1998 (1) TMI 106 - AT - Income Tax

Summary

Issues Involved:

1. Whether the Assessing Officer (AO) made proper enquiries to determine the annual value of the property under Section 23(1)(a) of the Income Tax Act, 1961.
2. Whether the assessment orders for the assessment years 1991-92 and 1992-93 were erroneous and prejudicial to the interest of the Revenue.
3. Whether the assessee was given reasonable opportunity to present their case.
4. Whether the rent received by the assessee from the property was fair and reasonable.

Issue-Wise Detailed Analysis:

1. Determination of Annual Value of Property:

The CIT held that the AO did not make proper enquiries to determine the annual value of the property within the meaning of Section 23(1)(a) of the Income Tax Act, 1961. The CIT observed that the AO accepted the rental income as declared by the assessee without proper verification. The CIT referenced the valuation report dated 30th September 1993 by Surinder Sahni, which determined the gross annual rent of the property at Rs. 16,96,800 and the net annual rent at Rs. 11,31,200. The CIT concluded that the AO's failure to investigate the annual value of the property resulted in an under-assessment of income.

2. Erroneous and Prejudicial Assessment Orders:

The CIT issued notices under Section 263 of the Income Tax Act for the assessment years 1991-92 and 1992-93, directing the assessee to explain why the assessment orders should not be revised. The CIT found that the AO's order was erroneous and prejudicial to the interest of the Revenue because the AO did not determine the annual value of the property as per the provisions of the Act. The CIT directed the AO to re-examine the annual value of the property and the income from house property after giving the assessee a reasonable opportunity of being heard.

3. Reasonable Opportunity to the Assessee:

The assessee argued that they were not given proper opportunity to present their case. The notice was issued on 22nd March 1996, requiring a reply by 25th March 1996, giving the assessee only three days to prepare. The Tribunal, however, found that the assessee was given reasonable opportunity as they were represented by their counsel and filed written submissions. The Tribunal rejected the plea of denial of reasonable opportunity.

4. Fair and Reasonable Rent:

The assessee contended that the rent received from the property was fair and reasonable. They argued that the rent fixed in 1982 could not be disturbed based on a subsequent agreement in 1992 with Goodwill Foods (P) Ltd. The Tribunal noted that the property was let out to various tenants since 1982, and the rent received was accepted by the Revenue from year to year. The Tribunal found that the CIT did not provide any evidence to show that the rent received earlier was influenced by other considerations or was collusive. The Tribunal held that unless there is specific material to show that the rent fixed in 1982 was not genuine, the CIT cannot ignore the actual rent received and direct an enquiry based on a subsequent agreement in 1992.

Conclusion:

The Tribunal concluded that the CIT did not make out a prima facie case for invoking the provisions of Section 263. The Tribunal held that the CIT's order was based on the subsequent agreement in 1992, which cannot be used to question the genuineness of the earlier agreements. The Tribunal canceled the order under Section 263 of the Act for the assessment years 1991-92 and 1992-93. Similar appeals in the cases of Shri Har Kishan Suri and Shri Baldev Raj Suri were also allowed.