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Income Tax Appellate Tribunal, BANGALORE BENCH ‘ C ’
Before: SHRI VIJAY PAL RAO & SHRI JASON P BOAZ
Per Shri Vijay Pal Rao, J.M. : This appeal by the revenue and Cross Objection by the assessee are directed against the order dt.1.6.2015 of Commissioner of Income Tax (Appeals) for the Assessment Year 2006-07. 2. The assessee is an individual and engaged in real estate development. The assessee filed its return of income for the Assessment 2 & C.O. NO.224-Bang-2015 Year under consideration on 21.12.2006 declaring total income of Rs.2,91,36,612 including agriculture income of Rs.2 lakhs. The return of income was processed under Section 143(1) of the Income Tax Act, 1961 (in short 'the Act'). Thereafter the Assessing Officer proposed to reopen the assessment by issuing a Notice under Section 148 on 30.03.2012 by recording the reason that during the course of search proceedings in case of Shri Sohanraj Mehta as well as M/s. Mehta Associates on 10.10.2009 a number of incriminating documents pertaining to unaccounted sales transactions of Gutka made by Shri Sohanraj Mehta, C & F Agent of Rasiklal Manikchand Group. The seized documents also indicate that Shri Sohanraj Mehta had made various payments in cash including the payment to the assessee to the extent of Rs.32,31,09,000 on the instruction of Shri Rasiklal Manikchand during the period from April, 2003 to October, 2006. One of the ledger extract seized showed payments of Rs.7,16,22,000 on 8.10.2006. Accordingly, the Assessing Officer was of the view that the said cash transactions constitute the income to the tune of Rs.32,31,09,000 which has escaped assessment for the Assessment Years 2005-06 to 2007-08. The Assessing Officer accordingly reopened the assessment inter alia for the year under consideration to assess the income of Rs.3,91,71,662. The Assessing Officer completed the reassessment under Section 147 r.w.s. 143(3) on 20.3.2013 whereby the addition of Rs.5 Crores was made by the Assessing Officer. Aggrieved by the action of the Assessing Officer, the assessee filed an appeal before the CIT (Appeals) and challenged the validity of reopening. The CIT (Appeals) quashed the reassessment on 3 ITA No.1220-Bang-2015 & C.O. NO.224-Bang-2015 the ground that the objections against notice issued under Section 148 of the Act has not been disposed off by the Assessing Officer by a separate order but the same has been dealt with in the course of assessment order itself. Since the issue of validity of reassessment has been decided by the CIT (Appeals) by considering only one objection of the assessee out of various objections raised by the assessee in the appeal before the CIT (Appeals) therefore, both the revenue as well as assessee are aggrieved by the impugned order and raised the following grounds in the appeal as well as in the Cross objection as under : Revenue’s Grounds
First we take up the appeal of the revenue wherein the revenue has challenged the impugned order of the CIT (Appeals) quashing the reassessment for want of deciding objections against the notice under Section 148 of the Act by a separate order. The ld. DR has submitted that 6 & C.O. NO.224-Bang-2015 it is a case where the assessee has filed the objection only on 28.3.2013 and therefore it was not possible for the Assessing Officer to defer the completion of assessment which was time barring on 31.3.2013. Thus in the circumstances wherein the Assessing Officer was having no option but to deal with the objection of the assessee along with the assessment proceedings in a combined assessment order. He has relied upon the following decisions : i. Keshav Shares & Stocks Ltd. Vs. ITO 326 ITR 553 (Delhi) ii. Allana Cold Storage Ltd. Vs. ITO 287 ITR 1 (Bom). iii. ACIT Vs. Mukut Mahal Banquet Pvt. Ltd. in ITA No.226/Del/2012 Dt.23.11.2012. iv. Hajee Hameed Vs. DCIT in ITA Nos.511 to 576/Bang/2009 dt.28.09.2011 Thus the ld. DR has submitted that the proper course for the CIT (Appeals) on this issue was to direct the Assessing Officer to decide the objections of the assessee by separate speaking order and therefore the remedy was only to follow the directions of the Hon'ble Supreme Court in the case of GKN Driveshafts India Ltd. Vs. ITO & Ors. 259 ITR 19. The Hon'ble Delhi High Court in the case of Keshav Shares & Stocks Pvt. Ltd. Vs. ITO (supra) after considering all the relevant decisions on this issue found that it was proper to set aside the assessment order with direction to Assessing Officer to pass a speaking order on the objection as taken by the assessee against Notice under Section 148. The ld. DR then referred to the decision of Hon'ble Bombay High Court in the case of Allana Cold Storage Ltd. Vs. ITO (supra) and submitted that in the identical 7 & C.O. NO.224-Bang-2015 circumstances where the Assessing Officer did not decide the objection separately the Hon'ble High Court has set aside the matter to the Assessing Officer for passing a separate speaking order on the objection after hearing to the assessee. He has then referred to the decision of the co-ordinate Bench of this Tribunal dt.23.11.2012 in the case of ACIT Vs. Mukut Mahal Banquet Pvt. Ltd. (supra) and submitted that after considering all the decisions on this point the Tribunal has set aside the matter with direction to the Assessing Officer to follow the principle laid down by the Hon'ble Apex Court as reiterated by the Hon'ble jurisdictional High Court in the case of Sat Industries Pvt. Ltd. as well as the decision of Hon'ble Gujarat High Court in the case of MGM Exports Vs. DCIT 230 DTR 356.
On the other hand, the learned Authorised Representative has submitted that only one week was available to file the objections as the Assessing Officer did not provide the relevant information and documents to the assessee therefore the delay is not attributable to the assessee for filing the objections. He has further contended that the assessment order is without jurisdiction in view of the law laid down by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO (supra) as the Assessing Officer has not followed the same therefore the impugned assessment is invalid and liable to be quashed. The Assessing Officer cannot be given a second innings for make up the illegality in the assessment proceedings. In support of his contention, he has relied upon the decision of Hon'ble Bombay High Court dt.3.10.2016 in the case of KSS Petron P. Ltd. Vs. ACIT in ITA No.224 of 2014 as well as 8 & C.O. NO.224-Bang-2015 the decision of the Delhi Bench of the Tribunal in the case of Rajat Shubra Chatterji Vs. ACIT in ITA No.2430/Del/2015 Dt.20.05.2016.
Having considered the rival submissions as well as the relevant material on record, we note that so far as the legal proposition on the issue there is no quarrel that the Assessing Officer is bound to dispose off the objections raised by the assessee against the notice issued under Section 148 of the Act by a separate speaking order and thereafter the assessment order has to be passed as per law laid down by the Hon'ble Supreme Court in the case of GKN Drive Shafts (India) Ltd. Vs. ITO (supra). There are divergent views of the different High Courts on this issue as to whether the matter is required to be reconsidered at the level of the Assessing Officer for deciding the objections by a speaking separate order or the assessment order is liable to be quashed for want of a separate order of Assessing Officer deciding the objections prior to the passing of the assessment / reassessment order. The ld. DR has relied upon a series of decisions wherein the Hon'ble High Court of Delhi as well as Hon'ble Bombay High Court were of the view that if the objections of the assessee were not decided by the Assessing Officer by a separate speaking order then the matter was to be remanded to the Assessing Officer for deciding the objections first and then after allowing the assessee for a reasonable period to challenge the order of the Assessing Officer deciding the objections if the assessee chooses so and the assessment order has to be passed thereafter. After considering the relevant decisions on this point the co-ordinate Bench of Delhi Tribunal 9 & C.O. NO.224-Bang-2015 in the case of ACIT Vs. Mukut Mahal Pvt. Ltd. (supra) has analysed the legal proposition in paras 6 & 7 as under : “ 6. We have heard both the parties and have gone through the facts of the case. As is apparent from the facts of the case, the ld. CIT(A) quashed the reassessment proceedings merely because the AO failed to dispose of the objections raised by the assessee in their letter dated 5.11.2009 .There is no material before us, suggesting that the assessee raised any objections against issuance of notice u/s 148 of the Act immediately on receipt of notice dated 27.3.2009 issued by the AO or on receipt of a copy of the reasons on 9.9.2009.In terms of decision of Hon’ble Supreme Court in the case of GKN Shaft (India) Ltd. Vs. CIT,259 ITR 19(SC), if the AO did not dispose of the objections raised by the assessee in his letter dated 5.11.2009, the matter at best could be restored to the file of the AO for doing the needful. The approach of the ld. CIT(A) in quashing the assessment is not in accordance with law. In GKN Driveshafts(supra), the Hon'ble Apex laid down an elaborate procedure as to the manner of dealing with objections raised against a notice u/s 148 of the Act, in the following words: "However, we clarify that when a notice under section 148 of the Income-tax Act is issued, the proper course of action for the notice is to file a 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. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years." 