2010 (10) TMI 814 - AT - Income Tax

Reopening of assessment - Business income Vs. House property - Time barred - Penalty - Held that - Section 147 authorizes the AO to assess or reassess income chargeable to tax, when, he has reason to believe that income for any assessment year has escaped assessment. In the instant case, the observation of the AO to the effect that by claiming the returned income under wrong head, the assessee has claimed excess depreciation, which is not permissible in case of income is assessable under the head Income from House property . This is a sufficient reason to believe that income of the assessee has escaped assessment, which is sufficient to empower the AO to reopen the assessment by issue of notice u/s 148. No infirmity in the order of the CIT(A) for confirming the action of the AO for reopening the assessment when the same was made with reference to intimation passed u/s 143(1) as AO is free to initiate proceedings u/s 147 and failure to take steps u/s 143(3) will not render the AO powerless to initiate reassessment proceedings even when intimation u/s 143(1) had been issued. Leave and licence income - chargeable under the head Income from house property OR Business income - Held that - Following the latest decision of Commissioner Of Income-Tax Versus Shambhu Investment Pvt. Ltd. 2001 (3) TMI 77 - CALCUTTA High Court proposition of law laid down therein are applicable to the facts of instant case, confirming the action of the CIT(A) for taxing the rental income as income from house property . Regarding interest u/s 234D - Held that - No interest is chargeable u/s 234D prior to the assessment year 2004-05 Regarding Penalty - AO has initiated penalty proceedings for the income escaped assessment due to taxing of rental income as income from house property - since no penalty has been levied and it was just initiation, no interference is required by the Tribunal at this juncture - Appeals are allowed

Summary

Issues Involved:
1. Validity of issuance of notice under Section 148.
2. Limitation period for passing the order under Section 143(3)/148.
3. Assessment of leave and license income as income from house property versus business income.
4. Disallowance of depreciation on property used for business.
5. Withdrawal of interest under Section 244A.
6. Charging of interest under Section 234D.
7. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Validity of Issuance of Notice under Section 148:
The assessee challenged the validity of reopening the assessment under Section 147 by issuance of notice under Section 148, arguing that there was no new material to justify the reopening. The Tribunal, relying on the Supreme Court's decision in Rajesh Jhaveri Stock Brokers (P.) Ltd., held that the processing of return under Section 143(1) does not amount to an assessment order. Therefore, the AO can reopen the assessment if there are reasons to believe that income has escaped assessment, even if no new material is found.

2. Limitation Period for Passing the Order under Section 143(3)/148:
The assessee argued that the order passed under Section 143(3)/148 was barred by limitation. The Tribunal found that the AO had issued the notice within the specified limit and recorded detailed reasons for reopening the assessment. The Tribunal upheld the validity of the reopening, stating that the AO had acted within the statutory time limits.

3. Assessment of Leave and License Income as Income from House Property versus Business Income:
The assessee contended that the leave and license income should be assessed as business income. The Tribunal, however, found that the primary object of the assessee was to let out the property and not to engage in any complex commercial activity. Relying on the Supreme Court's decision in Shambhu Investment (P.) Ltd., the Tribunal held that the income should be assessed as income from house property.

4. Disallowance of Depreciation on Property Used for Business:
Since the leave and license income was assessed as income from house property, the Tribunal upheld the disallowance of depreciation claimed on the property as business expenditure. The Tribunal followed the legal principle that depreciation is not allowable on property income assessed under the head "Income from House Property."

5. Withdrawal of Interest under Section 244A:
The Tribunal noted that the issue of allowing interest under Section 244A is consequential in nature. Therefore, the Tribunal did not provide a separate ruling on this ground.

6. Charging of Interest under Section 234D:
The Tribunal, relying on the Special Bench decision in Ekta Promoters and the Delhi High Court's decision in Mitsubishi Corporation, held that interest under Section 234D is not chargeable for the period prior to the assessment year 2004-05. Since all the assessment years under consideration were prior to 2004-05, the Tribunal allowed this ground of appeal.

7. Initiation of Penalty Proceedings under Section 271(1)(c):
The Tribunal noted that the AO had initiated penalty proceedings for the income escaped assessment due to taxing of rental income as income from house property. However, since no penalty had been levied and it was just initiation, the Tribunal did not interfere at this juncture.

Conclusion:
The Tribunal upheld the reopening of assessments and the classification of leave and license income as income from house property. It allowed the assessee's appeal regarding the non-chargeability of interest under Section 234D for periods prior to the assessment year 2004-05. Other grounds were either dismissed or considered consequential. The appeals were allowed in part.