Income Tax Appellate Tribunal - Jodhpur
A.C.I.T. vs Dowager Maharanis Residential ... on 16 March, 2007
Equivalent citations: (2007)112TTJ(JODH)552
ORDER
R.S. Syal, Accountant Member
1. This set of three appeals - two by the assessee and one by the Revenue relate to the A.Y. 1997-98. Since common issue is raised in these appeals, we are, therefore, proceeding to dispose them of by this consolidated order for the sake of convenience.
ITA Nos. 746 & 772/JU/2005
2. These two cross appeals - one by the assessee and the other by the Revenue relate to the proceedings coming out of the assessment order passed pursuant to reassessment notice. The assessee has raised second ground challenging the initiation of reassessment proceedings.
3. Briefly stated, the facts of this case are that the assessee filed its return of income on 12.6.1997 at Rs. 7,07,350/-, which was processed Under Section 143(1) on 2.9.1997 at the returned income. The assessee derived rental income from house property known as Rai-ka-Bagh Palace, 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 before the ld. CIT(A).
3. Before us, the ld. counsel for the assessee contended that though the grounds challenging the initiation of reassessment proceedings were not pressed before the ld. first appellate authority but such non challenging was based in the background of the fact that the ld. CIT(A), during the course of argument, conveyed that the appeal would be accepted on merits. It was contended that instead of deleting the addition of Rs. 12 lakhs, the ld. CIT(A) made enhancement. On a specific query raised from the Bench the ld. A.R. submitted that upon the receipt of notice of enhancement from the ld. CIT(A), the assessee did not retract from its earlier stand of not pressing the ground of initiation of reassessment proceedings. It was further argued that once the facts were brought to the notice of the Assessing Officer by way of giving a note to the original return of income about the arrears of rent received in the year and the Assessing Officer completed the assessment accordingly, it was not open to him to initiate the reassessment proceedings on the same facts as it amounted to the change of opinion. In the opposition, the ld. D.R. relied on the impugned order.
4. Having heard the rival submissions and perused the relevant material on record, primarily it is not disputed that the assessee had, in fact, not pressed the ground challenging the initiation of reassessment proceedings before the first appellate authority. A line of distinction is required to be drawn between a case where a legal ground is raised for the first time before the appellate authority and another case in which such ground was raised and not pressed before the lower appellate court. Be that as it may, it is found as an undisputed fact that the assessee received arrears of rent in the subsequent year out of which Rs. 12 lakhs pertained to the A.Y. in question. The stand of the department, ab initio, has remained that the arrears of rent are to be put to tax in the year to which they belong on accrual basis. Similar view was taken by the Revenue authorities in the earlier years. The Tribunal in assessee's own case for A.Y. 1995-96 and earlier years, the orders referred to in para 3.3 of the impugned order, accepted the assessee's claim that the arrears of rent be put to tax in the year of receipt and not on accrual basis. First order for A.Y. 1995-96 was passed by the Tribunal on 27.5.2003 and orders for A.Ys. 1986-87 to 1991-92 were passed subsequently on 10.8.2004. It shows that upto 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, in as much as though the return was furnished by the assessee but no assessment was made and the Assessing Officer observed that the income so declared was understated. The assessee had only disclosed the fact of receipt of arrears of rent in the computation of total income, but had not offered such amount for taxation. The case law relied upon by the ld. A.R. are not applicable in the present context of Section 147. Coming to the other submission of the ld. A.R. that the change of opinion was not permissible as the assessee had already given note in the return and assessment was framed Under Section 143(1), we find it be bereft of any force for the reason that no assessment was made for the year. The return was simply processed. Such processing of return Under Section 143(1) should not be confused with the making of assessment Under Section 143(3). By processing a return Under Section 143(1), as is the case in question, the Intimation which results, is only the notice of demand and cannot be characterized as "Assessment order" for the present purpose. The Hon'ble Delhi High Court in the case of Mahanagar Telephone Nigam Limited v. Chairman, CBDT has held that "Intimation Under Section 143(1)(a) is not an assessment, and, therefore, there can be no question of change of opinion where notice Under Section 148 is issued to the assessee after issuing intimation Under Section 143(1)(a)". Similar view has been expressed by the Hon'ble Kerala High Court in the case of CIT v. K.V. Manakram & Co. by holding that intimation given Under Section 143(1)(a) cannot be treated to be an order of assessment. The further contention of the ld. A.R. that it was a case of change of opinion does not hold any water for the reason that before qualifying for change of opinion, it is sine qua non that opinion must have been formed at an initial stage. Unless opinion is formed by the Assessing Officer by making an assessment, there cannot be any question of change of opinion. The aforenoted judgment in the case of MTNL v. Chariman, CBDT [supra] is direct authority for this proposition and fully applicable to the facts of the instant case. Accordingly we do not find any infirmity in the initiation of reassessment proceedings. This ground is, therefore, dismissed.
5. Ground Nos. 1 and 3 of the assessee's appeal and the only Ground of the Revenue's appeal deal with the addition on merits and power of the ld. CIT(A) on enhancement.
