Non-furnishing reasons for reopening vitiated the assessment proceedings in law. If assessee did not repeat request cannot mean that he waived its right to be provided the reasons – High Court
ABCAUS Case Law Citation:
ABCAUS 2054 (2017) (08) HC
The Grievance:
Six appeals had been filed under Section 260A of the Income Tax Act, 1961 (‘Act’) by the Revenue against the common order passed by the Income Tax Appellate Tribunal (‘ITAT’) declaring the reassessment proceedings bad in Law for the failure to supply the reasons under Section 148 of the Act.
The Substantial Question of Law framed for determination:
In the facts and circumstances of the case, the ITAT could have held that since the Assessee was not given the copy of the reasons for issuing notice under Section 148 of the Act by the Assessing Officer, the whole assessment proceedings and the resultant order of assessment passed under Section 143 (3) read with 148 of the Act have become vitiated?
Assessment Year : 1999-00 to 2004-05
Important Case Laws Cited/relied upon by the parties:
GKN Driveshafts (India) Limited v. ITO [2003] 259 ITR 19 (SC)
Haryana Acrylic Manufacturing Company v. The Commissioner of Income Tax IV [2009] 308 ITR 38 (Del)
CIT v. Fomento Resorts and Hotels Limited
Brief Facts of the Case:
For all the six AYs in question, no return of income was filed by the assessee under Section 139 (1) of the Act, although the assessee was a registered tax payer and had been filing its returns of income in earlier years.
On the basis of the information received from the said banks, it was discovered that the assessee had received rent after deduction of tax at source. Assessing Officer (‘AO’) after recording reasons for reopening of the assessment in the file, issued notice to the Assessee under Section 148 of the Act asking it to file the return of income.
The assessee by a letter addressed to the AO sought supply of the reasons for reopening of the assessment under Section 148 of the Act. However, for none of the AYs were reasons for reopening furnished by the AO to the Assessee.
Since the assessment was getting time barred, the AO passed separate reassessment orders in respect of each of the AYs, making additions of the income from house property.
Aggrieved by the assessment orders, the Assessee filed separate appeals before the Commissioner of Income Tax (Appeals) [‘CIT (A)’]. In the appeals, one of the principal contentions raised by the Assessee was regarding failure of the AO to supply the Assessee reasons for reopening of the assessment.
The case of the Assessee was that the AO had ignored the Assessee’s request for being provided with the copy of the reasons. In terms of the judgment of the Supreme Court the entire reassessment proceedings stood vitiated on that score.
The CIT (A), dismissed the appeals. The CIT (A) noted that the Assessee had made a request for being furnished reasons for reopening the case under Section 148 after almost a year after the first notice was issued and did not bother to follow up this request thereafter.
The CIT (A) held that since sufficient opportunity had been vitiated by the Assessee before the AO, the failure to furnish the reasons to reopen could not be said to be fatal to the assessment proceedings. It was not as if the Assessee was unaware of the reasons for reopening the assessment.
The CIT(A) also distinguished the decision of the Supreme Court and held that the mere non-furnishing of reasons for reopening the assessment would not result in entire reassessment proceedings being invalidated. He further held that the Assessee had, despite having taxable income, failed to file returns as statutorily mandated under Section 139 (1) of the Act. The reasons for the notice under Section 148 of the Act was always in the knowledge of the Assessee. The lapse in not providing the reasons was ‘procedural’ and would not render the entire reassessment proceedings invalid.
The matter travelled to ITAT which held that the failure to supply the reasons under Section 148 of the Act despite requests had vitiated the entire reassessment proceedings.
Observations made by the High Court:
The The Hon’ble High Court observed that the Supreme Court had highlighted the procedure that ought to be followed when the assessment is proposed to be reopened under Section 148 of the Act. It explained that
“the proper course of action for the notice 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 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.
The The Hon’ble High Court further observed that the failure by the AO to provide the Assessee the reasons for reopening the assessment could not be treated as a mere procedural lapse. It would not in all cases be open to the Revenue to simply seek to overcome this lapse by offering that the AO will consider the Assessee’s objections and pass a fresh reasoned order thereon. This will depend on the facts and circumstances of each case. If the lapse is discovered within a short time and the offer to rectify the apse is made soon thereafter, no prejudice could be said to be caused either to the Assessee or the Revenue. Where, however, the Revenue contests the position at every stage and offers to consider the objections several years after it should have in the first place, the request to start the proceedings de novo may neither be fair nor efficacious.
It was observed that there was a clear violation of the procedure laid down by the Supreme Court. Also the Delhi High Court itself reiterated that the it is mandatory for the AO to supply reasons for reopening the assessment and this has to be done within a reasonable time.
The The Hon’ble High Court further opined that merely because the Assessee did not repeat the request cannot mean that the Assessee waived its right to be provided the reasons. The proviso to Section 292 BB (1) of the Act makes it clear that there is no estoppel against an Assessee on account of participating in the proceedings as long as it has raised an objection in writing regarding the failure by the AO to follow the prescribed procedure.
The The Hon’ble High Court further observed that comparison could not be drawn with a situation where in the course of the assessment proceedings an opportunity to examine a witness is denied. In such a situation the Supreme Court had held that if there was a failure by the AO to provide the Assessee an opportunity of cross-examination of a witness, the Assessee could have gone in appeal. In that case it was found that “the Assessee had failed to avail statutory remedy.” Whereas in the instant case there was no failure by the Assessee to raise objections at every stage of proceedings.
The The Hon’ble High Court observed that the Bombay High Court had observed that the State was expected to act more responsibly and the Revenue could not justify non-furnishing of reasons on the plea that the assessee had asked for reasons recorded only once.
Held:
ITAT was right in coming to the conclusion that on account of failure by the AO to furnish reasons for reopening of the assessment under Section 148 of the Act to the Assessee, the reassessment proceedings stood vitiated in law.
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