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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
Per Mahavir Singh, Vice President :
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-18, [CIT(A)] in ITA No.659/15-16 dated 21.06.2022. The Assessment was framed by Dy. Commissioner of Income Tax, Central Circle-II(1), Chennai for the relevant A.Y. 2006-07 vide order dated 29.12.2010 u/s. 153A r/w s. 143(3) r/w s. 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2 -: 2. The first jurisdictional issue raised by the assessee is as regards to the order of CIT(A) confirming the action of the A.O in framing re- assessment order in gross violation of the law laid down by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. v.
ITO [2002] 259 ITR 19 (SC) for non furnishing of reasons recorded.
For this, the assessee has raised following ground No.2, which reads as under:
“2.1 The CIT(A) has erroneously upheld the reassessment order passed in gross violation of the law laid down by the Hon’ble Supreme Court in GKN Driveshafts. 2.2 The A.O by his own admittance having failed to furnish the reasons recorded despite a request being made, the CIT(A) erred in upholding the order of reassessment. 2.3 CIT(A) also having noted that the objections filed by the appellant against reopening having not been disposed of by the AO by a speaking order the order of reassessment ought to have been quashed. 2.4 The CIT(A) ought to have quashed the re-assessment for the reason that no notice u/s. 143(2) of the Act was served on the appellant.”
We have heard rival contentions and gone through the facts and circumstances of the case. The brief facts of the case are that a search u/s. 132 of the Act was conducted in the case of the assessee on 26.10.2005 and consequently, notice u/s. 153A of the Act was issued. The assessee filed his return of income for the relevant A.Y 2006-07 on 04.12.2007. The original assessment was completed by the Dy. Commissioner of Income Tax, Central Circle-II(1), Chennai for 3 -: the relevant A.Y 2006-07 u/s. 153A r/w s. 143(3) of the Act vide order dated 31.12.2007. Subsequently, a notice u/s. 148 of the Act (copy of this enclosed in assessee’s paper book at page 32) dated 29.06.2009 was issued and served on the assessee for the relevant A.Y 2006-07.
The assessee replied to the notice u/s. 148 of the Act stating that the return of income filed for A.Y 2006-07 originally may be treated as return filed in respect of notice u/s. 148 of the Act. The assessee also enclosed copy of return of income along with this letter filed with the Department on 30.07.2019. The notice u/s. 148 of the Act was received by the assessee on 02.07.2009. The assessee vide the same letter requested the A.O i.e., the DCIT, Central Circle-II(1), Chennai, the reasons for reopening. The A.O was not aware about the assessee writing letter to the A.O for the simple reason that he again writes to the assessee vide letter dated 12.11.2010 that you have not responded to the notice u/s. 148 of the Act and another opportunity was given to produce the details. In response to this letter of the Department dated 12.11.2010, the assessee vide letter, which was received in the office of the A.O on 22.12.2010 again asked for reasons recorded. The relevant para 2 & 3 of the letter reads as under:
“2. The aforesaid assessment has been reopened by issue of notice u/s. 148 dated 29.06.2007 served on 27.07.2009. After receipt of notice, the assessee requested vide his letter dated nil received in the 4 -: office of the D.C.I.T Central Circle II (1) on 30.07.2009 to treat the return filed originally as having been filed in response to notice u/s. 148 and requested to provide him the reasons for re-opening the assessment. 3 The reasons for re-opening of assessments are awaited. No other statutory notices have been received by us till today.”
The A.O has neither supplied reasons to the assessee nor allowed any opportunity to raise any objection qua the reasons recorded in term of the decision of Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO, supra. Aggrieved against reassessment order, the assessee preferred appeal before CIT(A).
