M/S. Rayala Corporat... v. Assistant Commission...

COMMON JUDGMENT

T.S SIVAGNANAM, J.

1. Tax Case (Appeal) No. 91 of 2012, at the instance of the assessee has been admitted on the following substantial questions of law:

(i) Whether the Income Tax Appellate Tribunal is justified in upholding the assessment of the income received by the appellant, by a) sub leasing of already leased out property b) maintenance charges and air conditioning hire charges, as Income from House Property and not income from business having regard to the fact that the Appellant with the view of commercial exploitation, pursuing the main objects of the Company had taken on lease the premises and thereafter sub leased the premises and also provided integrated services such as maintenance and air conditioning services?

(ii) Whether the income earned by the Appellant by commercial exploitation of sub leasing leased premises in terms of the Memorandum and Articles of Association of the Appellant Company and providing integrated services such as maintenance and air conditioning services and further investing the returns in real estate development is assessable as Income from Business under Section 28 or income from house property under Section 22?

2. Tax Case (Appeal) No. 99 of 2012, at the instance of the assessee has been admitted on the following substantial questions of law:

(i) Whether on the facts and circumstances of the case the ITAT is justified in upholding the assessment of the income received by the Appellant, by way of a) sub leasing of already leased out property and b) maintenance charges and air conditioning hire charges, as income from house property and not income from business, having regard to the fact that the Appellant Company is pursuing the main object of the Company as provided in the Memorandum and Objects?

(ii) Whether the income earned by the Appellant by commercial exploitation of sub leasing leased premises in terms of the Memorandum and Articles of Association of the Appellant Company and providing integrated services such as maintenance and air conditioning services and further investing the returns in real estate development is assessable as Income from Business under Section 28 or income from house property under Section 22 of the IT Act?

3. Tax Case (Appeal) No. 230 of 2007, at the instance of the assessee has been admitted on the following substantial questions of law:

(i) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal is justified in upholding the reopening of the assessment under Section 147 explanation 2(b) in the appellant's case where the assessment has already been completed under Section 143(1) and refund is issued to the appellant and further the assessment made under Section 143(1) was rectified under section 154?

(ii) Whether the assessment made under Section 147 explanation 2(b) of the Income Tax Act is without jurisdiction and hence ought to be set aside?

(iii) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal justified in upholding the assessment under Section 147 explanation 2(b) where there is no new materials found by the respondents but the assessment is made on a mere change of opinion and reappraisal of the same material on record?

(iv) Whether the Income Tax Appellate Tribunal justified in upholding the assessment of the income received by the appellant, by (a) sub leasing of already leased out property, (b) maintenance charges and air conditioning hire charges, as income from house property and not income from business having regard to the fact that the appellant with the view of commercial exploitation, pursuing the main objects of the company had taken on lease the premises and thereafter sub leased the premises and also provided integrated services such as maintenance and air conditioning services?

(v) Whether the income earned by the appellant by commercial exploitation of sub leasing leased premises in terms of the Memorandum and Articles of Association of the appellant Company and providing integrated services such as maintenance and air conditioning services and further investing the returns in real estate development, assessable as income from business under Section 28 or income from house property under Section 22?

(vi) Whether in the facts and circumstances of the case, the Appellate Tribunal was right in upholding the reassessment made by the respondent when the Assessing Officer after applying his mind had rectified the assessment order to rectify mistakes apparent on record?

(vii) Whether in the facts and circumstances of the case, the Appellate Tribunal was right in upholding the assessment made by the respondent under Section 147 explanation 2(b), when the period for completing the assessment under Section 143(3) (Assessment year 2002-2003) had expired on 31.03.2004 and thereby rendering the provision of Section 153 for completing the assessment otiose?

4. Tax Case (Appeal) No. 231 of 2007, at the instance of the assessee has been admitted on the following substantial questions of law:

(i) Whether the Income Tax Appellate Tribunal justified in upholding the assessment of the income received by the appellant, by (a) sub leasing of already leased out property, (b) maintenance charges and air conditioning hire charges, as income from house property and not income from business having regard to the fact that the appellant with the view of commercial exploitation, pursuing the main objects of the company had taken on lease the premises and thereafter sub leased the premises and also provided integrated services such as maintenance and air conditioning services?

(ii) Whether the income earned by the appellant by commercial exploitation of sub leasing leased premises in terms of the Memorandum and Articles of Association of the appellant Company and providing integrated services such as maintenance and air conditioning services and further investing the returns in real estate development, assessable as income from business under Section 28 or income from house property under Section 22?

5. The Tax Case (Appeal) No. 212 of 2012 is admitted on the following substantial questions of law:-

(i) Whether on the facts and circumstances of the case the ITAT is justified in upholding the assessment of the income received by the Appellant, by way of a) sub leasing of already leased out property and b) maintenance charges and air conditioning hire charges, as income from house property and not income from business, having regard to the fact that the Appellant Company is pursuing the main object of the Company as provided in the Memorandum and Objects?

(ii) Whether the income earned by the Appellant by commercial exploitation of sub leasing leased premises in terms of the Memorandum and Articles of Association of the Appellant Company and providing integrated services such as maintenance and air conditioning services and further investing the returns in real estate development is assessable as Income from Business under Section 28 or Income from house property under Section 22 of the IT Act?

6. These Tax Case Appeals filed by the assessee are directed against the orders passed by Income Tax Appellate Tribunal (Tribunal), Chennai. As the appeals have been filed by the same assessee against the orders passed by the Tribunal for different assessment years and as the questions involved are identical, these appeals were heard together and are disposed of by this common order.

