2023 (12) TMI 1291 - AT - Income Tax

Revision u/s 263 - Limited scrutiny case of assessee - correct head of income - income from the lease rent ought to have been charged under the head other sources instead of business income - PCIT holding assessment framed u/s 143(3) as erroneous in so far prejudicial to the interest of revenue - PCIT was of the view that such lease rent income should have been charged to tax under the head other sources and therefore other expenses such as remuneration/salary to the partner and other expenses of general in nature should not have been allowed as deduction HELD THAT - Case of the assessee was selected for limited scrutiny - On perusal of the notice the case was selected for scrutiny whether deduction claim on account of depreciation is admissible so it was a case of limited scrutiny and there was no option for the AO to verify anything other than the issue for which the case was selected for limited scrutiny. Ast here was no possibility for the AO to inquire whether the income shown by the assessee was to be assessed under the head business income or other sources unless the limited scrutiny is converted to regular scrutiny. Accordingly we hold that the PCIT cannot exercise his power u/s 263 of the Act to verify those items which were not subject matter of the scrutiny. As the contention of the Ld. Counsel that the limited scrutiny was not converted into regular scrutiny was also not controverted by the Ld. DR appearing on behalf of the revenue and that in the earlier AY the income of the assessee was accepted as income under the head business and profession was not controverted by the Ld. DR. In view of the above we hold that the revisional order passed by the Ld. PCIT is not sustainable. Decided in favour of assessee.

Summary

Issues involved:
The judgment involves the issue of whether the assessment framed under Section 143(3) of the Income Tax Act for the Assessment Year 2016-17 was erroneous in so far prejudicial to the interest of revenue.

Comprehensive Details:

Issue 1: Assessment under Section 143(3) deemed erroneous

The only issue raised by the assessee was regarding the Ld. Principal Commissioner of Income Tax (PCIT) holding the assessment framed under Section 143(3) of the Act as erroneous in so far prejudicial to the interest of revenue.

Facts:
- The assessee, a partnership firm, derived income from lease rent of a property leased to M/s Lord Sai Ma Hotels Pvt. Ltd.
- The assessee showed this lease rent income as income under the head "business and profession," which was accepted by the Assessing Officer (AO) in the assessment.
- The PCIT believed that the lease rent income should have been taxed under the head "other sources," leading to disallowance of certain expenses.
- The PCIT allowed deduction for depreciation under Section 32 of the Act even if the income was charged under "other sources."

Judgment:
- The Tribunal noted that the case was selected for limited scrutiny specifically for verifying the admissibility of depreciation claim.
- The limited scrutiny did not allow the AO to inquire into whether the income should be assessed under "business income" or "other sources" unless converted to regular scrutiny.
- The Tribunal held that the PCIT exceeded jurisdiction by deeming the assessment erroneous without verifying income classification.
- The revisional order by the PCIT was deemed unsustainable, and the appeal by the assessee was allowed.

Conclusion:
The Tribunal quashed the PCIT's order, ruling in favor of the assessee, as the limited scrutiny did not permit examination of income classification, making the assessment not erroneous in this regard.

This summary provides a detailed overview of the judgment, outlining the issues involved and the Tribunal's decision on the matter.