SACHIN CHIRANIA,MUMBAI vs. THE INCOME TAX OFFICER, NAVI MUMBAI
Facts
The assessee challenged the CIT(A)'s order dismissing their appeal against an assessment order. The assessment was framed under Section 144 read with Section 147 of the Income Tax Act, 1961, rejecting the exemption claimed for Long Term Capital Gains on shares, identified as a penny stock. Additions were made under Section 69A.
Held
The Tribunal held that the Assessing Officer failed to dispose of the assessee's objections to the reopening of assessment by passing a speaking order, which is a mandatory procedure as per Supreme Court and High Court judgments. This procedural lapse rendered the assessment order without jurisdiction.
Key Issues
Whether the reassessment proceedings and the subsequent assessment order are valid when the Assessing Officer failed to dispose of the assessee's objections to the reopening notice by passing a speaking order.
Sections Cited
144, 147, 148, 10(38), 69A, 143(2), 153(2), 153(2A), 254
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, SMC BENCH, MUMBAI
Per Rahul Chaudhary, Judicial Member:
By way of the present appeal the Assessee has challenged the order dated 31/10/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’] for the Assessment Year 2012-13, whereby the Ld. CIT(A) had dismissed the appeal of the Assessee against the Assessment Order, dated 04/12/2019, passed by the Income Tax Officer - 28(3)(1), Mumbai under Section 144 read with Section 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The appellant has raised following grounds of appeal :
“1. On the facts and the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in Assessment Year: 2012-13 confirming the reopening of assessment u/s 147 by issue of notice u/s 148 dated 28.03.2019 by the Assessing Officer, which is not as per provisions of law, clearly outside the sanction of law, illegal, bad-in-law, barred by limitation, unsustainable, in gross violation of the principles of natural justice or otherwise void for want of juri iction.
On the facts and the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in upholding the ex-parte order passed by the Ld. Assessing Officer u/s 144 r.w.s 147 of the Income Tax Act, 1961. 3. On the facts and the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in confirming the Ld. Assessing Officer's action in not disposing off the objections raised by appellant on 25.11.2019 (submitted online as well as across the table) and holding that objections were not filed as per text of the assessment order without verifying the claim of the appellant regarding filing of objections from the record of the Assessing Officer, even though, a copy of which was placed in the paper-book before Ld. Commissioner of Income Tax (Appeals).
On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in not taking cognizance of the stated legal position that Assessing Officer was bound to provide reasons within reasonable time for which he took six months and did not dispose of the objections filed by the assessee before completion of assessment is against the procedure prescribed by the Hon'ble Supreme Court in the case of GKN Driveshafts (P) Limited, 259 ITR 19 (SC) and hence the same will vitiate the assessment order making it unsustainable in law.
On the facts and the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in confirming the Ld. Assessing Officer's action in not allowing proper opportunity of being heard and passing the order in great haste. The Ld. Commissioner of Income Tax (Appeals) having noted that the Assessing Officer had taken more than six months to respond to appellant's request to supply the copy of reasons recorded after request dated 30.04.2019, however the Ld. Commissioner of Income Tax (Appeals), still justified the time provided of merely four (4) days by the Assessing Officer to respond last online show cause notice, that could be responded only eleven (11) days later by the appellant, due to technical glitch demonstrated through 2 Assessment Year: 2012-13 screenshots of the portal placed in the paper-book and that too was ignored by the Ld. Commissioner of Income Tax (Appeals). The Ld. Commissioner of Income Tax (Appeals) ought to have quashed the order of the Assessing Officer in view of reasonable opportunity not granted by the Assessing Officer.
On the facts and the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in confirming the Ld. Assessing Officer's action in making addition by solely relying on the general information supplied by the DDIT (Inv.) without making independent enquires either by the Assessing Officer or by the Ld. Commissioner of Income Tax (Appeals) himself through the Assessing Officer.
On the facts and the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in confirming the Ld. Assessing Officer's action in making addition of Rs 10,70,000/- u/s 69A on account of long-term capital gain on transfer of shares without there being any specific finding against the bonafide investment and sale by the appellant through online platform of recognized stock exchange through the SEBI registered stock broker.
