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2016 (6) TMI 52 - ITAT BANGALORE

2016 (6) TMI 52 - ITAT BANGALORE - TMI - Reopening of assessment - Held that:- We are of the considered opinion that the AO had not satisfied the condition precedent for invoking the provisions of sec.147 i.e. reason to believe that income escaped assessment and therefore, we have no hesitation to quash the re-assessment proceedings. - Decided in favour of assessee. - ITA Nos.1379, 1380 & 1381/Bang/2014 - Dated:- 27-4-2016 - SHRI VIJAY PAL RAO, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTAN .....

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se of one Shri K.J.Purushotham Reddy on 26/8/2008. During the course of search operations, the residential premises of Shri C.Rajkumar, were also covered. It was stated that as a result of search and seizure operations, certain documents belonging to the assessee were found and seized by the Investigation Wing of the Department. During the course of search operations, it was stated that Shri Rajkumar who is the kartha of the present appellant i.e. Rajkumar C, HUF stated that regular returns of i .....

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mar, in his individual capacity were completed lu/s 143(3) read with sec.153C of the of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] on 28/2/2010 for the assessment years 2005-06 to 2007-08 bringing the income earned from the activity of real estate to tax and gains arising out of sale of lands etc. However, on appeal before the CIT(A) , the contention of the assessee that the income belonged to HUF came to be accepted by the CIT(A). However, the CIT(A) had d .....

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4,75,000/- shall be assessed in the hands of the HUE and the AG's assessment of this income in the hands of individual is held to be not correct. A.O. is directed to proceed against their HUF to assess this income and if the A.O. has no jurisdiction over the HUE of the appellant, he shall request the AG. having jurisdiction over the HUF of Sri C Rajkumar to take appropriate action to assess income arising on the sale of the property in the hands of the HUF. 2006-07: Apparently, the facts of .....

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nce, it is held that A.O. shall take steps to assess the above income of ₹ 1,60,68,940/- only in the hands of their HUF as directed in AY 2005-06. 2007-08: 'Apparently, the facts of A.Y. 2005-06 as narrated in para 3.3. of A.Y 2005-06 in this Order are clearly applicable and since the nucleus of the funds have come from the HUF and in particular from the sale of Kasavanahalli lands and other assets and income of the HUE, the above incomes should have been assessed in the hands of the a .....

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issed by this Tribunal. Pursuant to the directions of the CIT(A), the AO had issued notice u/s 148 to the appellant i.e. Rajkumar C, HUF for the assessment years 2005-06 to 2007-08 recording the following reasons: The assessee is in the business of real estate and has not disclosed income from real estate transactions for A.Y. 2007-08. The assessee had earned at' income of ₹ 2,4025,150/ for A.Y 2007-08. The assessee had not filed any return of income in his capacity of HUE. The assesse .....

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, Bangalore who in his order (dt 05.08.2011 has field as under: Similarly, for the AY 2007-08 on the basis of cash flow statement CIT(A) has held that an amount of ₹ 2,40,25,150/- shall be assessed in HUF capacity. On the basis of the above facts, I have reason to belief that an income of ₹ 2,40,25,150/- has escaped assessment within the meaning of section 147 of the Act for which the notice u/s 148 is required to be issued for the AY 2007-08. The appellant vehemently contested the r .....

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ies situated at survey No.85 & 186 situated at Doddathimmasandra village, Sy.No.32 at Medahally village, Sy.No.310 at Sarjapura Hobli and Sy.No.24 at Medahally village and also made several other additions. 5. Being aggrieved by this assessment, Rajkumar, C (HUF) filed appeals before CIT(A) contending inter alia the validity of the re-assessment proceedings. The CIT(A) upheld the validity of the re-assessment proceedings on the ground that the case of the appellant fell within clause (a) to .....

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vs. CIT (120 ITR 14). Thus it was submitted that initiation of re-assessment proceedings are not valid in law. The appellant further relied on the decision of the co-ordinate bench (Agra) of the Tribunal in the case of Gaurav Luthra vs. ITO in ITA 278/Agra/2011 dated 4/6/2014. The appellant had also drawn our attention to the provisions of sec.153C and 148 contending that the reassessment proceedings are not substitute for assessment contemplated u/s 153A, 153C of the Act. It was also further c .....

