Income Tax Appellate Tribunal - Delhi
Trend Brands Ltd., vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "H" DELHI
BEFORE SHRI K.G. BANSAL AND SHRI GEORGE MATHAN
ITA Nos. 2274, 2275 & 2276(Del)/2007
Assessment years: 1999-00, 2000-01 & 2002-03
Trent Brands Limited, Assistant Commissioner of Income
306, Ansal Bhavan, 16, Vs. tax, Circle 16(1), New Delhi.
KG Marg, New Delhi.
(Appellant) (Respondent)
Appellant by : S/Shri Ajay Vohra, Sachit Jolly &
Gaurav Jain, Advocates
Respondent by: S/Shri V.K. Tiwari, CIT, DR &
N.K. Chand, Sr. DR
ORDER
PER K.G. BANSAL : AM All these appeals of the assessee involve common grounds. Therefore, these were argued in a consolidated manner by the ld. counsel for the assessee and the ld. DR. In view thereof, a common order is passed.
ITA No. 2274(Del)/2007- A.Y. 1999-00
2. The assessee has taken up three grounds in the appeal challenging the re-opening of the assessment u/s 147 of the Income-tax Act, 1961, and bringing the property income to tax under the head "income from 2 ITA Nos. 2274,2275& 2276(Del)/2007 house property", thereby disallowing claim of depreciation on building of Rs. 11,67,091/-.
2.1 In regard to the re-opening of the assessment, it was submitted that the assessee had filed the return of income on 20.12.1999 declaring book profit at Rs. 8,51,53,020/- u/s 115JA of the Act. The assessment was completed u/s 143(3) on 26.03.2002 at total income of Rs. 1,08,99,76,180/-. In appeal, the income was reduced to Rs. 11,82,01,943/-. Thereafter, the assessment was re-opened u/s 147 by issuing a notice u/s 148 on 17.3.2005 for the reason that the assessee had declared income from property as profits and gains of business. In assessment year 2001-02, the income from the property was assessed under the head "income from house property" leading to denial of the claim of depreciation on the building. This action was confirmed by the ld. CIT(Appeals). Therefore, income chargeable to tax amounting to Rs. 9,84,841/- escaped assessment for this year. Accordingly, the notice was issued. The assessment was also completed accordingly at Rs. 11,93,08,280/-. The ld. CIT(Appeals) confirmed the reopening of the assessment as well as bringing the rental income to tax under the head "income from house property".
3 ITA Nos. 2274,2275& 2276(Del)/20072.2 The ld. counsel drew our attention to page 28 of the paper book which shows that an amount of Rs. 2,32,25,176/- was added to fixed assets on 16.12.1998, being Spencer Plaza building. This asset was put to use on 5.3.1999. In the course of original assessment, the AO had asked two questions in regard to this item, namely, -(i) details of addition to the building and purpose for which it has been used; and (ii) details of rent received amounting to Rs. 2,43,000/-. His letter dated has been 30.1.2002, placed in the paper book on page 29. These questions were answered by the assessee in letter dated 7.2.2002 and it was submitted that after the sale of trade-mark, the company invested the funds in various kind of investments, including purchase of property at Spencer Plaza, Chennai, which has been leased to the holding company, Lekme India ( now known as Trent Ltd.). This reply has been placed in the paper book on pages 30 to 35. The cost of the property was mentioned at Rs. 2,32,26,176/- and it consisted of 6961 sq. ft. shop at Spencer Plaza, Chennai. The rent of Rs. 2,43,635/- was received from Lekme India. The case of the ld. counsel against reopening was two-fold, namely, that -(i) the assessment was reopened merely on change of opinion, and (ii) no error or omission was 4 ITA Nos. 2274,2275& 2276(Del)/2007 ascribed to the assessee in disclosing truly and fully all material facts relating to the assessment. A number of decisions were sought to be relied upon in respect of both the propositions. By placing reliance on those cases, it was argued that the AO had no jurisdiction to issue notice u/s 148.
