M/s. SURYA DARSHAN CO-OP. HSG. SOC. LTD., MUMBAI V. ITO 16(1)(2), MUMBAI

ITA 4955/MUM/2005

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5730 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 28-01-2014
• Assessment Year: 2000-2001
• Appeal Filed On: 11-07-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: D K DOCTOR SHRI JIGNESH R SHAH
• Keywords: Reason to believe; Capital expenditure
• Section: 147; 148; 144

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F B ENCH, MUMBAI , , !' #$% , !& ! ' BEFORE SHRI VIJAY PAL RAO , JM AND SHRI N.K. BIL LAIYA, AM ./ I.T.A. NO.4955/MUM/2005 ( ( ( ( ( / ASSESSMENT YEAR : 2000-01 SURYADARSHAN CO. OP. HSG. SOC. LTD., 44/50, WALKESHWAR ROAD, WALKESHWAR, MUMBAI-400 006 / VS. THE ITO-16(1)(2), MUMBAI ) !& ./ * ./ PAN/GIR NO. : AAAAS 5676B ( )+ / APPELLANT ) .. ( ,-)+ / RESPONDENT ) )+ . ! / APPELLANT BY: SHRI D.K. DOCTOR SHRI JIGNESH R. SHAH ,-)+ / . ! / RESPONDENT BY: SHRI O.P.SINGH / 01& / DATE OF HEARING :28.01.2014 23( / 01& / DATE OF PRONOUNCEMENT :31.01.2014 !4 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-XVI, MUMBAI DT.21.04.2005 PERTAINING TO A.Y . 2000-01. 2. THE ASSESSEE HAS RAISED 9 GROUNDS OF APPEAL. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT HE IS NOT PRESSING GROUND NOS. 2,3 & 4. THESE GROUNDS ARE ACCORDINGLY DISMISSED A S NOT PRESSED. ITA NO. 4955/M/05 2 3. THE GRIEVANCE OF THE ASSESSEE REVOLVES AROUND TW O ISSUES. FIRST GRIEVANCE RELATES TO THE REOPENING OF THE ASSESSMEN T IN THE ABSENCE OF NEW MATERIAL U/S. 147 OF THE ACT AND WITHOUT PREJUDICE TO THIS GRIEVANCE, THE SECOND GRIEVANCE RELATES TO THE MERITS OF THE CASE. 4. IN THIS CASE, THE ORIGINAL ASSESSMENT WAS MADE U /S. 143(1) OF THE ACT. SUBSEQUENTLY, THE SAID ASSESSMENT WAS REOPENE D U/S. 147 OF THE ACT AND ACCORDINGLY STATUTORY NOTICES WERE ISSUED AND S ERVED UPON THE ASSESSEE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED HOARDING CHARGES OF RS. 14,70,000/-. IT WAS EXPLAIN ED THAT THE ADVERTISING WERE DISPLAYED ON THE TERRACE, HOARDINGS WERE PUT O N THE IRON FABRICATION WITH THE IRON SKELETON WHICH IS PUT ON THE PILLAR E RECTED/CONSTRUCTED ON THE TERRACE OF THE SOCIETY BUILDING. BECAUSE OF THE LO AD OF THESE PILLARS, THERE WERE CRACKS ON THE PLASTER AS WELL AS STRUCTURES OF THE BUILDING BECAUSE OF WHICH THE BUILDING BECAME VERY WEAK THEREFORE STRUC TURAL REPAIRS WERE CARRIED OUT AS IT WAS NECESSARY TO KEEP THE BUILDIN G IN SHAPE AND STRENGTH AND ALSO TO EARN ADVERTISEMENT REVENUE. SINCE THE ASSESSMENT WAS NOT PROPERLY ATTENDED BY THE ASSESSEE, THE AO PROCEEDED U/S. 144 OF THE ACT AND COMPLETED THE ASSESSMENT BY MAKING AN ADDITION OF RS. 14.70 LAKHS ON ACCOUNT OF HOARDING CHARGES. 