Morarjee Realities Limited v. A.K. Bal, Dy. C.I.T., Special Range 43, Bombay & Anr.

Mr. P.J. Pardiwala, senior Advocate with Mr. Damodar i/by Kanga & Co. for the petitioner. Mr.Suresh Kumar with Mr.P.S. Sahadevan for the respondents. CORAM : J.P. Devadhar & R.M. Savant, JJ. DATE : 16th November, 2010. P.C. :

Leave to amend the cause title by substituting the name of the petitioner. Amendment to be carried out forthwith.

The challenge in this petition is to the three notices all dated 31st March 1995 issued under Section 148 of the Income Tax Act, 1961. By the said notices, the assessing officer has sought to reopen the assessment for assessment years 1984-85, 1985-86 and 1989-90. 2 wp1509-95

The common reason recorded by the assessing officer for reopening the assessments is that the assessee had received arrears of rent in relation to the assessment years in question which has escaped assessment.

In fact, on 31-3-1995, the assessing officer had in all issued seven notices under Section 148 of the Income Tax Act, 1961, with a view to reopen the assessment for assessment years 1984-85, 1985-86, 1986-87, 1987-88, 1988-89, 1989-90, 1990-91 and 1991-92 by recording common reasons that the assessee had received arrears of rent in respect of these assessment years which has escaped assessment.

Admittedly, the reassessment orders have been passed for all the assessment years, save and except the assessments for AY 1984-85, 1985-86 and 1989-90 which are subject matter of the present petition by including the arrears of rent received by the assessee in relation to those assessment years. Admittedly, the said additions have been deleted by the ITAT and those orders of ITAT have attained finality. In fact, the revenue had filed an appeal under Section 260A of the Act, being Income Tax Appeal (L) No.952 of 2003 against the order of the Tribunal deleting the additions made in one re- assessment order and the revenue has chosen to withdraw the said appeal on 30-04-2007. 3 wp1509-95

Where the parties agree for enhancement of rent retrospectively from a date in any of the previous years, then the receipt of arrears of enhanced rent for those previous years could not be said to be rent receivable and consequently could not be assessed under Section 23(1) (b) of the Income Tax Act, 1961 in those assessment years. To overcome this difficulty, by Finance Act, 2001, Section 25B has been inserted in the Income Tax Act, 1961 with effect from 1-4-2002, so as to tax the arrears of rent not charged to tax for any previous year, in the year in which such arrears is received. In the present case, admittedly the arrears of enhanced rent relating to the assessment years 1984-85, 1985-86 and 1989-90 has been received prior to the insertion of Section 25B and, therefore, the arrears of rent received could neither be assessed in the assessment years 1984-85, 1985-86 and 1989-90 nor could it be assessed in the year in which the arrears of rent was received.

In these circumstances, in the facts of the present case, the opinion of the assessing officer that the enhanced rent chargeable to tax in the assessment years in question has escaped assessment cannot be sustained. As noted earlier, additions sought to be made for other assessment years (prior to 1-4-2002) have been deleted and the said orders have attained finality.

In these circumstances, the impugned notices issued under Section 148 of the Income Tax Act, 1961 relating to assessment years 4 wp1509-95 1984-85, 1985-86 and 1989-90 for re-opening of the assessment are quashed and set aside. Rule is made absolute in terms of prayer clause (a) with no order as to costs. (R.M. Savant, J.) (J.P. Devadhar, J.)