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TMI Blog2015 (3) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... of power u/s 263 of the Act, while examining the assessment record of assessee for the AY under consideration was of the view that assessment order passed u/s 143(3) is erroneous and prejudicial to the interests of revenue on the following issues: i) The assessee claimed an amount of Rs. 2,99,86,056 towards maintenance and repairs under the head income from house property. As the assessee is in the business of development and maintenance of Software Technology Park the entire rental income and service income derived thereon is incidental to the business and as such the same has to be treated as business income. Therefore the amounts paid by the clients of the assessee for use of the STP would be in the nature of commercial activity assessable under the business. Hence, the expenditure claimed towards maintenance and repair needs to be disallowed. ii)Schedule 16 of profit & loss account shows that the assessee has paid Rs. 2041.34 lakhs towards finance cost and Rs. 1572.22 lakhs was capitalized. Hence, the expenditure towards finance cost to be allowed to the extent of Rs. 469.12 lakhs only. As the assessee claimed interest to the extent of Rs. 1026.35 lakhs against the actual amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ildings. While construction of two buildings has been completed during AY 2009-10, 3rd building was still under construction. During the FY 2008-09, assessee has incurred total finance cost of Rs. 2041.34 lakh, out of this approximately an amount of Rs. 136 lakh represented finance cost in relation to the facility management and operations of assessee and were charged to the profit & loss account. As far as balance cost is concerned, it was submitted that from accounting perspective the interest is allocated to each building, portion of this allocated amount up to the date of the respective building was put to use has been capitalized to the cost of the said building. However, from income tax perspective, in accordance with the terms specified in section 24 interest attributable to buildings, which were put to use is fully claimed as deduction from rental income. Interest pertaining to the third building is capitalized to the said building. In support of its contention, assessee also furnished the following working: Building No. Interest attr ibutable Treatment in books Treatment for income-tax Capitalized Expensed Capitalized expensed #1 415.28 130.63 284.65 - 415.28 #2 448. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, as per assessee's own admission, it approached the authorities at department of industry and obtained approval for the industrial park as part of its business activity with a view to obtain better returns from the commercial assets. Ld. CIT observed, AO even did not examine approval documents before completing assessment. It was observed by ld. CIT, as verified from the accounts, assessee has availed huge project term loan from the bank to construct the buildings. Assessee has spent huge sums as project support fees and also as business promotion expenses, which clearly show that assessee is engaged in systematic activity of building an industrial park and markets the space also by spending huge amounts. Therefore, it is a clear case of commercial exploitation of assets for the purpose of business. Ld. CIT observed, merely because assessee is recording entries for lease rent and facility management separately, the activities would not be distinct and separate. Because in reality without facility management, none would take the premises on lease as the units need strong infrastructural support without which the concept of industrial park would itself be meaningless. Ld. CIT obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3) of the Act is erroneous and prejudicial to the interests of revenue although the twin conditions required to be fulfilled for exercising the jurisdiction are not satisfied. 1.2 The ld. CIT erred in observing that since the appellant is not entitled to a deduction u/s 32(iia) of the Act, the assessment order is prejudicial to the interests of revenue although the appellant did not make any such claim in its return of income nor this formed the basis of the show cause notice invoking jurisdiction u/s 263 of the Act. Ground 2: Business income Vs. Income from house property 2.1 The ld. CIT erred in holding that rental income earned on letting out the immovable property is to be assessed as business income and not as income from house property as returned by the appellant and accepted in the assessment proceedings. Ground 3: Depreciation on assets 3.1 Without prejudice to Ground 2, in case the income of the appellant is classified as business income instead of income from house property, the appellant ought to have been allowed depreciation in respect of its assets, including the buildings and fittings and machinery therein. Ground 4: Depreciation in respect of finance cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st, but, also demonstrated that actually there is no such difference as pointed by ld. CIT. However, without examining the working submitted by assessee, ld. CIT has set aside the assessment order and directed AO to verify again. Ld. AR submitted, ld. CIT has not given any specific finding with regard to alleged excess claim made by assessee, on the other hand, direction given by ld. CIT is a general direction in the nature of roving and fishing enquiry, which is not permitted u/s 263. In this context, ld. AR relied on the decision of Hon'ble Bombay High Court in case of CIT Vs. Gabriel India Ltd., 203 ITR 108. Ld. AR submitted, there is no conclusive finding by ld. CIT that AO has failed to apply his mind or conduct any enquiry. In these circumstances, exercise of power u/s 263 is totally invalid. 