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Income Tax Appellate Tribunal, “B’’BENCH: BANGALORE
Before: SHRI B. R. BASKARAN & SMT. BEENA PILLAI
PER B.R. BASKARAN, ACCOUNTANT MEMBER:
The assessee has filed this appeal challenging the revision order dated 28.3.2019 passed by Ld. Principal CIT-3, Bengaluru u/s 263 of the Act for assessment year 2014-15.
The facts relating to the issue are stated in brief. The assessment in the hands of the assessee for the year under consideration was completed by the A.O. on 6.12.2016 u/s 143(3) of the Income-tax Act,1961 ['the Act' for short]. The Ld. Principal CIT, by the examination of the assessment record noticed that the A.O did not examine following three issues:
M/s. G. Corp Pvt. Ltd., Bangalore a) It is observed that the rentals in relation to 1 MG Mall are collected by M/s Lido Malls Management Pvt. Ltd.,(Lido). Of these, 2% is retained by Lido and balance 98% is distributed amongst the assessee company and other co-owners. The assessee has reflected only 98% of the receipts for the purpose of computing house property income, although entire receipts of 100% of its share should have been taken into account for arriving at the annual value of the property. b) The assessee has given the work of maintenance relating to the building given on lease by it to Lido. As per the agreement with the tenants they are required to pay the common area maintenance charges directly to Lido and this maintenance charge is not being reflected by the assessee as part of its annual value of the property. In this regard, it is important to look into the decision of Hon'ble Punjab and Haryana High Court in the case of Sunil Kumar Gupta vs. ACIT (2016) .73 taxmann.com 374 (Punjab & Haryana High Court) where it has been held that maintenance charges would form part of the annual let out value of the property. c) The assessee is claiming an expenditure of Rs.3,44,17,926/- as interest against the house property income. However, it is observed that in Me initial period a loan was taken by the assessee for its construction activities. After the completion of project, the finance loan was converted by the Bank to lease rental discounting facilities so that rental collection could be utilized to repay the loan facilities. The AO has not examined the fact whether the payment of Rs.3,44,17,926/- and claimed as exemption u/s 24 includes the principal as well as interest.)
During the course of revision proceedings, the Ld. Principal CIT accepted the explanations furnished by the assessee with regard to the third issue relating to interest expenditure. With regard to the first two issues, the Ld. CIT took the view that the A.O. has not verified the details of house property income offered by the assessee resulting in escapement of income. Accordingly, he set aside the assessment order and directed the A.O. to re-do the assessment bringing to tax the annual value of “1MG Mall”.
M/s. G. Corp Pvt. Ltd., Bangalore
The facts relating to the above said issues are stated in brief. The assessee, along with two other co-owners, owns a shopping Mall named “1MG” located at M.G. Road, Bengaluru. The assessee hold 50% of the share in the above said Mall. Up to December, 2013, the entire Mall was let out to a party named M/s. Agre Properties & Services. After the expiry of the license period, the “Mall owners” took up the management of the Mall and accordingly entered into license agreement with all licensees. They also appointed a Mall manager named M/s. Lido Malls Management Pvt. Ltd (hereinafter called as “Lido”) to maintain and manage the mall. The Mall manager was given charge of collecting license fees/rent, maintenance charges/ common area maintenance charges, managing and operating the Mall, collect non-rental receivables including utility charges, governmental/statutory levy and taxes. As per the agreement, M/s. Lido would retain 2% of the license fees/rent as its “fees for managing/operating and maintaining the Mall”. Similarly, M/s Lido would retain 75% of the revenues generated from other income including advertisements, parking, kiosks, Mall promotion, etc.
The Mall owners offered the income that was given by M/s Lido after deducting its fees. Accordingly, the assessee offered 50% of the 98% of the license fees/rent as its income under the head “Income from House Property”. Similarly the assessee company offered 50% of 25% of other income.
The case of the Ld. Principal CIT is that the entire license fee/rent constitutes “annual letting value” as per provisions applicable to income from House property and hence, the entire amount of license fee/rent, i.e 100% should have been taken as the Annual Letting value and accordingly, the assessee should
M/s. G. Corp Pvt. Ltd., Bangalore have offered 50% of licence fee/rent receipts, instead of 49%, as annual letting value. Similarly, the Ld. Principal CIT took the view that revenue generated by way of other income including advertisements, parking, kiosk, Mall promotions, should have formed part of annual value of the property and 100% of revenue should have been offered by the owners as income from house property. It may be recollected that the Mall owners were getting only 25% of the other income while 75% was retained by M/s. Lido.