T.C (A). No. 231 of 2007, T.C (A). Nos. 91, 99 & 212 of 2012:-

7. These appeals are directed against the order passed by the Tribunal in ITA. No. 388 of 2006 relating to the assessment year 2003-04, ITA No. 103 of 2005 relating to the assessment year 2004-05, ITA. No. 119 of 2011 for the assessment year 2006-07 and ITA No. 1464 of 2011 for the assessment year 2008-09 respectively, raising the substantial questions of law referred above.

8. The Tribunal by relying upon the decision of the Division Bench of this Court in the case of CIT v. Chennai Properties and Investments Ltd., [2008] 303 ITR 33 (Mad) assessed the income under the head “income from house property” and answered the question in favour of the Revenue. The order passed by the Tribunal dated 22.09.2006 in ITA. No. 388 of 2006 for the assessment year 2003-04 was followed by the Tribunal in ITA. No. 119 of 2011, dated 02.11.2011 for the assessment year 2006-07, in ITA No. 103 of 2005, dated 26.04.2007 for the assessment year 2004-05 and I.T.A No. 1464 of 2011, dated 06.02.2012 for the assessment year 2008-09. Aggrieved by such orders, the assessee is on appeal before this Court.

9. The assessee herein a company mainly derived income from sub lease of rental properties, maintenance charges, interest income being interest on deposits, A.C service charges and miscellaneous income. The assessee had shown the receipts from leasing out of property etc, as income from business by claiming expenses towards salaries, wages, bonus, administrative expenses etc., for the relevant assessment years. The assessment for the assessment years 2003-04, 2006-07 and 2008-09 were taken up for scrutiny, the Assessing Officer held that the rental income by way of sub-lease of properties located at No. 781-785, Anna Salai, Chennai, hereinafter referred to as “Annasalai property” and No. 144/7, Old Mahabalipuram Road, Kottivakkam, Chennai - 41, hereinafter referred to as “Kottivakkam property” were assessable as “income from house property”. Consequently, the Assessing Officer disallowed the expenses claimed and allowed deductions under Section 24 of the Income Tax Act (I.T Act) as per permissible under law. Aggrieved by such order, the assessee preferred appeals before the Commissioner of Income Tax (Appeals) [CIT (A)].

10. The CIT (A) held that the income from sub-lease of the space allotted in the Anna Salai property and the lease rent in respect of factory premises rented out along with machinery and equipment at Kottivakkam are assessable as “income from house property”. As regards the rental income from Anna Salai property, the CIT (A) held that it had been taken on lease at a concessional rent from the developer of the building in the capacity of the owner of the land and the lease was for 33 years, renewable once in five years, the assessee was deemed to be the owner of the superstructure taken on lease from the developer and hence the income from property subleased to various tenants for office premises was assessable as “income from house property”.

11. In respect of the Kottivakkam property, the CIT (A) held that the factory premises along with machinery and equipment was leased out from September 1993 and what is leased out, is essentially a factory building with furniture and fixtures and therefore, the lease rent is assessable as “income from house property”. As regards the levy of interest under Section 234D I.T Act on the completion of assessment under Section 143(3) of the I.T Act, the CIT (A) confirmed the levy of interest, accordingly, the appeal was dismissed by order dated 12.12.2005

12. Apart from the above reasons, the CIT (A) relied on the decision of the Division Bench of this Court in the case of Chennai Properties and Investments Ltd., (supra), assessed the income for the relevant assessment year under the head of “income from house property”. The additions claimed for the properties during the relevant assessment year were rejected. The CIT (A) followed the above decisions for the assessment year 2008-09 and dismissed the appeal by order dated 27.07.2011

13. Challenging these orders, the assessee preferred separate appeals before the Tribunal. The Tribunal dismissed the appeals filed for the assessment year 2003-04, by order dated 22.09.2006 following the decision of the Division Bench of this Court in the case of Chennai Properties and Investments Ltd., (supra). Following the said order, the appeals in respect of the assessment years 2004-05, 2006-07 and 2008-09 were dismissed by the Tribunal, by orders dated 26.04.2007, 02.11.2011 and 06.02.2012 These orders have led to the filing of these Tax Case Appeals before this Court by the assessee.

14. Mr. C.V Rajan appearing along with Mr. R. Venkata Narayanan, learned counsel appearing for the appellant/assessee submitted that the Assessing Officer, the CIT (A) and the Tribunal failed to consider that the assessee is in the business of real estate development and Memorandum and Articles of Association of the Company provides for real estate business and with a view of commercial exploitation, the assessee had leased the commercial building after providing infrastructure facilities and the income earned from sub-leasing the premises was further deployed in real estate business and the assessee had incurred considerable expenditure to earn the income and the income earned by leasing out of the premises was “business income” only. Further, it is submitted that the decision in Chennai Properties and Investments Ltd., (supra), would not apply to the facts and circumstances of the case of the assessee. It is contended that in respect of the Kottivakkam property, the lease was in respect of the factory and the premises and the Tribunal ought to have accepted the plea of the assessee and treated the lease rent as “Business Income” and not as “income from house property”. The learned counsel produced copies of the Memorandum and Articles of Association of the Company, rental lease agreement, dated 06.05.2002, in respect of a portion of Anna Salai property, lease agreements dated 09.10.1981 and 16.08.2003 in respect of the Kottivakkam property. The learned counsel relied upon the decision of the Division Bench of this Court in the case of Commissioner Of Income-Tax v. Ideal Garden Complex P. Ltd., [2012] 340 ITR 609 (Mad).

