THE COMMISSIONER OF INCOME TAX-III vs. SMT.KAMAKSHI DEVI

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD DAY OF OCTOBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.1 OF 2014 BETWEEN: 1. COMMISSIONER OF INCOME TAX

C.R. BUILDINGS, QUEENS ROAD

BANGALORE. 2. ASSISTANT COMMISSIONER OF INCOME TAX

CIRCLE 12(3), BANGALORE. ... APPELLANTS (BY Mr. E.I. SANMATHI, ADV.,) AND: M/S. SHRIRAM CHITS (KARNATAKA) PVT. LTD., NO.259/31, I FLOOR, 10TH CROSS WILSON GARDEN, BANGALORE-560027. ... RESPONDENT (BY Mr. BALRAM R. RAO, ADV.) - - - THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 14.08.2013 PASSED IN ITA NO.1314/BANG/2012 AND 1281/BANG/2012, FOR THE ASSESSMENT YEAR 2003-04. (I) DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY FORMULATED BY THE HON'BLE COURT AS DEEMED FIT. (II) SET ASIDE THE APPELLATE ORDER DATED 14-8-2013 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'B' BENCH,

2 BANGALORE IN APPEAL PROCEEDINGS NO.ITA NO.1314/BANG/2012 AND 1281/BANG/2012 FOR ASSESSMENT PERIOD 2003-04 AS SOUGHT FOR IN THIS APPEAL. 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 2003-04. The appeal was admitted by a bench of this Court vide order dated 11.04.2014 on the following substantial question of law: (i) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing the bid loss without appreciating the fact that such Bid Loss pertains to period beyond the accounting period relevant to the assessment year under consideration and the same should not have been allowed for the sake of consistency? (ii) Whether on the facts and in the circumstances of the case the Tribunal was justified in law in placing reliance on its own

3 order in the case of DHFL Vysya Housing Finance P Ltd., (DVHF) ITA NO.1416/Bang/2010 for AY 96-97 dated 11-01-2013 and holding that the reopening u/s. 147 is bad in law without appreciating the fact that the department has not accepted the relied upon decision and the same has also been challenged before this Hon'ble High Court of Karnataka in ITA NO.244/2013? 2. Facts leading to filing of this appeal briefly stated are that the assessee is engaged in the business of conducting chits. The assessee on its own, bids at the auction. When the assessee succeeds in the bid, the difference between the value of chit and the amount at which the assessee bids at the auction is booked as a loss. The remaining tenure of the chit in respect of the assessee bids at the auction is booked as a loss. The assessee books the loss and spreads it over to the remaining period of the chit group. In the books of the accounts of the assessee, only the loss is apportioned for the period relevant to the Previous Year. For the Assessment Year 2008-09, the assessee claimed loss on bidding as deduction. The assesse filed the

4 return of income declaring total loss of Rs.7,85,38,305/- on 28.11.2003. The return of income was processed under Section 143(1) of the Act. The Assessing Officer by an order dated 28.02.2006 along with other disallowances, disallowed the amount of bid loss claimed in the memo of income and an amount of Rs.7,20,32,155/- was added to the income returned by the assessee. It was noticed that in bid loss claimed in two places that is one in profit and loss account and other in memo of income, in order to charge the bid loss of Rs.7,14,76,102/- claimed in the memo of income besides an income on house property of Rs.20,632/- notice under Section 148 dated 22.03.2010 was issued to the assessee and subsequently a notice under Section 143(2) of the Act dated 28.10.2010 was served on the assessee. The Assessing Officer vide order dated 24.12.2010 allowed the bid to the extent which was debited in the profit and loss account and refused to allow the claim for deduction of a sum of Rs.50,43,043/-, which is a bid loss referable to the period beyond the Previous Year. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 30.07.2012 deleted the addition made

5 by the Assessing Officer to the tune of Rs.50,43,043/-. Accordingly, the appeal was partly allowed. Being aggrieved, the assessee as well as the revenue filed appeals before the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short). The tribunal by a common order dated 14.08.2013 dismissed the appeal preferred by the revenue by placing reliance on its order in the case of the assessee for Assessment Year 2005-06 and the appeal preferred by the assessee was allowed on the ground that the re-assessment proceeding is invalid. Being aggrieved, the revenue is in appeal before us. 3. Learned counsel for the revenue submitted that assessing authority had rightly invoked Section 147 of the Act for re-assessment and reasons recorded by the authority fulfilled all the conditions set out in Section 147 of the Act. It is further submitted that from perusal of the reasons assigned by the assessing authority, it is evident that the assessing authority formed an opinion that assessee has failed to disclose fully and truly all material facts necessary for assessment and had clearly concluded that there were

6 lapses on the part of the assessee in claiming the same amount twice resulting in increase of loss and to that effect, the income had escaped assessment. It is also urged that the bid loss claimed by the assessee pertains to the period beyond the accounting period relevant to the Assessment Year under consideration and the same was rightly denied by the assessing authority in the absence of material evidence. It is also urged that the tribunal has not independently examined whether the reasoning assigned by the Assessing Officer was in accordance with Section 147 of the Act, therefore, the matter is required to be remanded to the tribunal for consideration afresh. It is also urged that the decision, on which reliance was placed by the assessing authority in the case of DHFL VYSYA HOUSING FINANCE LTD. VS. ACIT has been quashed by a bench of this court in I.T.A.No.244/2013 vide judgment dated 23.09.2013. 4. On the other hand, learned counsel for the assessee submitted that the Assessing Officer has not recorded any finding that the assessee has failed to disclose fully and truly all material facts necessary for assessment as

7 pointed out by the tribunal in paragraph 13 and 17 of the order. It is also submitted that issue involved in this appeal is squarely covered by judgment of Supreme Court in 'NEW DELHI TELEVISION LTD. VS. DCIT', 116 TAXMAN.COM 151 (SC) and our attention has been invited to paragraphs 24 to 27, 28 to 35 of the aforesaid decision. It is also submitted that the issue of bid loss has already been remitted to the Assessing Officer to quantify the bid loss in I.T.A.Nos.920-922/2008 and therefore, the Assessing Officer can quantify the same in regular assessment. It is also submitted that the re opening is not permitted in law in the facts and circumstances of the case. It is also urged that regarding bid loss the Assessing Officer in Original Assessment Proceeding has gone into the question of allowability of bid loss in detail and the assessee has furnished full facts before the Assessing Officer and therefore, the contention of the revenue that there was no true and full disclosure on the part of the assessee does not deserve acceptance.

8 5. We have considered the submissions made by learned counsel for the parties and have perused the record. It is well settled in law that an Assessing Officer can only reopen the assessment if he has reason to believe that undisclosed income has escaped re-assessment. The relevant extract of Section 147 of the Act reads as under:

9 expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: 6. It is not in dispute that an assessment can be reopened by issuance of notice under Section 148 of the Act only on fulfillment of the conditions mentioned in Section 147 of the Act. The Assessing Officer has recorded the reason, which reads as under: On perusal of accounts enclosed to the return filed and statement of computation of income, it was observed that loss on own bidding i.e., bid loss amounting to Rs.7,20,32,155/- was debited to P & L Account and Rs.7,14,76,102/- was separately claimed in the statement of computation income filed along with return of income. The AO in the page 9 of the assessment order dated 28.02.2006 added back Rs.7,14,76,102/- whereas it is observed that an

10 amount of Rs.7,20,32,155/- has been added back while computing the income in the assessment order dated 28.02.2006. But, in its submissions, before the CIT(A), the assessee submitted that both the figures are same and by mistake they were shown as separate. In other words, it is understood that the same amount was claimed twice resulting in increase of loss and to that extent the income has escaped assessment. Besides, the bid loss arises from discounting the chit value on bidding the auction as a member of the chit group, when the regular members leave / default in paying regular chit amount. The assessee's contention has been that such bid loss is to be allowed in the same financial year of bidding against the commission earned by it during that year and the assessee debited a portion of such bid loss of the relevant financial year to the P & L account, and the balance was reduced in Memo of computation of income. Whereas the department, all along is holding that such loss should be spread over the term of the chit and claimed in respective assessment years. For the instant year, even if the bid loss is allowable as per the order of the ITAT, if it is already debited to P & l, the same cannot be further claimed in the Memo of computation. Hence, on this reasoning

