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TMI Blog2012 (8) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in the alternative and without prejudice, the income derived from letting out of the property be treated as 'income from business' as against 'income from house property'. As already pointed out, the issues raised for both the AYs being similar, they were heard, considered together and disposed off, for the sake of convenience in this common order. 3. Briefly stated, the issues are as under: The assessee firm ('the assessee' in short) had, for the AY 2003-04, furnished its return of income on 8.8.2003, admitting a total income of Rs.12 lakhs which was, initially, processed u/s 143(1) of the Act. Subsequently, notices u/s 143(2) and 142(1) of the Act were issued on 26.5.2005. However, the assessee had objected to the assessment proceedings on the ground that no notice u/s 143(2) was issued within twelve months from the date of filing of the return as required by the Act. Accordingly, the assessment proceeding initiated u/s 143(2) was dropped by the AO. On scrutiny of P & L account of the assessee, the AO noticed that the assessee had derived only rental income, but, claimed various expenses by treating the rental as 'business income'. To verify the veracity of the claim of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o merit in the allegation that the assessment is bad in law insomuch as AO has travelled beyond the reasons recorded for initiation of reassessment. Nevertheless, it may be pointed out that the AO is now empowered legally to go beyond the recorded reasons by virtue of insertion of Explanation 3 to Sec.147 by the Finance (No.2) Act 2009 w.r.e.f. 01-04-1989. 8. The AR further points out that the constitution of the firm as per the partnership deed was to take properties on lease and after improvement to give such properties on hire or let it out and, therefore, it is improper on the part of AO to consider that the firm was not in the business of letting out properties and it is earning income from house property and, therefore, earning escaped income by claiming uncalled for expenses. This issue will be dealt in detail while discussing the ground No.3 below. However, it is settled law that once it is found that reasons have been recorded, its sufficiency or reasonableness cannot be allowed to be questioned so as to nullify the assessment or treat the assumption of jurisdiction void. 9. It is also pointed out by the A R that the owner of property located at 70 & 70/1, M.G. Ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of services though is continuous, in case of rental premises it is a one time improvement and also the element of risk is missing in both, i.e., renting of premises as well as provision of attendant facilities and, therefore, the income cannot be taxed under the head 'business'. On the other hand, the dominant intention is evident from the fact that instead of giving the naked premises on rent, other services had also been provided so that higher rent can be earned. In view of the above analysis of dominant intention, I conclude that the income has rightly been assessed under the head house property," 6. Aggrieved, the assessee has come up with the present appeals. During the course of hearing, the submissions made by the learned A R are summarized as under: (i) Relying on the judgement of the Hon'ble Delhi High Court in the case of KLM Royal Dutch Airlines v Assistant Director of Income Tax (292 ITR 49) and in the case of CIT v VED and Co. (302 ITR 328), the learned counsel for the assessee contended that when the assessment is not finalized in pursuance of a return, it is impermissible for the Assessing Officer to initiate proceedings under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me derived by the assessee was from lease/rental from the subject property which was taken on lease the premises and the lease of the premise was for its business activity to generate income there-from; and that the AO nowhere in his order had stated that assessee was the owner of the premise and, thus, he was wrong in bringing to tax the income returned under the head 'house property'; (vi) That the only issue was whether the provisions of s.22 will override the provisions of sections 28 to 44B necessitating the taxing under the head 'property'. The AO had not considered the nature of services rendered by the assessee to the occupants of the Units; that cleaning services were undertaken as a part of the business operations of the assessee; that all the repair works even during the occupation of the building was under taken by the assessee apart from providing electrical and sanitary fittings to the tenants , the assessee also provided electrical and plumbing services and miscellaneous served to the various occupants; and that for having rendered all the services, the evidences for such services were to be found in the P & L account of the assessee itself; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issues. The learned D R also placed emphasis on the reasoning of the CIT (A) in upholding (i) the action of the learned AO in reopening the assessments for both the AYs under consideration; and (ii) sustaining the stand of the AO in assessing the income of the assessee under the head 'house property'. It was, therefore, pleaded that the conclusion arrived at by the authorities below requires to be sustained in toto. To drive home his point, the learned D R had placed strong reliance on the following case laws: * GKN Driveshafts (India) Ltd v. ITO (2003) 259 ITR 19 (SC); * ACIT v. Mahesh Investments - ITA Nos.905 to 911/B/97 & 133/B/98 dated 18.2.2003; & * Asst. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500 (SC) . 8. We have carefully considered the rival submissions, attentively perused the relevant case records and also the case laws on which both the parties have placed their strong reliance. Also duly perused the paper books furnished by the learned AR during the course of hearings which contained, among others, copies of (i) lease deed; (ii) order of the Hon'ble Jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons to believe that the income escaped assessment because the assessment of such income had to be under the head 'income from house property'. Accordingly, as rightly pointed out by the learned CIT (A), while concluding the assessment, the AO had not travelled beyond the reasons recorded and, therefore, there was no merit in the allegation of the assessee that the assessment was bad in law. 8.3 At this juncture, we would like to recall the ruling of the Hon'ble highest judiciary of the land in the case of ACIT v. Rajesh Jhavari Stock Brokers (P) Ltd cited supra wherein the Hon'ble Court had, after duly analyzing various aspects, ruled thus: "16. Section 147 authorises and permits the assessing officer to assess or reassess income chargeable to tax, if he has reason to believe that income for any assessment year has escaped assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the assessing officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment................" 8.4 With due care, we have perused the case laws on which the assessee had placed its reliance and of the firm view that they were not directly applicable to the facts of the issue on hand. In the case of KLM Royal Dutch Airlines v Assistant Director of Income Tax (292 ITR 49) and in the case of CIT v VED and Co. (302 ITR 328), the Hon'ble Delhi High Court held that when assessment proceedings are not terminated, the Assessing Officer is not justified in issuing notice under section 148 of the Act. In the instant case, as stated earlier, notice issued under section 143(2) was dropped on objection of the assessee, since the same was not issued as stipulated under the Act. When no scrutiny assessment could have been completed in this case, and when the Assessing Officer realizes that the income has escaped assessment, he is perfectly justified to invoke reassessment proceeding by issuance of notice under section 148 of the Act. In an overall consideration of the facts and circumstances of the issue as deliberated upon in the fore-going paragraphs and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due consideration of rival submissions, held as under: "6. Having heard the counsel for the parties and on perusal of the order passed by the assessing officer as also the Commissioner for Appeals and the Income-tax Appellate Tribunal, we are of the opinion that all the authorities without looking into the Partnership Deed of the respondent-assessee, have given their findings. In view of the judgment of the Supreme Court in R.C. Mitter and Sons case (supra)[36 ITR 194 (SC)], we are of the Page 16 of 19 ITA Nos.16 960 & 961/Bang/2010 opinion that the assessing officer was required to examine the nature of business activities carried on by the respondent - assessee in order to hold whether it is an Association of Person or a registered partnership firm. Without examining the activities of the respondent - assessee, it was not fair either for the assessing officer or the Commissioner for Appeal or the Tribunal to give their findings. 7. In the circumstances, without answering the question of law framed in this appeal, we are required to set aside all the orders and remand the matter to the assessing officer for fresh consideration. Accordingly, this appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 had held the status of the assessee as AOP and also the income derived by the assessee from the subject property was assessed under the head 'income from house property.' Significantly, the assessee has not come up with any documentary evidence to rebut the Revenue's stand convincingly. Taking into account the above facts into consideration and also in consonance with the findings of the earlier Bench referred above, we are of the firm view that the learned AO was justified in treating the rental income of the assessee from the subject property as 'income from house property.' The stand of the AO has also been duly vindicated by the learned CIT (A) for the reasons recorded in his impugned order. The stand of the authorities below requires no interference of this Bench. It is ordered accordingly. A.Y 2005-06: 8.10 It was the contention of the assessee that the original return was filed on 6.1.2006 and, therefore, a notice u/s 143(2) could have been issued at any time before 31.1.2007 u/s 143(3)(ii) of the Act whereas the AO had issued a notice u/s 148 of the Act on 13.7.2006. It was, therefore, argued that when a valid return filed could be processed, it cannot be said that inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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