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2011 (9) TMI 731 - HC - Income TaxRe-assessment under 147 subsequent to intimation under 143(1) - re-opening on audit objections - Held That - 143(1) is not an assessment but an intimation only, thus question of change of opinion, did not arise. The Supreme Court also held that with Section 147 permitting the Officer to assess or reassess the income chargeable to tax when he has reason to believe income escaping assessment, the mere failure to take steps under Section 143(3) would not render the Assessing Officer powerless to initiate reassessment proceedings under Section 147 of the Act even when intimation under Section 143(1) had been issued. Decided against asssessee. Land on Lease - Constructed Commercial complex and received rental income - only activity during 91-92 - no exploitation of business assets - Income from House Property or Business Income - Held That - In view of East India Housing and Land Development Trust Ltd Vs CIT (1960 (11) TMI 7 - SUPREME Court), when the rental income falls within the specific head of income from house property, the mere fact of the assessee having business in letting out the property as stated in its memorandum, by itself, will not conclusively point out that the income is nothing but business income. Inference to be drawn from facts of each case. Court held it as rental income.
Issues Involved:
1. Validity of reopening assessments under Section 147 of the Income Tax Act, 1961. 2. Whether reopening of assessments based on audit objections is permissible. 3. Classification of income from letting out property as "business income" or "income from house property." Issue-wise Detailed Analysis: 1. Validity of Reopening Assessments under Section 147: The primary issue was whether the Income Tax Appellate Tribunal (ITAT) was correct in holding that the reopening of assessments for the years in question was invalid due to the absence of new information. The Tribunal had relied on prior decisions, including CIT Vs. Sanmar Holdings Ltd and ACIT Vs. Saptarshi Services Ltd, to conclude that the reopening was not justified. The High Court, however, referred to the Supreme Court's decision in ACIT Vs. Rajesh Jhaveri Stock Brokers P. Ltd., which clarified that the Assessing Officer (AO) has the jurisdiction to reopen assessments under Section 147 if there is reason to believe that income has escaped assessment, even if the initial assessment was processed under Section 143(1)(a). The Court concluded that the Tribunal committed an error in holding that there was no material to justify the reopening under Section 147, thus answering the first substantial question in favor of the Revenue. 2. Reopening Based on Audit Objections: The second issue was whether the ITAT was right in canceling the reopening of assessments on the ground that it was based on audit objections. The ITAT had accepted the assessee's contention that the reopening was merely due to a change of opinion and not based on fresh material. The High Court, however, noted that the Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers P. Ltd. had clarified that an AO is empowered to reopen assessments if the conditions under Section 147 are met, irrespective of the source of information. The Court rejected the assessee's prayer for remand and confirmed that the reopening based on audit objections was valid, thus answering the second substantial question in favor of the Revenue. 3. Classification of Income from Letting Out Property: The third issue was whether the income from letting out property should be classified as "business income" or "income from house property." The ITAT had ruled in favor of the assessee, classifying the income as "business income" based on the nature of the assessee's business. The High Court, however, referred to several Supreme Court decisions, including East India Housing and Land Development Trust Ltd Vs. CIT and CIT Vs. Indian Metal and Metallurgical Corporation, which established that income from letting out property is generally to be assessed under the head "income from house property," unless the letting is inseparable from the letting of machinery, plant, or furniture. The Court found that the assessee's activities did not indicate exploitation of business assets but rather exploitation of property. Consequently, the income was rightly assessed as "income from house property," and the Tribunal's decision was set aside. Conclusion: The High Court allowed the Tax Case Appeals, answering all substantial questions of law in favor of the Revenue. The reopening of assessments under Section 147 was deemed valid, even if based on audit objections, and the income from letting out property was classified as "income from house property."
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