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

Since all four appeals pertain to the same assessee and involve similar issues, therefore, these appeals were heard together and are being decided by way of this consolidated order. Assessee’s appeal : A.Y. 1999-00

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

The Ld. CIT(A) erred in upholding the addition made on account of disallowance of the entire expenses Rs.10,39,257/- including claim for depreciation, without taking into consideration all the facts and circumstances of the case, including the nature of expenses incurred.

In its appeal, the assessee has challenged the validity of the reopening of the assessment under section 147 of the Act and has also raised the grounds on merits challenged the additions made by the Assessing Officer (“AO”). Since the ground challenging the reopening of assessment under section 147 of the Act has raised juri ictional issues, the same is considered at the outset.

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

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. 7. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee both on juri iction 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 juri iction to make the addition under section 147 of the Act, in view of the decision of the Hon’ble Juri ictional 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 juri iction 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 Juri ictional 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 ITA No. 5493 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

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 Juri ictional High Court in Jet Airways India Ltd (supra) become relevant: -

We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in section 147(1) and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 147(1) as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income "and also" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament……”

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 Juri ictional High Court in Hindustan Lever Ltd v/s R.B.Wadkar, reported in [2004] 268 ITR 332 (Bom.): -

In view of our aforesaid findings and respectfully following the decisions of the Hon’ble Juri ictional High Court cited supra, we are of the considered opinion that in the present case, the AO had no juri iction to make the addition under section 147 of the Act. Accordingly, the additions

In the result, the appeal by the assessee for the assessment year 1999-2000 is allowed. Assessee’s appeal : A.Y. 2000-01 20. In this appeal, the assessee has raised the following grounds: - “The following grounds of appeal are without prejudice to and independent of one another:

The Learned Commissioner of Income Tax (Appeals), Income Tax Dept., National Faceless Assessment Centre (hereinafter referred to as Ld. CIT(A) erred in upholding the reopening of assessment made by the Assessing Officer u/s. 147 of the Income Tax Act, 1961. Your appellant submits that on the facts and circumstances of the case and in law, reopening of the assessment is not justified and ought to be quashed.

The Ld. CIT(A) erred in upholding the addition made on account of disallowance of theentire expenses Rs.12,59,852/- including claim fordepreciation, without taking into consideration all the facts and circumstances of the case, including the nature of expenses incurred.

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.-

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

In the result, the appeal by the assessee for the assessment year 2000-01 is allowed. Assessee’s appeal : A.Y. 2002-03 24. In this appeal, the assessee has raised the following grounds: – “The following grounds of appeal are without prejudice to and independent of one another:

The Learned Commissioner of Income Tax (Appeals), Income Tax Dept., National Faceless Assessment Centre (hereinafter referred to as Ld. CIT(A) erred in upholding the reopening of assessment made by the Assessing Officer u/s. 147 of the Income Tax Act, 1961. Your appellant submits that on the facts and circumstances of the case and in law, reopening of the assessment is not justified and ought to be quashed.

The Ld. CIT(A) erred in upholding the addition made on account of disallowance of the entire expenses Rs.19,56,276/- includingclaim fordepreciation, without taking into consideration all the facts and circumstances of the case, including the nature of expenses incurred.

The brief facts of the case are that the assessee is engaged in the business of real estate-related activities. For the year under consideration, the return of income was filed by the assessee on 12/06/2004, declaring a total income of INR 4,90,277. Subsequently, on the basis of the assessment order passed for the assessment year 2003-04, wherein the license fee was assessed under the head “Income from Other Sources” instead of “Business Income” as claimed by the assessee, depreciation on flat, which was not in possession of the assessee, was disallowed, and car rental income was ITAs No.1910, 1911, 1912 & 1913/MUM/2024

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 ITAs No.1910, 1911, 1912 & 1913/MUM/2024

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

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

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

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. Assessee’s appeal : A.Y. 2003-04

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 PADMAVATHY S. ACCOUNTANT MEMBER SANDEEP SINGH KARHAIL JUDICIAL MEMBER