SH. SURENDER MEENA,36, PRATAP NAGAR, SHASTRI NAGAR, JAIPUR vs. PCIT-1, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,’A’ JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM deys’k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 162/JP/2022 fu/kZkj.k o"kZ@Assessment Year :2017-18 cuke Shri Surender Meena PCIT, Vs. 36, Pratap Nagar, Shastri Nagar, Jaipur-1 Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ACFPM 8554Q vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. P. C. Parwal (CA) jktLo dh vksj ls@ Revenue by : Sh. Avdhesh Kumar (CIT) lquokbZ dh rkjh[k@ Date of Hearing : 15/06/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 21/07/2022 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, A.M. This appeal is filed by the assessee aggrieved from the order of the Pr. Commissioner of Income Tax, Jaipur-1 [ Here in after referred as ld. Pr.CIT ] for the assessment year 2017-18 dated 25.03.2022 which in turn arises from the order passed by the assessing officer passed under section 143(3) of the Income tax Act, 1961 (in short 'the Act') dated 17.12.2019.

ITA No. 162/JP/2022 2 Sh. Surender Meena vs. PCIT “1. Under the facts and circumstances of the case, order passed by the Ld. PCIT u/s 263 is illegal & bad in law and the same be quashed. 2. The Ld. PCIT has erred on facts and in law in holding that capital gain declared by the assessee on sale of plot after indexation and deduction u/s 54F is an activity in the nature of trade assessable under the head business income and therefore, AO was required to disallow the indexation and claim of deduction u/s 54F and at the same time setting aside the assessment order to be made afresh holding the same to be erroneous in so far as prejudicial to the interest of the revenue ignoring that the AO in course of assessment proceedings has examined this issue and thereafter accepted the claim of assessee.”

ITA No. 162/JP/2022 3 Sh. Surender Meena vs. PCIT 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 Rs.77,25,000/-. In support of the same 9 sale deeds and 1 purchase deed was filed. The AO after considering the reply of assessee and examining the documents applied his mind and thereafter, accepted the claim of assessee. So, the issue has been examined and the ld. AO has taken a plausible view based on the set of evidence placed on record. Thus, the assessment was completed based on the set of evidence placed on record.

ITA No. 162/JP/2022 4 Sh. Surender Meena vs. PCIT of plots of Rs. 64,87,981/- was to be assessed as income from business & profession. Thus, assessment order passed u/s 143(3) dt. 17.12.2019 is erroneous in so far as prejudicial to the interest of the revenue. Accordingly, assessee was required to show cause as to why the order passed u/s 143(3) made not be revised u/s 263 of IT Act in a suitable manner. Against this notice assessee filed detailed reply vide letter dt. 15.03.2022.

“9. In view of the discussion in the above paras, the exploitation of the land purchased for commercial gain is very much evident as the land was divided into smaller plots and almost simultaneously sold 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

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required to disallow the indexation and deduction claim u/s. 54F also, which the AO failed to do.

“1. From the facts stated above it can be noted that AO vide notice u/s 142(1) dt. 30.11.2019 (PB 17) specifically required the assessee to furnish complete details of property sold during the year under consideration along with the copy of sale deed and furnish the

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evidence in support of deduction claimed u/s 54F. In response to same assessee submitted that 9 plots was sold for Rs.59,27,500/-, DLC value of which is Rs.66,82,981/- and for claiming exemption u/s 54F, a flat has been purchased for Rs.77,25,000/- (PB 19-22). In support of the same 9 sale deeds and 1 purchase deed was also filed (PB 23). The AO after considering the reply of assessee and examining the documents accepted the claim of assessee. Thus, when the AO has made necessary inquiry/ verification which he should have made and has applied his mind, his order cannot be said to be erroneous so far as it is prejudicial to the interest of revenue only for the reason that the Ld. PCIT holds a different view. For this purpose, reliance 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".

