ITAT quashes reopening as AO provided only a Part of reason recorded to Assessee

Wimco seedlings Ltd Vs JCIT (ITAT Delhi)

ITAT quashed reopening where reasons recorded by the assessing officer produced before the higher authority are quite different and whereas the extract given to the assessee was merely of two paragraphs

Delhi ITAT deprecated & reprimanded on revenue conduct in reopening case by giving two sets of reasons recorded one to assessee & another to court by holding that :-

On perusal of above two statements (one) the reasons supplied it to the assessee and (two) the reasons some before the High Court, it is apparent that both are  altogether different. It is not denied that in context and in substance they are same but there should be same ad verbatim. It cannot be the case of the revenue that it gives few extracts of the reasons to the assessee to defend it against the reopening of the assessment and when cornered before the higher authorities, the revenue comes out with the detailed reasons recorded by the assessing officer. In fact in all circumstances the assessing officer is supposed to provide the complete reasons recorded for reopening of the assessment to facilitate the assessee to defend itself against the reopening of the assessment. To keep few arrows in its quiver and only disclosing few arrows out of that is not expected from a revenue officer. It also against the fair play rule of reassessment proceedings. In Haryana Acrylic Manufacturing Co V Commissioner of Income tax 308 ITR 38 [ Delhi] the identical issue arose.

Also the reasons recorded by the assessing officer produced before the honourable High Court are quite different and number eight whereas the extract given to the assessee was merely of two paragraphs. In view of this, respectfully following the decision of the honourable Delhi High Court we are not inclined to uphold the reopening of the assessment and hence they are quashed. The orders of the learned Commissioner of income tax upholding of the reopening of the assessment are reversed. Thus all the three assessment years reopening proceedings are held to be invalid and quashed

FULL TEXT OF THE ITAT JUDGEMENT

1. These are the appeals filed by the assessee against the order of the ld CIT (A)-XXI, New Delhi dated 15.03.2002 for the Assessment Year 1989-90 to 1991-92.

2. The assessee has raised the following grounds of appeal in ITA No. 2755/Del/2002 for the Assessment Year 1989-90:-

“1.That the learned Commissioner of Income Tax (Appeals) has erred, both on facts and in law in upholding the validity of the proceedings initiated u/s 147 of the Income Tax Act. Confirming the validity of proceedings initiated the learned CIT(A) has failed to comprehend that statutorily no valid proceedings can be initiated even if the learned Assessing Authority had prima facie reason to believe that the income had escaped assessment unless there had been a failure on the part of the assessee to have disclosed all material facts necessary for the purpose of making an assessment of the income of an assessee.

2. In upholding the initiation of proceedings, the learned Commissioner of Income Tax (Appeals) has ignored the proviso to section 147 of the Income Tax Act and as such, the initiation of proceedings has been upheld on misconceived assumptions. The learned CIT (A) ought to have held that the initiation of proceedings was totally without jurisdiction and further the learned Commissioner of Income Tax (Appeals) ought to have also held that the assessment has been reopened, on the basis of a mere change of opinion and that there had been no failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment. The preconditions of section 148 having not been satisfied there was no justification in law for the learned CIT(A) to have upheld the validity of the proceedings so initiated.

3. That the learned Commissioner of Income Tax (Appeals), has failed to appreciate that the assessee had furnished full and complete details of all the activities carried on by the Research and Development Center known as Chandain Research Farm and that merely because in the opinion of the learned Assessing Officer, succeeding the assessing officer who had framed the assessment originally before the initiation of proceedings under section 148 of the I.T. Act all expenses direct and indirect, had not allegedly been considered by the assessee., could not be a valid ground for concluding that the assessee had failed to disclose all material facts necessary for the purpose of assessment.

 4. That even otherwise, the finding that the appellant had not taken into consideration all direct and indirect expenses relating to agriculture operations, is based on misconception and the findings to the contrary are based on misconception both of facts and law. The assessee too while furnishing the return of income u/s 139(1) of the IT Act had furnished full particulars to establish the direct and indirect expenses, as also during the course of initial assessment proceeding.

 5. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that there was no valid basis to sustain the addition on the basis of the order of the learned Commissioner of Income Tax (Appeals), since the said order was not approved by the Hon’ble Tribunal there was no material to support the allegation that the assessee had not taken into consideration all direct and indirect expenses or such was a finding recorded by the learned Commissioner of Income Tax (Appeals). In fact, in the absence of any such material in support finding, the initiation of proceedings is totally untenable and framing the present assessment is wholly arbitrary and is totally erroneous both on facts and in law.

6. That the learned Commissioner of Income Tax (Appeals) has further erred in upholding the finding of the learned Assessing Officer that the assessee had inflated the agricultural income. The aforesaid conclusion arrived at is entirely untenable and is highly arbitrary.

7.  That in any case and without prejudice the learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in concluding that the income from agriculture disclosed and assessed at Rs. 6,24,786/- was incorrectly assessed and really there was a loss suffered of Rs. 36,483/- from the agricultural activities.

8. That likewise the learned Commissioner of Income Tax (Appeals) has further erred in upholding the taxable income of the assessee at Rs. 4,15,669/- as against the income assessed at Rs. 2,45,600/-

9.  That the learned Commissioner of Income Tax (Appeals) erred in confirming the allocation of 50% of expenses of Bagwaia Office and R & D activity while computing agricultural income.

 10. That further the learned Commissioner of Income Tax (Appeals) has completely brushed aside ground No. 2 of the memo of appeal, wherein the appellant had challenged the computation of income at Rs 7,78,140/- under section 115J of the I.T. Act.

