2007 (3) TMI 319 - AT - Income Tax

Summary

Issues Involved:
1. Initiation of reassessment proceedings.
2. Addition on merits and power of the CIT(A) on enhancement.
3. Allowance of statutory deduction under section 24 on arrears of rent.
4. Charging of interest under section 234B.

Detailed Analysis:

1. Initiation of Reassessment Proceedings:
The assessee challenged the initiation of reassessment proceedings. The original return filed by the assessee was processed under section 143(1), but later, it was found that the assessee had received arrears of rent amounting to Rs. 24,12,903, out of which Rs. 12 lakhs pertained to the year under consideration. The Assessing Officer issued a notice under section 148 on the grounds that this amount needed to be taxed on an accrual basis. The assessee argued that the reassessment proceedings were a change of opinion since the facts were already disclosed in the original return. However, the Tribunal held that the notice under section 148 was valid as no assessment was made initially, and the return was merely processed under section 143(1). The Tribunal cited the Delhi High Court's ruling in Mahanagar Telephone Nigam Ltd v. Chairman, CBDT, which stated that intimation under section 143(1)(a) is not an assessment, thus there could be no change of opinion. The ground challenging the initiation of reassessment proceedings was dismissed.

2. Addition on Merits and Power of the CIT(A) on Enhancement:
The Assessing Officer included Rs. 12 lakhs of arrears of rent on an accrual basis, which the CIT(A) deleted, relying on previous Tribunal orders that arrears of rent should be taxed in the year of receipt. However, the CIT(A) observed that the assessee received Rs. 15,69,355 as arrears of rent in the relevant year and issued a notice for enhancement. The CIT(A) directed the Assessing Officer to enhance the income by this amount. The Tribunal upheld the CIT(A)'s power of enhancement, stating that section 251 allows the Commissioner (Appeals) to confirm, reduce, enhance, or annul the assessment. The Tribunal noted that the subject matter of the notice for enhancement was the same as considered by the Assessing Officer, thus the CIT(A) did not exceed jurisdiction. The Tribunal dismissed the grounds raised by the assessee on legal aspects and merits regarding the enhancement.

3. Allowance of Statutory Deduction under Section 24 on Arrears of Rent:
The assessee contended that the statutory deduction under section 24 should be allowed on the arrears of rent received. The Assessing Officer, while giving effect to the CIT(A)'s order, included the enhanced arrears of rent without allowing the deduction under section 24. The CIT(A) upheld this, considering that the Assessing Officer was merely following directions. The Tribunal found that the arrears of rent received should be treated as income from house property, thus eligible for statutory deductions under section 24. The Tribunal ordered the allowance of the deduction under section 24, allowing this ground of the assessee's appeal.

4. Charging of Interest under Section 234B:
The assessee argued against the charging of interest under section 234B, claiming that they could not foresee the receipt of income. The Tribunal rejected this argument, noting that the arrears of rent were received during the relevant period, making the levy of interest under section 234B applicable as the advance tax is payable with reference to the finally assessed income. The Tribunal upheld the CIT(A)'s decision to charge interest under section 234B.

Conclusion:
- The initiation of reassessment proceedings was upheld as valid.
- The CIT(A)'s deletion of the Rs. 12 lakhs addition and enhancement by Rs. 15,69,355 was upheld.
- The statutory deduction under section 24 was allowed on the arrears of rent.
- The charging of interest under section 234B was upheld.