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Income Tax Appellate Tribunal, “B”, BENCH
Before: SHRI N.V. VASUDEVAN, JM &DR. A.L.SAINI, AM
O R D E R
Per Dr. Arjun Lal Saini, AM:
The captioned appeal filed by the assessee, pertaining to Assessment Year 2012-13, is directed against an order passed by the ld. Commissioner of Income Tax-21, Kolkata, under section 263 of the Income Tax Act, 1961, ( hereinafter referred to as the ‘Act’), dated 03.03.2017.
The assessee has raised the following grounds of appeal:
1. That the order passed by Ld. Principal Commissioner of lncome Tax - 21, Kolkata under section 263 of the lncome Tax Act, 1961 setting aside the assessment order dated 27th March, 2015 passed by the lncome Tax Officer under section 143(3) of the lncome Tax Act, 1961 is without jurisdiction, against law and facts of the case and therefore illegal and is liable to be quashed.
Mukesh Kr. Agarwal Assessment Year: 2012- 2.That the assessment order dated 27thMarch,2015 passed by the lncome Tax Officer under section 143(3) of the Income Tax Act, 1961 was neither erroneous nor prejudicial to the interest of Revenue within the meaning of section 263 of the Act and therefore Ld. Principal Commissioner of lncome Tax - 21, Kolkata erred in assuming jurisdictionunder section 263 of the lncome Tax Act, 1961 setting aside the aforesaid order dated 27th March, 2015 passed under section 143(3) of the Act. 3.That the Ld. Principal Commissioner of lncome Tax - 21, Kolkata erred in setting aside the order dated 27th March, 2015 passed under section 143(3) of the lncome Tax Act, 1961 by invoking the provisions of section 263 of the Act arbitrarily alleging that the lncome Tax Officer allowed relief without making inquiries and verification which should have been made by him. 4.That, on the facts and in the circumstances of the case, the impugned order passed by the Ld. Principal Commissioner of lncome Tax - 21, Kolkata is perverse and is liable to be quashed.” 3.The brief facts qua the issue are that assessee had filed its return of income for Assessment Year 2012-13 on 14/02/2013, declaring a total income of Rs.4,89,890/-. The said return was processed u/s 143(1) of the I. T. Act on 15.01.2014. Thereafter, the assessee’s case was selected for scrutiny under section 143 (2) of the Act and the Assessing Officer had completed the assessment u/s 143(3) by making addition of Rs.4,89,890/-. The Assessing Officer observed from the return of income filed by the assessee, wherein the assessee has shown income under the head of salary, income from other sources, loss from house property and loss from capital gain.
Subsequently, the Ld. CIT had exercised his jurisdiction under section 263 of the I. T. Act. The CIT observed that the order of assessment under Page | 2 Mukesh Kr. Agarwal Assessment Year: 2012- 143(3) of the Act, dated 27.03.2015 was erroneous in so far as it is prejudicial to the interest of revenue on the following grounds:-
(i) During the course of assessment proceedings u/s 143(3) made on 27.03.2015, no verification about the genuineness of Gross Rent received @ Rs. 12,000/- per month was made by the A.O. The assessee had claimed total deduction u/s 24(b) of the Act to the extent of Rs.2,41,347/- (Rs.1,35,428/- paid to SBI &Rs.1,05,919/- paid to ICICI Bank), on Housing Loan taken from the Bank. Though the assessee had claimed Negative Income from Housing Property at Rs. 1,40,547/-, the A.O. has not applied the provisions of section 23(4)(b), since he owns two House properties in Kolkata, out of which one was Let-out and the other is Self-occupied. The Annual Value of the Self-occupied Property has not been treated notionally u/ s 23(1), as if such house has been Let-out as required u/ s 23(4)(b) of the Act. The provisions of section 23(4)(b) of the Act have not been applied and the genuineness of Gross Rent received have not been examined; and (ii) Income from other sources has been declared on account of interest income at Rs.6,00,784/- on loans for Rs.40,00,000/- advanced by the assessee to M/s Rajasthan Lace Pvt. Ltd. However, no income from interest Interest on Loans totalling to Rs. 8,55,544/- advanced to the assessee’s HUF and two relatives was declared as income whereas he had taken Unsecured Loan 50,00,000/- from ShriMaheshpal Arora to whom Interest was paid for Rs. 8,50,000/- in support which a confirmation is also placed on regards. So from the above it is obvious that interest bearing borrowed funds has been utilized in advancing Loans to the assessee's HUF and to relativesto whom interest was not charged. The element of commercial expediency thus remains unverified. The A.O. has failed to examine and disallowed the appropriate amount of interest out of claim of Rs. 5,75,812/- U/s 57 of the I.T. Act, 1961. Page |
3. Mukesh Kr. Agarwal Assessment Year: 2012-
