2014 (7) TMI 346 - HC - Income Tax

Court rules in favor of petitioner due to assessing officer's procedural error, quashing re-assessment. Respondent directed to address objections.

The Court found in favor of the petitioner, ruling that the assessing officer's failure to address objections through a speaking order before proceeding ... Notice for reopening of assessment u/s 148 of the Act – Speaking order - Held that:- The decision in GKN Driveshafts (India) Ltd. Versus Income-Tax Officer And Others [2002 (11) TMI 7 - SUPREME Court] followed - it is incumbent upon the assessing officer to controvert the plea against the reasons recorded to provide an opportunity at the threshold may have effect to terminate many proceedings at primary stage. The assessee is entitled to the reasons on which the proceedings of reopening or of reassessment are initiated - No assessee is required to undergo the cumbersome proceedings of process of reopening, unless the assumption of jurisdiction in respect of the same is based on valid legal base - the preliminary objections raised against the notice and also in relation to the reasons recorded must be considered and all objections raised by the assessee by speaking order needs to be disposed of - the AO instead continued with the reassessment proceedings by issuing notice u/s 142(1) and when his attention was drawn to the fact that objections have not been disposed of, he observed by communication dated 6.11.2006 that such objections would be disposed of at the time of framing the reassessment - CIT(Appeals) for the assessment year 2002-03 on the very issue recorded in the reasons of reopening and concluded in favour of the petitioner assessee on 9.5.2006 - For completion of reassessment u/s 147 in respect of the AY 1999- 2000, the last date was 31.12.2006. The stage of considering the objections and disposing of the same in wake of not only the averments made in the objections raised but also based on surrounding circumstances of facts and law was given a go by completely – revenue was needed to pass a speaking order, which not only is obligatory but that would have saved enormous time and resources as the appellate authority decided the very issue under reopening in favour of the assessee – thus, assessment made pursuant to the proceedings under section 148 set aside - matter remanded back – Decided in favour of assessee. Issues Involved:1. Legality of notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment.2. Non-supply of reasons for reopening to the petitioner.3. Failure to dispose of objections by a speaking order before proceeding with reassessment.4. Compliance with judicial precedents and procedural requirements.Issue-wise Detailed Analysis:1. Legality of Notice Issued Under Section 148:The petitioner challenged the notice of reopening issued under Section 148 of the Income Tax Act, 1961 for the assessment year 1999-2000. The notice was issued on 28.09.2005, and the petitioner contended that the issuance of such notice was not justified. The Court examined the reasons provided for reopening, which centered around the claim of 100% depreciation on meters and capacitors, which the department argued should only be 25%.2. Non-supply of Reasons for Reopening:After the issuance of the notice, the petitioner requested the reasons for reopening on 30.09.2005. The reasons were not furnished initially, despite the petitioner referring to the Supreme Court decision in GKN Driveshafts (India) Ltd. vs. Income-tax Officer. The reasons were eventually provided on 06.10.2005, stating that the claim of 100% depreciation on meters and capacitors was not acceptable as they were not considered energy-saving devices under the relevant rules.3. Failure to Dispose of Objections by a Speaking Order:The petitioner raised objections on 06.12.2005, challenging the proceedings on both jurisdictional and merit grounds. However, without addressing these objections, the assessing officer issued a show cause notice under Section 142(1) on 07.11.2006. The petitioner argued that this action was in complete disregard of the Supreme Court's directive in GKN Driveshafts (India) Ltd. vs. Income-tax Officer, which mandates that objections must be disposed of by a speaking order before proceeding with reassessment.4. Compliance with Judicial Precedents and Procedural Requirements:The Court emphasized the importance of following judicial precedents, particularly the Supreme Court's decision in GKN Driveshafts (India) Ltd. vs. Income-tax Officer, which requires that reasons for reopening must be provided, and objections must be disposed of by a speaking order. The Court noted that the assessing officer failed to comply with this requirement, leading to the reassessment proceedings being conducted without addressing the petitioner's objections. The Court also referred to other relevant cases such as Arvind Mills Ltd. vs. Assistant Commissioner of Wealth Tax and Garden Finance Ltd. vs. Assistant Commissioner of Income-tax, which further reinforced the need for a speaking order.Conclusion:The Court found that the assessing officer's failure to dispose of the objections by a speaking order was a significant procedural lapse. The reassessment proceedings were conducted in violation of the established legal principles, leading to the quashing of the impugned assessment made pursuant to the notice issued under Section 148. The respondent was directed to consider the objections raised by the petitioner and dispose of them within eight weeks in accordance with the settled law and the decision of the appellate authority in the petitioner's case. The respondent was also ordered to pay the costs to the petitioner.