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2014 (2) TMI 685 - AT - Income TaxJurisdiction u/s 263 of the Act Held that - Only if the Assessing Officer has taken a view patently unsustainable in law, that power u/s 263 can be exercised, where the taking of such an erroneous view results in loss of revenue, thereby satisfying the twin requisite conditions of erroneous assessment order and prejudicial to the interests of the revenue, for invocation of Section 263 of the Act. On the other hand, if the view taken by the Assessing Officer is a view possible in law, power u/s 263 of the Act cannot be exercised Relying upon Malabar Industrial Company vs. CIT 2000 (2) TMI 10 - SUPREME Court - unless the assessment order is erroneous, substitution of the judgement of the Commissioner for that of the Assessing Officer does not stand visualized under the provisions of Section 263 of the Act. Nature of Income Income from letting out of godown Whether the income to be assessable as income from house property or not Held that - The assessee s contention that the godown building stands constructed on agricultural land belonging to the partners of the assessee firm does not help him, since the full requirement of Proviso (i) to Section 2 (1A) (c) is not only of the building being in the immediate vicinity of the land, but also that the building is required by the receiver of the rent or the revenue, or the cultivator, or the receiver of the rent-in-kind, by reason of his connection with the land, as a dwelling house, or as a store-house, or other out-building - Proviso (i) is subservient to the main provision of Section 2 (1A) (c) and since the assessee does not fulfill the conditions of the main provision of Section 2(1A) (c), the factum of the building being in the immediate vicinity of the land, by virtue of being constructed thereon, does not bring the income earned by the assessee within the ken of agricultural income as defined in Section 2 (1A) (c) - the explanation offered by the assessee before the Assessing Officer was accepted by the Assessing Officer without dealing with as to how such explanation was acceptable thus, the grievance of the assessee is rejected and the action of the. CIT in holding the assessment order to be an erroneous order prejudicial to the interests of the revenue is confirmed Decided against Assessee.
Issues Involved:
1. Jurisdiction of CIT under Section 263 of the IT Act. 2. Classification of income from letting out godowns as agricultural income or income from house property. 3. Examination of whether the conditions under Section 2(1A)(c) of the IT Act were met. 4. Alternative contentions regarding the head under which the income should be assessed. 5. Consequential issues related to interest levied under Sections 234A, 234B, and 234D, and initiation of proceedings under Section 271(1)(c). Detailed Analysis: 1. Jurisdiction of CIT under Section 263 of the IT Act: The CIT invoked Section 263, asserting the assessment order was erroneous and prejudicial to the interests of the revenue. The CIT believed the Assessing Officer (AO) incorrectly treated rental income as agricultural income. The Tribunal upheld the CIT's jurisdiction, noting that the AO's order lacked detailed reasoning and was a non-speaking order, thus justifying the CIT's intervention. 2. Classification of Income: The primary issue was whether the income from letting out godowns should be classified as agricultural income or income from house property. The assessee claimed it as agricultural income under Section 2(1A)(c), while the CIT reclassified it as income from house property. The Tribunal agreed with the CIT, stating that the conditions for agricultural income under Section 2(1A)(c) were not met, as the assessee was neither the receiver of rent or revenue from the land nor the cultivator. 3. Conditions under Section 2(1A)(c): The Tribunal examined whether the conditions under Section 2(1A)(c) were satisfied: - Ownership and Occupation: The assessee firm was not the receiver of rent or revenue from the land, nor was the building occupied by it. The godown was rented out to third parties (Kargill India Pvt. Ltd., UP State Warehousing Corporation, and ITC Ltd.), who were not cultivators or receivers of rent-in-kind. - Proximity and Use: The building was not shown to be used for agricultural purposes or in the immediate vicinity of agricultural land as required by the provisos to Section 2(1A)(c). - Explanation 2 to Section 2(1A): The Tribunal noted that Explanation 2 clarifies that income from buildings used for non-agricultural purposes does not qualify as agricultural income. Since the godown was used for business purposes by tenants, it did not meet the criteria for agricultural income. 4. Alternative Contentions: The Tribunal remitted the alternative contentions to the AO for fresh examination. These included the assessee's argument that if the income was not agricultural, it should be treated as business income. The Tribunal directed the AO to allow the assessee to present all alternative arguments and to decide the matter after providing adequate opportunity for hearing. 5. Consequential Issues: The issues related to the levy of interest under Sections 234A, 234B, and 234D, and the initiation of proceedings under Section 271(1)(c), were deemed consequential and were to be addressed based on the final determination of the income classification. Conclusion: The Tribunal upheld the CIT's order invoking Section 263, confirming the reclassification of rental income from godowns as income from house property. It remitted the alternative contentions to the AO for a fresh decision. The consequential issues related to interest and penalty were also to be addressed based on the AO's final determination. The Tribunal's decision emphasized the necessity for detailed reasoning in assessment orders and compliance with the specific conditions set forth in tax provisions.
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