PR COMMISSIONER OF INCOME TAX 1 CHANDIGARH vs. THE ROPAR DISTRICT COOP MILK PRODUCERS UNION LIMITED

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ITA/102/2024HC Punjab & HaryanaPHHC01096862202418 September 2024Bench: MR. JUSTICE SANJEEV PRAKASH SHARMA,MR. JUSTICE SANJAY VASHISTH4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the ITAT did not err in its decision. Regarding the revenue's submission about withdrawn appeals not forming a precedent, the court found that the ITAT had examined the PCIT's order and concluded it was based on a change of opinion, which is not a valid ground for invoking Section 263 unless the AO's order is erroneous and prejudicial to the revenue. The court noted the PCIT's observation that the AO's inquiry was "unsatisfactory, superficial and incomplete," but then found that the PCIT's own order indicated an inquiry had been conducted, thus the AO's order could not be deemed erroneous on that ground. Furthermore, the court found the PCIT erred in holding that a lessee of property for business purposes cannot claim income from that property. Citing Sections 22 to 26, the court stated that a leaseholder can be deemed an owner for letting purposes. The court agreed with the ITAT that income received as rent from the booths is deductible under Section 24(a) and that the PCIT's view of treating it as income from other sources was erroneous. The court also referred to Section 27(iii) regarding deemed ownership. Consequently, the appeal was dismissed.

What were the facts?

The Principal Commissioner of Income Tax (PCIT), Chandigarh, appealed against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had set aside the PCIT's order passed under Section 263 of the Income Tax Act, 1961. The PCIT's order had, in turn, set aside the Assessing Officer's (AO) order dated 19th February 2021. The AO had allowed the assessee, The Ropar District Coop. Milk Producers Union Limited, a deduction under Section 24(a) of the Act at 30% from the annual rental value of three booths leased from the Municipal Corporation, Chandigarh. The PCIT believed this rental income should be treated as income from property, not subject to Section 24(a) deduction, making the AO's order erroneous and prejudicial to the revenue.

What were the issues?

1. Whether the ITAT erred in relying on earlier orders for previous assessment years where similar rental income was held to be income from house property and deductible under Section 24(a) of the Income Tax Act, 1961, especially when appeals against those orders were dismissed as withdrawn due to low tax effect, and thus not constituting a precedent for setting aside the PCIT's Section 263 order. 2. Whether the ITAT erred in holding that the PCIT's order under Section 263 was based merely on a change of opinion, and that the AO's order was not erroneous or prejudicial to the revenue, particularly concerning the deduction claimed under Section 24(a) of the Act. Assessee's arguments: The ITAT found that the PCIT's order was based on a change of opinion and that the AO's order was not erroneous as an inquiry was conducted. The ITAT also agreed with its earlier view that income received as rent from the booths is deductible under Section 24(a). Revenue's arguments: The revenue argued that the ITAT erred in relying on earlier orders, as the appeals against them were dismissed as withdrawn. The revenue also contended that the AO's order did not reflect sufficient inquiry, making the PCIT's intervention under Section 263 justified.

Which sections of the Income-tax Act were involved?

Section 24(a),Section 263,Section 22,Section 23,Section 24,Section 25,Section 26,Section 27(iii)

AI-generated summary — verify with the full judgment below

ITA-102-2024 (O&M) - 1 - IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH 127 ITA-102-2024 (O&M) Decided on : 18.09.2024 Pr. Commissioner of Income Tax-1, Chandigarh . . . Appellant(s) Versus The Ropar District Coop. Milk Producers Union Limited . . . Respondent(s) CORAM: HON’BLE MR. JUSTICE SANJEEV PRAKASH SHARMA HON'BLE MR. JUSTICE SANJAY VASHISTH PRESENT: Mr. Yogesh Putney, Sr. Standing Counsel for the appellant – revenue. **** SANJEEV PRAKASH SHARMA

