ITO 19(2)(5), MUMBAI vs. PRAKASHMAL G. ARNAIYA, MUMBAI

The first common issue in and 4636/Mum/2016 for AY 2006-07 of assessee’s appeals in the case of Ashok Kumar G. Arnaiya and Prakashmal G. Arnaiya is against the order of CIT(A) confirming the actions of the AO’s in upholding the re-assessment proceedings without following the procedures laid down by the Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO 259 ITR 19 (SC). The facts 3 4622,4635,4636, 4638/mum/2016 and circumstances are exactly identical in both the assessee’s cases, hence, we will take the facts from ITA No. 4635/Mum/2015 in the case of Ashok Kumar G. Arnaiya and decide the issue. For this, both the assessee have raised identical worded grounds and the ground as raised reads as under: - “grounds in the case of Ashok Kumar G. Arnaiya

On the facts and in the circumstances of the case and in law, the learned CIT(A)-30, Mumbai has erred in confirming the action of the assessing officer in not following the procedure laid down by the Supreme Court in respect of the reassessment proceedings u/s 147 by no' providing the copy of reasons recorded u/s 148.”

Brief facts are that the assessee filed his return of income for AY 2006-07 on 31.10.2006 and the return was processed under section 143(1) of the Act. Thereafter, the AO received information from DGIT, Mumbai, who in turn received information from sales tax department, Govt. of Maharashtra that assessee is one of the beneficiaries of accommodation bills issued by Hawala parties and assessee has obtained bogus bills amounting to ₹ 79,20,586/-. Therefore, the AO after 4 4622,4635,4636, 4638/mum/2016 recording the reasons issued notice under section 148 of the Act dated 28.03.2013. The assessee received this notice under section 148 of the Act on 06.04.2013 and assessee vide letter dated 26.04.2013 stated that the original return filed u/s 139(1) of the Act may be treated as return filed in response to notice under section 148 of the Act and also objected to the issuance of notice. The assessee requested the AO to give reasons for reopening of the assessment vide letter dated 26.04.2013. The assessment was completed by the AO without the supply of reasons recorded for reopening of assessment. The AO proceeded to complete the reassessment of income by issuing notice under section 142(1) of the Act calling the details required for reassessment. According to assessee, the AO has not followed the correct procedure as laid down by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO 259 ITR 19 (SC). But the AO framed the assessment and no reasons were supplied. This was challenged before CIT(A) and CIT(A) rejected the contention of the assessee that the reasons for reopening were made known to assessee during the reassessment proceedings and assessee has duly participated in the assessment proceedings and hence, now it is not correct to raise the issue on procedural formality. The CIT(A) rejecting the contentions of the assessee vide Para 6.3 as under: - “6.3 The third issue raised on the reopening of the assessment is that, though the AO was requested to give reasons for reopening, without considering the plea the Ld. AO proceeded to reassess the income by issuing notice dated 31-07-2013 u/s 142(1) of the Act. Ld. ITO not followed the correct procedure as has been laid down by the Hon'ble SC in the case of GKN Driveshaft (I) Ltd vs. ITO reported in 259 ITR 19. Reliance is also placed on cri vs. VSN Ltd. 340 ITR 66 (2011) and Mangalore Ganesh Beedi Works 5 4622,4635,4636, 4638/mum/2016 vs. CIT 273 1TR 56 & Kothari Metals vs. ITO (Kar.). In this regard, on perusal of the assessment order it is noticed that, a show cause notice was issued on 03-02-2014 asking him to establish the genuineness of the purchases with identities, mentioning the same reasons recorded for the reopening. Vide order sheet entry dated 13-03-2014, AR was informed about the issues related to the bogus purchases and was asked to produce the parties who are in the list of Sales Tax information, to prove the genuineness of the purchase (All these things show that reasons for reopening were made known to him during the proceedings. 'Moreover, the appellant also duly participated in the assessment proceedings and furnished the details called for, from time to time. Therefore, it is not correct now to raise the issue of procedural formality and objecting the proceedings and also asking to quash the order. The AR himself mentioned in the written submissions, that the order has mentioned the reasons for reopening being information received from sales tax department and from DGIT (Inv.), which shows that they are well aware of the reasons for reopening. Accordingly, the objections raised on this count, are dismissed and I am proceeding to decide the issue on merits.”

Before us, the learned Counsel for the assessee relied on the decision of Hon’ble Bombay High Court, wherein exactly on similar issue, where reasons were not supplied by the AO to the assessee, the reassessment framed was declared as void and quashed.

We find that this issue is covered by the decision of Hon’ble Bombay High Court in the case of CIT vs. Videsh Sanchar Nigam Ltd [2012] 340 ITR 66 (Bombay), wherein it is held that 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. Hon’ble High Court held as under: - “2. The finding of fact recorded by the Income-tax Appellate Tribunal is that in the present case the reasons recorded for reopening of the assessment though repeatedly asked by the assessee were furnished only after completion of the assessment. The Tribunal following the judgment of this court in the case of CIT v. Fomento Resorts & Hotels Ltd., IT Appeal No. 71 of 2006, dated 27-11-2006, has held that though the reopening of the assessment is within three years from the end of the relevant assessment year, since the reasons recorded for reopening of the assessment were not furnished to the assessee till the completion of assessment, the reassessment order cannot be upheld. Moreover, special leave petition filed by the Revenue against the decision of this court in the case of Fomento Resorts & Hotels Ltd. (supra) has been dismissed by the apex court, vide order dated July 16, 2007. "

We find that in the present case before us also, the assessee asked the AO vide letter dated 26.04.2013 that reasons recorded be supplied before the completion of assessment but no reasons were supplied till the appellate order was passed by CIT(A) and even now. The CIT(A) has categorically recorded the finding of facts and his observation 7 4622,4635,4636, 4638/mum/2016 that the AO was requested by the assessee to give reasons for reopening. But, without considering the plea the AO proceeded to reassess the income by issuing notice dated 31-07-2013 under section 142(1) of the Act. It was pleased before CIT(A) by the assessee that ITO has not followed the correct procedure as has been laid down by the Hon'ble SC in the case of GKN Driveshaft (I) Ltd vs. ITO reported in 259 ITR 19. Reliance is also placed on cri vs. VSN Ltd. 340 ITR 66 (2011). The CIT(A) noted that on perusal of the assessment order it is noticed that, a show cause notice was issued on 03-02-2014 asking assessee him to establish the genuineness of the purchases with identities, mentioning the same reasons recorded for the reopening. Vide order sheet entry dated 13-03-2014, assessee was informed about the issues related to the bogus purchases and was asked to produce the parties who are in the list of Sales Tax information, to prove the genuineness of the purchase (All these things show that reasons for reopening were made known to him during the proceedings. 'Moreover, the assessee also duly participated in the assessment proceedings and furnished the details called for, from time to time. Therefore, according to CIT(A) it is not correct now to raise the issue of procedural formality and objecting the proceedings and also asking to quash the order. From the above finding of the CIT(A), we are of the view that the assessee was never supplied the reasons recorded for reopening of assessment under section 147 read with section 148 of the Act. In view of the decision of Hon’ble Bombay High Court in the case of Videsh Sanchar Nigam Ltd (supra), we quash the reassessment and allow the appeal of the assessee.

Similar is the position in both the appeals of the assessee and hence, reassessment in both the assessee’s cases is quashed.