RAGHUNANDAN BHOMIA,MUMBAI vs. DY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-4(1), MUMBAI

It had been stated by way of written submission on behalf of the assessee that at no point of time, the reasons recorded by the ld. AO was ever supplied to the assessee. This has been also specifically challenged and stated before us, the relevant submissions read as under:- 11. Ground 2 and 3 - Reason for reopening of assessment NOT SERVED to the appellant. 11.1 The assessing officer has re-opened the case of the appellant for AY-2014-15 by issue of notice dated 18-12-2015 issued u/s 148 of the Act. (Pg.29). The case was said to be reopened on the basis of information available from seized materials in case of search action at the residence of the Assessee in connection with Yashovardhan Birla Group. 11.2 During the course of assessment proceedings, the appellant has asked for the reasons recorded in writing for reopening of the said assessment year vide letter dated 24-12-2015 (Pg.30) and has filed the copy of acknowledgement of income tax return and tax computation stating that the same may be treated as retum filed in response to notice u/s 148 of the Act which is as per the guidelines of Hon'ble Apex court in the case of 'GKN Driveshafts (India) Ltd. vs. DCIT [2003] 259 ITR 19 (SC). In spite of the fact that the appellant has asked for the reason for re-opening of said Raghunandan Bhomia assessment year the AO has not provided the reason for re- opening of assessment for the said year which he is bound to furnish the reason for reopening within a reasonable time. The existence of reason for reopening is mandatory. The issue of notice u/s 148 by the the AO must have reason to believe that any income chargeable to tax has escaped assessment. Reason to believe cannot be a reason to suspect merely. There must be a direct nexus between the material coming to the notice of the assessing officer and the formation of the belief that there has been escapement of income of the assessee from assessment in a particular year. However, the AO has without providing the reason for re-opening of the said assessment year has concluded the assessment proceedings and has passed the assessment order. The AO has erred in law in passing an assessment order u/s 143(3) of the Act instead of passing an assessment order u/s 143(3) r.w.s. 147 of the Act. 11.3 The Hon'ble Apex Court in the case of GKN Driveshafts (India) Ltd. vs. ITO [2002] 125 ΤΑΧΜΑΝ 963/259 ITR 19 (SC) (Pg.42-43) held that "it is clear that the completion of assessment/re-assessment without furnishing the reasons recorded by the AO for initiation of proceedings under section 147/148 of the Act is not sustainable in law as it is incumbent on the AO to supply them within reasonable time. I note that on the anvil of this judgment, on the request of the Assessee, the AO is bound to furnish the reasons recorded for initiation of proceedings under section 147 of the Act within a reasonable period of time so that the Assessee could file its objections thereto and the AO was to dispose of the same by passing a speaking order thereon, which the AO has not done. I also note that even as per the rules of natural justice, the Assessee is entitled to know the reasons on the basis of which the AO has formed an opinion that income assessable to tax has escaped assessment. The furnishing of reasons to the Assessee is to enable facilitate it to present its defence and objections to the proceedings under section 147/148 of the Act. Therefore. I am of the considered opinion that there was no justifiable reasons for the AO to deprive the Assessee of the recorded reasons by him for initiating proceedings under section 147/48of the Act. Therefore, Raghunandan Bhomia in my considered opinion, the reopening in question is not sustainable in the eyes of low, hence, the name is quashed." 11.4 The AO must have reasons to open/ re-open the case u/s 145. The existence of reasons is mandatory. On the basis of such reasons, the AO must form a belief that there is a situation of actual or deemed escapement of Income and therefore action is required u/s 147. The Assessing Officer must have reason to believe that any income chargeable to tat has escaped assessment and the circumstances are forming a belief for issuance of the notice u/s 148. AO most record such reasons in writing. No reassessment notice can be served just to make an enquiry or verification. Assessing officer is duty bound to provide the copy of reason recorded within reasonable time as per guidelines of Hon'ble Supreme Court in case of GKN Driveshafts (India) Ltd. vis D.C.LT. (2003) 259 ITR 19 (SC). For passing an order under section 147 recording of reasons u/s 148 and communication thereof to party concern is mandatory. Gujarat Fluorochemicals Ltd Vs. DCTT (2008) 15 DTR (Guj), Nandlal Tejmal Kothari Vs. ACIT (1998) 230 ITR 943 (SC) (P-44 45) Where Assessee ask for reasons for reassessment and the same was not furnished to the Assessee before completion of assessment, such reassessment is held invalid and it could not be upheld. Moreover, Special Leave Petition filed by revenue against the decision of Bombay High Court in the case of CIT Vs. Fomento Resorts and Hotels Ltd. has been dismissed by Apex Court, vide order dated July 16, 2007. 11.5 The jurisdictional High Court dismissed the appeal of the revenue and assessment order was held as not valid in the case of CIT v. Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66/21 Taxmann.com 53 (Bom.) (Pg.46) wherein it was held that "Section 147 of the Income-tax Act, 1961-Income escaping assessment-General -Where reasons recorded for reopening of assessment, though repeatedly asked by assessee, were furnished only after completion of assessment, reassessment order could not be upheld [In favour of assessee)" 11.6 The jurisdictional High Court in the case of CIT v. Trend Electronics (2015) 61 Taxmann.com 308 (Bom.) (Pg.47-50) wherein it was held that "IT: Where reasons were not furnished for reopening of an assessment even when assessee sought for same, reassessment order would be bad in law" "Section 147, read with section 143 of the Income-tax Act, 1961- Income escaping assessment-General (Reason's supply of) Assessment year 2008-09- Whether revenue cannot be allowed to justify failure to furnish reason for reopening assessment on plea that assessee had asked for reasons recorded only once - Held, yes Return of income filed by assessee was processed under section 143(1) accepting returned income-Subsequently Assessing Officer initiated reassessment proceedings by issuing notice under section 148-Assessee sought copy of reasons for reopening assessment - Without furnishing reasons recorded, Assessing Officer directed assessee to file return of income Assessee informed that original return of income filed be treated as return of income consequent to notice issued under section 148 Assessing Officer thereafter completed assessment under section 143(3) Whether failure to furnish recorded reasons for issue of reopening notices to assessee before completing of assessment would make reassessment order passed in pursuance of such notice bad in law - Held, yes (Paras 8 and 9) [In favour of assessee)" 11.7. The jurisdictional High Court in the case of CIT v. IDBI Ltd. (2016) 76 Taxmann.com 227 (Bom.) (Pg.51-54) wherein it was held that "IT Where in reassessment depreciation was disallowed to assessee without supplying assessee reasons recorded to issue re-opening notice, order of re-assessment would be without jurisdiction "Section 148 of the Income-tax Act, 1961-Income escaping reassessment Notice for (Recording of reasons) Assessment year 1993-94-Assessing Officer issued notice to assessee public sector undertaking for re-opening assessment Assessee asked from Assessing Officer copy of reasons for issuing re-opening notice Reasons were never communicated to assessee in spite of its repeated requests Assessing Officer passed assessment order disallowing depreciation on assets leased by assessee - Whether Raghunandan Bhomia in absence of supply of reasons recorded for issue of re-opening notice, re-assessment notice would be without jurisdiction - Held, yes [Para 3] [In favour of assessee]"

Therefore, in view of the above submission and facts, the appellant would like to state that the said assessment order was passed without serving the reason for reopening of the assessment which is against the Act and law of land and hence, the Assessment order is without any jurisdiction being null and void and should be quashed.”

Before us ld. DR had furnished the copy of reasons recorded for the first time, however he could not ascertain whether it was supplied to the assessee. The reasons read as under:- Reasons for reopening in case of Shri Raghunandan Bhomla AY 2014-15 A Search and Seizure action under section 132 of the Income Tax act, 1961 was carried out in the case of Yashovardhan Birla Group on 07.01.2014. During the course of Search proceedings at residential premises of Mr. Raghunandan Bhomla, at A-101, IVY Tower, Vasant Valley, Malad east, Mumbai 400097, cash/jewellery were found from his residential premises and bank lockers. During the search proceeding at his residential premises, jewellery (diamond, gold &silver items) were found as listed below; a) Cash found: Rs.9,38,980/- b) Cash deposits in bank: Rs.5,01,000/- c) Gold/diamond/silver jewellery/bullions Value: Rs.53,16,296/- Mr. Raghunandan Bhomia in his statement recorded u/s.132(4) on 07.01.2014 also disclosed additional Income of Rs. 9,38,980/ on account of cash found and pay order of Rs.4,02,332/- on account of unexplained jewellery for tax in his hands on the basis of cash Raghunandan Bhomia and jewellery items found from his residential premises, still the source of balance cash/jewellery items required reconciliation. In view of the above, I have reason to believe that the income of more than one lakh has escaped assessment within the meaning of section 147 of the I.T.Act, 1961, on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the year under consideration.

We find that nowhere it has been brought on record that the aforesaid reasons were ever supplied to the assessee. We further find that before the ld. CIT(A), assessee has raised this specific ground being ground No.1 and also gave detailed submissions which was specific to this issue which has been incorporated in the impugned appellate order at page 8 (para 1.6 of the submission of the assessee). Further, same contention and objection has been reiterated vide another submission which has been incorporated from pages 10-13 of the appellate order. On this specific submissions, ld. CIT(A) has not given any finding, rather he has quoted various other decisions on the issue whether it was relevant material on which reasonable person could form reasonable belief and sufficiency of reasons cannot be challenged etc., Nowhere he has addressed or given his finding as to whether the reasons were supplied to the assessee and if the reasons were not supplied, can re-assessment order be passed especially when various direct decision of Jurisdictional High Court (Bombay) were cited before him.

The ld. DR has relied upon the order of the ld. CIT (A) and submitted that now that reasons have been provided to the Raghunandan Bhomia assessee and matter can be restored back to the file of the AO to dispose of any objection if assessee chooses to file.

After considering the written submissions of the assessee and the facts and material brought on record, we find that at no point of time, the reasons recorded by the AO were ever supplied to the assessee despite specific request as per the letter dated 24/12/2015 incorporated supra. Further, as noted above assessee has challenged this issue specifically before the ld. CIT (A) and detailed submissions were made, however, nowhere, ld. CIT (A) has even addressed this point. At least at the appellate stage, ld. CIT (A) could have asked the AO to provide the reasons recorded and he himself could have taken note of the objections. Even before us, no material has been brought on record that these reasons which have been given before us, was ever made available to the assessee. Accordingly, we hold that no reasons were supplied to the assessee despite specific request. Once that is so, then it is a clear violation of the law enunciated by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. DCIT [2003] 259 ITR 19 (SC). The Hon’ble Jurisdictional High Court in the case of CIT vs. IDBI Ltd., in of 2014 have held that in absence of supply of reasons recorded for issue of reopening notice then, the entire re- assessment is without jurisdiction. The Hon’ble High Court has followed the judgment of Siesta Steel Construction (P) Ltd., reported in 154 ITR 547; and CIT vs. Videsh Sanchar Nigam Ltd., reported in 340 ITR 56. Apart from that there is another judgment in the case of CIT vs. Trend Electronics reported in Raghunandan Bhomia 61 taxmann.com 308 (Bombay) wherein Hon’ble Court has observed and held as under:- “8. We find that the impugned order merely applies the decision of the Apex Court in GNK Driveshafts (India) Ltd. (supra). Further it also follows the decision of this Court in Videsh Sanchar Nigam Ltd. (supra) in holding that an order passed in reassessment proceedings are bad in law in the absence of reasons recorded for issuing a reopening notice under Section 148 of the Act being furnished to the assessee when sought for. It is axiomatic that power to reopen a completed assessment under the Act is an exceptional power and whenever revenue seeks to exercise such power, they must strictly comply with the prerequisite conditions viz. Reopening of reasons to indicate that the Assessing Officer had reason to believe that income chargeable to tax has escaped assessment which would warrant the reopening of an assessment. These recorded reasons as laid down by the Apex Court must be furnished to the assessee when sought for so as to enable the assessee to object to the same before the Assessing Officer. Thus in the absence of reasons being furnished, when sought for would make an order passed on reassessment bad in law. The recording of reasons (which has been done in this case) and furnishing of the same has to be strictly complied with as it is a jurisdictional issue. This requirement is very salutary as it not only ensures reopening notices are not lightly issued. Besides in case the same have been issued on some misunderstanding/ misconception, the assessee is given an opportunity to point out that the reasons to believe as recorded in the reasons do not warrant reopening before the reassessment proceedings are commenced. The Assessing Officer disposes of these objections and if satisfied with the objections, then the impugned reopening notice under Section 148 of the Act is dropped/withdrawn otherwise it is proceeded with further. In issues such as this, i.e. where jurisdictional issue is involved the same must be strictly complied with by the authority concerned and no question of knowledge being attributed on the basis of Raghunandan Bhomia implication can arise. We also do not appreciate the stand of the revenue, that the respondent-assessee had asked for reasons recorded only once and therefore seeking to justify non-furnishing of reasons. We expect the state to act more responsibly.”

There are other judgments of other High Courts which has also been cited and referred to, since, there are direct Jurisdictional High Court judgments on this point cited supra, therefore, following the principles laid down by the Hon’ble Jurisdictional High court that, if the reasons have not been supplied, then the entire re-assessment notice u/s.148 and consequently, the entire re-assessment order u/s.148 is bad in law and accordingly, the same is quashed.

In the result, appeal of the assessee is allowed on legal grounds. Order pronounced on 21st March, 2025.