2014 (1) TMI 331 - AT - Income Tax

Validity of Jurisdiction u/s 263 of the Act - Income considered as income from house property Already treated to tax under the head income from business and profession - Held that - The sharing of the space of the assessee by the PGHH came up for discussion during the original assessment proceedings - Despite the accrual of income to the assessee, assessee did not offer the same to the taxation and caused loss to the Revenue - the legal issue on the validity of the proceedings u/s 263 of the Act is dismissed as not pressed Decided against Assessee. There was absence of relevant discussion on the business nature or otherwise of the said receipts - the direction in the present form of the CIT-8, Mumbai is premature thus, the issue is kept open for examination by the AO during the fresh assessment proceedings giving effect to the review order u/s 263 of the Act - In case, the AO is of the opinion that these receipts have to be brought to the tax under the head profits and gains from business or profession , the allowable expenses of business nature are required to be allowed as claimed by the assessee Decided partly in favour of Assessee.

Summary

Issues:
1. Validity of jurisdiction under section 263 of the Income Tax Act.
2. Taxability of receipts under the head "income from house property" instead of "income from business or profession."
3. Denial of various business expenses.

Issue 1: Validity of jurisdiction under section 263 of the Income Tax Act:
The appeal raised concerns about the jurisdiction assumed by the CIT-8, Mumbai under section 263 of the Act. The CIT directed a revision of the assessment order passed by the ACIT, Circle-6(2), Mumbai, deeming it erroneous and prejudicial to the interest of the Revenue. The appellant argued that the assessment order was made after a full inquiry and should not be considered erroneous. However, after considering the objections raised by the assessee, the CIT set aside the AO's order and directed a fresh assessment. The Tribunal dismissed the legal issue on the validity of the proceedings under section 263 as it was not pressed by the appellant.

Issue 2: Taxability of receipts under the head "income from house property" instead of "income from business or profession":
The CIT directed the Assessing Officer to assess certain receipts as income from house property, which the appellant contested. The appellant explained that the receipts should be considered business income rather than income from house property, as they were for services charges and not rental income. The Tribunal found merit in the appellant's argument, noting the lack of detailed analysis in the CIT's order regarding the nature of the receipts. The Tribunal kept this issue open for reexamination by the AO during the fresh assessment proceedings, emphasizing the need for a thorough examination of the claims before making a decision.

Issue 3: Denial of various business expenses:
The appellant contested the CIT's direction to disallow expenses related to the alleged rented portion of the office. The Tribunal partially allowed this ground, stating that if the receipts are to be taxed under the head "profits and gains from business or profession," the business expenses claimed by the assessee should be allowed after a thorough examination by the AO. Grounds related to this issue were partly allowed, while others were dismissed.

In conclusion, the Tribunal partly allowed the appellant's appeal, addressing the issues related to the validity of jurisdiction under section 263, the taxability of receipts, and the denial of business expenses. The Tribunal emphasized the need for a detailed examination of the claims and directed a fresh assessment to resolve the disputed issues effectively.