2017 (3) TMI 737 - HC - Income Tax

Validity of recording of observations by the ITAT while remanding the matter to the A.O. for re-adjudication of the issue - Assessment of income under the correct hand - joint development agreement (JDA) - one partner is offering rental income as taxable in its hand - Held that - It is trite that the Tribunal has discretionary power to remand the matter to the A.O. for fresh consideration. However, any observation made by the Tribunal while remanding the matter for examination of certain issues would prejudice the rights of the Assessee resulting in violation of the principles of natural justice besides influencing the A.O. while re-examining the matter. It is for the A.O. to apply his mind and come to a conclusion, after proper examination of the issue involved. Hence, we are of the considered opinion that the observations made by the Tribunal at paragraph of the Judgment on merits of the case deserves to be expunged and accordingly they are expunged. Hence, the substantial question of law formulated above, is answered in favour of the Assessee and against the revenue. The matter is remanded to A.O. to reconsider the same afresh.

Summary

Issues Involved:
1. Interpretation of the supplementary agreement in relation to the original joint development agreement.
2. Tax treatment of rental income from commercial buildings transferred to a sister company.
3. Justifiability of the Tribunal's observations in remanding the matter to the Assessing Officer.

Analysis:
1. The case involved a public limited company engaged in refractory manufacturing and site vending services, which transferred land to its sister company under a joint development agreement (JDA). The dispute arose regarding the tax treatment of rental income from commercial buildings constructed on the transferred land. The Assessing Officer (A.O.) had added the rental income to the assessee's total income, which was challenged before the CIT(A) and subsequently the Tribunal.

2. The CIT(A) accepted the assessee's submission and deleted the addition made by the A.O. The Tribunal, however, remanded the matter to the A.O. for further verification, particularly regarding the timing of the transfer of funds from the sister company and the tax treatment of rental income by the sister company. The assessee appealed this decision under Section 260-A of the Income Tax Act, 1961.

3. The High Court considered the substantial question of law regarding the Tribunal's observations while remanding the matter. The Tribunal's observations were deemed to potentially prejudice the assessee's rights and influence the A.O.'s reconsideration. The Court emphasized the need for a fair examination of the issue without being swayed by any previous observations. Consequently, the Court ruled in favor of the assessee, directing the A.O. to re-examine the matter without being influenced by the Tribunal's observations, which were expunged from the record.

In conclusion, the judgment clarified the need for a fair and unbiased reassessment of tax matters, emphasizing the importance of avoiding any prejudicial influence on the reassessment process.