“(1)Whether The Tribunal Ts Right.in Applying The Ratio Of The Decision Of Thehon'ble Supreme Court In Cit v. Sunengineering Pvt. Ltd. 198 Itr 297 (Sc) Andholding That Concluded Issue In The Originalproceeding Cannot Be Re-Agitated In Re-Assessment Proceedings Even Thou

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 6 DAY OF JULY 20271 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’/BLE MR. JUSTICE HEMANT CHANDANGOUDARILT.A. NO.392 OF 2016 BETWEEN: M/S THE KARNATAKA STATE CO-OPERATIVE APEXBANK LIMITEDREPRESENTED BY ITS SECRETARYSRI C N DEVARAJ, “UTHUNGA’ NO.1.PMK ROAD, CHAMARAJPET|BANGALORE-560 018. (BY SRI. A. SHANKAR, SR. COUNSEL FOR.SRI. A. CHANDRASHEKAR, ADV.) | ... APPELLAN| AND* THE DEPUTY COMMISSIONER OF INCOME TAX |CIRCLE 3(1), BMTC BUILDING80 FEET ROAD, KORAMANGALABANGALORE-560 095.. ~. RESPONDENT (BY SRI. K.V. ARAVIND, ADV.) THIS I.T.A. IS FILED UNDER SEC. J6O0-A OF INCOME TAXACT 1961, ARISING OUT OF ORDER DATED 29.02.2016 PASSEDIN ITA NO.1372/BANG/2014 FOR THE ASSESSMENT YEAR 200/703, PRAYING TO: | (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW,STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE.APPELLANT. | (ii) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO.THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY.THE ITAT, C BENCH, BENGALURU IN ITA NO.1372/BANG/2014—RELATING TO ASSESSMENT YEAR 200/7-O08 VIDE ITS ORDEDATED 29.02.2016. THIS I.T.A. COMING ON FOR FINAL HEARING, THIS DAY, |ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short)has been preferred by the assessee. The subject matter|of the appeal pertains to the Assessment year 2007-08.The appeal was admitted by a bench of this Court on the following substantial questions of law: “(1)Whether the Tribunal ts right.in applying the ratio of the decision of theHon'ble Supreme Court in CIT vs. Sun|Engineering Pvt. Ltd. 198 ITR 297 (SC) and|holding that concluded issue in the original|proceeding cannot be re-agitated in re-assessment proceedings even though the case of the appellant is distinguishable in asmuch as there was no original assessment|proceedings on the facts and circumstancesof the case? (2) Whether the Tribunal was Justifiedin law in not appreciating that the notice|u/s 148 of the Act was issued to “assess”|the [Income and thus all contentions in lawremained open for the appellant to agitateby filling a return in response to the noticeu/s 148 of the Act on the facts andcircumstances of the case?| (3) Whether the Tribunal ts Justified in-law in holding that the appellant is notentitled to make additional claim of loss.incurred of Rs.8,28,65,052/- in the re-assessment proceedings under section 14/7of the Act on the facts and circumstances of.the case? (4) Whether the Tribunal ts right in not.holding that the appellant is entitled to theadditional claim of actual loss Incurred ofRs.8,28,65,052/- on account of sale of government securities on the facts andcircumstances of the case?" 2 |Facts leading to filing of this appeal brieflystated are that assessee is a Co-operative Apex Bankand is registered under the Karnataka Co-operativeSocieties Act, 1959 (hereinafter referred to as ‘the 1959Act’ for short). The assessee had been granted licence to.carry on the business of banking by Reserve Bank of.India under Banking Regulation Act, 1949. The assesseefiled the return of income under Section 143(1) of theAct for the Assessment Year 2007-08 on 31.10.2007 anddeclared total income of Rs.40,77,27,150/-. However, noorder of assessment was passed under Section 143(3) oftne Act. The Assessing Officer issued a notice underSection 148 of tne Act on 31.03.2012. Tne assessee filedthe return of income in response to the aforesaid noticeON|13.09.2701)anddeclared.totalincomeOf Rs.32,56,61,835/-. In the return of income, the assessee made an additional claim on account of loss on!sale of securities to the extent of Rs.8,28,65,052/-. 3The Assessing Officer by an order dated|30.03.2013 passed under Section 143(3) read withSection 14/7 of the Act determined the income of theassessee at Rs.51,/1,/70,6/0/- and made _ followiadditions: assessee made an additional claim on account of loss on!sale of securities to the extent of Rs.8,28,65,052/-. 