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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 7TH DAY OF AUGUST 2015
PRESENT
THE HON’BLE MR.JUSTICE VINEET SARAN AND THE HON’BLE MR.JUSTICE B MANOHAR ITA Nos.336 - 338 OF 2009
BETWEEN :
SHRI S L BASAVARAJ (HUF) REP BY ITS KARTHA SRI S.L.BASAVARAJA LAKKAPPA CAMP, "LAXMI NILAYA" MATHUR VILLAGE, SHIMOGA 577203. ..APPELLANT (By Sri A SHANKAR & Sri M LAVA, ADVs.)
AND:
THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, C.R.BUILDING NO.75, 100 FEET ROAD GOPALAGOWDA EXTENSION SHIMOGA 577201.
.. RESPONDENT
(By Sri K V ARAVIND, ADV.)
2 THESE ITAs. ARE FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 30-01-2009 PASSED IN ITA NO.278 TO 280/BNG/2008, FOR THE ASSESSMENT YEARS 1999- 00,2000-01 & 2003-04 DATED 23.11.2006, 24.3.2006, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: (I). FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, (II). ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE BENCH, BANGALORE IN ITA NO.278 TO 280/BNG/2009,DATED 30-01-2009.
THESE APPEALs COMING ON FOR FINAL HEARING THIS DAY, VINEET SARAN, J. DELIVERED THE FOLLOWING:
JUDGMENT
These three appeals are filed by the assessee for the assessment years 1999-2000, 2000-2001 and 2003-2004. The Appellate Commissioner had decided the appeals in favour of the assessee, which order was challenged by the Revenue before the Tribunal. By a common order dated 30.1.2009, Tribunal has allowed the appeals of the Revenue. Aggrieved
3 by the said order, these appeals have been filed, which have been admitted on the following questions of law. “(i) Whether the assessing officer has assumed valid jurisdiction in law under Section 148 of the Income Tax Act for reopening of the assessment for the assessment years 1999-2000 and 2000-2001 on the facts and circumstances of the case?
(ii) Whether the Tribunal erred in reversing the findings of the CIT(A) and restored the estimation of the assessing officer in respect of the quantum of agricultural income for the assessment years 1999-2000, 2000-2001 and 2003-2004 by relying on statements without factual foundations and consequently gave a perverse finding on the facts and circumstances of the case?”
We have heard Sri A Shankar, learned counsel for the appellants and Sri K V Aravind, learned counsel for the Revenue and perused the records.
For the assessment years 1999-2000 and 2000-2001, these appeals have been filed on merits as well as on the question of the validity of reopening of assessment by issuing a notice under Section 148 of the Income Tax Act,
4 1961 (`Act’ for short). For the assessment year 2003-2004, the question of reopening is not there and the challenge is only on merits. We shall first deal with question No.1 which is with regard to validity of reopening of the assessment for the assessment years 1999-2000 and 2000-2001.
Question No.1:
For the said assessment years 1999-2000 and 2000-2001, besides certain other income from business, the assessee/appellant had declared agricultural income of `23,72,050/- and `25,32,820/- respectively. Declaring the aforementioned agricultural income, the returns for the aforesaid two assessment years were filed on 31.12.1999 and 31.10.2000 respectively, which returns were accepted under Section 143(1) of the Act. However, thereafter two separate notices, both dated 21.10.2005, were issued under Section 148 of the Act for assessing/reassessing the income of the assessee for the said two assessment years. In response to
5 the said notices dated 21.10.2005, the assessee filed respective returns of incomes, which were the same as had been filed on 31.12.1999 and 31.10.2000. The assessee then asked for the reason on which the notices for reopening of assessment had been issued. Consequently, by common communication dated 12.12.2005, only the synopsis of the reason for reopening the assessment for the assessment years 1999-2000 and 2000-2001, was furnished by the Assistant Commissioner of Income Tax, but the actual reasons recorded by the Assessing Officer prior to issuance of notice dated 21.10.2005 were not furnished to the assessee. The relevant extract of synopsis of reasons furnished on 12.12.2005 for the two assessment years is reproduced below: “Assessment year 1999-2000:
“For the detailed reasons stated in the assessment order passed for the asst. year 2001-02, the probable agricultural income earned by you during the year cannot be more than Rs.8 lakhs. You have declared an agricultural income of Rs.23,72,050/-. Therefore, you have declared an excess agricultural income of
6 Rs.15,72,050/- which in turn has enabled you to create various assets as per the balance sheet filed as on 31/3/99 since you have credited the entire agricultural income in the capita account of the balance sheet.
