Ita/1/2014 Of Commissioner Of Income Tax v. M/S. Shriram Chits (Karnataka) Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD DAY OF OCTOBER 20272 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD BETWEEN: ILT.A. NO.1 OF 2014 1.|COMMISSIONER OF INCOME TAX| C.R. BUILDINGS, QUEENS ROAD BANGALORE. 2.|ASSISTANT COMMISSIONER OF INCOME TAX! CIRCLE 12(3), BANGALORE. .., APPELLANTS~ (BY Mr. E.I. SANMATHI, ADV.,) AND* M/S. SHRIRAM CHITS (KARNATAKA) PVT. LTD.,.NO.259/31, I FLOOR, LOTH CROSS.WILSON GARDEN, BANGALORE-56002 7. (BY Mr. BALRAM R. RAO, ADV.)| .., RESPONDENT THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,|1961L ARISING OUT OF ORDER DATED 14.08.7201L3 PASSED IN INO.1314/BANG/2012AND|1281/BANG/2012,FORTHEASSESSMENT YEAR 2003-04. | (1) DECIDE THE FOREGOING QUESTION OF LAW AND/OR|SUCH OTHER QUESTIONS OF LAW AS MAY FORMULATED BY THEHON BLE COURT AS DEEMED FIT.. (11) SET ASIDE THE APPELLATE ORDER DATED 14-8-2013|PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, BANGALORE.IN|APPEAL|PROCEEDINGSNO.ITA|NO.1314/BANG/2012 AND 1281/BANG/2012 FOR ASSESSMENTPERIOD 2003-04 AS SOUGHT FOR IN THIS APPEAL. THIS|ITACOMING|ONFOR.HEARING,THISALOK ARADHE J.,DELIVERED THE FOLLOWING: | DAY, | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (nereinafter referred to as the Act for short)nas been preferred by the revenue. The subject matterof the appeal pertains to the Assessment year2003-04The appeal was admitted by a bench of this Court videorder dated 11.04.2014 on the following substantialquestion of law: (1)Whether on the facts and In thecircumstances of the case, the Tribunal was|justified in law in allowing the bid loss withoutappreciating the fact tnat sucn Bid Loss pertainsto period beyond the accounting period relevant|to the assessment year under consideration and.the same should not have been allowed for the|sake of consistency? (11)Whether on the facts and In thecircumstances of the case the Tribunal was|justified in law in placing reliance on its own) order in the case of DHFL Vysya Housing Finance|P Ltd., (DVHF) ITA NO.1416/Bang/2010 for AY96-97 dated 11-01-2013 and holding tnat tne|reopening u/s. 147 is bad in law” withoutappreciating the fact that the department nasnot accepted the relied upon decision and tne.same has also been challenged before thisHon'ble|HignCourtofKarnatakaIn[TA|NO. 244/2013? 2D.Facts leading to filing of this appeal briefly stated are that the assessee is engaged in the business of|conducting cnits. The assessee on its own, bidsatthe.auction. When tne assessee succeeds in the bid, thecifference petween the value of chit and the amount at wnicnthe assessee pids at the auction Is pooked as a loss. Tneremaining tenure of the chit in respect of the assessee bidsat the auction Is Dooked as aloss. Tne assessee books tneloss and spreads it over to the remaining period of the chitgroup. In the books of the accounts of the assessee, only theloss is apportioned for the period relevant to the PreviousYear. For tne Assessment Year 2008-09, the assessee|claimed loss on bidding as deduction. The assesse filed the 2D.Facts leading to filing of this appeal briefly stated are that the assessee is engaged in the business of|conducting cnits. The assessee on its own, bidsatthe.auction. When tne assessee succeeds in the bid, thecifference petween the value of chit and the amount at wnicnthe assessee pids at the auction Is pooked as a loss. Tneremaining tenure of the chit in respect of the assessee bidsat the auction Is Dooked as aloss. Tne assessee books tneloss and spreads it over to the remaining period of the chitgroup. In the books of the accounts of the assessee, only theloss is apportioned for the period relevant to the PreviousYear. For tne Assessment Year 2008-09, the assessee|claimed loss on bidding as deduction. The assesse filed the return of income declaring total loss of Rs.7,85,38,305/- on28.11.2003. The return of income was processed underSection 143(1) of the Act. The Assessing Officer by an orderdated 28.02.2006 along with other disallowances, disallowedthe amount of bid loss claimed in the memo of income andan amount of Rs.7,20,32,155/- was added to the incomereturned by the assessee. It was noticed that in bid loss|claimed InTWOplaces that is one in profit and loss account|and otner in memo of income, in order to charge tne bid lossof Rs.7,14,76,102/- claimed in the memo of income besidesan income on nouse property of Rs.20,632/- notice underSection 148 dated 27.03.7010 was issued to the assesseeand subsequently a notice under Section 143(2) of the Actdated 28.10.2010 was served on the assessee. The AssessingOfficer vide order dated 24.12.2010 allowed the bid to the|extent wnichn was debited in the profit and loss account andrefused to allow the