MANGLA INTERNATIONAL PVT LTD ,MUMBAI vs. INCOME TAX OFFICER-3(2)(2), MUMBAI

As far as the issue relating to the validity of reopening under section 147 of the Act, the brief facts are that for the year under consideration, re- assessment proceedings under section 147 of the Act were initiated, and ITAs No.1910, 1911, 1912 & 1913/MUM/2024 3 notice under section 148 of the Act was issued on 16/12/2005 on the basis that the return of income for the year under consideration was not filed by the assessee, and the license fee received by the assessee was claimed as “Business Income” instead of “Income from Other Sources” as assessed in the assessment year 2003-04. The reasons recorded for reopening the assessment were communicated to the assessee. In response, the assessee filed its objections against the reopening of the assessment and also submitted that the return of income for the assessment year under consideration was filed on 28/02/2000. Subsequently, the return of income for the year under consideration was received on transfer from the Office of the Income Tax Officer-3(2)(2), Mumbai, by the Transfer Memo dated 18/07/2006, wherein it was noticed that the return of income was filed on 28/02/2000 in the office of Assistant Commissioner of Income Tax, Circle- 3(3), Mumbai, declaring a total income of INR 70,797 and the tax was computed as per the provisions of section 115-JA of the Act. During the re- assessment proceedings, statutory notices under section 143(2) of the Act were issued to the assessee. In response, the Authorised Representative sought adjournment. Thereafter, various opportunities were granted to the assessee to furnish the details as called for. However, the assessee failed to cooperate in the scrutiny proceedings. Accordingly, the assessment in the case of the assessee was completed ex parte on the best judgment based on the material available on record. Vide order dated 27/09/2006 passed under section 144 of the Act, the Assessing Officer (“AO”), assessed the total income of the assessee at INR 5,85,860. In further appeal against the order passed by the learned CIT(A), the coordinate bench of the Tribunal vide its ITAs No.1910, 1911, 1912 & 1913/MUM/2024 4 order dated 18/11/2016 set aside the assessment order and the order passed by the learned CIT(A) and restored the matter to the file of the AO with a direction to frame the assessment afresh after giving a proper opportunity of being heard to the assessee.

In the second round of proceedings, the AO vide order dated 29/12/2017 passed under section 143(3) read with section 254 of the Act rejected the assessee's submission against the reopening of assessment under section 148 of the Act on the basis that there was no direction by the Tribunal to look afresh on the issue of re-assessment. As regards the issue of treating the license fees as “Income from Other Sources”, the AO following the decision of the Tribunal in the assessee’s own case for the assessment year 2001-02 held that the license fees received by the assessee are assessable under the head “Business Income”. Further, the AO only allowed the lease rent expenses of INR 2,88,000 and disallowed the remaining expenditure claimed by the assessee in the absence of any documentary evidence to prove the genuineness of expenses claimed by the assessee. Further, the interest income on fixed deposits was treated and taxed under the head “Income from Other Sources”. Accordingly, the AO assessed the total income of the assessee at INR 14,81,970.

The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee both on jurisdiction as well as the merits of the addition. Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned Authorised Representative (“learned AR”), at the outset, submitted that no addition has been made by the AO in respect of the issue which is the subject matter of the reasons for reopening the assessment under section 147 of the Act. Thus, it was submitted that the AO had no jurisdiction to make the addition under section 147 of the Act, in view of the decision of the Hon’ble Jurisdictional High Court in CIT v/s Jet Airways India Ltd., reported in [2011] 321 ITR 236 (Bom.).

On the other hand, the learned Departmental Representative vehemently relied upon the orders passed by the lower authorities and submitted that proceedings under section 147 of the Act were correctly initiated by the AO in the present case.

We have considered the submissions of both sides and perused the material available on record. It is the plea of the assessee that the assessment was completed under section 147, and no addition was made by the AO in respect of the issue, which was the subject matter of reasons for reopening the assessment. Therefore, the AO has no jurisdiction under section 147 of the Act to make the impugned addition.

Before proceeding further, it is relevant to examine the reasons recorded by the AO before reopening the assessment for the assessment year 1999-2000, which read as follows: -

From the perusal of the aforesaid reasons, it is evident that on the basis that the assessee has not filed its return of income for the year under consideration and the license fees received by the assessee have been offered for taxation under the head “Business Income” instead of “Income from Other Sources”, as assessed in the assessment year 2003-04, the AO alleged that the income chargeable to tax has escaped assessment.

