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TMI Blog2007 (3) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... e, Jodhpur given on rent to the Income-tax Department. It had shown monthly receipt of rent at Rs. 60,000 showing total annual receipts at Rs. 7,20,000. Deduction under section 24(i) on account of repairs and collection of rent from the property was claimed, which was allowed by the revenue, while processing the return, later on, it was found that the assessee had received arrears of rent of Rs. 24,12,903 from the Income-tax Department for the period 26-3-1996 to 31-3-1998. Out of this amount, a sum of Rs. 12 lakhs pertained to the year under consideration, as per which the rent of Rs. 60,000 p.m. was enhanced to Rs. 1,60,000. Considering these facts, the Assessing Officer issued notice under section 148 on 9-1-2002 on the ground that the balance amount of Rs. 12 lakhs relatable to the year in question was required to be taxed on accrual basis. Accordingly, the assessment was made by including the arrears of rent of Rs. 12 lakhs in the income already declared. Page 1 para 2.1 of the order of the first appellate authority speaks about the fact that the ld. A.R. did not press the grounds challenging the initiation of reassessment proceedings which were taken as Ground Nos. 1 and 2 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1995-96 was passed by the Tribunal on 27-5-2003 and orders for assessment years 1986-87 to 1991-92 were passed subsequently on 10-8-2004. It shows that up to the date of the first Tribunal order, viz., 27-5-2003, the revenue was consistently holding the opinion that arrears of rent are includible on accrual basis. Notice under section 148 in this case was issued on 9-1-2002, i.e., much prior to the passing of the order passed by the Tribunal. In these circumstances, it cannot be held that notice was not valid. Explanation 2 added to section 147 has widened the scope of reassessment. Clause (b) of Explanation 2 states that where return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return, it shall be deemed to be cases where income chargeable to tax has escaped assessment. The case of the assessee squarely falls within clause (b) of Explanation 2, inasmuch as though the return was furnished by the assessee but no assessment was made and the Assessing Officer observed that the income so declared w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on accrual basis, which action was assailed before the first appellate authority. The ld. CIT(A) accepted the assessee's claim by relying on the Tribunal orders as discussed in the earlier part of the present order that arrears of rent were taxable in the year of receipt and not on accrual basis. He, therefore, deleted the addition of Rs. 12 lakhs. However, during the course of appellate proceedings, it was observed by him that the assessee had received arrears of rent amounting to Rs. 15,69,355 in the previous year relevant to the assessment year in question, which pertained to the earlier assessment years. In the computation of total income at page 2 for assessment year 1997-98, the assessee had given a note that the arrears of rent received during financial year 1996-97 from the I.T. Department for the period 8-1-1991 to 31-3-1996 amounted to Rs. 15,69,355. Since the assessee had not offered the arrears for taxation on receipt basis as well, the ld. CIT(A) issued notice for enhancement. After considering the objections of the assessee and the report of the Assessing Officer, he directed the Assessing Officer to enhance the income by Rs. 15,69,355, which was the arrear of rent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the arrears of rent were to be taxed on accrual basis. When the assessment order for this year under section 147 was passed on 28-1-2003, the same view was valid with the Assessing Officer and thus there was no reason for including the "receipt" of arrears of rent in the total income of the assessee. However, when the matter travelled to the ld. CIT(A), the order of the Tribunal for the earlier years had come into existence by virtue of arrears of rent became liable to tax in the year of receipt and not on accrual basis. The subject-matter of notice given by enhancement, being the arrears of rent is the same, which was considered by the Assessing Officer while taxing arrears of rent. What the Assessing Officer contemplated in making addition was that he charged the arrears to tax on accrual basis, whereas the ld. CIT(A), following the order of the Tribunal, came to hold that such arrears were to be taxed on receipt basis. Both the authorities below considered the same subject-matter for taxation, but from different angles. No new point was considered by the ld. CIT(A) which was not decided by the Assessing Officer qua the issue in question. It cannot be argued that the ld. CIT(A) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 24 cannot be denied. In the opposition, the ld. D.R. relied on section 25A to contend that no deduction under section 23 or under section 24 can be granted. 13. After considering the rival submissions and perusing the relevant material on record, we find that the assessee received arrears of rent in this year. So what is received is "Arrear of rent" and not "Unrealized rent", which is the subject-matter of section 25A relied upon by the ld. D.R. It is clear that the arrear of rent received by the assessee partake the character of income from house property. All the permissible statutory deductions, which are available from such income, cannot be denied to the assessee. The direction of the ld. CIT(A) for enhancing the income by arrears of rent of Rs. 15,69,355 has to be read in the context of the section and not to be literally followed. If law permits a particular deduction from income, the Assessing Officer cannot deny the same by being too technical in following the direction of the ld. CIT(A) in a formalistic manner. Except for section 25A, which is not applicable to the facts of the case, the ld. D.R. could not bring to our notice any provision or precedent de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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