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Income Tax Appellate Tribunal, C/“SMC” BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI
आदेश / O R D E R
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
1. This appeal is filed by the assessee, aggrieved by the order of the Learned Commissioner of Income Tax(A)-3, Madurai dated 27.12.2016 pertaining to assessment year 2004-05.
The assessee has raised the following grounds for adjudication.
The order of the Commissioner of Income Tax (Appeals) is bad in law and is opposed to the record of the case.
2. The Commissioner (Appeals) erred in enhancing the assessment adding a total sum of `19,57,872/- representing interest income as ‘Income from other sources’. 3. The appellant submits that the assessment made by assessment order dt.29.12.2006 passed u/s 143(3) of the Act, impugned before the Commissioner (Appeals), had been reopened by issue of notice u/s 148 (dt24.03.2011) and a reassessment had been completed by order u/s 143(3) r.w.sec.147 of the Act dated 29.12.2011 bringing to tax, inter alia, the interest income of `19,57,872; on an appeal by the appellant the said reassessment order was held by this Hon’ble Tribunal to be bad and unsustainable—vide order dt.5.07.2013 of the Hon’ble ITAT ‘D’ Bench, Chennai in l.T.A.No.2326/Mds/2012. 4. The appellant further submits that in Para 14 of the Hon’ble ITAT’s order cited above the issue regarding the inclusion of interest income of `19,57,872/- in the reassessment order dt.29.12.2011 had been considered with the finding that on this count reopening of the assessment was not justified. 5. The appellant respectfully submits that in enhancing the assessment by the Appellate Order now in appeal the Commissioner (Appeals) has overlooked the finding of the Hon’ble Tribunal referred to above for the same assessment year and re-adjudicated the issue in a manner clearly impermissible under the scheme of the Act. 6. Without prejudice to the above contention, on merits, the appellant submits that the appellant being a corporate entity had to necessarily incur various administrative expenses and such expenses (amounting to `15,34,428/-) are properly allowable, whether the income is assessable under the head ‘Business’ or ‘Other sources’.
The appellant submits that its claim for deduction of the expenses finds support in the Judgment of the Hon’ble Calcutta High Court in CIT Vs Ganga Properties Ltd., (1993) 199 ITR 94 (Cal) and order of the Hon’ble ITAT , Mumbal Bench ‘C’ in Preimus Investments & Finance Ltd., Vs Deputy CIT., (2015) 171 TTJ (Mumbai) 794 and the order of the Hon’ble ITAT ‘A’ Bench in KNP Securities P. Ltd., Vs ACIT (2010)1 ITR (Trib) 130 (Mumbai).
The Brief facts of the case are that the assessee company is engaged in the business of money lending and deriving income from plantation in Malaysia. For the relevant Asst.year, the assessee filed its return of income on 20.10.2004 admitting total income of `1,03,890/- which was accepted u/s.143(1) of the Act. Subsequently, the Assessing Officer selected the case for scrutiny and completed the assessment u/s.143(3) determining the total income at ` 20,73,8851-. While doing so, ld. Assessing Officer disallowed `4,50,000/-, which was claimed as salary and commission to the Managing Director. Aggrieved by the order of ld. Assessing Officer, the assessee carried the appeal before the Ld.CIT(A). On appeal, Ld.CIT(A) observed that the assessee was earning interest income of ` 4,37,912/- on which the assessee had claimed expenditure towards managing director salary, commission, motor car expenses, legal fees, salary and bonus and exchange fluctuation between India and Malaysia at ` 7,35,145/-. According to Ld.CIT(A), the assessee could not claim loss under the head business as the alleged business income of the assessee was only interest income of `4,37,912/- from others. In the assessment years 2005-06 and 2006-07 the ChennaiTribunal held in the assessee’s own case that the loss claimed under the head business could not be allowed. Accordingly, it was noticed that the assessment was to be enhanced as per this office enhancement notice dated 27.10.2016. The assessee filed objections to the same by letter dated 11.11.2016. In the said letter, the assessee submitted that the interest income received from others is only business income on which the assessee is entitled to claim various deductions like salaries, motor car expenses and exchange fluctuation. The assessee also relied on the decision of the Hon’ble Mumbai Tribunal in the case of Preimus Investment and Finance Ltd. (171 TTJ 794). Further, the Ld.CIT(A) was of the opinion that the enhancement notice dated 27.10.2016 was issued based on the decision of the Hon’ble Tribunal in the assessee’s own case for Asst.years 2005-06 and 2006-07. Accordingly, the decision of the Hon’ble Mumbai Tribunal relied on by the assessee cannot be applied to the facts of this case. Accordingly, the assessment is enhanced as proposed in the enhancement notice. The total income is determined as under:
Income from House property .... .... 5,23,165/- Income from Other Sources Rs.15,19,960/- (a) Bank Interest ... Rs. 4,37,912/- 19,57,872/- (b) lnterest from others ... Total income Rs.24,81,037/- Accordingly, Ld.CIT(A) directed the ld. Assessing Officer to enhance the assessment . Against the order of Ld.CIT(A), now the assessee is in appeal before us.