Assessment year 2000-2001:
You have filed the return of income in the status of HUF on 31/12/2000 declaring an income of Rs.21,48,900/- and an agricultural income of Rs.25,32,822/-. For the details reasons stated in the assessment order passed for the asst. year 2001-02, the probable agricultural income earned by you during the year cannot be more than Rs.8 lakhs. You have declared an agricultural income of Rs.25,32,820/-. Therefore, you have declared an excess agricultural income of Rs.17,32,824/- which in turn has enabled you to create various assets as per the balance sheet filed as on 31/3/99 since you have credited the entire agricultural income in the capital account of the balance sheet.”
From the above, what is clear is that the reason for reopening the assessment for both the assessment years was common i.e. for the detailed reasons stated in the assessment order in the case of the assessee for the assessment year 2001-2002.
Although Sri A Shankar, learned counsel for the appellant/assessee, has raised a technical argument that the reopening notices dated 21.10.2005 were bad as they did not clearly specify as to whether the said notices were for assessment or re-assessment of the income of the assessee, but since the question was never raised by the appellant/assessee earlier before the authorities below, we would not be inclined to go into the same.
From a reading of the said synopsis of reasons furnished to the assessee, it is abundantly clear that the re- opening was on the basis of the assessment order passed for a different assessment year, i.e. 2001-2002. It is not disputed that the assessment order for the year 2001-2002 was challenged by the assessee in an appeal before the Appellate Commissioner, which was dismissed. But in the further appeal filed by the assessee, the Tribunal, by its order dated
8 02.03.2005 allowed the appeal and set aside the additions made by the Assessing Officer who had reduced the agricultural income of the assessee for the relevant assessment year 2001-2002. The said order of the Tribunal has become final as it was not challenged further. Such being the position, it is contended by the learned counsel for the appellant that once the assessment for the assessment year 2001-2002 itself had been set aside, the same could not have been the basis for issuance of notice dated 21.10.2005 under Section 148 of the Act, which was seven months after passing of the order dated 20.03.2005 by the Tribunal setting aside the assessment order for assessment year 2001-02. It is thus contended that in fact, there existed no reason for issuing of the notice dated 21.10.2005 and as such, the same was liable to be quashed.
Per contra, Sri K V Aravind, learned counsel for the Revenue has submitted that it is not sufficiency or
9 correctness of the material which is to be seen while judging the validity of notice issued under Section 148 of the Act and if there exists any reason for such issuance, the proceedings in pursuance of the said notice can go on. It is submitted that in the present case, the reason for issuance of notice under Section 148 of the Act did exist, which was the assessment order for the assessment year 2001-02.
In support of their submission, learned counsel for the parties have placed reliance on certain case laws, which shall be dealt with while considering their submissions.
There is no dispute about the fact that as long as there exists reasons for issuing notice under Section 148 of the Act, sufficiency or correctness of the material is not to be considered while looking into the validity of issuance of such notice, as has been held by the Apex Court in the case of Raymond Woollen Mills Ltd. –vs- Income Tax Officer
10 and others ( (1999) 236 ITR 34). The Apex Court in the case of Income-tax Officer –vs- Lakhmani Mewal Das ((1976) 103 ITR 437) has held that “the powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are `reason to believe’ and not ‘reason to suspect’ ”. It has further been held that before such action of re-opening is taken, the requirements of law should be satisfied and also that there should be a live link or close nexus between the material before the Income-tax Officer and the belief which he is to form regarding the escapement of the income of the assessee from assessment because of the latter’s failure or omission to disclose fully and truly all material facts. In the case of Ganga Saran & Sons P. Ltd. –vs- Income-tax Officer ((1981) 130 ITR 1, the Apex Court, while considering a case under the unamended Act, has held that “the Court, of course, cannot investigate into the adequacy or sufficiency of
11 the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under Section 147(a) of the Act”. The Bombay High Court in the case of Hindustan Lever Ltd – vs- Wadkar (2004) 268 ITR 332 has held that the Assessing Officer must investigate as to whether the material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The Apex Court in the case of Indian Oil Corporation –vs- ITO (1986) 159 ITR 956 has observed that ‘reason to believe’ is not the same thing as ‘reason to suspect’.
12 11. From the aforesaid decisions it is clear that there are sufficient safeguards for a concluded assessment to be re-opened. This is to prevent arbitrariness in the action of the Assessing Officer while issuing notice under Section 148 of the Act.
In the present case, the sole reason given by the Assessing Officer in its communication to the assessee on 12.12.2005, is the reason given in the assessment order for the assessment year 2001-2002. The question now is whether the reason given in the assessment order for the assessment year 2001-2002 could constitute to be a valid reason for reopening, even when the said order itself has been set aside on 20.03.2005 by the Tribunal, which was seven months prior to the issuance of the notice under Section 148 of the Act.
Learned counsel for the Revenue, Sri K V Aravind, has argued that the entire assessment order
13 was not set aside and some portion of it was not touched by the Tribunal, which was with regard to some parcel of the land which was not yielding arecanut. He, however, did not dispute the fact that the entire additions made by the Assessing Officer in the assessment order for assessment year 2001-02, had been set aside by the Tribunal.
The question would now be that if the assessment order itself has been set aside, but some finding of the said assessment order remains undisturbed by the Tribunal, then still, can the assessment order which has been set aside, form the basis for reopening of an already concluded assessment. The reason given for reopening the assessment orders has to be read as it is, and nothing can be added to, or substituted from, the same. It is from the reasons given for reopening that the assessee can come to know the mind of the Assessing Officer, as to why he is to reopen an already concluded assessment, to which he has to
14 submit his reply. A vague reason given, would amount to non-existent reason. In the present case, when the assessment order for the year 2001-02 itself had been set aside, in our opinion, there existed no reason at all for reopening the assessment of the years in question.
Learned counsel for the Revenue has placed reliance on the decision of the Supreme Court in the case of Assistant Commissioner Of Income Tax –vs- Rajesh Jhaveri Stock Brokers (P) Ltd. ((2007) 291 ITR 500) wherein, it has been held that at the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief and that whether the materials would conclusively prove the escapement, is not the concern at that stage. The said observation of the Apex Court, in fact, would go in favour of the assessee and not the Revenue. In our view, no
15 reasonable person can form an opinion to reopen an already concluded assessment on the basis of an assessment order of a subsequent year, which has already been set aside by the Tribunal and attained finality.
As such, in the present case, as the assessment order for the year 2001-02 had itself been set-aside by the Tribunal much prior to the issuance of notice under Section 148 of the Act, which was issued on the basis of the assessment order for the year 2001-02, in our considered opinion, there existed no reason for issuance of the notice under Section 148 of the Act. In our view, in the aforesaid facts, the reopening of assessment for the assessment years 1999-2000 and 2000-2001 in the case of assessee, cannot be justified in law. Question No.1 is thus answered in favour of the assessee and against the Revenue.