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virtually any order can be subjected to revision proceedings; all that will be necessary is the recording of the CIT's view that "the order is passed without making inquiries or verification which should have been made". Such an approach will be clearly incongruous. The legal position is fairly well settled that when a public authority has the power to do something in aid of enforcement of a right of a citizen, it is imperative upon him to exercise such powers when circumstances so justify or warrant. Even if the words used in the statute are prima facie enabling, the Courts will readily infer a duty to exercise a power which is invested in aid of enforcement of a right—public or private—of a citizen. [ L Hirday Naran vs. ITO (1970) 78 ITR 26 (SC) ]. As a corollary to this legal position, when a public authority has the powers to do something against any person, such an authority cannot exercise that power unless it is demonstrated that the circumstances so justify or warrant. In a democratic welfare state, all the powers vested in the public authorities are for the good of society. A fortiorari, neither can a public authority decline to exercise the powers, to help anyone, when circumstances so justify or warrant, nor can a public authority exercise the powers, to the detriment of anyone, unless circumstances so justify or warrant. What essentially follows is that unless the AO does not conduct, 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 an AO is expected to be, CIT cannot legitimately form the view that "the order is passed without making inquiries or verification which should have been made". The true test for finding out whether Expln. 2(a) has been rightly invoked 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.

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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 whether these are prima facie in accordance with the law and where one has any reasons to doubt the correctness of a claim made in the IT return, probe into the matter deeper in detail. He need not look at everything with suspicion and investigate each and every claim made in the IT return; a reasonable prima facie scrutiny of all the claims will be in order, and then take a call, in the light of his expert knowledge and experience, which areas, if at all any, required to be critically examined by a thorough probe. While it is true that an AO is not only an adjudicator but also an investigator and he cannot remain passive in the face of a return which is apparently in order but calls for further inquiry but, as observed by Hon'ble Delhi High Court in the case of Gee Vee Enterprises vs. Addl. CIT & Ors. 1975 CTR (Del) 61 : (1995) 99 ITR 375 (Del) , "it is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. (Emphasis, by underlining, italicised in print, supplied by us). It is, therefore, obvious that when the circumstances are not such as to provoke an inquiry, he need not put every proposition to the test and probe everything stated in the IT return. In a way, his role in the scrutiny assessment proceedings is somewhat akin to a conventional statutory auditor in real-life situations. What Justice Lopes said, in the case of Re Kingston Cotton Mills (1896) 2 Ch.D 279, 288), in respect of the role of an auditor, would equally apply in respect of the role of the AO as well. His lordship had said that an auditor (read AO in the present context)" is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a watch-dog, but not a bloodhound". Of course, an AO cannot remain passive on the facts which, in his fair opinion, need to be probed further, but then an AO, unless he has specific reasons to do so after a look at the details, is not required to prove to the hilt everything coming to his notice in the course of the assessment proceedings. When the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bona fide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable 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.

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• CIT Vs. Vijay Kumar Koganti (2020) 275 Taxman 394 (Mad.) (HC) Where AO examined issue regarding substantial increase in capital investment reflected by assessee in balance sheet in scrutiny assessment and passed assessment order, in absence of any finding by Pr. Commissioner as to how assessment order was erroneous, Tribunal rightly set aside revisional order passed by Pr. Commissioner on said issue.

• CIT Vs. Green Fields Commercial Pvt. Ltd. (2015) 119 DTR 303 (J&K) (HC) AO having issued notices u/s 143(2)/142(1) along with necessary questionnaire to the 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 show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each

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and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to section 263 of the Act and in turn will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO.

• Amira Pure Foods Pvt. Ltd. Vs. PCIT (2017) 51 CCH 473 (Del.) (Trib.) Explanation 2 to s. 263 inserted w.e.f. 01.06.2015 does not override the law as interpreted by the various High Courts whereby it is held that the CIT cannot treat the AO's order as being erroneous and prejudicial to the interest of revenue without conducting an enquiry and recording a finding. If the Explanation is interpreted otherwise, the CIT will be empowered to find fault with each and every assessment order and also to force the AO to conduct enquiries in the manner preferred by the CIT, thus prejudicing the mind of the AO. This will lead to unending litigation and no finality in the legal proceedings which cannot be the intention of the legislature in inserting the Explanation.

The principles laid down in these decisions when applied to the facts of assessee’s case it is evident that in the assessee’s case AO has made all the necessary enquiry and verification as can be expected of a of a prudent, judicious and responsible AO in normal course of his assessment work. The Ld. CIT has not specified as to what type of enquiry ought to 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.

ITA No. 162/JP/2022 12 Sh. Surender Meena vs. PCIT • 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 share of the mother continued with the business. In this situation, there was no question of selling the assets of the firm including stock-in-trade and therefore, it was not necessary to value stock-in-trade at market price. Thus, the view taken by AO in accepting the book value of the stock-in- trade was a plausible and permissible view and therefore, the CIT could not exercise his powers u/s 263.

• CIT Vs. Max India (2007) 295 ITR 282 (SC) 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 interest of the Revenue, unless the view taken by the ITO is unsustainable in law—When the CIT passed the impugned order under sec. 263, two views were inherently possible on the word "profits" occurring in the proviso to s. 80HHC(3)—Subsequent amendment of s. 80HHC made in the year 2005, though retrospective, did not render the order of the AO erroneous and prejudicial to the interest of the Revenue, and CIT could not exercise powers under sec. 263.

• Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC) The relevant findings at Para 11 is as under:-

The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the AO. 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 Commissioner 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.

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“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 sending the matter back to the AO for fresh inquiries or verification because an adverse inference against the assessee can be legitimately drawn, based on material on record, by the CIT. In exercise of his powers under s. 263, the CIT may as well direct the AO that related addition to income or disallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the CIT finds that necessary inquiries are not made or verifications not done, but, based on material on record and in his considered view, even if the necessary inquiries were made or necessary verifications were done, no addition to income or disallowance of expenditure or any other adverse action would have been warranted. Clearly, in such cases, no prejudice is caused to the legitimate interests of the Revenue. No interference will be, as such, justified in such a situation. That leaves us with the third possibility, and that is when the CIT is satisfied that the necessary inquiries are not

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made and necessary verifications are not done, and that, in the absence of this exercise by the AO, a conclusive finding is not possible one way or the other. That is perhaps the situation in which, in our humble understanding, the CIT, in the exercise of his powers under s. 263, can set aside an order, for lack of proper inquiry or verification, and ask the AO to conduct such inquiries or verifications afresh.”

In view of above, the findings of the Ld. PCIT setting aside the assessment order should be expunged and the issue involved be decided by the Hon’ble ITAT on merit, otherwise in the guise of the directions given by the Ld. PCIT, the AO will be left with no alternative except to make the disallowance which will cause injustice to the assessee.

• 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

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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 profit, or with requisite intention to bring it within the parameters of "stock-in-trade". It is not shown that the assessee is a regular dealer in real estate. It appears, that the land was purchased in 1970, which was under cloud of Land Ceiling Laws, and after that cloud was cleared, and other adjoining lands had been developed, and since the land was not yielding any return, it was decided to be sold in piecemeal, by earmarking plots, but then nonetheless it would remain a disposal of the capital asset only, and not a transaction of any "stock-in-trade" so as to be described as "adventure in the nature of trade". Obviously therefore, it is liable to be taxed only as the capital gain.

• CIT Vs. Harjit Singh Sangha (2013) 217 Taxman 201 (P&H) (HC) (Mag.) Land purchased by assessee was registered in land revenue records as agricultural land and it was being used by assessee as such. Later on it was sold in small plots to different purchaser. No development of land was made by assessee prior to its sale. It was held that assessee’s activity could not be termed as an adventure in the nature of trade and gain/profit arising from sale could not be taxed as business income.

• Saroj Kumar Mazumdar Vs. Commissioner of Income Tax 37 ITR 242 (SC) Section 2(13) of the Income-tax Act, 1961 - Adventure in nature of trade - Whether where transaction under examination is not in line of business of assessee and is an isolated or a single instance of a transaction like that, burden lies on revenue to bring case within words of statute, namely, that it was an adventure in nature of trade - Held, yes - Assessee entered into agreement with a society to purchase plot of land under development scheme offered by society and paid 25% of estimated price - Assessee finding no immediate prospect of land in question being derequisitioned by Government, negotiated for assignment of his rights under agreement with society to a third party and received a sum in excess of amount paid by him to society - Whether since dealing in landed estate was not in line of assessee's business and sale transaction in question was only one of its kind and department failed to make out that dominant intention of assessee was to embark on a venture in nature of trade when he entered into said

