TMI Blog2016 (12) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the paper book. The AO after examining these details and after going through these financial statements proceeded to complete the assessment by accepting the business profit declared by the assessee. The assessee has been able to demonstrate that the land sold during the assessment year was the business asset (stock in trade) in the financial statements and duly appearing in the return of income filed. The AO accepted the contentions of the assessee and adopted a view. Now Pr. CIT does not agree with the view adopted by the AO then the law does not permit him to replace the view. Thus in our considered view the ld. Pr.CIT-1 is not justified to set aside the order of the AO. Date of conversion of the investment in the subject land to the stock in trade - Held that:- As established that there was no loss to revenue if the provisions of section 45(2) are applied and deemed capital gains as on the date of conversion of investment into stock in trade was computed. Further business profit is computed in the impugned year when actual sale takes place by taking the fair market value as on the date of such conversion as cost of acquisition. This view is duly supported by the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n stock-in-trade, it cannot be held that the land was not stock-in-trade of assessee particularly in the year under appeal when it is an admitted fact that the assessee is into the business of real estate and duly declared the same as stock in trade in the return filed for A.Y. 2010-11 i.e. the immediately preceding assessment year. 1.5 That, the Ld. Pr. CIT-1 has further erred in invoking the provisions of Explanation 2 to section 263 by completely ignoring the fact that complete details were submitted before the ld. AO who has duly examined the same, and merely because the issue has not been discussed in detail in the assessment order, it cannot be alleged that no inquiries were conducted. 2.1 Brief facts of the case are that the assessee filed return of income on 31-07-2011 declaring income of ₹ 27,93,750/-. The return was processed u/s 143(1)(a) of the Act. The case of the assessee was selected for scrutiny by issuing notice u/s 143(2)(a) of the Act on 01-08-2012. On the change of incumbent, again notices were issued u/s 142(1)of the Act. The assessment was made u/s 143(3) of the Act at returned income. The AO has observed in the order that during the course of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms which were not verified by the AO. Even after apparent discrepancies shown up by the documents submitted by the assessee such as the balance sheet of the earlier years not tallying with the returns filed, the AO failed to reconcile and make enquiries in the case so as to determine the genuineness of the claim of the assessee. Ex 2 appended to Section 263 of the Income Tax Act prescribes that the order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue, if , in the opinion of Principal Commissioner is passed without making enquiries or verification which should have been made. The facts mentioned above show that the order passed is erroneous as the order was passed without making enquiries, which should have been made. 8. Considering all the facts and circumstances of the case, the assessment order passed by AO, is held erroneous in so far as it is prejudicial to the interest of the Revenue for the purpose of Section 263 of the I.T. Act. The assessment order is, accordingly, set aside on the limited issue discussed above. The AO shall give proper opportunity of being heard to the assessee before passing the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial township scheme on the same, the assessee had got converted its land use and got it approved from the appropriate authorities. During the process of conversion of land use, a sum of ₹ 5,62,040/- was paid which was debited to the cost of land, which fact has not been disputed by the Ld. CIT(Admn.) in the impugned order. During the financial year relevant to the Assessment Year under consideration, the assessee had available with him an opening stock of land valuing at ₹ 57,51,720/- duly disclosed in the balance sheet out of which part of the stock of land was sold by the assessee to M/s Alliance Land Developers P. Ltd. ( in no manner related to the assessee) for a total consideration of ₹ 53,00,000/- and profit from this transaction was declared in the Profit Loss account and offered for taxation as business income under the head Income from Business Profession (APB-2) . However, by completely ignoring the above factual position, the Ld. CIT(Admn.) solely on the basis of audit objection alleged that the said land was not shown as stock-in-trade in the income tax returns for A.Yrs. 2007-08 to 2009-10 and for the first time in the return of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h land for investment purposes. Moreover, looking at the magnitude of the land i.e. 110500 sq. mtrs., the financial leverages, involvement of multiplicity of systematic business operations and the surrounding circumstances of the business of the assessee, it cannot by any stretch of imagination be assumed that the land could have been held as investment at any point of time. Substance over the form: It is further submitted that it is the substantial nature of the transaction which has to be looked upon for the purpose of determining as to whether the transaction of sale of subject land was business transaction or not. Needless to mention that, the form is not always conclusive and there are cases where the substance must be looked at in order to ascertain the real nature of the transaction. Furthermore, the Hon ble Courts have always upheld the assessee s contention that the Substance has to prevail against the Form . Reliance is placed on the following case laws:- i) 148 ITR 72 (Raj.) CIT Vs. Maharaj Shri Ummaid Mills ii) 241 ITR 193 (Mad.) CIT Vs. 21st Society of Immaculate Conception iii) 66 DTR 265 Vodafone International Holdings B.V. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It has already been established above that the assessee has duly shown the subject land as stock-in-trade which is apparent from the balance sheets filed by assessee in preceding assessment years. There was no possibility of holding it as investment in view of the fact that immediately after acquisition of subject land, its land use got changed from agriculture to residential and as such, the conversion further established the clear intention of the assessee who always held and disclosed the same as stock-in-trade only. And therefore, the Ld. AO was completely justified in accepting the income from sale of subject land as business income. It is therefore submitted that the Ld. AO has taken a legal and correct view of the entire material available before him and after making application of mind as a duly instructed person on law and facts and any conclusion having been reached to a reasonable satisfaction of accepting the returned income, thus the order of Ld. AO is not erroneous on any count. Indeed, in the instant case the Ld. AO has passed this order after considering entire material available on record, called for and submitted by assessee during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The Order of Ld. AO is not prejudicial to the interest of revenue: At this juncture, attention of the Hon ble Bench is invited to the fact that the subject land was later on acquired by the Government; and compensation was paid to the buyer who had paid the tax on the differential amount by taking the actual purchase price i.e. ₹ 53,00,000/- as the cost of acquisition, and at the value as determined u/s 50C at the time of purchases for the subject land from the appellant, thus there occurred no loss of revenue to the department. Necessary copies of the income tax return, audit report, Form 26AS etc. of the buyer were submitted by assessee before Ld. AO as well as before Ld. CIT(Admn.) in revision proceedings (APB 108-124) . Therefore, since the differential amount of tax already stands paid by the purchaser there was no loss of revenue to the department and therefore, the basic condition for invoking section 263 have not been fulfilled. It has been held in the case of CIT v. Max India Ltd. reported in 295 ITR 282 (SC) that every loss of revenue cannot be said to be prejudicial to the interests of revenue , however in this case interestingly, there has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted that the subject land was firstly shown as stock in trade in FY 2009-10 in the return of income, as per the provisions of section 45(2) there would be no loss to revenue for which it is submitted as under :- WITHOUT PREJUDICE to the submission made above and without in any manner admitting the allegations made in the impugned revision order, and in the ALTERNATIVE it is submitted that the Ld. CIT(Admn.) in its order at page 1 para 2.1 last line, has himself observed that in the return of income filed for A.Y. 2010-11 on 07.02.2011, the opening stock in trade of the land was at ₹ 54,44,770/- and closing stock in trade of land was shown at ₹ 57,51,720/- .. . From such observations of Ld. CIT(Admn.) it is clearly established that in any case the assessee has disclosed the said land as opening stock in the return of income filed for A.Y. 2010-11 meaning thereby, the assessee has converted its investment into the stock in trade during the F.Y. 2009-10 relevant to A.Y. 2010-11, the value at which the land is converted into stock in trade is to be treated as the sale price for computing the capital gain on such conversion and will be taxed in the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me nonest for the purposes of revision. 2.3 On the other hand the ld. DR supported the order of the ld. Pr.CIT- 1 and argued that the revision order was passed only after due verification of the records and was not based on the audit objection. He further submitted that the AO had not verified the issue whether the subject land was shown as stock in trade or investment in the return of income filed and merely got swayed whatever submitted before him. In the return of income filed for the AY 2007-08 to 2009-10, no opening and closing stock was filled in and for the first time in the return for AY 2010-11, the opening stock as on 1.4.2009 was declared in the return of income filed. He thus prayed for the confirmation of the revision order since according to him the AO had failed to appreciate the fact that assessee never disclosed the said land as Stock in trade in the returns filed and thus the sale consideration should have been replaced by the figure determined by the stamp authorities for charging the stamp duty in view of the provisions of section 50C of the Act. The ld. DR relied on the following case laws. (1) Smt. Renu Gupta vs. CIT (2008) 301 ITR 45 (Raj.) (2) Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order should not only be the erroneous but also prejudicial to the interest of revenue. As per the ld. Pr.CIT-1 the date of conversion of the investment in the subject land to the stock in trade was 1.4.2009, as appearing in the return of income for AY 2010-11, even then this preposition will not make any adverse effect to the assessed income for the year before us in terms of provisions of section 45(2), according to which the fair market value as on the date of transfer has to be taken to compute the deemed capital gains as on the date of such conversion and by taking such value the business profit is computed. In this regard our attention was drawn by the ld. AR to the argument put forth before the ld. Pr.CIT-1 vide paper book pages 106 107 wherein it was established that there was no loss to revenue if the provisions of section 45(2) are applied and deemed capital gains as on the date of conversion of investment into stock in trade was computed. Further business profit is computed in the impugned year when actual sale takes place by taking the fair market value as on the date of such conversion as cost of acquisition. This view is duly supported by the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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