Bombay High Court

Vijaynagar Co-Op Housing Society ... vs Ito on 14 November, 2003

Equivalent citations: (2004) 91 TTJ Mumbai 809

ORDER

Mukul Shrawat, J.M.:

The above referred appeals have been filed by the assessee arising out of a onsolidated order of Commissioner (Appeals)-XX, Mumbai, dated 25-2-2003, relevant for the assessment years 1997-98 to 1999-2000, the years under appeal. Ground of appeal being argumentative and illustrative hence concised for all the years separately. The grounds being identical and the issue raised is common, therefore, decided by this common order.

2. For all the three years ground No. I reads as follows :

"The learned Commissioner (Appeals) erred in confirming the action of the assessing officer in reopening the assessment under section 147 of the Income Tax Act in view of the retrospective application of the provisions of section 14A of the Income Tax Act."

3. As per the assessment order passed under section 143(3) read with section 147 for the years under consideration it was noticed by the assessing officer that some taxable income has escaped assessment. Accordingly, assessments were reopened under section,147 by issuance of notice under section 148. The assessee is a co-operative housing society. It was noticed that besides receiving contribution from its members, this society also derived income of rent from a community hall on jetting out to outsiders. The next source of income as mentioned by the assessing officer was received from the sites of hoardings; given for advertisement purpose. Assessing Officer has also observed that the transfer fees received on account of transfer of flats was also subject to tax. It was also mentioned that the provisions of section 14A ought to be applied because no deduction could be allowed in respect of expenditure incurred by the assessee in relation to the income which did not form part of the total income. With these observations, the assessing officer has reopened the assessments and taxed the co-operative housing society accordingly.

4. Before first appellate authority it was argued that in view of the CBDT Circular No. 11 of 2001, dated 23-7-2001 (2001) 250 ITR 84 (St), the assessing officer could not reopen the assessment by applying the provisions of section 14A. Learned Commissioner (Appeals) has perused the reasons recorded and has found that the reasons for reopening were on account of certain receipts not offered for taxation purpose. In his opinion the reopening was not done by invoking the provisions of section 14A but on the ground that certain income has escaped assessment. With these observations he has upheld the action of assessing officer of reopening of assessments.

5. Before us from the side of the appellant, learned authorized representative, Shri J.P. Bairagra has vehemently argued that the action of the assessing officer of reopening of assessments by invoking the provisions of section 14A was against the intention of the legislature as well as the guidelines issued through CBDT Circular No. 11 of 2001, dated 23-7-2001 (supra). He has also submitted that the reopening of assessment was bad in law because there was no escapement of income and the notices were issued due to change of opinion. Learned authorized representative has emphasized that the proviso to section 14A has specifically mentioned that the assessing officer is not empowered to reassess under section 147, any assessment beginning on or before 1-4-2001. So the restriction is imposed so that the already completed assessment could not be reopened. The assessing officer has disregarded the specific provision and wrongly reopened the assessment. Learned authorized representative has also mentioned that the assessing officer was not empowered to investigate all the receipts of the assessee and to restart the entire assessment proceedings afresh because as per the reasons recorded the only issue for fresh consideration was the issue of "transfer fees" received by the co-operative housing society. In support of his proposition he has cited a decision of Vipan Kumar Khanna v. CIT (2002) 122 Taxman 1 (P&H). He has submitted that calling for information on several other points amounted to making fishing enquiries on the concluded matter which was not permissible under law. He has contended that the reopening of assessments were bad in law in view of the specific provisions of section 14A, therefore, deserves to be quashed.

6. On behalf of the revenue, learned Departmental Representative, Shri S. Udhyayakumaran has submitted that after the returns were filed no assessment was made and the notices under section 148 were issued. The reopening was done by recording reason that certain income, i.e., transfer fees received by the co-operative housing society has escaped assessment and the deduction under section 80P was also wrongly claimed. He has also emphasized that the reason of reopening was not the applicability to section 14A and the ground was wrongly raised. To support the validity of reopening he has cited number of decisions, however, heavily relied upon certain decisions, copies filed during the course of hearing, viz., Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT & Anr. (2000) 246 ITR 173 (Del), CIT v. Rajasthan State Warehousing Corpn. (2001) 250 ITR 218 (Raj), Ranchi Club Ltd. v. CIT (1995) 214 ITR 643 (Pat) and Pradip Kumar Harsaranlal v. A O (1998) 229 ITR 46 (All).

7. We have carefully considered the submissions of both the sides and also thoroughly perused the orders of the authorities below in the light of the material placed before us as well as the case laws cited. In the reopening of assessment it was mentioned that in view of the provisions of section 14A, while computing total income, no deduction should be allowed in respect of expenditure by the assessee in relation to income which did not form part of total income under Income Tax Act. Subsequently the assessment was made under section 143(3) read with section 147 in the same manner. In this context we have perused the language of section 14A, however, as per the proviso it is absolutely clear that no assessment already completed upto 1-4-2001, should be reopened. The proviso to section 14A reads as follows :

"Provided that nothing contained in this section shall empower the assessing officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1-4-2001."

CBDT has also issued Circular No. 11 of 2001, dated 23-7-2001 (supra), and directed that where the assessment proceedings have become final before the day of April, 2001, same should not be reopened under section 147 of Income Tax Act to disallow expenditure incurred to earn exempted income by applying the provisions of newly inserted section 14A of Income Tax Act. In view of these specific guidelines and the provisions of section 14A, in our opinion learned assessing officer has wrongly initiated the proceeding under section 147 of Income Tax Act. The case laws cited by learned Departmental Representative were in respect of jurisdiction of assessing officer while applying the provisions of section 147 of Income Tax Act, The issue before us is very limited and we have to see whether it was within the powers of assessing officer to reopen the assessment by invoking the provisions of section 14A. The issue before us is not whether there was sufficient reason to believe that the income has escaped assessment. The case laws cited by learned authorized representative is in respect of the scope and power conferred under section 147 of Income Tax Act. There are no two opinions in respect of the ratio laid down in such precedents but the issue before us is slightly different Which is confined to one aspect of applicability of the provisions of section 14A in respect of pending assessment. Reasons have already been given, on the basis of the same, we are of the view that the reopening was bad in law, hence deserves to be quashed. We direct accordingly and ground raised is hereby allowed.

8. The other grounds were in respect of taxability of hoarding income and transfer fees in the hands of the appellant-co- operative society. Since the be order has already been quashed after deciding ground No. 1, therefore, rest of the grounds have become redundant and need not to be adjudicated upon.

9. In the result, all the three appeals of the assessee are allowed.