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2015 (5) TMI 865 - AT - Income TaxRevision u/s 263 - AO failed to examine the taxability of the difference between the cost of the assets and fair value of the assets transferred to BIL, shown directly credited to the Reserves for Business Restructuring by the assessee company in its balance sheet and that the AO failed to examine as to whether the said difference was to be assessed as capital gain u/s 45 of the Act or as a business income u/s 28(iv) of the Act - capital loss on transfer of PI undertaking by the assessee to BIL for Nil consideration - Held that - The assessee transferred telecom passive infrastructure undertaking to BIL at Nil consideration resulting in capital loss of ₹ 5739 crores. The said loss was not a tax deductible item and had been suo-motu added by the assessee in its computation of income under normal provisions. Thereafter the assessee had revalued its investment in the subsidiary company i.e. BIL from ₹ 5,00,000/- to ₹ 8218 crores and had given the corresponding credit to the Reserves for Business Restructuring, out of the said reserves an amount equal to the loss of ₹ 5739 crores had been credited to the P & L a/c. From the above entries it is clear that the assessee had claimed the loss in the P & L A/c. However, the said amount was suo-motu added in the computation of income because it was not an allowable loss. This fact was examined by the AO who framed the draft assessment order for the approval of the DRP. The AO prepared a draft assessment order u/s 144C(1) of the Act and the said draft assessment order inter alia covered the issue relating to the taxability of transfer of PI undertaking to BIL at Nil consideration. The AO referred to the notes to the accounts and computation of total income, then specifically asked the assessee about the justification of the claim of capital loss amounting to ₹ 5739 crores which is evident from page nos. 73 to 78 of the draft assessment order dated 16.11.2011, copy of which is placed at page nos. 125 to 130 of the assessee s compilation. From the above noted facts, it therefore, appears that the issue on the basis of which assessment order was considered by the ld. CIT as erroneous and prejudicial to the interest of the Revenue was examined by the AO in detail and it was directed by the DRP that the addition was not to be made after proper verification. However, the AO arbitrarily made the addition. On the appeal of the assessee, the said addition was directed to be deleted by the ITAT vide its order dated 11.03.2014. We, therefore, do not see merit in this observation of the ld. CIT that the assessment order dated 30.10.2012 appeared to be erroneous and prejudicial to the interest of the Revenue because the AO failed to examine the taxability of ₹ 5739 crores. The assessee passed the adjustment entries for a sum of ₹ 5739 crores in its books of account which had no effect on the profit/income of the assessee, therefore, the ld. CIT was not justified in holding that the AO had not examined the issue relating to the loss on account of transfer of passive telecom infrastructure to the subsidiary company. Therefore, it cannot be said that the assessment order dated 30.10.2012 was erroneous and prejudicial to the interest of the Revenue. As regards to the adjustment entry for revaluation of investment in subsidiary company i.e. BIL the amount of ₹ 5739 crores transferred from Business Restructuring Reserves of ₹ 8218 crores was not a taxable item, the obvious corollary would be that the balance amount of ₹ 2479 crores (Rs. 8218 crores ₹ 5739 crores) remaining in the said reserve account after the aforesaid transfer was non-taxable. The same finding had been given by the ITAT vide aforesaid order dated 11.03.2014. Therefore, the ld. CIT was not justified in holding that the order passed by the AO was erroneous as well as prejudicial to the interest of the Revenue particularly when the ld. CIT himself failed to arrive at a definite conclusion and to form an opinion regarding the tax implication of the impugned transaction. In the present case, the ld. CIT on the one hand, stated that the transfer of telecom passive infrastructure undertaking at Nil consideration resulted in a capital gain of ₹ 2479 crores, on the other hand, the same transaction was alternatively alleged to have resulted in a business income of ₹ 2479 crores u/s 28(iv) of the Act. Moreover, the ld. CIT directed the AO to re-examine and verify the issue, however, he himself failed to arrive at a definite conclusion. Therefore, we are of the view that the ld. CIT without arriving at a definite conclusion was not justified in holding the assessment order dated 30.10.2012 as erroneous and prejudicial to the interest of the Revenue. Action of the ld. CIT was impermissible u/s 263 of the Act particularly when he directed the AO to re-examine the issue and proposed to tax ₹ 2479 crores either under section 45 or section 28(iv) of the Act. As regard expenditure incurred by the assessee towards amount paid to BIL for usage of passive telecom infrastructure ld. CIT directed the AO to re-examine the allowability of expenditure claimed by the assessee but he had not stated as to how and in what manner the expenses claimed by the assessee were impermissible, therefore, the action of the ld. CIT was not justified. As in the former part of this order that the AO in the original assessment proceedings had accepted the claim of the assessee after proper examination and verification of the claim and the ld. CIT had not given any finding as to how and in what manner the order of the AO on this issue was erroneous and prejudicial to the interest of the Revenue. He simply directed the AO to make further verification and examination for allowing the claim which the AO had already done, therefore, the order of the ld. CIT u/s 263 of the Act deserves to be set aside on this issue. This revision u/s 263 set aside - Decided in favour of assesse.
