Calcutta H.C : Not considering and deciding whether the proceeding under section 147 read with section 148 of the Act are legally sustainable in law before deciding the case on the merits of the contention of the assessee

High Court Of Calcutta

Mukti Properties (P.) Ltd. vs. CIT

Assessment Year : 2003-04

Section : 37(1)

Kalyan Jyoti Sengupta And I.P. Mukerji, JJ.

IJ Appeal No. 95 Of 2009

October 5, 2010

JUDGMENT

Kalyan Jyoti Sengupta, J. – This appeal is at the instance of the assessee above named against the judgment and order of the learned Income-tax Appellate Tribunal (hereinafter referred to as the said ‘Tribunal’), Kolkata on the following substantial question of law:

“Whether the Tribunal was justified in law in not considering and deciding whether the proceeding under section 147 read with section 148 of the Act are legally sustainable in law before deciding the case on the merits of the contention of the assessee?

Whether on the facts and in the circumstances of the case when the assessee had disclosed its return and its claim for allowable expenses for a sum of Rs. 3,50,000 at the time of assessment of proceeding can be reopened under section 147 on a mere change of opinion?

Whether on the facts and in the circumstances of the case, the learned Tribunal committed a jurisdictional error in reversing the order of the CIT (Appeals) and restoring the order of the Assessing Officer who reassessed the entire income, even though the recorded reasons under section 148(2) were limited to alleged escapement of income of Rs. 3,50,000 on account of commission and brokerage?”

2. The fact of the case as it appears from the records and also submitted in the written notes of argument is as follows.

3. The assessee/appellant is a Company carrying on real estate business including construction of the building, letting out the same as well as providing maintenance and other services. The appellant duly filed Return of income for the assessment year 2003-04 with audited accounts, Tax Audit Report under section 44AB, computation sheet, and other documents were filed on 29-11-2004 declaring gross total income at Rs. 26,889 after setting off business loss of Rs. 10,13,614 against income under the head House property of Rs. 10,40,503. The Return was duly processed under section 143(1). Thereafter Assessing Officer initiated proceeding under section 147 of the Act and issued notice under section 148 dated 2-7-2005. On receipt of the said notice the appellant through his learned lawyer duly protested questioning validity and jurisdiction, and also asked for reason. The appellant without prejudice and with protest called upon to treat earlier return filed under section 139 as returns in response to the said notice, if reassessment is required to be done at all. The Assessing Officer disallowed deduction claimed on account of Brokerage & Commission of a sum of Rs. 3,50,000. The Assessee though had challenged notices under section 148 of the said Act before the Assessing Officer, however he did not deal with the said contention. The matter was taken to the CIT (Appeals) pointing out that even in the assessment year 1998-99, 50 per cent of the additional expenses which had been incurred in carrying on its real estate business had been allowed but the balance 50 per cent was disallowed as it related to house property. The said decision made in the assessment year 1998-99 had been followed in the subsequent year also. Following the said decision the CIT (Appeals) in this assessment year has allowed 50 per cent of the administrative expenses relatable to real estate business but the balance amount had been disallowed as it related to house property income.

Thus the appeal was allowed.

4. The revenue went on appeal against order of the CIT (Appeals). Since the assessee did not prefer any appeal against the order of CIT (Appeals) as the relief on which was granted, question relating to the jurisdiction of the Assessing Officer to issue notice under section 148 could not be raised by the assessee before the learned Tribunal. The learned Tribunal allowed appeal preferred by the Revenue restored the order of Assessing Officer so far the amount of Rs. 3,50,000 as brokerage and commission expenses is concerned.

5. Dr. Debi Prasad Pal learned Senior Counsel appearing for the appellant/assessee submits that intimation under section 143(1) is not an assessment as decided by the Supreme Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/ 161 Taxman 316. Actually the return filed by the appellant was not assessed under section 143(3) of the Act, but only an intimation was made under section 143(1) of the Act on the basis of which total tax liability had been paid by the assessee. Therefore, there cannot be any sort of escapement of any income. In view of the Supreme Court decision as above he contends that the proceeding under section 147 read with section 148 is patently illegal, invalid and without jurisdiction. It is settled law unless the income escaped assessment reassessment by notice under section 148 of the Act is clearly invalid illegal and without jurisdiction. He submits before the learned Tribunal question of jurisdiction could not be raised since no appeal could be preferred because appellant succeeded before the CIT (Appeals) on merit. However before this Court in view of the provision of section 100 read with Order 41 Rule 33 of the Code of Civil Procedure question of law can be raised even at the appellate stage also. The scope and power of the Appeal Court under section 260A of the Act has been explained by the Supreme Court in the case in Santosh Hazari v. Purushottam Tiwari [2001] 251 ITR 84. Moreover the provision of CPC relatable to appeal to High Court has been incorporated in sub-section (7) of section 260A of the Act. Besides the point of law can be raised at any stage in view of law settled by a catena of judicial pronouncements which are as follows:

(i) Tarini Kamal Pandit v. Prafulla Kumar Chatterjee [1979] 3 SCC 280;

(ii) B.K. Gooyee v. CIT [1966] 62 ITR 109 (Cal.);

(iii)[2009] 314 ITR (St.) 206 (sic);

(iv) 198 ITR 287(SC) (sic).