2.3 In reply, the ld. DR submitted that the assessment was re- opened on the basis of information received in the appellate order passed by the CIT(Appeals) for assessment year 2001-02. This was a valid source of information of law on the given facts. However, he was not able to controvert in any manner the argument regarding absence of the error or omission on the part of the assessee to furnish all material facts relating to assessment.
2.4 We have considered the facts of the case and submissions made before us. Section 147 as it stands after its amendment by Direct Tax Laws (Amendment) Act, 1987, with effect from 1.4.1989, contains a provision to the effect that if the AO has reason to believe that any income chargeable to tax has escaped assessment, he may assess or re-assess such income. Further, the first proviso to the section contains 5 ITA Nos. 2274,2275& 2276(Del)/2007 a provision that where an assessment is made under sub-section (3) of section 143, no action shall be taken under this section after expiry of four years from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Thus, on reading the provision as a whole in the context of the facts of this case, it becomes clear that the AO can assume jurisdiction if two pre-conditions are satisfied, namely,
(i) he has reason to believe that any income chargeable to tax has escaped assessment; and (ii) such escapement has taken place by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. In order to clarify that these pre-conditions are applicable, it may be mentioned that original assessment was completed u/s 143(3) on 26.3.2002 and four years from the end of the assessment year expired on 31.03.2004. Thus, notice u/s 148 issued on 17.3.2005 was beyond this date. 2.5 As has been mentioned earlier, two pre-conditions have to be satisfied cumulatively and failure to satisfy any of these two conditions would frustrate the notice u/s 148. We have already mentioned that the 6 ITA Nos. 2274,2275& 2276(Del)/2007 facts are that the assessee had shown rental income from building at Spencer Plaza, Chennai, under the head "profits and gains of business". The factum of purchase of this building comprising of the commercial area of 6961 sq. ft. at Rs. 2,32,25,176/- on 16.12.1998 was mentioned in the audit report, which also mentioned that it was put to use on 5.3.1999. In the course of original proceedings, it was explained that the building has been leased to Lekme India, the holding company, from whom rent of Rs. 2,43,635/- has been received. Thereafter, the only question left to be decided was- whether, the income was assessable as business income or property income? After considering the submissions of the assessee, the AO came to the conclusion that the income was assessable as business income. The assessment of similar income under the head "income from house property" and its confirmation in assessment year 2001-02 by the ld. CIT(A) do not lead to a conclusion that the escapement of income was by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. In fact, the ld. DR was not able to point out any failure on the part of the assessee in disclosing material facts. He was also not able to refer to any such averment made by the AO in the reasons recorded by him for reopening the assessment although it is mentioned 7 ITA Nos. 2274,2275& 2276(Del)/2007 that he had reason to believe that income of Rs. 9,84,841/- escaped assessment. A number of cases were referred to by the ld. counsel in this matter. We have considered all these decisions, but we may discuss only two cases here with a view to avoid duplicating the same ratio again and again. In the case of CIT Vs. Shri Tirath Ram Ahuja (HUF), (2008) 306 ITR 173 (Del), decided by the jurisdictional High Court, the facts were that original assessments were completed for three years u/s 143(3). Subsequently, the AO came to know that ratable value of the property situated at Asaf Ali Road was determined at a higher value by the Municipal Corporation of Delhi than the actual rent received. Therefore, the assessments were reopened by issuing notices u/s 148. The Hon'ble Court mentioned that the assessee can be fastened with the duty to disclose only such facts which were in existence at the relevant point of time. The order of the Municipal Corporation of Delhi was not available at the time of original assessment. Since the case falls under proviso to section 147, the question of non-disclosure of material facts would become relevant. There was no deliberate concealment of facts by the assessee. The assessment was reopened on the basis of subsequent information received from the