2013 (11) TMI 1236 - AT - Income Tax

Reassessment proceedings - change in opinion - legality of continuation of reassessment as a consequence of issuance and service of notice u/s 148 - held that - the assessee has duly participated in the proceedings which is a sufficient material having bearing on the legal grounds raised that challenge is to the application of the jurisdiction whereas the fundamental challenge to the assumption of jurisdiction is neither addressed nor contested and thus having pleaded the assessment to be treated as unsustainable in law is unwarranted. - Decided against the assessee.

Issues Involved:
1. Legality of the reassessment proceedings.
2. Validity of the service of notice under Section 148.
3. Application of the doctrine of res judicata.
4. Consistency in the treatment of income.
5. Allowability of house tax and business expenses.
6. Deemed ownership and assessment of rental income.

Detailed Analysis:

Legality of the Reassessment Proceedings:
The appeals contested the legality of the reassessment proceedings initiated by the Assessing Officer (AO). The key argument was whether the reassessment was based on a "change of opinion," which is not permissible under the law. The Tribunal upheld the reassessment proceedings, citing the Hon'ble Punjab & Haryana High Court's decision in *Sewak Ram vs. ITO* and *Tilak Raj Bedi vs. JCIT*, which allow reassessment if there is reason to believe that income has escaped assessment, even if it involves a change of opinion. The Tribunal found that the AO had valid reasons for reassessment based on the material available.

Validity of the Service of Notice under Section 148:
The assessees argued that the service of notice under Section 148 by affixture was illegal and not in compliance with the provisions of Order 5 Rule 20 of the Civil Procedure Code. The Tribunal dismissed this contention, noting that the assessees had participated in the reassessment proceedings without raising any objections to the service of notice. The Tribunal referred to the decision in *CIT vs. Ram Narain Bansal*, which held that non-issue or defective service of notice does not affect the jurisdiction of the AO if the assessee has been given a reasonable opportunity to be heard.

Application of the Doctrine of Res Judicata:
The assessees contended that the doctrine of res judicata should apply as there was no change in facts or law regarding the nature of the income as "Business Income" in past assessment years. The Tribunal rejected this argument, stating that the rule of res judicata does not apply to income tax proceedings. It cited the Hon'ble Supreme Court's decision in the case of M/s. Govind Impex Pvt. Ltd., which held that the assessees were deemed owners of the property and the rental income should be assessed as "Income from House Property."

Consistency in the Treatment of Income:
The assessees argued that the principle of consistency should be maintained, as the Department had previously accepted their stand that rental income was "Business Income." The Tribunal dismissed this argument, stating that an erroneous view in law could not be perpetuated on the ground of consistency. The Tribunal found that the earlier assessments did not involve a considered view on the issue, and the Hon'ble Supreme Court's decision in the case of M/s. Govind Impex Pvt. Ltd. had settled the matter.

Allowability of House Tax and Business Expenses:
The assessees claimed that house tax and business expenses should be allowed as deductions. The Tribunal held that such expenses are not allowable as business expenditure in view of the Hon'ble Supreme Court's decision, as the rental income is not business income. However, the Tribunal allowed the assessees to claim these expenses under Section 57(iii) if they were incurred wholly and exclusively for earning rental income. The matter was remanded to the AO for verification and allowance of such expenses under the appropriate head.

Deemed Ownership and Assessment of Rental Income:
The core issue was whether the assessees were deemed owners of the property under Section 27(iii)(b) read with Section 269UA of the Income Tax Act. The Tribunal upheld the AO's and CIT(A)'s findings that the assessees were deemed owners and the rental income should be assessed as "Income from House Property." This conclusion was based on the Hon'ble Supreme Court's decision in the case of M/s. Govind Impex Pvt. Ltd., which held that the lease agreements effectively made the assessees deemed owners of the property.

Conclusion:
The Tribunal dismissed the assessees' appeals on most grounds, upholding the reassessment proceedings and the treatment of rental income as "Income from House Property." However, it allowed the assessees to claim house tax and business expenses under Section 57(iii) and remanded the matter to the AO for verification. The Tribunal's decision was guided by the principles laid down by higher judicial authorities, ensuring that the reassessment proceedings were conducted in accordance with the law.

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