Income Tax Appellate Tribunal - Mumbai
Kumar U. Ailani, Ulhasnagar vs Cit Iii, Thane on 13 September, 2017
1
ITA No.2951/Mum/2013
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "A", MUMBAI
Before Shri Mahavir Singh (JUDICIAL MEMBER)
AND
Shri G Manjunatha (ACCOUNTANT MEMBER)
I.T.A No.2951/Mum/2013
(Assessment year 2008-09)
Shri Kumar U Ailani vs Commissioner of Income-tax-III, Thane
Ground Floor, Sachdev
Complex, Near New
Telephone Exchange, Goal
Maidan, Ulhasnagar 421 001
PAN : ACKPA3312R
APPELLANT RESPONDENT
Appellant by Shri Anuj Kisnadwala
Respondent by Shri R.P. Meena
Date of hearing 24-07-2017
Date of pronouncement 13-09-2017
ORDER
Per G Manjunatha, AM :
This appeal filed by the assessee is directed against the order of the Commissioner of Income-tax-III, Thane passed u/s 263 of the Income-tax Act, 1961 for the assessment year 2008-09.
2. The brief facts of the case are that the assessee, an individual, is engaged in the business of hiring of cars and derives income from business and also income from house property and income from other sources. He filed his return of income for the assessment year 2008-09 on 31-03-2009 declaring 2 ITA No.2951/Mum/2013 total income at Rs.23,63,450. The assessment was completed u/s 143(3) on 27-12-2010 determining total income at Rs.23,90,735 interalia making additions towards re-working of long term capital gain declared by the assessee from sale of property.
3. Thereafter, the Commissioner of Income-tax, Thane issued a show cause notice u/s 263 of the Income-tax Act, 1961 dated 20-11-2012 and asked the assessee as to why assessment order passed by the AO shall not be revised u/s 263 of the Income-tax Act, 1961 for the reasons discussed in the show cause notice. The CIT proposed to revise the assessment order on the ground that the AO has not carried out required enquiries in respect of income declared by the assessee towards sale of property under the head 'Income from Long Term Capital Gain (LTCG) as the assessee has held the property as capital asset but not as stock in trade. The AO, without examining the issue of taxability of surplus arose from sale of property under appropriate head of income, has merely accepted the income declared by the assessee under the head 'Income from business' which caused prejudice to the interest of the revenue and hence he opined that the assessment order passed by the AO is erroneous insofar as it is prejudicial to the interest of the revenue.
4. In response to show cause notice, the assessee, vide his letter dated 10- 12-2010 submitted that the assessment order passed by the AO neither 3 ITA No.2951/Mum/2013 erroneous nor prejudicial to the interest of the revenue as the issue of sale of the property has been subject matter of verification by the AO which is evident from the fact that the AO has discussed the issue in the body of the assessment order and also re-worked the profit derived from sale of property. The assessee further submitted that the shops in question are located in building which was constructed for the purpose of running a hotel. However, because of certain reasons, the same has been sold. Therefore, the profit arose from such sale is rightly assessed under the head 'Income from business' and not income from sale of property. The fact has been examined by the AO at the time of assessment proceedings and he has taken a plausible view. Therefore, the CIT has no jurisdiction to revise the assessment order on the same issue on which he AO has conducted necessary enquiry and applied his mind. The assessee further contended that the rental income from the impugned property has been treated as business income for the assessment year 2006-07 which was accepted by the department. However, for the assessment year 2007-08, the same has been treated as 'Income from house property' in the light of Supreme Court judgement in the case of Shambu Investments Pvt Ltd vs CIT 263 ITR 143 (SC). Therefore, mere declaration of income under the head 'Income from house property' in one particular year cannot be the basis for treating the asset as capital asset for the purpose of 4 ITA No.2951/Mum/2013 determination of income on sale of house property.
5. The CIT, after considering the assessment order passed by the AO held the assessment order is erroneous insofar as it is prejudicial to the interest of the revenue as the AO has failed to appreciate the facts in the right perspective in the light of the clear provisions of the Act. The CIT further observed that the assessee himself has admitted income from the impugned property under the head 'Income from house property which clearly shows that the assessee has treated the said property as his capital asset. The AO, ignoring all the facts simply accepted income declared by the assessee from sale of property under the head 'Income from business' which caused prejudice to the interest of the revenue. The AO being a quasi judicial authority is expected to exercise his powers in a judicial manner to tax a particular income under appropriate head of income; however, the AO has failed to bring to tax the said income under appropriate head of income, therefore, he opined that the assessment order passed by the AO is erroneous insofar as it is prejudicial to the interest of the revenue. The CIT further observed that the AO has committed error in not applying appropriate head of income and not applying the provisions of section 50C even though the sale consideration shown by the assessee is less than the guidance value prescribed for the purpose of payment of stamp duty as per the provisions of section 50C of the Act. The assessee ought to have 5 ITA No.2951/Mum/2013 considered guidance value for the purpose of computation of income. Even though the assessee has not taken the proper consideration for computation of income, the AO has not verified the issue and also not applied his mind which caused prejudice to the interest of the revenue. With these observations, he set aside the assessment order passed by the AO and directed him to redo the assessment denovo, after affording opportunity to the assessee. Aggrieved by the order of CIT, the assessee is in appeal before us.