3The Assessing Officer by an order dated|30.03.2013 passed under Section 143(3) read withSection 14/7 of the Act determined the income of theassessee at Rs.51,/1,/70,6/0/- and made _ followiadditions: (a) disallowance of contributions madeto funds -Rs.10,86,43,/782/-. (b) additional loss claimed on sale ofsecurities - Rs.8,28,65,052/-. — Being aggrieved, the assessee filed an appeal|before the Commissioner of Income Tax (Appeals) who—by an order dated 31.07.2014 partly allowed the appeal.The assessee thereupon filed an appeal before theIncome Tax Appellate Tribunal (hereinafter referred toas the tribunal for short). The tribunal by an orderdated 29.02.7016 inter alia allowed the claim of the|assessee with regard to disallowance of contribution Under various heads and held that such contributions areallowable expenses. However, the tribunal did not grantrelief with regard to the additional claim of loss made bythe assessee on account of sale of securities on the|ground that the aforesaid additional claim was not made.in original assessment proceeding. Thus, the appeal waspartly allowed. In the aforesaid factual background, theassessee is in appeal before us. 4 iLearned Senior counsel for the assesseeSubmitted that in the case of the assessee there Is no!Original assessment for the same Assessment Year and.the an intimation under Section 143(1) of the Act wasissued to tne assessee. [Tne said tntimation underSection 143(1) of the Act is not an order of assessmentand therefore, the tribunal ought to have appreciatedthat the issue of loss of sale on government securities|was not considered by the Assessing Officer and has notreacned finality. It is also submitted that in"CIT VS.SUN ENGINEERING WORKS (P.) LTD., (1992) 198 ITR 297 (SC), the original order of assessment hadattained finality and therefore, it was held that theassessee cannot agitate the issues in re-assessment.proceedings. It is also pointed out that decision in SunEngineering Works (P.) Ltd. supra pertain to Assessment.Years 1960-61 and 1961-62 and was rendered beforeamendment was made under Section 143(1) of the Actwith effect from 01.04.1989. It is also argued that.aforesaid decision does not apply to Assessment Yearsafter 01.04.1989. It is also pointed out that an orderpassed under Section 143(1) of the Act was an order ofassessment only prior to 01.04.1989 and thereafter, anintimation. Therefore, the earlier order of assessmentgets effaced on commencement of proceeding underSection 14/7 read witn Section 148 of tne Act. It is also|urged that Supreme Court in.'V. JAGAN MOHAN RAOVS, COMMISSIONER OF INCOME TAX AND EXCESS|PROFIT TAX’, (1970) 75 ITR 373 (SC)has held that.tne assessment gets effaced and the subsequent assessment proceedings has to be done afresh. It is also.submitted that decision in the case of V.Jagan MohanRao was followed by this court in |CIT VS. MYSORE|IRON & STEEL LTD.', (1986) 157 ITR 531 (KAR),"NITESH BERA (HUF) VS. DCIT’, ITA NO.585/2016and'THE COMMISSIONER OF INCOME TAX AND|ANOTHERVS,M/SAVASARALAAUTOMATIONLIMITED,W.A.Nos.1411-1413/2004andconnecteq matters dated 905.044.2005It is also!Submitted that loss incurred is an actual loss on sale of securities during the year and the assessee is bound to.pay taxes only which it is liable to pay under the law. Itis also urged that the loss claimed by the assessee is anallowable expenditure under Section 37 of the Act. InSupport of aforesaid submissions, reference has beenmade to.‘ITO VS. MEWALAL DWARKA PRASAD,(1989) 176 ITR 529 (SC), ‘ITO VS. K.L.SRIHARI(HUF) (2001) 250 ITR 193 (SC),|and"'ACIT VS. RAJESH JHAVERI STOCK BROKERS P. LTD.', (2007)291 ITR 500 (SC). RAJESH JHAVERI STOCK BROKERS P. LTD.', (2007)291 ITR 500 (SC). 5.|On the other hand, learned counsel for therevenue submitted that if an assessee discovers anyomission or any wrong statement, he may furnish a.revised return under Section 139(5) of the Act within thetime limit prescribed therein. However, once the timelimit prescribed in Section 139(5) of the Act expires, theonly remedy which is available to the assessee is to file areturn and to seek condonation of delay in filing thereturn under Section 119 of the Act. It ts. furthersubmitted that Section 148 of the Act provides a remedyto the revenue and is not a remedy to the assessee. It is”also submitted that proceeding under Section 148 can beinitiated only in respect of such income which escapesassessment and the same has been interpreted by theSupreme Court in Sun Engineering Works (P.) Ltd suprawhich has rigntly been applied to the case in hand by thetriounal. It is further submitted tnat no fresn claims can| be made by the assessee in a proceeding under Section148 of the Act. It is also urged that decision of the.Supreme Court in Sun Engineering Works (P.) Ltd stillholds the field. In support of aforesaid submissions,reference has been meade to a decision in GOETZE (INDIA) LTD. VS. COMMISSIONER OF INCOMETAX’, (2006) 157 TAXMAN 1 (SC) 6.|We have considered the rival submissionsmade at the bar and have perused the record. TheExplanation to Section 143 of the Act prior to01.06.1999 reads as under: “Explanation - An intimation sent tothe assessee under sub-Section (1) or sub-Section (1B) shall be deemed to be an.order for the purposes of Sections 246 and264. The aforesaid Explanation was deleted by Finance| Act, 1999 with effect from 01.06.1999. The effect of thedeletion is that intimation under Section 143(1) of the Act ceases to be an order for the purposes of Section264 of the Act. The Supreme Court in RAJESH JHAVERIsupra has held that an intimation under Section 143(1)of the Act cannot be treated as an order of assessment.In the instant case, admittedly, no original assessment.was made in case of the assessee. The assessee has!made a claim in the return filed in response to a noticeunder Section 148 of the Act. 7In V.JAGAN MOHAN RAO supra, a three judgebench of the Supreme Court held as follows: This argument is not of much avail tothe appellant because once proceedingsunder Section 34 are taken to be validly|Initiated witn regard to two-thirds share of|the income, tne Jurisdiction of the Income-tax Officer cannot be confined only to that|portion of the income. Section 34 in terms|States that once the [ncome-tax Officerdecides to reopen the assessment ne could|qo so within tne period prescribed by|serving on the person liable to pay tax a} noticecontainingallOrqdhyoftherequirements which may be included in anoticeunder Section|22(2) andNayproceed to assess or reassess such income,profits or gains. It is, therefore, manifest:that once assessment is reopened by|issuing a notice under Sub-section (2)of Section2? thepreviousUunderassessment is set aside and the whole.assessment proceedings start afresh. WhenOnce validproceedingsarestartedunder Section34(1)(b) the|[ncome-texOfficer had not only the Jurisdiction but itwas his duty to levy tax on the entireIncome.that|hadeScapedassessment.during that year. Thus, a three judge bench of the Supreme Court|held that when there is a re-assessment or assessment.under Section 147 of the Act, the original assessment.proceeding, if any, gets effaced and the re-assessmentor assessment has to be done afresh. | Thus, a three judge bench of the Supreme Court|held that when there is a re-assessment or assessment.under Section 147 of the Act, the original assessment.proceeding, if any, gets effaced and the re-assessmentor assessment has to be done afresh. | 8 _In.MEW AL ADWARKAPRASADSUDPIa,Supreme Court in the light of decision of three judgebench of the Supreme Court in V.JIAGAN MOHAN RASupra has upheld the division bench decisions of Punjab|High Court in.‘CIT VS. JAGANNATH MAHESHWARY',(1957) S32 1TR 41and decision of the Andhra PradeshHigh court in|PULAVARTHI VISWANADHAN VS. CIT(1963) 60 ITR 463and held that the view taken byaforesaid two high courts is in consonance with the law.laid down by the Supreme Court in V.JIAGAN MOHANRAO supra. The aforesaid decision has been followed bybenches of this court In!"NITESH BERA (HUF) VS.DCIT', ITA NO.585/2016and'THE COMMISSIONEROFINCOME[TAXAND|ANOTHERVS, M/SAVASARALAAUTOMATIONLIMITED ,W.A.Nos.1411-1413/2004 and connected matters|dated 05.04.2005. 9,Tnereafter, a two judge bench of theSupreme Court in Sun Engineering Works (P.) Ltd supra while dealing with the Assessment Years 1960-61 and1961-62 held as follows: 38. Although, Section 147 is part of a.taxing statute, it imposes no charge on thesubjectbutdealsmerelywith themachineryofassessment.and|In|interpreting a provision of that kind, therule is that construction should be preferredwhich makes the machinery’ workable.Since, the proceedings under Section 147 ofthe Act are for the Denefit of the Revenueand not an assessee and are almed atgarnering the ‘escaped income’ of anassessee, the same cannot be allowed to be|converted|aS|‘revisional' OF|‘review’proceedingsattheInstanceoftheassessee, thereby making tne macninery|unworkable. 39_ As ga result of the aforesaiddiscussion, we find that in proceedingsunder Section 14/7 of the Act, the IncomeTax Officer may bring to charge items ofincome whicn had escaped assessment|other than or [In addition to that item or items which have led to the issuance of.noticeunder Section148 andwhereressessment is made under Section 14/7 inrespect of income which has escaped tax,|the Income Tax Officer's Jurisdiction Isconfined to only such income which has|escaped tax or has been under-assessed|and does not extend to revising, reopeningor reconsidering the whole assessment orpermittingthedSSCSSCECCO reagitatequestions which had been decided in the|original assessment proceedings. It is onlythe under-assessment which Is set aside.and|NOttheentire assessmentwhenreassessment proceedings are initiated. The[Income Tax Officer cannot meke an order ofreassessment inconsistent with the originalorder of assessment in respect of matters|whichare)notthesubject-matterofproceedingsunder Section|14 7.An|assessee cannot resist validly _ initiatereassessmeplNproceedingsunderthis|Section merely by showing that other|income which had been assessee originally|was at too high a figure except in cases under Section 152(2). The words “such|income” in Section 147 clearly referred to the income which its chargeable to tax buthas “escaped assessment’ and the Income|Tax Officers’ jurisdiction under the Sectionis confined only to such income which has|escaped assessment. It does not extend to reconsidering|generally|theconcludedearlier assessment. Claims which have beendisallowedIn|theOriginalassessment.proceeding cannot be permitted to bereagitatedOf)theassessmentbeingreopened for bringing to tax certain incomewhich had escaped assessment because thecontroversy on reassessment is confined tomatters which are relevant only in respect|of the income which had not been brought|to tax during the course of the original|assessment. A matter not agitated in the|concluded original assessment proceedingsalso cannot be permitted to be agitated inthereassessmenlNproceedingsunlessrelatable to the item sought to be taxed as|‘escapedincome’. Indeed, In|thereassessment proceedings for bringing to| tax items which had escaped assessment, it would be open to an assessee to putforward|claimsfordeductionofhy|expenditure in respect of that income or thenon-taxability of the items at all. Keeping inVICWtheobject"andDUFDOSE oftheproceedings under Section 14/7 of the Actwhich are for the benefit of the Revenue|and not an assessee, an assessee cannot bepermitted to convert the reassessment|proceedings as his appeal or revision, indisguise, and seek relief in respect of items.earlier rejected or claim relief in respect ofItemsnotclaimed|In|theOriginalassessment proceedings, unless relatable to‘escapedincome’,andreagitatetheconcluded matters. Even in cases where theclaims of the assessee during the course ofreassessment proceedings relating to the|escaped assessment are accepted, still the|allowance of such claims has to be [imited.to the extent to which they reduce the|income to that originally assessed. The|income for purposes of ‘reassessment’| cannot be reduced beyond the income|originally assessed. 10. In Sun Engineering Works (P.) Ltd supra, it.was held that in a proceeding fro re-assessment, the)Assessing Officer cannot adjudicate the issues, whichare the issues forming part of the original assessment,|whether the issues are adjudicated or not, whereas,MEWALAL DWARKA PRASAD supra, it was held that onceproceeding under Section 148 of the act is initiated,Original order of assessment gets effaced. In Mewalal|Dwarka Prasad supra reliance has been placed ondecision rendered by three judge bench of the Supreme|Court in Jagan Monan supra. In view of divergence ofview taken Dy the Supreme Court in MEWALAL DWARKA_PRASAD supra and Sun Engineering Works (P.) LtdSupra, the matter was referred to a three judge bench,which dealt with the reference iInINCOME TAXOFFICER VS. K.L.SRIHARI (HUF), (2001) 250 ITR.193 (SC), which held as follows: 7. By order dated November 19,|1996, these special leave petitions havebeen directed to be placed before the three-judge Bench because it was felt thatdissonant views have been expressed by|different Benches of this court on the scopeand effect of reopening of an assessmentunder Section 14/7 of the Income-tax Act,1961. It has been pointed out before usthat the matter has earlier been consideredby a Bench of three Judges in V. Jaganmohan RaoV.CIT|and|EPT andtheobservations in the said case came up for|consideration before two Judges’ Benches ofthis.Courtin ITO.V.MewealalDweirkKePrasad [1989] 1/76 ITR 529 and inCITv. |Sun Engineering Works P. Ltd. [1992] 198|ITR 79/7 and thet there is a difference in theviews expressed in said later Judgments. 2We|have.heardSAryRanbirChanara, learned counsel appearing for thepetitioners, and Shri Harish WN. Salve,learned senior counsel appearing for the|respondents. We have also perused the|original assessment order dated March 19, 1983, aS|wel]aS|thesubsequent|assessment order that was passed on July|16, 1987, after the reopening of theassessment.under Section|14/7.Onadconsideration of the order dated July 16,|1987, we are. satisfied that the saidassessment.ordermakes|adfresh|assessment of the entire Income of therespondent-assessee and the High Courtwas, in our opinion, right in proceeding onthe basis that the earlier assessment order.had been effaced by the subsequent order.In these circumstances, we do not consider|it necessary to go into the question that Israised and the same is left open. The|specialleavepetitions|are—accordinglydismissed. 11. In the instant case, admittedly, there is no|Original assessment order in the case of the assessee.and it was only an intimation under Section 143(1)of theAct, which cannot be treated to be an order in view ofdecision of the Supreme Court in Rajesh Jhaveri supra.Therefore, the question of re-assessment of the income 11. In the instant case, admittedly, there is no|Original assessment order in the case of the assessee.and it was only an intimation under Section 143(1)of theAct, which cannot be treated to be an order in view ofdecision of the Supreme Court in Rajesh Jhaveri supra.Therefore, the question of re-assessment of the income of the assessee by the Assessing Officer does not arise.In the proceeding under Section 148 of the Act, it wasthe first assessment and the same could have been done|considering all the claims of the assessee. Therefore, thedecision rendered by the Supreme Court in SunEngineering Works (P.) Ltd had no application to the factSituation of the case. Even assuming for the sake of.argument that if an intimation under Section 143(1) oftne Act is considered to be an order of assessment, inthe subsequent re-assessment proceeding, the originalassessment proceeding get effaced and the Assessing|Officer was required to consider the proceeding de novo.and to consider the claim of the assessee. In view of preceding analysis, the first and second|substantial question of law is answered in the negativeand in favour of the assessee. In the instant case, theautnorities under tne Act nave not considered the claim|of the assessee. Therefore, it is not necessary for us toexpress any opinion with regard to substantial question. of law Nos.3 and 4 as the aforesaid claims have to be!adjudicated afresh by the Assessing Officer. Accordingly,the order dated 29.02.2016, 31.07.2014 & 30.03.2013are quashed and the matter is remitted to the AssessingOfficer to adjudicate the claims of the assessee. — In the result, the appeal is disposed of. Sd/-JUDGE. SS| Sd/-—JUDGE.