Before Ld. Principal CIT, the assessee raised various contentions, but all of them were rejected by Ld. Principal CIT. Since the A.O. did not examine these issues, the Principal CIT took the view that the order is erroneous and prejudicial to the interest of the revenue. Accordingly, he set aside the assessment order and directed the A.O. to re-do the assessment by bringing to tax the annual value of “1 MG Mall” as house property income after giving due opportunity to the assessee. Aggrieved by the order so passed by Ld. Principal CIT, the assessee has filed this appeal before us.
The ld. A.R. submitted that the assessee has furnished all the relevant details relating to house property income to the A.O. In this regard, he invited our attention to the various details furnished before the A.O., which are placed at pages 71, 310, 325 & 371 of the paper book. He further submitted that the A.O. has completed the assessment by duly considering the details so furnished by the assessee. The Ld. A.R. submitted that the A.O. has examined the details and has taken a plausible view and hence the impugned revision order is liable to be quashed. He
M/s. G. Corp Pvt. Ltd., Bangalore submitted that the lack of enquiry or inadequate enquiry on the part of the A.O. cannot be a ground for revising the assessment order. In support of this proposition, he placed his reliance on the decision rendered by Hon’ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Limited 332 ITR 167. He also placed his reliance on the decision rendered by Hon’ble Bombay High Court in the case of CIT Vs. Nirav Modi (390 ITR 292) wherein it was held that where assessing officer, after making proper and detailed enquiries, took a view that amount received by assessee as gift from his relatives was a genuine transaction, the impugned revisionary order passed by Commissioner was not sustainable. He submitted that the decision rendered by Hon’ble Bombay High Court in the above said case has since been approved by Hon’ble Supreme Court in the case reported in 77 Taxmann.com 78. The Ld. A.R. also placed his reliance on other case laws and submitted that the impugned revision order is not sustainable since the A.O. has made detailed enquiries with regard to house property income declared by the assessee.
The ld. A.R. submitted that on merits also, the revision proposed by Ld. Principal CIT is not sustainable. He submitted that as per the agreement entered by the assessee with M/s. Lido, the owners of the Mall shall be entitled to receive only 98% of the license fee/rent receipts and remaining 2% shall be taken by M/s. Lido towards their charges. Accordingly, the above said 2% is diversion of income by over riding title and hence the same shall not form part of annual letting value of property as opined by Ld. Principal CIT. In support of this proposition, the Ld. A.R. placed his reliance on the decision rendered by Hon’ble Supreme Court in the case of CIT Vs. Sital Das Tirath Das (41 ITR 367).
M/s. G. Corp Pvt. Ltd., Bangalore
The Ld.A.R. further submitted that the maintenance charges paid to the service provider for maintenance of rented premises could not be treated as rent taxable in the hands of the owners. In support of this proposition, he placed his reliance on the decision rendered by Hon’ble Delhi High Court in the case of CIT Vs. DLF Office Developers (25 Taxmann.com 258). Accordingly, the Ld. A.R. submitted that the views expressed by Ld. Principal CIT on merits are not sustainable under law and hence on this count also, the impugned revision order is liable to be quashed.
On the contrary, the Ld. D.R. invited our attention to page 84 of the paper book, wherein the copy of notice issued by A.O. u/s 142(1) of the Act during the course of assessment proceedings is placed. The ld. D.R. submitted that the A.O. has raised as many as 31 queries in the notice issued u/s 142(1) of the Act. None of the queries relates to the two issues raised by Ld. Principal CIT in the revision proceedings. The Ld. A.R. submitted that the assessee has declared rental income under the head “Income from house property”. As per section 23 of the Act, the “annual letting value” of the property is liable to be taxed. Further, permissible deductions are given in section 24 of the Act. The annual value of the property is the actual rent receivable by the assessee and hence the Mall owner should have offered 100% of the license fees/rent receipts as annual value instead of 98%. Similarly, other income received through Mall activities shall also form part of Annual letting value and the same should have been included in computation of Annual letting value @ 100%, as against 25% offered by Mall owners.
M/s. G. Corp Pvt. Ltd., Bangalore
The ld. D.R. further submitted that the A.O. has failed to examine both these issues during the course of assessment proceedings. A perusal of assessment order would show that the A.O. has examined the issues relating to disallowance made u/s 14A of the Act and also disallowance of claim of expenses under the matching principle, meaning thereby, the A.O. did not examine income from house property declared by the assessee. Accordingly, the ld. D.R. submitted that there is total lack of application of mind on the part of the A.O. and hence Ld. Principal CIT has rightly invoked revision proceedings u/s 263 of the Act, since the assessment order is erroneous and prejudicial to the interest of the revenue. Accordingly, he submitted that the impugned revision order passed by Ld. Principal CIT should be upheld.
