IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27 TH DAY OF JULY 2015 PRESENT THE HON'BLE MR. JUSTICE VINEET SARAN AND

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1 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27 TH DAY OF JULY 2015 PRESENT THE HON'BLE MR. JUSTICE VINEET SARAN AND THE HON BLE MR. JUSTICE A.V.CHANDRASHEKARA BETWEEN ITA NO.374/2014 C/W ITA NO.376/ THE COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, C.R. BUILDING, QUEENS ROAD, BANGALORE. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2(1), C.R.BUILDING, QUEENS ROAD, BANGALORE. (BY SRI. K.V. ARAVIND ADV ) AND... APPELLANTS (COMMON) M/S MOOKAMBIKA DEVELOPERS, NO.14, LAKSHMI COMPLEX, 3 RD CROSS, JOURNALIST COLONY, BANGALORE RESPONDENT (COMMON) (BY SRI S. PARTHASARATHI-ADV)

2 2 ITA NO.374/2014 IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961 PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BANGALORE IN ITA NO.1314/BANG/2013 DATED CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(1), BANGALORE. ITA NO.376/2014 IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961 PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BANGALORE IN ITA NO.1632/BANG/2012 DATED CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(1), BANGALORE. THESE APPEALS COMING ON FOR ADMISSION THIS DAY, VINEET SARAN.J. DELIVERED THE FOLLOWING: JUDGMENT The assessee is a partnership firm. It is engaged in the business of Real Estate. For the assessment year the assessee filed its return of income which was accepted under Section 143(1) of the Income Tax Act (for short the Act ). Thereafter survey under Section 133A of the Act was conducted in the premises of the assessee and subsequently a notice for reopening under Section 148 of the Act was issued on The Assessing Officer, by order dated , made an

3 3 addition of Rs.53,00,000/- after disallowing the genuineness of the compensation of Rs.1,65,00,000/- alleged to have been paid by the assessee to certain parties for vacating the property. Challenging the said order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) which confirmed the validity of reopening under Section 147 of the Act. However, the Appellate Commissioner did not accept the addition of Rs.53,00,000/- and disallowed only 20% of the total payment of Rs.1,65,00,000/- under Section 40A(3) of the Act. 2. Challenging the order of the Appellate Commissioner confirming the validity of reopening for the assessment under Section 148 of the Act, the assessee preferred an appeal before the Tribunal. The Revenue also preferred a separate appeal against the order of the Appellate Commissioner contending that the disallowance made by the Appellate Commissioner under Section 40A(3) of the Act was wrong and the disallowance to the extent of Rs.53,00,000/- as made by the Assessing Officer ought to have been maintained. By the impugned order dated , the

4 4 Tribunal held that the reopening of the assessment was bad in law as, according to the Tribunal, unless the Assessing Officer has made any addition on the issue of which satisfaction was recorded for reopening of assessment, other issues could not have been looked into, though the same may have come to the notice of the Assessing Officer during the course of reassessment proceedings. Aggrieved by the said order of the Tribunal, these two appeals have been filed by the Revenue. 3. Appeal No.374/2014 has been filed primarily on the ground that the merits of the case have not been looked into by the Tribunal and Appeal No.376/2014 has been filed by the Revenue challenging the order of the Tribunal whereby it has been held that the reopening of assessment was invalid. 4. In Appeal No.376/2014 the following substantial question of law arises for consideration :- Whether on the facts and in the circumstances and in law, the Tribunal was correct in holding that the reopening of assessment under Section 147 of the Act is bad in law as no

5 5 addition was made by the Assessing Officer with reference to the reasons recorded for reopening of assessment. 5. In ITA No.374/2014 the following substantial question of law, which is numbered as question No.2, arises for consideration :- Whether on facts and in the circumstances of the case, the Tribunal was correct in not examining the merits of the matter regarding the genuineness of the expenditure claimed towards compensation paid for vacating the premises after adjudicating the appeal filed by the assessee regarding validity of the assessment made under Section 147 of the Act and recorded a perverse finding. 6. We have heard Sri.K.V.Aravind, learned counsel for the Revenue in both the appeals as well as Sri.S.Parthasarathi, learned counsel appearing for the assessee in both the appeals at length and have perused the records. With consent of the learned counsel for the parties, these appeals are being heard and decided at the admission stage.

6 6 7. The question as to whether the Tribunal would be correct in upholding reassessment proceedings when the reasons recorded for reopening of proceedings under Section 148 of the Act itself does not survive? was considered at length by a Division Bench of this Court in I.T.A.No.504/2013 (N.Govindaraju vs Income Tax Officer) decided on In the said judgment, after considering the decisions of the Punjab and Haryana High Court in the case of Majinder Singh Kang Vs CIT (2012) CIT 344 ITR 358 & CIT Vs Mehak Finvest Pvt. Ltd. (2014) 367 ITR 769 as well as the judgment of the Bombay High Court in the case of CIT Vs Jet Airways (I) Ltd. (2011) 331 ITR 236 and several other judgments rendered by the Supreme Court and various High Courts, it was held that :- 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 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 Section

7 7 147 (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. 8. We have no reason to differ with the view taken by the Coordinate Bench of this Court in the case of Govindaraju vs Income Tax Officer cited supra, and thus we answer the first question in favour of the Revenue and against the assessee. 9. As regards the second question, in view of the answer of the first question being in favour of the Revenue, the second question need not be answered, as the matter has to be remanded back to the Tribunal for fresh consideration of the Assessment Order on merits.

8 8 10. As such, in view of the aforesaid, the appeals stand allowed to the extent as indicated above, and the matter is remanded to the Tribunal for fresh decision, in accordance with law. No order as to costs. Sd/- JUDGE Sd/- JUDGE rs