Cyber Park Development and Construction Ltd.,, Bangalore v. DCIT, Bangalore

ITA 266/BANG/2011 | 2006-2007
Pronouncement Date: 28-12-2011

Appeal Details

RSA Number 26621114 RSA 2011
Assessee PAN AACCC1113H
Bench Bangalore
Appeal Number ITA 266/BANG/2011
Duration Of Justice 9 month(s) 18 day(s)
Appellant Cyber Park Development and Construction Ltd.,, Bangalore
Respondent DCIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 28-12-2011
Appeal Filed By Assessee
Bench Allotted A
Tribunal Order Date 28-12-2011
Date Of Final Hearing 13-12-2011
Next Hearing Date 13-12-2011
Assessment Year 2006-2007
Appeal Filed On 11-03-2011
Judgment Text
IN THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH A BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR VICE PRESIDENT AND SMT P. MADHAVI DEVI JUDICIAL MEMBER I.T.A. NO.266(BANG.)/2011 (ASSESSMENT YEAR : 2006-07) M/S CYBER PARK DEVELOPMENT & CONSTRUCTION LTD. NO.C.406 4 TH FLOOR INFANTRY ROAD BLUE CROSS CHAMBERS BANGALORE-560 001 PAN NO.AACCC1113H APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-11(2) BANGALORE RESPONDENT ASSESSEE BY : SHRI PADAM CHAND KHINCHA CA REVENUE BY : SHRI G.V.GOPALA RAO CIT-I DATE OF HEARING : 13-12-2011 DATE OF PRONOUNCEMENT : 28-12-20 11 O R D E R PER SMT. P. MADHAVI DEVI JM; THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORD ER PASSED BY THE CIT U/S 263 OF THE IT ACT DIRECTING THE AO TO RE-D O THE ASSESSMENT IN THE LIGHT OF HIS OBSERVATIONS MADE IN HIS ORDER AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY IS IN THE BUSINESS OF DEVELOPING OPERATING AND MAINTAINING THE INFRASTR UCTURE FACILITIES FOR THE SOFTWARE AND RELATED SECTORS. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON 24-11-2006 DECLARI NG A LOSS OF ITA NO.266(B)2011 S 2 RS.10 23 09 300/-. INITIALLY THE RETURN WAS PROCESSED U/S 143(3) OF THE IT ACT ON 03-09-2007. THEREAFTER THE ASSESSMENT WAS COM PLETED U/S 143(3) AFTER ISSUING NOTICE U/S 143(2) TO THE ASSESSEE ON 04-10 -2007. IN RESPONSE TO THE SAID NOTICE U/S 143(2) OF THE IT ACT THE ACCOUNTS EXECUTIVE OF THE COMPANY APPEARED AND PRODUCED THE DETAILS AND AFTER CO NSIDERING THE SAME AND AFTER VERIFYING THE BOOKS OF ACCOUNTS THE ASS ESSMENT WAS COMPLETED AND THE LOSS WAS TO BE CARRIED FORWARD AS PE R THE PROVISIONS OF THE IT ACT. THEREAFTER THE CIT PERUSED THE RECORDS O F THE RELEVANT ASSESSMENT ORDER AND CAME TO THE CONCLUSION THAT IT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE WITHIN THE MEANING O F SEC.263 OF THE IT ACT FOR THE FOLLOWING REASONS; 1 . THE ASSESSMENT WAS COMPLETED BY ALLOWING DEPRECIATION AT 25% ON THE RIGHT TO LEASE HOLD LAND CLASSIFIED AS AN INTANGIBLE A SSET BY THE ASSESSEE AMOUNTING TO RS.2 01 69 575/- WHEREAS THE LEASE HOLD RIGHTS ON LAND WAS NOT AN INTANGIBLE ASSET AND WAS NOT ELIGIBLE FOR DEPRECIATION. 