We heard the rival contentions and perused the record. The principles relating to initiation of revision proceedings has been explained by Hon’ble Supreme Court in the case of Malabar Industries Company Ltd. Vs. CIT (243 ITR 83) and the same has been reiterated by Hon’ble Supreme Court in the case of CIT Vs. Max India Ltd. (295 ITR 282). For the sake of convenience, we extract below the operative portion of the order passed by Hon’ble Supreme court in the case of Malabar Industrial company Ltd.
“Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the 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 interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be “erroneous in so far as it is prejudicial to the interests of the Revenue”. This provision has been interpreted by the Supreme Court in several judgments to which it is M/s. G. Corp Pvt. Ltd., Bangalore now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision “cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer” and “it is only when an order is erroneous that the section will be attracted”. The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression “prejudicial to the interests of the Revenue”, the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the the Supreme Court (headnote) :
“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.”
The Hon’ble Supreme Court has made it clear in the above said case that the assessment orders passed without application of mind shall fall under the category of erroneous order and if such erroneous order causes prejudice to the revenue, then the Ld. Principal CIT is entitled to invoke his power given u/s 263 of the Act for revising the assessment order. The application of mind contemplates that the A.O. should have examined the issue and should have taken a plausible view after due application of mind.
The law is well settled that if there is a failure on the part of AO to make an enquiry on the issue which calls for an enquiry, that by itself will render the order of assessment erroneous and prejudicial to the interests of the revenue. We derive support for this view from the decision rendered by the Hon’ble Delhi High
M/s. G. Corp Pvt. Ltd., Bangalore Court in the case of Gee Vee Enterprises Vs. DCIT 99 ITR 375 & 386(Delhi). The following passage from the said decision would explain clearly the legal position in this regard:
“(13) Shri G.C. Sharma argued that the orders passed by Income-tax authorities under sections 34 and 33B of the old Act corresponding to sections 147, and 263 of the new Act stood on the same footing when they were challenged as being without jurisdiction by way of a writ petitions We do not, however, think that he can derive any assistance from the decision in Calcutta Discount Company's case. As pointed out by the Supreme Court in Mysore State Road Transport Corporation v. The Mysore Road Appellate Tribunal, (Civil Appeal No. 1801 of 1970 decided on August 8, 1974) (II) referring to an essay on "Determining the Ratio Decidendi of a case" by Dr. A. L. Goodhart, "the principle of a' case is determined by taking into account the facts treated by the Judge deciding a case as material and his decision as based thereon." The ratio of the decision in Calcutta Discount Company's (10) case cannot apply to the facts of the present case for the following reasons :-
(I) Under section 34, the duty of the assessed is only to state the material facts necessary for the purpose of .assessment. Once these facts are accepted and an assessment is made, the Income Tax Officer cannot reopen the assessment unless he had reason to believe that the material facts were not truly disclosed.. The reason why the reopening of the assessment is thus made somewhat difficult is to preserve the finality of the previous decision which should not be destroyed except for a good reason. Once it is found that the disclosure of facts was complete, no jurisdiction could arise for the reopening of the assessment.
(II) On the other hand, the condition for the assumption of jurisdiction under old section 33B and the new section 263 is easier to fulfill. The reason is that it is not the Income Tax Officer but a superior Officer like the Commissioner who is exercising a revisional jurisdiction suo motu there under. The superior officer could be trusted with a larger power. The only requirement for the exercise of this power is that the Commissioner should consider that the order passed by the. Income Tax Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue." What is the meaning of "erroneous" in this context? It was argued for the assesseds by Shri G. C. Sharma that the word "erroneous" means that the order must appear to be wrong on the face of it. In other words, he equated the "error" with "error of law apparent on the face of record" which is a well-known ground for the review of a quasijudicial order by this Court under Article 226. We are unable to agree with this interpretation. The intention of the legislature was to give a wide power to the Commissioner. He may consider the order of the Income Tax Officer as erroneous not only because it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereo-typed order which simply accepts what the assessed has stated in his return and fails to make inquiries which are called for in the circumstances of the case. Shri Sharma's contention that this would give
M/s. G. Corp Pvt. Ltd., Bangalore the Commissioner the power to revise the order of the Income Tax Officer merely on the ground of suspicion is untenable in view of the following two Supreme Court decisions which have already construed the old section 33B contrary to Shri Sharma's contention. In Rampyari Devi Saraogi v. Commissioner of Income Tax, (1968)67 I.T.R. 84, the Income Tax Officer accepted the return of the assessed in respect of the initial capital, the gift received and the sale of jewellery, the income from business, etc., without any inquiry or evidence whatsoever. For this reason the Commissioner held the order to be erroneous. In revision, he cancelled the order and ordered the Income Tax Officer to make a fresh assessment. In his order the Commissioner had used certain new grounds which had not been disclosed to the assessed in the notice given to him to show cause why the order of the Income Tax Officer should not be revised. But apart from these new grounds, the Supreme Court observed at page 88 of the report that-
"THERE was ample material to show that the Income Tax Officer made the assessments in undue hurry........,...The assessed made a declaration giving the facts regarding initial capital, the ornaments and presents received at the time of marriage, other gifts received from her father-in law, etc., which should have put any Income Tax Officer on his guard. But the Income Tax Officer without making any inquiries to satisfy himself passed the assessment order ....... A short-typed assessment order was made for each assessment year......No evidence whatsoever was produced in respect of the money-lending business done. ............No names were given as to the partics to whom the loans were advanced."
