ITO, BANGALORE vs. SRI. K.G. VIJAYAKUMAR, BANGALORE

The appeal is filed by the revenue and the cross- objections filed by the assessee against the order of the CIT(A)– & CO 81/Bang/2014 Shri K.G.Vijayakumar. Page 2 of 8 II, Bangalore, dated 31/10/2013 for the assessment year 2009- 10.

Brief facts of the case are that the assessee, an individual, filed his return of income on 27/07/2009 declaring ‘nil’ income and also claiming refund of Rs.8 lakhs as the excess of advance- tax paid. The return of income was processed u/s 143(1) on 16/03/2011 without any refund due to the assessee. Subsequently, while verifying the assessee’s claim in the return of income, the Assessing Officer (AO) noticed that under Schedule E-1 (details of exempt income), the assessee had claimed a sum of Rs.41,50,000/- as exempt from taxation and had also given a foot-note in the statement of total income enclosed to the return of income that it is a sum received towards damages as per the order of the Company Law Board and hence it is capital in nature and not taxable. The AO observed that the assessee’s claim of exemption was not supported by any documentary evidence and also that the assessee himself had paid a sum of Rs.8 lakhs as advance tax and has claimed the same as refundable prima facie proves that the assessee has deliberately attempted to evade tax on this sum of Rs.41,50,000/-. In view of the same, he issued a notice u/s 148 dated 08/02/2012. There was no response from the assessee and several other notices u/s 142(1) were also issued. However, finally on 12/07/2012, the assessee filed copies of the & CO 81/Bang/2014 Shri K.G.Vijayakumar. Page 3 of 8 bank statement and statement of affairs and had also filed a note seeking copy of the reasons for reopening of the assessment. However, the AO did not furnish reasons but came to conclusion that the assessee has no objection to the issuance of notice u/s 148 as he has complied with the provisions of sec.148, 142(1) till 12/07/2012. Thereafter, he proceeded to consider the nature of the sum of Rs.41,50,000/- and held it to be revenue in nature and hence taxable income.

Aggrieved, the assessee preferred an appeal before the CIT(A) raising objections with regard to the non-supply of reasons for re-opening of the assessment. The CIT(A) called for a remand report from the AO as to the supply of reasons for reopening to the assessee. But since the AO failed to file any remand report and rebut the contentions of the assessee, the CIT(A), following the decision of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Pvt. Ltd., vs. ITO (259 ITR 19), held that the order of reopening of assessment has to be annulled. He, accordingly, allowed the assessee’s appeal and did not decide on the merits of the addition made by the AO. Aggrieved by the relief given by the CIT(A), the revenue is in appeal before us.

The learned Departmental Representative supported the order of the AO and submitted that the assessee was well & CO 81/Bang/2014 Shri K.G.Vijayakumar. Page 4 of 8 aware of the reasons for reopening of assessment as is evident from the reply given by the assessee vide letter dated 12/07/2012. He placed reliance upon the decision of the Delhi Bench of the Tribunal in the case of ITO vs. Smt. Gurinder Kaur reported in 102 ITD 189(Del) wherein it was held that non- communication of reasons would not be fatal to validity of re- assessment proceedings where the assessee was aware of reasons for re-opening of assessment. He submitted that the Tribunal had considered the judgment of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Pvt. Ltd. (supra) as well as the decision of the larger Bench (three judges) of the Supreme Court in the case of S.Narayanappa vs. CIT (63 ITR 219) for holding so. Copy of the said order has been filed before us.

