M/S UNITED GLOBAL CORPORATION LIMITED vs. DEPUTY COMMISSIONER OF INCOME TAX

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WP/7225/2023HC KarnatakaKAHC01016348202331 March 2023Bench: B M SHYAM PRASAD6 pages
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What did the High Court hold?

The High Court held that there must be a preliminary adjudication on the objections to the reasons for reopening. It found that if reasons are offered but objections thereto are not considered, the procedure, as affirmed by the Supreme Court in GKN Driveshafts (India) Ltd. vs. Income Tax Officer And Ors. and statutorily affirmed, would be rendered redundant. Therefore, on this limited ground, the impugned assessment order was quashed. The proceedings were restored to the Assessing Officer for reconsideration after issuing a notice of personal hearing on the objections filed in response to the reasons offered. Consequently, the rectification order dated 19.01.2023 and the notice dated 07.03.2023 under Section 226(3) were also quashed. The ratio decidendi is that a proper consideration of objections to reopening notices is a mandatory procedural step.

What were the facts?

The petitioner, M/s. United Global Corporation Limited, filed a writ petition before the High Court of Karnataka challenging an assessment order dated 30.03.2022 for Assessment Year 2016-17, passed under Section 143(3) read with Section 147 of the Income Tax Act, 1961. The petitioner also sought directions for the Assessing Officer to consider objections filed on 12.03.2022 and 23.03.2022 in response to notices issued under Section 142(1) and the reasons provided on 19.03.2022. The petitioner contended that the Assessing Officer had merely adverted to the objections without considering their merits. The Assessing Officer's order noted that the case was within four years from the end of AY 2016-17, leading to the rejection of the assessee's objection on this point.

What were the issues?

1. Whether the Assessing Officer, in passing the assessment order dated 30.03.2022, properly considered the objections filed by the assessee against the reasons for reopening the assessment under Section 147 of the Income Tax Act, 1961? Assessee's Contention: The assessee argued that the Assessing Officer failed to consider the merits of the objections filed against the reasons for reopening. The assessee relied on the decision in GKN Driveshafts (India) Ltd. vs. Income Tax Officer And Ors. and the statutory affirmation of this procedure through amendments to the Act. The assessee sought to quash the assessment order and direct the Assessing Officer to pass a preliminary order regarding jurisdiction to reopen assessments. Revenue's Contention: The judgment does not record specific arguments from the revenue regarding the consideration of objections. However, the assessment order itself indicates that the assessee's objection regarding the reopening being within four years was rejected and disposed of.

Which sections of the Income-tax Act were involved?

Section 143,Section 147,Section 142,Section 226(3)

AI-generated summary — verify with the full judgment below

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WP No. 7225 of 2023

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 31ST DAY OF MARCH, 2023 BEFORE THE HON'BLE MR JUSTICE B M SHYAM PRASAD WRIT PETITION NO. 7225 OF 2023 (T-IT) BETWEEN: M/S. UNITED GLOBAL CORPORATION LIMITED REGISTERED COMPANY E-07, 7TH FLOOR, #2, 1ST FLOOR, JC ROAD, PURNIMA TALKIES, BANGALORE - 560 027 REP. BY ITS DIRECTOR, SRI MYNENI VAMSIDHAR (REGISTERED UNDER COMPANIES ACT)

…PETITIONER

(BY SRI. M.V. SESHACHALA, SR. ADVOCATE FOR SRI. ARAVIND V CHAVAN., ADVOCATE)

AND:

1.

DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE -2 (4), C.R.BUILDING, QUEENS ROAD, BANGALORE - 560 001.

2.

PRINCIPAL COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, C.R.BUILDING, QUEENS ROAD, BANGALORE - 560 001.

…RESPONDENTS

Digitally signed by NARASIMHA MURTHY VANAMALA Location: HIGH COURT OF KARNATAKA

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WP No. 7225 of 2023

(BY SRI.E.I.SANMATHI, ADVOCATE)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO DECLARE THAT SUBSTITUTION OF SECTIONS 147, 148, 143 AND 142 OF THE IT ACT WITH SECTIONS 147, 148 AND 148A OF THE IT ACT WITH EFFECT FROM 01.04.2021 WILL NOT ENABLE THE ASSESSING OFFICER TO HAVE RECOURSE TO THE EARLIER PROVISIONS FOR PASSING ASSESSMENT ORDER AFTER THAT DATE; TO DIRECT THE ASSESSING OFFICER TO CONSIDER THE OBJECTIONS FILED BY THE ASSESSES ON 12.03.2022 ANNXURE-E1 AND 23.03.2022 ANNXURE-E3 AND PASS A PRELIMINARY ORDER REGARDING JURISDICTION TO REOPEN ASSESSMENTS AS HELD BY THIS HON'BLE COURT IN MPHASIS LTD. VS. ACIT AND ORS., WP NO.3533/2019 DD. 14.02.2019 ANNXURE-L; TO QUASH THE ORDER OF RECTIFICATION DATED 19.01.2023 BEARING NO. ITBA/REC/M/154/2022-23/1048933213 (1), ANNXURE-G2 AND THE ASSESSMENT ORDER DATED 30.03.2022 BEARING NO. ITBA/AST/M/147/2021-22-1042337735(1) ANNXURE-F PASSED BY THE SECOND RESPONDENT IN RESPECT OF THE ASSESSMENT YEAR 2016-17; TO QUASH THE NOTICES ISSUED U/S 226(3) OF THE IT ACT DATED 07.03.2023 BEARING NO.ITBA/COM/F/17/2022- 23/1050485416(1) ANNXURE-H3 AND 25.01.2023

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WP No. 7225 of 2023

DISPOSING OF THE STAY APPLICATION BEARING F.NO.25(184) STAY/PR.CIT(C)/2022-23 ANNXURE-H2.

THIS PETITION, COMING ON FOR ORDERS, THIS DAY, THE COURT MADE THE FOLLOWING: ORDER

The petitioner has impugned the assessment order dated 30.03.2022 [Annexure-F] for the assessment year 2016-17 under Section 143(3) read with Section 147 of the Income Tax Act, 1961 (for short, 'the I.T. Act') and for directions to the Assessing Officer to consider the petitioner's objections dated 12.03.2022 and 23.03.2022 filed in response to the notices issued under Section 142(1) of the IT Act and the reasons offered on 19.03.2022. Sri.M.V.Seshachala, the learned Senior counsel for the petitioner, and Sri. E.I.Sanmathi, the learned counsel for the respondents, are heard for final disposal.

As emphasized by Sri. M.V.Seshachala, the petitioner, upon service of notice under Section

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WP No. 7225 of 2023

143(2) of the IT Act on 05.03.2022, has filed objections inter alia asking for reasons to believe that there must be assessment and in response, the Assessing Officer has issued reasons on 19.03.2022. The petitioner has responded by filing objections dated 23.03.2022, and the Assessing Officer, while passing the impugned order dated 30.03.2022, has adverted to the objections filed without considering the merits thereof.

The Assessing Officer's advertence to the petitioner's objections to the reasons offered can be found in paragraph No.3 of the assessment order, which reads as hereunder:

"The assessee was served with Reasons for reopening u/s 147 of IT Act, 1961 vide letter dated 15.11.2021. The assessee raised various objections against the reasons for reopening. In response, the objections raised by the assessee were disposed off vide letter dated: 19.03.2022 bearing DIN No. ITBA/AST/F/17/2021- 22/1041027234(1). It is pertinent to mention here that the case is within the ambit of 4 years as the approval to reopen the case was received on 31.03.2021. Since, the case was opened

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WP No. 7225 of 2023

within 4 years from the end of Assessment Year 2016-17, the assessee objection regarding the above issue is herby rejected and disposed off."

3.

It is salient that there must be a preliminary adjudication on the objections to the reasons and if the reasons are offered but objections thereto are not considered, the procedure that is followed consequent to the decision of the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd Vs. Income Tax Officer And Ors1, which is now statutorily affirmed with the amendment would be rendered redundant. Therefore, on this limited ground, which is presented as an alternative ground, must be accepted and the impugned assessment order quashed with the proceedings restored to the Assessing Officer for reconsideration after issuance of notice of personal hearing on the objections filed in response to the reasons offered. Hence, the following:

1 [2003] 259 ITR 19

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WP No. 7225 of 2023

ORDER

[a] The petition is allowed in part quashing the impugned order dated 30.03.2022 [Annexure-F] restoring the proceedings to the jurisdictional Assessing Officer - the first respondent for reconsideration after extending due opportunity.

[b] Consequent to this order, the orders on rectification dated 19.01.2023 [Annexure-G2] and the notice dated 07.03.2023 [Annexure-H3] issued under Section 226(3) of the IT Act are quashed.

SD/- JUDGE

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