Karnataka H.C : The notice issued by the Assessing Officer under Section 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

High Court Of Karnataka

CIT, (Exemptions) vs. Baldwin Boys High School

Assessment Years : 1999-2000 To 2002-03

Section : 148

Dilip B. Bhosale And B. Manohar, JJ.

IT Appeal Nos.703 To 706, 708 To 714, 716 & 717 Of 2007

March 18, 2014

JUDGMENT

Dilip B Bhosale, J. – This batch of 13 income tax appeals is arising from the common order dated 01st June, 2007 rendered by the Income Tax Appellate Tribunal, Bangalore Bench ‘B’ (for short ‘the Tribunal’), disposing of 13 income tax appeals namely ITA Nos.882-885/2006, ITA Nos. 11-1113/2006, ITA Nos.886-889/2006 & ITA Nos. 1114-1115/2006. All these appeals pertain to different assessment years starting from 1999-2000 to 2002-03. Out of the 13 appeals before the Tribunal, 4 appeals each were filed by the assessees namely M/s. Baldwin Boys High School and M/s. Baldwin-Girls High School and 5 appeals were filed by the Revenue namely ITA Nos. 1111-1115/2006. 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.

2. The assessees are the Trust, which run educational institutions. For all the relevant assessment years they declared their income ‘Nil’, claiming exemption under Section 10(23c)(vi) of the Income-tax Act, 1961 (for short ‘the Act’). The assessments completed were reopened under Section 147 on the ground that the assessees were not registered under Section 12A nor had requisite approval under Section 10(23C)(vi) of the Act. In response to the notice under Section 148 of the Act, the assessees filed returns on 18-3-2004, 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 7 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 5 appeals the tax liability is ‘NIL’ and in 2 appeals, the tax liability is less than Rs. 10,00,000/-

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

“Whether on the facts and in the circumstances of the case and in law, the notice issued by the Assessing Officer under Section 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 under Section 148 of the Act and, therefore, the whole proceedings are bad in law?

4. 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.

5. 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 CIT (Appeals). The moment they got a copy of the reasons, they raised objections before the CIT (Appeals) stating that the reasons were not recorded before issuing notice under Section 148 of the Act. The CIT (Appeals) however brushed aside the objection holding that there was a typographical error in respect of the date of reasons recorded under Section 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 under Section 148 of the Act.

6. 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 under Section 148 of the Act was prepared by the Assessing Officer on 20th January, 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 4-2-2004 instead of 30-01-2004. Therefore, he submitted that it cannot be inferred that the reasons were not recorded before issuing notice under Section 148 of the Act. He placed the original record before us for our perusal in support of his contention.

7. 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 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 under Section 148 of the Act. In this backdrop, we have examined the original records placed before us by 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 20th January, 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 4-2-2004. The typed date was struck off with pen and the date 30-01-2004 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 4-2-2004. Before the Tribunal a controversy was raised that the print out 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 printout was 4-2-2004 and that it was changed to 30-1-2004 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 same. Why and how the date 4-2-2004 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 CIT(Appeals) an attempt was made to explain striking off the original date and writing the date 30-01-2004 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 perusal of the original records, we are satisfied that the reasons were prepared on 4th February, 2004 whereas the notice was sent on 30th January, 2004. It is also pertinent to note that the contents of 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 Id. CIT(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 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 30-1-2004, 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. Asstt. CIT vide order dated 28-10-2005 in ITA Nos.1666 & 1650/Bang/2004, ITANo.338/Bang/2005 (Page 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 lunged firmly on the reasons ‘ recorded. The Tribunal in its decision dated 28-10-2005 drew its conclusion from the decision of the Rajasthan High Court in CIT v. Shivrathan Soni (2005) 194 CTR (Raj) 126, 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 4-2-04, but it was based on the note containing the reasons recorded on 30-1-04. In the instant cases too, the date of notice is 30-1-2004 and the reasons recorded are clearly dated 4-2-2004, 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.”

8. As a matter of fact, though the Revenue has raised the above substantial question of law, from 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 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.

9. In the circumstances, all the appeals are dismissed, however, there shall be no order as to costs.

[Citation : 364 ITR 637]