Corporation. It was held that the 8 ITA Nos. 2274,2275& 2276(Del)/2007 requisite pre-condition stipulated in section 147 was not fulfilled. We may also refer to the decision of Hon'ble Delhi High Court in the case of CIT Vs. Indian Farmers Fertilizer Cooperative Ltd., (2008) 171 Taxman 379, in which the assessment was reopened on the basis of order passed by the Tribunal. There was no allegation in the reasons that the assessee failed to disclose fully or truly all material facts necessary for the assessment. The Hon'ble Court held that the question was purely a question of fact and there was no perversity in the conclusion arrived at by the Tribunal. Thus, from the decisions aforesaid it is clear that the recorded reasons should contain averment about failure of the assessee to disclose fully and truly all material facts relevant for the assessment in a case where proviso to section 147 is applicable. Further, it has to be shown before initiating the re-assessment, as a matter of fact, that the assessee failed to disclose all material facts relevant for the assessment. In the instant case, the material facts were the purchase of property and its renting out. All facts in this regard has been disclosed in the original assessment. Thus, there is no failure on the part of the assessee in this matter. There is no averment made in the recorded reasons about the failure on the part of the assessee to disclose relevant facts. Thus, the action is likely to fall on 9 ITA Nos. 2274,2275& 2276(Del)/2007 both these grounds. The argument of the ld. DR that passive disclosure does not amount to actual disclosure is also not acceptable as the matter had been inquired into by the AO and written reply thereto had been furnished by the assessee. Therefore, it is held that the AO did not have jurisdiction to issue notice u/s 148. In view of aforesaid discussion, we need not go into the controversy regarding the meaning of the words "reasons to believe". Thus, ground no. 1 is allowed.
3. In view of the jurisdictional lacuna, it is not necessary to decide ground nos. 2 and 3 regarding the merits of the addition. ITA No. 2275(Del)/2007-A.Y. 2000-01
4. The grounds taken in this appeal are similar to the grounds taken in ITA No. 2274(Del)/2007 except for the amounts involved. The rent received in this year amounted to Rs. 6.00 lakh and depreciation claimed on buildings amounted to Rs. 22,11,088/-.
5. In regard to the re-opening of the assessment, the ld. counsel submitted that the return filed by the assessee on 29.11.2000 was 10 ITA Nos. 2274,2275& 2276(Del)/2007 processed u/s 143(1) on 15.6.2001. Thereafter, no new material came to the notice of the AO, still on receipt of the appellate order of the CIT(Appeals) for assessment year 2001-02, he initiated proceedings u/s 147 by recording reasons, which were communicated to the assessee in letter dated 8.6.2005 on its request. The assessee had disclosed all material facts relevant to assessment. In view thereof, the assessment could not have been re-opened merely on change of opinion. 5.1 In order to support the aforesaid contention, reliance was placed on the decision of Hon'ble Delhi High Court in the case of Shipra Srivastava Vs. Asstt. CIT (2009) 319 ITR 221. In this very connection, reliance was also placed on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Goetze India Ltd. 2010-TIOL-96-HC- DEL-IT dated 20.01.2010, a copy of which was placed in the paper book no. 2 on pages 24 to 27. Thus, it was argued that in spite of the amendment in section 147, effective from 01.04.1989, the concept of "change of opinion" has not been displaced and proceedings of assessment taken u/s 147 on change of opinion are bad in law. 11 ITA Nos. 2274,2275& 2276(Del)/2007 5.2 In reply, the ld. DR relied on the decision of Hon'ble Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500, in which it was held that the formation of belief was within the subjective satisfaction of the AO and, therefore, the concept of "change of opinion" was not applicable under the amended provision. He referred to the decision of the apex court in the case of Kalyanji Mavji & Co. Vs. CIT (1976) 102 ITR 287, dealing with the re- opening of the assessment u/s 34(1)(b) of the 1922 Act, in which it was held that this provision would apply to the categories of cases, namely, that (i) where the information as to correct state of law is derived from the relevant judicial decision; (ii) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the ITO; (iii) where the information is derived from an external source of any kind and such external source would include discovery of new and important matters of knowledge or fresh facts which were not present at the time of original assessment; and (iv) where the information may be obtained even from the record of the original assessment from an investigation of the material on record or the facts disclosed thereby or from other enquiry or research into the facts or law. It was also held that if the ITO 12 ITA Nos. 2274,2275& 2276(Del)/2007 does not get any subsequent information and merely proceeds to re-open the original assessment without fresh facts or material or without any enquiry into the materials which form part of the original assessment, this provision will have no application. He also relied on the decision of apex court in the case of Indian & Eastern Newspaper Society Vs. CIT, (1979) 119 ITR 996. In this case, the decision in the case of Kalyanji Mavji & Co. (supra) was considered, and it was mentioned that when the information is regarding knowledge as to law, the position is very complex. When we speak of "law", we speak about norms or guiding principles having legal effect and legal consequence. Therefore, to possess legal significance for that purpose, it must emanate from competent authority. The law may be the statutory law or the judge- made law. The judge-made law emanates from the interpretation of statute, which can only be rendered by competent judicial or quasi- judicial authority empowered to decide questions of law between the contending parties. Such interpretation itself bears the character of law. Consequently, it follows that information of law must be from a formal source, and it cannot be a statement by a person who is not competent to create or define law. Coming to the status of internal audit report, it was mentioned that its purpose was merely to check 13 ITA Nos. 2274,2275& 2276(Del)/2007 arithmetical accuracy, computation of income and determination of tax. This work is now entrusted to the receipt audit. Under the relevant rules, it is entitled to examine the accounts and ascertain whether rules and procedures have been followed, but it cannot substitute itself for the revenue authorities who are to perform statutory duties. It does not possess the power to pronounce law although it may draw the attention of the ITO towards it. Therefore, the opinion of the audit party in regard to law cannot be information to lead to "reason to believe" by giving it the colour and significance of law. He also referred to the decision of Full Bench of Hon'ble Delhi High Court in the case of CIT Vs. Kelvinator of India Ltd., (2002) 256 ITR 1, in which it was mentioned that an order of assessment can be made under sub- section (1) or sub-section (3) of section 143. When the order is passed under section 143(3), a presumption is raised that there has been due application of mind. If it is to be held that the order has not been passed after due application of mind, it would confer jurisdiction on the AO thereby placing a premium on his negligence. Therefore, in such a situation he cannot be allowed to initiate re-assessment proceedings merely on change of opinion. It was argued that the decision of Hon'ble Supreme Court in this case in Civil Appeal No. 2009- 14 ITA Nos. 2274,2275& 2276(Del)/2007 2011/2003 and 2520/2008 dated 18.1.2010, placed in the paper book no. 2, should be read in the context of the facts of that case, namely, that original assessment was completed u/s 143(3). Such was also the fact in the case of Havells India Ltd. Vs. Dy. CIT in WP(C) No. 13431/2009 dated 26.11.2009, placed in the paper book no. 2 on pages 19 to 23. In the case of CIT Vs. Batra Bhatta Co. (2008) 174 Taxman 444, the Hon'ble Delhi High Court dealt with the jurisdiction u/s 147 when the return was processed u/s 143(1)(a), invoked on the ground that the claim of the assessee that the land was agricultural in nature and not a capital asset required much deeper scrutiny. It was held that there was no reason to believe that income escaped assessment. The reliance placed by the ld. counsel on these cases was misplaced as no belief had been formed in this case.
5.3 In the rejoinder, the ld. counsel submitted that a harmonious interpretation is required to be made between the principles of "reason to believe" and "change of opinion" and for this purpose reliance was placed on the decision of Hon'ble Gujarat High Court in the case of CIT Vs. Gujarat Ginning & Manufacturing Co. Ltd., (1994) 205 ITR 40, a case decided u/s 147(a), in which it was held that since all material 15 ITA Nos. 2274,2275& 2276(Del)/2007 facts had been disclosed at the time of filing of the return, the action of the AO merely amounted to change of opinion.
