MR. TULSI C BHIMJYANI,MUMBAI vs. DY CIT CC 3 (2)(2), MUMBAI

This appeal is filed by the assessee for Assessment Year 2009-10 against the order of the Commissioner of Income Tax (Appeals)-9, Mumbai [in short ‘the CIT(A)’] dated 15.11.2019, wherein the appeal filed by the assessee against the assessment order passed under section 143(3) read with section 147 of the Income-tax Act, 1961 (hereinafter ‘the Act’) dated 13.03.2015 by Mr. Tulsi C. Bhimjyani; AY 09-10 the Dy. Commissioner of Income Tax 3(2)(2), Mumbai (the Assessing Officer/ AO ) was dismissed.

Assessee has raised the following grounds of appeal:-

The Ld. CIT (A) erred in law and on facts in not considering the reassessment proceedings invalid as the original assessment was completed u/s 143(3) and the assessment was reopened on the basis of the audit objection which was not the opinion of the assessing officer. Mr. Tulsi C. Bhimjyani; AY 09-10 4. The Ld. CIT (A) erred in law and on facts in not appreciating that the reopening of the assessment proceedings for the impugned assessment year was merely on the basis of change of opinion which is not permissible under the law and thus was not a valid reopening of a completed assessment.

Thereafter, the learned Assessing Officer recorded the reasons stating that ‘on perusal of the records’ it is observed that the i. assessee has received rent of ₹77,96,250/- from let out property ‘Fortune 2000’ situated at BKC. The rent agreement shows that the property is jointly owned by Mr. Rashmi C Bhimjyani, Tulsi C. Bhimjyani and Excelsior Travel P. Ltd. This property was rented out to M/s Prana Studios Pvt. Ltd. for a monthly rent of ₹ 22,03,000/-. This is 32.77% of the total rent. Thus, the Assessing Officer noted that total rent received by the assessee from the above property is 85,05,000/-. Whereas, assessee declared only ₹77,96,250/-. Therefore, there is a escapement of rent income by ₹7,08,750/-. Accordingly, it has resulted in escapement of house property income amounting to ₹4,96,125/-. ii. The Assessing Officer further recorded that assessee has claimed deduction of Municipal Taxes of ₹22,43,956/-. He noted that total Municipal Tax is Mr. Tulsi C. Bhimjyani; AY 09-10 ₹48,76,776/- and assessee’s share is 50% which is not correct. According to him, it should32% as against 50% and this has resulted into excess allowance of Municipal Taxes of ₹8,77,820/-. Therefore, according to the Assessing Officer he has reasoned to believe that income amounting to ₹13,73,945/- has escaped the assessment.

Notice under section 148 was issued at 18.03.2014. On 11.04.2014, assessee requested to consider the original return as compliance to the above notice. The learned Assessing Officer provided the reasons to the assessee for reopening of the assessment. Thereafter, the learned Assessing Officer passed an assessment order under section 143(3) read with section 147 of the Act on 13.03.2015 by making addition of Rs. 4,96,125/- as escaped rent and further disallowed ₹8,77,820/- on account of excess municipal taxes earlier allowed. Accordingly, the total income was assessed at ₹69,49,230/-.

The assessee preferred the appeal before the learned CIT(A) challenging the reopening of the assessment as well as on the merits of the above additions. The learned CIT(A) upheld the reopening of the assessment as valid. He further confirmed the addition of ₹4,96,125/- on account of escapement of rent and addition on account of excess municipal taxes claimed of Mr. Tulsi C. Bhimjyani; AY 09-10 ₹8,77,820/-. Aggrieved with that assessee is in appeal before us.

The learned AR submitted a paper book containing 92 pages adverting ground No. 2. He submitted that reopening of the assessment is illegal and deserves to be quashed. He referred to the reasons recorded and submitted that the assessment under section 143(3) of the Act for Assessment Year 2009-10 has already been concluded. The reason clearly shows that there is no tangible material found into the possession of the Assessing Officer for reopening of assessment. Reading the reasons recorded, he submitted that the Assessing Officer has reopened assessment on perusal of the same material which is available before him at the time of original assessment. He further referred to reply dated 17.10.2011 submitted before the Assessing Officer which is placed at page No. 14 of the Paper Book. By this letter, assessee has submitted the complete details of rental income and all agreement with the tenants. Therefore, he submitted that Assessing Officer has passed the assessment order after verification of the details and he reopened the same in absence of any tangible material available with him but on perusal of the same material which he verified during the original assessment proceedings. He further contended that it is change of opinion which does not allow reassessment proceedings. For this, proposition he relied upon several Mr. Tulsi C. Bhimjyani; AY 09-10 judicial precedence. He further submitted that reassessment was made on the basis of audit objection.

