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Facts
The assessee filed a return of income for AY 2015-16. The Assessing Officer (AO) reopened the assessment based on information that the assessee deposited a large sum of cash into their bank account. The assessee was issued a notice u/s 148 and subsequently, a reassessment order was passed.
Held
The Tribunal held that the AO failed to comply with the binding directions of the Supreme Court by not disposing of the assessee's objections to the reopening in a speaking order before passing the reassessment order. This omission strikes at the root of the AO's jurisdiction.
Key Issues
Whether the reassessment proceedings are vitiated due to the Assessing Officer's failure to dispose of the assessee's objections in a speaking order before issuing the reassessment order.
Sections Cited
147, 148, 69A, 144, 144B, 251, 250, 144, 147, 143(3)
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI S.S. VISWANETHRA RAVI & SHRI S. R. RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM:
1. This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, [herein after “ld. CIT(A)] dated 17.01.2025 and pertains to assessment year 2015-16.
2. The assessee has raised the following grounds of appeal:
:-2-: ITA. No.:415 /Chny/2025
“The Learned CIT(A) and Learned Assessing Officer have failed to understand the facts of the case at hand and have passed an arbitrary order which is prejudicial, illegal and against the principles of Natural Justice.
The Learned CIT(A) and Learned Assessing Officer have wrongly passed an order which is against the facts of the case and against evidence on record.
3. The Learned CIT(A) erred in law by upholding the reopening of the assessment u/s.147 of the Act, despite the fact that the proceedings were initiated based on incorrect and unverified information.
4. The Learned CIT(A) failed to appreciate that the validity of the notice issued u/s.148 of the Act is contingent on the Learned Assessing Officer forming a cogent “reason to believe” based on credible and tangible material, and initiating proceedings based on unverified information renders the notice invalid and the entire reassessment proceedings void.
5. Without Prejudice, the Learned CIT(A) erred in law by enhancing the scope of Assessment to the availability, form, and liquidation of the Appellant’s capital, which were never part of the Learned Assessing Officer’s original proceedings.
Without Prejudice, the Learned CIT(A) acted in contravention of Section 251 of the Act by attempting to enhance the assessment beyond the scope of the Assessment Order, despite multiple judicial precedents, including that of the Hon’ble Supreme Court, prohibiting such enhancement when the Learned Assessing Officer has not examined the matter during the original assessment proceedings.
Without Prejudice, the Learned CIT(A) failed to appreciate that enhancement u/s.251(1)(a) of the Act is confined to items expressly considered or examined by the Assessing Officer during the assessment and cannot extent to new sources of income, rendering the Appellate Order u/s.250 of the Act infructuous.
8. Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer erred in law by confirming the addition despite the Show Cause Notice being incorrect and failed to address the disparity between the breakup of deposits provided in the notice and the arbitrary addition made in the Assessment Order, violating the principles of Natural Justice.
9. Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer erred in law by arbitrarily adding
:-3-: ITA. No.:415 /Chny/2025 Rs.3,76,45,045/- in the Assessment order despite the Show Cause Notice specifying a breakup of deposits totaling only Rs.1,67,24,381/- rendering the addition unsustainable in law.
10. Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer unfairly overlooked the fact that the impugned cash components were duly recorded in the appellant’s books of account, thereby rendering the additions made u/s.69 A of the Act unwarranted.
11. Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer failed to realise that the Appellant had more than satisfactory cash in hand in support of the deposits made into his bank accounts.
12. Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer failed to realise that treating inter-bank transfers as unexplained credits resulted in arbitrary and double additions, which are unsustainable in law.
13. Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer unfairly overlooked the detailed evidence submitted by the appellant, including bank statements, financials, and partnership firm records, which substantiated the source of the cash deposits.
14. Without Prejudice, the Learned CIT(A) erred in law by confirming the best judgement assessment u/s.144 of the Act, despite the appellant having complied with all notices and provided substantial evidence.
15. Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer erred in law by arbitrarily rejecting the appellant’s submissions without providing valid reasons or contrary evidence.
Without Prejudice, the Learned CIT(A) and the Learned Assessing Officer have erred by making arbitrary additions without undertaking right considerations or facts or submissions.
3. In brief, the assessee has raised as many as 16 grounds of appeal.
However, the issues involved in all these grounds are challenging the order of the Assessing officer(AO) on the legal issue of validity of re-assessment proceedings as well as on merits of the additions.
