profit and loss of the assessee was required to be computed on the basis of the transfer of a capital asset. In fact, both the authorities namely, the Assessing Officer at the time of the re-opening of the assessment proceedings had issued the show cause notice whereby the transfer of land / conversion of land was examined by him and similarly, the same land transaction was also examined by the ld.PCIT for the purpose of
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concluding that the land in question was transferred at the time of entering into development agreement and therefore, was subjected to computation of capital gain as per law. In our opinion, the Assessing Officer had formed a view whereby the Assessing Officer has considered the transfer of land as a capital asset and is subjected to profit and gain on the transfer of the capital asset in accordance with the principles for computing the business income of the assessee. However, undoubtedly, the other view of the ld.PCIT whereby he was of the opinion that the land stood transferred within the meaning of section 2(47)(v) of the Income Tax Act on the date of handing over the possession of the land. However, the view of the ld.PCIT is subject to the law laid down by Hon’ble Supreme Court in the case of Balbirsingh Mani whereby the Hon’ble Supreme Court had held that the date of transfer would be the date of registration of the agreement transferring the possession / title of the property. Nonetheless, both the views are possible in the present set of facts and therefore, the view of the Assessing Officer cannot be said to be erroneous merely on the ground that he had agreed to the contention of conversion of capital asset into stock-in-trade as on 02.05.2007. The AO has rightly taken one view by duly considering the fact that the impugned Land was nothing but a stock in trade and can be evidenced from the financial statements of the assessee. Thus, once the view has been taken by the AO after thorough examination
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any other view taken by the ld.PCIT would form change of Opinion and is not possible U/s 263 of the Act. In our view, the Pr. CIT cannot thrust upon his own thoughts, perceptions, and conclusions on the A.O. (or) direct him to pass on order in such a manner and in such a fashion as he thinks fit by setting aside the already completed assessment. It is pertinent to note here that the crux of the issue involved is that the AO has framed assessment U/s 147 and not under section 143(3), as it is purely re-opened for a specific reason and was concluded by accepting the submissions of assessee after duly verifying the records and the material available on record and on complete satisfaction of the Assessing Officer. 7. In support of the above, reliance is placed on the decision of the of Supreme Court in the case of MALABAR INDUSTRIAL CO. LTD. v. COMMISSIONER OF INCOME TAX (2000-(243)-ITR -0083 —SC) wherein it was held as under : "...Where two views are possible and the I.T.0 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 170 is unsustainable in law.."
As mentioned herein above, AO during the assessment 8. proceedings had called for information which was submitted from time to time by the assessee, later the assessment was completed under the provisions of section 147 of the Act vide order dated 31.03.2016. It was submitted by ld.DR that
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present case is a case of no enquiry conducted by the AO while completing the assessment, as clear from the list of dates and events mentioned herein above. We have gone through the paper book-II wherein detailed questionnaire given to assessee is placed and response to the same submitted by assessee. From the perusal of these questions and reply, it is clear that the Assessing Officer had applied his mind and asked the relevant question from the assessee and thereafter had completed the assessment. While, deciding the issue, the Assessing Officer had noticed the decision of the ITAT Chennai Bench in the case of R. Gopinath (HUF) Vs. ACIT and also the decision of the co- ordinate Bench in the case of ACIT Vs. T. Ashok Kumar. Thus, the decision of the Assessing Officer was based on one of the possible views, which is supported by the two decisions of the Tribunal. 9. In fact the reliance of the ld.DR on the dates and events reproduced hereinabove is of no help to the Revenue as it cannot be concluded that the Assessing Officer has not applied his mind on the material aspects noticed by him. In the assessment order, he had discussed the reasons for granting the relief to the assessee. By no stretch of imagination, it can be said that the order passed by the Assessing Officer was inchoate on account of lack of sufficient enquiry. Though, the ld.PCIT has not relied upon Explanation II to section 263, however, in our view, the said
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explanation will only come into play from the date of incorporation of the said provision in the statute book. For the above said purposes, he rely on the decision of ITAT Delhi Bench, in the case of Brahma Center Development Pvt Ltd Vs. PCIT, ITA No. 4341 & 4342/Del/2019, (Para 13). Further, the decision of the Hon'ble ITAT in Brahma Center Development Pvt Ltd Vs. PCIT (supra) was upheld by the Hon'ble High Court of the Delhi in ITA No.116 of 2021. 10. In view of the above the assessment order passed under the proviso of section 143(3) r.w.s 147 of the Act, cannot be said as erroneous. For the purpose of satisfying the requirement of invocation of power u/s 263 of the Act, it is necessary to satisfy the twin condition mentioned in section 263 of the Act. Moreover, while issuing the show cause notice, the PCIT sought to tax the assessee for alleged capital gain on the basis of the statement recorded u/s 131 of the Act on 28.01.2015. The said statement and the question put to the assessee (question no.4 and its answer) was duly considered by the Assessing Officer and thereafter, the order was passed. 11. In the present case, the Revenue fails to satisfy the first condition i.e., the order passed by the Assessing Officer was erroneous. We may fruitfully rely upon the decision in the case of Olive Hospital private limited Vs. PCIT ITA No.770/Hyd/2017, (Para 7), decided by the Hon'ble ITAT Hyderabad Bench, wherein it was held as under:
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"7. The Hon'ble Madras High Court in the case of CT vs. G.R. Tangamaligai (2003) 259 ITR 129 has held that in the absence of any finding that there is loss of revenue, interference u/s 263 is not justified. Similar view was taken by the coordinate Bench of the Tribunal at Chandigarh in the case of Punjab Wool Syndicate vs. ITO (2012) 317 ITR (7) 439 (Chandigarh). Further, the Hon'ble Delhi High Court in the case of CIT vs. Ashish Rajpal (2010) 320 ITR 674 (Delhi) and also in the case of CIT vs. Vikas Polymers (2012) 341 ITR 0537 (Del.) has held that where the Assessing Officer during the scrutiny assessment proceedings has raised a query which was answered by the assessee to the satisfaction of the Assessing Officer but the same was not reflected in the assessment order, the conclusion cannot be drawn by the Commissioner that no proper enquiry with respect to the issue was made by the Assessing Officer which enabled him to assume jurisdiction u/s 263 of the Act.
In the light of the above, we are of the opinion that the order passed by the Assessing Officer is in accordance with law and therefore, the ld.PCIT was not correct in invoking jurisdiction u/s 263 of the Income Tax Act, 1961. Accordingly, the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 31st October, 2022.
Sd/- Sd/- (RAMA KANTA PANDA) (LALIET KUMAR) Accountant Member Judicial Member Hyderabad, Dt. 31.10.2022. * TYNM, SPS
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Copy to : 1. Shri V. Rajasekhar, C/o. P. Murali & Co., Chartered Accountants, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad – 82. 2. ITO, Ward 14(5), Hyderabad. 3. Pr. C I T - 6, Hyderabad. 4. DR, ITAT, Hyderabad. 5. Guard File.
By Order
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