Unreported Decisions – July 2019

By Ajay R. Singh

1. S 263 – Revision – Merger – The taxability of the rental income was subject matter of appeal before Commissioner (Appeals) – Commissioner could not exercise powers u/s. 263.

The assessee company is engaged in property development. During assessment proceeding the assessing officer while passing the assessment order treated the lease rental income of Rs.11,78,29,224/- as income from ‘other sources’.

On appeal before CIT(A), the lease rental income was allowed as ‘business income’. No further appeal before Tribunal was filed by revenue. Subsequently, the ld. Pr. Commissioner issued a show cause notice u/s. 263.

In the show cause notice the ld. Pr. Commissioner show caused as to why the assessment order passed under section 143(3) be not set aside directing the AO to pass the assessment order afresh qua the treatment given to lease rental income. As per the ld. Pr. Commissioner, the lease income was liable to be assessed under the head “Income from House Property”. The assessee filed its reply stating that as per the doctrine of the merger the assessment order passed u/s. 143(3) dated 19.01.2015 merged with the order of appellate authority.

On appeal the Tribunal held that the Commissioner (Appeals) examined the taxability of the rental income after deep analysis of the facts. Factually, the appraisal shows that the issue regarding the nature of lease income was the subject matter of assessment by the AO and also the adjudication by the ld. CIT(A) thereafter. The ld. Pr Commissioner issued show cause notice u/s. 263 for proposed revision of the assessment order on the ground that the lease income be assessed as income under the head as “House Property”. In reply to the show cause notice the assessee specifically stated that the subject matter of proposed revision was considered in the appeal by ld. Commissioner (A) while deciding the appeal of the assessee, therefore, as per doctrine of merger the assessment is merged with the order of ld. Commissioner (A). The taxability of the lease rental income was examined and considered by ld. Commissioner (A) and thereby considering the doctrine of merger, once the issue has been examined and decided by ld. Commissioner (A), the revision order u/s. 263 cannot be made.

Thus, in the present case, the ld. Pr Commissioner was wrong in revising the assessment order on the taxability of rental income as income from house property. Therefore, the order passed by him is not valid.

M/s. Amazia Developers Pvt vs. DCIT-1(1)(1), ITA No.2499/ Mum/2017, DOH: 08/05/2019 (Mum.)(Trib.)

M/s. Amazia Developers Pvt

2. S 79 – Losses – Set-off and carry-forward of loss- in applying section 79 only business loss should be taken into account and not unabsorbed depreciation.

The assessee claim carry forward of business losses on account of set off of brought forward business losses including unabsorbed depreciation which was not allowed by the AO for the reason that the share holding pattern of the assessee company has changed up to 99.99% of the shares which was originally held by Abener Engineering & Construction, LLC it transferred to its 100% holding company Abener Energia, S.A. thus although transfer of shares during the year there was no change in the ultimate beneficiary shareholder which continue to be ultimate holding of Abener Energia, SA. The AO therefore, disallowed the carry forward of business losses of ₹ 10,90,40,397/- including the unabsorbed depreciation of ₹ 59,26,702/-.

The CIT(A) held that in this case, the shareholding of the assessee has changed entirely to the extent of 99.99% and hence, the provisions of section 79 of the Act are squarely applicable. The AO has rightly not allowed the carry forward of the losses. The assessee has raised a without prejudice ground that the unabsorbed depreciation should be allowed as the same is not covered within the purview of section 79 of the Act. The Hon’ble Apex Court in the case of CIT vs. Subhulaxmi Mills Ltd. [249 ITR 795] has held that section 79 of the Act applied only to business loss and not to unabsorbed depreciation. This principle has been subsequently followed in plethora of decisions. The assessee has submitted that of the loss disallowed to be carried forward of ₹ 10,9040,397, unabsorbed depreciation was ₹ 59.26,702. CIT(A) was of the view that unabsorbed depreciation is not a loss but allowance u/s 32 of the Act. Accordingly, directed that the assessee be allowed the carry forward of losses to the extent of unabsorbed depreciation after due verification is made by the AO.

Tribunal held that the CIT(A) has rightly directed the AO to delete the disallowance of unabsorbed depreciation and hence, the appeal of Revenue was dismissed.

DCIT-15(1)(1). vs. Abeinsa Business Development Pvt. Ltd, ITA No. 1183/Mum/2018, DOH: 08/05/2019 (Mum)(Trib)

Abeinsa Business Development Pvt. Ltd

3. S.271(1)(c) – Penalty – Penalty is not to be imposed if there is no conscious breach of law.

The levy of penalty was on two counts. One issue was the claim of deprecation on the premises which was let out. Assessee’s submission in this regard was that the said premises was also partly used by the assessee for godown. This was rejected by the assessing officer, and assessee’s appeal against the above was sustained by the CIT-A. Another issue was claim of the assessee that it was not liable to taxation under MAT provisions u/s. 115JA was rejected on the ground that assessee’s case was falling u/s. 115 JB. Inasmuch as assessee was not situated in a notified Special Economic Zone. Penalty u/s 271(1)(c) was also levied on the above issues. The CIT-A also sustained the penalty on the ground that the claim of the assessee was patently dubious.

The Tribunal held that as regards the claim of deprecation on which penalty has been levied, the assessee’s claim, was that it was also using the said let out premises as godown has been rejected. This aspect has to be looked from the point of view that the said prices was let out to the assessee’s wife itself. Hence the assessee claim that the said prices was also being partly used for godown purposes cannot be said to be ex facie bogus. It was observed that assessee’s conduct in this regard cannot be said to be contumacious warranting levy of penalty.

As regards the levy of penalty on account of tax u/s. 115 JB under MAT is concerned, the assessee’s claim was that it was falling under 115 JA. This claim was also supported by the certificate of the auditors. In this view of the matter assessee’s conduct cannot be said to be contumacious warranting levy of penalty. If the claim was wrong the responsibility was that of the auditor who duly certified the same. Hence it was a mistake on the part of the auditor and the assessee cannot be visited with penalty for the mistake of its consultant. In this regard reliance was placed on the case of Hindustan Steel vs. State of Orissa 83 ITR 26, wherein it was held that the authorities may not levy the penalty if the conduct of the assessee was not contumacious. The levy of penalty was deleted.

M/s. Kamdar Private Ltd. v DCIT 1(2), ITA No. 6589/ Mum/2017, DOH: 03/06/2019 (Mum)(Trib)

M/s. Kamdar Private Ltd.