2015 (6) TMI 718 - AT - Income Tax

Revision u/s 263 - CIT directing the A.O. to examine the issue that the lease rental incomes from shops/retail space owned by Ambience Hotels & Resorts Ltd. should not be assessed in the assessee s hands but in the hands of Ambience Hotels & Resorts Ltd.- Held that - It is now a established proposition of law that for invocation of the provisions laid down under sec. 263 of the Act, both the ingredients i.e. firstly the assessment order must be erroneous and secondly it must be prejudicial to the interest of revenue are to be examined. It appears from the assessment orders that taxability of ₹ 6,27,84,240 in the proper hand in view of the provisions of section 60 of the Income-tax Act, 1961 as well as Section 53A of the Transfer of the Property Act, has not been examined by the Assessing Officer as the issue was linked to both the assessees as it was to be taxed in one hand and effect thereof was to be given in the other hand. Thus, it can be said that in absence of examination/inquiry of the above aspect the assessment orders are erroneous as well as prejudicial to the interest of Revenue. When the learned CIT was setting aside the matter to the file of the A.O. for framing the assessment orders afresh as per the law after examining/making inquiry on the issue, he was not justified and a contradiction in his stand in directing the Assessing Officer to tax the lease income in the hands of the Ambience Hotel & Resorts and reduce the same from Ambience Developer & Infrastructure Pvt., especially when keeping in view the peculiar facts and circumstances of the case and in absence of examination/making inquiry by the A.O., it was a debatable issue as to in whose hand and under what head the lease income is to be taxed. The above findings of Learned CIT typed in bold to tax the lease income in the hands of M/s. Ambience Hotel & Resorts Ltd., and direction to the Assessing Officer to reduce the same income from M/s. Ambience Developers & Infra-structure (P) Ltd. are thus held invalid and are modified by deleting the same. - Decided partly in favour of assesse

Issues Involved:
1. Validity of revisional order under section 263 of the Income-tax Act, 1961.
2. Jurisdiction of CIT(Appeals) in invoking section 263.
3. Examination of income assessability and corresponding TDS.
4. Contradictory directions and findings by CIT.
5. Application of section 60 of the Income-tax Act, 1961.
6. Examination of capital gains on sale of shares.

Issue-wise Detailed Analysis:

1. Validity of Revisional Order under Section 263:
The assessee questioned the validity of the revisional order passed under section 263 of the Income-tax Act, 1961, arguing that the order of the Assessing Officer (AO) was neither erroneous nor prejudicial to the interest of revenue. The assessee contended that the AO had conducted proper investigation and inquiries before completing the assessments, and the orders were passed after obtaining approval from the Additional CIT. The Tribunal found that the AO had failed to verify and examine the taxability of Rs. 6,27,84,240 in the proper hands, making the assessment orders erroneous and prejudicial to the interest of revenue. Therefore, the revisional orders were upheld to this extent.

2. Jurisdiction of CIT(Appeals) in Invoking Section 263:
The assessee argued that the CIT(Appeals) exceeded his jurisdiction in invoking section 263, as the AO had already applied his mind lawfully and legally on the issue of assessability of the income. The Tribunal noted that for invoking section 263, the assessment order must be both erroneous and prejudicial to the interest of revenue. The Tribunal found that the AO had not examined the taxability of Rs. 6,27,84,240 under section 60 of the Income-tax Act, 1961, and section 53A of the Transfer of Property Act, making the assessment orders erroneous and prejudicial to the interest of revenue. Thus, the CIT(Appeals) was within his jurisdiction to invoke section 263.

3. Examination of Income Assessability and Corresponding TDS:
The assessee contended that the AO had duly applied his mind to the issue of assessability of the income on which TDS of Rs. 1,09,32,212 was made. The Tribunal found that the AO had failed to carry out proper investigation, inquiry, and verification regarding the claim of TDS without offering corresponding income for taxation. Therefore, the assessment order was held to be erroneous and prejudicial to the interest of revenue.

4. Contradictory Directions and Findings by CIT:
The assessee argued that the CIT's directions and findings were contradictory, as he directed the AO to decide the issue of assessability of income afresh while also holding that the income was taxable in the hands of another assessee. The Tribunal found that the CIT's direction to tax the lease income in the hands of Ambience Hotel & Resorts Ltd. and reduce the same from Ambience Developers & Infrastructure Pvt. Ltd. was contradictory and invalid. Therefore, this part of the revisional order was modified by deleting the contradictory directions.

5. Application of Section 60 of the Income-tax Act, 1961:
The assessee contended that the provisions of section 60 were not applicable, as there was a transfer of rights to exploit and enjoy the receipts of certain retail spaces owned by the hotel. The Tribunal found that the AO had not examined the applicability of section 60, making the assessment orders erroneous and prejudicial to the interest of revenue. Therefore, the revisional orders were upheld to this extent.

6. Examination of Capital Gains on Sale of Shares:
The assessee argued that the CIT erred in holding that the acceptance by the AO of the sale consideration of shares without declaring any capital gain was erroneous and prejudicial to the interest of revenue. The Tribunal found that the AO had not examined the sale value of the shares and the applicability of section 40A(2)(b) of the Act. Therefore, the revisional order directing the AO to examine the issue of capital gain on transfer of shares was upheld.

Conclusion:
The Tribunal upheld the revisional orders to the extent that the assessment orders were erroneous and prejudicial to the interest of revenue due to the AO's failure to examine and verify the taxability of Rs. 6,27,84,240 and the applicability of section 60. However, the Tribunal modified the revisional orders by deleting the contradictory directions to tax the lease income in the hands of Ambience Hotel & Resorts Ltd. and reduce the same from Ambience Developers & Infrastructure Pvt. Ltd. The appeals were partly allowed.

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