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TMI Blog2016 (6) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the course of search operations, the residential premises of Shri C.Rajkumar, were also covered. It was stated that as a result of search and seizure operations, certain documents belonging to the assessee were found and seized by the Investigation Wing of the Department. During the course of search operations, it was stated that Shri Rajkumar who is the kartha of the present appellant i.e. Rajkumar C, HUF stated that regular returns of income were being filed in the individual capacity and no returns were filed in the status of Rajkumar C, HUF , appellant herein. It is stated that Shri Rajkumar appeared before the Investigation Wing of the Department and gave a statement on 26/08/2008 and also filed a letter dated 24/12/2008 before the ADIT, Investigation Wing that the income earned from real estate activities belong to the HUF. However, no returns were filed. While matter stood thus, assessments were in the hands of Shri Rajkumar, in his individual capacity were completed lu/s 143(3) read with sec.153C of the of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] on 28/2/2010 for the assessment years 2005-06 to 2007-08 bringing the income earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n separately admitted by revi sing their returns and hence, i t i s held that A.O. shal l take steps to as sess the balance income of ₹ 2,40,25,150 (Rs .2,37,96,270/- + ₹ 2,28,880/- ) only in the hands of their HUF as di rected in 2005-06. 4. We are given to understand at the bar that the appeal filed by the revenue against the order of the CIT(A) was dismissed by this Tribunal. Pursuant to the directions of the CIT(A), the AO had issued notice u/s 148 to the appellant i.e. Rajkumar C, HUF for the assessment years 2005-06 to 2007-08 recording the following reasons: The assessee is in the business of real estate and has not disclosed income from real estate transactions for A.Y. 2007-08. The assessee had earned at' income of ₹ 2,4025,150/ for A.Y 2007-08. The assessee had not filed any return of income in his capacity of HUE. The assessee had not disclosed this income in return of incomes filed in the capacity of individual. There was a search u/s. 132 of IT Act in the case of Sri. Purushotham Reddy others where the residence of the assessee was covered oil 26.08.2008. Based on the incriminating material seized DCIT, CC-2(2). Bangalore had brought the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in the case of Gaurav Luthra vs. ITO in ITA 278/Agra/2011 dated 4/6/2014. The appellant had also drawn our attention to the provisions of sec.153C and 148 contending that the reassessment proceedings are not substitute for assessment contemplated u/s 153A, 153C of the Act. It was also further contended that the re-assessment should be initiated on the opinion formed by the AO only. In the absence of application of mind by the AO to form a belief or reason that income got escaped assessment, re-assessment proceedings are not valid in law and in support of this proposition, reliance was placed on the decision of the Hon ble Bombay High Court in the case of CIT vs. Kamadhenu Steel Alloys Ltd. (248 ITR 33)(Del). It was further contended that income cannot be assessed in the hands of HUF as partition of the HUF had already been taken place and the partition deed was already seized by the department during the course of search and seizure operations. 7. On the other hand, learned Departmental Representative contended that it is a clear case of escapement of assessment of tax as defined u/s 147 of the Act as no return was filed by the appellant though there was taxable income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 811 at page 823) : It is also well-settled that the reasons for reopening are required to be recorded by the assessing authority before issuing any notice under section 148 by virtue of the provisions of section 148(2) at the relevant time. Only the reasons so recorded can be looked at for sustaining or setting aside a notice issued under section 148. In the case of Equitable Investment Co. (P.) Ltd. v. ITO [1988] 174 ITR 714, a Division Bench of the Calcutta High Court has held that where a notice issued under section 148 of the Incometax Act, 1961, after obtaining the sanction of the Commissioner of Income-tax is challenged, the only document to be looked into for determining the validity of the notice is the report on the basis of which the sanction of the Commissioner of Income-tax has been obtained. The Income-tax Department cannot rely on any other material apart from the report. 11. The same principle was reiterated in a judgment of the Division Bench of this Court in Hindustan Lever Ltd. v. R.B. Wadkar [2004] 268 ITR 332(Bom.) :- ...the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra states that based on the above facts, he had reason to believe that income had escaped assessment. The AO had not even recorded his satisfaction as to the correctness of the findings of the CIT(A). The AO had not recorded his findings as to how he reached conclusion that income in the hands of appellant had escaped assessment of tax. Therefore, we are unable to discern whether the AO had applied his mind to the information/directions of CIT(A) and independently arrived at a belief that on the basis of the material which he had before him, income had escaped assessment. The AO merely acted on the directions of the CIT(A). The directions of the CIT(A) are not binding on the AO and it is a matter of record that the AO, in fact, had challenged the correctness of the CIT(A) s order before the Tribunal which came to be dismissed. The directions of the CIT(A) are only in the form of opinion/view of the CIT(A). The AO has to independently form an opinion that income has escaped assessment which is not discernible from the reasons recorded. The formation of belief that income escaped assessment also vitiated by the fact that the correctness of the order passed by the CIT(A) was challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry case, the Income-tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income-tax Officer. The ratio fully governs the present case and the record illuminates the failure of the Assessing Officer to adhere to this principle while issuing notice under section 148 in the present case. It is true that satisfaction of the Assessing Officer for the purpose of reopening is subjective in character and the scope of judicial review is limited. When the reasons recorded show a nexus between the formation of belief and the escapement of income, a further enquiry about the adequacy or sufficiency of the material to reach such belief is not open to be scrutinised. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment due to erroneous computation of deduction under section 80HHC, for the reasons stated by the audit. The reason is not far to seek. Notwithstanding this clear position of law emerging from the decision of the Supreme Court, the instructions of the Board still persisted that as soon as audit objections are raised, prompt remedial action in the nature of reassessment should be taken even if objection is not accepted by the Income-tax Officer. The instructions are being taken for remedial action, viz., remedial action should invariably be initiated as a precautionary measure in respect of audit objections, even if the objection is not accepted by the Income-tax Officer or without the assessing authority applying his mind to such information for reaching his own conclusion. Once the remedial action is initiated, it can be dropped with the approval of the Commissioner of Incometax if the objection raised is one of facts and the facts stated to the audit are found to be incorrect. 9.4 Now, the law is fairly well settled that the decision to reopen the assessment has to be taken by the AO alone and no ITA one else. In other words, AO could not have been subjected to any co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra), this Court was dealing with a circular issued by CBDT which sought to delineate certain offences which could not be compounded. The Court referred to Section 119 of the Act and held: in the exercise of its power to issue orders and circulars under Section 119 of the Income-tax Act, 1961, the Central Board cannot take away the judicial or quasi-judicial functions of the Commissioner and vest them in itself or put them under the overall supervision of itself or the Minister. The Board can relax the rigour of the law or grant relief to the taxpayers which is not to be found in the statute. But the Central board cannot dilute the discretion of the Commissioner which has been conferred by the statute. 24. In Dr. M.L. Passi v. CBDT (supra) the above legal position was reiterated. In CIT v. SPL s Siddhartha Ltd [2012] 345 ITR 223 (Del) the Court found that for the purposes of Section 151 (1) of the Act the approval for issuance of notice under Section 147 had to be given only by the Joint Commissioner or Additional Commissioner. Instead the approval was taken, in that case, from the CIT (3) who was not competent to approve the action even though he was a higher a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) of the Act could be invoked. The question, therefore, is what is the true meaning of the terms of the second proviso to section 34(3) of the Act. It reads : Provided further that nothing in this section limiting the time within which any action may be taken, or any order, assessment or reassessment may be made, shall apply to a reassessment made under section 27 or to an assessment or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 31, section 33, section 33A, section 33B, section 66 or section 66A . Prima facie this proviso lifts the ban of limitation imposed by the other provisions of the section in the matter of taking an action in respect of or making an order of assessment or reassessment falling within the scope of the said proviso. The scope of the proviso is confined to an assessment or re-assessment made on the assessee or any person in consequence of an order to give effect to any finding or direction contained in any order made under section 31 i.e., in an appeal before the Assistant Appellate Commissioner, under section 33 i.e., in an appeal before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the relevant year. He may incidentally find that the income belongs to another year, but that is not a finding necessary for the disposal of an appeal in respect of the year of assessment in question. The expression direction cannot be construed in vacuum, but must be collated to the directions which the Appellate Assistant Commissioner can give under section 31. Under that section he can give directions, inter alia, under section 31(3)(b), ( c) or (e) or section 31(4). The expression directions in the proviso could only refer to the directions which the Appellate Assistant Commissioner or other Tribunals can issue under the powers conferred on him or them under the respective sections. Therefore, the expression finding as well as the expression direction can be given full meaning, namely, that the finding is a finding necessary for giving relief in respect of the assessment of the year in question and the direction is a direction which the appellate or revisional authority, as the case may be, is empowered to give under the sections mentioned therein. It was clarified that the words any person would refer to those who were not nominee parties to the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case for decision by the authority hearing the case or the appeal which, being necessary for passing the final order or giving the final decision in the appeal, has been the subject of controversy between the interested parties or on which the parties concerned have been given a hearing. (p. 589) In Rajinder Nath s case (supra), this Court held : - The expressions finding and direction are limited in meaning. A finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for the disposal of the particular case, that is to say, in respect of the particular assessee and in relation to the particular assessment year. To be a necessary finding, it must be directly involved in the disposal of the case. It is possible in certain cases that in order to render a finding in respect of A, a finding in respect of B may be called for. For instance, where the facts show that the income can belong either to A or B and to no one else, a finding that it belongs to B or does not belong to B would be determinative of the issue whether it can be taxed as A s income. A finding respecting B is intimately involved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. It is only when the CIT(A), while dealing with the appeals in the individual hands of C.Rajkumar, the AO had come to the conclusion to initiate proceedings u/s 148 in the hands of the appellant, in order to correct this error of judgment earlier committed. This is not permissible, as held by the Hon'ble High Court of Karnataka in the case of First ITO, vs. A.Y.Panduranga Rao (128 ITR 250) wherein it was held as follows: . In the present case, the petitioners' family had filed a return for the assessment year 1962-63 in response to the earlier notice under section 148. Hence, the first of the two alternative conditions precedent under that clause, did not exist in the present case. Sri Srinivasan contended that the second condition also was not satisfied in this case because the ITO was in possession of all the material facts relating to the income of ₹ 72,116 when he dropped the proceedings on April 11, 1968, and that if he did not tax that income for the year 1962-63, it was not due to any omission or failure on the part of the petitioners' family to disclose that income or any material facts relating thereto fully and truly. Sri Srinivasan main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclose fully and truly all material facts, and hence the case came squarely within the ambit of clause ( a ) of section 147 and that the impugned notice under section 148 was valid. The above contention overlooks that when the ITO, after considering the return filed on April 27, 1967, dropped the proceedings on April 11, 1968, he had full knowledge of the income arising out of the sale of the agricultural lands. But he took the view that that income could not be brought to tax for the assessment year 1962-63. Thus, it was plainly a case of error of judgment on his part and his not bringing to tax that income was not due to any omission or failure on the part of the petitioners' family to disclose that income or any material facts relating thereto fully and truly. In our opinion, the decision of the Supreme Court in Gemini Leather Stores' case [1975] 100 ITR 1 fully supports the contention of Sri Srinivasan. Hence, the order of the learned single judge should be upheld on a ground different from the one on which he rested his order. In the result, we dismiss this appeal. 9.7 Thus, applying the above legal position to the facts of the present case, we are of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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