 11. That the perusal of the order of the CIT(A) shows the order was made without application of mind and was thus an arbitrary order.

 12. That the learned Commissioner of Income Tax (Appeals) has also erred in upholding the interest charged u/s 234B in the notice of demand which had not been validly charged.”

 3. The assessee has raised the following grounds of appeal in ITA No. 2756/Del/2002 for the Assessment Year 1990-91:-

“1.That the learned Commissioner of Income Tax (Appeals) has erred, both on facts and in law in upholding the validity of the proceedings initiated u/s 147 of the  Income  Tax  Act.  Confirming  the  validity  of  proceedings  initiated  the learned CIT(A) has failed to comprehend that statutorily no valid proceedings can  be  initiated  even  if  the  learned  Assessing  Authority  had  prima  facie reason to believe that the income had escaped assessment unless there had been a failure on the part of the assessee to have disclosed all material facts necessary for the purpose of making an assessment of the income of an assessee.

2. In upholding the initiation of proceedings, the learned Commissioner of Income Tax (Appeals) has ignored the proviso to section 147 of the Income Tax Act and as such, the initiation of proceedings has been upheld on misconceived assumptions. The learned CIT (A) ought to have held that the initiation of proceedings was totally without jurisdiction and further the learned Commissioner of Income Tax (Appeals) ought to have also held that the assessment has been reopened, on the basis of a mere change of opinion and that there had been no failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment. The preconditions of section 148 having not been satisfied there was no justification in law for the learned CIT(A) to have upheld the validity of the proceedings so initiated.

 3. That the learned Commissioner of Income Tax (Appeals), has failed to appreciate that the assessee had furnished full and complete details of all the activities carried on by the Research and Development Center known as Chandain Research Farm and that merely because in the opinion of the learned Assessing Officer, succeeding the assessing officer who had framed the assessment originally before the initiation of proceedings under section 148 of the I.T. Act all expenses direct and indirect, had not allegedly been considered by the assessee., could not be a valid ground for concluding that the assessee had failed to disclose all material facts necessary for the purpose of assessment.

 4. That even otherwise, the finding that the appellant had not taken into consideration all direct and indirect expenses relating to agriculture operations, is based on misconception and the findings to the contrary are based on misconception both of facts and law. The assessee too while furnishing the return of income u/s 139(1) of the IT Act had furnished full particulars to establish the direct and indirect expenses, as also during the course of initial assessment proceeding.

 5. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that there was no valid basis to sustain the addition on the basis of the order of the learned Commissioner of Income Tax (Appeals), since the said order was not approved by the Hon’ble Tribunal there was no material to support the allegation that the assessee had not taken into consideration all direct and indirect expenses or such was a finding recorded by the learned Commissioner of Income Tax (Appeals). In fact, in the absence of any such material in support finding, the initiation of proceedings is totally untenable and framing the present assessment is wholly arbitrary and is totally erroneous both on facts and in law.

6. That the learned Commissioner of Income Tax (Appeals) has further erred in upholding the finding of the learned Assessing Officer that the assessee had inflated the agricultural income. The aforesaid conclusion arrived at is entirely untenable and is highly arbitrary.

 7. That in any case and without prejudice the learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in concluding that the income from agriculture disclosed and assessed at Rs. 7,79,097/- was incorrectly assessed and really there was a loss suffered of Rs. 39,655/- from the agricultural activities.

8. That likewise the learned Commissioner of Income Tax (Appeals) has further erred in upholding the taxable income of the assessee at Rs. 11,75,812/- as against the income assessed at Rs. 4,57,060/-

9.  That the learned Commissioner of Income Tax (Appeals) erred in confirming the allocation of 50% of expenses of Bagwaia Office and R & D activity while computing agricultural income.

10.  That the perusal of the order of the CIT(A) shows the order was made without application of mind and was thus an arbitrary order. It is therefore, prayed that it be kindly held that neither the proceedings were validly initiated nor the income has been computed in accordance with law and that interest has been lived which the same could not be levied on the assessee company.

11. That the learned Commissioner of Income Tax (Appeals) has also erred in upholding the interest charged u/s 234B in the notice of demand which had not been validly charged.”

 4. The assessee has raised the following grounds of appeal in ITA No. 2757/Del/2002 for the Assessment Year 1991-92:-

“1. That the learned Commissioner of Income Tax (Appeals) has erred, both on facts and in law in upholding the validity of the proceedings initiated u/s 147 of the Income Tax Act. Confirming the validity of proceedings initiated the learned CIT(A) has failed to comprehend that statutorily no valid proceedings can be initiated even if the learned Assessing Authority had prima facie reason to believe that the income had escaped assessment unless there had been a failure on the part of the assessee to have disclosed all material facts necessary for the purpose of making an assessment of the income of an assessee.

2. In upholding the initiation of proceedings, the learned Commissioner of Income Tax (Appeals) has ignored the proviso to section 147 of the Income Tax Act and as such, the initiation of proceedings has been upheld on misconceived assumptions. The learned CIT (A) ought to have held that the initiation of proceedings was totally without jurisdiction and further the learned Commissioner of Income Tax (Appeals) ought to have also held that the assessment has been reopened, on the basis of a mere change of opinion and that there had been no failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment. The preconditions of section 148 having not been satisfied there was no justification in law for the learned CIT(A) to have upheld the validity of the proceedings so initiated.

3.  That the learned Commissioner of Income Tax (Appeals), has failed to appreciate that the assessee had furnished full and complete details of all the activities carried on by the Research and Development Center known as Chandain Research Farm and that merely because in the opinion of the learned Assessing Officer, succeeding the assessing officer who had framed the assessment originally before the initiation of proceedings under section 148 of the I.T. Act all expenses direct and indirect, had not allegedly been considered by the assessee., could not be a valid ground for concluding that the assessee had failed to disclose all material facts necessary for the purpose of assessment. 

4. That even otherwise, the finding that the appellant had not taken into consideration all direct and indirect expenses relating to agriculture operations, is based on misconception and the findings to the contrary are based on misconception both of facts and law. The assessee too while furnishing the return of income u/s 139(1) of the IT Act had furnished full particulars to establish the direct and indirect expenses, as also during the course of initial assessment proceeding.

5. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that there was no valid basis to sustain the addition on the basis of the order of the learned Commissioner of Income Tax (Appeals), since the said order was not approved by the Hon’ble Tribunal there was no material to support the allegation that the assessee had not taken into consideration all direct and indirect expenses or such was a finding recorded by the learned Commissioner of Income Tax (Appeals). In fact, in the absence of any such material in support finding, the initiation of proceedings is totally untenable and framing the present assessment is wholly arbitrary and is totally erroneous both on facts and in law.

 6. That the learned Commissioner of Income Tax (Appeals) has further erred in upholding the finding of the learned Assessing Officer that the assessee had inflated the agricultural income. The aforesaid conclusion arrived at is entirely untenable and is highly arbitrary.

 7. That in any case and without prejudice the learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in concluding that the income from agriculture disclosed and assessed at Rs. 8,32,609/- was incorrectly assessed and really there was a loss suffered of Rs. 48,619/- from the agricultural activities.

 8. That likewise the learned Commissioner of Income Tax (Appeals) has further erred in upholding the taxable income of the assessee at Rs. 21,87,278/- as against the income assessed at Rs. 13,06,050/-

 9. That the learned Commissioner of Income Tax (Appeals) erred in confirming the allocation of 50% of expenses of Bagwaia Office and R & D activity while computing agricultural income.

 10. That the perusal of the order of the CIT(A) shows the order was made without application of mind and was thus an arbitrary order. It is therefore, prayed that it be kindly held that neither the proceedings were validly initiated nor the income has been computed in accordance with law and that interest has been lived which the same could not be levied on the assessee company.

11. That the learned Commissioner of Income Tax (Appeals) has also erred in upholding the interest charged u/s 234B in the notice of demand which had not been validly charged.”

5. Before deciding the issue it is necessary to list certain case load history of these appeals. The aforesaid appeals were remanded and fixed for hearing pursuant to the order of the Hon‟ble Delhi High Court dated 12.12.2011 in CIT vs. Wimco Seedlings Limited in ITA Nos. 1367, 1368 and 1391/2008.

6. The appellant is a company engaged in the business of providing consultancy services in the field of agricultural forestry plants by undertaking for research and development (R&D) activities. Consultancy services are provided to M/s. Wimco Limited pursuant to agreement entered into with the said company on cost plus basis. The Appellant owns 150 acres of land at Chandian Village and 15 acres of land at Baghwala Village, both are located in the state of Uttar Pradesh. The ChandianVillage land was used for R&D activities in the field of agricultural forestry and for undertaking agricultural operations in the form of inter-cropping (i.e., cropping in between the vacant portions of land used for R&D activities). The land at Baghwala was used for R&D activities and nursery activities. Income from R&D and nursery were offered and subjected to tax as „business income‟, whereas nominal income from agricultural activities undertaken in the form of inter-cropping was claimed to be exempt from tax. For assessment year 1989-90, out of gross receipts of Rs. 1,91,92,891/-, agricultural income was of Rs. 6,24,786/- (net of direct expenses) was claimed as exempt from tax and the balance non-agricultural income of Rs. 1,85,68,105/- was considered while computing taxable business income. Similar treatment was done in the assessment years 1990-91 and 1991-92. In the regular assessment proceedings under section 143(3) of the Act for assessment year 1994-95, the assessing officer, for the first time, vide order dated 01.03.1996 held/alleged that certain indirect expenditure should also be allocated to the earning of exempt income. On further appeal, the CIT(A) vide order dated 31.03.1997 held that indirect expenses in the form of 50% of Bhagwala office expenses and 50% of R&D activity expenses) should be allocated to the agricultural income. On further appeal, the Tribunal vide order dated 21.12.2006 reported in 107 ITD 267 (TM), set-aside the order of the CIT (A) and deleted the entire addition/disallowance made in the assessment order.

7. In the meanwhile, reassessments proceedings were initiated under section 147 vide separate notices dated 04.06.1997 issued under section 148 of the Act for assessment year 1989-90 to 1991-92. In the reassessment proceedings completed vide separate orders dated 21.03.2000 passed under sections 147/143(3) of the Act, the assessing officer simply followed the order of the CIT(A) for assessment year 1994-95 and allocated 50% of Baghwala office expenses and 50% of R&D activity expenses towards earning of agricultural income.

8. For assessment year 1989-90, considering that net agricultural income of Rs. 6,24,786/- was declared by the appellant, the assessing officer, after reducing further expenses computed on the above basis, determined loss from agricultural activity at Rs. 36,480/-. Accordingly, income of the appellant was assessed at Rs. 4,15,670/- and at agricultural loss of Rs. 36,483/-, under the normal provisions of the Act. On further appeal, the CIT(A) vide order dated 15.03.2002, following the order of the CIT(A) for assessment year 1994-95, dismissed the appeal preferred by the Appellant.

9. Further appeals preferred by the appellant against the orders for assessment year 1989-90 to 1991-92, were decided by the Tribunal vide consolidated order dated 22.02.2008. Before the Tribunal, the appellant challenged the validity of the reassessment proceedings and also challenged the addition made as a consequence of reallocation of expenses towards agricultural income. The Tribunal, following the order of the Third Member for assessment year 1994-95, deleted the disallowance made by the assessing officer on merit. The grounds challenging the validity of the reassessment proceedings were not adjudicated and dismissed as infructuous, in view of relief being granted to the Appellant on merit.

10. Against the aforesaid consolidated order of the Tribunal dated 22.02.2008, appeals were preferred by the Revenue before the Hon‟ble Delhi High Court in ITA Nos. 1367, 1368 and 1391/2008 for the above assessment years. The Hon‟ble High Court vide order dated 12.12.2011 held that certain observations of the Tribunal for assessment year 1994-95, which were followed by the Tribunal while adjudicating appeals for the above assessment years, were contrary to the judgment of the Hon‟ble Delhi High Court in the case of Maxopp Investment Ltd. vs. CIT [347 ITR 272 (Del)] and therefore, the order of the Tribunal required reconsideration. The Hon‟ble High Court accordingly set-aside the order passed by the Tribunal dated 22.02.2008.

11. The Hon‟ble Court vide order dated 12.12.2011, held that the impugned judgment of the Tribunal, which is entirely based on a view held in the case of the assessee pertaining to assessment year 1994-95, would require reconsideration. Accordingly, Hon High court set aside the impugned judgment and remands the matter to the Tribunal to examine the same in the light of the observations of Hon High Court in Maxopp Investments Ltd. .In the light of the aforesaid order of the Hon‟ble High Court for the above assessment years 1989-90, 1990-91 and 1991-92, the above appeals preferred by the Appellant stood restored and remanded to the Hon‟ble Tribunal for a fresh adjudication.

12. Meanwhile separate appeal filed by the Revenue against the order of the Third Member for assessment year 1994-95: 107 ITD 267, was subsequently dismissed by the Hon‟ble High Court vide order dated 03.02.2012. In the aforesaid background, the appellant‟s appeals require adjudication.

13. In appeal for assessment year 1989-90 in ITA No. 2755/ Del/ 2012, as per ground no 1 -3 Appellant has challenged the validity of the reassessment order dated 21.03.2000.

14. The ld  AR   submitted  that   that  the  impugned  reassessment  order  is  without jurisdiction, illegal and bad in law . He submitted that since complete reasons were not provided within reasonable time, the reassessment proceedings are invalid, being violative of the fundamental procedure of assessment as codified in various judicial precedents and, in any case, barred by limitation prescribed in section 149 of the Act. It is further submitted that facts of the present case are, far better and at best identical to the facts before the Hon‟ble Delhi High Court in the case of Haryana Acrylic ( 308 ITR 38 ). In the present case, too, only extracts of reasons were, despite repeated requests provided during reassessment proceedings. Complete reasons, which are different from extracts, were for the first time provided before the High Court sometime in the year 2008, i.e., much the expiry of 10 years from reopening in the year 1997 and much after the limitation prescribed of 10 years from end of relevant assessment year prescribed in section 149 of the Act, which expired on 31.03.2000. Furthermore, as stated above, extracts of reasons made available are totally different from the actual reasons subsequently, made available to the Appellant. There is no justifiable reason for not making available the reasons within reasonable time during the course of reassessment proceedings.

15. It is further submitted that reassessment proceedings were initiated to allocate part of the expenses incurred towards agricultural income resulting in disallowance of the expenses claimed by the appellant. Assessee claims that assessee is engaged in an indivisible business wherein substantial income earned from research and development and nursery was taxable under the act and part of the income and being agricultural income was exempt from tax stop it is submitted that prior to insertion of section 14 A of the act with retrospective effect from 14 1962, the settled legal position was that in case of indivisible business the entire expenses incurred are allowable as business deduction. The assessee relies on the decision of the honourable Supreme Court in case of Rajasthan State warehousing Corporation versus Commissioner of income tax (242 ITR 450 wherein it has been held that when assessee is carrying on business in various ventures and some of them is taxable income and others are not the expenditure which the requirement of section 37 and then the entire expenditure will be permissible as a deduction. Therefore it was stated that reopening of the proceedings for apportionment and disallowance of part of the expenditure to indivisible activity of undertaking agricultural operation is erroneous. Therefore it was stated that in absence of any income that may be regarded possibly having escaped assessment the initiation of reassessment proceedings is patently illegal and bad in law. Assessee also stated that in reasons recorded there is no reference to section 14 A of the income tax act the assessee submits that proviso to section 14 A of the act specifically bars reopening of any proceedings for any assessment year of the assessment year 2001 – 02 by resorting to the provisions of the above section. The assessee relies on the decision of the honourable Delhi High Court in CIT versus PNB finance and industries Ltd (340 ITR 50) (Del)

16. Assessee also submitted that on perusal of the reasons recorded it can be seen that reassessment proceedings were initiated in initiated without any honest and justifiable reason to believe that income of the appellant had escaped assessment. Assessee submits that are in the activity was offered for taxation as a business income in the agricultural income was merely in the form of inter-cropping on the vacant land or area used for field testing of the sampling as part of the research and development activity and therefore agricultural income was merely incidental activity. Therefore the entire expenses incurred in relation to agricultural income had already been reduced from the income earned from the agricultural activity, but the expenses claimed were incurred in relation to research and development activity was offered for taxation as a business income. It was further stated that the reasons recorded repeatedly uses the phrase it appears, has to be examined et cetera which shows that the reassessment proceedings were in fact initiated merely to conduct roving and facing enquiry. The assessee submitted that reassessment proceedings were not believed validly initiated in as much as the assessing officer had no reason to believe that any income of the appellant had escaped assessment. In view of this it was submitted that the reassessment proceedings initiated is without jurisdiction, illegal and bad in law and is liable to be quashed. Thus as per ground number one – three of the appeal the assessee vehemently opposed the action of reopening of the assessment.

17. Challenging the quantum of additions as per ground number four – nine of the appeal the assessee submits that the location of the agricultural expenses being 50% of research and development activity and 50% of Baghwala office is devoid of any merit. Assessee states that with respect to the research and development activity the assessee has entered into an agreement with women: it for undertaking research and effort development activity and entire expenditure on our in the activity was reimbursed by wimco Ltd on cost plus basis. He referred to the various clauses of the agreement with Wimco Ltd. Therefore it was argued that disallowance of 50% of the expenditure on research and development expenses towards the agricultural income are devoid of any merit. On 50% of Baghwala office expenses it is submitted that it related to the entire business of the appellant and were not incurred in relation to the earning of exempt income so as to require any disallowance on the location to the exempt income.

18. Without prejudice to the above submission assessee submitted that in the end at the most some portion of 50% of the residual office expenses could at best be considered for the purpose of a location towards agricultural income. He submitted that it can be at the most percentage of agricultural income to the gross receipt of the appellant is a basis for allocation and disallowance and therefore the AO may be directed to a locate and disallowed at the most 3.25%, 5.06% and 6.75% for the respective assessment years of 50% of Baghwala office expenses.

19. With respect to ground number 10 – 12, it was submitted that as these grounds have already been adjudicated in the first round and there is no demand by the honourable High Court, these grounds does not require any adjudication.

20. For assessment year 1990 – 91 assessee submitted that the facts and circumstances are similar and therefore any decision of the coordinate bench for assessment year 1989 – 19 will apply.

21. With respect to assessment year 91-92, it is submitted that the facts are similar however the initiation of reassessment proceedings for assessment year is barred by limitation of four years prescribed in proviso to section 147 of the act.

22. The learned departmental representative vehemently objected to the argument of the learned authorised representative that reopening of the assessment can be challenged by the assessee at this stage. He submitted that the notice for his reassessment under section 148 was served to the assessee on 10 June 1997 and the reasons are shown by the assessing officer to the assessee. He further stated that the legal objections were filed by the assessee before the assessing officer where the objections were raised. He further submitted that the submission filed before the learned CIT appeal also objected to the reopening of the assessment. In view of this the assessee was completely aware about the reasons recorded for the reopening of the assessment and therefore now assessee cannot contest the same. He further submitted that reassessment proceedings are not initiated under section 14 A of the income tax act as there is no reference therefore the proviso to section 14A does not apply. It was further stated that reassessment is also not initiated on section 14 A of the income tax act and therefore the argument of the learned AR that reassessment is barred in view of the proviso to section 14 A of the act is not sustainable. He further referred to the reasons recorded by the learned assessing officer and stated that it was a prime of AC reason to believe that there is an escapement of income. He also stated that it is not for making any roving or fishing enquiries but a concrete finding on the basis of the annual accounts of the assessee. In view of this he submitted that there is no infirmity in the reopening of the assessment proceedings. With respect to the apportionment of the expenditure and its quantum he relied on the orders of the lower authorities.

23. We have carefully considered the rival contention and perused the orders of the lower authorities. The first issue before us is whether the assessee can challenge the reopening of the assessment at this stage of proceedings of not. The honourable High Court wide order dated 1212 2011 passed an order in ITA number 1367/2008, 1368/2008 in ITA number 1391/2008 for assessment year 91 – 92, 1990 – 91 and 1989 – 1990 on appeal filed by the Commissioner of income tax. The assessee was not aggrieved with the order of the coordinate bench for all these years where the issue of reopening of the assessment was not at all decided. The honourable High Court in para number 10 held as under:-

“10. Having regard to the observations made hereinabove, we are of the opinion that the impugned judgment of the Tribunal, which is entirely based on a view held in the case of the assessee pertaining to assessment year 1994-95, would require reconsideration. We accordingly, set aside the impugned judgment and remand the matter to the Tribunal to examine the same in the light of the observations of this Court in Maxopp Investments Ltd. (supra). We have adopted this course so that the revenue’s interest does not get impacted in the subsequent years, as the issue seems to be of a recurrent nature. It is this reason alone which has promoted us to take the second option. We make it clear that on remand parties will be free to address arguments on all issues, including on the aspect of re-assessment in view of observations made in paragraph 3 of the impugned judgment”.

24. In view of the above categorical direction of the honourable High Court where it has been held that the order is remanded to the file of the coordinate bench with the liberty to the parties to address arguments on all issues including on the aspect of reassessment in view of observation made by the honourable High Court in para number 3 of the order, assessee is at liberty to challenge the reopening of the assessment. Therefore, the arguments of the assessee on the reopening of the assessment are required to be dealt with by us in view of the direction of the honourable High Court.

25. The first argument of the learned authorised representative is that the reasons given by the learned assessing officer at the time of reopening of the assessment and reasons stated to be given before the honourable High Court are different. This needs on examination. At page number 249 – 253 of the paper book the assessee has submitted the reasons given by the revenue before the honourable High Court. First we need to examine what are the reasons given to the assessee at the time of reopening of the assessment. These reasons are placed at page number 11 of the paper book of the assessee which reads as under:-

„Wimco seedlings Ltd

Extracts of reasons recorded for initiating provisions of section 147/148

for the assessment years 1989 – 90, 1990 – 91 and 1991 – 92

It appears in all the three assessment years that the assessee has not taken into consideration all direct and indirect expenses relating to agricultural operations which resulted in inflation of agricultural income. If the items of expenses relating to an agricultural income analyzed properly there may not be any agricultural income to a positive figure. Moreover, it also appears that the activity being carried out by the assessee at Chandan Research Farm involves only research and development activity and nursery. There are no agricultural activities being carried out.

The learned is being used for research and development purposes as also for nursery activity. Any activity in the nature of agricultural activities being carried out on farm is not agricultural but research activity. All agricultural activities are basically part of research and development field trials and demonstration. No independent agricultural activity is being carried out by the assessee on the land. The activities of R & D/ Field trials et cetera are the commercial and business oriented activity of the assessee. Because it results in an agricultural commodity, which can be sold in the market, the realization from such sale cannot be termed as agricultural. The produce (agriculture) is by virtue of a business activity (revenue) and therefore, its income is not agricultural income but taxable income.”

26. Now we proceed to verify whether the reasons recorded produced before the honourable High Court by the revenue are whether identical to the reasons given to the assessee or not. For this we go to page number 249 – 253 of the paper book filed by the assessee. Page number 249 is the letter of Deputy Commissioner of income tax (OSD), Bareilly to the Commissioner of income tax Lucknow dated 30 April 1997 which is a proposal under section 147 of the income tax act in case of the assessee for which sanction is requested. Along with that letter at page number 250 is an act the form for recording the reasons for initiating proceedings under section 148 of the act for obtaining the approval of the Commissioner of income tax. To that form there is an annexure A which is the reason recorded for the reopening of the assessment. This is corroborated by para number 11 of the form for recording the reasons for initiating proceedings under section 148 of the act submitted for obtaining the approval of the Commissioner. The annexure A reads as under:-

“ Annexure – A

Proposal for reopening of assessment for assessment years 1989 – 90, 90 – 91, 91 – 92 in the case of M/s Wimco seedlings Ltd, five – E, local shopping centre, Masjid Moth, New Delhi. – The assessee is a closely held company which is engaged in the business of research and development in the field of genetic and breeding of all types of forest and horticultural species, shoot 44 different climatic zones and soil conditions, new tree species, new types of forest stands and different seri cultural programs, tissue culture as well as production of suitable varieties of fast-growing spaces of timber for energy and forestry plantation, agricultural and horticultural seeds and plants, multiplication of feeds and ceilings for agro and farm forestry and of genetic strains suiting different agro ecological conditions.

The assessee company is an associate of M/s Wimco which is engaged in match stick manufacture. The assessee company will course several in is engaged in the development of trees which gives softwood used for match splinter. It is engaged in the development and popularization of poplar and Kadam Trees Mainly. For this it carries out clonal test, develops and trees new spaces of trees and the saplings are transferred to its nursery at village Chaindain, Dist Rampur (UP). They are planted in measured lots on the land available at the firm being used for research and development activity. This is done with the purpose of seeing its effect on traditional crops, different varieties of vegetables and aromatic plants. The inter-cropping is done to see the effect of poplar trees on different plants, the soil mix required, the nutrients (extra) required if poplar is planted with other items. It also tries to determine the species on which poplar has good effect. In effect, the research and development activity involves the field testing of the saplings developed in R & D Centre at Bahgwala. The firm is also used for demonstration to farmers, the prospective customers of the saplings grown by the company. The know-how developed by the R&D centre (the chandain research firm being an extension of this) is then transferred to the actual customer (the farmer).

The chandain firm is not an agricultural firm but a research farm. In fact the board/nameplate also says “ Chandain research farm‟. The firm which is of approximately hundred and 50 acres is used for research and development activity and nursery. The nursery is of 20 acres. The nursery is to be sifted every two years to regenerate the soil. Therefore, an area of approximately 20 acres is kept vacant and used for traditional agriculture. This is because the nursery is to be sifted these subsequently. The nursery or for that matter, no land is used for one activity only. The rotation is done to regenerate the soil. The assessee company had shown agricultural income of ₹ 6 24786/– in assessment year 1989 – 90, ₹ 6 79097/– in assessment year 1990 – 91 and ₹ 8 32609/– in assessment year 1991 – 92 apart from other business income. The assessment was completed under section 143 (1)(a) of the income tax act, 1961 in assessment year 89 – 90 and 90 – 91. The assessment in assessment year 91 – 92 has been under section 143 (3) of the income tax act 1961.

In assessment year 89 – 90, as stated above the agricultural income has been shown at ₹ 6 24786/– but the computation of the agricultural income is not given with the return of income. As per schedule „J‟ the assessee has debited a sum of ₹ 9 51249 under the head fertilizer and chemicals, Rs. 882445/– for irrigation and site preparation, Rs. 4436682/– under the head Wages apart from other expenses totaling to ₹ 1 0826457/–.

Similarly in assessment year 90 – 91, the expenses on fertilizer and chemicals amounts to Rs. 887645/–, irrigation and site preparation ₹ 8 30408/– and wages ₹ 3 774312/–. Total expenses are shown at ₹ 8 306405/–. In assessment year 91 – 92 the expenses on fertilizer and chemicals are shown at ₹ 5 22147/–, irrigation and site preparation ₹ 7 20534/– and wages ₹4 184393/–. The total expenses debited to the profit and loss account of amount is to ₹ 7 320112/–.

It appears in all the three assessment years the assessee has not taken into consideration or direct and indirect expenses relating to agricultural operations which resulted in inflation of agricultural income. If the items of expenditure relating to agricultural operations which resulted in inflation of agricultural income. If the items of expenditure relating to agricultural income which are analyzed properly, they may not be any agricultural income to a positive figure. Moreover it also appears that the activity being carried out by the assessee at Chandain research and farm involves only are and the activity and nursery. There is no agricultural being carried out. The land is being used for research and demonstration purposes as also for nursery activity. Any activity in the nature of agricultural activities being carried out on farm is not agricultural but research activity. All agricultural activity are basically part of research and development, field trials and demonstration. No independent agricultural activity is being carried out by the assessee on the land. The activity of research and development/field trials et cetera are the commercial and business oriented activity of the assessee. Because it results in an agricultural, DT which can be sold in the market, the realization from such sale cannot be termed as agriculture. The produce (agriculture) is by virtue of a business activity (research) and, therefore, its income is not agriculture income but taxable income.

To conclude, the case has to be examined from the angle whether the assessee having genuinely any agricultural activity resulting in agricultural income? If so, whether there was any positive agricultural income in about three assessment years. From the facts and circumstances of the case stated above, I have reason to believe that income chargeable to tax has escaped assessment in assessment year 1989 – 90, 90 – 91 and 91 – 92 to the extent of agricultural income shown in the relevant assessment year. Since four years have left from the end of the relevant assessment year your kind approval is solicited for issuing notice under section 148 of the income tax act 1961.”

27. On perusal of above two statements (one) the reasons supplied it to the assessee and (two) the reasons some before the High Court, it is apparent that both are altogether different. It is not denied that in context and in substance they are same but there should be same ad verbatim. It cannot be the case of the revenue that it gives few extracts of the reasons to the assessee to defend it against the reopening of the assessment and when cornered before the higher authorities, the revenue comes out with the detailed reasons recorded by the assessing officer. In fact in all circumstances the assessing officer is supposed to provide the complete reasons recorded for reopening of the assessment to facilitate the assessee to defend itself against the reopening of the assessment. To keep few arrows in its quiver and only disclosing few arrows out of that is not expected from a revenue officer. It also against the fair play rule of reassessment proceedings. In Haryana Acrylic Manufacturing Co V Commissioner of Income tax 308 ITR 38 [ Delhi] the identical issue arose. As per para no 4 following reasons were given to the assessee:-

“4. The Assistant Commissioner of Income-tax supplied the reasons for initiating the proceedings under section 148 of the said Act dated March 29, 2004, sometime in September, 2004. The reasons which were supplied to the petitioner in September, 2004 were as under :

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“M/s. Haryana Acrylic Mfg. Co. Pvt. Ltd. Assessment year 1998-99

Reasons for initiating the proceedings under section 148 of the Income-tax Act.

Return of income in this case was filed on November 30, 1998 declaring nil income. Assessment under section 143(3) was completed at nil income on March 7, 2001. It has come to the notice that the assessee-company has taken accommodation entries from one of the companies of Sh. Sanjay Rastogi, i.e., Hallmark Helathcare Limited, vide cheque No. 201845 dated October 17, 1997, amounting to Rs.5,00,000 during the year relevant to the assessment year 1998-99. I have reason to believe that the income to the extent of Rs. 5,00,000 has escaped assessment. As such, after obtaining the approval of CIT (C)- II to reopen the case, notice under section 148 of the Income-tax Act is issued to the assessee.

(Sd) . . . . . . .

29-3-2004

ACIT, CC-18, New Delhi.”

28. It was further pleaded before Honourable Court that :-

16. Lastly, it was contended that in the counter-affidavit filed by the respondents the reasons which had been indicated for initiation of proceedings under section 147 were entirely different to the reasons which had been supplied to the petitioner. The attention of this court was drawn to paragraph 5(d) of the counter-affidavit wherein it is stated that the true copy of the reasons recorded by the Assessing Officer and the approval granted by the Commissioner of Income-tax is enclosed as annexure A. Annexure A purports to be a form for recording the reasons for initiating proceedings under section 148 and for obtaining approval of the Commissioner of Income-tax. Serial No. 11 of the form pertains to ” reasons for the belief that income has escaped assessment” . Under this heading, the following is recorded :

17. It is apparent by comparing these purported reasons with the reasons extracted earlier and which had been supplied to the petitioner that the two are different. While in the reasons supplied to the petitioner there is no mention of the allegation that there was a failure on the part of the

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assessee to disclose fully and truly all material facts, in the reasons shown in the said form in annexure A to the counter-affidavit, there is a specific allegation that there was failure on the part of the assessee to disclose fully and truly all material facts relating to accommodation entries raised from one of the companies of Sh. Sanjay Rastogi to the extent of Rs. 5,00,000. In this context, the learned counsel for the petitioner submitted that the entire proceedings are vitiated inasmuch as the reasons which were supplied to the petitioner were different from what, according to the respondents, were the ” true” reasons. Therefore, what was supplied to the petitioner cannot be regarded as the reasons and the entire process of filing of objections to those purported reasons and the impugned order dated March 2, 2005, would be in respect of something which, even as per the respondents, were not the true reasons. Consequently, the entire proceedings leading up to the passing of the impugned order dated March 2, 2005, have to be set aside.

29. The honourable High Court responded to the above anomaly where the reasons given to the assessee are altogether different then the reasons given to the higher authorities when the order of the assessing officer is challenged, as under:-

“30. The matter, however, does not end here. We have mentioned above that the stand taken by the respondents in their counter-affidavit before this court is that the ” actual” reasons recorded are those recorded in the Form for recording reasons, a copy of which has been filed as annexure A to the said counter-affidavit. It was urged on behalf of the respondents that the ” reasons for the belief that income has escaped assessment” at serial No. 11 of the said form clearly carries the allegation that ” there was failure on the part of the assessee to disclose fully and truly all material facts relating to accommodation entries” . This being the case, it was submitted, the bar of taking action within four years would not apply and, consequently, the notice under section 148 was valid.

31. This argument suffers from several infirmities. First of all, the respondents cannot be permitted to gloss over the fact that the reasons which were supplied to the petitioner were different from the reasons purportedly recorded in the said form on which they now seek to rely. If the reasons in the said form were the ” actual” reasons, why were they not communicated to the petitioner ? Why was nothing said about these reasons (noted in the form) when the petitioner filed its objections to the reasons which were supplied to it ? It must be remembered that in its objections, the petitioner took the specific plea that in the absence of any allegation that the petitioner had failed to disclose fully and truly all material facts necessary for assessment, the Assessing Officer had no jurisdiction to issue the notice under section 148 and initiate action under section 147 after four years from the end of the relevant assessment year. Despite this precise objection, there is no mention of the reasons noted in the said form in the impugned order dated March 2, 2005. If the respondents had regarded the reasons noted in the said form to be the ” actual” reasons, it would have been very easy for the Assessing Officer to have countered this objection by simply referring to the reasons noted in the form and saying that the allegation of failure to disclose is very much there. It is obvious that the reasons noted in the said form were never regarded as the reasons for initiating action under section 147 of the said Act. Thus, the respondents cannot now be permitted to fall back on those purported reasons noted in the said form.

32. Secondly, let us assume for the sake of argument that the ” actual” reasons were those as noted in the said form. Then why did the Assessing Officer communicate a different set of reasons to the petitioner ? Did he

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think that the supplying of reasons and the inviting of objections were mere charades ? Did he think that it was a mere pretence or a formality which had to be gotten over with ? At this point, it would be well to remember that the Supreme Court in G. K. N. Driveshafts [2003] 259 ITR 19 had specifically directed that when a notice under section 148 of the said Act is issued and the noticee files a return and seeks reasons for the issuance of the notice, the Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of the reasons, the noticee is entitled to file objections to the issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. These are specific directions given by the Supreme Court in all cases where notices under section 148 of the said Act are issued. Surely, the Assessing Officer could not have construed these specific directions to be a mere empty formalities or dead letters ? There is a strong logic and purpose behind the directions issued by the Supreme Court and that is to prevent high-handedness on the part of Assessing Officers and to temper any action contemplated under section 147 of the said Act by reason and substance. In fact, even section 148(2) stipulates that the Assessing Officer shall, before issuing any notice under the said section, record his reasons for doing so. The Supreme Court has only carried forward this mandatory requirement by directing that the reasons which are recorded be communicated to the assessee within a reasonable period of time so that at that stage itself the assessee may point out any objections that he may have with regard to the initiation of action under section 147 of the said Act. The requirement of recording the reasons, communicating the same to the assessee, enabling the assessee to file objections and the requirement of passing a speaking order are all designed to ensure that the Assessing Officer does not reopen assessments which have been finalized on his mere whim or fancy and that he does so only on the basis of lawful reasons. These steps are also designed to ensure complete transparency and adherence to the principles of natural justice. Thus, a deviation from these directions would entail the nullifying of the proceedings. Assuming as we have done that the “actual” reasons were those as noted in the said form, it is obvious that the reasons were never communicated to the petitioner and it is only for the first time in the course of the present writ petition that those ” reasons” have surfaced. Therefore, if he proceeded on the assumption that the ” actual” reasons were those as noted in the said form, the proper course of action as directed by the Supreme Court in G. K. N. Driveshafts [2003] 259 ITR 19, has not been followed. It would mean that the reasons which were supplied to the petitioner were not the actual reasons and the objections which were taken by

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the petitioner were not to the actual reasons and the speaking order dated March 2, 2005, which was passed was also neither on the basis of the actual reasons nor the objections to the actual reasons. The entire process would be a sham and would amount to making a mockery of the law as settled by the Supreme Court. Therefore, for this reason also, the notice under section 148 as well as all proceedings subsequent thereto as also the order dated March 2, 2005, are liable to be quashed.”

30. As before us also the reasons recorded by the assessing officer produced before the honourable High Court are quite different and number eight whereas the extract given to the assessee was merely of two paragraphs. In view of this, respectfully following the decision of the honourable Delhi High Court we are not inclined to uphold the reopening of the assessment and hence they are quashed. The orders of the learned Commissioner of income tax upholding of the reopening of the assessment are reversed. Thus all the three assessment years reopening proceedings are held to be invalid and quashed .

31. As we have already quashed the reassessment proceedings are allowing the appeal of the assessee, all other grounds of appeal are not adjudicate.

32. Before parting, we note that the order is passed beyond 90 days of the hearing of these appeals. However respectfully following the decision of the coordinate bench in Ashapura Minichem Ltd. v.Deputy Commissioner of Income Tax [2020] 116 taxmann.com 860 (Mumbai – Trib.) Wherein identical issue has been dealt with in para number 14 of that decision identical situation was discussed, we proceed to pronounce the order.

33. In the result, appeal of the assessee for all these three years are allowed as indicated above.

Order pronounced in the open court on 22/06/2020.