Bombay H.C : The Petitioner challenges the notice dated 15 March 2007 issued by the Respondent-Income Tax authorities, under Section 148

High Court Of Bombay

Panchratna Co-op. Housing Society Ltd. vs. Assessing Officer 16(3)(1), Mumbai

Section 56, 147

M.S. Sanklecha And N.M. Jamdar, JJ.

Writ Petition No. 2216 Of 2007

July 16, 2015


N.M. Jamdar, J. – The Petitioner challenges the notice dated 15 March 2007 issued by the Respondent-Income Tax authorities, under Section 148 of the Income Tax Act, 1961 (the Act), seeking to reopen the assessment for the year 2001-02.

2. The Petitioner is a Co-operative Housing Society. The Petitioner filed its return for the Assessment Year 2001-02. A notice of scrutiny assessment under Section 142(1) of the Act was issued on 27 August 2002. Reply to the notice was submitted by the Petitioner on 29 October 2002. No further action pursuant to the notice was taken by the respondents. On 15 March 2007, the Petitioner received a notice under Section 148 seeking to reopen the assessment. The Petitioner replied by the letter dated 9 April 2007 stating that the original return filed on 31 October 2001 be treated as return under Section 148 without prejudice to the challenge the legality of the reassessment. By letter dated 3 May 2007, the Respondent No. 1 supplied grounds for reopening the assessment. By letter dated 31 May 2007, the Petitioner submitted its objections to the notice for reassessment, which were rejected by the Respondent No. 1 by order dated 24 August 2007. Thereafter, the Petitioner has approached this Court by way of the present petition.

3. The petition was admitted on 17 March 2008 and interim relief was granted.

4. The reassessment proceedings are admittedly taken up beyond the period of four years. Section 147 of the Act empowers the Assessing Officer, if he has a reason to believe that any income chargeable to tax has escaped assessment, to reassess the income. Section 147 however contains a proviso that no action under Section 147 will be taken after period of expiry of four years of the end of relevant assessment year, unless the assessee had failed to disclose fully and truly all material facts necessary for his assessment for that assessment year.

5. Sections 147 and 148 of the Act have been interpreted by numerous decisions of this Court. It is settled law that the conditions specified in Section 147 are jurisdictional requirements and unless they are fulfilled no proceeding under these sections can be taken. It is open for the assessee to challenge the initiation of the reassessment proceedings, if the assessee is able to show that the jurisdictional requirements are not met.

6. There is also further condition which has been laid down by the decisions of this Court and the Apex Court that the Assessing Officer must disclose reasons why reassessment proceedings are being taken out. Further, the Assessing Officer is not permitted to improve upon the reasons so furnished to the assessee. Thus, the validity of the initiation of the assessment proceedings will be determined only by the reasons furnished by the Assessing Officer to the assessee. If the reassessment proceedings are to be initiated after a period of four years on the ground that the assessee failed to make full and true disclosure of all necessary facts, then, the Assessing Officer must state so in the reasons and the action must be founded on such reason.

7. In the present case, reasons were furnished to the Petitioner by the Assessing Officer. The reasons for reopening as forwarded to the petitioner as under :

“The assessee had filed return of income for A.Y. 2000-2001 on 31.10.2001 declaring the total income at Rs. NIL. The said return of income was accompanied by the Statement of Computation. Income and Expenditure account, Balance sheet as on 31.03.2001, Schedule 1 to 17 to the Balance Sheet, Auditors report, notices forming part of the Auditors Report etc. From the Income and Expenditure Account, it is seen that the gross receipts in the hands of the assessee are shown at Rs. 2,46,85,369/- and the gross expenditure are shown at Rs. 2,10,56,138/- leaving a gross surplus of Rs. 36,29,230/- which has been purportedly set off against deficit of earlier years claimed at Rs. 1,67,09,860/-. From Schedule 3 to the Balance sheet, it is seen that the assessee has received deposits/advances to the extent of Rs. 45,88,763/- from certain parties who are not members of the C.H.S. It is also seen that such deposits/advances had also been received during the preceding year to the extent of Rs. 57,493/-. The clear implication is that the assessee has allowed certain outside parties to utilize the premises of the Society for the purpose of mounting hoardings/ banners/ advertisements/ other utility equipment, essential for the promotion of the business activities of such outside parties, for pecuniary considerations. It is well established in law that receipts of such nature cannot be termed as covered by the principles of Mutuality and as such are liable to be taxed as “Income from other sources” in the hands of the assessee Society. However, the assessee has not disclosed any income as taxable in its hands.

In the immediately preceding year i.e. A.Y. 2000-01, the assessee had filed its return of income on 18.08.2000, declaring the total income at Rs. NIL, but the assessment was finalized under Section 143(8) r/w S.147 on 28.11.2003, determining the assessed income at Rs. 1,21,22,995/-.

The additions made in this assessment order were as follows:

1. On account of Transfer premium charged from the transferor and transferee only at the time of transfer of flats. Rs. 21,28,300/-

2. Amount received from outside parties for using the assessee’s premises for their own business purposes. Rs. 10,88,700/-

3. Miscellaneous Expenses being charges from Members who undertake major repairs in their premises by using the Assessee’s Society facilities. Rs. 4,21,872/-

4. Charges from members for change for user.  Rs. 37,170/-

5. Lift charges collected from Members for carrying repair material for repair work in their individual premises.  Rs. 49,275/-

6. Advertisement charges collected from Members for displaying notices on the ground floor Notice Board in the Society premises. Rs. 23,358/-

7. Non-occupancy charges collected from Members who have let out the premises standing in their names, to outside parties (which is over and above the annual society charges paid by the Members). Rs. 81,61,620/-

8. Car parking charges collected from Members who are parking their cars in the compound premises of the Assessee Society.
Rs. 2,12,700/-

9. Interest income received from Bank/Institution which are not Co-operative bodies. Rs. 36,66,614/-

Rs. 1,57,89,609/-

The Ld. CIT(A) vide his order in Appeal No. CIT(A)/ITO- 16(3)(1)/IT-310/03-04, dt. 22.06.2004, has upheld the addition of Rs. 21,28,300/- on account of transfer premium, but has deleted the other additions. However, a second appeal has been filed by the Revenue on 27.08.04 in which all the items deleted by the Ld. CIT (A) have been contested before the Hon’ble ITAT and this appeal is still pending.

The assessee has followed the same pattern of filing returns for all subsequent years although successive A.O.’s have relied upon a Plethora of decisions in which it has been held again and again that any receipt in the hands of a CHS which is collected from an outside party in lieu of services, or license to use a part of the premises for furthering its own business interest, is liable to be taxed as income in the hands of the Society u/s 56, and cannot be construed as covered by the principal of mutuality, by any stretch of imagination. It would not be out of place to mention here that the Bombay High Court judgments are based upon Supreme court decisions such as Bankipur Club Ltd. And Kumbakonan Mutual Benefit Fund Ltd.

Under the circumstances, I have reason to believe that income chargeable to tax in excess of Rs. 1 lakh has escaped assessment within the meaning of Sec. 147, for A.Y. 2001-2002, in the hands of the assessee – M/s. The Panchratna Co-op. Hsg. Society Ltd.

A proposal was submitted in this regard, to the Addl./dt. CIT. Range 16(3), Mumbai, requesting for necessary approved as provided u/s 149 to reopen the proceedings for A.Y. 2001-02 in the case of M/s. The Panchratna Co-op. Hsg. Soc. and for the issue of a Notice u/s 148 accordingly. The Addl. Jt. CIT Range 16(3)/147/2006-07, dt. 15.03.2007 has agreed with the proposal submitted by the undersigned and has also given his reason in a separate sheet which forms items 11 of the proposal for reopening assessment u/s 147.

In view of the above mentioned reasons, a Notice u/s 148 is issued to the assessee accordingly.”

From the above it is clear that reasons indicate that the Petitioner followed the same pattern of filing returns, although successive Assessing Officer held that any receipt in the hands of a Co-operative Housing Society from a outside agency in view of service or license to use part of the premises for its own business interest, is liable to be taxed as income and not to be covered by the principle of mutuality. The Assessing Officer accordingly recorded that he had reason to believe that income chargeable to tax in excess of Rs. 1 lac escaped assessment for the accounting year 2001-02. To arrive at this finding, the Assessing Officer considered the statement of computation, income and expenditure account, balance-sheet, auditors’ reports, notes forming the auditors’ reports. All these documents were all furnished by the Petitioner during the assessment. There is not a whisper in the reasons that the Petitioner failed to make full and true disclosure of any relevant facts or that the Petitioner withheld such necessary facts, and therefore reopening of the assessment is necessary. Nor does the reading of the reasons as a whole indicate that it is being suggested that there was a failure on the part of the Petitioner to disclose fully and truly all material facts necessary for assessment.

8. Not only it is not mentioned in the reasons that the Petitioner failed to disclose all the necessary facts as required, but the perusal of the reasons would show that all the necessary and relevant facts were in fact furnished by the Petitioner.

9. Thus, firstly, there is no failure to make full and true disclosure of necessary facts which is the jurisdictional requirement for initiating reopening proceedings after period of four years as per the proviso to Section 147. Secondly, the reasons do not show that there was any failure to disclose. Mr. Malhotra, on behalf of the respondent-revenue contended that the Petitioner filed a return before a wrong authority and, therefore, that earlier return was not a return in the eyes of law. This is not the reason stated by the Assessing Officer and, therefore, it cannot be permitted to be taken at this stage. It is a settled position as held by this Court in Hindustan Lever Ltd. v. R.B. Wadkar [2004] 268 ITR 332/137 Taxman 479, that the reopening notice stands or falls by the reasons recorded at the time of reopening notice is issued. It is not permissible to add further reasons to those recorded while issuing of the reopening notice.

10. In view of this position, the petition requires to be allowed. Accordingly, Rule is made absolute in terms of prayer clause (a). No order as to costs.

[Citation : 376 ITR 404]