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Income Tax Appellate Tribunal, KOLKATA BENCH “D” KOLKATA
Before: Shri N.V.Vasusdevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is against order passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by Commissioner of Income Tax-III, Kolkata dated 28.03.2013. Assessment was framed by DCIT, Circle-7 Kolkata u/s 143(3) of vide his order dated 28.10.2010 for assessment year 2008-09 and assessee raised following grounds and thereafter additional ground, are reproduced below:- “1. For that the Ld. Commissioner of Income tax-III, Kolkata (hereinafter referred to as Ld. CIT) erred in law and facts in initiating proceedings u/s. 263 of the Income Tax Act, 1961 without appreciating the fact that the order passed by the Assessing Officer (herein after referred to as Ld. AO ) u/s. 143(3) was neither erroneous nor prejudicial to the interests of the revenue.
2. For that the Ld. CIT erred in law by directing the Ld. Assessing Officer (hereinafter referred to as Ld. A.O) to examine whether the infrastructure receipts of Rs.2,73,44,876/- ought to be taxed under the head Income from Haldia Riverside Estates Ltd. v. CIT-III, Kol. Page 2 business and profession or income from other sources without coming to a finding that the Ld. Assessing Officer's order in this matter was erroneous. 3. For that the Ld. CIT erred in coming to a finding that the income of Rs.3,60,00,000/- from the land was taxable under the head income from Other Sources and not income from House Property.”
Additional ground:- “1. For that the Ld. Commissioner of Income tax erred in law and facts in directing the Assessing Officer to examine whether the expenditue claimed against the amount of Rs.2,73,44,876/- under the head income from business includes expenditure covered by the deductions allowable under income from house property receipts from the apartments when such a proposition was not covered/included in the notice issued under section 263 of the Income tax Act, 1961.”
The ld.AR of the assessee has raised the additional ground of appeal and the ld. DR raised no objection, therefore we admitted the same.
2.1 The facts of the case in brief are that assessee is a Limited Company and declared its income from rental and other services. The activity of the assessee-company is setting up of township and providing related infrastructure facilities/services. The assessee has constructed a residential township consisting of about 380 flats spread over 110.60 acres of land in district of Midnapur, Haldia, West Bengal. The township also includes approximately 107.86 acres of land appurtenant thereto and integral with the residential buildings consisting of parks, lakes, gardens and playgrounds etc., for the exclusive use of the residents of the township. Besides, the assessee was also providing the infrastructure services such as security, electrical maintenance, gardening, pest control, civil maintenance, janitorial services etc. The assessee has leased out the residential apartments and the land appurtenant thereto to Haldia Petrochemicals Ltd. The assessee was charging a license fee, additional license fee and infrastructure charges which can be enumerated as under :
Haldia Riverside Estates Ltd. v. CIT-III, Kol. Page 3 1) The license fee was towards the rent charges for leased out the apartments and declared under the head “Income from House Property”. 2) The additional license fee was towards the leased out land admeasuring 107.86 acres and declared under the head “Income from House Property”. 3) The service and infrastructure charges were towards services such as security, electrical maintenance, gardening, pest control, civil maintenance, janitorial service services etc. and the income was declared as income from the business of the assessee. The AO framed the assessment for the year under consideration u/s 143(3) of the Act by accepting the return income filed by assessee. However, the Ld. CIT held the order of the AO erroneous in so far as it is prejudicial to the interest of Revenue on account of the following reasons : 1) There is no dispute about the leased out apartments. However there was land admeasuring 107.86 acres consisting of parks, lakes, gardens and playgrounds etc. The assessee has received a sum of Rs. 3.60 crores towards the leasing of the said land which was declared as income from house property. The ld. CIT opined that such receipt from leasing of land should be treated as income from other sources. 2) The service and infrastructure charges for an amount of Rs. 2.73 crores were not examined by the AO and the assessee declared the same as business income. The ld. CIT opined that the issue needs to be examined as to whether this income is business receipt or other sources. Besides the ld. CIT also apprehended that the expenses claimed by the assessee against this income should not amount to double deduction of expenses against the above receipt under business head and under section 24(a) of the Act.
