ITAT deletes notional rent addition, declares reassessment void for missing section 143(2) notice, allows capital gains and other deductions

The ITAT Patna ruled on multiple issues in favor of the assessee. The tribunal deleted the notional rent addition imposed by AO following Rent Controller's order, noting consistent treatment with co-owner's case. Regarding assessment validity, ITAT held that assessment under section 143(3) was proper despite AO's attempt to rectify under section 154. The tribunal declared reassessment proceedings null and void due to non-issuance of mandatory notice under section 143(2), citing Hotel Blue Moon SC precedent. Capital gains addition was deleted as sale deed was cancelled due to dishonored cheques. Section 68 addition was removed since provisions don't apply to loans from earlier years. Deductions under sections 54F and 54EC were upheld, and profit estimation was deleted as AO lacked supporting evidence.

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Issues Involved:

1. Notional Addition of Rent Receivable
2. Rectification of Assessment Order under Section 154
3. Validity of Assessment without Notice under Section 143(2)
4. Addition under Section 68 for Unsecured Loans
5. Deduction under Sections 54F and 54EC for Capital Gains
6. Estimation of Business Income

Summary:

1. Notional Addition of Rent Receivable:
The assessee contested the confirmation of a notional addition of Rs. 4,68,566/- towards rent receivable from 28.07.2012 as per the Rent Controller's order. The Tribunal found that the assessee had received rent as per a revised agreement effective from 01.12.2012, and since the addition for notional rent was deleted for the co-owner, it was held unsustainable for the assessee as well. The Tribunal directed the AO to delete the addition, allowing the assessee's appeal.

2. Rectification of Assessment Order under Section 154:
The revenue challenged the Ld. CIT(A)'s quashing of the AO's rectification order under Section 154, which corrected the assessment section from 143(3) r.w.s 147 to 144 r.w.s 147. The Tribunal upheld the Ld. CIT(A)'s decision, noting that no notice under Section 143(2) was issued, making the rectification invalid. The appeal of the revenue was dismissed.

3. Validity of Assessment without Notice under Section 143(2):
The revenue's appeal against the Ld. CIT(A)'s quashing of the assessment due to the absence of a notice under Section 143(2) was dismissed. The Tribunal upheld that the assessment without such notice is invalid, citing several judicial precedents, including the Supreme Court's decision in PCIT vs. Hotel Blue Moon.

4. Addition under Section 68 for Unsecured Loans:
The assessee contested the addition of Rs. 34,00,000/- under Section 68 for unsecured loans. The Tribunal found that these loans were carried forward from earlier years and not credited during the current year. Thus, Section 68 was not applicable, and the addition was deleted, allowing the assessee's appeal.

5. Deduction under Sections 54F and 54EC for Capital Gains:
The revenue's appeal against the Ld. CIT(A)'s allowance of deductions under Sections 54F and 54EC was dismissed. The Tribunal agreed with the Ld. CIT(A) that the capital gain arose in the relevant assessment year when the sale proceeds were realized, and the deductions were rightly claimed.

6. Estimation of Business Income:
The revenue's appeal against the deletion of an estimated addition of Rs. 19,19,300/- to the business income was dismissed. The Tribunal found no evidence that the assessee earned income from dormant businesses, and the addition was based on mere suspicion. The Ld. CIT(A)'s deletion of the addition was upheld.

Conclusion:
The appeals of the assessee were allowed, the appeals of the revenue were dismissed, and the cross-objections of the assessee were also dismissed. The order was pronounced in the open court on 7th November 2023.

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