SHRI Chintaman M. Sapkal, Nagpur V. Asstt.Commissioner of I.ncome Tax, Circle-5, Nagpur

ITA 49/NAG/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84677 (ITAT-NAGPUR)
• Duration Of Justice: 4 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 13-04-2010
• Court: TRIBUNAL
• Department Lawyers: SATISH GOYAL
• Assessee Lawyers: S C THAKAR; C J THAKAR
• Keywords: Capital asset; Business income
• Section: 45(2); 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ./ITA NO.49/NAG/2010 ( AY: 2006 - 2007 ) SHRI CHINTAMAN M. SAPKAL, 12, FARMLAND, RAMDASPETH, NAGPUR. / VS. ACIT, CIRCLE - 5, NAGPUR. ./ PAN: AYKPS6167G ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI C.J. THAKAR & MR. S.C. THAKAR / RESPONDENTBY : SHRI SATISH GOYAL, CIT - DR / DATE OF HEARING : 03.09.2014 / DATE OF PRONOUNCEMENT : 10. 09.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 13.4.2010 IS AGAINST THE ORDER OF THE CIT - III U/S 263 OF THE ACT DATED 23.2.2010. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. THE LD CIT HAS FAILED TO UNDERSTAND AND APPRECIATE THE BASIC FACTS OF THE CASE AND HAD ERRED IN INVOKING HIS JURISDICTION U/S 263 ON WRONG PREMISES. 2. THE LD CIT FAILED TO SEE THAT THE LAND IN QUESTION BELONGED TO TWO CO - OWNERS VIZ ASSESSEE AND HIS MOTHER. WHILE THE BUSINESS OF CONSTRUCTION BELONGED TO THE ASSESSEE IND IVIDUAL ALONE. THUS, THE ASSESSEE COULD NOT CONTROVERT THE LAND BELONGING TO OTHERS AS HIS STOCK IN TRADE AND HENCE THERE COULD BE NO QUESTION OF APPLICATION OF SECTION 45(2) OF THE ACT IN THE CASE OF THE ASSESSEE. 3. ASSESSEE RIGHTLY SHOWED INCOME FROM C ONSTRUCTION ACTIVITY ALONE AS HIS BUSINESS INCOME AND THE COOWNERS RIGHTLY DECLARED THE INCOME FROM CAPITAL GAIN ON SALE OF THEIR LAND. LAND BELONGED TO COOWNERS. COOWNERS WERE NOT CARRYING ON BUSINESS. LAND WAS VERY OLD. IT WAS A CAPITAL ASSET OF THE C OOWNERS AND HENCE THEY RIGHTLY DECLARED CAPITAL GAIN ON SALE OF THEIR LAND AT 50% EACH. ASSESSEES PERSONAL BUSINESS WAS OF CONSTRUCTION AND HENCE HE RIGHTLY SHOWED INCOME FROM CONSTRUCTION ACTIVITY AS HIS PROFIT. THUS, THE ORDER OF AO WAS NEITHER ERRONEO US NOR PREJUDICIAL TO THE INTEREST OF REVENUE. 4. LD CIT FAILED TO SEE AND PERUSE THE FULL RECORDS OF THE CASE AND HENCE FAILED TO SEE THAT THE ACCOUNTS, VOUCHERS ETC WERE PRODUCED BEFORE AO AND ALSO DVO AND THERE WAS NO ERROR IN COMPUTING THE BUSINESS INC OME OF THE ASSESSEE. AO RIGHTLY COMPUTED THE INCOME AFTER FULL VERIFICATION OF ALL FACTS. 5. VARIOUS OBSERVATIONS OF CIT ARE ERRONEOUS BOTH ON FACTS AND IN LAW AND HENCE THE ORDER OF CIT IS NOT ONLY WITHOUT JURISDICTION BUT IS ERRONEOUS ON MERITS ALSO. 2 3 . THE RELEVANT FACTS IN THIS CASE ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME AND THE SCRUTINY ASSESSMENT WAS COMPLETED ON 24.12.2008 ACCEPTING THE INCOME RETURNED BY THE ASSESSEE. CIT ISSUED NOTICE U/S 263 OF THE ACT AND FOUND THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND THE PROVISIONS OF SEC 45(2) APPLIES TO A PARTICULAR ASSET WHICH IS CLAIMED TO HAVE BEEN CONVERTED INTO STOCK - IN - TRADE. EVENTUALLY, CIT PASSED THE ORDER ON 23.02.2010 AND SET ASIDE THE ORDER OF THE AO WITH A DIRECTION TO REFRAME THE ASSESSMENT. PARA 5 OF THE REVENUE ORDER IS RELEVANT IN THIS REGARD AND THE SAME IS REPRODUCED AS UNDER: 5. CONSIDERING THE FACTS OF THE CASE DISCUSSED IN PARA 1 TO 3 ABOVE AND THE LEGAL PREPOSITIO NS DEALT WITH IN PARA 4 ABOVE, THERE IS NO IOTA OF DOUBT THAT THE ORDER PASSED BY THE AO IS ERRONEOUS AND IS ALSO PREJUDICIAL TO THE INTEREST OF REVENUE. THIS WAS A CASE WHERE THE INCOME OF THE ASSESSEE OUGHT TO HAVE BEEN COMPUTED IN ACCORDANCE WITH SECTI ON 45(2) OF THE IT ACT AND EFFECT OUGHT TO HAVE BEEN GIVEN TO THE REPORT OF VALUATION CELL. THE AO HAS ALSO NOT ASCERTAINED THE BASIS ON WHICH THE ASSESEE HAD ATTRIBUTED ONLY A PORTION OF THE RECEIPTS TOWARDS SALE OF CONSTRUCTED AREA, ALLOCATING THE BALANC E TOWARDS SALE OF LAND EXIGIBLE TO CAPITAL GAINS. THE AO HAS FAILED TO APPLY HIMSELF TO THE AFORESAID ISSUES AND JUDICIOUSLY ANALYSE ALL THE RELEVANT FACTS OF THE CASE AND EVALUATE THE RESPONSE OF THE ASSESEE AND HAS MECHANICALLY ACCEPTED THE SAME. ACCOR DINGLY, THE ASSESSMENT MADE BY THE AO U/S 143(3) OF THE ACT DATED 26.12.2008 IS HEREBY SET ASIDE WITH THE DIRECTION TO REFRAME THE ASSESSMENT , TAKING INTO CONSIDERATION THE DISCUSSIONS MADE IN THE PROCEEDING PARAGRAPHS AND IN ACCORDANCE WITH LAW. 4 . DURI NG THE PROCEEDINGS BEFORE US, SHRI C.J. THAKAR & MR. S.C. THAKAR LD. COUNSEL S FOR THE ASSESSEE MENTIONED THAT THE ASSESSMENT WAS COMPLETED ON 26.12.2008 AFTER HE FORMED AN OPINION ABOUT THE NON - APPLICABILITY OF THE SAID PROVISI ONS OF SEC. 45(2) OF THE ACT. IN THIS REGARD , HE BROUGHT OUR ATTENTION TO SL. NO. 7 OF THE P APERBOOK, I.E. THE ASSESSEES LETTER DT. 26.11.2008 FOR NON - APPLICABILITY OF SECTION 45(2) , WHICH IS PLACED AT PAGE 52 OF THE PAPERBOOK. HE BROUGHT OUR ATTENTION TO THE SAID PAGE AND READ OUT T HE SAID LETTER WAS ISSUED PRIMARILY FOR THE PURPOSE OF APPLICABILITY OF SEC. 45(2)OF THE ACT. ASSESSEE DULY REPLIED ON THAT DAY WITH A SPECIFIC REFERENCE TO SAID SEC . 45(2) OF THE ACT. IT IS THE PRAYER OF THE ASSESSEE THAT, THE SAID PROVISIONS HAVE NO APPL ICABILITY TO THE FACTS OF THE PRESENT CASE. FURTHER, LD. COUNSEL ARGUED BY STATING THAT THE AO HAS TAKEN A VIEW AND THE SAID VIEW CA NNOT BE SUBSTITUTED OR REPLACED BY THE ANOTHER VIEW OF CIT UNDER THE PROVISIONS OF SEC. 263 OF THE ACT. A SSUMING THE JURISDI CTION U/S 263 OF THE ACT IS NOT ALLOWABLE CONSIDERING THE APEX C OURT JUDGMENT IN THE CASE OF MALAB AR INDUSTRIAL CO. LTD. VS. CIT, 243 ITR 83 (SC). 3 5. IN RESPONSE, LD. DR FOR THE REVENUE BROUGHT OUR ATTENTION TO THE FACT THAT THE SAID REPLY LETTER DATED 26.12.2008 OF THE ASSESSEE IS SIMILARLY DATED AS THAT OF THE ASSESSMENT ORDER, WHICH IS ALSO DT. 26.12.2008 . IT IS NOT POSSIBLE THAT THE CIT PASSED AN ORDER AFTER PERUSING OF THE SAID REPLY LETTER OF THE ASSESSEE. FURTHER, HE BROUGHT OUR ATTENTION TO THE O RDER OF THE CIT, WHO CONSIDERED THE SAID LETTER BEFORE THE SAME IS REJECTED. 6. WE HAVE HEARD BOTH THE PARTIES ON THE LIMITED ISSUE OF WHETHER THE AO HAS FORMED AN OPINION ON THE APPLICABILITY OF PROVISIONS OF SEC. 45(2) OF THE ACT TO THE IMPUGNED TRANSA CTIONS BEFORE ASSESSMENT IS COMPLETED ON 26.12.2008. IT IS AN UNDISPUTED FACT THAT THERE WAS A DISCUSSION BEFORE THE AO ON THE APPLICABILITY ON THE SAID PROVISIONS TO THE IMPUGNED TRANSACTIONS AND THE ASSESSEE WAS ASKED TO FILE REPLY, WHICH WAS DULY COMPLI ED WITH. PAGE 52 OF THE PAPER BOOK IS RELEVANT IN THIS REGARD AND THE OPENING PARA OF THE SAID PAGE READS AS UNDER: WITH REFERENCE TO THE ABOVE ASSESSEE REGARDING APPLICABILITY OF SECTION 45(2) FOR CONSTRUCTING THE ANCESTRAL PROPERTY, WE BRIEFLY NARRATE T HE FACTS AND OUR SUBMISSION THAT THE SECTION 45(2) IS NOT APPLICABLE TO OUR CASE FOR THE REASON MENTION AS UNDER.. DURING THE LAST 40 YEARS, THERE WAS NO CONSTRUCTION BUSINESS OF THE ASSESSEE, FOR THE FIRST TIME HE CONSTRUCTED THE PROPERTY TO REALIZE THE BETTER PRICE OF LAND, HENCE CONSIDERING THE FACTS OF THE CASE AND VARIOUS HIGH COURT JUDGMENTS CITED ABOVE INCLUDING SUPREME COURT JUDGMENT WHICH ARE APPLICABLE IN THE PRESENT CASE, THE INCOME ON SALE OF LAND IS CAPITAL GAIN RECEIPT AND SECTION 45(2) IS NOT APPLICABLE . 7. ON THE PERUSA L OF THE SAME, IT CANNOT BE STATED THAT THE ISSUE OF THE APPLICABILITY OF THE SAID PROVISIONS WAS NOT THE S UBJEC T MATTER OF SCRUTINY BETWEEN THE R EVENUE OFFICER AND THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS . IT IS NOT THE CASE OF THE R EVENUE THAT THE ENTRIES IN THE ORDER - SHEET CALLING FOR ASSESSEES REPLY ON THE APPLICAB ILITY OF THE SAID PROVISIONS ARE IN - GENUINE. IT IS ALSO NOT THE CASE OF THE R EVENUE THAT THE SAID LETTER DATED 26.12.2008 WAS NOT FILED BY THE ASSESSEE. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE AO HAS ALREADY TAKEN A VIEW ON THE APPLICABILIT Y OF PROVISIONS OF SECTION 45(2) DURING THE ASSESSMENT PROCEEDINGS. 8. SECTION 263 OF THE ACT ALLOWS ASSUMPTION OF JURISDICTION OF THE CIT WHEN THERE IS INCORRECT ASSUMPTION OF LAW OR FACT. THE SAME IS EXPLAINED BY THE APEX 4 COURT IN THE CASE OF MALAB AR INDUSTRIAL CO. LTD (SUPRA) AND THE JUDGMENT OF THE HONBLE HIGH COURT IN THE CASE OF CIT VS. GABRIAL INDIA LTD [1993] 203 ITR 108 (BOM). IT IS ALSO EXPLAINED THAT THE NON - APPLICATION OF MIND BY THE AO CAN ALSO BE A REASON FOR ASSUMPTION OF JURISDICTIO N. IT IS THE CASE OF THE LD COUNSEL THAT THE CIT