2016 (3) TMI 23 - AT - Income Tax

Revision u/s 263 - Rate of tax on LTCG - AO while making the assessment has computed the LTCG without indexation - whether CIT erred in not accepting the LTCG by exercising script-wise indexation and without indexation whichever is beneficial to the appeal? - Held that - We have considered various citations submitted by AR of the assessee wherein the DCIT vs. Savla Motor Agencies (P.) Ltd. 2013 (7) TMI 650 - ITAT MUMBAI co-ordinate bench of this Tribunal has held that LTCG should be worked out transaction wise and tax should be charged at 10% or 20% (without indexation or with indexation) respectively whichever is beneficial to the assessee after considering the judgment of Mohanlal N. Shah 2008 (9) TMI 614 - ITAT MUMBAI which has also relied upon by the assessee. Hence, we do not find any illegality or infirmity order passed by AO which was considered as erroneous or prejudicial to the interest of Revenue by CIT. - Decided in favour of assessee Disallowance of depreciation - Held that - CIT ignored the relevant point in the computation before coming to the premature calculation that the order of AO iserroneous, thus this ground is allowed in favour of assessee - Decided in favour of assessee Disallowance on account of amalgamation/demerger claimed u/s 35DD - Held that - These addition were made by CIT either on the basis of mere estimation or by disallowing 50% of the disallowance claimed which is based on conjecture and surmises and the same are not sustainable in the eyes of law and are liable to the deleted, resultantly we do not find that order of AO was erroneous or prejudicial to the interest of revenue. - Decided in favour of assessee Treating STCG as a business income by CIT(A) - Held that - copies of assessment order in respect of all AYs had been placed on record and we have noticed that the assessee was consistently allowed STCG in all three consecutive assessments years, hence, keeping in view the principle of consistency the assessee is entitled for similar relief in the year under consideration, hence this ground of appeal is also allowed in favour of the assessee. Resultantly we do not find that order of AO was erroneous or prejudicial to the interest of Revenue.- Decided in favour of assessee

Issues Involved:
1. Whether the Commissioner of Income Tax (CIT) erred in treating the order passed by the Assessing Officer (AO) as erroneous and prejudicial to the interest of revenue under section 263 of the Income Tax Act.
2. Whether the CIT erred in not accepting the long-term capital gain (LTCG) offered by exercising the script-wise option of indexation and without indexation.
3. Whether the CIT erred in disallowing Rs. 3,07,600/- without considering the explanation/information submitted during the course of the proceeding.
4. Whether the CIT erred in disallowing amortization of expenditure on amalgamation/demerger claimed under section 35DD amounting to Rs. 17,17,462/-.
5. Whether the CIT erred in disallowing employee costs of Rs. 7,48,459/- by estimating 50% of employee costs were incurred for the business service centre.
6. Whether the CIT erred in disallowing legal and professional expenses of Rs. 1,80,745/- by estimating 50% of expenses were incurred for the business service centre.
7. Whether the CIT erred in disallowing expenses of Rs. 3,36,862/- by estimating 50% of expenses were incurred for the business service centre.
8. Whether the CIT erred in disallowing expenses of Rs. 32,91,128/- on an estimated basis without any justification.
9. Whether the CIT erred in assessing short-term capital gain (STCG) of Rs. 36,33,874/- under the head "income from business".

Detailed Analysis:

1. Treating AO's Order as Erroneous and Prejudicial to Revenue:
The CIT revised the assessment order passed by the AO under section 263, declaring it erroneous and prejudicial to the interest of revenue. The CIT concluded that the AO had computed LTCG using a mixed method and had not properly examined various expenses and income heads, including disallowance under section 14A, expenses related to the business service centre, and loans to related companies. The tribunal found that the CIT's conclusion was not justified because the AO had made proper inquiries and assessments. Hence, the tribunal allowed this ground in favor of the assessee.

2. LTCG Computation:
The CIT did not accept the LTCG offered by the assessee by exercising script-wise indexation and without indexation. The tribunal referred to various judgments, including those of the ITAT Mumbai and Delhi High Court, which held that section 112 is a beneficial provision and mandatory. It allows the assessee to choose the method (with or without indexation) that is most beneficial. The tribunal found the AO's computation of LTCG without indexation to be correct and not erroneous or prejudicial to the interest of revenue. This ground was allowed in favor of the assessee.

3. Disallowance of Rs. 3,07,600/-:
The CIT disallowed Rs. 3,07,600/- on account of depreciation, concluding that the AO had made an error in calculation. The tribunal found that the CIT misunderstood the calculations submitted by the assessee and that the AO's order was not erroneous. This ground was allowed in favor of the assessee.

4. Disallowance under Section 35DD:
The CIT disallowed Rs. 17,17,462/- claimed under section 35DD for amalgamation/demerger expenses. The tribunal noted that the CIT did not provide any reason for finding the expense incorrect. The tribunal found no error in the AO's order, allowing this ground in favor of the assessee.

5. Employee Costs:
The CIT disallowed Rs. 7,48,459/- by estimating 50% of employee costs were incurred for the business service centre. The tribunal found that the CIT's disallowance was based on mere estimation without proper justification. This ground was allowed in favor of the assessee.

6. Legal and Professional Expenses:
The CIT disallowed Rs. 1,80,745/- by estimating 50% of legal and professional expenses were incurred for the business service centre. The tribunal found this disallowance to be based on conjecture and surmises, without proper justification. This ground was allowed in favor of the assessee.

7. Other Expenses:
The CIT disallowed Rs. 3,36,862/- by estimating 50% of expenses were incurred for the business service centre. The tribunal found this disallowance to be unsustainable and based on mere estimation. This ground was allowed in favor of the assessee.

8. Disallowance of Rs. 32,91,128/-:
The CIT disallowed Rs. 32,91,128/- on an estimated basis without any justification. The tribunal found this disallowance to be based on conjecture and surmises. This ground was allowed in favor of the assessee.

9. STCG as Business Income:
The CIT assessed STCG of Rs. 36,33,874/- as business income. The tribunal noted that the assessee had been consistently allowed STCG in previous assessment years, and applying the principle of consistency, the assessee was entitled to similar relief. This ground was allowed in favor of the assessee.

Conclusion:
The tribunal concluded that the CIT erred in holding the AO's order as erroneous and prejudicial to the interest of revenue. All grounds raised by the assessee were allowed, and the appeal was decided in favor of the assessee. The CIT's order was quashed, and the AO's original assessment was upheld.

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