2016 (7) TMI 571 - AT - Income Tax

Deduction under section 80IA(4)(iii) - denial of claim on the ground that the assessee has offered the income from leasing/licensing of the Industrial Project in Hyderabad as Income from House Property and not as Income or Profits & Gains from Business or Profession - Held that - The assessee has been allowed deduction in the first year and it is the bounden duty of the A.O. to examine the eligibility of the assessee to claim the deduction under section 80IA(4) of the Act at the time of allowing such deduction. Since the claim has been allowed, it is to be presumed that the A.O. is satisfied about the allowability of the claim. This being the second year, unless there are distinguishing facts and circumstances for taking a different view and deny the claim of deduction, the A.O. cannot take a contrary stand. The CIT(A) has in fact, directed the A.O. to examine the assessment order for A.Y. 2009-2010 and to see whether the A.O. has examined the eligibility of the assessee and to take suitable action. This direction, in our opinion, is not sustainable. The CIT(A) can only deal with the appeal before him and cannot give a direction with regard to another assessment year not before him. Therefore, such direction is not sustainable and is hereby quashed. Revision u/s 263 - A.O. has accepted the lease rentals from I.T. Park as Income from house property though denied the claim of the assessee under section 80IA of the Act on the ground that deduction cannot be given under the head Income from House Property - Held that - Stand of the A.O. has been that since the income is not offered as business income, the deduction under section 80IA cannot be allowed. If the stand of the CIT is accepted, and the income is brought to tax under the head business income , then the deduction under section 80IA(4) would be allowable whereby the income of the assessee would not be exigible to tax. Therefore, it is clear that there is no prejudice caused to the revenue by the view adopted by the A.O. For a revision order to be sustained, the assessment order should be both erroneous as well as prejudicial to the interests of the Revenue. In the case before us, as we have already held that there is no prejudice caused to the Revenue and further since we have also held in assessee s appeal against the assessment order denying the claim of deduction under section 80IA(4), that the assessee is eligible for deduction under section 80IA even if the income is returned under the head Income from house property , the revision order is not sustainable. Appeal decided in favour of assessee.

Issues Involved:
1. Eligibility of deduction under section 80IA(4)(iii) of the I.T. Act, 1961.
2. Classification of income as 'Income from House Property' versus 'Income or Profits & Gains from Business or Profession'.
3. Validity of the CIT's revision orders under section 263 of the I.T. Act.

Issue-wise Detailed Analysis:

1. Eligibility of Deduction under Section 80IA(4)(iii):
The assessee, engaged in the development and maintenance of infrastructure facilities, claimed a deduction under section 80IA for the A.Y. 2010-2011. The A.O. denied this claim, stating that the income was offered under 'Income from House Property' rather than 'Profits & Gains from Business or Profession'. The CIT(A) confirmed the A.O.'s decision but directed a re-examination of the assessee's eligibility for the A.Y. 2009-2010.

The Tribunal found that the assessee had received approval from the Government of India for setting up an industrial park, making it eligible under section 80IA(4)(iii). The Tribunal held that the classification of income under different heads does not affect the eligibility for deduction under section 80IA. The Tribunal cited various precedents to support the view that income classified under 'House Property' can still be considered part of 'Profits and Gains' of the business for deduction purposes. Therefore, the Tribunal allowed the deduction under section 80IA.

2. Classification of Income:
The A.O. classified the income from leasing/licensing of the industrial park as 'Income from House Property', which led to the denial of the deduction under section 80IA. The Tribunal examined whether income from an approved industrial park, though offered as 'Income from House Property', is eligible for deduction under section 80IA(4).

The Tribunal referred to numerous judicial decisions, establishing that income from house property can be part of business profits and gains. It concluded that the business of the assessee was to develop and maintain infrastructure facilities, and the income from such facilities, even if offered under 'House Property', is effectively business income. Consequently, the Tribunal held that the assessee is eligible for deduction under section 80IA(4).

3. Validity of the CIT's Revision Orders under Section 263:
The CIT exercised revisionary powers under section 263, arguing that the A.O. erred in accepting the income as 'House Property' and not as 'Business Income'. The CIT directed the A.O. to reclassify the income and assess it under 'Business Income'.

The Tribunal found that the CIT's direction was not sustainable. It held that the A.O.'s acceptance of income as 'House Property' did not cause prejudice to the revenue, as reclassifying the income as 'Business Income' would necessitate allowing the deduction under section 80IA, resulting in no tax liability. The Tribunal also quashed the CIT's direction to re-examine the A.Y. 2009-2010, stating that the CIT(A) cannot give directions for years not under appeal.

Conclusion:
The Tribunal allowed all the appeals of the assessee, granting the deduction under section 80IA(4) and quashing the CIT's revision orders under section 263. The Tribunal emphasized that the classification of income under different heads does not impact the eligibility for deduction under section 80IA, provided the business activity aligns with the provisions of the Act.

← Previous Next →