5.4 We have considered the facts of the case and submissions made before us. The assessee has placed the reasons recorded by the AO on page 4 of the paper book no. 2, which is a part of letter dated 8.6.2005 addressed by the AO to the assessee in connection with its request for supply of reasons. However, this letter pertains to assessment year 1999-00 and not this year. It appears that the reasons for both the years are the same. For the sake of completeness, the reasons are reproduced below with the remarks that the assessment proceedings u/s 147 were initiated on receipt of information of law on the same facts in the same case for assessment year 2001-02:-
"During the course of assessment proceeding of A.Y. 2001-02 it was noticed that the assessee company has concealed its income by Rs. 9,84,841/- for the A.Y. 1999-00. It has been found that the assessee company is showing rental income of Rs. 2.43 lakhs from a building on which it has claimed depreciation of Rs. 11,67,091/- as per Income-tax Act. On examination of details of rental income and building on which assessee is claiming depreciation, it has been found that building on which depreciation claimed by the assessee is located at F-91, first floor, Spencer Plaza, 769, Anna Salai Chennai. This property was acquired by the assessee company in 1999 and given on lease to the holding company 16 ITA Nos. 2274,2275& 2276(Del)/2007 @ Rs. 50,000/- p.m. and total rent from this property during the year comes to Rs. 6,00,000/- which has been shown by the assessee company as income from business. In the return of income filed by the assessee rental income is shown as business income and this stand of the department has already been confirmed by the ld. CIT(A)."
5.5 The relevant law applicable in the case of Indian & Eastern Newspaper Society (supra) has been extracted by the Hon'ble Court on page 1000, which reads as under:-
"147. If-
(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recomputed the loss or the depreciation allowance, as the case may be, for the assessment year concerned....."
The law applicable in the case of the assessee reads as under:-
" If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and 17 ITA Nos. 2274,2275& 2276(Del)/2007 also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned, (hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year):
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year."
5.6 On comparative reading of the pre-existing law and the present law, it will become clear that the provisions contained in clause (a) and clause (b) of section 147 were re-stated in the section and the first proviso, albeit with some changes. We are not concerned with the position of law contained in clause (a) of section 147 earlier and proviso to section 147 now for the simple reason that there is no allegation of omission or failure on the part of the assessee and regular assessment has not been made u/s 143(3). The law contained in section 147(b) earlier and section 147 now are similar except that the 18 ITA Nos. 2274,2275& 2276(Del)/2007 present law dispenses with the requirement of "information". Both the provisions contain the expression "reason to believe". None of the provision contains any mention about the expression "change of opinion", which prima-facie appears to be applicable only when there has been an allegation that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment in a case where assessment was made u/s 143(3). As mentioned earlier, the earlier law contains additional condition of "information". The provision contained in section 34(1)(b) of 1922 Act was similar in contents to the provision contained in section 147(b) of the 1961 Act. Therefore, if this case can stand the test laid down in Kalyanji Mavji & Co. and Indian & Eastern Newspaper Society (supra), there will be no reason to come to a conclusion that assumption of jurisdiction in this case was bad in law. In the case of Kalyanji Mavji & Co.(supra) a reference was made to the decision of Hon'ble Bombay High Court in the case of CIT Vs. H. Holck Larsen (1972) 85 ITR 461, in which following observations were made:-
"What is obligatory in order to apply section 34(1)(b) is that he must have "information" in his possession in consequence of which he has reason to believe that the income has escaped assessment or is under-assessed, etc. The distinction really consists in a change of opinion unsupported by subsequent information on the one hand and 19 ITA Nos. 2274,2275& 2276(Del)/2007 a change of opinion based on information subsequently obtained, on the other. In the former class of cases, the assessment proceedings are attempted to be reopened without the discovery of an error and without receiving any information as to fact or law........ Such a reopening is based on a 'mere' change of opinion and is without jurisdiction........In the latter class of cases, the reopening is based on information leading to the requisite belief and is, therefore, within the jurisdiction of the officer."
