TRENT LTD,MUMBAI vs. DCIT 2(3), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER RAJENDRA, AM- अनुसार Challenging the order dated 06/12/2010 of the CIT (A)-6,Mumbai the Assessing Officer(AO) and the assessee have filed the cross-appeals for the year under consideration.Assessee-company, engaged in the business of retailing for ready- made garments etc.filed its original return of income on 27.10.2005,declaring total income at Rs. 12.75 crores.The AO completed the assessment u/s.143(3)of the Act, on 05.10.2007,determining its income at Rs. NIL,after setting off loss of the earlier years. ITA/1162/Mum/2011: Brief Facts- On comparing the records of the earlier AY.s.and during the course of scrutiny proceedings,carried out for the AY.2006-07,the AO arrived at the conclusion that taxable income had escaped assessment,to the extent of Rs. 35.21 lakhs, within the meaning of the provisions of section 147 of the Act. Therefore, he

Further, it was also found that the assessee has entered into a different / distinct agreement for the income earned from hiring of furniture & fixtures to the above said party @ Rs.3.06.774/- per month i.e.. Rs.36.81.288/- per annum (12 x Rs.3.06,774/-), but however, the same was not being offered as income from other sources and was shown under the head income from house property only and deduction @ 30% u/s.24 of the IT Act was also claimed amounting to Rs.11.04.386/- (30% of Rs.36,81,288/-). However, the same has to be assessed as income from other sources and no deduction u/s.24 of the IT Act is allowable. Hence. an amount of Rs.36,81,288/- shall not be assessed under the head income from house property and rather brought to tax under the head income from other sources and the claim of deduction u/s.24 of the IT Act at Rs. 11,04,386/- disallowed and brought to tax. In view of the above. I am satisfied and have reason to believe that the income to the extent of Rs.35,21,682/- (Rs.24,17,296/- + Rs.11,04,386/-) chargeable to tax has escaped assessment within the meaning of the provision of section 147 of the IT .Act. Hence, based on the same notice u/s.148 of the IT Act is issued to the assessee.”

The assessee objected to the reopening of the completed assessment.However,it stated that reason little filed by it should be treated as a return filed in response to the notice u/s.148 of the Act.The AO completed the assessment on 24/12/2009, u/s.143(3)r.w.s.147 of the Act and completed the income of the 1162/M/11&1725/M/11 Trent Ltd. assessee at Rs. 13. 03crores.The assessee challenged the order of the AO before the First Appellate Authority(FAA)on jurisdiction as well as on merits. Before him, the assessee made elaborate submissions with regard to invoking the provisions of section 147 of the Act.However in a very short order,he observed that the assessee had reiterated the submissions made by it before the AO for contesting the reopening of the assessment,that the same were already addressed by the AO, that there was no occasion to interfere with the orders of the AO.In short,he did not adjudicate the ground, with regard to jurisdiction,by a speaking order.

4.During the course of hearing before us,the Authorised Representative(AR) contended that the assessee had vide its letter dtd.12.09.2006,during the assessment proceeding for the AY.2004-05,had replied the query raised by the AO about the rental income,that it had showed the income under the head house property income ,that after considering the submission of the assessee the AO while completing the scrutiny assessment,had assessed the same under the head income from house property,that it was a case of change of opinion,that the cases of Shabhu Investment (249ITR47)and Sonawala were brought to the notice of the AO,that the assessee had offered the income as per the prevailing law,that the order of the AO was against the Circular issue by the CBDT,that there was no escapement of income, that it was a case of mere change of opinion,that the FAA had accepted the second proposition of the assessee,that he agreed that the agreement was a composite agreement and the income was to be taxed as income from house property income,that municipal ratable value should be taken as ALV,that the assessee had offered actual rent and same was higher than Municipal lattable value. The Departmental Representative(DR) supported the order of the AO and the FAA.

1162/M/11&1725/M/11 Trent Ltd.

