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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI G.S.PANNU & SHRI PAWAN SINGH
Assessee by : Shri Rajan Vora / Nikhil Tiwari (AR) Revenue by : Shri Deepkant Prasad and Saurabh Despande (DR) Date of hearing : 22.04.2016 Date of Pronouncement : 22.07.2016 O R D E R PER PAWAN SINGH, JM: 1. These two appeals filed by assessee against the order dated 09.11.2010 passed by the CIT(A)-22, Mumbai for Assessment Year (AY) 2000-01 & 2001-02 respectively were heard together and are decided by common order. First we shall decide Invalidity of reassessment proceedings 1. The learned CIT(A) erred in upholding the validity of reassessment proceedings without appreciating: a. that there was no reason to believe that income has escaped assessment b. that there was no failure on the part of the Appellant in wholly and disclosing all material facts to the Assistant Commissioner of Income-tax, Central Circle - 14, Mumbai at the time of original proceedings c. that the reopening of assessment was based on change of opinion d. that the sanction of Chief Commissioner of Income Tax under section 151(1) for issuing notice under section 148 was not validly obtained.
2. The learned CIT(A) ought to have quashed the reopening proceedings on the ground that since no adjustments have been made on the very basis of which reassessment proceedings were initiated. Disallowance of depreciation on portion of building sold to Enron in subsequent year 3. The learned CIT(A) erred in sustaining the disallowance of pro rata depreciation on Wockhardt Towers to the extent of Rs. 3.93 crores on portion of building sold in subsequent year to M/s. Enron India Pvt. Ltd. on the ground that part of the Wockhardt Tower was not used but was intended for sale. Levy of interest under section 234B of the Act 4. The learned CIT(A) erred in confirming levy of interest under section 234B, without appreciating that since the Appellant had returned income under section 115JA, provisions of advance tax chapter could not have been complied with.
5. Without prejudice to the above, the levy of interest ought to have been confined to incremental income assessed in impugned reassessment proceedings and for the period from date of regular assessment till date of reassessment as per section 234B(3) of the Act. Levy of interest under section 234D of the Act 6. The learned CIT(A) erred in confirming levy of interest under section 234B, without appreciating that provisions of section 2340 are not at all attracted and levy of interest is invalid and without jurisdiction and/or excessive since: a. Order under which interest is levied is not an order of "regular assessment" within the meaning of section 234D. b. In absence of specific statutory provisions, interest under section 2340 cannot be levied in reassessment after regular assessment under section 143(3). c. The provisions of section 2340 which came into effect from 1 June 2003 cannot be applied to the year under reference. d. In any case, no interest can be charged under section 2340 in respect of refund which was granted prior to 1 June 2003 and that too, for period after date of regular assessment. e. Without prejudice to the above, interest so levied is excessive.
Brief facts of the case are that the assessee filed its return of income for the relevant AY on 01.03.2001 declaring total income of Rs. Nil and book profit at Rs.12,34,72,016/- u/s. 115JA of the Act. The assessee subsequently filed revised return of income on 30.05.2001 declaring Nil income and book profit u/s. 115JA of Rs. 9,38,03,304/-. The assessment was completed on 03.03.2003 determining the total income at Rs. 4,83,04,000/-. The assessment was reopened u/s.147 of the Act by issuing notice u/s. 148 dated 23.07.2007, after obtaining prior sanction of CIT, and reasons for reopening were recorded as follows:- "In this case, assessment was completed u/s. 143(3) on 3/3/2003 on a total income of Rs. 4,83,04,000/- As seen from the annexure - II (depreciation chart) of the audit report u/s. 44AB, the assessee company has shown addition to the block of 'building' amounting to Rs.l,54,71,09,098/- under the column less than 180 days and claimed depreciation thereon at Rs. 38,677,727/-. It Is seen from the details given that the addition is in respect of office building at BKC (Bandra Kurla
Complex).The date of capitalization and the date of put to use is shown as 31/12/99. The land at BKC was leased by assessee from MMRDA in 1995 for a period of 80 years by agreement dated 4/10/1995. The building "named "Wockhardt Towers" was constructed and complex comprised of basements, ground and 8 upper floor, parkings, open space, terrace, etc. The construction is stated to be completed in July 1999 though occupancy certificate and final lease deed with MMRDA was in February, 2000. As seen from the case records for AY 2000-01 and 44AB report specially Annexure- II which indicated addition to building between 1/4/99 to 31/12/99 at Rs.1547109098/- under "less than" 180 days”. Along with this, detailed statement on addition under the heading "Factory Building" was enclosed" and "capitalization of BKC" - 31/12/99 Rs. 1531746543.07" was included by assessee in factory building. "Wockhardt Towers" is office complex and has no factory therein. Still, It was included in factory building" with the obvious intention of obtaining depreciation allowance. Date of starting use of this building was shown as 15/12/99 though very same statement have details to show that civil work, landscaping, N 0 C for water connection etc. were continued upto February 2000 when occupancy certificate and final-agreement with MMRDA was entered into. Thus, from the above it is clear that there is a failure on the part of the assessee company to disclose fully and truly all material facts, leading to the excess allowance of depreciation. Hence, I have reason to believe that income chargeable to tax has escaped assessment for this AY 2000-01. Hence, I propose to issue notice u/s. 148 of the Act for which approval of CIT (C)-I, Mumbai is necessary as per the provisions of section 151(1) of the IT Act.”
