2016 (3) TMI 1141 - AT - Income Tax

Revision u/s 263 - CIT proposed to revise the assessment on the reasoning that the assessment order is erroneous and prejudicial to the interests of the revenue - as per CIT(A) AO has allowed the claim of the assessee including the opening value of WIP without realising that the assessee is not entitled to claim the same - Held that - The assessee was constrained to incur expenses over the years, i.e., since 2006 onwards in order to clear the encumbrances and rival claims so that the plot of land on which the development took place is free from all kinds of encumbrances. There is no dispute with regard to the fact that the assessee is required to bear all the expenses in order to perfect the title of the land. There is also no dispute that the assessee has been incurring the expenses in this regard over many years. In fact, the assessing officer has sought to assess the income relating to the project in the hands of the assessee in AY 2009-10, by which time, the assessee has already incurred expenses to the tune of ₹ 2.13 crores. Thus, it is not a case that the assessing officer was not aware of the expenses claimed by the assessee. The facts narrated by the assessee shows that the assessee has purchased the land from the owners, who had earlier entered into an agreement with two other parties. Hence the possibility of creating hindrances by the concerned persons should have been available and the assessee was constrained to clear all of them, lest assessee s project should suffer. However, the Ld Principal CIT has taken the assessee has incurred those expenses on humanitarian grounds or gratuitously and hence the same cannot be considered as business expenses. We are of the view that the learned CIT has merely taken a different view of the matter, where as it is seen that the view taken by the assessing officer in allowing the claim was one of the possible views, since the same has been incurred in furtherance of the business objectives. It is well settled proposition that the assessment order would not be rendered prejudicial to the interests of the revenue, if the assessing officer has taken a possible view of the matter. The assessment order cannot be considered to be erroneous, if the assessing officer has allowed the claim of the assessee after carrying out necessary examination and further if the assessing officer has taken one of the possible views, it cannot be taken as prejudicial to the interests of the revenue.In the instant case, we are of the view that the AO has allowed the claim of the assessee after carrying out necessary examination and has also taken one of the possible views. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the revision order passed under section 263 of the Income Tax Act.
2. Whether the assessment order was erroneous and prejudicial to the interests of the revenue.
3. Legality of expenses claimed by the assessee.

Issue-wise Detailed Analysis:

1. Validity of the Revision Order Passed Under Section 263:
The assessee challenged the revision order dated 18-12-2015 passed by the Principal CIT under section 263 of the Income Tax Act for the assessment year 2012-13. The Principal CIT initiated revision proceedings on the basis that the assessment order was erroneous and prejudicial to the interests of the revenue. The Principal CIT's reasoning included the assessee's claim of various expenses and the opening balance of Work in Progress (WIP) of ?2.86 crores, which were allowed by the assessing officer without proper verification.

2. Whether the Assessment Order was Erroneous and Prejudicial to the Interests of the Revenue:
The Principal CIT argued that the assessee was not entitled to claim certain expenses as per the Development Agreement with M/s Dimple Realtor Ltd., which stipulated that the developer would incur all construction and development-related expenses. The Principal CIT viewed the expenses incurred by the assessee, including compensation payments, as non-business expenses because they were not legally required. The Principal CIT directed the assessing officer to re-examine the expenses included in the opening WIP and other expenses claimed during the year to ensure they were incurred for business purposes.

3. Legality of Expenses Claimed by the Assessee:
The assessee contended that the expenses were necessary to clear encumbrances and perfect the title of the land, which was essential for the development project. The assessee argued that these expenses were incurred to make value additions to the flats, enhancing their sale price. The assessee also highlighted that the assessing officer had issued notices and conducted inquiries into the expenses during the assessment process, and the expenses had been consistently shown as WIP over the years.

Judgment:
The Tribunal examined the legal position regarding the power of the Principal CIT to invoke revision proceedings under section 263. Citing precedents from the Supreme Court and High Courts, the Tribunal noted that an order could only be considered erroneous and prejudicial to the interests of the revenue if it was based on incorrect facts, incorrect application of law, or was passed without proper inquiries.

The Tribunal found that the assessing officer had conducted necessary inquiries and applied his mind to the issues during the assessment process. The Tribunal emphasized that the Principal CIT's differing opinion on the expenses did not render the assessment order erroneous. The Tribunal also noted that the expenses incurred by the assessee were in furtherance of business objectives and were a commercial decision to add value to the flats.

The Tribunal concluded that the Principal CIT's directions for re-examination amounted to fishing and roving inquiries, which were not permissible under section 263. Therefore, the Tribunal set aside the revision order passed by the Principal CIT and allowed the appeal filed by the assessee.

Conclusion:
The appeal filed by the assessee was allowed, and the revision order passed by the Principal CIT under section 263 was set aside. The Tribunal held that the assessment order was not erroneous or prejudicial to the interests of the revenue, as the assessing officer had conducted necessary inquiries and taken a possible view of the matter.