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TMI Blog2018 (2) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... . Out of the 109 appeals, Sl.nos.1 to 70 in the cause- title above pertain to the BOI group and the remaining appeals 71 to 109 in the cause title above pertain to AOP group. Since the issues involved are common and are in respect of a group and also arise out of the common order passed by the CIT(A), dt.30/11.2009, for the assessment years 1986-87 to 1992-93, all these appeals are combined and a common order is passed for the sake of brevity and convenience. ITA Nos.273 to 335/Bang/2010 - BOI appeals : 1. As the facts are common and the issue involved is also common, we are referring to facts of one case, namely, BOI consisting of D. Dasappa, D. Ramachandrappa and D. Jairaj out of ITA Nos. 273 to 335/ Bang/2010 . 2. The assessee is a BOI consisting of D. Dasappa. D. Ramachandrappa and D. Jaiaraj. The assessee has instituted the appeal for A. Y. 1986-87 before the CIT (A) against the order passed u/s.143(3) R.W.S. 147 and 260A of the Act. As per the claim of the assessee, there is no dispute either about the constitution of the BOI up to asst. Years 1983-84 and 1985-86. However, it is the case of the assessee that the BOI came to be dissolved on 12.09.1993. On the said date, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,93,930 18 ITA.290/B/2010 -do- 1989-90 36,66,102 19 ITA.291/B/2010 -do- 1990-91 28,79,484 20 ITA.292/B/2010 -do- 1991-92 58,13,100 21 ITA.293/B/2010 -do- 1992-93 17,39,420 22 ITA.294/B/2010 Disrupted BOI consisting of Shri. D. Ramachandrappa, Shri. D. Ravikumar and Shri. D. Ravikumar PAN : ABJPR9683E 1986-87 8,43,861 23 ITA.295/B/2010 -do- 1987-88 14,23,925 24 ITA.296/B/2010 -do- 1988-89 27,58,925 25 ITA.297/B/2010 -do- 1989-90 37,03,002 26 ITA.298/B/2010 -do- 1990-91 27,43,484 27 ITA.299/B/2010 -do- 1991-92 71,59,545 28 ITA.300/B/2010 -do- 1992-93 21,38,971 29 ITA.301/B/2010 Disrupted BOI consisting of Shri. D. Jayaraj, Shri. D. Vijayakumar and Shri. 1986-87 8,48,861 D. Somashekhar PAN : AEUPS7762M 30 ITA.302/B/2010 -do- 1987-88 14,85,925 31 ITA.303/B/2010 -do- 1988-89 28,63,925 32 ITA.304/B/2010 -do- 1989-90 39,75,102 33 ITA.305/B/2010 -do- 1990-91 35,78,534 34 ITA.306/B/2010 -do- 1991-92 76,94,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 ITA.340/B/2010 -do- 1990-91 33,74,484 69 ITA.341/B/2010 -do- 1991-92 54,17,945 70 ITA.342/B/2010 -do- 1992-93 20,88,921 Assessee being aggrieved by the order passed by the AO filed an appeal before the CIT (A) 5. Before the CIT (A) assessee failed to get any relief. Consequentially, the assessee preferred appeal before the ITAT, challenging the validity of the assessment on the BOI of D. Dasappa, D. Ramachandrappa and D. Jayaraj. 6. The Tribunal, vide decision dated 02.03.2001 in ITA no 622 to 647 in para 22 and 23 held as under : 22. The ld. Representative Shri Venkatesan has also submitted that the issue of notices under 148 read with 147 was not correct. He has submitted that the assessee's were present before the AO and therefore, making assessments under sec.144 was also not correct. If the assessee's were disrupted, then the question of remaining present before the AO does not arise as they are not in existence. They could not also have been represented. The facts are contrary, particularly on perusal of the CIT(A)'s order. 23. It has become necessary to consider one more point in view of the arguments of the ld. Representative f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law. This decision of the Bombay High Court in the case of Ellis Reid (supra) has been referred by the Hon'ble High Court of Karnataka in the case of G.E. Narayana (193 ITR 41) wherein it was observed at page 47 as under: "The forerunner to this principle is found in the decision of the Bombay High Court in Ellis C Reid V cit AIR 1931 Bom.333 (1930) 5 STC 100, wherein the Bombay High Court held that, when a person died after the commencement of the assessment year but before his income for the relevant accounting year was assessed, his executor was not liable to pay the tax. After this decision, section 24B was introduced in the earlier Income-tax Act, 1922 (similar to the present section 159). That the existence of the assessee at the time of the assessment order is an absolute necessity is a matter which has been recognised in all these decisions and if the assessee is not in existence, there should be a specific provision to assess the said income which was liable to be taxed under the provisions of the Income-tax Act. The same logic governs the Wealth lax Act also" The above passage of the Hon'ble High Court of Karnataka was reiterated in the later decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the earlier Bench should be followed by this Bench for judicial consistency. Therefore, following the earlier order of the Tribunal, we uphold the validity of the assessments made on the disrupted BOIs. 13. The next issue is about the validity of the reopening. It is contended on behalf of the assessees that the reopening of the assessments is bad in law. Again, the validity of the re-opening was upheld by the Tribunal in the aforesaid order. It was contended by Shri Venkatesan that although the Tribunal upheld the validity of the reopening reasons that are mandatorily required to be recorded were not produced before the Tribunal during the course of hearing of the assessees Accordingly, we directed the learned Departmental Representative to produce the reasons recorded for the years under appeal . The learned Departmental Representative produced a photostat copy of the order sheet where the reasons recorded are as under: 'The assessees have izow filed returns of income showing substantial receipts from 'gifts and Presentations' and 'Goodwill without furnishing any details like name and addresses of the donors, etc. I believe these amounts are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of these assessments are time barring by 31/03/96. Some of the remaining assessments are time-barring 