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A). THE ASSESSEE EXPLAINED THE REASONS FOR THE CONSTRUCTION OF SIX CONCRETE FOUNDATIONS ERECTED ON THE TOP OF THE TERRACE. SOM E STRUCTURAL CHANGES WERE ALSO MADE IN THE BUILDING TO AVOID ANY FURTHER DAMAGES BECAUSE OF THE HEAVY WEIGHT OF THESE CONCRETE FOUNDATIONS. IT WAS CONTENDED THAT BECAUSE OF THIS THE ASSESSEE HAS CLAIMED EXPENDITUR E OF RS. 18,80,664/- INCURRED ON THESE STRUCTURAL CHANGES, THE ASSESSEE SET OFF THIS EXPENDITURE ITA NO. 4955/M/05 3 AGAINST THE INCOME FROM HOARDING, THEREFORE NO INCO ME WAS SHOWN BY THE ASSESSEE IN THE RETURN FROM HOARDING. 5.1. BEFORE THE LD. CIT(A), THE ASSESSEE FILED DETA ILS OF THE EXPENSES. THE LD. CIT(A) FORWARDED THE DETAILS TO THE AO FOR HIS COMMENTS. THE AO SENT HIS REMAND REPORT VIDE LETTER DT. 4.4.2005. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS AND THE REMAND REPORT, TH E LD. CIT(A) OBSERVED THAT THE HOARDING INCOME RECEIVED BY THE A SSESSEE TO THE TUNE OF RS. 14.70 LAKHS HAS BEEN ASSESSED AS INCOME FROM OTHER SOURCES. THE LD. CIT(A) FURTHER OBSERVED THAT ANY EXPENDITURE TO BECOME ELIGIBLE FOR DEDUCTION FROM INCOME ASSESSED UNDER THE HEAD INCO ME FROM OTHER SOURCES HAS TO PASS TWO TESTS (I) IT SHOULD BE LA ID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING SU CH INCOME AND (II) IT SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITURE. THE LD. CIT(A) WAS CONVINCED THAT THE EXPENDITURE INCURRED BY THE ASSE SSEE TO THE TUNE OF RS. 18.80 LAKHS HAS STRENGTHEN THE BUILDING WHICH IS OF ENDURING IN NATURE. THE LD. CIT(A) FURTHER OBSERVED THAT BY INCURRING S UCH EXPENDITURE, THE ASSESSEE WAS ABLE TO ENTER INTO A CONTRACT WITH M/S ORION ADVERTISERS FOR A PERIOD OF 5 YEARS AND THEREBY EARN INCOME FROM HO ARDING IN THE NEXT 5 YEARS. KEEPING IN VIEW THE ENDURING NATURE OF THE BENEFIT DERIVED BY THE ASSESSEE FROM THE EXPENDITURE, THE EXPENSES ARE TRE ATED AS CAPITAL EXPENDITURE. ACCORDINGLY, THE LD. CIT(A) DID NOT A LLOW THE ASSESSEE TO SET OFF THE EXPENDITURE FROM THE HOARDING INCOME AN D CONFIRMED THE ADDITION OF RS. 14.70 LAKHS MADE BY THE AO. 6. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. F OR THE FIRST TIME, THE LD. COUNSEL FOR THE ASSESSEE RAISED A LEGAL ISSUE C HALLENGING THE JURISDICTION OF THE AO FOR REOPENING THE ASSESSMENT . THIS ISSUE WAS NEVER RAISED BEFORE THE LOWER AUTHORITIES. THE LD. COUNSEL RELIED UPON ITA NO. 4955/M/05 4 THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF NATIONAL THERMAL POWER CO. LTD. VS CIT 229 ITR 383. CONSIDE RING THE RATIO OF THE DECISION OF THE HONBLE SUPREME COURT, THE LD. COUNSEL FOR THE ASSESSEE WAS ALLOWED TO ARGUE ON THE NEW PLEA RAISE D BY THE ASSESSEE. IT IS THE SAY OF THE LD. COUNSEL THAT THE AO HAD NO NE W OR ADDITIONAL TANGIBLE INFORMATION/MATERIAL IN POSSESSION ON WHIC H HE COULD REOPEN THE ASSESSMENT U/S. 147 OF THE ACT. THE LD. COUNSEL EM PATHETICALLY SUBMITTED THAT EVEN IF THE ORIGINAL ASSESSMENT WAS DONE U/S. 143(1), THE AO CANNOT ASSUME THE JURISDICTION TO REOPEN THE ASS ESSMENT U/S. 147 OF THE ACT IN THE ABSENCE OF ANY NEW INFORMATION. THE LD. COUNSEL RELIED UPON THE DECISION OF THE MUMBAI BENCH OF TRIBUNAL I N ITA NO. 4613/M/05, ITA NO. 2230/M/10, ITA NO. 3476/M/08 AND ALSO ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN ITA NO. 555/2012. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT AT THIS STAGE, THE ASSESSEE CANNOT CHALLENGE THE REOPENING OF THE ASSESSMENT WHEN THE SAME WAS NOT CHALLENGED BEFORE THE LOWER A UTHORITIES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE LOWER AUTHORITIES AND THE DECISIONS RELIED U PON BY THE LD. COUNSEL. IT IS NOT IN DISPUTE THAT THE ORIGINAL ASSESSMENT W AS DONE U/S. 143(1) OF THE ACT. IT IS ALSO NOT IN DISPUTE THAT IN THE IMMEDIA TELY PRECEDING ASSESSMENT YEAR, ON IDENTICAL FACTS, THE ASSESSMENT WAS REOPEN ED. A PERUSAL OF THE RECORD SHOWS THAT THE ASSESSMENT ORDER FOR A.Y. 199 9-2000 WAS PASSED ON 28.3.2005. HOWEVER, THE NOTICE U/S. 148 FOR THE IMPUGNED ASSESSMENT YEAR WAS ISSUED ON 30.7.2003 WHICH MEANS THAT ON TH E DATE OF ISSUING THE NOTICE U/S. 148, THE AO HAD REASON TO BELIEVE , AFT ER CONSIDERING THE AUDITED STATEMENT OF ACCOUNTS , THAT THE ASSESSEE H AS NOT SHOWN INCOME FROM HOARDING TO THE TUNE OF RS. 14.70 LAKHS. AS T HIS WAS THE INFORMATION ITA NO. 4955/M/05 5 WHICH PROMPTED THE AO TO HAVE A REASON TO BELIEVE T HAT INCOME TO THE EXTENT OF RS. 14.70 LAKHS AS ESCAPED ASSESSMENT , WE HOLD THAT THE REOPENING IS VALID AND AS PER LAW. THE DECISIONS R ELIED UPON BY THE LD. COUNSEL ARE CLEARLY DISTINGUISHABLE ON FACTS BECAUS E IN ALL SUCH DECISIONS, THE REOPENING WAS QUASHED ON THE GROUND THAT THE AO HAD NO FRESH MATERIAL AVAILABLE WITH HIM. HOWEVER, IN THE INSTA NT CASE AS MENTIONED HEREINABOVE, THE AO HAD REASON TO BELIEVE THAT INCO ME OF RS. 14.70 LAKHS AS ESCAPED ASSESSMENT. GROUND NO. 1 IS ACCORDINGLY DISMISSED. 9. WITH GROUND NO. 2, THE ASSESSEE HAS CHALLENGED O N MERIT OF THE CASE. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SU BMITTED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR WHICH WAS ALS O REOPENED , THE AO HAS ACCEPTED THE EXPENDITURE CLAIMED BY THE ASSE SSEE AGAINST HOARDING INCOME. THE LD. COUNSEL PRAYED THAT THE SAME VIEW SHOULD BE FOLLOWED. 10. WE HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER FOR A.Y. 1999- 2000 WHICH IS PLACED AT PAGE 63 TO 65 OF THE PAPER BOOK. THE AO HAS ACCEPTED THE EXPENSES BY MAKING THE FOLLOWING OBSER VATIONS: AS FAR AS EXCESSIVE RELIEF OF RS.11,29,654/- IS CO NCERNED, THE ASSESSEES REPRESENTATIVE MR. MITESH MEHTA, C.A . VIDE HIS LETTER DATED 10 TH MARCH, 2005 HAS FIELD HIS SUBMISSION WHICH IS REPRODUCED BELOW: THE SOCIETY RECEIVED HOARDING CHARGES AMOUNTING TO RS.14,04,000/- DURING THE YEAR TO EARN THIS ADVERTI SEMENT INCOME SOCIETY WAS DUTY BOUND TO CARRY OUT CERTAIN STRUCTURAL CHANGES AS ONE HOARDING WAS TO BE DISPLA YED ON THE TERRACE OF THE SOCIETY BUILDING, WHICH WAS VER Y BULKY AND HEAVY. THESE NECESSARY CHANGES COST RS.11,29,6 54/-. SO IN FACT, THE NET RECEIPTS IN THE HANDS OF THE SO CIETY WAS RS.2,74,346/-( THAT IS RS.14,04,000/- AS REDUCED BY RS.11,29,654/-) ITA NO. 4955/M/05 6 THE SOCIETY HAS SHOWN THE NET RECEIPTS IN THE INCOM E AND EXPENDITURE ACCOUNT, THE ALTERNATIVE SYSTEM OF REPRESENTATION IS RS.14,04,000/- ON THE CREDIT SIDE AND RS.11,29,654/- ON THE DEBIT SIDE OF THE INCOME & EXPENDITURE ACCOUNT. BOTH THE SYSTEM WILL YIELD TH E SAME RESULT AND THE SAME TAXABLE INCOME. IN THIS SCENAR IO, IT CANNOT BE SAID THAT THE SOCIETY HAS ESCAPED ASSESS MENT AND THEREFORE, THIS PROCEEDINGS SHOULD BE AT ONCE DROPP ED. I HAVE CAREFULLY GONE THROUGH THE SUBMISSION FILED BY THE ASSESSEE SOCIET Y AND ACCEPT THE SAME. 11. EVEN DURING THE APPELLATE PROCEEDINGS, WHEN THE LD. CIT(A) CALLED FOR A REMAND REPORT, THE AO IN THE REMAND RE PORT HAS CATEGORICALLY ADMITTED THAT THE REPAIR EXPENSES INCURRED BY THE S OCIETY FOR THE ADVERTISING CHARGES CAN BE ALLOWED TO BE SET OFF A GAINST THE HOARDING CHARGES RECEIVED BY THE SOCIETY. AS NO DISTINGUIS HING FACTS HAVE BEEN BROUGHT BEFORE US BY THE LD. DR AND AO HIMSELF HAS ACCEPTED THE REPAIR EXPENSES NOT ONLY IN THE PRECEDING ASSESSMENT YEAR BUT ALSO IN THE REMAND REPORT FOR THE IMPUGNED ASSESSMENT YEAR, WE DIRECT THE AO TO ALLOW THE EXPENDITURE AGAINST HOARDING CHARGES AS REVENUE EXP ENDITURE. THE SECOND GRIEVANCE OF THE ASSESSEE IS ACCORDINGLY ALL OWED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.01.2014 . !4 / 3( & ! 5 6 7 31.1.2014 3 / 8 SD/- SD/- (VIJAY PAL RAO ) (N.K. BILLAIYA) /JUDICIAL MEMBER !& / ACCOUNTANT MEMBER MUMBAI; 6 DATED 31.1.2014 . . ./ RJ , SR. PS ITA NO. 4955/M/05 7 !4 !4 !4 !4 / // / ,0 ,0 ,0 ,0 9!(0 9!(0 9!(0 9!(0 / COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT. 3. : ( ) / THE CIT(A)- 4. : / CIT 5. ;8 ,0 , , / DR, ITAT, MUMBAI 6. 8< / GUARD FILE. !4 !4 !4 !4 / BY ORDER, -0 ,0 //TRUE COPY// = == = / > > > > (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI