TMI Blog2020 (6) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... ic Manufacturing Co V Commissioner of Income tax [ 2008 (11) TMI 2 - DELHI HIGH COURT] the identical issue arose. Reasons which were supplied to the petitioner were not the actual reasons and the objections which were taken by the petitioner were not to the actual reasons and the speaking order dated March 2, 2005, which was passed was also neither on the basis of the actual reasons nor the objections to the actual reasons. The entire process would be a sham and would amount to making a mockery of the law. Therefore, for this reason also, the notice under section 148 as well as all proceedings subsequent thereto as also the order are liable to be quashed. We are not inclined to uphold the reopening of the assessment and hence they are quashed. The orders of the learned Commissioner of income tax upholding of the reopening of the assessment are reversed. - Decided in favour of assessee. - ITA No. 2755, 2756, 2757/Del/2002 - - - Dated:- 22-6-2020 - Shri Bhavnesh Saini, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri Rohit Jain, Adv For the Revenue : Ms. Rakhi Vimal, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al facts necessary for the purpose of assessment. 4. That even otherwise, the finding that the appellant had not taken into consideration all direct and indirect expenses relating to agriculture operations, is based on misconception and the findings to the contrary are based on misconception both of facts and law. The assessee too while furnishing the return of income u/s 139(1) of the IT Act had furnished full particulars to establish the direct and indirect expenses, as also during the course of initial assessment proceeding. 5. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that there was no valid basis to sustain the addition on the basis of the order of the learned Commissioner of Income Tax (Appeals), since the said order was not approved by the Hon ble Tribunal there was no material to support the allegation that the assessee had not taken into consideration all direct and indirect expenses or such was a finding recorded by the learned Commissioner of Income Tax (Appeals). In fact, in the absence of any such material in support finding, the initiation of proceedings is totally untenable and framing the present assessment is wholly ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. In upholding the initiation of proceedings, the learned Commissioner of Income Tax (Appeals) has ignored the proviso to section 147 of the Income Tax Act and as such, the initiation of proceedings has been upheld on misconceived assumptions. The learned CIT (A) ought to have held that the initiation of proceedings was totally without jurisdiction and further the learned Commissioner of Income Tax (Appeals) ought to have also held that the assessment has been reopened, on the basis of a mere change of opinion and that there had been no failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment. The preconditions of section 148 having not been satisfied there was no justification in law for the learned CIT(A) to have upheld the validity of the proceedings so initiated. 3. That the learned Commissioner of Income Tax (Appeals), has failed to appreciate that the assessee had furnished full and complete details of all the activities carried on by the Research and Development Center known as Chandain Research Farm and that merely because in the opinion of the learned Assessing Officer, succeeding the assessing off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Commissioner of Income Tax (Appeals) erred in confirming the allocation of 50% of expenses of Bagwaia Office and R D activity while computing agricultural income. 10. That the perusal of the order of the CIT(A) shows the order was made without application of mind and was thus an arbitrary order. It is therefore, prayed that it be kindly held that neither the proceedings were validly initiated nor the income has been computed in accordance with law and that interest has been lived which the same could not be levied on the assessee company. 11. That the learned Commissioner of Income Tax (Appeals) has also erred in upholding the interest charged u/s 234B in the notice of demand which had not been validly charged. 4. The assessee has raised the following grounds of appeal in ITA No. 2757/Del/2002 for the Assessment Year 1991-92:- 1. That the learned Commissioner of Income Tax (Appeals) has erred, both on facts and in law in upholding the validity of the proceedings initiated u/s 147 of the Income Tax Act. Confirming the validity of proceedings initiated the learned CIT(A) has failed to comprehend that statutorily no valid proceedings can be initiated ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciate that there was no valid basis to sustain the addition on the basis of the order of the learned Commissioner of Income Tax (Appeals), since the said order was not approved by the Hon ble Tribunal there was no material to support the allegation that the assessee had not taken into consideration all direct and indirect expenses or such was a finding recorded by the learned Commissioner of Income Tax (Appeals). In fact, in the absence of any such material in support finding, the initiation of proceedings is totally untenable and framing the present assessment is wholly arbitrary and is totally erroneous both on facts and in law. 6. That the learned Commissioner of Income Tax (Appeals) has further erred in upholding the finding of the learned Assessing Officer that the assessee had inflated the agricultural income. The aforesaid conclusion arrived at is entirely untenable and is highly arbitrary. 7. That in any case and without prejudice the learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in concluding that the income from agriculture disclosed and assessed at ₹ 8,32,609/- was incorrectly assessed and really there was a loss su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,91,92,891/-, agricultural income was of ₹ 6,24,786/- (net of direct expenses) was claimed as exempt from tax and the balance non-agricultural income of ₹ 1,85,68,105/- was considered while computing taxable business income. Similar treatment was done in the assessment years 1990-91 and 1991-92. In the regular assessment proceedings under section 143(3) of the Act for assessment year 1994-95, the assessing officer, for the first time, vide order dated 01.03.1996 held/alleged that certain indirect expenditure should also be allocated to the earning of exempt income. On further appeal, the CIT(A) vide order dated 31.03.1997 held that indirect expenses in the form of 50% of Bhagwala office expenses and 50% of R D activity expenses) should be allocated to the agricultural income. On further appeal, the Tribunal vide order dated 21.12.2006 reported in 107 ITD 267 (TM), set-aside the order of the CIT (A) and deleted the entire addition/disallowance made in the assessment order. 