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2023 (3) TMI 400 - AT - Income TaxCorrect head of income - income from rent earned from lease - business income or income from house property - CIT (A) error in following ITAT decision treating the income of the assessee as business income - HELD THAT - The assessee had accepted the nature of income as Income from House Property . So, there is no question about the change of the head of income in other stage. Considering the assessee s declaration in assessment, the Income from House Property cannot be treated as Income from Business in this impugned assessment year. AO correctly pointed out about the disparity in value of Annual Lease Rent in respect of licence fees received by the flagship company of the assessee. There is no res integra in the order of Coordinate Bench with the assessee as there is distinguishable fact. In the appeal order the observation of the ld. AO was not discussed properly. We find the order of the ld. CIT(A) is perverse. In our considered view, we set aside the order of the CIT(A) remit back the ground of the revenue to the CIT(A) for further adjudication denovo. Needless to say, that the ld. CIT(A) shall provide proper and adequate opportunity of being heard to the assessee in set aside proceedings - Appeal of the revenue is allowed for statistical purpose.
Issues Involved:
1. Classification of Income: Business Income vs. Income from House Property. 2. Reliance on Distinguishable Cases. 3. Admission of Additional Grounds without AO's Opportunity to be Heard. Issue-Wise Detailed Analysis: 1. Classification of Income: Business Income vs. Income from House Property The primary issue in this case revolves around whether the income derived by the assessee from leasing property to Bharat Hotels Ltd. should be classified as "Income from Business" or "Income from House Property." The Assessing Officer (AO) treated the annual lease rent of Rs. 50 lacs as "Income from House Property," determining the market rent based on an investment of Rs. 57,79,46,491/- by Bharat Hotels Ltd. The AO calculated the annual lease rent as Rs. 5,77,94,694/-, considering 1/10th of the investment amount, and after deductions, the income from house property was calculated as Rs. 3,69,56,286/-. The CIT(A) dismissed the AO's observation, relying on the ITAT's decision in ITA No. 323/Asr/2015 for A.Y. 2006-07, which treated similar income as business income based on the Supreme Court's ruling in 'Chennai Properties and Investments Limited vs. CIT.' 2. Reliance on Distinguishable Cases The revenue argued that the CIT(A) erred in relying on cases that were distinguishable on facts, as the assessee had only leased the property to a sister concern and was not in the business of leasing. The CIT(A) had followed the ITAT's decision and the Supreme Court's ruling in 'Chennai Properties and Investments Limited,' which held that income from properties acquired and let out as per the company's main object should be treated as business income. However, the AO contended that the nature of the assessee's activities and the specific facts of the case warranted treating the income as "Income from House Property." 3. Admission of Additional Grounds without AO's Opportunity to be Heard The revenue also contended that the CIT(A) erred in allowing the assessee's appeal by admitting additional grounds during the appellate proceedings without providing the AO an opportunity to be heard. This procedural lapse was highlighted as a significant issue, as it potentially affected the fairness and thoroughness of the adjudication process. Conclusion and Remand The Tribunal, after hearing the rival submissions and reviewing the records, found the CIT(A)'s order to be perverse and not adequately addressing the AO's observations. The Tribunal set aside the CIT(A)'s order and remitted the matter back to the CIT(A) for a de novo adjudication. The CIT(A) was directed to provide a proper and adequate opportunity of being heard to the assessee and to admit and adjudicate the evidence/explanation submitted by the assessee on merits in accordance with the law. The appeal of the revenue was allowed for statistical purposes. Order Pronouncement The order was pronounced in the open court on 24.02.2023.
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