Income Tax Appellate Tribunal - Mumbai
Sun-N-Sand Hotels Pvt. Ltd., Mumbai vs Department Of Income Tax
„ ‟,
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "E", MUMBAI
Before Shri Rajendra Singh, AM and Shri Amit Shukla, JM
ITA No.7607/Mum/2011
( Assessment Year : 2001-2002)
DCIT Rg.8(3), Mumbai- Sun-N-Sand Hotels Pvt. Ltd.,
20 Vs. 39, Juhu Beach, Mumbai-49
PAN/GIR No . : AAACS 5521 P
( Appellant) .. ( Respondent)
/Revenue by : Mr.J.K.Garg
/Assessee by : Mr. Prakash K. Jotwani
Date of Hearing : 3rd Oct.,2013
Date of Pronouncement : 23rd Oct.,2013
ORDER
Per Amit Shukla, JM :
This appeal has been preferred by the revenue against the impugned order dated 25-8-2011, passed by the CIT(A)-18 Mumbai for the quantum of assessment passed under Section 143(3) r.w.s. 147 for the assessment year 2001-02.
2. The main issue raised by the revenue is quashing of the assessment order passed under Section 143(3) r.w.s. 147 by the CIT(A). In the grounds of appeal, the revenue has raised following grounds :- 2 ITA No.7607/2011
"1. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that the reassessment u/s. 143(3) r.w.s. 147 of the LT. Act is not valid without appreciating the fact that the AO had rightly issued notice u/s. 148 of the Act as the case of the assessee is squarely covered under Explanation 2 to sec.147 of the LT. Act."
"On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has not been able to appreciate that the Hon'ble Kamataka High Court in the case of CIT vs Rinku Chakraborthy, 242 CTR 425 has held that where in the original assessment, income liable to tax has escaped assessment due to oversight and inadvertence or a mistake is committed by the AO, the AO has the jurisdiction to reopen the original assessment. This has been further endorsed by the Hon'ble Delhi High Court in the case of Dalmia P. Ltd. vs. CIT (Delhi HC) vide Order dated 28-09-2011 holding that despite specific and pointed queries in section 143(3) assessment, AO cannot be said to have formed any opinions, if explicit opinion is not recorded."
"On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that the AO had rightly recomputed deduction u/s. 80HHD by excluding Shop Licence Fees, Interest Income and Management fees and royalty aggregating Rs.48.97Iakhs."
"On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating the fact that the AO had rightly disallowed depreciation of Rs.8,48,347 on imported car."
3. The facts in brief qua the issues raised in the grounds of appeal are that the assessee company is engaged in the business of running a hotel, which has been approved under Section 80HHD, since A.Y.1989- 90 and has been claiming this deduction since then. During the course of such hotel business, the assessee has receipts from foreign exchange on account of services rendered to the foreign tourists on which such deduction u/s.80HHD was claimed. The return of income under Section 139(1) was filed on 31-10-2009 on a total income of Rs.3,53,21,276/- after claiming deduction of Rs.1,44,23,343/- under 3 ITA No.7607/2011 Section 80HHD, in relation to foreign exchange earnings. Along with return of income, the assessee has filed audited statement of accounts, tax audit report in the prescribed form including the claim of deduction under Section 80HHD. Such a return of income was subject matter scrutiny proceedings also under Section 143(3) by the DCIT-8(3), Mumbai. During the course of such assessment proceedings, the AO required the assessee to furnish the details regarding the claim of 80HHD and also the receipts of foreign exchange. In response, all such details and submissions, in support of the claim, was filed before the AO, which has been examined in detail during the course of the assessment proceedings. After detailed discussion, the AO calculated the claim of deduction under Section 80HHD in the assessment order dated 31.3.2003, as under :-
5. On the basis of above discussions, the deduction u/s 80HHD is calculated as under :
(a) Total Foreign Exchange Receipts as per
statement Rs.11,63,39,210
(b) Business income as per computation : Rs.4,81,06,805
Less (i) Income from bank interest etc.
(As discussed above) Rs.18,53,164
(ii) Vyaj Badla Income
(As discussed above) Rs.19,85,338 Rs.38,38,502 Rs.4,42,68,303
(c) Total receipts of the Business - as per Statement Rs.31,04,24,985 4,42,68,303 x 11,63,39,210 31,04,24,985 5.1 In view of amendment to Section 80-HHD, the quantum of deduction is to be restricted to 80% for this year. Hence, deduction u/s 80-
HHD is allowed at Rs.1,32,72,486/-."
