Sanjay Arora, Member (A) -
(1.) THIS is an Appeal by the Revenue and the Cross Objection (CO) by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals) -13, Mumbai ('CIT(A)' for short) dated 10.10.2012, partly allowing the assessee's appeal contesting its assessment u/s. 143(3) r/w s. 147 of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2006 -07.
(2.) THE brief facts of the case are that the assessees', a company engaged in letting house property and share trading, assessment for the year was framed u/s. 143(3) of the Act on 29.12.2008 at an income of Rs. 194.91 lacs by, inter alia, effecting disallowance u/s. 14A and assessing the house property income at Rs. 42,37,301/ - (as against the returned income of Rs. 39,06,101/ - under the said head). Subsequently, notice u/s. 148 was issued on 23.02.2011, seeking to reopen the assessment on two grounds (copy of reasons recorded at PB pgs. 22 -23):
a) the annual value of the Sahakar Bhavan property, one of the six properties let during the relevant year, had been assessed at Rs. 9,43,200/ - by adopting a rental rate of Rs. 24/ - per sq. ft.. The said property, letting of which was accompanied by an interest free deposit of Rs. 3.31 crores, had been assessed at a rental value of Rs. 37,25,000/ - u/s. 143(3) for A.Y. 2004 -05. The annual value would have only witnessed an increase during the two year period since. There was thus, i.e., even adopting the value as assessed for A.Y. 2004 -05, an escapement of income at least to the extent corresponding to the difference;
b) maintenance charges paid to the housing society had been claimed at Rs. 3,75,755, which, though inadmissible, had been allowed in assessment, so that there was an escapement of income to that extent.
Assessment was accordingly made by assessing the income under the head 'income from house property' by making the afore -stated adjustments, allowing deduction u/s. 24(a) while computing the revised annual letting value (ALV).
In appeal, the assessee found favour with the ld. CIT(A) on the ground that the reopening, even within four years, was hit by 'change of opinion'. Relying on the decision in the case of Idea Cellular Ltd. vs. Dy. CIT :  301 ITR 407 (Bom), he argued that once a material with regard to a particular issue was before the Assessing Officer (A.O.), it could not be said that he had not applied his mind thereto, even if he chooses not to deal with the same. The A.O. in his view had already considered the facts, and thus applied his mind, making an addition on the issue under reference. Taking a different decision on the same set of facts would amount to review, which is not permissible, and would operate even where the assessment is sought to be reopened within four years, which is a settled position in law, relying on the decision in the case of CIT vs. Kelvinator of India Ltd. :  256 ITR 1 (Del) (FB), since affirmed by the apex court in CIT vs. Kelvinator of India Ltd. :  320 ITR 561 (SC). The reopening was accordingly held as bad in law, and the reassessment quashed. Aggrieved, the Revenue is in appeal. The assessee has also preferred a CO, which is largely supportive, besides agitating the issue/s on merits.
Revenue's Appeal (in ITA No. 7713/Mum/2012)
We have heard the parties, and perused the material on record. The reassessment proceedings having been initiated on two grounds (listed at para 2(a) & (b) (supra)), we shall proceed ground -wise. This is for the simple reason that the proceedings shall hold even if sustained on any one of the reasons stated in the statement of the reasons recorded, i.e., is held, in the facts and circumstances of the case and in law, as constituting a valid ground for reopening the assessment. This, incidentally, we observe to be the principal flaw in the impugned order; the entire discussion, recording his deliberations and findings by the ld. CIT(A), being ostensibly with reference to the first issue, i.e., the under assessment of income from the Sahakar Bhavan property (refer para 2.3/PB pgs. 6 -10 of the impugned order).
Ground # 1 (Income from house property - Sahakar Bhavan property):
3.1 The assessee's case is that the matter was duly enquired into by the A.O. while framing the original assessment; in fact, even subject to addition upon finding the returned income, based on agreement, to be lower than the rent being fetched by other properties in the same building with the same area by other, independent persons, and toward which reference was made during hearing to the assessee's letters dated 10.12.2008 (PB pgs. 11 -12) and 24.12.2008 (PB pgs. 13 -17). So much so that even the assessment order u/s. 143(3) for A.Y. 2004 -05 was furnished during the said assessment proceedings (PB pgs. 4 -9). The A.O. had, thus, formed a definite view upon consideration of all the relevant facts. The subsequent invocation of the assessment for A.Y. 2004 -05, confirmed in first appeal (PB pgs. 42 -45), would be, under the circumstances, only a change of opinion, precluding reassessment. Reliance was placed on Aroni Commercials Ltd. vs. Dy. CIT :  362 ITR 403 (Bom) and Cartini India Ltd. vs. Addl. CIT :  314 ITR 275 (Bom).
The Revenue's case, on the other hand, is that there has been without doubt no consideration of the assessment of the income from the relevant property for A.Y. 2004 -05, which is relevant and material. There was, thus, sound reason to believe escapement of income, based on cogent material and, accordingly, no scope for applying the concept of 'change of opinion'. Reliance stands placed on a host of decisions, as below, besides on the decision in the case of CIT vs. Usha International Ltd. :  348 ITR 485 (Del)(FB):
Indian Hume Pipe Co. Ltd. vs. Asst. CIT :  348 ITR 439 (Bom);
Dalmia (P.) Ltd. vs. CIT :  348 ITR 469 (Del);
Sri Sakhi Textiles Ltd. vs. Jt. CIT :  340 ITR 144 (Mad);
Innovative Foods Ltd. vs. Union of India :  356 ITR 389 (Ker); and Nancy Krafts P. Ltd. vs. Asst. CIT :  10 ITR (Trib) 193 (Del).
3.2 We observe no dispute or quarrel on principle. A 'change of opinion' would preclude reassessment, whether within or outside the four year time limit (from the end of the relevant assessment year). This, as explained by the apex court in Kelvinator of India Ltd. (supra), is the in -built test to check against arbitrary use of the power of assessment, which includes reassessment. The same stems from the principle that the assessing authority has no power to review, which is conceptually at variance with the power to reassess. The moot question, however, would be of what constitutes a 'review' or 'change of opinion'. In our view, and which corresponds with that of the first appellate authority itself, it would be reappraisal of the facts of the case. When, however, a new fact comes into picture, and there is a change in the factual matrix of the case consequent thereto, it cannot be said to be a review, which predicates examining the same factual matrix, which may lead to a view either in agreement or in modification of that formed earlier. It is well settled that even one fact can change the whole complexion and lead to a change of opinion formed in the absence of such fact or its consideration (refer: Padmasundara Rao (Decd.) v. State of Tamil Nadu :  255 ITR 147 (SC)). This would not amount to a mere change of opinion, but a fresh opinion in light and consideration of the new, emerging position. The same would, where the said opinion is as to escapement of income, qualify to be a 'reason to believe', which is itself a legislative check against any arbitrariness in reopening concluded assessments. The proposition is unexceptional, if not axiomatic, recommending itself to ready acceptance. If not so understood, any consideration of any matter, irrespective of facts, would degenerate into or be liable to be described as a 'review', defeating the very concept and notion of 'reason to believe' controlling and placing a limitation on the power of assessment. The same, besides being inconsistent with the meaning of the word 'review', both as understood in common parlance as well as judicially, would distort the meaning and sense of the word. The decision of the ld. CIT(A) is also based on the said understanding in -as -much as it is based on there being an examination and consideration of all the relevant material by the A.O. in the original assessment proceedings, including the assessment for A.Y. 2004 -05, so that there is clarity and no dispute on this aspect of the matter, i.e., that only consideration of the same material would amount to a review. Why, for example, speaking again in context of the present case, the A.O. may receive information, post assessment, of similar property/s fetching a much higher rent for the relevant year than that assessed in the assessee's case. The same would definitely lead to a bona fide reason as to escapement of income, leading to initiation of reassessment proceedings. The said example is para material with what actually obtains in the present case. The position in fact stands judicially settled by the decision by the apex court in Asst. CIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. :  291 ITR 519 (SC), wherein the 'reason to believe' stands stated as the sole arbiter and deciding factor where an assessment, whether u/s. 143(1) - which is not assessment at all, so that there is no question of forming an opinion, or u/s. 143(3), is sought to be 'reopened' within four years (from the end of the relevant assessment year). The same stands confirmed by the apex court in Kelvinator of India Ltd. (supra); it adding formation of opinion based on materials. Though the term 're -view', a composite of the words 're' and 'view', itself signifies its meaning as a reexamination of the subject matter of examination, the matter is not res integra, having been considered by the apex court per its celebrated decision in Kalyanji Mavji & Co. vs. CIT :  102 ITR 287 (SC). The hon'ble court, after an extensive review of the precedents, set out the following tests and principles to determine the applicability of section 34(1)(b) (of the 1922 Act), which corresponds to the main provision of section 147:
Section 34(1)(b) would apply to the following categories of cases:
(1) where the information is as to the true and correct state of the law derived from relevant judicial decisions;
(2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income -tax Officer;
(3) where the information is derived from an external source of any kind: such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of original assessment;
(4) where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law.