31/03/97. We have not however, issued notices u/s. 148 in respect of the other years. From the facts gathered in the course of the assessment proceedings, it was considered that the amount brought into individual/firms hands through the media of BOIs are assessable as cash credits. The BOIs also could not establish that how they had earned substantial amount in the form of gifts and goodwill. However, the CIT(A) has decided otherwise. In the light of the above facts, I have reasons to believe that the income assessable for the assessment years 85-86 to 95-96 has escaped assessment in respect of the 10 BOIs referred to above, except the cases in respect of which proceedings u/s. 147 have already been initiated for the A. Ys. 1989-90, 1990-91, 1991-92 and the A. Y. 1992-93 in respect of which returns have already been filed and actions taken thereon. On the basis of the facts in the returns of income filed by these BOIs, they are also liable to wealth-lax in respect of assessments year 85-86 and onwards. No such returns have been filed. In these circumstances, I have also, rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncel the assessments so framed. 18. In so far as the assessment year 1992-93 is concerned, the assessments have been set aside by the CIT(A) and when the assessment is thus set aside and pending, the Assessing Officer has issued a notice u/s. 148 of the Act. Therefore, the present assessments made uls.148 of the Act are - also-bad in law. 19. Although, we have cancelled the assessment, we proceed to dispose of the other issues on merits in case the appeals are revived in further appeal. The learned Departmental Representative tried to contest that the finding of the Tribunal in the above order about the treatment of goodwill, gifts and presentations and additions towards agricultural income which are covered in favour of the assessee should be reviewed by the Tribunal in these appeals. We have perused the earlier order of the Tribunal in the case of the assessees and considered the argument of the learned Departmental Representative. It is not in dispute that the Tribunal has considered all the facts, evidence and has also applied the principle laid down by the Supreme Court in the case of Noorjahan reported in 237 ITR 540. Therefore, we agree with the findings of the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it was held by the Tribunal in Para 2.11 to 2.14 as under : 2.11 Af ter considering the submissions of both the part ies, i t is clear that on the basis of the decided law, one has to consider the justification for the reopening on the basis of reasons recorded, It has been held in the following case laws that validity of notice is to be judged on the basis of material existing prior to issue of notices:- 1. Chunnilal Surajmal v CIT (160 ITR 141) (Patna) 2. ITO v Textile Mills Agents P. Ltd. (130 ITR 733) (Cal.) Even the jurisdict ional High Court in the case of Vi jayalakshmi d Industries v ITO (155 ITR 748) has held that reopening is to be considered as valid on the basis of the reasons recorded and note, if any, available in the assessment record cannot help in holding that reopening is valid on the basis of such note. From the assessment order, i i is clear that the Assessing Officer has reopened the assessment on the basis of returns filed in the status of B01. The Assessing Officer has concluded the assessment on the basis of information available in the returns of the 801 and this fact suggests that no information was available with the Assessing Officer. Only ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of goodwill or gift and presentation belong to AOP. The reopening of assessment on such basis cannot be justified, as the Assessing Officer has no jurisdiction to review the order of the Tribunal. Hence, it is held that the reopening is not valid in the eyes of law. 11. Again at para.4 the Tribunal held as under : 4. On the other hand, the learned AR has relied on the decision of the Apex Court in the case of Ganga Saran & Sons P. Ltd v. ITO (130 ITR 1). In this case, the Apex Court has held that the words "has reason to believe" are stronger than the words "is satisfied". The Hon'ble Apex Court held that the court cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which the Assessing Officer is required to entertain the belief before he can issue notice u/s.147. If there is no rational or intelligible nexus between the reasons and the belief, then the conclusion would be inescapable that the Assessing Officer could not have on undisputed facts discussed in the order and also tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of material on record. particularly, the order passed by the Tribunal and when in fact that the appeals with regard to the existence of "BOl" as on the date of Issuance of earlier notices under Section 148 is under consideration before the Tribunal, we deem It proper that these appeals would have to be heard along with those appeals filed by the assessees pursuant to the remand made by this court on 6.11.2007. 10. We say so for more than one reason. It is necessary to note that it is in respect of the very same assessees that the controversy regarding the existence of "BOl" as on the date of issuance of earlier notices under Section 148 is pending before the Tribunal and it is in respect of the very same individuals as to whether they had constituted themselves as "AOP" in various combinat ions has been the subject mat ter of the reopening by issuance of notices under Section 148 of the Act, since the assessees who had const ituted themselves as "BOl" are the very same persons who, according to the revenue had come together as "AOP". It is in respect of the receipts which is the subject matter of the income of the "BOl" as well as the same being the subject matter of receipts b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the members of the family had come together to earn income by participating in excise auction or alternatively to earn income by collecting goodwill or royalty from other excise contractors for not bidding any excise auction and enabling other contractors to succeed in the auction, the Commissioner of Income Tax (Appeals ) had held that such an activity would amount to conscious activity of members coming together which according to the Commissioner of Income Tax (Appeals) justifies the group being assessed as -AOP" rather than "BOI". The Tribunal has also recorded that the Assessing Officer had not confronted to the assessees any material and therefore, the said material could not be used against the assessees. If that be so, then the Tribunal could not have straightaway concluded the matter on merits in favour of the assessees. Therefore, for the aforesaid reasons, we are of the considered view that these appeals have to be remanded to the Tribunal for reconsideration of the issues raised in these appeals along with the issues raised in the appeals filed by the assessees with regard to the 'BOI' and which are filed on 8th March 2010 and are pending before the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in paras 4.1, 4.2, 4.7 and 4.10 upheld the validity of notice u/s.148 in the following manner : 4. VALIDITY OF ACTION U/s 147/148 OF THE ACT [Gr.No.2 to 5.1] 4.1 At the t ime of the reassessment proceedings before the incumbent AC, the appellant again contested as bad in law the validity of the reopening of the assessment u/s 147 of the Act made by his predecessor through notices u/s 148 of the Act issued on 28/3/1996 for the assessment years under consideration on the same grounds that the appel lant had, by then, ceased to be in exi stence due to the disrupt ion of the Body of Individuals on 12/9/1993; that no income had escaped assessment; and that no assessment could be made on the disrupted BOI. The incumbent AC, quoting the provisions of section 2(31) of the Act and drawing attention to clause (v) thereof, explained in the reassessment order that the law makes no distinction between Body of Individuals and the Association of Persons and applies equally to both categories of assessees. Again quoting the provisions of section 177(1) of the Act, the AO clarified that assessment/reassessment proceedings could be validly initiated in respect of disrupted Body of Individuals a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant states that the returns of income for the said assessment years came to be f i led "UNDER PROTEST in response to the illegal notice issued u/s 148 of the Act." It is also submi t ted at paras 9 and 10 therein that, when the appel lant 's representatives inspected the assessment records, it was found that the reasons for reopening the assessments were recorded only for the assessment years 1986-87 -and 1991-92 and not for the other assessment years under appeal; that, even in respect of the reasons found recorded for the assessment years 1986-87 and 1991-92, obj e c t ions we r e rai s ed be for e the AO for r eopening of the assessments but they were not taken cognisance of by the AO; that the incumbent AO's observat ion that the appellant should have raised such objections at the time of original assessments betrayed his ignorance of the fact that the appellant had as much raised such objections against the action of the AC initiated u/s 147/148 of the Act in respect of the original assessments; and that the Hon'ble ITAT had, in fact, declared the assessment orders for the assessment years 1987-88, 1988-89, 1989-90, 1990-91 and 1992-93 as invalid due to the AO' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnish the reasons recorded within reasonable time and thereafter the AO is bound to pass a speaking order in respect of validity of assumption of jurisdiction by the AO on the objections raised by the assessee. The assessee has sought the reasons vide latest communication dt.09.12.2008. However, the AO despite the request has not provided the reasons for reopening. 18. The Ld. DR during the course of argument has submitted that the reasons for issuance of notice u/s.148, are as under : Beside these two note sheets no other reasons recorded were produced before us .Ld. DR relies upon the order passed by the AO and the CIT (A). 19. We have heard the rival contentions and perused the record. It is beyond the pale of controversy in terms of the judgment of the Hon'ble Supreme Court in the matter of GKN Driveshaft (supra), that it is the duty of the AO to provide the reasons recorded for assumption of jurisdiction u/s.148. Further it is clear that after the reasons are provided to the assessee, the assesse may file objections against the issuance of notice thereafter the AO would pass the speaking order dealing with the objections raised by the assessee. In the present case despi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jur i sdict ion espe cial ly, the mandatory requirements to assume jurisdiction u/s 148 of the Act did not exist and have not been complied with and consequently, the reassessment requires to be cancelled. 3. Wi thout prejudice to the abov e, the author i t ies below are not justified in completing the re--opened assessment protectively under the facts and in the circumstances of the appellant's case. They 'failed to appreciate that, provisions of Section 147 of the Act to re-open the assessment can be resorted to only where there is income escaping assessment and not merely on suspicion of income escaping assessment The act ion of the A.0. in assessing the income protectively clearly brings out the doubt and suspicion and consequently, the order of reassessment requires to be cancelled. 24. In this regard, the Ld. AR has submitted that the Revenue, vide letter dt.30.03.2000 has issued a notice treating the assessee as AOP without giving any reasons for reopening. Scanned copy of the notice is given below : 25. After receipt of the notice the assessee has filed the return of income under protest and thereafter vide letter dt.23.02.2002 the assessee requested the AO to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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