Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Per CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order passed u/s. 263 of the I.T. Act by the Pr. Commissioner of Income Tax, Trivandrum dated 20/02/2017 and pertains to the assessment year 2013-14.
There was a delay of 85 days in filing this appeal before the Tribunal. The Ld. AR has filed condonation petition accompanied by an affidavit stating that the Chairman of the assessee -company is a Senior citizen who had to travel to the UAE to undergo medical treatment for sudden hearing loss. The Chairman of
I.T.A. No./361/C/2017
the assessee-company was the only member who was actively involved in attending to the legal affairs of the assessee-company. Furthermore, it was submitted that the Chairman of the assessee- company had to obtain necessary legal advice which resulted in a series of discussions between the Chartered Accountant of the assessee-company who prosecuted the case of the assessee before the Assessing Officer and new appointed Legal advisors/Advocates of the assessee who were prosecuting this appeal before this Tribunal. The Ld. AR further submitted that voluminous documents pertaining to the returns filed with the department, the MoA of the assessee-Company and necessary agreements had to procured and perused for preparing this Appeal, The said document had to be obtained from their previous advisors, which involved time.
2.1. Furthermore, it was submitted that there was an accidental fire at the Mall, which required the closure of the Mall and shifting of documents, apart from a loss of certain key documents. The said incident was also under scrutiny of the Honorable High Court of Kerala. The said incident too added to the woes of the Appellant resulting in further delay. The Ld. AR further submitted that there has been no wilful delay or latches on its part for preferring the appeal. The assessee is of the bonafide belief that the impugned order issued by the Department is liable to be set aside for the grounds stated in the accompanying Memorandum of Appeal. It was prayed that based upon the totality of the circumstances mentioned above, the Tribunal may be pleased to consider the prayer of the assessee in granting the condonation of delay of 85 days in 2
I.T.A. No./361/C/2017
appearing before this Tribunal for justice and equity The Ld. AR submitted that it is a trite position of law, crystallized by the Supreme Court of India in Collector, land acquisition Anantnag and another versus Mst. Katij iand others, reported in 1987 (28) E.L.T. 185 (S.C.) that refusal to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. Furthermore, the Ld. AR relied on the judgment of the Supreme Court in the case of Esha Bhattacharjee v. Managing Committee of Raghunathpur Academy & Ors. Reported in (2013) 12 SCC 649 which was pleased to reiterate the principles relating to condonation of delay by a court. The Court was pleased to sum the principles up as follows:
“The principles for dealing with application for condonation of delay are as follows: (i) There should be a liberal, pragmatic, justice-oriented, non-pedantic approach while dealing with an application for condonation of delay, for the courts are not supposed to legalise injustice but are obliged to remove injustice, (ii) The terms "sufficient cause" should be understood in their proper spirit, philosophy and purpose regard being had to the fact that these terms are basically elastic and are to be applied in proper perspective to the obtaining fact situation. (iii) Substantial justice being paramount and pivotal the technical considerations should not be given undue and uncalled for emphasis. (iv) No presumption can be attached to deliberate causation of delay but, gross negligence on the part of the counsel or litigant is to be taken note of.
I.T.A. No./361/C/2017
(v) Lack of bona fides imputable to a party seeking condonation of delay is a significant and relevant fact. (vi) It is to be kept in mind that adherence to strict proof should not affect public justice and cause public mischief because the courts are required to be vigilant so that in the ultimate eventuate there is no real failure of justice. (vii) The concept of liberal approach has to encapsule the conception of reasonableness and it cannot be allowed a totally unfettered free play. (viii) There is a distinction between inordinate delay and a delay of short duration or few days, for to the former doctrine of prejudice is attracted whereas to the latter it may not be attracted. That apart, the first one warrants strict approach whereas the second calls for a liberal delineation.
2.2 Therefore, it was submitted that the Tribunal may construe the facts and circumstances mentioned in the condonation petition as "sufficient cause" for condoning the delay. It was submitted that the delay of 85 days is to be condoned in the overall interest of justice. On the other hand if condoning the delay being denied it would seriously undermine the cause of justice, resulting into gross miscarriage of justice. The Ld. AR relied on the order of this Tribunal in the case of Padinjarekara Agencies Pvt. Ltd. vs. ACIT in ITA No.375/Coch/2014 dated 17/10/2014 wherein the delay of 160 days was condoned on the reason that the delay occurred due to reasons beyond assessee’s control and there was no latches or omissions on the part of the assessee in filing the appeal within the due date.
