2018 (5) TMI 347 - AT - Income Tax

Addition under the head rent received from leave and licence fees and maintenance charges - Held that - We are aware that principles of res judicata do not apply to the income tax proceedings. But the AO s are required to explain as to why they were compelled to deviate from the path followed by their predecessor if they want to take a new course of action for assessing the same income. Without bringing the distinguishing features that justifies taxing a particular item/head of the income or changing the heads of income in the subsequent years as compared with the earlier year the AO s cannot question the income shown by the assessee. Consistency is also one of the recognised rule of tax proceedings like the principle of res judicata. Secondly the AO while assessing the income of the group concerns in the hands of the assessee had not given discount for maintenance charges. The FAA has rightly pointed out the maintenance charges have to considered as per the established principles of accountancy. AO s of the group entities have not doubted about their existence or genuineness of the income shown by them in their returns of income. Considering these facts cumulatively we hold that the order of the FAA does not suffer from any legal or factual infirmity. - Decided against revenue

Summary

Issues:
1. Addition made by the AO under rent received from leave and license fees and maintenance charges.

Analysis:
The Assessing Officer (AO) made an addition to the income of the assessee under rent received from leave and license fees and maintenance charges. The AO observed that the assessee had let out a building to seven tenants, including group companies, and directed the assessee to explain why the rent received by the group companies should not be considered its income from house property. The AO alleged that the group companies had sublet the properties at higher rents, resulting in lower declared incomes. The AO referred to a judgment and assessed the annual value of the property rights. The First Appellate Authority (FAA) considered the submissions and held that the group companies and the assessee were separate legal entities, filing returns regularly. The FAA noted transparency in the submissions and deleted the addition made by the AO.

The Departmental Representative supported the AO's order, while the Authorized Representative relied on the FAA's order, emphasizing the regular tax payments by the group companies. The Tribunal found that the AO had clubbed the incomes received by the tenant-companies with the assessee's income, based on the judgment cited. However, the Tribunal noted that the FAA correctly analyzed the situation, emphasizing the separate legal identities of the entities and the regular filing of returns. The Tribunal highlighted the importance of consistency in tax proceedings and the need for justifying any deviation from past assessments. The Tribunal also noted the lack of discount for maintenance charges by the AO and upheld the FAA's decision to delete the addition.

Referring to the case of TIP Top Typography, the Tribunal emphasized the principles of determining annual letting value and the need for proper investigation before making additions based on inflated or deflated rents. The Tribunal concluded that the AO's reliance on the judgment was incorrect, and the FAA's analysis was accurate. Consequently, the Tribunal dismissed the AO's appeal and upheld the FAA's order.

In conclusion, the Tribunal dismissed the appeal filed by the AO, affirming the FAA's decision. The order was pronounced on 2nd May 2018.