ACIT CIRCLE 3(2)(1), MUMBAI, MUMBAI vs. NEXT TECHNOLOGIES (INDIA) PRIVATE LIMITED, MUMBAI

On the basis of the aforesaid information, the Assessing Officer recorded reasons to believe that the amount of Rs.7,62,30,000/- represented the assessee’s own money routed through bogus entities and that income to the said extent had escaped assessment. Accordingly, notice under section 148 of the

Insofar as the issue relevant to the present appeal is concerned, the assessee, by letter dated 21.02.2014, objected to the reopening of the assessment. The assessee submitted that the belief recorded by the Assessing Officer that the investment of Rs.7,62,30,000/- belonged to the assessee and had been routed through bogus entities was founded merely upon assumptions and presumptions. The assessee stated that 1,90,575 shares of the face value of Rs.10/- each had been issued at a premium of Rs.390/-

The Assessing Officer did not accept the explanation furnished by the assessee. He recorded that most of the notices issued under section 133(6) had been returned unserved; that certain investor-companies were not found at the addresses furnished; and that enquiries concerning five Mumbai-based investor-companies disclosed common directors, bogus addresses, absence of substantial business activity and meagre income. The Assessing Officer further observed that the assessee had not produced the share application forms, complete supporting records or any due diligence or independent valuation report justifying the premium of Rs.390/- per share. He also noticed discrepancies between the particulars of the subsequent transfer of shares furnished by the assessee and those disclosed by the investor-companies.

The Assessing Officer held that the assessee had failed to establish the identity and creditworthiness of the investor- companies, the genuineness of the transactions and the source of the investments. He consequently treated the share application money of Rs.7,62,30,000/- as the assessee’s unexplained income under section 68 of the Act. After setting off the returned loss of Rs.1,28,655/-, the total income was assessed at Rs.7,61,01,340/- . The assessment was accordingly completed under section 143(3) read with section 147 of the Act by order dated 10.03.2014. The Assessing Officer also directed charging of interest under sections 234A, 234B and 234C, as applicable, and initiation of penalty proceedings under section 271(1)(c) read with section 274 of the Act.

Aggrieved, the assessee preferred an appeal before the CIT(A) on 02.04.2014. Before the CIT(A), the assessee challenged, inter alia, the validity of the reassessment on the ground that the objections filed against the reopening had not been disposed of by the Assessing Officer by passing a speaking order before proceeding with the reassessment. The assessee submitted that the prescribed procedure required the Assessing Officer to furnish the reasons recorded for reopening, permit the assessee to raise objections and dispose of such objections by a speaking order before continuing with the reassessment. It was contended that failure to follow the said mandatory procedure vitiated the

On the merits of the addition under section 68, the assessee submitted before the CIT(A) that it had discharged the primary onus of establishing the identity and creditworthiness of the shareholders and the genuineness of the transactions. It was submitted that the particulars furnished included PAN details, acknowledgements of returns of income, bank statements evidencing payments through banking channels and details of the net worth of the shareholder-companies. The assessee contended that the Assessing Officer had disregarded the documentary evidence and had made the addition merely on suspicion. It was further contended that the assessee’s request for cross- examination of the concerned parties had not been granted.

The CIT(A) examined paragraph 10 of the assessment order and found that the assessee had, by letter dated 21.02.2014, specifically objected to the reopening of the assessment. The CIT(A) further noticed that, immediately thereafter, the Assessing Officer issued a notice under section 142(1) on 24.02.2014, requiring the assessee to establish the genuineness of the share premium, the

On examination of the assessment order, the CIT(A) found that the Assessing Officer had proceeded with the reassessment after receiving the assessee’s objections dated 21.02.2014, without first disposing of the objections by a speaking order. The CIT(A) further recorded that there was no reference anywhere in the assessment order to the disposal of the objections raised by the assessee.

Relying upon the decision of the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. v. Income-tax Officer, reported in 259 ITR 19, the CIT(A) held that the Assessing Officer was required to furnish the reasons recorded for reopening, permit the assessee to file its objections and dispose of the objections by a separate speaking order before proceeding with the reassessment. The CIT(A) observed that failure to comply with the prescribed

In view of the aforesaid findings, the CIT(A) held that the assessment order passed under section 143(3) read with section 147 of the Act was erroneous and bad in law. The assessment order was, accordingly, quashed and the relevant ground raised by the assessee was allowed. Having quashed the assessment, the CIT(A) held that the remaining grounds did not require adjudication and allowed the appeal.

The Revenue is aggrieved and is in appeal before us with following grounds of appeal: i. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in quashing the reassessment order by holding it to be bad in law solely on the ground that the Assessing Officer did not expressly rebut OR dispose of the objections filed by the assessee against the notice issued under section 148 of the Income-tax Act, 1961 without appreciating the fact that the reopening of assessment was based on specific, tangible, and credible information received from the Investigation Wing, which constituted valid “reason to believe” within the meaning of section 147 of the Act.

Before us, the learned Authorised Representative (AR) relied upon the impugned order of the CIT(A) and invited our attention to the findings recorded in paragraph 6.3 at page 8 thereof. He submitted that the assessee had raised specific objections to the reopening by letter dated 21.02.2014; however, without disposing of those objections by a speaking order, the Assessing Officer proceeded to issue notice under section 142(1) of the Act on 24.02.2014 and continued with the reassessment proceedings. He, therefore, submitted that the CIT(A) was justified in quashing the reassessment order as being bad in law.

Per contra, the learned Departmental Representative submitted that the assessee had raised its objections to the reopening at the fag end of the reassessment proceedings. He, therefore, contended that the Assessing Officer could not be faulted for proceeding to complete the reassessment without separately disposing of those objections. Accordingly, he supported the grounds raised by the Revenue and prayed that the impugned order of the CIT(A) be set aside.

We have heard the rival submissions and perused the material placed on record. The limited controversy arising in the present appeal is whether the CIT(A) was justified in quashing the reassessment order on the ground that the Assessing Officer proceeded with the reassessment without disposing of the objections raised by the assessee against the reopening by passing a speaking order.

The learned AR relied upon the impugned order and invited our attention to the findings recorded in paragraph 6.3 at page 8 thereof. For ready reference, the relevant findings recorded by the CIT(A) in paragraphs 6.3 to 6.5 are reproduced as under: 6.3 On perusal of assessment order, it is seen that in Para 10, the AO has stated that the assessee, vide its letter dtd: 21.02.2014 submitted the basic details and objected to the reopening of assessment by stating that the reason to believe that the assessee company's said investment money of Rs.7,62,30,000/- belonged to assessee company itself and it

The aforesaid findings of the CIT(A) are based upon the contents of the assessment order itself. In paragraph 10 of the assessment order, the Assessing Officer expressly recorded that the assessee had objected to the reopening by its letter dated 21.02.2014. Thereafter, instead of disposing of those objections by passing a separate speaking order, the Assessing Officer issued a further notice under section 142(1) on 24.02.2014, fixed the matter for hearing on 06.03.2014 and ultimately completed the reassessment on 10.03.2014. The Revenue has not placed before us any separate order by which the objections dated 21.02.2014 were disposed of.

The submission of the learned Departmental Representative that the objections were raised at the fag end of the reassessment proceedings does not advance the case of the Revenue. Once objections to the reopening were filed before completion of the reassessment, the Assessing Officer was required to dispose of them by a speaking order before proceeding further. The procedure prescribed by the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. v. Income-tax Officer (2003) 259 ITR 19 (SC) does not provide an exception merely because, according to the Revenue, the objections were filed at a belated stage.

It is also pertinent that the objections were filed on 21.02.2014, whereas the reassessment order was passed on 10.03.2014. Thus, the objections were admittedly available with the Assessing Officer before completion of the reassessment. Indeed, the subsequent notice under section 142(1) was issued on 24.02.2014. Nothing prevented the Assessing Officer from disposing of the objections by a speaking order before taking the reassessment proceedings further.

The first limb of the Revenue’s grounds proceeds on the basis that the reopening was founded upon specific, tangible and credible information received from the Investigation Wing. However, the existence or sufficiency of material for reopening is distinct from compliance with the procedure required after the

We are also unable to accept the Revenue’s contention that non-disposal of the objections constituted only a procedural irregularity which stood cured because the assessee was afforded an opportunity during the reassessment proceedings. The opportunity to furnish evidence on the merits of the proposed addition is not a substitute for the right to receive a reasoned decision upon the objections challenging the assumption of jurisdiction under section 147. The two operate at different stages and serve different purposes.

The Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. laid down that, upon receipt of objections, the Assessing Officer is bound to dispose of the same by passing a speaking order before proceeding with the assessment. The binding nature of this procedure has continued to be reiterated by the Hon’ble Bombay High Court, including in decisions holding that the Assessing Officer is bound to dispose of objections by a speaking order.

In the present case, the Assessing Officer neither passed a separate speaking order nor recorded any adjudication of the

In view of the foregoing discussion, we find no infirmity in the conclusion reached by the CIT(A) that the reassessment order dated 10.03.2014 passed under section 143(3) read with section 147 of the Act could not be sustained. We accordingly uphold the impugned order of the CIT(A) quashing the reassessment.

Grounds Nos. (i) to (iii) raised by the Revenue are dismissed. Ground No. (iv) is general in nature and requires no separate adjudication.

In the result, the appeal filed by the Revenue is dismissed.