HINDUSTAN LIVE STOCK AGENCY V. DY.COMMISSIONER OF INCOME TAX

MA/586/2008

AI Insights

The case involves multiple appeals by Hindustan Live Stock Agency against the Deputy Commissioner of Income Tax concerning reassessments for the assessment years 1992-93 and 1993-94. The reassessments were initiated following the involvement of one of the partners, Rajeev Malik, in a criminal case related to the Fodder Scam, which raised suspicions about the financial dealings of the agency. The primary legal issues revolved around the validity of the reassessment under Section 147 of the Income Tax Act and the procedural handling of the appeals by the Income Tax Appellate Tribunal. The High Court's decision dismissed the appeals, affirming the lower authorities' findings and the Tribunal's procedural correctness.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 751535 (HC-PATNA)
• Appeal Type: Others
• Pronouncement Date: 25-04-2012
• Assessment Year: misc
• Other Referred Cases: Central Provinces Manganese Ore. Co. Ltd. v. ITO, IAC of IT v. VIP Industries Ltd., Phool Chand Bajrang Lal Vs. ITO, Calcutta Discount Co. Ltd. Vs. ITO
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: HARSHWARDHAN PRASAD; ARCHANA SINHA
• Assessee Lawyers: KRISHNA NANDAN SINGH; KAMAL DEO SHARMA; SHIVJEE SINGH
• Keywords: Assessment Year; Fodder scam; Income Tax; Limitation; Reassessment
• Section: 147; 148; 143(3); 254(2); 234B; 234A

Judgement Text

"IN THE HIGH COURT OF JUDICATURE AT PATNA Miscellaneous Appeal No.588 of 2008 ====================================================== Hindustan Live Stock Agency, 1/158, Gali Bagichiwali, Punja Sharif, Kashmiri Gate, Delhi-110 006, through its partner Rajeev Malik. .... .... Assessee/Appellant/Respondent/Appellant. Versus Dy. Commissioner of Income Tax, Central Circle-1, Central Revenue Building, Patna-800 001. .... .... Assessing Officer/Respondent/Appellant/Respondent. ====================================================== with Miscellaneous Appeal No.589 of 2008 ====================================================== Hindustan Live Stock Agency, 1/158, Gali Bagichiwali, Punja Sharif, Kashmiri Gate, Delhi-110 006, through its partner Rajeev Malik. .... .... Assessee/Appellant/Respondent/Appellant. Versus Dy. Commissioner of Income Tax, Central Circle-1, Central Revenue Building, Patna-800 001. .... .... Assessing Officer/Respondent/Appellant/Respondent. ====================================================== with Miscellaneous Appeal No.586 of 2008 ====================================================== Hindustan Live Stock Agency, 1/158, Gali Bagichiwali, Punja Sharif, Kashmiri Gate, Delhi-110 006, through its partner Rajeev Malik. .... .... Assessee/Appellant/Respondent/Appellant. Versus Dy. Commissioner of Income Tax, Central Circle-1, Central Revenue Building, Patna-800 001. .... .... Assessing Officer/Respondent/Appellant/Respondent. ====================================================== with Miscellaneous Appeal No.585 of 2008 ====================================================== Hindustan Live Stock Agency, 1/158, Gali Bagichiwali, Punja Sharif, Kashmiri Gate, Delhi-110 006, through its partner Rajeev Malik. .... .... Assessee/Appellant/Respondent/Appellant. Versus Dy. Commissioner of Income Tax, Central Circle-1, Central Revenue Building, Patna-800 001. .... .... Assessing Officer/Respondent/Appellant/Respondent. ====================================================== Appearance : (In MA No.588 of 2008) For the Appellant/s : Mr. Dr. Krishna Nandan Singh, Sr. Adv. Mr. Dr.Kamal Deo Sharma, Advocate. Mr. Shivjee Singh, Advocate. For the Respondent/s : Mr. Harshwardhan Prasad, Advocate. Mr. Archana Sinha, Adv. 2 (In MA No.589 of 2008) For the Appellant/s : Mr. Dr. Krishna Nandan Singh, Sr. Adv. Mr. Dr.Kamal Deo Sharma, Advocate. Mr. Shivjee Singh, Advocate. For the Respondent/s : Mr. Harshwardhan Prasad, Advocate. Mr. Archana Sinha, Adv. (In MA No.586 of 2008) For the Appellant/s : Mr. Dr. Krishna Nandan Singh, Sr. Adv. Mr. Dr.Kamal Deo Sharma, Advocate. Mr. Shivjee Singh, Advocate. For the Respondent/s : Mr. Harshwardhan Prasad, Advocate. Mr. Archana Sinha, Adv. (In MA No.585 of 2008) For the Appellant/s : Mr. Dr. Krishna Nandan Singh, Sr. Adv. Mr. Dr.Kamal Deo Sharma, Advocate. Mr. Shivjee Singh, Advocate. For the Respondent/s : Mr. Harshwardhan Prasad, Advocate. Mr. Archana Sinha, Adv. ====================================================== CORAM: HONOURABLE MR. JUSTICE SHIVA KIRTI SINGH And HONOURABLE MR. JUSTICE ADITYA KUMAR TRIVEDI C.A.V. ORDER (Per: HONOURABLE MR. JUSTICE ADITYA KUMAR TRIVEDI) 2. 