7. In the meanwhile, reassessments proceedings were initiated under section 147 vide separate notices dated 04.06.1997 issued under section 148 of the Act for assessment year 1989-90 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The Hon ble Court vide order dated 12.12.2011, held that the impugned judgment of the Tribunal, which is entirely based on a view held in the case of the assessee pertaining to assessment year 1994-95, would require reconsideration. Accordingly, Hon High court set aside the impugned judgment and remands the matter to the Tribunal to examine the same in the light of the observations of Hon High Court in Maxopp Investments Ltd. .In the light of the aforesaid order of the Hon ble High Court for the above assessment years 1989-90, 1990-91 and 1991-92, the above appeals preferred by the Appellant stood restored and remanded to the Hon ble Tribunal for a fresh adjudication. 12. Meanwhile separate appeal filed by the Revenue against the order of the Third Member for assessment year 1994-95: 107 ITD 267, was subsequently dismissed by the Hon ble High Court vide order dated 03.02.2012. In the aforesaid background, the appellant s appeals require adjudication. 13. In appeal for assessment year 1989-90 in ITA No. 2755/ Del/ 2012, as per ground no 1 -3 Appellant has challenged the validity of the reassessment order dated 21.03.2000. 14. The ld AR submitted that that the impugned re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 and then the entire expenditure will be permissible as a deduction. Therefore it was stated that reopening of the proceedings for apportionment and disallowance of part of the expenditure to indivisible activity of undertaking agricultural operation is erroneous. Therefore it was stated that in absence of any income that may be regarded possibly having escaped assessment the initiation of reassessment proceedings is patently illegal and bad in law. Assessee also stated that in reasons recorded there is no reference to section 14 A of the income tax act the assessee submits that proviso to section 14 A of the act specifically bars reopening of any proceedings for any assessment year of the assessment year 2001 02 by resorting to the provisions of the above section. The assessee relies on the decision of the honourable Delhi High Court in CIT versus PNB finance and industries Ltd (340 ITR 50) (Del) 16. Assessee also submitted that on perusal of the reasons recorded it can be seen that reassessment proceedings were initiated in initiated without any honest and justifiable reason to believe that income of the appellant had escaped assessment. Assessee submits that are in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in the end at the most some portion of 50% of the residual office expenses could at best be considered for the purpose of a location towards agricultural income. He submitted that it can be at the most percentage of agricultural income to the gross receipt of the appellant is a basis for allocation and disallowance and therefore the AO may be directed to a locate and disallowed at the most 3.25%, 5.06% and 6.75% for the respective assessment years of 50% of Baghwala office expenses. 19. With respect to ground number 10 12, it was submitted that as these grounds have already been adjudicated in the first round and there is no demand by the honourable High Court, these grounds does not require any adjudication. 20. For assessment year 1990 91 assessee submitted that the facts and circumstances are similar and therefore any decision of the coordinate bench for assessment year 1989 19 will apply. 21. With respect to assessment year 91-92, it is submitted that the facts are similar however the initiation of reassessment proceedings for assessment year is barred by limitation of four years prescribed in proviso to section 147 of the act. 22. The learned departmental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able High Court in para number 10 held as under:- 10. Having regard to the observations made hereinabove, we are of the opinion that the impugned judgment of the Tribunal, which is entirely based on a view held in the case of the assessee pertaining to assessment year 1994-95, would require reconsideration. We accordingly, set aside the impugned judgment and remand the matter to the Tribunal to examine the same in the light of the observations of this Court in Maxopp Investments Ltd. (supra). We have adopted this course so that the revenue s interest does not get impacted in the subsequent years, as the issue seems to be of a recurrent nature. It is this reason alone which has promoted us to take the second option. We make it clear that on remand parties will be free to address arguments on all issues, including on the aspect of re-assessment in view of observations made in paragraph 3 of the impugned judgment . 24. In view of the above categorical direction of the honourable High Court where it has been held that the order is remanded to the file of the coordinate bench with the liberty to the parties to address arguments on all issues including on the aspect of reassessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culture) is by virtue of a business activity (revenue) and therefore, its income is not agricultural income but taxable income. 