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HUF as partition of the HUF had already been taken place and the partition deed was already seized by the department during the course of search and seizure operations. 7. On the other hand, learned Departmental Representative contended that it is a clear case of escapement of assessment of tax as defined u/s 147 of the Act as no return was filed by the appellant though there was taxable income exceeding maximum amount not chargeable to tax in the hands of the appellant. 8. We heard rival submi .....

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s were filed. Returns were filed in the individual capacity. He also admitted the sale of land of ancestral property situated at Sy.No.85 & 186 situated at Doddathimmasandra village, Sy.No.32 at Medahally village, Sy.No.310 at Sarjapura Hobli and Sy.No.24 at Medahally village. He made an admission that all these transactions took place in the hands of HUF of which he was a kartha. But the AO has chosen to tax them in his individual hands and the CIT(A) accepted the submission of the assessee .....

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of the appellant. 9. In these circumstances, we are required to adjudicate the validity of the re-assessment proceedings in the present case. The condition precedent for initiating re-assessment proceedings is that the AO should have reason to believe that income chargeable to tax had escaped assessment. Whether this condition is satisfied by the AO or not is to be judged from the reasons recorded by the AO u/s 148 for issuance of notice for reassessment proceedings. It is trite law that validi .....

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ons of section 148(2) at the relevant time. Only the reasons so recorded can be looked at for sustaining or setting aside a notice issued under section 148. In the case of Equitable Investment Co. (P.) Ltd. v. ITO [1988] 174 ITR 714, a Division Bench of the Calcutta High Court has held that where a notice issued under section 148 of the Incometax Act, 1961, after obtaining the sanction of the Commissioner of Income-tax is challenged, the only document to be looked into for determining the validi .....

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No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons....The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self-explanatory .....

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sion, otherwise, the reasons which are lacking in material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced." 9.2 The principle of law therefore is well settled that the question as to whether there was a reason to believe within the meaning of section 147 that income escaped assessment must be determined with reference to the reasons recorded by the AO. From the reasons recorded by the AO, it is clear .....

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further referred to the fact that based on the incriminating documents found as a result of search and seizure operations, the assessments were made in the individual hands of Shri C.Rajkumar, vide assessment order dated 28/12/2010. The next para refers to the directions of the CIT(A) in the case of Shri Rajkumar, Individual, to assess the income in the hands of Rajkumar C (HUF). The last para states that based on the above facts, he had reason to believe that income had escaped assessment. The .....

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directions of the CIT(A). The directions of the CIT(A) are not binding on the AO and it is a matter of record that the AO, in fact, had challenged the correctness of the CIT(A) s order before the Tribunal which came to be dismissed. The directions of the CIT(A) are only in the form of opinion/view of the CIT(A). The AO has to independently form an opinion that income has escaped assessment which is not discernible from the reasons recorded. The formation of belief that income escaped assessment .....

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behest of third party, more so, the superior authorities. In this context, reliance can be placed on the decisions of the Hon ble Delhi High Court in the cases of CIT vs. SFIL Stock Broking Ltd. (325 ITR 285(Del), Atul Jain (299 ITR 383)(Del) and Jay Bharat Maruti Ltd. vs. CIT (324 ITR 289)(Del) and CIT vs. Batra Bhatta Co. (321 ITR 526)(Del). The Hon ble Gujarat High Court in the case of Adani Exports v. DCIT(Assessment) (240 ITR 224) after referring to Hon ble Supreme Court judgment in the cas .....

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o pronounce on the law, it nevertheless may draw the attention of the Income-tax Officer to it. Law is one thing, and its communication another. If the distinction between the source of the law and the communication of the law is carefully maintained, the confusion which often results in applying section 147(b) may be avoided. While the law may be enacted or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law may be communicated by anyone. No a .....

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must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. The true evaluation of the law in its bearin .....

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lief and the escapement of income, a further enquiry about the adequacy or sufficiency of the material to reach such belief is not open to be scrutinised. However, it is always open to question the existence of such belief on the ground that what has been stated is not the correct state of affairs existing on record. Undoubtedly, in the face of the record, the burden lies, and heavily lies, on the petitioner who challenges it. If the petitioner is able to demonstrate that in fact the Assessing O .....

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ely on the formation of belief by the Income-tax Officer on his own where such information is passed on to him by the audit that income has escaped assessment. In the present case, by scrupulously analysing the audit objection in great detail, the Assessing Officer has demonstrably shown to have held the belief prior to the issuance of notice as well as after the issuance of notice that the original assessment was not erroneous and so far as he was concerned, he did not believe at any time that .....

