2017 (10) TMI 47 - AT - Income Tax

Validity of assessment u/s 153C - revision u/s 263 - Held that - As it is noticed that the assessee is challenging the validity of the assessment completed u/s 143(3) rws 153C of the Act on the ground that there was no incriminating material found during the course of search and also that the order u/s 143(3) rws 153C of the Act has been passed without recording of satisfaction by the AO of the assessee as well as the AO having jurisdiction over the searched party. Since the appeal before us is against the order u/s 263 and not against the assessment order itself, we are of the opinion that the validity of the assessment cannot be challenged in this appeal before us. As already observed that assessment order dated 31.12.2007 has already become final. Such being the position we agree with the contention of the assessee that the already settled facts cannot be disturbed by an order u/s 263 by revising a subsequent assessment order. Therefore, we allow the additional ground of appeal filed by the assessee. Claim of TDS from the rental income declared by assessee being her share of 1/3rd of the total rent from the property - assessee has joint ownership of the property - Held that - The assessee had submitted before the CIT that the assessee has joint ownership of the property and therefore, is eligible to receive only 1/3rd of the rental income and therefore, she has offered the said income in her return of income but since the TDS can be credited only to the account of one person, the assessee has been credited with the TDS and the assessee alone has claimed the TDS for the entire rental income in her hands. The assessee has also filed before us the returns of income of all the three owners of the property, i.e. the assessee, her husband Shri Nama Nageswara Rao, individual and HUF of Nama Nageswara Rao, to demonstrate that though their respective shares of rental income has been offered by all the three parties in their respective returns of income, the TDS has been claimed only by the assessee and submitted that there is no loss caused to the Revenue by allowing the entire TDS in the hands of the assessee. We find that all these documents were also filed before the CIT. However, the CIT has directed the AO to verify these documents and redo the assessment. The CIT ought to have gone through the documents to satisfy himself as to whether there was any prejudice caused to the Revenue. In view of the same, even on merits, the order of the CIT is not sustainable. However, in view of our allowing the additional ground of appeal, the order u/s 263 is not sustainable both on the technical issues as well as on merits. - Decided in favour of assessee.

Issues Involved:
1. Validity of the assessment completed under section 143(3) read with section 153C of the Income Tax Act.
2. Legitimacy of the Principal Commissioner of Income Tax's (Pr. CIT) revision order under section 263 of the Income Tax Act.
3. Examination of whether the assessment order was erroneous and prejudicial to the interests of the Revenue.
4. Consideration of joint ownership of property and corresponding tax implications.
5. Evaluation of the TDS claims and their impact on the assessment.

Detailed Analysis:

Issue 1: Validity of the Assessment Completed under Section 143(3) Read with Section 153C of the Income Tax Act

The assessee challenged the validity of the assessment completed under section 143(3) read with section 153C on the grounds that there was no incriminating material found during the search, and the assessment order was passed without recording satisfaction by the Assessing Officer (AO). However, since the appeal was against the order under section 263 and not the assessment order itself, these grounds were rejected as not maintainable.

Issue 2: Legitimacy of the Principal Commissioner of Income Tax's (Pr. CIT) Revision Order under Section 263 of the Income Tax Act

The Pr. CIT revised the assessment order under section 263, observing discrepancies in the rental income declared by the assessee and the corresponding TDS claims. The Pr. CIT directed the AO to re-examine the issue of joint ownership and taxability of rental income. The assessee argued that the revision was based on a mere change of opinion and that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue.

Issue 3: Examination of Whether the Assessment Order was Erroneous and Prejudicial to the Interests of the Revenue

The Pr. CIT held the assessment order to be erroneous without establishing that it was prejudicial to the Revenue. The Supreme Court in Malabar Industrial Co. Ltd vs. CIT (2000) 243 ITR 0083 emphasized that for an order to be revised under section 263, it must be both erroneous and prejudicial to the interests of the Revenue. The Tribunal found that the Pr. CIT failed to demonstrate any loss to the Revenue, as the rental income was correctly apportioned among the joint owners and the TDS was claimed by the assessee alone due to procedural constraints.

Issue 4: Consideration of Joint Ownership of Property and Corresponding Tax Implications

The assessee contended that the property was jointly owned, and the rental income was divided among the co-owners, with each declaring their respective shares in their returns. The assessee claimed the entire TDS due to procedural limitations. The Tribunal observed that the Pr. CIT did not adequately verify the documents provided by the assessee, which demonstrated that the rental income was correctly apportioned and there was no prejudice to the Revenue.

Issue 5: Evaluation of the TDS Claims and Their Impact on the Assessment

The Tribunal noted that the AO had accepted the assessee's claim of TDS on the entire rental income while assessing only her 1/3rd share of the rental income. The Pr. CIT's revision order failed to establish any prejudice to the Revenue, as the TDS was correctly claimed, and the rental income was appropriately divided among the co-owners.

Conclusion:

The Tribunal concluded that the Pr. CIT's order under section 263 was not sustainable both on technical grounds and on merits. The assessment order dated 31.12.2007 had already become final, and revising a subsequent order would result in two conflicting assessment orders for the same assessment year. Additionally, the Pr. CIT did not demonstrate any prejudice to the Revenue. Consequently, the appeals for both assessment years 2006-07 and 2007-08 were allowed, and the revision orders under section 263 were set aside.

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