2015 (6) TMI 666 - AT - Income Tax

Tribunal invalidates reassessment for lack of reasons, emphasizes natural justice

The Tribunal found the reassessment proceedings invalid due to the Assessing Officer's failure to provide reasons for reopening the assessment, despite ... Reopening of assessment - non providing reasons for issuing notice - Held that:- Requirement of recording the reasons and communicating the same to the assessee, enabling the assessee to file objections and the requirement of passing a speaking order, are all designed to ensure that the Assessing Officer does not reopen the assessments which have been finalized on his mere whim and fancy, and that he does so only on the basis of lawful reasons and, a deviation from these directions would entail the nullifying of the proceedings Respectfully following the decision of Hon'ble Jurisdictional High Court in Haryana Acrylic Manufacturing Company (2008 (11) TMI 2 - DELHI HIGH COURT ), we decide the issue in favour of the assessee and hold that in view of the fact that the assessee was not given the copy of the reasons for issuing notice under Section 148 of the Act by the Assessing Officer inspite of a specific written request of the assessee for providing the same, the whole reassessment proceedings and the resultant order of assessment passed under Section 143(3)/148 of the Act have become vitiated entailing in nullifying proceedings and, accordingly, the orders of assessment under Section 143(3)/148 are quashed - Decided in favour of assessee. Issues Involved:1. Validity of reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961.2. Non-communication of reasons for reopening the assessment.3. Compliance with principles of natural justice.Detailed Analysis:1. Validity of Reassessment Proceedings Initiated Under Section 148:The central issue in these appeals was the validity of reassessment proceedings initiated by the issuance of notices under Section 148 of the Income Tax Act, 1961. The assessee contended that the reassessment proceedings were invalid as the Assessing Officer (AO) did not provide the recorded reasons for reopening the assessment, despite specific requests. The Tribunal had previously remanded the issue to the AO for reconsideration in light of the Supreme Court's decision in GKN Driveshafts (India) Ltd. Vs. ITO & Others, which mandates that reasons for reopening must be furnished to the assessee.2. Non-communication of Reasons for Reopening the Assessment:The assessee argued that the AO failed to supply the reasons for reopening the assessment, which is a prerequisite for valid reassessment proceedings. The Tribunal noted that the assessee had made a specific request for these reasons, which was ignored by the AO. The CIT(A) acknowledged that the reasons were not formally communicated to the assessee. Relying on the Supreme Court's decision in GKN Driveshafts and the Delhi High Court's ruling in Haryana Acrylic Manufacturing Company Vs. CIT, the Tribunal held that non-communication of reasons vitiates the reassessment proceedings. The Tribunal emphasized that the requirement to record and communicate reasons is designed to prevent arbitrary reopening of assessments.3. Compliance with Principles of Natural Justice:The assessee also contended that the reassessment orders violated the principles of natural justice as they were passed without providing an opportunity to contest the reasons for reopening. The Tribunal agreed, citing the necessity for the AO to furnish reasons and allow the assessee to file objections. The Tribunal found that the failure to communicate the reasons deprived the assessee of the opportunity to contest the reassessment, thus violating natural justice principles.Conclusion:The Tribunal concluded that the reassessment proceedings were invalid due to the AO's failure to provide the recorded reasons for reopening the assessment, despite the assessee's specific requests. This failure rendered the entire reassessment process and the resultant assessment orders void. Consequently, the Tribunal quashed the reassessment orders for the assessment years 1999-2000 to 2004-05, allowing the appeals in favor of the assessee. The Tribunal did not adjudicate other grounds of appeal on merits, as the reassessment proceedings themselves were found to be invalid.Decision:All appeals of the assessee were allowed, and the reassessment orders under Section 143(3)/148 were quashed. The decision was pronounced in the open Court on 10th June, 2015.