2017 (8) TMI 739 - AT - Income Tax

Revision u/s 263 - As per CIT-A AO allowed the claim of deduction of expenses u/s. 57 whereas these expenses were related to Income from house property and deduction of 30% was already allowed u/s. 24(a) - non application of mind by AO - change of chage by CIT-A - Held that - Considering the factual matrix which has been brought out and which was very much available before the Commissioner, it does not justify the assertion of the Commissioner that the expenditure related to the income assessed by the Assessing Officer under the head Income from house property . In our considered opinion, the Commissioner has been influenced by the heading of schedule 15 of the Annual Accounts viz. Expenditure in respect of Property . In any case, once the assessee had brought to his notice the wrong factual notion entertained by him at the time of issuing the show cause notice, it was imperative for the Commissioner to have considered the same in an appropriate manner. Though the Commissioner has specifically noted this submission of the assessee but there is no negation of the same. Therefore, the very foundation of the Commissioner to embark on the exercise of invoking section 263 becomes susceptible to error. Admittedly, the Commissioner has proceeded to show cause the assessee on the ground that the expenses relate to Income of house property and, ostensibly, such ground is not compliant with the fact-situation. Also in the show cause notice issued to the assessee by the Commissioner the charge posed against the assessee was that the expenditure of ₹ 2,23,92,358/- related to income from house property and thus, should not have been allowed as a deduction u/s 57 of the Act and, thus, it was a case of excess deduction of expenses. Pertinently, after going through the submissions furnished by the assessee, the Commissioner has changed the course while concluding that the assessment order was erroneous. In his order, Commissioner concludes that the assessment order is erroneous and prejudicial for the reason that the Assessing Officer had not gone into the whole aspect of the case and not analysed the things properly and, moreover, not brought on record all the relevant facts and documents to arrive at a proper conclusion on the issue of allowability of the expenditure of ₹ 2,23,92,358/-. Referring to Commissioner s allegation that the assessment order was passed without making enquiries and verification, the learned representative assailed such conclusion of the Commissioner by referring to the content of the assessment proceedings. Our attention was invited to an annexure to notice u/s. 142(1) of the Act, which contains queries raised by the Assessing Officer, which, inter alia, include calling for details along with supporting evidences in respect of expenditure incurred on the property. Reference was also invited to the reply furnished by the assessee, copies of which have also been placed on record. A tabulation has also been filed showing that similar claim was allowed in assessment years 2009-10 and 2010-11 also, in assessments made u/s. 143(3) of the Act. In our considered opinion, whether or not an inquiry or verification of an aspect has been carried out is matter of factual appreciation and in the present case, it is quite evident that the Assessing Officer has called for the relevant material. In fact, the manner in which the Assessing Officer has drawn up the total income in para 6 of the assessment order also reflects that he has considered the matter appropriately. In our considered opinion, the queries raised by the Assessing Officer and the manner in which he has computed the income finally in para 6 of the order clearly points out that he was conscious of the fact that the expenditure in question was not related to the income being assessed under the head Income from house property , an aspect which is supported by the fact-situation. Therefore, the charge made by the Commissioner in the order that the assessment order has been made without making enquiries and verification is factually untenable. Allegation of Non-application of mind by AO is devoid of any factual support since we have already observed that during the assessment proceedings the relevant details were called for by the Assessing Officer and the appreciation of the same by him is duly reflected in the manner in which he computed the respective incomes under the head Income from house property as well as under the head Income from other sources . - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the Commissioner’s invocation of Section 263 of the Income Tax Act, 1961.
2. Determination of whether the expenses of ?2,23,92,358/- relate to ‘Income from house property’ or other income heads.
3. Adequacy of the Assessing Officer's inquiries and verification during the assessment process.

Issue-wise Detailed Analysis:

1. Legality of the Commissioner’s Invocation of Section 263 of the Income Tax Act, 1961:

The appeal revolves around the Commissioner of Income Tax (Exemption), Mumbai invoking Section 263 of the Income Tax Act, 1961. The Commissioner deemed the assessment order dated 29.03.2014 as erroneous and prejudicial to the interests of the Revenue due to an alleged excess deduction of expenses amounting to ?2,23,92,358/-. Section 263 empowers the Commissioner to revise any order passed by the Assessing Officer if it is erroneous and prejudicial to the interests of the Revenue. However, both conditions must be cumulatively satisfied. The Commissioner argued that the Assessing Officer allowed deductions under Section 57 of the Act that should have been disallowed, thus making the assessment order erroneous and prejudicial to the Revenue.

2. Determination of Whether the Expenses of ?2,23,92,358/- Relate to ‘Income from House Property’ or Other Income Heads:

The Commissioner contended that the expenses of ?2,23,92,358/- were related to ‘Income from house property’ and should not have been allowed as deductions under Section 57 of the Act. The assessee countered this by explaining that the expenses were related to other properties like Wankhede Stadium and cricket grounds, which were assessed under the head ‘Income from business’. The assessee clarified that the expenses were wrongly categorized under Section 57 but were otherwise allowable under Section 37(1), and this misclassification did not affect the total income computation. The Tribunal noted that the Commissioner did not refute the factual assertions made by the assessee and failed to provide a proper factual basis for his conclusions. The Tribunal found that the expenses did not relate to the property generating rental income assessed under ‘Income from house property’, thus invalidating the Commissioner’s basis for invoking Section 263.

3. Adequacy of the Assessing Officer's Inquiries and Verification During the Assessment Process:

The Commissioner alleged that the Assessing Officer did not make sufficient inquiries or verifications before allowing the deduction of ?2,23,92,358/-. However, the Tribunal observed that the Assessing Officer had indeed called for relevant details and made appropriate inquiries during the assessment proceedings. The assessment order reflected a conscious and considered decision by the Assessing Officer, who was aware that the expenses in question were not related to the income assessed under ‘Income from house property’. The Tribunal also noted that similar claims had been allowed in previous assessment years (2009-10 and 2010-11) under Section 143(3) of the Act. Therefore, the Tribunal concluded that the assessment order was neither erroneous nor passed without due application of mind.

Conclusion:

The Tribunal held that the Commissioner’s basis for invoking Section 263 was factually unfounded. The expenses of ?2,23,92,358/- did not relate to the income assessed under ‘Income from house property’. The inquiries and verifications made by the Assessing Officer were adequate, and the assessment order was passed with due application of mind. Consequently, the Tribunal set aside the Commissioner’s order dated 28.03.2016 and restored the original assessment order dated 29.03.2014, allowing the appeal in favor of the assessee.