25-04-2012 All the four appeals, i.e, M.A. No.585 of 2008, M.A. No.586 of 2008, M.A. No.588 of 2008, M.A. No.589 of 2008 are in between the same party and involve common questions of facts and law, therefore with the consent of the parties there has been analogous hearing and these are being disposed of by common order. 2. The brief facts of the case are independently dealt with. (A) M.A. No.585 of 2008 and M.A. No.589 of 2008. Petitioner happens to be an assessee. For the assessment year 1992-93 he had furnished return / statement which was accepted by the Department and the matter was concluded thereafter. Subsequently, petitioner and its partner emerged as an accused in 3 Fodder Scam bearing case no.RC-45(A)/96-PAT dated 19.04.1996 and on the basis thereof, scope of reassessment was found and for that he was noticed under Section 148 of the I.P.C. and in compliance thereof submitted return under Section 147 before Assessing Officer which was the copy of earlier return so submitted in compliance of Section 143(3) of the Income Tax Act. The aforesaid return was rejected by the Assessing Officer who assessed the total (100%) of receipts as income amounting to Rs.35,83,173/-, and accordingly raised a demand of Rs.10,95,611/-. Being aggrieved, an appeal was preferred before the Commissioner of Income Tax which was allowed to the extent of considering the income as 40% of the receipt from Animal Husbandry Department, Government of Bihar. Interest charged under Section 234A, 234B of the Income-tax Act was to be only upon income returned by the appellant. The aforesaid order led to filing of appeal before Income Tax Appellate Tribunal by the appellant / assessee as well as Department / Revenue. The appeal filed on behalf of appellant / assessee was rejected while appeal filed on behalf of Department / Revenue was allowed. Against the aforesaid order miscellaneous appeal was filed before the High Court which was rejected summarily. Simultaneously, appellant / assessee had also filed petition under Section 254(2) of the Income Tax Act for rectification/ modification of the order of the Income Tax Appellate Tribunal on the point of non- consideration of limitation petition. Meanwhile, against the rejection of miscellaneous appeal by the High Court, appellant / assessee 4 preferred S.L.P. before the Hon’ble Apex Court which was dismissed in the background of pendency of petition filed under Section 254(2) of the Income-tax Act before the Income-tax Appellate Tribunal with a liberty to file an appeal before the High Court on merit as well as limitation in case petitioner / assessee gets an adverse order from Income Tax Appellate Tribunal where the matter over limitation was being reconsidered. After rejection of the prayer of the petitioner on the point of limitation, instant appeal has been filed. So Misc. Petition No.585 of 2008 happens to be relating to merit of the case while 589 of 2008 happens to be relating to limitation. (B) M.A. No.586 of 2008 & M.A. No.588 of 2008. The facts as well as events of the case is same save and except it relates to assessment year of 1993-94. Hence detailed description of factual aspect is averted. 3. It has been submitted on behalf of petitioner / assessee that reopening of assessment in pursuance of Section 147 of the Income-tax is not at all maintainable because of the fact that there was no concrete material before the Assessing Officer to justify his action. To buttress his plea, it has been submitted that sole ground for reopening has been on the basis of institution of R.C. Case No.45(A)/96 wherein one of the partner Rajeev Malik figured as an accused but subsequently, after conclusion of investigation he was not sent up for trial. Further submission is treating the total receipt as income happens to be bad in light of the fact that expenses have been 5 properly explained and supported by probable, cogent and reliable material brought before the Department / Revenue. Then submitted that acceptance of return and subsequent reopening are governed by two different principles. At the time of submission of return, the assessee has bounden duty to support his plea of exemption with specific document / evidence and once it is accepted, the obligation on the part of assessee stood finally discharged. While in case of reopening, it is the Department who carries obligation to show that there happens to be concealment of income on the part of assessee, by