AMAZIA DEVELOPERS P.LTD,MUMBAI vs. CIT-1, MUMBAI

IN THE INCOME-TAX APPELLATE TRIBUNAL “A” BENCH MUMBAI BEFORE SHRI G.S. PANNU, VICE-PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No. 2499/Mum/2017 (Assessment Year 2012-13) M/s Amazia Developers Pvt. DCIT- Circle 1(1)(1) Room No. 533, 5th Ltd. 108, G- Wing, Akruti Commercial Complex, Next Vs. Floor, Aayakar to Akruti Centre Point, Bhavan, M.K. Road, Central Road, Andheri Churchgate, (East) Mumbai-400067. Mumbai-400020. PAN: AACHCA6934H Appellant Respondent Appellant by : Shri Vijay Mehta with Anuj Kushandwala –CA’s (AR) Respondent by : Shri R.P. Meena CIT-DR & M.K. Singh (Sr DR) Date of Hearing : 30.04.2019 Date of Pronouncement : 08.05.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee under section 253 of Income tax Act is directed against the order of learned Principal of Commissioner of Income tax-1, Mumbai, passed under section 263 on 27th March 2017 for assessment year 2012-13. 2. Brief facts of the case are the assessee company is engaged in property development, filed its return of income for relevant assessment year on 30th September 2012 declaring total loss at Rs. 33,89,52,515/-. The return of

ITA No. 2499/Mum/2017 Amazia Developers Pvt Ltd income was selected for scrutiny and assessment was completed under section 143(3) on 19th January 2015, determining total income of Rs. 10,90,39,612/-. In the return of income the assessee claimed lease rental income of Rs. 11,78,29,224/- as ‘business income’. However, the assessing officer while passing the assessment order treated the lease rental income of Rs.11,78,29,224/- as income from ‘other sources’. On appeal before learned Commissioner (Appeals), the lease rental income was allowed as ‘business income’ vide order dated 20.04.2016. No further appeal before Tribunal was filed by revenue/ assessing officer. 3. Subsequently, the learned Principal Commissioner of income tax (ld. Pr. Commissioner) issued a show cause notice under section 263 dated 03rd March 2017 for revising the assessment order dated 19th January 2015. In the show cause notice the ld. Pr. Commissioner show caused as to why the assessment order passed under section 143(3) be not set aside directing the assessing officer to pass the assessment order afresh qua the treatment given to lease rental income. As per the ld. Pr. Commissioner, the lease income was liable to be assessed under the head “Income from House Property”. The assessee filed its reply dated 10th March 2017. In the reply the assessee stated that as per the doctrine of the merger the assessment order passed under section 143(3) dated 19.01.2015 merged with the order of first

ITA No. 2499/Mum/2017 Amazia Developers Pvt Ltd appellate authority. The assessee also stated that the lease rental income

arising from the units in the park constitutes business income which is

consistently being claimed bas business income and the same needs to be

accepted for the current year. The assessee also the assessee also stated that

assessment order sought to be revised is not prejudicial to the interest of

revenue, since, if the lease income is assessed as ‘income from house

property’ it would be beneficial to the assessee. The reply of assessee was

not accepted by the learned Pr. Commissioner and hence, he set aside the

assessment order directing the assessing order to pass the order afresh. The

learned Pr. Commissioner while setting aside the assessment order

concluded, since the learned Commissioner (Appeals) has upheld the stand

of assessee on the issue of the income from lease rental, the same cannot be

subjected to revision is not acceptable because the issue of taxability of lease

rental as ‘ income from house property’ has never been subject matter before

learned Commissioner (Appeals). The Commissioner (Appeals) has decided

the issue of lease rental being taxed by assessing officer under the head

income from ‘other sources’ as against ‘business income’ declared by the

assessee. The argument of assessee company on the issue of lease rental to

be taxed as business income is not acceptable as the assessee owns the units

in industrial park, and the lease income from such property, being building

ITA No. 2499/Mum/2017 Amazia Developers Pvt Ltd and the land appurtenant thereto is chargeable to tax under section 22 under

the head ‘income from house property’. Aggrieved by the order of learned

Pr. Commissioner the assessee has filed present appeal before this Tribunal

by raising the various ground of appeal as referred below.

