K.R. Sathyanarayana, Mysore V. DCIT, Mysore

ITA 269/BANG/2014

• Counselvise Citation: 26921114 RSA 2014
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 24-02-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Assessee Lawyers: G N BHAT
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Difference of opinion; Assessment record; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 50C; 263; 28; 154

Judgement Text

ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 1 OF 17 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE ABENCH, BANGALORE BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.269/BANG/2014 (ASSESSMENT YEAR: 2009-10) SHRI K.R. SATHYANARAYANA NO.1036-20, 4 TH MAIN, VIDYARANYAPURAM, MYSORE PAN: AJOPS 2226 B VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1) MYSORE (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI G.N. BHAT, DEPARTMENT BY: SHRI C.H. SUNDAR R AO, CIT (DR) DATE OF HEARING: 19/11/2014 DATE OF PRONOUNCEMENT: 28/11/2014 O R D E R PER RAJPAL YADAV, J.M. THE PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF T HE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT DATED 2.1.2014 PASSED U/S 263 OF THE INCOME TAX ACT, FOR ASSESSMEN T YEAR 2009-10. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSE E ARE NOT IN CONSONANCE WITH RULE 8 OF THE ITAT RULES, THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. IN BRIEF, THE SOLITARY GRIEVANCE IS THAT THE LEARNED CIT HAS ERRED IN TAKING COGNIZANCE U/S 263 OF THE INCOME TAX ACT AND SETTING ASIDE THE ASSESSMENT ORDER IN RESPECT OF ASSESSMENT OF INCOME ON SALE OF PROPERTY AS BUSINESS INCOME INSTEAD ON CAPITAL GAIN DECLARED BY THE ASSE SSEE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL. HE WAS RUNNING TWO PROPRIETARSHIP CONCE RNS NAMELY ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 2 OF 17 BHAGIRATH ENTERPRISES AND PUNITH ASSOCIATES. HE HAS FILED HIS RETURN OF INCOME ON 8.1.2010 DECLARING TOTAL INCOME OF RS.35,59,600/-. THE ASSESSEE IS A DEED WRITER. HE W AS ALSO DOING BUSINESS OF TYPING AND XEROX. HE HAS DECLARED BUSIN ESS INCOME FROM THE PROPRIETARY CONCERN M/S BHAGIRATH ENTERPRI SES AT RS.13,83,194/-. HE HAS ALSO DECLARED HOUSE PROPERTY INCOME AT RS.2,03,986/- AND CAPITAL GAINS AT RS.19,06,984/-. HE ALSO DECLARED INCOME FROM OTHER SOURCES AT RS.1,55,438/- . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMEN T AND A NOTICE U/S 143(2) DATED 30.08.2010 WAS ISSUED AND SERVED U PON HIM. THE ASSESSING OFFICER HAS PASSED THE ASSESSMENT ORD ER ON 15.12.2011. DURING THE COURSE OF THE ASSESSMENT PRO CEEDINGS, ON SCRUTINY OF THE ACCOUNTS IT REVEALED THAT THE AS SESSEE HAS SOLD FIVE PROPERTIES. THE ASSESSING OFFICER HAS NOTICED THE DETAILS OF THES PROPERTIES IN A TABULAR FORM ON PAGE 3 OF THE ASSESSMENT ORDER. THE DETAILS EXHIBITING THE DATE OF ACQUISITI ON, DATE OF SALE AND SHARE OF ASSESSEE, PURCHASE PRICE, SALE PRICE A ND GAINS. FOUR PROPERTIES WERE PURCHASED IN THE YEAR 2007 AND THE 5 TH WAS PURCHASED ON 3.10.2008. FOUR PROPERTIES WERE SOLD I N THE YEAR 2008 AND ONE PROPERTY WHICH WAS PURCHASED ON 31 ST JULY, 2007 WAS SOLD ON 2 ND FEBRUARY, 2009. THE ASSESSEE HAS COMPUTED THE SHORT TERM CAPITAL GAIN. THE ASSESSING OFFICER WHIL E PASSING THE ASSESSMENT ORDER HAS DETERMINED THE INCOME FROM THE SALE OF PROPERTY AS BUSIENSS INCOME INSTEAD OF ASSESSING IT AS A CAPITAL GAIN DISCLOSED BY THE ASSESSEE. THE ASSESSMENT ORDE R IS A VERY SHORT ORDER RUNNING INTO THREE PAGES ONLY. ON PAGE NO.3, DETAILS OF THE PROPERTIES ARE NOTICED. FOR CHANGING THE HEA DS OF INCOME FROM CAPITAL GAIN TO BUSINESS INCOME, HIS BRIEF FIN DING IS AS UNDER: ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 3 OF 17 THE CONTENTION OF THE ASSESSEE HAS NOT BEEN HELD TO BE ACCEPTABLE AS 4 OF THESE PROPERTIES WERE NEVER INHERITED BY HIM AND SINCE HE IS IN A TRADE RELATED TO REAL ESTATE I.E. REGISTRATION OF PROPERTIES, IT IS ALSO HELD THAT THE PROPERTIES WHICH HAVE BEEN SOLD BY HI M ARE HIS STOCK IN TRADE AND HENCE THIS HAS TO BE TREATED AS BUSINESS INCOME. DURING THE COURSE OF PROCEEDING, THE ASSESSEE SUBMITTED PURCHASE AND SALE DEEDS OF THE PROPERTIES IN QUESTION WHICH WERE VERIFEID. THE LIST IS BEING REPRODUCED BELOW: THE DETAILS OF IMMOVABLE PROPERTIES BEEN SOLD BY HI M DURING THE YEAR IS AS FOLLOWS: X.X.X.X.X.X.X.X.X.X.X.X.X.X.X.X.X.X.X.X.X.X.X.X.X.X . HENCE THE INCOME RELATED TO SALE OF PROPERTY BY THE ASSESSEE IS CONSIDERED UNDER: INCOME DERIVED FROM CAPITAL GAINS (LTCG) 2,45,157 INCOME DERIVED FROM SALE OF PLOTS TAKEN AS STOCK IN TRADE AND HENCE AS BUSINESS INCOME. 2,20,056 3. ON PERUSAL OF THE ASSESSMENT ORDER, THE LEARNED CIT FORMED AN OPINION THAT THE ASSESSING OFFICER HAS FA ILED TO CONDUCT INQUIRY WHILE CHANGING THE HEADS OF INCOME. THE LEARNED CIT WAS OF THE OPINION THAT THERE ARE NO FINDINGS O N THE RECORD, WHICH SUGGEST THAT THE ASSESSEE WAS IN THE BUSINESS OF PURCHASE AND SALE OF THE PLOTS. THE ASSESSING OFFICER HAS NO T BROUGHT ANY MATERIAL ON THE RECORD EXHIBITING THAT THE INVESTME NT IN THE PROPERTY WAS FOR THE PURPOSE OF TRADING. THEREFORE, HE TOOK COGNIZANCE U/S 263 OF THE INCOME TAX ACT AND ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE. IN RESPONSE TO THE S HOW CAUSE NOTICE, THE ASSESSEE HAS FILED DETAILED WRITTEN SUB MISSIONS. HE ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 4 OF 17 CONTENDED THAT THE ASSESSING OFFICER HAS INITIATED PROCEEDINGS U/S 154 ON THE SAME ISSUE AND THERE CANNOT BE TWO P ARALLEL PROCEEDINGS. WITH REGARD TO THE OBJECTION OF THE LE ARNED CIT AS TO WHY INCOME ASSESSABLE UNDER THE HEAD CAPITAL GAIN IS TO BE ASSESSED AS A BUSINESS INCOME, IT WAS CONTENDED BY THE ASSESSEE THAT HE IS A DEED WRITER AND UNDERTAKES SALE AND PU RCHASE OF THE PROPERTY. THE ASSESSING OFFICER HAS APPLIED HIS MIN D ON THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE AND THEREA FTER REACHED A CONCLUSION THAT INCOME FROM THE SALE OF PROPERTY IS TO BE ASSESSED AS A BUSINESS INCOME AND NOT AS A CAPITAL GAIN. HE MADE REFERENCE TO THE DECISION OF THE HON'BLE SUPRE ME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD VS. CIT, 243 ITR 83 AND CIT VS. MAX INDIA LTD, 295 ITR 282. THE LEARNED CIT HAD MADE A LUCID ANALYSIS OF THE FACTS AND LAW BROUGHT BEFORE HIM BY THE ASSESSEE IN HIS SUBMISSIONS. IT IS WORTH TO TAKE NO TE OF HIS FINDINGS: II. INCOME FROM SALE OF PROPERTIES TO BE ASSESSED UNDER THE HEAD INCOME FROM CAPITAL GAINS:- A. BEFORE EXAMINING THIS ISSUE, IT IS WORTHWHILE TO REFER THE PROVISIONS OF THE I.T. ACT RELATING TO HEADS OF INCOME AND RELEVANT SECTIONS FOR TAXING INCOME UNDER THE HEAD INCOME FROM BUSINESS AND INCOME UNDER THE HEAD CAPITAL GAINS. SECTION 14 OF THE I.T. ACT PROVIDES THAT FOR THE PURPOSES OF CHARGE OF INCOME-TAX AND COMPUTATION OF TOTAL INCOME, ALL INCOME SHALL BE CLASSIFIED UNDER THE HEADS OF INCOME SPECIFIED IN SECTION 14 OF THE ACT I.E. (A) SALARIES, (B) INCOME FROM HOUSE PROPERTY (C) PROFITS AND GAINS OF BUSINESS OR PROFESSION (D) CAPITAL GAINS AND (E) INCOME FROM OTHER SOURCES. FOR BRINGING ANY INCOME TO TAX UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION, IT MUST FALL UNDER ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 5 OF 17 ONE OF THE CLAUSES PRESCRIBED IN SECTION 28 OF THE I.T. ACT. AS PER SECTION 28(I) THE PROFITS AND GAIN S OF ANY BUSINESS OR PROFESSION WHICH WAS CARRIED ON BY THE ASSESSEE AT ANY TIME DURING THE PREVIOUS YEAR CAN BE TAXED UNDER THE SAID HEAD. SIMILARLY, FOR TAXING INCOME UNDER THE HEAD CAPITAL GAINS, SECTION 45(1) PROVIDES THAT ANY PROFITS AND GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET AFFECTED IN THE PREVIOUS YEAR IS CHARGEABLE UNDER THE HEAD CAPITAL GAINS. THUS, WHILE CONCLUDING THE ASSESSMENT, THE ASSESSING OFFICER IS BOUND TO FOLLOW THE PROCEDURE LAID DOWN IN SECTIONS MENTIONED SUPRA AND HAS TO CORRECTLY SEGREGATE THE INCOME UNDER RELEVANT HEADS OF INCOME IN ACCORDANCE WITH RELEVANT PROVISIONS, FAILING WHICH SUCH AN ORDER PASSED WILL BE TREATED AS ERRONEOUS. IT IS SO BECAUSE COMPUTATION OF INCOME UNDER EACH HEADS OF INCOME PRESCRIBED UNDER THE ACT ARE DIFFERENT AND IN CASE THE ASSESSING OFFICER WRONGLY CLASSIFIES INCOME CHARGEABLE UNDER CAPITAL GAINS AS INCOME FROM BUSINESS OR VICE VERSA ON INCORRECT ASSUMPTION OF FACTS, SUCH AN ORDER PASSED IS VERY MUCH AMENABLE TO REVISION U/S 263. B. COMING TO THE FACTS OF PRESENT CASE, DURING THE PREVIOUS YEAR THE ASSESSEE HAD DECLARED INCOME FROM CAPITAL GAINS ON SALE OF 5 PROPERTIES, BUT WHILE CONCLUDING THE ASSESSMENT, THE ASSESSING OFFICER COMPUTED INCOME FROM THESE TRANSACTIONS UNDER THE HEAD INCOME FROM BUSINESS WITHOUT PROPERLY VERIFYING THE FACTS OF THE CASE AND PREVIOUS ASSESSMENT RECORDS. FOR TAXING INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS, AS ALREADY STATED SECTION 28(I) STIPULATES THAT THE ASSESSEE SHOULD HAVE CARRIED ON BUSINESS DURING THE PREVIOUS YEAR BUT, ON PERUSAL OF THE RETURN OF INCOME AND FINANCIAL STATEMENTS ENCLOSED TO IT, THE ASSESSEE WAS CARRYING ON FOLLOWING BUSINESS:- DOCUMENT WRITING AND XEROX/ TYPING BUSINESS UNDER TWO PROPRIETORSHIP CONCERNS NAMELY BHAGIRATHI ENTERPRISES AND PUNITH ASSOCIATES. NOWHERE IN THE RETURN OF ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 6 OF 17 INCOME /FINANCIAL STATEMENTS, HAD THE ASSESSEE CLAIMED THAT WAS HE CARRYING ON REAL ESTATE BUSINESS. ANY PERSON CARRYING ON REAL-ESTATE BUSINESS WILL DEPICT THE VALUE OF PROPERTIES DEALT BY HIM AS STOCK IN TRADE IN THE TRADING ACCOUNT, WHEREAS NO SUCH TREATMENT IS GIVEN BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS. THE FACT THAT THE ASSESSEE WAS NOT CARRYING ON REAL ESTATE BUSINESS IS ALSO EVIDENT FROM THE FACT THAT, ALL THE PROPERTIES HELD BY THE ASSESSEE ARE DEPICTED AS CAPITAL ASSETS UNDER THE HEAD FIXED ASSETS WHEREAS, THE ASSESSING OFFICER CAME TO A WRONG CONCLUSION THAT THE INCOME DERIVED FROM SALE OF SUCH PROPERTIES HAVE TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS BY HOLDING THAT THESE PROPERTIES WERE HELD BY THE ASSESSEE AS STOCK IN TRADE IN REAL ESTATE BUSINESS AND THAT THESE PROPERTIES WERE NOT INHERITED BY THE ASSESSEE. C. THUS, THE CONCLUSION REACHED BY THE ASSESSING OFFICER THAT THE PROPERTIES HELD BY THE ASSESSEE ARE IN THE NATURE OF STOCK IN TRADE IS PRIMA FACIE INCORRECT. ON PERUSAL OF THE FINANCIAL STATEMENTS ENCLOSED WITH THE RETURN OF INCOME, ASSESSEE IS HAVING TWO PROPRIETORSHIP CONCERNS BUT, IN THE FINANCIAL STATEMENTS OF THESE CONCERNS, ASSESSEE HAS NEVER SHOWN ANY PROPERTIES DEALT BY HIM AS STOCK IN TRADE WHEREAS, ALL THE IMMOVABLE PROPERTIES HELD BY THE ASSESSEE HAVE BEEN DEPICTED AS FIXED ASSETS IN THE BALANCE SHEET AND ONLY INCOME EARNED FROM SALE OF SUCH FIXED ASSETS IS CREDITED TO PROFIT AND LOSS APPROPRIATION ACCOUNT OF THE ASSESSEE. EVEN IN EARLIER YEARS, SAME TREATMENT IS GIVEN BY THE ASSESSEE AND INCOME FROM SALE OF PROPERTIES HAVE BEEN DECLARED BY THE ASSESSEE UNDER THE HEAD INCOME FROM CAPITAL GAINS WHICH HAS ALSO BEEN ACCEPTED BY THE DEPT. FOR INSTANCE, IN A.Y 2007-08, ASSESSEE HAD SOLD 5 IMMOVABLE PROPERTIES AND HAS DECLARED INCOME FROM SHORT- TERM CAPITAL GAINS OF RS.20,43,1920/- AND LONG TERM CAPITAL GAINS OF RS.16,72,913/- AND THE ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 7 OF 17 SAME HAS BEEN ACCEPTED BY THE A.O WHILE CONCLUDING ASSESSMENT U/S 143(3). D. NOW COMING TO THE SUBMISSIONS MADE BY THE ASSESSEE ON THIS ISSUE, THE CRUX OF THE SUBMISSIONS MADE IS THAT THE A.O HAD APPLIED HIS MIND TO THE ISSUE INVOLVED BEFORE ASSESSING THE INCOME UNDER THE HEAD INCOME FROM BUSINESS AND IN SUCH CIRCUMSTANCES, THE ORDER PASSED CANNOT BE TERMED AS ERRONEOUS U/S 263 OF THE I.T. ACT. IT IS FURTHER SUBMITTED THAT IF TH E A.O HAD TAKEN A PARTICULAR VIEW, THERE IS NO SCOPE FOR SUBSTITUTING HIS VIEW WITH THAT OF THE CIT, AS IT AMOUNTS TO CHANGE OF OPINION WHICH IS NOT PERMISSIBLE U/S 263. IN SUPPORT OF THE SUBMISSIONS MADE, THE ASSESSEE HAS RELIED ON VARIOUS JUDICIAL PRONOUNCEMENTS. E. AS ALREADY DISCUSSED, THE CONCLUSION REACHED BY THE A.O THAT THE ASSESSEE HAD HELD THE PROPERTIES AS STOCK IN TRADE IN REAL ESTATE BUSINESS IS ERRONEOUS IN AS MUCH AS, NOWHERE IN THE RETURN OF INCOME OR FINANCIAL STATEMENTS ENCLOSED, IT IS CLAIMED BY THE ASSESSEE THAT HE IS CARRYING ON REAL ESTATE BUSINESS NOR SUCH ASSETS WERE DEPICTED AS STOCK-IN-TRADE IN THE FINANCIAL STATEMENTS ENCLOSED WITH THE RETURN OF INCOME. IN FACT, THE ASSESSEE HIMSELF HAS BEEN CONTINUOUSLY DECLARING INCOME FROM SALE OF ASSETS UNDER THE HEAD INCOME FROM CAPITAL GAINS AND SIMILARLY EVEN FOR THE CURRENT YEAR, HE HAS DECLARED PROFITS EARNED FROM SALE OF ASSETS VERY MUCH UNDER THIS HEAD BUT NOW DISPUTING HIS OWN COMPUTATION OF INCOME IN THE PROCEEDINGS U/S 263. F. AS ALREADY DISCUSSED, THE A.O HAS TO PROPERLY CLASSIFY THE INCOME UNDER DIFFERENT HEADS OF INCOME SPECIFIED IN SECTION 14 OF THE ACT AND ALSO PROVISIONS OF SECTION 28 AND SECTION 45 BEFORE CONCLUDING THE HEAD OF INCOME UNDER WHICH, RELEVANT INCOME IS TO BE COMPUTED. IN THE PRESENT CASE, WHEN NO CLAIM IS MADE THAT THE ASSESSEE IN THE RETURN OF INCOME/ FINANCIAL STATEMENTS ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 8 OF 17 THAT HE IS CARRYING ON REAL-ESTATE BUSINESS WHICH IS A PRE-CONDITION FOR CHARGING INCOME U/S 28(I) FOR TAXING INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS THE A.O ERRED IN CLASSIFYING INCOME FROM SALE OF PROPERTIES UNDER THIS HEAD. WHEN THE A.O HAS COME TO CERTAIN CONCLUSION BASED ON WRONG ASSUMPTION OF FACTS DUE TO WHICH INCOME IS WRONGLY ASSESSED UNDER CERTAIN HEAD OF INCOME, SUCH ORDER PASSED IS CLEARLY ERRONEOUS AND LIABLE FOR REVISION U/S 263 OF THE I.T. ACT, AS JUDICIALLY HELD BY VARIOUS COURTS. 4. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE R EITERATED HIS CONTENTIONS, AS WERE RAISED BEFORE THE LEARNED CIT. HE PLACED A COMPILATION CONTAINING COPIES OF DECISIONS WHICH INCLUDE THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F MALABAR INDUSTRIAL CO. LTD AND MAX INDIA LTD (SUPRA). THE D ECISION IN THE CASE OF CIT VS. SRI HARIRAM HOTELS (P) LTD REPORTED IN 229 CTR 455 IS OF HON'BLE JURISDICTIONAL HIGH COURT. THE LE ARNED COUNSEL ALSO PLACED ON RECORD COPIES OF THE WRITTEN SUBMISS IONS WHICH HAS ALREADY BEEN REPRODUCED BY THE LEARNED CIT. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDER OF THE C IT. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. BEFORE EMBARKING UPO N AN INQUIRY ABOUT THE FACTS AVAILABLE ON RECORD AND HOW TO CONS TRUE THEM, WE DEEM IT PERTINENT TO TAKE NOTE OF THE FUNDAMENTAL P RINCIPLES FOR JUDGING THE ACTION OF THE CIT TAKEN U/S 263. THE IT AT IN THE CASE OF M/S KHATIZA S. OOMERBHOY VS. ITO,MUMBAI REPORTED IN 101 TTJ 1095 ANALYZED IN DETAILS VARIOUS AUTHORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF THE HON'BL E SUPREME ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 9 OF 17 COURT IN THE CASE OF MALABAR INDUSTRIES CO. VS. CIT 243 ITR 83 AND PROPOUNDED THE FOLLOWING BROADER TESTS: (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. (II) SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND IF THE AO HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE. IF CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE UNDER LAW (VI) IF WHILE MAKING THE ASSESSMENT, THE AO EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME, THE CIT, WHILE EXERCISING HIS POWER UNDER S 263 IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE AO. (VII) THE AO EXERCISES QUASI-JUDICIAL POWER VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVE AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEE STRATIFIED WITH THE CONCLUSION. ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 10 OF 17 (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER S. 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE AO HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE AO ALLOWS THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, THE DECISION OF THE AO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 6. APART FROM THE ABOVE PRINCIPLES, WE DEEM IT APPR OPRIATE TO MAKE REFERENCE TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUN BEAM AUTO REPORTED IN 227 C TR 113 WHEREIN THE HON'BLE HIGH COURT HAS PROPOUNDED A DIS TINCTION BETWEEN LACK OF INQUIRY AND INADEQUATE INQUIRY. IF THERE IS A LACK OF ENQUIRY, THEN THE ASSESSMENT ORDER CAN BE BRANDE D AS ERRONEOUS. THE FOLLOWING OBSERVATIONS OF THE HON'BL E DELHI HIGH COURT ARE WORTH TO NOTE: 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 FO R OUR CONSIDERATION IS ABOUT THE EXERCISE OF POWER BY THE COMMISSIONER OF INCOME-TAX UNDER SECTION 263 OF THE 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 H AD ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 11 OF 17 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 HA S 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. 7. THE HON'BLE DELHI HIGH COURT IN THE CASE OF GEE VEE ENTERPRISES VS. ADDL. CIT & ORS. (1975) 99 ITR 375 (DEL . ) HAS PROPOUNDED THE ROLE REQUIRED TO BE PLAYED BY THE AS SESSING OFFICER. THE REASON IS OBVIOUS. THE POSITION AND FUNCTION O F THE INCOME TAX OFFICER IS VERY DIFFERENT FROM THAT OF A CIVIL COURT. THE STATEMENTS MADE IN A PLEADING PROV ED BY THE MINIMUM AMOUNT OF EVIDENCE MAY HE ACCEPTED BY A CIVIL COURT IN THE ABSENCE OF ANY REBUTTAL. TH E CIVIL COURT IS NEUTRAL. IT SIMPLY GIVES DECISION ON THE B ASIS OF THE PLEADING AND EVIDENCE WHICH COMES BEFORE IT. TH E INCOME TAX OFFICER IS NOT ONLY AN ADJUDICATOR BUT A LSO AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FA CE OF A RETURN WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER INQUIRY. IT IS HIS DUTY TO ASCERTAIN THE TR UTH OF THE FACTS STATED IN THE RETURN WHEN THE CIRCUMSTANC ES OF THE CASE ARE SUCH AS TO PROVOKE AN INQUIRY. THE MEANING TO BE GIVEN TO THE WORD 'ERRONEOUS' IN SECT ION 263 EMERGES OUT OF THIS CONTRACT. IT IS BECAUSE IT IS INCUMBENT ON THE INCOME TAX OFFICER TO FURTHER INVESTIGATE THE FACTS STATED IN THE RETURN WHEN CIRCUMSTANCES WOULD MAKE SUCH AN INQUIRY PRUDENT ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 12 OF 17 THAT THE WORD 'ERRONEOUS' IN SECTION 263 INCLUDES T HE FAILURE TO MAKE SUCH AN INQUIRY. THE ORDER BECOMES ERRONEOUS BECAUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT BECAUSE THERE IS ANY THING WRONG WITH THE ORDER IF ALL THE FACTS STATED THEREIN ARE ASSUMED T O BE CORRECT. 8. THE TRIBUNAL IN THE CASE OF SARANATH INFRASTRUCT URES (P) LTD VS. ACIT REPORTED IN 120 TTJ 216 HAS MADE ANALYSIS OF A LARGE NUMBER OF DECISIONS IN ORDER TO DECIDE WHETHER THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE IN THE SHARES WAS ADVENT URE IN NATURE OR INVESTMENT, THOUGH THIS DECISION PERTAINS TO THE INVESTMENT MADE IN SHARES AND THE QUESTION, WHETHER IT WAS INVESTMENT OR A BUSINESS ACTIVITY ALWAYS POSE A DIF FICULT SITUATION BEFORE THE ADJUDICATOR. THE TRIBUNAL HAS PROPOUNDED THE FOLLOWING BROADER TESTS AMONGST OTHERS IN ORDER TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF A PARTICULAR CASE. THE T ESTS READ AS UNDER: 13. AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FOLLOWING PRINCIPLES, WHICH CAN BE APPLIED ON THE F ACTS OF A CASE TO FIND OUT WHETHER TRANSACTION( S) IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY F OR INVESTMENT PURPOSES: (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TI ME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CA N BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCH ASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TREATED AS S TOCK- IN-TRADE OR INVESTMENT. WHETHER SHOWN IN OPENING/ CLOSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING ASSET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON? NORMALLY, MONEY IS BORROWED TO PURCHASE GOODS FOR THE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINI NG. ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 13 OF 17 (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DISPOSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND S ALE ARE FREQUENT, OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM, IT WOULD INDICATE TRADE. HABITUAL DEALIN G IN THAT PARTICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICAT IVE OF TRADE. SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTION S AND HIGH HOLDINGS INDICATE INVESTMENT.) (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROF IT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION I N ITS VALUE? FORMER WILL INDICATE INTENTION OF TRADE AND LATER, AN INVESTMENT. IN THE CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN TH E BALANCE SHEET? IF THE ITEMS 1 QUESTION ARE VALUED A T COST, IT WOULD INDICATE THAT THEY ARE INVESTMENTS O R WHERE THEY ARE VALUED AT COST OR MARKET VALUE OR NE T REALIZABLE VALUE (WHICHEVER IS LESS), IT WILL INDIC ATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEMORANDUM OF ASSOCIATION/ ARTICLES OF ASSOCIATION? WHETHER FOR TRADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHETHER THERE ARE SEPARATE RESOLUTI ONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSA. ( 7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHO W THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING A ND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS. IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOCK-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NOT REAL . ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 14 OF 17 (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHA RES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO S AY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISIT ES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASSESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIME D THAT IT IS DEALING AS A TRADER IN THAT ITEM ? WHETHER IT HAD SUCH AN INTENTION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR WHEN PURCHASES WERE MADE ? . (10) IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCO UNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR B OTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TW O PORTFOLIOS. (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FACTORS HAS TO BE SEEN . 9. THOUGH THESE ARE THE TESTS POINTED OUT FOR DECID ING THE NATURE OF SHARE TRANSACTION, BUT THESE ARE THE POIN TER TOWARDS THE WAY HOW AN INQUIRY SHOULD BE MADE FOR ASCERTAIN ING THE NATURE OF ANY TRANSACTION FOR THE PURPOSE OF ASSESS ING THE RECEIPT AS BUSINESS INCOME OR CAPITAL GAIN. CONSIDERING TH E FACTS AND CIRCUMSTANCES AVAILABLE ON RECORD, WE ARE REQUIRED TO EXAMINE THE ISSUE WITH TWO ANGLES. (A) WHETHER THE INVESTME NT MADE BY THE APPELLANT IN THE PURCHASE OF LAND WAS A BUSINES S ACTIVITY OR A SIMPLICITOR INVESTMENT; (B). IF FOR ARGUMENT SAKE, IT WAS ASSUMED THAT IT WAS A BUSINESS ACTIVITY, THEN WHETHER THAT WAS ONLY ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 15 OF 17 POSSIBLE CONCLUSION ONE MAY DRAW FROM THE FACTS AND THE ASSESSMENT ORDER CAN BE REVISED U/S 263 BY TERMING IT AS ERRONEOUS AND PREJUDICE TO THE INTEREST OF THE REVE NUE. 10. BEFORE WE ADVERT TO THE FACTS OF THE PRESENT CA SE, WE HAVE A GLANCE OVER THE COPIES OF THE JUDGMENTS FILED BY TH E ASSESSEE. WE THINK IT IS NOT NECESSARY TO RE-CAPITULATE AND RECI TE ALL THE DECISIONS ON THE LEGAL ASPECTS. BUT SUFFICE IT TO S AY THAT CORE OF ALL THE DECISIONS OF THE HON'BLE SUPREME COURT OR HON'B LE HIGH COURT OR TRIBUNAL IS TO THE FACT TO FIND OUT WHEN A CTION U/S 263 TAKEN BY THE LEARNED CIT CAN BE UPHELD OR NOT. WE H AVE ALREADY PROPOUNDED THE BROAD TESTS REQUIRED TO BE APPLIED O N THE ORDER OF THE CIT TO FIND OUT WHETHER THE ACTION IS JUSTIF IABLE OR NOT. DEALING WITH THESE JUDGMENTS WOULD ONLY MAKE THE OR DER BULKY AND MULTIPLY THE SAME PROPOSITIONS. 11. IN THE LIGHT OF THE ABOVE, LET US EXAMINE THE F ACTS OF THE PRESENT CASE. THE LEARNED CIT HAS PROPOUNDED THAT S ECTION 14 OF THE I.T. ACT PROVIDES THAT FOR THE PURPOSE OF CHARG E OF I.T. AND COMPUTATION OF TOTAL INCOME, ALL INCOME SHALL BE CL ASSIFIED UNDER THE HEADS OF INCOME SPECIFIED IN THIS SECTION. SECT ION 28(1) PROVIDES THE TAXES OF PROFIT AND GAINS OF ANY BUSIN ESS OR PROFESSION, WHEREAS SECTION 45(1) PROVIDES THE ASSE SSMENT OF INCOME UNDER THE HEAD CAPITAL GAIN. THE ASSESSEE HA S ALREADY BEEN OFFERING INCOME FROM PROFESSION AND BUSINESS I N HIS TWO PROPRIETORSHIP CONCERNS, HE HAS THE BASIC IDEA TO C LASSIFY HIS INCOME. HE HAS CLASSIFIED PURCHASE OF PLOTS UNDER T HE HEAD INVESTMENT AND OFFERS THE INCOME UNDER THE HEAD CAPITAL ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 16 OF 17 GAIN. THE ASSESSEE HAD NEVER DEPICTED THESE ASSETS AS A STOCK IN TRADE IN THE FINANCIAL STATEMENTS. WHAT PERSUADE D THE ASSESSING OFFICER TO CHANGE THE HEADS OF INCOME IS NOWHERE DISCERNIBLE IN THE ASSESSMENT ORDER. HE ONLY OBSERV ED OUT OF 5 TRANSACTIONS, 4 PROPERTIES WERE NEVER INHERITED BY THE ASSESSEE FOR ASSESSING ANY INCOME UNDER THE HEAD CAPITAL GA IN ON SALE OF PROPERTY, IT IS NOT NECESSARY THAT THE ASSET SOL D OUGHT TO BE INHERITED BY ANY ASSESSEE. 12. THE CONTENTION OF THE ASSESSEE BEFORE THE LEARN ED CIT WAS THAT THE ASSESSING OFFICER HAS ISSUED QUESTIONNAIRE S AND MADE ORAL DISCUSSION, BUT THE LEARNED COUNSEL FOR THE AS SESSEE DURING THE COURSE OF HEARING FAILED TO POINT OUT ANY CIRCU MSTANCES WHICH HAS BEEN DISCUSSED BY THE ASSESSING OFFICER T O INDICATE THAT THE INCOME FROM SALE OF PROPERTY IS TO BE ASSE SSED AS BUSINESS INCOME. IN THE PAST ALSO, THE ASSESSEE WAS OFFERING INCOME ON PURCHASE AND SALE OF THE PROPERTY UNDER T HE HEAD INVESTMENT. IT IS TRUE THAT ACCOUNTING ENTRIES MA INTAINED BY THE ASSESSEE CANNOT BE A GUIDING FACTOR FOR DETERMINING THE TRUE INCOME, BUT THERE SHOULD BE STRONG REASONS TO DISPE L THE STAND OF THE ASSESSEE. THE ASSESSING OFFICER WAS NOT HAVING ANY SUCH STRONG REASON. HE, ON A WRONG ASSUMPTION OF LAW CHA NGED THE HEAD OF INCOME. THE LEARNED CIT HAS CONSIDERED THIS ASPECT IN DETAIL IN THE FINDINGS EXTRACTED (SUPRA). WE HAVE E XTRACTED CERTAIN BROADER TESTS REQUIRED TO BE APPLIED ON ANY TRANSACTIONS FOR FINDING OUT, WHETHER SUCH TRANSACTIONS WAS A BU SINESS TRANSACTION OR IT WAS A SIMPLICITOR INVESTMENT. THO UGH THE TESTS WERE APPLIED ON INVESTMENT IN THE SHARES, BUT SOME OF THE DECISIONS CAN EQUALLY BE APPLIED ON ANY OTHER TRANS ACTIONS. THE ITA NO.269 OF 2014 KR SATHYANARAYANA MYSORE PAGE 17 OF 17 ASSESSEE IN HIS ACCOUNTS NOT SHOWING THE LAND PURCH ASED BY HIM AS STOCK IN TRADE. NOWHERE, FROM THE CIRCUMSTANTIAL EVIDENCE IT CAN BE INFERRED THAT THE ASSESSEE WAS IN THE BUSINE SS OF SALE AND PURCHASE OF THE PROPERTY. THEREFORE, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LEARNED CIT. AS REGARDS THE APPLIC ATION OF SECTION 50C FOR COMPUTING CAPITAL GAIN, PERMISSION TO CAPIT ALIZE THE INTEREST INCOME ARE CONCERNED, THE LEARNED CIT HAS SET ASIDE THESE ISSUES FOR THE ASSESSING OFFICER TO BE LOOKED INTO WHILE DETERMINING THE CAPITAL GAIN ARISEN TO THE ASSESSEE ON SALE OF PROPERTY. THEREFORE, ANY DIRECTION AND FINDING WOUL D BE AN ADVANCED AUTHORITY ON THESE ISSUES. IN VIEW OF THE ABOVE DISCUSSIONS, WE DO NOT FIND ANY MERIT IN THIS APPEA L OF THE ASSESSEE AND ACCORDINGLY, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH NOVEMBER, 2014. SD/- SD/- (JASON P. BOAZ) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED 28 TH NOVEMBER, 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE