Sri Kadakatla Rice Mill, Tadepallegudem V. CIT, Rajahmundry

ITA 77/VIZ/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2922 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 28-04-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 17-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBRATA SARKAR
• Assessee Lawyers: C SUBRAMANYAM
• Keywords: Capital asset; Business income; Principle of natural justice; Fair market value; Set aside; Capital Gains
• Section: 45(2); 143(1); 148; 263

Judgement Text

ITA NO. 77/VIZAG/2009 SRI KADAKATLA RICE MILL, TADEPALLIGUDEM PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.77/VIZAG/2009 ASSESSMENT YEAR: 2004-05 SRI KADAKATLA RICE MILL, TADEPALLIGUDEM CIT RAJAHMUNDRY (APPELLANT) PAN NO: AAIFS 1559 E VS. (RESPONDENT) APPELLANT BY: SHRI C. SUBRAMANYAM, CA RESPONDENT BY: SHRI SUBRATA SARKAR, CIT(DR) ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 11-12- 2008 PASSED BY LEARNED CIT RAJAHMUNDRY U/S 263 OF T HE ACT AND IT RELATES TO THE ASSESSMENT YEAR 2004-05. THE ASSESSEE IS CHA LLENGING THE VALIDITY OF INITIATING OF REVISION PROCEEDINGS UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE FACTS RELATING TO THE ISSUE ARE SET OUT IN B RIEF. THE ASSESSEE WAS IN THE BUSINESS OF MILLING OF RICE AND LETTING OF G ODOWN. IT DISCONTINUED ITS BUSINESS ACTIVITIES W.E.F. 31-3-2003. THE ASSESSEE HELD A VACANT LAND OF 5 ACRES AS ITS CAPITAL ASSET. DURING THE YEAR UNDER C ONSIDERATION, THE ASSESSEE DEVELOPED THE SAID LAND INTO HOUSING PLOTS AND STAR TED SELLING THE SAME. THE ASSESSEE OFFERED THE INCOME FROM THE SALE OF PLOTS UNDER THE HEAD INCOME FROM CAPITAL GAINS. THE RETURN OF INCOME OF THE AS SESSEE WAS INITIALLY ITA NO. 77/VIZAG/2009 SRI KADAKATLA RICE MILL, TADEPALLIGUDEM PAGE 2 OF 5 PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY A NOT ICE U/S 148 WAS ISSUED ON 24-11-2005 IN ORDER TO VERIFY THE APPLICABILITY OF PROVISIONS OF SEC.45(2) OF THE ACT. THE ASSESSING OFFICER, THEREAFTER, COM PLETED THE ASSESSMENT BY ACCEPTING THAT THE INCOME FROM SALE OF PLOT IS ASSE SSABLE AS LONG TERM CAPITAL GAIN ONLY. HOWEVER, THE LEARNED CIT WAS OF THE VIEW THAT THE PROVISIONS OF THE ACT 45(2) ARE SQUARELY APPLICABLE TO THE FACTS OF THE CASE AND HENCE INITIATED REVISION PROCEEDINGS U/S 263 OF THE ACT. THE OBSERVATION OF LEARNED CIT IN PARA 2 OF HIS ORDER ARE EXTRACTED BELOW: 2. AS PER THE PROVISIONS OF SEC. 45(2) OF THE I.T. ACT, THE PROFITS OR GAINS ARISING FROM THE TRANSFER BY WAY O F CONVERSION BY THE OWNER OF A CAPITAL ASSETS INTO, O R ITS TREATMENT BY HIM AS STOCK-IN-TRADE OF A BUSINESS CA RRIED ON BY HIM SHALL BE CHARGEABLE TO INCOME TAX AS HIS INCOME OF THE PREVIOUS YEAR IN WHICH SUCH STOCK-IN- TRADE IS SOLD OR OTHERWISE TRANSFERRED BY HIM, AND FOR TH E PURPOSES OF SEC.48, THE FAIR MARKET VALUE OF THE AS SET ON THE DATE OF SUCH CONVERSION OR TREATMENT SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RE CEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPI TAL ASSET. THE ASSESSEES CASE SQUARELY FALLS UNDER THE PROVIS IONS OF SEC. 45(2) OF THE ACT. 3. IN THE REVISION PROCEEDINGS, THE ASSESSEE SUBMIT TED BEFORE THE LEARNED CIT THAT THE BUSINESS OF ASSESSEE WAS LETTI NG OF GODOWN AND THE SAME WAS DISCONTINUED ON 31-3-2003. THE ASSESSEE CO NVERTED THE LAND HELD BY IT AS CAPITAL ASSET INTO HOUSING PLOTS IN ORDER TO FETCH BETTER PRICE AND HENCE IT CANNOT BE TAKEN AS ADVENTURE IN THE NATURE OF TRADE. HOWEVER, LEARNED CIT DID NOT ACCEPT THE CONTENTIONS OF THE A SSESSEE AND HELD THAT THE ORDER PASSED BY ASSESSING OFFICER IS PREJUDICIA L TO THE INTEREST OF THE REVENUE IN AS MUCH AS THE IMPUGNED INCOME OUGHT TO HAVE BEEN ASSESSED UNDER THE HEAD BUSINESS INCOME BUT NOT CAPITAL G AINS. AGGRIEVED BY THE ORDER PASSED BY THE LEARNED CIT, THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO. 77/VIZAG/2009 SRI KADAKATLA RICE MILL, TADEPALLIGUDEM PAGE 3 OF 5 4. BEFORE PROCEEDING FURTHER, WE FEEL IT PERTINENT TO DISCUSS ON THE LEGAL POSITION ON THE ISSUE OF SECTION 263 OF THE ACT. TH E HON'BLE BOMBAY HIGH COURT, IN THE CASE OF GRASIM INDUSTRIES LTD. V CIT (321 ITR 92) HAS DEALT WITH THE SCOPE OF PROVISIONS OF SECTION 263 AS UNDE R: SECTION 263 OF THE INCOME-TAX ACT, 1961 EMPOWERS TH E COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD O F ANY PROCEEDINGS UNDER THE ACT AND, IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN, BY THE ASSESSING OFFICER IS ERRONEO US IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENU E, TO PASS AN ORDER UPON HEARING THE ASSESSEE AND AFTER AN ENQUIR Y AS IS NECESSARY, ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. TH E KEY WORDS THAT ARE USED BY SECTION 263 ARE THAT THE ORD ER MUST BE CONSIDERED BY THE COMMISSIONER TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. TH IS PROVISION HAS BEEN INTERPRETED BY THE SUPREME COURT IN SEVERAL JU DGMENTS TO WHICH IT IS NOW NECESSARY TO TURN. IN MALABAR INDUS TRIAL CO. LTD. V. CIT [2000] 243 ITR 83, THE SUPREME COURT HELD THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFIC ER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WI LL BE ATTRACTED. THE SUPREME COURT HELD THAT AN INCORREC T ASSUMPTION OF FACT OR AN INCORRECT APPLICATION OF L AW, WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. AN ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE O R WITHOUT APPLICATION OF MIND, WOULD BE AN ORDER FALLING IN T HAT CATEGORY. THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE SUPREME COURT HELD, IT IS OF WIDE IMPORT AND IS NOT CONFINED TO A LOSS OF TAX. WHAT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE IS EXPLAINED IN THE JUDGMENT OF THE SUPREME COURT (HEA D NOTE) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PA SSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CON SEQUENCE OF AN ORDER OF THE ASSESSING OFFICER, CANNOT BE TREA TED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITA NO. 77/VIZAG/2009 SRI KADAKATLA RICE MILL, TADEPALLIGUDEM PAGE 4 OF 5 INCOME-TAX OFFICER 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 INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. THE PRINCIPLE WHICH HAS BEEN LAID DOWN IN MALABAR I NDUSTRIAL CO. LTD. [2000] 243 ITR 83 (SC) HAS BEEN FOLLOWED AND EXPLAINED IN A SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN CIT V. MAX INDIA LTD. [2007] 295 ITR 282. 5. IN THE INSTANT CASE, THE ASSESSMENT WAS REOPENED WITH A SPECIFIC PURPOSE OF ASCERTAINING THE APPLICABILITY OF PROVIS IONS OF SEC. 45(2) OF THE ACT. FROM THE PAPER BOOK FILED BY THE ASSESSEE WE N OTICE THAT THE ASSESSING OFFICER HAS RAISED SPECIFIC QUERIES WITH REGARD TO THE ASSESSABILITY OF THE IMPUGNED INCOME UNDER THE HEAD INCOME FROM BUSINES S. FINALLY THE ASSESSING OFFICER HAS ACCEPTED THE CLAIM OF THE ASS ESSEE THAT THE IMPUGNED INCOME IS ASSESSABLE UNDER THE HEAD CAPITAL GAINS . THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE FOLLOWING CASE LAW TO SUBMIT THAT THE CONVERSION OF LAND INTO SITE AND THEN SALE OF S ITE AT THE BEST PRICE WILL RESULT IN CAPITAL GAINS ONLY. I) CIT VS. MAHALINGAM (1977) 107 ITR 236 (MAD). II) CIT VS. KASTURI ESTATES PVT. LTD., 62 ITR 578 III) CIT VS. SAIRAM (2000) 242 ITR 104 (MAD). IV) SHYAMALA PICTURES LTD VS CIT (1983) 142 ITR 11 5 (MAD). V) ITO VS. REY PERFUMES (P) LTD., (1990) 32 ITD (M AD) 398 VI) ITO VS. SITA RAM CHAMARIA & ANR (2006) 6 SOT 5 94 (MUM) 6. FROM THE FACTS OF THE CASE AND THE CASE LAW RELI ED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE, IT CAN BE SEEN T HAT THE QUESTION OF ASSESSABILITY OF INCOME FROM SALE OF SITES AFTER CO NVERSION OF LAND INTO HOUSING PLOTS IS A DEBATABLE ONE AND HENCE TWO VIEW S ARE POSSIBLE. THE ITA NO. 77/VIZAG/2009 SRI KADAKATLA RICE MILL, TADEPALLIGUDEM PAGE 5 OF 5 ASSESSING OFFICER HAS FOLLOWED ONE OF THE POSSIBLE VIEWS AND HENCE, IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT REFERR ED TO IN PARA 4 (SUPRA), THE SAME CANNOT BE TREATED AS ERRONEOUS ORDER PREJU DICIAL TO THE INTEREST OF THE REVENUE. HENCE WE ARE OF THE VIEW THAT THE REVI SION PROCEEDING INITIATED BY THE LEARNED CIT IS NOT IN ACCORDANCE W ITH THE LAW. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LEARNED CIT PASSED U/ S 263 OF THE ACT IN THE INSTANT CASE FOR THE YEAR UNDER CONSIDERATION. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON 4 TH AUGUST, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:04-08-2010 COPY TO 1 M/S SRI KADAKATLA RICE MILL (PROPS), MG. PARTNER P. AYODYA RAMAIAH, DOOR 4-37-11, SRINIVASA EMPLOYEES COLONY, VISWAJYOT HI CONVENT STREET, TADEPALLIGUDEM 534 101 2. THE CIT RAJAHMUNDRY 3 THE DR, ITAT, VISAKHAPATNAM. 4 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM