M/S GOKULDAS EXPORTS V. THE ASSISTANT COMMISSIONER OF INCOME TAX

ITA/635/2016

AI Insights

The case involves M/s Gokuldas Exports, which is now known as M/s Gokaldas Exports Limited, appealing against the order of the ITAT, Bengaluru, concerning the reassessment for the Assessment Year 1995-96. The primary issues revolved around the validity of the notice under Section 148 of the Income Tax Act, 1961, and the subsequent reassessment. The ITAT had previously granted partial relief to the appellant, which was contested by the Revenue, leading to a remand by the High Court. Upon re-evaluation, the ITAT dismissed the appeal, prompting the current appeal to the High Court, which resulted in the setting aside of the ITAT's order and a remand for fresh consideration.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 754032 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 19-07-2022
• Assessment Year: misc
• Other Referred Cases: INDIAN & EASTERN NEWSPAPER SOCIETY v. COMMISSIONER OF INCOME-TAX, SHREE CHAMUNDI MOPEDS LTD. v. CHURCH OF SOUTH INDIA TRUST ASSOCIATION, M/S. KARNATAKA FINANCIAL SERVICES LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX, PRINCIPAL COMMISSIONER OF INCOME TAX, NEW DELHI v. MARUTHI SUZUKI LTD.
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: A SHANKAR; BHAIRAVKUTTAIAH
• Keywords: Audit objection; Capital Gains; Income tax appeal; Jurisdictional issue; Notice under section 148; Reassessment; Transfer of Assets; Validity of notice
• Section: 147; 148; 143(3); 151(1); 45(4); 260-A; 143(3) read with 147

