Income Tax Appeal v. Order

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1456 OF 2017 Commissioner of Income Tax-(E), Pune, 3[rd] Floor, ‘C’ Wing Room No.322,PMT Building, Shankar Sheth Road,Swargate, Pune-411 037…Appellant Versus Maharashtra Academy of Engineeringand Educational ResearchS.No.124, Ex-Serviceman Colony,Paud Road, Kothrud,Pune : AAAAM1206F …Respondent …Respondent *** Mr. Suresh Kumar for the Appellant.Mr. Riyaz Padvekar a/w Mr. Tanzil Padvekar and Mr. MandarVaidya for the Respondent. *** CORAM : DHIRAJ SINGH THAKUR & ABHAY AHUJA, JJ. DATE : 25 AUGUST 2022 : ORDER : (PER DHIRAJ SINGH THAKUR, J.) .The present Appeal is preferred under Section 260A of theIncome Tax Act, 1961 (“the Act”) relevant to the assessment year1999-2000 against the Order dated 10 February 2017 passed bythe Income Tax Appellate Tribunal (“ITAT”), Pune. 2The following questions of law have been proposed for our Chittewan consideration : A.Whether in the facts and circumstances of thecase and in law, the ITAT was right in holdingthat no addition was made on rental incomewhich was reason for reopening under section147, whereas in fact the assessing offcer bywithdrawing exemption under section 11 hadtaxed the assessee as an AOP and as a resultthe rental income as proposed in the reasonrecorded under Section 147 had also beenbrought to tax ?case and in law, the ITAT was right in holdingthat no addition was made on rental incomewhich was reason for reopening under section147, whereas in fact the assessing offcer bywithdrawing exemption under section 11 hadtaxed the assessee as an AOP and as a resultthe rental income as proposed in the reasonrecorded under Section 147 had also beenbrought to tax ? B. Whether in the facts and circumstances of thecase and in law, the ITAT was right in notappreciating the fact that the rental incomewhich was reason for reopening under section147 was a part of total income assessed undersection 143(3) read with section 147 ?case and in law, the ITAT was right in notappreciating the fact that the rental incomewhich was reason for reopening under section147 was a part of total income assessed undersection 143(3) read with section 147 ? C. Whether in the facts and in circumstances ofthe case and in law the ITAT was right inholding that no other addition may be madewhile completing proceedings under section147 if no addition is made on the ground onwhich the proceedings have been reopened ?the case and in law the ITAT was right inholding that no other addition may be madewhile completing proceedings under section147 if no addition is made on the ground onwhich the proceedings have been reopened ? 3Learned Counsel for the parties agree that in case questionNo.C as proposed by the revenue is answered against the revenue, the question Nos.A and B, would be rendered academic. Be that asit may, briefy stated the material facts in the background of whichthe present controversy arises, are as under : 4The assessee is a trust incorporated in the year 1983 and isregistered under the Bombay Public Trust Act, 1950. The trust isalso registered under Section 12AA(1) of the Act. The trust isengaged in running educational institutions. In its returns for theyears 1999-2000 to 2001-02, the income disclosed was ‘Nil’, as theincome was claimed to be exempt under Section 11 and also underSection 10(23C)(vi) of the Act. 3Learned Counsel for the parties agree that in case questionNo.C as proposed by the revenue is answered against the revenue, the question Nos.A and B, would be rendered academic. Be that asit may, briefy stated the material facts in the background of whichthe present controversy arises, are as under : 4The assessee is a trust incorporated in the year 1983 and isregistered under the Bombay Public Trust Act, 1950. The trust isalso registered under Section 12AA(1) of the Act. The trust isengaged in running educational institutions. In its returns for theyears 1999-2000 to 2001-02, the income disclosed was ‘Nil’, as theincome was claimed to be exempt under Section 11 and also underSection 10(23C)(vi) of the Act. 5A search operation under Section 132 of the Act was carried out bythe department in the case of two trustees of the assessee. Surveyoperation under Section 133A of the Act was also carried out in the caseof the assessee trust. Pursuant to the search and survey operations,during the inquiry made by the department, a number of illegalities werealleged to have been noted by the department, which included takingdonations from various persons for admission under the managementquota in violation of Maharashtra Educational Institutes (prohibition ofCapitation Fees) Act, 1987. Violations were also alleged in regard toSection 13 of the Act among others, as regards expenditure incurred bythe trust on the air fare of the trustees and their family members, expenses on foreign exchange etc. 6Based upon the aforesaid mentioned facts, the assessment wasreopened & a notice issued under Section 147 of the Act dated 29 March2006. Objections fled by the assessee to the issuance of notice underSection 148 were disposed of vide Order dated 8 August 2008. Theassessing offcer fnally proceeded to pass the order of assessment dated8 August 2008. The said Order was challenged before the Commissionerof Income Tax (Appeals)-III, Pune. CIT (A)-III, Pune vide its order dated29 February 2012. While dismissing the appeal some more additionswere made to the income of the assessee. 