INCOME TAX OFFICER-6(4), LUCKNOW vs. SHRI ZARRAR HUSSAIN, LUCKNOW

PER T. S. KAPOOR, A.M.

This is an appeal filed by the Revenue against the order of learned CIT(A) dated 27/11/2019. In this appeal the Revenue has raised the following grounds:

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“1. The learned CIT(A) has erred in law and facts of the case that the comments made in remand report has not been appreciated.

I.T.A. No.89/Lkw/2020 C.O.No.01/Lkw/2022 3 Assessment Year:2011-12 before the completion of assessment proceedings and the non submissions of reasons to believe to assessee constituted a mere procedural/technical requirement and the absence of which would not vitiate the assessment in totality in view of judgment of Hon'ble Madras High Court in the case of Home Finders Housing Ltd. reported in 404 ITR 611. It was submitted that learned CIT(A), while deciding the issue in favour of the assessee, has not rightly appreciated the comments of the Assessing Officer in the remand report where he has mentioned that assessee had deposited challan for obtaining copy of reasons for reopening of the case in January, 2019 and the same was provided to him in the same month. In this respect our attention was invited to the contents of remand report produced by learned CIT(A) in his order. Learned D.R. further submitted that assessee had not filed return of income within prescribed time as mentioned by Assessing Officer in his notice issued u/s 148 of the Act therefore, such return is a non est. Learned D. R. submitted that learned CIT(A) has not considered these aspects which the Assessing Officer had specifically mentioned in his remand report. In view of these facts and circumstances, it was argued that the order of learned CIT(A) be cancelled and that of Assessing Officer be restored.

I.T.A. No.89/Lkw/2020 C.O.No.01/Lkw/2022 4 Assessment Year:2011-12 u/s 143(2) of the Act and has computed the total income by taking the income as per the return of income and after adding back the addition to the return of income filed by the assessee and therefore, it was argued that the return filed by the assessee was not considered as non est by the Assessing Officer. As regards the arguments of Learned D. R. that the assessee filed the return of income at the fag end of the limitation period and reasons were not demanded before the completion of assessment order, Learned counsel for the assessee submitted that on receipt of return of income the Assessing Officer, before completion of assessment proceedings, simply had to provide a copy of reasons recorded by the Assessing Officer and it was submitted that the assessee, vide letter dated 07/12/2018, had requested the Assessing Officer to provide copy of reasons recorded and in this respect invited our attention to the order of learned CIT(A) where the request of the assessee, demanding copy of reasons recorded, has been reproduced by learned CIT(A). Learned counsel for the assessee submitted that Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) has clearly held that in view of notice u/s 148, the assessee is required to file income tax return and is also entitled to get copy of reasons recorded before completion of assessment proceedings. It was submitted that Assessing Officer gave the copy of reasons recorded in the month of January, 2019 whereas the assessment was already completed on 12/12/2018 and therefore, it was submitted that the order passed by the Assessing Officer has rightly been annulled by learned CIT(A) after relying on number of case laws. Regarding the arguments of Learned D. R. that the assessee had deposited challan for obtaining reasons only in the month of January, 2019, Learned counsel for the assessee submitted that there is no fee prescribed for obtaining the reasons recorded and in this respect the provisions of section 147 and 148 were read. It was further

I.T.A. No.89/Lkw/2020 C.O.No.01/Lkw/2022 5 Assessment Year:2011-12 argued that in the provisions of section 147 and 148, there is no mention of any necessity of providing of reasons recorded to the assessee and therefore, there is no mention of any fee which should be paid for providing reasons recorded and it is only the judgments of courts including that of Hon'ble Supreme Court which requires the Assessing Officer to provide the copy of reasons recorded to the assessee. Learned counsel for the assessee submitted that Hon'ble Allahabad High Court in the case of Mithlesh Kumar Tripathi vs. CIT [2006] 280 ITR 16 (Alld) has clearly laid down that the reasons recorded has to be provided to the assessee along with the copy of notice u/s 148 and therefore, in view of these facts and circumstances it was submitted that there is no provision in the Act which requires the assessee to pay fee for obtaining the copy of reasons recorded. As regards the ground of appeal regarding application of judgment of Hon'ble Madras High Court in the case of Home Finders Ltd., Learned counsel for the assessee submitted that this judgment is not applicable to the facts and circumstances of the present case as in that case the issue was not the supply of reasons but was the issue of non passing of a speaking order against the objections filed by the assessee whereas in the present case the copy of reasons itself has not been supplied. In view of above, it was submitted that learned CIT(A) has rightly annulled the assessment.