ASSUMED JURISDICTION, EVEN WHEN THERE IS APPLICATION OF MIND TO THE ISSUE UNDER CONSIDERATION I.E., APPLICABILITY OF PROVISIONS OF SECTION 45(2) TO THE IMPUGNED TRANSACTIONS. HONBLE JURISDICTIONAL HIGH CO URT IN THE CASE OF GABRIAL INDIA LTD (SUPRA) HELD THAT THE CIT CANNOT SUBSTITUTE HIS CONCLUSION TO THAT OF THE ASSESSING OFFICER WHEN AO HAS DECIDED AN ISSUE. IT IS NOT THE REQUIREMENT THAT THE AO SHOULD MENTION IN THE ASSESSMENT ORDER AS TO WHY CERTAIN A DDITIONS WERE NOT MADE. RELEVANT PORTION FROM THE SAID JUDGMENT IN THE CASE OF GABRIAL INDIA LTD (SUPRA) IS REPRODUCED HERE UNDER: .. THIS SECTION DOES NOT VISUALISE A CASE OF SUBSTITUTION OF THE JUDGMENT OF THE COMMISSIONER FOR THAT OF THE ITO, WHO PASSED THE ORDER, UNLESS THE DECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE THE ITO WHILE MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME E ITHER 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 ESTIMATE D THE INCOME AT A FIGURE HIGHER THAN THE ONE DETERMINED BY THE ITO. THAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE - EX A MINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. IT IS BECAUSE THE ITO HAS EXERCISED THE QUASI - JUDICIAL POWER VESTED IN HIM IN ACCORDANCE WITH LAW AND ARRIVED AT A CONCLUSION AND SUCH A CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEE L SATISFIED WITH THE CONCLUSION 9. THUS, AO EXAMINED THE APPLICABILITY OF PROVISION S OF SECTION 45(2) OF THE ACT IN THE PRESENT CASE AND THE SAME IS EVIDENT FROM THE EXPLANATION PROVIDED BY THE ASSESSEE TO THE AO VIDE LETTER DATED 26.12.2008 WHICH ALSO HAPPENED TO BE THE DATE OF ASSESSMENT ORDER. NOTHING IS BROUGHT TO OUR NOTICE THAT TH E SAID LETTER IS NOT GENUINE. RATHER, IT IS EVIDENT FROM THE ORDER OF THE CIT (A) THAT THE ASSESSEE FILED THIS LETTER IN RESPONSE TO THE REQUIREMENT BY THE AO AND THE ORDER SHEET OF THE ASSESSMENT FILED EVIDENCES THE SAME. CONSIDERING THE SCOPE NARRATE D ABOVE , WE ARE OF THE OPINION THAT THE FINDING ON THIS LEGAL GROUND ALONE, THE ORDER OF THE R EVENUE ASSUMING THE JURISDICTION UNDER SECTION 263 OF THE ACT CANNOT BE HELD VALID. 5 ACCORDINGLY, THE RELEVANT GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE. CONS IDERING THE RELIEF GRANTED TO THE ASSESSEE, OTHER ASPECTS / ARGUMENTS NEED NOT BE ADJUDICATED WHICH BECOMES MERELY AN ACADEMIC EXERCISE. ACCORDINGLY, THE OTHER GROUNDS ARE DISMISSED AS ACADEMIC. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS DECIDED IN THE A BOVE MENTIONED MANNER. ORDER PRONOUN CED IN THE OPEN COURT ON 10 TH SEPTEMBER, 2014. SD/ - SD/ - (VIVEK VARMA) (D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER NAGPUR ; 10 /09/2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , / DR, ITAT, NAGPUR. 6. / GUARD FILE . //TRUE COPY// / BY ORDER, ( SR. PRIVATE SECRETARY) / ITAT, NAGPUR