We have heard the rival submissions and perused the record. After perusing the condonation petition, we find that there is sufficient cause for the delay in filing the appeal before us and hence, we condone the same and admit the appeal for adjudication. 4
I.T.A. No./361/C/2017
On merits, the assessee has challenged the jurisdiction of the CIT to pass order u/s. 263 of the Act. The assessee has also challenged the following directions of the CIT: A From out of various sources of income, income from letting out property is to be considered under Chapter IV-C and not Chapter IV-D after separating the same into sums to be assessed under heads (i) income from house property and (ii) profit and gains of business and profession strictly following the contours set by decision of jurisdictional High Court in the case of Attukal Shopping Complex P. Ltd. vs. CIT reported in 259 ITR 567. B Pass necessary order recomputing income adopting direction in A above. He may call for and verify each lease agreement before making the computation so that items needing assessment under income from house property and sums involved are correctly taken and C In the process of recomputing as directed in B above, the assessee is to be given opportunity of being heard. It is reiterated that the hearing is limited to the aspect of quantification of income from house property as I have already held which income to be categorized as income from house property.
The facts of the case are that the shops in the building named ‘Oberon Mall’ had been let out to various persons doing business in the complex. Rent deposits were taken from the tenants in addition to lease rentals. The income derived by the assessee from the said premises was offered for taxation as business income and the same was assessed accordingly by the Assessing Officer in the scrutiny assessment completed u/s. 143(3) on 19/03/2016. This decision of the Assessing Officer was influenced by the judgment of the Apex Court in the case of M/s. Chennai Properties and Investments Ltd. vs. CIT (373 ITR 673)
I.T.A. No./361/C/2017
wherein the court held that the income shall be treated as ‘income from business’ in the context that the main objective of the company was ‘letting out property’. However, the facts and circumstances of the above case do not apply to the present case since ‘letting out of property’ was not an objective of the assessee as per its Memorandum of Association. The main objective of the assessee and the character of properties deal with are not identical. Further in the case of M/s. Chennai Properties and Investments Ltd., cited supra, the company was acquiring properties in different parts of a city and letting out where as in the instant case, letting out was in a single complex owned by assessee. Thus the facts and circumstances in the case of case M/s. Chennai Properties and Investments Ltd., cited supra are not identical to that of the assessee.
On perusing the records in detail, the CIT noticed that the income derived from the said property was actually rent received from the lessees and cannot be termed as business income. Since facts and circumstances of case of assessee is different from what Assessing Officer has relied upon, applying same instead of applicable decision of the Jurisdictional High Court in the case of Attukal Shopping Complex P. Ltd. vs. CIT (259 ITR 567) made the order erroneous. Thus, according to the CIT, instead of assessing the income from letting out of property under head income from house property, the Assessing Officer has erred in assessing the same as profit and gains of business on a lower base in
I.T.A. No./361/C/2017
the order passed u/s. 143(3) of the Act which renders the assessment erroneous and prejudicial to the interests of revenue. Accordingly he gave the above directions to the Assessing Officer by invoking the provisions of sec. 263 of the Act. 4. Against this the assessee is in appeal before us. The Ld. AR submitted that to assume revisionary jurisdiction under Section 263 of the Income Tax Act, the CIT must be satisfied of the following:
• The order of the Assessing Officer sought to be revised is erroneous; and • It is prejudicial to the interests of the Revenue
4.1 The Ld. AR relied on the judgment of the Supreme Court in the case of Malabar Industrial Co. Ltd, vs. CIT (2000) (243 ITR 83) wherein it was held as under: "A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, ft) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to
I.T.A. No./361/C/2017
the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interests of the Revenue " has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing' Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income- tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law."
4.2 The Ld. AR submitted that revisionary powers u/s. 263 cannot be initiated where two views are plausible which was upheld by a catena of decisions including the decision of the Jurisdictional High Court in the case of DC Mills (P) Ltd. (2017) 79 taxmann.com 340 after considering the judgment of the Supreme Court in the case of CIT vs. Amitabh Bachchan (2016) 69 taxmann.com 170. The Apex Court held as follows: “There can be no doubt that so long as the view taken by the Assessing Officer is a possible view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from.”
