2020 (1) TMI 493 - AT - Income Tax

Order of CIT(A) is non-speaking and did not adjudicate points raised by the assessee - whether the income from the hospital income is to be assessed as income from other sources or as house property income AND Whether the loss under the head income from other sources can be set off against the salary income? - CIT(A) has dismissed the appeal of the assessee - HELD THAT - Sub-section (6) of section 250 of the Income Tax Act, 1961 mandates the ld.CIT(A) to state point in dispute, and thereafter record reasons in support of his conclusion. A perusal of the above finding would indicate that it is not in consonance with mandate given in the Act. CIT(A)has not made any analysis of submissions filed by the assessee as well as point raised by him during the assessment proceedings. Therefore, the impugned order is not sustainable; it deserves to b e set aside. However, before setting aside the impugned order, and remitting the issue to the file of the ld.CIT(A), we would like to appraise ourselves with observation of Roadmaster Inds. Of India P.Ltd. Vs. IAC 2006 (5) TMI 86 - PUNJAB AND HARYANA HIGH COURT as held order passed by the CIT does not satisfy the prerequisites of a speaking order, as the same does not contain reasons to support the order. Penalty u/s 271(1)(c)(iii) - mechanism for quantification of penalty - HELD THAT - assessee would be directed to pay a sum in addition to taxes, if any, payable him, which shall not be less than , but which shall not exceed three times the amount of tax sought to be evaded by reason of concealment of income and furnishing of inaccurate particulars of income. In other words, the quantification of the penalty is depended upon the additions made to the income of the assessee. Upto and until, the issue regarding determination of the taxable income is finalized, penalty under section 271(1)(c) of the Act cannot be imposed upon the assessee. Once we have set aside the quantum proceedings, then very basis to compute penalty gets extinguished. Therefore, we set aside the penalty order passed by the AO as well as by the ld.CIT(A). This issue is also required to be adjudicated on the basis of outcome of quantum proceedings.

Summary

Issues Involved:
1. Classification of income from hospital as either "income from other sources" or "house property income."
2. Set-off of loss under "income from other sources" against salary income.
3. Validity of the CIT(A)'s order as a speaking order.
4. Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Classification of Income from Hospital:
The assessees filed returns declaring income from renting out a hospital as "income from other sources." The Assessing Officer (AO) contested this classification, arguing it should be assessed as "house property income." The AO estimated the house property income at ?20,35,116/- after deductions under section 24(a) of the Act, resulting in an addition of ?14,24,581/-. The CIT(A) upheld the AO's decision without providing a detailed analysis of the assessee's submissions, leading to the appeal.

2. Set-off of Loss under "Income from Other Sources" Against Salary Income:
The AO rejected the assessee's claim to set off the loss from the hospital rental income against salary income. This resulted in the determination of the total income at ?22,03,058/-. The CIT(A) concurred with the AO, but the order lacked detailed reasoning, prompting the assessee to appeal.

3. Validity of the CIT(A)'s Order as a Speaking Order:
The Tribunal found the CIT(A)'s order non-compliant with section 250(6) of the Income Tax Act, 1961, which mandates that the CIT(A) must state the points in dispute and record reasons for his conclusions. The Tribunal cited several Supreme Court judgments emphasizing the necessity of a speaking order to ensure judicial scrutiny and fairness. The Tribunal noted that the CIT(A) merely reproduced the AO's order and the assessee's submissions without independent analysis, rendering the order unsustainable.

4. Imposition of Penalty under Section 271(1)(c):
The penalty under section 271(1)(c) is contingent on the final determination of taxable income. Since the quantum proceedings were set aside, the basis for the penalty was extinguished. The Tribunal set aside the penalty order, stating that the issue of penalty should be adjudicated based on the outcome of the quantum appeal.

Conclusion:
The Tribunal set aside the CIT(A)'s order and remitted the issues back to the CIT(A) for a detailed adjudication on merits. The penalty order was also set aside, to be reconsidered after the final determination of the taxable income. Both appeals by the assessee were allowed for statistical purposes.