2022 (6) TMI 1469 - AT - Income Tax

Revision u/s 263 - Principal CIT held the assessment framed u/s 143(3) as erroneous insofar prejudicial to the interest of Revenue - correct head of income - assessee was liable to declare the income under the head income from house property on notional basis under section 22 read with section 23 of the Act but the assessee has not done so - HELD THAT - The Finance Bill 2017 seeks to amend section 23 w.e.f. 1st April, 2018 which lays down the determination of annual value in case of house property for the purpose of calculating the Income under the head House Property income particularly in case of deemed let out property. This amendment will take effect from 1st April, 2018 and will, accordingly apply in relation to assessment year 2018-19 and subsequent years. A plain reading of the above provisions makes it clear that the amendment for charging the tax on the notional rent with respect to the properties held as stock in trade was applicable from the assessment year 2018-19 and subsequent assessment year. As such, the amended provision is not applicable for the year under consideration. Thus the question of calculating the rental income with respect to the units of the properties held as stock in trade does not arise. Thus we hold that there was no error in the order of the AO framed u/s 143(3) which is causing prejudice to the interest of revenue. For invoking the provisions of section 263 of the Act, it is necessary that the twin conditions should be satisfied. The order should be erroneous and prejudicial to the interest of revenue. Once there is no error the order of the AO, the same cannot be subject to the provisions of section 263 - In view of the above and after considering the facts in totality, we hold that there is no error in the assessment framed by the AO u/s 143(3) causing prejudice to the interest of revenue. Thus, the revisional order passed by the learned PCIT is not sustainable and therefore we quash the same. Hence the ground of appeal of the assessee is allowed.

Summary

Issues:
Interpretation of provisions of section 22 and 23 of the Income Tax Act, 1961 regarding notional rent on properties held as stock in trade for Assessment Year 2017-18.

Analysis:
The appeal was filed against the order of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961. The PCIT found that the assessee, a partnership firm in the real estate business, did not declare income from house property on a notional basis for properties held as stock in trade. The PCIT initiated proceedings under section 263 based on this issue, claiming the assessment under section 143(3) was erroneous prejudicial to the revenue's interest.

The assessee contended that the amendment effective from April 2018, applying to assessment year 2018-19, required notional rent calculations for properties held as stock in trade. As the assessment year in question was 2017-18, the provision did not apply, and the AO had correctly assessed the income without the notional rent calculation.

The Tribunal analyzed the legislative amendment proposed in the Finance Bill 2017, which clarified that the provision for charging tax on notional rent for properties held as stock in trade applied from April 2018 onwards. Since the assessment year in question was 2017-18, the amendment did not apply. The Tribunal emphasized that for invoking section 263 of the Act, the order must be both erroneous and prejudicial to the revenue's interest. As there was no error in the AO's assessment under section 143(3), the Tribunal held that the PCIT's revisional order was unsustainable and quashed it, allowing the assessee's appeal.

In conclusion, the Tribunal held that the amendment regarding notional rent on properties held as stock in trade was not applicable for the assessment year 2017-18. As the AO's assessment was found to be correct and not prejudicial to revenue, the PCIT's order under section 263 was deemed unsustainable, leading to the allowance of the assessee's appeal.