2022 (11) TMI 1287 - AT - Income Tax

Appeal Allowed: PCIT's Tax on Deemed Rent Deemed Erroneous

The Tribunal allowed the appeal against the Principal Commissioner of Income Tax's order under section 263 for the assessment year 2017-18. The PCIT's ... Revision u/s 263 - As per CIT not declaring of deemed rent in the return of income and A.O. erroneously passed the order without considering the same - HELD THAT:- Section 23(5) of the Act is not applicable for the assessee for this assessment year. The assessee explained and replied to the revenue about the issues in response to the notices of the Ld. PCIT. The formation of the opinion and belief of the Ld. PCIT was changing time to time after receiving reply of the assessee. We may also like to add here that section 23(5) of the Act has been inserted by the Finance Act, 2017 w.e.f. 01.04.2018 whereby notional annual value of the property held as stock in trade is sought to be brought to tax. The said amendment is only prospective in application. PCIT in his third show cause notice had sought to consider the taxability of deemed rental income not u/s 23(5) but u/s 23(1)(a) - Assessee had duly submitted that rental income has been correctly offered in return of income - PCIT has not brought with cogent evidence on record as to how the submission made by the assessee is incorrect. All facts & submission with regard to offer of rental income is already on record before the Ld. PCIT. Nothing prevented the Ld. PCIT to just verify those facts which are staring on him, before invoking his revisionary jurisdiction u/s 263 A.O. is neither erroneous nor prejudicial to the interest of the Revenue and hence, Ld. PCIT action u/s 263 of the Act is beyond jurisdiction and the same order is quashed. Appeal of assessee allowed. Issues:1. Assessment year 2017-18: Deemed rent not declared in return of income.2. Jurisdiction of Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1963.3. Applicability of section 23(5) and 23(1)(a) of the Act for taxability of deemed rental income.4. Erroneous and prejudicial assessment order passed by the Assessing Officer (AO).5. Revisionary jurisdiction of PCIT under section 263 of the Act.6. Appeal against PCIT's order.Analysis:1. The appeal was filed against the order of the Principal Commissioner of Income Tax (PCIT) under section 263 for the assessment year 2017-18. The PCIT set aside the order of the Assessing Officer (AO) for not considering the deemed rent on unsold property held as stock in trade. The PCIT sought to tax the deemed rent at 8% of the closing stock of flats. The assessee declared rental income but did not include the deemed rent under section 23 in the total income. The PCIT held the AO's order as erroneous and prejudicial to revenue, leading to the appeal.2. The PCIT issued multiple notices to the assessee regarding the taxability of deemed rental income under section 23(5) and later under section 23(1)(a) of the Act. The assessee responded by explaining that section 23(5) was not applicable for the assessment year in question. The PCIT changed its opinion based on the replies received. The PCIT's third notice mentioned a typographical error and sought to tax the deemed rental income under section 23(1)(a). The assessee argued that the rental income was correctly offered in the return, and the PCIT failed to provide evidence contradicting this submission.3. The Tribunal found that the PCIT's actions were beyond jurisdiction as the AO's order was neither erroneous nor prejudicial to revenue. The PCIT did not present substantial evidence to challenge the facts and submissions already on record. The Tribunal emphasized that the amendment introducing section 23(5) was prospective and did not apply to the assessment year in question. Therefore, the Tribunal allowed the appeal, quashing the PCIT's order under section 263 of the Act.4. In conclusion, the Tribunal held that the PCIT's revisionary jurisdiction was unjustified in this case, as the AO's order was found to be correct and not detrimental to revenue. The appeal of the assessee was allowed, and the PCIT's order was set aside.This detailed analysis covers the issues raised in the judgment, providing a comprehensive understanding of the legal aspects and arguments presented by the parties involved.