3.1 After the completion of the assessment in the aforesaid manner and also after the expiry of four years from the end of the relevant 4 ITA No.7607/2011 assessment year, the assessment has been reopened by issuance of notice under Section 148, dated 26-3-2008, inter alia, on following "reasons recorded" :-
"In this case the return of income was filed by the assessee and was processed u/s 143(1) accepting the returned income of Rs.3,53,21,276/- on 31.10.2001, the assessment was completed u/s.143(3) on 31.03.2003 determining the total income at Rs.3,64,71,770/-.
It was noticed while examining the accounts of the assessee that the assessee has claimed deduction u/s.80HHD for the year under consideration @40%. As per section 80HHD only those items of receipts will be considered for working out profits of the business for allowing deduction which is derived directly from the service provided to foreign tourists. It was seen that there was irregular inclusion of services on account of a) shop license fees b) interest earned c) management fees and royalty. The business income included all these receipts which were not derived from services provided to foreign tourists whereas income derived from management fees and royalty are not receipts derived from the services directly provided to foreign tourists. Also these receipts have no nexus with the profits derived from the running of hotel business. Also the claim of depreciation is not admissible u/s.32(1)(ii).
In view of the above facts, I have reason to believe that an amount of Rs.22,35,150/- has escaped assessment in the A.Y. 2001- 02 and this is a fit case for reassessment u/s.147 of the I.T. Act, 1961."
Sd/-
(S A R SHAIKH) Dy. Commissioner of Income-tax Range 8(3), Mumbai 3.2 In response to the said notice, the assessee raised objections vide letter dated 31.3.2008, after complying to the notice u/s.148 by stating that the original return of income filed on 31.10.2001 should be treated as return filed in pursuance to the notice under Section 148. The assessee's submissions on the validity of reopening as well as on the merits of the issues raised in the "reasons recorded" have been incorporated by the AO from pages 2 to 6 of the impugned assessment 5 ITA No.7607/2011 order dated 23.12.2008. The sum and substance of the assessee's objection on legal ground was that the assessee has disclosed fully and truly all material facts in the return of income along with audited statement of accounts, audit report, details of foreign exchange earned etc.. All these details were also subjected to scrutiny under Section 143(3), wherein the AO has raised various queries with regard to the issue of claim of deduction under Section 80HHD and thereafter has computed the deduction in the assessment order. Not only this, subsequently, on the basis of audit query, the AO had issued notice under Section 154 dated 17.3.2006 on the same ground that the deduction under Section 80HHD was allowed in excess. However, such proceedings were dropped and no order was passed in pursuance thereof. Now, the impugned notice under Section 148 dated 26.3.2008 after the expiry of four years from the end of the relevant assessment year, is bad in law and is beyond the statutory time limit as prescribed in Proviso to Section 147, because there is no failure on the part of the assessee either in filing of return under Section 139(1) or in disclosing fully and truly all material facts necessary for the assessment for that assessment year. Even in the "reasons recorded", there is no whisper or any allegation of such failure by the assessee. Therefore, such a notice has to be declared as bad in law and barred by limitation. Reliance was also placed on the decisions of various jurisdictional High Court decisions and that of Hon'ble Supreme Court, that in such a case, reopening u/s. 147 cannot be done. Apart from the legal submission, 6 ITA No.7607/2011 detail submissions were made on the merits of the issue raised and was also brought to the notice of the AO that in the earlier years, the Tribunal has decided the similar issue raised in the "reasons recorded", in favour of the assessee.