5.We have heard the rival submissions and perused the material available on record.The undisputed facts of the case are that the AO had completed the original assessment u/s.143(3)of the Act,that during the original assessment inquiry about the house property was made,that the assessee had filed reply in that regard(Pg. 12of PB.). In that letter the assessee had specifically mentioned that income was being offered under the head income from house property,that the AO had accepted the claim made by it(pg.4-8 of the PB-II).Thus,a conscious and informed decision was taken by the AO about the head under which rental income was to be assessed,that in the earlier year also the assessee had shown rental income u/s. 22 of the Act,that for the year under appeal the assessee had considered the total receipt of Rs.48.13 lakhs(Rs.11.32 lakhs for lease of premises and Rs.36.81 lakhs for hire charges for use of furniture and fixture) as ALV of the premises and had included it under the head income from house property,that the AO had assessed the Hire charges under the head income from other sources during the re-assessment proceedings,that he was not justified in assessing Rs. 36. 81 lakhs u/s.56 of the Act.

There is no doubt that principles of res judicata are not applicable to the income tax proceedings and the AO is not bound to follow the earlier year/(s)decision.But, there should be some valid reasons for not following the earlier year/(s) orders. Without mentioning the distinguishing features of a particular year as compared with the peculiarities of earlier years he cannot follow a new path.He has to explain as to why and how the facts and 4

1162/M/11&1725/M/11 Trent Ltd. circumstances of the two AY.s.are dissimilar.Rule of consistency demands that in assessment proceedings it should be followed as far as possible.Peculiar distinguishing facts of two assessment years and not the fancies of the AO should govern the re-opening of a completed scrutiny assess -ment.Change of facts and not the change of opinion of the AO has to be the basis of invoking the provisions of section 147 of the Act.But,in the case under conside -ration,we find that no new facts were brought on record by the AO to prove that the earlier order was not based on facts or that because of the later judgments of the Hon’ble Courts the legal position has changed.Thus,there is clear violation of principle of consistency.We find that in the cases of Ashok Mittal (360 ITR 12), Mohan Meakin Ltd.(189Taxman377)India Habitat Centre(203Taxman 510)the rule of consistency have been discussed and followed.

5.1.We would Like to refer to the case of JCB India Ltd.(376 ITR 621)the Hon’ble Delhi Court has dealt with the principle of consistency.Facts of the case were that the Tribunal,for the AY.s.2007-08 and 2008-09, deleted the addition made by the AO of the development charges on the ground that in several previous AY.s.the plea of the assessee that it was revenue expenditure was accepted.Dismissing the appeals filed by the Department,the Hon’ble Court held as under:

“……the assessee incurred the development charges on research and testing of components and that this did not result in a benefit to it of an enduring nature so as to characterise the development charges as capital expenditure. Testing of products and components is essentially a continuous process which permeates different accounting years. It is an integral part of a routine manufacturing and monitoring activity. It cannot obviously be a one-time event. The Revenue had not been able to persuade the 5

1162/M/11&1725/M/11 Trent Ltd. court that an error had been committed in any of the previous assessment years where the assessee’s explanation was accepted and the expenditure on development charges was treated as revenue expenditure. 6.It is seen that in the orders in assessment proceedings from which the present appeals arise, the Assessing Officer did not hold that the details provided by the assessee were inadequate.He only opined on the basis of the details furnished that there was a benefit of enduring nature to the assessee thereby and that,therefore, it required to be treated as a capital expenditure.

1162/M/11&1725/M/11 Trent Ltd. from the earlier view,the rule of consistency should be followed and,consequently,the Tribunal allowed the appeals. Before the Hon’ble High Court it was argued ,on behalf of the assessee,that the dual stand on the part of the Department was impermissible and could be titled as "flip-flop" conduct of the Department,that if the Revenue was aggrieved by such a stand of the AO for the AY.s. of 1993-94 and 1995-96, the matter could have been carried further,but same was not carried and rather was accepted,that once having told that the expenditure would be treated as revenue expenditure, in the absence of any material,it would not lie in the mouth of the Department to contend that the same would be treated as capital expenditure,that that the Tribunal's view was correct and should not be interfered with.Deciding the matter,the Hon’ble Court held as under:

“The consistency expected on the part of the Revenue in taxation matters is not unknown but rather is expected(emphasis by us)so as to make the assessee aware about the taxable liability. If the legal position is changed or there is cogent material available, the Revenue can take a different stand or make a valid departure but at the same time, in the absence of any such circumstances, namely, any material leading to a different conclusion or change in the legal position, the consistency on the part of the Revenue should be adhered to.”

