Learning from reported judgment in case of Super Star Amitabh Bachachan – second article in view of judgment of the Supreme Court on S.263 reversing relief allowed by Tribunal and High Court

[CA DEV KUMAR KOTHARI]

Relevant links and references:

Commissioner of Income Tax, Mumbai Versus Amitabh Bachchan 2016 (5) TMI 493 -SUPREME COURT  - Recent judgment of the honourable the Supreme Court of India on S.263 in case of Shri Amitabh Bachachan.

CIT  Versus SHRI AMITABH BACHCHAN 2012 (7) TMI 374 - BOMBAY HIGH COURT- judgment on S.147 for another year. In which reassessment proceeding was quashed as there was no fresh new tangible material.

Earlier article in view of above judgment on S.147:

Learning from reported judgment in case of Super Star Amitabh Bachachan  An Article By: - C.A. DEV KUMAR KOTHARI dt. July 17, 2012

Cases on S.263 referred in Commissioner of Income Tax, Mumbai Versus Amitabh Bachchan 2016 (5) TMI 493 -SUPREME COURT

1. The Asstt. Commissioner of Income-tax Circle 13 Mumbai. Versus Shri Amitabh Bachchan - 2010 (1) TMI 1197 - ITAT MUMBAI
2. Commissioner of Income Tax Versus Shri Amitabh Bachchan - 2008 (8) TMI 913 - BOMBAY HIGH COURT
3. COMMISSIONER OF INCOME-TAX Versus MAX INDIA LTD. - 2007 (11) TMI 12 - Supreme Court of India
4. Malabar Industrial Co. Ltd. Versus Commissioner of Income-Tax - 2000 (2) TMI 10 - SUPREME Court
5. Commissioner of Income-Tax, West Bengal II Versus Electro House - 1971 (9) TMI 10 - SUPREME Court
6. Gita Devi Aggarwal Versus Commissioner of Income-Tax, West Bengal And Others - 1969 (7) TMI 5 - SUPREME Court

Relevant provisions

Sections 69, 143(3), 147, 148 , 263 and 260A of the Income-tax Act, 1961.

Learning from reported judgments – earlier article:

In earlier article written after judgment of the Bombay High Court, holding reassessment proceedings invalid, author had pointed out several aspects of learnings and  to be more careful while preparing return and related documents. Author feels that  apparently there have been  gross carelessness on part of people engaged by Shri Amitabh Bachachan for tax matters. Shri Amitabh Bhachan, cannot be blamed for such mistakes due to carelessness of concerned persons, however, he will be liable to face all consequences. The matter can be so seriously viewed that Shri Bachhan, in spite of being one of top tax payers for many years can be penalized and  prosecuted for concealment of income and for furnishing inaccurate particulars of income.

 As expressed in many earlier articles. reported judgments are a major source of information to learn and gain experience  which the parties before the court had. In case of elaborate judgment including linked judgments of lower courts and authorities we can find treasure of information about facts, legal provisions, art of applying legal provisions in a given situation in favour of a party to the case. We can also learn about strength and weaknesses relating to facts and applicable provisions. 

Learning from recently reported income-tax case of Super Star Shri Amitabh Bachchan on S. 263 proceedings:

The case relates to assessment year 2001-02 – more than sixteen years old.

As in case relating to S.147 (for Assessment year 2002-03) , discussed in earlier article, in this case also  facts are similar that is assessee preferred claim for 30% of certain receipts as allowable expenditure in the revised  ROI.

However, such claim of expenditure was withdrawn when learned AO started enquiry. When learned AO wanted to invoke S.69C apprehending existence of  unexplained income out of which expenses claimed in ROI were incurred, for spending such sums, the assessee explained that since expenses are not being claimed / claim has been  withdrawn S.69C has no application. The learned AO accepted this and did not make any enquiry as to whether expenses were incurred or not and did not make an addition S.69C for unexplained expenditure.

Learned CIT in his suo moto exercise of revisionary power issued notice u/s 263 pointing out several aspects of assessment order being erroneous and prejudicial to the interest of revenue. The CIT provided opportunities to the assessee/ his A/R for explaining his case. Learned CIT during hearing raised several other issues also which were not covered in the notice u/ S. 263 , however, opportunity of hearing was allowed on those issues ( as deemed by the Supreme Court). The CIT passed order u/s 263 setting aside assessment order passed by the AO as erroneous and prejudicial to the interest of revenue  and directed the learned AO to make assessment de novo after providing opportunity of hearing to the assessee on several points including some which were not covered in notice u/s 263 .

