Commissioner of Income Tax vs Baldwin Boys High School

Dilip B. Bhosale, J.—This batch of 13 income tax appeals is arising from the common order dated June 1, 2007, rendered by the income tax Appellate Tribunal, Bangalore Bench "B" (for short "the Tribunal")/disposing of 13 income tax appeals, namely, I.T.A. Nos. 882-885 of 2006, I.T.A. Nos. 1111-1113 of 2006, I.T.A. Nos. 886-889 of 2006 and I.T.A. Nos. 1114-1115 of 2006. All these appeals pertain to different assessment years starting from 1999-2000 to 2002-03. Out of the 13 appeals before the Tribunal, four appeals each were filed by the assessees, namely, M/s. Baldwin Boys High School and M/s. Baldwin Girls High School and five appeals were filed by the Revenue, namely, I.T.A. Nos. 1111-1115 of 2006. The Tribunal allowed the appeals filed by the assessees in part and dismissed the appeals filed by the Revenue. Hence, the Revenue has filed the instant thirteen appeals. The assessees are the trust, which run educational institutions. For all the relevant assessment years they declared their income "nil", claiming exemption u/s 10(23C)(vi) of the income tax Act, 1961 (for short "the Act"). The assessments completed were reopened u/s 147 on the ground that the assessees were not registered u/s 12A nor had requisite approval u/s 10(23C)(vi) of the Act. In response to the notice u/s 148 of the Act, the assessees filed returns on March 18, 2004, once again declaring their income nil. We are not entering into further details as they are not relevant for deciding these appeals. Suffice it to say that the record reveals, in the first seven appeals the total liability of tax does not exceed Rs. 23,00,000 whereas in the remaining appeals, the total tax liability is about Rs. 18,00,000. Out of the 13 appeals, in five appeals the tax liability is nil and in two appeals, the tax liability is less than Rs. 10,00,000.

In this backdrop, the Revenue has raised the following substantial question of law, which is common in all the appeals:

Whether, on the facts and in the circumstances of the case and in law, the notice issued by the Assessing Officer u/s 148 of the income tax Act, 1961 (for short ''the Act''), without recording reasons as contemplated by sub-section (2) of section 148 of the Act would vitiate the whole proceedings ? In other words, whether the reasons as contemplated by sub-section (2) of section 148 of the Act, in the present cases, were recorded after issuance of notice u/s 148 of the Act and, therefore, the whole proceedings are bad in law?

Learned counsel appearing for the parties are ad idem that if the aforementioned substantial question of law is answered against the Revenue and in favour of the assessees then we need not address the other questions and, hence, we have heard the learned counsel for the parties on this question and with their assistance gone through the orders passed by the Tribunal and the authorities below and so also the original records placed for our consideration.

Mr. Shankar, learned counsel appearing for the assessees, at the outset, invited our attention to the provisions contained in section 148 of the Act and submitted that it was mandatory for the Assessing Officer under sub-section (2) of section 148 of the Act to record reasons before issuing the notice under this provision and since the notice was issued without recording the reasons, the whole proceedings of reopening of the assessment would vitiate. He invited our attention to the observations made by the Tribunal on this question and contended that this objection could not be raised by the assessees before the Assessing Officer since the reasons records by the Assessing Officer, despite their written application, were not served on them. He submitted that they got a copy of the reasons recorded by the Assessing Officer only when the matter was carried in appeal before the Commissioner of income tax (Appeals). The moment they got a copy of the reasons, they raised objections before the Commissioner of income tax (Appeals) stating that the reasons were not recorded before issuing notice u/s 148 of the Act. The Commissioner of income tax (Appeals), however, brushed aside the objection holding that there was a typographical error in respect of the date of reasons recorded u/s 148(2) of the Act. Mr. Shankar submitted that similar objection was raised before the Tribunal and the Tribunal after having perused the original records, has rightly observed that the reasons were recorded after issuance of the notice u/s 148 of the Act.

On the other hand, Mr. K.V. Aravind, learned counsel appearing for the Revenue, invited our attention to the original records and submitted that a draft notice u/s 148 of the Act was prepared by the Assessing Officer on January 20, 2004, itself, which shows that the Assessing Officer had recorded the reasons even before issuing the notice. He submitted that the Assessing Officer struck off the typed date of the reasons since it was wrongly typed as February 4, 2004, instead of January 30, 2004. Therefore, he submitted that it cannot be inferred that the reasons were not recorded before issuing notice u/s 148 of the Act. He placed the original record before us for our perusal in support of his contention.

Section 148 of the Act provides for issue of notice where the income has escaped assessment. Sub-section (2) of section 148 of the Act provides that the Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so. In view of this provision, no dispute was raised before us about the procedure contemplated under this provision. From a bare perusal of section 148 of the Act, it is clear as crystal that the Assessing Officer is obliged to record reasons before issuing notice u/s 148 of the Act. In this backdrop, we have examined the original records placed before us by the learned counsel for the Revenue. It is true that in one of the files, there was a draft of reasons purportedly prepared by the Assessing Officer on January 20, 2004. It was not signed by the Assessing Officer. The reasons recorded by the Assessing Officer were typed, as is clear from the printout of the original reasons, on February 4, 2004. The typed date was struck off with pen and the date January 30, 2004, was written by hand with the same pen. Though the original date (typed) was struck off with pen still the typed date is visible/could be read or is clearly seen, and it was typed as February 4, 2004. Before the Tribunal a controversy was raised that the printout of the reasons was computer generated and it was printed with the date of printing automatically by the computer. Be that as it may, the fact remains that the typed date or the date of print out was February 4, 2004, and that it was changed to January 30, 2004, as the date of reasons recorded under sub-section (2) of section 148 of the Act. Thus, the record was set right by showing that the date of the notice and the date on which the reasons were recorded was the same. Why and how the date February 4, 2004, is appearing on the original reasons recorded under sub-section (2) of section 148 of the Act is not explained by the Assessing Officer. Neither in the order of the Assessing Officer nor in the order of the Commissioner of income tax (Appeals) an attempt was made to explain striking off the original date and writing the date January 30, 2004, by hand. It was possible for the Assessing Officer to place an affidavit of the typist on record explaining the purported error committed by him while typing the reasons recorded by the Assessing Officer. On a perusal of the original records, we are satisfied that the reasons were prepared on February 4, 2004, whereas the notice was sent on January 30, 2004. It is also pertinent to note that the contents of the draft reasons and the original reasons recorded by the Assessing Officer do not tally. It would be relevant to notice the observations made by the Tribunal in paragraph 10 of the order, which read thus:

The original was produced by the learned Commissioner of income tax (DR) in this connection and it was observed in the open court that the printout was generated by use of a computer. The computer apparently filled in the date automatically. If the dates were not filled automatically by the computer, normally it would be blank, which was not so in the instant case. The computer printout apparently generated the date on which the reasons recorded were printed out. Even going by the proposition that the print could have been later on and there could have been some material, which would have been written up in hand to suggest that the reasons were in fact recorded on January 30, 2004, the Department failed to produce such a document. Since the Department produced the original printout copy by the computer of the reasons recorded which are identical as are filed by the assessee before us containing identical correction by hand with no signature on the correction, it is apparent that the reasons were not recorded at the time of issue of notice. The Department was, therefore, asked to make submission on this issue, with reference to the order of the Tribunal in H.M. Constructions v. Asst. CIT, vide order dated October 28, 2005, in I.T.A. Nos. 1666 and 1650/Bang/2004, I.T.A. No. 338/Bang/2005 (pages 196 to 222 of the paper book). The Tribunal considered the facts that the assumption of jurisdiction for reopening of assessment is based on a notice, which itself hinged firmly on the reasons recorded. The Tribunal in its decision dated October 28, 2005, drew its conclusion from the decision of the Rajasthan High Court in Commissioner of Income Tax Vs. Shiv Ratan Soni, , wherein the court-ruled that if the facts show that the reasons were not recorded before the issue of notice u/s 148 but afterwards, then the assessment is bad and has to be cancelled. The Department did not provide any material or document that the computer printout of the reasons recorded, though has taken on February 4, 2004, but it was based on the note containing the reasons recorded on January 30, 2004. In the instant cases too, the date of notice is January 30, 2004, and the reasons recorded are clearly dated February 4, 2004, i.e., the reasons are not recorded before the issue of notice but afterwards, the assumption of jurisdiction is clearly bad and, accordingly, the assessments have to be quashed, which we do.

As a matter of fact, though the Revenue has raised the above substantial question of law, from a perusal of the order passed by the Tribunal and so also the other materials placed before us, it is clear that it is a finding of fact recorded by the Tribunal holding that the notice was issued even before the reasons were recorded. We do not find any reasons to interfere with the finding of facts recorded by the Tribunal. The reasons recorded by the Tribunal, on the facts and in the circumstances of the case, cannot be termed as perverse. In the circumstances, all the appeals are dismissed, however, there shall be no order as to costs.