TMI Blog2016 (9) TMI 1255X X X X Extracts X X X X X X X X Extracts X X X X ..... and no tangible material was available before the AO, therefore we hold that the reassessment proceedings initiated by the AO are bad in law. Disallowing the service charges made to Shri Industrial Services by invoking the provision of section 40A(2)(b) - Held that:- Since the Director of the assessee company is also the proprietor of Shri Industrial Suppliers and he is the key person for both the concerns, therefore, diversion of income of the assessee company to the proprietary concern of the Director is clearly visible and therefore the same in our opinion comes within the purview of section 40A(2)(b) of the I.T. Act. We therefore hold that the AO was justified in disallowing 50% of such payment as excess payment to the relatives as per provisions of section 40A(2)(b). However, the CIT(A) in our opinion is not justified in enhancing the same to ₹ 23,27,592/- in the instant case only on the ground that Mr. Navlakha has incurred meager expenditure of ₹ 3,40,371 out of the total receipt of ₹ 27,02,000/-. There may be so many reasons for incurring of less expenditure by the Director. Thus disallowance of 50% of the expenses as done by the AO in the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and directed the AO to decide the same in line with the following observation : Since the Tribunal has not considered this aspect of the case, we are of the view that it would be appropriate and proper to set aside the decision of the Tribunal and to remand the proceedings back to the Assessing Officer for a fresh determination and assessment in accordance with the law. We order accordingly. Upon remand, it is clarified that assessing officer shall not consider himself to be bound by the decision of Tribunal dated 19th of March 2001 for assessment year 1994-95, 1995-96, 1996-97, in view of the concession in those terms which has been made during these proceedings by the assessee. In order to facilitate a fresh exercise being carried out in terms of the order passed by this court, the impugned order of the Tribunal dated 31st of August 2006 is set aside. However, it is clarified that all the rights and contentions of the revenue on all aspects of the case on merit are kept open. The order of remand, it is clarified shall also be with respect to disallowance that have been effected under section 40A(ii) of the Income Tax Act, 1961. In view of the order of remand, it is not nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the service of storage and warehousing as taxable service it has obtained certificate of registration from Central Excise Commissioner, Pune-1 on 9-9-2002, which means that the service tax cell of the custom and Central Excise Department recognizes the warehousing activity as services. (c) The assessee further submitted that the company is rendering services to its client on daily basis, excluding holidays from 9.30 a.m. to 5 O'clock, and no possession is given to the client as seen by the agreement and the warehouses are located in Industrial Zone as per zoning of the area by Govt. of Maharashtra. (d) It was submitted that the Pune Bench of the Tribunal in assessee's own case for AY 1994-95 to 1996-97 has decided the appeal in its favour and held that even the lease rental received by it is incidental to the warehousing business carried out by the assessee company. Since there is no change in the facts about the assessee as well as the method of warehousing business carried out, the same should be followed. (e) The assessee has also taken warehouses on lease from the other parties and given the same along with service facilities to his client. The warehous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate authorities which has not been done in the case of the assessee. (n) That the warehousing activity is incidental to leasing of warehouse carried out by the assessee company is an activity involving a property of the complexity and becomes a commercial asset and the assessee company is not simply renting out warehouse premises per se. Even the lease charges received are inextricably linked to the composite warehousing business activity and therefore the income there from would fall within the ambit of income from Business. (o) It was further submitted that the AO while completing the assessment for the A.Y. 2001-02 has not considered the following decisions : i. CIT Vs. National Storage Pvt. Ltd. reported in 66 ITR 596 ii. Karnani Properties Ltd. Vs. CIT reported in (1971) 82 ITR 547 (SC) iii. East India Housing Land Development Trust Ltd. Vs. CIT West Bengal iv. V.N. Rukari Sons Vs. ITO, Ward-3(7), Pune Various other decisions were also relied upon by the assessee. 8. However, the AO was not satisfied with the arguments advanced by the assessee. The para-wise comments of the AO to the various submissions made by the assessee are as under : a. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 31 % in terms of area let out and 35-45 % in terms of gross receipt. This by no stretch of imagination can be called as no change in facts. The order of the Hon'ble ITAT for 1994-95 to 1996-97 were not accepted in principle however, the appeal was not filled because of the tax effect being less than threshold limit for filling appeal. Since there was change in the facts , the Assessing Officer had correctly taxed the income derived from the leased property as Income from the House property. f. With respect to the claim of the assessee that it has incurred substantial expenses on providing various services and that the expenses claimed by the assessee company are genuine and supported by documentary evidences, it is stated that the Income tax Act 1961 provides computation mechanism for each head of income. Once it has been decided that a particular receipt is to be taxed under a particular head of income, the computation mechanism provided for that head of income is to be followed for arriving at the taxable income and only the expenses allowable under the heads of income are allowed. g. With respect to the claim of the assessee that the CIT-II Pune has passed u/s. 264 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustan Lever Limited is concerned, he observed that the assessee had leased out about 10,250 sq.ft. warehouse to be used as factory to the client called Lipton Tea for storing, and blending of Tea in the year 1985. Subsequently, the Hindustan Lever Limited took over the business of Lipton Tea and expressed its need of a larger space for new factory for manufacturing and blending of tea for its 100% Export Oriented Unit. The assessee then constructed a factory on an area of 68,000 sq.ft. as per the requirement of Hindustan Lever Limited for Export Oriented Unit The new factory was constructed at total cost of ₹ 4.99 Cr. out of which ₹ 1.44 Cr was financed by the Hindustan Liver Ltd as security deposit and balance was financed out of bank loans. The Hindustan Lever Limited is carrying out the manufacturing and blending of tea in this factory since March 2000 by employing of about 400 employees and installing huge plant machinery along with furniture and fixtures. 12. He analysed the lease agreement with Hindustan Lever Ltd. and noted that : 1. The lease was for a period of 10 years with effect from 01-112000 for the premises comprising of a factory admeasuring 68,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerned. Hence, the income from the lease of this property can be taxed only as Income from House Property. 14. The AO further noted that the assessee has warehouses at two places, namely, Phursungi and Dhankawadi. At Phursungi approximate area of the warehouses, as explained by the assessee is about 2,16,000 sq.ft. Out of this, about 70,000 sq.ft. is owned by the assessee company and the remaining of about 1,50,000 sq.ft. has been constructed by the assessee company on the land leased from the sister concerns, Directors and their relatives and about 30,000 sq.ft. area at Dhanakwadi, is leased by the assessee from M/s. Kamdhenu Chemicals, a sister concern. There are about 20 galas/Warehouse Units with independent entry/exit having separate shutters/doors which are let out or given on rent to the customers as per their requirements. The area of these Galas/Warehouse units varies from 650 sq.ft. to 5000 sq.ft. and the segment of let out during the year has varied from 6 months to 3 years. 15. The AO further observed : a. that the company is rendering services to its client on daily basis excluding holidays from 9.30 am to 5 O clock and that possession is not passed to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m is business income. 17. The AO further observed that the order of the Tribunal dated 12-03-2001 also cannot be applied in the A.Y. 2001-02 and subsequent years as facts of the case have changed. Till March, 2000 the Lipton tea was occupying approximately 30,000 sq.ft. out of which only 10,250 sq.ft. was for factory and 20,000 sq.ft. was for the warehousing. In such a situation the Hon ble Tribunal was justified in holding that lease rental from merely 10,250 sq.ft. of property was only a minor part of total 1,50,000 sq.ft. of warehouses and subservient to the dominant activity of the warehousing. 18. However, with the construction and lease of the new factory having area 66,000 sq.ft. in March 2000, has changed the facts drastically and the area of leased factory vis- -vis warehouse has gone up from 5% to about 31% in terms of area and about 30-45% in terms of gross receipts. Hence the letting out of the property cannot be regarded as subservient to the warehousing activity by any stretch of imagination. In fact, keeping in view the overall warehousing activity where occupancy of the warehouses varies from 60-80% only and the uncertainly attached to it, the leased rentals c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business income. 21. Without prejudice to the above the assessee further submitted that when the entire bank loan was utilized for the construction of the warehouses leased out the AO was not justified in allowing only 31% of the bank interest as allowable deduction from the computation of income from house property. Since the entire loan obtained from Federal Bank, Pune has been utilized exclusively for the purpose of construction of the warehouse which has been leased out to M/s. HUL the AO was not justified in allowing only 31% of the interest on such bank loan out of such rental income which has been treated by the AO as income from house property. The disallowance of depreciation by the AO was also challenged before the CIT(A). 22. However, the Ld.CIT(A) was not satisfied with the explanation given by the assessee. Rejecting the submissions made before him and distinguishing the various decisions cited before him he held that the AO is fully justified in treating the lease rental income as income from house property . He observed that the gross receipts of the leasing activity varies between 30 to 40% out of the total gross receipts of the assessee and consumed about 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the specific direction of the Hon ble Bombay High Court to the effect that where the dominant activity is in the nature of business activity the income of the appellant has to be assessed as business income and hence CIT(A) has erred in taxing the leasing activity separately. 2. On the facts and in the circumstances of the case and without prejudice to the above the CIT(A) has erred in holding that considering the total lease charges received leasing activity is dominant and not subservient to the warehousing activity. 3. On the facts and in the circumstances of the case and without prejudice to the above the CIT(A) has erred in allowing only 31% of total interest on bank loan while computing the income from house property overlooking the fact that the entire bank loan is utilized only for the purpose of construction of leased warehouses. 4. On the facts and in the circumstances in the case, the CIT(A) has erred in disallowing 31% of the total depreciation holding that the same is attributable to the leased warehouses. 25. The Ld. Counsel for the assessee strongly challenged the order of the CIT(A). He submitted that the assessee is a private limited company incorpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon ble Bombay High Court with a direction to decide the issues accordingly. The Tribunal also directed the AO to decide the issue of validity of reopening for A.Yrs. 2000-01, 2002-03, 2003-04 and 2004-05. 27. The Ld. Counsel for the assessee drew the attention of the Bench to the observation of the Hon ble High Court while setting aside the issue to the file of the AO and submitted that instead of examining the terms of the lease deed and decide as to whether the leasing profit is subservient to the warehousing profit or otherwise the AO has erroneously considered the area leased out of the total warehouse area. He drew the attention of the Bench to the Memorandum and Articles of Association of the company and the lease agreement executed with Hindustan Lever Ltd. Referring to the copy of the lease deed with Hindustan Lever Ltd. he submitted that the assessee has not merely leased out the 4 walls of the warehouse. It has provided essential and necessary services of supervisory, loading and unloading, handling, security, transporting etc. to all the clients including Hindustan Lever Ltd. on daily basis during working hours. The assessee has incurred expenditure on Electricity, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In appeal the CIT(A) allowed the appeal filed by the assessee holding the same to be business income . The Tribunal dismissed the appeal filed by the Revenue. The Revenue approached the Hon ble High Court. The Hon ble High Court upheld the order of the CIT(A) vide order dated 05-09-2002 holding that the income derived by letting out of the properties would not be income from business but could be assessed only as income from house property . The assessee filed appeal before the Hon ble Supreme Court and the Hon ble Supreme Court allowed the appeal filed by the assessee holding that letting out of the properties is infact is the business of the assessee and therefore the assessee has rightly disclosed the income under the head income from business and it cannot be treated as income from house property . He submitted that since the main objects of the assessee company is to carry on the business of warehousing, cold storage and refrigeration in all its branches and activities and to provide facilities and godowns for proper and safe storage of valuable agricultural and horticultural products and to provide goods and services of all kinds in connection there with and to provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmercial asset by carrying on a commercial activity, the income that is received would have to be treated as income from business. What has to be deduced is to whether the letting out of the property constitutes a dominant aspect of the transaction or whether it was subservient to the main business of the assessee of carrying out warehousing activities. The first submission which has been urged on behalf of the assessee, to the effect that the decision of the Tribunal rendered on March 19, 2001 for the assessment years 1994-95, 1995-96 and 1996-97 ought to have been considered, but has not been considered by the Tribunal, cannot be brushed aside as without substance. Be that as it may, during the course of the hearing of these proceedings we have considered the earlier judgment of the Tribunal. Ex facie, a perusal of the earlier judgment would show that that the Tribunal has not made a reference to the detailed terms and conditions of the warehousing agreements entered into by the assessee or to the lease agreement by which the factory came to be leased out. Consequently, upon considering the position in this regard counsel appearing on behalf of the assessee has fairly stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Tribunal dated March 19,2001 for the assessment years 1994-95, 1995-96 and 1996-97, in view of the concession in those terms which has been made during these proceedings by the assessee. In order to facilitate a fresh exercise being carried out in terms of the order passed by this court, the impugned order of the Tribunal dated August 31, 2006 is set aside. How-ever, it is clarified that all the rights and contentions of the assessee and the Revenue on all aspects of the case on the merits are kept open. The order of remand, it is clarified shall also be with respect to the disallowance that has been effected under section 40A(ii) of the Income-tax Act, 1961. In view of the order of remand, it is not necessary for this court to express any view one way or the other on the questions of law involved. The appeal is accordingly disposed of. No costs. 33. We find the AO after considering the submission of the assessee, which have already been narrated in the preceding paragraphs, treated the lease rental received by the assessee from the lease of 68,000 sq.ft of the factory to Hindustan Lever Ltd. as income from house property and treated the warehousing activities carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and to build and erect the necessary structures or buildings to house the same. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18. To let on lease or on hire the whole or any part of the real and personal property of the Company on such terms as the Company shall determine, to enter into such arrangements as the Company may think proper with any public authority for buildings, chawls and tenements as the property of the Company or on the property of others or to let the same either to the employees of the Company or to others and upon such terms as the Company may think proper. 37. From the statement showing year-wise details of total receipts as per profit and loss account, warehousing charges and service charges from Hindustan Lever Ltd. etc. a copy of which is placed at page 212 of the paper book, we find the details are as under : F.Y. Total Rcpts as Per P L Warehousing charges Lease Rent From HLL % of Lease Rent to Total Receipts Warehousing charges received from HLL % of warehsg ch. Received from HLL to the total warehsg ch. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the warehousing activity. Further, since plots have been acquired on lease as well as plots owned by the assessee are used for constructing the warehouses the same clearly proves the commercial use of the warehouse. Further, the assessee is liable to pay service tax on the service of storage and warehousing since service of storage and warehousing has been included as taxable service. 40. We find an identical issue had come up before the Hon ble Supreme Court in the case of M/s. Chennai Properties (Supra). In that case, the assessee company was incorporated under the Indian Companies Act. Its main object was to acquire the properties in the City of Madras and let out these properties. The assessee had let out the said properties and the rental income received therefrom was shown as income from business in the return filed by the assessee. However, according to the AO since the income was received from letting out of the properties it was in the nature of rental income. He therefore treated the rental income as income from house property . In appeal the Ld.CIT(A) allowed the appeal of the assessee by holding that such rental income is income from business . The Tribunal upheld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee except the income from letting out of these two properties. We have to decide the issue keeping in mind the aforesaid aspects. With this background, we first refer to the judgment of this Court in East India Housing and Land Development Trust Ltd.'s case which has been relied upon by the High Court. That was a case where the company was incorporated with the object of buying and developing landed properties and promoting and developing markets. Thus, the main objective of the company was to develop the landed properties into markets. It so happened that some shops and stalls, which were developed by it, had been rented out and income was derived from the renting of the said shops and stalls. In those facts, the question arose for consideration was: whether the rental income that is received was to be treated as income from the house property or the income from the business. This court while holding that the income shall be treated as income from the house property, rested its decision in the context of the main objective of the company and took note of the fact that letting out of the property was not the object of the company at all. The court was therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The diving line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned. After applying the aforesaid principle to the facts, which were there before the Court, it came to the conclusion that income had to be treated as income from business and not as income from house property. We are of the opinion that the aforesaid judgment in Karanpura Development Co. Ltd.'s case squarely applies to the facts of the present case. No doubt in Sultan Brothers (P) Ltd.'s case, Constitution Bench judgment of this Court has clarified that merely an entry in the object clause showing a particular object would not be the determinative factor to arrive at an conclusion whether the income is to be treated as income from business and such a question would depend upon the circumstances of each case, viz., whether a particular business is letting or not. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving the house property and is receiving income by way of rent, the case of the assessee is that the assessee company is in business of renting its properties and is receiving rent as its business income, the said income should be taxed under the Head Profits and gains of business or profession whereas the case of the Revenue is that as the income is arising from House Property, the said income must be taxed under the head Income from House Property . 1.The learned counsel appearing for the assessee submitted that the issue involved in these appeals is no more res integra as this Court has decided in the case of Chennai Properties and Investments Ltd. v. Commissioner of Income Tax [2015] 373 ITR 673 (SC) that if an assessee is having his house property and by way of business he is giving the property on rent and if he is receiving rent fromthe said property as his business income, the said income, even if in the nature of rent, should be treated as Business Income because the assessee is having a business of renting his property and the rent which he receives is in the nature of his business income. 2.According to the learned counsel appearing for the assessee, the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operations of the assessee. According to the learned counsel appearing for the Revenue, leasing and letting out of shops and properties is not the main business of the assessee as per Memorandum of Association and therefore, the income earned by the assessee should be treated as income earned from House Property. He, therefore, submitted that the impugned judgment is just legal and proper and therefore, these appeals should be dismissed. 9. Upon hearing the learned counsel and going through the judgments cited by the learned counsel, we are of the view that the law laid down by this Court in the case of Chennai Properties (supra) shows the correct position of law and looking at the facts of the case in question, the case on hand is squarely covered by the said judgment. 10. Submissions made by the learned counsel appearing for the Revenue is to the effect that the rent should be the main source of income or the purpose for which the company is incorporated should be to earn income from rent, so as to make the rental income to be the income taxable under the head Profits and Gains of Business or Profession . It is an admitted fact in the instant case that the assessee compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -07 and 2008-09 on this issue are allowed. 45. The second issue raised by the assessee in the grounds of appeal which are common for A.Y. 2000-01 and 2002-03 to 2004-05 relates to reopening of the assessment u/s.147 in absence of any tangible material. 46. Facts of the case, in brief, are that the warehousing receipts with the lease charges were assessed as business income right from 1973-74 to 1999-2000. In A.Y. 1994-95 to 1996-97 for the first time, the AO assessed the lease charges only as property income. The tribunal however allowed the asseessee's appeal. Thereafter in the A.Y. 2001-02, the AO again assessed the lease charges as property income. The CIT(A) held that even the warehousing receipts also be assessed as property income. The Tribunal Confirmed the order of CIT(A) Assessee preferred appeal before Hon ble Bombay High Court which by its order dated 18.02.2010 set aside the issue and directed the AO to decide the same in line with the directions mentioned therein. Meanwhile, the reassessment orders of A.Ys 2000-01, 200203 to 2008-09 were also set aside by the Tribunal relying on the decision of the Hon ble Bombay High Court and directing the AO to decide the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on the order of CIT(A). He submitted that assessments for the above four years have been completed u/s.143(1). Therefore, in view of the decision of Hon ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. reported in 291 ITR 500 the CIT(A) was justified in upholding the reassessment proceedings. 51. We have considered the rival arguments made by both sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessments for the A.Y. 2000-01 and 2002-03 to 2004-05 were completed u/s.143(1). The AO reopened the assessments u/s.148 on the ground that the entire receipts of warehousing of lease charges has to be assessed as income from property as against business income treated by the assessee. The assessee challenged the validity of the reassessment proceedings. The Ld.CIT(A) following the decision of Hon ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. (Supra) upheld the reassessment proceedings initiated by the AO. It is the submission of the Ld. Counsel for the assessee that in absence of any tangible material avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the AO if the reasons recorded for reopening of the assessment are otherwise valid. The learned counsel for the assessee, on the other hand, has relied on Third Member decision of the Tribunal in the case of Telco Dadaji Dhackjee Ltd. (supra) stating that a similar issue involved in the said case has been decided by the Third Member in favour of the assessee after taking into consideration the decision of Hon ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) relied upon by the learned DR. In the said case, the return, filed by the assessee was originally accepted u/s 143(1). In the said return the assessee had claimed deduction for payment of non-compete fees of ₹ 75 lakhs which included payment of ₹ 15 lakhs towards Directors. The assessee had also claimed depreciation of ₹ 1,41,858/- on lease premises. The AO issued notice u/s 148 on the ground that these were not allowable expenses and income chargeable to tax had escaped assessment. He accordingly disallowed both the items in the reassessment order. When the matter reached to the Tribunal, the learned Judicial Member took the view that there was no fresh material to support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aped assessment. Since there was no such tangible material before the AO from which he could entertain the belief that income of the assessee chargeable to tax had escaped assessment, the Third Member held that reassessment proceedings initiated by the AO were liable to be quashed on the ground that there was no tangible material before the AO even though the assessment was completed originally u/s 143(1). In our opinion, the Third Member decision of the Tribunal in the case of Telco Dadaji Dhackjee Ltd. (supra) is squarely applicable in the present case and respectfully following the same, we hold that the initiation of reassessment proceedings by the AO itself was bad in law and the reassessment completed in pursuance thereof is liable to be quashed being invalid. We order accordingly and allow ground No.1 of the assessee s appeal. 