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2015 (11) TMI 588 - AT - Income TaxRevision u/s 263 - whether the income from running the hostel is to be assessed as income from house property or business property? - Held that - The detailed questionnaire had been issued by the Assessing Officer, which was replied by the assessee from time to time. He not only enhanced the hostel receipts but reduced the hostel expenses and assessed the income from house property. He also allowed 1/3rd deduction U/s 24(a) and interest on loan. Therefore, he applied his mind and also made detailed inquiry on this issue. It is also a fact that the addition made by the Assessing Officer was challenged before the ld CIT(A), Ajmer at the same issue i.e. income from house property. Therefore, assessment of assessee got merged with the CIT(A) order, which was passed on 11/1/2013. Therefore, Hon ble Rajasthan High Court decision in the case of CIT Vs. Jain Construction Company (2012 (11) TMI 1071 - RAJASTHAN HIGH COURT) is squarely application in the case of the assessee. - Decided in favour of assessee.
Issues Involved:
1. Whether the CIT, Kota erred in setting aside the assessment order passed by the Assessing Officer (AO) under Section 263 of the Income Tax Act, 1961. 2. Whether the CIT, Kota ignored the order passed by the CIT (Appeal), Ajmer, which was in favor of the assessee for the same assessment year. 3. Whether the AO's order was prejudicial to the revenue, given that the AO had enhanced the income and created a demand. 4. Whether the income from running a hostel should be assessed as income from house property or business income. Issue-wise Detailed Analysis: 1. Error in Setting Aside the Assessment Order under Section 263: The CIT, Kota, set aside the AO's assessment order under Section 263, claiming it was erroneous and prejudicial to the interests of the revenue. The AO had initially completed the assessment under Section 143(3), where he scrutinized the income from a girls' hostel run by the assessee. The AO had reason to believe that the assessee inflated mess expenses to avoid tax. The CIT, Kota, argued that the AO failed to make a proper inquiry and relied on various judicial precedents to support the need for thorough investigation by the AO. The CIT, Kota, directed the AO to reassess the income after proper verification. 2. Ignoring the Order Passed by CIT (Appeal), Ajmer: The assessee contended that the CIT, Kota, ignored the order passed by the CIT (Appeal), Ajmer, which had already decided in favor of the assessee for the same assessment year. The CIT (Appeal), Ajmer, had addressed the same issues raised by the CIT, Kota, and had ruled in favor of the assessee, thereby merging the AO's order with the appellate order. The assessee argued that the CIT, Kota, had no jurisdiction to invoke Section 263 when the appellate proceedings were pending and had been decided. 3. Prejudicial to Revenue: The CIT, Kota, claimed that the AO's order was prejudicial to the revenue because the AO had not correctly assessed the nature of the income from the hostel. The CIT, Kota, argued that the receipts from the hostel should be considered business income rather than income from house property. The assessee's argument was that the AO had already enhanced the income and created a demand, which was not prejudicial to the revenue. 4. Nature of Income: The primary contention was whether the income from the girls' hostel should be classified as income from house property or business income. The AO had classified it as income from house property, allowing deductions under Section 24(a) and interest on the loan. The CIT, Kota, argued that the income should be classified as business income, which would require a different assessment approach. Judgment Analysis: The Tribunal considered the detailed scrutiny conducted by the AO, including the enhancement of hostel receipts and reduction of expenses. The AO had applied his mind and made a detailed inquiry before concluding that the income should be classified as income from house property. The Tribunal noted that the CIT (Appeal), Ajmer, had already addressed the same issues and ruled in favor of the assessee, thereby merging the AO's order with the appellate order. The Tribunal referenced the decision of the Hon'ble Rajasthan High Court in the case of CIT Vs. Jain Construction Company, which held that once the AO's order merges with the appellate authority's order, the CIT cannot invoke Section 263 to revise the AO's order. The Tribunal also referred to the Coordinate Bench decision in the case of Smt. Nirmala Devi Chordia Vs. CIT, which emphasized that different perceptions of the level of inquiry do not justify invoking Section 263. The Tribunal concluded that the CIT, Kota, had no jurisdiction to invoke Section 263 as the AO had made a reasonable inquiry, and the issue had already been decided by the appellate authority. The Tribunal set aside the order of the CIT, Kota, and allowed the appeal of the assessee. Conclusion: The Tribunal ruled in favor of the assessee, setting aside the order of the CIT, Kota, and concluding that the AO had made a reasonable inquiry and that the CIT (Appeal), Ajmer, had already addressed the issue, merging the AO's order with the appellate order. The appeal of the assessee was allowed.
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