Assessee not permitted to change head of income as per his own sweet will & convenience – ITAT

Assessee not permitted to change head of income as per his own sweet will and convenience. ITAT upheld addition following consistency rule

ABCAUS Case Law Citation:
ABCAUS 3341 (2020) (07) ITAT

Important case law relied upon by the parties:
Chennai Properties & Investments Ltd. v/s CIT, [2015] 373 ITR 673 (SC)
Rayala Corporation Pvt. Ltd. v/s ACIT [2016]386 ITR 500 (SC)
CIT v/s Bokaro Steel Ltd., [1999] 236 ITR 315 (SC)
CIT v/s Karnal Co–operative Sugar Mills Ltd., [2000] 243 ITR 002 (SC)
Col. Jaspal Singh v/s ITO

In the instant case the appellant assessee had challenged the order passed by the Commissioner of Income Tax (Appeals).

The assessee was a Private Limited company. For the assessment year under dispute, the assessee filed its return of income declaring a loss.

Initially, the return of income filed by the assessee was processed under section 143(1) of the Income Tax Act, 1961 (the Act) accepting the loss returned.

Subsequently, the Assessing Officer (AO) found that the assessee had received compensation from a PSU vide a decree passed by the Court. He further found that while completing assessment for the preceding assessment year, the AO had brought such compensation to tax as income under the head house property.

The aforesaid action of the AO was not contested by the assessee, whereas, in the impugned assessment year, the

assessee had not offered such compensation to tax under the head income from house property.

Therefore, alleging escapement of income the AO re–opened the assessment under section 147 of the Act.

During the re-assessment proceedings, the AO completed the assessment after rejecting the assessee’s objection to the re-opening u/s 147 and the treatment of the compensation received as house property income.

Before the Tribunal, the assessee submitted that it was basically engaged in the business of construction and development activity and was following project completion method of accounting. It was submitted that while accumulated cost was taken to the WIP account but the rent receivable was reduced from the said account. 

It was further submitted that the assessee had not entered into any rent agreement with PSU. That the compensation received was incidental to carrying on the business and there was no intention of earning any rental income, the compensation received was rightly set–off against work–in–progress.

It was further submitted that the compensation received was in the nature of mesne profits received by the assessee on account of damages for deprivation and use of occupation. Hence, the compensation received was capital in nature.  

Regarding the reopening, the assessee contended that merely because it did not contest the issue in preceding assessment year, it could not be said that the assessee had accepted the compensation received as income from house property.

Assessee can not change head of income at own will and convenience

The Tribunal observed that the previously, the action of the AO to bring the compensation received to tax under the head income from house property was accepted by the assessee, Further in next two assessment years also the assessee offered the compensation received under the head income  from house property by revising its returns of income filed  earlier.

The Tribunal stated that the conduct of the assessee clearly showed that in three subsequent assessment years the assessee had accepted the rental income as income from house property. Thus, the rule of consistency would clearly  apply insofar as treatment of compensation received in the impugned assessment year as well.

The Tribunal said that the assessee cannot be permitted to  change the head of income according to his own sweet will   and convenience.

The ITAT opined that the compensation received by the assessee had been correctly assessed under the head income from house property.

The Tribunal also did not find any legal infirmity in the action of the Assessing Officer in re–opening the assessment under section 147 of the Act.  

Accordingly, the appeal of the assessee was dismissed.

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