We would also like to refer to the case of Jyoti Prakash Dutta (367 ITR 568) of the Hon’ble Bombay High Court.Facts of the case were that the Tribunal had disallowed the claim in the case of the assessee in prior years saying that a film production unit or a company was not an industrial undertaking within the meaning of section 80-IB of the Act,but the disallowance was set aside by the High Court.The Department,in spite of the judgment,took up the issue before the Court. Dismissing the appeal,the Hon’ble Court held as under:

“12. Equally, we find that when the Tribunal passed an order in the case of the very assessee, and which order could not be successfully assailed by the Revenue, then, instead of following and applying it and maintaining and upholding the rule of 7

1162/M/11&1725/M/11 Trent Ltd. consistency, the authorities disobey the same. The Tribunal's order and in the case of the very assessee have during prior assessment years considered identical questions and issues. We do not see how the Revenue can repeatedly bring matters before this court and on the same issues in successive years when it has not been able to succeed in its earlier endeavour. This tendency will have to be curbed because the factual matters are being reopened by such repeated exercises and we strongly disapprove the same. When the parties have dealt with each other, for number of years and knowing fully well what the issues are, then, the least that is expected from the Department or the Revenue is that it will abide by the Tribunal's orders and grant the deduction in accordance therewith. More so, when the Tribunals' orders are challenged in this court but the challenge fails, the very contention raised before the Tribunal but not accepted is sought to be raised. We do not see how a court of law, that too the highest court, can be called upon to undertake an exercise to convince the Revenue that what it is urging before it is not tenable either in law or in facts. It is not the function of this court to pursuade the authorities. They must accept the claims or deductions as in the present case and follow the Tribunal's orders on factual issues. That would uphold rule of consistency and certainty.(emphasis supplied).We find that extreme arguments are canvassed so as to take a chance and try to unsettle the settled matters and things. This tendency has to be curbed and we must come down heavily on parties to curb it, may it be the Revenue.”

Hon’ble Bombay High Court in the case of Gopal Purohit(336ITR287)has held that that there should be uniformity in treatment and when facts and circumstances for different years were identical particularly in the case of the same assessee.

We find that in the matters of Excel Industries(358ITR295) and others the question for consideration was whether the benefit of an entitlement to make duty free imports of raw materials obtained by the assessee through advance licences and DEPB issued against export obligations is income in the year in which the exports were made or in the year in which the duty free imports are made.Deciding the appeal the Hon’ble Apex Court held as under:

1162/M/11&1725/M/11 Trent Ltd.

“28. Secondly, as noted by the Tribunal, a consistent view has been taken in favour of the assessee on the questions raised, starting with the assessment year 1992-93, that the benefits under the advance licences or under the duty entitlement pass book do not represent the real income of the assessee. Consequently, there is no reason for us to take a different view unless there are very convincing reasons, none of which have been pointed out by the learned counsel for the Revenue. XXXXXXXXXXXXXX 30.Reference was also made to Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) and then it was held (page 329 of 193 ITR) : "We are aware of the fact that strictly speaking res judicata does not apply to Income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter-and if there was no change it was in support of the assessee-we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken."(emphasis added) 31.It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flip- flop on the issue and it ought let the matter rest rather than spend the taxpayers' money in pursuing litigation for the sake of it.”

5.2.From the above,one thing become crystal clear that if an AO does not follow the earlier year/(s) decision without giving any cogent and reasonable explanation, his action cannot be endorsed.In the case before us,the FAA has not dealt with the jurisdictional issue.In a routine manner he has upheld the reopening,without considering the fact that the AO had,while completing the assessment,for the earlier years,u/s.143(3) of the Act has held that rental income was to be assessed as house property income and had not brought on record the new facts that compelled him to change the heads of income.Thus,the re- opening was not as per the established principles of taxation jurisprudence.So,we hold that the order passed by the AO,u/s.143(3)r.w.s.147 of