A.R.REAL ESTATE DEVELOPERS P LTD.,CHENNAI vs. DCIT CORPORATE CIRCLE 1(1), CHENNAI

आदेश / O R D E R

PER GEORGE MATHAN, JUDICIAL MEMBER

C. No.218/263/PCIT-1/2018-19 dated 07/03/2019 for the assessment year 2014-15.

It was submitted that the assessee had purchased the said land on 02.08.2007. The assessee had proposed to put a Software Technology Park on the said land. However, as the assessee was unable to source the funds for the same, assessee had sold the undivided interest in the land to various prospective buyers, who had entered into construction agreement with the builder. It was submitted that the assessee had not done any construction on the said property as has been mentioned in para 2.1 of order of the PCIT. It was submitted that the return filed by the assessee originally on 22.11.2014 came to be processed u/s.143(3) of the Act and details had been called for in respect of certain transactions vide notice issued u/s.142(1) of the Act

ITA No.804/Chny/19 :- 3 -: dated 12.04.2016 and further clarifications sought vide letter dated 08.07.2016. It was submitted that the transaction of the sale of undivided interest of land has been specifically examined by the Assessing Officer. The assessee had also filed a reply in the original assessment dated.15.06.2018. It was specifically brought to our attention that since the assessee is not having any business activity, transaction of sale of undivided share (UDS) of land was treated as income under the head capital gains. It is specifically mentioned that wealth tax u/s.2(ea) under Wealth Tax Act had been initiated against the assessee, and the assessee categorically mentioned that the assessee had not carried out any activity to term the business of the assessee as a builder. Ld.AR drew our attention to the page-7 of the paper book, being the copy of Balance Sheet of the assessee, which showed the said land as an investment in Fixed Assets under the head “Tangible Assets”. It was submitted that the assessee having not done any activity of the construction, the income of assessee from the sale of undivided interest in land was liable to be assessed only under the head “income from capital gains”. It was submitted that ld. PCIT did not accept the replies filed by the assessee to show cause notice u/s.263 of the Act, while passing impugned order dated 07.03.2019, ld.PCIT held that the Assessing Officer had accepted the assessee”s claim without making due verification and without making necessary

ITA No.804/Chny/19 :- 4 -: enquiries and that there was no application of mind on the part of the Assessing Officer and consequently directed the Assessing Officer to pass fresh order after examining the aspects again. It was submitted that the order passed u/s.263 of the Act is unsustainable in so far as the assessee has not done any business activity. It was also a submission that the sale of the land held as investment by the assessee was not liable to be treated as giving rise to income under the head “Business income”. It was submitted that this is only an asset held by the assessee. It was submitted that the Assessing Officer had also examined the issue in depth when completing the original assessment u/s.143(3) of the Act, and the direction of the ld.PCIT to re-do the assessment is only on a change of opinion. It was submitted that the Assessing Officer had considered the details filed by the assessee and having reached a finding, the same cannot be disturbed, just because the ld.PCIT is of the opinion that the income of assessee is liable to be assessed under another head.

the income from sale of the undivided interest in the land to the various flat owners is to be assessed as income from business.

The said land has been acquired by the assessee as early as 2007 and the sale of undivided interest in the land has taken place in 2014 onwards. Thus, it is very clear that this property is held by the assessee for more than seven years. It is an admitted fact that the assessee had proposed to start a Software Technology Park, and on it is failure to do so, the assessee had sold the said undivided interest in its land to various flat owners. The business of the assessee is not of purchase and sale of the land. The assessee has in its return claimed the same as giving rise to long term capital gains, which has also been examined by the Assessing Officer in the course of original assessment. The same has also been examined by the Assessing Officer in the course of Wealth Tax Assessment. What is the error in the finding of the Assessing Officer has not been pointed out by the ld.

ITA No.804/Chny/19 :- 6 -:

PCIT in his impugned order passed u/s.263 of the Act. Just because, the Assessing Officer has not assessed the said income from sale consideration of undivided interest in the land under the head “Business” as is of the view of the ld.PCIT, cannot term the assessment order passed by the Assessing Officer to be one done by non-application of mind, or one done without making due verification, or one done without making necessary enquiries. A perusal of the order of ld.PCIT also shows that in para-2, ld.PCIT records that the assessee has shown the land of Rs.74.58 lakhs as taxable income by treating the transaction of the sale of undivided interest in the land as liable for capital gains. As against this, ld.PCIT at para 2.2 has come to the conclusion that if it is treated as income from business, the transaction would show business income of Rs.5,45,39,727/-. Just because by shifting the head of income, the assessee would be hit by tax liability cannot be ground enough for shifting the capital gains disclosed by the assessee to the business head, especially when the property has been shown as an investment by the assessee and the same has also been clearly demarcated and the assessee has also not done any business activity of construction in respect of the said property. In this circumstance, we are of the view that the order of ITA No.804/Chny/19 :- 7 -:

PCIT passed u/s.263 of the Act is unsustainable and consequently, quashed the same.

Order pronounced in the open Court after conclusion of hearing on 18th September, 2019, at Chennai.