PCIT Vs American Spring & Pressing Works Pvt. Ltd. (Bombay High Court)
The Bombay High Court considered the Revenue’s appeal against the order of the ITAT concerning revision proceedings under Section 263 of the Income Tax Act, 1961. The assessee had challenged the order dated 22 March 2016 passed by the Principal Commissioner of Income Tax-12, Mumbai, revising the assessment order passed under Section 143(3) for AY 2011-12. The assessee was engaged in manufacture and sale of agricultural equipment and development of real estate and hotel business. Its assessment was completed on 13 March 2014, determining total income at Rs. 3.29 crores. The Principal CIT held that the assessment order was erroneous and prejudicial to the interests of Revenue.
The ITAT held that the Principal CIT could not invoke jurisdiction under Section 263. It found that the Assessing Officer had taken a possible view and that there was nothing to indicate that the provisions had been incorrectly applied. Before the High Court, substantial questions were proposed concerning the retention of 49% of the saleable area by the developer, the assessee’s entitlement to 51% of the saleable area, whether such entitlement represented consideration for transfer of stock-in-trade, and whether the development agreement determined the manner of receiving consideration or established that transfer of stock-in-trade had taken place. The Court noted that the ITAT’s finding that the Principal CIT could not exercise Section 263 jurisdiction had not been challenged.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
Following substantial questions of law are proposed:-
“(a) Whether in law and in given facts and circumstances of the case, retention of 49 percent saleable area in the property by the developer represents transfer of stock in trade u/s. 45(2) of the Income Tax Act, 1961 and therefore, capital gains on transfer of stock in trade be subjected to tax in A. Y. 2011-12?
(b) Whether in law and in given facts and circumstances of the case, eligibility of the assessee to receive 51 percent of the saleable area from the developer represents the consideration towards transfer of stock in trade to the developer?
(c)Whether in law and in given facts and circumstances of the case, the retention of 49 percent of saleable area in property by the developer and assessee being entitled to 51 percent share in the saleable area of the property are relevant facts that should be taken into consideration and by not doing so, the Tribunal has decided the issue wrongly in favour of the assessee?
(d) Whether in law and in given facts and circumstances of the case, development agreement between the assessee and the developers only decides in what manner the consideration will be received by the assessee towards the transfer of stock in trade and not the fact that transfer of stock has taken place or not?”
2. In this case, Respondent-Assessee had appealed against order dated 22nd March 2016 passed by the Principal Commissioner of Income Tax-12, Mumbai (Principal CIT) under Section 263 of the Income Tax Act,1961 (the Act), revising the Assessment Order passed by Assessing Officer under Section 143 (3) of the Act for Assessment Year 2011-12.
Respondent challenged validity of revision order passed by Principal CIT.
3. Assessee was engaged in the business of manufacture and sale of agricultural equipment and development of real estate and hotel business. The assessment for 2011-12 was completed on 13th March 2014 under Section 143(3) of the Act determining the total income of Assessee at Rs.3.29 crores. This was revised by Principal CIT under Section 263 of the Act by holding that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of revenue.
4. ITAT also held that the Principal CIT could not have invoked the jurisdiction of revision for proceedings under Section 263 of the Act.
The scope of revision proceedings under Section 263 of the Act has been dealt by this Court in Grasim Industries Ltd., v/s. CIT1. In Grasim Industries (supra), the Court held that where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as erroneous order prejudicial to the interest of Revenue unless the view taken by the Income Tax Officer is unsustainable in law. The ITAT also considered the judgment of the Bombay High Court in Gabriel India Ltd.,2 on the question is to when an order can be termed as erroneous.
The ITAT came to a finding that the Principal CIT could not have invoked jurisdiction under Section 263 of the Act. The ITAT came to a finding of fact that Assessing Officer has taken a possible view in the matter and there is nothing to indicate that the Assessing Officer has applied the provisions on an incorrect way. Since the view taken by the Assessing Officer is a possible view, the Principal CIT has assumed jurisdiction under Section 263 of the Act without properly complying with the mandate of Section 263 of the Act. The ITAT held that the Principal CIT has failed to show that the Assessment Order was erroneous, causing prejudice to the Revenue. This finding of the ITAT that the Principal CIT could not have exercised its jurisdiction under Section 263 of the Act has not been even challenged. Since that has not been challenged, we do not think it permissible to go into the merits of the case as decided by the Assessing Officer. Therefore, in our view, no substantial questions of law arises.
7. Appeal dismissed. No order as to costs.
Notes:
1 (321 ITR 92)
2 (203 ITR 108)
