1997 (9) TMI 52 - HC - Income Tax

Godown/building rental receipts: business income or house property income-lack of AO enquiry upheld s.263 revision, remand ordered

Whether the Commissioner's revision under s.263 was valid when the AO had not properly enquired whether receipts from letting godowns/buildings were ... Income received from letting out of the properties - income from business or as income from house property - failure on the part of the Assessing Officer to make necessary enquiry rendered the assessment erroneous and also prejudicial to the interests of the Revenue - Whether, the Tribunal was justified in law in cancelling the order passed by the Commissioner under section 263 of the Income-tax Act, dated March 23, 1989? - HELD THAT:- It appears that the same was not inquired into and no proper efforts were made to find out whether the income derived from letting out of godowns and buildings was assessable under the head 'Business income' of the assessee or not. In our opinion, the view taken by the Commissioner of Income-tax is not erroneous and it should not have been interfered with by the Tribunal, simply because, the Commissioner of Income-tax has observed that it is a debatable issue and left the issue to be decided by the Assessing Officer. This was the correct approach because if the Commissioner of Income-tax has recorded that it is an income not arising out of the business then further inquiry by the Assessing Officer would have been influenced by that observation. The Commissioner of Income-tax has only observed that no proper enquiry has been made and let an enquiry be made by the Assessing Officer after hearing the parties. This is the correct approach of the Commissioner of Income-tax and we are of the opinion that the view taken by the Tribunal in the present situation does not appear to be justified. Since the matter is being remanded back to the Assessing Officer to make enquiry, therefore, we need not express any opinion. Thus, the view taken by the Tribunal does not appear to be correct. Hence, we answer the aforesaid question in favour of the Revenue and against the assessee. Issues involved: The judgment involves a reference u/s 256(1) of the Income-tax Act, 1961, regarding the cancellation of an order passed by the Commissioner u/s 263 of the Income-tax Act.Details of the Judgment:The Commissioner of Income-tax found the assessment order passed by the Assessing Officer u/s 143(3) to be erroneous and prejudicial to the Revenue's interests as the Officer accepted the assessee's claim without proper enquiry. The Commissioner set aside the order u/s 263 and remanded the case for further investigation.The Tribunal, however, overturned the Commissioner's order, stating that a definite finding on the nature of income was not provided and deemed the issue debatable, leaving it for the Assessing Officer to decide. The Tribunal set aside the Commissioner's order u/s 263.Upon review, the High Court noted that the Assessing Officer failed to determine whether the income from letting out properties should be classified as 'Income from house property' or 'Business income.' The Court opined that the Commissioner's decision to remand the case for inquiry was appropriate, as the lack of proper investigation rendered the assessment erroneous.The Court disagreed with the Tribunal's view that the issue was debatable, emphasizing that the Commissioner's directive for further inquiry was valid. Referring to a previous decision, the Court upheld the Commissioner's approach and ruled in favor of the Revenue, stating that the Tribunal's decision was incorrect.In conclusion, the Court found in favor of the Revenue, highlighting the importance of proper inquiry into the nature of income and supporting the Commissioner's decision to remand the case for further examination by the Assessing Officer.