Principal Commissioner Overstepped Jurisdiction in Tax Assessment; Tribunal Rules in Favor of Assessee

The Tribunal held that the Principal Commissioner of Income Tax exceeded his jurisdiction by invoking revisionary powers under section 263 of the Income Tax Act, 1961 for the Assessment Year 2017-18. The Tribunal emphasized that where two views are possible and the Assessing Officer has taken one view, the Principal Commissioner cannot substitute his view. As such, the Principal Commissioner's order was quashed, and the appeal of the assessee was allowed regarding the treatment of notional rent on unsold vacant flats carried forward as closing stock.

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Issues:

1. Invocation of revisionary powers under section 263 of the Income Tax Act, 1961 by the Principal Commissioner of Income Tax (Central), Mumbai-3.
2. Treatment of notional rent on unsold vacant flats carried forward as closing stock for the Assessment Year 2017-18.

Issue 1:

The appeal by the assessee was against the order of the Principal Commissioner of Income Tax (Central), Mumbai-3 invoking revisionary powers under section 263 of the Income Tax Act, 1961 for the Assessment Year 2017-18. The assessee argued that the Assessing Officer had taken a possible view supported by the decision of the Tribunal in a similar case. The Authorized Representative for the assessee contended that the PCIT cannot invoke revisionary powers merely because the view taken by the Assessing Officer differed from that of the PCIT. The Authorized Representative emphasized that the Assessing Officer had followed judicial discipline and decided the issue in line with the view taken by the Jurisdictional Tribunal.

Issue 2:

The dispute revolved around the treatment of notional rent on unsold vacant flats carried forward as closing stock for the Assessment Year 2017-18. The assessee, a Developer, had constructed a residential building and could sell only one flat during the relevant financial year. The remaining unsold vacant flats were carried forward as closing stock. The Assessing Officer, after specific inquiry during scrutiny assessment proceedings, did not make any addition on account of notional rent for the unsold flats. The Authorized Representative for the assessee argued that this decision was in line with the Tribunal's decision in a similar case. On the other hand, the Departmental Representative contended that notional rent should have been charged on the vacant flats held as stock-in-trade as per the provisions of section 23 of the Act, citing a specific case to support this argument.

In the final judgment, the Tribunal examined the arguments presented by both sides and reviewed the orders of the authorities below. The Tribunal noted that the decision of the Mumbai Bench of the Tribunal in a similar case had held that no addition could be made under section 23 of the Act for vacant flats held as stock-in-trade and carried forward as closing stock. The Tribunal emphasized the principle that where two views are possible and the Assessing Officer has taken one view, the PCIT cannot substitute his view in the exercise of revisional jurisdiction under section 263 of the Act. The Tribunal concluded that the PCIT had exceeded his jurisdiction in this case by trying to impose his view over that of the Assessing Officer. Consequently, the impugned order was quashed, and the appeal of the assessee was allowed.

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