2019 (12) TMI 682 - AT - Income Tax

Tribunal quashes Section 263 order, rules in favor of assessee on assessment appeal.

JKS Infrastructure Pvt. Ltd. Versus Pr. CIT, Central-1, Kolkata

JKS Infrastructure Pvt. Ltd. Versus Pr. CIT, Central-1, Kolkata - TMI Issues Involved:1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961.2. Erroneous and prejudicial nature of the assessment order.3. Allowability of interest paid to the bank against income computed under the head 'Income from house property'.4. Examination of whether the rental income should be assessed as “Business Income” or “House Property Income”.5. Standard deduction and interest deduction under Section 24 of the Income Tax Act.6. Impact of search and seizure operations and the concept of unabated assessment.7. Examination of whether the assessment order was passed without requisite investigation and inquiries.Issue-wise Detailed Analysis:1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961:The PCIT exercised jurisdiction under Section 263, issuing a notice to the assessee to explain why a revisionary order should not be passed to correct the perceived error. The PCIT's jurisdiction was questioned by the assessee, arguing that the notice was without jurisdiction and the order passed was bad in law.2. Erroneous and Prejudicial Nature of the Assessment Order:The PCIT held that the assessment order was erroneous and prejudicial to the interest of revenue. The assessment order allowed deductions for interest paid without proper examination, leading to an excess deduction of Rs. 7,90,69,892/-. The PCIT concluded that the AO's failure to investigate the nature of interest paid and the classification of rental income resulted in an erroneous order prejudicial to the revenue.3. Allowability of Interest Paid to the Bank Against Income Computed Under the Head 'Income from House Property':The PCIT noted that the AO allowed a deduction for interest paid by the assessee without examining whether the interest was paid on loans taken for constructing or acquiring the go-down from which rental income was derived. The PCIT directed the AO to determine the correct amount of interest to be deducted under Section 24(b).4. Examination of Whether the Rental Income Should Be Assessed as “Business Income” or “House Property Income”:The PCIT observed that the AO did not examine whether the income from the go-down should be assessed as “Business Income” or “House Property Income”. The AO had accepted the assessee's claim without making requisite inquiries, leading to an erroneous order.5. Standard Deduction and Interest Deduction Under Section 24 of the Income Tax Act:The PCIT found that the AO allowed a standard deduction of 30% under Section 24(a) and a deduction for interest on borrowed capital under Section 24(b) without proper examination. The PCIT directed the AO to reassess these deductions based on a detailed investigation of the Panvel Project and its completion status.6. Impact of Search and Seizure Operations and the Concept of Unabated Assessment:The assessee argued that the assessment for AY 2011-12 was not pending at the time of search and seizure, making it an unabated assessment. The assessee contended that no addition should be made without incriminating material found during the search. The Tribunal agreed, noting that in the case of unabated assessments, additions cannot be made without incriminating material.7. Examination of Whether the Assessment Order Was Passed Without Requisite Investigation and Inquiries:The Tribunal examined whether the AO's order was passed without proper investigation and inquiries. It was noted that the AO had considered the issue of income from the commercial go-down and took a possible view. The Tribunal found that the AO's order was not erroneous as it was based on the facts and circumstances presented.Conclusion:The Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal quashed the order passed by the PCIT under Section 263, allowing the appeal of the assessee. The Tribunal emphasized that in the case of unabated assessments, additions cannot be made without incriminating material, and the AO's order was based on a permissible view supported by the facts and circumstances of the case.