Coming to the merits of the case, he submitted that Assessee has a property jointly owned by him with his brother Rashmi Bhimjiyani being property no 101 B and 101 C at Fortune 2000 BKC. One company i.e. Excelsior Pvt Ltd was having property no 101 A at the same premises. Assessee leased out property No.101 B and 101 C and Excelsior Pvt Ltd rented out property no 101 A from 01.04.2007 to 31.12.2009 to M/s Parana Studios Pvt Ltd a per agreement dated 13th March 2007. According to agreement clause no 3, assessee was to receive monthly ret of Rs 708750/- plus service tax per month. Rent agreement was terminated in February 2009. The rent for Nov 2008 to February 209 was also recovered from Security Deposit. Thereafter, there was no rental income for the month of March as property was vacant. Thus, the rent was received only for 11 months. He also took us to page no 35 of the paper book where in assessee received Rental income of Rs 77,96,250/- for 11 months on which TDS is deducted of Rs 182618/-. He submitted that all the payments are received through banking channel and are also reflected in form No. 26AS. Accordingly, there is no escapement of rental income. 09. With respect to the claim of municipal taxes, he submitted that the property in No. 101B and 101C is Mr. Tulsi C. Bhimjyani; AY 09-10 jointly owned by assessee along with his brother. The total property tax was 48,76,776/- . Subsequently, a credit was given for excess property tax of ₹7,94,863/- and therefore, expenditure claimed by the assessee was ₹20,40,956/- [ being 50 % of 40,81,913/-]. He submitted that assessing officer has wrongly interpreted rent agreement. The learned AO considered the total rent received by all these three parties for all these three properties and thereafter noted that assessee is deriving rental income @ 32,17 % of total rent received and hence, eligible for deduction of house tax in the ratio of 32.17%. Thereafter the learned assessing officer has taken the total house property tax payable with respect to all these three premises. He submitted that Assessing Officer has considered the property tax for office No. 101A also which was owned by other party i.e. Excelsior private limited and not by assessee. He submitted that income from rent is of only for office number 101B and 101C which is owned by the assessee along with his brother and therefore assessee is also eligible for deduction of municipal taxes only with respect to that property i.e. office number 101C and 101B. He submitted that ratio of 32.17 % calculated by the ld AO is on incorrect facts. He submitted that assessee has correctly claimed the above deduction. He extensively referred the bills of property taxes, copy of invoices for all the three properties along with ledger accounts. The learned assessing officer has held that as Mr. Tulsi C. Bhimjyani; AY 09-10 the share in the rental income is 32.17% of the assessee, assessee is also eligible for deduction of house tax paid for all the three properties in that proportion. Thus he submitted that the rent agreement does not provide that assessee is entitled to the rate of 32.17% of the total rent received of both the properties but only provide that assessee would be eligible for rental income of only ₹ 708,750 per month. Therefore, he submitted that addition made by the learned Assessing Officer and confirmed by learned CIT(A) are not sustainable on merits also.

The learned Departmental Representative on the issue of reopening referred paragraph No. 4.3.2 and submitted that the above particular issue was not examined by the Assessing Officer during the original assessment proceedings and therefore there is no change of opinion. He otherwise submitted that there is no information available with the learned assessing officer that the property was vacated by the tenant. On the merits of the addition, he supported the orders of the lower authorities.

We have carefully considered the rival contentions as well as perused the orders of the lower authorities. The first issue raised by the learned authorized representative referring to Ground No.2 of the appeal is against the reopening of the assessment. We have perused the reasons recorded for reopening of the Mr. Tulsi C. Bhimjyani; AY 09-10 assessment which is placed at page No.14 of the paper book clearly shows that when the “records were perused’ by the learned Assessing Officer based on that he initiated the reassessment proceedings. Re- appreciation of the same evidence available before Assessing Officer at the time of original assessment does not entitle the Assessing Officer to reopen the assessment proceedings. To reopen a concluded assessment, AO is empowered, provided that there is a tangible material to come to the conclusion that there is an escapement of income. The Assessing Officer is authorized to reassess the income only if the material aspects were not brought his notice during original assessment proceedings. In the present case, we find that the assessee submitted the details of rental income and also the agreement with the tenant. The assessee also submitted the copy of account of the tenant as well as the rent income account. The assessee has also given the details of month wise rent received which shows that assessee received rent only 11 months from April to February. Even the form No.26AS submitted before the Assessing Officer clearly shows that assessee has received rent only for 11 months. The assessee has produced the rental agreement for the learned assessing officer. The rent agreement also clearly states in the preamble that property number 101A is owned by excelsior travels private limited and property number 101B and 101C by assessee along with his brother. The Mr. Tulsi C. Bhimjyani; AY 09-10 rental agreement as per clause 3 provides that the assessee is entitled for the monthly rent of Rs 7,08,750/- + service tax. Thus from the above facts it is apparent that the observations of learned assessing officer that all three properties were rented out for a monthly rent of ₹ 2,203,000 and assessee received Rs 708750/- , therefore , assessee received 32.17% of the total rent is incorrect. This is just an arithmetical calculation made by ld AO that is incorrect. In fact, assessee received his share of Rent, which is Rs. 708750/- per month of property no 101 B and 101C @ 50 % . The learned assessing officer further noted incorrectly that the total rent receivable from the above mentioned property is ₹ 8,505,000 [ 708750 * 12] however the assessee has declared total rental income of only ₹ 77,96,250/- from the property. During the course of assessment proceedings assessee has submitted the copy of the rent account, the Ledger of the tenant. It is apparent that opening balance of Rs. 28,35,000 of security deposit has been adjusted on 18 February 2009 against the rent receivable by ₹ 2,506,843/–. The details of rent received also show that assessee received rent only up to February 2009. Form number 26 AS also shows the receipt of rent for 11 months only. It is evident from letter dated 17 October 2011 that assessee submitted these details before the assessing officer in original assessment proceedings. Based on this the ld AO accepted the Mr. Tulsi C. Bhimjyani; AY 09-10 Rental Income offered by assessee. However, ‘On perusal of same material’ learned Assessing Officer came to know that instead of 12 months assessee has shown rental income for only 11 months, he reopened proceedings. Thus, it is clear that there was no ‘tangible material’ a came in to possession of ld AO but it was ‘reappraisal of the same material’ by the learned Assessing Officer for reopening of assessment. With respect to the claim of municipal tax it is shown before us that the learned Assessing Officer has wrongly considered total property tax for all the three properties i.e. 101A , 101 B and 101 C and applied the same in assumed ratio of total rental income from Prana Studios Pvt Ltd and then stated that assessee should have been allowed deduction of house tax only in proportion of rental income. Thus, he considered total property tax for shop no 101A, 101B and 101C and then applied ratio of rental income received by three owners and was of the view that assessee should also be granted house tax to the extent of only 32.17 % [being assessee’s share in rental income assumed by AO]. In fact, assessee has produced rent agreement, property owned by assessee is different i.e. on 101B and 101 C, and he has nothing to do with property 101 a, that the property tax was also for 101B and 101C. For this two premises the assessee claimed deduction of property taxes proportionate to excess amounting to Mr. Tulsi C. Bhimjyani; AY 09-10 ₹22,40,956/-. Thus, there is no error in claim of deduction of house tax by assessee.

Even otherwise, the impugned assessment year is Assessment Year 2009-10, which was originally assessed under section 143(3) on 12.12.2011 and reopening was initiated by issuing of notice on 18.03.2014 without having any tangible material in possession of the Assessing Officer. Therefore, as the case of the assessee is reopened on reappraisal of the same material available before the Assessing Officer during original assessment proceedings, we do not have any hesitation in holding that the assumption of jurisdiction by the Assessing Officer under section148 of the Act is not in proper. Accordingly, we quash the reassessment proceedings.

On the merits, it is apparent that assessee has received rent only for 11 months and for one month, property of assessee was vacant. There is no under assessment in case of rental income offered by the assessee.

With respect to the claim of deduction of the property tax it is apparent that assessee has claimed the 50% of property tax pertaining to property No.101B and 101C after credit for excess property tax of ₹20,40,956/-. The learned Assessing Officer got confused for the reason that three properties were given on rent to one tenant out of which 1 property is owned by a Private Limited Mr. Tulsi C. Bhimjyani; AY 09-10 Company and two properties are owned by the assessee jointly along with his brother. The assessee has claimed only 50% share of property tax which pertains to properties owned by assessee and his brother. The Assessing Officer has incorrectly computed that assessee should be entitled to deduction only of ₹15,16,568/-. In facts assessee is correctly eligible to claim deduction of house tax of Rs 20,40,956/- . In view of this there is no excess deduction claimed and allowed to assessee. The ld Ao has wrongly construed Rent agreement and confused him as rent agreement was with one common tenant for three premises owned by two different owners, one of the property is jointly owned by the assessee with 50 % share. The ld CIT (A) also confirmed the action of the ld AO without giving any reason but merely upholding views of ld AO confirmed the order of assessment.