2009 (11) TMI 77 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the assessment order u/s 143(3)/254/147.
2. Application of Rule 3(1) of IT Rules as substituted by IT (Twenty-second Amendment) Rules, 2001.
3. Jurisdiction of CIT u/s 263 of the IT Act.

Summary:

1. Validity of the assessment order u/s 143(3)/254/147:
The assessee, managing director of M/s Carbide Cutting Tools (P) Ltd., filed a return showing total income of Rs. 7,20,470. The AO observed that the assessee had resided in rent-free furnished accommodation provided by his employer, which was not offered for taxation. Consequently, in response to notice u/s 148, the assessee offered Rs. 1,20,000 as perquisite. The AO estimated the value of perquisite at Rs. 5,63,725 and added it to the total income, completing the assessment at Rs. 86,55,450. The CIT(A) upheld the AO's computation. The Tribunal set aside the issue to the AO for fresh determination of fair rent. The AO, after examining the documents, arrived at a perquisite value of Rs. 1,49,894.

2. Application of Rule 3(1) of IT Rules as substituted by IT (Twenty-second Amendment) Rules, 2001:
The CIT held the assessment erroneous and prejudicial to the interests of the Revenue, stating that the AO did not apply Rule 3(1) properly. The CIT issued a show-cause notice u/s 263, stating that the perquisite value should be 10% of the salary, i.e., above Rs. 4 lakhs, instead of Rs. 1,49,000. The assessee contended that the amended Rule 3 was not applicable to AY 2001-02, as it was made with retrospective effect from 1st April 2001, relevant to AY 2002-03. The CIT was not convinced and referred to the Supreme Court decision in BHEL Workers Union, holding the AO's order erroneous and prejudicial to the Revenue.

3. Jurisdiction of CIT u/s 263 of the IT Act:
The Tribunal observed that the AO followed the Tribunal's direction to determine the fair rent and took a possible view based on details provided by the assessee. The Tribunal held that the AO's view could not be said to be prejudicial to the Revenue or erroneous. The Tribunal noted that the amended Rule 3 was notified on 25th Sept 2001, applicable from 1st April 2001, and provided an option to compute perquisites as per pre-amended rules for the period from 1st April 2001 to 30th Sept 2001. The Tribunal found that the assessee had completed all formalities before the amendment was promulgated. The Tribunal held that the CIT was not justified in invoking jurisdiction u/s 263 and quashed the CIT's order.

Conclusion:
The Tribunal allowed the assessee's appeal, quashing the CIT's order u/s 263 and upholding the AO's assessment order.