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rdly to be stated that in such circumstances the conclusion is irresistible that the belief that income has escaped assessment was not held at all by the officer having jurisdiction to issue notice and recording under the office note on February 8, 1997, that he has reason to believe is a mere pretence to give validity to the exercise of power. In other words, it was a colourable exercise of jurisdiction by the Assessing Officer by recording reasons for holding a belief which in fact demonstrabl .....

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tax Officer. The instructions are being taken for remedial action, viz., remedial action should invariably be initiated as a precautionary measure in respect of audit objections, even if the objection is not accepted by the Income-tax Officer or without the assessing authority applying his mind to such information for reaching his own conclusion. Once the remedial action is initiated, it can be dropped with the approval of the Commissioner of Incometax if the objection raised is one of facts and .....

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reproduce the observations made by the Hon ble Delhi High Court in the case of Sun Pharmaceuticals Industries Ltd. vs. DCIT: 18. That a quasi judicial authority, which is expected to exercise statutory functions on an objective criteria, cannot act on the dictates of any superior authority, or on any instruction that may be issued by an authority that may have administrative control over such quasi-judicial authority, is fairly well settled. 19. In Commissioner of Police Bombay v. Govardhan Das .....

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CBDT on how an assessment should be framed, the court had no hesitation in setting aside the consequent orders passed by the CWT. It took exception to the CWT having merely "carried out the directions of the Board" instead of himself deciding the case. 21. In Anirudhsinhji Jadega v. State of Gujarat (1995) 5 SCC 302, it was reiterated by the Supreme Court that once a discretion is vested with a certain authority, he alone should exercise that discretion vested under the statute and if .....

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on the dictates of the higher authority, being wholly without jurisdiction, was a nullity". 23. In M.P. Tewari v. Y.P. Chawla (supra), this Court was dealing with a circular issued by CBDT which sought to delineate certain offences which could not be compounded. The Court referred to Section 119 of the Act and held: in the exercise of its power to issue orders and circulars under Section 119 of the Income-tax Act, 1961, the Central Board cannot take away the judicial or quasi-judicial funct .....

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t for the purposes of Section 151 (1) of the Act the approval for issuance of notice under Section 147 had to be given only by the Joint Commissioner or Additional Commissioner. Instead the approval was taken, in that case, from the CIT (3) who was not competent to approve the action even though he was a higher authority. When the Court examined the file, it found that although it was routed through the Additional Commissioner, he did not apply his mind for due sanction but instead requested the .....

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sfaction and further mandatory condition is that the satisfaction recorded should be independent and not borrowed or dictated satisfaction. Law in this regard is now wellsettled. In Sheo Narain Jaiswal v. ITO [1989] 176 ITR 352 (Patna), it was held: Where the Assessing Officer does not himself exercise his jurisdiction under section 147 but merely acts at the behest of any superior authority, it must be held that assumption of jurisdiction was bad for nonsatisfaction of the condition precedent. .....

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le to discern any independent application of mind by the AO while initiating the impugned re-assessment proceedings. 9.5 Furthermore, even the directions issued by the CIT(A) are beyond the scope of the subject matter of appeal before him. The CIT(A) can only issue such directions which are necessary for disposal of the appeal before him. This principle was reiterated by the Hon ble Supreme Court in the case of CIT vs. Greenworld Corporation (314 ITR 81) as under: ………&hellip .....

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ion 34(3) of the Act. It reads : Provided further that nothing in this section limiting the time within which any action may be taken, or any order, assessment or reassessment may be made, shall apply to a reassessment made under section 27 or to an assessment or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 31, section 33, section 33A, section 33B, section 66 or section 66A . Prima facie this p .....

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issioner, under section 33 i.e., in an appeal before the Tribunal, under section 33A i.e., in a revision before the Commissioner, under section 33B, i.e., in a revision before the Commissioner against an order of the Incometax Officer, and under sections 66 and 66A, i.e., in a reference to the High Court and appeal against the High Court s order to the Supreme Court. Learned counsel for the appellant contends that the scope of the proviso is only confined to the assessment of the year that is th .....

