THE COMMISSIONER OF INCOME TAX V. M/S H M CONSTRUCTIONS

ITA/635/2006

AI Insights

This case involves an appeal by the Commissioner of Income-Tax and the Assistant Commissioner of Income-Tax against M/s.H.M.Constructions concerning the reopening of an income tax assessment for the year 1995-96. The Income Tax Appellate Tribunal had previously allowed the respondent's appeal, which challenged the reassessment order. The primary legal issues revolved around the procedural validity of the reassessment notice under Section 148 of the Income Tax Act, 1961, and whether the necessary approval under Section 151 was obtained. The High Court of Karnataka, after reviewing the materials and the legal provisions, concluded that the required approval was not present, leading to the dismissal of the appeal.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 729096 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 20-01-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: A SHANKAR; M LAVA
• Assessee Lawyers: K V ARAVIND
• Keywords: Approval under Section 151; Income tax appeal; Reopening of assessment; Reasons under Section 148
• Section: 148; 151; 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 20TH DAY OF JANUARY 2014 PRESENT THE HON'BLE MR.JUSTICE DILIP B.BHOSALE AND THE HON'BLE MR.JUSTICE B.MANOHAR ITA NO.635/2006 BETWEEN: 1. The Commissioner of Income-Tax, C.R.Building, Queens Road, Bangalore. 2. The Assistant Commissioner of Income-Tax, Central Circle -2(3), C.R.Building, Queens Road, Bangalore. ….Appellants (By Sri.K.V.Aravind, Advocate) AND: M/s.H.M.Constructions Geneva House, No.14, Cunningham Road, Bangalore – 560 052. ..Respondent (By Sri.A.Shankar and Sri.M.Lava, Advocates for Sri.Abhinav Anand, Respondent) 2 This ITA filed U/s.260-A of IT Act, 1961 arising out of order dated 28-10-2005 passed in ITA.No.338/Bang/2005 for the Assessment Year 1996- 97, praying that for the reasons stated therein, this Hon’ble Court may be pleased to: i. formulate the substantial questions of law stated therein, ii. allow the appeal and set aside the orders passed by the ITAT, Bangalore in ITA.No.338/Bang/2005 dated 28-10-2005 and confirm the order of the Appellate Commissioner confirming Order passed by the Assistant Commissioner of Income Tax Officer, Central Circle-2(3), Bangalore, in the interest of justice and equity. This appeal coming on for HEARING this day, DILIP B. BHOSALE J., delivered the following: PC: This Income Tax Appeal, under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’), is directed against the order dated 28th October 2005 passed by the Income Tax Appellate Tribunal, Bangalore Bench-B (for short ‘the Tribunal’) in ITA No.1666/Bang/2004 whereby the Tribunal allowed the appeal, pertaining to the assessment year 1995-96, filed by the respondent- 3 assessee. Appeal before the Tribunal was directed against the order dated 30-03-2004 passed by the Commissioner of Income Tax (Appeals)-VI, Bangalore, (for short the ‘Appellate Authority’) whereby the said appeal, filed by the assessee against the assessment order dated 28-3-2003, was dismissed. 2. In the present appeal, the respondent formulated the following substantial questions of law: 1. Whether the Tribunal was justified in holding that the fixed deposits of Rs.70,00,000/- noticed during the search, in the name of 10 persons, who were not identified by the assessee, could be treated as income of the assessee overlooking the statement of Sri.Seshaprakash and that whether the findings recorded by the Tribunal are perverse? 2. Whether the Tribunal was justified in holding that reopening of the assessment was bad in law as the 4 reasons recorded were not in the required format and the prior approval of the Commissioner had not been obtained in accordance with law? 3. We have heard the learned counsel for the parties and perused the relevant materials on record including the order of the Tribunal. 4. It appears to us that the Tribunal while dealing with the second question of law held that reopening of the assessment was bad in law as the reasons recorded were not in proper format as contemplated by sub- Section (2) of Section 148 of the Act and that the prior approval of the Commissioner under Section 151 for issuing notice under Section 148 of the Act was not obtained. Learned counsel for the parties are ad-idem that if the second question of law is answered against the revenue, the appeal should fail and in that event the first question need not be considered on merits. In view 5 thereof, with the assistance of the learned counsel for the parties, we have gone through the relevant materials on record and so also the provisions contained in Sections 147, 148 and 151 of the Act. The Tribunal has extensively considered the materials on record to hold that the reasons recorded by the Assessing Officer for reopening of the assessment for the year 1995-96 were not in the proper format. Though we may not agree with the findings recorded by the Tribunal in respect thereof, we have examined whether prior approval of the Commissioner as contemplated by Section 151 of the Act was obtained, taking the case of Revenue that the reasons recorded under Section 148(2) of the Act were sufficient and were in proper format. 5. Having regard to the scheme of the provisions contained in Sections 147, 148 and 151 of the Act, it is clear as crystal that if the assessment is reopened after expiry of the four years from the end of relevant 6 assessment year, no notice under Section 148 of the Act shall be issued unless the Chief Commissioner or Commissioner is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issuance of such notice. To examine whether the approval under Section 151(1) of the Act was obtained, as observed earlier, we proceed on the assumption that the Assessing Officer had recorded good and sufficient reasons as required under sub-Section (2) of Section 148 of the Act. Admittedly, neither the reasons recorded by the Assessing Officer under sub-Section (2) of Section 148 of the Act nor approval granted by the Chief Commissioner or Commissioner as contemplated by the proviso to sub-Section (1) of Section 151 of the Act is on record. 6. Mr.Aravind, learned counsel appearing for the revenue fairly submitted that the original record/file does not contain either the reasons under Section 7 148(2) or the approval granted by the Chief Commissioner or Commissioner under Section 151(1) of the Act. He placed the original file before us for our perusal. We also did not find those documents in the file. He also, on instructions, submitted that even the record that was placed for consideration of the Tribunal has been destroyed. Thus, in the absence of either the reasons recorded by the Assessing Officer or approval granted by the Chief Commissioner or Commissioner, we made an attempt to find out from the other materials on record whether the approval under Section 151 of the Act was obtained before issuing the notice under Section 148 thereof. 7. In this connection, Mr.Shankar, learned counsel for the respondent-assessee invited our attention to the order of assessment passed in the connected ITA No.641/2006 dated 26-02-2004, of the very same assessee, pertaining to the assessment year 1996-97. 8 He submitted that insofar as reopening of the assessment for the assessment year 1996-97 is concerned, the approval of the Commissioner of Income Tax, as required under Section 151 of the Act was obtained and it was also placed on record in that case. In support of this contention, he invited our attention to the observations made by the Assessing Officer at paragraph 2. In this paragraph, the Assessing Officer has observed that “Notice under Section 148 was issued to the assessee on 26-3-2003, with the approval of the Commissioner of Income Tax.” He submitted that such observations do not find place in the order for the assessment year 1995-96. That apart, it appears from the observations made by the Appellate Authority, in the order dated 30-03-2004, the assessee had raised the following ground of challenge: “It is contended that the order of reassessment is bad in law and void- Ab-initio for want of requisite jurisdiction since the mandatory requirements 9 to assume jurisdiction u/s. 148 of the Act did not exist and have not been complied with.” It is on the basis of this ground of challenge, Mr.Shankar, learned counsel appearing for the assessee vehemently submitted that though such ground was raised, the Appellate Authority did not examine whether approval as contemplated under Section 151 of the Act was obtained. 8. On the other hand, Mr.K.V.Aravind, learned counsel appearing for the revenue invited our attention to certain observations made by the Assessing Officer and the Tribunal and submitted that it is possible to draw an inference that approval of the Commissioner under Section 151 of the Act was obtained by the Assessing Officer before issuing notice under Section 148 thereof. Though, he made feeble attempt to invite our attention to the orders of the Tribunal and of the authorities below in support of this contention, he could not and did not point out any such 10 observation so as to hold that approval under Section 151 was obtained before issuing notice under Section 148 of the Act. He fairly submitted that there is no finding recorded by either of the authorities below including the Tribunal that approval as contemplated by Section 151 of the Act was either referred to or mentioned in the orders. The Tribunal has, at length, considered the issue whether the reasons recorded by the Assessing Officer for reopening of the assessment were in proper format, and held that no such reasons were recorded. The Tribunal recorded such finding and further observed that the note sent to the Commissioner by the Assessing Officer was not sanctioned/approved under Section 151 of the Act. In the absence of the order granting approval by the Commissioner under Section 151 or in the absence of any indication in the orders passed by the authorities below including the order of the Tribunal or the materials on record that such approval was obtained, it would not be possible to 11 assume that such approval under Section 151 of the Act was obtained. The provisions contained in Section 151 of the Act are indubitably mandatory in nature and since compliance thereof was either not made or could be established by the revenue, in our opinion, benefit will have to be given to the assessee. Though we do not agree with all the reasons recorded by the Tribunal in the order, it has rightly decided the second question in favour of the assessee. We do not find any reason to interfere with the findings recorded by the Tribunal on the second question and hence, the appeal will have to be dismissed on this ground alone. Order accordingly. 9. Before we part, we observe that causing disappearance of certain documents from the record including reasons recorded by the Assessing Officer as contemplated by sub-Section 2 of Section 148 of the Act and approval, if any, obtained under Section 151 of the Act may not be innocent or innocuous. 12 The Commissioner, therefore ought to have conducted an enquiry, to find out whether the approval under Section 151 of the Act was obtained or if yes, how it disappeared from the record and who was responsible for the same? Though we do not wish to record any positive finding on the conduct of the assessee, we feel that the authorities below ought to have taken disappearance of record to its logical conclusions. 10. In the result, the second question is answered in favour of the assessee and against the revenue and as a result thereof the appeal fails and dismissed as such. No costs. Sd/- JUDGE Sd/- JUDGE mpk/-* "