On the facts and the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in confirming the Ld. Assessing Officer's action in invoking the provisions of section 69A for making an addition of Rs 10,70,000/- despite the fact that evidence relating to the contract notes relating to online sales through recognized stock exchanges and SEBI Registered broker and payments made through banking channel was very much in the paper- book filed before the Ld. Commissioner of Income Tax (Appeals), who did not get any enquiries done to disprove the onus, so discharged by the appellant.”
The relevant facts in brief are that reassessment proceedings were initiated in the case of the Appellant for the Assessment Year 2012-13, and assessment was framed on the Appellant, vide order dated 04/12/2019, passed under Section 147 read with 144 of the Act. The Assessing Officer rejected the exemption claimed by the Appellant under Section 10(38) of the Act in respect of Long Term Capital Gains arising from sale of shares of Tilak Ventures Limited on the grounds that the aforesaid script was identified as a penny 3 Assessment Year: 2012-13 stock by the report of the investigation wing. In appeal before the CIT(A), the Appellant challenged the validity of reassessment proceedings as well as the additions of INR 10,77,000/- made by the Assessing Officer under Section 69A of the Act on merits. However, vide order dated 31/10/2023, the CIT(A) dismissed the appeal. Now the Appellant is before us in appeal on the grounds reproduced in paragraph 2 above.
When the appeal was taken up for hearing the Learned Authorised Representative for the Appellant advanced arguments on Ground No. 3, 4 & 6 raised in the appeal and submitted that the objections filed by the Appellant were not disposed by way of a separate order and therefore, the re-assessment order passed by the Assessing Officer was bad in law. On merits, the Learned Authorised Representative for the Appellant submitted that Assessing Officer had made the addition by solely relying on the general information supplied by the Deputy Director Income Tax (Investigation) without making any independent enquires. Learned Authorised Representative for the Appellant placed on record decision of the Tribunal, dated 30/05/2024, passed in ITA No.4508/Mum/2023 whereby identical claim for exemption under Section 10(38) of the Act in respect of capital gains arising from transfer of shares of the same script sold during the previous year relevant to the Assessment Year 2011-12 was allowed by the Tribunal.
Per Contra, the Learned Departmental Representative relied upon the assessment order and submitted that the Appellant was non- compliant during the assessment proceedings and therefore, the Assessing Officer had to pass order under Section 147 read with Section 144 of the Act. It was submitted that the Appellant had traded in the shares of Tilak Ventures Limited a penny stock company identified in the report received from the Deputy
4 Assessment Year: 2012-13 Director Income Tax (Investigation) – Unit 8(2), Mumbai. He further submitted that the Appellant had not filed any objection before the Assessing Officer and the CIT(A) had returned a factual finding to this effect in paragraph 8 of the order passed by the CIT(A). Since Tilak Ventures Limited was a penny stock company identified by the investigation wing, the Assessing Officer as well as CIT(A) were correct in rejecting Appellant claim for exemption under Section 10(38) of the Act and making addition of trade value of INR 10,77,000/- as unexplained income in the hands of the Appellant invoking provisions of Section 69A of the Act.
We have considered the rival submission and perused the material on record.
We would first take up the issue of validity of the re-assessment proceedings. However, before dealing with the specific ground raised by the Appellant we deem it appropriate to briefly refer to the legal background.
In the case of GKN Driveshafts (India) Ltd. Vs. ITO (2003) 259 ITR 19 (SC) the Hon’ble Supreme Court had laid down the procedure to be adopted in case of reopening of assessment under Section 147 of the Act. In that case notice under Section 148 of the Act read with Section 143(2) of the Act was issued by the assessing officer calling upon the assessee in that case to give details in connection with the return of income. In a writ petition filed by the assessee, the Hon’ble Delhi High Court took the view that the petition was premature. Being aggrieved, the assessee filed special leave petition before the Hon’ble Supreme Court. Though the Hon’ble Supreme Court declined to interfere with the order passed by the Hon’ble Delhi High Court, the Hon’ble Supreme Court, clarified as under:
“We see no justifiable reason to interfere with the order under 5 Assessment Year: 2012-13 challenge. However, we clarify that 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. 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.” (Emphasis Supplied)
Thus, the Hon’ble Supreme Court provided that (a) on receipt of reasons from the assessing officer, the assessee can file objections to reopening of assessment and (b) the objections raised by the assessee must be disposed off by the Assessing Officer by passing a speaking order before proceedings with the assessment.
