2021 (8) TMI 631 - AT - Income Tax

Revision u/s 263 - deduction u/s 35AC - HELD THAT - PCIT has failed to mention as to how the assessment order was erroneous and prejudicial to the interest of the Revenue. In respect of the queries raised by the Ld. PCIT, the assessee gave explanations. The Ld. PCIT could not find any error or discrepancy in the explanation submitted by the assessee requiring any further investigation. There is no finding given by the PCIT that the explanation given by the assessee was not justified or there was any scope of further enquiries in this respect. As per the provisions of section 263 of the Act, the Ld. PCIT was supposed to apply his mind to the explanation submitted by the assessee and come to a conclusion that the order passed by the AO was erroneous and prejudicial to the interest of the Revenue and further he was supposed to make or to cause to make necessary enquiries to arrive at a conclusion that the assessment order in question was not sustainable. The exercise of revisional jurisdiction u/s 263 of the Act has been made by the ld. PCIT in a casual and mechanical manner which is not sustainable in the eyes of law. The impugned order passed u/s 263 of the Act is, therefore, quashed. AO not added the notional rent income from the rest of three flats under income from house property - The assessee had let out the property in F.Y. 2016-17 and the rental income had accrued from June 2016. It had further been submitted that the assessee had paid advance against property at LT Tower and the assessee had received possession of the property in May 2018. The assessee was joint owner of the property at L T Parel Project with another daughter Ms. Aditi Chamaria. The assessee was 50% owner of the property at Merlin, Kolkata with his wife Ms. Sarita Bajaj. The wife of the assessee had let out the property during the year under review and was in receipt of the rental income. The entire total income of the property was received by the wife of the assessee and she was subject to highest rate of taxation. She had paid substantial part of the purchase consideration and as per understanding between the co-owners the rent was received by her. Though, the assessee duly explained about the date of coming into possession of the some of the properties and that on becoming owner in possession of the properties in question, the rental income was duly offered for taxation. Further that in respect of one property, his wife had taken into account the rental income. However, the ld. PCIT in a mechanical manner set aside the assessment order observing that the aforesaid explanations were not available to the Assessing Officer - Decided in favour of assessee.

Summary

Issues:
1. Revision jurisdiction under section 263 of the Income Tax Act for assessment years 2015-16 and 2016-17.
2. Invocation of revision jurisdiction based on alleged errors in assessment orders.
3. Lack of justification for invoking revision jurisdiction by the Principal Commissioner of Income Tax.

Analysis:

Issue 1: Revision jurisdiction under section 263 of the Income Tax Act for assessment years 2015-16 and 2016-17

The judgment by the Appellate Tribunal ITAT Kolkata pertains to two appeals filed by the assessee challenging the revision orders under section 263 of the Income Tax Act for assessment years 2015-16 and 2016-17. The revision orders were passed by the Principal Commissioner of Income Tax-10, Kolkata. The Tribunal proceeded to adjudicate both appeals in a common order.

Issue 2: Invocation of revision jurisdiction based on alleged errors in assessment orders

In the first appeal for assessment year 2015-16, the Principal Commissioner of Income Tax set aside the assessment order for de novo assessment based on alleged errors. The Commissioner observed discrepancies in expenses claimed by the assessee and noted that certain figures were not verified by the Assessing Officer. Despite the assessee's explanations, the Commissioner invoked section 263, citing that the explanations were not presented during the initial assessment proceedings under section 143(3) of the Act. The Tribunal found that the Commissioner failed to demonstrate how the assessment order was erroneous or prejudicial to the Revenue's interest. It was noted that the Commissioner did not identify any errors in the explanations provided by the assessee, rendering the revision order unsustainable in the eyes of the law.

In the second appeal for assessment year 2016-17, the Commissioner raised concerns regarding notional rent income from multiple properties owned by the assessee. The Commissioner alleged that the Assessing Officer failed to include rental income from certain properties in the assessment under 'income from house property'. The assessee provided detailed explanations about the ownership and rental income of the properties, emphasizing that the properties were acquired at different times and rental income was offered for taxation accordingly. Despite the clarifications, the Commissioner mechanically set aside the assessment order, claiming the explanations were not available to the Assessing Officer. The Tribunal, echoing the findings in the first appeal, quashed the revision order, emphasizing the lack of justification for invoking section 263.

Issue 3: Lack of justification for invoking revision jurisdiction by the Principal Commissioner of Income Tax

The Tribunal highlighted that the Principal Commissioner of Income Tax exercised revisional jurisdiction in a casual and mechanical manner without demonstrating the errors in the assessment orders or the need for further investigation. The Commissioner's failure to identify specific errors or discrepancies in the assessee's explanations and the lack of justification for setting aside the assessment orders led the Tribunal to quash the revision orders in both appeals, ultimately allowing the assessee's appeals.

In conclusion, the Appellate Tribunal ITAT Kolkata ruled in favor of the assessee, setting aside the revision orders under section 263 for assessment years 2015-16 and 2016-17, emphasizing the importance of justifying the invocation of revision jurisdiction and demonstrating errors in the assessment orders to uphold such decisions.