2010 (7) TMI 1130 - AT - Income Tax

Tribunal sets aside jurisdiction assumption due to lack of timely reasons, emphasizes procedural compliance. Assessing officer directed to provide reasons promptly. Addition set aside, appeal allowed for statistical purposes.

The Tribunal set aside the matter concerning the assumption of jurisdiction under section 147 as the assessing officer failed to provide reasons for ... - ISSUES PRESENTED AND CONSIDERED 1. Whether the Assessing Officer validly assumed jurisdiction to reopen an assessment under section 147/issue notice under section 148 based on information from the Investigation Wing, when reasons for reopening were not supplied to the assessee before the assessment order was passed. 2. Whether the failure to furnish reasons for reopening before passing the reassessment order vitiates the reassessment proceedings and requires setting aside the reassessment for compliance with the duty to furnish reasons and to dispose of objections by a speaking order. 3. Consequential issue: Whether additions made in the reassessment (treatment of alleged gifts and bank deposits as unexplained) must be set aside where the jurisdictional issue (reopening) is remitted for fresh consideration and objections. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of assumption of jurisdiction under section 147/notice under section 148 Legal framework: Reopening of assessment requires satisfaction recorded by the AO on the basis of information indicating escapement of income; notice under section 148 must be issued on that basis. The procedural safeguards include furnishing reasons for reopening to the noticee and permitting objections, with the AO eventually disposing objections by a speaking order. Precedent treatment: The Supreme Court has held that upon issuance of a reopening notice the proper course for the noticee is to file the return and, if desired, seek reasons for issuing the notice; the AO is bound to furnish reasons within a reasonable time and must dispose of objections by a speaking order. Interpretation and reasoning: The Tribunal examined the departmental material showing that the Investigation Wing during search/survey indicated circulation of bogus loans/gifts/share capital and identified specific transactions (two gift cheques by a named third party). The AO recorded reasons and issued the section 148 notice on that specific information. The CIT(A) had upheld reopening on the view that specific information constituted prima facie material. The Tribunal noted, however, that although the AO had not furnished reasons prior to passing the reassessment order, the assessee sought a copy of reasons only after the assessment order was passed (request dated after order). The Tribunal balanced the AO's prima facie basis for reopening (specific investigative information) against the procedural requirement to furnish reasons and allow objections. Ratio vs. Obiter: Ratio - A reopening founded on specific information from investigation can constitute prima facie material to invoke section 147/148, but procedural requirements to furnish reasons and allow objections remain mandatory and affect the validity of the reassessment process. Obiter - Observations regarding the timing of the assessee's request for reasons and its effect on waiver are supportive context but not the dispositive legal principle. Conclusion: The Tribunal accepted that the AO had prima facie material to reopen the assessment but held that procedural non-compliance (non-supply of reasons prior to completion of reassessment) required remedial action: remittance for compliance with the requirement to furnish reasons and to permit and dispose of objections by a speaking order. Issue 2 - Consequence of failure to furnish reasons and failure to dispose objections by a speaking order Legal framework: Where a reopening notice is issued, the noticee may request reasons and file objections; the AO must furnish reasons within a reasonable time and dispose of objections by a speaking order. Non-observance of these duties can render reassessment proceedings vulnerable to being set aside or remitted for fresh consideration. Precedent treatment: The Tribunal relied on higher-court authority establishing the AO's obligation to furnish reasons and to deal with objections by a speaking order; the framework requires that reasons be provided and objections considered before finalizing reassessment so as to protect the noticee's right to be heard. Interpretation and reasoning: The Tribunal found as fact that the assessee requested reasons only after the reassessment order was passed. Nonetheless, recognizing the statutory/procedural duty and the protective function of furnishing reasons and considering objections, the Tribunal determined that fairness required setting aside the reassessment to allow the AO to furnish reasons and to decide objections by a speaking order. The Tribunal directed that on receipt of reasons the assessee shall be entitled to raise objections and that the AO must dispose of them by a speaking order. Ratio vs. Obiter: Ratio - Failure to furnish reasons and to provide an effective opportunity to object warrants remand of the matter to the AO to supply reasons and to decide objections by a speaking order; such remand is an appropriate remedy even where prima facie material exists for reopening. Obiter - The Tribunal's comment on the timing of the assessee's request (after order) is explanatory of the facts but not a legal license to bypass the furnishing-of-reasons mandate. Conclusion: The reassessment was set aside and remitted to the AO with specific directions: furnish the reasons for reopening, permit objections, and dispose of objections by a speaking order. The Tribunal thereby remedied procedural non-compliance while acknowledging the existence of prima facie material for reopening. Issue 3 - Treatment of additions made in reassessment and requirement for de novo consideration Legal framework: If reassessment is set aside on procedural grounds, consequential factual and substantive additions made in that reassessment cannot stand and must be reconsidered after compliance with procedural safeguards and opportunity to be heard. Precedent treatment: Administrative fairness principles require that material facts and documentary evidence be considered afresh once procedural defects in the reopening process are cured. Interpretation and reasoning: Because the Tribunal remitted the matter for the AO to furnish reasons and consider objections, it followed that any substantive findings and additions arising from the impugned reassessment could not be finalized in the absence of proper procedural compliance. The Tribunal therefore set aside the additions relating to gifts and bank deposits and directed that these issues be decided de novo after giving the assessee a reasonable opportunity to be heard. Ratio vs. Obiter: Ratio - Substantive additions made pursuant to a reassessment that is set aside for procedural infirmity must be reconsidered de novo after the AO complies with the duty to furnish reasons and disposes of objections. Obiter - Specific adjustments (numerical breakdown between gifts and deposits) are factual findings dependent on the remitted proceedings. Conclusion: The Tribunal set aside the additions confirmed by the appellate authority and directed the AO to re-decide the additions de novo after complying with directions on furnishing reasons and disposing of objections; the appeal was allowed for statistical purposes. Cross-reference and final operative direction Cross-reference: Issue 1 and Issue 2 are interlinked - while specific investigative information may justify reopening, non-compliance with the procedural obligation to furnish reasons and to dispose of objections requires remittance. Consequentially, Issue 3 follows from Issues 1-2: substantive additions cannot survive the remand. Operative conclusion: Matter remitted to the Assessing Officer with directions to (a) furnish reasons for reopening, (b) allow and consider objections by passing a speaking order, and (c) re-examine and decide the substantive additions de novo after giving the assessee a reasonable opportunity of hearing.