(1) The order passed by learned Commissioner of income tax under section 263 of income tax Act is illegal and bad in law. (2) The learned Commissioner of Income tax erred in law and on facts and that the order dated 19th January 2015, passed by the assessing officer under section 143 (3) of the Act was erroneous and prejudicial to the interest of revenue (3) The learned Commissioner of Income tax has erred in law and on fact in setting aside the order dated 19th January 2015 passed by the assessing officer under section 143( 3) of the Act and in directing to reframe the assessment in terms of the discussions made in the impugned order as regard the head of income under the lease rental income are to be assessed. 4. We have heard the submission of learned authorize representative (AR) of

the assessee and ld. Departmental Representatives (DR) for the revenue and

perused the material available on record. We have also deliberated on

various case laws relied by learned representative of the parties. The learned

AR of the assessee submits that as per the theory Doctrine of Merger, the assessment order passed by assessing officer under section 143(3) dated 19th

January 2015 has since merged with the order of learned Commissioner

(Appeals) qua the issue sought to be revised by the Pr. Commissioner u/s

263 of the Act. The learned Pr. Commissioner has no power to revise the

ITA No. 2499/Mum/2017 Amazia Developers Pvt Ltd assessment order passed by assessing officer on the issue which has been

since examined by Commissioner (Appeal). In the return of income the

assessee offered the lease rental income as ‘business income’, the same was

not accepted by the assessing officer, the assessing officer treated the same

as assessable under the head “Income from ‘other sources’. The assessee

filed appeal before ld. Commissioner (Appeals). In appeal the assessee filed

detailed submissions explaining the correct ‘head’ under which such receipt

should be assessed. The ld. Commissioner (Appeals) allowed the appeal of

the assessee by accepting the lease rental income as ‘business income’. The

learned AR for the assessee further submits that the order of assessing

officer on point of taxability of lease rental income has already merged with

the order of ld. Commissioner (Appeals). It was submitted that in order of

ld. Pr. Commissioner is liable to quashed and set aside only on the doctrine

of merger alone. The learned AR for the assessee in support of his of the

submission relied upon the following decision: (i) CIT Vs K.S Sera Productions Ltd. ( 374 ITR 503 Bom) (ii) CIT Vs Nirma Chemicals Works P Ltd [309 ITR 67 (Guj)] (iii) Sonal Garments Vs JCIT ( 95 ITD 363 Mum) (iv) Marico Industries Vs ACIT (313 ITR(AT) 259 (Mum) 5. In second alternative submission the learned AR of the assessee submits the

lease rental income earned by the assessee has been assessed as ‘income

from other sources’ by the assessing officer. The view taken by assessing 5

ITA No. 2499/Mum/2017 Amazia Developers Pvt Ltd officer is one of the possible views. It was submitted that the proceeding

under section 263 initiated cannot be initiated by the learned Pr.

Commissioner if the assessing officer has taken a possible view. In support

of his submission the learned AR of the assessee relied upon the following

decision (i) Malabar Industrial Company Ltd Versus CIT ( 243 ITR 82 SC) (ii) CIT Versus Max India ( 295ITR 282 SC) (iii) CIT Vs Arvind Jewellers (290 ITR 689 Guj) (iv) CIT Vs Gabrial India Ltd (203 ITR108 (Bom), (v) CIT Vs Development Credit Bank (323 ITR 206 Bom), (vi) CIT Vs Vikas Polymers (194 TAXMAN 57 Delhi), (vii) CIT Vs Anil Kumar Sharma (194 TAXMAN 504 Delhi) 6. The ld. AR for the assessee further submits that CBDT has issued a Circular

No. 16/2017, dated 25.04.2017, wherein it is expressly stated that the rent

received from letting of the property in the industrial park is to be treated as

business income. The assessee has received the lease rental from the letting

of the properties in the industrial park hence; the rent received from the

rental income is to be treated as business income. It was further canvassed

by ld AR for the assessee that if lease rental income is treated as ‘income

from the house property’ then the addition would be Rs. 8,24,80,457/-

(being 30% deduction of Rs 11,78,29,224/- would be Rs. 3,53,48,676/-). The

ld. Pr. Commissioner can revise the assessment order if there is loss to the 6

ITA No. 2499/Mum/2017 Amazia Developers Pvt Ltd revenue by the order of the assessing officer. In the present case there is no

loss to the revenue rather there would be lower additions if the order passed

by ld. Pr Commissioner is upheld. 7. On the other hand the ld. CIT-DR for the revenue supported the order of the

ld. Pr Commissioner passed under section 263 of the Act. The ld. DR further

submits that the taxability of lease rental income as income from house

property was never before the ld. Commissioner (Appeals), therefore the

theory of merger is not applicable in the present case. The CBDT circular

cited by the ld. AR for the assessee is not applicable on the facts of the

assessee as the assessee is not the developer of the industrial park. The ld.

DR prayed for dismissal of the appeal filed by the assessee. 8. We have considered the rival submissions of the parties and have gone

through the assessment order passed under section 143(3) dated 19.01.2015,

order of ld Commissioner (Appeals) dated 20.04.2016 and the order of ld Pr

Commissioner dated 27.03.2017(which is impugned before us). Perusal of

the assessment order made it clear that the assessing officer treated the lease

rental income as income from other sources. However, on appeal before ld.

