TMI Blog2006 (3) TMI 549X X X X Extracts X X X X X X X X Extracts X X X X ..... come is assessable under the head Income from house property and therefore, expenses claimed by the assessee by treating the rental income as business income were inadmissible. However, while completing the assessment, the Assessing Officer has not held that rental income is to be taxed under the head Income from house property . Hence, before the learned Commissioner of Income-tax (Appeals), it was argued that the Assessing Officer has not proceeded to assess on the ground mentioned in the reasons recorded. Therefore, the entire exercise of re-opening of the assessment is bad in law and fails. 4. However, the learned Commissioner of Income-tax (Appeals) has confirmed the action of the Assessing Officer after observing as under : "Once the assessment is re-opened the Assessing Officer is free to go into all the issues and need not confine himself to the reason to which the assessment has been re-opened. Therefore, there was nothing wrong in the Assessing Officer going into the issue of treatment of the business of the assessee and the question whether the income earned by the assessee on sale of shops was taxable as Business income or Capital Gains. This objection of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has observed that that the assessee-company is engaged in the development of a commercial complex and therefore, rental income is taxable under the head Income from business . The Assessing Officer in his order has reproduced the extracts form Director s report. If one goes through such extracts, then, it is clear that object of the assessee-company was to develop commercial complex. Such object is apparent from the report of Directors for the period prior to the start of this previous year. It is not the case of Assessing Officer that such facts were not available to him before re-opening of the assessment. The learned Punj. Har. High Court in the case of CIT v. Atlas Cycle Industries [1989] 180 ITR 319 1 had an occasion to consider as to whether the assessment proceedings can continue, in case, the ground on which the assessment was re-opened were found to be incorrect. The learned Punj. Har. High Court held that re-assessment proceedings cannot be continued if the grounds on which the notice is issued are found to be incorrect. The learned Punj. Har. High Court observed as under : "Adverting to the question referred regarding the re-assessment proceedings, we are o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case was re-opened to assess the unexplained investment in the house. It was noticed that fact of investment in house property was disclosed and such ground was found to be not sufficient for re-opening the assessment. In this view of the matter, the ITAT confirmed the finding of the appellate authority in annulling the assessment order. The learned Patna High Court upheld the finding of the Tribunal and held that re-assessment was not valid in law. 10. In the case of Farrukhabad Gramin Bank v. ITO [2005] 273 ITR 113 (All.), the issue before the High Court was as to whether notice under section 148 is valid in view of the subsequent decision of Supreme Court overruling its earlier decision. In this case, assessment was re-opened on the basis of the Hon ble Supreme Court s decision but subsequently that decision was overruled. Before the Allahabad High Court, it was argued that once a notice has been issued, the subsequent development would not invalidate the notice, as there may be other items of income which can be brought to tax in the reassessment proceedings. The learned High Court did not accept the above proposition. It was held that where very basis of notice issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Hence, it is held the learned Commissioner of Income-tax (Appeals) was not justified in holding that assessment proceedings concluded as a result of notice under section 147 were valid. 14. The next grievance of the assessee is that the learned Commissioner of Income-tax (Appeals) should have held that sale consideration with regard to the building sold was liable to be reduced from the block of assets. 15. During the year under reference, the assessee-company completed the construction work on ground and first floor. The construction started for second floor was shown as work-in-progress. Due to shortage of fund, the assessee-company sold some of the shops. These shops were shown as assets in the block of assets termed as building. The assessee claimed depreciation for the first time during the year under reference. These shops were current assets and according to the learned Commissioner of Income-tax (Appeals) no depreciation was allowed on these shops during the year and therefore profit arising from such sale of shops has been held as taxable under the head Capital gain . The assessee is aggrieved against such finding. According to the assessee, the sale considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... block of asset. (2)Block of assets. 21. In case the meaning of depreciation allowed under section 50 is referred to the asset forming part of the block of assets, then depreciation on the shops have not been allowed and section 50 will become inapplicable. However, in case depreciation allowed under section 50 refers to the block of assets, then depreciation stands allowed to the block of assets i.e., building of which shops are a part. In order to resolve this controversy, one has to refer to section 32(1), where it has mentioned that depreciation has to be allowed in the case of any block of assets. Hence, depreciation is always allowed on the block of assets. In the instant case, the block of assets is the building of which shops are a part. During the year under reference, the Assessing Officer has allowed depreciation on the building. Once depreciation is allowed on the block of assets, then any asset forming part of the asset if sold will be considered as per provision of section 50 of the Income-tax Act. It is not disputed that no capital gain is chargeable as per section 50 of the Income-tax Act, as the actual cost of the assets falling within the block of assets ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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