[2014]

45 taxmann.com 33 (Karnataka)/[2014] 364 ITR

637 (Karnataka)[18-03-2014]

IT : Where notice seeking to reopen assessment was

issued prior to recording of reasons, said notice
being invalid, reassessment proceedings initiated in
pursuance of same deserved to be quashed

■■■

[2014] 45 taxmann.com 33 (Karnataka)

HIGH COURT OF KARNATAKA
Commissioner of Income-tax, (Exemptions)
v.
Baldwin Boys High School*
DILIP B. BHOSALE AND B. MANOHAR, JJ.
IT APPEAL NOS.703 TO 706, 708 TO 714, 716 & 717 OF 2007†
MARCH 18, 2014

Section 148 of the Income-tax Act, 1961 - Income escaping

assessment - Issue of notice for (Recording of reasons) -
Assessment years 1999-2000 to 2002-03 - Whether where
notice seeking to reopen assessment was issued prior to
recording of reasons, said notice being invalid,
reassessment proceedings initiated in pursuance of same
deserved to be quashed - Held, yes [Para 8] [In favour of
assessee]
FACTS

■ The assessee trust, was running educational institution. For
the relevant assessment years assessee declared income 'Nil',
claiming exemption under section 10(23C)(vi).
■ The assessments completed were reopened under section 147
on the ground that the assessees were not registered under
section 12A nor had requisite approval under section 10(23C)
(vi).
■ The Tribunal set aside reassessment proceedings taking a
view that notice to reopen assessment was issued without
recording reasons as contemplated by sub-section (2) of
section 148 which vitiated the whole proceedings.
■ On revenue's appeal:

HELD

■ From bare perusal of section 148, it is clear that the Assessing
Officer is obliged to record reasons before issuing notice
under section 148. It is true that in one of the files, there was
a draft of reasons purportedly prepared by the Assessing
Officer on 20-1-2004. It was not signed by the Assessing
Officer. The reasons recorded by the Assessing Officer were
typed, as is clear from the printout of the original reasons, on
4-2-2004. The typed date was struck off with pen and the date
30-1-2004 was written by hand with the same pen. Though the
original date (typed) was struck off with pen still the typed
date is visible/could be read or is clearly seen, and it was
typed as 4-2-2004.
■ Before the Tribunal a controversy was raised that the printout
of the reasons was computer generated and it was printed
with the date of printing automatically by the Computer. Be
that as it may, the fact remains that the typed date or the date
of printout was 4-2-2004 and that it was changed to 30-1-2004
as the date of reasons recorded under sub-section (2) of
Section 148.
■ Thus, the record was set right by showing that the date of the
notice and the date on which the reasons were recorded was
same. Why and how the date 4-2-2004 is appearing on the
original reasons recorded under sub-section (2) of section 148
is not explained by the Assessing Officer.
■ Neither in the order of the Assessing Officer nor in the order
of the Commissioner (Appeals) an attempt was made to
explain striking off the original date and writing the date 30-1-
 2004 by hand. It was possible for the Assessing Officer to
place an affidavit of the Typist on record explaining the
purported error committed by him while typing the reasons
recorded by the Assessing Officer.
■ On perusal of the original records, it is clear that the reasons
were prepared on 4-2-2004 whereas the notice was sent on
30-1-2004. It is also pertinent to note that the contents of
draft reasons and the original reasons recorded by the
Assessing Officer do not tally. [Para 7]
■ Thus, from perusal of the order passed by the Tribunal and so
also the other materials placed on record, it is clear that it is a
finding of fact recorded by the Tribunal holding that notice
was issued even before the reasons were recorded. In such
circumstances, there was no reason to interfere with the
finding of facts recorded by the Tribunal. [Para 8]
■ In the circumstances, the appeal is dismissed. [Para 9]
K.V. Aravind for the Appellant. A. Shankar and M. Lava for the
Respondent.
JUDGMENT

Dilip B Bhosale, J. - This batch of 13 income tax appeals is
arising from the common order dated 01st June, 2007 rendered
by the Income Tax Appellate Tribunal, Bangalore Bench 'B' (for
short 'the Tribunal'), disposing of 13 income tax appeals namely
ITA Nos.882-885/2006, ITA Nos. 11-1113/2006, ITA Nos.886-
889/2006 & ITA Nos. 1114-1115/2006. All these appeals pertain
to different assessment years starting from 1999-2000 to 2002-
03. Out of the 13 appeals before the Tribunal, 4 appeals each
were filed by the assessees namely M/s. Baldwin Boys High
School and M/s. Baldwin-Girls High School and 5 appeals were
filed by the Revenue namely ITA Nos. 1111-1115/2006. The
Tribunal allowed the appeals filed by the assessees in part and
dismissed the appeals filed by the Revenue. Hence, the Revenue
has filed the instant thirteen appeals.
2. The assessees are the Trust, which run educational
institutions. For all the relevant assessment years they declared
their income 'Nil', claiming exemption under Section 10(23c)(vi)
of the Income-tax Act, 1961 (for short 'the Act'). The assessments
completed were reopened under Section 147 on the ground that
the assessees were not registered under Section 12A nor had
requisite approval under Section 10(23C)(vi) of the Act. In
response to the notice under Section 148 of the Act, the
assessees filed returns on 18-3-2004, once again declaring their
income 'Nil'. We are not entering into further details as they are
not relevant for deciding these appeals. Suffice it to say that the
record reveals, in the first 7 appeals the total liability of tax does
not exceed Rs.23,00,000/- whereas in the remaining appeals, the
total tax liability is about Rs 18,00,000/ -. Out of the 13 appeals,
in 5 appeals the tax liability is 'NIL' and in 2 appeals, the tax
liability is less than Rs. 10,00,000/-
3. In this backdrop, the Revenue has raised the following
substantial question of law, which is common all the appeals:
"Whether on the facts and in the circumstances of the case
and in law, the notice issued by the Assessing Officer under
Section 148 of the Income Tax Act, 1961 (for short 'the Act')
without recording reasons as contemplated by sub-Section (2)
of Section 148 of the Act would vitiate the whole
proceedings? In other words, whether the reasons as
contemplated by sub-Section(2) of Section 148 of the Act, in
the present cases, were recorded after issuance of notice
under Section 148 of the Act and, therefore, the whole
proceedings are bad in law?
4. Learned counsel appearing for the parties are ad idem that if
the aforementioned substantial question of law is answered
against the Revenue and in favour of the assessees then we need
not address the other questions and hence, we have heard the
learned counsel for the parties on this question and with their
assistance gone through the orders passed by the Tribunal and
the authorities below and so also the original records placed for
our consideration.
5. Mr. Shankar, learned counsel appearing for the assessees, at
the outset, invited our attention to the provisions contained in
Section 148 of the Act and submitted that it was mandatory for
the Assessing Officer under sub-Section(2) of Section 148 of the
Act to record reasons before issuing the notice under this
provision and since the notice was issued without recording the
reasons, the whole proceedings of reopening of the assessment
would vitiate. He invited our attention to the observations made
by the Tribunal on this question and contended that this
objection could not be raised by the assessees before the
Assessing Officer since the reasons records by the Assessing
Officer, despite their written application, were not served on
them. He submitted that they got a copy of the reasons recorded
by the Assessing Officer only when the matter was carried in
appeal before the CIT (Appeals). The moment they got a copy of
the reasons, they raised objections before the CIT (Appeals)
stating that the reasons were not recorded before issuing notice
under Section 148 of the Act. The CIT (Appeals) however brushed
aside the objection holding that there was a typographical error
in respect of the date of reasons recorded under Section 148(2)
of the Act. Mr. Shankar submitted that, similar objection was
raised before the Tribunal and the Tribunal after having perused
the original records, has rightly observed that the reasons were
recorded after issuance of the notice under Section 148 of the
Act.
6. On the other hand, Mr. K.V. Aravind, learned counsel
appearing for the Revenue invited our attention to the original
records and submitted that a draft notice under Section 148 of
the Act was prepared by the Assessing Officer on 20th January,
2004 itself, which shows that the Assessing Officer had recorded
the reasons even before issuing the notice. He submitted that the
Assessing Officer struck off the typed date of the reasons since it
was wrongly typed as 4-2-2004 instead of 30-01-2004. Therefore,
he submitted that it cannot be inferred that the reasons were not
recorded before issuing notice under Section 148 of the Act. He
placed the original record before us for our perusal in support of
his contention.
7. Section 148 of the Act provides for issue of notice where the
income has escaped assessment. Sub-Section (2) of Section 148
of the Act provides that the Assessing Officer shall, before issuing
any notice under this Section, record his reasons for doing so. In
view of this provision, no dispute was raised before us about the
procedure contemplated under this provision. From bare perusal
of section 148 of the Act, it is clear as crystal that the Assessing
Officer is obliged to record reasons before issuing notice under
Section 148 of the Act. In this backdrop, we have examined the
original records placed before us by learned counsel for the
Revenue. It is true that in one of the files, there was a draft of
reasons purportedly prepared by the Assessing Officer on 20th
January, 2004. It was not signed by the Assessing Officer. The
reasons recorded by the Assessing Officer were typed, as is clear
from the printout of the original reasons, on 4-2-2004. The typed
date was struck off with pen and the date 30-01-2004 was written
by hand with the same pen. Though the original date (typed) was
struck off with pen still the typed date is visible/could be read or
is clearly seen, and it was typed as 4-2-2004. Before the Tribunal
a controversy was raised that the print out of the reasons was
computer generated and it was printed with the date of printing
automatically by the Computer. Be that as it may, the fact
remains that the typed date or the date of printout was 4-2-2004
and that it was changed to 30-1-2004 as the date of reasons
recorded under sub-Section (2) of Section 148 of the Act. Thus,
the record was set right by showing that the date of the notice
and the date on which the reasons were recorded was same. Why
and how the date 4-2-2004 is appearing on the original reasons
recorded under sub-Section (2) of Section 148 of the Act is not
explained by the Assessing Officer. Neither in the order of the
Assessing Officer nor in the order of the CIT(Appeals) an attempt
was made to explain striking off the original date and writing the
date 30-01-2004 by hand. It was possible for the Assessing
Officer to place an affidavit of the Typist on record explaining the
purported error committed by him while typing the reasons
recorded by the Assessing Officer. On perusal of the original
records, we are satisfied that the reasons were prepared on 4th
February, 2004 whereas the notice was sent on 30th January,
2004. It is also pertinent to note that the contents of draft
reasons and the original reasons recorded by the Assessing
Officer do not tally. It would be relevant to notice the
observations made by the Tribunal in paragraph 10 of the order,
which read thus:
"The original was produced by the Id. CIT(DR) in this
connection and it was observed in the open court that the
printout was generated by use of a computer. The computer
apparently filled in the date automatically. If the dates were
not filled automatically by computer, normally it would be
blank, which was not so in the instant case. The computer
printout apparently generated the date on which the reasons
recorded were printed out. Even going by the proposition that
the print could have been later on and there could have been
some material which would have been written up in hand to
suggest that the reasons were in fact recorded on 30-1-2004,
the Department failed to produce such a document. Since the
 Department produced the original printout copy by the
computer of the reasons recorded which are identical as are
filed by the assessee before us containing identical correction
by hand with no signature on the correction, it is apparent
that the reasons were not recorded at the time of issue of
notice. The Department was therefore asked to make
submission on this issue, with reference to the order of the
Tribunal in H.M. Constructions v. Asstt. CIT vide order dated
28-10-2005 in ITA Nos.1666 & 1650/Bang/2004,
ITANo.338/Bang/2005 (Page 196 to 222 of the paper book).
The Tribunal considered the facts that the assumption of
jurisdiction for reopening of assessment is based on a notice,
which itself lunged firmly on the reasons ' recorded. The
Tribunal in its decision dated 28-10-2005 drew its conclusion
from the decision of the Rajasthan High Court in CIT v.
Shivrathan Soni (2005) 194 CTR (Raj) 126, wherein the court
ruled that if the facts show that the reasons were not
recorded before the issue of notice u/s.148 but afterwards,
then the assessment is bad and has to be cancelled. The
Department did not provide any material or document that
the computer printout of the reasons recorded, though has
taken on 4-2-04, but it was based on the note containing the
reasons recorded on 30-1-04. In the instant cases too, the
date of notice is 30-1-2004 and the reasons recorded are
clearly dated 4-2-2004, i.e.,. the reasons are not recorded
before the issue of notice but afterwards, the assumption of
jurisdiction is clearly bad and accordingly the assessments
have to be quashed, which we do."
8. As a matter of fact, though the Revenue has raised the above
substantial question of law, from perusal of the order passed by
the Tribunal and so also the other materials placed before us, it is
clear that it is a finding of fact recorded by the Tribunal holding
that notice was issued even before the reasons were recorded.
We do not find any reasons to interfere with the finding of facts
recorded by the Tribunal. The reasons recorded by the Tribunal,
on the facts and in the circumstances of the case cannot be
termed as perverse.
9. In the circumstances, all the appeals are dismissed, however,
there shall be no order as to costs.
SUNIL
 *In favour of assessee.
†Arising out of order of Tribunal in IT Appeal Nos. 882 to 889
& 1114 to 1115 of 2006, dated 1-6-2007.