Income Tax Appellate Tribunal - Mumbai
Aipita Marketing Pvt. Ltd. vs The Income Tax Officer on 24 August, 2007
ORDER
O.K. Narayanan, Accountant Member
1. These two appeals are filed by the assessee. The relevant assessment years are 2000-2001 and 2001-2002.
2. In the appeal for the assessment year 2000-2001, the first ground raised by the assessee is that the CIT(A) has erred in law and on facts by holding that the action of the Assessing Officer in issuing notice Under Section 148, for re-assessment of the income is correct. The CIT(A) ought to have held that the said notice Under Section 148 dated 12.8.2002 and the assessment order passed Under Section 143(3) r.w.s. 147 of the Act dated 14,10.2002 are bad in law and void ab initio.
3. The learned Counsel appearing for the assessee contended that the assessee has disclosed truly and fully all the materials necessary for completing the assessment at the first instance itself. He stated that the assessment was completed Under Section 14.3w) accepting the return filed by the assessee and intimation was made on 15.2.2002. He submitted that the only income of the assessee for the impugned assessment year was the leave and license receipt obtained from the residential that owned by the assessee. He has stated that the only income credited in the Profit & Loss Account of the assessee-company is the rental amount of Rs. 18 lacs. He has further stated that the only asset of the company is the flats and the Air-conditioners and furnitures provided therein. The nature of the property was known to the Assessing Authority. All the particulars were furnished to him is the case of income from a single item of property. Therefore, once the assessment having been completed by accepting the return of income Under Section 143(1), there is no justification to go for an income escaping assessment only on the basis of a change of opinion.
4. The learned Counsel relied on the decision of the Madras High Court in the case of Bapalal And Co. Exports v. JCIT 289 ITR 37. The learned Counsel stated that the Court has held in the said case that once an opinion is given in an assessment, it cannot be reopened by any other authority except on fresh material. That apart, a notice issued under Section 148 of the Act should be a reasoned one whereas the order in question had been issued without assigning any reason justifying the issue of notice. In the absence of any new material, the Assessing Officer is not empowered to reopen an assessment irrespective of whether it is made under Section 143(1) or 143(3).
5. The learned Counsel submitted that in the present case also, no fresh material was collected by the Assessing Authority against the assessee and there was no reason to justify the issue of notice Under Section 148. He, therefore, submitted that the income escaping assessment order need to be quashed.
6. Shri Bharat Bhushan, the learned Senior D.R. appearing for the Revenue. On the other hand, relied on the decision of the Supreme Court in the cane of ACIT Rejesh Jhaveri Stock Brokers Pvt.Ltd. 291 ITR 500. Wherein the Court has held that if the ingredients Under Section 147 are fulfilled, failure to take steps Under Section 143(3) will not render the Assessing Officer powerless for reassessment proceedings even when intimation Under Section 143(1) had been issued. The learned Senior U.K. therefore, submitted that the reopening of assessment Under Section 147 is permissible even after an assessment was completed Under Section 147(1) provided the Assessing Authority has reason to believe that income has escaped assessment. He submitted that the provisions relating to reopening of the assessment have undergone substantial and material changes with effect from April 1, 1989.
7. We considered the matter in detail. The decision of the Supreme Court relied on by the learned Senior D.R. (291 ITR 500) is not applicable to the present case as the issue considered in the said case is a different one coming under a different legal perspective. What the Court has held in the said case is that if ingredients of Secton 147 are fulfilled, failure to take steps Under Section 143(3) does not take away the power to reopen the assessment even in a case where intimation Under Section 143( 1) has been issued. The Court was really examining the legal implication of the operation of Section 148 in the light of an intimation Under Section 143(1), vis-a-vis, Section 143(2) and (3). The Court has held that in a case where an intimation was made Under Section 143(1), it is possible for the Assessing Officer to proceed for an income escaping assessment even if there was no proceedings initiated Under Section 143.