16 Question No.2
The second question relates to the Tribunal reversing the finding of the CIT appeals and restoring the estimation of the Assessing Officer in respect of the quantum of agricultural income of the assessee for the three assessment years in question i.e., 1999-00, 2000-01 and 2003-04. Since the answer to the first question, which is with regard to the re-opening of the assessment for the assessment years 1999-00 and 2000-01, is in favour of the assessee, and the re-opening has been held to be against the law, the question which now remains to be answered is with regard to the quantum of agricultural income of the assessee only for the assessment year 2003-04.
For the said assessment year 2003-04, the assessee had, besides other income from business, declared an agricultural income of `21,93,569/-. Since the question
17 in these appeals only relates to agricultural income, we are not considering the other income. The Assessing Officer, after rejecting the books of account of the assessee for the year in question, determined the agricultural income at `17,08,550/- and the difference of `4,85,019/- was thus added to the income of the assessee from other sources and subjected to tax. Challenging the said order the assessee filed an appeal, which was allowed by the Commissioner and the books of accounts of the appellant, which were rejected by the Assessing Officer, were accepted by the Appellate Commissioner and consequently, the addition made by the Assessing Officer was deleted. Challenging the said order, the Revenue filed an appeal before the Tribunal, which has been allowed and the addition made by the Assessing Officer with regard to the agricultural income has been restored. Such order of the Tribunal has been challenged in these appeals by the assessee.
The submission of Sri A.Shankar, learned counsel for the appellant is that after rejecting the books of account maintained by the appellant, for certain parcels of land of the assessee, the Assessing Officer proceeded to assess the income for the relevant assessment year 2003-04 at `7,93,350/- instead of over `12 lacs as declared by the assessee. This was done on the basis that such income was assessed for the same parcels of land for the year 1998-99. Besides this, for the additional two plots of land in which plantation was there after 1998-99 (measuring 1 acre 39 guntas and 8 acres 37 guntas) and there was yield of arecanut in the relevant assessment year 2003-04, the Assessing Officer estimated income at `50,000/- per acre and thus determined the income from the said two plots of land at `5,46,250/-. For the third item, which was income from fallen arecanut trees, tender coconuts, sale of paddy and areca plants, the
19 income declared by the assessee in his books of account at `3,68,950/- was accepted by the Assessing Officer.
The contention of learned counsel for the appellant is that for the same year 2003-04, in the case of N.G.Pai, the Assessing Officer had estimated the yield of arecanut per acre at 14 Quintals, and after calculating the average sale price at `10,000/- per quintal, a deduction of 1/3rd expenses was made, and the balance was taken as the total agricultural income of the said assessee-N.G.Pai. By such calculation, the income per acre would come to `93,200/-. According to Sri Shankar, if the books of account of the assessee had to be rejected, then the yield per acre should have been estimated by the Assessing Officer for the total area at the same rate of `93,200/- per acre, as had been done in the case of N.G.Pai by the same Assessing Officer for the same assessment year 2003-04 around the same time when the assessment order in the case of the present assessee
20 had been passed. Accordingly, if such method of calculation was also adopted in the case of the appellant, the agricultural income would come over `25 lacs, whereas the assessee has claimed agriculture income of only about `22 lacs as per the books of account maintained by him. In the alternative, it is submitted by learned counsel for the appellant that even if `12 lacs and odd as income declared by the assessee for certain parcels of land was not to be accepted and `7,93,350/- was to be assessed as agricultural income for the relevant assessment year on the basis of income for the same parcels of land for assessment year 1998-99, then for the additional two plots of land totaling to about 11 acres, the Assessing Officer ought to have taken the yield per acre at `93,200/- (as had been done in the case of N.G.Pai) and not `50,000/- per acre, in which case an addition of about `4,78,950/- would be there (i.e. `10,25,200/- minus `5,46,250/-) which would approximately come to the same
21 amount of `4,89,019/-which has been reduced by the Assessing Officer in the case of the assessee for the assessment year 2003-04.
On the other hand, Sri K.V.Aravind, learned counsel for the respondent-revenue has submitted that the Assessing Officer had adopted the income declared by the assessee for the assessment year 1998-99, in which year the price of arecanut was higher than the price in the assessment year 2003-04 in question, and after calculating the agricultural income of the assessee on such basis, the Assessing Officer has accepted the other addition with regard to fallen arecanut trees, tender coconuts etc., as declared by the assessee in his books of account. He, thus, justifies that the Tribunal has rightly accepted the calculation made by the Assessing Officer, and submits that the question of law in this regard be answered in favour of the revenue and against the assessee.
Having gone through the record, what we notice is that the Assessing Officer has, after rejecting the books of accounts of the assessee, accepted certain portion of the accounts submitted by the assessee (i.e., with regard to fallen arecanut trees, tender coconuts etc.) and then proceeded to calculate the agricultural income on the basis of the agricultural income declared by the assessee for the assessment year 1998-99. It is not understood as to why the income declared for the year 1998-99 was chosen by the assessing officer for calculating the income for the assessment year 2003-04. From the record it appears that for a closer assessment year 2001-02 the agricultural income declared by the assessee was `20,41,000/-, which has also been affirmed by the Tribunal. It is thus not understood as to why the said estimation for the assessment year 2001-02 was not taken for consideration for the assessment year in question i.e., 2003-04 in which year there was a marginal increase of about `1.5 lacs
23 only and was an assessment year which was closer to the assessment year in question, than the year 1998-99.
After rejecting the books of accounts of the assessee, taking up one method of calculation from one particular assessment year and then accepting a part of the own accounts of the assessee, cannot be accepted to be a method of calculating the income of the assessee. After the books of account are to be rejected for valid reasons, a consistent method of estimation of income is then to be adopted by the Assessing Officer, which has not been done in the present case. An Assessing Officer cannot be permitted to choose one method for assessing one part of income on the basis of any one particular earlier assessment year, and another part on the basis of some other estimation and the third part as per the books of account as maintained by the assessee. After rejecting the account books, the Assessing Officer may have the freedom to choose a method
24 for estimating the income of the assessee, but there has to be consistency of such method maintained for calculation of the entire income of the assessee.
As we have already noticed above, the Assessing Officer, after rejecting the books of accounts of the assessee, could have made the calculation of agricultural income as had been done in the case of N.G.Pai, by the same Assessing Officer for the same assessment year, which was calculated at the yield of 14 Quintal per acre and the price of arecanut at `10,000/- per quintal, in which case the income of the assessee would be over `25 lacs, which is much higher than claimed by him. If the said calculation was not to be adopted, then even if the income for certain parcel of land which was there in 1998-99 was taken at `7,93,350/- yet the yield at the rate of `93,200/- per acre (as in the case of N.G.Pai) ought to have been taken for the additional area of 11 acres (which was added after assessment year 1998-99) in
25 which case the income of the assessee would have come to approximately the same amount as had been declared by the assessee in his books of account for the relevant assessment year 2003-04. The Tribunal has, without giving any cogent reason, set aside the order of the Appellate Commissioner and restored the order of the Assessing Officer, even though the Tribunal has noticed that the agricultural income for a closer assessment year 2001-02 was `20,41,000/- which has been affirmed by it, yet the same has not been taken to be a material basis for arriving at an income of the assessee for the assessment year in question i.e., 2003-04, where the assessee had disclosed his agricultural income of `21,93,569/- which was merely Rs.1.5 lacs more than the income accepted two years earlier in 2001-02.
In view of the aforesaid, we are of the opinion that the Tribunal was not right in reversing the finding of the Appellate Commissioner, and restoring the estimation of
26 income by the Assessing Officer. In the facts and circumstances of the case, the second substantial question of law as framed in these appeals is also answered in favour of the assessee and against the Revenue.
Accordingly, since both the questions of law are answered in favour of the assessee and against the Revenue, these appeals stand allowed. However, there shall be no order as to costs.
Sd/-
JUDGE
Sd/-
JUDGE
Bkm/TL