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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI S. S. GODARA, JM &DR. A.L.SAINI, AM
आदेश / O R D E R
Per Dr. A. L. Saini: The captioned appeal filed by theassessee,pertaining to Assessment Year 2007-08, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)-2, Kolkata, in appeal No.41/CIT(A)-2/14-15 dated 02.05.2017, which in turn arises out of an assessment order passed by the Assessing Officer u/s 147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.12.2011.
The grievances raised by the assessee are as follows:
“1. (a). That on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in confirming action of the AO in initiating the reassessment proceedings under section 147 of the Income-tax Act, 1961 (hereinafter referred to as the "Act") without appreciating that the said proceedings were initiated without providing the reasons for reopening of assessment to the assessee and as such the proceedings were bad in law. 1 (b). That on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in confirming the action of the AO in initiating the reassessment
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proceedings under section 147 of the Act without appreciating that the said proceedings were initiated on the basis of review of the same set of facts/details which were already on records before the AO at the time of completion of original assessment under section 143(3) of the Act and hence, the proceedings were bad in law in view of the well settled decision of the Hon'ble Supreme Court. 1 (c). That on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in confirming the action of the AO in initiating the reassessment proceedings under section 147 of the Act without appreciating that the said proceedings were initiated on the basis of audit objections and without independent application of mind by the AO. 2. That on the facts and in the circumstances of the case and in law and without prejudice to Ground No. 1(a),1(b)&1(c) taken hereinabove, the Ld. CIT(Appeals) erred in confirming proportionate disallowance made in the order under section 147 of the Act towards repairs of Rs. 15,51,000/- on the contention that building was partly let out and partly occupied for business purposes without appreciating that, the entire repair expenditure was incurred that portion of the building which was exclusively used by the assessee for its business and not for let out portion. 3. That on the facts and in the circumstances of the case and in law and without prejudice to Ground No. 1 (a),1 (b)&1 (c) taken hereinabove, the Ld. CIT(Appeals) erred in confirming the proportionate disallowance of repairs for Rs. 15,51,000/- without appreciating that, similar disallowance was deleted by the Ld. CIT(Appeals) in assessee's own case for the immediately two succeeding assessment years and the Revenue has accepted the same by not filing appeal before the Hon'ble ITAT against the said orders of the Ld. CIT(Appeals). 4. That the assessee craves leave to add to and/or amend, alter, modify or rescind the grounds hereinabove before or at the time of hearing of the appeal.
The brief facts qua the issue are that the assessment of the assessee company, for the A.Y. 07-08, was completed u/s 143(3) on 31.12.2009 at a total income of Rs.14,61,09,525/- against returned income of Rs. 3,56,22,546/- (as per revised return filed on 30.09.2009). It was noticed from the records that assessee company had incomes from business and house property. From depreciation schedule as annexed with the Tax Audit Report it was noticed by the AO that the allowable depreciation on building as per Income Tax Act was Rs. 4,92,729. The assessee in its computation had deducted Rs.1.73 lakhs from total depreciation as proportionate depreciation on building in respect of let out portion of such building which was calculated in the following manner:
Rs. 491880 X 9044.63 Sg.mt. 191 days = 1.30 lakhs 18588.82 Sq.mt.
Mackintosh Burn Ltd. ITA No.1736/Kol/2017 Assessment Year: 2007-08
Rs. 491880 X 3548 Sq.mt 166 days = 0.43 lakhs 18588.82 Sq.mt.
From above computation it was noticed that the building which was shown as business asset in the depreciation schedule was partly used for let out and partly used for business purpose.
It was further noticed by AO that the assessee debited Rs.44.45 lakhs in its Profit and Lossaccount under the head repairs to building and the entire amount of such expense was claimed as business expenses. As the house was partly used for let out and partly for business as stated above, the proportionate expenses on repairs was required to be disallowed u/s 38 of the I.T. Act. However, no such disallowance was made in the assessment. The AO noted that if the same formula as adopted by the assessee while computing disallowance of depreciation in respect of let out portion of such building as detailed above is taken into account, the amount of disallowance u/s 38 came to Rs.15.51 lakhs as detailed below:
Rs.44.45 lakhs x9044.63 Sq.mt. 191 days= Rs.11.57 lakhs 18588.82 Sq.mt. Rs.44.45 lakhs x 3548 sq. Mt 166 days = Rs. 3.94lakhs 18588.82 sq. mt Total = Rs.15.51 lakhs
Thus, as per AO, there was an excess allowance of business expenses to the extent of Rs.15.51 lakhs which resulted in an underassessment of business income. Therefore, the assessee was issued notice u/s 148 of the I.T. Act, 1961 on 5/9/2011.