8. In the present case, the argument of the assessee is not with reference to the power of the Assessing Authority to issue notice Under Section 148 in a case where there was no assessment Under Section 143(3) but only intimation Under Section 143(1). The issue raised by the assessee is regarding the ingredients of Secton 147, themselves. The question itself is whether action Under Section 147 was justified or not. The question is not linked with a proceedings concluded Under Section 143(1) or Under Section 143(3). But the Madras High Court in the case of Bapalal And Co. Exports v. JCIT 289 ITR 37 has considered a case exactly similar to the present case. There also, the assessment Was completed Under Section 143(1). Thereafter no fresh material had come to the notice of the Assessing Authority. Notice Under Section 148 was issued in the absence of any new material. The Court held that reasons stated by the Assessing Authority did not justify issue of notice Under Section 148. In that context, the Court held in the absence of any new material, the Assessing Officer is not empowered to reopen an assessment whether the original assessment was completed Under Section 143(1) or 143(3).
9. In the present case also, the assessee has made full disclosure regarding its income. The particulars of the property have also been furnished. The Assessing Officer has not come across any new material.
10. The assessment was completed Under Section 143(1). In such circumstances, it is not possible to hold the view that the income escaping assessment is always justified in a case where the assessment was made Under Section 143(1) and not Under Section 143(3).
11. In the present case, as there is no fresh material with the Assessing Authority, it is to be seen that the assessment was reopened on the basis of a change of opinion of the Assessing Authority.
12. The Full Bench of the Delhi High Court in the case of CIT v. Kelvinator of India Ltd. 256 ITR 01 has observed that it is a well settled principle of interpretation of statutes that the entire statute should be read as a whole and the same has to be considered thereafter chapter by chapter and then section by section and ultimately word by word. In continuation of the above observation, the Court has considered the scope and effect of Section 147 as substituted with effect from April 1, 1989 by the Direct Tax Laws (Amendment) Act, 1987, and subrquently amended by the Direct Tax Laws (Amendment) Act, 1989, with effect from April 1, 1989, as also of Section 148 to 152 have been elaborated in Circular No 549 [182 ITR (St.) 1] dated October 31, 1989. The Court referred to Clause 7.2 of the said Circular, which made it clear that the amendments had been carried out only with a view to allay fears that the omission of the expression reason to believe" from Section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on a mere change of opinion. Ultimately, the Court held that it is evident that even according to the Central Board of Direct Taxes a mere change of opinion cannot form the basis for reopening a completed assessment. In this context, it is also pertinent to note the observation of the Court that the Assessing Authority does not have any jurisdiction to review his own order. That is why the Court has reiterated that Section 147 of the Income-tax Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceedings upon a mere change of opinion.
13. The Ranchi Bench of the High Court of Patna in the case of Sheo Narain Jaiswal and Ors. v. ITO and Ors. 176 ITR 352 has held that for the purpose of initiating reassessment Under Section l47(a), the Assessing Authority should form his own belief on the materials available before him and it is not sufficient that he acts at the behest of any superior authority. If the above principle of self-1 satisfaction is not satisfied and the reopening was initiated under the direction of superior authority, the reopening of assessment would be bad for non-satisfaction of the condition precedent.
14. The Delhi High Court in the case of Jindal Photo Films Ltd. v. DCIT 234 ITR 170 has held that where the Income-tax Officer attempts to reopen a assessment because the opinion formed earlier by him was in his opinion incorrect, the reopening could not be done.
15.The Gujarat High Court in the case of Garden Silk Mills Pvt. Ltd. v. DCIT 231 ITR 668 has considered the conditions precedent to reopen an assessment Under Section l47 and has held that the reason to believe that income has escaped assessment should be borne out of material and a change of opinion will not be sufficient to justify a reassessment proceeding.
16. Again, the Gujarat High Court in the case of Adani Exports v. DCIT 240 ITR 224 has held that the Assessing Officer must have reason to believe that income has escaped assessment and the existence of such belief is open to judicial review and in that context the audit objection raised by the Department is not an information to point out an escapement of income.
17. The Madras High Court in the case of Apollo Hospitals Enterprises Ltd v. ACIT 287 ITR 25 has held that issue of notice Under Section 148 is not permissible on change of opinion of the Assessing Authority.