The Hon'ble Supreme Court, on the basis of aforesaid observations mentioned that the decision is really based on the question whether it is open to the ITO to change his opinion subsequently on same material and re-open the original assessment. We are no doubt inclined to agree with the view expressed by Chandrchud J., in the aforesaid case but as this question is not free from difficulty as there is some divergence of judicial opinion on the subject, we would refrain from giving any definite decision on this point, particularly when in the view we take in the instant case, this point does not really arise for determination in this case, which is really based on another principle, namely, that the information was derived by the ITO from fresh facts and clearly covered by principles laid down in A. Raman & Company (1968) 67 ITR 11. Thus, the appeal of the assessee was dismissed. It may be mentioned by us here that in that case the information was received by the ITO in the course of assessment proceedings of the 20 ITA Nos. 2274,2275& 2276(Del)/2007 subsequent year, on the basis of which re-assessment proceedings were initiated u/s 34(1)(b). The information was of fact, namely, that the money borrowed on which interest was paid and claimed was not wholly utilized for the purpose of business but also diverted to the partners. On comparison of the facts of these cases, it will be seen that the information was derived by analysis of the existing facts in a subsequent year in the case of Kalyanji Mavji & Co.. However, in this case information of law has been received from an authority competent under the Act to pronounce law, namely, the CIT(Appeals) in the immediately succeeding year. In the case of Indian & Eastern Newspaper Society (supra), the Hon'ble Court mentioned that the information could be of fact or of law. However, when it is an information of law, it must emanate from a formal source, competent to pronounce the state of law. The audit party is not such a formal source. However, it is clear to us that the CIT(Appeals) is an authority under the Income-tax Act, which is entrusted with the work of determining facts and position of law in dispute before him. Such quasi-judicial authority had pronounced that the income by way of rent was required to be taxed under the head "Income from house property". The AO, based upon this information, initiated assessment proceedings 21 ITA Nos. 2274,2275& 2276(Del)/2007 u/s 147. The case of Indian & Eastern Newspaper Society (supra) supports his action even under the more stringent provision which contained additional requirement of "information". In such a circumstance, there is no reason to hold that in absence of another condition, as aforesaid, assumption of jurisdiction was bad in law. The assumption of jurisdiction by the AO in this case finds direct support from the decision of Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. (supra). At pages 511 and 512, the Hon'ble Court mentioned that the scope and effect of section 147 as substituted with effect from 1.4.1989 are substantially different from the provisions as they stood prior to such substitution. Thereafter, the court mentioned about pre-existing clauses (a) and (b), which we have already dealt with. It was also mentioned that for assumption of jurisdiction u/s 147(a) two conditions were required to be satisfied -(i) the AO must have reason to believe that income chargeable to tax has escaped assessment; and (ii) such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. However, under the substituted section only first condition will suffice. In other words, if the AO has reason to believe that income has escaped 22 ITA Nos. 2274,2275& 2276(Del)/2007 assessment, it confers jurisdiction to re-open the assessment. However, both the conditions are to be satisfied if the case falls within the ambit of the first proviso. At page 508, the Hon'ble Court also observed that the words "intimation" and "assessment" are different in as much as in assessment the AO is free to make any addition after granting opportunity to the assessee. No addition is permissible in the intimation and no opportunity is to be granted to the assessee. Therefore, intimation being no assessment, there is no question of change of opinion. According to us, this case concludes the issue in favour of the revenue. However, we may proceed to further examine the emphasis laid by the ld. counsel on the issue of "change of opinion". The facts of the case of Shipra Srivastava (supra) were completely different. The AO wanted to bring property income to tax on the grounds inter-alia that she was occupying accommodation provided by the employer-hospital and the interest paid on borrowed capital for acquisition of the property was wrongly allowed. The Hon'ble Court pointed out that the assessee was not staying in Delhi as she was employed elsewhere because of which her property remained vacant and, therefore, its annual value was to be taken at nil. Therefore, there is absence of "reason to believe"