3.3 The AO, however, rejected the assessee's submission and held that following items cannot be said to have been earned by rendering of hotel services to the foreign tourists and they do not form part of the business income for the purpose of deduction under Section 80HHD :-
Sl.No. Nature of Item Rupees
1. Shop Licence Fees 6,29,400
2. Interest 38,38,502
3. Management fees and royalty 4,29,147
Total 48,97,049
Accordingly, the claim for deduction was reduced by the said amount and finally the allowable claim u/s. 80HHD was computed at Rs.1,31,62,651/-
4. Before the CIT(A), the assessee made similar objections and submitted that the very reopening of the assessment under Section 147, after the expiry of the four years from the end of the relevant assessment year in the present case is void ab initio. The assessee's elaborate submissions have been incorporated by the learned CIT(A) from pages 1 to 4 of the appellate order. Reliance was also placed on catena of the decisions which has also been listed by the CIT(A) in his impugned order. Learned CIT(A), duly appreciated the assessee's 7 ITA No.7607/2011 submissions and quashed the assessment order on the ground that in view of the Proviso to Section 147, reopening itself is bad in law, because there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment and, therefore, the notice u/s.148 is barred by limitation. The relevant findings and observations of the CIT(A) is reproduced herein below for the sake of ready reference :-
"2.1 I have considered the submissions of the learned counsel and in this case it is clear that the appellant had disclosed all the primary facts necessary for his assessment in the original return itself and the subsequent reopening by the AO after a period of 4 years represents a change of opinion which is impermissible in law- especially after the decision of Hon'ble Supreme Court in CIT Vs. Kelvinator of India Ltd. (2010) 228 CTR (SC) 488 (320 ITR 561), and Hon'ble Bombay High Court in Asian Paints Ltd. Vs. DCIT (2009) 308 ITR 195.
Further the issues on which the assessment was reopened are as follows :-
(a) Shop Licence Fees
(b) Interest earned
(c) Management fees and royalty Relating to claim u/s.80HHD, and all of which were available on record of the AO with the return.
As regards, interest income, in the original assessment, the same was excluded while computing the deduction. However, the Hon'ble ITAT held that such interest is also part of business income and hence eligible for deduction u/s.80HHD.
The issue of depreciation on imported vehicle was available in the return of income filed by the appellant and it cannot be said that the appellant had concealed the particulars of these in the return of income filed. Further it is a case reopening beyond the period of 4 years - a case in which assessment has been completed u/s.1473(3) and therefore it cannot be said that the escapement of income is as per the requirements of proviso to section 147 which clearly requires failure on the part of the assessee to disclosed "fully and truly all material facts necessary for his assessment"- in the present case all the material facts were disclosed fully and truly by the appellant and the subsequent reopening after a period of 4 years is only a change of opinion which cannot be sustained in law and therefore the ground of appeal taken by the appellant challenging the reopening of the assessment is upheld and the proceedings 8 ITA No.7607/2011 initiated u/s.147 of the I.T. Act are quashed. Hence, the ground of appeal is allowed and the action of the AO in reopening the assessment is negatived.
3. The second and third ground of appeal relating to claim u/s. 80HHD and disallowance of depreciation on imported vehicle do not survive for adjudication since the action of the AO in reopening the assessment has been negatived. Hence, they are not being adjudicated.
In the result, the appeal is allowed and action of AO in reopening the assessment is negatived."
5. Before us, learned counsel Shri Prakash Jotwani after reiterating the entire facts and reading out the "reasons recorded" by the AO, submitted that, nowhere the AO has ascribed any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and, therefore, such a reopening beyond the period of four years from the end of the relevant assessment year, cannot be sustained in view of the Proviso to Section 147. He strongly relied upon various decisions, copy of which have been placed in the paper book, which are as under :-
(a) (2011) 332 ITR 226 (Bom) Bombay Presidency Golf Club Ltd. Vs. ITO;
(b) (2011) 332 ITR 428 (Bom) Yash Raj Films Pvt. Ltd. Vs. AC;
(c) (2010) 42 DTR 262 (Bom) Hindustan Petroleum Corp. Ltd.
Vs. DC;
(d) (2010) 42 DTR 257 (Bom) Prashant Projects Ltd. AC;
(e) (2010) 36 DTR 185 (Bom) Anil Radhakrishna Wani Vs. ITO;
(f) (2010) 320 ITR 458 (Guj) Inducto Ispat Alloys Ltd. Vs. AC;
(g) (2010) 320 ITR 561 (SC) CIT Vs. Kelvinator of India & Eicher
Ltd.; and
(h) 112 ITD 159 (Delhi) AC Vs. Hotel Marina.
He further submitted that the Tribunal in assessee's own case in various assessment years has allowed the similar claim made by the assessee, which is the subject matter of dispute in the "reasons 9 ITA No.7607/2011 recorded' and also in the assessment order. Therefore, otherwise also, such an order cannot be sustained on merits also. He, thus, strongly, relied upon the submissions made before the CIT(A) and also the conclusion drawn by the CIT(A).
6. On the other hand, learned DR submitted that the assessee, has in fact made excessive claim which was allowed by the AO due to oversight or due to mistake committed by him during the course of original assessment proceedings. In such a case also, the AO has jurisdiction to reopen the original assessment. In any case, Explanation 2 to Section 147 comes in the rescue which stipulates that when there is an excessive claim made in the return of income, then it is a case of deemed escapement of income. He strongly relied upon the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Rinku Chakarborthy, reported in 242 CTR 425.