In the case of KSS Petron Pvt. Ltd. Vs. ACIT [ITA No. 224 of 2014 dated 03/10/2016](Bom)(HC), the Assessing Officer, without disposing of the objections of the Appellant, completed the assessment under Section 143(3) read with Section 147 of the Act. The issue travelled to the Tribunal. The Tribunal held that the Assessing Officer was bound to follow the procedure laid down by the Hon’ble Supreme Court in the case of GKN Driveshaft (India) Private Limited (supra). Since, the Assessing Officer had not disposed off the objections, the reassessment order was set aside and the Assessing Officer was directed to pass fresh assessment order after disposing off the objections. In appeal preferred by the assessee in that case, the Hon’ble Bombay High Court admitted the following substantial question of law:
6 Assessment Year: 2012-13 “Whether on the facts and circumstances of the case and in law, the Tribunal was justified in restoring the issue to the Assessing Officer after having quashed/set aside the order dated 14th December, 2009 passed by the Assessing Officer without having disposed of the objections filed by the appellant to the reasons recorded in support of the re-opening Notice dated 28th March, 2008.?”
Answering the above substantial question of law in favour of the assessee, the Hon’ble Bombay High Court held that in the facts of that case the Tribunal was not correct in restoring the issue back to the file of Assessing Officer for passing the fresh assessment. The relevant extract of the aforesaid judgment reads as under:
“7 On further Appeal, the Tribunal passed the impugned order. By the impugned order it held that the Assessing Officer was not justified in finalizing the Assessment, without having first disposed of the objections of the appellant. This impugned order holds the Assessing Officer is obliged to do in terms of the Apex Court's decision in GKN Driveshafts (India) Ltd., v/s. ITO 259 ITR 19. In the aforesaid circumstances, the order of the CIT(A) and the Assessing Officer were quashed and set aside. However, after having set aside the orders, it restored the Assessment to the Assessing Officer to pass fresh order after disposing of the objections to re-opening notice dated 28 March, 2008, in accordance with law.
8 We note that once the impugned order finds the Assessment Order is without juri iction as the law laid down by the Apex Court in GKN Driveshafts (supra) has not been followed, then there is no reason to restore the issue to the Assessing Officer to pass a further/fresh order. If this is permitted, it would give a licence to the Assessing Officer to pass orders on re-opening notice, without juri iction (without compliance of the law in accordance with the procedure), yet the only consequence, would be that in appeal, it would be restored to the Assessing Officer for fresh adjudication after following the due procedure. This would lead to unnecessary harassment of the Assessee by reviving stale/ old matters.
9 In fact, to ensure that re-opening notices are disposed of, expeditiously the parliament itself has provided in Section 153(2) of the Act a period of limitation within which the Assessing Officer must pass an order on the notice of re-opening i.e. within one year
7 Assessment Year: 2012-13 from the end of the financial year in which the notice was issued. In fact, Section 153 (2A) of the Act as in force at the relevant time itself provides that an order of fresh Assessment, consequent to the order of Tribunal under Section 254 of the Act, would have to be passed within one year from the end of the financial year in which the order under Section 254 of the Act, was passed by the Tribunal and received by the Commissioner of Income Tax. 10 The Director of the appellant has filed an affidavit dated 19 September, 2006. In the affidavit, it is stated that consequent to the impugned order of the Tribunal dated 14 August, 2013, the Assessing Officer has not passed any order of re-assessment. Time was granted on the last occasion to enable the Respondent to respond to the affidavit dated 19th September, 2006 of the Director of the Appellant-Company. The Respondent is unable to dispute the facts stated in the affidavit dated 19th September, 2016 filed by the Director of the Appellant-Company. The time to pass a order on the notice dated 28th March, 2008, even consequent to the impugned order of the Tribunal, has lapsed. 11 Therefore, on the above facts and law, the substantial question of law is answered in the negative i.e. in favour of the Appellant- Assessee and against the Respondent-Revenue.” (Emphasis Supplied)
On perusal of the above, it is clear that the Hon’ble Bombay High Court held that assessment order passed by the assessing officer is without following the procedure as laid down by the Hon’ble Supreme Court in the case of GKN Driveshafts (supra) was without juri iction.