I.T.A. No./361/C/2017
4.3 The Ld. AR relied on the judgment of the Jurisdictional High Court in the case of Hindustan latex Limited (2012-TIOL-484-HC-KERALA-IT) and on the judgment of the Bombay High Court in the case of M/s. Paville Fashions Private Limited (2017-TIOL-2147-HC-MUM-IT).) for the same proposition.
4.4 The Ld. AR further submitted that the Assessing Officer has taken a view treating the income of the assessee as “Income from Business” after “carefully considering the arguments put forth by the AR of the assessee. The Ld. AR submitted that CIT wrongly concluded that the Assessing Officer based his views on the decision in the case of Chennai Properties and Investments Ltd. (373 ITR 673) which according to the Ld. AR is applicable in the present case. Therefore, the Ld. AR. submitted that the question of exercising revisional jurisdiction u/s.263 of the Act does not arise. The Ld. AR relied on the decision of the Bombay High Court in the case of CIT vs. Gabriel India Ltd. (1993) (71 taxman 585) wherein it was held as under:
“According to the definition ‘erroneous', means 'involving error; deviating from the law', ''Erroneous assessment' refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, ' erroneous judgment' means 'one rendered according to course and practice of Court, but contrary to law upon mistaken view of law, or upon erroneous application of legal principles' From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to
I.T.A. No./361/C/2017
him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the TTO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner, he would have estimated the income at a figure higher than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent.”
4.5 The Ld. AR relied on the decision of the ITAT, Allahabad ‘B’ Bench in the case of Sahara India Mutual Benefit Co. Ltd. vs. ACIT (2002) 74 TTJ 67 (All.) for the same proposition. The Ld. AR relied on the decision of the High Court of Gujarat in the case of Smt. Minalben S. Parikh (1995) 79 Taxman 184 wherein it was held as under:
“What is meant by words 'prejudicial to the interest of the revenue' has not been defined. However, giving ordinary meaning to the words used in the statute, they must mean that the orders under consideration are such as are not in accordance with law and in consequence whereof, the lawful revenue due to the State has not been realised or cannot be realised. If income in question had been taxed and legitimate revenue due in respect of that income had been realised, though as a result of erroneous order having been made in that respect, the Commissioner could not exercise powers for revising the order under section 263 merely on the basis that the order under consideration was erroneous. If the material in that regard was available on the record of the assesses, the Commissioner could not exercise his powers
I.T.A. No./361/C/2017
by ignoring that material which linked the income concerned with the tax realisation made thereon. "
4.6 The Ld. AR submitted that a similar view was upheld by the ITAT Mumbai Bench 'D' in the case of Reliance Communications Infrastructure Ltd. Vs Commissioner of Income tax [2009] 34 SOT 241 wherein it was held as under:
“'The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous the interests of the revenue unless the view taken by the ITO is unsustainable in law. "
4.7 The Ld. AR also relied on the judgment of the The Hon'ble Supreme Court of India in the case of Commissioner of Income Tax Vs Kwality Steel Suppliers Complex MANU/SC/0655/2017 wherein it was held as under”
"Where two views are possible and the Assessing Officer has taken one view and the CIT again revised the said order on the ground that he does not agree with the view taken by the Assessing Officer, in such circumstances the assessment order cannot be treated as an order erroneous or prejudicial to the interest of the Revenue, 'Reason is simple. While exercising the revisionarj jurisdiction, the CIT is not sitting in appeal."
I.T.A. No./361/C/2017
4.8 The Ld. AR further relied on the judgment of the High Court of Gujarat in the case of CIT vs. Arvind Jewellers reported in MANU/GJ/0318/2002 wherein it was held as under:
"Section 263 of the Act does not empower him to take action on these facts to arrive at the conclusion that the Order passed by the Income Tax Officer is erroneous and prejudicial to the interests of the Revenue. Since the material was there on record and the said material was considered by the Income Tax Officer and a particular view was taken, the mere fact that a different view can be taken, should not be the basis for an action under Section 263 of the Act and it cannot be held to be justified. 4.9 The Ld. AR submitted that the assessee has exploited the immovable property by way of commercial activities and resultant income, utilization of space for providing shopping facilities to customers is also a commercial activity and such activities have been held to be business activity vide the judgment of the Hon'ble Supreme Court of India in Chennai Properties and Investment Ltd v. Commissioner of Income tax reported in [2015) (373 ITR 673) wherein the Hon'ble Court held as under: “We are conscious of the aforesaid data laid down in the Constitution Bench judgment. It is for this reason, we have, at the beginning of the judgment, stated the circumstances of the present case from which we arrive at irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee. The assessee therefore rightly disclosed the nicome under the Head Income from Business. It cannot be treated as ‘income from the house property’. We, accordingly, allow this appeal and set aside the judgment of the High Court and restore that of the Income Tax Appellate Tribunal. No orders as to cost.”
4.9.1 The Ld. AR submitted that the principle discussed above was upheld by a host of other judgments such as:
I.T.A. No./361/C/2017
• Rayala Corporation (P.) Ltd. Vs Assistant Commissioner of Income-tax - [2016] 72 taxmann.com 149 (SC) • Principal Commissioner of Income Tax Vs Atlantis Multiplex P. Ltd. - [2018] 400ITR458 (All) • Shyam Burlap Company Ltd. Vs Commissioner of Income-tax, Central-I, Kolkata [2015] 61 taxmann.com 121 (Calcutta)
4.9.1.1 Further, the Ld. AR relied on the CBDT Circular No.16 of 2017 dated 25.04.2017 titled Lease Rent from letting out buildings/developed space along with other amenities in Industrial Park/SEZ - To be treated as Business Income has clarified that an undertaking which develops, operates and maintains an Industrial Park/'SEZ notified in accordance with the scheme framed and notified by the Government, the income from letting out of premises/ developed space along with otherfadlities in an industrial park/SEZ is to be charged to tax under the head "Profits and gains of business". The Ld. AR also relied on the recent decision of the Kerala High Court in the case of Palmshore Hotels (P) Limited (ITA No 83 of 2013) wherein the dictum of the Constitutional Bench in the case of Sultan Brothers Private Limited Vs CIT (1964) 51 ITR 353 which states that "each case has to be looked at from the businessman's point of view to find out whether the letting was the doing of a business or the exploitation of the property by an owner. This being the test indicated by the Apex Court, according to us, the controversy should be resolved in the context of the intention of the parties as reflected in the licence agreement and the nature of the respective obligations as contained in the licence agreement which is also placed on
I.T.A. No./361/C/2017
record." Accordingly, based on the terms of the License Agreement, the jurisdictional High Court held that the nature of income was classifiable as "Income from Business" and not "Income from House Property". According to the Ld. AR, the need to consider the intention of parties qua classification of income has also been upheld by the Supreme Court in the case of Vikram Cotton Mills Limited [1988] 169 ITR 597. 4.9.2 The Ld. AR submitted that the treatment of income as ‘income from business has been upheld in a catena of judgments:
1) Kamataka High Court in the case of Information Technology Park limited [2014] 47 Taxmann.com 239 2) Karnataka High Court in the case of Velankani Information System Private Limited [2013] 35 Taxmann.com 1 3) Madras High Court in the case of NDR Warehousing (P) Limited [2015] 372 ITR 690 4) Mumbai ITAT in the case of Tulsi Shipping (P) Limited [2018] 91 taxmann.com 302. 5) Kolkata ITAT in the case of Oberoi Investments (P) Limited [2017] 87 Taxmann.com 33. 6) Andhra Pradesh High Court in the case of Sri Barathi Warehousing Corporation [2017] 78 Taxmann.com 322 7) Bombay High Court in the case of E-City Project Construction Private Limited [2017-TIOL-1365-HC-MUM-IT] 8) Allahabad High Court in the case of Atlantis Multiplex Private Limited [2017-TIOL-2683-HC-ALL-IT]
I.T.A. No./361/C/2017
4.9.3 It was submitted that the CIT has erred in relying on the ratio of the decision of CIT v. Shambhu Investments (P) Ltd reported in 263 ITR 143 and in the decision of the Hon'ble High Court of Kerala in the case of Attukal Shopping Complex reported in 259 ITR 567. It was submitted that the Tribunal in the assessee’s own case for the AY 2008-09 had previously quashed the CIT’s reliance on the same decisions mentioned above and proven that the ratio of the decision of the High Court of Kerala is not applicable to the assessee’s case. The Tribunal while passing the order dated 06/06/2016 in the assessee’s favour held as follows:
“In the present case, the assessee has exploited the immovable property by way of commercial activities and resultant income, utilisation of space for providing shopping facilities to customers is also a commercial activity and such activities have been held to be business activity by the Hon'ble Kolkata High Court in the case o/PFH Mall Retail Management Ltd. (supra) and in the case of CIT v. National Storage Pvt. Ltd 66 ITR 596, the Hon 'ble Supreme Court has held various services, services and facilities and other amenities as business activity. In the present case, the assessee has provided all the facilities and therefore the ratio of the decision in the case of PFH Mall Retail Management Ltd. (supra) and the decision of the Hon'ble Supreme Court in the case of CIT v. National Storage Pvt. Ltd. (supra) is directly applicable to the present case. As per the handbook – Maintenance of Rules and Regulations with regard to maintenance of