2016 (1) TMI 890 - AT - Income Tax

Rental income - treated under the head House property or business income - revision u/s 263 - Held that - We do not find any lack of enquiry on the part of the Officer for taxing the income under the head business income and not under the head income from house property. The AO has taken a view which may be different from the view of the Ld. Commissioner and assuming that the view taken by the AO is a loss to the Revenue but the Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd (2000 (2) TMI 10 - SUPREME Court ) has held that every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the Revenue , for e.g. when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the Income Tax Officer has taken one view with which the Ld. Commissioner does not agree, it cannot be treated as an order which is erroneous or prejudicial to the interest of Revenue unless the view taken by the Income Tax Officer is unsustainable in law. Moreover, the view taken by the AO is now well supported by the decision of the Hon ble Supreme Court taken in the case of Chennai Properties & Investment Ltd 2015 (5) TMI 46 - SUPREME COURT . Thus, even if the revised return have been completely ignored by the AO that would only make the assessment order erroneous but by any stretch of imagination, it cannot be said to be prejudicial to the interest of the Revenue in the light of the ratio laid down by the Hon ble Supreme Court in the case of Chennai Properties & Investment Ltd (supra). Thus we do not find any merit in the assumption of jurisdiction by the Commissioner u/s. 263 of the Act. We, therefore, set aside the order of the CIT and restore that of the AO made u/s. 143(3) of the Act. - Decided in favour of assessee.

Summary

Issues involved:
1. Treatment of rental income under 'House property' or 'business income' and disallowance of business loss for assessment years 2008-09 & 2009-10.
2. Challenge to the assumption of jurisdiction by the CIT-6, Mumbai under section 263 of the Income Tax Act.

Analysis of the Judgment:

Issue 1: Treatment of rental income under 'House property' or 'business income'
The appellant, engaged in property leasing, credited rental income in its accounts. The Assessing Officer (AO) observed the rental income from office space and interest-free security deposits, treating it as income from House Property, disallowing related expenses. The appellant argued that its main business activity is property acquisition and rental, thus income should be treated as business income. Citing the Supreme Court's decision in Chennai Properties & Investments Ltd case, the appellant contended that nature of activity and company's objects determine income classification. The Tribunal agreed, emphasizing the company's objects and directed the AO to reconsider based on the Supreme Court's decision.

Issue 2: Challenge to jurisdiction under section 263
The CIT-6 invoked section 263 alleging the AO's assessment was erroneous and prejudicial to revenue by disallowing certain expenditures. The appellant argued that all details were provided, and the AO's decision was based on furnished information. The Tribunal noted the Supreme Court's ruling in Malabar Industrial Co. Ltd., requiring the AO's order to be both erroneous and prejudicial to revenue for section 263. It found the AO's assessment based on furnished details and legal principles, not erroneous. The Tribunal set aside the CIT's order, upholding the AO's assessment.

In conclusion, the Tribunal allowed the appeals, directing the AO to reevaluate the treatment of rental income and upholding the AO's assessment against the challenge under section 263.

This detailed analysis of the judgment covers the issues raised, the arguments presented, and the Tribunal's decisions, ensuring a comprehensive understanding of the legal aspects involved in the case.