11 Rs.7,14,76,102/- is not allowable. This assumes importance because of theorder of High Court of Karnataka Dated 17.11.2009. Because, for the instant Assessment Year, the AO added back Rs.7,20,32,155/-. The CIT(A) confirmed the disallowance but the ITAT had given relief to the assessee. Besides, the assessee has been relying on the decision of the Apex Court in the case of M/s Bilahari Investments and claiming the bid loss in both P & L A/C and the memo of computation of income. In the appeal of the Department under Section 260A, the Hon'ble High Court of Karnataka, vide order dated 17.11.2009 for A.Y. 1998-99, differed from the decision of Apex Court in M/s Bilahari Investments and set aside the matter to the file of the Assessing Officer. The Hon'ble High Court of Karnataka accepted the arguments of the revenue that Notification No.69E dated 25.1.1996 and S.145(2) had not been brought to the notice of the Hon'ble Supreme Court to consider the effect of the notification and amendment to S.145(2) and stated that the Hon'ble Supreme Court confined its decisions to assessment years in appeal. Because of this decision of High Court of Karnataka, the judgment of Bilahari case is not applicable. Hence, the action of the assessee of debiting the bid loss

12 in P & L a/c and claiming again in the computation statement, results in excess claim. For these reasons, I have reasons to believe that the mistake in computation of income has resulted in escapement of income from assessment to the extent to the extent of Rs.7,1476,103 (bid loss) and Rs.20,632/- (income from House Property omitted to be included." However, the tribunal in paragraph 13 has held as under: We have considered the rival submissions. From a perusal of the reasons recorded by the AO before issuing notice under Section 148 of the Act, it is clear that the AO ha not, in the reasons recorded, made an allegation that income chargeable to tax has escaped assessment by reason of the assessee's failure to disclose fully and truly all material facts necessary for his assessment for the relevant Assessment Year. It is not in dispute that for A.Y. 1996-97, an assessment under Section 143(3) had already been made in the case of the assessee by an order of assessment dated 31.03.1998. Admittedly, notice under Section 148 of the Act was issued on 17.03.2003 which is beyond the

13 period of four years from the end of the relevant Assessment Year (1996-97). The proviso to Section 147 was therefore clearly attracted. It is clear from the decision of the Hon'ble Bombay High Court as well as the Hon'ble Karnataka High Court, referred to by the ld. Counsel for the assessee before us, that there should be a specific averment in the reasons recorded that escapement of income chargeable to tax was by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that Assessment Year. Such an allegation is admittedly absent in the reasons recorded. The ld. CIT(A) has in his order has attempted to give different reasons for resorting to reassessment proceedings. The law is well settled that validity of initiation of reassessment proceedings have to be judged on the basis of reasons recorded by the AO and it is not possible to substitute, delete or add anything to such reasons recorded by the AO. It is also not possible to draw any inference based on the reasons not recorded. In the light of the law as laid down in the aforesaid decisions, we are of the view that initiation of reassessment proceedings by the AO in the present case is not in accordance with law. The order of reassessment is therefore

14 liable to be annulled and the same is hereby annulled. In view of the decision on the validity of initiation of reassessment proceedings, the other issues raised by the assessee on merits do not require any consideration. Consequently, the appeal of the assessee is allowed. In the result, the appeal of the assessee is allowed. 7. Thus, from perusal of the order passed by the tribunal, it is evident that tribunal, in addition, has placed reliance on the decision in the case of DHFL VYSYA HOUSING LTD. rendered by the tribunal, which has been set aside by this court in I.T.A.No.244/2013 vide judgment dated 23.09.2013. The tribunal has not taken note of the fact that the Assessing Officer had recorded reasons and has held that a statement of income from assessment has taken place due to failure to disclose fully and truly all material facts necessary on the part of the assessee. The tribunal has further held that it has not been disputed before the tribunal that proviso to Section 147 is not applicable to the fact

15 situation of the case. 8. The contention of the assessee that the Assessing Officer has not recorded the finding that the assessee has failed to disclose fully and truly all material facts necessary for assessment does not deserve acceptance, which is evident from the satisfaction recorded by the Assessing Officer. Similarly, the question whether or not the Assessing Officer has recorded satisfaction in consonance with the requirements of Section 147 of the Act, has to be dealt with in the facts of each case. Therefore, the contention that the issue involved in this appeal is squarely covered by decision of the Supreme Court in NEW DELHI TELEVISION supra cannot be accepted. For the aforementioned reasons, the second substantial question of law is answered in favour of the revenue and against the assessee. In the result, the order dated 14.08.2013 passed by the tribunal is quashed and the matter is remitted to the tribunal for decision afresh in accordance with law. It is therefore, not necessary for us to deal with the first substantial question of law.

16 In the result, the appeal is disposed of. Sd/- JUDGE Sd/- JUDGE ss