7Being aggrieved of the Order of CIT (A)-III, Pune, an appeal waspreferred by the assessee before the Income The Appellate Tribunal,Pune, bearing ITA No.915 to 920/PUN/2012. 8The ITAT in the Order, impugned in the present appeal, noticed thatthe reason for reopening of the assessment was that the assessee hadshown income from other sources to the tune of Rs.17,97,33,097/-, whichincluded rent income of Rs.1,92,34,679/-. The assessing offcer for thesaid reason had stated that since the object of the trust was to runeducational institution and not to give property on rent, therefore, therental income ought to have been taxed as income from house propertyand not under the head of ‘income from other sources/business income’. Chittewan The ITAT held that as against the reason for reopening of assessmentcommunicated by the assessing offcer, the assessment order passed bythe assessing offcer, did not bring to tax such rental income as ‘incomefrom house property’ and no addition was made on that account by theassessing offcer. The ITAT by relying upon the judgment of this Court inthe case of Jet Airways (I) Ltd[1] as also one rendered by Delhi High Courtin the case of Ranbaxy Laboratories Ltd[2], allowed the appeal bearing ITANo.915 to 920/Pun/2012, by holding that since addition had been madefor a reason different from what had been communicated to the assesseeand since no addition had been made on the ground for which theassessing offcer had ‘reason to believe’ for reopening of assessment, thereassessment proceedings were rendered invalid. 9This Court in Jet Airways held : 9This Court in Jet Airways held : “………..Section 147 has this effect that the AssessingOffcer has to assess or reassess the income (“suchincome”) which escaped assessment and which was thebasis of the formation of belief and if he does so, he canalso assess or reassess any other income which hasescaped assessment and which comes to his noticeduring the course of the proceedings. However, if afterissuing a notice under Section 148, he accepted thecontention of the assessee and holds that the incomewhich he has initially formed a reason to believe hadescaped assessment, has as a matter of fact not escapedassessment, it is not open to him independently toassess some other income. If he intends to do so, a fresh 1 2 (2011) 331 ITR 236 (Bom) 336 ITR 137 notice under Section 148 would be necessary, thelegality of which would be tested in the event of achallenge by the assessee.” 10In Ranbaxy Laboratories Ltd., Delhi High Court held : “…………...The words ‘such income’ refer to theincome chargeable to tax which has escapedassessment and in respect of which the AssessingOffcer has formed a reason to believe that it hasescaped assessment. Hence, the language whichhas been used by Parliament is indicative of theposition that the assessment or reassessment mustbe in respect of the income in respect of which hehas formed a reason to believe that it has escapedassessment and also in respect of any other incomewhich comes to his notice subsequently during thecourse of the proceedings as having escapedassessment. If the income, the escapement of whichwas the basis of the formation of the reason tobelieve is not assessed or reassessed, it would not beopen to the Assessing Offcer to independentlyassess only that income which comes to his noticesubsequently in the course of the proceedings underthe section as having escaped assessment…………...” 11Learned Counsel for the Appellant in the present case has notdisputed the factual fnding recorded by the ITAT that the assessingoffcer had not made any addition on the ground on which he hadreopened assessment and that additions were made on grounds otherthan those based upon which the assessing offcer had based his reasonsof belief for reopening of assessment. If that be so, then in our opinion,the ITAT committed no error in holding that the reassessment Chittewan proceedings for the assessment year 1999-2000 were bad in law. 12For the reasons mentioned above, the appeal is found to be withoutmerit and is accordingly dismissed. (ABHAY AHUJA, J.) (DHIRAJ SINGH THAKUR, J.) Digitally signed byRAJESHRAJESH VASANTVASANTCHITTEWANCHITTEWANDate: 2022.10.1816:40:41 +0530