2015 (3) TMI 752 - AT - Income Tax

Revision u/s 263 - whether order erroneous and prejudicial to the interests of revenue although the twin conditions required to be fulfilled for exercising the jurisdiction are not satisfied - exercise of jurisdiction u/s 263 whether is valid or not? - whether the appellant is not entitled to a deduction u/s 32(iia)? - Held that - A.O. might have accepted the bifurcation of assessee receipts and offering the incomes under respective heads in the scrutiny orders passed. Therefore, it is to be considered that he has formed an opinion of accepting assessee s rental income under the head Income from House Property and allowing the claims as per that Head rather than allowing depreciation on assets, if it is converted to income from business. Since the A.O. formed an opinion not only in the impugned assessment years but also in earlier years, we are of the opinion that the Ld. CIT opinion that the same is to be assessed as business income will fall under the category of difference of opinion. If A.O. has taken one of the opinion available out of the two, the Ld. CIT cannot invoke jurisdiction under section 263. Provisions of section 263 does not permit substituting one opinion by another opinion. Therefore, the order of Ld. CIT cannot be sustained on the principles of erroneous nature of A.O. order, as it is not erroneous. - Decided in favour of assessee. Claim of interest - Held that - As can be seen from the facts and materials on record, in course of revision proceeding, assessee has submitted detailed working relating to apportionment of interest to house property income as well as business income. As it appears, ld. CIT has not at all applied his mind to the working submitted by assessee. However, on perusal of the working submitted by assessee in course of revision proceeding, clearly demonstrate that actually there is no such excess claim as alleged by ld. CIT in the show cause notice. Ld. CIT while issuing the show cause notice u/s 263 has specifically alleged of excess claim of interest to the tune of ₹ 557.23 lakhs, but, ultimately he has not at all given any specific finding with regard to such allegation and has merely remitted the issue back to the file of AO for verification. It is to be noted the direction of ld. CIT in this regard is nothing but a general direction and in the nature of roving and fishing inquiry as ld. CIT has not brought any material on record to substantiate his allegation that assessee has claimed financial charges in excess. - Decided in favour of assessee.

Summary

Issues Involved:
1. Classification of rental income as business income vs. income from house property.
2. Excess claim of finance cost.

Issue-wise Detailed Analysis:

1. Classification of Rental Income as Business Income vs. Income from House Property:

The primary issue revolves around whether the rental income earned by the assessee from its industrial park should be classified as business income or income from house property. The assessee, an Indian company engaged in real estate development and leasing, filed its return declaring a loss, which was later scrutinized by the Assessing Officer (AO). The AO accepted the assessee's claim of rental income as income from house property and facility management charges as business income. However, the Commissioner of Income Tax (CIT) revised this, stating that the rental income should be classified as business income, arguing that the assessee's activities were commercial in nature.

The assessee contended that its income from leasing property should be taxed under 'income from house property' based on judicial precedents, despite its primary business being real estate development. The CIT, however, observed that the assessee's activities, including obtaining approvals for industrial parks and incurring significant project-related expenses, indicated a business activity rather than mere property letting. The CIT concluded that the AO's acceptance of the assessee's claim without thorough examination rendered the assessment order erroneous and prejudicial to revenue interests.

The Tribunal, referencing the case of the assessee's sister concern M/s K. Raheja IT Park (Hyderabad) P. Ltd., upheld that the classification of rental income as income from house property was a plausible view supported by judicial precedents. The Tribunal emphasized that differing views on this issue are possible and that the AO's acceptance of the assessee's claim was not erroneous. The Tribunal also noted that the CIT's direction to reclassify the income as business income would not prejudice revenue interests, as the assessee would be entitled to higher depreciation claims under business income.

2. Excess Claim of Finance Cost:

The second issue pertains to the alleged excess claim of finance cost by the assessee. The CIT noted that the assessee claimed Rs. 1,026.35 lakhs as finance cost against the actual allowable amount of Rs. 469.12 lakhs, leading to an excess claim of Rs. 557.23 lakhs. The assessee argued that the finance cost was appropriately allocated between completed and under-construction buildings, with interest attributable to completed buildings claimed as a deduction from rental income and interest for the under-construction building capitalized.

The Tribunal observed that the assessee provided detailed workings and explanations regarding the allocation of finance costs during the revision proceedings. The CIT, however, did not thoroughly examine these submissions and issued a general directive for the AO to verify the finance costs, which the Tribunal deemed as a roving and fishing inquiry. The Tribunal highlighted that the CIT must base the exercise of power under section 263 on concrete material evidence rather than initiating inquiries without specific findings.

Conclusion:

The Tribunal concluded that the AO's classification of rental income as income from house property was a plausible view supported by judicial precedents and not erroneous. Additionally, the Tribunal found that the CIT's general directive for re-examination of finance costs lacked specific findings and constituted an impermissible roving inquiry. Consequently, the Tribunal set aside the CIT's order and restored the AO's assessment order, allowing the assessee's appeal.