2015 (8) TMI 831 - AT - Income Tax

Reopening of assessment - Held that - Admittedly, there was no scrutiny assessment. Hence, based on the information contained notes to account, the audit party pointed out to the Assessing Officer that impugned amount cannot be allowed as deduction as the amount was paid for infraction of law. The Assessing Officer after considering the information had come to a conclusion that the income got escaped assessment and therefore, initiated the reassessment proceedings. In our considered view this constitutes reason to believe that income got escaped assessment. Therefore, the reassessment proceeding was valid. - Decided against assessee. Disallowance of misuse charges - premises used for the purpose of business on the ground that the same is in the nature of penalty and does not relate to the year under appeal - Held that - It was mandatory to pay the misuse charges due as on the date of exercising the option of owning the property from leasehold to freehold. In our opinion, the claim was not on account of bad debts, but towards the charges paid for regularization usage of building. The mere nomenclature in the books of account does not determine the allowability or otherwise of the claim and, therefore, considering the fact that the amount was paid under the policy announced by the Government itself, it does not amount to penalty for infraction of the any provision of law. Following the ratio laid down in the case of CIT Vs. Ahmedabad Cotton Mfg. Co. Ltd. 1993 (10) TMI 1 - SUPREME Court we hold that the amount in question is not in the nature of penalty and, therefore, allowable as deduction. Decided in favour of assessee statistical purposes.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer in issuing notice u/s 148 without fresh material.
2. Disallowance of misuse charges as deduction in the assessment.

Analysis:

Issue 1: Jurisdiction of the Assessing Officer
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2004-05. The Assessing Officer had reopened the case under section 147 of the Income Tax Act by issuing a notice u/s 148. The main contention was the assumption of jurisdiction by the AO without fresh material or reason to believe that income had escaped assessment. The appellant argued that the reassessment notice was issued after four years without any failure to disclose material facts. The AR relied on various judgments to support this argument. The Tribunal observed that based on information in the notes to accounts, the Assessing Officer concluded that income had escaped assessment, justifying the reassessment proceedings. The Tribunal held that this constituted a valid reason to believe, making the reassessment proceedings justified.

Issue 2: Disallowance of Misuse Charges
Regarding the disallowance of misuse charges as a deduction, the appellant contended that the payment was made for the regularization of the usage of rented premises for commercial purposes as per a scheme announced by the DDA, not for any infraction of law. On the other hand, the DR argued that the amount paid was for an infraction of the law. The Tribunal examined the facts, including the history of the premises lease and the payments made. It noted that the amount paid was under a government policy for conversion from leasehold to freehold. The Tribunal referenced a Supreme Court case to determine whether the payment was akin to a penalty or a business expenditure. Following the Supreme Court's ruling, the Tribunal held that the amount was not a penalty and allowed it as a deduction. Therefore, the Tribunal allowed the appeal on this ground for statistical purposes.

In conclusion, the Tribunal upheld the validity of reassessment proceedings and allowed the deduction of misuse charges as claimed by the appellant. The appeal was allowed for statistical purposes.