2015 (8) TMI 421 - HC - Income Tax

Scope of revision u/s 263 - as per CIT(A) AO omitted to look into the correctness or otherwise of the apportionment of common expenses to agricultural and non-agricultural segments - Held that - The facts show that the proportion of agricultural and non-agricultural income/ receipts has been used even while working out the apportionment of expenditure under that head. The previous history not in dispute shows that since 1996-97, the said method is being adopted. It is not in dispute that in the return filed by the assessee (State Government Corporation), the receipts were, accordingly, mentioned and the expenditure for those receipts was, accordingly, apportioned and appropriated. This return has been accepted. As such, it cannot be said that the assessment order does not show any application of mind. The perusal of judgment in the case of CIT v. Rajasthan Financial Corporation (No. 1) 1996 (5) TMI 18 - RAJASTHAN High Court shows the limited scope available to the Commissioner of Income-tax while exercising the jurisdiction under section 263 of the Income-tax Act, 1961. Here, a long settled practice has been lost sight of and without observing anything in concrete about irrelevance of the method or apportionment being followed, the matter has been sent back. Had the Commissioner of Income-tax noted some facts which necessitated departure from this method, its intervention could have been understood. However, that is not the position here.There was no scope for intervention under section 263 of the Act - Decided in favour of assessee.

Summary

Issues:
1. Commissioner's interference under section 263 of the Income-tax Act, 1961 based on apportionment of common expenses to agricultural and non-agricultural segments.
2. Applicability of long-settled practice in apportioning expenses and income between agricultural and non-agricultural segments.
3. Scope of Commissioner's jurisdiction under section 263 of the Income-tax Act, 1961.

Analysis:

1. The main issue in this case revolves around the Commissioner's intervention under section 263 of the Income-tax Act, 1961, regarding the apportionment of common expenses to agricultural and non-agricultural segments. The Income-tax Appellate Tribunal found the Commissioner's interference unwarranted, leading to an appeal. The appellant's counsel argued that the Assessing Officer had acted mechanically in not considering the varying percentages of apportionment in different years, which required a detailed examination of facts. The Commissioner's decision to send the matter for fresh consideration was defended by the appellant's counsel, asserting no prejudice to the assessee.

2. The respondent's counsel highlighted the long-settled practice of apportioning expenses based on the proportion of agricultural and non-agricultural receipts, which had been consistently followed since 1996-97. The counsel argued that this method was accepted by the Assessing Officer, and there was no ground for the Commissioner's intervention under section 263 of the Act. Referring to a Division Bench judgment of the Rajasthan High Court, the respondent's counsel emphasized the validity of the established practice.

3. Upon perusing the case details and the arguments presented, the High Court observed that the historical practice of apportioning income and expenses between agricultural and non-agricultural segments had been consistently applied since 1996-97. The Court noted that the return filed by the assessee had correctly reflected this apportionment, which was accepted by the Assessing Officer. The Court emphasized the limited scope available to the Commissioner under section 263, especially when a well-established practice is in place and no concrete evidence of its irrelevance is presented.

In conclusion, the High Court upheld the decision of the Income-tax Appellate Tribunal, rejecting the appeal as no error was found in the Tribunal's order. The Court determined that no substantial question of law arose from the case, leading to the dismissal of the appeal without any costs.