BAMA BALASUBRAMANYAM,CHENNAI vs. ACIT, CHENNAI

आयकर अपील�य अ�धकरण, ‘‘बी” �यायपीठ, चे�नई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI �ी अ�ाहम पी. जॉज�, लेखा सद�य एवं �ी धु�वु� आर.एल रे�डी, �या�यक सद�य के सम� Before Shri Abraham P. George, Accountant Member & Shri Duvvuru RL Reddy, Judicial Member आयकर अपील सं./I.T.A.No.1981/Mds/2016 �नधा�रण वष�/Assessment Year:2007-08 Ms. Bama Balasubramanyam, The Assistant Commissioner of New No. 7, Old No. 5, II Main Road, Vs. Income Tax, Business Circle 1/ CIT Nagar (East), Chennai 600 035. DCIT/ACIT, Non Corporate Circle I Chennai. [PAN: AAJPB2978H] (अपीलाथ� /Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से / Appellant by : Shri N. Devanathan, Advocate ��यथ� क� ओर से/Respondent by : Shri Awjit Rakshit, JCIT सुनवाई क� तार�ख/ Date of hearing : 30.08.2017 घोषणा क� तार�ख /Date of Pronouncement : 22.09.2017 आदेश /O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER:

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 2, Chennai dated 31.03.2016 for the assessment year 2007-08. In the grounds of appeal, besides challenging reopening of assessment under section 147 of the Income Tax Act, 1961 [“Act” in short], the assessee also challenged confirmation of disallowance claimed as revenue expenditure as well as confirming of allowance of depreciation rate.

5.1 It was the contention of the ld. Counsel for the assessee that the reassessment was done only on the basis of same set of facts, which were already available on record and it cannot be a ground for reopening of the assessment. It is a settled law that on the basis of material, prima facie, available before the Assessing Officer, opined that income chargeable to tax has escaped assessment can be formed. The word ‘reason’ in the phrase ‘reason to believe’ would mean cause or justification. In case the Assessing Officer has a cause or justification to know or suppose that income has escaped assessment, action under section 148 of the Act can be taken. But obviously, there should be relevant material on which a reasonable man could have formed a requisite belief. Whether this material(s) would conclusively prove the escapement of income is not the concern at that particular stage. So what is required is the subjective satisfaction of the Assessing Officer based on objective material evidence. In the given case, original assessment was completed on 30.10.2009 under section 143(3) of the Act. The reason for reopening was recorded as discussed above. The argument of the ld. AR is that under section 147 of the Act in case the assessment order is completed under section 143(3) of the Act, as has been done in this case, no action could be taken after the expiry of four years from the end of the relevant assessment year unless the assessee has disclosed fully and truly all material facts necessary for the assessment for that assessment year, inter alia. In this case, as per section 149(1)(b) of the Act, time limit upto 6 year is available for issue of notice under section 148 of the Act, where the income escaping assessment is likely to amount to ₹.1 lakh or more for the relevant year. In the present, as the income escaping assessment exceeds ₹.1 lakh, the said condition is satisfied and therefore, the ground raised by the ld. Counsel cannot survive.

5.2 Further, the ld. Counsel for the assessee contended that, in this case, the Assessing Officer have no tangible fresh material for the reassessment for that assessment year. As seen from the reasons recorded which gives a clear picture that the Assessing Officer has got material evidence to form his opinion that income has escaped assessment that is why he reopened the assessment and issued notice under section 148 of the Act. There cannot be two opinions. At that point of time of reopening when the reasons are recorded after forming opinion of ‘escapement of income’ is only relevant. Hence, the plea of the ld. AR is not tenable in the eyes of law. Under section 147, the Assessing Officer can either assess or re-assess but for taking action there under, he has to record reasons that income chargeable to tax has escaped assessment. It is also mandated by section 148(2) to record reasons in writing. The reassessment proceedings under section 147 are further subject to sections 148,149,150,151,152 and 153. The Assessing Officer is required to see if the conditions laid in Explanation 2(c) because in this case the assessment was completed under section 143(3) of the Act are satisfied or not. In case, (i) income chargeable to tax has been under assessed; or (ii) such income has been assessed at too low rate; or (iii) such income has been made the subjective of excess relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed, the Assessing Officer would have valid cognizance under section 147 of the Act. The reasons recorded by the Assessing Officer clearly demonstrates that though the assessee produced books of account, the discrepancy noticed by the Assessing Officer can only be pointed out that due diligent of Assessing Officer. As such, the production of books itself cannot constitute full disclosure of all material facts for the purpose of assessment. Being so, we are satisfied that the Assessing Officer has “reasons to believe” that income has escaped assessment. In this case, the income escaped assessment is not in dispute. This fact confers jurisdiction on the Assessing Officer to reopen the assessment. The power under section 147 to re-assess the income post 1st April, 1989 are much wider than these used to be before. But still the schematic interpretation of the words ‘reason to believe’ failing which section 147 of the Act would give arbitrarily powers to the Assessing Officer to reopen the assessment on the power to an Assessing Officer to reopen any and every assessment order which would simply amount to a review. The concept ‘change of opinion’ is an in-built test to check the abuse of power by the Assessing Officer. On the basis of ‘change of opinion’, which cannot be per se a reason to reopen the assessment. In our opinion, as seen from the above reasons recorded, the assessing Officer would have ascertained the escapement of income at the time of original assessment also only with due diligent. Hence, the reopening is held to be valid. Even otherwise, it is the duty of the assessee to bring all the facts to the knowledge of the Assessing Officer at the time of original assessment and only just filing of documents at the time of assessment is not enough and he should be drew the attention of the Assessing Officer to all necessary material.

5.3 After exhaustively examining the issue of reopening of assessment, in the case of Kalyanji Mavji & CO. v. CIT [1976] 102 ITR 287, the Hon’ble Supreme Court, rendered its judgement in the context of section 34(1)(b) of the 1922 Act, which is pari materia with the extent provision (147) are as under: “Section 34(1)(b) would apply to the following categories of cases: (1) where the information is as to the true and correct state of the law derived from relevant judicial decisions; (2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income Tax Officer; (3) where the information is derived from an external source of any kind: such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of original assessment; and (4) where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record or the facts disclosed thereby or from other enquiry or research into facts or law. Where, however, the Income Tax Officer gets no subsequent information, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, section 34(1)(b) would have no application.” It is very clear that the failure on the part of the Assessing Officer to consider a material, which cannot by itself, stop him from considering the same to form a reason to believe an escapement of income. Where, therefore, there is a live and clear nexus between the said information and the reasons to believe escapement of income, formed on that basis, the assumption of jurisdiction to reassess cannot be called into question as was sought to be canvassed before us. Thus, we hold that the entire assessment in this case is valid and therefore, the reopening of assessment is upheld.

6.1 Similarly, under the head ‘other repairs’, the assessee has claimed expenditure of ₹.7,00,000/- out of which ₹.1,57,986/- was revenue in nature. Since the balance expenditure claimed by the assessee was used for creating false ceiling, lay out workstation, etc. and are capital in nature, he held that the assessee is eligible for depreciation of 10% and hence, the balance expenditure of ₹.4,87,813/- was brought to tax.

6.2 The assessee carried the matter in appeal before the ld. CIT(A) and filed detailed written submission with regard to the claim of ‘repairs’ and ‘other repairs’ as revenue expenditure. After considering the submissions of the assessee as well as case law relied on and by relying on various decisions, the ld. CIT(A) confirmed the additions made by the Assessing Officer. 6.3 On being aggrieved, the assessee is in appeal before the Tribunal.

6.4 We have heard both sides, perused the materials available on record and gone through the orders of authorities below. The claim of the assessee is that the expenditure incurred under ‘repair’ and ‘other repairs’ should be treated as revenue in nature. To decide the above expenditure as to whether revenue in nature or capital, we should consider the entire facts of the case. In this case, the assessee has purchased the premises in question vide sale deed dated 18.05.2006 during the financial year relevant to the assessment year under consideration. Thereafter, she proceeded to carryout various interior works such as purchase and installation of new equipments in the form of putting up of partition, creating work station, electrical facilitation, etc. On perusal of invoices filed in the form of paper book, we find that the assessee has carried out repair of existing flooring by removing the existing unlevelled flooring and relaying the same in an area of 3463 sq.ft., besides gypsum full Ht partitions, wall panelling, laminate skirting/trimmer/band & painting including purchase of installation of electrical fittings required for the entire area to meet out the business requirement and smooth working environment of commercial expediency the assessee. From the above, it is clear that the assessee has not carried out any minor or miscellaneous repairs of wears & tears to say that the expenditure is in the nature of revenue, but in this case, the assessee has completely renovated the entire premises from ground onwards after purchasing the premises to have enduring value.

6.5 The test that was laid down by Lord Cave L.C. in Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, 192 (HL), where the learned Law Lord stated: “........ when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital.” In the present case, after purchasing the premises, the assessee has carried out extensive modifications, reinforcement work, etc. which are found to have enduring value to the assessee. Therefore, the Assessing Officer brought the above major expenditures in the capital field, which was rightly confirmed by the ld. CIT(A) and thus, we find no infirmity in the order passed by the ld. CIT(A) on this issue. Accordingly, the ground raised by the assessee is dismissed.