2007 (1) TMI 296 - AT - Income Tax

Summary

Issues Involved:

1. Jurisdiction under section 263 of the Income-tax Act, 1961.
2. Classification of income from leave and licence agreements.
3. Computation of profit on the sale of built-up area.

Issue-wise Detailed Analysis:

1. Jurisdiction under section 263 of the Income-tax Act, 1961:

The Commissioner of Income-tax invoked section 263, arguing that the assessment orders were erroneous and prejudicial to the interests of the revenue. The assessees contended that the Commissioner violated fundamental principles in exercising this jurisdiction. They cited the case of Mrs. Khatiza S. Oomerbhoy v. ITO [2006] 100 ITD 173, emphasizing that the Commissioner must record satisfaction that the order is erroneous and prejudicial to the revenue, and both conditions must be fulfilled. The assessees argued that section 263 cannot correct every mistake by the Assessing Officer (AO) and that if the AO adopted a permissible course in law, it cannot be deemed erroneous unless unsustainable in law. The Tribunal concluded that the AO had followed judicial precedents and thus, the assessment orders were not erroneous.

2. Classification of income from leave and licence agreements:

The assessees bifurcated the income from leave and licence agreements into "Income from house property" and "Business income." The Commissioner argued that the entire receipts should be assessed as "Income from house property." The assessees cited several judicial decisions supporting the dual nature of income in cases involving complex lettings with additional services, such as Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 (SC) and CIT v. Associated Building Co. Ltd. [1982] 137 ITR 339 (Bom.). The Tribunal found that the AO's decision to bifurcate the income was consistent with these judicial precedents and thus, not erroneous.

3. Computation of profit on the sale of built-up area:

The assessees estimated the profit on the sale of built-up area at 20% of the consideration, which the AO accepted. The Commissioner argued that this method was not scientific and that the AO failed to make necessary enquiries. The Commissioner recomputed the profit, including the market value of the built-up area allotted to M/s. L&T. The Tribunal noted that the assessees consistently followed this method in previous years and that there was no evidence of higher considerations changing hands. The Tribunal held that the AO's acceptance of the profit estimation was consistent and proper, and thus, the assessment orders were not erroneous.

Conclusion:

The Tribunal concluded that the assessment orders passed by the AO were not erroneous. The orders passed by the Commissioner of Income-tax under section 263 were set aside, and the appeals filed by the assessees were allowed.