2022 (3) TMI 1440 - AT - Income Tax

Tribunal quashes Commissioner's order on interest & sale consideration, deems AO's decisions reasonable.

The Tribunal quashed the Commissioner's order concerning the addition of interest on service tax to the book profit under section 115JB and the ... Revision u/s 263 by CIT - As per CIT provision for interest on service tax ought to have been added back to the book profit while computing such book profit for the purpose of Section 115JB - Commissioner was of the view that it is a contingent liability and, therefore, it should form part of the book profit - HELD THAT:- A competent authority under the Service Tax has adjudicated the proceedings and quantified the demands required to be made. In other words the Commissioner Service Tax, Kolkata, has passed an executable order on the basis of which a demand can be recovered from the assessee. If that be so, how the interest liability for which a provision has been made can be construed as a contingent liability. The only reasoning available at the end of the revenue is that the assessee has challenged the order in higher appellate forum. But that would not absolve the assessee from making the payments on the basis of this order during pendency of any appellate proceedings. The revenue has nowhere demonstrated that execution of this order has been stayed and, therefore, the liability should be deemed as contingent. It is also pertinent to observe that this aspect has been accepted by the AO. It is quite debatable to construe that if an order passed by the competent authority crystallising the amount payable by the assessee, if challenged in an appeal would lose its executability unless stayed by the Appellate Authority. Therefore, to our mind regarding the first aspect the assessment order is not an erroneous one and the ld. Commissioner ought not to have exercised jurisdiction u/s 263 of the Act, on the first point. Commissioner was of the view that the sum ought to have been included in the deemed full sale consideration for the purpose of Section 50C - Section 50C is not applicable as it is common parking space in an office premise. It is to be appreciated that parking space has to be assigned and not to be sold. Though there is a very narrow distinction between the both because if it is to be sold by the vendor, the vendee may erect a structure after obtaining the absolute right of such space. Parking spaces are not subject to sale and a rather assigned. If some structure is erected it could create problem for the co-users of the parking space. If this aspect has to be viewed with the above angle the, it will show that ld. AO has taken a plausible opinion. There might be a debate on such opinion but there should not be any action u/s 263 of the Act. Therefore, on the second point also the order of the ld. Commissioner, is not sustainable. As far as the other show cause notices issued by Commissioner and discussed in the impugned order are concerned, on these show cause notices, he has not issued any specific directions for the assessing officer. One way to appreciate this situation would be that he might be satisfied with the explanation offered by the assessee and did not give any direction. The other way to appreciate the situation would be that he has passed an order u/s 154 - Therefore, in the present case it is neither advisable nor desirable on our end to express any opinion on those points. The scope of Section 154 is very limited. The rectification order has to be judged in an independent appeal within the parameter of such scope. Therefore, we resist ourselves from making any observation on the points contained in the other two show cause notices. The observations made by us for explaining the issues u/s 154 of the Act or on the other two show cause notices will not impair or injure the case of the revenue nor it will cause any prejudice to the defence/explanation of the assessee. It is also pertinent to note that if the impugned order is quashed on account of some jurisdictional error then probably there could not be any rectification u/s 154. For example if the impugned order is time-barred and it is quashed then there will not be any consequential proceedings. We are confining ourselves to a limited point that two issues have been raised under the first showcause notice. On these two issues no action u/s 263 of the Act is justifiable and, therefore, we quash the order of the ld. Commissioner to this extent. Appeal of the assessee is allowed. Issues Involved:1. Legality of the order made by the Principal Commissioner of Income Tax (Pr. CIT) under section 263 of the Income Tax Act, 1961.2. Whether the assessment order under section 143(3) was erroneous and prejudicial to the interest of the Revenue.3. Computation of book profit under section 115JB concerning the addition of interest on service tax.4. Application of Section 50C regarding the difference in sale consideration and stamp duty value.5. Disallowance of interest under section 24(b).6. Disallowance of payment of gratuity under section 48(7).7. Disallowance of leave encashment under section 43B.Detailed Analysis:1. Legality of the Order under Section 263:The assessee contended that the order made by the Pr. CIT under section 263 was illegal, invalid, and unsustainable in law. The Tribunal emphasized that the powers of revision under section 263 require the Commissioner to record satisfaction that the order of the Assessing Officer (AO) is erroneous and prejudicial to the interest of the Revenue. The Tribunal referred to various judicial precedents to outline the conditions under which section 263 can be invoked, emphasizing that the CIT must have material on record to arrive at such satisfaction.2. Erroneous and Prejudicial to the Interest of the Revenue:The Tribunal analyzed whether the assessment order was erroneous and prejudicial to the interest of the Revenue. It was noted that the AO had conducted an inquiry, applied his mind to the facts, and determined the income. The Tribunal held that merely because the Commissioner disagrees with the AO's conclusion does not render the assessment order erroneous. The Tribunal reiterated that if the AO has adopted one of the permissible courses under law, the order cannot be termed erroneous unless the view taken is unsustainable under law.3. Computation of Book Profit under Section 115JB:The Commissioner argued that the provision for interest on service tax amounting to Rs. 2,28,88,803/- should have been added back to the book profit as it was a contingent liability. The Tribunal, however, found that the interest liability was ascertained by the Commissioner of Service Tax, Kolkata, and thus was not a contingent liability. The Tribunal held that the AO was correct in not including it in the book profit, as the liability was crystallized and executable, and there was no stay on the order by any appellate authority.4. Application of Section 50C:The Commissioner contended that the sum of Rs. 2,77,72,000/- should have been included in the deemed full sale consideration for the purpose of Section 50C. The assessee argued that it had only assigned the right to use parking spaces and not sold them. The Tribunal noted that Section 50C applies to land or building or both, and the assignment of parking spaces does not fall under this category. The Tribunal found that the AO's view was plausible and that there was no basis for the Commissioner to invoke section 263 on this issue.5. Disallowance of Interest under Section 24(b):The Tribunal did not specifically address this issue in detail in the judgment, as it was not part of the primary showcause notice that led to the Commissioner's final order.6. Disallowance of Payment of Gratuity under Section 48(7):Similarly, the Tribunal did not delve into this issue in detail, as it was not part of the primary showcause notice.7. Disallowance of Leave Encashment under Section 43B:The Tribunal did not provide a detailed analysis of this issue, focusing instead on the primary issues raised in the first showcause notice.Conclusion:The Tribunal quashed the order of the Commissioner to the extent it related to the two primary issues raised in the first showcause notice, i.e., the addition of interest on service tax to the book profit under section 115JB and the application of Section 50C regarding the sale consideration of parking spaces. The Tribunal allowed the appeal of the assessee, emphasizing that the AO had taken a plausible view and the Commissioner's invocation of section 263 was not justified. Other issues raised in subsequent showcause notices were not addressed as they were not part of the appeal.