KILARI VENKATA ROSAIAH,GUNTUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1),, GUNTUR

This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-1, Guntur in Appeal No.106/2014-15 dated 21.03.2014 for the Assessment Year (A.Y.) 2011-12.

Ground No.1 and 4 are general in nature which does not require specific adjudication.

Ground No.2 is the addition made by the Assessing Officer (AO) stated to be outside the scope of reassessment provisions, since no addition was resulted on the reasons recorded.

Brief facts of the case are that, the assessee filed the return of income declaring total income of Rs.30,37,440/- on 06.02.2012. The assessment was completed u/s 143(1), subsequently, the AO reopened the assessment in respect of rents received from M/s NRI Academy and M/s Reliance Infra Ltd., totaling to Rs.19,37,640/- and issued the notice u/s 148 after duly recording the reasons. In response to notice issued u/s 148, the assessee filed a letter stating that the return of income already filed on 06.02.2012 may be treated as return in response to the notice issued u/s 148. Subsequently, the case was taken up for scrutiny and the notices u/s 143(2) and 142(1) were issued to the assessee and the assessment was completed on total income of Rs.45,87,650/-. In the assessment made u/s 143(3) r.w.s. 147, the AO made the addition representing the short admission of capital gains. No addition was resulted relating to the rental income which was believed to be escaped from the assessment as per the reasons recorded. Therefore, the assessee went on appeal before the CIT(A) and agitated the issue. In the written submissions filed before the Ld.CIT(A), the assessee stated that the reason for issue of notice u/s 148 was on account of non disclosure of rental income from NRI academy which pertained to HUF but not related to the assessee. The assessee further stated that the rental income was declared in HUF and assessed in the hands of HUF. Since no addition was made u/s 148 in the assessee’s case, with regard to rental income, the assessee argued that there is no case for making another addition. During the course of appeal proceedings, the assessee also challenged the validity of reassessment made u/s 143(3) without making the additions relating to the issues raised in the reasons recorded for reopening the assessment. The Ld.CIT(A) considered the additional ground raised

On the other hand, the Ld.DR submitted that as per Form 26AS, the assessee was paid the rental income of Rs.19,05,900/- from M/s NRI Academy and Rs.31,740/- from M/s Reliance Infra Ltd. which was not admitted in the return of income filed by the assessee. Therefore, the notice u/s 148 was issued since the assessee did not admit the rental income in his hands. Therefore, argued that reopening of assessment is perfectly in order. The Ld.DR further submitted that enquiry was caused with M/s NRI Academy on 19.11.2013 by issue of letter u/s 133(6), wherein NRI Academy clarified that the land and ACC sheds were leased for the purpose of running intermediate classes from the assessee on a rent of Rs.30,000/- per month and the NRI academy deducted TDS @30% and paid to the Government account. While filing e-TDS return, rent was shown at Rs.19,05,900/- and TDS of Rs.1,90,596/- in the account of Sri Kilari Venkata Rosaiah, it was further submitted by the NRI Academy that rent of Rs.19,05,900/- was paid to various persons including the assessee. The mistake was rectified subsequently by filing e-revised returns. After considering the reply of the assessee, the AO dropped the issue and no addition was made relating to the rents. Since the PAN of the assessee was mentioned in the 26AS, the AO believed that income was related to the assessee and hence argued that there is no error in reopening the assessment and the reopening of assessment is valid. The Ld.DR further submitted that though the assessment was reopened for non admission of rental income and the addition was not made on rental income and no addition was made during the course of assessment proceedings, it has come to the notice of the AO regarding escapement of income on sale of capital asset and the same was brought to tax. Since the reopening of assessment is valid, after insertion of Explanation 3 to section 147, the AO is permitted to make the addition on any other issue which comes to the notice of the AO during the course of assessment proceedings. Therefore, argued that the AO rightly made the addition with regard to long term capital gains, hence, requested to uphold the order of the AO. The Ld.DR relied on the decision of Hon’ble Punjab & Haryana High Court in the case of Commissioner of Income Tax Vs. Mehak Finvest (P.) Ltd. [2014] 52 taxmann.com 51 (Punjab & Haryana) and also the decision of Hon’ble High Court of Delhi in the case of Principal Commissioner of Income Tax (Central)-3 Vs. Jakhotia Plastics (P.) Ltd. [2018] 94 taxmann.com 89 (Delhi) and requested to uphold the order of the AO and dismiss the appeal of the assessee.

We have heard both the parties and perused the material placed on record. In the instant case, the assessee filed the return of income on 06.02.2012 and subsequently reopened the assessment for escapement of income with regard to rental receipts stated to be received from M/s NRI Academy and M/s Reliance Infra Ltd. amounting to Rs.19,37,640/-. The AO found that the assessee has not disclosed the rents received from NRI Academy and Reliance Infra Ltd, hence believed that the income chargeable to tax had escaped the assessment. From the computation of income filed by the assessee, the assessee has claimed the TDS to the extent of Rs.30,752/- as against the TDS stated to be deducted to the extent of Rs.1,90,900/-. Subsequently, during the assessment proceedings, the assessee clarified that the rental income received was not related to the assessee, but related to the HUF which was assessed to tax separately. The rental income was admitted in the HUF return. On an enquiry from NRI Academy, it was clarified that by mistake the rent was shown in the name of Sri Kilari Venkata Rosaiah and letter filed the revised TDS return. The AO also did not make any addition in respect of rental income. The above facts shows that there was a mistake in Form 26AS, which was issued by the deductor and the said income was not pertaining to the assessee. TDS also was not claimed by the assessee in it’s hands. The basis for believing the reason for reopening the assessment is without any material or application of mind. The AO ought to have made the verification of all these aspects before concluding the assessment proceedings. Since the reason to believe the income chargeable to tax had escaped assessment does not pertain to the assessee, reopening of assessment is not in accordance with law. Further after considering the explanation of the assessee, the AO did not make any addition representing the rental income, but proceeded to make the addition in respect of other issues i.e. capital gains. The Ld.AR relied on the decision of Hon’ble Jurisdictional High Court in the case of Swarna Andhra IJMII Integrated Township Development Pvt. Ltd., wherein, the Hon’ble Jurisdictional High Court held that Explanation 3 will be applicable to section 147 in case where live issue, which was subsisting at the time of original assessment and if such issue has escaped the assessment of AO, can be a ground for reopening. Any new issue that has cropped up subsequently on new set of facts has no application. For the sake of clarity and convenience we extract the relevant part of the order of the Hon’ble Jurisdictional High Court as under :

In the result, appeal of the assessee is allowed.