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the proviso is not clear or unambiguous, the question raised cannot be satisfactorily resolved without having a precise appreciation of a brief history of section 34 of the Act culminating in the enactment of the proviso in the present form." This Court noticed the development of law as also the fact that the decision of the Income-tax Officer given in a particular year does not operate as res judicata to opine : "The lifting of the ban was only to give effect to the orders that may b .....

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uot;A "finding", therefore, can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appellate Assistant Commissioner may hold, on the evidence, that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context is that that income does not belong to the relevant year. He may incidentally find that the income .....

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the directions which the Appellate Assistant Commissioner or other Tribunals can issue under the powers conferred on him or them under the respective sections. Therefore, the expression "finding" as well as the expression "direction" can be given full meaning, namely, that the finding is a finding necessary for giving relief in respect of the assessment of the year in question and the direction is a direction which the appellate or revisional authority, as the case may be, i .....

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on 34(1) stating : ". . . No doubt, this Court has recently held in S.C. Prashar v. Vasantsen Dwarkadas [1963] 49 ITR 1 that the proviso, insofar as it removes the bar of limitation with respect to persons other than the assessee, is invalid as it infringes the provisions of Article 14 of the Constitution. That, however, is a question apart, what we have to consider is the legislative intent, and for ascertaining it, it is legitimate to look also at that part of the enactment which has been .....

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n of the Appellate Assistant Commissioner and it was held by this Court that a direction not necessary for the disposal of the appeal in respect of the assessment of the year in question before him was inoperative to remove the bar of limitation. Counsel says that, where a mere finding is recorded by the appellate or revisional authority different considerations arise and the bar of limitation prescribed by section 34 would be removed if a proceeding be commenced for assessment in consequence of .....

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particular case for decision by the authority hearing the case or the appeal which, being necessary for passing the final order or giving the final decision in the appeal, has been the subject of controversy between the interested parties or on which the parties concerned have been given a hearing." (p. 589) In Rajinder Nath s case (supra), this Court held :- "The expressions finding and direction are limited in meaning. A finding given in an appeal, revision or reference arising out .....

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e, a finding that it belongs to B or does not belong to B would be determinative of the issue whether it can be taxed as A s income. A finding respecting B is intimately involved as a step in the process of reaching the ultimate finding respecting A. If, however, the finding as to A s liability can be directly arrived at without necessitating a finding in respect of B, then a finding made in respect of B is an incidental finding only. It is not a finding necessary for the disposal of the case pe .....

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The expressions finding and direction in section 153(3)(ii) of the Act must be accordingly confined. Section 153(3)(ii) is not a provision enlarging the jurisdiction of the authority or court. It is a provision which merely raises the bar of limitation of making an assessment order under section 143 or section 144 or section 147. ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 and N. KT. Sivalingam Chettiar v. CIT [1967] 66 ITR 586 (SC). The question formulated by the Tribunal raises the point wh .....

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, it is clear that the directions of the CIT(A) to AO to reopen the assessments in the case of Rajkumar C (HUF) does not hold water. 9.6 This issue can be also approached from another prospective. The information that the appellant earned the subject income was very much available before the AO at the time of making assessments in the individual hands. In fact, all along, it is the contention of Shri C.Rajkumar, kartha of the appellant before AO that the income has to be assessed in the hands of .....

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held as follows: ………………. In the present case, the petitioners' family had filed a return for the assessment year 1962-63 in response to the earlier notice under section 148. Hence, the first of the two alternative conditions precedent under that clause, did not exist in the present case. Sri Srinivasan contended that the second condition also was not satisfied in this case because the ITO was in possession of all the material facts relating to the in .....

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not open to him (the ITO) to reopen the assessment again on account of his change of opinion as to the assessment year in which such income could be taxed. In support of his contention, Sri Srinivasan relied on the decision of the Supreme Court in Gemini Leather Stores v. ITO [1975] 100 ITR 1. There, the facts were these: The assessee-firm had utilised certain drafts for making purchases at Madras and Calcutta. Those drafts represented its undisclosed income. This aspect of the matter was not co .....

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id not disclose the transactions evidenced by the drafts which the Incometax Officer discovered. After this discovery the Income-tax Officer had in his possession all the primary facts, and it was for him to make necessary enquiries and draw proper inference as to whether the amounts invested in the purchase of the drafts could be treated as part of the total income of the assessee during the relevant year. This the Income-tax Officer did not do. It was plainly a case of oversight, and it cannot .....

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