Income Tax Appellate Tribunal (ITAT) Hyderabad in a recent judgment has held that though res judicata is not applicable to the income tax proceedings, there has to be consistency and uniformity in the approach of Income Tax Department in the assessee’s own case in the subsequent AY on the same set of facts.

Case Details:
ITA.No.1868 & 1869/Hyd/2014 Assessment Year 2009-2010 & 2010-2011
Shalivahana Estates P. Ltd (Appellant) vs ACIT (Respondent)
Date of Order: 27-11-2015

Brief Facts of the Case:
The assessee firm was owner of a property at Sarojini Devi Road, Secunderabad. It entered into a development agreement with one of its sister concern M/s. Shalivahana Associates (“developer”) for construction of a commercial complex on the said land with their own funds vide development agreement dated 01.04.2001. The said complex was completed in 2004 and thereafter the assessee entered into registered lease deeds dated 04.05.2005 with M/s. Secunderabad Hotels P. Ltd., for lease of the above mentioned constructed property. Thereafter, the assessee obtained a loan on lease rentals from UCO Bank to repay a loan obtained by the developer M/s. Shalivahana Associates from Oriental Bank of Commerce. Assessee claimed the interest paid to UCO Bank from ‘the income from house property’ as interest paid for acquisition or improvement of the property under section 24(b) of the Act for the first time during A.Y. 2005-06. During the scrutiny proceedings under section 143(3) of the Act for the A.Y. 2005-06, the A.O. called for the details of the loan advanced to the sister concern and A.O. called for the details of the loan advanced to the sister concern and after considering the details filed by the assessee, allowed the claim of the assessee. Similar claims made in A.Ys. 2006-07 and 2007-08 were allowed by the respective Assessing Officers.

Thereafter, the CIT exercising jurisdiction under section 263 sought to revise the assessment orders for A.Ys. 2006-07 and 2007-08 on the ground that the assessee has obtained loans from UCO Bank against lease rentals and not for construction or improvement of the property and therefore, the interest on such loan was not allowable under section 24(b) of the Act. He accordingly held that the assessment order allowing the claim of interest under section 24(b) as erroneous and prejudicial to the interest of revenue and directed the A.O.

The assessee preferred appeals before ITAT against the order under section 263. vide ITA.No.832 & 833/Hyd/2011 and ITAT quashed the order under section 263 of the Act by holding it to be unsustainable.

However, during the A.Y. 2008-09, on the basis of the disallowance of the claim of interest in the earlier years, the returns of income processed under section 143(1) for the A.Ys. 2008-09, 2009-10 and 2010-11 were reopened by issuance of notice under section 148 and thereafter the AO disallowed the claim of interest under section 24(b) on the same grounds on which the CIT sought to revise the assessments for A.Ys. 2006-07 and 2007-08 under section 263. of the Act. Aggrieved, the assessee preferred appeals before the CIT(A) who confirmed the orders of the AO for A.Ys. 2009-10 and 2010-11 and the assessee preferred the present appeal before ITAT.

Important Excerpts from ITAT Judgment
But the first year of the claim is A.Y. 2005-06 wherein the claim of the assessee was allowed in the assessment proceedings under section 143(3) of the Act and this fact has been taken note of by the Coordinate Bench of this Tribunal while quashing the revision order under section 263 of the Act. As rightly held by the CIT(A), the observations of ITAT in the 263 proceedings may not be entirely relevant for the proceedings under section 144 read with section 147 of the Act but as seen from the copy of the assessee’s submissions before the A.O. for the A.Y. 2005-06, we find that the assessee had submitted that it had requested the builder to complete their share of constructed area for which the assessee shall reimburse the expenses incurred for providing all the amenities and that the availing of the loan was to reimburse the developer for such finishing works. Since the assessment for A.Y. 2005-06 was completed under section 143(3) of the Act after calling for various details and scrutiny of the same, it is to be presumed that the A.O. has verified the details and accepted the assessee’s contentions after being satisfied about their acceptability.

It has been held by the Hon’ble Supreme Court in the case of Radhaswami Satsang vs. CIT reported in 193 ITR 321, that though, strictly speaking, res judicata is not applicable to the income tax proceedings as each assessment year is a unit and what was decided in one year might not apply in the following year, where a fundamental aspect permeating through different assessment years has been found as a fact in one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. The Full Bench of Hon’ble Delhi High Court in the case of Usha International reported in (2012) 348 ITR 485 has observed that when a regular order of assessment is passed in terms of the sub-section (3) of section 143, a presumption can be raised that such an order has been passed on application of mind and that a presumption can also be raised to the effect that in terms of clauses (e) of section 114 of the Indian Evidence Act, the judicial and official acts have been regularly performed. Thus, there has to be consistency and uniformity in the approach of the Revenue in the assessee’s own case in the subsequent assessment years on the same set of facts. Since the A.O. has accepted the assessee’s claim after verification and the revenue has not taken any steps to revise or reopen the assessment for A.Y. 2005-06, the assessee cannot be asked to prove the same set of facts from year to year. Therefore, we are of the opinion that the disallowance of the claim of interest on the loan borrowed by the assessee from UCO Bank under section 24(b) of the Act is not sustainable. The assessee’s appeals are accordingly allowed.
Download Full Judgment Click Here >>