claim for deduction of a sum ofRs.50,43,043/-, which is a bid loss referable to the periodbeyond the Previous Year. The assessee thereupon filed anappeal before the Commissioner of Income Tax (Appeals)wno by an order dated 30.07.2012 deleted the addition made by the Assessing Officer to the tune of Rs.50,43,043/-.Accordingly, the appeal was partly allowed. Being aggrieved,the assessee as well as the revenue filed appeals before theIncome Tax Appellate Tribunal (nereinafter referred to as‘the tribunal’ for short). The tribunal by a common orderdated 14.08.2013 dismissed the appeal preferred by therevenue by placing reliance on its order in the case of theassessee for Assessment Year 2005-06 and the appealpreferred by the assessee was allowed on the ground tnattne re-assessment proceeding is invalid. Being aggrieved, tnerevenue is in appeal before US. 3.Learned counsel for tne revenue submitted tnat|assessing authority had rightly invoked Section 14/7 of theAct for re-assessment and reasons recorded by the authorityfulfilled all the conditions set out in Section 14/7 of the Act. Itis further submitted that from perusal of tne reasons|assigned by the assessing authority, it is evident that theassessing authority formed an opinion that assessee has|failed to disclose fully and truly all material facts necessaryfor assessment and had clearly concluded that there were| lapses on the part of the assessee in claiming the sameamount twice resulting in increase of loss and to that effect,the income had escaped assessment. It is also urged that theDid loss claimed py tne assessee pertains to the period|beyond tne accounting period relevant to the AssessmentYear under consideration and the same was rightly denied bythe assessing authority in the absence of material evidence.It is also urged that the tribunal has not independently|examined whether the reasoning assigned by the AssessingOfficer was in accordance with Section 14/7 of the Act,tnerefore, the matter is required to be remanded to thetribunal for consideration afresh. It is also urged that thedecision, on which reliance was placed by the assessingauthority in the case ofDHFL VYSYA HOUSING FINANCELTD. VS. ACIT|has been quashed by a bench of this court tnI.T.A.No.244/2013 vide judgment dated 23.09.2013. 4On the other hand, learned counsel for the)assessee submitted that the Assessing Officer has notrecorded any finding that the assessee has failed to disclosefully and truly all material facts necessary for assessment as pointed out by the tribunal in paragraph 13 and 1/7 of theorder. It is also submitted that issue involved in this appeal issquarely covered by judgment of Supreme Court in|'NEW|DELHI TELEVISION LTD. VS. DCIT, 116 TAXMAN.COM151 (SC)and our attention nas been invited to paragrapns—24 to 2/7, 28 to 35 of the aforesaid decision. It is alsosubmitted that the issue of bid loss has already been|remitted to the Assessing Officer to quantify the bid loss inI.T.A.Nos.920-922/2008 and therefore, the Assessing Officercan quantify the same in regular assessment. It is alsosubmitted that the re opening is not permitted in law in thefacts and circumstances of the case. It is also urged that|regardingbidlosstheAssessingOfficerinOriginalAssessment Proceeding has gone into the question ofallowability of bid loss in detail and the assessee hasfurnished full facts before the Assessing Officer and|therefore, the contention of the revenue that there was notrue and full disclosure on the part of the assessee does notdeserve acceptance. 5.We nave considered the submissions made by)learned counsel for the parties and have perused the record.It is well settled in law that an Assessing Officer can only|reopen the assessment if he has reason to believe tnat|undisclosed income has escaped re-assessment. The relevantextract of Section 14/7 of the Act reads as under: 14/7. If the Assessing Officer has reason tobelieve that any income cnargeable to tax nasescaped assessment for any assessment year, he.May,subjecttotheDrovisionsof sections148 to 153, assess or reassess such income and|also any otner income chargeable to tax wnhicnNas escaped assessment and wnicn comes to nis—noticesubsequentlyintheCOUTSeCof.theproceedings unaer this section, or recompute the|loss or the depreciation allowance or any otherallowance,aS|theCdSC|INdyDe,fortheassessment year concerned (nereafter in this—section and in sections 148 to 153 referred to as.the relevant assessment year) : Provided that where an assessment Under|sub-section (3) of section 143 or this section has—been made for the relevant assessment year, no-action shall be taken under this section after the expiry of four years from the end of the relevantassessment year, unless any income chargeable|totax|haseCSCaPedassessmentfor.SUCN|assessment year by reason of the failure on thepartOf|theaSS@CSSCCtomakeadreturnunder section 139 or in response to a noticeISSUCGunder.sub-section (1)of section142 or section 148 or to disciose fully and truly allmaterial facts necessary for nis assessment, fortnat assessment year: 6.It is not in dispute that an assessment can be)reopened by issuance of notice under Section 148 of the Actonly on fulfillment of the conditions mentioned in Section 147of the Act. The Assessing Officer has recorded the reason,whicn reads as under: On perusal of accounts enclosed to the returnfiled and statement of computation of income, it.was observed tnat loss on own Didaing 1.