7. We have carefully considered the rival submissions, perused the relevant findings of AO as well as CIT(A) and also the material placed on record. In this case, the assessee has filed its return of income under Section 139(1) on 31.10.2001 in which the claim for deduction of Rs.1,44,23,343/- was made under Section 80HHD in relation to foreign exchange earnings from the hotel business. Such a claim was duly accompanied by audit report and details of foreign exchange. Such a claim was also subject matter of scrutiny u/s. 143(3) by the AO, who 10 ITA No.7607/2011 has raised queries with regard to the claim of deduction and thereafter computed the deduction at Rs.1,32,72,486/-. After completion of the assessment under Section 143(3), the reopening has been done under Section 147 by the AO, by issuance of notice u/s.148 dated 26-3-2008 which is clearly after expiry of four years from the end of the relevant assessment year. From the perusal of the "reasons recorded", which has been incorporated by us in the foregoing paragraphs, it is amply borne out that the AO has not ascribed any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. Once the case falls within the ambit of Proviso to Section 147, then there is a clear cut bar for taking action under Section 147 i.e. after the expiry of four years from the end of the relevant assessment year, if the assessment has been completed under Section 143(3). However, this bar is subject to two exceptions only - firstly, if there is a failure on the part of the assessee to furnish a return under Section 139 or in response to notice under Section 142(1) or under Section 148 and secondly, if there is failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for that assessment year. Once these two exceptions or conditions are not present, then reopening beyond the period of four years cannot be done. Admittedly, in this case such exceptions are not there and, therefore, the entire reopening u/s. 147 can be termed as bad in law and without jurisdiction and consequently notice under Section 148 is also void ab initio. The learned DR has contended that such a reopening is justified in view of 11 ITA No.7607/2011 the Explanation 2 to Section 147, which provides that, if the assessee has made excessive claim for deduction, then reopening can be done under Section 147. Such a contention of the ld. DR cannot be sustained, firstly, because Sub-clause (b) to Explanation 2, clearly stipulates that, "where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return, then in such a case reopening cannot be justified." Such an Explanation is not applicable in this case as the assessment has been completed under Section 143(3), where the AO has duly examined the assessee's claim. Therefore, in such a case, it cannot be held that Explanation 2 would be applicable. Secondly, the first and foremost condition as laid down under Section 147 has to be satisfied before the AO, can acquire jurisdiction for reopening the case. If the basic jurisdictional facts do not exist within the ambit of main provision of Section 147 or Proviso thereto or the action itself is barred by limitation, then no action lies under Section 147. It is only when basic jurisdiction under Section 147 has been assumed, then Explanation 1 & 2, provide certain conditions on which the AO can justify the reopening of the case. However, if the basic jurisdictional facts and conditions itself are lacking within the main provision of Section 147, the Explanation cannot be invoked for justifying such an action of the AO. In any case, various decisions as relied upon by the learned counsel also reiterate the same principle of 12 ITA No.7607/2011 law, as has been discussed above. Coming to decision of CIT(A), Rinku Chakarborthy (supra) as relied upon by the department, it is seen that this decision is not on Proviso to Section 147, as the reopening was within four years. This itself renders the ratio of the said decision inapplicable on the facts of the present case. Thus, on these facts and circumstances of the case, we uphold the observations and findings of the Ld. CIT(A) that the reopening under Section 148 is bad in law and the assessment order is liable to be quashed. Thus, the grounds raised by the department stands dismissed.
8. The other issue of depreciation as raised by the department becomes purely academic as the very reopening of the assessment has been held as null and void.
9. In the result, appeal of the revenue is dismissed.
Order pronounced on this 23rd day of October, 2013.
23rd October, 2013
Sd/- Sd/-
( ) ( )
(RAJENDRA SINGH) (AMIT SHUKLA)
/ ACCOUNTANT / JUDICIAL MEMBER
MEMBER
Mumbai; Dated : 23/10/2013
/pkm, PS
13
ITA No.7607/2011
Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. / The CIT(A)-X, Mumbai.
4. / CIT
5. / DR, ITAT, Mumbai
6. Guard file.
//True Copy//
/ BY ORDER,
(Asstt. Registrar)
/ ITAT, Mumbai