Wrong approach adopted by challenging order u/s 263 :

In view of author, Shri Bachhan was wrongly advised to prefer appeal against order u/s 263 , this is in spite of fact that the order u/s 263 was held void by the Tribunal and Bombay High Court. In view of author:

• When an order is passed u/s 263 directing the AO to make assessment de novo, proper case would have been to co-operate in inquiry by the AO and produce convincing evidences andexplanations so that learned AO can decide issue justifiably.
• In case AO do not decide issue justifiably and properly, the assessee would have opportunity before appellate authorities starting from CIT(A), to Tribunal than the High Court and then the Supreme Court.
• This will enable the revenue to examine case and assessee to make out his case on merits.
• The ultimate purpose of appeals and revision is to ascertain income properly and as per law.
• Therefore, when in an order u/s 263 , the CIT directs the AO to make a fresh assessment after making enquiry and hearing assessee, the better course is to face normal procedure of assessment and appeals instead of trying to close the doors for proper determination of income, by challenging order of CIT u/s 263 .
• Particularly in the case of Shri Bachhan, on reading of judgments it is noticed that the AO afforded many opportunities to the assessee through his A/R however, the A/R sought adjournments from time to time and ultimately the AO had to pass order to save limitation. This is found from the recording in paragraph 14 of the judgment which is analysedas follows:

• As to orders of AO and CIT the Court observed that “to determine the above question we have read and considered the order of the Assessing Officer dated 30th March, 2004; as well as the order of the learned C.I.T. dated 20th March, 2006.

• On various datesthe AO providedopportunities to produce the books of account and other relevant documents were afforded to the assessee which requirement was not complied with by the assessee. This has been noted by CIT in his order also.

• The revisional authority took the view that the Assessing Officer, after being compelled to adjourn the matter from time to time, had to hurriedly complete the assessment proceedings to avoid the same from becoming time barred.

•  In the course of the revisional exercise relevant facts, documents, and books of account which were overlooked in the assessment proceedings were considered.

• On such re-scrutiny it was revealed that the original assessment order on several heads was erroneous and had the potential of causing loss of revenue to the State.

• It is on the aforesaid basis that the necessary satisfaction that the assessment order dated 30th March, 2004 was erroneous and prejudicial to the interests of the revenue was recorded by the learned C.I.T. At each stage of the revisional proceeding the authorized representative of the assessee had appeared and had full opportunity to contest the basis on which the revisional authority was proceeding/had proceeded in the matter.

• If the revisional authority had come to its conclusions in the matter on the basis of the record of the assessment proceedings which was open for scrutiny by the assessee and available to his authorized representative at all times it is difficult to see as to how the requirement of giving of a reasonable opportunity of being heard as contemplated by Section 263 of the Act had been breached in the present case.

• The order of the learned Tribunal insofar as the first issue i.e. the revisional order going beyond the show cause notice is concerned, therefore, cannot have our acceptance. The High Court having failed to fully deal with the matter in its cryptic order dated 7th August, 2008 we are of the view that the said orders are not tenable and are liable to be interfered with.

Authors views on principal of natural justice:

When CIT had offered various opportunities and the assessee and / or his A/R had opportunity and all records to contest the enquiry by the CIT, even on some issues not covered by the show cause notice, then it cannot be said that principal of natural justice has not been followed. In one sense, after issue of Show Cause Notice, if the authority had added certain items for enquiry and allowed opportunity of hearing, then communication by way of the noting in order sheet, letter or even verbal discussions between CIT and A/R can constitute supplemental notice.   In this case, the assessee and / or his A/R had all documents based on which he could have contested matters before the AO. When assessee did not avail such opportunities and co-operate with the AO, the order made without adequate response by assessee on enquiry made by the AO was erroneous and the CIT had not violated principal of natural justice.

Other substantial issue in revision proceeding, elaborately and seriously considered by the Supreme Court:

As in case of reassessment for AY 2002-03, in AY 2001-02 the matter was relating to   the claim of additional expenses in the re-revised return filed by assessee which was withdrawn and lead to enquiry S.69C as unexplained expenditure.

The observations and order of the Supreme Court are analysed below:

• The third question (relating to S.69C ) would, however, require some detailed attention. The said question is with regard to the claim of additional expenses made by the assessee in its re-revised return which was subsequently withdrawn.
• The assessee in the re-revised return dated 31st March, 2003 had made a claim of additional expenses of 30% of the gross professional receipts (Rs.3.17 crores).
• The Assessing Officer required the assessee to file requisite details in this regard. The assessee responded by letter dated 13th February, 2004 stating as follows:

     “With regard to the 30% estimated expenses claimed, we have to submit that these are the expenses which are spent for security purposes by employing certain Agencies, guards etc. for the personal safety of Shri Bachchan as he has to protect himself from various threats to his life received by him and to avoid extortion of money from gangsters. The names of such Agencies cannot be disclosed/divulged as there is a possibility of leakage of information of Agencies’ names from the office staff, which will obviously be detrimental to the interests of Shri Bachchan. The payments have been made out of cash balances available and lot of outstanding expenses are to be paid which could not be paid for want of income.”

• Thereafter, by letter dated 13th March, 2004 the assessee informed the learned C.I.T. (sic. It should be AO) that the claim was made on a belief that the same is allowable but as it will not be feasible for the assessee to substantiate the same, the re-revised return of income may be taken to the withdrawn.
• The Assessing Officer issued a notice to show cause as to why the provisions of Section 69-C should not be invoked and the expenses claimed should not be treated as unexplained expenditure.
• In reply, the assessee by letter dated 24th March, 2004 submitted that the claim was made as a standard deduction and that the assessee had been wrongly advised to make the said claim and as the same has been withdrawn, Section 69-C will have no application. The record of the assessment proceedings disclose that the said stand was accepted by the Assessing Officer and the matter was not pursued any further.
• On examination of assessmentrecords the learned C.I.T. took the view that notwithstanding the withdrawal of the claim by the assessee, in view of the earlier stand taken that the said expenses were incurred for security purposes of the assessee, the Assessing Officer ought to have proceeded with the matter as the assessee was following the cash system of accounting and the filing of the re-revised return, prima facie, indicated that the additional expenses claimed had been incurred. In this regard, the following findings/reasons recorded by the learned C.I.T. in the order dated 20th March, 2006 would be of particular relevance:

(from order u/s 263 ):

          “Withdrawal of claim by assessee can be for variety of reasons and this does not mean that Assessing Officer should abandon enquiries regarding sources for incurring expenses. Assessee follows cash system of accounting and the claim regarding additional expenses was made through duly verified revised return. The claim was pressed during assessment proceedings carried on by A.O. after filing revised return and it was specially stated in letter dated 13.02.2004 that expenses were for security purposes and that payments have been made out of cash balances available etc. Under the circumstances, the Assessing Officer was expected to examine the matter further to arrive at a definite finding whether assessee incurred expenses or not and in case, actually incurred, then what were sources for incurring these expenses. Assessing Officer was satisfied on withdrawal of the claim and in my view, his failure to decide the matter regarding actual incurring of additional expenses and sources thereof resulted into erroneous order which is prejudicial to the interest of revenue.”

• An argument has been made on behalf of the assessee that notice under Section 69-C was issued by the Assessing Officer and thereafter on withdrawal of the claim by the assessee the Assessing Officer thought that the matter ought not to be investigated any further. This, according to the learned counsel for the assessee, is a possible view and when two views are possible on an issue, exercise of revisional power under Section 263 would not be justified. Reliance in this regard has been placed on a judgment of this Court in Malabar Industrial Co. Ltd. vs. CIT 2000 (2) TMI 10 - SUPREME Court which has been approved in Commissioner of Income-tax vs. Max India Ltd. 2007 (11) TMI 12 - Supreme Court of India .

From order and judgment of the Supreme Court on possibility of two views:

• There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter.
•  Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority.
• This is a course of action that must be desisted from.
• However, the above is not the situation in the present case in view of the reasons stated by the learned C.I.T. on the basis of which the said authority felt that the matter needed further investigation, a view with which we wholly agree. Making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue. The notice issued under Section 69-C of the Act could not have been simply dropped on the ground that the claim has been withdrawn.
• We, therefore, are of the opinion that the learned C.I.T. was perfectly justified in coming to his conclusions insofar as the issue No.(iii) is concerned and in passing the impugned order on that basis.
• The learned Tribunal as well as the High Court, therefore, ought not to have interfered with the said conclusion.
• The appeal of the Revenue is allowed.

Difference between two proceedings:

As noted above in case of reassessment of the same assessee, reassessment was held invalid because there was no new tangible material. The AO has invoked S.69C and on consideration of explanation dropped proceeding S.69C . In that situation Tribunal and High Court held that reassessment is not permissible. It is not known whether any appeal has been filed by revenue. However, in view of author, any appeal, filed in such circumstances, by revenue is likely to be dismissed in view of settled legal position.

However, on same fact, when CIT passed an order u/s 263, though the Tribunal and High /Court quashed proceedings but the Supreme Court held that revision was proper because:

Assessee himself claimed that expense have been incurred- this means he had resources for the same, As the assessee is maintaining accounts on cash basis, expenses incurred and liability remaining cannot be accepted.

If resources of such expenses are not satisfactorily explained, then definite conclusion would be that expenses were incurred out of unexplained income to which S.69C can be applied.

Learning from cases of Shri Amitabh Bachchan:

Persons like Shri Amitabh Bachhan and most of other tax payers rely on people like Advocates, CA, CMA, CS, tax practioners for compliance of tax including preparation of returns and computation of income. Tax law are complex and require serious consideration. Accounting treatment of various transactions are also important.

Accounting and auditing methods are necessary to be applied to find out correctness of accounts based on which tax computation is made. Therefore, physical controls are also important. In a big case like that of Shri Amitabh Bachchan, it is very important to ensure that all transactions in cash and through bank accounts are reconciled, all balances of assets, liabilities, are reconciled and confirmations are obtained, assets are physically verified, expenses incurred and claimed are cross tallied with books of account. There is no short cut on these aspects.

Tax professionals must make these clear and work diligently and sincerely. Clients must also recognize work involved and seriousness of matters and accordingly remunerate professionals. Professionals must also charge properly so that adequate time and efforts as may be required can be put in and short cut  routes and methods are not adopted.