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Income Tax Appellate Tribunal, DELHI “SMC” BENCH: NEW DELHI
Before: SHRI CHANDRA MOHAN GARG
ORDER
PER CHANDRA MOHAN GARG, JM :
This appeal filed by the assessee against the order of Ld. CIT(A)-7, New Delhi in Appeal No.10153/144/CIT(A)-7/Del/2017-18 dated 20.08.2018 for the assessment year 2010-11.
The grounds raised
by the assessee are as follows:- 1. “On the facts and in the circumstances of the case, the Appellant prays that the order passed is bad in law as well as on facts of the case.
2. That the Appellant prays that the order passed is also erroneous, illegal & against the principles of natural justice & equity.”
Ld.AR for the assessee drawing our attention towards summary of assessment proceedings available at pages 4 & 5 of the assessee’s Paper Book, submitted that the Assessing Officer (“AO”) issued notice u/s 148 of the Income Tax Act, 1961 (“the Act”) on 30.03.2017 and in response to the same, the assessee filed return of income declaring income of Rs.NIL on 28.04.2017. The Ld.AR for the assessee further submitted that on 19.07.2017, the AO issued notice u/s 143(2) of the Act fixing the date of hearing on 26.07.2017 and thereafter, on 04.08.2017, the AO issued notice u/s 142(1) of the Act fixing the date of hearing on 11.08.2017 and the assessee submitted letter asking for reasons recorded for initiating reassessment proceedings u/s 147 of the Act. The Ld.AR for the assessee further submitted that as per letter dated 18.08.2017 available at page 9 of the assessee’s paper book, the assessee again requested to supply copy of the reasons recorded by the AO which were provided to the assessee on 14.09.2017. Ld.AR for the assessee further pointed out that on 09.10.2017, the AO again issued notice u/s 142(1) of the Act fixing the date of hearing 16.10.2017. The assessee complied with the said notice within one day and submitted objection to the reasons recorded and initiation of reassessment proceedings vide letter dated 10.10.2017 available at pages 13 & 14 of the assessee’s Paper Book. Ld.AR for the assessee further pointed out that on 18.10.2017, the AO without any further intimation and without disposing the objection filed by the assessee, complied the assessment and passed assessment order u/s 147/144 of the Act without affording the opportunity of being heard to the assessee.
4. Placing reliance on the various judgments including judgment of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs ITO & Ors. Reported as [2002] Supp (4) SCR 359. Ld. Counsel for the assessee submitted that the AO has to dispose the objection if file, by passing a speaking order before proceeded with the assessment in respect of the relevant assessment year. Ld.AR for the assessee further submitted that non- 2 | P a g e compliance of such requirement as per the said judgement of the Hon’ble Supreme Court, the assessment order has to be held as void ab-initio of any law and deserves to be quashed. Ld.AR for the assessee also placed reliance on the judgement of Jurisdictional High Court of Delhi in the case of SABH Infrastructure Ltd. Vs ACIT in W.P.(C) 1357/2016 vide order dated 25.09.2017, submitted that AO had not supplied reasons to the assessee alongwith the notice u/s 148 of the Act and the same was provided to the assessee after issuing notice u/s 143(2) and 142(1) of the Act at the very belated stage on 14.09.2017 therefore, impugned re-assessment order has to be held as bad in law and deserves to be quashed.
Replying to the above, apropos to Ground Nos. 1 & 2 of the assessee, Ld. Sr. DR strongly supported the impugned reassessment order as well as first appellate order and submitted that admittedly, copy of the reasons recorded by the AO was provided to the assessee on 14.09.2017 and no prejudice has been caused to the assessee as it received the reasons recorded by the AO for initiation of assessment proceedings u/s 147 of the Act. In the very beginning of the proceedings, therefore, merely on this basis, reassessment order cannot be held as bad in law. On being asked by the Bench, Ld. Sr. DR could show us any exercise by the AO to dispose of objections raised in the initiation of the reassessment proceedings by the assessee on 10.10.2017. Ld. Sr. DR lastly submitted that the impugned reassessment order cannot be quashed merely on technical reasons therefore, legal grounds of assessee may kindly be dismissed.
Placing re-joinder to the above, Ld.AR for the assessee again drew our attention towards judgement of the Hon’ble Supreme Court in the case of 3 | P a g e Ferrous Infrastructure (P.) Ltd. Vs DCIT [2015] 63 Taxmann.com 201 (Delhi) and submitted that when the AO did not pass a speaking order to dispose the assessee’s objection to reassessment proceedings u/s 148 of the Act and reassessment proceedings in pursuance to the said notice deserves to be set aside.
7. On careful consideration of the rival submissions, I am of the considered view that undisputedly, the AO issued notice u/s 148 of the Act on 13.03.2017; notice u/s 143(2) of the Act on 19.07.2017 and notice u/s 142(1) of the Act on 04.08.2017. It is also not in dispute that the assessee submitted letter dated 11.08.2017 asking for supply of reasons recorded by the AO and thereafter, reminder letter on 18.08.2017 requesting to supply reasons recorded by the AO for initiation of reassessment proceedings. I also note that ultimately, the assessee received copy of the reasons on 14.09.2017 and submitted its objection to the re-opening of the assessment on 10.10.2017. Copy of which is also available at pages 13 & 14 of the assessee’s Paper Book. Ld. Sr. DR has not disputed this very important fact that the AO has passed assessment order on 18.10.2017 u/s 147/144 of the Act without disposing the objections vide letter dated 10.10.2017 to the initiation of reassessment proceedings filed by the assessee.
8. On respectfully reading of judgement of the Jurisdictional High Court of Delhi in the case of Ferrous Infrastructure (P.) Ltd. Vs DCIT (supra), I note that after referring to the judgement of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs ITO & Ors. (supra), their Lordships for Jurisdictional High Court held as follows:-
“This aspect has been dealt with by a Division Bench of this Court in Haryana Acrylic Manufacturing Co. v. Commissioner of Income- tax: 308 ITR 38(Delhi). "32. Secondly, let us assume for the sake of argument that the actual reasons were those as noted in the said form. Then why did the Assessing Officer communicate a different set of reasons to the petitioner? Did he think that the supplying of reasons and the inviting of objections were mere charades? Did he think that it was a mere pretence or a formality which had to be gotten over with? At this point, it would be well to remember that the Supreme Court in GKN Driveshafts (supra) had specifically directed that when a notice under Section 148 of the said Act is issued and the noticee files a return and seeks reasons for the issuance of the notice, the Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of the reasons, the noticee is entitled to file objections to the issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. These are specific directions given by the Supreme Court in all cases where notices under Section 148 of the said Act are issued. Surely, the Assessing Officer could not have construed these specific directions to be a mere empty formalities or dead letters? There is a strong logic and purpose behind the directions issued by the Supreme Court and that is to prevent high-handedness on the part of Assessing Officers and to temper any action contemplated under Section 147 of the said Act by reason and substance. In fact, even Section 148(2) stipulates that the Assessing Officer shall, before issuing any notice under the said Section, record his reasons for doing so. The Supreme Court has only carried forward this mandatory requirement by directing that the reasons which are recorded be communicated to the assessee within a reasonable period of time so that at that stage itself the 5 | P a g e
assessee may point out any objections that he may have with regard to the initiation of action under Section 147 of the said Act. The requirement of recording the reasons, communicating the same to the assessee, enabling the assessee to file objections and the requirement of passing a speaking order are all designed to ensure that the Assessing Officer does not reopen assessments which have been finalized on his mere whim or fancy and that he does so only on the basis of lawful reasons. These steps are also designed to ensure complete transparency and adherence to the principles of natural justice. Thus, a deviation from these directions would entail the nullifying of the proceedings....."(underlining added) 5. Furthermore in the decision of the High Court of Karnanataka - Commissioner of Income Tax, (Exemptions) v. Baldwin Boys High School: 364 ITR 637(Karnataka) - this very question of whether a notice under Section 148 of the said Act could be issued without recording reasons came up for consideration. The Karnataka High Court observed as under:- "6. 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 a 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...."(underlining added) 6. The decision sought to be relied upon by Mr Madan on behalf of the Revenue in the case of Adobe Systems Software Ireland Ltd. v. Assistant Director of Income Tax, 2014(7) AD 244, is not at all relevant for the present discussion. That was a case which dealt 6 | P a g e with the furnishing of the reasons to the assessee. The issue which had arisen was whether the assessee was entitled to the reasons without even filing a return. That is not the question before us. The only question here is whether reasons could at all be recorded after issuance of the notice under Section 148 of the Act. And, secondly, that as the reasons were recorded after the issuance of Section 148 notice, whether the proceedings were not vitiated.
We have seen from the provisions of Section 148(2) as also the decisions of this Court in Haryana Acrylic(supra), and that of the Karnataka High Court in Baldwin Boys High School (supra), that the reasons have to be recorded prior to the issuance of notice under Section 148. If they are not so recorded, then the notice under Section 148 and proceedings pursuant thereto are without authority of law. In the present case, it is evident that the reasons were recorded only on 18.09.2012, i.e., after the notice under Section 148 had been issued on 30.08.2012. Clearly, the statutory provisions, as explained by judicial decisions, indicate that the notice under Section 148 would be invalid and consequently all proceedings pursuant thereto would also be vitiated.
We may also point out that the second issue raised by the learned counsel for the petitioners also deserves some consideration. In GKN Driveshafts (supra), the Supreme Court had directed as under:- "However, we clarify that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the noticee 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 noticee 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. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by 7 | P a g e passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years." (underlining added) 9. On going through the same, it is evident that the Assessing Officer has to pass a speaking order disposing of the objections "before proceeding with the assessment". In the present case, a separate speaking order has not been passed and the objections have been dealt with, if at all, in the re-assessment order itself. On this ground also, the petitioner is liable to succeed.
10. For all the reasons indicated above, the petition is allowed. The notice under Section 148 dated 30.08.2012 is quashed so also all proceedings pursuant to the said notice under Section 148 including the order dated 30.03.2014.”
In view of the foregoing, I compel to hold that the legal contention raised by the Ld. Counsel for the assessee is squarely covered in favour of the assessee before the judgement of Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs ITO & Ors. (supra) and judgement of Hon’ble Delhi High Court in the case of Ferrous Infrastructure (P.) Ltd. Vs DCIT (supra) as the AO failed to dispose off/adjudicate objection of the assessee vide letter dated 10.10.2017 to the re-opening of the assessment therefore, notice u/s 148 of the Act dated 30.03.2017, the impugned reassessment order u/s 147/144 of the Act dated 18.01.2017 and all proceedings and orders in pursuance to the said notice and reassessment order are quashed. Thus, Legal Ground Nos. 1 & 2 raised by the assessee are allowed.
Since from the earlier part of this order, I have allowed legal Ground Nos.1 & 2 of the assessee and quashed notice u/s 148 of the Act as well as impugned reassessment order dated 18.08.2017 and all consequences of proceedings of the order therefore, grounds raised by the assessee are 8 | P a g e decided on merits, have become academic and the same are not being adjudicated.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 19th September, 2022.