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2022 (10) TMI 897 - AT - Income TaxRevision u/s 263 - As per CIT, AO not considered issues relating to interest and audit fee payments and also the claim of capital gains under section 45 - HELD THAT - AO neither examined nor made any enquiry with regard to the issues relating to interest and audit fee payments and also the claim of capital gains under section 45 of the Act. Therefore, we find that the ld. PCIT has rightly issued notice by stating that the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue and also directed the Assessing Officer to pass fresh order in accordance with law by considering the issues after making proper enquiry and the verifying the details. We find no infirmity in the order passed by the ld. PCIT dated 01.03.2018. Thus, the appeal filed by the assessee is dismissed. Allowability of expenses claimed in the profit and loss account being TIIC loan interest charges and audit fee resulting in loss - HELD THAT - It is an admitted fact that the return of income was filed after due date prescribed under section 139(3) of the Act, thereby, the loss claimed in the return cannot be carry forwarded as per section 80 of the Act. Moreover, it is also an admitted fact that the assessee company was under lock-out by Tamilnadu Industrial Investment Corporation (TIIC) since 1998 and thereby, the authorities below have observed that there was no business activities carried during the previous year relevant to the assessment year under consideration and the assessee cannot compute income/loss from business under section 28 of the Act. Under the above facts and circumstances, we find no infirmity in the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the assessee is dismissed. Capital gain on transfer of property to the GPA holder - case of AO is that the assessee has leased out a property through one of the Director - HELD THAT - The assessee company has taken a land on lease from one of the directors Shri Sivasamy for 30 years. Subsequently, the company gave a general power of attorney in favour of Shri P. Parameswaran, who is the director of the company. The same property was sold through Shri P. Parameswaran, Tirupattur for a sale consideration of ₹.3,00,87,887/-. In the power attorney, the legal heirs of Shri Sivasamy also signed in the document. Therefore, the legal heirs along with Shri Sivasamy relinquished the rights on the property. We find that Shri Sivasamy, who was the land owner is no more land owner. The company has given general power of attorney to Shri P. Parameswaran and he sold the property and loans were cleared from TIIC. The argument of the assessee is rejected for the reason that simply because Shri Sivasamy who is the owner of the property lease out to the assessee and filed property tax receipt though that receipts are not conclusive proof to consider the ownership rights taken away. In this case, the company has given general power of attorney to Shri P. Parameswaran and in that Shri Sivasamy and his legal heirs are also signed. During the course of hearing, when we asked the ld. Counsel for the assessee what is the consideration received by Shri Sivasamy and his legal heirs for relinquishment of the very legal rights on the property, he could answer and the reason is best known to him. Under the above facts and circumstances, we are of the considered opinion that the capital gains has to be taxed in the hands of the assessee as has been held by the authorities below. Thus, we find no infirmity in the order passed by the ld. CIT(A) and accordingly, the ground raised by the assessee is dismissed.
Issues Involved:
1. Validity of the order passed under section 263 of the Income Tax Act, 1961. 2. Allowability of expenses claimed in the profit and loss account. 3. Capital gain on transfer of property. Issue-wise Detailed Analysis: 1. Validity of the order passed under section 263 of the Income Tax Act, 1961: The Principal Commissioner of Income Tax (PCIT) issued a show-cause notice under section 263, asserting that the assessment order dated 15.03.2015 was erroneous and prejudicial to the interest of the Revenue. The PCIT observed that the assessee filed the return of loss after the due date and was thus ineligible to carry forward the loss. Additionally, the assessee failed to provide satisfactory explanations regarding the transactions resulting in capital gains and other issues. Consequently, the PCIT set aside the assessment order and directed the Assessing Officer (AO) to redo the assessment after making necessary inquiries and verifications. The Tribunal upheld the PCIT's order, stating that the AO neither examined nor made any inquiry regarding the issues related to interest and audit fee payments and the claim of capital gains. The Tribunal found no infirmity in the PCIT's order, which was deemed to be rightly issued. 2. Allowability of expenses claimed in the profit and loss account: The assessee claimed expenses amounting to Rs. 1,47,33,032/- in the profit and loss account, including TIIC loan interest and charges, and audit fees. The AO disallowed these expenses, noting that the assessee company had been under lock-out by Tamilnadu Industrial Investment Corporation (TIIC) since 1998, resulting in the stoppage of business. As per Section 28(i) of the Act, profits and gains from business or profession chargeable to income-tax must be from a business carried on during the previous year. Since the assessee had ceased business operations, the expenses claimed were deemed non-allowable. The CIT(A) upheld the AO's decision, emphasizing that the claims were unsupported by valid proof and that the assessee could not compute income/loss from business under Section 28 of the Act due to the cessation of business activities. The Tribunal agreed with this assessment, noting that the return of income was filed after the due date prescribed under section 139(3), and thus, the loss claimed could not be carried forward as per section 80 of the Act. 3. Capital gain on transfer of property: The AO noted that the assessee had transferred immovable property via a general power of attorney to Shri P. Parameswaran for a consideration of Rs. 3,00,78,887/-. As per Section 2(47)(iv) of the Act, any transaction enabling the enjoyment of immovable property is considered a "transfer" and is liable for capital gains tax under Section 45. The AO determined that the assessee should have declared the capital gains from this transaction but failed to do so, resulting in the escapement of capital gains. The CIT(A) confirmed the AO's decision, noting that the company had given a general power of attorney to Shri P. Parameswaran, who sold the property, and the sale consideration was received by the company. The Tribunal upheld this decision, rejecting the assessee's argument that the property was a leasehold and thus not subject to capital gains tax. The Tribunal noted that the property was effectively transferred, and the capital gains had to be taxed in the hands of the assessee. Conclusion: In conclusion, the Tribunal dismissed both appeals filed by the assessee, upholding the orders passed under section 263 and the subsequent assessments. The Tribunal found that the AO and CIT(A) had correctly disallowed the claimed expenses and taxed the capital gains arising from the transfer of property.
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