INCOME-TAX OFFICER vs. SMT. NIRMALA PRAKASH SHAH, NASHIK

The common facts for deciding both these appeals and cross objections are : Both the assessees are part of Sanklecha group. The assessee in ITA No. 1937/PUN/2016 filed her return of income for the assessment year 2008-09 on 06-03-2009 declaring total income of Rs.1,18,980/-. The income returned was accepted u/s. 143(1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). The assessee in ITA No. 1938/PUN/2016 did not file any return of income u/s. 139 of the Act. The assessee filed her return of income for the impugned assessment year on 03-03-2014 declaring total income as Nil in response to notice u/s. 148 of the Act. The Assessing Officer noticed that the assessees had entered into development agreement with M/s. Vascon Dwellings Pvt. Ltd.

The assessees have filed cross objections in their respective cases assailing the findings of Commissioner of Income Tax (Appeals) on merits.

The grounds raised by the Department in ITA No. 1937/PUN/2016 reads as under : “1. Whether on the facts & circumstances of the case and in law, the Ld. CIT(A) was justified in quashing the reassessment order u/s 147 passed by the AO. relying on the decision of the Hon'ble Supreme court in the case of GKN Drive Shaft (India) Ltd. Vs. ITO 259 ITR 19 without appreciating the fact that the AO. had disposed off the objection filed by the assessee by way of making a noting in the order sheet and signed by the AR. of the assessee? 2. Whether on the facts & circumstances of the case and in law, the CIT(A) was justified in quashing the reassessment order u/s 147 passed by the AO. by not considering section 2928 of the Income-tax Act-1961? 3. The appellant prays leave to add, alter, clarify, amend or to withdraw any grounds of appeal as and when the occasion demands.”

Shri Pramod Shingte appearing on behalf of the assessee vehemently supporting the findings of Commissioner of Income Tax (Appeals) submitted that the assessees had sought reasons for re-opening the assessment and thereafter had filed objections against re-opening of the assessment. The Assessing Officer without disposing of the objections as has been laid down by the Hon’ble Supreme Court of India in the case of

Shri Mukesh Jha representing the Department submitted that the Assessing Officer in the case of Smt. Nirmala Vijay Sanklecha has disposed of objections by passing a separate order on 24-02-2014. The ld. DR referred to ordersheet entry dated 24-02-2014 reproduced in para 6 of the statement of facts.

Controverting the submissions made by DR, the ld. AR submitted that a perusal of ordersheet entry reproduced in the statement of facts clearly show that the objections raised by the assessee were not disposed of by passing a speaking order. Not admitting but assuming, even if it is considered to be a valid order for disposing of objections, sufficient opportunity was not afforded to assessee by Assessing Officer for challenging such order as has been enunciated by the Hon’ble Bombay High Court in the case of Asian Paints Ltd. Vs. Deputy Commissioner of Income Tax reported as 296 ITR 90. The Hon’ble High Court has held that the Assessing Officer shall not proceed further in the matter within a period of four weeks from the date of service of order on objections, if they are rejected by Assessing Officer. In the present case, the non-speaking rejection order has been passed on 24-02-2014 and immediately on the next day i.e. 25-02-2014 assessment order has been passed. Therefore, the alleged order disposing of the objections in the case of Smt. Nirmala Vijay Sanklecha cannot be considered as a valid order. The Assessing Officer violated the principle of natural justice and the law laid down by Hon’ble Apex Court and Hon’ble Jurisdictional High Court.

We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. We have also considered various decisions on which the ld. AR of assessee has placed reliance. Identical issues are raised by the Department in both the appeals against the findings of Commissioner of Income Tax (Appeals) in quashing re-assessment order passed u/s. 147. The Commissioner of Income Tax (Appeals) has quashed assessment order on the ground that the objections filed by the assessee against issuance of notice u/s. 148 are not decided by passing a speaking order.

The Hon’ble Supreme Court of India in the case of GKN Driveshafts (India) Ltd. Vs. Income Tax Officer & Ors. (supra) has held that the Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the assessee 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 we find that the Assessing Officer has not disposed of objections of the assessee against issuance of notice for re- opening assessment by passing a speaking order. The assessees filed objections against re-opening. In the case of one of the assessee (Smt. Nirmala Vijay Sanklecha) the Assessing Officer disposed of the objections on 24-02-2014by observing as under : “Shri Girish Sathbhai, CA & AR of the „a‟ attended and explain the facts & issue raised during scrutiny proceeding & stated that the not considered capital gain income as the income already shown in firm case. AR‟s says duly considered and but not accepted & income added in total income.”

The Hon’ble Apex Court in unequivocal terms has held that the Assessing Officer is bound to dispose of objections by passing a speaking order. A perusal of the above ordersheet entry dated 24-02-2014 shows that the Assessing Officer in a single line dismissed the objections without giving any reason. Thus, the aforesaid order by Assessing Officer in the ordersheet cannot be said to be speaking order as has been envisaged by the Hon’ble Apex Court in the case of GKN Driveshafts (India) Ltd. Vs. Income Tax Officer & Ors. (supra).

Be that as it may, the Assessing Officer on the immediately next day i.e. 25-02-2014 proceeded on to pass the assessment order u/s. 143(3) r.w.s. 147 of the Act, without affording opportunity to the assessee to exhaust remedy, if any available for assailing said order before appropriate forum.

The Hon’ble Jurisdictional High Court in the case of Asian Paints Ltd. Vs. Deputy Commissioner of Income Tax (supra) has held that where the Assessing Officer reject the objections filed by the assessee with regard to re-opening of assessment, the Assessing Officer shall not proceed further with the same for a period of four weeks from the date of service of order on rejections. Thus, the Assessing Officer violated the conditions laid down by Hon’ble Jurisdictional High Court in accelerating finalization of assessment.

The procedure that has emerged from judgments discussed above is, that the Assessing Officer is duty bound to decide the objections of the assessee against initiation of reassessment proceedings by passing a separate speaking order. Thereafter, the Assessing Officer shall give four weeks time to the assessee from the date of service of the said order before proceeding with the finalization of assessment. The Hon’ble Jurisdictional High Court in the case of KSS Petron Private Ltd. Vs. The Assistant Commissioner of Income Tax (supra) has set aside reassessment proceedings were the Assessing Officer has not followed the proper procedure as mandated for disposing of the objections of the assessee on reopening. The relevant extract of the findings of the Hon’ble Bombay High Court are as under : “8 We note that once the impugned order finds the Assessment Order is without jurisdiction 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 Office 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 jurisdiction (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.”

It is apparent from record that the Assessing Officer committed error in not following the proper procedure for deciding the objections of assessee against re-opening of assessment. The Assessing Officer is a quasi judicial authority and is therefore, duty bound to follow the law laid down by the Hon’ble Supreme Court of India, the Hon’ble High Courts and the Appellate Authorities. The assessment orders have been passed by the Assessing Officer in both the cases without following the principles as set out by the Hon’ble Apex Court and Hon’ble Jurisdictional High Court. Thus, considering the facts of the case and in the light of various

In cross objections the assessees have assailed the order of Commissioner of Income Tax (Appeals) on additions made on merit. Since, we have upheld the findings of Commissioner of Income Tax (Appeals) in quashing the assessment orders the cross objections filed by the assessees have become infructuous and are dismissed as such.

To sum up, the appeals by the Department and the cross objections filed by the assessees are dismissed.