2017 (1) TMI 681 - AT - Income Tax

Revision u/s 263 - mistake in the computation of income - reduction of entire rent received during the year - assessee entitled to vacancy allowance - Held that - The attention of assessee was invited on computation of income for the year ended on 31.03.2011, wherein the assessee has reduced the entire rent received during the year. AR fairly conceded the mistake in the computation of income and further admitted that the assessment is based on the computation of income which is erroneous. We have further drawn the attention of ld. AR of the assessee to the letter dated 02.05.2011 (page no. 20 of PB) which was issued by Estate Consultant certifying that Flat No. 61, Kalpataru Royale, Sion, Mumbai was lying vacant since 2009. On further asking, if this document was filed before the AO, the ld. AR of the assessee, fairly conceded that it was not filed during the assessment proceedings. We may observe that this letter is not sufficient evidence to prove that property was lying vacant since 2009 in absence of other corroborative evidence like electricity or water bills of relevant period. Thus, we instead of going merit and demerit on admissibility of this evidence are of the opinion that even this document required verification at the end of AO. On examination on computation of income and the order of AO, we find that the order passed by ld. CIT fulfills the twin condition of section 263 of the Act i.e. the order passed by AO was erroneous as well as certainly prejudicial to the interest of Revenue. Thus, we do not find any reason to interfere with the order of ld. CIT, hence, the appeal filed by assessee is dismissed.

Summary

Issues Involved:
1. Validity of initiating proceedings under section 263 of the Income-tax Act
2. Entitlement to vacancy allowance under section 23(1)(c)
3. Treatment of expenses incurred on property known as "Oberoi Woods" and interest expenses
4. Retroactive nature of Explanation 2 to section 263

Issue 1: Validity of initiating proceedings under section 263 of the Income-tax Act:
The appeal was against the Ld. Commissioner of Income-tax-7's order for AY 2011-12. The appellant contended that the assessment under section 115JB resulted in total income higher than the business loss, hence not prejudicial to revenue. However, the Ld. CIT found errors in the AO's assessment, including failure to examine all aspects necessary for determining the correct taxable income. The Ld. CIT directed the AO to include certain expenses in the computation of income, leading to the initiation of proceedings under section 263. The appellant argued that the order was not prejudicial to revenue, but the Tribunal upheld the Ld. CIT's decision, stating that the AO's order was erroneous and prejudicial to revenue.

Issue 2: Entitlement to vacancy allowance under section 23(1)(c):
The appellant claimed vacancy allowance under section 23(1)(c) for a property, stating it was vacant and entitled to the allowance. However, the Ld. CIT observed that the property was occupied during the revision proceedings, leading to a directive for the AO to verify the claim. The Tribunal noted discrepancies in the appellant's claims and upheld the Ld. CIT's direction for verification, indicating a need for further investigation into the vacancy allowance claim.

Issue 3: Treatment of expenses incurred on property known as "Oberoi Woods" and interest expenses:
The appellant incurred expenses on "Oberoi Woods" property and interest expenses, which were debited in the Profit and Loss Account. The Ld. CIT directed the AO to add back these amounts while computing income from Business & Profession, as they were related to income from House Property. The appellant's argument that these expenses were correctly debited was not accepted. The Tribunal found discrepancies in the treatment of rental income and directed the AO to tax the rental income from "Oberoi Woods" property. The Tribunal emphasized the need for accurate computation and proper classification of income and expenses.

Issue 4: Retroactive nature of Explanation 2 to section 263:
The appellant contested the retrospective nature of Explanation 2 to section 263, inserted by the Finance Act, 2015. The Tribunal did not delve deeply into this issue but acknowledged the appellant's argument regarding the retrospective application of the provision. However, the primary focus of the Tribunal was on the errors in the AO's assessment and the consequent directions given by the Ld. CIT, leading to the dismissal of the appeal.

This detailed analysis of the judgment highlights the key issues involved in the case and the Tribunal's decision on each issue, emphasizing the errors in the assessment process and the need for accurate computation and verification of claims.