In Tara Devi Aggarwai v. Commissioner of Income Tax, (1973) 88 I.T.R. 323, also the Income Tax Officer, Howrah, while remarking that the source of income of the assessed was income from speculation and interest on investments stated that neither the assessed , able to produce the details and vouchers of the speculative transactions made during the accounting year nor was there any evidence regarding the interest received by the assessed from different parties on her investments. Notwithstanding these defects the Income Tax Officer did not investigate into the various sources but assessed the assessed on a total income of Rs. 9037.00 . The inquiries made by the Commissioner revealed that the assessed did not reside or carry on business at the address given in the return. The Commissioner was also of the view that the Income Tax Officer was not justified in according the initial capital, the sale of ornaments, the income from business, the investments, etc.. without any inquiry or evidence whatsoever and that the order of assessment was erroneous and prejudicial to the interests of the Revenue. The High Court held that there were materials to justify the Commissioner's finding that the order of assessment was erroneous insofar as it was prejudicial to the interests of the Revenue. Shri Sharma tried to distinguish this decision on the ground that the address of the assessed in that case was given incorrectly. The decision of the High Court and that of the Supreme Court were not, however, based on that ground at all. On the contrary, the Supreme Court followed their previous decision in Rampyari Devi's (12) case and upheld the decision of the High Court precisely on the same grounds. These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income Tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income
M/s. G. Corp Pvt. Ltd., Bangalore
Tax Officer should have made further inquiries before accepting the statements made by the assessed in his return.
(14) The reason is obvious. The position and function of the Income Tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may he accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this contract. It is because it is incumbent on the Income Tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is any thing wrong with the order if all the facts stated therein are assumed to be correct.”
The ld. A.R. took us through various documents, information and explanations furnished by the assessee before the A.O. Though the agreement entered by the assessee with M/s. Lido states that M/s. Lido would retain 2% of license fees/rent receipts and 75% of the other income, we notice that the A.O. has not examined the tax implication of the agreement in the context of section 23 & 24 of the Income tax Act, as the Mall income has been offered by the assessee under the head “Income from house property”. As rightly pointed out by Ld. D.R. the tax on income from house property is charged on the annual letting value and term “Annual letting value” has been defined u/s 23 of the Act. Further, the assessee is entitled to claim only those expense which are listed out in section 24 of the Act from the annual letting value determined u/s 23 of the Act. Admittedly, the A.O. did not examine any of the issues pointed out by the Ld. Principal CIT.
The Ld A.R took support of the decision rendered by Hon’ble Delhi High Court in the case of Sunbeam Auto Ltd (supra). We
M/s. G. Corp Pvt. Ltd., Bangalore notice that the said decision was rendered prior to the insertion of Explanation 2 in sec. 263(1) by Finance Act, 2015 w.e.f. 1.6.2015. As per clause (a) of Explanation 2, the order passed without making inquiries or verification which should have been made shall be deemed to be erroneous and prejudicial to the interests of the revenue. Since the A.O. failed to examine these issues, in our view, the Ld. Principal CIT was justified in observing that there is lack of application of mind and hence the order is erroneous and prejudicial to the interest of the revenue, in the facts and circumstances of the case.
The Ld A.R also advanced his arguments on the concept of diversion of overriding title. In our view, these arguments are not relevant while examining the validity of revision proceedings and the assessee may take these arguments before the AO, if so advised.
The Ld. A.R. advanced his arguments on merits on both the issues revised by Ld. Principal CIT. Since the A.O. has not examined these issues on merits, we are of the view that the same need not be considered by the Tribunal while examining the validity of revision proceedings, unless it is shown that the view taken by Ld. Principal CIT is not totally sustainable in law. Accordingly, we decline to address the arguments advanced on merits.
In view of the foregoing discussions, we are of the view that the Ld. Principal CIT was justified in passing the impugned revision order. Accordingly, we uphold the same.
M/s. G. Corp Pvt. Ltd., Bangalore Page 13 of 13
In the result, the appeal filed by the assessee is dismissed.