Since question of jurisdiction goes to the very root of the matter the order of the Assessing Officer so also the Tribunal is not tenable.

6. Mr Agarwal learned Counsel appearing for the Revenue contends that the question Nos. 1 and 2 formulated by this Court need not be answered those questions were never raised before any of the three fora below. Unless those questions are raised at all levels this Court cannot decide the same. In support of his contention he has relied on the following decisions: CIT v. Prabhat Zarda Factory [2001] 248 ITR 447/ 116 Taxman 288 (Pat.), CIT v. Tata Chemicals Ltd. [2002] 256 ITR 395 / 122 Taxman 643 (Bom.), M. Janardhana Rao. v. Jt. CIT [2005] 273 ITR 50 / 142 Taxman 722 (SC).

7. He submits that in this case the Assessing Officer committed legal mistake by allowing deduction at the rate of 30 per cent of the rent under section 24(1) of the Act as well as the brokerage and commission. No further claim for expenses incurred for earning rental income towards brokerage and commission was permissible under section 24(1) of the Act against the income from house property over and above 30 per cent deduction. Accordingly, as there was a mistake of law in accepting the return under section 143(1)(a) of the Act, the assessment could be reopened within 4 years even if there was a change of opinion on the part of the Assessing Officer. He further submits that it is not correct contention of the appellant that the assessment had been made by the Assessing Officer under section 143(3) of the Act and, hence, he was not entitled to change his opinion and the proceedings under section 147 was invalid. Only adjustments were made under section 143(1)(a) of the Income-tax Act which did not require formation of opinion and question of change of opinion did not arise.

8. He citing decision of Patna High Court in case of Ranchi Club Ltd. v. CIT [1995] 214 ITR 644, submits that in view of the provisions contained in Explanation 2(b) to section 147 of the Act to the effect that, where no assessment has been made and it is noticed by the Assessing Officer that the assessee has under stated his income or has claimed excessive deduction, it would be deemed to be a case where income chargeable to tax has escaped assessment. In a case where only an intimation has been sent, notice can be issued under section 148 of the Act. He referring to Supreme Court decision in case of Rajesh Jharveri Stock Brokers (P.) Ltd. (supra) contends that intimation under section 143(1)(a) cannot be treated as an order of assessment; when there being no assessment under section 143(1)(a), question of change of opinion did not arise. The scope and effect of section 147 as substituted with effect from 1-4-1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. If Assessing Officer whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. The Assessing Officer is not powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued. He contends further that the income in respect of any issue, which has escaped assessment notwithstanding that the reasons for such issue have not been included in the reasons recorded under section 148(2) of the Act.

9. On merit with regard to 3rd question he submits if reasons for reopening of the assessment were limited to income of Rs. 3,50,000, it was open to the Commissioner of Income-tax (Appeals) to restore the order of the Assessing Officer who reassessed the entire income.

10. After having considered submissions of the learned Counsels for the parties and going through records it appears to us in this appeal first two questions relating to reopening of assessment under sections 147 and 148 of the said Act need to be dealt with or answered though the same were not taken at the hearing of the Assessing Officer, nor whispered before CIT (Appeals) and Tribunal. The law is settled that pure question of law which goes to very root of the jurisdiction and further initiation of proceedings can be raised at any stage even at the stage of Supreme Court. In the case of Tarini Kamal Pandit (supra) the Supreme Court allowed pure question of law not involving any question of fact could be raised for the first time before the Supreme Court. In this case it was found the question of law was not taken by the learned Lawyers on given fact, as such point of law was allowed to be raised, as public policy always demands that the law is to be applied appropriately on given facts and circumstances. Similarly in the case of Santosh Hazari (supra) the Supreme Court allowed to raise substantial question of law at a late stage though such plea was not taken before the learned Court of Appeal.

11. It appears that those decisions were rendered in Civil matters and the principle thereof cannot be applied in this case by reason of the fact in this case point was not agitated at the time of hearing before any authority below. Moreover the appellant/assessee itself invited Assessing Officer and CIT(Appeals) to decide the matter on merit waiving their right to question the validity and legality of the notice and action of reassessment. In real sense there was no order of assessment earlier. There is yet another decision of this Court in case of B.K. Gooyee (supra) wherein illegality and invalidity of a notice under section 34 of the earlier Act which is corresponding provision of section 147 of the present Act was not raised before all the fora below and the same was allowed to be raised in the High Court for the first time. We have examined carefully and read those decisions and we find that the factual aspect of the matter in those cases went to root of the matter. Unless it was allowed to be raised there would have been wrong application of law which could result in injustice. The aforesaid principle in our view cannot be allowed to be made applicable wherever and whenever any illegality is to be noted. On considering the case if it is found that the question is waivable in nature and it does not touch the root of the matter so as to render entire proceeding invalid, the aforesaid pronouncement of the high authorities are not appropriate.

