Ita/298/2018 Of The Commissioner Of Income Tax v. M/S Canara Bank

Digitallysigned by K SRENUKAMBALocation:High Court ofKarnataka IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 14 DAY OF NOVEMBER, 2022 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE T G SHIVASHANKARE GOWDA INCOME TAX APPEAL NO. 298/2018C/WINCOME TAX APPEAL NO. 299/2018 BETWEEN: 1. THE COMMISSIONER OF INCOME TAX LTU, 7 FLOOR, BMTC BUILDING 80 FEET ROAD, KORAMANGALA BENGALURU – 560 095 2. THE JOINT COMMISSIONER OF INCOME-TAX LTU, 7 FLOOR, BMTC BUILDING 80 FEET ROAD, KORAMANGALA BENGALURU – 560 095 …APPELLANTS (COMMON) (BY SRI E I SANMATHI, STANDING COUNSEL) AND: M/S.CANARA BANK HEAD OFFICE 112, J.C.ROAD BENGALURU – 560 002 PAN: AAACC 6106G …RESPONDENT (COMMON) (BY SRI T.SURYANARAYANA, SENIOR ADVOCATE FOR SMT.TANMAYEE RAJKUMAR, ADVOCATE) THESE INCOME TAX APPEALS ARE FILED UNDER SECTION 260A OF INCOME TAX ACT 1961, PRAYING TO SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO.1017/BANG/2015 and ITA NO.1018/BANG/2015 DATED 24.10.2017 AND TO CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE JOINT COMMISSIONER OF INCOME TAX, LTU, BENGALURU RESPECTIVELY. THESE APPEALS, COMING ON FOR HEARING, THIS DAY, P.S.DINESH KUMAR J, DELIVERED THE FOLLOWING: JUDGMENT These two appeals by the Revenue is directed against common order in ITA Nos.1017 and 1018/Bang/2015 dated 24.10.2017. 2. Though these appeals have been admitted to consider the questions raised by the Revenue in the memorandum of appeals, after hearing Shri T.Suryanarayana, learned Senior Advocate for the assessee and Shri E.I.Sanmathi, learned Standing Counsel, in our considered opinion, only question that arise for our consideration is: “Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the reassessment orders passed for the assessment years 2006-07 and 2007-08 by erroneously holding that the said reassessment order is bad in law as the reopening is under section 147 is initiated beyond 4 years by relying on the decision of the Mumbai High Court in the case of Multiserium Media Pvt.Ltd.?” - 3 -ITA No.298/2018 3. Brief facts of the case are, the assessment for the A.Y.[1] 2006-07 was completed on 29.02.2008. A notice under Section 148 of the Income Tax Act, 1961 (‘IT Act’ for short) was issued on 21.03.2011. The assessee filed its return and submitted objections to the notices. The AO[2] dropped the proceedings vide order dated 26.12.2011. 4. For A.Y.2007-08, the assessment was completed on 26.11.2009. 5. For both A.Y.2006-07 and A.Y.2007-08, second notice dated 25.03.2013 was issued under Section 148 of the IT Act. The assessee filed its return and sought for reasons recorded in the file for issuing the notice. By his communication dated 16.04.2013, the AO conveyed the reasons recorded for reopening the case. Thereafter reassessment was completed for both years. CIT(A)[3] confirmed the reassessment orders. The assessee challenged the orders passed by CIT(A) before ITAT[4]. 6. By the impugned common order, the ITAT has partly allowed the appeals. In substance, the ITAT held that issuance 1 Assessment Year 2 Assessing Officer 3 Commissioner of Income Tax (Appeals) 4 Income Tax Appellate Tribunal of second notice under Section 148 of the IT Act was bad in law. Feeling aggrieved, the Revenue has preferred these appeals. 7. Shri E.I.Sanmathi, submitted that ITAT has not examined the issue on merits, it has merely considered the aspect of communication and reasons recorded in the file and allowed the appeals on technical grounds. ITAT has not considered the reasons recorded in the file extracted in the assessment order and it has also not considered the allegations contained in the ‘reasons recorded’ in the file. With these submissions, he prayed for allowing these appeals. 6. By the impugned common order, the ITAT has partly allowed the appeals. In substance, the ITAT held that issuance 1 Assessment Year 2 Assessing Officer 3 Commissioner of Income Tax (Appeals) 4 Income Tax Appellate Tribunal of second notice under Section 148 of the IT Act was bad in law. Feeling aggrieved, the Revenue has preferred these appeals. 7. Shri E.I.Sanmathi, submitted that ITAT has not examined the issue on merits, it has merely considered the aspect of communication and reasons recorded in the file and allowed the appeals on technical grounds. ITAT has not considered the reasons recorded in the file extracted in the assessment order and it has also not considered the allegations contained in the ‘reasons recorded’ in the file. With these submissions, he prayed for allowing these appeals. 8. Shri T.Suryanarayana, contended that when a notice under Section 148 of IT Act is issued the assessee is required to file returns and may seek for the reasons recorded in the file. The reasons communicated by the AO ought to disclose what is recorded in the file. In the instant case, a notice was issued for the first time under Section 148 of the IT Act on 21.03.2011 for A.Y.2006-07. Upon filing the returns, the AO has dropped the proceedings. The said notice was issued within four years from the date of completion of the assessment. The notice dated 25.03.2013 for A.Y.2006-07 and A.Y.2007-08 has been issued beyond four years. The assessee filed its returns and sought for ‘reasons recorded’ in the file and CIT(A) has conveyed the reasons. He urged that if a notice under Section 148 of the IT Act is to be issued after expiry of four years, the AO must record reasons stating that the assessee had failed to disclose any material fact at the time of original assessment. 9. Adverting to page 2 of AO’s communication dated 16.04.2013, Shri T.Suryanarayana pointed out that AO has used the expression ‘during the course of verification of details submitted by Bank’. He argued that this expression makes it amply clear that after verification of the details submitted by the Bank, AO had, indeed noticed that certain branches were situated in such areas described as rural area, though they were not, infact, in the rural area. 10. In substance, Shri. T.Suryanarayana, urges two points. Firstly that, if a notice under Section 148 of the IT Act is to be issued after expiry of four years, reasons must be recorded in the file and secondly that the same must be communicated. In support of his contentions, he placed reliance on Hindustan Lever Ltd. Vs. R.B.Wadkar[5]and the Commissioner of Income Tax & Anr. Vs. Hewelett Packard Digital Global Soft Ltd.[6]. 11. In reply Shri E.I.Sanmathi, submitted that in the assessment order, the AO has indeed stated that he had reasons to believe that the income chargeable to tax had escaped and that sentence is missing in the reasons communicated. 12. We have carefully considered the rival contentions and perused the records. 13. The question in this case is whether reopening the assessment initiated beyond four years is bad in law? 14. In Hindustan Lever Limited, it is held that the reasons have to be read as they are recorded by the AO. No substitution or deletion ips permissible and no additions can be made to those reasons. No inference can be allowed to be drawn based on the reasons not recorded and the reasons cannot be supplemented by filing affidavit or making oral submissions. This 5 [2004] 137 taxman 479 (BOM) para 20 6ITA Nos.406-407/2007 decided on 19.09.2011 para 7 view has been consistently followed by this Court in several cases. 12. We have carefully considered the rival contentions and perused the records. 13. The question in this case is whether reopening the assessment initiated beyond four years is bad in law? 14. In Hindustan Lever Limited, it is held that the reasons have to be read as they are recorded by the AO. No substitution or deletion ips permissible and no additions can be made to those reasons. No inference can be allowed to be drawn based on the reasons not recorded and the reasons cannot be supplemented by filing affidavit or making oral submissions. This 5 [2004] 137 taxman 479 (BOM) para 20 6ITA Nos.406-407/2007 decided on 19.09.2011 para 7 view has been consistently followed by this Court in several cases. 15. The AO has communicated the reasons recorded in the file vide letter dated 16.04.2013. Shri T.Suryanarayana, is right in his submission that, it is recorded in the file that ‘on verification of the details’ submitted by the Bank, the AO had noticed that certain branches which were reported to be situated in the rural area were not, infact, not situated in the rural area. Thus the only inference that can be drawn by the reason communicated is that AO had come to the conclusion on verification of the details submitted by the Bank. 16. It is settled that if notice under Section 148 of IT Act is to be issued after expiry of four years or before expiry of six years, the assessee should have failed to disclose the ‘material facts’. The ITAT on consideration of the material on record in para 8 of its order has held that AO has not even stated or alleged that there was failure on the part of assessee to disclose fully and truly all the material facts necessary for the said assessment years. Nothing contrary to the findings of the ITAT is demonstrated or urged by the Revenue. In view of the settled position of law and the AO not stating that there was failure on the part of the assessee to disclose material facts, no exception can be taken to the order passed by the ITAT. Resultantly, these appeals must fail. Hence the following: ORDER (a)Appeals are dismissed. (b)The question of law is answered in favour of the assessee and against the Revenue. No costs. Sd/- JUDGE Sd/- JUDGE