2017 (7) TMI 609 - AT - Income Tax

Tribunal restores original assessment, classifies income as 'business income'

The Tribunal allowed the appeal, setting aside the Pr. CIT's order under section 263 and restoring the AO's original assessment. The income was classified ... Revision u/s 263 - Held that:- The proceedings under section 263 have been initiated on mere change of opinion on the same identical facts and circumstances of this case as is considered by the Revenue Department in earlier year as well as in the assessment year under appeal. As is noted above, Assessing Officer has considered this issue at assessment stage by calling for information from the assessee. The claim of the assessee is consistent as have been made in earlier years, therefore, in the absence of any new material against the assessee, Revenue Department cannot be allowed to take a contrary view in subsequent year. Such approach is not permissible under the law. We may also note here that CIT has not pointed out in the impugned order as to how the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interest of revenue. The ld. Pr. CIT, without any basis and merely following two decisions of the Hon'ble Supreme Court referred to above, have set aside the assessment order. Whether a particular income is ‘income from house property’ or a ‘business income’, depends upon facts and circumstances of each case and different views are possible as per various judgements, referred to above based upon the evidence and material on record. The issue is highly debatable and as such, ld. Pr. CIT was not justified in setting aside the assessment order by invoking jurisdiction under section 263 of the Act. We do not agree with the view of ld. Pr. CIT in invoking jurisdiction under section 263 of the Act. Accordingly, we set aside and quash the order under section 263 of the Act dated 25.02.2016 and restore the assessment order dated 14.01.2014. Appeal of the assessee is allowed. Issues Involved:1. Classification of income as 'business income' or 'income from house property'.2. Validity of the order passed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act.3. Application of the principle of consistency in income tax proceedings.4. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) under section 263 of the Income Tax Act.Issue-wise Detailed Analysis:1. Classification of Income as 'Business Income' or 'Income from House Property':The main contention was whether the income earned by the assessee from letting out commercial properties and providing additional facilities (such as air conditioning, power backup, generator, etc.) should be classified as 'business income' or 'income from house property'. The assessee argued that these activities constituted a business and thus the income should be treated as 'business income'. The Pr. CIT, however, believed that the income should be classified as 'income from house property' as the primary activity was letting out properties.2. Validity of the Order Passed by the AO under Section 143(3) of the Income Tax Act:The AO initially classified the income as 'business income' after examining the books of account and information provided by the assessee. The Pr. CIT found deficiencies in this assessment and issued a notice under section 263, arguing that the AO did not properly examine the nature of the income. The Tribunal noted that the AO had considered the issue in detail, including in previous years, and had consistently classified the income as 'business income'.3. Application of the Principle of Consistency in Income Tax Proceedings:The assessee argued that the income had been consistently treated as 'business income' in previous years and this treatment should continue. The Tribunal agreed, citing various judgments, including those of the Supreme Court and High Courts, which upheld the principle of consistency. The Tribunal noted that unless new material was brought against the assessee, the Revenue Department could not take a contrary view.4. Jurisdiction of the Pr. CIT under Section 263 of the Income Tax Act:The Tribunal examined whether the Pr. CIT was justified in invoking section 263 to revise the AO's order. It was noted that for an order to be revised under section 263, it must be both erroneous and prejudicial to the interests of the Revenue. The Tribunal found that the AO had taken one of the possible views permissible under the law, which was supported by judicial precedents. Therefore, the AO's order could not be deemed erroneous simply because the Pr. CIT disagreed with it. The Tribunal concluded that the Pr. CIT's invocation of section 263 was not justified as the AO's view was sustainable in law and consistent with previous assessments.Conclusion:The Tribunal set aside the order of the Pr. CIT under section 263, restoring the AO's original assessment order. The appeal of the assessee was allowed, reaffirming the classification of the income as 'business income' and upholding the principle of consistency in income tax proceedings. The Tribunal emphasized that different views on the classification of income are possible and the AO's view was a permissible one supported by judicial precedents.