Before me, the ld.A.R brought on record the following documents for my consideration.
Sl.No. Date Particulars Page No. in Paper Book 1 29.12.2011 Re-assessment order of the AO 1 u/s.143(3) r.w.s.147 of the Act 2 05.07.2013 Order of Tribunal in ITA 8 No.2326/Mds./2012 against the order of re-assessment (para No.14) 3 27.10.2016 Notice of enhancement isused by 24 the CIT(A)-3,Madurai 4 28.01.2013 Order of Tribunal in ITA 25 No.6552/Mds./2011 in M/s.Vatsalya Enterprises Pvt Ltd. Vs.ACIT Mumbai 5 09.05.1989 Judgmenet of Calcutta High Court 36 in CIT Vs. ganga Properties Ltd.(1993) 199 ITR 94(Cal.) 6 29.05.2009 KNP securities P. Ltd. Vs. ACIT 40 (2010) 1 ITR(Trib) 130 (Mum.) 7 13.05.2015 Preimus Investment & 45 Finance Ltd. Vs. DCIT (2015) 171 TTJ (Mum.) 794.
It was submitted by the ld.A.R that on earlier occasion, the ld. Assessing Officer reopened the assessment for assessment year under consideration and dealt the same issue while passing the assessment order u/s.143(3) r.w.s.147 of the Act on 29.12.2011.
Later, the above order was subject matter of appeal before this Tribunal in ITA No.2326/Mds./2012 and the Tribunal vide order dated 05.07.2016 held as under:-
“10. We have heard both sides, perused the records and gone through the orders of authorities below. The assessee company filed its return of income on 28.05.2004 by admitting total income of .1 .,03,890/-. The Assessing Officer completed the assessment under section 1 ?() of the Act on 29.12.2006 and assessed total income of the assessee at .20,73,885i-. In the assessment order, the Assessing Officer has disallowed MD’s salary and commission on the ground that the payment of commission to the MD is based on business income at Malaysia, which is an exempt income and not allowable expenditure. It means, the Assessing Officer was aware that there is an income from Malaysia. Having noticed and applied his mind, the Assessing Officer disallowed the payment made to the MD of the Malaysian Branch.
The Assessing Officer, in the assessment order, an amount of .15,19,959/- shown by the assessee as income from other source, the same was added to the total income of the assessee. It implies that the Assessing Officer is aware of the interest income and interest expenditure also.
Subsequently, on 24.03.2011 the Assessing Officer issued a notice under section 148 of the Act on the ground that there is an escapement of income and the assessment was reopened on three counts I.e. (a) the assessee is in receipt of only interest income, against which the expenditure of which .15,34,428/- is not allowable expenses, (b) the assessee has claimed loss of sale of car amounting to .19,749/- and income tax paid for earlier years amounting to .8,5O,444/- which was not allowable expenses and (c) income from Malaysian Branch is not included in the total income for the purpose of taxation in India on the basis of the decision of the Hon’ble Supreme Court in the case of CIT V. PVRM Kulandayan Chettiar [267 ITR 657], this case law is not applicable in the instant case.