Where, however, the Income -tax Officer gets no subsequent information, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, section 34(1)(b) would have no application.
The hon'ble court clarified that the information or material may be external to or a part of the record. It was further explained that the information though must come in the possession of the A.O. after the assessment, but even if it is such that it could have been obtained during the assessment itself, i.e., from an investigation of the materials on record, or the facts disclosed thereby or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the assessing authority is not affected. True, one could argue that the word 'information' is absent in the extant law, but then the law has been thus only further relaxed and, in any case, the interpretation accorded by the hon'ble court, which itself represents a continuum, signifies the purposive manner in which it reads the provision. (also refer para 6(a))
3.3 The question before us, therefore, is primarily factual; its determinants being as:
a) Whether the 'new' or 'fresh' fact was considered earlier or not, i.e., at the time of original assessment, so that where it was, it is the case of a review, else not;
b) Whether the fresh fact leads to 'reason to believe' escapement of income; and
c) Whether the said reason/s stands duly recorded, and the due process observed prior to the issue of the reassessment notice.
We shall consider each of the afore -stated elements. We find no case to hold that there has been a consideration of the fact of the assessment of the rental value of the very same property for the year preceding the immediately preceding year at Rs. 105/ - per sq. ft., i.e., as against Rs. 16/ - per sq. ft. returned by the assessee for the current year. There is nothing to show of the said fact having been considered. The assessment order for A.Y. 2004 -05 is, thus, the relevant tangible material. There is no reference to either the assessment for A.Y. 2004 -05, or the material on which the same was based, or otherwise of the assessee's case/explanation qua the same, on record. This, despite the fact that the assessee not only raised preliminary objections to its reassessment (PB pgs. 24 -25), but also furnished submissions in the matter during the course of the assessment proceedings, to which reference was made by the ld. Authorized Representative (AR) during hearing. The finding by the ld. CIT(A), though not specifically with reference to the assessment order for A.Y. 2004 -05 (or the material on which the said assessment is based), is inferable and implicit in his finding of all the relevant material having been considered by the A.O. at the time of the original assessment, which we find to be de hors any material on record. In fact, it would be beyond all reason to suggest or contend otherwise, i.e., that the A.O. accepted the rental value at Rs. 24/ - per sq. ft. despite definite material evidencing it at Rs. 105/ - per sq. ft., and that too without any explanation or basis, inasmuch as it would be beyond all bounds of reasonableness and rationality or probabilities of human conduct. In fact, such an acceptance on the A.O.'s part would be grotesque, if not mala fide, making it incredulous, almost bizarre, to state so, disqualifying the said opinion as an opinion in the eyes of law, even as, as afore -stated, there is no whisper or even an iota of evidence to suggest a consideration of the said material by him in framing the original assessment. The impugned order, imputing so, inasmuch as the ld. CIT(A) does not state so explicitly, is thus itself without any application of mind, being sub silentio in the matter, so that it does not inform us as to the basis for the ld. CIT(A) in so stating. Rather, considering that the said material itself forms the basis of the ground for reopening the assessment, one would have expected the first appellate authority to have been more circumspect, i.e., than one normally is or is wont to, and issue his finding/s in the matter upon due consideration of the material on record, while we find he does so most causally, taking it, i.e., the consideration of the said material by the A.O., as a 'given'. It does not perhaps even occur to him that in doing so he is implicitly holding the A.O. guilty of capriciousness and a conduct contumacious and malicious, i.e., besides dereliction of duty. The most we are able to concede, i.e., on the basis of the material on record, is that the A.O. in not considering or failing to consider the materials before him in the form of assessment order for A.Y. 2004 -05 assessing the rental value of the very same property at Rs. 105/ - per sq. ft., had committed a lapse. Nothing more. As we see it, or as far as we may able to see, it is a clear case of omission, and which, given the persuasive nature of the materials, would qualify to be construed as a 'mistake'. Does the law not envisage the assessing authority committing a lapse, which is an incident and concomitant of human endeavor? Does the law estopp the A.O. from correcting a mistake or lapse or omission? Does the law not provide a course correction in such a case? Can an omission be considered as fatal, and the assessee allowed advantage thereof? The answers to this and such like questions that arise are evident from a mere perusal of the Act and its scheme, containing several provisions in this regard, viz. sections 147, 154, 254(2), 263, 264, etc. The apex court in Honda Siel Power Products Ltd. vs. CIT :  295 ITR 466 (SC) clarified that the power to rectify is inherent to the power of adjudication. The apex court in Kalyanji Mavji And Co. (supra), listed oversight, inadvertence