The assessee filed his objection against the re-opening and objected that the reopening of assessment is unlawful and without jurisdiction and requested to dispose of the objection by speaking order. The objection of the assessee was disposed of on 08.10.2007. After dismissal of objection, the assessee requested the Assessing Officer (AO) to treat its revised return filed on 30.05.2001 as a return in response to the notice u/s. 148 of the Act. The AO while re-assessing the income of assessee disallowed the depreciation in respect of Wockhardt Towers (floors sold to M/s Enron at BKC, Mumbai) of Rs. 3,93,15,147/- and simultaneously passed the order for charging interest u/s. 234B, 234C & 234D in the assessment order passed u/s. 143(3) r.w.s. 147 of the Act on 31.12.2007. Aggrieved by the order of AO the assessee filed appeal before CIT(A). Before the CIT(A), the assessee challenged the validity of re-assessment proceeding and disallowance of depreciation and other consequential additions of interest. The CIT(A) dismissed the appeal of assessee after hearing in the impugned order dated 09.11.2010, against which the present appeal is filed before us.
First ground for our consideration is the validity of re-assessment proceeding.
With regard to the challenge to the validity of reassessment proceedings, the first and foremost plea of the assessee is that the reasons recorded by the Assessing Officer were incorrect and, therefore, there was no reason to entertain a belief for escapement of income. In this context, our attention was invited to the reasons recorded, which we have already noted in an earlier part of this order, whereby it was sought to be pointed out that reopening is justified on two grounds, viz., that the addition to the block of assets was made under the head ‘factory building’ though the building in question, i.e., Wockhardt Tower was an office building; secondly, the reasons contain an observation that the date of putting to use of the building is shown as 15.12.1999, whereas the Occupancy Certificate, water connection, etc. was received only on February, 2000. It was pointed out that both the reasons recorded by the Assessing Officer were to justify his inference that in the original assessment, excessive depreciation has been allowed. In this regard, reference was also invited to pages 26 to 29 of the Paper Book, wherein are placed copies of the reasons recorded as well as the approval/sanction given by the Commissioner of Income-tax, Central-1, Mumbai for initiating the proceedings u/s 147/148 of the Act. By referring to the sanction of the Commissioner, it was pointed out that the reason for reopening has also been summarized as “excessive depreciation”. On this basis it was sought to be pointed out that none of the reasons would justify any escapement of income inasmuch the wrong classification of the building does not change the rate of depreciation allowable. In this regard, it was pointed out that the rate of depreciation on a factory building as well as an office building is same and, therefore, even if there was a wrong classification, the depreciation allowance would remain the same as the rate of depreciation is the same.
With regard to variation in the date of capitalization of the building, the learned representative for the assessee pointed out that whether the date of capitalization is taken as 15.12.1999 or February, 2000, the building is said to be put to use for a period of less than 180 days thereby resulting in 50% of the normal depreciation allowable. Thus, it was pointed out that whichever date of capitalization is adopted, the depreciation claimed remains the same. By referring to both these aspects, it was sought to be pointed out that there was no valid reason to justify the inference that any excessive depreciation has been allowed in the original assessment. It was, therefore, contended that the initiation of proceedings u/s 147/148 of the Act, be quashed as it was not founded on valid reasons.
On the other hand, the Ld. DR appearing for the Revenue has referred to the discussion made by the Ld. CIT(A) in para 5.3 of the order to justify initiation of proceedings. It was pointed out that the assessee had failed to disclose fully and truly the facts regarding the depreciation claimed and, therefore, initiation of proceedings was valid.
We have carefully considered the rival submissions. Sec. 147 of the Act empowers the Assessing Officer to assess or reassess the income only in situations where any income chargeable to tax has escaped assessment in any assessment year. It is also quite clear that the initiation of proceedings u/s 147/148 of the Act has to be founded on formation of a belief that certain income chargeable to tax has escaped assessment. In the present case, the case of the assessee is that the reasons recorded by the Assessing Officer do not show any escapement of income inasmuch as even if the points made out by the Assessing Officer are taken into consideration, yet, the depreciation allowable to the assessee would remain the same meaning thereby that there was no excessive depreciation allowed in the original assessment finalized u/s 143(3) of the Act on 3.3.2003. On facts, there is no controversion to the said assertion of the assessee, which is also borne out of record. Thus, on the preliminary point itself, we find that the proceedings initiated vide issuance of notice u/s 148 of the Act dt.23.07.2007 are invalid because the same are based on reasons which do not prove any escapement of income from tax for the instant assessment year. Therefore, the Ground of appeal no. 1 raised by the assessee with regard to the validity of reassessment proceedings is upheld on the aforesaid ground itself. Before parting, we may also put on record that other pleas have also been raised before us to challenge the validity of reassessment proceedings, viz., that the reassessment is based on change of opinion, and that the sanction of the Commissioner obtained u/s 151 of the Act is not valid, etc. Since the assessee has succeeded on the aforesaid ground, the aforesaid plea other pleas raised with regard to the validity of reassessment proceedings are not being adjudicated. As a consequence of our aforesaid discussion, the reassessment proceedings are hereby set-aside as being lacking jurisdiction. Since the reassessment proceedings itself has been set-aside, the other grounds raised with regard to the merits of the various issues are rendered academic and is not required to be adjudicated.
In the result, appeal of the assessee in for Assessment Year 2000-01 is hereby allowed, as above.
In the result, the appeal filed by the assessee is allowed. 11. In ITA No. 470/M/2011, the assessee has challenged the order of Commissioner of Income Tax Appeals dated 29th Jan 2007 for Ay 2001-02, raising the following grounds:
Treatment of sale proceeds of part of building to M/s. Enron
1. The Ld. Commissioner of Income Tax (Appeals) erred in sustaining assessment of some of Rs. 9 7.15 crore (being proceed from sale of property 2 masses. Enron India Private Limited) as short term capital gain of non-depreciable assets under section 48 as against return claim of appellant that the consideration pertained to depreciable asset covered by section 50 of the Act and which was required to be reduced from the block of assets of building.
2. The Ld. Commissioner of Income Tax (Appeal) erred in not following the order of Income Tax Appellate Tribunal for impugned Assessment Year against the order under section 263 of the Act where the Income Tax Appellate Tribunal has specifically directed to reduce the sale proceeds from the block of assets.
The brief facts of the case are that assessee filed return of income for relevant assessment year on 31st of October 2011, declaring total loss of Rs.23,13,16,950/-. The assessment was completed under section 143 (3) on 25 March 2004.The assessment was revised by Commissioner of income tax by exercising power under section 263 of the act. While revising the return of income. The ld Commissioner of income tax, wide order dated 28th March 2006 passed the following order: “Considering the facts of the case, in my view, the assessment order passed by AO was erroneous and prejudicial to the interest of revenue. In respect of sale of part of property to Enron. I therefore, with the powers vested under section 263, direct the AO as under:- a. Assessee has assigned 54% of his interest in plot and building to Enron and not 58.70% AO to re-compute capital gain. Accordingly. b. The part of building sold to Enron was not put to business use and was not depreciable asset. Therefore, the sale proceed of the building sold to Enron cannot be reduced from block of assets. AO to modify his order and compute the short term capital gain on sale of building and tax as per law. Aggrieved by the order of Commissioner of Income Tax, u/s. 263 dated 28th March 2006, the assessee filed appeal before the Tribunal. The Tribunal vide dated 09/09/2009 partly allowed the appeal of assessee and made the following order: “It is not disputed that the building, which was constructed was capitalized by it in the proceeding assessment year and depreciation also granted. Once the depreciation is granted after considering the asset as a part of the block, it loses its distinctive identity and merges with the block. It is also not disputed that assessment for the assessment year 2000-01 was completed under section 143(3), and the Assessing Officer considered any part of the building as not used by the assessee for the purpose of its purpose, he would not have definitely allowed the depreciation claimed. Once it is considered as a part of block of assets, the presumption is that it was used by the assessee for its business purpose. Further CIT himself had admitted in at para-5 of its order that the land was released by the MMRDA to the assessee by an agreement dated 4 October 1995 and, therefore, this conclusion that assessee had assigned the building and the lent to M/s Enron within two months does not stand to reason. All the more so, because assessee had capitalized the cost of building, in July 1999 and claimed depreciation in its return for the Assessment Year 2000-01. Therefore, so far as the decision of AO to consider the assigned part of the building as a business asset of the assessee and reducing the sale consideration from the elected book of asset, we do not find any error at all. As for the various decisions cited by the ld CIT, these were all related to dispute regarding whether and assets on witch depreciation was claimed was used or not. These decisions have no relevance, since in the proceeding assessment year. Assessee has already been given depreciation thereon. Assessee’s
contention that the whole of the building given could only be considered as one unit and was being used by it for the purpose of its business, prior to the assignment of the part thereto M/s Enron also stand unrebutted . Therefore, we are of the opinion that the CIT was right in coming to the conclusion that the percentage of the interest assigned to M/s Enron considered by AO at 58.7% was erroneous in face of the assignment deed. And the area showed therein, as regard the part of building assigned to M/s Enron not being considered as depreciable asset the head come to an incorrect conclusion, without there being an error in the order of assessing officer. The order of CIT under section 263 of the act is therefore upheld to the extent of point No. 1ie assessing officer considering 54% of interest in the plot of building assigned to M/s Enron against 58.7%. Viz-a-viz the 2nd part regarding part of the building being un-depreciable asset, the order of CIT under section 263 is annulled.” In the mean time, the AO finalized the assessment in line with order the order of CIT-Central (I), Mumbai u/s.263 dated 28.03.2006. And in accordance with the direction of CIT-Central Circle(I) he modified the assessment order and recomputed the capital gain and the depreciation was worked out without reducing the sale proceeds of the building sold to Enron from block of assets vide order dated 29.01.2007 passed u/s 143(3) r.w.s. 263 of I.T. Act. Aggrieved by the order of AO, the assessee also filed appeal before Commissioner of Income Tax Appeals against the order of AO under section 143(3) r.w.s. 263 of the Act dated 30th Nov 2006. The appeal of assessee was dismissed vide order dated 29 January 2007, impugned the present appeal.
We have heard Ld. AR of assessee and DR for revenue and perused the material available on record. Ld AR of the assessee argued that in the appeal filed before the Tribunal challenging the order of Commissioner of income tax, passed under section 263 of the Act. The Tribunal vide order dated 9/07/2009 upheld that assessee has assigned 54% of interest in plot and building to Enron’s and the second part that order is prejudicial to the interest of revenue was annulled. AR for assessee further argued that completion certificate was obtained in July 1999. The building was capitalized in the books of assessee in December 1999. In September 2000 that is in AYs 2001 – 02, the assessee assigned 5 floors in the building to Enron India private limited wide assignment deed executed on 19 September 2000, for Rs.97.5 crore and reduce the sale consideration from block of assets being building and claimed depreciation on the balance value of block of assets. This treatment was accepted by the AO in AY 2001-02 during the original assessment proceeding i.e. in assessment order passed under section 143(3). The ld. CIT(A) in its order dated 9th Nov 2010 for the preceding year which is AY 2000-01, denied claim of depreciation on 5 floors which were assigned to Enron on the ground that same was not used for business purpose. Ld AR further argued that that CIT (A) passed impugned order after passing the order of Tribunal (which is dt. 09.09.2009). The tribunal in its order clearly held that AO to consider the assigned part of the building as a business asset of the assessee and by reducing the sale consideration from the related book of assets as there is no error at all. And argued that revenue has not filed any appeal against the order of Tribunal and the same has become final. Ld AR of assessee further argued that action of CIT(A) is amounted to contempt of Tribunal’s order. Ld DR for revenue supported the orders of authorities below.
We have considered the rival contention of the parties and perused the record as well as gone through the orders of authorities below. We have noticed that while hearing of the appeal of the assessee against the order of CIT, passed u/s. 263 of the Act, this Tribunal in its order dated 9th July 2009, categorically set-aside the order of CIT dated 28th March 2006. When appeal was heard by Ld. CIT(A) against the order dated 30.11.2006 ( u/s 143(3) r.w.s. 263), the order of Tribunal was in the knowledge of CIT(A). Despite the knowledge of order of this Tribunal, the ld. CIT(A) sustained the order for computing Short Term Capital Gain. In its order dated 9th Nov 2010. The Ld. CIT(A) passed the impugned order in contradiction of Tribunal’s order dated 9th July 2009, wherein it was held that the assigned part of the building was a business asset, and that the building was a depreciable asset and hence the sale consideration thereof be reduced from the block of asset. In view of the order of the Tribunal dated 9th July 2006,CIT(A) should have set aside
the action of assessing officer. Thus, the order passed by Ld. CIT (A) dated 09.11.2010 is set-aside and the appeal of the assessee is allowed. 15. In the result, both the appeals for AYs 2000-01 & 2001-02 filed by assessee are allowed. Order pronounced in the open court on this 22nd July, 2016.