ée., Didloss amounting to Rs.7,20,32,155/- was debited toPaLLAccount and.Rs.7,14, /6,102/-WasseparatelyclaimedIn|theStatement|Of|computation income filed along with return of.income. The AO in the page 9 of tne assessment|order|dated28.07.7006addedbackRs.7,14,76,102/- whereas it is observed that an| amount of Rs.7,20,32,155/- has been added back|while computing the income in the assessment|order dated 28.02.2006. But, in its submissions,|before tne CIT(A), the assessee submitted that|botn the figures are same and by mistake tney|were snown as separate. In other words, it Isunderstood that the same amount wes claimed —twice resulting in increase of loss and to that|extent the income nas escaped assessment. amount of Rs.7,20,32,155/- has been added back|while computing the income in the assessment|order dated 28.02.2006. But, in its submissions,|before tne CIT(A), the assessee submitted that|botn the figures are same and by mistake tney|were snown as separate. In other words, it Isunderstood that the same amount wes claimed —twice resulting in increase of loss and to that|extent the income nas escaped assessment. Besides, the bid loss arises from discounting|the chit value on bidding the auction as a member|of the chit group, when the regular members leave / default in paying regular chit amount. The.assessees contention nas Deen that sucn bid /oss|is to be allowed in the same financial year of.Diading against the commission earned by it duringthat year and the assessee debited a portion of.such bid loss of the relevant financial year to the P|& L account, and the balance was reduced in Memoof.computationof.income. Whereas|thedepartment, all along is holding that such [/ossshould be spread over the term of the chit and|claimed in respective assessment years. For the|instant year, even if the bid loss is allowable as per|the order of the ITAT, if it is already debited to P &|, the same cannot be further claimed in the Memoof.computation.Hence,Of)thisreasoning Rs.7,14,76,102/- is not allowable. This assumes importance because of theorder|of High Court of Karnataka Dated 17.11.2009.|Because, for the instant Assessment Year, the AO|addedback|Rs.7,20,32,155/-.TheCIT(A)confirmed the disallowance but the ITAT had given.relief to the assessee. Besides, the assessee has|been relying on the decision of the Apex Court in)the case of M/s Bilahari Investments and claiming|the bid loss in both P & L A/C and the memo ofcomputation of income. In the appeal of the|Department under Section 260A, the Hon'ble HighCourt of Karnataka, vide order dated 17.11.2009|for A.Y. 1998-99, differed from the decision of|Apex Court in M/s Bilahari Investments and set|aside the matter to the file of the Assessing|Officer. The Hon'ble High Court of Karnataka.accepted the arguments of the revenue thatNotification No.69E dated 25.1.1996 and S.145(2)had not been brought to the notice of the Hon'ble Supreme Court to consider the effect of the|notification and amendment to S.145(2) and|stated that the Hon'ble Supreme Court confined itsdecisions to assessment years in appeal. Because|of this decision of High Court of Karnataka, tne|juagment of Bilanari case is not applicable. Hence,the action of the assessee of debiting the bid loss| in P&L a/c and claiming again in the computationstatement, results in excess claim. For these reasons, I have reasons to believe|that the mistake in computation of income Nas|resulted in escapement of income from assessment|to the extent to the extent of Rs.7,1476,1035 (bidloss) andRs.20,632/-(incomefromHouse Property omitted to be included. However, the tribunal in paragrapn 13 has held as.under:| We have considered the rival subDmISSIONnsFrom a perusal of the reasons recorded by the AObefore issuing notice under Section 148 of theAct, it is clear that the AO ha not, In the reasons|recorded,madealnallegation thetIncomechargeable to tax has escaped assessment byreason of the assessee's failure to disclose fullyana truly all material facts necessary for nisassessment for the relevant Assessment Year. I[tis not in dispute