Ita/374/2014 Of The Commissioner Of Income Tax v. M/S Mookambika Developers

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27 DAY OF JULY 2015 PRESENT THE HON'BLE MR. JUSTICE VINEET SARAN AND, THE HON’BLE MR. JUSTICE A.V.CHANDRASHEKARA ITA NO.374/2014C/W_ ITA NO.376/2014 BETWEHR 1.THE COMMISSIONER OF INCOME-TAX,CENTRAL CIRCLE,CENTRAL CIRCLE, C.R. BUILDING,QUEENS ROAD,BANGALORE.QUEENS ROAD,BANGALORE. 2)THE ASSISTANT COMMISSIONER OF INCOME-TAX,CENTRAL CIRCLE-2(1),C.R .BUILDING,QUEENS ROAD,BANGALORE... APPELLANTS(COMMON), (BY SRI. K.V. ARAVIND — ADV), AND M/S MOOKAMBIKA DEVELOPERS,NO.14, LAKSHMI COMPLEX,# CROSS, JOURNALIST COLONY,BANGALORE -560 002. RESPONDENT.(COMMON)| (BY SRI S. PARTHASARATHI-ADYV)_ ITA NO.374/2014 IS FILED UNDER SEC.260-A OF INCOMETAX ACT 1961 PRAYING TO ALLOW THR APPRKAIL, AND SASIDE, THE ORDERS PASSED BY THER INCOME-TAX APPELLATTRIBUNAL, BANGALORE IN ITA NO.1314/BANG/2013 DATED|2732014 CONFIRMING THR ORDER OF THR APPKLLATE|COMMISSIONER AND CONFIRM THER ORDER PASSED BY THEASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL!CIRCLE-2(1), BANGALORE. ITA NO.376/2014 IS FILED UNDER SEC.260-A OF INCOMETAX ACT 1961 PRAYING TO ALLOW THR APPHKAL AND SETASIDE THER ORDERS PASSED BY THER INCOME-TAX APPELLATTRIBUNAL, BANGALORE IN ITA NO.1632/BANG/2012 DATED|2732014 CONFIRMING THR ORDER OF THR APPKLLATE|COMMISSIONER AND CONFIRM THER ORDER PASSED BY THEASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL]CIRCLE-2(1), BANGALORE. THRSEK APPEKALS COMING ON FOR ADMISSION THISDAY, VINEET SARAN .JDELIVERED THER KFOLLOWING: JUDGMENT The assessee is a partnership firm. It is engaged in the)business of Real Estate. For the assessment year 2006-07 theassessee filed its return of income which was accepted underSection 143(1) of the Income Tax Act (for short ‘the Act’). |Thereafter survey under Section 133A of the Act was conducted in the premises of the assessee and subsequently a notice for te-opening under Section 148 of the Act was issued on 15.9.2008. | The Assessing Officer, by order dated 17.12.2009, made an addition of Rs.53,00,000/- after disallowing the genuineness ofthe compensation of Rs.1,65,00,000/- alleged to have been paidby the assessee to certain parties for vacating the property. —Challenging the said order, the assessee filed an appeal before theCommissioner of Income Tax (Appeals) which confirmed thevalidity of reopening under Section 147 of the Act. However, theAppellate Commissioner did not accept the addition ofRs.53,00,000/- and disallowed only 20% of the total payment ofRs.1,65,00,000/- under Section 40A(3) of the Act. 2. Challenging the order of the Appellate Commissioner|confirming the validity of reopening for the assessment underSection 148 of the Act, the assessee preferred an appeal before theTribunal. The Revenue also preferred a separate appeal against theotder of the Appellate Commissioner contending that thedisallowance made by the Appellate Commissioner under Section40 A(3) of the Act was wrong and the disallowance to the extentof Rs.53,00,000/- as made by the Assessing Officer ought to havebeen maintained. By the impugned order dated 27.3.2014, the Tribunal held that the reopening of the assessment was bad in lawas, according to the Tribunal, unless the Assessing Officer hasmade any addition on the issue of which satisfaction was recordedfor reopening of assessment, other issues could not have beenlooked into, though the same may have come to the notice of theAssessing Officer during the course of reassessment proceedings. |Agerieved by the said order of the Tribunal, these two appealshave been filed by the Revenue. — 3. Appeal No.374/2014 has been filed primarily on the|eround that the merits of the case have not been looked into bythe Tribunal and Appeal No.376/2014 has been filed by theRevenue challenging the order of the Tribunal whereby it hasbeen held that the reopening of assessment was invalid. 4. In Appeal No.376/2014 the following substantial| question of law arises for consideration :- 3. Appeal No.374/2014 has been filed primarily on the|eround that the merits of the case have not been looked into bythe Tribunal and Appeal No.376/2014 has been filed by theRevenue challenging the order of the Tribunal whereby it hasbeen held that the reopening of assessment was invalid. 4. In Appeal No.376/2014 the following substantial| question of law arises for consideration :- ‘Whether on thefacts and in the circumstances and inlaw, the Lribunatl was correct in holding that the reopening ofassessment under Section 147 of the Act 1s bad in law as no addition was made by the Assessing Officer with reference tothe reasons recoraedfor reopening ofassessment. | 5. In ITA No.374/2014 the following substantial question| of law, which is numbered as question No.2, arises forconsideration :- ‘Whether onfacts and in the circumstances ofthe case,the lribunal was correct in not examining the merits of thematter regaraing the genuineness of the expenditure claimedtowards compensation paid for vacating the premises afteradjudicating the appealfiled by the assessee regarding valiaityof the assessment made under Section 147 of the Act andrecorded aperversefinding. 6. We have heard Sri.k.V.Aravind, learned counsel for the|Revenue in both the appeals as well as Sri.8.Parthasarathi, learnedcounsel appearing for the assessee 1n both the appeals at lengthand have perused the records. With consent of the learnedcounsel for the parties, these appeals are being heard and decidedat the admission stage. | 7. The question as to ‘whether the Tribunal would be|cotrect in upholding reassessment proceedings when the reasonsrecotded for reopening of proceedings under Section 148 of theAct itself does not survive?’ was considered at length by aDtvisionBenchotthisCourtin.L.T.A.No.504/2013(N.Govindaraju — vs — Income Lax Officer) decided on 1.7.2015. Inthe said judgement, after considering the decisions of the Punjaband Haryana High Court in the case of|Mayinder Singh Kang V's CII(2072) CIT 344 ITR 358 e& CIT Vs Mehak Fanvest Pot. Ltd. (2074)36/7 TTR 76as well as the judgment of the Bombay High Courtin the case otfCll— Vs — Jet Airways (tl) Lia. (20717) 997 TTB 25and several other judgments rendered by the Supreme Court andvarious High Courts, it was held that :- Considering the provision of Section 147 as well as ttsExplanation 3, and also keeping in view that Section 147 1sfor|the benefit of the Kevenue and not assessee and 1s aimed atgarnering the escaped income of the assessee viz. Sun Engineering(supra)\and also Reeping in view that it is the constitutionalobligation of every assessee to disclose his total income on which it wsto pay tax, we are ofthe clear opinion that the two parts ofSection 147 (one relating to ‘such income’ and the other to ‘any other|income’) are to be read independently. Lhe phrase ‘such income’|used in thefirstpart ofSection 147 ts with regard to which reasons|have been recorded Under Section 148(2) of the Act, and the|phrase ‘any other income’ used in the secondpart of the Section 1s|with regard to where no reasons have been recorded before issuing|notice and has come to the notice of the Assessing Officer|subsequently during the course of the proceedings, which can be|assessed independent ofthefirstpart, even when no addition can be|made with regard to ‘such income’, but the notice on the basis of|whichproceedings have commenced, tsfound to be valid. 8. We have no reason to differ with the view taken by the| Coordinate Bench of this Court in the case of.Govindaraju — vs —|Income Lax Officercited supra, and thus we answer the first]question in favour of the Revenue and against the assessee. 9. As regards the second question, in view of the answer of|the first question being in favour of the Revenue, the secondquestion need not be answered, as the matter has to be remandedback to the Tribunal for fresh consideration of the AssessmentOrder on merits. — 8. We have no reason to differ with the view taken by the| Coordinate Bench of this Court in the case of.Govindaraju — vs —|Income Lax Officercited supra, and thus we answer the first]question in favour of the Revenue and against the assessee. 9. As regards the second question, in view of the answer of|the first question being in favour of the Revenue, the secondquestion need not be answered, as the matter has to be remandedback to the Tribunal for fresh consideration of the AssessmentOrder on merits. — 10. As such, in view of the aforesaid, the appeals standallowed to the extent as indicated above, and the matter 1sremanded to the Tribunal for fresh decision, in accordance withlawy. No order as to costs. — TS Sd/-JUDGESd/-'JUDGE