2017 (6) TMI 294 - AT - Income Tax

Tribunal rules in favor of Assessee, overturning CIT's order under Section 263

The Tribunal overturned the CIT's order under Section 263, ruling in favor of the Assessee on all issues. The Tribunal found that the Assessee had ... Revision u/s 263 - deduction permissible u/s 35(1)(iii), u/s 35(I)(ii) & u/s 35AC - Held that:- Along with the details of payments made to qualifying institutions the Assessee had also disclosed copies of the Receipts & certificates issued in the prescribed form by the respective entities, wherein the particulars prescribed for claiming deduction u/s. 35AC were provided by the Payee institutions. The ld. DR in his submissions has pointed out that in col.29 of the return of income with regard to deduction u/s 35AC of the Act the assessee has shown a sum of nil. It is also explained by the assessee that the assessee under the impression that filling up of claue-29 was necessary only if the amount allowable as deduction u/s 35AC of the Act was more than the sum debited in the profit and loss account that the assessee was required to mention the excess figure in that column and therefore had shown the figure as nil in the return of income. In our opinion, this explanation of the assessee is a plausible explanation and in any even the AO before completing the assessment was fully conscious of the fact that the assessee had made a claim of deduction u/s 35AC and 35(1)(iii) of the Act and therefore it cannot be said that order of the AO was erroneous on this count. Disallowance of interest u/s 14A - Interest expenses debited in the profit and loss account - Held that:- Disallowance of interest u/s 14A of the Act was the subject matter of the appeal by the assessee before CIT(A) against the order of assessment and the CIT had already decided the said issue prior to the impugned order of CIT and therefore the CIT cannot exercise jurisdiction on an issue which is already merged with the order of CIT(A). In the order passed u/s.14A of the Act when the Assessee pointed out that interest disallowance u/s.14A of the Act was already subject matter of appeal filed by the Assessee before CIT(A) and that the order of the AO had merged with the order of the CIT(A) and therefore jurisdiction u/s.263 of the Act cannot be invoked by the AO in view of Explanation (c ) to Sec.263(1) of the Act, the CIT has taken the plea of lack of full enquiry on applicability of Sec.14A of the Act. In this regard it is seen that the show cause notice u/s.263 of the Act issued by the CIT was dated 20.9.2016. The Assessee had filed his reply to the said show cause notice on 12.1.2017 and on the very same date, the CIT had passed the impugned order. It is thus clear that the Assessee was not put on notice that the CIT intends to invoke jurisdiction u/s.263 of the Act on the ground of lack of enquiry by the AO. Therefore exercise of jurisdiction u/s 263 of the Act on the issue of disallowance u/s.14A of the Act cannot be sustained. Computation of long term capital gain - as per CIT-A AO did not call for any details or documentary evidence with regard to long term capital gain and he did not examine anything on this aspect - Held that:- In the proceedings before the AO vide record of proceedings (order-sheet entry) dated 04.09.2014, the AO directed the Assessee to submit details of LTCG appearing in the computation of income. The Order-sheet entry dated 08.09.2014 further shows that in the hearing conducted on that date, the Assessee had filed details of LTCG and also furnished related valuation report. The supporting documents with reference to long term capital gain are available at page 128 to 135 of the assessee’s paper book. At pages 128 to 130 of the paper book the assessee has given complete history of the fact giving rise to long term capital gain. Page 131 of the paper book is the notification in the official gazette by Government of West Bengal increasing the permission fee for transfer of lease hold rights in respect of lease granted by the Government of West Bengal. Page 133 is the statement of expenses incurred on the capital work in progress for the period upto 31.03.2011. Pages 134 and 135 are the letter of handing over the possession to the assessee by Godrej Waterside Properties Pvt. Ltd., the person who carried out the development. Pages 136 to 155 is the report of the valuer in support of the long term capital gain in the light of the documentary evidence filed by the assessee it cannot be said that there was no failure on the part of AO to make proper and adequate enquiries with regard to the computation of long term capital gain. The exercise of jurisdiction by CIT on this ground is therefore held to be unsustainable. Non examination of commission and brokerage expenses - Held that:- The evidence filed by the Assessee in the course of assessment proceedings the assessee were details with regard to brokerage and commission namely copy of ledger of revenue expenditure at page 156 of the paper book, details of brokerage and commission paid during the year ended 31.03.2012 at page 157 of the paper book, details of legal fees paid for the year ended 31.03.2012 at page 158 of the paper book. In the light of the evidence filed as above it cannot