:-4-: ITA. No.:415 /Chny/2025
The facts of the case are that the assessee is an individual and has filed his return of income for the AY 2015-16 declaring a total income of Rs.28,44,820/-. As per the information provided by the Insight Portal of the Income Tax Department, the assessee’s case was reopened for the assessment based on the information that the assessee deposited cash to the turn of Rs.2,57,38,972/- in his bank account. The case was reopened u/s.147 of the Income Tax Act, 1961, (hereinafter referred to as “the Act”) after recording reasons for reopening the assessment and obtaining necessary approval. The assessee was issued notice u/s148 of the Act on 31.03.2021 for AY 2015-16 where opportunity was provided to him to revise his return. Subsequently, various statutory notices were issued to the assessee calling for submitting requisite documents. In response, the assessee filed his return of income on 23.11.2021 admitting a total income of Rs.30,09,818/-. During the course of reassessment proceedings, the assessee was required to explain the source of cash deposit of Rs.3,76,45,045/- and in response assessee submitted a reply and reiterated that the source of the cash deposits is the amount withdrawn by the assessee from the partnership firm, M/s.K & B Hospitality which was stated by the assessee vide letter dated 07.03.2022. Upon perusal of the reply furnished by the assessee, the AO was not satisfied with the explanation offered. Consequently, the reassessment was completed under section 147 r.w.s 144 r.w.s 144B of the Act, vide order dated 28.03.2022, determining the total income of the assessee by making an addition of Rs.3,76,45,045/- as unexplained money u/s. 69A of the Act.
:-5-: ITA. No.:415 /Chny/2025
5. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld. CIT(A) on merits of the additions. However, the appeal of the assessee was set aside with a direction to AO to redo the assessment denovo by the ld. CIT(A).
6. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
7. Before us, the ld.AR for the assessee submitted that the ld.CIT(A) has erred in setting aside the order of the AO u/s.147 r.w.s 144 r.w.s.144B of the Act for the AY 2015-16. The ld.AR submitted that the assessee is an individual and has filed his return of income for the AY 2015-16 declaring a total income of Rs.28,44,820/-. As per the information provided by the Insight Portal of the Income Tax Department, the assessee’s case was reopened for the assessment based on the information that the assessee deposited cash to the turn of Rs.2,57,38,972/- in his bank account. The case was reopened u/s.147 of the Act, and subsequently, the assessee was issued notice u/s.148 of the Act on 31.03.2021. In response, the assessee had filed his ITR, offering a total income of Rs.30,09,818/- for the relevant AY 2015-16. Upon receiving the reasons to reopen the assessment, the assessee raised objections regarding the finding of the alleged amount of deposits and requested a copy of the documents relied upon to arrive at such amount. The letter requesting copy of the documents relied upon to arrive at alleged amount of deposits filed before the AO dated 03.03.2022, is reproduced as under: -
:-6-: ITA. No.:415 /Chny/2025 “As per information provided by the Insight Portal of the Income Tax Department, assessee Shri Satish Khanna during FY 2014- 15 (relevant to AY 2015-16) had deposited cash of Rs.2,57,39,972/- but had filed return of income for AY 2015-16 admitting only Rs.28,44,820/-. Hence, I have reason to believe that the income chargeable to tax of Rs.2,57,39,972/- has escaped assessment for the AY 2015-16, within the meaning of sec.147 of the Income Tax Act. For the above reason, I solicit the approval of the Joint Commissioner of Income Tax, Range-4 Chennai for reopening of the assessment u/s.147 of the Income Tax Act in this case.
In response to your reasons stated for reopening the assessment proceedings your goodself had stated that my client had cash deposit of Rs.2,57,39,972/- which is erroneous and is not related to our records, your goodself may kindly throw some light on your findings.
Hence, based on the above facts, it is hereby prayed that the data relied by your goodself is not related to us and the reopening based on the erroneous data may kindly be closed and thus render justice”.
The ld. AR submitted that assessee is challenging, inter alia, re- opening/re-assessment for AY 2015-16 on the legal issue and drew the attention of the bench to the fact that the AO has failed to dispose of the objections filed by the assessee to the recorded reasons, vide a separate speaking order, which was the mandate of law, as laid down by the Hon’ble Supreme Court in GKN Drive Shaft (India) Ltd vs ITO 259 ITR 19 (SC). He submitted that in the instant case, the AO has not considered and disposed of the objections of the assessee filed against the recorded reasons, as per mandate of law. He submitted that the procedure demands that the AO should dispose of the objections to the recorded reasons vide a speaking order, which should be distinct and separate from the assessment order, allowing the opportunity to the assessee to challenge the said order, if so :-7-: ITA. No.:415 /Chny/2025 desired, before the jurisdictional High court in writ. Thereafter by allowing a reasonable time to pursue the legal remedy, the AO can proceed with the assessment hearing of the case and pass the final assessment order as per provisions of law.
