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2017 (12) TMI 569 - AT - Income TaxRevision u/s 263 - ALV determination - genuineness of Gross Rent received - Held that - The present case the CIT has exercised jurisdiction u/s.263 of the Act on the ground that the AO while completing the assessment proceeding did not make enquiries which he ought to have made, it is necessary to look into what enquiries the AO made on the issues raised in the order u/s.263 of the Act. It is clear from the submissions and material available on record with regard to the deduction of ₹ 2,41,347/- u/s.24(b) of the Act on account of interest paid to SBI ₹ 1,35,428/- and ₹ 1,05,919/- to ICICI Bank on loans borrowed.Assessee is an owner of two houses. In the assessment proceedings, the assessee submitted the details of both the houses. The assessee has replied all the enquires made by the Assessing Officer by issuing notice u/s 142(1) of the Act. The assessee had received rent of ₹ 12,000 per month and he offered the sum for taxable purposes. The annual letting value of the house has taken to be nil since the assessee had such option u/s.23(2) /23(4) of the Act where the assessee owned more than one house. Since the assessee was in accommodation of more than one house, so far as the provision of section 23(2) is applicable to him and therefore, considering the factual position as explained above, we do not find any infirmity in the order passed by the Assessing Officer. In these circumstances, it cannot be said that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Therefore, we quash the order u/s.263 of the Act. - Decided in favour of assessee.
Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (CIT) under section 263 of the Income Tax Act, 1961. 2. Whether the assessment order dated 27th March 2015 was erroneous and prejudicial to the interest of the Revenue. 3. Applicability of section 23(4)(b) and section 24(b) of the Income Tax Act, 1961. 4. Verification of interest income and interest expenses. Issue-wise Detailed Analysis: 1. Jurisdiction of the Principal Commissioner of Income Tax (CIT) under section 263 of the Income Tax Act, 1961: The assessee contended that the order passed by the Principal CIT under section 263 setting aside the assessment order dated 27th March 2015 was without jurisdiction, against the law, and the facts of the case. The assessee argued that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue, and thus, the Principal CIT erred in assuming jurisdiction under section 263. The Principal CIT, however, exercised his jurisdiction under section 263, stating that the assessment order was erroneous and prejudicial to the interest of the Revenue. 2. Whether the assessment order dated 27th March 2015 was erroneous and prejudicial to the interest of the Revenue: The Principal CIT observed that the assessment order was erroneous as the Assessing Officer (AO) did not verify the genuineness of the Gross Rent received and did not apply the provisions of section 23(4)(b) of the Act. Furthermore, the AO failed to examine the interest income and interest expenses properly. The assessee countered by stating that the AO had issued a notice under section 142(1) and made inquiries to verify the income declared in the return. The assessee provided full and complete details in response to the notice, and the AO, after examining the documents and evidences, accepted the income declared by the assessee. 3. Applicability of section 23(4)(b) and section 24(b) of the Income Tax Act, 1961: The Principal CIT noted that the AO did not apply the provisions of section 23(4)(b) correctly, as the assessee owned two house properties, and the Annual Value of the Self-occupied Property was not treated notionally under section 23(1). The assessee argued that the Annual Letting Value (ALV) of the other house should be taken as nil since the assessee had the option under sections 23(2) and 23(4) of the Act. The assessee cited various judicial precedents to support the claim that the actual rent received should be considered for assessment purposes. 4. Verification of interest income and interest expenses: The Principal CIT pointed out that the AO failed to examine the interest income declared and the interest expenses claimed. The assessee explained that the interest expenses claimed were within the provisions of section 24 of the Act. The assessee also clarified that the interest-free loans granted to the assessee's HUF and two relatives were from own funds and not from borrowed funds. The AO had examined these issues in detail during the assessment proceedings for the subsequent year, and no discrepancies were found. Conclusion: The Tribunal concluded that the AO had made necessary inquiries and verifications during the assessment proceedings. The assessment order was not erroneous or prejudicial to the interest of the Revenue. The Tribunal quashed the order passed under section 263 of the Act by the Principal CIT, allowing the appeal filed by the assessee. The Tribunal emphasized that the AO is not only an adjudicator but also an investigator, and it is his duty to ascertain the truth of the facts stated in the return when circumstances provoke an inquiry. The Tribunal found no infirmity in the assessment order passed by the AO and ruled in favor of the assessee.
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