TaxTMI 
TaxTMI 
2020 (6) TMI 586
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 det....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 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 la....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed 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 Cha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....edly 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 ba....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pletely 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 natur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is to Rs. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etitioner in September, 2004 were as under : " 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....asons 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 submitte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icee 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 t....