He further submit that an identical issue has already been decided by the Chennai bench of the Tribunal IDFC First Bank Ltd in & 1771/Chny/2024 for the AY 2016-17 wherein the identical set of facts, the Hon’ble Tribunal has quashed the assessment order, following the legal precedent laid down by the Hon’ble Supreme Court in the case of M/s.GKN Driveshafts (India) Ltd and relying on the same he prays that the assessment in the instant case may please be quashed.
Per contra, the Ld. DR submitted that the ld.CIT(A) had rightly set aside the assessee’s appeal and that the present appeal of the assessee deserved to be dismissed.
We have heard the rival contentions, perused material available on record and gone through the orders of lower authorities along with the paper book and case laws relied by the assessee and ld. DR. In order to appreciate the contention of the ld. AR for the assessee on the preliminary issue challenging the validity of the reopening of assessment/reassessment proceedings, it is necessary to note that the AO failed to dispose of the objections filed by the assessee to the recorded reasons through a separate speaking order, as mandated by law. We observe that the case of the assessee
:-8-: ITA. No.:415 /Chny/2025 was reopened by the AO, by issue of notice u/s.148 of the said Act on 31.03.2021. The assessee was provided with an opportunity to file a revised return. In response, assessee filed his return of income on 23.11.2021 declaring an income of Rs.30,09,818/-. Pursuant to filling the return of income, the assessee requested the AO for the copy of the reasons recorded for re- opening of assessment vide letter dated 23.11.2021. The AO furnished a copy of the reasons recorded on 03.03.2022 (Page Nos.1 - 3 of Paper Book); and the assessee objected to the reopening of the letter dated 03.03.2022 (Page Nos.9 of Paper Book). It would be pertinent to reproduce the following prayers made by the assessee in this regard which is as under: -
“3. In response to your reasons stated for reopening the assessment proceedings your goodself had stated that my client had cash deposit of Rs.2,57,39,972/- which is erroneous and is not related to our records, your goodself may kindly throw some light on your findings. 5. Hence, based on the above facts, it is hereby prayed that the data relied by your goodself is not related to us and the reopening based on the erroneous data may kindly be closed and thus render justice”
We find that despite assessee pleading for disposal of the objections by vide letter dated 03.03.2022 to pass a speaking order, nevertheless, the AO didn’t bother to pass the speaking order disposing off the objections before framing of the re-assessment dated 2 8 . 0 3 . 2 0 2 2 . However, it is noted that the AO has elaborately discussed and disposed off the objections raised by the assessee in the body of the reassessment which action of the AO is gross- defiance to the order of the Hon’ble Supreme Court in the case of M/s. GKN Driveshafts (India) Ltd. (supra) and against the Hon’ble Bombay High Court
:-9-: ITA. No.:415 /Chny/2025 in the case of Asian Paints Ltd., (supra) and Bharat Jayanthi Lal Patel (supra), wherein, their Lordships have given clear directions that the AO must dispose off the objections raised by the assessee against re-opening and facilitate at least four (4) weeks’ time before re-assessment order is framed, so that assessee may prefer filing of Writ Petition before the Hon’ble jurisdictional High Court against the re-opening of assessment.
Thus, we also note that Hon’ble Madras High Court (Division Bench) decision on 16.12.2020 in the case of CIT v. Janak Shanthilal Mehta (supra) has clearly held that omission on the part of the AO to follow the binding directions of the Hon’ble Supreme Court in the case of M/s.GKN Driveshafts (India) Ltd., would vitiate the re-opening of assessment and consequent re- assessment order passed u/s.147/143(3) of the Act has to be quashed. For completeness, we note the Hon’ble Madras High Court in the case of Home Finders Housing Ltd.(supra), wherein it has been held that non-compliance of the directions of the Hon’ble Supreme Court in the case of M/s.GKN Driveshafts (India) Ltd., would tantamount to irregularity and in such cases, the re-assessment be restored back to the file of the AO to pass speaking order on the objections raised by the assessee, nevertheless, we find that the order in the case of Home Finders Housing Ltd., (supra) was a decision rendered earlier to the decision held by the Hon’ble Division Bench in CIT v. Janak Shanthilal Mehta (supra) and in such an event i.e. when there are two conflicting views between the order of Hon’ble High Court of co-equal strength (of the same Court) then, later pronouncement of the Hon’ble Court is binding on us as :-10-: ITA. No.:415 /Chny/2025 held by the Hon’ble Delhi High Court in the case of Bhika Ram & Ors. v.
UOI reported in [1999] 238 ITR 113 (Delhi-HC) though in the context of two views expressed by the Hon’ble Supreme Court on an issue, wherein, it was held that the later view of the Hon’ble Supreme Court Bench of equal strength will prevail over the earlier view has held as under: -
“The petitioners seek a direction to the Land Acquisition Collector to refund the amount of tax deducted from the amount of interest awarded to them under Sections 28 and 34 of the Land Acquisition Act, 1894. The tax was deducted at source consistently with the obligation of the Land Acquisition Collector created by Section 194A of the Income-tax Act, 1961. According to the petitioners, the amount of interest being not liable to tax, the Land Acquisition Collector was not justified in deducting the tax at source. The issue is no more res Integra in view of same pronouncement of the Supreme Court in Bikram Singh v. Land Acquisition Collector [1997] 224 ITR 551, wherein their Lordships have held that such an amount of interest on delayed payment of compensation determined under the Land Acquisition Act was a revenue receipt exigible to income-tax under Section 4 of the Act. However, the claimant would be entitled to spread over the income for the period for which payment came to be made, so as to compute the income for assessing tax for the relevant accounting year. In view of the law so laid down the petitioner is not entitled to the relief prayed for. However, learned counsel for the petitioner relied on Satinder Singh v. Umrao Singh, , to submit that compensation would not be treated as income. Learned counsel further submitted that the decision of the Supreme Court in Satinder Singh's case was not brought to the notice of the Supreme Court when Bikram Singh's case [1997] 224 ITR 551, was decided. It is also submitted that the reasoning on which their Lordships have proceeded in the case of Satinder Singh, , was also not argued before the Supreme Court in Bikram Singh's case [1997] 224 ITR 551. Not only are we not satisfied about the correctness of the submission so made, we are also of the opinion that such a plea is not open for consideration by us and Bikram Singh's case [1997] 224 ITR 551 (SC), being a later pronouncement of the Supreme Court by a Bench of co-equal strength, it is binding on us. The senior standing counsel for the Revenue has pointed out that the definition of interest has undergone a change after the pronouncement of the Supreme Court in the case of Satinder
:-11-: ITA. No.:415 /Chny/2025
Singh,. He also submitted that in Satinder Singh's case, the interest paid was by way of compensation while in the case at hand interest has been allowed as interest on the amount of compensation in accordance with the statutory provisions. The petitioner is at liberty to have the income on account of interest assessed by seeking spread over consistently with the law laid down by the Supreme Court in the case of Bikram Singh [1997] 224 ITR 551. So far as the present petition is concerned, we hold the petitioner not entitled to any relief. The petition is dismissed. No order as to costs”.
Thus, in the light of the above discussion, we are of the considered view that the assessee succeeds on the legal issue that the AO failed to comply with the binding directions of the Hon’ble Supreme Court in the case of M/s. GKN Driveshafts (India) Ltd., before framing the reassessment order. The AO rejecting objections of the assessee against re-opening by merely doing so while passing the re-assessment order, wouldn’t come to the rescue of the Revenue because such an action of AO is noted to be in gross- defiance to the binding order of the Hon’ble Supreme Court; and the AO couldn’t have over reached the order of the Hon’ble Supreme Court by disposing off the objections while framing the re-assessment order, which defeats the purpose of such an exercise as discussed supra. Therefore, we hold that the omission on the part of the AO to comply with the directions of the Hon’ble Supreme Court in the case of M/s. GKN Driveshafts (India) Ltd., strikes at the root of the jurisdiction of the AO to re-open the assessment and consequent passing of reassessment order dated 28.03.2022 is held to be non-est in the in the eyes of law and all other grounds are academic and not adjudicated. Therefore, on the legal issue as discussed, we quash the re-assessment order dated 28.03.2022 passed u/s.147 r.w.s 144 r.w.s 144B of the Act for AY 2015-16.
:-12-: ITA. No.:415 /Chny/2025
In the result, appeal filed by the assessee is allowed.
Order pronounced in the court on 10th October, 2025 at Chennai.