10. Ld. DR, on the other hand, though, supported the order of ld. CIT, but he submitted, as far as ground Nos. 1, 2 & 3 are concerned, they are more or less covered by the decision of ITAT in case of M/s K. Raheja IT Park (supra). As far as second issue in Ground No. 4 is concerned, ld. DR submitted that ld. CIT has only directed AO to examine the issue with reference to the books of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment fee on maintenance are concerned. Not only in the impugned years, even in earlier years also, the incomes were accepted as such. Since the Ld. CIT cannot revise those orders, these orders are not subject matter of proceedings u/s 263 and therefore, the issues are concluded therein accepting assessee's contention. On the rule of consistency also, it cannot be modified in a later year. However, it is not on rule of consistency alone. As seen from the orders passed by the authorities at the time of assessment, they have accepted the bifurcation of rental income and services income and rental income was accepted under the head "House Property". As rightly pointed out by assessee in the submissions before the Ld. CIT that assessing incomes under head Business was not prejudicial to the interests of revenue considering that a higher claim of depreciation was allowable on the properties when compared to 30% allowance for repairs on the incomes assessed, we agree that the orders are not prejudicial to the interest of Revenue. 17. Ld. CIT erred in relying only on the ITAT order in the case of Global Tech Park P. Ltd., ACIT (supra) wherein the Coordinate Bench relied on the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded properties and promoting and developing markets, purchased 10 bighas of land in the town of Calcutta and set up a market therein. The question was whether the income realized from the tenants of the shops and stalls was liable to be taxed as "business Income" under section 10 of the Income Tax Act or as income from property under section 9. Held that the income derived by the company from shops and stalls is income received from property and falls under the specific head described in s. 9. The character of that income is not altered because it is received by a company formed within object of developing and setting up markets. Nor because of the fact that the company was required to obtain a licence from the Calcutta Municipality to maintain sanitary and other services and for that purpose had to maintain a staff and to incur expenditure did the income become "profits or gains" from business within the meaning of section 10. Nor was the character of the income altered merely because some stalls were occupied by the same occupants and the remaining stalls were occupied by a shifting class of occupants. The primary source of income from the stalls was the occupation of the stall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting out flats and shops. The Income Tax Officer rejected its claim but split the receipts into two parts, one part being treated as rent and the other as "income from other sources" taxable under section 12 of the Income Tax Act, 1922. The Appellate Tribunal held that the second part was assessable as income from business under section 10. Neither the department nor the assessee contended that the part was assessable under section 9. On a reference the High Court held that the latter part of the receipts was also assessable as income from property under section 9. On appeal to the Supreme Court : Held, reversing the decision of the High Court, (i) that the department having all along proceeded on the basis that the income of the assessee was from two different sources, it should not have been allowed by the High Court to change its case ; (ii) that, on the facts, the services rendered by the assessee to its tenants were the result of its activities carried on continuously in an organized manner, with a set purpose and with a view to earn profits; those activities were business activities and the income arising therefrom was assessable under section 10. When the question to the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letting portions thereof was part of the business and trading activity of the appellant and the income of the appellant fell under section 10 of the Act ; and (iv) that where, as in this case, the income could appropriately fall under section 10 as being business income, no resort could be made to section 12. The liability to tax under section 9 of the Income Tax Act, 1922, is of the owner of the buildings or land appurtenant thereto. In case the assessee is the owner of the buildings or lands appurtenant thereto, he would be liable to pay tax under section 9 even if the object of the assessee in purchasing the landed property was to promote and develop a market thereon. It would also make no difference if the assessee was a company which had been incorporated with the object of buying and developing landed properties and promoting and setting up market thereon. The residuary head of income can be resorted to only if none of the specific heads is applicable to the income in question; it comes into operation only after the preceding heads are excluded." 18.4. Thereafter, the Hon'ble Supreme Court in the case of Sambhu Investments Pvt. Ltd., vs. CIT 263 ITR 143 also held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord, in course of revision proceeding, assessee has submitted detailed working relating to apportionment of interest to house property income as well as business income. As it appears, ld. CIT has not at all applied his mind to the working submitted by assessee. However, on perusal of the working submitted by assessee in course of revision proceeding, clearly demonstrate that actually there is no such excess claim as alleged by ld. CIT in the show cause notice. Ld. CIT while issuing the show cause notice u/s 263 has specifically alleged of excess claim of interest to the tune of Rs. 557.23 lakhs, but, ultimately he has not at all given any specific finding with regard to such allegation and has merely remitted the issue back to the file of AO for verification. It is to be noted the direction of ld. CIT in this regard is nothing but a general direction and in the nature of roving and fishing inquiry as ld. CIT has not brought any material on record to substantiate his allegation that assessee has claimed financial charges in excess. The Hon'ble Bombay High Court in case of CIT Vs. Gabriel India Ltd. (supra) held as under: "9. From a reading of sub-s. (1) of s. 263 it is clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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