2020 (7) TMI 308 - AT - Income Tax

Revision u/s 263 - Directions for assessee's income derived from holiday homes under its ownership has to be assessed as income from house property and that from the other holiday homes is to be treated as income from other sources - HELD THAT - We find no reason to sustain the PCIT s foregoing stand that the assessee's income derived from its holiday homes has to be bifurcated on ownership basis (supra). CIT(DR) fails to dispute that the AO had very examined the very issue and assessed the assessee s income from the said holiday homes under the business head than that claimed as income from other sources - PCIT s observations that the assessee could not demonstrate that the income from holiday homes as disclosed by it was in any manner whatsoever was examined during assessment; turns out to be factually incorrect since the AO had not only carried out necessary enquiries but also he changed the head of its income from other sources to business Hon ble Delhi high court in ITO vs. D.G. Housing Projects Ltd. 2012 (3) TMI 227 - DELHI HIGH COURT hold that the twin limbs of no enquiry or inadequate enquiry and an erroneous decision by the assessing authority stand on a different footing and the CIT cannot simply remand the issue back for afresh assessment qua the latter. Issue of the assessment of assessee's income derived from holiday homes claimed as income from other sources in the computation but held as income from business during assessment in subsequent AY 2015-16; stands decided in its favour in the CIT(A)'s order much prior to the PCIT's issuing Section 263 show cause notice dated 11.04.2018. This tribunal s decision in the Kolkata Reserve Bank Employees Co-operative Credit Society Ltd. 2018 (3) TMI 1825 - ITAT KOLKATA holds that such an income from holiday homes is not eligible for Section 80P(2)(i) deduction being not business income. It is crystal clear therefore that the head of assessee s income derived from its holiday homes i.e. whether it is income from house property as per the PCIT, business income going by the AO in assessment and the CIT(A) and the residuary had of other sources in its computation; respectively, is purely a debatable issue. It thus could not be held that that the Assessing Officer s action sought to be revised as erroneous and causing prejudice to interest of the Revenue. In landmark decision in Malabar Industrial Co. Ltd. vs. CIT 2000 (2) TMI 10 - SUPREME COURT holds that both these conditions need to simultaneously exist before Section 263 revision is set in motion. PCIT s action under challenge is not sustainable since the AO had taken one of the possible views only in this factual backdrop. It is reversed therefore. AO s regular assessment dated 03.06.2016 is restored as a necessary corollary. - Decided in favour of assessee.

Summary

Issues:
1. Revision jurisdiction under Section 263 of the Income Tax Act, 1961 regarding the assessment of income derived from holiday homes.
2. Classification of income from holiday homes as income from house property, business income, or income from other sources.

Analysis:
1. The appeal pertains to the revision jurisdiction under Section 263 of the Income Tax Act, 1961, for the assessment year 2014-15. The Principal Commissioner of Income Tax issued a notice proposing revision due to various discrepancies in the assessment, including large deductions claimed and mismatch in reported turnover. The revision order directed the Assessing Officer to reassess the income derived from holiday homes owned by the assessee, categorizing it as income from house property or other sources, based on ownership. The Tribunal examined the PCIT's stand and found no reason to uphold the bifurcation of income solely based on ownership of holiday homes.

2. The Tribunal noted that the Assessing Officer had already examined the issue and assessed the income from holiday homes under the business head instead of other sources. The PCIT's assertion that the income from holiday homes was not scrutinized during assessment was deemed factually incorrect. Referring to relevant case law, the Tribunal emphasized the distinction between inadequate inquiry and an erroneous decision by the assessing authority. It highlighted that the issue of income classification from holiday homes had been previously decided in favor of the assessee by the CIT(A) and the tribunal. The Tribunal concluded that the classification of income from holiday homes as house property, business income, or other sources was a debatable issue, and the Assessing Officer's decision was one of the possible views, making the PCIT's revision unsustainable.

3. In light of the COVID-19 pandemic and lockdown, the Tribunal excluded the extraordinary period from the pronouncement of the order. Relying on a Mumbai Tribunal decision, the Tribunal allowed the assessee's appeal, reversing the PCIT's action and restoring the Assessing Officer's regular assessment. The judgment was pronounced on 10.07.2020, after thorough consideration of the facts and legal precedents.