Ita/568/2009 Of Commissioner Of Income Tax Kottayam v. Sri. Jose Kuruvinakunnel Hotel, Mayoora

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN THURSDAY, THE 5TH DAY OF JANUARY 2012/15TH POUSHA 1933 ITA.No. 568 of 2009 ( ) --------------------------- ITA.429/2005 of INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH............. APPELLANT/RESPONDENT: -------------------------------- THE COMMISSIONER OF INCOME TAX, KOTTAYAM. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S)/APPELLANT: ----------------------------------- 1 SHRI JOSE KURUVINAKUNNEL, C/O.M/S.CHERIYAN & CHERIYAN, CHARTERED ACCOUNTANTS P.B.NO.43, KOTTAYAM-686 001. svs BY ADVS. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.RAMESH CHERIAN JOHN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 05-01-2012, ALONG WITH I.T.A. NO.1166/2009 AND CONNECTED CASES THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A. NO. 568/2009 APPENDIX PETITIONER'S ANNEXURES: ANNEXURE A:COPY OF THE ORDER U/S.144 R.W.S. 147 OF THE INCOMETAX ACT 1961 DATED 26/03/2004. ANNEXURE B:CIT(A)ORDER IN ITA NO.2/K/CIT-IV/04-05 DATED 23/03/05. ANNEXURE C:COPY OF THE ORDER OF ITAT IN ITA NO.430/COCH/2005DATED 08/12/2006. ANNEXURE D:COPY OF ITNS - 10 ISSUED BY ASSESSING OFFICER. ANNEXURE E:COPY OF SEPARATE SHEET ATTACHED WITH ITNS - 10 RESPONDENT'S ANNEXURES: NIL /TRUE COPY/ svs P.A. TO JUDGE. *CR* C.N. RAMACHANDRAN NAIR, &K. VINOD CHANDRAN, JJ ---------------------------------------------------- I.T.A Nos. 568 of 2009, 1166 of 2009, 88 of 2011, 89 of 2011 & 91 of 2011 ---------------------------------------------------- Dated this the 5[th] day of January, 2012 J U D G M E N T C.N. Ramachandran Nair, J These are connected appeals filed under Section 260 A ofthe Income Tax Act, two appeals filed by the Revenue andthree appeals filed by Assessee relating to the assessment ofescaped income of the assessee completed under section 147for the years 1996-97 to 2000-2001. While the originalassessment for the year1996-97 was a scrutiny assessmentunder Section 143(3), for all the remaining years 1997-98 to2000-01 intimations were sent under section 143(1)(a) of theAct accepting the returns filed by the assessee. For theassessment years 1996-97 also, the scrutiny assessment undersection 143(3) was completed on the returned income ofRs.87,280/-. However, later, the Assessing Officer receivedanonymous information about unaccounted income received ITA Nos.568/2009 and connected cases by the assessee and massive investments made in theconstruction of 6000 sq.ft. house and purchase of 165 acres ofland in Tamil Nadu. Based on the information received, theAssessing Officer recorded the statement of the assessee'sbrother in law Sri. Francis Jose who stated that the assesseewas operating a benami account in his name with 60 blankcheque leaves issued by him. The enquiry also revealed thatassessee's manager who is not in receipt of any income ismaintaining an SB account with a credit balance of Rs.26 lakhs,which also according to the Assessing Officer belongs toassessee. In view of the information available with regard to theunaccounted investments and unaccounted income theAssessing Officer issued notice under Section 148 for makingincome escaping assessments under Section 147 of the Act forall the assessment years. 2. The officer issued notice after recording reason forreopening of the assessment under Section 148(2) of the IncomeTax Act as follows:- “The declared income for income tax purposes of the assessee is remuneration and interest on ITA Nos.568/2009 and connected cases 2. The officer issued notice after recording reason forreopening of the assessment under Section 148(2) of the IncomeTax Act as follows:- “The declared income for income tax purposes of the assessee is remuneration and interest on ITA Nos.568/2009 and connected cases capital from the firm M/s. Mayoora Hotel,Poovarani. The Investigation Wing of the I.T.Dept.made detailed enquiries on the basis of tax evasionpetition and has ascertained the details of hisinvestments in movable and immovable propertiesas under which are found to be not in proportion tohis declared receipts/income. 1. Has commenced construction of a palatialresidential house of about 6000 sq.ft. in 1995 andthe admitted cost so far is Rs.42 lakhs. 2. Has acquired 165 acres of land at Thenirecently investing about Rs.50 lakhs. 3. Shri Alex Manuel the manager of the Hotel towhom no salary or other benefits are paid as perthe sworn statement of the assessee, is seen tohave maintained a S.B account with Federal Bank,Trichur and has a total credit of Rs.26 lakhs. AsSri. Alex had no separate source of income, he isonly a benami of Sri. Jose Kuruvinakunnel and thecredit in the bank account is only the unaccounted ITA Nos.568/2009 and connected cases receipts of the hotel. In a statement recorded from Sri. Francis Jose, though the A/c.No.3075 atFederal Bank, Kalluppara was opened in his namethe same was operated by Sri. Jose Kuruvinakunnelonly utilizing 60 blank cheques leaves signed andgiven to him. These transactions are also foundoutside the books of accounts. From the above, it is clear that Sri. JoseKuruvinakunnel has invested the undisclosedincome in the construction of the residentialbuilding, purchase of landed property. The incomeoffered for assessment is only very meager and donot commensurate with the investments made. Forthese reasons, I have reason to believe that incomechargeable to tax has escaped assessment withinthe meaning of section 147 of the Income Tax Act,1961. Issue notice u/s.148.” 3. Based on identical reasons the Assessing Officercompleted income escaping assessments under Section 147 of ITA Nos.568/2009 and connected cases the Act for the assessment years 1996-97 to 2000-01. It is to benoted that except for the first year revised assessments undersection 147 were completed within 4 years from the end of therelevant assessment years. However, since assessment for1996-97 was reopened after four years the Assessing Officer gotapproval from the Commissioner of Income Tax under Section151(2) of the IT Act. The assessee contested the assessments infirst appeals challenging validity of reopening and also theadditions made. In the first round of appeal the first appellateauthority confirmed the validity of assessments by stating thatthe reasons recorded by the Assessing Officer under Section148are sufficient to make reopening of the assessment underSection 147 of the IT Act. However, on second appeal filed bythe assessee, the Tribunal cancelled the assessments for theyears 1996-97 and 1997-98 for the reason that reopening is notsupported by valid reasons recorded by the Assessing Officerunder Section 148(2) of the Act against which Revenue has filedITA Nos.568/2009 and 1166/2009. For the remaining years theTribunal remanded the case to the CIT (appeals) forreconsidering the validity of reopening as also the additions. ITA Nos.568/2009 and connected cases : 6 : The CIT(Appeals) found that the Assessing Officer was notdebarred from issuing notice under Section 148 as theassessments were under Section 143(1)(a). However, on hisfindings that the reasons stated were not sufficient forformation of belief on escaped income the appeal of theassessee was allowed. The Revenue filed appeals before theITAT which were allowed upholding the validity of reopening.The assessee has filed remaining three appeals against the saidorders of the Tribunal. ITA Nos.568/2009 and connected cases : 6 : The CIT(Appeals) found that the Assessing Officer was notdebarred from issuing notice under Section 148 as theassessments were under Section 143(1)(a). However, on hisfindings that the reasons stated were not sufficient forformation of belief on escaped income the appeal of theassessee was allowed. The Revenue filed appeals before theITAT which were allowed upholding the validity of reopening.The assessee has filed remaining three appeals against the saidorders of the Tribunal. 4. We have heard the Senior Counsel Sri. P.K.R Menonappearing for the Revenue and Senior Counsel Sri. A.K.JNambiar for the assessee. 5. We first proceed to consider the two appeals filed bythe Revenue for the assessment years 1996-97and 1997-98. Thequestion we are called upon to consider is whether the Tribunalwas justified in holding that the reasons recorded by theAssessing Officer under Section 148(2) are vague andinadequate affecting the validity of the re assessment completedunder Section 147 of the Act. Additional grounds raised for theassessment years 1996-97 is whether the Commissioner of ITA Nos.568/2009 and connected cases Income Tax failed to exercise his jurisdiction in approvingreopening of assessment under Section 151(2) of the Act.Admittedly, any assessment could be reopened under section147 of the Act only if the Assessing Officer has reason to believethat income chargeable to tax has escaped assessment for theyear. In this context, Section 148(2) of the Act requires theAssessing Officer to record his reasons for reopening theassessment under Section 147 of the Act. The question to beconsidered is whether in the first place, the Assessing Officerhas sufficient reason to believe that income chargeable to taxhas escaped assessment and if so, he has complied with thestatutory requirements of recording the reasons under section148(2) of the Act. 6. According to the assessee's counsel the reasonsrecorded by the Assessing Officer were rightly found by theTribunal to be not sufficient to justify reopening of assessmentwhich is regular assessment completed under section 143(3) forthe assessment year 1996-97 and assessments completed for thebalance years by issuing intimations under Section 143(1)(a) ofthe Act. In this context assessee's counsel brought to our notice ITA Nos.568/2009 and connected cases that the main ground for reopening assessment is unexplainedinvestment in the construction of house by the assessee which isdealt with in the regular assessment completed under Section143(3) of the Act. The correctness of the reopening ofassessment for 1996-97 is to be considered with reference toregular assessment completed under Section 143(3). We hencefelt the need to refer to the regular assessment and Revenue'scounsel furnished a copy of the regular assessment completed inthe case of the assessee for the assessment year 1996-97. Ongoing through the same what we notice is that as stated by theAssessing Officer the regular assessment is completed acceptingreported income of Rs.87,280/-. It is seen from the said orderthat assessee has stated that he is engaged in the constructionof a house and he has spent Rs. 6.5 lakhs during the previousyear relevant for assessment year 1996-97. The source for thesaid investment was also explained by the assessee and is seenaccepted in the assessment order. However, from the saidorder it is clear that the assessee did not concede completion ofthe construction of 6000 sq.ft. house in the previous yearrelevant for the assessment year 1996-97 or whether the ITA Nos.568/2009 and connected cases ITA Nos.568/2009 and connected cases assessee has disclosed full investment for the house untilcompletion of construction. Further, the other groundsrecorded by the Officer in support of the reopening ofassessment, being the investment of Rs.50 lakhs for acquisitionof land in Tamil Nadu and the amounts found in the benamiaccounts of the assessee do not figure in the originalassessment. The money invested in the accounts of theManager and the benami account in the name of the assessee'sbrother-in-law as such is not seen considered in the regularassessment. So much so, the contention of the assessee whichfound acceptance with the Tribunal that the reasons recordedby the Assessing Officer are vague under Section 148(2) orinadequate is not tenable. 7. If the assessee may engaged in construction of a house,the Assessing Officer in the course of assessment is entitled toexamine whether investments are fully disclosed and explained.The source of investment also has to be explained andassessment of 1996-97 deals with investment of Rs.6.5 lakhs forthe 6000 sq.feet house constructed by the assessee. Similar isthe position with regard to the unexplained cash found in the ITA Nos.568/2009 and connected cases benami account as also the account in the name of the Manager.In our view, the materials collected by the Assessing Officerrecorded in the assessment order are sufficient to justifyreopening of completed assessment under Section 147 fordetailed examination as to whether there has been escapementof income in the regular assessment. In our view all that isrequired to be considered while considering the validity ofreopening an assessment under Section 147 is whether thegrounds recorded by the Assessing Officer for reopening are“reasons” that would justify assumption of escapement ofincome from assessment and not to consider whether thegrounds are sufficient reasons to justify assessment. What isrelevant is to examine whether the data gathered and recordedby the officer are relevant in the determination of total incometo be assessed under the Act. If investments, cash or valuablesare discovered after completion of assessments and those arenot disclosed in the original assessment certainly discovery ofsuch materials offer sufficient ground of reopen assessmentunder section 147 of the Act. However, the detailed questionwhether the assets found or investments made are assessable ITA Nos.568/2009 and connected cases fully or partly need not be considered by the Assessing Officerat the time of reopening the assessment under Section 147. 8. It is to be noticed that the Hon'ble Supreme Court in the case of Assistant Commissioner of Income Tax v.Rajesh Jhaveri Stock Brokers(P)Ltd. reported in 291 ITR500, held:- “As observed by the Supreme Court in Central ProvincesManganese Ore Co. Ltd., V. ITO(1991)191 ITR 662, forinitiation of action under Section 147(a)(as the provisionstood at the relevant time) fulfilment of the two requisiteconditions in that regard is essential. AT that stage, the finaloutcome of the proceeding is not relevant. In other words, atthe initiation stage, what is required is “reason to believe”,but not the established fact of escapement of income. At thestage of issue of notice, the only question is whether here wasrelevant material on which a reasonable person could haveformed a requisite belief. Whether the materials wouldconclusively prove the escapement is not the concern at thatstage. This is so because the formation of belief by theAssessing Officer is within the realm of subjective satisfaction(see ITO v. Selected Dalurband Coal Co.P.Ltd.(1996)217 ITR597 (SC); Raymond Woollen Mills Ltd. V. ITO(1999)236 ITR34(SC)” In our view the reasons to be recorded under setion148(2) arethe reasons to believe that income has escaped assessment as is ITA Nos.568/2009 and connected cases In our view the reasons to be recorded under setion148(2) arethe reasons to believe that income has escaped assessment as is ITA Nos.568/2009 and connected cases referred under section 147 of the Act. It is to be noted that noseparate proceeding is contemplated under Section 148(2) thatshould be the subject matter of appeal or revision under the Act.On the other hand section 148(2) is only an inherent safeguardagainst the misuse of authority by the Assessing Officers. Inother words, if the grounds recorded by the Assessing Officerfor reopening assessment are relevant for the purpose ofdetermination of income under the Act, then the same can betreated as sufficient reason for reopening assessment if it wasnot available or considered while completing regularassessment. On facts therefor we do not find any rationale forthe Tribunal to hold that the reasons recorded by the AssessingOfficer are irrelevant, incomplete or vague. We therefore,reverse the order of the Tribunal on this issue. 9. The next question raised by Revenue is whether theTribunal is justified in holding that the Commissioner has notexercised his jurisdiction properly under Section151(2) of theAct which independently affects the validity of reassessmentcompleted under section 147. In this context we find thatSection 151 is applied only for the assessment years 1996- ITA Nos.568/2009 and connected cases 97because regular assessment under Section143(3) wascompleted only for that year and section 151 applies only forreopening of assessment completed under section143(3) or 147of the Act and not for assessment recorded by issuing intimationunder Section 143(1)(a) of the Act. The Commissioner has inthe proceedings under section 151(2) held as follows: “Yes, I am satisfied that this is fit case for reopeningthe assessment.” The Tribunal held that the proceeding recorded as above is notsufficient exercise of jurisdiction under section 151(2)authorising reopening of assessment. The finding of theTribunal is that the Commissioner has not independentlyconsidered the reasons recorded by the Assessing Officer underSection 148(2) to justify reopening of assessment section 147.The Senior Counsel appearing for the Revenue challenged thefinding by stating that when the Commissioner states that he issatisfied with the reasons recorded by the Officer, it is evidentthat the Commissioner has gone through the reasons recordedand he was satisfied about the correctness and the sufficiency ofthe reasons for reopening of the assessment. We are in ITA Nos.568/2009 and connected cases complete agreement with the contention of the Revenuebecause when statutory authority records that he is satisfiedwith the reasons recorded by the Assessing Officer, it should betaken as satisfaction recorded after reading the reasons statedand endorsing the views recorded by the Assessing Officer. Wedo not think there is any need for the Commissioner inproceeding issued under section 151(2) to repeat the samereasons stated by the Assessing Officer in the proceedingsissued under Section 148 of the Act. What is recorded by theCommissioner is satisfaction of the reasons recorded by theAssessing officer and in our view the same is proper complianceof section 151(2). We are therefore unable to sustain thefindings of the Tribunal that the Commissioner has not grantedapproval under section 151(2) for reopening assessment undersection 147 and therefore we reverse the finding of the Tribunalon this issue. Consequently the appeals filed by the Revenueboth for 96-97 and 97-98 stand allowed by vacating the ordersof the Tribunal and by remanding the case for reconsiderationby the Tribunal on merits with regard to the additions made. 10. One additional ground raised by the Senior Counsel ITA Nos.568/2009 and connected cases 10. One additional ground raised by the Senior Counsel ITA Nos.568/2009 and connected cases for the assessee for the assessment year 1996-97 is that theassessment could be reopened under section 149(1)(b) only ifthe escaped income is one lakh and above. According to theappellant's counsel while recording reasons under Section 148(2) the Assessing Officer has not concluded in so many wordsthat the escapement is to the level of one lakh or above.However, on going through the reasons recorded what wenotice is that the single investment of 50 lakhs in acquisition ofland by the assessee outside Kerala and the investment onhouse construction of the extent of 6000 sq.ft. for the value of42 lakhs would necessarily indicate the limit having beenexceeded. In this context, the question to be considered is withreference to the income assessed in the original assessmentwhich has to be reopened under section 147. Admittedly, theincome returned by the assessee and assessed by the AssessingOfficer under Section 143(3) in regular assessment for 1996-97is only Rs.87,280/-. The investment explained in the regularassessment of 1996-97 is only 6.5 lakhs whereas the investmentin the house is 42 lakhs and in the property acquired is 50 lakhs.We therefore, do not find any merit in this contention of the assessee. 11. So far as the appeal filed by the assessee areconcerned we notice that there is a technical flaw in the ordersof the Tribunal because revenue's challenge of the firstappellate order are not on the grounds on which Tribunal hassustained the said orders. For the assessment years 1998-99 to2000-01 the assessee contends that the Tribunal was notjustified in upholding the validity of assessment on the groundsstated by them which were not the grounds raised by therevenue to challenge the first appellate orders. Even though wefind force in this contention by the appellants' counsel, we donot find any justification for remanding the matter to theTribunal to consider the validity of the reopening of assessmentbecause the decision rendered by us on the validity ofassessment for the appeals filed in the earlier two years abovestated is equally applicable here. The remaining question to beconsidered is whether the same grounds that justifies reopeningassessment for 1996-97 and 1997-98 are valid grounds forreopening assessment for subsequent years namely 1998-99 to2000-2001. Assessee's counsel rightly pointed out that if ITA Nos.568/2009 and connected cases investment found in a year is the only ground for reopeningassessment for the assessment year relevant to previous year,then the same will not offer as a ground for reopeningassessment for subsequent years. According to the learnedcounsel for the assessee the regular assessment specificallyrefers to the investment in a house which according to him isseen considered in the regular assessment completed undersection 143(3) of the Act for the assessment years 1996-97. Thelearned senior counsel for the Revenue on the other handreferred to other grounds recorded in reopening and also to theregular assessment completed for 1996-97 and contended thatthe reasons recorded are relevant for subsequent years too. Inthe first place so far as investment in the house of 6000 sq.ft. isconcerned investment of 6.5 lakhs is only seen consiered inthe relevant assessment year 1996-97. Secondly, StandingCounsel pointed out that the maintenance of benami account isjustification for reopening of assessment for all assessmentyears during which assessee has been operating the said benamiaccount. We find force in this contention because if assesseehas investments in house property or landed property, the ITA Nos.568/2009 and connected cases : 18 : ITA Nos.568/2009 and connected cases : 18 : period during which such investments were made and theperiod during which the source of funds were raised forrepayment of loans if any taken for such investments are theperiod, during which there is likelihood of escapement ofincome justifying reopening assessments. So much so, we feelthe grounds recorded are such as to justify reopening ofassessment for subsequent years as well. Learned seniorcounsel for the assessee referred to the reassessment completedand contended that the grounds on which the assessments werereopened are not the basis on which additions are made in theassessment. In this context senior counsel for the Revenue hasreferred to a Division Bench decision of this Court reported inCommissioner of Income Tax Vs. Popular Vehicles andServices Ltd.191 Taxmann 333(Ker) wherein this Courtinterpreted the provisions of Section 147, amended with effectfrom 1.4.1989, and held that any escaped income could bebrought to tax in an assessment completed under section 147,no matter the reason recorded by the Assessing Officer underSection 148(2) does not relate to all such income assessed asescaped income. The fact that the Assessing Officer has ITA Nos.568/2009 and connected cases recorded certain reasons to believe that the income escapedassessment to tax justifying reopening of assessment does notmean that reassessment should be confined only to such incomebut the officer is authorised to assess the whole of the incomethat escaped assessment. It is always open to the assessee toestablish before the Assessing Officer in the course ofreassessment proceedings that there has been no escapement ofincome from assessment to tax and if the Assessing Officer issatisfied, he has to drop the reassessment proceedings. It isalso trite law that in reassessment the Assessing Officer canbring to assessment any other income that escaped assessmentother than the item or items of escaped income in respect ofwhich he has recorded reasons under Section 148(2) forreopening. In view of the above findings we reject assessee's groundsby sustaining the orders of the Tribunal on validity ofassessment not on the grounds found by them but on thegrounds decided above. However, we vacate the orders of theTribunal with regard to further remand of the case. We remandthe matter to the Tribunal for restoring appeals for decision on ITA Nos.568/2009 and connected cases issues raised on additions other than those pertaining to validityof assessments completed under section 147 of the Income TaxAct and direct that the appeals of the Revenue also to beconsidered on merits. Sd/-C.N. RAMACHANDRAN NAIR(Judge) Sd/- K. VINOD CHANDRAN (Judge) jma //true copy// P.A to Judge