or mistake committed by the A.O. as among the test, and principles that would make section 34(1)(b) (of the 1922 Act), i.e., where the reopening of assessment is in the absence of any omission or failure on the part of the assessee, corresponding to the main provision of section 147, applicable (refer pgs. 296 and 297 of the judgment). The strand continues to date; the law clearly providing for two classes or categories (of situations), one where the escapement of income is on account of an omission or failure on the part of the assessee, to inter alia disclose fully and truly all material facts necessary for assessment for the relevant year, for which a higher time period of six years (as per the extant law) is provided and, two, for the rest, and for which the said time limit is set at four years (from the end of the relevant assessment year). In our view, there has been thus no consideration of the material being non -relied upon by the A.O., i.e., in recording the reasons for the reopening and in issuing the notice u/s. 148. We are under the circumstances unable to read any further limitation in law in the A.O. proceeding to initiate the reassessment under such a situation, except of course of reason to believe, and which brings us to our next step (b) afore -noted. (also refer para 6(a))
The reason to believe in the instant case is, again, striking; there being a marked difference between the rent rate assessed and that assessable, i.e., based on the assessment u/s. 143(3) for the preceding year, and which would itself be based on materials. The apex court in Pooran Mal vs. Director of Inspection :  93 ITR 505 (SC) has clarified relevancy to be the prime factor in deciding the admissibility or otherwise of evidence under the Indian jurisprudence. This gets imported in the Act by the consideration of the material or information bearing a rational and live link or nexus with the formation of the belief as to escapement of income. The fact of the assessment having been concluded at a much higher rate is itself a strong persuasive ground, an objective basis, for forming the belief, even if it may have some subjective element to it, for inferring under assessment of income. Sufficiency of reasons, it is trite, is not an aspect that is relevant, at this stage, which is the existence of a reasonable belief, held in good faith, as to escapement of income (refer, viz. Raymond Woollen Mills Ltd. vs. ITO :  236 ITR 34 (SC); ITO vs. Lakmani Mewal Dass :  103 ITR 437 (SC); S. Narayanappa v. CIT :  63 ITR 219 (SC)). It needs to be appreciated, we may add at this stage, that what is relevant is to arrive at a fair assessment of the annual letting value of the relevant property, i.e., the sum for which it may reasonably be expected to let from year to year. The matter is purely factual, and it is for this reason that the comparative cases assumed prime relevance. The exercise was made even for the current year. Even though in all the cases so compared there was a deposit by the tenant accompanying the rental arrangement, it was lower than that obtaining in the instant case, so that the rental being higher, the same was adopted in the assessee's case on 'best available information' basis. It is perhaps this limitation that gets diluted or removed in completing the assessment for A.Y. 2004 -05, so that the rent fetched without or a lower deposit is to that extent more comparable and nearer to the requirement of law, i.e., the fair rental value of the property per se.
The third aspect [(c)] of the matter is also self explanatory and self evident, i.e., from the material on record, and sans any dispute. We, accordingly, find due satisfaction of the prerequisite conditions as well as due compliance of procedure in its respect, so that there is a valid assumption of jurisdiction u/s. 147 of the Act qua this ground or Reason # 1. We decide accordingly.
Ground # 2 - Maintenance Charges
(3.) 1 The assessee's case before us was that the A.O. could not have possibly formed such an opinion in -as -much as there was a binding decision by the first appellate authority in the assessee's own case for A.Y. 2004 -05 (dated 05.12.2009/PB pgs. 42 -45), so that it was available on record at the time of recording reasons and issue of notice u/s. 148 on 23.02.2011. The A.O. could not have, thus, under the circumstances, formed a view inconsistent with that held by the first appellate authority deleting the disallowance of maintenance charges paid to the housing society. The Revenue had in fact even accepted by the said decision by not preferring any appeal before the appellate tribunal. This view had been upheld by the tribunal in the case of Atomstroyexport vs. Dy. CIT (in ITA No. 8037/Mum(L)/2010 dated 04.12.2013/copy on record). In fact, it has been held that even if the Department was in appeal before the higher appellate authority, the order of the lower appellate authority being binding on it, it would prevail; the appellate order merging with that of the subordinate authority/s (refer para 12 of the said order).
4.2 The ld. Departmental Representative (DR) would, on the other hand, contend that, true, the Revenue had not preferred an appeal against the order by the first appellate authority in the assessee's case for A.Y. 2006 -07, but that should not be inferred as an acceptance by the Revenue of his view in the matter. The non -preference of an appeal by the Revenue was on account of section 268A, which places a monetary limit for preferring appeals against the orders of the various appellate authorities before the higher forum. The scrutiny note put up by the concerned A.O. in the matter was placed by him on record in this regard.;