2007 (7) TMI 92 - HC - Income Tax

Court sets aside assessment rejection based on Volcker Committee Report & 'kick back' payments, remands for further consideration.

The court partially allowed the petition, setting aside the rejection order for reopening assessment based on the Volcker Committee Report and 'kick back' ... Notice under section 148 of the Income-tax Act - reasons to believe - reopening of assessment - Volcker Committee Report and Central Board of Direct Taxes office memorandum as government record - duty to furnish reasons and to dispose objections by passing a speaking orderVolcker Committee Report and Central Board of Direct Taxes office memorandum as government record - reasons to believe - notice under section 148 of the Income-tax Act - Existence of prima facie reasons to issue notice under section 148 for assessment year 2000-01 - HELD THAT: - The court noted that the Volcker Committee Report was published after the original assessment and that the Central Board of Direct Taxes issued an office memorandum dated November 18, 2005, directing inquiries in respect of entities named in the Report. The petitioners' name appeared in the list contained in the Report and the office memorandum. Having regard to those developments post-dating the assessment, the authorities possessed material which could constitute reasons to believe that income chargeable to tax had escaped assessment and thereby gave jurisdiction to issue a notice under section 148. Nevertheless, the court observed that the statutory scheme contemplates procedural safeguards for the noticee to seek and receive reasons and to file objections which must be disposed of by a speaking order. [Paras 9, 11]The court held that material in the Volcker Report and the CBDT office memorandum provided prima facie foundation for forming reasons to believe and did not, by itself, justify interference with issuance of the notice at this stage.Duty to furnish reasons and to dispose objections by passing a speaking order - reopening of assessment - notice under section 148 of the Income-tax Act - Validity of the communication rejecting objections dated June 7, 2007 and the procedure to be followed on remand - HELD THAT: - Applying the procedure laid down by the Supreme Court in GKN Driveshafts (India) Ltd., the court held that when a notice under section 148 is issued the assessee is entitled to be furnished reasons and to file objections; the Assessing Officer must dispose of those objections by a speaking order before proceeding with reassessment. On the facts, the impugned communication rejecting the objections was set aside because the proper procedural course had not been followed. The matter was remanded to respondent No. 1 to permit the petitioners to file additional objections, if legally permissible, and to dispose of all objections in conformity with the requirements of law and the guidance in GKN Driveshafts. [Paras 12, 14, 15]Impugned communication dated June 7, 2007 is quashed; the matter is remanded for fresh disposal of objections in accordance with the procedure mandated in GKN Driveshafts (India) Ltd.Final Conclusion: The petition is partly allowed: the rejection of objections dated June 7, 2007 is set aside and the matter remanded to respondent No. 1 to afford the petitioners an opportunity to file objections (including additional objections, if permissible) and to dispose of those objections by a speaking order in conformity with the Supreme Court's decision in GKN Driveshafts (India) Ltd.; the remand exercise to be completed within eight weeks and any adverse order on remand shall not be acted upon for eight weeks from its date. Issues: Rejection of objections for reopening assessment based on Volcker Committee Report and 'kick back' payments.Analysis:The petitioners were aggrieved by the communication rejecting their objections for reopening the assessment based on the Volcker Committee Report regarding 'kick back' payments. The Assistant Commissioner of Income-tax issued a notice under section 148 of the Income-tax Act, stating that income had escaped assessment due to commission payments representing 'kick back.' The petitioners contended that the reasons for reopening were baseless, and they had not made any 'kick back' payments. However, the respondents argued that the petitioners' involvement in the Volcker Committee Report justified the reassessment. The Central Board of Direct Taxes had issued directions to investigate entities mentioned in the report, including the petitioners. The court had to determine if there were prima facie reasons to believe that justified reopening the assessment.The court considered the judgment in GKN Driveshafts (India) Ltd. v. ITO and emphasized that the basis for issuing a notice under section 148 of the Act was 'reasons to believe.' Despite the petitioners' arguments that there were no valid reasons, the court found that the petitioners could present their case before the authorities, which would be an adequate remedy. Referring to the Supreme Court's guidance, the court highlighted the procedure for dealing with objections to a notice under section 148. The court decided that the impugned communication rejecting objections should be quashed, and the matter remanded to allow the petitioners to file additional objections if permissible, following the due process of law as outlined in the GKN Driveshafts case.In conclusion, the court partially allowed the petition, setting aside the rejection order and remanding the matter for further consideration in line with the Supreme Court's directives. The court directed the authorities to complete the process within eight weeks and instructed that any adverse order on remand should not be enforced for eight weeks. The rule was made absolute, and no costs were awarded in the circumstances.