Mall, it is the responsibility of the assessee to maintain and upkeep common areas and facilities, AC, Generator etc. including, facilities provided for captive power in common areas, AC facility in common area and also maintenance of utility equipments like AC, diesel generator lightings, elevators, escalators, fans and other equipments, Sidewalks, doorways, vestibules, halls, staircase and other similar areas used for disposal of trash. Plumbing fixtures shall be used only for the purposes which they are designed. Signs, advertisements, graphics or notices visible from public corridors or from outside the building, Security of the premises both during business hours and also after business hours is the responsibility of the assesses. The assesses has been held responsible for fire safety procedures, common/passages, generator, security of the building, facades,
I.T.A. No./361/C/2017
windows, doors, replacement of locks, taps, broken tiles or other parts of the building, charges for water and electricity consumed, replacement of bulbs, tubes, wires, holders, shades, pipes, lines over head tanks, sump, antenna and such other parts etc. The assessee has submitted the explanation in his note to the authorities below which has been reproduced hereinabove which in fact has not been taken into proper perspective by the Assessing Officer. In such circumstances and facts of the case, the income of the assessee is from the exploitation of the immovable property and is essentially to be held as business income in view of our findings and the decisions rendered hereinabove. As evident, there can be no two views that the income is classifiable as "Profits and Gains from Business and Profession". 4.9.4 It was further submitted that the CIT has erred in stating in his order u/s 263 that letting out of property is not the main objective of the assessee. The CIT had produced an extract from the Memorandum of Association of the assessee claiming that the main objective of the assessee is not letting out of property as "business income" but as "Income from house property". The extract of the main objective of the assessee includes the phrase "carry on the business of builders and promoters of residential and commercial complexes" Further to this, it was submitted that Para 18 of the Objects incidental to Main objects of the Memorandum states that "To sell, lease, let out, exchange or otherwise deal with the assets of the Company or any part thereof for such consideration as the Company may think fit such as cash, debentures or securities of any other Company having objects altogether or in part similar to the Company." The Ld. AR submitted that the rental charges collected from the tenants form major part of assessee’s income and are accounted as "Rental Income" under the head "Revenue from Operations" in the Audited Financial Statements of the assessee which is described as under:
I.T.A. No./361/C/2017
(a) Sale of products; (b) Sale of services; (c) Other operating revenues; Less: (d) Excise duty.
4.9.5 Further it was submitted that the assessee has filed a copy of the Handbook of Maintenance of Rules and Regulations and the Leave and License Agreement executed by the Appellant with various tenants to further reiterate the fact that the assessee is engaged in promoting the main object of business income, which is exploitation of immovable property by way of letting out of commercial complexes to tenants.
4.9.6 The Ld. AR referred to the order dated 27.05.2017 issued by the Secretary of the Kochi Municipal Corporation hereby directing the assessee to shut down operations as a result of fire in the premises of the assessee According to the Ld. AR, an order of similar nature is issued only to concerns engaged in business, while the CIT was of the view that the business of the assessee is purely letting out of house property for fixed monthly rentals on which a shutting down of operations order from the Corporation is never issued. The Ld. AR submitted that the CIT in Para 11 of his revisionary order u/s 263 dated 20.02.2017 had wrongly assumed that the rental income of the assessee was treated as "Income from house property" for previous years starting from A.Y 2009-10 to A.Y 2012-13 as well as A.Y 2014-15. The Ld. AR brought on record income tax returns filed for the said Assessment Years showing the "Income from house
I.T.A. No./361/C/2017
property" as NIL and the entire portion of rental revenue being classified under "Income from business". In view of the, it was prayed that the Tribunal may set aside order of the CIT passed u/s. 263 of the Income Tax Act, 1961 dated 20.02.2017 for the Assessment Year 2013-14 and restore that of the Assessing Officer.