6. We have noted above that the Assessing Officer put to tax the arrears of rent of Rs. 12 lakhs 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 A.Y. in question, which pertained to the earlier A.Ys. In the computation of total income at page 2 for A.Y. 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 received in the present year and credited to the Income and Expenditure account. Before us, the ld. counsel for the assessee relied on certain decisions to contend that the power of the ld. CIT(A) did not operate to make enhancement. It was contended that the appellate authority cannot deal with the issue which has not been dealt with by the Assessing Officer. It was still further submitted that the income of the assessee had to be taxed under any of the heads of Income mentioned Under Section 14 and notice of enhancement did not make any mention of head under which the arrears of rent of Rs. 15,69,355/- were taxable. In the opposition, the ld. D.R. contended that the ld. CIT(A) had simply followed the directions of the Tribunal given in the earlier years qua the taxability of arrears of rent in the year of receipt.
7. In so far as the departmental ground for deletion of addition of Rs. 12 lakhs is concerned, we find that the ld. CIT(A) was justified in deleting it for the reason that the Tribunal has consistently held in assessee's own case in the earlier years that the arrears of rent cannot be charged to tax on accrual basis. It has further been held that such arrears are taxable in the year of receipt only. Respectfully following the precedent, we hold that the ld. CIT(A) was fully justified in deleting the addition of Rs. 12 lakhs which was made by the Assessing Officer by taxing of arrears of rent on accrual basis. The departmental ground is, therefore, dismissed.
8. Now coming to the power of the ld. CIT(A) for enhancement, we observe that Section 251 has been worded widely to provide that in disposing of an appeal, Commissioner (Appeals) shall have the following powers - "(a) in an appeal against an order of assessment - he may confirm, reduce, enhance or annul the assessment". From a bare perusal of the language of this section, it is crystal clear that there cannot be any doubt about the power of enhancement conferred by the statute on the Commissioner [Appeals]. In so far as the submission of the ld. A.R. regarding the exceeding of jurisdiction by the ld. CIT(A) in putting to tax the income which was not considered by the Assessing Officer is concerned, we note that it is devoid of any merits. It is clear that upto the stage of passing of first order by the Tribunal on this aspect on 27.5.2003, the department was consistently holding the view that 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) travelled beyond the assessment order and considered a new source of income. Be that as it may, the Hon'ble Supreme Court in the case of CIT v. Nirbheram Daluram has held that the Appellate Assistant Commissioner's power of enhancement are not confined to the items considered by the Assessing Officer. Recently, the Hon'ble Allahabad High Court in the case of CIT v. Kashi Nath Chandiwala has adjudicated upon the scope of powers of the ld. CIT(A), in enhancement. After considering several decisions on the point, it was held that the Tribunal was not justified in holding that the ld. CIT(A) had no power of enhancement in respect of an issue which was not the subject matter of an appeal. In our considered opinion, the question of the taxability of arrears of rent was very much the subject matter of assessment and the ld. CIT(A) when directed that such arrears be taxed on receipt basis and not on accrual basis, had not transgressed the assessment order. As his view is in accordance with the Tribunal's order passed in earlier years, we are of the considered opinion that no error can be found therein. Thus, we hold that the ld. CIT(A) properly exercised his power of enhancement and directed to include the arrears of rent "received" in this year in the total income of the assessee. Thus the grounds raised by the assessee on legal aspect as well as on merits in this regard are dismissed.
9. In the result, both the appeals are dismissed.
ITA No. 630/JU/200510. This appeal by the assessee is against the order emanating from the giving of effect by the Assessing Officer to the ld. CIT(A)'s order in making enhancement.
11. First ground is against the not allowing the statutory deduction Under Section 24 on the amount of arrears of rent received at Rs. 15,69,355/-.
12. While giving effect to the order of the ld. CIT(A) for this year the Assessing Officer excluded the arrears of rent of Rs. 12 lakhs and included the enhanced arrears of rent received by the assessee at Rs. 15,69,355/- without allowing deduction Under Section 24. The ld. CIT(A) upheld the assessment order by considering that the Assessing Officer had no independent jurisdiction in the matter except giving effect to the direction of the ld. CIT(A) as per which arrear of rent received was made taxable. The ld. A.R. contended that the statutory deduction available 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 formalists 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 debarring the assessee from claiming statutory deduction available Under Section 24, against the arrears of rent received. In our considered opinion, the ld. CIT(A) was not justified in not allowing the statutory deduction Under Section 24 on the amount of arrears of rent received by the assessee. We order for the grant of the deduction Under Section 24. This ground is allowed.
14. Second ground is against the charging of interest Under Section 234B of the Act.
15. The ld. A.R. contended that the interest Under Section 234B was not chargeable as the assessee could not foresee the receipt of income. In the opposition, the ld. DR relied on the impugned order.
16. Having heard the rival submissions and perused the relevant material on record, we are not inclined to accept the assessee's contention on the ground that such arrears of rent were in fact received by the assessee during the period relevant to A.Y. 1997-98. Thus, there is no question of foreseeing the income as it was, in fact, received by the assessee during the relevant period. From the language of Section 234B it is manifest that the advance tax is payable with reference to finally assessed income, the failure of which attracts interest liability, which is mandatory in nature. As the amount was received by the assessee in the year in question and has been held to be taxable, we fail to appreciate as to why the levy of interest Under Section 234B be not put into operation. In our considered opinion, the ld. CIT(A) was justified in upholding the levy of interest Under Section 234B.
17. In the result, this appeal is partly allowed.