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Facts
The Assessee's original assessment for AY 2009-10 was completed under Section 143(3). The case was reopened under Section 147 based on information about alleged hawala transactions and excessive expense claims. The Assessee challenged the reopening, arguing that the Assessing Officer failed to provide reasons and dispose of objections before proceeding with the assessment, as mandated by the Supreme Court.
Held
The tribunal held that the Assessing Officer's failure to follow the mandatory procedural requirements, specifically providing reasons for reopening and disposing of objections prior to issuing statutory notices and proceeding with assessment, vitiated the entire reopening process and the subsequent assessment order. Citing several High Court decisions reaffirming the mandatory nature of the GKN Driveshafts judgment, the tribunal quashed the reopening notice and assessment order.
Key Issues
Whether the reopening of assessment and the consequential assessment order are valid if the Assessing Officer fails to adhere to the mandatory procedural requirements of providing reasons for reopening and disposing of objections before proceeding with the assessment.
Sections Cited
147, 148, 143(3), 250, 142(1), 143(2)
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Income Tax Appellate Tribunal, “C” BENCH MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRYSHRI PRABHASH SHANKARShri Rahul Sarda, CA Shri Virabhadra Mahajan (SR. DR)
Date of Hearing : 28.01.2026 Date of Pronouncement : 11.03.2026 आदेश / ORDER
PER NARENDER KUMAR CHOUDHRY, JM:
This appeal has been preferred by the Assessee against the order dated 13.02.2025 impugned herein passed by the National Faceless Appeal Centre (NFAC), Delhi/Ld. Commissioner of Income Tax (Appeals) [in short “Ld. Commissioner] u/s 250 of the Income Tax Act, 1961 [in short “the Act”] for the A.Y 2009-10.
2. In this case, the Assessee had declared its total income at Rs. 68,42,900/- by filing return of income on dated 29.09.2009, Combine Diamonds Pvt. Ltd. which was assessed u/s 143(3) of the Act and vide assessment order dated 29.12.2011.
3. Subsequently, the case of the Assessee was reopened u/s 147 of the Act by issuing noticedated 23.03.2016 u/s 148 of the Act, on the following reasons.
The return of income for the A.Y. 2009-10 was filed on 29.09.2009 declaring total income at Rs. 68,42,900/ Subsequently assessment u/s 143(3) of the Act has been completed on 29.12.2011.
Thereafter, information has been received from the investigation Wing of the Income Tax Department Mumbai, forwarding the details of hawala transactions routed through the hawala dealers and copy of statements recorded by Investigation Wing. The information contains that the Investigation Wing has examined the hawala dealers and recorded their statement wherein they have admitted that they had issued tax invoice only to the parties without delivery of actual material/goods.
From the list of such hawala dealers as provided by the Investigation Wing. Mumbai, it is noticed that the Assessee company is one of the beneficiaries with regard to the purported transactions of purchases alleged to have been made from the following parties and these materials facts have not been disclosed by the Assessee during the scrutiny proceedings for A.Y 2009-10 Sr. Name of the concerns A.Y. Amount No. 1 Sun Raj Export 2009-10 Rs.81.63.086 2 Shri Om Export 2009-10 Rs.77,03.477 3 Amarnath Diamonds Pvt. 2009-10 Rs.3,35,64,125 Ltd., 4 Marvel Enterprises 2009-10 Rs.96,89,788 5 Saransh Gems 2009-10 Rs.28,12,656 Total Rs.6,19,33,132
The above information has been examined and finds that the Assessee has claimed excessive expenses on account of purchases from the above hawala dealers resulting into under- Combine Diamonds Pvt. Ltd. assessment and therefore, the income chargeable to tax has escaped assessment which amounts to more than I le for F.Y 2008 09 by the reason of the failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment for that Assessment Year during the scrutiny proceedings u/s. 143(3) of the I. T. Act. 4. The Assessee in response to aforesaid notice u/s 148 of the Act, filed its reply on dated 04.04.2016 and claimed that the return filed on dated 29.09.2009 may be treated as return filed in response to the notice u/s 148 of the Act. The Assesseeby such letter dated 04.04.2016 and thereafter vide letter dated 21.05.2016, also requested to provide the reasons recorded for issuing notice u/s 148 of the Act.
The Assessing Officer [in short “the Ld.AO”]without providing the reasons for reopening as sought for by the Assessee, somehow proceeded with the assessment proceedings by issuing notice dated 01.07.2016 u/s 142(1) of the Act.
5.1 However the AO thereaftervide letter dated 15.07.2016 issued/communicated/forwarded the reasons recorded for reopening of assessment u/s 147 of the Act, to the Assessee. And without waiting for the Assessee to file objectionsif any, to the reopening u/sec. 147 of the Act and / or notice u/s 148 of the Act, also issued statutory notices dated 15.07.2016 u/s 142(1) and 143(2) of the Act, on the very same date.
The Assesseethereafter vide letter dated 06.09.2016 filed objectionsto the reopening of assessment proceedings, which were disposed of by the AO, vide letter dated 09.09.2016. Thereafter the AO issued statutory notices to the Assessee and ultimately vide assessment order dated 15.12.2016 u/s 143(3) r.w.s 147 of the Act, made the addition of Rs. 29,35,440/-. Combine Diamonds Pvt. Ltd.
Thus, the Assessee being aggrieved has challenged the reopening of the proceedings u/s 147 of the Act and the assessment order as well as addition made by the AO, by raising various grounds before Ld. Commissioner, who vide impugned order dated 13.02.2025 not only sustained the reopening of the assessment proceeding but also the addition made by the AO by dismissing the appeal of the Assessee.
Thus, the Assessee being aggrieved has preferred instant appeal, on various grounds and during the hearing of this appeal emphasis on revised ground no. I of appeal, which read as under:
As the ground raised by the Assessee, is legal in nature and goes to the roots of the case and therefore we deem it appropriate to decide this legal ground first, before proceedings to the merits of the case.
The Assessee at the outset has demonstrated that the AO in response to the letter dated 04.04.2016, provided the reasons for reopening, vide letter dated 15.07.2016 however, without waiting further and/or giving any opportunity to the Assessee for filing objections the reason recorded and reopening of the proceedings u/s 147 and issuing the notice u/s 148 of the Act, immediately Combine Diamonds Pvt. Ltd. issued statutory notices u/s 142(1) and 143(2) of the Act on the very same day. And thus, violated the dictum laid down/parameters set out by the Hon’ble Apex Court in the case of GKN Driveshafts (Ind) Ltd Vs. ITO, [2003] 225 ITR 19 (SC) to the effect:
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.
10.1 TheAssesseein support of aforesaid contention also relied on various judgments, which we will deal with in the latter part of this order.
On the contrary, the Ld. DR refuted the claim of the Assessee by submitting that the AO duly provided the reasons for reopening and thereafter disposed of the objections raised by the Assessee, vide orderdated 09.09.2016 by speaking order and thereafter issued various statutory notices, in order to examine the case of the Assessee and therefore it cannot be said that the AO has violated the judgments, referred to by the Assessee.
Heard the parties and perused the material available on record. As observed above, admittedly the AO in response to the letter dated 04.04.2016 filed by the Assessee in response to the notice on dated 26.03.2016 u/s 148 of the Act, communicated/supplied the reasons recorded for reopening of the proceeding u/s 147 of the Act vide letter dated 15.07.2016, Combine Diamonds Pvt. Ltd. against which the Assessee filed its objections. The AO thereafter duly disposed of such objections, vide order dated 09.09.2016.
Admittedly the AO in response to the letterdated 04.04.2016 and thereafter again on dated 20.05.2016 by which the Assessee had sought for reasons recorded, issued the initial notice dated 01.07.2016 u/s 142(1) of the Act and thereafter on dated 15.07.2016 u/s 142(1) of the Act, as well as u/s 143(2) of the Act, simultaneously issuing the reasons recorded, on the same day. Thus, the Assessee has raised the aforesaid legal issue.
Whereas, the Ld. DR has specifically relied on the judgment passed by the Hon’ble Madras High Court in the case of Home Finders Housing Ltd., Vs. ITO Corporate Ward 2(3), [2018] 93 taxmann.com 371 (Madras), wherein the Hon’ble Madras High Court has held as under:
That “non-compliance of procedure indicated in the GKN Driveshafts (Ind) Ltd (supra), would not make the order void or non-est. Such a violation in the matter of procedural is only an irregularity, which could be cured by remitting the matter to the authority.
The Ld. Counsel for the Assesseein rejoinder, drew our attention to the judgment passed by the Hon’ble High Court of Karnataka in the case of Hewlett Packard Financial Services (India) (P) Ltd., Vs. DCIT, [2023] 152 taxmann.com 559 (Kar), wherein the Hon’ble High Court has also taken into consideration such judgment in the case of Home Finders Housing Ltd (supra)and ultimately held as under:
“ In the light of the declaration of the Division Bench of this court in the case of Deepak Extrusion (P) Ltd Vs. DCIT, [2017] 80 taxmann.com 77 (KAR), the judgment of the Madras High Court in the case of Home Finders Housing Ltd (supra), cannot be accepted as the procedure prescribed in the GKN Driveshafts Combine Diamonds Pvt. Ltd. (Ind) Ltd (supra), is mandatory procedure, which would vitiate the assessment order.
We further observe that the Jurisdictional High Court in the case of Fomento Resorts & Hotels Ltd VS ITO, in Tax Appeal No. 63 of 2007 decided on dated 30.08.2019 has also taken into consideration the judgment in GKN Driveshafts (Ind) Ltd case (supra),and set aside the impugned order for want of compliance with the jurisdictional parameters, as laid down by the Hon’ble Apex Court in such case.
The Hon’ble Jurisdictional High Court in the case of CIT Vs. Videsh Sanchar Nigam Ltd., [2012] 21 taxmann.com 53 / 304 ITR 66 has also considered the parameters set out by the Hon’ble Apex Court in the case of GKN Driveshafts (Ind) Ltd (supra) andheld “that non-furnishing of reasons would made an assessment order bad in law, in view of decision in GKN Driveshafts (Ind) Ltd. case (supra)”.
Further, the Hon’ble Jurisdictional High Court in the case of Pr. CIT Vs.Shodiman Investments P. Ltd., [2018] 93 taxmann.com 153(Bom), has also dealt with a case, wherein complete reasons were not provided to the Assessee and therefore Hon’ble High Court by taking cognizance of the fact and the judgment of the Hon’ble Apex Court in the case of GKN Driveshafts (Ind) Ltd. (supra),held “that non-providing the reasons recorded in support of the reopening notice in its entirety to the Assessee, was contrary to and in defiance of the decision of Hon’ble Apex Court in the case of GKN Driveshafts (Ind) Ltd (supra), as the entire object of reasons for re-opening notices as recorded being made available to an Assessee, is to enable the AO to have a second look at his reasons recorded before he proceeds Combine Diamonds Pvt. Ltd. to assess the income, which according to him, has escaped assessment”.
We further observe that the Hon’ble Gujarat High Court in the case of Troikaa Pharmaceuticals Ltd Vs. DCIT, [2023] 156 taxmann.com 621, has also dealt with the identical issue/case, wherein objections filed by the Assessee against the reasons recorded and reopening of the assessment proceedings were deferred to and the AO proceeded with the assessment proceedings by issuing statutory notices, including u/s 142(1) of the Act. However, subsequently, the AO disposed of the objections on dated 31.08.2021 and thereafter passed the assessment order dated 19.09.2021, finally.
Thus, the Hon'ble High Court by considering the judgment in the case of GKN Driveshafts (India) Ltd (supra) held “that without disposing off the objections raised by the Assessee vide letter on dated 03.06.2020, notice u/s 142(1) of the Act was issued to the Assessee on dated 05.02.2021 by the Ld.AO, thus this was in violation of the principles set out in such decision”and ultimately quashed the notice dated 06.03.2020 u/s 148 of the Act, the order disposing off the objections dated 31.08.2021 and the assessment order dated 19.09.2021 by allowing writ petition of the Assessee.
As the mandate of the Hon’ble High Courts is clear on this aspect that guidelines/dictum laid by the Hon’ble Apex Court in the case of GKN Driveshafts (Ind) Ltd (supra), is mandatory in nature and non-compliance/violation of the same would result into quashing the reopening proceedings, notice u/s 148 of the Act and consequential assessment order passed, in pursuance thereto. Combine Diamonds Pvt. Ltd.
Now coming to the instant case, admittedly, despite asking reasons recorded for reopening u/s 147 of the Act, specifically, vide lettersdated 04.04.2016 and 21.05.2016, the AO did not provide the reasons recorded but proceeded to issue statutory notice on dated 01.07.2016 u/s 142(1) of the Act to the Assessee, who in response filed its reply on dated 14.07.2016. Thereafter only, the AO provided/intimated the reasons recorded, vide letter dated 15.07.2016 and without waiting for the Assessee to file objections against the reopening and/or without affording reasonable time to the Assessee for filing of objections, on the very same day, also issued two notices u/s 142(1) and 143(2) of the Act, simultaneously. Somehow, the Assessee filed its objections on dated 06.09.2015, which were disposed of by the AO on dated 09.09.2016.
Therefore, from the aforesaid facts, it has become clear that before providing the reasons for reopening of the proceeding, the AO initiated/proceeded with the assessment proceedings by issuing notice dated 01.07.2016 u/s 142(1) of the Act and thereafter on the very same day i.e. 15.07.2016 not only provided the reasons recorded for reopening but also issued statutory notices u/s 142(1) and 143(2) of the Act simultaneously, which goes to show non-compliance to the dictum laid down by the Hon’ble Apex Court in the case of GKN Driveshafts (Ind) Ltd (supra)and thus such violation would entail quashing of the notice dated 26.03.2016 u/s 148 of the Act along withassessment order passed in pursuance to such notice u/s 148 of the Act being voi d- ab-initio. Hence the same are quashed. Combine Diamonds Pvt. Ltd.
In the result, the appeal filed by the Assessee stands allowed.
Order pronounced in the open court on 11.03.2026 (PRABHASH SHANKAR) JUDICIAL MEMBER Mumbai, Dated /03/2026 KRK, Sr. PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant प्रत्यर्थी / The Respondent. 2. 3. संबंधित आयकर आयुक्त / The CIT(A) 4. आयकर आयुक्त(अपील) / Concerned CIT 5. धिभागीय प्रधतधिधि, आयकर अपीलीय अधिकरण,मुम्बई/ DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशानुसार/BY ORDER, सत्याधपत प्रधत ////
1. उि/सहायक िंजीकार ( Asst.