Commissioner of Income Tax vs H.M. Constructions

Dilip B. Bhosale, J.—The judgment of the court was delivered by Dilip B. Bhosale J.--This income tax appeal, u/s 260A of the income tax Act, 1961 (for short "the Act"), is directed against the order dated October 28, 2005, passed by the income tax Appellate Tribunal, Bangalore Bench-B (for short "the Tribunal") in I.T.A. No. 1666/Bang/2004 whereby the Tribunal allowed the appeal, pertaining to the assessment year 1995-96, filed by the respondent-assessee. The appeal before the Tribunal was directed against the order dated March 30, 2004, passed by the Commissioner of income tax (Appeals)-VI, Bangalore (for short the "appellate authority") whereby the said appeal, filed by the assessee against the assessment order dated March 28, 2003, was dismissed. In the present appeal the respondent formulated the following substantial questions of law :

"1. Whether the Tribunal was justified in holding that the fixed deposits of Rs. 70,00,000 noticed during the search, in the name of 10 persons, who were not identified by the assessee, could be treated as income of the assessee overlooking the statement of Sri Seshaprakash and that whether the findings recorded by the Tribunal are perverse ? 2. Whether the Tribunal was justified in holding that reopening of the assessment was bad in law as the reasons recorded were not in the required format and the prior approval of the Commissioner had not been obtained in accordance with law ?"

We have heard the learned counsel for the parties and perused the relevant materials on record including the order of the Tribunal.

It appears to us that the Tribunal while dealing with the second question of law held that reopening of the assessment was bad in law as the reasons recorded were not in proper format as contemplated by sub-section (2) of section 148 of the Act and that the prior approval of the Commissioner u/s 151 for issuing notice u/s 148 of the Act was not obtained. Learned counsel for the parties are ad idem that if the second question of law is answered against the Revenue, the appeal should fail and in that event the first question need not be considered on the merits. In view thereof, with the assistance of the learned counsel for the parties, we have gone through the relevant materials on record and so also the provisions contained in sections 147, 148 and 151 of the Act. The Tribunal has extensively considered the materials on record to hold that the reasons recorded by the Assessing Officer for reopening of the assessment for the year 1995-96 were not in the proper format. Though we may not agree with the findings recorded by the Tribunal in respect thereof, we have examined whether the prior approval of the Commissioner as contemplated by section 151 of the Act was obtained, taking the case of the Revenue that the reasons recorded u/s 148(2) of the Act were sufficient and were in proper format.

Having regard to the scheme of the provisions contained in sections 147, 148 and 151 of the Act, it is clear as crystal that if the assessment is reopened after the expiry of the four years from the end of the relevant assessment year, no notice u/s 148 of the Act shall be issued unless the Chief Commissioner or Commissioner is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issuance of such notice. To examine whether the approval u/s 151(1) of the Act was obtained, as observed earlier, we proceed on the assumption that the Assessing Officer had recorded good and sufficient reasons as required under sub-section (2) of section 148 of the Act. Admittedly, neither the reasons recorded by the Assessing Officer under sub-section (2) of section 148 of the Act nor approval granted by the Chief Commissioner or Commissioner as contemplated by the proviso to sub-section (1) of section 151 of the Act is on record.

Mr. Aravind, learned counsel appearing for the Revenue, fairly submitted that the original record/file does not contain either the reasons u/s 148(2) or the approval granted by the Chief Commissioner or Commissioner u/s 151(1) of the Act. He placed the original file before us for our perusal. We also did not find those documents in the file. He also, on instructions, submitted that even the record that was placed for consideration of the Tribunal has been destroyed. Thus, in the absence of either the reasons recorded by the Assessing Officer or approval granted by the Chief Commissioner or Commissioner, we made an attempt to find out from the other materials on record whether the approval u/s 151 of the Act was obtained before issuing the notice u/s 148 thereof.

In this connection, Mr. Shankar, learned counsel for the respondent-assessee, invited our attention to the order of the assessment passed in the connected I.T.A. No. 641 of 2006 dated February 26, 2004, of the very same assessee, pertaining to the assessment year 1996-97. He submitted that in so far as reopening of the assessment for the assessment year 1996-97 is concerned, the approval of the Commissioner of income tax, as required u/s 151 of the Act was obtained and it was also placed on record in that case. In support of this contention, he invited our attention to the observations made by the Assessing Officer at paragraph 2. In this paragraph, the Assessing Officer has observed that "Notice u/s 148 was issued to the assessee on March 26, 2003, with the approval of the Commissioner of income tax". He submitted that such observations do not find place in the order for the assessment year 1995-96. That apart, it appears from the observations made by the appellate authority, in the order dated March 30, 2004, the assessee had raised the following ground of challenge:

"It is contended that the order of reassessment is bad in law and void ab initio for want of requisite jurisdiction since the mandatory requirements to assume jurisdiction u/s 148 of the Act did not exist and have not been complied with."

It is on the basis of this ground of challenge, Mr. Shankar, learned counsel appearing for the assessee, vehemently submitted that though such ground was raised, the appellate authority did not examine whether the approval as contemplated u/s 151 of the Act was obtained.

On the other hand, Mr. K.V. Aravind, learned counsel appearing for the Revenue invited our attention to certain observations made by the Assessing Officer and the Tribunal and submitted that it is possible to draw an inference that approval of the Commissioner u/s 151 of the Act was obtained by the Assessing Officer before issuing notice u/s 148 thereof. Though he made feeble attempt to invite our attention to the orders of the Tribunal and of the authorities below in support of this contention, he could not and did not point out any such observation so as to hold that approval u/s 151 was obtained before issuing notice u/s 148 of the Act. He fairly submitted that there is no finding recorded by either of the authorities below including the Tribunal that approval as contemplated by section 151 of the Act was either referred to or mentioned in the orders. The Tribunal has, at length, considered the issue whether the reasons recorded by the Assessing Officer for reopening of the assessment were in proper format, and held that no such reasons were recorded. The Tribunal recorded such finding and further observed that the note sent to the Commissioner by the Assessing Officer was not sanctioned/approved u/s 151 of the Act. In the absence of the order granting approval by the Commissioner u/s 151 or in the absence of any indication in the orders passed by the authorities below including the order of the Tribunal or the materials on record that such approval was obtained, it would not be possible to assume that such approval u/s 151 of the Act was obtained. The provisions contained in section 151 of the Act are indubitably mandatory in nature and since compliance thereof was either not made or could be established by the Revenue, in our opinion, the benefit will have to be given to the asses-see. Though we do not agree with all the reasons recorded by the Tribunal in the order, it has rightly decided the second question in favour of the assessee. We do not find any reason to interfere with the findings recorded by the Tribunal on the second question and, hence, the appeal will have to be dismissed on this ground alone. Order accordingly.

Before we part, we observe that causing disappearance of certain documents from the record including reasons recorded by the Assessing Officer as contemplated by sub-section (2) of section 148 of the Act and approval, if any, obtained u/s 151 of the Act may not be innocent or innocuous. The Commissioner, therefore ought to have conducted an enquiry, to find out whether the approval u/s 151 of the Act was obtained or if yes, how it disappeared from the record and who was responsible for the same ? Though we do not wish to record any positive finding on the conduct of the assessee, we feel that the authorities below ought to have taken disappearance of record to its logical conclusions. In the result, the second question is answered in favour of the assessee and against the Revenue and as a result thereof the appeal fails and dismissed as such. No costs.