2013 (11) TMI 410 - AT - Income Tax

Tribunal orders fresh examination on Rs. 225 crores deduction, allows stock-in-trade deduction, and revenue sharing basis for rental income.

M/s SWAN ENERGY LTD Versus ADDL COMMISSIONER OF INCOME TAX

M/s SWAN ENERGY LTD Versus ADDL COMMISSIONER OF INCOME TAX - TMI Issues Involved:1. Addition of Rs. 225 crores on account of deduction claimed by the assessee on the sale consideration of Tower-A at Kurla.2. Addition of Rs. 8,20,25,000 on account of proportionate deduction in the value of stock-in-trade.3. Addition of Rs. 2,47,19,200 on account of reduction of rental receipts to the extent of 22% from gross rental receipts while computing the rental income under the head 'Income From House Property.'Issue-wise Detailed Analysis:1. Addition of Rs. 225 crores on account of deduction claimed by the assessee on the sale consideration of Tower-A at Kurla:The assessee took a bridge loan from Peerless General Finance and Investment Co. Ltd. (PGFICL) against the mortgage of its land at Kurla. Due to an inability to repay the loan, a consent decree was passed by the Bombay High Court requiring the assessee to deliver constructed area to PGFICL. The assessee later converted the land into stock-in-trade and entered a development agreement with Piramal Holdings Ltd. The constructed area was offered to PGFICL, and an agreement was made to pay Rs. 225 crores in lieu of the constructed area. The assessee sold Tower-A to Essar Tech Park Pvt. Ltd. for Rs. 256 crores, with Rs. 225 crores paid directly to PGFICL. The assessee claimed a deduction for Rs. 225 crores in the return of income, showing only Rs. 31 crores as surplus income. The Assessing Officer added Rs. 225 crores to the income, treating it as application of income and not diversion by overriding title. The Commissioner (Appeals) upheld this, relying on various case laws. The Tribunal restored the issue back to the Assessing Officer to verify the exact amount of principal loan and examine the allowability of any deduction or loss of excess amount over the principal loan while computing business income under section 28.2. Addition of Rs. 8,20,25,000 on account of proportionate deduction in the value of stock-in-trade:The assessee converted its land into stock-in-trade and entered a development agreement with Piramal Holdings Ltd., receiving Rs. 32 crores for assigning development rights. This amount was shown as business receipts, and the value of stock-in-trade was reduced by Rs. 32.81 crores. In the original return, this reduction was disallowed and added back, leading to double taxation. The assessee claimed a proportionate deduction in the current year, which was disallowed by the Assessing Officer and Commissioner (Appeals). The Tribunal allowed the deduction, noting that the assessee had already offered the income for taxation in the earlier year and the claim was for write-off of income already taxed. The Tribunal set aside the impugned order and allowed the ground raised by the assessee.3. Addition of Rs. 2,47,19,200 on account of reduction of rental receipts to the extent of 22% from gross rental receipts while computing the rental income under the head 'Income From House Property':The assessee declared rental income and reduced 22% of the rental receipts, claiming it belonged to Peninsula Land Ltd. as per the development agreement. The Assessing Officer added the reduced amount to the income, treating it as application of income. The Commissioner (Appeals) upheld this, treating the development agreement as a financial arrangement. The Tribunal found that the development agreement provided for revenue sharing, and the Assessing Officer had accepted the revenue sharing basis for sales. The Tribunal set aside the impugned order and allowed the ground raised by the assessee, noting that the rental income should be accepted net of 22% share of the developer.Conclusion:The Tribunal restored the issue of Rs. 225 crores deduction to the Assessing Officer for fresh examination, allowed the proportionate deduction of Rs. 8,20,25,000 for stock-in-trade, and accepted the revenue sharing basis for rental income, setting aside the additions made by the Assessing Officer and Commissioner (Appeals). The assessee's appeal was partly allowed for statistical purposes.