I.T.A. No.89/Lkw/2020 C.O.No.01/Lkw/2022 6 Assessment Year:2011-12 did not produce the books of account or other documents, as required by the Assessing Officer and the Assessing Officer, on the basis of a letter issued u/s 133(6) to ICICI Bank, obtained the bank statement of the assessee and made certain additions to the income of the assessee on the basis of such entries in the bank statement. Against the assessment order, the assessee filed appeal before learned CIT(A) and a specific ground was taken regarding non providing of reasons recorded as required by the judgment of Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra). The assessee had taken this argument vide ground No. 3 before learned CIT(A). Learned CIT(A) obtained a remand report from the Assessing Officer on this specific ground taken by the assessee. The comments on ground of appeal No. 3 have been reproduced by learned CIT(A) in his order at page 5, which for the sake of completeness are reproduced below:

“Ground of appeal no. 3: Based on the facts and circumstances of the case and in law, the Ld. AO has grossly erred in not providing reasons for reopening of assessment under section 147 of the Act as demanded by the Appellant and has proceeded to frame the assessment which is against the law laid down by Hon'ble Supreme Court in case of GKN Driveshafts (India) Ltd. vs. Income Tax Officer (125 Taxman 963);

Comments: The contention of the assessee made in Grounds of appeal no. 3 is not acceptable. Notice u/s 148 of Act was issued on 28.03.2018. Assessee was required to file true & correct return of income within 30 days of the receipt of the notice. But assessee failed to comply. Notices u/s 142(1) of the Act were issued to assessee on various dates raising queries related to huge transactions in bank account. Assessee filed ITR after elapse of a long period on 07.12.2018. The same cannot be called to be filed in compliance to notice date 28.03.2018 issued u/s 148 of the Act. Hence, submission of the assessee raised vide grounds of appeal no. 3 is liable to be rejected as erroneous and contrary to the facts of the case.

I.T.A. No.89/Lkw/2020 C.O.No.01/Lkw/2022 7 Assessment Year:2011-12 Notwithstanding the above, it is brought to your kind notice that assessee deposited challan for copy of reasons for re-opening of the case in Jan 2019 and the same was provided to the appeal in the same month”

5.1 The Assessing Officer noted in his comments to ground No. 3 that assessee was required to file true and correct return of income within 30 days of receipt of notice but the assessee failed to comply with the notices and filed the return after elapse of a long period only on 07/12/2018 and which cannot be said to have been filed in compliance to notice dated 28/03/2018. It was prayed by the Assessing Officer in the remand report that ground No. 3 needs to be rejected. Without prejudice to these comments, the Assessing Officer mentioned that the assessee deposited challan for getting copy of reasons for reopening of the case in January, 2019 and the same was provided to the assessee in the month of January, 2019 only. Learned CIT(A), after considering the remand report and after considering the submissions of the assessee, held that the reasons were required to be provided to the assessee before completion of assessment proceedings and while holding so he relied on a number of case laws including the case law of Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. The arguments of Learned D. R. that the return filed by assessee should have been considered a non est in view of the fact that the assessee did not file return of income against the notice issued for filing the return of income, we find that it is undisputed fact that the assessee filed the return of income only on 07/12/2018 and the case of the assessee was getting time barred by 31st December, 2018. After the issue of notice u/s 148, the Assessing Officer issued various notices u/s 142(1) requiring the assessee to file the necessary information. The Assessing Officer also issued notice u/s 143(2) on 14/12/2018 and further notice u/s 142(1) on 15/12/2018. These facts have been noted by learned CIT(A) in

I.T.A. No.89/Lkw/2020 C.O.No.01/Lkw/2022 8 Assessment Year:2011-12 his order at pages 1 & 2. The issue of notice u/s 143(2) by the Assessing Officer vide notice dated 14/12/2018 itself proves that the Assessing Officer did take on record, the return of income, filed by the assessee on 07/12/2018 and therefore, the return filed by the assessee, though after long period of time, cannot be termed as non est as claimed by Learned D. R. Now the question arises as to whether the Assessing Officer could have completed the assessment without providing copy of reasons to the assessee specifically in view of the fact that the assessee did demand the copy of reasons. The fact that assessee required the Assessing Officer to provide copy of reasons is borne out from the copy of letter dated 07/12/2018 which has been mentioned by learned CIT(A) at page 6 in para 8.1 of his order. Therefore, the Assessing Officer, in view of the judgment of Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd., was required to provide the copy of reasons to the assessee before completion of assessment which he did not do and supplied only in the month of January, 2019 whereas the assessment was completed on 19/12/2018. As regards the second argument of Learned D. R. that the assessee applied for providing copy of reasons only in the month of January by depositing fee in January, 2019, we find that there is no fee prescribed under the Act for obtaining copy of reasons as is borne out from the provisions of section 147 & 148 of the Act. Providing of reasons recorded has not been mentioned in any of the sections connected with the reopening of the cases and it is only the judgment of Hon'ble Supreme Court which requires that before completion of assessment proceedings, the Assessing Officer is required to provide copy of reasons to the assessee. The judgment of Hon'ble Supreme Court is binding on the Department as well as on assessee. Therefore, the Assessing Officer was required to provide copy of reasons recorded before completion of assessment which he did not do. Reiterating the importance

