Karnataka High Court
The Commissioner Of Income Tax vs N Thippa Setty on 9 April, 2008
Bench: Deepak Verma, Anand Byrareddy
IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 9T DAY OF APRIL 2008 PRESENT THE HON'BLE MR. JUBT: ICE DELPAK VERMA ' AND THE HON' BLE MR. JUSTICE ANAND BYRAREDDY LTA. NO.i02.0 P2002 LT.A. NO. NU.106 OF OF: 2002 LTA. } NC, 16.105 | OF OF 2002 IN I.T.A. No.102 _OF F 2002: : BETWEEN: 1. The Commissioner of : income- -Tax, : CR. Building, > P.B. Road, Slavanagar,: HUBLI. 2. . The Assistant Comimissioner of .. Income-Tex (Inv.), ' Circle -- 1(1), C:R. Building, . PLB. Read, Navanagar, m BUELL - . APPELLANTS. oe (By Siri. M.V.Seshachala, Adv.) AXD: . Dyr.N.Thippa Setty, _ Kana Hosahalli, ~ Kudligi Taluk, » BELLARY. .. RESPONDENT.
(By Sr A.Shankar, Adv.) TS
7) 1961 This I.T.A. filed under Section 260-A of the Income Tax Act, arising out of order dated 30.10.2001 'passed in ITA No.549/BANG/ 2000 for the assessment year 1990- : Fi praying to allow the appeal and set aside the order. of. the Income Tax Appellate Tribunal, Bangalore, in ITA No. 349, {BANG i f 2000 dated 30.10.2001 and confirm the assessment order passed by the Assistant Commissioner of. Income Tax (Inv.), Cirele- i(4), 'Hubli and etc. IN L.T.A. No.105 OF 2002:
BETWEEN:
1.
Ne The Commissiore er of Income-Tax;
C.R. Budding, =.
P.B, Road; Navanagar.
HUBLI. . a The Assis tant Commissioner of Income-Tax (Inv.);..
Circle - 1(4}, C.R.. Building, _ PB. Road, Navanagar, HUBLI.
| | (By Sei. M.Y. Seshachala, Adv.) Den N Thippa 3 Setty, Kana Hogahalhi, Kudiigi Taluk,
- BELLARY.
(By Sri A.Shankar, Adv.) . APPELLANTS.
.. RESPONDENT.
This I.T.A. filed under Section 260-A of the Income Tax Act, 1961 arising out of order dated 30.10. 2001 passed in ITA No.552/ BANG/ 2000 for the assessment year 1993- ot praying to allow the appeal and set aside the order of the. Income. Tax Appellate Tribunal, Bangalore, in ITA No.852/ BANG!) 2000: dated"
30.10.2001 and confirm the assessment order passed by 'the Assistant Commissioner of income Tax Av), Cipcle- 1), Hubli and etc. 'These 1!'.As., coming on for Final | Hearing this day, Deepak Verma J. , delivered the following:
_ | | JuDS 2M E N T Heard 'Sn. MLV. Seshaciala, learned counsel for the appellants and § Shanker, iearned counsel for the respondent. This order shall also govern 1 disposal of ITA Nos. 105/2002 and 106; 2002, which ¢ are for the assessment years 1989-90, 1990-91 and 199 3-94 respectively arising out of common order passed by ° Income Tax Appellate Tribunal. It has not been disputed before us that in ali the aforesaid appeals, which are at the instance of the _-- : Revenue, common questions of law have been formulated, which are required to be adjudicated, by this Court. "> 4, Although several substantial questions of jew have, been formulated by the learned counsel for the Revenue in. 'the eppeals, but vide order dated 09.02.2004 the. questions of law have been. re- framed and the appeals have been admitted ouly 0 on the re-framed substantial questions of law, which are as under: . Whether the Tribunal was correct in n holding that the statements given. by the. assessee on oath - during" scorch could not be used as evide1 tiary value in assessment, as the assessee had retracted these statements? Widethe! ing Tibunel w was correct in holding that re-opening cf assessment is based on . mere suspicion and without any material as the confession made by the assessee during 'search was withdrawn before issue of notice
- 'ander Section 148 of the Act and = " consequently the assessment was liable to be
- cancelled?
