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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
Instant appeal of the assessee is directed against the order dated 8th October 2012, passed by the learned Commissioner (Appeals)-30, Mumbai, for the assessment year 2005–06.
Grounds raised by the assessee are as under:–
“1. a) The learned Commissioner of Income Tax (Appeal) erred in confirming the addition of Rs. 16,59,740/- an unexplained cash credit u/s 68 of the Income Tax Act, 1961.
2 Smt. Ratnadevi Kataria b) The learned Commissioner of Income Tax (Appeal) failed to appreciate that appellant has submitted all broker notes, Bills, demand statement in support of above. c) The learned Commissioner of Income Tax (Appeal) erred in treated as Income from other sources instead of Long Term Capital Gain Rs. 16,59,740/- d) The learned Commissioner of Income Tax (Appeal) ought to have appreciate that appellant has shown purchase of above shares in last year (31/03/2004A.Y. 2004-05) and also accepted by the learned Income Tax Officer. e) The learned Commissioner of Income Tax (Appeal) erred in not considering the appellant letter dated 02/12/2011, 05/12/2011 & 13/12/2011. f) The learned Commissioner of Income Tax (Appeal) erred in relied on the statement of Company's director Mr. Mukesh Choksi. g) The learned Commissioner of Income Tax (Appeal) erred in presumed that all transaction of the said Company is bogus. 2) a) The learned Commissioner of Income Tax (Appeal) not considered that Assessing Officer has not given certified copy of the reason recorded & approval obtained to the appellant for verifying the facts, hence assessment proceeding are bad in law. b) The learned Commissioner (Appeals) ought to have appreciate that appellant has applied for certified copy of the reason records & approval on 23/4/2011.”
As could be seen, ground no.1, is against the merits of the addition made under section 68 of the Income Tax Act, 1961 (for short "the Act"), whereas, in ground no.2, the assessee has challenged the validity of assessment order in the absence of communication of reasons recorded for re–opening the assessment.
As the issue raised in ground no.2, is a purely legal and jurisdictional issue going to the root of the matter, we propose to deal with the same at the very outset.
3 Smt. Ratnadevi Kataria 4. Brief facts are, the assessee an individual filed her return of income for the assessment year under consideration on 23rd July 2007, declaring income of ` 1,79,350. As it appears from the facts on record, the return of income filed by the assessee was processed under section 143(1) of the Act. Subsequently, as noted by the Assessing Officer on the basis of information received from DDIT, Unit–1(4), vide letter dated 7th March 2011, that in the course of search and seizure operation conducted in the case of Mahasagar Securities Pvt. Ltd. and other group concerns, revealing that they were engaged in fraudulent billing activities and in providing bogus accommodation bills in respect of share transactions, assessment in case of the assessee was re– opened on the allegation that she is one of the beneficiaries of such transactions. He, therefore, issued a notice under section 147 of the Act. In response to the said notice, the assessee filed her return of income on 25th April 2011. Ultimately, the Assessing Officer completed assessment under section 143(3) r/w section 147, vide order dated 15th December 2011, by treating the long term capital gain shown by the assessee from sale of shares as unexplained cash credit and treated it as income from other sources. Being aggrieved of the assessment order, the assessee preferred appeal before the learned Commissioner (Appeals), challenging the addition made u/s 68.
4 Smt. Ratnadevi Kataria 5. The learned Commissioner (Appeals) disposed–off the appeal of the assessee by upholding addition made under section 68. Being aggrieved, assessee is in appeal before us.
Learned Authorised Representative submitted before us that the assessee after filing her return of income in response to the notice issued under section 148 of the Act, vide letter dated 23rd April 2011, had requested the Assessing Officer to supply her a certified copy of the reasons recorded and approval obtained from the Chartered Accountant for initiation of proceedings under section 147 of the Act. Learned Authorised Representative contended, in spite of such request by the assessee, the Assessing Officer completed the assessment without communicating the reasons recorded for re–opening of assessment. He submitted, non–communication of reasons recorded for re–opening of assessment, having deprived the assessee of effectively objecting to the initiation of proceedings under section 147, the assessment order passed is in gross violation of rules of natural justice, hence, deserves to be set aside. He submitted, it is mandatory requirement of law that before completion of assessment not only the Assessing Officer is required to communicate the reasons recorded for re–opening of assessment but he must allow the assessee reasonable opportunity to object to the intiation of proceedings. Only after dealing with the objections of the assessee the Assessing Officer can proceed
5 Smt. Ratnadevi Kataria to frame an assessment under section 143(3) r/w section 147. In support of such contention, learned Authorised Representative relied upon the following decisions:– i) Tata International Ltd. v/s DCIT, [2012] 52 SOT 465 (Mum.); ii) CIT v/s Videsh Sanchar Nigam Ltd., [2012] 340 ITR 66 (Bom.)
Learned Departmental Representative on the other hand submitted, before initiation of proceeding under section 147, the Assessing Officer has complied to the statutory formalities by recording the reasons for re–opening. Learned Departmental Representative submitted, the reasons for re–opening the assessment is not only discernible form the assessment order but also it is a fact the assessee was aware of the reasons for re–opening the assessment which is evident from his reply dated 5th December 2011 submitted before the Assessing Officer in the course of assessment proceedings. He, therefore, submitted re–opening of assessment is valid. The learned Departmental Representative submitted, non–communication of reasons recorded to the assessee prior to the completion of assessment will not make the proceedings under section 147 void ab initio as it is a curable procedural irregularities. He, therefore, submitted that the issue can go back to the file of the Assessing Officer for fresh assessment after communication of reasons to the assessee to enable her to raise objections. In this context, the learned
6 Smt. Ratnadevi Kataria Departmental Representative relied upon the decision of the Hon'ble Jurisdictional High Court in Agarwal Metals and Alloys v/s ACIT & Anr., [2012] 346 ITR 64 (Bom.).
We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon before us. At the outset, we need to observe, it appears from the grounds raised by the assessee before the first appellate authority as well as the impugned order of the first appellate authority, the assessee had not specifically raised the issue relating to validity of the assessment order on the ground of non–communication of reasons recorded for re–opening the assessment. As it appears, this issue has been raised for the first time before us. However, considering the fact that it is a purely legal and jurisdictional issue going to the root of the matter and facts necessary for deciding the issue are available on record, we treat the ground raised by the assessee as an additional ground and admit the same for adjudication. Undisputedly, the impugned assessment order is a culmination of the proceeding initiated under section 147 of the Act. It further appears, in response to the notice issued under section 148, the assessee on 25th April 2011, filed her return of income along with the letter dated 23rd April 2011, this fact has also been acknowledged by the Assessing Officer in Para–3 of the assessment order. On a perusal of the letter dated 23rd
7 Smt. Ratnadevi Kataria April 2011, a copy of which is at Page–52 of the paper book, it is noticed that the assessee in the said letter had requested the Assessing Officer to supply her certified copy of the reasons recorded and approval obtained for issuance of notice under section 148. It is the assertion of the assessee before us that before completion of the assessment, the Assessing Officer did not communicate the reasons recorded for re–opening of the assessment. Considering the aforesaid allegation of the assessee the Bench vide order sheet entry dated 16th December 2015, had directed the learned Departmental Representative to produce the assessment record to show whether reasons for re–opening was communicated to the assessee. When the appeal was taken up for hearing on 3rd May 2016, the learned Departmental Representative again expressed his inability to produce the assessment record on the plea that as per the instructions received from the Assessing Officer the assessment record is not traceable, hence, whether reasons recorded for re–opening of assessment was communicated to the assessee could not be verified. He, therefore, requested for adjourning the case for a period of 15 days to enable the Department to produce the records. While adjourning the case at the request of the Department to 24th May 2016, the Bench made it clear that if the Department fails to produce the assessment record, the issue would be decided on the basis of materials available on record without any further adjournment. However, the Department has again
8 Smt. Ratnadevi Kataria failed to produce the assessment record to show service of reasons recorded on the assessee, therefore, we are of the view that the Department is not in a position to produce the record, hence, we proceed to decide the appeal on the basis of material on record. As stated earlier, the assessee vide letter dated 23rd April 2011, after complying to the notice issue under section 148, has specifically requested the Assessing Officer to communicate the reasons recorded for re–opening of assessment, under section 147. On the basis of the materials on record, prima–facie, it appears reasons recorded for re– opening of assessment were not communicated to the assessee before completion of the assessment under section 143(3) r/w section 147. The Hon'ble Supreme Court in GKN Drive Shaft (India) Pvt. Ltd. v/s ITO, [2003] 259 ITR 19 (SC), in clear terms has laid down that if after complying to the notice issued under section 148, the assessee requests for communication of reasons for re–opening of assessment, the Assessing Officer is duty bound to not only communicate the reasons recorded but also allow opportunity to the assessee to raise objection against initiation of proceedings under section 147. Only after disposing of assessee’s objection against re–opening of assessment, the Assessing Officer can proceed to pass an assessment order. In the present case, the Department has failed to prove conclusively that the reasons recorded for re–opening of assessment was communicated to the assessee before completion of the 9 Smt. Ratnadevi Kataria assessment. Therefore, to that extent, there is violation of principles of natural justice as the assessee was deprived of raising objection before the Assessing Officer against initiation of proceedings under section 147. Allegation of the Department that assessee was aware of the reasons of re–opening of assessment will not absolve the Assessing Officer from complying to the mandatory requirement of law. Therefore, in our view, the impugned assessment order having been passed in gross violation of rules of natural justice and being against the principle of law laid down by the Hon'ble Supreme Court in GKN Drive Shaft (I) Pvt. Ltd. (supra) cannot be sustained. However, in our considered opinion, since the impugned assessment order passed without communicating the reasons recorded is in violation of principle of natural justice, the same can be cured by providing the assessee with copy of reasons recorded for re–opening of assessment thereby enabling him to raise the objection against initiation of proceedings under section 147. We have taken this view following the decision of the Hon'ble Jurisdictional High Court in Agarwal Metals and Alloys (supra) and Robo India Finance Ltd. v/s DCIT, [2012] 346 ITR 81 (Bom.). In view of the aforesaid, we set aside the impugned order of the learned Commissioner (Appeals) as well as the assessment order and restore the matter back to the Assessing Officer with the direction that he should communicate the reasons recorded for re–opening of assessment to the assessee for enabling him to raise objection against
10 Smt. Ratnadevi Kataria the initiation of proceedings under section 147. In case, the assessee raises an objection, against the initiation of proceedings under section 147, the Assessing Officer must deal with the assessee’s objection and only thereafter proceed to complete the assessment. Ground no.2, is allowed for statistical purposes.
In view of our aforesaid decision, the issue raised in ground no.1 is also restored back to the file of the Assessing Officer for denovo adjudication after providing reasonable opportunity of being heard to the assessee.
In the result, appeal is allowed for statistical purposes. Order pronounced in the open Court on 29.06.2016