Royal Western India Turf Club Vs PCIT (ITAT Mumbai)
Undisputedly, the original assessment in case of the assessee was completed under section 143(3) of the Act on 06-02-2014. Subsequently, the assessment was reopened under section 147 of the Act and notice under section 148 of the Act was issued to the assessee on 26-03-2018. The reason recorded for reopening of assessment under section 147 of the Act, a copy of which is at page 40 of the paper book, would reveal that for assessing the escaped income of Rs.2,00,50,000/- being the contribution received from certain members towards infrastructure facilities, the assessing officer had reopened the assessment. Ultimately, the assessing officer completed the assessment under section 143(3) r.w.s. 147 of the Act assessing the alleged escaped income of Rs.2,00,50,000/-. Thus, neither the issue relating to non deduction of tax on payment made to contractors and professional fees nor the cash deposit of Rs.31,95,28,429/- in the savings bank account were forming part of reasons recorded. In other words, the reopening of assessment was for the specific purpose of assessing the amount of Rs.2,00,50,000/-. That being the case, it is necessary to examine whether the assessing officer in the re-assessment proceedings could have gone into the aspects raised by learned PCIT.
A reading of section 147 of the Act makes it clear that the assessing officer, in course of proceedings under the said provision can not only assess/reassess the escaped income based on which the assessment was reopened, but can also assess any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under the aforesaid provision. Explanation 3 to section 147 of the Act further clarifies the substantive provision by saying that the assessing office, in course of proceedings under the said provision can not only assess/re-assess the escaped income based on which the assessment was reopened, but can also assess any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under the aforesaid provision, notwithstanding that such issue does not form part of reasons recorded for reopening of assessment. Thus, on a holistic reading of section 147 of the Act it becomes very much clear that along with escaped income for which the assessment was reopened, the assessing officer can assess other escaped income which subsequently comes to his notice in course of re-assessment proceedings. In the facts of the present case, undisputedly, the issues raised by learned PCIT neither were the subject matter of reopening as per reasons recorded, nor did such matter come to the notice of the assessing officer in course of re-assessment proceedings.
The reopening of assessment as contemplated under section 147 of the Act is for the specific purpose of assessing the escaped income. Therefore, in a re- assessment proceeding, the assessing officer can only assess that income which has escaped assessment. The income which is subject matter of assessment in the original assessment proceedings or which was in the domain of the assessing officer in course of original assessment proceedings certainly cannot be considered in the re-assessment In our view, if at all, any order which can be considered to be erroneous and prejudicial to the interest of revenue for non consideration of the issues raised by learned PCIT, certainly, it has to be the original assessment order passed under section 143(3) of the Act and not the re-assessment order passed under section 143(3) r.w.s. 147 of the Act. Therefore, learned PCIT could have exercised her powers under section 263 of the Act only in respect of the original assessment order passed under section 143(3) of the Act.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Captioned appeal has been filed by assessee assailing the order dated 19-03-2021 passed by learned Principal Commissioner of Income Tax-8 (PCIT), Mumbai under section 263 of the Income Tax Act, 1961 for the assessment year 2011-12 (wrongly mentioned as 2015-16 in the body of the order).
2. At the outset, Shri Salil Kapoor, learned counsel for the assessee, drawing our attention to ground 3 raised a preliminary issue challenging the validity of the revision order passed beyond the period of limitation prescribed under section 263(2) of the Act.
3. Before we deal with this issue, it is necessary to deal with basic relevant Briefly stated, the assessee is a resident company engaged in the business of conducting horse races, turf club house and providing hospitality service to its members and their guests. For the assessment year under dispute assessee filed its return of income on 09-09-2011 declaring total income of Rs.1,49,08,690/-. Assessment in the case of the assessee was originally completed under section 143(3) of the Act vide order dated 06-02-2014 determining the total income at Rs.27,23,84,049/-. Against the assessment order so passed, assessee preferred appeal before learned Commissioner of Income Tax (Appeals), wherein, substantial relief was granted to the assessee. While giving effect to the order of learned Commissioner (Appeals), the assessing officer in order dated 24-06-2017 determined the income at nil under the normal provisions of the Act and computed book profit under section 115JB of the Act at Rs.1,39,38,254/-. When the matter stood thus, the assessing officer received information that the assessee had transferred certain receipts directly to its reserve under the head “life membership fee” etc which included an amount of Rs.2,00,50,000/- representing contribution from certain members towards various infrastructure facilities of the club for mutual benefit of the members of the club and such contributions are non refundable. Being of the view that the receipt of Rs.2,00,50,000/- has escaped assessment, the assessing officer reopened the assessment under section 147 of the Act and ultimately passed an order on 26- 12-2018 under section 143(3) r.w.s. 147 of the Act determining the total income at Rs.2,00,50,000/-. Against the assessment order so passed, assessee preferred appeal before learned first appellate authority. However, presently we are not concerned with that.
4. In exercise of powers conferred under section 263 of the Act, learned PCIT called for the assessment records of the assessee for the impugned assessment After examining the record, he was of the view that the assessment order passed under section 143(3) r.w.s. 147 of the Act is erroneous and prejudicial to the interest of the revenue as the assessing officer while completing the assessment has not enquired into and examined the following issues:-
(1) Non deduction of tax on payments made to contractors as well as professional fees aggregating to 2,56,529/-;
(2) Cash deposit of 31,95,28,429/- made in savings bank account maintained at Bank of India, Mahalaxmi Branch, Mumbai.
5. Accordingly, he issued a notice under section 263 of the Act requiring the assessee to show cause as to why the assessment order should not be held as erroneous and prejudicial to the interest of revenue. In response to the said notice, assessee filed its objection vehemently opposing the initiation of proceedings under section 263 of the Act. However, learned PCIT did not find merit in the submissions of the assessee. Ultimately, she passed the impugned order holding the assessment order passed under section 143(3) r.w.s. 147 of the Act to be erroneous and prejudicial to the interest of the revenue and accordingly set it aside to the assessing officer for framing a de novo assessment.
6. Learned Counsel for the assessee submitted, the assessment was reopened under section 147 of the Act for the specific purpose of assessing the escaped income of 2,00,50,000/-, being the contribution received from members transferred to the reserve. He submitted, the issues on which learned PCIT held the assessment order to be erroneous and prejudicial for non-enquiry by the assessing officer were never the subject matter of reopening; hence, the assessing officer had no occasion to enquire into those issues. He submitted, if at all any enquiry into the issues raised by learned PCIT was required, it had to be done at the time of the original assessment proceedings and not during the re- assessment proceedings. Thus, he submitted, there being no error in the assessment order passed under section 143(3) r.w.s. 147 of the Act, proceeding under section 263 of the Act would not lie. He submitted, since the learned PCIT could not have revised original assessment order passed under section 143(3) of the Act due to bar of limitation, she has proceeded to revise the re-assessment order. Thus, he submitted, the impugned order of learned PCIT is barred by limitation as provided under section 263(2) of the Act. In support of such contention, learned counsel relied upon the following decisions:-
