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आदेश/Order
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order dated 15.03.2019 of the Commissioner of Income Tax (Appeals)-3, Ludhiana [hereinafter referred to as ‘CIT (A)’]
The assessee in this appeal has taken following grounds of appeal:-
1. That the Ld. CIT(Appeals)-3 Ludhiana has erred in upholding the order of the learned A0 u/s 143(3) r.w.s. 147 without -Chd-2019 Rakesh Kumar Khanna, HUF, Panchkula 2 supply of reasons to believe recorded u/s 147/ 148 of the Income Tax Act, 1961 inspite of specific request during assessment proceedings. Hence the proceedings initiated u/s 147/148 of the Act be quashed.
2. That the Ld. CIT(Appeals)-3 Ludhiana has erred in upholding the order of the learned A 0 inspite of the objection of the appellant that the sanction of the Pr. CIT Panchkula under Section 151(1) of the Act is in a mechanical manner and is on the dotted lines and there is no application of mind by the sanctioning authority and as such sanction taken is no sanction in the eyes of law.
3. That the Ld. CIT(Appeals)-3 Ludhiana has erred in upholding the order of the learned AO inspite of the objection of the appellant that no reasons to believe were supplied by the learned A 0 within the stipulated period of 6 years under Section 148 of the Income Tax Act, 1961. Hence the order is quashed.
4. That the Ld. CIT(Appeals)-3 Ludhiana has erred in upholding the order of the learned Assessing Officer as the learned A0 has failed to apply his mind and carry out any independent verification/ inquiry on receipt of information from Dl Wing, Ahmadabad before recording of the reasons which is a mandatory condition and as such the assessment framed is illegal, arbitrary and unjustified and the addition made on this basis is deleted.
5. That the Ld. CIT(Appeals)-3 Ludhiana has erred in upholding the order of the learned Assessing Officer as the learned A 0 has failed to provide the details of Rs.4,78,318/- on account of client code modification during the assessment proceedings.
6. That the appellant reserves the right to add, amend or delete one or more of the grounds of appeal before the appeal is disposed off.
-Chd-2019 Rakesh Kumar Khanna, HUF, Panchkula 3 3. The assessee in this appeal inter alia has contested the validity of the reopening of the assessment on the ground that despite the request there to, the assessee was not supplied the reasons recorded by the Assessing officer for reopening of the assessment, thereby, the Assessing officer deprived the assessee from filing the objections against the reopening of the assessment.
5. At the outset, the Ld. counsel for the assessee has invited our attention to the impugned order of the CIT(A) to submit that the assessee had taken this plea of non-supplying the reasons recorded before the Ld. CIT(A) also, however, Ld. CIT(A) brushed aside the plea of the assessee on the ground that the copy of the application of the assessee for supply of reasons was not on the record. The Ld. Counsel for the assessee has invited our attention to page No. 9 of the paper book which is the copy of the application of the assessee to the Assessing officer demanding the detailed reasons recorded by the Assessing officer to form the belief that the income of the assessee had escaped assessment. The Ld. Counsel has further invited our attention to page No.9A of the paper book, whereby, information sought on a query raised, the Income Tax officer has informed as under:-
“After receiving the above directions, the inward DAK Register was checked and found that the DAK is entered at Sr. No. 211 on 28.04.2016 which was received from Rakesh Kumar Khanna, H.No., 415, Sector 7, Panchkula and the subject matter is “notice u/s 148 for the A.Y 2009-10”.
-Chd-2019 Rakesh Kumar Khanna, HUF, Panchkula 4 But the DAK entered in receipt register at Sr. No. 211 dated 28.04.2016 is not available on record. Hence, could not be supplied to the Applicant.”
The Ld. Counsel, therefore, has submitted that the Department has admitted the receipt of the application of the assessee for supply of the reasons recorded to enable the assessee to file objections. The Ld. Counsel has submitted that the principle of natural justice have been violated in this case as the assessee has been prevented to file objections against the reopening of the assessment. The Ld. counsel in this respect has relied upon the decision of the Hon'ble Supreme Court in the case of ‘GKN Driveshafts (India) Ltd. Vs. ITO & Ors’ (2003) 259 ITR 19( SC) and further the decision of the Hon'ble Bombay High Court in the case of ‘Asian Paints Ltd Vs. DCIT’ (2008) 296 ITR 90 (Bombay). The Ld. counsel has further submitted that the allegation against the assessee were that the assessee had manipulated his income by shifting-in-losses and shifting-out-profits amounting to Rs. 4,78,318/- through the broker by way of manipulation of client code.
However, the assessee had never indulged in any such practice and that there was no contrived profit / loss and there was no escapement of income. Even during the assessment proceedings, the Assessing officer has not mentioned any transaction in which the assessee had done any such malpractice, as alleged. The Ld. Counsel has submitted that even the Ld. PCIT did not apply his mind while according section for -Chd-2019 Rakesh Kumar Khanna, HUF, Panchkula 5 reopening of the assessment and he gave sanction in a mechanical manner. He, therefore, has submitted that the reopening of the assessment in this case was bad in law.
The Ld. DR On the other hand has relied on the findings of the lower authorities.
We have heard the rival contentions and gone through the record.
It is evident on the file that in this case the Assessing officer on the basis of the report of the Investigation Wing recorded the reasons that the assessee had manipulated the profits in share transactions by shifting client code through his broker. However, we find that in the reasons recorded, no details of such transactions has been mentioned, wherein, the assessee allegedly shifted the client code to manipulate profits / losses. The Assessing officer simply relied on the report of the Investigation Wing, which was a general report without co-relating with the same to the assessment record. The assessee was never supplied the reasons recorded for reopening of the assessment despite written request made by the assessee. The assessee, therefore, was prevented from filing the objections against the reasons recorded for reopening of the assessment. Even the Ld. CIT(A) also brushed aside the aforesaid plea of the assessee and did not give opportunity to the assessee to file objections against the reopening of the assessment. The Hon'ble -Chd-2019 Rakesh Kumar Khanna, HUF, Panchkula 6 Supreme Court in the case of ‘GKN Driveshafts (India) Ltd. Vs. ITO & Others’ (supra) has also held as under:- “that when a notice under Section 148 of the Income tax Act is issued, the proper course of action for the assessee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the assessee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. After disposing of the objections, if filed, by passing a speaking Order then the assessment procedure has to be followed”.
Thus, the Hon'ble Supreme Court in clear terms has held that the Assessing officer is bound to furnish reasons within a reasonable time to the assessee and on receipt of reasons the assessee is entitled to file objections and the Assessing officer is bound to dispose of the same by passing a speaking order. The Hon'ble Bombay High Court in the case of ‘Asian Paints Ltd Vs. DCIT’ (supra) has held as under;-
“4. Hence, we make it clear that if the Assessing officer does not accept the objections so filed, he shall not proceed further in the matter within a period of four weeks from the date of receipt of service of the said order on objections, on the assessee.
Accordingly, rule is made absolute.”
In the light of the aforesaid proposition of law laid down by the Hon'ble Supreme Court and by the Hon'ble Bombay High Court in the case of ‘Asian Paints Ltd Vs. DCIT’ (supra), the principles of natural justice have been violated by the Assessing officer in not supplying reasons recorded for reopening of the assessment. The assessee has been -Chd-2019 Rakesh Kumar Khanna, HUF, Panchkula 7 prevented from filing objections against the same which the Assessing officer otherwise was required to dispose of by way of a speaking order.
Even the Hon'ble Bombay High Court has held that the Assessing officer should not proceed with the assessment for a period of four weeks, if the objects are decided against the assessee so that the assessee may be able to challenge the same before the higher forum.
Under the circumstances, the reopening of the assessment in this case is bad in law. Further, we note that the Ld. PCIT has also accorded the sanction for reopening of the assessment in a mechanical manner without application of mind. It has been held time and again by the various Courts that the Ld. PCIT is supposed to apply his mind and accord sanction by way of a speaking order. Reliance in this case can be placed on the order of the Hon'ble Madhya Pradesh High Court in the case of ‘CIT vs S. Goyanka Lime & Chemicals Ltd.’ (2015) 231 Taxman 0073 (MP).
In view of the above discussion, the assessment framed by the Assessing officer is held to be bad in law and the same is accordingly quashed.
The appeal of the assessee stands allowed.
Order pronounced on 07.12.2021.