2010 (2) TMI 946 - AT - Income Tax

Income from house property Depreciation Income escaping assessment - Non-disclosure of primary facts

Issues Involved:
1. Reopening of assessment under Section 147 of the Income-tax Act, 1961.
2. Classification of rental income as "Income from house property" versus "Profits and gains of business."
3. Disallowance of depreciation on the building.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:

1.1 Assessment Year 1999-2000:
The assessee challenged the reopening of the assessment under Section 147, arguing that it was based on a mere change of opinion and that there was no failure on their part to disclose fully and truly all material facts. The original assessment was completed under Section 143(3) and the reopening was initiated beyond four years from the end of the relevant assessment year. The tribunal held that both pre-conditions for reopening under Section 147 were not satisfied, as there was no failure on the part of the assessee to disclose material facts and the reopening was based on a change of opinion. Consequently, the reopening of the assessment was deemed invalid.

1.2 Assessment Year 2000-01:
For this year, the return was processed under Section 143(1). The reopening was based on the appellate order for the assessment year 2001-02. The tribunal noted that the reopening was initiated without any new material and was merely a change of opinion. The tribunal emphasized that the concept of "change of opinion" still holds relevance even after the amendment to Section 147. The reopening was therefore considered invalid.

1.3 Assessment Year 2002-03:
The tribunal did not separately address the reopening issue for this year, as the grounds were similar to the assessment year 2000-01 and were covered by the same reasoning.

2. Classification of Rental Income:

2.1 Assessment Year 1999-2000:
The tribunal did not address the merits of the classification of rental income due to the invalidity of the reopening of the assessment.

2.2 Assessment Year 2000-01:
The tribunal examined whether the rental income from the property at Spencer Plaza, Chennai, should be classified as "Income from house property" or "Profits and gains of business." It was concluded that since the property was let out and the rental income was derived qua owner, it should be classified as "Income from house property." The tribunal relied on precedent cases, including CIT v. Bhoopalam Commercial Complex & Industries (P.) Ltd., where rental income from property owned and let out was classified under Section 22 as "Income from house property."

2.3 Assessment Year 2002-03:
The tribunal held that the issue of classification of rental income was covered by the decision for the assessment year 2000-01. Therefore, the rental income was classified as "Income from house property."

3. Disallowance of Depreciation:

3.1 Assessment Year 1999-2000:
The tribunal did not address the disallowance of depreciation due to the invalidity of the reopening of the assessment.

3.2 Assessment Year 2000-01:
Since the rental income was classified as "Income from house property," the tribunal held that the assessee was not entitled to claim depreciation on the building. This conclusion was based on the principle that depreciation is not allowable against income classified under the head "Income from house property."

3.3 Assessment Year 2002-03:
The tribunal confirmed that the disallowance of depreciation on the building was covered by the decision for the assessment year 2000-01. Therefore, the disallowance of depreciation was upheld.

Conclusion:
The appeal for the assessment year 1999-2000 was allowed due to the invalidity of the reopening of the assessment. The appeals for the assessment years 2000-01 and 2002-03 were dismissed, with the rental income classified as "Income from house property" and the disallowance of depreciation on the building upheld.

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