Coming back to the facts of the present case we find that the reasons recorded were furnished by the Assessing Officer to the Appellant as annexure to communication/letter, dated 11/11/2019 which was also accompanies by notice issued under Section 142(1) of the Act. On 25/11/2019, with period of 2 weeks, the Appellant filed Objections to Reopening of Assessment electronically as response to notice issued under Section 142(1) of the Act. On 25/11/2019, itself the Assessing Officer issued a show cause notice to the Appellant. From the aforesaid it is clear that the Assessing Officer did not dispose off the objections and 8 Assessment Year: 2012-13 proceeded with the reassessment proceedings. In view of the aforesaid, we hold that the finding returned by the CIT(A) while disposing off Grounds No.3 raised by the Appellant before the CIT(A) is also contrary to material on record and factually incorrect. We note that in the statement of facts filed before the CIT(A) along with appeal in Form No. 35, the Appellant has reproduced the reasons recorded in writing in paragraph 7 and the relevant and the relevant extract of objections raised by the Appellant on 25/11/2019. Despite this, the CIT(A) has returned a finding in paragraph 8 of the order impugned that “the Appellant has also failed to submit that the objections were filed during the assessment proceedings”. The aforesaid finding returned by the CIT(A) suffers from perversity. As per the judgment of the Hon’ble Supreme Court in the case of GVK Driveshaft, the objections raised by the Assessee are required to disposed off by the Assessing Officer by passing a speaking order before proceedings with the assessment. Since the Assessing Officer has failed to do the same in the present case, the assessment order, dated 04/12/2019, passed by the Assessing Officer was without juri iction. Our view also draws strength from the decision of the Hon’ble Bombay High Court in the case of Bayer Material Sciences Private Limited Vs. Deputy Commission of Income Tax 10(3) : [2016] 382 ITR 333 (Bombay), and Fomento Resorts & Hotels Ltd. Vs. Assistant Commissioner of Income, Central Circle, Panjim, Goa : Tax Appeal No. 63 of 2007, dated 30/08/2019. Even otherwise, we note that in the identical facts and circumstances, the Tribunal has in the case of the Appellant has accepted the exemption claimed by the Appellant under Section 10(38) of the Act in respect of capital gains arising from the same of same script while allowing appeal preferred by the Appellant for the Assessment Year 2011-12. [ITA No.4508/Mum/2023, dated 30/05/2024]. In view of the aforesaid, the addition of INR 10,77,000/- made by the Assessing Officer under Section 69A of the Act as well as the 9 Assessment Year: 2012-13 assessment order, dated 04/12/2019, passed under Section 144 read with section 147 of the Act are quashed. Accordingly, Ground No. 3, 4 & 6 raised by the Appellant are allowed while all the other grounds are disposed off as being infructuous.
In result, in terms of paragraph 12 above, appeal preferred by the Assessee is allowed.
Order pronounced on 30.08.2024. (Ms. Padmavathy S) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 30.08.2024
10 Assessment Year: 2012-13
आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant प्रत्यर्थी / The Respondent. 2. 3. आयकर आय क्त/ The CIT प्रध न आयकर आय क्त / Pr.CIT 4. 5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.
आिेश न स र/ BY ORDER, सत्य दपि प्रदि //// उप/सह यक पुंजीक र /(Dy./Asstt.
