2016 (11) TMI 714 - HC - Income Tax

Revision u/s 263 - transfer of development rights and warranty expenses - Held that - The impugned order of the ITAT records findings of Assessing Officer in detail from which it is evident that the Assessing Officer applied his mind to the above claim and on the basis of the facts before him, came to the conclusion that an amount of ₹ 5.86 Crores out of ₹ 41 Crores received could alone be subjected to the tax as income during the subject assessment year. The balance amount ₹ 35.14 Crores has to be treated as deposit as the same is subject to being refunded in the absence of the environmental clearance. Thus, we find that the Assessing Officer has taken a view/formed an opinion on the facts before him and such a opinion cannot be said to be an erroneous as it does not proceed on the incorrect assumption of facts or law and the view taken is a possible view. Therefore, as held by the Apex Court in Malabar Industrial Co. Ltd Vs. Commissioner of Income Tax, 2000 (2) TMI 10 - SUPREME Court where two views are possible and the Income Tax Officer has taken one view with which the Commissioner of the Income Tax does not agree, cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income Tax Officer is itself unsustainable in law. - Decided against revenue Warranty expenses claimed by the assessee - Held that - It is clear that if the Assessing Officer is satisfied with the response of the assessee on the issue and drops the likely addition, it cannot be said to be non-application of mind to the issue arising before the Assessing Officer. In fact this issue was a subject matter of the consideration by this Court in the Commissioner of Income Tax-8 V/s. M/s. Fine Jewellery (India) Ltd. 2015 (2) TMI 732 - BOMBAY HIGH COURT an identical submission made on behalf of the Revenue was negatived in the context of exercising of power under Section 263 of the Act to hold that if a query is raised during the assessment proceedings and responded to by the assessee, the mere fact that it has not been dealt with in the assessment order would not lead to a conclusion that the Assessing Officer has not applied his mind to the issues.- Decided against revenue

Summary

Issues:
1. Taxability of consideration received on transfer of development right
2. Allowance of warranty expenses
3. Set off of short term capital loss

Analysis:
Issue 1: Taxability of consideration received on transfer of development right
The appellant challenged the ITAT's decision regarding the taxability of the transfer of development rights. The Assessing Officer had determined that out of Rs. 41 Crores received, only Rs. 5.86 Crores was taxable income for the assessment year, considering the remaining amount as a deposit pending environmental clearance. The High Court upheld the Assessing Officer's decision, stating that it was a possible view based on facts and not erroneous. Citing the case of Malabar Industrial Co. Ltd Vs. Commissioner of Income Tax, the High Court emphasized that as long as the Assessing Officer's view is sustainable in law, it cannot be considered erroneous.

Issue 2: Allowance of warranty expenses
Regarding the allowance of warranty expenses claimed by the respondent-assessee, the High Court found that the Assessing Officer had raised specific queries during the assessment proceedings, which were satisfactorily responded to by the assessee justifying the expenses. The High Court noted that the Assessing Officer's acceptance of the justification and subsequent allowance of the claim indicated the application of mind to the issue. Referring to a previous case, the High Court reiterated that if queries are raised and responded to during assessment, the mere absence of discussion in the assessment order does not imply a lack of application of mind. Therefore, the High Court upheld the ITAT's decision on this issue.

Issue 3: Set off of short term capital loss
The ITAT had upheld the Commissioner of Income Tax's decision that the set off of short term capital loss without considering Section 94 of the Act was erroneous and prejudicial to the Revenue. The High Court concurred with this finding, supporting the ITAT's decision on this matter. The High Court did not entertain the question raised by the appellant on this issue, as it did not give rise to any substantial question of law.

In conclusion, the High Court dismissed the appeal, upholding the decisions of the ITAT on the taxability of consideration received on transfer of development right and allowance of warranty expenses. The High Court agreed with the ITAT's ruling on the set off of short term capital loss, emphasizing the importance of the Assessing Officer's application of mind during assessment proceedings.