2024 (10) TMI 866 - AT - Income Tax

Reopening of assessment u/s 147 - mandation to dispose off the objection put by assessee - HELD THAT - Assessee has filed objections for reopening of the assessment before the AOand AO has disposed off the objections on 24.12.2019. However, assessee filed further objections vide letter dated 26.12.2019. As far as procedure laid down by the Hon ble Apex Court in GKN Drive Shafts India Ltd. 2002 (11) TMI 7 - SUPREME COURT AO has to dispose off the objections raised by the assessee. In our view, it may or may not satisfy the assessee fully. In this case, the AO has disposed off the objections vide letter dated 24.12.2019. Therefore, the AO has followed the procedure laid down in GKN Drive Shafts India Ltd. (supra) decision. Hence, we do not see any reason to disturb the findings of CIT(A). Addition of deemed rental income on inhabitable property - as argued as deduction u/s 35(1)(i) has been allowed on the same property, it cannot be held that the same property was not used for the business purposes - HELD THAT - AO made addition without bringing on record whether assets under consideration is habitable or not. From the facts available on record, we observed that the relevant property was repaired and made habitable only in the subsequent assessment year. However, as per the decision of ld. DRP, the property was not habitable in AY 2016-17 and merely because assessee has disclosed deemed rental income in AY 2014-15, it does not prove or show that the relevant property was habitable in AY 2012-13. Therefore, an inhabitable property cannot be brought to tax applying deemed rental income. Accordingly, the addition made by the Assessing Officer is directed to be deleted and ground no.3 is allowed.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act beyond four years.
2. Compliance with the procedure laid down by the Apex Court in GKN Driveshafts India Ltd. regarding objections to the reopening of assessment.
3. Legitimacy of the addition of deemed rental income under Section 23 of the Income Tax Act for inhabitable properties.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment Under Section 147 Beyond Four Years:
The core issue was whether the reopening of the assessment for AY 2012-13 was justified beyond the four-year limit. The assessee argued that there was no failure on their part to disclose all material facts necessary for assessment, as they had consistently filed returns with complete details. The assessment was reopened based on deemed rental income not disclosed in AY 2012-13, which was later disclosed in AY 2014-15. The Tribunal noted that the Assessing Officer (AO) had prima facie reasons to believe that the assessee had not fully disclosed all material facts, which justified the reopening. The Tribunal upheld the CIT(A)'s decision, affirming that the reopening was valid as the AO had sufficient grounds to believe income had escaped assessment.

2. Compliance with the Procedure Laid Down in GKN Driveshafts India Ltd.:
The assessee contended that the AO did not follow the procedure prescribed by the Apex Court in GKN Driveshafts India Ltd., which requires a speaking order on objections raised against the reopening notice. The AO disposed of the objections on 24.12.2019, but the assessee filed further objections on 26.12.2019. The Tribunal found that the AO had adhered to the procedure by disposing of the initial objections, thus complying with the requirements set by the Apex Court. Consequently, the Tribunal found no reason to overturn the CIT(A)'s findings on this ground.

3. Legitimacy of the Addition of Deemed Rental Income:
The addition of Rs. 15,54,000/- as deemed rental income under Section 23 was challenged on the basis that the properties were inhabitable. The assessee had provided evidence, including photographs, to demonstrate that the properties were not habitable during the relevant assessment year. The Tribunal referred to the decision of the Dispute Resolution Panel (DRP) for AY 2016-17, which had deleted similar additions, acknowledging that the property was not used for business purposes and was not habitable. The Tribunal concluded that merely because the assessee disclosed deemed rental income in AY 2014-15 did not imply the property was habitable in AY 2012-13. Therefore, the Tribunal directed the deletion of the addition, allowing this ground of appeal.

Conclusion:
The appeals for both AY 2012-13 and AY 2013-14 were partly allowed. The Tribunal upheld the reopening of the assessment but directed the deletion of the addition of deemed rental income, recognizing the non-habitable condition of the properties during the relevant assessment years. The order was pronounced on October 16, 2024.