THE COMMISSIONER OF INCOME TAX vs SHRI H E PANDURANGA

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 8TH DAY OF SEPTEMBER 2020

PRESENT

THE HON’BLE MR. JUSTICE ALOK ARADHE

AND

THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD

I.T.A. NO.211 OF 2013 BETWEEN:

THE COMMISSIONER OF INCOME-TAX

C.R. BUILDING, QUEENS ROAD

BANGALORE.

THE ASSISTANT COMMISSIONER OF INCOME-TAX

CENTRAL CIRCLE-2(2), C.R. BUILDING

QUEENS ROAD, BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,)

AND:

SHRI. H.E. PANDURANGA # 473, 4TH CROSS, 8TH MAIN HANUMANTHNAGAR, BANGALORE. ... RESPONDENT (RESPONDENT SERVED) - - -

THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 21.12.2012 PASSED IN ITA NO.1081/BANG/2006 AND ITA NO.1001/BANG/2006, FOR THE ASSESSMENT YEAR 1996-97, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN.

(I) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE ITAT, BANGALORE IN ITA NO.1081/BANG/2006 & ITA NO.1001/BANG/2006 DATED 21-12-2012.

THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:

JUDGMENT

This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 1996-97. The appeal was admitted by a bench of this Court vide order dated 04.07.2013 on the following substantial questions of law: (i) Whether the Tribunal was correct in annulling the reassessment made protectively under Section 147 for the assessment years 1996-97 and 1997-98 by holding them as infructuous without going into the merits of the case when the issues with reference to unexplained cash credits of Rs.50 Lakhs and Rs.65,10,000/- have been found to be unexplained? (ii) Whether the Tribunal was correct in

applying the provisions of sub-Section 2 to explanation (c) of section 158BA which specifically provides that income arises under Chapter XIV-B shall not be included in the regular assessment of any previous year without appreciating the observation of the Hon’ble Apex Court in the case of Suresh N.Gupta reported in 297 ITR 322 (166 Taxman 313)

Facts leading to filing of this appeal briefly stated are that the assessee is the proprietor of M/s Rajarajeshwari Enterprises. On 27.03.2000, a search was conducted under Section 132 of the Act. In the course of the search, the Bank accounts of the assessee was examined and it was found that the assessee could not explain the sources of various deposits made in the bank. Thereafter, Block assessment order was passed on 28.03.2002, by which the Assessing officer determined the total undisclosed income at Rs.2,96,78,150/-, wherein among other additions three credits pertaining to assessment years 1996-97 and

1997-98 amounting to Rs.67,29,564/- and Rs.60,63,900/- respectively were also assessed under undisclosed income. The assessee filed an appeal before the Commissioner of Income Tax (Appeals), who by an order dated 06.06.2002 deleted the additions on account of three credits and held that the credits in the bank accounts were already disclosed by the assessee to the department and cannot be assessed in block assessment. However, liberty was given to the Assessing officer to take recourse to regular assessment.

The department challenged the aforesaid order in an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The Tribunal remitted the matter to the Commissioner of Income Tax (Appeals) with a direction to consider all the issues afresh on merits. The assessments for the years 1996-97 and 1997-98 were re-opened under Section 147 to tax the unexplained

credits protectively in view of finding given by the Commissioner of Income Tax (Appeals) in order dated 06.06.2002. The assessment was concluded under Section 143(3) read with Section 147 of the Act for both the assessment years and the total income was determined at Rs.1,25,03,622/- and Rs.1,31,83,189/- for assessment years 1996-97 and 1997-98 respectively which included unexplained cash credits in bank accounts to the tune of Rs.50,00,000/- and Rs.65,10,000/-.

The assessee challenged the aforesaid order in an appeal before the Commissioner of Income Tax (Appeals). In the proceeding before the Commissioner of Income Tax (Appeals), the assessee neither adduced any evidence nor produced the books of account. The Commissioner of Income Tax (Appeals) by an order dated 18.09.2006 upheld the order passed by the Assessing officer. The Tribunal however, by an order dated 21.12.2012 inter alia held that findings recorded

by the Commissioner of Income Tax (Appeals) do not survive in view of the order of the Tribunal dated 20.01.2006. It was further held that various additions impugned in this appeals by the assessee and revenue need not be adjudicated and the proceedings have become infructuous in view of the order of the Tribunal dated 20.01.2006 in block assessment appeals. The appeals preferred by the assessee were allowed. In the aforesaid factual background, the revenue has filed this appeal.

Learned counsel for the revenue submitted that Tribunal erred in annulling the reassessment made prospectively under Section 147 for the assessment years 1996-97 and 1997-98 by treating the same as infructuous and in not dealing with the matter on merits especially when the issue with reference to unexplained cash credits of Rs.50,00,000/- and Rs.65,10,000/- were found to be unexplained. It is also urged that Tribunal committed an error in applying provisions of sub-Section

(2) to Explanation(c) of Section 158BA to the facts of the case and failed to notice the decision of the supreme court in ‘CIT VS. SURESH N. GUPTA’ (2008)297 ITR 322. Alternatively, it is submitted that the matter be remitted to Commissioner of Income Tax (Appeals) to verify whether the unexplained credits of Rs.50,00,000/- and Rs.65,10,000/- have reached finality or not.

We have considered the submissions made by learned counsel for the revenue and have perused the record. From perusal of the order passed by the Income Tax Appellate Tribunal, we find that the Tribunal has not decided the issue on merits and ought to have adjudicated the issue with regard to unexplained credits to the tune of Rs.50,00,000/- and Rs.65,10,000/-. The Tribunal has held that orders of reassessment have been rendered infructuous. The issue with regard to unexplained credits to the tune of Rs.50,00,000/- and Rs.65,10,000/- needs to be adjudicated. The Tribunal erred in not adjudicating the issues on merits and

therefore, we answer the first substantial question of law in favour of the revenue. Therefore, it is not necessary to answer the second substantial question of law. In the result, the impugned order dated 21.12.2012 passed by the Income Tax Appellate Tribunal is hereby quashed and the matter is remitted to Commissioner of Income Tax (Appeals) to determine the issue afresh with regard to the unexplained cash credits to the tune of Rs.50,00,000/- and Rs.65,10,000/-.

Accordingly, the appeal is disposed of.

Sd/- JUDGE

Sd/- JUDGE ss

THE COMMISSIONER OF INCOME TAX vs. SHRI H E PANDURANGA