6.1 In a subsequent decision in the case of Garden Finance Ltd. v. CIT (Asst.) [2004] 268 ITR 48 (Guj), the effect of the Supreme Court decision in the case of GKN Driveshafts [2003] 259 ITR 19 came up for consideration and by a majority opinion it was laid down by the Hon’ble Court: "What the Supreme Court has now done in the GKN Driveshafts (India) Ltd.'s case [2003] 259 ITR 19 is not to whittle down the principle laid down by the Constitution Bench of the apex court in Calcutta Discount Co. Ltd. case [1961] 41 ITR 191 but to require the assessee first to lodge preliminary objection before the Assessing Officer who is bound to decide the preliminary objections to issuance of the reassessment notice by passing a speaking order and, therefore, if such order on the preliminary objections is still against the assessee, the assessee will get an opportunity to challenge the same by filing a writ petition so that he does not have to wait till completion of the reassessment proceedings which would have entailed the liability to pay tax and interest on reassessment and also to go through the gamut of appeal, the second appeal before Income-tax Appellate Tribunal and then reference/tax appeal to the High Court. Viewed in this light, it appears to me that the rigour of availing of the alternative remedy before the Assessing Officer for objecting to the reassessment notice under section 148 has 10 & C.O. NO.224-Bang-2015 been considerably softened by the apex court in GKN Driveshafts (India) Ltd.'s case [2003] 259 ITR 19 in the year 2003. In my view, therefore, the GKN Driveshafts (India) Ltd. 's case [2003] 259 ITR 19 does not run counter to the Calcutta Discount Co. Ltd. case [1961] 41 ITR 191 (SC) but it merely provides for challenge to the reassessment notice in two stages, that is, (i) raising preliminary objections before the Assessing Officer and in case of failure before the Assessing Officer; (ii) challenging the speaking order of the Assessing Officer under section 148 of the Act." 6.2 Hon’ble Gujrat High Court in the case of Arvind Mills Ltd. vs. ACWT [2004] 270 ITR 469 (Guj) while following the aforesaid decision concluded that once the Supreme Court stated that the AO was bound to dispose of the objections by passing a speaking order, it was not open to the authorities to contend that in the absence of any provision in the Act, the authorities could not have passed a speaking order. Hon’ble Delhi High Court in the case of Delhi Tourism & Transport Development Corporation Ltd. vs. ACIT [2004] 141 Taxman 361 (Delhi), while relying upon the aforesaid decision of the Hon’ble Apex Court in GKN Drivesharfts (India) Ltd.(supra) directed to follow the procedure laid down by the Hon’ble Apex Court and pass a speaking order before passing the assessment order. 6.3 While adjudicating a similar issue, Hon’ble Gujrat High Court in the case of MGM Exports vs. DCIT [2010] 23 DTR 356 (Guj) observed as under:- “Applying the aforesaid settled legal position to the facts of the case it is apparent that the action of the respondent authority in framing the reassessment order, without first disposing of the preliminary objections raised by the petitioner, cannot be sustained. Accordingly, the reassessment order dated December 16, 2008 is hereby quashed and set aside and the respondent authority shall dispose of the preliminary objections by passing a speaking order and only thereafter proceed with the reassessment proceedings in accordance with law. Considering the fact that the normal period of limitation, for framing reassessment pursuant to notice dated March 3, 2008, issued under section 148 of the Act, has already expired on December 31, 2008, in the peculiar facts and circumstances of the case it would serve the ends of justice if the respondent authority is directed to abide by the following schedule : (i) The respondent authority shall dispose of the preliminary objections raised by the petitioner within a period of 4 (four) weeks from by passing a speaking order in accordance with law; (ii) Thereafter, the respondent authority shall undertake reassessment proceedings, if necessary, and shall complete the same within a period of 4 (four) weeks thereafter, i.e., the date of disposal of the preliminary objections; (iii) No extension of time shall be sought for by either side in the fact situation of the present case; (iv) The aforesaid schedule shall not preclude the rights of the petitioner to challenge the order disposing of the preliminary objections, if lie said order is required to be so challenged.”
11 & C.O. NO.224-Bang-2015 6.4 Recently, Hon’ble jurisdictional High Court in their decision dated 16.2.2012 in Sak Industries Pvt. Ltd. in W.P.(C) 7933/2010 restored the matter to the file of the AO, the reassessment proceedings having been completed with undesirable haste and hurry, in violation of principles of natural justice and contrary to the procedure mandated. 6.5 The position in law is thus well settled. In the instant case, the reasons were recorded before issuance of notice u/s 148 of the Act on 27.3.2009. There is no dispute that the notice was served on the assessee. There is also no dispute that the reasons recorded by the AO were supplied to the assessee on 9.9.2009. These reasons, indisputably, were the same as were recorded by the AO. After a notice for reassessment has been issued, an assessee is required to file the return and seek reasons for issuance of such notice. The AO is then bound to supply the reasons within a reasonable time. On receipt of reasons, the assessee is entitled to file preliminary objections to issuance of notice and the AO is under a mandate to dispose of such preliminary objections by passing a speaking order, before proceeding with the assessment in respect of the assessment year for which such notice has been issued.
In view of above settled legal position, we consider it fair and appropriate to vacate the findings of the ld. CIT(A) as also set aside the reassessment order and remit the matter to the file of the AO with the directions to follow the procedure laid down by the Hon’ble Apex Court reiterated by the Hon’ble jurisdictional High Court. The AO shall dispose of the preliminary objections by passing a speaking order and only thereafter proceed with the reassessment in accordance with law. With these observations, ground nos.1& 2 in the appeal are disposed of. As a corollary, the other ground nos. 3 & 4 raised in the appeal do not survive for adjudication at this stage and are , therefore, treated as infructuous.”
Similar view has been taken by the co-ordinate Bench of this Tribunal in the case of Hajee Hameed Vs. DCIT (supra) in paras 11 & 12 as under :
11. We have considered the rival submissions of both the parties and have carefully gone through the material available on record. In the present case, it appears that when the AO issued notice u/s. 148 of the Act for reopening the assessment, the assessee filed objections and those objections were not disposed of by the AO. This fact has also been admitted by the ld. CIT(A), who observed that he was not inclined to agree with the assessee that merely because the AO had not considered his objection to the notice u/s. 148, the entire assessment becomes bad in law. On a similar issue, Their Lordships of the Hon’ble Supreme Court in the case of GKN Driveshafts India Ltd. v. ITO & Ors. (2003) (supra) at page 20 held as under: “…. 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. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years.
12 & C.O. NO.224-Bang-2015 12. In the present case also, although the AO recorded the reasons and supplied the same to the assessee, but he had not disposed of the objections raised by the assessee by passing a speaking order. We therefore deem it appropriate to set aside the impugned order of the ld. CIT(Appeals) and remand the case back to the file of the AO to dispose of the objections filed by the assessee in respect of reopening by issuing notice u/s. 148 first and thereafter to decide the case afresh in accordance with the law, after providing due and reasonable opportunity of being heard to the assessee. Since we have remanded the case to the file of AO, we do not consider it fit and appropriate to go into the other grounds raised by the assessee on merits of the case.”
6. Having regard to the peculiar facts and circumstances of this case that the assessee filed the objection against the Notice under Section 148 only on 28.3.2013 and the Assessing Officer was left with no option but to finalise the assessment before the expiry of limitation for completing the assessment on 31.3.2013. Therefore the Assessing Officer has completed the assessment vide order dt.28.3.2013 whereby the objections of the assessee were also disposed off. Accordingly, we find that decisions relied upon by the ld. DR on this point are applicable in the facts of the present case and therefrom, we set aside the impugned order of the CIT (Appeals) as well as the assessment order and remit the matter to the record of the Assessing Officer for deciding the objections of the assessee by a separate speaking order and in case the objections of the assessee are rejected then after allowing the assessee a period of four weeks the Assessing Officer may pass the assessment order.
7. In the Cross Objection, the assessee has raised the objection against the reassessment on the ground that when the provisions of Section 153C are applicable in the case of the assessee then the Assessing Officer cannot resort to the provisions of Sections 147 and 148. These 13 ITA No.1220-Bang-2015 & C.O. NO.224-Bang-2015 objections of the assessee were not considered and decided by the CIT (Appeals) therefore, when the objections of the assessee are directed to be considered and decided by the Assessing Officer by a separate speaking order as the issue raised in the revenue’s appeal, the objections raised by the assessee in the C.O. are also therefore set aside to the record of the Assessing Officer for considering and deciding the same along with the other objections.
8. In the result, the revenue’s appeal and C.O. of the assessee are allowed for statistical purpose.
Order pronounced in the open court on the 27th day of Oct., 2017.