1998 (4) TMI 96 - HC - Income Tax

Revision u/s263 quashed where AO rightly adopted actual rent as annual value u/s23(1)

HC upheld the ITAT's order setting aside the Commissioner's revision under s.263. It held that the Assessing Officer had correctly adopted the actual rent ... Cancellation of the order passed by the Commissioner of Income-tax under section 263 - annual value determined was erroneous and prejudicial to the interests of the Revenue - Whether, the Appellate Tribunal had valid materials to hold that the annual value of house properties admitted by the assessee represented the market value of the rent that the property would fetch and hence there was no case for interference by the Commissioner by passing an order under section 263 of the Income-tax Act directing the Income-tax Officer to recompute the annual value of the house properties as provided under section 23(1) of the Income-tax Act ? - HELD THAT:- It is no doubt true that the value of the property was determined for 1972-73 and the same value was adopted for the assessment years in question. The Commissioner no doubt noticed the area of the building and the extent of the land occupied by the tenant, but there was no investigation or enquiry by him whether there was any actual increase in the rental value of the property and if so what is the extent of increase in the rental value of the properties. The Commissioner, on the basis of his own assumption that there was general increase in the rental value of the property, has directed the Income-tax Officer to investigate further and determine the rental value of the property. It is no doubt true that the two properties were let out to two sister concerns of the assessee-company, but the mere fact that they were let out to the sister concerns of the assessee-company would not render the property as not tenanted one. Under the Rent Control Act of the State, there is a procedure for the determination of the fair rental value of the properties and it is not possible for the assessee to realise the rent more than the fair rent determined under the Rent Control Act. The Commissioner has not determined what would be the fair rental value of the property under the relevant rent control law of the State and on the basis of his own assumption that there is a steep increase in the rental value of the property, it is not possible for him to exercise the power of revision and direct the Income-tax Officer to conduct further investigation and to determine the annual rental value of the same. The Income-tax Officer, in the present case, has taken the actual rent received from the two properties and has determined the annual rental value of the properties on the basis of the materials. Unless it is established that the materials relied upon by the Income-tax Officer were not relevant and some irrelevant materials have been taken into consideration before determining the annual value of the properties, it cannot be said that the determination of annual rental value of the properties made by the Income-tax Officer was erroneous. Therefore, we are of the opinion that the Commissioner has exercised his power of revision on his own assumption and exercised his power without any material or any evidence on record. As rightly pointed out by the Tribunal the trend was that there was an increase in rental value of the properties in the city it cannot be assumed that the Income-tax Officer had overlooked or missed the upward trend in the valuation of the city properties. The Income-tax Appellate Tribunal, in our opinion, has come to the correct conclusion in holding that the determination of annual rental value of the properties in respect of two assessment years, made by the Income-tax Officer has not been established to be erroneous in law and it cannot be revised under section 263. We find no infirmity in the order of the Tribunal. Accordingly, we answer the questions of law referred to us in the affirmative and against the Revenue. Issues Involved:The judgment involves the assessment of income of the assessee for two assessment years 1977-78 and 1978-79. The primary issues are whether the Appellate Tribunal was justified in canceling the order passed by the Commissioner of Income-tax u/s 263 of the Income-tax Act, 1961, and whether the Appellate Tribunal had valid materials to hold that the annual value of house properties admitted by the assessee represented the market value of the rent u/s 23(1) of the Income-tax Act.Assessment Year 1977-78:The assessee, a company, owned two residential properties in Madras. The Income-tax Officer adopted the income as shown by the assessee for these properties, and the Commissioner of Income-tax set aside the assessment orders, directing a reevaluation due to perceived low rental values. The Income-tax Appellate Tribunal found no errors in the determination of annual income from the properties and concluded that the Commissioner had not properly exercised his power of revision u/s 263. The Tribunal canceled the Commissioner's order, stating there was no ground for revision.Assessment Year 1978-79:The Commissioner directed the Income-tax Officer to reexamine the rental values of the properties due to an assumed general increase in rental values, without concrete evidence. The Tribunal found no errors in the Income-tax Officer's assessment and held that the Commissioner lacked material to revise the determination of annual rental values. The Tribunal correctly concluded that the Income-tax Officer's determination was not erroneous in law and could not be revised u/s 263. Both questions of law were answered in favor of the assessee, who was awarded costs.This judgment highlights the importance of concrete evidence and proper exercise of power in revising assessments under the Income-tax Act, emphasizing that assumptions without material basis are insufficient grounds for revision.