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TaxTMI 
TaxTMI 
TaxTMI 
2020 (6) TMI 586
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....ure 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 Developm....
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....axable 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 t....
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....ent 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 asse....
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....ssessee 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 m....
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....peals) 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....
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..... 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 D....
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.... 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 ....
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.... 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 bus....
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....her 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 ap....
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....sons 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 or....
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....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 chan....
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....ey 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 act....
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....ies 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....
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.... 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 rea....
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.... 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 transparenc....