as there was no application of mind by the AO to arrive at his 23 ITA Nos. 2274,2275& 2276(Del)/2007 conclusion. Firstly, no material was referred to for coming to the conclusion and it was not a case where material facts had been suppressed by the assessee. Thus, the case was decided essentially on the ground that no informed person could have formed reason to believe that the income escaped assessment. The use of words "the reasons do not refer to any material which has come to the notice of the officer subsequent to finalisation of assessment u/s 143(1)" is incidental to the whole case because even at the time of assessment there were no such fact which could have led to disallowance of the interest wholly or partly. However, in the instant case, the AO initiated assessment proceedings u/s 147 because of authoritative pronouncement by the CIT(Appeals) under the law and his order held the field when the jurisdiction was assumed. Incidentally, it may be mentioned that the order of the CIT(Appeals) has been accepted by the assessee. Coming to the decision in the case of Kelvinator of India Ltd., the facts are mentioned in the decision of Hon'ble Delhi High Court that the assessment for assessment year 1987-88 was completed u/s 143(3) and thereafter it was re-opened with a view to bring to tax certain amounts aggregating to Rs. 43,91,603/- comprising of interest claim of Rs. 41.28 lakh, guest house expenses of Rs. 1.76 lakh, advertisement expenses 24 ITA Nos. 2274,2275& 2276(Del)/2007 of Rs. 83,303/- and club expenses of Rs. 4,300/-. The assessment was reopened u/s 147. The assessee objected to the reopening particularly on the ground that the Tribunal had allowed similar expenses for assessment year 1986-87 on appeal. The Hon'ble Court examined the provisions regarding reopening in the 1922 Act and in the 1961 Act. The Hon'ble Court also examined the reasons recorded by the AO and the affidavit filed by him. It transpired that the AO stated that he wrongly allowed the deductions in the original assessment and, therefore, he was of the opinion that income had escaped assessment. Admittedly, nothing had happened between the completion of original assessment and formation of opinion by the AO. There was no change in law and no new material came on the record. No information was received. It was merely a case of fresh application of mind by the AO to the same set of facts. The court was of the view that in absence thereof, the AO did not have jurisdiction to reopen the assessment. This finding was confirmed by the Hon'ble Supreme Court. The facts of this case are also clearly distinguishable. In the first place, the assessment year involved in the case before the Hon'ble Court was assessment year 1987-88. In the second, nothing had happened in that case after original assessment while the AO in the case at hand had the benefit of the decision of the 25 ITA Nos. 2274,2275& 2276(Del)/2007 ld. CIT(Appeals) in respect of correct head of income. Therefore, there were other reasons which justified the reopening of the assessment and taking a cue from the decision in the case of Kalyanji Mavji & Co. (supra), if there are other reasons, one may not go into the question of "change of opinion". We are at pains to state here that there is also no question of "change of opinion" as no assessment was made u/s 143(3) in this case. In the case of Havells India Ltd. (supra), the facts are that the return of income for assessment year 2003-04 was filed on 19.11.2003. Later on, the return was revised on 30.10.2004, which was processed u/s 143(1). The assessment was reopened on the ground that on perusal of assessment record, it was found that the assessee claimed additional depreciation of Rs. 28,24,676/-, which was allowed in the course of processing the return. The assessee was required to file audit report for making such a claim along with the original return of income, which in this case was done along with the revised return. The Hon'ble Court mentioned that the audit report filed along with the revised return had to be considered as it could be filed along with the revised return also. It was held that the requisite documents were filed along with the revised return, which in turn was filed in time. Thus, there was no reason for reopening the assessment. We are of the 26 ITA Nos. 2274,2275& 2276(Del)/2007 view that the facts of this case also distinguishable. The essential question in that case was whether additional depreciation could be allowed in a case where the audit report is filed along with the revised return and not with the original return. There are precedents to the effect that it could be filed with the revised return and, thus, the very basis of reopening failed. There is no such failure here. The ld.
