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Judgment
These appeals are filed both by the assessees and the revenue questioning the correctness of the impugned common judgment dated 31-12-1998, passed in I.T.A. Nos. 64 to 67/Bang/1997, 69 to 72/Bang/1997, 74 to 77/Bang/1997 and 79 to 82/Bang/1997 by the Income Tax Appellate Tribunal (hereinafter called as "the Tribunal" in short). These appeals are filed by each one of the assessees for different assessment years 1989-1990 to 1993-94.
The revenue has also challenged the impugned judgment in the other connected appeals, it is aggrieved by the setting aside of the levy of penalty imposed by the assessing authority upon the assessees and affirmed by the first appellate authority and urged various legal contentions in support of the substantial questions framed in their appeals.
We will take up the substantial questions that are framed in these appeals filed by the assessees, which read thus:
(i) Whether the Tribunal is correct in holding that no penalty u/s 271(1)(c) of the Act can be levied when the total income of the assessees is determined in assessment proceedings on estimate basis?
(ii) Whether the Tribunal is correct in holding that the basis adopted by the assessing officer and the Appellate Commissioner being distinct from the one adopted by the Tribunal in arriving at the total income of the assessee in assessment no liability to levy penalty u/s 271(1)(c) of the Act arose despite the orders passed by the lower authorities in assessment having been merged in the order of the Tribunal? and
(iii) Whether the assessment orders passed by the assessing officer, partly affirmed by the first appellate authority and the Appellate Tribunal are legal and valid, without complying with the statutory provisions of notices to be served upon the assessees and give opportunity to file their objections consider the same and pass speaking order as required u/s 148(2) and the decisions of the Apex Court in the case of GKN Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19.
After hearing these matters at length, we have gone through the records produced by the parties and the provisions of Sections 132, 140, 147, 148 particularly Sub-section (2) of Section 148 of the Income Tax Act. The Tribunal, keeping in view the decisions of the Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO reported in (2003) 259 ITR 19 and the Division Bench judgment of the Bombay High Court in the case of Allana Cold Storage Ltd. v. ITO reported in (2006) 102 ITD 426 which is followed by the Delhi High Court in the case of Smt. Kamlesh Sharma Vs. B.L. Meena, Income Tax Officer and Others, whereunder the Division Bench of the Delhi High Court after referring to the Apex Court decision in the case of GKN Drive-shafts (India) Ltd. v. ITO (2003) 259 ITR 19, the Delhi High Court, referred the matter to the assessing officer to proceed further from the stage of reviving objection statement from the assessee and pass a speaking order in the light of the observations made by the Apex Court in the decisions referred to supra.
Sri Seshachala, learned Counsel appearing on behalf of the revenue has sought to justify the concurrent finding of fact recorded by the Appellate Tribunal with regard to the common reasons mentioned in the notice issued u/s 148(2) of the Act for the assessment years 1990-91 and 1991-92. He contended that the same are in accordance with Sections 147 and 148 of the Income Tax Act. In support of his argument, he placed reliance upon the three-judge Bench decision in the case of S. Narayanappa and Others Vs. Commissioner of Income Tax, Bangalore, and submitted that similar provisions, viz., Sections 34(2) and 148 of the Act fell for consideration before the apex court. The apex court has rejected the legal contention as has been urged in the appeals on behalf of the revenue that no reasons require to be communicated to the assessee to facilitate him to file statement of objections to consider the same and pass a speaking order by the assessing officer. Further, he has sought to distinguish the two Division Bench judgments of the Bombay and Delhi High Courts and contended that search and seizure was conducted in the business premises of the assessees and concluded in the year 1993, and thereafter block assessment orders are passed after giving opportunity to the assessees in compliance with the provisions of the Income Tax Act. Therefore, he submits that the substantial questions have to be answered in favour of the revenue and against the assessees and prayed for dismissal of the appeals of the assessees.
Sri Shankar, learned Counsel for the assessees, contended that the 6 Supreme Court interpreted Section 148(2) of the Income Tax Act keeping in view the intent and object of assigning reasons in the notice to be served upon the assessees u/s 148(2) of the Income Tax Act, officers of the department after conducting search and seizure proceed to pass assessment order u/s 148 of the Income Tax Act. Counsel contended reasons must be assigned with reference to the incriminating materials found at the time of search and seizure to facilitate the assessees to respond to the same by submitting explanation. The assessing officer has to consider it and pass a speaking order. Further, he has contended that three-judge Bench decision in the case of S. Narayanappa and Others Vs. Commissioner of Income Tax, Bangalore, cannot be applied to the fact situation having regard to the object and intendment of Section 148(2) of the Act. Reopening of the assessment on the basis of search and seizure will have serious consequences upon the assessees. Therefore, he submits that the substantial question No. 2 would certainly arise for consideration of this Court as an appealable right accrued in favour of the assessee to submit the return disclosing income in respect of which no orders are passed by the assessing officer. Therefore, he submits that the substantial questions have to be answered in favour of the assessees.
At the time of addressing arguments by learned Counsel for the parties, our attention was invited to the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd. (2003) 259 ITR 19. After careful reading of the same and other judgments of the other High Courts upon which strong reliance is placed by learned Counsel on behalf of the assessees and on careful examination of Sections 140, 142, 147, 148, 148(2), we thought it fit to answer the substantial question No. (iii) and accordingly we proceed to answer the same by recording the following reasons.
The Supreme Court in the case of GKN Driveshafts (India) Ltd. (2003) 259 ITR 19, has made certain observations, which read thus (page 20):
We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice u/s 148 of the Income Tax Act is issued, the proper course of action for the noticeis to file a return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years.
So also we will refer to decision of the Bombay High Court in the case of (2006) 102 ITD 426 , at paragraph 7, the court held that (page 4):
The law as laid down by the Apex Court is binding on this Court as well as on the authorities functioning under the statute. This being the position, we fail to understand as to why the first respondent did not decide the objections separately which he is duly bound to decide. The whole idea in laying down the law in the above referred judgment of the Apex Court is to give an opportunity to the assessee to know as to what is the decision on his objections, which decision has also to be arrived at after giving an opportunity to the assessee.
The Delhi High Court also after referring to the Apex Court decision 10 referred to supra, taken the similar view.
In the instant case, it is an undisputed fact that u/s 148(2) notice containing reasons was not served upon the assessee despite request was made in this regard. It is an undisputed fact that the Assistant Commissioner of Income Tax in his letter dated 7-8-1985, addressed to one of the assessees, namely, S. Bharathraj. The relevant portion of the same reads thus:
You have requested for copy of the reasons recorded for reopening of the proceedings. In this regard you are informed that there are plethora of decisions of High Court and also the Supreme Court to the said effect that the assessee is not entitled to a copy of the reasons recorded by the assessing officer. However, you are also informed that all the reasons would be put forth to you in the form of questionnaire after giving reasonable opportunity....
In view of the aforesaid stand taken by the assessing officer the statutory requirement of Section 148(2) of the Act has not been complied with in these cases. Therefore, the observations made by the Supreme Court in GKN Driveshafts (India) Ltd.''s case (2003) 259 ITR 19, with all force would be applicable to the fact situation of these cases.
For the aforesaid reason and on the basis of the observations of the three-judge Bench decision of the Supreme Court and other High Courts referred to supra, we are of the view that the substantial question in this regard is not considered by the Tribunal in the appeals of the assessees. Therefore, the finding recorded in the impugned judgment of the first appellate authority and the second appellate authority on the above question of law certainly suffer from error in law and the same require to be set aside. Accordingly, we set aside the finding. Consequently, we answer question No. (iii) in the affirmative and in favour of the assessees.
Since question No. (iii) is answered in favour of the assessees and the impugned judgment and orders of the assessing officer are required to be set aside and therefore there is no need to answer the other substantial questions of law framed in the appeals of both the assessees and the revenue. However the parties are at liberty to urge all legal contentions before the assessing officer, who is at liberty to consider the same and pass orders in accordance with law.
Now, it is stated at the Bar that the notice containing reasons would be furnished to the assessees. It is open for the assessees to file their objections within two weeks from the date of service of notices upon them. Thereafter, the assessing officer shall conclude the proceedings within three months by taking the matter on day-to-day basis. If, either of the party challenge the order of the assessing officer, the appellate authority and the Tribunal should expeditiously dispose of those matters, keeping in view this is pending for over 14 years.
Appeals are disposed of accordingly.