6. The Ld.AR for the assessee submitted that the CIT erred in invoking jurisdiction u/s 263 to revise the assessment order based on the proposal sent by the AO. The CIT has to independently examine the record and apply his mind before being taken up the case for revision. Since the CIT has revised the assessment as per the proposal submitted by the AO, the revisionary proceedings are invalid. The Ld.AR further submitted that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue as the issue of taxation on sale of property has been examined by the AO in the assessment proceedings and after application of mind has taken one of the possible views, therefore, the same cannot be termed as erroneous insofar as it is prejudicial to the interest of the revenue. The Ld.AR further submitted that once the issues on which the CIT revised the assessment order was subject matter of verification by AO in the assessment proceedings, the 6 ITA No.2951/Mum/2013 same cannot be revised by holding that the enquiries conducted by the AO are insufficient or inadequate. In support of his arguments, he relied upon the following judicial precedents:-
1. CIT vs Nirav Modi [390 ITR 292 (Bom)]
2. SLP dismissed by the Hon'ble Supreme Court in the case of CIT vs Nirav Modi [389 ITR (St) 42]
3. CIT vs Gabriel India Ltd [203 ITR 108 (Bom)]
4. CIT vs Sunbeam Auto [227 CTR 133 (Del)]
5. DIT vs Jyoti Foundation [357 ITR 388 (Del)]
6. CIT vs Hero Auto Ltd [343 ITR 342 (Del)]
7. CIT vs Vikas Polymers [341 ITR 537 (Del)]
8. CIT vs Anil Kumar Sharma [335 ITR 83 (Del)]
9. B.S. Sangwan vs ITO [67 SOT 447 (Del)]
10. Narain Singh vs CIT [156 ITD 275 (Chd)]
7. The Ld.DR, on the other hand, strongly supported the order of CIT and submitted that the assessment order passed by the AO is erroneous insofar as it is prejudicial to the interest of the revenue as the AO has filed to apply his mind on the issues at the time of assessment which is evident from the fact that the income chargeable under the head 'capital gain' has been assessed under the head 'income from business'. The AO has not conducted required 7 ITA No.2951/Mum/2013 enquiries on the issue which caused prejudice to the interest of the revenue. The assessee has sold the property and the consideration shown in the sale deed is less than the guidance value fixed for payment of stamp duty. As per the provisions of section 50C, if the consideration shown in the sale deed is less than the guidance value, then the guidance value should be taken as full value of consideration for purpose of computation of capital gain. The assessee has taken the consideration as per the sale deed and also assessed the same under the head 'Income from business' even though the rental income from the said property has been treated as 'Income from house property'. These aspects have not been examined by the AO. Therefore, the assessment order passed by the AO is erroneous insofar as it is prejudicial to the interest of the revenue and hence, the CIT was right in revising the assessment order.
8. We have heard both the parties and perused the material available on record. The assessee has sold property and income from sale has been treated as business profits. According to the assessee, the property in question was a business asset. Therefore, the surplus from sale of such property has been rightly considered under the head 'Income from business'. The AO has accepted the claim of the assessee in the assessment proceedings. The CIT revised the assessment order on the ground that income from sale of property 8 ITA No.2951/Mum/2013 should be assessed under the head 'Income from capital gains' and not under the head 'Income from business'. The CIT further observed that the assessee himself admitted rental receipts from the impugned property under the head 'Income from house property' which clearly proves that the said property is a capital asset and hence, any surplus on sale of capital asset should be assessed under the head 'Income from capital gains'. The CIT also observed that the sale consideration shown by the assessee is less than the guidance value fixed for payment of stamp duty and as per the provisions of section 50C the assessee ought to have taken section 50C value for the purpose of computation of capital gain. Though the assessee has not considered the proper consideration as per the provisions of section 50C, the AO failed to examine the issue in the light of the provisions of the Act, which caused prejudice to the interest of the revenue.
9. There is no dispute with regard to the nature of property. The assessee, though claims the impugned property is a business asset, the rental income from the said property has been assessed under the head 'Income from house property'. The asset has been considered as capital asset in the books of account of the assessee. Once the property has been treated as capital asset, any surplus from sale of such property should be assessed under the head 'Income from capital gains'. Further, while computing capital gains, if the sale 9 ITA No.2951/Mum/2013 consideration is less than the guidance value, as per the provisions of section 50C, guidance value shall be the full value of consideration for the purpose of computation of long term capital gain. The law is very clear. The AO, ignoring all the facts, has simply accepted the income declared by the assessee towards sale of property under the head 'Income from business'. Though the AO has conducted certain enquiries, but failed to apply his mind to the facts of the present case in the light of provisions of the Act. The AO ought to have assessed the surplus under the head 'Income from capital gains'. However, he accepted income declared by the assessee under the head 'Income from business'. Therefore, it cannot be held that the AO has conducted necessary enquiries at the time of completion of assessment on the issues. Therefore, the CIT was right in revising the assessment order u/s 263 of the Act.
10. The assessee has relied upon a plethora of judgments including the decision of Hon'ble Bombay High Court in the case of CIT vs Nirav Modi (supra). We have gone through the case laws relied upon by the Ld.AR for the assessee and find that the case laws relied upon by the assessee are not applicable to the facts of the case before us as in the case before the Hon'ble Bombay High Court, the AO has conducted necessary enquiries on which CIT taken up for revision. Insofar as other case laws concerned, all are rendered under different facts of the case and hence not applicable to the facts of the 10 ITA No.2951/Mum/2013 present case.
11. In this view of the matter, we are of the considered view that the assessment order passed by the AO is erroneous insofar as it is prejudicial to the interest of the revenue. Therefore, the CIT was right in revising the assessment order u/s 263 of the Act and his order is hereby upheld.
12. In the result, appeal filed by the assessee is dismissed. Order pronounced in the open court on 13th September, 2017.
Sd/- sd/-
(Mahavir Singh ) (G Manjunatha)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dt : 13th September, 2017
Pk/-
Copy to :
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
/True copy/ By order
Asstt. Registrar, ITAT, Mumbai