2023 (8) TMI 150 - AT - Income Tax

Revision u/s 263 - short levy of income under the head income from house property - case of assessee was selected for limited scrutiny details of assets and liabilities - Pr.CIT recorded that AO has not made any inquiry or verification regarding the deemed income with respect to properties of assessee owned during the year under consideration nor the assessee offered income from house property, except of one property, though the assessee is owner of nine residential properties - HELD THAT - Pr.CIT in his show cause notice referred nine properties owned by assessee. In response to show cause notice, the assessee has explained about each and every property and user thereof or explaining that out of such property, is open plot and Kailash nagar property is still now owned by assessee and rest of the properties were either self-occupied or under the use of partnership firm wherein the assessee is a partner being Doctor in the hospital. Assessee has also furnished necessary evidence with regard to each and every property as well as confirmation by the nurses who is occupying the flat No. 10, Piplod. We further find that despite giving all such details, the ld. Pr.CIT instead of giving his independent finding, directed the Assessing Officer to pass fresh assessment order. We find that on similar submission, this combination of this Bench in Nilkanth Stone Industries 2021 (6) TMI 133 - ITAT SURAT by relying upon the decision of Vikas Polymers 2010 (8) TMI 745 - DELHI HIGH COURT held that it is a prerequisite that Pr.CIT must giving his reason to justify the exercise of suo moto revision. Mere reiteration that order of Assessing Officer is erroneous and in so far as prejudicial to the interest of revenue will not suffice. The exercise of power being quasi-judicial in nature must be of such as to show that the enhancement or modification of assessment or cancellation of the assessment or directions issued for fresh assessment was called for and must irresistibly lead to the conclusion that the assessment order is not only erroneous but prejudicial to the interest of revenue Thus we find that when the case of assessee was selected for limited scrutiny and the Assessing Officer made complete investigation about the issue of limited scrutiny and accepted the return of income, the assessment order cannot be branded as erroneous. Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Setting aside the original assessment order and directing a fresh assessment.
3. Consideration of deemed rent income from house properties.

Summary:

1. Jurisdiction under Section 263 of the Income Tax Act:
The assessee challenged the jurisdiction of the Principal Commissioner of Income Tax (Pr.CIT) under Section 263 of the Income Tax Act, 1961. The Tribunal noted that the case was selected for limited scrutiny to examine high income and details of assets and liabilities. The Assessing Officer (AO) had accepted the return income after examining these aspects. The Pr.CIT issued a show cause notice under Section 263, stating that the assessment order was erroneous and prejudicial to the interest of revenue due to the lack of inquiry into deemed rent income from multiple properties owned by the assessee.

2. Setting aside the original assessment order and directing a fresh assessment:
The Pr.CIT set aside the original assessment order and directed the AO to frame a fresh assessment order, considering the deemed rent income from the properties. The Tribunal observed that the AO had issued detailed show cause notices and received complete replies from the assessee regarding the assets and liabilities. The AO had accepted the assessee's explanations without detailed discussion in the assessment order. The Pr.CIT, however, did not provide independent findings but directed a fresh assessment.

3. Consideration of deemed rent income from house properties:
The Pr.CIT noted that the assessee had shown nine immovable properties but only offered a minimal rental income. The Pr.CIT suggested determining the fair rent by taking 7% of the Annual Letting Value (ALV) and deducting 30% standard rent, resulting in a short levy of income. The assessee explained the use of each property, with some being self-occupied, used for professional purposes, or not owned by the assessee. Despite these explanations, the Pr.CIT directed the AO to reassess the properties.

Tribunal's Findings:
The Tribunal found that the AO had made sufficient inquiries within the scope of limited scrutiny and accepted the assessee's explanations. It held that the Pr.CIT did not provide adequate reasons for revising the assessment order and merely reiterated that the order was erroneous and prejudicial to the interest of revenue. The Tribunal cited previous decisions, including those of the Delhi High Court and Orissa High Court, supporting that the Pr.CIT must provide clear reasons for such revisions, especially in limited scrutiny cases.

Conclusion:
The Tribunal quashed the order passed by the Pr.CIT dated 21/03/2023, stating that the twin conditions of Section 263 were not fulfilled. The appeal of the assessee was allowed, and the original assessment order was upheld.

Order Pronounced:
The order was pronounced on 31/07/2023 in open court.