2020 (1) TMI 994 - AT - Income Tax

Reopening of assessment u/s 147 - underreporting of the rental receipts by the assessee - assessee had understated his rental receipts as against those reflected in his TDS statement for the year under consideration - HELD THAT - As had been observed A.O while framing the assessment had not made any addition in respect of the aforesaid issue which had formed the very basis for reopening the case of the assessee. Rather, the additions/disallowances made by the A.O in respect of the income shown by the assessee under the head house property are absolutely on a different footing as had been culled out by us hereinabove. Accordingly, as the A.O while framing the assessment u/s 143(3) r.w.s 147 had not made any addition as regards the underreporting of the rental receipts at ₹ 99,34,023/- by the assessee in his return of income, as against that reflected in his TDS statement at ₹ 1,35,32,274/-, therefore, in the absence of any addition in respect of the issue on the basis of which the case of the assessee was reopened, the assessment framed by the A.O under Sec. 143(3) r.w.s 147, dated 30.06.2014 cannot be sustained. Accordingly, in the absence of any valid assumption of jurisdiction by the A.O under Sec. 147 of the Act, the assessment framed by him under Sec. 143(3) r.w.s 147, dated 30.06.2014 cannot hold the ground and is liable to be quashed. On the basis of our aforesaid deliberations, we herein quash the assessment framed by the A.O under Sec. 143(3) r.w.s 147, dated 30.06.2014 for want of jurisdiction. As we have quashed the assessment order passed under Sec. 143(3) r.w.s 147, dated 30.06.2014, for the reason, that the A.O had exceeded his jurisdiction, therefore, we refrain from adverting to and therein adjudicating upon the other contentions advanced by the ld. A.R, which thus are left open.

Summary

Issues Involved:
1. Treatment of rental income and determination of Annual Lettable Value (ALV).
2. Validity of reopening the assessment under Section 147 of the Income-Tax Act, 1961.
3. Deduction claims under Section 24 for interest expenditure and loan processing fees.
4. Deduction of municipal taxes against rental income.

Detailed Analysis:

1. Treatment of Rental Income and Determination of ALV:
The primary issue was whether the rental income received by M/s Alt Property Pvt. Ltd. (a company in which the assessee had a 98% shareholding) should be treated as the rental income of the assessee. The Assessing Officer (A.O) had determined the ALV of the property "Munshi Manor" based on the rent received by M/s Alt Property Pvt. Ltd., attributing 15% of the total receipts for services rendered, and calculated the ALV at ?51,84,873/-. The CIT(A) adjusted this to 70% of the total rent receipts. However, the Tribunal found that the issue was covered by its previous order for A.Y. 2007-08, where it had vacated a similar addition made by the A.O. The Tribunal ruled that the income fetched by M/s Alt Property Pvt. Ltd. by commercially exploiting the property could not be adopted as the ALV of the property. It directed the A.O to accept the actual rental receipt of ?17,012 by the assessee as the ALV.

2. Validity of Reopening the Assessment under Section 147:
For A.Y. 2011-12, the assessee challenged the reopening of the assessment on the grounds that it was based on a mere reappraisal of existing records and not on new tangible material. The Tribunal observed that the A.O had reopened the case because the rental receipts declared by the assessee (?99,34,023) were lower than those reflected in the TDS statement (?1,35,32,274). However, no addition was made on this basis in the final assessment. The Tribunal held that reopening the assessment was invalid because the A.O did not assess the income that initially formed the basis for reopening. Citing the Bombay High Court judgment in CIT vs. Jet Airways (I) Ltd., the Tribunal quashed the assessment framed under Section 143(3) r.w.s 147 for lack of jurisdiction.

3. Deduction Claims under Section 24:
The assessee claimed deductions for interest expenditure (?47,65,420) and loan processing fees (?4,47,500) under Section 24, which were disallowed by the A.O. The Tribunal did not adjudicate on this issue as it quashed the assessment on jurisdictional grounds.

4. Deduction of Municipal Taxes:
The A.O disallowed the deduction of municipal taxes (?7,92,000) as they were not paid during the year. The CIT(A) directed the A.O to verify the factual position. The Tribunal did not address this issue further due to the quashing of the assessment.

Conclusion:
The Tribunal allowed the appeals for both A.Y. 2008-09 and A.Y. 2011-12, quashing the assessments due to invalid jurisdiction under Section 147, and directed the A.O to accept the actual rental receipts as the ALV of the property. The other grounds of appeal were left open and not adjudicated upon.