15. Mr. N.V Balaji, learned standing counsel appearing for the Revenue submitted that the assessee company stopped its business in manufacturing typewriters long back and no other business activities were carried on thereafter. That the assessee company parted with the commercial asset and confined solely to receive some income by virtue of ownership of the asset by the lease or otherwise and the act of leasing out was the out come of the assessee's decision to get out of the business. By referring to the assessment order dated 21.03.2005 for the assessment year 2002-03, it is submitted that the assessee in response to the notice issued under Section 143(2) of the I.T Act, appeared before the Assessing Officer through their authorized representatives and expressed their no objection for treating the income under the head “income from house property”. Therefore, it is submitted that the finding of fact rendered by the Assessing Authority as confirmed by the Commissioner (Appeals) and the Tribunal, calls for no interference and no substantial questions of law arise for consideration in these appeals.

16. We have heard the submissions of the learned counsel appearing on either side and carefully perused the materials placed on record.

17. The substantial questions of law framed in these appeals are as to whether the income received by the assessee by way of sub-lease of the Anna Salai property, collection of maintenance charges, A.C, hire charges etc., would be income from “business” or “income from house property”, similar is the question in respect of Kottivakkam property.

18. Before we examine the issue on the facts placed before us, it has to be pointed out that the Assessing Authority in the order of assessment for the assessment year 2003-04 has made a reference that insofar as Kottivakkam property was concerned, the assessee company had leased out the factory premises, machinery and equipment to Mr. Ranjith Prathap and his associates and receiving lease rental from them and concluded that the income has to be treated as “income from house property”. This finding was confirmed by CIT (A) and in doing so, the Commissioner (Appeals) referred to an earlier order in I.T.A No. 60 of 2005, dated 29.11.2004 In the said order in paragraph 7.17, it has been observed that the assessee had stopped its business during 1993 and there is no intention of continuing the same and the assessee leased out the factory building along with furniture and fittings, plant and machinery to Mr. Ranjith Prathap and was receiving rent, since September 1993 and the rent was revised during 1996 and subsequently in 1997. Further, it has been observed that as there was no intention to resume business and the written down value (WDV) of the plant and machinery as on 01.04.2000, was only Rs. 6,777/-, which is insignificant and therefore, he concluded that what was leased essentially was only the factory building, furniture and fixtures and hence the income from such lease was to be assessed as “income from house property”.

19. It is seen that though such finding had been recorded to effect that the lease was in respect of the factory shed, machinery and equipment, we find that no documents were placed before the Assessing Authority to establish this fact. The copy of the lease agreement dated 16.03.2003, alone has been produced before us and from the said document, we find that the property which had been leased, was factory shed and RCC building constructed on the land. Therefore, the finding given by the Assessing Officer for the assessment year 2003-04, that the lease was along with plant and machinery is not supported by any document and there is nothing on record to show that the lease in respect of Kottivakkam property was along with plant and machinery. Therefore, it is the submission of the learned counsel for the assessee that in the absence of any such material, the matter requires to be remitted back to the Assessing Officer to examine this aspect.

20. In the case of CIT v. Chennai Properties and Investments Ltd., reported in [2008] 303 ITR 33 (Mad), the question of law formulated was whether the Tribunal was right in holding that the amenity charges received in respect of let out property should be treated as “income from other sources”. The Division Bench of this Court while dismissing the appeal took note of the decision in the case of Tarapore and Co. v. CIT reported in [2003] 259 ITR 389 (Mad) wherein it was held that the actual rent received by the assessee would constitute the basis for determining the annual value and it was that value which would have to form the basis for determining income from “house property” and for allowing the deduction from income from “house property” to the extent permitted under the other provisions of the Income-tax Act. In making such computation, there was no provision to add other amounts received by the owner of the building and held that the Tribunal was right in holding that the receipts from service charges were liable to be assessed as income from other sources and not “income from house property”.

21. In the case on hand, the Assessing Authority, Commissioner (Appeals) as well as the Tribunal have recorded a factual finding that the assessee closed down the manufacturing business with no evidence of revival and the income from the land and building has to be treated as “income from house property”.

22. In respect of the “Kottivakkam Property” for the assessment year 2003-04, the Assessing Officer recorded a finding that the assessee company has leased out the factory premises and equipments in the “Kottivakkam Property” to Mr. Ranjith Prathap and his associates and is deriving lease rental therefrom. The copy of the rental lease agreement dated 16.08.2003, has been produced before us, from which it is seen that the property which has been leased, is vacant land measuring about 25503 sq. ft. No other document has been produced to show that the lease was in respect of the factory building, machinery and equipment. Therefore, to this extent, we hold that the Assessing Authority has to examine to ascertain as to whether the lease was together with building, machinery and equipment. In respect of the other findings of the Tribunal, the assessee has not made out a case for interference.

23. Coming to the next issue regarding the Anna Salai property, the undisputed facts are that the assessee was the owner of the land and entered into agreements dated 09.10.1981 and 21.06.2000 with M/s. Vira Properties (Madras) Private Ltd., for development and construction. As per the agreement dated 09.10.1981, the assessee was paid a ground rent of Rs. 16.25 lakhs per annum, 91200 sq. ft., of office space to be made available by the lessor, which was sublet by the assessee resulting in rental income. The assessee claimed that it is its business activity and therefore, the nature of receipt is different from what is contemplated under Section 22 of the I.T Act. Further, the assessee claimed that they are not the owners of the building and it belongs to the developer and the assessee is only a lessee of the building and sublease the property taken on lease at higher rent, as its business activity. It is to be noted that the lease entered into by the assessee with the M/s. Vira Properties is for 33 years with option for five times consecutive renewals of the same for similar period with the right to sub-let and sublease.

