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2012 (8) TMI 57 - AT - Income TaxReassessment - jurisdiction u/s 147 - whether the income derived from letting out of the property be treated as income from business as against income from house property - held that - As the expenses claimed being not allowable and the AO had reasons to believe that the income escaped assessment because the assessment of such income had to be under the head income from house property . Accordingly, as rightly pointed out by the learned CIT (A), while concluding the assessment, the AO had not travelled beyond the reasons recorded and, therefore, there was no merit in the allegation of the assessee that the assessment was bad in law. When no scrutiny assessment could have been completed in this case, and when the Assessing Officer realizes that the income has escaped assessment, he is perfectly justified to invoke reassessment proceeding by issuance of notice under section 148 of the Act. AO, vide his orders u/s 143 (3) r.w.s. 260A of the Act dated 25.11.2010 had held the status of the assessee as AOP and also the income derived by the assessee from the subject property was assessed under the head income from house property. - the assessee has not come up with any documentary evidence to rebut the Revenue s stand convincingly. - Decided against the assessee.
Issues Involved:
1. Assumption of jurisdiction under Section 147 of the Income Tax Act. 2. Classification of income derived from letting out property as 'income from business' versus 'income from house property'. Detailed Analysis: Issue 1: Assumption of Jurisdiction under Section 147 of the Income Tax Act The assessee firm contested the assumption of jurisdiction under Section 147 for both assessment years (AYs) 2003-04 and 2005-06. The firm argued that the notice under Section 143(2) was not issued within the stipulated twelve months from the date of filing the return, making the assessment invalid. The Assessing Officer (AO) had initially dropped the assessment proceedings but later issued a notice under Section 148 to verify the claim of treating rental income as 'business income'. The CIT (A) observed that the assessee did not request the recorded reasons during the assessment proceedings, implying constructive notice. The reasons for the belief of income escapement were found in the assessment order, and the AO did not travel beyond these reasons. The CIT (A) also noted that the AO is legally empowered to go beyond recorded reasons by virtue of Explanation 3 to Section 147. The assessee argued that the notice under Section 148 should have been issued to Smt. Asha Nanjaraj, the nominal owner, rather than the firm. However, the CIT (A) found that the firm was the beneficial owner, showing income from the property, and thus, the notice was validly issued to the firm. The Tribunal upheld the CIT (A)'s decision, stating that the AO had sufficient cause to believe income had escaped assessment and was justified in reopening the assessment. The Tribunal referenced the Supreme Court ruling in ACIT v. Rajesh Jhavari Stock Brokers (P) Ltd., which clarified that at the initiation stage, 'reason to believe' does not require established facts of escapement but rather a cause or justification. Issue 2: Classification of Income Derived from Letting Out Property The assessee firm claimed that the income from letting out property should be treated as 'business income' due to the nature of services provided to tenants, such as cleaning, repairs, and maintenance. The CIT (A) and AO treated the income as 'income from house property,' stating that the dominant intention was to earn rental income, not to undertake business activities involving risk. The CIT (A) referenced the case of CIT v. Boopalam Commercial Complex & Industries Pvt. Ltd., which held that the dominant intention determines the head of income. Since the firm's activities were aimed at earning rental income, the income was classified under 'house property.' The Tribunal agreed with the CIT (A) and AO, noting that the firm's activities did not constitute a business venture involving risk. The Tribunal also referenced earlier decisions, including the assessee's own case, where similar income was treated as 'income from house property.' For AY 2005-06, the Tribunal noted that the original return was filed on 6.1.2006, and the notice under Section 148 was issued on 13.7.2006, before the expiry of the period for issuing a notice under Section 143(2). The Tribunal remitted this issue back to the AO for fresh consideration in light of relevant case laws, ensuring a fair opportunity for the assessee to present its case. Conclusion: - The appeal for AY 2003-04 was dismissed, upholding the AO's assumption of jurisdiction under Section 147 and classification of income as 'income from house property.' - The appeal for AY 2005-06 was partly allowed, with the issue of jurisdiction under Section 147 remitted back to the AO for fresh consideration. The classification of income remained as 'income from house property,' consistent with AY 2003-04.
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