2022 (9) TMI 151 - AT - Income Tax

Revision u/s 263 by CIT - charging notional rent on house property u/s 23 - Whether AO cannot be said to be erroneous so far as prejudicial to the interest of the revenue in case of limited scrutiny assessment cases, where AO has not made any enquiry on other aspects other than the issues involved in limited scrutiny notice? - HELD THAT - AO collected information beyond his powers, but based on such information, which has been collected by the learned assessing officer, PCIT could not have stated that addition with respect to the income from house property has not been charged by the learned AO, though it was not part of the limited scrutiny issue, therefore, the order of the assessment is erroneous in so far as prejudicial to the interest of revenue. several judicial precedents cited before us also supports the case of the assessee. The reason given for rejection of this argument by the learned PCIT is also not palatable. It is held by him that as assessee has succumbed to the jurisdiction of the assessing officer and supplied certain information, the assessee loses his right to challenge the same later on. Based on the information mentioned in the revisionary order, the learned PCIT should have reprimanded the assessing officer by asking assessee to furnish the information, which were not within the scope of limited scrutiny. Instead of that, PCIT has invoked the provisions of Section 263 on such information. The action of the PCIT also is not in consonance with the direction/ instructions of the central board of direct taxes on limited scrutiny. Therefore, we have no hesitation that the order passed by the learned that PCIT is without jurisdiction therefore we quash it. Appeal of assessee allowed.

Issues:
1. Jurisdiction of Principal Commissioner under Section 263 of the Income Tax Act.
2. Scope of limited scrutiny assessment and invoking Section 263.
3. Assessment of rental income from house property.
4. Validity of the revisionary order under Section 263.
5. Interpretation of Explanation 2 to Section 263.
6. Application of Section 23 on the appellant's property.
7. Assessee's challenge to the revisionary order.

Analysis:

1. Jurisdiction of Principal Commissioner under Section 263:
The appeal was filed against the revision order passed by the Principal Commissioner of Income Tax, Mumbai, under Section 263 of the Income Tax Act, 1961. The Principal Commissioner held that the assessment order passed by the Assistant Commissioner of Income Tax was erroneous and prejudicial to the interest of revenue, leading to the appeal by the assessee.

2. Scope of limited scrutiny assessment and invoking Section 263:
The assessee contended that the limited scrutiny assessment did not cover the issue of charging notional rent on house property under Section 23 of the Act. The Principal Commissioner invoked Section 263 based on the information provided during assessment proceedings, leading to a dispute regarding the scope of limited scrutiny assessment and the jurisdiction to invoke Section 263.

3. Assessment of rental income from house property:
The assessing officer did not add rental income from a holiday home in Goa to the assessee's total income. However, the Principal Commissioner found this omission to be erroneous and prejudicial to revenue, leading to the issuance of a revisionary order under Section 263.

4. Validity of the revisionary order under Section 263:
The appellant challenged the validity of the revisionary order, arguing that the assessing officer did not exceed the limited scrutiny mandate, and therefore, the order should not be considered erroneous or prejudicial to revenue. The appeal raised concerns regarding the jurisdiction and validity of the revisionary order.

5. Interpretation of Explanation 2 to Section 263:
The Principal Commissioner invoked Explanation 2 to Section 263 to justify the revisionary order, emphasizing that the assessing officer did not properly examine the taxability of rental income from the holiday home in Goa. The appellant contested this interpretation, highlighting the limitations of the assessing officer's scope in a limited scrutiny assessment.

6. Application of Section 23 on the appellant's property:
The Principal Commissioner held that Section 23 applied to the appellant's property, despite the appellant's claim that it was self-occupied. This disagreement formed a crucial aspect of the dispute, with the appellant arguing against the taxability of the income under the head of income from house property.

7. Assessee's challenge to the revisionary order:
The appellant challenged the revisionary order, citing various legal arguments, precedents, and the limited scope of the scrutiny assessment. The appellant contended that the order passed by the Principal Commissioner was without jurisdiction and should be quashed.

In conclusion, the appellate tribunal quashed the order passed by the Principal Commissioner under Section 263, ruling in favor of the assessee and allowing the appeal. The tribunal emphasized the limitations of the assessing officer's jurisdiction in a limited scrutiny assessment and the necessity for adherence to procedural guidelines and legal principles in invoking Section 263.

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