2015 (7) TMI 845 - AT - Income Tax

Assessment under section 144A - assessee challenged the orders passed by the AO under section 144 of the Act on the ground that due to personal reasons of the Consultant of the assessee necessary details could not be furnished which resulted in exparte assessment by rejecting retuned loss which is not in accordance with law - Scope of revision u/s 263 - Held that - The direction given by the Commissioner has to be understood in the context/setting in which such direction is given; in the instant case the show cause notice was issued on specific items and upon calling for the details the Commissioner was satisfied that the AO has not made proper enquiries with regard to certain items which were specifically listed out in the order passed under section 263 of the Act and in this background the matter was set aside with a direction to the AO to make a fresh assessment and thus it has to be assumed that the direction was limited to the issues which were considered by the Revisional Authority. Such being the case the AO has no jurisdiction to touch upon a fresh issue which does not emanate from the notice issued by the Commissioner under section 263 of the Act, while making assessment under section 143(3) r.w.s. 263 of the Act. In the instant case the AO had not treated the entrance fees as revenue receipt despite the fact that the assessee, in the audit report annexed to the return of income, furnished the details with regard to the receipt of entrance fees from members of the club and the mode of recording the same in the books of account. Such being the case it could not have been considered in the proceedings under section 143(3) r.w.s. 263 of the Act. We, therefore, hold that the addition, towards entrance fees, made by the AO, in the proceedings under section 143(3) r.w.s. 263, is beyond the jurisdiction of the AO and therefore deserves to be deleted and we direct the AO accordingly. Though the learned CIT(A) has disposed of the appeals on merits, by following the decision of the Hon ble Bombay High Court in the case of Diners Business Services P. Ltd. 2003 (4) TMI 56 - BOMBAY High Court , we need not have to go into the nature of the entrance fees at this stage since the same cannot be subject matter of consideration in the proceedings under section 143(3) r.w.s. 263 of the Act. Addition of ₹ 1 lakh confirmed by the learned CIT(A) under section 14A r.w. Rule 8D in the order passed under section 144 - Held that - Having regard to the circumstances of the case we accept the plea of the assessee and delete the impugned addition. With regard to the appeal filed by the assessee against the order passed under section 144 of the Act for A.Y. 2006-07 the plea of the assessee was that the learned CIT(A) has no jurisdiction to add the annual subscription of ₹ 15,85,940/- since that was not the subject matter of consideration by the AO under section 144 of the Act. In this case also there is no specific mention about the addition made in the proceedings under section 144 of the Act. Therefore it cannot be inferred that the Commissioner has made the impugned addition afresh while disposing the appeal arising out of the order passed by the AO under section 144 of the Act. We, therefore, do not find any merit in the contention of the assessee. However, going by para 4.1 in the order passed by the CIT(A) it has to be assumed that the CIT(A) has considered this issue. We, therefore, set aside the order of the CIT(A) to that extent since it only arises out of the order passed under section 143(3) r.w.s. 263 of the Act.

Issues Involved:
1. Determination of the nature of entrance fees received by the assessee.
2. Legality of the assessment orders passed under section 144 and 143(3) r.w.s. 263.
3. Jurisdiction of the Assessing Officer (AO) and Revisional Authority under section 263.
4. Applicability of penalties under section 271(1)(c) and 271(1)(b).
5. Disallowance of expenses and depreciation.
6. Set-off of long-term capital loss against short-term capital gains.
7. Addition of annual subscription fees as revenue receipt.
8. Addition under section 14A r.w. Rule 8D.

Issue-wise Detailed Analysis:

1. Determination of the Nature of Entrance Fees Received by the Assessee:
The assessee contended that the entrance fees received from members should be treated as capital receipts and not liable to tax. The AO, in fresh assessments under section 143(3) r.w.s. 263, included these fees as business income. However, the Tribunal held that the AO exceeded his jurisdiction by considering this issue, as it was not part of the show cause notice issued by the Revisional Authority. Consequently, the addition towards entrance fees made by the AO was deleted.

2. Legality of the Assessment Orders Passed Under Section 144 and 143(3) r.w.s. 263:
The Tribunal noted that the original assessments under section 144 were set aside by the Revisional Authority under section 263. The fresh assessments made by the AO under section 143(3) r.w.s. 263 were challenged on the grounds that they included issues not mentioned in the show cause notice. The Tribunal agreed with the assessee, holding that the AO's jurisdiction was limited to the issues specified in the show cause notice.

3. Jurisdiction of the AO and Revisional Authority Under Section 263:
The Tribunal emphasized that the Revisional Authority's jurisdiction under section 263 is confined to the issues mentioned in the show cause notice. The AO, while making assessments under section 143(3) r.w.s. 263, cannot consider new issues not covered by the Revisional Authority. This principle was reinforced by the decision of the Hon'ble Gujarat High Court in CIT vs. D.N. Dosani.

4. Applicability of Penalties Under Section 271(1)(c) and 271(1)(b):
The CIT noted that no penalties under section 271(1)(c) were initiated despite the disallowance of expenses due to non-compliance by the assessee. The Tribunal did not specifically address the applicability of these penalties but focused on the jurisdictional issues and the validity of the assessments.

5. Disallowance of Expenses and Depreciation:
The CIT observed that the AO did not make any independent enquiry into the expenses and depreciation claimed by the assessee. The Tribunal, however, focused on the jurisdictional issue, holding that the AO's fresh assessments under section 143(3) r.w.s. 263 should be confined to the issues specified in the show cause notice.

6. Set-off of Long-term Capital Loss Against Short-term Capital Gains:
The CIT noted that the AO allowed the set-off of long-term capital loss against short-term capital gains without verification. The Tribunal did not specifically address this issue but emphasized that the AO's jurisdiction under section 143(3) r.w.s. 263 is limited to the issues specified by the Revisional Authority.

7. Addition of Annual Subscription Fees as Revenue Receipt:
For A.Y. 2006-07, the assessee contended that the AO, in the assessment under section 144, did not add any amount on account of annual subscription fees. The Tribunal held that the CIT(A) could not make any addition in the appeal arising out of the order passed under section 144, as it was not the subject matter of consideration by the AO.

8. Addition Under Section 14A r.w. Rule 8D:
The assessee contested the addition of Rs. 1 lakh under section 14A r.w. Rule 8D, sustained by the CIT(A). The Tribunal accepted the assessee's plea, noting that this issue was not part of the original assessment under section 144 or the order under section 263, and deleted the addition.

Conclusion:
The Tribunal allowed the appeals and cross objections filed by the assessee, holding that the AO exceeded his jurisdiction by considering issues not specified in the show cause notice under section 263. The appeals filed by the Revenue were dismissed as academic. The Tribunal emphasized the limited jurisdiction of the Revisional Authority and the AO under section 263, reinforcing the principle that new issues cannot be considered outside the scope of the show cause notice.

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