Agrani Buildestate Vs PCIT (ITAT Jaipur)
ITAT Jaipur held that invocation of section 263 of the Income Tax Act unjustified as all the details were furnished by the assessee during scrutiny assessment and assessment was completed after detailed enquiry.
Facts- The assessee firm was engaged in the business of letting out of properties. The firm also rendered various services like provision of security services, lift maintenance, upkeep of properties and cleaning services, etc.
The case of the assessee was selected for scrutiny. AO being convinced passed the assessment order. Thereafter, the PCIT issued notice u/s. 263 of Income Tax Act and alleging that the income of the assessee is not covered by the Circular No.16/2017 dated 25.04.2017. Therefore, the rental income of the assessee was required to be taxed under the head ‘Income from House Property’.
Conclusion- In the present case, the case of the assessee was selected for scrutiny for specific purpose for verification of refund claim and income from house property and, therefore, there cannot be any presumption of lack of enquiry more particularly when the detailed questionnaire was issued by the AO during the assessment proceedings and in this regard the assessee had also furnished all the details alongwith decision of Chennai Properties & Investments Ltd. vs CIT. Therefore, it cannot be presumed that there was lack of enquiry on the part of the AO.
Held that the assessee firm had furnished the requisite information and the NFAC has completed the assessment after considering all the facts, therefore, the order passed by the AO cannot be termed as erroneous.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
The assessee has filed an appeal against the order of the ld. Pr. CIT-1, Jaipur dated 21-03-2023 for the assessment year 2018-19 wherein the assessee has solitary ground as under:-
‘’In the facts and circumstances of the case and in law, the ld. Pr.CIT has erred in assuming jurisdiction u/s 263 when the order of the AO is neither erroneous nor prejudicial to the interest of the Revenue. The action of the ld. Pr. CIT is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the order passed u/s 263.”
2.1 Apropos solitary ground of the assessee, the facts as emerges from the order of the ld. Pr. CIT are as under:-
‘’10. During the course of proceedings u/s 263 of the Act the assessee also filed the lease document for renting of property to Vibrant Academy (India) Pvt. Ltd. The said document has been signed for the period of three years from the period 01/10/2016 to 30/09/2019. The rent for initial one year previous is Rs.2,70,000/-. For the subsequent, the rent has been fixed at Rs. 2,83,500/- and which would Increase to Rs.2,97,675/- in the third year of lease. The lease document also talks about deduction of tax at source, submission of Form-16A to the lessor by the lessee etc. It has been specified in the said lease document that the property would be used only for educational purposes and that the lessor would also receive Rs.20,000/- per month on account of maintenance. The lease has been registered in the office of Sub-Registrar, Jaipur-V. Perusal of the lease document also shows that the said property has been leased to Vibrant Academy (India) Pvt. Ltd. on similar terms and conditions as per any other property the income from which income is chargeable to tax as rental income. Thus the income from property under reference is in the nature of rental income and not business income.
11. The assessee has not submitted release agreement signed with Patanjali IAS Classes Pvt. Ltd.
12. Thus the assessee has shown income from the property under reference as income from business & profession and charge the same to tax under the presumptive tax scheme outlined in section 44AD of the Act instead of rental income. The income of the assessee is not covered by the Circular No.16/2017 dated 25.04.2017. Therefore, the rental income of the assessee from aforesaid concems was required to be taxed under the head “Income from House Property but the AO failed to do so.
13 As discussed above, the AO failed to apply his mind and failed to invoke the applicable provisions of law. This in turn has resulted in passing of an erroneous order by the AO in the case due to non-application of mind to relevant material and an incorrect assumption of facts which is prejudicial to the interest of the revenue and hence liable for revision under section 263 of the Act The Hon’ble Supreme Court in the case of Malabar Industrial Limited Vis CIT 243 ITR it has held as under-
… An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.”
14.. Considering all the facts and circumstances of the case and for the reasons discussed above. the assessment order dated 15.02.2021 for A.Y. 2018-19 passed by the AO is held erroneous in so far as it is prejudicial to the interest of the revenue for the purpose of section 263 of the Act. The said order has been passed by the AO in a routine and casual manner without applying the applicable sections of the Act. The AO has not verified the details which were required to be verified under the scope of scrutiny. The order of the AO is, therefore, liable to revision under the explanation (2) clause (a) & clause (b) of section 263 of the Act. The assessment order is set aside to be made afresh in the light of the observation made in this order. The AO is required to make necessary verification in respect of the observations made in this order after allowing reasonable opportunity to the assessee.”
2.2 During the course of hearing, the ld. AR of the assessee has prayed that the Id. Pr. CIT erred in exercising jurisdiction for revisionary proceedings u/s 263 of the Act and the order of the AO is neither erroneous nor prejudicial to the interest of Revenue for which the ld. AR of the assessee filed the following submissions.
1.1. The assessee firm was engaged in the business of letting out of properties. The firm also rendered various services like provision of security services, lift maintenance, upkeep of properties and cleaning services, etc.
1.2. Since income eamed was from letting out of properties along with various services to lessees, the income was offered for tax, under the head, Income from business and profession.
1.3. It is submitted that the partnership as defined in Indian Partnership Act, 1932 is a contract between two parties who have joined hands to carry on some business. Thus, the very basis for partnership was to carry on business. The partnership deed also categorically provided for carrying on the business of leasing, managing, and maintaining the property.
1.4. During the course of assessment proceedings, a detailed questionnaire was issued by Id. AO vide notice u/s 142(1) dated 20.11.2020 [PB 5-6] seeking pinpointed queries about the nature of business activities as well as verification of such receipts. The same was done, obviously, to verify the issue for which the case was selected for scrutiny.
1.5. The detailed reply to the said notice was furnished by the assessee firm vide its letter dated 06.12.2020 [PB 7-10]. The nature of the business was explained, partnership deed was submitted (PB 11-18], and complete explanation was rendered regarding income falling under the head “Income from business and profession”.
1.6. Reference was also drawn to CBDT Circular No. 16/2017 dated 25.04.2017 and also the fact of department having accepted the judgement in the case of CIT vs. Information Technology Park Ltd [2014] 47 taxmann.com 239 (Karnataka) wherein, instructions were given to lower authorities, that the business of lease rent received from letting out the properties along with other amenities was chargeable to tax under the head, Income from business and not under the head “Income from house property”.
1.7. Ld. PCIT has erred in placing a restrictive interpretation to CBDT Circular No. 16/2017 dated 25.04.2017. Ld. PCIT has missed the principal enumerated in the said circular. The said circular emphasizes that lease rent received by the assessee from letting out buildings along with other amenities in a software technology park would be chargeable to tax under the head “Income from business and not under the head “Income from house property” Therefore, every case of “letting out buildings along with other amenities” will fall in income from business and it will not be merely restricted to Software Technology Park as has been wrongly understood by ld. PCIT.
1.8. During assessment proceedings, attention was also drawn of Id. AO towards the fact of deduction of TDS u/s 194C towards rendering, managing and maintaining services by the assessee firm. Ld. AO on being convinced for the facts and legal position accepted the explanation of the assessee firm and assessed the income under the head “Income from business and profession”
1.9. During the course of proceedings u/s 283 before Id. PCIT, decision of Hon’ble Supreme Court in the case of Chennal Properties & Investments Ltd. Vs. CIT [2015] 56 taxmann.com 456 (SC) was brought to his notice,
1.10. Hon’ble Supreme Court in this case has held that where object as per object clause of the company was to do business of letting out, the same has to be taxed under the head income from business and profession. It was further held “It was highlighted and stressed that the objects of the company must also be kept in view to interpret the activities [Para 8 of the order]
1.11.Finally, in Para-11 of the order, Hon’ble SC taking into consideration the fact that as per object clause of memorandum of association of the company, its object was letting out of properties held that “letting of the properties is in fact is the business of the assessee”
1.12. Ld. PCIT has neither distinguished the case of Hon’ble SC nor has followed the same. The order of Ld. PCIT is contrary to the law laid down by Hon’ble SC and, therefore, deserves to be quashed.
1.13. Regarding wrongful assumption of jurisdiction by Id. PCIT, in the present case,following judicial precedents are relied upon:
