Income Tax Appeal No. 148 of 2004 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ---- Income Tax Appeal No. 148 of 2004 Date of decision: 8.11.2010 J.R. Ahuja --- Appellant Versus Commissioner of Income Tax Patiala --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL ---- PRESENT: Mr. Pankaj Jain, Advocate for the appellant. Mr. Yogesh Putney, Central Govt. Standing Counsel for the respondent. ---- AJAY KUMAR MITTAL, J. This order will dispose of Income Tax Appeal Nos. 148 of 2004 and 435 and 436 of 2006, as similar questions have been claimed therein. The facts have, however, been taken from Income- Tax Appeal No. 148 of 2004. This appeal under Section 260A of the Income-tax Act, 1961 (for short “the Act’”) has been filed by the assessee against the order dated 10.12.2003, passed by the Income Tax Appellate Tribunal, Chandigarh Bench (A), Chandigarh (in short “the Tribunal”) in ITA No. 411/CHANDI/98 in respect of the assessment year 1993-94. Income Tax Appeal No. 148 of 2004 2 The assessee has claimed the following questions for determination by this Court: 1(a) Whether under the facts and circumstances of the case the Tribunal and the authorities below were justified in not adjudicating the legal ground of appeal challenging the very issuance of notice u/s 148 being bad in law which goes to the foundational aspect of the dispute? (b) Whether under the facts and circumstances of the case the assessment made u/s 148 was justified without having communicated the reasons recorded for initiating and completing the reassessment proceedings. 2. Whether under the facts and circumstances of the case the tribunal was justified in upholding the addition on the wrong and mis-appreciation of arguments and evidence by having adopted the wrong assumption of facts and devoid of legal force to stand. 3(i) Whether under the facts and circumstances of the case and on the true and correct interpretation of the facts and evidence the tribunal was justified in upholding the addition on the estimated basis relying on the documents and material not having reasonable and rational nexus with the additions made. (ii) Whether under the facts and circumstances of the case the Tribunal was justified in upholding the addition by making multiplication of the receipts being dehors the material available. Income Tax Appeal No. 148 of 2004 3 (iii) Whether under the facts and circumstances of the case and on the true and correct interpretation of the facts and evidence the tribunal was justified in relating back the documents for upholding the addition on the basis of statement taken 4 years later than the completed and concluded assessment. Briefly stated, the facts necessary for adjudication as narrated in the appeal are that the appellant-assessee is a Lecturer and derives income from salary, interest accrued on the deposits made and also a small income from royalty from the books. His wife is a teacher in Government School. On 12.5.2004, the premises of the appellant were searched by the income tax authorities in the wake of an allegation that he was engaged in giving private tuitions and had an additional income there from which he had not been declaring in the return of income. Certain documents were seized during the course of the search of the premises. On the basis of that material, and after complying with the requirement of issue of notice under Section 148 of the Act, the assessing officer vide order, Annexure A-3, made additions to the income of the assessee for the assessment years, 1991-92, 1992-93 and 1993-94, which are as under: Assessment Year Additions made by Assessing Officer Addition sustained by CIT (A) Addition upheld by the Tribunal 1991-92 69,400 17,150 34,700 1992-93 1,72,000 43,000 86,000 1993-94 2,00,000 49,450 98,900 Income Tax Appeal No. 148 of 2004 4 The matter went up to the Commissioner of Income Tax (Appeals), [hereinafter referred to as “CIT(A)”]. The said appellate authority partly upheld the order of the assessing officer, vide order dated 28.1.1998, Annexure A-2. The Revenue and the appellant- assessee preferred appeals before the Tribunal. The Tribunal while partly allowing the appeal of the Revenue ordered the addition of Rs. 98,900/- as against Rs. 49,450/- sustained by CIT(A), which the appellant is now disputing in this appeal, alleging that the same was without any basis or material on record. The Tribunal dismissed the appeals of the assessee whereas partly allowed those preferred by the Revenue, vide order dated 8.8.2002, Annexure A-4. This is how the assessee is in appeal before us. We have heard learned counsel for the parties and perused the record A perusal of the order of the Tribunal in Income Tax Appeal No. 148 of 2004 relating to assessment year 1993-94 clearly shows that the assessee had not challenged the validity of reassessment proceedings under Section 148 of the Act before the Tribunal and, therefore, question No.1 does not arise in this appeal. However, the assessee in the appeals relating to assessment years 1991-92 and 1992-93 had filed miscellaneous application under Section 254(2) of the Act claiming that the argument regarding validity of reassessment proceedings had not been adjudicated by the Tribunal. Thereupon, the Tribunal after considering the submissions of the respective parties had rejected the plea of the assessee vide order dated 9.5.2005. Examining the validity of the reassessment proceedings under Section 148 of the Act, it is noticed Income Tax Appeal No. 148 of 2004 5 that the Tribunal had held the same to be justified with the following observations:- “After hearing the rival submissions and perusing the order of tax authorities and the case law cited by the assessee, we are of the considered view that there is force in the plea of the revenue that the AO has acted on a bona fide belief. The AO’s action is based on the surrounding circumstances like infrastructures, class rooms, statements of students, list of students etc. Therefore, the assumption of jurisdiction was on the basis of material existing on record and there was sufficient material to enable the AO to believe that the income has escaped assessment. In the case of Praful Chunilal Patel: Vasant Chunilal Patel v. ACIT, reported in 236 ITR 832, it was observed that at the initial stage, formation of reasonable belief is needed and not a conclusive finding on the facts. The provisions of Section 147 require that the AO should have reason to believe that any income chargeable to tax has escaped assessment. The word ‘reason’ in the phrase ‘reason to believe’ would mean cause or justification. If the AO has a cause or justification to think or suppose that income had escaped assessment, he can be said to have a ‘reason to believe’ cannot mean that the AO should have finally ascertained the facts by legal evidence. In the said case, the Hon’ble Gujarat High Court held that the question of non- assessment of an item of income can warrant formation Income Tax Appeal No. 148 of 2004 6 of requisite belief u/s 147. In the case of Devgon Rice and General Mills v. CIT, reported in 263 ITR 391 (Pb & Hr) a writ petition challenging validity of proceedings u/s 147 was dismissed as the information given by the assessee at the time of assessment was later on found to be false. In the said case, reliance was placed on the case of Narayanappa (S) v. CIT, reported in 63 ITR 219 (SC), wherein it was opined that if there are in fact some reasonable ground for the ITO to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of under- assessment, that would be sufficient to give jurisdiction to the ITO to issue notice. Therefore, in view of the above discussion and the case law discussed above, we have no hesitation in dismissing the common ground of appeal in both the years.” It is undisputed that during search and seizure operation at the premises of the assessee on 12.5.1994, incriminating material, particularly, Annexure A-20 was found which depicted that assessee was engaged in imparting tuition to students for consideration and was not disclosing the income therefrom to the Department. In this back ground, the plea of the assessee challenging validity of reassessment proceedings is unsustainable. The Tribunal was, thus, right in upholding the reassessment proceedings to be valid. The next point for consideration in these appeals is, whether the additions sustained by the Tribunal on account of undisclosed tuition fee is legal and valid? Income Tax Appeal No. 148 of 2004 7 The Tribunal while sustaining the addition as noticed earlier had recorded the following findings in para 9 of its order:- “We have heard both the parties at some length and carefully considered the rival submissions. We have also examined the facts, evidence and material on record. We have also referred to the relevant pages of the paper book to which our attention has been drawn. Similar issue came up before the Tribunal for the Assessment years 1991-92 and 1992-93. The assessee had made submissions that it did not provide coaching for commercial considerations but he only provided coaching to some brilliant students. These submissions were considered by the Tribunal but were rejected. The finding of the CIT(A) that the assessee must have provided coaching to 50% students free of cost, was also not accepted. However, referring to the two statements of the parents of the students who availed of such coaching from the assessee, upheld the estimate of income @ Rs. 150/- per month per student in respect of 10+2 and 10+1 students and also of Rs. 400/- per month per student for PMT and CET test. In this manner, the orders of the CIT(A) were modified and income for the Assessment year 1992-93 was confirmed at Rs. 86,000/-. Relevant finding of ITAT’s order dated 8.8.2003 as recorded in paras 6 & 7 of the aforesaid order are as under: Income Tax Appeal No. 148 of 2004 8 6. We have heard both the parties at some length and carefully considered their rival submissions. We have also examined the facts, evidence and material on record. We have also referred to Annexure A-20 seized during the course of search, which does show that the assessee did undertake tuition work during the accounting years under reference on regular basis. It would be relevant to refer to the noting made in the said document as under: (i) Pages 1 & 3 contain the names of 20(10+2) students during the period from June, 90 to Aug. 90. (ii) Page 4 contains the names of 16 students of (10+2) with a noting that “to report on Ist December, 1990 at 7.15 a.m.” (iii) Pages 6 to 8 contain the names of 23 students of 10+1) who were to report on 1.12.90 at 3.30 p.m. (iv) Pages 11 & 12 contain the names of 17 students for PMT/CET tests and date indicated is 7.3.91. These relate to assessment year 91-92. (v) Pages 13 & 14 contain the names of 33 students of (10+2) (boys group) from 22nd May, 1991 at 6.30 p.m. (vi) Page 15 also mentions the names of two waitlisted students. Income Tax Appeal No. 148 of 2004 9 (vii) Pages 16 & 17 contain the names of 27 students of (10+2) (girls groups) from May 22, 1991 at 7.30 a.m. (viii) Pages 18 and 19 contain the names of 26 students (10+2) from Nov. 1, 1991 at 3.45 p.m. (ix) Pages 20 & 21 contain the names of 24 students in respect of tuition to start from 23.10.91 at 8.30 a.m. (x) Page 23 also mentions the name of one waitlisted student. (xi) Pages 24 & 25 contain the names of 16 students of 10+2 for classes to start from Nov. 1991 at 8.30 a.m. (xii) Pages 26 & 27 contain the names of 23 students of 10+1) for coaching to start from 23.10.91 at 8.30 a.m. (xiii) Pages 28 to 30 contain the names of 38 students of 10+1 for coaching from 15.5.91. (xiv) Page 31 also contains the names of some students directed to report on 14th May 1991 at 8.30 a.m. (xv) Page 32 contains the names of 26 students for CET/PMT tests. (xvi) Pages 34 & 35 contain the names of some other 10+2 and 10+1 students for coaching to start in June, 1991. The details mentioned at Sr. Nos. (v) to (xvi) relate to assessment year 1992-93. Thus from the details noted above in the seized document, Annexure A- Income Tax Appeal No. 148 of 2004 10 20, it is clear that assessee had been carrying on tuition work at a large scale even in the accounting year relevant to assessment years 1991-92 and 1992-93. The submission of the assessee that he undertook such work for coaching some brilliant students is without any merit. No evidence to this effect has been produced either before the authorities below or even before us. Therefore, on the basis of such documents, seized from the residence of the assessee, income has to be estimated by applying a reasonable rate of tuition fee per month. We also do not find any justification for considering only those students against whom “P” was noted. The assessee was not running a charitable institution. Therefore, it is reasonable to believe that assessee must have charged fee from each student when in fact some of the students were shown as waitlisted. Thus, we do not find any justification for the CIT(A) to sustain the addition only in respect of students against whom letter “P” was marked. The AO had referred to such noting i.e. “P” to demolish the contention of the assess that assessee had given coaching only to brilliant students without any commercial consideration. However, while estimating income, the AO has considered number of students recorded in document Annexure A-20. The extent and number Income Tax Appeal No. 148 of 2004 11 of students found recorded in Annexure A-20 clearly show that assessee was carrying on tuition work for commercial consideration. Thus, in the absence of any evidence, the CIT(A) was not justified in reducing the addition only in respect of students against whom “P” has been marked and treating the balance as ex-gratia. We, therefore, set aside the finding of CIT(A) in this regard and restore that of the AO for estimating the income in respect of all students listed in seized document, Annexure A-20. However, the estimate made by the AO by taking the fee @ Rs. 300 p.m. per students in respect of 10+2 and 10+1 students and also fee of Rs. 800/- p.m. per student in respect of CET/PMT tests appears to be on the higher side. We find that during the course of assessment proceedings, the AO recorded the statement of Shri R.S. Bhatti, father of Shri Shivdeep Singh, a student of 10+2 class who undertook tuition from the assessee. The statement is at page 35 of the paper book. His father replied that he had paid Rs. 900/- to Shri Ahuja for tuition of his son. The period for which such coaching was provided is not known. Admittedly, such coaching must have been for a period of three months. The AO also recorded the statement of Shri Kirpal Singh, father of Shri Jagdeep Singh, a student of 10+2 class who Income Tax Appeal No. 148 of 2004 12 received coaching from the assessee in the year 1993. He stated that he had paid an amount of Rs. 525/- for three months @ Rs. 175/- per month. His statement is at page 38 of the paper book. It is obvious that these students undertook tuition from the assessee in the subsequent period. Therefore, the assessee must have charged either the same amount or lower amount in the earlier assessment years for which the CIT(A) was justified in reducing the addition to 50% i.e. Rs. 150/- p.m. in respect of 10+2 and 10+1 students and @ Rs. 400/- per month in respect of CET/PMT tests. Thus, we sustain the order of CIT(A) to the extent estimating the income by taking the order of CIT(A) to the extent estimating the income by taking the tuition fee at 50% i.e. Rs. 150/- p.m. per student in respect of 10+2 and 10+1 students and also fee of Rs. 400/- p.m. per student for PMT/CET tests. Thus, we modify the orders of CIT(A) and sustain 50% of additions i.e. Rs.34,700/- and Rs. 86,000/- for assessment years 91-92 and 92-93 respectively as against additions sustained of Rs. 17,300/- and Rs. 43,000/- respectively by ld. CIT(A). Accordingly, while the grounds of appeals of the revenue are partly allowed, the grounds of appeals of the assessee are dismissed.” Income Tax Appeal No. 148 of 2004 13 7. Before parting with these appeals, we wish to mention that the ld. Counsel for the assessee relied on the two decisions of ITAT, Chandigarh Bench in the cases of Shri Beant Singh, Professor, Patiala v. ACIT Inv. Circle-1, Patiala in I.T.A. Nos. 1244/Chandi/96 etc. for the assessment years 91- 92, 92-93 and 95-96, and ACIT, Inv. Circle-1, Patiala v. S.B. Mangla, Lecturer, Patiala in I.T.A. Nos. 1025/Chandi/96 etc. for the assessment years 93- 94, 90-91, 92-93, 94-95. We have referred to both the decisions. In the case of ACIT, Inv. Circle-1, Patiala vs. S.B. Mangla, Lecturer, Patiala in I.T.A. Nos. 1025/Chandi/96 etc. for the assessment years 93-94, 90-91, 91-92, 92-93, 94-95, the Tribunal confirmed the order or learned first appellate authority in deleting the addition for the assessment years 90-91 to 92-93 on the ground that during the course of search no material was found to show that assessee was carrying on tuition work in those assessment years. The present cases are clearly distinguishable inasmuch as during the course of search itself documents were seized which indicated that assessee was carrying on tuition work in these assessment years. Similarly, in the case of Shri Beant Singh, Professor, Patiala v. ACIT, Inv. Circle-1, Patiala in I.T.A. Nos. 1244/Chandi/96 supra, the assessee had himself Income Tax Appeal No. 148 of 2004 14 disclosed an amount of Rs. 25,000/- each for the assessment years 91-92. During the course of search no material was found to show that the assessee was undertaking such tuition work in the accounting year relevant to assessment years 91- 92 and 92-93. Therefore, the order of ld. CIT(A) in deleting the additions was upheld. But in the present cases, seized document clearly shows that the assessee was carrying on tuition work on regular basis in the assessment years under reference. Therefore, the ratio of both the decisions relied upon by the ld. counsel is not applicable to the facts of the present case. The facts of the case for Assessment year 1993-94 are similar to the facts of the case for Assessment years 1991-92 and 1992-93 except that for the Assessment year under reference the AO and the CIT(A) have taken the increase in such income by 15%. Since the tuition income for the Assessment years 1992-93 was confirmed by the Tribunal at Rs. 86,000/- and after taking into account 15% increase over the Assessment year 1992- 93, total account for the Assessment year 1993-94 from tuition work would work out to Rs. 98,900/- (i.e.Rs. 86,000/- +15%). Thus modifying the order of CIT(A) we sustain the addition of Rs. 98,900/- for the Assessment year 1993-94 as against addition of Rs. 49,450/- sustained by the CIT(A). Thus, while the ground of Income Tax Appeal No. 148 of 2004 15 appeal of the assessment for Assessment year 1993-94 is rejected, ground of appeal of the revenue is partly allowed.” The Tribunal on appreciation of material on record by relying upon document Annexure A-20 which was seized during search and seizure at the premises of the assessee on 12.5.1994, had concluded that the assessee had undisclosed income from tuition work and the additions to the extent noticed in the order on that account was justified. Nothing could be shown that the aforesaid findings recorded by the Tribunal were erroneous or perverse which may warrant interference by this Court in exercise of its jurisdiction under Section 260A of the Act, particularly, when the assessee did not dispute the existence of Annexure A-20. The only effort of the learned counsel for the assessee was to re-appreciate the material on record and to adjudicate the matter in favour of the assessee. This does not fall within the domain of Section 260-A of the Act. The Tribunal has taken a plausible view on the basis of evidence on record. Accordingly, finding no merit in the appeal, the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) November 8, 2010 JUDGE *rkmalik* Income Tax Appeal No. 148 of 2004 16