M/S EMBASSY BRINDAVAN DEVELOPERS vs. THE COMMISSIONER OF INCOME TAX

Heard Shri. T. Suryanarayana, learned Senior Advocate for the assessee and Shri. M.Dilip, learned Standing Counsel for the Revenue.

Brief facts of the case are, assessee is a Partnership Firm constituted on 24.03.2004 with the objects of development of properties, construction of apartments and Commercial buildings. Assessee purchased 6 acres 24 guntas of land on 23.04.2004. Assessee's case is, due to recession in IT Industry and

On 05.03.2013, the CIT(A), Bangalore IV, passed an order under Section 263 of the Income Tax Act, 1961 ('IT Act' for short), setting-aside the Assessment order and remanded the matter to the Assessing Officer for fresh assessment. Pursuant thereto, the Assessing Officer passed fresh order on 18.04.2013 and completed the assessment by treating the income offered under the head 'Capital gains' as income from business. Assessee challenged the said order as also the order passed under Section 263 of the IT Act before the ITAT in ITAs Nos.596(Bang)/2013 and 42(Bang)/2015. The ITAT

Shri. Suryanarayana, submitted that the Assessing Officer had considered the matter and examined the details filed by the assessee and passed the order demanding capital gains tax. Adverting to Explanation 2(a) of Section 263 of the Act, he contended that jurisdiction under Section 263 could be invoked only in such cases where the order is passed without making inquiries or verification. In support of his contention, he placed reliance on CIT Vs. Gabriel India Ltd.1, CIT and another Vs. M/s. Cyber Park Development and Construction Ltd.2, Taparia Tools Ltd. Vs. JCIT, Nasik3 and Malabar Industrial Co. Ltd. Vs. CIT4.

Opposing the appeal, Shri. M. Dilip for the Revenue also placed reliance on para 10 of Malabar Industrial Co. Ltd., and submitted that assessee's Firm was constituted to develop the land by constructing Apartments and Commercial Complex. For the A.Y. 2006- 07, assessee has claimed expenditure of Rs.2,67,540/- as professional charges. He submitted that assessee has treated the asset as a 'Stock in trade' and not as 'Capital asset'. The order passed by the Assessing Officer was without making proper enquiry or verification and hence, the Commissioner has rightly exercised his power under Section 263 of the IT Act. The ITAT has remanded the matter to the CIT(A) to consider the case on merits. Therefore, the substantial questions of law raised by the assessee do not merit any consideration. With these submissions, he prayed for dismissal of this appeal.

We have carefully considered rival contentions and perused the records.

The Assessing Officer has recorded in para 2 of his order that the assessee had purchased the property in question with an intention to build Tech Park, but due to recession, the building was not constructed and as the firm had no funds, assessee sold the land. To a pointed question to Shri. Dilip with regard to the factual aspect recorded by the Assessing Officer, he did not dispute the same. However, he urged that assessee had treated the land as 'Stock-in-trade', on the premise that assessee had claimed expenditure of Rs.2,67,540/- for the A.Y. 2006-07. According to him this aspect requires verification and enquiry, which was not done by the Assessing Officer.

In Gabriel India Ltd., the Bombay High Court has held as follows: "11. 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

This Court in M/s. Cyber Park Development & Construction Ltd., after considering Malabar Industrial Company Ltd., has held that where two views are possible and the Assessing Officer had taken one view the same cannot be treated as erroneous or prejudicial to the interest of the Revenue.

In Taparia Tools Ltd., the Hon'ble Supreme Court of India has observed that it has been repeatedly held that the entries in the books of account are not determinative or conclusive and the matter has to be

Shri. Dilip has placed reliance on paragraph No.10 in Malabar Industrial Co. Ltd. We may record that in para 7 of the said judgment, the Apex Court has recorded that Section 263 of the IT Act could not be invoked to correct each and every type of mistake or error committed by the Assessing Officer. It is further held that an incorrect assessment of facts or an incorrect application of law will satisfy the requirement of the order being erroneous.

In order to examine, whether invocation of Section 263 of the IT Act is correct or not, we have perused the order passed by the Assessing Officer. In his view, he has recorded that the property in question was purchased to construct a Tech Park and for paucity of funds, it could not be developed and the land was ultimately sold. This factual aspect is not disputed by the

Shri. Suryanarayana has taken us through the second Assessment Order dated 18.04.2013. The Assessing Officer in para 4 of his order has recorded the details of the expenses incurred and they are as follows: Details of expenses Amount TDS deducted and remitted Interest Paid to Brindavan Beverages Pvt. Ltd 1,27,85,500/- Not applicable* Professional charges to Sri.Anup Shah 90,000/- 10,197/- Professional charges to M/s.Ahir Consultancy 11,23,600/- 1,27,304/- Brokerage to Daulat Chhabria 33,70,800/- 3,81,912/- Brokerage to Sadhawani International 28,09,000/- 3,18,260/-

None of the above expenditure are towards development of the land. It is relevant to note that the Firm was constituted in March 2004 and the property was

In the order under Section 263 of the IT Act, the Commissioner has recorded that the Assessing Officer has wrongly treated the land as 'Capital asset'. It is further recorded in para 14 that assessee's transaction was a solitary transaction and no construction of building nor any development activity was made. This factual finding that the transaction was a solitary transaction and no development activity was made, is in consonance with the facts recorded by the Assessing Officer. The only difference is, the Assessing Officer has taken a view that for any purchase or sale of a land, assessee is liable to pay the capital gains tax and the Commissioner has taken a different view. In view of the authority in Malabar Industrial Company Limited, merely because two plausible views are available and the Assessing Officer has taken one view, the jurisdiction under Section 263 of the IT Act cannot be exercised. In view of the above, we are of the considered view that invoking Section 263 of the IT Act in the facts and circumstances of the case was erroneous.

Consequently, the first question as to whether the Tribunal was right in holding that there was no infirmity in the order of revision, requires interference and the said finding needs to be set-aside.

The second question is whether the Tribunal was right in holding that no enquiry was made by the Assessing Officer during the original assessment proceedings. In view of the admitted facts that the land was purchased and sold without any development, no elaborate enquiry was required and the Assessing Officer has noted the facts required for the case and passed the Assessing orders.

In view of our finding on first and second questions, third and fourth questions do not require any answer. Hence, the following: