Ld. CIT(A), while accepting the fact that no addition was made on the reasons recorded and the addition was made on the issue of capital gain arising on transfer of property, i.e., shops, due to dis allowance of cost of improvement incurred thereon, decided the matter against the assessee, relying on ‘Sri N Govindaraju vs. ITO’, 377 ITR 243 (Kar.). The reason for the CIT(A) to do so was that that ‘Sri N Govindaraju’ (Supra) is a decision rendered later than ‘Ranbaxy Laboratories vs. CIT’, 336 ITR 136 (Del) and ‘CIT vs. Jet Airways India Ltd.’, 331 ITR 236 (Bom), both of which decisions are in the favor of the assessee on this issue.
Having heard the parties, we find the reasoning adopted by the ld. CIT(A) to be not in accordance with law. Undeniably, neither ‘Sri N Govindaraju’ (Supra), nor ‘Ranbaxy Laboratories’ (Supra), nor ‘Jet Airways’ (Supra) has been rendered by the jurisdictional High Court so far as the assessee is concerned. In such a situation, it is well settled that where two non jurisdictional High Court’s decisions are opposed to each other, the one in favor of the assessee is required to be followed by the Tribunal. Reference, if any required, may be made to the decision of ‘CIT vs. Vegetable Products Ltd.’, 88 ITR 192 (SC).
PER, A.D. JAIN, JUDICIAL MEMBER, JM:
1. This is assessee’s appeal for Assessment Year 2009-10, the following three concise grounds have been raised:
“1. The Honorable C.I.T (Appeals) has erred in law and on facts in sustaining the reassessment order passed u/s 147 even when no addition has been made on the issue (on the basis of AIR information) which was recorded in reasons to believe for initiating reassessment proceedings by the Ld. A.O.
(Relief claimed Rs. 3,11,578/-)
2. The Ld CIT(A) has erred in law & on facts by confirming the dis allowance of the cost of improvement incurred on the shop, ignoring an affidavit filed by the assessee related to that expenditure incurred in F.Y. 2007-08.
3. Because the order passed u/s 143(3) r.w.s. 147 dated 28.11.2016 is bad in law & on facts & deserves to be quashed, thus the claim of the assessee may very kindly be allowed. ”
2. Apropos Ground No. 1, the assessee has challenged the reassessment order passed, contending that the said order is not sustainable in law, since no addition was made on the reasons recorded by the Assessing Officer to believe escapement of income.
3. The following are the reasons recorded by the Assessing Officer for initiating proceeding for reopening the completed assessment of the assessee (APB-1):
“As per AIR information the assessee has invested Rs. 3,70,990/- for the purchase of the units of Mutual Fund. For the verification of the investment a letter dated 13.03.2014 fixing the date 24.03.2014 was issued but on the date of compliance neither the assessee attended nor any reply has been served on behalf of the assessee. This proves that assessee has nothing to say in this regard. Considering the facts of the case and material available on record, I have reason to believe that investment of Rs. 3,70,990/- has been made out of undisclosed income, which had escaped assessment for AY 2009-10. To put this income to tax, proceeding u/s 147 of the Act is initiated issue notice u/s 148 of I.T. Act for AY 2009-10. ”
4. So, as per the reasons, according to AIR information received by the Assessing Officer, the assessee had invested of amount of Rs. 3,70,990/- for purchase of units of Mutual Fund, out of undisclosed income.
5. This issue was raised by the assessee before the ld. CIT(A) also, by way of written submissions dated 28.10.2016, the relevant portion whereof is at page 4 of the impugned order, as under:
“Since the addition made in the Assessment order u/s 148 is due to another reason- capital gain arising due to transfer of property, this addition is unjust for there had been no escaped of income for these issues had been evidently discussed and disclosed vide the proceedings carried out u/s 143(1).
CASE LAWS IN FAVOR OF THE ASSESSEE ON FIRST GROUND :
1. RANBAXY LABORATORIES LIMITED vs. CIT in the High Court of Delhi
2. CIT vs. Jet Airways
It is thus lucid based on the above judgments that, the legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under Section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiries and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction.”
6. The ld. CIT(A) rejected the assessee’s contention by observing that [CIT(A) Page 4 to 6]:
“I have carefully considered the appellant’s submission, the facts of the case and the legal position in this regard. The main objection to the reassessment proceedings pointed out by the appellant is that the reason for which its case was reopened was found to be incorrect as no addition in respect of that reason, was eventually made by the A.O.”. and therefore the addition to her income on another issue, is legally not sustainable. The following two judgments of Hon’ble High Courts have been cited by her in support of this contention :-
(i) Ranbaxy Laboratories Ltd. vs. C!T (2011) CIT 336 ITR 136 (Delhi)
(II) CIT vs. Jet Airways India Ltd. (2011) CIT 331 ITR 236 (Bom.)
On a search of the available judicial precedents on this issue, I find that Hon’ble Karnataka High Court has differed from the two decisions cited by the appellant and even considered these two, in its judgment dated 01.07,2015 rendered in the case of N. Govindaraju vs. Income Tax Officer & anr. (2015) 377 ITR 0243 (Karri,), Relevant extract of this judgment is reproduced below :-
“38. Considering the provision of section 147 as well as its Explanation 3, and also keeping in view that section 147 is for the benefit of the Revenue and not the assessee and is aimed at garnering the escaped income of the assessee [viz. Sun Engineering (supra)] and also keeping in view that it is the constitutional obligation of every assessee to disclose his total income on which it is to pay tax, we are of the clear opinion that the two parts of sect/on 147 (one relating to ‘such income’ and the other to ‘any other income’) are to be read independently, The phrase ‘such income’ used in the first part of section 147 is with regard to which reasons have been recorded under section 148(2) of the Act, and the phrase ‘any other income’ used in the second part of the section is with regard to where no reasons have been recorded before issuing notice and has come to the notice of the Assessing Officer subsequently during the course of the proceedings, which can be assessed independent of the first part, even when no addition can be made with regard to ‘such Income’, but the notice on the basis of which proceedings have commenced, is found to be valid,
39. In the end ft was vehemently argued by the learned counsel for the appellant that the reason to be given under sub-section (2) of section 148 would be the very foundation of the issuance o f notice and if it is false or baseless, then everything goes and the structure erected on such foundation would crumble.
40. It is true that if the foundation goes, then the structure cannot remain. Meaning thereby, if notice has no sufficient reason or Is invalid, no proceedings can be initiated. But the same can be checked at the initial stage by challenging the notice. If the notice is challenged and found to be valid, or where the notice is not at all challenged then in either case it cannot be said that notice is invalid. As such, if the notice is valid, then the foundation remains and the proceedings on the basis of such notice can go on. We may only reiterate here that once the proceedings have been initiated on a valid notice, it becomes the duty o f the Assessing Officer to levy tax on the entire income (including ‘any other income’) which may have escaped assessment and comes to his notice during the course of the proceedings initiated under sect/on 147 of the Act. “
I find that the notice under section 148 was not challenged by the appellant before the A.O. and no mention of any such objection of the appellant is recorded by the A.O. in the reassessment order. ”
Therefore, respectfully following the more recent decision of Honorable Karnataka High Court, I am inclined to disagree with the appellant’s argument that no addition is legally sustainable in its case after the reason on which the assessment proceedings were reopened, was found incorrect. Ground No.1 is accordingly dismissed. ”
7. Thus, the ld. CIT(A), while accepting the fact that no addition was made on the reasons recorded and the addition was made on the issue of capital gain arising on transfer of property, i.e., shops, due to dis allowance of cost of improvement incurred thereon, decided the matter against the assessee, relying on ‘Sri N Govindaraju vs. ITO’, 377 ITR 243 (Kar.). The reason for the CIT(A) to do so was that that ‘Sri N Govindaraju’ (Supra) is a decision rendered later than ‘Ranbaxy Laboratories vs. CIT’, 336 ITR 136 (Del) and ‘CIT vs. Jet Airways India Ltd.’, 331 ITR 236 (Bom), both of which decisions are in the favor of the assessee on this issue.
8. Having heard the parties, we find the reasoning adopted by the ld. CIT(A) to be not in accordance with law. Undeniably, neither ‘Sri N Govindaraju’ (Supra), nor ‘Ranbaxy Laboratories’ (Supra), nor ‘Jet Airways’ (Supra) has been rendered by the jurisdictional High Court so far as the assessee is concerned. In such a situation, it is well settled that where two non jurisdictional High Court’s decisions are opposed to each other, the one in favor of the assessee is required to be followed by the Tribunal. Reference, if any required, may be made to the decision of ‘CIT vs. Vegetable Products Ltd.’, 88 ITR 192 (SC).
9. In view of the above, the grievance of the assessee by way of Ground No.1 is accepted. Accordingly, the reassessment order is set aside and cancelled. Nothing further survives for adjudication as such.
10. In the result, the appeal is allowed.
Order pronounced, in the open Court on 11/01/2018.