26. Now we proceed to verify whether the reasons recorded produced before the honourable High Court by the revenue are whether identical to the reasons given to the assessee or not. For this we go to page number 249 253 of the paper book filed by the assessee. Page number 249 is the letter of Deputy Commissioner of income tax (OSD), Bareilly to the Commissioner of income tax Lucknow dated 30 April 1997 which is a proposal under section 147 of the income tax act in case of the assessee for which sanction is requested. Along with that letter at page number 250 is an act the form for recording the reasons for initiating proceedings under section 148 of the act for obtaining the approval of the Commissioner of income tax. To that form there is an annexure A which is the reason recorded for the reopening of the assessment. This is corroborated by para number 11 of the form for recording the reasons for initiating proceedings under section 148 of the act submitted for obtaining the approval of the Commissioner. The annexure A reads as under:- Annexure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r research and development activity and nursery. The nursery is of 20 acres. The nursery is to be sifted every two years to regenerate the soil. Therefore, an area of approximately 20 acres is kept vacant and used for traditional agriculture. This is because the nursery is to be sifted these subsequently. The nursery or for that matter, no land is used for one activity only. The rotation is done to regenerate the soil. The assessee company had shown agricultural income of ₹ 6 24786/ in assessment year 1989 90, ₹ 6 79097/ in assessment year 1990 91 and ₹ 8 32609/ in assessment year 1991 92 apart from other business income. The assessment was completed under section 143 (1)(a) of the income tax act, 1961 in assessment year 89 90 and 90 91. The assessment in assessment year 91 92 has been under section 143 (3) of the income tax act 1961. In assessment year 89 90, as stated above the agricultural income has been shown at ₹ 6 24786/ but the computation of the agricultural income is not given with the return of income. As per schedule J the assessee has debited a sum of ₹ 9 51249 under the head fertilizer and chemicals, ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment years. From the facts and circumstances of the case stated above, I have reason to believe that income chargeable to tax has escaped assessment in assessment year 1989 90, 90 91 and 91 92 to the extent of agricultural income shown in the relevant assessment year. Since four years have left from the end of the relevant assessment year your kind approval is solicited for issuing notice under section 148 of the income tax act 1961. 27. On perusal of above two statements (one) the reasons supplied it to the assessee and (two) the reasons some before the High Court, it is apparent that both are altogether different. It is not denied that in context and in substance they are same but there should be same ad verbatim. It cannot be the case of the revenue that it gives few extracts of the reasons to the assessee to defend it against the reopening of the assessment and when cornered before the higher authorities, the revenue comes out with the detailed reasons recorded by the assessing officer. In fact in all circumstances the assessing officer is supposed to provide the complete reasons recorded for reopening of the assessment to facilitate the assessee to defend itself agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome has escaped assessment . Under this heading, the following is recorded : 11. Reasons for the belief that income has escaped assessment. Original assessment in this case was completed on March 7, 2001, under section. 143(3). There was failure on the part of the assessee to disclose fully and truly all material facts relating to accommodation entries raised from the one of the companies of Sh. Sanjay Rastogi to the extent of ₹ 5 lakhs. Therefore, I have reasons to believe that income to the extent of ₹ 5 lakhs has escaped assessment. (Sd.) . . . . . . . . . . . . Satpal Singh, Asstt. Commissioner of Income-tax Central Circle-18, New Delhi 17. It is apparent by comparing these purported reasons with the reasons extracted earlier and which had been supplied to the petitioner that the two are different. While in the reasons supplied to the petitioner there is no mention of the allegation that there was a failure on the part of the assessee to disclose fully and truly all material facts, in the reasons shown in the said form in annexure A to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said about these reasons (noted in the form) when the petitioner filed its objections to the reasons which were supplied to it ? It must be remembered that in its objections, the petitioner took the specific plea that in the absence of any allegation that the petitioner had failed to disclose fully and truly all material facts necessary for assessment, the Assessing Officer had no jurisdiction to issue the notice under section 148 and initiate action under section 147 after four years from the end of the relevant assessment year. Despite this precise objection, there is no mention of the reasons noted in the said form in the impugned order dated March 2, 2005. If the respondents had regarded the reasons noted in the said form to be the actual reasons, it would have been very easy for the Assessing Officer to have countered this objection by simply referring to the reasons noted in the form and saying that the allegation of failure to disclose is very much there. It is obvious that the reasons noted in the said form were never regarded as the reasons for initiating action under section 147 of the said Act. Thus, the respondents cannot now be permitted to fall back on those pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e complete transparency and adherence to the principles of natural justice. Thus, a deviation from these directions would entail the nullifying of the proceedings. Assuming as we have done that the actual reasons were those as noted in the said form, it is obvious that the reasons were never communicated to the petitioner and it is only for the first time in the course of the present writ petition that those reasons have surfaced. Therefore, if he proceeded on the assumption that the actual reasons were those as noted in the said form, the proper course of action as directed by the Supreme Court in G. K. N. Driveshafts [2003] 259 ITR 19, has not been followed. It would mean that the reasons which were supplied to the petitioner were not the actual reasons and the objections which were taken by the petitioner were not to the actual reasons and the speaking order dated March 2, 2005, which was passed was also neither on the basis of the actual reasons nor the objections to the actual reasons. The entire process would be a sham and would amount to making a mockery of the law as settled by the Supreme Court. Therefore, for this reason also, the notice under section 148 as well ..... X X X X Extracts X X X X X X X X Extracts X X X X
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