Commissioner (Appeals) the appeal of the assessee was allowed and the said

income was allowed as business income. The ld. Commissioner (Appeals)

before treating the said income as business income observed that the

ITA No. 2499/Mum/2017 Amazia Developers Pvt Ltd assessee is consistently claiming the lease rental income as business income

and the same has been accepted by department in assessment year 2010-11

and 2011-12 in assessment order passed under section 143(3). It was also

noted by the ld. Commissioner (Appeals) that the assessee has no other

income except the rental income from the units held by the assessee in the

industrial park. No further appeal was filed by the revenue/ assessing officer.

In our view the ld. Commissioner (Appeals) examined the taxability of the

rental income after deep analysis of the facts. Factually, the appraisal shows

that the issue regarding the nature of lease income was the subject matter of

assessment by the Assessing Officer and also the adjudication by the ld.

CIT(A) thereafter. The ld. Pr Commissioner issued show cause notice under

section 263 dated 03.03.2015 for proposed revision of the assessment order

on the ground that the lease income be assessed as income under the head as

“House Property”. In reply to the show cause notice the assessee specifically

stated that the subject matter of proposed revision was considered in the

appeal by ld. Commissioner (Appeals) while deciding the appeal of the

assessee, therefore, as per doctrine of merger the assessment is merged with

the order of ld. Commissioner (Appeals). The taxability of the lease rental

income was examined and considered by ld. Commissioner (Appeals) and

thereby considering the doctrine of merger, once the issue has been

ITA No. 2499/Mum/2017 Amazia Developers Pvt Ltd examined and decided by ld. Commissioner (Appeals), the revision order

under section 263 cannot be made. Apart from the legal objection the

assessee stated that similar income has been accepted by revenue as business

income in assessment years 2009-10, 2010-11 and 2011-12. The reply of the

assessee was not accepted by ld. Pr Commissioner by taking his view that

the taxability of rental income as income from house property was not the

subject matter before ld. Commissioner (Appeals). 9. Section 263 of the Act and Explanation (c) there under which are material

for consideration on the issue in this appeal and read as under :—

"263. Revision of orders prejudicial to revenue.—(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— ****** (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject-matter of any appeal, the powers of the Commissioner under this sub-section shall extend to such matters as had not been considered and decided in such appeal." 10. A careful reading of the provisions of section 263 makes it clear that the

Commissioner of Income-tax is entitled to revise an assessment order insofar

ITA No. 2499/Mum/2017 Amazia Developers Pvt Ltd as the order is erroneous and prejudicial to the interest of the revenue,

however, Explanation (c) places an embargo on the Commissioner of

Income-tax in case of subject-matter of any appeal which has been

considered and decided in such appeal. In other words, before the

Commissioner of Income-tax exercises the jurisdiction under section 263 of

the Act, the Commissioner of Income-tax is required to ascertain whether

the order referred to in sub-section (1) of section 263 of the Act had been the

subject-matter of any appeal, and if yes, the revisional powers shall be

available only if such subject-matter had not been considered and decided in

such appeal

(supra) held where issues of income of assessee from production of film and

deduction of cost of production there against had been considered and

decided in appeal by first appellate authority, said issues could not be made

subject matter of revision under section 263. The relevant part of the order

is extracted below:

“ 10. We find that despite this position emerging from the record and being undisputed, the order under section 263 of the Income Tax Act makes detailed reference to the show cause notice. The show cause notice as also this order passed under section 263 make detailed reference to the claims of the Assessee and which were part of the Appeal before the Commissioner and dealt with by him in his order dated 12th October, 2011. The order of the Commissioner under 10

ITA No. 2499/Mum/2017 Amazia Developers Pvt Ltd section 263 dated 29th March, 2012, from paras 8 onwards, makes extensive reference to these aspects. In the circumstances, what further emerges is that not only did the revisional authority purport to revise the Assessing Officer's order, but he purported to deal with the same direction which was issued in the order of the first appellate authority and which was given effect to by the Assessing Officer. Meaning thereby, the contents of the remand report, giving effect to the order of the first appellate authority, as submitted by the Assessing Officer, came to be reconsidered and revisited. In addition thereto, one more aspect of sale of theatrical rights of "Darna Zaroori Hai" to M/s. RGV Enterprises was considered. Naturally, therefore, the doctrine of merger was invoked by the Assessee and it was applied by the Tribunal to uphold the objection raised by the Assessee.

ITA No. 2499/Mum/2017 Amazia Developers Pvt Ltd production of the film needs to be deducted by applying Rule 9A of the Income Tax Rules. Thus, that is ground No. 2 in the memo of Appeal before the first appellate authority and in his order dated 12th October, 2011. Both these matters are very much part of the revisional authority's order dated 29th March, 2012. The attempt to reopen them cannot be saved as clause (c) of Explanation below sub-section (1) of section 263 of the Income Tax Act, 1961 had no application. 12. The Hon’ble Gujarat High Court in CIT Vs Nirma Chemicals works P. Ltd

(supra) held that the Commissioner is entitled to revise an assessment order

insofar as the order is erroneous and prejudicial to the interest of the

revenue, but the Explanation (c) to section 263 places an embargo on the

Commissioner in case of subject-matter of any appeal which had been

considered and decided in such appeal. In other words, before the

Commissioner exercises the jurisdiction under section 263, he is required to

ascertain whether the order referred to in sub-section (1) of section 263 had

been the subject-matter of any appeal, and if yes, the revisional powers

should be available only if such subject-matter had not been considered and

decided in such appeal.

held that from the chronology of events it appears that computation of

deduction under section 80HHC was a subject-matter of appeal before the

Commissioner (Appeals). The Commissioner (Appeals) had given some

findings on the computation of deduction under section 80HHC. Therefore,

ITA No. 2499/Mum/2017 Amazia Developers Pvt Ltd the assessment order had merged with the order of the Commissioner

(Appeals). Thus, under Explanation (c) to section 263(1), such action of the

Commissioner was not permissible. The word ‘matter’ is certainly a word of

wide import and represents a subject or situation that one needs to think

about, discuss or deal with. The Hon’ble High Court also after considering

the similar objection of the department held that it was difficult to accept the

submission of the department that the issue of depreciation being optional or

the issue whether the assessee was at all entitled to deduction under section

80HHC or not, was not a subject-matter of appeal filed by the assessee

before the Commissioner (Appeals). A matter might have many aspects and

the above-mentioned two factors might be the aspects of the matter but not

the entire ‘matter’ itself. The ‘matter’, in the instant case, was deduction

under section 80HHC. Therefore, the assessment order, so far as it related to

deduction under section 80HHC, had merged with the order of the

Commissioner (Appeals) and, therefore, exercise of power by the

Commissioner under section 263 was even not available under Explanation

(c) to section 263(1). Therefore, order under section 263 was not a valid

order in the eyes of law. 14. Now again turning to the events of the case in hand, in the return of income

the assessee offered the lease rental income as business income, the

ITA No. 2499/Mum/2017 Amazia Developers Pvt Ltd treatment of the income offered by assessee was not accepted by the

assessing officer, the assessing officer treated the same as income from

‘other sources’. The assessee filed appeal before ld. Commissioner

(Appeals). The ld. Commissioner (Appeals) allowed the appeal of the

assessee by accepting the lease rental income as ‘business income’.

Therefore, before the ld Commissioner (Appeals) there was issue of

taxability of rental income, which was duly considered and decided by him.

The ld Commissioner (Appeals) decided the issue after examining the

memorandum of association of the assessee, nature of the income and facts

that similar income was accepted as a business income. In our view the

order of assessing officer on point of taxability of lease rental income is

merged with the order of ld. Commissioner (Appeals). The revenue/

assessing officer accepted the finding of ld. Commissioner (Appeals) as no

further appeal was filed before Tribunal. This fact was brought in the notice

of ld. Pr Commissioner in the reply furnished by the assessee. The ld. Pr

Commissioner took the view that the taxability of rental income as “House

Property Income” was not the subject matter before ld. Commissioner

(Appeals). In our view the ld. Pr Commissioner is wrong in his approach and

the taxability of lease income as was very much before ld. Commissioner

(Appeals). In view of the above factual and legal discussions the

ITA No. 2499/Mum/2017 Amazia Developers Pvt Ltd Explanation (c) to section 263 places an embargo on the Commissioner in

case of subject-matter of any appeal which had been considered and decided

in such appeal. Before the ld. Commissioner exercises his jurisdiction under

section 263, he is required to ascertain whether the order referred to in sub-

section (1) of section 263 had been the subject-matter of any appeal, and if

yes, the revisional powers should be available only with respect to subject-

matter that had not been considered and decided in such appeal. Thus, in the

present case, the ld. Pr Commissioner was wrong in revising the assessment

order on the taxability of rental income as income from house property.

Therefore, the order passed by him is not valid. We hold so.

Commissioner under section 263 is invalid, therefore adjudication of other

alternative submissions of the ld AR for the assessee and discussion on the

merit of the issue has become academic.

Order pronounced in the open court on 08/05/2019.

Sd/- Sd/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER Mumbai, Date: 08.05.2019 Copy of the Order forwarded to : 1. Assessee 2. Respondent 15

ITA No. 2499/Mum/2017 Amazia Developers Pvt Ltd 3. The concerned CIT(A) 4. The concerned CIT 5. DR “A” Bench, ITAT, Mumbai 6. Guard File

BY ORDER,

Dy./Asst. Registrar ITAT, Mumbai