The Assessing Officer has reopened the assessment for the above reasons, whether the Assessing Officer has applied his mind with regard to the reasons given above has to be examined separately.
So far as interest income against which expenditure is claimed, the assessee has declared interest income of .19,57,872I- including bank interest of .15,19,959/- against which the assessee has claimed expenses of v.15,34,428/-. The Assessing Officer, in the origina[ assessment order, while including the total income, he had shown interest income from other sources. The Assessing Officer, after considering the same has added the same to the total income of the assessee. Therefore, once the Assessing Officer has considered the interest income under section 143(3) and the same was added to the total income of the assessee, it has to be understood that the Assessing Officer has formed a opinion with regard to the interest income. Therefore, issuing notice again on the same subject is amounting to change of opinion, which is not permissible under law. Therefore, on this count, the reopening of the assessment is not justified.
So far as expenditure claim for sale of car is concerned, no addition was made by the Assessing Officer in the assessment proceedings. This cannot be a ground for reopening the assessment.
So far as income from Malaysian Branch is concerned, the Assessing Officer in the assessment order has considered the MD’s salary and commission of Malaysian Branch and has examined the issue and came to the conclusion that the income of Malaysian Branch is an exempt income and therefore, commission paid to the MD is not allowable and accordingly disallowed the same. It means, the Assessing Officer has examined the issue and applied his mind. Therefore, reopening of assessment again on the same issue is not permissible under law. In the case of Kelvinator of India Ltd. (supra), the Hon’ble Supreme Court has observed that “after 1st April, 1989, the Assessing Officer has power to reopen the assessment under section 147 provided the Assessing Officer has reasons to believe that income has escaped assessment and there is no tangible material to corn a conclusion that there is an escapement of income. Mere change of opinion cannot per se to be reason to reopening”.
In the present case, the Assessing Officer, having considered entire material and after applying the mind, completed assessment under section 143(3) of the Act. Thereafter, a notice under section 148 was issued on 24.03.2011 i.e. after four years and reopened the assessment. In our opinion, the Assessing Officer has reopened the assessment is change of opinion, which is not permissible under law. Therefore, the reopening is invalid.
Apart from the above, in the present case, the Assessing Officer has issued a notice under section 148 after four years; therefore, proviso to section 147 is applicable to assessee’s case. In this context, certain judicial precedence needs to be considered to decide the issue. In the case of Fenner (India) Ltd. v. DCIT 241 ITR 672, the Hon’ble Jurisdictional High Court has observed that in order to reopen an assessment after expiry of four years from the end of the relevant assessment year, the Assessing Officer must summarily record his reasonable 1belief that income has escaped assessment, but also default on failure of the assessee to disclose fully and truly all the materials facts. Notice issued under section 148 after expiry of four years cannot be sustained as escapement of income, if any, not on account of any failure on the part of the assessee to disclose material facts fully and truly. The Hon’ble Jurisdictional High Court in the case of CIT v. Elgi Finance Ltd. [286 ITR
674] has observed that “ the assessee company having truly and fully disclosed all material facts necessary for working out the quantum of depreciation, notice under section 148 issued after expiry of four years from the end of relevant assessment year to withdraw the excess depreciation allowed to the assessee is barred by limitation and illegal”. The Hon’ble Jurisdictional High Court has further observed that “the law relating to reassessment has undergone to a change from 01.04.1989. The change was brought by Direct Tax Law (Amendment) Act, 1987. Two sets of provisions are available under section 147 in clause (a) and clause (b). This distinction has now been taken away by the Amendment Act. Previously, the line of distinction was a limitation period of four years and the limitation period exceeding four years. The Assessing Officer would reopen a back assessment within a period of four years as long as he had reason to believe in consequence of any information, that income has been under assessed or income has escaped assessment. In the case of limitation, providing for a period exceeding four years, there should have been a failure on the part of the assessee to disclose fully and truly all material facts leading to the escapement of income. But, as a result of the amendment brought with effect from 01.04.1989, the above distinction had been obliterated and the Assessing Officer could reassess the income as long as he had reason to believe that income chargeable had escaped assessment. The new law has inserted a proviso to section 147 in the following words: “Providing that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax had escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.”