Since, as per the CIT, the order passed by the Assessing Officer was erroneous and prejudicial to the interest of revenue, therefore he issued a show cause notice to the assessee requiring him to submit clarification or explanation to the above issues. In response, the assessee submitted written explanation to the show cause notice. The assessee explained to CIT that the order passed by Income Tax Officer under section 143(3) was neither erroneous nor prejudicial to the interest of Revenue within the meaning of section 263 of the Income Tax Act, 196I and therefore there is no scope for assumption of jurisdiction under section 263. The assessee explained that in course of assessment proceedings the Assessing Officer issued Notice under section 142(1) of the Act for making inquiry to verify the income declared in the return of income. The aforesaid Notice contained various items of inquiry which inter alia included the details of House Property, the details of all bank accounts to show the amounts of interest received and paid and also the details of losses carried forward and deduction claimed under section 57 of the Act. In response to the notice U/s 142(1), the assessee submitted to AO full and complete details in respect of each and every items of enquiry made by him through his aforesaid notice issued under section 142(1) of the Act. The Assessing Officer, on examination of the documents and evidences and the books of accounts produced before him, found that the income declared by assesseewas correct and therefore he accepted the same.
The assessee also explained to CIT that the aforesaid issues raised in the impugned show cause notice for the Assessment Year 2012-13 were also involved in the assessment year 2013-14 and various enquiries were made by the Assessing Officer during the course of the assessment proceedings for the said year. The issue, relating to assessment of rent of Rs.12,000 p.m. received by assessee, was examined by the Assessing Officer with reference to the lease agreement entered into by assessee with the tenant. The payments of interest on loans borrowed by assessee and Page | 4 Mukesh Kr. Agarwal Assessment Year: 2012- Assessing Officer with reference to and the issue relating to interest free loans given to assessee`s HUF etc. The Assessing Officer having been satisfied on the evidences, documents and facts of the case did not made any disallowance or addition and passed the order dated 28th March, 2016, under section143(3) of the Act. 7.During the revision proceedings under section 263 of the Act, the assessee submitted before the CIT that he had received rent of Rs.12,000 per month only from the flat let out by him and the same only could be treated as rent taxable under section 23(1) of the Act. Further the Annual Letting Value of the other house has to be taken to be nil since the assessee had such option under sections 23(2)/ and 23(4) of the Act where the assessee owns more than one house.The relevant provisions for assessment of "Annul Value" (ALV) of House Properties are contained in Sec. 22 read with sec. 23(2), 23(3) and 23(4) of the Income Tax Act, 1961. On an analysis of these provisions it would be found that if an assessee is the owner and in possession of a property consisting of one house or part of a house and; i).the house is in the occupation of the owner for the purposes of his own residence - 23(2)(a); ii).the house cannot be occupied by specified in sec. 23(2)(b); iii).the house is not let out during the year - Sec, 23(3)(a) iv).the assessee did not derive any benefit from the said house(s) - Sec.23 (3) (b). the "Annual Value" of such house shall be taken at Nil. Admittedly, assessee was in occupation of more than one house and therefore the provisions of sec.23(2) are applicable in this case and the ALV of other house is to be taken to be Nil as provided in section 23 (4)(a) read with section 23(2) of the Act. Page | 5 Mukesh Kr. Agarwal Assessment Year: 2012- Assessee was the owner and in possession of two houses only and therefore the provisions of sec.23(4) are applicable which provides that the Annual Value of one house, at the option of the Assessee shall be taken to be Nil. Thus the ALV of the other house was rightly taken to be Nil by the Assessing Officer and there is no error in the assessment order sought to be revised under section 263 of the Act. It may be noted that the other house owned by assessee was admittedly occupied by assessee for his residence and therefore the ALV has to be taken to be Nil as provided in section 23(2)(a) of the Act. With regard to the ALV of the property let out by assessee, it was submitted that the amount of actual rent received by assessee could only be taken to be ALV for the purposes of assessment of income under the head" House Property". The assessee relied on the decision of Hon'ble Calcutta High Court in the case of CIT vs. Kishanlal& Sons (Udyog) Pvt. Ltd. [2003] 260 ITR 481 (Cal.), wherein it was, inter alia, held that the rent being fetched by the property at the beginning of the relevant previous year should be considered to represent the annual value of the property. The assessee also relied on the decision of Hon'ble Delhi High Court in the case of CIT vs. Modi Industries Ltd, [1993] 200 ITR 350 (Delhi) and in the case of CIT vs. Modi Spinning & Manufacturing Mills Co. Ltd. [1980] 125 ITR 361 (All.) for the proposition that when the property is subject to statutory control regulations, the actual rent being fetched by the property should prevail as a measure of annual value of the property for the purpose of assessment of income from the property. In Kolkata all assessees are governed by West Bengal Premises Act. Therefore, the actual amount of rent being Rs.12,000 per month received by assessee in pursuance to the agreement dated 1st April, 2011 had Page | 6 Mukesh Kr. Agarwal Assessment Year: 2012- Property' subject to statutory deductions permitted under the Act. Therefore, the assessee submitted that under these the facts and circumstances of the case and the law relating to assessment of income under the head House Property, there was no error in the assessment order passed under section 143(3) of the Act.
