2014 (9) TMI 195 - AT - Income Tax

Tax Tribunal Orders Fresh Assessment under Section 263 for Improper Lease Treatment

M/s TAMILNADU INDUSTRIAL DEVELOPMENT CORPORATION LTD Versus ASSTT COMMISSIONER OF INCOME TAX

The Tribunal upheld the Commissioner of Income Tax's order under Section 263, directing a fresh assessment by the Assessing Officer. The decision was ... Jurisdiction of CIT u/s 263 – Lease amount received – Held that:- The AO failed to make any sort of enquiries in respect of taxability of the lease rent derived by the assessee from M/s. TRIL Infopark Ltd on the land alienated by the Government of Tamil Nadu to TIDCO which in turn was leased out to M/s. TRIL Infopark Ltd. – the AO has not gone into the transaction as rightly pointed out by the CIT and in the absence of any enquiry whatsoever by the AO and forming any opinion on the transaction except requiring the assessee to furnish details, the order passed by the AO is certainly erroneous and prejudicial to the interests of the Revenue - The AO should have examined the transaction in depth as to whether the lease transaction between the assessee and M/s. TRIL Infopark Ltd and lease rent reported by the assessee is in accordance with law and statue and since has completely failed to examine these transactions, the order passed by the AO is erroneous and prejudicial to the interest of the Revenue - relying upon M/s. Ashok Leyland Ltd. Vs. CIT [2002 (9) TMI 65 - MADRAS High Court] - since the AO failed to enquire into the matter thoroughly the assessment order passed u/s 143(3) of the Act is erroneous and prejudicial to the interest of the Revenue - the order of the CIT u/s 263 of the Act is upheld in directing the AO to complete the assessment afresh – Decided against assessee. Issues Involved:1. Jurisdiction under Section 263 of the Income Tax Act.2. Treatment of upfront lease rent as capital expenditure or revenue expenditure.3. Examination of the transaction between the assessee and M/s. TRIL Infopark Ltd.4. Determination of the lease income and its taxability.Detailed Analysis:1. Jurisdiction under Section 263 of the Income Tax Act:The appellant challenged the jurisdiction of the Commissioner of Income Tax (CIT) under Section 263, arguing that the CIT erred in assuming jurisdiction and holding the assessment order as erroneous and prejudicial to the interest of revenue. The appellant contended that the scrutiny assessment was completed under Section 143(3) after examining the books of account and considering various details filed before the Assessing Officer (AO). The appellant cited the case of Malabar Industrial Co. vs. CIT (243 ITR 83) to argue that if the AO has taken one of the two possible views, it cannot be termed as erroneous and prejudicial to the interest of revenue.2. Treatment of Upfront Lease Rent as Capital Expenditure or Revenue Expenditure:The CIT held that the amount of Rs. 1407.30 crores towards upfront lease rent received by the appellant and paid to the Government of Tamil Nadu as sale consideration cannot be treated as expenses under Section 37 since it is a capital expenditure. The CIT noted that such an asset should appear in the balance sheet of the appellant and the proportionate lease income should have been brought to tax. The CIT directed the AO to redo the assessment as per law.3. Examination of the Transaction between the Assessee and M/s. TRIL Infopark Ltd.:The appellant argued that the lands under consideration were given by the Government of Tamil Nadu to the appellant to develop a Special Economic Zone for Information Technology enabled services along with an integrated international convention center through a joint venture in Chennai. The appellant retained Rs. 5.50 crores from the transaction, which was admitted in the return of income filed. The CIT, however, noted that the AO did not examine the nature of the transaction between the appellant (TIDCO) and M/s. TRIL Infopark Ltd. The CIT observed that the AO failed to make any enquiry regarding the transaction, making the assessment order erroneous and prejudicial to the interests of the Revenue.4. Determination of the Lease Income and Its Taxability:The CIT observed that the assessee received an upfront lease amount of Rs. 1412.79 crores from M/s. TRIL Infopark Ltd. but offered only Rs. 5.5 crores in its profit & loss account, claiming the balance as payable to the Government of Tamil Nadu towards sales consideration. The CIT noted that the land was not sold and the appellant continued to be the owner. The CIT emphasized that the sale consideration paid to acquire the land cannot be treated as an expense under Section 37 since it is a capital expenditure. The CIT further noted that the proportionate lease income should have been brought to tax. The CIT cited several judicial precedents to support the revision under Section 263, including cases like Ashok Leyland Ltd vs. CIT (260 ITR 599), Indian Textiles vs. CIT (157 ITR 112), and Duggal and Co. (220 ITR 456).Conclusion:The Tribunal upheld the order of the CIT passed under Section 263, directing the AO to complete the assessment afresh in accordance with law after providing sufficient opportunity to the assessee. The Tribunal agreed with the CIT that the AO failed to make necessary enquiries and examine the transaction thoroughly, making the assessment order erroneous and prejudicial to the interest of the Revenue. The appeal of the assessee was dismissed.