ROYAL ORCHID HOTELS LTD,BENGALURU vs. ASSISSTANT COMMISSIONER OF INCOME TAX, CIRCLE-5(1)(1), BENGALURU

The Grounds of appeal filed by the assessee are as under:- “1. The order of the CIT(A) is opposed to law and facts. 2. The reasons recorded do not appear to have any nexus with the issue of notice u/s 148. It is reiterated that the appellant requires a copy of the reasons recorded in order to fully and effectively represent his case. 3. The entire repair expenditure is allowable as such expenditure was on leasehold property. 4. The CIT(A) erred in not disposing off the ground pertaining to the disallowance of FBT. 5. For these and other reasons that may be adduced at the time of hearing, this appeal may be allowed.”

The Grounds of appeal filed by the Revenue are as under:-

The assessee challenged the reopening of the case after issuing notice u/s 148 of the Act and the revenue challenged the

The brief facts of the case are that the assessee filed return of income u/s 139 of the Act on 26/09/2009 declaring a total income of Rs.18,53,38,153/-. The case was selected for scrutiny. The detailed questionnaire u/s 142(1) dated 27/51/2014 was issued to the assessee and nine opportunities were granted to the assessee. The AO after considering the detailed submissions he made disallowance under the two issues a) provision for doubtful advances and b) loss on sale of assets and completed the assessment u/s 143(3) of the Act on 31/05/2011. Later on, the reasons were recorded by the AO and reopened the case u/s 147 of the Act vide notice dated 11/04/2010 u/s 148 of the Act. Shri Amit Jaiswal V.P Finance and P Chandra Shekar CA and authorized representative of the assessee company appeared and the case was discussed. In response to notice u/s 148, the assessee filed a letter stating that the original return filed u/s 139 may be treated as return filed in response to the notice u/s 148 of the Act. The copy of reasons for reopening of assessment was served to Shri Amit Jaiswal V.P Finance of the assessee company. The assessee company did not file any objection for reopening the case.

During the course of reassessment proceedings, it was noticed that assessee in his computation of income had claimed additionally under allowable expenditure an amount of Rs.4,76,05,398/- as Hotel Harsh renovation expenses. Even though, the loss Rs.1,10,48,523/- was considered while computing the taxable income, the AO added to the entire claimed of renovation expenses of Rs.4,76,05,398/- into the income of the assessee. Further, the AO observed from the 147 proceedings that assessee company under ‘rates and taxes’ had claimed an amount of Rs.20,39,464/- as Fringe Benefit Tax (FBT). However, while computing taxable income of the assessee, it was not added back into the total income of the assessee. Hence, the AO added into the total income of the assessee in the reopening proceedings and completed the reassessment u/s 143(3)/147 on 31/07/2014.

Aggrieved from the order of the AO, the assessee filed appeal before the CIT(A) and he has also filed detailed written submissions to justify that he filed the details of Rs.4,76,04,599/- and the CIT(A) has incorporated the same in his order. Accordingly, the CIT(A) upheld that partly the expenses incurred by the assessee is the revenue expenditure and some of the expenses are capital in nature and he directed the AO to allow depreciation on the capital expenditure after disallowing the capital expenditure incurred by the assessee and accordingly, he partly allowed the appeal of the assessee.

Aggrieved from the order of the CIT(A) both the parties filed appeal before the ITAT.

The assessee has raised legal issue on various grounds before us by way of additional grounds of appeal which is placed on paper book No.2 containing page Nos. 1 to 54.

The ld.AR of the assessee submitted that there is a complete change of opinion by the AO while reopening the case of the assessee. The case was completed u/s 143(3) of the Act and all the materials were available before the AO during the course of assessment proceedings, which were accepted by the AO and detailed questionnaire was also issued by the AO which was compiled by the assessee. No new tangible materials were referred by the AO for reopening of the case and he also submitted that the AO reopened the case beyond limitation period and due approval has not been obtained as per sec. 151(1)(ii) and notice 143(2) has been issued to the assessee before completion of re- assessment proceedings. In support of his argument he relied on the following judgments:-

He also submitted that the copy of the reasons was not provided to the assessee during the course of reassessment proceedings, whereas the letter was written to the AO and reasons has been recorded after issuance of notice u/s 148 of the Act, which is clear from the letter written by the AO to the assessee dated 27/06/2014 Therefore, the entire reassessment proceedings are bad in law and not sustainable.

On the other hand, the ld.DR relied on the order of the lower authorities and he submitted that before reopening of the assessment, the reasons were recorded by the AO and which was got approved from the competent authority within the due time and there is no illegality in issuance of notice u/s 148 of the Act and the AO had sufficient reasons to believe to the escapement of the income during the assessment year. He further submitted that the letter was written by the AO to the assessee for providing reasons for reopening of the completed assessment proceedings and the reasons were recorded before reopening of the case and

After hearing rival submissions and perusing the entire materials on record and examining the orders of the lower authorities, we observe that since the assessee has challenged the legal issue for reopening of the assessment that the AO has not duly complied the procedure as per the decision of the various upper courts, therefore, we have to see first to the copy of the reasons recorded. On going through the paper book at page No.6, letter was written by the AO, Circle-12(4), Bangalore dated 27/6/2014 vide F/148/ACIT/C-12(4)/2014-15, the contention of the letter is as under:-

On perusal of the above letter in which the contents of the reasons for reopening has been mentioned, the copy of reasons were provided to the AR of the assessee, which is clear from the

In the case before us the Assessing Officer reopened assessment on mere ground that expenditure incurred by assessee-company, for renovation of hotel expenses and rates and taxes claimed as FBT payable, since said reason for reopening was based on same set of information which was available at time of original assessment proceedings, , therefore, reopening of assessment based on a mere change of opinion is invalid and not permissible under the law.

We do not find substance on the submission of ld.DR on this issue. Further, on other legal issues that the assessee could not produce substantial evidence for deciding the issues. Since we have quashed the reopening of the reassessment on the basis of change of opinion, therefore, the entire reassessment order does not survive. Accordingly, the appeal of the revenue also does not survive. 17. In the result, the grounds raised by the assessee is partly allowed and the appeal of the Revenue is dismissed. A copy of order be placed on the respective case files. Order pronounced in court on 21st day of September, 2022 Sd/- Sd/- (George George K) (LAXMI PRASAD SAHU) Judicial Member Accountant Member Bangalore, Dated, 21st September, 2022 / vms /

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