However, from the perusal of the assessment order dated 27/09/2006 passed under section 144 of the Act, we find that the AO agreed in para-1.2 of the order that the return of income for the year under consideration was filed by the assessee on 28/02/2020 in the office of Assistant Commissioner of Income Tax, Circle-3(3), Mumbai, declaring a total income of INR 70,797. The contents of para-1.2 of the assessment order dated 27/09/2006 are reproduced as follows for ready reference: –

During the hearing, in order to buttress his submission that for the year under consideration, the assessee filed its return of income, the learned AR referred to the order dated 14/11/2006 passed by the Hon’ble Jurisdictional High Court in the assessee’s writ petition, being WP No. 2680- 2683 of 2006, forming part of the paper book from pages 37-28, wherein the Hon’ble High Court noted the contents of the affidavit filed by the Revenue, whereby it was admitted that return of income was filed by the assessee for the year under consideration, and the AO came to know about the said fact much later.

Further, as regards the other allegation, as noted in the reasons recorded for reopening the assessment based on the assessment order passed for the assessment year 2003-04, that the license fee income received by the assessee should be taxed under the head “Income from Other Sources” instead of “Business Income”, we find that vide assessment order dated 29/12/2017 passed under section 143(3) read with section 254 of the Act, which resulted in the present appeal, the AO accepted the contention of the assessee that the license fee earned by the assessee from letting out the premises to M/s Midday Publications Ltd is to be treated as “Business Income” by placing reliance upon the decision of the coordinate bench of the Tribunal in assessee’s own case for the assessment year 2001- 02, in and 5522/Mum./2005, vide order dated 15/10/2008. The AO further noted that this issue has attained finality since no appeal has ITAs No.1910, 1911, 1912 & 1913/MUM/2024 8 been preferred against the order of the Tribunal before the Hon’ble High Court.

Therefore, from the perusal of the material available on record, it is evident that the AO accepted both reasons on the basis of which notice under section 148 of the Act was issued and made no addition thereon. Thus, the reasons for reopening itself do not survive, in the present case, in view of the findings of the AO. Instead, the AO proceeded to disallow the expenditure, except the lease rent paid by the assessee, and interest on fixed deposits, vide its order dated 29/12/2017. In this regard, the following observations of the Hon’ble Jurisdictional High Court in Jet Airways India Ltd (supra) become relevant: - “16. ……..Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.

At this stage, we also cannot be oblivious to the trite law that the reasons, as recorded for reopening the reassessment, are to be examined on a standalone basis to determine the validity of proceedings under section 147 of the Act. In this regard, it is relevant to note the following observation of Hon’ble Jurisdictional High Court in Hindustan Lever Ltd v/s R.B.Wadkar, reported in [2004] 268 ITR 332 (Bom.): -

In the result, the appeal by the assessee for the assessment year 1999-2000 is allowed.

At the outset, we find that in the present case, the AO recorded the following reasons for reopening the assessment under section 147 of the Act: – “Sub.: Reasons recorded for reopening the assessment u/s.147 for A.Y. 2000-01 - reg.- With reference to above, this is to inform you that your assessment has been reopened for the following reasons:-

We further find that in this assessment year also the AO vide its order dated 27/09/2006 passed under section 144 of the Act, forming part of the paper book from pages 19-22, agreed that the assessee filed its return of income on 30/11/2000 in the office of Assistant Commissioner of Income Tax, Circle-3(3), Mumbai, declaring a total income of INR 40,915. Further, vide its order passed under section 143(3) read with section 254 of the Act, the AO following the decision of the coordinate bench of the Tribunal in the assessee’s own case for the assessment year 2001-02 held that license fee earned by the assessee is assessable under the head “Business Income”. However, the AO proceeded to make the disallowance of expenditure claimed by the assessee, except the lease rent paid by the assessee, and the interest on fixed deposits. Therefore, it cannot be disputed that the facts and circumstances of the present case are similar to 1999-2000. Thus, our findings/conclusions as rendered in assessee’s appeal for the assessment year 1999-2000 shall apply mutatis mutandis. Accordingly, the additions made by the AO and upheld by the learned CIT(A) are deleted as the same are beyond the purview of re-assessment proceedings initiated under ITAs No.1910, 1911, 1912 & 1913/MUM/2024 12 section 147 in the present case. As a result, grounds raised by the assessee are allowed.

In the result, the appeal by the assessee for the assessment year 2000-01 is allowed.

The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee both on jurisdiction as well as the merits of the addition. Being aggrieved, the assessee is in appeal before us.

We have considered the submissions of both sides and perused the material available on record. In the present case, re-assessment proceedings were initiated on the basis of the assessment order passed for the assessment year 2003-04, wherein the AO made certain

We find that as regards the one issue on the basis of which the re- assessment proceedings were initiated, i.e. treating the license fees received by the assessee as “Income from Other Sources” as against “Business Income”, the AO, vide assessment order passed under section 143(3) read with section 254 of the Act, agreed with the contention of the assessee that licensing fees are taxable under the head “Business Income”, following the decision of the Tribunal in assessee’s own case for the assessment year 2001-02. The AO further noted that this issue has attained finality since no ITAs No.1910, 1911, 1912 & 1913/MUM/2024 16 appeal has been preferred against the order of the Tribunal before the Hon’ble High Court. Thus, no addition was made by the AO on this issue.

As regards the other two issues, i.e. denial of depreciation on flat and addition on account of car rental income, we find that in the absence of any documentary evidence filed by the assessee, the AO, vide assessment order, made the additions. Therefore, we are of the considered view that the basis on which the additions made in the case of the assessee for the assessment years 1999-2000 and 2000-01 were deleted by us cannot be adopted in the present case. Further, as is evident from the record, during the assessment proceedings for the assessment year 2003-04, it was noticed that the assessee had not obtained possession of the flat, as the project was still under construction. Further, it was also noticed that with respect to car rental income, the assessee had not maintained any log book, and therefore, the element of personal use could not be ruled out. Therefore, on the basis of the material found during the assessment proceedings for the assessment year 2003-04, the AO initiated the re-assessment proceedings in the year under consideration. Thus, we are of the considered view that the said material constitutes new and tangible material for initiating the reassessment proceedings in the case of the assessee. In ACIT v/s Rajesh Jhaveri Stock Brokers (P.) Ltd., reported in [2007] 291 ITR 500 (SC), the Hon’ble Supreme Court held that if there is relevant material on the basis of which a reasonable person can form a requisite belief that income chargeable to tax has escaped assessment, then proceedings under section 147 of the Act can be validly initiated. Further, it is also well settled that the ITAs No.1910, 1911, 1912 & 1913/MUM/2024 17 sufficiency or correctness of the material is not a thing to be considered at the stage of recording the reasons. As a result, we find no infirmity in the reassessment proceedings initiated by the AO under section 147 of the Act. Accordingly, ground no.1 raised in assessee’s appeal is dismissed.

As regards ground no.2, raised in assessee’s appeal, during the hearing, the learned AR wishes not to press the disallowance on account of depreciation and interest expenditure. As regards the administrative and other expenses amounting to INR 15,59,716, the learned AR provided the details of each item of expenditure and suo moto offered for disallowance an amount of INR 7,21,149. The learned AR submitted that the present appeal pertains to the assessment year 2002-03, and therefore, it will be difficult for the assessee to furnish the details in respect of each of the items of expenditure if the matter is restored for examination. Accordingly, the learned AR submitted that the disallowance of INR 7,21,149 may be considered reasonable in the facts and circumstances of the present case. The details of administrative and other expenses, as submitted by the learned AR, are reproduced as follows: - Nature of Expenses Total Allowable Disallowable Salaries 1,04,000/- 1,04,000/- -/- Employee Welfare Expenses 22,723/- 22,723/- -/- Audit Fees 4,000/- 4,000/- -/- Repairs & Maintenance 6,490/- 6,490/- -/- Rent, Rates & Taxes 3,14,028/- -/- 3,14,028/- Business Development Expenses 18,101/- -/- 18,101/- Travelling and Conveyance Expenses 28,430/- 14,215/- (50%) 14,215/- Printing & Stationery 27,171/- 27,171/- -/- Telephone Charges 30,772/- 23,079/- (75%) 7,693/-

During the hearing, the opportunity was granted to the learned DR to respond to the details submitted by the assessee. After perusing the aforesaid details, the learned DR agreed with the submission of the assessee since the assessment year under consideration is very old and also the fact that it is a second round of proceedings.

Having considered the submissions of both sides and perused the details filed by the learned AR with respect to administrative and other expenses, we are of the view that the disallowance offered by the learned AR is reasonable and would put a quietus to this issue, which is under consideration before us for the second time. As a result, the AO is directed to restrict the disallowance to INR 7,21,149 with respect to administrative and other expenses. Further, the disallowance on account of depreciation and interest expenditure is upheld in view of the submissions of the learned AR as noted in the foregoing paragraph. As a result, ground no.2 raised in the assessee’s appeal is partly allowed.

In the result, the appeal by the assessee for the assessment year 2002-03 is partly allowed.

In this appeal, the assessee has raised the following grounds: –

The only issue raised by the assessee in the present appeal pertains to the disallowance of expenses. During the hearing, representatives for both parties relied upon their submissions made in the appeal for the assessment

In the result, the appeal by the assessee for the assessment year 2003-04 is partly allowed.

To sum up, the assessee’s appeal for the assessment year 1999-2000 and 2000-01 is allowed, while the appeal for the assessment year 2002-03 and 2003-04 is partly allowed. Order pronounced in the open Court on 06/02/2025