CIT(Appeals) held in a subsequent year that the income was taxable under the property head, a decision accepted by the assessee. Therefore, the foundation of the reopening of the assessment remains intact and does not stand demolished for any reason whatsoever. In the case of Batra Bhatta Co. (supra) the assessment was reopened by merely stating that the issue whether the land was agricultural land or not required deeper scrutiny. This does not lead to formation of belief that income escaped assessment. The facts of this case are also distinguishable as the re-assessment proceedings were initiated with a view to bring escaped income to tax and really speaking there is no dispute about the factum of escapement of income. In the case of Gujarat Ginning & Manufacturing Co. Ltd. (supra), the real question was as to whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The 27 ITA Nos. 2274,2275& 2276(Del)/2007 assessee had let out certain godowns in respect of which deduction of municipal taxes was claimed but annual value was not included in the return. The assessments pertained to assessment years 1966-67 and 1967-68, i.e., prior to the amendment in the section. The assessment were sought to be reopened u/s 147(a). The Hon'ble Court mentioned that so far as the assessee is concerned, all material facts had been disclosed regarding possession of godowns etc. Thereafter, it was for the AO to draw inference about the taxability of the annual value of the godowns. We have already mentioned that the issue regarding change of opinion will have a bearing on the matter under the old section 147(a) as well as under proviso to new section 147. This case is not covered under the proviso as processing was done u/s 143(1) and notice was issued within four years of the end of the relevant assessment year. Therefore, we are of the view that ratio of that decision is not applicable.
5.7 We have considered all other decisions cited by the rival parties, but all the decisions are not mentioned in this order for the reason that it will amount to repeating the same ratio again and again. However, in a nutshell, we are of the view that if there are other reasons for reopening 28 ITA Nos. 2274,2275& 2276(Del)/2007 the assessment, the question of "change of opinion" may recede into oblivion in so far as the main provision is concerned. Accordingly, it is held that the AO was justified in assuming jurisdiction u/s147.
6. Coming to the merits, it is an accepted fact that the assessee has let out the commercial asset acquired by it in the immediately preceding year and the rent has been derived qua owner. The assessee sought to rely on the decision of "A" Bench of Kolkata Tribunal in the case of PFH Mall & Retail Management Ltd. Vs. ITO, (2007) 16 SOT 83. That assessee was systematically providing other services, facilities and amenities, mentioned in paragraph 4.1 of the order. It was held that the rent received amounted to the business income of the assessee. On the other hand, the ld. DR relied on the decision of Hon'ble Karnataka High Court in the case of Bhooplam Commercial Complex & Industries (P) Ltd. (2003) 262 ITR 517, in which the facts were that admittedly the commercial complex was constructed and rental income was derived by the assessee alone in its own right as owner. The Hon'ble Court came to the conclusion that the income was taxable u/s 22. While coming to this conclusion, the decision of Hon'ble Supreme Court in the case of CIT Vs. Poddar Cement (P) Ltd., (1977) 226 ITR 625, to the 29 ITA Nos. 2274,2275& 2276(Del)/2007 effect that notwithstanding the fact that one of the objects of the assessee company was to derive income by leasing sites and construction thereon, the income had to be necessarily assessed u/s 22 by taking ground reality into account, was followed. The facts are that the assessee is the owner of the property and since inception the same has been let out to the holding company. The rent is enjoyed qua the owner. The decision of the ld. CIT(A) has been accepted by the assessee in the immediately preceding year. Therefore, it is held that the income was taxable under the head "income from house property". 6.1 The necessary conclusion of taxation of the rent as property income is that the assessee is not entitled to the deduction of depreciation on the buildings.
ITA No. 2276(Del)/2007- A.Y. 2002-03
7. The assessee has taken up only two grounds regarding taxation of rent under appropriate head and disallowance of depreciation. It was the common ground of both the parties that these issues stand covered in ITA No. 2275(Del)/2007 for assessment year 2000-01 (supra). Relying 30 ITA Nos. 2274,2275& 2276(Del)/2007 on that order, it is held that the rental income is taxable u/s 22 and the assessee is not entitled to deduct depreciation on the buildings.
8. In the result, the appeal for assessment year 1999-00 is allowed and the appeals for assessment years 2000-01 and 2002-03 are dismissed. The order was pronounced in the open court on 18 February, 2010.
Sd/- sd/- (George Mathan) (K.G.Bansal) Judicial Member Accountant Member Date of order: 18th February, 2010. SP Satia Copy of the order forwarded to:- 1. Trent Brands Ltd., New Delhi. 2. ACIT, Circle 16(1), New Delhi. 3. CIT(A) 4. CIT, New Delhi. 5. DR, ITAT, New Delhi. Assistant Registrar.