, J. (Oral) 1. Present appeal has been preferred by Pr. Commissioner of Income Tax-1, Chandigarh (PCIT), assailing the order passed by the Income Tax Appellate Tribunal, Chandigarh (ITAT), setting aside its order passed under Section 263-A of the Income Tax Act, 1961 (for brevity, ‘Act’), whereby, the order passed by the Assessing Officer, dated 19th February, 2021, was set-aside, holding that the claim of deduction under Section 24(a) of the Act @ 30% from the annual rental value of the three booths taken on lease by the assessee from the Municipal Corporation, Chandigarh, is 01.07.1987, could have been treated as rental income from the property and would therefore, not to be deductable in terms of Section 24(a) of the Act and hence, the assessment order was erroneous and prejudicial to the revenue. 2. Learned Sr. Standing Counsel for the appellant – revenue submits that the ITAT has erred in relying upon the earlier order passed by JAWALA RAM 2024.09.20 17:28 I attest to the accuracy and authenticity of this document

ITA-102-2024 (O&M) - 2 - the CIT(Appeals) and the ITAT for the earlier assessment years, wherein, such rental income was held to be an income from house property and deductable in terms of Section 24(a) of the Act. 3. He further submits that the appeal was preferred against the earlier order passed by the ITAT before the High Court vide ITA Nos. 86 and 96 of 2017, however, the same were dismissed as withdrawn on 26.08.2019 on account of low tax effect, and would therefore, not to be treated as precedent to set-aside the order of the PCIT under Section 263 of the Act. 4. Learned counsel for the revenue also submits that the Assessing Officer’s order does not reflect that any inquiry was conducted by him before passing the assessment order with regard to the claim of deduction under Section 24(a) of the Act, and therefore, the order under Section 263 of the Act, ought not to have been interfered by the ITAT. 5. We have carefully considered the submissions and found that apart from considering the order earlier passed by it, the ITAT also examined the order of the PCIT and found that merely on account of change of opinion entertained by the PCIT, the order of the Assessing Officer could not have been interfered with under Section 263 of the Act. The provision of Section 263 of the Act can be invoked by the PCIT only when it finds that the order passed by the Assessing Officer is erroneous and that it is prejudicial to the interest of the revenue. To find that the order is erroneous, it has to give a finding that no inquiry was conducted before the Assessing Officer and that even non- application of mind. However, we find that the PCIT in its order dated 27.03.2023, has made the following observations:- JAWALA RAM 2024.09.20 17:28 I attest to the accuracy and authenticity of this document

ITA-102-2024 (O&M) - 3 - “…… It is amply and expressly clear that the investigation/inquiry carried out by the Assessing Officer is unsatisfactory, superficial and incomplete along several of these matters/dimensions including the due and necessary and complete examination of the documentary particulars/details mandated.” Thus, it reflects that there was an investigation and inquiry carried out by the Assessing Officer before passing of the assessment order. Thus, it cannot be said that the order passed is erroneous. 6. With regard to the claim under Section 24(a) of the Act, we find that the PCIT has fallen in error to hold that the assessee, who takes a property on lease for business purpose cannot be deemed to be owner of that property, and therefore, cannot claim income from that property. 7. Considering the provisions of Section 22 to 26 of the Act, we find that a holder of an impartible estate, which he may have taken on lease, would be deemed to be an individual owner for the purpose of letting out merely because, it is a case where the allotment on lease of the three booths was done to the assessee, which he has further sub-let to the individuals for carrying on the business of milk booths and receiving rent from the concerned individuals, it cannot be said that the income from the property has not been received. The view taken by the PCIT that such an income would be treated as income from other sources is found to be wholly erroneous and we are in agreement with the earlier view taken by the ITAT that such income received as rent from the booths is deductable in terms of Section 24(a) of the Act. JAWALA RAM 2024.09.20 17:28 I attest to the accuracy and authenticity of this document

ITA-102-2024 (O&M) - 4 - 8. It is also noticed that the legislature has subsequently clarified by noticing Section 27(iii), which reads as under:- “27. “Owner of house property”, “annual charge”, etc. defined.—For the purpose of sections 22 to 26— xx xxx xx xxx (iii) a member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme of the society, company or association, as the case may be, shall be deemed to be the owner of that building or part thereof;” 9. Considering all the aspects, we do not find any reason to interfere with the order passed by the ITAT. Appeal stands dismissed accordingly. (SANJEEV PRAKASH SHARMA) JUDGE (SANJAY VASHISTH) JUDGE September 18, 2024 J.Ram Whether speaking/reasoned: Yes/No Whether Reportable: Yes/No JAWALA RAM 2024.09.20 17:28 I attest to the accuracy and authenticity of this document

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