Res Judicata in Income Tax Proceedings

Whether a decided question of facts can be re-opened by adjudicating authority?

In the present case, the assesse (Surti Chemicals Pvt. Ltd.) was a company which earned rental income from property outlet. The assesse declared its rental income for Assessment Year 2013-14 at Rs. 11,03,003 per month. During the course of assessment proceedings, the learned Assessing Officer (“AO”) perused the lease deed submitted before him. He noticed that the lease deed commenced on 31.10.2007 and monthly rent was decided at Rs.11,63,414/- with increment of rent @ 15% on the last paid lease rent after the expiry of every three years. On this basis, the lease rent for the financial year 2012-13 relevant to the assessment year 2013-14 worked out to Rs.1,52,21,441/- being Rs.12,68,453 per month. He, therefore, issued show-cause notice dated 07.12.2015 to which the assessee responded vide letter dated 8.01.2016 stating therein that as per Section 23 of the Income-Tax Act, 1961(“Act”), annual value for rental income is to be taken the actual rent received; the actual rent received by the company is Rs.1,39,60,968/- @ Rs.11,63,414/- per month; the rent received @ Rs.11,63,414/- is after increment @ 15% on Rs.10,11,664 /-and that the original rent as per agreement of Rs.11,03,003/- was reduced on account of surrender of area by the tenant. The explanation of the assessee was not acceptable to the learned AO and subsequently made the addition to the income of the assesse.

The assessee appealed before the learned CIT(A). During appellate proceedings, the assessee submitted in writing that it purchased a let out property in the year 2008 located at 2nd & 3rd Floors in Melange The Mall in Meerut and the lease deed dated 19.02.2008 was assigned in favour of the assessee. The total let out area was 35,580.74 sq.ft. @ 31/- PSF to Rave Entertainment Private Ltd. (a unit of ADLABS FILMS LTD.). In view of area measuring 2946.34 sq. ft. having been surrendered by the tenants, the actual rent received was only for the remaining area i.e. 32,634.41 on which rent works out at Rs.10,11,667/- and increment clause of 15% which was due w.e.f. 31.10.2010 was also applied on this and making the rent @ 35.65 i.e. Rs.11,63,414/- per month and annual rent of Rs.1,39,60,968/-As against this, the learned AO had not accepted the surrender of the area and worked out increased rent on the full area. It was aloso pointed out by the assesse that the same rent was received and declared in earlier years also and submitted a copy of its assessment order under Section 143(3) of the Act for the immediately preceding assessment year 2012-13 where similar rental income was assessed. The learned CIT(A) did not give relief to the assesse.

Aggrieved by the decision of CIT(A), assesse filed appeal to ITAT. The Learned AR argued that on identical facts and circumstances, surrender of an area of 2946.34 sq.ft. by the tenant to the assessee has been accepted by the predecessor Assessing Officers. The assessee is in possession of the surrendered area but could not let it out to any other party as the said Mall could not get success. The learned DR relied on the order of the learned CIT(A). After considering the rival submissions, ITAT was of the view that the assessee has all along declared the rent receipt on the basis of32634.41 sq. ft. area occupied by the tenant Reliance Mediaworks Ltd. which has been accepted by the predecessor learned AO in the assessment order dated 6.01.2015 framed under Section 143(3) of the Act for the Assessment year 2012-13. The facts remain the same in the succeeding assessment year 2013-14, presently under consideration. Further, ITAT in its order stated that:

“In Radhasoami Satsang vs. CIT [193 ITR 321 (SC)], the Hon’ble Supreme Court observed that though strictly speaking res judicata does not apply to income-tax proceedings but where a fundamental aspects permeating through the different assessment years has been found as a fact 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 principles laid down by the Hon’bleSupreme Court in Radhasoami Satsang vs. CIT (supra) has been applied by the Hon’ble Delhi High Court in Director of Income-tax vs. Lovely Bal Shiksha Parishad [266 ITR 349 (Del)]. Rule of consistency has to be followed as held by the Hon’ble Supreme Court in CIT vs. Narendra Doshi [254 ITR606 (SC)]”.

Accordingly, ITAT deleted the addition made by the learned AO which had been confirmed by CIT (A).

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