3. The assessee before CIT(A) also raised the issue of non supply of reasons recorded and CIT(A) has reproduced the same in para 5.1 at page 7 of his appellate order and the same reads as under:
“Non Supply of reasons recorded 1. In our submission dated 20.09.2021 filed in your honor's office on 21.09.2021, we have submitted in respect of Ground no. 2 that the ld. A.O. in spite of our specific request to provide us a copy of reasons recorded at the time of issue of notice u/s 148, the same were not provided to us. We have also made our submission during the course of assessment proceedings, which was filed in the office of the DCIT (Central Circle II (1) on 22.12.2010. A copy of the said submission is attached herewith. In this submission, we have reiterated our request to provide us a copy of reasons for reopening the impugned assessment. This also throws light on the factual position in respect of this assessment. Under the state of circumstances, we submit that the assessment framed by the ld. A.O without providing us a copy of reasons recorded is an invalid assessment. In this respect we place our reliance on the ratio laid down by the Honorable Bombay High Court in the case of CIT vs. VSNL 340 ITR 66(Bom). In this case, it has been held that if A.O fails to provide copy of reasons recorded till completion of assessment, reassessment is invalid. It has also been held by the Honorable Delhi ITAT in the case of sureshchandra vs. ITO 44 (1) (Delhi-ITAT) (2015) IT No. 3061/2012 (unreported) that failure to comply with the procedure prescribed in 5 -: G.K.N. Drive Shaft (India) Ltd. vs. ITO 259 ITR 19 (SC) renders the assessment order invalid & void ab initio.” 4. The Ld. counsel before us stated that the CIT(A) has adjudicated the issue but noted this is mere a procedural breach as the assessee was fully known about the reasons recorded and even filed objections during the reassessment proceedings and the same have been dealt by the A.O in the reassessment proceedings. The Ld. counsel referred to para 8.10 and 8.11 of the appellate order at Page 17, which reads as under:
“8.10. The appellant further contended that the AO deviated guidelines prescribed by the Hon'ble Apex Court in the case of GNK driveshaft, the Hon'ble jurisdictional HC has held that it is curative inasmuch as the objections of the appellant to the reopening was not disposed of by a speaking order. In this regard, it is relevant to note that the Hon'ble Jurisdictional High Court in the case of Home Finders Housing Ltd Vs ITO[2018] 93 taxmann.com 371(Mad.) held that non-compliance of procedure indicated by the Honble Supreme Court would not make order void or non-est and such a violation was a procedural irregularity which could be cured. As the assessee has become fully known about the reasons recorded and filed objections during the reassessment proceedings and the same have been dealt by the AO in the reassessment proceedings, the said procedural reach stood cured. Further, the appellant had several opportunities during the present appellate proceedings too. 8.11. In view of the above discussions and in the light of the relevant judicial decisions on the subject matter, I hold that the AO has correctly exercised his jurisdiction while reopening the assessment and the appellant's grounds on the jurisdictional issue of reopening are liable to be muted. Accordingly, the appellant's rounds are dismissed.”
Aggrieved, the assessee is in second appeal before the Tribunal on this very issue.
6 -: 5. The Ld. counsel for the assessee took us through the reassessment order passed u/s. 153A r/w s. 143(3) and 147 of the Act dated 29.12.2010 and read out the entire reassessment order and stated that there is no whisper about reasons recorded supplied to the assessee or any objection raised by the assessee which has been dealt with in the reassessment order. The Ld. counsel for the assessee stated that this cannot be a procedural irregularity rather this case would lead to abuse of power. For this, he relied on the decision of Hon’ble Madras High Court in the case of CIT Vs. Pentafour Software Employees Welfare Foundation [2019] 110 taxmann 69 (Mad), wherein this issue has been properly considered by the Hon’ble Madras High Court in para 36, wherein it was held that when a notice u/s. 148 of the Act was issued, the proper course of action for the assessee is to file return of income and if he so desires, to seek reasons for issuance of notice u/s. 148 of the Act. According to Hon’ble Madras High Court, the A.O is bound to furnish reasons within a reasonable time and on receipt of reasons, the assessee is entitled to file objections and thereafter, the A.O is again bound to dispose of the same by passing a speaking order. The Ld. counsel for the assessee also relied on the decision of Hon’ble Karnataka High Court in the case of PCIT Vs. V. Ramaiah [2019] 103 taxmann.com 201 (Kar.), wherein the Hon’ble Karnataka High Court has considered the 7 -: earlier decision of Hon’ble Madras High Court in the case of Home Finders Housing Ltd. v. ITO [2018] 93 taxmann.com 371/404 ITR 611(Mad).
On the other hand, the Ld. Sr. D.R heavily relied on the decision of Hon’ble Madras High Court in the case of Home Finders Housing Ltd. v. ITO, supra, wherein it was held that non supply of reasons recorded is a procedural irregularity which can be cured by remitting the matter to the A.O. The Ld. Sr. D.R heavily relied on para 18, which reads as under:
“18. The disposal of objections is in the value of a procedural requirement to appraise the assessee of the actual grounds which made the Assessing Officer to arrive at a prima facie satisfaction that there was escape of assessment warranting reopening the assessment proceedings. The disposal of such objection must be before the date of hearing and passing a fresh order of assessment. In case, on a consideration of the objections submitted by the assessee, the Assessing Officer is of the view that there is no ground made out to proceed, he can pass an order to wind up the proceedings. It is only when a decision was |taken to overrule the objections, and to proceed further with the reassessment process, the Assessing Officer is obliged to give disposal to the statement of objections submitted by the assessee.”
7. We have gone through the facts and circumstances of the case and the facts are undisputed. Admittedly, no reasons were provided by the Department to the assessee till date. The only argument of Ld. Sr. D.R is that the assessee was made aware of the reasons recorded.
This fact we are noted from the order of CIT(A). He has also recorded a finding of the fact that the assessee has fully known about the 8 -: reasons recorded and filed objections during the reassessment proceedings and the same have been dealt by the A.O in the reassessment proceedings. We have gone through the assessment order, but could not find any iota of word about the supply of reasons and consequent objection raised or disposal of objections. Now, coming to the legal aspect of the issue whether this is a procedural irregularity, which can be cured or this is void ab initio. The Hon’ble Madras High Court in the case of CIT Vs. Pentafour Software Employees Welfare Foundation, supra, has categorically held in para 36 to 41 that it is clearly void ab initio and the Hon’ble High Court has spoken in so many words as under:
“36. In our considered view, the decision arrived at in the case of Jayanthi Narayanan (supra) reflexes the correct position of law because, the procedure carved out by the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. (supra) not only binds the assessee, but also the Revenue. Filing of objections to the reasons for reopening is not an empty formality. If this is so, passing a speaking order on the objections cannot be treated as an empty formality and to be brushed aside as a procedural error. The purpose for passing a speaking order on the objections is to afford an opportunity to the assessee to question the same, in the event the assessee is aggrieved by such an order. Therefore, to state that it would be sufficient for the Assessing Officer to deal with the objections in the assessment order and thereafter, if the assessee is aggrieved, he can file a statutory appeal, is a proposition which would be against the principles of natural justice. Therefore, if an order violates the law laid down by the Hon’ble Supreme Court, then it has to be necessarily held to be an order without jurisdiction. The law declared by the Hon’ble Apex Court is a binding character and is a source of law and to itself which will bind all authorities.
We are to bear in mind that the procedure carved out in GKN Driveshafts (India) Ltd. (supra) is with a view to provide the assessee an opportunity to put forth his submission. This is in the light of the fact that reopening of a concluded assessment after a period of assessment is a very serious matter. This would be evident from the observations of 9 -: the Hon’ble Apex Court in Kelvinator of India Ltd. (supra) wherein, it was held that post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words reason to believe” failing which, Section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of mere change of opinion, which cannot be per se reason to reopen.
Further, it was pointed out that the conceptual difference between the power to review and power to reopen is to be kept in mind; the Assessing Officer has no power to review; he has the power to re- assess, but the reassessment has to be based on fulfilment of certain pre-condition and if the concept of change of opinion is removed in the garb of reopening the assessment, review would take place. It was further held that one must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer and therefore, after 01.04.1989, the Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment and reasons must have live link with the formation of the belief.
The Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. (supra) had clarified that when a notice under Section 148 of the Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek for reasons for issuing such notice. Further, it was held that the Assessing Officer is bound to furnish reasons within a reasonable time, on receipt of the reasons, the noticee is entitled to file objections and the Assessing Officer is bound to dispose of the same by passing a speaking order.
We do not agree with the interpretation canvassed before us that assuming objections were not disposed of by a speaking order, it would be only a procedural error.
We have referred to Kelvinator of India Ltd. (supra), which has pointed out as to how serious is reopening of a concluded assessment, that too, after four years. The Hon’ble Supreme Court has laid down the law and it has been made mandatory for the Assessing Officer to pass a speaking order. The use of the word bound”cannot be rendered meaningless. Therefore, we are of the clear view that if there has been a procedural error, it goes to the root of the matter thereby affecting the jurisdiction of the Assessing Officer to proceed further to give a fresh innings to the Assessing Officer on the ground that it is a procedural error, will not only dilute the decision of the Hon-ble Supreme Court in GKN Driveshafts (India) Ltd. (supra), but would lead to abuse of power conferred under Section 147 of the Act, which had been pointed out in Kelvinator of India Ltd. (supra) Therefore, this would be the one more reason to hold that the reopening of assessments are bad.”
10 -: 8. Similarly, the Hon’ble Karnataka High Court in the case of PCIT Vs. V. Ramaiah, supra, considered this aspect and also distinguished the earlier judgment of Hon’ble Madras High Court in the case of Home Finders Housing Ltd. v. ITO, supra, by considering the same in para 3 as under:
3. The learned counsel for the Revenue Mr. Sanmathi.E.I, relying upon the decision of the Madras High Court in the case of Home Finders Housing Ltd. v. ITO [2018]93 taxmann.com 371/404 ITR 611 has Submitted that this was a procedural requirement and any lapse in such compliance cannot result in the quashing of the reassessment order and the Tribunal ought to have remanded the case back to the learned assessing authority. Para 18 of the said Judgment is quoted below for ready reference: "The disposal of objections is in the value of a procedural requirement to appraise the assessee of the actual grounds which made the Assessing Officer to arrive at a prima facie satisfaction that there was escape of assessment warranting reopening the assessment proceedings. The disposal of such objection must be before the date of hearing and passing a fresh order of assessment. In case, on a consideration of the objections submitted by the assessee, the Assessing Officer is of the view that there is no ground made out to proceed, he can pass an order to wind up the proceedings. lt is only when a decision was taken to overrule the objections, and to proceed further with the reassessment process, the Assessing Officer is obliged to give disposal to the statement of objections submitted by the assessee."
The Hon’ble Karnataka High Court finally held in para 7 & 8 are as under:
The Tribunal has clearly noted in its order after looking into the record of the case that the reasons which were placed before the learned Tribunal itself only for the first time were never communicated to the assessee during the contemporary period. Mere participation of the assessee or Authorized Representative in the reassessment proceedings does not amount to the assessee being made aware or known of the reasons for such reopening. The reasons now quoted by the learned Tribunal in the impugned order clearly indicates that they are purportedly detailed reasons and had the assessing authority given the said reasons before hand, the assessee could have raised objections before the assessing authority and the assessee could have rebutted the material on the basis of which the impugned reassessment 11 -: proceedings were undertaken by the assessing authority. The assessee in the present case twice made a request to the assessing authority, but despite the specific requests, the assessing authority did not comply with the said request and supplied the reasons to the assessee. That casts a doubt even on fact of the recording of the reasons in the contemporary period by the assessing authority. The fact that such reasons are supplied before the learned Tribunal only for the first time was enough for by the learned Tribunal to hold that in view of the decision of the Hon'ble Supreme Court, the assessing authority lacked the jurisdiction in invoking the reassessment proceedings and therefore, the impugned reassessment order deserves to be quashed.
The decision relied upon by the learned counsel for the Revenue is distinguishable on facts. The order which was to be passed by assessing authority as preliminary objection of assessee, once the assessee has raised the objection to such reassessment proceedings, the meeting of such objections in the main reassessment order, could be procedural aspect of the matter but the recording of the reasons before the Initiation of the reassessment proceedings and communication thereof to the assessee is sine qua non, as held by Hon'ble Supreme Court and that goes to the root of the matter and confers or deprives the assessing authority of the jurisdiction to undertake such reassessment proceedings, as the case may be.”
In view of the above legal position as Hon’ble Madras High court in the case of CIT Vs. Pentafour Software Employees Welfare Foundation, supra, held that violation of law laid down by Hon’ble Supreme Court is not a procedural error because the word “bound” would be rendered meaningless if it is held to be procedural error and it would lead to abuse of power and such a construction would dilute the decision in the case of GKN Driveshafts (India) Ltd. v. ITO, supra.
Hence, we hold that the non supply of reasons till the Appellate Tribunal stage vitiate the assessment proceedings and hence, void ab initio and bad in law. Hence, we quash the reassessment order and set aside the order of CIT(A) and the appeal of the assessee is 12 -: allowed in term of the above on this very jurisdictional issue. Needless to say that the assessee has raised other facets on this jurisdictional issue as well as issues on merits, since we have quashed the reassessment on this very jurisdictional issue, we need not to go into other aspects of the matter.
In the result, the appeal of the assessee is allowed.
Order pronounced on 31st January, 2023.