Non disposal of reopening objection not make order void or non est. It is only procedure irregularity curable by remitting. High Court explains law on non-disposal of objections.
The question involved in the presnt case was whether the assessment order passed by the Assessing Officer (ITO/AO) u/s 143(3) of Income Tax Act, 1961 (the Act) invoking Section 147 was bad in law and void ab initio on account of the failure to dispose off objections to the reopening as per law laud down by the Hon’ble Supreme Court to the effect that on receipt of objection given by the assessee, to the notice under Section 148, the AO is bound to dispose of the objections by passing a speaking order.
ABCAUS Case Law Citation:
ABCAUS 2312 (2018) (04) HC
Important Case Laws Cited/relied upon by the parties:
Sona Builders v. Union of India (2001 (10) SCC 280)
Mrs.Jayanthi Natarajan vs. Assistant Commissioner of Income Tax
Non disposal of reopening objection not make order void
The appellant assessee company had filed this inter court appeal against the order passed by the Single Judge of the High Court.
The appellant had filed its return of income for the relevant assessment year declaring ‘nil’ income. However, the AO was of the view that the income chargeable to tax had escaped assessment for the said assessment year. The AO invoked section 147 of the Act and issued notice u/s 148 of the Act to the assessee. The reasons for invoking Section 147 were supplied to the appellant on its request. The appellant on receipt of reasons, submitted objections to the reopening.
The AO however, without giving disposal to the objections, proceeded to hear the matter and ultimately passed the assessment order.
The appellant challenged the assessment order filing a writ petition on the ground that by not passing a specific order after receiving objections and before the Assessment order, the AO had violated the law declared by the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd and resultantly, the reassessment order passed was bad.
The single Judge found that the AO had failed to follow the procedure indicated by the Supreme Court, set aside the order and directed the AO to consider the matter afresh, after giving disposal to the objections. The Judge overruled the objections raised by the appellant on the ground of limitation.
Aggrieved, the assessee filed this inter court appeal which was heard by the Division Bench of the High Court.
It was contended that the law laid down by the Supreme Court contain the mandatory procedure to be followed by the AO while invoking Section 147 of the Act. Since the Supreme Court judgment is the law of the land, violation of it would result in quashing the assessment order. It was submitted that the violation of a mandatory procedure cannot be cured by remitting the matter. In short, it was the contention that non compliance of a prescribed procedure would nullify the order and the irregularity cannot be cured later.
According to the appellant, since the Assessment Order was passed just one day prior to the expiry of the period of limitation, it was not be possible to pass a fresh assessment order after the disposal of the objections.
The Division Bench observed that though there is no statutory requirement to deal with the objections given by the assessee after receiving reasons for initiating proceedings under Section 147 of the, there is a judgment of the Hon’ble Supreme Court in the case of GKN Driveshafts mandating such disposal of objections before passing the assessment order
The High Court opined that the Supreme Court made it clear that 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 a speaking order. The judgment is very clear that before proceeding with the assessment proceedings, the Assessing Officer has to pass a speaking order. Therefore, the Assessing Officer is bound to pass an order and thereafter only further proceedings could be taken for passing the assessment order. It would not suffice by giving reasons to the objections in the assessment order.
The High Court further observed that when the AO issued notice of enquiry to the appellant after the appellant had given objections, the appellant at no point of time cited the attention of the AO that he has to pass a speaking order, giving disposal to the objections, before passing the assessment order.
The High Court opined that Trhe appellant though resisted the fresh assessment proceedings, nowhere pointed out the procedure laid down by the Hon’ble Apex Court presumably to take advantage of the irregularity committed by the Assessing Officer by not following the law laid down by the Supreme Court.
The High Court opined that the right given to an assessee to ascertain the views of the AO taking into account the objections can be waived by the assessee expressly or by implication. The appellant knowing fully well that there was no disposal to the objections, submitted to the jurisdiction of the Assessing Officer. It was only when the assessment order was passed, the appellant came up with a contention that the mandatory procedure was not complied with by the Assessing Officer.
It was observed that the Single Judge in his order indicated that the AO has committed a procedural irregularity and therefore remitted the matter back to him.
The High Court opined that the forming of opinion to proceed further by disposal of the objections need not be a detailed consideration of all the facts and law applicable. It must show application of mind to the objections raised by the noticee. In case the objections are such that it would require a detailed examination of facts and application of legal provisions, taking into account the assessment order sought to be reopened, the string of violations, suppression of material particulars and transactions which would require considerable time and would be in the nature of a detailed adjudicatory process, the Assessing Officer can dispose of the objections, by giving his tentative reasons for overruling the objections.
The High Court explained that the disposal of objections is in the value of a procedural requirement to appraise the assessee of the actual grounds which made the Assessing Officer to arrive at a prima facie satisfaction that there was escape of assessment warranting reopening the assessment proceedings. The disposal of such objection must be before the date of hearing and passing a fresh order of assessment. In case, on a consideration of the objections submitted by the assessee, the Assessing Officer is of the view that there is no ground made out to proceed, he can pass an order to wind up the proceedings. It is only when a decision was taken to overrule the objections, and to proceed further with the reassessment process, the Assessing Officer is obliged to give disposal to the statement of objections submitted by the assessee.
The Division Bench expressed its dissent with the judgment relied upon by the appellant assessee in which the single judge had quashed the assessment order without remitting the matter to the Assessing Officer for compliance of the procedure regarding disposal of objection.
The Division Bench opined that in case an order is passed without following a prescribed procedure, the entire proceedings would not be vitiated. It would still be possible for the authority to proceed further after complying with the particular procedure.
Accordingly the Division Bench held that non compliance of the procedure laud down by the Hon’ble Supreme Court would not make the order void or non est. Such a violation in the matter of procedure is only an irregularity which could be cured by remitting the matter to the authority.
Regarding the question of limitation the Bench opined that the question of limitation is not a pure question of law. Since for deciding the question of limitation, it is also necessary to analyze the facts, it would not be proper and correct to decide the said question when the matter is remitted for fresh consideration. It is for the AO to decide the said question by giving reasons.
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Note: The SLP filed by the assessee against the judgment of the High Court had been dismissed by the Supreme Court
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