2015 (7) TMI 161 - AT - Income Tax

Tribunal allows reassessment of rental income classification under Income-tax Act

The Tribunal upheld the reopening of the assessment under Section 148 of the Income-tax Act, 1961, as the initial processing under Section 143(1) did not ... Validity of reopening of assessment - The assessee filed the return of income and the same was processed under Section 143(1) of the Act - Held that:- While processing the return under Section 143(1) of the Act, AO is empowered to correct arithmetic error in the return or adjustment of an incorrect claim which is apparent on the information given in the return. The Assessing Officer is not expected to decide in respect of the issue which requires a discussion and examination. Therefore, the Assessing Officer is making a correction of arithmetic error and the claim which is apparent from the information available in the return. In the new scheme of intimation under Section 143(1) of the Act, the Assessing Officer is not expected to express any opinion on the issue raised by the assessee. In other words, the Assessing Officer cannot express any opinion while processing the return under Section 143(1) of the Act. This is a radical change made by the Parliament with effect from 1.4.1989. Since the Assessing Officer cannot make any adjustment with regard to an issue which is debatable in nature, this Tribunal is of the considered opinion that the Assessing Officer cannot express any opinion in a proceeding under Section 143(1) of the Act. Therefore, this Tribunal is of the considered opinion that the Assessing Officer has rightly reopened the assessment by issuing a notice under Section 148 of the Act. - Decided against assessee. Business of the assessee is letting out of the properties - Held that:- No material is available on record to suggest that the assessee is carrying on the business of letting out of the properties nor any material available on record with regard to nature of property which was let out by the assessee and the purpose for which it was let out. Therefore, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Assessing Officer in the light of the judgment of the Apex Court in Chennai Properties & Investments Ltd. (2015 (5) TMI 46 - SUPREME COURT). - Decided in favour of assessee for statistical purposes. Issues Involved:1. Reopening of the assessment under Section 148 of the Income-tax Act, 1961.2. Classification of rental income as business income or income from house property.Detailed Analysis:Reopening of the Assessment:The first issue pertains to the reopening of the assessment. The assessee filed the return of income on 2.09.2002, admitting an income of Rs. 35,700/-, which was processed under Section 143(1) of the Income-tax Act, 1961. Subsequently, the Assessing Officer (AO) reopened the assessment by issuing a notice under Section 148 on 30.03.2007. The assessee contended that the reopening was due to a change of opinion, relying on the Delhi High Court judgment in CIT v. Orient Craft Ltd. (2013) 354 ITR 536. The Departmental Representative argued that since the reopening was within four years and the AO had not expressed any view initially, it could not be considered a change of opinion.The Tribunal examined the provisions of Section 143(1) and noted that the AO is empowered to correct arithmetic errors or incorrect claims apparent from the return's information. The AO is not expected to express any opinion or make adjustments on debatable issues during this process. Citing the Apex Court's decision in ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500, the Tribunal concluded that the reopening was justified as the initial processing under Section 143(1) did not involve any opinion formation by the AO. Therefore, the reopening of the assessment by issuing a notice under Section 148 was deemed appropriate.Classification of Rental Income:The second issue involved the classification of rental income. The assessee claimed that the rental income from properties should be treated as business income, as the business involved letting out properties. The AO and the Commissioner of Income Tax (Appeals) disagreed, treating it as income from house property. The assessee cited the Supreme Court judgment in Chennai Properties & Investments Ltd. v. CIT (2015) (5) TMI 46, where rental income was considered business income based on the business's nature and activities.The Tribunal noted the absence of material evidence to suggest that the assessee's business was letting out properties. There was also no information on the nature of the property let out or the purpose behind it. Consequently, the Tribunal found it necessary to reconsider the matter. The orders of the lower authorities were set aside, and the issue was remitted back to the AO for fresh examination in light of the Supreme Court judgment in Chennai Properties & Investments Ltd. The AO was directed to reexamine the matter afresh, considering the available material and decide accordingly.Conclusion:The appeal was allowed for statistical purposes, with the AO instructed to reassess the classification of rental income and the validity of the reopening of the assessment. The order was pronounced on 26th June 2015 at Chennai.