Haldia Riverside Estates Ltd. v. CIT-III, Kol. Page 4 First Issue 3. The ground for the first issue towards the treating the rental income as income from other sources not pressed. So the issue has been dismissed as not pressed. Second Issue 4. For the second issue, the assessee has raised ground number 2 and additional ground stating that ld. CIT erred in treating the order of AO is prejudicial to the interest of revenue on account of holding the infrastructure receipt of Rs.2,73,44,878/- needs to be examined whether it is to be taxed under the head “business income” or “income from other sources” and also apprehended that the expenses claimed by the assessee against this income should not amount to double deduction of expenses against the above receipt under business head and under section 24(a) of the Act.
4.1 The ld. CIT issued show cause notice dated 11.03.2013 asking the assessee to submit an explanation as to why the order passed by the AO be not revised/ set aside as per the provisions of section 263 of the Act. In compliance to the said notice, the assessee submitted regarding the service charges amounting to Rs.2,73,44,876/-, for treating the same as business income as under :
1) That one of the object the company as per its memorandum of association is to set up of townships and provide related infrastructural facilities/services. Therefore income from infrastructural services in the township cannot be considered as income from other sources but only as “income from business and profession”. 2) That for the preceding AYs 2006-07 and 2007-08, the AO has accepted the infrastructure receipts as business income. 3) That the ld. CIT(A) has also accepted in his appellate order for AY 2005-06, the infrastructure receipt as business receipt.
Haldia Riverside Estates Ltd. v. CIT-III, Kol. Page 5 4.2 The assessee has been treating consistently income received on account of service charges and infrastructure facilities as “income from business and profession” from AY 2004-05 onwards and including this assessment year. In view of this, it is submitted that it is beyond the power of Ld. CIT to take a different stand on the matter subsequent to the order of Ld. CIT(A). Regarding the expenses against the income of infrastructure facility the assessee submitted that the expenses incurred in relation to the services and depreciation on the assets utilized for providing infrastructure facilities are only claimed. However, the Ld. CIT has disregarded the claim of assessee and held the order passed by AO is erroneous in so far as it is prejudicial to the interest of revenue. Hence, matter was restored back to the file of AO for fresh adjudication after necessary verification of the facts and reasonable opportunity to assessee.
Aggrieved, assessee preferred an appeal before us against the order passed by Ld. CIT u/s 263 of the Act.
Shri S.M.Suranna, Ld. Authorized Representative appearing on behalf of assessee and Shri Niraj Kumar, Ld. Authorized Representative appearing on behalf of Revenue.
We have heard rival submissions of both the parties and perused the materials available on record. Ld. AR submitted paper book containing pages from 1 to 110. The ld. AR before us submitted that the infrastructural service charges covered in ground of appeal No.2 and additional ground of appeal, it is submitted that where the Ld. CIT himself has not been able to form n opinion as to whether the income is taxable under business and profession or from other sources but has left it to the AO. IT cannot be said that the conditions of Sec. 263 of the Act have been fulfilled and also there is no Haldia Riverside Estates Ltd. v. CIT-III, Kol. Page 6 evidence as to how the change in the head of taxation would be prejudicial to the interest of the revenue. We find that instituting a roving enquiry is not permitted u/s. 263 of the Act and Ld. AR relied on the decision of Hon’ble Bombay High Court in the case of CIT v. Gabriel India Ltd. (1993) 203 ITR 108 (Bom) that the issues do not find a mention in the notice cannot be reopened u/s 263 of the Act. In the present case the direction to reopen the assessment to examine whether the expenditure claimed against the infrastructure service receipt is allowed as deduction under the head “income from house property” did not form part of the notice and the assessee therefore did not get any opportunity to submit its say thereon.
On the other hand the ld. DR vehemently relied on the order of authorities below.