24. Section 27(iiib) of I.T Act defines ‘Owner of house property’, for the purposes of Sections 22 to 26 of the I.T Act, as a person, who acquires any rights excluding rights by way of lease from month to month or for a period not exceeding one year in respect of any building or part thereof, by virtue of any transaction as referred in clause (f) of Section 269UA of the I.T Act [which defines transfer in the relation to any immovable property to mean transfer of such property by way of lease for a term of not less than 12 years], shall be deemed to be the owner of that building or part thereof. The rental lease agreement dated 06.05.2002, has been produced which is a sublease agreement between the assessee and M/s. J&B Software India Pvt., Ltd., from which it is seen that the lease deed dated 09.10.1981, entered into between the assessee and M/s. Vira Properties in respect of the Anna Salai property is for a period of 33 years with option of five times consecutive renewals of the same for the similar period.

25. The Finance Act 1987, which came into effect from 01.04.1988, enlarged the definition of ‘owner’ so as to include persons, who acquire rights in or with respect of any building or part thereof by virtue of transaction, falling under Section 269UA (f) of the I.T Act, by doing anything, which has effect of transferring to or enabling their enjoyment of such property by him. The exclusion being month to month lease or lease for less than one year. In the assessee's case the lease is for 33 years with renewals for five consecutive times for the same period and the assessee would squarely fall within the definition of ‘deemed to be the owner of house property’ as defined under Section 27(iiib) of the I.T Act.

26. The Hon'ble Supreme Court in the case of Commissioner Of Income Tax v. P.V.S Beedies Pvt. Ltd. reported in [1999] 237 ITR 13 (SC) among other things held that where all the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of business altogether or to come back or to restart the same and if the business never started or has started but ceased with no intention to be resumed, the assets also will cease to be business assets and the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets.

27. In case of Sultan Brothers P. Ltd. v. CIT reported in [1964] 51 ITR 353 (SC), the Hon'ble Supreme Court held that before invoking Section 22 of the I.T Act, for the purpose of assessing the rental income as “income from the house property”, the Revenue authorities must go into the question whether there was any exploitation of the property by their owner by giving it away for rent, before assessing such rental income as ‘income from house property’.

28. In the case of East India Housing and Land Development Trust Ltd. v. CIT reported in [1961] 42 ITR 49 (SC), when the rental income falls within the specific head of “income from house property”, the mere fact of the assessee having business in letting out the property as stated in its memorandum, by itself, will not conclusively point out that the income is nothing but business income.

29. As regards the question on the assessment under proper head of income useful reference could be made to the recent decision of the Division Bench of this Court in Commissioner Of Income-Tax v. Ideal Garden Complex P. Ltd., (supra). The assessee in the said case, a company incorporated with an object of carrying on business in real estate, developing landed properties etc. The assessee claimed the income derived from letting out the properties was “business income” and not to be taxed as “income from house property”. While passing the assessment order under section 143(1)(a) of the I.T Act, originally the Assessing Officer accepted the claim of the assessee, however proceedings under Section 147 of the I.T Act was invoked on the basis of decision of this Court in the case of Commissioner of Income-tax v. Indian Metal and Metallurgical Corporation reported in [1995] 215 ITR 424. The assessees raised their objections, which were rejected by the Assessing Authority holding that the transaction being one of exploitation of the property as an owner and not by way of exploitation of business asset, the rental receipts have to be assessed under the head “income from house property”. The appeal was allowed by CIT (A), and the Revenue preferred appeal before the ITAT. The Tribunal rejected the Revenue's appeal and the Revenue filed the Tax Case before this Court. The Division Bench after referring to the decisions on the point rejected the contentions raised by the assessee and held that whether a particular letting was business had to be decided in the circumstances of each case and each case has to be looked at from a businessman's point of view and before invoking Section 22 of the I.T Act, for the purpose of assessing the rental income as an “income from house property”, the Revenue authorities must go into the question whether there was any exploitation of the property by its owner by giving it away for rent. It was further held that the transactions being in the nature of exploitation of the property by the assessee and not by way of exploitation of business asset, the contention of the assessee could not be accepted. Further, mere fact of the assessee having business in letting out the property as stated in the memorandum by itself will not conclusively point out that the income is nothing, but ‘business income’.

30. Thus, by applying the decision of this Court in the case of CIT v. Ideal Garden Complex (supra), to the facts as found by the Assessing Officer that the assessee company has stopped its business activities long back and is not carrying out any other business activity and the assessee has parted with the commercial assets and confined solely to receive some income by virtue of ownership thereof by lease or otherwise and the act of leasing was the out come of the assessee's decision to get out of the business, we accept the case of the Revenue that the income receipt from letting out of the property was rightly assessed by the Assessing Officer as “income from house property”. We make it clear that in sofar as the ‘Kottivakkam Property’, it was submitted that the written down value of the machinery was only Rs. 6,777/-, however, we have remitted the same to the Assessing Authority to verify the aspect whether the lease was together with machinery and equipments.

31. In the result, the assessment of the income in respect of the Anna Salai property as ‘income from house property’ is affirmed. Insofar as the income from Kottivakkam property for the assessment year 2003-04, the matter is remanded to the Assessing Authority to consider the entire materials for the purpose of ascertaining as to whether the lease of the Kottivakkam property, was together with plant and machinery. Accordingly, the appeals in T.C (A). No. 231 of 2007 and T.C (A). Nos. 91, 99 & 212 of 2012 are partly allowed, except that what has been rejected.

32. T.C (A). No. 230 of 2007:-

T.C (A) No. 230 of 2007 relates to the assessment year 2002-03. This appeal is dealt with separately, as it is a case of reopening of assessment, after the return was processed under Section 143(1) I.T Act and intimation issued to the assessee. The Assessing Authority observed that perusal of records showed that the assessee company mainly derived income from lease rentals of properties, maintenance charges, interest, income on interest receipts and deposits, A.C, service charges and miscellaneous income. For the assessment year 2002-03, the assessee company admitted total receipts of Rs. 1,71,60,691/- from the above sources as “business income” and claimed expenses under various heads like salary, wages, bonus etc., to the tune of Rs. 1,48,49,883/-. The Assessing Authority opined that the source of income are of the nature of “house property income” and “income from other sources” and in the absence of any income from business, the expenses claimed under various heads relating to business, are not allowable expenditure under the “income from house property” and “other sources” and therefore, proceedings were initiated under Section 147 of the I.T Act and notice under Section 148 of the I.T Act, was served on the assessee. The Assessing Officer has recorded in the order of assessment that in response to the notice issued to the assessee, authorized officers appeared and expressed their no objection for treating the income under the head “house property”. Nevertheless the assessee contested this finding by preferring appeal and then carried the matter to the Tribunal and now before this Court.

33. While deciding T.C (A). No. 231 of 2007, and T.C (A). Nos. 91, 99 & 212 of 2012, we have held that the finding of the Tribunal that the income from Anna Salai property is “income from house property” is correct. In sofar as the Kottivakkam property for the assessment year 2003-04, the matter has been remanded for the limited extent to ascertain as to whether the lease in respect of Kottivakkam property was together with plant and machinery. Therefore, there is no necessity to dwell further on this aspect and the finding rendered in T.C (A). No. 231 of 2007, T.C (A). Nos. 91, 99 & 212 of 2012 answers the issue on this aspect and T.C (A). No. 230 of 2007, is also partly allowed insofar as the matter pertaining to the Kottivakkam Property. Having held so, we now proceed to consider the contention of the assessee that the reopening of assessment under Section 147 of the I.T Act, is without jurisdiction and illegal.

34. Mr. C.V Rajan, learned counsel appearing for the appellant, while conceding to the fact that the notice issued under Section 148 of the I.T Act, was within the statutory period of limitation would nevertheless contend that the reassessment by the Assessing Officer under Section 147 read with Explanation 2(b) of the I.T Act is without jurisdiction, as there is no new material found by the Assessing Officer and the reassessment is done due to mere change of opinion. It is further contended that the reassessment is due to the reappraisal of the same material and the assessee had disclosed all the materials in the file at the time filing the return. The Assessing Officer specifically did not refer to any tangible material warranting invocation of power under Section 147 of the I.T Act. The learned counsel placed reliance on the decision of the Division Bench of the Delhi High Court in the case of The Commissioner Of Income Tax-V v. Orient Craft Ltd…., reported in [2013] 354 ITR 536 (Delhi), and submitted that the Delhi High Court dismissed the appeal filed by the Revenue in a case where the Assessing Officer reached the belief that there was escapement of income on going through the return filed by the assessee after he accepted the return under Section 143(1) of the I.T Act without scrutiny, amounts to a review of the earlier proceedings and abuse of power, which has been deprecated by the Hon'ble Supreme Court in Commissioner Of Income Tax, Delhi v. Kelvinator Of India Limited, reported in [2010] 320 ITR 561 (SC).

35. We have heard the learned standing counsel appearing for the Revenue on the above submissions.

36. In terms of the Section 147 of the I.T Act, if the Assessing Officer has reason to believe (substituted with effect from 01.04.1989) that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of the Section 148 to 153 of the I.T Act, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under Section 147 of the I.T Act. The proviso stipulates a period of limitation of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to make a return or in response to a notice issued under Section 142(1) or Section 148 of the I.T Act, or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Explanation 1 states that production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the proviso. The word “reason to believe” suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Assessing Officer may act on direct or circumstantial evidence, but not on mere suspicion.

37. The Hon'ble Supreme Court in the case of Indian Ideal Corporation v. ITO reported in [1986] 159 ITR 956 (SC), held that reason to believe is not the same thing as reason to suspect. Therefore, the Assessing Officer has to act based on information secured by him that there is a case for reopening of assessment under Section 147 of the I.T Act.

38. It is equally a well settled proposition that change of opinion does not give jurisdiction to reassess. As laid down by the Hon'ble Supreme Court in the case of ITO v. Lakhmani Mewal Das reported in [1976] 103 ITR 437 (SC) the material on record should be such as to lead to the inference that income has escaped assessment and there should be a rational connection, direct nexus or live link between the material and the belief.

39. The learned counsel appearing for the assessee rests his case on the decision of the Delhi High Court in the case of The Commissioner Of Income Tax-V v. Orient Craft Ltd…., (supra) and submitted that the Assessing Officer has accepted the return under Section 143(1) of the I.T Act and the action initiated under Section 147 of the I.T Act, is nothing, but a review of the earlier proceedings, which procedure was strongly deprecated by the Hon'ble Supreme Court in Commissioner Of Income Tax, Delhi v. Kelvinator Of India Limited, (supra), and the reason recorded by the Assessing Officer does not disclose any tangible material, which came to the possession of the Assessing Officer subsequent to the issue of intimation under Section 143(1) of the I.T Act, consequently, the exercise of power conferred under Section 147 of the I.T Act, is arbitrary.

40. In order to appreciate and consider the rival submissions, it is necessary to take note of Sections 143 & 147 of the I.T Act relevant to this case. The provisions read as follows:-

[Assessment.

143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142,-

(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and

(ii) if any refund is due on the basis of such return, it shall be granted to the assessee and an intimation to this effect shall be sent to the assessee:

Provided that except as otherwise provided in this sub-section, the acknowledgment of the return shall be deemed to be intimation under this sub-section where either no sum is payable by the assessee or no refund is due to him:

Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made.

Provided also that where the return made is in respect of the income first assessable in the assessment year commencing on the 1st day of April, 1999, such intimation may be sent at any time up to the 31 day of March, 2002.

(1A) and (1B) Omitted by FA 1999, wef 1-6-1999.

(2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall,—

(i) where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified there-in to produce, or cause to be produced, any evidence or particulars specified therein or on which the assessee may rely, in support of such claim;

(ii) notwithstanding anything contained in clause (i), if he considers it necessary or expedient to ensure that the assessee has not under stated the income or has not computed excessive loss or has not under paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return:

Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.

(3) On the day specified in the notice,—

(i) issued under clause (i) of sub-section (2), or as soon afterwards as may be, after hearing such evidence and after taking into account such particulars as the assessee may produce, the Assessing Officer shall, by an order in writing, allow or reject the claim or claims specified in such notice and make an assessment determining the total income or loss accordingly, and determine the sum payable by the assessee on the basis of such assessment;

(ii) issued under clause (ii) of sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment.

Provided that in the case of a—

(a) scientific research association referred to in clause (21) of section 10;

(b) news agency referred to in clause (22B) of section 10;

(c) association or institution referred to in clause (23A) of section 10;

(d) institution referred to in clause (23B) of section 10;

(e) fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) of clause (23C) of section 10, which is required to furnish the return of income under sub-section (4C) of section 139, no order making an assessment of the total income or loss of such scientific research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, shall be made by the Assessing Officer, without giving effect to the provisions of section 10, unless—

(i) the Assessing Officer has intimated the Central Government or the prescribed authority the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B) or sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, as the case may be, by such scientific research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, where in his view such contravention has taken place; and

(ii) the approval granted to such scientific research association or other association or institution or university or other educational institution or hospital or other medical institution has been withdrawn or notification issued in respect of such news agency or fund or trust or institution has been rescinded.

(4) Where a regular assessment under sub-section (3) of this section or section 144 is made,-

(a) any tax or interest paid by the assessee under sub-section (1) shall be deemed to have been paid towards such regular assessment;

(b) if no refund is due on regular assessment or the amount refunded under sub-section (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly.

(5) Omitted by FA 1999, wef 1-6-1999.

Income escaping assessment.-

147. If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):

Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.

Explanation 1.-Production before the Assessing officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.

Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-

(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;

(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

(c) where an assessment has been made, but-

(i) income chargeable to tax has been under assessed; or

(ii) such income has been assessed at too low a rate; or

(iii) such income has been made the subject of excessive relief under this Act; or

(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.

41. As per the scheme introduced in Section 143(1) of the I.T Act, a provision has been made that where a return is filed under Section 139 or in response to a notice under Section 142(1) of the I.T Act and any tax or refund was found due on the basis of such return after adjustment of tax deducted at source, any advance tax or any amount paid otherwise by way of tax or interest, an intimation is to be sent, without prejudice to the provisions of the Section 143(2) of the I.T Act, to the assessee specifying the sum so payable and such intimation is deemed to be a notice of demand issued under Section 156 of the I.T Act.

42. section 143(1)(a) of the I.T Act allowed the Department to make certain adjustments in the income or loss declared in the return, namely,:

(a) any arithmetical errors in the return, accounts and documents accompanying it were to be rectified;

(b) any loss carried forward, deduction, allowance or relief which on the basis of the information available in such return, accounts or documents, was prima facie admissible, but which was not claimed in the return was to be allowed;

(c) any loss carried forward, relief claimed in the return which on the basis of the information as available in such return accounts or documents was prima facie inadmissible was to be disallowed.

43. Therefore, under section 143(1)(a) of the I.T Act, the permissible adjustments are, (a) only apparent arithmetical errors in the return, accounts or documents accompanying the return, (b) loss carried forward, deduction, allowance or relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return and similarly (c) those claims which were on the basis of the information available in the return, prima facie inadmissible, were to be rectified/allowed/disallowed.

44. The corrections which were allowed, are errors apparent on the basis of the documents accompanying the return. It is clear from the statutory provisions that the Assessing Officer has no authority to make adjustments or adjudicate upon any debatable issues. In other words, the Assessing Officer has no power to go behind the return, accounts or documents, either in allowing or in disallowing deductions, allowance or relief.

45. In terms of Section 143(1) of the I.T Act, return made under Section 139 of the I.T Act is “processed” in accordance with clause (a) of Section 143(1) of the I.T Act, total income or loss “computed” after adjustments provided for under sub clause (i) & (ii) of clause (a) in Section 143(1) of the I.T Act and in terms of clause (b) tax and interest, if any, is “computed” on the basis of total income computed under clause (a). Thereafter, as per clause (c) of Section 143(1) of the I.T Act, the sum payable is assessed or amount refunded is determined. This is “intimated” to assessee as per clause (d), if there is refund permitted under clause (c), then it should be granted as per clause (e) of Section 143(1) of the I.T Act.

46. In terms of sub section (1A) of Section 143 of the I.T Act, introduced under the Amendment Act, the Board has evolved a scheme, Centralised Processing of Returns Scheme 2011, for centralised processing of returns with a view to expeditiously determine the tax payable/refund due to assessee as required under the said sub section. The scope and effect of the amendment has been explained by the Board in circular No. 1, dated 06.04.2011, [(2011) 333 ITR (St.) 7.], stating that the concept of centralised processing of returns is introduced so that all the returns are expeditiously processed and tax payable or refund due to the assessee are determined in a definite time. The processing centre has been set up for returns being processed in batches.

