2017 (3) TMI 809 - AT - Income Tax

Rectification of order u/s 154 - Corporation tax received from the tenants - AO stated that the income that the municipal taxes should have been formed part of the annual value of the let out properties thus rectified the order of ld. CIT passed u/s 264 - Held that - There was no direction in the order of the ld. CIT u/s 264 of the Act for adding the municipal taxes in the annual value of the properties. When there was no such direction then the view of the AO assuming the apparent mistake in the order of the ld. CIT u/s 264 of the Act is not sustainable in the eyes of law. The provisions of section 154 of the Act are very clear and the same can be resorted by the AO only in a case where the mistake is apparent from the records. While doing so, we find support and guidance from the judgment of the Hon ble Supreme Court in the case of ITO Vs. Vokart Bros 1971 (8) TMI 3 - SUPREME Court Thus we hold that there was no mistake apparent from the record in the order of the ld. CIT passed u/s 264 of the Act. Also in case the AO wishes to rectify its original order u/s 147 of the Act then also the same needs to be rectified within four years as contemplated under the provision of section 154 of the Act. In the instant case the AO has rectified the order after the expiry of four years which is also not valid in the eyes of law. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of rectification proceedings initiated under Section 154 of the Income Tax Act.
2. Classification of municipal taxes received from tenants as income from "other sources" or "house property".
3. Time-barred nature of the rectification order under Section 154 of the Act.

Issue-wise Detailed Analysis:

1. Validity of Rectification Proceedings Initiated Under Section 154 of the Income Tax Act:
The primary issue raised by the assessee was the validity of the rectification proceedings initiated by the Assessing Officer (AO) under Section 154 of the Income Tax Act. The AO had issued a notice under Section 154 to rectify an order passed under Section 264 by the Commissioner of Income Tax (CIT). The assessee argued that there was no apparent mistake in the order of the CIT under Section 264, and thus, the rectification proceedings were not justified. The CIT(A) upheld the AO's action, stating that the rectification was aimed at amending an order dated 30.05.2006 to correct mistakes apparent from the record. However, the tribunal found that there was no direction in the CIT's order under Section 264 to add municipal taxes to the annual value of the properties. Citing the Supreme Court's judgment in ITO Vs. Vokart Bros (82 ITR 50), the tribunal held that a mistake apparent on the record must be obvious and not subject to debate. Thus, the tribunal concluded that the rectification proceedings under Section 154 were not sustainable as there was no apparent mistake in the CIT's order under Section 264.

2. Classification of Municipal Taxes Received from Tenants:
The second issue was whether the municipal taxes received from tenants should be classified as income from "other sources" or "house property." Initially, the AO had treated these amounts as income from other sources. However, the CIT, in a revisionary application under Section 264, deleted this addition, stating that the assessee acted merely as an agent for the Municipal Corporation in collecting these taxes. The tribunal agreed with the CIT's view, emphasizing that the municipal taxes received from tenants should not be assessed as income from other sources. The tribunal noted that the AO's subsequent attempt to classify these amounts as part of the annual value of the properties was not supported by any direction in the CIT's order under Section 264.

3. Time-barred Nature of the Rectification Order:
The third issue pertained to the time-barred nature of the rectification order under Section 154. The assessee argued that the rectification order was issued beyond the permissible period of four years from the original order dated 29.09.2003. The tribunal agreed with the assessee, noting that the rectification order was issued on 17.10.2008, which was beyond the four-year limit. Citing its own precedent in the case of Shri Hanuman Sugar vs ACIT (ITA NO.341/Kol/2010), the tribunal held that the rectification order was invalid as it was barred by limitation. Consequently, the tribunal directed the lower authorities to delete the addition related to the municipal taxes.

Conclusion:
The tribunal allowed the appeal of the assessee, concluding that the rectification proceedings under Section 154 were not valid due to the absence of an apparent mistake in the CIT's order under Section 264 and the time-barred nature of the rectification order. The tribunal also held that the municipal taxes received from tenants should not be classified as income from other sources. The order was pronounced on 10/03/2017.