Having regard to the rival contentions and the material on record, we find that there is no dispute that the assessee had requested the AO to furnish reasons for reopening of the assessments and that the AO failed to supply the assessee copy of the said reasons. The Hon’ble Supreme Court, in the case of GKN Driveshafts (India) Pvt. Ltd. (cited supra) has clearly held that where the AO issues notice u/s 148 and the assessee seeks the supply of reasons for reopening of assessment after filing a return of income in response to notice u/s 148, then, the AO must supply the same and if the assessee files any objections thereto, the AO has to first dispose of the objections before proceeding with the re-assessment of income. The co-ordinate Bench of this Tribunal in the case of Shri Abdul Khalique (cited supra) had considered the various decisions relied upon by the assessee as well as the learned Departmental Representative and in para.26 of its order has extensively dealt with the issue and has followed the decision of the Hon’ble Bombay High Court in the case of VSNL (cited supra) and also Alana Cold Storage vs. ITO (287 ITR 1) for holding that the re-assessment is bad in law for non-supply of reasons for re-opening. The relevant paragraph is reproduced hereunder for ready reference: & CO 81/Bang/2014 Shri K.G.Vijayakumar. Page 6 of 8 “26. With regard to the non-furnishing of the reasons recorded by the Assessing Officer before completing the assessment, the factual position is that the notice u/s.147 of the Act, dt 11.08.2006 was served on the assessee. The assessee demanded a copy of the reasons recorded by their letter dt 03.10.2006. On 30.03.2007, the assessees filed return of income. It has been the contention of the learned DR that before filing the return of income, the assessees did not demand the reasons recorded. In our view, on filing of the return on 30.03.2007, the request of the assessees for furnishing the reasons recorded in their letter dt 03.10.2006 gets reactivated and the Assessing Officer is bound to furnish the reasons recorded. Admittedly in the present case before completion of the assessment proceedings the reasons recorded were not furnished to the assessee. This Tribunal in the case of Synopsis International (supra), after considering the decision of the Hon'ble Bombay High Court in the case of VSNL (Supra) had taken a view that non-furnishing of the reasons recorded before completion of the assessment proceedings renders the order of assessment a nullity. The learned DR, however, relied on the decision of the Delhi Bench of the ITAT in the case of Gurinder Kaur (supra) and submitted that if the assessee is aware of the reopening, then reasons recorded need not be furnished to the assessee. We are of the view that the aforesaid decision was rendered by the Tribunal prior to the decision of the Bombay High Court in the case of VSNL (Supra). The case of VSNL (supra) was followed in the case of Alana Cold Storage v. ITO (287 ITR 1) (Bom), taking the view that failure to furnish the reasons recorded for reopening the assessment before completion of the assessment would render the order of reassessment bad in law. In the aforesaid decisions of the Hon'ble Bombay High Court, we are of the view that the decision rendered by the Delhi Bench of the ITAT cannot be followed. Moreover the issue as to whether the assessment would be invalid for non-furnishing of reasons recorded before initiating reassessment proceedings, was not directly in issue before the Tribunal. With regard to the decision of the Madras High Court in the case of Areva T & D India Ltd., (supra), the proposition laid down is that order of reassessment passed without considering objections of the assessee was a procedural irregularity and could not make reassessment nullity in law. In our view, the aforesaid proposition is directly contrary to the proposition laid down by the Bombay High Court in the decision relied upon by the learned counsel for the assessee. The view favourable to the assessee is therefore to be followed. Respectfully following the decision of the Bombay High Court, we hold that the order of reassessment in the present case has to be held & CO 81/Bang/2014 Shri K.G.Vijayakumar. Page 7 of 8 as a nullity for non-furnishing of the reasons recorded for initiating proceedings u/s.147 of the Act.”

The cross-objection filed by the assessee is against non- disposal by the CIT(A) of the assessee’s grounds of appeal against merits of the addition made by the AO. However, the very foundation for reopening of the assessment has been knocked down by the CIT(A) which has been upheld by us in para.5 above. Therefore, we see no reason to deal with the cross-objections of the assessee at this stage. In view of the same, the cross-objections of the assessee are dismissed with liberty to the assessee to re-agitate the same in case the reopening of the assessment is held to be valid in subsequent appellate proceedings.