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

ITA/713/2017

AI Insights

The case involves M/s Embassy Brindavan Developers appealing against the orders passed under Section 263 of the Income Tax Act, which set aside the original assessment order and treated the income from the sale of property as business income rather than capital gains. The High Court examined whether the Tribunal was correct in upholding the revision order and whether the Assessing Officer had made sufficient inquiries during the original assessment. The court concluded that the Assessing Officer had indeed made the necessary inquiries and that the original assessment was not erroneous or prejudicial to the interests of the Revenue, leading to the setting aside of the ITAT's order.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 753976 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 13-09-2022
• Assessment Year: misc
• Other Referred Cases: CIT Vs. Gabriel India Ltd., CIT and another Vs. M/s. Cyber Park Development and Construction Ltd., Taparia Tools Ltd. Vs. JCIT, Nasik, Malabar Industrial Co. Ltd. Vs. CIT
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: DILIP M; K V ARAVIND
• Assessee Lawyers: T SURYANARAYANA; TANMAYEE RAJKUMAR
• Keywords: Assessment Order; Business income; Capital Gains; Income tax appeal; Revision order; Revision order
• Section: 263; 260-A

Judgement Text

" - 1 - ITA No. 713 of 2017 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 13TH DAY OF SEPTEMBER, 2022 PRESENT THE HON'BLE MR. JUSTICE P.S. DINESH KUMAR AND THE HON'BLE MR. JUSTICE UMESH M. ADIGA INCOME TAX APPEAL NO. 713 OF 2017 BETWEEN : M/S EMBASSY BRINDAVAN DEVELOPERS 1ST FLOOR, EMBASSY POINT 105, INFANTRY ROAD BENGALURU-560 001. REPRESENTED HEREIN BY ITS PARTNERS COMPANY NARPAT SINGH CHORARIA PAN:AABFE7944G …APPELLANT (BY SHRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR SMT. TANMAYEE RAJKUMAR, ADVOCATE) AND : THE COMMISSIONER OF INCOME TAX BANGALORE-IV BANGALORE BMTC BUILDING KORAMANGALA 6TH BLOCK BANGALORE-560 095. …RESPONDENT (BY SHRI. DILIP .M, ADVOCATE FOR SHRI. K.V. ARAVIND, ADVOCATE) . . . . Digitally signed by S P SUDHA Location: High Court Of Karnataka - 2 - ITA No. 713 of 2017 THIS INCOME TAX APPEAL IS UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:21/04/2017 PASSED IN ITA NO.596/BANG/2013, FOR THE ASSESSMENT YEAR 2008- 2009, PRAYING THIS HON'BLE COURT TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ETC. THIS INCOME TAX APPEAL, COMING ON FOR FINAL HEARING, THIS DAY, P.S. DINESH KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT This appeal by the assessee challenging the order dated April 21, 2017 in ITAs No.596(Bang)/2013 & 42(Bang)2015 has been admitted to consider the following questions of law: Whether on the facts, in the circumstances and on the grounds and contentions urged: (i) the Tribunal was right in holding that there is no infirmity in the order of revision passed by the Respondent under Section 263 of the Act and thereby affirming that the original assessment order passed by the AO was erroneous insofar as it is prejudicial to the interests of the Revenue? (ii) the Tribunal was right in holding that no enquiry was made by the AO during the original assessment proceedings as to whether the income arising from sale of the property in question was chargeable under the head Capital Gains or as its income from business and thereby gave a perverse finding? - 3 - ITA No. 713 of 2017 (iii) the Tribunal was justified in rejecting the Appellant's contention that since it had not performed any act having the character of carrying on business in respect of the property from the time of its purchase till the time of its sale, the income arising from its sale was only a realisation of its investment and thus taxable under the head Capital Gains notwithstanding it having been shown as forming part of its stock in trade in earlier years? and (iv) the Tribunal committed an error in considering the expenses incurred by the Appellant in connection with the transfer of the property as having been incurred in respect of it to reject the Appellant's contention that the property should be considered as its capital asset and thus gave a perverse finding? 2. Heard Shri. T. Suryanarayana, learned Senior Advocate for the assessee and Shri. M.Dilip, learned Standing Counsel for the Revenue. 3. 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 - 4 - ITA No. 713 of 2017 paucity of funds, construction of Tech park could not be taken up and ultimately sold the land on 14.02.2008. Assessee returned its income for A.Y. 2008-09. The Assessing Officer vide order dated 28.10.2010 assessed Rs.6,54,32,043/- as tax payable and by adding surcharge, education cess and interest, a total demand of Rs.8,50,38,928/- was made. 4. 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 - 5 - ITA No. 713 of 2017 dismissed the appeal filed against order under Section 263 of the IT Act and remanded the matter to CIT(A) to decide the case on merits. 5. 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. 1 [1993]71 Taxman 585 (Bombay) (para11) = (1993)203 ITR 108 2 ITA No.115/2012 decided on 05.10.2020 3 [2015]55 taxmann.com 361 (SC) 4 [2000] 109 Taxman 66 (SC) - 6 - ITA No. 713 of 2017 6. 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. 7. We have carefully considered rival contentions and perused the records. - 7 - ITA No. 713 of 2017 8. 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. 9. 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 - 8 - ITA No. 713 of 2017 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 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 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.\" 10. 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. 11. 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 - 9 - ITA No. 713 of 2017 examined on the touchstone of provisions contained in the Act. 12. 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. 13. 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 - 10 - ITA No. 713 of 2017 Revenue. Then, the only question that remains for consideration is, whether the land in question is to be treated as Capital asset or Stock-in-trade. 14. 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/- 15. 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 - 11 - ITA No. 713 of 2017 purchased in April 2004 and sold on February 14, 2008. The expenses recorded above are towards interest, professional charges paid to Advocate, the consultancy firm and the brokerage. The said expenditure works out to Rs.2,01,78,900/-. The expenditure of Rs.2,67,540/- upon which the Revenue is placing reliance upon, is recorded in the order passed by the ITAT in para 6. The ITAT has also noted that certain expenditure was on account of professional and consultancy charges and it was shown as net loss for that year. A careful analysis of the facts of the case indicate that although the property was purchased with an intention to construct a Tech Park, the same was sold for want of funds. No development whatsoever was made by the assessee. There is no expenditure incurred for anything other than for interest, professional charges and brokerage. This aspect has been considered by the Assessing Officer and he has taken a view that assessee was liable to pay the Capital gains. - 12 - ITA No. 713 of 2017 16. 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. - 13 - ITA No. 713 of 2017 17. 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. 18. 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. 19. In view of our finding on first and second questions, third and fourth questions do not require any answer. Hence, the following: - 14 - ITA No. 713 of 2017 ORDER (a) Appeal is allowed. (b) First and second questions are answered in favour of the assessee and against the Revenue. The third and fourth question do not require any answer. (c) Order dated 21.04.2017 in ITAs No.596/Bang/2013 & 42(Bang)2015 passed by the ITAT is set-aside. No costs. Sd/- JUDGE Sd/- JUDGE SPS List No.: 1 Sl No.: 27 "