2015 (3) TMI 979 - AT - Income Tax

Tribunal rejects Commissioner's order, restores Assessing Officer's decision.

PAVILLE FASHIONS P. LTD. Versus COMMISSIONER OF INCOME-TAX

PAVILLE FASHIONS P. LTD. Versus COMMISSIONER OF INCOME-TAX - [2014] 35 ITR (Trib) 352 (ITAT [Mum]) Issues Involved:1. Whether the order passed under section 143(3) was erroneous and prejudicial to the interests of the Revenue.2. The computation of capital gains and the claim of depreciation.3. The treatment of the amount of Rs. 31.05 crores as an encumbrance for computing long-term capital gain.Issue-wise Detailed Analysis:1. Erroneous and Prejudicial Order under Section 143(3):The assessee challenged the order passed under section 263, arguing that the original assessment order under section 143(3) was neither erroneous nor prejudicial to the interests of the Revenue. The Commissioner believed that the order was erroneous due to incorrect assumptions and application of law, which led to a loss for the Revenue. The Tribunal referred to the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, which established that for section 263 to be invoked, the order must be both erroneous and prejudicial to the Revenue. The Tribunal found that the Assessing Officer had thoroughly examined the facts and made a reasoned order, thus it was not erroneous or prejudicial.2. Computation of Capital Gains and Claim of Depreciation:The Commissioner argued that the gains from the sale of property should be taxed under special provisions of section 50A, not as long-term capital gains. The assessee contended that depreciation was only claimed on 1/6th of the building used for office purposes, while the remaining 5/6th was leased out and reported as income from house property. The Tribunal found that the Assessing Officer had examined these facts and made additions under the head 'income from house property,' confirming no error in the computation of income.3. Treatment of Rs. 31.05 Crores as Encumbrance:The Commissioner directed the Assessing Officer to disallow the deduction of Rs. 31.05 crores claimed as an encumbrance. The assessee argued that this payment was necessary to resolve litigation among shareholders and was mandated by the High Court and Company Law Board to facilitate the sale of Paville House. The Tribunal cited the Bombay High Court's decision in CIT v. Shakuntala Kantilal, which allowed deductions for expenditures incurred to remove encumbrances for transfer. Additionally, the Tribunal referenced its own decision in Chemosyn Ltd. v. Asst. CIT, which supported the deduction of such expenses as business expenditures. The Tribunal concluded that the deduction was allowable and supported by judicial decisions.Conclusion:The Tribunal found that the original assessment order was well-reasoned and passed after thorough scrutiny, and thus, was neither erroneous nor prejudicial to the interests of the Revenue. The Tribunal set aside the Commissioner's order under section 263 and restored the Assessing Officer's order under section 143(3). The assessee's appeal was allowed.