2 . THE AO HAD ALLOWED DEPRECIATION AS CLAIMED WITHOUT PROPE R APPLICATION OF MIND WITH REFERENCE TO THE FACTS OF THE CASE AND THE PROVISIONS OF SEC.32 OF THE IT ACT. HE THEREFORE ISSUED A NOTICE U/S 263 OF THE IT ACT TO THE ASSESSEE ASKING THE ASSESSEE TO SH OW CAUSE AS TO WHY THE ASSESSMENT ORDER SHOULD NOT BE REVISED. 2.1 THE ASSESSEE FILED ITS DETAILED SUBMISSIONS STATING THAT THE CIT IS NOT VESTED WITH THE POWERS TO RE-EXAMINE THE ISSUE WHE N THE AO HAS CONSIDERED THE ISSUE AT THE TIME OF ASSESSMENT. IT WAS SUBMITTED THAT THE AO HAD REQUESTED FOR THE DETAILS PERTAINING TO DEPRECIA TION ON LEASE HOLD ITA NO.266(B)2011 S 3 LAND AS AN INTANGIBLE ASSET AND THE SAME WAS SUBMITTED T O THE AO VIDE LETTER DATED 26-12-2008 AND THUS THE AO HAD CONSIDERE D THE ISSUE AND HAD APPLIED HIS MIND ON THE MATTER AND IT CANNOT BE SAID TO BE ERRONEOUS. THE CIT AFTER CONSIDERING THE ASSESSEES CONTENTIONS O BSERVED THAT THE ASSESSEE HAD TAKEN THE LAND ON LEASE FROM STPI FOR A PE RIOD OF 66 YEARS AND IN CONSIDERATION OF SUCH LEASE TRANSACTION 9.5% OF THE LAND IS DEVELOPED FREE OF COST FOR USE BY STPI AND THE COST OF DEVELOPMENT OF THE SPACE ALLOTTED TO STPI IS CAPITALIZED AS AN INTANGIBLE ASSET AND DEPRECIATION CLAIMED AT THE RATE OF 25%. THE CIT HELD THAT THE ASSES SEE HAS NOT ESTABLISHED BEFORE THE AO IN THE COURSE OF ASSESSMENT PR OCEEDINGS THAT THE CONCERNED LEASE HOLD RIGHTS ON LAND WAS SIMILAR TO ANY OF THE RIGHTS SPECIFICALLY MENTIONED U/S 32(1)(II) OF THE IT ACT NAMELY KNOWH OW PATENTS COPYRIGHTS TRADE MARKS LICENSES AND FRANCHISES OTHER THA N GENERALLY STATING THAT IT WAS IN THE NATURE OF A BUSINESS OR COMMERCIAL RIGHT. 3. HE FURTHER HELD THAT THE AO HAD NOT RECORDED ANY FIN DING WITH THE CONCERNED LEASE HOLD RIGHTS AS A BUSINESS OR COMMERCIAL R IGHT SIMILAR TO THE RIGHTS SPECIFICALLY MENTIONED IN SEC.32(1)(II) OF THE ACT. TH US ACCORDING TO HIM THE ASSESSMENT ORDER PASSED BY THE AO IS CLEARL Y ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE AND DIRECTED THE AO TO MAKE A FRESH ASSESSMENT IN THE LIGHT OF HIS OBSERVATIONS AFTER GIVING T HE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. AGGRIEVED BY THESE D IRECTIONS THE ASSESSEE IS BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI PADAM CHAN D KHINCHA WHILE REITERATING THE SUBMISSIONS MADE BEFORE THE AUTHORITIE S BELOW DREW ITA NO.266(B)2011 S 4 OUR ATTENTION TO THE DETAILED QUESTIONNAIRE ISSUED BY THE AO AND THE ASSESSEES SUBMISSIONS DATED 26-12-2008. THE ASSESSEE IN ITS SUBMISSIONS AT PAGE-5 PARA-2 STATED IN DETAIL AS UNDER; DEPRECIATION ON LEASEHOLD RIGHTS AS IN INTANGIBLE ASSET AS HAS BEEN INDICATED EARLIER THE COMPANY IS ENGAGE D IN THE BUSINESS OF DEVELOPMENT OPERATION AND MAINTENANC E OF INFRASTRUCTURE