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Income Tax Appellate Tribunal, “E” Bench, Mumbai
Before: Shri G. Manjunatha & Shri Ravish Sood
PAN – AANPM5867A (Appellant) (Respondent) Appellant by: Shri Deepak Trashwala, A.R Respondent by: Ms. Kavita P. Kaushik, D.R Date of Hearing: 17.01.2020 Date of Pronouncement: 23.01.2020 O R D E R
PER RAVISH SOOD, JM
The captioned appeals filed by the assessee are directed against the respective orders passed by CIT(A)-10, Mumbai for A.Y. 2008-09 and A.Y 2011-12, which in turn arises from the respective orders passed by the A.O under Sec.143(3) r.w s. 147 of the Income-Tax Act, 1961 (for short „Act‟) for the aforementioned years. As some of the issues involved in captioned appeals are inextricably interlinked or rather interwoven, therefore, the same are being taken up and disposed off by way of a consolidated order. We shall first advert to the appeal of the assesse for A.Y 2008-09. The assessee has assailed the impugned order on the following grounds of appeal before us : “(a) The Id. CIT (A) has on the facts and in the circumstances of the case and in law, has erred in accepting the Id. AO order of treating the rent received by Alt Property Private Limited as the Rent of the Appellant resulting into addition of Income under the head Income from House Property to the Appellant.
ITA No. 2982/Mum-2016– A.Y 2008-09 – A.Y 2011-12 2 The said addition may please be deleted and the returned Income of the Appellant under the head income from House Property may please be accepted. (b) Without prejudice to the above, if the income of Alt Property private Limited may be treated as income of the appellant, suitable directions be given towards giving credit of taxes paid by Alt Property Private Limited towards such income. (c) Without prejudice to the above grounds of appeal, the Id. CIT(A) has erred in estimating tie Alt Property Private Limited share of Income @ 30 % for the various services rendered by the said company to the tenant. The said proportion may kindly be revised considering the expenses incurred by the said company for the provision of the various services and addition if any may please be restricted to certain percentage of the profits earned in totality. (d) The assessee craves leave to add, alter, amend, modify or drop the grounds of appeal.”
Briefly stated, the assessee had filed his return of income for A.Y 2008-09 on 28.07.2008, declaring a total income of Rs. 3,27,580/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was reopened under Sec. 147 of the Act. Notice under Sec. 148, dated 26.03.2013 was issued to the assessee. In compliance, it was submitted by the assessee that his „original‟ return of income be treated as having been filed in response to the aforesaid notice issued under Sec. 148 of the Act. Acting upon the aforesaid reply the A.O issued notice to the assessee under Sec. 143(2) of the Act.
During the course of the assessment proceedings it was observed by the A.O that the assessee during the year under consideration was a co-owner of a property viz. “Munshi Manor” (earlier known as “Gandhi Mansion”). On a perusal of the details, it was observed by the A.O that the assessee had claimed to have received an amount Rs. 17,012/- (1/2 share of rent) from the tenants of the aforesaid property viz. (i) Ashoka Guest House; (ii). Ravikanta Munshi; and (iii). Sanjay Munshi, HUF. After claiming the statutory deduction under Sec. 24(a) of the Act, the assessee had shown the balance income of Rs. 12,070/- under the head income from “house property”. As per the details gathered in the course of the assessment proceedings, it was observed by the A.O that the aforesaid property which comprised of ground plus four floors was situated in a posh locality and was during the year occupied by various tenants, other than the tenants, details of which were submitted by the assessee during the course of the assessment proceedings. On a perusal of the details, it was observed by the A.O that the tenants who were in A.Y 2008-09 ITA No. 413/Mum/2016 – A.Y 2011-12 3 actual possession of the property had during the year under consideration paid a rent of Rs. 60,99,851/- to M/s Alt Property Pvt. Ltd. i.e a company in which the assessee was having 98% shareholding. In fact, the A.O held a conviction that the assessee had made the following collusive arrangement in respect of its aforesaid property :
S.No Particulars 1. S/shri. Sanjay Chamanlal Munshi & N.K Munshi Let out the property to : (Owners of the property “Munshi Manor”). (i). Ashoka Guest House [Prop. mother of the assessee]; (ii). Ravikanta Munshi [mother of the assessee]; and (iii). Sanjay Munshi, HUF [assesse‟s HUF].
2. Aforesaid three tenants : Let out the property to : (i). Ashoka Guest House [Prop: Mother of assessee]; M/s Alt Property Pvt. Ltd. (assessee was 98% shareholder) (ii). Ravikanta Munshi [mother of the assessee]; and (iii). Sanjay Munshi, HUF [assesse‟s HUF].
3. M/s Alt Property Pvt. Ltd. (assessee was 98% shareholder) Let out the property to various tenants. Also, M/s Alt Property Pvt. Ltd. had provided some services to its tenants, and also/borne certain costs viz. telephone expenses, electricity bills, water charges and other dues on their behalf.
It was observed by the A.O that M/s Alt Property Pvt. Ltd. had during the year under consideration received a rent of Rs. 60,99,851/- from letting out the aforesaid property. On the basis of the aforesaid facts, the A.O called upon the assessee to explain that as to why the „Annual lettable Value („ALV‟) of the aforesaid property may not be taken at Rs. 60,99,851/-. As the reply filed by the assessee did not find favour with the A.O, therefore, he adopted the rent received by M/s Alt Property Pvt. Ltd. as the „ALV‟ of the property under consideration. At the same time, observing, that part of the amount of Rs. 60,99,851/- received by M/s Alt Property Pvt. Ltd from its various tenants was also for the various services provided to and costs borne by it on behalf of the tenants, therefore, the A.O attributed 15% of the total receipts for rendering/bearing of the aforesaid services/charges. Accordingly, the A.O worked out the ALV of the property at Rs. 51,84,873/- [85% of Rs. 60,99,851]. As the assessee was a co-owner (holding 50% share), therefore, his share of ALV was worked out by the A.O at Rs. 25,92,436/-. As such, the A.O after allowing the statutory deduction under Sec. 24(a) worked out the income of the assessee from „house property‟ at Rs. 18,14,705/-.
ITA No. 2982/Mum-2016– A.Y 2008-09 – A.Y 2011-12 4 4. Aggrieved, the assessee inter alia on the aforesaid issue assailed the assessment order before the CIT(A). Observing, that no infirmity did arise from the working of the ALV of the aforesaid property by the A.O, the CIT(A) principally upheld the same. At the same time, the CIT(A) holding a conviction that 30% of the total rent received by M/s Alt Property P. Ltd. could safely be attributed to the services which were rendered to and charges borne on behalf of the tenants by M/s Alt Property P. Ltd., therefore, he directed the A.O to work out the ALV of the property under consideration at 70% of the total rent receipts of Rs. 60,99,851.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. We find that it is the claim of the ld A.R that the issue involved in the present appeal is squarely covered by the order of the Tribunal in the assesse‟s own case for A.Y 2007-08 viz. Shri Sanjay Munshi vs. The Income-tax officer, Ward 5(10(3), Mumbai [ITA No. 2981/Mum/2015; dated 03.01.2017]. It is the claim of the ld. A.R, that in the preceding year also the A.O had substituted the rent of Rs. 17,012/- that was received by the assessee as a co-owner from the aforesaid tenants viz. (i) Ashoka Guest House; (ii). Ravikanta Munshi; and (iii). Sanjay Munshi, HUF by 50% of the rent of Rs. 59,90,000/- that was received by M/s Alt Properties P. Ltd from its various tenants. It was averred by the ld. A.R that the Tribunal vide its aforesaid order viz. Shri Sanjay Munshi vs. The Income-tax officer, Ward 5(10(3), Mumbai [ITA No. 2981/Mum/2015; dated 03.01.2017] had thereafter vacated the aforesaid addition that was made by the A.O.