In addition to the time limits provided for under section 149, the law has provided another limitation of four years under the proviso to section 147. As far as the above proviso to section 147 is concerned, the law prescribes a period of four years to initiate reassessment proceedings, unless the income alleged to have escaped assessment was made out as a result of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Hon’ble Jurisdictional High Court has further observed that in cases where the initiation of the proceedings is beyond the period of four years from the end of the assessment year, the Assessing Officer was necessarily record not only his reasonable belief that income has escaped assessment but also the default or failure on the part of the assessee. Failure to do so would vitiate the notice and the entire proceedings. Mere escape of income is insufficient to justify the initiation of action after the expiry of four years from the, end of the assessment year. Such escapement must be by reason of the failure on the part of the assessee either to file a return referred to in the proviso or ‘to truly and fully disclose the material facts necessary for the assessment.
In the present case, the notice under section 148 was issued after four years. There is no specific finding by the Assessing Officer in the reasons recorded as extracted from the assessment order that the assessee failed to disclose fully and truly all the particulars required to complete the assessment. Therefore, we find that the notice issued under section 148 is not valid.
In similar circumstances, the Hon’ble Bombay High Court in the case of Hindustan Lever Ltd. v. ACIT (268 ITR 332) has observed that “reasons recorded by the Assessing Officer nowhere stating that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and, reopening of assessment made under section 143(3), after expiry of four years from the end of the relevant assessment was not valid.
In Sadbhav Engineering Ltd. V. DCIT (333 ITR 483), the Hon’ble Gujarat High Court has observed that in the absence of any averment that the assessment is sought to be reopened by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for the relevant assessment year, the very initiation of proceedings under section 147 by issuance of notice under section 148 after expiry of four years from the end of relevant assessment year is bad and cannot bé sustained.
In view of the above and taking into consideration of the facts and circumstances of the case, the issuance of notice under section 148 after expiry of four years from the end of relevant assessment year is bad and cannot be sustained and the ground raised by the assessee is allowed.
So far as Revenue’s appeal is concerned, once the reopening of assessment is decided as bad and not valid, it is not necessary to decide the issues on merits. Therefore, the appeal filed by the Revenue is dismissed.
4.1 Further, ld.A.R submitted that Ld.CIT(A) considered the same issue, which was the subject matter of reopening of assessment for enhancing the income of assessee, which is bad in law and to be quashed.
On the other hand, ld.D.R relied on the order of the CIT(Appeals).
I have heard both the parties and perused the material on record. In this case, the grounds raised
by the assessee namely Ground Nos.3,4 & 5 were first time raised before this Tribunal and the Ld.CIT(A) has no occasion to examine the same. These grounds are going into the root of the matter of the issue raised by the assessee with regard to enhancement made by Ld.CIT(A) towards expenditure incurred to earn interest income. In other words, it is the plea of assessee that the earlier assessment had been had been effaced by the subsequent re-assessment order of the AO and Ld.CIT(A) wanted to make addition indirectly, which is not possible directly. For this purpose, he relied on the judgment of Supreme Court in the case of I.T.O Vs. K L Srihari (HUF) And Others reported in [2001] 250 ITR 193 (SC). At this stage, I decline to comment on the merit of the grounds raised by the assessee, as Ld.CIT(A) has to first consider the same at his end. Accordingly, I remit the entire issue to the file of Ld.CIT(A) to adjudicate the legal issue first, which is raised before the Tribunal and thereafter adjudicate other grounds, if necessary.
7. In the result, the appeal of assessee is partly allowed for statistical purposes. Order pronounced on 22nd November, 2017.