Issues Involved:
1. Validity of the order passed by the Commissioner of Income-tax (CIT) under section 263 of the Income Tax Act, 1961. 2. Examination of tax implications on the transfer of passive telecom infrastructure. 3. Jurisdiction of the CIT to revise the assessment order approved by the Dispute Resolution Panel (DRP). 4. Determination and allowability of 'capital loss' suffered by the assessee. 5. Consideration of whether the transaction resulted in capital gains/business income. 6. Allowability of expenditure incurred for usage of the transferred telecom infrastructure. 7. Applicability of section 28(iv) of the Act to the transaction. Issue-wise Detailed Analysis: 1. Validity of the Order Passed by CIT under Section 263: The assessee contended that the order passed by the CIT under section 263 was without jurisdiction, illegal, and bad in law. The Tribunal noted that the CIT must record satisfaction that the order of the Assessing Officer (AO) is erroneous and prejudicial to the interests of the revenue. Both conditions must be fulfilled. The Tribunal emphasized that an incorrect assumption of facts or an incorrect application of law will suffice for the requirement of an order being erroneous. However, every loss of revenue cannot be treated as prejudicial to the interest of the revenue. If the AO has adopted one of the courses permissible under law or where two views are possible, and the AO has taken one view, it cannot be treated as an erroneous order unless the view taken by the AO is unsustainable under the law. 2. Examination of Tax Implications on the Transfer of Passive Telecom Infrastructure: The Tribunal observed that the AO had examined the issue relating to the capital loss on the transfer of passive telecom infrastructure to Bharti Infratel Ltd. (BIL) at Nil consideration. The AO had raised specific queries, and the assessee had provided detailed explanations. The DRP had also considered the issue and directed the AO to verify the claim of the assessee. The Tribunal noted that the AO had thoroughly examined the issue and treated the loss on account of the transfer as a capital loss. The Tribunal found that the CIT's observation that the AO failed to examine the taxability of Rs. 5739 crores was incorrect. 3. Jurisdiction of the CIT to Revise the Assessment Order Approved by the DRP: The Tribunal held that the assessment order passed by the AO after considering the directions of the DRP cannot be revised by the CIT under section 263. The Tribunal emphasized that the DRP is a high-powered body consisting of three Commissioners, and its directions are binding on the AO. The Tribunal referred to various case laws to support its view that the CIT cannot sit in judgment over the directions of the DRP. 4. Determination and Allowability of 'Capital Loss' Suffered by the Assessee: The Tribunal noted that the AO had examined the issue of capital loss and had treated the loss on the transfer of passive telecom infrastructure to BIL as a capital loss. The DRP had also considered the issue and directed the AO to verify the claim of the assessee. The Tribunal found that the AO had thoroughly examined the issue and treated the loss on account of the transfer as a capital loss. The Tribunal held that the CIT's observation that the AO failed to examine the taxability of Rs. 5739 crores was incorrect. 5. Consideration of Whether the Transaction Resulted in Capital Gains/Business Income: The Tribunal observed that the AO had examined the issue and treated the loss on the transfer of passive telecom infrastructure to BIL as a capital loss. The Tribunal noted that the CIT had not arrived at a definite conclusion regarding the tax implications of the transaction. The Tribunal held that the CIT's observation that the transaction resulted in capital gains/business income was incorrect. 6. Allowability of Expenditure Incurred for Usage of the Transferred Telecom Infrastructure: The Tribunal noted that the AO had examined the claim of the assessee regarding the expenditure incurred for the usage of the transferred telecom infrastructure. The Tribunal found that the AO had applied his mind to the material placed on record by the assessee and had found the payment of the expenses at market rate in order. The Tribunal held that the CIT's observation that the AO had not examined the allowability of such expenditure was incorrect. 7. Applicability of Section 28(iv) of the Act to the Transaction: The Tribunal observed that the CIT had not arrived at a definite conclusion regarding the applicability of section 28(iv) of the Act to the transaction. The Tribunal noted that the AO had examined the issue and treated the loss on the transfer of passive telecom infrastructure to BIL as a capital loss. The Tribunal held that the CIT's observation that the transaction resulted in business income under section 28(iv) was incorrect. Conclusion: The Tribunal set aside the order passed by the CIT under section 263 and restored the assessment order dated 30.10.2012. The Tribunal held that the AO had thoroughly examined the issues and had applied his mind to the material placed on record by the assessee. The Tribunal found that the CIT's observations were based on mere change of opinion and were not supported by any definite conclusion or material evidence. The Tribunal emphasized that the CIT cannot revise an assessment order merely because he has a different opinion on the matter.
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