Whether the Tribunal was correct in holding that the undisclosed income from money lending business and unexplained investments in the fixed deposits cannot be assessed in the hands of the assessee? MS cs
i) Pledged NSCs. Rs.
\ _ -RD.Rs. _ ks It has not been disputed before us 'that - premises of the assessee, he hed made . declaration/ statement under Section . i 3244) of the Act on 23.08.1994 and again on ~~ 28.09.1994. He later ol retracted. the said statements mention ing therein that. the same obtained under duress. and coercion and he did not unde wstood. the. implication of the same. In the letter of retraction addressed by the assessce tot & Department, he further went 'on to stete that on 'the dates of his "recording statements, 'he was not keeping 7 well. Retraciions were 'made by the assessee _ on is. 10. 1994 and 07.12.1994. By the later
-- retraction : he further elaborated the : cireums stances under which he was required to make earlier statement under Section (132(4) of the Act and reiterated his prayer for retraction thereof.
Rejecting his request that the declaration was not voluntary, an order under Section 1326) came to be passed retaining the assets seized on 23.08.1994 as the assets of the assessee and adding it to the "Te income of the assessec. The assessce objected to the said order.
The Department had completed the:
assessment under Section 143(1) : for the 7 assessment years 1986- 87. to 1988- 89 after. :
accepting the returns. "For the assessment years 1989-90. to ». 1993- 94 the 'original returns filed by the asse ssee were processed under Section 14 0) of the Act accepting the same.
- After. discovery" . of "the aforesaid ; documents curing - the course of search and sein: re, the. asse ssments were re-opened by
- "the Assistant Commissioner of Income Tax 7 (inv), Circle 3 10}, after recording reasons on oe 05.10. 1995. ~The assessee was thereafter issued notice under Section 148 of the Act.
.For 'the assessment years 1989-90 and 1890-0 1 the following reasons have been recorded under Section 148(2) of the Act, which are reproduced hereinbelow:
"Asst. Year 1989-90 The assessee has offered in his statement under Section 132(4) the interest income earned by him of Rs.26,638-00 and also investments made by him in > Fixed Deposit of Rs.40,696/- for the assessment year 1989-90...
In view of the above facts, I have reasois to believe that the interest -inconie and investments made in fixed deposit to the tine a of Rs.67,334/- has escaped assessments » within the meaning of Section 147.
Propesal to the. _DciT, put up under Section 147. for the issue of notice under Section 148." _ ; -- .
Except for.some minor changes as mentioned hereinabove, similar reasons have teen recorded by the authority for the assessment year 1990-91...
. However, for the assessment year 1993-94 the following : reasons have been recorded by the Assessing Officer on 12,08, 1994 which read as thus:
"I have reasons to believe that the income chargeable to tax has escaped assessment for the assessment year 1993-94. Notice under Section 148, put up."
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5. The Assessing Officer thereafter completed the: assessment after making various additions. Feeling aggrieved by the. said additions made in the income of the ASSESSEE, he was: -consirained to file appeals before the Commissioner of Income Tax (Appeals). | The appellate authority also did not ancept the plea OF the assessee and proceeded to reject the appeals on merits.
6. Further feeling aggrieved by the said orders passed by the Commissioner of Income. Tax (Appeals), he' was constrained . to prefer appeals beiare the. Income Tax Appellate Tribunal. The said appeals having een allowea D5 by the Tribunal and the findings having. been res: onded in favour of the assessee, now these appeals are before "us" at "the a instance of Revenue, as mentioned hereinabove under Section 260-A of the Act. . 7: a We have accordingly heard learned counsel for parties at length and per mused the records.