be said that there is any failure on the part of the AO to make adequate and proper enquiries before completing the assessment on the aforesaid issue. Exercise of jurisdiction on this issue is therefore held to be not sustainable and the order u/s.263 of the Act to this extent is quashed. Depreciation on unsold building wrongly allowed by the AO - Held that:- Since the initial year of operation of IT Parks, the cost of developing IT Parks has always been disclosed in the books as 'Fixed Assets' and is never considered or regarded either by the assessee or by the Department to be part of 'Trading Stock'. Since first year of operation i.e. A.Y. 2002-03, the assessee has been claiming and the Department is allowing depreciation on the actual cost / WDV of the “Fixed Assets' comprised in IT Parks, i.e., building, P&M and fixtures. This is evident from the assessment orders from AY 2004-05 and onwards [See Pages 161 to 164 of PB]. As such the CIT's notice proceed on incorrect assumption with regard to the character and nature of the IT Park building which he erroneously considered to be 'Trading Stock'. The CIT therefore could not proceed u/s 263 by assuming incorrect facts which are not borne out from records. It is also noticed that on same incorrect assumption of facts, the CIT for AYs 2007-08 & 20. 11 had similarly revised the assessment orders u/s 263 which was cancelled by the ITAT When CIT’s specific objection in the show cause notice u/s 263 of the Act was met with adequate explanation he ought to have given his own specific finding on those objections and without doing so, the CIT cannot exercise jurisdiction u/s 263 of the Act. Even on this ground the order u/s.263 of the Act, in so far it concerns, issues other than the issues for which the allegation in the show cause notice was lack of enquiry on the part of the AO before concluding the assessment rendering the order of the AO erroneous and prejudicial to the interest of the revenue. - Appeal decided in favour of assessee. Issues Involved:1. Exemption Claim under Section 35AC of the Income Tax Act.2. Interest Expenses and Disallowance under Section 14A.3. Computation of Long-Term Capital Gain.4. Examination of Commission and Brokerage Expenses.5. Depreciation on Unsold Buildings.Issue-wise Detailed Analysis:1. Exemption Claim under Section 35AC of the Income Tax Act:The CIT noted that the Assessee claimed a deduction of Rs. 76,00,000 under Section 35AC in the Tax Audit Report but did not mention it in the return of income. The Tribunal found that the Assessee had debited the amount in the Profit & Loss account and provided full details during the assessment. The omission in the return form was due to a plausible interpretation of the form's requirements. The AO was aware of the claim and allowed it after proper verification. Thus, the CIT's invocation of Section 263 on this issue was unsustainable.2. Interest Expenses and Disallowance under Section 14A:The CIT observed that the AO did not fully apply the provisions of Section 14A and Rule 8D while disallowing Rs. 75.24 lakhs out of Rs. 22.51 crores of interest expenses. The Tribunal noted that the AO had indeed considered the interest expenses and made a conscious decision. Moreover, the issue was already decided by the CIT(A), and therefore, the CIT could not invoke Section 263 due to the doctrine of merger. The Tribunal held that the CIT's action on this issue was unsustainable.3. Computation of Long-Term Capital Gain:The CIT alleged that the AO did not examine the details of the long-term capital gain of Rs. 60.05 crores. The Tribunal found that the Assessee had provided detailed workings and supporting documents, including valuation reports and cost details, during the assessment. The AO had directed the Assessee to submit these details and had examined them. Therefore, the Tribunal held that the AO had made proper enquiries, and the CIT's invocation of Section 263 on this issue was unsustainable.4. Examination of Commission and Brokerage Expenses:The CIT contended that the AO did not examine the commission and brokerage expenses of Rs. 1,16,10,615. The Tribunal found that the Assessee had provided full particulars of these expenses, including bifurcation between revenue and capital expenses, during the assessment. The AO had examined these details and accepted the Assessee's consistent method of accounting for such expenses. Thus, the Tribunal held that the CIT's action on this issue was unsustainable.5. Depreciation on Unsold Buildings:The CIT argued that the AO wrongly allowed depreciation on unsold buildings treated as trading stock. The Tribunal noted that the Assessee had consistently treated IT Park buildings as fixed assets and claimed depreciation since AY 2002-03. This treatment was accepted by the Revenue in past assessments. The Tribunal found that the CIT's assumption that the buildings were trading stock was incorrect and not supported by facts. Therefore, the Tribunal held that the CIT's invocation of Section 263 on this issue was unsustainable.Conclusion:The Tribunal quashed the CIT's order under Section 263, holding that the AO had made proper enquiries and the Assessee had provided adequate explanations. The appeal by the Assessee was allowed.