I.T.A. No.89/Lkw/2020 C.O.No.01/Lkw/2022 9 Assessment Year:2011-12 of providing copy of reasons to the assessee, Hon'ble Allahabad High Court in the case of Mithlesh Kumar Tripathi vs. CIT [2006] 280 ITR has held that if the reasons are supplied along with the notice u/s 148(2) of the Act, it shall obviate unnecessary harassment to the assessee as well to Revenue by avoiding unnecessary litigation. This is undisputed fact that the assessee, vide letter dated 07/12/2018, enclosed the acknowledgement of ITR in compliance to notice u/s 148 and also required the Assessing Officer to communicate to the assessee the copy of reasons recorded in terms of law laid down by Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. and which the Assessing Officer supplied only after completion of assessment therefore, the assessment order is bad in law and is void ab initio. Various courts, including Hon'ble Supreme Court, in a number of cases have held that copy of reasons recorded has to be provided to assessee before completion of assessment order. We find that learned CIT(A) has rightly accepted the contention of the assessee and after relying on number of case laws, decided the issue in favour of the assessee. For the sake of completeness, the relevant findings of learned CIT(A) are reproduced below:

a. Hon'ble Bombay High Court in CIT vs. Videsh Sanchar Nigam Ltd. - 340 ITR 66

"In the instant 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 Bombay High 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 Older cannot be upheld.

I.T.A. No.89/Lkw/2020 C.O.No.01/Lkw/2022 10 Assessment Year:2011-12 The Hon'ble Bombay High Court has upheld the finding of the Tribunal observing 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".

b. Hon'ble Bombay High Court in CIT vs. Trend Electronics (2015) 61 taxmartn.com

"In this case, the Assessing Officer proceeded to complete the assessment proceedings without having given a copy of the recorded reasons. The Hon'ble Bombay High Court held that it is axiomatic that power to reopen a completed assessment under the Act is an exceptional power and whenever revenue seeks to exercise such power, they must strictly comply with the prerequisite conditions, viz., reopening of reasons to indicate that the Assessing Officer had reason to believe that income chargeable to tax has escaped assessment which would warrant the reopening of an assessment. These recorded reasons as laid down by the Apex Court must be furnished to the assessee when sought for so as to enable the assessee to object to the same before the Assessing Officer. Thus in the absence of reasons being furnished, when sought for would make an order passed on reassessment bad in law. The recording of reasons (which has been done in this case) and furnishing of the same has to be strictly complied with as it is a jurisdictional issue. This requirement is very salutary as it not only ensures opening notices are not lightly issued. Besides in case the same have been issued on some ''misunderstanding/misconception, the assessee is given an opportunity to point out that the reasons to believe as recorded in the reasons do not warrant reopening before the reassessment proceedings are commenced. The Assessing Officer disposes of these objections and if satisfied with the objections, then the impugned reopening notice u/s 148 is dropped/withdrawn otherwise it is proceeded with further. In issues such as this, i.e., where jurisdictional issue is involved the same must be strictly complied with by the authority concerned and no question of knowledge being attributed on the basis of implication can arise. The stand of the revenue is not appreciated, that the respondent-assessee had asked for reasons recorded only once and therefore seeking to justify now- furnishing of reasons. The state is expected to act more responsibly.

c. Hon'ble Karnataka High Court in Kothari Metals vs. ITO 80 taxmann.com 163:

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"The question of non-furnishing the reasons for reopening an already concluded assessment goes to the very root of the matter. After filing of the return in response to the notice issued under section 148 or on the assessee requesting that the return of income initially filed be treated as a return of income filed in response to such notice, The assessee is entitled to be furnished with the reasons for such reopening, which can also be challenged independently. Where such reasons had not been furnished to the assessee even though a request for the same had been made, proceedings for the reassessment could not have been taken further on this ground alone."

d. Hon'ble Bombay High Court in CIT (LTU) vs. IDBI Ltd. in 76 taxmann.com 227:

"The supply of reason in support of the notice for reopening of an assessment is a jurisdictional requirement. The reasons recorded form the basis to examine whether the Assessing Officer had at all applied his mind to the facts and had reasons to believe that taxable income has escaped re-assessment. It is these reasons, which have to be made available to the Assessee and it could give rise to a challenge to the reopening notice. It is undisputed that the reasons recorded for issuing reopening notice were never communicated to the Respondent Assessee in spite of its repeated requests. Thus, the grievance of the Revenue on the above count is unsustainable".

e. Hon'ble ITAT Delhi in Inderjeet S Sachdeva vs. DCIT, Moradabad 83 taxmann.com 256:

"It is clear that the completion of assessment/re- assessment without furnishing the reasons recorded by the AO for initiation of proceedings under section 147/148 of the Act is not sustainable in law as it is incumbent on the AO to supply them within reasonable time. We note that on the anvil of this judgment, on the request of the Assessee, the AO is bound to furnish the reasons recorded for initiation of proceedings under section 147 of the Act within a reasonable period of time so that the assessee could file its objections thereto and the AO was to dispose of the same by passing a speaking order thereon, which the AO has not done. We also note that even as per the rules of natural justice, the assessee is entitled to know the reasons on the basis of which the AO has formed an opinion that income assessable

I.T.A. No.89/Lkw/2020 C.O.No.01/Lkw/2022 12 Assessment Year:2011-12 to tax has escaped assessment. The furnishing of reasons to the assessee is to enable/facilitate it to present its defense and objections to the initiation of proceedings under section 147/148 of the Act. Therefore, we are of the considered opinion that there was no justifiable reasons for the AO to deprive the assessee of the recorded reasons by him for initiating proceedings under section 147/148 of the Act. Therefore, in our considered opinion, the reopening in question is not sustainable in the eyes of law. Accordingly, we allow the assessee’s appeal on legality aspect without proceeding to adjudicate on merits by quashing the assessment order.

f. Hon'ble Delhi High Court in PCIT vs. Jagat Talkies Distributions 85 taxmann.com 189

"Merely because an assessee did not repeat the request cannot mean that the assesses waived its right to be provided with the reasons recorded for reopening of the assessment under section 147 of the Income Tax Act, 1961. According to the proviso to section 292BB(1) there is no estoppels against an assessee on account of participating in the proceedings as long as it has raised an objection in writing regarding failure by the Assessing Officer to follow the prescribed procedure.

The assessee did not file returns under section 139(1) for the assessment year 1999-2000 to 2004-05 but had filed returns for earlier years. On the basis of information received from the banks to which the assessee had let out its property, it was discovered by the Department that rent had been paid to the assessee by them after deducting the tax at source. The Assessing Officer recorded reasons for reopening of the assessment under section 147 and issued notice under section 148 asking the assessee to file the return. Pursuant to the notice, the assessee filed a return which disclosed the income from the property and the business income for the assessment year 1999-2000. Separate notices were issued under section 143(2) and 142(1) by the Assessing Officer along with a questionnaire for each of the assessment year in question. The assessee sought supply of the reasons recorded for the reopening of the assessment under section 148. The reason were not furnished by the Assessing Officer to the assessee. Since the assessment was getting time barred, the Assessing Officer made additions on account of the income from house property and passed separate reassessment orders in respect of each of the assessment years in question. In its appeal before the

I.T.A. No.89/Lkw/2020 C.O.No.01/Lkw/2022 13 Assessment Year:2011-12 Commissioner (Appeals), one of the contentions raised by the assessee was regarding the failure of the Assessing Officer to supply the reasons for the reopening of the assessments. The Commissioner (Appeals) held that the mere non-furnishing of the reasons for reopening the assessments would not result in the entire reassessment proceedings being invalidated and that the assessee had, despite having taxable income, failed to file returns as statutorily mandated under section 139(1). On further appeals, the Appellate Tribunal held that the failure to supply the reasons under section 148, despite the requests made by the assessee, vitiated the entire reassessment proceedings. On appeals:

Held, dismissing the appeals, that the Appellate Tribunal was right in holding that on account of failure on the part of the Assessing Officer to furnish the copy of reasons recorded for reopening of the assessments, under section 147, to the assessee, the reassessment proceedings of stood vitiated. Failure by the Assessing Officer to provide the assessee the reasons recorded for reopening the assessment could not be treated as a mere procedural lapse. The assessments for the assessment years 1999-2000 onwards for five years sought to be reopened. Having contested those proceedings for merely two decades, the Department was not fair in making the offer to consider the assessee’s objections to the reopening and pass orders thereon. No reason could be discerned why the Assessing Officer had failed to furnish to the assessee the reasons for reopening the assessment. It was not disputed that the assessee had made requests in writing for the reasons in respect of each of the assessment years in question. Merely because the assessee did not repeat the requests did not mean that it had waived its right to be provided with the reasons for reopening the assessments. According to the proviso to section 292BB(1) there was no estopple against an assessee, on account of participating in the proceedings, as long as it had raised an objection in writing regarding the failure by the to follow the prescribed procedure. No question of law arose. "

g. Tata International Ltd. vs. DCIT (2012) 23 taxmann.com 18- Hon'ble ITAT Mumbai:

"It is settled proposition as laid down by the Supreme Court as well as High Court that the reasons as recorded by the Assessing Officer are required to be furnished to the assessee and the reasons recorded cannot be improved upon or amended by any correspondence, letters

I.T.A. No.89/Lkw/2020 C.O.No.01/Lkw/2022 14 Assessment Year:2011-12 etc. It is an undisputed fact that the reasons actually recorded by the Assessing Officer were not furnished to the assessee despite repeated requests and demands and therefore, the gist of reasons as furnished vide letter dated 28-6-2007 cannot be treated as reasons actually recorded by the Assessing Officer as per section 148(2). Thus, the Assessing Officer has failed to furnish the reasons recorded for reopening of the assessment within the reasonable time and rather prior to the completion of assessment, than the reassessment order passed without supply of reasons as recorded for reopening of the assessment, is invalid and cannot be sustained. Accordingly, the reassessments for all the years under consideration are to be set aside being invalid."

h. Hon'ble ITAT Delhi in Ujagar Holdings (P) Ltd. vs. ITO (2017) 88 taxmann.com

"When we advert to the facts of the case in hand, we find from the submission of the assessee that despite repeated letters requesting to provide copy of the reasons recorded or the grounds on which the assessment was reopened, no such reasons were provided to the assessee. We find that the learned Departmental representative could not substantiate whether any reasons were provided by the Assessing Officer to the assessee and merely relying on the fact that general practice was followed in the Department of supplying reasons, it cannot be presumed that the reasons were supplied in the case of the assessee. On the other hand, the assessee has filed evidences in support of its claim of request for providing grounds of initiation of the reassessment proceedings in almost every submission made before the Assessing Officer. Therefore, in our considered view, the Assessing Officer has not complied with the direction of the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) providing reasons for reassessment within a reasonable time, and, therefore, respectfully following the decisions cited above, the reassessment completed by the Assessing Officer under section 147 of the Act cannot be sustained in the case of the assessee and quashed.”

8.4 The Hon'ble Apex Court in case of GKN Driveshafts (India) Ltd. vs. ITO reported in 125 taxmann.com 963 observed that the proper course of action for the assessee is to file return and if he so desires to seek reasons for issuing notices. The Assessing Officer is bound to furnish the reasons in a reasonable time.

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5.2 The learned CIT(A) has rightly appreciated the facts and following judicial precedent has rightly allowed relief to the assessee. The case law of Hon'ble Madras High Court in the case of Home Finders Housing Ltd. 404 ITR 611, relied on by Learned D. R., which has also been taken by the Department as ground No. 3, is not applicable to the facts and circumstances of the present case as in that case the Assessing Officer had not disposed of the objections filed by the assessee and therefore, the Hon'ble court held that non passing of order against the objections filed by assessee will not render the assessment order void ab initio whereas in the present case, the reasons itself have not been supplied to assessee before the completion of assessment order which is sine qua non. Therefore, the case law relied by Revenue is distinguishable on facts.

5.3 In view of the above facts and circumstances and in view of judicial precedents, relied on by the assessee, we do not find any infirmity in the order of learned CIT(A). Accordingly, the appeal of the Revenue stands dismissed.

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5.4 The Learned counsel for the assessee did not press the Cross Objections therefore, these are dismissed as not pressed.

(Order pronounced in the open court on 30/08/2022)

Sd/. Sd/. ( A. D. JAIN ) ( T. S. KAPOOR ) Vice President Accountant Member

Dated:30/08/2022 *Singh

Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow

Assistant Registrar