8, The. basic and foremost question that crops up for " consideration before this Court is as to what will be the evidentiary ~~ value of the statements of the assessee, recorded under Section W. 132(4) of the Act, which were admittedly retracted by. him, even before issuance of notice to him under Section 148 of thie Act. 9, Learned counsel for the appellants oe Reve enue Sri.M.V.Seshachala submitted that once the ee given by the assessee, there is no provision im the hot to. retract the same. Hence the Tribunal could. not have proceeded on the basis that assessee had retracted his sialements given under Section 132(4) of the Act. He further contended that after the amendment of Section 147 with effect 6 from 01.04.3989, sufficiency or otherwise of the reasons Yecorted con rd aot be allowed to be enquired into. According to. 'yim sf theve existed prima facie material to re-open the case, the same would be sufficient for the Revenue to commence 1e-assessment proceedings. It was also contended that a looking to the voluminous incriminating documents, found at the 7 ume of scarch end seizure, there was sufficient material before the Revenue for i issuance of notice under Section 148 of the Act. The findings recorded by the Tribunal are also being attacked and a critisized on variety of grounds.
e
10. Per contra, Sri.A.Shankar, learned counsel appearing for the assessee contended that once the statements given by. the assessee same could not be a basis for re-opening the proceedings as :
contemplated under Sections. bq? and. 148 of the: Act. He farther contended that dehors the statements of the assessee, retracted subsequently there was 'nothing before the Assessing Officer for reopening of the cases. | It hai Ss also" been contended that it was done before issuance of notice "under Section 148 of the Act. It was also contended ; that in any case, the Assessing Officer was fully siware - that the 'statements 'have been retracted by the ASSESSEE, and thus if at all he wanted to proceed against. the assessee, some other reason should have been recorded by him for _ reopening. He would 'therefore contend that the very issuance of io ; notice onder Section 148 of the Act, to the assessee was invalid. If ibat be s So, then all subsequent proceedings initiated on the 7 strength of the said notice would automatically fail and nothing . can. survive if the reasoning are held to be imsufficient for re-
opening of the assessment.
"TB.
11. Initially at the time of hearing there was some dispute whether assessee had infact retracted his statements or. not but the same has been set at rest by the letter addressed by the assessee to the Assistant Commissioner of: income Tex. dated 23.03.1998 in which he has categorically 'stated 'that. the declaration obtained under Section 132(4), of "the Act "was withdrawn and the sane is 0 force. Tenure of this letter shows that even before issua ance of this deter he had already retracted his statement under, Section 383 of the Act. Infact, similar prayer was = already made by the assessee as far back as on 07.12. 1994, Since. cognizance. of this retraction had not been taken by" the Assess cing. - Officer: Assessee was constrained to approach | the Deputy Commissioner of Income Tax for necessary " direction. under Section 144-A of the Act.. On this, an order came to. be passed by the Commissioner on 16.03.1998 and the 'Assessing 'Officer was issued the following directions:
a) - to afford another opportunity of being heard to the assessee before finalising re-assessment proceedings with reference to the disclosure made under Section 132(4) and seized material, "Ts ;
etc., and complete the said assessment for the said assessment year on the basis of his find ding; in case, the assessee fails to furnish satisfactory - - evidence in support. retraction or disclosure under Section 132 21d) notwithstanding another opportunity provided to. him (vide (a above), the Assessing Officer is) directed to complete the re- assessment for tlie assessment year as per. his proposal. vide Yeference above. The ASSESSEC has. undertaken, to furnish all particul ars on or before 23. 03: 1998,
12. The Asse essing "Officer "thereafter passed the order on 27.03.1998. | Since, these 'directions were given to the Assessing Officer, it cant safely be presumed that he was fully aware -of the said order pase ed by the Deputy Commissioner of Income Tax, : itubit However, the onder passed by the Assessing Officer shows that . there. is "20 whisper with regard to the retraction of the Statement made by the assessee and compliance of the directions 7 Mo "as contaisied in the order passed by the Deputy Commissioner of
- Income Tax. The order passed by the Assessing Officer on : 27.03.1998 has been filed as per Annexure - "C". In the light of the aforesaid fact situation, we have to examine as to what would TMS be the legal Position after retraction of the statements by the assessee, and still after retraction, there existed . sufficient material he or reasons to re-open the case or not.