18. Therefore, in the facts and circumstances of the case and in the light of the decision of Madras High Court in the case of Bapalal And Co. Exports v. JCIT 289 ITR 37, we find that the impugned income escaping assessment is bad in law. Therefore, it is to be set aside.
19. The assessee is successful in its appeal for the assessment year 2000-2001.
20. In the appeal for the assessment year 2001-2002, the ground is on merit. The ground is that the CIT(A) has erred in law and on facts by confirming the order of the Assessing Authority whereby the total income of assessee has been assessed as,"income from house property" as against "income from business". The assessee, as already stated, owns a residential apartment. The assessee has provided Air-conditioning facilities and also furniture. In that way, what has been let out by the assessee-company is a furnished apartment. The assessee claims that it must be assessed as income from business. At the time of argument, the learned Gounsel appearing for the assessee scaled down the argument to a new level. The learned Counsel submitted that instead of business income, the income may be assessed "income from other sources" and not to be assessed as "income from house preporty"
21. In support of the proposition, the learned Counsel relied on the Full Bench decision of the ITAT Delhi Bench "B" in the case of Shashi Kant Gupta v. ITO 14 ITD 270. Wherein it is the case of the learned Counsel that in the said case under similar circumstances, the Tribunal has held that (he income should be assessed as income from other sources.
22. The learned Counsel further relied on our attention to the provisions of law contained in Sec,56(2)(iii) which reads as below:
56(2)(iii) : where an assessee lets on hire machinery, plant or i furniture belonging to him and also buildings, and the letting of\ the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head "Profits and gains of business or profession" shall be chargeable to income-tax under the head "Income from other sources
23. Shri Bharat Bhushan, the learned Senior D.R., on the other hand, submitted that the case of the assessee is a pure and simple case of letting out of a furnished residential apartment. It is nothing but income from house property. The assessee has provided window Air-conditioners. The assessee has provided furniture. These are all essential part of a residential apartment. He, therefore, submitted that the Revenue has treated the rental income rightly as income from house property.
24. We considered the matter in detail. The Full Bench decision of the ITAT Delhi Bench "B" in the case of Shashi Kant Gupta v. ITO 14 ITD 270 does not go to help the case of the assessee. In that case, the building let out by the assesson had an Air-conditioning plant which was inseparable from the building. The predominance of the property in that case was a building with an AIR conditioning plant. In the present case, the property of the assessee is a simple and pure residential apartment. The assessee has provided window Air-conditioner. Furnitures also have been given. In other words, what is let out by the assessee is a furnished apartment. The furnishings provided by the assessee by way of window Air-conditioner and furniture do not change the character of the asset from that of house property to that of business asset. The assessee is not carrying on any business by way of letting out the residential property. Moreover, it is also to be held that the property does not cease to be house property only for the reason that assessee has provided Air-conditioners and furniture in the residential apartment.
25. The reliance placed by the assessee on Clause (iii) Sub-section (2) of Section 56 is also not convincing. The law provides therein that hire charges should be treated as income from other sources in such circumstances where machinery, plant or furniture belonging to an assessee with or without buildings have been let out. It is also there that the buildings are inseparable from the machinery, plant or furniture hired by the assessee. The emphasis in the said subsection is not on the building as in the nature of a house property. The thrust of the statute is on hiring of machinery, plant, etc. In the course of letting out machinery, plant, etc., if building also has to be let out as they are inseparable, such composite rental income would be considered as income from other sources. The predominant subject matter of the said sub-section is not buildings by nature of house property but machinery, plant or furniture. The sub-section is lead by hiring machinery, plant or furniture and not by letting out of house property or building. The term "buildings" needs to be read in the overwhelming company of hiring of machinery, plant or furniture. Therefore, in the facts and circumstances of the case, we find that the Revenue is right in assessing the income as house-property income.
26. The assessee fails in its appeal for assessment year 2001-2002.
27. In result, the appeal filed by the assessee for assessment year 2000-2001 is allowed the appeal for the assessment year 2001-2002 is dismissed.