The Ld. DR relied on the order of the CIT.
We have heard the rival submissions and perused the record. Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner is well within his powers to treat an order as erroneous on the ground that the Assessing Officer should have made further inquiries before accepting the wrong claims made by the assessee. The Assessing Officer cannot remain passive in the face of a claim, which calls for further enquiry to know the genuineness of it. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The Assessing Officer was statutorily required to make
I.T.A. No./361/C/2017
the assessment under Section 143(3) after scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section 143. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of scrutiny assessments. The Assessing Officer should protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return. The order passed by the Assessing Officer becomes erroneous when an enquiry has not been made before accepting the genuineness of the claim which resulted in loss of revenue.
6.2 In the present case, the assessee derived income by way of rent and the Assessing Officer was under obligation to examine as to whether income from letting out of the building is assessable under the head ‘income from business’ or otherwise. It appears that the same was not enquired into and no proper efforts were made to find out whether income derived from letting out the building is assessable under the head ‘business income’ of the assessee or not. Without making any enquiry at all to ascertain whether income of the assessee was assessed under the proper head or not, the Assessing Officer accepted the assessee’s claim. As such, the income of the assessee was assessed as ‘income from
I.T.A. No./361/C/2017
business’ and thereby allowing excessive relief to the assessee. The failure on the part of the Assessing Officer to make necessary enquiry rendered the assessment order erroneous which also resulted in loss to the revenue. The CIT had observed in his order that it is to be decided by the Assessing Officer after fresh examination . Hence, the order of the CIT cannot be held as erroneous. The CIT’s approach was correct. If the CIT had recorded that it was an income not arising out of business, then further enquiry by the Assessing Officer would have been influenced by that observation. Further, CIT had only observed that no proper enquiry has been made that resulted in erroneous order and further it resulted in loss of revenue. Hence the Assessing Officer has to pass the order after hearing the assessee. Therefore, the CIT exercised his power conferred u/s. 263 of the Act in setting aside the assessment and remanded the case back to the file of the Assessing Officer to make enquiry into the issue and decide the same. As such, the CIT remitted the issue back to the file of the Assessing Officer for de novo consideration.
6.3 Further, even before us the assessee has not filed any copy of agreement entered with its customers. When the Bench enquired about the same, the Ld. AR drew our attention to Leave and License Agreement dated 18/10/2017 which is not at all relating to the assessment year 2013-14 and has no relevance to the assessment year under
I.T.A. No./361/C/2017
consideration. Being so, in our opinion, it is appropriate to remit the issue back to the file of the Assessing Officer to carry out further enquiry. Accordingly, we remit the issue to the file of the Assessing Officer to carry out further enquiry as the case warrants examination of genuineness of the claim made by the assessee by calling for all agreements entered by the assessee with its customers which generated the income to the assessee. The Assessing Officer is directed to examine the issue de nova and decide the same in accordance with law after giving reasonable opportunity of hearing to the assessee. The Assessing Officer shall also consider the relevance of the earlier order of this Tribunal in ITA Nos.351 and 369/Coch/2013 dated 06/06/2016 for the assessment year 2009-10 as it is very strange that the assessee has not brought it to the notice of the CIT, the existence of the cited ITAT order in assessee’s own case for the assessment year 2009-10. With the above direction, we remit this issue to the file of the Assessing Officer for fresh consideration. Accordingly, the grounds of appeal of the assessee are partly allowed for statistical purposes.
I.T.A. No./361/C/2017
In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on this 23rd July, 2018.
sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Kochi Dated: 23rd July, 2018 GJ Copy to: 1. M/s. Oberon Edifices and Estates Pvt. Ltd., Oberon Mall, NH Bye-pass, Edapally,Kochi-682 024. 2 The Pr. Commissioner of Income-tax, Trivandrum 3. D.R., I.T.A.T., Cochin Bench, Cochin. 4. Guard File. By Order
(ASSISTANT REGISTRAR) I.T.A.T., Cochin