13. Learned counsel for the Revenue. has placed reliance: on the. following judgments of the Supreme Court and. righ Courts:
i) AIR 1997 SUPREME COUPT 2060 moe (Surjecth Singh Chhab:a Vs. Union of India and othcrs)
i) (2003) 263 ITR 169 - Gauhati (Green View Restaurant Vs. Assistant Commissioner of Income:'! 'a
iii) (2003) 182 rr (RAD 144 (Ramjes Nawal Vs. Commissioner of Income Tax) Critical examination of the aforesaid judgments, would show that they deal with the aspect of retraction of statements, recorded earlier.
14.° We have already discussed, in the preceding paras, wherein it is crystal clear that the statements made by the assessee under . os Section 132(4) of the Act were retracted not once, but twice. Since cognizance of retraction was not being taken by the Assessing 7 Officer, he was constrained to move the Deputy Commissioner for "WO redressal of his grievance under Section 144-A of the Act, wherein certain directions were given to the Assessing Officer. in view of the aforesaid factual aspect, it leaves no amount of doubt in our mind that the assessee had already retracted, 'the 'statements, a which were also accepted by the Department, 'Thus the aforesaid judgments which deal, with question of retre action' are 'not required to be discussed any more as on facts, "it is established, in the case in hand that assessee had retracted his statements.
15. With regant to the re- -opening of assessment under Section 148 of the Act, eared 'counsel for the appellant has placed reliance € on the < following jndgment of the Supreme Court:
(1967) 63 rR 219 s 6) ( 5. Narayanappa Vs. Commissioncr of Incomc Tax) > (2007) 291 ITR 500 (SQ) (Assistant Commissioner of Income-Tax Vs. Rajesh --
~s Jhaveri Stock Brokers P. Ltd.) (2002) 259 ITR 19 (SC) (GK Driveshafts (India) Ltd. Vs. Income-Tax Officer and S Others) by reason of either, @ omission or failure on the . Part of an assessee to make a return of his income under. Section, 22,. or (ii) omission or failure on the part of the assessee to disclose : fully and truly all the material facts necessary for. his assessment for that year.
18. The Supreme Court then further 'went on to hold that fulfilment of the same is conditi on "prec cedent to be satisfied by the Assessing Officer, before. he. acquires Jristiction to issue a notice under this Act,
19. In the matter 'oT Rajesh Jhaveri supra, the Supreme Court while dealing with the provisions of Sections 147 and 148 of the Act, has held as nader:
. "Section 147 authorises and permits the
- Assessing Officer to assess or reassess income ~ _ chargeable to tax if he has reason to believe that
- income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" | would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have Vb 20 reason to believe that an income had escaped assessment. The expression cannot, be read io mean that the Assessing Officer should. have - | finally ascertained the fact by legal evidence or a conclusion. The function of the. Assessing Officer is to administer 'the statute Jit solicitude for the ™ public. exchequer with an.
inbuilt idea of fairness to taxpayers."
20. The last judgment of the Supreme Court in the case of GKN Driveshafts (India) baa, Vs. Income Tax. Officer and Others, does not deal with | the reasons to be. assigned by the Assessing Officer for re- opening of th: eS "case, 'but proceeds to. hold that once the case has been re-opencél and "notice to the assessee has been issued under Section 148 of whe: Act, then he shall have a right to ask for a reason for re-opening and then challenge the same in accordance "with law.
21. ; As: against these judgments, learned counsel for the assessee "hes placed reliance on the following judgments of various High . Courts and the Supreme Court:
i (1979) 118 ITR 1 (SC) - Income Tax Officer Vs. Madnani Engineering Works Ltd., e (1996) 217 ITR 1 (Guj) - Birla VXL Ltd., Vs. Assistant Commissioner of Income Tax... -
(1982) 133 ITR 199 (Karnataka).
H. Neronha Vs. Income-Tax Officer, , (1971) 79 ITR 603 (SC) Chhugamal Rajpal Vs. Ss. P. ""Chatiha and others, 7 .
(1988) 174 ITR 714 (Cal) . 7 a Equitable. Investment Co. (P) Ltd.
NSS Income-'lax Officer.
- (2004) 268 ITR 332 (Bombay) * Hindustan | 'Lever Litd., Vs. os RE B.Wadkar, Assistant ~~ Commissioner of Income-Tax.
986) 15% 'TR 956 fever Indian Oil Corporation Vs. > Income: Tax Office )} (1980). 130 FR ! 60 Ganga Saran & Sons P. Ltd., a ne Vs. lncome Tax Officer & Others.
Un-reported judgment of this Court passed by learned Single Gude in W.P.No.11573/ 1989 (decided on 11.01.1991)
- ».A:Nagapna Vs. 'The Assistant Commissioner of Income-l'ax, ~ Investigation Circle, Mangalore.
Appellate Judgment passed by the Division Bench in W.A.No,928/1991 (decided on 19.03.1992) -- . 'The Assistant Commissioner of Income-Tl'ax, : Investigation Circle, Mangalore Vs. A.Nagappa "ab 22, In the matter of Madnani Engineering Works Ltd, supra, it has been held as under by the Apex Court:
We may also point out that though it was contended in the writ petition that the: .
ITO could have no reason te believe that any" | part of the incoiae' of the res spondent had escaped assessment by y teason of its failure to make a full and true. disclosure of material facts, the ITO did uot disclose in his affidavit any material on the basis of which it could be said that he. had come 'to the. requisite belief. All that 'the 1FO- stated im his affidavit was _ that hie, discovered. that the transactions of loan. age' 2inst "security of hundis were not "genuine . and. 'thai the credits against the ° naines of certain persons who were alleged to have.advanced loans were bogus."
"It was further held as under:
"We are, therefore, not at all satisfied on the affidavit that the ITO had reason to believe that a part of the income of the respondent had escaped assessment by reason of its failure to make a true and full disclosure of the material facts".
TH Gujarat High Court in the matter of Birla VXL 'Ltd., supra has dealt with the issue as under:
" Why' for holding such behef must be reflected from the record of reasons made. by 7 | the Assessing Officer. In a case where the Assessing Officer holds "the ; opinion -that because of excessive joss or 'depreciation allowance income has es scaped assessment, the reasons recorded by the Assessing Officer must disclose by what process , of reasoning he het as stch a 'belief that excessive loss or ' depreciation 'allowance has been computed in . the original assessment. Merely saying that excessive loss: or depreciation allowance has been computed without disclosing the , "reasons which led the assessing authority to hold. such a belief, in our opinion, does not "confer jurisdiction on the Assessing Officer to . take action under Sections 147 and 148 of
- the Act'.
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24. This Court in the matter of H.Noronha supra, has held that mere suspicion would not be sufficient for re-opening of. the case unless there existed some other prima facie evidence te warrant re-
opening.
25... In the matter of Chhugamal Rajpal supra, , Apex ¢ Court while \ considering the reasons > assigned by the Assessing Officer, in its inimitable way has held. as under:
: "Hence: proper investigation regarding these. joans is necessary" . In other words his conchusion is. that there is a case for "investigating. as io the truth of the alleged transactions. That is not the same thing as my 'saying that there are reasons to issue notice 'under. section 148. Before issuing a notice under section 148, the Income-tax Officer uist have either reasons to believe that by | i reason of the omission or failure on the part of the assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year of or alternatively notwithstanding that there has been no omission or failure as mentioned : above on the part of the asses SRE, the So Income-tax Officer has in consequence ot information in his possession reasch 'to believe that income chargeable ip "tax. has - | escaped assessrievt for. any assessment year'.
26. Calcutta High Court. in 'the matter of Equitable Investment Co, (P) Ltd., supra, has examined ¢ ail the previous Judgments of the Supreme Court and the High Court oa the issue, to come to the following conchisien:, _ | " ane coordingly, in our opinion, it is not . open, to the 'Commissioner to support the notice under section 148 on the basis of . material which does not find place in the
- report' ;
276. Confronted with identical /situation, Bombay High Court in
-- " the matter of Hindustan Lever Ltd., supra has held as under:
"It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No "> substitution or deletion is permissible. -- No additions can be made to those reasons. No - inference can be allowed to be drawin based - on reasons not recorded. It. is. for the Assessing Officer to disclose and: open his"
mind through reasons recorded by hina, . He. - has to speak through his' reasons. | th is for the Assessing Offi cer to reach the conciusion as to whether there was faiiure on tite 'part of the assessee: to disclose foty and truly all for the 1. wonkerned' di assessment year. It is for the Assessing Officer io form his opinion. It ix. for. him to put. his 'opinion on record in | bieck and white. The reasons recorded should clear and unambiguous and . should 'not: Coiies from any vagueness. The reasons recorded must disclose his mind. 'The reasons are the manifestation of the . inind of the Assessing Officer. The reasons corded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same "Ws based on material available on record. He . must disclose in the reasons as to which fact -- or material was not disclosed by the assessee . . fully and truly necessary for aSSese ment of ; that assessment year, SO aS. to 'establish the s :
vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening: of the. concluded assessment".
28. The Supreme: Court in the matter of Indian Oil Corporation has held: "put. re eason to believe is Act the same thing as reason to suspect." ~ 29, Now coming io the: Single Bench judgment of this Court in the watter of ; A.Nagappa, wherein the reasons of the Assessing
- Officer, 'were elaborate, were reproduced. | Yet it proceeded to ; : quash the notice issued to the assessee under Section 148 of the Act. This onder was the subject matter of challenge at the instance s, of Revenue in W.A.No.928/1991 before the Division Bench of this ~ Court, which held as under:
"More than the ADI's report which the learned Judge characterised as evasive and "Wb
30. of the matier in M/s. Ganga Saran & Sons P. Ltd., supra, wherein 28 speculative, it is the statement of reasons for the reopening which is evasive. : and speculative. We find no basis thercin which Bs could have led the appellant . to. entertain - reasons to believe that income chargeeble to tax had escaped asses: sment for the relevant | assessment year. "It is imperative hat the reasons should Baie & ratiomial aad relevant not find such 1 nexus' The Supreme Court had the occasion to consider this aspect it has dealt with the cituation beautifully by holding as under: "it is well settled as a result of several : decisions . of this court that two distinct _ conditions must be satisfied before the ITO can assume jurisdiction to issue notice under oe Sec: 147{(a). First, he must have reason to . 'believe that the income of the assessee has escaped assessment, and secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly al material facts necessary for his "> assessment. If either of these conditions is not fulfilled, the notice issued by the axe) : would be without jurisdiction. The ixaportant » -- the words 'is satisfied". The belicf other words it must. be hased on. reasons which are relevant and materia!'.
31. In the ight of | the: aforesaid judgments of various High Courts and 'Supreme Court, we have examined whether there existed sufficient reasons for re-opening of the case against the assesseé, exercising 'the power conferred on the Assessing Officer under Section 148 of the "Act. The reasons to believe have been _ repridueed by us 4s recorded by the Assessing Officer. The same ; would show that he was not even able to find out prima facie case with regard to the escaped assessment within the meaning of Section 147 of the Act.
- oO, : For the assessment year 1993-94 infact no cogent and valid . reasons have been assigned by the Assessing Officer for re-opening of the case. In the light of the aforesaid discussions, we have no "Ts 30 hesitation to hold that there existed no material for re-opening of the case against the assessee.
Act were withdrawn, then there existed no maaterial on recoid to warrant reopening of the case against the. assessec under Section 148 of the Act. If the very basis on which reopening was ordered did not exist, there was no questicn for reopening of the case. This material aspect of the. matter "has 'not. been considered by the Assessing Officer, who proceeded to direct reopening of the case, without there being any legally admissible evidence available on record. Thus the very igsvance of notice under Section 148 of the Act is found. to be illegal and absolutely without jurisdiction.
- a4, Learned counsel for the respondent also contended that even Os on merits, Revenue would not have been justified to issue such a notice especially in the light of the affidavits submitted by the " brothers of the assessee mentioning categorically therein that : ; several F.Ds., and other funds which have been added to the . income of the assessee, infact belonged exclusively to them. This is what they had submitted in the affidavits submitted before the MK