47. In terms of sub section (1D) inserted in Section 143 by Finance Act 2012, w.e.f, 01.07.2012, notwithstanding anything in sub section (1) of Section 143 of the I.T Act, processing of return shall not be necessary, where a notice is issued under Section 143(2) of the I.T Act. It is only under Section 143(2) of the I.T Act, the role of the Assessing Officer comes in. The intimation given under section 143(1)(a) of the I.T Act is without prejudice to the provisions of section 143(2) of the I.T Act and though the intimation is deemed to be a demand, it does not foreclose the right of the Assessing Officer to proceed under Section 143(2) of the I.T Act. It is to be noted that the word “Assessing Officer” is conspicuously absent in Section 143(1) of the I.T Act. The resultant position is made clear, when we read Section 143(3) of the I.T Act. Thus the process of assessment in the real sense of the term commences only when notice is issued under Section 143(2) of the I.T Act. Here too notice has to be served on the Assessee within the period of one year from the end of the month, in which the return is furnished. Thus, if no notice is served within the stipulated period of twelve months, the assessment proceedings under section 143 of the I.T Act come to an end. Thus, though technically there is no assessment framed in such a case, yet the proceedings as far as section 143 of the I.T Act is concerned, the same stand terminated. Though the procedure of centralised processing under sub section 1A of Section 143(1) of the I.T Act finds place under the heading “Assessment” under section 143 of the I.T Act, there appears to be a clear distinction and dichotomy in procedure. Between April 1, 1998, and May 31, 1999, sending of an intimation under section 143(1)(a) of the I.T Act, was mandatory.

48. While making an assessment, the Assessing Officer is free to make any addition after grant of opportunity to the assessee by making adjustments under the first proviso to section 143(1)(a) of the I.T Act, no addition which is impermissible by the information given in the return could be made by the Assessing Officer. This is so because no opportunity is afforded to the assessee under section 143(1)(a) of the I.T Act, and the Assessing Officer merely proceeds to accept the return and making permissible adjustments only. Thus an assessment under Section 143(3) of the I.T Act, is based on a different methodology which has to be borne in mind while considering the scope, purpose, ambit and import of Section 147 of the I.T Act.

49. As held by the Hon'ble Supreme Court, the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff and it can hardly be said that any assessment is done therein by them. Therefore, as per the scheme under section 143(1)(a) of the I.T Act, the same cannot be treated as an order of assessment in the true sense of its term it being a summary procedure. The intimation under section 143(1)(a) of the I.T Act, is deemed to be a notice of demand under section 156 of the I.T Act, for the purpose of facilitating the machinery provisions relating to recovery of tax. Thus, the purpose of such intimation is only for recovery of the tax and no other expansive meaning can be given to such deeming provision. Therefore, the Hon'ble Supreme Court held that there being no assessment under section 143(1)(a) of the I.T Act, the question of change of opinion, as contended, does not arise.

50. The Division Bench of this Court in the cases of Wci (Madras) (P) Ltd. v. Assistant Commissioner Of Income-Tax reported in [2010] 324 ITR 181 (Mad), and Commissioner of Income-tax v. Ravindran Prabhakar reported in [2010] 326 ITR 363, held that there was only processing under Section 143(1) of the I.T Act, such intimation cannot be treated as assessment order and reassessment was held to be valid in such cases and hence the argument of change of opinion would not apply. As held by the Hon'ble Supreme Court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd.[2007] 291 ITR 500 (SC), the legislative intent is very clear from the use of the word “intimation” as substituted for “assessment” that two different concepts emerged.

51. Section 147 of the I.T Act, authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. As held by the Hon'ble Supreme Court in the case of Commissioner Of Income Tax, Delhi v. Kelvinator Of India Limited, reported in [2010] 320 ITR 561 (SC), the word “reason” in the phrase “reason to believe” would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers.

52. The requisite conditions for initiation of action under section 147(a) of the I.T Act (as the provision stood prior to the substitution by Direct Tax Laws (Amendment Act 1987)) are:-

(a) the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and

(b) 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

53. The scope and effect of section 147 of the I.T Act, as substituted with effect from April 1, 1989, as also sections 148 to 152 of the I.T Act are substantially different from the provisions as they stood prior to such substitution. Under the substituted section 147 of the I.T Act, existence of only the first condition namely, that the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment would be sufficient. However, both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147 of the I.T Act.

54. Thus, if the ingredients of Section 147 of the I.T Act, are satisfied as indicated above, the Assessing Officer is empowered to initiate proceedings, even though no proceedings were taken under Section 143(3) of the I.T Act, and the Assessing Officer is empowered to initiate reassessment proceedings even when intimation under Section 143(1) of the I.T Act, has been issued.

55. Thus going by Section 147, Explanation 2(c), of the I.T Act in all cases of assessment having become time barred under the regular assessment proceedings under Section 143(2) or (3) of the I.T Act, as the case may be, proceedings under Section 147 of the I.T Act, are held to be income escaping assessment. In the decision Panchugurumurthy v. Commissioner of Income-tax reported in [1995] 211 ITR 51, this Court held that “income can escape assessment as a result of the lack of vigilance of the Income Tax Officer (now the Assessing Officer) or due to inadvertence or negligence or the perfunctory performance of his duties without due care and caution”. In any case, proceedings under Section 147 of the I.T Act, are not in the nature of a review. In the case of Kelvinator of India, reported in [2010] 320 ITR 561, the Apex Court pointed out as below:-

Therefore, post-1 April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of “mere change of opinion”, which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1 April, 1989, the Assessing Officer has power to reopen, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but also inserted the word “opinion” in section 147 of the Act. However, on receipt of representations from the companies against omission of the words “reason to believe”, Parliament reintroduced the said expression and deleted the word “opinion” on the ground that it would vest arbitrary powers in the Assessing Officer.

Thus, in a case where there is no regular assessment and consequently no inquiry is held, proceedings in this case are initiated rightly so by the Assessing Officer under Section 147(a) of the I.T Act.