cogent and reliable material, which the Department / Revenue has overtly failed. Consequent thereupon manner of assessment after reopening happens to be contrary to the spirit of law. 4. It has further been submitted that the learned Income-tax Appellate Tribunal had adopted wrong procedure while disposing of the respective appeals filed on behalf of assessee as well as Department / Revenue. There was no argument from either side on the point of limitation at an initial stage in the appeal filed on behalf of Department against the order of the Commissioner Income Tax and therefore when petition was filed under Section 254(2) of the Income Tax Act, the Income Tax Appellate Tribunal kept the operation of the main order in abeyance which again surfaced after disposal of petition under Section 254(2) of the Income Tax Act. Condonation of limitation was assailed on the ground that it is evident from circumstantial evidence that the concerned officer was available at his 6 office during the relevant period. As such, it has been submitted that there has been flagrant violation of procedural law which vitiates the successive orders. Reliance was also placed upon decisions reported in 118 ITR 1, 220 ITR 531, 130 ITR 1, 82 ITR 1, 320 ITR 561, 93 ITR 198, 234 ITR 170, AIR 1955 SC 65, (1992) 4 SCC 363, AIR 1976 SC 1753, 242 ITR 487, AIR 1980 SC 1271, (1972) 4 SCC 402, (1998) 2 SCC 95, 247 ITR 209, 210, 192. 5. On the other hand, the learned lawyer representing the Department / Revenue submitted that the only requirement attracting application of Section 147 of the Income Tax Act regarding reopening of the matter is based upon satisfaction of the Assessing Officer which he forms after getting information from any source. Reopening is proper if this information is sufficient to put doubt in the mind of the Assessing Officer regarding escapement of taxable income. Admittedly, one of the partners, Rajeev Malik had his presence as an accused in R.C. Case No.45(A)/96 popularly known as fodder scam wherein the accused appeared to have commonly designed, conspired and on the basis of production of forged and fraudulent documents managed to withdraw crores and crores from different treasuries and that was found sufficient for the satisfaction of the Assessing Officer by creating doubt and suspicion regarding genuineness of the return which was earlier submitted in accordance with Section 143(3) of the IT Act. 6. Further submission of Revenue is that in pursuance of 7 notice under Section 148 of the I.T. act, assessee had submitted same return which was filed in pursuance of Section 143(3) of the IT Act and as during course of the proceeding under Section 147 of the IT Act, assessee failed to discharge his obligation in placing the relevant receipts in support of exemptions availed at an earlier stage, on account of admitted receipt it has been rightly reassessed. 7. Further submission is that learned Commissioner while disposing of appeal filed on behalf of assessee dealt with in hypothetical manner and on his own illusion reduced the income to 40% of total receipts and directed the assessee to pay tax thereupon along with interest. Accordingly, apart from assessee, Department / Revenue also chose to challenge the order but on account of deployment for election duty of the competent authority, memo of appeal could not be signed and so there was delay of only 10 days in filing appeal. The Income Tax Appellate Tribunal after hearing both sets of appeals rejected the appeal filed on behalf of assessee and allowed the appeal filed on behalf of Department. Although, the plea of limitation was taken into consideration by the Income Tax Tribunal which order stood confirmed by the High Court meanwhile only to linger the issue, assessee filed petition under Section 254(2) of the I.T. Act and the Income Tax Appellate Tribunal after taking into account the period of delay, cause of delay and the judicial pronouncement of the Hon’ble Apex Court decided the issue and condoned the delay. The pendency of petition under Section 254(2) of the I.T. Act was 8 taken into consideration by the Hon’ble Apex Court in S.L.P. and in the aforesaid background the S.L.P. were dismissed providing an opportunity to the petitioner to raise the issue before the High Court on merit as well as on the point of limitation in case the order stood adverse. 