From the aforesaid discussion we understand that the assessee has rented out the complete residential project to one company. The assessee was charging rent for the entire building which was declared as rental income. Besides the above the assessee was also providing infrastructure facilities such as security, electrical maintenance, gardening, pest control, civil maintenance, janitorial services etc. For the infrastructure facilities the assessee was charging service charges which were shown as business income. However, Ld. CIT found the order of AO is erroneous in so far as it is prejudicial to the interest of revenue and exercised his power u/s 263 of the Act by issuing a show cause notice. The Ld. CIT treated the assessment order erroneous by observing that the issue of charging service charge for the infrastructure facilities has not been examined by the AO so as to charge the same as business income or income from other sources. Besides the ld. CIT apprehended that the expenses claimed by the assessee against the income of service charge should not amount to double deduction under section 24 of the Act as well i.e. on one side the assessee claiming the expenses under section 24 of the Act and on the other hand the assessee is also claiming the Haldia Riverside Estates Ltd. v. CIT-III, Kol. Page 7 same expenses against the income from infrastructure facilities. It is because the issue has not been examined by the AO at the time of assessment. It was also observed by the Ld. CIT that it is important to ensure that assessee has claimed only the allowable expenditure under the law and not those expenses which have been allowed against the income of house property. Now to arrive at the correct conclusion of the case, we deem it necessary to reproduce the relevant provisions of section 263 of the Act. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the [Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, my, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment….”
The sum and substance of the above reproduced section 263(1) can be summarized in the following points:-: 1) The commissioner may call for an examine the record of any proceeding under the Act; 2) If he considers that the order passed by the AO is (i) Erroneous; and (ii) Is prejudicial to the interest of Revenue; 3) He has to give an opportunity of hearing in this respect to the assessee; and 4) He has to make or cause to make such enquiry as he deems necessary; 5) He may pass such order thereon as the circumstances of the case justify including, (i) An order enhancing or, (ii) Modifying the assessment or (iii) Cancelling the assessment and directing a fresh assessment. 8.1 Now in the light of above words, we have to examine as to whether the order of the ld. CIT is a valid order in the light of the above stated points/ Haldia Riverside Estates Ltd. v. CIT-III, Kol. Page 8 provisions of section 263 of the Act. We are finding from the submission of the assessee that the assessee has been showing consistently the income arising from infrastructure facilities as income from business. The ld. AR has submitted the copy of the order of the ld. CIT(A) order for the assessment year 2005-06 where the income from infrastructure facility has been treated as income from business. The relevant extract of the order is reproduced below : “4.3 I have carefully considered the above observation of the Assessing Officer in the assessment order and also the submission of the Ld. A/R. It has been explained that the assessing officer has not disputed this issue in the assessment order passed u/s 143(3) for the AY 2006-07. Considering the facts of the case, the assessing officer is directed to assess the service charge & infrastructure income of Rs.1,56,68,699/- as business since. As regards the claim of depreciation for Rs.95,34,885/- it is observed that the appellant has already availed substantial benefits such as deductions for repairs u/s. 24(a) 30% on (i) license fees of Rs.3,09,28,266 for the flats constructed on 110.60 acres, (ii) license fees of Rs.3,60,00,000/- for the open land of 107.86 together with all common facilities including infrastructures, other structures, roads, open grounds, and (ii) rent of Rs.1,20,60,121/- for Hatiberia flats. The common facilities include all the infrastructural facilities like overhead tanks on which deductions u/s. 24 have been already claimed and allowed. In my view, the appellant cannot claim depreciation on the same infrastructural facilities on which it has already claimed deduction u/s.
In view of it, the order of the AO rejecting the claim of depreciation for the amount of Rs.95,34,885/- is confirmed. This ground of appeal is partly allowed.”
