2018 (4) TMI 695 - AT - Income Tax

Tribunal quashes Pr. CIT's Section 263 order, cites AO's prior action. Assessee's appeal allowed.

The Tribunal quashed the order by the Principal Commissioner of Income-tax (Pr. CIT) under Section 263 of the IT Act, stating that the issues were already ... Revision u/s 263 - Held that:- Almost all the issues on which show cause notice was issued u/s. 263, stood examined by the Assessing Officer by issuing the questionnaire with respect thereto in the assessment proceedings u/s. 143(3) of the Act. The issues raised by the first appellate authority also stood resolved by ITAT in appeal for A.Y. 2010-11, which stood affirmed by Hon’ble jurisdictional High Court vide their decision [2017 (4) TMI 1035 - DELHI HIGH COURT]. Therefore, respectfully following the decision of Hon’ble jurisdictional High court in the case of assessee itself for A.Y. 2010-11, we do not find any good reason to sustain the decision reached by learned Pr. CIT passed u/s. 263 of the IT Act. As a result, the appeal of the assessee deserves to be allowed. Issues Involved:1. Jurisdiction under Section 263 of the IT Act.2. Tax credit on dividend income under Article 25(4) of the DTAA.3. Capitalization of interest expenditure under Section 36(1)(iii) of the IT Act.4. Disallowance of interest expenditure under Section 36(1)(iii) and Section 14A.5. Revenue loss on sale of fertilizer bonds.6. Long-term capital gain.7. Rental income classification.8. Income from associates.Issue-wise Detailed Analysis:1. Jurisdiction under Section 263 of the IT Act:The primary issue was whether the Principal Commissioner of Income-tax (Pr. CIT) was justified in assuming jurisdiction under Section 263 of the IT Act, 1961. The assessee argued that the jurisdiction was wrongly assumed as the mandatory conditions for such jurisdiction were absent. The Tribunal observed that similar issues had arisen in the assessment year (A.Y.) 2010-11, where the ITAT had quashed the revision under Section 263, and this decision was upheld by the Hon’ble Delhi High Court. Therefore, the Tribunal found that the jurisdiction assumed by the Pr. CIT was not in conformity with the law.2. Tax Credit on Dividend Income under Article 25(4) of the DTAA:The Pr. CIT found that the assessment order reflected a lack of inquiry and non-application of mind regarding the tax credit on dividend income from Oman under Article 25(4) of the DTAA. The Tribunal noted that detailed inquiries were made by the Assessing Officer (AO) during the original assessment proceedings, and the tax credit was consistently allowed in previous years. The ITAT and the Hon’ble Delhi High Court had already ruled in favor of the assessee on this issue for A.Y. 2010-11. Therefore, the Tribunal held that the AO had made a plausible view after full application of mind, and the Pr. CIT could not substitute his view by assuming jurisdiction under Section 263.3. Capitalization of Interest Expenditure under Section 36(1)(iii) of the IT Act:The Pr. CIT directed the AO to examine the applicability of the proviso to Section 36(1)(iii) regarding the capitalization of interest expenditure. The Tribunal found that the AO had made detailed inquiries about the capitalization of interest to fixed assets and capital work in progress. The assessee had sufficient interest-free funds to cover the capital expenditure, and the AO had adopted a consistent view with previous years. The ITAT and the Hon’ble Delhi High Court had also ruled in favor of the assessee on this issue for A.Y. 2010-11. Therefore, the Tribunal held that the Pr. CIT's direction was not justified.4. Disallowance of Interest Expenditure under Section 36(1)(iii) and Section 14A:The Pr. CIT observed that part of the interest expenditure might pertain to investments not connected with the business of the assessee and might not be deductible under Section 36(1)(iii). The AO had already examined this issue and made disallowance under Section 14A, which was pending appeal before the ITAT. The Tribunal found that the AO had made detailed inquiries and that the Pr. CIT's observation did not justify the revision under Section 263.5. Revenue Loss on Sale of Fertilizer Bonds:The Pr. CIT noted that the AO did not ask for details regarding the year and amount of subsidy offered to tax to verify the claim of loss on the sale of fertilizer bonds. The Tribunal observed that the AO had made detailed inquiries and that the issue was already examined in previous assessments. Therefore, the Tribunal held that the Pr. CIT's direction was not justified.6. Long-term Capital Gain:The Pr. CIT found that the AO did not ask for particulars regarding the long-term capital gain shown by the assessee. The Tribunal noted that the AO had made detailed inquiries and that the issue was already examined in previous assessments. Therefore, the Tribunal held that the Pr. CIT's direction was not justified.7. Rental Income Classification:The Pr. CIT observed that the AO did not make any inquiry regarding the classification of rental income from communication towers under the head 'Income from House Property.' The Tribunal found that the AO had made detailed inquiries and that the issue was already examined in previous assessments. Therefore, the Tribunal held that the Pr. CIT's direction was not justified.8. Income from Associates:The Pr. CIT noted that the AO did not make any inquiry regarding the income from associates where the assessee had an interest. The Tribunal observed that the AO had made detailed inquiries and that the issue was already examined in previous assessments. Therefore, the Tribunal held that the Pr. CIT's direction was not justified.Conclusion:The Tribunal quashed the order passed by the Pr. CIT under Section 263 of the IT Act, holding that the issues raised were already examined by the AO and that the Pr. CIT could not assume jurisdiction under Section 263. The appeal of the assessee was allowed.