8. In the background of aforesaid factual aspect, condonation of limitation happens to be in accordance with law and so, it does not attract any sort of interference. In likewise manner it has also been argued that as the petitioner failed to discharge his obligation in proving the expenditure for exemptions as shown in the return, the ultimate result was treatment of total receipts as income liable to tax. 9. No point was formulated at an earlier occasion which happens to be a mandate of Section 260(A) of the IT Act. According to learned counsel for the appellant the following legal points need consideration as substantial questions of law:- A. Whether being an accused at an initial stage in R.C. Case No.45 (A) of 1996 but not charge sheeted could be treated as an information to justify procedure of Sections 147, 148 of the I.T. Act permitting reopening of assessment? B. Whether at the time of reopening of assessment the burden shifts from assessee to Department in proving escape of taxable income? C. Whether the procedure followed by the successive authority and Tribunal happens to be in accordance with law? 9 10. Point No. A. Section 147 of the I.T. Act prescribes reopening of assessment for any assessment year within four years when the Assessing Officer has reasons to believe that any income chargeable to tax has escaped assessment during the relevant assessment year. The reason to believe has not been defined under law and so it could be considered in its logical parlance. In my view, any information which casts doubt in the mind of the Assessing Officer regarding escapement of chargeable income is suffice to attract applicability of Section 147 of the I.T. Act. So far this particular case is concerned, there is no controversy that one of the partner, Rajeev Malik at initial stage was arrayed as an accused in R.C. Case No.45 (A) of 1996 which was registered for defalcation committed in the Animal Husbandary Department, Government of Bihar by fraudulent withdrawal of huge amount on the basis of forged and fabricated documents without actual supply. There is also no dispute to the fact that aforesaid Rajeev Malik was not charge sheeted. In the aforesaid event, whether presence of Rajeev Malik as an accused will justify reopening. According to the learned counsel for the petitioner, the same cannot be because of the fact that the status of Rajeev Malik as accused was negated when after conclusion of investigation he was not sent up for trial. That means to say his conduct was found to be bonafide and whatever withdrawal was made by him, that was not under dispute. So it is argued that views of the learned Assessing Officer on this score is contrary to the factual aspect and further was 10 not at all supported with any material. 11. Whether presence of Rajeev Malik as an accused in R.C. Case No.45 (A) of 1996 was sufficient for invoking provision of Section 147 as it was satisfying “reason to believe”, stands answered by decision of the Hon’ble Apex Court in Central Provinces Manganese Ore. Co. Ltd. v. ITO [1991] 191 ITR 662, at page 666, wherein it has been observed: “The only question which arises for our consideration is as to whether the two conditions required to confer jurisdiction on the Income-tax Officer under Section 147(a) of the Act have been satisfied in this case. The first is that the Income-tax Officer must have reason to believe that the income chargeable to income-tax had been underassessed and the second that such under assessment has occurred by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the year 1953-54”. “So far as the first condition is concerned, the Income-tax Officer, in his recorded reasons, has relied upon the fact as found by the Custom Authorities that the appellant had under-invoiced the goods it exported. It is no doubt correct that the said finding may not be binding upon the income-tax authorities but it could be a valid reason to believe that the chargeable income has been underassessed. The final outcome of the proceeding is not relevant. What is relevant is the existence of reasons to make the Income-tax Officer believe that there has been under assessment of the assessee‟s income for a particular year. We are satisfied that the first condition to invoke the jurisdiction of the Income-tax Officer under Section 147(a) of the act was satisfied”. 