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Income Tax Appellate Tribunal, KOLKATA-PATNA ‘e-COURT’, KOLKATA
Before: Shri Rajpal Yadav, Vice-(KZ) & Dr. Manish Borad
Per Rajpal Yadav, Vice-President (KZ):- The assessee is in appeal before the Tribunal against the order of ld. Principal Commissioner of Income Tax-2,
Assessment Year: 2015-2016 Prabhat Kumar Patna dated 20th March, 2020 passed under section 263 of the Income Tax Act for A.Y. 2015-16.
Though the assessee has taken eleven grounds of appeal, but his grievance is that ld. Pr. CIT has erred in taking cognizance under section 263 of the Income Tax Act thereby setting aside the assessment order dated 22.12.2017 passed under section 143(3) of the Income Tax Act. The ld. Pr. CIT further erred in directing the ld. Assessing Officer to examine the issue whether the rental income earned by the asessee deserves to be treated as business income or house property income.
3. With the assistance of ld. Representatives, we have gone through the record carefully. The impugned order of ld. Pr. CIT is a very brief order, therefore, we deem it appropriate to take note of the complete order, which reads as under:- “ORDER U/S 263 OF THE INCOME TAX ACT, 1961 The assessee filed his return of income for A. Y. 2015- 16 on 13.11.2015 declaring total income of Rs.2,76,02,310/-. The case was selected for Limited Scrutiny through CASS to verify:- (a) Contract receipts/Fees mismatch, (b) Sales turnover mismatch, (c) Sundry Creditors, (d) Change in annual lettable value of house property and (e) Tax credit mismatch.. An order of assessment under section 143(3) was made on 22.12.2017 on total income of Rs.2,92,86,079/-. II. From perusal of the case records for A. Y. 2015-16, it is found that during A. Y. 2015-16 you have shown rental income of Rs.2,51,92,196/- and claimed a deduction u/s24 @30% of Rs.75,57,015/-. On perusal Assessment Year: 2015-2016 Prabhat Kumar of lease/rent agreement dated 28.04.2012 submitted by you it clear that you have derived such income in F.Yr. 2012-13 and F.Yr. 2013-14 relevant to A. Y. 2013-14 and 2014-15 and the same was shown under the head “Business and Profession”. However, in A. Yr. 2015-16 the same income received on said agreement has been shown as rental income and claimed the deduction u/s 24 for repair and maintenance. Thus, certainly, this is a case of change in accounting policy in respect of income earned through previous rent/lease agreement dated 28.04.2012. The assessing officer failed to examine this aspect. Ill A notice under section 263 was issued vide F. No. Pr. CIT-2/Pat/Tech./u/s 263/2018-19/6886 dated 14th March, 2020 as under:- "1. The return of income for A. Y. 2015-16 was filed on 13.11.2015 declaring total income of Rs. 2,76,02,310/-. An order of assessment under section 143(3) of the Income Tax Act, 1961 was passed on 22.12.2017 on total income of Rs. 2,92,86,079/-. The case was selected for Limited Scrutiny through CASS to verify (a) Contract receipts/Fees mismatch, (b) Sales turnover mismatch (c) Sundry Creditors (d) Change in annual lettable Value of house property (e) Tax credit mismatch.
2. From perusal of the case records for A. Y. 2015-16, it is found that during A. Y. 2015-16 your have shown rental income of Rs.2,51,92,196/- and claimed a deduction u/s24 @30% of Rs.75,57,015/-. On perusal of lease/rent agreement dated 28.04.2012 submitted by you it clear that you have derived such income in F.Yr. 2012-13 and F.Yr. 2013- 14 relevant to A. Y. 2013-14 and 2014-15 and the same was shown under the head “Business and Profession”. However, in A.Yr. 2015-16 the same income received on said agreement has been shown as rental income and claimed the deduction u/s 24 for repair and maintenance. Thus, certainly, this is a case of change in accounting policy in respect of income earned through previous rent/lease Assessment Year: 2015-2016 Prabhat Kumar agreement dated 28.04.2012. The assessing officer failed to examine this aspect.
In view of the above discussion, the order under section 143(3) dated 22.12.2017 for A. Y. 2015-16 is considered to be erroneous in this respect and to that extent prejudicial to the interest of revenue. ' 4. In view of the above, an opportunity of being heard under section 263 of the Income Tax Act, 1961 is being provided to you to show cause as to why action under section 263 should not be taken in respect of order under section 143(3) of Income Tax Act, 1961 dated 22.12.2017 for A. Yr. 2015-16 passed by the ACIT, Circle-4, Patna. You or your Authorized Representative may attend my office on 03.04.2019 at 4:00 P.M. with necessary' records/evidences and make written submission, if any, in regard to issues discussed above." IV In response to the notice dated 14.03.2019 for compliance on 03.04.2019, neither the assessee nor his Authorized Representative attended the office to put forth his written submission in this regard during the course of hearing. As such, he was given another opportunity for compliance on 12.09.2019 vide notice dated 28.08.2019, but no compliance was made on fixed dates. Again, on change of incumbent, assessee was given final and last opportunity of being heard for compliance on 09.01.2020 vide notice dated 02.01.2020. It was also intimated by the said notice that if no compliance on the said date is made, it will be presumed that assessee has nothing to say in this matter and order shall be passed on the merit of the case. V. From perusal of the case records for A. Y. 2015-16, it is found that during A. Y. 2015-16 your have shown rental income of Rs.2,51,92,196/- and claimed a deduction u/s24 @30% of Rs.75,57,015/-. On perusal of lease/rent agreement dated 28.04.2012 submitted by you it clear that you have derived such income in F.Yr. 2012-13 and F.Yr. 2013-14 relevant to A. Y. 2013-14 and 2014-15 and the same was shown under the head "Business and Profession". I-Iowever, in A. Yr. 2015-16 4
Assessment Year: 2015-2016 Prabhat Kumar the same income received on said agreement has been shown as rental income^and claimed the deduction u/s 24 for repair and maintenance. Thus, certainly, this is a case of change in accounting policy in respect of income earned through previous rent/lease agreement dated 28.04.2012. The assessing officer failed to examine this aspect. It is apparent that the facts and substance of the case was not thoroughly examined/verified in light of the questionnaire mentioned in the aforesaid notice. The lacunae renders the assessment order erroneous in so far as it is prejudicial to the revenue. VI. In view of the above, the order under reference is held to be erroneous and prejudicial to the interest of revenue and accordingly set aside on the limited specific points as outlined above. The Assessing Officer is directed to adjudicate afresh on the issues mentioned above after giving opportunity of being heard to the assessee in the interest of justice and fairness”.
