The Income Tax Appellate Tribunal (ITAT), Bangalore confirmed revision order under Section 263 of the Income Tax Act, 1961 and held that income from Joint Development Agreement (JDA) is business income.
Prior to issuing the aforesaid notice u/s 133C the Income Tax Officer asked the appellant, M/s. ETA Star Infopark, to furnish copies of the Joint Development Agreement, relevant Power of Attorneys executed in favour of the Developer and also copies of Partnership Deed for his verification and in response to the same, the appellant had submitted all such documents.
The AO, after finding that the appellant has not done any business activity and nor earned any income from business during the A.Y.2015-16, the AO had sought the approval of the Principal Commissioner of Income-tax to convert the limited scrutiny into complete scrutiny for disallowing the general and establishment expenses claimed as deduction by the appellant in the Return.
The Pr.CIT, after examining the records of the appellant and found that the appellant had neither carried out any business activities and nor earned any income from business, accorded approval to convert the assessment proceedings into complete scrutiny, for disallowing the general and administrative expenses claimed by the appellant as a deduction in the return.
The Counsel for the assessee,Annamalai submitted that it was only change of opinion, the PCIT invoked the provisions of section 263 of the Act and he cannot take a different view from that of his predecessor of same rank and conclude that the appellant has done business activity by signing JDA dated 28-3-2011 with a Developer and proposing to receive sale proceed on year-to-year basis, make the activity of the appellant as an adventure in the nature of trade.
The Counsel for the Revenue ,Dr. Manjunath Karkihallisubmitted that The A.O. in the assessment order has taxed the receipts as long-term capital gain, which make it as erroneous and prejudicial to the interest of revenue within the meaning of explanation 2 of section 263 of the Act. Hence, the notice u/s 263 of the Act issued so as to revise the assessment order.
The Bench consisting of Chandra Poojari, Accountant Member and Beena Pillai, Judicial Member held that “There was proper examination of the issue disputed by PCIT by AO at the stage of assessment and the PCIT cannot find fault with the action of the AO in accepting the claim of assessee that income arose out of the JDA to be treated as business income instead of Long term capital gain offered by assessee.”
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