Judgement Text

"IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 19TH DAY OF JULY, 2022 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON’BLE MR. JUSTICE C.M. POONACHA ITA No.635/2016 BETWEEN: M/S GOKULDAS EXPORTS (ERSTWHILE PARTNERSHIP FIRM) PRESENTLY KNOWN AS M/S GOKALDAS EXPORTS LIMITED, NO.16/2,RESIDENCY ROAD, BANGALORE-560 025 ...APPELLANT (BY SRI: A.SHANKAR SR. ADVOCATE FOR SRI. BHAIRAV KUTTAIAH, ADVOCATE) AND: THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-11(2) 80 FEET ROAD, BMTC BUILDING, KORAMANGALA BANGALORE-560 095 …RESPONDENT (BY SRI: K.V. ARABIND, ADVOCATE) THIS ITA / INCOME TAX APPEAL UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 08/06/2016, PASSED IN ITA NO.1062/BANG/2004, FOR THE ASSESSMENT YEAR 1995-96. PRAYING TO: 2 I. TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. TO ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE ITAT, BENGALURU BENCH, B IN ITA NO. 1062/BANG/2004 DATED: 08/06/2016 FOR THE ASSESSMENT YEAR 1995-96. (ANNEXURE A). III. TO PASS SUCH OTHER ORDERS, AS THIS HON'BLE COURT DEEMS FIT AND PROPER TO MEET THE ENDS OF JUSTICE. THIS ITA COMING ON FOR HEARING, THIS DAY P.S. DINESH KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT This appeal by the assessee has been admitted to consider the following questions of law: 1. Whether the Tribunal was justified in law in not adjudicating the grounds on reopening raised by the appellant on the facts and circumstances of the case? 2. Whether the notice issued under section 148 of the Act is valid in law without obtaining the sanction as per provisions of section 151(1) of the Act on the facts and circumstances of the case? 3. Whether the mandatory conditions to assume jurisdiction under section 147 of the Act exist for issue of notice under section 3 148 of the Act on the facts and circumstances of the case? 4. Whether the reasons recorded for issue of notice under section 148 of the Act without making any allegation that the appellant has failed to disclose fully and truly all material facts necessary for the assessment is valid in law on the facts and circumstances of the case? 5. Whether the assessment reopened based on the audit objection is valid in law on the facts and circumstances of the case? 6. Whether the notice issued under section 148 and order passed under section 143(3) read with section 147 of the Act in the name of the partnership firm which was not in existence is valid in law on the facts and circumstances of the case? 7. Whether the Tribunal was justified in law in holding that the provisions of section 45(4) of the Act are applicable in respect of the assets allotted to the partners by passing the journal entries wherein the book value of assets were reduced from the fixed assets and the capital account of the partners were 4 correspondingly reduced on the facts and circumstances of the case? 8. Whether the Tribunal was justified in law in confirming the computation made under section 45(4) of the Act when the properties had been withdrawn by the partners held in their names and consequently there was no transfer of capital asset to attract the provisions of section 45(4) of the Act on the facts and circumstances of the case? 9. Without prejudice whether any capital gains arise when the assets have been transferred at book value and consequently no capital gain is computable on the facts and circumstances of the case? 10. Without prejudice whether the authorities were justified in assessing the firm after it had ceased to exist on the facts and circumstances of the case? 11. Whether the Tribunal was justified in not considering the ground raised by the appellant with respect to the value adopted by the Assessing officer was not correct on the facts and circumstances of the case? 5 2. Brief facts of the case are, Assessee filed its returns for the Assessment Year 1995-96. An order of assessment was passed under Section 143(3) of the Income Tax Act, 1961 (for short ‘Act’). Subsequently, a notice under Section 148 was issued and reassessment order was passed. Assessee unsuccessfully challenged the same before the CIT(A)1 and subsequently ITA No.1062/Bang/2004 before the ITAT2, Bangalore. By its order dated January 6th, 2006 the ITAT partly allowed the appeal and granted the relief sought for, on the merits of the case. So far as the question whether the assessment was reopened based on audit objection, it recorded in para 3.1 that reopening was based on information of the Assessing Officer. Revenue challenged the said order in ITA No.964/2006. This Court vide order dated November 8th, 2011 remanded the matter to ITAT by the following order: “The appeal is allowed. The order dated 6-1-2007 passed by the ITAT in ITA No.1062/Bang/2004 is set aside. ITA No.1062/Bang/2004 is restored to the file of the ITAT with a direction to dispose of 1 Commissioner of Income Tax (Appeals) 2 Income Tax Appellate Tribunal, Bangalore 6 the appeal in the light of the observations made in the order. All the contentions of the parties are kept open to be urged before the ITAT.” 3. After the remand, the ITAT has passed the impugned order dismissing the appeal in its entirety. While doing so, with regard to the aspect of the reopening the assessment it has held that assessee did not file any appeal before this Court nor raised any plea during the hearing of the appeal filed by the Revenue and thus, the finding recorded by the Tribunal had attained finality and the direction of this Court was limited only to the issues decided by this Court against Revenue. 4. Shri.A.Shankar, learned Senior Advocate submitted that Questions No.1, 2 and 3 are with regard to the validity of notice under Section 148 of the Act. He submitted that the Assessing Officer in his order dated March 26th, 2002 has recorded that the assessment has been reopened based on Revenue audit objection. Therefore, the notice is wholly unsustainable in view of law 7 laid down in INDIAN & EASTERN NEWSPAPER SOCIETY v. COMMISSIONER OF INCOME-TAX3. 5. He submitted that the issue with regard to Questions No.4, 7, 8 and 9 are on the merits of the matter on the aspect whether the transfer of assets ought to have been considered under Sections 45(1) or 45(4) of the Act. He submitted that in the first round of litigation, ITAT had granted relief to the appellant. However, by the impugned order the ITAT has recorded findings against assessee and dismissed the appeal. He urged that jurisdictional issue with regard to issuance of notice under Section 148 of the Act goes to the root of the matter and the Tribunal has recorded an adverse finding and the same requires reconsideration by the ITAT. He submitted that in view of law laid down in SHREE CHAMUNDI MOPEDS LTD. v. CHURCH OF SOUTH INDIA TRUST ASSOCIATION4 followed by this Court in M/S. KARNATAKA FINANCIAL SERVICES LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX5, when the matter is remanded, the 3 [1979] 119 ITR 996 (SC) para 20 4 [1992] 3 SCC 1 5 ITA No.88/2015 decided on 08.02.2021 8 resultant position would be that the appeal which had been disposed of by the appellate authority would be restored. 6. With regard to Question No.10 he submitted that the partnership firm was converted into a Company under Part IX of the Companies Act, 1956 and therefore, the said partnership firm seized to exist. He urged that the settled position of law is, a notice ought to have been issued to the company which succeeded the partnership firm. In support of this contention, he placed reliance on PRINCIPAL COMMISSIONER OF INCOME TAX, NEW DELHI v. MARUTHI SUZUKI LTD.6 7. In reply, Shri.Aravind, learned Standing Counsel submitted that this question was never raised by the assessee throughout. Therefore, assessee is estopped from raising this question and same cannot be considered by this Court. 8. Shri.Shankar also placed reliance on PRINCIPAL COMMISSIONER OF INCOME TAX, NEW DELHI v. MARUTHI SUZUKI LTD. and submitted that the 6 [2019] 107 taxmann.com 375 (SC) para 33 9 Apex Court has held that participation of the assessee in proceedings also cannot operate as estoppel against law. 9. Question No.11 is with regard to computation of capital gains. Shri. Shankar submitted that in the first round of litigation the ITAT has not considered this aspect and assessee had filed a miscellaneous petition and the same was allowed in favour of the assessee. The revenue challenged the same in ITA No.195/2006 and this Court vide order dated August 6th, 2012 held that since the main order had been set aside and matter was remanded, the ITAT shall consider the valuation aspect in the fresh order to be passed after the remand. 10. In substance, he contended that computation of capital gains though directed to be considered by this Court, the ITAT has not considered in second round of litigation. 11. We have carefully considered the rival contentions and perused the records. 10 12. So far as the question whether notice under Section 148 of the Act is one of jurisdiction of the Assessing Officer, it is to be noted that it is purely a question of law and can be raised at any stage. Tribunal in the impugned order has held that assessee had not filed any appeal nor raised any plea during hearing of the appeal on that aspect. It is relevant to record that in the first round of litigation the ITAT had granted full relief to the assessee. Feeling aggrieved by that order, the revenue had filed an appeal before this Court. 13. Shri. Aravind’s contention is that assessee did not file an independent appeal nor a cross objection. Therefore, in the impugned order, ITAT has rightly recorded that assessee had not challenged the said aspect and dismissed the appeal. 14. Once there is no dispute with regard to the question that issuance of notice under Section 148 of the Act is a jurisdictional issue and ITAT had granted full relief to the assessee, we are persuaded to accept the submission made by Shri.Shankar that assessee did not challenge that 11 finding, because, it was unnecessary and would only increase the litigation. In our considered view the matter requires reconsideration in the hands of ITAT on this aspect. 15. Questions No.7, 8 and 9 are on merits. In view of law laid in SHREE CHAMUNDI MOPEDS LTD. v. CHURCH OF SOUTH INDIA TRUST ASSOCIATION7, the matter requires reconsideration by the ITAT. 16. So far as Question No.10 is concerned, Shri. Aravind’s contention is that with regard to transactions which were concluded whilst the firm was partnership in nature, the notice has to be issued in the name of partnership firm. But, undisputed fact is, firm has been converted into a Part IX company. Referring to Section 188 of the Act it was urged by Shri.Aravind that the notice has been rightly issued to the Partnership firm. Since we are persuaded to remand the matter, we do not wish to consider this aspect on merits and keep this contention open. 7 [1992] 3 SCC 1 12 17. Question No.11 is with regard to valuation. In the impugned order the Tribunal has not recorded any finding on this aspect. 18. In view of the above, the following order: ORDER (1) Appeal is allowed. (2) Order dated 08.06.2016 passed in ITA No.1062/Bang/2004 by the Income Tax Appellate Tribunal Bangalore Bench “B” is set aside. (3) Matter is remanded for fresh consideration by the ITAT as expeditiously as possible. (4) Liberty is reserved to the aggrieved party to challenge the questions of law raised with regard to the merits of the case based on the outcome of the order to be passed by the ITAT on the jurisdictional 13 aspect with regard to issuance of notice under Section 148 of the Act and the valuation. No Costs. SD/- JUDGE SD/- JUDGE DR "