A perusal of the above would indicate that the assessee had entered into a rent agreement with Bharti Airtel Limited on 09.05.2011, which was again revised on 18.05.2012. According to the ld. Pr. CIT, the assessee has been showing this rental income as a business income upto A.Y. 2014-15, but for the accounting year relevant to A.Y. 2015-16, the character of this income has been changed from business income to house property income. The assessee has claimed deduction under section 24 of the Income Tax Act towards repairs and maintenance of such house property income. The ld. Pr. CIT was of the opinion that this issue has not been examined by the ld. Assessing Officer in the assessment order.
Assessment Year: 2015-2016 Prabhat Kumar 5. We have perused the assessment order, which is totally silent on this aspect. The ld. Assessing Officer has not devoted a single line towards this issue. Before further deliberating the facts and adverting to the paper book filed by the ld. Counsel for the assessee, we deem it appropriate to take note of section 263 as well as the test propounded in various judgments for judging the action of ld. CIT, which reads as under:- “263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
[Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income Tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
Assessment Year: 2015-2016 Prabhat Kumar (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;
(b) “record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in Assessment Year: 2015-2016 Prabhat Kumar giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”
A bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show-cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has Assessment Year: 2015-2016 Prabhat Kumar to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order.
A perusal of sub-clause (c) of the above would contemplate that if any order, which is subject matter for revision under section 263 is challenged in appeal, then, on the items which are subject matter of appeal, no power under section 263 could be exercised by the ld. Commissioner. We may elaborate further, for example- an assessment order was passed, it contains five issues, which were challenged before the ld. CIT(A), but ld. Assessing Officer failed to look into few issues, which may arise from the record, then inspite of the assessment order being challenged before the ld. CIT(A), the ld. Commissioner would have jurisdiction on such items, which are not subject matter of appeal in that assessment order.
At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the Assessment Year: 2015-2016 Prabhat Kumar action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263.
(i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.
(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.
(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.
Assessment Year: 2015-2016 Prabhat Kumar (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law.
(vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO.
(vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.
(viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction.
Assessment Year: 2015-2016 Prabhat Kumar
(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.
In the light of above, we have examined the record carefully. In the paper book, the assessee has placed on record copy of the returns for A.Y. 2015-16 to 2017-18. He thereafter placed on record rent agreements with Bharti Airtel Limited dated 09.05.2011, 18.05.2022 and Form No. 26AS for A.Y. 2015-16. The assessee at Serial No. 6 & 7 has placed on record copy of the judgment of the Hon’ble Calcutta High Court in the case of Shambhu Investment (P) Limited -vs.- Commissioner of Income Tax [2001] 116 Taxman 795 (Calcutta), which was further upheld by the Hon’ble Supreme Court.
We have gone through all these details carefully. The accounting policy has been changed by the assessee from A.Y. 2015-16. The assessee has not placed on record any scrutiny assessment for A.Ys. 2016-17 & 2017-18. He has only placed on record the copy of the returns. There is a Assessment Year: 2015-2016 Prabhat Kumar major shift in recognition of his income from house property. It is not ascertainable as to how the assessee has given different treatments to the same agreement. He has shown such rental income as a business income and then all of a sudden, he has a house property income. The income could be a house property income, but the shift made by the assessee has not been examined by the ld. Assessing Officer in the impugned assessment order. Therefore, an apparent error has been committed by the ld. Assessing Officer, which has caused a prejudice to the interest of revenue.
As far as the judgment of the Hon’ble Calcutta High Court, which has been upheld by the Hon’ble Supreme Court in the case of Shambhu Investment (P) Ltd. (supra) is concerned, in this judgment, Hon’ble Courts are unanimous to propound that whether rental income is to be treated as a business income or house property income, it would depend upon the nature of agreement and user of the premises. In that case, the assessee had let out portion of the said property to various occupants by giving them additional right of using furniture and fixtures and other common facilities. In this way, the rental income was assessed as a business income. How this exercise has not been done by the ld. Assessing Officer in the present case in A.Y. 2015-16. It is also pertinent to note that prior to A.Y. 2015-16, the assessee himself was showing rental
Assessment Year: 2015-2016 Prabhat Kumar income under the head “business income”. In this year, there is a change in the methodology, therefore, before accepting that change, the ld. Assessing Officer ought to have enquired as to how the same agreement can give rise to income as a house property income. Therefore, ld. Commissioner has not committed any error while exercising the powers under section 263. This appeal is devoid of any merit, hence dismissed.
In the result, the appeal of the assessee is dismissed. Order pronounced in the open Court on 24.07.2024.