2015 (1) TMI 563 - AT - Income Tax

Revision u/s 263 - Erroneous assessment - income of the assessee from the letting out of godown - agricultural incom or not - whether was an income assessable as income from house property? - Held that - it is seen that the assessee has taken two mutually divergent stands. Before the ld. CIT, it stated that it stood covered under Explanation 2 to Section 2 (1A). On the other hand, before us, it states that Explanation 2 cannot be invoked, since it (the assessee) passes the test of Section 2 (1A) (b) (ii) and (iii). Applicability or otherwise of Explanation 2 to Section 2 (1A), it is seen that this Explanation is with regard to income derived from any building referred to in Section 2 (1A) (c). Building as referred to in Section 2 (1A) (c) is any building owned or occupied by the receiver of the rent or revenue of any land situated in India and used for agricultural purposes, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in Sections 2 (1A) (b) (ii) and (iii) is carried on. This definition of building as seen above, does not get attracted to the present case. Thus, since the godown building in question does not come within the definition of building as contained in Section 2 (1A) (c), the income therefrom cannot be held to be agricultural income with the help of Explanation 2 to Section 2 (1A). As it is seen that the explanation offered by the assessee before the Assessing Officer was accepted by the Assessing Officer without dealing with as to how such explanation was acceptable as assessment order states only that as it was noticed that the income derived by the assessee was letting out of godowns, it was required to explain as to why its income should not be assessed as income from House Property. The assessee has filed a detailed written reply in this behalf wherein the assessee has relied upon the provisions of section 2 (1A) (c) of the Income-tax Act, 1961. Having considered assessee s reply, the assessee s claim of agricultural income is accepted. Thus, the assessment order is a non-speaking order. The CIT s Order, per contra, is a detailed order, evincing how the view that the income of the assessee from the letting out of godown was an income assessable as income from house property taken by him is a view which is in accordance with law, as against the Assessing Officer s view, which is not a possible view in law, much less a plausible one. Therefore, the grievance of the assessee in this regard is rejected and the action of the ld. CIT in holding the assessment order to be an erroneous order prejudicial to the interests of the revenue is confirmed. Decided against assessee. Issue of assessability of income under a particular head prescribed by the IT Act is an issue basically concerned with assessment. The Ld. CIT, after finding the order passed by the Assessing Officer to be erroneous and prejudicial to the interests of the revenue, ought to have set aside the matter to the Assessing Officer to decide the head of income. Such a course would have met the requirement of law. Since this has not been done, we remit the alternative contentions of the assessee to the file of the Assessing Officer for decision.

Issues Involved:
1. Jurisdiction of CIT under Section 263 of the IT Act.
2. Nature of income from letting out godowns (Agricultural income vs. Income from house property).
3. Allowability of expenditures and deductions claimed by the assessee.
4. Consequential issues regarding initiation of proceedings under Section 271(1)(c) and interest levied under Sections 234A, 234B, and 234D.

Detailed Analysis:

1. Jurisdiction of CIT under Section 263 of the IT Act:
The assessee contended that the CIT acted without jurisdiction in initiating proceedings under Section 263(1) of the IT Act, arguing that the twin conditions of the assessment order being erroneous and prejudicial to the interests of the revenue did not exist. The CIT invoked Section 263, stating that the Assessing Officer's treatment of rental income as agricultural income was not in accordance with Section 2(1A)(c) of the Act. It was emphasized that only if the Assessing Officer's view is patently unsustainable in law, can Section 263 be invoked. The Tribunal upheld the CIT's jurisdiction, confirming that the assessment order was erroneous and prejudicial to the interests of the revenue.

2. Nature of Income from Letting Out Godowns:
The primary contention was whether the rental income from godowns should be treated as agricultural income or income from house property. The assessee claimed it as agricultural income under Section 2(1A)(c), arguing the godowns were used for storing agricultural produce. The CIT disagreed, noting the godowns were rented to entities not involved in agricultural activities, and the land was not owned by the firm. The Tribunal analyzed Section 2(1A)(c) and concluded that the assessee did not meet the criteria for agricultural income, as the building was neither owned and occupied by the receiver of rent or revenue of the land nor used for agricultural purposes by a cultivator or receiver of rent-in-kind. Therefore, the income was rightly considered as income from house property.

3. Allowability of Expenditures and Deductions:
The assessee claimed various expenditures, including depreciation and interest on unsecured loans. The CIT disallowed these, stating no business activity was carried out by the assessee during the year. The Tribunal remitted the matter back to the Assessing Officer to decide the head under which the income should be assessed and to allow the assessee to raise all alternative contentions. The Assessing Officer was directed to provide an adequate opportunity of hearing to the assessee.

4. Consequential Issues:
The issues regarding the initiation of proceedings under Section 271(1)(c) and the levy of interest under Sections 234A, 234B, and 234D were deemed consequential and dependent on the final determination of the primary issues.

Conclusion:
The Tribunal upheld the CIT's order under Section 263, confirming that the assessment order was erroneous and prejudicial to the interests of the revenue. The Tribunal remitted the alternative contentions regarding the allowability of expenditures and deductions to the Assessing Officer for a fresh decision. The appeal of the assessee was partly allowed, and the Cross Objections raised by the department were accepted.

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