9. As a result of our decision rendered above on the preliminary issue quashing/cancelling the assessment made by the AO u/s 143(3) read with section 147, the other issues raised in the appeals of the assessee and the Revenue in respect of additions made in the said assessment have become infructuous and we do not deem it necessary or expedient to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of Hon ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd. reported in 320 ITR 561 held that since there was no tangible material available with the AO to form the requisite belief of escapement of income the reopening of the completed assessment is unsustainable in the eye of law. Accordingly, the same was cancelled. Since the assessee succeeded on this point the Tribunal did not examine the merit of the disallowances/additions made in the assessment year. 54. The Revenue approached the Hon ble High Court with the following substantial question of law : Was the Tribunal right in law in holding that in the absence of any tangible material available with the Assessing Officer to form the requisite belief regarding escapement of income, the reopening of the assessment made under section 143(1) is bad in law? 55. The Hon ble High Court after considering various decisions observed has as under : 13. Having regard to the judicial interpretation placed upon the expression reason to believe , and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timation is issued under section 143(1) there is no opportunity to the assessing authority to form an opinion and therefore when its finality is sought to be disturbed by issuing a notice under section 148, the proceedings cannot be challenged on the ground of change of opinion . It was not opined by the Supreme Court that the strict requirements of section 147 can be compromised. On the contrary, from the observations (quoted by us earlier) it would appear clear that the court reiterated that so long as the ingredients of section 147 are fulfilled an intimation issued under section 143(1) can be subjected to proceedings for reopening. The court also emphasised that the only requirement for disturbing the finality of an intimation is that the assessing officer should have reason to believe that income chargeable to tax has escaped assessment. In our opinion, the said expression should apply to an intimation in the same manner and subject to the same interpretation as it would have applied to an assessment made under section 143(3). The argument of the revenue that an intimation cannot be equated to an assessment, relying upon certain observations of the Supreme Court in Rajes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e answer the substantial question of law framed by us in the affirmative, in favour of the assessee and against the Revenue. The appeal of the Revenue is accordingly dismissed. There shall be no order as to costs. 56. Since in the instant case also all material facts were already there on record and no tangible material was available before the AO, therefore, respectfully following the above decisions cited (Supra) we hold that the reassessment proceedings initiated by the AO are bad in law. Accordingly, the grounds raised by the assessee on this issue for the above four assessment years are allowed. 57. Ground of appeal No.5 by the assessee reads as under : On the facts and in the circumstances of the case the Ld.CIT(A) has erred in disallowing the service charges of ₹ 23,27,592/- made to Shri Industrial Services by invoking the provision of section 40A(2)(b) of the Act. 58. Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the assessee has paid services charges of ₹ 27,02,000/- to Shri Industrial Suppliers which is the proprietary concern of Mr.G.M. Navlakha Director of the assessee company. He noted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e receipt of ₹ 27,02,000/- as service charges Shri Navlakha had incurred expenditure of ₹ 3,40,371/- only which shows that he has shown net profit of 87.4% which is highly impossible and clearly shows that the assessee company had paid huge amount to the proprietary concern of the Director for which no commensurate services were rendered by the proprietary concern. We find in appeal the Ld.CIT(A) enhanced such disallowance by ₹ 9,76,592/-. It is the submission of the Ld. Counsel for the assessee that the AO has not brought on record any comparable case as what would have been the reasonable amount. Therefore, disallowance of 50% of such service charge is uncalled for. It is the submission of the Ld. Authorised Representative that instead of deleting the addition the Ld.CIT(A) has enhanced the same. We do not find any force in the above argument of the Ld. Counsel for the assessee. Admittedly, Shri Industrial Suppliers is the proprietary concern of Shri G.M. Navlakha who is the Principal Director of the assessee company. As against service charge received at ₹ 42,93,005/- the assessee has paid an amount of ₹ 27,02,000/- to Shri Industrial Suppliers as h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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