We have given a thoughtful consideration to the issue before us and have also perused the order passed by the Tribunal in the assesse‟s own case for A.Y 2007-08. On a perusal of the order of the tribunal in the assesse‟s own case for A.Y 2007-08, we are persuaded to subscribe to the claim of the ld. A.R that the issue involved in the present appeal is squarely covered in favour of the assessee. We find that the Tribunal while disposing off the appeal of the assessee for A.Y. 2007-08 had vacated the working of the ALV of the property under consideration by the lower authorities for multiple reasons viz. (i). that, the revenue had consistently been accepting the ITA No. 2982/Mum-2016– A.Y 2008-09 – A.Y 2011-12 5 rateable rental value as claimed by the assessee in the preceding years; (ii). that, the income fetched by M/s Alt Property P. Ltd. by commercially exploiting the property under consideration as a „business centre‟ could not have been adopted as the ALV of the said property; and (ii). that, the revenue had accepted the 50% share of the rental income in the case of the other co-owner viz. Shri. N.K Munshi and had not subjected the same to reassessment. In fact, the Tribunal in its aforesaid order had observed as under: “6. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. On perusal of the facts, we find, the case of the Revenue, in principle, is that the assessee’s rental income of the property should be based on the earning of the APPL-company, which runs a business centre in the said premises and also other rentals from other tenants in it (ie Gandhi Mansion / Munshi Manor). But in practice, there are number of issues that were thrown to dust bin. (i) Principle of consistency:- Assessee partly owned the said Munshi Manor / Gandhi Mansion for many years and the Revenue has been accepting the claim of assessee qua the rateable rental value of the buildings without any disturbances. Details are already discussed in the portion of the order meant for arguments of the Ld Counsels. Disturbing the claims of the assessee in the year under consideration is not appreciated as the facts and the property in question are one and the same. (ii) Income of the APPL:- Assessee incorporated the said company validly and legally and entered into a valid lease agreement with all the stakeholders of the property and started a business centre for exploiting the said property for business based on the principles laid down for the same. The business income earned by the company out of the said principles cannot constitute the intrinsic rental value of the said Mansion. In our view, the rental value of the building is conceptually different from that of the building when the same is used for commercial profits. Commercial profits of the company cannot be equated with the rental value – ALV of the property alone. It has the element of profit motive of the businessman and the skilled employees of any organization. It has human element involving decisions of the management / employer and individuals. Rental value of the property is not synonymous with the business profits earned out of the property. From this point of view, the profits of the APPL minus same percentage of expenses do not constitute the ALV of the said Mansion. Therefore, based on this reasoning, we dismiss the relevant conclusions of the AO / CIT (A).
Further, we find the Revenue has not taxed / re-assessed the other 50% of the said Mansion for he reasons unknown to us. This kind of half-backed attempt of AO in taxing the income of property is unsustainable in law.
Further also, we find that the Revenue has not considered the fact of valid incorporation APPL and object of the said company. Without any sustainable reasons, the profits of the said company are taken as the basis for taxing 50% of the ALV of the said Mansion in the hands of the assessee. In the process, the profits are twice-taxed ie once in the hands of the assessee partly and then in the hands of the APPL. In this regard, AO has not granted any relief to the said company. Rather, same is taxed twice and he denied the tax credit ITA No. 2982/Mum-2016– A.Y 2008-09 – A.Y 2011-12 6 too while reassessing in the hands of the assessee. Actually, assessee raised this as the ground of appeal
without prejudice. Thus, the approach of the Revenue in dealing with the whole issue is deplorable and legally unsustainable. We find, the AO / CIT (A) has allowed certain percentage of business income of the APPL as expenses and allowed the same before taxing the rental income in the hands of the assessee. As such, AO / CIT (A) failed to justify the said percentage with any data or comparable cases. Whole of this exercise of the officers lack the strength of the Statute or the judicial precedents and it is a case of adhocisam. The same is unacceptable and unsustainable. Further, the Apex Court in the case of M/s. Chennai Properties & Investments Ltd, Chennai vs. CIT in Civil Appeal No. 4494 OF 2004, dated April 09, 2015 held that the object of the company matters so far as the „head of income‟ is concerned. AO cannot alter the business income to property income and cannot alter the company status to AOP or otherwise, whimsically, without making out the good case with evidence. The conclusions of the AO / CIT (A), when unsupported by the evidence, become mere opinions and surmises. Such mere opinions do not constitute validity legally.
9. Thus, in our view, the conclusions drawn by the AO / CIT (A) in the assessment order and CIT (A) order are unsustainable in law. Accordingly, we allow the Ground no.1 in favour of the assessee. Considering the same, the other grounds raised without prejudice are dismissed as academic.
10. In the result, the appeal of the assessee is partly allowed” Also, we find, that relying on the aforesaid order of the Tribunal for A.Y 2007-08 in ITA No. 2981/Mum/2015; dated 03.01.2017 (Page 116- 123 of „APB‟), the CIT(A) in the assesse‟s own case for the subsequent years viz. A.Y 2009-10 and A.Y 2010-11, vide his consolidated order passed in CIT(A)-10, Mumbai 10976 & 10978/2016-17, dated 29.11.2016 had vacated a similar working of the ALV of the property under consideration, which had not been assailed by the revenue any further in appeal before the Tribunal.
7. On the basis of our aforesaid observations, we are of the considered view that the issue involved in the present appeal of the assessee is squarely covered by the view taken by the Tribunal in the assesse‟s own case for A.Y 2007-08 viz. Shri Sanjay Munshi vs. The Income-tax officer, Ward 5(10(3), Mumbai [ITA No. 2981/Mum/2015; dated 03.01.2017]. As such, finding no reason to take a different view, we respectfully follow the aforesaid order of the Tribunal and on similar lines direct the A.O to accept the actual rental receipt of Rs. 17,012 by the assessee as the „ALV‟ of the aforesaid property under consideration viz. “Munshi Manor”. Accordingly, the order of the CIT(A) is „set aside‟ in terms of our aforesaid observations.
ITA No. 2982/Mum-2016– A.Y 2008-09 – A.Y 2011-12 7 8. Resultantly, the appeal of the assessee is allowed in terms of our aforesaid observations. ITA No. 413/Mum/2016 A.Y 2011-12
We shall now advert to the appeal of the assessee for A.Y 2011-12. The assessee has assailed the impugned order on the following grounds of appeal before us : “On the facts and circumstances of the case and in law the learned CIT (Appeals)-10 erred in upholding the re-assessment order of the assessing officer who assessed the total income at Rs. 99.42,722/- instead of the returned income of Rs. 13,90,598/-, whereas
1. Upholding the Annual Letting Value of the rented property for the period 1.4.2010 to 30.9.2010 at Rs.38,30,172/-, as against Rs.34,023/- declared by the appellant in the return of income.
2. Not following the order dt. 03.01.2017 of the Hon'ble Tribunal in the Assessee's own case for AY 2007-08.
3. Ignoring that the said order ITA No. 2981/M/2015 dt 03.01.2017 was followed by the Ld CIT(A)- 10 for the A.Ys. 2009-10 and 2010-11 who deleted the additions made by the Ld AO.
4. Ignoring that the said order ITA No. 2981/M/2015 dt. 03.01.2017 that was followed by the Ld CIT(A)-10 for the A.Y's 2009-10 and 2010-11 became final as they were not challenged in appeal at the Hon'ble High Court or at the Hon'ble ITAT.
5. Failing to follow not only the Rule of Consistency but also the rule of judicial hierarchy.
6. Instead of Quashing the order of re-assessment as it was not based on any new tangible material, but, as recorded in the reasons for re-opening, merely "On perusal of the computation of income and TDS statement for AY. 2011-12..........", i.e. facts that were already very much on record.
7. He failed to consider that the re-assessment order was merely a reappraisal of the details that were already filed on record.”
Briefly stated, the assessee had filed his return of income for A.Y 2011-12 on 28.07.2011, declaring a total income of Rs. 13,90,598/-. The return of income filed by the assesse was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was reopened under Sec. 147 of the Act. Notice under Sec. 148, dated 26.09.2013 was issued to the assessee. In compliance, it was submitted by the assesee that his „original‟ return of income be treated as having been filed in response to the aforesaid notice issued under Sec. 148 of the Act. Acting upon the aforesaid reply of the assessee the A.O issued notice to the assesee under Sec. 143(2) of the Act.
ITA No. 2982/Mum-2016– A.Y 2008-09 – A.Y 2011-12 8 11. During the course of the assessment proceedings it was observed by the A.O that the assessee during the year had claimed to have received rent of Rs. 99,34,023/- from its property viz. “Munshi Manor”. It was noticed by the A.O that the assessee during the year was the absolute owner of the aforesaid property. On a perusal of the records, it was observed by the A.O that the aforesaid rental receipts comprised of viz. (i). the rent received by the assessee for the period 01.04.2010 to 30.09.2010 from his tenants viz. (a) Ashoka Guest House; (b). Ravikanta Munshi; and (c). Sanjay Munshi, HUF : Rs. 34,023/-; and (ii). the rent received by the assessee for the period 01.10.2010 to 31.03.2011 @ Rs. 16,50,000/- p.m from M/s Mapletree Property Pvt. Ltd. : Rs. 99,00,000/-. The assessee after claiming the deductions under Sec. 24 of the Act, had reflected the balance amount of Rs. 11,86,496/- as his income from „house property‟.
The A.O while framing the assessment observed that though the assessee during the period 01.04.2010 to 30.09.2010 had claimed to have received a rent of Rs. 34,023/- from his tenants viz (a) Ashoka Guest House; (b). Ravikanta Munshi; and (c). Sanjay Munshi, HUF, they had further sub-let the said property to M/s Alt Property P. Ltd, which had commercially exploited the same during the aforesaid period and fetched a rental receipt of Rs. 64,15,059/-. On the basis of the rent which the aforesaid property viz. “Munshi Manor” had ultimately fetched during the period 01.10.2010 to 31.03.2011, the A.O called upon the assessee to explain as to why the ALV of the said property for the said part of the year may not be taken at Rs. 64,15,059/-. In his reply the assessee tried to impress upon the A.O that there was no justification in dislodging the income that was reflected by him under the head income from „house property‟. However, the A.O declined to accept the aforesaid claim of the assessee. As such, the A.O after attributing 15% of the rent received by M/s Alt Properties P. Ltd. to the services which were rendered to and charges borne on behalf of the tenants, worked out the ALV of the property at Rs.54,52,800/- (85% of Rs.64,15,059/- ). Accordingly, the A.O determined the ALV of the property for the year under consideration at Rs. 1,53,52,800/- viz. [(i). ALV for the period 01.04.2010 to 30.09.2010 : Rs. 54,52,800/- (+) (ii). Rent received from M/s Mapletree Property Pvt. Ltd. for the period 01.10.2010 to 31.03.2011S: Rs. 99,00,000/-].
ITA No. 2982/Mum-2016– A.Y 2008-09 – A.Y 2011-12 9 13. Further, it was observed by the A.O that the assessee had claimed deduction of interest paid u/s 24 of Rs. 47,65,420/- and loan processing fee of Rs. 4,47,500/-. On a perusal of the details, it was observed by the A.O that the interest bearing funds were utilised by the assessee for giving deposits to related parties viz. (i). deposits given to Sanjay Munshi, HUF : Rs. 4,00,00,000/-; (ii). deposits given to Smt. Ravikanta Munshi : Rs. 75,00,000/-; (iii). deposits given to M/s Ashoka House : Rs. 4,00,00,000/-; (iv). shares of Jankalayan Shakari Bank : Rs. 10,01,050/-; and (v). repayment of Jankalayan loan. Observing, that the aforesaid interest bearing funds raised by the assessee were not utilised for acquiring, construction, repair, renewal or reconstruction of any property, therefore, the A.O declined the assesse‟s claim for deduction u/s 24 of the interest expenditure of Rs. 47,65,420/-. Also, the A.O holding a conviction that the loan processing fees did not qualify for deduction u/s 24, therefore, disallowed the same.
The A.O while framing the assessment observed that the assessee had claimed deduction of „Municipal taxes‟ of Rs. 7,92,000/- against the rental income. However, as the assessee had not paid any „municipal taxes during the year, therefore, the A.O disallowed the aforesaid claim of deduction raised by the assessee. On the basis of his aforesaid deliberations the A.O reworked the income of the assessee under the head „house property‟ at Rs. 1,07,46,960/-.
Aggrieved, the assessee assailed the assessment order before the CIT(A). Observing, that no infirmity did arise from the working of the ALV of the aforesaid property for the first half of the year viz. 01.04.2010 to 30.09.2010 by the A.O, the CIT(A) principally upheld the same. At the same time, the CIT(A) following the view taken by his predecessor in the assesse‟s own case for the preceding years, therein directed the A.O to work out the ALV of the property under consideration at 70% of the total rent receipts of Rs. 64,05,687/-. As regards the disallowance of the assesses claim of deduction u/s 24 of interest expenditure of Rs. 47,65,420/- and loan processing fees of Rs. 4,47,500/-, the CIT(A) upheld the view taken by the A.O. As regards the assesses claim for deduction of „Municipal taxes‟ of Rs. 7,92,000/- the CIT(A) directed the A.O to verify the factual position and restored the said issue to his file.
ITA No. 2982/Mum-2016– A.Y 2008-09 – A.Y 2011-12 10 16. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The assessee has assailed the validity of the reopening of his case, for the reason, that as the same was not based on any new tangible material, therefore, the proceedings which therein followed were devoid and bereft of any force of law. It was the claim of the ld. A.R that the case of the assesee was reopened on the basis of a mere reappraisal of the facts which were already available on record and not on the basis of any fresh material. The ld. A.R drawing our attention to the „reasons to believe‟ submitted that the fact that the TDS statement which reflected a rental receipt of Rs. 1,35,32,274/- as against Rs. 99,34,023/- already formed part of the „record‟ and was not in the nature of „fresh‟ tangible material. Apart from that, it was submitted by the ld. A.R that as no addition was made by the A.O in respect of the issue on which the case of the assessee was reopened, therefore, the reopening was in itself bad and could not be sustained. On merits, it was averred by the ld. A.R that as regards the substitution of the rental receipts of M/s Alt Property P. Ltd for the period 01.04.2010 to 30.09.2010 as the ALV of the property under consideration viz. “Munshi Manor”, the same was squarely covered by the order of the Tribunal in the assesse‟s own case for A.Y 2007-08 viz. Shri Sanjay Munshi vs. The Income-tax officer, Ward 5(10(3), Mumbai [ITA No. 2981/Mum/2015; dated 03.01.2017]. As regards the disallowance of the assesse‟s claim for deduction u/s 24 of the interest expenditure of Rs. 47,65,420/-, it was submitted by the ld. A.R that as the interest bearing funds raised by the assessee were given as deposits to the tenants in order to facilitate getting the aforesaid property viz. “Munshi Manor” vacated from them, therefore, it could safely be concluded that the said funds were utilised for acquiring of the property. It was averred by the ld. A.R, that it was only after getting the peaceful possession of the property from the aforesaid tenants that the assessee was able to let out the same to M/s Mapletree Property Pvt. Ltd. at a rent of Rs. 16,50,000/- p.m. On the basis of his aforesaid contentions, the ld. A.R had tried to impress upon us that as the interest bearing funds were utilised for acquiring of the aforesaid property, therefore, the correlating interest expenditure as regards the same was rightly claimed as a deduction u/s 24 of the Act. Also, it was submitted by the ld. A.R that the lower authorities had erred in concluding that loan processing fees of Rs. 4,47,500/- paid by the assessee for raising the interest bearing funds was not allowable as a deduction under Sec. 24 of ITA No. 2982/Mum-2016– A.Y 2008-09 – A.Y 2011-12 11 the Act. In support of his said claim the ld. A.R had drawn support from certain judicial pronouncements.
Per contra, the ld. Departmental representative (for short „D.R‟) relied on the orders of the lower authorities.
We shall first advert to the challenge thrown by the ld. A.R to the validity of the jurisdiction assumed by the A.O for reopening the case of the assessee under Sec. 147 of the Act. As observed by us hereinabove, the return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Observing, that the assessee in his return of income had understated the rental receipts at Rs.99,34,023/-, as against those reflected in his TDS statement at Rs.1,35,32,274/-, the A.O holding a belief that the income of the assessee amounting to Rs.35,98,251/- [Rs.1,35,32,274/- (-) Rs.99,34,023/-] had escaped assessment, reopened the case of the assessee under Sec. 147 of the Act. Accordingly, a notice under Sec. 148 of the Act, dated 26.09.2013 was issued to the assessee by the A.O. On a perusal of the „reasons to believe‟ on the basis of which the case of the assessee was reopened by the A.O, we find that the same read as under: “The assessee has filed Return of Income for A.Y. 2011-12 on 28.07.2011 declaring total income of Rs.13,90,598/-. The return was processed u/s. 143(1) on 24.09.2011. On perusal of the computation of income and TDS statement for A.Y. 2011-12, it is noticed that the assessee has declared receipt of rent at Rs.99,34,023/-. However, on going through the TDS statement for which TDS has been claimed, the amount credited by the deductor towards payment of rent amounts to Rs.1,35,32,274/-.
2. Hence, I have reason to believe that the income to the tune of Rs. 35,98,251/- has escaped assessment within the meaning of section 147 of the I.T. Act. The case of the assessee for A.Y. 2011-12 is, therefore, reopened u/ s. 147 and Notice u/ s. 149 is issued herewith.
Sd/- DCIT-5(1), Mumbai” 19. However, as can be gathered from a perusal of the assessment order passed by the A.O under Sec. 143(3) r.w.s 147, dated 30.06.2014, no addition on the aforesaid basis on which the case of the assessee was reopened was made by him. In fact, even no discussion on the basis for reopening of the assessment of the assessee under Sec. 147 is discernible from the assessment order. Rather, on a perusal of the assessment order, it can safely be gathered that the A.O had ITA No. 2982/Mum-2016– A.Y 2008-09 – A.Y 2011-12 12 made additions/disallowance in respect of three issues viz. (i) that, the rent of Rs.64,05,687/- (after deduction of 15%) which was fetched by M/s Alt Property P. Ltd. for the first half of the year i.e 01.04.2010 to 30.09.2010 was taken as the ALV of the property for the said period in the case of the assessee; (ii) that, the interest expenditure of Rs.47,65,420/- and loan processing fees of Rs.4,47,500/- claimed by the assessee as a deduction under Sec. 24 of the Act was disallowed; and (iii) that, the “Municipal Taxes” of Rs.7,92,000/- not having been paid by the assessee during the year was disallowed. As such, on the basis of the aforesaid three issues the A.O had re-worked the income of the assessee under the head „house property‟ at Rs.1,07,46,960/-. In the backdrop of the aforesaid facts, it can safely be concluded that no addition in respect of the issue on the basis of which the case of the assessee was reopened was made by the A.O. In sum and substance, though the case of the assessee was reopened for the reason that the assessee as per his computation of income for the year under consideration had understated his rental receipts at Rs.99,34,023/-, as against those shown in his TDS statement at Rs.1,35,73,274/-, however, the A.O while framing the assessment had not made any addition on the said count. As such, though the case of the assessee was reopened for the reason that his income to the tune of Rs.35,98,251/- [Rs.1,35,32,274/-(-)Rs.99,34,023/-] had escaped assessment within the meaning of Sec.147 of the Act, but no addition was made by the A.O in respect of the issue on the basis of which the case was reopened.
In the backdrop of the aforesaid facts of the case, we shall now advert to the sustainability of the assessment framed by the A.O under Sec.143(3) r.w.s 147, dated 30.06.2014. On a perusal of Sec.147 of the Act, we find that upon the formation of a belief that the income of the assessee chargeable to tax had escaped assessment for any assessment year, the A.O may assess or re- assess such income “and also” any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. In our considered view, the words “and also” are used in cumulative and conjunctive sense. Although the „Explanation 3‟ has been made available on the statute by the legislature in all its wisdom vide the Finance Act (No.2) of 2009, however, the same does in no manner override the necessity of fulfilling the conditions set out in the substantive part of Sec.147 of the Act. As such, if the A.O assesses or re-assesses the ITA No. 2982/Mum-2016– A.Y 2008-09 ITA No. 413/Mum/2016 – A.Y 2011-12 13 income of the assessee which had escaped assessment and had formed the very basis for reopening the case of the assessee, he can also assess or re-assess any other income which had escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under Sec. 148, the A.O does not assess or re-assess such income which had initially formed a reason to believe that the income of the assessee had escaped assessment, it would not be open for him to independently assess some other income. In fact, if the A.O intends to assess any other income de-hors the income on the basis of which the case of the assessee was reopened, a fresh notice under Sec. 148 would be necessary. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Jet Airways (I) Ltd., (2011) 331 ITR 236 (Bom). In the aforesaid case, the Hon‟ble High Court had observed as under :
“21. Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under s. 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the AO could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Expln. 3 by the Finance Act (No. 2) of 2009. However, Expln. 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of s.
147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Sec. 147 has this effect that the AO 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 s. 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 s. 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.
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 s. 147(1) and on the basis of the precedent on the subject. We agree with the submissions which has been urged on behalf of the assessee that s. 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 AO 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 ITA No. 2982/Mum-2016– A.Y 2008-09 – A.Y 2011-12 14 in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Expln. 3 to s.
Parliament must be regarded as being aware of the interpretation that was placed on the words "and also" by the Rajasthan High Court in Shri Ram Singh (supra). Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of s. 147(1) as they stood after the amendment of 1st April, 1989 continue to hold the field.”
Now, in the case before us, as had been deliberated at length hereinabove, the basis for reopening of the case of the assessee was the belief of the A.O that the assessee had understated his rental receipts at Rs.99,34,023/-, as against those reflected in his TDS statement for the year under consideration at Rs.1,35,32,274/-. Accordingly, the very basis for reopening the case of the assessee was that the underreporting of the rental receipts by the assessee to the tune of Rs.35,98,251/- [Rs.1,35,32,274/-(-) Rs.99,34,023/-] for the year under consideration had resulted into escapement of income to the said extent. However, as had been observed at length by us hereinabove, the A.O while framing the assessment had not made any addition in respect of the aforesaid issue which had formed the very basis for reopening the case of the assessee. Rather, the additions/disallowances made by the A.O in respect of the income shown by the assessee under the head „house property‟ are absolutely on a different footing as had been culled out by us hereinabove. Accordingly, as the A.O while framing the assessment under Sec. 143(3) r.w.s 147 had not made any addition as regards the underreporting of the rental receipts at Rs. 99,34,023/- by the assessee in his return of income, as against that reflected in his TDS statement at Rs. 1,35,32,274/-, therefore, in the absence of any addition in respect of the issue on the basis of which the case of the assessee was reopened, the assessment framed by the A.O under Sec. 143(3) r.w.s 147, dated 30.06.2014 cannot be sustained. Accordingly, in the absence of any valid assumption of jurisdiction by the A.O under Sec. 147 of the Act, the assessment framed by him under Sec. 143(3) r.w.s 147, dated 30.06.2014 cannot hold the ground and is liable to be quashed. On the basis of our aforesaid deliberations, we herein quash the assessment framed by the A.O under Sec. 143(3) r.w.s 147, dated 30.06.2014 for want of jurisdiction.
22. As we have quashed the assessment order passed under Sec. 143(3) r.w.s 147, dated 30.06.2014, for the reason, that the A.O had exceeded his jurisdiction, therefore, we refrain from