2015 (8) TMI 707 - AT - Income Tax

Reopening of assessment - compensation received by the assessee of ₹ 3 lakhs is inadequate and the provisions of section 23(1)(a) should be invoked and the income received by the assessee should be assessed as income from house property instead of business income - Held that - As from the reasons recorded , we find that there is no material change in the reasons and grounds taken for reopening the case as has been recorded in the earlier years, inasmuch as in this year also the Assessing Officer has sought to reopen the case on the ground that the compensation received by the assessee of ₹ 3 lakhs is inadequate and the provisions of section 23(1)(a) should be invoked and the income received by the assessee should be assessed as income from house property instead of business income. The said reasons again are in the realm of surmises sans any tangible material and information coming to the possession of the Assessing Officer so as to entertain to reason to believe that any income chargeable to tax has escaped assessment. The so called information in the form of comparable example as referred by the Assessing Officer in reasons lacks credibility because nothing has been brought out regarding its comparability with the assessee. In any case the core issue and deciding factor here in the case of the assessee is that, whether the head of the income in which is to be assessed can be changed sans any tangible material. As discussed in earlier part that it is not trite that income from leased of business assets is to be taxed under the head income from house property only and not under any other heads of income. No facts and circumstances or material has been brought by the Assessing Officer that the income shown by the assessee now in these years has to be taxed as income from house property in contradistinction and complete departure from the past history, where income stood assessed and accepted as business income. In these years also the Assessing Officer has no concrete reason to believe except for reopening the case for making the verification of the past records and facts. This cannot be the ground for reopening the assessment even though return of income filed by the assessee has been accepted u/s 143(1). Our finding and reasons given in the appeal in assessment year 2002-03 will apply here also in these years. Accordingly, the reopening of the assessment based on the aforesaid reasons recorded is bad in law and consequentially the proceedings initiated vide notices u/s 148 are quashed. Thus, the appeal of the assessee for the assessment year 2005-06 is treated as allowed, whereas the revenue s appeal for the same year is treated as dismissed as the same has become purely academic in view of our aforesaid finding. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of assessment proceedings initiated under section 147 of the Income-tax Act, 1961.
2. Classification of compensation received as "Income from House Property" versus "Profits and Gains of Business".
3. Computation of annual value of the property.
4. Levy of interest under section 234B of the Income-tax Act.
5. Deletion of penalty levied under section 271(1)(c) of the Income-tax Act.

Detailed Analysis:

1. Validity of Assessment Proceedings Initiated Under Section 147:
The primary legal issue raised by the assessee was the validity of the reopening of assessment under section 147. The assessee argued that there was no tangible material that came into the possession of the Assessing Officer (AO) to justify a 'reason to believe' that income chargeable to tax had escaped assessment. The assessee had consistently shown lease income from letting out its business premises as "business income," which had been accepted by the Department in prior years, including under scrutiny assessments. The Tribunal concluded that there was no new information or material that came to the AO's possession after the completion of the initial assessment. The reopening was based on already settled facts and did not constitute a valid reason to believe that income had escaped assessment. Consequently, the initiation of reopening under section 147 and the issuance of notice under section 148 were held to be without jurisdiction and void ab initio.

2. Classification of Compensation Received:
The AO had treated the compensation received from M/s Popley Gold Plaza as "Income from House Property" instead of "Profits and Gains of Business." The Tribunal noted that the assessee had been showing this income as business income for several years, which had been accepted by the Department. There was no new material to suggest that this classification should be changed. Therefore, the Tribunal held that the AO's action to change the head of income without any tangible material was not justified.

3. Computation of Annual Value of the Property:
The AO computed the annual value of the property at 20% of the cost of investment, which was reduced to 8.5% by the CIT(A). The Tribunal observed that the AO's computation lacked a concrete basis and was primarily based on assumptions. The Tribunal upheld the CIT(A)'s decision to reduce the annual letting value, as there was no substantial evidence to support the AO's higher valuation.

4. Levy of Interest Under Section 234B:
The assessee contested the levy of interest under section 234B. However, since the Tribunal quashed the assessment order itself, the issue of interest levy became academic and was not adjudicated separately.

5. Deletion of Penalty Levied Under Section 271(1)(c):
The revenue had filed appeals against the deletion of penalty levied under section 271(1)(c) by the CIT(A). Since the Tribunal quashed the assessment orders for all the impugned assessment years, the additions on which the penalties were based also got deleted. Consequently, the penalties levied under section 271(1)(c) did not have any legs to stand on, and the revenue's appeals in the penalty proceedings were dismissed.

Conclusion:
The Tribunal allowed the appeals of the assessee for the assessment years 2002-03 to 2006-07, thereby quashing the reassessment proceedings initiated under section 147 and the consequential assessment orders. The revenue's appeals, both for the quantum of assessments and the penalties, were dismissed. The Tribunal's decision was based on the lack of tangible material to justify the reopening of assessments and the consistent treatment of the compensation received as business income in prior years.