Regarding the second issue relating to claim of interest, raised by CIT U/s 263, the assessee submitted that the allegation made in the show cause notice that assessee claimed deduction of Interest of Rs.2,41,347 while computing the income from House Property was wholly incorrect. However on perusal of the return of income filed by assessee, which had been accepted by the Assessing Officer under section 143(3) of the Act, it would be seen that the following amounts of interest on borrowed funds were claimed: (i) in respect of property let out Rs.1,35,428 (ii) in respect of self-occupied property Rs.1,05,919 The assessee explained to CIT that the claim of interest was within the provisions of section 24 of the Act, because there is no limit for interest on borrowed Loans in respect of rental income from the property let out to tenants and which is assessable to tax. However, the amount of interest on borrowed funds utilised for self-occupied property was to the extent of Rs.1,50,000 vide second proviso to section 24 of the Act. Thus there was no discrepancy in the amount of interest claimed and interest allowed by the Assessing Officer. The assessment order, therefore, could not be said to be erroneous on account of interest allowed by the Assessing Officer under section 24 of the Act.
Mukesh Kr. Agarwal Assessment Year: 2012-
Regarding the issue related to interest free loans granted to assessee`s HUF and two relatives. The assessee submitted before the CIT that these loans were brought forward from earlier years. The loans were granted out of own funds and no amount of interest bearing loans and therefore no amount could be disallowed out of the interest paid by the assessee. The copy of the Loan confirmation letters of the three parties were submitted. It would also be found that although, assessee paid interest of Rs.8,50,00,00 on the loan of Rs.50,00,000 borrowed by assessee from Mahesh Pal Arora, the assessee claimed deduction of Rs.5,75,812 only against receipt of interest of Rs.5,75,812 on loan of Rs.40,00,000 from M/s Rajasthan Lace Pvt. Ltd. Thus assessee`s claim was automatically reduced proportionately. This issue was also examined by the Assessing Officer in great depth in the assessment year 2013-14 and he found that no borrowed funds were used for advancing interest free advances to assessee's HUF and also two other parties. Therefore, assessee submitted before CIT that neither the assessment order passed by the Assessing Officer was erroneous nor the same was prejudicial to the interest of the revenue.
However, the Commissioner of Income Tax ignored the submissions of the assessee and observed that in the assessee`s case, the assessment order was passed without considering the aspects as enumerated in the show-cause notice to the assessee while doing an assessment u/s 143(3), the A.O. is not expected to be passive in the face of the return but to actively examine the case from all perspective and conduct further enquiry. The power of revision by the CIT u/s 263 of the Act is very wide and it is in the nature of supervisory jurisdiction. The power u/s 263 can be exercised even in cases where the issue is debatable and such power is not comparable with the power of rectification of mistake u/s 154 of Act. It is well settled that incorrect assumption of facts or application of law satisfies the Page | 8 Mukesh Kr. Agarwal Assessment Year: 2012- requirement of law i.e. order being erroneous & prejudicial to the interest of revenue. The order passed by the A.O. without application of mind or order showing apparent error of reasoning or the order where the A.O. simply accepts where the assessee stated in his return of income and fails to make the enquiries which are called for in the facts and circumstances of the case will also call for intervention u/s 263 of the Act by the CIT/Pr.CIT. It is a trite law that the disclosure of facts by the assessee in the return of income and /or in the course of assessment proceedings cannot give immunity from revisional jurisdiction of the CIT/Pr. CIT U/s263. The Commissioner has to be satisfied of twin conditions, namely, (i) 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, it was also held that recourse cannot be had to Section 263(1) of the Act. Therefore, ld CIT, after having considered the position of law and facts and circumstances of the instant case, the assessment order passed by the Assessing Officer was found to be erroneous and prejudicial tothe interest of revenue because the assessment order has been passed and relief has been allowed without making inquiries or verification into the claim of the assessee which should have been made by the Assessing Officer. Therefore the CIT held that the assessment order passed by the Assessing Officer was erroneous in so far as it was prejudicial to the interest of revenue in accordance with the Explanation 2 below section 263(1) of the Act.
