MARVE BEACH REALTORS PVT LTD.,MUMBAI vs. ITO 10 (3)(2), MUMBAI

This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals)–8, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 14.09.2019 for the A.Y.2002-03.

Brief facts of the case are, assessee filed its return of income on 22.05.2003 claiming loss of ₹.4,98,277/-. Assessing Officer observed from (A.Y: 2002-03) Marve Beach Realtors Pvt. Ltd., the Profit and Loss Account that assessee has shown licence fee income and interest on bank deposits, declared the same as income under the head business income and claimed related expenditure. The Assessing Officer observed on scrutiny assessment for the A.Y. 2003-04, that assessee has declared similar income under the head “business income” and claimed various expenditures. In the Assessment Order for the A.Y.2003-04, Assessing Officer treated the income earned by the assessee from licence fee under the head “Income from Other Sources” and disallowed the various expenditures claimed by the assessee. Therefore, Assessing Officer is of the opinion that licence fee income and bank interest are the income from other sources and assessee has claimed various expenditure. Therefore, he came to the conclusion that income had escaped assessment. Accordingly, he issued notice u/s.148 of the Act on 13.12.2005 and also supplied the reasons recorded for reopening to the assessee vide letter dated 19.12.2005.

The notice u/s. 143(2) and 142(1) were issued and served on the assessee and in response assessee also raised objection to reopening its case and the Assessing Officer has supplied the same. Subsequently Assessing Officer issued notice u/s. 143(2) on 17.08.2006 asking the (A.Y: 2002-03) Marve Beach Realtors Pvt. Ltd., assessee to file further information and in response Ld. AR of the assessee attended and supplied the information.

The Assessing Officer heavily relied on the conclusions reached in the assessment year 2003-04 and in the Assessment Order Assessing Officer observed that assessee company has taken on lease the office premises known as 63/64 Sitaram Mills compound, N.M. Joshi Marg, Lower Parel, Mumbai admeasuring area about 1760 Sq.Ft (Carpet) plus loft equivalent to 1/3rd of the area. The assessee has let out the said office premises to one M/s. Midday Publications Limited. In absence of cooperation from the assessee Assessing Officer presumed that the licence fee income declared by the assessee for the A.Y. 2002-03 at ₹.18,32,569/- is in relation to the same property. He observed that assessee has shown this as business income and has claimed various expenses. Since assessee has not submitted and responded to the various notices Assessing Officer proceeded to complete the assessment u/s. 144 of the Act by treating the licence fees received and interest on fixed deposits as income of the assessee and disallowed all other expenditures claimed by the assessee.

Ld.CIT(A) after considering the detailed submissions disallowed the ground raised by the assessee with regard to challenging the reopening and completion of re-assessment proceedings u/s. 144 of the Act. With regard to treatment of licence fee as “Business Income” Ld.CIT(A) allowed the ground raised by the assessee by relying on the decision of the Coordinate Bench for the A.Y. 2005-06. With regard to other grounds of appeal relating to disallowance of expenditure Ld.CIT(A) has dismissed the grounds with the observation that assessee did not submit any explanation or evidences to substantiate its claim.

At the time of hearing, Ld. AR of the assessee brought to our notice Page No. 17 of the Paper Book which is the reasons recorded by the Assessing Officer to reopen the assessment by relying on the findings in A.Y. 2003-04. Ld. AR submitted that no doubt the assessment for this assessment year is completed u/s. 143(1) of the Act. However, he submitted that the assessee has declared the income from licence fees always as “Business Income” and he brought to our notice assessment for the A.Y. 2001-02 to 2002-03 and subsequent years were assessed u/s.143(3) of the Act. Further, he brought to our notice the assessment for the A.Y. 2005-06 in which the licence fee income was assessed to tax under the head “Income from Other Sources”. However, Coordinate Bench in its decision has directed the Assessing Officer to treat the licence fee income as business income. He submitted that the reasons recorded

On the other hand, Ld. DR relied on the orders passed by the lower authorities.

Considered the rival submissions and material placed on record, we observe that assessee has earned the licence fee and declared the same as business income as it normally declares the same and the Ld. AR brought to our notice that from A.Y. 1996-1997 to A.Y. 2001-02 and subsequent to this present assessment year assessee has always declared the licence fee income under the head “Income from Business”. While scrutinizing the return of income for the A.Y. 2003-04 Assessing Officer has asked the assessee to substantiate why the above said income cannot be charged to tax under the head “Income from Other Sources”. It is also brought to our notice in A.Ys. 2001-02 and 2002-03 the assessments of (A.Y: 2002-03) Marve Beach Realtors Pvt. Ltd., the assessee are completed u/s. 143(3) of the Act and the Assessing Officer has accepted the same as “Income from Business”. It clearly indicates that the assessment was reopened merely on the basis of change of opinion. Even though present assessment is complete u/s.143(1) of the Act, however, with the rule of consistency Assessing Officer has not brought on record any tangible material in support of his opinion that income has escaped assessment. All along the income of the assessee is assessed and relevant expenditures were consistently allowed in favour of the assessee. Therefore, it clearly indicates that the Assessing Officer has merely changed opinion in order to reassess the income of the assessee. It is also the fact on record that in A.Y. 2005-06 the Coordinate Bench has also allowed the claim of the assessee to treat the licence fee income as “Income from Business”.

We observe from the Hon'ble Supreme Court decision in the case of CIT v. Kelvinator of India Ltd., (2010) 320 ITR 561 (SC), the Hon'ble Supreme Court held as under: - “Prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions, viz, if (a) the ITO had reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or (b) the ITO had in (A.Y: 2002-03) Marve Beach Realtors Pvt. Ltd., consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. The fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 with effect from 1-4-1989 those conditions are given a go-by and only one condition has remained, viz, where the Assessing Officer has reason to believe that income has escaped assessment, the section confers jurisdiction to reopen the assessment. Therefore, post 1-4 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe', failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the reassessment has to be based on fulfilment of certain pre- conditions and if the concept of 'change of opinion' is removed as contended on behalf of the department, then in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment. Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in section 147. However, on receipt of representations from the companies against omission of the words 'reason to believe, the Parliament re-introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. [ Para 4]”

Therefore, in the given case Assessing Officer has reopened the assessment merely on the basis of change of opinion by fully relying on the assessment carried on in the A.Y. 2003-04 and has not brought on record any tangible material to show that income of the assessee has (A.Y: 2002-03) Marve Beach Realtors Pvt. Ltd., escaped. Assessee has declared all the informations properly in return of income and there is no material on record to show that assessee has not declared or mis-declared the income and expenditure in the return of income. Therefore, in our considered opinion the Assessing Officer has reopened the assessment with a view to reassess the assessment by change of opinion. Accordingly, Ground No. 1 raised by the assessee is allowed.

With regard to other grounds of appeal, since we allowed the Ground No. 1 raised by the assessee. Hence the other grounds raised by the assessee becomes infructuous. Accordingly, these grounds of appeal are kept open.

In the result, appeal filed by the assessee is partly allowed.