56. The only other requirement being whether the requirements of Section 147(a) of the I.T Act, are satisfied on facts. In the decision reported in [1992] 198 ITR 297, Commissioner Of Income Tax v. Sun Engineering Works (P) Ltd., the Apex Court pointed out that when the proceedings under Section 147 of the I.T Act, are initiated, the proceedings are open only qua the item of underassessment. It makes no difference whether the assessment proceedings have become final on account of framing of the assesment under Section 143(3) of the I.T Act, or on account of non-issue of proceedings under Section 143(2) of the I.T Act, within the stipulated period. Thus, be it a case of income escaping assessment on account of Section 143(3) of the I.T Act, proceedings coming to an end even without a proceeding or on account of the assessment proceedings made under Section 143 or 143(3) of the I.T Act, the fact remains, the Revenue must have materials on hand, which must provide the reasonable nexus to the formation of opinion that income has escaped assessment for the purpose of assumption of jurisdiction under Section 147 of the I.T Act. This issue is no longer res integra in the background of the decision of the Supreme Court in Commissioner Of Income Tax, Delhi v. Kelvinator Of India Limited, (supra), which we have earlier referred to.

57. Learned counsel appearing for the assessee placed heavy reliance on the decision of the Delhi High Court in the case of The Commissioner Of Income Tax-V v. Orient Craft Ltd…., reported in [2013] 354 ITR 536 (Delhi). The case before the Delhi High Court considered the decision in the case of The Commissioner Of Income Tax-V v. Orient Craft Ltd…., reported in [2013] 354 ITR 536 (Delhi), pertains to an assessee company, who filed a return for the assessment year 2002-03, which was processed under Section 143(1) of the I.T Act, the income returned was accepted. After about two years, a notice under Section 148 of the I.T Act, was issued, reopening the assessment on the ground that income chargeable to tax had escaped assessment. While recording the reason for reopening the assessment, the Assessing Officer stated that on going through the return of the income, it revealed that while deducting 90% of other income from the profit of business, premium on sale of quota included in the sales, was not considered and in view of these facts, there is reason to believe that the income chargeable to tax has escaped assessment. While considering whether such reason assigned by the Assessing Officer would satisfy the requirements for reopening the assessment under Section 147 of the I.T Act, the Division Bench of the Delhi High Court after referring to the decisions in the cases of Commissioner Of Income Tax, Delhi v. Kelvinator Of India Limited, (supra); A.N Lakshman Shenoy v. ITO[1958] 34 ITR 275 (SC); ITO v. Lakhmani Mewal Das[1976] 103 ITR 437 (SC); Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd.[2007] 291 ITR 500 (SC); held that the reason disclosed by the Assessing Officer stating “on going through the return of income” does not satisfy the expression “reason to believe”. The Revenue contended that so long as the ingredients of Section 147 of the I.T Act, are fulfilled. The Assessing Officer is free to initiate proceedings under section 147 of the I.T Act and further to take steps under Section 143(3) of the I.T Act.

58. Thus, the Delhi High Court pointed out the argument of the Revenue that an intimation cannot be equated to an assessment, relying, upon certain observations of the Supreme Court in Rajesh Jhaveri (supra) would also appear to be self-defeating, because if an “intimation” is not an “assessment” then it can never be subjected to section 147 proceedings. It further pointed out it is nobody's case that an intimation can be subjected to section 147 proceedings. It pointed out that the words reason to believe cannot have two different standards.

59. Thus, on facts the Delhi High Court held that this was an arbitrary exercise of power conferred under Section 147 of the I.T Act, there being no whisper of any tangible material which came to the possession of the Income Tax Officer subsequent to the issue of intimation.

60. As far as the decision of the Delhi High Court is concerned, we do agree with the decision that irrespective of whether the assessee was subjected to a regular assessment or not, 147 is available wherever there is an escapement of income and the Assessing Officer had materials enough to form a reasonable belief that income has escaped assessment. But a mere acceptance of the return followed by an intimation shows there was no enquiry as such as to the correctness of the return in the manner known to law. That is why in defining what is also an escaped assessment, Explanation 2, includes cases where return has been furnished but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return.

61. As far as the present case is concerned, which is factually distinguish from the Delhi High Court decision in the case of The Commissioner Of Income Tax-V v. Orient Craft Ltd…., reported in [2013] 354 ITR 536 (Delhi), the Tribunal pointed out that based on the materials (which may include the accounts itself, the Assessing Officer evidently has not scrutinised earlier), rightly the Assessing Officer invoked the jurisdiction under Section 147 of the I.T Act. Thus read in the context of the decision of the Apex Court in the case of Commissioner Of Income Tax, Delhi v. Kelvinator Of India Limited, reported in [2010] 320 ITR 561 (SC), which has been referred to in the Delhi High Court decision, we hold that the proceedings under Section 147 are rightly initiated.

62. For all the above reasons, we hold that the proceedings initiated under Section 147 of the I.T Act is valid. Accordingly, the appeal on this ground fails and the question is answered in favour of the Revenue and T.C (A). No. 230 of 2007, stands rejected.

63. In the result,

(i) the assessment of the income in respect of the Anna Salai property as “income from house property” is affirmed.

(ii) Insofar as the Income from Kottivakkam property for the assessment year 2003-04, the matter is remanded to the Assessing Authority to consider the entire materials for the purpose of ascertaining as to whether the lease of the Kottivakkam property, was together with plant, machinery and equipment.

(iii) Accordingly, the appeals in T.C (A). No. 231 of 2007 and T.C (A). Nos. 91, 99 & 212 of 2012 are partly allowed except that what has been rejected.

(iv) The substantial questions of law framed in T.C (A). N. 230 of 2007 is answered in favour of the Revenue and the appeal is dismissed. No costs.