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2024 (3) TMI 378 - AT - Income TaxRevision u/s 263 - applicability of section 56(2)(x) - assessee acquired leasehold/freehold land and building from the BDMC - HELD THAT - We have perused the provisions of section 56(2)(x) of the Act and note that the provisions of section are not applicable to acquisition of leasehold rights in land and building and therefore, the direction of the ld. PCIT requiring the AO to examine the transactions of acquisition in light of section 56(2)(x) of the Act is ex-facie untenable and contrary to the provisions of law. We observe that the provisions of section 56(2)(x) of the Act are applicable in a case where transfer of land and building or both, but not to the leasehold rights. The case of the assessee finds support from the decision of Green Fields Hotels Estates 2016 (12) TMI 353 - BOMBAY HIGH COURT wherein a ratio has been laid down that in respect of leasehold rights, the provisions of section 56(2)(x) of the Act are not applicable. Therefore, the exercise of jurisdiction by the ld. PCIT is unsustainable in the eyes of law. Allowing deduction in respect reversal or writing back of provision for liabilities u/s 43B created in the earlier assessment years - As we observe from the facts before us that the assessee has filed complete and detailed reconciliation of reversals/writing back of provisions before the ld. PCIT explaining that the deduction which represented reversal of provisions, was not claimed as expenses in the earlier assessment years when these were created except to the extent of payments made. We observe from the said chart that the assessee has not claimed the deduction as an expense in the year of creation of these provisions meaning thereby that these provisions stood disallowed while computing the income to the extent not paid in the respective assessment years. Therefore, the ld. PCIT has not given any objective finding on the basis of the reconciliation of the total provisions written back during the year which is not correct and the jurisdiction is not available u/s 263 of the Act. The case of the assessee finds support from the decision of Eveready Industries India Limited ( 2021 (12) TMI 105 - CALCUTTA HIGH COURT , Samundra Shoes Overseas Limited ( 2016 (7) TMI 916 - MADRAS HIGH COURT and K.S. Diesels Limited ( 2021 (10) TMI 106 - ITAT MUMBAI wherein it has been held that statutory liabilities, which were earlier disallowed under section 43B of the Act are to be excluded and allowed as deduction in the year of reversal/write back. As also examined the facts of the case qua claim of written back provisions along with supporting documents, we are of the view that the assessee has been rightly allowed the deduction in respect of reversed provisions created in the earlier assessment years while computing the income. Further, in our opinion, the ld. PCIT has simply restored the issue to the file of ld. Assessing Officer without giving any finding on the issue as to how the deduction of the provisions written back would amount to adjustment rendering the assessment as erroneous. We note that the ld. PCIT without doing any exercise/examination of the documents filed by the assessee simply set aside the issue back to the file of NFAC directing to ascertain the liability. In our opinion, the revisionary jurisdiction exercised by the ld. PCIT is invalid and so is the order passed u/s 263 of the Act and can not be sustained. The case of the assessee finds support from the decision of DG Housing Projects Limited ( 2012 (3) TMI 227 - DELHI HIGH COURT and Jyoti Foundation ( 2013 (7) TMI 483 - DELHI HIGH COURT) , have held that before setting aside the issue to the file of Assessing Officer, the ld. PCIT did not mention as to how the issue proposed has rendered the assessment framed by the A.O. as erroneous then the jurisdiction u/s 263 of the Act cannot be invoked. Appeal of the assessee is allowed.
Issues Involved:
1. Applicability of section 56(2)(x) on acquisition of leasehold land & building. 2. Disallowance of expenditure on scientific research u/s 35(1)(i) of the Act. 3. Disallowance of claim u/s 43B in relation to reversal or write back of provision for liabilities. 4. Disallowance of deduction claimed u/s 80JJAA. 5. Disallowance of prior period expenses. Summary: Issue 1: Applicability of Section 56(2)(x) on Acquisition of Leasehold Land & Building The assessee argued that section 56(2)(x) does not apply to leasehold rights, citing various judicial precedents. The Tribunal noted that the PCIT directed the AO to examine the applicability of section 56(2)(x) without considering the assessee's objections and supporting documents. The Tribunal found that the PCIT's direction was unjustified and contrary to the law, as the provisions of section 56(2)(x) are not applicable to leasehold rights. The Tribunal quashed the PCIT's order on this issue. Issue 2: Disallowance of Expenditure on Scientific Research u/s 35(1)(i) of the Act The PCIT accepted the assessee's contentions on this issue and did not pursue it further. Therefore, this issue was resolved in favor of the assessee. Issue 3: Disallowance of Claim u/s 43B in Relation to Reversal or Write Back of Provision for Liabilities The assessee contended that the provisions reversed were not claimed as expenses in earlier years and were disallowed under section 43B. The Tribunal noted that the PCIT did not objectively deal with the assessee's submissions and simply restored the issue to the AO. The Tribunal found that the PCIT's action was incorrect and quashed the order on this issue. Issue 4: Disallowance of Deduction Claimed u/s 80JJAA The PCIT accepted the assessee's contentions on this issue and did not pursue it further. Therefore, this issue was resolved in favor of the assessee. Issue 5: Disallowance of Prior Period Expenses The PCIT accepted the assessee's contentions on this issue and did not pursue it further. Therefore, this issue was resolved in favor of the assessee. Conclusion: The Tribunal found that the PCIT had invoked jurisdiction under section 263 at the instance of the AO based on audit objections, which is against the provisions of the Act. The Tribunal quashed the PCIT's order, holding that the revisionary jurisdiction was invalidly exercised. The appeal of the assessee was allowed.
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