Ita/192/2015 Of K R Satyanarayana v. The Commissioner Of Income Tax

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 71 DAY OF DECEMBER 2070 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD BETWEEN: LT.A. NCO.192 OF J2O1 K.R. SATYANARAYANA|NO.1036-20, 4TH MAINVIDYRANYAPURAMMYSURU.| (BY SMT. SWATHI SUKUMAR, ADV.,) ... APPELLAN| AND* 1.|THE COMMISSIONER OF INCOME TAX “SHILPASHRE’, VIDYARANYA COMPLEX VISHWESWARANAGAR, MYSURU. 2.|THE ADDITIONAL COMMISSIONER OFINCOME TAX, RANGE 2)“SHILPASHREE, VIDYARANYA COMPLEXVISHWESWARANAGAR, MYSURU.INCOME TAX, RANGE 2)“SHILPASHREE, VIDYARANYA COMPLEXVISHWESWARANAGAR, MYSURU. 3.|THE DEPUTY COMMISSIONER OF INCOME-TAX. CIRCLE-2(1), SHILPASHREE> VIDYARANYA COMPLEX.VISHWESWARANAGAR, MYSURU.VISHWESWARANAGAR, MYSURU. .. RESPONDENTS. (BY SRI. E.I1. SANMATHI, ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,|1961L ARISING OUT OF ORDER DATED 28.11.2014 PASSED IN ITA NO.269/BANG/2014 FOR THE ASSESSMENT YEAR 2009-10,PRAYING TO: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED ABOVE. (II) ALLOW THE APPEAL AND SET ASIDE THE ORDER.PASSED BY THE ITAT, BANGALORE IN ITA NO.269/BANG/2014DATED 28.11.2014 UPHOLDING THE ORDER PASSED BY THE.COMMISSIONER OF INCOME TAX U/S 263 DATED 2ND JANUARY,2014 AND CONSEQUENTLY CONFIRM THE ORDER PASSED BY THEASSESSING OFFICER DATED 15.12.2011. THIS|LIACOMING|ONFOR.HEARING,THISALOK ARADHE J.,DELIVERED THE FOLLOWING: | DAY, | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as the Act for short)has been preferred by the assessee. The subject matter|of the appeal pertains to the Assessment year 2009-10. The.appealISadmitted.today|ON|thefollowingsubstantial question of law: Whether the Commissioner committed an.error of law in invoking powers under Section|263 of the Income Tax Act, 1961 in the factsituation of the case 2 |Facts leading to filing of this appeal brieflystated are that assessee is an individual and is running| two proprietorship concerns viz., Bhagirath Enterprises|and Puneeth Associates. The assessee is also aédocument writer and is engaged in the business of typing and Xerox. The assessee filed the return of.income for the Assessment Year 2009-10 declaring a/total income of Rs.35,59,600/-. The assessee declaredbusiness income from the proprietary concern Bhagirath|Enterprises to the extent of Rs.13,83,194/- and alsodeclared income from tne house property for a sum ofRs.2,03,986/- and capital gains at Rs.19,06,984/- and|declared income from other sources at Rs.1,55,438/-.The case of the assessee was selected for scrutiny and a.notice under Section 143(2) of the Act was issued on.30.08.2010. The Assessing Officer by an order dated15.12.2011 after making enquiries concluded the)assessment by bringing to charge the income arising|from sale of properties as income from business as itwas found that the assessee was engaged in thebusiness of sale and purcnase of the properties. Tne. properties dealt with by the assessee were treated asstock in trade and it was held that in income declared bythe assessee under the head capital gains is assessable|only|as|businessincome.The.AssessingOfficer.thereafter issued a notice under Section 154 of the Act|on 13.12.2012 proposing to bring to charge the business|income as capital gains. However, no further action in|the matter was taken . | 3Thereafter a notice under Section 263 of the.Act was issued by the Commissioner of Income Tax interalia on the ground that income assessed as income frombusiness in respect of sale of properties as income from.capital gains to disallow interest on loan of purchase ofproperty as deduction from sale consideration, to directthe Assessing Officer to adopt guidance value of sub/registrar in respect of one property as deemed sale|value and to bring to tax the difference and to allow.deduction under Section 80C of tne Act for an amount ot Rs.1,00,Q00/-. The assessee filed a detailed reply in. 3Thereafter a notice under Section 263 of the.Act was issued by the Commissioner of Income Tax interalia on the ground that income assessed as income frombusiness in respect of sale of properties as income from.capital gains to disallow interest on loan of purchase ofproperty as deduction from sale consideration, to directthe Assessing Officer to adopt guidance value of sub/registrar in respect of one property as deemed sale|value and to bring to tax the difference and to allow.deduction under Section 80C of tne Act for an amount ot Rs.1,00,Q00/-. The assessee filed a detailed reply in. which it was pointed out that there is no error in theorder passed by the Assessing Officer nor the same is.prejudicialtOtheinterestoftherevenue.TheCommissioner of Income Tax by an order dated07.01.2014 set aside the order of assessment and/directed the Assessing Officer to pass fresh orders after|duly verifying the details furnished by the assessee withthat of books of accounts / documents filed, afterproviding reasonable opportunity of hearing to theassessee. The Assessing Officer was directed to look|into the claim of the assesseewith regard todisallowance under Section 80C of the Act and to adoptthe guideline value as per Section 50C of the Act afterproviding an opportunity of nearing to the assessee. Tne.assessee thereupon filed an appeal before the Income.Tax Appellate Tribunal (hereinafter referred to as ‘thetribunal for short). The tribunal by an order dated28.11.2014 dismissed the appeal preferred by theassessee. In the aforesaid factual background, the assessee Is before US. 4Learned counsel for the assessee submittedthat the finding recorded by the Commissioner of Income Tax that the Assessing Officer had not called for|any details from the assessee as to whether he wascarrying on real estate Dusiness before concluding that.income from sale of properties has to be assessed under.the head ‘profit and gains of business’ as well as the|finding recorded by the tribunal that the Assessing|Officer has failed to conduct an enquiry and theAssessing Officer on a wrong assumption of law,|changed the nead of income Its factually incorrect. It isurged that neither the Commissioner of Income Tax northe tribunal appreciated the fact that the Assessing.Officer had put 36 questions to the assessee by aquestionnaire to ascertain the true nature of theassessee's business and question No.16 and 18 of thequestionnairedirectly|pertaintOtneISSUE|OT classification of income. It is also urged that several noticeswereissued|and|detailedhearings|We.econducted and the details sought for by the Assessing.Officer were supplied by the assessee. It is also.contended that the Assessing Officer has mentioned the|details of all the properties with dates of purchase and.sale and it is evident that the properties were brought|and sold within a maximum period of 20 months, which.is indicative of the fact that the assessee was engaged inreal estate business. It is also argued that theassessee's treatment of Income cannot dictate the!decision of the Assessing Officer and once the material|on record is considered, the power under Section 263 ofthe Act cannot be invoked merely because a differentview can be taken. It is also argued that assessee nadconducted the enquiries as required by Explanation 2(a).of Section 263 of the Act. In Support of aforesaidsubmissions, reliance has been placed on decisions in.‘CALCUTTA DISCOUNT CO. VS. ITO, (1961) 41 ITR.191 (SC), CIT VS. J.L. MORRISON (INDIA) LTD. (2014) 366 ITR 593 (CAL), ‘CIT VS. SUNSCAMAUTO LTD.', (2011) 332 ITR 167 (DEL), ‘CIT VS.ARVIND JEWELLERS, (2003) 259 ITR 502 (GUJ),"CIT VS. DEVELOPMENT CREDIT BANK’, (2010) 323°ITR206and'CIT|VS,MARKETINGANDADVERTISING CO.', (2012) 341 ITR 180. (2014) 366 ITR 593 (CAL), ‘CIT VS. SUNSCAMAUTO LTD.', (2011) 332 ITR 167 (DEL), ‘CIT VS.ARVIND JEWELLERS, (2003) 259 ITR 502 (GUJ),"CIT VS. DEVELOPMENT CREDIT BANK’, (2010) 323°ITR206and'CIT|VS,MARKETINGANDADVERTISING CO.', (2012) 341 ITR 180. 5.On the other hand, learned counsel for therevenue submitted that the assessee neither in the.return of income nor in financial statements disclosed.that he is carrying on the real estate business andtherefore, the conclusion arrived at by the Assessing_Officer that the properties held by the assesseea are inthe nature of stock in trade is prima facie incorrect. It is”further submitted that the Assessing Officer has toclassify the income under different heads of incomespecified in Section 14 of the Act and also provisions ofSection 28 and Section 45 before concluding the head ofincome under which the income has to be computed. Itis further submitted that from the material on record, it. cannot be inferred that the assessee was in the business|of sale and purchase of the property, and therefore , theorder of the Assessing Officer is erroneous and is|prejudicial to the interest of the revenue and the|condition precedent for invoking the powers’ underSection 263 of the Act are satisfied in the fact situationof the case. 6.|We have considered the submissions made§by learned counsel for the parties and have perused therecord. Before proceeding further, it is apposite to takenote of the relevant extract of Section 263 of the Act,whicn reads as under: 263. Revision of orders prejudicial to revenue | (1) The Commissioner may cali for andexamine the record of any proceeding under|this Act, and if he considers that any order|passeaq tnerein by the Assessing Officer iserroneous in so far as it is prejudicial to the|interests of the revenue, he, may, after giving|the assessee an opportunity of being heard and after making or causing to be made suchinguiry as he deems necessary, pass such|order thereon as the circumstances of thecase justify, including an order enhancing or modifying the assessment, or cancelling the|assessmen sanddirectingafresh|assessment. J.|Thus, from close scrutiny of Section 263 it isevident that twin conditions are required to be satisfiedfor exercise of revisional jurisdiction under Section 263.of the Act firstly, the order of the Assessing Officer iserroneous and secondly, that it is prejudicial to the)interest of the revenue on account of error in the order.of assessment. 8 _The aforesaid provision was considered by.theSupremeCourtIn|‘MALABARINDUSTRIALCOMPANY VS. CIT’, 243 ITR 83and it was held thatthe phrase ‘prejudicial to the interests of the revenue”has to be read in conjunction with an erroneous orderpassed by the Assessing Officer and every loss of revenue as a consequence of the order of the AssessingOfficer cannot be treated as prejudicial to the interest ofrevenue. It was further held that where two views are.possible and the Income Tax Officer has taken one view.with which the Commissioner does not agree, the orderpassed by the Assessing Officer cannot be treated as'erroneous order prejudicial to the interest of therevenue. The principles laid down in the aforesaiddecision were reiterated by the Supreme Court In —CIT|VS. MAX INDIA LTD.,”" 295 ITR 282 (SC) andrecently tin ‘ULTRATECH CEMENT LTD. AND ORS.VS. STATE OF RAJASTHAN AND ORS.’, CIVIL|APPEAL NO.2773/2020 DECIDED ON 17.07.2020.9 |In the backdrop of aforesaid well settled legalposition, we may advert to the facts of the case. From.perusal of the order passed by the Commissioner ofincome Tax, it Is evident that ne has invoked powers.under Section 263 of the Act, on the ground that theAssessing Officer nas not satisfied itself that the assessee was engaged in the business of purchase andsale of plots and Assessing Officer has not brought anymaterial on record to show that Investment in the.property was made for the purposes of trading.However, it is pertinent to mention here that theCommissioner of Income Tax as well as the tribunal has.failed to appreciate that the Assessing Officer had put)36 questions to the assessee to ascertain the nature ofbusiness of the assessee and from perusal of questionsNos.16 and 18, it is evident that the aforesaid questions.specifically pertain to issue of classification of income. Itis pertinent to note that several notices were issued to.the assessee and detailed hearings were conducted andthe Assessing Officer in its order has mentioned thedetails of all the properties with dates of purchase andsale and from perusal of the same, it is evident that theproperties were brought and sold within a maximum.period of 20 months, from which it is evident that theassessee was engaged in real estate business. Tne Assessing Officer has conducted sufficient enquiry asrequired under Explanation 2(a) to Section 263 of theAct and there was material available on record to arriveat a conclusion, which was recorded by the Assessing|Officer. It is trite law that merely because a differentview can be taken, the powers under Section 263 of theAct cannot be invoked. In view of preceding analysis, the substantial|question of law framed by this court is answered infavour of the assessee and against the revenue. In theresult, the orders passed by the Commissioner of.Income Tax and the tribunal dated 02.01.2014 ana28.11.2014 are nereby quashed. In the result, the appeal is allowed. Sd/-JUDGE Sd/-—JUDGE