FACILITIES FOR SOFTWARE AND RELATE D SECTORS. FOR THIS PURPOSE IT TAKES LAND ON LEASE FOR A PERIOD OF 66 YEARS FROM STPI AND IN CONSIDERATION OF SUCH LEASE TRANSACTION 9.5 PERCENT OF THE LAND IS DEVELOPED FREE OF COST FOR USE BY STPI. THE COST OF DEVELOPMENT OF THE SPA CE ALLOTTED TO STPI IS CAPITALIZED AS AN INTANGIBLE ASSET AND DEPRECIATION CLAIMED AT THE RATE OF 25 PERCENT. WE SUBMIT BELOW OUR CONTENTIONS IN SUPPORT OF OUR CLAIM 2.1 THE LEASEHOLD RIGHT IS A BUSINESS OR COMMERCIAL RIGHT . IN ORDER TO DETERMINE WHETHER THE COST OF DEVELOPME NT CAPITALIZED BY THE COMPANY AS INTANGIBLE ASSET IS EL IGIBLE FOR DEPRECIATION CLAIM AT THE RATE OF 25 PERCENT IT IS IMPERATIVE TO EVALUATE WHETHER THE SAME WOULD FALL UNDER ONE OF THE CATEGORIES SPECIFIED U/S 31(1)(II) WHICH HAS BEEN REPRODUCED AS UNDER; KNOWHOW PATENTS COPYRIGHTS TRADE MARKS LICENSES FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1 ST DAY OF APRIL 1998. THE TERM RIGHT IS NOT DEFINED IN THE ACT. ON EXAMINATION OF JUDICIAL LEGAL AND DICTIONARY MEANINGS IT MAY BE CONCLUDED THAT RIGHT MEANS AN INTEREST WHICH IS LEGALLY PROTECTED. ITA NO.266(B)2011 S 5 IN THE PRESENT CASE THE LEASEHOLD RIGHT ENCOMPASSES MANY RIGHTS TO THE HOLDER SUCH AS RIGHT TO CARRY OUT DEVELOPMENT ACTIVITIES ON THE LAND RIGHT TO LEASE OUT SUCH DEVELOPED LAND TO ENTITIES ENGAGED IN A CERTAIN INDUS TRY RIGHT TO RECEIVE LEASE RENTALS RIGHT TO UNDERTAKE OTH ER RELATED BUSINESS ACTIVITIES IN RESPECT OF THE LAND E TC. WHICH ARE NOTHING BUT BUSINESS OR COMMERCIAL RIGHTS. THE LEASEHOLD RIGHTS THUS GIVES THE HOLDER A RIGHT TO UNDER TAKE BUSINESS ACTIVITIES IN RESPECT OF THE LAND SINCE THE LEASE WAS GRANTED BY STPI SPECIFICALLY FOR CARRYING OUT TH E ACTIVITIES OF THE DEVELOPMENT MAINTENANCE AND OPERATION OF AN INDUSTRIAL PARK. THE FACT THAT THE ASSESSEE RECEIVES THE LEASEHOLD RI GHTS INITIALLY UNDER THE TERMS OF THE LEASE AGREEMENT AND LA TER ON ASSIGNS A PART OF SUCH RIGHTS ALSO SUPPORTS THE F ACT THAT LIKE AY OTHER RIGHTS THESE RIGHTS CAN ALSO BE COMMER CIALLY EXPLOITED. IT IS THUS ONLY JUSTIFIABLE TO TREAT THE SAME AS AN INTANGIBLE ASSET ELIGIBLE FOR DEPRECIATION AT THE RATE OF 25 PERCENT. 5. HE ALSO DREW OUR ATTENTION TO THE QUESTIONNAIRE AND RELEVANT CLARIFICATION FOR THE FINANCIAL YEAR ISSUED BY THE AO WHEREIN HE HAS ASKED WHETHER THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON LAN D AND TO GIVE EVIDENCE AS PER THE INCOME-TAX ACT AND THE ASSESSEE STATED AS FO LLOWS; THE LAND IS A LEASE HOLD LAND FROM SOFTWARE TECHNOLOG Y PARK OF INDIA AND IS FOR A PERIOD OF 66 YEARS. THE LEASE HOLD INTEREST IN LAND IS AN INTANGIBLE ASSET AND THE LEASE ITA NO.266(B)2011 S 6 PREMIUM PAID IS AMORTISED OVER THE LEASE PERIOD AS P ER THE ACCOUNTING STANDARD APPLICABLE. THUS ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSE E THE AO HAD CALLED FOR THE DETAILS AND AFTER CONSIDERING THE DETAILED SU BMISSIONS OF THE ASSESSEE ON THE ISSUE AND AFTER APPLYING HIS MIND ONLY HAS ALLOWED THE DEPRECIATION. IN SUCH CIRCUMSTANCES HE SUBMITTED THAT THE ASSESSMENT ORDER CANNOT BE CONSIDERED AS ERRONEOUS FOR THE NON-A PPLICATION OF MIND BY THE AO AND IT CANNOT BE REVISED U/S 263 OF THE IT ACT. IN SUPPORT OF HIS CONTENTIONS HE PLACED RELIANCE UPON THE DECISION OF THE A BENCH OF THE TRIBUNAL AT BANGALORE IN THE CASE OF M/S ICICI VENTURE FUNDS MANAGEMENT CO.LTD. IN ITA NO.66(BNG)/2010 DATED 17-09-20 10 WHEREIN AFTER FOLLOWING VARIOUS DECISIONS OF VARIOUS HIGH COURTS UNDE R SIMILAR SITUATION IT HAS BEEN HELD THAT THE AOS ORDER IS NOT ER RONEOUS SINCE HE HAS TAKEN A PERMISSIBLE VIEW AND THE CIT ACTING U/S 263 DOES NOT HAVE POWER TO REVISE THE SAME. HE ALSO PLACED RELIANCE UPON THE FOLLOWING DECISIONS IN SUPPORT OF HIS CONTENTIONS; 1. CIT VS GABRIEL INDIA LTD. 203 ITR 108 -117 2. B & A PLANTATION & IND.LTD. & ANR. VS CIT & ORS.290 ITR 395(GAU.) PAGE-406 PARA-17). 3. CIT VS ASHISH RAJPAL 320 ITR 674(DEL.) PAGE -687 & 688-PARA-18 ). 4. DHRUV N SHAH VS DY.CIT 273 ITR(AT) 59 ITAT BOM. 5. CIT VS ABDUL RAHMAN SAIT 306 ITR 142(MAD.) ITA NO.266(B)2011 S 7 6. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE O RDERS OF THE CIT AND SUBMITTED THAT EVEN THOUGH THE AO HAS MADE E NQUIRIES WITH REGARD TO DEPRECIATION ON LEASE HOLD RIGHTS THE MIS-APPRE CIATION OF THE FACTS AND WRONG APPLICATION OF MIND ALSO WOULD RENDER THE ASSESSMENT ORDER ERRONEOUS. IN SUPPORT OF HIS CONTENTIONS HE PLAC ED RELIANCE UPON THE FOLLOWING DECISIONS; 1. RAJALAKSHMI MILLS LTD. VS ITO 313 ITR (AT) 0182 2. CIT VS JAGDISH CHAND GUPTA 329 ITR 0583 7. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND SUBMIT TED THAT THE DECISIONS RELIED UPON BY THE LEARNED DR ARE DIS TINGUISHABLE ON FACTS. 8. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THE RIVAL CONTENTIONS AND MATERIAL ON RECORD WE FIND THAT THE ASSE SSING AUTHORITY HAD CALLED FOR THE DETAILS FROM THE ASSESSEEE RELATING TO IT S CLAIM OF DEPRECIATION ON LEASE HOLD RIGHTS AND AS TO HOW IT CAN BE ALLOWED UNDER THE PROVISIONS OF THE INCOME-TAX ACT. 8.1 THE ASSESSEE HAS SUBMITTED A DETAILED REPLY AND TH E AO HAS RECORDED IN HIS ASSESSMENT ORDER THAT THE DETAILS CALLED FOR HAVE BEEN PLACED ON RECORD AND THE ASSESSMENT IS COMPLETED AFTER CONSIDERING THE SAID DETAILS. IN THE LIGHT OF THESE RECITALS IN THE ASSESSM ENT ORDER IT CANNOT BE PRESUMED THAT THERE WAS NO APPLICATION OF MIN D BY THE ASSESSING AUTHORITY ON THE SAID ISSUE. FROM THE ORDER OF THE CIT IT IS TO BE UNDERSTOOD THAT HE WAS OF THE OPINION THAT THE ENQU IRIES AND VERIFICATION MADE BY THE AO RELATING TO THE SAID ISSUE ARE