The above decision was also upheld by the this Tribunal in 994/Kol/2012 dated 08.04.2013. The ld. DR has not brought anything on record to controvert the argument of the ld. AR. In view of above we deem it fit and proper to treat the income of the assessee from infrastructure facilities as business income. Besides the issue of the examination of the expenses claimed in connection with the infrastructure income is concern, we find that the notice issued under section 263 of the Act is silent on this matter. The relevant portion of the show cause notice is reproduced as under -: “On examination of the records, it is also observed that Rs.2,73,44,876/- was received on account of service charges and infrastructure for providing amenities to the tenants. However, the same was treated as income from House Property instead of the income from other sources. The issue was not examined by the AO in course of the assessment proceedings. Failure on the Haldia Riverside Estates Ltd. v. CIT-III, Kol. Page 9 part of the AO to do so has resulted in the assessment order dated 28.10.2010 as erroneous and thereby caused prejudice to the interest of revenue.”
The reply of the assessee is placed on pages no.18, to 22, the relevant extract of the assessee’s submissions reproduced as under:- “ 2.1.8 As regards service charge amount to Rs.2,73,44,876/-, it is submitted that as shown in the object clause of MOA of the company (copy enclosed in Annexure A) the object of the company includes setting up of townships and providing related infrastructural facilities/services. Therefore income from infrastructural service in the township cannot be considered as income from other sources and it is correctly treated as “income from business and profession” 2.2.4 It is further submitted that in our previous AY 2006-07 and AY 2007-08, the Ld. AO has accepted tax treatment of license fees and service charges as claimed in the return. Also in the AY 2005-06, the Ld. CIT(A)-XIII has also accepted our tax treatment of these items in question (copy of CIT(A)-XIII order is enclosed in Annexure-C) 2.2.6 The notice also does not specify under which head of income the license fees ought to be taxed. It only states that the license fees do not fall under income from house property and does not sates the alternative head of taxation. Therefore on this ground, revision u/s. 263 cannot apply on license fees in any case. 2.2.7 As mentioned in paragraph 22.2.4 the CIT(A)-XIII has already accepted out claims in AY 2005-06. In view of this, it is submitted that it is beyond the power of the Commissioner to take a different stand on the matter subsequent to the order of the CIT(A), especially when the department had not appeared before the CIT(A) and contested the claim.”
8.2 From the above it amply clear that the notice issue under section 263 of the Act is silent about the expenses incurred in connection with the income of infrastructure facilities. Therefore in view of above we deem it fit and proper not to hold the order erroneous in so far prejudicial to the interest of revenue. We are also relying in the order of Hon’ble Delhi High Court in the case of Commissioner of Income Tax vs. Gulmohar Finance Ltd. IT Appeal No. 1470 of 2006 dated 28th February, 2008 (2008) 6 DTR (Del) 327 : (2008) 170 taxman 479, the relevant extract of the order is reproduced below : 12. The third issues relates to the interpretation of s. 14A of the Act. It has rightly been held by the Tribunal that this issue did not find a mention in the notice sent by the CIT under s. 263 of the Act to the assessee. It has been Haldia Riverside Estates Ltd. v. CIT-III, Kol. Page 10 held in CIT vs. Smt. R.G. Umaranee (2003) 181 CTR (Mad) 104 : (2003) 262 ITR 507 (Mad) that in www. taxpundit. org/feedback.htmlwww.taxpundit.orgwww.taxpundit.org/library.htm/www.taxpu ndit.org/about.html Page 2 of 3 www. taxpundit.org /contact.html www.taxpundit.org the absence of a notice given by the CIT on a particular issue, it is not open for him to reopen the proceedings on that issue which is different altogether and initiate an inquiry thereon.
We are of the opinion that since the assessee was not put to the notice in regard to any issue under s. 14A of the Act, the CIT could not enlarge the scope of the proceedings on whatever issue arose during the proceedings. We do not find any error or illegality in the order passed by In the case in hand we find that the assessee has not been given opportunity to submit his part regarding the issue of the expenses incurred in relation to the infrastructure income. In view of above and from the facts of the case and in the light of various judicial pronouncements the order of the ld. CIT cannot be held to be sustainable in law and the same is accordingly set aside.