2015 (4) TMI 330 - AT - Income Tax

Revision u/s 263 - three issues were taken up by the CIT, while revising the order of the AO determination of capital gains, computation of income from House Property and treatment of proportionate License fee written off - Held that - The CIT has not only mentioned as to how the order were erroneous, but has also established, by giving convincing reasons, that it was prejudicial to interest of revenue. Thus, the twin conditions were satisfied. Reasons recorded by the CIT clearly show that capital gain was not determined as per the provisions of the Act and thus the order was erroneous and prejudicial to the interest of revenue. Similarly, he proved that other two issues were erroneous and adversely affected the interest of revenue. In case of writing off of proportionate license fee the CIT came across about eight agreements that were not considered by the AO and same had bearing on taxability of the assessee. Clearly, the CIT after considering the available material reached to certain conclusions .It is not a case where two views were possible and the AO had taken one of the possible views. It is also not a case where the CIT has not recorded reasons or has not given a finding that the order of the AO was liable to revisionary provisions on both counts i.e.it was not sustainable legally and it was prejudicial to the interest of revenue. He successfully established that there was non-application of mind as well as non examination of the details by the AO while framing assessment. In short, on the touch stone of the principles enumerated at paragraph no.9 of our order, the revisionary order passed by the CIT succeeds and hence we are of the opinion that it does not need any interference from us. - Decided against the assessee.

Summary

Issues Involved:
1. Determination of capital gains.
2. Computation of income from House Property.
3. Treatment of proportionate License fee written off.

Detailed Analysis:

1. Determination of Capital Gains:
The Commissioner of Income Tax (CIT) found that the assessment order dated 15/12/2006 was erroneous and prejudicial to the interest of revenue. The CIT directed the Assessing Officer (AO) to adopt the sale consideration of Rs. 27,60,27,127/- instead of Rs. 24,88,14,199/- as adopted by the appellant. The CIT held that the appellant was not justified in excluding the sale value of 41 garages amounting to Rs. 1,23,00,000 from the total sale consideration, as these garages belonged to M/s THDC Ltd. and were offered to tax by said company. The CIT also found the appellant's exclusion of unexpired lease rent of Rs. 1,49,12,928/- from the total sale consideration to be unjustified. The CIT concluded that the assessment order was erroneous and prejudicial to the interest of revenue and directed the AO to work out the capital gains adopting the sale consideration at Rs. 27.60 Crores and the cost of the property at Rs. 25,90,22,500/-, subject to allowing the benefit of indexation.

2. Computation of Income from House Property:
The CIT observed discrepancies in the interest amounts claimed by the appellant. It was found that the appellant had included loan processing charges of Rs. 15,56,250/- in the interest amount, which is not deductible u/s 24(b) of the Income Tax Act. The CIT directed the AO to modify the computation of the House Property Income by excluding the aforesaid sum of Rs. 15,56,250/- which related to the property on the 2nd floor and 3rd floor of TKP as shown in the statement of total income.

3. Treatment of Proportionate License Fee Written Off:
The CIT found that the amount paid to Nelco and THDC was not in the nature of license fees but was purely a finance arrangement. Thus, the CIT held that the appellant's treatment of the amount by writing it off over ten years and claiming it as a deduction towards computation of income from business against the license fee receipt was not factually and legally in order. The CIT concluded that the amount payable in terms of the said agreement was capital in nature and not deductible as expenditure while working out the income against license fee of leased premises. The CIT directed that the income as License fee from the leased premises was correctly assessable under the head income from other sources.

Conclusion:
The Tribunal upheld the CIT's order, stating that the CIT had established that the assessment order was both erroneous and prejudicial to the interest of revenue. The Tribunal found that the CIT had given convincing reasons for his conclusions and that the AO had failed to apply his mind and examine the details properly while framing the assessment. The appeal filed by the assessee was dismissed.