INADEQUATE. IN ITA NO.266(B)2011 S 8 THE INITIAL PARAGRAPHS OF HIS ORDER HE HELD THAT THE LAND C ANNOT BE TREATED AS AN INTANGIBLE ASSET AND THEREFORE THE DEPRECIATION IS NOT ALLOWABLE ON THE SAME. EXCEPT FOR STATING SO HE HAS NOT BROUGHT O UT ANY PROVISIONS OF THE ACT ON RECORD TO DEMONSTRATE THAT THE LEASEHOLD R IGHTS ON LAND CANNOT BE TREATED AS INTANGIBLE ASSET. FURTHER THE INTANGIBLE ASSET IS NOT THE LAND BUT THE RIGHT IN THE LEASE HOLD LAND. FOR THE INADEQUACY IN THE ENQUIRIES MADE BY THE AO OR INSUFFICIENCY OF THE MATERIAL ON RECORD THE CIT HAS NO POWER TO REVISE THE ASSESSMENT ORDER U/S 263 OF THE I T ACT. IN THE CATENA OF THE JUDGMENTS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE THE HONBLE HIGH COURTS HAVE HELD THAT WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING AUTHORITY HAS ADOPTED ONE OF THE POSSIBLE VIEWS IT CANNOT BE SAID THAT THERE WAS NO APPLICATION OF MIND AND THE CIT H AS NO POWERS TO REVISE SUCH AN ORDER. THE HONBLE HIGH COURTS HAVE ALS O HELD THAT WHERE A QUERY WAS RAISED DURING THE COURSE OF SURVEY WHICH WAS SATISFACTORILY ANSWERED BY THE ASSESSEE BUT DID NOT GET REFLECTED IN T HE ASSESSMENT ORDER IT WOULD NOT BY ITSELF LEAD TO A CONCLUSION THAT THER E WAS NO ENQUIRY WITH RESPECT TO TRANSACTIONS CARRIED OUT BY THE ASSESS EEE AND WHERE REGULAR ASSESSMENT ORDER WAS PASSED U/S 143(3) OF THE A CT A PRESUMPTION CAN BE MADE WITH SUCH AN ORDER WAS PASSED ON APPLICATIO N OF MIND. THE DECISIONS RELIED UPON BY THE LEARNED DR ARE DISTINGUISHABLE ON FACTS. IN THE CASE OF M/S RAJALAKSHMI MILLS LTD. CITED SUPRA THE ASSE SSMENT WAS MADE WITHOUT NECESSARY ENQUIRY AND THEREFORE IT WAS HELD TO BE ERRONEOUS AND IN THE CASE OF SHRI JAGDISH CHAND GUPTA CITED SUPRA THERE WAS A RETRACTION OF THE STATEMENT MADE DURING THE COURSE OF S EARCH AFTER FOUR ITA NO.266(B)2011 S 9 MONTHS AND THE RETRACTION WAS ALLOWED BY THE AO AND TH EREFORE IT WAS HELD TO BE ERRONEOUS. AS THE FACTS OF THE CASE BEFORE US ARE ENTIRELY DIFFERENT ACCORDING TO US THESE DECISIONS ARE NOT APPLICABLE. 9. IN THE LIGHT OF OUR OBSERVATIONS ABOVE THE ASSESSEE HAD FURNISHED ALL THE DETAILS BEFORE THE ASSESSING AUTHORITY AND THE AO AFTER APPLICATION OF MIND HAS ALLOWED DEPRECIATION ON THE LEASE HOLD RIGHTS AS INTANGIBLE ASSET. WE HOLD THAT THE ORDER OF CIT PASSED U/S 263 CA NNOT BE UPHELD. IT IS THEREFORE QUASHED. AS THE ORDER U/S 263 ITSELF IS QU ASHED WE DO NOT SEE ANY REASON TO GO INTO THE MERITS OF THE CASE AS IT WOULD ONLY BE AN ACADEMIC EXERCISE. 10. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 28 TH DEC 2011 SD/- SD/- ( N.BARATHVAJA SANKAR) (SMT. P. MADHAVI DEVI) VICE PRESIDENT JUDICIAL MEMBER PLACE: BANGALORE DATED:28/12/2011 AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF(BLORE) BY ORDER AR ITAT BANGALORE