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transaction which resulted in profits, such profits could not be taxed in hands of assessee as 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 as a result of sale of jute press did not arise out of an adventure in nature of trade and was therefore not rightly assessed to tax - Held, yes

• CIT Vs. Sureshchand Goyal 298 ITR 277 (MP) (HC) Para 15 of this order is reproduced as under:

“Considering the aforesaid facts and circumstances of the case, we are also of the view that the selling of own land after plotting it out in order to secure better price, is not an adventure in the nature of trade or business. The word "business" has been defined under Section 2(13) of the Income Tax Act, 1961, which includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. An isolated transaction or activity can also be part of business, but to consider the question of business, there must be regular activity of purchasing and selling. In this case, there is nothing on record to show that the land was purchased for the purpose of selling into plots. Basically, it is a gifted land and the land was developed and was sold after converting into the plots with a view to secure the better price, therefore, the isolated activity cannot come within the purview of adventure in the nature of trade and business. The main earning on the sale of the land was in the nature of capital

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gain and, therefore, not assessable as income from business and this question is essentially a question of fact”.

• CIT Vs. A Mohammed Mohideen 176 ITR 393 (Madras) (HC) Para 11 of this order is reproduced as under:-

“Bearing in mind the principles laid down by the Supreme Court, it is necessary to examine the facts of the present case. Already we have noticed the contentions urged for the Revenue. The first contention is that the Tribunal is in error in holding that the Department has not established by evidence that the intention of the assessee in purchasing the property was not by way of investment but to trade in house sites. It is pointed out by learned counsel for the Revenue that the Tribunal has not considered all the aspects before holding that it was not established that the assessee intended to trade in house sites. We are of the view that this does not vitiate the conclusion reached by the Tribunal. In this context it is worthwhile to notice the principle laid down by the Supreme Court that the Revenue should establish by positive evidence that the purchase and 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 would undertake; but that by itself would not establish that in such cases, the person concerned would be indulging in a trading activity. In the above illustration, if the person, instead of putting up the multi-storeyed building in his own plot, purchases a plot and with borrowed funds puts up the flats and sells them, then it can be said that he is indulging in a trading activity. As pointed out by the Supreme Court in Saroj Kumar

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Mazumdar v. CIT [1959] 37 ITR 242, the dividing line between the two types of cases is very thin. The decision of this court in CIT v. Kasturi Estates (P.) Ltd. [1966] 62 ITR 578, has only reiterated the position that in order to hold that an activity is in the nature of an adventure, there must be positive materials to prove that the assessee intended to trade in such an activity and, in the absence of evidence, the sale of immovable property consisting of land could give rise only to capital accretions”.

• B. Narasimha Reddy Vs. ITO (1994) 48 TTJ 329/47 ITD 398 (Hyd) (Trib.) The assessee was never a trader or businessman. Previously he did not carry on any business much less business in real estate. He did not purchase any land or did not sell any land. He was purely an agriculturist. The land in question represents his ancestral property. He thought that he would profit very much or would get maximum by plotting out the land and getting a lay out approved by the Gram Panchayat and, therefore, he got sanctioned the lay out from the Gram Panchayat. He converted the land into plots and sold them as house sites. He wanted to take all advantages due to fast urbanization of the area. Can it be said under those circumstances that the assessee is carrying on an adventure in the nature of trade, simply because he wanted to realize the maximum out of the sale of his ancestral land? Without any reservation, one could come to the conclusion that the assessee never intended to do any business in the real estate and that the sale of plots of land held by him does not amount to an adventure in the nature of trade. There is no material, let alone positive material, produced by the Revenue to show that the assessee intended to carry on trade in real estate. Therefore, the ordinary presumption that sale of immovable property would give rise only to capital accretion would be applied to the case of the assessee. This is a clear case where 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

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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 plots were required to be treated as capital gains. It was held that what had overlooked was whole bunch of factors which reasonably demonstrate that not only that assessee was never engaged in business of dividing large plots of land into smaller end use units but also that what was sold by assessee was land possessed by assessee for long period of time. Due to fundamental change in use of land in areas concerned over long period during which assessee held land, sellable standard unit size had indeed considerably come down and in order to get market price for land, he had to essentially divide land holding into plot size for which there was end user market. No other approach would not have enabled assessee to get right price in end user market and anything other than end user market would have reduced selling price to factor for profit by business which would have bought entire land just to buy it, divide it into smaller plots and sell to end users. It was clearly one off activity for assessee as assessee did not go beyond selling what he already held for long years and even sale consideration was not ploughed back in land investments. Hence, gain on sale of these plots was to be treated as capital gains.

In view of above, order passed by Ld. PCIT u/s 263 is illegal & bad in law and be quashed. ”

“Please refer to the above mentioned subject.

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It is seen that in the written submission, the Ld AR has raised several legal questions. In this regard, his submission of this office is as given below: One argument has been given by the appellant that once PCIT has given a concrete finding then the case need not be set aside and sent back to the AO for assessing income de-novo as AO is left with no option but to follow the directions of the PCIT. In this regard, the following judicial pronouncements are brought to the notice of the Hon'ble bench where similar action was taken by CIT/PCIT and the action has been confirmed.

i) Nahar Spinning Mills (P&H) 117 taxman.com 40 In this case, CIT was of the opinion that Assessing Officer erred in allowing deduction under section 80-I on duty draw back received on manufactured goods. The contention of the assessee 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 per section 184(5) of the Act. The Assessing officer having failed to do so, learned Principal Commission held the assessment order to be

ITA No. 162/JP/2022 21 Sh. Surender Meena vs. PCIT

erroneous inasmuch as prejudicial to the interest of Revenue. Accordingly, he set aside the assessment order with a direction to the Assessing Officer to assessee the income of the assessee afresh.

Therefore, in this case also, specific finding and direction was given and the assessment order was set aside. The appeal of the assessee against this order u/s 263 was dismissed.

iii) Kerala State Electricity (ITAT Cochin) 111 taxman.com 353 CIT noted that duty on sale of energy should be borne by licensee and shall not be passed on to customer and Electricity Duty under section 3(1) KSED Act being and exclusive levy on assessee, which was a State Government undertaking was to be disallowed under section 40(a)(iib)-Accordingly he set aside assessment order being erroneous and prejudicial to interest of revenue.

Therefore in this case also, specific finding and direction was given and the assessment order was set aside. The appeal of the assessee against this order u/s 263 was dismissed.

Decision on merits need to be given by the CIT in order u/s 263:- Now another case law is relevant. In this case, specific finding on merits was not given by the CIT in the order 263 of the Act and it was held that the order u/s 263 is not proper and the order u/s 263 was quashed.

ITO Vs DG Housing projects Ltd. (Delhi) ITA No. 79/2011 dated 1- Mar-2012

In this case, CIT held, inter alia. as quoted below:

"Para 4

(i) ............................................................................................................. It is clear that the aspect of full value of consideration receivable has not been properly examined by the Assessing Officer and the assessment order is erroneous and prejudicial to the interest of the revenue.

ITA No. 162/JP/2022 22 Sh. Surender Meena vs. PCIT

ii) …………… However, reference need not be made to the Valuation officer when the value of the asset is determinable as per the formula laid down in Scheduled —Ill of the Wealth Tax Act. Only when it cannot make a reference by this method does the Assessing Officer make a reference to the Valuation Officer. CIT further held that in this case this formula is clearly applicable and the valuation can be worked out as per the method laid down in Schedule-Ili. Hence, the assessee's 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 rejected.” 10. The ld. DR appearing on behalf of the revenue has also relied upon the decision of the Co-ordinate Bench in case of Mahaveer Yadav v. ITO, Ward-1(5), Alwar in ITA No. 209/JP/2017 dated 27.02.2018 which reads as under:-

Where the assessee himself through his conduct and affirmative action is admitting that what has been sold are residential plots of

ITA No. 162/JP/2022 23 Sh. Surender Meena vs. PCIT

land, the basis of the contention so raised by the assessee that what has been sold by the assessee are agricultural plots of land is not understandable. Further, as noted above, the size of the plots so sold doesn't warrant any iota of doubt that these are residential plots and not agricultural plots of land. Further, there is no evidence on record to suggest that at the time of sale, agriculture activities were being carried on the said pieces of land. In light of above, the contention so advanced by the assessee is unacceptable.