12. Turning to the present case we notice that section 143(1) notice was issued first followed by notice under section 148. On receipt of the Notice the assessee/appellant asked for reasons from the Assessing Officer for reopening assessment and the same were supplied. On receipt of those reasons the reply dated 8-9-2005 was given and it was stated that the assessee was protesting against the issue of notice under section 148 calling upon to file fresh returns and it was also was called upon, under protest to treat earlier returns filed under section 136 as returns in response to the notice. Hence with mild reservation the assessee invited the Assessing Officer to decide and to pass assessment order. It is also admitted position when the notice under section 148 was issued there was no order of assessment only return was processed under section 143(1). It appears from the order of the Assessing Officer invalidity and illegality of the Notice issued under section 148 and also the question of jurisdiction with regard to reopening of the assessment under section 147 was not raised. In the memorandum of appeal ground of illegality and invalidity of the notice as well as jurisdiction was not taken before the CIT (Appeals), nor before the learned Tribunal.

13. The argument of Dr. Pal that since the Commissioner of Income-tax (Appeals) being the first appellate authority granted relief to the assessee, there was no occasion to raise the point of jurisdiction does not impress us. We fail to understand why this point was not raised before the first appellate authority [CIT (Appeals)] who would have decided the matter. We hold that the appellant waived this point to urge. This waiver legally estop the appellant from raising this question here particularly when factually there has been no order of assessment earlier. The scope of sections 147 and 148 as it stood then and now stands has been interpreted and explained by the Supreme Court in case of Rajesh Jhavery Stock Brokers (P.) Ltd. (supra). Considering earlier decisions of the Supreme Court in paragraph 16 as follows:

“At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage? This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction.”

In paragraphs 17 and 18 it is observed as follows:

“The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and ( b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied : firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to Income-tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso.

So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued.”

14. We are therefore of the view the question Nos. 1 and 2 do not require to be dealt with as such we are refrained ourselves from giving any answer as rightly pointed out by Mr. Agarwal on the strength of Bombay High Court decisions in Tata Chemicals Ltd.’s case (supra) which records statement of law as follows:-

“When this question was not determined by the Appellate Tribunal nor even the Commissioner of Income-tax (Appeals) the High Court should refrain itself from answering the question raised.”

15. Now we consider the decision of the learned Tribunal on merit. We have read assessment order passed by the Assessing Officer and that of decisions of the two authorities thence. It appears to us Assessing Officer as well as the learned Tribunal thought that appellant/assessee is not entitled to any deduction otherwise than under section 21 (sic—24) of the Income-tax Act at the rate of 30 per cent of rent. In the premises both the two authorities have held the sum of Rs. 3,50,000 as brokerage and commission and also expenses relating to building and property are not deductable. It further appears to us both the Assessing Officer as well as the Tribunal proceeded as if the income is from house property and both the authorities though having recorded in their orders that the assessee have been carrying on real estate business also, therefore, his income is not rental of house property alone but construction and the maintenance of the building. The types of business being carried on by the assessee is to be found from Articles of Association annexed with this paper book and also from the audit report. Under such circumstances approach of the learned Tribunal is patently erroneous. According to us deduction under section 24 of the Act is applicable when the income is exclusively derived from house property as mentioned in section 22. The language of section 24 of the said Act clearly suggests so as the same is relatable to the head of income from house property. The said section is set out hereunder:

“24. Income chargeable under the head ‘Income from house property’ shall be computed after making the following deductions, namely:—

(a)a sum equal to thirty per cent of the annual value;

(b)where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital.”

16. Section 14 provides for several heads of income. Income from house property is one of such heads whereas gains from business and profession is another head. In this case we find that in this case there has been mixed income arising out of profit and gains of business and real estate as well as income from house property both. Under such circumstances usual statutory deduction as allowable under different heads has to be taken note of. The Commissioner of Income-tax (Appeals) has taken pain in examining profit and loss account attached to the returns and has found that the brokerage commission and administrative expenses is allowable deduction as such granted relief. The decision of the first appellate authority found support of the decision of earlier assessment year in respect of the same heads of deduction. As rightly contended by Dr. Pal it appears from the records that in the assessment year of 1998-99 the CIT (Appeals) had allowed 50 per cent of the administrative expenses as relatable to real estate business and such deduction was allowed.

17. It is true the principle of res judiciata has no application in the tax assessment but when it is found that on the same facts and point on earlier occasion without there being any change of position of law decides the matter there cannot be different decision in the subsequent year for the same assessee. It is not a question of res judicata but the question of quasi-judicial discipline which demands that the decision of the superior authority should not be attempted to be upset on identical fact and law on the plea of different assessment years. Therefore, the judgment and order of the learned Tribunal is not sustainable, and the judgment of the Commissioner of Income-tax (Appeals) is restored on file. Thus we answer the third question in the affirmative. We direct the Assessing Officer in terms of this judgment to do the needful in accordance with law. Thus the appeal is disposed of without any order as to costs.

[Citation : 344 ITR 177]

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