LION PALACE,RAJULA vs. THE PR. CIT-1, RAJKOT, RAJKOT

The necessary facts are that the assessee in the present case is a partnership firm and deriving its income from lease rent of the property given to M/s Lord Sai Ma Hotels Pvt. Ltd. Such lease rent income was shown by the assessee as income under the head “business and profession” which was also accepted by the AO in the assessment framed u/s 143(3) of the Act vide letter dated 29/11/2018. However, the Ld. PCIT was of the view that such lease rent income should have been charged to tax under the head “other sources” and therefore other expenses such as remuneration/salary to the partner and other expenses of general in nature should not have been allowed as deduction. However, the Ld. PCIT, accepted to allow the deduction on account of depreciation u/s 32 of the Act even the income from lease rent is charged to tax under the head other sources. Accordingly, the Ld. PCIT held that the assessment framed u/s 143(3) of the Act is erroneous in so far prejudicial to the interest of the revenue for the reason that the income from the lease rent ought to have been charged under the head “other sources” instead of “business income”.

Being aggrieved by the order of the Ld. PCIT, the assessee is in appeal before us.

The Ld. AR before us filed a paper book running from pages 1 to 225 and contended that the case for the assessment u/s 143(3) of the Act was selected for limited scrutiny as evident from the notice issued u/s 143(2) of the Act, placed on page 31 of the paper book. As per the Ld. AR, the case was selected for limited scrutiny on account of depreciation claim by it whether it is admissible or not. Accordingly, the scope of scrutiny assessment was very limited and therefore there was no possibility for the AO to have verified whether the income shown by the assessee is chargeable to tax under the head “other sources” or the “business

On the other hand, the Ld. DR vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. At the threshold, we note that the case of the assessee was selected for limited scrutiny which is evident from the notice issued u/s 143(2) of the Act placed on page 31 of the paper book. On perusal of the notice, the case was selected for scrutiny “whether deduction claim on account of depreciation is admissible” so, it was a case of limited scrutiny and there was no option for the AO to verify anything other than the issue for which the case was selected for limited scrutiny. In other words, there was no possibility for the AO to inquire whether the income shown by the assessee was to be assessed under the head “business income” or “other sources” unless the limited scrutiny is converted to regular scrutiny. Accordingly, we hold that the Ld. PCIT cannot exercise his power u/s 263 of the Act, to verify those items which were not subject matter of the scrutiny. Thus, we hold that the Ld. PCIT has exceeded his jurisdiction by holding assessment as erroneous in so far prejudicial to the interest of the revenue on account of non-verification of the income whether the same should be charged under head “business and profession” or “other sources”. The contention of the Ld. Counsel that the limited scrutiny was not converted into regular scrutiny was also not controverted by the Ld. DR appearing on behalf of the revenue. Likewise, the contention of the Ld. AR that in the earlier AY, the income of the assessee was accepted as income under the head “business and profession” was not controverted by the Ld. DR. In view of the above, we hold that the revisional order passed by the Ld. PCIT is not sustainable. Hence, we quash the same. Thus, the ground of appeal filed by the assessee is allowed.