THE issue is – Whether the mere fact that an issue was not discussed in the assessment order would not ipso facto lead to the conclusion that the AO did not apply his mind. YES is the answer.
Facts of the case
The assessee had filed its return declaring total income of Rs.19.97 Crores. During assessment, the AO on issue of transfer of development right held that the amount of Rs. 41 Crores received by the assessee was subject to performance of certain obligation relating to environmental clearance and in the absence of performing the obligation, the amounts had to be returned. On consideration of facts, the AO held that an amount of Rs. 5.86 Crores could alone be taxed in the subject A.Y and the balance amount of Rs. 35.14 Crores were considered as deposit. So far as the warranty expenses were concerned, the AO called for various details and justification for claiming warranty expenses. The assessee responded to this by filing a reply and on satisfaction, the AO allowed the warranty expenses as claimed in the assessment order. Subsequently, the CIT in exercise of his power u/s 263 held that the conclusion of AO on the above issues namely transfer of development right and warranty expenses was erroneous and prejudicial to the interest of the Revenue. Moreover, the Commissioner also held that set off of short term capital loss without taking into account Section 94 was also erroneous and prejudicial to the interest of Revenue. In these circumstances, he set aside the assessment order and directed the AO to complete the assessment proceedings in accordance with law as discussed in his order. On appeal, the ITAT set aside the order of the CIT.
Having heard the parties, the High Court held that,
++ with regard to the taxability of the transfer of development right, we find that the impugned order of the ITAT records findings of AO in detail from which it is evident that the AO applied his mind to the above claim and on the basis of the facts before him, came to the conclusion that an amount of Rs.5.86 Crores out of Rs. 41 Crores received could alone be subjected to the tax as income during the subject A.Y. The balance amount Rs.35.14 Crores has to be treated as deposit as the same is subject to being refunded in the absence of the environmental clearance. Thus, we find that the AO has taken a view on the facts before him and such a opinion cannot be said to be an erroneous as it does not proceed on the incorrect assumption of facts or law and the view taken is a possible view. Therefore, as held by the Apex Court in Malabar Industrial Co. Ltd Vs. Commissioner of Income Tax, where two views are possible and the ITO has taken one view with which the CIT does not agree, cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the ITO is itself unsustainable in law;
++ so far as warranty expenses claimed by the assessee is concerned, we find that the ITAT has recorded the fact that a specific query with regard to the same was made by the AO during the assessment proceedings. This query was responded to by the assessee justifying the warranty expenses. The AO being satisfied with regard to the justification offered, allowed the claim of warranty expenses. It is thus clear that the Assessing Officer had considered the issue by raising questions during the assessment proceedings. The mere fact that it does not fall for discussion in the assessment order would not ipso facto lead to the conclusion that the AO did not apply his mind. It is clear that if the AO is satisfied with the response of the assessee on the issue and drops the likely addition, it cannot be said to be non application of mind to the issue arising before the AO. Thus, the question as proposed does not give rise to any substantial question of law
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