12. In another decision reported in IAC of IT v. VIP Industries Ltd. [1991] 191 ITR page 661 (SC), a three-judges Bench of the Hon’ble Apex Court has held: “After hearing learned counsel for both the parties, we are unable to uphold 11 the order of the High Court. It appears that, subsequently, facts have come to the notice of the Income-tax Department that the facts disclosed in the return are not a true and correct declaration of facts. In that view of the matter, we set aside the order of the High Court passed in Writ Petition No.1634 of 1998 with Writ Petition No.2919 of 1998, and send the case back on remand to the Income-tax Officer for a decision in accordance with law after giving an opportunity of hearing to the respective parties”. In Phool Chand Bajrang Lal Vs. ITO (1993) 203 ITR 456, at page 477 it has been observed: “Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief is not for the court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrive at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief.” 13. Section 34 of the repealed IT Act which corresponds to Section 147 of IT Act, 1961 was taken into consideration by the Constitutional Bench of the Hon’ble Apex Court in Calcutta Discount Co. Ltd. Vs. ITO (1961) 41 ITR 191 wherein the scope of Section 34 was elaborately dealt with at page 199. “To confer jurisdiction under this Section to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year two conditions have, therefore, to be satisfied. The first is that the Income-tax Officer must have reason to believe that the income, profits or gains chargeable to income tax have been under assessed. The second is that he must have also reason to believe that such „underassessment‟ has occurred by reason of either (i) omissions or failure on the part of an assessee to make a return of his income under Section 22, or 12 (ii) omissions or failure on the part of an assessee to disclose fully and truly all materials facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income Tax Officer could have jurisdiction to issue a notice for the assessment or reassessment beyond the period of four years, but within the period of eight years, from the end of the year in question…. The words used are „omission or failure to disclose fully and truly all materials facts necessary for his assessment for that year.‟ It postulates a duty on every assessee to disclose fully and truly. All material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, the Assessing Authority will, for the purpose of computing or determing the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the Assessing Authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertained on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is a capital receipt, or a revenue receipt, the Assessing Authority has to find out what primary facts have been proved, what other facts can be inferred from them, and, taking all these together, to decide what the legal inference should be…. We have, therefore, come to the conclusion that why the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this.” 14. So from the aforesaid legal citations as well as from the relevant section 147, it is evident that the Assessing Officer was fully competent to re-open and issue notice in accordance with Section 148 of the IT Act and further, presence of one of the partner as an accused in R.C. Case No. 45(A) of 1996 was sufficient to infer reasonable belief for escapement of chargeable income. At the other hand no flaw 13 has been found during the exercise done by the Assessing Officer while re-opening the matter. Hence this issue is decided in favour of Departments / Revenue. 15. Point No. B. Learned counsel for the appellants has taken a stand that in view of concluded assessment proceedings under Section 143, in a proceeding for reassessment the burden of establishing any escaped income shall always be upon the Revenue. He has sought to distinguish the case law on this issue – CIT Versus Calcutta Agency : 19 ITR 191 (SC) on which reliance has been placed by Revenue by pointing out that the assessee in that case had never proved at any time expenses claimed and therefore burden of proof rested upon assessee to prove the expenses claimed as permissible deductions. 16. On the other hand, it was pointed out by learned counsel for the Revenue that no material or order has been shown to support the stand that appellants had been subjected to scrutiny in relation to expenses claimed as deductions and they had ever proved the same. In reply, the appellants failed to show that they had ever proved the expenses claimed. Hence, the burden of proof in this case, has rightly been cast upon the appellants as they only could bring evidence and materials to support their claim for deduction of business expenses. 17. At this moment one should not loss site of Section 139 of the I.T. Act whereunder every assessee has an obligation to furnish voluntarily true facts consistent of his total income. The obligation, as 14 it appears from plain reading of the Section itself, is to be discharged by way of disclosing all material facts necessary for his assessment for that year, fully and truly. If at any subsequent point of time, it is found that either on account of an omission or failure to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax have escaped from assessment for that year then in that event, as it appears, the reopening of assessment will not absolve the assessee from discharging his obligation. The burden of discharging aforesaid obligation is to be taken and considered in the background of the fact that it is the assessee who is fully equipped with an information with regard to the facts and figure of expenses incorporated in the return. So, to the best satisfaction of Assessing Officer, the same has to be explained by the assessee. 18. Had there been proper compliance of Section 139 at the hands of assessee by way of making true facts disclosed in the return, there was no need for reopening for reassessment. As per Section 139 the burden lies upon the assessee and having failure on his part, attracts reassessment. This event is not going to exonerate the assessee from the burden which he is bound to discharge. In a constitutional bench decision reported in (1961) 41 ITR 191 Kolkatta Discount Company Limied Vs. Income Tax Officer it has been held: “The duty imposed by the Act upon the tax payer is to make a full and true disclosure of all material facts necessary for the assessment. He is not required to inform the Income Tax Officer as to what legal inference should be drawn from the facts disclosed by him nor to advise him on question of 15 law. Whether on facts found or disclosed, the company was a dealer in shares, may be regarded as a conclusion on mix question of law and fact and from the failure on the part of the company to disclose to the Income-tax Officer this legal inference, no fault be found with the company. But on the evidence in the case, the plea raised by the company that all material facts were disclosed cannot be accepted”. That means to say the obligation shared by an assessee was to continue till the exercise of reopening of assessment is completed. Therefore, the assertion of the assessee that his obligation remains only up to filing of return cannot be entertained in the light of aforesaid discussions and is accordingly answer so. 19. Point No. C. With regard to reopening of assessment is concerned, as per law laid down by the Hon’ble Apex Court in AIR1968 Supreme Court page 49 Commissioner of Income-tax vs. M/s A. Raman & Company at para-5 it has been held: The condition which invest the Income-tax Officer with a jurisdiction has two branches (i) that the Income-tax Officer has reason to believe that income chargeable to tax has escaped assessment and (ii) that it is in consequence of information which he has in his possession. Therefore reopening of the case in accordance with Section 147 and 148 followed up by subsequent proceeding while exercising appellate jurisdiction are found to be in accordance with law. Initially the Income-tax Appellate Tribunal while dealing with the case, had erroneously condoned limitation without opportunity of contest by the assessee but on a petition under Section 254(2) of the Income-tax Act filed by the appellants, the mistake has been rectified in accordance 16 with law. As such, right from the order of the Assessing Officer up till Income-tax Appellate Tribunal, the proceeding is in accordance with law as no legal infirmity has been established. 20. At this juncture, the facts visualized at the stage of appeal by the Income-tax Commissioner for giving some sort of relaxation in favour of assessee and over which much emphasis has been laid down for submitting that certain amounts parted with in favour of Animal Husbandry Officials must be deducted from the total income of the assessee, do not carry any conviction in view of concluded findings of fact. The appellants have had no such case nor there was any reliable material to show that in an illegal business or transaction they had incurred any genuine loss or expenses. Thus, it is found that these appeals are devoid of merit and are accordingly dismissed, but without cost. (Aditya Kumar Trivedi, J.) Shiva Kirti Singh, J. I Agree (Shiva Kirti Singh, J.) PN/- "