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Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal filed by the assessee u/s.253 of the Income Tax Act (“the Act”) is directed against the order of ld. Commissioner of Income Tax (Appeals)- 23, Mumbai dated 31.01.2013 for Assessment Year (AY) 2007-08. The assessee has raised the following grounds of appeal:
LEGAL 1. The Ld. CIT(A) erred in confirming the reopening of the assessment u/s 147 without appreciating the fact that the recorded reasons became infructuous at the time of passing of the order, and hence the reassessment order is liable to be quashed.
2. The Ld. CIT(A) erred in confirming the reopening of assessment u/s 147 without appreciating the fact that the additions made by the Assessing officer were on the grounds other than the reasons recorded, and hence the reopening is bad in law and liable to be quashed. NATURAL JUSTICE
Without prejudice to above, the Ld. CIT(A) and the Ld. Assessing officer failed to grant sufficient opportunity to present the case and hence, principles of natural justice are grossly violated.
ON MERITS 4. The Ld. CIT(A) erred in taxing Rs.2,01,00,000/ - being balance of the consideration received as per the consent terms without appreciating the fact that ITAT, High Court and the Supreme Court have confirming the finding that the conveyance of the property was on 28th February, 2005 and should be taxed in A.Y. 2005 - 2006. Hence, no amount can be taxed in the impugned year i.e. A.Y. 2007-2008 and the addition of Rs.2,01,00,000/- may be deleted .
5. The Ld. CIT(A) erred in disallowing Rs.31,13,632/- being cost of Paschim Plot on the ground that cost remains un-verifiable, without appreciating the as per the matching principle, the cost for acquisition of the plot has to be allowed.
6. The Ld. CIT(A) erred in confirming the disallowance of Rs.2,75,48,472/- being property attachment expenses payable to M/s Anjir Properties Pvt. Ltd., on the ground that services were completed in A.Y. 2001 - 2002, without appreciating the fact, that the amount was in dispute and was crystallised when the arbitration award was passed and hence the amount was deductible as business expenses u/s 37 in the impugned year.
7. The Ld. CIT(A) erred in confirming the disallowance of Rs.27 ,00,000/- being compensation payable to tenants who illegal occupied portion of property at plot at Paschim Apartment.
The Ld. CIT(A) erred in confirming the disallowance of administrative expenses and other expenses of Rs. 88, 19,183/ - on the ground that the business is dormant, without appreciating the fact that the Assessing officer and the CIT(A) had made the addition of compensation received and hence, the findings are contrary to each other. As the assessee is still in the business, the disallowance made may be deleted.
The Ld. CIT(A) erred in confirming the disallowance of depreciation of Rs.7,62,238/- on the ground that the business is dormant, without appreciating the fact that the Assessing officer and the CIT(A) had made the addition of compensation received and hence, the findings are contrary to each other. As the assessee is still in the business, the disallowance made may be deleted.
The Ld. CIT(A) erred in confirming the disallowance of audit fees of Rs.78,000/- u/s 40(a)(ia).
On merits the appellant denies its liability to the levy of penal interest u/s. 234A, 234B and 234C.
Brief facts of the case are that the assessee is a Builder and Developer, filed its return of income for relevant Assessment Year (AY) 2007-08 on 21.05.2009 declaring total income of Rs. 48,17,388/-. The return was filed after due date. The due date for filing of the return for relevant AY was 31.03.2009. The return of income was treated as invalid. Therefore, the assessing officer issued notice under section 148 dated 23.12.2009 to the assessee. Following the reasons of re-opening was served upon the assessee as are follows:
"It is seen that the assessee has filed return of income for A.Y.2007-08 on 21.05.2009. The last date for filing belated return of income "for A.Y.2007-08 was on 31.03.2009. Since the assessee has filed return of income on 21.05.2009 i.e, after the time limit of filing of return of income for A.Y.2007 - 08, therefore the return of income filed by the assessee is invalid/non-est. It is also seen that assessment for A.Y.2005-06 was done on 28.12.2007 where assessee's return of income for A.Y.2005-06 was nil, the assessed income for A.Y.2005-06 was determined at Rs.2.77 crores. The assessee had filed appeal against this order. The CIT(A) passed the order on 03.07.2008 where it was held that "The income from sale of land accrues to the appellant only during the A. Y. 2007-08 and not in A.Y. 2005-06. Therefore the taxation of Rs.2,77,00,000/- during the year under appeal is therefore deleted. This ground of appeal is therefore allowed. It is made clear here that the receipts by the appellant (subject to the claims of deductions for correlating business expenses) are still held to be very much taxable but not during the current A.Y.2005-06, which should be taxed only in the A.Y. 2007-08.”
3. In response to the notice under section 148, the assessee filed return of income on 20.01.2010 declaring total income of Rs. 48,17,388/-. The assessment was completed on 24.12.2010. The Assessing Officer (AO) while framing the assessment order made the addition of total income of Rs. 2,77,00,000/-, disallowed audit and internal audit fees of Rs. 78,000/-. On appeal before the ld. CIT(A), the action of AO for re-opening as well as addition of Rs. Rs. 2,77,00,000/- was sustained. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
We have heard Ld. Authorized Representative (AR) of the assessee and Ld. Departmental Representative (DR) for the Revenue and perused the material available on record. Ground No. 1 & 2 relates to the validity of re-opening and consequent addition on the basis of reasons recorded. The ld. AR of the assessee argued that the AO recorded the reasons at the time of invoking the section 147 only with regard to the taxability of Rs.2,77,00,000/- in AY 2007-08 on the basis of order of ld. CIT(A). Consequent to the order of ld. CIT(A), the Revenue filed appeal before Tribunal. The appeal filed by revenue was allowed by the Tribunal vide order dated 18.02.2010 wherein it was held that Rs. 2,77,00,000/- is taxable in AY 2005-06 and not in AY 2007-08. It was argued that the reasons for issuing notice under section 148 was related with the taxability of Rs. 2,77,00,000/- in the AY 2007-08. However, the amount of Rs. 2,77,00,000/- was not been added at the time of passing the assessment order under section 143(3) r.w.s. 147. The Tribunal has reversed the decision of ld. CIT(A) holding that amount of Rs. 2,77,00,000/- is taxable in AY 2005-06, thus, the said amount which was the basis for assessment under section 147 was not correctly added by assessing officer. The AO has not issued any fresh notice under section 148 to show that any other income escape assessment. Therefore, the assessment order passed under section 143(3) r.w.s. 147, in making other addition became invalid. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Bombay High Court in CIT vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom), the decision of Tribunal in Anugrah Varshney vs. ITO (ITA No. 134/Ag/2014 dated 05.04.2016, Oriental Bank of Commerce vs. ACIT (2014) 49 taxmann.com 485(Del), CIT vs. Mohmed Juned Dadani (2013) 30 taxmann.com 1 (Gujarat), Ranbaxy Laboratories Ltd. vs. CIT (2011) 12 taxmann.com 74 (Del) and CIT vs. Shri Ram Singh (2008) 217 CTR 345 (Raj.). On the other hand, the ld. DR for the Revenue supported the order of authorities below. The ld. DR for the Revenue argued that in view of the Explanation- 3 to section 147, the AO is empowered to make the addition even on ground on which re-assessment no notices was issued. In support of his submission, the ld. DR for the Revenue relied upon the decision of Hon’ble Punjab & Haryana High Court in case of CIT vs. Mehak Finvest P. Ltd. (2014) taxmann.com 51 (P&H).
We have considered the rival submission of the parties and perused the material available on record. The AO while issuing notice under section 148 dated 23.12.2009 noted that that the ld. CIT(A) while passing the order for AY 2005-06 on 30.07.2008 held that income on account of sale of land accrued to the assessee only during the AY 2007-08 and not in AY 2005- 06 and therefore, income of Rs. Rs. 2,77,00,000/- is taxable during AY 2007-08 only. We have noted that while passing the assessment order, the AO recorded “as per Hon’ble High Court order” a some of Rs. Rs. 2,77,00,000/- held to be taxable in AY 2005-06. Admittedly, no addition on account of sale of land for which the assessment was re-opened was made in the assessment order. The AO made the addition on account of certain expenses. The Hon’ble Bombay High Court in CIT vs. Jet Airway (I) Ltd. (supra) while considering the Explanation-3 to section 147 held that the condition precedent to the exercise of jurisdiction under section 147 is the formation of reason to believe by assessee that any income chargeable to tax has escaped assessment. The AO is empower to assess or re-assess, “and also” any other income chargeable to tax which has escaped assessment and which came to his notice subsequently. The effect of Explanation-3 is that even though the notice issued under section 148 contained the reasons for re-opening of the assessment, thus, not contained a reference to a particular issue with reference to which income has escaped assessment.
Considering the decision of jurisdictional High Court, the AO is not empower to asses or re-assess the income in respect of any other issue which has escaped assessment and which came to his notice subsequently in the course of the proceeding under the section. The AO despite coming to his notice, the income which escaped assessment, which was added by way of disallowance while passing the assessment order, for which no fresh notice under section 148 was issue. Thus, respectfully following the decision of jurisdictional High Court, we hold that the addition made by AO other than the reason recorded is invalid and cannot be added in the income of assessee. With due regard to the decision of Punjab & Haryana High Court in CIT vs. Mehak Finvest P. Ltd. (supra), no reliance can be made as the decision of jurisdictional High Court is a binding preceding on us. Thus, Ground No. 1 & 2 of the appeal is allowed and the assessment order is held bad-in-law. The discussion on ground which relates to violation of natural justice and other additions made by AO has become academic.
In the result, appeal filed by assessee is allowed. Order pronounced in the open court on this 8th day of November, 2017.