The ld Counsel for the assessee has submitted before us that in course of assessment proceedings the Assessing Officer issued Notice under section 142(1) of the Act for making inquiry to verify the income declared in the return of income. The aforesaid Notice contained various items of inquiry which inter alia included the details of House Property, the details of all bank accounts to show the amounts of interest received and paid and Page | 9 Mukesh Kr. Agarwal Assessment Year: 2012- 57 of the Act. In response to the notice U/s 142(1), the assessee submitted to AO full and complete details in respect of each and every items of enquiry made by him through his aforesaid notice issued under section 142(1) of the Act. The assessee also explained to CIT that the aforesaid issues raised in the impugned show cause notice for the Assessment Year 2012-13 were also involved in the assessment year 2013-14 and various enquiries were made by the Assessing Officer during the course of the assessment proceedings for the said year. The Counsel submitted before us that assesseehad received rent of Rs.12,000 per month only from the flat let out by him and the same only could be treated as rent taxable under section 23(1) of the Act. Further the Annual Letting Value of the other house has to be taken to be nil since the assessee had such option under section 23(2)/23(4) of the Act where the assessee owns more than one house. Admittedly, assessee was in occupation of more than one house and therefore the provisions of sec.23(2) are applicable in this case and the ALV of other house is to be taken to be Nil as provided in section 23 (4)(a) read with section 23(2) of the Act.With regard to the ALV of the property let out by assessee, it was submitted that the amount of actual rent received by assessee could only be taken to be ALV for the purposes of assessment of income under the head" House Property". The assessee relied on the decision of Hon'ble Calcutta High Court in the case of CIT vs. Kishanlal& Sons (Udyog) Pvt. Ltd. [2003] 260 ITR 481 (Cal.), wherein it was, inter alia, Page | 10 Mukesh Kr. Agarwal Assessment Year: 2012- held that the rent being fetched by the property at the beginning of the relevant previous year should be considered to represent the annual value of the property. The Counsel also relied on the decision of Hon'ble Delhi High Court in the case of CIT vs. Modi Industries Ltd, [1993] 200 ITR 350 (Delhi) and in the case of CIT vs. Modi Spinning & Manufacturing Mills Co. Ltd. [1980] 125 ITR 361 (All.) for the proposition that when the property is subject to statutory control regulations, the actual rent being fetched by the property should prevail as a measure of annual value of the property for the purpose of assessment of income from the property. In Kolkata all assessees are governed by West Bengal Premises Act. Therefore, the actual amount of rent being Rs.12,000 per month received by assessee in pursuance to the agreement dated 1st April, 2011 had rightly been assessed as income chargeable to tax under the head ‘House Property' subject to statutory deductions permitted under the Act. Therefore, the assessee submitted that under these the facts and circumstances of the case and the law relating to assessment of income under the head House Property, there was no error in the assessment order passed under section 143(3) of the Act. Regarding the second issue relating to claim of interest, raised by CIT U/s 263, the Counsel submitted that the claim of interest was within the provisions of section 24 of the Act, because there is no limit for interest on borrowed Loans in respect of rental income from the property let out to tenants and which is assessable to tax. However, the amount of interest on borrowed funds utilised for self-occupied property was to the extent of Page | 11 Mukesh Kr. Agarwal Assessment Year: 2012- Rs.1,50,000 vide second proviso to section 24 of the Act. Thus there was no discrepancy in the amount of interest claimed and interest allowed by the Assessing Officer.The assessment order, therefore, could not be said to be erroneous on account of interest allowed by the Assessing Officer under section 24 of the Act.Regarding the issue related to interest free loans granted to assessee`s HUF and two relatives. The counsel submitted before us that these loans were brought forward from earlier years. The loans were granted out of own funds and no amount of interest bearing loans and therefore no amount could be disallowed out of the interest paid by the assessee.
On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the AO, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 13.We have given a careful consideration to the rival submissions. The law with regard to exercise of jurisdiction u/s.263 of the Act on the ground that the AO failed to make enquiries which he ought to have made in the given circumstances of a case is well settled. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. 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. It is because it is incumbent on the Income-tax Officer to further investigate the Page | 12