In response to the said notice U/s 148 of the Act, the assessee submitted before the AO that the depreciation on building is allowable as a business expenditure u/s 32(1)(i) of the Income Tax Act, 1961 (hereinafter referred to as the "Act") at specified rate provided that building is owned wholly or partly by the assessee and used for the purpose of business or profession in the previous year. If the building is partly used for business or profession then proportionate expenditure on depreciation (not being used for business or profession) will be disallowed Page | 3
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U/s38 of the Act. In the computation of Income, the depreciation of let-out portion of building calculated on proportionate basis was disallowed u/s 38 of the Act by the assessee. The assessee further submitted before the AO that section 30 of the Act stipulates the same restriction for expenditure incurred on account of repairs to building i.e. repairing expenditure on building will be allowable as a business expense provided the building used for business or profession. In the F.Y. 2007-08, relevant to the A.Y. 2008-09, the assessee has incurred expenditure of Rs.15.02 Lakh, which was debited to Profit & Loss Account and claimed as business expense. In the instant case, the expenditure on account of building is clearly identifiable or relatable. The question of disallowing of expenditure u/s 38 arises only if the expenditure is incurred for both business & profession and for other purpose. Since the expenditure has been incurred by the assessee for the purpose of business or profession i.e. for the building/premises used by assessee for business or profession, there is no question of disallowance of expenditure u/s 38 of the Act. However, the assessing officer rejected the contention of the assessee and made addition to the tune of Rs.15,51,000/-
Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A).The Ld. Commissioner of Income Tax (Appeals)-2, vide order dated 02-05-2017, and page no. 8 of his order, has upheld the view taken by the AO by holding that the AO has already discussed the issue while passing the order stating therein that there was an excess allowance of business expenditure which resulted in underassessment of business income and therefore income has escaped assessment.
Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
The ld. Counsel for the assessee begins by pointing out that first of all the initiation of reassessment proceedings under section 147 of the Act is bad in law since reasons for reopening of assessment was not provided to the assessee. The
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counsel drew our attention to the provisions of section 148 of the Act, which reads as under:
"Section:148(1) Before making the assessment, reassessment or re computation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139 .”
In the light of the above provisions of the Act, the ld Counsel submitted before us that before initiating the reassessment proceedings under section 147 of the Act a notice under section 148 must be served upon the assessee requiring him to furnish any particulars or details as may be prescribed in the notice including furnishing of return of income. It is thus clear that without issuing the statutory notice under section 148 of the Act, no proceedings can be initiated under section 147 of the Act. If the proceedings has been initiated under section 147 of the Act without issuing notice under section 148 of the Act, the said proceedings should be treated as void ab initio and not tenable in the eyes of law. In instant case of the assessee, the AO had initiated reassessment proceedings under section 147 of the Act without serving notice under section 148 of the Act on the assessee. Further, reasons for reopening of assessment had also not been provided to the assessee. In such a situation, reassessment proceedings should be held to be illegal. Further, in the order under section 147/143(3) of the Act dated 30-12-2011, the AO has contended that a notice under section 148 of the Act was issued on 05-09-2011 for the relevant year and that the assessee had filed its submission vide letter dated 25- 11-2011. The AO has passed the reassessment order based on the said notice dated 05-09-2011 and submission filed by the assessee vide letter dated 25-11-2011. In this regard it is submitted that the assessee had neither received the aforesaid notice under section 148 of the Act dated 05-09-2011 nor filed any reply dated 25- 11-2011, on the issue of reassessment for the relevant year. Thus, the above Page | 5
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contention of the AO is factually incorrect. In this regard it is pertinent to note that after completion of assessment under section 143(3) of the Act dated 31.12.2009 the ld. DCIT, Circle-4, Kolkata vide letter date 27. 10-2010 ( refer page no.14 of Paper Book) sought a clarification from the assessee regarding proposed proportionate disallowance of repairs on building of Rs. 15.51 lacs which was alleged to be resulted in under assessment of business income. In response to the said letter, the assessee had filed its submission, vide letter dated 09-11-2010 ( refer page no.15-16 of Paper Book). The AO has copied the said submission of the assessee dated 09-11-2011 and pasted the same in the order under section 147 contending that it was the submission of the assessee dated 25-11-2011.
Therefore, ld Counsel challenged the reopening of assessment U/s 147/148 of the Act, on three counts viz: Firstly, the assessee has not received the notice under section 148 of the Act, secondly, the reasons for reopening of assessment was not provided to the assessee and thirdly, the information was available before the AO at the time of framing the assessment U/s 143 (3) of the Act in respect of issue of proportionate depreciation on building, therefore, it is a review of already completed assessment U/s 143(3) of the Act. Hence, the ld Counsel submitted before the Bench that the proceeding initiated under section 147/148 of the Act is bad in law.
9.On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
We have given a careful consideration to the rival submissions and perused the materials available on record, we note that the AO has passed the re- assessment order under section 147/143(3) the Act dated 30-12-2011, disallowing the proportionate of depreciation expenses on building in respect of let out portion such building to the tune of Rs.15,51,000/- on the contention that the building was partly let out and partly used for business. We note that at the appellate stage, the ld CIT(A) did not give detailed finding about validity of reopening of the Page | 6
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assessment U/s 147 of the Act except to say that the AO had already discussed the issue while passing the order stating therein that there was an excess allowance of business expenditure which resulted in underassessment of business income and therefore confirmed the order passed by the AO. We note that in order to initiate the reassessment proceedings, the notice under section 148 of the Act should be issued to the assessee. It is well settled law that initiation of reassessment proceedings under section 147 of the Act without issuing notice under section 148 of the Act is void ab initio. For this, we rely on the judgment of Hon`ble Supreme Court in the case of Y. Narayana Chetty -vs.- ITO (1959) 35 ITR 388 (SC) wherein the Hon'ble Supreme held as follows:
"The argument is that the service of the requisite notice on the assessee is a condition precedent to the validity of any re-assessment made under section 34; and if a valid notice is not issued as required, proceedings taken by the Income-tax Officer in pursuance of an invalid notice and consequent orders of reassessment passed by him would be void and inoperative. In our opinion, this contention is well-founded. The notice prescribed by section 34 (Corresponding to section 148 of the Income Tax Act, 1961) cannot be regarded as a mere procedural requirement; it is only if the said notice is served on the assessee as required that the Income-tax Officer would be justified in taking proceedings against him. If no notice is issued or if the notice issued is shown to be invalid then the validity of the proceedings taken by the Income-tax Officer without a notice or in pursuance of an invalid notice would be illegal and void". We also rely on the decision in the case of CIT -vs.- MintuKalita (2001) 117 Taxman 388 (Gau.), wherein the Hon'ble High Court held that,
" .. we hold that no notice was served under section 148 and the appearance of a person in response to a notice under section 142(1) cannot be deemed to be the knowledge of the proceedings under section 147."
The reliance is also placed on the judgment of the Hon'ble Jurisdictional High Court, Calcutta in the case of SewlalOaga-vs.-CIT (1965) 55 ITR 406 (Cal.) wherein, relying on the principle laid down in the case of Y. Narayana Chetty (supra), the Hon'ble Jurisdictional High Court, held as follows:
“The service of notice on the assessee was a condition precedent to the assumption of jurisdiction by the Income Tax Officer under section 34. No consent Page | 7
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can confer jurisdiction upon a court if the court has no jurisdiction. The failure to give the requisite notice deprives the Income-tax Officer of his jurisdiction to assess under section 34."
We note that the ratio of the aforesaid judgment of the Hon'ble Apex Court is squarely applicable to the instant case of the assessee since the order under section 147 of the Act for the assessment year was passed by the AO without serving notice under section 148 of the Act on the assessee, and as such, the assessment order is liable to be quashed.
We note that in the assessee`s case under consideration the reassessment proceedings was based on review of the same set of facts/details which were already on record before AO at the time of completion of original assessment under section 143(3) of the Act.We note that the assessee had debited an amount of Rs. 44.45 lacs to its Profit & Loss account under the head "Repairs - Building" in schedule XVI of the audited accounts for the relevant year under the head 'Operating and Administrative expenses' (paper book page no. 2-4 ). The assessee had claimed the said expenses as allowable business expenses in the return of income. Further, the Tax Auditors in Annexure-E to the Tax Audit Report ( page no. 9 of Paper Book) had reported that an amount of Rs. 4,92,729/- was allowable as depreciation on building under the provisions of the Act for the relevant year. Since a part of the building located at Salt Lake was used for let out purposes, the assessee had reduced the claim of depreciation on building allowable under the Act by Rs.1,73,000/- on proportionate basis in computing business income and accordingly, the same was offered to tax in the return of income for the relevant year. In the computation of Total Income ( page no.10 of Paper Book) the assessee had separately disclosed the details of the workings of the aforesaid sum of Rs.1,73,000- which are given below for ready reference:
Depreciation Total Area Area of Let No. of days Proportionate disallowance of (Rs.) (Sq.mt) out portion depreciation (Rs. (sq.mt) (1) (2) (3) (4) (5)=(1)x(3)x(4)/[(2)x365] 4,91,880/- 18588.82 9044.63 191 1,30,000 4,91,880/- 18588.82 3548 166 43,000 Page | 8
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Total 1,73,000
We note that the aforesaid details were submitted by the assessee before the AO during the course of assessment proceedings under section 143(3) of the Act. Hence, it is clear that the information and details on the basis of which the AO had reasons to believe that income had escaped assessment were duly submitted by the assessee in the course of the original assessment proceedings and were also available on records before the AO at the time of completion of assessment proceedings under section 143(3) of the Act. The AO after considering the said documents/information/details filed by the assessee had chosen not to add back / disallow the claim of repairs on building. Therefore, we note that there was no new material on record before the AO to support reopening of assessment under section 147 of the Act in the instant case. In fact, the AO in the reassessment proceedings has computed disallowance of repairs on building adopting the same basis/proportions which was adopted by the assessee for computing disallowance of depreciation on building. Thus, the AO has reviewed the same set of documents which were on records before him at the time of completion of original assessment under section 143(3) of the Act before initiating reassessment proceedings.
We note that the assessee had filed its return of income on 31-10-2007 and revised the same on 30-03-2009. The audited Accounts and Tax Audit Report had been filed along with the Return of Income, and the same were available on record before the AO at the time of original assessment. Further, the computation of Total Income clearly stating the proportionate disallowance of depreciation has also been filed before the AO. On perusal of the same it could be seen that all the information and details on the basis of which the AO has reasons to believe that income has escaped assessment were duly submitted in the course of the assessment proceedings and were available before the AO at the time of completion of assessment proceedings under section 143(3) of the Act. The AO has merely reviewed the same set of documents and concluded that that there was escapement of tax which is not tenable. It is well settled that the AO cannot reopen a concluded assessment merely on reviewing the documents which are already filed before the AO during the original assessment. For that we rely on Page | 9
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thelandmark judgment delivered by the Hon'ble Supreme Court in the case of CIT -vs.- Kelvinator of India (2010) 320 ITR 561 (SC), wherein by affirming the decision of the Full Bench of the Delhi High Court, it was held as follows:
"6. .... Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid section 147 would give arbitrary powers to the AO to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in, mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain pre-condition 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 AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a link with the formation of the belief........”
Hence, based on the above findings, the reassessment proceedings shall not be sustainable in the eyes of law.
We note thatthe reasons for reopening of assessment was not provided to the assessee. How the assessee can defend his case if the reasons for reopening of assessment is not provided to him? Apart from this the AO has reopened the assessment completed under section 143(3) of Act on the basis of objection raised by audit party. Thus, the AO has not applied his mind independently to arrive at the conclusion as to whether he had reasons to believe that income of the assessee was escaped from tax in the assessment for the relevant year.Therefore, considering the entirety of facts and circumstances of the case, as explained above, and the material on record, we are unable to uphold the stand of the assessing officer for reopening the assessment U/s 147/148 of the Act, therefore, we cancel the reassessment order passed by the assessing officer under section 147 of the Act.
In the result, the appeal filed by the assessee is allowed.
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Order is pronounced in the open court on 16.01.2019.
Sd/- Sd/- (S. S. GODARA) (A.L.SAINI) �या�यकसद�य / JUDICIAL MEMBER लेखासद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक/ Date: 16 /01/2019 (RS, Sr.PS) आदेशक���त�ल�पअ�े�षत/Copy of the Order forwarded to :
अपीलाथ�/The Assessee- Mackintosh Burn Ltd. 2. ��यथ�/ The Respondent- DCIT, Circle-11(2), Kolkata 3. आयकरआयु�त(अपील) / The CIT(A), 4. आयकरआयु�त/ CIT 5. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण, कोलकाता/ DR, ITAT, Kolkata 6. गाड�फाईल / Guard file. स�या�पत��त