There are situations where a capital asset, subsequent to initial acquisition, is converted or treated as stock-in-trade of business carried on by the assessee. In such cases, the intention at the time of purchase or acquisition would not be of much relevance. What is of more relevance is to determine the intention at the subsequent point in time, through conduct and affirmative actions, that the capital asset so purchased initially has been converted or treated as stock-in trade of the business carried on by the assessee. The legislature has since envisaged such a situation and has brought on the Statue books the provisions of section 45(2) by virtue of the Taxation laws (Amendment) Act, 1984 with effect from 1-4-1985 and there is now a statutory recognition that even asset initially acquired as investment can be subsequently converted into stock-in-trade.

As per section 45(2), profits & gains arising from the transfer by way of conversion by the owner of a capital asset into or its treatment by him as stock-in-trade of business carried on by him, shall be chargeable to tax as income of the previous year in which such stock-in-trade is sold or otherwise transferred and for the purpose of section 48, the fair market value of the asset on the date of such conversion shall be deemed to be full sake of consideration received or accruing as a result of the transfer of capital asset. Therefore, fair market value of the asset on the date of conversion as reduced 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

ITA No. 162/JP/2022 24 Sh. Surender Meena vs. PCIT

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 on one of the plots and the whole area has been developed as a residential colony. The said findings of the Inspector remain unrebutted. The Stamp duty authorities have also recognised the plotting as residential plots which is very much evident from the registered sale deeds and the stamp duty paid on such sale of residential plots. All these facts taken together shows clearly that the assessee has taken affirmative steps and actions where he has converted his agricultural land into residential stock-in-trade of his business of selling the plots of land for caming profit. The very nature and purpose of the agriculture land has been changed and the findings of the Commissioner (Appeals) that such change is an irreversible change where very nature and purpose of the land has been changed from agriculture to residential is agreeable. It is not a case that the buyers have acquired agriculture plots and subsequently changed it to residential use. In this case, the assessee itself has developed residential plots and then sold it to individual buyers. Therefore, the findings of the Assessing Officer that by such plotting of land, the agriculture land has been converted into stock-in-trade (in form of residential plots) of assessee's business are affirmed. The development of residential colony and said conversion has happened by assessee's own admission during financial year 2009 and the intent of the assessee has this been demonstrated through his own actions. The fair market value of the asset on the date of conversion as reduced by the cost of acquisition is required to be assessed under the head 'capital gain in the year(s) the stock-in-trade is sold/transferred. Further, sales realization of the stock-in-trade over such fair market value is required to be assessed as 'business income’. During the year under consideration, it is an admitted position that 15 plots have been sold for a consideration of Rs. 54.93 lakhs. Therefore, the taxability arising on conversion of agricultural land into stock-in trade to the extent it has been sold during the year, arises during the impugned assessment year. The matter is accordingly set aside to the file of the Assessing Officer to determine the capital gains in accordance with

ITA No. 162/JP/2022 25 Sh. Surender Meena vs. PCIT the provisions of section 45(2) as well as business income on sale of such plots. In the result, the appeal of the assessee is partly allowed.”

ITA No. 162/JP/2022 26 Sh. Surender Meena vs. PCIT income arising from that asset also in the nature of capital gain. The ld. AO has called for all the details related to capital gain and details on which the deduction u/s. 54 F was claimed verified and taken a view is based on the facts supported by records placed before AO and he has applied his mind on the issue. Thus, we our considered view the AO has made inquiry call for the records upon which he has passed the order and that order cannot be revised merely 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.

ITA No. 162/JP/2022 27 Sh. Surender Meena vs. PCIT purpose of this investment was clear from the day when it was purchased for Petrol Pump usage. Therefore, the character of the asset is not conversion of asset in stock in trade and assessee continue to hold the said land as capital 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.

ITA No. 162/JP/2022 28 Sh. Surender Meena vs. PCIT gain, we set-aside his order and restore the order passed by the A.O under Sec. 143(3), dated 17.12.2019.

In the result the appeal of the assessee is allowed.

Order pronounced in the open Court on 21/07/2022.

Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼ jkBkSM deys’k t;arHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- /07/2022 *Ganesh Kr. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Sh. Surender Meena, Jaipur 2. izR;FkhZ@ The Respondent- PCIT, Jaipur-1 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 162/JP/2022} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत