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Income Tax Appellate Tribunal, HYDERABAD BENCH “B-SMC”, HYDERABAD
Before: SHRI J. SUDHAKAR REDDY
This is an appeal filed by the assessee directed against the order CIT(A) – 4, dated 23/03/2016 of Hyderabad, passed u/s 250 of the Income-tax Act, 1961 (in short ‘the Act’).
The only issue that arises for my adjudication is whether the assessment order is valid in law when the AO has not disposed of the objections filed by the assessee to the reopening of assessment by the AO.
The assessee is an individual and is a director of the company M/s Mahavir Enterprises pvt. Ltd., Hyderabad. He filed his return of income for AY 2004-05 on 28/09/2004 declaring total income of Rs. 2,39,667/-. AO issued notice u/s 148 of the Act dated 05/08/2010 to the assessee for reopening the assessment. The assessee filed a letter dated 13/09/2010 requesting the AO to treat return of income originally filed, as a return filed, in response to the notice u/s 148 of
2 ITA No. 873/Hyd/16 Sanket M. Dharod the Act. In this letter, he sought reasons for reopening the assessment. Vide letter dated 18/02/2011, the AO intimated the assessee that the company M/s Mahavir Enterpises Pvt. Ltd., Hyderabad, in which, assessee is a director, had claimed expenditure of Rs. 10,87,500/- under the head ‘Management Development Expenses’ to the assessee. AO further stated that as per the directions of the ITAT in the case of M/s Mahavir Enterprises Pvt Ltd., the amount spent on this training should be treated as a perquisite in the hands of the assessee, hence, the reopening of assessment was made. The assessee vide letter dated 20/10/2011 filed objections to the reopening. In these objections, the assessee stated as under: “1.1 Accordingly, it is presumed that such reason would be covered u/s 150(1) and the reassessment was made in consequent if or to give effect to any finding or direction contained in an order passed by any authority under this Act by way of appeal, reference or revision or by a court in any proceeding under any other law.”
3.1 After referring to certain case law, he further stated the following objections: “2.1 Tribunal passed order in the case of Mahavir Enterprises (P) Ltd. and not on assessee. Hence, the passing comment made by the Tribunal in such an order cannot be a valid basis for reopening the assessee’s case.
2.2 The Tribunal did not give any opportunity for the assessee while deciding the case of Mahavir and accordingly such direction is not valid.”
3.2 Later, on 30/10/2011, the AO once again stated that the following are the reasons for reopening of assessment: “In connection with the reopened scrutiny proceedings in your case for the AY 2004-05. It is noticed that the company M/s. Mahavir Enterprises Private Limited, Hyderabad has paid an amount of Rs. 10,87,500/- for your training and the same is claimed as expenditure under the head '"Management Development Expenses".
You have to show the amount as perquisites as part of your salary. But, You have not included the same in the return filed by you for the Asst. Year 2004-05. The same is to be treated as perquisite taxable in your hands.
3 ITA No. 873/Hyd/16 Sanket M. Dharod
There is failure on your part to disclose fully and truly all material facts necessary for assessment. Hence. I have a reason to believe that the income has escaped assessment for the A.Y.2004-05 to the tune of Rs. 10,87,500/-. Hence, re- opened the case.
3.3 Accordingly, the AO completed the reassessment u/s 147 of the Act and made an addition of Rs. 10,87,500/- in the hands of the assessee. When, the assessee preferred an appeal before the CIT(A), the CIT(A) confirmed the order of the AO.
Aggrieved by the order of CIT(A), the assessee is in appeal before us.
Considered the rival submissions and perused the material on record. It is observed that the AO has not disposed of the objections filed by the assessee to the reopening of assessment, prior to completion of assessment or even thereafter. Thus, the procedure laid down by the Hon’ble Supreme Court in the case of GKN Drive Shafts (India) Ltd. Vs. ITO, 259 ITR 9, has not been followed.
The Hon’ble Bombay High Court in the case of Bayer Material 5.1 Science Pvt. Ltd. v. DCIT(2016) 382 ITR 333 (Bom.)(HC) held that non-disposal of objections and providing the assessee with the recorded reasons towards the end of the limitation period and passing a reassessment order without dealing with the objections results in gross harassment to the assessee which the Pr. CIT should note and take remedial action.
5.2 The Hon’ble Gujarat High Court in the case of Arvind Mills Ltd. Vs. ACWT (2004) 270 ITR 469 (Guj.) held that the AO should pass a specific order disposing off objections.
4 ITA No. 873/Hyd/16 Sanket M. Dharod 5.3 In the case of Veer Verdhman Finance Investment Pvt. Ltd. Vs. DCIT, the ITAT, Delhi in order dated 27/11/2007 held that non- disposal of objections raised makes reassessment invalid. They followed the following decisions: i. ITO Vs. ML Creations (ITA No. 4009/Del/2019. ii. Shyam Mukherjee Vs. ITO, ITA No. 4141/Del/2016.
5.4 Respectfully following the ratios laid down in the above cases, I hereby quash the reassessment made by the AO u/s 147 of the Act as bad in law for the reason that the AO has failed to dispose off the objection raised by the assessee to the reopening of assessment.
In the result, appeal of the assessee is allowed.
Pronounced in the open Court on 11th May, 2018.
Sd/- (J. SUDHAKAR REDDY) ACCOUNTANT MEMBER
Hyderabad, Dated: 11th May, 2018 kv
Copy to:-
1) Sanket M. Dharod, H.No. 4-123/1, Survey No. 120/5, Near Dundigal P.S., Dundigal, Gandimaisamma, RR Dt. – 500 043 2) DCIT, Circle – 5(1), IT Toweers, AC Guards, Hyderabad. 3) CIT(A) –4, Hyderabad. 4) Pr. CIT - 4, Hyd. 5) The Departmental Representative, I.T.A.T., Hyderabad. 6) Guard File