that for A.Y. 1996-97, anassessment under Section 143(3) nad alreadybeen made in the case of the assessee by anorderOf|assessment.dated31.03.1998.Admittedly, notice under Section 148 of the Act|was issued on 17.03.2003 whicn is beyond the However, the tribunal in paragrapn 13 has held as.under:| We have considered the rival subDmISSIONnsFrom a perusal of the reasons recorded by the AObefore issuing notice under Section 148 of theAct, it is clear that the AO ha not, In the reasons|recorded,madealnallegation thetIncomechargeable to tax has escaped assessment byreason of the assessee's failure to disclose fullyana truly all material facts necessary for nisassessment for the relevant Assessment Year. I[tis not in dispute that for A.Y. 1996-97, anassessment under Section 143(3) nad alreadybeen made in the case of the assessee by anorderOf|assessment.dated31.03.1998.Admittedly, notice under Section 148 of the Act|was issued on 17.03.2003 whicn is beyond the period of four years from the end of the relevantAssessment Year (1996-97). The proviso to.Section 14/7 was therefore clearly attracted. It isclear from the decision of the Hon bie BombayHign Court as well as the Hon'ble Karnataka HignCourt, referred to by the l/d. Counsel for theassessee before us, that there snouid be aspecific averment in the reasons recorded tnatescapement of income cnargeablie to tax was byreason of the failure on the part of the assesseeto disclose fully and truly all material factsnecessary for his assessment for that Assessment.Year. Sucn an allegation is admittedly absent inthe reasons recorded. The !d. CIT(A) nas in nis-order has attempted to give different reasons forresorting to reassessment proceedings. The law iswel]settledthatvalidityOf|Initiationof.reassessment proceedings have to be Judged on.the basis of reasons recorded by the AO and it Isnot possibie to substitute, delete or adda anythingto sucn reasons recorded by the AO. It is also notpossible to draw any inference based on the’reasons not recorded. In the light of the law aslaid down in the aforesaid decisions, we are of the’view that initiation of reassessment proceedings|by tne AO in tne present case is not in accordance.with law. The order of reassessment is therefore liable to be annulied and tne same is nerebyannulled. In view of the decision on the validity ofinitiation of reassessment proceedings, tne otherissues raised by tne assessee on merits do not.require any consideration. Consequently, theappeal of the assessee Is allowed. In the result, the appeal of the assessee isallowed. 7].Thus, from perusal of the order passed by the)tribunal, it is evident that tribunal, in addition, has placed|reliance on the decision in the case of DHFL VYSYA HOUSINGLTD. rendered by the tribunal, which has been set aside bythis court in I.T.A.No.244/2013 vide judgment dated23.09.2013. The tribunal has not taken note of the fact thatthe Assessing Officer had recorded reasons and has held thata statement of income from assessment has taken place dueto failure to disclose fully and truly all material factsnecessary on the part of the assessee. The tribunal hasfurther held that it has not been disputed before the tribunalthat proviso to Section 147 is not applicable to the fact| situation of the case.| 8.The contention of the assessee that the AssessingOfficer has not recorded the finding that the assessee hasfailed to disclose fully and truly all material facts necessaryfor assessment does not deserve acceptance, which isevident from the satisfaction recorded by the Assessing|Officer. Similarly, the question whether or not the AssessingOfficer has recorded satisfaction in consonance with therequirements of Section 14/7 of the Act, has to be dealt within the facts of each case. Therefore, the contention that theissue involved in this appeal is squarely covered by decisionof the Supreme Court in NEW DELHI TELEVISION supracannot be accepted. For the aforementioned reasons, the second substantial question of law is answered in favour of the revenue andagainst the assessee. In the result, the order dated14.08.2013 passed by the tribunal is quashed and the matteris remitted to the tribunal for decision afresh in accordancewith law. It is therefore, not necessary for us to deal with thefirst substantial question of law. ��� For the aforementioned reasons, the second substantial question of law is answered in favour of the revenue andagainst the assessee. In the result, the order dated14.08.2013 passed by the tribunal is quashed and the matteris remitted to the tribunal for decision afresh in accordancewith law. It is therefore, not necessary for us to deal with thefirst substantial question of law. ��� ����������������������������������������� ����������������������